Summary of RYDER SYSTEM INC

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
THREE AND SIX MONTHS ENDED JUNE 30, 2007 AND 2006
OVERVIEW
The following discussion should be read in conjunction with the unaudited Consolidated Condensed Financial Statements and notes thereto included under Item 1. In addition, reference should be made to our audited Consolidated Financial Statements and notes thereto and related Management's Discussion and Analysis of Financial Condition and Results of Operations included in the 2006 Annual Report on Form 10-K.
Ryder System, Inc. (Ryder) is a global leader in transportation and supply chain management solutions. Our business is divided into three business segments: Fleet Management Solutions (FMS), which provides full service leasing, contract maintenance, contract-related maintenance and commercial rental of trucks, tractors and trailers to customers principally in the U.S., Canada and the U.K.; Supply Chain Solutions (SCS), which provides comprehensive supply chain consulting including distribution and transportation services throughout North America and in Latin America, Europe and Asia; and Dedicated Contract Carriage (DCC), which provides vehicles and drivers as part of a dedicated transportation solution in the U.S. We operate in highly competitive markets. Our customers select us based on numerous factors including service quality, price, technology and service offerings. As an alternative to using our services, customers may choose to provide these services for themselves, or may choose to obtain similar or alternative services from other third-party vendors. Our customer base includes enterprises operating in a variety of industries including automotive, electronics, high-tech, telecommunications, industrial, consumer goods, paper and paper products, office equipment, food and beverage, general retail industries and governments.
ITEMS AFFECTING COMPARABILITY BETWEEN PERIODS Prior to January 1, 2007, we recognized income tax accruals with respect to uncertain tax positions based upon Statement of Financial Accounting Standards (SFAS) No. 5, "Accounting for Contingencies." Under SFAS No. 5, we recorded a liability associated with an uncertain tax position if the liability was both probable and estimable. Our liability under SFAS No. 5 included interest and penalties, which were recognized as incurred within "Provision for income taxes" in the Consolidated Condensed Statements of Earnings.
Effective January 1, 2007, we adopted Financial Accounting Standards Board (FASB) Interpretation No. (FIN) 48, "Accounting for Uncertainty in Income Taxes." FIN 48 clarifies the accounting for uncertainty in income taxes recognized in financial statements in accordance with SFAS No. 109, "Accounting for Income Taxes." FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 requires that we determine whether the benefits of our tax positions are more likely than not of being sustained upon audit based on the technical merits of the tax position. For tax positions that are more likely than not of being sustained upon audit, we recognize the largest amount of the benefit that is more likely than not of being sustained in our consolidated financial statements. For all other tax positions, we do not recognize any portion of the benefit in our consolidated financial statements. The provisions of FIN 48 also provide guidance on derecognition, classification, interest and penalties, accounting in interim periods, and disclosure.
The cumulative effect of the adoption of the recognition and measurement provisions of FIN 48 resulted in a $7.4 million reduction to the January 1, 2007 balance of retained earnings. Results of prior periods have not been restated. Our policy for interest and penalties under FIN 48 related to income tax exposures was not impacted as a result of the adoption of the recognition and measurement provisions of FIN 48. Therefore, we continue to recognize interest and penalties as incurred within "Provision for income taxes" in the Consolidated Condensed Statements of Earnings. We expect the adoption of FIN 48 to increase our full-year 2007 effective tax rate by approximately 0.3%.

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

                                                    Three months ended June 30,           Six months ended June 30,            Change 2007/2006
                                                                                                                              Three          Six
                                                     2007                 2006              2007               2006           Months        Months
                                                               (In thousands, except per share amounts)

Earnings before income taxes                    $      104,336              104,554     $     189,174          183,758           - %            3
Provision for income taxes                              39,213               34,275            72,792           65,897          14             10

Net earnings                                    $       65,123               70,279     $     116,382          117,861          (7 )%          (1 )


Per diluted common share                        $         1.07                 1.13     $        1.90             1.91          (5 )%          (1 )


Weighted-average shares outstanding - Diluted           61,090               62,023            61,128           61,728          (2 )%          (1 )

Earnings before income taxes decreased $0.2 million to $104.3 million in the second quarter of 2007 and increased $5.4 million to $189.2 million in the first six months of 2007, compared with the same periods in 2006. Operating results in the second quarter and first half of 2007 were positively impacted by contractual revenue growth in the FMS and SCS business segments and lower pension costs offset by the impact of weak commercial rental market demand and increased carrying costs on vehicles held for sale in our FMS business segment. Earnings in the second quarter and first half of 2006 benefited from a SCS contract termination settlement of $2.5 million, net of variable compensation. Earnings in the first half of 2006 also benefited from the one-time recovery in the first quarter of $1.9 million (pre-tax), or $0.02 per diluted common share, associated with the recognition of common stock received from mutual insurance companies in a prior year. See "Operating Results by Business Segment" for a further discussion of operating results.
Net earnings decreased $5.2 million to $65.1 million in the second quarter of 2007 and decreased $1.5 million to $116.4 million in the first six months of 2007, compared with the same periods in 2006. Net earnings for the second quarter and first half of 2006 included an income tax benefit of $6.8 million, or $0.11 per diluted common share, associated with the reduction of deferred income taxes due to enacted changes in Texas and Canadian tax laws. Excluding the tax changes in the second quarter of the prior year, net earnings and earnings per diluted common share increased 3% and 5%, respectively in the second quarter of 2007. Excluding the tax changes in the second quarter of the prior year, net earnings and earnings per diluted common share increased 5% and 6%, respectively in the first six months of 2007.

                                     Three months ended June 30,                Six months ended June 30,                  Change 2007/2006
                                                                                                                        Three             Six
                                      2007                  2006                 2007                2006               Months           Months
                                                                (In thousands)

Revenue:
Fleet Management Solutions       $     1,037,322           1,049,477        $    2,025,412          2,030,635             (1 )%             -
Supply Chain Solutions                   583,994             502,136             1,150,400            971,604             16               18
Dedicated Contract Carriage              141,067             143,484               279,566            282,167             (2 )             (1 )
Eliminations                            (104,414 )           (99,371 )            (203,307 )         (192,389 )           (5 )             (6 )

Total                            $     1,657,969           1,595,726        $    3,252,071          3,092,017              4 %              5


Operating revenue (1)            $     1,157,067           1,111,129        $    2,276,274          2,168,603              4 %              5

(1) We use operating revenue, a non-GAAP financial measure, to evaluate the operating performance of our businesses and as a measure of sales activity. FMS fuel services revenue net of related intersegment billings, which is directly impacted by fluctuations in market fuel prices, is excluded from the operating revenue computation as fuel is largely a pass-through to our customers for which we realize minimal changes in profitability during periods of steady market fuel prices. However, profitability may be positively or negatively impacted by sudden increases or decreases in market fuel prices during a short period of time as customer pricing for fuel services is established based on market fuel costs. Subcontracted transportation revenue in our SCS and DCC business segments are excluded from the operating revenue computation as subcontracted transportation is largely a pass-through to our customers and we realize minimal changes in profitability as a result of fluctuations in subcontracted transportation. Refer to the section titled "Non-GAAP Financial Measures" for a reconciliation of total revenue to operating revenue.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued)
Total revenue increased 4% to $1.66 billion in the second quarter of 2007 and increased 5% to $3.25 billion in the first half of 2007, compared with the same periods in 2006. Total revenue growth was driven by contractual revenue growth in our SCS and FMS business segments, and by favorable movements in foreign currency exchange rates related to our international operations offset partially by a decline in commercial rental revenue and fuel revenue. Operating revenue increased 4% in the second quarter of 2007 and increased 5% in the first half of 2007, compared with the same periods in 2006, due primarily to growth in our SCS business. Total revenue and operating revenue in the second quarter of 2007 included a favorable foreign exchange impact of 0.9% and 1.0%, respectively, due primarily to the strengthening of the British pound and Canadian dollar. Total revenue and operating revenue in the first half of 2007 included a favorable foreign exchange impact of 0.7% and 0.8%, respectively, due primarily to the strengthening of the British pound.

                                    Three months ended June 30,                 Six months ended June 30,                  Change 2007/2006
                                                                                                                        Three             Six
                                    2007                   2006                  2007                2006               Months           Months
                                                           (Dollars in thousands)

Operating expense
(exclusive of items shown
separately)                    $      697,656                703,471        $    1,361,541          1,364,014              (1) %            -
Percentage of revenue                42.1%                  44.1%                 41.9%               44.1%

Operating expense decreased slightly in 2007 compared with the same periods in 2006 as a result of lower fuel volumes offset partially by increased costs associated with revenue growth in our SCS business segment. Operating expense as a percentage of revenue decreased in the three and six months ended June 30, 2007 due to lower fuel volumes.

                                     Three months ended June 30,                Six months ended June 30,                  Change 2007/2006
                                                                                                                        Three              Six
                                     2007                   2006                 2007                 2006              Months           Months
                                                           (Dollars in thousands)

Salaries and
employee-related costs          $      344,702                343,977        $     698,866            681,491               - %              3
Percentage of revenue                 20.8%                  21.6%                21.5%                22.0%
Percentage of operating
revenue                               29.8%                  31.0%                30.7%                31.4%

Salaries and employee-related costs increased in 2007 compared with the same periods in 2006, primarily as a result of added headcount and increased outside labor costs from new and expanded business in our SCS business segment. The increase in salaries and employee-related costs in 2007 was offset partially by a $10.2 million and $19.3 million decrease in pension expense during the second quarter and first six months of 2007, respectively, and lower incentive-based compensation. Pension expense decreases primarily impact our FMS business segment, which employs the majority of our employees that participate in the primary U.S. pension plan.

                                       Three months ended June 30,                Six months ended June 30,                 Change 2007/2006
                                                                                                                          Three             Six
                                       2007                   2006                 2007                 2006            Months            Months
                                                             (Dollars in thousands)

Subcontracted transportation      $      256,986                215,267        $     504,215            417,490             19%              21
Percentage of revenue                   15.5%                  13.5%                15.5%                13.5%

Subcontracted transportation expense represents freight management costs on logistics contracts for which we purchase transportation from third parties. Subcontracted transportation expense in our SCS business segment grew in 2007 compared with the same periods in 2006, as a result of increased volumes of freight management activity from new and expanded business.

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

                                      Three months ended June 30,                Six months ended June 30,                 Change 2007/2006
                                                                                                                         Three            Six
                                      2007                   2006                 2007                 2006             Months           Months
                                                                (In thousands)

Depreciation expense             $      202,270                183,454        $     398,454            361,630              10 %           10
Gains on vehicle sales, net             (13,533 )              (14,977 )            (28,566 )          (27,789 )           (10 )            3
Equipment rental                         26,014                 25,360               49,859             50,927               3             (2 )

Depreciation expense relates primarily to FMS revenue earning equipment. Depreciation expense increased in the second quarter and the first six months of 2007 compared with the same periods in 2006, reflecting higher average vehicle investment from purchases over the past year and $4.2 million and $8.3 million of additional reductions in the carrying value of vehicles held for sale during the second quarter and first six months of 2007, respectively. The increase was offset partially by adjustments made to residual values as part of the annual depreciation review, which were implemented on January 1, 2007. This change in estimated residual values reduced depreciation expense in the second quarter and first six months of 2007 by $2.8 million and $5.6 million, respectively. Our annual review is established with a long-term view considering historical market price changes, current and expected future market price trends, expected life of vehicles and extent of alternative uses.
Gains on vehicle sales, net decreased in the second quarter of 2007 compared with the same period in 2006 due to a decline in the average price of vehicles sold offset partially by an increase in the number of vehicles sold. Gains on vehicle sales, net in the first half of 2007 were higher than the same period in 2006 due to an increase in the number of units sold offset partially by lower average pricing.
Equipment rental consists primarily of rent expense for FMS revenue earning equipment under lease. The increase in equipment rental in the second quarter of 2007 compared to the same period in 2006 reflects an increase in the average number of leased vehicles resulting from a sale-leaseback transaction completed in May 2007. The decrease in equipment rental in the first half of 2007 compared to the same period in 2006 reflects a lower average number of leased vehicles early in the year offset slightly by higher rental costs associated with investments made in material handling equipment to support growth in our SCS business segment.

                                    Three months ended June 30,                  Six months ended June 30,                  Change 2007/2006
                                                                                                                         Three             Six
                                    2007                   2006                 2007                  2006               Months          Months
                                                            (Dollars in thousands)

Interest expense               $       40,841                 35,037        $      80,211                66,458             17 %            21
Effective interest rate              5.7%                   5.9%                  5.6%                  5.7%

Interest expense grew in 2007 compared with the same periods in 2006, reflecting higher average debt levels due to funding requirements associated with capital spending to support our contractual full service lease business and our share repurchase programs. The lower effective interest rate in 2007 compared to 2006 resulted from the replacement of higher interest rate debt with debt issuances at lower interest rates.

Three months ended June 30, Six months ended June 30, 2007 2006 2007 2006

(In thousands)

Miscellaneous income, net $ (2,458 ) (417 ) $ (3,374) (5,803)

Miscellaneous income, net consists of investment income on securities used to fund certain benefit plans, interest income, (gains) losses from sales of properties, foreign currency transaction (gains) losses, and other non-operating items. Miscellaneous income, net increased in the second quarter of 2007 compared with the same period in 2006 primarily due to improved market performance of investments classified as trading securities, a $1.3 million charge in the prior year related to the settlement of litigation associated with a discontinued operation, and higher gains on sales of properties. Miscellaneous income, net decreased during the first six months of 2007 compared to the same period in 2006 due to a one-time recovery in the first quarter of 2006 of $1.9 million for the recognition of common stock received from mutual insurance companies and higher foreign currency transaction losses offset partially by the $1.3 million litigation settlement noted above.

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

Three months ended June 30, Six months ended June 30, 2007 2006 2007 2006 (In thousands)

Restructuring and other charges
(recoveries), net $ 1,155 - $ 1,691 (159)

Restructuring and other charges (recoveries), net in the three months ended June 30, 2007 primarily related to a charge of $1.3 million incurred to extinguish debentures that were originally set to mature in 2017. The charge included the premium paid on the early extinguishment of debt and the write-off of related debt discount and issuance costs. These charges were offset partially by restructuring charges that were reversed due to subsequent refinements in estimates. Restructuring charges (recoveries), net in the six months ended June 30, 2007 primarily related to the charge incurred on the early extinguishment of debt and costs for information technology transition and employee severance and benefits incurred in connection with global cost savings initiatives announced in the fourth quarter of 2006. Restructuring and other recoveries, net in the first half of 2006 related primarily to employee severance and benefits and facility charges recorded in prior restructuring charges that were reversed due to subsequent refinements in estimates. See Note (E), "Restructuring and Other Charges (Recoveries)," in the Notes to Consolidated Condensed Financial Statements for additional information on restructuring activity.

                                     Three months ended June 30,                  Six months ended June 30,                  Change 2007/2006
                                                                                                                          Three             Six
                                     2007                   2006                 2007                  2006               Months          Months
                                                             (Dollars in thousands)

Provision for income taxes      $       39,213                 34,275        $      72,792                65,897             14 %            10
Effective tax rate                    37.6%                  32.8%                38.5%                 35.9%

Our effective income tax rate for the second quarter and first half of 2007 as compared with the same periods in 2006 increased primarily due to increased earnings in higher tax rate jurisdictions, the adoption of FIN 48 in the current year and the 2006 favorable adjustments to deferred income taxes from tax law changes in Canada and the State of Texas. This increase was offset partially by favorable adjustments to deferred income taxes from tax law changes in the State of New York in the current year, the recognition of tax benefits as a result of the expiration of a statute of limitations within our foreign jurisdictions, and a decrease in projected non-deductible expenses.
During the second quarter of 2007, the State of New York enacted changes to their tax system which resulted in favorable adjustments to deferred income taxes of $1.3 million. During the second quarter of 2006, Canada and the State of Texas enacted various tax measures which resulted in favorable adjustments to deferred income taxes of $6.8 million. The adoption of FIN 48 increased our effective income tax rate for the second quarter and first half of 2007 by approximately 0.3%. See Note (H), "Income Taxes," in the Notes to Consolidated Condensed Financial Statements for a complete discussion of these items.

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

                                     Three months ended June 30,                Six months ended June 30,                 Change 2007/ 2006
                                                                                                                        Three             Six
                                      2007                  2006                 2007                2006               Months          Months
                                                                (In thousands)

Revenue:
Fleet Management Solutions       $     1,037,322           1,049,477        $    2,025,412          2,030,635              (1 )%            -
Supply Chain Solutions                   583,994             502,136             1,150,400            971,604              16              18
Dedicated Contract Carriage              141,067             143,484               279,566            282,167              (2 )            (1 )
Eliminations                            (104,414 )           (99,371 )            (203,307 )         (192,389 )            (5 )            (6 )

Total                            $     1,657,969           1,595,726        $    3,252,071          3,092,017               4 %             5


Operating Revenue:
Fleet Management Solutions       $       742,223             730,145        $    1,456,130          1,429,563               2 %             2
Supply Chain Solutions                   329,966             291,288               652,048            563,645              13              16
Dedicated Contract Carriage              138,109             139,065               273,703            272,636              (1 )             -
Eliminations                             (53,231 )           (49,369 )            (105,607 )          (97,241 )            (8 )            (9 )

Total                            $     1,157,067           1,111,129        $    2,276,274          2,168,603               4 %             5

NBT:
Fleet Management Solutions       $        97,484              94,921        $      178,264            169,816               3 %             5
Supply Chain Solutions                    15,456              18,077                26,904             28,736             (14 )            (6 )
Dedicated Contract Carriage               12,508              11,174                22,860             19,636              12              16
Eliminations                              (7,904 )            (8,276 )             (16,823 )          (16,042 )             4              (5 )

                                         117,544             115,896               211,205            202,146               1               4

. . .