Slide 1: Pension Overview December 2010
Pension Overview December 2010
Slide 2: Safe Harbor Note Regarding Forward-Looking Statements
2/28/2011 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
2/28/2011 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
2/28/2011 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
2/28/2011 Proprietary and Confidential 5 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 Manageme
Slide 6: Accounting Fundamentals
Ryder Accounting Fundamentals
Slide 7: Accounting Fundamentals
2/28/2011 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 Earnings Rate
2/28/2011 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
2/28/2011 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 12/31/2010 pension liability valuation and 2
Slide 10: Pension Funded Status
CRyder Pension Funded Status
Slide 11: Funded Status and Balance Sheet Impact of Pension
2/28/2011 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
2/28/2011 Proprietary and Confidential 12 Consolidated Funded Status Funded Status
Slide 13: U.S. Qualified Pension Plan Funded Status
2/28/2011 Proprietary and Confidential 13 (1) Actual return on plan assets was approximately 12% for 2010. (2) Discount rate was 5.70% at 12/31/10 (6.20% at 12/31/09 and 6.25% at 12/31/08). U.S. Qualified Pension Plan Funded Status
Slide 14: Pension Assets
2/28/2011 Proprietary and Confidential 14 Pension Assets Pension assets are measured at the end of each reporting year (12/31) 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 from
Slide 15: Pension Liabilities
2/28/2011 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
2/28/2011 Proprietary and Confidential 16 Historical Consolidated Funded Status 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Funded Status 96 74 80 83 78 93 100 66 80 82 % Funded Note: All years as of 12/31 Funded Status
Slide 17: Historical Funded Status - U.S. Qualified Plan Only
2/28/2011 Proprietary and Confidential 17 Historical Funded Status - U.S. Qualified Plan Only 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Funded Status 100 77 83 87 81 97 100 62 77 79 % Funded Note: All years as of 12/31 Funded Status
Slide 18: Pension Investment Strategies and Results
Pension Investment Strategies and Results
Slide 19: Pension Investment Strategy and Governance
2/28/2011 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 North American pension plans. Responsi
Slide 20: Asset Allocation Strategy
2/28/2011 Proprietary and Confidential 20 Asset Allocation Strategy Pension Investment Strategies & Results Ryder's U.S. pension asset allocation and approved targets are as follows:
Slide 21: U.S. Qualified Pension Plan Asset Return History
2/28/2011 Proprietary and Confidential 21 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Annual Actual Asset Return -13.7 23.9 11.4 7.4 14.4 6.5 -31.5 23.4 12.5 Current Expected Long Term Return on Assets 8.75 8.5 8.5 8.5 8.5 8.5 8.4 7.9 7.65 7.6 Rolling 15-Year Compound Annual Return 9.8 10.5 9.
Slide 22: Current Expected Long-Term Return on Assets
2/28/2011 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 2011 expected return decreased t
Slide 23: Pension Contribution Requirements
Pension Contribution Requirements
Slide 24: Pension Contribution
2/28/2011 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
2/28/2011 25 For 2010 funding purposes, Ryder used the same elections as used in 2009: Smoothed assets Smoothed discount rate Smoothing should produce more stable contribution requirements Contribution requirements are influenced primarily by the following factors: Funded status Actual return on pla
Slide 26: Pension Contribution: Estimated Funding Requirements
2/28/2011 Proprietary and Confidential 26 Pension Contribution Under PPA minimum funding rules and based on current market assumptions, Ryder will be required to make significant contributions in the next five years. However, no contributions are required for the U.S. Qualified Plan during 2011 due
Slide 27: Pension Expense
Ryder Pension Expense
Slide 28: Consolidated Pension Expense History
2/28/2011 Proprietary and Confidential 28 Consolidated Pension Expense History Pension Expense
Slide 29: Detail of Consolidated Pension Expense History
2/28/2011 Proprietary and Confidential 29 Detail of Consolidated Pension Expense History Pension Expense
Slide 30: Service Cost
2/28/2011 Proprietary and Confidential 30 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
2/28/2011 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
2/28/2011 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: Settlement/Curtailment Loss
2/28/2011 Proprietary and Confidential 33 Settlement loss recognized in 2010 upon election by a number of Canadian employees to receive a lump- sum payment (1) For 2010, lump-sum payments were greater than service and interest cost and triggered settlement accounting (2) Recognized proportionate amo
Slide 34: Actuarial Gain / Loss
2/28/2011 Proprietary and Confidential 34 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 great
Slide 35: Prior Service Credit
2/28/2011 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
2/28/2011 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 2010
Slide 37: Sensitivity Analysis - U.S. Qualified Pension Plan
2/28/2011 Proprietary and Confidential 37 Sensitivity Analysis - U.S. Qualified Pension Plan Pension Expense
Slide 38: 2011 Expectations - Consolidated Pension Expense
2/28/2011 Proprietary and Confidential 38 2011 Expectations - Consolidated Pension Expense Pension Expense
Slide 39: Drivers of the Change in 2011 Consolidated Pension Expense
2/28/2011 Proprietary and Confidential 39 Drivers of the Change in 2011 Consolidated Pension Expense Pension Expense
Slide 40: 2011 Expectations - U.S. Qualified Pension Plan
2/28/2011 Proprietary and Confidential 40 2011 Expectations - U.S. Qualified Pension Plan Pension Expense
Slide 41: Pension Equity Charges
CRyder Pension Equity Charges
Slide 42: Pension Equity Charges: Funded Status Recognition
2/28/2011 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
2/28/2011 Proprietary and Confidential 43 Negative asset returns and a declining interest rate environment have led to significant unrecognized actuarial losses. Following is a summary of cumulative pension equity charges: The higher equity charge in 2010 reflects the impact of a lower discount rate
Slide 44: Conclusions
CRyder Conclusions
Slide 45: Conclusions
2/28/2011 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
2/28/2011 Proprietary and Confidential 46 Minimum pension funding requirements are manageable relative to total cash generated. At year end 2010, the plans were 82% funded of accounting basis. The funded status is negative $315M. Underfunded status results in a charge to equity (cumulative $423M at
Slide 47: CAyder
CAyder