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

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020
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)

Title of each class | Trading Symbol(s) | Name of each exchange on which registered
Common Stock | R | New York Stock Exchange

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 ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer | ☑ |  | Accelerated filer | ☐
Non-accelerated filer | ☐ |  | Smaller reporting company | ☐
Emerging growth company | ☐ |  |  |

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☑
The number of shares of Ryder System, Inc. Common Stock ($0.50 par value per share) outstanding at September 30, 2020 was 53,889,123.

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

|  | Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. | Financial Statements (unaudited) |
| Condensed Consolidated Statements of Earnings | 1
| Condensed Consolidated Statements of Comprehensive Income | 2
| Condensed Consolidated Balance Sheets | 3
| Condensed Consolidated Statements of Cash Flows | 4
| Condensed Consolidated Statements of Shareholders' Equity | 5
| Notes to Condensed Consolidated Financial Statements | 7
ITEM 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 25
ITEM 3. | Quantitative and Qualitative Disclosures About Market Risk | 56
ITEM 4. | Controls and Procedures | 56
PART II. OTHER INFORMATION
ITEM 1. | Legal Proceedings | 57
ITEM 1A. | Risk Factors | 57
ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 59
ITEM 6. | Exhibits | 60
SIGNATURE |  | 61

i

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RYDER SYSTEM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)

| Three months ended September 30, |  | Nine months ended September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
| (In thousands, except per share amounts)
Lease & related maintenance and rental revenues | $ | 933,771 |  |  | $ | 959,189 |  |  | $ | 2,730,187 |  |  | $ | 2,792,581 |
Services revenue | 1,120,544 |  |  | 1,120,900 |  |  | 3,174,999 |  |  | 3,412,048 |
Fuel services revenue | 96,260 |  |  | 143,843 |  |  | 301,977 |  |  | 444,623 |
Total revenues | 2,150,575 |  |  | 2,223,932 |  |  | 6,207,163 |  |  | 6,649,252 |
Cost of lease & related maintenance and rental | 758,351 |  |  | 877,767 |  |  | 2,351,993 |  |  | 2,229,596 |
Cost of services | 932,510 |  |  | 948,087 |  |  | 2,680,292 |  |  | 2,896,182 |
Cost of fuel services | 92,930 |  |  | 140,247 |  |  | 291,359 |  |  | 431,885 |
Other operating expenses | 30,009 |  |  | 28,924 |  |  | 93,423 |  |  | 92,213 |
Selling, general and administrative expenses | 211,183 |  |  | 216,037 |  |  | 643,866 |  |  | 673,778 |
Non-operating pension costs | 7,200 |  |  | 6,885 |  |  | 9,357 |  |  | 20,060 |
Used vehicle sales, net | (12,919) |  |  | 22,734 |  |  | 17,253 |  |  | 49,091 |
Interest expense | 62,608 |  |  | 62,475 |  |  | 192,459 |  |  | 178,570 |
Miscellaneous (income) loss, net | (10,552) |  |  | 676 |  |  | (11,830) |  |  | (29,457) |
Restructuring and other items, net | 24,490 |  |  | 11,360 |  |  | 92,637 |  |  | 27,374 |
| 2,095,810 |  |  | 2,315,192 |  |  | 6,360,809 |  |  | 6,569,292 |
Earnings (loss) from continuing operations before income taxes | 54,765 |  |  | (91,260) |  |  | (153,646) |  |  | 79,960 |
Provision for (benefit from) income taxes | 9,680 |  |  | 278 |  |  | (15,897) |  |  | 50,156 |
Earnings (loss) from continuing operations | 45,085 |  |  | (91,538) |  |  | (137,749) |  |  | 29,804 |
Earnings (loss) from discontinued operations, net of tax | (9,251) |  |  | 83 |  |  | (10,129) |  |  | (728) |
Net earnings (loss) | $ | 35,834 |  |  | $ | (91,455) |  |  | $ | (147,878) |  |  | $ | 29,076 |
Earnings (loss) per common share — Basic |  |  |  |  |  |  |
Continuing operations | $ | 0.86 |  |  | $ | (1.75) |  |  | $ | (2.64) |  |  | $ | 0.56 |
Discontinued operations | (0.18) |  |  | — |  |  | (0.20) |  |  | (0.02) |
Net earnings (loss) | $ | 0.68 |  |  | $ | (1.75) |  |  | $ | (2.83) |  |  | $ | 0.55 |
Earnings (loss) per common share — Diluted |  |  |  |  |  |  |
Continuing operations | $ | 0.85 |  |  | $ | (1.75) |  |  | $ | (2.64) |  |  | $ | 0.56 |
Discontinued operations | (0.17) |  |  | — |  |  | (0.20) |  |  | (0.02) |
Net earnings (loss) | $ | 0.68 |  |  | $ | (1.75) |  |  | $ | (2.83) |  |  | $ | 0.55 |

See accompanying notes to condensed consolidated financial statements.
Note: EPS amounts may not be additive due to rounding.
1

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

| Three months ended September 30, |  | Nine months ended September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
| (In thousands)
Net earnings (loss) | $ | 35,834 |  |  | $ | (91,455) |  |  | $ | (147,878) |  |  | $ | 29,076 |
Other comprehensive income (loss): |  |  |  |  |  |  |
Changes in currency translation adjustment and other | 32,767 |  |  | (21,812) |  |  | (43,975) |  |  | (13,813) |
Amortization of pension and postretirement items (1) | 13,796 |  |  | 7,735 |  |  | 28,946 |  |  | 22,580 |
Income tax expense related to amortization of pension and postretirement items | (3,300) |  |  | (1,689) |  |  | (6,405) |  |  | (5,084) |
Amortization of pension and postretirement items, net of taxes | 10,496 |  |  | 6,046 |  |  | 22,541 |  |  | 17,496 |
Change in net actuarial loss and prior service cost | (89,627) |  |  | — |  |  | (94,166) |  |  | (9,440) |
Income tax benefit related to change in net actuarial loss and prior service cost | 21,286 |  |  | — |  |  | 22,373 |  |  | 2,237 |
Change in net actuarial loss and prior service cost, net of taxes | (68,341) |  |  | — |  |  | (71,793) |  |  | (7,203) |
Other comprehensive income (loss), net of taxes | (25,078) |  |  | (15,766) |  |  | (93,227) |  |  | (3,520) |
Comprehensive income (loss) | $ | 10,756 |  |  | $ | (107,221) |  |  | $ | (241,105) |  |  | $ | 25,556 |

_______________________
(1)These amounts are included in the computation of net pension expense. Amortization in 2020 includes the curtailment loss recorded in the third quarter. See Note 15, "Employee Benefit Plans," for additional information.
See accompanying notes to condensed consolidated financial statements.
2

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

| September 30, 2020 |  | December 31, 2019
| (In thousands, except share amounts)
Assets: |  |  |
Current assets: |  |  |
Cash and cash equivalents | $ | 684,248 |  |  | $ | 73,584 |
Receivables, net | 1,156,236 |  |  | 1,228,490 |
Inventories | 60,587 |  |  | 80,822 |
Prepaid expenses and other current assets | 131,783 |  |  | 179,155 |
Total current assets | 2,032,854 |  |  | 1,562,051 |
Revenue earning equipment, net | 9,082,580 |  |  | 10,427,664 |
Operating property and equipment, net of accumulated depreciation of $1,196,874 and $1,224,216, respectively | 913,387 |  |  | 917,799 |
Goodwill | 474,748 |  |  | 475,025 |
Intangible assets, net | 44,945 |  |  | 50,905 |
Sales-type leases and other assets | 1,093,522 |  |  | 1,041,890 |
Total assets | $ | 13,642,036 |  |  | $ | 14,475,334 |
Liabilities and shareholders’ equity: |  |  |
Current liabilities: |  |  |
Short-term debt and current portion of long-term debt | $ | 1,133,396 |  |  | $ | 1,154,564 |
Accounts payable | 461,653 |  |  | 594,712 |
Accrued expenses and other current liabilities | 923,586 |  |  | 876,077 |
Total current liabilities | 2,518,635 |  |  | 2,625,353 |
Long-term debt | 6,303,176 |  |  | 6,770,224 |
Other non-current liabilities | 1,569,961 |  |  | 1,442,003 |
Deferred income taxes | 1,099,706 |  |  | 1,161,444 |
Total liabilities | 11,491,478 |  |  | 11,999,024 |
Commitments and contingencies (Note 17) |  |  |
Shareholders’ equity: |  |  |
Preferred stock, no par value per share — authorized, 3,800,917; none outstanding, September 30, 2020 and December 31, 2019 | — |  |  | — |
Common stock, $0.50 par value per share — authorized, 400,000,000; outstanding, September 30, 2020 — 53,889,123 and December 31, 2019 — 53,278,316 | 26,944 |  |  | 26,639 |
Additional paid-in capital | 1,124,959 |  |  | 1,108,649 |
Retained earnings | 1,928,373 |  |  | 2,177,513 |
Accumulated other comprehensive loss | (929,718) |  |  | (836,491) |
Total shareholders’ equity | 2,150,558 |  |  | 2,476,310 |
Total liabilities and shareholders’ equity | $ | 13,642,036 |  |  | $ | 14,475,334 |

See accompanying notes to condensed consolidated financial statements.
3

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

| Nine months ended September 30, |  |
| 2020 |  | 2019 |  |
| (In thousands) |  |
Cash flows from operating activities from continuing operations: |  |  |  |  |
Net earnings (loss) | $ | (147,878) |  |  | $ | 29,076 |  |  |
Less: Loss from discontinued operations, net of tax | (10,129) |  |  | (728) |  |  |
Earnings (loss) from continuing operations | (137,749) |  |  | 29,804 |  |  |
Depreciation expense | 1,552,318 |  |  | 1,342,746 |  |  |
Used vehicle sales, net | 17,253 |  |  | 49,091 |  |  |
Non-cash lease expense | 67,949 |  |  | 70,578 |  |  |
Non-operating pension costs and share-based compensation expense | 28,376 |  |  | 41,737 |  |  |
Other non-cash charges, net | 93,513 |  |  | 60,646 |  |  |
Deferred income tax expense (benefit) | (29,875) |  |  | 32,157 |  |  |
Collections on sales-type leases | 85,662 |  |  | 89,995 |  |  |
Changes in operating assets and liabilities, net of acquisitions: |  |  |  |  |
Receivables | 6,646 |  |  | (17,784) |  |  |
Inventories | 20,499 |  |  | (3,869) |  |  |
Prepaid expenses and other assets | (11,822) |  |  | (19,439) |  |  |
Accounts payable | (14,733) |  |  | (30,241) |  |  |
Accrued expenses and other non-current liabilities | 18,552 |  |  | (56,235) |  |  |
Net cash provided by operating activities from continuing operations | 1,696,589 |  |  | 1,589,186 |  |  |
Cash flows from investing activities from continuing operations: |  |  |  |  |
Purchases of property and revenue earning equipment | (879,400) |  |  | (2,957,232) |  |  |
Sales of revenue earning equipment | 390,767 |  |  | 353,743 |  |  |
Sales of operating property and equipment | 9,918 |  |  | 49,726 |  |  |
Other | (5,704) |  |  | — |  |  |
Net cash used in investing activities from continuing operations | (484,419) |  |  | (2,553,763) |  |  |
Cash flows from financing activities from continuing operations: |  |  |  |  |
Net borrowings (repayments) of commercial paper and revolving credit facilities | (505,109) |  |  | 182,708 |  |  |
Debt proceeds | 1,756,497 |  |  | 2,238,622 |  |  |
Debt repaid | (1,748,121) |  |  | (1,334,044) |  |  |
Dividends on common stock | (89,672) |  |  | (87,039) |  |  |
Common stock issued | 8,302 |  |  | 9,083 |  |  |
Common stock repurchased | (11,924) |  |  | (24,426) |  |  |
Tax withholding on shares settled | (4,340) |  |  | (3,529) |  |  |
Debt issuance costs and other items | (9,348) |  |  | (4,815) |  |  |
Net cash provided by (used in) financing activities from continuing operations | (603,715) |  |  | 976,560 |  |  |
Effect of exchange rate changes on cash, cash equivalents, and restricted cash | 2,866 |  |  | (3,254) |  |  |
Increase (decrease) in cash, cash equivalents, and restricted cash from continuing operations | 611,321 |  |  | 8,729 |  |  |
Increase (decrease) in cash, cash equivalents, and restricted cash from discontinued operations | (657) |  |  | (973) |  |  |
Increase (decrease) in cash, cash equivalents, and restricted cash | 610,664 |  |  | 7,756 |  |  |
Cash, cash equivalents, and restricted cash at beginning of year | 73,584 |  |  | 68,111 |  |  |
Cash, cash equivalents, and restricted cash at end of period | $ | 684,248 |  |  | $ | 75,867 |  |  |

See accompanying notes to condensed consolidated financial statements.
4

RYDER SYSTEM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(unaudited)

|  | Three months ended September 30, 2020
|  | Preferred Stock |  | Common Stock |  | Additional Paid-In Capital |  | Retained Earnings |  | Accumulated Other Comprehensive Loss |  |
|  | Amount |  | Shares |  | Par |  |  |  |  | Total
|  | (In thousands, except share amounts)
Balance at July 1, 2020 |  | $ | — |  |  | 53,818,841 |  |  | $ | 26,909 |  |  | $ | 1,113,883 |  |  | $ | 1,922,940 |  |  | $ | (904,640) |  |  | $ | 2,159,092 |
Comprehensive income (loss) |  | — |  |  | — |  |  | — |  |  | — |  |  | 35,834 |  |  | (25,078) |  |  | 10,756 |
Common stock dividends declared —$0.56 per share |  | — |  |  | — |  |  | — |  |  | — |  |  | (30,401) |  |  | — |  |  | (30,401) |
Common stock issued under employee stock award and stock purchase plans (1) |  | — |  |  | 70,382 |  |  | 35 |  |  | 2,692 |  |  | — |  |  | — |  |  | 2,727 |
Benefit plan stock sales (purchases) (2) |  | — |  |  | (100) |  |  | — |  |  | (5) |  |  | — |  |  | — |  |  | (5) |
Share-based compensation |  | — |  |  | — |  |  | — |  |  | 8,389 |  |  | — |  |  | — |  |  | 8,389 |
Balance at September 30, 2020 |  | $ | — |  |  | 53,889,123 |  |  | $ | 26,944 |  |  | $ | 1,124,959 |  |  | $ | 1,928,373 |  |  | $ | (929,718) |  |  | $ | 2,150,558 |

|  | Three months ended September 30, 2019
|  | Preferred Stock |  | Common Stock |  | Additional Paid-In Capital |  | Retained Earnings |  | Accumulated Other Comprehensive Loss |  |
|  | Amount |  | Shares |  | Par |  |  |  |  | Total
|  | (In thousands, except share amounts)
Balance at July 1, 2019 |  | $ | — |  |  | 53,334,512 |  |  | $ | 26,667 |  |  | $ | 1,094,807 |  |  | $ | 2,385,620 |  |  | $ | (899,388) |  |  | $ | 2,607,706 |
Comprehensive income (loss) |  | — |  |  | — |  |  | — |  |  | — |  |  | (91,455) |  |  | (15,766) |  |  | (107,221) |
Common stock dividends declared —$0.56 per share |  | — |  |  | — |  |  | — |  |  | — |  |  | (29,886) |  |  | — |  |  | (29,886) |
Common stock issued under employee stock award and stock purchase plans (1) |  | — |  |  | 20,238 |  |  | 29 |  |  | 2,811 |  |  | — |  |  | — |  |  | 2,840 |
Benefit plan stock sales (purchases) (2) |  | — |  |  | (10) |  |  | — |  |  | (1) |  |  | — |  |  | — |  |  | (1) |
Common stock repurchases |  | — |  |  | (62,695) |  |  | (31) |  |  | (1,252) |  |  | (1,923) |  |  | — |  |  | (3,206) |
Share-based compensation |  | — |  |  | — |  |  | — |  |  | 6,755 |  |  | — |  |  | — |  |  | 6,755 |
Balance at September 30, 2019 |  | $ | — |  |  | 53,292,045 |  |  | $ | 26,665 |  |  | $ | 1,103,120 |  |  | $ | 2,262,356 |  |  | $ | (915,154) |  |  | $ | 2,476,987 |

__________________
(1)Net of common shares withheld as payment for the exercise price or to satisfy the holders’ withholding tax liability upon exercise of options.
(2)Represents open-market transactions of common shares by the trustee of our deferred compensation plans.
See accompanying notes to condensed consolidated financial statements.
5

RYDER SYSTEM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(unaudited)

|  | Nine months ended September 30, 2020
|  | Preferred Stock |  | Common Stock |  | Additional Paid-In Capital |  | Retained Earnings |  | Accumulated Other Comprehensive Loss |  |
|  | Amount |  | Shares |  | Par |  |  |  |  | Total
|  | (In thousands, except share amounts)
Balance at January 1, 2020 |  | $ | — |  |  | 53,278,316 |  |  | $ | 26,639 |  |  | $ | 1,108,649 |  |  | $ | 2,177,513 |  |  | $ | (836,491) |  |  | $ | 2,476,310 |
Adoption of Measurement of Credit Losses on Financial Instruments standard (See Note 2) |  | — |  |  | — |  |  | — |  |  | — |  |  | (5,077) |  |  | — |  |  | (5,077) |
Comprehensive income (loss) |  | — |  |  | — |  |  | — |  |  | — |  |  | (147,878) |  |  | (93,227) |  |  | (241,105) |
Common stock dividends declared —$1.68 per share |  | — |  |  | — |  |  | — |  |  | — |  |  | (90,627) |  |  | — |  |  | (90,627) |
Common stock issued under employee stock option and stock purchase plans (1) |  | — |  |  | 913,785 |  |  | 457 |  |  | 3,483 |  |  | — |  |  | — |  |  | 3,940 |
Benefit plan stock sales (purchases) (2) |  | — |  |  | 120 |  |  | — |  |  | 22 |  |  | — |  |  | — |  |  | 22 |
Common stock repurchases |  | — |  |  | (303,098) |  |  | (152) |  |  | (6,214) |  |  | (5,558) |  |  | — |  |  | (11,924) |
Share-based compensation |  | — |  |  | — |  |  | — |  |  | 19,019 |  |  | — |  |  | — |  |  | 19,019 |
Balance at September 30, 2020 |  | $ | — |  |  | 53,889,123 |  |  | $ | 26,944 |  |  | $ | 1,124,959 |  |  | $ | 1,928,373 |  |  | $ | (929,718) |  |  | $ | 2,150,558 |

|  | Nine months ended September 30, 2019
|  | Preferred Stock |  | Common Stock |  | Additional Paid-In Capital |  | Retained Earnings |  | Accumulated Other Comprehensive Loss |  |
|  | Amount |  | Shares |  | Par |  |  |  |  | Total
|  | (In thousands, except share amounts)
Balance at January 1, 2019 |  | $ | — |  |  | 53,116,485 |  |  | $ | 26,559 |  |  | $ | 1,084,391 |  |  | $ | 2,337,252 |  |  | $ | (911,634) |  |  | $ | 2,536,568 |
Comprehensive income (loss) |  | — |  |  | — |  |  | — |  |  | — |  |  | 29,076 |  |  | (3,520) |  |  | 25,556 |
Common stock dividends declared —$1.64 per share |  | — |  |  | — |  |  | — |  |  | — |  |  | (87,942) |  |  | — |  |  | (87,942) |
Common stock issued under employee stock option and stock purchase plans (1) |  | — |  |  | 583,329 |  |  | 310 |  |  | 5,246 |  |  | — |  |  | — |  |  | 5,556 |
Benefit plan stock sales (purchases) (2) |  | — |  |  | 40 |  |  | — |  |  | (2) |  |  | — |  |  | — |  |  | (2) |
Common stock repurchases |  | — |  |  | (407,809) |  |  | (204) |  |  | (8,192) |  |  | (16,030) |  |  | — |  |  | (24,426) |
Share-based compensation |  | — |  |  | — |  |  | — |  |  | 21,677 |  |  | — |  |  | — |  |  | 21,677 |
Balance at September 30, 2019 |  | $ | — |  |  | 53,292,045 |  |  | $ | 26,665 |  |  | $ | 1,103,120 |  |  | $ | 2,262,356 |  |  | $ | (915,154) |  |  | $ | 2,476,987 |

__________________
(1)Net of common shares withheld as payment for the exercise price or to satisfy the holders’ withholding tax liability upon exercise of options.
(2)Represents open-market transactions of common shares by the trustee of our deferred compensation plans.
See accompanying notes to condensed consolidated financial statements.
6

RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. GENERAL
Interim Financial Statements
The accompanying unaudited Condensed Consolidated 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 (VIE) required to be consolidated in accordance with generally accepted accounting principles in the United States (U.S. GAAP). The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the accounting policies described in our 2019 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, including normal recurring accruals, considered necessary for a fair statement have been included and the disclosures herein are adequate. The operating results for interim periods are not necessarily indicative of the results that can be expected for a full year.
The coronavirus (COVID-19) pandemic has negatively impacted several areas of our businesses. In our Fleet Management Solutions (FMS) business segment, we experienced lower demand for commercial rental and declines in the used vehicle market through the second quarter (refer to Note 5, "Revenue Earning Equipment," for additional information on residual value estimate changes in the first half of 2020 and trends related to used vehicle sales). During the third quarter, we have started to experience a steady recovery in these areas as compared to the second quarter. In our Supply Chain Solutions (SCS) business segment, we experienced a deterioration in customer activity during the first half of 2020, primarily due to the temporary shutdowns in the automotive industry, which restarted their operations during the second quarter and are now generally operating at above pre-COVID-19 levels. In addition, we have experienced a decline in our sales growth opportunities in all of our businesses. Throughout the year, we established additional credit loss reserves due to our expectations for COVID-19-related payment activity as a result of increased bankruptcies or insolvencies, or a delay in payments (refer to Note 4, "Receivables," for further information on credit loss reserves). We have attempted to mitigate the adverse impacts from the pandemic through cost reduction measures throughout the year, including lower discretionary and overhead spending, and a reduction in capital expenditures, as well as temporary employee furloughs which primarily occurred in the second quarter. In addition, we took planned actions at the end of the second quarter to reduce headcount, primarily in our North American and U.K. FMS operations.
In October 2020, we announced a one-time, special recognition and retention bonus of approximately $30 million for our front-line employees in recognition of the work performed during the pandemic. The bonus will be paid to non-incentive compensation plan eligible employees and recognized in earnings in the fourth quarter.
Depending on the extent and duration of the pandemic and the related economic impacts, it may have a further impact on our business and financial results, as well as on significant judgments and estimates, including those related to goodwill and other asset impairments, residual values and other depreciation assumptions, deferred income taxes and annual effective tax rates, variable revenue considerations, the valuation of our pension plans, and allowance for credit losses.
2. RECENT ACCOUNTING PRONOUNCEMENTS
Reference Rate Reform
In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-04, Reference Rate Reform (Topic 848). This update provides optional expedients for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions that reference LIBOR or another rate expected to be discontinued at the end of 2021 because of reference rate reform. The update is effective for all entities from March 12, 2020 through December 31, 2022. We are currently evaluating the impact on our consolidated financial position, results of operations, and cash flows.
Income Taxes
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). This pronouncement enhances and simplifies various aspects of income tax accounting guidance. Among other things, the amendment removes the year-to-date loss limitations in interim-period tax accounting and requires entities to reflect the effect of an enacted change in tax laws in the interim period that includes the enactment date of the new legislation. The standard is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, with early adoption permitted. We
7

RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)
adopted this update in the first quarter of 2020, under the modified retrospective basis and prospective transition approaches, and it did not have a material impact on our consolidated financial position, results of operations, and cash flows.
Cloud Computing Arrangements
In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal Use Software (Topic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which addresses a customer’s accounting for implementation costs incurred in a cloud computing arrangement (CCA) that is a service contract. The new standard aligns the accounting for costs incurred to implement a CCA that is a service arrangement with the guidance on capitalizing costs associated with developing or obtaining internal-use software. The standard is effective for fiscal years beginning after December 15, 2019. We adopted the new standard prospectively on January 1, 2020 and it did not have a material impact on our consolidated financial position, results of operations, and cash flows.
Measurement of Credit Losses on Financial Instruments
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326). The new standard modifies the measurement of expected credit losses of certain financial instruments, including accounts receivable (excluding those related to operating leases) and net investments in sales-type leases. Among other things, these amendments require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The standard is effective for fiscal years beginning after December 15, 2019. The standard requires a cumulative-effect adjustment to the statement of financial position as of the beginning of the first reporting period in which the guidance is effective. Periods prior to the adoption date that are presented for comparative purposes are not adjusted. We adopted this new standard as of January 1, 2020 and it did not have a material impact on our consolidated financial position, results of operations, and cash flows.
3. REVENUE
Disaggregation of Revenue
The following tables disaggregate our revenue recognized by primary geographical market by our reportable business segments and by industry for SCS. Refer to Note 19, "Segment Reporting," for the disaggregation of our revenue by major products/service lines.
Primary Geographical Markets

| Three months ended September 30, 2020
| FMS |  | SCS |  | DTS |  | Eliminations |  | Total
| (In thousands)
United States | $ | 1,167,900 |  |  | $ | 581,858 |  |  | $ | 299,680 |  |  | $ | (127,316) |  |  | $ | 1,922,122 |
Canada | 67,321 |  |  | 56,313 |  |  | — |  |  | (4,421) |  |  | 119,213 |
Europe | 61,996 |  |  | — |  |  | — |  |  | — |  |  | 61,996 |
Mexico | — |  |  | 47,244 |  |  | — |  |  | — |  |  | 47,244 |
Total Revenues | $ | 1,297,217 |  |  | $ | 685,415 |  |  | $ | 299,680 |  |  | $ | (131,737) |  |  | $ | 2,150,575 |

8

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

| Three months ended September 30, 2019
| FMS |  | SCS |  | DTS |  | Eliminations |  | Total
| (In thousands)
United States | $ | 1,250,147 |  |  | $ | 508,091 |  |  | $ | 359,211 |  |  | $ | (144,941) |  |  | $ | 1,972,508 |
Canada | 75,836 |  |  | 53,550 |  |  | — |  |  | (5,284) |  |  | 124,102 |
Europe | 71,363 |  |  | — |  |  | — |  |  | — |  |  | 71,363 |
Mexico | — |  |  | 55,959 |  |  | — |  |  | — |  |  | 55,959 |
Total Revenues | $ | 1,397,346 |  |  | $ | 617,600 |  |  | $ | 359,211 |  |  | $ | (150,225) |  |  | $ | 2,223,932 |
| Nine months ended September 30, 2020
| FMS |  | SCS |  | DTS |  | Eliminations |  | Total
| (In thousands)
United States | $ | 3,446,869 |  |  | $ | 1,545,715 |  |  | $ | 928,512 |  |  | $ | (377,536) |  |  | $ | 5,543,560 |
Canada | 198,566 |  |  | 150,153 |  |  | — |  |  | (12,624) |  |  | 336,095 |
Europe | 190,196 |  |  | — |  |  | — |  |  | — |  |  | 190,196 |
Mexico | — |  |  | 137,312 |  |  | — |  |  | — |  |  | 137,312 |
Total Revenues | $ | 3,835,631 |  |  | $ | 1,833,180 |  |  | $ | 928,512 |  |  | $ | (390,160) |  |  | $ | 6,207,163 |
| Nine months ended September 30, 2019
| FMS |  | SCS |  | DTS |  | Eliminations |  | Total
| (In thousands)
United States | $ | 3,687,721 |  |  | $ | 1,577,106 |  |  | $ | 1,071,076 |  |  | $ | (448,114) |  |  | $ | 5,887,789 |
Canada | 226,240 |  |  | 156,803 |  |  | — |  |  | (16,147) |  |  | 366,896 |
Europe | 225,894 |  |  | — |  |  | — |  |  | — |  |  | 225,894 |
Mexico | — |  |  | 165,380 |  |  | — |  |  | — |  |  | 165,380 |
Singapore | — |  |  | 3,293 |  |  | — |  |  | — |  |  | 3,293 |
Total Revenues | $ | 4,139,855 |  |  | $ | 1,902,582 |  |  | $ | 1,071,076 |  |  | $ | (464,261) |  |  | $ | 6,649,252 |

Industry
Our SCS business segment included revenue from the below industries:

| Three months ended September 30, |  | Nine months ended September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
| (In thousands)
Automotive | $ | 273,589 |  |  | $ | 246,627 |  |  | $ | 671,263 |  |  | $ | 761,593 |
Technology and healthcare | 103,976 |  |  | 100,286 |  |  | 279,875 |  |  | 324,009 |
Consumer package goods and retail | 250,449 |  |  | 217,901 |  |  | 716,880 |  |  | 660,581 |
Industrial and other | 57,401 |  |  | 52,786 |  |  | 165,162 |  |  | 156,399 |
Total SCS Revenues | $ | 685,415 |  |  | $ | 617,600 |  |  | $ | 1,833,180 |  |  | $ | 1,902,582 |

Maintenance Revenues
For the quarter ended September 30, 2020 and 2019, we recognized non-lease revenue from maintenance services of $241 million and $235 million, respectively, included in lease & related maintenance and rental revenues. We recognized $719 million and $710 million for the nine months ended September 30, 2020 and 2019, respectively.
9

RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)
Contract Balances
Our contract liabilities consist of deferred revenue, which primarily relates to payments received in advance of performance for the maintenance services component of our ChoiceLease product. Changes in contract liabilities are due to the collection of cash or the satisfaction of our performance obligation under the contract. Deferred revenue was $623 million and $604 million as of September 30, 2020 and December 31, 2019, respectively. Revenue recognized during the nine months ended September 30, 2020 was $142 million for the amounts recorded as deferred revenue at the beginning of the year. In addition, we deferred consideration of $161 million during the nine months ended September 30, 2020, which was received in advance of performance resulting in an increase in deferred revenue.
Revenue allocated to remaining performance obligations represents contracted revenue that has not yet been recognized (“contracted not recognized revenue”). Contracted not recognized revenue includes deferred revenue and amounts for full service ChoiceLease maintenance revenue that will be recognized as revenue in future periods as we provide maintenance services to our customers. Contracted not recognized revenue excludes variable consideration as it is not included in the transaction price consideration allocated at contract inception, as well as revenues from our lease component of our ChoiceLease product and commercial rental product. Contracted not recognized revenue was $2.7 billion as of September 30, 2020. As a practical expedient, we do not disclose information about remaining performance obligations that are part of a contract that has an original expected duration of one year or less, and when we have the right to invoice the customer and the revenue recognized corresponds directly with the value to the customer of our performance completed to date, such as our SCS and DTS contracts.
Costs to Obtain and Fulfill a Contract
We capitalize incremental sales commissions paid as a result of executing ChoiceLease, SCS and DTS service contracts as contract costs. Capitalized sales commissions were $91 million a nd $105 million as of September 30, 2020 and December 31, 2019, respectively. Capitalized sales commissions include initial direct costs of our leases of $47 million a nd $55 million as of September 30, 2020 and December 31, 2019, respectively, related to incremental sales commissions paid to our sales force as a result of executing ChoiceLease contracts. Capitalized sales commissions are presented in “Sales-type leases and other assets” in our Condensed Consolidated Balance Sheets.
For both the quarters ended September 30, 2020 and 2019, sales commission expense was $11 million. For the nine months ended September 30, 2020 and 2019, sales commission expense was $33 million and $32 million, respectively.
4. RECEIVABLES, NET

| September 30, 2020 |  | December 31, 2019
| (In thousands)
Trade | $ | 1,032,337 |  |  | $ | 1,060,298 |
Sales-type leases | 126,657 |  |  | 135,353 |
Other, primarily warranty and insurance | 42,635 |  |  | 55,600 |
| 1,201,629 |  |  | 1,251,251 |
Allowance for credit losses and other | (45,393) |  |  | (22,761) |
Total | $ | 1,156,236 |  |  | $ | 1,228,490 |

The following table provides a reconciliation of our allowance for credit losses (in thousands):

Balance at December 31, 2019 |  | $ | 10,500 |
Charges to provisions for credit losses |  | 35,000 |
Impact of adoption of new accounting standard, write-offs, and other |  | (11,200) |
Balance at September 30, 2020 |  | 34,300 |
Allowance for billing adjustments |  | 11,093 |
Allowance for credit losses and other |  | $ | 45,393 |

10

RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)
On January 1, 2020, we adopted the new accounting guidance related to the allowance for credit losses on our trade receivables and sales-type leases. As a result of the adoption, we increased our allowance for credit losses and reduced retained earnings as of January 1, 2020, which was not material. We maintain an allowance for credit losses and an allowance for billing adjustments related to certain discounts and other customer concessions. The estimates to determine the allowance are updated regularly based on our review of historical loss rates, as well as current and expected events impacting our business segments, current collection trends and billing adjustments processed. Amounts are charged against the allowance when the receivable is determined to be uncollectible.
When a business relationship with a customer is initiated, we evaluate collectibility from the customer and it is continuously monitored as services are provided. We have a credit rating system based on internally developed standards and ratings provided by third parties. Our credit rating system, along with monitoring for delinquent payments, allows us to make decisions as to whether collectibility is probable at the on-set of the relationship and subsequently as we offer services. Factors considered during this process include historical payment trends, industry risks, liquidity of the customer, years in business, judgments, liens, and bankruptcies. Payment terms vary by contract type, although terms generally include a requirement of payment within 15 to 90 days. Due to the COVID-19 pandemic, we temporarily extended payment terms for certain customers in the second quarter, which we have elected not to assess as a lease modification. The majority of these customers have made payments in accordance with their extended terms. We continue to actively monitor the impact of the COVID-19 pandemic on expected credit losses.
5. REVENUE EARNING EQUIPMENT, NET

| September 30, 2020 |  | December 31, 2019
| Cost |  | Accumulated Depreciation |  | Net Book Value (1) |  | Cost |  | Accumulated Depreciation |  | Net Book Value (1)
| (In thousands)
Held for use: |
ChoiceLease | $ | 11,436,263 |  |  | $ | (4,271,752) |  |  | $ | 7,164,511 |  |  | $ | 12,223,179 |  |  | $ | (4,125,342) |  |  | $ | 8,097,837 |
Commercial rental | 2,721,200 |  |  | (981,959) |  |  | 1,739,241 |  |  | 3,200,403 |  |  | (1,049,850) |  |  | 2,150,553 |
Held for sale | 885,325 |  |  | (706,497) |  |  | 178,828 |  |  | 748,435 |  |  | (569,161) |  |  | 179,274 |
Total | $ | 15,042,788 |  |  | $ | (5,960,208) |  |  | $ | 9,082,580 |  |  | $ | 16,172,017 |  |  | $ | (5,744,353) |  |  | $ | 10,427,664 |

————————————
(1)Revenue earning equipment, net includes vehicles under finance leases of $10 million, less accumulated depreciation of $8 million, as of September 30, 2020, and $12 million, less accumulated depreciation of $8 million, as of December 31, 2019.
We periodically review and adjust, as appropriate, the estimated residual values and useful lives of existing revenue earning equipment for the purposes of recording depreciation expense. Our review of the estimated residual values and useful lives of revenue earning equipment is established with a long-term view, which we refer to as "policy depreciation," and is based on vehicle class, generally subcategories of trucks, tractors and trailers by weight and usage, as well as other factors. These other factors include, but are not limited to, historical, current, and expected future market prices; expected lives of vehicles; and expected sales of used vehicles in the wholesale and retail markets. A reduction in estimated residual values or useful lives will result in an increase in depreciation expense over the remaining life of the vehicle.
We also assess estimates of residual values of vehicles expected to be made available for sale in the near-term (generally 12 to 24 months) based on near-term market rates and conditions and may adjust residual values for these vehicles, which we refer to as “accelerated depreciation.”
In the first half of 2020, we performed a review of the estimated residual values of our FMS revenue earning equipment for both accelerated and policy depreciation primarily due to the COVID-19 pandemic and the impact on current and expected used vehicle market conditions. We did not have any further changes to our residual value estimates in the third quarter of 2020. For the three and nine months ended September 30, 2020, we recognized policy and accelerated depreciation impacts totaling $100 million and $405 million, respectively, related to prior residual estimate changes in 2019 and 2020. The amounts included below only reflect the impacts from the estimate changes that occurred in the first and second quarters of 2020.
11

RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)
Accelerated Depreciation
In the first quarter of 2020, we revised our residual value estimates for vehicles that are expected to be sold in the near-term (through mid-2021) and recorded valuation adjustments on our vehicles held for sale due to the expected negative impacts of the COVID-19 pandemic on pricing and volume of used vehicle sales. At that time, we expected lower used vehicle pricing in the second half of 2020 due to lower demand rather than our previous expectations of a modest increase. In the second quarter of 2020, we further revised our residual value estimates to reflect an expected delayed recovery in the used vehicle market beyond mid-2021 and thus extended accelerated depreciation by an additional year to now include vehicles expected to be sold through mid-2022. As a result of these changes in estimated residual values, we recorded additional accelerated depreciation in the third quarter of 2020 of $23 million, which included net gains of $13 million for used vehicle sales results. For the nine months ended September 30, 2020, we recorded additional accelerated depreciation of $133 million, which included net losses of $17 million for used vehicle sales results.
Policy Depreciation
In the second quarter of 2020, as a result of the expected negative impacts on pricing and volumes related to COVID-19 and our lowered longer term outlook, we concluded that our residual value estimates likely exceeded the expected future values that would be realized upon the sale of vehicles in our fleet for vehicles expected to be sold after mid-2022. Therefore, we lowered our estimated residual values primarily for our truck fleet, and to a lesser extent, our tractor fleet, effective April 1, 2020. In evaluating our residual value estimates, we reviewed recent multi-year trends; management and third-party longer-term outlook for the used vehicle market, including impacts of COVID-19 and the demand and pricing of our used vehicles; expected sales volumes through our retail and wholesale channels; inventory levels; and other factors that management deemed necessary to appropriately reflect our expected long-term sales proceeds. In the three and nine months ended September 30, 2020, we recorded additional policy depreciation of $18 million and $36 million, respectively.
Impact of Change in Estimate
The changes in our residual value estimates in the first half of 2020 resulted in an increase in depreciation expense of $41 million and $169 million for the three and nine months ended September 30, 2020, respectively. This resulted in a decrease to our net earnings of $30 million and $125 million and diluted earnings per share of $0.58 and $2.39 for the three and nine months ended September 30, 2020, respectively.

Used Vehicle Sales and Valuation Adjustments
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, which we refer to as "valuation adjustments," are recognized at the time they are deemed to meet the held for sale criteria and are presented within “Used vehicle sales, net” in the Condensed Consolidated 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 revenue earning equipment held for sale, fair value was determined based upon recent market prices obtained from our own sales experience for each class of similar assets and vehicle condition. In addition, we also consider expected declines in market prices when valuing the vehicles held for sale, as well as the forecasted sales channel (retail/wholesale).
12

RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED 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)
|  |  | Three months ended September 30, |  | Nine months ended September 30,
| September 30, 2020 |  | December 31, 2019 |  | 2020 |  | 2019 |  | 2020 |  | 2019
| (In thousands)
Revenue earning equipment held for sale (1): |  |  |  |  |  |  |  |  |  |  |
Trucks | $ | 53,736 |  |  | $ | 39,009 |  |  | $ | 511 |  |  | $ | 10,269 |  |  | $ | 16,962 |  |  | $ | 30,556 |
Tractors | 82,593 |  |  | 73,359 |  |  | 603 |  |  | 14,430 |  |  | 12,091 |  |  | 34,451 |
Trailers | 2,480 |  |  | 2,206 |  |  | 819 |  |  | 1,195 |  |  | 5,404 |  |  | 2,859 |
Total assets at fair value | $ | 138,809 |  |  | $ | 114,574 |  |  | $ | 1,933 |  |  | $ | 25,894 |  |  | $ | 34,457 |  |  | $ | 67,866 |

————————————
(1)Assets held for sale in the table above only include the portion of revenue earning equipment held for sale where net book values exceeded fair values and fair value valuation adjustments were recorded. The net book value of assets held for sale that were less than fair value was $40 million and $65 million as of September 30, 2020 and December 31, 2019, respectively.
(2)Total losses represent fair value valuation adjustments for all vehicles reclassified to held for sale throughout the period for which fair value was less than net book value.
The components of used vehicle sales, net were as follows:

| Three months ended September 30, |  | Nine months ended September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
| (In thousands)
Losses (gains) on vehicle sales, net | $ | (14,852) |  |  | $ | (3,160) |  |  | $ | (17,204) |  |  | $ | (18,775) |
Losses from valuation adjustments | 1,933 |  |  | 25,894 |  |  | 34,457 |  |  | 67,866 |
Used vehicle sales, net | $ | (12,919) |  |  | $ | 22,734 |  |  | $ | 17,253 |  |  | $ | 49,091 |

6. GOODWILL AND INTANGIBLE ASSETS
The carrying amount of goodwill attributable to each reportable business segment with changes therein was as follows:

| FMS |  | SCS |  | DTS |  |  |  | Total
| (In thousands)
Balance at December 31, 2019 | $ | 243,702 |  |  | $ | 190,515 |  |  | $ | 40,808 |  |  |  |  | $ | 475,025 |
Foreign currency translation adjustments | (130) |  |  | (147) |  |  | — |  |  |  |  | (277) |
Balance at September 30, 2020 | $ | 243,572 |  |  | $ | 190,368 |  |  | $ | 40,808 |  |  |  |  | $ | 474,748 |

We assess goodwill for impairment on October 1st of each year or more often if deemed necessary. In the first quarter of 2020, we performed an interim impairment test of our FMS North America reporting unit (“FMS NA”) as a result of the decline in market conditions and our updated outlook as a result of the impact of COVID-19. Our valuation of fair value for FMS NA was determined based on a discounted future cash flow model (income approach) and the application of current market multiples for comparable publicly-traded companies (market approach). Based on our analysis, we determined that FMS NA goodwill was not impaired as of March 31, 2020. The estimated fair value of the FMS NA reporting unit exceeded its carrying value by approximately 5% as of March 31, 2020.
Given this level of fair value, in the event the financial performance of FMS NA does not meet our expectations in the future; we experience future prolonged market downturns, including in the used vehicle market or continued declines in our stock price; worsening trends from the COVID-19 pandemic; or there are other negative revisions to key assumptions, we may be required to perform additional impairment analyses and could be required to recognize a non-cash goodwill impairment charge. As of September 30, 2020, FMS NA goodwill was $244 million. We determined that there have not been any interim impairment trigger events since the first quarter of 2020.
13

RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)
The following table includes the carrying value of our intangible assets attributable to each reportable business segment:

| September 30, 2020
| FMS |  | SCS |  | DTS |  | CSS |  | Total
| (In thousands)
Indefinite lived intangible assets - Trade name | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 8,731 |  |  | $ | 8,731 |
Finite lived intangible assets, primarily customer relationships | 57,686 |  |  | 50,249 |  |  | 7,582 |  |  | — |  |  | 115,517 |
Accumulated amortization | (51,109) |  |  | (23,574) |  |  | (4,620) |  |  | — |  |  | (79,303) |
Total | $ | 6,577 |  |  | $ | 26,675 |  |  | $ | 2,962 |  |  | $ | 8,731 |  |  | $ | 44,945 |
| December 31, 2019
| FMS |  | SCS |  | DTS |  | CSS |  | Total
| (In thousands)
Indefinite lived intangible assets - Trade name | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 8,731 |  |  | $ | 8,731 |
Finite lived intangible assets, primarily customer relationships | 57,686 |  |  | 50,249 |  |  | 7,582 |  |  | — |  |  | 115,517 |
Accumulated amortization | (49,031) |  |  | (20,047) |  |  | (4,265) |  |  | — |  |  | (73,343) |
Total | $ | 8,655 |  |  | $ | 30,202 |  |  | $ | 3,317 |  |  | $ | 8,731 |  |  | $ | 50,905 |

7. ACCRUED EXPENSES AND OTHER LIABILITIES

| September 30, 2020 |  | December 31, 2019
| Accrued Expenses |  | Non-Current Liabilities |  | Total |  | Accrued Expenses |  | Non-Current Liabilities |  | Total
| (In thousands)
Salaries and wages | $ | 137,112 |  |  | $ | — |  |  | $ | 137,112 |  |  | $ | 126,119 |  |  | $ | — |  |  | $ | 126,119 |
Deferred compensation | 4,638 |  |  | 70,542 |  |  | 75,180 |  |  | 6,436 |  |  | 65,006 |  |  | 71,442 |
Pension benefits | 3,852 |  |  | 436,222 |  |  | 440,074 |  |  | 3,863 |  |  | 413,829 |  |  | 417,692 |
Other postretirement benefits | 1,473 |  |  | 18,893 |  |  | 20,366 |  |  | 1,478 |  |  | 20,187 |  |  | 21,665 |
Other employee benefits | 16,203 |  |  | — |  |  | 16,203 |  |  | 21,577 |  |  | — |  |  | 21,577 |
Insurance obligations (1) | 170,515 |  |  | 296,997 |  |  | 467,512 |  |  | 163,763 |  |  | 285,838 |  |  | 449,601 |
Operating taxes | 125,668 |  |  | 52,873 |  |  | 178,541 |  |  | 116,003 |  |  | — |  |  | 116,003 |
Income taxes | 4,989 |  |  | 16,968 |  |  | 21,957 |  |  | 2,873 |  |  | 17,484 |  |  | 20,357 |
Interest | 51,137 |  |  | — |  |  | 51,137 |  |  | 46,032 |  |  | — |  |  | 46,032 |
Deposits, mainly from customers | 76,183 |  |  | 3,073 |  |  | 79,256 |  |  | 82,573 |  |  | 3,065 |  |  | 85,638 |
Operating lease liabilities | 74,958 |  |  | 174,964 |  |  | 249,922 |  |  | 72,285 |  |  | 151,361 |  |  | 223,646 |
Deferred revenue (2) | 175,862 |  |  | 446,905 |  |  | 622,767 |  |  | 165,205 |  |  | 438,482 |  |  | 603,687 |
Restructuring liabilities (3) | 11,281 |  |  | — |  |  | 11,281 |  |  | 6,765 |  |  | — |  |  | 6,765 |
Other | 69,715 |  |  | 52,524 |  |  | 122,239 |  |  | 61,105 |  |  | 46,751 |  |  | 107,856 |
Total | $ | 923,586 |  |  | $ | 1,569,961 |  |  | $ | 2,493,547 |  |  | $ | 876,077 |  |  | $ | 1,442,003 |  |  | $ | 2,318,080 |

————————————
(1)Insurance obligations are primarily comprised of self-insured claim liabilities.
(2)Deferred revenue is primarily related to the non-lease maintenance services component of our ChoiceLease product line.
(3)The increase in restructuring liabilities from December 31, 2019 primarily represents certain severance actions in the second quarter of 2020. Refer to Note 16, "Other Items Impacting Comparability," for further information on restructuring activities during the second quarter. The majority of the balance remaining in restructuring liabilities is expected to be paid by mid-2021.
14

RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)
8. INCOME TAXES
Effective Tax Rate
Our effective income tax rate from continuing operations for the third quarter of 2020 was an expense of 17.7% as compared to an expense of 0.3% in the third quarter of 2019 and a benefit of 10.3% in the nine months ended September 30, 2020 as compared to an expense of 62.7% in the nine months ended September 30, 2019. The tax rates were impacted by the reduction in earnings due to additional depreciation charges in all periods presented. The tax rate for the nine months ended September 30, 2020 was also impacted by the discrete recognition of a $13 million valuation allowance against our U.K. deferred tax assets in the first quarter of 2020.
9. LEASES
Leases as Lessor
The components of lease income were as follows:

|  | Three months ended September 30, |  | Nine months ended September 30,
|  | 2020 |  | 2019 |  | 2020 |  | 2019
|  | (In thousands)
Operating leases |  |  |  |  |  |  |  |
Lease income related to ChoiceLease |  | $ | 387,867 |  |  | $ | 381,170 |  |  | $ | 1,173,094 |  |  | $ | 1,116,029 |
Lease income related to commercial rental (1) |  | 208,489 |  |  | 249,941 |  |  | 565,404 |  |  | 708,181 |
Sales-type leases |  |  |  |  |  |  |  |
Interest income related to net investment in leases |  | $ | 12,836 |  |  | $ | 11,169 |  |  | $ | 36,560 |  |  | $ | 33,057 |
Variable lease income excluding commercial rental (1) |  | $ | 73,740 |  |  | $ | 69,641 |  |  | $ | 198,129 |  |  | $ | 183,489 |

————————————
(1)Lease income related to commercial rental includes both fixed and variable lease income. Variable lease income is approximately 15% to 25% of total commercial rental income based on management's internal estimates.
The components of net investment in sales-type leases were as follows:

| September 30, 2020 |  | December 31, 2019 |  |
| (In thousands)
Net investment in the lease — lease payment receivable | $ | 567,871 |  |  | $ | 553,076 |  |  |
Net investment in the lease — unguaranteed residual value in assets | 41,842 |  |  | 44,952 |  |  |
| 609,713 |  |  | 598,028 |  |  |
Estimated loss allowance (1) | (2,713) |  |  | (673) |  |  |
Total (2) | $ | 607,000 |  |  | $ | 597,355 |  |  |

————————————
(1)Amount as of September 30, 2020 reflects an immaterial cumulative-effect adjustment in connection with the adoption of the new credit loss standard (refer to Note 2 for further information).
(2)Net investment in the sales-type lease are included in "Receivables, net" and "Sales-type leases and other assets" in the Condensed Consolidated Balance Sheets.
15

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

| Weighted Average Interest Rate |  |  |  |  |  |  |  |
| September 30, 2020 |  |  |  | Maturities |  | September 30, 2020 |  | December 31, 2019
|  |  |  |  |  |  | (In thousands)
Debt: |  |  |  |  |  |  |  |  |
U.S. commercial paper (1) | 0.25% |  |  |  | 2023 |  | $ | 55,408 |  |  | $ | 511,486 |
Canadian commercial paper (1) | 0.99% |  |  |  | 2023 |  | 96,040 |  |  | 136,199 |
Trade receivables program | —% |  |  |  | 2021 |  | — |  |  | — |
Global revolving credit facility | 1.25% |  |  |  | 2023 |  | 800 |  |  | 8,104 |
Unsecured U.S. notes — Medium-term notes (1)(2) | 3.36% |  |  |  | 2021-2026 |  | 5,770,695 |  |  | 5,965,064 |
Unsecured U.S. obligations | 2.53% |  |  |  | 2021-2024 |  | 500,000 |  |  | 200,000 |
Unsecured foreign obligations | 1.80% |  |  |  | 2021-2024 |  | 271,639 |  |  | 270,719 |
Asset-backed U.S. obligations (3) | 2.52% |  |  |  | 2020-2026 |  | 720,925 |  |  | 807,374 |
Finance lease obligations and other |  |  |  |  | 2020-2073 |  | 47,456 |  |  | 51,717 |
|  |  |  |  |  |  | 7,462,963 |  |  | 7,950,663 |
Debt issuance costs |  |  |  |  |  |  | (26,391) |  |  | (25,875) |
Total debt |  |  |  |  |  |  | 7,436,572 |  |  | 7,924,788 |
Short-term debt and current portion of long-term debt |  |  |  |  |  |  | (1,133,396) |  |  | (1,154,564) |
Long-term debt |  |  |  |  |  |  | $ | 6,303,176 |  |  | $ | 6,770,224 |

————————————
(1)Amounts are net of unamortized original issue discounts of $5 million and $6 million as of September 30, 2020 and December 31, 2019, respectively.
(2)Includes the impact from the fair market values of hedging instruments on our notes, which were not material as of both September 30, 2020 and December 31, 2019. The notional amount of the executed interest rate swaps designated as fair value hedges was $150 million and $525 million as of September 30, 2020 and December 31, 2019, respectively.
(3)Asset-backed U.S. obligations are related to financing transactions backed by a portion of our revenue earning equipment.
Debt Proceeds and Repayments
The following table includes our debt proceeds and repayments for the nine months ended September 30, 2020.

Debt Proceeds |  | Debt Repayments
(In thousands)
Medium-term notes | $ | 799,648 |  |  | Medium-term notes | $ | 1,000,000 |
Trade receivables program | 300,000 |  |  | Trade receivables program | 300,000 |
U.S. and foreign term loans and other | 656,849 |  |  | U.S. and foreign term loan, finance lease obligations, and other repayments | 448,121 |
Total debt proceeds | $ | 1,756,497 |  |  | Total debt repaid | $ | 1,748,121 |

In October 2020, we repaid the remaining $300 million outstanding balance on our floating-rate unsecured 364-day U.S. term loan.
16

RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)
Global Revolving Credit Facility
We maintain a $1.4 billion global revolving credit facility with a syndicate of twelve lending institutions, which matures in September 2023. The agreement provides for annual facility fees that range from 7.5 basis points to 20 basis points based on our long-term credit ratings. The annual facility fee is 15 basis points as of September 30, 2020, which applies to the total facility size of $1.4 billion. The credit facility is primarily used 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 credit facility at September 30, 2020). 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 our business operations; however, the credit facility does contain standard representations and warranties, events of default, cross-default provisions and certain affirmative and negative covenants. As of September 30, 2020, there was $1.2 billion available under the credit facility.
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%. Consolidated 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. In the second quarter of 2020, Net Worth was amended to also (1) exclude currency translation adjustment as reported in our consolidated balance sheet; (2) add back the after-tax charge to shareholders' equity which resulted from our adoption of the new lease accounting standard as of December 31, 2018 (amortized quarterly to 50% of the charge over a 7 year period); and (3) add back any potential non-cash FMS North America goodwill impairment charges, should they occur, up to a maximum amount. As of September 30, 2020, the ratio was 218%.
Our global revolving credit facility enables us to refinance short-term obligations on a long-term basis. Short-term commercial paper obligations are classified as long-term as we have both the intent and ability to refinance on a long-term basis. Starting in 2020, we have reflected all contractual maturities within the next twelve months in the current portion of long-term debt even though we may refinance these obligations on a long-term basis and have the ability to do so under our revolving credit facility. As of December 31, 2019, we classified $227 million of short-term commercial paper, $400 million of the current portion of long-term debt and $201 million of short-term debt as long-term debt as we had the intent and ability to refinance the current portion of these long-term debt on a long-term basis.
Trade Receivables Program
In February 2020, we increased the amount of maximum available proceeds from our trade receivables purchase and sale program from $225 million to $300 million. In April 2020, we extended the maturity of the trade receivables program to April 2021. As of September 30, 2020, the available proceeds under the program were $300 million.
Fair Value and Other
We had letters of credit and surety bonds outstanding of $484 million and $453 million as of September 30, 2020 and December 31, 2019, respectively, which primarily guarantee the payment of insurance claims.
The fair value of total debt (excluding capital lease and asset-backed U.S. obligations) was approximately $7.1 billion and $7.0 billion as of September 30, 2020 and December 31, 2019, respectively. For publicly-traded debt, estimates of fair value were based on market prices. For other debt, fair value was estimated based on a model-driven approach using rates currently available to us for debt with similar terms and remaining maturities. The fair value measurements of our publicly-traded debt and other debt were classified within Level 2 of the fair value hierarchy. The carrying amounts reported in the Condensed Consolidated Balance Sheets for “Cash and cash equivalents,” “Receivables, net” and “Accounts payable” approximate fair value due to the immediate or short-term maturities of these financial instruments.
11. SHARE REPURCHASE PROGRAMS
We maintain a share repurchase program intended to mitigate the dilutive impact of shares issued under our employee stock plans. In December 2019, our Board of Directors authorized management to have the ability to repurchase up to 1.5 million shares of common stock, the sum of which will not exceed the number of shares issued to employees under our employee stock plans from December 1, 2019 to December 11, 2021. 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
17

RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)
written plans under Rule 10b5-1 of the Securities Exchange Act of 1934 as part of the program, which allow for share repurchases during our quarterly blackout periods as set forth in the trading plan.
In the second quarter of 2020, management decided to temporarily suspend the 2019 share repurchase program due to the impact of COVID-19, however we intend to recommence the program in the fourth quarter of 2020. During the nine months ended September 30, 2020 and September 30, 2019, we repurchased approximately 303,000 shares for $12 million and 408,000 shares for $24 million, respectively.
12. ACCUMULATED OTHER COMPREHENSIVE LOSS
The following summary sets forth the components of accumulated other comprehensive loss, net of tax:

|  | Currency Translation Adjustments |  | Net Actuarial Loss and Prior Service Costs (1) |  | Unrealized Gain (Loss) from Cash Flow Hedges |  |  |  |  |  | Accumulated Other Comprehensive Loss
|  | (In thousands)
December 31, 2019 |  | $ | (162,243) |  |  | $ | (667,459) |  |  | $ | (6,789) |  |  |  |  |  |  | $ | (836,491) |
Amortization |  | — |  |  | 22,541 |  |  | — |  |  |  |  |  |  | 22,541 |
Other current period change |  | (33,871) |  |  | (71,793) |  |  | (10,104) |  |  |  |  |  |  | (115,768) |
September 30, 2020 |  | $ | (196,114) |  |  | $ | (716,711) |  |  | $ | (16,893) |  |  |  |  |  |  | $ | (929,718) |

|  | Currency Translation Adjustments |  | Net Actuarial Loss and Prior Service Costs (1) |  | Unrealized Gain (Loss) from Cash Flow Hedges |  |  |  |  |  | Accumulated Other Comprehensive Loss
|  | (In thousands)
December 31, 2018 |  | $ | (199,704) |  |  | $ | (711,921) |  |  | $ | (9) |  |  |  |  |  |  | $ | (911,634) |
Amortization |  | — |  |  | 17,496 |  |  | — |  |  |  |  |  |  | 17,496 |
Other current period change |  | (4,750) |  |  | (7,203) |  |  | (9,063) |  |  |  |  |  |  | (21,016) |
September 30, 2019 |  | $ | (204,454) |  |  | $ | (701,628) |  |  | $ | (9,072) |  |  |  |  |  |  | $ | (915,154) |

_______________________
(1)These amounts are included in the computation of net pension expense. Amortization in 2020 includes the curtailment loss recorded in the third quarter. See Note 15, "Employee Benefit Plans," for additional information.
The loss from currency translation adjustments in the nine months ended September 30, 2020 was primarily due to the weakening of the British Pound and Canadian Dollar against the U.S. Dollar. The loss from currency translation adjustments in the nine months ended September 30, 2019 was primarily due to the weakening of the British Pound against the U.S. Dollar offset by the strengthening of the Canadian Dollar against the U.S. Dollar.
18

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

| Three months ended September 30, |  | Nine months ended September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
| (In thousands, except per share amounts)
Earnings (loss) per share — Basic: |  |  |  |  |  |  |
Earnings (loss) from continuing operations | $ | 45,085 |  |  | $ | (91,538) |  |  | $ | (137,749) |  |  | $ | 29,804 |
Less: Distributed and undistributed earnings allocated to unvested stock | (198) |  |  | (114) |  |  | (379) |  |  | (336) |
Earnings (loss) from continuing operations available to common shareholders — Basic | $ | 44,887 |  |  | $ | (91,652) |  |  | $ | (138,128) |  |  | $ | 29,468 |
Weighted average common shares outstanding — Basic | 52,451 |  |  | 52,319 |  |  | 52,364 |  |  | 52,358 |
Earnings (loss) from continuing operations per common share — Basic | $ | 0.86 |  |  | $ | (1.75) |  |  | $ | (2.64) |  |  | $ | 0.56 |
Earnings (loss) per share — Diluted: |  |  |  |  |  |  |
Earnings (loss) from continuing operations | $ | 45,085 |  |  | $ | (91,538) |  |  | $ | (137,749) |  |  | $ | 29,804 |
Less: Distributed and undistributed earnings allocated to unvested stock | (198) |  |  | (114) |  |  | (379) |  |  | (336) |
Earnings (loss) from continuing operations available to common shareholders — Diluted | $ | 44,887 |  |  | $ | (91,652) |  |  | $ | (138,128) |  |  | $ | 29,468 |
Weighted average common shares outstanding — Basic | 52,451 |  |  | 52,319 |  |  | 52,364 |  |  | 52,358 |
Effect of dilutive equity awards | 278 |  |  | — |  |  | — |  |  | 199 |
Weighted average common shares outstanding — Diluted | 52,729 |  |  | 52,319 |  |  | 52,364 |  |  | 52,557 |
Earnings (loss) from continuing operations per common share — Diluted | $ | 0.85 |  |  | $ | (1.75) |  |  | $ | (2.64) |  |  | $ | 0.56 |
Anti-dilutive equity awards not included above | 2,574 |  |  | 3,170 |  |  | 3,544 |  |  | 1,945 |

14. SHARE-BASED COMPENSATION PLANS
The following table provides information on share-based compensation expense and income tax benefits recognized during the periods:

| Three months ended September 30, |  | Nine months ended September 30, |  |
| 2020 |  | 2019 |  | 2020 |  | 2019 |  |
| (In thousands) |  |
Stock option and stock purchase plans | $ | 1,052 |  |  | $ | 1,511 |  |  | $ | 3,461 |  |  | $ | 4,986 |  |  |
Unvested stock awards | 7,337 |  |  | 5,244 |  |  | 15,558 |  |  | 16,691 |  |  |
Share-based compensation expense | 8,389 |  |  | 6,755 |  |  | 19,019 |  |  | 21,677 |  |  |
Income tax benefit | (1,470) |  |  | (1,327) |  |  | (2,955) |  |  | (3,861) |  |  |
Share-based compensation expense, net of tax | $ | 6,919 |  |  | $ | 5,428 |  |  | $ | 16,064 |  |  | $ | 17,816 |  |  |

Total unrecognized pre-tax compensation expense related to all share-based compensation arrangements at September 30, 2020 was $45 million and is expected to be recognized over a weighted-average period of 2.0 years.
19

RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)
We generally grant awards under our various share-based compensation plans in the first quarter of each year in the annual management grant. The following table is a summary of the awards granted in the annual management grant in the first quarter of 2020:

| Shares Granted |  | Weighted-Average Fair Market Value
| (Shares in thousands) |  |  |  |
Performance-based restricted stock rights | 292 |  |  |  | $ | 37.47 |  |  |
Time-vested restricted stock rights | 557 |  |  |  | 38.45 |  |  |
Total | 849 |  |  |  | $ | 38.11 |  |  |

Restricted stock awards are unvested stock rights that are granted to employees and entitle the holder to shares of common stock as the award vests. Performance-based restricted stock awards (PBRSRs) include a performance-based vesting condition. PBRSRs are awarded based on various revenue, return-based and cash flow performance targets and a majority of PBRSRs include a total shareholder return (TSR) modifier. The fair values of the PBRSRs that include a TSR modifier are estimated using a lattice-based option-pricing valuation model that incorporates a Monte-Carlo simulation. The fair value of PBRSRs that do not include a TSR modifier is determined and fixed on the grant date based on our stock price on the date of grant. Share-based compensation expense for PBRSRs is recognized on a straight-line basis over the vesting period, based upon the probability that the performance target will be met.
Time-vested restricted stock rights typically vest ratably over three years regardless of company performance. The fair value of the time-vested awards is determined and fixed based on our stock price on the date of grant. Share-based compensation expense for restricted stock awards is recognized on a straight-line basis over the vesting period.
15. EMPLOYEE BENEFIT PLANS
Components of net pension expense were as follows:

| Three months ended September 30, |  | Nine months ended September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
| (In thousands)
Company-administered plans: |  |  |  |  |  |  |
Service cost | $ | 2,967 |  |  | $ | 2,449 |  |  | $ | 8,921 |  |  | $ | 8,264 |
Interest cost | 17,463 |  |  | 21,301 |  |  | 52,348 |  |  | 64,165 |
Expected return on plan assets | (24,304) |  |  | (22,350) |  |  | (72,515) |  |  | (67,615) |
Curtailment loss | 6,303 |  |  | — |  |  | 6,303 |  |  | — |
Amortization of: |  |  |  |  |  |  |
Net actuarial loss | 7,597 |  |  | 8,170 |  |  | 22,749 |  |  | 23,212 |
Prior service cost | 187 |  |  | 167 |  |  | 559 |  |  | 533 |
| 10,213 |  |  | 9,737 |  |  | 18,365 |  |  | 28,559 |
Union-administered plans | 2,769 |  |  | 2,718 |  |  | 8,346 |  |  | 7,876 |
Net pension expense | $ | 12,982 |  |  | $ | 12,455 |  |  | $ | 26,711 |  |  | $ | 36,435 |
Company-administered plans: |  |  |  |  |  |  |
U.S. | $ | 12,215 |  |  | $ | 11,067 |  |  | $ | 25,048 |  |  | $ | 33,199 |
Non-U.S. | (2,002) |  |  | (1,330) |  |  | (6,683) |  |  | (4,640) |
| 10,213 |  |  | 9,737 |  |  | 18,365 |  |  | 28,559 |
Union-administered plans | 2,769 |  |  | 2,718 |  |  | 8,346 |  |  | 7,876 |
Net pension expense | $ | 12,982 |  |  | $ | 12,455 |  |  | $ | 26,711 |  |  | $ | 36,435 |

20

RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)
Non-operating pension costs include the amortization of net actuarial loss and prior service cost, interest cost and expected return on plan assets components of pension and postretirement benefit costs, as well as any significant charges for settlements or curtailments if recognized. During the nine months ended September 30, 2020, we contributed $74 million to our pension plans, which included additional contributions of $38 million made during the third quarter. In 2020, the expected total contributions to our pension plans are approximately $76 million. We also maintain other postretirement benefit plans that are not reflected in the table above. The amount of postretirement benefit expense was not material for any period presented.
On September 30, 2020, our Board of Directors approved an amendment to freeze our U.S. and Canadian pension plans for certain previously grandfathered participants effective December 31, 2020. As a result, these employees will cease accruing further benefits under the pension plans after December 31, 2020 and will begin participating in an enhanced 401(k) plan that is available to existing non-grandfathered employees. All retirement benefits earned as of December 31, 2020 will be fully preserved and will be paid in accordance with the plan and legal requirements. In the third quarter of 2020, we recognized a curtailment loss of $6 million in non-operating pension costs with an offset to accumulated other comprehensive loss as a result of the freeze of the pension plans. In addition, as a result of an interim actuarial valuation due to the curtailment of the plans, we recognized a decrease in the funded status of the impacted pension plans of $95 million, including the impact of the curtailment, and an increase in the net actuarial loss recognized within accumulated other comprehensive loss of approximately $68 million, net of tax.
16. OTHER ITEMS IMPACTING COMPARABILITY
Our primary measure of segment performance as shown in Note 19, "Segment Reporting," excludes certain items we do not believe are representative of the ongoing operations of the segment. Excluding these items from our segment measure of performance allows for better year over year comparison:

| Three months ended September 30, |  | Nine months ended September 30, |
| 2020 |  | 2019 |  | 2020 |  | 2019 |
| (In thousands) |
Restructuring and other, net | $ | 13,767 |  |  | $ | 5,234 |  |  | $ | 43,790 |  |  | $ | 13,757 |  |
ERP implementation costs | 5,751 |  |  | 6,126 |  |  | 27,109 |  |  | 13,617 |  |
Gains on sale of properties | (3,733) |  |  | — |  |  | (3,733) |  |  | (18,614) |  |
Total other items impacting comparability | $ | 15,785 |  |  | $ | 11,360 |  |  | $ | 67,166 |  |  | $ | 8,760 |  |

During the three and nine months ended September 30, 2020 and 2019, other items impacting comparability included:
•Restructuring and other, net — For the three and nine months ended September 30, 2020, this item primarily included net losses in our ChoiceLease insurance liability program which was discontinued in January 2020 and professional fees related to the pursuit of a commercial claim. The exit of the insurance liability program is estimated to be completed in the second quarter of 2021. In addition, the nine months ended September 30, 2020 included severance costs of $13 million related to planned actions to reduce headcount, primarily in our North American and U.K. FMS operations. For the three and nine months ended September 30, 2019, this primarily included charges related to cost savings initiatives and the pursuit of a commercial claim.
•ERP implementation costs — This item relates to charges in connection with the implementation of an Enterprise Resource Planning (ERP) system. In July 2020, we went live with the first module of our ERP system for human resources.
•Gains on sale of properties — We recorded a gain on the sale in the third quarter of 2020 for certain FMS maintenance properties in the U.S. and U.K. that were closed in prior periods related to cost reduction actions. During the nine months ended September 30, 2019, we recorded a gain on the sale of certain SCS properties. These gains are reflected within "Miscellaneous (income) loss, net" in our Condensed Consolidated Statements of Earnings.
21

RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)
17. CONTINGENCIES AND OTHER MATTERS
We are a party to various claims, complaints and proceedings incident to the operation of our business including, but not limited to, those relating to commercial and employment claims, securities class actions, derivative claims, environmental matters, risk management matters (e.g., vehicle liability, workers’ compensation, etc.) and administrative assessments primarily associated with operating taxes. Other than as described below, we believe that all current proceedings are routine in nature and incidental to the conduct of our business and that the ultimate resolution of these claims, complaints and proceedings will not have a material effect on our condensed consolidated financial statements.
We will establish loss provisions for matters in which losses are probable and can be reasonably estimated. 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. In the third quarter of 2020, we accrued $9 million related primarily to adverse developments in several cases related to payments for transportation services in Brazil that was recorded in discontinued operations.
Securities Litigation Relating to Residual Value Estimates
On May 20, 2020, a putative class action on behalf of purchasers of our securities who purchased or otherwise acquired their securities between July 23, 2015 and February 13, 2020, inclusive (the “Class Period”), was commenced against Ryder and certain of our current and former officers in the U.S. District Court for the Southern District of Florida, captioned Key West Policy & Fire Pension Fund v. Ryder System, Inc., et al. The complaint alleges, among other things, that the defendants misrepresented Ryder’s depreciation policy and residual value estimates for its vehicles during the Class Period in violation of Section 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and seeks to recover, among other things, unspecified compensatory damages and attorneys' fees and costs. On August 3, 2020, the State of Alaska, Alaska Permanent Fund, the City of Fort Lauderdale General Employees' Retirement System, and the City of Plantation Police Officers Pension Fund were appointed lead plaintiffs. On October 5, 2020, the lead plaintiffs filed an amended complaint.
In addition, on June 26, 2020 and August 6, 2020, two shareholder derivative complaints purportedly on behalf of Ryder were filed in the Circuit Court of the 11th Judicial Circuit in and for Miami-Dade County, Florida, against us as nominal defendant and certain of our current and former officers and our current directors, relating to the allegations set forth in the securities class action complaint and alleging breaches of fiduciary duties and unjust enrichment. The plaintiffs, on our behalf, are seeking an award of monetary damages and restitution to us, improvements in our corporate governance and internal procedures, and legal fees.
We believe the claims asserted in the complaints are without merit and intend to defend against them vigorously.
18. SUPPLEMENTAL CASH FLOW INFORMATION

| Nine months ended September 30, |  |
| 2020 |  | 2019 |  |
| (In thousands) |  |
Interest paid | $ | 177,426 |  |  | $ | 166,720 |  |  |
Income taxes paid | 9,918 |  |  | 15,528 |  |  |
Right-of-use assets obtained in exchange for lease obligations: |  |  |  |  |
Finance leases | 7,551 |  |  | 15,336 |  |  |
Operating leases | 88,646 |  |  | 70,365 |  |  |
| September 30, 2020 |  | December 31, 2019 |  |
| (In thousands) |  |
Capital expenditures acquired but not yet paid | $ | 69,981 |  |  | $ | 185,264 |  |  |

22

RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)
19. SEGMENT REPORTING
Our operating segments are aggregated into reportable business segments based upon similar economic characteristics, products, services, customers and delivery methods. We report our financial performance based on three business segments: (1) FMS, which provides full service leasing and leasing with flexible maintenance options, commercial rental, and contract or transactional maintenance services of trucks, tractors and trailers to customers principally in the U.S., Canada and the U.K.; (2) SCS, which provides integrated logistics solutions, including distribution management, dedicated transportation, last mile delivery and professional services in North America; and (3) DTS, which provides turnkey transportation solutions in the U.S. that includes dedicated vehicles, drivers and engineering, and administrative support. Dedicated transportation services provided as part of an operationally integrated, multi-service, supply chain solution to SCS customers are primarily reported in the SCS business segment.
Our primary measurement of segment financial performance, defined as segment “Earnings from continuing operations before taxes” (EBT), includes an allocation of Central Support Services (CSS) and excludes non-operating pension costs and certain other items as discussed in Note 16, "Other Items Impacting Comparability." CSS represents those costs incurred to support all business segments, including finance and procurement, corporate services, human resources, information technology, public affairs, legal, marketing and corporate communications. The objective of the EBT measurement is to provide clarity on the profitability of each business segment and, ultimately, to hold leadership of each 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 FMS segment leases revenue earning equipment as well as provides rental vehicles, fuel, maintenance and other ancillary services to the SCS and DTS segments. EBT related to inter-segment equipment and services billed to SCS and DTS customers (equipment contribution) are included in both FMS and the segment that served the customer and then eliminated upon consolidation (presented as “Eliminations”). Inter-segment EBT allocated to SCS and DTS includes earnings related to equipment used in providing services to SCS and DTS customers.
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. We do not record right-of-use assets or liabilities for our intercompany operating leases between FMS and the SCS and DTS business segments.
23

RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(unaudited)
The following table sets forth financial information for each of our segments and provides a reconciliation between segment EBT and earnings from continuing operations before income taxes.

| Three months ended September 30, |  | Nine months ended September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
| (In thousands)
Revenue: |  |  |  |  |  |  |
Fleet Management Solutions: |  |  |  |  |  |  |
ChoiceLease | $ | 788,179 |  |  | $ | 770,719 |  |  | $ | 2,346,546 |  |  | $ | 2,268,048 |
SelectCare | 128,373 |  |  | 133,434 |  |  | 390,370 |  |  | 405,572 |
Commercial rental | 220,076 |  |  | 262,976 |  |  | 595,013 |  |  | 752,995 |
Other | 16,738 |  |  | 22,456 |  |  | 52,496 |  |  | 68,681 |
Fuel services revenue | 138,880 |  |  | 198,669 |  |  | 429,468 |  |  | 618,906 |
ChoiceLease liability insurance revenue (1) | 4,971 |  |  | 9,092 |  |  | 21,738 |  |  | 25,653 |
Fleet Management Solutions | 1,297,217 |  |  | 1,397,346 |  |  | 3,835,631 |  |  | 4,139,855 |
Supply Chain Solutions | 685,415 |  |  | 617,600 |  |  | 1,833,180 |  |  | 1,902,582 |
Dedicated Transportation Solutions | 299,680 |  |  | 359,211 |  |  | 928,512 |  |  | 1,071,076 |
Eliminations (2) | (131,737) |  |  | (150,225) |  |  | (390,160) |  |  | (464,261) |
Total revenue | $ | 2,150,575 |  |  | $ | 2,223,932 |  |  | $ | 6,207,163 |  |  | $ | 6,649,252 |
Earnings (Loss) Before Taxes: |  |  |  |  |  |  |
Fleet Management Solutions | $ | 16,152 |  |  | $ | (108,550) |  |  | $ | (202,157) |  |  | $ | 10,107 |
Supply Chain Solutions | 57,848 |  |  | 34,595 |  |  | 125,789 |  |  | 112,686 |
Dedicated Transportation Solutions | 24,728 |  |  | 18,490 |  |  | 58,141 |  |  | 63,034 |
Eliminations | (12,936) |  |  | (6,118) |  |  | (30,750) |  |  | (42,586) |
| 85,792 |  |  | (61,583) |  |  | (48,977) |  |  | 143,241 |
Unallocated Central Support Services | (8,042) |  |  | (11,432) |  |  | (28,146) |  |  | (34,461) |
Non-operating pension costs (3) | (7,200) |  |  | (6,885) |  |  | (9,357) |  |  | (20,060) |
Other items impacting comparability, net (4) | (15,785) |  |  | (11,360) |  |  | (67,166) |  |  | (8,760) |
Earnings (loss) from continuing operations before income taxes | $ | 54,765 |  |  | $ | (91,260) |  |  | $ | (153,646) |  |  | $ | 79,960 |

_______________
(1)In the first quarter of 2020, we announced our plan to exit the extension of our liability insurance coverage for ChoiceLease customers. The exit of this program is estimated to be completed in the second quarter of 2021. We have reclassed the revenues associated with this program from our ChoiceLease revenues for better comparability of our on-going operations as this is now consistent with management reporting.
(2)Represents the elimination of intercompany revenues in our FMS business segment.
(3)Non-operating pension costs include the amortization of net actuarial loss and prior service costs, interest cost and expected return on plan assets
components of pension and postretirement benefit costs and curtailment and settlement charges if one has occurred.
(4)Refer to Note 16, “Other Items Impacting Comparability,” for a discussion of items excluded from our primary measure of segment performance.
The following table sets forth the capital expenditures paid for each of our segments.

| Three months ended September 30, |  | Nine months ended September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
| (In thousands)
Fleet Management Solutions | $ | 164,019 |  |  | $ | 723,555 |  |  | $ | 843,351 |  |  | $ | 2,890,773 |
Supply Chain Solutions | 6,380 |  |  | 9,965 |  |  | 26,254 |  |  | 35,459 |
Dedicated Transportation Solutions | 290 |  |  | 727 |  |  | 1,053 |  |  | 1,587 |
Central Support Services | 3,781 |  |  | 12,224 |  |  | 8,742 |  |  | 29,413 |
Total capital expenditures paid | $ | 174,470 |  |  | $ | 746,471 |  |  | $ | 879,400 |  |  | $ | 2,957,232 |

24

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read in conjunction with the unaudited Condensed Consolidated 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 MD&A included in the 2019 Annual Report on Form 10-K.
OVERVIEW
Ryder is a leading logistics and transportation company. Our operating segments are aggregated into reportable business segments based upon similar economic characteristics, products, services, customers and delivery methods. We report our financial performance based on three business segments: (1) Fleet Management Solutions (FMS), which provides full service leasing and leasing with flexible maintenance options, commercial rental, and contract or transactional maintenance services of trucks, tractors and trailers to customers principally in the U.S., Canada and the U.K.; (2) Supply Chain Solutions (SCS), which provides integrated logistics solutions, including distribution management, dedicated transportation, last mile delivery and professional services in North America; and (3) Dedicated Transportation Solutions (DTS), which provides turnkey transportation solutions in the U.S. that includes dedicated vehicles, drivers and engineering, and administrative support. Dedicated transportation services provided as part of an operationally integrated, multi-service, supply chain solution to SCS customers are primarily reported in the SCS business segment.
We operate in highly competitive markets. Our customers select us based on numerous factors including service quality, price, technology and service offerings. As an alternative to using our services, customers may choose to provide these services for themselves, or may choose to obtain similar or alternative services from other third-party vendors. Our customer base includes enterprises operating in a variety of industries including food and beverage service, transportation and logistics, automotive, retail and consumer goods, industrial, housing, technology, and business and personal services.
Our results of operations and financial condition are influenced by a number of factors including, but not limited to: used vehicle sales; macroeconomic and other market conditions, including pricing and demand; customer contracting activity and retention; rental demand; maintenance costs; residual value estimates and other depreciation changes; currency exchange rate fluctuations; customer preferences; inflation; fuel and energy prices; general economic conditions; insurance costs; interest rates; labor costs; unemployment; tax rates; changes in accounting or regulatory requirements; and cybersecurity attacks. Additionally, in 2020, our business has, and may continue to be, impacted by the coronavirus (COVID-19) pandemic. For a detailed discussion of its impact on our results and future considerations, refer to our "Consolidated Results" and "Operating Results by Business Segment" discussions below. In addition, for a detailed description of certain risk factors that impact our business, including those related to the COVID-19 pandemic, refer to “Item 1A-Risk Factors” and "Special Note Regarding Forward-Looking Statements" sections included in this Quarterly Report on Form 10-Q and in our 2019 Annual Report on Form 10-K.
This MD&A includes certain non-GAAP financial measures. Refer to the “Non-GAAP Financial Measures” section of this MD&A for information on the non-GAAP measures, including reconciliations to the most comparable GAAP financial measure and the reasons why we believe each measure is useful to investors.
25

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

| Three months ended September 30, |  | Nine months ended September 30, |  | Change 2020/2019
| 2020 |  | 2019 |  | 2020 |  | 2019 |  | Three Months |  | Nine Months
| (In thousands, except per share amounts)
Total revenue | $ | 2,150,575 |  |  | $ | 2,223,932 |  |  | $ | 6,207,163 |  |  | $ | 6,649,252 |  |  | (3)% |  | (7)%
Operating revenue (1) | 1,790,166 |  |  | 1,795,641 |  |  | 5,184,657 |  |  | 5,350,260 |  |  | —% |  | (3)%
Earnings (loss) from continuing operations before income taxes (EBT) (2) | $ | 54,765 |  |  | $ | (91,260) |  |  | $ | (153,646) |  |  | $ | 79,960 |  |  | NM |  | NM
Comparable EBT (2) (3) | 77,750 |  |  | (73,015) |  |  | (77,123) |  |  | 108,780 |  |  | NM |  | NM
Earnings (loss) from continuing operations | 45,085 |  |  | (91,538) |  |  | (137,749) |  |  | 29,804 |  |  | NM |  | NM
Comparable earnings (loss) from continuing operations (3) | 63,821 |  |  | (78,098) |  |  | (57,740) |  |  | 54,218 |  |  | NM |  | NM
Net earnings (loss) | 35,834 |  |  | (91,455) |  |  | (147,878) |  |  | 29,076 |  |  | NM |  | NM
Earnings (loss) per common share (EPS) — Diluted |  |  |  |  |  |  |  |  |  |  |
Continuing operations | $ | 0.85 |  |  | $ | (1.75) |  |  | $ | (2.64) |  |  | $ | 0.56 |  |  | NM |  | NM
Comparable (3) | 1.21 |  |  | (1.49) |  |  | (1.11) |  |  | 1.03 |  |  | NM |  | NM
Net earnings (loss) | 0.68 |  |  | (1.75) |  |  | (2.83) |  |  | 0.55 |  |  | NM |  | NM

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

| Three months ended September 30, |  | Nine months ended September 30, |  | Change 2020/2019
| 2020 |  | 2019 |  | 2020 |  | 2019 |  | Three Months |  | Nine Months
| (In thousands)
Impact from prior residual value estimate changes* | $ | 100,000 |  |  | $ | 208,000 |  |  | $ | 405,000 |  |  | $ | 266,000 |  |  | $ | (108,000) |  |  | $ | 139,000 |
*Includes (gains) losses on used vehicles sales, net of ($13) million and $23 million for the three months ended September 30, 2020 and 2019, respectively. For the nine months ended September 30, 2020 and 2019, these impacts include (gains) losses of $17 million and $49 million. respectively. Refer to Note 5, "Revenue Earning Equipment," in the Notes to the Condensed Consolidated Financial Statements for further information on used vehicle sales.

(3)Non-GAAP financial measures. Refer to the “Non-GAAP Financial Measures” section for a reconciliation of EBT, net earnings and earnings per diluted common share to the comparable measures and the reasons why management believes these measures are important to investors.
NM - Not meaningful
Total revenue decreased 3% in the third quarter of 2020 primarily due to decreases in fuel revenue. Operating revenue (a non-GAAP measure excluding fuel, subcontracted transportation and ChoiceLease liability insurance revenues) remained relatively flat in the third quarter of 2020 driven by revenue growth in SCS and ChoiceLease offset by lower revenues in our commercial rental business (FMS) and DTS. For the nine months ended September 30, 2020, total revenue decreased 7% and operating revenue decreased 3% due to lower revenue in all of our business segments, including the impact of the economic slowdown from the COVID-19 pandemic particularly in our commercial rental and automotive (SCS) businesses.
EBT increased to income of $55 million in the third quarter of 2020 as compared to a loss of ($91) million in the prior year period primarily due to a declining impact of depreciation expense from prior residual value estimate changes and higher gains on used vehicles sold totaling $108 million. EBT was also benefited by improved lease results and higher SCS performance.
For the nine months ended September 30, 2020, EBT was a loss of ($154) million as compared to income of $80 million due to higher depreciation expense from prior residual value estimate changes of $139 million. The nine months ended September 30, 2020 also included negative estimated impacts in the first half of 2020 from the COVID-19 pandemic of approximately $70 million, which was net of temporary cost savings of approximately $35 million.
For discussion on the depreciation expense related to the residual value estimate changes in the first half of 2020 and the impact on our FMS segment, refer to “Critical Accounting Estimates" discussion further below and Note 5, "Revenue Earning
26

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
Equipment," in our Condensed Consolidated Financial Statements. For more information on the depreciation expense related to the change in residual value estimates in the third quarter of 2019, refer to “Critical Accounting Estimates” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2019 Annual Report on Form 10-K.
The COVID-19 pandemic has negatively impacted several areas of our businesses. In our FMS business segment, we experienced lower demand for commercial rental and declines in the used vehicle market through the second quarter (refer to Note 5, "Revenue Earning Equipment" and “Critical Accounting Estimates" section below for additional information on residual value estimate changes and trends related to used vehicle sales). During the third quarter, we have started to experience a steady recovery in these areas as compared to the second quarter. In our Supply Chain Solutions (SCS) business segment, we experienced a deterioration in customer activity during the first half of 2020, primarily due to the temporary shutdowns in the automotive industry, which restarted their operations during the second quarter and are now generally operating at above pre-COVID-19 levels. In addition, we have experienced a decline in our sales growth opportunities in all of our businesses. Throughout the year, we have established additional credit loss reserves due to our expectations for COVID-19-related payment activity as a result of increased bankruptcies or insolvencies, or a delay in payments (refer to Note 4, "Receivables," for further information on credit loss reserves). We have attempted to mitigate the adverse impacts from the pandemic through cost reduction measures throughout the year, including lower discretionary and overhead spending, and a reduction in capital expenditures, as well as temporary employee furloughs primarily in the second quarter. In addition, we took planned actions at the end of the second quarter to reduce headcount, primarily in our North American and U.K. FMS operations. We have also experienced lower employee turnover and medical costs throughout the year.
In October 2020, we announced a one-time, special recognition and retention bonus of approximately $30 million for our front-line employees in recognition of the work performed during the pandemic. The bonus will be paid to non-incentive compensation plan eligible employees and recognized in earnings in the fourth quarter .
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, provides for an acceleration of alternative minimum tax credit refunds, the deferral of certain employer payroll taxes, the availability of an employee retention credit, and expands the availability of net operating loss usage. In addition, other governments in state, local and foreign jurisdictions in which we operate have also enacted certain relief measures. We continue to monitor new and updated legislation, however the provisions enacted have not had a material impact on our financial statements or liquidity position.
While we are experiencing positive momentum in the third quarter, any further negative effects of the pandemic may have an impact on our business and financial results, as well as on significant judgments and estimates, including those related to goodwill and other asset impairments, residual values and other depreciation assumptions, deferred income taxes and annual effective tax rates, variable revenue considerations, the valuation of our pension plans, and allowance for credit losses.
27

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

| Three months ended September 30, |  | Nine months ended September 30, |  | Change 2020/2019
| 2020 |  | 2019 |  | 2020 |  | 2019 |  | Three Months |  | Nine Months
| (In thousands) |  |  |  |
Lease & related maintenance and rental revenues | $ | 933,771 |  |  | $ | 959,189 |  |  | $ | 2,730,187 |  |  | $ | 2,792,581 |  |  | (3)% |  | (2)%
Cost of lease & related maintenance and rental | 758,351 |  |  | 877,767 |  |  | 2,351,993 |  |  | 2,229,596 |  |  | (14)% |  | 5%
Gross margin | $ | 175,420 |  |  | $ | 81,422 |  |  | $ | 378,194 |  |  | $ | 562,985 |  |  | NM |  | (33)%
Gross margin % | 19% |  | 8% |  | 14% |  | 20% |  |  |  |

Lease & related maintenance and rental revenues represent revenues from our ChoiceLease and commercial rental product offerings within our FMS business segment. Revenues decreased 3% to $934 million in the third quarter of 2020 and 2% to $2.7 billion for the nine months ended September 30, 2020 driven by lower commercial rental revenue, partially offset by higher ChoiceLease pricing. The decline in commercial rental revenue was due to reduced demand, including impacts from COVID-19. Revenue for the nine months ended September 30, 2020 also benefited from ChoiceLease fleet growth.
Cost of lease & related maintenance and rental represents the direct costs related to lease & related maintenance 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 & related maintenance and rental excludes interest costs from vehicle financing, which are reported within "Interest Expense" in our Condensed Consolidated Statements of Earnings. Cost of lease & related maintenance and rental decreased 14% in the third quarter of 2020 due to declining depreciation expense impacts from prior residual value estimate changes. For the nine months ended September 30, 2020, cost of lease & related maintenance and rental increased 5% due to higher depreciation expense impacts from prior residual value estimate changes. Both the third quarter and nine months ended September 30, 2020 have benefited from lower maintenance and other costs due to less activity as a result of the COVID-19 pandemic as well as our maintenance cost savings initiatives. Refer to our “Critical Accounting Estimates" discussion further below for additional information on the residual value estimate changes in 2020.
Lease & related maintenance and rental gross margin increased in the third quarter of 2020 primarily due to declining depreciation impact from prior residual value estimate changes, partially offset by lower commercial rental revenue and utilization. Gross margin for the nine months ended September 30, 2020 decreased due to higher depreciation as a result of our prior residual value estimate changes and lower commercial rental revenue and utilization. Gross margin as a percentage of revenue increased to 19% in the third quarter of 2020 as a result of the lower depreciation impact. For the nine months ended September 30, 2020, gross margin as a percentage of revenue decreased to 14% as a result of the higher depreciation impact.
Services

| Three months ended September 30, |  | Nine months ended September 30, |  | Change 2020/2019
| 2020 |  | 2019 |  | 2020 |  | 2019 |  | Three Months |  | Nine Months
| (In thousands) |  |  |  |
Services revenue | $ | 1,120,544 |  |  | $ | 1,120,900 |  |  | $ | 3,174,999 |  |  | $ | 3,412,048 |  |  | —% |  | (7)%
Cost of services | 932,510 |  |  | 948,087 |  |  | 2,680,292 |  |  | 2,896,182 |  |  | (2)% |  | (7)%
Gross margin | $ | 188,034 |  |  | $ | 172,813 |  |  | $ | 494,707 |  |  | $ | 515,866 |  |  | 9% |  | (4)%
Gross margin % | 17% |  | 15% |  | 16% |  | 15% |  |  |  |

Services revenue represents all the revenues associated with our SCS and DTS business segments, as well as SelectCare and fleet support services associated with our FMS business segment. Services revenue remained flat in the third quarter due to an increase in revenue in SCS offset by a decrease in revenue in DTS. For the nine months ended September 30, 2020, services revenue decreased 7% primarily driven by decreases in revenue due to lower activity in our automotive vertical due to temporary
28

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
production shutdowns in the second quarter and other impacts from COVID-19 in both SCS and DTS and non-renewed business in DTS.
Cost of services represents the direct costs related to services revenue and is primarily comprised of salaries and employee-related costs, subcontracted transportation (purchased transportation from third parties), fuel, vehicle liability costs and maintenance costs. Cost of services decreased 2% in the third quarter and 7% for the nine months ended September 30, 2020 primarily due to lower activity related to COVID-19 in SCS and DTS and non-renewed business in DTS.
Services gross margin increased 9% in the third quarter of 2020. For the nine months ended September 30, 2020, services gross margin decreased 4%. Gross margin as a percentage of revenue increased to 17% in the third quarter of 2020 and 16% for the nine months ended September 30, 2020. The increases in gross margin as a percentage of revenue reflects higher revenue and operating performance in SCS and higher operating performance in DTS for the three and nine months ended September 30, 2020.
Fuel

| Three months ended September 30, |  | Nine months ended September 30, |  | Change 2020/2019
| 2020 |  | 2019 |  | 2020 |  | 2019 |  | Three Months |  | Nine Months
| (In thousands) |  |  |  |
Fuel services revenue | $ | 96,260 |  |  | $ | 143,843 |  |  | $ | 301,977 |  |  | $ | 444,623 |  |  | (33)% |  | (32)%
Cost of fuel services | 92,930 |  |  | 140,247 |  |  | 291,359 |  |  | 431,885 |  |  | (34)% |  | (33)%
Gross margin | $ | 3,330 |  |  | $ | 3,596 |  |  | $ | 10,618 |  |  | $ | 12,738 |  |  | (7)% |  | (17)%
Gross margin % | 3% |  | 2% |  | 4% |  | 3% |  |  |  |

Fuel services revenue represents fuel services provided to our FMS customers. Fuel services revenue decreased 33% in the third quarter of 2020 and 32% for the nine months ended September 30, 2020 primarily reflecting lower fuel costs passed through to customers and lower gallons sold as a result of COVID-19.
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 34% in the third quarter of 2020 and 33% for the nine months ended September 30, 2020 as a result of lower fuel costs and lower gallons sold.
Fuel services gross margin decreased in the third quarter of 2020 and for the nine months ended September 30, 2020. Fuel services gross margin as a percentage of revenue increased to 3% in the third quarter of 2020 and 4% for the nine months ended September 30, 2020. 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 for the third quarter of 2020 and nine months ended September 30, 2020 was impacted by these price change dynamics as fuel prices fluctuated during the period.
Other Operating Expenses

| Three months ended September 30, |  | Nine months ended September 30, |  | Change 2020/2019
| 2020 |  | 2019 |  | 2020 |  | 2019 |  | Three Months |  | Nine Months
| (In thousands) |  |  |  |
Other operating expenses | $ | 30,009 |  |  | $ | 28,924 |  |  | $ | 93,423 |  |  | $ | 92,213 |  |  | 4% |  | 1%

Other operating expenses include costs related to our owned and leased facilities within the FMS segment, such as facility depreciation, rent, purchased insurance, utilities and taxes. These facilities are utilized to provide maintenance to our ChoiceLease, commercial rental, and SelectCare customers. Other operating expenses remained relatively flat in the third quarter of 2020 and for the nine months ended September 30, 2020.
29

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
Selling, General and Administrative Expenses

| Three months ended September 30, |  | Nine months ended September 30, |  | Change 2020/2019
| 2020 |  | 2019 |  | 2020 |  | 2019 |  | Three Months |  | Nine Months
| (In thousands) |  |  |  |
Selling, general and administrative expenses (SG&A) | $ | 211,183 |  |  | $ | 216,037 |  |  | $ | 643,866 |  |  | $ | 673,778 |  |  | (2)% |  | (4)%
Percentage of total revenue | 10% |  | 10% |  | 10% |  | 10% |  |  |  |

SG&A expenses decreased 2% in the third quarter of 2020 and 4% for the nine months ended September 30, 2020. The decrease in SG&A expenses in third quarter of 2020 primarily reflects lower travel expense and professional services fees. For the nine months ended September 30, 2020, the decrease was primarily driven by lower compensation related expenses due to temporary employee furloughs that occurred primarily in the second quarter, lower travel expense and lower professional services fees partially offset by higher bad debt expense. SG&A expenses as a percentage of total revenue remained flat at 10% for both the third quarter of 2020 and the nine months ended September 30, 2020.
Non-Operating Pension Costs

| Three months ended September 30, |  | Nine months ended September 30, |  | Change 2020/2019 |  |
| 2020 |  | 2019 |  | 2020 |  | 2019 |  | Three Months |  | Nine Months |  |
| (In thousands) |  |  |  |  |  |
Non-operating pension costs | $ | 7,200 |  |  | $ | 6,885 |  |  | $ | 9,357 |  |  | $ | 20,060 |  |  | 5% |  | (53)% |  |

Non-operating pension costs includes the components of our net periodic benefit cost other than service cost. These components include interest cost, expected return on plan assets, amortization of actuarial loss and prior service cost, as well as settlement or curtailment charges. Non-operating pension costs remained relatively flat in the third quarter and decreased $11 million for the nine months ended September 30, 2020 due to favorable asset returns in 2019 and a decrease in interest rates. This decrease was offset by a curtailment loss of $6 million recognized in the third quarter of 2020 as a result of a freeze of our pension plans (see Note 15, "Employee Benefit Plans", for further information).
Used Vehicle Sales, Net

| Three months ended September 30, |  | Nine months ended September 30, |  | Change 2020/2019
| 2020 |  | 2019 |  | 2020 |  | 2019 |  | Three Months |  | Nine Months
| (In thousands) |  |  |  |
(Gains) losses on used vehicle sales, net | $ | (12,919) |  |  | $ | 22,734 |  |  | $ | 17,253 |  |  | $ | 49,091 |  |  | NM |  | (65)%

Used vehicle sales, net includes gains or losses from sales of used vehicles, selling costs associated with used vehicles and write-downs of vehicles held for sale to fair market values (referred to as "valuation adjustments"). Used vehicle sales, net was a net gain of $13 million in the third quarter of 2020 as compared to a net loss of $23 million in the prior year period due to lower valuation adjustments and gains on sales of used vehicles. Losses on used vehicle sales, net decreased to $17 million for the nine months ended September 30, 2020 primarily due to lower valuation adjustments as compared to the prior year.
Average proceeds per unit for tractors in the third quarter and for the nine months ended September 30, 2020 decreased from the prior year reflecting higher sales volumes in the wholesale markets, which generally has lower proceeds per unit, and lower retail pricing as compared to the prior year. Average proceeds per unit for trucks in the third quarter increased slightly from the prior year reflecting higher retail sales volumes. For the nine months ended September 30, 2020, average proceeds per unit for trucks decreased from the prior year reflecting lower retail pricing as compared to the prior year. The following table presents the used vehicle pricing changes compared with the prior year:

| Proceeds per unit change 2020/2019
| Three Months |  | Nine Months
Tractors | (11)% |  | (23)%
Trucks | 1% |  | (4)%

30

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

| Three months ended September 30, |  | Nine months ended September 30, |  | Change 2020/2019
| 2020 |  | 2019 |  | 2020 |  | 2019 |  | Three Months |  | Nine Months
| (In thousands) |  |  |  |
Interest expense | $ | 62,608 |  |  | $ | 62,475 |  |  | $ | 192,459 |  |  | $ | 178,570 |  |  | —% |  | 8%
Effective interest rate | 3.2% |  | 3.2% |  | 3.3% |  | 3.3% |  |  |  |

Interest expense remained relatively flat in the third quarter of 2020 and increased 8% for the nine months ended September 30, 2020 reflecting higher average outstanding debt partially offset by lower variable interest rates. The increase in average outstanding debt reflects higher vehicle capital spending in 2019 and additional borrowings under our trade receivable program and global revolving credit facility in 2020.
Miscellaneous income, net

| Three months ended September 30, |  | Nine months ended September 30, |  | Change 2020/2019
| 2020 |  | 2019 |  | 2020 |  | 2019 |  | Three Months |  | Nine Months
| (In thousands) |  |  |  |
Miscellaneous (income) loss, net | $ | (10,552) |  |  | $ | 676 |  |  | $ | (11,830) |  |  | $ | (29,457) |  |  | NM |  | (60)%

Miscellaneous (income) loss, net consists of investment income on securities used to fund certain benefit plans, interest income, gains on sales of operating property, foreign currency transaction remeasurement and other non-operating items. Miscellaneous (income) loss, net was income of $11 million in the third quarter of 2020 as compared to a loss of $1 million in the prior year primarily due to higher rabbi trust investment income and gains recognized on the sale of certain FMS properties in 2020. Miscellaneous (income) loss, net was income of $12 million for the nine months ended September 30, 2020 as compared to income of $29 million in the prior year reflecting lower gains on sale of properties, lower rabbi trust investment income and foreign currency transaction remeasurement losses in 2020.
Restructuring and other items, net

| Three months ended September 30, |  | Nine months ended September 30, |  | Change 2020/2019
| 2020 |  | 2019 |  | 2020 |  | 2019 |  | Three Months |  | Nine Months
| (In thousands) |  |  |  |
Restructuring and other items, net | $ | 24,490 |  |  | $ | 11,360 |  |  | $ | 92,637 |  |  | 27,374 |  |  | NM |  | NM

Refer to Note 16, "Other Items Impacting Comparability," in the Notes to the Condensed Consolidated Financial Statements for a discussion of restructuring charges and other fees.
31

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

| Three months ended September 30, |  | Nine months ended September 30, |  | Change 2020/2019
| 2020 |  | 2019 |  | 2020 |  | 2019 |  | Three Months |  | Nine Months
| (In thousands) |  |  |  |
Provision for (benefit from) income taxes | $ | 9,680 |  |  | $ | 278 |  |  | $ | (15,897) |  |  | $ | 50,156 |  |  | NM |  | NM
Effective tax rate from continuing operations | 17.7% |  | 0.3% |  | (10.3)% |  | 62.7% |  |  |  |
Comparable tax rate on continuing operations (1) | 17.9% |  | 7.0% |  | (25.1)% |  | 50.2% |  |  |  |

————————————
(1)Non-GAAP Financial Measure. Refer to the “Non-GAAP Financial Measures” section for a reconciliation of the effective tax rate from continuing operations to the comparable tax rate on continuing operations and the reasons why management believes these measures are important to investors.
Refer to our discussion of the changes in our provision for income taxes and effective tax rate from continuing operations in Note 8, "Income Taxes".
Discontinued Operations

| Three months ended September 30, |  | Nine months ended September 30, |  | Change 2020/2019
| 2020 |  | 2019 |  | 2020 |  | 2019 |  | Three Months |  | Nine Months
| (In thousands) |  |  |  |
Earnings (loss) from discontinued operations, net of tax | $ | (9,251) |  |  | $ | 83 |  |  | $ | (10,129) |  |  | $ | (728) |  |  | NM |  | NM

In the third quarter of 2020, we accrued $9 million related primarily to adverse developments in several cases related to payments for transportation services in Brazil that was recorded in discontinued operations.
32

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

| Three months ended September 30, |  | Nine months ended September 30, |  | Change 2020/2019
| 2020 |  | 2019 |  | 2020 |  | 2019 |  | Three Months |  | Nine Months
| (In thousands) |  |  |  |
Total Revenue: |  |  |  |  |  |  |  |  |  |  |
Fleet Management Solutions | $ | 1,297,217 |  |  | $ | 1,397,346 |  |  | $ | 3,835,631 |  |  | $ | 4,139,855 |  |  | (7)% |  | (7)%
Supply Chain Solutions | 685,415 |  |  | 617,600 |  |  | 1,833,180 |  |  | 1,902,582 |  |  | 11% |  | (4)%
Dedicated Transportation Solutions | 299,680 |  |  | 359,211 |  |  | 928,512 |  |  | 1,071,076 |  |  | (17)% |  | (13)%
Eliminations | (131,737) |  |  | (150,225) |  |  | (390,160) |  |  | (464,261) |  |  | 12% |  | 16%
Total | $ | 2,150,575 |  |  | $ | 2,223,932 |  |  | $ | 6,207,163 |  |  | $ | 6,649,252 |  |  | (3)% |  | (7)%
Operating Revenue: (1) |  |  |  |  |  |  |  |  |  |  |
Fleet Management Solutions | $ | 1,153,366 |  |  | $ | 1,189,585 |  |  | $ | 3,384,425 |  |  | $ | 3,495,296 |  |  | (3)% |  | (3)%
Supply Chain Solutions | 492,288 |  |  | 453,711 |  |  | 1,364,656 |  |  | 1,413,556 |  |  | 9% |  | (3)%
Dedicated Transportation Solutions | 233,629 |  |  | 247,715 |  |  | 698,245 |  |  | 731,399 |  |  | (6)% |  | (5)%
Eliminations | (89,117) |  |  | (95,370) |  |  | (262,669) |  |  | (289,991) |  |  | 7% |  | 9%
Total | $ | 1,790,166 |  |  | $ | 1,795,641 |  |  | $ | 5,184,657 |  |  | $ | 5,350,260 |  |  | —% |  | (3)%
Earnings (Loss) Before Taxes: |  |  |  |  |  |  |  |  |  |  |
Fleet Management Solutions | $ | 16,152 |  |  | $ | (108,550) |  |  | $ | (202,157) |  |  | $ | 10,107 |  |  | NM |  | NM
Supply Chain Solutions | 57,848 |  |  | 34,595 |  |  | 125,789 |  |  | 112,686 |  |  | 67% |  | 12%
Dedicated Transportation Solutions | 24,728 |  |  | 18,490 |  |  | 58,141 |  |  | 63,034 |  |  | 34% |  | (8)%
Eliminations | (12,936) |  |  | (6,118) |  |  | (30,750) |  |  | (42,586) |  |  | NM |  | 28%
| 85,792 |  |  | (61,583) |  |  | (48,977) |  |  | 143,241 |  |  | NM |  | NM
Unallocated Central Support Services | (8,042) |  |  | (11,432) |  |  | (28,146) |  |  | (34,461) |  |  | 30% |  | 18%
Non-operating pension costs | (7,200) |  |  | (6,885) |  |  | (9,357) |  |  | (20,060) |  |  | (5)% |  | 53%
Other items impacting comparability, net (2) | (15,785) |  |  | (11,360) |  |  | (67,166) |  |  | (8,760) |  |  | (39)% |  | NM
Earnings (loss) from continuing operations before income taxes | $ | 54,765 |  |  | $ | (91,260) |  |  | $ | (153,646) |  |  | $ | 79,960 |  |  | NM |  | NM

————————————
(1)Non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section of this MD&A for a reconciliation of total revenue to operating revenue and segment total revenue to segment operating revenue for FMS, SCS and DTS, as well as the reasons why management believes these measures are important to investors.
(2)Refer to Note 16, "Other Items Impacting Comparability," and below for a discussion of items excluded from our primary measure of segment performance.
NM - Not meaningful
As part of management’s evaluation of segment operating performance, we define the primary measurement of our segment financial performance as segment “Earnings from continuing operations before taxes” (EBT), which includes an allocation of Central Support Services (CSS), and excludes non-operating pension costs and certain other items as discussed in Note 16, "Other Items Impacting Comparability," in the Notes to Condensed Consolidated Financial Statements. CSS represents those costs incurred to support all business segments, including finance and procurement, corporate services, human resources, information technology, public affairs, 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 business segment accountable for their allocated share of CSS costs. Segment results are not necessarily indicative of the results of operations that would have occurred had each segment been an independent, stand-alone entity during
33

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
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.
Our FMS segment leases revenue earning equipment, as well as provides rental vehicles, fuel, maintenance and other ancillary services to the SCS and DTS segments. EBT related to inter-segment equipment and services billed to SCS and DTS customers (equipment contribution) are included in both FMS and the segment that served the customer and then eliminated upon consolidation (presented as “Eliminations”). Inter-segment EBT allocated to SCS and DTS includes earnings related to equipment used in providing services to SCS and DTS customers.
The following table sets forth the benefits from equipment contribution included in EBT for our SCS and DTS business segments:

| Three months ended September 30, |  | Nine months ended September 30, |  | Change 2020/2019
| 2020 |  | 2019 |  | 2020 |  | 2019 |  | Three Months |  | Nine Months
| (In thousands) |  |  |  |
Equipment Contribution: |  |  |  |  |  |  |  |  |  |  |
Supply Chain Solutions | $ | 4,380 |  |  | $ | 3,060 |  |  | $ | 12,178 |  |  | $ | 18,718 |  |  | 43% |  | (35)%
Dedicated Transportation Solutions | 8,556 |  |  | 3,058 |  |  | 18,572 |  |  | 23,868 |  |  | NM |  | (22)%
Total (1) | $ | 12,936 |  |  | $ | 6,118 |  |  | $ | 30,750 |  |  | $ | 42,586 |  |  | NM |  | (28)%

———————————
(1)Total amoun t is included in FMS EBT.
The increase in SCS and DTS equipment contribution in the third quarter is primarily related to a declining impact associated with the prior residual value estimate changes on vehicles used to provide services to SCS and DTS customers and a one-time benefit from a customer contract termination in DTS. For the nine months ended September 30, 2020, the decrease in SCS and DTS equipment contribution is primarily related to the higher impact associated with the prior residual value estimate changes on vehicles used to provide services to SCS and DTS customers.
Items excluded from our segment EBT measure and their classification within our Condensed Consolidated Statements of Earnings are as follows:

|  |  | Three months ended September 30, |  | Nine months ended September 30,
Description |  | Classification | 2020 |  | 2019 |  | 2020 |  | 2019
|  |  | (In thousands)
Restructuring and other, net (1) |  | Revenue and Restructuring and other items, net | $ | (13,767) |  |  | $ | (5,234) |  |  | $ | (43,790) |  |  | $ | (13,757) |
ERP implementation costs (1) |  | Restructuring and other items, net | (5,751) |  |  | (6,126) |  |  | (27,109) |  |  | (13,617) |
Gains on sale of properties (1) |  | Miscellaneous (income) loss, net | 3,733 |  |  | — |  |  | 3,733 |  |  | 18,614 |
Other items impacting comparability, net | (15,785) |  |  | (11,360) |  |  | (67,166) |  |  | (8,760) |
Non-operating pension costs |  | Non-operating pension costs | (7,200) |  |  | (6,885) |  |  | (9,357) |  |  | (20,060) |
|  |  | $ | (22,985) |  |  | $ | (18,245) |  |  | $ | (76,523) |  |  | $ | (28,820) |

———————————
(1)See Note 16, “Other Items Impacting Comparability,” in the Notes to Condensed Consolidated Financial Statements for additional information.
34

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

| Three months ended September 30, |  | Nine months ended September 30, |  | Change 2020/2019
| 2020 |  | 2019 |  | 2020 |  | 2019 |  | Three Months |  | Nine Months
| (In thousands) |  |  |  |
ChoiceLease | $ | 788,179 |  |  | $ | 770,719 |  |  | $ | 2,346,546 |  |  | $ | 2,268,048 |  |  | 2% |  | 3%
SelectCare | 128,373 |  |  | 133,434 |  |  | 390,370 |  |  | 405,572 |  |  | (4)% |  | (4)%
Commercial rental | 220,076 |  |  | 262,976 |  |  | 595,013 |  |  | 752,995 |  |  | (16)% |  | (21)%
Other | 16,738 |  |  | 22,456 |  |  | 52,496 |  |  | 68,681 |  |  | (25)% |  | (24)%
Fuel services | 138,880 |  |  | 198,669 |  |  | 429,468 |  |  | 618,906 |  |  | (30)% |  | (31)%
ChoiceLease liability insurance (1) | 4,971 |  |  | 9,092 |  |  | 21,738 |  |  | 25,653 |  |  | (45)% |  | (15)%
FMS total revenue (2) | $ | 1,297,217 |  |  | $ | 1,397,346 |  |  | $ | 3,835,631 |  |  | $ | 4,139,855 |  |  | (7)% |  | (7)%
FMS operating revenue (3) | $ | 1,153,366 |  |  | $ | 1,189,585 |  |  | $ | 3,384,425 |  |  | $ | 3,495,296 |  |  | (3)% |  | (3)%
FMS EBT | $ | 16,152 |  |  | $ | (108,550) |  |  | $ | (202,157) |  |  | $ | 10,107 |  |  | NM |  | NM
FMS EBT as a % of FMS total revenue | 1.2% |  | (7.8)% |  | (5.3)% |  | 0.2% |  | 900 bps |  | (550) bps
FMS EBT as a % of FMS operating revenue (3) | 1.4% |  | (9.1)% |  | (6.0)% |  | 0.3% |  | 1,050 bps |  | (630) bps

————————————
(1)In the first quarter of 2020, we announced our plan to exit the extension of our liability insurance coverage for ChoiceLease customers. The exit of this program is estimated to be completed in the second quarter of 2021. We have revised our definition of operating revenue to exclude the revenues associated with this program for better comparability of our on-going operations.
(2)Includes intercompany fuel sales from FMS to SCS and DTS.
(3)Non-GAAP financial measures. Reconciliations of FMS total revenue to FMS operating revenue and FMS EBT as a % of FMS total revenue to FMS EBT as a % of FMS operating revenue, as well as the reasons why management believes these measures are important to investors are included in the “Non-GAAP Financial Measures” section of this MD&A.
The following table summarizes the components of the change in FMS revenue on a percentage basis versus the prior year:

| Three months ended September 30, 2020 |  | Nine months ended September 30, 2020
| Total |  | Operating (1) |  | Total |  | Operating (1)
Organic including price and volume | (3)% |  | (3)% |  | (2)% |  | (3)%
FMS fuel | (4)% |  | —% |  | (5)% |  | —%
Net increase (decrease) | (7)% |  | (3)% |  | (7)% |  | (3)%

————————————
(1)Non-GAAP financial measure. A reconciliation of FMS total revenue to FMS operating revenue as well as the reasons why management believes this measure is important to investors is included in the "Non-GAAP Financial Measures" section of this MD&A.
FMS total revenue decreased to $1.3 billion in the third quarter and $3.8 billion for the nine months ended September 30, 2020 primarily due to lower fuel services and commercial rental revenues, partially offset by higher ChoiceLease revenue. FMS operating revenue decreased to $1.2 billion in the third quarter and $3.4 billion for the nine months ended September 30, 2020 primarily from declines in commercial rental as demand was impacted from COVID-19, particularly in the second quarter of 2020, partially offset by higher pricing in ChoiceLease.
ChoiceLease revenue increased 2% in the third quarter and 3% for the nine months ended September 30, 2020 primarily due to higher prices on vehicles. In addition, ChoiceLease revenue also increased for the nine months ended September 30, 2020 due to larger average fleet size partially offset by lower revenue based on mileage. SelectCare revenue decreased 4% in both the third quarter and the nine months ended September 30, 2020 due to lower volumes. Commercial rental revenue decreased 16% in the third quarter and 21% in the nine months ended September 30, 2020 primarily due to lower demand (see further discussion below). Commercial rental revenue for the nine months ended September 30, 2020 included an estimated negative impact in the first half of 2020 from COVID-19 of approximately $70 million. Fuel services revenue decreased 30% in the third quarter and
35

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
31% in the nine months ended September 30, 2020 primarily reflecting lower fuel costs passed through to customers and lower gallons sold.
The following table provides commercial rental statistics on our global fleet:

| Three months ended September 30, |  | Nine months ended September 30, |  | Change 2020/2019
| 2020 |  | 2019 |  | 2020 |  | 2019 |  | Three Months |  | Nine Months
| (In thousands, except fleet count) |  |  |  |
Rental revenue from non-lease customers | $ | 150,446 |  |  | $ | 163,401 |  |  | $ | 386,996 |  |  | $ | 445,150 |  |  | (8)% |  | (13)%
Rental revenue from lease customers (1) | $ | 69,630 |  |  | $ | 99,575 |  |  | $ | 208,017 |  |  | $ | 307,845 |  |  | (30)% |  | (32)%
Average commercial rental power fleet size — in service (2) (3) | 30,400 |  | 37,500 |  | 31,700 |  | 36,100 |  | (19)% |  | (12)%
Commercial rental utilization — power fleet (2) | 70.8% |  | 74.0% |  | 63.7% |  | 74.7% |  | (320) bps |  | (1,100) bps

————————————
(1)Represents revenue from rental vehicles provided to our existing ChoiceLease customers, generally in place of a lease vehicle.
(2)Number of units rounded to nearest hundred and calculated using quarterly average unit counts.
(3)Excluding trailers.
FMS EBT increased to earnings of $16 million in the third quarter of 2020 from a loss of $109 million in the prior year period. The increase of FMS EBT was primarily due to declining depreciation expense impacts from prior residual value estimate changes and improved used vehicle sales totaling $108 million as compared to prior year period. In addition, lease results increased in the third quarter as a result of higher prices on vehicles and lower maintenance costs, including benefits from our cost-savings initiatives. These increases were partially offset by lower commercial rental results, which was negatively impacted by lower demand on a smaller fleet. Rental power fleet utilization decreased to 70.8% for the third quarter as noted in the table above.
For the nine months ended September 30, 2020, FMS EBT decreased to a loss of $202 million from earnings of $10 million in the prior year period primarily due to higher depreciation expense impacts from prior residual value estimate changes, which resulted in negative year-over-year EBT impact of $139 million. The nine months ended September 30, 2020 also included a negative impact in the first half of the year of approximately $70 million due to lower rental demand and higher credit loss reserves related to COVID-19. Rental power fleet utilization decreased to 63.7% in the nine months ended September 30, 2020 as noted in the table above. Since the end of the first quarter, commercial rental demand has been negatively impacted by COVID-19 as discussed further below. However, utilization increased throughout the third quarter due to improving economic conditions and actions taken to reduce the rental fleet size. These negative impacts were partially offset by COVID-19-related cost actions, including temporary employee furloughs in the second quarter, as well as lower medical expenses. In addition, lease results increased for the nine months ended September 30, 2020 primarily due to higher prices on vehicles and lower maintenance costs, including benefits from our cost-savings initiatives.
In the first half of 2020, we performed a review of the estimated residual values of our FMS revenue earning equipment for both accelerated and policy depreciation primarily due to the COVID-19 pandemic and the impact on current and expected used vehicle market conditions, including our expectation on a delayed recovery in the used vehicle market beyond our previous expectation of mid-2021. Refer to "Critical Accounting Estimates" below and Note 5, "Revenue Earning Equipment, net" in the Condensed Consolidated Financial Statements for additional information.
As a result of the COVID-19 pandemic, demand for commercial rental vehicles was significantly impacted in the second quarter due to a substantial reduction in business activity. We took actions to reduce the rental fleet size, and redeploy rental vehicles to fulfill new lease contracts and support the SCS and DTS segments. ChoiceLease operations have not been materially impacted to date by the pandemic, however we expect lower lease sales activity for the remainder of 2020 as compared to the prior year.
36

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

|  |  |  |  |  |  | Change
| September 30, 2020 |  | December 31, 2019 |  | September 30, 2019 |  | Sept 2020/ Dec. 2019 |  | Sept 2020/ Sept 2019
End of period vehicle count |  |  |  |  |  |  |  |  |
By type: |  |  |  |  |  |  |  |  |
Trucks (1) | 79,400 |  |  | 85,200 |  |  | 86,000 |  |  | (7)% |  | (8)%
Tractors (2) | 75,400 |  |  | 82,400 |  |  | 82,300 |  |  | (8)% |  | (8)%
Trailers (3) | 44,000 |  |  | 45,400 |  |  | 45,600 |  |  | (3)% |  | (4)%
Other | 800 |  |  | 800 |  |  | 1,000 |  |  | —% |  | (20)%
Total | 199,600 |  |  | 213,800 |  |  | 214,900 |  |  | (7)% |  | (7)%
By product line: |  |  |  |  |  |  |  |  |
ChoiceLease | 150,900 |  |  | 159,800 |  |  | 160,200 |  |  | (6)% |  | (6)%
Commercial rental | 35,400 |  |  | 41,900 |  |  | 44,800 |  |  | (16)% |  | (21)%
Service vehicles and other | 2,600 |  |  | 2,700 |  |  | 2,600 |  |  | (4)% |  | —%
| 188,900 |  |  | 204,400 |  |  | 207,600 |  |  | (8)% |  | (9)%
Held for sale | 10,700 |  |  | 9,400 |  |  | 7,300 |  |  | 14% |  | 47%
Total | 199,600 |  |  | 213,800 |  |  | 214,900 |  |  | (7)% |  | (7)%
Customer vehicles under SelectCare contracts (4) | 55,000 |  |  | 55,800 |  |  | 56,800 |  |  | (1)% |  | (3)%
Quarterly average vehicle count |  |  |  |  |  |  |  |  |
By product line: |  |  |  |  |  |  |  |  |
ChoiceLease | 152,400 |  |  | 160,200 |  |  | 159,000 |  |  | (5)% |  | (4)%
Commercial rental | 36,000 |  |  | 43,300 |  |  | 45,200 |  |  | (17)% |  | (20)%
Service vehicles and other | 2,600 |  |  | 2,700 |  |  | 2,700 |  |  | (4)% |  | (4)%
| 191,000 |  |  | 206,200 |  |  | 206,900 |  |  | (7)% |  | (8)%
Held for sale | 12,800 |  |  | 8,200 |  |  | 7,700 |  |  | 56% |  | 66%
Total | 203,800 |  |  | 214,400 |  |  | 214,600 |  |  | (5)% |  | (5)%
Customer vehicles under SelectCare contracts (4) | 56,500 |  |  | 56,900 |  |  | 56,400 |  |  | (1)% |  | —%
Customer vehicles under SelectCare on-demand (5) | 6,200 |  |  | 8,500 |  |  | 8,300 |  |  | (27)% |  | (25)%
Total vehicles serviced | 266,500 |  |  | 279,800 |  |  | 279,300 |  |  | (5)% |  | (5)%
Year-to-date average vehicle count |  |  |  |  |  |  |  |  |
By product line: |  |  |  |  |  |  |  |  |
ChoiceLease | 156,300 |  |  | 156,600 |  |  | 154,900 |  |  | —% |  | 1%
Commercial rental | 38,200 |  |  | 44,100 |  |  | 44,100 |  |  | (13)% |  | (13)%
Service vehicles and other | 2,700 |  |  | 2,700 |  |  | 2,700 |  |  | —% |  | —%
| 197,200 |  |  | 203,400 |  |  | 201,700 |  |  | (3)% |  | (2)%
Held for sale | 12,000 |  |  | 7,800 |  |  | 7,600 |  |  | 54% |  | 58%
Total | 209,200 |  |  | 211,200 |  |  | 209,300 |  |  | (1)% |  | —%
Customer vehicles under SelectCare contracts (4) | 55,200 |  |  | 56,300 |  |  | 55,500 |  |  | (2)% |  | (1)%
Customer vehicles under SelectCare on-demand (5) | 15,400 |  |  | 23,200 |  |  | 19,400 |  |  | (34)% |  | (21)%
Total vehicle serviced | 279,800 |  |  | 290,700 |  |  | 284,200 |  |  | (4)% |  | (2)%

———————————
(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)Excludes customer vehicles under SelectCare on-demand contracts.
(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 and year-to-date amounts were computed using a 6-point average based on monthly information.
37

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
The following table provides information on our active fleet (number of units rounded to nearest hundred):

|  |  |  |  |  |  | Change
| September 30, 2020 |  | December 31, 2019 |  | September 30, 2019 |  | Sept 2020/ Dec. 2019 |  | Sept 2020/ Sept 2019
End of period vehicle count |  |  |  |  |  |  |  |  |
Active ChoiceLease vehicles (1) | 143,400 |  |  | 147,400 |  |  | 146,000 |  |  | (3)% |  | (2)%
Quarterly average vehicle count |  |  |  |  |  |  |  |  |
Active ChoiceLease vehicles (1) | 144,100 |  |  | 146,900 |  |  | 145,200 |  |  | (2)% |  | (1)%
Revenue per active ChoiceLease vehicle (2) | $ | 5,500 |  |  | $ | 5,500 |  |  | $ | 5,300 |  |  | —% |  | 4%

———————————
(1)Active ChoiceLease vehicles are calculated as those units currently earning revenue and not classified as not yet earning or no longer earning units.
(2)Calculated based on the reported quarterly ChoiceLease revenue.
Note: Quarterly and year-to-date amounts were computed using a 6-point average based on monthly information.
The following table provides a breakdown of our non-revenue earning equipment included in our end of period global fleet count (number of units rounded to nearest hundred):

|  |  |  |  |  |  | Change
| September 30, 2020 |  | December 31, 2019 |  | September 30, 2019 |  | Sept 2020/ Dec. 2019 |  | Sept 2020/ Sept 2019
Not yet earning revenue (NYE) | 1,100 |  |  | 3,500 |  |  | 4,400 |  |  | (69)% |  | (75)%
No longer earning revenue (NLE): |  |  |  |  |  |  |  |  |
Units held for sale | 10,700 |  |  | 9,400 |  |  | 7,300 |  |  | 14% |  | 47%
Other NLE units | 4,800 |  |  | 8,400 |  |  | 10,100 |  |  | (43)% |  | (52)%
Total NLE | 15,500 |  |  | 17,800 |  |  | 17,400 |  |  | (13)% |  | (11)%
Total | 16,600 |  |  | 21,300 |  |  | 21,800 |  |  | (22)% |  | (24)%

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 75% compared to September 30, 2019 reflecting lower lease sales.
NLE units represent vehicles held for sale and vehicles for which no revenue has been earned in the previous 30 days. Accordingly, these vehicles may be temporarily out of service, being prepared for sale or awaiting redeployment. NLE units decreased compared to September 30, 2019 as we have a higher number of units held for sale offset by lower number of units being prepared for sale or redeployment.
38

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

| Three months ended September 30, |  | Nine months ended September 30, |  | Change 2020/2019
| 2020 |  | 2019 |  | 2020 |  | 2019 |  | Three Months |  | Nine Months
| (In thousands, except vehicle counts) |  |  |  |
Automotive | $ | 181,962 |  |  | $ | 170,352 |  |  | $ | 462,822 |  |  | $ | 528,859 |  |  | 7% |  | (12)%
Technology and healthcare | 55,285 |  |  | 58,858 |  |  | 167,901 |  |  | 208,961 |  |  | (6)% |  | (20)%
Consumer product goods and retail | 205,711 |  |  | 179,698 |  |  | 590,430 |  |  | 543,664 |  |  | 14% |  | 9%
Industrial and other | 49,330 |  |  | 44,803 |  |  | 143,503 |  |  | 132,072 |  |  | 10% |  | 9%
Subcontracted transportation | 172,003 |  |  | 136,914 |  |  | 409,939 |  |  | 400,424 |  |  | 26% |  | 2%
Fuel | 21,124 |  |  | 26,975 |  |  | 58,585 |  |  | 88,602 |  |  | (22)% |  | (34)%
SCS total revenue | $ | 685,415 |  |  | $ | 617,600 |  |  | $ | 1,833,180 |  |  | $ | 1,902,582 |  |  | 11% |  | (4)%
SCS operating revenue (1) | $ | 492,288 |  |  | $ | 453,711 |  |  | $ | 1,364,656 |  |  | $ | 1,413,556 |  |  | 9% |  | (3)%
SCS EBT | $ | 57,848 |  |  | $ | 34,595 |  |  | $ | 125,789 |  |  | $ | 112,686 |  |  | 67% |  | 12%
SCS EBT as a % of SCS total revenue | 8.4% |  | 5.6% |  | 6.9% |  | 5.9% |  | 280 bps |  | 100 bps
SCS EBT as a % of SCS operating revenue (1) | 11.8% |  | 7.6% |  | 9.2% |  | 8.0% |  | 420 bps |  | 120 bps
Memo: |  |  |  |  |  |  |  |  |  |  |
Average fleet | 9,600 |  |  | 9,700 |  |  | 9,600 |  |  | 9,700 |  |  | (1)% |  | (1)%

————————————
(1)Non-GAAP financial measures. Reconciliations of SCS total revenue to SCS operating revenue and SCS EBT as a % of SCS total revenue to SCS EBT as a % of SCS operating revenue, as well as the reasons why management believes these measures are important to investors are included in the “Non-GAAP Financial Measures” section of this MD&A.
The following table summarizes the components of the change in SCS revenue on a percentage basis versus the prior year:

| Three months ended September 30, 2020 |  | Nine months ended September 30, 2020
| Total |  | Operating (1) |  | Total |  | Operating (1)
Organic including price and volume | 7% |  | 10% |  | (2)% |  | (2)%
Subcontracted transportation | 6% |  | —% |  | 1% |  | —%
Foreign exchange | (1)% |  | (1)% |  | (1)% |  | (1)%
Fuel | (1)% |  | —% |  | (2)% |  | —%
Net increase (decrease) | 11% |  | 9% |  | (4)% |  | (3)%

————————————
(1)Non-GAAP financial measure. A reconciliation of SCS total revenue to SCS operating revenue, as well as the reasons why management believes this measure is important to investors is included in the "Non-GAAP Financial Measures" section of this MD&A.
SCS total revenue and operating revenue (a non-GAAP measure excluding fuel and subcontracted transportation) increased 11% and 9%, respectively, in the third quarter of 2020 primarily due to new business, higher volume and increased pricing. We experienced increased volumes in our automotive vertical during the third quarter as a result of higher production support activity following the shutdowns in the first half of 2020, as well as increased volumes related to COVID-19 activity in our consumer packaged goods vertical and in our last mile business. SCS total revenue and operating revenue decreased 4% and 3%, respectively, in the nine months ended September 30, 2020 primarily due to lower activity in our automotive vertical as a result of production shutdowns related to the COVID-19 pandemic, partially offset by increased pricing, higher volumes and new business in several verticals. The nine months ended September 30, 2020 included estimated negative COVID-19 related impacts of approximately $70 million in the first half of 2020, primarily due to shutdowns in our automotive vertical.
SCS EBT increased 67% in the third quarter primarily due to new business, higher pricing and improved operating performance. For the nine months ended September 30, 2020, SCS EBT increased 12% due to improved operating performance and higher pricing, partially offset by first half of 2020 estimated impacts of COVID-19 of approximately $35 million,
39

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
particularly due to the temporary shutdowns in our automotive vertical. In addition, EBT was impacted by a decrease in equipment contribution of $7 million for the nine months ended September 30, 2020 (see further discussions on equipment contribution above).
In the second quarter, our automotive customers resumed production and are generally operating at above pre-COVID levels as of the end of the third quarter, however volumes may be impacted in the future based on customer production schedules and other economic impacts and recovery in the consumer market.
Dedicated Transportation Solutions

| Three months ended September 30, |  | Nine months ended September 30, |  | Change 2020/2019
| 2020 |  | 2019 |  | 2020 |  | 2019 |  | Three Months |  | Nine Months
| (In thousands, except vehicle counts) |  |  |  |
DTS total revenue | $ | 299,680 |  |  | $ | 359,211 |  |  | $ | 928,512 |  |  | $ | 1,071,076 |  |  | (17)% |  | (13)%
DTS operating revenue (1) | $ | 233,629 |  |  | $ | 247,715 |  |  | $ | 698,245 |  |  | $ | 731,399 |  |  | (6)% |  | (5)%
DTS EBT | $ | 24,728 |  |  | $ | 18,490 |  |  | $ | 58,141 |  |  | $ | 63,034 |  |  | 34% |  | (8)%
DTS EBT as a % of DTS total revenue | 8.3% |  | 5.1% |  | 6.3% |  | 5.9% |  | 320 bps |  | 40 bps
DTS EBT as a % of DTS operating revenue (1) | 10.6% |  | 7.5% |  | 8.3% |  | 8.6% |  | 310 bps |  | (30) bps
Memo: |  |  |  |  |  |  |  |  |  |  |
Average fleet | 9,300 |  |  | 9,600 |  |  | 9,400 |  |  | 9,600 |  |  | (3)% |  | (2)%

————————————
(1)Non-GAAP financial measures. Reconciliations of DTS total revenue to DTS operating revenue and DTS EBT as a % of DTS total revenue to DTS EBT as a % of DTS operating revenue, as well as the reasons why management believes these measures are important to investors are included in the “Non-GAAP Financial Measures” section of this MD&A.
The following table summarizes the components of the change in DTS revenue on a percentage basis versus the prior year:

| Three months ended September 30, 2020 |  | Nine months ended September 30, 2020
| Total |  | Operating (1) |  | Total |  | Operating (1)
Organic including price and volume | (4)% |  | (6)% |  | (2)% |  | (5)%
Subcontracted transportation | (10)% |  | —% |  | (8)% |  | —%
Fuel | (3)% |  | —% |  | (3)% |  | —%
Net increase (decrease) | (17)% |  | (6)% |  | (13)% |  | (5)%

————————————
(1)Non-GAAP financial measure. A reconciliation of DTS total revenue to DTS operating revenue, as well as the reasons why management believes this measure is important to investors is included in the "Non-GAAP Financial Measures" section of this MD&A.
DTS total revenue decreased 17% in the third quarter and 13% in the nine months ended September 30, 2020 due to lower subcontracted transportation, fuel and operating revenue (a non-GAAP measure excluding fuel and subcontracted transportation). DTS operating revenue decreased 6% in the third quarter and 5% in the nine months ended September 30, 2020 primarily reflecting non-renewed business and lower volumes.
DTS EBT increased 34% in third quarter primarily due to a declining impact associated with prior residual value estimate changes, a one-time benefit from a customer contract termination, and improved operating performance. DTS EBT decreased 8% in the nine months ended September 30, 2020 primarily due to additional depreciation expense from prior residual value estimate changes and higher overheads partially offset by improved operating performance.
40

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

| Three months ended September 30, |  | Nine months ended September 30, |  | Change 2020/2019
| 2020 |  | 2019 |  | 2020 |  | 2019 |  | Three Months |  | Nine Months
| (In thousands) |  |  |  |
Human resources | $ | 4,868 |  |  | $ | 5,124 |  |  | $ | 15,372 |  |  | $ | 15,747 |  |  | (5)% |  | (2)%
Finance and procurement | 17,020 |  |  | 18,584 |  |  | 52,766 |  |  | 55,004 |  |  | (8)% |  | (4)%
Corporate services and public affairs | 1,716 |  |  | 1,596 |  |  | 5,426 |  |  | 6,264 |  |  | 8% |  | (13)%
Information technology | 19,391 |  |  | 20,179 |  |  | 56,817 |  |  | 61,178 |  |  | (4)% |  | (7)%
Legal and safety | 6,853 |  |  | 6,319 |  |  | 21,328 |  |  | 19,996 |  |  | 8% |  | 7%
Marketing | 6,861 |  |  | 6,014 |  |  | 15,791 |  |  | 16,218 |  |  | 14% |  | (3)%
Other | 8,132 |  |  | 9,461 |  |  | 24,934 |  |  | 27,531 |  |  | (14)% |  | (9)%
Total CSS | 64,841 |  |  | 67,277 |  |  | 192,434 |  |  | 201,938 |  |  | (4)% |  | (5)%
Allocation of CSS to business segments | (56,799) |  |  | (55,845) |  |  | (164,288) |  |  | (167,477) |  |  | 2% |  | (2)%
Unallocated CSS | $ | 8,042 |  |  | $ | 11,432 |  |  | $ | 28,146 |  |  | $ | 34,461 |  |  | (30)% |  | (18)%

Total CSS costs decreased 4% in the third quarter. For the nine months ended September 30, 2020, total CSS costs decreased 5% due to certain cost reduction strategies initiated during the second quarter as a response to COVID-19, including lower compensation related expenses and lower discretionary, travel and marketing spend. Unallocated CSS decreased by $3 million in the third quarter and $6 million in the nine months ended September 30, 2020 due to lower compensation related expenses and cost reduction strategies initiated in the second quarter.
41

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

| Nine months ended September 30,
| 2020 |  | 2019
| (In thousands)
Net cash provided by (used in): |  |  |
Operating activities | $ | 1,696,589 |  |  | $ | 1,589,186 |
Investing activities | (484,419) |  |  | (2,553,763) |
Financing activities | (603,715) |  |  | 976,560 |
Effect of exchange rate changes on cash | 2,866 |  |  | (3,254) |
Net change in cash and cash equivalents | $ | 611,321 |  |  | $ | 8,729 |
| Nine months ended September 30,
| 2020 |  | 2019
| (In thousands)
Net cash provided by operating activities |  |  |
Earnings (loss) from continuing operations | $ | (137,749) |  |  | $ | 29,804 |
Non-cash and other, net | 1,729,534 |  |  | 1,596,955 |
Collections on sales-type leases | 85,662 |  |  | 89,995 |
Changes in operating assets and liabilities: |  |  |
Receivables | 6,646 |  |  | (17,784) |
Accounts payable | (14,733) |  |  | (30,241) |
Changes in other assets and liabilities | 27,229 |  |  | (79,543) |
Cash flows from operating activities from continuing operations | $ | 1,696,589 |  |  | $ | 1,589,186 |

Cash provided by operating activities increased to $1.7 billion in the nine months ended September 30, 2020 compared with $1.6 billion in 2019, reflecting lower working capital needs. Our working capital needs are primarily driven by the timing of collections of our receivables and payments of our trade payables, as well as other changes in operating assets and liabilities. The impact in receivables was primarily due to lower revenues as a result of COVID-19 partially offset by the extension of credit terms for certain customers. The impact from trade payables was primarily due to lower spend. In addition, the favorable impact from changes in other assets and liabilities was driven by lower payments related to salaries and wages and a decrease in inventories in 2020. Cash used in investing activities decreased to $484 million in the nine months ended September 30, 2020 compared with $2.6 billion in 2019, primarily due to a decrease in capital expenditures as a result of lower ChoiceLease sales and rental activity. Cash provided by (used in) financing activities decreased to ($604) million in the nine months ended September 30, 2020 compared with $977 million in 2019 due to increased debt repayments and lower debt borrowings.
42

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
The following table shows our free cash flow computation:

| Nine months ended September 30,
| 2020 |  | 2019
| (In thousands)
Net cash provided by operating activities | $ | 1,696,589 |  |  | $ | 1,589,186 |
Sales of revenue earning equipment (1) | 390,767 |  |  | 353,743 |
Sales of operating property and equipment (1) | 9,918 |  |  | 49,726 |
Total cash generated (2) | 2,097,274 |  |  | 1,992,655 |
Purchases of property and revenue earning equipment (1) | (879,400) |  |  | (2,957,232) |
Free cash flow (2) | $ | 1,217,874 |  |  | $ | (964,577) |

———————————
(1)Included in cash flows from investing activities.
(2)Non-GAAP financial measures. Reconciliations of net cash provided by operating activities to total cash generated and to free cash flow are set forth in this table. Refer to the “Non-GAAP Financial Measures” section of this MD&A for the reasons why management believes these measures are important to investors.
Free cash flow increased to $1.2 billion in the nine months ended September 30, 2020 from negative $1.0 billion in 2019 primarily due to lower capital expenditures and, to a lesser extent, higher cash flows from operations in 2020. We expect an increase of free cash flow through the remainder of 2020 as a result of lower capital expenditures based on lower ChoiceLease sales and rental activity related to COVID-19 and our strategy to improve our returns, as well as improved cash flows from operating activities.
Capital expenditures generally represent the purchase of revenue earning equipment (trucks, tractors and trailers) within our FMS segment. These expenditures primarily support the ChoiceLease and commercial rental product lines. The level of capital required to support the ChoiceLease product line varies based on customer contract signings for replacement vehicles and growth. These contracts are long-term agreements that result in predictable cash flows typically over three to seven years for trucks and tractors and ten years for trailers. We utilize capital for the purchase of vehicles in our commercial rental product line to replenish and expand the fleet available for shorter-term use by contractual or occasional customers. Operating property and equipment expenditures primarily relate to spending on items such as vehicle maintenance facilities and equipment, computer and telecommunications equipment, investments in technologies, and warehouse facilities and equipment.
The following table provides a summary of capital expenditures:

| Nine months ended September 30,
| 2020 |  | 2019
| (In thousands)
Revenue earning equipment: |  |  |
ChoiceLease | $ | 601,326 |  |  | $ | 2,311,491 |
Commercial rental | 73,466 |  |  | 551,062 |
| 674,792 |  |  | 2,862,553 |
Operating property and equipment | 90,164 |  |  | 136,451 |
Total capital expenditures | 764,956 |  |  | 2,999,004 |
Changes in accounts payable related to purchases of revenue earning equipment | 114,444 |  |  | (41,772) |
Cash paid for purchases of property and revenue earning equipment | $ | 879,400 |  |  | $ | 2,957,232 |

Capital expenditures decreased 74% to $765 million in the nine months ended September 30, 2020 reflecting lower investments in the ChoiceLease and rental fleets as a result of reduced sales activity and rental demand. In relation to the COVID-19 pandemic, we cancelled or postponed vehicle orders in the second quarter where possible, which has significantly reduced capital expenditures during 2020. In September 2020, we began to reinstate some of the postponed vehicle orders, however we expect these vehicles to be delivered late in 2020 and into 2021.
43

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
Financing and Other Funding Transactions
We utilize external capital primarily to support working capital needs and growth in our asset-based product lines. The variety of financing alternatives typically available to fund our capital needs include commercial paper, long-term and medium-term public and private debt, asset-backed securities, bank term loans, leasing arrangements, and bank credit facilities. Our principal sources of financing are issuances of commercial paper and medium-term notes.
Cash and cash equivalents totaled $684 million as of September 30, 2020. As of September 30, 2020, approximately $67 million was held outside the U.S. and is available to fund operations and other growth of non-U.S. subsidiaries. If we decide to repatriate cash and cash equivalents held outside the U.S., we may be subject to additional income taxes and foreign withholding taxes. However, our intent is to permanently reinvest these foreign amounts outside the U.S. and our current plans do not demonstrate a need to repatriate these foreign amounts to fund our U.S. operations.
We believe that our operating cash flows, together with our access to the public unsecured bond market, commercial paper market and other available debt financing, will be adequate to meet our operating, investing and financing needs in the foreseeable future. However, there can be no assurance that volatility and disruption in the public unsecured debt market or the commercial paper market would not impair our ability to access these markets on terms commercially acceptable to us or at all. If we cease to have access to public bonds, commercial paper and other sources of unsecured borrowings, we would meet our liquidity needs by drawing upon contractually committed lending agreements and/or by seeking other funding sources. In the second quarter of 2020, we also amended our net worth covenant in our revolving credit facility and other debt instruments to enable more flexibility under the covenant. Refer to Note 10, “Debt,” in the Notes to Condensed Consolidated Financial Statements for information on our net worth covenant amendment and further discussion around the global revolving credit facility, the trade receivables program, the issuance of medium-term notes under our shelf registration statement, asset-backed financing obligations and debt maturit ies.
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 our particular 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 global revolving credit facility described below, assuming ongoing compliance with the terms and conditions of the credit facility.
Our debt ratings and rating outlooks at September 30, 2020 were as follows:

| Rating Summary
| Short-term |  | Short-term Outlook |  |  | Long-term |  | Long-term Outlook
Standard & Poor’s Ratings Services | A2 |  | Stable |  |  | BBB |  | Stable
Moody’s Investors Service | P2 |  | Stable |  |  | Baa2 |  | Stable
Fitch Ratings | F2 |  | Stable |  |  | BBB+ |  | Negative
DBRS | R-1 (Low) |  | Negative |  |  | A (Low) |  | Negative

As of September 30, 2020, we had the following amounts available to fund operations under the following facilities:

| (In millions)
Global revolving credit facility | $ | 1,248 |
Trade receivables program | $ | 300 |

In accordance with our funding philosophy, we attempt to align the aggregate average remaining re-pricing life of our debt with the aggregate average remaining re-pricing life of our assets. We utilize both fixed-rate and variable-rate debt to achieve this alignment and generally target a mix of 20% - 40% va riable-rate debt as a percentage of total debt outstanding. The variable-rate portion of our total debt (including notional value of swap agreeme nts) was 11% and 17% as September 30, 2020 and December 31, 2019, respectively.
Our debt to equity ratio was 346% and 320% as of September 30, 2020 and December 31, 2019, respectively. The debt to equity ratio represents total debt divided by total equity. Th e increase is due to the reduction in equity related to higher depreciation expense impacts from our prior residual value estimate changes, higher cash balance due to the uncertainty of the
44

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
economic environment, and impacts of a lower discount rate on our pension plans that were remeasured in the third quarter (see further discussion below in "Pension Information"). As of September 30, 2020, the debt to equity ratio increased by 25 percentage points due to higher than normal cash balance in the U.S. and increased by 10 percentage points as a result of the impact on equity from the pension remeasurement.
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 2020, the expected total contributions to our pension plans are approximately $76 million, which included additional contributions of $38 million made during the third quarter. During the nine months ended September 30, 2020, we contribute d $74 million to o ur pens ion plans. On September 30, 2020, our Board of Directors agreed to freeze our defined benefit plans in the U.S. and Canada for certain previously grandfathered participants, which required us to remeasure our benefit obligation and related accumulated other comprehensive income amounts. See Note 15, “Employee Benefit Plans,” in the Notes to Condensed Consolidated Financial Statements for additional information.
Share Repurchases and Cash Dividends
See Note 11, “Share Repurchase Programs,” in the Notes to Condensed Consolidated Financial Statements for a discussion of share repurchases. During the second quarter, t he share repurchase program was put on hold temporarily due to the impact of COVID-19, however we intend to recommence the program in the fourth quarter of 2020.
In July 2020, our Board of Directors declared quarterly cash dividends of $0.56 per share of common stock, which were paid during the third quarter. In October 2020, our Board of Directors declared a quarterly cash dividend of $0.56 per share of common stock.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions. Certain of these policies require the application of subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. These estimates and assumptions are based on historical experience, changes in the business environment and other factors that we believe to be reasonable under the circumstances. Different estimates that could have been applied in the current period or changes in the accounting estimates that are reasonably likely can result in a material impact on our financial condition and operating results in the current and future periods.
The following discussion, which should be read in conjunction with the descriptions in the Notes to Condensed Consolidated Financial Statements and our Annual Report on Form 10-K, is furnished for additional insight into certain accounting estimates that have been updated since our 2019 Annual Report. For further discussion on our Critical Accounting Estimates and related policies, refer to the "Critical Accounting Estimates" section of our 2019 Annual Report on Form 10-K starting on page 48.
Depreciation and Residual Value Estimates. Depreciation on the vehicles in our fleet is determined at the time of acquisition and is recognized over a vehicle's useful life to its estimated residual value (i.e., the price at which we ultimately expect to dispose of vehicles) to attempt to minimize gains or losses upon sale in the used vehicle market.
We periodically review and adjust, as appropriate, the estimated residual values and useful lives of existing revenue earning equipment for the purposes of recording depreciation expense as described in Note 5, "Revenue Earning Equipment, net," in the Notes to Condensed Consolidated Financial Statements. Our review of the estimated residual values and useful lives of revenue earning equipment is established with a long-term view, which we refer to as "policy depreciation," based on vehicle class, generally subcategories of trucks, tractors and trailers by weight and usage, as well as other factors. These other factors include, but are not limited to, historical market prices, current and expected future market prices, expected lives of vehicles, and expected sales of used vehicles in the wholesale and retail markets. Reductions in estimated residual values or useful lives will result in an increase in depreciation expense over the remaining useful life of the vehicle.
45

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
We also assess estimates of residual values of vehicles expected to be made available for sale in the near-term (generally 12 to 24 months) based on near-term market rates and conditions and may adjust residual values for these vehicles, which we refer to as “accelerated depreciation.”
Due to the COVID-19 pandemic and the impact on current and expected used vehicle market conditions, we performed a review of the estimated residual values of our FMS revenue earning equipment in the second quarter of 2020 for both accelerated and policy depreciation. We did not have any further changes to our residual value estimates in the third quarter of 2020. For the three and nine months ended September 30, 2020, we recognized policy and accelerated depreciation impacts totaling $100 million and $405 million, respectively, related to prior residual value estimate changes in 2019 and 2020. The amounts included below only reflect the impacts from the estimate changes that occurred in the first and second quarters of 2020.
Accelerated Depreciation
In the first quarter of 2020, we revised our residual value estimates for vehicles that are expected to be sold in the near-term (through mid-2021) and recorded valuation adjustments on our vehicles held for sale due to the expected negative impacts of the COVID-19 pandemic on pricing and volume of used vehicle sales. At that time, we expected lower used vehicle pricing in the second half of 2020 due to lower demand rather than our previous expectations of a modest increase. In the second quarter of 2020, we further revised our residual value estimates to reflect an expected delayed recovery in the used vehicle market beyond mid-2021 and thus extended accelerated depreciation by an additional year to now include vehicles expected to be sold through mid-2022. As a result of these changes in estimated residual values, we recorded additional accelerated depreciation in the third quarter of 2020 of $23 million, which included net gains of $13 million for used vehicle sales results. For the nine months ended September 30, 2020, we recorded additional accelerated depreciation of $133 million, which included net losses of $17 million for used vehicle sales results.
As a result of these changes, our accelerated depreciation residual value levels for both tractors and trucks, which include the impacts of COVID-19, are currently below our average annual used vehicle pricing for each year in the last 20 years. These average annual used vehicle pricing levels are calculated based on used vehicle prices as a percentage of our original vehicle investment (cost).
Policy Depreciation
In the second quarter of 2020, as a result of the expected negative impacts on pricing and volumes related to COVID-19 and our lowered longer term outlook, we concluded that our residual value estimates likely exceeded the expected future values that would be realized upon the sale of vehicles in our fleet for vehicles expected to be sold after mid-2022. Therefore, we lowered our estimated residual values primarily for our truck fleet, and to a lesser extent, our tractor fleet, effective April 1, 2020. In evaluating our residual value estimates, we reviewed recent multi-year trends; management and third-party longer-term outlook for the used vehicle market, including impacts of COVID-19 and the demand and pricing of our used vehicles; expected sales volumes through our retail and wholesale channels; inventory levels; and other factors that management deemed necessary to appropriately reflect our expected long-term sales proceeds. In the three and nine months ended September 30, 2020, we recorded additional policy depreciation of $18 million and $36 million, respectively. The impact of the policy depreciation estimate change in the second quarter of 2020 as a percentage of our original vehicle investment was approximately 3%.
Policy Depreciation Sensitivity
Based on our fleet of revenue earning equipment as of the end of the third quarter, a hypothetical additional 10% reduction in estimated residual values used for policy depreciation would increase depreciation expense over the remaining life of these vehicles by approximately $280 million. Our average annual used vehicle pricing as a percentage of our original vehicle investment has been above policy depreciation residual value levels for trucks 19 out of the last 20 years and for tractors 17 out of the last 20 years.
While we believe that the carrying values and estimated sales proceeds for revenue earning equipment are reasonable, there can be no assurance that deterioration in economic conditions or adverse changes to expectations of future sales proceeds will not occur, resulting in losses on sales or revisions to residual value estimates. While management believes that current estimates are reasonable given our current outlook, if our used vehicle sales pricing as a percentage of our original vehicle investment does not improve, we will likely be required to lower residual value estimates even further which may have a material adverse effect on our financial results. Factors that could cause actual results to materially differ from estimates include, but are not limited to, changes in supply and demand; changes in technology; competitor pricing; regulatory requirements; driver shortages, requirements and preferences; and changes in underlying assumption factors. As a result, future residual value estimates and resulting depreciation expense are subject to change based upon changes in these factors.
46

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
Earnings Impact From Residual Value Estimate Changes
The following table includes the earnings impact on depreciation from the changes in residual value estimates in 2019 and 2020 based on the respective fleet at the time of each change.

| Three months ended |  |  |  |  |  |  |  |
| September 30, 2019 |  | December 31, 2019 |  | March 31, 2020 |  | June 30, 2020 (2) |  | September 30, 2020 |  |  |  |  |  |  |  |  |  |
| (in millions) |  |  |  |  |  |  |  |  |  |
Accelerated Depreciation (2019 - Q2 2020) (1) | $ | 148 |  |  | $ | 88 |  |  | $ | 100 |  |  | $ | 86 |  |  | $ | 33 |  |  |  |  |  |  |  |  |  |  |
Policy Depreciation (2019 - Q2 2020) | 60 |  |  | 60 |  |  | 51 |  |  | 68 |  |  | 67 |  |  |  |  |  |  |  |  |  |  |
Total | $ | 208 |  |  | $ | 148 |  |  | $ | 151 |  |  | $ | 154 |  |  | $ | 100 |  |  |  |  |  |  |  |  |  |  |

———————————
(1) Accelerated depreciation included losses from used vehicles sales, net (primarily valuation adjustments) of $23 million, $10 million, $21 million and $9 million for the three months ended September 30, 2019, December 31, 2019, March 31, 2020, and June 30, 2020, respectively. For the three months ended September 30, 2020, accelerated depreciation is offset by gains related to used vehicle sales of $13 million. Refer to Note 5, "Revenue Earning Equipment," in the Notes to the Condensed Consolidated Financial Statements for further information on used vehicle sales.
(2) Incremental depreciation expense was $35 million for the three months ended June 30, 2019 including impacts from accelerated and policy depreciation and losses for used vehicle sales, net.
Goodwill Impairment. We assess goodwill for impairment on October 1 st of each year or more often if deemed necessary. In the first quarter of 2020, we performed an interim impairment test of our FMS North America reporting unit (“FMS NA”) as a result of the decline in market conditions and our updated outlook as a result of the impact of COVID-19. Our valuation of fair value for FMS NA was determined based on a discounted future cash flow model (income approach) and the application of current market multiples for comparable publicly-traded companies (market approach). Based on our analysis, we determined that FMS NA goodwill was not impaired as of March 31, 2020, however the fair value was not substantially in excess of its carrying value. The estimated fair value of the FMS NA reporting unit exceeded its carrying value by approximately 5% as of March 31, 2020.
Given this level of fair value, in the event the financial performance of FMS NA does not meet our expectations in the future; we experience future prolonged market downturns, including in the used vehicle market or continued declines in our stock price; negative trends from the COVID-19 pandemic continue; or there are other negative revisions to key assumptions, we may be required to perform additional impairment analyses and could be required to recognize a non-cash goodwill impairment charge. As of March 31, 2020, we assessed that it was not more likely than not that our SCS and DTS reporting units fair value was less than its carrying value. As of September 30, 2020, there was $244 million of goodwill recorded related to FMS NA. We determined that there have not been any interim impairment trigger events since the first quarter of 2020.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 2, “Recent Accounting Pronouncements," in the Notes to Condensed Consolidated Financial Statements for a discussion of recent accounting pronouncements.
47

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 c ondensed consolidated 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. Non-GAAP financial measures should be considered in addition to, but not as a substitute for or superior to, other measures of financial performance or liquidity prepared in accordance with GAAP. Also, our non-GAAP financial measures may not be comparable to financial measures used by other companies. We provide a reconciliation of each of these non-GAAP financial measures to the most comparable GAAP measure in this non-GAAP financial measures section or in our results and liquidity discussions above. We also provide the reasons why management believes each non-GAAP financial measure is useful to investors in this section.
Specifically, we refer to the following non-GAAP financial measures in this Form 10-Q:

Non-GAAP Financial Measure | Comparable GAAP Measure
Operating Revenue Measures:
Operating Revenue | Total Revenue
FMS Operating Revenue | FMS Total Revenue
DTS Operating Revenue | DTS Total Revenue
SCS Operating Revenue | SCS Total Revenue
FMS EBT as a % of FMS Operating Revenue | FMS EBT as a % of FMS Total Revenue
SCS EBT as a % of SCS Operating Revenue | SCS EBT as a % of SCS Total Revenue
DTS EBT as a % of DTS Operating Revenue | DTS EBT as a % of DTS Total Revenue
Comparable Earnings Measures:
Comparable Earnings (Loss) Before Income Taxes | Earnings (Loss) Before Income Taxes
Comparable Earnings (Loss) | Earnings (Loss) from Continuing Operations
Comparable EPS | EPS from Continuing Operations
Comparable Tax Rate | Effective Tax Rate from Continuing Operations
Cash Flow Measures:
Total Cash Generated and Free Cash Flow | Cash Provided by Operating Activities

48

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
Set forth in the table below is an overview of each non-GAAP financial measure and why management believes that the presentation of each non-GAAP financial measure provides useful information to investors. See reconciliations for each of these measures following this table.

Operating Revenue Measures:
Operating Revenue FMS Operating Revenue SCS Operating Revenue DTS Operating Revenue FMS EBT as a % of FMS Operating Revenue SCS EBT as a % of SCS Operating Revenue DTS EBT as a % of DTS Operating Revenue | Operating revenue is defined as total revenue for Ryder System, Inc. or each business segment (FMS, SCS and DTS) excluding any (1) fuel and (2) subcontracted transportation, as well as (3) revenue from our ChoiceLease liability insurance program which was discontinued in early 2020. We believe operating revenue provides useful information to investors as we use it to evaluate the operating performance of our core businesses and as a measure of sales activity at the consolidated level for Ryder System, Inc., as well as for each of our business segments. We also use segment EBT as a percentage of segment operating revenue for each business segment for the same reason. Note: FMS EBT, SCS EBT and DTS EBT, our primary measures of segment performance, are not non-GAAP measures. Fuel: We exclude FMS, SCS and DTS fuel from the calculation of our operating revenue measures, as fuel is an ancillary service that we provide our customers, which is impacted by fluctuations in market fuel prices and the costs are largely a pass-through to our customers, resulting in minimal changes in our profitability during periods of steady market fuel prices. However, profitability may be positively or negatively impacted by rapid changes in market fuel prices during a short period of time, as customer pricing for fuel services is established based on trailing market fuel costs. Subcontracted transportation: We exclude subcontracted transportation from the calculation of our operating revenue measures, as these services are also typically a pass-through to our customers and, therefore, fluctuations result in minimal changes to our profitability. While our SCS and DTS business segments subcontract certain transportation services to third party providers, our FMS business segment does not engage in subcontracted transportation and, therefore, this item is not applicable to FMS. ChoiceLease liability insurance: We exclude ChoiceLease liability insurance as we announced our plan in the first quarter of 2020 to exit the extension of our liability insurance coverage for ChoiceLease customers. The exit of this program is estimated to be completed in the second quarter of 2021. We are excluding the revenues associated with this program for better comparability of our on-going operations.
Comparable Earnings Measures:
Comparable earnings (loss) before income taxes (EBT) Comparable earnings (loss) Comparable earnings (loss) per diluted common share (EPS) Comparable tax rate | Comparable EBT, comparable earnings, comparable EPS are defined, respectively, as GAAP EBT, earnings, EPS, all from continuing operations, excluding (1) non-operating pension costs and (2) any other significant items that are not representative of our business operations. We believe these comparable earnings measures provide useful information to investors and allow for better year-over-year comparison of operating performance. Non-Operating Pension Costs: Our comparable earnings measures exclude non-operating pension costs, which include the amortization of net actuarial loss and prior service cost, interest cost and expected return on plan assets components of pension and postretirement benefit costs, as well as a settlement or curtailment of a plan. We exclude non-operating pension costs because we consider these to be impacted by financial market performance and outside the operational performance of our business. Other Items Impacting Comparability: Our comparable and adjusted earnings measures also exclude other significant items that are not representative of our business operations as detailed in the reconciliation table below. These other significant items vary from period to period and, in some periods, there may be no such significant items. Calculation of comparable tax rate: The comparable provision for income taxes is computed using the same methodology as the GAAP provision for income taxes. Income tax effects of non-GAAP adjustments are calculated based on the statutory tax rates of the jurisdictions to which the non-GAAP adjustments relate.

49

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

Cash Flow Measures:
Total Cash Generated Free Cash Flow | We consider total cash generated and free cash flow to be important measures of comparative operating performance, as our principal sources of operating liquidity are cash from operations and proceeds from the sale of revenue earning equipment. Total Cash Generated: Total cash generated is defined as the sum of (1) net cash provided by operating activities, (2) net cash provided by the sale of revenue earning equipment, (3) net cash provided by the sale of operating property and equipment and (4) other cash inflows from investing activities. We believe total cash generated is an important measure of total cash flows generated from our ongoing business activities. Free Cash Flow: We refer to the net amount of cash generated from operating activities and investing activities (excluding acquisitions) from continuing operations as “free cash flow.” We calculate free cash flow as the sum of (1) net cash provided by operating activities, (2) net cash provided by the sale of revenue earning equipment and operating property and equipment, (3) other cash inflows from investing activities, less (4) purchases of property and revenue earning equipment. We believe free cash flow provides investors with an important perspective on the cash available for debt service and for shareholders, after making capital investments required to support ongoing business operations. Our calculation of free cash flow may be different from the calculation used by other companies and, therefore, comparability may be limited. * See Total Cash Generated and Free Cash Flow reconciliations in the Financial Resources and Liquidity section of Management's Discussion and Analysis.

The following table provides a reconciliation of GAAP earnings (loss) before taxes (EBT), earnings (loss), and earnings (loss) per diluted share (EPS) from continuing operations to comparable EBT, comparable earnings (loss) and comparable EPS from continuing operations for the three and nine months ended September 30, 2020 and 2019. Certain items included in EBT, earnings and diluted EPS from continuing operations have been excluded from our comparable EBT, comparable earnings and comparable diluted EPS measures. The following table lists a summary of these items, which are discussed in more detail throughout our MD&A and within the Notes to Condensed Consolidated Financial Statements:

| EBT |  | Earnings (Loss) |  | Diluted EPS
| 2020 |  | 2019 |  | 2020 |  | 2019 |  | 2020 |  | 2019
Three months ended September 30, | (In thousands, except per share amounts)
Continuing operations (GAAP) | $ | 54,765 |  |  | $ | (91,260) |  |  | $ | 45,085 |  |  | $ | (91,538) |  |  | $ | 0.85 |  |  | $ | (1.75) |
Non-operating pension costs | 7,200 |  |  | 6,885 |  |  | 4,660 |  |  | 4,919 |  |  | 0.09 |  |  | 0.09 |
Restructuring and other, net (1) | 13,767 |  |  | 5,234 |  |  | 11,186 |  |  | 3,981 |  |  | 0.21 |  |  | 0.08 |
ERP implementation costs (1) | 5,751 |  |  | 6,126 |  |  | 4,269 |  |  | 4,540 |  |  | 0.08 |  |  | 0.09 |
Gains on sale of properties (1) | (3,733) |  |  | — |  |  | (3,449) |  |  | — |  |  | (0.06) |  |  | — |
Tax adjustments (2) | — |  |  | — |  |  | 2,070 |  |  | — |  |  | 0.04 |  |  | — |
Comparable (non-GAAP) | $ | 77,750 |  |  | $ | (73,015) |  |  | $ | 63,821 |  |  | $ | (78,098) |  |  | $ | 1.21 |  |  | $ | (1.49) |
| EBT |  | Earnings (Loss) |  | Diluted EPS
| 2020 |  | 2019 |  | 2020 |  | 2019 |  | 2020 |  | 2019
Nine months ended September 30, | (In thousands, except per share amounts)
Continuing operations (GAAP) | $ | (153,646) |  |  | $ | 79,960 |  |  | $ | (137,749) |  |  | $ | 29,804 |  |  | $ | (2.64) |  |  | $ | 0.56 |
Non-operating pension costs | 9,357 |  |  | 20,060 |  |  | 4,682 |  |  | 14,263 |  |  | 0.09 |  |  | 0.27 |
Restructuring and other, net (1) | 43,790 |  |  | 13,757 |  |  | 36,223 |  |  | 10,395 |  |  | 0.69 |  |  | 0.21 |
ERP implementation costs (1) | 27,109 |  |  | 13,617 |  |  | 20,120 |  |  | 10,091 |  |  | 0.38 |  |  | 0.19 |
Gains on sale of properties (1) | (3,733) |  |  | (18,614) |  |  | (3,449) |  |  | (13,843) |  |  | (0.06) |  |  | (0.26) |
Tax adjustments (2) | — |  |  | — |  |  | 22,433 |  |  | 3,508 |  |  | 0.43 |  |  | 0.06
Comparable (non-GAAP) | $ | (77,123) |  |  | $ | 108,780 |  |  | $ | (57,740) |  |  | $ | 54,218 |  |  | $ | (1.11) |  |  | $ | 1.03 |

————————————
(1)Refer to Note 16, “Other Items Impacting Comparability,” in the Notes to Condensed Consolidated Financial Statements for additional information.
(2)In the third quarter of 2020, we recorded a charge of $2 million related to a state tax law change. In addition, in the nine months ended September 30, 2020, we recorded charges of $7 million and $13 million to our tax provision for income taxes due to expiring state net operating losses and a valuation allowance on our U.K. deferred tax assets, respectively. In the nine months ended September 30, 2019, we recorded a $5 million charge to our tax provision for income taxes due to expiring state net operating losses offset by a $1 million benefit to our provision due to a tax law change.
50

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
The following table provides a reconciliation of the provision for income taxes and effective tax rate to the comparable provision for income taxes and comparable tax rate:

| Three months ended September 30, |  | Nine months ended September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
| (In thousands)
Provision for (benefit from) income taxes | $ | 9,680 |  |  | $ | 278 |  |  | $ | (15,897) |  |  | $ | 50,156 |
Tax adjustments | (2,070) |  |  | — |  |  | (22,433) |  |  | (3,508) |
Income tax effects of non-GAAP adjustments | 6,319 |  |  | 4,805 |  |  | 18,947 |  |  | 7,914 |
Comparable provision for (benefit from) income taxes (1) | $ | 13,929 |  |  | $ | 5,083 |  |  | $ | (19,383) |  |  | $ | 54,562 |
Effective tax rate on continuing operations (2) | 17.7 | % |  | 0.3 | % |  | (10.3) | % |  | 62.7 | %
Tax adjustments and income tax effects of non-GAAP adjustments (1) | 0.2 | % |  | 6.7 | % |  | (14.8) | % |  | (12.5) | %
Comparable tax rate on continuing operations (1) | 17.9 | % |  | 7.0 | % |  | (25.1) | % |  | 50.2 | %

————————————
(1)The comparable provision for income taxes is computed using the same methodology as the GAAP provision of income taxes. Income tax effects of non-GAAP adjustments are calculated based on statutory tax rates of the jurisdictions to which the non-GAAP adjustments related. Refer to the previous table for further information on the tax adjustments.
(2)The effective tax rate on continuing operations and comparable tax rate on continuing operations are based on our earnings from continuing operations before income taxes (EBT) and comparable earnings from continuing operations before income taxes, respectively, found on the previous page.
The following table provides a reconciliation of total revenue to operating revenue:

| Three months ended September 30, |  | Nine months ended September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
| (In thousands)
Total revenue | $ | 2,150,575 |  |  | $ | 2,223,932 |  |  | $ | 6,207,163 |  |  | $ | 6,649,252 |
Fuel | (142,934) |  |  | (206,072) |  |  | (442,276) |  |  | (642,988) |
Subcontracted transportation | (212,504) |  |  | (213,127) |  |  | (558,492) |  |  | (630,351) |
ChoiceLease liability insurance revenue (1) | (4,971) |  |  | (9,092) |  |  | (21,738) |  |  | (25,653) |
Operating revenue | $ | 1,790,166 |  |  | $ | 1,795,641 |  |  | $ | 5,184,657 |  |  | $ | 5,350,260 |

————————————
(1)In the first quarter of 2020, we announced our plan to exit the extension of our liability insurance coverage for ChoiceLease customers. The exit of this program is estimated to be completed in the second quarter of 2021. We have revised our definition of operating revenues to exclude the revenues associated with this program for better comparability of our on-going operations.
51

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
The following table provides a reconciliation of FMS total revenue to FMS operating revenue:

| Three months ended September 30, |  | Nine months ended September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
| (In thousands)
FMS total revenue | $ | 1,297,217 |  |  | $ | 1,397,346 |  |  | $ | 3,835,631 |  |  | $ | 4,139,855 |
Fuel (1) | (138,880) |  |  | (198,669) |  |  | (429,468) |  |  | (618,906) |
ChoiceLease liability insurance revenue (2) | (4,971) |  |  | (9,092) |  |  | (21,738) |  |  | (25,653) |
FMS operating revenue | $ | 1,153,366 |  |  | 1,189,585 |  |  | $ | 3,384,425 |  |  | $ | 3,495,296 |
FMS EBT | $ | 16,152 |  |  | $ | (108,550) |  |  | $ | (202,157) |  |  | $ | 10,107 |
FMS EBT as a % of FMS total revenue | 1.2% |  | (7.8)% |  | (5.3)% |  | 0.2%
FMS EBT as a % of FMS operating revenue | 1.4% |  | (9.1)% |  | (6.0)% |  | 0.3%

————————————
(1)Includes intercompany fuel sales from FMS to DTS and SCS.
(2)In the first quarter of 2020, we announced our plan to exit the extension of our liability insurance coverage for ChoiceLease customers. The exit of this program is estimated to be completed in the second quarter of 2021. We have revised our definition of operating revenues to exclude the revenues associated with this program for better comparability of our on-going operations.
The following table provides a reconciliation of SCS total revenue to SCS operating revenue:

| Three months ended September 30, |  | Nine months ended September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
| (In thousands)
SCS total revenue | $ | 685,415 |  |  | $ | 617,600 |  |  | $ | 1,833,180 |  |  | $ | 1,902,582 |
Subcontracted transportation | (172,003) |  |  | (136,914) |  |  | (409,939) |  |  | (400,424) |
Fuel | (21,124) |  |  | (26,975) |  |  | (58,585) |  |  | (88,602) |
SCS operating revenue | $ | 492,288 |  |  | 453,711 |  |  | $ | 1,364,656 |  |  | 1,413,556 |
SCS EBT | $ | 57,848 |  |  | $ | 34,595 |  |  | $ | 125,789 |  |  | $ | 112,686 |
SCS EBT as a % of SCS total revenue | 8.4% |  | 5.6% |  | 6.9% |  | 5.9%
SCS EBT as a % of SCS operating revenue | 11.8% |  | 7.6% |  | 9.2% |  | 8.0%

The following table provides a reconciliation of DTS total revenue to DTS operating revenue:

| Three months ended September 30, |  | Nine months ended September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
| (In thousands)
DTS total revenue | $ | 299,680 |  |  | $ | 359,211 |  |  | $ | 928,512 |  |  | $ | 1,071,076 |
Subcontracted transportation | (40,501) |  |  | (76,213) |  |  | (148,553) |  |  | (229,927) |
Fuel | (25,550) |  |  | (35,283) |  |  | (81,714) |  |  | (109,750) |
DTS operating revenue | $ | 233,629 |  |  | $ | 247,715 |  |  | $ | 698,245 |  |  | $ | 731,399 |
DTS EBT | $ | 24,728 |  |  | $ | 18,490 |  |  | $ | 58,141 |  |  | $ | 63,034 |
DTS EBT as a % of DTS total revenue | 8.3% |  | 5.1% |  | 6.3% |  | 5.9%
DTS EBT as a % of DTS operating revenue | 10.6% |  | 7.5% |  | 8.3% |  | 8.6%

52

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
FORWARD-LOOKING STATEMENTS
Forward-looking statements (within the me aning 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 of the impact of the COVID-19 pandemic on our financial results and operations, including with regard to our revenue, earnings, cash flows, sales, commercial rental demand and utilization, used vehicle sales market conditions (including estimates regarding pricing, demand, inventory and wholesale and retail mix), automotive volumes in SCS, mileage, residual values and depreciation assumptions, credit loss reserves, lease sales; ChoiceLease cash flows;
•the anticipated benefits of actions taken to mitigate the adverse impacts of COVID-19;
•our estimates on the impact of residual value estimate changes on earnings;
•our estimates on minimum used vehicle pricing increases necessary to maintain current residual estimates for tractors and trucks;
•our expectations in our FMS business segment regarding anticipated ChoiceLease revenue;
•our expectations in our SCS business segment regarding anticipated customer activity;
•our expectations of the residual values of revenue earning equipment;
•the expected pricing and demand for used vehicles;
•our expectations of operating cash flow and capital expenditures through the end of 2020;
•the adequacy of our accounting estimates and reserves for depreciation and residual value, goodwill impairment, 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 ability to fund all of our operating, investing and financial needs for the foreseeable future through internally generated funds and outside funding sources;
•our expected level of use and availability of outside funding sources and our ability to refinance the current portion of long-term debt;
•our beliefs regarding our credit ratings and the impact of a significant downgrade on our ability to issue commercial paper and borrow amounts under our global revolving credit facility;
•our expectations as to return on pension plan assets and estimated contributions;
•our expectations regarding the scope and anticipated outcomes with respect to certain claims, complaints and proceedings;
•our expectations about the need to repatriate foreign cash to the U.S.;
•our ability to access commercial paper and other available debt financing in the capital markets;
•our expectations regarding restructuring charges;
•our expectation on the realizability of our deferred tax assets; and
•the expected timing for the exit of our ChoiceLease insurance liability program.
53

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:
•The severity and duration of the COVID-19 pandemic and the governmental responses thereto.
•Changes in general economic and financial conditions in the U.S. and worldwide leading to decreased demand for our products and services, lower profit margins, increased levels of bad debt and reduced access to credit and financial markets.
•Decreases in freight demand which would impact both our transactional and variable-based contractual business.
•Changes in our customers’ operations, financial condition or business environment that may limit their demand for, or ability to purchase, our products and services.
•Decreases in market demand affecting the commercial rental market and used vehicle sales as well as global economic conditions.
•Volatility in customer volumes and shifting customer demand in the industries serviced by our SCS business.
•Changes in current financial, tax or regulatory requirements that could negatively impact our financial results.
•Competition:
•Advances in technology may impact demand for our services or 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.
•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.
•Continued consolidation in the markets in which we operate which may create large competitors with greater financial resources.
•Our inability to maintain current pricing levels due to economic conditions, demand for services, customer acceptance or competition.
•Profitability:
•Our inability to obtain adequate profit margins for our services.
•Lower than expected sales volumes or customer retention levels.
•Decreases in commercial rental fleet utilization and pricing.
•Lower than expected used vehicle sales pricing levels and fluctuations in the anticipated proportion of retail versus wholesale sales.
•Loss of key customers in our SCS and DTS business segments.
•Our inability to adapt our product offerings to meet changing consumer preferences on a cost-effective basis.
•The inability of our legacy information technology systems to provide timely access to data.
•Sudden changes in fuel prices and fuel shortages.
•Higher prices for vehicles, diesel engines and fuel as a result of new environmental standards.
•Higher than expected maintenance costs and lower than expected benefits associated with our maintenance initiatives.
•Our inability to successfully execute our asset management initiatives, maintain our fleet at normalized levels and right-size our fleet in line with demand.
•Our key assumptions and pricing structure of our SCS and DTS contracts prove to be inaccurate.
•Increased unionizing, labor strikes and work stoppages.
•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.
•Our inability to manage our cost structure.
•Our inability to limit our exposure for customer claims.
54

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — (Continued)
•Unfavorable or unanticipated outcomes legal or regulatory proceedings or uncertain positions.
•Business interruptions or expenditures due to severe weather or natural occurrences.
•Financing Concerns:
•Higher borrowing costs.
•Unanticipated interest rate and currency exchange rate fluctuations.
•Negative funding status of our pension plans caused by lower than expected returns on invested assets and unanticipated changes in interest rates.
•Withdrawal liability as a result of our participation in multi-employer plans.
•Instability in U.S. and worldwide credit markets, resulting in higher borrowing costs and/or reduced access to credit.
•Accounting Matters:
•Reductions in residual values or useful lives of revenue earning equipment.
•Increases in compensation levels, retirement rate and mortality resulting in higher pension expense; regulatory changes affecting pension estimates, accruals and expenses.
•Changes in accounting rules, assumptions and accruals, including with regard to assumptions for goodwill impairment testing.
•Difficulties and delays in implementing our Enterprise Resource Planning system and related processes.
•Changes in the realization and timing of future sources of taxable income.
•Other risks detailed from time to time in our SEC filings including our 2019 Annual Report on Form 10-K and in "Item 1A.-Risk Factors" of this Quarterly Report. To the extent to which the COVID-19 outbreak adversely affects our business, results of operations and financial condition, it may also have the effect of heightening many of the risks described in the section entitled Risk Factors of our 2019 Annual Report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q.
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.
55

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, 2019. Please refer to the 2019 Annual Report on Form 10-K for a complete discussion of Ryder’s exposures to market risks.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the third quarter of 2020, we carried out an evaluation, under the supervision and with the participation of management, including Ryder’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of Ryder’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of the end of the third quarter of 2020, Ryder’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) were effective.
Changes in Internal Controls over Financial Reporting
During the nine months ended September 30, 2020, 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.
56

PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a description of our material pending legal proceedings, please see Item 1, Note 17, "Contingencies and Other Matters," to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
ITEM 1A. RISK FACTORS
Item 1A. Risk Factors of our Annual Report on Form 10-K, filed with the SEC on February 27, 2020, includes a discussion of our risk factors. The information presented below updates, and should be read in conjunction with, the risk factors and information disclosed in our Form 10-K. Our operations could also be affected by additional risk factors that are not presently known to us or by factors that we currently consider immaterial to our business. To our knowledge and except, as presented below, there have been no material changes in the risk factors described in our Form 10-K.
The COVID-19 pandemic has adversely impacted, and may continue to adversely impact, our business, results of operations and financial condition, and the ultimate impact on our business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted.
Our business is highly susceptible to changes in economic conditions and our products and services are directly tied to the production and sale of goods and, more generally, to the North American economy. The COVID-19 pandemic and measures taken in response to its spread have severely impacted economic and commercial activity, and, as a result, transportation and supply chain companies such as ours have experienced slowdowns and reduced demand.
The extent to which the COVID-19 pandemic will continue to impact our business, operations and financial results will depend on numerous evolving factors that are difficult to accurately predict, including: the duration and scope of the pandemic and the potential for additional outbreaks; how quickly and to what extent prior levels of economic activity can resume; the timing of the development and distribution of an effective vaccine or treatments for COVID-19; governments, businesses and individuals’ actions in response to the pandemic; the prolonged effect on customer demand for our goods and services and the customer’s ability to pay for these goods and services.
In our Supply Chain Solutions (SCS) segment, we have seen deterioration in customer activity starting in April primarily due to production shutdowns in the automotive industry, which represents a significant portion of our SCS revenue. Our automotive customers that have been shut down restarted production in May and are now above pre-COVID activity levels. However, any negative impact or disruption on customer operations, including production at lower volumes or additional slowdowns or shutdowns, may have a material negative impact on our SCS revenues and earnings.
We have experienced varying impacts with our SCS customers in non-automotive industries as well as with our Dedicated Transportation Solutions (DTS) customers, with some customers and industries such as off price/discount and clothing retailers experiencing lower volumes and others like consumer-packaged goods experiencing volume increases. However, due to the expected reduction in economic activity and softer freight environment, we expect to have net lower volumes for SCS/DTS customers at least through the end of 2020. Lower volumes and revenues in our non-automotive SCS industries and in DTS have a lesser impact on our earnings as our fees are less variable.
In our Fleet Management Solutions (FMS) segment, in the second quarter of 2020, we experienced a further weakening of market conditions in used vehicle sales due to the COVID-19 pandemic and expect that pricing for our used vehicles will continue to be adversely impacted in the foreseeable future beyond our first quarter of 2020 expectation of mid-2021.
We will continue to regularly review and update our outlook for the used vehicle market, as appropriate, and, if our outlook remains below our multi-year pricing averages or does not improve to levels in our outlook, we may be required to further decrease residual value estimates to better align with current market conditions and our outlook. In addition, if weak market conditions continue for a prolonged period or further deteriorate, we may also need to sell additional vehicles at wholesale prices which would require us to take additional valuation adjustments. Any residual value estimate changes and valuation adjustments made in future periods would be incremental to any prior residual value estimate changes previously taken for vehicles in the
57

fleet. If we determine to decrease residual value estimates or record valuation adjustments, these changes could have a material adverse impact on our financial results and liquidity.
In addition, as a result of government actions taken, such as shutdowns of large gatherings, mandated social distancing orders, as well as the significant reduction in business activity across the United States, demand for our commercial rental vehicles and rental utilization rates decreased significantly through the first and second quarters of 2020 and have negatively impacted our earnings. Although we are seeing positive commercial rental demand trends in the third quarter, if demand further deteriorates or does not seasonally increase as it has in prior years, we may not be able to attain our utilization targets. As a result, we may be required to further downsize our fleet and decrease our pricing. However, we may not be able to redeploy rental vehicles with lease customers due to lack of demand for such vehicles. Each of these occurrences could result in lower revenues and further adverse impacts on our financial results.
With respect to our ChoiceLease product line, our customers have signed long-term lease contracts and, therefore, we do not expect our revenue and cash flows to be materially affected provided our customers remain solvent and continue to make their payments on their contractual obligations. We have experienced decreases in new ChoiceLease sales as well as a decrease in miles driven by our customers. Any prolonged decrease in sales activity and miles driven could adversely affect our growth prospects.
The financial condition of our customers, primarily in FMS, are being adversely impacted and have resulted and may continue to result in an increase in bankruptcies or insolvencies, or a delay in payments, which may, in turn, impact our business, results of operations and financial condition. We have established additional credit loss reserves due to our expectations for COVID-19 related payment activity and may need to increase our credit loss reserves if economic conditions worsen for our customers.
Further, in the event of a prolonged economic downturn which has a material negative impact on our earnings and free cash flow, we may not be able to comply with our financial covenant in our global revolving credit facility which, in the absence of a bank waiver, would negatively impact our ability to borrow under that facility and negatively impact our liquidity position.
We periodically evaluate factors, including, but not limited to macroeconomic conditions, changes in our industry and the markets in which we operate and our market capitalization, as well as our reporting units’ expected future financial performance for purposes of evaluating asset impairments, including goodwill. We believe that the impact of COVID-19 will negatively affect certain key assumptions used in our analysis; however, we will need to assess the severity and nature of the long-term impacts to determine if we may be required to record charges for asset impairments in the future. While we undertook an interim goodwill impairment test related to our FMS NA reporting unit as of March 31, 2020 and concluded that no impairment was necessary, we may determine that impairment is necessary in future periods. We determined that there was no interim impairment trigger event during the second and third quarters of 2020. At this time, it remains uncertain whether and to what extent we may need to record charges for impairments in the future as a result of the ongoing COVID-19 outbreak.
In addition to the operational impacts described above, the COVID-19 pandemic may present or heighten other operational risks to our business. Remote working arrangements may decrease employee productivity, increase cybersecurity risks and the strain on our technology systems and adversely affect our internal controls over financial reporting. Further, our business may be adversely affected if key personnel become ill from COVID-19 and are unable to work.
In addition, due to the increase in claims as a result of the impacts of the COVID-19 pandemic, insurance companies may limit or stop offering coverage to companies like ours or increase the cost of such insurance so that it is no longer available at commercially reasonable rates. This trend could adversely affect our ability to obtain suitable insurance coverage or increase the cost for such coverage significantly, each of which may adversely affect our financial condition, results of operations, liquidity or cash flows.
To the extent to which the COVID-19 outbreak adversely affects our business, results of operations and financial condition, it may also have the effect of heightening many of the other risks described in the section entitled Risk Factors of our 2019 Annual Report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q.
58

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table provides information with respect to purchases we made of our common stock during the three months ended September 30, 2020:

| Total Number of Shares Purchased (1) |  | Average Price Paid per Share |  | Total Number of Shares Purchased as Part of Publicly Announced Programs |  | Maximum Number of Shares That May Yet Be Purchased Under the Anti-Dilutive Program (2)
July 1 through July 31, 2020 | 46 |  |  | $ | 36.63 |  |  | — |  |  | 1,196,902 |
August 1 through August 31, 2020 | 141 |  |  | 41.61 |  |  | — |  |  | 1,196,902 |
September 1 through September 30, 2020 | 878 |  |  | 42.02 |  |  | — |  |  | 1,196,902 |
Total | 1,065 |  |  | $ | 41.73 |  |  | — |  |  |

————————————
(1)During the three months ended September 30, 2020, we purchased an aggregate of 1,065 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 2019, 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 2019 program, management is authorized to repurchase up to 1.5 million shares of common stock issued to employees under our employee stock plans from December 1, 2019 to December 11, 2021. Share repurchases are made periodically in open-market transactions using the Company's working capital, and are subject to market conditions, legal requirements, and other factors. In addition, management has been granted the authority to establish prearranged written trading plans under Rule 10b5-1 of the Securities Exchange Act of 1934 as part of the repurchase program. The share repurchase program has been put on hold temporarily due to the impact of COVID-19 during the second and third quarters, however management intends to recommence the program in the fourth quarter of 2020.
59

ITEM 6. EXHIBITS

Exhibit Number |  | Description
31.1 |  | Certification of Robert E. Sanchez pursuant to Rule 13a-14(a) or Rule 15d-14(a)
31.2 |  | Certification of Scott T. Parker pursuant to Rule 13a-14(a) or Rule 15d-14(a)
32 |  | Certification of Robert E. Sanchez and Scott T. Parker pursuant to Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C Section 1350
101.INS |  | XBRL Instance Document - the instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document
101.SCH |  | XBRL Taxonomy Extension Schema Document
101.CAL |  | XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF |  | XBRL Taxonomy Extension Definition Linkbase Document
101.LAB |  | XBRL Taxonomy Extension Label Linkbase Document
101.PRE |  | XBRL Taxonomy Extension Presentation Linkbase Document
104 |  | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)

60

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

|  | RYDER SYSTEM, INC.
|  | (Registrant)
Date: | October 28, 2020 | By: | /s/ Scott T. Parker
|  |  | Scott T. Parker
|  |  | Executive Vice President and Chief Financial Officer
|  |  | (Principal Financial Officer)
Date: | October 28, 2020 | By: | /s/ Cristina Gallo-Aquino
|  |  | Cristina Gallo-Aquino
|  |  | Senior Vice President and Controller
|  |  | (Principal Accounting Officer)

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