Ryder System, Inc. · NYSE:R
Ryder System — Investor Presentation (May 2006)
44 slides from Ryder System's investor presentation, May 15, 2006
Slide 1: April 2006
April 2006
Slide 2: Safe Harbor
Safe Harbor Certain statements and information included in this presentation are "forward-looking statements” under the Federal Private Securities Litigation Reform Act of 1995. Accordingly, these forward-looking statements should be evaluated with consideration given to the many risks and uncertain
Slide 3: Purpose of Overview
Purpose of Overview > Provide clarity to the main components and drivers of pension expense: generally and specific to Ryder » Provide insight into the factors which create funding requirements: generally and specific to Ryder » Provide information on Ryder’'s U.S. pension funding status, pension as
Slide 4: Agenda
> Accounting Fundamentals Page 5 > Pension Funded Status Page 9 > Pension Investment Strategies and Results Page 16 > Pension Contribution Requirements Page 20 > Pension Expense Page 23 > Additional Minimum Liability Page 35 > Future Pension Accounting Changes Page 40 > Conclusions Page 43
Slide 5: Accounting Fundamentals
Accountin Fundamentals
Slide 6: Accounting Fundamentals
counting Fundamentals > Guiding literature - SFAS 87 “Employers’ Accounting for Pensions” and SFAS 88 re: Settlements and Curtailments of Pension Plans » Delayed Recognition - changes in pension obligation and the value of net assets are recognized systematically and gradually over future periods >
Slide 7: Accounting Fundamentals: Pension Assumptions
Accounting Fundamentals Pension Assumptions > 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
Slide 8: Accounting Fundamentals: Pension Assumptions
Accounting Fundamentals Pension Assumptions >» 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 2005 pension liability valuation and
Slide 9: Pension Funded Status
Pension Funded Status
Slide 10: Funded Status
Funded Status Ryder System, Inc. and Subsidiaries Funded Status and Balance Sheet Impact of Pension (Amounts in millions) 2005 2004 2003 Projected benefit obligations (PBO) at 12/34 $ 1,467.8 1,330.4 1,203.0 Fair value of Plan assets at 12/31 1,147.5 _ 1,106.4 __ 964.9 Unrecognized transition asset
Slide 11: Funded Status: Consolidated
Funded Status Consolidated Funded Status (Amounts in millions) 2005, 2004 2003 U.S. Qualified Plan“) (214.5) (140.8) (167.4) U.S. Non Qualified Plan (33.0) (28.9) (24.5) International Plans 72.8) 54.3) (46.2) Total Consolidated Funded Status $__ (320.3 (224.0) __(238.1) Year end required disclosure
Slide 12: Funded Status: U.S. Qualified Pension Plan
Funded Status U.S. Qualified Pension Plan 12/31/05 12/31/04 (Dollars in millions) Fair Value of Assets (FVA) 939.5 (1) 912.5 PV of Liability (PBO) 1,154.0 (2) 1,053.3 SFAS 87 Funded Status (214.5) (140.8) Percent Funded 81% 87% 1) Actual return on plan assets was approximately 7% for 2005. Includes
Slide 13: Funded Status: Pension Assets
Funded Status Pension Assets » Under Ryder’s application of SFAS 87, 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 under FAS 87 > The fair marke
Slide 14: Funded Status: Pension Liabilities
Funded Status Pension Liabi S » Projected Benefit Obligation (PBO) measures the present value of expected future benefit payments to plan participants including future salary increases — Point-in-time valuation — Based on service to date of valuation — Based on selected discount rate — Highly sensit
Slide 15: Historical Funded Status - U.S. Only
Funded Status Historical Funded Status-U.S. Only % 130 120 100 ie — casi} 70 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Note: All years as of 12/31
Slide 16: Pension Investment Strategies & Results
y Pension Investment Strategies & Results » The purpose of the pension fund is to accumulate sufficient assets to meet the Plan’s future payment obligations (liabilities). » Assets are accumulated largely through investment returns; investment returns are maximized through asset allocation; asset al
Slide 17: Asset Allocation Strategy
Ryder Pension Investment Strategies & Results Asset Allocation Strategy » Ryder’s current U.S. Pension asset allocation and approved ranges* are as follows: Current Target Allocation Range U.S. Equity 47% 42% - 52% — Non-U.S. Equity 14% B% - 18% — U.S. Fixed Income 21% 16% - 26% — Tactical Asset All
Slide 18: Asset Return History
Ryder Pension Investment Strategies & Results Asset Return History % 30 30 20 % “10 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 —#~ Annual Asset Return ~*~ Current Expected Long Term Retum on Assets —t— Rolling 10-Year Annualized Asset Return 19
Slide 19: Pension Contribution Requirements
Pension Contribution Requirements
Slide 20: Pension Contribution
Pension Contribution » Annual U.S. cash contribution requirements are determined by two sets of rules under the Employee Retirement Income Security Act (ERISA) — ERISA Minimum Funding Requirements - sufficient contributions to cover normal costs for the period and the amount to amortize past unfunde
Slide 21: Pension Expense
Pension Expense
Slide 22: Consolidated Pension Expense History
Pension Expense Consolidated Pension Expense History Years Ended December 31: (Amounts in millions) Service cost Interest cost Expected return on plan assets Recognized net actuarial loss Amortization of prior service cost Pension expense, excluding union plans Union-administered plans Net pension e
Slide 23: Detail of Consolidated Pension Expense History
Pension Expense Detail of Consolidated Pension Expense History Years Ended December 31: {Amounts in millions) 2004 2003 U.S. Qualified Plan (44.3) U.S. Non Qualified Plan (3.2) International Plans (14.9) Union Administered Plans (4.0) Net Pension Expense (63.4)
Slide 24: Service Cost
Pension Expense Service Cost + Service cost is (Amounts in millions) 2005 2004 determined as the actuarial present value of benefits for employee service Company-administered plan Interest cost (76.5) (71.4) | during the period Expected return on plan assets 90.7 82.3. |* Amount is impacted Recogniz
Slide 25: Interest Cost
Pension Expense Interest Cost (Amounts in millions) 2005 Company-administered plans: Service cost $ (37.3) Expected return on plan assets 90.7 Recognized net actuarial loss (30.0) Amortization of prior service cost (1.4) Pension expense, excluding union plans (54.5) Union-administered plans (4.7) Ne
Slide 26: Expected Return on Assets
Pension Expense Expected Return on Assets + Return on Plan assets (Amounts in millions) 2005 2004 represents the assumed change in Company-administered plans: the fair value of Plan Service cost $ (37.3) $(36.5) | assets during the year, Interest cost (76.5) (71.4) | after considering plan contribut
Slide 27: Actuarial Gain / Loss
Pension Expense Actuarial Gain / Loss (Amounts in millions) 2005 2004 Company-administered plans: Service cost $ (37.3) $(36.5) Interest cost (76.5) (71.4) Expected return on plan assets 90.7 823 Amortization of prior service cost (1.4) (2.2) Pension expense, excluding union plans (54.5) (59.4) Unio
Slide 28: Prior Service Cost
Pension Expense Prior Service Cost (Amounts in millions) 2005 = 2004 + Prior Service Cost Company-administered plans: represents the cost Service cost $ (37.3) $ (36.5) | of retroactive Interest cost (76.5) (71.4) benefits granted in a Expected return on plan assets 90.7 82.3 Plan amendment Recogniz
Slide 29: Sensitivity Analysis - U.S. Qualified Pension Plan
ion Expense Sensitivity Analysis-U.S. Qualified Pension Plan Pension Change Expense Expected Long-Term Return on Assets | + 0.25% = $2 Million Actual 2005 Asset Returns vs. Expected |+ 0.25% + $2 Million Contributions $ 25 Million $(2) Million Discount Rate + 0.25% * $5 Million Salary Progression Ra
Slide 30: 2006 Expectations - U.S. Qualified Pension Plan
Pension Expense 2006 Expectations-U.S. Qualified Pension Plan Years Ended December 31: Actual Actual (Amounts in millions) 2005 2004 U.S. Qualified Pension Plan Service cost (25.1) (23.9) Interest cost (61.8) (58.6) Expected return on plan assets 75.9 69.6 Net amortization (25.2) (28.4) Pension expe
Slide 31: 2006 Expectations - Consolidated Pension Expense
2006 Expectations- Consolidated Pension Expense (Amounts in millions) Actual Actual 2005 2004 U.S. Qualified Plan (36.2) (41.3) U.S. Non Qualified Plan (3.3) (3.2) International Plans (15.0) (14.9) Union Administered Plans (4.7) (4.0) Net Pension Expense (59.2) (63.4)
Slide 32: Drivers of the Change in 2006 Consolidated Pension Expense
Pension Expense Drivers of the Change in 2006 Consolidated Pension Expense (Amounts in millions) 2005 Pension Expense $ 59 U.S. Qualified Plan Adjustments: Decrease in Discount Rate (from 5.9% to 5.65%) G Benefit of 2005/2006 Pension Contributions (2) Lower than Assumed Return on Assets in 2005 (7.4
Slide 33: Additional Minimum Liability
Additional Minimum Liability
Slide 34: Additional Minimum Liability
Additional Minimum Liability » SFAS 87 requires an additional liability be recognized for unfunded accumulated benefit obligation (ABO) that exceeds balance sheet liability for accrued pension cost — Unfunded ABO = ABO exceeds fair value of plan assets — Point-in-time calculation in conjunction with
Slide 35: Additional Minimum Liability
Additional Minimum Liability » If an additional liability is required to be recognized, the offset is as follows: — First - Intangible asset to the extent that unrecognized prior service costs exist (intangible asset not subject to amortization) — Second - Charge to equity (net of tax) for any remai
Slide 36: Impact to Ryder
Impact to Ryder >» Negative asset returns from 2000-2002 plus a declining interest rate environment have led to an unfunded ABO since 12/31/02 and a required minimum liability of $352 million at 12/31/05 » Required charge to equity of $221 million (net of tax) as a result of unfunded minimum liabili
Slide 37: Additional Minimum Liability
Additional Minimum Liability (Amounts in millions) Dec 2005 Dec 2004 ABO $ 1,385.2 (1) 1,259.7 Fair Value of Plan Assets 4,147.5 1,106.4 Unfunded ABO 237.7 (2) 153.3 Prepaid Pension Asset 114.4 155.4 Additional Minimum Liability $ 352.1 Offset to Liability Accrual: Change Intangible Asset $ Charge t
Slide 38: Future Pension Accounting Changes
Future Pension Accounting Changes
Slide 39: Future Accounting Changes
Future:Accounting Changes FASB Exposure Draft on Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plan The proposed statement would require, among other things, the following: » Recognize the funded status of a defined benefit plan on the balance sheet — Measured as the dif
Slide 40: Impact to Ryder: Current vs Proposed Accounting
(Amounts in millions) Funded Status, Unrecognized Transition Asset Unrecognized Prior Service Cost Unrecognized Net Actuarial Loss Net Amount Recongized Accrued Benefit Liability Intangible Assets Retained Earnings, Pre-tax Charge to Equity, Pre-tax Current Accounting Impact to Ryder Proposed Accoun
Slide 41: Conclusions
Conclusions
Slide 42: Conclusions
Conclusions » Pension expense is sensitive to expected long-term asset returns versus actual returns as well as interest rate changes — Difference between actual and expected asset returns and the impact of interest rate changes are required to be amortized in order to smooth recognition of gains an
Slide 43: Conclusions
Conclusions » Funded status at year end 2005 remains negative » Pension funding requirements are manageable relative to free cash flow > An unfunded minimum liability results in a charge to equity » Proposed accounting rule changes will further increase liabilities and the charge to equity. Equity c
Slide 44: Ryder
Chyder