UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

		
þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934	
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2014
OR

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

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

	
		
Florida	59-0739250	
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)	
 	 	
11690 N.W. 105th Street	 	
Miami, Florida 33178	(305) 500-3726	
(Address of principal executive offices, including zip code)	(Registrant’s telephone number, including area code)	
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ         NO ¨

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

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

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

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

The number of shares of Ryder System, Inc. Common Stock ($0.50 par value per share) outstanding at June 30, 2014 was 53,067,722 .

					

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

	

 	 	Page No.  	
 	 	
PART I       FINANCIAL INFORMATION	 	
 	 	
ITEM 1       Financial Statements (unaudited)	 	
 	 	 	
 	Consolidated Condensed Statements of Earnings — Three and six months ended June 30, 2014 and 2013	1	
 	 	 	
 	Consolidated Condensed Statements of Comprehensive Income — Three and six months ended June 30, 2014 and 2013	2	
 	 	 	
 	Consolidated Condensed Balance Sheets — June 30, 2014 and December 31, 2013	3	
 	 	 	
 	Consolidated Condensed Statements of Cash Flows — Six months ended June 30, 2014 and 2013	4	
 	 	 	
 	Consolidated Condensed Statement of Shareholders' Equity — Six months ended June 30, 2014	5	
 	 	 	
 	Notes to Consolidated Condensed Financial Statements	6	
 	 	
ITEM 2        Management’s Discussion and Analysis of Financial Condition and Results of Operations	23	
 	 	
ITEM 3        Quantitative and Qualitative Disclosures About Market Risk	44	
 	 	
ITEM 4       Controls and Procedures	44	
 	 	
PART II       OTHER INFORMATION	 	
 	 	
ITEM 2        Unregistered Sales of Equity Securities and Use of Proceeds	44	
 	 	
ITEM 6       Exhibits	45	
 	 	 	
SIGNATURES	46	

i

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

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

	
														
 	Three months ended June 30,	 	Six months ended June 30,	
 	2014	 	2013	 	2014	 	2013	
 	(In thousands, except per share amounts)	
Lease and rental revenues	$	733,763		 	688,048		 	$	1,423,445		 	1,347,756		
Services revenue	741,427		 	707,666		 	1,451,126		 	1,397,127		
Fuel services revenue	209,381		 	208,285		 	420,737		 	422,133		
Total revenues	1,684,571		 	1,603,999		 	3,295,308		 	3,167,016		
 	 	 	 	 	 	 	 	
Cost of lease and rental	508,091		 	476,662		 	1,001,134		 	949,739		
Cost of services	625,276		 	590,311		 	1,231,505		 	1,173,900		
Cost of fuel services	203,613		 	204,626		 	410,818		 	414,919		
Other operating expenses	31,007		 	32,876		 	67,652		 	70,475		
Selling, general and administrative expenses	200,430		 	195,033		 	392,132		 	384,106		
Gains on vehicle sales, net	(34,365	)	 	(23,197	)	 	(63,183	)	 	(46,203	)	
Interest expense	35,302		 	33,901		 	70,411		 	68,355		
Miscellaneous income, net	(4,828	)	 	(3,575	)	 	(10,210	)	 	(8,145	)	
 	1,564,526		 	1,506,637		 	3,100,259		 	3,007,146		
Earnings from continuing operations before income taxes	120,045		 	97,362		 	195,049		 	159,870		
Provision for income taxes	44,351			34,787		 	70,257			56,493		
Earnings from continuing operations	75,694			62,575		 	124,792			103,377		
Loss from discontinued operations, net of tax	(336	)	 	(381	)	 	(1,202	)	 	(1,259	)	
Net earnings	$	75,358		 	62,194		 	$	123,590		 	102,118		
 	 	 	 	 	 	 	 	
Earnings (loss) per common share — Basic	 	 	 	 	 	 	 	
Continuing operations	$	1.43		 	1.21		 	$	2.36		 	2.00		
Discontinued operations	—		 	(0.01	)	 	(0.02	)	 	(0.02	)	
Net earnings	$	1.43		 	1.20		 	$	2.34		 	1.98		
 	 	 	 	 	 	 	 	
Earnings (loss) per common share — Diluted	 	 	 	 	 	 	 	
Continuing operations	$	1.42		 	1.19		 	$	2.34		 	1.98		
Discontinued operations	(0.01	)	 	—		 	(0.02	)	 	(0.02	)	
Net earnings	$	1.41		 	1.19		 	$	2.32		 	1.96		
 	 	 	 	 	 	 	 	
Cash dividends declared per common share	$	0.34		 	0.31		 	$	0.68		 	0.62		

See accompanying notes to consolidated condensed financial statements.

1

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

    

														
 	Three months ended June 30,	 	Six months ended June 30,	
 	2014	 	2013	 	2014	 	2013	
 	(In thousands)	
 	 	 	 	 	 	 	 	
Net earnings	$	75,358		 	62,194		 	$	123,590		 	102,118		
 	 	 	 	 	 	 	 	
Other comprehensive income (loss):	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	
Changes in cumulative translation adjustment and other, before and after tax	26,273		 	(16,239	)	 	11,681		 	(49,943	)	
 	 	 	 	 	 	 	 	
Amortization of pension and postretirement items	4,295		 	8,180		 	9,328		 	16,534		
Income tax expense related to amortization of pension and postretirement items	(1,302	)	 	(2,782	)	 	(3,208	)	 	(5,717	)	
Amortization of pension and postretirement items, net of taxes	2,993		 	5,398		 	6,120		 	10,817		
 	 	 	 	 	 	 	 	
Change in net actuarial loss	(3,144	)	 	(5,762	)	 	(3,144	)	 	(5,762	)	
Income tax benefit related to change in net actuarial loss	1,096		 	2,048		 	1,096		 	2,048		
Change in net actuarial loss, net of taxes	(2,048	)	 	(3,714	)	 	(2,048	)	 	(3,714	)	
 	 	 	 	 	 	 	 	
Other comprehensive income (loss), net of taxes	27,218		 	(14,555	)	 	15,753		 	(42,840	)	
 	 	 	 	 	 	 	 	
Comprehensive income	$	102,576		 	47,639		 	$	139,343		 	59,278		
See accompanying notes to consolidated condensed financial statements.

2

RYDER SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(unaudited)

	
							
 	June 30,
2014	 	December 31,
2013	
 	(Dollars in thousands, except per
share amount)	
Assets:	 	 	 	
Current assets:	 	 	 	
Cash and cash equivalents	$	86,888			61,562		
Receivables, net of allowance of $17,322 and $16,955, respectively	827,274			777,370		
Inventories	65,490			64,298		
Prepaid expenses and other current assets	157,818			159,263		
Total current assets	1,137,470		 	1,062,493		
Revenue earning equipment, net of accumulated depreciation of $3,606,141 and $3,596,102, respectively	6,930,465			6,490,837		
Operating property and equipment, net of accumulated depreciation of $1,015,764 and $991,117, respectively	687,714			633,826		
Goodwill	383,879			383,719		
Intangible assets	69,224			72,406		
Direct financing leases and other assets	478,915			460,501		
Total assets	$	9,687,667			9,103,782		
 	 	 	 	
Liabilities and shareholders’ equity:	 	 	 	
Current liabilities:	 	 	 	
Short-term debt and current portion of long-term debt	$	557,681			259,438		
Accounts payable	479,952			475,364		
Accrued expenses and other current liabilities	479,047			496,337		
Total current liabilities	1,516,680		 	1,231,139		
Long-term debt	4,159,472			3,929,987		
Other non-current liabilities	566,242			616,305		
Deferred income taxes	1,480,313			1,429,637		
Total liabilities	7,722,707		 	7,207,068		
 	 	 	 	
Shareholders’ equity:	 	 	 	
Preferred stock of no par value per share — authorized, 3,800,917; none outstanding,
   June 30, 2014 or December 31, 2013	—		 	—		
Common stock of $0.50 par value per share — authorized, 400,000,000; outstanding,
   June 30, 2014 — 53,067,722; December 31, 2013 — 53,335,386	26,533		 	26,667		
Additional paid-in capital	944,064		 	917,539		
Retained earnings	1,416,858		 	1,390,756		
Accumulated other comprehensive loss	(422,495	)	 	(438,248	)	
Total shareholders’ equity	1,964,960			1,896,714		
Total liabilities and shareholders’ equity	$	9,687,667			9,103,782		
See accompanying notes to consolidated condensed financial statements.

3

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

	
							
 	Six months ended June 30,	
 	2014	 	2013	
 	(In thousands)	
Cash flows from operating activities from continuing operations:	 	 	 	
Net earnings	$	123,590		 	102,118		
Less: Loss from discontinued operations, net of tax	(1,202	)	 	(1,259	)	
Earnings from continuing operations	124,792		 	103,377		
Depreciation expense	505,997		 	465,979		
Gains on vehicle sales, net	(63,183	)	 	(46,203	)	
Share-based compensation expense	9,989		 	9,602		
Amortization expense and other non-cash charges, net	25,727		 	27,289		
Deferred income tax expense	59,956		 	48,176		
Changes in operating assets and liabilities:	 	 	 	
Receivables	(40,579	)	 	(16,591	)	
Inventories	(1,178	)	 	2,089		
Prepaid expenses and other assets	(19,163	)	 	(17,392	)	
Accounts payable	1,771		 	23,708		
Accrued expenses and other non-current liabilities	(67,629	)	 	(36,257	)	
Net cash provided by operating activities from continuing operations	536,500		 	563,777		
 	 	 	 	
Cash flows from financing activities from continuing operations:	 	 	 	
Net change in commercial paper borrowings	21,377			180,777		
Debt proceeds	765,713			254,371		
Debt repaid, including capital lease obligations	(271,248	)		(320,862	)	
Dividends on common stock	(35,915	)	 	(32,055	)	
Common stock issued	34,129		 	41,428		
Common stock repurchased	(79,488	)	 	—		
Excess tax benefits from share-based compensation	411		 	3,289		
Debt issuance costs	(5,026	)	 	(2,008	)	
Net cash provided by financing activities from continuing operations	429,953		 	124,940		
 	 	 	 	
Cash flows from investing activities from continuing operations:	 	 	 	
Purchases of property and revenue earning equipment	(1,255,222	)	 	(948,114	)	
Sales of revenue earning equipment	274,394		 	225,749		
Sales of operating property and equipment	2,780		 	3,296		
Acquisitions	(1,649	)	 	(1,420	)	
Collections on direct finance leases	32,355		 	39,854		
Changes in restricted cash	8,774		 	(15,142	)	
Insurance recoveries and other	(1,250	)	 	8,173		
Net cash used in investing activities from continuing operations	(939,818	)	 	(687,604	)	
 	 	 	 	
Effect of exchange rate changes on cash	48		 	6,966		
Increase in cash and cash equivalents from continuing operations	26,683		 	8,079		
 	 	 	 	
Cash flows from discontinued operations:	 	 	 	
Operating cash flows	(1,329	)	 	(1,031	)	
Effect of exchange rate changes on cash	(28	)	 	(11	)	
Decrease in cash and cash equivalents from discontinued operations	(1,357	)	 	(1,042	)	
 	 	 	 	
Increase in cash and cash equivalents	25,326		 	7,037		
Cash and cash equivalents at January 1	61,562		 	66,392		
Cash and cash equivalents at June 30	$	86,888		 	73,429		
See accompanying notes to consolidated condensed financial statements.

4

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

	
																							
 	Preferred
Stock	 	 
 
Common Stock	 	Additional
Paid-In
Capital	 	Retained
Earnings	 	Accumulated
Other
Comprehensive
Loss	 	Total	
 	Amount	 	Shares	 	Par	 								
 	(Dollars in thousands, except per share amount)	
Balance at December 31, 2013	$	—		 	53,335,386		 	$	26,667		 	917,539		 	1,390,756		 	(438,248	)	 	1,896,714		
Net earnings	—		 	—		 	—		 	—		 	123,590		 	—		 	123,590		
Other comprehensive income	—		 	—		 	—		 	—		 	—		 	15,753		 	15,753		
Comprehensive income	 	 	 	 	 	 	 	 	 	 	 	 	139,343		
Common stock dividends declared — $0.68 per share	—		 	—		 	—		 	—		 	(36,158	)	 	—		 	(36,158	)	
Common stock issued under employee stock option and stock purchase plans  (1)	—		 	753,684		 	377		 	33,301		 	—		 	—		 	33,678		
Benefit plan stock sales (2)	—		 	5,724		 	3		 	448		 	—		 	—		 	451		
Common stock repurchases	—		 	(1,027,072	)	 	(514	)	 	(17,644	)	 	(61,330	)	 	—		 	(79,488	)	
Share-based compensation	—		 	—		 	—		 	9,989		 	—		 	—		 	9,989		
Tax benefits from share-based compensation	—		 	—		 	—		 	431		 	—		 	—		 	431		
Balance at June 30, 2014	$	—		 	53,067,722		 	$	26,533		 	944,064		 	1,416,858		 	(422,495	)	 	1,964,960		
————————————
(1) Net of common shares delivered as payment for the exercise price or to satisfy the option holders’ withholding tax liability upon exercise of options.
(2) Represents open-market transactions of common shares by the trustee of Ryder’s deferred compensation plans.
See accompanying notes to consolidated condensed financial statements.

5

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

(A) INTERIM FINANCIAL STATEMENTS

The accompanying unaudited Consolidated Condensed Financial Statements include the accounts of Ryder System, Inc. (Ryder) and all entities in which Ryder has a controlling voting interest (“subsidiaries”) and variable interest entities (VIEs) required to be consolidated in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The accompanying unaudited Consolidated Condensed Financial Statements have been prepared in accordance with the accounting policies described in our 2013 Annual Report on Form 10-K and should be read in conjunction with the Consolidated Financial Statements and notes thereto. These financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement have been included and the disclosures herein are adequate. The operating results for interim periods are unaudited and are not necessarily indicative of the results that can be expected for a full year.

Certain amounts have been reclassified to conform to the current period presentation, including intercompany profit allocations between Fleet Management Solutions (FMS) and Supply Chain Solutions (SCS). These reclassifications were immaterial to the financial statements taken as a whole.

(B) ACCOUNTING CHANGES

Revenue Recognition

In May 2014, the Financial Accounting Standards Board (FASB) issued accounting guidance on the recognition of revenue from contracts with customers. Under the new standard, revenue will be measured and recognized using a performance obligation approach. The guidance will be effective on January 1, 2017. We are currently evaluating the impact of this guidance on our consolidated financial position and results of operations.

Unrecognized Tax Benefits  

In July 2013, the FASB issued accounting guidance on the balance sheet presentation of an unrecognized tax benefit when a net operating loss carryforward exists. Under this guidance, an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward. This guidance became effective on January 1, 2014 and resulted in a reclassification of $38.8 million from other non-current liabilities to deferred income taxes in our December 31, 2013 balance sheet. Other than the change in presentation within the Consolidated Condensed Balance Sheets, this accounting guidance did not have an impact on our consolidated financial position, results of operations or cash flows.

(C) DISCONTINUED OPERATIONS

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

Summarized results of discontinued operations were as follows:

														
 	Three months ended June 30,	 	Six months ended June 30,	
 	2014	 	2013	 	2014	 	2013	
 	(In thousands)	
Pre-tax loss from discontinued operations	$	(323	)	 	(298	)	 	$	(1,278	)	 	(1,199	)	
Income tax (expense) benefit	(13	)	 	(83	)	 	76		 	(60	)	
Loss from discontinued operations, net of tax	$	(336	)	 	(381	)	 	$	(1,202	)	 	(1,259	)	

6

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

Results of discontinued operations in 2014 and 2013 reflected losses related to adverse legal developments and professional and administrative fees associated with our discontinued South American operations.

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

							
 	June 30,
2014	 	December 31,
2013	
 	(In thousands)	
Total assets, primarily deposits	$	3,452		 	3,627		
Total liabilities, primarily contingent accruals	$	4,476		 	4,501		

Although we discontinued our South American operations in 2009, we continue to be party to various federal, state and local legal proceedings involving labor matters, tort claims and tax assessments. We have established loss provisions for any matters where we believe a loss is probable and can be reasonably estimated. For matters where a reserve has not been established and for which we believe a loss is reasonably possible, as well as for matters where a reserve has been recorded but for which an exposure to loss in excess of the amount accrued is reasonably possible, we believe that such losses will not have a material effect on our consolidated financial statements.

In Brazil, we were assessed $5.3 million (before and after tax) in prior years for various federal income taxes and social contribution taxes for the 1997 and 1998 tax years. We have successfully overturned these federal tax assessments in the lower courts; however, there is a reasonable possibility that these rulings could be reversed and we would be required to pay the assessments. We believe it is more likely than not that our position will ultimately be sustained if appealed and no amounts have been reserved for these matters. We are entitled to indemnification for a portion of any resulting liability on these federal tax claims which, if honored, would reduce the estimated loss.

(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 and cash awards. Nonvested stock awards include grants of market-based, performance-based, and time-vested restricted stock rights. Under the terms of our Plans, dividends may be paid on our nonvested stock awards. Dividends on nonvested stock granted after 2011 are not paid unless the award vests. Upon vesting, the amount of the dividends paid is equal to the aggregate dividends declared on common shares during the period from the date of grant of the award until the date the shares underlying the award are delivered.

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

														
 	Three months ended June 30,	 	Six months ended June 30,	
 	2014	 	2013	 	2014	 	2013	
 	(In thousands)	
Stock option and stock purchase plans	$	2,241		 	2,193		 	$	4,478		 	4,303		
Nonvested stock	2,890		 	2,799		 	5,511		 	5,299		
Share-based compensation expense	5,131		 	4,992		 	9,989		 	9,602		
Income tax benefit	(1,713	)	 	(1,640	)	 	(3,389	)	 	(3,327	)	
Share-based compensation expense, net of tax	$	3,418		 	3,352		 	$	6,600		 	6,275		

7

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

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

													
 	Three months ended June 30,	 	Six months ended June 30,	
 	2014	 	2013	 	2014	 	2013	
 	(In thousands)	
Cash awards	$	743		 	889	 	$	1,266		 	2,163		

Total unrecognized pre-tax compensation expense related to all share-based compensation arrangements at June 30, 2014 was $33.4 million and is expected to be recognized over a weighted-average period of 2.0 years.

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

							
 	 	June 30,
2014	 	June 30,
2013	
 	 	(In thousands)	
 	 	
Stock options	 	405		 	381		
Market-based restricted stock rights	 	22		 	22		
Performance-based restricted stock rights	 	30		 	15		
Time-vested restricted stock rights	 	158		 	146		
Total	 	615		 	564		

8

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

(E) EARNINGS PER SHARE

We compute earnings per share using the two-class method. The two-class method of computing earnings per share is an earnings allocation formula that determines earnings per share for common stock and any participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. Our nonvested stock granted prior to 2012 and restricted stock units granted to our Board of Directors are considered participating securities since these share-based awards contain a non-forfeitable right to dividend cash payments prior to vesting. Under the two-class method, earnings per common share are computed by dividing the sum of distributed earnings and undistributed earnings allocated to common shareholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, undistributed earnings are allocated to both common shares and participating securities based on the weighted average shares outstanding during the period.

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

														
 	Three months ended June 30,	 	Six months ended June 30,	
 	2014	 	2013	 	2014	 	2013	
 	(In thousands, except per share amounts)	
Earnings per share — Basic:	 	 	 	 	 	 	 	
Earnings from continuing operations	$	75,694		 	62,575		 	$	124,792		 	103,377		
Less: Distributed and undistributed earnings allocated to nonvested stock	(301	)	 	(556	)	 	(582	)	 	(978	)	
Earnings from continuing operations available to common shareholders — Basic	$	75,393		 	62,019		 	$	124,210		 	102,399		
 	 	 	 	 	 	 	 	
Weighted average common shares outstanding — Basic	52,564		 	51,445		 	52,612		 	51,201		
 	 	 	 	 	 	 	 	
Earnings from continuing operations per common share — Basic	$	1.43		 	1.21		 	$	2.36		 	2.00		
 	 	 	 	 	 	 	 	
Earnings per share — Diluted:	 	 	 	 	 	 	 	
Earnings from continuing operations	$	75,694		 	62,575		 	$	124,792		 	103,377		
Less: Distributed and undistributed earnings allocated to nonvested stock	(299	)	 	(552	)	 	(578	)	 	(972	)	
Earnings from continuing operations available to common shareholders — Diluted	$	75,395		 	62,023		 	$	124,214		 	102,405		
 	 	 	 	 	 	 	 	
Weighted average common shares outstanding — Basic	52,564		 	51,445		 	52,612		 	51,201		
Effect of dilutive equity awards	482		 	478		 	472		 	457		
Weighted average common shares outstanding — Diluted	53,046		 	51,923		 	53,084		 	51,658		
 	 	 	 	 	 	 	 	
Earnings from continuing operations per common share — Diluted	$	1.42		 	1.19		 	$	2.34		 	1.98		
 	 	 	 	 	 	 	 	
Anti-dilutive equity awards not included above	412		 	593		 	314		 	1,003		

9

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

(F) REVENUE EARNING EQUIPMENT

	
																				
 	June 30, 2014	 	December 31, 2013	
 	Cost	 	Accumulated
Depreciation	 	Net  Book
Value (1)	 	Cost	 	Accumulated
Depreciation	 	Net  Book
Value (1)	
 	(In thousands)	
Held for use:	 	
Full service lease	$	7,699,750		 	(2,564,790	)	 	5,134,960		 	$	7,436,093		 	(2,537,077	)	 	4,899,016		
Commercial rental	2,491,695		 	(791,662	)	 	1,700,033		 	2,210,863		 	(747,283	)	 	1,463,580		
Held for sale	345,161		 	(249,689	)	 	95,472		 	439,983		 	(311,742	)	 	128,241		
Total	$	10,536,606		 	(3,606,141	)	 	6,930,465		 	$	10,086,939		 	(3,596,102	)	 	6,490,837		
 ————————————
		
(1)	Revenue earning equipment, net includes vehicles acquired under capital leases of $48.1 million , less accumulated depreciation of $20.1 million , at June 30, 2014 , and $54.2 million , less accumulated depreciation of $22.0 million , at December 31, 2013 .	

At the end of 2013, we completed our annual review of residual values and useful lives of revenue earning equipment. Based on the results of our analysis, we adjusted the estimated residual values of certain classes of revenue earning equipment effective January 1, 2014. The change in estimated residual values and useful lives increased pre-tax earnings for the three and six months ended June 30, 2014 by approximately $6.3 million and $12.5 million , respectively.

We lease revenue earning equipment to customers for periods typically ranging from three to seven years for trucks and tractors and up to ten years for trailers. The majority of our leases are classified as operating leases. However, some of our revenue earning equipment leases are classified as direct financing leases and, to a lesser extent, sales-type leases. As of June 30, 2014 and December 31, 2013 , the net investment in direct financing and sales-type leases was $417.8 million and $400.1 million , respectively. Our direct financing lease customers operate in a wide variety of industries, and we have no significant customer concentrations in any one industry. We assess credit risk for all of our customers including those who lease equipment under direct financing leases upon signing of a full service lease contract. For those customers who are designated as high risk, we typically require deposits to be paid in advance in order to mitigate our credit risk. Additionally, our receivables are collateralized by the vehicles, based on their estimated fair values, which further mitigates our credit risk.

As of June 30, 2014 and December 31, 2013 , the amount of direct financing lease receivables past due was not significant, and there were no impaired receivables. Accordingly, we do not believe there is a material risk of default with respect to the direct financing lease receivables. The allowance for credit losses was $0.4 million and $0.5 million as of June 30, 2014 and December 31, 2013 , respectively.

(G) GOODWILL

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

										
 	Fleet
Management
Solutions	 	Supply
Chain
Solutions	 	Total	
 	(In thousands)	
Balance at January 1, 2014:	 	 	 	 	 	
Goodwill	$	223,204		 	189,736		 	412,940		
Accumulated impairment losses	(10,322	)	 	(18,899	)	 	(29,221	)	
 	212,882		 	170,837		 	383,719		
Foreign currency translation adjustments	197		 	(37	)	 	160		
Balance at June 30, 2014:	 	 	 	 	 	
Goodwill	223,401		 	189,699		 	413,100		
Accumulated impairment losses	(10,322	)	 	(18,899	)	 	(29,221	)	
 	$	213,079		 	170,800		 	383,879		

10

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

We assess goodwill for impairment on April 1st of each year or more often if deemed necessary. In the second quarter of 2014 , we completed our annual goodwill impairment test. We performed a quantitative test for one reporting unit in the Supply Chain Solutions business segment and determined there was no impairment. We performed a qualitative test for our other reporting units, which considered individual factors such as macroeconomic conditions, changes in our industry and the markets in which we operate as well as our historical and expected future financial performance. After performing the qualitative assessment, we concluded it is more likely than not that fair values are greater than carrying values and determined there was no impairment.

(H) ACCRUED EXPENSES AND OTHER LIABILITIES

																				
 	June 30, 2014	 	December 31, 2013	
 	Accrued
Expenses	 	Non-Current
Liabilities	 	Total	 	Accrued
Expenses	 	Non-Current
Liabilities	 	Total	
 	(In thousands)	
Salaries and wages	$	87,951		 	—		 	87,951		 	$	106,281		 	—		 	106,281		
Deferred compensation	2,966		 	34,123		 	37,089		 	2,505		 	31,896		 	34,401		
Other employee benefits	6,060		 	4,271		 	10,331		 	3,809		 	6,712		 	10,521		
Pension benefits	3,606		 	239,904		 	243,510		 	3,660		 	292,155		 	295,815		
Other postretirement benefits	2,413		 	27,481		 	29,894		 	2,414		 	28,374		 	30,788		
Insurance obligations (1)	131,763		 	189,595		 	321,358		 	125,835		 	186,700		 	312,535		
Accrued rent	2,102		 	2,222		 	4,324		 	4,373		 	3,372		 	7,745		
Environmental liabilities	4,018		 	8,828		 	12,846		 	4,515		 	8,548		 	13,063		
Asset retirement obligations	5,049		 	19,689		 	24,738		 	6,144		 	19,403		 	25,547		
Operating taxes	96,657		 	—		 	96,657		 	94,188		 	—		 	94,188		
Income taxes	284		 	25,552		 	25,836		 	2,623		 	23,813		 	26,436		
Interest	30,968		 	—		 	30,968		 	33,654		 	—		 	33,654		
Deposits, mainly from customers	56,411		 	6,175		 	62,586		 	55,854		 	6,239		 	62,093		
Deferred revenue	14,652		 	—		 	14,652		 	15,123		 	—		 	15,123		
Other	34,147		 	8,402		 	42,549		 	35,359		 	9,093		 	44,452		
Total	$	479,047		 	566,242		 	1,045,289		 	$	496,337		 	616,305		 	1,112,642		
  ————————————
(1) Insurance obligations are primarily comprised of self-insured claim liabilities.

11

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

(I) DEBT

													
 	Weighted-Average
Interest Rate	 	 	 	 	 	 	
 	June 30,
2014	 	December 31,
2013	 	Maturities	 	June 30,
2014	 	December 31,
2013	
 	 	 	 	 	 	 	(In thousands)	
Short-term debt and current portion of long-term debt:	 	 	 	 	 	 	 	 	 	
Short-term debt	1.28%	 	1.70%	 	2014	 	$	1,604		 	1,315		
U.S. commercial paper (1)	0.26%	 	—%	 	2014	 	144,000		 	—		
Current portion of long-term debt, including capital leases	 	 	 	 	 	 	412,077		 	258,123		
Total short-term debt and current portion of long-term debt	 	 	 	 	 	 	557,681		 	259,438		
Long-term debt:	 	 	 	 	 	 	 	 	 	
U.S. commercial paper (1)	0.26%	 	0.28%	 	2018	 	375,949		 	486,939		
Canadian commercial paper (1)	—%	 	1.13%	 	2018	 	—		 	11,297		
Unsecured U.S. notes — Medium-term notes  (1)	3.29%	 	3.76%	 	2015-2025	 	3,771,238		 	3,271,734		
Unsecured U.S. obligations, principally bank term loans	1.44%	 	1.45%	 	2015-2018	 	55,500		 	55,500		
Unsecured foreign obligations	1.99%	 	1.99%	 	2015-2016	 	324,423		 	315,558		
Capital lease obligations	3.69%	 	3.81%	 	2014-2019	 	36,584		 	38,911		
Total before fair market value adjustment	 	 	 	 	 	 	4,563,694		 	4,179,939		
Fair market value adjustment on notes subject to hedging  (2)	 	 	 	 	 	7,855		 	8,171		
 	 	 	 	 	 	 	4,571,549		 	4,188,110		
Current portion of long-term debt, including capital leases	 	 	 	 	 	 	(412,077	)	 	(258,123	)	
Long-term debt	 	 	 	 	 	 	4,159,472		 	3,929,987		
Total debt	 	 	 	 	 	 	$	4,717,153		 	4,189,425		
  ————————————
		
(1)	We had unamortized original issue discounts of $8.8 million and $8.3 million at June 30, 2014 and December 31, 2013 , respectively.	
		
(2)	The notional amount of executed interest rate swaps designated as fair value hedges was $600 million and $400 million at June 30, 2014 and December 31, 2013 , respectively.	

We maintain a $900 million global revolving credit facility with a syndicate of twelve lending institutions led by Bank of America N.A., Bank of Tokyo-Mitsubishi UFJ, Ltd., BNP Paribas, Mizuho Corporate Bank, Ltd., Royal Bank of Canada, Royal Bank of Scotland Plc, U.S. Bank National Association and Wells Fargo Bank, N.A. The global credit facility matures in October 2018. The global facility is used primarily to finance working capital but can also be used to issue up to $75 million in letters of credit (there were no letters of credit outstanding against the facility at June 30, 2014 ). At our option, the interest rate on borrowings under the credit facility is based on LIBOR, prime, federal funds or local equivalent rates. The agreement provides for annual facility fees which range from 8.0 basis points to 27.5 basis points and are based on Ryder’s long-term credit ratings. The annual facility fee is 12.5 basis points, which applies to the total facility size of $900 million . The credit facility contains no provisions limiting its availability in the event of a material adverse change to Ryder’s business operations; however, the credit facility does contain standard representations and warranties, events of default, cross-default provisions and certain affirmative and negative covenants. In order to maintain availability of funding, we must maintain a ratio of debt to consolidated net worth of less than or equal to 300% . Net worth, as defined in the credit facility, represents shareholders' equity excluding any accumulated other comprehensive income or loss associated with our pension and other postretirement plans. The ratio at June 30, 2014 was 194% . At June 30, 2014 , $380.0 million was available under the credit facility.

Our global revolving credit facility enables us to refinance short-term obligations on a long-term basis. Settlement of short-term commercial paper obligations not expected to require the use of working capital are classified as long-term as we have both the intent and ability to refinance on a long-term basis. At June 30, 2014 and December 31, 2013 , we classified $375.9 million and $498.2 million , respectively, of short-term commercial paper as long-term debt. At June 30, 2014 , we reclassified $144.0 million of commercial paper as short-term debt as we do not expect to refinance these borrowings for at least one year from the balance sheet date.

12

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

In May 2014, we issued $400 million of unsecured medium-term notes maturing in September 2019 and in February 2014, we issued $350 million of unsecured medium-term notes maturing in June 2019. The proceeds from the notes were used to reduce commercial paper balances and for general corporate purposes. If the notes are downgraded below investment grade following, and as a result of, a change in control, the note holder can require us to repurchase all or a portion of the notes at a purchase price equal to 101% of principal plus accrued and unpaid interest .

We have a trade receivables purchase and sale program, pursuant to which we sell certain of our domestic trade accounts receivable to a bankruptcy remote, consolidated subsidiary of Ryder, that in turn sells, on a revolving basis, an ownership interest in certain of these accounts receivable to a receivables conduit or committed purchasers. The subsidiary is considered a VIE and is consolidated based on our control of the entity’s activities. We use this program to provide additional liquidity to fund our operations, particularly when it is cost effective to do so. The costs under the program may vary based on changes in interest rates. The available proceeds that may be received under the program are limited to $175 million . If no event occurs that causes early termination, the 364-day program will expire on October 24, 2014. The program contains provisions restricting its availability in the event of a material adverse change to our business operations or the collectibility of the collateralized receivables. At June 30, 2014 and December 31, 2013 , no amounts were outstanding under the program. Sales of receivables under this program will be accounted for as secured borrowings based on our continuing involvement in the transferred assets.

At June 30, 2014 and December 31, 2013 , we had letters of credit and surety bonds outstanding totaling $310.7 million and $310.5 million , respectively, which primarily guarantee the payment of insurance claims.

13

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

(J) FAIR VALUE MEASUREMENTS

The assets and liabilities measured at fair value on a recurring basis consist primarily of interest rate swaps and investments held in Rabbi Trusts.  These amounts as of June 30, 2014 are not material to our consolidated financial position and operations and have not changed significantly from the amounts reported as of December 31, 2013 .  

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

												
 	Fair Value Measurements
At June 30, 2014 Using	 	Total Losses (2)	
 	 	Level 3	 	Three months  ended	 	Six months ended	
 	(In thousands)	
Assets held for sale:	 	 	 	 	 	 	
Revenue earning equipment: (1)	 	 	 	 	 	 	
Trucks	 	10,713		 	$	1,572		 	$	3,454		
Tractors	 	6,057		 	662		 	2,294		
Trailers	 	497		 	281		 	442		
Total assets at fair value	 	17,267		 	$	2,515		 	$	6,190		

	
												
 	Fair Value Measurements
At June 30, 2013 Using	 	Total Losses (2)	
 	 	Level 3	 	Three months
 ended	 	Six months ended	
 	(In thousands)	
Assets held for sale:	 	 	 	 	 	 	
Revenue earning equipment (1)	 	 	 	 	 	 	
Trucks	 	11,132		 	$	2,447		 	$	5,476		
Tractors	 	16,283		 	1,413		 	2,508		
Trailers	 	882		 	370		 	967		
Total assets at fair value	 	28,297		 	$	4,230		 	$	8,951		
 ————————————
		
(1)	Represents the portion of all revenue earning equipment held for sale that is recorded at fair value, less costs to sell.	
		
(2)	Total losses represent fair value adjustments for all vehicles held for sale throughout the period for which fair value was less than carrying value.	

Revenue earning equipment held for sale is stated at the lower of carrying amount or fair value less costs to sell. Only certain vehicles held for sale have carrying amounts greater than the fair value and losses are recorded at the time they arrive at our used truck centers. We typically record gains on the remaining vehicles with carrying amounts greater than fair value at the time they are sold. Losses to reflect changes in fair value are presented within “Other operating expenses” in the Consolidated Condensed Statements of Earnings. For revenue earning equipment held for sale, we stratify our fleet by vehicle type (trucks, tractors and trailers), weight class, age and other relevant characteristics and create classes of similar assets for analysis purposes. Fair value was determined based upon recent market prices obtained from our own sales experience for sales of each class of similar assets and vehicle condition. Therefore, our revenue earning equipment held for sale was classified within Level 3 of the fair value hierarchy.

14

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

Fair value of total debt (excluding capital lease obligations) at June 30, 2014 and December 31, 2013 was approximately $4.83 billion and $4.28 billion , respectively. For publicly-traded debt, estimates of fair value were based on market prices. Since our publicly-traded debt is not actively traded, the fair value measurement was classified within Level 2 of the fair value hierarchy. For other debt, fair value was estimated based on a model-driven approach using rates currently available to us for debt with similar terms and remaining maturities. Therefore, the fair value measurement of our other debt was classified within Level 2 of the fair value hierarchy. The carrying amounts reported in the Consolidated Condensed Balance Sheets for “Cash and cash equivalents,” “Receivables, net” and “Accounts payable” approximate fair value because of the immediate or short-term maturities of these financial instruments.

(K) DERIVATIVES

We have interest rate swaps outstanding which are designated as fair value hedges whereby we receive fixed interest rate payments in exchange for making variable interest rate payments. The differential to be paid or received is accrued and recognized as interest expense. The following table provides a detail of the swaps outstanding and the related hedged items as of June 30, 2014 :

	
													
 	 	Maturity date	 	Face value of medium-term notes	 	Aggregate 
notional
amount of interest rate swaps	 	Fixed interest 
rate	 	Weighted-average variable
interest rate on hedged debt
as of June 30,	
Issuance date	 		 		 		 		 	2014	 	2013	
 	 	 	 	(Dollars in thousands)	 	 	 	 	 	 	
February 2011	 	March 2015	 	$350,000	 	$150,000	 	3.15%	 	1.28%	 	1.41%	
May 2011	 	June 2017	 	$350,000	 	$150,000	 	3.50%	 	1.42%	 	1.51%	
November 2013	 	November 2018	 	$300,000	 	$100,000	 	2.45%	 	1.18%	 	—%	
February 2014	 	June 2019	 	$350,000	 	$100,000	 	2.55%	 	1.10%	 	—%	
May 2014	 	September 2019	 	$400,000	 	$100,000	 	2.45%	 	0.85%	 	—%	

Changes in the fair value of our interest rate swaps are offset by changes in the fair value of the debt instrument. Accordingly, there is no ineffectiveness related to the interest rate swaps. The location and amount of gains (losses) on interest rate swap agreements designated as fair value hedges and related hedged items reported in the Consolidated Condensed Statements of Earnings were as follows:

																	
Fair Value Hedging Relationship	 	Location of
 Gain (Loss)
Recognized in Income	 	Three months ended June 30,	 	Six months ended June 30,	
			 	2014	 	2013	 	2014	 	2013	
 	 	 	 	(In thousands)	
Derivatives: Interest rate swaps	 	Interest expense	 	$	1,667		 	(3,586	)	 	$	(316	)	 	(6,367	)	
Hedged items: Fixed-rate debt	 	Interest expense	 	(1,667	)	 	3,586		 	316		 	6,367		
Total	 	 	 	$	—		 	—		 	$	—		 	—		

The derivatives are pay-variable, receive-fixed interest rate swaps based on the LIBOR rate and are designated as fair value hedges. Fair value was based on a model-driven income approach using the LIBOR rate at each interest payment date, which was observable at commonly quoted intervals for the full term of the swaps. Therefore, our interest rate swaps were classified within Level 2 of the fair value hierarchy. The location and fair value amounts of the interest rate swaps reported on the Consolidated Condensed Balance Sheets were as follows:

									
Balance Sheet Location	 	June 30,
2014	 	December 31,
2013	
 	 	(In thousands)	
Prepaid expenses and other current assets	 	$	1,834		 	$	—		
Direct financing leases and other assets	 	6,162		 	9,333		
Other non-current liabilities	 	(141	)	 	(1,162	)	

15

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

(L) SHARE REPURCHASE PROGRAMS

In December 2013, our Board of Directors authorized a share repurchase program intended to mitigate the dilutive impact of shares issued under our various employee stock, stock option and employee stock purchase plans. Under the December 2013 program, management is authorized to repurchase shares of common stock in an amount not to exceed the number of shares issued to employees under the Company’s various employee stock, stock option and employee stock purchase plans from December 1, 2013 through December 31, 2015. The December 2013 program limits aggregate share repurchases to no more than 2 million shares of Ryder common stock. Share repurchases of common stock are made periodically in open-market transactions and are subject to market conditions, legal requirements and other factors. Management established prearranged written plans for the Company under Rule 10b5-1 of the Securities Exchange Act of 1934 as part of the December 2013 program, which allow for share repurchases during Ryder’s quarterly blackout periods as set forth in the trading plan. For the three months ended June 30, 2014 , we repurchased and retired 464,389 shares under the program at an aggregate cost of $39.1 million . For the six months ended June 30, 2014 , we repurchased and retired 1,027,072 shares under the program at an aggregate cost of $79.5 million . We did not repurchase any shares under this program in 2013.

In December 2011, our Board of Directors authorized a share repurchase program intended to mitigate the dilutive impact of shares issued under our various employee stock, stock option and employee stock purchase plans. Under the December 2011 program, management was authorized to repurchase shares of common stock in an amount not to exceed the number of shares issued to employees under the Company's various employee stock, stock option and employee stock purchase plans from December 1, 2011 through December 13, 2013. The December 2011 program limited aggregate share repurchases to no more than 2 million shares of Ryder common stock. In 2013, we did not repurchase any shares under this program as we temporarily paused our anti-dilutive share repurchase program to appropriately manage our leverage and to allow us to maintain near-term balance sheet flexibility.

(M) ACCUMULATED OTHER COMPREHENSIVE LOSS

The following summaries set forth the components of accumulated other comprehensive loss, net of tax:

	
														
 	 	Currency
Translation
Adjustments and Other	 	Net Actuarial
Loss (1)	 	Prior Service
Credit (1)	 	Accumulated
Other
Comprehensive
Loss	
 	 	(In thousands)	
December 31, 2013	 	$	35,875		 	(477,883	)	 	3,760		 	(438,248	)	
Amortization	 	—		 	7,455		 	(1,335	)	 	6,120		
Other current period change	 	11,681		 	(2,048	)	 	—		 	9,633		
June 30, 2014	 	$	47,556		 	(472,476	)	 	2,425		 	(422,495	)	

	
														
December 31, 2012	 	$	57,860		 	(648,113	)	 	2,634		 	(587,619	)	
Amortization	 	—		 	11,514		 	(697	)	 	10,817		
Other current period change	 	(49,943	)	 	(3,714	)	 	—		 	(53,657	)	
June 30, 2013	 	$	7,917		 	(640,313	)	 	1,937		 	(630,459	)	
_______________________ 

(1)	These amounts are included in the computation of net periodic pension cost. See Note (N), "Employee Benefit Plans," for further information.	

16

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

(N) EMPLOYEE BENEFIT PLANS

Components of net periodic benefit cost were as follows:

														
 	Three months ended June 30,	 	Six months ended June 30,	
 	2014	 	2013	 	2014	 	2013	
 	(In thousands)	
Pension Benefits	 	 	 	 	 	 	 	
Company-administered plans:	 	 	 	 	 	 	 	
Service cost	$	3,171		 	3,756		 	$	6,594		 	8,008		
Interest cost	25,135		 	22,316		 	50,696		 	44,735		
Expected return on plan assets	(29,284	)	 	(26,389	)	 	(58,002	)	 	(52,837	)	
Amortization of:	 	 	 	 	 	 	 	
Net actuarial loss	5,579		 	8,685		 	11,814		 	17,565		
Prior service credit	(435	)	 	(443	)	 	(893	)	 	(909	)	
 	4,166		 	7,925		 	10,209		 	16,562		
Union-administered plans	2,123		 	2,046		 	4,214		 	4,030		
Net periodic benefit cost	$	6,289		 	9,971		 	$	14,423		 	20,592		
 	 	 	 	 	 	 	 	
Company-administered plans:	 	 	 	 	 	 	 	
U.S.	$	4,499		 	8,152		 	$	10,786		 	16,893		
Non-U.S.	(333	)	 	(227	)	 	(577	)	 	(331	)	
 	4,166		 	7,925		 	10,209		 	16,562		
Union-administered plans	2,123		 	2,046		 	4,214		 	4,030		
 	$	6,289		 	9,971		 	$	14,423		 	20,592		
 	 	 	 	 	 	 	 	
Postretirement Benefits	 	 	 	 	 	 	 	
Company-administered plans:	 	 	 	 	 	 	 	
Service cost	$	89		 	230		 	$	224		 	493		
Interest cost	348		 	392		 	713		 	787		
Amortization of:	 	 	 	 	 	 	 	
Net actuarial credit	(234	)	 	(5	)	 	(363	)	 	(7	)	
Prior service credit	(615	)	 	(57	)	 	(1,230	)	 	(115	)	
Net periodic benefit cost	$	(412	)	 	560		 	$	(656	)	 	1,158		
Company-administered plans:	 	 	 	 	 	 	 	
U.S.	$	(524	)	 	402		 	$	(921	)	 	808		
Non-U.S.	112		 	158		 	265		 	350		
 	$	(412	)	 	560		 	$	(656	)	 	1,158		

During the six months ended June 30, 2014 , we contributed $65.0 million to our pension plans. All of the contributions to the U.S. plan for 2014 were made as of June 30, 2014 . In 2014, we expect total contributions to our pension plans to be approximately $75 million .

17

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

(O) OTHER ITEMS IMPACTING COMPARABILITY

Our primary measure of segment performance excludes certain items we do not believe are representative of the ongoing operations of the segment. We believe that excluding these items from our segment measure of performance allows for better comparison of results.
During the six months ended June 30, 2013 , we recognized a benefit of $1.9 million (before and after tax) from the recognition of the accumulated currency translation adjustment from a FMS foreign operation which has substantially liquidated its net assets. This benefit was recorded within “Miscellaneous income, net” in our Consolidated Condensed Statements of Earnings.

(P) SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental cash flow information was as follows:

							
 	Six months ended June 30,	
 	2014	 	2013	
 	(In thousands)	
Interest paid	$	68,974		 	67,545		
Income taxes paid	7,332		 	8,447		
Changes in accounts payable related to purchases of revenue earning equipment	1,520		 	40,389		
Operating and revenue earning equipment acquired under capital leases	2,371		 	4,814		

During the six months ended June 30, 2014 and 2013 , we paid $1.6 million and $1.4 million , respectively, related to acquisitions completed in prior years.

(Q) MISCELLANEOUS INCOME, NET

														
 	Three months ended June 30,	 	Six months ended June 30,	
 	2014	 	2013	 	2014		2013	
 	(In thousands)	
Contract settlement	$	—		 	—		 	$	2,908		 	—		
Gains on sales of operating property and equipment	1,286		 	267		 	2,590		 	540		
Business interruption insurance recoveries	756		 	1,805		 	756			1,805		
Foreign currency translation benefit (1)	—		 	—		 	—		 	1,904		
Rabbi trust investment income	1,077		 	172		 	1,577		 	1,631		
Other, net	1,709		 	1,331		 	2,379		 	2,265		
Total	$	4,828		 	3,575		 	$	10,210		 	8,145		
  ————————————
(1) Refer to Note (O), "Other Items Impacting Comparability," for additional information.

18

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

(R) 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 two 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.; and (2) SCS, which provides comprehensive supply chain management solutions including distribution and transportation services in North America and Asia. The SCS segment also provides dedicated services, which includes vehicles and drivers as part of a dedicated transportation solution in the U.S.

Our primary measurement of segment financial performance, defined as “Earnings Before Tax” (EBT) from continuing operations, includes an allocation of Central Support Services (CSS) and excludes non-operating pension costs, restructuring and other charges, net and the items discussed in Note (O), “Other Items Impacting Comparability.” CSS represents those costs incurred to support all business segments, including human resources, finance, corporate services, public affairs, information technology, health and safety, legal, marketing and corporate communications. The objective of the EBT measurement is to provide clarity on the profitability of each business segment and, ultimately, to hold leadership of each business segment and each operating segment within each business segment accountable for their allocated share of CSS costs. Certain costs are considered to be overhead not attributable to any segment and remain unallocated in CSS. Included among the unallocated overhead remaining within CSS are the costs for investor relations, public affairs and certain executive compensation.

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

19

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

The following tables set forth financial information for each of our business segments and provides a reconciliation between segment EBT and earnings from continuing operations before income taxes for the three and six months ended June 30, 2014 and 2013 . 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	 	Eliminations	 	Total	
 	(In thousands)	 	 	
For the three months ended June 30, 2014	 	 	 	 	 	 	
Revenue from external customers	$	1,056,992		 	627,579		 	—		 	1,684,571		
Inter-segment revenue	124,230		 	—		 	(124,230	)	 	—		
Total revenue	$	1,181,222		 	627,579		 	(124,230	)	 	1,684,571		
 	 	 	 	 	 	 	 	
Segment EBT	$	113,509		 	30,728		 	(10,523	)	 	133,714		
Unallocated CSS	 	 	 	 	 	 	(12,125	)	
     Non-operating pension costs  	 	 	 	 	 	 	(1,544	)	
Earnings from continuing operations before income taxes	 	 	 	 	 	 	$	120,045		
 	 	 	 	 	 	 	 	
Segment capital expenditures paid (1)	$	623,138		 	4,249		 	—		 	627,387		
Unallocated CSS	 	 	 	 	 	 	49,113		
Capital expenditures paid	 	 	 	 	 	 	$	676,500		
 	 	 	 	 	 	 	 	
For the three months ended June 30, 2013	 	 	 	 	 	 	
Revenue from external customers	$	1,006,822		 	597,177		 	—		 	1,603,999		
Inter-segment revenue	114,436		 	—		 	(114,436	)	 	—		
Total revenue	$	1,121,258		 	597,177		 	(114,436	)	 	1,603,999		
 	 	 	 	 	 	 	 	
Segment EBT	$	88,667		 	32,968		 	(8,690	)	 	112,945		
Unallocated CSS	 	 	 	 	 	 	(10,584	)	
Non-operating pension costs  	 	 	 	 	 	 	(4,999	)	
Earnings from continuing operations before income taxes	 	 	 	 	 	 	$	97,362		
 	 	 	 	 	 	 	 	
Segment capital expenditures paid (1)	$	517,131		 	5,017		 	—		 	522,148		
Unallocated CSS	 	 	 	 	 	 	5,912		
Capital expenditures paid	 	 	 	 	 	 	$	528,060		
  ————————————
		
(1)	Excludes revenue earning equipment acquired under capital leases.	

20

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

	
														
 	FMS	 	SCS	 	Eliminations	 	Total	
 	(In thousands)	 	 	
For the six months ended June 30, 2014	 	 	 	 	 	 	
Revenue from external customers	$	2,070,388		 	1,224,920		 	—		 	3,295,308		
Inter-segment revenue	245,921		 	—		 	(245,921	)	 	—		
Total revenue	$	2,316,309		 	1,224,920		 	(245,921	)	 	3,295,308		
 	 	 	 	 	 	 	 	
Segment EBT	$	190,500		 	52,512		 	(20,151	)	 	222,861		
Unallocated CSS	 	 	 	 	 	 	(22,954	)	
     Non-operating pension costs  	 	 	 	 	 	 	(4,858	)	
Earnings from continuing operations before income taxes	 	 	 	 	 	 	$	195,049		
 	 	 	 	 	 	 	 	
Segment capital expenditures paid (1), (2)	$	1,191,377		 	8,121		 	—		 	1,199,498		
Unallocated CSS	 	 	 	 	 	 	55,724		
Capital expenditures paid	 	 	 	 	 	 	$	1,255,222		
 	 	 	 	 	 	 	 	
For the six months ended June 30, 2013	 	 	 	 	 	 	
Revenue from external customers	$	1,993,360		 	1,173,656		 	—		 	3,167,016		
Inter-segment revenue	227,630		 	—		 	(227,630	)	 	—		
Total revenue	$	2,220,990		 	1,173,656		 	(227,630	)	 	3,167,016		
 	 	 	 	 	 	 	 	
Segment EBT	$	149,412		 	57,404		 	(16,648	)	 	190,168		
Unallocated CSS	 	 	 	 	 	 	(21,959	)	
Non-operating pension costs  	 	 	 	 	 	 	(10,243	)	
Restructuring and other charges, net and other items	 	 	 	 	 	 	1,904		
Earnings from continuing operations before income taxes	 	 	 	 	 	 	$	159,870		
 	 	 	 	 	 	 	 	
Segment capital expenditures paid (1), (2)	$	923,642		 	10,817		 	—		 	934,459		
Unallocated CSS	 	 	 	 	 	 	13,655		
Capital expenditures paid	 	 	 	 	 	 	$	948,114		
  ————————————
		
(1)	Excludes revenue earning equipment acquired under capital leases.	
		
(2)	Excludes acquisition payments of $1.6 million  and $1.4 million  during the six months ended June 30, 2014 , and 2013, respectively.	

21

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

(S) OTHER MATTERS

We are a party to various claims, complaints and proceedings arising in the ordinary course of our continuing business operations including but not limited to those relating to commercial and employment claims, environmental matters, risk management matters (e.g. vehicle liability, workers’ compensation, etc.) and administrative assessments primarily associated with operating taxes. We have established loss provisions for matters in which losses are probable and can be reasonably estimated. For matters from continuing operations where a reserve has not been established and for which we believe a loss is reasonably possible, as well as for matters where a reserve has been recorded but for which an exposure to loss in excess of the amount accrued is reasonably possible, we believe that such losses will not have a material effect on our consolidated financial statements.

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

Refer to Note (C), “Discontinued Operations,” for additional matters.

22

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

OVERVIEW

The following discussion should be read in conjunction with the unaudited Consolidated Condensed Financial Statements and notes thereto included under Item 1. In addition, reference should be made to our audited Consolidated Financial Statements and notes thereto and related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the 2013 Annual Report on Form 10-K.

Ryder System, Inc. (Ryder) is a global leader in transportation and supply chain management solutions. Our operating segments are aggregated into reportable business segments based upon similar economic characteristics, products, services, customers and delivery methods. We operate in two 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.; and (2) SCS, which provides comprehensive supply chain management solutions including distribution and transportation services, in North America and Asia. The SCS segment also provides dedicated services, which includes 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, industrial, food and beverage service, consumer packaged goods, transportation and warehousing, hi-tech and electronics, retail, housing, business and personal services, and paper and publishing.

Total revenue increased 5% in the second quarter of 2014 to $1.68 billion and increased 4% in the first half of 2014 to $3.30 billion . Operating revenue (revenue excluding FMS fuel and all subcontracted transportation) increased 6% in the second quarter of 2014 to $1.39 billion and increased 5% to $2.72 billion in the first half of 2014 . The increase in total and operating revenue for both periods was driven by growth in both the FMS and SCS business segments. See “Consolidated Results” for further discussion of operating revenue, a non-GAAP financial measure.

Earnings from continuing operations before taxes (EBT) increased 23% in the second quarter of 2014 to $120.0 million and increased 22% in the first half of 2014 to $195.0 million . The increase in EBT in both the second quarter and first half of 2014 reflects improved performance in the FMS business segment.

23

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

EBT, earnings and EPS from continuing operations in the second quarter and first half of 2014 and 2013 included certain items we do not consider indicative of our ongoing operations and have been excluded from our comparable EBT, earnings and EPS measures. The following discussion provides a summary of these items, which are discussed in more detail throughout our MD&A and within the Notes to Consolidated Condensed Financial Statements:

																					
 	EBT	 	Earnings	 	Diluted EPS	
 	2014	 	2013	 	2014	 	2013	 	2014	 	2013	
Three months ended June 30	(In thousands, except per share amounts)	
EBT/Earnings/EPS	$	120,045		 	97,362		 	$	75,694		 	62,575		 	$	1.42		 	1.19		
Non-operating pension costs (1)	1,544		 	4,999		 	798		 	2,924		 	0.02		 	0.06		
Comparable (2)	$	121,589		 	102,361		 	$	76,492		 	65,499		 	$	1.44			1.25		
 	 	 	 	 	 	 	 	 	 	 	 	
Six months ended June 30	 	 	 	 	 	 	 	 	 	 	 	
EBT/Earnings/EPS	$	195,049		 	159,870		 	$	124,792		 	103,377		 	$	2.34		 	1.98		
Non-operating pension costs (1)	4,858		 	10,243		 	2,686		 	6,005		 	0.05		 	0.12		
Benefit from tax law change (3)	—		 	—		 	(1,776	)	 	—		 	(0.03	)		—		
Foreign currency translation benefit (4)	—		 	(1,904	)	 	—		 	(1,904	)	 	—		 	(0.04	)	
Comparable (2)	$	199,907		 	168,209		 	$	125,702		 	107,478		 	$	2.36			2.06		
__________________
		
(1)	Includes the amortization of actuarial loss, interest cost and expected return on plan assets components of pension and postretirement costs, which are tied to financial market performance. We consider these costs to be outside the operational performance of the business.	
		
(2)	Non-GAAP financial measure. We believe comparable EBT, comparable earnings and comparable earnings per diluted common share all from continuing operations measures provide useful information to investors because they exclude non-operating pension costs, which we consider to be those impacted by financial market performance and outside the operational performance of the business, and other significant items, such as the impact of tax law changes and foreign currency translations that are unrelated to our ongoing business operations.	
		
(3)	On March 31, 2014, the State of New York enacted changes to its tax system, which impacted net operating loss provisions and reduced the corporate income tax rate from 7.1% to 6.5%. The impact of these changes resulted in a non-cash benefit to deferred income taxes of $1.8 million.	
		
(4)	See Note (O), "Other Items Impacting Comparability," for additional information.	

Excluding the special items listed above, comparable earnings and comparable EPS from continuing operations in the second quarter of 2014 increased 17% to $76.5 million and increased 15% to $1.44 per diluted common share, respectively. Comparable earnings and comparable EPS from continuing operations in the first half of 2014 increased 17% to $125.7 million and increased 15% to $2.36 per diluted common share, respectively. EBT growth exceeded the EPS growth during the second quarter and first half of 2014 because the average number of shares outstanding has increased 2% and 3% , respectively, over prior year reflecting the impact of stock issuances under employee stock option and stock purchase plans.

In the second quarter of 2014 , net earnings and EPS increased 21% to $75.4 million and 18% to $1.41 per diluted common share, respectively. Net earnings and EPS increased 21% in the first half of 2014 to $123.6 million and 18% to $2.32 per diluted common share, respectively.

24

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

CONSOLIDATED RESULTS

																		
 	Three months ended June 30,	 	Six months ended June 30,	 	Change 2014/2013	
 	2014	 	2013	 	2014	 	2013	 	Three Months	 	Six Months	
 	(In thousands, except per share amounts)	 	 	 	 	
Total revenue	$	1,684,571		 	1,603,999		 	$	3,295,308		 	3,167,016		 	   5%	 	   4%	
Operating revenue (1)	1,393,049		 	1,313,339		 	2,715,527		 	2,580,860		 	   6%	 	   5%	

EBT	$	120,045		 	97,362		 	$	195,049		 	159,870		 	   23%	 	   22%	
Earnings from continuing operations	75,694		 	62,575		 	124,792		 	103,377		 	   21%	 	   21%	
Net earnings	75,358		 	62,194		 	123,590		 	102,118		 	   21%	 	   21%	

Earnings per common share — Diluted	 	 	 	 	 	 	 	 	 	 	 	
Continuing operations	$	1.42		 	1.19		 	$	2.34		 	1.98		 	   19%	 	   18%	
Net earnings	1.41		 	1.19		 	2.32		 	1.96		 	   18%	 	   18%	
   ————————————
		
(1)	We use operating revenue, a non-GAAP financial measure, to evaluate the operating performance of our businesses and as a measure of sales activity. FMS fuel services revenue, which is directly impacted by fluctuations in market fuel prices, is excluded from the operating revenue computation as fuel is largely a pass-through to our customers for which we realize minimal changes in profitability during periods of steady market fuel prices. However, profitability may be positively or negatively impacted by rapid changes in market fuel prices during a short period of time as customer pricing for fuel services is established based on market fuel costs. Subcontracted transportation is deducted from total revenue to arrive at operating revenue as subcontracted transportation is typically a pass-through to our customers. We realize minimal changes in profitability as a result of fluctuations in subcontracted transportation. Refer to the section titled “Non-GAAP Financial Measures” for a reconciliation of total revenue to operating revenue.	
 
Revenue and Cost of Revenue by Source

Total revenue increased 5% in the second quarter of 2014 to $1.68 billion . Operating revenue increased 6% in the second quarter of 2014 to $1.39 billion . For the first half of 2014, total revenue increased 4% to $3.30 billion and operating revenue increased 5% to $2.72 billion . The increase in total and operating revenue reflects growth in both FMS and SCS. The FMS growth was primarily driven by higher lease and rental revenues and the SCS growth was driven by new business and higher volumes.

Lease and Rental

																		
 	Three months ended June 30,	 	Six months ended June 30,	 	Change 2014/2013	
 	2014	 	2013	 	2014	 	2013	 	Three Months	 	Six Months	
 	(Dollars in thousands)	 	 	 	 	
Lease and rental revenues	$	733,763		 	688,048		 	$	1,423,445		 	1,347,756		 	   7%	 	   6%	
Cost of lease and rental	508,091		 	476,662		 	1,001,134		 	949,739		 	   7%	 	   5%	
Gross margin	225,672		 	211,386		 	422,311		 	398,017		 	   7%	 	   6%	
Gross margin %	31	%	 	31	%	 	30	%	 	30	%	 	 	 	 	

Lease and rental revenues represent full service lease and commercial rental product offerings within our FMS business segment. Revenues increased 7% in the second quarter of 2014 to $733.8 million and increased 6% to $1.42 billion in the first half of 2014 primarily driven by 2% full service lease fleet growth, higher prices on full service lease vehicles and increased commercial rental revenue. Commercial rental revenue grew due to higher rental pricing (up 5% in both the second quarter and first half of 2014 ) and increased North American demand.

Cost of lease and rental represents the direct costs related to lease and rental revenues. These costs are comprised of depreciation of revenue earning equipment, maintenance costs (primarily repair parts and labor), and other fixed costs such as licenses, insurance and operating taxes. Cost of lease and rental excludes interest costs from vehicle financing. Cost of lease and rental grew 7% to $508.1 million in the second quarter of 2014 and increased 5% to $1.00 billion in the first half of 2014 due to higher depreciation from increased lease vehicle investments and fleet growth as well as higher maintenance costs on a larger average fleet. Cost of lease and rental benefited by $6.3 million in the second quarter of 2014 and by $12.5 million in the first half of 2014 due to changes in estimated residual values and useful lives of revenue earning equipment effective January 1, 2014 .

25

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

Lease and rental gross margin increased 7% in the second quarter of 2014 to $225.7 million and increased 6% to $422.3 million in the first half of 2014 . Lease and rental gross margin as a percentage of revenue remained at 31% as a percentage of revenue in the second quarter of 2014 and at 30% in the first half of 2014 . The increase in margin dollars was due to higher rental pricing and demand as well as benefits from depreciation policy changes.

Services

																		
 	Three months ended June 30,	 	Six months ended June 30,	 	Change 2014/2013	
 	2014	 	2013	 	2014	 	2013	 	Three Months	 	Six Months	
 	(Dollars in thousands)	 	 	 	 	
Services revenue	$	741,427		 	707,666		 	$	1,451,126		 	1,397,127	 	   5%	 	   4%	
Cost of services	625,276		 	590,311		 	1,231,505		 	1,173,900	 	   6%	 	   5%	
Gross margin	116,151		 	117,355		 	219,621		 	223,227	 	   (1)%	 	   (2)%	
Gross margin %	16	%	 	17	%	 	15	%	 	16	%	 	 	 		

Services revenue represents all the revenues associated with our SCS business segment as well as contract maintenance, contract-related maintenance and fleet support services associated with our FMS business segment. Services revenue increased 5% in the second quarter of 2014 to $741.4 million and increased 4% in the first half of 2014 to $1.45 billion primarily due to new business and higher volumes in our SCS business segment, especially in our dedicated services offerings.

Cost of services represents the direct costs related to services revenue and is primarily comprised of salaries and employee-related costs, SCS subcontracted transportation (purchased transportation from third parties) and maintenance costs. Cost of services increased 6% in the second quarter of 2014 to $625.3 million and increased 5% in the first half of 2014 to $1.23 billion primarily due to higher revenue. Costs of services also increased as a result of greater than expected start-up costs on a new SCS international distribution management account, downtime and other costs related to severe winter weather in our SCS business segment and, to a lesser extent, shutdown costs related to lost business in the automotive sector.

Services gross margin decreased 1% to $116.2 million in the second quarter of 2014 and decreased 2% to $219.6 million in the first half of 2014 . Services gross margin as a percentage of revenue decreased to 16% in the second quarter and to 15% in the first half of 2014 . The decline in margin and margin percentage was due to greater than expected start-up costs on a new SCS international account and severe winter weather-related downtime and associated costs in SCS.

Fuel

																		
 	Three months ended June 30,	 	Six months ended June 30,	 	Change 2014/2013	
 	2014	 	2013	 	2014	 	2013	 	Three Months	 	Six Months	
 	(Dollars in thousands)	 	 	 	 	
Fuel services revenue	$	209,381		 	208,285		 	$	420,737		 	422,133		 	   1%	 	—%	
Cost of fuel services	203,613		 	204,626		 	410,818		 	414,919		 	—%	 	   (1)%	
Gross margin	5,768		 	3,659		 	9,919		 	7,214		 	   58%	 	   37%	
Gross margin %	3	%	 	2	%	 	2	%	 	2	%	 	 	 	 	

Fuel services revenue increased 1% in the second quarter of 2014 to $209.4 million due to higher fuel prices passed through to customers. Fuel services revenue in the first half of 2014 remained relatively unchanged from 2013 .

Cost of fuel services includes the direct costs associated with providing our customers with fuel. These costs include fuel, salaries and employee-related costs of fuel island attendants and depreciation of our fueling facilities and equipment. Cost of fuel in the second quarter of 2014 remained relatively unchanged from 2013 and decreased 1% in the first half of 2014 to $410.8 million caused by lower gallons partially offset by higher fuel prices.

Fuel services gross margin increased 58% to $5.8 million in the second quarter of 2014 and increased 37% to $9.9 million in the first half of 2014 . Fuel is largely a pass-through to customers for which we realize minimal changes in margin during periods of steady market fuel prices. However, fuel services margin is impacted by sudden increases or decreases in market fuel prices during a short period of time as customer pricing for fuel is established based on market fuel costs. Fuel services margin as a percentage of revenue increased 1% in the second quarter of 2014 and was unchanged in the first half of 2014 .

26

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

	
																		
 	Three months ended June 30,	 	Six months ended June 30,	 	Change 2014/2013	
 	2014	 	2013	 	2014	 	2013	 	Three Months	 	Six Months	
 	(In thousands)	 	 	 	 	
Other operating expenses	$	31,007		 	32,876		 	$	67,652		 	70,475		 	(6)%	 	(4)%	

Other operating expenses include costs related to our owned and leased facilities within the FMS business segment such as facility depreciation, rent, insurance, utilities and taxes. These facilities are utilized to provide maintenance to our lease, rental, contract maintenance, contract-related maintenance and on-demand customers. Other operating expenses also include the costs associated with used vehicle sales such as writedowns of used vehicles to fair market value and facilities costs. Other operating expenses decreased 6% to $31.0 million in the second quarter of 2014 primarily due to a $1.7 million reduction in writedowns on vehicles held for sale. Other operating expenses decreased 4% to $67.7 million in the first half of 2014 due to lower writedowns on vehicles held for sale of $2.8 million and lower property insurance costs partially offset by higher maintenance costs for FMS facilities due to severe winter weather.

																		
 	Three months ended June 30,	 	Six months ended June 30,	 	Change 2014/2013	
 	2014	 	2013	 	2014	 	2013	 	Three Months	 	Six Months	
 	(Dollars in thousands)	 	 	 	 	
Selling, general and administrative expenses (SG&A)	$	200,430		 	195,033	 	$	392,132		 	384,106	 	3%	 	2%	
Percentage of total revenue	12	%	 	12	%	 	12	%	 	12	%	 	 	 	 	
Percentage of operating revenue	14	%	 	15	%	 	14	%	 	15	%	 	 	 	 	

SG&A expenses increased 3% to $200.4 million in the second quarter of 2014 and increased 2% to $392.1 million in the first half of 2014 . SG&A expenses as a percent of total revenue remained at 12% for both periods. The SG&A expense increase in the second quarter and first half of 2014 was driven by higher compensation-related expenses partially offset by lower pension expense. The increase in the first half of 2014 was also impacted by higher information technology and marketing-related costs. Pension expense, which primarily impacts SG&A expenses, decreased $3.7 million in the second quarter and $6.2 million in the first half of 2014 reflecting higher than expected pension asset returns in 2013 and lower service costs.

																	
 	Three months ended June 30,	 	Six months ended June 30,	 	Change 2014/2013	
 	2014	 	2013	 	2014	 	2013	 	Three Months	 	Six Months	
 	(In thousands)	 	 	 	 	
Gains on vehicle sales, net	$	34,365		 	23,197		 	$	63,183		 	46,203	 	48%	 	37%	

Gains on vehicle sales, net increased 48% in the second quarter of 2014 to $34.4 million and increased 37% in the first half of 2014 to $63.2 million due to higher average proceeds per unit. Global average proceeds per unit increased 15% in the second quarter of 2014 and 11% in the first half of 2014 partially due to an increase in retail sales.

																		
 	Three months ended June 30,	 	Six months ended June 30,	 	Change 2014/2013	
 	2014	 	2013	 	2014	 	2013	 	Three Months	 	Six Months	
 	(Dollars in thousands)	 	 	 	 	
Interest expense	$	35,302		 	33,901		 	$	70,411		 	68,355		 	4%	 	3%	
Effective interest rate	3.1	%	 	3.5	%	 	3.2	%	 	3.5	%	 	 	 	 	

Interest expense increased 4% in the second quarter of 2014 to $35.3 million and increased 3% in the first half of 2014 to $70.4 million reflecting higher average outstanding debt partially offset by a lower effective interest rate. The increase in average outstanding debt reflects planned higher vehicle capital spending. The lower effective interest rate in 2014 primarily reflects the replacement of higher interest rate debt with debt issuances at lower rates.

27

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

	
														
 	Three months ended June 30,	 	Six months ended June 30,	
 	2014	 	2013	 	2014	 	2013	
 	(In thousands)	
Miscellaneous income, net	$	4,828		 	3,575		 	$	10,210		 	8,145		

Refer to Note (Q), "Miscellaneous Income, Net" in the Notes to Consolidated Condensed Financial Statements for a discussion of the components of miscellaneous income.

	
																		
 	Three months ended June 30,	 	Six months ended June 30,	 	Change 2014/2013	
 	2014	 	2013	 	2014	 	2013	 	Three Months	 	Six Months	
 	(Dollars in thousands)	 	 	 	 	
Provision for income taxes	$	44,351		 	34,787		 	$	70,257		 	56,493		 	27%	 	24%	
Effective tax rate from continuing operations	36.9	%	 	35.7	%	 	36.0	%	 	35.3	%	 	 	 	 	

Our effective income tax rate from continuing operations for the second quarter of 2014 was 36.9% compared with 35.7% in the same period of the prior year. The increase in our effective tax rate in the second quarter of 2014 reflects higher non-deductible foreign operating losses.

Our effective income tax rate from continuing operations for the six months ended June 30, 2014 was 36.0% compared with  35.3% in the same period of the prior year. The increase in the effective tax rate in the first half of 2014 reflects higher non-deductible foreign operating losses partially offset by a benefit from a tax law change in the state of New York.

	
														
 	Three months ended June 30,	 	Six months ended June 30,	
 	2014	 	2013	 	2014	 	2013	
 	(In thousands)	
Loss from discontinued operations, net of tax	$	(336	)	 	(381	)	 	$	(1,202	)	 	(1,259	)	

Refer to Note (C), “Discontinued Operations,” in the Notes to Consolidated Condensed Financial Statements for a discussion of losses from discontinued operations.

28

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

OPERATING RESULTS BY BUSINESS SEGMENT

																		
 	Three months ended June 30,	 	Six months ended June 30,	 	Change 2014/2013	
 	2014	 	2013	 	2014	 	2013	 	Three Months	 	Six Months	
 	(Dollars in thousands)	 	 	 	 	
Revenue:	 	 	 	 	 	 	 	 	 	 	 	
Fleet Management Solutions	$	1,181,222		 	1,121,258		 	$	2,316,309		 	2,220,990		 	  5%	 	4%	
Supply Chain Solutions	627,579			597,177		 	1,224,920			1,173,656		 	  5	 	4	
Eliminations	(124,230	)		(114,436	)	 	(245,921	)		(227,630	)	 	  9	 	8	
Total	$	1,684,571			1,603,999		 	$	3,295,308			3,167,016		 	  5%	 	4%	
Operating Revenue:	 	 	 	 	 	 	 	 	 	 	 	
Fleet Management Solutions	$	907,921			852,527		 	$	1,767,837			1,676,515		 	  6%	 	5%	
Supply Chain Solutions	545,438			514,802		 	1,065,876			1,009,633		 	  6	 	6	
Eliminations	(60,310	)		(53,990	)	 	(118,186	)		(105,288	)	 	  12	 	12	
Total	$	1,393,049			1,313,339		 	$	2,715,527			2,580,860		 	  6%	 	5%	
EBT:	 	 	 	 	 	 	 	 	 	 	 	
Fleet Management Solutions	$	113,509			88,667		 	$	190,500			149,412		 	  28%	 	27%	
Supply Chain Solutions	30,728			32,968		 	52,512			57,404		 	  (7)	 	(9)	
Eliminations	(10,523	)		(8,690	)	 	(20,151	)		(16,648	)	 	  21	 	21	
 	133,714			112,945		 	222,861			190,168		 	  18	 	17	
Unallocated Central Support Services	(12,125	)		(10,584	)	 	(22,954	)		(21,959	)	 	  15	 	5	
Non-operating pension costs	(1,544	)		(4,999	)	 	(4,858	)		(10,243	)	 	  (69)	 	(53)	
Restructuring and other charges, net and other items	—			—		 	—			1,904		 	NM	 	NM	
Earnings from continuing operations before income taxes	$	120,045			97,362		 	$	195,049			159,870		 	  23%	 	22%	

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

The objective of the EBT 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.

Inter-segment revenue and EBT are accounted for at rates similar to those executed with third parties. EBT related to inter-segment equipment and services billed to customers (equipment contribution) are included in both FMS and SCS and then eliminated (presented as “Eliminations” in the table above). Prior year amounts have been reclassified to conform to the current period presentation.

29

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 EBT measure to their classification within our Consolidated Condensed Statements of Earnings:  

																	
 	 	 	 	Three months ended June 30,	 	Six months ended June 30,	
Description	 	Consolidated
Condensed Statements of Earnings Line Item	 	2014	 	2013	 	2014	 	2013	
 	 	 	 	(In thousands)	
Non-operating pension costs	 	SG&A	 	$	(1,544	)	 	(4,999	)	 	$	(4,858	)	 	(10,243	)	
Foreign currency translation benefit  (1)	 	Miscellaneous income	 	—		 	—		 	—		 	1,904		
 	 	 	 	$	(1,544	)	 	(4,999	)	 	$	(4,858	)	 	(8,339	)	
———————————
		
(1)	See Note (O), “ Other Items Impacting Comparability, ” for additional information.	

Fleet Management Solutions

																				
  	Three months ended June 30,	 	Six months ended June 30,	 	Change 2014/2013	
  	2014	 	2013	 	2014	 	2013	 	Three Months	 	Six Months	
 	(Dollars in thousands)	 	 	 	 	
Full service lease	$	566,116			$	540,411		 	$	1,118,332			$	1,073,645		 	  5%	 	4%	
Contract maintenance	46,269			45,283		 	89,932			91,386		 	  2	 	(2)	
Contractual revenue	612,385			585,694		 	1,208,264			1,165,031		 	  5	 	4	
Commercial rental	221,684			196,512		 	411,879			369,609		 	  13	 	11	
Contract-related maintenance	56,521			52,066		 	112,627			105,379		 	  9	 	7	
Other	17,331			18,255		 	35,067			36,496		 	  (5)	 	(4)	
 Operating revenue (1)	907,921			852,527		 	1,767,837			1,676,515		 	  6	 	5	
Fuel services revenue	273,301			268,731			548,472			544,475		 	  2	 	1	
Total revenue	$	1,181,222			1,121,258		 	$	2,316,309			2,220,990		 	  5%	 	  4%	
 	 	 	 	 	 	 	 	 	 	 	 	
Segment EBT	$	113,509			88,667		 	$	190,500			149,412		 	  28%	 	  27%	
Segment EBT as a % of total revenue	9.6	%		7.9	%	 	8.2	%		6.7	%	 	170 bps	 	150 bps	
Segment EBT as a % of operating revenue (1)	12.5	%		10.4	%	 	10.8	%		8.9	%	 	210 bps	 	190 bps	
  ————————————
		
(1)	We use operating revenue and EBT as a percent of operating revenue, non-GAAP financial measures, 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 5% in the second quarter of 2014 to $1.18 billion . Operating revenue (revenue excluding fuel) increased 6 % in the second quarter of 2014 to $907.9 million . For the first half of 2014 , total revenue increased 4% to $2.32 billion . Operating revenue (revenue excluding fuel) increased 5% in the first half of 2014 to $1.77 billion .

Full service lease revenue increased 5% in the second quarter of 2014 and 4% in the first half of 2014 due to growth in the fleet size and higher prices on replacement vehicles. The average number of full service lease vehicles increased 2% from the prior year, reflecting continued increased sales activity. We expect favorable full service lease revenue comparisons to continue throughout the year based on current sales activity. Contract maintenance revenue increased 2% in the second quarter of 2014 due to new business resulting in 5% growth in customer vehicles under contract maintenance. However, in the first half of 2014 the new business was more than offset by a shift in the type of maintenance service provided, which resulted in a revenue decline of 2% . Commercial rental revenue increased 13% in the second quarter of 2014 and increased 11% in the first half of 2014 reflecting higher global pricing (up 5% in both the second quarter of 2014 and the first half of 2014 ) and increased North American demand. We expect favorable commercial rental comparisons to continue throughout the year.

30

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

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

	
																		
 	Three months ended June 30,	 	Six months ended June 30,	 	Change 2014/2013	
 	2014	 	2013	 	2014	 	2013	 	Three Months	 	Six Months	
 	(Dollars in thousands)	 	 	 	 	
Rental revenue from non-lease customers	$	134,897		 	117,140		 	$	241,960		 	213,252	 	15%	 	13%	
Rental revenue from lease customers (1)	$	86,787		 	79,372		 	$	169,919		 	156,357	 	9%	 	9%	
Average commercial rental power fleet size — in service (2),   (3)	31,000		 	28,300		 	30,300	 	28,200	 	10%	 	7%	
Commercial rental utilization — power fleet (3)	78.3	%		80.5	%		76.0	%		77.2	%	 	(220) bps	 	(120) bps	
   ————————————
		
(1)	Represents revenue from rental vehicles provided to our existing full service lease customers, generally during peak periods in their operations.	
		
(2)	Number of units rounded to nearest hundred and calculated using quarterly average unit counts.	
		
(3)	Excluding trailers.	

FMS EBT increased 28% in the second quarter of 2014 to $113.5 million reflecting significantly higher used vehicle sales results and strong commercial rental performance as well as better full service lease results. Used vehicle sales results improved due to higher proceeds per unit. Commercial rental performance improved in the second quarter of 2014 as a result of higher pricing and increased North American demand. Rental power fleet utilization was 78.3% for the second quarter of 2014 , which was down 220 basis points from the prior year on a 10% larger average rental power fleet. The decline in utilization primarily reflects the impact of more out of service rental units caused by first quarter weather-related maintenance delays. Full service lease and rental results benefited from $6.3 million of lower depreciation due to residual value policy changes implemented January 1, 2014 . Full service lease results also improved from growth in fleet size.

FMS EBT increased 27% in the first half of 2014 to $190.5 million reflecting strong commercial rental performance, improved used vehicle sales results and higher full service lease margins. Commercial rental performance improved in the first half of 2014 as a result of higher pricing and increased North American demand. Rental power fleet utilization was 76.0% for the first half of 2014 , which was down 120 basis points from the prior year on a 7% larger average rental power fleet. Used vehicle sales results improved due to higher proceeds per unit. Results benefited from $12.5 million of lower depreciation due to residual value policy changes implemented January 1, 2014 . Full service lease results also improved from growth in fleet size.

31

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

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

													
 	 	 	 	 	 	 	Change	
 	June 30, 2014	 	December 31, 2013	 	June 30, 2013	 	Jun. 2014/Dec. 2013	 	Jun. 2014/ Jun. 2013	
End of period vehicle count	 	 	 	 	 	 	 	 	 	
By type:	 	 	 	 	 	 	 	 	 	
Trucks (1)	69,100		 	68,700		 	67,900		 	  1%	 	  2%	
Tractors (2)	61,500		 	60,200		 	59,000		 	  2	 	  4	
Trailers (3) (4)	41,000		 	41,700		 	41,900		 	  (2)	 	  (2)	
    Other	1,400		 	1,500		 	2,100		 	  (7)	 	  (33)	
Total	173,000		 	172,100		 	170,900		 	  1%	 	  1%	
 	 	 	 	 	 	 	 	 	 	
By ownership:	 	 	 	 	 	 	 	 	 	
Owned	169,900		 	169,000		 	166,700		 	  1%	 	  2%	
Leased	3,100		 	3,100		 	4,200		 	—	 	  (26)	
Total	173,000		 	172,100		 	170,900		 	  1%	 	  1%	
 	 	 	 	 	 	 	 	 	 	
By product line:  (4)	 	 	 	 	 	 	 	 	 	
Full service lease	123,000		 	122,900		 	120,300		 	—%	 	  2%	
Commercial rental	40,700		 	38,200		 	38,000		 	  7	 	  7	
  Service vehicles and other	3,000		 	3,100		 	3,000		 	  (3)	 	—	
Active units	166,700		 	164,200		 	161,300		 	  2	 	  3	
Held for sale	6,300		 	7,900		 	9,600		 	  (20)	 	  (34)	
Total	173,000		 	172,100		 	170,900		 	  1%	 	  1%	
 	 	 	 	 	 	 	 	 	 	
Customer vehicles under contract maintenance	39,700		 	37,400		 	37,300		 	  6%	 	  6%	
 	 	 	 	 	 	 	 	 	 	
Customer vehicles under transactional maintenance (5)	6,500		 	5,000		 	3,700		 	  30%	 	  76%	
 	 	 	 	 	 	 	 	 	 	
Total vehicles under service	219,200		 	214,500		 	211,900		 	  2%	 	  3%	
 	 	 	 	 	 	 	 	 	 	
Quarterly average vehicle count	 	 	 	 	 	 	 	 	 	
By product line:	 	 	 	 	 	 	 	 	 	
Full service lease	123,100		 	122,000		 	121,000		 	  1%	 	  2%	
Commercial rental	39,900		 	38,200		 	37,100		 	  4	 	  8	
Service vehicles and other	3,100		 	3,000		 	2,900		 	  3	 	  7	
Active units	166,100		 	163,200		 	161,000		 	  2	 	  3	
Held for sale	6,800		 	8,000		 	9,900		 	  (15)	 	  (31)	
Total	172,900		 	171,200		 	170,900		 	  1%	 	  1%	
 	 	 	 	 	 	 	 	 	 	
Customer vehicles under contract maintenance	39,400		 	37,400		 	37,600		 	  5%	 	  5%	
 	 	 	 	 	 	 	 	 	 	
Year-to-date average vehicle count	 	 	 	 	 	 	 	 	 	
By product line:	 	 	 	 	 	 	 	 	 	
Full service lease	123,100		 	121,400		 	121,400		 	  1%	 	  1%	
Commercial rental	39,100		 	37,700		 	37,100		 	  4	 	  5	
Service vehicles and other	3,100		 	3,000		 	2,900		 	  3	 	  7	
Active units	165,300		 	162,100		 	161,400		 	  2	 	  2	
Held for sale	7,200		 	9,100		 	9,800		 	  (21)	 	  (27)	
Total	172,500		 	171,200		 	171,200		 	  1%	 	  1%	
 	 	 	 	 	 	 	 	 	 	
Customer vehicles under contract maintenance	38,400		 	37,700		 	37,800		 	  2%	 	  2%	
 ———————————
		
(1)	Generally comprised of Class 1 through Class 6 type vehicles with a Gross Vehicle Weight (GVW) up to 26,000 pounds.	
		
(2)	Generally comprised of over the road on highway tractors and are primarily comprised of Classes 7 and 8 type vehicles with a GVW of over 26,000 pounds.	
		
(3)	Generally comprised of dry, flatbed and refrigerated type trailers.	
		
(4)	Includes 7,000 UK trailers ( 4,600 full service lease and 2,400 commercial rental and other), 7,700 UK trailers ( 5,000 full service lease and 2,700 commercial rental and other) and 8,400 UK trailers ( 5,400 full service lease and 3,000 commercial rental and other) as of June 30, 2014 , December 31, 2013 , and June 30, 2013 , respectively, primarily acquired as part of the Hill Hire acquisition.	
		
(5)	Comprised of the number of unique vehicles serviced under transactional on-demand maintenance agreements. Vehicles included in the end of period count may have been serviced more than one time during the respective period.	

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

32

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

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

										
 	 	 	 	 	 	 	Change	
 	June 30,
2014	 	December 31,
2013	 	June 30,
2013	 	Jun. 2014/
Dec. 2013	 	Jun. 2014/
Jun. 2013	
Not yet earning revenue (NYE)	2,200	 	2,800	 	2,100	 	  (21)%	 	  5%	
No longer earning revenue (NLE):	 	 	 	 	 	 	 	 	 	
Units held for sale	6,300	 	7,900	 	9,600	 	(20)	 	(34)	
Other NLE units	3,600	 	2,800	 	2,200	 	29	 	64	
Total	12,100	 	13,500	 	13,900	 	  (10)%	 	  (13)%	

NYE units represent new vehicles on hand that are being prepared for deployment to a lease customer or into the rental fleet. Preparations include activities such as adding lift gates, paint, decals, cargo area and refrigeration equipment. NYE units increased compared to June 30, 2013 due to new sales activity. NLE units represent vehicles held for sale and vehicles for which no revenue has been earned in the previous 30 days. Accordingly, these vehicles may be temporarily out of service, being prepared for sale or awaiting redeployment. NLE units decreased compared to June 30, 2013 reflecting lower used vehicle inventories partially offset by an increase in lease and rental vehicles awaiting outservicing. We expect NLE levels to decrease throughout the year as vehicles are outserviced.

Supply Chain Solutions

																		
 	Three months ended June 30,	 	Six months ended June 30,	 	Change 2014/2013	
 	2014	 	2013	 	2014	 	2013	 	Three Months	 	Six Months	
 	(Dollars in thousands)	 	 	 	 	
Operating revenue:	 	 	 	 	 	 	 	 	 	 	 	
Automotive	$	145,343		 	144,811		 	$	289,918		 	293,438		 	—%	 	(1)%	
High-Tech	88,027		 	81,984		 	169,482		 	159,774		 	7	 	6	
Retail and CPG	193,354		 	180,312		 	376,687		 	356,130		 	7	 	6	
Industrial and other	118,714		 	107,695		 	229,789		 	200,291		 	10	 	15	
Total operating revenue (1)	545,438			514,802		 	1,065,876			1,009,633		 	6	 	6	
Subcontracted transportation	82,141			82,375		 	159,044			164,023		 	—	 	(3)	
Total revenue	$	627,579			597,177		 	$	1,224,920			1,173,656		 	5%	 	4%	
 	 	 	 	 	 	 	 	 	 	 	 	
Segment EBT	$	30,728			32,968		 	$	52,512			57,404		 	(7)%	 	(9)%	
Segment EBT as a % of total revenue	4.9	%		5.5	%	 	4.3	%		4.9	%	 	(60) bps	 	(60) bps	
Segment EBT as a % of operating revenue (1)	5.6	%		6.4	%	 	4.9	%		5.7	%	 	(80) bps	 	(80) bps	
Memo:	 	 	 	 	 	 	 	 		 		
Dedicated services total revenue	$	361,577			338,735		 	$	707,442			663,500		 	7%	 	7%	
Dedicated services operating revenue (1), (2)	$	324,517			301,951		 	$	636,238			593,100		 	7%	 	7%	
Average fleet	12,600			12,000			12,500			11,900			5%		5%	
Fuel costs (3)	$	69,855			66,937		 	$	140,270			135,095		 	4%	 	4%	
   ————————————
		
(1)	We use operating revenue and EBT as a percent of operating revenue, non-GAAP financial measures, to evaluate the operating performance of our SCS business segment and as a measure of sales activity and profitability. In SCS transportation management arrangements, we may act as a principal or as an agent in purchasing transportation on behalf of our customer. We record revenue on a gross basis when acting as principal and we record revenue on a net basis when acting as an agent. As a result, total revenue may fluctuate depending on our role in subcontracted transportation arrangements yet our profitability remains unchanged as we typically realize minimal profitability from subcontracting transportation. We deduct subcontracted transportation expense from SCS total revenue to arrive at SCS operating revenue, and from dedicated services total revenue to arrive at dedicated services operating revenue.	
		
(2)	Dedicated services operating revenue excludes dedicated subcontracted transportation as follows: $37.1 million and $36.8 million for the three months ended June 30, 2014 and 2013 , respectively and $71.2 million and $70.4 million for the six months ended June 30, 2014 and 2013, respectively.	
		
(3)	Fuel costs are largely a pass-through to customers and therefore have a direct impact on revenue.	

33

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

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

								
 	Three months ended June 30, 2014	 	Six months ended June 30, 2014	
 	Total	 	Operating	 	Total	 	Operating	
Organic including price and volume	6%	 	7%	 	5%	 	7%	
Foreign exchange	(1)	 	(1)	 	(1)	 	(1)	
Total increase	5%	 	6%	 	   4%	 	6%	

Total revenue increased 5% in the second quarter of 2014 to $627.6 million . Operating revenue (revenue excluding subcontracted transportation) increased 6% in the second quarter of 2014 to $ 545.4 million . For the first half of 2014 , total revenue increased 4% to $1.22 billion and operating revenue increased 6% to $1.07 billion . Operating revenue growth in both periods was due to new business and higher volumes primarily in the industrial, retail and CPG, and high-tech industry groups. We expect favorable revenue comparisons to continue throughout the year due to new business.

SCS EBT decreased 7% in the second quarter of 2014 to $30.7 million and decreased 9% in the first half of 2014 to $52.5 million due to greater than expected start-up costs on a new international distribution management account and, to a lesser extent, lost business (including shutdown costs) in the automotive sector. The decline was partially offset by other new business and improved dedicated performance. SCS EBT also decreased in the first half of 2014 due to downtime and other costs related to severe winter weather during the first quarter.

Central Support Services

																		
 	Three months ended June 30,	 	Six months ended June 30,	 	Change 2014/2013	
 	2014	 	2013	 	2014	 	2013	 	Three Months	 	Six Months	
 	(Dollars in thousands)	 	 	 	 	
Human resources	$	4,933		 	4,345		 	$	9,606		 	8,759		 	14%	 	10%	
Finance	12,816		 	12,307		 	25,377		 	24,813		 	4	 	2	
Corporate services and public affairs	1,526		 	3,108		 	4,677		 	7,139		 	(51)	 	(34)	
Information technology	19,340		 	17,024		 	40,129		 	34,112		 	14	 	18	
Legal and safety	6,322		 	5,393		 	12,023		 	10,872		 	17	 	11	
Marketing (1)	3,519		 	4,247		 	8,948		 	7,466		 	(17)	 	20	
Other	9,653		 	9,945		 	16,061		 	17,765		 	(3)	 	(10)	
Total CSS	58,109		 	56,369		 	116,821		 	110,926		 	3	 	5	
Allocation of CSS to business segments	(45,984	)	 	(45,785	)	 	(93,867	)	 	(88,967	)	 	—	 	6	
Unallocated CSS	$	12,125		 	10,584		 	$	22,954		 	21,959		 	15%	 	5%	
   ————————————
		
(1)	Prior year amounts related to marketing have been reclassified to conform to the current period presentation. Marketing costs were previously recorded as a direct expense of each business segment. We centralized the marketing function in the second half of 2013 and now record marketing costs within total CSS and allocate them to the segments. The change did not impact business segment EBT or unallocated CSS .	

Total CSS costs increased 3% in the second quarter of 2014 to $58.1 million and increased 5% in the first half of 2014 to $116.8 million primarily driven by planned higher investments in information technology. CSS costs also increased in the first half of 2014 due to marketing-related costs. Unallocated CSS increased 15% in the second quarter of 2014 to $12.1 million and increased 5% in the first half of 2014 to $23.0 million primarily due to legal and financial consulting services and increased marketing-related costs. Increased unallocated CSS in the first half of 2014 were partially offset by lower spending on public affairs and benefits from the purchase of our headquarters facility.

34

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

FINANCIAL RESOURCES AND LIQUIDITY
 
Cash Flows
 
The following is a summary of our cash flows from operating, financing and investing activities from continuing operations:

	
							
 	Six months ended June 30,	
 	2014	 	2013	
 	(In thousands)	
Net cash provided by (used in):	 	 	 	
Operating activities	$	536,500		 	563,777		
Financing activities	429,953		 	124,940		
Investing activities	(939,818	)	 	(687,604	)	
Effect of exchange rate changes on cash	48		 	6,966		
Net change in cash and cash equivalents	$	26,683		 	8,079		

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 from continuing operations decreased to $536.5 million in the six months ended June 30, 2014 compared with $563.8 million in 2013 , reflecting increased working capital needs, which were partially offset by higher earnings compared to the prior year period. The increased working capital needs were primarily driven by the timing of pension contributions compared to the prior year period. All pension contributions for the U.S. plan for 2014 have been made as of June 30, 2014 . Cash provided by financing activities increased to $430.0 million in the six months ended June 30, 2014 compared with $124.9 million in 2013 as a result of increased borrowing needs to fund investing activities. Cash used in investing activities increased to $939.8 million in the six months ended June 30, 2014 compared with $687.6 million in 2013 primarily due to planned higher vehicle capital spending.
 
We refer to the sum of operating cash flows, proceeds from the sales of revenue earning equipment and operating property and equipment, collections on direct finance leases, sale and leaseback of revenue earning equipment, and other investing cash inflows from continuing operations as “total cash generated.” We refer to the net amount of cash generated from operating and investing activities (excluding changes in restricted cash and acquisitions) from continuing operations as “free cash flow.” Although total cash generated and free cash flow are non-GAAP financial measures, we consider them to be important measures of comparative operating performance. We also believe total cash generated to be an important measure of total cash flows generated from our ongoing business activities. We believe free cash flow provides investors with an important perspective on the cash available for debt service and for shareholders after making capital investments required to support ongoing business operations. Our calculation of free cash flow may be different from the calculation used by other companies and therefore comparability may be limited.
 
The following table shows the sources of our free cash flow computation: 

							
 	Six months ended June 30,	
 	2014	 	2013	
 	(In thousands)	
Net cash provided by operating activities from continuing operations	$	536,500			563,777		
Sales of revenue earning equipment	274,394			225,749		
Sales of operating property and equipment	2,780			3,296		
Collections on direct finance leases	32,355			39,854		
Insurance recoveries and other	(1,250	)	 	8,173		
Total cash generated	844,779			840,849		
Purchases of property and revenue earning equipment	(1,255,222	)		(948,114	)	
Free cash flow	$	(410,443	)		(107,265	)	
    
Free cash flow decreased to negative $410.4 million in 2014 primarily due to planned higher spending on commercial rental and full service lease vehicles.

35

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

The following table provides a summary of capital expenditures:

							
 	Six months ended June 30,	
 	2014	 	2013	
 	(In thousands)	
Revenue earning equipment:	 	 	 	
Full service lease	$	818,469		 	777,508		
Commercial rental	343,536		 	171,210		
 	1,162,005		 	948,718		
Operating property and equipment	94,737		 	39,785		
Total capital expenditures (1)	1,256,742			988,503		
Changes in accounts payable related to purchases of revenue earning equipment	(1,520	)	 	(40,389	)	
Cash paid for purchases of property and revenue earning equipment	$	1,255,222			948,114		
   ————————————
		
(1)	Capital expenditures exclude non-cash additions of approximately $2.4 million and $4.8 million during the six months ended June 30, 2014 and 2013 , respectively, in assets held under capital leases resulting from the extension of existing operating leases and other additions.	

Capital expenditures (accrual basis) increased 27% in the six months ended June 30, 2014 to $1.26 billion reflecting planned higher investments in the commercial rental fleet. Capital expenditures also increased as a result of the purchase of our headquarter facility in the second quarter of 2014 . We now expect full-year 2014 accrual basis capital expenditures from continuing operations to be approximately $2.31 billion up $150 million from our prior forecast. The increase reflects anticipated increases in rental and lease vehicle purchases in the second half of the year to meet demand as well as a higher proportion of lease sales being fulfilled with new vehicles. We expect to primarily fund capital expenditures in the second half of 2014 with both internally generated funds and a sale leaseback transaction.

Financing and Other Funding Transactions

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

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

Our debt ratings and rating outlooks at June 30, 2014 were as follows:

								
 	Short-term	 	Long-term	
 	Rating	 	Outlook	 	Rating	 	Outlook	
Moody’s Investors Service	P2	 	Stable	 	Baa1	  	Stable	
Standard & Poor’s Ratings Services	A2	 	Stable	 	BBB	  	Positive (affirmed April 2014)	
Fitch Ratings	F2	 	Stable	 	A-	  	Stable (affirmed April 2014)	

36

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

 
Cash and equivalents totaled $86.9 million as of June 30, 2014 , which is available to meet our needs. As of June 30, 2014 , approximately $30.2 million was held outside the U.S. and is available to fund operations and other growth of non-U.S. subsidiaries. If we decide to repatriate cash and equivalents held outside the U.S., we may be subject to additional U.S. income taxes and foreign withholding taxes. However, our intent is to permanently reinvest these foreign amounts outside the U.S. and our current plans do not demonstrate a need to repatriate these foreign amounts to fund our U.S. operations.

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

At June 30, 2014 , we had the following amounts available to fund operations under the following facilities:

		
 	(In millions)	
Global revolving credit facility	$380	
Trade receivables program	$175	
 
We maintain a $900 million global revolving credit facility used to finance working capital that matures in October 2018. The global facility is used primarily to finance working capital. In order to maintain availability of funding, we must maintain a ratio of debt to consolidated net worth of less than or equal to 300% . Net worth, as defined in the credit facility, represents shareholders' equity excluding any accumulated other comprehensive income or loss associated with our pension and other postretirement plans. The ratio at June 30, 2014 was 194% .
We also have a $175 million trade receivables purchase and sale program, pursuant to which we ultimately sell certain ownership interests in certain of our domestic trade 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 program contains provisions restricting its availability in the event of a material adverse change to our business operations or the collectibility of the collateralized receivables. If no event occurs which causes early termination, the 364-day program will expire on October 24, 2014.
In May 2014, we issued $400 million of unsecured medium-term notes maturing in September 2019 and in February 2014, we issued $350 million of unsecured medium-term notes maturing in June 2019. The proceeds from the notes were used to reduce commercial paper balances and for general corporate purposes. If the notes are downgraded below investment grade following, and as a result of, a change in control, the note holder can require us to repurchase all or a portion of the notes at a purchase price equal to 101% of principal plus accrued and unpaid interest .
On February 6, 2013, Ryder filed an automatic shelf registration statement on Form S-3 with the SEC. The registration is for an indeterminate number of securities and is effective for three years. Under this universal shelf registration statement, we have the capacity to offer and sell from time to time various types of securities, including common stock, preferred stock and debt securities, subject to market demand and ratings status.
Refer to Note (I), “Debt,” in the Notes to Consolidated Condensed Financial Statements for further discussion around the global revolving credit facility, the trade receivables program, the issuance of medium-term notes under this shelf registration statement and debt maturities.

37

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

The following table shows the movements in our debt balance:

							
 	Six months ended June 30,	
 	2014	 	2013	
 	(In thousands)	
Debt balance at January 1	$	4,189,425		 	3,820,796		
Cash-related changes in debt:	 	 	 	
Net change in commercial paper borrowings	21,377		 	180,777		
Proceeds from issuance of medium-term notes	748,676		 	249,723		
Proceeds from issuance of other debt instruments	17,037		 	4,648		
Retirement of medium term notes	(250,000	)	 	(250,000	)	
Other debt repaid, including capital lease obligations	(21,248	)	 	(70,862	)	
 	515,842		 	114,286		
Non-cash changes in debt:	 	 	 	
Fair market value adjustment on notes subject to hedging	(316	)	 	(6,367	)	
Addition of capital lease obligations	2,371		 	4,814		
Changes in foreign currency exchange rates and other non-cash items	9,831		 	(19,122	)	
Total changes in debt	527,728		 	93,611		
Debt balance at June 30	$	4,717,153		 	3,914,407		

In accordance with our funding philosophy, we attempt to balance the aggregate average remaining re-pricing life of our debt with the aggregate average remaining re-pricing life of our assets. We utilize both fixed-rate and variable-rate debt to achieve this match and generally target a mix of 25% to 45% variable-rate debt as a percentage of total debt outstanding. The variable-rate portion of our total obligations (including notional value of swap agreements) was 28% and 27% at June 30, 2014 and December 31, 2013 , respectively.

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

	
											
 	June 30,
2014	 	% to
Equity	 	December 31,
2013	 	% to
Equity	
 	(Dollars in thousands)	
On-balance sheet debt	$	4,717,153			240%		4,189,425			221%	
Off-balance sheet debt—PV of minimum lease payments and guaranteed residual values under operating leases for vehicles (1)	87,700					94,519				
Total obligations	$	4,804,853			245%		4,283,944			226%	
  ————————————
		
(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 as of June 30, 2014 due to increased debt to fund planned capital expenditures.

38

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. 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 generally conditioned upon disposal of the leased vehicles prior to the end of their lease term. The amount of future payments for residual value guarantees will depend on the market for used vehicles and the condition of the vehicles at time of disposal. We did not enter into any sale-leaseback transactions during the six months ended June 30, 2014 or during 2013.

Pension Information

The funded status of our pension plans is dependent upon many factors, including returns on invested assets and the level of certain market interest rates. We review pension assumptions regularly and we may from time to time make voluntary contributions to our pension plans, which exceed the amounts required by statute. In 2014 , we expect total contributions to our pension plans to be approximately $75 million . During the six months ended June 30, 2014 , we contributed $65.0 million to our pension plans. All pension contributions for the U.S. plan for 2014 have been made as of June 30, 2014 . Changes in interest rates and the market value of the securities held by the plans during 2014 could materially change, positively or negatively, the funded status of the plans and affect the level of pension expense and contributions in 2014 and beyond. See Note (N), “Employee Benefit Plans,” in the Notes to Consolidated Condensed Financial Statements for additional information.

Share Repurchases and Cash Dividends

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

In May 2014, our Board of Directors declared a quarterly cash dividend of $0.34 per share of common stock. In July 2014, our Board of Directors declared a quarterly cash dividend of $0.37 per share of common stock. This dividend reflects a $0.03 increase from the $0.34 quarterly cash dividend we have been paying since July of 2013.

39

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

RECENT ACCOUNTING PRONOUNCEMENTS

See Note (B), “Accounting Changes," 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 comparable earnings from continuing operations before taxes, comparable earnings from continuing operations, comparable EPS from continuing operations, operating revenue, FMS operating revenue, FMS EBT as a % of operating revenue, SCS operating revenue, SCS EBT as a % of operating revenue, dedicated services operating revenue, total cash generated, free cash flow, total obligations and total obligations to equity. We provide a reconciliation of each of these non-GAAP financial measures 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 within the management's discussion and analysis and in the table below. 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 reconciliation of total revenue to operating revenue which was not provided within the MD&A discussion:

	
														
 	Three months ended June 30,	 	Six months ended June 30,	
 	2014	 	2013	 	2014	 	2013	
 	(In thousands)	
Total revenue	$	1,684,571			1,603,999			$	3,295,308		 	3,167,016		
FMS fuel services and SCS subcontracted transportation (1)	(355,442	)		(351,106	)		(707,516	)	 	(708,498	)	
Fuel eliminations	63,920			60,446			127,735		 	122,342		
Operating revenue	$	1,393,049			1,313,339			$	2,715,527			2,580,860		
   ————————————
		
(1)	Includes intercompany fuel sales.	

40

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

FORWARD-LOOKING STATEMENTS

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

•	our expectations in our FMS business segment regarding anticipated full service lease and commercial rental revenue, full service lease sales, and global pricing and North American demand in commercial rental;	
		
•	our expectations in our SCS business segment regarding anticipated revenue and new business;	
		
•	our expectations of the long-term residual values of revenue earning equipment;	
		
•	the anticipated levels of NLE vehicles in inventory through the end of the year;	
		
•	our expectations of operating cash flow and capital expenditures through the end of 2014 ;	
		
•	the adequacy of our accounting estimates and reserves for pension expense, compensation expense and employee benefit plan obligations, depreciation and residual value guarantees and income taxes;	
		
•	the adequacy of our fair value estimates of employee incentive awards under our share-based compensation plans, publicly traded debt and other debt;	
		
•	our beliefs regarding the default risk of our direct financing lease receivables	
		
•	our ability to fund all of our operating, investing and financial needs for the foreseeable future through internally generated funds and outside funding sources;	
		
•	the anticipated impact of fuel price fluctuations;	
		
•	our expectations as to return on pension plan assets, future pension expense and estimated contributions	
		
•	our expectations regarding the scope, anticipated outcomes and the adequacy of our loss provisions with respect to certain claims, proceedings and lawsuits;	
		
•	our ability to access commercial paper and other available debt financing in the capital markets; and	
		
•	our expectations regarding the future use and availability of funding sources.	

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:	

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

				
 	Ÿ	 	Decreases in freight demand or setbacks in the recovery of the freight recession which would impact both our transactional and variable-based contractual business	

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

				
 	Ÿ	 	Decreases in market demand affecting the commercial rental market as well as economic conditions in the U.K.	

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

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

41

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

		
•	Competition:	

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

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

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

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

				
 	Ÿ	 	Our inability to obtain adequate profit margins for our services	

				
 	Ÿ	 	Lower than expected sales volumes or customer retention levels	

				
 	Ÿ	 	Lower full service lease sales activity	

				
 	Ÿ	 	Loss of key customers in our SCS business segment	

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

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

				
 	Ÿ	 	Sudden changes in fuel prices and fuel shortages	

				
 	Ÿ	 	Higher prices for vehicles, diesel engines and fuel as a result of exhaust emissions standards enacted over the last few years	

				
 	Ÿ	 	Higher than expected maintenance costs and lower than expected benefits associated with a younger fleet and maintenance initiatives	

				
 	Ÿ	 	Our inability to successfully implement our asset management initiatives	

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

				
 	Ÿ	 	Increased unionizing, labor strikes and work stoppages	

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

				
 	Ÿ	 	Our inability to manage our cost structure	

				
 	Ÿ	 	Our inability to limit our exposure for customer claims	

				
 	Ÿ	 	Unfavorable or unanticipated outcomes in legal proceedings or uncertain positions	

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

42

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

		
•	Financing Concerns:	

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

				
 	Ÿ	 	Unanticipated interest rate and currency exchange rate fluctuations	

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

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

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

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

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

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

				
 	Ÿ	 	Increases in health care costs resulting in higher insurance costs	

				
 	Ÿ	 	Changes in accounting rules, assumptions and accruals	

				
 	Ÿ	 	Impact of actual insurance claim and settlement activity compared to historical loss development factors used to project future development	
		
•	Other risks detailed from time to time in our SEC filings	

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

43

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, 2013 . Please refer to the 2013 Annual Report on Form 10-K for a complete discussion of Ryder’s exposures to market risks.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the second quarter of 2014 , we carried out an evaluation, under the supervision and with the participation of management, including Ryder’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of Ryder’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of the end of the second quarter of 2014 , 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 six months ended June 30, 2014 , 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 June 30, 2014 :

	
													
 	Total Number
of Shares
Purchased (1)	 	Average Price
Paid per Share	 	Total Number  of
Shares
Purchased as
Part of Publicly
Announced
Programs	 	Maximum
Number of
Shares That May
Yet Be
Purchased
Under the
Anti-Dilutive
Program (2)	
April 1 through April 30, 2014	151,530		 	$	82.61		 	150,000		 	1,287,317		
May 1 through May 31, 2014	157,443		 	83.11		 	157,392		 	1,129,925		
June 1 through June 30, 2014	157,223		 	86.43		 	156,997		 	972,928		
Total	466,196		 	$	84.07		 	464,389		 	 	
  ————————————
		
(1)	During the three months ended June 30, 2014 , we purchased an aggregate of 1,807 shares of our common stock in employee-related transactions. Employee-related transactions may include: (i) shares of common stock delivered as payment for the exercise price of options exercised or to satisfy the option holders’ tax withholding liability associated with our share-based compensation programs and (ii) open-market purchases by the trustee of Ryder’s deferred compensation plans relating to investments by employees in our stock, one of the investment options available under the plans.	
		
(2)	In December 2013, our Board of Directors authorized a share repurchase program intended to mitigate the dilutive impact of shares issued under our various employee stock, stock option and employee stock purchase plans. Under the December 2013 program, management is authorized to repurchase shares of common stock in an amount not to exceed the number of shares issued to employees under the Company’s various employee stock, stock option and employee stock purchase plans from December 1, 2013 through December 31, 2015. The December 2013 program limits aggregate share repurchases to no more than 2 million shares of Ryder common stock. Share repurchases of common stock are made periodically in open-market transactions and are subject to market conditions, legal requirements and other factors. Management may establish prearranged written plans for the Company under Rule 10b5-1 of the Securities Exchange Act of 1934 as part of the December 2013 program, which allow for share repurchases during Ryder’s quarterly blackout periods as set forth in the trading plan. For the three months ended June 30, 2014 , we repurchased and retired 464,389 shares under this program at an aggregate cost of $39.1 million .	

44

ITEM 6. EXHIBITS

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

45

SIGNATURES

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

	
			
 	RYDER SYSTEM, INC.	
 	(Registrant)	
 	 	 	
Date: July 23, 2014	By:	/s/ Art A. Garcia	
 	 	Art A. Garcia	
 	 	Executive Vice President and Chief Financial Officer	
 	 	(Principal Financial Officer)	
 	 	 	
Date: July 23, 2014	By:	/s/ Cristina A. Gallo-Aquino	
 	 	Cristina A. Gallo-Aquino	
 	 	Vice President and Controller	
 	 	(Principal Accounting Officer)	

46

EXHIBIT 12.1

									
Ryder System, Inc. and Subsidiaries	
Ratio of Earnings to Fixed Charges	
Continuing Operations	
(Dollars in thousands)	
 	 	 	 	 	For the Six Months Ended June 30, 2014	 	 	

EARNINGS:	 	 	 	 	 	 	 	
Earnings before income taxes	 	 	 	 	270,053		 	 	
Fixed charges	 	 	 	 	141,684		 	 	
Add: Amortization of capitalized interest	 	 	 	 	380		 	 	
Less: Interest capitalized	 	 	 	 	0		 	 	
Earnings available for fixed charges (A)	 	 	 	 	412,117		 	 	
 	 	 	 	 	 	 	 	
FIXED CHARGES:	 	 	 	 	 	 	 	
Interest and other financial charges	 	 	 	 	105,687		 	 	
Costs associated with sale of receivables	 	 	 	 	0		 	 	
Portion of rents representing interest expense	 	 	 	 	35,996		 	 	
Total fixed charges (B)	 	 	 	 	141,683		 	 	
 	 	 	 	 	 	 	 	
RATIO OF EARNINGS TO FIXED CHARGES (A) / (B)	 	 	 	 	2.91		 	 	

EXHIBIT 31.1
CERTIFICATION
I, Robert E. Sanchez, certify that:
		
1.	I have reviewed this quarterly report on Form 10-Q of Ryder System, Inc.;	

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	

4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	

a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	

b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	

c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	

d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	

a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	

b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	

	
			
Date:	July 23, 2014	/s/ Robert E. Sanchez	
 	 	Robert E. Sanchez
Chairman and Chief Executive Officer	

EXHIBIT 32
CERTIFICATION
In connection with the Quarterly Report of Ryder System, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Robert E. Sanchez, President and Chief Executive Officer of the Company, and Art A. Garcia, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
		
1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and	

2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.	

	
		
/s/ Robert E. Sanchez	 	
Robert E. Sanchez
Chairman and Chief Executive Officer	 	
July 23, 2014	 	

	
		
/s/ Art A. Garcia	 	
Art A. Garcia
Executive Vice President and Chief Financial Officer	 	
July 23, 2014	 	

EXHIBIT 31.2
CERTIFICATION
I, Art A. Garcia, certify that:
		
1.	I have reviewed this quarterly report on Form 10-Q of Ryder System, Inc.;	

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	

4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	

a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	

b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	

c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	

d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	

a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	

b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	

	
			
Date:	July 23, 2014	/s/ Art A. Garcia	
 	 	Art A. Garcia
Executive Vice President and Chief Financial Officer