萊德系統 (R) 2003 Q4 法說會逐字稿

Good morning, and thank you all for holding. I would like to remind all parties that your lines have been placed on a listen-only mode until the question-and-answer session of today's call. I would like also to welcome you to Ryder's fourth-quarter earnings release conference call. Again, all lines will be on a listen-only mode until after the presentation. Today's call is being recorded.

I would like to introduce Mr. Bob Brunn, Group Director of Investor Relations for Ryder. Thank you, Mr. Brunn. You may begin.

Thank you. Good morning, and welcome to Ryder's fourth-quarter 2003 earnings conference call. We'd 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 1995. The 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 the changes in economics, 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 Tracy Leinbach, Executive Vice President and Chief Financial Officer. Additionally, Dick Carson, Senior Vice President of fleet Management Solutions, and Tony Tegnelia, Executive Vice President of U.S. Supply Chain Solutions are available to answer any questions you may have at the conclusion of our presentation. And now, I'd like to turn the call over to Greg.

Thank you very much. And welcome to all of you. This morning we will, of course, cover our fourth-quarter results and update you on a number of items, including our initiatives, asset management, pension, acquisition, and earnings outlook.

For those of you who are following on the electronic Web, on page 4 -- we had a very strong quarter. Earnings per diluted share were 61 cents for the fourth quarter 2003 as compared to 52 cents in the prior-year period. That is, of course, stronger than our last forecast, but December was stronger than we had anticipated.

We also note on there that included in these numbers was a 3 cent restructuring charge in the quarter related to primarily some headcount reductions. And I note that and we note that because we always include those sorts of activities in our earnings. We do not exclude them. We consider them to be, when they need to be done, a normal part of our operations and a normal part of doing business. And I particularly highlight that because sometimes the reports -- and several have come out already electronically this morning -- that tend to get that wrong, and they exclude it. We do not exclude it. And it is included.

Total revenue for the company was up 1 percent for the quarter compared to the prior year. In Fleet Management Solutions segment, full-service lease revenue was up 1 percent year over year, which really represents the first increase in lease revenue in nine quarters. The increased leased revenue was largely due to increases in Canada and the UK, still partially offset by some continued softness in the U.S. Net lease sales remained at low levels for the fourth quarter. However, we did see some improvement in the latter part of the quarter, and we are encouraged by the increasing confidence level we're seeing and hearing among our lease customers.

We continue to show year-over-year improvement in commercial rental revenue again this year, which is our fifth consecutive quarter of improvement. The improvement in rental revenues came primarily through stronger pricing, but in four of the last five months, we've also seen an increase in the number of rental transactions. And while the improvement in transaction volume has been moderate, we do also take this as a positive indication of increasing market activity.

From an earnings standpoint, Fleet Management's results were hurt by the absorption of higher pension expenses versus the prior-year period. The good news on this subject is that pension expense for 2004 will come down. And we'll provide an update on that later in the call. Partially offsetting this were -- the higher pension expense was the improvement in commercial rental as well as the $1.8 million gain on the sale of the UK facility. And in Dedicated Contract Carriage, our margins were up as a result of lower overhead cost and improved operating performance in the quarter.

Turning to Supply Chain segment -- the total global Supply Chain Solution revenue was up 2 percent for the quarter compared to the prior year. In the U.S., Supply Chain revenue was down due to reduced volume levels in some customer segments as well as certain customer contracts that were not renewed. These revenue reductions were partially offset by some new business. And as we've previously noted, the market, both for renewal of existing contracts and new business additions, in Supply Chain remains extremely competitive, although we continue to have significant proposals at various stages in the pipeline, and we are pleased with the activity in that area.

In the international arena, our operations in Canada, Latin America, and Asia posted increases in revenue, although they were offset by some declines in Europe. Revenues were also positively impacted by more a favorable exchange rate translation compared to the prior year.

In particular, we're pleased to report to the fourth consecutive quarter of significantly improved results for Supply Chain. The profitability improvement in that segment is the result of a lot of improvement actions. And as we said coming into 2003 -- actually in December 2002 -- going into the year 2003, we said our commitment was to not only make this segment profitable for the year, but to achieve breakeven or better results every quarter. And we're pleased to have delivered on that commitment in a substantial way for the year.

Finally, in the cost management focus that's been a part of our regular process improvement, total central support service costs were reduced for the 12th consecutive quarter, which not only improves the earnings of the company, but also very importantly helps us with our model and our competitiveness in the marketplace.

Turn to page 6 -- earnings per share increased by 17 percent to 61 cents as compared to 52 as already mentioned. We do footnote a few items just for your information -- it shows the impact of pension. In addition you'll notice of 2.4 million increase in the average number of shares outstanding versus the prior year's quarter. And that's largely due to the impact of the higher stock price on the impact of stock purchase and option plans. The increase in that Ryder share price has increased the fully diluted share calculations as more options are now in the money and at a higher price.

You're aware that last year, we announced a two-year, $90 million stock buyback which is intended to largely offset the dilution caused by stock exercises that had occurred since January 1st, 2003, and in the fourth quarter, we repurchased approximately 117,000 shares through this program. And our share repurchase activity was suspended temporarily in the quarter due to the then-pending acquisition announcement, and as a result, we're somewhat behind our repurchase goal.

On page 7 -- earnings per share before the cumulative effect of accounting changes increased for the full year to $2.12, up 18 percent from $1.80 last year. And as you will recall, in 2002, we adopted SFAS 142 on goodwill that resulted in the cumulative effective change in accounting principle (ph) of 30 cents. And in the year 2003, we adopted SFAS 143 on asset retirements and FIN 46 on the consolidation of variable interest entities. After the impact of these accounting changes, full-year earnings per share improved to $2.06 as compared to $1.50 the previous year. And as we've also footnoted on this page, the significant impact of pension expense on earnings per share -- for the full year, our pension expense totaled 82 cents per share, or an increase of 52 cents over the prior year.

On page 8 -- on the quarterly numbers, total revenue for the quarter was up 1 percent, while pretax earnings increased strongly by 11.5 million or 23 percent. In Fleet Management Solutions, revenue was up from the prior year by 1 percent, both including and excluding fuel revenue. U.S. lease revenue was down, but was offset by improvements in lease revenue in Canada and the UK, as well as commercial rental revenues in all countries. Fleet Management Solutions -- earnings were down 6 -- I'm sorry, 8.6 million, largely driven by the $11 million pension cost hitting this particular segment.

In Supply Chain Solutions, operating revenue, which excludes freight under management, increased by 5 percent. Total revenue, as you will see on this page, increased 2 percent. Supply Chain net before-tax earnings were $14.2 million for the quarter as compared to a prior year loss of 1.1 million. Quarterly results were impacted by a number of areas, but also a one-time item of several customers having met certain requirements on gain sharing as well as some other contractual obligations that were clarified. So on a percentage basis, NBT as a percent of operating revenue was 5.8 percent up from a loss a year ago.

In Dedicated Contract Carriage, we saw a 2 percent decline in revenue primarily due to lower volume levels with existing customers. Earnings, however, were up over $3 million due to reduced overheads as well as improved operating performance. Earnings after all essential support costs improved by 16 percent to 65.3 million, and our quarterly net after-tax earnings were up 22 percent at 39.4 million compared to 32.4 million in the previous year.

On page 9, the detail for the full year -- total revenue was up 1 percent, primarily due to higher fuel costs, increased international Supply Chain revenues, and stronger commercial rental revenues. Fleet Management Solution earnings were down by almost 19 million -- again, reflecting the impact of those previously mentioned higher pension costs, while Supply Chain Solutions earnings were up by over $47 million compared to the previous year. Total earnings for the company before the impact of accounting changes were up 23 million or 20 percent for the year.

At this point, I will turn it over to Tracy, who will begin with capital expenditures.

Thanks, Greg. Turning to page 10, full-year capital expenditures before acquisitions totaled $725 million, up $125 million from the prior year. The increase is driven by the purchase for our commercial rental fleet. As you may recall, in 2002 we spent almost no capital in the rental fleet in the U.S. And we thought it was appropriate in 2003 to refresh that fleet.

Our lease spending in 2003 was down 14 percent from the prior year, due to softness in the U.S. leasing markets combined with higher-than-planned levels of used vehicle redeployment and term extensions during the year. We expect declining levels of redeployments and term extensions in 2004 as customer replacement activity picks up.

Also in the year, we had $97 million in acquisition expenditures related to the purchase of Vertex Services and General Car and Truck Leasing in December. A portion of the total $105 million purchase price for General will be paid in future periods. And I would remind you that both acquisitions were all-cash transactions, with no debt assumed by Ryder.

On page 11, you can see we continue to reduced our debt levels and bring down our debt-to-equity ratio. Balance sheet debt for the year was up $264 million, due entirely to the impact of adopting FIN 46 in July of 2003. With that adoption, we consolidated three variable-interest entities onto our balance sheet.

Looking at both balance-sheet and off-balance-sheet debt, our total obligations of $2 billion at the end of the year was down over 260 million from the beginning of the year. Total obligations as a percent of equity at the end of the year were 100 percent (ph), down from 201 percent at the prior year end.

Our equity balance at the end of the year was $1.3 billion, up from $1.1 billion at the beginning of the year. Beyond interest and dividends, our equity balance increased due to positive currency translations adjustments and stock issuances.

Equity was also positively impacted by improvements in our pension plans funding levels. Our noncash pension-related equity charge declined by $41 million in the fourth quarter of 2003, bringing the accumulated charge down from $229 million at the end of 2002 to $187 million at the end of 2003.

And before we move onto the next slide, I would like to highlight in January, we received an upgrade in our debt rating outlook from Fitch. Fitch maintained their long-term BBB+ rating, but changed their outlook from stable to positive.

Turning to the next page. You will see that based on our preliminary consolidation, we generated $269 million in free cash flow for 2003 as compared to $366 million in the prior year. The year-over-year reduction of 97 million was driven by the increase in CapEx and acquisition spending that I previously mentioned. Our full-year cash flow benefited from the adoption of FIN 46 by approximately $42 million due to the increased depreciation expense add-back and higher proceeds on vehicle sales. These amounts reflect only six months of activity related to the FIN adoption, as that was adopted on July 1st.

Moving to our key initiatives on page 14, in December of 2002, we shared our full-year 2003 goal with you -- to realize $44 to $49 million in pretax earnings from our initiative activity. These activities were focused on sustainable cost reductions and process improvements in several key areas of our business, including maintenance, asset management, supply chain operations, insurance safety, and overhead.

For the year, we realized a total of $37 million in P&L benefits from these initiatives, somewhat short of our original target. The shortfall was primarily related to maintenance cost initiatives, and was largely due to the increase in the age of our leased fleet as we ran vehicles longer than we had planned for in 2003. And while the overall economics of running the vehicles longer have been very positive for the company, it has put upward pressure on our maintenance costs.

As we discussed in our recent 2004 earnings forecast call, we continue to see significant additional cost-reduction process improvement opportunities in many areas of our business, and will continue to pursue those vigorously to deliver earnings growth and enhance our competitive position in the marketplace. And we will continue to update you throughout the year on our progress in those areas.

Turning to page 16, I do want to provide more detail on one of our key initiative areas, and that's asset management. This initiative area (ph) has a significant impact on our earnings as well as our capital efficiency and free cash flow. The total number of non-revenue-earning vehicles as of the end of the year was 8,079. That's down 1 percent from prior year end. Used vehicles prices were improving. Used tractor retail prices were up 10 percent for the full year over 2002. And I would point out that in the fourth quarter of 2003, we saw that trend continue to improve, with tractor pricing up 14 percent year over year. I would highlight that total vehicles sold through the year was down 2 percent. But again, the trend at the end of the year was quite different. Fourth-quarter sales were up 15 percent year over year. And we do expect the number of units sold to increase in 2004 as the number of redeployments and extensions goes down and as replacement activity picks up.

On page 17, you can see we continue to reduced the number of early replacements and early termination of vehicles, which means we're doing a much better job of realizing the full cash value of our lease contracts. We do believe these number should continue to remain low as part of our ongoing business model. Redeployment of used vehicles and term extensions are down from the prior year, but above our planned levels. And as I mentioned earlier, we believe it is appropriate that the number of redeployments and extension decline as necessary fleet replacement activity takes place over the next few years.

At this time, I want to turn to page 19 and pension. As we previously committed, we are providing an update on our pension area based on final numbers for 2003. The funded status of our U.S. pension plan improved from 77 percent at the end of 2002 to 83 percent at the end of 2003. The plan's funded status improved due to both a previously disclosed cash contribution of $50 million that we made last October, as well as strong return on our plan assets. Pension returns in the fourth quarter were very strong, resulting in a full-year return on assets for the U.S. plan of 24 percent. The discount rate for our U.S. plan as of December 31st was set at 6 percent. That's down half a percentage point from the prior year end. And that reduction did drive an increase in our pension benefit obligation numbers. If we look a cash funding going forward, we are estimating that the present value of acquired contributions over the next five years will total approximately $85 million for our U.S. plan and $150 million for all our plans worldwide.

Turning to the P&L impact, we're now projecting our global pension expense for 2004 to be approximately $66 million, down 16 million from the prior year. This represents a $10 million reduction in pension expense we previously forecast in our 2004 business plan. And this decrease in pension expense impacts mainly the Fleet Management Solutions segment. The projected annual pension expense of 66 million, while down, is still above our annual service cost levels of approximately $40 million. And we believe service costs represents a truer picture of our long-term average annual pension cost. We have detailed the change in our year-over-year pension expense calculation on page 35 in the appendix to this presentation. We also plan to update the pension white paper that we have out on our web site, and that covers in a lot more detail our pension funding and expense calculation.

At this point, I'll turn the call back over to Greg for an update on our acquisition activity and our outlook for 2004.

Thank you, Tracy. I do want an update on our two previously announced leasing acquisitions. First, as you're aware, the acquisition of General Car and Truck Leasing was effective on December 31st, 2003. I would also like to highlight and emphasize that we do not expect to book any goodwill as a result of this acquisition.

Also, as previously announced, we have acquired over 4,000 vehicles from General. We quickly completed the interviewing process of General's employees, and have largely completed the hiring of those employees, who will be joining Ryder going forward. 14 of General's facilities are now up and running as Ryder operating locations. The business that was formerly running with General in locations that we did not acquire has been consolidated into existing Ryder facilities. Overall, the integration process, we think, has gone well and has matched and in some ways exceeded our expectations at this point in time.

Secondly, in terms of the Ruan leasing acquisition, as we previously disclosed, we signed a non-binding letter of intent to acquired selected assets at Ruan. We continue the due diligence process, and expect that the acquisition will close by the end of the first quarter this year. As a reminder, our 2004 forecasts only includes the impact of the General acquisition.

And for the earnings outlook on page 23, we are increasing our full-year 2004 forecasted earnings. You will recall in December, we presented our business plan and provided a forecast for 2004 earnings per share of 2.35 to 2.45. In January, when we announced the closing of the General acquisition, we increased our forecast by 5 cents to a new range of 2.40 to 2.50 per share.

At this time, we are increasing our full-year 2004 earnings forecast by another 6 cents. This increase reflects the reduction in our final 2004 pension expenses partially offset by a higher forecast in number of fully diluted shares outstanding for reasons I mentioned earlier. Our revised full-year EPS forecast, therefore, is now 2.46 to 2.56 for the year, and our forecast for the first quarter is now 36 to 39 cents per share.

And I think we are ready to open it for questions. And I believe the operator will give you the instructions, although I think from memory, it's star-zero.

(OPERATOR INSTRUCTIONS) John Larkin.

Legg Mason. Perfect quarter. Very impressed with the margin expansion, particularly in the Supply Chain Solutions unit and the Dedicated Contract Carriage unit. Was there something going on there that would lead you to believe that perhaps the annualized run rate from a margin perspective would be somewhat lower than what we saw in the fourth quarter?

I'll let Tony comment on Supply Chain. Before I do that, let me comment on the Dedicated Contract Carriage. There sometimes is more variability in the DCC, or Dedicated Contract Carriage, depending on when certain costs hit, having to do with sometimes personal injury and certain claims in that regard. So you get a little bit more variability. But I think when you look at the annual rate of what that margin is, that would be the number to look at in terms of progress. And I'll let Tony in particular speak to Supply Chain, because the bulk of that Supply Chain margin -- 80 percent or more -- comes from the U.S.

The margins that you saw in the fourth quarter were unusually high as a result of gain share activities that we had had as Greg had mentioned, and also some resolution of a number of business matters, as well. Even though those gain share participations are all booked in the fourth quarter, because they are measured annually, they are earned throughout the year. But typically, the more annualized margin that we generated during calendar 2003 would be more of our perspective going into 2004 and how we see things. So you would not see the fourth quarter -- it's disproportionately spread with the gain share. The annualized amount is more a traditional approach to what the margins will be.

Thank you -- then one follow-up questions on the pipeline for new business in the Fleet Management Solutions area. That pipeline, according to your own comments, has been full for probably 6 to 9 months, at least. And there has been precious little new business coming out of that pipeline. You gave us an indication that you thought it might be loosening up a bit. Could you be a little more definitive in terms of when you would expect new contracts to be signed, and when actual revenue generation would begin in association with those contracts?

In your comment, John, you said Fleet Management -- did you mean Supply Chain?

I actually meant Fleet Management.

All right. I know that we've had more specific comments about Supply Chain pipeline, which Tony can comment on. I'll let Dick comment about Fleet Management, or Tracy. I don't think that Fleet Management and Leasing has necessarily been as full and has been active as Supply Chain. But I think we do see some of that picking up. So I will let Dick and Tracy comment on that.

And John, I'll just comment, and then hand it off to Dick. What we have seen in increase in terms of real transactions occurring out of the pipeline certainly has been in replacement activity. And that's why you're starting to see us move more equipment to our used truck centers. And those sales will be picking up as they did in the fourth quarter. And we expect used truck sales to pick up in 2004 because the replacement activity is picking up. And with some of those replacements, you're getting some early signs of expansion. But there has been an awful lot of replacement activity coming out of the pipeline. And I will hand it over to Dick to follow-up on that.

We did have a lot of conversion of sales from the pipeline into sales in both December and January now. And that has been -- we've been pleased with the amount of customers more (ph) willing to sign long-term contracts. The pipeline was full. And also, the length of time from proposal to sale was longer than we had experienced. That has shortened, and we are converting more to lease (ph) business. So we're pleased with the sales activity in both December and January. And we see the same pace holding true in February, as well.

Okay, John?

Yes, I thought Tony might comment on the --

Yes, I will comment on Supply Chain. We have right now a very robust carryover pipeline in 2003 going into 2004. And we have continued to make progress moving a number of opportunities within that price line -- that pipeline into contracting and finalization. We also have scheduled for the first half of 2004 a very solid schedule of startups at the same time, which is also a reflection, as we discussed earlier, of the conversion of the pipeline in the fourth quarter to consummated agreements late last year and early this year, which are now definitively scheduled for startup. So we're pleased with the size of the pipeline. And we're very pleased with the scheduled startups for the first half right now.

Then the final question relates to the General leasing acquisition. You indicated that there were 14 acquired facilities that were now operating as Ryder locations. How many of the General facilities were actually closed? And then the business there was I guess (technical difficulty) with the Ryder facilities?

There were a total of 33 General facilities. We closed the balance, and it all went into Ryder (ph) facilities that were very nearby.

And how would you characterize the outlook for additional acquisitions at your price under your conditions over the next couple of years? Do you think there's an increased appetite on the part of some of the smaller regional players to look at the acquisition alternative?

I don't think we can and should speculate. I think that in previous comments, we said where some of that might make sense for either side, we would be open to that. And we've worked on strengthening our balance sheet to take advantage of that. The two that we announced obviously met those criteria. So I couldn't and wouldn't speculate on anything in the future, other than to say we would be open-minded to those opportunities. And I couldn't really say how many others might be in an interested position as well.

That's terrific. Thank you very much.

Gary Yablon.

First Boston. Question with regards to the item in Supply Chain -- maybe I missed it earlier -- the $3 million adjustment. Can you break that out for us in terms of -- it sounds like some of that was ongoing that you earned, and some of that might have been true-up. I missed that, if it was discussed.

Generally speaking, about 60 percent, pretty much, is ongoing incentive compensation programs that our contracts have provided for. And about the balance is due to non-repetitive items.

Tony, could you -- if I could stay with you for a second, could you talk a little bit about sustainability margins? I know you'll get a lot of questions on this, because they're just going off the charts here. How much of this is Ryder? How much of this is marketplace, mix of customer base? Could you give us some color for that?

Certainly. As we've discussed for a number of quarters now, the team has worked very, very hard in our margin improvement programs and our productivity improvement programs. And we're really sticking very solidly to the process improvements and very strict procedure management that we have within our operations. We feel that that operating execution performance on the part of our operators will continue and even improve.

On the overhead side, we believe that we continue to have very, very strict cost containment on the overhead side. We see that continuing to be very strict as well, as we go on out into the future. We have never been more cost competitive with regard to working through the pipeline activity that we have. So the quality of the earnings that you saw -- again, blended on an annualized basis -- we believe are sustainable.

Okay, and just jumping over to FMS for a second -- Greg, could you talk a little bit about kind of beyond Ruan -- and hopefully, that closes on time and everything -- sounds like you've got capacity. Are there other transactions to complete in the marketplace? These do seem to be fairly low-risk things to put into your network, and it sounds like your network is running reasonably well. Could you talk a little bit about what other opportunities as you look out the next year or two might be?

Well, the easy answer would be, no, I can't. And --

But just talking general (ph) -- names I don't care so much about. But --

You know, that the only way I could answer it, because something you already mentioned, and I mentioned earlier, is we do have capacity. We do have a strong balance sheets and the wherewithal. And I think there is an interest there. And if there is a mutual interest, and it makes sense on both sides because of what's happening in the marketplace, then we're very open to that. And we had said that previously over the last year or so. And these two happen to be right in the way of timing and came to fruition.

So we are open to these sorts of opportunities. But we don't have a specific forecast. And we don't have specific targets. And beyond those general statements, we couldn't get into -- and wouldn't have any detail to get into.

Gregory Burns.

Greg Burns, J.P. Morgan. Just want to drill down on Supply Chain, where you essentially doubled the EBIT in the span of two quarters. And I know there was some gain share in there, but how much of that -- maybe you can quantify it, because I missed it -- what was the gain sharing delta between the fourth quarter and what you got in the second quarter?

Well, the fourth quarter was $3 million in total. And so basically, we earned that throughout the entire year. And it was booked in the third -- it was booked in the fourth quarter. That's pretty much the unusual perspective that we have going throughout the whole year. Otherwise, it's pretty well blended all the way through all the quarters.

The margin improvement, again, is coming from productivity from the operations standpoint, and also overhead containment. And as revenue growth proceeds with new startups coming on board, then the quality of earnings will improve and the rate will improve as well.

Okay. And I just want to go into the cost side of that equation, because again, just looking on a sequential basis, I mean the revenue -- at least the numbers I'm looking at -- in logistics were only up $6 million or so. So I mean are you basically saying that, okay, you got 3 million gain share in, and then virtually all of that incremental revenue dropped to the bottom-line as you held cost flat? Or did existing revenue become more profitable as you (technical difficulty) costs?

It is a combination of a number of things. We did see a lot of our customers in the fourth quarter really have very attractive improvements in their volume. And of course, our cost structure largely stays in place. And so incrementally the profitability on that volume does drop to the bottom line. The incentive awards that were generated in the fourth quarter, 100 percent of that dropped to the bottom line, as well. Those are generated throughout the year. Tests (ph) are performed at the end of the year and you're paid. So that all falls to the bottom line, as well. So from the incremental profitability coming from volume increases from a number of our customers, and 100 percent of the fourth-quarter incentive awards payments falling to the bottom line as well, that particularly helped propel the margins in the fourth quarter. So it is a combination of factors, yes.

Greg, on the full-service side, the leasing -- when do you start to anniversary those lapsed (ph) contracts? And I guess what I'm trying to understand is what was the underlying growth rate if -- what will the underlying growth rate be once you anniversary some of those lapsed contracts.

By lapsed contracts, are you talking about those that would go back a number of years? Because we're typically on four-, five-, six-year cycle. And we did have some peaks that went right into '98 and '99. So those tend to be coming up now. We do therefore have a lot of business that's coming due. We have a lot of vehicles that will be coming out of service and going to the used truck center for resale. But there is -- when we think about a replacement cycle or a volume cycle, we look at about one-fifth or one-sixth of that fleet turning over every year. And that's about the same situation we'd be in. The other growth opportunity is -- especially coming now, after a period of decline in the economy -- would be those customers who may choose to add to their fleets. And I think those modest increases we had built into the numbers that we put in the 2004 plan.

All right -- I guess asking another way, is the percentage of contracts that expired in '03 going to be about equal to the percentage of your book that will expire in '04?

Let me see -- I might turn to Dick or Tracy, if they might know. I wouldn't know offhand exactly that answer.

I was going to say -- I would answer like this. It's probably -- there could be some slight differences in kind of the percent, in terms of what percent of book is expiring. The big difference for us will be the fact that in 2003, we continue to extend a lot of those contracts that were scheduled to expire just as we had in 2002. So even though the level coming due originally isn't that much different for 2004, we do have -- we're taking those extensions into 2004. And that's what will drive kind of an increased number of vehicles being replaced and going into the used truck center. And we've built that into our CapEx plan. We've known we have been below that normalized replacement cycle. And we feel the industry has been below that normalized replacement cycle. So that has been part of our asset management plan and capital plan for 2004 and as we look beyond.

Great, and just one follow-up question. Did I hear on the call that you had a favorable claims experience in Dedicated as contributing (ph) to the margin? If I heard that correctly, can you quantify what that impact was? You know, what the insurance expense or claims expense was year over year? Because, again, you got margin improvement there. And I thought that was somewhat of a leveraged business. And the revenue line didn't look like it gave you much opportunity for leverage.

We didn't say anything specific in that regard. The answer to the question was looking at the overall return on Dedicated Contracts Carriage, and I said rather than look at a specific quarter, you had to look at that over an entire year. And sometimes, quarters can be affected by variability in claims.

The fourth quarter itself didn't have a favorable claims experience.

No.

Ed Wolfe.

Bear Stearns. Greg, just in thinking about the quarter, you reported it as 61 cents. I would argue that you benefited from 3 cents from the restructuring and it should be 64. But then you also benefited from 2 cents of selling some property in the UK, so probably the right quarter that (ph) -- at least the way we're viewing it is on an ongoing basis of 62. Is there anything wrong with that logic as far as --?

Well, we have said before that some of those special one-time items, especially in the category of restructuring, we just take as a normal course of doing business. And sometimes those do occur. And that's why we didn't even say anywhere in this call anything above 64, because sometimes those unfortunately have to happen. And you take those restructurings. And we consider that an ongoing part of our results. So obviously, 1.8 million in FMS for the gain on the sale of property is a bit unique. But if you're at 61 or 62 net, you're in the ballpark, and I don't have a problem with that.

Okay. And just following up on all the logistics conversation, what is a good revenue growth rate to look for in '04? You know, it's tough to model here. You're up 3 percent in the quarter year over year, and you've been down seven quarters before that. It sounds like there's a lot of new business coming on. Is there any guidance range there?

Let me -- I'll turn it over to Tony, but I1ll also make another comment. The growth rates and the change in rates are going to be different -- are going to be different in different times of the year. In fact, if you read this current release and those in the last couple of quarters, we've said that we had some issues about contracts that were not going to be renewed. And for the most part, across our business, including in Supply Chain, most customers who do business with Ryder stay with us for a long period of time -- for years and years.

Yet especially in Supply Chain, which is particularly competitive, it is not sole (ph) clients, but they're often locations or plants or facilities that for various reasons may come up for bid. And they may be making requests that are particularly aggressive with sometimes some pretty tough and stringent requirements. We've had a couple of those that are just not going to be renewed. And they're coming off at the end of this year. And those are going to make a negative impact in the start of the first quarter and the second quarter. So in fact, revenue comparisons for Supply Chain are not going to look that attractive.

So we have made that warning. And I will make it again. Once those tend to terminate, and then -- I think then you begin to see the pickup of a lot more net increase in business that I think will probably show up in the third and fourth quarter of the year, because we have been at an aggressive sales approach for sometime now. We have been more successful. Our cost model and therefore our pricing is much more attractive. And we think that that will begin to show up, but probably not until later in the second half of 2004. So I want to try to put that in context, both from where we are and what we have been saying the last couple of quarters. And with that, I'll turn it over to Tony.

Thank you. Late last year, when we shared with you our view of the 2004 business plan, our operating revenue then was projected to be at about 2 percent growth for the full year, distributed as Greg really articulated it. It depends upon the economy. It depends upon our customers' volumes. We did see very attractive volume increases in a number of our customers in the fourth quarter. We're hopeful that those volume levels will continue to throughout the year. A number of our customers are still a bit cautious, waiting to see if the turnaround is absolutely real or not. But again, depending upon the volumes, based on the economic activity, I think what we had indicated to you late last year around the 2 percent range for operating revenue is pretty much where our thinking still is.

Just to recap what both of you said, then -- we should probably be modeling for negative year-over-year revenue comparisons the first half of the year, modest positive the second half, totaling roughly 2 percent. But the economy has probably gotten a little bit better since October when you gave that guidance for existing customers. So if that keeps up, maybe it's a little better than that? Is that a fair recap?

That's our thinking at this time. Yes, that is correct.

Okay. Tony, you mentioned before that there was some start-up business that's coming in already in the first quarter. Is there anything that we should think about in terms of maybe the margin comps get a little more difficult in the second quarter with stuff? Or does some of the startup business have a negative impact initially on the margins?

Well, we have worked very, very hard to have more flawless startups than has been our past history. So we believe that these startups should go very, very well. And there should not be a degradation in margin during these startups.

So you really see no impact, in other words.

No negative impact from these startups, no.

Tracy, two quick questions -- can you talk to what the total fixed and variable debt was at the end of the year? And also, not the average diluted share count, but the shared count at the end of the quarter, if you have that?

Yes, on the debt side -- on the total obligations of 2 billion, roughly 33 percent of that was variable debt.

Okay. And the share count at the end of the quarter?

At the end of the quarter -- let me see if I have that. The basic shares -- actual shares outstanding, Ed, were 64.5 million.

Jeff Kauffman.

Fulcrum Global Partners. Well, congratulations. I mean, solid quarter, solid year, a lot of cost cutting gone well. I want to drill down a little bit -- not to beat the dead horse, but kind of talk about some of the changes that occurred at the SCS margins. There was an allusion earlier to exchange rates. Tracy, were exchange rates just a revenue benefit? Or was there an actual P&L benefit from currency this year?

There was an NBT impact, Jeff. But I think for the full year for the full company, it was about $4 million at the net before tax level.

Okay, and for the fourth quarter?

1.5 million.

1.5 million, okay. And the 1.8 million gained in the UK -- that's an after-tax number?

No, that was a pretax number. And that was an operating facility, which we do sell from time to time.

Right, normal part of the business. And the customer incentive and contract change of 3 million was also a pretax number?

Yes, it was.

Okay, I just wanted to make sure I was clear on that. Question of a different type. You don't run stock options expense for the P&L right now, do you.

No, we do not.

Okay. But a lot of big companies are starting to do that. And I guess my impression is by 2005, most companies are going to be doing that? Have you put any thought into that at this point?

We've certainly looked at it. And we do provide that information on a pro forma basis in our Q and K. There is a -- so at this point, we've elected not to run that through our P&L. There is an exposure draft due out this year. And I think there is somewhat of an expectation that we may be required to do that in 2005. But we will be looking at the exposure draft and determining what is required for next year as that gets finalized.

Okay. If we did expense options in 2003, how much of a bottom-line impact would that have had? What would that have meant, whether it's pretax earnings or earnings per share, however you want to look at it?

Yes, I think if you look at the pro formas we have been sharing, we have been as high as 12 cents in a year. That number can be impacted if you have options turned in as people leave the company or as they expire. So for 2003, I would expect that number to be down. I think a good average to use would be about 10 cents. I'd (ph) look kind of over a couple of years.

Okay, so probably no more than 5 percent of earnings is what you are saying.

Right.

Okay, very good. Congratulations. Solid quarter.

Thaniel Haziodas (ph).

Hi, I think this question might be for Tracy. If we enter a rising interest rate environment, what effect might that have on your full-service lease business in terms of pricing and margins of new business and renewals?

Well, we do -- when we price our products in the market, we do account for interest rates. So as interest rates would increase, we would reflect that in pricing of new contracts going forward.

So you're saying that your margins would still be the same?

Well, certainly --

That's the goal?

Yes, in new contracts we would sign -- and we try to do a pricing based on matched (ph) funding. If it's a five-year lease, we would look at the price of five-year money (ph). There would be an impact certainly to the extent we have variable debt outstanding. And we are at 33 percent right now. So if you take -- if you look at 33 percent is variable on our 2 billion outstanding debt, I think you can run the numbers in terms of the near-term exposure on our existing debt. (multiple speakers) But philosophically, when we -- if interest rates rise, we will start reflecting that in new contracts that we sell in the marketplace.

My second question, I guess, would be for Tony. Who are your biggest competitors in terms of the Supply Chain Solutions?

XL (ph), Eagle, UPS, Tibbett (ph) in Britain -- pretty much the same players in all the major opportunities that we have. And we typically start out with 11 or 12 players, down select to two or three in the very competitive bidding. And its typically that group that are always playing in the top two, top three in each very competitive bid.

And over the last six months, would you say pricing has gotten more aggressive or more rational or the same?

I think basically it's stayed the same. I think everyone is working very, very hard to be competitive. But they also want to protect the quality of their earnings at the same time.

At this time I show no further questions. I'd like to turn the call back over to Mr. Greg Swienton.

Well, thank you. And we're about five minutes ahead of schedule, and considering we started five minutes late to get everybody on, we're done in under our time. And I thank everybody for your participation and your questions. And have a good, safe day. Thank you.