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

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM                      TO                     

Commission File Number: 1-4364

RYDER SYSTEM, INC.

(Exact name of registrant as specified in its charter)

Florida		59-0739250
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
11690 N.W. 105th Street Miami, Florida 33178 (Address of principal executive offices, including zip code)		(305) 500-3726 (Registrant’s telephone number, including area code)

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

          Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES þ      NO o

          Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

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

The number of shares of Ryder System, Inc. Common Stock ($0.50 par value per share) outstanding at June 30, 2011 was 51,132,027.

 

 

RYDER SYSTEM, INC.
FORM 10-Q QUARTERLY REPORT

TABLE OF CONTENTS

		Page No.
PART I      FINANCIAL INFORMATION
ITEM 1      Financial Statements (unaudited)
Consolidated Condensed Statements of Earnings — Three and six months ended June 30, 2011 and 2010			1
Consolidated Condensed Balance Sheets — June 30, 2011 and December 31, 2010			2
Consolidated Condensed Statements of Cash Flows — Six months ended June 30, 2011 and 2010			3
Consolidated Condensed Statement of Shareholders’ Equity — Six months ended June 30, 2011			4
Notes to Consolidated Condensed Financial Statements			5
ITEM 2      Management’s Discussion and Analysis of Financial Condition and Results of Operations			24
ITEM 3      Quantitative and Qualitative Disclosures About Market Risk			45
ITEM 4      Controls and Procedures			45
PART II      OTHER INFORMATION
ITEM 2      Unregistered Sales of Equity Securities and Use of Proceeds			45
ITEM 6      Exhibits			46
SIGNATURES			47
EX-31.1
EX-31.2
EX-32
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

RYDER SYSTEM, INC. AND SUBSIDIARIES

(unaudited)

		Three months ended June 30,								Six months ended June 30,
		2011				2010				2011				2010
		(In thousands, except per share amounts)
Revenue		$	1,513,344				1,286,123			$	2,938,720				2,506,061
Operating expense (exclusive of items shown separately)			738,466				611,495				1,432,889				1,189,109
Salaries and employee-related costs			370,367				310,241				735,762				614,953
Subcontracted transportation			83,193				64,585				166,275				124,922
Depreciation expense			214,858				206,761				420,795				417,766
Gains on vehicle sales, net			(15,658	)			(6,587	)			(28,007	)			(11,105	)
Equipment rental			14,729				16,614				28,962				33,069
Interest expense			32,974				31,152				67,393				64,488
Miscellaneous income, net			(595	)			(345	)			(4,737	)			(1,840	)
Restructuring and other charges, net			—				—				768				—
			1,438,334				1,233,916				2,820,100				2,431,362
Earnings from continuing operations before income taxes			75,010				52,207				118,620				74,699
Provision for income taxes			34,096				21,607				51,849				31,227
Earnings from continuing operations			40,914				30,600				66,771				43,472
Loss from discontinued operations, net of tax			(881	)			(759	)			(1,613	)			(1,258	)
Net earnings		$	40,033				29,841			$	65,158				42,214
Earnings (loss) per common share — Basic
Continuing operations		$	0.80				0.58			$	1.30				0.82
Discontinued operations			(0.02	)			(0.01	)			(0.03	)			(0.02	)
Net earnings		$	0.78				0.57			$	1.27				0.80
Earnings (loss) per common share — Diluted
Continuing operations		$	0.79				0.58			$	1.29				0.82
Discontinued operations			(0.02	)			(0.02	)			(0.03	)			(0.03	)
Net earnings		$	0.77				0.56			$	1.26				0.79
Cash dividends declared and paid per common share		$	0.27				0.25			$	0.54				0.50

See accompanying notes to consolidated condensed financial statements.

RYDER SYSTEM, INC. AND SUBSIDIARIES

(unaudited)

		June 30,				December 31,
		2011				2010
		(Dollars in thousands, except per
		share amount)
Assets:
Current assets:
Cash and cash equivalents		$	130,156				213,053
Receivables, net			752,863				615,003
Inventories			64,884				58,701
Prepaid expenses and other current assets			157,558				136,544
Total current assets			1,105,461				1,023,301
Revenue earning equipment, net of accumulated depreciation of $3,363,654 and $3,247,400, respectively			4,817,487				4,201,218
Operating property and equipment, net of accumulated depreciation of $902,966 and $880,757, respectively			632,989				606,843
Goodwill			381,499				355,842
Intangible assets			85,975				72,269
Direct financing leases and other assets			420,878				392,901
Total assets		$	7,444,289				6,652,374
Liabilities and shareholders’ equity:
Current liabilities:
Short-term debt and current portion of long-term debt		$	293,882				420,124
Accounts payable			395,490				294,380
Accrued expenses and other current liabilities			495,808				417,015
Total current liabilities			1,185,180				1,131,519
Long-term debt			2,947,899				2,326,878
Other non-current liabilities			692,566				680,808
Deferred income taxes			1,159,365				1,108,856
Total liabilities			5,985,010				5,248,061
Shareholders’ equity:
Preferred stock of no par value per share — authorized, 3,800,917; none outstanding, June 30, 2011 or December 31, 2010			—				—
Common stock of $0.50 par value per share — authorized, 400,000,000; outstanding, June 30, 2011 — 51,132,027; December 31, 2010 — 51,174,757			25,566				25,587
Additional paid-in capital			752,911				735,540
Retained earnings			1,027,281				1,019,785
Accumulated other comprehensive loss			(346,479	)			(376,599	)
Total shareholders’ equity			1,459,279				1,404,313
Total liabilities and shareholders’ equity		$	7,444,289				6,652,374

See accompanying notes to consolidated condensed financial statements.

RYDER SYSTEM, INC. AND SUBSIDIARIES

(unaudited)

		Six months ended June 30,
		2011				2010
		(In thousands)
Cash flows from operating activities from continuing operations:
Net earnings		$	65,158				42,214
Less: Loss from discontinued operations, net of tax			(1,613	)			(1,258	)
Earnings from continuing operations			66,771				43,472
Depreciation expense			420,795				417,766
Gains on vehicle sales, net			(28,007	)			(11,105	)
Share-based compensation expense			8,340				8,017
Amortization expense and other non-cash charges, net			18,766				19,567
Deferred income tax expense (benefit)			40,123				(22,994	)
Changes in operating assets and liabilities, net of acquisitions:
Receivables			(84,408	)			(30,740	)
Inventories			(4,717	)			(1,169	)
Prepaid expenses and other assets			(12,029	)			4,946
Accounts payable			21,521				17,941
Accrued expenses and other non-current liabilities			25,638				85,494
Net cash provided by operating activities from continuing operations			472,793				531,195
Cash flows from financing activities from continuing operations:
Net change in commercial paper borrowings			163,395				187,700
Debt proceeds			701,542				13,588
Debt repaid, including capital lease obligations			(376,450	)			(226,411	)
Dividends on common stock			(27,825	)			(26,554	)
Common stock issued			20,257				6,941
Common stock repurchased			(42,047	)			(57,665	)
Excess tax benefits from share-based compensation			1,398				533
Debt issuance costs			(6,781	)			(156	)
Net cash provided by (used in) financing activities from continuing operations			433,489				(102,024	)
Cash flows from investing activities from continuing operations:
Purchases of property and revenue earning equipment			(817,377	)			(544,389	)
Sales of revenue earning equipment			136,578				102,027
Sales of operating property and equipment			6,180				1,414
Acquisitions			(348,584	)			(2,409	)
Collections on direct finance leases			30,046				30,914
Changes in restricted cash			2,662				1,935
Other, net			—				1,950
Net cash used in investing activities from continuing operations			(990,495	)			(408,558	)
Effect of exchange rate changes on cash			2,862				(3,623	)
(Decrease) increase in cash and cash equivalents from continuing operations			(81,351	)			16,990
Cash flows from discontinued operations:
Operating cash flows			(1,603	)			(5,676	)
Financing cash flows			27				(2,940	)
Investing cash flows			—				1,544
Effect of exchange rate changes on cash			30				(29	)
Decrease in cash and cash equivalents from discontinued operations			(1,546	)			(7,101	)
(Decrease) increase in cash and cash equivalents			(82,897	)			9,889
Cash and cash equivalents at January 1			213,053				98,525
Cash and cash equivalents at June 30		$	130,156				108,414

See accompanying notes to consolidated condensed financial statements.

RYDER SYSTEM, INC. AND SUBSIDIARIES

(unaudited)

																				Accumulated
	Preferred											Additional								Other
	Stock			Common Stock								Paid-In				Retained				Comprehensive
	Amount			Shares				Par				Capital				Earnings				Loss				Total
		(Dollars in thousands, except per share amount)
Balance at December 31, 2010	$	—			51,174,757			$	25,587				735,540				1,019,785				(376,599	)			1,404,313
Components of comprehensive income:
Net earnings		—			—				—				—				65,158				—				65,158
Foreign currency translation adjustments		—			—				—				—				—				25,988				25,988
Unrealized loss related to derivatives		—			—				—				—				—				(136	)			(136	)
Amortization of pension and postretirement items, net of tax		—			—				—				—				—				5,788				5,788
Change in net actuarial loss, net of tax		—			—				—				—				—				(1,520	)			(1,520	)
Total comprehensive income																									95,278
Common stock dividends declared and paid — $0.54 per share		—			—				—				—				(27,825	)			—				(27,825	)
Common stock issued under employee stock option and stock purchase plans (1)		—			780,170				390				19,867				—				—				20,257
Benefit plan stock purchases (2)		—			(2,900	)			(1	)			(146	)			—				—				(147	)
Common stock repurchases		—			(820,000	)			(410	)			(11,653	)			(29,837	)			—				(41,900	)
Share-based compensation		—			—				—				8,340				—				—				8,340
Tax benefits from share-based compensation		—			—				—				963				—				—				963
Balance at June 30, 2011	$	—			51,132,027			$	25,566				752,911				1,027,281				(346,479	)			1,459,279

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 has a controlling voting interest (“subsidiaries”), and variable interest entities (VIEs) required to be consolidated in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The accompanying unaudited Consolidated Condensed Financial Statements have been prepared in accordance with the accounting policies described in our 2010 Annual Report on Form 10-K and should be read in conjunction with the Consolidated Financial Statements and notes thereto. These financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement have been included and the disclosures herein are adequate. The operating results for interim periods are unaudited and are not necessarily indicative of the results that can be expected for a full year.

(B) ACCOUNTING CHANGES

     In September 2009, the Financial Accounting Standards Board (FASB) issued accounting guidance which amends the criteria for allocating a contract’s consideration to individual services or products in multiple-deliverable arrangements. The guidance requires that the best estimate of selling price be used when vendor specific objective or third-party evidence for deliverables cannot be determined. This guidance is effective for us for revenue arrangements entered into or materially modified after December 31, 2010. The adoption of this accounting guidance did not have a material impact on our consolidated financial position, results of operations or cash flows.

(C) ACQUISITIONS

     Hill Hire plc — On June 8, 2011, we acquired all of the common stock of Hill Hire plc (Hill Hire), a U.K. based full service leasing, rental and maintenance company for a purchase price of $251.5 million, net of cash acquired, all of which was paid as of June 30, 2011. The acquisition included Hill Hire’s fleet of approximately 8,000 full service lease and 5,700 rental vehicles, and approximately 400 contractual customers. The fleet included 9,700 trailers. The initial recording of the transaction was based on preliminary valuation assessments and is subject to change. The combined network operates under the Ryder name, complementing our Fleet Management Solutions (FMS) business segment market coverage in the U.K. Transaction costs related to the Hill Hire acquisition, all of which were included in “Operating expense” in the Consolidated Condensed Statement of Earnings, totaled $1.9 million for the six months ended June 30, 2011.

     The preliminary purchase price allocations and resulting impact on the June 30, 2011 Consolidated Condensed Balance Sheet relating to the Hill Hire acquisition were as follows:

		(In thousands)
Assets:
Revenue earning equipment		$	201,429
Operating property and equipment			18,780
Customer relationships and other intangibles			5,567
Other assets, primarily accounts receivable			60,988
			286,764
Liabilities, primarily accrued liabilities			(35,269	)
Net assets acquired		$	251,495

     Pro Forma Information — The operating results of Hill Hire have been included in the consolidated condensed financial statements from the date of acquisition. The following table provides the unaudited pro forma revenues, net earnings and earnings per common share as if the results of the Hill Hire acquisition had been included in operations commencing January 1, 2010. This pro forma information is not necessarily indicative either of the combined results of operations that actually would have been realized had the acquisition been consummated during the periods for which the pro forma information is presented, or of future results.

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

		Three months ended June 30,								Six months ended June 30,
		2011				2010				2011				2010
		(In thousands, except per share amounts)
Revenue — As reported		$	1,513,344				1,286,123			$	2,938,720				2,506,061
Revenue — Pro forma		$	1,543,084				1,321,924			$	3,006,290				2,578,223
Net earnings — As reported		$	40,033				29,841			$	65,158				42,214
Net earnings — Pro forma (1)		$	47,791				28,637			$	77,773				42,433
Net earnings per common share:
Basic — As reported		$	0.78				0.57			$	1.27				0.80
Basic — Pro forma		$	0.93				0.54			$	1.51				0.80
Diluted — As reported		$	0.77				0.56			$	1.26				0.79
Diluted — Pro forma		$	0.92				0.54			$	1.50				0.80

     B.I.T. Leasing Inc.— On April 1, 2011, we acquired the assets of B.I.T. Leasing, Inc. (“BIT”), a full service truck leasing and fleet services company located in Hayward, California, for a purchase price of $13.8 million, of which $13.2 million was paid as of June 30, 2011. This agreement complements a 2010 acquisition whereby we acquired a portion of BIT’s fleet of full service lease and rental vehicles and contractual customers. The combination of both acquisitions included BIT’s fleet of approximately 490 full service lease and rental vehicles, 70 contract maintenance vehicles and 130 contractual customers. The initial recording of the transaction was based on preliminary valuation assessments and is subject to change. As of June 30, 2011, goodwill and customer relationship intangibles related to the BIT acquisition were $1.4 million and $0.5 million, respectively. The combined network operates under the Ryder name, complementing our FMS business segment market coverage in California.

     The Scully Companies — On January 28, 2011, we acquired the common stock of The Scully Companies, Inc.’s (“Scully”) FMS business and the assets of Scully’s Dedicated Contract Carriage (DCC) business. The acquisition included Scully’s fleet of approximately 1,800 full service lease and 300 rental vehicles, and approximately 200 contractual customers. The purchase price was $91.2 million, of which $71.2 million was paid as of June 30, 2011. During 2011, the purchase price was increased by $0.5 million due to the settlement of working capital related items. The purchase price includes $14.4 million in contingent consideration to be paid to the seller provided acquired customers are retained for a specified period. The contingent consideration is expected to be paid by the end of the year. As of June 30, 2011, the fair value of the contingent consideration has been reflected within “Accrued expenses and other current liabilities” in our Consolidated Condensed Balance Sheet. See Note (N), “Fair Value Measurements,” for additional information. The initial recording of the transaction was based on preliminary valuation assessments and is subject to change. As of June 30, 2011, goodwill and customer relationship intangibles related to the Scully acquisition were $27.8 million and $11.1 million, respectively. The combined network operates under the Ryder name, complementing our FMS and DCC business segments market coverage in the Western United States.

     Carmenita Leasing, Inc. — On January 10, 2011, we acquired the assets of Carmenita Leasing, Inc. (“Carmenita”), a full service leasing and rental business located in Santa Fe Springs, California, which included a fleet of approximately 190 full service lease and rental vehicles, and 60 contractual customers for a purchase price of $9.0 million, of which $8.6 million was paid as of June 30, 2011. The initial recording of the transaction was based on preliminary valuation assessments and is subject to change. As of June 30, 2011, goodwill and customer relationship intangibles related to the Carmenita acquisition were $0.3 million and $0.3 million, respectively. The combined network operates under the Ryder name, complementing our FMS business segment market coverage in California.

     Total Logistic Control — On December 31, 2010, we acquired all of the common stock of Total Logistic Control (“TLC”), a leading provider of comprehensive supply chain solutions to food, beverage, and consumer packaged goods manufacturers in the U.S.

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

TLC provides customers a broad suite of end-to-end services, including distribution management, contract packaging services and solutions engineering. This acquisition enhances our Supply Chain Solutions (SCS) capabilities and growth prospects in the areas of packaging and warehousing, including temperature-controlled facilities. The purchase price was $208.0 million, of which $3.4 million was paid during the six months ended June 30, 2011. During the six months ended June 30, 2011, the purchase price was reduced by $0.6 million due to contractual adjustments in acquired deferred taxes. The purchase price is subject to further adjustments based on resolution of certain items with the seller. As of June 30, 2011, goodwill and customer relationship intangibles related to the TLC acquisition were $134.0 million and $35.0 million, respectively.

     Pro forma information for the 2011 acquisitions, other than Hill Hire, is not disclosed because the effect of these acquisitions is not significant. During the six months ended June 30, 2011 and 2010, we paid $0.7 million and $2.4 million, respectively, related to other acquisitions completed in the prior years.

(D) DISCONTINUED OPERATIONS

     In 2009, we ceased SCS service operations in Brazil, Argentina, Chile and European markets. Accordingly, results of these operations, financial position and cash flows are separately reported as discontinued operations for all periods presented either in the Consolidated Condensed Financial Statements or notes thereto.

     Summarized results of discontinued operations were as follows:

		Three months ended June 30,								Six months ended June 30,
		2011				2010				2011				2010
		(In thousands)
Pre-tax loss from discontinued operations		$	(969	)			(832	)		$	(1,716	)			(1,337	)
Income tax benefit			88				73				103				79
Loss from discontinued operations, net of tax		$	(881	)			(759	)		$	(1,613	)			(1,258	)

     Results of discontinued operations in 2011 and 2010 included losses related to adverse legal developments, professional fees and administrative fees associated with our discontinued South American operations.

     We are subject to various claims, tax assessments and administrative proceedings associated with our discontinued operations. We have established loss provisions for matters in which losses are deemed probable and can be reasonably estimated. However, at this time, it is not possible for us to determine fully the ultimate effect of all unasserted claims and assessments on our consolidated financial condition, results of operations or liquidity. Additional adjustments and expenses may be recorded through discontinued operations in future periods as further relevant information becomes available. Although it is not possible to predict the ultimate outcome of these matters, we do not expect that any resulting liability will have a material adverse effect upon our financial condition, results of operations or liquidity.

     The following is a summary of assets and liabilities of discontinued operations:

		June 30,				December 31,
		2011				2010
		(In thousands)
Assets:
Total current assets, primarily other receivables		$	4,639				4,710
Total assets		$	6,535				6,346
Liabilities:
Total current liabilities, primarily other payables		$	5,119				4,018
Total liabilities		$	9,012				7,882

(E) SHARE-BASED COMPENSATION PLANS

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

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,
		2011				2010				2011				2010
		(In thousands)
Stock option and stock purchase plans		$	2,357				2,240			$	4,604				4,493
Nonvested stock			1,878				1,836				3,736				3,524
Share-based compensation expense			4,235				4,076				8,340				8,017
Income tax benefit			(1,415	)			(1,415	)			(2,787	)			(2,741	)
Share-based compensation expense, net of tax		$	2,820				2,661			$	5,553				5,276

     During the six months ended June 30, 2011 and 2010, approximately 700,000 and 900,000 stock options, respectively, were granted under the Plans. These awards generally vest evenly over a three year period from the date of grant and have contractual terms of seven years. The fair value of each option award at the date of grant was estimated using a Black-Scholes-Merton option-pricing valuation model. The weighted-average fair value per option granted during the six months ended June 30, 2011 and 2010 was $12.85 and $8.93, respectively.

     During the six months ended June 30, 2011 and 2010, approximately 140,000 and 190,000 market-based restricted stock rights, respectively, were granted under the Plans. Employees only receive the grant of stock if Ryder’s cumulative average total shareholder return (TSR) at least meets the S&P 500 cumulative average TSR over an applicable three-year period. The fair value of the market-based restricted stock rights was estimated using a lattice-based option-pricing valuation model that incorporates a Monte-Carlo simulation. The fair value of the market-based awards was determined and fixed on the grant date and is based on the likelihood of Ryder achieving the market-based condition. The weighted-average fair value per market-based restricted stock right granted during the six months ended June 30, 2011 and 2010 was $25.29 and $15.50, respectively.

     During the six months ended June 30, 2011 and 2010, approximately 150,000 and 40,000 time-vested restricted stock rights and restricted stock units (RSU), respectively, were granted under the plans. The time-vested restricted stock rights entitle the holder to shares of common stock as the awards vest over a three-year period. The fair value of the time-vested awards is determined and fixed on the date of grant based on Ryder’s stock price on the date of grant. The weighted-average fair value per time-vested restricted stock right and RSU granted during the six months ended June 30, 2011 and 2010 was $50.95 and $39.16, respectively.

     During the six months ended June 30, 2011 and 2010, employees who received market-based restricted stock rights also received market-based cash awards. The awards have the same vesting provisions as the market-based restricted stock rights except that Ryder’s TSR must at least meet the TSR of the 33rd percentile of the S&P 500. The cash awards are accounted for as liability awards under the share-based compensation accounting guidance as the awards are based upon the performance of our common stock and are settled in cash. As a result, the liability is adjusted to reflect fair value at the end of each reporting period. The fair value of the cash awards was estimated using a lattice-based option-pricing valuation model that incorporates a Monte-Carlo simulation.

     The following table is a summary of compensation expense recognized for cash awards in addition to the share-based compensation expense reported in the previous table:

		Three months ended June 30,								Six months ended June 30,
		2011				2010				2011				2010
		(In thousands)
Cash awards		$	360				678			$	820				772

     Total unrecognized pre-tax compensation expense related to share-based compensation arrangements at June 30, 2011 was $33.7 million and is expected to be recognized over a weighted-average period of 2.0 years.

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

(F) EARNINGS PER SHARE

     We compute earnings per share using the two-class method. The two-class method of computing earnings per share is an earnings allocation formula that determines earnings per share for common stock and any participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. Our nonvested stock are considered participating securities since the share-based awards contain a non-forfeitable right to dividend equivalents irrespective of whether the awards ultimately vest. Under the two-class method, earnings per common share are computed by dividing the sum of distributed earnings and undistributed earnings allocated to common shareholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both common shares and participating securities based on the weighted average shares outstanding during the period.

     The following table presents the calculation of basic and diluted earnings per common share from continuing operations:

		Three months ended June 30,								Six months ended June 30,
		2011				2010				2011				2010
		(In thousands, except per share amounts)
Earnings per share — Basic:
Earnings from continuing operations		$	40,914				30,600			$	66,771				43,472
Less: Distributed and undistributed earnings allocated to nonvested stock			(649	)			(432	)			(1,054	)			(584	)
Earnings from continuing operations available to common shareholders — Basic		$	40,265				30,168			$	65,717				42,888
Weighted average common shares outstanding — Basic			50,546				52,044				50,586				52,362
Earnings from continuing operations per common share — Basic		$	0.80				0.58			$	1.30				0.82
Earnings per share — Diluted:
Earnings from continuing operations		$	40,914				30,600			$	66,771				43,472
Less: Distributed and undistributed earnings allocated to nonvested stock			(645	)			(432	)			(1,049	)			(584	)
Earnings from continuing operations available to common shareholders — Diluted		$	40,269				30,168			$	65,722				42,888
Weighted average common shares outstanding — Basic			50,546				52,044				50,586				52,362
Effect of dilutive options			457				217				421				120
Weighted average common shares outstanding — Diluted			51,003				52,261				51,007				52,482
Earnings from continuing operations per common share — Diluted		$	0.79				0.58			$	1.29				0.82
Anti-dilutive options not included above			1,224				1,391				1,333				1,853

(G) RESTRUCTURING AND OTHER CHARGES

     Restructuring charges, net for the six months ended June 30, 2011 represented $0.8 million of employee severance and benefit costs related to workforce reductions and termination costs associated with non-essential equipment contracts assumed in the Scully acquisition. There were no restructuring charges in the second quarter of 2011.

     Activity related to restructuring reserves including discontinued operations were as follows:

														Foreign
		December 31, 2010								Cash				Translation				June 30, 2011
		Balance				Additions				Payments				Adjustments				Balance
		(In thousands)
Employee severance and benefits		$	234				405				243				9				405
Contract termination costs			3,813				375				995				127				3,320
Total		$	4,047				780				1,238				136				3,725

     At June 30, 2011, the majority of outstanding restructuring obligations are required to be paid over the next two years.

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

(H) DIRECT FINANCING LEASE RECEIVABLES

     We lease revenue earning equipment to customers for periods ranging from three to seven years for trucks and tractors and up to ten years for trailers. The majority of our leases are classified as operating leases. However, some of our revenue earning equipment leases are classified as direct financing leases and, to a lesser extent, sales-type leases. The net investment in direct financing and sales-type leases consisted of:

		June 30,				December 31,
		2011				2010
		(In thousands)
Total minimum lease payments receivable		$	560,210				548,419
Less: Executory costs			(170,452	)			(171,076	)
Minimum lease payments receivable			389,758				377,343
Less: Allowance for uncollectibles			(696	)			(784	)
Net minimum lease payments receivable			389,062				376,559
Unguaranteed residuals			62,556				57,898
Less: Unearned income			(97,175	)			(96,522	)
Net investment in direct financing and sales-type leases			354,443				337,935
Current portion			(67,692	)			(63,304	)
Non-current portion		$	286,751				274,631

     Our direct financing lease customers operate in a wide variety of industries, and we have no significant customer concentrations in any one industry. We assess credit risk for all of our customers including those who lease equipment under direct financing leases. Credit risk is assessed using an internally developed model which incorporates credit scores from third party providers and our own custom risk ratings and is updated on a monthly basis. The external credit scores are developed based on the customer’s historical payment patterns and an overall assessment of the likelihood of delinquent payments. Our internal ratings are weighted based on the industry that the customer operates, company size, years in business, and other credit-related indicators (i.e. profitability, cash flow, liquidity, tangible net worth, etc.). Any one of the following factors may result in a customer being classified as high risk: i) the customer has a history of late payments; ii) the customer has open lawsuits, liens or judgments; iii) the customer has been in business less than 3 years; and iv) the customer operates in an industry with low barriers to entry. For those customers who are designated as high risk, we typically require deposits to be paid in advance in order to mitigate our credit risk. Additionally, our receivables are collateralized by the vehicle’s fair value, which further mitigates our credit risk.

     The following table presents the credit risk profile by creditworthiness category of our direct financing lease receivables:

		June 30,				December 31,
		2011				2010
		(In thousands)
Very low risk to low risk		$	112,284				91,993
Moderate risk			215,413				218,547
Moderately high to high risk			62,061				66,803
		$	389,758				377,343

     The following table is a rollforward of the allowance for credit losses on direct financing lease receivables for the six months ended June 30, 2011:

		(In thousands)
Balance at December 31, 2010		$	784
Charged to earnings			72
Deductions			(160	)
Balance at June 30, 2011		$	696

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

     As of June 30, 2011, the amount of direct financing lease receivables which were past due was not significant and there were no impaired receivables. Accordingly, we do not believe there is a material risk of default with respect to the direct financing lease receivables as of June 30, 2011.

(I) REVENUE EARNING EQUIPMENT

		June 30, 2011												December 31, 2010
						Accumulated				Net Book								Accumulated				Net Book
		Cost				Depreciation				Value(1)				Cost				Depreciation				Value (1)
		(In thousands)
Held for use:
Full service lease		$	5,867,412				(2,522,238	)			3,345,174				5,639,410				(2,408,126	)			3,231,284
Commercial rental			2,075,181				(670,141	)			1,405,040				1,549,094				(647,764	)			901,330
Held for sale			238,548				(171,275	)			67,273				260,114				(191,510	)			68,604
Total		$	8,181,141				(3,363,654	)			4,817,487				7,448,618				(3,247,400	)			4,201,218

     At the end of 2010, we completed our annual review of residual values and useful lives of revenue earning equipment. Based on the results of our analysis, we adjusted the estimated residual values of certain classes of revenue earning equipment effective January 1, 2011. The change in estimated residual values increased pre-tax earnings for the three and six months ended June 30, 2011 by approximately $1.4 million and $2.7 million, respectively. In the three and six months ended June 30, 2011, we recognized $0.1 million and $0.2 million, respectively, of accelerated depreciation for select vehicles that are expected to be sold by the end of 2011. In the three and six months ended June 30, 2010, we recognized $1.0 million and $3.5 million, respectively, of accelerated depreciation for select vehicles that were expected to be sold by the end of 2010.

(J) GOODWILL

     The carrying amount of goodwill attributable to each reportable business segment with changes therein was as follows:

		Fleet				Supply				Dedicated
		Management				Chain				Contract
		Solutions				Solutions				Carriage				Total
		(In thousands)
Balance at January 1, 2011:
Goodwill		$	202,941				177,222				4,900				385,063
Accumulated impairment losses			(10,322	)			(18,899	)			—				(29,221	)
			192,619				158,323				4,900				355,842
Acquisitions			14,028				—				14,713				28,741
Purchase accounting adjustments			592				(4,319	)			195				(3,532	)
Foreign currency translation adjustment			195				253				—				448
Balance at June 30, 2011:
Goodwill			217,756				173,156				19,808				410,720
Accumulated impairment losses			(10,322	)			(18,899	)			—				(29,221	)
		$	207,434				154,257				19,808				381,499

     Purchase accounting adjustments related primarily to changes in deferred tax liabilities and evaluations of the physical and market condition of operating property and equipment. We did not recast the December 31, 2010 balance sheet as the adjustments are not material.

     We assess goodwill for impairment on April 1^st of each year or more often if deemed necessary. On April 1, 2011, we completed our annual goodwill impairment test and determined there was no impairment.

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

(K) ACCRUED EXPENSES AND OTHER LIABILITIES

		June 30, 2011												December 31, 2010
		Accrued				Non-Current								Accrued				Non-Current
		Expenses				Liabilities				Total				Expenses				Liabilities				Total
		(In thousands)
Salaries and wages		$	83,310				—				83,310				81,037				—				81,037
Deferred compensation			1,430				21,767				23,197				1,965				21,258				23,223
Pension benefits			3,001				342,912				345,913				2,984				333,074				336,058
Other postretirement benefits			3,385				42,959				46,344				3,382				43,787				47,169
Employee benefits			6,592				—				6,592				2,251				—				2,251
Insurance obligations, primarily self-insurance			123,480				151,953				275,433				110,697				148,639				259,336
Residual value guarantees			2,841				1,821				4,662				2,301				2,196				4,497
Deferred rent			21,788				6,602				28,390				2,397				16,787				19,184
Deferred vehicle gains			473				1,134				1,607				473				1,374				1,847
Environmental liabilities			5,012				9,205				14,217				5,145				8,908				14,053
Asset retirement obligations			4,012				12,533				16,545				3,868				12,319				16,187
Operating taxes			77,434				—				77,434				73,095				—				73,095
Income taxes			10,719				76,607				87,326				2,559				73,849				76,408
Interest			32,087				—				32,087				30,478				—				30,478
Deposits, mainly from customers			36,698				7,542				44,240				31,755				7,538				39,293
Deferred revenue			18,994				2,004				20,998				15,956				4,646				20,602
Acquisition holdbacks			21,762				—				21,762				6,177				—				6,177
Other			42,790				15,527				58,317				40,495				6,433				46,928
Total		$	495,808				692,566				1,188,374				417,015				680,808				1,097,823

(L) INCOME TAXES

          Uncertain Tax Positions

     We are subject to tax audits in numerous jurisdictions in the U.S. and foreign countries. Tax audits by their very nature are often complex and can require several years to complete. In the normal course of business, we are subject to challenges from the Internal Revenue Service (IRS) and other tax authorities regarding amounts of taxes due. These challenges may alter the timing or amount of taxable income or deductions, or the allocation of income among tax jurisdictions. As part of our calculation of the provision for income taxes on earnings, we recognize the tax benefit from uncertain tax positions that are at least more likely than not of being sustained upon audit based on the technical merits of the tax position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Such calculations require management to make estimates and judgments with respect to the ultimate outcome of a tax audit. Actual results could vary materially from these estimates.

     The following is a summary of tax years that are no longer subject to examination:

     Federal — audits of our U.S. federal income tax returns are closed through fiscal year 2006.

     State — for the majority of states, we are no longer subject to tax examinations by tax authorities for tax years before 2007.

     Foreign — we are no longer subject to foreign tax examinations by tax authorities for tax years before 2003 in Canada, 2001 in Brazil, 2006 in Mexico and 2008 in the U.K., which are our major foreign tax jurisdictions. In Brazil, we were assessed $17.8 million, including penalties and interest, related to the tax due on the sale of our outbound auto carriage business in 2001. On November 11, 2010, the Administrative Tax Court dismissed the assessment. The tax authority has filed a motion to review the decision and the matter therefore remains pending before the Administrative Tax Court. We believe it is more likely than not that our tax position will ultimately be sustained and no amounts have been reserved for this matter.

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

     At June 30, 2011 and December 31, 2010, the total amount of gross unrecognized tax benefits (excluding the federal benefit received from state positions) was $63.1 million and $61.2 million, respectively. Unrecognized tax benefits related to federal, state and foreign tax positions may decrease by $2.2 million by June 30, 2012, if audits are completed or tax years close.

          Like-Kind Exchange Program

     We have a like-kind exchange program for certain of our revenue earning equipment operating in the U.S. Pursuant to the program, we dispose of vehicles and acquire replacement vehicles in a form whereby tax gains on disposal of eligible vehicles are deferred. To qualify for like-kind exchange treatment, we exchange through a qualified intermediary eligible vehicles being disposed of with vehicles being acquired, allowing us to generally carryover the tax basis of the vehicles sold (“like-kind exchanges”). The program results in a material deferral of federal and state income taxes. As part of the program, the proceeds from the sale of eligible vehicles are restricted for the acquisition of replacement vehicles and other specified applications. Due to the structure utilized to facilitate the like-kind exchanges, the qualified intermediary that holds the proceeds from the sales of eligible vehicles and the entity that holds the vehicles to be acquired under the program are required to be consolidated in the accompanying Consolidated Condensed Financial Statements in accordance with U.S. GAAP. At June 30, 2011 and December 31, 2010, these consolidated entities had total assets, primarily revenue earning equipment, and total liabilities, primarily accounts payable, of $86.7 million and $49.5 million, respectively.

          Tax Law Changes

     On May 25, 2011 the State of Michigan enacted changes to its tax system, which included a repeal of the Michigan Business Tax and replaced it with a corporate income tax. The impact of this change resulted in a non-cash charge to deferred income taxes and a decrease to earnings for the three and six months ended June 30, 2011 of $5.4 million.

     On January 13, 2011, the state of Illinois enacted changes to its tax system, which included an increase to the corporate income tax rate from 4.8% to 7.0%. The impact of this change resulted in a non-cash charge to deferred income taxes and a decrease to earnings for the six months ended June 30, 2011 of $1.2 million.

          Effective Tax Rate

     Our effective income tax rate from continuing operations for the second quarter of 2011 was 45.5% compared with 41.4% in the same period of the prior year. Our effective income tax rate from continuing operations for the six months ended June 30, 2011 was 43.7% compared with 41.8% in the same period of the prior year. Our provision for income taxes and effective income tax rate from continuing operations were negatively impacted by tax law changes in the States of Michigan (second quarter) and Illinois (first quarter). The increase in our effective tax rate was partially offset by a higher proportionate amount of earnings in lower tax rate jurisdictions and lower contingent tax accruals.

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

(M) DEBT

		Weighted-Average
		Interest Rate
		June 30,				December 31,								June 30,				December 31,
		2011				2010				Maturities				2011				2010
														(In thousands)
Short-term debt and current portion of long-term debt:
Short-term debt			4.02%				4.56%				2011			$	167				42,968
Current portion of long-term debt, including capital leases															293,715				377,156
Total short-term debt and current portion of long-term debt															293,882				420,124
Long-term debt:
U.S. commercial paper (1)			0.37%				0.42%				2016				531,908				367,880
Unsecured U.S. notes — Medium-term notes (1)			4.47%				5.28%				2011-2025				2,483,779				2,158,647
Unsecured U.S. obligations, principally bank term loans			1.49%				1.54%				2012-2013				106,900				105,600
Unsecured foreign obligations			4.83%				5.14%				2011-2012				91,310				45,109
Capital lease obligations			7.88%				7.86%				2011-2017				11,276				11,369
Total before fair market value adjustment															3,225,173				2,688,605
Fair market value adjustment on notes subject to hedging(2)															16,441				15,429
															3,241,614				2,704,034
Current portion of long-term debt, including capital leases															(293,715	)			(377,156	)
Long-term debt															2,947,899				2,326,878
Total debt														$	3,241,781				2,747,002

     In June 2011, we executed a new $900 million global revolving credit facility with a syndicate of twelve lending institutions led by Bank of America N.A., Bank of Tokyo-Mitsubishi UFJ, Ltd., BNP Paribas, Mizuho Corporate Bank, Ltd., Royal Bank of Canada, Royal Bank of Scotland Plc, U.S. Bank National Association and Wells Fargo Bank, N.A. This facility replaces an $875 million credit facility that was scheduled to mature in April 2012. The new global credit facility matures in June 2016 and is used primarily to finance working capital and provide support for the issuance of unsecured commercial paper in the U.S. and Canada. This facility can also be used to issue up to $75 million in letters of credit (there were no letters of credit outstanding against the facility at June 30, 2011). At our option, the interest rate on borrowings under the credit facility is based on LIBOR, prime, federal funds or local equivalent rates. The agreement provides for annual facility fees, which range from 10.0 basis points to 32.5 basis points, and are based on Ryder’s long-term credit ratings. The current annual facility fee is 15.0 basis points, which applies to the total facility size of $900 million. The credit facility contains no provisions limiting its availability in the event of a material adverse change to Ryder’s business operations; however, the credit facility does contain standard representations and warranties, events of default, cross-default provisions and certain affirmative and negative covenants. In order to maintain availability of funding, we must maintain a ratio of debt to consolidated tangible net worth, of less than or equal to 300%. Tangible net worth, as defined in the credit facility, includes 50% of our deferred federal income tax liability and excludes the book value of our intangibles. The ratio at June 30, 2011 was 218%. At June 30, 2011, $366.1 million was available under the credit facility, net of the support for commercial paper borrowings.

     Our global revolving credit facility permits us to refinance short-term commercial paper obligations on a long-term basis. Settlement of short-term commercial paper obligations not expected to require the use of working capital are classified as long-term as we have both the intent and ability to refinance on a long-term basis. At June 30, 2011 and December 31, 2010, we classified $531.9 million and $367.9 million, respectively, of short-term commercial paper as long-term debt.

     In May 2011, we issued $350 million of unsecured medium-term notes maturing in June 2017. If the notes are downgraded following, and as a result of, a change in control, the note holder can require us to repurchase all or a portion of the notes at a purchase price equal to 101% of the principal amount plus accrued and unpaid interest. In connection with the issuance of the medium term notes, we entered into three interest rate swaps with an aggregate notional amount of $150 million maturing in June 2017. Refer to Note (O),”Derivatives,” for additional information.

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

     In February 2011, we issued $350 million of unsecured medium-term notes maturing in March 2015. If the notes are downgraded following, and as a result of, a change in control, the note holder can require us to repurchase all or a portion of the notes at a purchase price equal to 101% of the principal amount plus accrued and unpaid interest. In connection with the issuance of the medium term notes, we entered into two interest rate swaps with an aggregate notional amount of $150 million maturing in March 2015. Refer to Note (O),”Derivatives,” for additional information.

     We have a trade receivables purchase and sale program, pursuant to which we sell certain of our domestic trade accounts receivable to a bankruptcy remote, consolidated subsidiary of Ryder, that in turn sells, on a revolving basis, an ownership interest in certain of these accounts receivable to a receivables conduit or committed purchasers. The subsidiary is considered a VIE and is consolidated based on our control of the entity’s activities. We use this program to provide additional liquidity to fund our operations, particularly when it is cost effective to do so. The costs under the program may vary based on changes in interest rates. The available proceeds that may be received under the program are limited to $175 million. If no event occurs which causes early termination, the 364-day program will expire on October 28, 2011. The program contains provisions restricting its availability in the event of a material adverse change to our business operations or the collectibility of the collateralized receivables. At June 30, 2011 and December 31, 2010, no amounts were outstanding under the program. Sales of receivables under this program will be accounted for as secured borrowings based on our continuing involvement in the transferred assets.

     At June 30, 2011 and December 31, 2010, we had letters of credit and surety bonds outstanding totaling $265.7 million and $264.8 million, respectively, which primarily guarantee the payment of insurance claims.

(N) FAIR VALUE MEASUREMENTS

     The following tables present our assets and liabilities that are measured at fair value on a recurring basis and the levels of inputs used to measure fair value:

				Fair Value Measurements
				At June 30, 2011 Using
		Balance Sheet Location		Level 1				Level 2				Level 3				Total
				(In thousands)
Assets:
Investments held in Rabbi Trusts:
Cash and cash equivalents				$	4,720				—				—				4,720
U.S. equity mutual funds					9,022				—				—				9,022
Foreign equity mutual funds					2,623				—				—				2,623
Fixed income mutual funds					3,135				—				—				3,135
Investments held in Rabbi Trusts		DFL and other assets			19,500				—				—				19,500
Interest rate swaps		DFL and other assets			—				16,654				—				16,654
Foreign currency forward contract		Other current assets			—				4,037				—				4,037
Total assets at fair value				$	19,500				20,691				—				40,191
Liabilities:
Contingent consideration		Accrued expenses		$	—				—				14,400				14,400
Interest rate swaps		Other non-current liabilities			—				213				—				213
Total liabilities at fair value				$	—				213				14,400				14,613
				Fair Value Measurements
				At December 31, 2010 Using
		Balance Sheet Location		Level 1				Level 2				Level 3				Total
				(In thousands)
Assets:
Investments held in Rabbi Trusts
Cash and cash equivalents				$	2,348				—				—				2,348
U.S. equity mutual funds					8,409				—				—				8,409
Foreign equity mutual funds					5,188				—				—				5,188
Fixed income mutual funds					1,459				—				—				1,459
Investments held in Rabbi Trusts		DFL and other assets			17,404				—				—				17,404
Interest rate swap		DFL and other assets			—				15,429				—				15,429
Total assets at fair value				$	17,404				15,429				—				32,833