Slide 1: December 2012 Pension Overview
Proprietary and Confidential | December 2012 Pension Overview 1
Slide 2: Safe Harbor Note Regarding Forward-Looking Statements
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 expected disco
Slide 3: Contents
Proprietary and Confidential | 3 Contents 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 28 Pension Equity C
Slide 4: Purpose of Overview
Proprietary and Confidential | 4 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. pe
Slide 5: Plan Overview / Recent Changes
Proprietary and Confidential | 5 Plan Overview / Recent Changes ► Ryder historically offered defined-benefit pension plans 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
Slide 6: Accounting Fundamentals
Proprietary and Confidential | 6 Accounting Fundamentals
Slide 7: Accounting Fundamentals
Proprietary and Confidential | 7 Accounting Fundamentals 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
Slide 8: Accounting Fundamentals – Pension Assumptions
Proprietary and Confidential | 8 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
Slide 9: Accounting Fundamentals – Pension Assumptions
Proprietary and Confidential | 9 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 12/3
Slide 10: Pension Funded Status
Proprietary and Confidential | 10 Pension Funded Status
Slide 11: Funded Status and Balance Sheet Impact of Pension
Proprietary and Confidential | 11 Ryder System, Inc. and Subsidiaries Funded Status and Balance Sheet Impact of Pension (Dollars in millions) 2012 2011 2010 Projected benefit obligations (PBO) at 12/31 $ 2,207.4 1,967.6 1,744.2 Fair value of Plan assets at 12/31 1,612.9 1,418.0 1,428.8 Funded status
Slide 12: Consolidated Funded Status
Proprietary and Confidential | 12 Consolidated Funded Status (Dollars in millions) 2012 2011 2010 U.S. Qualified Plan $ (537.3) (480.8) (288.2) U.S. Non Qualified Plan (46.1) (42.1) (39.6) International Plans (11.1) (26.6) 12.4 Total Consolidated Funded Status $ (594.5) (549.5) (315.4) Percent Funde
Slide 13: U.S. Qualified Pension Plan
Proprietary and Confidential | 13 U.S. Qualified Pension Plan (1) Actual return on plan assets was approximately 12.8% for 2012. (2) Discount rate was 4.10% at 12/31/12 (4.90% at 12/31/11 and 5.70% at 12/31/10). 12/31/12 12/31/11 12/31/10 (Dollars in millions) Fair Value of Assets (FVA) 1,202.6$ (1)
Slide 14: Pension Assets
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 ye
Slide 15: Pension Liabilities
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 service to
Slide 16: Historical Consolidated Funded Status
Proprietary and Confidential | 16 Historical Consolidated Funded Status 74 80 83 78 93 100 66 80 82 72 73 60 80 100 120 140 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 % Funde d Note: All years as of 12/31 Funded Status
Slide 17: Historical Funded Status - U.S. Qualified Plan Only
Proprietary and Confidential | 17 Historical Funded Status - U.S. Qualified Plan Only 77 83 87 81 97 100 62 77 79 69 69 40 60 80 100 120 140 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 % Funde d Note: All years as of 12/31 Funded Status Discount Rate 6.50% 6.00% 5.90% 5.65% 6.00% 6.35% 6.
Slide 18: Pension Investment Strategies and Results
Proprietary and Confidential | 18 Pension Investment Strategies and Results
Slide 19: Pension Fund Purpose and Investment Committee Responsibilities
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. Responsibilities
Slide 20: U.S. Pension Investment Strategies & Results
Proprietary and Confidential | 20 U.S. Pension Investment Strategies & Results Ryder’s actual U.S. pension asset allocations for 2012 and 2011 were as follows: 12/31/12 Allocation 12/31/11 Allocation U.S. Equity 42% 42% Non-U.S. Equity 22% 20% U.S. Fixed Income 30% 31% Alternative Investments 6% 7%
Slide 21: U.S. Qualified Pension Plan Asset Return History
Proprietary and Confidential | 21 U.S. Qualified Pension Plan Asset Return History 12.8 6.80 5.20 -35 -25 -15 -5 5 15 25 -35 -25 -15 -5 5 15 25 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Annual Actual Asset Return Current Expected Long Term Return on Assets Rolling 15-Year Compound Annua
Slide 22: Current Expected Long-Term Return on Assets
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 based on 12/31 actual asset allocation ► Investment management fees paid using plan assets 2013
Slide 23: Pension Contribution Requirements
Proprietary and Confidential | 23 Pension Contribution Requirements
Slide 24: Pension Contribution
Proprietary and Confidential | 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 fund
Slide 25: Pension Contribution
Proprietary and Confidential | 25 Pension Contribution For 2012 funding purposes, Ryder used the same elections as used in 2011: ► Smoothed assets ► Smoothed discount rate ► Smoothing should produce more stable contribution requirements Contribution requirements are influenced primarily by the follo
Slide 26: Pension Contribution: MAP-21
Proprietary and Confidential | 26 Pension Contribution On July 6, 2012, Moving Ahead for Progress in the 21st Century Act (MAP-21) was enacted and included a provision to partially reduce interest rate volatility in single- employer defined benefit pension plans. ► Places a “collar” around interest
Slide 27: Estimated Minimum Funding Requirements
Proprietary and Confidential | 27 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. In general, Ryder may elect to make voluntary contributions earlier than required and in am
Slide 28: Pension Expense
Proprietary and Confidential | 28 Pension Expense
Slide 29: Consolidated Pension Expense History
Proprietary and Confidential | 29 Consolidated Pension Expense History (Dollars in millions) 2012 2011 2010 Service cost 15.5$ 14.7 15.2 Interest cost 94.6 97.5 96.1 Expected return on plan assets (96.3) (101.8) (93.1) Settlement loss - - 1.5 Recognized net actuarial loss 31.2 20.2 19.0 Amortization
Slide 30: Detail of Consolidated Pension Expense History
Proprietary and Confidential | 30 Detail of Consolidated Pension Expense History (Amounts in millions) 2012 2011 2010 U.S. Qualified Plan 35.7$ 25.9$ 30.7$ U.S. Non Qualified Plan 3.3 3.0 3.1 International Plans 3.7 (0.6) 2.7 Union Administered Plans 6.7 6.0 5.2 Net Pension Expense 49.4$ 34.3$ 41.7$
Slide 31: Service Cost
Proprietary and Confidential | 31 Service Cost (Amounts in millions) 2012 2011 Company-administered plans: Service cost 15.5$ 14.7$ Interest cost 94.6 97.5 Expected return on plan assets (96.3) (101.8) Settlement loss - - Recognized net actuarial loss 31.2 20.2 Amortization of prior service credit (
Slide 32: Interest Cost
Proprietary and Confidential | 32 Interest Cost • 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 (Amounts in millions) 2012 2011 Company-administered plans: Service cost 15
Slide 33: Expected Return on Assets
Proprietary and Confidential | 33 Expected Return on Assets • 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: 2002 8.75% 2003-2007 8.50% 2
Slide 34: Actuarial Gain / Loss
Proprietary and Confidential | 34 Actuarial Gain / Loss • Actuarial gains or losses (G/L) 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
Slide 35: Prior Service Credit
Proprietary and Confidential | 35 Prior Service Credit • 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 (Amounts in millions) 2012 2011 Company-administered plans: Servi
Slide 36: Union-Administered Pension Plans
Proprietary and Confidential | 36 Union-Administered Pension Plans ► Ryder participates in 11 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 w
Slide 37: Sensitivity Analysis – U.S. Pension Plan
Proprietary and Confidential | 37 Sensitivity Analysis – U.S. Pension Plan Pension Expense 2012 Pension Projected Assumption Change Expense Benefit Obligation Expected Long-Term Return on Assets 7.05% +/- 0.25% -/+ $ 3.0 Million Actual 2012 Asset Returns vs. Expected 7.05% +/- 0.25% -/+ $ 0.3 Millio
Slide 38: 2013 Expectations - Consolidated Pension Expense
Proprietary and Confidential | 38 2013 Expectations - Consolidated Pension Expense (Amounts in millions) Estimate Actual Actual 2013 2012 2011 U.S. Qualified Plan 31.3$ 35.7 25.9 U.S. Non Qualified Plan 3.6 3.3 3.0 International Plans (0.4) 3.7 (0.6) Union Administered Plans 6.7 6.7 6.0 Net Pension
Slide 39: Drivers of the Change in 2013 Consolidated Pension Expense
Proprietary and Confidential | 39 Drivers of the Change in 2013 Consolidated Pension Expense (Amounts in millions) 2012 Pension Expense 49$ Higher than Assumed Return on Assets in 2012 (8) Benefit of Pension Contributions (7) Lower Discount Rate 5 Other (mortality, amortization period, etc. ) 2 2013
Slide 40: 2013 Expectations - U.S. Qualified Pension Plan
Proprietary and Confidential | 40 2013 Expectations - U.S. Qualified Pension Plan Estimate Actual Actual (Amounts in millions) 2013 2012 2011 U.S. Qualified Pension Plan Service cost 14.3$ 13.1 12.3 Interest cost 70.1 74.1 76.2 Expected return on plan assets (80.7) (75.2) (77.8) Net amortization 27.
Slide 41: Pension Equity Charges
Proprietary and Confidential | 41 Pension Equity Charges
Slide 42: Pension Equity Charges
Proprietary and Confidential | 42 Pension Equity Charges 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 (Decemb
Slide 43: Pension Equity Charges
Proprietary and Confidential | 43 Pension Equity Charges Negative/Low 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 2012 reflects the impact of a
Slide 44: Conclusions
Proprietary and Confidential | 44 Conclusions
Slide 45: Conclusions
Proprietary and Confidential | 45 Conclusions Ryder has frozen U.S. and Canadian pension plans to most active employees and U.K. pension plan to all employees. Ryder has adopted a de-risking strategy to reduce funded status volatility and financial statement volatility caused by the pension plan. Pe
Slide 46: Conclusions
Proprietary and Confidential | 46 Conclusions Minimum pension funding requirements are manageable relative to total cash generated. At year end 2012, the plans were 73% funded on accounting basis. The funded status is negative $595M. Underfunded status results in a charge to equity (cumulative $645M
Slide 47: Proprietary and Confidential | 47
Proprietary and Confidential | 47