Slide 1: Pension Overview
Pension Overview November 19, 2002
Slide 2: Safe Harbor
Safe Harbor Note: Certain statements and information included in this presentation are “forward-looking statements" under the Federal Private Securities Litigation Reform Act of 1995. These statements are based on the Company's current plans and expectations and involve risks and uncertainties that
Slide 3: Background
Background ¢ Focus on defined benefit pension plans has intensified given negative returns in global equity markets combined with record low U.S. interest rates = Concerns about increased pension expense and its impact on 2003 EPS = Concerns about required cash contributions to pension plans @ Pensi
Slide 4: 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 asset ret
Slide 5: Contents
Contents ¢@ Accounting Fundamentals Page 6 @ 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 36 @ Conclusions Page 41
Slide 6: Accounting Fundamentals
Accounting Fundamentals
Slide 7: Ryder Accounting Fundamentals
CRyder Accounting 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 per
Slide 8: Pension Assumptions
C Ryder Accounting Fundamentals Pension Assumptions ¢ Discount Rate - rate that discounts expected future cash benefit payments to a present value. Benchmarked to Aa 20-year industrial corporate bond rates. ¢ Pension Earnings Rate - long-term expected rate of return on assets based on asset allocati
Slide 9: Funded Status
Funded Status
Slide 10: Funded Status and Balance Sheet Impact of Pension
Funded Status Ryder System, Inc. and Subsidiaries Funded Status and Balance Sheet Impact of Pension (Amounts in millions ) 2001-2000 1999 Projected benefit obligations (PBO) at 12/31 $9220 6202 7018 Fair value of Plan assets at 12/31 8818 993.5 1,054.1 Unrecognized transition asset 0.2) (0.3) (4.0)
Slide 11: Consolidated Funded Status
Funded Status Consolidated Funded Status (Amounts in millions) 2001 2000 © 1999 U.S. Qualified Plan - Reported ") $ 3.8 189.8 348.7 U.S. Non Qualified Plan 21.4) (19.4) (14.6) International Plans 26) 29 18.2 Total Consolidated Funded Status $ (40.2) 173.3 352.3 (Year end required disclosure based on
Slide 12: U.S. Qualified Pension Plan Funded Status
Funded Status U.S. Qualified Pension Plan Reported* Estimated 12131401 12131402 ($ millions) Fair Value of Assets (FVA) $ 777.4 667.0 (1) PV of Liability (PBO) 773.6 844.0 (2) SFAS 87 Funded Status $ 38 (177.0) Percent Funded 100% 79% 1) Actual return on plan assets assumed to be (10)% for 2002. Ass
Slide 13: 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: Pension Liabilities
Funded Status 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 = Based on service to date of valuation = Based on selected discount rate = Highly se
Slide 15: Historical Funded Status-U.S. Only
Funded Status Historical Funded Status-U.S. Only % 120 110 | | ] 100 a a a wo| —O SSS 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002E Note: All years as of 12/31
Slide 16: Pension Investment Strategies and Results
Pension Investment Strategies and Results
Slide 17: Purpose of the pension fund
¢ 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 allocation is structured to produce the requ
Slide 18: Asset Allocation Strategy
Asset Allocation Strategy ¢ Ryder’s current U.S. Pension asset allocation and approved ranges* are as follows: Current Target Allocation Range a U.S. Equity 45% 42% - 52% = Non-U.S. Equity 13% 8% - 18% a U.S. Fixed Income 24% 16% - 26% = Venture Capital 2% 0% - 9% = Tactical Asset Allocation (TAA) 1
Slide 19: Asset Return History
7 Ryder Pension Investment Strategies & Results Asset Return History ry 30 PX A t \ , ~ or | 20 % < % 2.75] *—t lt; 275 \ ° \ ° se ~ “10 ~“ “10 7 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 YTD —s~ Annual Asset Return ~te~ Rolling 10-Y ear Annualized Asset Retum —+— Current Expected L
Slide 20: Pension Contribution Requirements
Pension Contribution Requirements
Slide 21: Pension Contribution
Pension Contribution ¢ Annual 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 unfunded lia
Slide 22: Pension Contribution
Pension Contribution ¢@ Under ERISA minimum funding rules, Ryder is not required to make a contribution until late 2004. Ryder may elect to make a voluntary contribution prior to late 2004. ¢ Present value of pre-tax required minimum contributions over the next 5 years is estimated to be between $12
Slide 23: Pension Expense
Pension Expense
Slide 24: Consolidated Pension Expense History
(Amounts in millions) Service cost Interest cost Expected return on plan assets Amortization of transition asset Recognized net actuarial (loss) gain Amortization of prior service cost Pension (exp) inc, excluding union plans Union-administered plans Net pension (expense) income Actuarial Assumption
Slide 25: Detail of Consolidated Pension Expense History
Pension Expense Detail of Consolidated Pension Expense History Years Ended December 31: (Amounts in millions) 2001 2000 U.S. Qualified Plan 143 514 U.S. Non Qualified Plan 24) 24) International Plans @2) 44) Union Administered Plans @ Net Pension (Expense) Income 25
Slide 26: Service Cost
Service Cost (Amounts in millions) 2002 E 2001 Interest cost (60.1) (68.3) Expected return on plan assets 754 91.2 Recognized net actuarial loss (9.4) (0.5) Amortization of prior service cost 2.1 2.5) Pension (exp) inc, excluding union plan (25.0) 37 Union-administered plans 3.0) 2.9) Net pension (e
Slide 27: Interest Cost
(Amounts in millions) Com Ser y-adrrinistered plans: cost Expected return on plan assets Recognized net actuarial loss Amortization of prior service cost 2.1 2.5) Pension (exp) inc, excluding union plan (25.0) 37 Union-administered plans 3.0) 2.9) Net pension (expense) income $(28.0) 08 Interest Cos
Slide 28: Expected Return on Assets
(Amounts in millions) Pension Expense Expected Return on Assets + Return on Plan assets 2002 E 2001 represents the assumed change in Company-adrvinistered plans: the fair value of Plan Service cost $(28.8) = (26.2) assets during the year, Interest cost ‘60.1 58.3) after considering plan contribution
Slide 29: Actuarial Gain / Loss
Actuarial Gain / Loss (Amounts in millions) 2002 E 2001 Company-adrvinistered plans: Service cost $(28.8) (26.2) Interest cost (60.1) (68.3) oe return on SS assets 75.4 91.2 Amortization of prior service cost 2.1 2.5) Pension (exp) inc, excluding union plan (25.0) 37 Union-administered plans 3.0) 2.
Slide 30: Prior Service Cost
(Amounts in millions) 2002 E 2001 Company-adrvinistered plans: Service cost $(28.8) (26.2) Interest cost (60.1) (68.3) Expected return on plan assets 75.4 91.2 Recognized net actuarial loss 9.4) 0.5) Pension (exp) inc, excluding union plan (25.0) 37 Union-administered plans 3.0) 2.9) Net pension (ex
Slide 31: Sensitivity Analysis-U.S. Qualified Pension Plan
Expected Long-Term Return on Assets Actual 2002 Asset Returns Contributions Discount Rate (12/31/02) 31 Pension Expense Sensitivity Analysis-U.S. Qualified Pension Plan Impact on 2003 Pension Change Expense £ 05% ¥ $3 Million + 5.0% = $9 Million $ 25 Million | | $ (2) Million £ 0.25% ¥ $5 Million
Slide 32: Impact on 2003 Pension Expense
Pension Expense Impact on 2003 Pension Expense U.S. Qualified Pension Plan 2003 Resulting Pension Expense 10% | $54.0 million Forecast A Actual 2002 Asset Returns 18% $63.2 million Forecast B (see next page) Note: 1.) 2002 pension expense is §10.7 million 2) YTD Actual return on asset performance -1
Slide 33: 2003 Expectations-U.S. Qualified Pension Plan
Pension Expense (Amounts in millions) U.S. Qualified Pension Plan Service cost Interest cost Expected return on plan assets Net amortization Pension (expense) income Actuarial Assumptions: Discount rate Salary progression rate Expected retum on Plan assets 2002 Actual return on Plan assets Note: Ass
Slide 34: Drivers of the Change in 2003 U.S. Pension Expense
Pension Expense (Amounts in millions) Forecast A Actual 2002 Asset Return (10)% 2002 pension expense $ 10.7 Reduction in discount rate from 7%to 6.5% 94 Lower expected return on Plan assets due to 2002 performance 97 Increased amortization expense due to 2001/ 2002 performance 22.7 Other 2003 U.S. P
Slide 35: Drivers of the Change in 2003 Consolidated Pension Expense
Drivers of the Change in 2003 Consolidated Pension Expense (Amounts in millions) ForecastA Forecast B 2002 estimated pension expense $ 28.0 $28.0 Increase in U.S. Qualified Plan 433 52.5 Increase in U.S. Non-Qualified / International and Union Plans Estimated 2003 increase in pension expense 2003 Co
Slide 36: Additional Minimum Liability
Additional Minimum Liability
Slide 37: Additional Minimum Liability
re Ryder 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 conjunc
Slide 38: Additional Minimum Liability
re Ryder 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
Slide 39: Impact to Ryder
re Ryder Additional Minimum Liability Impact to Ryder @ Negative asset returns plus a declining interest rate environment have led to an estimated unfunded ABO at 12/31/02 and a required minimum liability estimated at $283 Million at 12/31/02 @ Required charge to equity of $174 Million (net of tax)
Slide 40: Additional Minimum Liability Estimate
re Ryder Additional Minimum Liability (in millions) Estimated 12131102 ABO $ 804 Fair Value of Plan Assets 667 Unfunded ABO 137 Prepaid Pension Asset 146 Additional Minimum Liability $ 283 Offset to Liability Accrual: Intangible Asset $ " Charge to Equity 174 Deferred Tax Asset 98 $ 283 40 Based on
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 is expected to be negative @ Pension funding requirements are manageable relative to free cash flow @ An expected unfunded minimum liability will result in a charge to equity at year end @ Pension charge to equity will not affect earnings or compliance with de
Slide 44: Ryder
TRyder