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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

Commission file number 1-4364

     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 þ          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:     þ

     Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act).     Yes þ          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, 2003 was $1,600,680,084. The number of shares of Ryder System, Inc. Common Stock ($0.50 par value) outstanding as of January 30, 2004 was 64,881,447.

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

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

      None

RYDER SYSTEM, INC.

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ITEM 1.     BUSINESS

OVERVIEW

      Ryder System, Inc., a Florida corporation organized in 1955, is a leader in transportation and supply chain management solutions. Our business is divided into three business segments: Fleet Management Solutions (FMS), which provides leasing, commercial rental and programmed maintenance of commercial trucks, tractors and trailers to customers, principally in the U.S., Canada and the U.K.; Supply Chain Solutions (SCS), which provides comprehensive supply chain consulting and lead logistics management solutions throughout North America and in Latin America, Europe and Asia; and Dedicated Contract Carriage (DCC), which provides vehicles and drivers as part of a dedicated transportation solution, principally in North America.

      Financial information relating to each of our business segments is included in the notes to our consolidated financial statements set forth in Item 8 of this report.

INDUSTRY AND OPERATIONS

Fleet Management Solutions

      Over the last several years, many key trends have been reshaping the transportation industry, particularly the $56 billion private commercial fleet market and the $25 billion U.S. commercial fleet lease and rental market. Commercial vehicles have become more complicated requiring companies to spend a significant amount of time and money to keep up with new technology, diagnostics, retooling and training. Because of increased demand for convenience, speed and reliability, companies that own and manage their own fleet of vehicles have put greater emphasis on the quality of their preventive maintenance and safety programs. Finally, new regulatory requirements such as regulations covering diesel emissions and the number of off-duty rest hours a driver must take (hours of service regulations) have placed additional administrative burdens on private-fleet owners.

      Through our FMS business, we provide our customers with flexible fleet solutions that are designed to improve their competitive position by allowing them to focus on their core business and to redirect their capital to other parts of their business. Our FMS product offering includes a wide-range of full service leasing, commercial rental and programmed maintenance solutions as well as additional value-added fleet support services such as insurance, vehicle administration and fuel services. In addition, we provide our leasing customers with access to a large selection of used trucks, tractors and trailers through our used vehicle sales program.

      For the fiscal year ended December 31, 2003, our global FMS business accounted for 61% of our third-party revenues. Our FMS customers in the U.S. range from small businesses to large national enterprises. These customers operate in a variety of industries including beverage, newspaper, grocery, lumber and wood products, home furnishings and metal. As of December 31, 2003, we had a fleet of approximately 135,000 commercial trucks, tractors and trailers leased or rented through approximately 740 locations in 48 states and Puerto Rico.

      Our domestic FMS business is divided into 7 regions: Northeast, Mid-South, Gulf States, North Central, Midwest, Southwest and West. Each region is divided into 7 to 12 customer business units (CBU) and each CBU contains 7 to 15 branch offices. A branch office typically consists of a maintenance facility or “shop,” offices for sales and other personnel, and in many cases, a commercial rental counter.

      Full Service Leasing. Our leasing customers typically come to us once they have decided to outsource their fleet management function or to upgrade their fleet without having to dedicate a significant amount of their own capital. Under a typical full service lease, we provide the vehicles, programmed maintenance, supplies and related equipment necessary for operation of the vehicles while our customers furnish and supervise their own drivers and dispatch and exercise control over the vehicles. However, our leasing experts will assess a customer’s situation and, after considering the size of the customer, residual risk, balance sheet treatment and other factors, will tailor a leasing program that best suits the customer’s needs.

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      Commercial Rental. Our rental customers typically come to us to supplement their private fleet of vehicles on a short-term basis (typically less than one month) either because of seasonal increases in their business or discrete projects that require additional transportation resources. Our rental representatives assist our customers in selecting a vehicle that satisfies the customer’s needs and supervise the rental process, which includes execution of a rental agreement and a vehicle inspection. In addition to vehicle rental, we offer our rental customers liability insurance coverage under our existing policies and the benefits of our comprehensive fuel services program. Our commercial rental fleet also provides additional vehicles to our full service lease customers to handle their peak or seasonal business needs. A fleet of approximately 33,200 vehicles, ranging from heavy-duty tractors and trailers to light-duty trucks, is available for commercial short-term rental in the U.S. The rental fleet’s average age is 4.1 years. The utilization rate of the rental fleet during fiscal year 2003 was approximately 72%.

      Programmed Maintenance. Our programmed maintenance customers typically include our full service lease customers as well as customers that want to utilize our extensive network of maintenance facilities and trained technicians to maintain the vehicles they own or lease from third parties, usually a bank or other financial institution. The Ryder Programmed Maintenance service offering is designed to reduce vehicle downtime through preventive/predictive maintenance based on vehicle type and driving habits, vehicle repair, including parts and labor, 24-hour emergency roadside service and replacement vehicles for vehicles that are temporarily out of service. These vehicles are typically serviced at our own facilities. However, based on the size and complexity of a customer’s fleet, we may operate an on-site maintenance facility, or captive shop, at the customer’s location. Our maintenance facilities typically include a service island for refueling, safety inspections and preliminary maintenance checks as well as a shop for preventive maintenance and repairs. As of December 31, 2003, we had approximately 1,600 programmed maintenance customer accounts in the U.S.

      Fleet Support Services. In order to capitalize on our large base of lease customers, we are continuously expanding our fleet support service offerings. Currently we offer the following fleet support services:

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      Used Vehicles. We typically sell our used vehicles at one of our 50 sales centers throughout North America or through our website at www.Usedtrucks.Ryder.com. Before we offer any used vehicle for sale, our technicians assure that it is Road Ready, which means the vehicle has passed a 43-point performance inspection based on specifications formulated through the Ryder Programmed Maintenance program. In addition, all of our Road Ready vehicles must have state-of-the-art engineering and remaining years of useful life. Although we typically sell our used vehicles for prices in excess of book value, the extent to which we are able to realize a gain on the sale of used vehicles is dependent upon various factors including the general state of the used vehicle market, the age and condition of the vehicle at the time of its disposal and depreciation methods with respect to the vehicle.

      Our FMS business strategy revolves around the following interrelated goals and priorities:

	•	deliver unparalleled maintenance, environmental and safety services to our customers;
	•	offer a wide range of support services that complement our leasing, rental and maintenance businesses;
	•	optimize asset utilization and management; and
	•	offer competitive pricing through cost management initiatives and increased pricing discipline on new business.

      FMS Acquisitions. Effective December 31, 2003, we acquired substantially all the assets of Iowa-based General Car and Truck Leasing System, a major privately owned commercial truck leasing, maintenance and rental company, including General’s fleet of over 4,200 vehicles, 15 of its 34 service locations and more than 700 customers. The initial purchase price was approximately $105 million in cash, subject to post-closing adjustments. The acquisition allows us to leverage our existing U.S. infrastructure in key markets while adding new infrastructure to strengthen our presence in targeted areas of the Midwest and Southeast.

      In addition, in December 2003, we entered into a non-binding letter of intent to purchase substantially all the assets of Ruan Leasing Company, a major privately owned truck leasing, rental and contract maintenance company headquartered in Des Moines, Iowa, with operations in the Midwest, Southeast and Mid-Atlantic regions, as well as in California. Ruan has a fleet of nearly 6,800 vehicles and an additional 4,800 units under contract maintenance agreements, serving over 550 customers in the U.S. The acquisition remains subject to the negotiation of a definitive purchase agreement and customary closing conditions, including regulatory consents. The transaction is expected to close by the end of the first quarter of 2004.

Supply Chain Solutions

      The global supply chain logistics market is estimated to be $140 billion. Several key trends are affecting the market for third-party logistics services. Logistics customers are increasingly focused on logistic solutions that leverage information to enhance operating and financial performance. As a result, they are demanding more costly IT-based services, including warehouse and transportation management systems, shipment tracking and web-enabled communications systems. Because increased customer expectations, expansion into advanced service offerings and globalization require a more productive and meaningful relationship between logistics providers and their customers, there is an increased emphasis on effective management and relationship processes. Finally, the importance of creating value for logistics customers through operating performance, cost management and service delivery has created a need for innovative broad-based solutions that include a network of service providers.

      Through our SCS business, we offer a complete range of innovative lead logistics management services that are designed to optimize a customer’s global supply chain and address the needs and concerns reflected by the trends previously mentioned. The term supply chain refers to a strategically designed process that directs the movement of materials, funds and related information from the acquisition of raw materials to delivery of finished products to the end-user. Our SCS product offerings are organized into three categories: professional services, distribution operations and transportation solutions. We also offer our SCS customers a variety of information technology solutions, referred to as e-fulfillment, which are an integral part of our other SCS services.

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      For the fiscal year ended December 31, 2003, our global SCS business accounted for 28% of our revenues. As of December 31, 2003, we had approximately 120 SCS customer accounts in the U.S., most of which are large enterprises that maintain large, complex supply chains. These customers operate in a variety of industries including automotive, electronics, high-tech, telecommunications, industrial, aerospace, consumer goods, paper and paper products, office equipment, food and beverage, and general retail industries.

      Unlike our FMS operations which are managed through a network of regional offices, CBUs and branch offices, most of our core SCS business operations in the U.S. revolve around our customers’ supply chain and are strategically located to maximize efficiencies and reduce costs. Along with those core customer specific locations, we also concentrate certain logistics expertise in locations not associated with specific customer sites. For example, our transportation planning and procurement group operates from our transportation management center in Ann Arbor, Michigan and our transportation logistics group operates from our transportation management center in Ft. Worth, Texas.

      We are awarded a significant portion of our SCS business through requests for proposals or RFP processes. Many companies that maintain elaborate supply chain networks, including many of our existing customers, submit an RFP to manage all or a portion of their supply chain on an outsourced basis. A team of SCS operations and logistics design specialists as well as representatives from our finance, real estate and information technology departments will formulate a bid that includes a proposed supply chain solution as well as pricing information. The bid may include one or more of the following SCS services.

      Professional Services. Our SCS business offers a variety of consulting services that support every aspect of a customer’s supply chain. Our SCS experts are available to evaluate a customer’s existing supply chain to identify inefficiencies, as well as opportunities for integration and improvement. Once the assessment is complete, we work with the customer to develop a supply chain strategy that will create the most value for the customer and its target clients. Once a customer has adopted a supply chain strategy, a team of SCS logistics experts and representatives from our information technology, real estate, finance and transportation management groups work together to design a strategically focused supply chain solution. The solution may include both a distribution plan that sets forth the number, location and function of each distribution facility and a transportation solution that sets forth the mode or modes of transportation and route selection. In addition to providing the distribution and transportation expertise necessary to implement the supply chain solution, our SCS representatives can coordinate and manage all aspects of the customer’s supply chain provider network to assure consistency, efficiency and flexibility. We also provide transportation consulting services to our SCS customers which allows us to leverage the expertise and resources of our FMS business.

      Distribution Operations. Our SCS business offers a wide range of services relating to a customer’s distribution operations such as designing a customer’s distribution or warehouse facility, managing the customer’s existing distribution facilities or a facility we acquire in order to provide the agreed-upon services, managing the flow of goods directly from the receiving function to the shipping function (cross-docking), coordinating warehousing and transportation for inbound material flows, handling import/export for international shipments, coordinating just-in-time replenishment of component parts to manufacturing and final assembly, monitoring shipment and inventory status through web-enabled tracking solutions, providing logistics services in connection with the return of products to our customers after delivery to a target client (reverse logistics) and providing additional value-added services such as light assembly of components into defined units (kitting), packaging and refurbishment.

      Transportation Solutions. Our SCS business offers services relating to all aspects of a customer’s transportation network. Our team of transportation experts provides shipment planning and execution which includes shipment consolidation, load scheduling and delivery confirmation through a series of technological and web-based solutions. Our transportation consultants, in conjunction with our Ryder Freight Brokerage department, focus on carrier procurement of all modes of transportation, rate negotiation and freight bill audit and payment services. In addition, our SCS business provides customers as well as our FMS and DCC businesses with capacity management services that are designed to create load-building opportunities and minimize excess capacity.

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      Our SCS business strategy revolves around the following interrelated goals and priorities:

	•	offer strategically-focused comprehensive supply chain solutions to our customers;
	•	leverage the expertise and resources of our FMS business;
	•	achieve strong partnering relationships with our customers;
	•	be a market innovator by continuously improving the effectiveness and efficiency of our solution delivery model;
	•	serve our customer’s global needs as lead manager, integrator and high-value operator; and
	•	create shareholder value for our customers.

Dedicated Contract Carriage

      The U.S. dedicated contract carriage market is estimated to be $8 billion. This market is affected by many of the trends that impact our FMS business such as the increased cost associated with purchasing and maintaining a fleet of vehicles. The administrative burden relating to regulations issued by the Department of Transportation (DOT) regarding driver screening, training and testing as well as record keeping and other costs associated with the new hours of service requirements make our DCC product an attractive alternative to private fleet management. In addition, market demand for just-in-time delivery creates a need for a well defined routing and scheduling plan that is based on comprehensive asset utilization analysis and fleet rationalization studies.

      Through our DCC business segment, we combine the equipment, maintenance and administrative services of a full service lease with additional services to provide a customer with a dedicated transportation solution that is designed to increase their competitive position, improve risk management and integrate their transportation needs with their overall supply chain. Such additional services include driver hiring and training, routing and scheduling, fleet sizing, safety, regulatory compliance, risk management, technology and communication systems support, including on-board computers and other technical support. These additional services allow our customers to shift to us the labor issues associated with maintaining a private fleet of vehicles, such as driver turnover, government regulation, including hours of service regulations, DOT audits and workers compensation.

      Our DCC consultants examine and assess the customer’s transportation needs. In order to customize an appropriate DCC transportation solution for our customers, our DCC logistics specialists perform a transportation analysis using advanced logistics planning and operating tools. Based on this analysis, they formulate a distribution plan which includes the routing and scheduling of vehicles, the efficient use of vehicle capacity and overall asset utilization. The goal of the plan is to create a distribution system that optimizes freight flow while meeting a customer’s service goals. A team of DCC transportation specialists can then implement the plan by leveraging the resources, expertise and technological capabilities of both our FMS and SCS businesses.

      To the extent a distribution plan includes multiple modes of transportation (air, rail, sea and highway), our DCC experts, in conjunction with our SCS transportation specialists, select appropriate transportation modes and carriers, place the freight, monitor carrier performance and audit billing. In addition, through our SCS business, we can reduce costs and add value to a customer’s distribution system by aggregating orders into loads, looking for shipment consolidation opportunities and organizing loads for vehicles that are returning from their destination point back to their point of origin (backhaul).

      Because it is highly customized, our DCC product is particularly attractive to companies that operate in industries that have time-sensitive deliveries or special handling requirements, such as newspapers and refrigerated products, as well as to companies whose distribution systems involve multiple stops within a closed loop highway route.

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      For the fiscal year ended December 31, 2003, our DCC business accounted for 11% of our revenues. As of December 31, 2003, we had approximately 260 DCC customer accounts in the U.S. Although a significant portion of our DCC operations are located at customer facilities, our DCC business utilizes and benefits from our extensive network of FMS facilities.

      Our DCC business strategy revolves around the following interrelated goals and priorities:

	•	align our DCC and SCS businesses to create revenue opportunities and improve operating efficiencies in both segments, particularly through increased backhaul utilization;
	•	increase market share for customers that operate closed loop distribution systems that require a more comprehensive transportation solution; and
	•	expand our DCC support services to create customized transportation solutions for new customers and improve the solutions we have created for existing customers.

International

      In addition to our operations in the U.S., we have FMS, SCS and DCC operations in Canada, Latin America, Europe and Asia. We have made it a goal to expand our international operations by leveraging our domestic product offerings and customer base.

      Canada. We have been operating in Canada for over 40 years. Our FMS operations in Canada include full service leasing, commercial rental and programmed maintenance. We also offer fleet support services such as insurance, fuel services and compliance services. As of December 31, 2003, we had a fleet of approximately 10,000 commercial trucks, tractors and trailers leased or rented through approximately 20 locations throughout 8 Canadian provinces. As of December 31, 2003, we had over 1,200 full service lease customer accounts in Canada.

      Our Canadian operations also include a full range of SCS and DCC services including lead logistics management services and distribution and transportation solutions. Given the proximity of this market to our U.S. operations, the Canadian operations are highly coordinated with their U.S. counterparts, managing cross-border transportation and freight movements. As of December 31, 2003, we had approximately 50 SCS customer accounts in Canada.

      Europe. We began operating in the U.K. in 1971 and since then have expanded into other parts of Europe including Ireland, Germany and Poland by leveraging our operations in the U.S. and the U.K. Our FMS operations in Europe include full service leasing, commercial rental and programmed maintenance. We also offer fleet support services such as insurance, fuel services, compliance services, driver capability and on-board technology.

      As of December 31, 2003, we had a fleet of approximately 12,400 commercial trucks, tractors and trailers leased or rented through approximately 40 locations throughout the U.K. and Germany. We also maintain a network of over 200 maintenance facilities in the U.K. In addition to our typical FMS operations, we also supply and manage vehicles, equipment and personnel for military organizations in the U.K. and Germany. As of December 31, 2003, we had over 1,100 full service lease customer accounts in the U.K. and Germany.

      Our European operations include a complete range of SCS and DCC service offerings including lead logistics management services, distribution and transportation solutions and logistics consulting and design services. In addition, we operate a comprehensive shipment, planning and execution system through our European transportation management services center located in Düsseldorf, Germany. As of December 31, 2003, we had approximately 50 SCS customer accounts in Europe.

      Latin America. We began operating in Mexico, Brazil and Argentina in the mid-1990s. In all off these markets we offer a full range of SCS services, including managing distribution operations and cross-docking terminals, and designing and managing customer specific transportation solutions. In our Argentina and Brazil operations, we also offer international transportation services for freight moving between these markets, including transportation management, backhaul management and customs procedure management.

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      Asia. We began operating in Asia in 2000 through our acquisition of Ascent Logistics. Although our Asian operations are headquartered in Singapore, we also provide logistics and consulting services in China via our Shanghai office and coordinate logistics activities in countries such as Thailand, India, Malaysia, Australia and New Zealand. We offer a wide range of SCS services to customers in the region, including management of distribution operations, domestic transportation management, coordination, scheduling and management of international freight movement, postponement, bundling and other customization activities and procurement. As of December 31, 2003, we had approximately 60 SCS customer accounts in Asia.

E-Commerce Solutions

      As part of the services provided by our FMS, SCS and DCC business segments, we have developed the following e-commerce solutions:

	•	e-Fulfillment — provides end-to-end management of the fulfillment channel from order entry to final delivery, including web-enabled inventory visibility, transportation planning/management, value-added services and reverse logistics;
	•	Ryder.com — includes a range of web-enabled tools that allow SCS and DCC customers to access information and enhance supply chain performance;
	•	RyderTrac/ RyderShip/ RyderFlow — web-enabled shipment tracking system;
	•	RyderFleetProducts.com — after market distributor of a complete range of truck parts, shop supplies, safety products and automotive products for their fleet;
	•	Usedtrucks.Ryder.com — listing of Road Ready used vehicles for sale from Ryder’s extensive fleet including maintenance histories; and
	•	RyderSafetyServices.com — after market distributor of a complete range of safety products and services related to fleet management.

Administration

      We have consolidated most of our financial administrative functions for the U.S. and Canada, including credit, billing and collections, into our Shared Services Center, a centralized processing center located in Alpharetta, Georgia. This centralization results in more efficient and consistent centralized processing of selected administrative operations. The Shared Services Center’s main objectives are to reduce on-going annual administrative costs, enhance customer service through process standardization, create an organizational structure that will improve market flexibility and allow future reengineering efforts to be more easily attained at lower implementation costs.

Regulation

      Our business is subject to regulation by various federal, state and foreign governmental entities. The DOT and various state agencies exercise broad powers over certain aspects of our business, generally governing such activities as authorization to engage in motor carrier operations, safety and financial reporting. We are also subject to a variety of requirements of national, state/provincial and local governments, including the Environmental Protection Agency and the Occupational Safety and Health Administration, that regulate safety, the management of hazardous materials, water discharges and air emissions, solid waste disposal and the release and cleanup of regulated substances. We may also become subject to new or more restrictive regulations imposed by the Environmental Protection Agency, the DOT, the Occupational Safety and Health Administration, or other authorities relating to engine exhaust emissions, drivers’ hours of service, security and ergonomics.

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      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.

Safety

      Safety is an integral part of our strategy because preventing injury and decreasing service interruptions increases efficiency and customer satisfaction. In 2002, we were awarded the Green Cross for Safety from the National Safety Council for our commitment to workplace safety and corporate citizenship.

      Our safety department focuses on (i) recruiting and maintaining qualified drivers; (ii) improving driver and management safety training; (iii) implementing periodic reviews of driver records; (iv) creating incentives for drivers with good safety records; and (v) raising awareness of safety-related issues on a company-wide basis.

      In addition, our safety department develops driver safety and training programs such as hours of service, driving ethics, security and hazmat transport, to promote safety, customer relations, service standards and productivity. All of our drivers must meet or exceed DOT qualifications. Our safety department updates driver qualification files at least annually to maintain compliance with DOT regulations.

Risk Management

      The nature of our business exposes us to risk of liability for damages arising primarily out of cargo loss and damage, customer-managed inventory shrinkage, vehicle liability, property damage and workers compensation. We are responsible for a deductible for auto liability, physical damage, cargo and workers compensation claims. We maintain insurance with independent insurance carriers that provide coverage for claims in excess of deductible amounts. Management believes that our insurance coverage is adequate.

Competition

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

      Our 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. We compete 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, our emphasis.

      In the SCS business segment, we compete 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 our overriding strategy.

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Employees

      As of December 31, 2003, we had approximately 26,700 full-time employees worldwide, of which 22,000 were employed in North America, 2,000 in South America and Mexico, 2,300 in Europe and 400 in Asia. We have approximately 15,900 hourly employees in the United States, approximately 3,300 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, and their wages and benefits are governed by approximately 100 labor agreements that are renegotiated periodically. None of the businesses in which we currently engage have experienced a material work stoppage, slowdown or strike and we consider that our relationship with our employees is good.

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EXECUTIVE OFFICERS OF THE REGISTRANT

      All of the executive officers of Ryder were elected or re-elected to their present offices either at or subsequent to the meeting of the Board of Directors held on May 2, 2003. 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.

      Tracy A. Leinbach has been Executive Vice President and Chief Financial Officer since March 2003. Ms. Leinbach served as Executive Vice President, Fleet Management Solutions from March 2001 to March 2003, 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 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.

      Bobby J. Griffin has been Executive Vice President, International Operations 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. From 1993 to 1997, Mr. Griffin also served as Vice President and General Manager of ATE Management and Service Company, Inc. and Managed Logistics Systems, Inc., operating units of the former Ryder Public Transportation Services. 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.

      Challis M. Lowe has served as Executive Vice President, Human Resources, Public Affairs and Corporate Communications since November 2000. Ms. Lowe joined Ryder as Executive Vice President of Human Resources in May 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. From 1993 to 1997, she was Executive Vice President at Heller International, a financial services company, where she was responsible for Human Resources and Communications.

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      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 Ryder including Senior Vice President and Chief Financial Officer of Ryder’s integrated logistics business segment and Senior Vice President, Field Finance.

      Richard B. Carson has served as Senior Vice President, Fleet Management Solutions since February 2002. He previously served as Vice President, Fleet Management Solutions in the Northeast Region from January 1997 to February 2002. Mr. Carson joined Ryder in June 1973 and has held various positions since then.

      Gregory F. Greene has served as Senior Vice President, Strategic Planning and Development since April 2003. He previously served as Senior Vice President, Global Talent Management from March 2002 to April 2003. Mr. Greene joined Ryder in August 1993 as Manager of Executive and International Compensation and has since held various positions. Prior to joining Ryder, Mr. Greene served as Director of Human Resources for Sunglass Hut, Inc.

      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.

FACTORS AFFECTING OUR BUSINESS

      Our business is subject to a number of general economic factors in the United States and worldwide that may have a materially adverse effect on results of operations, many of which are largely out of our 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 contributed to our decline in revenue for the year ended December 31, 2003 compared with 2002.

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

	•	we compete with many other leasing and transportation service providers, some of which may have greater capital resources or lower capital costs;
	•	some of our competitors periodically reduce their prices to gain business which may limit our ability 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;

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	•	advances in technology require increased investments to remain competitive and our customers may not be willing to accept higher prices to cover the cost of these investments;
	•	competition from logistics and freight management companies that do not operate trucking fleets may adversely affect customer relationships and prices; and
	•	changes in applicable laws and regulations, or costs of complying with current or future laws and regulations.

      We implemented and continue 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 our future competitiveness and profitability.

      Our 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 worsening of this trend may cause further unfavorable differences between residual values realized and current expectations, thus negatively affecting our profitability and financial condition.

      Regulations imposed by federal, state and foreign governmental agencies regarding the emission of diesel fuel have resulted in higher prices for tractors and diesel engines, decreased demand for new tractors and increased 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 our 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.

      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 our business. New security measures could disrupt or impede our ability to meet the needs of our 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 our operating results.

FURTHER INFORMATION

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

      We make available free of charge through our website at www.ryder.com our 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.

      In addition, we expect to post our Corporate Governance Guidelines and the charters for our Audit Committee, Compensation Committee and Corporate Governance and Nominating Committee (formerly the Committee on Directors and Public Responsibility) on our website at www.ryder.com prior to our 2004 Annual Meeting of Shareholders. You may request copies of these documents, at no cost, by writing to us at: Investor Relations, Ryder System Inc., 3600 N.W. 82nd Avenue, Miami, Florida 33166.

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ITEM 2.  PROPERTIES

      Our properties consist primarily of vehicle maintenance and repair facilities, warehouses and other real estate and improvements.

      We maintain approximately 760 FMS locations in the United States, Puerto Rico and Canada; we own approximately 460 of these facilities and lease the remaining 300 facilities. Our FMS locations generally include a repair shop and administrative offices.

      We also maintain approximately 130 locations in the United States and Canada in connection with our domestic SCS and DCC businesses. Almost all of our SCS locations are leased and generally include a warehouse and administrative offices.

      We maintain over 70 international locations (locations outside of the United States and Canada) for our international FMS and SCS businesses. These locations are in the U.K., Ireland, Germany, Poland, Mexico, Argentina, Brazil, China, Taiwan and Singapore. The majority of these locations are leased and generally include a repair shop, warehouse and administrative offices.

      Our headquarters facility is a 400,000 square foot building located on approximately 40 acres of land in Miami, Florida that we have owned since 1973. Due to the age of the headquarters building and the headcount reductions experienced over recent years, we explored various strategic alternatives for the relocation of our headquarters. As a result, in December 2002, we announced that we reached an agreement with a real estate developer to build a new headquarters facility in Miami, Florida. We will lease the new building which is approximately 230,000 square feet. We expect the new headquarters to be completed during 2005 and are in the process of marketing our current facility and land for sale.

ITEM 3. LEGAL PROCEEDINGS

      We are involved in various claims, lawsuits and administrative actions arising in the course of our 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 our consolidated financial position, results of operations or liquidity.

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

      There were no matters submitted to a vote of our security holders during the quarter ended December 31, 2003.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY,

      Our common shares are listed on the New York Stock Exchange, the Chicago Stock Exchange, the Pacific Exchange and the Berlin-Bremen Stock Exchange. As of January 30, 2004, there were 12,565 common stockholders of record and our stock price on the New York Stock Exchange was $36.80.

Securities Authorized for Issuance Under Equity Compensation Plans

      The following table includes information as of December 31, 2003 about certain plans which provide for the issuance of common stock in connection with the exercise of stock options and other stock-based awards:

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Purchases of Equity Securities

      The following table provides information with respect to purchases we made of our common stock during the fourth quarter of 2003:

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ITEM 6. SELECTED FINANCIAL DATA

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

      This discussion should be read in conjunction with our consolidated financial statements and related notes contained in Item 8 of this report on Form 10-K.

OVERVIEW

      Our business is divided into three business segments: our Fleet Management Solutions (FMS) business segment provides leasing, commercial rental and programmed maintenance of commercial trucks, tractors and trailers to customers, principally in the U.S., Canada and the U.K.; our Supply Chain Solutions (SCS) business segment provides comprehensive supply chain consulting and lead logistics management solutions throughout North America and in Latin America, Europe and Asia; and our Dedicated Contract Carriage (DCC) business segment provides vehicles and drivers as part of a dedicated transportation solution, principally in North America. We operate in extremely competitive markets. Our customers select us based on numerous factors including service quality, price, technology and service offerings. As an alternative to using our services, customers may also choose to provide these services for themselves, or may choose to obtain similar or alternative services from other third-party vendors.

      Over the past three years we have transformed our business, addressing many fundamental business processes throughout the organization. We have focused intently on addressing our cost structure and balance sheet in order to deliver improved results to our shareholders and also to make Ryder more competitive in the marketplace. In 2003, we continued to realize significant savings from our cost management initiatives and process improvement actions, allowing us to deliver strong results despite higher pension costs and reduced volumes in our U.S. contractual business. In the future, we will continue identifying cost saving opportunities to enhance our competitive position in a very competitive environment.

      During 2003, we targeted several strategic opportunities in our FMS business. In December, we completed the acquisition of a fleet of approximately 4,200 vehicles serving over 700 customers in the U.S. In December, we also announced that we had signed a non-binding letter of intent to purchase another fleet of nearly 6,800 vehicles serving over 550 customers, which we expect to complete by the end of the first quarter of 2004. These acquisitions do not require us to build new capabilities and enable us to leverage our existing infrastructure to create operating synergies for our FMS business segment. In 2004, we will continue to evaluate strategic acquisitions in FMS and other segments of our business.

      In addition to our strategic initiatives, a primary issue that affects our business growth is economic conditions in the U.S. and in other regions of the world where we do business. Because of the soft U.S. economy over the past several years, our U.S. contractual business base was down in 2003. We are focused on increasing new sales while maintaining the appropriate pricing discipline that provides an attractive return for the service we provide to our customers. We are encouraged by recent increased levels of activity and interest on the part of our customers to sign new business. However, because of the time required to have lease equipment manufactured and delivered and to design and implement a new supply chain activity, there is a time lag in our businesses between the date when a contract is signed and when revenue is generated. Therefore, we do not expect to see an impact on revenue from new sales contracts until the middle of 2004.

ITEMS AFFECTING COMPARABILITY BETWEEN PERIODS

      Effective July 1, 2003, Ryder 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 Ryder sold revenue earning equipment to special-purpose entities (SPEs) and then leased the revenue earning equipment back as lessee under operating lease arrangements. Ryder 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 have

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      As a result of the consolidation of these VIEs, Ryder recorded a non-cash cumulative effect charge of $3 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 our 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 our 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. Net earnings for 2002 and 2001 would not have been materially different if this standard had been adopted effective January 1, 2001.

      Effective January 1, 2003, we adopted the provisions of 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. 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 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 2002 and 2001 would not have been materially different if this standard had been adopted effective January 1, 2001.

      Effective January 1, 2002, we also 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. Had we applied the non-amortization provisions of SFAS No. 142 as of January 1, 2001, net earnings for 2001 would have totaled $30 million, or $0.50 per diluted share, as compared to the reported net earnings for 2001 of $19 million, or $0.31 per diluted share. SFAS No. 142 also required us to perform an assessment of whether there was an indication that the remaining recorded goodwill was impaired as of the date of adoption. The impairment test required us to compare the implied fair value of a reporting unit’s goodwill to our carrying amount, both of which were measured as of January 1, 2002. The residual fair value after this allocation was the implicit fair value of the reporting unit’s goodwill. As a result of this assessment, we recorded a non-cash cumulative effect charge of $19 million on a before and after-tax basis, or $0.30 per diluted share, associated with the Asian operations of our SCS business segment. Under previous requirements, no goodwill impairment would have been recorded on January 1, 2002.

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CONSOLIDATED RESULTS

     Earnings before the cumulative effect of changes in accounting principles increased 20% to $136 million in 2003 compared with 2002. The increase in earnings was due to savings realized from continuing cost management and process improving actions, improved SCS operating performance, better FMS rental pricing, and the impact of favorable exchange rate fluctuations. These earnings increases were partially offset by an increase in after-tax annual pension expense of nearly $34 million which principally impacted our FMS business segment, which employs the majority of the employees that participate in our primary U.S. pension plan. The earnings growth rate in 2003 exceeded the related earnings per share growth rate because the average number of shares outstanding during 2003 increased reflecting the impact of stock issuances under employee stock option and stock purchase plans during the year.

      Earnings before the cumulative effect of changes in accounting principles increased 503% 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 cost management 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 Note 1 — “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 2001. See “Operating Results by Business Segment” for further discussion of the operating results for the past three years.

      Revenue for 2003 increased 1% to $4.8 billion compared with 2002. Comparisons were impacted by increased FMS fuel services revenue as a result of higher average fuel prices. For all years reported, Ryder realized minimal changes in profitability as a result of higher fuel prices as these generally reflect costs that are passed through to our 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 partially offset by improved commercial rental revenue due to higher pricing. SCS revenue decreased in 2003 compared with 2002 as a result of volume reductions combined with the non-renewal of certain customer contracts. Revenue comparisons for FMS and SCS were favorably impacted by changes in foreign exchange rates and expanded business in Canada, Latin America and Asia.

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      Revenue decreased 5% 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 slow economic conditions in the U.S. and in other countries where we operate. The FMS revenue decrease of 5% also reflects the effects of a smaller overall fleet (primarily in commercial rental) and lower fuel services revenue as a result of lower average fuel prices and volumes. SCS revenue decreased in 2002 as a result of volume reductions, especially in the electronics, high-tech and telecommunications sector and the non-renewal of certain customer contracts.

      Our FMS segment leases revenue earning equipment and provides fuel, maintenance and other ancillary services to our 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 increased 5% to $2.0 billion in 2003 compared with 2002. The increase was principally a result of increases in fuel costs due to higher average fuel prices in 2003. Operating expense was also impacted by higher maintenance costs as a result of an older fleet, offset by a reduction in overhead spending from ongoing cost management actions. Operating expense decreased 9% 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 cost containment actions, including the shut-down of certain facilities in 2001, and the cancellation of an information technology outsourcing contract.

      Salaries and employee-related costs decreased 2% to $1.2 billion in 2003 compared with 2002. The decrease was a result of headcount reductions, which offset higher pension expense. Average headcount decreased 6% in 2003 compared with 2002 reflecting the non-renewal of certain customer contracts, the impact of cost management actions and reduced volumes across all business segments. The number of employees at December 31, 2003 decreased 4% to approximately 26,700, compared with 27,800 at December 31, 2002.

      Pension expense increased nearly $54 million in 2003 to $82 million compared with 2002, and principally impacted FMS. 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 the impact of lower interest rates resulting in a lower discount rate for calculating the present value of pension obligations. Based on actual pension asset returns experienced in 2003 and interest rate levels at December 31, 2003, we expect pension expense on a pre-tax basis to decrease to approximately $66 million in 2004. Our 2004 pension expense estimates are subject to change based upon the completion of actuarial analysis of all pension plans. See “Critical Accounting Estimates” for further discussion on pension accounting estimates. The anticipated pension expense decrease in 2004 would primarily impact FMS, which employs the majority of employees that participate in Ryder’s primary U.S. pension plan.

      Salaries and employee-related costs increased 5% 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 (Recoveries) Charges, Net” for further discussion.

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      Freight under management (FUM) expense represents subcontracted freight costs on logistics contracts for which Ryder purchases transportation. FUM expense of $414 million in 2003 was unchanged compared with 2002. The volume decline experienced in our SCS business during 2003 was principally attributed to non-transportation based activities. FUM expense decreased 5% in 2002 compared with 2001 due to revenue reductions in our SCS business segment as a result of reduced freight volumes in the U.S. and South America and the non-renewal of customer contracts.

      Depreciation expense relates primarily to FMS revenue earning equipment. Depreciation expense in 2003 increased 13% to $625 million compared with 2002. While the overall average fleet size (owned and leased) declined 3% during 2003, depreciation expense grew because of an increase in the average number of owned (compared with leased) revenue earning equipment units. The number of owned units increased because of 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. See discussion on Fleet Management Solutions in “Operating Results by Business Segment” for further detail on vehicle counts. For the six months ended December 31, 2003, depreciation expense attributable to the revenue earning equipment of consolidated VIEs approximated $40 million. Depreciation expense increased 1% 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.

      Gains on vehicle sales, net increased 11% to $16 million in 2003 compared with 2002. The increase in gains on vehicle sales, net was due to a higher number of FMS unit sales of owned equipment and improved average pricing on vehicles sold in the tractor class compared with 2002. Gains on vehicle sales, net increased 19% to $14 million in 2002 compared with 2001. Despite a reduction in the number of vehicles sold, Ryder experienced an increase in gains on vehicle sales, net due to a decline in the average book value of units sold. The decline in the average book value of units sold in 2002 reflected an increase in depreciation expense and an increase in the age of vehicles sold.

      We periodically review and adjust 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 “Critical Accounting Estimates” for further discussion on depreciation and residual value guarantees. While we believe that the carrying values and estimated sales proceeds for revenue earning equipment are appropriate, there can be no assurance that a deterioration in economic conditions or adverse changes to expectations of future sales proceeds will not occur, resulting in higher depreciation or losses on disposal.

      Equipment rental primarily consists of rental costs on revenue earning equipment in FMS. Equipment rental costs decreased 42% to $201 million in 2003 compared with 2002. The decrease was 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.

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      Interest expense increased 5% to $96 million in 2003 compared with 2002. The increase in interest expense reflects the impact of interest expense of approximately $10 million on debt of VIEs, consolidated effective July 1, 2003. Excluding interest expense from consolidated VIEs, comparisons for 2003 were favorably impacted by overall lower market interest rates and reduced effective interest rates as a result of hedging transactions which principally benefited FMS. Interest expense decreased 23% 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.

      Miscellaneous income, net increased to $12 million in 2003 from $10 million in 2002. During 2003, miscellaneous income, net was favorably impacted from a $2 million gain on sale of a facility in our European FMS operations. Additionally, 2003 miscellaneous income, net improved as a result of better 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 our revolving receivables financing program. These positive factors were partially offset by the elimination of servicing fee income related to certain VIEs. Prior to the consolidation of 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. As a result of consolidating the vehicle securitization trusts, we no longer recognize a benefit from service fee income.

      Ryder had miscellaneous income, net of $10 million in 2002 compared with miscellaneous income, net of $1 million in 2001. The increase in miscellaneous income, net during 2002 is primarily attributed to a reduction in losses on the sale of receivables related to the decreased use of Ryder’s revolving facility for the sale of receivables and 2001 losses on the sale of operating property and equipment.

      Restructuring and other (recoveries) charges, net were $(0.2) million in 2003, $4 million in 2002 and $117 million in 2001. See “Restructuring and Other (Recoveries) Charges, Net” for further discussion.

      Ryder’s effective tax rate was 36.2% in 2003 compared with 36.0% in 2002 and 39.2% in 2001. 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 (recoveries) charges, partially offset by a permanent reduction in corporate tax rates in Canada. This resulted in a one-time reduction in Ryder’s related deferred taxes of approximately $7 million.

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RESTRUCTURING AND OTHER (RECOVERIES) CHARGES, NET

      The components of restructuring and other (recoveries) charges, net in 2003, 2002 and 2001 were as follows:

      Allocation of restructuring and other (recoveries) charges, net across business segments in 2003, 2002 and 2001 is as follows:

2003 Activity

      During 2003, Ryder approved a plan to eliminate approximately 140 positions as a result of on-going cost management and process improvement actions in Ryder’s FMS and SCS business segments and Central Support Services. The charge related to these actions included severance and employee-related costs totaling $6 million. While many of these employees had not been terminated as of December 31, 2003, such actions will be finalized by March 31, 2004. We expect pre-tax cost savings of approximately $11 million annually in salaries and employee-related costs as a result of these cost management activities. Also during 2003, we reversed severance and employee-related costs totaling $1 million that had been recorded in prior restructurings due to refinements in estimates.

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      Other recoveries during 2003 principally include a settlement of a commercial dispute pertaining to prior billings with an information technology vendor and gains on sales of owned facilities identified for closure in prior restructuring charges.

2002 Activity

      During the fourth quarter of 2002, Ryder approved a plan to eliminate approximately 140 positions as a result of cost management actions principally in our 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. Our estimate of pre-tax cost savings in salaries and employee-related costs as a result of these cost management activities totaled approximately $14 million. During 2002, we reversed severance and employee-related costs totaling $2 million that had been recorded in prior restructuring charges 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, 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.

2001 Activity

      In late 2000, we communicated to our employees planned strategic initiatives designed to reduce costs, improve the earnings power of our business and streamline our structure. As part of these initiatives, we 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, we initiated the shutdown of Systemcare, Ryder’s shared user home delivery network in the U.K. The shutdown was initiated as a result of our 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, we identified 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 we 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, Ryder cancelled an information technology project in the FMS business segment. In connection with the cancellation, we 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, Ryder entered into an Information Technology Services Agreement (ITSA) with Accenture LLP (Accenture) under which we outsourced many of our information technology needs that were previously provided by Ryder employees. Under the terms of the ITSA, Ryder 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, Ryder was also obligated to pay certain termination costs to Accenture in the event the ITSA was terminated by Ryder prior to the expiration date.

As part of restructuring initiatives in 2001, we approved and committed Ryder 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.

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	•	Strategic initiatives during 2001 also 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, Ryder 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, we 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 restructuring initiatives. Since the software licenses would no longer be used in the business nor could the licenses be resold, such licenses were valued at zero.
	•	Due to the decision to shut down the aforementioned Systemcare operations, we assessed the recoverability of Systemcare’s long-lived assets held for use as described in Note 1 — “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: We also identified certain operating units for which circumstances indicated that the carrying amount of long-lived assets, in particular, goodwill, may not be recoverable. We assessed the recoverability of these long-lived assets and determined that the goodwill related to these operating units was not recoverable. See Note 1 — “Summary of Significant Accounting Policies — Goodwill and Other Intangible Assets” in the Notes to Consolidated Financial Statements for Ryder’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, we reviewed goodwill associated with our remaining investment in Ryder Brazil for impairment. Subsequent to the sale of the contracts and related net assets associated with the disposal of our outbound auto-carriage business (Vehiculos) in Ryder Brazil discussed below, we 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 this analysis, goodwill of $4 million was considered impaired and was written down in December 2001.

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

      Loss on sale of business: During March 2001, Ryder 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, Ryder agreed to pay termination fees and certain demobilization costs of approximately $8 million. Also during 2001, we made a decision to terminate a long-term marketing arrangement to reduce marketing costs.

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

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

OPERATING RESULTS BY BUSINESS SEGMENT

      We define the primary measurement of our segment financial performance as “Net Before Tax” (NBT) which includes an allocation of Central Support Services (CSS) and excludes goodwill impairment, goodwill amortization and restructuring and other recoveries (charges), net. CSS represents those costs incurred to support all of our 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 of our business segments 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.

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      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. See Note 22 — “Segment Reporting” in Notes to Consolidated Financial Statements for a description of how the remainder of CSS costs is allocated to the business segments.

      Our FMS segment leases revenue earning equipment and provides fuel, maintenance and other ancillary services to our 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 our SCS and DCC segments: