þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
		OF THE SECURITIES EXCHANGE ACT OF 1934
		FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2007

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.

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 o

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

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

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

Ryder System, Inc. Common Stock ($0.50 par value per share) outstanding at March 31, 2007 was 61,149,009.

 

 

RYDER SYSTEM, INC.
FORM 10-Q QUARTERLY REPORT

TABLE OF CONTENTS

				Page No.
PART I		FINANCIAL INFORMATION
ITEM 1		Financial Statements
		Consolidated Condensed Statements of Earnings —
		Three months ended March 31, 2007 and 2006 (unaudited)			1
		Consolidated Condensed Balance Sheets —
		March 31, 2007 (unaudited) and December 31, 2006			2
		Consolidated Condensed Statements of Cash Flows —
		Three months ended March 31, 2007 and 2006 (unaudited)			3
		Consolidated Condensed Statement of Shareholders’ Equity —
		Three months ended March 31, 2007 (unaudited)			4
		Notes to Consolidated Condensed Financial Statements (unaudited)			5
ITEM 2		Management’s Discussion and Analysis of Financial Condition and Results of Operations			16
ITEM 3		Quantitative and Qualitative Disclosures About Market Risk			34
ITEM 4		Controls and Procedures			34
PART II		OTHER INFORMATION
ITEM 2		Unregistered Sales of Equity Securities and Use of Proceeds			34
ITEM 6		Exhibits			35
		SIGNATURES			36
Ex-31.1 Section 302 Certification of CEO
Ex-31.2 Section 302 Certification of CFO
Ex-32 Section 906 Certification of CEO and CFO

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

RYDER SYSTEM, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(unaudited)

		Three months ended March 31,
		2007				2006
		(In thousands, except per share amounts)
Revenue		$	1,594,102				1,496,291
Operating expense (exclusive of items shown separately)			663,885				660,543
Salaries and employee-related costs			354,164				337,513
Subcontracted transportation			247,229				202,223
Depreciation expense			196,183				178,176
Gains on vehicle sales, net			(15,032	)			(12,812	)
Equipment rental			23,845				25,567
Interest expense			39,370				31,422
Miscellaneous income, net			(916	)			(5,386	)
Restructuring and other charges (recoveries), net			536				(159	)
			1,509,264				1,417,087
Earnings before income taxes			84,838				79,204
Provision for income taxes			33,579				31,622
Net earnings		$	51,259				47,582
Earnings per common share:
Basic		$	0.85				0.78
Diluted		$	0.84				0.77
Cash dividends per common share		$	0.21				0.18

See accompanying notes to consolidated condensed financial statements.

RYDER SYSTEM, INC. AND SUBSIDIARIES

		(unaudited)
		March 31,				December 31,
		2007				2006
		(Dollars in thousands, except per
		share amounts)
Assets:
Current assets:
Cash and cash equivalents		$	93,603				128,639
Receivables, net			915,931				883,478
Inventories			57,725				59,318
Prepaid expenses and other current assets			165,750				190,381
Total current assets			1,233,009				1,261,816
Revenue earning equipment, net of accumulated depreciation of $2,777,261 and $2,825,876, respectively			4,698,190				4,509,332
Operating property and equipment, net of accumulated depreciation of $781,820 and $778,550, respectively			503,970				498,968
Goodwill			159,391				159,244
Intangible assets			14,188				14,387
Direct financing leases and other assets			390,093				385,176
Total assets		$	6,998,841				6,828,923
Liabilities and shareholders’ equity:
Current liabilities:
Short-term debt and current portion of long-term debt		$	313,092				332,745
Accounts payable			549,429				515,121
Accrued expenses and other current liabilities			421,319				419,756
Total current liabilities			1,283,840				1,267,622
Long-term debt			2,565,084				2,484,198
Other non-current liabilities			464,576				449,158
Deferred income taxes			911,589				907,166
Total liabilities			5,225,089				5,108,144
Shareholders’ equity:
Preferred stock of no par value per share — authorized, 3,800,917; none outstanding, March 31, 2007 or December 31, 2006			—				—
Common stock of $0.50 par value per share — authorized, 400,000,000; outstanding, March 31, 2007 — 61,149,009; December 31, 2006 — 60,721,528			30,410				30,220
Additional paid-in capital			736,173				713,264
Retained earnings			1,147,860				1,123,789
Accumulated other comprehensive loss			(140,691	)			(146,494	)
Total shareholders’ equity			1,773,752				1,720,779
Total liabilities and shareholders’ equity		$	6,998,841				6,828,923

See accompanying notes to consolidated condensed financial statements.

RYDER SYSTEM, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)

		Three months ended March 31,
		2007				2006
		(In thousands)
Cash flows from operating activities:
Net earnings		$	51,259				47,582
Depreciation expense			196,183				178,176
Gains on vehicle sales, net			(15,032	)			(12,812	)
Share-based compensation expense			3,651				3,183
Amortization expense and other non-cash charges, net			6,655				378
Deferred income tax expense			19,258				14,835
Tax benefits from share-based compensation			758				1,298
Changes in operating assets and liabilities:
Receivables			(31,569	)			15,519
Inventories			1,639				(1,689	)
Prepaid expenses and other assets			(17,123	)			(57,152	)
Accounts payable			46,322				15,912
Accrued expenses and other non-current liabilities			(8,808	)			(87,991	)
Net cash provided by operating activities			253,193				117,239
Cash flows from financing activities:
Net change in commercial paper borrowings			(206,449	)			200,734
Debt proceeds			343,881				14,730
Debt repaid, including capital lease obligations			(86,280	)			(103,163	)
Dividends on common stock			(12,783	)			(10,973	)
Common stock issued			19,556				15,782
Common stock repurchased			(9,036	)			(65,861	)
Excess tax benefits from share-based compensation			1,192				2,676
Net cash provided by financing activities			50,081				53,925
Cash flows from investing activities:
Purchases of property and revenue earning equipment			(487,381	)			(310,014	)
Sales of revenue earning equipment			93,190				88,248
Sales of operating property and equipment			1,133				760
Acquisitions			—				(4,113	)
Collections on direct finance leases			15,716				16,343
Changes in restricted cash			38,112				(17,896	)
Other, net			750				1,609
Net cash used in investing activities			(338,480	)			(225,063	)
Effect of exchange rate changes on cash			170				793
Decrease in cash and cash equivalents			(35,036	)			(53,106	)
Cash and cash equivalents at January 1			128,639				128,727
Cash and cash equivalents at March 31		$	93,603				75,621
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest		$	11,899				11,480
Income taxes, net of refunds			10,816				99,897
Non-cash investing activities:
Changes in accounts payable related to purchases of revenue earning equipment			(11,914	)			58,922
Revenue earning equipment acquired under capital leases			5,768				—

See accompanying notes to consolidated condensed financial statements.

RYDER SYSTEM, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENT OF SHAREHOLDERS’ EQUITY
(unaudited)

																						Accumulated
		Preferred												Additional								Other
		Stock				Common Stock								Paid-In				Retained				Comprehensive
		Amount				Shares				Par				Capital				Earnings				Loss				Total
		(Dollars in thousands, except per share amount)
Balance at December 31, 2006		$	—				60,721,528			$	30,220				713,264				1,123,789				(146,494	)			1,720,779
Components of comprehensive income:
Net earnings			—				—				—				—				51,259				—				51,259
Foreign currency translation adjustments			—				—				—				—				—				2,883				2,883
Unrealized gain related to derivative instruments			—				—				—				—				—				34				34
Amortization of transition obligation (1)			—				—				—				—				—				(5	)			(5	)
Amortization of net actuarial loss (1)			—				—				—				—				—				3,373				3,373
Amortization of prior service credit (1)			—				—				—				—				—				(482	)			(482	)
Total comprehensive income																											57,062
Common stock dividends declared – $0.21 per share			—				—				—				—				(12,783	)			—				(12,783	)
Common stock issued under employee stock option and stock purchase plans (2)			—				596,928				274				19,282				—				—				19,556
Benefit plan stock purchases (3)			—				(732	)			—				(18	)			—				—				(18	)
Common stock repurchases			—				(168,715	)			(84	)			(1,956	)			(6,978	)			—				(9,018	)
Share-based compensation			—				—				—				3,651				—				—				3,651
Tax benefits from share-based compensation			—				—				—				1,950				—				—				1,950
Adoption of FIN 48 (4)			—				—				—				—				(7,427	)			—				(7,427	)
Balance at March 31, 2007		$	—				61,149,009			$	30,410				736,173				1,147,860				(140,691	)			1,773,752

See accompanying notes to consolidated condensed financial statements.

RYDER SYSTEM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)

(A) INTERIM FINANCIAL STATEMENTS

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

(B) ACCOUNTING CHANGE

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

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

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

(C) 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 (restricted stock) and market-based nonvested stock. The non-management members of the Board of Directors also receive restricted stock units. Share-based compensation expense is recorded in “Salaries and employee-related costs” in the Consolidated Condensed Statement of Earnings.

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

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

		Three months ended March 31,
		2007				2006
		(In thousands)
Stock option and stock purchase plans		$	2,438				2,636
Nonvested stock (restricted stock)			1,213				547
Share-based compensation expense			3,651				3,183
Income tax benefit			(1,176	)			(996	)
Share-based compensation expense, net of tax		$	2,475				2,187

     Total unrecognized compensation expense related to share-based compensation arrangements at March 31, 2007 was $30.3 million and is expected to be recognized over a weighted-average period of approximately 3.2 years.

     During the three months ended March 31, 2007 and 2006, 0.9 million and 1.0 million stock options were granted under the Plans, respectively. These awards, which vest one-third each year, are fully vested three years from the grant date and have a contractual term of seven years. The fair value of each option award was estimated using a Black-Scholes-Merton option-pricing valuation model. The weighted-average grant-date fair value of options granted during the three months ended March 31, 2007 and 2006 was $12.81 and $10.60, respectively.

     During each of the three months ended March 31, 2007 and 2006, 0.1 million awards of restricted stock were granted under the Plans. The restricted stock awards entitle the holder to shares of common stock as the awards vest over a three-year period. The majority of the restricted stock awards included a market-based vesting provision. Under such provision, the employees only receive the grant of stock if Ryder’s total shareholder return (TSR) as a percentage of the S&P 500 comparable period TSR is 100% or greater over a three-year period. The fair value of the market-based restricted stock awards was estimated using a lattice-based option-pricing valuation model that incorporates a Monte-Carlo simulation. The weighted average grant-date fair value of restricted stock granted during the three months ended March 31, 2007 and 2006 was $30.32 and $27.71, respectively.

(D) EARNINGS PER SHARE INFORMATION

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

		Three months ended March 31,
		2007				2006
		(In thousands)
Weighted-average shares outstanding — Basic			60,569				60,722
Effect of dilutive options and nonvested stock			596				711
Weighted-average shares outstanding — Diluted			61,165				61,433
Anti-dilutive options not included above			553				1,679

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

(E) RESTRUCTURING AND OTHER CHARGES (RECOVERIES)

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

		Three months ended March 31,
		2007				2006
		(In thousands)
Restructuring charges (recoveries), net:
Severance and employee-related charges (recoveries)		$	259				(142	)
Facility and related costs (recoveries)			(29	)			(17	)
			230				(159	)
Other charges, net:
Contract termination and transition costs			306				—
Total		$	536				(159	)

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

		Three months ended March 31,
		2007				2006
		(In thousands)
Fleet Management Solutions		$	353				(95	)
Supply Chain Solutions			183				(58	)
Dedicated Contract Carriage			—				(4	)
Central Support Services			—				(2	)
Total		$	536				(159	)

     Restructuring and other charges (recoveries), net in the three months ended March 31, 2007 related primarily to information technology transition costs and employee severance and benefit costs incurred in connection with global cost savings initiatives announced during the fourth quarter of 2006. Restructuring charges (recoveries), net in the three months ended March 31, 2006 related primarily to employee severance and benefits and facility charges recorded in prior restructuring charges that were reversed due to subsequent refinements in estimates.

     Activity related to restructuring reserves was as follows:

										Deductions
		December 31, 2006												Non-Cash				March 31, 2007
		Balance				Additions				Cash Payments				Reductions (1)				Balance
										(In thousands)
Employee severance and benefits		$	1,449				278				889				19				819
Facilities and related costs			538				18				151				47				358
Total		$	1,987				296				1,040				66				1,177

     At March 31, 2007, outstanding restructuring obligations are generally required to be paid over the next nine months.

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

(F) REVENUE EARNING EQUIPMENT

		March 31, 2007												December 31, 2006
						Accumulated				Net Book								Accumulated				Net Book
		Cost				Depreciation				Value (1)				Cost				Depreciation				Value (1)
		(In thousands)
Full service lease		$	5,886,456				(2,050,962	)			3,835,494				5,755,848				(2,076,328	)			3,679,520
Commercial rental			1,588,995				(726,299	)			862,696				1,579,360				(749,548	)			829,812
Total		$	7,475,451				(2,777,261	)			4,698,190				7,335,208				(2,825,876	)			4,509,332

     At March 31, 2007 and December 31, 2006, the net carrying value of revenue earning equipment held for sale was $132.6 million and $100.7 million, respectively. Revenue earning equipment held for sale is stated at the lower of carrying amount or fair value less costs to sell. For the three months ended March 31, 2007 and 2006, we reduced the carrying value of vehicles held for sale by $8.8 million and $4.7 million, respectively, which were recorded within “Depreciation expense” in the Consolidated Condensed Statements of Earnings.

     At the end of 2006, we completed our annual depreciation review of the residual values and useful lives of our revenue earning equipment. Based on the results of our analysis, we adjusted the residual values and useful lives of certain classes of our revenue earning equipment effective January 1, 2007. This change in estimated residual values increased pre-tax earnings for the three months ended March 31, 2007 by approximately $2.8 million or $0.03 per diluted common share, compared to the same period in 2006.

(G) ACCRUED EXPENSES AND OTHER LIABILITIES

		March 31, 2007												December 31, 2006
		Accrued				Non-Current								Accrued				Non-Current
		Expenses				Liabilities				Total				Expenses				Liabilities				Total
		(In thousands)
Salaries and wages		$	51,415				—				51,415				86,454				—				86,454
Deferred compensation			2,986				20,852				23,838				3,206				21,866				25,072
Pension benefits			5,299				108,277				113,576				2,032				112,239				114,271
Other postretirement benefits			3,588				41,521				45,109				3,595				41,265				44,860
Employee benefits			2,190				—				2,190				3,127				—				3,127
Insurance obligations (1)			120,549				191,970				312,519				117,311				191,098				308,409
Residual value guarantees			663				1,328				1,991				887				1,340				2,227
Vehicle rent			8,197				3,561				11,758				998				1,905				2,903
Deferred vehicle gains			954				2,385				3,339				912				1,813				2,725
Environmental liabilities			3,769				11,003				14,772				4,029				12,150				16,179
Asset retirement obligations			4,592				10,075				14,667				3,514				10,186				13,700
Operating taxes			76,987				—				76,987				78,233				—				78,233
Income taxes			7,290				55,005				62,295				4,831				36,800				41,631
Restructuring			1,002				175				1,177				1,806				181				1,987
Interest			46,017				—				46,017				19,497				—				19,497
Customer deposits			23,861				—				23,861				23,474				—				23,474
Derivatives			20,664				—				20,664				20,101				—				20,101
Other			41,296				18,424				59,720				45,749				18,315				64,064
Total		$	421,319				464,576				885,895				419,756				449,158				868,914

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

(H) INCOME TAXES

     Uncertain Tax Positions

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

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

     Federal — we are no longer subject to U.S. federal tax examinations by tax authorities for tax years before 2001. In 2005, the IRS commenced an examination of our U.S. income tax returns for 2001 through 2003, and the fieldwork is anticipated to be completed by the end of the second quarter of 2007.

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

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

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

     We do not currently anticipate that any significant increase or decrease to unrecognized tax benefits will be recorded during the next 12 months related to U.S. federal tax positions. Unrecognized tax benefits related to state and foreign tax positions may decrease up to $4.5 million by December 31, 2007, if audits are completed or tax years close during 2007.

     Like-Kind Exchange Program

     We have a like-kind exchange program for certain of our revenue earning equipment utilized in the U.S. Pursuant to the program, we dispose of vehicles and acquire replacement vehicles in a form whereby tax gains on disposal of eligible vehicles are deferred. To qualify for like-kind exchange treatment we exchange, through a qualified intermediary, eligible vehicles being disposed of with vehicles being acquired allowing us to generally carry-over the tax basis of the vehicles sold (“like-kind exchanges”). The program is expected to result in a material deferral of federal and state income taxes. As part of the program, the proceeds from the sale of eligible vehicles are restricted for the acquisition of replacement vehicles and other specified applications. Due to the structure utilized to facilitate the like-kind exchanges, the qualified intermediary that holds the proceeds from the sales of eligible vehicles and the entity that holds the vehicles to be acquired under the program are required to be consolidated in the accompanying Consolidated Condensed Financial Statements in accordance with U.S. GAAP. At March 31, 2007, these consolidated entities had $6.6 million of proceeds from the sale of eligible vehicles and $158.6 million of vehicles to be acquired under the like-kind exchange program. At March 31, 2007 and December 31, 2006, we had $25.7 million and $63.8 million, respectively of restricted cash for the like-kind exchange program included within “Prepaid expenses and other current assets” on the Consolidated Condensed Balance Sheets.

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

(I) DEBT

		March 31,				December 31,
		2007				2006
		(In thousands)
Short-term debt and current portion of long-term debt:
Unsecured foreign obligations		$	17,677				21,597
Current portion of long-term debt, including capital leases			295,415				311,148
Total short-term debt and current portion of long-term debt			313,092				332,745
Long-term debt:
U.S. commercial paper (1)			441,508				639,262
Canadian commercial paper (1)			70,935				78,871
Unsecured U.S. notes: (1)
Debentures			62,915				62,913
Medium-term notes			2,045,612				1,795,363
Unsecured U.S. obligations, principally bank term loans			59,650				58,050
Unsecured foreign obligations			170,670				157,282
Capital lease obligations			9,119				3,509
Total before fair market value adjustment			2,860,409				2,795,250
Fair market value adjustment on notes subject to hedging (2)			90				96
			2,860,499				2,795,346
Current portion of long-term debt, including capital leases			(295,415	)			(311,148	)
Long-term debt			2,565,084				2,484,198
Total debt		$	2,878,176				2,816,943

     Ryder can borrow up to $870 million through a global revolving credit facility with a syndicate of twelve lenders. The credit facility matures in May 2010 and is used primarily to finance working capital and provide support for the issuance of commercial paper. This facility can also be used to issue up to $75 million in letters of credit (there were no letters of credit outstanding against the facility at March 31, 2007). At Ryder’s option, the interest rate on borrowings under the credit facility is based on LIBOR, prime, federal funds or local equivalent rates. The credit facility’s current annual facility fee is 11.0 basis points, which applies to the total facility of $870 million, and is based on Ryder’s current credit ratings. The credit facility contains no provisions restricting its availability in the event of a material adverse change to Ryder’s business operations; however, the credit facility does contain standard representations and warranties, events of default, cross-default provisions, and certain affirmative and negative covenants. In order to maintain availability of funding, Ryder must maintain a ratio of debt to consolidated tangible net worth, as defined in the agreement, of less than or equal to 300%. The ratio at March 31, 2007 was 145%. At March 31, 2007, $314.4 million was available under the credit facility. Foreign borrowings of $103.9 million were outstanding under the facility at March 31, 2007.

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

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

     As of March 31, 2007, we had outstanding $10 million principal amount of unsecured debentures at 9.0% interest due May 2016. Under the provisions of the related indenture, we are required to make a sinking fund principal payment in May 2007 equal to the $10 million principal amount outstanding. As of March 31, 2007, we had outstanding $53 million principal amount of unsecured debentures at 9⁷/₈% interest due May 2017 (the “2017 Debentures”). The 2017 Debentures are redeemable, at a premium, on or after

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

May 15, 2007 at our option. In May 2007, we intend to redeem all of the 2017 Debentures and expect to incur a pre-tax charge of approximately $1.2 million related to the premium and write-off of the related debt issuance costs.

(J) GUARANTEES

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

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

		March 31, 2007								December 31, 2006
		Maximum				Carrying				Maximum				Carrying
		Exposure of				Amount of				Exposure of				Amount of
Guarantee		Guarantee				Liability				Guarantee				Liability
		(In thousands)
Vehicle residual value guarantees—finance lease programs (1)		$	3,506				989				3,541				946
Used vehicle financing			6,249				1,065				6,046				811
Standby letters of credit			6,937				—				6,937				—
Total		$	16,692				2,054				16,524				1,757

     At March 31, 2007, Ryder had letters of credit and surety bonds outstanding totaling $213.2 million and $50.9 million, respectively, which primarily guarantee the payment of insurance claims. Certain of these letters of credit and surety bonds guarantee insurance activities associated with insurance claim liabilities transferred in conjunction with the sale of our automotive transport business, which were reported as discontinued operations in previous years. The entity that assumed these liabilities filed for protection under Chapter 11 of the United States Bankruptcy Code on July 31, 2005. To date, the insurance claims, representing per-claim deductibles payable under third-party insurance policies, have been paid and continue to be paid by the company that assumed such liabilities. However, if all or a portion of the estimated outstanding assumed claims of approximately $6.9 million at March 31, 2007 are unable to be paid, the third-party insurers may have recourse against certain of the outstanding letters of credit provided by Ryder in order to satisfy the unpaid claim deductibles. In order to reduce our potential exposure to these claims, we have received an irrevocable letter of credit from the purchaser of the business referred to above totaling $7.5 million at March 31, 2007. Periodically, an independent actuarial valuation will be made in order to estimate the current amount of outstanding insurance claim liabilities.

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

(K) SHARE REPURCHASE PROGRAM

     In May 2006, our Board of Directors authorized a two-year share repurchase program intended to mitigate the dilutive impact of shares issued under our various employee stock option and stock purchase plans. Under the May 2006 program, management was authorized to repurchase shares of common stock in an amount not to exceed the number of shares issued to employees upon the exercise of stock options or through the employee stock purchase plan since March 1, 2006. The May 2006 program limited aggregate share repurchases to no more than 2 million shares of Ryder common stock. Share repurchases were made periodically in open-market transactions, and are subject to market conditions, legal requirements and other factors. Management established a trading plan for the Company under Rule 10b5-1 of the Securities Exchange Act of 1934 as part of the May 2006 program, which allowed for share repurchases during Ryder’s quarterly blackout periods as set forth in the trading plan. During the first quarter of 2007, we completed the May 2006 program. For the three months ended March 31, 2007, we repurchased and retired approximately 0.2 million shares under the May 2006 program at an aggregate cost of $9.0 million. Under the May 2006 program, we repurchased and retired a total of 2 million shares at an aggregate cost of $102.2 million.

     In October 2005, our Board of Directors authorized a $175 million share repurchase program over a period not to exceed two years. Share repurchases of common stock were made periodically in open-market transactions and were subject to market conditions, legal requirements and other factors. Management established a prearranged written plan for the Company under Rule 10b5-1 of the Securities Exchange Act of 1934 as part of the October 2005 program, which allowed for share repurchases during Ryder’s quarterly blackout periods as set forth in the trading plan. During the first quarter of 2006, we completed the October 2005 program. For the three months ended March 31, 2006, we repurchased and retired approximately 1.6 million shares under the October 2005 program at an aggregate cost of $65.9 million.

(L) COMPREHENSIVE INCOME

     Comprehensive income presents a measure of all changes in shareholders’ equity except for changes resulting from transactions with shareholders in their capacity as shareholders. The following table provides a reconciliation of net earnings as reported in the Consolidated Condensed Statements of Earnings to comprehensive income.

		Three months ended March 31,
		2007				2006
		(In thousands)
Net earnings		$	51,259				47,582
Other comprehensive income:
Foreign currency translation adjustments			2,883				881
Unrealized gain on derivative instruments			34				245
Amortization of transition obligation (1)			(5	)			—
Amortization of net actuarial loss (1)			3,373				—
Amortization of prior service credit (1)			(482	)			—
Total comprehensive income		$	57,062				48,708

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

(M) EMPLOYEE BENEFIT PLANS

     Components of net periodic benefit cost were as follows:

		Pension Benefits								Postretirement Benefits
		Three months ended March 31,
		2007				2006				2007				2006
		(In thousands)
Company-administered plans:
Service cost		$	10,365				10,451				340				327
Interest cost			21,506				20,224				696				576
Expected return on plan assets			(29,241	)			(23,894	)			—				—
Amortization of transition obligation			(8	)			(7	)			—				—
Amortization of net actuarial loss			4,872				8,771				279				203
Amortization of prior service (credit) cost			(696	)			353				(58	)			(57	)
			6,798				15,898				1,257				1,049
Union-administered plans			1,211				1,158				—				—
Net periodic benefit cost		$	8,009				17,056				1,257				1,049
Company-administered plans:
U.S.		$	3,467				11,370				1,126				920
Non-U.S.			3,331				4,528				131				129
			6,798				15,898				1,257				1,049
Union-administered plans			1,211				1,158				—				—
		$	8,009				17,056				1,257				1,049

     As previously disclosed in our 2006 Annual Report, we expect to contribute approximately $58 million to our pension plans during 2007. For the three months ended March 31, 2007, global contributions of $3.0 million had been made to our pension plans.

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

(N) SEGMENT REPORTING

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

     Ryder’s primary measurement of segment financial performance, defined as “Net Before Taxes” (NBT), includes an allocation of Central Support Services (CSS) and excludes restructuring and other (charges) recoveries, net. CSS represents those costs incurred to support all business segments, including human resources, finance, corporate services, public affairs, information technology, health and safety, legal and corporate communications. The objective of the NBT measurement is to provide clarity on the profitability of each business segment and, ultimately, to hold leadership of each business segment and each operating segment within each business segment accountable for their allocated share of CSS costs. Certain costs are considered to be overhead not attributable to any segment and remain unallocated in CSS. Included among the unallocated overhead remaining within CSS are the costs for investor relations, public affairs and certain executive compensation.

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

     CSS costs attributable to the business segments are predominantly allocated to FMS, SCS and DCC as follows:

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

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

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

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

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

     The following tables set forth financial information for each of Ryder’s business segments and a reconciliation between segment NBT and earnings before income taxes for the three months ended March 31, 2007 and 2006. Segment results are not necessarily indicative of the results of operations that would have occurred had each segment been an independent, stand-alone entity during the periods presented.

		FMS				SCS				DCC				Eliminations				Total
		(In thousands)
For the three months ended
March 31, 2007
Revenue from external customers		$	889,197				566,406				138,499				—				1,594,102
Inter-segment revenue			98,893				—				—				(98,893	)			—
Total revenue		$	988,090				566,406				138,499				(98,893	)			1,594,102
Segment NBT		$	80,780				11,448				10,352				(8,919	)			93,661
Unallocated CSS																			(8,287	)
Restructuring and other (charges), net																			(536	)
Earnings before income taxes																		$	84,838
Segment capital expenditures (1)		$	477,669				8,682				260				—				486,611
Unallocated CSS																			770
Capital expenditures																		$	487,381
March 31, 2006
Revenue from external customers		$	888,140				469,468				138,683				—				1,496,291
Inter-segment revenue			93,018				—				—				(93,018	)			—
Total revenue		$	981,158				469,468				138,683				(93,018	)			1,496,291
Segment NBT		$	74,895				10,659				8,462				(7,766	)			86,250
Unallocated CSS																			(7,205	)
Restructuring and other recoveries, net																			159
Earnings before income taxes																		$	79,204
Segment capital expenditures (1), (2)		$	303,801				2,721				304				—				306,826
Unallocated CSS																			3,188
Capital expenditures																		$	310,014

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

     Our customer base includes enterprises operating in a variety of industries including automotive, electronics, high-tech, telecommunications, industrial, consumer goods, paper and paper products, office equipment, food and beverage, general retail industries, and governments. Our largest customer, General Motors Corporation, accounted for approximately 15% and 13% of consolidated revenue for the three months ended March 31, 2007 and 2006, respectively and is comprised of multiple contracts within our SCS business segment in various geographic regions. The revenue generated from General Motors Corporation is primarily related to the pass-through of subcontracted transportation expense for which we realize minimal changes in profitability as a result of fluctuations in subcontracted transportation.

(O) RECENT ACCOUNTING PRONOUNCEMENTS

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

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

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

OVERVIEW

     The following discussion should be read in conjunction with the unaudited Consolidated Condensed Financial Statements and notes thereto included under Item 1. In addition, reference should be made to our audited Consolidated Financial Statements and notes thereto and related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the 2006 Annual Report on Form 10-K.

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

ITEMS AFFECTING COMPARABILITY BETWEEN PERIODS

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

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

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

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

CONSOLIDATED RESULTS

		Three months ended March 31,								Change
		2007				2006				2007/2006
		(In thousands, except per share amounts)
Earnings before income taxes		$	84,838				79,204			7	%
Provision for income taxes			33,579				31,622			6
Net earnings		$	51,259				47,582			8	%
Per diluted common share		$	0.84				0.77			9	%
Weighted-average shares outstanding — Diluted			61,165				61,433			—	%

     Earnings before income taxes increased to $84.8 million in the first three months of 2007 compared with $79.2 million in the same period in 2006. All business segments reported improved results reflecting better operating performance, continuing leverage from revenue growth and lower pension costs. See “Operating Results by Business Segment” for a further discussion of operating results. Earnings in 2006 benefited from the one-time recovery of $1.9 million (pre-tax), or $0.02 per diluted common share, associated with the recognition of common stock received from mutual insurance companies in a prior year.

		Three months ended March 31,								Change
		2007				2006				2007/2006
		(In thousands)
Revenue:
Fleet Management Solutions		$	988,090				981,158			1	%
Supply Chain Solutions			566,406				469,468			21
Dedicated Contract Carriage			138,499				138,683			—
Eliminations			(98,893	)			(93,018	)		(6	)
Total		$	1,594,102				1,496,291			7	%
Operating revenue (1)		$	1,119,207				1,057,474			6	%

     Total revenue growth was primarily the result of increased SCS revenue due to new and expanded business, higher volumes and increased volume of managed subcontracted transportation. Total revenue was also positively impacted by FMS contractual revenue growth and a favorable foreign currency exchange impact of 0.3% due primarily to the strengthening of the British pound partially offset by a decline in commercial rental revenue. Operating revenue increased 6% in the first three months of 2007 due primarily to growth in our SCS business.

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

		Three months ended March 31,								Change
		2007				2006				2007/2006
		(Dollars in thousands)
Operating expense (exclusive of items shown separately)		$	663,885				660,543			1	%
Percentage of revenue			41.6%				44.1%