萊德系統 (R) 2002 Q2 法說會逐字稿

During the course of the call we will of course update you on the second quarter results and will also touch on some initiative updates. Also asset management and a third quarter forecast. Before I actually turn it over there has been some sequential improvement in quarter-over-quarter comparisons. Some sectors incomes did perform better than the prior year and these with include our European operations. There has continued to be weak leasing demand and am reduction in fleet miles and these reduction in fleet miles are important both in the lease business and dedicated contract carriage because when you see a decline in revenue it may not be just contract reduction but actual miles driven and the activity on the part of our customers. Rental has continued to modestly improve and the improved utilization is on a smaller fleet and that has led to the increased revenue and margin per unit. Historically as we go into the third quarter we expect some stronger rental activity because it is the typically strongest quarter of the year for rental. One of the bright spots in the quarter was used truck sales and this was primarily driven by the internal actions of the Ryder team as taken over the last 18 to 24 months. We haven't had a real improvement in the narcotic situation but the activity done here in asset management has been a reflection of the work the team has done over the 18 to 24 months. Number of vehicles actually sold in the second quarter has increased over previous quarters and the proceeds have begun to firm up. Additionally, this is significant, the number of vehicles not earning revenue came in this quarter at a two year low which a real proof progression. We've had some loss business in dedicated contract carriage although partially offset by new business. Of the economic downturn did continue to negatively impact reference in several industries especially in supply chains, for example percent electronics, high tech communications and certainly in Argentina. The business segment did report, supply chain, after full allocation loss of 2.2 million during the second quarter. That is higher than the loss in the same quarter last year. So we feel that we've had a business of a speed bump there. But it's not all bad. The SCS revenues were sequentially better in the second quarter of 2002 than the first quarter. Segment MBP the total allocated profitability net before tax was flat when compared to the first quarter. And we did have more new substantial contracts start jumps in this quarter compared toe some others. Two of those very much already been disclosed but we don't have press releases on all 5. So you may not necessarily be aware of them. The other thing I would say about supply chain, even though as I said we took a bit of a speed bump there is a plan that we have on margin improvement. We are on course and we're going to stay the course. And I think as we've demonstrated in fleet management and asset management when you've got something that's longer term after it starts up we intend to - we intend to stick with it and we will. And finally, we've had strong cost management in all overhead areas and that continues. So I'll now turn the call over to Corky Nelson, our Chief Financial Officer and he can percent go through some more details on the numbers themselves.

Turning to page 4 you will show, you'll see the earnings calculation for the second quarter. Earnings per slayer increased. 42 percent to 57 cents in the second quarter 2002 as compared to 33 cents in the year earlier period. Our reported EPS figure of 47 cents compares very favorably with the external consensus of 43 cents. Primary drivers, Greg has touched on earlier, are favorable variance including better than anticipated asset management results, lower fixed cost, primarily interest in our leasing areas, strong rental 80 days and better results from our automotive and UK transportation. Earnings per share prior year second quarter included a 20 cent per share charge for restructuring other items. A 5 cent charge for good will amortization which was limited eliminated effective January 1, 2002 as well as a 11 cent per share one time tax benefit change in the Canadian tax law. There was no unusual or any one time items impacting this year's second quarter results. For those of you following along on the Power Point presentation of the webcast, let's turn to page 5 and briefly discuss year to date earnings per share results. Earnings per share rules before goodwill accounting changes increased 85 percent to 74 cents for the first 6 months of 2000. Up from 40 cents for the same period last year. Earnings per share in the year earlier period included, again I wanted to touch an those, a 31 share charge for restructuring, 10 cent charge for goodwill amortization which was eliminated January 1, as well as the 11 cent one time tax benefit that we previously mentioned. As we announced last month, year to date earnings per share included a 30 cent one time charge related to the change in accounting for goodwill effective January 1 of two 2000. Ryder completed the adoption for the statement of the accounting standards 142 and entitled goodwill and other intangible assets and record add noncash goodwill charge of approximately 19 million dollars, associated with our supply chain Asian operation. I want to stress that this change resulted from application of the new impairment percent methodology described in the new accounting standards and has no effect on the company's operations or focused on - focus in the Asian business initiative. Specifically, in turning to the next slide we want to compare this year's results to the previous year's second quarter consolidated numbers. The revenue or consolidated numbers revenue was down 7 percent. And pretax earnings did increase 125 percent. As in previous quarters revenue was still down quarter over quarter due to weak economic conditions. However, we did see some sequential improvement in the rate of decline. The second quarter 7 percent decline in quarter-over-quarter revenue is better than the 10 percent decline we experienced in the first quarter of this year. During the second quarter we did see quarter-over-quarter revenue improvement in our UK leasing and logistics operations and our US automotive businesses. Rental utilization improvement, used truck sales volume increased and proceeds firmed. Fuel consumption continued to be down, lease was soft, and product supply chain solutions customers was down. Earnings performance was once again driven by the team's commitment to the cost management and process improvement initiatives well under way. These positive earnings results helped mitigate the negative impact of reduced US pension benefits of approximately 6.4 million of a quarter-over-quarter basis. The US pension expense for the quarter was 3.6 million versus pension income of 2.8 million the second quarter of last year. Our corporate effective tax rate for the quarter was 36.5 percent compared to the 4.2 percent in the prior year. And again as a reminder, last year's second quarter percent tax rate was exceptionally low due to the one time benefit gain from the change in the Canadian tax legislation. Once again as you recall, the Canadian tax legislation reduce the top tax rate for certain corporations from 28 to 21 percent over a staggered period of time. We were able to immediately reduce a deferred tax liability of approximately 6.8 million and took this reduction to the income statement in the form of a reduced tax rate. Finally on this page and finishing up, I should point out that we did have an increase in outstanding shares from 60.7 million to 63 million shares due in part by the stock price - sock options exercised and the increase the number of options that are currently in the money as a result of the stock price appreciation. For those that are following again on the Power Point presentation, page 7 depicts the second quarter performance in our various business segments. Again fleet management solutions, supply chain solutions and our dedicated contract carriage businesses. As we previously indicated we have gone to a fully allocated presentation on business segment earnings and will no longer report on contribution margin basis. Each business reflects the all cost associated with operation the business including an allocation of central support services directly attributed to that business. As Greg's mentioned in our fleet management area, we saw decline in US leasing and rental and other sales and service activities, and in fuel: UK operations actually saw a marked improvement primarily driven bill increase in our higher value DCC services. All revenue - overall revenue decline 7 percent quarter-over-quarter and dry revenue was down to a lesser extent of 4 percent. Sequentially imposing from the prior quarters revenue declines comparisons were 10 and 6 percent respectively. US rental utilization was close to 74 for the quarter up from the 70 in the prior year and significantly up from the first quarter of this year which was around 64 percent. We are encouraged by this increase in revenue and margin dollars per unit and have instituted price increase he is in areas experiencing strong demand. The fleet has been intentionally downsized as Greg touched on earlier to meet current demands driving better utilization and leading to hire margin dollars on a unit basis. The company's worldwide fleet is down some 9 percent or a little over 3800 units. And this is - was a drop - was compared to the second quarter of last year. Fuel was also down some 17 percent. Primarily driven by lower fuel price, approximately 17 cents per gallon, compared to the prior year's second quarter. And less volume. Or some 6.5 million gallons less as compared to previous year. We also saw revenue contraction on our lease and product maintenance lines primarily due to fewer miles driven. Even though reference were down some 7 percent segment MBT improved by 9 percent as a result of the improved rental 80 days, reduce the asset management cost, good UK operating results, continued focus on cost management activities, and a decrease in interest rate expense resulted from lower interest rates, less debt. These positive factors more than offset the quarter-over-quarter fleet management solutions pension expense of some 5.9 million. Touching quickly on the supply chain side, revenues decline due to volume reductions primarily in electronics, high tech and telecommunications sector, and to a lesser extent on the cancellation of certain unprofitable business in prior periods. Revenue also was negatively impacted by currency devaluation and economic slow down in Argentina. However, as Greg previously mentioned revenue is sequentially imposing as we bring on new contracts helping to offset slower volumes at many of our customer accounts and lost business. Segment MBT loss was also 1.6 million worse that be the second quarter of 2001. The year-over-year decline for the quarter was due primarily to startup costs associated with several new and encouraging FCC supply chain solution contracts. Two that I can mention that are Phillips and Honda. There are others that we haven't publicly disclosed yet. And the cost we also had improvements in cost margin improvement initiatives. These factors offset improved operation performance notice auto sector, our ongoing cost of margin improvement initiatives. I also want to emphasize once again that we are seeing a real improvement to our bottom line as a result of the margin improvement process. Currently, helping us in the short term offset US volume declines in the difficult international economic environments. More importantly we are building a foundation for profitable account and in the process they will ensure long-term profitable returns. In our dedicated contract carriage, quickly, we saw a 3 percent decline in quarter-over-quarter reference also a result of slower volumes and some lost business. The second quarter year owner year decline represents a lower rate of decline than the 6 percent experienced in the first quarter. Even though revenue was down year-over-year, we are encouraged by the new business coming on board. The segment MBT was down some 9 percent or approximately $800,000 primarily to sales and marketing, which offset operational improvements. Touching quickly on the central support area. Unallocated of central support costs was flats quarter-over-quarter. In total central support costs was down some 6 percent from 61.8 million in the second quarter of 2001 to 58.3 million the second quarter of 2002 due primarily to the continued focus which the team on cost management activities and again across all departments in the organization. Finishing up I again want to emphasize that we instituted in a prior quarter goodwill amortization as I've indicated, prior year goodwill amortization is now treat as a corporate rather than a segment expense to facilitate comparison and segment operating results. We feel that this more will support and keep in alignment the operating results on a period to period basis. And I'll have more discussion on this shortly. Page eight depicted year-over-year performance on various business seeing men's in oh a consolidated basis revenue for the first half of 2002 was 2.4 billion down 8 percent from the 2.6 billion in the same period of 2001. Revenue was down in all business segments. On a year to denominator basis both fleet management solution, MBT are improved despite the year-over-year pension expense of approximately 12 million dollars, the fleet management solutions grouch and the 9 percent revenue decline,. Pickup in rental utilization and the focus on asset management activities including used truck sales and controlling the in flow and outflow of vehicles and I should also note the decrease in interest expense has enabled the business segment to produce year-over-year improvements. Focused margin improvement initiatives, volume increases in the. Automotive sector and the purchasing of unprofitable accounts has enabled the supply chain business seeing men to improve its year-over-year losses by some 53 percent despite a 10 percent revenue decline. Dedicated contract carriage is down some 6 million over on a year-over-year basis. On a previous earnings, this decline is due to the decrease in insurance costs experienced during the first quarter and as just noted previously an increase in the sales and marketing expense activities. On a consolidate basis, earnings before the cumulative effect in the change in accounting principles overall is up 93 percent. Page 9 quickly depicts the capital expenditures for the second quarter. We were down some 13 percent. Quarter-over-quarter basis and 35 percent year to date. As a result, as - as I previously discussed. We do not foresee the full year capital expenditures to exceed 580 million which is basically our maintenance and replacement levels for required capital. As we've also mentioned previously, we do anticipate normal capital investments spending to be in the 700 to 900 million dollar range in a more stabilized economic environment. Turning to the next page, we present a very encouraging, continued very encouraging trend of our free cash flow portion. Company realize the 191 million of 43 cash flow year to date basis based on our preliminary consolidations as compared to a negative free cash flow of 83 million in the previous year's period. We remain committed to improving free cash flow generated in the business about monitor this very closely. Our full year plan stands at 281 million and I should note this number is increased by some 60 million as in the previous presentation, due to the inclusion of the collection of direct financed leases the number is appropriate to add back, in our opinion, to free cash flow since we included the original asset purchase as deduction from 43 cash flow in the capital expenditure line. Page 11 provides a graphic depiction of the company's current and historical debt to equity ratios. For the most current quarter it is 122 percent, total obligations excluding securitization is 167 percent, and total obligations including securitization is 197 percent. As you can see, we continue to work on the balance sheet and reduce our overall debt and improve our debt to equity numbers and we're showing again year-over-year improvement in that area. To finally conclude I want to again reemphasize as we mentioned earlier, during the; of Ryder completed the adoption of the statement for financial accounting standards 142. Goodwill and opts accounting intangible assets and recorded again, a one time noncash goodwill impairment charge of approximately 19 million dollars. Again associated with the Asian operation. This change or this charge resulted from application of the new impairment methodology under the any standards and has no effects on the company's operations or its commitment to the Asian operation. The new accounting standards also eliminates the amortization of goodwill effective January 1, 2002. We will now be reporting 2001 goodwill amortization as a corporate rather than a segment sense expense to facilitate comparison on segment operating results. At this point I would like to turn the call back to Greg and he will take us through the update on our key initiatives and asset management overview.

Thanks. On the key initiatives us just to give you a status as you follow on page 14, this has been a focus that we've had for the last several years. And that attention to cost management and process improvements initiatives really continues. Our actual benefits from the 2001 carryover initiatives are on plan. The 2002 new initiatives added an incremental 10 million dollars in pretax earnings. When we laid out our plan for 2002 we talked about a pretax goal of 58 to 65 million dollars that we were looking to gain on the bottom line for the year 2002. Year to date, we've realized benefits of about that 29 million dollars so about half of it. On pace pretty much for what we're trying to accomplish in those initiative. The second point about the reignition of profitable revenue growth is really an important point. The basis for many of our cost management and process changes were to put us in a better position to be competitive for business in the future. And we do see two sources for revenue growth in the days ahead. One obviously will come when the economy reverses but the other is we've been assessing some new potential product and service offerings. We're looking at a new application in fleet services maintenance and transportation math and while we're not in a position to propose or discuss anything specifically, we are looking at these enhanced revenue opportunities because we know that this reignition of the profitable revenue growth with this improved costs basis is fairly important to us. I want to touch on asset management. I would say to begin that asset management and the way that we handle it is probably one the biggest changes and the biggest pluses in the way that Ryder now does business. The very fact of centralization and coordination of asset centrally has made a huge difference in our ability to be somewhat successful and get through this very difficult period. In the second quarter, the total number of nonrevenue earning equipment of 8,691 is at a 42 low. No longer earning vehicles together, that's the best performance in 3 and a half years. The net yet earning vehicles are at 1,068 but the no longer earning vehicles are at 7623 so that is a two year low. That's really significant in a tough environment. This is not so much really a significant sea change in the market and the industry, but the effect that change of chance we've made and how we process and handle our assets has led to that improvement. There are 4190 of those 7600 units held for sale at the used truck center, again that is big improvement from the year end number. We ended the debts did he say 31st, 2001 with 5215 vehicles on the lot. Now we've got 4190. So for those of you who have got the Power Point presentation later you can turn to page 25 and see the progress on that graph. The other thing I would mention is its that the used truck sales proceeds are firming up and the number of vehicles sold is also moving up positively. In 2002 our year to date number of used vehicles sold was 7,443. And that compares to 6992 in the last 6 months of last year in 2001. So that's a 20 percent increase in the number of units that we have moved while we've also firmed up some pricing. On the next page, to continue on the asset management, these graphs I think show the huge impact from our process changes and not just - not so much from market improvement. It's easy for you to know, if you've got the graph in front of you, for those of you just list thing there are 4 categories, redeployments, tractor extensions, early replacements, and early termination,. Of those first 3, clearly if we're increasing redeployments and extensions and reduces replacements that's obviously even an expected inverse relationship and those focused efforts have really curtailed the in flow of vehicles into the used truck sales centers. Redeployments compared to the prior year increased 19 percent. Tractor extensions increased 165 percent. And early replacements were reduced by another 32 percent year-over-year. So the trend since we've been measuring this over the last three years, redeployments have doubled, tractor extensions have quadrupled and that we've at one/sixth of the replacements Wednesdays 3 years ago. That's why you get the improvement on the asset performance mentioned on the other sheets. The final category the early terminations, a good portion of these also are a reflextion of economic conditions. Because early turn-ins, early terminations as opposed to early replacements, even reflects a business that is slowed down, closing and may have assets turned in and that has improved by 27 percent compared to the figures last year. The last subject that I want to cover is a forecast for the third quarter, second half of the year. As we mentioned, listed in our press release this morning, we are forecasting third quarter 48 to 50 cents a share. If you'll recall from the last earnings call, we had talked about a range of 98 cents to a 1.02 for the last half of the year or about 50 cents a quarter. We feel relatively okay with the third quarter estimate. Again around 50 cents base that's the closest quarter. That's the one we've got the most visibility to. We don't see any reason at this point to really change the fourth quarter because there is a lot of uncertainty out there. And to go out another quarter further in this uncertain environment and to start predicting anything particularly stronger, we think is probably not appropriate. So we're sort of sticking with where we were 00:29:24 and we're solidifying the third quarter estimate.

I am shortly going to open the lines for phone calls. I want to remind you that if you have a question, please hit star 1, and you'll be placed in the queue. Before we go to the new live questions, as usual, we have a number of questions that were received prior to today. And there are three of them. And let me begin with the first one. In the meantime, if you want to be placed in queue, again hit star 1. The first question, we've had a number of questions prior to this call in light of the disclosures made recently on an earnings call by one the truckload carriers and specifically we were asked whether any of Ryder's sales and lease back transactions are similar to the one that was recently disclosed by that TL carrier and more importantly could we discuss our sale lease back transactions in general which we are pleased to do. So let me turn this over to Corky Nelson and ask him to cover that.

In preparing an answer for the question, we took a bit of time and went through and reviewed financial statement public disclosure statements on the carrier involved, unfortunately there simply isn't enough information in the public for us to be able to really determine whether there's any related connection or parallel, any parallel activity between that carrier and our transactions that we've done. But, let me comment on this. And I'll go through and I'll tell you exactly what we've done and we've previously discussed this. As we skies the during the recent earnings calls and we disclose in our annual reports we generally enter into the sale lease back transactions from time to time. Principally to lower overall costs of funding, diversify our sources the funding and diversify the types of funding instruments that we use and do. We entered into these transactions in the ordinary course of business for business purposes and have used them and to fund our activity in our business going back in the early eighties. Since sale lease backs are not generic transactions but rather take many different forms, as an example, we under a broad category sale lease backs are those that are done with a particular transactions with banks as well as those we do through the securitization transaction basis. And they're quite different. Sale leagues backs often allow us to lower our overall cost of funding bypassing back the depreciation benefits under the tax laws to those that can use them. In exchange for reduced cost of borrowing to Ryder. Specifically, since Ryder is in a net operating loss position and historically been an AMT tax pair, we can't use all the depreciation benefits available to us under the tax law. Certain types of sales lease transaction,, lease back transactions allow us to monetize the value of the accelerated depreciation benefits that would be available to - for income tax purposes by transferring it to a third-party that can use those benefits in exchange for a lower cost above capital to Ryder. We have provided substantial disclosure on all these types of transactions. In our public reported documents and will continue to keep you fully informed. In structuring these transactions keep in minds that we are highly mind testimony of and the sensitivity to tax and GAAP requirements. We understand the IRS lease back transactions can give rice to abuse. The IRS has reviewed some of our transactions in the past as parts of their normal course every audit. And we expect the IRS to continue to review our sales lease back transactions in the future. And just for a bit of perspective on this, we are a large case tax pair for which the IRS regularly conduct examinations or reviews of each tax year. So in essence we are always being audited. Given that, we recognize that the position that the position we take on these matters will have to stand up to the light of day in a tax IRS review. And that we establish our tax position with that in mind. We believe all the sale lease back transactions comply with the tax laws that are in place and that the taxes accrued on the balance sheet fairly represent the amounts of tax, future tax liability due. We will continue to fully inform you of our activities in the sale lease back funding transaction activities in the future and any considerations which may arise in connection with them.

Second question is one that's sorts of a popular notion going around right now and again I'll ask Mr. Nelson to answer this one, what's your position on the expensing of stock options?

Thanks, Greg. Obviously, in the last several weeks, there's been a lot of discussion on the practices of expensing employee stock options and without getting into the literature on the subject, there are a couple of different camps such as the IASB, that's the international accounting standards board who are suggesting that we go to an expense option approach. The (inaudible) haven't come out with any clear position on this. I should point out, as Ryder does it's predominant current practice to use the intrinsic value method of measurement and that that is being done, has been done by Ryder for a number of years. There is significant debate over and surrounding the expensing of employee stock options. And given that lack of clarity, we feel it's only appropriate we stay the course of our present position. As a reminder, Ryder calculates the option expense you understand the widely accepted black SHOLES, method, typically it ranges from 5 too 7 percent on any unusual items, again this is all available in the annual report footnotes.

The third question has to do with the commercial rental unit and really three parts to it. Given the current capacity and pricing in the commercial rental units, how much incremental analyzed revenue can be generated to a more normal 80 days level. What percent of this incremental revenue could fall to pretax income. And third, what is the outlook for pricing in commercial rental? And for that I'll turn it over to Tracy Leinbach in fleet management.

Thanks, Greg. As far as utilization we reported utilization just over 73 percent. As we look back in our business our last peak utilization was in the high seventies, I think it was around 78 percent. Based on the new processes we put (inaudible) around the asset management area. Our goal for overall fleet utilization is notice low eighties. We think we can get there. The other part of the formula is that is pricing and we are up pricing in several markets today. As corky alluded to earlier. There are. We are of being suck six in select markets in uppricing and we're able to move trucks around marketplace, both in utilization ask rate. That combination every utilization and uppricing is driving our revenue per unit which is really how we want to run this business. Because that in the end will improve our return on the assets that we have employed in rentals. So as we look to rental percent growth it will be driven by increasing our revenue per unit. Not so much by adding trucks to our fleet. And so I think it's fair to say that out of that type of rental growth, we'll get significant earnings leverage. We haven't disclosed leverage byproduct line but I think in previous calls we did disclose other than a blended, use all our product lines, we look at what earnings leverage on this revenue between 30 and 50 percent. And I will say that rental is actually above that range. And in terms of earnings leverage. Our highest earnings leverage product line. So again, with that strategy of driving ARPU, we's would expect good earnings leverage as we increase revenue in that area.

All right thanks. We'll open the line now for the calls in the queue.

Our first question comes from Gary (inaudible) of Credit Suisse First Boston. Mr. (inaudible) you may ask your question.

Sorry about that. Couple of questions if I could. Could we first start with the supply chain side of the house. And Greg you talked about a bump or two in the road. Can you tell us about that. Then I've got a question coming back on the fleets management side.

Yeah. I think ideally we would rather have performed at least as well as we did in the second quarter of 2001. We were flat with the first quarter 2002 in which we had 2.2 million dollars loss each quarter and our goal here and we work in the margin improvement is to get that to break-even and profitability as quickly as possible. I don't know if you were right on at the starts of the call, but I did mention that we still have plan in place. We're going to stick to that plan. We're going to say the course on what we're working on in margin improvement we think it's working and we think it will pick up. And just as we have in the other segments of the business, these are long-term activities. They don't always gets turned around in a quarter or 2 oh. But that's what we expect to happen in supply chain over time as we've done with the assets management and fleet management. The other, probably the exceptional items are that - in every quarter we do have startup costs and they usually are in the results and built in there and a part of the normal way of doing business. It just so happened (inaudible) quarters, because we really have had about five substantial new pieces of business in the pipeline at various stages that a larger portion of supply chain costs have hit (inaudible) particular quarter. Now, over the longer term, obviously, those pieces of new business will pay off and I think that those are encouraging signs for our work in the market operation. But (inaudible) period, it just hit a little bit more than normal and gene is here and if he would like to elaborate any further I'll turn it to him.

Only to say, what to reinforce what Greg has said. We made some investments this quarter that are going to pay back over time (inaudible) margin improvement. We remain committed to margin improvement across all segments the business we're nut just not taking on anything not profitable for us and we're getting rid of that. I think those commitments we've made you'll continue to see. While we're not reporting contributions margins now, because we're rightly so, during the fully allocated, the trends you are up in those areas. Once those margins get to the point where we can cover these costs then we'll do all right. Just a matter of the trends lines going the right away.

When do you think that will happen.

We're projecting not in the forecast, full forecast but as Greg said U third quarter we're holding to our forecast. You can assume the supply chain contributing is to part of that.

And coming back, if I could on the fleet management side of the house, Greg, could you talk a little bit more about the used market? You're seeing the used market firm up a little bit. What kind of capacity to move units faster do you have in your retail outlets? If we see a little bit further uptick can that process really speed up. How much of this is economy, no one - very few people want a new '02 engine

Sure. A few pieces on all of it. I would say in general, would not be quite true yet to say there's a real uptick in the overall market for used equipment. We've performed better than the overall market in used equipment but I think that's been based on our own activity and asset management activity. There's probably maybe we've not quite seen it yet, but assume these diesel emission tests continues to not look all that positive, meaning that running capabilities, how hot they run, how effective and efficient they are, the added costs to a new vehicle, and the reduced fuel efficiency, that over time, is it looks like those new vehicles may not perform. That may add some impetus to the used truck market. The third point I think I would add, you're talking about our upside opportunity in moving across our retail outlets, one of the things that we do today that didn't even happen probably six-plus months ago or in the former history of Ryder is the movement of available rental units to the markets that best can deploy them. Before when everything was local, everything was localized, assets came out and assets went into the local markets and they were attempted to be moved. Now, with our central asset management approach as well as our intranet capability, electronically in our business, I think last quarter we relocated something like 220 units to rental sites, move and getting a better price, than where they were sitting previously. Tracy do you have anything to add.

The only thing, from the used truck sides we try to finds the right balance between price and (inaudible) with like where we are in terms of the number of units we're selling and prices added which we're selling them. Obviously we're trying to push pricing up in the marketplaces. But we do have in terms of capacity, we have all wholesale and export lever that we pull. We've never relied on selling a lot of trucks offshore but we do have some capability there but we usually take big hits on pricing there. We don't like to do that if we don't have to. Right now we're not having to do that because we have the right type of volumes and pricing out of our retail efforts. I think the real key for us, and not to take anything away from the progress we've made on the used truck side and the work that's been con by all those people, but has been in keeping - in stopping the inflow trucks to the UTC, and that's through the reduction of early replacements, early termination, that's through all of the tractor extensions, the redeployments, the moving rental trucks around and keeping those earning revenue. That probably is the most important lever that we've been pulling and will continue to pull in terms of managing our assets and dealing with those.

Thank you.

Thank you.

Our next question comes from Ed Wolfe of Bear Stearns.

Yeah. High guys. Can you talk a little bit about trends in July? I think the market its starting to feel like maybe there's a double dip coming. Are you seeing any sense of the things you're talking about in commercial rental that are imposing slow down at all in July?

Ed, I think it's probably too soon to have anything definitive there. I've been visiting locations, Greg was out with me, we continue to see a pickup in utilization. Would he saw that through June and in the early parts of July. It's something we watch closer. But I think it's too soon to be definitive. As Greg said earlier, we would expect seasonally the third quarter to be strong. Fortunately, our actions have been around driving utilization ask pricing. And so we have the assets moving in the right direction which is even downsizing. If that were happening in the marketplace, the actions we're taking be are the right action, but I think it's too soon to say. But we haven't - certainly I have not seen a red flag in our business. But we read certainly the same things you read and as Greg side, we're cautious about the outlook as we look at our customer base and what they're doing in their business.

If Tracy were 80 days.

If 80 days was 73, 74 percent for the quarter, sequentially, into the first couple of weeks of July are we now at the higher seventies? Are we above that right now.

We have to get through the fourth of July holiday but we would expect the third quarter to be higher.

That makes essential. In terms of commercial rental margins whether you want to call them contribution margins or pretax margins, historically they've had a big swing with the economy. You talked about this having more leverage than any other piece. Can you give us a sense where are margins now versus where they were a year ago.

Margins as a percent of revenue are higher. Margin dollars, total margin dollars for rental are flat to up. And on a smaller asset base, that means our returns margin dollar returns on our assets employed there are up I think more than modestly. That's something we want to continue to drive. We have grown this business, some of the leverage we've demonstrated in the past has been at the margin dollar line but not a return on asset line. So we're going to continue to push on that RPU will drive up revenue, margin dollars and really drive up the return.

Historically can operating margins getting to the 20 percent margin range (inaudible) business?

Well, we look at - I was going to say, percent vehicle margins and we share a lot of - we commingle a lot of our overheads with our leased line and lot of other things. We look at a growth vehicle margin and I don't know, you might want to go offline in terms of your 20 percent to try to walk you through that. but we kind of on the growth vehicle margin line, we can see that swing substantially. We can see that swing from cycle to cycle as much as 15 points.

Where are you in that cycle right now? If you have a swing of 15 percent, are you in the middle of it or are you low ends still? Where are you?

We're moving up. And I would say we're past - we're on the second half of that swing.

Greg, bigger pictures in terms of not just commercial rentals but leasings. As you start to take out vehicles its feels like we're going into a period where capacity is going to be tighter. Last time capacity got very tight a lot of the truckload carriers were running around were Ryder tractors and trailers on the bark. There a way to ramp back up the fleet if you need to? What are your thought process are for the fleet both leasing and commercial will be a year or two years from now.

That's really a hard question. We haven't gotten to that level of detail for a budget planning. We'll be - we'll be deep into our planning for 2003 soon. We try to look ahead a little bit further. Those not been our issue. Our issue now has been to absorb returning equipment and to try to minimize returning equipment. And I think our focus for awhile still has to be on managing true a difficult industry environment. And I think that we're still probably 12 to 18 months away from probably taking a big sigh of relief and figuring we got through a difficult period. I don't think - I don't have a reason yet to believe we've got concern over equipment short tanks for quite sometime. Think that will still be the least of our concerns for awhile. Everyone if they should, I think the OEMs and others have plenty of capacity to build if they need to because they have really ramped down. So I think in the short term, if there's - if there's a crunch we can do something on price. Then for the long-term, I don't think there's any problems.

Have you tested the engines? Would you even try the new engines at some point this year?

We do do testing. Tracy do you want to commented.

Yeah. As I think we disclosed earlier. We did secure much (inaudible) based on our customer needs and projected new business needs. We did not make a speculative buy there. we've been testing the new engines. As go into the beginning of next year, we're going to be putting more of these new engines into that operation so we can get more thorough testing. We're going to push on extending leases. We think there's a lot of room left and particularly tractor lives. Think long-term we still have not determined H how long it is in a we want to move out those tractor lives. We've done it out of necessity (inaudible) environment. But we know we have the maintenance capabilities to run these trucks a lot longer ask to give customers the reliability they need to also to improve owner rush. I think that is, we look at capacity long-term, that's a piece of the equation, that we still have some more work to do. But as Greg said, right now we're doing some things out of necessity ask we need to go through some of those things object a longer term basis.

You sold 7400 trucks. Should that number be fairly consistent with the number of vehicles going forward or sell more or less than that going forward.

I think that would be consistent.

okay. Thanks a lot, everybody, for your time.

Our next question comes from Mike Minelli of Morgan Stanley.

A quick question for Tracy following up on the used truck issue. I was trying to get a better feel for given the declines we've seen on the used truck centers right now, if you guys were at the point, the volumes are down to a more manageable level and you can try to focus on raising the pricing of these used trucks or if you would still like to see further volume declines in the used truck centers before you focus on getting a higher sale price for each of these equipment.

That's a good question, Mike. I would say we've started. Based on the declines we have, we have already started in certain vehicle types to push pricing up. I think owner inventories are now at the 4200 level. Ideally we would like to have no more than three months inventory at the UTC. We still would like to see those inventories down another 5 or 600 units. But certain class, we're probably where we want to be and starting to push pricing up in those areas.

Could you give us any details in on which classes you think are getting the more manageable levels.

We've certainly had firming on the tractor, on the day cab area, sleepers, we still watch very closer because we have to worry about our volumes there. Although our sleeper inventories have been the problem issues. That inventory is down significantly. And then in the straight truck category, the lighter side, we still have a good inventory level in lighter side. Meaning that we have a high inventory level there. The medium and heavy side we probably have better pricing.

Really does vary. Just like in rental, we actually look at moving used trucks around too depending on market difference.

I got a related question for Corky. Given the strong free cash flow and what's going on with the stock market, if there were any plans to give a cash infusion to the pension just hopefully reduce future liabilities at this point that was undecided.

We continuing to through and review the actuarial work and there's obviously requirements for what you need to infuse. I to step back knowing where the market is today looking at where it might end up by the end of the year, there's going to be some capacity or opportunity to put money into the pension plan to get its funding level to the proper level. As I think we also noted at the last call or maybe the call before last, we were and acted very conservatively and had reduce the pension returns assumptions we used and also reduced the discount rates even before we went into this kind of recent month and a half lower. So we're manage that quite closely as well. It is a big concern because it's affecting everyone in corporate America.

Okay. Great. Thanks.

Our next question comes from Greg Burns of J.P. Morgan.

Most of my questions have been answered. Two, if I could. On the supply chains solutions units. I'm curious if you have an expectation long-term of what kind of margins you think the business can support given your initiatives. And then maybe shorter term, where you think a range of where you think margins can be in 2003. The reason I'm asking is, just six quarters ago, the unit was earning 19 million or so. It has come down quite a bit, obviously. And just trying to understand, is this something that maybe there's more operating leverage in the supply chain business than we thought or just sorts every walk me through. How quickly things can turn when these initiatives take hold.

I'm going to let gene answer most of that. When you're talking about six quarters ago you're probably referring to contribution margin.

Right.

We can compare that. Now what we're reporting is on a fully allocated basis. Just with that clarification I'll turn it over to Gene.

Thanks, Greg. As I said before, we continue to be fully committed to this margin improvement and indeed to earning profit after everything has been fully allocated. We're on that course. As we set out a couple of years ago to transform this business, we had a full other strategies I think are important, won us operations excellence, we wanted to be known as the highest qualities provider of logistic services and not necessarily the largest. High value added work for excellent companies. We've been targeting those kind of companies we want to work for. That as you know doesn't happen overnight. That's why the timing question is so important to you as well as us. But these transitions we're going through getting the business in a foundation, as corky said for profitable growth and Greg said is taking a longer time than we hoped. On the other hand we're seeing improvement already. We're already seeing some gains in the operations on that and this will continue to go up on over the next several quarters. That's an important thing. Of the profitable growth area, we've been investing some in new products as Greg said will continue to keep us at that high level of value added work. New business we take on ought to be higher valued or higher margin. What we've got to do is keep these trend lines going in the right direction, watch the clock, when they do across cross, we're earning on a fully allocated basis. Can, your point, can we do it, yes, we believe we can? Just take time.

Just a follow-up on a fully allocated basis, what kind of margins or returns do you think looking at your current business mix adjusting for somewhat of a cyclical call downturn, what kind of fully allocated margin do you believe based on your experience the business will sport.

Again, contribution pretax margin, 8 percent is a rough rule of thumb about this kind of business, we think we can get up into the double digits for sure. Fully allocated basis we'll be earning.

It would appear on a fully allocated basis somewhere in the 5 to 7 range.

I assume given where you are now, that's probably unrealistic in actuality?

It's unrealistic in 2002. We're not sure enough yet either because of economic factors or because of our own plaque and budgeting and assessment on whether that will be true for 2003.

Okay. Great. Just a follow-up on the P and L impact, Corky, of the sales, what was the gain or loss versus a year ago on the equipment sales?

I think it was about 4 million.

4 million gain.

Yes.

Do you know what it was a year ago.

I think it was around 4 million as well as.

All right. Thank you.

Our final question comes from Andrew Fineman of Meridian Asset Management.

Can you tell me, I think in the first quarter you didn't do any sale lease backs. I think it was zero. Did you do any in the second quarter.

No.

So that's zero again. And the - can you give me what the net debts was at the ends the quarter? I know in the slide on page 11 you gave some gross debt figures but what I'm looking for is net on balance sheet debt and the amount of outstanding receivables sold at the end the quarters. So the comparable - go ahead.

The net on balance sheet debt is approximately 1.5 billion.

Okay. 1.5 billion.

Yes.

Okay. So that would mean maybe you had cash of around 54 million because 1.553 is what you show on the slide there. And then how about receivables sold?

About 110 million.

So that would be down from the ends the second quarter - the previous quarter where it was 165.

That's correct.

Okay. So then, that would demonstrate that your - that picture has improved more than what page 11 indicates because you have reduced the receivables facility and you also didn't do any more securitizations.

That's correct.

And the number of shares, you said 63 million was the average. Is there any chance you know what the end the quarter fully diluted shares was?

I'm not sure -

Well, when I calculate enterprise value, you know. If you don't have it, that's all right. And then since you took that goodwill writeoff, for this year, I had been using depreciation net of gains on sale of 530 million. Should I adjust that?

Ask the question again.

Well, you know, for the depreciation net of gains, that's the way you report it, I've been using 530 million for this year. The question is whether I need to change that now that you - I don't know if there was any goodwill amortization in there anyway.

No.

So that number stays the same.

Yes.

And in logistics, the only thing I don't understand - why do the new contracts bring the profit counsel? It would seem, that under matching principles you would capitalize things that are going to be recouped over the course of a contract, so that it seems to me if you're getting hurt in the income then there's something wrong with the matching. If you have five new contracts and that's a penalty. I guess I don't understand where it comes from. What are you spending money on these new contracts that you had to expense right away?

Andrew, it's gene. Good question. What happens (inaudible) business, there's startup period, anywhere from 4 to sometimes 9 or ten months, getting everything ready to take over a complicated operation,. These five startups that Greg and cork can I mentioned of course complex. So it's taken some time. It's basically a timing issue there. we're spending money to gets ready so when we take over in terms of switch to go live, then we start earning the returns that we expected. So there's an expense getting them started up and getting them to work the weigh they should be. That's what happened.

The prime categories that you can share for Andrew.

Technology, getting all the people trained in place, getting the processes set up, because we have to operate better than the client that we take over from. Everything we bring to a new startup has to be put in place, trained and ready to go so from day one when we take over, there's no blip in the operation.

I see. When do they go live.

As soon as they're ready. And these five basically except for one which is going live as we speak, have gone live and they'll start earning the revenues that we expect and the earnings we expect as of actually as of July.

Andrew, going back to your earlier question on the actual shares, that number is 60 - 62.6 million.

Okay. Thank you. And then the last thing I wanted to ask was in regard to capital costs in general, whether you are finding ways to - you're in a tough boat because you're providing capital and your cost of capital and your competing against other capital providers who are triple A credits. I guess when rates are down that's not such a big deal but when rates go up it could be. Have you been thinking about alternative ways to - in the past you've talked about, kind of side stepping the capital provision function to somebody else and doing everything else. Is that something you're still exploring.

We continue to look and exercise and review all options and alternatives to funding ourselves cost effectively. We touched on earlier in the conversation sale leagues barracks. We can get an effective low rate there because we don't use the benefit, can't use the tax benefit and we can monetize that through a reduced effective interest rate when we use someone elses involvement in helping us fund those for our general business. We continue to look at securitization. All those markets are markets we go to including the all of our receivables to optimize the cost of our borrowed capital and we'll continue to look a to optimize that all the time. That includes using other sources of money to support our business initiatives to finance it.

Okay. Have you got any quite a few target for what your debt is going to be by the end the year, say total obligations including securitization. You have 2 billion-512. Have you thought whether that's going to be lower or higher by how much?

It looks like on the graph on page 11 it's slightly lower. The plan for the year is I think a billion-6. I think we disclosed that.

What's a billion-6?

The total balance sheet debt.

Right. Okay. All right. Thanks very much.

All right. Thank you.

Thank you.

That concludes the question and answer session. I would like to hand the conference over to Mr. Greg Swienton.

I think we've taken every call in queue. We've gone just a little bit overtime. Thank you all for participating. Appreciate it. Have a good day.

Once again, thank you for attending today's 01:09:43 conference call. You may all disconnect at this time.