Ryder System (R) 10-Q 2008 Q3 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934
	FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2008
	OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934
	FOR THE TRANSITION PERIOD FROM                    TO

Commission File Number: 1-4364

RYDER SYSTEM, INC.

(Exact name of registrant as specified in its charter)

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

11690 N.W. 105th Street
Miami, Florida 33178	(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. YESþ     NOo

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

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

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

The number of shares of Ryder System, Inc. Common Stock ($0.50 par value per share) outstanding at September 30, 2008 was 55,615,738.

RYDER SYSTEM, INC.
FORM 10-Q QUARTERLY REPORT

TABLE OF CONTENTS

		Page No.
PART I	FINANCIAL INFORMATION
ITEM 1	Financial Statements
	Consolidated Condensed Statements of Earnings —
	Three and nine months ended September 30, 2008 and 2007 (unaudited)		1
	Consolidated Condensed Balance Sheets —
	September 30, 2008 (unaudited) and December 31, 2007		2
	Consolidated Condensed Statements of Cash Flows —
	Nine months ended September 30, 2008 and 2007 (unaudited)		3
	Consolidated Condensed Statement of Shareholders’ Equity —
	Nine months ended September 30, 2008 (unaudited)		4
	Notes to Consolidated Condensed Financial Statements (unaudited)		5
ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		21
ITEM 3	Quantitative and Qualitative Disclosures About Market Risk		41
ITEM 4	Controls and Procedures		41
PART II	OTHER INFORMATION
ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds		41
ITEM 6	Exhibits		42
	SIGNATURES		43
EX-31.1 Section 302 CEO Certification
EX-31.2 Section 302 CFO Certification
EX-32 Section 906 CEO & CFO Certification

i

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,
	2008			2007			2008			2007
	(In thousands, except per share amounts)
Revenue	$	1,626,121			1,647,724		$	4,829,945			4,899,795
Operating expense (exclusive of items shown separately)		804,376			694,702			2,411,251			2,063,261
Salaries and employee-related costs		355,230			348,405			1,067,643			1,047,271
Subcontracted transportation		89,417			233,638			258,447			737,853
Depreciation expense		214,594			207,814			629,803			606,268
Gains on vehicle sales, net		(10,400	)		(8,111	)		(32,990	)		(36,677	)
Equipment rental		19,326			25,088			61,147			67,929
Interest expense		40,639			40,199			115,655			120,410
Miscellaneous expense (income), net		957			(10,407	)		2,278			(13,781	)
Restructuring and other charges (recoveries), net		—			11,903			(33	)		13,594
		1,514,139			1,543,231			4,513,201			4,606,128
Earnings before income taxes		111,982			104,493			316,744			293,667
Provision for income taxes		41,774			38,960			127,509			111,752
Net earnings	$	70,208			65,533		$	189,235			181,915
Earnings per common share:
Basic	$	1.26			1.12		$	3.35			3.04
Diluted	$	1.25			1.11		$	3.31			3.01
Cash dividends per common share	$	0.23			0.21		$	0.69			0.63

See accompanying notes to consolidated condensed financial statements.

1

RYDER SYSTEM, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

	(unaudited)
	September 30,			December 31,
	2008			2007
	(Dollars in thousands, except per
	share amount)
Assets:
Current assets:
Cash and cash equivalents	$	110,404			116,459
Receivables, net		770,854			843,662
Inventories		57,658			58,810
Prepaid expenses and other current assets		151,106			203,131
Total current assets		1,090,022			1,222,062
Revenue earning equipment, net of accumulated depreciation of $2,747,748 and $2,724,565, respectively		4,642,311			4,501,397
Operating property and equipment, net of accumulated depreciation of $844,784 and $811,579, respectively		560,681			518,728
Goodwill		222,878			166,570
Intangible assets		27,970			19,231
Direct financing leases and other assets		412,456			426,661
Total assets	$	6,956,318			6,854,649
Liabilities and shareholders’ equity:
Current liabilities:
Short-term debt and current portion of long-term debt	$	285,854			222,698
Accounts payable		352,083			383,808
Accrued expenses and other current liabilities		430,931			412,855
Total current liabilities		1,068,868			1,019,361
Long-term debt		2,635,728			2,553,431
Other non-current liabilities		408,261			409,907
Deferred income taxes		1,070,640			984,361
Total liabilities		5,183,497			4,967,060
Shareholders’ equity:
Preferred stock of no par value per share — authorized, 3,800,917; none		—			—
outstanding, September 30, 2008 or December 31, 2007
Common stock of $0.50 par value per share — authorized, 400,000,000;		27,574			28,883
outstanding, September 30, 2008 — 55,615,738; December 31, 2007 — 58,041,563
Additional paid-in capital		751,183			729,451
Retained earnings		1,107,522			1,160,132
Accumulated other comprehensive loss		(113,458	)		(30,877	)
Total shareholders’ equity		1,772,821			1,887,589
Total liabilities and shareholders’ equity	$	6,956,318			6,854,649

See accompanying notes to consolidated condensed financial statements.

2

RYDER SYSTEM, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(unaudited)

	Nine months ended September 30,
	2008			2007
	(In thousands)
Cash flows from operating activities:
Net earnings	$	189,235			181,915
Depreciation expense		629,803			606,268
Gains on vehicle sales, net		(32,990	)		(36,677	)
Share-based compensation expense		12,832			13,419
Amortization expense and other non-cash charges, net		8,961			8,645
Deferred income tax expense		99,423			53,554
Tax benefits from share-based compensation		1,162			1,450
Changes in operating assets and liabilities, net of acquisitions:
Receivables		59,584			(2,788	)
Inventories		1,577			1,824
Prepaid expenses and other assets		(24,514	)		6,214
Accounts payable		(82,073	)		24,958
Accrued expenses and other non-current liabilities		19,044			(21,456	)
Net cash provided by operating activities		882,044			837,326
Cash flows from financing activities:
Net change in commercial paper borrowings		(369,879	)		(313,833	)
Debt proceeds		666,240			697,234
Debt repaid, including capital lease obligations		(139,492	)		(429,728	)
Dividends on common stock		(39,439	)		(37,967	)
Common stock issued		53,794			40,798
Common stock repurchased		(256,132	)		(209,018	)
Excess tax benefits from share-based compensation		6,361			3,290
Net cash used in financing activities		(78,547	)		(249,224	)
Cash flows from investing activities:
Purchases of property and revenue earning equipment		(891,159	)		(1,093,545	)
Sales of revenue earning equipment		208,846			280,671
Sales of operating property and equipment		3,393			15,898
Sale and leaseback of revenue earning equipment		—			150,348
Acquisitions		(232,167	)		—
Collections on direct finance leases		46,824			46,992
Changes in restricted cash		58,039			(17,767	)
Other, net		395			1,040
Net cash used in investing activities		(805,829	)		(616,363	)
Effect of exchange rate changes on cash		(3,723	)		5,853
Decrease in cash and cash equivalents		(6,055	)		(22,408	)
Cash and cash equivalents at January 1		116,459			128,639
Cash and cash equivalents at September 30	$	110,404			106,231
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	92,874			94,559
Income taxes, net of refunds		21,916			46,731
Non-cash investing activities:
Changes in accounts payable related to purchases of revenue earning equipment		57,888			(111,465	)
Revenue earning equipment acquired under capital leases		960			11,340

See accompanying notes to consolidated condensed financial statements.

3

RYDER SYSTEM, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENT OF SHAREHOLDERS’ EQUITY

(unaudited)

															Accumulated
	Preferred								Additional						Other
	Stock		Common Stock						Paid-In			Retained			Comprehensive
	Amount		Shares			Par			Capital			Earnings			Loss			Total
	(Dollars in thousands, except per share amount)
Balance at December 31, 2007	$	—		58,041,563		$	28,883			729,451			1,160,132			(30,877	)		1,887,589
Components of comprehensive income:
Net earnings		—		—			—			—			189,235			—			189,235
Foreign currency translation adjustments		—		—			—			—			—			(67,317	)		(67,317	)
Net unrealized gain related to derivatives accounted for as hedges		—		—			—			—			—			67			67
Amortization of pension and postretirement items, net of tax		—		—			—			—			—			1,924			1,924
Pension curtailment, net of tax(1)		—		—			—			—			—			(1,342	)		(1,342	)
Change in net actuarial loss, net of tax(1)		—		—			—			—			—			(15,913	)		(15,913	)
Total comprehensive income																			106,654
Common stock dividends declared – $0.69 per share		—		—			—			—			(39,439	)		—			(39,439	)
Common stock issued under employee stock option and stock purchase plans(2)		—		1,538,842			673			52,466			—			—			53,139
Benefit plan stock sales(3)		—		13,769			7			648			—			—			655
Common stock repurchases		—		(3,978,436	)		(1,989	)		(51,737	)		(202,406	)		—			(256,132	)
Share-based compensation		—		—			—			12,832			—			—			12,832
Tax benefits from share-based compensation		—		—			—			7,523			—			—			7,523
Balance at September 30, 2008	$	—		55,615,738		$	27,574			751,183			1,107,522			(113,458	)		1,772,821

(1)	See Note (O), “Employee Benefit Plans,” for additional information.
(2)	Net of common shares delivered as payment for the exercise price or to satisfy the option holders’ withholding tax liability upon exercise of options.
(3)	Represents open-market transactions of common shares by the trustee of Ryder’s deferred compensation plans.

See accompanying notes to consolidated condensed financial statements.

4

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)

(A) INTERIM FINANCIAL STATEMENTS

       The accompanying unaudited Consolidated Condensed Financial Statements include the accounts of Ryder System, Inc. (Ryder) and all entities in which Ryder System, Inc. has a controlling voting interest (“subsidiaries”), and variable interest entities (VIEs) required to be consolidated in accordance with U.S. generally accepted accounting principles (GAAP). The accompanying unaudited Consolidated Condensed Financial Statements have been prepared in accordance with the accounting policies described in our 2007 Annual Report on Form 10-K except for the accounting change described below relating to fair value measurements, and should be read in conjunction with the Consolidated Financial Statements and notes thereto. These financial statements do not include all of the information and footnotes required by GAAP in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included and the disclosures herein are adequate. The operating results for interim periods are unaudited and are not necessarily indicative of the results that can be expected for a full year. Certain prior year amounts have been reclassified to conform to the current period presentation.

       Earnings for 2008 were negatively impacted by a second quarter pre-tax charge of $6.5 million ($6.8 million after tax) for prior years’ adjustments associated with our Brazilian Supply Chain Solutions (SCS) operation. The charge was identified in the course of a detailed business and financial review in Brazil, which occurred following certain adverse tax and legal developments. We determined that accruals of $3.7 million, primarily for carrier transportation and loss contingencies related to tax and legal matters, were not established in the appropriate period; and deferrals of $3.1 million, primarily for indirect value-added taxes, were overstated. The charges related primarily to the period from 2004 to 2007. We recorded $4.9 million within “Operating expense,” $1.6 million within “Subcontracted transportation” and $0.3 million within “Provision for income taxes” in the Consolidated Condensed Statements of Earnings. After considering the qualitative and quantitative effects of the charges, we determined the charges were not material to our Consolidated Financial Statements in any individual prior period, and the cumulative amount is not material to 2008 results. Therefore, we recorded the adjustment for the cumulative amount in the second quarter of 2008. We are continuing our broader review of our Brazilian business operations and practices, including those related to legal and tax matters. We believe that the ultimate resolution of this review will not result in a material adjustment to our Consolidated Condensed Financial Statements. We have also taken a number of appropriate steps in Brazil, including changes to management personnel and processes.

(B) ACCOUNTING CHANGES

       In February 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” This statement permits companies to choose to measure many financial instruments and certain other items at fair value in order to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. Effective January 1, 2008, we adopted SFAS No. 159; however, we did not elect to measure any financial instruments and other items at fair value under the provisions of this standard. Consequently, SFAS No. 159 had no impact on our Consolidated Condensed Financial Statements.

       In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This statement defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The provisions of SFAS No. 157 are to be applied prospectively, except for certain financial instruments, which should be recognized as a cumulative effect adjustment to the opening balance of retained earnings for the fiscal year in which this statement is initially applied. The provisions of SFAS No. 157, as amended by FASB Staff Position (FSP) FAS 157-1, exclude the provisions of SFAS No. 13, “Accounting for Leases,” and other accounting pronouncements that address fair value measurements for purposes of lease classification or measurement under SFAS No. 13. We adopted SFAS No. 157 on January 1, 2008 for all financial assets and liabilities and for all nonfinancial assets and liabilities recognized or disclosed at fair value in our Consolidated Condensed Financial Statements on a recurring basis (at least annually). The adoption of SFAS No. 157 on January 1, 2008 did not have a material impact on our Consolidated Condensed Financial Statements. For all other nonfinancial assets and liabilities, SFAS No. 157 is effective for us on January 1, 2009. We are in the process of evaluating the impact of SFAS No. 157 on the valuation of all other nonfinancial assets and liabilities, including our vehicles held for sale; however, we do not expect there to be a material impact upon adoption on January 1, 2009 on our Consolidated Condensed Financial Statements.

5

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

(C) ACQUISITIONS

       Gordon Truck Leasing Acquisition— On August 29, 2008, we completed an asset purchase agreement with Gordon Truck Leasing (“Gordon”), under which we acquired Gordon’s fleet of approximately 500 vehicles and nearly 130 contractual customers for a purchase price of $23.7 million, of which $22.8 million was paid as of September 30, 2008. The combined network operates under the Ryder name, complementing our Fleet Management Solutions (FMS) market coverage and service network in Pennsylvania. The asset purchase was accounted for as a business combination. As of September 30, 2008, goodwill and intangible assets related to the Gordon acquisition were $4.2 million and $0.9 million, respectively. The purchase price and initial recording of the transaction was based on preliminary valuation assessments and is subject to change.

       Gator Leasing Acquisition— On May 12, 2008, we completed an asset purchase agreement with Gator Leasing, Inc. (“Gator”), under which we acquired Gator’s fleet of approximately 2,300 vehicles and nearly 300 contractual customers for a purchase price of $117.1 million, of which $111.4 million was paid as of September 30, 2008. The combined network operates under the Ryder name, complementing our FMS market coverage and service network in Florida. The asset purchase was accounted for as a business combination. As of September 30, 2008, goodwill and intangible assets related to the Gator acquisition were $20.9 million and $3.8 million, respectively. The purchase price and initial recording of the transaction was based on preliminary valuation assessments and is subject to change. During 2008, we made purchase price adjustments primarily related to vehicle valuations, which increased goodwill by $2.0 million.

       Lily Acquisition— On January 11, 2008, we completed an asset purchase agreement with Lily Transportation Corporation (“Lily”), under which we acquired Lily’s fleet of approximately 1,600 vehicles and over 200 contractual customers for a purchase price of $98.4 million, of which $96.6 million was paid as of September 30, 2008. The combined network operates under the Ryder name, complementing our FMS market coverage and service network in the Northeast United States. The asset purchase was accounted for as a business combination. As of September 30, 2008, goodwill and intangible assets related to the Lily acquisition were $31.5 million and $7.8 million, respectively. The purchase price and initial recording of the transaction was based on preliminary valuation assessments and is subject to change. During 2008, we made purchase price adjustments primarily related to liabilities assumed as part of the acquisition, which increased goodwill by $2.5 million.

       Pollock Acquisition— On October 5, 2007, we completed an asset purchase agreement with Pollock NationaLease (“Pollock”), under which we acquired Pollock’s fleet of approximately 2,000 vehicles and nearly 200 contractual customers for a purchase price of $77.5 million, of which $76.4 million was paid as of September 30, 2008. The combined network operates under the Ryder name, complementing our FMS and SCS market coverage and service network in Canada. The asset purchase was accounted for as a business combination. During 2008, we made purchase price adjustments primarily related to intangible valuation, which increased goodwill in our FMS segment by $3.5 million.

       Pro forma information for these acquisitions is not disclosed because the effects of the acquisitions are not significant.

       On September 30, 2008, we entered into an agreement to acquire all of the assets of Transpacific Container Terminal Ltd. and CRSA Logistics Ltd. located in Port Coquitlam, British Columbia, as well as their operations in Hong Kong and Shanghai, China. The companies specialize in trans-Pacific, end-to-end transportation management and supply chain services primarily for Canadian retailers. This acquisition will add complementary solutions to our capabilities including consolidation services in key Asian hub and off-dock deconsolidation operations in Canada. The acquisition is subject to closing conditions. The asset purchase will be accounted for in accordance with SFAS 141, “Business Combinations,” as an acquisition of a business.

(D) SHARE-BASED COMPENSATION PLANS

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

6

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

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

	Three months ended September 30,						Nine months ended September 30,
	2008			2007			2008			2007
	(In thousands)
Stock option and stock purchase plans	$	2,802			2,515		$	7,847			7,490
Nonvested stock		1,781			1,393			4,985			5,929
Share-based compensation expense		4,583			3,908			12,832			13,419
Income tax benefit		(1,522	)		(1,313	)		(4,337	)		(4,468	)
Share-based compensation expense, net of tax	$	3,061			2,595		$	8,495			8,951

       Total unrecognized pre-tax compensation expense related to share-based compensation arrangements at September 30, 2008 was $30.1 million and is expected to be recognized over a weighted-average period of approximately 2.0 years.

       During the nine months ended September 30, 2008 and 2007, approximately 700,000 and 900,000 stock options, respectively, were granted under the Plans. These awards, which vest one-third each year, are fully vested three years from the grant date and have a contractual term of seven years. The fair value of each option award at the date of grant was estimated using a Black-Scholes-Merton option-pricing valuation model. The weighted-average fair value of options granted during the nine months ended September 30, 2008 and 2007 was $14.00 and $12.82, respectively.

       During the nine months ended September 30, 2008 and 2007, approximately 200,000 and 100,000 awards, respectively, of restricted stock rights and restricted stock units (RSUs) were granted under the Plans. The time-vested restricted stock rights entitle the holder to shares of common stock as the awards vest over a three-year period. The majority of the restricted stock rights granted during the period included a market-based vesting provision. Under such provision, employees only receive the grant of stock if Ryder’s total shareholder return (TSR) as a percentage of the S&P 500 comparable period TSR is 100% or greater over a three-year period. The fair value of the market-based restricted stock rights on the grant date was estimated using a lattice-based option-pricing valuation model that incorporates a Monte-Carlo simulation. The weighted-average fair value of restricted stock rights and RSUs granted during the nine months ended September 30, 2008 and 2007 was $55.08 and $33.44, respectively. RSUs are granted annually to our Board of Directors. Prior to the second quarter of 2007, compensation expense for RSUs was based on assumed years of service to retirement at age 72. However, because the RSUs do not contain an explicit service vesting period, except for the initial grant, compensation expense should have been recognized in the year the RSUs were granted rather than over the assumed years of service. During the second quarter of 2007, we accelerated the recognition of compensation expense on previously issued RSUs, which resulted in a pre-tax charge of $1.8 million for the second quarter of 2007.

       During the nine months ended September 30, 2008 and 2007, we also granted employees share-based awards settled in cash. The awards granted in 2008 will vest on the same date as the market-based restricted stock rights if Ryder’s TSR is equal to or better than the S&P 500’s 33rd percentile over a three-year period. The cash awards granted in 2007 contained the same vesting provisions as the market-based restricted stock rights. The fair value of the cash awards was estimated using a lattice-based option-pricing valuation model that incorporates a Monte-Carlo simulation. During the three months and nine months ended September 30, 2008, we recognized $0.6 million and $2.7 million, respectively, of compensation expense related to these cash awards in addition to the share-based compensation expense reported in the previous table. During the nine months ended September 30, 2007, the amount of compensation expense recognized related to these cash awards was not significant.

(E) EARNINGS PER SHARE

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

	Three months ended September 30,				Nine months ended September 30,
	2008		2007		2008		2007
	(In thousands)
Weighted-average shares outstanding — Basic		55,550		58,487		56,552		59,856
Effect of dilutive options and nonvested stock		676		539		669		571
Weighted-average shares outstanding — Diluted		56,226		59,026		57,221		60,427
Anti-dilutive equity awards and market-based restricted stock rights not included above		666		1,152		848		948

7

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

(F) RESTRUCTURING AND OTHER CHARGES (RECOVERIES)

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

	Three months ended September 30,				Nine months ended September 30,
	2008		2007		2008			2007
	(In thousands)
Restructuring charges (recoveries), net:
Severance and employee-related charges (recoveries)	$	—		10,993	$	(75	)		11,040
Facility and related charges		—		910		42			968
		—		11,903		(33	)		12,008
Other charges, net:
Early retirement of debt		—		—		—			1,280
Contract termination and transition costs		—		—		—			306
Total	$	—		11,903	$	(33	)		13,594

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

	Three months ended September 30,				Nine months ended September 30,
	2008		2007		2008			2007
	(In thousands)
Fleet Management Solutions	$	—		4,238	$	64			5,784
Supply Chain Solutions		—		5,607		(126	)		5,756
Dedicated Contract Carriage		—		1,142		6			1,139
Central Support Services		—		916		23			915
Total	$	—		11,903	$	(33	)		13,594

       Restructuring and other charges (recoveries), net for the three and nine months ended September 30, 2008 were not significant. During the third quarter of 2007, we approved a plan to eliminate approximately 300 positions as a result of cost management and process improvement actions throughout our domestic and international business segments and Central Support Services (CSS). The charge related to these actions was recognized in accordance with SFAS No. 112, “Employers’ Accounting for Postemployment Benefits,” and included severance and employee-related costs totaling $11.0 million. During the third quarter of 2007, we also recorded a charge of $0.9 million related to costs that will continue to be incurred on a lease facility in our international operations which we will no longer operate.

       Other charges, net in the nine months ended September 30, 2007 included a $1.3 million charge incurred to extinguish debentures that were originally set to mature in 2017. The charge of $1.3 million related to the premium paid on the early extinguishment of debt and the write-off of related debt discount and issuance costs. See Note (J), “Debt,” for further discussion on the early extinguishment of debt.

       Activity related to restructuring reserves was as follows:

					Deductions
	December 31, 2007						Non-Cash		September 30, 2008
	Balance		Additions		Cash Payments		Reductions(1)		Balance
	(In thousands)
Employee severance and benefits	$	7,829		63		5,643		138		2,111
Facilities and related costs		814		42		466		—		390
Total	$	8,643		105		6,109		138		2,501

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

       At September 30, 2008, the majority of outstanding restructuring obligations are required to be paid over the next three months.

8

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

(G) REVENUE EARNING EQUIPMENT

	September 30, 2008							December 31, 2007
			Accumulated			Net Book				Accumulated			Net Book
	Cost		Depreciation			Value(1)		Cost		Depreciation			Value(1)
	(In thousands)
Full service lease	$	5,835,278		(2,092,707	)		3,742,571	$	5,705,147		(2,047,951	)		3,657,196
Commercial rental		1,554,781		(655,041	)		899,740		1,520,815		(676,614	)		844,201
Total	$	7,390,059		(2,747,748	)		4,642,311	$	7,225,962		(2,724,565	)		4,501,397

(1) Revenue earning equipment, net includes vehicles acquired under capital leases of $20.8 million, less accumulated amortization of $5.1 million, at September 30, 2008, and $19.0 million, less accumulated amortization of $5.7 million, at December 31, 2007. Amortization expense attributed to vehicles acquired under capital leases is combined with depreciation expense.

       At September 30, 2008 and December 31, 2007, the net carrying value of revenue earning equipment held for sale was $61.2 million and $80.9 million, respectively. Revenue earning equipment held for sale is stated at the lower of carrying amount or fair value less costs to sell. During the three and nine months ended September 30, 2008, we reduced the carrying value of vehicles held for sale by $9.6 million and $23.6 million, respectively, to reflect changes in fair value. During the three and nine months ended September 30, 2007, we reduced the carrying value of vehicles held for sale by $12.2 million and $30.4 million, respectively. Reductions in the carrying values of vehicles held for sale are recorded within “Depreciation expense” in the Consolidated Condensed Statements of Earnings.

(H) ACCRUED EXPENSES AND OTHER LIABILITIES

	September 30, 2008						December 31, 2007
	Accrued		Non-Current				Accrued		Non-Current
	Expenses		Liabilities		Total		Expenses		Liabilities		Total
	(In thousands)
Salaries and wages	$	73,800		—		73,800	$	73,758		—		73,758
Deferred compensation		2,931		19,731		22,662		1,915		24,587		26,502
Pension benefits		2,211		38,412		40,623		2,318		39,843		42,161
Other postretirement benefits		3,167		42,834		46,001		3,209		41,083		44,292
Employee benefits		3,240		—		3,240		1,740		—		1,740
Insurance obligations, primarily self-insurance		112,741		170,407		283,148		119,280		178,889		298,169
Residual value guarantees		691		1,753		2,444		757		1,668		2,425
Vehicle rent		10,551		10,394		20,945		7,878		6,351		14,229
Deferred vehicle gains		825		3,404		4,229		871		5,712		6,583
Environmental liabilities		4,064		11,890		15,954		3,858		11,318		15,176
Asset retirement obligations		4,660		11,094		15,754		4,238		10,743		14,981
Operating taxes		77,701		—		77,701		78,909		—		78,909
Income taxes		4,896		74,407		79,303		10,381		72,062		82,443
Restructuring		2,117		384		2,501		7,491		1,152		8,643
Interest		42,361		—		42,361		22,275		—		22,275
Customer deposits		29,468		—		29,468		30,017		—		30,017
Derivatives		—		3,607		3,607		150		—		150
Other		55,507		19,944		75,451		43,810		16,499		60,309
Total	$	430,931		408,261		839,192	$	412,855		409,907		822,762

       We retain a portion of the accident risk under vehicle liability and workers’ compensation insurance programs. Self-insurance accruals are based primarily on actuarially estimated, undiscounted cost of claims, and include claims incurred but not reported. Such liabilities are based on estimates. Historical loss development factors are utilized to project the future development of incurred losses, and these amounts are adjusted based upon actual claim experience and settlements. While we believe the amounts are adequate, there can be no assurance that changes to our estimates may not occur due to limitations inherent in the estimation process. In recent years, our development has been favorable compared to historical selected loss development factors because of improved safety performance, payment patterns and settlement patterns. During the three months ended September 30, 2008 and 2007, we recorded a benefit of $3.5 million and $6.5 million, respectively, within “Operating expense” in our Consolidated Condensed Statements of Earnings to reduce estimated prior years’ self-insured loss reserves for the reasons noted above. During the nine months ended September 30, 2008 and 2007, we recorded a benefit of $13.8 million and $16.2 million, respectively, within “Operating expense” in our Consolidated Condensed Statements of Earnings to reduce estimated prior years’ self-insured loss reserves for the reasons noted above.

9

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

(I) INCOME TAXES

       Uncertain Tax Positions

       We are subject to tax audits in numerous jurisdictions in the U.S. and around the world. Tax audits by their very nature are often complex and can require several years to complete. In the normal course of business, we are subject to challenges from the Internal Revenue Service (IRS) and other tax authorities regarding amounts of taxes due. These challenges may alter the timing or amount of taxable income or deductions, or the allocation of income among tax jurisdictions. As part of our calculation of the provision for income taxes on earnings, we determine whether the benefits of our tax positions are at least more likely than not of being sustained upon audit based on the technical merits of the tax position. For tax positions that are more likely than not of being sustained upon audit, we accrue the largest amount of the benefit that is more likely than not of being sustained in our Consolidated Condensed Financial Statements. Such accruals require management to make estimates and judgments with respect to the ultimate outcome of a tax audit. Actual results could vary materially from these estimates.

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

       Federal — audits of our U.S. federal income tax returns are closed through fiscal year 2003. The statute of limitations for the 2001 through 2003 tax returns expires on December 31, 2008. In 2007, the IRS commenced an examination of our U.S. income tax returns for 2004 through 2006.

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

       Foreign — we are no longer subject to foreign tax examinations by tax authorities for tax years before 2000, 2001, 2002 and 2006 in Canada, Brazil, Mexico and the U.K., respectively, which are our major foreign tax jurisdictions. In Brazil, we were assessed $13.6 million, including penalties and interest, related to the tax due on the sale of our outbound auto carriage business in 2001. We believe it is more likely than not that our tax position will ultimately be sustained and no amounts have been reserved for this matter.

       At September 30, 2008 and December 31, 2007, the total amount of gross unrecognized tax benefits (excluding the federal benefit received from state positions) was $78.6 million and $75.1 million, respectively. Unrecognized tax benefits related to federal, state and foreign tax positions may decrease by $7.3 million by December 31, 2008, if audits are completed or tax years close during 2008.

       Tax Law Changes

       The effects of changes of tax laws on deferred tax balances are recognized in the period the new legislation is enacted. The following provides a summary of the impact of changes in tax laws on net earnings and net earnings per diluted common share by tax jurisdiction:

				Diluted Earnings
Tax Jurisdiction	Enactment Date	Net Earnings		Per Share
		(In thousands)
2008
State of Massachusetts	July 2, 2008	$	1,759	$	0.03
2007
United Kingdom	July 19, 2007	$	810	$	0.01
State of New York	April 1, 2007	$	970	$	0.02

       Like-Kind Exchange Program

       We have a like-kind exchange program for certain of our U.S. revenue earning equipment. Pursuant to the program, we dispose of vehicles and acquire replacement vehicles in a form whereby tax gains on the disposal of eligible vehicles are deferred. To qualify

10

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

for like-kind exchange treatment, we exchange, through a qualified intermediary, eligible vehicles being disposed of with vehicles being acquired allowing us to generally carryover the tax basis of the vehicles sold (“like-kind exchanges”). The program results in a deferral of federal and state income taxes. As part of the program, the proceeds from the sale of eligible vehicles are restricted for the acquisition of replacement vehicles and other specified applications. Due to the structure utilized to facilitate the like-kind exchanges, the qualified intermediary that holds the proceeds from the sales of eligible vehicles and the entity that holds the vehicles to be acquired under the program are required to be consolidated in the accompanying Consolidated Condensed Financial Statements in accordance with U.S. GAAP. At September 30, 2008 and December 31, 2007, these consolidated entities had $1.0 million and $59.1 million, respectively, of cash proceeds from the sale of eligible vehicles and $68.6 million and $63.1 million, respectively, of vehicles to be acquired under the like-kind exchange program.

       At September 30, 2008 and December 31, 2007, we had $25.5 million and $83.5 million, respectively, of restricted cash for all like-kind exchange programs included within “Prepaid expenses and other current assets” on the Consolidated Condensed Balance Sheets.

(J) DEBT

	Weighted-Average Interest Rate
	September 30,			December 31,			September 30,			December 31,
	2008			2007		Maturities	2008			2007
							(In thousands)
Short-term debt and current portion of long-term debt:
Unsecured foreign obligations		9.00	%	6.21	%	2008-2009	$	26,083			29,373
Trade receivables program		4.24	%	5.93	%	2009		70,000			100,000
Current portion of long-term debt, including capital leases						2008-2009		189,771			93,325
Total short-term debt and current portion of long-term debt								285,854			222,698
Long-term debt:
U.S. commercial paper(1)		4.42	%	5.52	%	2010		176,955			522,772
Canadian commercial paper(1)		3.39	%	4.99	%	2010		20,648			45,713
Unsecured U.S. notes—Medium-term notes(1)		5.74	%	5.39	%	2008-2025		2,316,381			1,846,500
Unsecured U.S. obligations, principally bank term loans		4.27	%	5.51	%	2010-2013		158,150			60,050
Unsecured foreign obligations		5.13	%	5.60	%	2009-2012		144,369			158,879
Capital lease obligations		8.76	%	7.93	%	2008-2017		12,603			12,842
Total before fair market value adjustment								2,829,106			2,646,756
Fair market value adjustment on notes subject to hedging(2)								(3,607	)		—
								2,825,499			2,646,756
Current portion of long-term debt, including capital leases								(189,771	)		(93,325	)
Long-term debt								2,635,728			2,553,431
Total debt							$	2,921,582			2,776,129

(1)	We had unamortized original issue discounts of $13.7 million and $14.6 million at September 30, 2008 and December 31, 2007, respectively.
(2)	The notional amount of executed interest rate swaps designated as fair value hedges was $250.0 million at September 30, 2008.

       We can borrow up to $870 million through a global revolving credit facility with a syndicate of thirteen lenders. The credit facility matures in May 2010 and is used primarily to finance working capital and provide support for the issuance of commercial paper in the U.S. and Canada. This facility can also be used to issue up to $75 million in letters of credit (there were no letters of credit outstanding against the facility at September 30, 2008). 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’s current annual facility fee is 11 basis points, which applies to the total facility of $870 million, and is based on Ryder’s current credit ratings. The credit facility contains no provisions restricting its availability in the event of a material adverse change to Ryder’s business operations; however, the credit facility does contain standard representations and warranties, events of default, cross-default provisions, and certain affirmative and negative covenants. In order to maintain availability of funding, we must maintain a ratio of debt to consolidated tangible net worth, as defined in the agreement, of less than or equal to 300%. The ratio at September 30, 2008 was 148%. At September 30, 2008, $669.2 million was available under the credit facility. Foreign borrowings of $20.7 million were outstanding under the facility at September 30, 2008.

       In September 2008, we renewed our trade receivables purchase and sale program, pursuant to which we sell certain of our domestic trade accounts receivable to Ryder Receivable Funding II, L.L.C. (RRF LLC), a bankruptcy remote, consolidated subsidiary

11

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

of Ryder, that in turn may sell, on a revolving basis, an ownership interest in certain of these accounts receivable to a receivables conduit or committed purchasers. 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 our unsecured debt ratings and changes in interest rates. The available proceeds that may be received under the program are limited to $250 million. If no event occurs which causes early termination, the 364-day program will expire on September 8, 2009. The program contains provisions restricting its availability in the event of a material adverse change to our business operations or the collectibility of the securitized receivables. At September 30, 2008 and December 31, 2007, $70.0 million and $100.0 million, respectively, was outstanding under the program and was included within “Short-term debt and current portion of long-term debt” on our Consolidated Condensed Balance Sheets.

       In August 2008, we issued $300 million of unsecured medium-term notes maturing in September 2015. The proceeds from the notes were used for general corporate purposes. If the notes are downgraded following, and as a result of, a change of control, the note holder can require us to repurchase all or a portion of the notes at a purchase price equal to 101% of the principal amount plus accrued and unpaid interest. Our other outstanding notes are not subject to change of control repurchase obligations.

       In February 2008, we issued $250 million of unsecured medium-term notes maturing in March 2013. The proceeds from the notes were used for general corporate purposes. Concurrently, we entered into an interest rate swap with a notional amount of $250 million maturing in March 2013. The swap was designated as a fair value hedge whereby we receive fixed interest rate payments in exchange for making variable interest rate payments. The differential to be paid or received is accrued and recognized as interest expense. At September 30, 2008, the interest rate swap agreement effectively changed $250 million of fixed-rate debt with an interest rate of 6.00% to LIBOR-based floating-rate debt at a rate of 5.25%. Changes in the fair value of the interest rate swap are offset by changes in the fair value of the debt instrument. Accordingly, there is no ineffectiveness related to the interest rate swap. During the three months ended September 30, 2008, the increase in the fair value of the interest rate swap was $1.7 million. The fair value of the interest rate swap decreased $3.6 million from inception to September 30, 2008.

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

       On February 27, 2007, Ryder filed an automatic shelf registration statement on Form S-3 with the Securities and Exchange Commission. 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.

(K) FAIR VALUE MEASUREMENTS

       Effective January 1, 2008, we adopted SFAS No. 157 for all financial assets and liabilities and for nonfinancial assets and liabilities recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). SFAS No. 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS No. 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1	Quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access at the measurement date. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2	Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or model-derived valuations or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3	Unobservable inputs for the asset or liability. These inputs reflect our own assumptions about the assumptions a market participant would use in pricing the asset or liability.

12

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

       Ryder carries various assets and liabilities at fair value in the Consolidated Condensed Balance Sheets. The most significant assets and liabilities are vehicles held for sale, which are carried at fair value less costs to sell, investments held in Rabbi Trusts, derivatives and certain liabilities. The initial adoption of SFAS No. 157 on January 1, 2008 was limited to our investments held in Rabbi Trusts, derivatives and other liabilities. On January 1, 2009, SFAS No. 157 will be adopted for our vehicles held for sale as well as other nonfinancial assets and liabilities recognized or disclosed at fair value in the financial statements on a nonrecurring basis.

       The following table presents the fair value of our financial assets and liabilities for which we have adopted SFAS No. 157 as of September 30, 2008, segregated among the appropriate levels within the fair value hierarchy:

	Fair Value Measurements
	At September 30, 2008 Using
	Level 1		Level 2		Level 3		Total
	(In thousands)
Assets:
Investments held in Rabbi Trusts	$	19,415		—		—		19,415
Liabilities:
Derivative liability	$	—		3,607		—		3,607
Other liabilities		21,895		—		—		21,895
Total liabilities at fair value	$	21,895		3,607		—		25,502

       The following is a description of the valuation methodologies used for these items, as well as the general classification of such items pursuant to the fair value hierarchy of SFAS No. 157:

       Investments held in Rabbi Trusts—the investments include exchange-traded equity securities and mutual funds. Fair values for these investments are based on quoted prices in active markets and are therefore classified within Level 1 of the fair value hierarchy.

       Derivative liability— the derivative is a pay-variable, receive-fixed interest rate swap based on a LIBOR rate. Fair value is based on a model-driven valuation using the LIBOR rate, which is observable at commonly quoted intervals for the full term of the swap. Therefore, our derivative is classified within Level 2 of the fair value hierarchy.

       Other liabilities—other liabilities represent deferred compensation and incentive-based compensation obligations to employees under certain plans. The liabilities related to these plans are adjusted based on changes in the fair value of the underlying employee-directed investments. Since the employee-directed investments are exchange traded equity securities and mutual funds with quoted prices in active markets, the liabilities are classified within Level 1 of the fair value hierarchy.

(L) GUARANTEES

       We have executed various agreements with third parties that contain standard indemnifications that may require us to indemnify a third party against losses arising from a variety of matters such as lease obligations, financing agreements, environmental matters, and agreements to sell business assets. In each of these instances, payment by Ryder is contingent on the other party bringing about a claim under the procedures outlined in the specific agreement. Normally, these procedures allow Ryder to dispute the other party’s claim. Additionally, our obligations under these agreements may be limited in terms of the amount and (or) timing of any claim. We have entered into individual indemnification agreements with each of our independent directors, through which we will indemnify such director acting in good faith against any and all losses, expenses and liabilities arising out of such director’s service as a director of Ryder. The maximum amount of potential future payments under these agreements is generally unlimited.

       We cannot predict the maximum potential amount of future payments under certain of these agreements, including the indemnification agreements, due to the contingent nature of the potential obligations and the distinctive provisions that are involved in each individual agreement. Historically, no such payments made by Ryder have had a material adverse effect on our business. We believe that if a loss were incurred in any of these matters, the loss would not result in a material adverse impact on our consolidated results of operations or financial position.

13

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

       At September 30, 2008 and December 31, 2007, the maximum determinable exposure of each type of guarantee and the corresponding liability, if any, recorded on the Consolidated Condensed Balance Sheets were as follows:

	September 30, 2008				December 31, 2007
	Maximum		Carrying		Maximum		Carrying
	Exposure of		Amount of		Exposure of		Amount of
Guarantee	Guarantee		Liability		Guarantee		Liability
			(In thousands)
Vehicle residual value guarantees—finance lease programs(1)	$	2,735		1,058	$	3,450		1,066
Used vehicle financing		5,309		417		5,679		1,340
Standby letters of credit		7,403		—		6,540		—
Total	$	15,447		1,475	$	15,669		2,406

(1) Amounts exclude contingent rentals associated with residual value guarantees on certain vehicles held under operating leases for which the guarantees are conditioned upon disposal of the leased vehicles prior to the end of their lease term. At September 30, 2008 and December 31, 2007, Ryder’s maximum exposure for such guarantees was $204.2 million and $217.5 million, respectively, with $2.4 million recorded as a liability at September 30, 2008 and December 31, 2007.

       At September 30, 2008 and December 31, 2007, we had letters of credit and surety bonds outstanding totaling $261.2 million and $262.7 million, respectively, which primarily guarantee the payment of insurance claims. Certain of these letters of credit and surety bonds guarantee insurance activities associated with insurance claim liabilities transferred in conjunction with the sale of our automotive transport business, reported as a discontinued operation since 1997. To date, the insurance claims, representing per-claim deductibles payable under third-party insurance policies, have been paid and continue to be paid by the company that assumed such liabilities. However, if all or a portion of the estimated outstanding assumed claims of approximately $7.4 million at September 30, 2008 are unable to be paid, the third-party insurers may have recourse against certain of the outstanding letters of credit provided by Ryder in order to satisfy the unpaid claim deductibles. In order to reduce our potential exposure to these claims, we have received an irrevocable letter of credit from the purchaser of the business referred to above totaling $7.5 million at September 30, 2008. Periodically, an actuarial valuation is made in order to better estimate the amount of outstanding insurance claim liabilities.

(M) SHARE REPURCHASE PROGRAMS

       In December 2007, our Board of Directors authorized a $300 million discretionary share repurchase program over a period not to exceed two years. Additionally, our Board of Directors authorized a separate two-year anti-dilutive repurchase program. Under the anti-dilutive program, management is authorized to repurchase shares of common stock in an amount not to exceed the lesser of the number of shares issued to employees upon the exercise of stock options or through the employee stock purchase plan from the period beginning on September 1, 2007 to December 12, 2009, or 2 million shares. Share repurchases of common stock under both plans may be 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 under Rule 10b5-1 of the Securities Exchange Act of 1934 as part of the December 2007 programs, which allow for share repurchases during Ryder’s quarterly blackout periods as set forth in the trading plan. For the three months ended September 30, 2008, we repurchased and retired 850,000 shares under the $300 million program at an aggregate cost of $56.5 million. For the three months ended September 30, 2008, we repurchased and retired 102,849 shares under the anti-dilutive repurchase program at an aggregate cost of $6.8 million. For the nine months ended September 30, 2008, we repurchased and retired 2,615,000 shares under the $300 million program at an aggregate cost of $169.7 million. For the nine months ended September 30, 2008, we repurchased and retired 1,363,436 shares under the anti-dilutive repurchase program at an aggregate cost of $86.4 million.

       In May 2007, our Board of Directors authorized a $200 million share repurchase program over a period not to exceed two years. Share repurchases of common stock were made periodically in open-market transactions and were subject to market conditions, legal requirements and other factors. This program was completed during the third quarter of 2007. For the nine months ended September 30, 2007, we repurchased and retired 3,713,783 shares under the May 2007 program for an aggregate cost of $200.0 million.

       In May 2006, our Board of Directors authorized a two-year share repurchase program intended to mitigate the dilutive impact of shares issued under our various employee stock option and stock purchase plans. The May 2006 program limited aggregate share repurchases to no more than 2 million shares of Ryder common stock. This program was completed during the first quarter of 2007. In 2007, we repurchased and retired 168,715 shares under the May 2006 program at an aggregate cost of $9.0 million.

14

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

(N) COMPREHENSIVE INCOME

       Comprehensive income presents a measure of all changes in shareholders’ equity except for changes resulting from transactions with shareholders in their capacity as shareholders. Our total comprehensive income presently consists of net earnings, currency translation adjustments associated with foreign operations that use the local currency as their functional currency, adjustments for derivative instruments accounted for as cash flow hedges and various pension and other postretirement benefits related items.

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

	Three months ended September 30,						Nine months ended September 30,
	2008			2007			2008			2007
	(In thousands)
Net earnings	$	70,208			65,533		$	189,235			181,915
Other comprehensive (loss) income:
Foreign currency translation adjustments		(65,716	)		28,685			(67,317	)		60,186
Net unrealized gain (loss) on derivative instruments		49			20			67			(37	)
Amortization of transition obligation(1)		(6	)		(6	)		(17	)		(17	)
Amortization of net actuarial loss(1)		1,059			3,248			3,343			9,844
Amortization of prior service credit(1)		(372	)		(481	)		(1,402	)		(1,460	)
Pension curtailment (1)		(1,342	)		—			(1,342	)		10,510
Change in net actuarial loss(1)		(15,913	)		—			(15,913	)		—
Total comprehensive (loss) income	$	(12,033	)		96,999		$	106,654			260,941

(1) Amounts pertain to our pension and/or postretirement benefit plans and are presented net of tax. See Note (O), “Employee Benefit Plans,” for additional information.

15

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

(O) EMPLOYEE BENEFIT PLANS

       Components of net periodic benefit (credit) cost were as follows:

	Three months ended September 30,						Nine months ended September 30,
	2008			2007			2008			2007
	(In thousands)
Pension Benefits
Company-administered plans:
Service cost	$	6,648			9,998		$	20,529			29,943
Interest cost		23,158			21,700			70,096			64,843
Expected return on plan assets		(30,269	)		(29,843	)		(91,606	)		(88,558	)
Curtailment gain		(3,607	)		—			(3,607	)		—
Amortization of:
Transition obligation		(7	)		(9	)		(23	)		(24	)
Net actuarial loss		1,444			4,769			4,576			14,493
Prior service credit		(530	)		(730	)		(2,012	)		(2,148	)
		(3,163	)		5,885			(2,047	)		18,549
Union-administered plans		1,239			1,209			3,663			3,650
Net periodic benefit (credit) cost	$	(1,924	)		7,094		$	1,616			22,199
Company-administered plans:
U.S.	$	(1,387	)		2,688		$	(4,159	)		8,567
Non-U.S.		(1,776	)		3,197			2,112			9,982
		(3,163	)		5,885			(2,047	)		18,549
Union-administered plans		1,239			1,209			3,663			3,650
	$	(1,924	)		7,094		$	1,616			22,199
Postretirement Benefits
Company-administered plans:
Service cost	$	361			450		$	1,093			1,097
Interest cost		683			690			2,055			1,926
Amortization of:
Net actuarial loss		186			298			561			624
Prior service credit		(58	)		(58	)		(173	)		(173	)
Net periodic benefit cost	$	1,172			1,380		$	3,536			3,474
Company-administered plans:
U.S.	$	944			977		$	2,832			2,798
Non-U.S.		228			403			704			676
	$	1,172			1,380		$	3,536			3,474

       Pension Contributions

       As previously disclosed in our 2007 Annual Report, we expect to contribute approximately $22.0 million to our pension plans during 2008. During the nine months ended September 30, 2008, global contributions of $17.2 million had been made to our pension plans.

       Pension and Other Postretirement Benefits Asset and Liability

       In July 2008, our Board of Directors approved an amendment to freeze the defined benefit portion of our Canadian retirement plan effective January 1, 2010 for current participants who do not meet certain grandfathering criteria. As a result, these employees

16

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

will cease accruing further benefits under the defined benefit plan after January 1, 2010 and will begin receiving an enhanced benefit under the defined contribution portion of the plan. All retirement benefits earned as of January 1, 2010 will be fully preserved and will be paid in accordance with the plan and legal requirements. Employees hired after January 1, 2010 will not be eligible to participate in the Canadian defined benefit plan. The freeze of the Canadian defined benefit plan created a curtailment gain of $3.6 million (pre-tax). The curtailment and remeasurement of the Canadian defined benefit plan reduced our pension benefit obiligation by $1.6 million, pension items recognized within accumulated other comprehensive loss by $1.3 million, net of tax and deferred income taxes by $0.7 million.

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

       For the nine months ended September 30, 2008, our pension assets decreased by $20.6 million and our pension and postretirement benefits liabilities increased by $4.4 million due to a census-related valuation update.

       Enhanced401(k) Plan

       Effective January 1, 2008, employees who did not meet the grandfathering criteria for continued participation in the U.S. pension plans are eligible to participate in a new enhanced 401(k) Savings Plan (Enhanced 401(k) Savings Plan). The Enhanced 401(k) Savings Plan provides for (i) a company contribution even if employees do not make contributions, (ii) a company match of employee contributions of eligible pay, subject to IRS limits and (iii) a discretionary company match based on our performance. Our original 401(k) Savings Plan only provided for a discretionary Ryder match based on Ryder’s performance. We did not change the savings plans available to non-pensionable employees. During the three and nine months ended September 30, 2008, we recognized total savings plan costs of $6.5 million and $22.3 million, respectively. During the three and nine months ended September 30, 2007, we recognized total savings plan costs of $1.3 million and $6.6 million, respectively.

(P) GAIN ON SALE OF PROPERTY

       In September 2007, we completed the sale of a FMS property located in Nevada for $11.5 million in cash. In conjunction with this sale, we entered into a lease agreement with the purchaser to lease back the property until we relocate to another property. The terms of the leaseback met the criteria for a “normal leaseback” and full gain recognition. For the three months ended September 30, 2007, the gain on the sale of the property of $10.0 million was included in “Miscellaneous expense (income), net” in the accompanying Consolidated Condensed Statements of Earnings. Our primary measure of segment performance excludes, among other items, this gain on sale of property.

(Q) SEGMENT REPORTING

       Our operating segments are aggregated into reportable business segments based upon similar economic characteristics, products, services, customers and delivery methods. We operate in three reportable business segments: (1) FMS, which provides full service leasing, contract maintenance, contract-related maintenance and commercial rental of trucks, tractors and trailers to customers, principally in the U.S., Canada and the U.K.; (2) SCS, which provides comprehensive supply chain consulting including distribution and transportation services throughout North America and in Latin America, Europe and Asia; and (3) Dedicated Contract Carriage (DCC), which provides vehicles and drivers as part of a dedicated transportation solution in the U.S.

       Our primary measurement of segment financial performance, defined as “Net Before Taxes” (NBT), includes an allocation of CSS and excludes restructuring and other charges, net described in Note (F), “Restructuring and Other Charges (Recoveries);” the Brazil charges described in Note (A), “Interim Financial Statements” and the 2007 gain on sale of property described in Note (P), “Gain on Sale of Property.” CSS represents those costs incurred to support all business segments, including human resources, finance, corporate services, public affairs, information technology, health and safety, legal and corporate communications. The objective of the NBT measurement is to provide clarity on the profitability of each business segment and, ultimately, to hold leadership of each business segment and each operating segment within each business segment accountable for

17

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

their allocated share of CSS costs. Certain costs are considered to be overhead not attributable to any segment and remain unallocated in CSS. Included among the unallocated overhead remaining within CSS are the costs for investor relations, public affairs and certain executive compensation. CSS costs attributable to the business segments are predominantly allocated to FMS, SCS and DCC as follows:

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

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

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

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

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

       The following tables set forth financial information for each of Ryder’s business segments and a reconciliation between segment NBT and earnings before income taxes for the three and nine months ended September 30, 2008 and 2007. Segment results are not necessarily indicative of the results of operations that would have occurred had each segment been an independent, stand-alone entity during the periods presented.

	FMS		SCS		DCC		Eliminations			Total
	(In thousands)
For the three months ended
September 30, 2008
Revenue from external customers	$	1,054,710		430,779		140,632		—			1,626,121
Inter-segment revenue		112,034		—		—		(112,034	)		—
Total revenue	$	1,166,744		430,779		140,632		(112,034	)		1,626,121
Segment NBT	$	104,758		12,656		13,182		(8,218	)		122,378
Unallocated CSS											(10,396	)
Earnings before income taxes										$	111,982
Segment capital expenditures (1),(2)	$	270,600		7,185		1,347		—			279,132
Unallocated CSS											2,981
Capital expenditures										$	282,113
September 30, 2007
Revenue from external customers	$	949,883		554,045		143,796		—			1,647,724
Inter-segment revenue		101,983		—		—		(101,983	)		—
Total revenue	$	1,051,866		554,045		143,796		(101,983	)		1,647,724
Segment NBT	$	93,179		17,398		12,293		(6,417	)		116,453
Unallocated CSS											(10,096	)
Restructuring and other charges, net and other item(3)											(1,864	)
Earnings before income taxes										$	104,493
Segment capital expenditures(1)	$	192,629		14,165		94		—			206,888
Unallocated CSS											1,365
Capital expenditures										$	208,253

(1)	Excludes revenue earning equipment acquired under capital leases.
(2)	Excludes acquisition payments of $25.1 million during the three months ended September 30, 2008.
(3)	Includes the gain on sale of property of $10.0 million recorded in the third quarter of 2007. See Note (P),”Gain on Sale of Property” for additional information.

18

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

	FMS		SCS		DCC		Eliminations			Total
	(In thousands)
For the nine months ended
September 30, 2008
Revenue from external customers	$	3,122,543		1,285,860		421,542		—			4,829,945
Inter-segment revenue		351,154		—		—		(351,154	)		—
Total revenue	$	3,473,697		1,285,860		421,542		(351,154	)		4,829,945
Segment NBT	$	311,988		27,763		36,908		(23,404	)		353,255
Unallocated CSS											(30,046	)
Restructuring and other charges, net and other item(1)											(6,465	)
Earnings before income taxes										$	316,744
Segment capital expenditures (2), (3)	$	847,049		31,826		2,248		—			881,123
Unallocated CSS											10,036
Capital expenditures										$	891,159
September 30, 2007
Revenue from external customers	$	2,771,988		1,704,445		423,362		—			4,899,795
Inter-segment revenue		305,290		—		—		(305,290	)		—
Total revenue	$	3,077,278		1,704,445		423,362		(305,290	)		4,899,795
Segment NBT	$	271,443		44,302		35,153		(23,241	)		327,657
Unallocated CSS											(30,435	)
Restructuring and other charges, net and other item (4)											(3,555	)
Earnings before income taxes										$	293,667
Segment capital expenditures(2)	$	1,059,655		27,483		778		—			1,087,916
Unallocated CSS											5,629
Capital expenditures										$	1,093,545

(1)	Includes Brazil charges of $6.5 million recorded in the second quarter of 2008. See Note (A),”Interim Financial Statements” for additional information.
(2)	Excludes revenue earning equipment acquired under capital leases.
(3)	Excludes acquisition payments of $232.2 million during the nine months ended September 30, 2008.
(4)	Includes the gain on sale of property of $10.0 million recorded in the third quarter of 2007. See Note (P),”Gain on Sale of Property” for additional information.

       Our customer base includes enterprises operating in a variety of industries including automotive, electronics, high-tech, telecommunications, industrial, consumer goods, paper and paper products, office equipment, food and beverage, general retail industries, and governments. Our largest customer, General Motors Corporation, accounted for approximately 5% and 15% of consolidated revenue for the nine months ended September 30, 2008 and 2007, respectively, and is comprised of multiple contracts within our SCS business segment in various geographic regions. Effective January 1, 2008, our contractual relationship for certain transportation management services changed, and we determined, after a formal review of the terms and conditions of the services, that we are acting as an agent based on the revised terms of the arrangement. As a result, total revenue decreased in 2008 due to the reporting of revenue net of subcontracted transportation expense related to this arrangement. This contract represented $152.6 million and $506.7 million of total revenue for the three and nine months ended September 30, 2007, respectively.

(R) RECENT ACCOUNTING PRONOUNCEMENTS

       In June 2008, the FASB issued FSP No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities.” This FSP provides that unvested share-based payment awards that contain nonforfeitable rights to dividends are participating securities and shall be included in the computation of earnings per share pursuant to the two class method. This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008 and interim periods within those years. Upon adoption, a company is required to retrospectively adjust its earnings per share data to conform to the provisions in this FSP. The provisions of FSP No. EITF 03-6-1 are effective for us retroactively in the first quarter ended March 31, 2009. We are in the process of evaluating the impact of FSP No. EITF 03-6-1 on the calculation and presentation of earnings per share in our consolidated financial statements. We do not believe that there will be a significant impact upon adoption.

19

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

       In April 2008, the FASB issued FSP FAS 142-3, “Determination of the Useful Life of Intangible Assets.” This FSP amends the factors considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets.” This FSP is effective for fiscal years beginning after December 15, 2008. FSP FAS 142-3 will not have a material impact upon adoption on January 1, 2009 to our consolidated financial statements.

       In December 2007, the FASB issued SFAS No. 141R, “Business Combinations.” This statement amends SFAS No. 141 and provides revised guidance for recognizing and measuring assets acquired and liabilities assumed in a business combination. This statement also requires that transaction costs in a business combination be expensed as incurred. SFAS No. 141R applies prospectively and will impact our accounting for business combinations completed beginning January 1, 2009.

20

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS —
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

OVERVIEW

       The following discussion should be read in conjunction with the unaudited Consolidated Condensed Financial Statements and notes thereto included under Item 1. In addition, reference should be made to our audited Consolidated Financial Statements and notes thereto and related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the 2007 Annual Report on Form 10-K.

       Ryder System, Inc. (Ryder) is a global leader in transportation and supply chain management solutions. Our business is divided into three business segments: Fleet Management Solutions (FMS), which provides full service leasing, contract maintenance, contract-related maintenance and commercial rental of trucks, tractors and trailers to customers principally in the U.S., Canada and the U.K.; Supply Chain Solutions (SCS), which provides comprehensive supply chain consulting including distribution and transportation services throughout North America and in Latin America, Europe and Asia; and Dedicated Contract Carriage (DCC), which provides vehicles and drivers as part of a dedicated transportation solution in the U.S. We operate in highly competitive markets. Our customers select us based on numerous factors including service quality, price, technology and service offerings. As an alternative to using our services, customers may choose to provide these services for themselves, or may choose to obtain similar or alternative services from other third-party vendors. Our customer base includes enterprises operating in a variety of industries including automotive, electronics, high-tech, telecommunications, industrial, consumer goods, paper and paper products, office equipment, food and beverage, general retail industries and governments.

ITEMS AFFECTING COMPARABILITY BETWEEN PERIODS

       Revenue Reporting

       In transportation management arrangements where we act as principal, revenue is reported on a gross basis for subcontracted transportation services billed to our customers. We realize minimal changes in profitability as a result of fluctuations in subcontracted transportation. Determining whether revenue should be reported as gross (within total revenue) or net (deducted from total revenue) is based on an assessment of whether we are acting as the principal or the agent in the transaction and involves judgment based on the terms and conditions of the arrangement. Effective January 1, 2008, our contractual relationship with a significant customer for certain transportation management services changed, and we determined, after a formal review of the terms and conditions of the services, that we are acting as an agent based on the revised terms of the arrangement. This contract modification required a change in revenue recognition from a gross basis to a net basis for subcontracted transportation beginning on January 1, 2008. This contract represented $152.6 million and $506.7 million of total revenue for the three and nine months ended September 30, 2007, respectively.

       Accounting Changes

       See Note (B), “Accounting Changes” for a discussion of the impact of changes in accounting standards.

ACQUISITIONS

       We have completed various asset purchase agreements in the past year, under which we acquired a company’s fleet and contractual customers. The combined networks operate under Ryder’s name and complement our existing market coverage and service network. The results of these acquisitions have been included in our consolidated results since the dates of acquisition.

       All acquisitions during the past year were as follows:

	Business				Contractual
Company Acquired	Segment	Date	Vehicles		Customers		Market
Gordon Truck Leasing	FMS	August 29, 2008		500		130	Pennsylvania
Gator Leasing, Inc.	FMS	May 12, 2008		2,300		300	Florida
Lily Transportation Corp.	FMS	January 11, 2008		1,600		200	Northeast U.S.
Pollock NationaLease	FMS/SCS	October 5, 2007		2,000		200	Canada

21

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

CONSOLIDATED RESULTS

	Three months ended September 30,				Nine months ended September 30,				Change 2008/2007
									Three		Nine
	2008		2007		2008		2007		Months		Months
	(In thousands, except per share amounts)
Earnings before income taxes	$	111,982		104,493	$	316,744		293,667	7	%	8
Provision for income taxes		41,774		38,960		127,509		111,752	7		14
Net earnings	$	70,208		65,533	$	189,235		181,915	7	%	4
Per diluted common share (EPS)	$	1.25		1.11	$	3.31		3.01	13	%	10
Weighted-average shares outstanding — Diluted		56,226		59,026		57,221		60,427	(5	)%	(5	)

       Earnings before income taxes and net earnings in the third quarter of 2008 increased 7%. The growth in operating results in the third quarter of 2008 was driven primarily by better operating performance in our FMS business segment and a Canadian pension curtailment gain, and was partially offset by reduced profitability in our SCS segment. Earnings in the third quarter of 2008 included a net income tax benefit of $1.6 million or $0.03 per diluted common share primarily due to a tax law change in Massachusetts. Earnings in the third quarter of 2007 were negatively impacted by a restructuring charge of $11.9 million ($7.8 million after-tax or $0.13 per diluted common share) offset partially by a gain on sale of property of $10.0 million ($6.1 million after-tax or $0.10 per diluted common share). See Note (F), “Restructuring and Other Charges (Recoveries),” and Note (P), “Gain on Sale of Property,” in the Notes to Consolidated Condensed Financial Statements for additional information.

       Earnings before income taxes for the nine months ended September 30, 2008 increased 8% and net earnings increased 4%. The growth in operating results in the nine months ended September 30, 2008 was driven primarily by better operating performance in our FMS business segment and was partially offset by reduced profitability in our SCS segment mostly as a result of our Brazil operations. Refer to Note (A), “Interim Financial Statements,” for a discussion of the second quarter 2008 adjustments related to our Brazil operations. Net earnings for 2008 have been favorably impacted by the Massachusetts tax law change and negatively impacted by non-deductible foreign losses.

       EPS growth in the third quarter of 2008 and nine months ended September 30, 2008 exceeded the net earnings growth reflecting the impact of share repurchase programs. See “Operating Results by Business Segment” for a further discussion of operating results.

	Three months ended September 30,						Nine months ended September 30,						Change 2008/2007
													Three		Nine
	2008			2007			2008			2007			Months		Months
	(In thousands)
Revenue:
Fleet Management Solutions	$	1,166,744			1,051,866		$	3,473,697			3,077,278		11	%	13
Supply Chain Solutions		430,779			554,045			1,285,860			1,704,445		(22	)	(25	)
Dedicated Contract Carriage		140,632			143,796			421,542			423,362		(2	)	—
Eliminations		(112,034	)		(101,983	)		(351,154	)		(305,290	)	(10	)	(15	)
Total	$	1,626,121			1,647,724		$	4,829,945			4,899,795		(1	)%	(1	)
Operating revenue(1)	$	1,209,819			1,170,684		$	3,595,037			3,446,958		3	%	4

(1) We use operating revenue, a non-GAAP financial measure, to evaluate the operating performance of our businesses and as a measure of sales activity. FMS fuel services revenue net of related intersegment billings, which is directly impacted by fluctuations in market fuel prices, is excluded from the operating revenue computation as fuel is largely a pass-through to our customers for which we realize minimal changes in profitability during periods of steady market fuel prices. However, profitability may be positively or negatively impacted by rapid changes in market fuel prices during a short period of time as customer pricing for fuel services is established based on market fuel costs. Subcontracted transportation is deducted from total revenue to arrive at operating revenue as subcontracted transportation is typically a pass-through to our customers. We realize minimal changes in profitability as a result of fluctuations in subcontracted transportation. Operating revenue is also a primary internal operating metric used to measure segment performance. Refer to the section titled “Non-GAAP Financial Measures” for a reconciliation of total revenue to operating revenue.

22

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

       Total revenue decreased 1% to $1.63 billion in the third quarter of 2008 and decreased 1% to $4.83 billion in the nine months ended September 30, 2008. Total revenue in 2008 was impacted by a change, effective January 1, 2008, in our contractual relationship with a significant customer that required a change in revenue recognition from a gross basis to a net basis for subcontracted transportation. This change did not impact operating revenue or net earnings. In the third quarter of 2007 and nine months ended September 30, 2007, we recorded revenue of $152.6 million and $506.7 million, respectively, related to this contractual relationship. Excluding this item, total revenue increased in the third quarter of 2008 and nine months ended September 30, 2008 primarily as a result of higher fuel services revenue. Operating revenue increased 3% in the third quarter of 2008 primarily due to FMS contractual revenue growth, including acquisitions, which more than offset a decline in commercial rental revenue. Operating revenue increased 4% in the nine months ended September 30, 2008 primarily due to FMS contractual revenue growth, including acquisitions. Total revenue in the third quarter of 2008 and nine months ended September 30, 2008 included an unfavorable foreign exchange impact of 0.1% due primarily to the British pound and a favorable foreign exchange impact of 0.9% due primarily to the Canadian dollar. Operating revenue in the third quarter of 2008 and nine months ended September 30, 2008 included an unfavorable foreign exchange impact of 0.3% due primarily to the British pound and a favorable foreign exchange impact of 0.8% due primarily to the Canadian dollar.

	Three months ended September 30,				Nine months ended September 30,				Change 2008/2007
									Three		Nine
	2008		2007		2008		2007		Months		Months
	(Dollars in thousands)
Operating expense (exclusive of items shown separately)	$	804,376		694,702	$	2,411,251		2,063,261		16%		17
Percentage of revenue		49%		42%		50%		42%

       Operating expense and operating expense as a percentage of revenue increased in 2008 primarily as a result of higher average fuel costs.

       We retain a portion of the accident risk under vehicle liability and workers’ compensation insurance programs. Our self-insurance accruals are based on actuarially estimated, undiscounted cost of claims, which includes claims incurred but not reported. While we believe that our estimation processes are well designed, every estimation process is inherently subject to limitations. Fluctuations in the frequency or severity of accidents make it difficult to precisely predict the ultimate cost of claims. In recent years, our development has been favorable compared to historical selected loss development factors because of improved safety performance, payment patterns and settlement patterns; however, there is no assurance we will continue to have similar favorable development in the future. During the three months ended September 30, 2008 and 2007, we recorded a benefit of $3.5 million and $6.5 million, respectively, from favorable development in estimated prior years’ self-insured loss reserves for the reasons noted above. During the nine months ended September 30, 2008 and 2007, we recorded a benefit of $13.8 million and $16.2 million, respectively, from favorable development in estimated prior years’ self-insured loss reserves for the reasons noted above.

	Three months ended September 30,				Nine months ended September 30,				Change 2008/2007
									Three		Nine
	2008		2007		2008		2007		Months		Months
	(Dollars in thousands)
Salaries and employee-related costs	$	355,230		348,405	$	1,067,643		1,047,271		2%		2
Percentage of revenue		22%		21%		22%		21%
Percentage of operating revenue		29%		30%		30%		30%

       Salaries and employee-related costs increased in the third quarter of 2008 and nine months ended September 30, 2008 primarily due to higher incentive-based compensation and savings plan costs partially offset by lower pension costs. Headcount as of September 30, 2008 was flat compared to the prior year.

       Pension expense decreased $9.0 million in the third quarter of 2008 and $20.6 million in the nine months ended September 30, 2008 primarily as a result of the freeze of the U.S. pension plans and Canadian defined benefit plan. During the third quarter of 2008, the Board of Directors approved the freeze of the defined benefit portion of the Canada retirement plan which resulted in a curtailment gain of $3.6 million. In connection with the freeze of the U.S. pension plans on January 1, 2008, we provided an enhanced 401(k) savings plan to employees. Refer to Note (O), “Employee Benefit Plans,” in the Notes to Consolidated Condensed Financial Statements for additional information. Total savings plan costs increased $5.2 million and $15.7 million in the third quarter of 2008

23

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

and nine months ended September 30, 2008, respectively, primarily as a result of the enhanced 401(k) plan. The net impact of pension and savings plan costs was a net decrease of $3.8 million and $4.9 million for the three and nine months ended September 30, 2008.

       We apply actuarial methods to determine the annual net periodic pension expense and pension plan liabilities on an annual basis. Each December, we review actual experience compared with the more significant assumptions used and make adjustments to our assumptions, if warranted. In determining our annual estimate of periodic pension cost, we are required to make an evaluation of critical factors, such as discount rate and the expected long-term rate of return on assets. Accounting guidance applicable to pension plans does not require immediate recognition of the current year effects of a deviation between these assumptions and actual experience. We have experienced significant negative pension asset returns in 2008 in light of current equity market conditions, which would materially increase pension expense for 2009. Actual pension expense in 2009 will depend, among other items, on pension asset returns and discount rates at December 31.

	Three months ended September 30,				Nine months ended September 30,				Change 2008/2007
									Three		Nine
	2008		2007		2008		2007		Months		Months
	(Dollars in thousands)
Subcontracted transportation	$	89,417		233,638	$	258,447		737,853		(62)%		(65)
Percentage of revenue		5%		14%		5%		15%

       Subcontracted transportation expense represents freight management costs on logistics contracts for which we purchase transportation from third parties. Subcontracted transportation expense is directly impacted by whether we are acting as an agent or principal in our transportation management contracts. To the extent that we are acting as a principal, revenue is reported on a gross basis and carriage costs to third parties are recorded as subcontracted transportation expense. The impact to net earnings is the same whether we are acting as an agent or principal in the arrangement. Effective January 1, 2008, our contractual relationship with a significant customer changed, and we determined, after a formal review of the terms and conditions of the services, we are acting as an agent based on the revised terms of the arrangement. As a result, the amount of total revenue and subcontracted transportation expense decreased by $152.6 million in the third quarter and by $506.7 million in the nine months ended September 30, 2008 due to the reporting of revenue net of subcontracted transportation expense for this particular customer contract. The decrease in subcontracted transportation expense as a result of net revenue reporting in the third quarter of 2008 and nine months ended September 30, 2008 was slightly offset by increased volumes of freight management activity from new and expanded business.

	Three months ended September 30,						Nine months ended September 30,						Change 2008/2007
													Three			Nine
	2008			2007			2008			2007			Months			Months
	(In thousands)
Depreciation expense	$	214,594			207,814		$	629,803			606,268			3	%		4
Gains on vehicle sales, net		(10,400	)		(8,111	)		(32,990	)		(36,677	)		28			(10	)
Equipment rental		19,326			25,088			61,147			67,929			(23	)		(10	)

       Depreciation expense relates primarily to FMS revenue earning equipment. Depreciation expense increased in the third quarter of 2008 and nine months ended September 30, 2008 reflecting the impact of recent acquisitions. The increases were partially offset by lower adjustments in the carrying value of vehicles held for sale of $2.6 million and $6.8 million during the third quarter of 2008 and nine months ended September 30, 2008, respectively.

       Gains on vehicle sales, net increased in the third quarter of 2008 primarily due to higher pricing on expanded retail activity. Gains on vehicles sales, net decreased in the nine months ended September 30, 2008 primarily due to a decline in the number of vehicles sold.

       Equipment rental consists primarily of rent expense for FMS revenue earning equipment under lease. The decrease in equipment rental in the third quarter of 2008 and nine months ended September 30, 2008 reflects a reduction in the average number of leased vehicles.

24

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 2008/2007
									Three		Nine
	2008		2007		2008		2007		Months		Months
	(Dollars in thousands)
Interest expense	$	40,639		40,199	$	115,655		120,410		1%		(4)
Effective interest rate		5.5%		5.6%		5.3%		5.6%

       Interest expense increased in the third quarter of 2008 due to higher average debt balances. Interest expense decreased in the nine months ended September 30, 2008 due to a lower average cost of debt. The lower effective interest rate in 2008 primarily resulted from lower commercial paper borrowing rates. A hypothetical 10 basis point change in short-term market interest rates would decrease or increase annual pre-tax earnings by $0.8 million.

	Three months ended September 30,					Nine months ended September 30,
	2008		2007			2008		2007
	(In thousands)
Miscellaneous expense (income), net	$	957		(10,407	)	$	2,278		(13,781	)

       Miscellaneous expense (income), net consists of investment losses (income) on securities used to fund certain benefit plans, interest income, losses (gains) from sales of operating property, foreign currency transaction losses (gains), and other non-operating items. Miscellaneous expense (income), net decreased in the third quarter of 2008 and nine months ended September 30, 2008 primarily due to a $10.0 million gain recognized in 2007 on the sale of property and declining market performance in 2008 of investments classified as trading securities. These declines were slightly offset by lower foreign currency transaction losses.

	Three months ended September 30,				Nine months ended September 30,
	2008		2007		2008			2007
	(In thousands)
Restructuring and other charges (recoveries), net	$	—		11,903	$	(33	)		13,594

       Restructuring and other charges (recoveries), net in the three months ended September 30, 2007 primarily related to $11.0 million of employee severance and benefit costs incurred in connection with global cost savings initiatives and $0.9 million of facility and related costs. Restructuring and other charges (recoveries), net in the nine months ended September 30, 2007 also included a charge of $1.3 million incurred to extinguish debentures that were originally set to mature in 2017. The charge included the premium paid on the early extinguishment of debt and the write-off of related debt discount and issuance costs.

	Three months ended September 30,				Nine months ended September 30,				Change 2008/2007
									Three		Nine
	2008		2007		2008		2007		Months		Months
	(Dollars in thousands)
Provision for income taxes	$	41,774		38,960	$	127,509		111,752		7%		14
Effective tax rate		37.3%		37.3%		40.3%		38.1%

       Our effective income tax rate for the nine months ended September 30, 2008 increased as the favorable impacts from the tax law changes in Massachusetts were more than offset by the adverse impact of higher non-deductible foreign losses in the current year, mostly in our Brazil operations and audit closures, expiring statute of limitations and the United Kingdom tax law change in the prior year.

       During the third quarter of 2008, the State of Massachusetts enacted a new tax law which resulted in a favorable adjustment to deferred income taxes of $1.8 million. During the third quarter of 2007, the United Kingdom enacted a new tax law which reduced the overall corporate tax rate and resulted in a favorable adjustment to deferred income taxes of $0.8 million in the prior year. During the second quarter of 2007, the State of New York enacted changes to its tax system which resulted in favorable adjustments to deferred income taxes of $1.3 million in the prior year.

25

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

OPERATING RESULTS BY BUSINESS SEGMENT

	Three months ended September 30,						Nine months ended September 30,						Change 2008/2007
													Three			Nine
	2008			2007			2008			2007			Months			Months
	(In thousands)
Revenue:
Fleet Management Solutions	$	1,166,744			1,051,866		$	3,473,697			3,077,278			11	%		13
Supply Chain Solutions		430,779			554,045			1,285,860			1,704,445			(22	)		(25	)
Dedicated Contract Carriage		140,632			143,796			421,542			423,362			(2	)		—
Eliminations		(112,034	)		(101,983	)		(351,154	)		(305,290	)		(10	)		(15	)
Total	$	1,626,121			1,647,724		$	4,829,945			4,899,795			(1	)%		(1	)
Operating Revenue:
Fleet Management Solutions	$	777,099			758,516		$	2,297,993			2,214,646			2	%		4
Supply Chain Solutions		344,170			325,293			1,035,825			977,341			6			6
Dedicated Contract Carriage		137,824			138,910			413,130			412,613			(1	)		—
Eliminations		(49,274	)		(52,035	)		(151,911	)		(157,642	)		5			4
Total	$	1,209,819			1,170,684		$	3,595,037			3,446,958			3	%		4
NBT:
Fleet Management Solutions	$	104,758			93,179		$	311,988			271,443			12	%		15
Supply Chain Solutions		12,656			17,398			27,763			44,302			(27	)		(37	)
Dedicated Contract Carriage		13,182			12,293			36,908			35,153			7			5
Eliminations		(8,218	)		(6,417	)		(23,404	)		(23,241	)		(28	)		(1	)
		122,378			116,453			353,255			327,657			5			8
Unallocated Central Support Services		(10,396	)		(10,096	)		(30,046	)		(30,435	)		(3	)		1
Restructuring and other charges, net and other items (1)		—			(1,864	)		(6,465	)		(3,555	)	NA			NA
Earnings before income taxes	$	111,982			104,493		$	316,744			293,667			7	%		8

(1) Includes the Brazil charges of $6.5 million recorded in the second quarter of 2008 and the gain on sale of property of $10.0 million recorded in the third quarter of 2007. See Note (A), “Interim Financial Statements” and Note (P),”Gain on Sale of Property” in the Notes to Consolidated Condensed Financial Statements for additional information.

       As part of management’s evaluation of segment operating performance, we define the primary measurement of our segment financial performance as “Net Before Taxes” (NBT), which includes an allocation of Central Support Services (CSS) and excludes restructuring and other charges, net, described in Note (F), “Restructuring and Other Charges (Recoveries); the Brazil charges described in Note (A), “Interim Financial Statements;” and the 2007 gain on sale of property described in Note (P), “Gain on Sale of Property” in the Notes to Consolidated Condensed Financial Statements. CSS represents those costs incurred to support all business segments, including human resources, finance, corporate services and public affairs, information technology, health and safety, legal and corporate communications. The objective of the NBT measurement is to provide clarity on the profitability of each business segment and, ultimately, to hold leadership of each business segment and each operating segment within each business segment accountable for their allocated share of CSS costs. Segment results are not necessarily indicative of the results of operations that would have occurred had each segment been an independent, stand-alone entity during the periods presented. Certain costs are considered to be overhead not attributable to any segment and remain unallocated in CSS. Included within the unallocated overhead remaining within CSS are the costs for investor relations, public affairs and certain executive compensation. See Note (Q), “Segment Reporting,” in the Notes to Consolidated Condensed Financial Statements for a description of how the remainder of CSS costs is allocated to the business segments.

26

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

       The following table provides a reconciliation of items excluded from our segment NBT measure to their classification within our Consolidated Condensed Statements of Earnings:

	Consolidated
	Condensed Statements of	Three months ended September 30,					Nine months ended September 30,
Description	Earnings Line Item (1)	2008		2007			2008			2007
				(In thousands)
Restructuring and other (charges) recoveries, net	Restructuring	$	—		(11,903	)	$	33			(13,594	)
Brazil charges(2)	Operating expense		—		—			(4,877	)		—
Brazil charges(2)	Subcontracted transportation		—		—			(1,621	)		—
Gain on sale of property(3)	Miscellaneous income		—		10,039			—			10,039
Restructuring and other charges, net and other items		$	—		(1,864	)	$	(6,465	)		(3,555	)

(1)	Restructuring refers to “Restructuring and other charges (recoveries), net” and Miscellaneous income refers to “Miscellaneous expense (income), net” on our Consolidated Condensed Statements of Earnings.
(2)	See Note (A), “Interim Financial Statements,” in the Notes to Consolidated Condensed Financial Statements for additional information.
(3)	See Note (P), “Gain on Sale of Property,” in the Notes to Consolidated Condensed Financial Statements for additional information.

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

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

	Three months ended September 30,				Nine months ended September 30,				Change 2008/2007
									Three			Nine
	2008		2007		2008		2007		Months			Months
	(In thousands)
Equipment contribution:
Supply Chain Solutions	$	4,090		3,163	$	12,388		12,098		29	%		2
Dedicated Contract Carriage		4,128		3,254		11,016		11,143		27			(1	)
Total	$	8,218		6,417	$	23,404		23,241		28	%		1

27

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

Fleet Management Solutions

	Three months ended September 30,				Nine months ended September 30,				Change 2008/2007
									Three			Nine
	2008		2007		2008		2007		Months			Months
	(Dollars in thousands)
Full service lease	$	516,370		496,231	$	1,536,667		1,461,380		4	%		5
Contract maintenance		43,407		40,869		125,939		118,092		6			7
Contractual revenue		559,777		537,100		1,662,606		1,579,472		4			5
Contract-related maintenance		48,321		48,061		150,165		150,256		1			—
Commercial rental		149,493		155,012		428,798		431,345		(4	)		(1	)
Other		19,508		18,343		56,424		53,573		6			5
Operating revenue (1)		777,099		758,516		2,297,993		2,214,646		2			4
Fuel services revenue		389,645		293,350		1,175,704		862,632		33			36
Total revenue	$	1,166,744		1,051,866	$	3,473,697		3,077,278		11	%		13
Segment NBT	$	104,758		93,179	$	311,988		271,443		12	%		15
Segment NBT as a % of total revenue		9.0%		8.9%		9.0%		8.8%	10 bps			20 bps
Segment NBT as a % of operating revenue (1)		13.5%		12.3%		13.6%		12.3%	120 bps			130 bps

(1) We use operating revenue, a non-GAAP financial measure, to evaluate the operating performance of our FMS business segment and as a measure of sales activity. Fuel services revenue, which is directly impacted by fluctuations in market fuel prices, is excluded from our operating revenue computation as fuel is largely a pass-through to customers for which we realize minimal changes in profitability during periods of steady market fuel prices. However, profitability may be positively or negatively impacted by rapid changes in market fuel prices during a short period of time as customer pricing for fuel services is established based on market fuel costs.

       Total revenue increased 11% during the third quarter of 2008 and increased 13% during the nine months ended September 30, 2008 due to higher fuel services revenue and contractual revenue growth. Fuel services revenue increased in 2008 due to higher fuel prices partially offset by reduced fuel volumes. Operating revenue (revenue excluding fuel) increased 2% in the third quarter of 2008 and increased 4% in the nine months ended September 30, 2008 as a result of contractual revenue growth, including the impact of acquisitions, which more than offset a decline in commercial rental revenue. Total revenue and operating revenue in the third quarter of 2008 included an unfavorable foreign exchange impact of 0.5% and 0.8%, respectively. Total revenue and operating revenue in the nine months ended September 30, 2008 included a favorable foreign exchange impact of 0.4% and 0.5%, respectively.

       Full service lease revenue grew 4% in the third quarter and 5% in the nine months ended September 30, 2008 reflecting growth in the North American market primarily due to acquisitions. Contract maintenance revenue increased 6% in the third quarter of 2008 and 7% in the nine months ended September 30, 2008 due to new contract sales. We expect favorable contractual revenue comparisons to continue for the remainder of the year due to recent acquisitions and contract sales. Commercial rental revenue decreased 4% in the third quarter and decreased 1% in the nine months ended September 30, 2008 reflecting reduced pricing in the U.S. and weak U.K. market demand partially offset by growth in Canada. We expect similar commercial rental revenue comparisons to continue in the near term based on recent market trends.

28

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

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

	Three months ended September 30,				Nine months ended September 30,				Change 2008/2007
	2008		2007		2008		2007		Three Months			Nine Months
	(Dollars in thousands)
Non-lease customer rental revenue	$	75,058		73,024	$	200,220		191,228		3	%		5
Lease customer rental revenue(1)	$	45,862		51,840	$	140,589		159,413		(12	)%		(12	)
Average commercial rental fleet size – in service (2)		28,200		29,800		27,700		30,000		(5	)%		(8	)
Average commercial rental power fleet size – in service(2), (3)		21,100		21,200		20,300		21,400		—	%		(5	)
Commercial rental utilization – power fleet		73.7%		73.0%		72.0%		69.3%	70 bps			270 bps

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

       FMS NBT increased $11.6 million in the third quarter of 2008 primarily because of improved contractual business performance, and the accretive impact of acquisitions. To a lesser extent, earnings also benefited from improved used vehicle results, unusually volatile fuel prices and a Canadian pension curtailment gain of $1.8 million. These results were partially offset by lower commercial rental results as weak market demand drove lower pricing in the U.S. and lower utilization in the U.K. Overall used vehicle results reflect the benefit of a smaller used truck inventory, including lower carrying costs. Gains from the sale of used vehicles increased in the third quarter of 2008 primarily due to expanded retail activity.

       FMS NBT increased $40.5 million in the nine months ended September 30, 2008 primarily because of improved contractual business performance, including acquisitions. Earnings also benefited from unusually volatile fuel prices and improved used vehicle results. These results were partially offset by lower commercial rental results. Overall used vehicle results reflect the benefit of a smaller used truck inventory, including lower carrying costs. Gains from the sale of used vehicles decreased in the nine months ended September 30, 2008 primarily because of a decline in the number of used vehicles sold. Lower carrying costs favorably impacted 2008 results and more than offset the decline in gains for the nine months ended September 30, 2008.

29

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

     Our global fleet of owned and leased revenue earning equipment and contract maintenance vehicles is summarized as follows (number of units rounded to the nearest hundred):

							Change
	September 30,		December 31,		September 30,		Sept. 2008/			Sept. 2008/
	2008		2007		2007		Dec. 2007			Sept. 2007
End of period vehicle count
By type:
Trucks		68,400		62,800		63,500		9	%		8
Tractors		51,100		50,400		51,400		1			(1	)
Trailers		32,900		40,400		40,300		(19	)		(18	)
Other		10,200		7,100		7,000		44			46
Total		162,600		160,700		162,200		1	%		—
By ownership:
Owned		157,300		155,100		155,600		1	%		1
Leased		5,300		5,600		6,600		(5	)		(20	)
Total		162,600		160,700		162,200		1	%		—
By product line:
Full service lease		120,400		115,500		114,800		4			5
Commercial rental		33,900		34,100		35,100		(1	)		(3	)
Service vehicles and other		2,800		3,600		3,600		(22	)		(22	)
Active units		157,100		153,200		153,500		3			2
Held for sale		5,500		7,500		8,700		(27	)		(37	)
Total		162,600		160,700		162,200		1	%		—
Customer vehicles under contract maintenance		34,200		31,500		30,400		9	%		13
Quarterly average vehicle count
By product line:
Full service lease		119,700		115,200		115,300		4	%		4
Commercial rental		34,400		34,600		35,700		(1	)		(4	)
Service vehicles and other		3,100		3,600		3,600		(14	)		(14	)
Active units		157,200		153,400		154,600		2			2
Held for sale		5,500		8,100		10,000		(32	)		(45	)
Total		162,700		161,500		164,600		1	%		(1	)
Customer vehicles under contract maintenance		34,200		31,000		30,100		10	%		14
Year-to-date average vehicle count
By product line:
Full service lease		117,900		116,500		116,800		1	%		1
Commercial rental		34,500		35,700		36,200		(3	)		(5	)
Service vehicles and other		3,400		3,500		3,500		(3	)		(3	)
Active units		155,800		155,700		156,500		—			—
Held for sale		6,100		9,300		10,200		(34	)		(40	)
Total		161,900		165,000		166,700		(2	)%		(3	)
Customer vehicles under contract maintenance		33,200		30,800		30,700		8	%		8

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

30

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

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

							Change
	September 30,		December 31,		September 30,		Sept. 2008/			Sept. 2008/
	2008		2007		2007		Dec. 2007			Sept. 2007
Not yet earning revenue (NYE)		1,000		900		800		11	%		25
No longer earning revenue (NLE):
Units held for sale		4,600		6,400		7,600		(28	)		(39	)
Other NLE units		1,000		1,000		1,200		—			(17	)
Total (1)		6,600		8,300		9,600		(20	)%		(31	)

(1) Non-revenue earning equipment for FMS operations outside the U.S. totaled approximately 1,200 vehicles at September 30, 2008, 1,900 vehicles at December 31, 2007 and 800 vehicles at September 30, 2007, which are not included above.

       NYE units represent new vehicles on hand that are being prepared for deployment to a lease customer or into the rental fleet. Preparations include activities such as adding lift gates, paint, decals, cargo area and refrigeration equipment. For 2008, the number of NYE units increased compared to the same period in the prior year consistent with lease replacement activity. NLE units represent all vehicles held for sale and vehicles for which no revenue has been earned in the previous 30 days. For 2008, the number of NLE units decreased compared to the prior year because of reduced used vehicle inventory levels. We expect favorable NLE comparisons to continue throughout the year as 2007 levels were impacted by higher lease replacement activity and a higher amount of rental units being out serviced to match market demand.

Supply Chain Solutions

	Three months ended September 30,				Nine months ended September 30,				Change 2008/2007
									Three			Nine
	2008		2007		2008		2007		Months			Months
	(Dollars in thousands)
U.S. operating revenue:
Automotive and industrial	$	137,095		135,324	$	430,395		410,436		1	%		5
High-tech and consumer industries		80,069		70,534		232,258		219,534		14			6
Transportation management		9,681		7,797		28,750		24,344		24			18
U.S. operating revenue		226,845		213,655		691,403		654,314		6			6
International operating revenue		117,325		111,638		344,422		323,027		5			7
Total operating revenue (1)		344,170		325,293		1,035,825		977,341		6			6
Subcontracted transportation		86,609		228,752		250,035		727,104		(62	)		(66	)
Total revenue	$	430,779		554,045	$	1,285,860		1,704,445		(22	)%		(25	)
Segment NBT	$	12,656		17,398	$	27,763		44,302		(27	)%		(37	)
Segment NBT as a % of total revenue		2.9%		3.1%		2.2%		2.6%	(20		)bps	(40		)bps
Segment NBT as a % of total operating revenue (1)		3.7%		5.3%		2.7%		4.5%	(160		)bps	(180		)bps
Memo: Fuel costs	$	37,011		29,677	$	124,685		88,885		25	%		40

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

       Total revenue decreased 22% in the third quarter of 2008 and decreased 25% in the nine months ended September 30, 2008 as a result of net reporting of a transportation management arrangement previously reported on a gross basis. Effective January 1, 2008, our contractual relationship with a significant customer for certain transportation management services changed, and we determined, after a formal review of the terms and conditions of the services, that we are acting as an agent based on the revised terms of the

31

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

arrangement. As a result, the amount of total revenue and subcontracted transportation expense decreased by $152.6 million and $506.7 million from the third quarter of 2007 and nine months ended September 30, 2007, respectively, due to the reporting of revenue net of subcontracted transportation expense related to this arrangement. This change did not impact operating revenue or net earnings. Operating revenue grew 6% in both the three and nine months ended September 30, 2008, due to new and expanded business, higher fuel costs and the favorable impact of foreign exchange rates. In the third quarter of 2008, SCS total revenue and operating revenue included a favorable foreign currency exchange impact of 1.1% and 0.5%, respectively. In the nine months ended September 30, 2008, SCS total revenue and operating revenue included a favorable foreign currency exchange impact of 2.3% and 1.8%, respectively. We expect unfavorable revenue comparisons for the remainder of the year due to the previously mentioned change in contractual relationship.

       Our largest customer, General Motors Corporation, accounted for approximately 17% of both SCS total revenue and operating revenue for the nine months ended September 30, 2008, and is comprised of multiple contracts in various geographic regions. For the nine months ended September 30, 2007, General Motors Corporation accounted for approximately 42% and 19% of SCS total revenue and operating revenue, respectively.

       SCS NBT decreased $4.7 million in the three months ended September 30, 2008 as a result of lower operating results in Latin America and the start-up of a U.S. based operation. Overhead spending in the third quarter of 2008 was negatively impacted by severance and higher sales and marketing and technology initiatives but were offset by a Canadian pension curtailment gain of $1.8 million and lower incentive-based compensation. The lower operating results in Latin America are due to higher transportation and labor costs.

       SCS NBT decreased $16.5 million in the nine months ended September 30, 2008 as a result of lower operating results in Brazil, higher overhead spending and the adverse impact from the automotive strikes during the second quarter of 2008. Brazil results this year have declined $10.7 million compared to prior year due to high transportation costs, adverse developments in 2008 related to certain litigation-related matters and the impact of customs and cross-border strikes. Higher overhead spending is due to higher sales and marketing investments and costs incurred for a facility relocation and were partially offset by a pension curtailment gain.

Dedicated Contract Carriage

	Three months ended September 30,				Nine months ended September 30,				Change 2008/2007
									Three			Nine
	2008		2007		2008		2007		Months			Months
	(Dollars in thousands)
Operating revenue (1)	$	137,824		138,910	$	413,130		412,613		(1	)%		—
Subcontracted transportation		2,808		4,886		8,412		10,749		(43	)		(22	)
Total revenue	$	140,632		143,796	$	421,542		423,362		(2	)%		—
Segment NBT	$	13,182		12,293	$	36,908		35,153		7	%		5
Segment NBT as a % of total revenue		9.4%		8.5%		8.8%		8.3%	90		bps	50		bps
Segment NBT as a % of operating revenue (1)		9.6%		8.8%		8.9%		8.5%	80		bps	40		bps
Memo: Fuel costs	$	33,407		26,704	$	100,634		77,884		25	%		29

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

       Total revenue and operating revenue decreased in the third quarter of 2008 as a result of the non-renewal of certain customer contracts partially offset by the pass-throughs of higher fuel costs. Total revenue and operating revenue were flat in the nine months ended September 30, 2008 as higher fuel cost pass-throughs offset the non-renewal of certain customer contracts. We expect similar revenue comparisons to continue for the remainder of the year due to recent sales activity.

32

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

       DCC NBT increased 7% in the third quarter of 2008 due to improved operating performance and higher FMS equipment contribution partially offset by higher safety and insurance costs. DCC NBT increased 5% in the nine months ended September 30, 2008 as a result of improved operating performance partially offset by higher safety and insurance costs.

Central Support Services

	Three months ended September 30,						Nine months ended September 30,						Change 2008/2007
													Three			Nine
	2008			2007			2008			2007			Months			Months
		(In thousands)
Human resources	$	3,996			3,939		$	11,752			12,115			1	%		(3	)
Finance		14,190			14,263			41,786			44,396			(1	)		(6	)
Corporate services and public affairs		3,248			3,067			9,973			8,919			6			12
Information technology		14,560			14,144			42,671			41,001			3			4
Health and safety		1,789			1,863			5,814			6,191			(4	)		(6	)
Other		10,526			9,370			28,195			26,587			12			6
Total CSS		48,309			46,646			140,191			139,209			4			1
Allocation of CSS to business segments		(37,913	)		(36,550	)		(110,145	)		(108,774	)		(4	)		(1	)
Unallocated CSS	$	10,396			10,096		$	30,046			30,435			3	%		(1	)

       Total and unallocated CSS costs in the third quarter of 2008 increased primarily due to professional fees for strategic initiatives and increased outside legal costs. Total CSS costs in the nine months ended September 30, 2008 increased primarily due to higher spending on information technology initiatives and public affairs and professional fees.

FINANCIAL RESOURCES AND LIQUIDITY

Cash Flows

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

	Nine months ended September 30,
	2008			2007
	(In thousands)
Net cash provided by (used in):
Operating activities	$	882,044			837,326
Financing activities		(78,547	)		(249,224	)
Investing activities		(805,829	)		(616,363	)
Effect of exchange rate changes on cash		(3,723	)		5,853
Net change in cash and cash equivalents	$	(6,055	)		(22,408	)

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

       Cash provided by operating activities increased to $882.0 million in the nine months ended September 30, 2008 compared with $837.3 million in 2007, due primarily to improved cash-based earnings. Cash used in financing activities in the nine months ended September 30, 2008 was $78.5 million compared with cash used of $249.2 million in 2007. Cash used in financing activities in the nine months ended September 30, 2008 reflects lower debt repayments as higher borrowings were used to fund higher share repurchase activity. Cash used in investing activities increased to $805.8 million in the nine months ended September 30, 2008 compared with $616.4 million in 2007 primarily due to acquisition-related payments in 2008 and the proceeds from the sale-leaseback in 2007, partially offset by lower vehicle capital spending and the use of restricted cash.

33

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

       We refer to the sum of operating cash flows, proceeds from the sales of revenue earning equipment and operating property and equipment, sale and leaseback of revenue earning equipment, collections on direct finance leases and other cash inflows as “total cash generated.” We refer to the net amount of cash generated from operating and investing activities (excluding changes in restricted cash and acquisitions) as “free cash flow.” Although total cash generated and free cash flow are non-GAAP financial measures, we consider them to be important measures of comparative operating performance. We also believe total cash generated to be an important measure of total cash inflows generated from our ongoing business activities. We believe free cash flow provides investors with an important perspective on the cash available for debt service and for shareholders after making capital investments required to support ongoing business operations. Our calculation of free cash flow may be different from the calculation used by other companies and therefore comparability may be limited.

       The following table shows the sources of our free cash flow computation:

	Nine months ended September 30,
	2008			2007
	(In thousands)
Net cash provided by operating activities	$	882,044			837,326
Sales of revenue earning equipment		208,846			280,671
Sales of operating property and equipment		3,393			15,898
Sale and leaseback of revenue earning equipment		—			150,348
Collections on direct finance leases		46,824			46,992
Other, net		395			1,040
Total cash generated		1,141,502			1,332,275
Purchases of property and revenue earning equipment		(891,159	)		(1,093,545	)
Free cash flow	$	250,343			238,730

       The improvement in free cash flow to $250.3 million for the nine months ended September 30, 2008 compared with $238.7 million for the same period in 2007 was driven by the anticipated decrease in vehicle capital spending which was partially offset by the proceeds from the 2007 sale and leaseback transaction. We anticipate positive free cash flow to continue in 2008.

       The following table provides a summary of capital expenditures:

	Nine months ended September 30,
	2008			2007
	(In thousands)
Revenue earning equipment: (1)
Full service lease	$	687,463			724,561
Commercial rental		172,495			200,225
		859,958			924,786
Operating property and equipment		89,089			57,294
Total capital expenditures		949,047			982,080
Changes in accounts payable related to purchases of revenue earning equipment		(57,888	)		111,465
Cash paid for purchases of property and revenue earning equipment	$	891,159			1,093,545

(1) Capital expenditures exclude revenue earning equipment acquired under capital leases of $1.0 million and $11.3 million during the nine months ended September 30, 2008 and 2007, respectively.

       Capital expenditures (accrual basis) of $949.0 million were lower for the nine months ended September 30, 2008 compared with the same period in 2007 principally as a result of lower full service lease vehicle spending for expansion of customer fleets and reduced rental spending to meet market demand. Additionally, we have had increased lease extensions which do not require investment in capital. The increase in capital expenditures related to operating property and equipment reflect our investments in information technology initiatives and real estate properties. We anticipate full-year 2008 accrual basis capital expenditures to be approximately $1.28 billion, down from plan of $1.44 billion. This current capital expenditures forecast reflects a decrease of $160.0 million from plan, due to lower lease spending slightly offset by modestly higher spending on commercial rental vehicles.

34

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

Financing and Other Funding Transactions

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

       Our ability to access unsecured debt in the capital markets is linked to both our short-term and long-term debt ratings. These ratings are intended to provide guidance to investors in determining the credit risk associated with particular Ryder securities based on current information obtained by the rating agencies from us or from other sources. 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. As a result, we would have to rely on alternative funding sources. A significant downgrade would not affect our ability to borrow amounts under our revolving credit facility described below.

       Our debt ratings at September 30, 2008 were as follows:

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

       Global capital and credit markets, including the commercial paper markets, have recently experienced increased volatility and disruption. Despite this volatility and disruption, we have continued to have access to the commercial paper markets. There is no guarantee that such markets will continue to be available to us at terms commercially acceptable to us or at all. If we cease to have access to commercial paper and other sources of unsecured borrowings, we would meet our liquidity needs by drawing upon contractually committed lending agreements as described below and/or by seeking other funding sources. We believe that our operating cash flow, together with our revolving credit facility and other available debt financing, will be adequate to meet our operating, investing and financing needs in the foreseeable future, although there can be no assurance that continued or increased volatility and disruption in the global capital and credit markets will not impair our ability to access these markets on terms commercially acceptable to us or at all.

       We can borrow up to $870 million through a global revolving credit facility with a syndicate of thirteen lenders. The credit facility matures in May 2010 and is used primarily to finance working capital and provide support for the issuance of commercial paper in the U.S. and Canada. This facility can also be used to issue up to $75 million in letters of credit (there were no letters of credit outstanding against the facility at September 30, 2008). 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’s current annual facility fee is 11 basis points, which applies to the total facility of $870 million, and is based on Ryder’s current credit ratings. The credit facility contains no provisions restricting its availability in the event of a material adverse change to Ryder’s business operations; however, the credit facility does contain standard representations and warranties, events of default, cross-default provisions, and certain affirmative and negative covenants. In order to maintain availability of funding, we must maintain a ratio of debt to consolidated tangible net worth, as defined in the agreement, of less than or equal to 300%. The ratio at September 30, 2008 was 148%. At September 30, 2008, $669.2 million was available under the credit facility. Foreign borrowings of $20.7 million were outstanding under the facility at September 30, 2008.

       In September 2008, we renewed our trade receivables purchase and sale program, pursuant to which we sell certain of our domestic trade accounts receivable to Ryder Receivable Funding II, L.L.C. (RRF LLC), a bankruptcy remote, consolidated subsidiary of Ryder, that in turn may sell, on a revolving basis, an ownership interest in certain of these accounts receivable to a receivables conduit or committed purchasers. 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 our unsecured debt ratings and changes in interest rates. The available proceeds that may be received under the program are limited to $250 million. If no event occurs which causes early termination, the 364-day program will expire on September 8, 2009. The program contains provisions restricting its availability in the event of a material adverse change to our business operations or the collectibility of the securitized receivables. At September 30, 2008 and December 31, 2007, $70.0 million and $100.0 million, respectively, was outstanding under the program and was included within “Short-term debt and current portion of long-term debt” on our Consolidated Condensed Balance Sheets.

       On February 27, 2007, Ryder filed an automatic shelf registration statement on Form S-3 with the Securities and Exchange Commission. 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. In August 2008, we issued $300 million of unsecured medium-term notes maturing in September 2015. The proceeds from the notes were used for general corporate purposes. If the notes are downgraded following, and as a result of, a change of control, the note holder can require us to repurchase all or a portion of the notes at a purchase price equal to 101% of the principal amount plus accrued and unpaid interest. Our other outstanding notes are not subject to change of control repurchase obligations. See Note (J), “Debt,” for other issuances under this registration statement.

35

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

       At September 30, 2008, we had the following amounts available to fund operations under the aforementioned facilities:

	(In millions)
Global revolving credit facility	$	669
Trade receivables program		180
Automatic shelf registration	Indeterminate

       The following table shows the movements in our debt balance:

	Nine months ended September 30,
	2008			2007
	(In thousands)
Debt balance at January 1	$	2,776,129			2,816,943
Cash-related changes in debt:
Net change in commercial paper borrowings		(369,879	)		(313,833	)
Proceeds from issuance of medium-term notes		550,000			250,000
Proceeds from issuance of other debt instruments		116,240			447,234
Retirement of medium-term notes and debentures		(80,000	)		(178,020	)
Other debt repaid, including capital lease obligations		(59,492	)		(251,708	)
		156,869			(46,327	)
Non-cash changes in debt:
Fair market value adjustment on notes subject to hedging		(3,607	)		(58	)
Addition of capital lease obligations, including acquisitions		1,862			11,340
Changes in foreign currency exchange rates and other non-cash items		(9,671	)		34,197
Total changes in debt		145,453			(848	)
Debt balance at September 30	$	2,921,582			2,816,095

       In accordance with our funding philosophy, we attempt to match the aggregate average remaining re-pricing life of our debt with the aggregate average remaining re-pricing life of our assets. We utilize both fixed-rate and variable-rate debt to achieve this match and generally target a mix of 25% — 45% variable-rate debt as a percentage of total debt outstanding. The variable-rate portion of our total obligations (including notional value of swap agreements) was 27% at September 30, 2008 and 31% at December 31, 2007.

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

	September 30,		% to			December 31,		% to
	2008		Equity			2007		Equity
			(Dollars in thousands)
On-balance sheet debt	$	2,921,582		165	%		2,776,129		147%
Off-balance sheet debt—PV of minimum lease payments and guaranteed residual values under operating leases for vehicles (1)		167,229					177,992
Total obligations	$	3,088,811		174	%		2,954,121		157%

(1) Present value (PV) does not reflect payments Ryder would be required to make if we terminated the related leases prior to the scheduled expiration dates.

       On-balance sheet debt to equity consists of balance sheet debt divided by total equity. Total obligations to equity represents balance sheet debt plus the present value of minimum lease payments and guaranteed residual values under operating leases for vehicles, discounted based on our incremental borrowing rate at lease inception, all divided by total equity. Although total obligations is a non-GAAP financial measure, we believe that total obligations is useful as it provides a more complete analysis of our existing financial obligations and helps better assess our overall leverage position.

       Our leverage ratios increased in 2008 as the spending required to support acquisitions and share repurchase programs more than offset improved operating cash flows. Our long-term target percentage of total obligations to equity is 250% to 300% while maintaining a strong investment grade rating. We believe this leverage range is appropriate for our business due to the liquidity of our vehicle portfolio and because a substantial component of our assets is supported by long-term customer leases.

36

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

Off-Balance Sheet Arrangements

       We periodically enter into sale-leaseback transactions in order to lower the total cost of funding our operations, to diversify our funding among different classes of investors and to diversify our funding among different types of funding instruments. These sale-leaseback transactions are often executed with third-party financial institutions that are not deemed to be variable interest entities (VIEs). In general, these sale-leaseback transactions result in a reduction in revenue earning equipment and debt on the balance sheet, as proceeds from the sale of revenue earning equipment are primarily used to repay debt. Accordingly, sale-leaseback transactions will result in reduced depreciation and interest expense and increased equipment rental expense. These leases contain limited guarantees by us of the residual values of the leased vehicles (residual value guarantees) that are conditioned upon disposal of the leased vehicles prior to the end of their lease term. The amount of future payments for residual value guarantees will depend on the market for used vehicles and the condition of the vehicles at time of disposal. See Note (L), “Guarantees,” in the Notes to Consolidated Condensed Financial Statements for additional information. During the nine months ended September 30, 2007, we completed a sale-leaseback transaction of revenue earning equipment with a third party not deemed to be a VIE and this transaction qualified for off-balance sheet treatment. Proceeds from the sale-leaseback transaction totaled $150.3 million. We did not enter into any sale-leaseback transactions during the nine months ended September 30, 2008.

Pension Information

       In July 2008, our Board of Directors approved an amendment to freeze the defined benefit portion of our Canadian retirement plan effective January 1, 2010 for current participants who do not meet certain grandfathering criteria. As a result, these employees will cease accruing further benefits under the defined benefit plan after January 1, 2010 and will begin receiving an enhanced benefit under the defined contribution portion of the plan. All retirement benefits earned as of January 1, 2010 will be fully preserved and will be paid in accordance with the plan and legal requirements. Employees hired after January 1, 2010 will not be eligible to participate in the Canadian defined benefit plan. The freeze of the Canadian defined benefit plan created a curtailment gain of $3.6 million (pre-tax).

       The funded status of our pension plans is dependent upon many factors, including returns on invested assets and the level of certain market interest rates. We review pension assumptions regularly and we may from time to time make voluntary contributions to our pension plans, which exceed the amounts required by statute. We have made $17.2 million in pension contributions through September 30, 2008 and we expect to make additional pension contributions for our plans during the remainder of 2008 of approximately $5 million. Changes in interest rates and the market value of the securities held by the plans during 2008 could materially change, positively or negatively, the funded status of the plans and affect the level of pension expense and required contributions in 2009 and beyond. Based on our asset values as of September 30, 2008, we expect pension contributions to significantly increase in 2009. See Note (O), “Employee Benefit Plans,” in the Notes to Consolidated Condensed Financial Statements for additional information.

37

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

Share Repurchases and Cash Dividends

       As discussed in Note (M), “Share Repurchase Programs,” in December 2007, our Board of Directors authorized a $300 million discretionary share repurchase program over a period not to exceed two years. Additionally, our Board of Directors authorized a separate two-year anti-dilutive repurchase program. For the three months ended September 30, 2008, we repurchased and retired 850,000 shares under the $300 million program at an aggregate cost of $56.5 million. For the three months ended September 30, 2008, we repurchased and retired 102,849 shares under the anti-dilutive repurchase program at an aggregate cost of $6.8 million. For the nine months ended September 30, 2008, we repurchased and retired 2,615,000 shares under the $300 million program at an aggregate cost of $169.7 million. For the nine months ended September 30, 2008, we repurchased and retired 1,363,436 shares under the anti-dilutive repurchase program at an aggregate cost of $86.4 million. The timing and amount of repurchase transactions is determined based on management’s evaluation of market conditions, share price and other factors. Towards the end of the third quarter, we temporarily paused purchases under both programs given current market conditions. We will continue to monitor financial conditions and will resume repurchases when we believe it is prudent to do so.

       In February, May 2008 and July 2008, our Board of Directors declared a quarterly cash dividend of $0.23 per share of common stock. This dividend reflects a $0.02 increase from the quarterly cash dividend of $0.21 paid in 2007.

RECENT ACCOUNTING PRONOUNCEMENTS

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

NON-GAAP FINANCIAL MEASURES

       This Quarterly Report on Form 10-Q includes information extracted from consolidated condensed financial information but not required by generally accepted accounting principles (GAAP) to be presented in the financial statements. Certain of this information are considered “non-GAAP financial measures” as defined by SEC rules. Specifically, we refer to operating revenue, salaries and employee-related costs as a percentage of operating revenue, FMS operating revenue, FMS NBT as a % of operating revenue, SCS operating revenue, SCS NBT as a % of operating revenue, DCC operating revenue, DCC NBT as a % of operating revenue, total cash generated, free cash flow, total obligations and total obligations to equity. As required by SEC rules, we provide a reconciliation of each non-GAAP financial measure to the most comparable GAAP measure and an explanation why management believes that presentation of the non-GAAP financial measure provides useful information to investors. Non-GAAP financial measures should be considered in addition to, but not as a substitute for or superior to, other measures of financial performance prepared in accordance with GAAP.

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

	Three months ended September 30,						Nine months ended September 30,
	2008			2007			2008			2007
	(In thousands)
Total revenue	$	1,626,121			1,647,724		$	4,829,945			4,899,795
Fuel services and subcontracted transportation revenue(1)		(479,062	)		(526,988	)		(1,434,151	)		(1,600,485	)
Fuel eliminations		62,760			49,948			199,243			147,648
Operating revenue	$	1,209,819			1,170,684		$	3,595,037			3,446,958

(1) Includes intercompany fuel sales.

38

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

FORWARD-LOOKING STATEMENTS

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

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

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

• impact of losses from conditional obligations arising from guarantees;

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

• number of NLE vehicles in inventory, and the size of our commercial rental fleet, for the remainder of the year;

• the anticipated timing of the recognition of pre-tax compensation expense;

• estimates of free cash flow and capital expenditures for 2008;

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

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

• the anticipated impact of fuel price fluctuations;

• our expectations as to future pension expense and contributions;

• our expectations regarding the ultimate resolution of a disputed foreign tax assessment;

• our expectations as to the results of the review of our Brazilian business operations and practices, including those related to legal and tax matters;

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

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

• our expectations regarding the terms, timing and integration plans of recent acquisitions;

• our ability to access unsecured debt in the capital markets and our beliefs regarding the reliability of the participants to our contractual lending agreements;

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

• the appropriateness of our long-term target leverage range.

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

• Market Conditions:

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

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

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

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

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

• Competition:

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

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

o Competition from vehicle manufacturers in our FMS business operations

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

39

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

• Profitability:

o Our inability to obtain adequate profit margins for our services

o Lower than expected customer volumes or retention levels

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

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

o The inability of our business segments to create operating efficiencies

o Availability of heavy-duty and medium-duty vehicles

o Sudden changes in fuel prices and fuel shortages

o Our inability to successfully implement our asset management initiatives

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

o Labor strikes and work stoppages

o Our inability to manage our cost structure

o Our inability to limit our exposure for customer claims

• Financing Concerns:

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

o Unanticipated interest rate and currency exchange rate fluctuations

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

o Increased instability in U.S. and worldwide credit markets, resulting in higher borrowing costs and/or reduced access to credit

• Accounting Matters:

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

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

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

o Increases in healthcare costs resulting in higher insurance costs

o Changes in accounting rules, assumptions and accruals

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

o Additional adverse issues or developments relating to our Brazilian operations

• Other risks detailed from time to time in our SEC filings

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

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

       There have been no material changes to Ryder’s exposures to market risks since December 31, 2007. Please refer to the 2007 Annual Report on Form 10-K for a complete discussion of Ryder’s exposures to market risks.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

       As of the end of the third quarter of 2008, we carried out an evaluation, under the supervision and with the participation of management, including Ryder’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of Ryder’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of the end of the third quarter of 2008, Ryder’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) were effective.

Changes in Internal Controls over Financial Reporting

       During the three months ended September 30, 2008, there were no changes in Ryder’s internal control over financial reporting that have materially affected or are reasonably likely to materially affect such internal control over financial reporting.

PART II. OTHER INFORMATION

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

       The following table provides information with respect to purchases we made of our common stock during the three months ended September 30, 2008:

							Maximum		Approximate
					Total Number of		Number of		Dollar Value
					Shares		Shares That May		That
					Purchased as		Yet Be		May Yet Be
	Total Number				Part of Publicly		Purchased Under		Purchased Under
	of Shares		Average Price		Announced		the Anti-Dilutive		the Discretionary
	Purchased(1)		Paid per Share		Program		Program(2)		Program (3)
July 1 through July 31, 2008		279,607	$	67.11		279,019		700,394	$	170,774,207
August 1 through August 31, 2008		378,582		67.60		378,330		647,064		148,778,084
September 1 through September 30, 2008		296,275		64.47		295,500		636,564		130,400,437
Total		954,464	$	66.48		952,849

(1)	During the three months ended September 30, 2008, we purchased an aggregate of 1,615 shares of our common stock in employee-related transactions. Employee-related transactions may include: (i) shares of common stock delivered as payment for the exercise price of options exercised or to satisfy the option holders’ tax withholding liability associated with our share-based compensation programs and (ii) open-market purchases by the trustee of Ryder’s deferred compensation plans relating to investments by employees in our common stock, one of the investment options available under the plans.
(2)	In December 2007, our Board of Directors authorized a two-year anti-dilutive share repurchase program. Under the anti-dilutive program, management is authorized to repurchase shares of common stock in an amount not to exceed the lesser of the number of shares issued to employees upon the exercise of stock options or through the employee stock purchase plan for the period beginning on September 1, 2007 to December 12, 2009, or 2 million shares. Share repurchases of common stock may be made periodically in open-market transactions and are subject to market conditions, legal requirements and other factors. Management may establish a prearranged written plan for the Company under Rule 10b5-1 of the Securities Exchange Act of 1934 as part of the anti-dilutive program, which allows for share repurchases during Ryder’s quarterly blackout periods as set forth in the trading plan. During the three months ended September 30, 2008, we purchased an aggregate of 102,849 shares of our common stock as part of the anti-dilutive program.
(3)	In December 2007, our Board of Directors also authorized a $300 million discretionary share repurchase program over a period not to exceed two years. Share repurchases of common stock may be made periodically in open-market transactions and are subject to market conditions, legal requirements and other factors. Management may establish a prearranged written plan for the Company under Rule 10b5-1 of the Securities Exchange Act of 1934 as part of the $300 million discretionary program, which allows for share repurchases during Ryder’s quarterly blackout periods as set forth in the trading plan. During the three months ended September 30, 2008, we purchased an aggregate of 850,000 shares of our common stock as part of the $300 million discretionary program.

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ITEM 6. EXHIBITS

31.1	Certification of Gregory T. Swienton pursuant to Rule 13a-15(e) or Rule 15d-15(e).
31.2	Certification of Robert E. Sanchez pursuant to Rule 13a-15(e) or Rule 15d-15(e).
32	Certification of Gregory T. Swienton and Robert E. Sanchez pursuant to Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. Section 1350.

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SIGNATURES

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

	RYDER SYSTEM, INC. (Registrant)
Date: October 22, 2008	By:	/s/ Robert E. Sanchez
		Robert E. Sanchez
		Executive Vice President and Chief Financial Officer (Principal Financial Officer and Duly Authorized Officer)
Date: October 22, 2008	By:	/s/ Art A. Garcia
		Art A. Garcia
		Senior Vice President and Controller (Principal Accounting Officer)

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