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 SEPTEMBER 30, 2011
OR

¨	  	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934	 		
FOR THE TRANSITION PERIOD FROM                      TO                     
Commission File Number: 1-4364

RYDER SYSTEM, INC.
(Exact name of registrant as specified in its charter)

Florida	 	59-0739250	
(State or other jurisdiction of incorporation or organization)	 	(I.R.S. Employer Identification No.)	
		
11690 N.W. 105th Street	 		
Miami, Florida 33178	 	(305) 500-3726	
(Address of principal executive offices, including zip code)	 	(Registrant’s telephone number, including area code)	
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ         NO ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate 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 ¨
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 ¨	 	Non-accelerated filer ¨	 	Smaller reporting company  ¨	
	 	(Do not check if a smaller reporting company)	 		
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)  ¨ YES         þ NO
The number of shares of Ryder System, Inc. Common Stock ($0.50 par value per share) outstanding at September 30, 2011 was 51,125,400.

 

Table of Contents
 RYDER SYSTEM, INC.
FORM 10-Q QUARTERLY REPORT
TABLE OF CONTENTS

 	 	 	  	  Page No.  	
		
PART I       FINANCIAL INFORMATION	  		
		
ITEM 1       Financial Statements (unaudited)	  		
			
	 	Consolidated Condensed Statements of Earnings — Three and nine months ended September 30, 2011 and 2010	  	  1	
			
	 	Consolidated Condensed Balance Sheets — September 30, 2011 and December 31, 2010	  	  2	
			
	 	Consolidated Condensed Statements of Cash Flows — Nine months ended September 30, 2011 and 2010	  	  3	
			
	 	Consolidated Condensed Statement of Shareholders’ Equity — Nine months ended September 30, 2011	  	  4	
			
	 	Notes to Consolidated Condensed Financial Statements	  	  5	
		
ITEM 2        Management’s Discussion and Analysis of Financial Condition and Results of Operations	  	24	
		
ITEM 3        Quantitative and Qualitative Disclosures About Market Risk	  	45	
		
ITEM 4       Controls and Procedures	  	45	
		
PART II       OTHER INFORMATION	  		
		
ITEM 2        Unregistered Sales of Equity Securities and Use of Proceeds	  	45	
		
ITEM 6       Exhibits	  	46	
			
	 	SIGNATURES	  	47	
 
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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 September 30,	 	 	Nine months ended September 30,	 	
 	  	2011	 	 	2010	 	 	2011	 	 	2010	 	
 	  	(In thousands, except per share amounts)	 	
					
Revenue	  	$	1,570,720	  	 	 	1,316,948	  	 	$	4,509,440	  	 	 	3,823,009	  	

Operating expense (exclusive of items shown separately)	  	 	758,718	  	 	 	624,495	  	 	 	2,191,607	  	 	 	1,813,603	  	
Salaries and employee-related costs	  	 	383,932	  	 	 	314,706	  	 	 	1,119,694	  	 	 	929,659	  	
Subcontracted transportation	  	 	88,728	  	 	 	67,049	  	 	 	255,003	  	 	 	191,972	  	
Depreciation expense	  	 	224,466	  	 	 	209,929	  	 	 	645,261	  	 	 	627,695	  	
Gains on vehicle sales, net	  	 	(18,270	) 	 	 	(6,904	) 	 	 	(46,277	) 	 	 	(18,009	) 	
Equipment rental	  	 	14,468	  	 	 	16,463	  	 	 	43,430	  	 	 	49,532	  	
Interest expense	  	 	32,745	  	 	 	31,897	  	 	 	100,138	  	 	 	96,385	  	
Miscellaneous income, net	  	 	(1,722	) 	 	 	(2,685	) 	 	 	(6,459	) 	 	 	(4,525	) 	
Restructuring and other charges, net	  	 	—	  	 	 	—	  	 	 	768	  	 	 	—	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
	  	 	1,483,065	  	 	 	1,254,950	  	 	 	4,303,165	  	 	 	3,686,312	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings from continuing operations before income taxes	  	 	87,655	  	 	 	61,998	  	 	 	206,275	  	 	 	136,697	  	
Provision for income taxes	  	 	30,722	  	 	 	22,324	  	 	 	82,571	  	 	 	53,551	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings from continuing operations	  	 	56,933	  	 	 	39,674	  	 	 	123,704	  	 	 	83,146	  	
Loss from discontinued operations, net of tax	  	 	(409	) 	 	 	(839	) 	 	 	(2,022	) 	 	 	(2,097	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net earnings	  	$	56,524	  	 	 	38,835	  	 	$	121,682	  	 	 	81,049	  	

Earnings (loss) per common share — Basic	  				 				 				 				
Continuing operations	  	$	1.11	  	 	 	0.76	  	 	$	2.41	  	 	 	1.58	  	
Discontinued operations	  	 	(0.01	) 	 	 	(0.02	) 	 	 	(0.04	) 	 	 	(0.04	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net earnings	  	$	1.10	  	 	 	0.74	  	 	$	2.37	  	 	 	1.54	  	

Earnings (loss) per common share — Diluted	  				 				 				 				
Continuing operations	  	$	1.10	  	 	 	0.76	  	 	$	2.39	  	 	 	1.57	  	
Discontinued operations	  	 	—	  	 	 	(0.02	) 	 	 	(0.04	) 	 	 	(0.04	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net earnings	  	$	1.10	  	 	 	0.74	  	 	$	2.35	  	 	 	1.53	  	

Cash dividends declared and paid per common share	  	$	0.29	  	 	 	0.27	  	 	$	0.83	  	 	 	0.77	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
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)

 	  	September 30,
2011	 	 	December 31,
2010	 	
 	  	(Dollars in thousands, except per
share amount)	 	
Assets:	  				 				
Current assets:	  				 				
Cash and cash equivalents	  	$	115,786	  	 	 	213,053	  	
Receivables, net	  	 	758,693	  	 	 	615,003	  	
Inventories	  	 	64,462	  	 	 	58,701	  	
Prepaid expenses and other current assets	  	 	159,465	  	 	 	136,544	  	
	  	 	 	 	 	 	 	 	
Total current assets	  	 	1,098,406	  	 	 	1,023,301	  	
Revenue earning equipment, net of accumulated depreciation of $3,387,027 and $3,247,400, respectively	  	 	4,827,916	  	 	 	4,201,218	  	
Operating property and equipment, net of accumulated depreciation of $903,984 and $880,757, respectively	  	 	627,344	  	 	 	606,843	  	
Goodwill	  	 	379,239	  	 	 	355,842	  	
Intangible assets	  	 	86,021	  	 	 	72,269	  	
Direct financing leases and other assets	  	 	426,849	  	 	 	392,901	  	
	  	 	 	 	 	 	 	 	
Total assets	  	$	7,445,775	  	 	 	6,652,374	  	

Liabilities and shareholders’ equity:	  				 				
Current liabilities:	  				 				
Short-term debt and current portion of long-term debt	  	$	255,359	  	 	 	420,124	  	
Accounts payable	  	 	408,460	  	 	 	294,380	  	
Accrued expenses and other current liabilities	  	 	499,080	  	 	 	417,015	  	
	  	 	 	 	 	 	 	 	
Total current liabilities	  	 	1,162,899	  	 	 	1,131,519	  	
Long-term debt	  	 	2,943,235	  	 	 	2,326,878	  	
Other non-current liabilities	  	 	697,401	  	 	 	680,808	  	
Deferred income taxes	  	 	1,190,812	  	 	 	1,108,856	  	
	  	 	 	 	 	 	 	 	
Total liabilities	  	 	5,994,347	  	 	 	5,248,061	  	

Shareholders’ equity:	  				 				
Preferred stock of no par value per share — authorized, 3,800,917; none outstanding, September 30, 2011 or December 31, 2010	  	 	—	  	 	 	—	  	
Common stock of $0.50 par value per share — authorized, 400,000,000; outstanding, September 30, 2011 — 51,125,400; December 31, 2010 — 51,174,757	  	 	25,563	  	 	 	25,587	  	
Additional paid-in capital	  	 	760,302	  	 	 	735,540	  	
Retained earnings	  	 	1,062,460	  	 	 	1,019,785	  	
Accumulated other comprehensive loss	  	 	(396,897	) 	 	 	(376,599	) 	
	  	 	 	 	 	 	 	 	
Total shareholders’ equity	  	 	1,451,428	  	 	 	1,404,313	  	
	  	 	 	 	 	 	 	 	
Total liabilities and shareholders’ equity	  	$	7,445,775	  	 	 	6,652,374	  	
	  	 	 	 	 	 	 	 	
See accompanying notes to consolidated condensed financial statements.
 
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Table of Contents
 RYDER SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)

 	  	Nine months ended September 30,	 	
 	  	2011	 	 	2010	 	
 	  	(In thousands)	 	
Cash flows from operating activities from continuing operations:	  				 				
Net earnings	  	$	121,682	  	 	 	81,049	  	
Less: Loss from discontinued operations, net of tax	  	 	(2,022	) 	 	 	(2,097	) 	
	  	 	 	 	 	 	 	 	
Earnings from continuing operations	  	 	123,704	  	 	 	83,146	  	
Depreciation expense	  	 	645,261	  	 	 	627,695	  	
Gains on vehicle sales, net	  	 	(46,277	) 	 	 	(18,009	) 	
Share-based compensation expense	  	 	12,637	  	 	 	12,203	  	
Amortization expense and other non-cash charges, net	  	 	27,971	  	 	 	27,564	  	
Deferred income tax expense	  	 	68,154	  	 	 	21,568	  	
Changes in operating assets and liabilities, net of acquisitions:	  				 				
Receivables	  	 	(104,520	) 	 	 	(29,367	) 	
Inventories	  	 	(4,869	) 	 	 	(3,132	) 	
Prepaid expenses and other assets	  	 	(18,725	) 	 	 	(517	) 	
Accounts payable	  	 	20,287	  	 	 	9,334	  	
Accrued expenses and other non-current liabilities	  	 	58,680	  	 	 	73,677	  	
	  	 	 	 	 	 	 	 	
Net cash provided by operating activities from continuing operations	  	 	782,303	  	 	 	804,162	  	

Cash flows from financing activities from continuing operations:	  				 				
Net change in commercial paper borrowings	  	 	(101,964	) 	 	 	(48,000	) 	
Debt proceeds	  	 	966,399	  	 	 	314,511	  	
Debt repaid, including capital lease obligations	  	 	(417,955	) 	 	 	(239,560	) 	
Dividends on common stock	  	 	(42,689	) 	 	 	(40,603	) 	
Common stock issued	  	 	26,213	  	 	 	11,124	  	
Common stock repurchased	  	 	(51,425	) 	 	 	(91,926	) 	
Excess tax benefits from share-based compensation	  	 	1,575	  	 	 	641	  	
Debt issuance costs	  	 	(8,016	) 	 	 	(2,195	) 	
	  	 	 	 	 	 	 	 	
Net cash provided by (used in) financing activities from continuing operations	  	 	372,138	  	 	 	(96,008	) 	

Cash flows from investing activities from continuing operations:	  				 				
Purchases of property and revenue earning equipment	  	 	(1,165,135	) 	 	 	(860,902	) 	
Sales of revenue earning equipment	  	 	216,055	  	 	 	159,012	  	
Sales of operating property and equipment	  	 	7,869	  	 	 	2,821	  	
Acquisitions	  	 	(362,184	) 	 	 	(6,789	) 	
Collections on direct finance leases	  	 	46,136	  	 	 	45,941	  	
Changes in restricted cash	  	 	2,821	  	 	 	(6,430	) 	
Other, net	  	 	—	  	 	 	1,950	  	
	  	 	 	 	 	 	 	 	
Net cash used in investing activities from continuing operations	  	 	(1,254,438	) 	 	 	(664,397	) 	

Effect of exchange rate changes on cash	  	 	3,848	  	 	 	6	  	
	  	 	 	 	 	 	 	 	
(Decrease) increase in cash and cash equivalents from continuing operations	  	 	(96,149	) 	 	 	43,763	  	

Cash flows from discontinued operations:	  				 				
Operating cash flows	  	 	(910	) 	 	 	(6,010	) 	
Financing cash flows	  	 	(143	) 	 	 	(2,941	) 	
Investing cash flows	  	 	—	  	 	 	1,624	  	
Effect of exchange rate changes on cash	  	 	(65	) 	 	 	(265	) 	
	  	 	 	 	 	 	 	 	
Decrease in cash and cash equivalents from discontinued operations	  	 	(1,118	) 	 	 	(7,592	) 	

(Decrease) increase in cash and cash equivalents	  	 	(97,267	) 	 	 	36,171	  	
Cash and cash equivalents at January 1	  	 	213,053	  	 	 	98,525	  	
	  	 	 	 	 	 	 	 	
Cash and cash equivalents at September 30	  	$	115,786	  	 	 	134,696	  	
	  	 	 	 	 	 	 	 	
See accompanying notes to consolidated condensed financial statements.
 
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Table of Contents
 RYDER SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF SHAREHOLDERS’ EQUITY
(unaudited)

 	  	Preferred
Stock	 	  	 
 
Common Stock	 	 	Additional
Paid-In
Capital	 	 	Retained
Earnings	 	 	Accumulated
Other
Comprehensive
Loss	 	 	Total	 	
 	  	Amount	 	  	Shares	 	 	Par	 	 			 			 			 			
 	  	(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	  	 	—	  	  	 	—	  	 	 	—	  	 	 	—	  	 	 	121,682	  	 	 	—	  	 	 	121,682	  	
Foreign currency translation adjustments	  	 	—	  	  	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	(27,428	) 	 	 	(27,428	) 	
Amortization of pension and postretirement items, net of tax	  	 	—	  	  	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	8,650	  	 	 	8,650	  	
Change in net actuarial loss, net of tax	  	 	—	  	  	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	(1,520	) 	 	 	(1,520	) 	
	  				  				 				 				 				 				 	 	 	 	
Total comprehensive income	  				  				 				 				 				 				 	 	101,384	  	
Common stock dividends declared and paid — $0.83 per share	  	 	—	  	  	 	—	  	 	 	—	  	 	 	—	  	 	 	(42,689	) 	 	 	—	  	 	 	(42,689	) 	
Common stock issued under employee stock option and stock purchase plans  ( 1 )	  	 	—	  	  	 	986,690	  	 	 	493	  	 	 	26,318	  	 	 	—	  	 	 	—	  	 	 	26,811	  	
Benefit plan stock purchases ( 2 )	  	 	—	  	  	 	(13,076	) 	 	 	(7	) 	 	 	(591	) 	 	 	—	  	 	 	—	  	 	 	(598	) 	
Common stock repurchases	  	 	—	  	  	 	(1,022,971	) 	 	 	(510	) 	 	 	(14,597	) 	 	 	(36,318	) 	 	 	—	  	 	 	(51,425	) 	
Share-based compensation	  	 	—	  	  	 	—	  	 	 	—	  	 	 	12,637	  	 	 	—	  	 	 	—	  	 	 	12,637	  	
Tax benefits from share-based compensation	  	 	—	  	  	 	—	  	 	 	—	  	 	 	995	  	 	 	—	  	 	 	—	  	 	 	995	  	
	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at September 30, 2011	  	$	—	  	  	 	51,125,400	  	 	$	25,563	  	 	 	760,302	  	 	 	1,062,460	  	 	 	(396,897	) 	 	 	1,451,428	  	

 
 
(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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Table of Contents
 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
Hill Hire plc — On June 8, 2011, we acquired all of the common stock of Hill Hire plc (Hill Hire), a U.K. based full service leasing, rental and maintenance company for a purchase price of $251.5 million, net of cash acquired, all of which has been paid as of September 30, 2011. The acquisition included Hill Hire’s fleet of approximately 8,000 full service lease and 5,700 rental vehicles, and approximately 400 contractual customers. The acquired fleet included 9,700 trailers. The combined network operates under the Ryder name, complementing our Fleet Management Solutions (FMS) business segment market coverage in the U.K. Transaction costs related to the Hill Hire acquisition, all of which were included in “Operating Expense” in the Consolidated Condensed Statement of Earnings, were $2.2 million for the nine months ended September 30, 2011.
The preliminary purchase price allocations and resulting impact on the September 30, 2011 Consolidated Condensed Balance Sheet relating to the Hill Hire acquisition was as follows:
					
 	  	(In thousands)	 	
Assets:	  				
Revenue earning equipment	  	$	200,376	  	
Operating property and equipment	  	 	18,780	  	
Customer relationships and other intangibles	  	 	9,150	  	
Other assets, primarily accounts receivable	  	 	60,143	  	
	  	 	 	 	
	  	 	288,449	  	
		
Liabilities, primarily accrued liabilities	  	 	(36,954	) 	
	  	 	 	 	
Net assets acquired	  	$	251,495	  	
	  	 	 	 	
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 Supply Chain Solutions (SCS) capabilities and growth prospects in the areas of packaging and warehousing, including temperature-controlled facilities. The purchase price was $207.1 million, of which $3.4 million was paid during the nine months ended September 30, 2011. No further payments are due related to this acquisition. During the nine months ended September 30, 2011, the purchase price was reduced by $1.5 million due to contractual adjustments in acquired deferred taxes and working capital. As of September 30, 2011, goodwill and customer relationship intangibles related to the TLC acquisition were $133.3 million and $35.0 million, respectively.
Pro Forma Information — The operating results of Hill Hire and TLC have been included in the consolidated condensed financial statements from the date of acquisition. The following table provides the unaudited pro forma revenues, net earnings and earnings per common share as if the results of the Hill Hire acquisition had been included in operations commencing January 1, 2010, and the TLC acquisition had been included in operations commencing January 1, 2009. This pro forma information is not necessarily indicative either of the combined results of operations that actually would have been realized had the acquisition been consummated during the periods for which the pro forma information is presented, or of future results.
 
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RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)

 	  	Three months ended September 30,	 	  	Nine months ended September 30,	 	
 	  	2011	 	  	2010	 	  	2011	 	  	2010	 	
 	  	(In thousands, except per share amounts)	 	
Revenue — As reported	  	$	1,570,720	  	  	 	1,316,948	  	  	$	4,509,440	  	  	 	3,823,009	  	
Revenue — Pro forma	  	$	1,570,720	  	  	 	1,438,920	  	  	$	4,577,010	  	  	 	4,122,729	  	
					
Net earnings — As reported	  	$	56,524	  	  	 	38,835	  	  	$	121,682	  	  	 	81,049	  	
Net earnings — Pro forma	  	$	56,524	  	  	 	44,290	  	  	$	135,337	  	  	 	95,601	  	
					
Net earnings per common share:	  				  				  				  				
Basic — As reported	  	$	1.10	  	  	 	0.74	  	  	$	2.37	  	  	 	1.54	  	
Basic — Pro forma	  	$	1.10	  	  	 	0.85	  	  	$	2.64	  	  	 	1.81	  	
					
Diluted — As reported	  	$	1.10	  	  	 	0.74	  	  	$	2.35	  	  	 	1.53	  	
Diluted — Proforma	  	$	1.10	  	  	 	0.85	  	  	$	2.62	  	  	 	1.81	  	
During 2011 we completed several additional acquisitions as discussed below. Pro forma information for these acquisitions is not disclosed because the effect of these acquisitions is not significant.
B.I.T. Leasing Inc. — On April 1, 2011, we acquired the assets of 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. Approximately $13.2 million of the purchase price has been paid as of September 30, 2011. 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. As of September 30, 2011, goodwill and customer relationship intangibles related to the BIT acquisition were $1.4 million and $0.5 million, respectively. The combined network operates under the Ryder name, complementing our FMS business segment market coverage in California.
The Scully Companies — On January 28, 2011, we acquired the common stock of The Scully Companies, Inc.’s (Scully) 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 $91.0 million, of which $84.6 million has been paid as of September 30, 2011. During 2011, the purchase price was decreased by $0.2 million due to the settlement of working capital related items. The purchase price included $14.4 million in contingent consideration to be paid to the seller provided acquired customers are retained for a specified period. During the three months ended September 30, 2011, $13.4 million of this contingent consideration was paid and the remaining amount is expected to be paid by the end of the year. As of September 30, 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. As of September 30, 2011, goodwill and customer relationship intangibles related to the Scully acquisition were $27.5 million and $11.1 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. (Carmenita), a full service leasing and rental business located in Santa Fe Springs, California, for a purchase price of $9.0 million. The acquisition included Carmenita’s fleet of approximately 190 full service lease and rental vehicles, and 60 contractual customers. Approximately $8.8 million of the purchase price has been paid as of September 30, 2011. As of September 30, 2011, goodwill and customer relationship intangibles related to the Carmenita acquisition were $0.3 million and $0.3 million, respectively. The combined network operates under the Ryder name, complementing our FMS business segment market coverage in California.
For the three months ended September 30, 2011, all acquisitions had combined revenue and net earnings of $143.4 million and $10.9 million, respectively. For the nine months ended September 30, 2011, the acquisitions had combined revenue and net earnings of $338.8 million and $18.9 million, respectively.
The initial recording of revenue earning equipment in each of the 2011 acquisitions was based on preliminary valuation assessments. As new information is obtained about facts and circumstances that existed as of the acquisition date, the valuation of revenue earning equipment may change. During the nine months ended September 30, 2011 and 2010, we paid $0.7 million and $6.8 million, respectively, related to other acquisitions completed in prior years.
 
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RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
 
(D) DISCONTINUED OPERATIONS
In 2009, we ceased 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 September 30,	 	 	Nine months ended September 30,	 	
 	  	2011	 	 	2010	 	 	2011	 	 	2010	 	
 	  	(In thousands)	 	
					
Pre-tax loss from discontinued operations	  	$	(371	) 	 	 	(854	) 	 	$	(2,087	) 	 	 	(2,191	) 	
Income tax (expense) benefit	  	 	(38	) 	 	 	15	  	 	 	65	  	 	 	94	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loss from discontinued operations, net of tax	  	$	(409	) 	 	 	(839	) 	 	$	(2,022	) 	 	 	(2,097	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Results of discontinued operations in 2011 and 2010 included losses related to adverse legal developments and professional and administrative fees partially offset by insurance and receivable recoveries associated with our discontinued South American operations.
The following is a summary of assets and liabilities of discontinued operations:
									
 	  	September 30,	 	  	December 31,	 	
 	  	2011	 	  	2010	 	
 	  	(In thousands)	 	
Total assets, primarily deposits	  	$	4,570	  	  	 	6,346	  	
			
Total liabilities, primarily contingent accruals	  	$	6,667	  	  	 	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 September 30,	 	 	Nine months ended September 30,	 	
 	  	2011	 	 	2010	 	 	2011	 	 	2010	 	
 	  	(In thousands)	 	
					
Stock option and stock purchase plans	  	$	2,370	  	 	 	2,311	  	 	$	6,974	  	 	 	6,803	  	
Nonvested stock	  	 	1,927	  	 	 	1,876	  	 	 	5,663	  	 	 	5,400	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Share-based compensation expense	  	 	4,297	  	 	 	4,187	  	 	 	12,637	  	 	 	12,203	  	
Income tax benefit	  	 	(1,425	) 	 	 	(1,408	) 	 	 	(4,212	) 	 	 	(4,149	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Share-based compensation expense, net of tax	  	$	2,872	  	 	 	2,779	  	 	$	8,425	  	 	 	8,054	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
During the nine months ended September 30, 2011 and 2010, approximately 710,000 and 900,000 stock options, respectively, were granted under the Plans. These awards generally vest evenly over a three year period from the date of grant 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 nine months ended September 30, 2011 and 2010 was $12.88 and $8.93, respectively.
During the nine months ended September 30, 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 considers the likelihood of Ryder achieving the market-based condition. The weighted-average fair value per market-based restricted stock right granted during the nine months ended September 30, 2011 and 2010 was $25.37 and $15.50, respectively.
During the nine months ended September 30, 2011 and 2010, approximately 200,000 and 70,000 time-vested restricted stock rights and restricted stock units (RSU), 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 and RSU granted during the nine months ended September 30, 2011 and 2010 was $52.78 and $39.47, respectively.
During the nine months ended September 30, 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.
 
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RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
 
The following table is a summary of compensation expense recognized for cash awards in addition to the share-based compensation expense reported in the previous table:
									
 	  	Three months ended September 30,	  	Nine months ended September 30,	
 	  	2011	  	2010	  	2011	  	2010	
 	  	(In thousands)	
					
Cash awards	  	$396	  	452	  	$1,216	  	1,224	
Total unrecognized pre-tax compensation expense related to all share-based compensation arrangements at September 30, 2011 was $32.2 million and is expected to be recognized over a weighted-average period of 1.9 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 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 September 30,	 	 	Nine months ended September 30,	 	
 	 	2011	 	 	2010	 	 	2011	 	 	2010	 	
 	 	(In thousands, except per share amounts)	 	
Earnings per share — Basic:	 				 				 				 				
Earnings from continuing operations	 	$	56,933	  	 	 	39,674	  	 	$	123,704	  	 	 	83,146	  	
Less: Distributed and undistributed earnings allocated to nonvested stock	 	 	(933	) 	 	 	(576	) 	 	 	(1,981	) 	 	 	(1,146	) 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings from continuing operations available to common shareholders — Basic	 	$	56,000	  	 	 	39,098	  	 	$	121,723	  	 	 	82,000	  	

Weighted average common shares outstanding — Basic	 	 	50,426	  	 	 	51,409	  	 	 	50,533	  	 	 	52,044	  	

Earnings from continuing operations per common share — Basic	 	$	1.11	  	 	 	0.76	  	 	$	2.41	  	 	 	1.58	  	

Earnings per share — Diluted:	 				 				 				 				
Earnings from continuing operations	 	$	56,933	  	 	 	39,674	  	 	$	123,704	  	 	 	83,146	  	
Less: Distributed and undistributed earnings allocated to nonvested stock	 	 	(928	) 	 	 	(576	) 	 	 	(1,972	) 	 	 	(1,146	) 	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings from continuing operations available to common shareholders — Diluted	 	$	56,005	  	 	 	39,098	  	 	$	121,732	  	 	 	82,000	  	

Weighted average common shares outstanding — Basic	 	 	50,426	  	 	 	51,409	  	 	 	50,533	  	 	 	52,044	  	
Effect of dilutive options	 	 	327	  	 	 	126	  	 	 	389	  	 	 	122	  	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Weighted average common shares outstanding — Diluted	 	 	50,753	  	 	 	51,535	  	 	 	50,922	  	 	 	52,166	  	

Earnings from continuing operations per common share — Diluted	 	$	1.10	  	 	 	0.76	  	 	$	2.39	  	 	 	1.57	  	

Anti-dilutive options not included above	 	 	1,718	  	 	 	1,793	  	 	 	1,462	  	 	 	1,833	  	

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RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
 
(G) RESTRUCTURING AND OTHER CHARGES
Restructuring charges, net for the nine months ended September 30, 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. There were no restructuring charges in the third quarter of 2011.
Activity related to restructuring reserves including discontinued operations were as follows:
																					
 	 	December 31, 2010
Balance	 	  	Additions	 	 	Cash
Payments	 	 	Foreign
Translation
Adjustments	 	  	September 30,  2011
Balance	 	
 	 	(In thousands)      	 	
						
Employee severance and benefits	 	$	234	  	  	 	405	  	 	 	316	  	 	 	—	  	  	 	323	  	
Contract termination costs	 	 	3,813	  	  	 	375	  	 	 	1,259	  	 	 	34	  	  	 	2,963	  	
	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Total	 	$	4,047	  	  	 	780	  	 	 	1,575	  	 	 	34	  	  	 	3,286	  	
	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
At September 30, 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:
									
 	  	September 30,
2011	 	 	December 31,
2010	 	
 	  	(In thousands)	 	
			
Total minimum lease payments receivable	  	$	543,423	  	 	 	548,419	  	
Less: Executory costs	  	 	(160,005	) 	 	 	(171,076	) 	
	  	 	 	 	 	 	 	 	
Minimum lease payments receivable	  	 	383,418	  	 	 	377,343	  	
Less: Allowance for uncollectibles	  	 	(767	) 	 	 	(784	) 	
	  	 	 	 	 	 	 	 	
Net minimum lease payments receivable	  	 	382,651	  	 	 	376,559	  	
Unguaranteed residuals	  	 	61,301	  	 	 	57,898	  	
Less: Unearned income	  	 	(94,048	) 	 	 	(96,522	) 	
	  	 	 	 	 	 	 	 	
Net investment in direct financing and sales-type leases	  	 	349,904	  	 	 	337,935	  	
Current portion	  	 	(66,506	) 	 	 	(63,304	) 	
	  	 	 	 	 	 	 	 	
Non-current portion	  	$	283,398	  	 	 	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.
 
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RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
 
The following table presents the credit risk profile by creditworthiness category of our direct financing lease receivables:
									
 	  	September 30,
2011	 	  	December 31,
2010	 	
 	  	(In thousands)	 	
			
Very low risk to low risk	  	$	119,433	  	  	 	91,993	  	
Moderate risk	  	 	201,873	  	  	 	218,547	  	
Moderately high risk to high risk	  	 	62,112	  	  	 	66,803	  	
	  	 	 	 	  	 	 	 	
	  	$	383,418	  	  	 	377,343	  	
	  	 	 	 	  	 	 	 	
The following table is a rollforward of the allowance for credit losses on direct financing lease receivables for the nine months ended September 30, 2011:
					
 	  	(In thousands)	 	
Balance at December 31, 2010	  	$	784	  	
Charged to earnings	  	 	318	  	
Deductions	  	 	(335	) 	
	  	 	 	 	
Balance at September 30, 2011	  	$	767	  	
	  	 	 	 	
As of September 30, 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 September 30, 2011.
(I) REVENUE EARNING EQUIPMENT
																									
 	    	September 30, 2011	 	    	December 31, 2010	 	
 	    	Cost	 	    	Accumulated
Depreciation	 	  	Net  Book
Value (1)	 	    	Cost	 	    	Accumulated
Depreciation	 	  	Net  Book
Value (1)	 	
 	    	    (In thousands)	 	
Held for use:	    				
Full service lease	    	$	5,917,192	  	    	 	(2,527,808	) 	  	 	3,389,384	  	    	 	5,639,410	  	    	 	(2,408,126	) 	  	 	3,231,284	  	
Commercial rental	    	 	2,053,111	  	    	 	(685,436	) 	  	 	1,367,675	  	    	 	1,549,094	  	    	 	(647,764	) 	  	 	901,330	  	
Held for sale	    	 	244,640	  	    	 	(173,783	) 	  	 	70,857	  	    	 	260,114	  	    	 	(191,510	) 	  	 	68,604	  	
	    	 	 	 	    	 	 	 	  	 	 	 	    	 	 	 	    	 	 	 	  	 	 	 	
Total	    	$	8,214,943	  	    	 	(3,387,027	) 	  	 	4,827,916	  	    	 	7,448,618	  	    	 	(3,247,400	) 	  	 	4,201,218	  	

 

(1)	Revenue earning equipment, net includes vehicles acquired under capital leases of $24.7 million, less accumulated depreciation of $15.2 million, at September 30, 2011, and $29.2 million, less accumulated depreciation of $18.5 million, at December 31, 2010.	
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 and nine months ended September 30, 2011 by approximately $1.4 million and $4.1 million, respectively. In the three and nine months ended September 30, 2011, we recognized $0.1 million and $0.2 million, respectively, of accelerated depreciation for select vehicles that were expected to be sold by the end of 2011. In the three and nine months ended September 30, 2010, we recognized $1.5 million and $5.0 million, respectively, of accelerated depreciation for select vehicles that were expected to be sold by the end of 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
Management
Solutions	 	  	Supply
Chain
Solutions	 	  	Dedicated
Contract
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	  	 	14,356	  	  	 	—	  	  	 	14,853	  	    	 	29,209	  	
Purchase accounting adjustments	  	 	—	  	  	 	(5,042	) 	  	 	—	  	    	 	(5,042	) 	
Foreign currency translation adjustment	  	 	(337	) 	  	 	(433	) 	  	 	—	  	    	 	(770	) 	
	  	 	 	 	  	 	 	 	  	 	 	 	    	 	 	 	
Balance at September 30, 2011:	  				  				  				    				
Goodwill	  	 	216,960	  	  	 	171,747	  	  	 	19,753	  	    	 	408,460	  	
Accumulated impairment losses	  	 	(10,322	) 	  	 	(18,899	) 	  	 	—	  	    	 	(29,221	) 	
	  	 	 	 	  	 	 	 	  	 	 	 	    	 	 	 	
	  	$	  206,638	  	  	 	  152,848	  	  	 	  19,753	  	    	 	  379,239	  	
	  	 	 	 	  	 	 	 	  	 	 	 	    	 	 	 	
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.
We assess goodwill for impairment on April 1 st of each year or more often if deemed necessary. On April 1, 2011, we completed our annual goodwill impairment test and determined there was no impairment.
(K) ACCRUED EXPENSES AND OTHER LIABILITIES
																									
 	  	September 30, 2011	 	  	December 31, 2010	 	
 	  	Accrued
Expenses	 	  	Non-Current
Liabilities	 	  	Total	 	  	Accrued
Expenses	 	  	Non-Current
Liabilities	 	  	Total	 	
 	  	    (In thousands)	 	
							
Salaries and wages	  	$	103,278	  	  	 	—	  	  	 	103,278	  	  	 	81,037	  	  	 	—	  	  	 	81,037	  	
Deferred compensation	  	 	1,260	  	  	 	18,761	  	  	 	20,021	  	  	 	1,965	  	  	 	21,258	  	  	 	23,223	  	
Pension benefits	  	 	2,952	  	  	 	345,073	  	  	 	348,025	  	  	 	2,984	  	  	 	333,074	  	  	 	336,058	  	
Other postretirement benefits	  	 	3,375	  	  	 	43,012	  	  	 	46,387	  	  	 	3,382	  	  	 	43,787	  	  	 	47,169	  	
Employee benefits	  	 	9,841	  	  	 	—	  	  	 	9,841	  	  	 	2,251	  	  	 	—	  	  	 	2,251	  	
Insurance obligations, primarily self-insurance	  	 	121,402	  	  	 	154,218	  	  	 	275,620	  	  	 	110,697	  	  	 	148,639	  	  	 	259,336	  	
Residual value guarantees	  	 	2,837	  	  	 	1,555	  	  	 	4,392	  	  	 	2,301	  	  	 	2,196	  	  	 	4,497	  	
Accrued rent	  	 	3,244	  	  	 	10,482	  	  	 	13,726	  	  	 	2,397	  	  	 	16,787	  	  	 	19,184	  	
Deferred vehicle gains	  	 	461	  	  	 	990	  	  	 	1,451	  	  	 	473	  	  	 	1,374	  	  	 	1,847	  	
Environmental liabilities	  	 	4,650	  	  	 	9,614	  	  	 	14,264	  	  	 	5,145	  	  	 	8,908	  	  	 	14,053	  	
Asset retirement obligations	  	 	5,599	  	  	 	12,442	  	  	 	18,041	  	  	 	3,868	  	  	 	12,319	  	  	 	16,187	  	
Operating taxes	  	 	105,109	  	  	 	—	  	  	 	105,109	  	  	 	73,095	  	  	 	—	  	  	 	73,095	  	
Income taxes	  	 	791	  	  	 	76,728	  	  	 	77,519	  	  	 	2,559	  	  	 	73,849	  	  	 	76,408	  	
Interest	  	 	25,592	  	  	 	—	  	  	 	25,592	  	  	 	30,478	  	  	 	—	  	  	 	30,478	  	
Deposits, mainly from customers	  	 	36,897	  	  	 	12,769	  	  	 	49,666	  	  	 	31,755	  	  	 	7,538	  	  	 	39,293	  	
Deferred revenue	  	 	19,648	  	  	 	1,726	  	  	 	21,374	  	  	 	15,956	  	  	 	4,646	  	  	 	20,602	  	
Acquisition holdbacks	  	 	7,667	  	  	 	—	  	  	 	7,667	  	  	 	6,177	  	  	 	—	  	  	 	6,177	  	
Other	  	 	44,477	  	  	 	10,031	  	  	 	54,508	  	  	 	40,495	  	  	 	6,433	  	  	 	46,928	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	  499,080	  	  	 	697,401	  	  	 	1,196,481	  	  	 	  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 2007.
State  — for the majority of states, we are no longer subject to tax examinations by tax authorities for tax years before 2008.
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 2008 in the U.K., which are our major foreign tax jurisdictions.
At September 30, 2011 and December 31, 2010, the total amount of gross unrecognized tax benefits (excluding the federal benefit received from state positions) was $62.7 million and $61.2 million, respectively. Unrecognized tax benefits related to federal, state and foreign tax positions may decrease by $2.4 million by September 30, 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 September 30, 2011 and December 31, 2010, these consolidated entities had total assets, primarily revenue earning equipment, and total liabilities, primarily accounts payable, of $82.7 million and $49.5 million, respectively.
Tax Law Changes
On July 19, 2011, the U.K. enacted legislation which lowered the statutory rate from 27% to 26% effective April 1, 2011, and from 26% to 25% effective April 1, 2012. The impact of this change did not have a significant impact to earnings for the three or nine months ended September 30, 2011.
On May 25, 2011, the State of Michigan enacted changes to its tax system, which included a repeal of the Michigan Business Tax and replaced it with a corporate income tax. The impact of this change resulted in a non-cash charge to deferred income taxes and a decrease to earnings for the nine months ended September 30, 2011 of $5.4 million.
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 nine months ended September 30, 2011 of $1.2 million.
 
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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 third quarter of 2011 was 35.0% compared with 36.0% in the same period of the prior year. The decrease in our effective tax rate was mainly due to a higher proportionate amount of earnings in lower rate jurisdictions as well as tax benefits from acquisition-related transaction costs incurred in 2010.
Our effective income tax rate from continuing operations for the nine months ended September 30, 2011 was 40.0% compared with 39.2% in the same period of the prior year. Our provision for income taxes and effective income tax rate were negatively impacted by tax law changes in the States of Michigan and Illinois. The increase in our effective tax rate was partially offset by a higher proportionate amount of earnings in lower rate jurisdictions and lower contingent tax accruals.
(M) DEBT
																			
 	  	Weighted-Average
Interest Rate	 	  	 	  	 	 	 	 	 	
 	  	September 30,
2011	 	  	December 31,
2010	 	  	Maturities	  	September 30,
2011	 	 	December 31,
2010	 	
 	  	 	 	  	 	 	  	 	  	(In thousands)	 	
Short-term debt and current portion of long-term debt:	  				  				  		  				 				
Short-term debt	  	 	1.38%	  	  	 	4.56%    	  	  	2011-2012	  	$	5,047	  	 	 	42,968	  	
Current portion of long-term debt, including capital leases	  				  				  		  	 	250,312	  	 	 	377,156	  	
	  				  				  		  	 	 	 	 	 	 	 	
Total short-term debt and current portion of long-term debt	  				  				  		  	 	255,359	  	 	 	420,124	  	

Long-term debt:	  				  				  		  				 				
U.S. commercial paper (1)	  	 	0.35%	  	  	 	0.42%    	  	  	2016	  	 	266,961	  	 	 	367,880	  	
Unsecured U.S. notes — Medium-term notes (1)	  	 	4.47%	  	  	 	5.28%    	  	  	2011-2025	  	 	2,484,241	  	 	 	2,158,647	  	
Unsecured U.S. obligations, principally bank term loans	  	 	1.57%	  	  	 	1.54%    	  	  	2012-2016	  	 	106,900	  	 	 	105,600	  	
Unsecured foreign obligations	  	 	2.57%	  	  	 	5.14%    	  	  	2012-2016	  	 	300,032	  	 	 	45,109	  	
Capital lease obligations	  	 	7.81%	  	  	 	7.86%    	  	  	2011-2017	  	 	10,721	  	 	 	11,369	  	
	  				  				  		  	 	 	 	 	 	 	 	
Total before fair market value adjustment	  				  				  		  	 	3,168,855	  	 	 	2,688,605	  	
Fair market value adjustment on notes subject to hedging  ( 2 )	  				  				  		  	 	24,692	  	 	 	15,429	  	
	  				  				  		  	 	 	 	 	 	 	 	
	  				  				  		  	 	3,193,547	  	 	 	2,704,034	  	
Current portion of long-term debt, including capital leases	  				  				  		  	 	(250,312	) 	 	 	(377,156	) 	
	  				  				  		  	 	 	 	 	 	 	 	
Long-term debt	  				  				  		  	 	2,943,235	  	 	 	2,326,878	  	
	  				  				  		  	 	 	 	 	 	 	 	
Total debt	  				  				  		  	$	3,198,594	  	 	 	2,747,002	  	

 

(1)	We had unamortized original issue discounts of $9.8 million and $10.5 million at September 30, 2011 and December 31, 2010, respectively.	
 
(2)	The notional amount of executed interest rate swaps designated as fair value hedges was $550 million and $250 million at September 30, 2011 and December 31, 2010, respectively.	
In June 2011, we executed a new $900 million global revolving credit facility with a syndicate of twelve lending institutions led by Bank of America N.A., Bank of Tokyo-Mitsubishi UFJ, Ltd., BNP Paribas, Mizuho Corporate Bank, Ltd., Royal Bank of Canada, Royal Bank of Scotland Plc, U.S. Bank National Association and Wells Fargo Bank, N.A. This facility replaced an $875 million credit facility that was scheduled to mature in April 2012. The new global credit facility matures in June 2016 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 September 30, 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 10.0 basis points to 32.5 basis points, and are based on Ryder’s long-term credit ratings. The current annual facility fee is 15.0 basis points, which applies to the total facility size of $900 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
 
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RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
 
50% of our deferred federal income tax liability and excludes the book value of our intangibles. The ratio at September 30, 2011 was 214%. At September 30, 2011, $631.1 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 September 30, 2011 and December 31, 2010, we classified $267.0 million and $367.9 million, respectively, of short-term commercial paper as long-term debt.
In May 2011, we issued $350 million of unsecured medium-term notes maturing in June 2017. 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 notes, we entered into three interest rate swaps with an aggregate notional amount of $150 million maturing in June 2017. Refer to Note (O), “Derivatives,” for additional information.
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 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 collectability of the collateralized receivables. At September 30, 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 September 30, 2011 and December 31, 2010, we had letters of credit and surety bonds outstanding totaling $264.2 million and $264.8 million, respectively, which primarily guarantee the payment of insurance claims.
 
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RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
 
(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:
																			
 	  	Balance Sheet Location	    	Fair Value Measurements 
At September 30, 2011 Using	 	    	Total	 	
 	  		    	Level 1	 	    	Level 2	 	    	Level 3	 	    			
 	  	 	    	(In thousands)	 	
Assets:	  		    				    				    				    				
Investments held in Rabbi Trusts:	  		    				    				    				    				
Cash and cash equivalents	  		    	$	4,745	  	    	 	—	  	    	 	—	  	    	 	4,745	  	
U.S. equity mutual funds	  		    	 	6,923	  	    	 	—	  	    	 	—	  	    	 	6,923	  	
Foreign equity mutual funds	  		    	 	2,158	  	    	 	—	  	    	 	—	  	    	 	2,158	  	
Fixed income mutual funds	  		    	 	3,336	  	    	 	—	  	    	 	—	  	    	 	3,336	  	
	  		    	 	 	 	    	 	 	 	    	 	 	 	    	 	 	 	
Investments held in Rabbi Trusts	  	DFL and other assets	    	 	17,162	  	    	 	—	  	    	 	—	  	    	 	17,162	  	
Interest rate swaps	  	DFL and other assets	    	 	—	  	    	 	24,692	  	    	 	—	  	    	 	24,692	  	
	  		    	 	 	 	    	 	 	 	    	 	 	 	    	 	 	 	
Total assets at fair value	  		    	$	17,162	  	    	 	24,692	  	    	 	—	  	    	 	41,854	  	
	  		    	 	 	 	    	 	 	 	    	 	 	 	    	 	 	 	
Liabilities:	  		    				    				    				    				
Contingent consideration	  	Accrued expenses	    	$	—	  	    	 	—	  	    	 	1,000	  	    	 	1,000	  	
	  		    	 	 	 	    	 	 	 	    	 	 	 	    	 	 	 	
Total liabilities at fair value	  		    	$	—	  	    	 	—	  	    	 	1,000	  	    	 	1,000	  	

 	  	Balance Sheet Location	    	Fair Value Measurements
At December 31, 2010 Using	 	    	Total	 	
 	  		    	Level 1	 	    	Level 2	 	    	Level 3	 	    			
 	  	 	    	(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	  	
	  		    	 	 	 	    	 	 	 	    	 	 	 	    	 	 	 	
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. These inputs are based on our expectations as to what amount we will pay based on contractual provisions. Therefore, the liability was classified within Level 3 of the fair value hierarchy. There was no change in the fair value of the liability during 2011. 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 September 30, 2011 Using	 	    	Total Losses (2)	 	
 	    	Level 1	 	    	Level 2	 	    	Level 3	 	    	Three months ended	 	    	Nine months ended	 	
 	    	(In thousands)	 	
Assets held for sale:	    				    				    				    				    				
Revenue earning equipment: (1)	    				    				    				    				    				
Trucks	    	$	—	  	    	 	—	  	    	 	6,401	  	    	$	1,300	  	    	$	4,943	  	
Tractors	    	 	—	  	    	 	—	  	    	 	1,972	  	    	 	445	  	    	 	1,545	  	
Trailers	    	 	—	  	    	 	—	  	    	 	357	  	    	 	406	  	    	 	1,774	  	
	    	 	 	 	    	 	 	 	    	 	 	 	    	 	 	 	    	 	 	 	
Total assets at fair value	    	$	—	  	    	 	—	  	    	 	8,730	  	    	$	2,151	  	    	$	8,262	  	

																					
 	  	Fair Value Measurements
At September 30, 2010 Using	 	  	Total Losses (2)	 	
 	  	Level 1	 	  	Level 2	 	  	Level 3	 	  	Three months ended	 	  	Nine months ended	 	
 	  	(In thousands)	 	
Assets held for sale:	  				  				  				  				  				
Revenue earning equipment (1)	  				  				  				  				  				
Trucks	  	$	—	  	  	 	—	  	  	 	12,507	  	  	$	2,541	  	  	$	10,423	  	
Tractors	  	 	—	  	  	 	—	  	  	 	13,298	  	  	 	1,911	  	  	 	8,403	  	
Trailers	  	 	—	  	  	 	—	  	  	 	1,920	  	  	 	867	  	  	 	3,098	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total assets at fair value	  	$	—	  	  	 	—	  	  	 	27,725	  	  	$	5,319	  	  	$	21,924	  	

(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.	
 
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RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
 
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 September 30, 2011 and December 31, 2010 was approximately $3.37 billion and $2.86 billion, respectively. For publicly-traded debt, estimates of fair value were based on market prices. For other debt, 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
Interest Rate Swaps
In May 2011, we issued $350 million of unsecured medium-term notes maturing in June 2017. Concurrently, we entered into three interest rate swaps, with an aggregate notional amount of $150 million maturing in June 2017. 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 September 30, 2011, the interest rate swap agreements effectively changed $150 million of fixed-rate debt instruments with an interest rate of 3.50% to LIBOR-based floating-rate debt at a weighted-average interest rate of 1.50%. 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 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 September 30, 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 1.43%. 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 September 30, 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 2.61%. Changes in the fair value of our interest rate swap are offset by changes in the fair value of the debt instrument. Accordingly, there is no ineffectiveness related to the interest rate swap.
The location and amount of gains (losses) on interest rate swap agreements designated as fair value hedges and related hedged items reported in the Consolidated Condensed Statements of Earnings were as follows:
																			
Fair Value Hedging Relationship	  	Location of Gain (Loss)
Recognized in Income	  	Three months ended September 30,	 	 	Nine months ended September 30,	 	
	  		  	2011	 	 	2010	 	 	2011	 	 	2010	 	
 	  	 	  	(In thousands)	 	
						
Derivatives: Interest rate swaps	  	Interest expense	  	$	8,251	  	 	 	1,813	  	 	$	9,263	  	 	 	5,938	  	
Hedged items: Fixed-rate debt	  	Interest expense	  	 	(8,251	) 	 	 	(1,813	) 	 	 	(9,263	) 	 	 	(5,938	) 	
	  		  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	  		  	$	—	  	 	 	—	  	 	$	—	  	 	 	—	  	

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RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
 
(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 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 allowed for share repurchases during Ryder’s quarterly blackout periods as set forth in the plan. For the three months ended September 30, 2011 and 2010, we repurchased and retired 202,971 shares and 109,064 shares, respectively, under this program at an aggregate cost of $9.5 million and $4.6 million, respectively. For the nine months ended September 30, 2011 and 2010, we repurchased and retired 1,022,971 shares and 416,761 shares, respectively, under this program at an aggregate cost of $51.4 million and $16.8 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 September 30, 2010, we repurchased and retired 720,000 shares under the program at an aggregate cost of $29.6 million. For the nine months ended September 30, 2010, we repurchased and retired 1,855,000 shares under this program at an aggregate cost of $75.1 million. The program was completed in December 2010.
(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 adjustments for derivative instruments accounted for as cash flow hedges 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 September 30,	 	 	Nine months ended September 30,	 	
 	  	2011	 	 	2010	 	 	2011	 	 	2010	 	
 	  	(In thousands)	 	
					
Net earnings	  	$	56,524	  	 	 	38,835	  	 	$	121,682	  	 	 	81,049	  	
Other comprehensive income:	  				 				 				 				
Foreign currency translation adjustments	  	 	(53,416	) 	 	 	31,825	  	 	 	(27,428	) 	 	 	1,451	  	
Unrealized gain on derivative instruments	  	 	136	  	 	 	—	  	 	 	—	  	 	 	—	  	
Amortization of transition obligation (1)	  	 	(6	) 	 	 	(4	) 	 	 	(17	) 	 	 	(13	) 	
Amortization of net actuarial loss (1)	  	 	3,274	  	 	 	3,112	  	 	 	9,887	  	 	 	9,331	  	
Amortization of prior service credit (1)	  	 	(406	) 	 	 	(400	) 	 	 	(1,220	) 	 	 	(1,200	) 	
Change in net actuarial loss (1)	  	 	— 	  	 	 	(3	) 	 	 	(1,520	) 	 	 	(971	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total comprehensive income	  	$	6,106	  	 	 	73,365	  	 	$	101,384	  	 	 	89,647	  	

 

(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:
																	
 	  	Three months ended September 30,	 	 	Nine months ended September 30,	 	
 	  	2011	 	 	2010	 	 	2011	 	 	2010	 	
 	  	(In thousands)	 	
Pension Benefits	  				 				 				 				
Company-administered plans:	  				 				 				 				
Service cost	  	$	3,676	  	 	 	3,538	  	 	$	11,059	  	 	 	11,690	  	
Interest cost	  	 	24,374	  	 	 	24,062	  	 	 	73,248	  	 	 	72,004	  	
Expected return on plan assets	  	 	(25,441	) 	 	 	(23,322	) 	 	 	(76,477	) 	 	 	(69,743	) 	
Amortization of:	  				 				 				 				
Transition obligation	  	 	(8	) 	 	 	(6	) 	 	 	(23	) 	 	 	(18	) 	
Net actuarial loss	  	 	5,054	  	 	 	4,758	  	 	 	15,185	  	 	 	14,257	  	
Prior service credit	  	 	(568	) 	 	 	(564	) 	 	 	(1,710	) 	 	 	(1,690	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
	  	 	7,087	  	 	 	8,466	  	 	 	21,282	  	 	 	26,500	  	
Union-administered plans	  	 	1,627	  	 	 	1,296	  	 	 	4,423	  	 	 	3,887	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net periodic benefit cost	  	$	8,714	  	 	 	9,762	  	 	$	25,705	  	 	 	30,387	  	

Company-administered plans:	  				 				 				 				
U.S.	  	$	7,243	  	 	 	8,433	  	 	$	21,730	  	 	 	25,300	  	
Non-U.S.	  	 	(156	) 	 	 	33	  	 	 	(448	) 	 	 	1,200	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
	  	 	7,087	  	 	 	8,466	  	 	 	21,282	  	 	 	26,500	  	
Union-administered plans	  	 	1,627	  	 	 	1,296	  	 	 	4,423	  	 	 	3,887	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
	  	$	8,714	  	 	 	9,762	  	 	$	25,705	  	 	 	30,387	  	

Postretirement Benefits	  				 				 				 				
Company-administered plans:	  				 				 				 				
Service cost	  	$	323	  	 	 	343	  	 	$	973	  	 	 	1,028	  	
Interest cost	  	 	625	  	 	 	680	  	 	 	1,879	  	 	 	2,039	  	
Amortization of:	  				 				 				 				
Net actuarial loss	  	 	36	  	 	 	88	  	 	 	173	  	 	 	263	  	
Prior service credit	  	 	(58	) 	 	 	(58	) 	 	 	(173	) 	 	 	(173	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net periodic benefit cost	  	$	926	  	 	 	1,053	  	 	$	2,852	  	 	 	3,157	  	

Company-administered plans:	  				 				 				 				
U.S.	  	$	789	  	 	 	783	  	 	$	2,366	  	 	 	2,350	  	
Non-U.S.	  	 	137	  	 	 	270	  	 	 	486	  	 	 	807	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
	  	$	926	  	 	 	1,053	  	 	$	2,852	  	 	 	3,157	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Pension Contributions
During the nine months ended September 30, 2011, we contributed $12.4 million to our pension plans. During the fourth quarter of 2011, we expect to contribute approximately $3.4 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 three months ended September 30, 2011 and 2010, we recognized total savings plan costs of $9.6 million and $6.7 million, respectively. During the nine months ended September 30, 2011 and 2010, we recognized total savings plan costs of $30.1 million and $20.0 million, respectively.
 
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RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
 
(S) OTHER ITEMS IMPACTING COMPARABILITY
Our primary measure of segment performance excludes certain items we do not believe are representative of the ongoing operations of the segment. We believe that excluding these items from our segment measure of performance allows for better comparison of results.
During the second quarter of 2011, we incurred $1.7 million of transaction costs related to the acquisition of Hill Hire. These charges were recorded within “Operating expense” in our Consolidated Statements of Earnings.
(T) SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information was as follows:
									
 	  	Nine months ended September 30,	 	
 	  	2011	 	  	2010	 	
 	  	(In thousands)	 	
Interest paid	  	$	99,047	  	  	 	89,017	  	
Income taxes paid (refunded)	  	$	17,675	  	  	 	(6,602	) 	
Changes in accounts payable related to purchases of revenue earning equipment	  	$	83,937	  	  	 	33,808	  	
Operating and revenue earning equipment acquired under capital leases	  	$	1,187	  	  	 	106	  	
(U) 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) 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” and excludes the items discussed in Note (S), “Other Items Impacting Comparability.” CSS represents those costs incurred to support all business segments, including human resources, finance, corporate services, public affairs, information technology, health and safety, legal 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 and nine months ended September 30, 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 September 30, 2011	 				 				 				 				 				
Revenue from external customers	 	$	1,005,716	  	 	 	406,078	  	 	 	158,926	  	 	 	—	  	 	 	1,570,720	  	
Inter-segment revenue	 	 	93,333	  	 	 	—	  	 	 	—	  	 	 	(93,333	) 	 	 	—	  	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total revenue	 	$	1,099,049	  	 	 	406,078	  	 	 	158,926	  	 	 	(93,333	) 	 	 	1,570,720	  	

Segment NBT	 	$	74,156	  	 	 	22,398	  	 	 	8,358	  	 	 	(5,665	) 	 	 	99,247	  	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 				
Unallocated CSS	 				 				 				 				 	 	(11,592	) 	
	 				 				 				 				 	 	 	 	
Earnings from continuing operations before income taxes	 				 				 				 				 	$	87,655	  	

Segment capital expenditures (1), (2)	 	$	334,672	  	 	$	8,741	  	 	$	575	  	 	 	—	  	 	 	343,988	  	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 				
Unallocated CSS	 				 				 				 				 	 	3,770	  	
	 				 				 				 				 	 	 	 	
Capital expenditures paid	 				 				 				 				 	$	347,758	  	

For the three months ended September 30, 2010	 				 				 				 				 				
Revenue from external customers	 	$	872,685	  	 	 	322,871	  	 	 	121,392	  	 	 	—	  	 	 	1,316,948	  	
Inter-segment revenue	 	 	76,254	  	 	 	—	  	 	 	—	  	 	 	(76,254	) 	 	 	—	  	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total revenue	 	$	948,939	  	 	 	322,871	  	 	 	121,392	  	 	 	(76,254	) 	 	 	1,316,948	  	

Segment NBT	 	$	54,766	  	 	 	15,199	  	 	 	8,619	  	 	 	(4,629	) 	 	 	73,955	  	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 				
Unallocated CSS	 				 				 				 				 	 	(11,957	) 	
	 				 				 				 				 	 	 	 	
Earnings from continuing operations before income taxes	 				 				 				 				 	$	61,998	  	

Segment capital expenditures (1), (2)	 	$	310,374	  	 	 	3,554	  	 	 	215	  	 	 	—	  	 	 	314,143	  	
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 				
Unallocated CSS	 				 				 				 				 	 	2,370	  	
	 				 				 				 				 	 	 	 	
Capital expenditures paid	 				 				 				 				 	$	316,513	  	

 

(1)	Excludes revenue earning equipment acquired under capital leases.	
(2)	Excludes acquisition payments of $13.6 million and $4.4 million during the three months ended September 30, 2011 and 2010, respectively.	
 
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RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)

 	  	FMS	 	  	SCS	 	  	DCC	 	  	Eliminations	 	 	Total	 	
 	  	 	 	  	 	 	  	(In thousands)	 	  	 	 	 	 	 	
For the nine months ended September 30, 2011	  				  				  				  				 				
Revenue from external customers	  	$	2,868,699	  	  	 	1,196,694	  	  	 	444,047	  	  	 	—	  	 	 	4,509,440	  	
Inter-segment revenue	  	 	274,976	  	  	 	—	  	  	 	—	  	  	 	(274,976	) 	 	 	—	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	
Total revenue	  	$	3,143,675	  	  	 	1,196,694	  	  	 	444,047	  	  	 	(274,976	) 	 	 	4,509,440	  	

Segment NBT	  	$	180,222	  	  	 	51,693	  	  	 	25,517	  	  	 	(17,098	) 	 	 	240,334	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 				
Unallocated CSS	  				  				  				  				 	 	(31,564	) 	
Restructuring and other charges, net and other items  (3)	  				  				  				  				 	 	(2,495	) 	
	  				  				  				  				 	 	 	 	
Earnings from continuing operations before income taxes	  				  				  				  				 	$	206,275	  	

Segment capital expenditures ( 1 ), ( 2 )	  	$	1,128,560	  	  	 	21,706	  	  	 	2,613	  	  	 	—	  	 	 	1,152,879	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 				
Unallocated CSS	  				  				  				  				 	 	12,256	  	
	  				  				  				  				 	 	 	 	
Capital expenditures paid	  				  				  				  				 	$	1,165,135	  	

For the nine months ended September 30, 2010	  				  				  				  				 				
Revenue from external customers	  	$	2,535,094	  	  	 	927,157	  	  	 	360,758	  	  	 	—	  	 	 	3,823,009	  	
Inter-segment revenue	  	 	228,999	  	  	 	—	  	  	 	—	  	  	 	(228,999	) 	 	 	—	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	
Total revenue	  	$	2,764,093	  	  	 	927,157	  	  	 	360,758	  	  	 	(228,999	) 	 	 	3,823,009	  	

Segment NBT	  	$	122,687	  	  	 	34,784	  	  	 	24,437	  	  	 	(14,505	) 	 	 	167,403	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 				
Unallocated CSS	  				  				  				  				 	 	(30,706	) 	
	  				  				  				  				 	 	 	 	
Earnings from continuing operations before income taxes	  				  				  				  				 	$	136,697	  	

Segment capital expenditures (1) , ( 2 )	  	$	844,659	  	  	 	7,051	  	  	 	1,206	  	  	 	—	  	 	 	852,916	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 				
Unallocated CSS	  				  				  				  				 	 	7,986	  	
	  				  				  				  				 	 	 	 	
Capital expenditures paid	  				  				  				  				 	$	860,902	  	

 

(1)	Excludes revenue earning equipment acquired under capital leases.	
(2)	Excludes acquisition payments of $362.2 million and $6.8 million during the nine months ended September 30, 2011 and 2010, respectively.	
(3)	See Note (S), “Other Items Impacting Comparability,” for a discussion of items, in addition to restructuring and other charges, net that are excluded from our primary measure of segment performance.	
 
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RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
 
(V) OTHER MATTERS
We are a party to various claims, complaints and proceedings arising in the ordinary course of business including but not limited to those relating to litigation matters, environmental matters, risk management matters (e.g. vehicle liability, workers’ compensation, etc.) and administrative assessments primarily associated with operating taxes. We are also 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 probable and can be reasonably estimated. It is not possible at this time for us to determine fully the effect of all unasserted claims and assessments on our consolidated financial condition, results of operations or liquidity; however, to the extent possible, where unasserted claims can be estimated and where such claims are considered probable we have recorded a liability. Litigation is subject to many uncertainties, and the outcome of any individual litigated matter is not predictable with assurance. It is possible that certain of the actions, claims, inquiries or proceedings could be decided unfavorably to Ryder. To the extent that these matters pertain to our discontinued operations, additional adjustments and expenses may be recorded through discontinued operations in future periods as further relevant information becomes available. Although the final resolution of any such matters could have a material effect on our consolidated operating results for the particular reporting period in which an adjustment of the estimated liability is recorded, we believe that any resulting liability should not materially affect our consolidated financial position.
In Brazil, we were assessed $15.7 million, including penalties and interest, related to 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 tax authority has filed a motion to review the decision and the matter therefore remains before the Administrative Tax Court. 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.
We are also a defendant in a number of lawsuits containing various class-action allegations of wage-and-hour violations and improper pay practice claims. The plaintiffs in these lawsuits allege, among other things, that they were not paid for certain hours worked, were not paid overtime or were not provided work breaks or other benefits. The complaints generally seek unspecified monetary damages, injunctive relief, or both. We cannot currently estimate a reasonably possible range of loss related to these lawsuits. Although the final resolution of any such matters could have a material effect on our consolidated operating results for the particular reporting period in which an adjustment of the estimated liability is recorded, we believe that any resulting liability should not materially affect our consolidated financial position.
(W) RECENT ACCOUNTING PRONOUNCEMENTS
In June 2011, the FASB issued accounting guidance on the presentation of comprehensive income. Under this guidance, entities have the option to present the components of net income and other comprehensive income in either a single continuous statement of comprehensive income or in two separate but consecutive statements. This guidance is effective for us beginning in our March 31, 2012 10-Q. We are currently evaluating these changes to determine which option will be chosen for the presentation of comprehensive income. Other than the change in presentation, this accounting guidance will not have an impact on our consolidated financial position, results of operations or cash flows.
 
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 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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.
ACQUISITIONS
We completed four 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.

Company Acquired	  	Business
Segment	  	Date	  	        Vehicles        	  	Contractual
       Customers      	  	Market	
Hill Hire plc	  	FMS	  	June 8, 2011	  	13,700	  	400	  	U.K.	
B.I.T. Leasing, Inc. (BIT) (1)	  	FMS	  	April 1, 2011	  	     490	  	130	  	California	
The Scully Companies (Scully)	  	    FMS/DCC    	  	January 28, 2011	  	  2,100	  	200	  	Western U.S.	
Carmenita Leasing, Inc.	  	FMS	  	January 10, 2011	  	     190	  	60	  	California	

(1)	This acquisition complements a 2010 acquisition whereby we acquired a portion of BIT’s full service lease and rental vehicles and contractual customers. Vehicles and contractual customers disclosed above represented the combination of both acquisitions.	
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.
 
24

Table of Contents
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
 
CONSOLIDATED RESULTS

 	  	Three months ended September 30,	 	  	Nine months ended September 30,	 	  	Change 2011/2010	
 	  	2011	 	  	2010	 	  	2011	 	  	2010	 	  	Three
Months	  	Nine
Months	
 	  	(In thousands, except per share amounts)	 	  	 	  	 	
							
Total revenue	  	$	1,570,720	  	  	 	1,316,948	  	  	$	4,509,440	  	  	 	3,823,009	  	  	19%	  	18%	
Operating revenue (1)	  	 	1,256,489	  	  	 	1,071,611	  	  	 	3,577,565	  	  	 	3,096,300	  	  	17    	  	16    	
							
Pre-tax earnings from continuing operations	  	 	87,655	  	  	 	61,998	  	  	 	206,275	  	  	 	136,697	  	  	41    	  	51    	
Earnings from continuing operations	  	 	56,933	  	  	 	39,674	  	  	 	123,704	  	  	 	83,146	  	  	44    	  	49    	
Net earnings	  	 	56,524	  	  	 	38,835	  	  	 	121,682	  	  	 	81,049	  	  	46    	  	50    	
							
Earnings (loss) per common share — Diluted	  				  				  				  				  		  		
Continuing operations	  	$	1.10	  	  	 	0.76	  	  	$	2.39	  	  	 	1.57	  	  	45%	  	52%	
Net earnings	  	 	1.10	  	  	 	0.74	  	  	$	2.35	  	  	 	1.53	  	  	49	  	54	
							
Weighted-average shares outstanding — Diluted	  	 	50,753	  	  	 	51,535	  	  	 	50,922	  	  	 	52,166	  	  	(2)%	  	(2)%	

 

(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, 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. Refer to the section titled “Non-GAAP Financial Measures” for a reconciliation of total revenue to operating revenue.	
Revenue
Total revenue increased 19% in the third quarter of 2011 to $1.57 billion. Operating revenue (revenue excluding FMS fuel and all subcontracted transportation) increased 17% in the third quarter of 2011 to $1.26 billion. In the nine months ended September 30, 2011, total revenue increased 18% to $4.51 billion and operating revenue increased 16% to $3.58 billion. The following table summarizes the components of the change in revenue on a percentage basis versus the prior year:

 	  	Three months ended September 30, 2011	  	Nine months ended September 30, 2011	
 	  	Total	  	Operating	  	Total	  	Operating	
					
Acquisitions	  	11%	  	12%	  	 9%	  	10%	
Organic including price and volume	  	3  	  	4  	  	4  	  	5  	
FMS fuel	  	3  	  	—	  	3  	  	—	
Subcontracted transportation	  	1  	  	—	  	1  	  	—	
Foreign exchange	  	1  	  	1  	  	1  	  	1  	
	  	 	  	 	  	 	  	 	
Total increase	  	19%	  	17%	  	18%	  	16%	
	  	 	  	 	  	 	  	 	
See “Operating Results by Business Segment” for a further discussion of the revenue impact from acquisitions and organic growth.
 
25

Table of Contents
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
 
Pre-Tax Earnings from Continuing Operations (NBT)
NBT increased 41% in the third quarter of 2011 to $87.7 million. In the nine months ended September 30, 2011, NBT increased 51% to $206.3 million. The increase in NBT was primarily driven by improved commercial rental performance and used vehicle sales results. Acquisitions accounted for 27% and 22% of year-over-year NBT growth in the third quarter and first nine months of 2011, respectively. However, these increases were partially offset by higher incentive-based compensation costs as a result of improved company performance. In addition, the nine months ended September 30, 2011 included a $4.1 million negative impact from SCS automotive production cuts due to the Japan earthquake. See “Operating Results by Business Segment” for a further discussion of operating results. For the nine months ended September 30, 2011, NBT also included acquisition-related restructuring and other costs of $0.8 million and transaction costs of $2.2 million.
Earnings and Diluted Earnings Per Share (EPS) from Continuing Operations
Earnings from continuing operations increased 44% to $56.9 million in the third quarter of 2011. Earnings from continuing operations included an income tax benefit of $0.6 million, or $0.01 per diluted common share, associated with the deduction of acquisition-related transaction costs incurred in a prior year. Excluding this item, comparable earnings and EPS from continuing operations increased 42% to $56.4 million and 43% to $1.09 per diluted common share, respectively.
In the nine months ended September 30, 2011, earnings from continuing operations increased 49% to $123.7 million. Earnings from continuing operations included an income tax charge of $5.4 million, or $0.10 per diluted common share, due to a tax law change in Michigan. EPS from continuing operations also included the previously discussed tax benefit from acquisition-related transaction costs of $0.01 per diluted common share, acquisition-related transaction costs of $0.03 per diluted common share and a first quarter restructuring charge of $0.01 per diluted common share. Excluding these items, comparable earnings and EPS from continuing operations increased 57% to $130.5 million and 61% to $2.52 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. See Note (S), “Other Items Impacting Comparability,” for information regarding items excluded from 2011 results.
Net Earnings and EPS
Net earnings increased 46% in the third quarter of 2011 to $56.5 million or $1.10 per diluted common share and increased 50% in the nine months ended September 30, 2011 to $121.7 million or $2.35 per diluted common share. Net earnings in the third quarter and in the first nine months of 2011 were negatively impacted by losses from discontinued operations of $0.4 million and $2.0 million, respectively. EPS growth in the third quarter and in the first nine months of 2011 exceeded the earnings growth reflecting the impact of share repurchase programs.
The changes in the individual expense components of net earnings are discussed in more detail below.

 	  	    Three months ended September 30,    	 	  	    Nine months ended September 30,    	 	  	    Change 2011/2010    	
 	  	2011	 	  	2010	 	  	2011	 	  	2010	 	  	Three
Months	  	Nine
Months	
 	  	(Dollars in thousands)	 	  	 	  	 	
Fuel expense	  	$	272,158	  	  	 	208,832	  	  	$	811,839	  	  	 	623,898	  	  	30%	  	30%	
Maintenance and repairs expense	  	 	258,857	  	  	 	223,708	  	  	 	724,635	  	  	 	638,921	  	  	16    	  	13    	
Other operating expense	  	 	227,703	  	  	 	191,955	  	  	 	655,133	  	  	 	550,784	  	  	19    	  	19    	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  		  		
Total operating expense	  	$	758,718	  	  	 	624,495	  	  	$	2,191,607	  	  	 	1,813,603	  	  	21%	  	21%	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  		  		
Percentage of total revenue	  	 	    48%	  	  	 	    47%	  	  	 	  49%	  	  	 	  47%	  	  		  		
Total operating expense increased 21% in the third quarter and first nine months of 2011 to $758.7 million and $2.19 billion, respectively, as a result of higher fuel and maintenance and repairs expense. Fuel expense, which primarily impacts our FMS segment, increased in the third quarter and first nine months of 2011 as a result of higher fuel costs per gallon passed through to
 
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Table of Contents
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
 
customers. Maintenance and repairs expense, which includes the cost of parts, labor and outside repairs and principally impacts our FMS business segment, increased in the third quarter and first nine months of 2011 primarily due to the impact of an older lease fleet. Other operating expense primarily includes operating taxes and licensing costs, facilities, insurance, professional services and outside driver costs and typically fluctuates in line with revenue volumes. Other operating expense as a percentage of operating revenue was approximately 18% for all periods.

 	  	    Three months ended September 30,    	  	    Nine months ended September 30,    	  	    Change 2011/2010    	
 	  	2011	  	2010	  	2011	  	2010	  	Three
Months	  	Nine
Months	
 	  	(Dollars in thousands)	  	 	  	 	
								
Salaries and wages	  	 	$	331,095	 	  	 	 	266,559	 	  	 	$	958,219	 	  	 	 	785,697	 	  	 	 	24%	 	  	 	 	22%	 	
Employee-related costs	  	 	 	52,837	 	  	 	 	48,147	 	  	 	 	161,475	 	  	 	 	143,962	 	  	 	 	10   	 	  	 	 	12   	 	
	  	 	 	 	 	  	 	 	 	 	  	 	 	 	 	  	 	 	 	 	  	 				  	 				
Total salaries and employee-related costs	  	 	$	383,932	 	  	 	 	314,706	 	  	 	$	1,119,694	 	  	 	 	929,659	 	  	 	 	22%	 	  	 	 	20%	 	
	  	 	 	 	 	  	 	 	 	 	  	 	 	 	 	  	 	 	 	 	  	 				  	 				
Percentage of revenue	  	 	 	24%	 	  	 	 	24%	 	  	 	 	25%	 	  	 	 	24%	 	  	 				  	 				
Percentage of operating revenue	  	 	 	31%	 	  	 	 	29%	 	  	 	 	31%	 	  	 	 	30%	 	  	 				  	 				
Salaries and employee-related costs increased 22% in the third quarter of 2011 to $383.9 million primarily due to an increase in salaries and wages. Salaries and wages increased 24% in the third quarter of 2011 of which 15% came from acquisitions, 6% came from higher incentive-based compensation as a result of improved company performance and 3% came from organic business growth. Employee-related costs increased 10% primarily due to higher savings plan costs from improved company performance and increased headcount.
Salaries and employee-related costs increased 20% in the nine months ended September 30, 2011 to $1.12 billion due to the same factors as those in the third quarter of 2011. The growth in salaries and wages of 22% included an increase of 14% from acquisitions, 4% from organic business growth and 4% from incentive-based compensation.

 	  	    Three months ended September 30,    	  	    Nine months ended September 30,    	  	    Change 2011/2010    	
 	  	2011	  	2010	  	2011	  	2010	  	Three
Months	  	Nine
Months	
 	  	(Dollars in thousands)	  	 	  	 	
								
Subcontracted transportation	  	 	$	88,728	 	  	 	 	67,049	 	  	 	$	255,003	 	  	 	 	191,972	 	  	 	 	32%	 	  	 	 	33%	 	
Percentage of revenue	  	 	 	6%	 	  	 	 	5%	 	  	 	 	6%	 	  	 	 	5%	 	  	 				  	 				
Subcontracted transportation expense which only impacts our SCS and DCC business segments, 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 transportation costs to third parties are recorded as subcontracted transportation expense. To the extent we are acting as an agent, revenue is reported net of transportation 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 32% in the third quarter and 33% in the first nine months of 2011 from the impact of recent acquisitions and higher overall freight volumes. The TLC and Scully acquisitions increased subcontracted transportation by 14% in the third quarter and 16% in the first nine months of 2011 compared to the same periods in the prior year.

 	  	    Three months ended September 30,    	  	    Nine months ended September 30,    	  	    Change 2011/2010    	
 	  	2011	  	2010	  	2011	  	2010	  	Three
Months	  	Nine
Months	
 	  	(Dollars in thousands)	  	 	  	 	
								
Depreciation expense	  	 	$	224,466 	 	  	 	 	209,929 	 	  	 	$	645,261 	 	  	 	 	627,695 	 	  	 	 	7%	 	  	 	 	3%	 	
Gains on vehicle sales, net	  	 	$	(18,270)	 	  	 	 	(6,904)	 	  	 	$	(46,277)	 	  	 	 	(18,009)	 	  	 	 	165%	 	  	 	 	157%	 	
Equipment rental	  	 	$	14,468 	 	  	 	 	16,463 	 	  	 	$	43,430 	 	  	 	 	49,532 	 	  	 	 	(12)%	 	  	 	 	(12)%	 	
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 changes in fair value are reflected within depreciation expense. Depreciation expense increased 7% in the third quarter of 2011 to $224.5 million. The increase was primarily driven by acquisitions which increased our average fleet size and added $14.6 million of depreciation. Additionally, depreciation expense was impacted by increasing average new vehicle investments. The growth in depreciation expense was partially offset by $3.2 million
 
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Table of Contents
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
 
of lower write-downs in the carrying value of vehicles held for sale and $2.8 million from changes in residual values of certain classes of our revenue earning equipment effective January 1, 2011 as well as lower accelerated depreciation.
Depreciation expense increased 3% in the nine months ended September 30, 2011 to $645.3 million driven by $26.2 million from acquisitions, foreign exchange movements of $6.7 million and higher average net vehicle investments. The increase was partially offset by $13.7 million of lower write-downs and $8.9 million from changes in residual values and accelerated depreciation. Refer to Note (I), “Revenue Earning Equipment,” in the Notes to Consolidated Condensed Financial Statements for further discussion.
Gains on vehicle sales, net increased 165% in the third quarter of 2011 to $18.3 million and increased 157% in the nine months ended September 30, 2011 to $46.3 million due to higher average pricing on vehicles sold of 26% and 36%, respectively.
Equipment rental consists primarily of rent expense for FMS revenue earning equipment under lease. Equipment rental decreased 12% in the third quarter and the first nine months of 2011 to $14.5 million and $43.4 million, respectively, due to a lower number of leased vehicles.

 	  	    Three months ended September 30,         	  	Nine months ended September 30,    	  	    Change 2011/2010    	 	
 	  	2011	 	  	2010	  	2011	 	  	2010	  	Three
    Months     	 	  	Nine
    Months     	 	
 	  	(Dollars in thousands)	  	 	 	  	 	 	
							
Interest expense	  	    $	32,745    	  	  	    31,897    	  	    $	100,138    	  	  	    96,385    	  	 	3%    	  	  	 	4%    	  	
Effective interest rate	  	 	        4.1%  	  	  	    5.1%	  	 	        4.5%   	  	  	    5.2%	  				  				
Interest expense increased 3% in the third quarter of 2011 to $32.7 million and increased 4% in the nine months ended September 30, 2011 to $100.1 million reflecting higher average outstanding debt partially offset by a lower effective interest rate. The increase in average outstanding debt reflects funding for recent acquisitions and increased commercial rental capital spending. The lower effective interest rate in 2011 compared to 2010 reflects the replacement of higher interest rate debt with debt issuances at lower rates as well as an increased percentage of variable rate debt.

 	  	Three months ended September 30,	  	Nine months ended September 30,	
 	  	2011	 	  	2010	  	2011	 	  	2010	
 	  	(In thousands)	
					
Miscellaneous income, net	  	 	$(1,722)	  	  	  (2,685)  	  	 	$(6,459)	  	  	  (4,525)  	
	
Miscellaneous income, net consists of investment income on securities used to fund certain benefit plans, interest income, gains from sales of operating property, foreign currency transaction gains and other non-operating items. Miscellaneous income, net decreased in the third quarter of 2011 primarily due to lower income on investment securities partially offset by insurance-related recoveries and gains on foreign currency transactions. Miscellaneous income, net improved in the nine months ended September 30, 2011 due to $1.9 million of gains recognized from sales of facilities and insurance-related recoveries, partially offset by lower income on investment securities.	
			
 	  	Three months ended September 30,	  	Nine months ended September 30,	
 	  	2011	 	  	2010	  	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 during the nine months ended September 30, 2011.
 
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Table of Contents
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)

 	  	Three months ended September 30,	  	Nine months ended September 30,	  	Change 2011/2010	
 	  	2011	 	  	2010	  	2011	 	  	2010	  	Three
Months	  	Nine
Months	
 	  	(Dollars in thousands)	  	 	  	 	
							
Provision for income taxes	  	 	$30,722    	  	  	      22,324      	  	 	    $82,571    	  	  	      53,551      	  	38%	  	54%	
Effective tax rate from continuing operations	  	 	    35.0% 	  	  	    36.0%    	  	 	    40.0%	  	  	    39.2%    	  		  		
Our effective income tax rate from continuing operations for the third quarter of 2011 was 35.0% compared with 36.0% in the same period of the prior year. The decrease in our effective tax rate was mainly due to a higher proportionate amount of earnings in lower rate jurisdictions as well as tax benefits from acquisition-related transaction costs incurred in 2010.
Our effective income tax rate from continuing operations for the nine months ended September 30, 2011 was 40.0% compared with 39.2% in the same period of the prior year. Our provision for income taxes and effective income tax rate were negatively impacted by tax law changes in the States of Michigan (second quarter) and Illinois (first quarter). The increase in our effective tax rate was partially offset by a higher proportionate amount of earnings in lower rate jurisdictions and lower contingent tax accruals.

 	  	Three months ended September 30,	  	Nine months ended September 30,	
 	  	2011	 	  	2010	  	2011	 	  	2010	
 	  	(In thousands)	
					
Loss from discontinued operations, net of tax	  	 	    $  (409)        	  	  	     (839)     	  	 	    $  (2,022)    	  	  	     (2,097)     	
Refer to Note (D), “Discontinued Operations,” in the Notes to Consolidated Condensed Financial Statements for a discussion of losses from discontinued operations.
 
29

Table of Contents
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
 
OPERATING RESULTS BY BUSINESS SEGMENT

 	  	    Three months ended September 30,    	 	 	    Nine months ended September 30,    	 	 	    Change 2011/2010    	
 	  	2011	 	 	2010	 	 	2011	 	 	2010	 	 	Three
    Months    	 	Nine
    Months    	
 	  	(Dollars in thousands)	 	 	 	 	 	
Revenue:	  				 				 				 				 		 		
Fleet Management Solutions	  	$	1,099,049	  	 	 	948,939	  	 	$	3,143,675	  	 	 	2,764,093	  	 	   16%  	 	   14%  	
Supply Chain Solutions	  	 	406,078	  	 	 	322,871	  	 	 	1,196,694	  	 	 	927,157	  	 	26	 	29	
Dedicated Contract Carriage	  	 	158,926	  	 	 	121,392	  	 	 	444,047	  	 	 	360,758	  	 	31	 	23	
Eliminations	  	 	(93,333	) 	 	 	(76,254	) 	 	 	(274,976	) 	 	 	(228,999	) 	 	(22)	 	(20)	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		 		
Total	  	$	1,570,720	  	 	 	1,316,948	  	 	$	4,509,440	  	 	 	3,823,009	  	 	   19%	 	   18%	

Operating Revenue:	  				 				 				 				 		 		
Fleet Management Solutions	  	$	824,651	  	 	 	733,870	  	 	$	2,322,544	  	 	 	2,120,278	  	 	   12%	 	   10%	
Supply Chain Solutions	  	 	326,817	  	 	 	258,542	  	 	 	966,238	  	 	 	746,653	  	 	26	 	29	
Dedicated Contract Carriage	  	 	149,463	  	 	 	118,672	  	 	 	419,503	  	 	 	349,290	  	 	26	 	20	
Eliminations	  	 	(44,442	) 	 	 	(39,473	) 	 	 	(130,720	) 	 	 	(119,921	) 	 	(13)	 	  (9)	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		 		
Total	  	$	1,256,489	  	 	 	1,071,611	  	 	$	3,577,565	  	 	 	3,096,300	  	 	   17%	 	   16%	

NBT:	  				 				 				 				 		 		
Fleet Management Solutions	  	$	74,156	  	 	 	54,766	  	 	$	180,222	  	 	 	122,687	  	 	   35%	 	   47%	
Supply Chain Solutions	  	 	22,398	  	 	 	15,199	  	 	 	51,693	  	 	 	34,784	  	 	47	 	49	
Dedicated Contract Carriage	  	 	8,358	  	 	 	8,619	  	 	 	25,517	  	 	 	24,437	  	 	  (3)	 	  4	
Eliminations	  	 	(5,665	) 	 	 	(4,629	) 	 	 	(17,098	) 	 	 	(14,505	) 	 	(22)	 	(18)	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		 		
	  	 	99,247	  	 	 	73,955	  	 	 	240,334	  	 	 	167,403	  	 	34	 	44	
Unallocated Central Support Services	  	 	(11,592	) 	 	 	(11,957	) 	 	 	(31,564	) 	 	 	(30,706	) 	 	  3	 	  (3)	
Restructuring and other charges, net and other items	  	 	—  	  	 	 	—  	  	 	 	(2,495	) 	 	 	—  	  	 	NM	 	NM	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		 		
Pre-tax earnings from continuing operations	  	$	87,655	  	 	 	61,998	  	 	$	206,275	  	 	 	136,697	  	 	   41%	 	   51%	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		 		
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” and the items discussed in Note (S), “Other Items Impacting Comparability,” 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.
 
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
 
The following table provides a reconciliation of items excluded from our segment NBT measure to their classification within our Consolidated Condensed Statements of Earnings:

 	  	Consolidated
Condensed Statements of Earnings
Line Item	  	Three months ended September 30,	 	  	Nine months ended September 30,	 	
Description	  		  	2011	 	  	2010	 	  	2011	 	 	2010	 	
 	  	 	  	(In thousands)	 	
Restructuring and other charges, net	  	Restructuring  (1)	  	$	—	  	  	 	—	  	  	$	(768	) 	 	 	—	  	
Acquisition-related transaction costs (2)	  	Operating expense	  	 	—	  	  	 	—	  	  	 	(1,727	) 	 	 	—	  	
	  		  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	
	  		  	$	—	  	  	 	—	  	  	$	(2,495	) 	 	 	—	  	

 

(1)	Restructuring refers to “Restructuring and Other Charges, net” on our Consolidated Condensed Statements of Earnings.	
 
(2)	See Note (S), “Other Items Impacting Comparability,” for additional information.	
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 September 30,	 	  	Nine months ended September 30,	 	  	Change 2011/2010	
 	  	2011	 	  	2010	 	  	2011	 	  	2010	 	  	Three
Months	  	Nine
Months	
 	  	(Dollars in thousands)	 	  	 	  	 	
Equipment contribution:	  				  				  				  				  		  		
Supply Chain Solutions	  	$	1,725	  	  	 	1,973	  	  	$	5,518	  	  	 	6,228	  	  	  (13)%  	  	  (11)%  	
Dedicated Contract Carriage	  	 	3,940	  	  	 	2,656	  	  	 	11,580	  	  	 	8,277	  	  	48   	  	40   	
	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  		  		
Total	  	$	5,665	  	  	 	4,629	  	  	$	17,098	  	  	 	14,505	  	  	 22%	  	 18%	

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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 September 30,	 	 	Nine months ended September 30,	 	 	Change 2011/2010	
   	  	    2011    	 	 	    2010    	 	 	    2011    	 	 	    2010    	 	 	Three
Months	 	Nine
Months	
 	  	(Dollars in thousands)	 	 	 	 	 	
							
Full service lease	  	$	509,852	  	 	 	487,488	  	 	$	1,487,882	  	 	 	1,449,365	  	 	      5%	 	      3%	
Contract maintenance	  	 	39,117	  	 	 	40,098	  	 	 	116,384	  	 	 	119,757	  	 	    (2)	 	    (3)	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		 		
Contractual revenue	  	 	548,969	  	 	 	527,586	  	 	 	1,604,266	  	 	 	1,569,122	  	 	    4	 	    2	
Contract-related maintenance	  	 	51,633	  	 	 	41,176	  	 	 	143,658	  	 	 	121,247	  	 	  25	 	  18	
Commercial rental	  	 	206,531	  	 	 	147,899	  	 	 	522,229	  	 	 	379,544	  	 	  40	 	  38	
Other	  	 	17,518	  	 	 	17,209	  	 	 	52,391	  	 	 	50,365	  	 	    2	 	    4	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		 		
Operating revenue (1)	  	 	824,651	  	 	 	733,870	  	 	 	2,322,544	  	 	 	2,120,278	  	 	  12	 	  10	
Fuel services revenue	  	 	274,398	  	 	 	215,069	  	 	 	821,131	  	 	 	643,815	  	 	  28	 	  28	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		 		
Total revenue	  	$	1,099,049	  	 	 	948,939	  	 	$	3,143,675	  	 	 	2,764,093	  	 	      16%	 	      14%	

Segment NBT	  	$	74,156	  	 	 	54,766	  	 	$	180,222	  	 	 	122,687	  	 	      35%	 	      47%	

Segment NBT as a % of total revenue	  	 	6.7	% 	 	 	5.8	% 	 	 	5.7	% 	 	 	4.4	% 	 	  90 bps	 	130 bps	

Segment NBT as a % of operating revenue (1)	  	 	9.0	% 	 	 	7.5	% 	 	 	7.8	% 	 	 	5.8	% 	 	150 bps	 	200 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 16% in the third quarter of 2011 to $1.10 billion. Operating revenue (revenue excluding fuel) increased 12% in the third quarter of 2011 to $824.7 million. In the nine months ended September 30, 2011, total revenue increased 14% to $3.14 billion and operating revenue increased 10% to $2.32 billion. The following table summarizes the components of the change in revenue on a percentage basis versus the prior year:

 	  	Three months ended September 30, 2011	 	Nine months ended September 30, 2011	
 	  	Total	 	Operating	 	Total	 	Operating	
Acquisitions	  	   6%	 	    7%	 	   3%	 	   4%	
Organic including price and volume	  	3	 	4	 	4	 	5	
FMS fuel	  	6	 	—	 	6	 	—	
Foreign exchange	  	1	 	1	 	1	 	1	
	  	 	 	 	 	 	 	 	
Total increase	  	16%	 	12%	 	14%	 	10%	
	  	 	 	 	 	 	 	 	
Fuel services revenue increased 28% in the third quarter and first nine months of 2011 due to higher prices passed through to customers. Full service lease revenue increased 5% in the third quarter of 2011 and 3% in the nine months ended September 30, 2011 reflecting the impact of recent acquisitions. We expect favorable full service lease comparisons to continue through the end of the year primarily due to recent acquisitions. Commercial rental revenue increased 40% in the third quarter of 2011 and 38% in the nine months ended September 30, 2011 reflecting improved global market demand and higher pricing. We expect favorable commercial rental revenue comparisons to continue through the end of 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 September 30,	 	 	Nine months ended September 30,	 	 	Change 2011/2010	
 	  	2011	 	 	2010	 	 	2011	 	 	2010	 	 	Three
Months	 	Nine
Months	
 	  	(Dollars in thousands)	 	 	 	 	 	
							
Rental revenue from non-lease customers	  	$	121,991	  	 	 	95,479	  	 	$	318,201	  	 	 	238,594	  	 	28%	 	33%	

Rental revenue from lease customers (1)	  	$	84,540	  	 	 	52,420	  	 	$	204,028	  	 	 	140,950	  	 	61%	 	45%	

Average commercial rental power fleet size — in service (2), (3)	  	 	30,800	  	 	 	25,100	  	 	 	31,100	  	 	 	23,500	  	 	23%	 	32%	

Commercial rental utilization — power fleet	  	 	79.3	% 	 	 	79.2	% 	 	 	77.1	% 	 	 	75.5	% 	 	10 bps	 	160 bps	

 

(1)	Represents 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 35% in the third quarter of 2011 to $74.2 million primarily due to significantly better commercial rental performance, improved used vehicle sales results and the impact of acquisitions. The increase in NBT was partially offset by higher compensation-related expenses as well as higher maintenance costs on an older fleet. Commercial rental performance improved 62% as a result of increased market demand and higher pricing on a 30% larger average fleet. The increase in the average fleet reflects organic growth of 12% and an acquisition-related impact of 18%. Used vehicle sales results improved by $14.6 million primarily due to higher pricing. The improvements in our commercial rental and used vehicle sales activities allowed us to better leverage our fixed costs. Acquisitions increased FMS NBT by 21%.
FMS NBT increased 47% in the nine months ended September 30, 2011 to $180.2 million reflecting the same trends as those that impacted the third quarter of 2011. Commercial rental performance improved 71%. Used vehicle sales results improved by $42.0 million. Acquisitions increased NBT by 14%. FMS NBT also benefited from a gain of $2.4 million on the sale of a facility.
 
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Table of Contents
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	 	
 	  	September 30,
2011	 	  	December 31,
2010	 	  	September 30,
2010	 	  	        Sep. 2011/        
Dec. 2010	 	  	    Sep. 2011/    
Sep. 2010	 	
End of period vehicle count	  				  				  				  				  				
						
By type:	  				  				  				  				  				
Trucks (1)	  	 	67,600	  	  	 	63,000	  	  	 	63,700	  	  	 	7%        	  	  	 	6%    	  	
Tractors (2)	  	 	54,400	  	  	 	49,600	  	  	 	50,300	  	  	 	10           	  	  	 	8       	  	
Trailers (3) , (4)	  	 	43,200	  	  	 	33,000	  	  	 	33,300	  	  	 	31           	  	  	 	30       	  	
Other	  	 	2,500	  	  	 	3,100	  	  	 	2,900	  	  	 	(19)          	  	  	 	(14)      	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  				  				
Total	  	 	167,700	  	  	 	148,700	  	  	 	150,200	  	  	 	13%        	  	  	 	12%    	  	

By ownership:	  				  				  				  				  				
Owned	  	 	164,300	  	  	 	145,000	  	  	 	145,500	  	  	 	13%        	  	  	 	13%    	  	
Leased	  	 	3,400	  	  	 	3,700	  	  	 	4,700	  	  	 	(8)          	  	  	 	(28)      	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  				  				
Total	  	 	167,700	  	  	 	148,700	  	  	 	150,200	  	  	 	13%        	  	  	 	12%    	  	

By product line:	  				  				  				  				  				
Full service lease (4)	  	 	119,600	  	  	 	111,100	  	  	 	111,800	  	  	 	8%        	  	  	 	7%    	  	
Commercial rental (4)	  	 	40,100	  	  	 	29,700	  	  	 	30,900	  	  	 	35           	  	  	 	30       	  	
Service vehicles and other	  	 	2,900	  	  	 	2,700	  	  	 	2,800	  	  	 	7           	  	  	 	4       	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  				  				
Active units	  	 	162,600	  	  	 	143,500	  	  	 	145,500	  	  	 	13           	  	  	 	12       	  	
Held for sale (4)	  	 	5,100	  	  	 	5,200	  	  	 	4,700	  	  	 	(2)          	  	  	 	9       	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  				  				
Total	  	 	167,700	  	  	 	148,700	  	  	 	150,200	  	  	 	13%        	  	  	 	12%    	  	

Customer vehicles under contract maintenance	  	 	35,300	  	  	 	33,400	  	  	 	33,600	  	  	 	6%        	  	  	 	5%    	  	

Quarterly average vehicle count	  				  				  				  				  				
						
By product line:	  				  				  				  				  				
Full service lease	  	 	119,700	  	  	 	111,200	  	  	 	111,900	  	  	 	8%        	  	  	 	7%    	  	
Commercial rental	  	 	40,400	  	  	 	30,400	  	  	 	31,100	  	  	 	33           	  	  	 	30       	  	
Service vehicles and other	  	 	2,900	  	  	 	2,800	  	  	 	1,900	  	  	 	4           	  	  	 	53       	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  				  				
Active units	  	 	163,000	  	  	 	144,400	  	  	 	144,900	  	  	 	13           	  	  	 	12       	  	
Held for sale	  	 	4,900	  	  	 	4,900	  	  	 	5,100	  	  	 	—           	  	  	 	(4)      	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  				  				
Total	  	 	167,900	  	  	 	149,300	  	  	 	150,000	  	  	 	12           	  	  	 	12       	  	

Customer vehicles under contract maintenance	  	 	34,900	  	  	 	33,400	  	  	 	33,700	  	  	 	4%        	  	  	 	4%    	  	

Year-to-date average vehicle count	  				  				  				  				  				
						
By product line:	  				  				  				  				  				
Full service lease	  	 	114,800	  	  	 	112,500	  	  	 	112,900	  	  	 	2%        	  	  	 	2%    	  	
Commercial rental	  	 	35,600	  	  	 	29,800	  	  	 	29,600	  	  	 	19           	  	  	 	20       	  	
Service vehicles and other	  	 	2,900	  	  	 	2,600	  	  	 	2,600	  	  	 	12           	  	  	 	12       	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  				  				
Active units	  	 	153,300	  	  	 	144,900	  	  	 	145,100	  	  	 	6           	  	  	 	6       	  	
Held for sale	  	 	5,000	  	  	 	5,800	  	  	 	6,100	  	  	 	(14)          	  	  	 	(18)      	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  				  				
Total	  	 	158,300	  	  	 	150,700	  	  	 	151,200	  	  	 	5           	  	  	 	5       	  	

Customer vehicles under contract maintenance	  	 	33,800	  	  	 	33,700	  	  	 	33,800	  	  	 	—%        	  	  	 	—%    	  	

 

(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.	
 
(4)	Includes 9,500 trailers (6,100 full service lease and 3,400 commercial rental) acquired as part of the Hill Hire acquisition.	
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	 	
 	  	September 30,
2011	 	  	December 31,
2010	 	  	September 30,
2010	 	  	        Sep. 2011/        
Dec. 2010	 	  	    Sep. 2011/    
Sep. 2010	 	
Not yet earning revenue (NYE)	  	 	1,500	  	  	 	800	  	  	 	1,000	  	  	 	88%        	  	  	 	50%     	  	
No longer earning revenue (NLE):	  				  				  				  				  				
Units held for sale	  	 	5,100	  	  	 	5,200	  	  	 	4,700	  	  	 	(2)          	  	  	 	9        	  	
Other NLE units	  	 	2,500	  	  	 	2,000	  	  	 	2,200	  	  	 	25           	  	  	 	14        	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  				  				
Total	  	 	9,100	  	  	 	8,000	  	  	 	7,900	  	  	 	14%        	  	  	 	15%     	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  				  				
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 new lease sales. We expect NYE levels to continue at the current level based on lease sales activity. 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 an increase in lease replacement activity.  We expect NLE levels to continue at the current level as lease replacement activity continues.
Supply Chain Solutions

 	  	Three months ended September 30,	 	 	Nine months ended September 30,	 	 	Change 2011/2010	 	
 	  	2011	 	 	2010	 	 	2011	 	 	2010	 	 	Three
       Months      	 	  	Nine
       Months      	 	
 	  	(Dollars in thousands)	 	 	 	 	  	 	 	
Operating revenue:	  				 				 				 				 				  				
Automotive	  	$	115,377	  	 	 	114,744	  	 	$	345,855	  	 	 	334,438	  	 	 	1%    	  	  	 	3%    	  	
High-Tech	  	 	59,241	  	 	 	57,236	  	 	 	176,768	  	 	 	161,806	  	 	 	4       	  	  	 	9       	  	
Retail & CPG	  	 	109,586	  	 	 	45,734	  	 	 	317,347	  	 	 	131,716	  	 	 	140       	  	  	 	141       	  	
Industrial and other	  	 	42,613	  	 	 	40,828	  	 	 	126,268	  	 	 	118,693	  	 	 	4       	  	  	 	6       	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 				  				
Total operating revenue (1)	  	 	326,817	  	 	 	258,542	  	 	 	966,238	  	 	 	746,653	  	 	 	26       	  	  	 	29       	  	
Subcontracted transportation	  	 	79,261	  	 	 	64,329	  	 	 	230,456	  	 	 	180,504	  	 	 	23       	  	  	 	28       	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 				  				
Total revenue	  	$	406,078	  	 	 	322,871	  	 	$	1,196,694	  	 	 	927,157	  	 	 	26%    	  	  	 	29%    	  	

Segment NBT	  	$	22,398	  	 	 	15,199	  	 	$	51,693	  	 	 	34,784	  	 	 	47%    	  	  	 	49%    	  	

Segment NBT as a % of total revenue	  	 	5.5	% 	 	 	4.7	% 	 	 	4.3	% 	 	 	3.8	% 	 	 	80 bps	  	  	 	50 bps	  	

Segment NBT as a % of operating revenue (1)	  	 	6.9	% 	 	 	5.9	% 	 	 	5.3	% 	 	 	4.7	% 	 	 	100 bps	  	  	 	60 bps	  	

Memo: Fuel costs (2)	  	$	21,516	  	 	 	19,357	  	 	$	70,166	  	 	 	57,762	  	 	 	11%    	  	  	 	21%    	  	

 

(1)	In SCS transportation management arrangements, we may act as a principal or as an agent in purchasing transportation on behalf of our customer. We record revenue on a gross basis when acting as principal and we record revenue on a net basis when acting as an agent. As a result, total revenue may fluctuate depending on our role in subcontracted transportation arrangements yet our profitability remains unchanged as we typically realize minimal profitability from subcontracting transportation. We deduct subcontracted transportation expense from total revenue to arrive at operating revenue. We use operating revenue and NBT as a percent of operating revenue, non-GAAP financial measures, to evaluate the operating performance of our SCS business segment and as a measure of sales activity and profitability.	
 
(2)	Fuel costs are largely a pass-through to customers and therefore have a direct impact on revenue.	
 
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Table of Contents
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
 
Total revenue increased 26% in the third quarter of 2011 to $406.1 million. Operating revenue (revenue excluding subcontracted transportation) increased 26% in the third quarter of 2011 to $326.8 million. For the nine months ended September 30, 2011, total revenue increased 29% to $1.20 billion and operating revenue increased 29% to $966.2 million. We expect favorable revenue comparisons to continue through the end of the year due to the impact of the TLC acquisition, higher overall freight volumes and new business. The following table summarizes the components of the change in revenue on a percentage basis versus the prior year:

 	  	Three months ended September 30, 2011	 	Nine months ended September 30, 2011	
 	  	Total	 	Operating	 	Total	 	Operating	
					
TLC acquisition	  	20%	 	23%	 	21%	 	23%	
Subcontracted transportation	  	3	 	—	 	3	 	—	
Organic including price and volume	  	1	 	1	 	2	 	3	
Fuel cost pass-throughs	  	1	 	1	 	1	 	1	
Foreign exchange	  	1	 	1	 	2	 	2	
	  	 	 	 	 	 	 	 	
Total increase	  	26%	 	26%	 	29%	 	29%	
	  	 	 	 	 	 	 	 	
SCS NBT increased 47% in the third quarter of 2011 to $22.4 million and 49% in the nine months ended September 30, 2011 to $51.7 million. The TLC acquisition increased SCS NBT by 37% during the third quarter of 2011 and 33% during the first nine months of 2011. SCS NBT also benefited from higher freight volumes as well as new business, partially offset by increased compensation-related expenses. The third quarter of 2011 also benefitted from favorable insurance development and gains related to foreign exchange and the sale of a facility.
Dedicated Contract Carriage

 	  	Three months ended September 30,	 	 	Nine months ended September 30,	 	 	Change 2011/2010	 	
 	  	2011	 	 	2010	 	 	2011	 	 	2010	 	 	Three
Months	 	  	Nine
Months	 	
 	  	(Dollars in thousands)	 	 	 	 	  	 	 	
							
Operating revenue (1)	  	$	149,463	  	 	 	118,672	  	 	$	419,503	  	 	 	349,290	  	 	 	26%     	  	  	 	20%     	  	
Subcontracted transportation	  	 	9,463	  	 	 	2,720	  	 	 	24,544	  	 	 	11,468	  	 	 	248        	  	  	 	114        	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 				  				
Total revenue	  	$	158,926	  	 	 	121,392	  	 	$	444,047	  	 	 	360,758	  	 	 	31%     	  	  	 	23%     	  	

Segment NBT	  	$	8,358	  	 	 	8,619	  	 	$	25,517	  	 	 	24,437	  	 	 	(3)%   	  	  	 	4%     	  	

Segment NBT as a % of total revenue	  	 	5.3	% 	 	 	7.1	% 	 	 	5.7	% 	 	 	6.8	% 	 	 	(180) bps	  	  	 	(110) bps	  	

Segment NBT as a % of operating revenue (1)	  	 	5.6	% 	 	 	7.3	% 	 	 	6.1	% 	 	 	7.0	% 	 	 	(170) bps	  	  	 	(90) bps	  	

Memo: Fuel costs (2)	  	$	33,367	  	 	 	21,058	  	 	$	93,587	  	 	 	61,630	  	 	 	58%     	  	  	 	52%     	  	

 

(1)	In DCC transportation management arrangements we may act as a principal or as an agent in purchasing transportation on behalf of our customer. We record revenue on a gross basis when acting as principal and we record revenue on a net basis when acting as an agent. As a result, total revenue may fluctuate depending on our role in subcontracted transportation arrangements yet our profitability remains unchanged as we typically realize minimal profitability from subcontracting transportation. We deduct subcontracted transportation expense from total revenue to arrive at operating revenue. We use operating revenue and NBT as a percent of operating revenue, non-GAAP financial measures, to evaluate the operating performance of our DCC business segment and as a measure of sales activity and profitability.	
 
(2)	Fuel costs are largely a pass-through to customers and therefore have a direct impact on revenue.	
Total revenue increased 31% in the third quarter of 2011 to $158.9 million. Operating revenue (revenue excluding subcontracted transportation) increased 26% in the third quarter of 2011 to $149.5 million. For the nine months ended September 30, 2011, total revenue increased 23% to $444.0 million and operating revenue increased 20% to $419.5 million. We expect favorable revenue comparisons to continue through the end of the year due to the impact of the Scully acquisition. The following table summarizes the components of the change in revenue on a percentage basis versus 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 September 30, 2011	 	Nine months ended September 30, 2011	
 	  	Total	 	Operating	 	Total	 	Operating	
					
Scully acquisition	  	21%	 	17%	 	17%	 	14%	
Fuel cost pass-throughs	  	6	 	6	 	5	 	6	
Subcontracted transportation	  	2	 	—	 	—	 	—	
Organic including price and volume	  	2	 	3	 	1	 	—	
	  	 	 	 	 	 	 	 	
Total increase	  	31%	 	26%	 	23%	 	20%	
	  	 	 	 	 	 	 	 	
DCC NBT decreased 3% in the third quarter of 2011 to $8.4 million reflecting higher compensation-related expense and legal claims partially offset by better operating performance. DCC NBT increased 4% in the first nine months of 2011 to $25.5 million reflecting the impact of the Scully acquisition partially offset by higher compensation costs.
Central Support Services

 	  	Three months ended September 30,	 	 	Nine months ended September 30,	 	 	Change 2011/2010	 	
 	  	2011	 	 	2010	 	 	2011	 	 	2010	 	 	Three
       Months      	 	  	Nine
       Months      	 	
 	  	(Dollars in thousands)	 	 	 	 	  	 	 	
							
Human resources	  	$	4,656	  	 	 	3,839	  	 	$	13,690	  	 	 	11,351	  	 	 	21%      	  	  	 	21%      	  	
Finance	  	 	12,817	  	 	 	13,622	  	 	 	37,221	  	 	 	38,198	  	 	 	(6)        	  	  	 	(3)        	  	
Corporate services and public affairs	  	 	3,284	  	 	 	3,317	  	 	 	9,893	  	 	 	10,199	  	 	 	(1)        	  	  	 	(3)        	  	
Information technology	  	 	15,430	  	 	 	14,289	  	 	 	45,850	  	 	 	42,078	  	 	 	8         	  	  	 	9         	  	
Health and safety	  	 	1,843	  	 	 	1,688	  	 	 	5,659	  	 	 	5,364	  	 	 	9         	  	  	 	5         	  	
Other	  	 	16,565	  	 	 	10,952	  	 	 	39,566	  	 	 	28,518	  	 	 	51         	  	  	 	39         	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 				  				
Total CSS	  	 	54,595	  	 	 	47,707	  	 	 	151,879	  	 	 	135,708	  	 	 	14         	  	  	 	12         	  	
Allocation of CSS to business segments	  	 	(43,003	) 	 	 	(35,750	) 	 	 	(120,315	) 	 	 	(105,002	) 	 	 	(20)        	  	  	 	(15)        	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 				  				
Unallocated CSS	  	$	11,592	  	 	 	11,957	  	 	$	31,564	  	 	 	30,706	  	 	 	(3)%      	  	  	 	3%      	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 				  				
Total CSS costs increased 14% in the third quarter of 2011 to $54.6 million and increased 12% in the first nine months of 2011 to $151.9 million primarily due to higher compensation-related expenses and investments in information technology. Unallocated CSS costs decreased 3% in the third quarter of 2011 due to lower professional services. Unallocated  CSS costs increased 3% in the nine months ended September 30, 2011 due to higher compensation-related expenses.
FINANCIAL RESOURCES AND LIQUIDITY
Cash Flows
The following is a summary of our cash flows from operating, financing and investing activities from continuing operations:

 	  	Nine months ended September 30,	 	
 	  	2011	 	 	2010	 	
 	  	(In thousands)	 	
Net cash provided by (used in):	  				 				
Operating activities	  	$	782,303	  	 	 	804,162	  	
Financing activities	  	 	372,138	  	 	 	(96,008	) 	
Investing activities	  	 	(1,254,438	) 	 	 	(664,397	) 	
Effect of exchange rate changes on cash	  	 	3,848	  	 	 	6	  	
	  	 	 	 	 	 	 	 	
Net change in cash and cash equivalents	  	$	(96,149	) 	 	 	43,763	  	
	  	 	 	 	 	 	 	 	
A detail of the individual items contributing to the cash flow changes is included in the Consolidated Condensed Statements of Cash Flows.
 
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
 
Cash provided by operating activities from continuing operations decreased to $782.3 million in the nine months ended September 30, 2011 compared with $804.2 million in 2010 because of an increase in working capital needs. Cash provided by financing activities increased to $372.1 million compared with cash used in financing activities of $96.0 million in 2010 due to higher borrowing needs to fund acquisitions and capital spending. Cash used in investing activities increased to $1.25 billion compared with $664.4 million in 2010 due to acquisition-related payments and higher vehicle spending.
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:

 	  	Nine months ended September 30,	 	
 	  	2011	 	 	2010 	 	
 	  	(In thousands)	 	
			
Net cash provided by operating activities from continuing operations	  	$	782,303	  	 	 	804,162	  	
Sales of revenue earning equipment	  	 	216,055	  	 	 	159,012	  	
Sales of operating property and equipment	  	 	7,869	  	 	 	2,821	  	
Collections on direct finance leases	  	 	46,136	  	 	 	45,941	  	
Other, net	  	 	—	  	 	 	1,950	  	
	  	 	 	 	 	 	 	 	
Total cash generated	  	 	1,052,363	  	 	 	1,013,886	  	
Purchases of property and revenue earning equipment	  	 	(1,165,135	) 	 	 	(860,902	) 	
	  	 	 	 	 	 	 	 	
Free cash flow	  	$	(112,772	) 	 	 	152,984	  	
	  	 	 	 	 	 	 	 	
Free cash flow decreased $265.8 million to negative $112.8 million in the nine months ended September 30, 2011 primarily due to higher vehicle spending. We anticipate full-year 2011 free cash flow to be consistent with our previous forecast of negative $215 million.
The following table provides a summary of capital expenditures:

 	  	Nine months ended September 30,	 	
 	  	2011	 	 	2010	 	
 	  	(In thousands)	 	
Revenue earning equipment: (1)	  				 				
Full service lease	  	$	614,227	  	 	 	487,703	  	
Commercial rental	  	 	579,511	  	 	 	357,510	  	
	  	 	 	 	 	 	 	 	
	  	 	1,193,738	  	 	 	845,213	  	
Operating property and equipment	  	 	55,334	  	 	 	49,497	  	
	  	 	 	 	 	 	 	 	
Total capital expenditures	  	 	1,249,072	  	 	 	894,710	  	
Changes in accounts payable related to purchases of revenue earning equipment	  	 	(83,937	) 	 	 	(33,808	) 	
	  	 	 	 	 	 	 	 	
Cash paid for purchases of property and revenue earning equipment	  	$	1,165,135	  	 	 	860,902	  	

 

(1)	Capital expenditures exclude non-cash additions of approximately $1.2 million and $0.1 million during the nine months ended September 30, 2011 and 2010, respectively, in assets held under capital leases resulting from the extension of existing operating leases and other additions.	
Capital expenditures (accrual basis) increased 40% in the nine months ended September 30, 2011 to $1.25 billion because of increased commercial rental spending to refresh and grow the rental fleet and higher full service lease vehicle spending for new business and replacement of customer fleets. We anticipate full-year 2011 accrual basis capital expenditures to be consistent with our previous forecast of $1.75 billion.
 
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
 
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 September 30, 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 (affirmed August 2011)	
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.
In June 2011, we executed a new $900 million global revolving credit facility with a syndicate of twelve lending institutions led by Bank of America N.A., Bank of Tokyo-Mitsubishi UFJ, Ltd., BNP Paribas, Mizuho Corporate Bank, Ltd., Royal Bank of Canada, Royal Bank of Scotland Plc, U.S. Bank National Association and Wells Fargo Bank, N.A. This replaced an $875 million credit facility which was scheduled to mature in April 2012. The new global credit facility matures in June 2016 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 September 30, 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 10.0 basis points to 32.5 basis points, and are based on Ryder’s long-term credit ratings. The current annual facility fee is 15.0 basis points, which applies to the total facility size of $900 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 September 30, 2011 was 214%. At September 30, 2011, $631.1 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 May 2011, we issued $350 million of unsecured medium-term notes maturing in June 2017. In connection with the issuance of the medium term notes, we entered into three interest rate swaps with an aggregate notional amount of $150 million maturing in June 2017. 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.
 
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Table of Contents
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
 
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. We are currently in the process of renewing the program through October 2012. The program contains provisions restricting its availability in the event of a material adverse change to our business operations or the collectability of the collateralized receivables. At September 30, 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.
At September 30, 2011 we had the following amounts available to fund operations under the aforementioned facilities:

 	  	(In millions)	
Global revolving credit facility	  	$631	
Trade receivables program	  	$175	
 
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Table of Contents
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
 
The following table shows the movements in our debt balance:

 	  	Nine months ended September 30,	 	
 	  	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	  	 	(101,964	) 	 	 	(48,000	) 	
Proceeds from issuance of medium-term notes	  	 	699,244	  	 	 	300,000	  	
Proceeds from issuance of other debt instruments	  	 	267,155	  	 	 	14,511	  	
Retirement of medium-term notes	  	 	(375,000	) 	 	 	(175,000	) 	
Other debt repaid, including capital lease obligations	  	 	(42,955	) 	 	 	(64,560	) 	
Net change from discontinued operations	  	 	(143	) 	 	 	(2,941	) 	
	  	 	 	 	 	 	 	 	
	  	 	446,337	  	 	 	24,010	  	
Non-cash changes in debt:	  				 				
Fair market value adjustment on notes subject to hedging	  	 	9,263	  	 	 	5,938	  	
Addition of capital lease obligations	  	 	1,187	  	 	 	106	  	
Changes in foreign currency exchange rates and other non-cash items	  	 	(5,195	) 	 	 	2,040	  	
	  	 	 	 	 	 	 	 	
Total changes in debt	  	 	451,592	  	 	 	32,094	  	

Debt balance at September 30	  	$	3,198,594	  	 	 	2,529,785	  	
	  	 	 	 	 	 	 	 	
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 38% and 28% at September 30, 2011 and December 31, 2010, respectively.
Ryder’s leverage ratios and a reconciliation of on-balance sheet debt to total obligations were as follows:

 	  	September 30,
2011	 	  	% to
Equity	 	  	December 31,
2010	 	  	% to
Equity	 	
 	  	(Dollars in thousands)	 	
					
On-balance sheet debt	  	$	3,198,594	  	  	 	220%	  	  	 	2,747,002	  	  	 	196%  	  	
Off-balance sheet debt—PV of minimum lease payments and guaranteed residual values under operating leases for vehicles (1)	  	 	64,474	  	  				  	 	99,797	  	  				
	  	 	 	 	  				  	 	 	 	  				
Total obligations	  	$	3,263,068	  	  	 	225%	  	  	 	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 increased in 2011 due to acquisitions and increased investment in vehicles.
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 results 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
 
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
 
increased equipment rental expense. These leases contain limited guarantees by us of the residual values of the leased vehicles (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 nine months ended September 30, 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. In 2011, we expect to contribute approximately $15.8 million to our pension plans. During the nine months ended September 30, 2011, we contributed $12.4 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 October 2011, our Board of Directors declared a quarterly cash dividend of $0.29 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 September 30,	 	 	Nine months ended September 30,	 	
 	  	2011	 	 	2010	 	 	2011	 	 	2010	 	
 	  	(In thousands)	 	
					
Total revenue	  	$	1,570,720	  	 	 	1,316,948	  	 	$	4,509,440	  	 	 	3,823,009	  	
FMS fuel services and SCS/DCC subcontracted transportation (1)	  	 	(363,122	) 	 	 	(282,118	) 	 	 	(1,076,131	) 	 	 	(835,787	) 	
Fuel eliminations	  	 	48,891	  	 	 	36,781	  	 	 	144,256	  	 	 	109,078	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating revenue	  	$	1,256,489	  	 	 	1,071,611	  	 	$	3,577,565	  	 	 	3,096,300	  	

 

(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 higher overall freight volume, continued improvement in contractual lease demand, favorable commercial rental, SCS and DCC demand, increased 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 levels of NYE and NLE vehicles in inventory through the end of the year;	
 
•	 	our expectations of free cash flow, operating cash flow, total cash generated and capital expenditures for the remainder of 2011;	
 
•	 	our expectations regarding future payments of contingent consideration with respect to recent acquisitions;	
 
•	 	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 beliefs regarding the default risk of our direct financing lease receivables	
 
•	 	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;	
 
•	 	our expectations regarding the scope, anticipated outcomes and the adequacy of our loss provisions with respect to certain claims, proceedings and lawsuits;	
 
•	 	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; and	
 
•	 	the appropriateness of our short-term and long-term target leverage ranges and our expectations regarding meeting those ranges.	
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:	
 
 	¡   	 	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	
 
 	¡   	 	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	
 
 	¡   	 	Changes in our customers’ operations, financial condition or business environment that may limit their need for, or ability to purchase, our services	

 	¡   	 	Changes in market conditions affecting the commercial rental market or the sale of used vehicles	
 
 	¡   	 	Volatility in automotive and high-tech volumes and shifting customer demand in the automotive and high-tech industries	
 
 	¡   	 	Less than anticipated growth rates in the markets in which we operate	
 
 	¡   	 	Changes in current financial, tax or regulatory requirements that could negatively impact the leasing market	
 
•	 	Competition:	
 
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
 
 	¡   	 	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	
 
 	¡   	 	Competition from other service providers, some of which have greater capital resources or lower capital costs	
 
 	¡   	 	Continued consolidation in the markets in which we operate which may create large competitors with greater financial resources	
 
 	¡   	 	Our inability to maintain current pricing levels due to economic conditions, demand for services, customer acceptance or competition	
 
•	 	Profitability:	
 
 	¡   	 	Our inability to obtain adequate profit margins for our services	
 
 	¡   	 	Lower than expected sales volumes or customer retention levels	
 
 	¡   	 	Our inability to integrate acquisitions as projected, achieve planned synergies, anticipate costs and liabilities or retain customers of companies we acquire	
 
 	¡   	 	Lower full service lease sales activity	
 
 	¡   	 	Loss of key customers in our SCS and DCC business segments	
 
 	¡   	 	Our inability to adapt our product offerings to meet changing consumer preferences on a cost-effective basis	
 
 	¡   	 	The inability of our business segments to create operating efficiencies	
 
 	¡   	 	The inability of our legacy information technology systems to provide timely access to data	
 
 	¡   	 	The inability of our data security measures to prevent a data privacy breach	
 
 	¡   	 	Sudden changes in fuel prices and fuel shortages	
 
 	¡   	 	Higher prices for vehicles, diesel engines and fuel as a result of exhaust emissions standards enacted over the last few years	
 
 	¡   	 	Our inability to successfully implement our asset management initiatives	
 
 	¡   	 	Our key assumptions and pricing structure of our SCS contracts prove to be invalid	
 
 	¡   	 	Increased unionizing, labor strikes, work stoppages and driver shortages	
 
 	¡   	 	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	
 
 	¡   	 	Our inability to manage our cost structure	
 
 	¡   	 	Our inability to limit our exposure for customer claims	
 
 	¡   	 	Unfavorable or unanticipated outcomes in legal proceedings	
 
•	 	Financing Concerns:	
 
 	¡   	 	Higher borrowing costs and possible decreases in available funding sources caused by an adverse change in our debt ratings	
 
 	¡   	 	Unanticipated interest rate and currency exchange rate fluctuations	
 
 	¡   	 	Negative funding status of our pension plans caused by lower than expected returns on invested assets and unanticipated changes in interest rates	
 
 	¡   	 	Withdrawal liability as a result of our participation in multi-employer plans	
 
 	¡   	 	Instability in U.S. and worldwide credit markets, resulting in higher borrowing costs and/or reduced access to credit	
 
•	 	Accounting Matters:	
 
 	¡   	 	Impact of unusual items resulting from ongoing evaluations of business strategies, asset valuations, acquisitions, divestitures and our organizational structure	
 
 	¡   	 	Reductions in residual values or useful lives of revenue earning equipment	
 
 	¡   	 	Increases in compensation levels, retirement rate and mortality resulting in higher pension expense; regulatory changes affecting pension estimates, accruals and expenses	

 	¡   	 	Increases in healthcare costs resulting in higher insurance costs	
 
 	¡   	 	Changes in accounting rules, assumptions and accruals	
 
 	¡   	 	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	
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 third 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 third 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 September 30, 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 September 30, 2011:

 	  	Total Number
of Shares
Purchased (1)	 	  	Average Price
Paid per  Share	 	  	Total Number  of
Shares
Purchased as
Part of Publicly
Announced
Programs	 	  	Maximum
Number of
Shares That May
Yet Be
Purchased Under
the Anti-Dilutive
Program (2) 	 	
July 1 through July 31, 2011	  	 	35,516	  	  	$	55.52	  	  	 	30,000	  	  	 	588,344	  	
August 1 through August 31, 2011	  	 	181,051	  	  	 	45.50	  	  	 	172,971	  	  	 	415,373	  	
September 1 through September 30, 2011	  	 	2,330	  	  	 	40.14	  	  	 	—	  	  	 	415,373	  	
	  	 	 	 	  	 	 	 	  	 	 	 	  				
Total	  	 	218,897	  	  	$	47.07	  	  	 	202,971	  	  				

 

(1)	During the three months ended September 30, 2011, we purchased an aggregate of 15,926 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 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 allowed for share repurchases during Ryder’s quarterly blackout periods as set forth in the trading plan. For the three months ended September 30, 2011 we repurchased and retired 202,971 shares under this program at an aggregate cost of $9.5 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).	
		
   32	  	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: October 25, 2011	 	By:	 	/s/ Art A. Garcia	 		
	 		 	Art A. Garcia	 		
	 		 	Executive Vice President and Chief Financial Officer	 		
	 		 	(Principal Financial Officer and Duly Authorized Officer)	 		
				
Date: October 25, 2011	 	By:	 	/s/ Cristina A. Gallo-Aquino	 		
	 		 	Cristina A. Gallo-Aquino	 		
	 		 	Vice President and Controller
(Principal Accounting Officer)	 		
 
47

EXHIBIT 31.1
CERTIFICATION
I, Gregory T. Swienton, certify that:
 
 	1.	I have reviewed this quarterly report on Form 10-Q of Ryder System, Inc.;	
 
 	2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
 
 	3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	
 
 	4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	
 
 	a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
 
 	b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
 
 	c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
 
 	d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	
 
 	5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	
 
 	a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	
 
 	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	

Date: October 25, 2011	 	/s/ Gregory T. Swienton	 		
	 	Gregory T. Swienton
Chairman and Chief Executive Officer	

EXHIBIT 31.2
CERTIFICATION
I, Art A. Garcia, certify that:
 
 	1.	I have reviewed this quarterly report on Form 10-Q of Ryder System, Inc.;	
 
 	2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
 
 	3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	
 
 	4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	
 
 	a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
 
 	b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
 
 	c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
 
 	d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	
 
 	5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	
 
 	a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	
 
 	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	

Date: October 25, 2011	 	/s/ Art A. Garcia	 		
	 	Art A. Garcia
Executive Vice President and Chief Financial Officer	

EXHIBIT 32
CERTIFICATION
In connection with the Quarterly Report of Ryder System, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Gregory T. Swienton, Chief Executive Officer of the Company, and Art A.Garcia, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
 
1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and	
 
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.	

/s/ Gregory T. Swienton	
Gregory T. Swienton
Chairman and Chief Executive Officer
October 25, 2011	

/s/ Art A. Garcia	
Art A. Garcia
Executive Vice President and Chief Financial Officer
October 25, 2011