Ryder System, Inc. · NYSE:R
Ryder System — Corporate Update (February 2009)
45 slides from Ryder System's corporate update, Feb 19, 2009
Slide 1: Pension Overview February 2009
Pension Overview February 2009
Slide 2: Safe Harbor Note Regarding Forward-Looking Statements
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 estimated pension expense and contributions for
Slide 3: Contents
Purpose of Overview Page 4 Plan Overview / Recent Changes Page 5 Accounting Fundamentals Page 7 Pension Funded Status Page 11 Pension Investment Strategies and Results Page 19 Pension Contribution Requirements Page 23 Pension Expense Page 27 Pension Equity Charges Page 40 Conclusions Page 43 Content
Slide 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. pension funding status, pension asset returns and asset alloc
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
Accounting Fundamentals
Slide 7: Accounting Fundamentals
Guiding literature - SFAS 87 for expense purposes; SFAS 158 for balance sheet presentation Delayed Recognition - changes in pension obligation and the value of net assets are recognized in earnings systematically and gradually over future periods Net Reporting of Expense - consequences of events and
Slide 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 a hypothetical portfolio of high quality corporate bonds. Rate considered in dete
Slide 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 12/31/2008 pension liability valuation and 2009 pension expense, for our primary U.S.
Slide 10: Pension Funded Status
TAyder Pension Funded Status
Slide 11: Funded Status and Balance Sheet Impact of Pension
* Actuarial losses are amortized to earnings over the average remaining service life of active participants or the remaining life expectancy of inactive participants if all or almost all of the plan's participants are inactive. The delayed recognition of actuarial losses drives future volatility. Ry
Slide 12: Consolidated Funded Status
Consolidated Funded Status Funded Status
Slide 13: U.S. Qualified Pension Plan Funded Status
(1) Actual return on plan assets was approximately (31)% for 2008. (2) Discount rate was 6.25% at 12/31/08 (6.35% at 12/31/07). U.S. Qualified Pension Plan Funded Status
Slide 14: Pension Assets
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 SFAS 87 The fair market value of pension asse
Slide 15: Pension Liabilities
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 date of valuation Based on selected d
Slide 16: Historical Consolidated Funded Status
Historical Consolidated Funded Status 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Funded Status 150 121 96 74 80 83 78 93 100 66 % Note: All years as of 12/31 Funded Status
Slide 17: Historical Funded Status-U.S. Only
Historical Funded Status-U.S. Only 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Funded Status 158 128 100 77 83 87 81 97 100 62 % 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 Strategies & Results
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 include: Establishing and maintaining a broad as
Slide 20: Asset Allocation Strategy
Ryder's U.S. Pension asset allocation and approved ranges* are as follows: 12/31/07 12/31/08 Target Allocation Allocation Range U.S. Equity 44% 37% 37% - 47% Non-U.S. Equity 16% 14% 8% - 18% U.S. Fixed Income 22% 32% 21% - 31% Tactical Asset Allocation (TAA**) 15% 13% 10% - 20% Venture Capital (fund
Slide 21: Asset Return History
2001 2002 2003 2004 2005 2006 2007 2008 2009 Annual Actual Asset Return -6.9 -13.7 23.9 11.2 7.4 14.4 6.5 -31.5 Current Expected Long Term Return on Assets 8.5 8.5 8.5 8.5 8.5 8.5 8.5 8.4 7.9 Rolling 15-Year Compound Annual Return 11.2 9.8 10.5 9.8 11.6 9.7 9.6 6.1 % Asset Return History % Pension I
Slide 22: Pension Contribution Requirements
Pension Contribution Requirements
Slide 23: Pension Contribution
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 Pension Benefi
Slide 24: Pension Contribution
Contribution requirements are determined primarily by the following factors: Actual return on plan assets Discount rate applied to expected plan payouts - based on corporate bond yield curve Salary growth, retirement age and turnover Mortality - table issued by IRS and updated every 10 years Funded
Slide 25: Pension Contribution: Estimated Funding Requirements
Pension Contribution Under PPA minimum funding rules, Ryder will be required to make annual contributions for at least the next five years. Ryder may elect to make voluntary contributions earlier than required and in amounts greater than the minimum requirements. The 2009 forecast assumes $73 millio
Slide 26: Pension Expense
TAyder Pension Expense
Slide 27: Consolidated Pension Expense History
Consolidated Pension Expense History Pension Expense
Slide 28: Detail of Consolidated Pension Expense History
Detail of Consolidated Pension Expense History Pension Expense
Slide 29: 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 30: 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 Interest Cost Pension Expense
Slide 31: 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 expected rate of return of: 2001 9.25% 2002 8.75% 2003-2007 8.50% 2008 8.40% Expected Return on Assets Pension Expense
Slide 32: Canadian Curtailment Gain
Gain recognized in Q3-08 upon amendment to freeze Canadian plan effective on 1/1/2010 SFAS 88 is guiding literature Represents the write-off of unrecognized prior service credits associated with years of service no longer expected to be rendered. Pension Expense Canadian Curtailment Gain
Slide 33: 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 ($1.5 billion at
Slide 34: 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 Prior Service Credit Pension Expense
Slide 35: Sensitivity Analysis - U.S. Qualified Pension Plan
Sensitivity Analysis - U.S. Qualified Pension Plan Pension Expense
Slide 36: 2009 Expectations - U.S. Qualified Pension Plan
2009 Expectations - U.S. Qualified Pension Plan Pension Expense
Slide 37: 2009 Expectations - Consolidated Pension Expense
2009 Expectations - Consolidated Pension Expense Pension Expense
Slide 38: Drivers of the Change in 2009 Consolidated Pension Expense
Drivers of the Change in 2009 Consolidated Pension Expense Pension Expense
Slide 39: Pension Equity Charges
TAyder Pension Equity Charges
Slide 40: Pension Equity Charges
SFAS 158 requires the funded status of a defined benefit plan be 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) calculation in conjunction wit
Slide 41: Pension Equity Charges: Impact to Ryder
Negative asset returns from 2000-2002 and 2008 have led to significant unrecognized actuarial losses since 12/31/02. Following is a summary of net pension equity charges since 2002: Year Cumulative Equity Charge 2002 $229M 2003 $187M 2004 $189M 2005 $221M 2006 $201M 2007 $148M 2008 $480M Required ch
Slide 42: Conclusions
TAyder Conclusions
Slide 43: Conclusions
Ryder has frozen U.S. and Canadian pension plans to most active employees. 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 require
Slide 44: Conclusions
At year end 2008, the plans were 66% funded. The funded status is negative $502M. Minimum pension funding requirements are manageable relative to free cash flow - pending regulation changes may reduce contribution requirements in the near-term. Pension contributions to avoid "at-risk" status (75% fu
Slide 45: CAyder
CAyder