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

FORM 10-Q

OR

Commission File Number: 1-4364

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 þ   NO o

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

Ryder System, Inc. Common Stock ($0.50 par value per share) outstanding as of July 30, 2004 was 64,391,037.

RYDER SYSTEM, INC.
FORM 10-Q QUARTERLY REPORT

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

RYDER SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(unaudited)

See accompanying notes to consolidated condensed financial statements.

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RYDER SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS

See accompanying notes to consolidated condensed financial statements.

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RYDER SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)

See accompanying notes to consolidated condensed financial statements.

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RYDER SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY

See accompanying notes to consolidated condensed financial statements.

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RYDER SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)

(A) INTERIM FINANCIAL STATEMENTS

       The accompanying unaudited consolidated condensed financial statements include the accounts of Ryder System, Inc. and subsidiaries, which have been prepared in accordance with the accounting policies described in the 2003 Annual Report on Form 10-K, and should be read in conjunction with the consolidated financial statements and notes thereto. 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.

(B) CONSOLIDATION OF VARIABLE INTEREST ENTITIES

       Effective July 1, 2003, we adopted Financial Accounting Standards Board (FASB) Interpretation No. (FIN) 46, “Consolidation of Variable Interest Entities,” (as revised by FIN 46-R issued December 2003) 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. As a result of adopting FIN 46, we consolidated three VIEs that were established in connection with sale-leaseback transactions of revenue earning equipment in which we sold revenue earning equipment to a special-purpose entity and then leased the revenue earning equipment back as lessee under operating lease arrangements. As part of these transactions, we provided credit enhancements and residual value guarantees that obligate us to absorb the majority of the expected losses from such entities, if any are realized. Therefore, FIN 46 required that these entities be consolidated. The credit enhancements, in the form of cash reserve deposits (included in “Direct financing leases and 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 Ryder.

       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, we recorded additional revenue earning equipment of $421.4 million and additional debt of $414.0 million associated with 15,800 units, 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, we 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 two years. The consolidation of the VIEs did not have a significant impact on our consolidated net earnings. Net earnings for the three and six months ended June 30, 2003 would not have been materially different if this standard had been adopted effective January 1, 2003. However, both net cash provided by operating activities and used in financing activities presented on our Consolidated Condensed Statements of Cash Flows for the six months ended June 30, 2004 increased due to the add-back of depreciation expense on the VIEs’ revenue earning equipment and principal payments on the VIEs’ debt, respectively.

(C) OTHER ACCOUNTING CHANGES

       Effective January 1, 2003, we adopted 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 $1.2 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.

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(D) ACQUISITIONS

       Ruan Acquisition — On March 1, 2004, Ryder completed an asset purchase agreement with Ruan Leasing Company (Ruan) under which we acquired Ruan’s fleet of approximately 6,400 vehicles, 37 of its 111 service locations and more than 500 customers. Ryder also acquired full service contract maintenance agreements covering approximately 1,700 vehicles. The combined Ryder/Ruan network 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, Southeast, Mid-Atlantic and Southwest. The purchase price, which is subject to post closing adjustments, was allocated to the net assets acquired based on their fair values. As of June 30, 2004, approximately $142 million of the purchase price had been paid with the remaining amount expected to be paid by the first quarter of 2006, subject to holdback provisions set forth in the agreement. The initial recording of the transaction was based on preliminary valuation assessments and is subject to change. The following table provides a rollforward of the original estimated fair values of the assets acquired and liabilities assumed as of the date of acquisition:

       General Acquisition — On December 31, 2003, Ryder completed an asset purchase agreement with General Car and Truck Leasing System, Inc. (General) under which we acquired General’s fleet of approximately 4,200 vehicles, 15 of its 34 service locations and more than 700 customers. The combined Ryder/General network 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. The purchase price, which is subject to post closing adjustments, was allocated to the net assets acquired based on their fair values. As of June 30, 2004, approximately $103 million of the purchase price had been paid with the remaining amount required to be paid in 2004 and 2005, subject to holdback provisions set forth in the agreement.

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       As described in the 2003 Annual Report, the initial recording of the transaction was based on preliminary valuation assessments and is subject to change. The following table provides a rollforward of the original estimated fair values of the assets acquired and liabilities assumed as of the date of acquisition:

       The results of Ruan and General have been included in the consolidated condensed financial statements from the date of acquisition. The following table provides the unaudited pro forma revenue, earnings before cumulative effect of change in accounting principle, net earnings and earnings per share as if the results of these businesses had been included in operations commencing January 1, 2003. This pro forma information is not necessarily indicative either of the combined results of operations that actually would have been realized had the acquisitions been consummated during the period for which the pro forma information is presented, or of future results.

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(E) REVENUE EARNING EQUIPMENT, NET

       Included in net revenue earning equipment are assets acquired under capital leases of $94.5 million, less accumulated amortization of $26.8 million at June 30, 2004, and $107.3 million, less accumulated amortization of $28.4 million at December 31, 2003. At June 30, 2004 and December 31, 2003, the net carrying value of revenue earning equipment held for sale was $55.1 million and $55.8 million, respectively.

(F) GOODWILL AND OTHER INTANGIBLE ASSETS

       The carrying amount of goodwill attributable to each reportable business segment with changes therein was as follows:

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(G) INCOME TAXES

       We are subject to tax audits in numerous jurisdictions in the U.S. and around the world. Tax audits by their very nature are often complex and can require several years to complete. The audit of our federal income tax returns for 1995 through 1997 is currently in the appeals process with the Internal Revenue Service (IRS). Management believes that the ultimate outcome of the audit will not result in a material adverse impact on our consolidated results of operations or financial position. In 2003, the IRS began auditing our federal income tax returns for 1998 through 2000. In the normal course of business, we are subject to challenges from the IRS and other tax authorities regarding amounts of taxes due. Assuming this audit follows normal course, we expect the nature and extent of any challenges from the IRS will likely be known by December 31, 2004. These challenges may alter the timing or amount of taxable income or deductions, or the allocation of income among tax jurisdictions. As part of our calculation of the provision for income taxes on earnings, we record the amount we expect to incur as a result of tax audits. Such accruals require management to make estimates and judgments with respect to the ultimate outcome of a tax audit. The amount ultimately paid upon resolution of issues raised may differ materially from the amount accrued. Management believes that taxes accrued on the consolidated condensed balance sheet fairly represent the amount of future tax liability due by Ryder.

(H) DEBT AND OTHER FINANCING

       During May 2004, Ryder refinanced its $860 million credit facility with a new five-year $870 million global revolving credit agreement with a syndicate of lenders. The credit facility is used primarily to provide support for the issuance of commercial paper and to finance working capital for certain foreign subsidiaries. The credit facility can be used to issue up to $75 million in letters of credit (there were no letters of credit outstanding against the facility as of June 30, 2004). At Ryder’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 current annual facility fee is 15.0 basis points, which applies to the total facility of $870 million, and is based on Ryder’s current credit rating. The credit facility contains no provision restricting its availability in the event of a material adverse change to Ryder. The credit facility contains standard warranties, events of default, and certain affirmative and negative covenants. In order to maintain availability of funding, Ryder must maintain a ratio of debt to consolidated tangible net worth, as defined in the agreement, of less than or equal to 300%. The ratio at June 30, 2004 was 119%. At June 30, 2004, $652.6 million was available under the credit facility. Foreign borrowings of $79.4 million were outstanding under the facility at June 30, 2004.

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       During 2004, we issued unsecured medium-term notes with an aggregate principal amount of $135.0 million, which mature in March 2009. The proceeds from the notes were used to reduce other outstanding borrowings.

       During 2003, Ryder filed a universal shelf registration statement with the Securities and Exchange Commission to issue up to $800 million of available 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. As of June 30, 2004, Ryder had $665 million of securities available for issuance under the registration statement.

       At June 30, 2004, Ryder had letters of credit outstanding totaling $163.2 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 $11 million are unable to be paid, the third-party insurers may have recourse against certain of the outstanding letters of credit provided by Ryder in order to satisfy the unpaid claim deductibles. In order to reduce our potential exposure to these claims, we have received letters of credit from the purchaser of the businesses referred to above totaling $5.5 million and are contracted to receive additional letters of credit in the amount of $2.0 million in the third quarter of 2004 and $1.0 million each quarter thereafter 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 our favor will be adjusted accordingly.

(I) EARNINGS PER SHARE

       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 are not included in the computation of basic earnings per share until the 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 any proceeds that could be obtained upon the exercise of stock options and restricted stock, would be used to purchase common shares 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:

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(J) STOCK-BASED COMPENSATION

       Ryder’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. We record 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 if we had applied the fair value method of accounting to stock-based employee compensation.

       The fair values of options granted were estimated as of the dates of grant using the Black-Scholes option-pricing model. Total stock-based employee compensation expense for the three and six months ended June 30, 2004 includes the effect of cancelled options totaling 12,582 and 64,002, respectively, compared with 30,289 and 457,421, respectively, in the same periods in 2003.

(K) SHARE REPURCHASE PROGRAM

       During the second quarter of 2004, we completed our previously announced $90 million share repurchase program. Under the program, shares of common stock were purchased in a dollar amount not to exceed the proceeds generated from the issuance of common stock to employees under our various employee stock option and stock purchase plans since January 1, 2003 up to $90 million. Under the program, we purchased and retired a total of 2,477,845 shares, of which 2,360,345 shares were purchased and retired in 2004 at an aggregate cost of $86.6 million. The cost of stock repurchases is allocated between common stock and retained earnings based on the amount of capital surplus at the time of the stock repurchase.

       In July 2004, our board of directors authorized a new two-year share repurchase program intended to mitigate the dilutive impact of shares issued under our various employee stock option and stock purchase plans. Under the program, shares of common stock are purchased in an amount not to exceed the number of shares issued to employees under our various employee stock option and stock purchase plans since May 1, 2004, which totaled 0.2 million shares at June 30, 2004. The program limits aggregate share repurchases to no more than 3.5 million shares of Ryder common stock. Share repurchases will be made periodically in open-market

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transactions using working capital, and are subject to market conditions, legal requirements and other factors. In addition, management has been granted the authority to establish a trading plan under Rule 10b5-1 of the Securities Exchange Act of 1934 as part of the repurchase program.

(L) COMPREHENSIVE INCOME

       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 Consolidated Condensed Statements of Earnings to comprehensive income.

(M) RESTRUCTURING AND OTHER RECOVERIES, NET

       The components of restructuring and other recoveries, net were as follows:

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       Allocation of restructuring and other recoveries, net across reportable business segments was as follows:

2004

       Restructuring recoveries, net for the three and six months ended June 30, 2004, respectively, related primarily to employee severance and benefits recorded in prior restructuring charges that were reversed due to refinements in estimates.

       Other recoveries, net for the three and six months ended June 30, 2004, respectively, related primarily to gains recorded in connection with the sale of our corporate headquarters complex. In May 2004, we completed the sale of our corporate headquarters facility for $39 million in cash. In conjunction with this sale, we entered into a lease agreement with the purchaser to lease back the headquarters facility until we relocate to our new headquarters in 2005. The terms of the leaseback meet the criteria for a “normal leaseback” and full gain recognition. The gain recognized on the sale of the headquarters facility totaled $22.2 million. In addition to the sale of our corporate headquarters in the second quarter of 2004, results for the six months ended June 30, 2004 also reflect gains totaling $0.9 million from the sale of other properties sold in connection with the previously announced relocation of our headquarters.

       Other charges, net for the three and six months ended June 30, 2004 related primarily to the termination of an information technology infrastructure contract during the second quarter of 2004. As part of on-going cost containment initiatives, Ryder management approved and committed to a plan to transition certain outsourced information technology infrastructure services to Ryder employees. Under the terms of the agreement, Ryder was obligated to pay certain termination costs in the event of termination prior to the expiration date of 2010. In accordance with the terms of the services agreement, Ryder notified the information technology services provider of its intent to terminate the contract and recorded a charge totaling $4.8 million for contract termination costs. During the second half of 2004, we expect to incur approximately $5 million of additional costs associated with the transition of the information technology services contract expected to be completed by December 31, 2004. Cost reductions associated with the termination of this contract are expected to benefit our results starting in 2005.

2003

       During the second quarter of 2003, restructuring recoveries related primarily to employee severance and benefits recorded in prior restructuring charges that were reversed due to refinement in estimates. Other recoveries in 2003 primarily consisted of gains on sale of owned facilities identified for closure in prior restructuring charges.

       Activity related to restructuring reserves was as follows:

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       At June 30, 2004, employee terminations from prior year restructuring plans were substantially finalized. Deductions represent cash payments made during the period of $3.3 million and prior year charge reversals of $1.1 million. At June 30, 2004, outstanding restructuring obligations are generally required to be paid over the next nine months.

(N) EMPLOYEE BENEFIT PLANS

       Components of net periodic benefit cost were as follows:

       We previously disclosed in our 2003 Annual Report that we expected to contribute approximately $41 million to our pension plans during 2004. During the three months ended June 30, 2004, we made a discretionary contribution of $50 million to our U.S. qualified benefit pension plan. As of June 30, 2004, $59.9 million of global contributions have been made to our pension plans. We anticipate 2004 contributions to our pension plans will total approximately $68 million.

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(O) SEGMENT REPORTING

       Ryder’s operating segments are aggregated into reportable business segments based primarily upon similar economic characteristics, products, services and delivery methods. Ryder 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.

       Ryder’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, health and safety, information technology, 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:

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

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

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

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       The following tables set forth financial information for each of Ryder’s business segments and a reconciliation between segment NBT and earnings before income taxes and cumulative effect of change in accounting principle for the three and six months ended June 30, 2004 and 2003. In 2004, we changed our methodology of allocating sales support costs between FMS and DCC segments. Accordingly, 2003 segment NBT measures for these segments have been adjusted to provide the retroactive effect of this change. These segment results are not necessarily indicative of the results of operations that would have occurred had each segment been an independent, stand-alone entity during the periods presented.