10-Q 1 ryder1stquarter201610-q.htm 10-Q

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 MARCH 31, 2016
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 March 31, 2016 was 53,703,407.

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 months ended March 31, 2016 and 2015 | 1
| Consolidated Condensed Statements of Comprehensive Income — Three months ended March 31, 2016 and 2015 | 2
| Consolidated Condensed Balance Sheets — Three months ended March 31, 2016 and 2015 | 3
| Consolidated Condensed Statements of Cash Flows — Three months ended March 31, 2016 and 2015 | 4
| Notes to Consolidated Condensed Financial Statements | 5
ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations | 21
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk | 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 March 31,
| 2016 |  | 2015
| (In thousands, except per share amounts)
Lease and rental revenues | $ | 767,754 |  |  | 729,024 |
Services revenue | 759,127 |  |  | 693,704 |
Fuel services revenue | 102,791 |  |  | 144,425 |
Total revenues | 1,629,672 |  |  | 1,567,153 |
Cost of lease and rental | 552,490 |  |  | 518,422 |
Cost of services | 631,714 |  |  | 582,330 |
Cost of fuel services | 98,901 |  |  | 136,289 |
Other operating expenses | 30,151 |  |  | 32,373 |
Selling, general and administrative expenses | 211,213 |  |  | 206,605 |
Gains on used vehicles, net | (19,129 | ) |  | (27,208 | )
Interest expense | 37,889 |  |  | 36,802 |
Miscellaneous income, net | (2,265 | ) |  | (2,637 | )
| 1,540,964 |  |  | 1,482,976 |
Earnings from continuing operations before income taxes | 88,708 |  |  | 84,177 |
Provision for income taxes | 32,523 |  |  | 30,851 |
Earnings from continuing operations | 56,185 |  |  | 53,326 |
Loss from discontinued operations, net of tax | (391 | ) |  | (537 | )
Net earnings | $ | 55,794 |  |  | 52,789 |
Earnings (loss) per common share — Basic |  |  |
Continuing operations | $ | 1.06 |  |  | 1.01 |
Discontinued operations | (0.01 | ) |  | (0.01 | )
Net earnings | $ | 1.05 |  |  | 1.00 |
Earnings (loss) per common share — Diluted |  |  |
Continuing operations | $ | 1.05 |  |  | 1.00 |
Discontinued operations | (0.01 | ) |  | (0.01 | )
Net earnings | $ | 1.04 |  |  | 0.99 |
Cash dividends declared per common share | $ | 0.41 |  |  | 0.37 |

See accompanying notes to consolidated condensed financial statements.
1

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

| Three months ended March 31,
| 2016 |  | 2015
| (In thousands)
Net earnings | $ | 55,794 |  |  | 52,789 |
Other comprehensive income (loss): |  |  |
Changes in cumulative translation adjustment and other | 13,684 |  |  | (57,372 | )
Amortization of pension and postretirement items | 7,423 |  |  | 7,058 |
Income tax expense related to amortization of pension and postretirement items | (2,708 | ) |  | (2,448 | )
Amortization of pension and postretirement items, net of tax | 4,715 |  |  | 4,610 |
Other comprehensive income (loss), net of taxes | 18,399 |  |  | (52,762 | )
Comprehensive income | $ | 74,193 |  |  | 27 |

See accompanying notes to consolidated condensed financial statements.
2

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

| March 31, 2016 |  | December 31, 2015
| (Dollars in thousands, except per share amount)
Assets: |  |  |
Current assets: |  |  |
Cash and cash equivalents | $ | 56,806 |  |  | 60,945 |
Receivables, net of allowance of $16,137 and $15,372, respectively | 822,556 |  |  | 835,489 |
Inventories | 65,542 |  |  | 63,725 |
Prepaid expenses and other current assets | 149,642 |  |  | 138,143 |
Total current assets | 1,094,546 |  |  | 1,098,302 |
Revenue earning equipment, net | 8,275,093 |  |  | 8,184,735 |
Operating property and equipment, net of accumulated depreciation of $1,095,352 and $1,046,137, respectively | 717,444 |  |  | 714,970 |
Goodwill | 389,382 |  |  | 389,135 |
Intangible assets, net of accumulated amortization of $47,215 and $45,736, respectively | 53,588 |  |  | 55,192 |
Direct financing leases and other assets | 524,477 |  |  | 510,246 |
Total assets | $ | 11,054,530 |  |  | 10,952,580 |
Liabilities and shareholders’ equity: |  |  |
Current liabilities: |  |  |
Short-term debt and current portion of long-term debt | $ | 612,223 |  |  | 634,530 |
Accounts payable | 475,017 |  |  | 502,373 |
Accrued expenses and other current liabilities | 506,300 |  |  | 543,352 |
Total current liabilities | 1,593,540 |  |  | 1,680,255 |
Long-term debt | 4,987,217 |  |  | 4,868,097 |
Other non-current liabilities | 806,561 |  |  | 829,595 |
Deferred income taxes | 1,621,894 |  |  | 1,587,522 |
Total liabilities | 9,009,212 |  |  | 8,965,469 |
Shareholders’ equity: |  |  |
Preferred stock, no par value per share — authorized, 3,800,917; none outstanding, March 31, 2016 or December 31, 2015 | — |  |  | — |
Common stock, $0.50 par value per share — authorized, 400,000,000; outstanding, March 31, 2016 — 53,703,407; December 31, 2015 — 53,490,603 | 26,850 |  |  | 26,745 |
Additional paid-in capital | 1,011,988 |  |  | 1,006,021 |
Retained earnings | 1,700,816 |  |  | 1,667,080 |
Accumulated other comprehensive loss | (694,336 | ) |  | (712,735 | )
Total shareholders’ equity | 2,045,318 |  |  | 1,987,111 |
Total liabilities and shareholders’ equity | $ | 11,054,530 |  |  | 10,952,580 |

See accompanying notes to consolidated condensed financial statements.
3

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

| Three months ended March 31,
| 2016 |  | 2015
| (In thousands)
Cash flows from operating activities from continuing operations: |  |  |
Net earnings | $ | 55,794 |  |  | 52,789 |
Less: Loss from discontinued operations, net of tax | (391 | ) |  | (537 | )
Earnings from continuing operations | 56,185 |  |  | 53,326 |
Depreciation expense | 287,170 |  |  | 266,278 |
Gains on used vehicles, net | (19,129 | ) |  | (27,208 | )
Share-based compensation expense | 4,888 |  |  | 5,665 |
Amortization expense and other non-cash charges, net | 13,058 |  |  | 13,317 |
Deferred income tax expense | 29,319 |  |  | 26,646 |
Changes in operating assets and liabilities: |  |  |
Receivables | 3,709 |  |  | 10,775 |
Inventories | (1,558 | ) |  | 2,563 |
Prepaid expenses and other assets | (21,234 | ) |  | (17,093 | )
Accounts payable | 49,206 |  |  | (28,847 | )
Accrued expenses and other non-current liabilities | (36,605 | ) |  | (21,577 | )
Net cash provided by operating activities from continuing operations | 365,009 |  |  | 283,845 |
Cash flows from financing activities: |  |  |
Net change in commercial paper borrowings and revolving credit facilities | 98,580 |  |  | 204,750 |
Debt proceeds | 298,254 |  |  | 455,111 |
Debt repaid | (312,400 | ) |  | (463,536 | )
Dividends on common stock | (22,482 | ) |  | (20,084 | )
Common stock issued | 1,492 |  |  | 11,846 |
Common stock repurchased | — |  |  | (6,141 | )
Excess tax benefits from share-based compensation and other items | 994 |  |  | 620 |
Debt issuance costs | (933 | ) |  | (3,696 | )
Net cash provided by financing activities | 63,505 |  |  | 178,870 |
Cash flows from investing activities: |  |  |
Purchases of property and revenue earning equipment | (575,031 | ) |  | (553,242 | )
Sales of revenue earning equipment | 119,188 |  |  | 96,821 |
Sales of operating property and equipment | 1,410 |  |  | 273 |
Collections on direct finance leases and other items | 25,610 |  |  | 16,243 |
Changes in restricted cash | (221 | ) |  | (912 | )
Net cash used in investing activities | (429,044 | ) |  | (440,817 | )
Effect of exchange rate changes on cash | (3,508 | ) |  | 756 |
(Decrease) increase in cash and cash equivalents from continuing operations | (4,038 | ) |  | 22,654 |
Decrease in cash and cash equivalents from discontinued operations | (101 | ) |  | (547 | )
(Decrease) increase in cash and cash equivalents | (4,139 | ) |  | 22,107 |
Cash and cash equivalents at January 1 | 60,945 |  |  | 50,092 |
Cash and cash equivalents at March 31 | $ | 56,806 |  |  | 72,199 |

See accompanying notes to consolidated condensed financial statements.
4

RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. GENERAL
Interim Financial Statements
The accompanying unaudited Consolidated Condensed Financial Statements include the accounts of Ryder System, Inc. (Ryder) and all entities in which Ryder has a controlling voting interest (subsidiaries) and variable interest entities (VIEs) required to be consolidated in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The accompanying unaudited Consolidated Condensed Financial Statements have been prepared in accordance with the accounting policies described in our 2015 Annual Report on Form 10-K and should be read in conjunction with the Consolidated Financial Statements and notes thereto. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. In the opinion of management, all adjustments (consisting of normal recurring accruals and items referenced under "Revision of Prior Period Financial Statements") 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.
Beginning in 2016, we reclassified the losses from fair value adjustments on our used vehicles from "Other operating expenses" to "Gains on used vehicles, net" within the Consolidated Condensed Statement of Earnings. Prior year amounts have been reclassified to conform to the current period presentation. These reclassifications were immaterial to the financial statements taken as a whole as shown in Note 3, "Revenue Earning Equipment."
Revision of Prior Period Financial Statements
We periodically enter into sale and leaseback transactions to lower the total cost of funding our operations and to diversify funding among different classes of investors and among different types of funding instruments. These transactions historically resulted in a reduction of revenue earning equipment and debt on the balance sheet, as proceeds from the sale of revenue earning equipment were used to repay debt. During the second quarter of 2015, we reviewed and evaluated the structure of these transactions and determined they should be accounted for as issuances of financial interests that do not qualify for deconsolidation. We evaluated the materiality of this revision, quantitatively and qualitatively, and concluded it was not material to any of our previously issued consolidated financial statements. However, we elected to revise previously issued financial statements to avoid inconsistencies in our financial statements. For the quarter ended March 31, 2015, the revision primarily affected the presentation of our Consolidated Condensed Statement of Cash Flows. The effects of this revision on the individual line items within our Consolidated Condensed Statement of Cash Flows for the three months ended March 31, 2015 were as follows (in millions):

| As Previously Reported | Adjustment | As Revised
Net earnings | $ | 52.9 |  | (0.1 | ) | 52.8 |
Depreciation expense (1) | 262.4 |  | 3.9 |  | 266.3 |
Deferred income tax expense | 26.7 |  | (0.1 | ) | 26.6 |
Accrued expenses and other non-current liabilities | (21.5 | ) | (0.1 | ) | (21.6 | )
Net cash provided by operating activities from continuing operations | 277.9 |  | 6.0 |  | 283.8 |
Debt repaid, including capital and financing lease obligations | (457.6 | ) | (6.0 | ) | (463.5 | )
Net cash provided by financing activities from continuing operations | 184.8 |  | (6.0 | ) | 178.9 |

————————————
Adjustments may not be additive and may have minor differences within the table due to rounding.
(1) Includes revised gains on used vehicles, net as discussed above.
5

RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
2. RECENT ACCOUNTING PRONOUNCEMENTS
Share-based Payments
On March 30, 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-09, Stock Compensation, which is intended to simplify several aspects of the accounting for share-based payment award transactions. The guidance will be effective January 1, 2017. We are in the process of evaluating the impacts of the adoption of this standard.
Leases
On February 25, 2016, the FASB issued ASU No. 2016-02, Leases, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. The standard is effective January 1, 2019, with early adoption permitted. The standard is to be applied using a modified retrospective transition method. We are in the process of determining the effect on our consolidated financial position, results of operations and cash flows.
Revenue Recognition
On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU is effective January 1, 2018, and will replace most existing revenue recognition guidance. On March 17, 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations, which clarifies the implementation guidance on principal versus agent considerations contained in ASU 2014-09. Additionally, on April 14, 2016, FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which clarifies the implementation guidance on identifying performance obligations. The standard permits the use of either the modified retrospective or cumulative effect transition methods.
In connection with the FASB’s recently issued guidance on leases, the standard requires the lease component of our full service lease product line to be accounted for under the lease accounting guidance and the maintenance and other elements of the product line to be accounted for under the new revenue guidance. Because of the interrelationship of these standards on our full service lease product line, we have not yet selected a transition method. We are in the process of determining the effect on our consolidated financial position, results of operations and cash flows.
Presentation of Debt Issuance Costs
On April 7, 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires an entity to present debt issuance costs as a direct reduction from the carrying amount of the related debt liability on the balance sheet. On August 30, 2015, the FASB issued ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, which clarifies the treatment of debt issuance costs from line-of-credit arrangements after adoption of ASU 2015-03. We adopted this guidance on January 1, 2016 and reclassified $15 million from other assets to long-term debt in our December 31, 2015 balance sheet. Other than the change in presentation within the Consolidated Condensed Balance Sheets, this accounting guidance did not impact our consolidated financial position, results of operations or cash flows.
6

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

| March 31, 2016 |  | December 31, 2015
| Cost |  | Accumulated Depreciation |  | Net Book Value(1) |  | Cost |  | Accumulated Depreciation |  | Net Book Value(1)
| (In thousands)
Held for use: |
Full service lease | $ | 9,093,718 |  |  | (2,802,126 | ) |  | 6,291,592 |  |  | $ | 8,839,941 |  |  | (2,723,605 | ) |  | 6,116,336 |
Commercial rental | 2,702,767 |  |  | (893,981 | ) |  | 1,808,786 |  |  | 2,811,715 |  |  | (907,412 | ) |  | 1,904,303 |
Held for sale | 528,231 |  |  | (353,516 | ) |  | 174,715 |  |  | 496,634 |  |  | (332,538 | ) |  | 164,096 |
Total | $ | 12,324,716 |  |  | (4,049,623 | ) |  | 8,275,093 |  |  | $ | 12,148,290 |  |  | (3,963,555 | ) |  | 8,184,735 |

————————————

(1) | Revenue earning equipment, net includes vehicles acquired under capital leases of $46.3 million, less accumulated depreciation of $22.7 million, at March 31, 2016, and $47.5 million, less accumulated depreciation of $22.2 million, at December 31, 2015.

At the end of 2015, 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, 2016.
We lease revenue earning equipment to customers for periods typically ranging from three to seven years for trucks and tractors and up to ten years for trailers. The majority of our leases are classified as operating leases. However, some of our revenue earning equipment leases are classified as direct financing leases and, to a lesser extent, sales-type leases. As of March 31, 2016 and December 31, 2015, the net investment in direct financing and sales-type leases was $444.5 million and $437.8 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 March 31, 2016 and December 31, 2015, the amount of direct financing lease receivables past due was not significant, and there were no impaired receivables. Accordingly, we do not believe there is a material risk of default with respect to the direct financing lease receivables.
Revenue earning equipment held for sale is stated at the lower of carrying amount or fair value less costs to sell. Losses on vehicles held for sale for which carrying values exceeded fair value are recognized at the time they arrive at our used truck centers and are presented within “Gains on used vehicles, net ” in the Consolidated Condensed Statements of Earnings. For revenue earning equipment held for sale, we stratify our fleet by vehicle type (trucks, tractors and trailers), weight class, age and other relevant characteristics and create classes of similar assets for analysis purposes. For a certain population of our revenue earning equipment held for sale, fair value was determined based upon recent market prices obtained from our own sales experience for sales of each class of similar assets and vehicle condition. Therefore, these vehicles held for sale were classified within Level 3 of the fair value hierarchy.
7

RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
The following table presents our assets held for sale that are measured at fair value on a nonrecurring basis and considered a Level 3 fair value measurement:

|  |  | Total Losses (2)
| March 31 |  | Three months ended March 31,
| 2016 |  | 2015 |  | 2016 |  | 2015
| (In thousands)
Assets held for sale: |  |  |  |  |  |  |
Revenue earning equipment (1): |  |  |  |  |  |  |
Trucks | $ | 11,538 |  |  | 5,298 |  |  | $ | 1,744 |  |  | 1,228 |
Tractors | 39,739 |  |  | 4,611 |  |  | 4,882 |  |  | 827 |
Trailers | 3,153 |  |  | 1,231 |  |  | 662 |  |  | 316 |
Total assets at fair value | 54,430 |  |  | 11,140 |  |  | $ | 7,288 |  |  | 2,371 |

————————————

(1) | Assets held for sale in the above table only include the portion of revenue earning equipment held for sale where carrying value exceeded fair value.

(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.

For the three months ended March 31, 2016 and 2015, the components of gains on used vehicles, net were as follows:

| March 31
| 2016 |  | 2015
| (In thousands)
Gains on vehicle sales, net | $ | (26,417 | ) |  | (29,579 | )
Losses from fair value adjustments | 7,288 |  |  | 2,371 |
Gains on used vehicles, net | $ | (19,129 | ) |  | (27,208 | )

8

RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
4. ACCRUED EXPENSES AND OTHER LIABILITIES

| March 31, 2016 |  | December 31, 2015
| Accrued Expenses |  | Non-Current Liabilities |  | Total |  | Accrued Expenses |  | Non-Current Liabilities |  | Total
| (In thousands)
Salaries and wages | $ | 72,482 |  |  | — |  |  | 72,482 |  |  | $ | 99,032 |  |  | — |  |  | 99,032 |
Deferred compensation | 2,621 |  |  | 40,748 |  |  | 43,369 |  |  | 2,252 |  |  | 41,691 |  |  | 43,943 |
Pension benefits | 3,823 |  |  | 472,253 |  |  | 476,076 |  |  | 3,790 |  |  | 484,892 |  |  | 488,682 |
Other postretirement benefits | 1,636 |  |  | 20,209 |  |  | 21,845 |  |  | 1,624 |  |  | 20,002 |  |  | 21,626 |
Other employee benefits | 12,120 |  |  | 3,135 |  |  | 15,255 |  |  | 8,956 |  |  | 9,706 |  |  | 18,662 |
Insurance obligations (1) | 149,258 |  |  | 209,376 |  |  | 358,634 |  |  | 157,014 |  |  | 213,256 |  |  | 370,270 |
Environmental liabilities | 3,862 |  |  | 6,394 |  |  | 10,256 |  |  | 3,791 |  |  | 6,554 |  |  | 10,345 |
Operating taxes | 101,350 |  |  | — |  |  | 101,350 |  |  | 101,649 |  |  | — |  |  | 101,649 |
Income taxes | 824 |  |  | 23,270 |  |  | 24,094 |  |  | 3,378 |  |  | 22,366 |  |  | 25,744 |
Interest | 32,712 |  |  | — |  |  | 32,712 |  |  | 31,218 |  |  | — |  |  | 31,218 |
Deposits, mainly from customers | 64,628 |  |  | 4,974 |  |  | 69,602 |  |  | 61,869 |  |  | 5,085 |  |  | 66,954 |
Deferred revenue | 14,655 |  |  | — |  |  | 14,655 |  |  | 13,038 |  |  | — |  |  | 13,038 |
Restructuring liabilities (2) | 7,526 |  |  | — |  |  | 7,526 |  |  | 12,333 |  |  | — |  |  | 12,333 |
Other | 38,803 |  |  | 26,202 |  |  | 65,005 |  |  | 43,408 |  |  | 26,043 |  |  | 69,451 |
Total | $ | 506,300 |  |  | 806,561 |  |  | 1,312,861 |  |  | $ | 543,352 |  |  | 829,595 |  |  | 1,372,947 |

————————————

(1) | Insurance obligations primarily represent self-insured claim liabilities.

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

9

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

| Weighted-Average Interest Rate |  |  |  |  |  |
| March 31, 2016 |  | December 31, 2015 |  | Maturities |  | March 31, 2016 |  | December 31, 2015
|  |  |  |  |  |  | (In thousands)
Short-term debt and current portion of long-term debt: |  |  |  |  |  |  |  |  |
Short-term debt | 2.31% |  | 2.26% |  |  |  | $ | 19,994 |  |  | 35,947 |
Current portion of long-term debt |  |  |  |  |  |  | 592,229 |  |  | 598,583 |
Total short-term debt and current portion of long-term debt |  |  |  |  |  | 612,223 |  |  | 634,530 |
Long-term debt: |  |  |  |  |  |  |  |  |
U.S. commercial paper (1) | 0.70% |  | 0.55% |  | 2020 |  | 637,811 |  |  | 547,130 |
Global revolving credit facility | 2.28% |  | 2.31% |  | 2020 |  | 53,301 |  |  | 25,291 |
Unsecured U.S. notes — Medium-term notes (1) | 2.86% |  | 2.84% |  | 2016-2025 |  | 4,112,706 |  |  | 4,112,519 |
Unsecured U.S. obligations | 1.86% |  | 1.73% |  | 2018 |  | 50,000 |  |  | 50,000 |
Unsecured foreign obligations | 1.93% |  | 1.92% |  | 2016-2020 |  | 271,545 |  |  | 275,661 |
Asset-backed U.S. obligations (3) | 1.80% |  | 1.81% |  | 2016-2022 |  | 422,466 |  |  | 434,001 |
Capital lease obligations | 3.23% |  | 3.31% |  | 2016-2022 |  | 29,586 |  |  | 32,054 |
Total before fair market value adjustment |  |  |  |  |  |  | 5,577,415 |  |  | 5,476,656 |
Fair market value adjustment on notes subject to hedging (4) |  |  |  |  |  | 18,106 |  |  | 5,253 |
Debt issuance costs(2) |  |  |  |  |  |  | (16,075 | ) |  | (15,229 | )
|  |  |  |  |  |  | 5,579,446 |  |  | 5,466,680 |
Current portion of long-term debt |  |  |  |  |  |  | (592,229 | ) |  | (598,583 | )
Long-term debt |  |  |  |  |  |  | 4,987,217 |  |  | 4,868,097 |
Total debt |  |  |  |  |  |  | $ | 5,599,440 |  |  | 5,502,627 |

————————————

(1) | We had unamortized original issue discounts of $7.5 million and $7.7 million at March 31, 2016 and December 31, 2015, respectively.

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

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

(4) | The notional amount of executed interest rate swaps designated as fair value hedges was $825 million at March 31, 2016 and December 31, 2015.

We maintain a $1.2 billion global revolving credit facility with a syndicate of twelve lending institutions led by Bank of America N.A., Bank of Tokyo-Mitsubishi UFJ, Ltd., BNP Paribas, Mizuho Corporate Bank, Ltd., Royal Bank of Canada, Lloyds Bank Plc, U.S. Bank National Association and Wells Fargo Bank, N.A. The facility matures in January 2020. The agreement provides for annual facility fees which range from 7.5 basis points to 25 basis points based on Ryder's long-term credit ratings. The annual facility fee is currently 10 basis points, which applies to the total facility size of $1.2 billion.
The credit facility is used primarily to finance working capital but can also be used to issue up to $75 million in letters of credit (there were no letters of credit outstanding against the facility at March 31, 2016). At our option, the interest rate on borrowings under the credit facility is based on LIBOR, prime, federal funds or local equivalent rates. The credit facility contains no provisions limiting its availability in the event of a material adverse change to Ryder’s business operations; however, the credit facility does contain standard representations and warranties, events of default, cross-default provisions and certain affirmative and negative covenants.
In order to maintain availability of funding, we must maintain a ratio of debt to consolidated net worth of less than or equal to 300%. Net worth, as defined in the credit facility, represents shareholders' equity excluding any accumulated other comprehensive income or loss associated with our pension and other postretirement plans. The ratio at March 31, 2016 was 214%. At March 31, 2016, there was $488.9 million available under the credit facility, net of outstanding commercial paper borrowings.
10

RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
Our global revolving credit facility enables us to refinance short-term obligations on a long-term basis. Short-term commercial paper obligations not expected to require the use of working capital are classified as long-term as we have both the intent and ability to refinance on a long-term basis. In addition, we have the intent and ability to refinance the current portion of certain long-term debt on a long-term basis. At March 31, 2016, we classified $637.8 million of short-term commercial paper and $300.0 million of current debt obligations as long-term. At December 31, 2015, we classified $547.1 million of short-term commercial paper and $300.0 million of current debt obligations as long-term.
In February 2016, we issued $300 million of unsecured medium-term notes maturing in November 2021. The proceeds from these notes were used to payoff maturing debt and for general corporate purposes. If these notes are downgraded below investment grade following, and as a result of, a change in control, the note 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 which causes early termination, the 364-day program will expire on October 21, 2016. The program contains provisions restricting its availability in the event of a material adverse change to our business operations or the collectibility of the collateralized receivables. Sales of receivables under this program are accounted for as secured borrowings based on our continuing involvement in the transferred assets. No amounts were outstanding under the program at March 31, 2016 or December 31, 2015.
At March 31, 2016 and December 31, 2015, we had letters of credit and surety bonds outstanding totaling $341.0 million and $345.7 million, respectively, which primarily guarantee the payment of insurance claims.
The fair value of total debt (excluding capital lease and asset-backed U.S. obligations) at March 31, 2016 and December 31, 2015 was approximately $5.20 billion and $5.06 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.
11

RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
6. DERIVATIVES
From time to time, we enter into interest rate derivatives to manage our fixed and variable interest rate exposure and to better match the repricing of debt instruments to that of our portfolio of assets. We assess the risk that changes in interest rates will have either on the fair value of debt obligations or on the amount of future interest payments by monitoring changes in interest rate exposures and by evaluating hedging opportunities. We regularly monitor interest rate risk attributable to both our outstanding or forecasted debt obligations as well as our offsetting hedge positions. This risk management process involves the use of analytical techniques, including cash flow sensitivity analysis, to estimate the expected impact of changes in interest rates on our future cash flows.
As of March 31, 2016, we had interest rate swaps outstanding which are designated as fair value hedges of certain of our debt obligations, with a total notional value of $825 million and maturities through 2020. Interest rate swaps are measured at fair value on a recurring basis using Level 2 fair value inputs. The fair value of these interest rate swaps was approximately $18.1 million as of March 31, 2016, and was presented in "Direct financing leases and other assets" in our Consolidated Condensed Balance Sheets. Changes in the fair value of our interest rate swaps were offset by changes in the fair value of the hedged debt instruments. Accordingly, there was no ineffectiveness related to the interest rate swaps.
7. SHARE REPURCHASE PROGRAMS
In December 2015, our Board of Directors authorized a share repurchase program intended to mitigate the dilutive impact of shares issued under our employee stock plans (the December 2015 program). Under the December 2015 program, management is authorized to repurchase (i) up to 1.5 million shares of common stock, the sum of which will not exceed the number of shares issued to employees under the Company’s employee stock plans from December 1, 2015 to December 9, 2017 plus (ii) 0.5 million shares issued to employees that were not repurchased under the Company’s previous share repurchase program. The December 2015 program limits aggregate share repurchases to no more than 2 million shares of Ryder common stock. Share repurchases of common stock are made periodically in open-market transactions and are subject to market conditions, legal requirements and other factors. Management may establish prearranged written plans for the Company under Rule 10b5-1 of the Securities Exchange Act of 1934 as part of the December 2015 program, which allow for share repurchases during Ryder’s quarterly blackout periods as set forth in the trading plan.
We did no t repurchase any shares under the December 2015 program during the three months ended March 31, 2016. During the three months ended March 31, 2015, we repurchased 69,000 shares under the previous program for $6.1 million.
12

RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
8. ACCUMULATED OTHER COMPREHENSIVE LOSS
The following summary sets forth the components of accumulated other comprehensive loss, net of tax:

|  | Currency Translation Adjustments and Other |  | Net Actuarial Loss (1) |  | Prior Service Credit (1) |  | Accumulated Other Comprehensive Loss
|  | (In thousands)
December 31, 2015 |  | $ | (136,020 | ) |  | (576,993 | ) |  | 278 |  |  | (712,735 | )
Amortization |  | — |  |  | 4,752 |  |  | (37 | ) |  | 4,715 |
Other current period change |  | 13,684 |  |  | — |  |  | — |  |  | 13,684 |
March 31, 2016 |  | $ | (122,336 | ) |  | (572,241 | ) |  | 241 |  |  | (694,336 | )

|  | Currency Translation Adjustments and Other |  | Net Actuarial Loss (1) |  | Prior Service Credit (1) |  | Accumulated Other Comprehensive Loss
|  | (In thousands)
December 31, 2014 |  | $ | (36,087 | ) |  | (585,941 | ) |  | 1,758 |  |  | (620,270 | )
Amortization |  | — |  |  | 4,961 |  |  | (351 | ) |  | 4,610 |
Other current period change |  | (57,372 | ) |  | — |  |  | — |  |  | (57,372 | )
March 31, 2015 |  | $ | (93,459 | ) |  | (580,980 | ) |  | 1,407 |  |  | (673,032 | )

_______________________

(1) | These amounts are included in the computation of net periodic benefit cost. See Note 11, "Employee Benefit Plans," for further information.

The gain from currency translation adjustments in the three months ended March 31, 2016 of $13.7 million was primarily due to the strengthening of the Canadian Dollar against the U.S. Dollar, partially offset by the weakening of the British Pound against the U.S. Dollar. The loss from currency translation adjustments in the three months ended March 31, 2015 of $57.4 million was due primarily to the weakening of the Canadian Dollar and British Pound against the U.S. Dollar.
13

RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
9. EARNINGS PER SHARE
The following table presents the calculation of basic and diluted earnings per common share from continuing operations:

| Three months ended March 31,
| 2016 |  | 2015
| (In thousands, except per share amounts)
Earnings per share — Basic: |  |  |
Earnings from continuing operations | $ | 56,185 |  |  | 53,326 |
Less: Distributed and undistributed earnings allocated to unvested stock | (166 | ) |  | (148 | )
Earnings from continuing operations available to common shareholders — Basic | $ | 56,019 |  |  | 53,178 |
Weighted average common shares outstanding — Basic | 53,076 |  |  | 52,596 |
Earnings from continuing operations per common share — Basic | $ | 1.06 |  |  | 1.01 |
Earnings per share — Diluted: |  |  |
Earnings from continuing operations | $ | 56,185 |  |  | 53,326 |
Less: Distributed and undistributed earnings allocated to unvested stock | (166 | ) |  | (148 | )
Earnings from continuing operations available to common shareholders — Diluted | $ | 56,019 |  |  | 53,178 |
Weighted average common shares outstanding — Basic | 53,076 |  |  | 52,596 |
Effect of dilutive equity awards | 287 |  |  | 510 |
Weighted average common shares outstanding — Diluted | 53,363 |  |  | 53,106 |
Earnings from continuing operations per common share — Diluted | $ | 1.05 |  |  | 1.00 |
Anti-dilutive equity awards not included above | 1,186 |  |  | 184 |

14

RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
10. SHARE-BASED COMPENSATION PLANS
Share-based incentive awards are provided to employees under the terms of various share-based compensation plans (collectively, the “Plans”). The Plans are administered by the Compensation Committee of the Board of Directors and principally include at-the-money stock option, unvested stock and cash awards. Unvested stock awards include grants of market-based, performance-based and time-vested restricted stock rights. Under the terms of our Plans, dividends may be paid on our unvested stock awards but 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 grant date of the award until the date the shares underlying the award are delivered.
The following table provides information on share-based compensation expense and income tax benefits recognized during the periods:

| Three months ended March 31,
| 2016 |  | 2015
| (In thousands)
Stock option and stock purchase plans | $ | 1,873 |  |  | 2,301 |
Unvested stock | 3,015 |  |  | 3,364 |
Share-based compensation expense | 4,888 |  |  | 5,665 |
Income tax benefit | (1,655 | ) |  | (1,882 | )
Share-based compensation expense, net of tax | $ | 3,233 |  |  | 3,783 |

During the three months ended March 31, 2016 and 2015, approximately 513,000 and 358,000 stock options, respectively, were granted under the Plans. These awards generally vest evenly over a three year period beginning on the date of grant. The stock options have contractual terms of ten years. The fair value of each option award at the date of grant was estimated using a Black-Scholes-Merton option-pricing valuation model. Share-based compensation expense is recognized on a straight-line basis over the vesting period. The weighted-average fair value per option granted during the three months ended March 31, 2016 and 2015 was $12.53 and $18.46, respectively.
During the three months ended March 31, 2016 and 2015, approximately 34,000 and 19,000 market-based restricted stock rights were granted, respectively, under the Plans. The awards are segmented into three performance periods of one, two and three years. At the end of each performance period, up to 125% of the award may be earned based on Ryder's total shareholder return (TSR) compared to the target TSR of a peer group over the applicable performance period. If earned, employees will receive the grant of stock at the end of the relevant three year performance period provided they continue to be employed with Ryder, subject to Compensation Committee approval. The fair value of the market-based restricted stock rights was estimated using a lattice-based option-pricing valuation model that incorporates a Monte-Carlo simulation. The fair value of the market-based awards was determined on the grant date and considers the likelihood of Ryder achieving the market-based condition. Share-based compensation expense is recognized on a straight-line basis over the vesting period. The weighted-average fair value per market-based restricted stock right granted during three months ended March 31, 2016 and 2015 was $54.10 and $89.40, respectively.
During the three months ended March 31, 2016 and 2015, approximately 58,000 and 35,000 performance-based restricted stock rights (PBRSRs), respectively, were awarded under the Plans. The awards are segmented into three one-year performance periods. For these awards, up to 125% of the awards may be earned based on Ryder's one-year adjusted return on capital (ROC) measured against an annual ROC target. If earned, employees will receive the grant of stock three years after the grant date, provided they continue to be employed with Ryder, subject to Compensation Committee approval. For accounting purposes, these awards are not considered granted until the Compensation Committee approves the annual ROC target. During the three months ended March 31, 2016 and 2015, approximately 45,000 and 42,000 PBRSRs, respectively, were considered granted for accounting purposes. The fair value of the PBRSRs is determined and fixed on the grant date based on Ryder's stock price on the date of grant. Share-based compensation expense is recognized on a straight-line basis over the vesting period, based upon the probability that the performance target will be met. The weighted-average fair value per PBRSR granted during the three months ended March 31, 2016 and 2015 was $55.32 and $93.51, respectively.
15

RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
During the three months ended March 31, 2016 and 2015, approximately 111,000 and 68,000 time-vested restricted stock rights, respectively, were granted under the Plans. The time-vested restricted stock rights entitle the holder to shares of common stock when the awards generally vest at the end of the three-year period after the grant date. The fair value of the time-vested awards is determined and fixed on the date of grant based on Ryder’s stock price on the date of grant. Share-based compensation expense is recognized on a straight-line basis over the vesting period. The weighted-average fair value per time-vested restricted stock right granted during the three months ended March 31, 2016 and 2015 was $55.32 and $93.50, respectively.
During the three months ended March 31, 2016 and 2015, employees received market-based cash awards. The cash awards have the same vesting provisions as the market-based restricted stock rights. The cash awards are accounted for as liability awards under the share-based compensation accounting guidance as the awards are based upon the performance of our common stock and are settled in cash. As a result, the liability is adjusted to reflect fair value at the end of each reporting period. The fair value of the cash awards was estimated using a lattice-based option-pricing valuation model that incorporates a Monte-Carlo simulation. Share-based compensation expense is recognized on a straight-line basis over the vesting period.
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 March 31,
| 2016 |  | 2015
| (In thousands)
Cash awards | $ | 151 |  |  | 172 |

Total unrecognized pre-tax compensation expense related to all share-based compensation arrangements at March 31, 2016 was $31.3 million and is expected to be recognized over a weighted-average period of 2.1 years.
16

RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
11. EMPLOYEE BENEFIT PLANS
Components of net periodic benefit cost/(credit) were as follows:

| Pension Benefits |  | Postretirement Benefits
| Three months ended March 31,
| 2016 |  | 2015 |  | 2016 |  | 2015
| (In thousands)
Company-administered plans: |  |  |  |  |  |  |
Service cost | $ | 3,400 |  |  | 3,627 |  |  | $ | 69 |  |  | 111 |
Interest cost | 22,240 |  |  | 21,887 |  |  | 232 |  |  | 284 |
Expected return on plan assets | (23,085 | ) |  | (24,900 | ) |  | — |  |  | — |
Amortization of: |  |  |  |  |  |  |
Net actuarial loss/(gain) | 7,965 |  |  | 7,808 |  |  | (484 | ) |  | (196 | )
Prior service credit | — |  |  | (76 | ) |  | (58 | ) |  | (478 | )
| 10,520 |  |  | 8,346 |  |  | (241 | ) |  | (279 | )
Union-administered plans | 2,322 |  |  | 2,172 |  |  | — |  |  | — |
Net periodic benefit cost/(credit) | $ | 12,842 |  |  | 10,518 |  |  | $ | (241 | ) |  | (279 | )
Company-administered plans: |  |  |  |  |  |  |
U.S. | $ | 11,175 |  |  | 8,892 |  |  | $ | (340 | ) |  | (415 | )
Non-U.S. | (655 | ) |  | (546 | ) |  | 99 |  |  | 136 |
| 10,520 |  |  | 8,346 |  |  | (241 | ) |  | (279 | )
Union-administered plans | 2,322 |  |  | 2,172 |  |  | — |  |  | — |
Net periodic benefit cost/(credit) | $ | 12,842 |  |  | 10,518 |  |  | $ | (241 | ) |  | (279 | )

During the three months ended March 31, 2016, we contributed $20.2 million to our pension plans. In 2016, we expect total contributions to our pension plans to be approximately $80 million.
17

RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
12. 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 three months ended March 31, 2015, we incurred charges of $1.8 million related to professional fees associated with cost savings initiatives, which are included in "Selling, general and administrative expenses" in our Condensed Consolidated Statement of Earnings.
13. OTHER MATTERS
We are a party to various claims, complaints and proceedings arising in the ordinary course of our continuing business operations including but not limited to those relating to commercial and employment claims, environmental matters, risk management matters (e.g., vehicle liability, workers’ compensation, etc.) and administrative assessments primarily associated with operating taxes. We have established loss provisions for matters in which losses are probable and can be reasonably estimated. For matters from continuing operations, we believe that the resolution of these claims, complaints and legal proceedings 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.
Although we discontinued our South American operations in 2009, we continue to be party to various federal, state and local legal proceedings involving labor matters, tort claims and tax assessments. We have established loss provisions for any matters where we believe a loss is probable and can be reasonably estimated. Other than with respect to the matters discussed below, we believe that such losses will not have a material effect on our consolidated financial statements.
In Brazil, we were assessed $5 million in prior years for various federal income taxes and social contribution taxes for the 1997 and 1998 tax years. These federal tax assessments were overturned 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 amount of any potential loss.
14. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information was as follows:

| Three months ended March 31,
| 2016 |  | 2015
| (In thousands)
Interest paid | $ | 34,421 |  |  | 38,381 |
Income taxes paid | 4,750 |  |  | 3,590 |
Changes in accounts payable related to purchases of revenue earning equipment | (77,486 | ) |  | 99,972 |

18

RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS — (Continued)
(unaudited)
15. SEGMENT REPORTING
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, professional fees and other items discussed in Note 12, "Other Items Impacting Comparability." CSS represents those costs incurred to support all business segments, including human resources, finance, corporate services, public affairs, information technology, health and safety, legal, marketing and corporate communications. The objective of the EBT measurement is to provide clarity on the profitability of each segment and, ultimately, to hold leadership of each segment accountable for their allocated share of CSS costs. Certain costs are not attributable to any segment and remain unallocated in CSS, including costs for investor relations, public affairs and certain executive compensation.
Our Fleet Management Solutions (FMS) segment leases revenue earning equipment and provides fuel, maintenance and other ancillary services to the Dedicated Transportation Solutions (DTS) and Supply Chain Solutions (SCS) segments. Inter-segment revenue and EBT are accounted for at rates similar to those executed with third parties. EBT related to inter-segment equipment and services billed to customers (equipment contribution) are included in both FMS and the segment which served the customer and then eliminated (presented as “Eliminations”).
The following tables set forth financial information for each of our segments and provide a reconciliation between segment EBT and earnings from continuing operations before income taxes for the three months ended March 31, 2016 and 2015. 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.
19

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

| FMS |  | DTS |  | SCS |  | Eliminations |  | Total
| (In thousands)
For the three months ended March 31, 2016 |  |  |  |  |  |  |  |
Revenue from external customers | $ | 996,115 |  |  | 244,842 |  |  | 388,715 |  |  | — |  |  | 1,629,672 |
Inter-segment revenue | 101,813 |  |  | — |  |  | — |  |  | (101,813 | ) |  | — |
Total revenue | $ | 1,097,928 |  |  | 244,842 |  |  | 388,715 |  |  | (101,813 | ) |  | 1,629,672 |
Segment EBT | $ | 82,921 |  |  | 14,268 |  |  | 19,796 |  |  | (11,744 | ) |  | 105,241 |
Unallocated CSS |  |  |  |  |  |  |  |  | (9,665 | )
Non-operating pension costs |  |  |  |  |  |  |  |  | (6,868 | )
Earnings from continuing operations before income taxes |  |  |  |  |  |  |  |  | $ | 88,708 |
Segment capital expenditures paid (1) | $ | 560,285 |  |  | 517 |  |  | 7,323 |  |  | — |  |  | 568,125 |
Unallocated CSS |  |  |  |  |  |  |  |  | 6,906 |
Capital expenditures paid |  |  |  |  |  |  |  |  | $ | 575,031 |
For the three months ended March 31, 2015 |  |  |  |  |  |  |  |
Revenue from external customers | $ | 983,440 |  |  | 212,659 |  |  | 371,054 |  |  | — |  |  | 1,567,153 |
Inter-segment revenue | 103,710 |  |  | — |  |  | — |  |  | (103,710 | ) |  | — |
Total revenue | $ | 1,087,150 |  |  | 212,659 |  |  | 371,054 |  |  | (103,710 | ) |  | 1,567,153 |
Segment EBT | $ | 89,718 |  |  | 8,970 |  |  | 15,689 |  |  | (11,534 | ) |  | 102,843 |
Unallocated CSS |  |  |  |  |  |  |  |  | (11,942 | )
Non-operating pension costs |  |  |  |  |  |  |  |  | (4,883 | )
Professional fees (2) |  |  |  |  |  |  |  |  | (1,841 | )
Earnings from continuing operations before income taxes |  |  |  |  |  |  |  |  | $ | 84,177 |
Segment capital expenditures paid | $ | 538,743 |  |  | 709 |  |  | 5,987 |  |  | — |  |  | 545,439 |
Unallocated CSS |  |  |  |  |  |  |  |  | 7,803 |
Capital expenditures paid |  |  |  |  |  |  |  |  | $ | 553,242 |

————————————

(1) | Excludes revenue earning equipment acquired under capital leases.

(2) | See Note 12, "Other Items Impacting Comparability," for additional information.

20

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 2015 Annual Report on Form 10-K.
Ryder System, Inc. (Ryder) is a global leader in transportation and supply chain management solutions. We report our financial performance based on three segments: (1) FMS, which provides full service leasing, commercial rental, contract maintenance, and contract-related maintenance of trucks, tractors and trailers to customers principally in the U.S., Canada and the U.K.; (2) DTS, which provides vehicles and drivers as part of a dedicated transportation solution in the U.S.; and (3) SCS, which provides comprehensive supply chain solutions including distribution and transportation services in North America and Asia. Dedicated transportation services provided as part of an integrated, multi-service, supply chain solution to SCS customers are reported in the SCS business segment.
The Company periodically enters into sale and leaseback transactions to lower the total cost of funding our operations and to diversify funding among different classes of investors and among different types of funding instruments. The related leasebacks were historically treated as off-balance sheet operating leases and were included in our reported leverage ratios. During the second quarter of 2015, we reviewed and evaluated the structure of the leasebacks and determined that they did not qualify for deconsolidation. The prior year amounts, which were not material, have been revised to conform to the current period presentation. Refer to Note 1, "General," in the Notes to Consolidated Condensed Financial Statements for further discussion of the revision to our historical financial statements.
We operate in highly competitive markets. Our customers select us based on numerous factors including service quality, price, technology and service offerings. As an alternative to using our services, customers may choose to provide these services for themselves, or may choose to obtain similar or alternative services from other third-party vendors. Our customer base includes enterprises operating in a variety of industries including automotive, industrial, food and beverage service, consumer packaged goods (CPG), transportation and warehousing, technology and healthcare, retail, housing, business and personal services, and paper and publishing.
21

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
Operating results were as follows:

| Three months ended March 31, |  | Change
| 2016 |  | 2015 |  | 2016/2015
| (In thousands, except per share amounts) |  |
Total revenue | $ | 1,629,672 |  |  | 1,567,153 |  |  | 4 | %
Operating revenue (1) | 1,406,013 |  |  | 1,300,286 |  |  | 8 | %
EBT | $ | 88,708 |  |  | 84,177 |  |  | 5 | %
Comparable EBT (2) | 95,576 |  |  | 90,901 |  |  | 5 | %
Earnings from continuing operations | 56,185 |  |  | 53,326 |  |  | 5 | %
Comparable earnings from continuing operations (2) | 60,145 |  |  | 57,279 |  |  | 5 | %
Net earnings | 55,794 |  |  | 52,789 |  |  | 6 | %
Earnings per common share (EPS) — Diluted |  |  |  |  |  |
Continuing operations | $ | 1.05 |  |  | 1.00 |  |  | 5 | %
Comparable (2) | 1.12 |  |  | 1.08 |  |  | 4 | %
Net earnings | 1.04 |  |  | 0.99 |  |  | 5 | %

————————————

(1) | We use operating revenue, a non-GAAP financial measure, to evaluate the operating performance of our core businesses and as a measure of sales activity. FMS fuel services revenue and DTS and SCS fuel are ancillary services that we provide our customers and are impacted by fluctuations in market fuel prices. Therefore, these items are excluded from operating revenue as the costs are largely a pass-through to our customers, resulting in minimal changes in our profitability during periods of steady market fuel prices. However, profitability may be positively or negatively impacted by rapid changes in market fuel prices during a short period of time as customer pricing for fuel services is established based on trailing market fuel costs. We also exclude subcontracted transportation from the calculation of operating revenue as this service is also typically a pass-through to our customers and therefore fluctuations result in minimal changes to our profitability. Refer to the“Non-GAAP Financial Measures” section for a reconciliation of total revenue to operating revenue.

(2) | Non-GAAP financial measure. We believe comparable EBT, comparable earnings and comparable earnings per diluted common share, all from continuing operations, 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 that are unrelated to our ongoing business operations. Refer to the “Non-GAAP Financial Measures” section for a reconciliation of EBT, net earnings and earnings per diluted common share to the comparable measures.

Total revenue increased 4% to $1.63 billion and operating revenue increased 8% to $1.41 billion for the three months ended March 31, 2016. Total revenue increased due to higher operating revenue, partially offset by lower fuel costs largely passed through to customers. The increase in operating revenue was driven by growth in all segments partially offset by a 100 basis point negative impact from foreign exchange in the three months ended March 31, 2016. FMS operating revenue growth was due to growth in the full service lease fleet and higher prices on replacement vehicles. DTS and SCS operating revenue growth was due to new business, increased volumes and higher pricing. EBT increased 5% in the first quarter of 2016 to $88.7 million, reflecting increased pricing, new business and higher volumes in DTS and SCS and higher full service lease performance in FMS, partially offset by lower used vehicle results, higher maintenance costs and increased insurance costs. The strong EBT performance in the three months ended March 31, 2016 was partially offset by a 100 basis point negative impact of foreign exchange.
22

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

| Three months ended March 31, |  | Change
| 2016 |  | 2015 |  | 2016/2015
| (Dollars in thousands) |  |
Lease and rental revenues | $ | 767,754 |  |  | 729,024 |  |  | 5 | %
Cost of lease and rental | 552,490 |  |  | 518,422 |  |  | 7 | %
Gross margin | 215,264 |  |  | 210,602 |  |  | 2 | %
Gross margin % | 28 | % |  | 29 | % |  |

Lease and rental revenues represent full service lease and commercial rental product offerings within our FMS segment. Revenues increased 5% in the first quarter of 2016 primarily driven by a 5% larger average full service lease fleet and higher prices on replacement vehicles. Foreign exchange negatively impacted revenue growth by 100 basis points.
Cost of lease and rental represents the direct costs related to lease and rental revenues. These costs consist of depreciation of revenue earning equipment, maintenance costs (primarily repair parts and labor), and other costs such as licenses, insurance and operating taxes. Cost of lease and rental excludes interest costs from vehicle financing. Cost of lease and rental increased 7% in the first quarter of 2016 due to higher depreciation and maintenance costs from a larger average lease fleet and a 2% larger average rental fleet. The increase was also driven by increased insurance costs due to unfavorable self-insurance developments from prior years. Cost of lease and rental benefited by approximately $9 million in the first quarter of 2016 due to changes in estimated residual values and useful lives of revenue earning equipment effective January 1, 2016. For the first quarter, foreign exchange also reduced cost of lease and rental by 100 basis points.
Lease and rental gross margin increased 2% in the first quarter of 2016 to $215.3 million. Lease and rental gross margin as a percentage of revenue decreased to 28% in the first quarter of 2016. The increase in gross margin dollars was due to lease fleet growth as well as benefits from improved residual values, partially offset by increased insurance costs. The decrease in gross margin as a percentage of revenue reflects increased insurance costs and lower commercial rental fleet utilization, partially offset by benefits from improved residual values.
Services

| Three months ended March 31, |  | Change
| 2016 |  | 2015 |  | 2016/2015
| (Dollars in thousands) |  |  |
Services revenue | $ | 759,127 |  |  | 693,704 |  |  | 9 | %
Cost of services | 631,714 |  |  | 582,330 |  |  | 8 | %
Gross margin | 127,413 |  |  | 111,374 |  |  | 14 | %
Gross margin % | 17 | % |  | 16 | % |  |

Services revenue represents all the revenues associated with our DTS and SCS segments as well as contract maintenance, contract-related maintenance and fleet support services associated with our FMS segment. Services revenue in the first quarter of 2016 increased due to new business, higher volumes and increased pricing in the SCS and DTS segments. The contract-related maintenance and contract maintenance product lines benefited from growth in fleet size, and contract-related maintenance revenue also increased from higher volumes. These increases were partially offset by lower fuel prices passed through to our DTS and SCS customers. Foreign exchange also negatively impacted revenue growth by 200 basis points.
23

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
Cost of services represents the direct costs related to services revenue and is primarily comprised of salaries and employee-related costs, subcontracted transportation (purchased transportation from third parties) and maintenance costs. Cost of services increased 8% in the first quarter of 2016 due to higher volumes, partially offset by lower fuel costs and lower insurance costs. For the three months ended March 31, 2016, foreign exchange reduced cost of services by 100 basis points.
Services gross margin increased 14% to $127.4 million and as a percentage of revenue to 17%. The increase in gross margin dollars and gross margin as a percentage of revenue reflects higher pricing in our DTS and SCS segments. Gross margin dollars also benefited from new business and higher volumes in our SCS and DTS segments, growth in full service lease fleet size and higher volumes in the contract-related business and growth in the contract maintenance fleet.
Fuel

| Three months ended March 31, |  | Change
| 2016 |  | 2015 |  | 2016/2015
| (Dollars in thousands) |  |  |
Fuel services revenue | $ | 102,791 |  |  | 144,425 |  |  | (29 | )%
Cost of fuel services | 98,901 |  |  | 136,289 |  |  | (27 | )%
Gross margin | 3,890 |  |  | 8,136 |  |  | (52 | )%
Gross margin % | 4 | % |  | 6 | % |  |

Fuel services revenue represents fuel services provided to our FMS customers. Fuel services revenue decreased 29% in the first quarter of 2016 to $102.8 million due to lower fuel prices passed through to customers.
Cost of fuel services includes the direct costs associated with providing our customers with fuel. These costs include fuel, salaries and employee-related costs of fuel island attendants and depreciation of our fueling facilities and equipment. Cost of fuel services decreased 27% in the first quarter of 2016 as a result of lower fuel prices.
Fuel services gross margin decreased 52% to $3.9 million and fuel services gross margin as a percentage of revenue decreased to 4% in the first quarter of 2016. Fuel is largely a pass-through to customers for which we realize minimal changes in margin during periods of steady market fuel prices. However, fuel services margin is impacted by sudden increases or decreases in market fuel prices during a short period of time as customer pricing for fuel is established based on trailing market fuel costs. Fuel services gross margin was favorably impacted by rapid decreases in the market fuel prices during the first quarter of 2015.

| Three months ended March 31, |  | Change
| 2016 |  | 2015 |  | 2016/2015
| (In thousands) |  |  |
Other operating expenses | $ | 30,151 |  |  | 32,373 |  |  | (7 | )%

Other operating expenses include costs related to our owned and leased facilities within the FMS segment, such as facility depreciation, rent, insurance, utilities and taxes. These facilities are utilized to provide maintenance to our lease, rental, contract maintenance and fleet support services customers. Other operating expenses decreased 7% largely due to lower utility costs for FMS facilities.
24

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

| Three months ended March 31, |  | Change
| 2016 |  | 2015 |  | 2016/2015
| (Dollars in thousands) |  |  |
Selling, general and administrative expenses (SG&A) | $ | 211,213 |  |  | 206,605 |  |  | 2 | %
Percentage of total revenue | 13 | % |  | 13 | % |  |
Percentage of operating revenue | 15 | % |  | 16 | % |  |

SG&A expenses increased 2% in the first quarter of 2016 primarily due to higher information technology costs and increased pension expenses, partially offset by lower professional fees, compensation-related expenses and foreign exchange. Foreign exchange reduced the growth in SG&A expenses by 100 basis points. Pension expense, which primarily impacts SG&A expenses, increased $2.3 million in the first quarter of 2016 due to a lower asset return assumption. SG&A expenses as a percent of total and operating revenue remained relatively flat.

| Three months ended March 31, |  | Change
| 2016 |  | 2015 |  | 2016/2015
| (Dollars in thousands) |  |
Gains on used vehicles, net | $ | 19,129 |  |  | 27,208 |  |  | (30 | )%

Gains on used vehicles, net includes gains from sales of used vehicles as well as the costs associated with used vehicles such as write-downs of vehicles to fair market values and facilities costs. Gains on used vehicles, net decreased 30% in the first quarter of 2016 due to higher fair market value write-downs and lower gains on the sale of used vehicles. Write-downs increased $4.9 million in the first quarter of 2016 compared to the prior year due to an increase in the used vehicle inventory and lower tractor pricing. Global average proceeds per unit were slightly lower than the prior year reflecting an 8% decrease in tractor proceeds per unit, largely offset by a 6% increase in truck proceeds per unit.

| Three months ended March 31, |  | Change
| 2016 |  | 2015 |  | 2016/2015
| (Dollars in thousands) |  |
Interest expense | $ | 37,889 |  |  | 36,802 |  |  | 3 | %
Effective interest rate | 2.7 | % |  | 3.1 | % |  |

Interest expense increased 3% to $38 million in the first quarter of 2016 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 2016 reflects the replacement of higher interest rate debt with debt issuances at lower rates.

| Three months ended March 31, |  | Change
| 2016 |  | 2015 |  | 2016/2015
| (Dollars in thousands) |  |
Miscellaneous income, net | $ | 2,265 |  |  | 2,637 |  |  | (14 | )%

25

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
Miscellaneous income, net consists of investment income on securities used to fund certain benefit plans, interest income,
gains from sales of operating property, foreign currency transaction gains and other non-operating items. Miscellaneous income, net declined in the three months ended March 31, 2016 primarily due to Rabbi trust investment performance.

| Three months ended March 31, |  | Change
| 2016 |  | 2015 |  | 2016/2015
| (Dollars in thousands) |  |
Provision for income taxes | $ | 32,523 |  |  | 30,851 |  |  | 5 | %
Effective tax rate from continuing operations | 36.7 | % |  | 36.7 | % |  |

The increase in the provision for income taxes reflects higher taxable earnings. Our effective income tax rate from continuing operations for the first quarter of 2016 was 36.7%, consistent with the prior year.
26

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

| Three months ended March 31, |  | Change
| 2016 |  | 2015 |  | 2016/2015
| (Dollars in thousands) |  |
Revenue: |  |  |  |  |
Fleet Management Solutions | $ | 1,097,928 |  |  | 1,087,150 |  |  | 1 | %
Dedicated Transportation Solutions | 244,842 |  |  | 212,659 |  |  | 15 |
Supply Chain Solutions | 388,715 |  |  | 371,054 |  |  | 5 |
Eliminations | (101,813 | ) |  | (103,710 | ) |  | (2 | )
Total | $ | 1,629,672 |  |  | 1,567,153 |  |  | 4 | %
Operating Revenue: |  |  |  |  |
Fleet Management Solutions | $ | 962,324 |  |  | 899,187 |  |  | 7 | %
Dedicated Transportation Solutions | 190,273 |  |  | 165,830 |  |  | 15 | %
Supply Chain Solutions | 322,416 |  |  | 295,441 |  |  | 9 |
Eliminations | (69,000 | ) |  | (60,172 | ) |  | 15 |
Total | $ | 1,406,013 |  |  | 1,300,286 |  |  | 8 | %
EBT: |  |  |  |  |
Fleet Management Solutions | $ | 82,921 |  |  | 89,718 |  |  | (8 | )%
Dedicated Transportation Solutions | 14,268 |  |  | 8,970 |  |  | 59 |
Supply Chain Solutions | 19,796 |  |  | 15,689 |  |  | 26 |
Eliminations | (11,744 | ) |  | (11,534 | ) |  | 2 |
| 105,241 |  |  | 102,843 |  |  | 2 |
Unallocated Central Support Services | (9,665 | ) |  | (11,942 | ) |  | (19 | )
Non-operating pension costs | (6,868 | ) |  | (4,883 | ) |  | 41 |
Professional fees | — |  |  | (1,841 | ) |  | NM |
Earnings from continuing operations before income taxes | $ | 88,708 |  |  | 84,177 |  |  | 5 | %

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 other items discussed in Note 12, "Other Items Impacting Comparability," in the Notes to Consolidated Condensed Financial Statements. CSS represents those costs incurred to support all segments, including human resources, finance, corporate services and public affairs, information technology, health and safety, legal, marketing and corporate communications.
The objective of the EBT measurement is to provide clarity on the profitability of each segment and, ultimately, to hold leadership of each segment accountable for their allocated share of CSS costs. Segment results are not necessarily indicative of the results of operations that would have occurred had each segment been an independent, stand-alone entity during the periods presented. Certain costs are not attributable to any segment and remain unallocated in CSS, including costs for investor relations, public affairs and certain executive compensation.
Inter-segment revenue and EBT are accounted for at rates similar to those executed with third parties. EBT related to inter-segment equipment and services billed to customers (equipment contribution) are included in FMS, DTS and SCS and then eliminated (presented as “Eliminations” in the table above). Prior year amounts have been revised to conform to the current period presentation.
27

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
The following table sets forth equipment contribution included in EBT for our DTS and SCS segments:

| Three months ended March 31, |  | Change
| 2016 |  | 2015 |  | 2016/2015
| (Dollars in thousands) |  |
Equipment Contribution: |  |  |  |  |
Dedicated Transportation Solutions | $ | 7,718 |  |  | 7,804 |  |  | (1 | )%
Supply Chain Solutions | 4,026 |  |  | 3,730 |  |  | 8 |
Total | $ | 11,744 |  |  | 11,534 |  |  | 2 | %

Items excluded from our segment EBT measure and their classification within our Consolidated Condensed Statements of Earnings follow:

|  |  |  | Three months ended March 31,
Description |  | Classification |  | 2016 |  | 2015
|  |  |  | (In thousands)
Non-operating pension costs |  | SG&A |  | $ | (6,868 | ) |  | (4,883 | )
Professional fees (1) |  | SG&A |  | — |  |  | (1,841 | )
|  |  |  | $ | (6,868 | ) |  | (6,724 | )

———————————

(1) | See Note 12, "Other Items Impacting Comparability," for additional information.

Fleet Management Solutions

| Three months ended March 31, |  | Change
| 2016 |  | 2015 |  | 2016/2015
| (Dollars in thousands) |  |  |
Full service lease | $ | 622,863 |  |  | 577,113 |  |  | 8 | %
Contract maintenance | 50,126 |  |  | 45,951 |  |  | 9 |
Contractual revenue | 672,989 |  |  | 623,064 |  |  | 8 |
Commercial rental | 204,837 |  |  | 205,093 |  |  | — |
Contract-related maintenance | 64,261 |  |  | 53,146 |  |  | 21 |
Other | 20,237 |  |  | 17,884 |  |  | 13 |
Operating revenue (1) | 962,324 |  |  | 899,187 |  |  | 7 |
Fuel services revenue (2) | 135,604 |  |  | 187,963 |  |  | (28 | )
Total revenue | $ | 1,097,928 |  |  | 1,087,150 |  |  | 1 | %
Segment EBT | $ | 82,921 |  |  | 89,718 |  |  | (8 | )%
Segment EBT as a % of total revenue | 7.6 | % |  | 8.3 | % |  | (70) bps
Segment EBT as a % of operating revenue (1) | 8.6 | % |  | 10.0 | % |  | (140) bps

————————————

(1) | We use operating revenue, which excludes fuel services revenue, and segment EBT as a percent of operating revenue, non-GAAP financial measures, to evaluate the operating performance of our FMS segment and as a measure of sales activity. FMS fuel services revenue is an ancillary service that we provide our customers and is impacted by fluctuations in market fuel prices. Therefore, this item is excluded from operating revenue as the costs are largely a pass-through to our customers, resulting in minimal changes in our profitability during periods of steady market fuel prices. However, profitability may be positively or negatively impacted by rapid changes in market fuel prices during a short period of time as customer pricing for fuel services is established based on trailing market fuel costs.

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

28

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 March 31, 2016
| Total |  | Operating
Organic including price and volume | 7 | % |  | 8 | %
Fuel | (5 | ) |  | — |
Foreign exchange | (1 | ) |  | (1 | )
Net increase | 1 | % |  | 7 | %

Total revenue increased 1% in the first quarter of 2016 due to higher operating revenue, largely offset by a decline in fuel services revenue and negative impacts from foreign exchange. Fuel services revenue declined 28% in the three months ended March 31, 2016 due to lower fuel prices passed through to customers. Operating revenue (revenue excluding fuel) increased 7% in the first quarter of 2016 as a result of organic growth, primarily in the full service lease product line. Foreign exchange negatively impacted both total and operating revenue growth in the first quarter of 2016 by 100 basis point s.
Full service lease revenue increased 8% in the first quarter of 2016 reflecting a 5% larger average fleet size and higher prices on replacement vehicles. Foreign exchange negatively impacted full service lease revenue growth by 100 basis points. We expect favorable full service lease revenue comparisons to continue through the end of the year based on strong sales activity. Contract-related maintenance revenue increased 21% reflecting favorable impacts from growth in the full service lease fleet and higher volumes. Contract maintenance revenue increased 9% reflecting a 13% larger average fleet size. Commercial rental revenue was unchanged in the first quarter of 2016. We expect unfavorable commercial rental revenue comparisons through the end of the year based on a projected weaker demand environment.
The following table provides commercial rental statistics on our global fleet:

| Three months ended March 31, |  | Change
| 2016 |  | 2015 |  | 2016/2015
| (Dollars in thousands) |  |
Rental revenue from non-lease customers (1) | $ | 120,702 |  |  | 116,151 |  |  | 4 | %
Rental revenue from lease customers (2) | $ | 84,135 |  |  | 88,942 |  |  | (5 | )%
Average commercial rental power fleet size — in service (3), (4) | 32,900 |  |  | 31,400 |  |  | 5 | %
Commercial rental utilization — power fleet (3) | 70.4 | % |  | 73.4 | % |  | (300) bps

————————————

(1) | Includes extra vehicles rented to lease customers.

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

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

(4) | Excluding trailers.

FMS EBT decreased 8% in the first quarter of 2016 to $82.9 million reflecting lower used vehicle results, increased insurance costs, lower fuel margin and lower commercial rental results, partially offset by higher full service lease results. Used vehicle results decreased due to higher write-downs and lower tractor pricing, partially offset by higher pricing on trucks compared to the prior year. Full service lease results benefited from growth in the average lease fleet size. Commercial rental results were lower due to a 300 basis point decline in the commercial rental fleet utilization. Full service lease and commercial rental results benefited from approximately $9 million of lower depreciation in the first quarter of 2016 due to residual value changes implemented January 1, 2016, partially offset by increased insurance costs due to unfavorable self-insurance developments from prior years. Fuel margins in the prior year benefited from the timing of fuel purchases in a period of rapidly declining fuel prices.
29

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
Our global fleet of revenue earning equipment and contract maintenance vehicles is summarized as follows (number of units rounded to the nearest hundred):

|  |  |  |  |  |  | Change
| March 31, 2016 |  | December 31, 2015 |  | March 31, 2015 |  | Mar. 2016/Dec. 2015 |  | Mar. 2016/Mar. 2015
End of period vehicle count |  |  |  |  |  |  |  |  |
By type: |  |  |  |  |  |  |  |  |
Trucks (1) | 72,900 |  |  | 72,800 |  |  | 70,400 |  |  | — | % |  | 4 | %
Tractors (2) | 69,000 |  |  | 68,700 |  |  | 63,700 |  |  | — |  |  | 8 |
Trailers (3) (4) | 42,200 |  |  | 42,400 |  |  | 41,900 |  |  | — |  |  | 1 |
Other | 1,300 |  |  | 1,300 |  |  | 1,500 |  |  | — |  |  | (13 | )
Total | 185,400 |  |  | 185,200 |  |  | 177,500 |  |  | — | % |  | 4 | %
By ownership: |  |  |  |  |  |  |  |  |
Owned | 183,900 |  |  | 184,700 |  |  | 173,100 |  |  | — | % |  | 6 | %
Leased | 1,500 |  |  | 500 |  |  | 4,400 |  |  | 200 |  |  | (66 | )
Total | 185,400 |  |  | 185,200 |  |  | 177,500 |  |  | — | % |  | 4 | %
By product line: (4) |  |  |  |  |  |  |  |  |
Full service lease | 133,300 |  |  | 131,800 |  |  | 127,500 |  |  | 1 | % |  | 5 | %
Commercial rental | 40,100 |  |  | 42,100 |  |  | 41,100 |  |  | (5 | ) |  | (2 | )
Service vehicles and other | 3,400 |  |  | 3,300 |  |  | 3,100 |  |  | 3 |  |  | 10 |
Active units | 176,800 |  |  | 177,200 |  |  | 171,700 |  |  | — |  |  | 3 |
Held for sale | 8,600 |  |  | 8,000 |  |  | 5,800 |  |  | 8 |  |  | 48 |
Total | 185,400 |  |  | 185,200 |  |  | 177,500 |  |  | — | % |  | 4 | %
Customer vehicles under contract maintenance | 49,500 |  |  | 46,700 |  |  | 43,400 |  |  | 6 | % |  | 14 | %
Total vehicles under service | 234,900 |  |  | 231,900 |  |  | 220,900 |  |  | 1 | % |  | 6 | %
Quarterly average vehicle count |  |  |  |  |  |  |  |  |
By product line: |  |  |  |  |  |  |  |  |
Full service lease | 132,600 |  |  | 131,100 |  |  | 126,500 |  |  | 1 | % |  | 5 | %
Commercial rental | 41,000 |  |  | 43,200 |  |  | 40,100 |  |  | (5 | ) |  | 2 |
Service vehicles and other | 3,400 |  |  | 3,300 |  |  | 3,200 |  |  | 3 |  |  | 6 |
Active units | 177,000 |  |  | 177,600 |  |  | 169,800 |  |  | — |  |  | 4 |
Held for sale | 8,500 |  |  | 6,900 |  |  | 5,500 |  |  | 23 |  |  | 55 |
Total | 185,500 |  |  | 184,500 |  |  | 175,300 |  |  | 1 | % |  | 6 | %
Customer vehicles under contract maintenance | 48,200 |  |  | 45,500 |  |  | 42,800 |  |  | 6 | % |  | 13 | %
Customer vehicles under on-demand maintenance (5) | 7,100 |  |  | 7,200 |  |  | 6,500 |  |  | (1 | )% |  | 9 | %
Total vehicles under service | 240,800 |  |  | 237,200 |  |  | 224,600 |  |  | 2 | % |  | 7 | %

———————————

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

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

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

(4) | Includes 5,700 UK trailers (3,700 full service lease and 2,000 commercial rental), 6,100 UK trailers (3,900 full service lease and 2,200 commercial rental) and 6,500 UK trailers (4,400 full service lease and 2,100 commercial rental) as of March 31, 2016, December 31, 2015, and March 31, 2015, respectively.

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

Note: Quarterly amounts were computed using a 6-point average based on monthly information.
30

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
| March 31, 2016 |  | December 31, 2015 |  | March 31, 2015 |  | Mar. 2016/Dec. 2015 |  | Mar. 2016/Mar. 2015
Not yet earning revenue (NYE) | 2,400 |  | 2,800 |  | 3,400 |  | (14 | )% |  | (29 | )%
No longer earning revenue (NLE): |  |  |  |  |  |  |  |  |
Units held for sale | 8,600 |  | 8,000 |  | 5,800 |  | 8 |  |  | 48 |
Other NLE units | 4,800 |  | 3,300 |  | 4,000 |  | 45 |  |  | 20 |
Total | 15,800 |  | 14,100 |  | 13,200 |  | 12 | % |  | 20 | %

NYE units represent new vehicles on hand that are being prepared for deployment to a lease customer or into the rental fleet. Preparations include activities such as adding lift gates, paint, decals, cargo area and refrigeration equipment. NYE units decreased compared to March 31, 2015, reflecting planned lower investments in the commercial rental fleet. NLE units represent vehicles held for sale and vehicles for which no revenue has been earned in the previous 30 days. Accordingly, these vehicles may be temporarily out of service, being prepared for sale or awaiting redeployment. NLE units increased compared to December 31, 2015 due to lower commercial rental utilization. NLE units increased compared to March 31, 2015, reflecting higher used vehicle inventories as initiatives to downsize the rental fleet increased the number of vehicles held for sale. We expect NLE levels to decline through the end of the year as a result of lower expected used vehicle inventories.
Dedicated Transportation Solutions

| Three months ended March 31, |  | Change
| 2016 |  | 2015 |  | 2016/2015
Operating revenue (1) | $ | 190,273 |  |  | 165,830 |  |  | 15 | %
Subcontracted transportation | 31,229 |  |  | 14,621 |  |  | 114 | %
Fuel (2) | 23,340 |  |  | 32,208 |  |  | (28 | )%
Total revenue | $ | 244,842 |  |  | 212,659 |  |  | 15 | %
Segment EBT | $ | 14,268 |  |  | 8,970 |  |  | 59 | %
Segment EBT as a % of total revenue | 5.8 | % |  | 4.2 | % |  | 160 bps
Segment EBT as a % of operating revenue (1) | 7.5 | % |  | 5.4 | % |  | 210 bps
Memo: |  |  |  |  |
Average fleet | 8,000 |  |  | 7,500 |  |  | 7 | %

————————————

(1) | We use operating revenue and segment EBT as a percent of operating revenue, non-GAAP financial measures, to evaluate the operating performance of our DTS segment and as a measure of sales activity. Fuel and subcontracted transportation are excluded from the calculation of DTS operating revenue. DTS fuel is an ancillary service we provide our customers and is impacted by fluctuations in market fuel prices. Therefore, this item is excluded from operating revenue as the costs are largely a pass-through to our customers, resulting in minimal changes in our profitability during periods of steady market fuel prices. However, profitability may be positively or negatively impacted by rapid changes in market fuel prices during a short period of time as customer pricing for fuel services is established based on trailing market fuel costs. We also exclude subcontracted transportation from the calculation of DTS operating revenue as this service is also typically a pass-through to our customers and therefore fluctuations result in minimal changes to our profitability.

(2) | Includes intercompany fuel sales from FMS to DTS.

31

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 March 31, 2016
| Total |  | Operating
Organic including price and volume | 11 | % |  | 15 | %
Subcontracted transportation | 8 |  |  | — |
Fuel | (4 | ) |  | — |
Net increase | 15 | % |  | 15 | %

In the first quarter of 2016, total revenue increased 15% to $244.8 million, reflecting increased revenue from organic growth and subcontracted transportation, partially offset by lower fuel prices passed through to our customers. Operating revenue (revenue excluding subcontracted transportation and fuel) increased 15% due to new business, increased volumes and higher pricing. We expect operating revenue comparisons to remain favorable through the end of the year, however at a lower growth rate. DTS EBT increased 59% in the first quarter of 2016 due to the benefits of higher operating revenue and to a lesser extent lower insurance costs.
Supply Chain Solutions

| Three months ended March 31, |  | Change
| 2016 |  | 2015 |  | 2016/2015
| (Dollars in thousands) |  |
Automotive | $ | 129,124 |  |  | 109,166 |  |  | 18 | %
Technology and healthcare | 57,438 |  |  | 59,321 |  |  | (3 | )
CPG and Retail | 108,602 |  |  | 102,695 |  |  | 6 |
Industrial and other | 27,252 |  |  | 24,259 |  |  | 12 |
Operating revenue (1) | 322,416 |  |  | 295,441 |  |  | 9 |
Subcontracted transportation | 51,979 |  |  | 58,155 |  |  | (11 | )
Fuel (2) | 14,320 |  |  | 17,458 |  |  | (18 | )%
Total revenue | $ | 388,715 |  |  | 371,054 |  |  | 5 | %
Segment EBT | $ | 19,796 |  |  | 15,689 |  |  | 26 | %
Segment EBT as a % of total revenue | 5.1 | % |  | 4.2 | % |  | 90 bps
Segment EBT as a % of operating revenue (1) | 6.1 | % |  | 5.3 | % |  | 80 bps
Memo: |  |  |  |  |
Average fleet | 6,900 |  |  | 6,100 |  |  | 13 | %

————————————

(1) | We use operating revenue and segment EBT as a percent of operating revenue, non-GAAP financial measures, to evaluate the operating performance of our SCS segment and as a measure of sales activity. In addition to excluding subcontracted transportation from the calculation of SCS operating revenue, we will also exclude SCS fuel. SCS fuel is an ancillary service we provide our customers and is impacted by fluctuations in market fuel prices. Therefore, this item is excluded from operating revenue as the costs are largely a pass-through to our customers, resulting in minimal changes in our profitability during periods of steady market fuel prices. However, profitability may be positively or negatively impacted by rapid changes in market fuel prices during a short period of time as customer pricing for fuel services is established based on trailing market fuel costs. We also exclude subcontracted transportation from the calculation of SCS operating revenue as this service is also typically a pass-through to our customers and therefore fluctuations result in minimal changes to our profitability.

(2) | Includes intercompany fuel sales from FMS to SCS.

32

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 March 31, 2016
| Total |  | Operating
Organic including price and volume | 9 | % |  | 11 | %
Subcontracted transportation | (1 | ) |  | — |
Fuel | (1 | ) |  | — |
Foreign exchange | (2 | ) |  | (2 | )
Net increase | 5 | % |  | 9 | %

Total revenue increased 5% to $389 million in the first quarter of 2016, as operating revenue was partially offset by lower subcontracted transportation and reduced fuel costs passed through to customers. Operating revenue (revenue excluding subcontracted transportation and fuel) increased 9% to $322 million in the first quarter of 2016. Operating revenue growth was due to new business, increased volumes and higher pricing, partially offset by a negative impact from foreign exchange. We expect operating revenue comparisons to remain favorable through the end of the year, however at a lower growth rate. SCS EBT increased 26% in the first quarter of 2016 to $20 million due to higher pricing, increased volumes and new business.
Central Support Services

| Three months ended March 31, |  | Change
| 2016 |  | 2015 |  | 2016/2015
| (Dollars in thousands) |  |
Human resources | $ | 4,524 |  |  | 5,342 |  |  | (15 | )%
Finance | 14,774 |  |  | 14,536 |  |  | 2 |
Corporate services and public affairs | 2,455 |  |  | 2,554 |  |  | (4 | )
Information technology | 19,908 |  |  | 20,662 |  |  | (4 | )
Legal and safety | 6,258 |  |  | 6,597 |  |  | (5 | )
Marketing | 3,710 |  |  | 3,780 |  |  | (2 | )
Other | 6,726 |  |  | 8,747 |  |  | (23 | )
Total CSS | 58,355 |  |  | 62,218 |  |  | (6 | )
Allocation of CSS to business segments | (48,690 | ) |  | (50,276 | ) |  | (3 | )
Unallocated CSS | $ | 9,665 |  |  | 11,942 |  |  | (19 | )%

Total CSS costs decreased 6% in the first quarter of 2016 to $58.4 million and unallocated CSS decreased 19% in the first quarter of 2016 to $9.7 million primarily due to lower compensation-related expenses.
33

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
FINANCIAL RESOURCES AND LIQUIDITY
Cash Flows
The following is a summary of our cash flows from continuing operations:

| Three months ended March 31,
| 2016 |  | 2015
| (In thousands)
Net cash provided by (used in): |  |  |
Operating activities | $ | 365,009 |  |  | 283,845 |
Financing activities | 63,505 |  |  | 178,870 |
Investing activities | (429,044 | ) |  | (440,817 | )
Effect of exchange rates on cash | (3,508 | ) |  | 756 |
Net change in cash and cash equivalents | $ | (4,038 | ) |  | 22,654 |

Cash provided by operating activities increased to $365.0 million in the three months ended March 31, 2016 compared with $283.8 million in 2015, reflecting higher earnings, excluding depreciation, as well as working capital improvements, partially offset by higher pension contributions. Cash provided by financing activities was $63.5 million in the three months ended March 31, 2016 compared with $178.9 million in 2015 due to lower borrowing needs. Cash used in investing activities decreased to $429.0 million in the three months ended March 31, 2016 compared with $440.8 million in 2015 primarily due to higher proceeds from revenue earning equipment sales, partially offset by higher payments for capital expenditures.
Our principal sources of operating liquidity are cash from operations and proceeds from the sale of revenue earning equipment. We refer to the sum of operating cash flows, proceeds from the sale of revenue earning equipment and operating property and equipment, collections on direct finance leases and other investing cash inflows from continuing operations as “total cash generated.” 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:

| Three months ended March 31,
| 2016 |  | 2015
| (In thousands)
Net cash provided by operating activities from continuing operations | $ | 365,009 |  |  | 283,845 |
Sales of revenue earning equipment | 119,188 |  |  | 96,821 |
Sales of operating property and equipment | 1,410 |  |  | 273 |
Collections on direct finance leases and other items | 25,610 |  |  | 16,243 |
Total cash generated | 511,217 |  |  | 397,182 |
Purchases of property and revenue earning equipment | (575,031 | ) |  | (553,242 | )
Free cash flow | $ | (63,814 | ) |  | (156,060 | )

34

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
The following table provides a summary of capital expenditures:

| Three months ended March 31,
| 2016 |  | 2015
| (In thousands)
Revenue earning equipment: |  |  |
Full service lease | $ | 441,041 |  |  | 436,050 |
Commercial rental | 33,315 |  |  | 190,420 |
| 474,356 |  |  | 626,470 |
Operating property and equipment | 23,189 |  |  | 26,744 |
Total capital expenditures | 497,545 |  |  | 653,214 |
Changes in accounts payable related to purchases of revenue earning equipment | 77,486 |  |  | (99,972 | )
Cash paid for purchases of property and revenue earning equipment | $ | 575,031 |  |  | 553,242 |

Capital expenditures decreased 24% to $497.5 million in the three months ended March 31, 2016 reflecting planned lower investments in our commercial rental fleet. We expect full-year 2016 capital expenditures to be approximately $2.0 billion. We expect to fund 2016 capital expenditures primarily with internally generated funds and additional debt financing.
Financing and Other Funding Transactions
We utilize external capital primarily to support working capital needs and growth in our asset-based product lines. The variety of debt financing alternatives typically available to fund our capital needs include commercial paper, long-term and medium-term public and private debt, asset-backed securities, bank term loans, leasing arrangements and bank credit facilities. Our principal sources of financing are issuances of commercial paper and medium-term notes.
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 March 31, 2016 were as follows:

| Short-term |  |  |  | Long-term
| Rating |  | Outlook |  | Rating |  | Outlook
Moody’s Investors Service | P2 |  | Stable |  | Baa1 |  | Stable (affirmed February 2016)
Standard & Poor’s Ratings Services | A2 |  | Stable |  | BBB |  | Positive (affirmed March 2016)
Fitch Ratings | F2 |  | Stable |  | A- |  | Stable (affirmed February 2016)

35

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
Cash and equivalents totaled $56.8 million as of March 31, 2016. As of March 31, 2016, approximately $29.4 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 March 31, 2016, we had the following amounts available to fund operations under the following facilities:

| (In millions)
Global revolving credit facility | $489
Trade receivables program | $175

We maintain a global revolving credit facility used to finance working capital. The availability under our global revolving credit facility is $1.2 billion and the facility matures in January 2020. The credit 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 March 31, 2016 was 214%.
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 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 that causes early termination, the 364-day program will expire October 21, 2016.
In February 2016, Ryder filed an automatic shelf registration statement on Form S-3 with the SEC. The registration is for an indeterminate number of securities and is effective for three years. Under this universal shelf registration statement, we have the capacity to offer and sell from time to time various types of securities, including common stock, preferred stock and debt securities, subject to market demand and ratings status.
36

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:

| Three months ended March 31,
| 2016 |  | 2015
| (In thousands)
Debt balance at January 1 | $ | 5,502,627 |  |  | 4,717,524 |
Cash-related changes in debt: |  |  |
Net change in commercial paper borrowings | 98,580 |  |  | 204,750 |
Proceeds from issuance of medium-term notes | 298,254 |  |  | 399,736 |
Proceeds from issuance of other debt instruments | — |  |  | 55,375 |
Retirement of medium term notes | (300,000 | ) |  | (350,000 | )
Other debt repaid | (12,400 | ) |  | (113,536 | )
Debt issuance costs paid | (622 | ) |  | (1,645 | )
| 83,812 |  |  | 194,680 |
Non-cash changes in debt: |  |  |
Fair value adjustment on notes subject to hedging | 12,853 |  |  | 5,055 |
Addition of capital lease obligations | 240 |  |  | — |
Changes in foreign currency exchange rates and other non-cash items | (92 | ) |  | (15,909 | )
Total changes in debt | 96,813 |  |  | 183,826 |
Debt balance at March 31 | $ | 5,599,440 |  |  | 4,901,350 |

In accordance with our funding philosophy, we attempt to match the aggregate average remaining re-pricing life of our debt with the aggregate average remaining re-pricing life of our assets. We utilize both fixed-rate and variable-rate debt to achieve this match and generally target a mix of 20% - 40% variable-rate debt as a percentage of total debt outstanding. The variable-rate portion of our total debt (including notional value of swap agreements) was 31% and 30% at March 31, 2016 and December 31, 2015, respectively.
Refer to Note 5, “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, asset-backed financing obligations and debt maturities.
Ryder’s debt to equity ratios were 274% and 277% as of March 31, 2016 and December 31, 2015, respectively.
The debt to equity ratio represents total debt divided by total equity. Additional obligations, including the present value of minimum lease payments under operating leases for vehicles, were not significant as of March 31, 2016 or December 31, 2015.
37

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
Pension Information
The funded status of our pension plans is dependent upon many factors, including returns on invested assets and the level of certain market interest rates. We review pension assumptions regularly and we may from time to time make voluntary contributions to our pension plans, which exceed the amounts required by statute. In 2016, we expect total contributions to our pension plans to be approximately $80 million. During the three months ended March 31, 2016, we contributed $20.2 million to our pension plans. Changes in interest rates and the market value of the securities held by the plans during 2016 could materially change, positively or negatively, the funded status of the plans and affect the level of pension expense and contributions in 2016 and beyond. See Note 11, “Employee Benefit Plans,” in the Notes to Consolidated Condensed Financial Statements for additional information.
Share Repurchases and Cash Dividends
Beginning in 2015, due to the increase in leverage, we temporarily paused anti-dilutive share repurchase activity. We expect to resume our two million share anti-dilutive share repurchase program in the second quarter of 2016. See Note 7, “Share Repurchase Programs,” in the Notes to Consolidated Condensed Financial Statements for a discussion of share repurchases.
In February 2016, our Board of Directors declared a quarterly cash dividend of $0.41 per share of common stock.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 2. “Recent Accounting Pronouncements," in the Notes to Consolidated Condensed Financial Statements for a discussion of recent accounting pronouncements.
38

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
NON-GAAP FINANCIAL MEASURES
This Quarterly Report on Form 10-Q includes information extracted from consolidated condensed financial information but not required by generally accepted accounting principles (GAAP) to be presented in the financial statements. Certain elements 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 earnings per diluted common share, operating revenue, FMS operating revenue, FMS EBT as a % of operating revenue, DTS operating revenue, DTS EBT as a % of operating revenue, SCS operating revenue, SCS EBT as a % of operating revenue, total cash generated and free cash flow. 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. Also, our Non-GAAP financial measures may not be comparable to financial measures used by others companies.
The following table provides a reconciliation of GAAP earnings before taxes (EBT), earnings, and earnings per diluted shares (EPS) from continuing operations to comparable EBT, earnings and EPS from continuing operations, which was not provided within the MD&A discussion.
EBT, earnings and EPS from continuing operations in the three months ended March 31, 2016 and 2015 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 table lists a summary of these items, which are discussed in more detail throughout our MD&A and within the Notes to Consolidated Condensed Financial Statements:

| EBT |  | Earnings |  | Diluted EPS
| 2016 |  | 2015 |  | 2016 |  | 2015 |  | 2016 |  | 2015
Three months ended March 31, | (In thousands, except per share amounts)
EBT/Earnings/EPS | $ | 88,708 |  |  | 84,177 |  |  | $ | 56,185 |  |  | 53,326 |  |  | $ | 1.05 |  |  | 1.00 |
Non-operating pension costs (1) | 6,868 |  |  | 4,883 |  |  | 3,960 |  |  | 2,792 |  |  | 0.07 |  |  | 0.06 |
Professional fees (2) | — |  |  | 1,841 |  |  | — |  |  | 1,161 |  |  | — |  |  | 0.02 |
Comparable | $ | 95,576 |  |  | 90,901 |  |  | $ | 60,145 |  |  | 57,279 |  |  | $ | 1.12 |  |  | 1.08 |

__________________

(1) | Includes the amortization of net 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) | See Note 12, "Other Items Impacting Comparability," for additional information.

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

| Three months ended March 31,
| 2016 |  | 2015
| (In thousands)
Total revenue | $ | 1,629,672 |  |  | 1,567,153 |
Fuel | (140,451 | ) |  | (194,091 | )
Subcontracted transportation | (83,208 | ) |  | (72,776 | )
Operating revenue | $ | 1,406,013 |  |  | 1,300,286 |

39

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;

• | our expectations in our DTS and SCS business segment regarding anticipated operating revenue trends;

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

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

• | our expectations of operating cash flow and capital expenditures through the end of 2016;

• | 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;

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

• | the anticipated impact of recent accounting pronouncements; and

• | the expected resumption of our anti-dilutive share repurchase program.

40

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
These statements, as well as other forward-looking statements contained in this Quarterly Report, are based on our current plans and expectations and are subject to risks, uncertainties and assumptions. We caution readers that certain important factors could cause actual results and events to differ significantly from those expressed in any forward-looking statements. These risk factors include, but are not limited to, the following:

• | Market Conditions:

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

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

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

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

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

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

• | Competition:

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

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

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

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

41

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

• | Profitability:

| Ÿ |  | Our inability to obtain adequate profit margins for our services

| Ÿ |  | Lower than expected sales volumes or customer retention levels

| Ÿ |  | Lower full service lease sales activity

| Ÿ |  | Decreases in commercial rental fleet utilization

| Ÿ |  | Lower than expected used vehicle sales pricing levels and fluctuations in the anticipated proportion of retail versus wholesale sales

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

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

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

| Ÿ |  | Sudden changes in fuel prices and fuel shortages

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

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

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

| Ÿ |  | Our key assumptions and pricing structure of our DTS and 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

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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.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to Ryder’s exposures to market risks since December 31, 2015. Please refer to the 2015 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 first quarter of 2016, 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 first quarter of 2016, Ryder’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) were effective.
Changes in Internal Controls over Financial Reporting
During the three months ended March 31, 2016, 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 March 31, 2016:

| 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)
January 1 through January 31, 2016 | 125 |  |  | $ | 47.79 |  |  | — |  |  | 2,000,000 |
February 1 through February 29, 2016 | 29,844 |  |  | 55.97 |  |  | — |  |  | 2,000,000 |
March 1 through March 31, 2016 | 583 |  |  | 63.46 |  |  | — |  |  | 2,000,000 |
Total | 30,552 |  |  | $ | 56.08 |  |  | — |  |  |

————————————

(1) | During the three months ended March 31, 2016, we purchased an aggregate of 30,552 shares of our common stock in employee-related transactions. Employee-related transactions may include: (i) shares of common stock withheld as payment for the exercise price of options exercised or to satisfy the employees' tax withholding liability associated with our share-based compensation programs and (ii) open-market purchases by the trustee of Ryder’s deferred compensation plans relating to investments by employees in our stock, one of the investment options available under the plans.

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

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ITEM 6. EXHIBITS

10.1 (e) |  |  | Agreement, dated April 14, 2016, between Ryder System, Inc. and Gregory F. Greene
12.1 |  |  | Calculation of Ratio of Earnings to Fixed Charges
31.1 |  |  | Certification of Robert E. Sanchez pursuant to Rule 13a-14(a) or Rule 15d-14(a)
31.2 |  |  | Certification of Art A. Garcia pursuant to Rule 13a-14(a) or Rule 15d-14(a)
32 |  |  | Certification of Robert E. Sanchez and Art A. Garcia pursuant to Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. Section 1350

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

| RYDER SYSTEM, INC.
| (Registrant)
Date: April 26, 2016 | By: | /s/ Art A. Garcia
|  | Art A. Garcia
|  | Executive Vice President and Chief Financial Officer
|  | (Principal Financial Officer)
Date: April 26, 2016 | By: | /s/ Scott R. Allen
|  | Scott R. Allen
|  | Vice President and Controller
|  | (Principal Accounting Officer)

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