UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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

FOR THE QUARTERLY PERIOD ENDED ~~SEPTEMBER~~JUNE 30, ~~2016~~2017



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

FOR THE TRANSITION PERIOD FROM TO

Commission File Number: 1-4364

RYDER SYSTEM, INC.

(Exact name of registrant as specified in its charter)



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

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

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

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

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



Large accelerated filer þ	Accelerated filer ¨	Non-accelerated filer ¨	~~Smaller reporting company~~ ¨
	(Do not check if a smaller reporting company)
Smaller reporting company ¨	Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ¨

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

The number of shares of Ryder System, Inc. Common Stock ($0.50 par value per share) outstanding at ~~September~~June 30, ~~2016~~2017 was ~~53,468,413.~~52,983,373.

RYDER SYSTEM, INC.

FORM 10-Q QUARTERLY REPORT

TABLE OF CONTENTS




		Page No.

PART I FINANCIAL INFORMATION

ITEM 1 Financial Statements (unaudited)

	Consolidated Condensed Statements of Earnings — Three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015~~2016	1

	Consolidated Condensed Statements of Comprehensive Income — Three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015~~2016	2

	Consolidated Condensed Balance Sheets — ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015~~2016	3

	Consolidated Condensed Statements of Cash Flows — ~~Nine~~Six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015~~2016	4

	Notes to Consolidated Condensed Financial Statements	5

ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations		1922

ITEM 3 Quantitative and Qualitative Disclosures About Market Risk		4549

ITEM 4 Controls and Procedures		4549

PART II OTHER INFORMATION

ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds		4549

ITEM 6 Exhibits		4650

SIGNATURE		4751

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

RYDER SYSTEM, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS

(unaudited)


	Three months ended September 30,					Nine months ended September 30,					Three months ended June 30,					Six months ended June 30,
	2016			2015		2016			2015		2017			2016		2017			2016
	(In thousands, except per share amounts)										(In thousands, except per share amounts)
Lease and rental revenues	$	803,006		802,881		$	2,369,147		2,310,951		$	797,014		798,387		$	1,564,604		1,566,141
Services revenue	801,004			734,803		2,345,922			2,165,677		871,027			785,791		1,722,894			1,544,918
Fuel services revenue	120,408			131,382		342,765			422,522		125,173			119,566		253,879			222,357
Total revenues	1,724,418			1,669,066		5,057,834			4,899,150		1,793,214			1,703,744		3,541,377			3,333,416

Cost of lease and rental	557,901			550,541		1,665,693			1,600,271		578,389			555,302		1,157,151			1,107,792
Cost of services	658,793			606,364		1,936,636			1,792,182		734,764			646,129		1,448,844			1,277,843
Cost of fuel services	116,904			129,562		331,283			408,027		121,604			115,478		247,454			214,379
Other operating expenses	27,997			26,957		85,944			88,912		27,406			27,796		58,677			57,947
Selling, general and administrative expenses	198,805			203,093		632,466			624,566		201,626			207,028		403,387			411,431
Gains on used vehicles, net	(1,873		)	(24,965	)	(33,002		)	(82,158	)
Non-operating pension costs											6,587			15,420		13,917			22,230
Used vehicle sales, net											15,322			(12,000	)	14,542			(31,129	)
Interest expense	37,440			38,986		112,597			114,863		34,852			37,268		69,738			75,157
Miscellaneous income, net	(3,247		)	(1,372	)	(10,968		)	(5,037	)	(8,028		)	(5,456	)	(12,981		)	(7,721	)
	1,592,720			1,529,166		4,720,649			4,541,626		1,712,522			1,586,965		3,400,729			3,127,929
Earnings from continuing operations before income taxes	131,698			139,900		337,185			357,524		80,692			116,779		140,648			205,487
Provision for income taxes	46,560			49,089		121,820			127,470		29,349			42,737		51,026			75,260
Earnings from continuing operations	85,138			90,811		215,365			230,054		51,343			74,042		89,622			130,227
Loss from discontinued operations, net of tax	(386		)	(192	)	(1,069		)	(1,487	)	(527		)	(292	)	(657		)	(683	)
Net earnings	$	84,752		90,619		$	214,296		228,567		$	50,816		73,750		$	88,965		129,544

Earnings (loss) per common share — Basic
Continuing operations	$	1.60		1.71		$	4.05		4.35		$	0.97		1.39		$	1.69		2.45
Discontinued operations	(0.01		)	—		(0.02		)	(0.03	)	(0.01		)	(0.01	)	(0.01		)	(0.01	)
Net earnings	$	1.60		1.71		$	4.03		4.32		$	0.96		1.39		$	1.68		2.43

Earnings (loss) per common share — Diluted
Continuing operations	$	1.59		1.70		$	4.02		4.31		$	0.97		1.38		$	1.68		2.43
Discontinued operations	(0.01		)	—		(0.02		)	(0.03	)	(0.01		)	(0.01	)	(0.01		)	(0.01	)
Net earnings	$	1.59		1.69		$	4.00		4.28		$	0.96		1.38		$	1.67		2.42

Cash dividends declared per common share	$	0.44		0.41		$	1.26		1.15		$	0.44		0.41		$	0.88		0.82

See accompanying notes to ~~consolidated condensed financial statements.~~Consolidated Condensed Financial Statements.

Note: EPS amounts may not be additive due to ~~rounding~~rounding.

RYDER SYSTEM, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)


	Three months ended September 30,					Nine months ended September 30,					Three months ended June 30,					Six months ended June 30,
	2016			2015		2016			2015		2017			2016		2017			2016
	(In thousands)										(In thousands)

Net earnings	$	84,752		90,619		$	214,296		228,567		$	50,816		73,750		$	88,965		129,544

Other comprehensive income (loss):

Currency translation adjustment and other	(19,296		)	(42,748	)	(37,874		)	(73,093	)
Changes in currency translation adjustment and other											27,601			(32,264	)	43,343			(18,578	)

Amortization of pension and postretirement items	7,171			6,873		22,040			20,765		7,672			7,446		15,781			14,870
Income tax expense related to amortization of pension and postretirement items	(2,667		)	(2,412	)	(7,854		)	(7,226	)	(2,467		)	(2,479	)	(5,512		)	(5,187	)
Amortization of pension and postretirement items, net of tax	4,504			4,461		14,186			13,539		5,205			4,967		10,269			9,682

Change in net actuarial loss and prior service cost	—			—		(17,367		)	(8,526	)	20			(17,367	)	20			(17,367	)
Income tax benefit related to change in net actuarial loss and prior service cost	—			—		6,345			3,205		180			6,345		180			6,345
Change in net actuarial loss and prior service cost, net of taxes	—			—		(11,022		)	(5,321	)	200			(11,022	)	200			(11,022	)

Other comprehensive loss, net of taxes	(14,792		)	(38,287	)	(34,710		)	(64,875	)
Other comprehensive income (loss), net of taxes											33,006			(38,319	)	53,812			(19,918	)

Comprehensive income	$	69,960		52,332		$	179,586		163,692		$	83,822		35,431		$	142,777		109,626

See accompanying notes to ~~consolidated condensed financial statements.~~Consolidated Condensed Financial Statements.

RYDER SYSTEM, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

(unaudited)


	September 30, 2016			December 31, 2015		June 30, 2017			December 31, 2016
	(Dollars in thousands, except per share amount)					(Dollars in thousands, except per share amount)
Assets:
Current assets:
Cash and cash equivalents	$	74,994		60,945		$	55,363		58,801
Receivables, net of allowance of $14,911 and $15,560, respectively	856,763			835,489
Receivables, net of allowance of $12,100 and $14,915, respectively						916,631			831,947
Inventories	67,335			63,725		67,239			69,529
Prepaid expenses and other current assets	138,467			138,143		137,455			141,280
Total current assets	1,137,559			1,098,302		1,176,688			1,101,557
Revenue earning equipment, net	8,274,832			8,184,735		8,206,841			8,147,722
Operating property and equipment, net of accumulated depreciation of $1,116,439 and $1,083,604, respectively	740,375			714,970
Operating property and equipment, net of accumulated depreciation of $1,167,152 and $1,128,040, respectively						762,404			745,870
Goodwill	387,730			389,135		387,922			386,772
Intangible assets, net of accumulated amortization of $50,145 and $45,736, respectively	49,994			55,192
Intangible assets, net of accumulated amortization of $54,463 and $51,578, respectively						45,676			48,249
Direct financing leases and other assets	518,283			510,246		545,253			472,284
Total assets	$	11,108,773		10,952,580		$	11,124,784		10,902,454

Liabilities and shareholders’ equity:
Current liabilities:
Short-term debt and current portion of long-term debt	$	1,055,146		634,530		$	588,852		791,410
Accounts payable	457,843			502,373		536,443			445,470
Accrued expenses and other current liabilities	516,862			543,352		492,069			507,189
Total current liabilities	2,029,851			1,680,255		1,617,364			1,744,069
Long-term debt	4,464,495			4,868,097		4,795,992			4,599,864
Other non-current liabilities	817,232			829,595		866,003			817,565
Deferred income taxes	1,700,154			1,587,522		1,739,326			1,688,681
Total liabilities	9,011,732			8,965,469		9,018,685			8,850,179

Shareholders’ equity:
Preferred stock, no par value per share — authorized, 3,800,917; none outstanding, September 30, 2016 or December 31, 2015	—			—
Common stock, $0.50 par value per share — authorized, 400,000,000; outstanding, September 30, 2016 — 53,468,413; December 31, 2015 — 53,490,603	26,734			26,745
Preferred stock, no par value per share — authorized, 3,800,917; none outstanding, June 30, 2017 or December 31, 2016						—			—
Common stock, $0.50 par value per share — authorized, 400,000,000; outstanding, June 30, 2017 — 52,983,373; December 31, 2016 — 53,463,118						26,492			26,732
Additional paid-in capital	1,022,307			1,006,021		1,032,688			1,032,549
Retained earnings	1,795,445			1,667,080		1,827,139			1,827,026
Accumulated other comprehensive loss	(747,445		)	(712,735	)	(780,220		)	(834,032	)
Total shareholders’ equity	2,097,041			1,987,111		2,106,099			2,052,275
Total liabilities and shareholders’ equity	$	11,108,773		10,952,580		$	11,124,784		10,902,454

See accompanying notes to ~~consolidated condensed financial statements.~~Consolidated Condensed Financial Statements.

RYDER SYSTEM, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(unaudited)


	Nine months ended September 30,					Six months ended June 30,
	2016			2015		2017			2016
	(In thousands)					(In thousands)
Cash flows from operating activities from continuing operations:
Net earnings	$	214,296		228,567		$	88,965		129,544
Less: Loss from discontinued operations, net of tax	(1,069		)	(1,487	)	(657		)	(683	)
Earnings from continuing operations	215,365			230,054		89,622			130,227
Depreciation expense	878,173			828,148		621,020			581,043
Gains on used vehicles, net	(33,002		)	(82,158	)
Share-based compensation expense	13,870			16,112
Used vehicle sales, net						14,542			(31,129	)
Amortization expense and other non-cash charges, net	49,869			46,272		17,058			9,177
Non-operating pension costs and share-based compensation expense						23,979			32,231
Deferred income tax expense	109,191			111,609		43,009			67,031
Changes in operating assets and liabilities:
Receivables	(69,169		)	(23,751	)	(75,093		)	(39,071	)
Inventories	(3,524		)	1,275		2,524			(2,633	)
Prepaid expenses and other assets	(24,241		)	(33,334	)	(1,115		)	(18,734	)
Accounts payable	68,599			(19,506	)	7,666			68,584
Accrued expenses and other non-current liabilities	(20,387		)	(3,385	)	(11,517		)	(33,702	)
Net cash provided by operating activities from continuing operations	1,184,744			1,071,336		731,695			763,024

Cash flows from financing activities:
Net change in commercial paper borrowings and revolving credit facilities	73,597			184,750		329,268			162,105
Debt proceeds	298,254			1,329,810		575,528			298,254
Debt repaid	(340,707		)	(795,837	)	(925,999		)	(328,416	)
Dividends on common stock	(67,651		)	(61,436	)	(47,250		)	(44,261	)
Common stock issued	9,626			20,397		6,007			6,259
Common stock repurchased	(25,658		)	(6,141	)	(58,228		)	(21,899	)
Excess tax benefits from share-based compensation and other items	(1,685		)	723
Debt issuance costs	(1,012		)	(7,483	)	(1,285		)	(2,995	)
Net cash (used in) provided by financing activities	(55,236		)	664,783		(121,959		)	69,047

Cash flows from investing activities:
Purchases of property and revenue earning equipment	(1,511,359		)	(2,087,294	)	(855,252		)	(1,120,182	)
Sales of revenue earning equipment	331,720			319,766		202,033			245,681
Sales of operating property and equipment	6,623			1,203		3,960			6,322
Collections on direct finance leases and other items	60,229			51,166		32,829			43,957
Changes in restricted cash	4,203			7,781		259			886
Net cash used in investing activities	(1,108,584		)	(1,707,378	)	(616,171		)	(823,336	)

Effect of exchange rate changes on cash	(5,567		)	(2,006	)	3,352			(3,415	)
Increase in cash and cash equivalents from continuing operations	15,357			26,735
(Decrease)/Increase in cash and cash equivalents from continuing operations						(3,083		)	5,320


Decrease in cash and cash equivalents from discontinued operations	(1,308		)	(1,440	)	(355		)	(301	)

Increase in cash and cash equivalents	14,049			25,295
(Decrease)/Increase in cash and cash equivalents						(3,438		)	5,019
Cash and cash equivalents at January 1	60,945			50,092		58,801			60,945
Cash and cash equivalents at September 30	$	74,994		75,387
Cash and cash equivalents at June 30						$	55,363		65,964

See accompanying notes to ~~consolidated condensed financial statements.~~Consolidated Condensed Financial Statements.

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(unaudited)

1. GENERAL

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 ~~2015~~2016 Annual Report on Form 10-K and should be read in conjunction with the Consolidated Financial Statements and notes thereto. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair ~~presentation~~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.

Beginning in 2016, we reclassified the losses from fair value adjustments on our used vehicles from "Other operating expenses" to "Gains on used vehicles, net" within the Consolidated Condensed Statement of Earnings. Prior year amounts have been reclassified to conform to the current period presentation.

2. RECENT ACCOUNTING PRONOUNCEMENTS

Share-Based Compensation

In May 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting, which clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. The amendments in this update are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. We will adopt the standard as of January 1, 2018, on a prospective basis. We do not expect this standard to have an impact on our consolidated financial position, results of operations or cash flows.

Employee Benefits Plans

In March 2017, the FASB issued ASU No. 2017-07, Compensation-Retirement Benefits (Topic 715), Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which requires an employer to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. The standard is effective January 1, 2018, with early adoption as of January 1, 2017 permitted. We adopted the standard during the first quarter of 2017 and recorded the other components of net benefit cost within "Non-operating pension costs" in the Consolidated Condensed Statements of Earnings for both the current and prior year periods.

Intangibles - Goodwill and Other

In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment (Topic 350), which requires an entity to perform a one-step quantitative impairment test, whereby a goodwill impairment loss will be measured as the excess of a reporting unit’s carrying amount over its fair value (not to exceed the total goodwill allocated to that reporting unit). It eliminates the current two-step goodwill impairment test, under which a goodwill impairment loss is measured by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. The standard is effective January 1, 2020, with early adoption as of January 1, 2017 permitted. We adopted the standard during the first quarter of 2017 and it did not have an impact on our consolidated financial position, results of operations or cash flows.

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

Statement of Cash Flows

In August 2016, the ~~Financial Accounting Standards Board (FASB)~~FASB issued ~~Accounting Standards Update (ASU)~~ASU No. 2016-15, Statement of Cash Flows (Topic 230), which clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows. In November 2016, the FASB issued additional guidance related to the statement of cash flows, which requires companies to explain the change during the period in the total of cash, cash equivalents, and restricted cash or restricted cash equivalents. The ~~guidance will be~~standard is effective January 1, 2018, with early adoption permitted. ~~The~~We will adopt the standard ~~is to be adopted~~as of January 1, 2018, on a retrospective basis. We do not expect this standard to have a material impact on the presentation of our consolidated cash flows.

~~Financial Instruments~~

~~In June 2016, the FASB issued ASU No. 2016-13,~~ ~~Financial Instruments - Credit Losses,~~ which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. The standard applies to financial instruments including, but not limited to, trade and other receivables, held-to-maturity debt securities, loans and net investments in leases. The standard requires estimating expected credit losses over the remaining life of an instrument or a portfolio of instruments with similar risk characteristics based on relevant information about past events, current conditions and reasonable forecasts. The initial estimate of and the subsequent changes in expected credit losses will be recognized as credit loss expense through current earnings and will be reflected as an allowance for credit losses offsetting the carrying value of the financial instrument(s) on the balance sheet. The standard is effective January 1, 2020, with early adoption as of January 1, 2019 permitted. The standard is to be applied using a modified retrospective transition method. We do not expect this standard to have a material impact on our consolidated financial position, results of operations or cash flows.

~~Share-Based Payments~~

~~In March 2016, the FASB issued ASU No. 2016-09,~~ ~~Stock Compensation,~~ which is intended to simplify several aspects of the accounting for share-based payment award transactions. The guidance will be effective January 1, 2017. We do not expect this standard to have a material impact on our consolidated financial position, results of operations or cash flows.

~~RYDER SYSTEM, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)~~

~~(unaudited)~~

Leases

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases. The standard requires lessees to ~~apply a dual approach, classifying~~classify leases as either finance or operating leases. This classification will determine whether the ~~lease~~related expense iswill be recognized based on ~~an effective~~asset amortization and interest ~~method~~on the obligation or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. We do not expect the lessee requirements to have a material impact upon adoption of this standard on our consolidated financial position, results of operations or cash flows.

The new standard requires lessors to ~~account~~separate the lease component from the non-lease component (e.g., maintenance services) and provides more guidance on how to identify and separate the components. The lease component will be accounted for ~~leases~~ using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. The non-lease component will be accounted for in accordance with the revenue recognition guidance in ASU No. 2014-09. The adoption of the new lease standard iswill primarily impact our ChoiceLease product line, which includes a vehicle lease as well as maintenance and other services related to the vehicle. We will generally continue to recognize revenue for the lease portion of the product line on a straight-line basis. Revenue from maintenance services will be recognized at the time the maintenance services are performed, which will generally require the deferral of some portion of the customer's lease payments when received, as maintenance services are not performed evenly over the life of a ChoiceLease contract. We will adopt the standard effective January 1, 2019, ~~with early adoption permitted. The standard is to be applied~~ using athe modified retrospective transition method. Upon adoption, we will record a cumulative-effect adjustment to recognize deferred revenue on the opening balance sheet for 2017 and restate all prior periods presented (2017 and 2018). We ~~are evaluating~~continue to evaluate the impact of adoption of this standard on our consolidated financial position, results of operations and cash flows.

Revenue Recognition

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which together with related, subsequently issued guidance, requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ~~The ASU is effective~~This standard will primarily impact our lease revenue from our ChoiceLease product line, specifically the non-lease component (mainly maintenance services) of the product line. In June 2017, the FASB provided further clarification guidance on the interaction of the transition provisions of the new revenue standard and the new lease standard. Based on this clarification, we will continue to apply the existing lease accounting guidance to our lease revenue upon adoption of the revenue standard. We will adopt the revenue standard on January 1, 2018, ~~and will replace most existing~~using the full retrospective transition method. With respect to other revenue ~~recognition guidance. The~~sources, we do not expect the adoption of this standard ~~permits the use of either the modified retrospective or cumulative effect transition methods. We are evaluating transition methods and the~~to have a material impact on ~~our consolidated financial position and results of operations.~~

~~Presentation of Debt Issuance Costs~~

~~In April 2015, the FASB issued ASU No. 2015-03,~~ ~~Simplifying the Presentation of Debt Issuance Costs~~, which required an entity to present debt issuance costs as a direct reduction from the carrying amount of the related debt liability on the balance sheet. We adopted this guidance on January 1, 2016 and reclassified $15 million from other assets to long-term debt in our December 31, 2015 balance sheet. Other than the change in presentation within the Consolidated Condensed Balance Sheets, this accounting guidance did not impact our consolidated financial position, results of operations or cash flows.

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

3. REVENUE EARNING EQUIPMENT


	September 30, 2016					December 31, 2015					June 30, 2017					December 31, 2016
	Cost		Accumulated Depreciation		Net Book Value⁽¹⁾	Cost		Accumulated Depreciation		Net Book Value⁽¹⁾	Cost		Accumulated Depreciation		Net Book Value⁽¹⁾	Cost		Accumulated Depreciation		Net Book Value⁽¹⁾
	(In thousands)										(In thousands)
Held for use:
Full service lease	$	9,460,749	(2,979,195	)	6,481,554	$	8,839,941	(2,723,605	)	6,116,336
ChoiceLease											$	9,693,006	(3,200,466	)	6,492,540	$	9,486,977	(3,031,937	)	6,455,040
Commercial rental	2,529,929		(893,545	)	1,636,384	2,811,715		(907,412	)	1,904,303	2,532,681		(942,127	)	1,590,554	2,499,010		(935,346	)	1,563,664
Held for sale	503,160		(346,266	)	156,894	496,634		(332,538	)	164,096	495,334		(371,587	)	123,747	494,355		(365,337	)	129,018
Total	$	12,493,838	(4,219,006	)	8,274,832	$	12,148,290	(3,963,555	)	8,184,735	$	12,721,021	(4,514,180	)	8,206,841	$	12,480,342	(4,332,620	)	8,147,722

——————————————


(1)	Revenue earning equipment, net includes vehicles acquired under capital leases of $~~42.9~~36 million, less accumulated depreciation of ~~$21.6~~$18 million, at ~~September~~June 30, ~~2016,~~2017, and ~~$47.5~~$43 million, less accumulated depreciation of ~~$22.2~~$22 million, at December 31, ~~2015.~~2016.

We lease revenue earning equipment to customers for periods typically 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. As of ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015~~2016, the net investment in direct financing and sales-type leases was ~~$418~~$439 million and ~~$438~~$409 million, respectively. 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 prior to signing a ~~full service lease~~ChoiceLease contract. 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 vehicles which further mitigates our credit risk.

~~RYDER SYSTEM, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)~~

~~(unaudited)~~

As of ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, the amount of direct financing lease receivables 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.

Revenue earning equipment held for sale is stated at the lower of carrying amount or fair value less costs to sell. Losses on vehicles held for sale for which carrying values exceeded fair value are recognized at the time they arrive at our used truck sales centers and are presented within ~~“Gains on used vehicles,~~“Used vehicle sales, net ” in the Consolidated Condensed Statements of Earnings. For revenue earning equipment held for sale, we stratify our fleet by vehicle type (trucks, tractors and trailers), weight class, age and other relevant characteristics and create classes of similar assets for analysis purposes. For a certain population of our revenue earning equipment held for sale, fair value was determined based upon recent market prices obtained from our own sales experience for sales of each class of similar assets and vehicle condition. These vehicles held for sale were classified within Level 3 of the fair value hierarchy.

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

The following table presents our assets held for sale that are measured at fair value on a nonrecurring basis and considered a Level 3 fair value measurement:


				Total Losses ⁽²⁾									Total Losses ⁽²⁾
	September 30,			Three months ended September 30,			Nine months ended September 30,			June 30,			Three months ended June 30,			Six months ended June 30,
	2016		2015	2016		2015	2016		2015	2017		2016	2017		2016	2017		2016
	(In thousands)									(In thousands)
Assets held for sale:
Revenue earning equipment ⁽¹⁾:
Trucks	$	17,091	7,701	$	2,528	1,657	$	6,842	4,400	$	9,026	13,749	$	10,927	2,570	$	16,727	4,314
Tractors	61,480		10,093	7,985		2,062	22,073		3,970	23,726		51,795	12,134		9,206	17,317		14,088
Trailers	2,563		1,195	1,152		610	2,589		1,582	2,852		3,015	2,605		775	3,173		1,437

Total assets at fair value	$	81,134	18,989	$	11,665	4,329	$	31,504	9,952	$	35,604	68,559	$	25,666	12,551	$	37,217	19,839

————————————


(1)	Assets held for sale in the above table only include the portion of revenue earning equipment held for sale where net book values exceeded fair values and fair value adjustments were recorded. The net book value of assets held for sale not exceeding fair value was ~~$75.8~~$88 million and ~~$145.1~~$60 million as of ~~September~~June 30, ~~2016~~2017 and ~~2015,~~2016, respectively.


(2)	Total losses represent fair value adjustments for all vehicles reclassified to held for sale throughout the period for which fair value was less than ~~carrying~~net book value.

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015,~~2016, the components of gains on used vehicles, net were as follows:


	Three months ended September 30,					Nine months ended September 30,					Three months ended June 30,					Six months ended June 30,
	2016			2015		2016			2015		2017			2016		2017			2016
	(In thousands)										(In thousands)
Gains on vehicle sales, net	$	(13,538	)	(29,294	)	$	(64,506	)	(92,110	)	$	(10,344	)	(24,551	)	$	(22,675	)	(50,968	)
Losses from fair value adjustments	11,665			4,329		31,504			9,952		25,666			12,551		37,217			19,839
Gains on used vehicles, net	$	(1,873	)	(24,965	)	$	(33,002	)	(82,158	)
Used vehicle sales, net											$	15,322		(12,000	)	$	14,542		(31,129	)

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

4. GOODWILL

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



	Fleet Management Solutions		Supply Chain Solutions	Dedicated Transportation Solutions		Total
	(In thousands)
Balance at January 1, 2017:
Goodwill	228,832		40,808	146,353		415,993
Accumulated impairment losses	(10,322	)	—	(18,899	)	(29,221	)
	218,510		40,808	127,454		386,772
Foreign currency translation adjustments	943		—	207		1,150
Balance at June 30, 2017:
Goodwill	229,775		40,808	146,560		417,143
Accumulated impairment losses	(10,322	)	—	(18,899	)	(29,221	)
	219,453		40,808	127,661		387,922

We assess goodwill for impairment on April 1st of each year or more often if deemed necessary. In the second quarter of 2017, we completed our annual goodwill impairment test. We performed qualitative assessments for three reporting units, which considered individual factors such as macroeconomic conditions, changes in our industry and the markets in which we operate as well as our historical and expected future financial performance. After performing the qualitative assessments, we concluded it was more likely than not that fair value is greater than the carrying value and determined there was no impairment.

We performed quantitative assessments on our other two reporting units, including FMS Europe, and determined there was no impairment. We estimated the fair value of the reporting units using a discounted cash flow model. The principal assumptions used in the discounted cash flow model are projected operating results, weighted-average cost of capital, and terminal value. As of April 1, 2017, there was $14 million of goodwill recorded in FMS Europe. Based on discounted cash flows, we determined the fair value of the FMS Europe reporting unit exceeded its carrying value by over 25% resulting in no impairment to goodwill. Due to this reporting unit's relatively low headroom, in the event that the financial performance of the reporting unit does not meet our expectations during 2017, we may be required to perform an interim impairment analysis with respect to the carrying value of goodwill for this reporting unit prior to our next annual test, and based on the outcome of that analysis, could be required to take a non-cash impairment charge as a result of any such test.

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

4.5. ACCRUED EXPENSES AND OTHER LIABILITIES


	September 30, 2016				December 31, 2015				June 30, 2017				December 31, 2016
	Accrued Expenses		Non-Current Liabilities	Total	Accrued Expenses		Non-Current Liabilities	Total	Accrued Expenses		Non-Current Liabilities	Total	Accrued Expenses		Non-Current Liabilities	Total
	(In thousands)								(In thousands)
Salaries and wages	$	88,592	—	88,592	$	99,032	—	99,032	$	83,016	—	83,016	$	90,913	—	90,913
Deferred compensation	2,874		44,702	47,576	2,252		41,691	43,943	3,802		52,021	55,823	2,992		46,541	49,533
Pension benefits	3,808		466,721	470,529	3,790		484,892	488,682	3,823		460,551	464,374	3,796		451,940	455,736
Other postretirement benefits	1,634		19,536	21,170	1,624		20,002	21,626	1,512		19,023	20,535	1,506		19,459	20,965
Other employee benefits	23,843		5,040	28,883	8,956		9,706	18,662	17,071		2,625	19,696	29,358		5,854	35,212
Insurance obligations ⁽¹⁾	140,528		221,254	361,782	157,014		213,256	370,270	130,833		268,160	398,993	127,470		234,336	361,806
Environmental liabilities	3,839		5,911	9,750	3,791		6,554	10,345
Operating taxes	96,813		—	96,813	101,649		—	101,649	94,140		—	94,140	92,150		—	92,150
Income taxes	444		23,467	23,911	3,378		22,366	25,744	683		25,267	25,950	4,197		23,174	27,371
Interest	37,128		—	37,128	31,218		—	31,218	27,054		—	27,054	27,277		—	27,277
Customer deposits	62,035		4,688	66,723	61,869		5,085	66,954	64,193		4,188	68,381	61,225		4,569	65,794
Deferred revenue	14,556		—	14,556	13,038		—	13,038	16,675		—	16,675	14,064		—	14,064
Restructuring liabilities ⁽²⁾	2,391		—	2,391	12,333		—	12,333
Other	38,377		25,913	64,290	43,408		26,043	69,451	49,267		34,168	83,435	52,241		31,692	83,933
Total	$	516,862	817,232	1,334,094	$	543,352	829,595	1,372,947	$	492,069	866,003	1,358,072	$	507,189	817,565	1,324,754

————————————


(1)	Insurance obligations are primarily ~~represent claims for which we are self-insured.~~comprised of self-insured claim liabilities.


~~(2)~~	The reduction in restructuring liabilities from December 31, 2015 principally represents cash payments for employee termination costs. The majority of the balance remaining in restructuring liabilities is expected to be paid by the end of 2016.

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

6. DEBT


	Weighted-Average Interest Rate								Weighted-Average Interest Rate
	September 30, 2016	December 31, 2015	Maturities	September 30, 2016			December 31, 2015		June 30, 2017	December 31, 2016	Maturities	June 30, 2017			December 31, 2016
				(In thousands)								(In thousands)
Short-term debt and current portion of long-term debt:
Short-term debt	0.92%	2.26%		$	133,713		35,947		1.39%	1.07%		$	136,016		177,629
Current portion of long-term debt				921,433			598,583					452,836			613,781
Total short-term debt and current portion of long-term debt	Total short-term debt and current portion of long-term debt			1,055,146			634,530		Total short-term debt and current portion of long-term debt			588,852			791,410
Long-term debt:
U.S. commercial paper ⁽¹⁾	0.76%	0.55%	2020	490,685			547,130		1.29%	0.87%	2020	724,618			342,480
Global revolving credit facility	2.06%	2.31%	2020	60,885			25,291		—%	2.06%	2020	—			4,703
Unsecured U.S. notes — Medium-term notes⁽¹⁾	2.91%	2.84%	2016-2025	4,113,583			4,112,519		2.71%	2.67%	2017-2025	3,713,858			4,113,421
Unsecured U.S. obligations	2.09%	1.73%	2018	50,000			50,000		2.45%	2.19%	2018	50,000			50,000
Unsecured foreign obligations	1.74%	1.92%	2017-2020	248,376			275,661		1.50%	1.55%	2017-2020	223,707			232,092
Asset-backed U.S. obligations ⁽²⁾	1.77%	1.81%	2016-2022	395,898			434,001		1.85%	1.80%	2017-2024	527,476			459,876
Capital lease obligations	3.18%	3.31%	2016-2023	25,818			32,054		3.29%	3.17%	2017-2023	22,894			24,184
Total before fair market value adjustment				5,385,245			5,476,656					5,262,553			5,226,756
Fair market value adjustment on notes subject to hedging ⁽³⁾	Fair market value adjustment on notes subject to hedging ⁽³⁾			14,213			5,253		Fair market value adjustment on notes subject to hedging ⁽³⁾			100			1,110
Debt issuance costs ⁽⁴⁾				(13,530		)	(15,229	)				(13,825		)	(14,221	)
				5,385,928			5,466,680					5,248,828			5,213,645
Current portion of long-term debt				(921,433		)	(598,583	)				(452,836		)	(613,781	)
Long-term debt				4,464,495			4,868,097					4,795,992			4,599,864
Total debt				$	5,519,641		5,502,627					$	5,384,844		5,391,274

————————————


(1)	Amounts are net of ~~aggregate~~ unamortized original issue discounts of ~~$6.8 million and $7.7~~$7 million at ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015, respectively.~~2016.


(2)	Asset-backed U.S. obligations are related to financing transactions involving revenue earning equipment.


(3)	The notional amount of the executed interest rate swaps designated as fair value hedges was $675 million and $825 million at ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015.~~2016, respectively.


~~(4)~~	~~See Note 2, "Recent Accounting Pronouncements," for further discussion of the presentation of debt issuance costs.~~

We maintain a $1.2 billion 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, Lloyds Bank Plc, U.S. Bank National Association and Wells Fargo Bank, N.A. The facility ~~matures~~expires in January 2020. The agreement provides for annual facility fees which range from 7.5 basis points to 25 basis points based on Ryder's long-term credit ratings. The annual facility fee is currently 10 basis points, which applies to the total facility size of $1.2 billion.

The credit facility is used primarily to finance working capital but can also be used to issue up to $75 million in letters of credit (there were no letters of credit outstanding against the facility at ~~September~~June 30, ~~2016~~2017). At our option, the interest rate on borrowings under the credit facility is based on LIBOR, prime, federal funds or local equivalent rates. 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 net worth of less than or equal to 300%. Net worth, as defined in the credit facility, represents shareholders' equity excluding any accumulated other comprehensive income or loss associated with our pension and other postretirement plans. The ratio at ~~September~~June 30, ~~2016~~2017 was ~~206%~~198%. At ~~September~~June 30, ~~2016~~2017, there was ~~$514.4~~$339 million available under the credit facility.

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

Our global revolving credit facility enables us to refinance short-term obligations on a long-term basis. Short-term commercial paper obligations not expected to require the use of working capital are classified as long-term obligations, as we have both the intent and ability to refinance on a long-term basis. In addition, we have the intent and ability to refinance the current portion of certain long-term debt on a long-term basis. At ~~September~~June 30, ~~2016~~2017, we classified ~~$490.7~~$725 million of short-term commercial paper ~~$349.9~~and $50 million of the current portion of long-term debt ~~obligations and $60.9 million of short-term borrowings under our global revolving credit facility~~ as ~~long-term.~~long-term debt. At December 31, ~~2015,~~2016, we classified ~~$547.1~~$342 million of short-term commercial paper ~~$300.0~~and $350 million of the current portion of long-term debt ~~obligations and $25.3 million of short-term borrowings under our global revolving credit facility~~ as ~~long-term.~~long-term debt.

In February ~~2016,~~2017, we issued $300 million of unsecured medium-term notes maturing in ~~November 2021.~~March 2022. The proceeds from these notes were used to pay off maturing debt and for general corporate purposes. If these notes are downgraded below investment grade following, and as a result of, a change in control, the note holders can require us to repurchase all or a portion of the notes at a purchase price equal to 101% of principal value plus accrued and unpaid interest.

In June 2017, we received $98 million from financing transactions backed by a portion of our revenue earning equipment. The proceeds from these transactions were used for general corporate purposes. We have provided end of term guarantees for the residual value of the revenue earning equipment in these transactions. The transaction proceeds, along with the end of term residual value guarantees, have been included within "asset-backed U.S. obligations" in the preceding table.

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 committed purchaser. 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. The program was renewed in October 2016. If no event occurs which causes early termination, the 364-day program will expire on October 23, 2017. 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. Sales of receivables under this program are accounted for as secured borrowings based on our continuing involvement in the transferred assets. No amounts were outstanding under the program at ~~September~~June 30, ~~2016~~2017 or December 31, ~~2015.~~2016.

At ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, we had letters of credit and surety bonds outstanding totaling ~~$338.9~~$358 million and ~~$345.7~~$354 million, respectively, which primarily guarantee the payment of insurance claims.

The fair value of total debt (excluding capital lease and asset-backed U.S. obligations) at ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015~~2016 was approximately ~~$5.21~~$4.91 billion and ~~$5.06~~$4.97 billion, respectively. For publicly-traded debt, estimates of fair value were based on market prices. For other debt, fair value was estimated based on a model-driven approach using rates currently available to us for debt with similar terms and remaining maturities. The fair value measurements of our publicly-traded debt and other debt were classified within Level 2 of the fair value hierarchy. The carrying amounts reported in the Consolidated Condensed Balance Sheets for “Cash and cash equivalents,” “Receivables, net” and “Accounts payable” approximate fair value because of the immediate or short-term maturities of these financial instruments.

In February 2016, Ryder filed an automatic shelf registration statement on Form S-3 with the 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, subject to market demand and ratings status.

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

6.7. DERIVATIVES

From time to time, we enter into interest rate ~~derivatives~~derivative contracts to manage our fixed and variable interest rate exposure and to better ~~match~~align the repricing of debt instruments to that of our portfolio of assets. We assess the risk that changes in interest rates will have either on the fair value of debt obligations or on the amount of future interest payments by monitoring changes in interest rate exposures and by evaluating hedging opportunities. We regularly monitor interest rate risk attributable to both our outstanding orand forecasted debt obligations as well as any offsetting hedge positions. This risk management process involves the use of analytical techniques, including cash flow sensitivity analyses, to estimate the expected impact of changes in interest rates on our future cash flows.

As of ~~September~~June 30, ~~2016,~~2017, we had interest rate swaps outstanding, which are designated as fair value hedges for certain debt obligations, with a total notional value of ~~$825~~$675 million and maturities through 2020. Interest rate swaps are measured at fair value on a recurring basis using Level 2 fair value inputs. The fair value amounts of ~~these~~the interest rate swaps ~~was approximately $14.2 million and $5.4 million as of September 30, 2016 and December 31, 2015, respectively. The amounts~~ are ~~presented~~recorded in "Direct financing leases and other assets" and "Other non-current liabilities" in our Consolidated Condensed Balance Sheets. As of June 30, 2017, these amounts are not material to our consolidated financial position or results of operations and have not changed significantly from the amounts reported at December 31, 2016. Changes in the fair value of our interest rate swaps were offset by changes in the fair value of the hedged debt instruments. Accordingly, there was no ineffectiveness related to the interest rate swaps.

7.8. SHARE REPURCHASE PROGRAMS

In December 2015, our Board of Directors authorized a share repurchase program intended to mitigate the dilutive impact of shares issued under our employee stock plans (the program). Under the program, management is authorized to repurchase (i) up to 1.5 million shares of common stock, the sum of which will not exceed the number of shares issued to employees under ~~the Company’s~~Ryder's employee stock plans from December 1, 2015 to December 9, 2017, plus (ii) 0.5 million shares issued to employees that were not repurchased under ~~the Company’s~~Ryder's previous share repurchase program. The program limits aggregate share repurchases to no more than 2 million shares of Ryder common stock. Share repurchases of common stock are made periodically in open-market transactions and are subject to market conditions, legal requirements and other factors. Management may establish prearranged written plans for ~~the Company~~Ryder under Rule 10b5-1 of the Securities Exchange Act of 1934 as part of the program, which allow for share repurchases during Ryder’s quarterly blackout periods as set forth in the trading plan.

During the ~~nine~~six months ended ~~September~~June 30, 2017 and June 30, 2016, ~~and September 30, 2015,~~ we repurchased ~~379,896~~approximately 828,000 shares for ~~$25.7~~$58.2 million and ~~69,107~~322,000 shares for ~~$6.1~~$21.9 million, respectively.

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

8.9. ACCUMULATED OTHER COMPREHENSIVE LOSS

The following summary sets forth the components of accumulated other comprehensive loss, net of tax:

Currency
Translation
Adjustments and Other

Net Actuarial
Loss ⁽¹⁾

Prior Service (Cost)/
Credit ⁽¹⁾

Accumulated
Other
Comprehensive
Loss
(In thousands)
December 31, 2015 $ (136,020 ) (576,993 ) 278
(712,735 )
Amortization —
14,052
134
14,186
Other current period change (37,874 ) (5,495 ) (5,527 ) (48,896 )
September 30, 2016 $ (173,894 ) (568,436 ) (5,115 ) (747,445 )

~~RYDER SYSTEM, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)~~

~~(unaudited)~~



	Currency Translation Adjustments and Other			Net Actuarial Loss ⁽¹⁾		Prior Service (Cost)/ Credit ⁽¹⁾		Accumulated Other Comprehensive Loss
	(In thousands)
December 31, 2016	$	(206,610	)	(620,292	)	(7,130	)	(834,032	)
Amortization	—			10,159		110		10,269
Other current period change	43,343			200		—		43,543
June 30, 2017	$	(163,267	)	(609,933	)	(7,020	)	(780,220	)


	Currency Translation Adjustments and Other			Net Actuarial Loss ⁽¹⁾		Prior Service Credit ⁽¹⁾		Accumulated Other Comprehensive Loss		Currency Translation Adjustments and Other			Net Actuarial Loss ⁽¹⁾		Prior Service Credit ⁽¹⁾		Accumulated Other Comprehensive Loss
	(In thousands)									(In thousands)
December 31, 2014	$	(36,087	)	(585,941	)	1,758		(620,270	)
December 31, 2015										$	(136,020	)	(576,993	)	278		(712,735	)
Amortization	—			14,605		(1,066	)	13,539		—			9,754		(72	)	9,682
Other current period change	(73,093		)	(5,321	)	—		(78,414	)	(18,578		)	(5,597	)	(5,425	)	(29,600	)
September 30, 2015	$	(109,180	)	(576,657	)	692		(685,145	)
June 30, 2016										$	(154,598	)	(572,836	)	(5,219	)	(732,653	)

_______________________


(1)	These amounts are included in the computation of net pension expense. See Note ~~11,~~12, "Employee Benefit Plans," for further information.

The gain from currency translation adjustments in the six months ended June 30, 2017 of $43.3 million was primarily due to the strengthening of the British Pound and the Canadian Dollar against the U.S. Dollar. The loss from currency translation adjustments in the ~~nine~~six months ended ~~September~~June 30, 2016 of ~~$37.9~~$18.6 million was ~~primarily~~ due to the weakening of the British Pound against the U.S. Dollar, partially offset by the strengthening of the Canadian Dollar against the U.S. Dollar. ~~The loss from currency translation adjustments in the nine months ended September 30, 2015 of $73.1 million was due to the weakening of the Canadian Dollar and British Pound against the U.S. Dollar.~~

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS �� (Continued)

(unaudited)

9.10. EARNINGS PER SHARE

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


	Three months ended September 30,					Nine months ended September 30,					Three months ended June 30,					Six months ended June 30,
	2016			2015		2016			2015		2017			2016		2017			2016
	(In thousands, except per share amounts)										(In thousands, except per share amounts)
Earnings per share — Basic:
Earnings from continuing operations	$	85,138		90,811		$	215,365		230,054		$	51,343		74,042		$	89,622		130,227
Less: Earnings allocated to unvested stock	(261		)	(266	)	(674		)	(654	)	(186		)	(235	)	(317		)	(398	)
Earnings from continuing operations available to common shareholders — Basic	$	84,877		90,545		$	214,691		229,400		$	51,157		73,807		$	89,305		129,829

Weighted average common shares outstanding — Basic	52,953			52,888		53,029			52,770		52,663			53,057		52,804			53,067

Earnings from continuing operations per common share — Basic	$	1.60		1.71		$	4.05		4.35		$	0.97		1.39		$	1.69		2.45

Earnings per share — Diluted:
Earnings from continuing operations	$	85,138		90,811		$	215,365		230,054		$	51,343		74,042		$	89,622		130,227
Less: Earnings allocated to unvested stock	(260		)	(265	)	(672		)	(649	)	(186		)	(234	)	(317		)	(397	)
Earnings from continuing operations available to common shareholders — Diluted	$	84,878		90,546		$	214,693		229,405		$	51,157		73,808		$	89,305		129,830

Weighted average common shares outstanding — Basic	52,953			52,888		53,029			52,770		52,663			53,057		52,804			53,067
Effect of dilutive equity awards	338			445		315			476		244			320		348			303
Weighted average common shares outstanding — Diluted	53,291			53,333		53,344			53,246		52,907			53,377		53,152			53,370

Earnings from continuing operations per common share — Diluted	$	1.59		1.70		$	4.02		4.31		$	0.97		1.38		$	1.68		2.43

Anti-dilutive equity awards not included above	653			352		836			300		1,231			699		911			928

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

~~10.~~11. 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 and principally include at-the-money stock options, unvested stock and cash awards. Unvested stock awards include grants of market-based, performance-based and time-vested restricted stock rights. Under the terms of our Plans, dividends are not paid unless the stock award vests. Upon vesting, the amount of the dividends paid is equal to the aggregate dividends declared on common shares during the period from the grant date of the award until the date the shares underlying the award are delivered.

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


	Three months ended September 30,					Nine months ended September 30,					Three months ended June 30,					Six months ended June 30,
	2016			2015		2016			2015		2017			2016		2017			2016
	(In thousands)										(In thousands)
Stock option and stock purchase plans	$	1,633		1,948		$	5,410		6,205		$	1,953		1,904		$	3,858		3,777
Unvested stock	2,237			2,995		8,460			9,907		3,154			3,209		6,204			6,224
Share-based compensation expense	3,870			4,943		13,870			16,112		5,107			5,113		10,062			10,001
Income tax benefit	(1,321		)	(1,652	)	(4,691		)	(5,395	)	(1,760		)	(1,715	)	(3,482		)	(3,370	)
Share-based compensation expense, net of tax	$	2,549		3,291		$	9,179		10,717		$	3,347		3,398		$	6,580		6,631

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

Three months ended September 30, Nine months ended September 30,
2016 2015 2016 2015
(In thousands)
Cash awards $ 119
197
$ 447
661



	Three months ended June 30,			Six months ended June 30,
	2017		2016	2017		2016
	(In thousands)
Cash awards	$	44	177	$	121	328

Total unrecognized pre-tax compensation expense related to all share-based compensation arrangements at ~~September~~June 30, ~~2016~~2017 was ~~$21.2~~$29.2 million and is expected to be recognized over a weighted-average period of ~~1.8~~2.1 years.

The following table is a summary of the awards granted under the Plans during the periods presented:


	Nine months ended September 30,		Six months ended June 30,
	2016	2015	2017	2016
	(Shares in thousands)		(Shares in thousands)
Stock options	513	362	465	513
Market-based restricted stock rights	34	19	46	34
Performance-based restricted stock rights	45	42	79	45
Time-vested restricted stock rights	129	87	107	129
Total	721	510	697	721

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

~~11.~~12. EMPLOYEE BENEFIT PLANS

Components of net pension expense were as follows:


	Three months ended September 30,					Nine months ended September 30,					Three months ended June 30,					Six months ended June 30,
	2016			2015		2016			2015		2017			2016		2017			2016
	(In thousands)										(In thousands)
Pension Benefits
Company-administered plans:
Service cost	$	2,660		3,612		$	9,065		10,805		$	3,017		3,005		$	6,266		6,405
Interest cost	22,754			21,777		72,086			65,712		21,426			27,093		42,915			49,332
Expected return on plan assets	(22,601		)	(24,697	)	(68,353		)	(74,618	)	(22,712		)	(22,667	)	(45,190		)	(45,752	)
Amortization of:
Net actuarial loss	7,324			7,665		23,889			23,137		8,077			8,600		16,527			16,565
Prior service cost/(credit)	320			(80	)	3,060			(230	)
Prior service cost											121			2,740		266			2,740
	10,457			8,277		39,747			24,806		9,929			18,771		20,784			29,290
Union-administered plans	2,493			1,772		7,221			6,057		2,621			2,406		5,123			4,728
Net pension expense	$	12,950		10,049		$	46,968		30,863		$	12,550		21,177		$	25,907		34,018

Company-administered plans:
U.S.	$	10,952		8,746		$	41,389		26,237		$	10,547		19,263		$	21,858		30,437
Non-U.S.	(495		)	(469	)	(1,642		)	(1,431	)	(618		)	(492	)	(1,074		)	(1,147	)
	10,457			8,277		39,747			24,806		9,929			18,771		20,784			29,290
Union-administered plans	2,493			1,772		7,221			6,057		2,621			2,406		5,123			4,728
Net pension expense	$	12,950		10,049		$	46,968		30,863		$	12,550		21,177		$	25,907		34,018

During the six months ended June 30, 2017, we contributed $7.2 million to our pension plans. In 2017, the expected total contributions to our pension plans are approximately $23 million. We also maintain other postretirement benefit plans that are not reflected in the above table. The amount of postretirement benefit expense was not material for the three or six months ended June 30, 2017.

During the second quarter of 2016, we determined that certain pension benefit improvements made in 2009 had not been fully reflected in our projected benefit obligation. Because the amounts were not material to our consolidated financial statements in any individual period, and the cumulative amount iswas not material to 2016 results, we recognized a one-time, non-cash charge of $7.7 million in "Selling, general and administrative expenses" and a $12.8 million pre-tax increase to “Accumulated other comprehensive loss” in our second quarter 2016 consolidated condensed financial statements to correctly state the pension benefit obligation and account for these 2009 benefit improvements.

~~During the third quarter of 2015, we recorded adjustments of $0.5 million to previously recorded, estimated pension settlement charges related to the exit from U.S. multi-employer pension plans.~~

~~During the nine months ended September 30, 2016, we contributed~~ ~~$65.3 million~~ to our pension plans. In 2016, the expected total contributions to our pension plans are approximately $80 million. We also maintain other postretirement benefit plans that are not reflected in the above table. The amount of postretirement benefit expense was not material for the three or nine months ended September 30, 2016.

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

~~12.~~13. OTHER ITEMS IMPACTING COMPARABILITY

Our primary measure of segment performance as shown in Note 16, "Segment Reporting," excludes certain items we do not believe are representative of the ongoing operations of the segment. Excluding these items from our segment measure of performance allows for better year over year comparison:



	Three months ended June 30,				Six months ended June 30,
	2017			2016	2017			2016
	(In thousands)
Operating tax adjustment	$	—		—	$	2,205		—
Restructuring	(2,574		)	—	(2,574		)	—
Pension-related adjustments ⁽¹⁾	—			7,650	—			7,650
Restructuring and other items, net	$	(2,574	)	7,650	$	(369	)	7,650

_______________


(1)	Refer to Note 12, Employee Benefit Plans for additional information.

During the second quarter of 2017, we realized restructuring credits of $2.6 million related to the gains on sale of certain UK facilities that were closed as part of prior year restructuring activities. These items were reflected within "Miscellaneous income, net" in our Consolidated Condensed Statement of Earnings.

During the first quarter of 2017, we determined that certain operating tax expenses related to prior periods had not been recognized in prior period earnings. We recorded a one-time charge of $2.2 million within “Selling, general and administrative expenses” in our Consolidated Condensed Statement of Earnings as the impact of the adjustment was not material to our consolidated condensed financial statements in any individual prior period, and the cumulative amount was not material to the first quarter 2017 results.

14. OTHER MATTERS

We are a party to various claims, complaints and proceedings arising in the ordinary course of our continuing business operations including, but not limited to, those relating to commercial and employment claims, environmental matters, risk management matters (e.g., vehicle liability, workers’ compensation, etc.) and administrative assessments primarily associated with operating taxes. We have established loss provisions for matters in which losses are probable and can be reasonably estimated. ~~For matters from continuing operations, we~~We believe that the resolution of these claims, complaints and legal proceedings will not have a material effect on our consolidated condensed financial statements.

Our estimates regarding potential losses and materiality are based on our judgment and assessment of the claims utilizing currently available information. Although we will continue to reassess our reserves and estimates based on future developments, our objective assessment of the legal merits of such claims may not always be predictive of the outcome and actual results may vary from our current estimates.

Although we discontinued our South American operations in 2009, we continue to be party to various federal, state and local legal proceedings involving labor matters, tort claims and tax assessments. We have established loss provisions for any matters where we believe a loss is probable and can be reasonably estimated. Other than with respect to the matters discussed below, we believe that such losses will not have a material effect on our consolidated condensed financial statements.

In Brazil, various matters related to income taxes and social contribution taxes, as well as tax credits used to offset those taxes, were assessed by the Revenue Department for the 1997, 1998, 2004, 2005 and 2006 tax years. When available and appropriate, we have entered into various amnesty programs offered by the Brazilian tax authorities to settle some of these assessments at a discount and continue to evaluate these when offered. Payments to resolve open matters through these amnesty programs were not material and were reflected as costs in discontinued operations. Open matters, combined, total approximately $4 million in assessments, penalties and interest and are pending at various levels of the administrative tax courts. We believe it is more likely than not that our position will ultimately be sustained either in these administrative courts or in actions before the judicial courts, if required.

~~13. SUPPLEMENTAL CASH FLOW INFORMATION~~

~~Supplemental cash flow information was as follows:~~

Nine months ended September 30,
2016 2015
(In thousands)
Interest paid $ 100,903
110,141
Income taxes paid 12,250
13,635
Changes in accounts payable related to purchases of revenue earning equipment (107,177 ) 18,307
Operating and revenue earning equipment acquired under capital leases 947
5,956

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

~~14.~~15. SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental cash flow information was as follows:



	Six months ended June 30,
	2017		2016
	(In thousands)
Interest paid	$	66,188	71,141
Income taxes paid	9,086		10,233
Changes in accounts payable related to purchases of revenue earning equipment	77,717		(105,480	)
Operating and revenue earning equipment acquired under capital leases	3,424		777

16. SEGMENT REPORTING

Our operating segments are aggregated into reportable business segments based upon similar economic characteristics, products, services, customers and delivery methods. We report our financial performance in three business segments: (1) Fleet Management Solutions (FMS), which provides leasing, commercial rental and maintenance of trucks, tractors and trailers to customers principally in the U.S., Canada and the U.K.; (2) Dedicated Transportation Solutions (DTS), which provides vehicles and drivers as part of a dedicated transportation solution in the U.S.; and (3) Supply Chain Solutions (SCS), which provides comprehensive supply chain solutions including distribution and transportation services in North America and Asia. Dedicated transportation services provided as part of an integrated, multi-service, supply chain solution to SCS customers are reported in the SCS business segment.

Our primary measurement of segment financial performance, defined as segment “Earnings Before Tax” (EBT) from continuing operations, includes an allocation of Central Support Services (CSS) and excludes non-operating pension costs and ~~certain professional fees associated with cost savings initiatives. Fleet Management Solutions (FMS) EBT, Dedicated Transportation Solutions (DTS) EBT~~restructuring and ~~Supply Chain Solutions (SCS) EBT are our primary measures of segment performance.~~other items, net, as discussed in Note 13, "Other Items Impacting Comparability." CSS represents those costs incurred to support all business segments, including human resources, finance, corporate services, public affairs, information technology, health and safety, legal, marketing and corporate communications. The objective of the EBT measurement is to provide clarity on the profitability of each segment and, ultimately, to hold leadership of each 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 ~~including~~are the costs for investor relations, public affairs and certain executive compensation. CSS costs attributable to the business segments are predominantly allocated to FMS, DTS and SCS as follows:

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

•Human resources — individual costs within this category are allocated under various methods, 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 incentive compensation costs. Expenses, where allocated, are based primarily on the number of personnel supported.

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)

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

The following tables set forth financial information for each of our segments and provide a reconciliation between segment EBT and earnings from continuing operations before income taxes for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015~~.2016. 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.

~~RYDER SYSTEM, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)~~

~~(unaudited)~~


	FMS		DTS	SCS	Eliminations		Total			FMS		DTS	SCS	Eliminations		Total
	(In thousands)									(In thousands)
For the three months ended September 30, 2016
For the three months ended June 30, 2017										For the three months ended June 30, 2017
Revenue from external customers	$	1,046,599	260,921	416,898	—		1,724,418			$	1,049,878	272,612	470,724	—		1,793,214
Inter-segment revenue	108,412		—	—	(108,412	)	—			113,701		—	—	(113,701	)	—
Total revenue	$	1,155,011	260,921	416,898	(108,412	)	1,724,418			$	1,163,579	272,612	470,724	(113,701	)	1,793,214

Segment EBT	$	112,282	17,587	30,954	(12,606	)	148,217			$	68,090	14,849	25,858	(12,373	)	96,424
Unallocated CSS							(9,313		)							(11,719		)
Non-operating pension costs⁽¹⁾							(7,206		)							(6,587		)
Restructuring and other items, net																2,574
Earnings from continuing operations before income taxes							$	131,698								$	80,692

Segment capital expenditures paid ⁽¹⁾	$	375,779	1,060	8,181	—		385,020
Segment capital expenditures paid ⁽²⁾										$	480,340	343	7,136	—		487,819
Unallocated CSS capital expenditures paid							6,157									6,094
Capital expenditures paid							$	391,177								$	493,913


For the three months ended September 30, 2015
For the three months ended June 30, 2016										For the three months ended June 30, 2016
Revenue from external customers	$	1,054,840	226,921	387,305	—		1,669,066			$	1,043,430	258,262	402,052	—		1,703,744
Inter-segment revenue	102,738		—	—	(102,738	)	—			108,083		—	—	(108,083	)	—
Total revenue	$	1,157,578	226,921	387,305	(102,738	)	1,669,066			$	1,151,513	258,262	402,052	(108,083	)	1,703,744

Segment EBT	$	126,433	13,296	26,573	(11,998	)	154,304			$	111,155	16,460	28,362	(12,766	)	143,211
Unallocated CSS							(10,070		)							(11,012		)
Non-operating pension costs							(4,780		)
Other items ⁽²⁾							446
Non-operating pension costs⁽¹⁾																(7,770		)
Pension-related charge ⁽³⁾																(7,650		)
Earnings from continuing operations before income taxes							$	139,900								$	116,779

Segment capital expenditures paid ⁽¹⁾	$	740,049	1,175	4,195	—		745,419
Segment capital expenditures paid ⁽²⁾										$	502,040	363	37,139	—		539,542
Unallocated CSS capital expenditures paid							12,657									5,609
Capital expenditures paid							$	758,076								$	545,151

————————————


(1)	Non-operating pension costs include the amortization of net actuarial loss and prior service costs, interest cost and expected return on plan assets components of pension and postretirement benefit costs.


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


~~(2)~~	~~Consists of pension-related adjustments and certain professional fees associated with cost savings initiatives.~~

~~RYDER SYSTEM, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)~~

~~(unaudited)~~

FMS DTS SCS Eliminations Total
(In thousands)
For the nine months ended September 30, 2016
Revenue from external customers $ 3,086,144
764,025
1,207,665
—
5,057,834
Inter-segment revenue 318,308
—
—
(318,308 ) —
Total revenue $ 3,404,452
764,025
1,207,665
(318,308 ) 5,057,834

Segment EBT $ 306,387
48,327
79,121
(37,116 ) 396,719
Unallocated CSS (30,193 )
     Non-operating pension costs (21,691 )
Pension-related adjustments ⁽¹⁾
(7,650 )
Earnings from continuing operations before income taxes $ 337,185

  Segment capital expenditures paid ⁽²⁾
$ 1,438,104
1,940
52,643
—
1,492,687
Unallocated CSS capital expenditures paid 18,672
Capital expenditures paid $ 1,511,359

For the nine months ended September 30, 2015
Revenue from external customers $ 3,080,756
663,094
1,155,300
—
4,899,150
Inter-segment revenue 313,321
—
—
(313,321 ) —
Total revenue $ 3,394,077
663,094
1,155,300
(313,321 ) 4,899,150

Segment EBT $ 338,603
34,701
69,961
(35,120 ) 408,145
Unallocated CSS (32,936 )
Non-operating pension costs (14,351 )
Other items ⁽³⁾
(3,334 )
Earnings from continuing operations before income taxes $ 357,524

  Segment capital expenditures paid ⁽²⁾
$ 2,040,334
2,530
13,752
—
2,056,616
Unallocated CSS capital expenditures paid 30,678
Capital expenditures paid $ 2,087,294

~~————————————~~


~~(1)~~(3)	During the second quarter of 2016, we determined that certain pension benefit improvements made in 2009 were not fully reflected in our projected benefit obligation. We recognized a charge of $7.7 million related to these benefit improvements.

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)

(unaudited)



	FMS		DTS	SCS	Eliminations		Total
	(In thousands)
For the six months ended June 30, 2017
Revenue from external customers	$	2,068,618	539,286	933,473	—		3,541,377
Inter-segment revenue	227,431		—	—	(227,431	)	—
Total revenue	$	2,296,049	539,286	933,473	(227,431	)	3,541,377

Segment EBT	$	120,280	26,122	53,307	(23,589	)	176,120
Unallocated CSS							(21,924		)
Non-operating pension costs ⁽¹⁾							(13,917		)
Restructuring and other items, net							369
Earnings from continuing operations before income taxes							$	140,648

Segment capital expenditures paid ⁽²⁾	$	824,695	1,111	18,134	—		843,940
Unallocated CSS capital expenditures paid							11,312
Capital expenditures paid							$	855,252


For the six months ended June 30, 2016
Revenue from external customers	$	2,039,545	503,104	790,767	—		3,333,416
Inter-segment revenue	209,896		—	—	(209,896	)	—
Total revenue	$	2,249,441	503,104	790,767	(209,896	)	3,333,416

Segment EBT	$	194,047	30,716	48,149	(24,510	)	248,402
Unallocated CSS							(20,685		)
Non-operating pension costs ⁽¹⁾							(14,580		)
Pension-related charge ⁽³⁾							(7,650		)
Earnings from continuing operations before income taxes							$	205,487

Segment capital expenditures paid ⁽²⁾	$	1,062,325	880	44,462	—		1,107,667
Unallocated CSS capital expenditures paid							12,515
Capital expenditures paid							$	1,120,182

————————————


(1)	Non-operating pension costs include the amortization of net actuarial loss and prior service costs, interest cost and expected return on plan assets components of pension and postretirement benefit costs.


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


(3)	~~Consists~~During the second quarter of ~~pension-related adjustments and~~2016, we determined that certain ~~professional fees associated with cost savings initiatives.~~pension benefit improvements made in 2009 were not fully reflected in our projected benefit obligation. We recognized a charge of $7.7 million related to these benefit improvements.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

OVERVIEW

The following ~~discussion~~Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) 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 ~~2015~~2016 Annual Report on Form 10-K.

Ryder System, Inc. (Ryder) is a global leader in transportation and supply chain management solutions. We report our financial performance based on three segments: (1) ~~FMS,~~Fleet Management Solutions (FMS), which provides ~~full service~~ leasing, commercial rental, ~~contract maintenance,~~ and ~~contract-related~~ maintenance of trucks, tractors and trailers to customers principally in the U.S., Canada and the U.K.; (2) ~~DTS,~~Dedicated Transportation Solutions (DTS), which provides vehicles and drivers as part of a dedicated transportation solution in the U.S.; and (3) ~~SCS,~~Supply Chain Solutions (SCS), which provides comprehensive supply chain solutions including distribution and transportation services in North America and Asia. Dedicated transportation services provided as part of an integrated, multi-service, supply chain solution to SCS customers are reported in the SCS business segment.

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, industrial, food and beverage service, consumer packaged goods (CPG), transportation and warehousing, technology and healthcare, retail, housing, business and personal services, and paper and publishing.

In 2016, we expanded our full service lease product line to provide lease customers additional flexibility, choice and

control in fleet management, and we renamed this lease product line "ChoiceLease." Our ChoiceLease product line allows customers to select the level of maintenance they prefer in their leases, from full service or total bumper-to-bumper coverage to on demand or pay-as-you-go maintenance. We also combined our historical contract maintenance and our contract-related maintenance product offerings into a new product line "SelectCare." Our SelectCare product line allows customers to select the level of maintenance to keep their fleet running properly, as well as the option to choose where they want their service delivered. Beginning in 2017, FMS is using these new product names in its reporting.

This ~~Management’s Discussion and Analysis (MD&A)~~MD&A includes certain non-GAAP financial measures. Please refer to the “Non-GAAP Financial Measures” section of this MD&A for information on the non-GAAP measures included in the MD&A, reconciliations to the most comparable GAAP financial measure and the reasons why we believe each measure is useful to investors.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS - (Continued)

Operating results were as follows:


	Three months ended September 30,			Nine months ended September 30,			Change 2016/2015				Three months ended June 30,			Six months ended June 30,			Change 2017/2016
	2016		2015	2016		2015	Three Months		Nine Months		2017		2016	2017		2016	Three Months		Six Months
	(In thousands, except per share amounts)										(In thousands, except per share amounts)
Total revenue	$	1,724,418	1,669,066	$	5,057,834	4,899,150	3	%	3	%	$	1,793,214	1,703,744	$	3,541,377	3,333,416	5	%	6	%
Operating revenue ⁽¹⁾	1,468,293		1,426,465	4,324,019		4,119,369	3	%	5	%	1,483,189		1,449,713	2,928,315		2,855,726	2	%	3	%


EBT	$	131,698	139,900	$	337,185	357,524	(6	)%	(6	)%	$	80,692	116,779	$	140,648	205,487	(31	)%	(32	)%
Comparable EBT ⁽²⁾	138,904		144,234	366,526		375,209	(4	)%	(2	)%	84,705		132,199	154,196		227,717	(36	)%	(32	)%
Earnings from continuing operations	85,138		90,811	215,365		230,054	(6	)%	(6	)%	51,343		74,042	89,622		130,227	(31	)%	(31	)%
Comparable earnings from continuing operations ⁽²⁾	89,354		93,268	232,835		238,499	(4	)%	(2	)%	53,097		83,307	97,262		143,481	(36	)%	(32	)%
Net earnings	84,752		90,619	214,296		228,567	(6	)%	(6	)%	50,816		73,750	88,965		129,544	(31	)%	(31	)%


Earnings per common share (EPS) — Diluted
Continuing operations	$	1.59	1.70	$	4.02	4.31	(6	)%	(7	)%	$	0.97	1.38	$	1.68	2.43	(30	)%	(31	)%
Comparable ⁽²⁾	1.67		1.74	4.35		4.47	(4	)%	(3	)%	1.00		1.56	1.82		2.68	(36	)%	(32	)%
Net earnings	1.59		1.69	4.00		4.28	(6	)%	(7	)%	0.96		1.38	1.67		2.42	(30	)%	(31	)%

————————————


(1)	Non-GAAP financial measure. Refer to the“Non-GAAP Financial Measures” section of this MD&A for a reconciliation of total revenue to operating revenue and the reasons why management believes this measure is important to investors.


(2)	Non-GAAP financial measures. Refer to the “Non-GAAP Financial Measures” section for a reconciliation of EBT, net earnings and earnings per diluted common share to the comparable measures and the reasons why management believes these measures are important to investors.

Total revenue and operating revenue (a non-GAAP measure excluding fuel and subcontracted transportation) increased 3%5% and 2%, respectively, in the ~~third~~second quarter of ~~2016.~~2017. For the ~~nine months ended September 30, 2016,~~first half of 2017, total revenue increased 3%6% and operating revenue increased 5%3%. Total revenue ~~and operating revenue growth~~ in both periods ~~was~~increased due to higher operating revenue and increased subcontracted transportation passed through to customers, reflecting new business and higher volumes, as well as higher fuel costs passed through to customers. Total revenue growth was partially offset by negative impacts from foreign exchange. Operating revenue in both periods increased due to higher revenue in the ~~full service lease fleet~~SCS and DTS business segments and higher ~~prices on replacement vehicles in FMS and new business, increased volumes and higher pricing in SCS and DTS. These increases were~~ChoiceLease revenue, partially offset by lower ~~demand in the~~ commercial rental ~~product line~~revenue and negative impacts from foreign exchange. ~~Increased total revenue was also partially offset by lower fuel costs passed through to customers.~~

EBT decreased 6%31% and 32% in ~~both~~ the ~~third~~second quarter and first half of ~~2016 and nine months ended September 30, 2016,~~2017, respectively, primarily reflecting lower used vehicle sales and ~~commercial~~ rental results, partially offset by higher full service lease results in FMS, lower insurance costs in DTS and increased pricing, new business and increased volumes in DTS and SCS. The 2016 EBT decrease in the nine months ended September 30, 2016, also reflects a $7.7 million pension charge related to certain 2009 pension benefit improvements that were not fully reflected in our pension benefit obligation. EBT was negatively impacted by foreign exchange in the three and nine months ended September 30, 2016, by 100 basis points.results.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS - (Continued)

CONSOLIDATED RESULTS

Lease and Rental


	Three months ended September 30,					Nine months ended September 30,					Change 2016/2015				Three months ended June 30,					Six months ended June 30,					Change 2017/2016
	2016			2015		2016			2015		Three Months		Nine Months		2017			2016		2016			2015		Three Months		Six Months
	(Dollars in thousands)														(Dollars in thousands)
Lease and rental revenues	$	803,006		802,881		$	2,369,147		2,310,951		—	%	3	%	$	797,014		798,387		$	1,564,604		1,566,141		—	%	—	%
Cost of lease and rental	557,901			550,541		1,665,693			1,600,271		1	%	4	%	578,389			555,302		1,157,151			1,107,792		4	%	4	%
Gross margin	245,105			252,340		703,454			710,680		(3	)%	(1	)%	218,625			243,085		407,453			458,349		(10	)%	(11	)%
Gross margin %	31		%	31	%	30		%	31	%					27		%	30	%	26		%	29	%

Lease and rental revenues represent ~~full service lease~~revenue from our ChoiceLease and commercial rental product offerings within our FMS segment. Revenues were approximately ~~$803~~$797 million and $1.56 billion in the ~~third~~second quarter and first half of ~~2016,~~2017, respectively, relatively consistent with the ~~third~~second quarter and first half of ~~2015.~~2016. For ~~2016,~~2017, higher ~~full service lease~~ChoiceLease revenue, driven by growth in the ~~average full service lease~~ChoiceLease fleet and higher prices on replacement vehicles, was offset by lower commercial rental revenue reflecting lower demand and, to a negative impact from foreign exchange. Revenues increased 3% in the nine months ended September 30, 2016, primarily driven by a larger average full service lease fleet and higher prices on replacement vehicles, partially offset by lower commercial rental revenue reflecting lower demand andlesser extent, a negative impact from foreign exchange. Foreign exchange negatively impacted revenue growth by 100 basis points in both periods.

Cost of lease and rental represents the direct costs related to lease and rental revenues. These costs consist of depreciation of revenue earning equipment, maintenance costs (primarily repair parts and labor), and other costs such as licenses, insurance and operating taxes. Cost of lease and rental excludes interest costs from vehicle financing. Cost of lease and rental increased 1%4% in both the ~~third~~second quarter and ~~4% in the nine months ended September 30, 2016,~~first half of 2017, primarily due to higher depreciation and maintenance costs from a 3% larger average lease fleet as well as higher maintenance costs on certain older model year vehicles. Cost of lease and rental was also impacted by accelerated depreciation on vehicles expected to be made available for sale through June 2018 of $8 million in the second quarter and $17 million in the first half of 2017. These increases were partially offset by lower depreciation on a 6% smaller average rental ~~fleet (13% lower in the third quarter and 6% lower in the nine months ended September 30, 2016).~~fleet. Cost of lease and rental ~~benefited by approximately~~also increased $91 million in the ~~third~~second quarter of ~~2016~~2017 and ~~$26~~$2 million in the ~~nine months ended September 30, 2016,~~first half of 2017, due to changes in estimated residual values effective January 1, ~~2016.~~2017. Foreign exchange ~~also~~ reduced cost of lease and rental by 100 basis points in both periods.

Lease and rental gross margin decreased 3%10% in the ~~third~~second quarter and 1%11% in the ~~nine months ended September 30, 2016.~~first half of 2017. Lease and rental gross margin as a percentage of revenue ~~remained at 31%~~decreased to 27% in the ~~third~~second quarter and ~~decreased to 30%~~26% in the ~~nine months ended September 30, 2016.~~first half of 2017. The decrease in gross margin dollars in the ~~third quarter of 2016~~three and ~~the nine~~six months ended ~~September~~June 30, ~~2016~~2017, was due to lower commercial rental demand, ~~partially offset by~~ higher ~~prices~~maintenance costs on ~~lease replacement~~certain older model year vehicles and ~~lease fleet growth, as well as benefits from improved residual values.~~accelerated depreciation. The decrease in gross margin dollars as a percentage of revenue in the ~~nine~~three and six months ended ~~September~~June 30, ~~2016, reflects lower commercial rental fleet utilization, partially offset by benefits from improved residual values.~~2017, was primarily due to higher maintenance costs on certain older model year vehicles and accelerated depreciation.

Services


	Three months ended September 30,					Nine months ended September 30,					Change 2016/2015				Three months ended June 30,					Six months ended June 30,					Change 2017/2016
	2016			2015		2016			2015		Three Months		Nine Months		2017			2016		2017			2016		Three Months		Six Months
	(Dollars in thousands)														(Dollars in thousands)
Services revenue	$	801,004		734,803		$	2,345,922		2,165,677		9	%	8	%	$	871,027		785,791		$	1,722,894		1,544,918		11	%	12	%
Cost of services	658,793			606,364		1,936,636			1,792,182		9	%	8	%	734,764			646,129		1,448,844			1,277,843		14	%	13	%
Gross margin	142,211			128,439		409,286			373,495		11	%	10	%	136,263			139,662		274,050			267,075		(2	)%	3	%
Gross margin %	18		%	17	%	17		%	17	%					16		%	18	%	16		%	17	%

Services revenue represents all the revenues associated with our DTS and SCS segments, as well as ~~contract maintenance, contract-related maintenance~~SelectCare and fleet support services associated with our FMS segment. Services revenue increased 9%11% in the ~~third~~second quarter and 8%12% in the ~~nine months ended September 30, 2016,~~first half of 2017 due to increased volumes, new business ~~increased volumes~~ and higher pricing in the DTS and SCS segments. ~~The contract-related maintenance and contract maintenance product lines~~Services revenue also benefited from higher fuel costs passed through to our customers. Foreign exchange negatively impacted revenue growth by 100 basis points in ~~fleet size, and contract-related maintenance revenue also increased from higher volumes. These increases were partially offset~~both periods.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS - (Continued)

~~by lower fuel prices passed through to our DTS and SCS customers. Foreign exchange also negatively impacted revenue growth by 200 basis points in both periods.~~

Cost of services represents the direct costs related to services revenue and is primarily comprised of salaries and employee-related costs, subcontracted transportation (purchased transportation from third parties), fuel, vehicle liability costs and maintenance costs. Cost of services increased 9%14% in the ~~third~~second quarter ~~of 2016~~ and 8%13% in the ~~nine months ended September 30, 2016~~first half of 2017 due to higher volumes ~~partially offset by lower~~and higher fuel costs in SCS and DTS and higher vehicle maintenance costs on certain older model year vehicles in DTS. Cost of services also increased in the first half of 2017 due to higher insurance ~~costs.~~costs in DTS. Foreign exchange reduced cost of services by 100 basis points in both periods.

Services gross margin ~~increased~~decreased ~~11%~~2% in the ~~third~~second quarter and ~~10%~~increased 3% in the ~~nine months ended September 30, 2016.~~first half of 2017. Services gross margin as a percentage of revenue ~~increased~~decreased to ~~18%~~16% in both the second quarter and first half of 2017. The decrease in gross margin dollars in the ~~third~~second quarter, ~~and remained at 17%~~reflects lower operating performance on certain SCS contracts in the ~~nine months ended September 30, 2016.~~start-up phase, as well as increased maintenance costs on certain older model year vehicles and higher insurance costs in DTS. The increase in gross margin dollars in the first half of 2017, reflects benefits from increased volumes and higher pricing ~~new business~~in our SCS segment, partially offset by higher vehicle maintenance costs on certain older model year vehicles and higher ~~volumes~~insurance costs in ~~our DTS and SCS segments. Increased~~DTS. The decline in gross margin ~~dollars also benefited from growth~~as a percentage of revenue reflects higher vehicle maintenance and insurance costs in DTS in the ~~full service lease fleet size, higher volumes in the contract-related business~~second quarter and ~~growth in the contract maintenance fleet.~~first half of 2017.

Fuel


	Three months ended September 30,					Nine months ended September 30,					Change 2016/2015				Three months ended June 30,					Six months ended June 30,					Change 2017/2016
	2016			2015		2016			2015		Three Months		Nine Months		2017			2016		2017			2016		Three Months		Six Months
	(Dollars in thousands)														(Dollars in thousands)
Fuel services revenue	$	120,408		131,382		$	342,765		422,522		(8	)%	(19	)%	$	125,173		119,566		$	253,879		222,357		5	%	14	%
Cost of fuel services	116,904			129,562		331,283			408,027		(10	)%	(19	)%	121,604			115,478		247,454			214,379		5	%	15	%
Gross margin	3,504			1,820		11,482			14,495		93	%	(21	)%	3,569			4,088		6,425			7,978		(13	)%	(19	)%
Gross margin %	3		%	1	%	3		%	3	%					3		%	3	%	3		%	4	%

Fuel services revenue represents fuel services provided to our FMS customers. Fuel services revenue ~~decreased~~increased 8%5% in the ~~third~~second quarter of 2017 and ~~19%~~14% in the ~~nine months ended September 30, 2016,~~first half of 2017, primarily due to ~~lower~~higher fuel prices passed through to customers.

Cost of fuel services includes the direct costs associated with providing our customers with fuel. These costs include fuel, salaries and employee-related costs of fuel island attendants and depreciation of our fueling facilities and equipment. Cost of fuel services ~~decreased 10%~~increased 5% in the ~~third~~second quarter and ~~19%~~15% in the ~~nine months ended September 30, 2016,~~first half of 2017 as a result of ~~lower~~higher fuel prices.

Fuel services gross margin ~~increased 93%~~decreased 13% in the ~~third~~second quarter and ~~decreased 21%~~19% in the ~~nine months ended September 30, 2016.~~first half of 2017. Fuel services gross margin as a percentage of revenue ~~increased to 3% in the third quarter and~~ remained at 3% in the ~~nine months ended September 30, 2016,~~second quarter and decreased to 3% in the first half of 2017 compared to the same periods of ~~2015.~~2016. Fuel is largely a pass-through to customers for which we realize minimal changes in margin during periods of steady market fuel prices. However, fuel services margin is impacted by sudden increases or decreases in market fuel prices during a short period of time, as customer pricing for fuel is established based on trailing market fuel costs. ~~Fuel services gross margin was favorably impacted by these price change dynamics during the third quarter of 2016 and the earlier part of 2015, and adversely impacted during the third quarter of 2015.~~

Three months ended September 30, Nine months ended September 30, Change 2016/2015

2016 2015 2016 2015 Three Months Nine Months

(In thousands)

Other operating expenses $ 27,997
26,957
$ 85,944
88,912
4 % (3 )%



	Three months ended June 30,			Six months ended June 30,			Change 2017/2016
	2017		2016	2017		2016	Three Months		Six Months
	(In thousands)
Other operating expenses	$	27,406	27,796	$	58,677	57,947	(1	)%	1	%

Other operating expenses include costs related to our owned and leased facilities within the FMS segment, such as facility depreciation, rent, purchased insurance, utilities and taxes. These facilities are utilized to provide maintenance to our ~~lease,~~ChoiceLease, rental, ~~contract maintenance~~ and ~~fleet support services~~SelectCare customers. Other operating expenses ~~increased~~decreased slightly to $~~28.0~~27.4 million in the ~~third~~second quarter and ~~decreased~~increased to ~~$85.9~~$58.7 million in the ~~nine months ended September 30, 2016, due to lower utility costs for FMS facilities.~~first half of 2017.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS - (Continued)


	Three months ended September 30,					Nine months ended September 30,					Change 2016/2015				Three months ended June 30,					Six months ended June 30,					Change 2017/2016
	2016			2015		2016			2015		Three Months		Nine Months		2017			2016		2017			2016		Three Months		Six Months
	(Dollars in thousands)														(Dollars in thousands)
Selling, general and administrative expenses (SG&A)	$	198,805		203,093		$	632,466		624,566		(2	)%	1	%	$	201,626		207,028		$	403,387		411,431		(3	)%	(2	)%
Percentage of total revenue	12		%	12	%	13		%	13	%					11		%	12	%	11		%	12	%

SG&A expenses ~~decreased 2%~~ in the ~~third~~second quarter of 2017 and ~~increased 1% in~~ the ~~nine months ended September 30, 2016. The decrease in the third quarter is primarily~~first half of 2017 decreased 3% and 2% respectively, due to lower compensation-related expenses and ~~marketing-related costs and~~favorable impacts from foreign exchange, partially offset by ~~increased~~higher information technology costs and pension expense. The increase in the nine months ended September 30, 2016 is primarily due to increased pension expense and information technology costs, partially offset by lower compensation-related expenses, professional ~~fees and foreign exchange.~~fees. Foreign exchange reduced the growth in SG&A expenses by 100 basis points. ~~Pension expense, which primarily impacts~~ SG&A expenses ~~increased $2.9~~as a percentage of total revenue decreased to 11% in both periods.



	Three months ended June 30,			Six months ended June 30,		Change 2017/2016
	2017		2016	2017	2016	Three Months		Six Months
	(Dollars in thousands)
Non-operating pension costs	$	6,587	15,420	13,917	22,230	(57	)%	(37	)%

Non-operating pension costs includes the components of our net periodic benefit cost other than service cost. These components include interest cost, expected return on plan assets, amortization of actuarial loss and prior service cost. Non-operating pension costs decreased $8.8 million in the ~~third~~second quarter and ~~$16.1~~$8.3 million in the ~~nine months ended September 30, 2016, due to~~first half of 2017 from the ~~impact of a lower asset return assumption and a higher discount rate. Pension expense in the nine months ended September 30, 2016, also increased~~respective prior year periods, primarily due to a one-time charge of $7.7 million in the second quarter of 2016 to fully reflect pension benefit improvements made in 2009 ~~that were not fully reflected~~ in our pension benefit obligation.

Three months ended September 30, Nine months ended September 30, Change 2016/2015

2016 2015 2016 2015 Three Months Nine Months

(Dollars in thousands)

Gains on used vehicles, net $ 1,873
24,965
$ 33,002
82,158
(92 )% (60 )%



	Three months ended June 30,				Six months ended June 30,				Change 2017/2016
	2017			2016	2017			2016	Three Months		Six Months
	(Dollars in thousands)
Used vehicle sales, net	$	(15,322	)	12,000	$	(14,542	)	31,129	(228	)%	(147	)%

~~Gains on used vehicles,~~Used vehicle sales, net includes gains from sales of used vehicles as well as the selling costs associated with used vehicles and write-downs of vehicles to fair market values. ~~Gains on used vehicles,~~Used vehicle sales, net decreased to ~~$1.9~~a loss of $15.3 million in the ~~third~~second quarter of 2017 and ~~$33.0~~$14.5 million in the ~~nine months ended September 30, 2016,~~first half of 2017, primarily due to a drop in the market value of trucks and tractors, which ~~has~~ resulted in lower gains on sales ~~of used vehicles~~ and ~~higher~~greater fair market value ~~write-downs.~~write-downs on vehicles held for sale. Global average proceeds per unit in the ~~third~~second quarter decreased from the prior year reflecting a ~~13%~~16% decrease in tractor proceeds per unit ~~partially offset by~~and a ~~2% increase~~14% decrease in truck proceeds per unit. Global proceeds per unit in the ~~nine months ended September 30, 2016,~~first half of 2017 decreased from the prior year reflecting a ~~12%~~17% decrease in trucks proceeds per unit and a 16% decrease in tractor proceeds per ~~unit, partially offset by a 1% increase in truck proceeds per unit in the nine months ended September 30, 2016.~~unit.


	Three months ended September 30,					Nine months ended September 30,					Change 2016/2015				Three months ended June 30,					Six months ended June 30,					Change 2017/2016
	2016			2015		2016			2015		Three Months		Nine Months		2017			2016		2017			2016		Three Months		Six Months
	(Dollars in thousands)														(Dollars in thousands)
Interest expense	$	37,440		38,986		$	112,597		114,863		(4	)%	(2	)%	$	34,852		37,268		$	69,738		75,157		(6	)%	(7	)%
Effective interest rate	2.7		%	2.9	%	2.7		%	3.0	%					2.6		%	2.7	%	2.6		%	2.7	%

Interest expense decreased 4%6% in the ~~third~~second quarter of 2017 and 2%7% in the ~~nine months ended September 30, 2016,~~first half of 2017, reflecting lower average outstanding debt and a lower effective interest ~~rate, partially offset by higher~~rate. The decrease in average outstanding ~~debt.~~debt reflects lower planned vehicle capital spending. The lower effective interest rate in ~~2016~~2017 reflects the replacement of higher interest rate debt with debt issuances at lower rates. ~~The increase in average outstanding debt reflects planned vehicle capital spending.~~

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS - (Continued)

Three months ended September 30, Nine months ended September 30, Change 2016/2015
2016 2015 2016 2015 Three Months Nine Months
(Dollars in thousands)
Miscellaneous income, net $ 3,247
1,372
$ 10,968
5,037
137 % 118 %



	Three months ended June 30,			Six months ended June 30,			Change 2017/2016
	2017		2016	2017		2016	Three Months		Six Months
	(Dollars in thousands)
Miscellaneous income, net	$	8,028	5,456	$	12,981	7,721	47	%	68	%

Miscellaneous income, net consists of investment income on securities used to fund certain benefit plans, interest income,

gains from sales of operating property, foreign currency transaction gains and other non-operating items. The increase in the ~~third~~second quarter and ~~nine months ended September 30, 2016,~~first half of 2017 is ~~primarily~~ driven by increased rabbi trust investment ~~income.~~

~~ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION~~

~~AND RESULTS OF OPERATIONS - (Continued)~~

income, gains on sales of properties of $2.6 million in the second quarter and $3.3 million in the first half of 2017, and recoveries from business interruption claims of $2.1 million and $3.0 million in the second quarter and first half of 2017, respectively.


	Three months ended September 30,					Nine months ended September 30,					Change 2016/2015				Three months ended June 30,					Six months ended June 30,					Change 2017/2016
	2016			2015		2016			2015		Three Months		Nine Months		2017			2016		2017			2016		Three Months		Six Months
	(Dollars in thousands)														(Dollars in thousands)
Provision for income taxes	$	46,560		49,089		$	121,820		127,470		(5	)%	(4	)%	$	29,349		42,737		$	51,026		75,260		(31	)%	(32	)%
Effective tax rate from continuing operations	35.4		%	35.1	%	36.1		%	35.7	%					36.4		%	36.6	%	36.3		%	36.6	%

Provision for income taxes decreased 5%31% in the ~~third~~second quarter of 2017 and 4%32% in the ~~nine months ended September 30, 2016.~~first half of 2017. The decrease in the provision for income taxes reflects lower taxable ~~earnings, partially offset by a slightly higher effective income tax rate.~~earnings.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS - (Continued)

OPERATING RESULTS BY SEGMENT


	Three months ended September 30,					Nine months ended September 30,					Change 2016/2015				Three months ended June 30,					Six months ended June 30,					Change 2017/2016
	2016			2015		2016			2015		Three Months		Nine Months		2017			2016		2017			2016		Three Months		Six Months
	(Dollars in thousands)														(Dollars in thousands)
Revenue:
Total Revenue:
Fleet Management Solutions	$	1,155,011		1,157,578		$	3,404,452		3,394,077		—	%	—	%	$	1,163,579		1,151,513		$	2,296,049		2,249,441		1	%	2	%
Dedicated Transportation Solutions	260,921			226,921		764,025			663,094		15		15		272,612			258,262		539,286			503,104		6		7
Supply Chain Solutions	416,898			387,305		1,207,665			1,155,300		8		5		470,724			402,052		933,473			790,767		17		18
Eliminations	(108,412		)	(102,738	)	(318,308		)	(313,321	)	6		2		(113,701		)	(108,083	)	(227,431		)	(209,896	)	5		8
Total	$	1,724,418		1,669,066		$	5,057,834		4,899,150		3	%	3	%	$	1,793,214		1,703,744		$	3,541,377		3,333,416		5	%	6	%
Operating Revenue: ⁽¹⁾
Fleet Management Solutions	$	997,903		988,424		$	2,955,466		2,846,661		1	%	4	%	$	998,565		995,238		$	1,960,781		1,957,562		—	%	—	%
Dedicated Transportation Solutions	196,648			184,247		581,213			526,882		7		10		199,772			194,292		393,128			384,565		3		2
Supply Chain Solutions	345,453			318,759		999,427			934,253		8		7		358,714			331,558		720,470			653,974		8		10
Eliminations	(71,711		)	(64,965	)	(212,087		)	(188,427	)	10		13		(73,862		)	(71,375	)	(146,064		)	(140,375	)	3		4
Total	$	1,468,293		1,426,465		$	4,324,019		4,119,369		3	%	5	%	$	1,483,189		1,449,713		$	2,928,315		2,855,726		2	%	3	%
EBT:
Fleet Management Solutions	$	112,282		126,433		$	306,387		338,603		(11	)%	(10	)%	$	68,090		111,155		$	120,280		194,047		(39	)%	(38	)%
Dedicated Transportation Solutions	17,587			13,296		48,327			34,701		32		39		14,849			16,460		26,122			30,716		(10	)	(15	)
Supply Chain Solutions	30,954			26,573		79,121			69,961		16		13		25,858			28,362		53,307			48,149		(9	)	11
Eliminations	(12,606		)	(11,998	)	(37,116		)	(35,120	)	5		6		(12,373		)	(12,766	)	(23,589		)	(24,510	)	(3	)	(4	)
	148,217			154,304		396,719			408,145		(4	)	(3	)	96,424			143,211		176,120			248,402		(33	)	(29	)
Unallocated Central Support Services	(9,313		)	(10,070	)	(30,193		)	(32,936	)	(8	)	(8	)	(11,719		)	(11,012	)	(21,924		)	(20,685	)	6		6
Non-operating pension costs	(7,206		)	(4,780	)	(21,691		)	(14,351	)	51		51		(6,587		)	(7,770	)	(13,917		)	(14,580	)	(15	)	(5	)
Other items	—			446		(7,650		)	(3,334	)	NM		NM
Restructuring and other items, net															2,574			(7,650	)	369			(7,650	)	NM		NM
Earnings from continuing operations before income taxes	$	131,698		139,900		$	337,185		357,524		(6	)%	(6	)%	$	80,692		116,779		$	140,648		205,487		(31	)%	(32	)%

————————————


(1)	Non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section of this MD&A for a reconciliation of total revenue to operating revenue, and segment total revenue to segment operating revenue for FMS, DTS and SCS, as well as the reasons why management believes these measures are important to investors.

As part of management’s evaluation of segment operating performance, we define the primary measurement of our segment financial performance as “Earnings Before Taxes” (EBT) from continuing operations, which includes an allocation of Central Support Services (CSS), and excludes non-operating pension costs and restructuring and other items, net discussed in Note ~~14,~~16, "Segment Reporting," in the Notes to Consolidated Condensed Financial Statements. CSS represents those costs incurred to support all segments, including human resources, finance, corporate services and public affairs, information technology, health and safety, legal, marketing and corporate communications.

The objective of the EBT measurement is to provide clarity on the profitability of each segment and, ultimately, to hold leadership of each 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 not attributable to any segment and remain unallocated in CSS, including costs for investor relations, public affairs and certain executive compensation.

Inter-segment revenue and EBT are accounted for at rates similar to those executed with third parties. EBT related to inter-segment equipment and services billed to DTS and SCS customers ~~as well as the net gains on sale of this equipment~~ (equipment contribution) ~~and inter-segment fuel services~~ are included in both FMS ~~DTS~~ and ~~SCS~~the segment that served the customer and then eliminated (presented as “Eliminations” in the table above). ~~Prior year amounts have been revised to conform to the current period presentation.~~

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS - (Continued)

The following table sets forth equipment contribution included in EBT for our DTS and SCS segments:


	Three months ended September 30,			Nine months ended September 30,			Change 2016/2015				Three months ended June 30,			Six months ended June 30,			Change 2017/2016
	2016		2015	2016		2015	Three Months		Nine Months		2017		2016	2017		2016	Three Months		Six Months
	(Dollars in thousands)										(Dollars in thousands)
Equipment Contribution:
Dedicated Transportation Solutions	$	8,047	8,527	$	24,214	24,351	(6	)%	(1	)%	$	7,557	8,449	$	14,212	16,167	(11	)%	(12	)%
Supply Chain Solutions	4,559		3,471	12,902		10,769	31		20		4,816		4,317	9,377		8,343	12		12
Total(1)	$	12,606	11,998	$	37,116	35,120	5	%	6	%	$	12,373	12,766	$	23,589	24,510	(3	)%	(4	)%

———————————


(1)	Total amount is included in FMS EBT.

The decrease in DTS equipment contribution for the three and six months ended June 30, 2017 is primarily driven by ~~lower net gains~~higher maintenance costs on ~~sales of vehicles previously~~an older vehicle fleet used in DTS ~~operations, partially offset by higher volumes.~~operations. The increase in SCS equipment contribution for the three and six months ended June 30, 2017 is primarily driven by ~~higher~~increased volumes.

~~Items~~The following table sets forth items excluded from our segment EBT measure and their classification within our Consolidated Condensed Statements of ~~Earnings follow:~~Earnings:


		Three months ended September 30,					Nine months ended September 30,						Three months ended June 30,					Six months ended June 30,
Description	Classification	2016			2015		2016			2015		Classification	2017			2016		2017			2016
		(In thousands)											(In thousands)
Non-operating pension costs(1)	SG&A	$	(7,206	)	(4,780	)	$	(21,691	)	(14,351	)	Non-operating pension costs	$	(6,587	)	(7,770	)	$	(13,917	)	(14,580	)
Pension-related adjustments ⁽¹⁾	SG&A	—			509		(7,650		)	509
Professional fees ⁽²⁾	SG&A	—			(63	)	—			(3,843	)
Operating tax adjustment ⁽²⁾												SG&A	—			—		(2,205		)	—
Restructuring ⁽²⁾												Miscellaneous income, net	2,574			—		2,574			—
Pension-related adjustments ⁽³⁾												Non-operating pension costs	—			(7,650	)	—			(7,650	)
		$	(7,206	)	(4,334	)	$	(29,341	)	(17,685	)		$	(4,013	)	(15,420	)	$	(13,548	)	(22,230	)

———————————


(1)	See Note ~~11, “Employee Benefit Plans,”~~16 , “Segment Reporting ," in the Notes to Consolidated Condensed Financial Statements for a discussion of adjustments.


(2)	~~Charges related~~See Note 13, “Other Items Impacting Comparability,” in the Notes to ~~professional fees associated with cost savings initiatives.~~Consolidated Condensed Financial Statements for a discussion of adjustments.


(3)	See Note 12, “Employee Benefit Plans,” in the Notes to Consolidated Condensed Financial Statements for a discussion of adjustments.

Fleet Management Solutions

   Three months ended September 30, Nine months ended September 30, Change 2016/2015
   2016 2015 2016 2015 Three Months Nine Months
(Dollars in thousands)

Full service lease $ 649,208

609,300
$ 1,918,419
1,782,106
  7 %   8 %
Contract maintenance 50,186

48,623
151,489
143,559
  3
  6
Contractual revenue 699,394

657,923
2,069,908
1,925,665
  6
  7
Commercial rental 216,592

250,601
636,028
694,745
  (14 )   (8 )
Contract-related maintenance 62,907

59,904
189,861
169,585
  5
  12
Other 19,010

19,996
59,669
56,666
  (5 )   5
Fuel services revenue 157,108

169,154
448,986
547,416
  (7 )   (18 )
FMS total revenue $ 1,155,011

1,157,578

$ 3,404,452

3,394,077
— % — %

FMS operating revenue ⁽¹⁾
$ 997,903

988,424
$ 2,955,466
2,846,661
  1
  4

FMS EBT $ 112,282

126,433
$ 306,387
338,603
  (11 )%   (10 )%
FMS EBT as a % of FMS total revenue 9.7 %
10.9 % 9.0 % 10.0 %   (120) bps   (100) bps
FMS EBT as a % of FMS operating revenue ⁽¹⁾
11.3 %
12.8 % 10.4 % 11.9 %   (150) bps   (150) bps



	Three months ended June 30,					Six months ended June 30,					Change 2017/2016
	2017			2016		2017			2016		Three Months		Six Months
	(Dollars in thousands)
ChoiceLease	$	662,462		646,347		$	1,318,774		1,269,210		2	%	4	%
SelectCare	117,384			113,870		230,993			228,257		3		1
Commercial Rental	199,332			214,599		373,338			419,436		(7	)	(11	)
Other	19,387			20,422		37,676			40,659		(5	)	(7	)
Fuel services revenue	165,014			156,275		335,268			291,879		6		15
FMS total revenue ⁽¹⁾	$	1,163,579		1,151,513		$	2,296,049		2,249,441		1	%	2	%

FMS operating revenue ⁽²⁾	$	998,565		995,238		$	1,960,781		1,957,562		—		—

FMS EBT	$	68,090		111,155		$	120,280		194,047		(39	)%	(38	)%
FMS EBT as a % of FMS total revenue	5.9		%	9.7	%	5.2		%	8.6	%	(380) bps		(340) bps
FMS EBT as a % of FMS operating revenue ⁽²⁾	6.8		%	11.2	%	6.1		%	9.9	%	(440) bps		(380) bps

————————————


(1)	Includes intercompany fuel sales from FMS to DTS and SCS.


(2)	Non-GAAP financial measures. Reconciliations of FMS total revenue to FMS operating revenue, FMS EBT as a % of FMS total revenue to FMS EBT as a % of FMS operating revenue, as well as the reasons why management believes these measures are important to investors are included in the “Non-GAAP Financial Measures” section of this MD&A.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS - (Continued)

The following table summarizes the components of the change in FMS revenue on a percentage basis versus the prior year:


	Three months ended September 30, 2016				Nine months ended September 30, 2016				Three months ended June 30, 2017				Six months ended June 30, 2017
	Total		Operating ⁽¹⁾		Total		Operating ⁽¹⁾		Total		Operating ⁽¹⁾		Total		Operating ⁽¹⁾
Organic, including price and volume	2	%	2	%	4	%	5	%	1	%	1	%	1	%	1	%
Fuel	(1	)	—		(3	)	—		1		—		2		—
Foreign exchange	(1	)	(1	)	(1	)	(1	)	(1	)	(1	)	(1	)	(1	)
Net increase	—	%	1	%	—	%	4	%	1	%	—	%	2	%	—	%

————————————


(1)	Non-GAAP financial measure. A reconciliation of FMS total revenue to FMS operating revenue as well as the reasons why management believes this measure is important to investors is included in the "Non-GAAP Financial Measures" section of this MD&A.

FMS total revenue ~~remained at~~increased to $1.16 billion in the ~~third~~second quarter and increased ~~slightly~~ to ~~$3.40~~$2.30 billion in the ~~nine months ended September 30, 2016~~first half of 2017 due to higher FMS operating revenue (a non-GAAP measure excluding fuel)~~, largely offset by a decline in~~ and fuel services revenue, ~~and~~partially offset by negative impacts from foreign exchange. FMS operating revenue ~~increased 1%~~remained unchanged in the ~~third~~second quarter and ~~4% in~~ the ~~nine months ended September 30, 2016~~first half of 2017, as a result of organic growth, primarily in the ~~full service lease~~ChoiceLease product line, ~~partially~~ offset by lower commercial rental ~~revenue.~~revenue and negative impacts from foreign exchange. In the ~~third~~second quarter and ~~nine months ended September 30, 2016,~~first half of 2017, foreign exchange negatively impacted both total revenue and operating revenue growth by 100 basis points.

~~Full service lease~~ChoiceLease revenue increased 7%2% in the ~~third~~second quarter and 8%4% in the ~~nine months ended September 30, 2016,~~first half of 2017, reflecting a larger average fleet size and higher prices on replacement vehicles. Foreign exchange negatively impacted ~~full service lease~~ChoiceLease revenue growth by 100 basis points in ~~both~~ the ~~third~~second quarter and ~~the nine months ended September 30, 2016.~~first half of 2017. We expect favorable ~~full service lease~~ChoiceLease revenue comparisons to continue through the end of the year based on sales activity. Commercial rental revenue decreased ~~14%~~7% in the ~~third~~second quarter and 8%11% in the ~~nine months ended September 30, 2016~~first half of 2017 due to lower demand. We expect unfavorable commercial rental revenue comparisons through the end of the year based on ~~a weaker~~the weak demand environment. ~~Contract-related maintenance~~SelectCare revenue increased 5%3% in the ~~third~~second quarter and ~~12%~~1% in the ~~nine months ended September 30, 2016, reflecting favorable~~first half of 2017, due to new business and increased volumes, partially offset by negative impacts from ~~growth in the full service lease fleet and higher volumes.~~foreign exchange.

The following table provides commercial rental statistics on our global fleet:


	Three months ended September 30,					Nine months ended September 30,					Change 2016/2015				Three months ended June 30,					Six months ended June 30,					Change 2017/2016
	2016			2015		2016			2015		Three Months		Nine Months		2017			2016		2017			2016		Three Months		Six Months
	(Dollars in thousands)														(Dollars in thousands)
Rental revenue from non-lease customers	$	141,836		159,912		$	397,305		420,356		(11	)%	(5	)%	$	127,529		134,767		$	233,966		255,469		(5	)%	(8	)%
Rental revenue from lease customers ⁽¹⁾	$	74,756		90,689		$	238,723		274,389		(18	)%	(13	)%	$	71,803		79,832		$	139,372		163,967		(10	)%	(15	)%
Average commercial rental power fleet size — in service ^(2), ⁽³⁾	30,900			35,500		31,700			33,400		(13	)%	(5	)%	29,200			31,800		29,400			32,400		(8	)%	(9	)%
Commercial rental utilization — power fleet ⁽²⁾	76.7		%	76.4	%	73.9		%	76.0	%	30 bps		(210) bps		75.6		%	74.7	%	71.4		%	72.5	%	90 bps		(110) bps

————————————


(1)	Represents revenue from rental vehicles provided to our existing ~~full service lease~~ChoiceLease customers, generally in place of a lease vehicle.


(2)	Number of units rounded to nearest hundred and calculated using quarterly average unit counts.


(3)	Excluding trailers.

FMS EBT decreased ~~11%~~39% in the ~~third~~second quarter ~~and 10% in the nine months ended September 30, 2016,~~of 2017, primarily reflecting lower used vehicle sales and, to a lesser extent, commercial rental results, as well as $8 million of accelerated depreciation on vehicles expected to be made available for sale through June 2018 and higher maintenance costs on certain older model year vehicles. FMS EBT decreased 38% in the first half of 2017, due to lower used vehicle sales and commercial rental results, ~~partially offset by higher full service lease results.~~as well as accelerated depreciation on vehicles expected to be made available for sale through June 2018 of $17 million. Used vehicle sales results decreased due to lower ~~tractor~~ pricing, ~~as well as~~which resulted in lower gains on sales ~~volume in third quarter.~~and greater fair market value write-downs on vehicles held for sale. Commercial rental results declined from lower demand in both periods. ~~The~~Second quarter commercial rental results ~~for the nine months ended September 30, 2016,~~ were ~~also~~favorably impacted by a 90 basis point improvement. However, first half results were negatively impacted by a ~~210~~110 basis point decline in utilization. ~~Full service lease~~ChoiceLease results benefited from growth in the average lease fleet size. ~~Full service lease~~ChoiceLease and commercial rental results ~~benefited from approximately $9~~were negatively impacted by $1 million of ~~lower~~higher depreciation in the ~~third~~second quarter and ~~$26~~$2 million in the ~~nine months ended September 30, 2016,~~first half of 2017, due to residual value changes implemented January 1, ~~2016.~~2017.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS - (Continued)

Our global fleet of revenue earning equipment ~~contract maintenance~~and SelectCare vehicles ~~and~~including vehicles under on-demand maintenance is summarized as follows (number of units rounded to the nearest hundred):


				Change							Change
	September 30, 2016	December 31, 2015	September 30, 2015	Sept. 2016/Dec. 2015		Sept. 2016/Sept. 2015		June 30, 2017	December 31, 2016	June 30, 2016	Jun. 2017/Dec. 2016		Jun. 2017/Jun. 2016
End of period vehicle count
By type:
Trucks ⁽¹⁾	73,500	72,800	72,900	1	%	1	%	75,500	73,300	73,100	3	%	3	%
Tractors ⁽²⁾	68,600	68,700	67,100	—		2		66,100	67,900	68,700	(3	)	(4	)
Trailers ^{(3), (4)}	42,300	42,400	42,500	—		—		42,600	42,800	42,300	—		1
Other	1,200	1,300	1,300	(8	)	(8	)	1,200	1,100	1,400	9		(14	)
Total	185,600	185,200	183,800	—	%	1	%	185,400	185,100	185,500	—	%	—	%

By ownership:
Owned	184,100	184,700	182,200	—	%	1	%	184,000	183,700	183,900	—	%	—	%
Leased	1,500	500	1,600	200		(6	)	1,400	1,400	1,600	—		(13	)
Total	185,600	185,200	183,800	—	%	1	%	185,400	185,100	185,500	—	%	—	%

By product line:⁽⁴⁾
Full service lease	136,600	131,800	130,600	4	%	5	%
ChoiceLease								137,200	136,500	134,300	1	%	2	%
Commercial rental	38,000	42,100	43,800	(10	)	(13	)	37,400	37,800	38,700	(1	)	(3	)
Service vehicles and other	3,500	3,300	3,300	6		6		3,300	3,300	3,400	—		(3	)
Active units	178,100	177,200	177,700	1		—		177,900	177,600	176,400	—		1
Held for sale	7,500	8,000	6,100	(6	)	23		7,500	7,500	9,100	—		(18	)
Total	185,600	185,200	183,800	—	%	1	%	185,400	185,100	185,500	—	%	—	%

Customer vehicles under contract maintenance	49,300	46,700	41,500	6	%	19	%
Customer vehicles under SelectCare contracts								51,700	49,000	50,200	6	%	3	%

Total vehicles serviced								237,100	234,100	235,700	1	%	1	%

Quarterly average vehicle count
By product line:
Full service lease	135,100	131,100	129,900	3	%	4	%
ChoiceLease								138,000	136,500	133,800	1	%	3	%
Commercial rental	38,300	43,200	43,800	(11	)	(13	)	37,400	37,800	39,600	(1	)	(6	)
Service vehicles and other	3,300	3,300	3,300	—		—		3,400	3,400	3,400	—		—
Active units	176,700	177,600	177,000	(1	)	—		178,800	177,700	176,800	1		1
Held for sale	8,700	6,900	5,900	26		47		6,800	7,500	8,800	(9	)	(23	)
Total	185,400	184,500	182,900	—	%	1	%	185,600	185,200	185,600	—	%	—	%

Customer vehicles under contract maintenance	49,600	45,500	41,400	9	%	20	%
Customer vehicles under SelectCare contracts								51,200	49,200	49,700	4	%	3	%

Customer vehicles under on-demand maintenance ⁽⁵⁾	8,000	7,200	8,200	11	%	(2	)%
Customer vehicles under SelectCare on-demand ⁽⁵⁾								9,800	7,800	7,600	26	%	29	%

Total vehicles under service	243,000	237,200	232,500	2	%	5	%

Total vehicles serviced								246,600	242,200	242,900	2	%	2	%

Year-to-date average vehicle count
By product line:
Full service lease	133,800	128,800	128,000	4	%	5	%
ChoiceLease								137,500	134,400	133,200	2	%	3	%
Commercial rental	39,600	42,400	42,100	(7	)	(6	)	37,400	39,200	40,300	(5	)	(7	)
Service vehicles and other	3,400	3,200	3,200	6		6		3,400	3,400	3,400	—		—
Active units	176,800	174,400	173,300	1		2		178,300	177,000	176,900	1		1
Held for sale	8,600	6,100	5,800	41		48		6,900	8,400	8,600	(18	)	(20	)
Total	185,400	180,500	179,100	3	%	4	%	185,200	185,400	185,500	—	%	—	%

Customer vehicles under contract maintenance	49,000	43,300	42,600	13	%	15	%
Customer vehicles under on-demand maintenance ⁽⁵⁾	22,700	20,000	16,900	NM		34	%
Customer vehicles under SelectCare contracts ⁽⁵⁾								50,700	49,200	48,900	3	%	4	%
Customer vehicles under SelectCare on-demand ⁽⁶⁾								15,900	21,000	14,700	(24	)%	8	%
Total vehicles serviced								251,800	255,600	249,100	(1	)%	1	%

———————————


(1)	Generally comprised of Class 1 through Class 7 type vehicles with a Gross Vehicle Weight (GVW) up to 33,000 pounds.


(2)	Generally comprised of over the road on highway tractors and are primarily comprised of Class 8 type vehicles with a GVW of over 33,000 pounds.


(3)	Generally comprised of dry, flatbed and refrigerated type trailers.

(4)

Includes ~~5,400~~4,700 UK trailers ~~(3,500 full service lease~~(2,900 ChoiceLease and 1,800 commercial rental), 5,300 UK trailers (3,300 ChoiceLease and 2,000 commercial rental) and 5,300 UK trailers (3,400 ChoiceLease and 1,900 commercial rental)~~, 6,100 UK trailers (3,900 full service lease and 2,200 commercial rental) and 6,500 UK trailers (4,300 full service lease and 2,200 commercial rental)~~ as of ~~September~~June 30, ~~2016,~~2017, December 31, ~~2015,~~2016, and ~~September~~June 30, ~~2015,~~2016, respectively.


(5)	Comprised of the number of unique vehicles serviced under on-demand maintenance agreements for the quarterly and year-to-date periods. This does not represent averages for the periods. Vehicles included in the count may have been serviced more than one time during the respective period.


(6)	Comprised of the number of unique vehicles serviced under on-demand maintenance agreements for the quarterly periods. This does not represent averages for the periods. Vehicles included in the count may have been serviced more than one time during the respective period.

Note: Quarterly and year-to-date amounts were computed using a 6-point and ~~18-point~~12-point average, respectively, based on monthly information.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS - (Continued)

The following table provides a breakdown of our non-revenue earning equipment included in our global fleet count (number of units rounded to nearest hundred):


				Change							Change
	September 30, 2016	December 31, 2015	September 30, 2015	Sept. 2016/Dec. 2015		Sept. 2016/Sept. 2015		June 30, 2017	December 31, 2016	June 30, 2016	Jun. 2017/Dec. 2016		Jun. 2017/Jun. 2016
Not yet earning revenue (NYE)	1,900	2,800	2,800	(32	)%	(32	)%	2,500	1,700	2,200	47	%	14	%
No longer earning revenue (NLE):
Units held for sale	7,500	8,000	6,100	(6	)	23		7,500	7,500	9,100	—		(18	)
Other NLE units	5,000	3,300	3,900	52		28		4,000	4,400	3,500	(9	)	14
Total	14,400	14,100	12,800	2	%	13	%	14,000	13,600	14,800	3	%	(5	)%

NYE units represent new vehicles on hand that are being prepared for deployment to a lease customer or into the rental fleet. Preparations include activities such as adding lift gates, paint, decals, cargo area and refrigeration equipment. ~~NYE units decreased compared to~~ ~~September 30, 2015, reflecting lower lease fleet growth and the redeployment of used vehicles to fulfill lease sales.~~ NLE units represent vehicles held for sale and vehicles for which no revenue has been earned in the previous 30 days. Accordingly, these vehicles may be temporarily out of service, being prepared for sale or awaiting redeployment. NLE units ~~increased~~decreased compared to ~~September~~June 30, ~~2015 primarily due to higher~~2016, reflecting lower used vehicle inventories, ~~and~~partially offset by a higher number of units being prepared for sale. We expect NLE levels to ~~remain around current levels~~decline through the end of the year.

Dedicated Transportation Solutions


	Three months ended September 30,					Nine months ended September 30,					Change 2016/2015				Three months ended June 30,					Six months ended June 30,					Change 2017/2016
	2016			2015		2016			2015		Three Months		Nine Months		2017			2016		2017			2016		Three Months		Six Months
	(Dollars in thousands)														(Dollars in thousands)
DTS total revenue(1)	$	260,921		226,921		$	764,025		663,094		15	%	15	%	$	272,612		258,262		$	539,286		503,104		6	%	7	%

DTS operating revenue ⁽¹⁾⁽²⁾	$	196,648		184,247		$	581,213		526,882		7	%	10	%	$	199,772		194,292		$	393,128		384,565		3	%	2	%

DTS EBT	$	17,587		13,296		$	48,327		34,701		32	%	39	%	$	14,849		16,460		$	26,122		30,716		(10	)%	(15	)%
DTS EBT as a % of DTS total revenue	6.7		%	5.9	%	6.3		%	5.2	%	80 bps		110 bps		5.4		%	6.4	%	4.8		%	6.1	%	(100) bps		(130) bps
DTS EBT as a % of DTS operating revenue ⁽¹⁾⁽²⁾	8.9		%	7.2	%	8.3		%	6.6	%	170 bps		170 bps		7.4		%	8.5	%	6.6		%	8.0	%	(110) bps		(140) bps

Memo:
Average fleet	8,300			7,900		8,200			7,700		5	%	6	%	8,200			8,200		8,200			8,100		—	%	1	%

————————————


(1)	Includes intercompany fuel sales from FMS to DTS.


(2)	Non-GAAP financial measures. Reconciliations of DTS total revenue to DTS operating revenue, DTS EBT as a % of DTS total revenue to DTS EBT as a % of DTS operating revenue, as well as the reasons why management believes these measures are important to investors are included in the “Non-GAAP Financial Measures” section of this MD&A.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS - (Continued)

The following table summarizes the components of the change in DTS revenue on a percentage basis versus the prior year:


	Three months ended September 30, 2016				Nine months ended September 30, 2016				Three months ended June 30, 2017				Six months ended June 30, 2017
	Total		Operating⁽¹⁾		Total		Operating⁽¹⁾		Total		Operating ⁽¹⁾		Total		Operating ⁽¹⁾
Organic, including price and volume	16	%	7	%	18	%	10	%	5	%	3	%	6	%	2	%
Fuel	(1	)	—		(3	)	—		1		—		1		—
Net increase	15	%	7	%	15	%	10	%	6	%	3	%	7	%	2	%

————————————


(1)	Non-GAAP financial measure. A reconciliation of DTS total revenue to DTS operating revenue, as well as the reasons why management believes this measure is important to investors is included in the "Non-GAAP Financial Measures" section of this MD&A.

In the ~~third~~second quarter of ~~2016,~~2017, DTS total revenue ~~increased 15% reflecting organic growth, partially offset by lower fuel prices passed through to our customers. DTS~~and operating revenue (a non-GAAP measure excluding fuel and subcontracted transportation) increased ~~7% due to increased volumes, new business~~6% and ~~higher pricing. DTS EBT increased 32% in the third quarter of 2016,~~3%, respectively, primarily due to ~~increased revenue.~~new business. DTS EBT decreased 10% in the second quarter of 2017, primarily due to higher vehicle maintenance costs on certain older model year vehicles as well as higher insurance premium costs.

In the ~~nine months ended September 30, 2016,~~first half of 2017, DTS total ~~revenue increased 15% reflecting organic growth, partially offset by lower fuel prices passed through to our customers. DTS~~and operating revenue increased ~~10%~~7% and 2%, respectively, due to new business ~~increased volumes~~ and higher pricing. We expect DTS total revenue and DTS operating revenue comparisons to remain favorable through the end of the ~~year; however, at a lower growth rate.~~year. DTS EBT ~~increased 39%~~decreased 15% in the ~~nine months ended September 30, 2016,~~first half of 2017, primarily due to ~~increased revenue.~~

higher maintenance costs on certain older model year vehicles and higher insurance costs.

Supply Chain Solutions


	Three months ended September 30,					Nine months ended September 30,					Change 2016/2015				Three months ended June 30,					Six months ended June 30,					Change 2017/2016
	2016			2015		2016			2015		Three Months		Nine Months		2017			2016		2017			2016		Three Months		Six Months
	(Dollars in thousands)														(Dollars in thousands)
Automotive	$	140,785		118,786		$	407,083		347,284		19	%	17	%	$	135,912		137,174		$	284,260		266,298		(1	)%	7	%
Technology and healthcare	61,425			62,456		177,138			185,762		(2	)	(5	)	63,656			58,275		126,553			115,713		9		9
CPG and Retail	110,840			109,550		324,814			322,977		1		1		120,602			105,372		234,657			213,974		14		10
Industrial and other	32,403			27,967		90,392			78,230		16		16		38,544			30,737		75,000			57,989		25		29
Subcontracted transportation	56,089			53,960		162,743			171,957		4		(5	)	95,107			54,675		177,586			106,654		74		67
Fuel ⁽¹⁾	15,356			14,586		45,495			49,090		5		(7	)	16,903			15,819		35,417			30,139		7		18
SCS total revenue	$	416,898		387,305		$	1,207,665		1,155,300		8	%	5	%	$	470,724		402,052		$	933,473		790,767		17	%	18	%

SCS operating revenue ⁽²⁾	$	345,453		318,759		$	999,427		934,253		8	%	7	%	$	358,714		331,558		$	720,470		653,974		8	%	10	%

SCS EBT	$	30,954		26,573		$	79,121		69,961		16	%	13	%	$	25,858		28,362		$	53,307		48,149		(9	)%	11	%
SCS EBT as a % of SCS total revenue	7.4		%	6.9	%	6.6		%	6.1	%	50 bps		50 bps		5.5		%	7.1	%	5.7		%	6.1	%	(160) bps		(40) bps
SCS EBT as a % of SCS operating revenue ⁽²⁾	9.0		%	8.3	%	7.9		%	7.5	%	70 bps		40 bps		7.2		%	8.6	%	7.4		%	7.4	%	(140) bps		—

Memo:
Average fleet	7,400			6,500		7,100			6,300		14	%	13	%	7,800			6,900		7,600			6,900		13	%	10	%

————————————


(1)	Includes intercompany fuel sales from FMS to SCS.


(2)	Non-GAAP financial measures. Reconciliations of SCS total revenue to SCS operating revenue, SCS EBT as a % of SCS total revenue to SCS EBT as a % of SCS operating revenue, as well as the reasons why management believes these measures are important to investors are included in the “Non-GAAP Financial Measures” section of this MD&A.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS - (Continued)

The following table summarizes the components of the change in SCS revenue on a percentage basis versus the prior year:


	Three months ended September 30, 2016				Nine months ended September 30, 2016				Three months ended June 30, 2017				Six months ended June 30, 2017
	Total		Operating⁽¹⁾		Total		Operating⁽¹⁾		Total		Operating ⁽¹⁾		Total		Operating ⁽¹⁾
Organic, including price and volume	9	%	9	%	7	%	9	%	18	%	9	%	18	%	11	%
Fuel									—		—		1		—
Foreign exchange	(1	)	(1	)	(2	)	(2	)	(1	)	(1	)	(1	)	(1	)
Net increase	8	%	8	%	5	%	7	%	17	%	8	%	18	%	10	%

————————————


(1)	Non-GAAP financial measure. A reconciliation of SCS total revenue to SCS operating revenue, as well as the reasons why management believes this measure is important to investors is included in the "Non-GAAP Financial Measures" section of this MD&A.

In the ~~third~~second quarter of ~~2016,~~2017, SCS total revenue increased ~~8% as growth in~~17%, and SCS operating revenue (a non-GAAP measure excluding fuel and subcontracted transportation) ~~was~~increased 8%, reflecting new business, increased volumes and higher pricing. SCS EBT decreased 9% in the second quarter of 2017, primarily related to the start-up phase of certain new accounts.

In the first half of 2017, SCS total revenue increased 18%, reflecting organic growth, partially offset by a negative impact from foreign exchange. SCS operating revenue increased ~~8% in the third quarter of 2016, primarily~~10% due to ~~new business and~~ increased volumes, ~~partially offset by a negative impact from foreign exchange. SCS EBT increased 16% in the third quarter of 2016 due to the benefits of higher revenue.~~

In the nine months ended September 30, 2016, SCS total revenue increased 5%, as growth in SCS operating revenue was partially offset by a negative impact from foreign exchange. SCS operating revenue increased 7% due to new business ~~increased volumes~~ and higher pricing, partially offset by a negative impact from foreign exchange. We expect SCS total revenue and SCS operating revenue comparisons to remain favorable through the end of the ~~year; however,~~year, with SCS operating revenue at a lower growth rate. SCS EBT increased ~~13%~~11% in the ~~nine months ended September 30, 2016,~~first half of 2017 primarily due to increased volumes and higher ~~pricing, new business and increased volumes.~~

pricing.

Central Support Services


	Three months ended September 30,					Nine months ended September 30,					Change 2016/2015				Three months ended June 30,					Six months ended June 30,					Change 2017/2016
	2016			2015		2016			2015		Three Months		Nine Months		2017			2016		2017			2016		Three Months		Six Months
	(Dollars in thousands)														(Dollars in thousands)
Human resources	$	4,184		4,596		$	12,968		14,976		(9	)%	(13	)%	$	4,248		4,260		$	8,408		8,784		—	%	(4	)%
Finance	15,143			15,269		44,267			44,317		(1	)	—		14,382			14,350		29,178			29,124		—		—
Corporate services and public affairs	2,471			2,694		7,463			7,803		(8	)	(4	)	2,588			2,537		4,994			4,992		2		—
Information technology	20,466			22,104		60,369			63,228		(7	)	(5	)	21,247			19,995		42,479			39,903		6		6
Legal and safety	5,711			5,974		17,798			18,406		(4	)	(3	)	6,326			5,829		12,863			12,087		9		6
Marketing	4,336			7,049		14,220			17,177		(38	)	(17	)	5,302			6,174		8,734			9,884		(14	)	(12	)
Other	4,949			6,172		19,550			24,278		(20	)	(19	)	9,150			7,672		15,279			14,406		19		6
Total CSS	57,260			63,858		176,635			190,185		(10	)	(7	)	63,243			60,817		121,935			119,180		4		2
Allocation of CSS to business segments	(47,947		)	(53,788	)	(146,442		)	(157,249	)	(11	)	(7	)	(51,524		)	(49,805	)	(100,011		)	(98,495	)	3		2
Unallocated CSS	$	9,313		10,070		$	30,193		32,936		(8	)%	(8	)%	$	11,719		11,012		$	21,924		20,685		6	%	6	%

Total CSS costs ~~decreased~~increased ~~10%~~4% ~~and 7%~~ in the ~~third~~second quarter ~~and nine months ended September 30, 2016, respectively,~~of 2017, due to ~~lower compensation-related expenses~~higher professional services and information technology costs, partially offset by lower marketing-related and compensation-related costs. Total CSS costs increased 2% in the first half of 2017, due to higher information technology and professional services costs, partially offset by lower compensation-related and marketing-related costs. Unallocated CSS ~~decreased 8%~~increased 6% in ~~both~~ the ~~third~~second quarter and the ~~nine months ended September 30, 2016, primarily due to lower compensation-related expenses.~~first half of 2017, driven by the same factors impacting total CSS costs.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS - (Continued)

FINANCIAL RESOURCES AND LIQUIDITY

Cash Flows

The following is a summary of our cash flows from continuing operations:


	Nine months ended September 30,					Six months ended June 30,
	2016			2015		2017			2016
	(In thousands)					(In thousands)
Net cash provided by (used in):
Net cash (used in) provided by:
Operating activities	$	1,184,744		1,071,336		$	731,695		763,024
Financing activities	(55,236		)	664,783		(121,959		)	69,047
Investing activities	(1,108,584		)	(1,707,378	)	(616,171		)	(823,336	)
Effect of exchange rates on cash	(5,567		)	(2,006	)	3,352			(3,415	)
Net change in cash and cash equivalents	$	15,357		26,735		$	(3,083	)	5,320

Cash provided by operating activities ~~increased~~decreased to ~~$1.18 billion~~$732 million in the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, compared with ~~$1.07 billion~~$763 million in ~~2015,~~2016, due to ~~higher~~lower earnings ~~adjusted for non-cash items, primarily depreciation,~~ and higher working capital ~~improvements,~~needs, partially offset by ~~higher~~lower pension contributions. Cash used in financing activities was ~~$55.2~~$122 million in the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, compared with cash provided from financing activities of ~~$664.8~~$69 million in ~~2015~~2016, due to lower borrowing needs. Cash used in investing activities decreased to $~~1.11 billion~~616 million in the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, compared with $~~1.71 billion~~823 million in ~~2015~~2016, primarily due to lower payments for capital expenditures.

Our principal sources of operating liquidity are cash from operations and proceeds from the sale of revenue earning equipment. We refer to the sum of operating cash flows, proceeds from the sale of revenue earning equipment and operating property and equipment, collections on direct finance leases and other investing cash inflows from continuing operations as “total cash generated”, a non-GAAP financial measure. We refer to the net amount of cash generated from operating and investing activities (excluding changes in restricted cash and acquisitions) from continuing operations as “free cash flow”, also a non-GAAP financial measure.

The following table shows our free cash flow computation:


	Nine months ended September 30,					Six months ended June 30,
	2016			2015		2017			2016
	(In thousands)					(In thousands)
Net cash provided by operating activities from continuing operations	$	1,184,744		1,071,336		$	731,695		763,024
Sales of revenue earning equipment ⁽¹⁾	331,720			319,766		202,033			245,681
Sales of operating property and equipment ⁽¹⁾	6,623			1,203		3,960			6,322
Collections on direct finance leases and other items ⁽¹⁾	60,229			51,166		32,829			43,957
Total cash generated ⁽²⁾	1,583,316			1,443,471		970,517			1,058,984
Purchases of property and revenue earning equipment ⁽¹⁾	(1,511,359		)	(2,087,294	)	(855,252		)	(1,120,182	)
Free cash flow ⁽²⁾	$	71,957		(643,823	)	$	115,265		(61,198	)

Memo:
Net cash (used in) provided by financing activities	$	(55,236	)	664,783		$	(121,959	)	69,047
Net cash used in investing activities	$	(1,108,584	)	(1,707,378	)	$	(616,171	)	(823,336	)

———————————


(1)	Included in cash flows from investing activities.


(2)	Non-GAAP financial measures. Reconciliations of net cash provided by operating activities to total cash generated and to free cash flow are set forth in this table. Refer to the “Non-GAAP Financial Measures” section of this MD&A for the reasons why management believes these measures are important to investors.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS - (Continued)

The following table provides a summary of capital expenditures:


	Nine months ended September 30,				Six months ended June 30,
	2016		2015		2017			2016
	(In thousands)				(In thousands)
Revenue earning equipment:
Full service lease	$	1,223,141	1,509,420
ChoiceLease					$	673,332		869,081
Commercial rental	79,204		513,307		205,846			67,738
	1,302,345		2,022,727		879,178			936,819
Operating property and equipment	101,837		82,874		53,791			77,883
Total capital expenditures	1,404,182		2,105,601		932,969			1,014,702
Changes in accounts payable related to purchases of revenue earning equipment	107,177		(18,307	)	(77,717		)	105,480
Cash paid for purchases of property and revenue earning equipment	$	1,511,359	2,087,294		$	855,252		1,120,182

Capital expenditures decreased ~~33%~~8% to ~~$1.40 billion~~$933 million in the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, reflecting planned lower investments in our lease fleet, partially offset by higher planned investments to refresh our commercial rental ~~and lease~~ fleet. We expect full-year ~~2016~~2017 capital expenditures to be approximately $2 billion. We expect to fund ~~2016~~2017 capital expenditures primarily with internally generated funds and additional debt financing.

Financing and Other Funding Transactions

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

Our ability to access unsecured debt in the capital markets is impacted by both our short-term and long-term debt ratings. These ratings are intended to provide guidance to investors in determining the credit risk associated with particular Ryder securities based on current information obtained by the rating agencies from us or from other sources. Lower ratings generally result in higher borrowing costs, as well as reduced access to unsecured capital markets. A significant downgrade of our short-term debt ratings would impair our ability to issue commercial paper and likely require us to rely on alternative funding sources. A significant downgrade would not affect our ability to borrow amounts under our revolving credit facility described below, assuming ongoing compliance with the terms and conditions of the credit facility.

Our debt ratings and rating outlooks at ~~September~~June 30, ~~2016~~2017, were as follows:



	Rating Summary
	Short-Term	Long-Term	Outlook
Fitch Ratings	F-2	A-	Stable
Standard & Poor’s Ratings Services	A-2	~~BBB~~BBB+	~~Positive~~Stable
Moody’s Investors Service	P-2	Baa1	Stable

Cash and cash equivalents totaled ~~$75~~$55 million as of ~~September~~June 30, ~~2016.~~2017. As of ~~September~~June 30, ~~2016,~~2017, approximately ~~$45~~$28 million was held outside the U.S. and is available to fund operations and other growth of non-U.S. subsidiaries. If we decide to repatriate cash and cash equivalents held outside the U.S., we may be subject to additional U.S. income taxes and foreign withholding taxes. However, our intent is to permanently reinvest these foreign amounts outside the U.S. and our current plans do not demonstrate a need to repatriate these foreign amounts to fund our U.S. operations.

We believe that our operating cash flows, together with our access to the public unsecured bond market, commercial paper market and other available debt financing, will be adequate to meet our operating, investing and financing needs in the foreseeable future. However, there can be no assurance that unanticipated volatility and disruption in the public unsecured debt market or the commercial paper market would not impair our ability to access these markets on terms commercially acceptable to us or at all. If we cease to have access to public bonds, commercial paper and other sources of unsecured borrowings, we would meet our liquidity needs by drawing upon contractually committed lending agreements as described below and/or by seeking other funding sources.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS - (Continued)

As of ~~September~~June 30, ~~2016~~2017, we had the following amounts available to fund operations under the following facilities:



	(In millions)
Global revolving credit facility	$~~514~~339
Trade receivables program	$175

See Note 5,6, "Debt", in the Notes to Consolidated Condensed Financial Statements for a discussion of these debt facilities.

The following table shows the movements in our debt balance:


	Nine months ended September 30,					Six months ended June 30,
	2016			2015		2017			2016
	(In thousands)					(In thousands)
Debt balance at January 1	$	5,502,627		4,717,524		$	5,391,274		5,502,627
Cash-related changes in debt:
Net change in commercial paper borrowings	73,597			184,750		329,268			162,105
Proceeds from issuance of medium-term notes	298,254			998,551		299,511			298,254
Proceeds from issuance of other debt instruments	—			331,259		276,017			—
Retirement of medium term notes	(300,000		)	(660,000	)	(700,000		)	(300,000	)
Other debt repaid	(40,707		)	(135,837	)	(225,999		)	(28,416	)
Debt issuance costs paid	(622		)	(3,395	)	(685		)	(622	)
	30,522			715,328		(21,888		)	131,321
Non-cash changes in debt:
Fair value adjustment on notes subject to hedging	8,960			10,964		(1,010		)	15,736
Addition of capital lease obligations	948			5,956		3,392			777
Changes in foreign currency exchange rates and other non-cash items	(23,416		)	(15,565	)	13,075			(16,447	)
Total changes in debt	17,014			716,683		(6,431		)	131,387
Debt balance at September 30	$	5,519,641		5,434,207
Debt balance at June 30						$	5,384,844		5,634,014

In accordance with our funding philosophy, we attempt to ~~match~~align the aggregate average remaining re-pricing life of our debt with the aggregate average remaining re-pricing life of our assets. We utilize both fixed-rate and variable-rate debt to achieve this ~~match~~alignment and generally target a mix of 20% - 40% variable-rate debt as a percentage of total debt outstanding. The variable-rate portion of our total debt (including notional value of swap agreements) was ~~32%~~33% and 30% as of ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015~~,2016, respectively.

Refer to Note 5,6, “Debt,” in the Notes to Consolidated Condensed Financial Statements for further discussion around the global revolving credit facility, the trade receivables program, the issuance of medium-term notes under our shelf registration statement, asset-backed financing obligations and debt maturities.

Ryder’s debt to equity ratios were ~~263%~~256% and ~~277%~~263% as of ~~September~~June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, respectively. The debt to equity ratio represents total debt divided by total equity. The Company has revised its target debt to equity ratio to 250% to 300%.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS - (Continued)

Pension Information

The funded status of our pension plans is dependent upon many factors, including returns on invested assets and the level of certain market interest rates. We review pension assumptions regularly and we may, from time to time, make voluntary contributions to our pension plans, which exceed the amounts required by statute. In ~~2016~~2017, the expected total contributions to our pension plans are approximately ~~$80~~$23 million. During the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, we contributed ~~$65.3~~$7.2 million to our pension plans. Changes in interest rates and the market value of the securities held by the plans during ~~2016~~2017 could materially change, positively or negatively, the funded status of the plans and affect the level of pension expense and contributions in ~~2016~~2017 and beyond. See Note ~~11,~~12, “Employee Benefit Plans,” in the Notes to Consolidated Condensed Financial Statements for additional information.

Share Repurchases and Cash Dividends

See Note 7,8, “Share Repurchase Programs,” in the Notes to Consolidated Condensed Financial Statements for a discussion of share repurchases.

In ~~October 2016,~~May 2017, our Board of Directors declared a quarterly cash dividend of $0.44 per share of common stock. In July 2017, our Board of Directors declared a quarterly cash dividend of $0.46 per common share of common stock.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 2, “Recent Accounting Pronouncements," in the 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)~~in the United Stats of America (U.S. GAAP) to be presented in the financial statements. Certain elements of this information are considered “non-GAAP financial measures” as defined by SEC rules. Non-GAAP financial measures should be considered in addition to, but not as a substitute for or superior to, other measures of financial performance or liquidity prepared in accordance with U.S. GAAP. Also, our non-GAAP financial measures may not be comparable to financial measures used by other companies. We provide a reconciliation of each of these non-GAAP financial measures to the most comparable U.S. GAAP measure ~~in the management's discussion and analysis or~~ in this non-GAAP financial measures section. We also provide the reasons why management believes each non-GAAP financial measure is useful to investors in this section.

Specifically, we refer to the following non-GAAP financial measures in this Form 10-Q:



Non-GAAP Financial Measure	Comparable U.S. GAAP Measure	~~Reconciliation in Section Entitled~~	~~Page~~
Operating Revenue Measures:
Operating Revenue	Total Revenue	~~MD&A - Non-GAAP Financial Measures section~~	39
FMS Operating Revenue	FMS Total Revenue	~~MD&A - Non-GAAP Financial Measures section~~	40
DTS Operating Revenue	DTS Total Revenue	~~MD&A - Non-GAAP Financial Measures section~~	40
SCS Operating Revenue	SCS Total Revenue	~~MD&A - Non-GAAP Financial Measures section~~	40
FMS EBT as a % of FMS Operating Revenue	FMS EBT as a % of FMS Total Revenue	~~MD&A - Operating Results by Segment, Fleet Management Solutions section~~	40
DTS EBT as a % of DTS Operating Revenue	DTS EBT as a % of DTS Total Revenue	~~MD&A - Operating Results by Segment, Dedicated Transportation Solutions section~~	40
SCS EBT as a % of SCS Operating Revenue	SCS EBT as a % of SCS Total Revenue	~~MD&A - Operating Results by Segment, Supply Chain Solutions section~~	40
Comparable Earnings Measures:
Comparable Earnings Before Income Tax	Earnings Before Income Tax	~~MD&A, Non-GAAP Financial Measures section~~	39
Comparable Earnings	Earnings from Continuing Operations
Comparable EPS	EPS from Continuing Operations
Cash Flow Measures:
Total Cash Generated and Free Cash Flow	Cash Provided by Operating Activities	~~MD&A - Financial Resources and Liquidity, Cash Flows section~~	32

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS - (Continued)

Set forth in the table below is an explanation of each non-GAAP financial measure and why management believes that presentation of each non-GAAP financial measure provides useful information to investors:



	Operating Revenue Measures:
	Operating Revenue FMS Operating Revenue DTS Operating Revenue SCS Operating Revenue FMS EBT as a % of FMS Operating Revenue DTS EBT as a % of DTS Operating Revenue SCS EBT as a % of SCS Operating Revenue	Operating revenue is defined as total revenue for Ryder System, Inc. or each business segment (FMS, DTS and SCS), respectively, excluding any (1) fuel and (2) subcontracted transportation. We believe operating revenue provides useful information to investors as we use it to evaluate the operating performance of our core businesses and as a measure of sales activity at the consolidated level for Ryder System, Inc., as well as for each of our business segments. We also use segment EBT as a percentage of segment operating revenue for each business segment for the same reason. Note: FMS EBT, DTS EBT and SCS EBT, our primary measures of segment performance, are not non-GAAP measures. Fuel: We exclude FMS, DTS and SCS fuel from the calculation of our operating revenue measures, as fuel is an ancillary service that we provide our customers, which is impacted by fluctuations in market fuel prices, and the costs are largely a pass-through to our customers, resulting in minimal changes in our profitability during periods of steady market fuel prices. However, profitability may be positively or negatively impacted by rapid changes in market fuel prices during a short period of time, as customer pricing for fuel services is established based on trailing market fuel costs. Subcontracted transportation: We also exclude subcontracted transportation from the calculation of our operating revenue measures, as these services are also typically a pass-through to our customers and, therefore, fluctuations result in minimal changes to our profitability. While our DTS and SCS business segments subcontract certain transportation services to third party providers, our FMS business segment does not engage in subcontracted transportation and, therefore, this item is not applicable to FMS.
	Comparable Earnings Measures:
	Comparable earnings before income tax (EBT) Comparable Earnings Comparable earnings per diluted common share (EPS)	Comparable EBT, comparable earnings and comparable EPS are defined, respectively, as GAAP EBT, earnings and EPS, all from continuing operations, excluding (1) non-operating pension costs and (2) any other significant items that are not representative of our business operations. We believe these comparable earnings measures provide useful information to investors and allow for better year-over-year comparison of operating performance. Non-Operating Pension Costs: Our comparable earnings measures exclude non-operating pension costs, which include the amortization of net actuarial loss and prior service cost, interest cost and expected return on plan assets components of pension and postretirement benefit costs. We exclude non-operating pension costs because we consider these to be impacted by financial market performance and outside the operational performance of our business. Other Significant Items: Our comparable earnings measures also exclude other significant items that are not representative of our business operations. These other significant items vary from period to period and, in some periods, there may be no such significant items. In ~~this reporting period,~~the three and six months periods ended June 30, 2017, we exclude the following other significant items from our comparable earnings measures in this Form 10-Q: ___(1) ~~Pension-related adjustments~~Restructuring: ~~(in~~In the ~~year~~second quarter of 2017, we recorded restructuring credits related to ~~date 2016, third~~the gains on sale of certain UK facilities. (2) Operating tax adjustment: In the first quarter ~~2015 and year~~of 2017, we recorded a one-time charge of $2.2 million related to ~~date 2015).~~operating tax expenses that had not been recognized in prior period earnings. (3) Pension-related adjustments: In the second quarter of 2016, it was determined that certain pension benefit improvements made in 2009 were not fully reflected in our projected benefit obligation, resulting in a charge to reflect those pension benefits. ~~Additionally, in the third quarter of 2015, we recognized a benefit from lower than anticipated settlement charges to exit multi-employer pension plans.~~ ~~(2)~~ ~~Professional fees~~ ~~(in the third quarter and year to date 2015). These charges represent professional fees associated with the assessment of potential cost savings initiatives.~~ ~~___(3)~~ ~~A benefit from a tax law change~~ (in the year to date 2015). In the second quarter of 2015, the states of Connecticut and Texas and the city of New York enacted changes to their tax systems, which decreased Ryder's provision for income taxes in each jurisdiction. Calculation of comparable tax rate: The comparable provision for income taxes is computed using the same methodology as the GAAP provision for income taxes. Income tax effects of non-GAAP adjustments are calculated based on the statutory tax rates of the jurisdictions to which the non-GAAP adjustments relate.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS - (Continued)



Cash Flow Measures:
Total Cash Generated Free Cash Flow	We consider total cash generated and free cash flow to be important measures of comparative operating performance, as our principal sources of operating liquidity are cash from operations and proceeds from the sale of revenue earning equipment. Total Cash Generated: Total cash generated is defined as the sum of (1) net cash provided by operating activities, (2) net cash provided by the sale of revenue earning equipment, ~~and~~ (3) net cash provided by the sale of operating property and equipment, (4) collections on direct finance leases and (5) other cash inflows from investing activities. We believe total cash generated is an important measure of total cash flows generated from our ongoing business activities. Free Cash Flow: We refer to the net amount of cash generated from operating activities and investing activities (excluding changes in restricted cash and acquisitions) from continuing operations as “free cash flow”. We calculate free cash flow as the sum of (1) net cash provided by operating activities, (2) net cash provided by the sale of revenue earning equipment, ~~and~~ (3) net cash provided by the sale of operating property and equipment, (4) collections on direct finance leases and (5) other cash inflows from investing activities, less (6) purchases of property and revenue earning equipment. 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.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS - (Continued)

The following table provides a reconciliation of U.S. GAAP earnings before taxes (EBT), earnings, and earnings per diluted share (EPS) from continuing operations to comparable EBT, comparable earnings and comparable EPS from continuing operations, which was not provided within the MD&A discussion.

EBT, earnings and diluted EPS from continuing operations in the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 and ~~2015,~~2016, included certain items we do not consider indicative of our business operations and have been excluded from our comparable EBT, comparable earnings and comparable diluted EPS measures. The following table lists a summary of these items, which are discussed in more detail throughout our MD&A and within the Notes to Consolidated Condensed Financial Statements:


	EBT				Earnings				Diluted EPS				EBT				Earnings				Diluted EPS
	2016		2015		2016		2015		2016		2015		2017			2016	2017			2016	2017			2016
Three months ended September 30,	(In thousands, except per share amounts)
Three months ended June 30,													(In thousands, except per share amounts)
EBT/Earnings/EPS	$	131,698	139,900		$	85,138	90,811		$	1.59	1.70		$	80,692		116,779	$	51,343		74,042	$	0.97		1.38
Non-operating pension costs	7,206		4,780		4,216		2,727		0.08		0.05		6,587			7,770	3,838			4,448	0.07			0.09
Restructuring													(2,574		)	—	(2,084		)	—	(0.04		)	—
Pension-related adjustments	—		(509	)	—		(309	)	—		(0.01	)	—			7,650	—			4,817	—			0.09
Professional fees	—		63		—		39		—		—
Comparable EBT/ Earnings/ EPS	$	138,904	144,234		$	89,354	93,268		$	1.67	1.74		$	84,705		132,199	$	53,097		83,307	$	1.00		1.56

Nine months ended September 30,
Six months ended June 30,
EBT/Earnings/EPS	$	337,185	357,524		$	215,365	230,054		$	4.02	4.31		$	140,648		205,487	$	89,622		130,227	$	1.68		2.43
Non-operating pension costs	21,691		14,351		12,653		8,190		0.24		0.15		13,917			14,580	8,047			8,437	0.15			0.16
Operating tax adjustment													2,205			—	1,677			—	0.03			—
Restructuring													(2,574		)	—	(2,084		)	—	(0.04		)	—
Pension-related adjustments	7,650		(509	)	4,817		(309	)	0.09		(0.01	)	—			7,650	—			4,817	—			0.09
Professional fees	—		3,843		—		2,424		—		0.04
Tax law change	—		—		—		(1,860	)	—		(0.03	)
Comparable EBT/ Earnings/ EPS	$	366,526	375,209		$	232,835	238,499		$	4.35	4.47		$	154,196		227,717	$	97,262		143,481	$	1.82		2.68

The following table provides a reconciliation of the provision for income taxes to the comparable provision for income taxes:


	Three months ended September 30,					Nine months ended September 30,					Three months ended June 30,					Six months ended June 30,
	2016			2015		2016			2015		2017			2016		2017			2016
	(Dollars in thousands)										(Dollars in thousands)
Provision for income taxes ⁽¹⁾	$	(46,560	)	(49,089	)	$	(121,820	)	(127,470	)	$	(29,349	)	(42,737	)	$	(51,026	)	(75,260	)
Income tax effects of non-GAAP adjustments ⁽¹⁾	(2,990		)	(1,877	)	(11,871		)	(7,380	)	(2,259		)	(6,155	)	(5,908		)	(8,976	)
Tax law change ⁽¹⁾	—			—		—			(1,860	)
Comparable provision for income taxes ⁽¹⁾	$	(49,550	)	(50,966	)	$	(133,691	)	(136,710	)	$	(31,608	)	(48,892	)	$	(56,934	)	(84,236	)

———————————


(1)	The comparable provision for income taxes is computed using the same methodology as the GAAP provision of income taxes. Income tax effects of non-GAAP adjustments are calculated based on statutory tax rates of the jurisdictions to which the non-GAAP adjustments related.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS - (Continued)

The following table provides a numerical reconciliation of net cash provided by operating activities to total cash generated and free cash flow for the six months ended June 30, 2017:



	Six months ended June 30,
	2017			2016
	(In thousands)
Net cash provided by operating activities from continuing operations	$	731,695		763,024
Sales of revenue earning equipment ⁽¹⁾	202,033			245,681
Sales of operating property and equipment ⁽¹⁾	3,960			6,322
Collections on direct finance leases and other items ⁽¹⁾	32,829			43,957
Total cash generated ⁽²⁾	970,517			1,058,984
Purchases of property and revenue earning equipment ⁽¹⁾	(855,252		)	(1,120,182	)
Free cash flow ⁽²⁾	$	115,265		(61,198	)

Memo:
Net cash (used in) provided by financing activities	$	(121,959	)	69,047
Net cash used in investing activities	$	(616,171	)	(823,336	)

————————————


(1)	Included in cash flows from investing activities.

The following table provides a reconciliation of total revenue to operating revenue, which was not provided within the MD&A discussion:

Three months ended September 30, Nine months ended September 30,
2016 2015 2016 2015
(In thousands)
Total revenue $ 1,724,418
1,669,066
$ 5,057,834
4,899,150
Fuel (162,293 ) (174,984 ) (464,176 ) (565,007 )
Subcontracted transportation (93,832 ) (67,617 ) (269,639 ) (214,774 )
Operating revenue $ 1,468,293
1,426,465
$ 4,324,019
4,119,369

~~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,
	2017			2016		2017			2016
	(In thousands)
Total revenue	$	1,793,214		1,703,744		$	3,541,377		3,333,416
Fuel	(169,618		)	(161,432	)	(344,873		)	(301,883	)
Subcontracted transportation	(140,407		)	(92,599	)	(268,189		)	(175,807	)
Operating revenue	$	1,483,189		1,449,713		$	2,928,315		2,855,726

The following table provides a reconciliation of FMS total revenue to FMS operating revenue, which was not provided within the MD&A discussion:


	Three months ended September 30,					Nine months ended September 30,					Three months ended June 30,					Six months ended June 30,
	2016			2015		2016			2015		2017			2016		2017			2016
	(In thousands)										(In thousands)
FMS total revenue	$	1,155,011		1,157,578		$	3,404,452		3,394,077		$	1,163,579		1,151,513		$	2,296,049		2,249,441
Fuel ⁽¹⁾	(157,108		)	(169,154	)	(448,986		)	(547,416	)	(165,014		)	(156,275	)	(335,268		)	(291,879	)
FMS operating revenue	$	997,903		988,424		$	2,955,466		2,846,661		$	998,565		995,238		$	1,960,781		1,957,562

FMS EBT	$	112,282		126,433		$	306,387		338,603		$	68,090		111,155		$	120,280		194,047
FMS EBT as a % of FMS total revenue	9.7		%	10.9	%	9.0		%	10.0	%	5.9		%	9.7	%	5.2		%	8.6	%
FMS EBT as a % of FMS operating revenue	11.3		%	12.8	%	10.4		%	11.9	%	6.8		%	11.2	%	6.1		%	9.9	%

————————————


(1)	Includes intercompany fuel sales from FMS to DTS and SCS.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS - (Continued)

The following table provides a reconciliation of DTS total revenue to DTS operating revenue, which was not provided within the MD&A discussion:


	Three months ended September 30,					Nine months ended September 30,					Three months ended June 30,					Six months ended June 30,
	2016			2015		2016			2015		2017			2016		2017			2016
	(In thousands)										(In thousands)
DTS total revenue	$	260,921		226,921		$	764,025		663,094		$	272,612		258,262		$	539,286		503,104
Subcontracted transportation	(37,743		)	(13,657	)	(106,896		)	(42,817	)	(45,300		)	(37,924	)	(90,603		)	(69,153	)
Fuel ⁽¹⁾	(26,530		)	(29,017	)	(75,916		)	(93,395	)	(27,540		)	(26,046	)	(55,555		)	(49,386	)
DTS operating revenue	$	196,648		184,247		$	581,213		526,882		$	199,772		194,292		$	393,128		384,565

DTS EBT	$	17,587		13,296		$	48,327		34,701		$	14,849		16,460		$	26,122		30,716
DTS EBT as a % of DTS total revenue	6.7		%	5.9	%	6.3		%	5.2	%	5.4		%	6.4	%	4.8		%	6.1	%
DTS EBT as a % of DTS operating revenue	8.9		%	7.2	%	8.3		%	6.6	%	7.4		%	8.5	%	6.6		%	8.0	%

————————————


(1)	Includes intercompany fuel sales from FMS to DTS.

The following table provides a reconciliation of SCS total revenue to SCS operating revenue, which was not provided within the MD&A discussion:


	Three months ended September 30,					Nine months ended September 30,					Three months ended June 30,					Six months ended June 30,
	2016			2015		2016			2015		2017			2016		2017			2016
	(In thousands)										(In thousands)
SCS total revenue	$	416,898		387,305		$	1,207,665		1,155,300		$	470,724		402,052		$	933,473		790,767
Subcontracted transportation	(56,089		)	(53,960	)	(162,743		)	(171,957	)	(95,107		)	(54,675	)	(177,586		)	(106,654	)
Fuel ⁽¹⁾	(15,356		)	(14,586	)	(45,495		)	(49,090	)	(16,903		)	(15,819	)	(35,417		)	(30,139	)
SCS operating revenue	$	345,453		318,759		$	999,427		934,253		$	358,714		331,558		$	720,470		653,974

SCS EBT	$	30,954		26,573		$	79,121		69,961		$	25,858		28,362		$	53,307		48,149
SCS EBT as a % of SCS total revenue	7.4		%	6.9	%	6.6		%	6.1	%	5.5		%	7.1	%	5.7		%	6.1	%
SCS EBT as a % of SCS operating revenue	9.0		%	8.3	%	7.9		%	7.5	%	7.2		%	8.6	%	7.4		%	7.4	%

————————————


(1)	Includes intercompany fuel sales from FMS to SCS.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS - (Continued)

FORWARD-LOOKING STATEMENTS

Forward-looking statements (within the meaning of the Federal Private Securities Litigation Reform Act of 1995) are statements that relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends concerning matters that are not historical facts. These statements are often preceded by or include the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “will,” “may,” “could,” “should” or similar expressions. This Quarterly Report on Form 10-Q contains forward-looking statements including, but not limited to, statements regarding:

our expectations in our FMS business segment regarding anticipated ~~full service lease~~ChoiceLease and commercial rental revenue and demand;

our expectations in our DTS and SCS business segments regarding anticipated operating revenue trends and growth rates;

our expectations of the long-term residual values of revenue earning equipment;

the anticipated decline in NLE vehicles in inventory through the end of the year;

our expectations of operating cash flow and capital expenditures through the end of ~~2016;~~2017;

the adequacy of our accounting estimates and reserves for pension expense, compensation expense and employee benefit plan obligations, depreciation and residual value guarantees and income taxes;

the ~~anticipated timing~~adequacy of ~~payment of restructuring liabilities;~~

~~the adequacy of~~estimates we make in preparing financial statements including our fair value estimates of employee incentive awards under our share-based compensation plans, publicly traded debt and other debt;

our beliefs regarding the default risk of our direct financing lease receivables;

our ability to fund all of our operating, investing and financial needs for the foreseeable future through internally generated funds and outside funding sources;

the anticipated impact of fuel price fluctuations;

our expectations as to return on pension plan assets, future pension expense and estimated contributions;

our expectations regarding the scope, anticipated outcomes and the adequacy of our loss provisions with respect to certain claims, proceedings and lawsuits;

our expectations about the need to repatriate foreign cash to the U.S.;

our ability to access commercial paper and other available debt financing in the capital markets;

our expectations regarding the future use and availability of funding sources; and

the anticipated impact of recent accounting pronouncements.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS - (Continued)

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.~~statement. These risk factors include, but are not limited to, the following:

Market Conditions:



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



	Ÿ		Decreases in freight demand which would impact both our transactional and variable-based contractual business



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



	Ÿ		Further decreases in market demand affecting the commercial rental market and used vehicle sales as well as global economic conditions



	Ÿ		Volatility in customer volumes and shifting customer demand in the industries serviced by our SCS business



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

Competition:



	Ÿ		Advances in technology may require increased investments to remain competitive, and our customers may not be willing to accept higher prices to cover the cost of these investments



	Ÿ		Competition from other service providers, some of which have greater capital resources or lower capital costs, or from our customers, who may choose to provide services themselves



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



	Ÿ		Our inability to maintain current pricing levels due to economic conditions, demand for services, customer acceptance or competition

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS - (Continued)

Profitability:



	Ÿ		Our inability to obtain adequate profit margins for our services



	Ÿ		Lower than expected sales volumes or customer retention levels



	Ÿ		~~Lower full service lease sales activity~~



	Ÿ		Decreases in commercial rental fleet utilization and pricing



	Ÿ		Lower than expected demand for, and values of used ~~vehicle sales pricing levels and fluctuations in the anticipated proportion of retail versus wholesale sales~~vehicles



	Ÿ		Loss of key customers in our DTS and SCS business segments



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



	Ÿ		The inability of our legacy information technology systems to provide timely access to data



	Ÿ		Sudden changes in fuel prices and fuel shortages



	Ÿ		Higher prices for vehicles, diesel engines and fuel as a result of new environmental standards



	Ÿ		Higher than expected maintenance costs and lower than expected benefits associated with our maintenance initiatives



	Ÿ		Our inability to successfully execute our asset management initiatives, maintain our fleet at normalized levels and right-size our fleet in line with demand



	Ÿ		Our inability to redeploy vehicles and prepare vehicles for sale in a cost-efficient manner



	Ÿ		Our key assumptions and pricing structure of our DTS and SCS contracts prove to be ~~invalid~~inaccurate



	Ÿ		Increased unionizing, labor strikes and work stoppages



	Ÿ		Difficulties in attracting and retaining drivers and technicians due to driver and technician shortages, which may result in higher costs to procure drivers and technicians and higher turnover rates affecting our customers



	Ÿ		Our inability to manage our cost structure



	Ÿ		Our inability to limit our exposure for customer claims



	Ÿ		Unfavorable or unanticipated outcomes in legal proceedings or uncertain positions



	Ÿ		Business interruptions or expenditures due to severe weather or natural occurrences



	Ÿ		Inability to react to and quickly adapt to changing market conditions

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS - (Continued)

Financing Concerns:



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



	Ÿ		Unanticipated interest rate and currency exchange rate fluctuations



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



	Ÿ		Withdrawal liability as a result of our participation in multi-employer plans



	Ÿ		Instability in U.S. and worldwide credit markets, resulting in higher borrowing costs and/or reduced access to credit

Accounting Matters:



	Ÿ		Impact of unusual items resulting from ongoing evaluations of business strategies, asset valuations, acquisitions, divestitures and our organizational structure



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



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



	Ÿ		Increases in health care costs resulting in higher insurance costs



	Ÿ		Changes in accounting rules, assumptions and accruals



	Ÿ		Impact of actual insurance claim and settlement activity compared to historical loss development factors used to project future development



	Ÿ		Lower than expected operating performance in our FMS Europe reporting unit could affect key assumptions used in our annual goodwill impairment test and result in impairment

Other risks detailed from time to time in our SEC filings including our 2016 Annual Report on Form 10-K.

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, ~~2015.~~2016. Please refer to the ~~2015~~2016 Annual Report on Form 10-K for a complete discussion of Ryder’s exposures to market risks.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the ~~third~~second quarter of ~~2016,~~2017, we carried out an evaluation, under the supervision and with the participation of management, including Ryder’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of Ryder’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of the end of the ~~third~~second quarter of ~~2016,~~2017, 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 ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, there were no changes in Ryder’s internal control over financial reporting that have materially affected or are reasonably likely to materially affect such internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides information with respect to purchases we made of our common stock during the three months ended ~~September~~June 30, ~~2016~~2017:

Total Number
of Shares
Purchased⁽¹⁾

Average Price
Paid per Share

Total Number of
Shares
Purchased as
Part of Publicly
Announced
Programs

Maximum
Number of
Shares That May
Yet Be
Purchased
Under the
Anti-Dilutive
Program ⁽²⁾
July 1 through July 30, 2016 —
$ —
—
1,678,282
August 1 through August 31, 2016 58,178
64.59
58,178
1,620,104
September 1 through September 30, 2016 2,083
67.23
—
1,620,104
Total 60,261
$ 64.68
58,178



	Total Number of Shares Purchased⁽¹⁾	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs	Maximum Number of Shares That May Yet Be Purchased Under the Anti-Dilutive Program ⁽²⁾
April 1 through April 30, 2017	51	$	74.45	—	1,242,938
May 1 through May 31, 2017	621,254	68.17		606,810	636,128
June 1 through June 30, 2017	170	67.38		—	636,128
Total	621,475	$	68.17	606,810

————————————

(1)

During the three months ended ~~September~~June 30, ~~2016,~~2017, we purchased an aggregate of ~~60,261~~14,665 shares of our common stock in employee-related transactions. Employee-related transactions may include: (i) shares of common stock withheld as payment for the exercise price of options exercised or to satisfy the employees' tax withholding liability associated with our share-based compensation programs and (ii) open-market purchases by the trustee of Ryder’s deferred compensation plans relating to investments by employees in our stock, one of the investment options available under the plans.

(2)

In December 2015, our Board of Directors authorized a new share repurchase program intended to mitigate the dilutive impact of shares issued under our employee stock plans. Under the December 2015 program, management is authorized to repurchase (i) up to 1.5 million shares of common stock, the sum of which will not exceed the number of shares issued to employees under ~~the Company’s~~Ryder's employee stock plans from December 1, 2015 to December 9, 2017 plus (ii) 0.5 million shares issued to employees that were not purchased under ~~the Company’s~~Ryder's previous share repurchase program. The December 2015 program limits aggregate share repurchases to no more than 2 million shares of Ryder common stock. Share repurchases of common stock are made periodically in open-market transactions and are subject to market conditions, legal requirements and other factors. Management may establish prearranged written plans for ~~the Company~~Ryder under Rule 10b5-1 of the Securities Exchange Act of 1934 as part of the December 2015 program, which allow for share repurchases during Ryder’s quarterly blackout periods as set forth in the trading plan.

ITEM 6. EXHIBITS



~~3.2~~	Exhibit Number		By-Laws of Ryder System, Inc., as amended through February 22, 2016*
		Description
12.1		Calculation of Ratio of Earnings to Fixed Charges

31.1		Certification of Robert E. Sanchez pursuant to Rule 13a-14(a) or Rule 15d-14(a)

31.2		Certification of Art A. Garcia pursuant to Rule 13a-14(a) or Rule 15d-14(a)

32		Certification of Robert E. Sanchez and Art A. Garcia pursuant to Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. Section 1350

* By-Laws are filed with this Form 10-Q to correct a typographical error in the previously filed By-Laws.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	RYDER SYSTEM, INC.
	(Registrant)

Date: ~~October 25, 2016~~July 26, 2017	By:	/s/ Art A. Garcia
		Art A. Garcia
		Executive Vice President and Chief Financial Officer
		(Principal Financial & Accounting Officer)

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