萊德系統 (R) 2002 Q4 法說會逐字稿

Good morning, and welcome to Ryder's fourth quarter 2002 earnings release. All lines will be in a listen-only mode until after today's presentation.

At the request of Ryder, today's call is being tape recorded. I would like to introduce Mr. Bob Brunn director of investor relations for Ryder. Mr. Brunn, you may begin.

Thank you. And welcome to Ryder's 4th Quarter 2002 earnings conference call. We would like to begin with a reminder that in this presentation you will hear some forward looking statements within the meaning of the private Securities Litigation Reform Act of 1965.

These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to changes in economic business, competitive market, political, and regulatory factors.

More detailed information about these factors is contained in this morning's earnings release and in Ryder's filings with the Securities and Exchange Commission.

Presenting on the call today are Greg Swienton, Chairman, President, and Chief Executive Officer; and Corliss Nelson Senior Executive Vice President and Chief Financial Officer. Additional, Tracy Lienbach, Executive Vice President of Fleet Management Solutions and Tony Signellia, EVP of US Supply Chain Solutions, will be available to answer questions you may have at the conclusion of our presentation. I would now like to turn the call over to Greg.

Thanks very much, Bob, and welcome to all of you. As we have done in previous calls we'll try to keep our comments to about 20 or 25 minutes and then have the bulk of the remaining time available for questions. And as Bob indicated the primary purpose of today's call is to discuss our 4th Quarter results, as you also may know and is recorded separately on a web cast, we've already had our expectations and business plan for 2003, and that was done in December.

So what we will cover this morning are our 4th Quarter results, some qualitative background, as well as the numbers, give you an update on key initiatives, touch on the important area of asset management as an update and finally be able to take all of the questions that you've either provided or will be calling in. On page four, as a 4th Quarter results overview, earnings per diluted share for the 4th Quarter were 52 cents, as compared to break-even in the prior-year period, and Corky will provide considerable more detail on the numbers in a moment.

That's a little bit stronger than we anticipated as we closed the year, and that does reflect 58 cents of earnings per share prior to some restructuring that we have had for a small reduction in force. In terms of revenue, I'd say that we still see softness in most of the business segment.

That reflects a lot of the slow economic conditions that we have seen both domestically and internationally. Many customers are still remaining hesitant to commit to long-term contracts. We also experienced some volume reductions within some sectors of our Supply Chain Solutions business.

We expect revenue is going to remain soft until the economy shows some consistent and sustained improvement, and, of course, we have the overhang of war with us, so in spite of that softness we still were encouraged by some positive revenue indicators, for example, commercial rental revenue increased. And it was not just margin improvement and utilization improvement. We actually had a rental revenue increase for the first time in ten quarters. Additionally, we saw continued improvement in our European operations and in U.S. automotive logistics.

There's soft demand in the U.S. leasing product line and that continued into the 4th Quarter. Year-over-year revenue comparisons were also negatively impacted by reduced transportation miles and some weakness in let leasing sales. Some customers also still doing some down-sizing in this environment.

I think it's in this area where we specifically have seen the caution or the unwillingness on the part of many customers to make long-term leasing decisions. As I said a little bit earlier, the commercial rental revenues showed really encouraging improvements. We've had higher rental utilization on a smaller fleet leading to both increased revenue and margin. Asset management continues to be a high point and performed well again in the quarter.

Our fleet achieved the lowest level of non-revenue earning equipment since going back to December 1998, so these results were really driven by the team's focus on increasing use truck sales activity, redeploying used equipment and term extending maturing leased contracts and I'll cover that a little bit later on.

On page five in supply chain our results were negatively impacted by non-renewal of some contracts and charges related to facility leased terminations, and those leased terminations amounted to about $2.9m. Those results were partially positively offset by improved European operating results.

I am going to comment more on supply chain, specifically, in response to a question we received in advance, and I will comment a little bit after the presentation itself.

Cost management focus has really become a critical part of our culture and activity. We've driven overhead central support costs down for the 8th consecutive quarter. And then, finally, as I mentioned earlier, and Corky[Corliss] will show you on his financial charts, we did take a restructuring of $6.2m in the quarter which were primarily related to severance, of which two-thirds were in the supply chain and one-third were in central support. And I'll turn it over to Corky to go through the actual financials.

Thank you, Greg. For those following on the Power Point presentation on the call today, page six will outline our earnings per share calculation for the 4th Quarter.

As Greg mentioned, earnings per share increased to 52 cents the quarter. That's a quarter 2002 compared to a break-even in the year period earlier period. Earnings per share of 52 cents did include the impact of a six cents restructuring charge, therefore our earnings before restructuring totaled 58 cents.

As a reminder, earnings per share for 2001's 4th Quarter did include a 45-cent per share charge for restructuring and other items, and a 4-cent good will amortization which was eliminated effective January 1, and this again was in conjunction with the new accounting ledger covering good will. We also highlighted in the footnote on this slide earnings per share impact on retention expense.

During the year in the 4th Quarter as you'll see and note we had an impact of 8 cents per share relating to pension expense as compared to a break-even situation the prior year's period. We also had share increase since 2001 from approximately 61 million shares to a little over 62.7 million shares ending the year.

This was largely driven by the number of stock options exercised during the year, and the increased number of options were in the money as a result of share appreciation. The corporate tax rate was approximately 35.5% compared to 98% in the prior year period.

As you may recall again from past presentations, last year's 4th Quarter did have the effect of rate was impacted by -- primarily by the non-deduct ability of some of the restructuring items, notably good will which was implemented in that period. For those again following on the Power Point presentation let's turn to the next slide for full-year earnings and we'll quickly go through that. Earnings per share before good will accounting increased five times to one point -- $1.80 cents for the full year 2002.

That's up some 31 cents from the same period last year. Earnings per share in the year earlier period did, as you will recall, include $1.34 per share charge for restructuring and other items, 19 cent charge for good will amortization which again was eliminated effective January 1, as well as a 11 cent per share one-time tax benefit relating to change in the Canadian tax law.

As we announced previously, 2002 full-year earnings per share included 30 cents one-time charge relating to change in accounting for good will effective January 1.

Ryder completed the adoption of statement for Financial Accounting Standards 142 entitled " Good will and other intangible assets." We have also on this page noted the footnote highlighting the pension expense of 30 cents this compares with a prior year's income of a penny.

Again the good work of our operating and support groups all across the company overcame this significant obstacle through better operating performance driven by the cost initiatives which Greg will expand on here later that we put in place for the organization.

If we turn to page six in the slide there, we'll quickly cover the 4th Quarter performance in the various business segments. And, again, as a reminder, this is on a fully-allocated cost basis. When comparing this year's consolidated results with the previous 4th Quarters, note that revenue was up 1% and pretax earnings increased to $50.3m as compared to $10.3m in the prior year quarter.

Hitting the highlights of the business segments in the Fleet Management Solutions area, we saw continued revenue decline in U.S. leasing offset by increased revenue in commercial rental and solid quarter over performance improvement in our European operation. Over all wet revenues which includes fuel increased 1% quarter over quarter, while dry revenues were down 1%. U.S. rental utilization as Greg noted earlier was 76% for the quarter compared to 67% for the prior year.

Rental revenue was helped by better pricing and better asset management. Additionally, the smaller rental fleet was driving better utilization leading the way to higher margins on a per-unit basis over all for the operation. The company's worldwide fleet was down some 6%, or some 2,600 units, compared to year end 2001. Fuel was up some 10%, primarily driven by increased fuel prices.

Revenue was still soft, however, and leasing and maintenance product lines, primarily driven by fewer miles and also a smaller fleet. Quarter-over-quarter, on a quarter-over-quarter basis, the U.S. product line, miles were down some 4%. Even though revenue was only up 1%, segment NBT improved some 39%, primarily driven by the improved results in our rental utilization, reduced asset management costs and good UK operating results as well as a decrease in the interest expense resulting from lower interest rates and lower debt.

These positive factors more than offset the quarter- quarter-over-quarter Fleet Management Solutions pension expense change of some $6.5m. In the Supply Chain area revenue was increased some 2%, quarter over quarter, primarily due to the continued strong automotive volumes. Segment NBT loss of $1.1m was down from the prior year's income of 3.8 million. 2002's 4th Quarter, as Greg mentioned earlier, did have some results and was negatively impacted by non-renewal of certain contracts and changes that were made with some facility closings relating to some charges that were incurred.

Dedicated contract carry saw flat revenues quarter- quarter-over-quarter reflecting the continued impact of the slow economy. The unallocated portion of central support services cost as shown herein creased approximately $900,000 or 29% on a quarter over quarter, however I should point out that central support cost in the total, however, continued to decline some $1m or 2% over the prior year period.

This was the eighth consecutive quarter that we realized expense reductions due to our ongoing cost initiatives. Finally, as previously noted we had restructuring charges of some $6.2m as compared to restructuring charges of $32.9m reported in the same period last year.

Quickly turning to the next slide, we'll recap full-year performance in the various business segments. On a consolidated basis, revenue was $4.8m, down some 5% from $5.5b in the full year of 2001. Revenue was down in all three business segments. However, on a full-year basis, NBT did improve in both the Fleet Management and supply chain business segments despite year-over-year pension expense increases of some approximately $25m and 5% revenue decline in that MS business segment.

The company's cost management initiatives, the pickup in rental utilization, our efforts around asset management activities, as well as decrease in interest expense has enabled this business segment to produce year-over-year improvement in earnings of some $20m or 10%.

In addition to that, the focused margin improvement initiatives, a volume increase o in the automotive sector and the purging of unprofitable contracts has enabled the supply chain business' segments to improve year-over-year losses some $600,000 or 9% despite the 5% decline in revenue.

Our dedicated contracts carriage business were down some $3.7m and as mentioned earlier that for the full year on a non-allocated basis our central support costs had decreased some $800,000 or 3%, while the total central support costs were down some $11.8m, or 5% over a prior period.

On a fully allocated -- on a full-year basis, earnings before cumulative effect of changes in accounting principles totaled $112.6m and up over five times.

If we quickly turn to the next slide, we'll cover capital expenditures, again for those that are following on the Power Point presentation. Capital expenditures for the quarter totaled $157m or $42m more than the previous year's 4th Quarter.

Spending, the increase in spending was largely due in terms of timing of asset purchases.On a full-year basis we were down some $57m, or 9% over the prior year period. Total capital expenditures in 2002 were $600m, and compared to a forecast of $580m.

Quickly, the expenditures for the year, bleached composed about 75% of the investment or $452m. We had a light investment this past year in total rental -- in rental which was about $19m or 3%, and we had property, plant and equipment of some 8% or $44m, and the repurchase of operating bleached equipment of some $85m or 14%.

There has been a number of questions that we have received on the capital expenditures since our December call on the 2003 forecast, and I will cover those questions in a question here later in the presentation.

Quickly, changing to the next slide and covering free cash flow, the company recognized some $351m in free cash flow during the year. This was based on our preliminary consolidation, and we get about a $222m increase over the prior year's $129m.

It is noteworthy to mention here that again the 2002 free cash flow represents an improvement of $70m over our full-year planned target.

Primary drivers of free cash flow improvement in the year included increase in net earnings, asset management initiatives, working capital improvements, and a lower investment in capital expenditures around the vehicles driven by the slower economy.

Quickly, on the next slide, I won't go through the details of the balance sheet and the leverage. It's noted here we also have covered the off-balance sheet items. But it's note worthy to mention that the quality of the balance sheet continues to improve. I should also point out that we did take a pension-related equity charge of $228m in the 4th Quarter of 2002.

This charge was primarily due to the under funded status of the company's global pension plans, resulting from a decline in the over all equity markets and the decline in long-term interest rates.

Please note that there is a summary of the year-end funding status of the U.S. pension plan in the appendix of this presentation, and I'll also call your attention to the White Paper on the web as well as the 10-Q disclosures around this forecast that we have recorded here in the quarter.

Before I turn it back over to Greg, there's five or six take-aways that I'd like each of you to focus on, in summarizing and wrapping up the 2002 results. We have achieved the cost management initiatives that had been set and put in place by ourselves and dating back to 2002, when we initially put those in place, and Greg will talk about that more here shortly.

We've also improved the earnings. We've delivered on what we've committed and promised. And this has been in spite and in the face of a weakening economy and the pension expense impact that we've noted. We've also improved significantly free cash flow. We've increased the quality, improved the quality, of the bounce sheet and it should be noted it's the lowest debt to equity ratios we've had in the company since 1997.

Asset management team, with the support of the entire field organization, has taken control and reduced the level of non-revenue earning equipment to its lowest level, as Greg has mentioned, in some 48 months.

Through these activities and actions by the plan, in my opinion, Ryder is better positioned today to act on the new opportunities to grow profitable, to generate profitable growth, created by the otherwise slow economic uncertainties that are out there today. With that, Greg, I'll let you pick up.

All right. Let me go over to the initiatives in 2002. And, as Corky mentioned earlier, we have been at this for several years now, and we've been reporting on how we are doing and what we're focusing on, and I'd like to conclude 2002 in that same fashion.

There are, for those of you who are following on page 14, about half a dozen areas that we have been working on and identified as initiatives with a great pretax goal in 2002 of between $58m and $65m and for 2002 specifically we were able to achieve $54m, so it's pretty close to our target and obviously had a lot to do with our ability to achieve the results that we did in a difficult operating environment.

The headcount that's referred to had a lot to do with carryover actions from 2001, and those were all met. Our standardization and purchasing plans, we've made very good progress. We have not attained all we want to yet in terms of our maintenance sufficiencies and that's a big target for us again in 2003.

Asset management and increased fleet utilization have been big pluses and those have been successes and in the area of business retention that has not reached the level again that we would like but that is a big initiative for 2003.

If you turn on to page 16 regarding the asset management update, I think again, as has been true in a number of quarters, there is great progress as seen from the trends and where we've been in the last few years. The total number of non-revenue earning equipment of 81-31 is the lowest it has been in 48 months since December of 1998.

The not yet earnings vehicles totaled 1,091, the no longer earning vehicles are 7,040, of which 3,045 are held at the used truck centers. We find used tractor sales proceeds have stabilized with a little bit of softening in the medium duty truck classes but the overall number of vehicles sold continues to trend positively and the number of used vehicles that we have sold increased 5% from 2002 over the year 2001.

On page 17, and for those of you who are following on the web I think the graphs continue to be pretty dramatic, but all of the focused efforts in the area of asset management have continued and they positively impact earnings and really strengthen free cash flow.

Those four barred charts, first on redeployments, we improved redeployments by another 3% and we've increased redeployment by two-thirds since our base year 1999. Tractor extensions have more than doubled in 2002 over 2001 and they have quadrupled since the base year of '99.

Early replacements have precipitously fallen. We've lowered that measure by one-third again in 2002, and are only at 15% of the level of early replacements at the levels we were at in 1999.

And the early terminations which are more a reflex of customers and having to terminate equipment due to trends in their business, that was a 25% reduction.

That trend is now positive, and it's at its lowest level since 1998, so we can only hope that the rationalization and difficulty of many of our customers has also reached its worst point, and things will improve from here.

I want to open the next part of the call to questions, and I'm going to give you the instructions again: As usual, if you will press star one on your touchtone pad, the operator can begin the polling process, and you can go into queue. And as has occurred on other occasions, we've had a couple of questions that have come in, in advance, and the first one I'm going to ask Corky to answer, but the question is: "What is driving our company's capital expenditures higher in the year 2003, and why do the higher capital expenditures not result in a higher level of revenue growth for full-Service bleached?"

Thank you, Greg. Maybe again to reflect back on the December presentation regarding and covering capital expenditures, the plan calls for an $890m investment capital in 2003. This is up some $290m over the actual 2002 number which ended up as I just mentioned about $600m. Of this $290m increase, approximately $135m of it relates to the commercial rental expenditure investment in our fleet to upgrade it and to slightly change the mix. So again that is there to -- that investment is being made to keep that commercial rental fleet competitive in the marketplace.

In addition to that, we had some approximately $30m dollars increase in property, plant, and equipment, and we have the remaining $125m in lease purchases, and this increase in lease purchases really takes care of those customers that are up for renewal that will be wanting to go into new equipment and also reflects the reduced leasing of used equipment and the extension of leases that we had optimized this past year.

So that really covers the kind of the components and segments of the increase, and at the end of the day it's pretty much focused on replenishing and re-energizing the fleet that we have out there that's operating.

Thank you, Cork. The second question or couple of questions that were similar that came in advance have to do with supply chain and the question is what steps are we taking to make Supply Chain Solutions profitable? When will it reach profitability, and how long do we give the segment to obtain profitability?

I'll answer the question, and I made some notes this morning as I was thinking about it, and I'll try to give as full an answer as I can.

First, I trust that it's been clear, for those of you that have been following us over the last three years or so, that in all parts of our business you have seen our commitment, our resolve, and very specific steps that we have taken in terms of the right actions to reduce costs, to improve our margins, to improve our processes, and build a solid foundation, not only to give us an improved balance sheet and an improved income statement but also a platform for long-term and sustainable profitable growth.

And the foundation for profitable growth is vital, and we know that we are not just here to manage costs. We know that we want to make sure that we've got good, profitable revenue growth. So, I hope that it has been evident that we have taken a lot of difficult actions and the right actions over the past number of years, even in a difficult environment.

Earlier on the call, I trust it's also been apparent that some of the process improvements that we have made in areas like asset management and rentals, when over the years we've changed our thinking and much of our business model, now you can see some of the success of those areas, even in some of the most difficult new and used truck market environments in the last several years.

Now, why do I mention that, as background to supply chain? Well, I raise that because we are applying that very same rigor in Supply Chain Solutions business. Clearly, some of the impact that we see in supply chain is from the economic environment, but, as a matter of fact, much of what we have needed to work on to change and to fix is related to our Supply Chain business and converting some of our historic approaches and business model, and that is what we have been doing, and that is what we are doing now.

Specifically, I would like to talk about six or so steps that specifically relate to profitability. First, as I think you have heard before, we have been working on, what we call both margin improvement and continuous improvement, and that is to bring costs down in the serving, structure, and business model, that not only helps our margin and profitability in the long-term, but it also helps our customers in terms of their cost model from us. So it helps our margins, and ultimately it helps us in the renewal of the business.

Second, overhead cost containment, and this has been reflected in a number of areas, including some staff reductions. Previously, we had a cost structure with components that were not always necessarily essential. They were quality, they were good, but we feel that they might not now be essential to have. So what we are focusing on are people and infrastructure that is only there for revenue-producing support.

Third, we have improved operational execution, and for those of you who are familiar with this industry, real success matters right at the front line by operational excellence. We have called that program ACE, but that operational excellence program and execution is absolutely vital, and that is making a difference.

Fourth, the accounts and solutions that we are offering are now much better targeted, in terms of repeat-ability and sale-ability and the value that we can gain from them. Fifth, we have been reducing information technology and support technology costs. We do that through limiting the number of platforms as well as getting a better match of solutions to requirements that, again, are repeatable.

And, sixth, we have had some considerable account rationalizations. There are a number of accounts that we just no longer have.

In one category, as we've talked about before, there is some business that just couldn't meet the profitability threshold. In another category, there has been actually some good, profitable business that may have been asking us for conditions that we felt we could no longer accept, and that reflects some of what we talked about earlier in the 4th Quarter of 2002.

That is, even though it might have been good, profitable business and revenue that we enjoyed, we might have been asked to take on some liability that we just didn't think was in the best interest of either our profitability or our ownership.

For example, we think it's inappropriate to be required or asked to take on liability for facilities that don't run coincidental with the terms of the contract. Sometimes those are hard choices, but that's also part of what's happened in some of our decision making.

Now, having said that and having talked about those steps, right now I personally feel better and more confident than at any time in the last several years about our current operating team, about the portfolio of business that we have recently signed, and our general approach to the marketplace.

However, we haven't fully turned the corner yet, because even the changes that we have talked about and said we need to make from historical norms, as we said in December, is still going to be a bit of a trough before we really see some dynamic rebounding.

That gets to the second question of that second part of the question we've been asked; when do we expect Supply Chain to be profitable? And as we said in December, we have set a plan for profitability for Supply Chain for the year 2003, with break-even or better in each quarter.

Now, having said that, and even only a couple of months since we had that conversation in December, I think we all realize this is not going to be any walk in the park. This is not going to be easy, because our current customers and our current customer's customers also are having a difficult time in this environment.

If you look at the industries we serve principally, automotive and high-tech and telecommunications, you can read the press releases in announcements of a number of those companies in those industries. However, nevertheless, our profitability plan for 2003 is as we stated. It is the plan that our employees, our management, our board, and our shareholders expect, and we expect to stick to it.

And the third part of the question, finally, how long do we give it? How long do we wait for profitability? Well, you know the plan for 2003. On the other hand, we've also not said that there's some ultimatum that there must be X results by Y date, or there is some resulting Z action. But our team knows the seriousness of the commitment.

It is a commitment to the objectives in 2003 for profitability, and we expect to attain it. At the same time we also know that we don't have infinite patience. I think that in total context of how we've approached things, how the Supply Chain business is approaching things, that's about as full a statement to that question as I would offer, and I hope that that's helpful.

That having been answered, let's go to the live calls, and we probably have some calls in queue.

Our first question comes from James Valentine. Your line is open, please state your company name.

Great, thanks, Morgan Stanley. First, great quarter, guys, especially considering some of the macro-conditions in the pension costs.

I had a question with the class eight engines that arguably your company and your position have more of a requirement to jump into this new technology than maybe some of the truck-load companies given the fact that maybe some of your customers trade out their equipment every three years or so.

Can you give us some sort of comfort level in terms of new equipment? I guess my thought is, if the warrants are shorter and, therefore, you may have more residual risk at the tail end of it; Have you taken into consideration and I guess how might you be protected from the customer, in terms of the rates you're charging them?

Jim, I'll take that. As I think we have communicated before, we've spent certainly as much time with the manufacturers and here within Ryder to test the new en engines, and, you know, some engines we had more testing time on than others, and some engines we felt better at the end of our tests than we did on others.

So that was probably our first approach, was to gain as much knowledge and experience with the engines, so both the engineering knowledge in the lab but also on-the-road knowledge about the new engines.

We don't see warranty periods shrinking from manufacturers. In fact, we see them generally speaking getting longer.

So would you say kind of a 500, 700 thousand type warrantys are what you're getting on this new equipment?

For some of the components it's typically a tiered approach, depending on the components of the engine. But even with warranty coverage and financial protection -- and I wouldn't want to go into specifically what we negotiate -- we still worry about engine reliability, because that's what we're here to guarantee up-time for our customers, so the warranty protection, financial protection has been very important, and we've been working in that area to satisfy ourselves and make sure we are taking the right approach around residuals and also pricing to our customers, but the reliability is also key.

So, we feel good about the work we've done. We continue to work around the engines, as they get more miles on them and with the manufacturers, and we are buying new technology engines, and we'll continue to buy those for 2003.

They have, though, to be specific, it is resulting in price increases to customers.

So, in other words, the customers are -- if you're paying three or four or $5,000 more per piece of equipment you're getting that from the customer over the life of the contract.

We'll get, at an increase in the investment but also on the maintenance side as well depending on the engine, we've factored that in our experience, oil changes, changing maintenance intervals, we've factored that into our pricing as well.

Okay. And so far it appears to me you've been buying these new engines for about three months, so far no pr problem?

No, I mean, it's -- the first quarter we anticipate a soft quarter for new class eight buys because of the purchases made on the old technology, but we'll see more of that as we get into the second quarter, but I think that's something that the industry understands, and we're working hard to minimize that cost.

We're also working hard with -- equally important for our customers is the fuel economy that's driven out of these engines, and the fuel economy has gotten better through the testing period and through all of the calibrations, but we're working hard with them to not only calibrate the engines right but also to employ the best driving practices to keep their fuel costs down.

Okay. Great. Thanks, Tracy. And just one question for Corky and dedicated -- maybe Tracy -- in dedicated, the press release, there was mention that overhead costs were high and there wasn't amplification, maybe you discussed it in your call here but I missed it, and I'm just wondering if maybe you can go through because we thought, that's the one area we would have thought to see a little better margins.

Jim, I’ll handle that, the biggest area has really been the investment area, which has been sales area. We've added sales specialists during the year, and that makes up the major increase in our overhead.

There were also some increases in our safety area. But the sales area we thought was important. We have a good pipeline around the dedicated business, a lot of activity there, with customers and prospects who are already in a dedicated solution, but also those that are looking to outsource in these challenging times, so mostly that was investment surrounding the sales area.

But you wouldn't characterize the flat revenue in the 4th Quarter as showing the payoff yet? Presumably you're saying this pace of no growth is going to really start to pick up here as the year progresses?

That's correct.

Okay, great. Thank you.

Greg Burns you can ask your question and please state your company name.

Sure, JP Morgan; Just a couple of follow-up questions.

On the dedicated side, would that sales ramp up be maybe in response to a change in the competitive environment? In other words, has there been any change in terms of the aggressiveness of some of the truckload competitors, or is it basically business as usual in this segment?

Yeah, I don't think it reflects a change in -- you know, that we're seeing from competitors. It really was more around the changes that we have gone through in the company a number of years ago. We are doing some different things.

We brought the business units together, and we did some more cross-selling and cross-training of our sales force so that they would be knowledgeable about not only Full-Service Fleet but also Dedicated Contract Carriage, and we've had a lot of success in training our sales people to be more knowledgeable about the product offering.

What we determined, though, as we went through that was that we wanted to add specialists who could come in and help the closing process, help our broader sales force with the closing process around the Dedicated Contract Carriage.

So, I'd characterize it more as a reaffirmation that we think there's good opportunity in the market, but also learning that we wanted some closing specialists to help the broader sales team.

Okay. Great. That's helpful. And, Greg, just on the logistics, Supply Chain, some of the contracts that weren't renewed, was there -- was it a case of where the customer wanted you guys to put more assets or resources for the same price, were they demanding, you know, significant cuts, just maybe a little flavor for what was driving -- and maybe if you could think in terms of who it was.

Well, first of all, I'll answer that last part first, we won't be specific about who it was, because I think that would be inappropriate for us and for them. But in terms of the general question, I'll let Tony Signellia who heads up U.S. operations answer that.

In general, there were two areas. Number one, as Greg has stated, it really was an asset commitment. That would have been a major asset commitment on the part of Ryder, the timing of which was a mismatch with the life of the agreement.

One aspect of our return requirements on our transactions is to ensure that the end of initial term of a contract period, that the amortization of assets, fixed assets or terms of leases, particularly in the case of leases, really match the agreement. We don't want a three-year distribution management agreement, for example, and a five or six-year lease, where there could be up to a million-square-foot facility vacant on Ryder's ticket after the end of that term.

That was the first point. We're very specific and rigid in our transaction and profitability measurement to ensure that that timing is met.

The second point, actually, dealt with pricing variability. As we've discussed in the past, I know at the end of the 3rd Quarter call, we talked about a trend for increased desire on the part of our customers for variablized pricing, particularly in this volatile environment where our customer's customer's buying habits are very unknown, that they would like our pricing to be variable.

We typically have done a fixed and variable type perspective. We're comfortable with variablized pricing as long as we have some minimums and some kind of table-driven rate structure that does protect us on the down side of the volumes so that we at least meet our minimum-required threshold at the lower volume sectors, and of course are rewarded at the higher end for that risk when the volumes rise.

In this particular case, we really could not come to closure on how to handle the risk posture with regard to the variablization on the pricing piece, and wonderful business, but the terms and conditions have to be right or the value proposition just isn't there.

I certainly agree with you guys on both those two points. Should that, though, mean that in the marketplace today there are supplying company willing to mismatch business and take it all on a variable basis to lock in business? And is that maybe a little bit more of a competitive environment than what we have seen in past?

Well, there are two answers to your question.

First,there are some players that we feel are willing to take on risk, where the reward is not appropriate, and they will always be there. And our approach is to really distinguish ourselves with our execution ability and other terms and conditions and components of the contract where they will still go with Ryder in the long-term.

We have not lost business, typically, for these reasons. We usually will find that our quality execution, our competitive pricing, and, in many cases, our IT solution is sufficient to win over some of those risks that another player may be able to take, but we have faced that in the past. We have been successful facing that in the past. We'll face it in the future.

We'll continue to be successful in facing that in the future. But, in this particular case, there was another player who we felt was willing to accept a risk reward value proposition that was out of balance.

Great. Thanks a lot.

Okay. Thank you. Our next question comes from Ed Wolfe. Your line is open. Please state your company name.

Ed Wolfe Yeah, hi, Greg. My sense is this might be a question for Tracy, but just, could you give a little bit of detail in terms of the fleet, I don't know what the right word is, not necessarily expansion, but the number of trucks you plan to bring in throughout the year, whether that's for expansion or for just replacing other trucks? What's the timing by quarter, and when do you really start to invest in the new-engine trucks in a big way?

Well, and I'm assuming, Ed, that you're asking about new equipment, not necessarily how we're doing on redeployment and extension?

Yes.

We're not disclosing quarterly numbers, but I think it's fair to say, you know, the first quarter we would expect to be lighter on the new engines in the class eights, again because of some of the pre-buys that went on around the October deadline.

We also had, I think a major manufacturer that was doing a plant move, and there wasn't even production available for the first c couple~ -- or won't be for the first couple months.

We would expect that to pick up, you know, quarter two through four and we'll be making our rental purchases as well and most of those will be scheduled to be coming in, in the second quarter, which would be our normal timing for rental purchase.

There was a big preliminary order in class eights from a couple leasing companies for January that just came out as a flash. Those weren't your trucks, is what you're saying?

No, they weren't. They would not have been our trucks.

Okay. Directionally, Corky, is there any change to the guidance that you gave on the last call about the $56m in additional pension costs or timing of cash payments? Is there anything new or different?

Nothing new or different there. The year-end interest rate numbers were set in -- I believe that's updated now on the webcast and the White Paper and you also have that appendix to this presentation that gives the kind of year-end numbers, so nothing major has changed.

Okay. And how about in gains on sales?

If the census is that pricing has probably bottomed and is improving and you have more trucks for sale this year, it sounds like, can you give us some direction on how much improve the gain on sales should be for the full year?

Ed, it's not going to be that significant. We are going to be selling older units, which will tend to, you know, have gains, but smaller gains, and for us it's really the ability to move the trucks, move an increased volume of trucks.

We'll probably see some uptake in gains, but that's not going to be the major impact for us on the P&L.

It's the utilization, in other words?

It's the utilization, getting the iron moved out, and again I think the fact that we are moving the older equipment. We're typically redeploying, the equipment that has the most life left on it.

Greg, along those lines, can you talk a little bit about commercial rental usually acts as a leading indicator for leasing, and it feels like this was a turning quarter for commercial rental.

How long would you expect until, if these trends continue, you'd expect to see that up tick in utilization and revenue on the leasing sides.

I can't say I'm there yet as the lead hg indicator, and the reason is that with the softness in the market, the impact on many of our customers and their customers, and an overhanging war and a very poor stock market, I'm not sure that because we had one positive quarter in revenue gain that you're going to get what we would expect in a lo longer-term view of real improvement in leasing. Anecdotally, as I talk to our business leaders in that segment, there has been a lot of interest.

There has been a lot of discussion. The question is, how much of it gets ink and when? And I think that because of that there is still a lot of caution and concern on the part of our customers, so I can't quite give you that definitive a answer.

If the war horizon was cleared up, if the stock market was cleared up, and that was out of the way, and our customers were acting on the things that we're talking to them about, then I could give you a more positive answer, but until that's the case, I think we just have to be satisfied, at least there has been a revenue turn in commercial rentals, and hopefully we'll have one come in leasing, but I can't quite make that connection yet. Tracy, do you want to add anything further?

No. Well, I think that's right. We were pleased with the increase in rental revenue all throughout the year.

Our rental performance has been improving first by downsizing the fleet and driving utilization, but this is -- we've been investing heavily in marketing around rental, in training, the folks who man the phones and our rental representatives, and our view of the positive trends in rental has been really a payback on those investments where we've been able to bring in new customers to the rental counter.

We have not seen significant increases in our existing customer base increasing their rental demand.

Can you talk a little bit about rentals, utilization throughout the quarter, and in January, and versus where you think it could be in '03 and also what the plans for the truck fleet are now versus the end of the year in '03?

Well, there are a couple of questions there. Our utilization I think Greg and Corky covered the improvement. We expect to improve utilization next year with, again, our action plans around marketing, Fleet Management, and all the other things we've mentioned.

We didn't disclose that by quarter. We're not in a position to talk about January, but typically from a seasonal standpoint we would expect a softening in January versus the 4th Quarter.

Okay. Greg, we've heard from some of the other trucking companies. It seems like, you know, January is always seasonally soft but the first couple weeks were particularly soft and maybe it felt a little bit better the last two or three weeks.

Have you seen a similar trend in any of your businesses?

I don't know that we're in a position yet to roll up and comment.

Okay. Thank you everybody for your time. I appreciate it.

Greg Swienton Certainly.

Thank you. There there are no further questions. I would like to turn the call back over to Greg Swienton.

All right. If there are no further questions, I'll take that as a sign that everything's been clear and transparent and all of our efforts to make the information as clear as possible have been accomplished, and if we're five minutes ahead of schedule, I think nobody minds getting off the call early and getting to lunch, so thanks for your participation. Have a good, safe day.