RYDER SYSTEM INC - 10-Q Quarterly Report

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO o

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

Ryder System, Inc. had 64,135,221 shares of common stock ($0.50 par value per share) outstanding as of October 31, 2003.


		PAGE
		NO.

PART I.	FINANCIAL INFORMATION

ITEM 1.	Financial Statements
	Consolidated Condensed Statements of Earnings - Three and nine months ended September 30, 2003 and 2002 (unaudited)	3
	Consolidated Condensed Balance Sheets - September 30, 2003 (unaudited) and December 31, 2002	4
	Consolidated Condensed Statements of Cash Flows - Nine months ended September 30, 2003 and 2002 (unaudited)	5
	Notes to Consolidated Condensed Financial Statements (unaudited)	6
	Independent Accountants’ Review Report	17
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	36
ITEM 4.	Controls and Procedures	36

PART II.	OTHER INFORMATION

ITEM 6.	Exhibits and Reports on Form 8-K	37

SIGNATURES		38

Ryder System, Inc. and Subsidiaries
Consolidated Condensed Statements of Earnings


		Periods ended September 30,

		Three months						Nine months

		2003			2002			2003			2002

		(In thousands, except per share amounts)

Revenue		$	1,193,603			1,212,363		$	3,585,379			3,571,598

Operating expense			508,496			494,734			1,518,387			1,457,944
Salaries and employee-related costs			308,959			320,317			936,775			951,238
Freight under management expense			95,499			102,380			307,474			302,611
Depreciation expense			171,015			140,052			457,866			412,437
Gains on vehicle sales, net			(2,782	)		(3,672	)		(11,060	)		(9,843	)
Equipment rental			28,976			84,768			170,279			266,589
Interest expense			24,068			22,324			65,820			70,432
Miscellaneous income, net			(1,453	)		(588	)		(7,092	)		(3,435	)
Restructuring and other recoveries, net			(2,642	)		(747	)		(3,719	)		(1,981	)

			1,130,136			1,159,568			3,434,730			3,445,992

	Earnings before income taxes and cumulative effect of changes in accounting principles		63,467			52,795			150,649			125,606
Provision for income taxes			22,960			19,011			54,520			45,456

	Earnings before cumulative effect of changes in accounting principles		40,507			33,784			96,129			80,150
Cumulative effect of changes in accounting principles			(2,954	)		—			(4,123	)		(18,899	)

	Net earnings	$	37,553			33,784		$	92,006			61,251

Earnings per common share — Basic *:
	Before cumulative effect of changes in accounting principles	$	0.64			0.55		$	1.53			1.31
	Cumulative effect of changes in accounting principles		(0.05	)		—			(0.07	)		(0.31	)

	Net earnings	$	0.59			0.55		$	1.47			1.00

Earnings per common share — Diluted:
	Before cumulative effect of changes in accounting principles	$	0.63			0.54		$	1.51			1.28
	Cumulative effect of changes in accounting principles		(0.05	)		—			(0.06	)		(0.30	)

	Net earnings	$	0.58			0.54		$	1.45			0.98

Cash dividends per common share		$	0.15			0.15		$	0.45			0.45

* Earnings per share amounts are calculated independently for each component and may not be additive due to rounding.


				(unaudited)
				September 30,			December 31,
				2003			2002

				(In thousands, except share amounts)
Assets:
	Current assets:
		Cash and cash equivalents		$	97,385			104,237
		Receivables, net			658,768			640,309
		Inventories			52,697			59,104
		Tires in service			157,714			131,569
		Prepaid expenses and other current assets			110,834			88,952

			Total current assets		1,077,398			1,024,171
	Revenue earning equipment, net				2,994,053			2,497,614
	Operating property and equipment, net				505,238			530,877
	Direct financing leases and other assets				447,170			531,760
	Intangible assets and deferred charges				182,515			182,560

			Total assets	$	5,206,374			4,766,982

Liabilities and shareholders’ equity:
	Current liabilities:
		Current portion of long-term debt		$	330,447			162,369
		Accounts payable			297,323			277,001
		Accrued expenses			428,302			422,706

			Total current liabilities		1,056,072			862,076
	Long-term debt				1,445,546			1,389,099
	Other non-current liabilities				502,589			473,879
	Deferred income taxes				969,230			933,713

			Total liabilities		3,973,437			3,658,767

	Shareholders’ equity:
		Preferred stock of no par value per share — authorized, 3,800,917; none outstanding September 30, 2003 or December 31, 2002			—			—
		Common stock of $0.50 par value per share — authorized, 400,000,000; outstanding, September 30, 2003 — 63,954,411; December 31, 2002 — 62,440,937			608,260			575,503
	Retained earnings				870,416			806,761
	Deferred compensation				(2,938	)		(3,423	)
	Accumulated other comprehensive loss				(242,801	)		(270,626	)

			Total shareholders’ equity		1,232,937			1,108,215

			Total liabilities and shareholders’ equity	$	5,206,374			4,766,982


				Nine months ended September 30,

				2003			2002

				(In thousands)
Cash flows from operating activities:
	Net earnings			$	92,006			61,251
	Cumulative effect of changes in accounting principles				4,123			18,899
	Depreciation expense				457,866			412,437
	Gains on vehicle sales, net				(11,060	)		(9,843	)
	Amortization expense and other non-cash charges, net				3,831			8,770
	Deferred income tax expense				35,809			39,189
	Changes in operating assets and liabilities:
		Decrease in aggregate balance of trade receivables sold			—			(100,000	)
		Receivables			(28,113	)		(618	)
		Inventories			6,407			1,935
		Prepaid expenses and other assets			3,750			3,213
		Accounts payable			20,322			35,529
		Accrued expenses and other non-current liabilities			47,757			5,604

			Net cash provided by operating activities		632,698			476,366

Cash flows from financing activities:
	Net change in commercial paper borrowings				(110,500	)		(109,000	)
	Debt proceeds				110,943			159,295
	Debt repaid, including capital lease obligations				(268,526	)		(265,514	)
	Dividends on common stock				(28,351	)		(27,781	)
	Common stock issued				30,785			34,532

			Net cash used in financing activities		(265,649	)		(208,468	)

Cash flows from investing activities:
	Purchases of property and revenue earning equipment				(575,223	)		(443,156	)
	Sales of property and revenue earning equipment				152,174			107,460
	Collections on direct finance leases				46,270			47,957
	Other, net				2,878			(1,769	)

			Net cash used in investing activities		(373,901	)		(289,508	)

Decrease in cash and cash equivalents					(6,852	)		(21,610	)
Cash and cash equivalents at January 1					104,237			117,866

Cash and cash equivalents at September 30				$	97,385			96,256

Ryder System, Inc. and Subsidiaries
Notes to Consolidated Condensed Financial Statements (unaudited)

The accompanying unaudited consolidated condensed financial statements include the accounts of Ryder System, Inc. and subsidiaries (the “Company”) and should be read in conjunction with the consolidated financial statements and notes thereto included in the 2002 Annual Report on Form 10-K. These statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (primarily consisting of normal recurring accruals) considered necessary for a fair presentation have been included and the disclosures herein are adequate. The operating results for interim periods are unaudited and are not necessarily indicative of the results that can be expected for a full year. Certain prior year amounts have been reclassified to conform to current period presentation.

In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. (FIN) 46, “Consolidation of Variable Interest Entities,” that establishes accounting guidance for identifying variable interest entities (VIEs), including special-purpose entities, and when to include the assets, liabilities, noncontrolling interests and results of activities of VIEs in an enterprise’s consolidated financial statements. Prior to FIN 46, which clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” a partially owned entity was only consolidated into the Company’s consolidated financial statements if it was controlled by the Company through ownership of a majority voting interest in the entity. FIN 46 requires consolidation of VIEs if the primary beneficiary has a variable interest (or combination of variable interests) that will absorb a majority of the entity’s expected losses if they occur, receive a majority of the entity’s expected residual returns if they occur, or both. The enterprise consolidating a VIE is the primary beneficiary of that entity. FIN 46 applied immediately to VIEs created after January 31, 2003. For VIEs in existence before February 1, 2003, FIN 46 as amended, applies to the first fiscal period ending after December 15, 2003, although the FASB encouraged earlier application.

Effective July 1, 2003, the Company adopted FIN 46 and, as a consequence, consolidated three VIEs that were established prior to February 1, 2003 and which are related to sale-leaseback transactions of revenue earning equipment in which the Company sold revenue earning equipment to a special-purpose entity and then leased the revenue earning equipment back as lessee under operating lease arrangements. In connection with these transactions, the Company provided credit enhancements and residual value guarantees that obligate the Company to absorb the majority of the expected losses from such entities, if any are realized. Therefore, FIN 46 requires that these entities be consolidated. The credit enhancements, in the form of cash reserve deposits (included in other assets), as well as the revenue earning equipment under lease serve as collateral for the VIEs’ long-term borrowings. The creditors of the VIEs do not have recourse to the general assets of the Company.

The assets and liabilities of consolidated VIEs are measured in the amounts at which they would have been recorded in the consolidated financial statements if FIN 46 had been effective at the inception of the transactions. Accordingly, effective July 1, 2003, the Company recorded additional revenue earning equipment of $421.4 million and additional debt of $414.0 million, in addition to recognizing a non-cash cumulative effect charge of $3.0 million on an after-tax basis, or $0.05 per diluted share. Concurrent with the consolidation of the VIEs, the Company began recognizing depreciation expense attributed to the revenue earning equipment of the VIEs and interest expense on the additional debt of the VIEs in lieu of rent expense. The cumulative effect charge primarily represented depreciation and interest expense of the VIEs that would have been recorded had FIN 46 been in effect since lease inception, in excess of rent expense recorded under operating leases. The charge is expected to reverse in operating earnings over the next three years. The consolidation of the VIEs did not have a significant impact on the Company’s consolidated net earnings. However, both net cash provided by operating activities and used in financing activities on the Company’s Consolidated Condensed Statements of Cash Flows increased due to the add-back of depreciation expense on the VIEs’ revenue earning equipment and principal payments on the VIEs’ debt, respectively.

Statement of Financial Accounting Standards (SFAS) No. 143, “Accounting for Asset Retirement Obligations,” which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs, was adopted by the Company on January 1, 2003. SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made, and that the associated asset retirement costs be capitalized as part of the carrying amount of the long-lived asset. The cumulative effect adjustment recognized upon adoption of this standard was $1.1 million on an after-tax basis, or $0.02 per diluted share, consisting primarily of costs associated with the retirement of certain components of revenue earning equipment. Net earnings for the three and nine months ended September 30, 2002 would not have been materially different if this standard had been adopted effective January 1, 2002.

Effective January 1, 2002, the Company adopted the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets,” and discontinued the amortization of goodwill and intangible assets with indefinite useful lives. SFAS No. 142 also required the Company to perform an assessment of whether there was an indication that the remaining recorded goodwill was impaired as of the date of adoption. In June 2002, the Company completed the assessment of all of its existing goodwill totaling $168.3 million as of January 1, 2002. As a result of this review, the Company recorded a non-cash charge of $18.9 million on a before and after-tax basis, or $0.30 per diluted share, associated with the Asian operations of the Company’s Supply Chain Solutions business segment. The transitional impairment charge was recognized as the cumulative effect of a change in accounting principle effective January 1, 2002. The impact of this accounting change had no effect on the Company’s operating earnings.

In May 2003, the Emerging Issues Task Force (EITF) of the FASB reached a consensus on EITF Issue No. 01-8, “Determining Whether an Arrangement Contains a Lease.” EITF No. 01-8 requires both parties to an arrangement to determine whether a service contract or similar arrangement includes a lease within the scope of SFAS No. 13, “Accounting for Leases.” The consensus became effective for the Company prospectively to arrangements agreed to, modified or acquired in business combinations in fiscal periods beginning July 1, 2003. The adoption of EITF No. 01-8 did not have a material effect on the Company’s results of operations, cash flows or financial position.

In May 2003, the FASB issued Statement No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity,” which established standards for how an issuer classifies and measures certain freestanding financial instruments with characteristics of liabilities and equity and requires that such instruments be classified as liabilities (or as an asset in some circumstances). SFAS No. 150 became effective for the Company beginning July 1, 2003. The adoption of SFAS No. 150 did not have a material impact on the Company’s results of operations, cash flows or financial position.

In November 2002, the EITF reached a consensus on EITF Issue No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” EITF No. 00-21 provides guidance on how to determine when an arrangement that involves multiple revenue-generating activities or deliverables should be divided into separate units of accounting for revenue recognition purposes, and if this division is required, how the arrangement (including leasing arrangements) consideration should be allocated among the separate units of accounting. The application of the consensus became effective for revenue arrangements entered into by the Company beginning July 1, 2003. The adoption of EITF No. 00-21 did not have a material effect on the Company’s results of operations, cash flows or financial position.

At September 30, 2003 and December 31, 2002, the net carrying value of revenue earning equipment held for sale was $45.4 million and $34.6 million, respectively.

The audit of the consolidated federal income tax returns for 1995, 1996 and 1997 is in the appeals process with the Internal Revenue Service. The Company believes that the ultimate outcome of the audit will not result in a material impact on the Company’s consolidated results of operations or financial position. Years prior to 1995 are closed and no longer subject to audit. Management believes that taxes accrued fairly represent the amount of future tax liability due by the Company.


		September 30,			December 31,
		2003			2002

		(In thousands)

U.S. commercial paper		$	7,000			117,500
Unsecured U.S. notes:
	Debentures		325,795			325,749
	Medium-term notes		740,895			727,000
Unsecured foreign obligations			211,199			229,032
Asset-backed securities^(a)			323,810			—
Other debt, including capital leases			148,801			127,898

Total debt before interest rate swaps			1,757,500			1,527,179
Fair market value adjustment on notes subject to hedging^(b)			18,493			24,289

Total debt			1,775,993			1,551,468
Current portion			(330,447	)		(162,369	)

Long-term debt		$	1,445,546			1,389,099

The Company can borrow up to $860.0 million through a global revolving credit facility with a syndicate of lenders. The facility is composed of a $300.0 million tranche, which matures in May 2004 and is renewable annually, and a $560.0 million tranche which matures in May 2006. The primary purposes of the credit facility are to finance working capital and to provide support for the issuance of commercial paper. At the Company’s option, the interest rate on borrowings under the credit facility is based on LIBOR, prime, federal funds or local equivalent rates. The credit facility’s annual facility fee ranges from 12.5 to 15.0 basis points applied to the total facility of $860.0 million based on the Company’s current credit rating. At September 30, 2003, $785.3 million was available under this global credit facility. Of this amount, $300.0 million was available at a maturity of less than one year. Foreign borrowings of $67.7 million were outstanding under the facility at September 30, 2003. In order to maintain availability of funding, the global revolving credit facility requires the Company to maintain a ratio of debt to consolidated adjusted tangible net worth, as defined, of less than or equal to 300.0 percent. The ratio at September 30, 2003 was 122.7 percent.

During the nine months ended September 30, 2003 and 2002, the Company added capital lease obligations of $69.1 million and $29.5 million, respectively, in connection with the extension of existing leases of revenue earning equipment.

The Company filed a universal shelf registration statement with the Securities and Exchange Commission to issue up to $800.0 million of securities, including $107.0 million of available securities that were carried forward from the Company’s existing shelf registration statement. In October 2003, the universal shelf registration statement became effective and the Company established an $800.0 million program for the issuance of debt securities. Proceeds from debt issuances under the universal shelf registration statement are expected to be used for capital expenditures, debt refinancings and general corporate purposes.

At September 30, 2003, the Company had letters of credit outstanding totaling $151.1 million, which primarily guarantee various insurance activities. Certain of these letters of credit guarantee insurance activities associated with insurance claim liabilities transferred in conjunction with the sale of certain businesses reported as discontinued operations in previous years. To date, the insurance claims, representing per claim deductibles payable under third-party insurance policies, have been paid by the companies that assumed such liabilities. However, if all or a portion of the assumed claims of approximately $13 million are unable to be paid, the third-party insurers may have recourse against certain of the outstanding letters of credit provided by the Company in order to satisfy the unpaid claim deductibles. In September 2003, the Company resolved several long-standing matters with the purchaser of the businesses referred to above, which did not impact the third quarter 2003 results. Under the terms of the settlement agreement, the Company obtained a letter of credit in its favor for the assumed claims of approximately $3.5 million, thus reducing its potential exposure to such claims. The Company will receive an additional letter of credit in the amount of $1.0 million each quarter starting in the fourth quarter 2003 through the third quarter of 2005. At such time, and periodically thereafter, an actuarial valuation will be made to determine the remaining amount of the insurance claim liabilities and the letters of credit issued in favor of the Company will be adjusted accordingly.

Basic earnings per share is computed by dividing net earnings by the weighted-average number of common shares outstanding. Restricted stock granted to employees and directors of the Company are not included in the computation of earnings per share until such securities vest. Diluted earnings per share reflect the dilutive effect of potential common shares from securities such as stock options and unvested restricted stock. The dilutive effect of stock options and unvested restricted stock is computed using the treasury stock method, which assumes the repurchase of common shares and unvested restricted stock by the Company at the average market price for the period.

A reconciliation of the number of shares used in computing basic and diluted earnings per share follows:

The Company’s stock-based employee compensation plans are accounted for under the intrinsic value method. Under this method, compensation cost is recognized based on the excess, if any, of the quoted market price of the stock at the date of grant (or other measurement date) and the amount an employee must pay to acquire the stock. The Company records compensation expense for the amortization of restricted stock issued to employees and directors.

The following table illustrates the effect on net earnings and earnings per share had the Company applied the fair value method of accounting to stock-based employee compensation.


			Three months ended						Nine months ended
			September 30,						September 30,

			2003			2002			2003			2002

			(In thousands, except per share amounts)

Net earnings, as reported			$	37,553			33,784		$	92,006			61,251
Add: Stock-based employee compensation expense included in reported net earnings, net of related tax effects				226			221			677			678
Deduct: Total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects				(1,792	)		(2,280	)		(4,340	)		(5,956	)

Pro forma net earnings			$	35,987			31,725		$	88,343			55,973

Earnings per common share:
	Basic:
		As reported	$	0.59			0.55		$	1.47			1.00
		Pro forma	$	0.57			0.51		$	1.41			0.91
	Diluted:
		As reported	$	0.58			0.54		$	1.45			0.98
		Pro forma	$	0.56			0.50		$	1.38			0.89

The fair values of options granted were estimated as of the dates of grant using the Black-Sholes option pricing model. Total stock-based employee compensation expense for the three and nine months ended September 30, 2003 includes the effect of cancelled options totaling 61,769 and 519,190, respectively, compared with 16,923 and 145,101 in the same periods in 2002.

Comprehensive income presents a measure of all changes in shareholders’ equity except for changes resulting from transactions with shareholders in their capacity as shareholders. The following table provides a reconciliation of net earnings as reported in the Company’s Consolidated Condensed Statements of Earnings to comprehensive income.

The components of restructuring and other recoveries, net for the three and nine months ended September 30, 2003 and 2002 were as follows:


	Three months ended						Nine months ended
	September 30,						September 30,

	2003			2002			2003			2002

	(In thousands)
Restructuring charges (recoveries), net:
Employee severance and benefits	$	1,535			(764	)	$	1,087			(1,404	)
Facility and related costs		(149	)		10			(83	)		(41	)

		1,386			(754	)		1,004			(1,445	)
Other (recoveries) charges, net:
Asset write-downs		(128	)		215			(785	)		192
Strategic consulting fees		—			11			—			11
Contract termination costs		—			(219	)		—			(219	)
Insurance reserves — sold business		—			—			(38	)		(520	)
Settlement of commercial dispute		(3,900	)		—			(3,900	)		—

Total	$	(2,642	)		(747	)	$	(3,719	)		(1,981	)

Allocation of restructuring and other recoveries, net across reportable business segments for the three and nine months ended September 30, 2003 and 2002 was as follows:

During the third quarter of 2003, the Company recognized a charge of $1.5 million for the elimination of approximately 20 positions as a result of cost management and process improvement actions across various functional areas of Central Support Services. Management expects to reduce overhead costs by approximately $2 million annually as a result of these headcount reductions. While the majority of these employees had not been terminated as of September 30, 2003, such actions will be finalized by year-end. Year-to-date employee severance and benefit charges were partially offset by recoveries relating to employee severance and benefits recorded in prior restructurings that were reversed earlier in the year due to refinements of estimates.

Other (recoveries) charges, net in 2003 consisted primarily of the third quarter settlement of a commercial dispute pertaining to prior billings with an information technology vendor and gains on sale of owned facilities identified for closure in prior restructurings.

During the first and third quarters of 2002, employee severance and benefits that had been recorded in prior restructurings were reversed due to refinements in estimates.

Other (recoveries) charges, net in the third quarter represent the additional write-down to estimated fair value of owned facilities identified for closure in prior restructurings and the reversal of contract termination costs recognized in 2001 resulting from refinements in estimates. During the nine months ended September 30, 2002, other (recoveries) charges, net also included the settlement of reserves attributed to a previously sold business.

Activity related to restructuring reserves for the nine months ended September 30, 2003 was as follows:

At September 30, 2003, employee terminations from prior year restructuring plans were substantially finalized. Deductions represent cash payments made during the period of $8.5 million and prior year charge reversals of $0.6 million. At September 30, 2003, outstanding restructuring obligations are required to be paid principally over the next fifteen months.

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.

The Company’s primary measurement of segment financial performance, defined as “Net Before Taxes” (NBT), includes an allocation of Central Support Services (CSS) and excludes restructuring and other recoveries, net. CSS represents those costs incurred to support all business segments, including sales and marketing, human resources, finance, corporate services, information technology, 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.

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

CSS costs attributable to the business segments are generally allocated to FMS, SCS and DCC as follows:

•

Sales and marketing, finance, corporate services and health and safety — allocated based upon estimated and planned resource utilization.

•

Human resources — individual costs within this category are allocated in several ways, including allocation based on estimated utilization and number of personnel supported.

•

Information technology — allocated principally based upon utilization-related metrics such as number of users or minutes of CPU time. Customer-related project costs and expenses are allocated to the business segment responsible for the project.

•

Other — represents purchasing, legal and other centralized costs and expenses including certain incentive compensation costs. Expenses, where allocated, are based primarily on the number of personnel supported.

The FMS segment leases revenue earning equipment and provides fuel, maintenance and other ancillary services to the SCS and DCC segments. Inter-segment revenue and NBT are accounted for at approximate fair value as if the transactions were made with independent 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, then eliminated (presented as “Eliminations”)


		FMS		SCS			DCC		Eliminations			CSS			Total

		(In thousands)
For the three months ended
September 30, 2003
	Revenue from external customers	$	735,587		330,986			127,030		—			—		$	1,193,603
	Intersegment revenue		73,706		—			—		(73,706	)		—			—

	Total revenue	$	809,293		330,986			127,030		(73,706	)		—		$	1,193,603

	Segment NBT^(a)	$	55,002		12,277			7,173		(7,636	)		(5,991	)	$	60,825

	Restructuring and other recoveries, net															2,642

	Earnings before income taxes and cumulative effect of changes in accounting principles														$	63,467

	Capital expenditures^{(a) (b)}	$	158,214		3,114			149		—			841		$	162,318

September 30, 2002
	Revenue from external customers	$	732,847		348,530			130,986		—			—		$	1,212,363
	Intersegment revenue		77,008		—			—		(77,008	)		—			—

	Total revenue	$	809,855		348,530			130,986		(77,008	)		—		$	1,212,363

	Segment NBT^(a)	$	58,492		(664	)		9,876		(8,498	)		(7,158	)	$	52,048

	Restructuring and other recoveries, net															747

	Earnings before income taxes and cumulative effect of changes in accounting principles														$	52,795

	Capital expenditures^{(a) (b)}	$	158,271		3,449			70		—			1,345		$	163,135

For the nine months ended
September 30, 2003
	Revenue from external customers	$	2,190,143		1,010,912			384,324		—			—		$	3,585,379
	Intersegment revenue		230,265		—			—		(230,265	)		—			—

	Total revenue	$	2,420,408		1,010,912			384,324		(230,265	)		—		$	3,585,379

	Segment NBT^(a)	$	140,252		27,027			22,410		(24,375	)		(18,384	)	$	146,930

	Restructuring and other recoveries, net															3,719

	Earnings before income taxes and cumulative effect of changes in accounting principles														$	150,649

	Capital expenditures^{(a) (b)}	$	559,351		11,006			633		—			4,233		$	575,223

September 30, 2002
	Revenue from external customers	$	2,143,337		1,043,917			384,344		—			—		$	3,571,598
	Intersegment revenue		234,992		—			—		(234,992	)		—			—

	Total revenue	$	2,378,329		1,043,917			384,344		(234,992	)		—		$	3,571,598

	Segment NBT^(a)	$	150,525		(5,091	)		23,281		(25,117	)		(19,973	)	$	123,625

	Restructuring and other recoveries, net															1,981

	Earnings before income taxes and cumulative effect of changes in accounting principles														$	125,606

	Capital expenditures^{(a) (b)}	$	426,334		11,818			289		—			4,715		$	443,156

The following table sets forth total assets as provided to the chief operating decision-maker for each of the Company’s reportable business segments:


	September 30,			December 31,
	2003			2002


	(In thousands)




Fleet Management Solutions^(a)	$	4,684,886			4,241,095




Supply Chain Solutions		380,372			366,954




Dedicated Contract Carriage		106,263			113,479




Central Support Services		165,931			185,773




Inter-segment eliminations		(131,078	)		(140,319	)

Total	$	5,206,374			4,766,982

(a)

The increase in Fleet Management Solutions’ total assets reflects the additional revenue earning equipment attributed to VIEs consolidated effective July 1, 2003.

(M) OTHER MATTERS

The Company is a party to various claims, legal actions and complaints arising in the ordinary course of business. While any proceeding or litigation has an element of uncertainty, management believes that the disposition of these matters will not have a material impact on its results of operations, cash flows or financial position.

We have reviewed the accompanying consolidated condensed balance sheet of Ryder System, Inc. and subsidiaries as of September 30, 2003, and the related consolidated condensed statements of earnings for the three and nine months ended September 30, 2003 and 2002 and the consolidated condensed statements of cash flows for the nine months ended September 30, 2003 and 2002. These consolidated condensed financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the consolidated condensed financial statements referred to above in order for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of Ryder System, Inc. and subsidiaries as of December 31, 2002, and the related consolidated statements of earnings, shareholders’ equity and cash flows for the year then ended (not presented herein); and in our report dated February 6, 2003, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated condensed balance sheet as of December 31, 2002, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

As discussed in the notes to the consolidated condensed financial statements, the Company changed its method of accounting for variable interest entities and its method of accounting for asset retirement obligations in 2003 and its method of accounting for goodwill and other intangible assets in 2002.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS —
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002

The following discussion should be read in conjunction with the unaudited consolidated condensed financial statements and notes thereto included under ITEM 1. In addition, reference should be made to the Company’s audited consolidated financial statements and notes thereto and related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the 2002 Annual Report on Form 10-K.

As discussed in Note (B) to the unaudited consolidated condensed financial statements, effective July 1, 2003, the Company consolidated three variable interest entities (VIEs) in connection with the adoption of the Financial Accounting Standards Board’s Interpretation No. (FIN) 46, “Consolidation of Variable Interest Entities.” The consolidated VIEs were established as part of previous sale-leaseback transactions of revenue earning equipment in which the Company sold revenue earning equipment to special-purpose entities (SPEs) and then leased the revenue earning equipment back as lessee under operating lease arrangements. The Company enters into sale-leaseback transactions in the ordinary course of business in order to lower the total cost of funding operations, to diversify funding among different classes of investors, and to diversify funding among different types of funding instruments. Sale-leaseback transactions are executed with third-party financial institutions, as well as with SPEs that may also be VIEs. In connection with the sale-leaseback transactions executed with SPEs, in the form of vehicle securitizations and a synthetic leasing arrangement, the Company provided credit enhancements and residual value guarantees that obligate the Company to absorb the majority of the expected losses from such entities, if any are realized. Therefore, FIN 46 requires that these entities be consolidated.

As a result of the consolidation of these VIEs, the Company recorded a non-cash cumulative effect charge of $3.0 million on an after-tax basis, or $0.05 per diluted share in the third quarter of 2003. The cumulative effect charge represented depreciation and interest expense of the VIEs that would have been recorded had FIN 46 been in effect since lease inception, in excess of rent expense recorded under operating leases. The charge is expected to reverse in operating earnings over the next three years. The consolidation of the VIEs did not have a significant impact on the Company’s consolidated net earnings; however reported depreciation expense, equipment rental and interest expense were impacted by the consolidation of the VIEs. In addition, both net cash provided by operating activities and the free cash flow measure increased due to the add-back of depreciation expense on the VIEs’ revenue earning equipment and net cash used in financing activities also increased due to principal payments on VIEs’ debt.

Earnings before cumulative effect of changes in accounting principles increased 19.9 percent in the third quarter of 2003 and also in the nine months ended September 30, 2003 to $40.5 million and $96.1 million, respectively, compared to the same periods last year. The increases in earnings were primarily attributed to reductions in operating expenses stemming from cost management and process improvement actions, improved SCS operating performance, improved FMS rental pricing, lower financing costs and the impact of favorable exchange rate fluctuations. Higher after-tax restructuring and other recoveries, net in the third quarter of 2003, also impacted earnings favorably. Net earnings were adversely affected by an increase in pre-tax annual pension expense of $13.1 million and $39.2 million in the three and nine months ended September 30, 2003, respectively, compared with the same periods last year, and the negative impact of lower revenue due to continued weak economic conditions in the U.S. and the impact of certain customer contracts not renewed. Pension expense primarily impacts FMS, which employs the majority of the Company’s employees that participate in the Company’s primary U.S. pension plan. See “Operating Results by Business Segment” for a further discussion of operating results.

Revenue decreased 1.5 percent to $1.19 billion in the third quarter of 2003 compared with the same period in 2002. In the nine months ended September 30, 2003, revenue increased 0.4 percent to $3.59 billion compared with the same period last year. Comparisons were impacted by increased FMS fuel services revenue as a result of higher average fuel prices. The Company realized minimal changes in profitability as a result of higher fuel services revenue as these generally reflect costs that are passed through to customers. During 2003, FMS was negatively impacted by continued softness in the U.S. economy resulting in reduced full service lease and programmed maintenance demand, as well as the impact of some ancillary business not renewed. These decreases were offset by improved commercial rental revenue due to higher pricing. SCS revenue decreased in 2003 compared with the same periods in 2002 as a result of volume reductions combined with the non-renewal of certain business. Revenue comparisons were favorably impacted by expanded business in Canada, Latin America and Asia and changes in foreign exchange rates.

Operating expense increased 2.8 percent to $508.5 million in the third quarter of 2003 compared with the same period in 2002. Operating expense increased 4.1 percent to $1.52 billion in the nine months ended September 30, 2003 compared with the same period in 2002. The increases were principally a result of increases in fuel costs due to higher average fuel prices in 2003. Operating expenses were also impacted by higher maintenance costs as a result of an older fleet, offset by a reduction in overhead spending from the Company’s continuing cost containment actions.

Salaries and employee-related costs decreased 3.5 percent to $309.0 million in the third quarter of 2003 compared with the same period in 2002. Salaries and employee-related costs decreased 1.5 percent to $936.8 million in the nine months ended September 30, 2003 compared with the same period in 2002. Salaries and employee-related costs declined as a result of headcount reductions which offset higher pension expense. Average headcount decreased in the three and nine months ended September 30, 2003 compared with the same periods in 2002 reflecting the impact of the Company’s cost containment actions, reduced volumes across all business segments and the non-renewal of certain customer contracts.

Pension expense increased $13.1 million to $19.9 million in the third quarter of 2003 compared with the third quarter of 2002 and increased $39.2 million to $60.9 million in the nine months ended September 30, 2003 compared with the same period in 2002. Pension expense for all pension plans is expected to total approximately $82 million for full-year 2003 compared with $29 million in 2002. The increase in pension expense is primarily attributable to the U.S. pension plan and reflects the adverse effect of negative pension asset returns in 2002, as well as a declining interest rate environment resulting in a lower discount rate for calculating the present value of pension obligations. For 2003, pension expense for the Company’s U.S. pension plan, the Company’s primary plan, will be approximately $62 million, an increase of $49 million over the prior year, using an assumed discount rate of 6.5 percent and an expected long-term rate of return on assets of 8.5 percent per annum.

Freight under management (FUM) expense represents subcontracted freight costs on logistics contracts for which the Company purchases transportation. FUM expense decreased 6.7 percent to $95.5 million in the third quarter of 2003 compared with the same period in 2002. FUM expense increased 1.6 percent to $307.5 million in the nine months ended September 30, 2003 compared with the same period in 2002. Decreased freight volumes during the third quarter 2003 substantially offset the increase experienced during the first half of the year, which contributed to the overall year-to-date increase.

Depreciation expense in the third quarter of 2003 increased 22.1 percent to $171.0 million compared with the third quarter of 2002. Depreciation expense increased 11.0 percent to $457.9 million in the nine months ended September 30, 2003 compared with the same period in 2002. While the overall fleet size declined during the nine months ended September 30, 2003 compared with last year due to weak leasing demand, depreciation expense increased because of the increase in the average number of owned (compared with leased) revenue earning equipment units. The increase in the number of owned units was impacted by the consolidation of VIEs effective July 1, 2003, the conversion of leased units to owned status as a result of lease extensions and the replacement of expiring lease units with owned. During the three months ended September 30, 2003, depreciation expense attributable to the revenue earning equipment of consolidated VIEs approximated $21 million.

Gains on vehicle sales decreased 24.2 percent to $2.8 million compared with the third quarter in 2002. Gains on vehicle sales increased 12.4 percent to $11.1 million in the nine months ended September 30, 2003 compared with the same period in 2002. The decrease in gains on vehicle sales for the third quarter 2003 was due to reduced average pricing in the light-duty truck and trailer classes. For the nine months ended September 30,2003, the Company experienced improved gains on vehicle sales due to higher number of unit sales and improved average pricing on vehicles sold in the tractor class as compared to the same period in 2002.

Equipment rental primarily consists of rental costs on revenue earning equipment in FMS. Equipment rental costs decreased 65.8 percent to $29.0 million in the third quarter of 2003 and decreased 36.1 percent to $170.3 million in the nine months ended September 30, 2003 compared with the same periods in 2002. The decreases in 2003 were due to a reduction in the average number of leased vehicles (compared with owned) resulting from the consolidation of VIEs effective July 1, 2003, term extensions and an overall decline in fleet size, which principally impacted equipment under lease. During the three months ended September 30, 2003, equipment rental was reduced by approximately $29 million for revenue earning equipment of VIEs consolidated effective July 1, 2003.

Interest expense increased 7.8 percent to $24.1 million during the third quarter of 2003 compared with the same period in 2002. In the nine months ended September 30, 2003, interest expense decreased 6.5 percent to $65.8 million compared with the same period in 2002. The increase in interest expense during the third quarter reflects the impact of interest expense of approximately $6 million on debt of the VIEs’ consolidated effective July 1, 2003. Exclusive of the impact on interest expense from consolidating the VIEs, comparisons for each of the periods presented were favorably impacted by overall lower market interest rates and reduced average debt levels.

The Company had miscellaneous income, net of $1.5 million and $7.1 million in the three and nine months ended September 30, 2003 compared with $0.6 million and $3.4 million in the same periods in 2002, respectively. Prior to the consolidation of the VIEs effective July 1, 2003, miscellaneous income, net included fee income related to administrative services provided to vehicle lease trusts in connection with the vehicle securitization transactions. Upon consolidation of the vehicle securitization trusts, the Company no longer recognizes a benefit from service fee income. For the three and nine months ended September 30, 2003, miscellaneous income, net was favorably impacted from improved market performance of investments classified as trading securities used to fund certain benefit plans and lower losses on the sale of trade receivables related to the decreased use of the Company’s revolving receivables financing program, which offset the elimination of servicing fee income related to the vehicle lease trusts.

For the three and nine months ended September 30, 2003, restructuring and other recoveries, net of $2.6 million and $3.7 million, respectively, consisted primarily of a $3.9 million favorable settlement of a commercial dispute pertaining to prior billings with an IT vendor and gains on sale of owned facilities identified for closure in prior restructurings. Such recoveries were partially offset by employee severance and benefits charges of $1.5 million resulting from the elimination of approximately 20 positions due to cost management and process improvement actions across various functional areas of Central Support Services during the third quarter. Management expects to reduce overhead costs by approximately $2 million annually as a result of these headcount reductions.

During the three and nine months ended September 30, 2002, restructuring and other recoveries, net of $0.7 million and $2.0 million, respectively, consisted primarily of employee severance and benefits that had been recorded in prior restructurings and which were reversed due to refinements in estimates. Additionally in the first quarter of 2002, restructuring and other recoveries, net included the settlement of reserves attributed to a previously sold business. See Note (K) to consolidated condensed financial statements, “Restructuring and Other Recoveries, Net,” for a complete discussion of these items.

The Company’s effective income tax rate on earnings was 36.2 percent in the three and nine months ended September 30, 2003 compared with 36.0 percent and 36.2 percent in the same periods in 2002, respectively.


		Three months ended						Nine months ended
		September 30,						September 30,

		2003			2002			2003			2002

		(In thousands)
Revenue:
	Fleet Management Solutions	$	809,293			809,855		$	2,420,408			2,378,329
	Supply Chain Solutions		330,986			348,530			1,010,912			1,043,917
	Dedicated Contract Carriage		127,030			130,986			384,324			384,344
	Eliminations		(73,706	)		(77,008	)		(230,265	)		(234,992	)

Total		$	1,193,603			1,212,363		$	3,585,379			3,571,598

NBT:
	Fleet Management Solutions	$	55,002			58,492		$	140,252			150,525
	Supply Chain Solutions		12,277			(664	)		27,027			(5,091	)
	Dedicated Contract Carriage		7,173			9,876			22,410			23,281
	Eliminations		(7,636	)		(8,498	)		(24,375	)		(25,117	)

			66,816			59,206			165,314			143,598
Unallocated Central Support Services			(5,991	)		(7,158	)		(18,384	)		(19,973	)

Earnings before restructuring and other recoveries, income taxes, and cumulative effect of changes in accounting principles			60,825			52,048			146,930			123,625
Restructuring and other recoveries, net			2,642			747			3,719			1,981

Earnings before income taxes and cumulative effect of changes in accounting principles		$	63,467			52,795		$	150,649			125,606

Certain costs are considered to be overhead not attributable to any segment and as such, 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. See Note (L) to consolidated condensed financial statements, “Segment Information,” for a description of how the remainder of CSS costs is allocated to the business segments.

Segment NBT excludes restructuring and other recoveries, net and includes equipment contribution. Allocation of restructuring and other recoveries, net across reportable business segments for the three and nine months ended September 30, 2003 and 2002 was as follows:

The FMS segment leases revenue earning equipment and provides fuel, maintenance and other ancillary services to the SCS and DCC segments. Inter-segment revenue and NBT are accounted for at approximate fair value as if the transactions were made with independent 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 for the three and nine months ended September 30, 2003 and 2002.

These 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.


	Three months ended						Nine months ended
	September 30,						September 30,

	2003			2002			2003			2002

	(Dollars in thousands)

Full service lease and programmed maintenance	$	448,836			451,384		$	1,341,700			1,350,994
Commercial rental		131,790			123,133			361,184			338,981
Other		74,703			87,439			233,086			259,427

Dry revenue^(a)		655,329			661,956			1,935,970			1,949,402
Fuel services revenue		153,964			147,899			484,438			428,927

Total revenue	$	809,293			809,855		$	2,420,408			2,378,329

Segment NBT	$	55,002			58,492		$	140,252			150,525

Segment NBT as a % of total revenue		6.8	%		7.2	%		5.8	%		6.3	%

Segment NBT as a % of dry revenue^(a)		8.4	%		8.8	%		7.2	%		7.7	%

FMS total revenue of $809.3 million remained flat during the third quarter of 2003 compared with the same period in 2002. FMS total revenue in the nine months ended September 30, 2003 totaled $2.42 billion, an increase of 1.8 percent from the same period in 2002. Total revenue comparisons were impacted by higher fuel services revenue as a result of increased average fuel prices.

Dry revenue (revenue excluding fuel) decreased 1.0 percent to $655.3 million and 0.7 percent to $1.94 billion in the three and nine months ended September 30, 2003, respectively. Full service lease and programmed maintenance revenue decreased 0.6 and 0.7 percent in the three and nine months ended September 30, 2003, respectively, reflecting the effects of continued weak leasing demand in the U.S., a reduction in fleet size and fewer total miles run by leased vehicles resulting in decreased variable billings. These decreases were partially offset by higher revenue in Canada and the U.K. as a result of favorable exchange rates and higher volumes. The Company anticipates unfavorable full service lease and programmed maintenance revenue comparisons to continue over the near term as a result of the continued softness in the U.S. economy and uncertainty in the marketplace regarding decisions on committing to new long-term contracts.

Commercial rental revenue increased 7.0 percent to $131.8 million and 6.5 percent to $361.2 million in the three and nine months ended September 30, 2003, respectively, compared with the same periods in 2002. Commercial rental revenue increased during 2003 due principally to higher rental pricing. Rental fleet utilization for the third quarter of 2003 decreased to 73.8 percent compared to 76.9 percent in the same period last year. For the nine months ended September 30, 2003, rental fleet utilization of 71.1 percent remained relatively flat compared to the same period last year. Rental fleet utilization statistics presented are for the U.S. rental fleet, which accounts for more than 80 percent of total commercial rental revenue. The Company expects favorable commercial rental revenue comparisons to continue for the remainder of 2003.

Other FMS revenue, which consists of trailer rentals, other maintenance and repairs services and ancillary revenue to support product lines, decreased by 14.6 percent to $74.7 million and 10.2 percent to $233.1 million in the three and nine months ended September 30, 2003 compared with the same periods in 2002. Other revenue decreased due primarily to the non-renewal of a customer contract to provide ancillary fleet services which expired at the end of the first quarter of 2003. Accordingly, the Company expects unfavorable comparisons to continue for the next two quarters.

FMS NBT declined 6.0 percent to $55.0 million and 6.8 percent to $140.3 million in the three and nine months ended September 30, 2003, respectively, compared with $58.5 million and $150.5 million in the same periods last year. FMS NBT as a percentage of dry revenue was 8.4 percent in the third quarter of 2003 compared with 8.8 percent in 2002. FMS NBT as a percentage of dry revenue was 7.2 percent in the nine months ended September 30, 2003 compared with 7.7 percent in the same period last year. These decreases were due primarily to higher pension expense of $11.8 million and $35.7 million in the three and nine months ended September 30, 2003, respectively, as compared with the same periods in 2002. NBT comparisons were also adversely impacted by lower lease revenue and the non-renewal of a contract to provide ancillary fleet services. The impact of these items was partially offset by higher commercial rental pricing, reduced operating expenses as a result of the Company’s cost management and process improvement actions, lower financing costs and the impact of favorable exchange rate fluctuations.

The Company’s fleet of owned and leased revenue earning equipment is summarized as follows:


			September 30,		December 31,		September 30,
			2003		2002		2002

			(In thousands)
By type:
		Trucks		61.2		62.2		63.0
		Tractors		47.9		48.8		49.2
		Trailers		43.6		44.8		45.2
		Other		5.5		5.6		5.6

Total				158.2		161.4		163.0

By product line:
	Full service lease			116.9		120.9		125.8
	Commercial rental			38.4		37.6		34.2
	Service vehicles and other			2.9		2.9		3.0

Total				158.2		161.4		163.0

Owned^(a)				146.5		125.5		123.2
Leased^(a)				11.7		35.9		39.8

Total				158.2		161.4		163.0

Quarterly average				159.1				163.9

Year-to-date average				159.8				166.6

The totals in each of the previous tables include the following non-revenue earning equipment:

NYE units represent new units 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 units held for sale, as well as units for which no revenue has been earned for the previous 30 days. These vehicles may be temporarily out of service, being prepared for sale or not rented due to lack of demand.


		Three months ended						Nine months ended
		September 30,						September 30,

		2003			2002			2003			2002

		(Dollars in thousands)
U.S. operating revenue:
	Automotive, aerospace and industrial	$	102,670			110,577		$	315,712			333,144
	High-tech and consumer industries		61,768			77,222			185,180			227,381
	Other		3,707			3,709			10,820			10,692

U.S. operating revenue			168,145			191,508			511,712			571,217
International operating revenue			68,412			55,573			194,687			172,952

Operating revenue^(a)			236,557			247,081			706,399			744,169
Freight under management (FUM) expense			94,429			101,449			304,513			299,748

Total revenue		$	330,986			348,530		$	1,010,912			1,043,917

Segment NBT		$	12,277			(664	)	$	27,027			(5,091	)

Segment NBT as a % of total revenue			3.7	%		(0.2	)%		2.7	%		(0.5	)%

Segment NBT as a % of operating revenue^(a)			5.2	%		(0.3	)%		3.8	%		(0.7	)%

In the SCS business segment, operating revenue for the three months ended September 30, 2003 decreased 4.3 percent to $236.6 million compared with the same period in 2002. SCS operating revenue in the nine months ended September 30, 2003 decreased 5.1 percent to $706.4 million compared with the same period in 2002. SCS revenue comparisons were impacted by reduced volumes as a result of the slowdown in the U.S. economy (particularly in the high-tech and telecommunications industries) and the non-renewal of certain contracts, which were partially offset by new business. SCS revenue benefited from increased volumes and expanded business in Canada and Asia, as well as the favorable impact of exchange rates. The Company expects unfavorable revenue comparisons to continue over the near term in light of slow economic conditions, as well as the impact of lost business.

The SCS business segment NBT improved to $12.3 million and $27.0 million in the three and nine months ended September 30, 2003, respectively, from a deficit of $0.7 million and a deficit $5.1 million in the comparative periods of 2002. SCS NBT as a percentage of operating revenue was 5.2 percent in the third quarter of 2003 compared with negative 0.3 percent in 2002. SCS NBT as a percentage of operating revenue was 3.8 percent in the nine months ended September 30, 2003 compared with negative 0.7 percent in the same period last year. Despite lower operating revenue in 2003 improved results were driven by numerous margin improvement actions taken in this business over the past year, which have reduced overhead costs and improved global operating performance. Results for the three and nine months ended September 30, 2003 also benefited from operating tax refunds and the earlier than anticipated resolution of a customer contractual matter totaling $2.4 million.

In the DCC business segment, operating revenue in the third quarter of 2003 decreased by 3.1 percent to $126.0 million compared to the same period in 2002. DCC operating revenue for the nine months ended September 30, 2003 was generally unchanged at $381.4 million compared with the same period in 2002. Reduced volumes with existing customers associated with softness in the U.S. economy were offset by higher average fuel prices.

NBT decreased 27.4 percent to $7.2 million in the third quarter of 2003 compared to the year-earlier period. NBT decreased 3.7 percent to $22.4 million in the nine months ended September 30, 2003 compared with last year. The decreases in NBT for 2003 reflect the impact of reduced volumes and higher insurance costs resulting from adverse claims experience during the third quarter. NBT as a percentage of operating revenue was 5.7 percent in the third quarter of 2003 compared with 7.6 percent in the same period of 2002. NBT as a percentage of operating revenue was 5.9 percent in the nine months ended September 30, 2003, compared with 6.1 percent in the same period in 2002.


	Three months ended						Nine months ended
	September 30,						September 30,

	2003			2002			2003			2002

	(In thousands)

Sales and marketing	$	2,162			3,503		$	6,623			9,806
Human resources		4,099			5,058			13,509			15,096
Finance		13,544			15,075			41,167			43,147
Corporate services/public affairs		1,889			1,846			5,289			5,541
Information technology (IT)		18,545			20,986			61,209			67,108
Health and safety		2,008			2,250			6,172			6,859
Other		10,279			11,347			27,870			27,481

Total CSS		52,526			60,065			161,839			175,038
Allocation of CSS to business segments		(46,535	)		(52,907	)		(143,455	)		(155,065	)

Unallocated CSS	$	5,991			7,158		$	18,384			19,973

Total CSS decreased 12.6 percent to $52.5 million and 7.5 percent to $161.8 million in the three and nine months ended September 30, 2003, respectively, compared to the same periods last year. The decreases in total CSS expenses were due to reduced spending across substantially all functional areas as a result of the Company’s continued cost containment and process improvement actions, most notably in IT. Technology costs were lower in the nine months ended September 30, 2003 due primarily to decreased development and support costs as a result of the in-sourcing of certain IT services during the first quarter of 2002 and continued cost containment and process improvement actions. The Company expects reduced CSS spending levels to continue over the near term.

The following is a summary of the Company’s cash flows from operating, financing and investing activities for the nine months ended September 30, 2003 and 2002:

A detail of the individual items contributing to the cash flow changes is included in the Consolidated Condensed Statements of Cash Flows.

The increase in cash provided by operating activities in the nine months ended September 30, 2003, compared with the same period last year, was primarily attributable to changes in the aggregate balance of trade receivables sold, improved operating performance and reduced working capital needs. Cash provided by operating activities in 2003 was also positively impacted from the add-back of depreciation expense attributed to VIEs that were consolidated effective July 1, 2003. The increase in cash used in financing activities in the nine months ended September 30, 2003, compared to the same period last year, reflects reduced borrowings in 2003. The increase in cash used in investing activities for the first nine months of 2003 reflects higher capital expenditures, primarily to refresh the commercial rental fleet.

The Company refers to the net amount of cash generated from operating activities (excluding changes in the aggregate balance of trade receivables sold), collections on direct finance leases, proceeds from sale of assets and capital expenditures as “free cash flow.” Although free cash flow is a non-GAAP financial measure, management considers it to be an important measure of comparative operating performance. Management believes free cash flow provides investors with an important perspective on the cash available for debt service, acquisitions and shareholders after making capital investments required to support ongoing business operations. The calculation of free cash flow may be different from the calculation used by other companies and therefore comparability may be limited.

The following table shows the sources of the Company’s free cash flow and a reconciliation of free cash flow to cash provided by operating activities for the nine months ended September 30, 2003 and 2002:

The decrease in free cash flow in the nine months ended September 30, 2003 compared with the same period last year was primarily attributable to higher capital spending levels which was partially offset by higher sales proceeds on vehicle sales, improved operating performance and reduced working capital needs. Beginning July 1, 2003, cash provided by operating activities and free cash flow were also positively impacted from the add-back of depreciation expense of approximately $21 million attributed to VIEs that were consolidated as a result of the adoption of FIN 46.

The following table provides a summary of capital expenditures for the nine months ended September 30, 2003 and 2002:

The increase in capital expenditures of 29.8 percent during the nine months ended September 30, 2003 compared with the same period in 2002 was due primarily to planned increased asset purchases for the commercial rental fleet. Capital spending levels in full service lease decreased due to weaker than expected leasing demand and a higher than planned level of redeployments and term extensions. Full year 2003 capital spending levels are expected to approximate $750 million.

The Company utilizes external capital to support growth in its asset-based product lines. The Company has a variety of financing alternatives available to fund its capital needs. These alternatives include long-term and medium-term public and private debt, including asset-backed securities, bank term loans and leasing arrangements as well as fixed-rate and variable-rate financing available through bank credit facilities, commercial paper and receivable conduits.

Total debt was $1.78 billion at September 30, 2003, an increase of 14.5 percent from December 31, 2002. U.S. commercial paper outstanding at September 30, 2003 decreased to $7.0 million compared with $117.5 million at December 31, 2002. The overall debt increase reflects the impact of consolidating debt attributed to VIEs which was previously reflected as off-balance sheet obligations. The Company’s on-balance sheet percentage of variable-rate financing obligations (including swap agreements) was 26.5 percent at September 30, 2003, compared with 37.3 percent at December 31, 2002.

The Company’s leverage ratios and a reconciliation of on-balance sheet debt to total obligations were as follows:

Effective July 1, 2003 the Company consolidated three VIEs in connection with the adoption of FIN 46. As a result, the Company’s leverage ratios as of September 30, 2003 have changed to reflect the impact of consolidating debt attributed to the VIEs totaling $323.8 million that would have previously been disclosed as off-balance sheet debt. Although total obligations is a non-GAAP financial measure, management believes that total obligations is useful to investors as it is a more complete measure of the Company’s existing financial obligations and helps investors better assess the Company’s overall leverage position. The decrease in total obligations to equity ratio in 2003 was driven by the Company’s reduced funding needs as a result of the reduction of the Company’s fleet and the extension of vehicle holding periods.

The Company participates in an agreement, as amended from time to time, to sell with limited recourse up to $275.0 million of trade receivables on a revolving and uncommitted basis. This agreement expires in July 2004. The receivables are sold first to a bankruptcy remote special-purpose entity, Ryder Receivables Funding LLC (“RRF LLC”) that is included in the Company’s consolidated condensed financial statements. RRF LLC then sells certain receivables to well-capitalized, unrelated commercial entities at a loss, which approximates the purchaser’s financing cost of issuing its own commercial paper backed by the trade receivables over the period of anticipated collection. The Company is responsible for servicing receivables sold but has no retained interests. Due to the relatively short life of receivables sold, no servicing asset or liability is recognized related to this agreement. At September 30, 2003 and December 31, 2002, there were no receivables sold pursuant to this agreement.

One source of liquidity is the Company’s short-term borrowings in the commercial paper market. An integral component for the Company’s ability to access the commercial paper market and the related cost of borrowings is the strength of the Company’s credit ratings. A downgrade of the Company’s debt rating below investment grade level would limit the Company’s ability to issue commercial paper and would result in the Company no longer having the ability to sell trade receivables under the agreement described above. As a result, the Company would have to rely on other established funding sources described below.

The Company can borrow up to $860.0 million through a global credit facility. The facility is composed of a $300.0 million tranche, which matures in May 2004 and is renewable annually, and a $560.0 million tranche which matures in May 2006. The primary purposes of the credit facility are to finance working capital and to provide support for the issuance of commercial paper. At the Company’s option, the interest rate on borrowings under the credit facility is based on LIBOR, prime, federal funds or local equivalent rates. At September 30, 2003, $785.3 million was available under this global credit facility. Of this amount, $300.0 million was available at a maturity of less than one year. In order to maintain availability of funding, the global revolving credit facility requires the Company to maintain a ratio of debt to consolidated adjusted tangible net worth, as defined, of less than or equal to 300.0 percent. The ratio at September 30, 2003 was 122.7 percent.

As of September 30, 2003 the Company had the following amounts available to fund operations under the aforementioned facilities:

The Company believes such facilities, along with the Company’s commercial paper program and other funding sources, will be sufficient to fund operations over the next twelve months.

In addition to the financing activities described above, the Company also periodically enters into sale and leaseback agreements on revenue earning equipment, which are accounted for as operating leases. The Company executes sale-leaseback transactions with third-party financial institutions that are not deemed to be VIEs to the Company. In general, sale-leaseback transactions result in a reduction in revenue earning equipment and debt on the balance sheet, as proceeds from the sale of revenue earning equipment are primarily used to repay debt. Accordingly, sale-leaseback transactions will result in reduced depreciation and interest expense and increased equipment rental expense. The Company did not enter into any sale-leaseback transactions during the nine months ended September 30, 2003.

The funded status of the Company’s pension plans is dependent upon many factors, including returns on invested assets and the level of market interest rates. Declines in the market value of equity securities coupled with declines in long-term interest rates have had a negative impact on the funded status of the plans. While the Company is not required by employee benefit laws to make a contribution to fund its U.S. qualified plan (the Company’s primary pension plan) until September 2004, it reviews pension funded status regularly and may from time to time elect to make voluntary contributions to its pension plans. The Company elected to make a $50.0 million voluntary contribution to its U.S. qualified plan during October 2003. For 2003, including the Company’s international plans, pension contributions will total approximately $65 million. After considering the 2003 contributions, the projected present value of estimated contributions for all plans that would be required over the next 5 years totals approximately $205 million. Changes in interest rates and the market value of the securities held by the plans during 2003 could materially change, positively or negatively, the underfunded status of the plans and affect the level of pension expense and required contributions in 2004 and beyond.

As of December 31, 2002, the Company recorded a non-cash equity charge of $227.6 million (after-tax) in connection with the accrual of an additional minimum pension liability. The equity charge reflects the under-funded status of the Company’s qualified pension plans (primarily the U.S. qualified plan) resulting from declines in the market value of equity securities and declines in long-term interest rates. Although this non-cash charge impacted reported leverage ratios, it did not affect the Company’s compliance with existing financial debt covenants.

In September 2003, the Company’s board of directors authorized a two-year share repurchase program intended to mitigate, in part, the dilutive impact of shares issued under the Company’s various employee stock option and employee stock purchase plans. Under the program, shares of common stock will be purchased in a dollar amount not to exceed the proceeds generated from the issuance of common stock to employees under the Company’s various employee stock option and stock purchase plans since January 1, 2003. As of September 30, 2003, this amount was approximately $31 million. The program, which extends through September 30, 2005, limits aggregate share repurchases to no more than $90 million. Share repurchases will be made periodically in open-market transactions using the Company’s working capital, and are subject to market conditions, legal requirements and other factors. No share repurchases have been made under the program as of September 30, 2003.

This Quarterly Report on Form 10-Q includes “non-GAAP financial measures” as defined by SEC rules. As required by SEC rules, we provide a reconciliation of each non-GAAP financial measure to the most comparable GAAP measure and an explanation why management believes that presentation of the non-GAAP financial measure provides useful information to investors. Non-GAAP financial measures should be considered in addition to, but not as a substitute for or superior to, other measures of financial performance prepared in accordance with GAAP.

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the Company’s current plans and expectations and involve risks and uncertainties that may cause actual results to differ materially from the forward-looking statements. Generally, the words “believe,” “expect,” “estimate,” “anticipate,” “will” and similar expressions identify forward-looking statements.

Important factors that could cause such differences include, among others: general economic conditions in the U.S. and worldwide; the market for the Company’s used equipment; the highly competitive environment applicable to the Company’s operations (including competition in supply chain solutions and dedicated contract carriage from other logistics companies as well as from air cargo, shippers, railroads and motor carriers and competition in full service leasing and commercial rental from companies providing similar services as well as truck and trailer manufacturers that provide leasing, extended warranty maintenance, rental and other transportation services); greater than expected expenses associated with the Company’s activities (including increased cost of fuel, freight and transportation) or personnel needs; availability of equipment; adverse changes in debt ratings; changes in accounting assumptions; changes in customers’ business environments (or the loss of a significant customer) or changes in government regulations.

The risks included here are not exhaustive. 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 the Company’s business. Accordingly, the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

There have been no material changes to the Company’s exposures to market risk since December 31, 2002. Please refer to the 2002 Annual Report on Form 10-K for a complete discussion of the Company’s exposures to market risk.

As of the end of the third quarter, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of the end of the third quarter the Company’s disclosure controls and procedures were effective in ensuring that information required to be disclosed in the reports the Company files and submits under the Securities Exchange Act of 1934 are recorded, processed, summarized and reported as and when required.

During the third quarter, there were no significant changes in the Company’s internal controls over financial reporting or in other factors that could significantly affect such internal controls over financial reporting, including any corrective actions with regard to significant deficiencies and material weaknesses.

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


		RYDER SYSTEM, INC.
		(Registrant)

Date: November 7, 2003		By: /s/ Tracy A. Leinbach Tracy A. Leinbach Executive Vice President and Chief Financial Officer (Principal Financial Officer and Duly Authorized Officer)

Date: November 7, 2003		By: /s/ Art A. Garcia Art A. Garcia Vice President and Controller (Principal Accounting Officer)


FLORIDA		59-0739250

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

3600 N.W. 82 AVENUE, MIAMI, FLORIDA 33166		(305) 500-3726

(Address of principal executive offices including zip code)		(Telephone number including area code)


PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
	Consolidated Condensed Statements of Earnings
	Consolidated Condensed Balance Sheets
	Consolidated Condensed Statements of Cash Flows
	INDEPENDENT ACCOUNTANTS’ REVIEW REPORT
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 4. CONTROLS AND PROCEDURES
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
EXHIBIT INDEX
EX-15
EX-31.1
EX-31.2
EX-32.1
EX-32.2


	September 30,			December 31,
	2003			2002

	(In thousands)

Full service lease	$	4,006,394			3,111,870
Commercial rental		1,335,288			1,153,173

		5,341,682			4,265,043
Accumulated depreciation		(2,347,629	)		(1,767,429	)

Total^(a)	$	2,994,053			2,497,614


	September 30,			December 31,
	2003			2002

	(In thousands)

Land	$	105,710			106,367
Buildings and improvements		593,942			588,283
Machinery and equipment		497,473			498,308
Other		56,807			65,094

		1,253,932			1,258,052
Accumulated depreciation		(748,694	)		(727,175	)

Total	$	505,238			530,877


KPMG LLP
CERTIFIED PUBLIC ACCOUNTANTS
One Biscayne Tower	Telephone	305-358-2300
2 South Biscayne Boulevard	Fax	305-913-2692
Suite 2800
Miami, Florida 33131

(In millions)

Global revolving credit facility

($300.0 limited to less than one year)

Shelf registration statement

Trade receivables facility

(uncommitted basis)


x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003

		OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO

(a)		The asset-backed securities represent outstanding debt of the consolidated VIEs. The asset-backed securities are collateralized by cash reserve deposits (included in other assets) and revenue earning equipment of the consolidated VIEs totaling $347.9 million as of September 30, 2003. The asset-backed securities bear interest rates ranging from 5.52 percent to 7.70 percent. Maturities of the asset-backed securities range from 2005 through 2012 and approximately 95 percent of total outstanding obligations will be paid by 2006.

(b)		Fair market value of executed interest rate swaps totaling $322.0 million designated as fair value hedges.

(a)		CSS includes the activity not allocated to the reportable business segments.

(b)		FMS capital expenditures exclude non-cash additions of $31.6 million and $69.1 million during the three and nine months ended September 30, 2003 compared with $12.3 million and $29.5 million during the same periods in 2002, respectively, in assets held under capital leases resulting from the extension of existing leases.

(a)		Net earnings for the three and nine months ended September 30, 2003 include restructuring and other recoveries, net of $1.6 million after-tax, or $0.02 per diluted common share and $2.2 million after-tax, or $0.04 per diluted common share, respectively. Net earnings for the three and nine months ended September 30, 2002 include restructuring and other recoveries, net of $0.5 million after-tax, or $0.01 per diluted common share and $1.4 million after-tax, or $0.02 per diluted common share, respectively.

(b)		Net earnings for the three and nine months ended September 30, 2003 include the cumulative effect of a change in accounting for variable interest entities resulting in an after-tax charge of $3.0 million, or $0.05 per diluted common share. Net earnings for the nine months ended September 30, 2003 also include the cumulative effect of a change in accounting for costs associated with the eventual retirement of long-lived assets primarily relating to components of revenue earning equipment resulting in an after-tax charge of $1.1 million, or $0.02 per diluted common share. Net earnings for the nine months ended September 30, 2002 include the cumulative effect of a change in accounting for goodwill resulting in an after-tax charge of $18.9 million, or $0.30 per diluted common share.


		September 30,		% to			December 31,		% to
		2003		Equity			2002		Equity

		(Dollars in thousands)

On-balance sheet debt		$	1,775,993		144	%	$	1,551,468		140	%
	PV of minimum lease payments and guaranteed residual values under operating leases for equipment^(a)		189,717					370,437
	PV of contingent rentals under securitizations^(b)		—					310,955

Total obligations		$	1,965,710		159	%	$	2,232,860		201	%

(a)		Discounted at the interest rate implicit in the lease.

(b)		Discounted at the average interest rate paid to investors in the securitization trusts. Assumes customers make all lease payments on securitized vehicles when contractually due.


	Short-term	Long-term	Outlook

Moody’s Investors Service	P2	Baa1	Negative (December 2001)
Standard & Poor’s Ratings Services	A2	BBB	Positive (July 2003)
Fitch Ratings	F2	BBB+	Stable


(15)		Letter re: unaudited interim financial information.

(31.1)		Certification of Gregory T. Swienton pursuant to Rule 13a-14(a) or Rule 15d-14(a).

(31.2)		Certification of Tracy A. Leinbach pursuant to Rule 13a-14(a) or Rule 15d-14(a).

(32.1)		Certification of Gregory T. Swienton pursuant to Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. Section 1350.

(32.2)		Certification of Tracy A. Leinbach pursuant to Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. Section 1350.


(i)		On July 23, 2003, the Company filed a Current Report on Form 8-K under Items 7(c), 9 and 12 to report its financial results for the quarterly period ended June 30, 2003.

(ii)		On August 29, 2003, the Company filed a Current Report on Form 8-K under Items 5 and 7(c) to conform certain items included in the Company’s Annual Report on Form 10-K to the new requirements of Regulation G.


Exhibit
No.		Description

(15)		Letter re: unaudited interim financial information.

(31.1)		Certification of Gregory T. Swienton pursuant to Rule 13a-14(a) or Rule 15d-14(a).

(31.2)		Certification of Tracy A. Leinbach pursuant to Rule 13a-14(a) or Rule 15d-14(a).

(32.1)		Certification of Gregory T. Swienton pursuant to Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. Section 1350.

(32.2)		Certification of Tracy A. Leinbach pursuant to Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. Section 1350.