# RYDER SYSTEM INC (R) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from RYDER SYSTEM INC's 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/85961/000008596124000030/r-20231231.htm
Accession: 0000085961-24-000030
Filing date: 2024-02-20
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/R/
All MD&A years: /company/R/mda/
Previous year: /company/R/mda/fy2022/ (FY 2022)
Next year: /company/R/mda/fy2024/ (FY 2024)

ITEM 7. 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 our consolidated financial statements and related notes contained in Part II, Item 8 of this Annual Report on Form 10-K. The following MD&A describes the principal factors affecting our results of operations, financial resources, liquidity, contractual cash obligations and critical accounting estimates.

Our results of operations and financial condition are influenced by a number of factors including: macroeconomic and other market conditions, including pricing and demand; used vehicle sales; customer contracting activity and retention; maintenance costs; residual value estimate changes; currency exchange rate fluctuations; customer preferences; inflation; fuel and energy prices; insurance costs; interest rates; labor costs; unemployment levels; tax rates; changes in accounting or regulatory requirements; and cybersecurity attacks. This MD&A includes certain forward-looking statements that 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. This MD&A should be read in conjunction with our discussion of cautionary statements and significant risks to the business under Part I, Item 1A. "Risk Factors” and "Special Note Regarding Forward-Looking Statements" sections included in this Annual Report.

Certain prior period amounts have been reclassified to conform with the current period presentation. In the first quarter of 2023, we revised our primary measurement of segment financial performance to exclude intangible amortization expense. This change did not have a material impact to segment results.

This MD&A includes certain non-GAAP financial measures. Please refer to the “Non-GAAP Financial Measures” section of this MD&A for information on these non-GAAP measures, including reconciliations to the most comparable GAAP financial measure and the reasons why we believe each measure is useful to investors.

OVERVIEW

General

Ryder is a leading logistics and transportation company. We report our financial performance based on three business segments: (1) Fleet Management Solutions (FMS), which provides full service leasing that includes our contractual maintenance offering, commercial rental and maintenance services of trucks, tractors and trailers to customers principally in the United States (U.S.) and Canada; (2) Supply Chain Solutions (SCS), which provides fully integrated port-to-door logistics solutions, including distribution management, dedicated transportation, transportation management, freight brokerage, e-commerce fulfillment, last-mile delivery, contract packaging, and contract manufacturing in North America; and (3) Dedicated Transportation Solutions (DTS), which provides turnkey transportation solutions in the U.S., including dedicated vehicles, professional drivers, management, 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.

In 2022, we announced our intention to exit our lower return FMS Europe (primarily United Kingdom (U.K.)) business. We completed the shutdown of operations as well as the sale of the remaining vehicles and properties in 2023, generating cash proceeds of $394 million and recording gains of $95 million from the beginning of 2022 through 2023. As a result of the shutdown, we reclassified $188 million ($183 million, net of tax) of cumulative currency translation adjustment charges from "Accumulated other comprehensive loss" in our Consolidated Balance Sheet into a one-time, non-cash charge in the second quarter of 2023 in our Consolidated Statements of Earnings. The currency translation adjustment loss had no impact on our consolidated financial position or cash flows. Refer to Note 16, "Accumulated Other Comprehensive Loss" for a discussion on the currency translation adjustment loss.

Further information on our business and business segments are presented in Part I, Item 1, "Business", and in Note 3, "Segment Reporting" of the Notes to Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" in this Annual Report.

25

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

2023 HIGHLIGHTS COMPARED WITH 2022

•Diluted EPS from continuing operations of $8.73 in 2023, which includes a non-cash currency translation adjustment loss related to the FMS U.K. business exit of $3.93, versus $16.96 in prior year

•Comparable EPS (a non-GAAP measure) from continuing operations of $12.95 in 2023 versus $16.37 in prior year, reflecting weaker market conditions in used vehicle sales and rental, partially offset by strong DTS and SCS results

•Adjusted Return on Equity (ROE) (a non-GAAP measure) of 19% in 2023, compared to 29% in prior year

•Total revenue of $11.8 billion compared to $12.0 billion in 2022

•Operating revenue (a non-GAAP measure) of $9.5 billion, up 2%

•Full-year 2023 net cash provided by operating activities from continuing operations of $2.4 billion and free cash flow (a non-GAAP measure) of negative $54 million

Business Trends

During 2023, market conditions for our used vehicle sales and commercial rental continued to weaken. We continue to benefit, though, from favorable secular trends in logistics and transportation solutions including supply chain disruptions. These secular trends, along with successful management of initiatives to increase long-term returns, are driving operating revenue growth and benefiting earnings in our SCS and DTS business segments.

In our FMS North America business, used vehicle pricing declined from the historical highs in the prior year and rental utilization was 75% during 2023, as compared to a record 83% in the prior year. We anticipate that market conditions, including a slower freight environment will remain weak in the first half of 2024 for used vehicle sales and rental with gradual improvements expected in the second half of 2024. ChoiceLease vehicle fleet grew during 2023, and included the redeployment of units from our rental fleet into new ChoiceLease contracts in order to maintain optimal rental utilization and provide immediate availability to our lease customers. Our lease pricing initiatives are delivering improved portfolio returns and we expect to realize incremental earnings benefits as our remaining portfolio is renewed at higher returns. In addition, our maintenance cost savings initiatives continue to benefit earnings.

In our SCS business, strong outsourcing trends in warehousing and distribution continue. New contract wins, increased volumes, particularly in the automotive industry vertical, higher pricing and the acquisition of IFS Holdings, LLC, a holding company for Impact Fulfillment Services, LLC (IFS) drove operating revenue (a non-GAAP measure) growth in SCS in 2023. Pricing adjustments and cost recovery initiatives benefited earnings in both SCS and DTS. Profitability in SCS was negatively impacted by weaker volume trends and lost business in the omnichannel retail vertical. During 2023, DTS contract sales activity slowed, consistent with a softer freight environment. However, DTS profitability was at the high end of our target range for 2023. We expect DTS revenue in 2024 to significantly benefit from the acquisition of CLH Parent Corporation (Cardinal Logistics).

While we are experiencing positive momentum in our businesses, other unknown effects from extended higher fuel prices, inflationary cost pressures, labor interruptions, extended disruptions in vehicle and vehicle part production and the higher rising interest rate environment may negatively impact demand for our business, financial results, and significant judgments and estimates.

26

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS SUMMARY

[[GREPCENT_TABLE]]
[["","","","","Change"],["(Dollars in millions, except per share amounts)","","2023","","2022","","2021","","2023/2022","","2022/2021"],["Total revenue","","$","11,783","","","$","12,011","","","$","9,663","","","(2)%","","24%"],["Operating revenue (1)","","9,497","","","9,280","","","7,828","","","2%","","19%"],["Earnings from continuing operations before income taxes (EBT)","","$","618","","","$","1,216","","","$","693","","","(49)%","","75%"],["Comparable EBT (1)","","815","","","1,144","","","682","","","(29)%","","68%"],["Earnings from continuing operations","","406","","","863","","","522","","","(53)%","","65%"],["Comparable earnings from continuing operations (1)","","602","","","833","","","515","","","(28)%","","62%"],["Comparable EBITDA (1)","","2,665","","","2,722","","","2,433","","","(2)%","","12%"],["Earnings per common share (EPS) \u2014 Diluted"],["Continuing operations","","$","8.73","","","$","16.96","","","$","9.70","","","(49)%","","75%"],["Comparable (1)","","12.95","","","16.37","","","9.58","","","(21)%","","71%"],["Cash dividend per share","","$","2.66","","","$","2.40","","","$","2.28","","","11%","","5%"],["Book value per share (2)","","69.91","","","63.45","","","52.02","","","10%","","22%"],["Total debt","","7,114","","","6,352","","","6,580","","","12%","","(3)%"],["Total shareholders\u2019 equity","","3,069","","","2,937","","","2,798","","","4%","","5%"],["Debt to equity","","232","%","","216","%","","235","%"],["Adjusted return on equity (1)","","19","%","","29","%","","21","%"],["Net cash provided by operating activities from continuing operations","","$","2,353","","","$","2,310","","","$","2,175"],["Free cash flow (1)","","(54)","","","921","","","1,057"],["Total capital expenditures (3)","","3,279","","","2,652","","","2,012"]]
[[/GREPCENT_TABLE]]

____________________

(1)Non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section of this MD&A for reconciliations of the most comparable GAAP measure to the non-GAAP financial measure and the reasons why management believes this measure is important to investors.

(2)Book value per share is calculated using Total shareholders’ equity divided by common shares outstanding.

(3)Includes capital expenditures that have been accrued, but not yet paid.

In 2023, total revenue decreased 2% to $11.8 billion, reflecting lower fuel and subcontracted transportation costs passed through to customers, partially offset by higher operating revenue. Operating revenue (a non-GAAP measure excluding fuel and subcontracted transportation) increased 2% to $9.5 billion, primarily reflecting SCS organic and acquisition revenue growth and DTS revenue growth partially offset by lower commercial rental revenue in FMS and the exit of the FMS U.K. business.

EBT and comparable EBT (a non-GAAP measure) decreased to $618 million and $815 million, respectively, from $1.2 billion and $1.1 billion, respectively, primarily due to lower gains on used vehicles sold and decreased commercial rental results in FMS, partially offset by higher earnings in DTS and SCS. EBT in 2023, also reflects a one-time, non-cash $188 million currency translation adjustment loss related to the FMS U.K. exit.

FULL YEAR CONSOLIDATED RESULTS

Lease & Related Maintenance and Rental

[[GREPCENT_TABLE]]
[["","","","","Change"],["(Dollars in millions)","","2023","","2022","","2021","","2023/2022","","2022/2021"],["Lease & related maintenance and rental revenue","","$","3,937","","","$","4,174","","","$","3,995","","","(6)%","","4%"],["Cost of lease & related maintenance and rental","","2,684","","","2,774","","","2,884","","","(3)%","","(4)%"],["Gross margin","","$","1,253","","","$","1,400","","","$","1,111","","","(11)%","","26%"],["Gross margin %","","32%","","34%","","28%"]]
[[/GREPCENT_TABLE]]

Lease & related maintenance and rental revenue represent revenue from our ChoiceLease and commercial rental product offerings within our FMS business segment. Revenue decreased 6% in 2023, reflecting lower commercial rental demand and a 3% negative impact from the exit of the FMS U.K. business.

27

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cost of lease & related maintenance and rental represents the direct costs related to Lease & related maintenance and rental revenue and are comprised 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 Consolidated Statements of Earnings. Cost of lease & related maintenance and rental decreased 3% in 2023 primarily reflecting the exit of the FMS U.K. business and lower operating costs on a 4% smaller average commercial rental fleet.

Lease & related maintenance and rental gross margin decreased due to lower commercial rental demand. Lease & related maintenance and rental gross margin as a percentage of revenue decreased to 32% primarily due to lower commercial rental demand and utilization.

Services

[[GREPCENT_TABLE]]
[["","","","","Change"],["(Dollars in millions)","","2023","","2022","","2021","","2023/2022","","2022/2021"],["Services revenue","","$","7,297","","","$","7,118","","","$","5,181","","","3%","","37%"],["Cost of services","","6,266","","","6,153","","","4,503","","","2%","","37%"],["Gross margin","","$","1,031","","","$","965","","","$","678","","","7%","","42%"],["Gross margin %","","14%","","14%","","13%"]]
[[/GREPCENT_TABLE]]

Services revenue represents all the revenues associated with our SCS and DTS business segments, including subcontracted transportation and fuel, as well as SelectCare and fleet support services associated with our FMS business segment. Services revenue increased 3% in 2023, due to SCS and DTS increased pricing, new business and higher volumes, as well as higher pricing in SelectCare, partially offset by lower subcontracted transportation and fuel costs passed through to customers. The acquisition of IFS in the fourth quarter of 2023 and businesses acquired within the SCS segment in the second half of 2022, also contributed to revenue growth.

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 increased 2% in 2023, primarily reflecting higher revenue, partially offset by lower subcontracted transportation and fuel costs.

Services gross margin increased in 2023, due to higher pricing in SCS and DTS.

Fuel Services

[[GREPCENT_TABLE]]
[["","","","","Change"],["(Dollars in millions)","","2023","","2022","","2021","","2023/2022","","2022/2021"],["Fuel services revenue","","$","549","","","$","719","","","$","487","","","(24)%","","48%"],["Cost of fuel services","","534","","","694","","","474","","","(23)%","","46%"],["Gross margin","","$","15","","","$","25","","","$","13","","","(40)%","","92%"],["Gross margin %","","3","%","","3","%","","3","%"]]
[[/GREPCENT_TABLE]]

Fuel services revenue represents fuel services provided to our FMS customers. Fuel services revenue decreased 24% in 2023, primarily reflecting lower fuel prices passed through to customers and to a much lesser extent fewer gallons sold.

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 23% in 2023 as a result of lower fuel prices and fewer gallons sold.

Fuel services gross margin decreased to $15 million and gross margin as a percentage of revenue remained unchanged at 3% in 2023. 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 current market fuel costs. Fuel services gross margin was not significantly impacted by these price change dynamics in 2023.

28

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Selling, General and Administrative Expenses

[[GREPCENT_TABLE]]
[["","","","","","","","","Change"],["(Dollars in millions)","","2023","","2022","","2021","","2023/2022","","2022/2021"],["Selling, general and administrative expenses (SG&A)","","$","1,421","","$","1,415","","$","1,187","","\u2014%","","19%"],["Percentage of total revenue","","12","%","","12","%","","12","%"]]
[[/GREPCENT_TABLE]]

SG&A expenses remained at $1.4 billion and SG&A expenses as a percentage of total revenue remained at 12% in 2023, as strategic investments in information technology were offset by lower bad debt expense.

Non-Operating Pension Costs, net

[[GREPCENT_TABLE]]
[["","","","","","","","","Change"],["(Dollars in millions)","","2023","","2022","","2021","","2023/2022","","2022/2021"],["Non-operating pension costs, net","","$","40","","","$","11","","","$","(1)","","","NM","","NM"]]
[[/GREPCENT_TABLE]]

Non-operating pension costs, net 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. Non-operating pension costs, net increased due to higher interest expense from a higher discount rate partially offset by an increase in expected return on plan assets.

Used Vehicle Sales, net

[[GREPCENT_TABLE]]
[["","","","","Change"],["(Dollars in millions)","","2023","","2022","","2021","","2023/2022","","2022/2021"],["Used vehicle sales, net","","$","(196)","","","$","(450)","","","$","(257)","","","(56)%","","75%"]]
[[/GREPCENT_TABLE]]

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 value (referred to as "valuation adjustments"). The decrease in used vehicle sales in 2023 was due to lower proceeds per unit of sales of used vehicles partially offset by higher volumes compared to the prior year. Used vehicle sales, net in 2022, includes $49 million gains associated with the exit of the FMS U.K. business.

Average proceeds per unit decreased in 2023 from the prior year. The following table presents the average used vehicle proceeds per unit changes, using constant currency, compared with the prior year:

[[GREPCENT_TABLE]]
[["","2023/2022","","2022/2021"],["Tractors","(37)%","","43%"],["Trucks","(28)%","","51%"]]
[[/GREPCENT_TABLE]]

Interest Expense

[[GREPCENT_TABLE]]
[["","","","","","","","","Change"],["(Dollars in millions)","","2023","","2022","","2021","","2023/2022","","2022/2021"],["Interest expense","","$","296","","$","228","","$","214","","30%","","7%"],["Effective interest rate","","4.4%","","3.5%","","3.2%"]]
[[/GREPCENT_TABLE]]

Interest expense increased 30% in 2023, primarily reflecting lower fixed-rate interest maturing debt being replaced with new issuances at higher market interest rates to fund increased capital spending in FMS, as well as higher short-term variable interest rates.

Miscellaneous Income, net

[[GREPCENT_TABLE]]
[["","","","","","","","","Change"],["(Dollars in millions)","","2023","","2022","","2021","","2023/2022","","2022/2021"],["Miscellaneous income, net","","$","(47)","","","$","(32)","","","$","(66)","","","47%","","(52)%"]]
[[/GREPCENT_TABLE]]

Miscellaneous income, 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

29

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

income, net was $47 million in 2023 as compared to $32 million in the prior year, primarily due to higher investment income on securities used to fund certain benefit plans partially offset by higher gains on sales of U.K. properties in the prior year.

Currency Translation Adjustment Loss

[[GREPCENT_TABLE]]
[["","","","","","","","","Change"],["(Dollars in millions)","","2023","","2022","","2021","","2023/2022","","2022/2021"],["Currency translation adjustment loss","","$","188","","","$","\u2014","","","$","\u2014","","","NM","","NM"]]
[[/GREPCENT_TABLE]]

Refer to Note 16, "Accumulated Other Comprehensive Loss" for a discussion on the currency translation adjustment loss.

Restructuring and Other Items, net

[[GREPCENT_TABLE]]
[["","","","","","","","","Change"],["(Dollars in millions)","","2023","","2022","","2021","","2023/2022","","2022/2021"],["Restructuring and other items, net","","$","(21)","","","$","2","","","$","32","","","NM","","NM"]]
[[/GREPCENT_TABLE]]

Refer to Note 20, “Other Items Impacting Comparability” in the Notes to Consolidated Financial Statements for a discussion of restructuring charges and other items.

Provision for Income Taxes

[[GREPCENT_TABLE]]
[["","","","","Change"],["(Dollars in millions)","","2023","","2022","","2021","","2023/2022","","2022/2021"],["Provision for income taxes","","$","212","","","$","353","","","$","171","","","(40)%","","106%"],["Effective tax rate on continuing operations","","34.3","%","","29.1","%","","24.7","%"],["Comparable tax rate on continuing operations (1)","","26.1","%","","27.2","%","","24.5","%"]]
[[/GREPCENT_TABLE]]
_______________

(1) Non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section of this MD&A for reconciliations of the most comparable GAAP measure to the non-GAAP financial measure and the reasons why management believes this measure is important to investors.

Provision for income taxes decreased to $212 million in 2023 due to lower earnings partially offset by a higher effective tax rate. Our effective tax rate from continuing operations was 34.3% as compared to 29.1% in the prior year. The increase in the effective rate was due to a one-time, nondeductible cumulative currency translation adjustment loss related to the completion of the exit of the FMS U.K. business in 2023. Our comparable tax rate on continuing operations was 26.1% as compared to 27.2% in the prior year. Refer to our discussion of changes in our provision for income taxes and effective tax rate from continuing operations in Note 11, “Income Taxes” in the Notes to Consolidated Financial Statements.

30

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FULL YEAR OPERATING RESULTS BY BUSINESS SEGMENT

[[GREPCENT_TABLE]]
[["","","","","Change"],["(Dollars in millions)","","2023","","2022","","2021","","2023/2022","","2022/2021"],["Revenue:"],["Fleet Management Solutions","","$","5,930","","","$","6,327","","","$","5,680","","","(6)%","","11%"],["Supply Chain Solutions","","4,875","","","4,720","","","3,155","","","3%","","50%"],["Dedicated Transportation Solutions","","1,785","","","1,786","","","1,457","","","\u2014%","","23%"],["Eliminations","","(807)","","","(822)","","","(629)","","","2%","","(31)%"],["Total","","$","11,783","","","$","12,011","","","$","9,663","","","(2)%","","24%"],["Operating Revenue: (1)"],["Fleet Management Solutions","","$","5,053","","","$","5,213","","","$","4,941","","","(3)%","","6%"],["Supply Chain Solutions","","3,625","","","3,254","","","2,211","","","11%","","47%"],["Dedicated Transportation Solutions","","1,298","","","1,239","","","1,055","","","5%","","17%"],["Eliminations","","(479)","","","(426)","","","(379)","","","(12)%","","(12)%"],["Total","","$","9,497","","","$","9,280","","","$","7,828","","","2%","","19%"],["Earnings from continuing operations before income taxes:"],["Fleet Management Solutions","","$","665","","","$","1,057","","","$","665","","","(37)%","","59%"],["Supply Chain Solutions","","231","","","218","","","123","","","6%","","77%"],["Dedicated Transportation Solutions","","121","","","103","","","49","","","18%","","110%"],["Eliminations","","(95)","","","(114)","","","(78)","","","17%","","(46)%"],["","","922","","","1,264","","","759","","","(27)%","","(67)%"],["Unallocated Central Support Services","","(72)","","","(83)","","","(69)","","","(13)%","","(20)%"],["Intangible amortization expense (2)","","(35)","","","(37)","","","(8)","","","4%","","(363)%"],["Non-operating pension costs, net (3)","","(40)","","","(11)","","","1","","","NM","","NM"],["Other items impacting comparability, net (4)","","(157)","","","83","","","10","","","NM","","NM"],["Earnings from continuing operations before income taxes","","$","618","","","$","1,216","","","$","693","","","(49)%","","75%"]]
[[/GREPCENT_TABLE]]

  ______________________

(1)Non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section of this MD&A for reconciliations of the most comparable GAAP measure to the non-GAAP financial measure and the reasons why management believes this measure is important to investors.

(2)Refer to Note 9, "Intangible Assets, Net," for a discussion on this item.

(3)Refer to Note 19, "Employee Benefit Plans," for a discussion on this item.

(4)Refer to Note 20, "Other Items Impacting Comparability," and below for a discussion of items excluded from our primary measure of segment performance.

As part of management’s evaluation of segment operating performance, we define the primary measurement of our segment financial performance as "Earnings from continuing operations before income taxes" (EBT), which includes an allocation of costs from Central Support Services (CSS) and excludes Non-operating pension costs, net, intangible amortization expense, and certain other items as discussed in Note 20, “Other Items Impacting Comparability,” in the Notes to 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 business 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 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. Refer to Note 3, “Segment Reporting,” in the Notes to Consolidated Financial Statements for a description of the methodology for allocating the remainder of CSS costs to the business segments.

Our FMS segment leases revenue earning equipment and provides rental vehicles, fuel, maintenance and other ancillary services to the SCS and DTS segments. Inter-segment EBT allocated to SCS and DTS includes earnings related to equipment used in providing services to SCS and DTS customers. EBT related to inter-segment equipment and services billed to SCS and

31

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

DTS customers (equipment contribution) are included in both FMS and the segment that served the customer and then eliminated upon consolidation (presented as “Eliminations”). 

The following table sets forth the benefit from equipment contribution included in EBT for our SCS and DTS business segments:

[[GREPCENT_TABLE]]
[["","","","","","","","","Change"],["(Dollars in millions)","","2023","","2022","","2021","","2023/2022","","2022/2021"],["Equipment Contribution:"],["Supply Chain Solutions","","$","43","","","$","46","","","$","33","","","(7)%","","39%"],["Dedicated Transportation Solutions","","52","","","68","","","45","","","(24)%","","51%"],["Total","","$","95","","","$","114","","","$","78","","","(17)%","","46%"]]
[[/GREPCENT_TABLE]]

In 2023, the decrease in DTS and SCS equipment contribution was related to lower gains on sales of used vehicles. The decrease in DTS was also due to lower fuel prices passed through to customers.

Fleet Management Solutions

[[GREPCENT_TABLE]]
[["","","","","","","","","Change"],["(Dollars in millions)","","2023","","2022","","2021","","2023/2022","","2022/2021"],["ChoiceLease","","$","3,181","","","$","3,101","","","$","3,064","","","3%","","1%"],["Commercial rental (1)","","1,178","","","1,338","","","1,077","","","(12)%","","24%"],["SelectCare and other","","694","","","624","","","538","","","11%","","16%"],["FMS Europe (2)","","\u2014","","","150","","","262","","","(100)%","","(43)%"],["Fuel services revenue","","877","","","1,114","","","739","","","(21)%","","51%"],["FMS total revenue","","$","5,930","","","$","6,327","","","$","5,680","","","(6)%","","11%"],["FMS operating revenue (3)","","$","5,053","","","$","5,213","","","$","4,941","","","(3)%","","6%"],["FMS EBT","","$","665","","","$","1,057","","","$","665","","","(37)%","","59%"],["FMS EBT as a % of FMS total revenue","","11.2%","","16.7%","","11.7%","","(550) bps","","500 bps"],["FMS EBT as a % of FMS operating revenue (3)","","13.2%","","20.3%","","13.5%","","(710) bps","","680 bps"]]
[[/GREPCENT_TABLE]]

_______________ 

(1)For the years ended December 31, 2023, 2022, and 2021 rental revenue from lease customers in place of a lease vehicle represented 34%, 33%, and 30% of commercial rental revenue, respectively.

(2)Refer to Note 20, “Other Items Impacting Comparability,” in the Notes to Consolidated Financial Statements for additional information.

(3)Non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section of this MD&A for reconciliations of the most comparable GAAP measure to the non-GAAP financial measure and the reasons why management believes this measure is important to investors.

FMS total revenue decreased 6% to $5.9 billion in 2023 primarily due to lower fuel costs passed through to customers and lower operating revenue (a non-GAAP measure excluding fuel services revenue). FMS operating revenue decreased 3% to $5.1 billion in 2023 reflecting lower rental demand and the exit of the U.K. business, partially offset by higher ChoiceLease and SelectCare revenue.

FMS EBT decreased 37% in 2023, reflecting lower gains on used vehicle sales and lower commercial rental results. Lower gains on used vehicles sold reflect a 28% and 37% decrease in used truck and tractor pricing, respectively, partially offset by higher volumes. Used vehicle inventory levels increased to 8,000 vehicles, but remains within the target range of 7,000 - 9,000 vehicles. Rental power fleet utilization decreased to 75% from a record 83% in 2022. The average power fleet was 4% smaller in 2023.

32

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our North America fleet of owned and leased revenue earning equipment and SelectCare vehicles, including vehicles under on-demand maintenance, is summarized as follows (rounded to the nearest hundred):

[[GREPCENT_TABLE]]
[["","","","","","","","","Change"],["","","2023","","2022","","2021","","2023/2022","","2022/2021"],["End of period vehicle count"],["By type:"],["Trucks (1)","","75,600","","","72,100","","","68,900","","","5%","","5%"],["Tractors (2)","","69,000","","","69,300","","","68,700","","","\u2014%","","1%"],["Trailers and other (3)","","40,800","","","41,200","","","38,700","","","(1)%","","6%"],["Total","","185,400","","","182,600","","","176,300","","","2%","","4%"],["By product line:"],["ChoiceLease","","138,900","","","134,600","","","133,300","","","3%","","1%"],["Commercial rental","","36,400","","","41,800","","","38,700","","","(13)%","","8%"],["Service vehicles and other","","2,100","","","2,100","","","2,000","","","\u2014%","","5%"],["","","177,400","","","178,500","","","174,000","","","(1)%","","3%"],["Held for sale","","8,000","","","4,100","","","2,300","","","95%","","78%"],["Total","","185,400","","","182,600","","","176,300","","","2%","","4%"],["Memo: U.K. Vehicle Count","","\u2014","","","1,000","","","13,000","","","(100)%","","(92)%"],["Customer vehicles under SelectCare contracts (4)","","51,600","","","54,600","","","53,400","","","(5)%","","2%"],["Average vehicle count"],["By product line:"],["ChoiceLease","","137,800","","","134,000","","","135,200","","","3%","","(1)%"],["Commercial rental","","39,300","","","40,800","","","35,700","","","(4)%","","14%"],["Service vehicles and other","","2,000","","","2,000","","","2,000","","","\u2014%","","\u2014%"],["","","179,100","","","176,800","","","172,900","","","1%","","2%"],["Held for sale","","6,500","","","3,400","","","4,500","","","91%","","(24)%"],["Total","","185,600","","","180,200","","","177,400","","","3%","","2%"],["Customer vehicles under SelectCare contracts (4)","","52,700","","","54,800","","","51,800","","","(4)%","","6%"],["Customer vehicles under SelectCare on-demand (5)","","10,600","","","15,400","","","15,700","","","(31)%","","(2)%"],["Total vehicles serviced","","248,900","","","250,400","","","244,900","","","(1)%","","2%"]]
[[/GREPCENT_TABLE]]

_______________ 

(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 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. 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: Average vehicle counts were computed using a 24-point average based on monthly information.

33

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table provides information on our North America active ChoiceLease fleet (number of units rounded to nearest hundred) and our commercial rental power fleet (excludes trailers):

[[GREPCENT_TABLE]]
[["","","","","Change"],["","","2023","","2022","","2021","","2023/2022","","2022/2021"],["Active ChoiceLease fleet"],["End of period vehicle count (1)","","129,800","","128,400","","128,900","","1%","","\u2014%"],["Full year average vehicle count (1)","","129,800","","128,700","","129,900","","1%","","(1)%"],["Commercial rental statistics"],["Commercial rental utilization - power fleet (2)","","75","%","","83","%","","80","%","","(800) bps","","300 bps"]]
[[/GREPCENT_TABLE]]
_______________

(1)Active ChoiceLease vehicles are calculated as those units currently earning revenue and not classified as not yet earning (NYE) or no longer earning units (NLE). 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. NLE units represent all 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.

(2)Rental utilization is calculated using the number of days units are rented divided by the number of days units are available to rent based on the days in the calendar year.

Supply Chain Solutions

In 2023, we introduced the omnichannel retail industry vertical to provide better visibility to the revenue mix following recent acquisitions and organic growth. This new vertical includes retail, e-commerce, last mile services, and technology.

[[GREPCENT_TABLE]]
[["","","","","Change"],["(Dollars in millions)","","2023","","2022","","2021","","2023/2022","","2022/2021"],["Omnichannel retail","","$","1,207","","","$","1,215","","","$","627","","","(1)%","","94%"],["Automotive","","1,061","","","870","","","693","","","22%","","26%"],["Consumer packaged goods","","926","","","806","","","629","","","15%","","28%"],["Industrial and other","","431","","","363","","","262","","","19%","","39%"],["Subcontracted transportation and fuel","","1,250","","","1,466","","","944","","","(15)%","","55%"],["SCS total revenue","","$","4,875","","","$","4,720","","","$","3,155","","","3%","","50%"],["SCS operating revenue (1)","","$","3,625","","","$","3,254","","","$","2,211","","","11%","","47%"],["SCS EBT","","$","231","","","$","218","","","$","123","","","6%","","77%"],["SCS EBT as a % of SCS total revenue","","4.7%","","4.6%","","3.9%","","10 bps","","70 bps"],["SCS EBT as a % of SCS operating revenue (1)","","6.4%","","6.7%","","5.6%","","(30) bps","","110 bps"],["End of period vehicle count:"],["Power vehicles","","4,200","","","4,200","","","3,700","","","\u2014%","","14%"],["Trailers","","9,600","","","8,900","","","7,000","","","8%","","27%"],["Total","","13,800","","","13,100","","","10,700","","","5%","","22%"]]
[[/GREPCENT_TABLE]]

_______________

(1)Non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section of this MD&A for reconciliations of the most comparable GAAP measure to the non-GAAP financial measure and the reasons why management believes this measure is important to investors.

34

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

[[GREPCENT_TABLE]]
[["","","2023","","2022","","2021"],["","","Total","","Operating (1)","","Total","","Operating (1)","","Total","","Operating (1)"],["Organic, including price and volume","","2","%","","9","%","","25","%","","22","%","","22","%","","17","%"],["Acquisition","","1","","","2","","","23","","","25","","","1","","","1"],["Fuel","","\u2014","","","\u2014","","","2","","","\u2014","","","1","","","\u2014"],["Net change","","3","%","","11","%","","50","%","","47","%","","24","%","","18","%"]]
[[/GREPCENT_TABLE]]

_______________

(1)Non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section of this MD&A for reconciliations of the most comparable GAAP measure to the non-GAAP financial measure and the reasons why management believes this measure is important to investors.

SCS total revenue increased 3% primarily as a result of higher operating revenue (a non-GAAP measure excluding fuel and subcontracted transportation) offset by lower subcontracted transportation passed through to our customers. SCS operating revenue (a non-GAAP measure excluding fuel and subcontracted transportation revenues) increased 11% driven by organic growth from new business, higher volumes and increased pricing, as well as the acquisition of IFS, and favorable year-over-year comparisons from businesses acquired in the second half of 2022.

SCS EBT increased 6% in 2023 primarily due to higher operating revenue (a non-GAAP measure excluding fuel and subcontracted transportation), partially offset by lower volumes in the omnichannel retail vertical.

Dedicated Transportation Solutions

[[GREPCENT_TABLE]]
[["","","","","","Change"],["(Dollars in millions)","","2023","","2022","","2021","","2023/2022","","2022/2021"],["DTS total revenue","","$","1,785","","","$","1,786","","","$","1,457","","","\u2014%","","23%"],["DTS operating revenue (1)","","$","1,298","","","$","1,239","","","$","1,055","","","5%","","17%"],["DTS EBT","","$","121","","","$","103","","","$","49","","","18%","","110%"],["DTS EBT as a % of DTS total revenue","","6.8%","","5.8%","","3.4%","","100 bps","","240 bps"],["DTS EBT as a % of DTS operating revenue (1)","","9.3%","","8.3%","","4.6%","","100 bps","","370 bps"],["End of period vehicle count:"],["Power vehicles","","5,200","","","5,400","","","5,300","","","(4)%","","2%"],["Trailers","","5,700","","","6,000","","","6,000","","","(5)%","","\u2014%"],["Total","","10,900","","","11,400","","","11,300","","","(4)%","","1%"]]
[[/GREPCENT_TABLE]]

_______________ 

(1)Non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section of this MD&A for reconciliations of the most comparable GAAP measure to the non-GAAP financial measure and the reasons why management believes this measure is important to investors.

DTS total revenue was flat in 2023 primarily due to higher operating revenue (a non-GAAP measure excluding fuel and subcontracted transportation revenues) offset by lower fuel costs and subcontracted transportation passed through to customers. DTS operating revenue increased 5% in 2023 due to inflationary cost recovery and higher volumes.

DTS EBT increased 18% in 2023 primarily due to inflationary cost recovery.

35

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Central Support Services

[[GREPCENT_TABLE]]
[["","","","","Change"],["(Dollars in millions)","","2023","","2022","","2021","","2023/2022","","2022/2021"],["Total CSS","","$","419","","","$","419","","","$","369","","","\u2014%","","14%"],["Allocation of CSS to business segments","","(347)","","","(336)","","","(300)","","","3%","","12%"],["Unallocated CSS","","$","72","","","$","83","","","$","69","","","(13)%","","20%"]]
[[/GREPCENT_TABLE]]

Total CSS costs remained at $419 million in 2023 as strategic investments in information technology and marketing were offset by lower incentive-based compensation costs and the gain from the sale of our corporate headquarters building.

Unallocated CSS costs decreased by $11 million in 2023 primarily reflecting lower incentive-based compensation costs and the gain from the sale of our corporate headquarters building.

FINANCIAL RESOURCES AND LIQUIDITY

Cash Flows

The following is a summary of our cash flows from continuing operations:

[[GREPCENT_TABLE]]
[["","","Years ended December 31,"],["(In millions)","","2023","","2022","","2021"],["Net cash provided by (used in):"],["Operating activities","","$","2,353","","","$","2,310","","","$","2,175"],["Investing activities","","(2,663)","","","(1,850)","","","(1,450)"],["Financing activities","","256","","","(861)","","","(204)"],["Effect of exchange rate changes on cash","","(9)","","","(4)","","","(1)"],["Net change in cash, cash equivalents, and restricted cash","","$","(63)","","","$","(405)","","","$","520"],["","","Years ended December 31,"],["(In millions)","","2023","","2022","","2021"],["Net cash provided by operating activities from continuing operations"],["Earnings from continuing operations","","$","406","","","$","863","","","$","522"],["Non-cash and other, net","","2,088","","","1,903","","","1,824"],["Currency translation adjustment loss","","188","","","\u2014","","","\u2014"],["Collections on sales-type leases","","126","","","135","","","139"],["Changes in operating assets and liabilities","","(455)","","","(591)","","","(310)"],["Net cash provided by operating activities from continuing operations","","$","2,353","","","$","2,310","","","$","2,175"]]
[[/GREPCENT_TABLE]]

Net cash provided by operating activities from continuing operations was unchanged at $2.4 billion in 2023. The decrease in working capital needs was primarily due to reduced collection of our receivables and higher operating lease payments, reflecting additional properties from our recent acquisitions, partially offset by an increase in accounts payable due to the timing of payments. Net cash used in investing activities from continuing operations increased to $2.7 billion in 2023 compared with $1.9 billion in 2022, primarily due to an increase in capital expenditures and prior year proceeds of approximately $400 million from the exit of the FMS U.K business. Net cash provided by (used in) financing activities from continuing operations increased to $256 million of cash inflows in 2023 compared to $861 million of cash outflows in 2022, primarily due to higher borrowings.

36

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table shows the components of our free cash flow:

[[GREPCENT_TABLE]]
[["","","Years ended December 31,"],["(In millions)","","2023","","2022","","2021"],["Net cash provided by operating activities from continuing operations","","$","2,353","","","$","2,310","","","$","2,175"],["Sales of revenue earning equipment (1)","","764","","","1,182","","","748"],["Sales of operating property and equipment (1)","","63","","","53","","","74"],["Other (1)","","\u2014","","","7","","","1"],["Total cash generated (2)","","3,180","","","3,552","","","2,998"],["Purchases of property and revenue earning equipment (1)","","(3,234)","","","(2,631)","","","(1,941)"],["Free cash flow (2)","","$","(54)","","","$","921","","","$","1,057"]]
[[/GREPCENT_TABLE]]

_______________

(1)Includes cash inflows from other 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 (a non-GAAP measure) decreased to negative $54 million in 2023 from $921 million in 2022, primarily reflecting an increase in capital expenditures and prior year proceeds of approximately $400 million from exit of the FMS U.K. business.

Net cash provided by operating activities from continuing operations to remain at approximately $2.4 billion in 2024. We expect free cash flow (a non-GAAP measure) to decrease to approximately negative $325 million reflecting an increase in capital expenditures due to higher investments in the ChoiceLease and commercial rental fleet.

Purchase Obligations

The majority of our purchase obligations are pay-as-you-go transactions made in the ordinary course of business. Purchase obligations include agreements to purchase goods or services that are legally binding and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed minimum or variable price provisions; and the approximate timing of the transaction. Any amounts for which we are liable under purchase orders for goods and services received are reflected in the Consolidated Balance Sheets as “Accounts payable” and “Accrued expenses and other current liabilities.” In addition, we reflect obligations with settlements that are greater than twelve months from the balance sheet date, as "Other non-current liabilities", including operating lease liabilities. The most significant purchase obligations relate to the purchase of revenue earning equipment.

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.

37

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a summary of capital expenditures:

[[GREPCENT_TABLE]]
[["(In millions)","","2023","","2022","","2021"],["Revenue earning equipment:"],["ChoiceLease","","$","2,562","","","$","1,824","","","$","1,194"],["Commercial rental","","438","","","541","","","651"],["","","3,000","","","2,365","","","1,845"],["Operating property and equipment","","279","","","287","","","167"],["Gross capital expenditures (1)","","3,279","","","2,652","","","2,012"],["Changes in accounts payable related to purchases of property and revenue earning equipment","","(45)","","","(21)","","","(71)"],["Cash paid for purchases of property and revenue earning equipment","","$","3,234","","","$","2,631","","","$","1,941"]]
[[/GREPCENT_TABLE]]

_______________ 

(1)Excludes $26 million, $12 million and $15 million in 2023, 2022 and 2021, respectively, in assets held under finance leases resulting from new or the extension of existing finance leases and other additions.

Gross capital expenditures increased to $3.3 billion in 2023 reflecting higher investments in the lease fleet and timing of OEM deliveries partially offset by lower investments in commercial rental. In 2022, gross capital expenditures primarily reflected higher planned investments in the ChoiceLease fleet, in the SCS business and technology. In 2021, our OEMs faced new vehicle production challenges due to supply chain disruptions resulting in a significant increase in new vehicle delivery lead times. As a result, a significant amount of new vehicle orders placed in 2021 were delayed for delivery until 2022 and 2023. We expect capital expenditures to remain at $3.3 billion in 2024, as higher planned investments to grow the ChoiceLease and commercial rental fleet will be offset by lower vehicle replacements.

On February 1, 2024, we acquired all the outstanding equity of CLH Parent Corporation ("Cardinal Logistics") for a purchase price of $290 million. Cardinal Logistics is a leading customized dedicated contract carrier in North America, providing dedicated fleets and professional drivers, as well as complementary freight brokerage services, last-mile delivery and contract logistics services. Cardinal Logistics primarily serves the consumer packaged goods, omnichannel retail, automotive, and industrial verticals. This acquisition increases our scale and network density and further advances our strategy to accelerate growth in dedicated. The transaction is expected to add approximately $1 billion in annualized total revenue.

Other Obligations and Commitments

The following table provides other material cash requirements from contractual obligations and commitments and the related reference in the Notes to Consolidated Financial Statements for further information:

[[GREPCENT_TABLE]]
[["Description","","Reference","","Reference Title"],["Insurance obligations (primarily self-insurance)","","Note 10","","Accrued Expenses and Other Liabilities"],["Operating leases","","Note 12","","Leases"],["Debt","","Note 13","","Debt"],["Employee benefit plans","","Note 19","","Employee Benefit Plans"]]
[[/GREPCENT_TABLE]]

We believe that our operating cash flows and access to the debt markets, as further discussed in "Financing and Other Funding Transactions" below, are sufficient to meet our contractual obligations.

Off-Balance Sheet Arrangements

Guarantees. Refer to Note 14, “Guarantees,” in the Notes to Consolidated Financial Statements for a discussion of our agreements involving guarantees.

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 unsecured commercial paper and medium-term notes.

38

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cash and equivalents totaled $204 million as of December 31, 2023. As of December 31, 2023, approximately $141 million was held outside the U.S. and is available to fund operations and other growth of non-U.S. subsidiaries. We have historically asserted our intent to permanently reinvest foreign earnings outside of the U.S. In 2021, we reevaluated our historic assertion with respect to our U.K. and Germany operations and concluded that we no longer consider these earnings to be indefinitely reinvested. Federal, state and foreign income taxes, withholding taxes and the tax impact of foreign currency exchange gains or losses were considered on the remaining U.K. and Germany undistributed earnings as of December 31, 2023, and there was no impact to deferred taxes. During 2023, we repatriated $78 million of foreign earnings from the U.K. We intend to continue to permanently reinvest the earnings of our remaining foreign subsidiaries indefinitely.

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, volatility or disruption in the public unsecured debt market or the commercial paper market may impair our ability to access these markets on terms commercially acceptable to us. 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 or by seeking other funding sources.

In February 2023, we issued an aggregate principal amount of $500 million unsecured medium-term notes maturing on March 1, 2028, and bearing interest at a rate of 5.65% per year. In May 2023, we issued an aggregate principal amount of $650 million unsecured medium-term notes maturing on June 1, 2028, and bearing interest at a rate of 5.25% per year. In November 2023, we issued two unsecured medium-term notes for aggregate principal amounts of $600 million and $400 million, maturing on December 1, 2033, and December 1, 2028, respectively, and bearing interest at a rate of 6.60% and 6.30% per year, respectively.

Refer to Note 13, “Debt,” in the Notes to Consolidated Financial Statements for information around the global revolving credit facility, the trade receivables financing program, issuance of medium-term notes under our shelf registration statement, asset-backed financing obligations and debt maturities.

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. Ratings are not recommendations to buy, sell or hold our debt securities and may be subject to revision or withdrawal at any time by the assigning rating agency. Lower ratings generally result in higher borrowing costs, as well as reduced access to unsecured capital markets. A significant downgrade below investment grade 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 below investment grade 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 as of December 31, 2023 were as follows:

[[GREPCENT_TABLE]]
[["","","Rating Summary"],["","","Short-term","","Short-term Outlook","","Long-term","","Long-term Outlook"],["Standard & Poor\u2019s Ratings Services","","A2","","\u2014","","BBB+","","Stable"],["Moody\u2019s Investors Service","","P2","","Stable","","Baa2","","Stable"],["Fitch Ratings","","F2","","\u2014","","BBB+","","Positive"]]
[[/GREPCENT_TABLE]]

As of December 31, 2023, we had the following amounts available to fund operations under the following facilities:

[[GREPCENT_TABLE]]
[["","","(In millions)"],["Global revolving credit facility","","$828"],["Trade receivables financing program","","$167"]]
[[/GREPCENT_TABLE]]

In accordance with our funding philosophy, we generally attempt to align the aggregate average remaining re-pricing life of our debt with the aggregate average remaining re-pricing life of our vehicle assets. We utilize both fixed-rate and variable-rate debt to achieve this alignment and generally target a mix of 20% - 40% variable-rate debt as a percentage of total debt outstanding. The variable-rate portion of our total debt (including notional value of swap agreements) was 16% and 19% as of December 31, 2023 and 2022, respectively. The decrease in the percentage of variable-rate debt was primarily attributable to an increase in fixed-rate debt used to fund vehicle purchases and the IFS acquisition.

Our debt to equity ratios were 232% and 216% as of December 31, 2023 and 2022, respectively. The debt to equity ratio represents total debt divided by total equity. The increase in the debt to equity ratio primarily reflects higher debt balances.

39

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Pension Information

Refer to Note 19, “Employee Benefit Plans,” in the Notes to Consolidated Financial Statements for background and further information regarding our company-sponsored defined benefit retirement plans.

In September 2023, we executed a bulk annuity contract with a U.K. insurance company to fully settle our $250 million U.K. pension benefit obligation. This transaction secured all future pension benefits to the pension plan members. We are targeting a pension plan termination in 18-24 months. At that time, the pension plan will distribute individual annuities to each pension plan member and the U.K. insurance company will assume all administrative and financial responsibilities of the pension plan. This bulk annuity transaction will have no impact to our financial position or statement of earnings until we terminate the U.K. pension plan.

During 2023, total pension contributions were $21 million, compared with $23 million in 2022. We estimate total 2024 required contributions to our pension plans to be approximately $4 million and we do not expect to make voluntary contributions. The present value of estimated global pension contributions that would be required over the next 5 years totals approximately $59 million (pre-tax). Changes in interest rates and the market value of the securities held by the plans could materially change, positively or negatively, the funded status of the plans and affect the level of pension expense and required contributions in future years. The ultimate amount of contributions is also dependent upon the requirements of applicable laws and regulations.

Due to the underfunded status of our defined benefit plans, we had an accumulated net pension equity charge (after-tax) of $637 million and $566 million as of December 31, 2023 and 2022, respectively. The funded status of our defined benefit pension plans decreased to 88% in 2023 from 94% in 2022, primarily reflecting a decrease in discount rates used to value our obligations at year-end 2023.

We expect 2024 defined benefit pension expense to remain at approximately $41 million. See the “Critical Accounting Estimates — Pension Plans” section for further discussion on pension accounting estimates.

Income Tax Cash Obligations

During 2023, total income taxes paid were $96 million. In the future, our income tax cash obligations may increase. Taxable income and cash taxes payable may be impacted by a variety of factors, including (i) the amount of book income generated in each jurisdiction, (ii) total capital expenditures, (iii) the reversal of our deferred tax liability, (iv) remaining net operating losses, (v) the availability of U.S. federal bonus depreciation, and (vi) the impact of any changes in U.S., state and foreign income tax laws. While it is likely that our income tax cash obligations may increase at some point in the future, we cannot reasonably estimate the timing or impact of these factors.

Share Repurchase Programs and Cash Dividends

In October 2023, our board of directors approved two new share repurchase programs. The first program authorizes management to repurchase up to 2 million shares issued to employees under our employee stock plans since August 31, 2023, under a new anti-dilutive program (the "2023 Anti-Dilutive Program") designed to mitigate the dilutive impact of shares issued under our employee stock plans. The second program grants management discretion to repurchase up to 2 million shares of common stock over a period of two years under a new discretionary share repurchase program (the "October 2023 Discretionary Program"). Both the 2023 Anti-Dilutive Program and the October 2023 Discretionary Program commenced October 12, 2023, and expire October 12, 2025.

Refer to Note 15, “Share Repurchase Programs,” in the Notes to Consolidated Financial Statements for a discussion on our share repurchase programs.

Cash dividend payments to shareholders of common stock were $128 million in 2023 and $123 million in 2022. In 2023 and 2022, our annualized dividend was $2.66 and $2.40 per share of common stock, respectively. During 2023, we increased our annualized dividend rate 15% to $2.84 per share of common stock.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with generally accepted accounting principles in the U.S. (U.S. GAAP) requires us to make estimates and assumptions. Our significant accounting policies are described in the Notes to Consolidated Financial Statements. 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. We review the development, selection and disclosure of these critical accounting estimates with Ryder’s Audit Committee on an annual basis.

40

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion, which should be read in conjunction with the descriptions in the Notes to Consolidated Financial Statements, is furnished for additional insight into certain accounting estimates that we consider to be critical.

Residual Value Estimates and Depreciation. At the time we acquire a vehicle, we estimate the vehicle's useful life and its estimated residual value at the end of its useful life. These estimates determine the depreciation that will be recognized evenly (straight-line) over the vehicle’s useful life and are intended to minimize losses or to record the best estimate of fair value at the end of a vehicle's useful life. At the end of its useful life or termination of the lease, the equipment is either sold to a third party or purchased by the lessee, in which case we may record a gain or loss for the difference between the estimated residual value and the sale price.

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 6, “Revenue Earning Equipment, Net" in the Notes to Consolidated Financial Statements. Based on the results of our analysis, we may adjust the estimated residual values and useful lives of certain classes of our revenue earning equipment each year. Reductions in estimated residual values or useful lives will increase depreciation expense over the remaining useful life of the vehicle. Conversely, an increase in estimated residual values or useful lives will decrease depreciation expense over the remaining useful life of the vehicle. Our review of the estimated residual values and useful lives of revenue earning equipment is based on vehicle class, (i.e., generally subcategories of trucks, tractors and trailers by weight and usage), historical and current market prices, third-party expected future market prices, expected lives of vehicles, and expected sales in the wholesale or retail markets, among other factors. In 2023 and 2022, we did not adjust the estimated residual values and useful lives of existing revenue earning equipment. In 2021, we adjusted our residual value estimates for certain tractors and useful lives of certain classes of our revenue earning equipment, which impacted approximately 15% of our total fleet. The increase in depreciation expense in 2021 as a result of residual value estimate changes was not material to our results of operations.

Depreciation Sensitivity

Based on our fleet of revenue earning equipment as of December 31, 2023, a hypothetical 10% reduction in estimated residual values would increase depreciation expense over the remaining life of our fleet by approximately $340 million. The current residual value estimates of our total fleet are at historically low levels. Our estimates reflect anticipated market conditions and are intended to reduce the probability of losses or need for additional depreciation during a potential cyclical downturn.

While we believe that the carrying values and estimated sales proceeds for revenue earning equipment are reasonable, we cannot guarantee that if economic conditions deteriorate or future sales proceeds are adversely impacted, we will not realize losses on sales or be required to further reduce our residual value estimates. A variety of factors, many of which are outside of our control, could cause residual value estimates to differ from actual used vehicle sales pricing, such as changes in supply and demand of used vehicles; volatility in market conditions; changes in vehicle technology; competitor pricing; regulatory requirements; wholesale market prices; customer 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.

Revenue Recognition. We generate revenue primarily through contracts with customers to lease, rent and maintain revenue earning equipment and to provide logistics management and dedicated transportation services. We enter into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are determined, the contract has commercial substance, and collectibility of consideration is probable. We generally recognize revenue over time as we provide the promised products or services to our customers in an amount we expect to receive in exchange for those products or services.

We offer a full service lease as well as a lease with more flexible maintenance options under our ChoiceLease product line in our FMS business segment, which are marketed, priced and managed as bundled products that include the equipment lease, maintenance and other related services. Our ChoiceLease product line includes the lease of a vehicle (lease component) and maintenance and other services (non-lease component). Contract consideration is allocated between the lease and non-lease components based on management's best estimate of the relative stand-alone selling price of each component. We do not sell the components of our ChoiceLease product offering on a stand-alone basis, therefore significant judgment is required to determine the stand-alone selling prices of the lease and maintenance components in order to allocate the consideration on a relative stand-alone selling price basis.

For the lease component, we estimate the stand-alone selling price using the projected cash outflows related to the underlying leased vehicle, net of the estimated disposal proceeds, and a certain targeted return considering the weighted average cost of capital. For the non-lease component of the contract, we estimate the stand-alone selling price of the maintenance

41

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

component using an expected cost-plus margin approach. The expected costs are based on our historical costs of providing maintenance services in our ChoiceLease arrangements. The margin is based on the historical margin percentages for our full service maintenance contracts in the SelectCare product line, as the maintenance performance obligation in those contracts is similar to maintenance in our ChoiceLease arrangements. Full service maintenance arrangements in SelectCare are priced based on targeted margin percentages for new and used vehicles by type of vehicle (trucks, tractors, and trailers), considering the fixed and variable costs of providing maintenance services.

We recognize maintenance revenue using an input method, consistent with the estimated pattern of the costs to maintain the underlying vehicles. This generally results in the recognition of a contract liability for the portion of the customer's billings allocated to the maintenance service component of the agreement. The non-lease revenue from maintenance services related to our ChoiceLease product is recognized in "Lease & related maintenance and rental revenue" in the Consolidated Statements of Earnings. We recognized $963 million in 2023, and $1.0 billion in both 2022 and 2021.

The stand-alone price for both the lease and non-lease components could vary in the future based on both external market conditions and our pricing strategies as a result of the market conditions.

Pension Plans. We apply actuarial methods to determine the annual net periodic pension expense and pension plan liabilities on an annual basis, or on an interim basis if there is an event, such as a curtailment, requiring remeasurement. Each December, we review actual experience compared with the assumptions used and make adjustments to our assumptions, if warranted. In determining our annual estimate of periodic pension cost, we are required to make an evaluation of critical factors such as discount rate, expected long-term rate of return on assets, retirement rate and mortality. Discount rates are based upon a duration analysis of expected benefit payments and the equivalent average yield for high quality corporate fixed income investments as of our annual measurement date at December 31. In order to estimate the discount rate relevant to our plan, we use models that match projected benefits payments of our primary U.S. plan to interest payments and maturities from a hypothetical portfolio of high quality corporate bonds. Long-term rate of return assumptions are based on a review of our asset allocation strategy and long-term expected asset returns. Investment management and other fees paid using plan assets are factored into the determination of asset return assumptions.

Assumptions as to mortality of the participants in our pension plan is a key estimate in measuring the expected payments participants may receive over their lifetime, and therefore the amount of expense we will recognize. We update our mortality assumptions as deemed necessary by taking into consideration relevant actuarial studies as they become available as well as reassessing our own historical experience. Disclosure of the significant assumptions used in arriving at the 2023 net pension expense is presented in Note 19, “Employee Benefit Plans,” in the Notes to Consolidated Financial Statements.

As part of our strategy to manage future pension costs and net funded status volatility, we regularly assess our pension investment strategy. Our U.S. pension investment policy and strategy seek to reduce the effects of future volatility on the fair value of our pension assets relative to our pension liabilities by achieving attractive risk-adjusted returns that will balance the liquidity requirements of the plans’ liabilities while striving to minimize the risk of significant funded status deterioration. As the funded status of each plan improves, we (1) gradually increase the liability hedging portfolio, which consists of high quality, longer-term fixed income securities and (2) reduce our allocation of equity investments. The composition of our U.S. pension assets was 21% equity securities and alternative assets, 78% debt securities and 1% cash as of December 31, 2023. In 2024, our long-term expected rate of return assumption (net of fees) for our primary U.S. plan will remain at 5.40%.

Accounting guidance applicable to pension plans does not require immediate recognition of the effects of a deviation between these assumptions and actual experience or the revision of an estimate. This approach allows the favorable and unfavorable effects that fall within an acceptable range to be netted and included in “Accumulated other comprehensive loss.” We had a pre-tax accumulated actuarial loss of $830 million and $759 million as of December 31, 2023 and 2022, respectively. To the extent the amount of cumulative actuarial gains and losses exceed 10% of the greater of the benefit obligation or plan assets, the excess amount is primarily amortized over the average remaining life expectancy of participants. As of December 31, 2023, the amount of the actuarial loss subject to amortization in 2024 and future years is $644 million. In 2024, we expect to amortize $31 million of net actuarial loss as a component of pension expense. The effect on years beyond 2024 will depend substantially upon the actual experience of our plans in future years.

42

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

A sensitivity analysis of 2024 net pension expense to changes in key underlying assumptions for our primary plan, the U.S. pension plan, is presented below:

[[GREPCENT_TABLE]]
[["","","Assumed Rate","","Change","","Impact on 2024 Net Pension Expense","","Effect on December 31, 2023 Projected Benefit Obligation"],["Expected long-term rate of return on assets","","5.40%","","+/- 0.25","","+/- $3 million","","N/A"],["Discount rate","","5.15%","","+ 0.25","","NM","","- $31 million"],["Discount rate","","5.15%","","- 0.25","","NM","","+ $32 million"]]
[[/GREPCENT_TABLE]]

Self-Insurance Accruals. The majority of our self-insurance relates to vehicle liability and workers’ compensation. We use a variety of statistical and actuarial methods that are widely used and accepted in the insurance industry to estimate amounts for claims that have been reported but not paid and claims incurred but not reported. In applying these methods and assessing their results, we consider such factors as frequency and severity of claims, claim development and payment patterns, and changes in the nature of our business, among others. Such factors are analyzed for each of our business segments. Our estimates may be impacted by such factors as increases in the market price for medical services, unpredictability of the size of jury awards and limitations inherent in the estimation process. We recognized a benefit of $17 million in 2023, a benefit of $25 million in 2022 and a benefit of $6 million in 2021 from the development of estimated prior years' self-insured loss reserves. Based on self-insurance accruals at December 31, 2023, a 5% adverse change in actuarial claim loss estimates would increase operating expense in 2024 by $20 million. Refer to Note 10, “Accrued Expenses and Other Liabilities,” in the Notes to Consolidated Financial Statements for changes to the self-insurance accruals during the year.

Goodwill Impairment. We assess goodwill for impairment, as described in Note 1, “Summary of Significant Accounting Policies — Goodwill and Other Intangible Assets,” in the Notes to Consolidated Financial Statements, on an annual basis or more often if deemed necessary. As of December 31, 2023, total goodwill was $940 million. To determine whether goodwill is impaired, we are required to assess the fair value of each reporting unit and compare it to its carrying value. A reporting unit is a component of an operating segment for which discrete financial information is available and management regularly reviews its operating performance.

We assess goodwill for impairment on October 1st of each year or more often if deemed necessary. In evaluating goodwill for impairment, we have the option to first assess qualitative factors to determine whether further impairment testing is necessary, such as macroeconomic conditions, changes in our industry and the markets in which we operate, and our market capitalization as well as our reporting units' historical and expected future financial performance. If we conclude that it is more likely than not that a reporting unit's fair value is less than its carrying value or we bypass the optional qualitative assessment, recoverability is assessed by comparing the fair value of the reporting unit with its carrying amount. If a reporting unit's carrying value exceeds its fair value, we will measure any goodwill impairment losses as the amount by which the carrying amount of a reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to that reporting unit.

For quantitative tests, we estimate the fair value of the reporting units using a combination of both a market and income approach. Under the market approach, we use a selection of comparable publicly-traded companies that correspond to the reporting unit to derive a market-based multiple. Under the income approach, the fair value of the reporting unit is estimated based on the discounted present value of the projected future cash flows. Rates used to discount cash flows are dependent upon interest rates and the cost of capital based on our industry and capital structure, adjusted for equity and size risk premiums based on market capitalization. Estimates of future cash flows are dependent on our knowledge and experience about past and current events and significant judgments and assumptions about conditions we expect to exist, including revenue growth rates, margins, long-term growth rates, capital requirements, proceeds from the sale of used vehicles, the ability to utilize our tax net operating losses, and the discount rate. Our estimates of cash flows are also based on historical and future operating performance, economic conditions and actions we expect to take. In addition to these factors, our SCS and DTS reporting units are dependent on several key customers or industry sectors. The loss of a key customer may have a significant impact to our SCS or DTS reporting units, causing us to assess whether or not the event resulted in a goodwill impairment loss.

In making our assessments of fair value, we rely on our knowledge and experience about past and current events and assumptions about conditions we expect to exist in the future. These assumptions are based on a number of factors, including future operating performance, economic conditions, actions we expect to take and present value techniques. There are inherent uncertainties related to these factors and management’s judgment in applying them to the analysis of goodwill impairment. It is possible that assumptions underlying the impairment analysis will change in such a manner that impairment in value may occur in

43

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

the future. We conduct additional sensitivity analyses to assess the risk for potential impairment based upon changes in the key assumptions in our goodwill valuation test, including long-term growth rates and discount rates. 

On October 1, 2023, we completed our annual goodwill impairment test for all reporting units and determined that the fair values more likely than not exceeded their respective carrying values for each reporting unit. We conducted a quantitative analysis for our FMS reporting unit and qualitative analyses for our SCS and DTS reporting units.

Income Taxes. Our overall tax position is complex and requires careful analysis by management to estimate the expected realization of income tax assets and liabilities.

Tax regulations can require items to be included in the tax return at different times than the items are reflected in the financial statements. As a result, the effective tax rate reflected in the financial statements can be different than that reported in the tax return. Timing differences create deferred tax assets and liabilities. Deferred tax assets generally represent items that can be used as a tax deduction or credit in the tax return in future years for which we have already recognized the tax benefit in the financial statements. Deferred tax assets were $541 million and $562 million as of December 31, 2023 and 2022, respectively. We recognize a valuation allowance against deferred tax assets to reduce such assets to amounts expected to be realized. As of December 31, 2023 and 2022, the deferred tax valuation allowance was $87 million and $88 million, respectively. In determining the required level of valuation allowance, we consider whether it is more likely than not that all or some portion of deferred tax assets will not be realized. This assessment is based on management’s expectations as to whether sufficient taxable income of an appropriate character will be realized within tax carryback and carryforward periods. Our assessment involves estimates and assumptions about matters that are inherently uncertain, and unanticipated events or circumstances could cause actual results to differ from these estimates. Should we change our estimate of the amount of deferred tax assets that we would be able to realize, an adjustment to the valuation allowance would result in an increase or decrease to the provision for income taxes in the period such a change in estimate was made.

As part of our calculation of the provision for income taxes, we determine whether the benefits of our tax positions are at least more likely than not of being sustained upon audit based on the technical merits of the tax position. We accrue the largest amount of the benefit that has a cumulative probability of greater than 50% of being sustained. These accruals require management to make estimates and judgments with respect to the ultimate outcome of a tax audit. Actual results could vary materially from these estimates.

A number of years may elapse before a particular matter for which we have established a reserve is audited and finally resolved. The number of years exposed to audit due to open statutes varies depending on the tax jurisdiction. The tax benefit that has been previously reserved because of a failure to meet the “more likely than not” recognition threshold would be recognized in our income tax expense in the first interim period when the uncertainty is resolved under any one of the following conditions: (1) the tax position has been determined to be “more likely than not” of being sustained, (2) the tax position, amount and/or timing is ultimately settled through negotiation or litigation, or (3) the statutes of limitations for the tax position has expired. Refer to Note 11, “Income Taxes,” in the Notes to Consolidated Financial Statements for further discussion.

RECENT ACCOUNTING PRONOUNCEMENTS

Refer to Note 2, “Recent Accounting Pronouncements,” in the Notes to Consolidated Financial Statements for a discussion of recent accounting pronouncements.

NON-GAAP FINANCIAL MEASURES

Non-GAAP Financial Measures. This Annual Report on Form 10-K includes information extracted from consolidated financial information that is not required by U.S. 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 U.S. 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 the MD&A above. We also provide the reasons why management believes each non-GAAP financial measure is useful to investors in this section.

44

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Specifically, we refer to the following non-GAAP financial measures in this Form 10-K:

[[GREPCENT_TABLE]]
[["Non-GAAP Financial Measure","Comparable GAAP Measure"],["Operating Revenue Measures:"],["Operating Revenue","Total Revenue"],["FMS Operating Revenue","FMS Total Revenue"],["SCS Operating Revenue","SCS Total Revenue"],["DTS Operating Revenue","DTS 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 Before Income Tax","Earnings Before Income Tax"],["Comparable Earnings","Earnings from Continuing Operations"],["Comparable Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)","Net Earnings"],["Comparable EPS","EPS from Continuing Operations"],["Comparable Tax Rate","Effective Tax Rate from Continuing Operations"],["Adjusted Return on Equity (ROE)","Not Applicable. However, non-GAAP elements of the calculation have been reconciled to the corresponding GAAP measures. A numerical reconciliation of net earnings to adjusted net earnings and average shareholders' equity to adjusted average equity is provided in the following reconciliations."],["Cash Flow Measures:"],["Total Cash Generated and Free Cash Flow","Cash Provided by Operating Activities from Continuing Operations"]]
[[/GREPCENT_TABLE]]

45

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Set forth in the table below is an overview of each non-GAAP financial measure and why management believes that presentation of each non-GAAP financial measure provides useful information to investors.

[[GREPCENT_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 or each business segment (FMS, SCS and DTS) excluding any (1) fuel and (2) subcontracted transportation. We use operating revenue 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. Fuel revenue 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 current 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."]]
[[/GREPCENT_TABLE]]

46

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

[[GREPCENT_TABLE]]
[["Comparable Earnings Measures:"],["Comparable Earnings before Income Taxes (EBT) Comparable Earnings Comparable Earnings per Diluted Common Share (EPS) Comparable Tax Rate Adjusted Return on Equity (ROE)","Comparable EBT, Comparable Earnings and Comparable EPS are defined, respectively, as GAAP EBT, earnings and EPS, all from continuing operations, excluding (1) non-operating pension costs, net and (2) other items impacting comparability (as further described below). We believe these non-GAAP measures provide useful information to investors and allow for better year-over-year comparison of operating performance. Non-operating pension costs, net: Our comparable earnings measures exclude non-operating pension costs, net, 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 any significant charges for settlements or curtailments if recognized. We exclude non-operating pension costs, net 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 and vary from period to period. Comparable Tax Rate 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 marginal tax rates to which the non-GAAP adjustments are related. Adjusted ROE is defined as adjusted net earnings divided by adjusted average shareholders' equity and represents the rate of return on shareholders' investment. Other items impacting comparability described above are excluded, as applicable, from the calculation of adjusted net earnings and adjusted average shareholders' equity. We use adjusted ROE as an internal measure of how effectively we use the owned capital invested in our operations."],["Comparable Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)","Comparable EBITDA is defined as net earnings, first adjusted to exclude discontinued operations and the following items, all from continuing operations: (1) non-operating pension costs, net and (2) any other items that are not representative of our business operations (these items are the same items that are excluded from comparable earnings measures for the relevant periods as described immediately above) and then adjusted further for (1) interest expense, (2) income taxes, (3) depreciation, (4) used vehicle sales results and (5) amortization. We believe comparable EBITDA provides investors with useful information, as it is a standard measure commonly reported and widely used by investors and other interested parties to measure financial performance and our ability to service debt and meet our payment obligations. We believe that the inclusion of comparable EBITDA also provides consistency in financial reporting and aids investors in performing meaningful comparisons of past, present and future operating results. Our presentation of comparable EBITDA may not be comparable to similarly-titled measures used by other companies. Comparable EBITDA should not be considered a substitute for, or superior to, the measures of financial performance determined in accordance with GAAP."]]
[[/GREPCENT_TABLE]]

47

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

[[GREPCENT_TABLE]]
[["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 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 is defined as the net amount of cash generated from operating activities and investing activities (excluding changes in restricted cash and acquisitions) from continuing operations. 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, and (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."]]
[[/GREPCENT_TABLE]]

48

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table provides a reconciliation of GAAP Earnings from continuing operations before income taxes (EBT), Earnings from continuing operations, and Earnings from continuing operations per common share — Diluted (Diluted EPS) to comparable EBT, comparable earnings and comparable EPS, respectively. Certain items included in EBT, Earnings from continuing operations and Diluted EPS 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 Consolidated Financial Statements:

[[GREPCENT_TABLE]]
[["","","Continuing Operations"],["","","Years ended December 31,"],["(In millions, except per share amounts)","","2023","","2022","","2021"],["EBT","","$","618","","","$","1,216","","","$","693"],["Non-operating pension costs, net (1)","","40","","","11","","","(1)"],["FMS U.K. exit (2)","","(32)","","","(82)","","","(27)"],["Currency translation adjustment loss","","188","","","\u2014","","","\u2014"],["ERP implementation costs (2)","","\u2014","","","\u2014","","","13"],["Other, net (2)","","1","","","(1)","","","4"],["Comparable EBT","","$","815","","","$","1,144","","","$","682"],["Earnings","","$","406","","","$","863","","","$","522"],["Non-operating pension costs, net (1)","","31","","","7","","","(3)"],["FMS U.K. exit (2)","","(32)","","","(82)","","","(18)"],["Currency translation adjustment loss","","183","","","\u2014","","","\u2014"],["ERP implementation costs (2)","","\u2014","","","\u2014","","","9"],["Other, net (2)","","1","","","(1)","","","4"],["Tax adjustments, net (3)","","13","","","46","","","1"],["Comparable Earnings","","$","602","","","$","833","","","$","515"],["Diluted EPS","","$","8.73","","","$","16.96","","","$","9.70"],["Non-operating pension costs, net (1)","","0.68","","","0.14","","","(0.06)"],["FMS U.K. exit (2)","","(0.68)","","","(1.61)","","","(0.34)"],["Currency translation adjustment loss","","3.93","","","\u2014","","","\u2014"],["ERP implementation costs (2)","","\u2014","","","\u2014","","","0.18"],["Other, net (2)","","0.01","","","(0.02)","","","0.09"],["Tax adjustments, net (3)","","0.28","","","0.90","","","0.01"],["Comparable EPS","","$","12.95","","","$","16.37","","","$","9.58"]]
[[/GREPCENT_TABLE]]

_______________

(1)Refer to Note 19, “Employee Benefit Plans,” in the Notes to Consolidated Financial Statements for additional information.

(2)Refer to Note 20, “Other Items Impacting Comparability,” in the Notes to Consolidated Financial Statements for additional information.

(3)In 2023 and 2022, adjustments include the global tax impacts related to the FMS U.K. business exit. In 2022, adjustments also include the tax impact of state rate law changes. In 2021, adjustments include the tax impact related to expiring state net operating losses.

The following table provides a reconciliation of the effective tax rate to the comparable tax rate:

[[GREPCENT_TABLE]]
[["","","Years ended December 31,"],["","","2023","","2022","","2021"],["Effective tax rate on continuing operations (1)","","34.3%","","29.1%","","24.7%"],["Tax adjustments and income tax effects of non-GAAP adjustments (2)","","(8.2)%","","(1.9)%","","(0.2)%"],["Comparable tax rate on continuing operations (1)","","26.1%","","27.2%","","24.5%"]]
[[/GREPCENT_TABLE]]

_______________ 

(1)The effective tax rate on continuing operations and comparable tax rate are based on EBT and comparable EBT, respectively.

(2)Refer to the table above for more information on tax adjustments. Income tax effects of non-GAAP adjustments are calculated based on the marginal tax rates to which the non-GAAP adjustments are related.

49

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table provides a reconciliation of Net earnings to comparable EBITDA:

[[GREPCENT_TABLE]]
[["","","Years ended December 31,"],["(In millions)","","2023","","2022","","2021"],["Net earnings","","$","406","","","$","867","","","$","519"],["(Earnings) loss from discontinued operations, net of tax","","\u2014","","","(4)","","","3"],["Provision for income taxes","","212","","","353","","","171"],["EBT","","618","","","1,216","","","693"],["Non-operating pension costs, net (1)","","40","","","11","","","(1)"],["FMS U.K. exit (2)","","(32)","","","(82)","","","(27)"],["Currency translation adjustment loss (2)","","188","","","\u2014","","","\u2014"],["ERP implementation costs (2)","","\u2014","","","\u2014","","","13"],["Other, net (2)","","1","","","(1)","","","4"],["Comparable EBT","","815","","","1,144","","","682"],["Interest expense","","296","","","228","","","214"],["Depreciation","","1,712","","","1,713","","","1,786"],["Used vehicle sales, net (3)","","(193)","","","(400)","","","(257)"],["Amortization","","35","","","37","","","8"],["Comparable EBITDA","","$","2,665","","","$","2,722","","","$","2,433"]]
[[/GREPCENT_TABLE]]

_______________

(1)Refer to Note 19, “Employee Benefit Plans,” in the Notes to Consolidated Financial Statements for additional information.

(2)Refer to the table above in the Full Year Operating Results by Segment for a discussion on items excluded from our comparable measures and their classification within our Consolidated Statements of Earnings and Note 20, “Other Items Impacting Comparability” in the Notes to Consolidated Financial Statements for additional information.

(3)Refer to Note 6,"Revenue Earning Equipment, net," in the Notes to Consolidated Financial Statements for additional information. In 2023, and 2022, Used vehicle sales, net of $2 million and $49 million, respectively, related to the sale of used vehicles in the U.K. is excluded as it is included above in "Other Items Impacting Comparability."

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

[[GREPCENT_TABLE]]
[["","","Years ended December 31,"],["(In millions)","","2023","","2022","","2021"],["Total revenue","","$","11,783","","","$","12,011","","","$","9,663"],["Subcontracted transportation and fuel","","(2,286)","","","(2,731)","","","(1,835)"],["Operating revenue","","$","9,497","","","$","9,280","","","$","7,828"]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["","","","Years ended December 31,"],["(In millions)","","","","","2023","","2022","","2021"],["FMS total revenue","","","","","$","5,930","","$","6,327","","$","5,680"],["Fuel services revenue","","","","","(877)","","(1,114)","","(739)"],["FMS operating revenue","","","","","$","5,053","","$","5,213","","$","4,941"],["FMS EBT","","","","","$","665","","$","1,057","","$","665"],["FMS EBT as a % of FMS total revenue","","","","","11.2%","","16.7%","","11.7%"],["FMS EBT as a % of FMS operating revenue","","","","","13.2%","","20.3%","","13.5%"]]
[[/GREPCENT_TABLE]]

50

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

[[GREPCENT_TABLE]]
[["","","","Years ended December 31,"],["(In millions)","","","","","2023","","2022","","2021"],["SCS total revenue","","","","","$","4,875","","","$","4,720","","","$","3,155"],["Subcontracted transportation and fuel","","","","","(1,250)","","","(1,466)","","","(944)"],["SCS operating revenue","","","","","$","3,625","","","$","3,254","","","$","2,211"],["SCS EBT","","","","","$","231","","","$","218","","","$","123"],["SCS EBT as a % of SCS total revenue","","","","","4.7%","","4.6%","","3.9%"],["SCS EBT as a % of SCS operating revenue","","","","","6.4%","","6.7%","","5.6%"]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["","","","Years ended December 31,"],["(In millions)","","","","","2023","","2022","","2021"],["DTS total revenue","","","","","$","1,785","","","$","1,786","","","$","1,457"],["Subcontracted transportation and fuel","","","","","(487)","","","(547)","","","(402)"],["DTS operating revenue","","","","","$","1,298","","","$","1,239","","","$","1,055"],["DTS EBT","","","","","$","121","","","$","103","","","$","49"],["DTS EBT as a % of DTS total revenue","","","","","6.8%","","5.8%","","3.4%"],["DTS EBT as a % of DTS operating revenue","","","","","9.3%","","8.3%","","4.6%"]]
[[/GREPCENT_TABLE]]

The following tables provide numerical reconciliations of net earnings to adjusted net earnings and average shareholders' equity to adjusted average shareholders' equity (Adjusted ROE), and of the non-GAAP elements used to calculate the adjusted return on equity to the corresponding GAAP measures:

[[GREPCENT_TABLE]]
[["","","Years ended December 31,"],["(In millions)","","2023","","2022","","2021"],["Net earnings","","$","406","","","$","867","","","$","519"],["Other items impacting comparability, net (1)","","157","","","(83)","","","(10)"],["Provision for income taxes (2)","","212","","","353","","","171"],["Adjusted earnings before income taxes","","775","","","1,137","","","680"],["Adjusted income taxes (3)","","(204)","","","(307)","","","(164)"],["Adjusted net earnings","","$","571","","","$","830","","","$","516"],["Average shareholders\u2019 equity","","$","3,041","","","$","2,845","","","$","2,453"],["Average adjustments to shareholders\u2019 equity (4)","","(19)","","","(12)","","","14"],["Adjusted average shareholders\u2019 equity","","$","3,022","","","$","2,833","","","$","2,467"],["Adjusted return on equity (5)","","19%","","29%","","21%"]]
[[/GREPCENT_TABLE]]

_______________

(1)Refer to Note 20, “Other Items Impacting Comparability” in the Notes to Consolidated Financial Statements for additional information.

(2)Includes income taxes on discontinued operations.

(3)Represents Provision for income taxes plus income taxes on Other items impacting comparability, net.

(4)Represents the impact of Other items impacting comparability, net of tax, to equity for the respective period.

(5)Adjusted return on equity is calculated by dividing Adjusted net earnings into Adjusted average shareholders' equity.

51

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table provides a reconciliation of forecasted net cash provided by operating activities to forecasted total cash generated and forecasted free cash flow for 2024:

[[GREPCENT_TABLE]]
[["(In millions)","","","Forecast 2024"],["Net cash provided by operating activities from continuing operations","","","$","2,400"],["Proceeds from sales (primarily revenue earning equipment) (1)","","","550"],["Total cash generated","","","2,950"],["Purchases of property and revenue earning equipment (1)","","","(3,275)"],["Forecasted free cash flow","","","$","(325)"]]
[[/GREPCENT_TABLE]]

_____________________

(1)Included in cash flows from investing activities.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

•our expectations with respect to the effects of outsourcing trends in warehousing and distribution on our business and financial results;

•our expectations with respect to the effects of secular trends and supply chain disruptions;

•our expectations with respect to the macroeconomic and freight environment;

•our expectations regarding supply of vehicles and vehicle parts and its effect on pricing and demand;

•our expectations of the long-term residual values of revenue earning equipment, including the probability of incurring losses or having to decrease residual value estimates in the event of a further cyclical downturn or changes to the estimated useful lives;

•our expectations regarding the effects of acquisitions on our business segments and the integration of such acquisitions;

•our expectations in our SCS and DTS business segments related to revenue, earnings growth, and contract sales activity;

•our expectations regarding weakening trends and lower volumes in our omnichannel retail vertical;

•the expected pricing for used vehicles and sales channel mix;

•our expectations regarding used vehicle sales and rental;

•our expectations regarding the impact of labor shortages and interruptions or strikes on labor and subcontracted transportation costs;

•our expectations regarding ChoiceLease and SelectCare;

•our expectations of cash flow from operating activities, free cash flow, and capital expenditures;

•our ability to meet our objectives with the share repurchase programs;

•the adequacy of our accounting estimates and reserves for 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, allowance for credit losses, and self-insurance loss reserves;

•the adequacy of our fair value estimates of publicly traded debt and other debt;

52

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

•the adequacy and timing of our fair value estimates for the purposes of our purchase consideration allocation with respect to acquisitions;

•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, anticipated future payments under debt and lease agreements, and risk of losses resulting from counterparty default under hedging and derivative agreements;

•the anticipated impact of fuel and energy prices, interest rate movements, and exchange rate fluctuations;

•our expectations as to return on pension plan assets, future pension expense, and estimated contributions;

•our expectations regarding the scope and anticipated outcomes with respect to certain claims, proceedings and lawsuits;

•our ability to access commercial paper and other available debt financing in the capital markets;

•the impact of our strategic investments and maintenance and lease pricing initiatives;

•our intent to permanently reinvest the earnings of our non U.K. & Germany foreign subsidiaries indefinitely;

•our expectations regarding the achievement of our return on equity improvement initiatives;

•the anticipated impact of inflationary pressures;

•our expectations regarding the U.S. federal, state, and foreign tax positions and realizability of deferred tax assets.

•our expectations regarding our ability to estimate the fair value of assets acquired and liabilities assumed with respect to acquisitions; and

•our expectations regarding the effect of changes to systems and processes on our internal control over financial reports.

These statements, as well as other forward-looking statements contained in this Annual 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, among others, include the following:

•Market Conditions:

◦Changes in general economic and financial conditions in the U.S. and worldwide leading to decreased demand for our services and products, 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 services and products.

◦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 we service.

◦Changes in current financial, tax or other regulatory requirements that could negatively impact our financial and operating results.

◦Financial institution disruptions and geopolitical events or conflicts.

53

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

•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 where 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:

◦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.

◦Decreases in volume in our omnichannel retail vertical.

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

◦The inability of our information technology systems to provide timely access to data.

◦The inability of our information security program to safeguard our data.

◦Sudden changes in market fuel prices and fuel shortages.

◦Higher prices for vehicles, diesel engines and fuel as a result of new regulations or inflationary pressures.

◦Higher than expected maintenance costs and lower than expected benefits associated with our maintenance initiatives.

◦Lower than expected revenue growth due to production delays at our automotive SCS customers, primarily related to supply chain disruptions.

◦The inability of an original equipment manufacturer or supplier to provide vehicles or vehicle components as originally scheduled.

◦Our inability to successfully execute our strategic returns and asset management initiatives, maintain our fleet at normalized levels, and right-size our fleet in line with demand.

◦Our key assumptions and pricing structure, including any assumptions made with respect to inflation, of our SCS and DTS contracts prove to be inaccurate.

◦Increased unionizing, labor strikes and work stoppages.

◦Difficulties in attracting and retaining professional drivers, warehouse personnel and technicians due to labor 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.

◦Unfavorable or unanticipated outcomes in legal or regulatory proceedings or uncertain positions.

54

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

◦Business interruptions or expenditures due to severe weather or other natural occurrences.

•Financing Concerns:

◦Higher borrowing costs.

◦Increased inflationary pressures.

◦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.

◦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.

•Other risks detailed from time to time in our SEC filings, including in "Item 1A. Risk Factors" of this Annual Report.

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 Annual Report. We do not intend, or assume any obligation, to update or revise any forward-looking statements contained in this Annual Report, whether as a result of new information, future events or otherwise.