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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

RYDER SYSTEM, INC.
(Exact name of registrant as specified in its charter)

Indicate by check mark whether the registrant (l) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: YES x NO o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K: o

Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act). YES x NO o

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant computed by reference to the price at which the common equity was sold as of June 30, 2002 was $1,677,366,804. The number of shares of Ryder System, Inc. Common Stock ($0.50 par value) outstanding as of January 31, 2003 was 62,512,753.

[Cover page 1 of 2 pages]

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

[Cover page 2 of 2 pages]

RYDER SYSTEM, INC.
Form 10-K Annual Report

TABLE OF CONTENTS

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PART I

ITEM 1. BUSINESS

GENERAL

     Ryder System, Inc. (the “Company”) was incorporated in Florida in 1955. The Company operates in three reportable business segments: (1) Fleet Management Solutions (FMS), which provides full service leasing, commercial rental and programmed maintenance of trucks, tractors and trailers to customers, principally in the U.S., Canada and the U.K.; (2) Supply Chain Solutions (SCS), which provides comprehensive supply chain consulting and lead logistics management solutions that support customers’ entire supply chains, from inbound raw materials through distribution of finished goods throughout North America, in Latin America, Europe and Asia; and (3) Dedicated Contract Carriage (DCC), which provides vehicles and drivers as part of a dedicated transportation solution, principally in North America. As of December 31, 2002, the Company and its subsidiaries had a fleet of approximately 161,400 vehicles and 27,800 employees.

     Financial information about business segments is included in Item 8 on pages 75 through 79 of this report.

FLEET MANAGEMENT SOLUTIONS

     The FMS business segment provides full service truck leasing to over 13,300 customers principally in the U.S., Canada and the United Kingdom, ranging from large national enterprises to small companies, with a fleet of 120,900 vehicles. Under a full service lease, the Company provides customers with vehicles, maintenance, supplies and related equipment necessary for operation, while the customers furnish and supervise their own drivers, and dispatch and exercise control over the vehicles. Additionally, the Company provides contract maintenance to service customer vehicles under maintenance contracts and provides short-term truck rental, which tends to be seasonal, to commercial customers to supplement their fleets during peak business periods. The Company also provides additional services for customers, including fleet management, freight management and insurance programs. A fleet of 37,600 vehicles, ranging from heavy-duty tractors and trailers to light-duty trucks, is available for commercial short-term rental. In 2002, the FMS business segment continued its focus on increased pricing discipline on new business, which has resulted in fewer sales but improved margins on business sold. Also in 2002, the FMS business segment focused on executing cost management initiatives, improving commercial rental utilization, increasing used truck sales activity, re-deploying used equipment, and term-extending maturing lease contracts, which has contributed to the improved operating performance.

SUPPLY CHAIN SOLUTIONS

     The SCS business segment provides global integrated logistics support of customers’ entire supply chains, from inbound raw materials supply through finished goods distribution, the management of carriers, inventory deployment, and overall supply chain design and management. Services include varying combinations of logistics system and information technology design, the provision of vehicles and equipment (including maintenance and drivers), warehouse management (including cross docking and flow-through distribution), transportation management, vehicle dispatch, and inbound and outbound just-in-time delivery. Supply chain solutions includes procurement and management of all modes of transportation, shuttles, interstate long-haul operations, just-in-time service to assembly plants and factory-to-warehouse-to-retail facility service. These services are used in major industry sectors including electronics, high-tech, telecommunications, automotive, industrial, aerospace, consumer goods, paper and paper products, chemical, office equipment, news, food and beverage, and general retail industries. Part of the Company’s strategy is to take advantage of, and build upon, the expertise, market knowledge and infrastructure of strategic alliance and joint venture partners to complement its own expertise in providing supply chain solutions to businesses involved in the over-the-road transportation of goods and to those who move goods around the world using any mode of transportation.

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     In 2002, SCS increased its emphasis on pricing discipline and operational performance while it implemented profit improvement initiatives. The SCS business segment continues to be focused on its global account management program and expanding its global presence in the logistics market.

DEDICATED CONTRACT CARRIAGE

     The DCC business segment combines the equipment, maintenance and administrative services of a full service lease with additional services in order to provide a customer with a dedicated transportation solution. Such additional services include driver hiring and training, routing and scheduling, fleet sizing, safety, regulatory compliance, risk management, and other technical support. This business uses a consultative approach to examine and assess the optimal approach to moving the products within a customer’s business, from raw material procurement to finished goods distribution. Ryder has sought to expand its DCC operations through growth from existing customers.

DISPOSITION OF REVENUE EARNING EQUIPMENT

     The Company’s FMS segment has historically disposed of used revenue earning equipment at prices in excess of book value. During 2000, an industry-wide downturn in the market for new and used tractors and trucks, particularly “Class 8” vehicles (the largest heavy-duty tractors), combined with higher average book values per unit, led to reduced gains on the sale of revenue earning equipment. During 2001 and 2002, demand for new and used tractors and trucks, particularly Class 8 vehicles, continued to be depressed. The Company has reduced the residual values of certain vehicles and increased depreciation expense to account for the reduction in anticipated sales proceeds on certain used vehicles.

     Gains on the sale of revenue earning equipment were approximately 5 percent, 5 percent and 6 percent of earnings from operations before interest, taxes, restructuring and other charges and cumulative effect of change in accounting principle in 2002, 2001 and 2000, respectively. The extent to which gains will be realized on future disposal of revenue earning equipment is dependent upon various factors including the general state of the used vehicle market, the age and condition of vehicles at the time of their disposal and depreciation methods with respect to vehicles.

COMPETITION

     As an alternative to using the Company’s services, customers may choose to provide these services for themselves, or may choose to obtain similar or alternative services from other third-party vendors.

     The FMS and DCC business segments compete with companies providing similar services on a national, regional and local level. Regional and local competitors may sometimes provide services on a national level through their participation in various cooperative programs. Competitive factors include price, equipment, maintenance, service and geographical coverage and, with respect to DCC, driver and operations expertise. Ryder competes with other finance lessors and also to an extent, particularly in the U.K., with a number of truck and trailer manufacturers who provide truck and trailer leasing, extended warranty maintenance, rental and other transportation services. Value-added differentiation of the full service truck leasing, truck rental, contract and non-contract truck maintenance service and DCC offerings has been, and will continue to be, Ryder’s emphasis.

     In the SCS business segment, Ryder competes with companies providing similar services on an international, national, regional and local level. Additionally, this business is subject to potential competition in most of the regions it serves from air cargo, shipping, railroads, motor carriers and other companies that are expanding logistics services such as freight forwarders, contract manufacturers and integrators. Competitive factors include price, service, equipment, maintenance, geographical coverage, market knowledge, expertise in logistics-related technology, and overall performance (e.g., timeliness, accuracy and flexibility). Value-added differentiation of these service offerings across the full global supply chain will continue to be Ryder’s overriding strategy.

EMPLOYEES

     As of December 31, 2002, the Company had approximately 27,800 full-time employees worldwide, of which 22,400 were employed in North America, 1,800 in South America and Mexico, 3,200 in Europe and 400 in Asia. The Company has approximately 17,200 hourly employees in the United States, approximately 3,600 of which are organized by labor unions. These employees are principally represented by the International Brotherhood of Teamsters, the International Association of Machinists and Aerospace Workers and the United Auto Workers,

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and their wages and benefits are governed by approximately 100 labor agreements that are renegotiated periodically. None of the businesses in which the Company currently engages have experienced a material work stoppage, slowdown or strike and the Company considers its relationship with its employees to be good.

EXECUTIVE OFFICERS OF THE REGISTRANT

     All of the executive officers of the Company were elected or re-elected to their present offices either at or subsequent to the meeting of the Board of Directors held on May 3, 2002 in conjunction with the Company’s 2002 Annual Meetings. They all hold such offices, at the discretion of the Board of Directors, until their removal, replacement or retirement.

     Gregory T. Swienton has been Chairman since May 2002, President since June 1999 and Chief Executive Officer since November 2000. Before joining Ryder, Mr. Swienton was Senior Vice President of Growth Initiatives of Burlington Northern Santa Fe Corporation (BNSF) and before that Mr. Swienton was BNSF’s Senior Vice President, Coal and Agricultural Commodities Business Unit.

     Corliss J. Nelson has been Senior Executive Vice President and Chief Financial Officer since April 1999. Previously, Mr. Nelson was President of Koch Capital Services and was a Vice President of Koch Industries, Inc., a diversified energy company engaged in a broad range of business activities.

     Bobby J. Griffin has been Executive Vice President, International Supply Chain Solutions since January 2003. Previously, Mr. Griffin served as Executive Vice President, Global Supply Chain Operations since March 2001. Prior to this appointment, Mr. Griffin was Senior Vice President, Field Management West from January 2000 to March 2001. Mr. Griffin was Vice President, Operations of Ryder Transportation Services from 1997 to December 1999. Mr. Griffin also served Ryder as Vice President and General Manager of ATE Management and Service Company, Inc. and of Managed Logistics Systems, Inc. operating units of the former Ryder Public Transportation Services, positions he held from 1993 to 1997. Mr. Griffin was Executive Vice President, Western Operations of Ryder/ATE from 1987 to 1993. He joined Ryder as Executive Vice President, Consulting of ATE in 1986 after Ryder acquired ATE Management and Service Company.

     Tracy A. Leinbach has been Executive Vice President, Fleet Management Solutions since March 2001. Ms. Leinbach served as Senior Vice President, Sales and Marketing from September 2000 to March 2001, and she was Senior Vice President Field Management from July 2000 to September 2000. Ms. Leinbach also served as Managing Director-Europe of Ryder Transportation Services from January 1999 to July 2000 and previously she had served

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Ryder Transportation Services as Senior Vice President and Chief Financial Officer from 1998 to January 1999, Senior Vice President, Business Services from 1997 to 1998, and Senior Vice President, Purchasing and Asset Management for six months during 1996. From 1985 to 1996, Ms. Leinbach held various financial positions in Ryder subsidiaries.

     Challis M. Lowe has served as Executive Vice President, Human Resources, Public Affairs and Corporate Communications since November 2000. Ms. Lowe joined the Company as EVP of Human Resources in May of 2000. Before joining Ryder, Ms. Lowe was a consultant to the merger of Beneficial Management Corp. with Household Finance from 1998 to 1999. From 1997 to 1998 Ms. Lowe was Executive Vice President, Human Resources and Administrative Services at Beneficial Management Corp., a financial services company. Previously, she was Executive Vice President at Heller International, a financial services company, from 1993 to 1997 where she was responsible for Human Resources and Communications.

     Vicki A. O’Meara has been Executive Vice President and General Counsel since June 1997 and Secretary since February 1998. Prior to joining Ryder, Ms. O’Meara was a partner with the Chicago office of the law firm Jones Day. Previously, she held a variety of positions with the federal government including service as Assistant Attorney General for the Environmental and Natural Resources Division of the Department of Justice, Deputy General Counsel of the Environmental Protection Agency and in the Office of White House Counsel.

     Anthony G. Tegnelia has served as Executive Vice President, U.S. Supply Chain Solutions since December 2002. Previously, he was Senior Vice President, Global Business Value Management. Mr. Tegnelia joined Ryder in 1977 and has held a variety of other positions with the Company including Senior Vice President and Chief Financial Officer of the Company’s integrated logistics business segment and Senior Vice President, Field Finance.

     Kathleen S. Partridge has been Senior Vice President, Business and Accounting Services since February 2002. Previously, Ms. Partridge served as Senior Vice President and Controller from April 2001 until February 2002. Ms. Partridge was Vice President, Shared Services Center, from August 1997 to April 2001. In 1994, Ms. Partridge became District Manager in Bloomington, Ill., and held that position until she moved to the Ryder Shared Services Center in 1997. In 1989, she moved to Pittsburgh, Pa., where she was a field controller. Ms. Partridge joined Ryder in 1982 as a corporate auditor and held positions of increasing responsibility in the finance and accounting group.

     Robert E. Sanchez has served as Senior Vice President and Chief Information Officer since January 2003. He previously served as Senior Vice President of Global Transportation Management from March 2002 to January 2003. Previously, he also served as Chief Information Officer from June 2001 to March 2002. Mr. Sanchez joined Ryder in 1993 as a Senior Business System Designer.

     Art A. Garcia has been Vice President and Controller since February 2002. Previously, Mr. Garcia served as Group Director — Accounting Services from September 2000 to February 2002 and from April 2000 to June 2000. Mr. Garcia was Chief Financial Officer of Blue Dot Services, Inc., a national provider of heating and air conditioning services, from June 2000 to September 2000. Mr. Garcia served as Director — Corporate Accounting for Ryder from April 1998 to April 2000. Mr. Garcia joined Ryder in December 1997 as Senior Manager — Corporate Accounting. Prior to joining Ryder, Mr. Garcia held various positions in the audit services practice of Coopers and Lybrand LLP from 1984 to December 1997.

CERTAIN FACTORS THAT MAY AFFECT THE COMPANY’S BUSINESS

     The Company’s business is subject to a number of general economic factors in the United States and worldwide that may have a materially adverse effect on its results of operations, many of which are largely out of the Company’s control. These include recessionary economic cycles and downturns in customers’ business cycles, particularly in market segments and industries where we have a concentration of customers, interest rate fluctuations, increases in fuel prices or fuel shortages and the effects of future or threatened terrorism. Slow economic conditions in the United States and other countries where the Company operates, principally Brazil and Argentina, contributed to its decline in revenue for the year ended December 31, 2002 compared with 2001.

     Numerous competitive factors could impair the ability of the Company to maintain its current profitability. These factors include the following:

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the Company competes with many other leasing and transportation service providers, some of which have greater capital resources or lower capital costs;

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	•		some of the Company’s competitors periodically reduce their prices to gain business which may limit the ability of the Company to maintain or increase prices;
	•		the trend towards consolidation in the transportation industry may create large competitors with greater financial resources and other competitive advantages relating to their size;
	•		advances in technology require increased investments to remain competitive, and the Company’s customers may not be willing to accept higher prices to cover the cost of these investments; and
	•		competition from logistics and freight management companies that do not operate trucking fleets may adversely affect customer relationships and prices.

     The Company has implemented and continues to implement a variety of strategic initiatives to reduce costs and improve productivity. These initiatives include improving purchasing programs, improving the efficiency of maintenance operations, increasing the efficiency of rental and trailer fleet utilization, extending the duration of expiring leases and generating revenue from increased utilization of idle equipment. The continued successful implementation of these initiatives on a timely basis in the future is one of the keys to the Company’s future competitiveness and profitability.

     The Company’s business has been negatively impacted by an industry-wide downturn in the market for used tractors and trucks, particularly Class 8 vehicles, which are the largest class of heavy-duty tractors. This overall trend has caused the actual proceeds realized upon the sale of used revenue earning equipment to be lower than what was realized historically. The continuation or worsening of this trend may cause further unfavorable differences between residual values realized and current expectations, thus negatively affecting the profitability and financial condition of the Company.

     The Company’s business is subject to regulation by various federal, state and foreign governmental entities. Changes in applicable laws and regulations, or costs of complying with current or future laws and regulations, could have a material adverse effect on the Company’s operations and profitability. The U.S. Department of Transportation and various state agencies exercise broad powers over certain aspects of the Company’s business, generally governing such activities as authorization to engage in motor carrier operations, safety and financial reporting. The Company may also become subject to new or more restrictive regulations imposed by the Environmental Protection Agency, the Department of Transportation, the Occupational Safety and Health Administration or other authorities relating to engine exhaust emissions, drivers’ hours in service, security and ergonomics, compliance which could increase operating costs.

     The Environmental Protection Agency has issued regulations that require progressive reductions in exhaust emissions from diesel engines through 2007. Beginning in October 2002, new diesel engines were required to meet new emissions limits. Some of these regulations require subsequent reductions in the sulfur content of diesel fuel beginning in June 2006 and the introduction of emissions after-treatment devices on newly manufactured engines and vehicles beginning with the model year 2007. These regulations have resulted in higher prices for tractors and diesel engines and are likely to decrease demand for new tractors in the short-term and increase fuel and maintenance costs. These adverse effects combined with uncertainty as to the reliability of the vehicles equipped with the newly designed diesel engines and the residual values that will be realized from the disposition of these vehicles could reduce the Company’s revenues from truck leasing, increase costs, make it more difficult to realize expected residual values for used vehicles equipped with the newly designed diesel engines or otherwise adversely affect business.

     Many federal, state and local laws designed to protect the environment, and similar laws in some foreign jurisdictions, have varying degrees of impact on the way the Company and its subsidiaries conduct their business operations, primarily with regard to their use, storage and disposal of petroleum products and various wastes associated with vehicle maintenance and operating activities. Based on information presently available, management believes that the ultimate disposition of such matters, although potentially material to the Company’s results of operations in any one year, will not have a material adverse affect on the Company’s financial condition or liquidity.

     Certain aspects of the Company’s business are very capital intensive and the Company requires large amounts of capital to finance additions to its fleet. In 2002, the Company had capital expenditures of approximately $600 million. These capital needs are funded through borrowings, sale-leaseback transactions, vehicle securitizations, the sale of trade receivables and cash generated from operations. If the Company should lose access to its current sources of capital or is unable to generate sufficient cash from operations, it may have to limit its growth, find alternative sources of external capital or operate revenue earning equipment for longer periods. A downgrade of the Company’s debt below investment grade level would both limit its ability to issue commercial paper and render it unable to sell trade receivables under its existing facility.

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     In the aftermath of terrorist attacks on the United States, federal, state and municipal authorities have implemented and are implementing various security measures, including checkpoints and travel restrictions on large trucks. Although many companies will be adversely affected by any slowdown in the availability of transportation services, the negative impact could disproportionately affect the Company’s business. New security measures could disrupt or impede the Company’s ability to meet the needs of its customers, particularly those related to the timeliness of deliveries. No assurance can be given that these measures will not have a material adverse effect on operating results.

FURTHER INFORMATION

     For further discussion concerning the business of the Company and its subsidiaries, see the information included in Items 7 and 8 of this report.

     The Company makes available free of charge through its website at http://www.ryder.com its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission.

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ITEM 2. PROPERTIES

     The Company’s property consists primarily of vehicle maintenance and repair facilities, warehouses and other real estate and improvements.

     The Company has approximately 170 locations in the United States and Canada in connection with its domestic SCS and DCC businesses. Almost all of these facilities are leased and generally include a warehouse and administrative offices.

     The Company also has approximately 800 FMS locations in the United States, Puerto Rico and Canada; approximately 390 of these facilities are owned and the remainder are leased. These locations generally include a repair shop and administrative offices.

     The Company’s international operations (locations outside of the United States and Canada) have over 70 locations. These locations are in the U.K., Ireland, Germany, Poland, Mexico, Argentina, Brazil, Australia, China, Taiwan, Malaysia and Singapore. The majority of these facilities are leased. These locations generally include a repair shop, warehouse and administrative offices.

     The Company’s headquarters facility is a 400,000 square foot building located on approximately 40 acres of land in Miami, Florida that the Company has owned since 1973. Due to the age of the headquarters building and the headcount reductions experienced over recent years, the Company explored various strategic alternatives for the relocation of its headquarters. As a result, in December 2002, the Company announced that it reached an agreement with a real estate developer to build a new headquarters facility in Miami, Florida. The new building will be approximately 230,000 square feet and will be leased by the Company. The Company expects the new headquarters to be completed within two years and has started marketing its current facility and land for sale.

ITEM 3. LEGAL PROCEEDINGS

     The Company and its subsidiaries are involved in various claims, lawsuits, and administrative actions arising in the course of their businesses. Some involve claims for substantial amounts of money and/or claims for punitive damages. While any proceeding or litigation has an element of uncertainty, management believes that the disposition of such matters, in the aggregate, will not have a material impact on the consolidated financial condition, results of operations or liquidity of the Company and its subsidiaries.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     There were no matters submitted to a vote of security holders during the quarter ended December 31, 2002.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS

     The Company’s common shares are traded on the New York Stock Exchange, the Chicago Stock Exchange, the Pacific Stock Exchange and the Berlin Stock Exchange. As of January 31, 2003, there were 13,157 common stockholders of record and the Company’s stock price was $22.53.

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ITEM 6. SELECTED FINANCIAL DATA

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     This Management’s Discussion and Analysis of the financial condition and results of operations of Ryder System, Inc. and its subsidiaries (the “Company”) should be read in conjunction with the consolidated financial statements and related notes.

     The Company’s operating segments are aggregated into reportable business segments based primarily upon similar economic characteristics, products, services and delivery methods. The Company operates in three reportable business segments: (1) Fleet Management Solutions (FMS), which provides full service leasing, commercial rental and programmed maintenance of trucks, tractors and trailers to customers, principally in the U.S., Canada and the U.K.; (2) Supply Chain Solutions (SCS), which provides comprehensive supply chain consulting and lead logistics management solutions that support customers’ entire supply chains, from inbound raw materials through distribution of finished goods throughout North America, in Latin America, Europe and Asia; and (3) Dedicated Contract Carriage (DCC), which provides vehicles and drivers as part of a dedicated transportation solution, principally in North America.

CONSOLIDATED RESULTS

     Earnings before the cumulative effect of a change in accounting principle increased 503 percent to $113 million in 2002 compared with 2001. The increase in earnings was due primarily to a significant reduction in restructuring and other charges from $81 million after-tax in 2001 compared with $2 million after-tax in 2002. The increase in earnings was also attributable to the Company’s continued cost containment actions and operational process improvement efforts, improved rental utilization, increased volumes within the automotive sector of SCS, lower interest costs and the discontinuance of amortization of goodwill and intangible assets with indefinite useful lives (See “Summary of Significant Accounting Policies — Goodwill and Other Intangible Assets” in the Notes to Consolidated Financial Statements). These earnings increases were partially offset by a one-time reduction in deferred taxes of $7 million in 2001 as a result of a change in Canadian tax law and higher pension costs of $19 million after-tax in 2002, compared with the same period last year. The earnings growth rate in 2002 exceeded the earnings per share growth rate because the average number of shares outstanding increased reflecting the impact of stock option exercises during the year.

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     Earnings decreased 79 percent to $19 million in 2001 compared with 2000. The decrease in earnings in 2001 was due primarily to increased restructuring and other charges as part of the Company’s implementation of strategic initiatives during 2001 to reduce Company expenses and improve profitability. See “Restructuring and Other Charges, Net” for a further discussion of such initiatives. The 2001 decrease also resulted from a 6 percent decrease in revenue as discussed below. See “Operating Results by Business Segment” for a further discussion of operating results in the past three years.

     Revenue decreased 5 percent to $4.8 billion in 2002 compared with 2001. All business segments experienced a revenue decrease in 2002 over 2001 as a result of the continued slow economic conditions in the U.S. and in other countries where the Company operates. The FMS revenue decrease of 5 percent also reflects the effects of a smaller overall fleet (primarily rental) and lower fuel services revenue as a result of lower average fuel prices and volumes. For all years reported, the Company realized minimal changes in profitability as a result of fluctuations in fuel services revenue. SCS revenue decreased 5 percent as a result of volume reductions, especially in the electronics, high-tech and telecommunications sector and the non-renewal of certain customer contracts.

     Revenue in 2001 decreased 6 percent compared with 2000, led by SCS, which decreased 9 percent. The decrease was due to volume reductions in the U.S. and in Latin America and the sale of the contracts and related net assets associated with the disposal of the outbound auto-carriage business of the Company’s Brazilian SCS operation (see further details in “Restructuring and Other Charges, Net”). FMS revenue declined 6 percent due primarily to decreases in fuel services revenue resulting from lower average prices and volumes. Revenue during 2001 was also impacted by exchange rates on translation of foreign subsidiary revenues, particularly those in the U.K. and Brazil.

     The FMS segment leases revenue earning equipment, sells fuel and provides maintenance and other ancillary services to the SCS and DCC segments. Eliminations relate to inter-segment sales that are accounted for at approximate fair value as if the sales were made to third parties.

     Operating expense decreased 9 percent to $1.9 billion in 2002 compared with 2001. The decrease was a result of a reduction in FMS fuel costs as a result of lower average prices and volumes in 2002, a reduction in overheads due to the Company’s continuing cost containment actions, including the shut-down of certain facilities in 2001, and the cancellation of an information technology outsourcing contract. Operating expense decreased 8 percent in 2001 compared with 2000. The decrease was primarily attributable to lower fuel costs due to lower average prices and volumes, reduced overhead and licensing costs.

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     Salaries and employee-related costs increased 5 percent to $1.3 billion in 2002 compared with 2001. The increase was due to growth in pension and medical benefit costs, higher salary expense from the in-sourcing of certain information technology functions and greater incentive compensation, which was partially offset by decreased salaries and other employee-related costs as a result of 2001 strategic initiatives that resulted in the termination of over 1,400 employees. See “Restructuring and Other Charges, Net” for further discussion. The number of employees at December 31, 2002 decreased 6 percent to approximately 27,800, compared with 29,500 at December 31, 2001.

     Pension costs for 2002 totaled $29 million compared with pension income of $1 million in 2001, and principally impacted FMS. The increase in pension costs is attributable primarily to the U.S. pension plan and reflects the adverse effect of negative pension asset returns in 2001 as well as a declining interest rate environment resulting in a lower discount rate used to measure benefit obligations. Based on actual returns experienced in 2002 and continued lower interest rate levels, the Company expects total pension expense for 2003 to increase by approximately $56 million on a pre-tax basis. Such 2003 estimates are subject to change based upon the completion of actuarial analysis of all pension plans. See “Accounting Matters” for further discussion on pension accounting estimates. The anticipated pension expense in 2003 would primarily impact FMS, which employs the majority of the Company’s employees that participate in the Company’s primary U.S. pension plan.

     Salaries and employee-related costs decreased 1 percent in 2001 as compared with 2000. The decrease was a result of reductions in headcount and was largely off-set by a reduction in net pension income in 2001 compared with 2000. Net pension income was $1 million and $42 million in 2001 and 2000, respectively.

     Freight under management (FUM) expense represents subcontracted freight costs on logistics contracts for which the Company purchases transportation. FUM expense decreased 5 percent to $414 million in 2002 compared with 2001. The decrease was due to revenue reductions in related operating units of the SCS business segment as a result of reduced freight volumes in the U.S. and South America and the non-renewal of unprofitable business. FUM expense decreased 14 percent to $436 million in 2001 compared with 2000. The decrease was due to reduced freight volumes and decreases in South America as a result of the sale of the outbound auto-carriage business of Ryder Brazil.

     Depreciation expense relates primarily to FMS revenue earning equipment. Depreciation expense increased 1 percent to $552 million in 2002 compared with 2001. Depreciation expense increased due to a greater number of owned (compared with leased) revenue earning equipment units as well as reduced estimated residual values associated with certain owned tractors. Depreciation expense decreased 6 percent

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to $545 million in 2001 compared with 2000. The decrease in depreciation expense during 2001 resulted principally from sale-leaseback and other leasing transactions which increased the number of leased (compared with owned) vehicles in the Company’s fleet. See discussion on Fleet Management Solutions in “Operating Results by Business Segment” for further detail on vehicle counts.

     Gains on vehicle sales increased 19 percent to $14 million in 2002 compared with 2001. Despite a reduction in the number of vehicles sold, the Company experienced an increase in gains on vehicle sales due to a decline in the average book value of units sold. The decline in the average book value of units sold reflects the aforementioned increase in depreciation expense and an increase in the age of vehicles sold. Average proceeds per unit decreased by approximately 9 percent in 2002 reflecting the extension of vehicle lives and the continued weak used truck market which began to impact the Company during the second quarter of 2000. Gains on vehicle sales decreased 38 percent to $12 million in 2001 compared with 2000. The decrease in gains on vehicle sales in 2001 was due to weak demand in the used truck market reflected in lower average sales proceeds per unit.

     The Company periodically reviews and adjusts residual values, reserves for guaranteed lease termination values and useful lives of revenue earning equipment based on current and expected operating trends and projected realizable values. See “Accounting Matters” for further discussion on depreciation and residual value guarantees. The Company believes that its carrying values and estimated sales proceeds for revenue earning equipment are appropriate. However, a greater than anticipated decline in the market for used vehicles may require the Company to further adjust such values and estimates.

     Equipment rental primarily consists of rental costs on revenue earning equipment in FMS. Equipment rental costs decreased 20 percent to $344 million in 2002 compared with 2001. The decrease in 2002 equipment rental is due to a decrease in the number of leased vehicles and lower lease rates due to a changing mix of leased units. Current year results also include decreased lease termination charges as a result of improved market pricing. Equipment rental costs increased 14 percent to $427 million in 2001 compared with 2000. The increase was due to sale-leaseback transactions, including securitization transactions, entered into during 2001 which increased the number of leased vehicles as well as increases in reserves for guaranteed lease termination values to reflect decreases in the estimated residual values of leased equipment.

     The total number of revenue earning equipment units (owned and leased) at December 31, 2002 decreased approximately 5 percent from December 31, 2001 levels reflecting the Company’s continued focus on asset management and reducing capital expenditures while maximizing utilization of the FMS commercial rental fleet.

     Interest expense decreased 23 percent to $92 million in 2002 compared with 2001. The decrease in interest expense reflects lower debt levels due to reduced capital spending, generally lower market interest rates and reduced effective interest rates as a result of hedging transactions entered into during the first quarter of 2002. Interest expense decreased 23 percent to $119 million in 2001 compared with 2000. The decrease in interest expense during 2001 was primarily due to debt reductions associated with the use of proceeds from the aforementioned sale-leaseback transactions and generally lower interest rates compared with 2000. The reductions in interest expense principally benefited FMS.

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     The Company had net miscellaneous income of $10 million in 2002 compared with net miscellaneous income of $1 million in 2001. Net miscellaneous income in 2002 is principally composed of servicing fee income for administrative services provided to vehicle lease trusts related to the Company’s vehicle securitization transactions. The increase in net miscellaneous income during 2002 is primarily attributed to a reduction in losses on the sale of receivables related to the decreased use of the Company’s revolving facility for the sale of receivables and 2001 losses on the sale of operating property and equipment. The Company had net miscellaneous income of $1 million in 2001 compared with net miscellaneous expense of $8 million in 2000. The change was primarily due to a reduction in losses on the sale of receivables related to the decreased use of the Company’s revolving facility for the sale of trade receivables combined with increased servicing fee income related to the Company’s vehicle securitization transactions. See “Financial Resources and Liquidity — Off-balance Sheet Arrangements” for further discussion on securitization transactions.

     In 2002 restructuring and other charges, net decreased to $4 million from $117 million in 2001 and $42 million in 2000. See “Restructuring and Other Charges, Net” for further discussion.

     The Company’s effective tax rate was 36.0 percent in 2002 compared with 39.2 percent in 2001 and 37.0 percent in 2000. The higher 2001 effective tax rate resulted primarily from increased net non-deductible items in 2001, principally the write-down of goodwill, included in restructuring and other charges, partially offset by a permanent reduction in corporate tax rates in Canada. This resulted in a one-time reduction in the Company’s related deferred taxes of approximately $7 million.

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RESTRUCTURING AND OTHER CHARGES, NET

     The components of restructuring and other charges, net of (recoveries) in 2002, 2001 and 2000 were as follows:

     Allocation of restructuring and other charges across business segments in 2002, 2001 and 2000 is as follows:

     2002 Charges

     During the fourth quarter of 2002, the Company eliminated approximately 140 positions as a result of cost management actions principally in the Company’s SCS business segment and Central Support Services, which were substantially finalized as of December 31, 2002. The charge related to these actions included severance and employee-related costs totaling $7 million. The Company estimates pre-tax cost savings of approximately $14 million as a result of the 2002 cost management activities. These savings are expected to be realized in salaries and employee-related costs. During 2002, severance and employee-related costs totaling $2 million that had been recorded in prior restructuring charges were reversed due to refinements in the estimates.

     Other recoveries during 2002 include net gains (recoveries) on sale of owned facilities identified for closure in prior restructuring charges, and the reversal of contract termination costs recognized in 2001 resulting from refinements in estimates and the final settlement of insurance reserves attributed to a previously sold business.

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     2001 Charges

     In late 2000, the Company communicated to its employees its planned strategic initiatives to reduce Company expenses. As part of such initiatives, the Company reviewed employee functions and staffing levels to eliminate redundant work or otherwise restructure work in a manner that led to a workforce reduction. The process resulted in terminations of over 1,400 employees during 2001, which were substantially finalized as of December 31, 2002. Severance and employee-related costs of $30 million (net of $2 million in recoveries of prior year charges) in 2001 included termination benefits to employees whose jobs were eliminated as part of this review. During the third quarter of 2001, the Company initiated the shutdown of Systemcare, Ryder’s shared user home delivery network in the U.K. The shutdown was initiated as a result of management’s review of future prospects for the operation in light of historical and anticipated operating losses. The shutdown was completed after meeting contractual obligations to current customers, which extended to December 31, 2002. The severance and employee-related charge included $3 million incurred as part of the Systemcare shutdown.

     During 2001, the Company identified more than 55 facilities in the U.S. and in other countries to be closed in order to improve profitability. Facilities and related costs of $6 million in 2001 represent contractual lease obligations for closed facilities.

     Additionally, during 2001 the Company recorded various other charges which are summarized as follows:

     Asset write-downs: Asset write-downs of $40 million were recorded during 2001 and are described below:

	•		In 2001, the Company cancelled an information technology project in its FMS business segment. In connection with the cancellation, the Company recorded a non-cash charge of $22 million for the write-down of software licenses acquired for the project that could not be resold or redeployed and software development costs and assets related to the project that had no future economic benefit.
	•		In 1997, the Company entered into an Information Technology Services Agreement (“ITSA”) with Accenture LLP (“Accenture”) under which the Company outsourced many of its information technology needs that were previously provided by Ryder employees. Under the terms of the ITSA, the Company prepaid for a number of services to be provided over the 10-year term of the agreement expiring in 2007. Under the terms of the agreement, the Company was also obligated to pay certain termination costs to Accenture in the event the ITSA was terminated by the Company prior to the expiration date.
			As part of its restructuring initiatives in 2001, management approved and committed the Company to in-source services provided by Accenture under the ITSA. In December 2001, Ryder and Accenture entered into a written agreement to transition certain IT services previously delivered by Accenture under contract to Ryder. Under this agreement, Ryder agreed to waive any right to reimbursement of approximately $3 million in unamortized prepaid expenses related to the ITSA.
	•		The Company’s strategic initiatives during 2001 resulted in asset write-downs to fair value less cost to sell of approximately $4 million for facilities that were identified for closure and held for sale pursuant to the initiatives. At such time, the Company had the ability to remove the facilities from operations upon identification of a buyer or receipt of an acceptable bid. Fair value was determined based on appraisals of these properties. Also, as part of the strategic initiatives, the Company wrote down investments in e-commerce assets of $3 million, including specialized property and equipment and software, that were terminated or abandoned during 2001 and for which the fair value of such investments was zero.
	•		Additionally, during 2001, an investment of $6 million in certain license agreements for supply chain management software was written down. The write-down consisted of the unamortized cost of licenses and related software development costs previously capitalized for which development was abandoned as a result of the Company’s restructuring initiatives. Since the software licenses would no

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			longer be used in the business nor could the licenses be resold by the Company, such licenses were valued at zero.
	•		Due to the decision to shut down the aforementioned Systemcare operations, the Company assessed the recoverability of Systemcare’s long-lived assets held for use as described in “Summary of Significant Accounting Policies — Impairment of Long-Lived Assets” in the Notes to Consolidated Financial Statements. Assets of $2 million, consisting primarily of specialized vehicles to be disposed of after the shutdown of Systemcare’s operations, were considered impaired and written down because estimated fair values were less than the carrying values of the assets. Fair values were determined based on internal valuations of similar assets.

     Goodwill Impairment: The Company also identified certain operating units for which current circumstances indicated that the carrying amount of long-lived assets, in particular, goodwill, may not be recoverable. The Company assessed the recoverability of these long-lived assets and determined that the goodwill related to these operating units was not recoverable. See “Summary of Significant Accounting Policies — Goodwill and Other Intangible Assets” in the Notes to Consolidated Financial Statements for the Company’s policy on impairment of goodwill and other intangible assets. Impairment charges in 2001, all of which related to SCS operating units, are summarized as follows:

     As part of the decision to shut down the aforementioned Systemcare operations, goodwill of $11 million was considered impaired and written down during 2001.

     Goodwill impairment in Ryder Argentina was triggered by the significant adverse change in the business climate in Argentina in the fourth quarter of 2001 that led to a devaluation of the Argentine Peso, breakdowns in the Argentine banking system and repeated turnover in the country’s leadership. These factors, combined with a history of operating losses and anticipated future operating losses, led to goodwill impairment. Goodwill of $9 million was considered impaired and was written down in December 2001.

     During the fourth quarter of 2001, the Company reviewed goodwill associated with its remaining investment in Ryder Brazil for impairment. Subsequent to the sale of the contracts and related net assets associated with the disposal of the Company’s outbound auto-carriage business (“Vehiculos”) in Ryder Brazil discussed below, the Company made a significant effort to restructure the operations of Ryder Brazil. However, such restructuring was not sufficient to offset the impact of lost business, the impact of the Argentine economic crisis and the marginal historical and anticipated cash flows related to the remaining business. As a result of the Company’s analysis, goodwill of $4 million was considered impaired and was written down in December 2001.

     Strategic consulting fees: Strategic consulting fees of $9 million were incurred during 2001 in relation to the aforementioned strategic initiatives. Such consulting fees represented one-time costs of engaging consultants to assist the Company in its restructuring initiatives in 2001.

     Loss on sale of business: During March 2001, the Company sold Vehiculos in Ryder Brazil for $14 million and incurred a loss of $4 million on the sale of the business.

     Contract termination costs: In connection with the agreement to in-source information technology services provided by Accenture, the Company agreed to pay termination fees and certain demobilization costs of

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approximately $8 million. Also during 2001, the Company made a decision to terminate a long-term marketing arrangement to reduce marketing costs.

     Insurance reserves — sold business: During 2001, the Company recognized $3 million in recoveries from an insurance settlement attributed to a business sold in 1989. The insurance recovery represents an adjustment to the Company’s indemnification reserve for favorable actuarial developments since the time of the sale.

     Gain on sale of corporate aircraft: As a direct result of the Company’s 2001 restructuring and cost reduction initiatives, the Company decided to sell its corporate aircraft. The Company sold the aircraft during the first quarter of 2001 and recorded a $2 million gain on the sale.

     2000 Charges

     In 2000, severance and employee-related costs of $1 million that had been recorded in the 1999 restructuring were reversed due to refinements in estimates. Facilities and related costs reflect $2 million of net gains (recoveries) on sale of owned facilities identified for closure in the 1999 and 1996 restructuring.

     In 2000, an asset write-down of $41 million resulted from the rapid industry-wide downturn in the market for new and used “Class 8” vehicles (the largest heavy-duty tractors) which led to a decrease in the market value of used tractors during the second half of 2000. The Company’s unsold Class 8 inventory consists of units previously used by customers of the FMS segment. Approximately $15 million of the charge related to Class 8 tractors held for sale and identified in 2000 as increasingly undesirable and unmarketable due to lower-powered engines or a potential lack of future support for parts and service. The remainder of the charge related to other owned and leased tractors held for sale for which estimated fair value less costs to sell declined below carrying value (or termination value, which represents the final payment due to lessors, in the case of leased units) in 2000. These charges were slightly offset with gains of $1 million on vehicles sold in the U.K. during 2000, for which an impairment charge had been recorded in the 1999 restructuring.

     During 2000, the Company settled long-standing litigation with a former customer, OfficeMax, relating to a logistics services agreement that was terminated in 1997. In 2000, asset write-downs include $4 million related to the write-down, net of recoveries, of certain assets related to the OfficeMax contract.

     A charge of $1 million for consulting fees was incurred during 2000 related to the completion of the Company’s 1999 profitability improvement study. Also during 2000, the Company recorded a $1 million charge for an adjustment to the Company’s indemnification reserve associated with the aforementioned insurance settlement and a $1 million reversal of certain other charges recorded in the 1999 restructuring.

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OPERATING RESULTS BY BUSINESS SEGMENT

     Beginning in the first quarter of 2002, the primary measurement of segment financial performance, defined as “Net Before Tax” (NBT), includes an allocation of Central Support Services (CSS) and excludes goodwill impairment, goodwill amortization and restructuring and other charges, net. Prior-year segment results have been restated to conform to the new measurement standard. CSS represents those costs incurred to support all business segments, including sales and marketing, human resources, finance, corporate services shared management information systems, customer solutions, health and safety, legal and communications. The objective of the NBT measurement is to provide clarity on the profitability of each business segment and, ultimately, to hold leadership of each business segment and each operating segment within each business segment accountable for their allocated share of CSS costs. To facilitate the comparison of 2002 business segment NBT to prior periods, prior-year goodwill amortization is now treated as a corporate, rather than segment, cost and is segregated as such.

     Certain costs are considered to be overhead not attributable to any segment and remain unallocated in CSS. Included within the unallocated overhead remaining within CSS are the costs for investor relations, corporate communications, public affairs and certain executive compensation.

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     The FMS segment leases revenue earning equipment and provides fuel, maintenance and other ancillary services to the SCS and DCC segments. Inter-segment revenues and NBT are accounted for at approximate fair value as if the transactions were made with third parties. NBT related to inter-segment equipment and services billed to customers (equipment contribution) is included in both FMS and the business segment which served the customer and then eliminated (presented as “Eliminations”).

     The following table sets forth equipment contribution included in NBT for the Company’s SCS and DCC segments:

     Interest expense is primarily allocated to the FMS business segment since such borrowings are used principally to fund the purchase of revenue earning equipment used in FMS; however, with the availability of segment balance sheet information in 2002 (including targeted segment leverage ratios), interest expense (income) is also reflected in SCS and DCC.

     These 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.

     Fleet Management Solutions

     FMS revenue decreased 5 percent to $3.2 billion in 2002 compared with 2001. Results in 2002 were impacted by decreases in fuel services revenue. Dry revenue (revenue excluding fuel) decreased 3 percent in 2002 compared with 2001 reflecting revenue declines in leasing and commercial rental revenue. Full service lease and program maintenance revenue decreased 3 percent to $1.8 billion in 2002 compared with 2001. The decrease was primarily due to the weak U.S. economy as well as decreases in variable billings, which are generally a function of total miles run by leased vehicles. The Company anticipates unfavorable full service lease and program maintenance revenue comparisons to continue over the near term. Full service lease and program maintenance revenue may improve in the latter half of 2003 due to an increased emphasis on new sales and business retention and the expected improvement of the U.S. economy.

     All elements of commercial rental revenue (consisting of pure rental, lease extra and await new lease revenue) decreased in 2002 compared with 2001 reflecting slow economic conditions and a planned rental fleet reduction, which offset improved rental utilization and pricing. However, commercial rental revenue comparisons have steadily improved in 2002 and, in the fourth quarter of 2002, revenue grew 6 percent compared with the year-earlier period, marking the first rental revenue improvement in 10 quarters. U.S. rental fleet utilization improved to 76 percent in 2002 compared with 66 percent in 2001. In the U.S., pure rental revenue (total rental revenue less rental revenue related to units provided to full service lease customers) decreased 4 percent to $177 million in 2002 compared with 2001 due to the continued softness in the U.S. economy. Lease extra revenue represents revenue on rental vehicles provided to existing full service lease customers, generally during peak periods in their operations. In the U.S., lease extra revenue decreased 8 percent to $107 million in 2002 compared with the prior year. Await new lease revenue represents revenue on rental vehicles provided to new full service lease customers who have not taken delivery of full service lease units. In 2002, await new lease revenue of $18 million marginally declined in the U.S. in comparison to prior year. The U.S. commercial rental fleet size declined 8 percent in 2002 as compared with 2001. Rental statistics are monitored for the U.S. only; however, management believes such metrics to be indicative of rental product performance for the Company as a whole. The Company expects commercial rental revenue to improve in 2003 based on positive revenue trends experienced in the second half of 2002 and the expected improvement of the U.S. economy in 2003.

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     FMS revenue decreased 6 percent to $3.4 billion in 2001 compared with 2000. Dry revenue decreased 3 percent in 2001 compared with 2000 reflecting revenue declines in commercial rental revenue. Full service lease and program maintenance remained relatively flat in 2001 compared with 2000. All elements of commercial rental revenue decreased in 2001 compared with 2000 as a result of lower utilization, a decrease in the number of units in the rental fleet and shorter lead times to place full service lease vehicles into service compared with 2000. U.S. rental fleet utilization was 66 percent in 2001 compared with 71 percent in 2000. The U.S. commercial rental fleet size declined 8 percent in 2001 as compared with 2000.

     Fuel services revenue declined 11 percent to $583 million in 2002 compared with 2001, as a result of lower volume and pricing, particularly during the first half of 2002. Fuel services revenue decreased 15 percent in 2001 compared with 2000 due to lower volume and pricing. Other transportation services revenue, consisting of non-contractual third-party maintenance, trailer rentals and other ancillary revenue to support product lines decreased 6 percent in 2002 and 2001, compared with prior years.

     FMS NBT increased 10 percent to $214 million in 2002 compared with 2001. The increase was due primarily to improved rental utilization, lower interest expense and operating expense reductions due to cost management and process improvement initiatives since last year. NBT for 2002 also benefited from lower carrying costs on used vehicles held for sale (owned and leased) because of reduced vehicle counts and, to a lesser extent, improved pricing on tractor sales. Such improvements were partially offset by increased pension expense of $23 million in 2002 over 2001. FMS NBT as a percentage of dry revenue was 8 percent in 2002 compared with 7 percent in 2001. FMS NBT decreased 14 percent to $194 million in 2001 compared with 2000. FMS NBT as a percentage of dry revenue was 7 percent in 2001 compared with 8 percent in 2000. The decrease in 2001 was attributable to the decrease in gains from the sale of equipment due to weakened used truck market demand, lower net pension income in 2001 compared with 2000 and decreased rental profitability resulting from the decline in rental revenue. Pension income attributable to FMS decreased by more than $33 million in 2001 compared with 2000.

     The Company’s fleet of owned and leased revenue earning equipment is summarized as follows (number of units rounded to the nearest hundred):