Edgar Filing: RYDER SYSTEM INC

Ryder System, Inc.

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 JUNE 30, 2007


¨		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 (State or other jurisdiction of incorporation or organization)		59-0739250 (I.R.S. Employer Identification No.)

11690 N.W. 105th Street Miami, Florida 33178 (Address of principal executive offices, including zip code)		(305) 500-3726 (Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ NO ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer þ		Accelerated filer ¨		Non-accelerated filer ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO þ

The number of shares of Ryder System, Inc. Common Stock ($0.50 par value per share) outstanding at June 30, 2007 was 59,826,000.

RYDER SYSTEM, INC.
FORM 10-Q QUARTERLY REPORT

TABLE OF CONTENTS


		Page No.
PART I	FINANCIAL INFORMATION

ITEM 1	Financial Statements

	Consolidated Condensed Statements of Earnings —
	Three and six months ended June 30, 2007 and 2006 (unaudited)		1

	Consolidated Condensed Balance Sheets —
	June 30, 2007 (unaudited) and December 31, 2006		2

	Consolidated Condensed Statements of Cash Flows —
	Six months ended June 30, 2007 and 2006 (unaudited)		3

	Consolidated Condensed Statement of Shareholders’ Equity —
	Six months ended June 30, 2007 (unaudited)		4

	Notes to Consolidated Condensed Financial Statements (unaudited)		5

ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		19

ITEM 3	Quantitative and Qualitative Disclosures About Market Risk		39

ITEM 4	Controls and Procedures		39

PART II	OTHER INFORMATION

ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds		39

ITEM 4	Submission of Matters to a Vote of Security Holders		40

ITEM 6	Exhibits		41

	SIGNATURES		42

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

RYDER SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(unaudited)


	Three months ended June 30,						Six months ended June 30,
	2007			2006			2007			2006
	(In thousands, except per share amounts)
Revenue	$	1,657,969			1,595,726		$	3,252,071			3,092,017


Operating expense (exclusive of items shown separately)		697,656			703,471			1,361,541			1,364,014
Salaries and employee-related costs		344,702			343,977			698,866			681,491
Subcontracted transportation		256,986			215,267			504,215			417,490
Depreciation expense		202,270			183,454			398,454			361,630
Gains on vehicle sales, net		(13,533	)		(14,977	)		(28,566	)		(27,789	)
Equipment rental		26,014			25,360			49,859			50,927
Interest expense		40,841			35,037			80,211			66,458
Miscellaneous income, net		(2,458	)		(417	)		(3,374	)		(5,803	)
Restructuring and other charges (recoveries), net		1,155			—			1,691			(159	)

		1,553,633			1,491,172			3,062,897			2,908,259


Earnings before income taxes		104,336			104,554			189,174			183,758
Provision for income taxes		39,213			34,275			72,792			65,897


Net earnings	$	65,123			70,279		$	116,382			117,861


Earnings per common share:
Basic	$	1.08			1.15		$	1.92			1.93


Diluted	$	1.07			1.13		$	1.90			1.91


Cash dividends per common share	$	0.21			0.18		$	0.42			0.36

See accompanying notes to consolidated condensed financial statements.

RYDER SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS


	(unaudited)
	June 30,			December 31,
	2007			2006
	(Dollars in thousands, except per
	share amounts)
Assets:
Current assets:
Cash and cash equivalents	$	109,969			128,639
Receivables, net		917,427			883,478
Inventories		56,842			59,318
Prepaid expenses and other current assets		165,711			190,381

Total current assets		1,249,949			1,261,816

Revenue earning equipment, net of accumulated depreciation of $2,736,940 and $2,825,876, respectively		4,601,877			4,509,332
Operating property and equipment, net of accumulated depreciation of $790,631 and $778,550, respectively		515,097			498,968
Goodwill		159,996			159,244
Intangible assets		13,988			14,387
Direct financing leases and other assets		389,081			385,176


Total assets	$	6,929,988			6,828,923


Liabilities and shareholders’ equity:
Current liabilities:
Short-term debt and current portion of long-term debt	$	151,613			332,745
Accounts payable		443,529			515,121
Accrued expenses and other current liabilities		410,626			419,756

Total current liabilities		1,005,768			1,267,622

Long-term debt		2,748,346			2,484,198
Other non-current liabilities		425,120			449,158
Deferred income taxes		951,701			907,166


Total liabilities		5,130,935			5,108,144


Shareholders’ equity:
Preferred stock of no par value per share — authorized, 3,800,917; none outstanding, June 30, 2007 or December 31, 2006		—			—
Common stock of $0.50 par value per share — authorized, 400,000,000; outstanding, June 30, 2007 — 59,826,000; December 31, 2006 — 60,721,528		29,750			30,220
Additional paid-in capital		730,880			713,264
Retained earnings		1,137,357			1,123,789
Accumulated other comprehensive loss		(98,934	)		(146,494	)


Total shareholders’ equity		1,799,053			1,720,779


Total liabilities and shareholders’ equity	$	6,929,988			6,828,923

See accompanying notes to consolidated condensed financial statements.

RYDER SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)


	Six months ended June 30,
	2007			2006
	(In thousands)
Cash flows from operating activities:
Net earnings	$	116,382			117,861
Depreciation expense		398,454			361,630
Gains on vehicle sales, net		(28,566	)		(27,789	)
Share-based compensation expense		9,511			6,388
Amortization expense and other non-cash charges, net		2,858			3,225
Deferred income tax expense		43,062			43,129
Tax benefits from share-based compensation		1,214			4,094
Changes in operating assets and liabilities:
Receivables		(22,773	)		(45,881	)
Inventories		2,786			(3,722	)
Prepaid expenses and other assets		1,646			(40,936	)
Accounts payable		19,934			29,792
Accrued expenses and other non-current liabilities		(39,293	)		(149,447	)

Net cash provided by operating activities		505,215			298,344


Cash flows from financing activities:
Net change in commercial paper borrowings		(45,643	)		158,505
Debt proceeds		488,763			274,904
Debt repaid, including capital lease obligations		(391,483	)		(139,714	)
Dividends on common stock		(25,620	)		(22,088	)
Common stock issued		30,813			47,118
Common stock repurchased		(96,415	)		(65,861	)
Excess tax benefits from share-based compensation		2,256			6,869

Net cash (used in) provided by financing activities		(37,329	)		259,733


Cash flows from investing activities:
Purchases of property and revenue earning equipment		(885,292	)		(776,128	)
Sales of revenue earning equipment		191,645			177,445
Sales of operating property and equipment		3,475			2,210
Sale and leaseback of revenue earning equipment		150,348			—
Acquisitions		—			(4,113	)
Collections on direct finance leases		31,811			33,768
Changes in restricted cash		17,951			(41,108	)
Other, net		750			1,598

Net cash used in investing activities		(489,312	)		(606,328	)


Effect of exchange rate changes on cash		2,756			2,169

Decrease in cash and cash equivalents		(18,670	)		(46,082	)
Cash and cash equivalents at January 1		128,639			128,727

Cash and cash equivalents at June 30	$	109,969			82,645


Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	75,077			63,099
Income taxes, net of refunds		19,444			114,706

Non-cash investing activities:
Changes in accounts payable related to purchases of revenue earning equipment		(97,176	)		38,375
Revenue earning equipment acquired under capital leases		11,230			85

See accompanying notes to consolidated condensed financial statements.

RYDER SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF SHAREHOLDERS’ EQUITY
(unaudited)


															Accumulated
	Preferred								Additional						Other
	Stock		Common Stock						Paid-In			Retained			Comprehensive
	Amount		Shares			Par			Capital			Earnings			Loss			Total
	(Dollars in thousands, except per share amount)
Balance at December 31, 2006	$	—		60,721,528		$	30,220			713,264			1,123,789			(146,494	)		1,720,779


Components of comprehensive income:
Net earnings		—		—			—			—			116,382			—			116,382
Foreign currency translation adjustments		—		—			—			—			—			31,501			31,501
Unrealized loss related to derivative instruments		—		—			—			—			—			(57	)		(57	)
Amortization of transition obligation⁽¹⁾		—		—			—			—			—			(11	)		(11	)
Amortization of net actuarial loss ⁽¹⁾		—		—			—			—			—			6,596			6,596
Amortization of prior service credit ⁽¹⁾		—		—			—			—			—			(979	)		(979	)
Pension curtailment ⁽²⁾		—		—			—			—			—			10,510			10,510

Total comprehensive income																			163,942
Common stock dividends declared — $0.42 per share		—		—			—			—			(25,620	)		—			(25,620	)
Common stock issued under employee stock option and stock purchase plans ⁽³⁾		—		915,059			435			30,378			—			—			30,813
Benefit plan stock purchases ⁽⁴⁾		—		(1,872	)		(1	)		(81	)		—			—			(82	)
Common stock repurchases		—		(1,808,715	)		(904	)		(25,662	)		(69,767	)		—			(96,333	)
Share-based compensation		—		—			—			9,511			—			—			9,511
Tax benefits from share-based compensation		—		—			—			3,470			—			—			3,470
Adoption of FIN 48 ⁽⁵⁾		—		—			—			—			(7,427	)		—			(7,427	)

Balance at June 30, 2007	$	—		59,826,000		$	29,750			730,880			1,137,357			(98,934	)		1,799,053


(1)		Amounts pertain to our pension and postretirement benefit plans and are presented net of tax.
(2)		See Note (M), “Employee Benefit Plans,” in the Notes to Consolidated Condensed Financial Statements for additional information related to the U.S. pension benefit plan curtailment.
(3)		Net of common shares delivered as payment for the exercise price or to satisfy the option holders’ withholding tax liability upon exercise of options.
(4)		Represents open-market transactions of common shares by the trustee of Ryder’s deferred compensation plans.
(5)		See Note (B), “Accounting Change,” in the Notes to Consolidated Condensed Financial Statements for additional information related to the adoption of FIN 48, “Accounting for Uncertainty in Income Taxes.”

See accompanying notes to consolidated condensed financial statements.

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 System, Inc. has a controlling voting interest (“subsidiaries”), and variable interest entities (VIEs) required to be consolidated in accordance with U.S. generally accepted accounting principles (GAAP). The accompanying unaudited Consolidated Condensed Financial Statements have been prepared in accordance with the accounting policies described in the 2006 Annual Report on Form 10-K except for the accounting change described below relating to uncertain tax positions, and should be read in conjunction with the Consolidated Financial Statements and notes thereto. These statements do not include all of the information and footnotes required by GAAP in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation 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. Certain prior year amounts have been reclassified to conform to the current period presentation.

(B) ACCOUNTING CHANGE

Prior to January 1, 2007, we recognized income tax accruals with respect to uncertain tax positions based upon Statement of Financial Accounting Standards (SFAS) No. 5, “Accounting for Contingencies.” Under SFAS No. 5, we recorded a liability associated with an uncertain tax position if the liability was both probable and estimable. Our liability under SFAS No. 5 included interest and penalties, which were recognized as incurred within “Provision for income taxes” in the Consolidated Condensed Statements of Earnings.

Effective January 1, 2007, we adopted Financial Accounting Standards Board (FASB) Interpretation No. (FIN) 48, “Accounting for Uncertainty in Income Taxes.” FIN 48 clarifies the accounting for uncertainty in income taxes recognized in financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 requires that we determine whether the benefits of our tax positions are more likely than not of being sustained upon audit based on the technical merits of the tax position. For tax positions that are more likely than not of being sustained upon audit, we recognize the largest amount of the benefit that is more likely than not of being sustained in our consolidated financial statements. For all other tax positions, we do not recognize any portion of the benefit in our consolidated financial statements. The provisions of FIN 48 also provide guidance on derecognition, classification, interest and penalties, accounting in interim periods, and disclosure.

The cumulative effect of the adoption of the recognition and measurement provisions of FIN 48 resulted in a $7.4 million reduction to the January 1, 2007 balance of retained earnings. Results of prior periods have not been restated. Our policy for interest and penalties related to income tax exposures was not impacted as a result of the adoption of the recognition and measurement provisions of FIN 48. Therefore, we continue to recognize interest and penalties as incurred within “Provision for income taxes” in the Consolidated Condensed Statements of Earnings. We expect the adoption of FIN 48 to increase our full-year 2007 effective tax rate by approximately 0.3%.

Share-based incentive awards are provided to employees under the terms of various share-based compensation plans (collectively, the “Plans”). The Plans are administered by the Compensation Committee of the Board of Directors. Awards under the Plans principally include at-the-money stock options and nonvested stock (time-vested restricted stock rights, market-based restricted stock rights and restricted stock units). Share-based compensation expense is generally recorded in “Salaries and employee-related costs” in the Consolidated Condensed Statements of Earnings.

We grant restricted stock units (RSUs) to non-management members of the Board of Directors. Once granted, RSUs are eligible for dividends but have no voting rights. The fair value of the awards is determined and fixed on the grant date based on Ryder’s stock price on the date of grant. The board member receives the RSUs upon their departure from the Board. The initial grant of RSUs will not vest unless the director has served a minimum of one year. When the board member receives the RSUs, they are redeemed for an equivalent number of shares of Ryder’s common stock. Compensation expense for RSUs was historically based on assumed years of service to retirement at age 72, as discussed in our 2007 Proxy Statement. However, because the RSUs do not contain an explicit service vesting period, except for the initial grant, compensation expense should have been recognized in the year the RSUs were granted rather than over the assumed years of service. The one-time impact of accelerating the recognition of compensation expense on previously issued RSUs was a pre-tax charge of $1.8 million for the three months ended June 30, 2007.

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

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


	Three months ended June 30,						Six months ended June 30,
	2007			2006			2007			2006
	(In thousands)
Stock option and stock purchase plans	$	2,537			2,356		$	4,975			4,992
Nonvested stock		3,323			849			4,536			1,396

Share-based compensation expense		5,860			3,205			9,511			6,388
Income tax benefit		(1,979	)		(917	)		(3,155	)		(1,831	)

Share-based compensation expense, net of tax ⁽¹⁾	$	3,881			2,288		$	6,356			4,557


(1)		In addition to the share-based compensation expense above, we recognized compensation expense of $0.3 million and $0.2 million during the three months ended June 30, 2007 and 2006, respectively related to future cash awards issued in tandem with restricted stock rights and $0.1 million and $0.3 million during the six months ended June 30, 2007 and 2006, respectively.

Total unrecognized compensation expense related to share-based compensation arrangements at June 30, 2007 was $25.7 million and is expected to be recognized over a weighted-average period of approximately 2.1 years.

During the six months ended June 30, 2007 and 2006, 0.9 million and 1.0 million stock options were granted under the Plans, respectively. These awards, which vest one-third each year, are fully vested three years from the grant date and have a contractual term of seven years. The fair value of each option award was estimated using a Black-Scholes-Merton option-pricing valuation model. The weighted-average grant-date fair value of options granted during the six months ended June 30, 2007 and 2006 was $12.82 and $10.60, respectively.

During each of the six months ended June 30, 2007 and 2006, 0.1 million awards of restricted stock rights and RSUs were granted under the Plans. The restricted stock rights entitle the holder to shares of common stock as the awards vest over a three-year period. The majority of the restricted stock rights included a market-based vesting provision. Under such provision, the employees only receive the grant of stock if Ryder’s total shareholder return (TSR) as a percentage of the S&P 500 comparable period TSR is 100% or greater over a 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 weighted-average grant-date fair value of restricted stock rights and RSUs granted during the six months ended June 30, 2007 and 2006 was $33.44 and $31.15, respectively.

(D) EARNINGS PER SHARE INFORMATION

Basic earnings per common share are computed by dividing net earnings by the weighted-average number of common shares outstanding. Nonvested stock granted to employees and directors are not included in the computation of basic earnings per common share until the shares vest. Diluted earnings per common share reflect the dilutive effect of potential common shares from securities such as stock options and time-vested restricted stock rights. Diluted earnings per common share also reflects the dilutive effect of market-based restricted stock rights (contingently issuable shares) if the vesting conditions have been met as of the balance sheet date assuming the balance sheet date is the end of the contingency period. The dilutive effect of stock options and nonvested stock is computed using the treasury stock method, which assumes any proceeds that could be obtained upon the exercise of stock options and vesting of nonvested stock would be used to purchase common shares at the average market price for the period. The assumed proceeds include the purchase price the grantee pays and the windfall tax benefit that we receive upon assumed exercise as well as the unrecognized compensation expense at the end of each period. We calculate the assumed proceeds from excess tax benefits based on the deferred tax assets actually recorded without consideration of “as if” deferred tax assets calculated under the provision of SFAS No. 123R, “Share-Based Payment.”

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

A reconciliation of the number of shares used in computing basic and diluted earnings per common share follows:

Three months ended June 30,

Six months ended June 30,

2007

2006

2007

2006

(In thousands)

Weighted-average shares outstanding — Basic

60,513

61,241

60,541

60,982

Effect of dilutive options and nonvested stock

577

782

587

746

Weighted-average shares outstanding — Diluted

61,090

62,023

61,128

61,728

Anti-dilutive options not included above

982

1,029

768

1,352

(E) RESTRUCTURING AND OTHER CHARGES (RECOVERIES)

The components of restructuring and other charges (recoveries), net were as follows:


	Three months ended June 30,					Six months ended June 30,
	2007			2006		2007		2006
	(In thousands)
Restructuring charges (recoveries), net:
Severance and employee-related charges (recoveries)	$	(212	)		—	$	47		(142	)
Facility and related costs (recoveries)		87			—		58		(17	)

		(125	)		—		105		(159	)

Other charges, net:
Early retirement of debt		1,280			—		1,280		—
Contract termination and transition costs		—			—		306		—

Total	$	1,155			—	$	1,691		(159	)

As noted in Note (N), “Segment Reporting,” our primary measure of segment financial performance excludes, among other items, restructuring and other charges (recoveries), net; however, the applicable portion of the restructuring and other charges (recoveries), net that related to each segment was as follows:


	Three months ended June 30,					Six months ended June 30,
	2007			2006		2007			2006
	(In thousands)

Fleet Management Solutions	$	1,193			—	$	1,546			(95	)
Supply Chain Solutions		(34	)		—		149			(58	)
Dedicated Contract Carriage		(3	)		—		(3	)		(4	)
Central Support Services		(1	)		—		(1	)		(2	)

Total	$	1,155			—	$	1,691			(159	)

Restructuring charges (recoveries), net in the three months ended June 30, 2007 and six months ended June 30, 2006 related primarily to employee severance and facility charges recorded in prior restructuring charges that were reversed due to subsequent refinements in estimates. Restructuring charges (recoveries), net in the six months ended June 30, 2007 included costs incurred in connection with global cost savings initiatives announced during the fourth quarter of 2006.

Other charges, net in the three and six months ended June 30, 2007 mainly related to the charge incurred to extinguish debentures that were originally set to mature in 2017. The charge of $1.3 million related to the premium paid on the early extinguishment of debt and the write-off of related debt discount and issuance costs. See Note (I), “Debt,” for further discussion on the early extinguishment of debt. Other charges, net in the six months ended June 30, 2007 also included information technology transition costs incurred in connection with global cost savings initiatives announced during the fourth quarter of 2006.

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

Activity related to restructuring reserves was as follows:

Deductions

December 31, 2006

Non-Cash

June 30, 2007

Balance

Additions

Cash Payments

Reductions⁽¹⁾

Balance

(In thousands)

Employee severance and benefits

1,449

283

1,221

236

275

Facilities and related costs

538

105

209

387

Total

1,987

388

1,430

283

662


(1)		Non-cash reductions represent adjustments to the restructuring reserves as actual costs were less than originally estimated.

At June 30, 2007, outstanding restructuring obligations are generally required to be paid over the next eighteen months.

(F) REVENUE EARNING EQUIPMENT


	June 30, 2007							December 31, 2006
			Accumulated			Net Book				Accumulated			Net Book
	Cost		Depreciation			Value ⁽¹⁾		Cost		Depreciation			Value ⁽¹⁾
	(In thousands)

Full service lease	$	5,706,664		(2,029,047	)		3,677,617		5,755,848		(2,076,328	)		3,679,520
Commercial rental		1,632,153		(707,893	)		924,260		1,579,360		(749,548	)		829,812

Total	$	7,338,817		(2,736,940	)		4,601,877		7,335,208		(2,825,876	)		4,509,332


(1)		Revenue earning equipment, net includes vehicles acquired under capital leases of $23.5 million, less accumulated amortization of $7.7 million, at June 30, 2007, and $14.6 million, less accumulated amortization of $8.6 million, at December 31, 2006. Amortization expense attributed to vehicles acquired under capital leases is combined with depreciation expense.

At June 30, 2007 and December 31, 2006, the net carrying value of revenue earning equipment held for sale was $131.2 million and $100.7 million, respectively. Revenue earning equipment held for sale is stated at the lower of carrying amount or fair value less costs to sell. During the second quarter and first half of 2007, we reduced the carrying value of vehicles held for sale by $9.3 million and $18.1 million, respectively. During the second quarter and first half of 2006, we reduced the carrying value of vehicles held for sale by $5.1 million and $9.8 million, respectively. Reductions in the carrying values of vehicles held for sale are recorded within “Depreciation expense” in the Consolidated Condensed Statements of Earnings.

At the end of 2006, we completed our annual depreciation review of the residual values and useful lives of our revenue earning equipment. Our annual review is established with a long-term view considering historical market price changes, current and expected future market price trends, expected life of vehicles and extent of alternative uses. Based on the results of our analysis, we adjusted the residual values of certain classes of our revenue earning equipment effective January 1, 2007. This change in estimated residual values increased pre-tax earnings for the three and six months ended June 30, 2007 by approximately $2.8 million or $0.03 per diluted common share, and $5.6 million or $0.06 per diluted common share, respectively, compared to the same periods in 2006.

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

(G) ACCRUED EXPENSES AND OTHER LIABILITIES


	June 30, 2007						December 31, 2006
	Accrued		Non-Current				Accrued		Non-Current
	Expenses		Liabilities		Total		Expenses		Liabilities		Total
	(In thousands)

Salaries and wages	$	54,569		—		54,569		86,454		—		86,454
Deferred compensation		3,395		22,250		25,645		3,206		21,866		25,072
Pension benefits		2,045		71,365		73,410		2,032		112,239		114,271
Other postretirement benefits		3,433		41,900		45,333		3,595		41,265		44,860
Employee benefits		192		—		192		3,127		—		3,127
Insurance obligations ⁽¹⁾		118,164		185,154		303,318		117,311		191,098		308,409
Residual value guarantees		696		1,369		2,065		887		1,340		2,227
Vehicle rent		5,311		4,688		9,999		998		1,905		2,903
Deferred vehicle gains		1,142		5,873		7,015		912		1,813		2,725
Environmental liabilities		3,891		11,138		15,029		4,029		12,150		16,179
Asset retirement obligations		4,509		10,320		14,829		3,514		10,186		13,700
Operating taxes		78,388		—		78,388		78,233		—		78,233
Income taxes		15,207		50,841		66,048		4,831		36,800		41,631
Restructuring		491		171		662		1,806		181		1,987
Interest		23,439		—		23,439		19,497		—		19,497
Customer deposits		29,665		—		29,665		23,474		—		23,474
Derivatives		22,905		—		22,905		20,101		—		20,101
Other		43,184		20,051		63,235		45,749		18,315		64,064

Total	$	410,626		425,120		835,746		419,756		449,158		868,914


(1)		Insurance obligations are primarily comprised of self-insurance accruals.

(H) INCOME TAXES

Uncertain Tax Positions

Effective January 1, 2007, we adopted FIN 48, “Accounting for Uncertainty in Income Taxes.” See Note (B), “Accounting Change,” for additional information.

We are subject to tax audits in numerous jurisdictions in the U.S. and around the world until the applicable statute of limitations expire. Tax audits by their very nature are often complex and can require several years to complete. The following is a summary of tax years that are no longer subject to examination:

Federal — we are no longer subject to U.S. federal tax examinations by tax authorities for tax years before 2001. In 2005, the IRS commenced an examination of our U.S. income tax returns for 2001 through 2003. Fieldwork was completed during the second quarter of 2007 and there were no significant matters raised. The audit is currently under administrative review, and we anticipate the closure to occur in 2008.

State — for the majority of states, we are no longer subject to tax examinations by tax authorities for tax years before 2001.

Foreign — we are no longer subject to foreign tax examinations by tax authorities for tax years before 2000, 2001, and 2004 in Canada, Mexico and U.K., respectively, which are our major foreign tax jurisdictions.

As of January 1, 2007, the total amount of gross unrecognized tax benefits (excluding the federal benefit received from state positions) was $74.6 million. Of this total, $43.1 million (net of the federal benefit on state issues) represents the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate in future periods. The total amount of accrued interest and penalties resulting from such unrecognized tax benefits was $7.5 million and $8.3 million as of January 1, 2007 and June 30, 2007, respectively.

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

We do not currently anticipate recording any significant increase or decrease to unrecognized tax benefits during 2007 related to U.S. federal tax positions. As of June 30, 2007, we have recognized $0.5 million of previously unrecognized tax benefits as a result of the expiration of a statute of limitations within our foreign jurisdictions. Unrecognized tax benefits related to state and foreign tax positions may decrease by an additional $4.0 million by December 31, 2007, if audits are completed or tax years close during 2007.

Tax Law Changes

On April 1, 2007, the State of New York enacted changes to its tax system, which included the forced combination of related entities with substantial intercompany transactions, the use of a single sales factor in apportioning its income, and reduction of the corporate tax rate from 7.5% to 7.1%. The impact of this change resulted in a favorable non-cash adjustment to deferred income taxes and increased net earnings in the three and six months ended June 30, 2007 by $1.3 million, or $0.02 per diluted common share.

On June 22, 2006, Canada enacted various tax measures in connection with the 2006 federal budget process. These measures contained various corporate tax changes, including the gradual reduction of the general corporate tax rate beginning in 2008, the elimination of the 4% surtax as of January 1, 2008, and the elimination of the Large Corporations Tax as of January 1, 2006. The impact of the above mentioned measures resulted in a favorable adjustment to deferred income taxes. This non-cash benefit increased net earnings in the three and six months ended June 30, 2006 by $3.9 million, or $0.06 per diluted common share.

On May 18, 2006, the State of Texas enacted substantial changes to its tax system, which included the replacement of the taxable capital and earned surplus components of its franchise tax with a new “Margin Tax” beginning in 2007. The previous Texas franchise tax structure remained in existence until the end of 2006. As a result of the enactment of the “Margin Tax,” existing deferred income taxes at June 30, 2006 not expected to be used in the computation of taxes in years after 2006 were adjusted. This non-cash benefit increased reported net earnings in the three and six months ended June 30, 2006 by $2.9 million, or $0.05 per diluted common share.

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 the 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 is expected to result 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 June 30, 2007, these consolidated entities had $16.1 million of cash proceeds from the sale of eligible vehicles and $102.5 million of vehicles to be acquired under the like-kind exchange program. At June 30, 2007 and December 31, 2006, we had $45.9 million and $63.8 million, respectively of restricted cash for the like-kind exchange program included within “Prepaid expenses and other current assets” on the Consolidated Condensed Balance Sheets.

Subsequent Event

On July 12, 2007, the State of Michigan enacted substantial changes to its tax system, which included replacing the current Single Business Tax with a modified gross receipt tax and an income tax computed on a unitary combined reporting system, and the use of a single sales factor in apportioning its income. We are currently assessing the impact of the enacted tax law changes on our third quarter 2007 net earnings.

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

(I) DEBT


	June 30,			December 31,
	2007			2006
	(In thousands)
Short-term debt and current portion of long-term debt:
Unsecured foreign obligations	$	18,280			21,597
Current portion of long-term debt, including capital leases		133,333			311,148

Total short-term debt and current portion of long-term debt		151,613			332,745


Long-term debt:
U.S. commercial paper ⁽¹⁾		615,657			639,262
Canadian commercial paper ⁽¹⁾		62,846			78,871
Unsecured U.S. notes: ⁽¹⁾
Debentures		—			62,913
Medium-term notes		1,945,902			1,795,363
Unsecured U.S. obligations, principally bank term loans		59,650			58,050
Unsecured foreign obligations		183,603			157,282
Capital lease obligations		14,014			3,509

Total before fair market value adjustment		2,881,672			2,795,250
Fair market value adjustment on notes subject to hedging ⁽²⁾		7			96

		2,881,679			2,795,346

Current portion of long-term debt, including capital leases		(133,333	)		(311,148	)

Long-term debt		2,748,346			2,484,198

Total debt	$	2,899,959			2,816,943


(1)		Ryder had unamortized original issue discounts of $15.5 million at June 30, 2007 and December 31, 2006.
(2)		The notional amount of executed interest rate swaps designated as fair value hedges was $35.0 million at June 30, 2007 and December 31, 2006.

Ryder can borrow up to $870 million through a global revolving credit facility with a syndicate of twelve lenders. The credit facility matures in May 2010 and is used primarily to finance working capital and provide support for the issuance of commercial paper. 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 June 30, 2007). At Ryder’s option, the interest rate on borrowings under the credit facility is based on LIBOR, prime, federal funds or local equivalent rates. The credit facility’s current annual facility fee is 11.0 basis points, which applies to the total facility of $870 million, and is based on Ryder’s current credit ratings. The credit facility contains no provisions restricting 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, Ryder must maintain a ratio of debt to consolidated tangible net worth, as defined in the agreement, of less than or equal to 300%. The ratio at June 30, 2007 was 143%. At June 30, 2007, $147.3 million was available under the credit facility. Foreign borrowings of $101.0 million were outstanding under the facility at June 30, 2007.

During 1987, we issued at a discount $100 million principal amount of unsecured debentures due May 2017 at a stated interest rate of 9⁷/8%, payable semi-annually. During the second quarter of 2007, we retired the remaining $53 million principal amount of these debentures at a premium. During the second quarter of 2007, we also made a sinking fund payment to retire the remaining $10 million principal amount of 9% unsecured debentures due in May 2016. In connection with these retirements, we incurred a pre-tax charge of $1.3 million related to the premium paid on the early extinguishment and the write-off of related debt discount and issuance costs and this charge has been included within “Restructuring and other charges (recoveries), net.”

In February 2007, we issued $250 million of unsecured medium-term notes, maturing in March 2014. The proceeds from the notes were used for general corporate purposes.

On February 27, 2007, Ryder filed an automatic shelf registration statement on Form S-3 with the Securities and Exchange Commission (SEC). The registration is for an indeterminate number of securities and is effective for three years. Under this universal shelf registration statement, we have the capacity to offer and sell from time to time various types of securities, including common stock, preferred stock and debt securities. The automatic shelf registration statement replaced our $800 million shelf registration statement, which was fully utilized with the issuance of the medium-term notes noted above.

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

(J) GUARANTEES

Ryder has executed various agreements with third parties that contain standard indemnifications that may require Ryder to indemnify a third party against losses arising from a variety of matters such as lease obligations, financing agreements, environmental matters and agreements to sell business assets. In each of these instances, payment by Ryder is contingent on the other party bringing about a claim under the procedures outlined in the specific agreement. Normally, these procedures allow Ryder to dispute the other party’s claim. Additionally, Ryder’s obligations under these agreements may be limited in terms of the amount and (or) timing of any claim. Ryder also has individual indemnification agreements with each of its independent directors. The terms of the indemnification agreements provide that to the extent permitted by Florida law, Ryder will indemnify such director acting in good faith in a manner he or she reasonably believed to be in, or not opposed to, the best interests of Ryder, against any and all losses, expenses and liabilities arising out of such director’s service as a director of Ryder. The maximum amount of potential future payments is generally unlimited. We cannot predict the maximum potential amount of future payments under certain of these agreements, including the indemnification agreements, due to the contingent nature of the potential obligations and the distinctive provisions that are involved in each individual agreement. Historically, no such payments made by Ryder have had a material adverse effect on our business. We believe that if a loss were incurred in any of these matters, the loss would not result in a material adverse impact on our consolidated results of operations or financial position.

At June 30, 2007 and December 31, 2006, the maximum determinable exposure of each type of guarantee and the corresponding liability, if any, recorded on the Consolidated Condensed Balance Sheets were as follows:

June 30, 2007

December 31, 2006

Maximum

Carrying

Maximum

Carrying

Exposure of

Amount of

Exposure of

Amount of

Guarantee

Guarantee

Liability

Guarantee

Liability

(In thousands)

Vehicle residual value guarantees—finance lease programs ⁽¹⁾

3,372

1,059

3,541

946

Used vehicle financing

6,381

1,097

6,046

811

Standby letters of credit

7,514

—

6,937

—

Total

17,267

2,156

16,524

1,757


(1)		Amounts exclude contingent rentals associated with residual value guarantees on certain vehicles held under operating leases for which the guarantees are conditioned upon disposal of the leased vehicles prior to the end of their lease term. At June 30, 2007 and December 31, 2006, Ryder’s maximum exposure for such guarantees was approximately $247.2 million and $112.7 million, respectively, with $2.1 million and $2.2 million recorded as a liability at June 30, 2007 and December 31, 2006, respectively.

At June 30, 2007, Ryder had letters of credit and surety bonds outstanding totaling $214.5 million and $51.0 million, respectively, which primarily guarantee the payment of insurance claims. Certain of these letters of credit and surety bonds guarantee insurance activities associated with insurance claim liabilities transferred in conjunction with the sale of our automotive transport business, which were reported as discontinued operations in previous years. To date, the insurance claims, representing per-claim deductibles payable under third-party insurance policies, have been paid and continue to be paid by the company that assumed such liabilities. However, if all or a portion of the estimated outstanding assumed claims of approximately $7.5 million at June 30, 2007 are unable to be paid, the third-party insurers may have recourse against certain of the outstanding letters of credit provided by Ryder in order to satisfy the unpaid claim deductibles. In order to reduce our potential exposure to these claims, we have received an irrevocable letter of credit from the purchaser of the business referred to above totaling $7.5 million at June 30, 2007. Periodically, an independent actuarial valuation will be made in order to estimate the current amount of outstanding insurance claim liabilities.

(K) SHARE REPURCHASE PROGRAM

In May 2007, our Board of Directors authorized a $200 million share repurchase program over a period not to exceed two years. 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 May 2007 program, which allows for share repurchases during Ryder’s quarterly blackout periods as set forth in the trading plan. For the three months ended June 30, 2007, we repurchased and retired approximately 1.6 million shares under the May 2007 program at an aggregate cost of $87.3 million.

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

In May 2006, our Board of Directors authorized a two-year share repurchase program intended to mitigate the dilutive impact of shares issued under our various employee stock option and stock purchase plans. Under the May 2006 program, management was authorized to repurchase shares of common stock in an amount not to exceed the number of shares issued to employees upon the exercise of stock options or through the employee stock purchase plan since March 1, 2006. The May 2006 program limited aggregate share repurchases to no more than 2 million shares of Ryder common stock. Share repurchases were made periodically in open-market transactions, and were subject to market conditions, legal requirements and other factors. Management established a trading plan for the Company under Rule 10b5-1 of the Securities Exchange Act of 1934 as part of the May 2006 program, which allowed for share repurchases during Ryder’s quarterly blackout periods as set forth in the trading plan. During the first quarter of 2007, we completed the May 2006 program. In 2007, we repurchased and retired approximately 0.2 million shares under the May 2006 program at an aggregate cost of $9.0 million. Under the May 2006 program, we repurchased and retired a total of 2 million shares at an aggregate cost of $102.2 million.

In October 2005, our Board of Directors authorized a $175 million share repurchase program over a period not to exceed two years. Share repurchases of common stock were made periodically in open-market transactions and were 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 October 2005 program, which allowed for share repurchases during Ryder’s quarterly blackout periods as set forth in the trading plan. During the first quarter of 2006, we completed the October 2005 program. In 2006, we repurchased and retired approximately 1.6 million shares under the October 2005 program at an aggregate cost of $65.9 million.

(L) 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. The following table provides a reconciliation of net earnings as reported in the Consolidated Condensed Statements of Earnings to comprehensive income.


	Three months ended June 30,						Six months ended June 30,
	2007			2006			2007			2006
	(In thousands)
Net earnings	$	65,123			70,279		$	116,382			117,861
Other comprehensive income:
Foreign currency translation adjustments		28,618			23,947			31,501			24,828
Unrealized (loss) gain on derivative instruments		(90	)		(125	)		(57	)		120
Amortization of transition obligation ⁽¹⁾		(6	)		—			(11	)		—
Amortization of net actuarial loss ⁽¹⁾		3,223			—			6,596			—
Amortization of prior service credit ⁽¹⁾		(497	)		—			(979	)		—
Pension curtailment ⁽¹⁾		10,510			—			10,510			—

Total comprehensive income	$	106,881			94,101		$	163,942			142,809


(1)		Amounts pertain to our pension and postretirement benefit plans and are presented net of tax.

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

(M) EMPLOYEE BENEFIT PLANS

Components of net periodic benefit cost were as follows:


	Three months ended June 30,						Six months ended June 30,
	2007			2006			2007			2006
	(In thousands)
Pension Benefits
Company-administered plans:
Service cost	$	9,579			10,791		$	19,944			21,242
Interest cost		21,637			20,413			43,143			40,637
Expected return on plan assets		(29,474	)		(24,434	)		(58,715	)		(48,328	)
Amortization of transition obligation		(7	)		(7	)		(15	)		(14	)
Amortization of net actuarial loss		4,852			8,941			9,724			17,712
Amortization of prior service (credit) cost		(722	)		354			(1,418	)		707

		5,865			16,058			12,663			31,956
Union-administered plans		1,230			1,240			2,441			2,398

Net periodic benefit cost	$	7,095			17,298		$	15,104			34,354


Company-administered plans:
U.S.	$	2,412			11,325		$	5,879			22,695
Non-U.S.		3,453			4,733			6,784			9,261

		5,865			16,058			12,663			31,956
Union-administered plans		1,230			1,240			2,441			2,398

	$	7,095			17,298		$	15,104			34,354


	Three months ended June 30,						Six months ended June 30,
	2007			2006			2007			2006
	(In thousands)
Postretirement Benefits
Company-administered plans:
Service cost	$	307			311		$	647			638
Interest cost		540			540			1,236			1,116
Amortization of net actuarial loss		47			155			326			358
Amortization of prior service credit		(57	)		(58	)		(115	)		(115	)

Net periodic benefit cost	$	837			948		$	2,094			1,997


Company-administered plans:
U.S.	$	696			815		$	1,822			1,735
Non-U.S.		141			133			272			262

	$	837			948		$	2,094			1,997

As previously disclosed in our 2006 Annual Report, we expect to contribute approximately $58 million to our pension plans during 2007. During the six months ended June 30, 2007, global contributions of $27.4 million had been made to our pension plans.

On January 5, 2007, our Board of Directors approved an amendment to freeze the U.S. pension plan effective December 31, 2007 for current participants who do not meet certain grandfathering criteria. As a result, these employees will cease accruing further benefits under the pension plan after December 31, 2007 and will begin participating in an enhanced 401(k) plan. Those participants that meet the grandfathering criteria will be given the option to either continue to earn benefits in the U.S. pension plan or transition into the enhanced 401(k) plan. All retirement benefits earned as of December 31, 2007 will be fully preserved and will be paid in accordance with the plan and legal requirements. Employees hired after January 1, 2007 will not be eligible to participate in the pension plan. The freeze of the U.S. pension plan did not create a curtailment gain or loss; however, in conjunction with the finalization of our pension actuarial valuation, we recognized a reduction in the pension benefit obligation of $16.5 million and a reduction in the net actuarial loss recognized within accumulated other comprehensive loss of approximately $10.5 million, net of tax, during the three months ended June 30, 2007.

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

(N) SEGMENT REPORTING

Ryder’s operating segments are aggregated into reportable business segments based primarily upon similar economic characteristics, products, services, customers and delivery methods. Ryder operates in three reportable business segments: (1) 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.; (2) Supply Chain Solutions (SCS), which provides comprehensive supply chain consulting including distribution and transportation services throughout North America and in Latin America, Europe and Asia; and (3) Dedicated Contract Carriage (DCC), which provides vehicles and drivers as part of a dedicated transportation solution in the U.S.

Ryder’s 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) recoveries, net. 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. CSS costs attributable to the business segments are predominantly allocated to FMS, SCS and DCC as follows:

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

Human resources — individual costs within this category are allocated in several ways, including allocation based on estimated utilization and number of personnel supported;

Information technology — principally allocated based upon utilization-related metrics such as number of users or minutes of CPU time. Customer-related project costs and expenses are allocated to the business segment responsible for the project; and

Other — represents legal and other centralized costs and expenses including certain share-based and incentive compensation costs. Expenses, where allocated, are based primarily on the number of personnel supported.

Our FMS segment leases revenue earning equipment and provides fuel, maintenance and other ancillary services to our SCS and DCC segments. Inter-segment revenue and NBT are accounted for at rates similar to those executed with third parties. NBT related to inter-segment equipment and services billed to customers (equipment contribution) is included in both FMS and the business segment which served the customer and then eliminated (presented as “Eliminations”).

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

The following tables set forth financial information for each of Ryder’s business segments and a reconciliation between segment NBT and earnings before income taxes for the three and six months ended June 30, 2007 and 2006. 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
June 30, 2007
Revenue from external customers	$	932,908		583,994		141,067		—			1,657,969
Inter-segment revenue		104,414		—		—		(104,414	)		—

Total revenue	$	1,037,322		583,994		141,067		(104,414	)		1,657,969


Segment NBT	$	97,484		15,456		12,508		(7,904	)		117,544

Unallocated CSS											(12,053	)
Restructuring and other (charges), net											(1,155	)

Earnings before income taxes										$	104,336


Segment capital expenditures ⁽¹⁾	$	389,357		4,636		424		—			394,417

Unallocated CSS											3,494

Capital expenditures										$	397,911


June 30, 2006
Revenue from external customers	$	950,106		502,136		143,484		—			1,595,726
Inter-segment revenue		99,371		—		—		(99,371	)		—

Total revenue	$	1,049,477		502,136		143,484		(99,371	)		1,595,726


Segment NBT	$	94,921		18,077		11,174		(8,276	)		115,896

Unallocated CSS											(11,342	)

Earnings before income taxes										$	104,554


Segment capital expenditures ⁽¹⁾	$	459,746		3,988		238		—			463,972

Unallocated CSS				`							2,142

Capital expenditures										$	466,114


(1)		Excludes revenue earning equipment acquired under capital leases.

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


	FMS		SCS		DCC		Eliminations			Total
	(In thousands)
For the six months ended
June 30, 2007
Revenue from external customers	$	1,822,105		1,150,400		279,566		—			3,252,071
Inter-segment revenue		203,307		—		—		(203,307	)		—

Total revenue	$	2,025,412		1,150,400		279,566		(203,307	)		3,252,071


Segment NBT	$	178,264		26,904		22,860		(16,823	)		211,205

Unallocated CSS											(20,340	)
Restructuring and other (charges), net											(1,691	)

Earnings before income taxes										$	189,174


Segment capital expenditures ⁽¹⁾	$	867,026		13,318		684		—			881,028

Unallocated CSS											4,264

Capital expenditures										$	885,292


June 30, 2006
Revenue from external customers	$	1,838,246		971,604		282,167		—			3,092,017
Inter-segment revenue		192,389		—		—		(192,389	)		—

Total revenue	$	2,030,635		971,604		282,167		(192,389	)		3,092,017


Segment NBT	$	169,816		28,736		19,636		(16,042	)		202,146

Unallocated CSS											(18,547	)
Restructuring and other recoveries, net											159

Earnings before income taxes										$	183,758


Segment capital expenditures ^{(1), (2)}	$	763,547		6,709		542		—			770,798

Unallocated CSS											5,330

Capital expenditures										$	776,128


(1)		Excludes revenue earning equipment acquired under capital leases.
(2)		Excludes FMS acquisition payments of $4.1 million during the six months ended June 30, 2006.

Our customer base includes enterprises operating in a variety of industries including automotive, electronics, high-tech, telecommunications, industrial, consumer goods, paper and paper products, office equipment, food and beverage, general retail industries, and governments. Our largest customer, General Motors Corporation, accounted for approximately 15% and 12% of consolidated revenue for the six months ended June 30, 2007 and 2006, respectively, and is comprised of multiple contracts within our SCS business segment in various geographic regions. The revenue generated from General Motors Corporation is primarily related to the pass-through of subcontracted transportation expense for which we realize minimal changes in profitability as a result of fluctuations in subcontracted transportation.

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

(O) RECENT ACCOUNTING PRONOUNCEMENTS

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” This statement permits companies to choose to measure many financial instruments and certain other items at fair value. This statement also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. At the effective date, a company may elect the fair value option for eligible items that exist at that date. The company shall report the effect of the first remeasurement to fair value as a cumulative effect adjustment to the opening balance of retained earnings for the fiscal year in which this statement is initially applied. The provisions of SFAS No. 159 are effective for us beginning January 1, 2008. We are currently evaluating the impact of adopting SFAS No. 159 on our consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This statement defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The transition adjustment, which is measured as the difference between the carrying amount and the fair value of those financial instruments at the date this statement is initially applied, should be recognized as a cumulative effect adjustment to the opening balance of retained earnings for the fiscal year in which this statement is initially applied. The provisions of SFAS No. 157 are effective for us beginning January 1, 2008. We are currently evaluating the impact of adopting SFAS No. 157 on our consolidated financial statements.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS —
THREE AND SIX MONTHS ENDED JUNE 30, 2007 AND 2006

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 2006 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 throughout North America and in Latin America, Europe 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, high-tech, telecommunications, industrial, consumer goods, paper and paper products, office equipment, food and beverage, general retail industries and governments.

ITEMS AFFECTING COMPARABILITY BETWEEN PERIODS

The cumulative effect of the adoption of the recognition and measurement provisions of FIN 48 resulted in a $7.4 million reduction to the January 1, 2007 balance of retained earnings. Results of prior periods have not been restated. Our policy for interest and penalties under FIN 48 related to income tax exposures was not impacted as a result of the adoption of the recognition and measurement provisions of FIN 48. Therefore, we continue to recognize interest and penalties as incurred within “Provision for income taxes” in the Consolidated Condensed Statements of Earnings. We expect the adoption of FIN 48 to increase our full-year 2007 effective tax rate by approximately 0.3%.

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

CONSOLIDATED RESULTS


	Three months ended June 30,				Six months ended June 30,				Change 2007/2006
									Three			Six
	2007		2006		2007		2006		Months			Months
	(In thousands, except per share amounts)

Earnings before income taxes	$	104,336		104,554	$	189,174		183,758		—	%		3
Provision for income taxes		39,213		34,275		72,792		65,897		14			10

Net earnings	$	65,123		70,279	$	116,382		117,861		(7	)%		(1	)


Per diluted common share	$	1.07		1.13	$	1.90		1.91		(5	)%		(1	)


Weighted-average shares outstanding — Diluted		61,090		62,023		61,128		61,728		(2	)%		(1	)

Earnings before income taxes decreased $0.2 million to $104.3 million in the second quarter of 2007 and increased $5.4 million to $189.2 million in the first six months of 2007, compared with the same periods in 2006. Operating results in the second quarter and first half of 2007 were positively impacted by contractual revenue growth in the FMS and SCS business segments and lower pension costs offset by the impact of weak commercial rental market demand and increased carrying costs on vehicles held for sale in our FMS business segment. Earnings in the second quarter and first half of 2006 benefited from a SCS contract termination settlement of $2.5 million, net of variable compensation. Earnings in the first half of 2006 also benefited from the one-time recovery in the first quarter of $1.9 million (pre-tax), or $0.02 per diluted common share, associated with the recognition of common stock received from mutual insurance companies in a prior year. See “Operating Results by Business Segment” for a further discussion of operating results.

Net earnings decreased $5.2 million to $65.1 million in the second quarter of 2007 and decreased $1.5 million to $116.4 million in the first six months of 2007, compared with the same periods in 2006. Net earnings for the second quarter and first half of 2006 included an income tax benefit of $6.8 million, or $0.11 per diluted common share, associated with the reduction of deferred income taxes due to enacted changes in Texas and Canadian tax laws. Excluding the tax changes in the second quarter of the prior year, net earnings and earnings per diluted common share increased 3% and 5%, respectively in the second quarter of 2007. Excluding the tax changes in the second quarter of the prior year, net earnings and earnings per diluted common share increased 5% and 6%, respectively in the first six months of 2007.


	Three months ended June 30,						Six months ended June 30,						Change 2007/2006
													Three			Six
	2007			2006			2007			2006			Months			Months
	(In thousands)

Revenue:
Fleet Management Solutions	$	1,037,322			1,049,477		$	2,025,412			2,030,635			(1	)%		—
Supply Chain Solutions		583,994			502,136			1,150,400			971,604			16			18
Dedicated Contract Carriage		141,067			143,484			279,566			282,167			(2	)		(1	)
Eliminations		(104,414	)		(99,371	)		(203,307	)		(192,389	)		(5	)		(6	)

Total	$	1,657,969			1,595,726		$	3,252,071			3,092,017			4	%		5


Operating revenue ⁽¹⁾	$	1,157,067			1,111,129		$	2,276,274			2,168,603			4	%		5


(1)		We use operating revenue, a non-GAAP financial measure, to evaluate the operating performance of our businesses and as a measure of sales activity. FMS fuel services revenue net of related intersegment billings, which is directly impacted by fluctuations in market fuel prices, is excluded from the operating revenue computation as fuel is largely a pass-through to our customers for which we realize minimal changes in profitability during periods of steady market fuel prices. However, profitability may be positively or negatively impacted by sudden increases or decreases in market fuel prices during a short period of time as customer pricing for fuel services is established based on market fuel costs. Subcontracted transportation revenue in our SCS and DCC business segments are excluded from the operating revenue computation as subcontracted transportation is largely a pass-through to our customers and 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.

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

Total revenue increased 4% to $1.66 billion in the second quarter of 2007 and increased 5% to $3.25 billion in the first half of 2007, compared with the same periods in 2006. Total revenue growth was driven by contractual revenue growth in our SCS and FMS business segments, and by favorable movements in foreign currency exchange rates related to our international operations offset partially by a decline in commercial rental revenue and fuel revenue. Operating revenue increased 4% in the second quarter of 2007 and increased 5% in the first half of 2007, compared with the same periods in 2006, due primarily to growth in our SCS business. Total revenue and operating revenue in the second quarter of 2007 included a favorable foreign exchange impact of 0.9% and 1.0%, respectively, due primarily to the strengthening of the British pound and Canadian dollar. Total revenue and operating revenue in the first half of 2007 included a favorable foreign exchange impact of 0.7% and 0.8%, respectively, due primarily to the strengthening of the British pound.


	Three months ended June 30,				Six months ended June 30,				Change 2007/2006
									Three			Six
	2007		2006		2007		2006		Months			Months
	(Dollars in thousands)

Operating expense (exclusive of items shown separately)	$	697,656		703,471	$	1,361,541		1,364,014		(1)	%		—
Percentage of revenue		42.1%		44.1%		41.9%		44.1%

Operating expense decreased slightly in 2007 compared with the same periods in 2006 as a result of lower fuel volumes offset partially by increased costs associated with revenue growth in our SCS business segment. Operating expense as a percentage of revenue decreased in the three and six months ended June 30, 2007 due to lower fuel volumes.


	Three months ended June 30,				Six months ended June 30,				Change 2007/2006
									Three			Six
	2007		2006		2007		2006		Months			Months
	(Dollars in thousands)

Salaries and employee-related costs	$	344,702		343,977	$	698,866		681,491		—	%		3
Percentage of revenue		20.8%		21.6%		21.5%		22.0%
Percentage of operating revenue		29.8%		31.0%		30.7%		31.4%

Salaries and employee-related costs increased in 2007 compared with the same periods in 2006, primarily as a result of added headcount and increased outside labor costs from new and expanded business in our SCS business segment. The increase in salaries and employee-related costs in 2007 was offset partially by a $10.2 million and $19.3 million decrease in pension expense during the second quarter and first six months of 2007, respectively, and lower incentive-based compensation. Pension expense decreases primarily impact our FMS business segment, which employs the majority of our employees that participate in the primary U.S. pension plan.

Three months ended June 30,

Six months ended June 30,

Change 2007/2006

Three

Six

2007

2006

2007

2006

Months

(Dollars in thousands)

Subcontracted transportation

256,986

215,267

504,215

417,490

19%

Percentage of revenue

15.5%

13.5%

15.5%

13.5%

Subcontracted transportation expense represents freight management costs on logistics contracts for which we purchase transportation from third parties. Subcontracted transportation expense in our SCS business segment grew in 2007 compared with the same periods in 2006, as a result of increased volumes of freight management activity from new and expanded business.

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


	Three months ended June 30,						Six months ended June 30,						Change 2007/2006
													Three			Six
	2007			2006			2007			2006			Months			Months
	(In thousands)

Depreciation expense	$	202,270			183,454		$	398,454			361,630			10	%		10
Gains on vehicle sales, net		(13,533	)		(14,977	)		(28,566	)		(27,789	)		(10	)		3
Equipment rental		26,014			25,360			49,859			50,927			3			(2	)

Depreciation expense relates primarily to FMS revenue earning equipment. Depreciation expense increased in the second quarter and the first six months of 2007 compared with the same periods in 2006, reflecting higher average vehicle investment from purchases over the past year and $4.2 million and $8.3 million of additional reductions in the carrying value of vehicles held for sale during the second quarter and first six months of 2007, respectively. The increase was offset partially by adjustments made to residual values as part of the annual depreciation review, which were implemented on January 1, 2007. This change in estimated residual values reduced depreciation expense in the second quarter and first six months of 2007 by $2.8 million and $5.6 million, respectively. Our annual review is established with a long-term view considering historical market price changes, current and expected future market price trends, expected life of vehicles and extent of alternative uses.

Gains on vehicle sales, net decreased in the second quarter of 2007 compared with the same period in 2006 due to a decline in the average price of vehicles sold offset partially by an increase in the number of vehicles sold. Gains on vehicle sales, net in the first half of 2007 were higher than the same period in 2006 due to an increase in the number of units sold offset partially by lower average pricing.

Equipment rental consists primarily of rent expense for FMS revenue earning equipment under lease. The increase in equipment rental in the second quarter of 2007 compared to the same period in 2006 reflects an increase in the average number of leased vehicles resulting from a sale-leaseback transaction completed in May 2007. The decrease in equipment rental in the first half of 2007 compared to the same period in 2006 reflects a lower average number of leased vehicles early in the year offset slightly by higher rental costs associated with investments made in material handling equipment to support growth in our SCS business segment.


	Three months ended June 30,				Six months ended June 30,				Change 2007/2006
									Three			Six
	2007		2006		2007		2006		Months			Months
	(Dollars in thousands)

Interest expense	$	40,841		35,037	$	80,211		66,458		17	%		21
Effective interest rate		5.7%		5.9%		5.6%		5.7%

Interest expense grew in 2007 compared with the same periods in 2006, reflecting higher average debt levels due to funding requirements associated with capital spending to support our contractual full service lease business and our share repurchase programs. The lower effective interest rate in 2007 compared to 2006 resulted from the replacement of higher interest rate debt with debt issuances at lower interest rates.


	Three months ended June 30,						Six months ended June 30,
	2007			2006			2007		2006
	(In thousands)

Miscellaneous income, net	$	(2,458	)		(417	)	$	(3,374)		(5,803)

Miscellaneous income, net consists of investment income on securities used to fund certain benefit plans, interest income, (gains) losses from sales of properties, foreign currency transaction (gains) losses, and other non-operating items. Miscellaneous income, net increased in the second quarter of 2007 compared with the same period in 2006 primarily due to improved market performance of investments classified as trading securities, a $1.3 million charge in the prior year related to the settlement of litigation associated with a discontinued operation, and higher gains on sales of properties. Miscellaneous income, net decreased during the first six months of 2007 compared to the same period in 2006 due to a one-time recovery in the first quarter of 2006 of $1.9 million for the recognition of common stock received from mutual insurance companies and higher foreign currency transaction losses offset partially by the $1.3 million litigation settlement noted above.

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


	Three months ended June 30,				Six months ended June 30,
	2007		2006		2007		2006
	(In thousands)

Restructuring and other charges (recoveries), net	$	1,155		—	$	1,691		(159)

Restructuring and other charges (recoveries), net in the three months ended June 30, 2007 primarily related to a charge of $1.3 million incurred to extinguish debentures that were originally set to mature in 2017. The charge included the premium paid on the early extinguishment of debt and the write-off of related debt discount and issuance costs. These charges were offset partially by restructuring charges that were reversed due to subsequent refinements in estimates. Restructuring charges (recoveries), net in the six months ended June 30, 2007 primarily related to the charge incurred on the early extinguishment of debt and costs for information technology transition and employee severance and benefits incurred in connection with global cost savings initiatives announced in the fourth quarter of 2006. Restructuring and other recoveries, net in the first half of 2006 related primarily to employee severance and benefits and facility charges recorded in prior restructuring charges that were reversed due to subsequent refinements in estimates. See Note (E), “Restructuring and Other Charges (Recoveries),” in the Notes to Consolidated Condensed Financial Statements for additional information on restructuring activity.


	Three months ended June 30,				Six months ended June 30,				Change 2007/2006
									Three			Six
	2007		2006		2007		2006		Months			Months
	(Dollars in thousands)

Provision for income taxes	$	39,213		34,275	$	72,792		65,897		14	%		10
Effective tax rate		37.6%		32.8%		38.5%		35.9%

Our effective income tax rate for the second quarter and first half of 2007 as compared with the same periods in 2006 increased primarily due to increased earnings in higher tax rate jurisdictions, the adoption of FIN 48 in the current year and the 2006 favorable adjustments to deferred income taxes from tax law changes in Canada and the State of Texas. This increase was offset partially by favorable adjustments to deferred income taxes from tax law changes in the State of New York in the current year, the recognition of tax benefits as a result of the expiration of a statute of limitations within our foreign jurisdictions, and a decrease in projected non-deductible expenses.

During the second quarter of 2007, the State of New York enacted changes to their tax system which resulted in favorable adjustments to deferred income taxes of $1.3 million. During the second quarter of 2006, Canada and the State of Texas enacted various tax measures which resulted in favorable adjustments to deferred income taxes of $6.8 million. The adoption of FIN 48 increased our effective income tax rate for the second quarter and first half of 2007 by approximately 0.3%. See Note (H), “Income Taxes,” in the Notes to Consolidated Condensed Financial Statements for a complete discussion of these items.

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

OPERATING RESULTS BY BUSINESS SEGMENT


	Three months ended June 30,						Six months ended June 30,						Change 2007/ 2006
													Three			Six
	2007			2006			2007			2006			Months			Months
	(In thousands)

Revenue:
Fleet Management Solutions	$	1,037,322			1,049,477		$	2,025,412			2,030,635			(1	)%		—
Supply Chain Solutions		583,994			502,136			1,150,400			971,604			16			18
Dedicated Contract Carriage		141,067			143,484			279,566			282,167			(2	)		(1	)
Eliminations		(104,414	)		(99,371	)		(203,307	)		(192,389	)		(5	)		(6	)

Total	$	1,657,969			1,595,726		$	3,252,071			3,092,017			4	%		5


Operating Revenue:
Fleet Management Solutions	$	742,223			730,145		$	1,456,130			1,429,563			2	%		2
Supply Chain Solutions		329,966			291,288			652,048			563,645			13			16
Dedicated Contract Carriage		138,109			139,065			273,703			272,636			(1	)		—
Eliminations		(53,231	)		(49,369	)		(105,607	)		(97,241	)		(8	)		(9	)

Total	$	1,157,067			1,111,129		$	2,276,274			2,168,603			4	%		5


NBT:
Fleet Management Solutions	$	97,484			94,921		$	178,264			169,816			3	%		5
Supply Chain Solutions		15,456			18,077			26,904			28,736			(14	)		(6	)
Dedicated Contract Carriage		12,508			11,174			22,860			19,636			12			16
Eliminations		(7,904	)		(8,276	)		(16,823	)		(16,042	)		4			(5	)

		117,544			115,896			211,205			202,146			1			4

Unallocated Central Support Services		(12,053	)		(11,342	)		(20,340	)		(18,547	)		(6	)		(10	)
Restructuring and other (charges) recoveries, net		(1,155	)		—			(1,691	)		159		NA			NA

Earnings before income taxes	$	104,336			104,554		$	189,174			183,758			—	%		3

We define the primary measurement of our segment financial performance as “Net Before Taxes” (NBT), which includes an allocation of Central Support Services (CSS) and excludes restructuring and other (charges) recoveries, net. 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. See Note (N), “Segment Reporting,” in the Notes to Consolidated Condensed Financial Statements for a description of how the remainder of CSS costs is allocated to the business segments.

Our FMS segment leases revenue earning equipment and provides fuel, maintenance and other ancillary services to our SCS and DCC segments. Inter-segment revenue and NBT are accounted for at rates similar to those executed with third parties. NBT related to inter-segment equipment and services billed to customers (equipment contribution) are included in both FMS and the business segment which served the customer and then eliminated (presented as “Eliminations”).

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

The following table sets forth equipment contribution included in NBT for our SCS and DCC business segments:


	Three months ended June 30,				Six months ended June 30,				Change 2007/2006
									Three			Six
	2007		2006		2007		2006		Months			Months
	(Dollars in thousands)

Equipment contribution:
Supply Chain Solutions	$	4,194		4,143	$	8,934		8,072		1	%		11
Dedicated Contract Carriage		3,710		4,133		7,889		7,970		(10	)		(1	)

Total	$	7,904		8,276	$	16,823		16,042		(4	)%		5

Fleet Management Solutions


	Three months ended June 30,						Six months ended June 30,						Change 2007/2006
													Three			Six
	2007			2006			2007			2006			Months			Months
	(Dollars in thousands)

Full service lease	$	489,245			460,050		$	965,149			911,497			6	%		6
Contract maintenance		40,022			34,042			77,223			66,762			18			16

Contractual revenue		529,267			494,092			1,042,372			978,259			7			7
Contract-related maintenance		50,050			47,799			102,195			95,075			5			7
Commercial rental		145,312			170,846			276,333			320,769			(15	)		(14	)
Other		17,594			17,408			35,230			35,460			1			(1	)

Operating revenue⁽¹⁾		742,223			730,145			1,456,130			1,429,563			2			2
Fuel services revenue		295,099			319,332			569,282			601,072			(8	)		(5	)

Total revenue	$	1,037,322			1,049,477		$	2,025,412			2,030,635			(1	)%		—


Segment NBT	$	97,484			94,921		$	178,264			169,816			3	%		5


Segment NBT as a % of total revenue		9.4	%		9.0	%		8.8	%		8.4	%	40 bps			40 bps


Segment NBT as a % of operating revenue⁽¹⁾		13.1	%		13.0	%		12.2	%		11.9	%	10 bps			30 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 sudden increases or decreases in market fuel prices during a short period of time as customer pricing for fuel services is established based on market fuel costs.

Operating revenue (revenue excluding fuel) grew during the three and six months ended June 30, 2007 compared with the same periods in 2006 as a result of the growth in contractual revenue largely offset by decreased commercial rental revenue. Total revenue declined during the three and six months ended June 30, 2007 compared to the same periods in 2006 as a result of lower fuel services revenue from reduced fuel volumes, which more than offset operating revenue growth.

Full service lease revenue grew in 2007 compared with the same periods in 2006 due to growth in all geographic markets served. We expect favorable lease revenue comparisons to continue in the near term due to increased sales activity. Contract maintenance revenue increased in 2007 compared with the same periods in 2006 due primarily to new sales activity. We expect favorable contract maintenance revenue comparisons to continue in the near term due to increased sales activity. Commercial rental revenue decreased in 2007 compared with the same periods in 2006 reflecting weak market demand in North America. For the three and six months ended June 30, 2007, we realized lower vehicle utilization and lower pricing on a smaller rental fleet. We expect similar unfavorable commercial rental revenue comparisons to continue for at least the near term.

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

The following table provides rental statistics for the U.S. fleet, which generates more than 80% of total commercial rental revenue:


	Three months ended June 30,						Six months ended June 30,						Change 2007/ 2006
													Three			Six
	2007			2006			2007			2006			Months			Months
	(Dollars in thousands)

Non-lease customer rental revenue	$	65,508			72,821		$	118,192			132,901			(10)	%		(11)


Lease customer rental revenue ⁽¹⁾	$	51,894			70,510		$	107,585			137,435			(26)	%		(22)


Average commercial rental fleet size — in service⁽²⁾		29,400			32,800			29,900			32,400			(10)	%		(8)


Average commercial rental power fleet size — in service ^{(2), (3)}		20,900			24,200			21,500			23,600			(14)	%		(9)

Commercial rental utilization — power fleet		70.6	%		73.1	%		67.4	%		71.1	%	(250) bps			(370) bps


(1)		Lease customer rental revenue is revenue from rental vehicles provided to our existing full service lease customers, generally during peak periods in their operations.
(2)		Number of units rounded to nearest hundred and calculated using average daily unit counts.
(3)		Fleet size excluding trailers.

FMS NBT grew in the three and six months ended June 30, 2007 compared with the same periods in 2006 as a result of improved contractual business performance and lower pension and incentive-based compensation costs. The growth in NBT was offset partially by a decline in commercial rental results and higher carrying costs on the increased inventory of used vehicles held for sale. In addition to the decline in commercial rental results, the growth in NBT in the first half of 2007 was also offset partially by higher sales and marketing expenses. Gains from the sale of used vehicles in the second quarter of 2007 were lower than the same period in the prior year due to a decline in the average price of vehicles sold offset partially by an increase in the number of vehicles sold. Gains from the sale of used vehicles in the first half of 2007 were higher than the same period in the prior year due primarily to an increase in the number of units sold offset partially by lower average pricing.

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
	June 30,		December 31,		June 30,		Jun. 2007/			Jun. 2007/
	2007		2006		2006		Dec. 2006			Jun. 2006
End of period vehicle count

By type:
Trucks		65,200		65,200		64,400		—	%		1
Tractors		54,200		56,100		53,100		(3	)		2
Trailers		40,500		38,900		39,400		4			3
Other		5,800		5,700		5,500		2			5

Total		165,700		165,900		162,400		—	%		2


By ownership:
Owned		159,900		160,800		157,400		(1	)%		2
Leased		5,800		5,100		5,000		14			16

Total		165,700		165,900		162,400		—	%		2


By product line:
Full service lease		114,400		117,500		113,600		(3	)%		1
Commercial rental		36,200		37,000		40,200		(2	)		(10	)
Service vehicles and other		3,500		3,500		3,000		—			17

Active units		154,100		158,000		156,800		(2	)		(2	)
Held for sale⁽¹⁾		11,600		7,900		5,600		47			107

Total		165,700		165,900		162,400		—	%		2


Customer vehicles under contract maintenance		29,800		30,700		27,700		(3	)%		8


Quarterly average vehicle count

By product line:
Full service lease		115,400		116,100		113,500		(1	)%		2
Commercial rental		36,200		38,000		39,400		(5	)		(8	)
Service vehicles and other		3,500		3,500		3,200		—			9

Active units		155,100		157,600		156,100		(2	)		(1	)
Held for sale⁽¹⁾		11,200		7,300		6,100		53			84

Total		166,300		164,900		162,200		1	%		3


Customer vehicles under contract maintenance		30,800		29,800		27,100		3	%		14


Year-to-date average vehicle count

By product line:
Full service lease		116,200		114,600		113,500		1	%		2
Commercial rental		36,400		38,700		39,000		(6	)		(7	)
Service vehicles and other		3,500		3,300		3,300		6			6

Active units		156,100		156,600		155,800		—			—
Held for sale⁽¹⁾		10,300		6,700		6,400		54			61

Total		166,400		163,300		162,200		2	%		3


Customer vehicles under contract maintenance		31,000		28,000		26,700		11	%		16


(1)		Vehicles held for sale represent all units available for sale including units held for sale at the end of each period regardless of whether the units earned revenue in the previous 30 days.

Note: Prior year vehicle counts have been restated to conform to current year presentation.

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

The totals in the table above include the following non-revenue earning equipment for the U.S. fleet (number of units rounded to nearest hundred):


							Change
	June 30,		December 31,		June 30,		Jun. 2007/			Jun. 2007/
	2007		2006		2006		Dec. 2006			Jun. 2006
Not yet earning revenue (NYE)		2,100		4,200		2,400		(50	)%		(13	)
No longer earning revenue (NLE):
Units held for sale ⁽¹⁾		9,100		6,600		4,400		38			107
Other NLE units		1,600		1,900		1,300		(16	)		23

Total⁽²⁾		12,800		12,700		8,100		1	%		58


(1)		Total units held for sale in the U.S., including those that have earned revenue in the previous 30 days were 10,400 vehicles at June 30, 2007, 7,600 vehicles at December 31, 2006 and 5,300 vehicles at June 30, 2006.
(2)		Non-revenue earning equipment for FMS operations outside the U.S. totaled approximately 1,000 vehicles at June 30, 2007, 1,700 vehicles at December 31, 2006 and 1,400 vehicles at June 30, 2006, which are not included above.

NYE units represent new vehicles on hand that are being prepared for deployment to lease customers or into the rental fleet. Preparations include activities such as adding lift gates, paint, decals, cargo area and refrigeration equipment. The number of NYE units decreased compared to the same period in the prior year consistent with the volume of lease sales activity. NLE units represent vehicles for which no revenue has been earned in the previous 30 days. These vehicles may be temporarily out of service, held for sale, being prepared for sale or awaiting redeployment. The number of NLE units has increased due to higher levels of used vehicles held for sale as a result of lease replacements and rental fleet reductions. We expect the number of NLE units to decline in the second half of 2007 as the number of rental units being outserviced and the level of lease replacement activity slows for the remainder of the year.

Supply Chain Solutions


	Three months ended June 30,						Six months ended June 30,						Change 2007/2006
													Three			Six
	2007			2006			2007			2006			Months			Months
	(Dollars in thousands)

U.S. operating revenue:
Automotive and industrial	$	138,299			125,595		$	275,112			245,089			10	%		12
High-tech and consumer industries		74,527			74,360			149,000			143,227			—			4
Transportation management		8,110			7,717			16,547			14,565			5			14

U.S. operating revenue		220,936			207,672			440,659			402,881			6			9
International operating revenue		109,030			83,616			211,389			160,764			30			31

Total operating revenue ⁽¹⁾		329,966			291,288			652,048			563,645			13			16
Subcontracted transportation		254,028			210,848			498,352			407,959			20			22

Total revenue	$	583,994			502,136		$	1,150,400			971,604			16	%		18


Segment NBT	$	15,456			18,077		$	26,904			28,736			(14	)%		(6	)


Segment NBT as a % of total revenue		2.6	%		3.6	%		2.3	%		3.0	%	(100) bps			(70) bps


Segment NBT as a % of operating revenue ⁽¹⁾		4.7	%		6.2	%		4.1	%		5.1	%	(150) bps			(100) bps


Memo: Fuel costs	$	31,322			27,763		$	59,208			52,685			13	%		12


(1)		We use operating revenue, a non-GAAP financial measure, to evaluate the operating performance of our SCS business segment and as a measure of sales activity. Subcontracted transportation is deducted from total revenue to arrive at our operating revenue computation as subcontracted transportation is largely a pass-through to customers. We realize minimal changes in profitability as a result of fluctuations in subcontracted transportation.

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

Operating revenue grew in the three and six months ended June 30, 2007 compared to the same periods in 2006 due to new and expanded business particularly in international markets served. Total revenue grew in the three and six months ended June 30, 2007 compared to the same periods in 2006 as a result of increased levels of managed subcontracted transportation and operating revenue increases. Our largest customer, General Motors Corporation, accounted for approximately 43% and 19% of SCS total revenue and operating revenue, respectively, for the first half of 2007, and is comprised of multiple contracts in various geographic regions. For the first half of 2006, General Motors Corporation accounted for approximately 40% and 18% of SCS total revenue and operating revenue, respectively. In the second quarter of 2007, SCS total revenue and operating revenue included a favorable foreign currency exchange impact of 1.4% and 1.3%, respectively. In the first half of 2007, SCS total revenue and operating revenue included a favorable foreign currency exchange impact of 0.7%. Based on recent sales activity and the impact of a significant automotive plant shutdown, we expect lower revenue improvement rates in the second half of 2007.

In transportation management arrangements where we act as principal, revenue is reported on a gross basis for subcontracted transportation services billed to our customers. We realize minimal changes in profitability as a result of fluctuations in subcontracted transportation. Determining whether revenue should be reported as gross (within total revenue) or net (deducted from total revenue) is based on an assessment of whether we are acting as the principal or the agent in the transaction and involves judgment based on the terms and conditions of the arrangement. From time to time, the terms and conditions of our transportation management arrangements may change, which could require a change in revenue recognition from a gross basis to a net basis or vice versa. Our measure of operating revenue would not be impacted by a change in revenue reporting.

The decline in SCS NBT in the three and six months ended June 30, 2007 compared to the same periods in 2006 reflects the impact of a $2.5 million benefit, net of variable compensation, recognized in the second quarter of the prior year related to a contract termination. SCS NBT in 2007 compared to the same periods in 2006, benefited from new and expanded business and higher volumes offset by a significant automotive plant closure in the second quarter and automotive plant shutdowns and launch costs associated with new business in the first quarter.

Dedicated Contract Carriage


	Three months ended June 30,						Six months ended June 30,						Change 2007/2006
													Three			Six
	2007			2006			2007			2006			Months			Months
	(Dollars in thousands)

Operating revenue ⁽¹⁾	$	138,109			139,065		$	273,703			272,636			(1	)%		—
Subcontracted transportation		2,958			4,419			5,863			9,531			(33	)		(38	)

Total revenue	$	141,067			143,484		$	279,566			282,167			(2	)%		(1	)


Segment NBT	$	12,508			11,174		$	22,860			19,636			12	%		16


Segment NBT as a % of total revenue		8.9	%		7.8	%		8.2	%		7.0	%	110 bps			120 bps


Segment NBT as a % of operating revenue ⁽¹⁾		9.1	%		8.0	%		8.4	%		7.2	%	110 bps			120 bps


Memo: Fuel costs	$	26,522			27,507		$	51,180			52,538			(4	)%		(3	)%


(1)		We use operating revenue, a non-GAAP financial measure, to evaluate the operating performance of our DCC business segment and as a measure of sales activity. Subcontracted transportation is deducted from total revenue to arrive at our operating revenue computation as subcontracted transportation is largely a pass-through to customers. We realize minimal changes in profitability as a result of fluctuations in subcontracted transportation.

Operating revenue for the second quarter of 2007 declined compared to the same period in 2006 as a result of the decline in fuel costs which are passed through to the customer. Operating revenue for the first half of 2007 increased due to new and expanded business, slightly offset by the decline in fuel costs. Total revenue for the three and six months ended June 30, 2007 declined primarily as a result of decreased volumes of managed subcontracted transportation and lower fuel costs. We expect favorable revenue comparisons in the short term due to recent sales activity. DCC NBT grew in the three and six months ended June 30, 2007 compared with the same periods in 2006 as a result of lower safety and insurance costs and better operating performance.

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

Central Support Services


	Three months ended June 30,						Six months ended June 30,						Change 2007/2006
													Three			Six
	2007			2006			2007			2006			Months			Months
	(In thousands)

Human resources	$	3,966			3,365		$	7,857			6,824			18	%		15
Finance		14,982			13,955			29,044			28,164			7			3
Corporate services and public affairs		2,882			2,872			5,803			5,758			—			1
Information technology		13,026			13,242			25,802			27,330			(2	)		(6	)
Health and safety		2,077			2,062			4,157			4,081			1			2
Other		11,258			13,437			19,901			21,089			(16	)		(6	)

Total CSS		48,191			48,933			92,564			93,246			(2	)		(1	)
Allocation of CSS to business segments		(36,138	)		(37,591	)		(72,224	)		(74,699	)		(4	)		(3	)

Unallocated CSS	$	12,053			11,342		$	20,340			18,547			6	%		10

Total CSS costs in the second quarter of 2007 declined compared to the same period in 2006 as a result of lower incentive-based compensation offset partially by a charge of $1.8 million related to an adjustment in the amortization of restricted stock unit compensation expense. See Note (C), “Share-Based Compensation Plans,” in the Notes to Consolidated Condensed Financial Statements for additional information. Prior year CSS costs also included a charge of $1.3 million related to a litigation settlement associated with a discontinued operation. The first half of 2007 also benefited from lower information technology costs and were slightly offset by the one-time recovery of $1.9 million in 2006 associated with the recognition of common stock received from mutual insurance companies. Unallocated CSS expenses for the second quarter and first half of 2007 were up compared with the same periods in 2006 largely due to the adjustment in the amortization of restricted stock unit expense and the previously mentioned common stock recovery in the prior year offset partially by the litigation settlement charge in the prior year.

FINANCIAL RESOURCES AND LIQUIDITY

Cash Flows

The following is a summary of our cash flows from operating, financing and investing activities:


	Six months ended June 30,
	2007			2006
	(In thousands)

Net cash provided by (used in):
Operating activities	$	505,215			298,344
Financing activities		(37,329	)		259,733
Investing activities		(489,312	)		(606,328	)
Effect of exchange rate changes on cash		2,756			2,169

Net change in cash and cash equivalents	$	(18,670	)		(46,082	)

A detail of the individual items contributing to the cash flow changes is included in the Consolidated Condensed Statements of Cash Flows.

Cash provided by operating activities increased to $505.2 million in the first half of 2007 compared with $298.3 million in 2006, due primarily to reduced working capital needs including $95.3 million of lower income tax payment obligations in 2007. Income tax payments in 2006 included deferred payments related to hurricane relief obtained on 2005 tax payments. Cash used in financing activities in the first half of 2007 was $37.3 million compared with cash provided of $259.7 million in 2006. Cash used in financing activities in the first half of 2007 reflects higher debt repayments and higher share repurchase activity. Cash used in investing activities decreased to $489.3 million in the first half of 2007 compared with $606.3 million in 2006 due to the sale-leaseback transaction completed during the second quarter of 2007, a decrease in restricted cash associated with the vehicle like-kind exchange program and higher proceeds from sales of used vehicles offset partially by higher cash payments for vehicle capital spending.

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

We manage our business to maximize net cash provided by operating activities (operating cash flows) and proceeds from the sale of revenue earning equipment as the principal sources of liquidity. We refer to the sum of operating cash flows, proceeds from the sales of revenue earning equipment and operating property and equipment, sale and leaseback of revenue earning equipment, collections on direct finance leases and other cash inflows as “total cash generated.” We refer to the net amount of cash generated from operating and investing activities (excluding changes in restricted cash) 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:


	Six months ended June 30,
	2007			2006
	(In thousands)

Net cash provided by operating activities	$	505,215			298,344
Sales of revenue earning equipment		191,645			177,445
Sales of operating property and equipment		3,475			2,210
Sale and leaseback of revenue earning equipment		150,348			—
Collections on direct finance leases		31,811			33,768
Other, net		750			1,598

Total cash generated		883,244			513,365

Purchases of property and revenue earning equipment		(885,292	)		(776,128	)
Acquisitions		—			(4,113	)

Free cash flow	$	(2,048	)		(266,876	)

The improvement in free cash flow to negative $2.0 million for the first half of 2007 compared with negative $266.9 million for the same period in 2006 was driven by the sale-leaseback transaction completed during the second quarter of 2007 and lower income tax payment obligations during the first half of 2007 compared to the same period in the prior year. We anticipate free cash flow to continue to improve over the balance of the year due to lower anticipated commercial rental vehicle capital spending.

The following table provides a summary of capital expenditures:


	Six months ended June 30,
	2007		2006
	(In thousands)

Revenue earning equipment: ⁽¹⁾
Full service lease	$	553,292		597,714
Commercial rental		188,989		188,488

		742,281		786,202
Operating property and equipment		45,835		28,301

Total capital expenditures		788,116		814,503
Changes in accounts payable related to purchases of revenue earning equipment		97,176		(38,375	)

Cash paid for purchases of property and revenue earning equipment	$	885,292		776,128


(1)		Capital expenditures exclude acquisitions of revenue earning equipment under capital leases of $11.2 million and $0.1 million during the six months ended June 30, 2007 and 2006, respectively.

Capital expenditures on an accrual basis of $788.1 million were lower for the first half of 2007 compared with 2006 principally as a result of decreased lease vehicle spending for replacement and expansion of customer fleets. We are now anticipating full-year 2007 accrual basis capital expenditures to be approximately $1.26 billion, down from $1.76 billion in 2006 primarily as a result of reduced replacement activity and lower planned levels of spending for full service lease vehicles. This current capital expenditures forecast reflects a decrease of $70 million from plan, due to lower commercial rental spending.

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

Financing and Other Funding Transactions

We utilize external capital to support growth in our asset-based product lines. The variety of financing alternatives available to fund our capital needs include long-term and medium-term public and private debt, asset-backed securities, bank term loans, leasing arrangements, bank credit facilities and commercial paper.

The following table shows the movements in our debt balance:


	Six months ended June 30,
	2007			2006
	(In thousands)

Debt balance at January 1	$	2,816,943			2,185,366


Cash-related changes in debt:
Net change in commercial paper borrowings		(45,643	)		158,505
Proceeds from issuance of medium-term notes		250,000			250,000
Proceeds from issuance of other debt instruments		238,763			24,904
Retirement of medium-term notes and debentures		(163,020	)		(40,000	)
Other debt repaid, including capital lease obligations		(228,463	)		(99,714	)

		51,637			293,695

Non-cash changes in debt:
Fair market value adjustment on notes subject to hedging		(89	)		(911	)
Addition of capital lease obligations		11,230			85
Changes in foreign currency exchange rates and other non-cash items		20,238			10,874

Total changes in debt		83,016			303,743


Debt balance at June 30	$	2,899,959			2,489,109

In accordance with our funding philosophy, we attempt to match the average remaining repricing life of our debt with the average remaining life of our assets. We utilize both fixed-rate and variable-rate debt to achieve this match and generally target a mix of 25 - 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 32% at June 30, 2007 compared with 31% at December 31, 2006.

Ryder’s leverage ratios and a reconciliation of on-balance sheet debt to total obligations were as follows:


	June 30,		% to			December 31,		% to
	2007		Equity			2006		Equity
			(Dollars in thousands)

On-balance sheet debt	$	2,899,959		161	%		2,816,943		164	%

Off-balance sheet debt—PV of minimum lease payments and guaranteed residual values under operating leases for vehicles⁽¹⁾		195,601					77,998


Total obligations	$	3,095,560		172	%		2,894,941		168	%


(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 is a more complete measure of our existing financial obligations and helps better assess our overall leverage position.

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

On-balance sheet debt to equity decreased in 2007, as the proceeds from the sale and leaseback of revenue earning equipment and improved operating cash flows were used to reduce on-balance sheet debt. These proceeds and improved operating cash flows more than offset the spending required to support our contractual full service lease business and share repurchase programs. Total obligations to equity increased primarily as a result of the share repurchase programs. Our long-term target percentage of total obligations to equity is 250% to 300% while maintaining a strong investment grade rating. We believe this leverage range is appropriate for our business due to the liquidity of our vehicle portfolio and because a substantial component of our assets is supported by long-term customer leases.

Our ability to access unsecured debt in the capital markets is linked to 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 that such agencies consider to be reliable. Lower ratings generally result in higher borrowing costs as well as reduced access to capital markets. A significant downgrade of Ryder’s debt rating would reduce our ability to issue commercial paper. As a result, we would have to rely on other established funding sources described below.

Our debt ratings at June 30, 2007 were as follows:


	Short-term	Long-term	Outlook
Moody’s Investors Service	P2	Baa1	Stable (June 2004)
Standard & Poor’s Ratings Services	A2	BBB+	Stable (April 2005)
Fitch Ratings	F2	A-	Stable (April 2007)

In February 2007, we issued $250 million of unsecured medium-term notes, maturing in March 2014. The proceeds from the notes were used for general corporate purposes.

On February 27, 2007, Ryder filed an automatic shelf registration statement on Form S-3 with the Securities and Exchange Commission (SEC). The registration was for an indeterminate number of securities and is effective for three years. Under this universal shelf registration statement, we have the capacity to offer and sell from time to time various types of securities, including common stock, preferred stock and debt securities. This automatic shelf registration statement replaced our $800 million shelf registration statement, which was fully utilized with the issuance of the medium-term notes noted above.

Ryder Receivable Funding II, L.L.C. (RRF LLC), a bankruptcy remote, consolidated subsidiary of Ryder has a Trade Receivables Purchase and Sale Agreement with various financial institutions. Under this program, Ryder sells certain of its domestic trade accounts receivable to RRF LLC who in turn may sell, on a revolving basis, an ownership interest in certain of these accounts receivable to a receivables conduit and (or) committed purchasers. Under the terms of the program, RRF LLC and Ryder have provided representations, warranties, covenants and indemnities that are customary for accounts receivable facilities of this type. Ryder entered into this program to provide additional liquidity to fund its operations, particularly when the cost of such sales is cost effective compared with other funding programs, notably the issuance of unsecured commercial paper. This program is accounted for as a collateralized financing arrangement. The available proceeds that may be received by RRF LLC under the program are limited to $200 million. RRF LLC’s costs under this program may vary based on changes in Ryder’s unsecured debt ratings and changes in interest rates. If no event occurs that would cause early termination, the 364-day program will expire on September 11, 2007. There were no amounts outstanding under the agreement at June 30, 2007 and December 31, 2006.

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

At June 30, 2007, we had the following amounts available to fund operations under the aforementioned facilities:


	(In millions)
Global revolving credit facility	$	147
Trade receivables program		200
Automatic shelf registration	Indeterminate

We believe that our existing cash and cash equivalents, operating cash flows, commercial paper program, revolving credit facility, automatic shelf registration with the SEC and the trade receivables program will adequately meet our working capital and capital expenditure needs for the foreseeable future.

Off-Balance Sheet Arrangements

Sale and leaseback transactions. 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 that are not deemed to be variable interest entities (VIEs). In general, these sale-leaseback transactions result in a reduction in revenue earning equipment and debt on the balance sheet, as proceeds from the sale of revenue earning equipment are primarily used to repay debt. Accordingly, sale-leaseback transactions will result in reduced depreciation and interest expense and increased equipment rental expense. In May 2007, we completed a sale-leaseback transaction of revenue earning equipment with a third party not deemed to be a VIE and this transaction qualified for off-balance sheet treatment. Proceeds from the sale-leaseback transaction totaled $150.3 million. 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. See Note (J), “Guarantees,” in the Notes to Consolidated Condensed Financial Statements for additional information. We did not enter into any sale-leaseback transactions that qualified for off-balance sheet treatment during the first six months of 2006.

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. For 2007, we have made $27.4 million in pension contributions and we expect to make additional pension contributions for our plans during the remainder of 2007 of approximately $31 million. Changes in interest rates and the market value of the securities held by the plans during 2007 could materially change, positively or negatively, the underfunded status of the plans and affect the level of pension expense and required contributions in 2008 and beyond. See Note (M), “Employee Benefit Plans,” in the Notes to Consolidated Condensed Financial Statements for additional information.

On January 5, 2007, our Board of Directors approved an amendment to freeze the U.S. pension plan effective December 31, 2007 for current participants who do not meet certain grandfathering criteria. As a result, these employees will cease accruing further benefits under the pension plan after December 31, 2007 and will begin participating in an enhanced 401(k) plan. Those participants that meet the grandfathering criteria will be given the option to either continue to earn benefits in the U.S. pension plan or transition into the enhanced 401(k) plan. All retirement benefits earned as of December 31, 2007 will be fully preserved and will be paid in accordance with the plan and legal requirements. Employees hired after January 1, 2007 will not be eligible to participate in the pension plan. Due to the fact that our pension plan is being replaced by an enhanced 401(k) plan to which we will be contributing, we do not believe our benefit plan funding requirements will change significantly as a result of the freeze of the U.S. pension plan.

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

Share Repurchases and Cash Dividends

In May 2006, our Board of Directors authorized a two-year share repurchase program intended to mitigate the dilutive impact of shares issued under our various employee stock option and stock purchase plans. Under the May 2006 program, management was authorized to repurchase shares of common stock in an amount not to exceed the number of shares issued to employees upon the exercise of stock options or through the employee stock purchase plan since March 1, 2006. The May 2006 program limited aggregate share repurchases to no more than 2 million shares of Ryder common stock. Share repurchases were made periodically in open-market transactions, and are subject to market conditions, legal requirements and other factors. Management established a trading plan for the Company under Rule 10b5-1 of the Securities Exchange Act of 1934 as part of the May 2006 program, which allowed for share repurchases during Ryder’s quarterly blackout periods as set forth in the trading plan. During the first quarter of 2007, we completed the May 2006 program. In 2007, we repurchased and retired approximately 0.2 million shares under the May 2006 program at an aggregate cost of $9.0 million. Under the May 2006 program, we repurchased and retired a total of 2 million shares at an aggregate cost of $102.2 million.

In October 2005, our Board of Directors authorized a $175 million share repurchase program over a period not to exceed two years. Share repurchases of common stock were made periodically in open-market transactions and were 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 October 2005 program, which allowed for share repurchases during Ryder’s quarterly blackout periods as set forth in the trading plan. During the first quarter of 2006, we completed the October 2005 program. In 2006, we repurchased and retired approximately 1.6 million under the October 2005 program at an aggregate cost of $65.9 million.

In February and May 2007, our Board of Directors declared a quarterly cash dividend of $0.21 per share of common stock. This dividend reflects a $0.03 increase from the quarterly cash dividend of $0.18 paid in 2006.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note (O), “Recent Accounting Pronouncements” in Notes to Consolidated Condensed Financial Statements for a discussion of recent accounting pronouncements.

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

NON-GAAP FINANCIAL MEASURES

This Quarterly Report on Form 10-Q includes information extracted from 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 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, total obligations to equity and net earnings and net earnings per diluted common share excluding tax changes. 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 net earnings and net earnings per diluted common share to net earnings and net earnings per diluted common share excluding tax changes, which was not provided within the MD&A discussion:


	Three months			Six months
	ended			ended
	June 30, 2006			June 30, 2006
	(In thousands, except per share amounts)

Net earnings	$	70,279			117,861
Tax changes		(6,796	)		(6,796	)

Net earnings excluding tax changes	$	63,483			111,065


Net earnings per diluted common share	$	1.13			1.91
Tax changes		(0.11	)		(0.11	)

Net earnings per diluted common share excluding tax changes	$	1.02			1.80

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 June 30,						Six months ended June 30,
	2007			2006			2007			2006
	(In thousands)

Total revenue	$	1,657,969			1,595,726		$	3,252,071			3,092,017
Fuel services and subcontracted transportation revenue		(552,085	)		(534,599	)		(1,073,497	)		(1,018,562	)
Fuel eliminations		51,183			50,002			97,700			95,148

Operating revenue	$	1,157,067			1,111,129		$	2,276,274			2,168,603

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:

•		the anticipated closure date of the IRS’ audit of our U.S. income tax returns for 2001 through 2003, the status of our unrecognized tax benefits during the remainder of 2007 related to the U.S. federal, state and foreign tax positions and the impact of recent state tax law changes;

•		our expectations as to anticipated revenue and earnings trends and future economic conditions;

•		our ability to successfully achieve the operational goals that are the basis of our business strategies, including offering competitive pricing, diversifying our customer base, optimizing asset utilization, leveraging the expertise of our various business segments, serving our customers’ global needs and expanding our support services;

•		impact of losses from conditional obligations arising from guarantees;

•		number of NLE vehicles in inventory, and the size of our commercial rental fleet, over the near term;

•		estimates of free cash flow and capital expenditures for 2007;

•		the adequacy of our accounting estimates and reserves for pension expense, depreciation and residual value guarantees, self-insurance reserves, goodwill impairment, accounting changes and income taxes and the impact of FIN 48;

•		our ability to fund all of our operations for the foreseeable future through internally generated funds and outside funding sources;

•		the anticipated impact of fuel price fluctuations;

•		our expectations as to future pension expense and contributions, as well as the effect of the freeze of the U.S. pension plan on our benefit funding requirements;

•		the anticipated income tax impact of the like-kind exchange program;

•		the anticipated deferral of tax gains on disposal of eligible revenue earning equipment pursuant to our vehicle like-kind exchange program; and

•		our expectations regarding the effect of the adoption of recent accounting pronouncements.

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

•

Market Conditions:

	o		Changes in general economic conditions in the U.S. and worldwide leading to decreased demand for our services, lower profit margins and increased levels of bad debt

	o		Changes in our customers’ operations, financial condition or business environment that may limit their need for, or ability to purchase, our services

	o		Changes in market conditions affecting the commercial rental market or the sale of used vehicles

	o		Less than anticipated growth rates in the markets in which we operate

	o		Changes in current financial, tax or regulatory requirements that could negatively impact the leasing market

•

Competition:

	o		Competition from other service providers, some of which have greater capital resources or lower capital costs

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

	o		Competition from vehicle manufacturers in our FMS business operations

	o		Our inability to maintain current pricing levels due to customer acceptance or competition

•

Profitability:

	o		Our inability to obtain adequate profit margins for our services

	o		Lower than expected customer volumes or retention levels

	o		Loss of key customers in our SCS and DCC business segments

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

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


	o		The inability of our business segments to create operating efficiencies

	o		Availability of heavy-duty and medium-duty vehicles

	o		Sudden changes in fuel prices and fuel shortages

	o		Our inability to successfully implement our asset management initiatives

	o		An increase in the cost of, or shortages in the availability of, qualified drivers

	o		Labor strikes and work stoppages

	o		Our inability to manage our cost structure

	o		Our inability to limit our exposure for customer claims

•

Financing Concerns:

	o		Higher borrowing costs and possible decreases in available funding sources caused by an adverse change in our debt ratings

	o		Unanticipated interest rate and currency exchange rate fluctuations

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

•

Accounting Matters:

	o		Impact of unusual items resulting from on-going evaluations of business strategies, asset valuations, acquisitions, divestitures and our organizational structure

	o		Reductions in residual values or useful lives of revenue earning equipment

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

	o		Increases in healthcare costs resulting in higher insurance costs

	o		Changes in accounting rules, assumptions and accruals

•

Other risks detailed from time to time in our SEC filings

The risks included here are not exhaustive. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors or to assess the impact of such risk factors on our business. As a result, no assurance can be given as to our future results or achievements. You should not place undue reliance on the forward-looking statements contained herein, which speak only as of the date of this Quarterly Report. We do not intend, or assume any obligation, to update or revise any forward-looking statements contained in this Quarterly Report, whether as a result of new information, future events or otherwise.

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, 2006. Please refer to the 2006 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 second quarter of 2007, 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 Rules 13a-15(e) and 15d-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 second quarter of 2007, 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 June 30, 2007, there were no changes in Ryder’s internal control over financial reporting that
has materially affected or is 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 June 30, 2007 and total repurchases:

Total Number of

Shares

Purchased as

Approximate Dollar

Total Number

Part of Publicly

Value That May Yet

of Shares

Average Price

Announced

Be Purchased Under

Purchased^(1),(2)

Paid per Share

Program ^(1),(2)

the Program ⁽¹⁾

April 1 through April 30, 2007

—

May 1 through May 31, 2007

601,464

53.49

600,000

167,908,165

June 1 through June 30, 2007

1,040,250

53.05

1,040,000

112,733,991

Total

1,641,714

53.21

1,640,000


(1)		In May 2007, our Board of Directors authorized a $200 million share repurchase program over a period not to exceed two years. 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 May 2007 program, which allows for share repurchases during Ryder’s quarterly blackout periods as set forth in the trading plan.
(2)		During the three months ended June 30, 2007, we purchased an aggregate of 1,640,000 shares of our common stock as part of our share repurchase program and an aggregate of 1,714 shares of our common stock in employee-related transactions outside of the share repurchase program. 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 plan relating to investments by employees in our common stock, one of the investment options available under the plan.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

(a)		Our 2007 annual meeting of shareholders was held on May 4, 2007.

(b)		At the annual meeting, all director nominees named in (c) below were elected. The following directors continued in office after the meeting: John M. Berra, L. Patrick Hassey, Lynn M. Martin, E. Follin Smith, Gregory T. Swienton and Hansel E. Tookes, II.

(c)		The matters voted upon at the meeting and the votes cast with respect to each matter were as follows:

ELECTION OF DIRECTORS


	Votes
Director	For		Withheld
David I. Fuente		53,618,608		674,281
Luis P. Nieto, Jr.		53,654,585		638,304
Eugene A. Renna		53,634,309		658,580
Abbie J. Smith		53,653,468		639,421
Christine A. Varney		53,614,350		678,539

MANAGEMENT PROPOSALS

Votes Cast

For

Against

Abstain

Ratification of PricewaterhouseCoopers LLP as independent auditor

53,854,153

109,912

328,824

ITEM 6. EXHIBITS


31.1		Certification of Gregory T. Swienton pursuant to Rule 13a-15(e) or Rule 15d-15(e).

31.2		Certification of Mark T. Jamieson pursuant to Rule 13a-15(e) or Rule 15d-15(e).

32		Certification of Gregory T. Swienton and Mark T. Jamieson pursuant to Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. Section 1350.

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: July 25, 2007	By:	/s/ Mark T. Jamieson
		Mark T. Jamieson
		Executive Vice President and Chief Financial Officer (Principal Financial Officer and Duly Authorized Officer)



Date: July 25, 2007	By:	/s/ Art A. Garcia
		Art A. Garcia
		Senior Vice President and Controller (Principal Accounting Officer)