Ryder System, Inc. · NYSE:R
Ryder System — Corporate Update (February 2010)
47 slides from Ryder System's corporate update, Feb 26, 2010
Slide 1: Pension Overview February 2010
Pension Overview February 2010
Slide 2: Safe Harbor Note Regarding Forward-Looking Statements
2/25/2010 Proprietary and Confidential 2 Safe Harbor Note Regarding Forward-Looking Statements: Certain statements and information included in this presentation are "forward-looking statements" under the Federal Private Securities Litigation Reform Act of 1995 including statements relating to estima
Slide 3: Contents
2/25/2010 Proprietary and Confidential 3 Purpose of Overview Page 4 Plan Overview / Recent Changes Page 5 Accounting Fundamentals Page 6 Pension Funded Status Page 10 Pension Investment Strategies and Results Page 18 Pension Contribution Requirements Page 23 Pension Expense Page 27 Pension Equity Ch
Slide 4: Purpose of Overview
2/25/2010 Proprietary and Confidential 4 Provide clarity to the main components and drivers of pension expense: generally and specific to Ryder's continuing operations Provide insight into the factors which create funding requirements: generally and specific to Ryder Provide information on Ryder's U
Slide 5: Plan Overview / Recent Changes
Ryder historically offered defined-benefit pension benefits in the U.S., U.K, and Canada. Substantially all employees, except U.S. drivers and warehouseman, were covered under the plans. The majority of the employees covered by the plans are in Fleet Management Solutions and Central Support Services
Slide 6: Accounting Fundamentals
CRyder Accounting Fundamentals
Slide 7: Accounting Fundamentals
2/25/2010 Proprietary and Confidential 7 Guiding literature - FASB Accounting Standards Codification (ASC) Topic 715, "Compensation - Retirement Benefits" Delayed Recognition - changes in pension obligation and the value of net assets are recognized in earnings systematically and gradually over futu
Slide 8: Pension Assumptions: Discount Rate and Pension Earnings Rate
2/25/2010 Proprietary and Confidential 8 Discount Rate - rate that discounts expected future cash benefit payments to a present value. Rate determined from models that match the expected benefit payments underlying the liability to coupons and maturities from a hypothetical portfolio of high quality
Slide 9: Pension Assumptions: Salary Progression, Retirement and Mortality
2/25/2010 Proprietary and Confidential 9 Salary Progression Rate - annual rate of growth based on expected compensation until retirement, including all salary increase components (merit, promotion, equity, overtime and inflation). Rate used to produce our 12/31/2009 pension liability valuation and 2
Slide 10: Pension Funded Status
CRyder Pension Funded Status
Slide 11: Funded Status and Balance Sheet Impact of Pension
2/25/2010 Proprietary and Confidential 11 * Actuarial losses are amortized to earnings over the average remaining service life of active participants or the average remaining life expectancy of inactive participants if all or almost all of the plan's participants are inactive. Ryder System, Inc. and
Slide 12: Consolidated Funded Status
2/25/2010 Proprietary and Confidential 12 Consolidated Funded Status Funded Status
Slide 13: U.S. Qualified Pension Plan Funded Status
2/25/2010 Proprietary and Confidential 13 (1) Actual return on plan assets was approximately 23% for 2009. (2) Discount rate was 6.20% at 12/31/09 (6.25% at 12/31/08). U.S. Qualified Pension Plan Funded Status
Slide 14: Pension Assets
2/25/2010 Proprietary and Confidential 14 Pension Assets Pension assets are measured at the end of each reporting year (December 31) Point-in-time valuation Reflects fair market value Not market-related (smoothed) value which is another accepted method The fair market value of pension assets changes
Slide 15: Pension Liabilities
2/25/2010 Proprietary and Confidential 15 Pension Liabilities Projected Benefit Obligation (PBO) measures the present value of expected future benefit payments to plan participants including future salary increases Point-in-time valuation (year-end unless interim assessment required) Based on servic
Slide 16: Historical Consolidated Funded Status
2/25/2010 Proprietary and Confidential 16 Historical Consolidated Funded Status 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Funded Status 121 96 74 80 83 78 93 100 66 80 % Note: All years as of 12/31 Funded Status
Slide 17: Historical Funded Status - U.S. Qualified Plan Only
2/25/2010 Proprietary and Confidential 17 Historical Funded Status - U.S. Qualified Plan Only 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Funded Status 128 100 77 83 87 81 97 100 62 77 % Note: All years as of 12/31 Funded Status
Slide 18: Pension Investment Strategies and Results
Pension Investment Strategies and Results
Slide 19: Pension Fund Purpose and Investment Committee Responsibilities
2/25/2010 Proprietary and Confidential 19 The purpose of the pension fund is to accumulate sufficient assets to meet the Plan's future payment obligations (liabilities). Ryder's Investment Committee oversees the asset management and investment activities of our pension plans. Responsibilities includ
Slide 20: Asset Allocation Strategy
2/25/2010 Proprietary and Confidential 20 Ryder's U.S. pension asset allocation and approved targets* are as follows: 12/31/09 12/31/08 Allocation Allocation Target U.S. Equity 48% 37% 50% Non-U.S. Equity 15% 14% 15% U.S. Fixed Income 27% 32% 30% Tactical Asset Allocation (TAA**) 0% 13% 0% Venture C
Slide 21: U.S. Qualified Pension Plan Asset Return History
2/25/2010 Proprietary and Confidential 21 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Annual Actual Asset Return -6.9 -13.7 23.9 11.4 7.4 14.4 6.5 -31.5 23.4 Current Expected Long Term Return on Assets 9.25 8.75 8.5 8.5 8.5 8.5 8.5 8.4 7.9 7.65 Rolling 15-Year Compound Annual Return 11.2 9.8 1
Slide 22: Current Expected Long-Term Return on Assets
2/25/2010 Proprietary and Confidential 22 Current Expected Long-Term Return on Assets Long-term return assumptions are based on: Actuarial review of asset allocation strategy Long-term expected asset returns Investment management and other fees paid using plan assets 2010 expected return decreased t
Slide 23: Pension Contribution Requirements
Pension Contribution Requirements
Slide 24: Pension Contribution
2/25/2010 24 Pension Contribution Annual U.S. cash contribution requirements were historically determined under Employee Retirement Income Security Act (ERISA). In 2006, the Pension Protection Act (PPA) was passed which amended ERISA for the purpose of strengthening pension funding and helping the P
Slide 25: Pension Contribution: 2009 Elections and Influencing Factors
2/25/2010 25 For 2009 funding purposes, Ryder adopted certain one-time elections allowed by the IRS in order to reduce contribution requirements: Asset method changed from point-in-time asset method to smoothed asset method Discount rate method changed from smoothed discount rate to point-in-time di
Slide 26: Pension Contribution: Estimated Funding Requirements
2/25/2010 Proprietary and Confidential 26 Pension Contribution Under PPA minimum funding rules and based on current assumptions, Ryder will be required to make significant contributions in the next five years; however, no contributions are required or expected to be made in 2010 due to a $85M contri
Slide 27: Pension Expense
CRyder Pension Expense
Slide 28: Consolidated Pension Expense History
2/25/2010 Proprietary and Confidential 28 Consolidated Pension Expense History Pension Expense
Slide 29: Detail of Consolidated Pension Expense History
2/25/2010 Proprietary and Confidential 29 Detail of Consolidated Pension Expense History Pension Expense
Slide 30: Service Cost
Service cost is determined as the actuarial present value of benefits for employee service during the period Amount is impacted by: 1) Discount Rate 2) Number of employees 3) Expected lives / retirement period of employees Service Cost Pension Expense
Slide 31: Interest Cost
2/25/2010 Proprietary and Confidential 31 Interest cost represents the increase in the projected benefit obligation due to the passage of time Amount is measured by accrual of interest cost at assumed discount rate Interest Cost Pension Expense
Slide 32: Expected Return on Assets
2/25/2010 Proprietary and Confidential 32 Return on Plan assets represents the assumed change in the fair value of Plan assets during the year, after considering plan contributions and distributions Average long-term U.S. expected rate of return of: 2001 9.25% 2002 8.75% 2003-2007 8.50% 2008 8.40% 2
Slide 33: Curtailment Loss (Gain)
2/25/2010 Proprietary and Confidential 33 Loss recognized in Q3-09 upon amendment to freeze U.K. plan effective 3/31/2010 Gain recognized in Q3-08 upon amendment to freeze Canadian plan effective on 1/1/2010 Represents the write-off of unrecognized prior service cost/(credits) associated with years
Slide 34: Actuarial Gain / Loss
Actuarial gains or losses include changes in pension assets or obligations resulting from experience different than that assumed or changes in assumptions G/L recognized over time G/L recognition is subject to a "corridor" which is generally 10% of the greater of pension obligations ($1.6 billion at
Slide 35: Prior Service Credit
2/25/2010 Proprietary and Confidential 35 Prior service credit represents the cost of retroactive benefit reductions made in a Plan amendment Recognized over the anticipated future service period of employees affected Prior Service Credit Pension Expense
Slide 36: Union-Administered Pension Plans
2/25/2010 Proprietary and Confidential 36 Ryder participates in 12 multi-employer pension (MEP) plans that provide benefits to employees covered by collective bargaining agreements as follows: The annual net pension cost of the plans is equal to the annual contribution which was $5.2 million in 2009
Slide 37: Sensitivity Analysis - U.S. Qualified Pension Plan
2/25/2010 Proprietary and Confidential 37 Sensitivity Analysis - U.S. Qualified Pension Plan Pension Expense
Slide 38: 2010 Expectations - Consolidated Pension Expense
2/25/2010 Proprietary and Confidential 38 2010 Expectations - Consolidated Pension Expense Pension Expense
Slide 39: Drivers of the Change in 2010 Consolidated Retirement Plans Expense
2/25/2010 Proprietary and Confidential 39 Drivers of the Change in 2010 Consolidated Retirement Plans Expense Pension Expense
Slide 40: 2010 Expectations - U.S. Qualified Pension Plan
2/25/2010 Proprietary and Confidential 40 2010 Expectations - U.S. Qualified Pension Plan Pension Expense
Slide 41: Pension Equity Charges
CRyder Pension Equity Charges
Slide 42: Pension Equity Charges: Funded Status in the Balance Sheet
2/25/2010 Proprietary and Confidential 42 The funded status of a defined benefit plan is recognized in the balance sheet. Funded Status = Fair value of plan assets compared to PBO Overfunded Plan ^ Balance sheet asset Underfunded Plan ^ Balance sheet liability Year-end (December 31 for Ryder) calcul
Slide 43: Cumulative Pension Equity Charges and Debt Covenant
2/25/2010 Proprietary and Confidential 43 Negative asset returns in early 2000 and in 2008 have led to significant unrecognized actuarial losses. Following is a summary of cumulative pension equity charges: Required charge to equity decreased in 2009 because of positive asset returns. Global revolvi
Slide 44: Conclusions
CRyder Conclusions
Slide 45: Conclusions
2/25/2010 Proprietary and Confidential 45 Ryder has frozen U.S. and Canadian pension plans to most active employees and U.K. pension plan to all employees. Pension expense is sensitive to expected long-term asset returns versus actual returns as well as interest rate changes. Difference between actu
Slide 46: Conclusions: Funded Status and Equity Charge
2/25/2010 Proprietary and Confidential 46 At year end 2009, the plans were 80% funded. The funded status is negative $321M. Minimum pension funding requirements are manageable relative to free cash flow. Underfunded status results in a charge to equity (cumulative $412M at 12/31/09). Pension charge
Slide 47: CAhyder
CAhyder