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Krause Fund Spring 2016

Ryder System, Inc. Industrials – Trucking

Analysts Carson Goodale carson-goodale@uiowa.edu Troy Radtke troy-radtke@uiowa.edu Nicole Gierman nicole-gierman@uiowa.edu Sam Stecker samuel-stecker@uiowa.edu

Company Overview Ryder System Incorporated is a transportation and supply chain management solutions company. They operate under three business segments: Fleet Management Solutions (FMS), Supply Chain Solutions (SCS), and Dedicated Transportation Solutions (DTS). FMS provides service leasing, commercial rental, contract maintenance, fuel services, and used vehicles. SCS provides supply chain solutions, such as distribution and transportation services in. DTS provides vehicles and drivers in the United States. Ryder employs 33,100 people and operates in the United States, Asia, Mexico, Canada, and the United Kingdom.

Stock Performance Highlights 52 week High $100.64 52 week Low $45.12 Beta Value 1.5 Average Daily Volume 471,971

Share Highlights Market Capitalization $3.56 B Shares Outstanding 53 M Book Value per share $37.15 EPS (TTM) $5.75 P/E Ratio 11.61 Dividend Yield 2.55% Dividend Payout Ratio 28.7%%

Company Performance Highlights ROA 4.0% ROE 16% Sales $6.572 b

Key Financial Ratios Current Ratio .65 Debt to Equity 278%

April 17, 2016

Stock Rating:

Current Price $66.22 Target Price $75.00-$80.00

R – Attractive Long-term Investment

Diverse Customer Segments: Ryder provides custom productand services solutions to the Automotive, Technology, Healthcare, Consumer Packaged Goods and Retail, and Industrials, Aerospace and Defense, Oil and Gas, and Food and Beverage industries mostly in North America, but also has operations in the U.K. Foreign market opportunities could arise in the foreseeable future.

Specialized Product Offerings: Ryder may have found aniche in the competitive trucking industry by offering two specialized transportation solutions that caters to diverse industry segments. In addition, they recently introduced a new value-added business segment that is expected to perform well in the long run.

Unique Business Model: Combines a large portion of operatingleases and operating generating equipment to accommodate the increasing trend third-party logistical outsourcing demand and manage internal debt obligations.

Year After Year Profit Margin Growth: Ryder hasconsistently grown profit margins by increasing their prices on products and services even during times of economic uncertainty.

Consistent Earnings Growth: Earnings have grown 16.67% compounded annually over the past 6 years and with the increase in expected demand for outsourcing in the various product segments, we forecast modest growth moving forward.

Consistent Dividend Growth: Since 2004, Ryder hascontinued to increase their dividends. With the company estimated to reduce lease fleet and expectations of growth, the company should continue to grow dividends for the foreseeable future.

One Year Stock Performance

Source: Yahoo! Finance XI

NO ACTION

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Although we believe outsourcing is likely to continue, currently Ryder is generating negative economic profit and negative free cash flow. To align with management, we project positive free cash flow moving forward, however given a large amount of debt due in 2016, we are uneasy about Ryder’s liquidity position in the next year. Based on key growth rate assumptions, economic, and industrial analysis, Ryder is currently undervalued and may be a bargain for investors who seek long-term growth potential. Ryder appears to offset the negative cash flow through the use of leverage and revenue generating equipment. However, at this time we recommend NO ACTION to be taken on Ryder System, Inc (R). Real Gross Domestic Product Real Gross Domestic Product has maintained a consistent 2% annual average growth rate since 2010II and, despite a downturn in the industrial sector, came in at an annualized rate of 2.43% in 2015III. The figure below shows the annualized quarterly change as well as year over year growth in real GDP.

Source: Econoday V

The 0.7% annualized increase of real GDP in Q4’15 is reflected primarily by an increase in consumer spending, residential fixed investment, and federal government spending, therefore increasing the demand for transportation services of the additional goods in

circulation V. On the other hand, inventory investments and net exports in Q4’15 decreased by 0.5% each, which is a cause for concern for freight and logistics because of the counterintuitive effect they have on real GDP compared to consumer spending V. We still believe that the increase in consumer spending will continue to support the growth of real GDP in the future and conclude that it will consistently grow in the short-term. We project that real GDP will grow at a 2.15%-2.20% rate by Q4’16 with hopes that consumer spending continues to rise and firms start investing more in inventory. By April 2018, we believe that real GDP levels will increase by 4.0%. We also foresee oil prices increasing in the next year, but eventually stabilizing, therefore having a largely positive impact on freight, logistics, and road and rail firms. This assumption will hold if the economy adjusts to steady economic growth 2018 and consumers will be more willing to increase their personal and business consumption. Oil Prices As of April 17th, the cost of crude oil is currently hovering just above $38/barrel VI. The price of oil has decreased significantly since the Civil War in Libya in 2014 and has allowed logistics companies to cut down on one of their biggest expenses: fuel.

Source: Macro Trends VII

The recent increase in oil prices has had a negative effect on trucking and logistics companies as they must incur a higher fuel expense, as well as change the way they operate. For example, decreasing the usage level of trucks and utilizing more direct, point-to-point transportations. When oil prices were significantly decreasing, many customers contemplated switching from rail to trucking due to the belief that trucking provided more stable costs, efficiency, and reliability. We envision that the price per barrel will continue to rise to around $40-$45 in the next six months due to

Economic Outlook

Executive Summary

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increased production of oil and the contemplation to switch from rail to trucking will diminish. By April 2018, we anticipate oil prices to be around $80/barrel, following the recent upward trend of production and demand, and then leveling off. If our assumption holds, the cost per barrel will remain lower than historical prices over the next three years which will enable firms in the industrials industry to keep their fuel expenses low. Manufacturing Index Manufacturing industries only accounted for 12.5% of the United States’ total economy in 2013, but is often a critical indicator for total economic growth VII. The Manufacturing Index often changes before the economy does and is considered a leading indicator. An increase in the index usually shows that the economy is improving, while a decrease in the index suggests the economy is performing poorly. Bloomberg reported the index at 51.8 in the beginning of April 2016 IX. The graph below displays the Index since June of 2015 and after a steep decline from July to January, the country was able to rebound from poor manufacturing activity. The second graph shows the rate of change over the past year.

Source: Bloomberg IX The decline was due to the strengthened dollar and ceased global growth, which caused American goods to be less attractive in other countries X. We predict that the Manufacturing Index will be around 52.5-53 in the next six months. The American dollar is still pretty strong but we do expect slight appreciation. By 2017, we expect the Index will continue to increase to around 55 caused by a hopeful increase in foreign exports.

Interest Rates Since March 11th, 2016, the Federal Funds Rate has been hovering around the current rate of 0.37% XI. The federal funds rate affects financial conditions of the economy and therefore has an effect on specific industry growth. The graph below provides 62 years of the Federal Funds Rate, both historical and current.

Source: St. Louis Fed XIV

Large capital expenditures are often made to finance revenue-generating equipment in the Industrials industry and companies with a large amount of borrowed money could default if the rate continues to climb. Additionally, this would increase the firm’s debt-to-equity ratio well over 150%. In the next six months, we predict the Federal Funds Rate to increase to 0.5% and rise to 2.5% in the next three years. Members of the Federal Open Market Committee (FOMC) have recently been increasing their interest rate projections for the long-term XII. They plan on increasing the interest rate to control the money supply, impacting the debt capital intensive firms in the Transportation industry. During times of economic growth and low inflation, historical trends have shown that the Industrials sector has outperformed most other sectors. The S&P 500 Industrials Index has had high, positive correlation (R2=0.94) XVIII with the S&P 500 Index in times of growth since 2013, as shown below.

Source: Yahoo! Finance XII

S&P 500

Capital Markets Outlook

Industrials Index

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Based on our research on the current economic outlook, we concluded that the Trucking, Railroads, or Air Freight & Logistics industries would benefit the most due to low current oil prices and comparative efficiency and reliability, but that the best time to invest would be during a recession due to the cyclical nature of the Industrial sector. Industry Overview The Industrials sector is made of three industry groups: capital goods, commercial services, and transportation. The capital goods industry is broken down into aerospace & defense, building products, construction & engineering, electrical equipment, industrial conglomerates, machinery, and trading companies & distributors. The commercial services industry group only contains one industry: commercial services and supplies. Transportation is split up into air freight & logistics, airlines, marine, road & rail, and transportation infrastructure. Our report consists of an in-depth analysis on trucking, one of the sub-industries of road and rail. Sub-Industry: Trucking As a sub-industry of Road & Rail, Trucking is the most dominant form of freight transportation in the United States by transporting almost 70% of domestic freight XV. The amount of trucks in the United States is projected to grow from 3.56 million in 2015 to 3.98 million in 2026 XV. Despite dominance and steady growth, the Trucking sub-industry is dealing with a shortage of about 38,000 truck drivers due to an abundance of factors, such as demographic, regulatory, and because drivers are rarely home because of how much time they spend on the road XV. The shortage of drivers does not seem to be affecting revenue growth, as there has been a positive growth rate each year since 2010.

The trucking industry is able to prosper in the state of a healthy economy due to the increase in imports, investments, government spending, and most importantly, personal consumption expenditures. Consumer spending confidence triggers a higher circulation of goods in the United States, which increases the demand for trucking. The trucking industry is able to maintain a large portion of market share by differentiating themselves from their competitors by maintaining an efficient and reliable transportation process. Product & Services Firms in the trucking industry are segmented into one of four categories: 1. truck, trailer, and bus leases; 2. Truck, trailer, and bus rentals; 3. other vehicle and equipment rentals and leases; 4. other services.

Source: IBIS World XVII

As shown above, truck, trailer, and bus leases are predicted to make up 46.5% of the trucking industry’s revenue in 2016. This source of revenue is typically only provided to public trucking companies and owner-operator truckers XVII. Leasing, versus buying, is cost-effective when a firm needs to lease fleet in times of high demand and when those leased trucks are never actually used. Truck and trailer rentals are expected take in 36.3% of revenue in 2016. This product segment is able to maintain a high share of industry revenue by renting trucks for a few days to independent consumers who are likely using the truck to move from home to home. Increases in home sales over the past few years has allowed rentals to thrive XVII. Other vehicle and equipment rentals and leases and other services will earn 9.3% and 7.9% of 2016 revenue, respectively. These other segments usually entail renting and leasing other vehicles such as RVs, tractors, and trailers.

Industry Analysis

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Based on the products and services segmentation, the major market segmentation provides an outlook on which consumers and businesses contributed to the revenues.

Source: IBIS World XVII

Recent Developments & Industry Trends • Increase in Housing Sales: From 2011-2016, the

increase in housing sales has had a compound growth rate of 5.9% XIX. This trend has a significant impact on the trucking industry, as the increase in housing sales signifies an increasing demand for the use of trucks. It would fall under the truck rental revenue category, meaning that independent consumers will rent trucks for a couple days to help move them from their old domain to a new one. We anticipate this trend will continue to grow and assist in the increase of revenue for the next five years. The only possible fault is that the Fed can raise interest rates, which would increase mortgage rates on homes and cause a decrease in housing sales.

• Increase in Fuel Prices: Although the WTI crude

oil prices per barrel are significantly lower than they were a year ago, it is still a cause for concern for the trucking industry. The industry took a huge hit when the prices were hovering $100/barrel and with the price as of April 19th at $39.97/barrel, and rising, firms are worried they will not be able to sustain their current level of low operating expenses VI. Trucking firms will subsequently decrease their amount of profit if the trend continues, but we believe that, although fuel prices are increasing, they will not follow the same historical incremental growth. Local sourcing for supply chains is the most cost-efficient in this scenario because most, if not all, carriers must pay for the gas they use for every unfulfilled mile.

• Truck Driver Shortage: The trucking industry is

facing a deficit of nearly 38,000 drivers in 2015. CEO of CRST International, Dave Rusch has relayed the message that usually business expansion was negatively affected not by a shortage of freight, but instead, the shortage of drivers. The trucking industry plays a significant role in this issue because they have implemented a strict safety and professionalism policy for all truck drivers, therefore are extremely selective in the hiring process. The shortage plays a huge role in the overall economy due to the large amount of freight needed to transport. Additionally, the current average age of a truck driver is 49, which is closing in on retirement age XXI. This enables truck drivers to gain leverage and demand a higher pay.

• Demand for Trucking: With a foreseen growth in

the economy and, therefore, levels of personal consumption, the demand for trucking has risen tremendously since 70% of domestic freight is transported via truck XV. Additionally, the shortage of truck drivers to provide transportation and contribute to the higher trade volume, the demand for trucking is at an all-time high.

• High Level of Capital Intensity: In truck lease

and rental, it is pertinent that trucking firms are spending a significant amount of money on purchasing and maintaining their fleet. Often, we see trucking companies with high capital expenditures, which would then lead to high, negative free cash flow. As shown in the figure below, industry operators spend roughly $1.13 in capital for every dollar they spend in labor, where the dotted black line shows a large level of capital intensity XXI.

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Source: IBIS World XXI

Markets and Competition We have compared six trucking firms that we believed show immense competition. Although there are discrepancies, such as low market cap and high revenue, or vice versa, these firms all compete for market share in the competitive trucking industry. Listed from first to last are: Paccar, Inc., AMERCO, Hertz, Ryder Systems, Inc., Penske Automotive Group, Inc., Paccar, Inc., and Rush Enterprises, Inc.

Ticker Market Cap Revenue (millions) PCAR 19.66B $18,671.00 UHAL 6.85B $3,075.00 HTZ 3.77B $10,535.00

R 3.58B $6,571.00 PAG 3.13B $19,284.00

RUSHA 728.97M $4,979.00

Porter’s 5 Competitive Forces Barriers to Entry We believe that the barriers to enter the trucking industry are fairly moderate. Since the industry is highly capital intensive, it would require new entrants to make large capital investments that may hinder their ability to break the barrier. Furthermore, new entrants are at a major disadvantage to trucking companies that are well-branded and would be seen as subordinate. Threat of Substitutes We ranked the threat of substitutes as moderately high. With increasing fuel prices, other modes of transportation, such as railroads and boats, could overtake trucking as the primary source of freight

movement. Additionally, technological advancement could also hinder trucking’s ability remain on top, but we do not see this as an immediate threat. Existing Competitive Rivalry There are several trucking companies that have been able to continuously provide exactly what their customers need. Their customers are loyal due to excellent customer service and efficiency throughout the process, so we believe that the existing competitive rivalry between firms such as Ryder, Paccar, AMERCO, and Hertz that are able to consistently maintain high retention rates. Bargaining Power of Suppliers We ranked the bargaining power of suppliers as relatively low compared to the bargaining power of buyers. There are a multitude of suppliers in the trucking industry that are able to provide similar services to their customers, which enhances the increasing competitive nature throughout the industry. Firms are able to differentiate themselves from their competitors by providing distinctive services that go above and beyond the basic need for transportation, such as providing supply chain solutions, having comparatively better pricing models, higher efficiency, consistency, and use intermodal services, which utilizes multiple forms of transportation such as railroads, trucks, and boats to gain competitive advantage. Bargaining Power of Buyers Compared to the bargaining power of suppliers, bargaining power of suppliers as moderate, despite larger capital firms who are able to buy fleet in large quantities who would obtain bargaining power by receiving high discounts. On the other hand, firms who are buying fleet in small numbers would not be able to gain any bargaining power because of the absence of a possible discount rate. Industry Leaders and Followers We were able to compare competitors within the trucking industry by taking an in depth look at a few of their defining statistics. This comparative analysis is typically a strategy that allows investors to choose which stock they will invest in, depending on the indicators that mean the most to them.

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Profit margin Profit margin is the net income over the net sales a company earns in a given time period. We decided to compare the profit margins of the six firms because it is able to tell us how much out of each dollar of sales a company is able to keep in earnings after expenses have been paid off XXIII. A positive profit margin shows us that these companies are doing relatively well and that they all have a positive net income. UHAL, PCAR, and R had the highest profit margins at 13.78%, 8.39%, and 4.34%, respectively. Operating Margin Operating margin is derived by dividing operating income by net sales. This a good comparison metric because it is a measurement of what revenue is remaining after paying off variable production costs XXIII. Operating margin shows how much a company can make on each dollar of sales, before tax and interest. A higher operating margin, the better off a company is performing. P/E 15 (share price/EPS) The price-to-earnings ratio take share price divided by a company’s earnings per share. A higher P/E ratio shows us that a firm should continue to grow in the future. D/E (%) (Total Debt/Total Equity) The debt-to-equity ratio will tell us how much debt the firm has compared to its equity. In this metric, the smaller the ratio, the better the firm is performing. As the trucking industry is highly capital debt intensive, it is not a surprise that these firms all have extremely high debt-to-equity ratios. ROA (%) Return on assets is calculated by dividing net income by total assets, which will tell us how profitable a company is in relation to the total assets they own. ROA is a ratio that can be controlled by management, as they are responsible for utilizing their assets to generate earnings XXIII. General Information Ryder System, Inc. is a trucking firm that specializes in outsourcing their fleet of owned vehicles to provide

transportation and supply chain management solutions.

They operate business by leasing and renting commercial vehicles to businesses and consumers. Within the company, there are three major revenue generating business segments: Fleet Management Solutions (FMS), Dedicated Transportation Solutions (DTS), and Supply Chain Solutions (SCS).

Corporate Strategy The strategy of Ryder System relies on their ability to effectively grow fleet management and supply chain outsourcing services. They plan to achieve these goals by utilizing the FMS and DTS segments and targeting private fleets, as well as the SCS segment to target key industries with innovative solutions, high operational performance, and information technology. Life Cycle We have concluded that Ryder System, Inc. is currently in the growth/maturity stage of their life cycle. Ryder currently has a large amount of invested

63%23%

14%

Revenue

FMS SCS DTS

Ticker Profit Margin

Operating Margin

P/E 2015

D/E (%)

ROA (%)

PCAR 8.39% 12.18% 12.4 124.46

6.97

UHAL 13.78%

24.57% 15.36 109.68 6.77

HTZ 2.59% 7.90% 14.92 710.52 - R 4.64% 9.66% 11.68 277.68 3.81

PAG 1.69% 2.94% 9.98 254.18 4.64

RUSHA

1.33% 2.45% 11.10 187.75 2.75

Company Analysis

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capital, a key indicator of a growing firm, in order to have large fleets on hand. Recently, Ryder closed on a deal with Shell Oil Company and sold them 15 liquefied natural gas heavy-duty vehicles supporting logistics in Louisiana and Texas. It is highly anticipated that Ryder will also be a part of several other hopeful deals by 2016. On the flipside, management announced that they expect to cut capital expenditures to accommodate a more organic growth rate. They also expect to be cash flow positive by 2016. According to our valuation, Ryder is undervalued by 16.67% and looks to be a good long-term investment. There are several factors contributing to the possible growth of Ryder, many of which rely on their ability to keep up with demand and competition within the trucking industry. Financial Summary Ryder had an EPS growth from continuing operations of 7% from Q3’14-Q4’15. Revenues over the past five years have increased on average 3.6% and the operating margin has been hovering around 5.5%. We predict that total revenue growth will grow roughly 3% on average until 2020. One concerning number to our analysts was the debt-to-equity ratio of 2.78. Although the trucking industry requires large amounts of capital expenditure, their debt-to-ratio was not as high as a few of their competitors, as Hertz had a ratio of 7.11. If the economy does not improve or has slow growth (which we expect), they could have a tough time managing their liquidity and solvency issues. Products and Markets As previously stated, Ryder System, Inc. is separated into three revenue-generating business segments: Fleet Management Solutions (FMS), Dedicated Transportation Solutions (DTS), and Supply Chain Solutions (SCS). FMS, the primary source of revenue at 63%, has product offerings within the segment that include full-service leasing, commercial rental, and contract maintenance. Additionally, they also work to provide their customers with insurance, vehicle administration, necessary related equipment and fuel services; needs that in demand when customers of Ryder’s are too busy with supervising their own drivers and other equipment. The second leading revenue stream at 23%, is their Supply Chain Solutions segment. The product

offerings integrated into this business segment include distribution management, dedicated services, transportation management, and other professional services. The SCS segment focuses on the specific needs of their customers. Their offerings can be either offered independently or as a package. The third revenue stream at Ryder brings in 14% of revenue, which is promising for a segment that was just introduced in 2015. They combine the equipment, maintenance, and administrative services of a full service lease with drivers and additional services to improve risk management, as well as increasing their competitive position in the market. These services include routing, scheduling, fleet sizing, safety, regulatory compliance, risk management, and technical support. Expenses As shown in the figure below, Ryder has had large amounts of capital expenditures on lease and rental, which cause their free cash flow to increasingly grow negative. In 2015, they spent almost $1.3 billion alone. If these expenditures continue to increase and not pay off, they will be in a serious amount of debt.

Source: Ryder

Catalysts for Growth and Change Growth: There are several factors that can contribute to growth and change at Ryder. There are trends that point toward the increasing demand for companies to outsource, such as increased demand for reliability and efficiency and the complexity of buying and

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maintaining several vehicles. There is a huge shortage of qualified truck drivers and mechanics, which presents a problem. To contribute to their growth, Ryder does not need to worry about having drivers for their FMS segment, while saving on labor costs as well. Change: Poor anticipation of customer demand can lead Ryder to make large capital investments that would lead to a negative return. At the same time, it could be just as detrimental to the firm to under estimate customer demand because they would not be able to fulfill necessary orders and could lose customers to competition. Additionally, the trucking industry is highly competitive. Ryder must be able to make continuous improvements if they want to be a household name. The Department of Transportation (DOT) has additionally issued driver screening and training requirements and could cause a potential problem for Ryder if the requirements are too strict.

• Introduction of DTS business segment could

generate an increase in percentage growth • Industry diverse customer segments that offers

more specialized product services • Since 2010, Ryder has increased dividend

payout to shareholders by an average of 8% • Leasing contracts are typically 3-7 years, plus

historical acquisitions could provide competitive advantages in the highly competitive environment

• Strong, consistent earnings over the last 5 years

• Increase in demand for leasing services which will allow Ryder to increase prices and top line

• P/E undervalued relative to industry peers and strong ROE

• Excluding the decline in oil prices, management seems to do well pricing their products and services which is indicative of stable margins over the last 5 year

• Although Ryder has not breached any debt covenants, debt level has grown to over $5.5 billion with nearly $930 million in debt due in 2016 and with interest rates likely to rise, this could pose a challenge to managements expected strategies

• Highly competitive environment • Shortage of drivers • Increases in regulations • Historical negative free cash flow • Forecasted negative economic profit for two

years

Key Investment Positives

Key Investment Negatives

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We generated Ryder’s intrinsic values using the enterprise Discounted Cash Flow (DCF) valuation, enterprise Economic Profit (EP) Valuation, Dividend Discount Model (DDM), and relative P/E valuation. Although we see long-term potential in Ryder, our recommendation for now is a HOLD. We believe that Ryder needs to start generating positive economic profit as well as look to gain a more strategic economic moat in the competitive industry before taking another look. The DCF and EP valuation methods generated an intrinsic value of $77.40 per share. Current stock price is trading at $66.53, which is trading at 16% discount compared to current stock price. For long-term value investors this may be a good investment in 1-2 years. As of 4/19/2016, the DDM valuation generated an intrinsic value of $81.86, which we believe is a more accurate estimation of current price and also is currently trading at a 20% discount compared to the projected stock price. Relative P/E (EPS16) and relative P/E 9EPS17) were $74.28 and $70.33 which would suggest that the stock price is currently trading slight below fair value estimates. General Assumptions Continuing Value To determine the continuing value assumption, we considered real GDP growth to be projected around low single-digit rate, cost of debt due to the highly leveraged environment in which Ryder operates, and competitive industry. The trucking industry is correlated closely with the overall economy and we are looking to match our CV with our projections of the economic

growth moving forward. Earnings per share increased by 15.94% over 6 years compounded annually which suggests that Ryder is doing something correct. Currently they are generated negative economic profit as ROIC is less than WACC. We project that Ryder will hold its own in the competitive environment and will grow at a conservative CV of 3%. Revenue Decomposition Lease and Rental Revenues Key Growth Drivers

• Higher prices on full service lease vehicles

• Full service lease fleet growth • Increase commercial rental revenue

due to higher pricing and increase demand (specifically North America)

• Increase in depreciation and maintenance costs due to increase in vehicles

Lease and rental revenues are Ryder’s most lucrative business segment and generated 6% return in 2015 to $3.12 billion, which is included within the FMS business segment. Under the lease and rental revenues segment, Ryder claims to have 14,500 full service lease/contract maintenance customers and over 39,000 commercial rental customers. Full service contracts are long-term agreements (3-7 years) while commercial rentals are short term. With management expecting to increase vehicles by 3,500 we expect to see that business segment grow by 6%. Contract maintenance and fleet support services under FMS are included in the services revenue portion and the 6% growth doesn’t fully represent the true growth level in our opinion. As a result, we believe that the FMS generated more than 6% and we project a constant growth of that percentage out to 2020.

Valuation Analysis

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Services Revenue Key Growth Drivers • New business • Increased pricing and higher

volumes in SCS and DTS • Lower fuel prices and negative

impacts from foreign exchange

Services revenues represent all the revenues associated with DTS and SCS business segments as well as contract maintenance. Contract maintenance and fleet support services are associated within the FMS business segment, which means there seems to be overlap in the financial statements. It’s difficult to gauge the exact growth under services revenue because of the overlap within the three business segments. Over the course of 6 years, services revenue generated an annual compound growth rate of 5.52%. In addition, a segment of SCS includes dedicated services. Basically, DTS is for companies who do not want to deal with the logistics and supply chain is for companies who want a complete outsource of all supply chain related business. Ryder has made significant acquisitions over the year combined with higher volumes and pricing under SCS and DTS. This was offset by low fuel prices and a negative impact on foreign exchange, and for that reason we project modest growth of 2%. Fuel Services Key Growth Drivers

• Revenue decrease due to low fuel prices – passed through consumer

Last fiscal year fuel services revenues declined 32%, which is the result of low oil prices. We do not expect oil to rebound $100/barrel anytime soon and we do not expect oil to drop any lower. For that reason, we expect continuing decline in fuel services for the next two years and then will start to rebound back to normal growth levels at around 2% (which was the common growth rate prior to the sharp decline in oil prices). We project 4% and 5% for 2019 and 2020

respectfully for the growth rate assumptions because we believe that oil prices will rebound and the GDP will increase to 5% by 2020. Income Statement Since 2010, Ryder’s revenues have grown 4.19% compounded annually. Last year (2015), total revenue decreased 1% to $6.64 billion, while operating revenue (revenue less fuel and subcontracted transportation) increased 6% in 2015 to $5.56 billon. Revenues from lease, rental, and services have remained relatively strong while fuel services have declined. Although approximately 90% of revenue is derived from lease and rental and services revenue, a sharp decline (-32%) in Fuel services segment negatively impacted overall revenues due to lower fuel prices which are passed through to the customers. Because we believe oil prices are not rebounding anytime soon, we project continuing decreases over the next two years in the fuel services revenue segment. Ryder operates in a capital intensive environment which results in low profit margins. Net profit margins last year were 4.64% and we expect a slight increase to 4.7% for 2016. Roughly 80% of revenues went toward covering expenses and another 10% toward SG&A expense. Depreciation on revenue earning equipment and maintenance costs account for gross margins on lease and rental revenues to be around 30%. Margins on services and fuel revenues are 17% and 3% respectively. SG&A expense increased 3% to $844 million in 2015 which is the result of higher professional fees and compensation-related expenses, investments in newer technologies. Due to the low margins from operating revenue segments, we believe that management is going to have to make some changes in the SG&A account to

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compensate for the high costs relating to operations. Ryder covers the residual costs associated with the vehicles and over the course of 6 years; Ryder has increased the net sale of their used vehicles by 26.91% annually. While management expects to decrease capital expenditures, pricing used vehicles will continue to be a growing concern as this could negatively affect their bottom line. We anticipate the cost of services and cost of lease growth rates to stay at 4% each due to the increase demand for drivers as well as depreciation and maintenance costs. Comparable to industry peers, Ryder has maintained solid earnings growth despite uneven economic conditions. Fleet management solutions segment accounts for nearly 60% of total revenues and we expect Ryder to increase their competitive advantage in this segment, which will continue to drive earnings. In addition, Ryder pays a 2.55% dividend yield or $1.56 per share. We expect management to continue to repurchase shares over the next 5 years, decreasing overall shares outstanding, which will result in some manipulation of earnings. However, consistent/increases in share repurchases over the last 5 years suggest that management feels that their current stock price could be undervalued. Balance Sheet The industry in which Ryder operates is extremely capital intensive and highly leveraged. Due to managements plans to cut capital expenditures and no anticipation for acquisitions we anticipate an increase in cash over the next five years. Management has done well in decreasing their inventory ratios over the past 5 years. Current assets are largely due to the receivables ($845.5 million in 2015) but they have decreased their turnover from 16.29 in 2012 to 7.87 for

fiscal year 2015. Revenue generating and operating equipment account for nearly 80% of total assets. Ryder’s return on assets has been around 2% the past 10 years because most of their invested capital is derived from accounting for the PV of Operating Leases and PP&E which suggests that they do not utilize their assets efficiently. Revenue earning equipment is included in operating equipment under non-operation assets. Many of Ryder’s assets are leased which results in negative working capital. Because operating leases are an off balance sheet item, net operating working capital has been negative because they pay income taxes payable from the off balance sheet account and as a result net operating working capital for 2015 was (-$1.529 billion). After including Net PPE, PV of operating leases, and other tangible assets, invested capital for 2015 was $10.990 billion. Ryder’s return on invested capital for 2015 was 6.88% was is slightly above the weighted average cost of capital. Because management plans to cut capital expenditures, we project ROIC to decrease next year, but announcements of increasing vehicle spending in their most lucrative business segment leads us to believe that ROIC will reach around 7.25% A red flag for Ryder has been the increase in debt levels. With $634.5 million in short term debt and another $5.029 billion, debt to equity is over 270%, which is high but comparable given the industry analysis. Although their quick ratio is .62 and current ratio is .65 we believe that the debt is reaching climax to be considered manageable. Moving forward we expect management to decrease their debt to equity ratio to a more manageable level. On the positive side, Ryder’s return on equity has been around 15%, which suggests management is doing a good job with shareholder investment.

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Statement of Cash Flow Net cash flows from operations have increased by 5.79% compounded annually over the last 6 years; however, there has been negative working capital during that same period. To meet management’s expectations, we decreased over capital expenditures to approximately $2 billion for FY 2016. However, due to the highly leveraged position, Ryder has generated negative free cash flow over the last 5 years. Management anticipates reaching positive free cash flow for FY 2016, and with the decrease in capital expenditures we agree. Management has not made any note of acquisitions for the foreseeable future so we made no forecast projections. We believe that the decrease in capital expenditures will create more cash available which will likely be used to cover debt obligations of $930 million coming due during 2016 followed by $1.5 billion over the next couple of years. To offset the negative free cash flow, Ryder used leveraged to generate a high levels of revenue earning equipment assets, which directly increases shareholders’ equity. We think management will participate in share repurchases over the next 5 years and continue to pay at an 8% growth rate in dividends per share. Weighted Average Cost of Capital (WACC) Cost of Equity We used the Capital Asset Pricing Model (CAPM) to estimate the cost of equity for Ryder Systems Inc. For the risk-free rate we used a 30 Year Treasury bond, which was 2.57%. Given key economic drivers moving forward, we expect investors required rate of return to be around 7.5%. The implied market risk premium is 5%, which is slightly higher than the geometric average of 4.57% from 1928-2008 to compensate for the additive risk. To calculate beta, we used Bloomberg raw input of 1.5.

Cost of Debt To arrive at the cost of debt we identified the outstanding bond with the longest yield to maturity and credit rating of BBB+, which was a pre-tax cost of debt of 4.44%. Then we added the risk free rate of 2.57% to arrive at a pre-tax cost of debt of 7.01%. Capital Structure and WACC We do not forecast any capital structure changes for the foreseeable future as Ryder is a capital intensive company that relies heavily on debt to fund operations. As a result, we calculated the WACC to be 6.5%. To come to this conclusion used a cost of equity equal to 10.06%, risk-free rate of 2.57%, cost of debt of 7.01%, and marginal tax rate of 36.7%. The market value of debt is $5.5 billion while the market value of equity is $3.267. We expect the WACC to stay around these levels due to their high leveraged business Discounted Cash Flow and Economic Profit Analysis Our DCF and EP valuation for Ryder resulted in a per share price of $77.40. As previously stated, we expect capital expenditures to be $2 billion. After adjusting for Net PPE, PV of operating leases, and other tangible assets, we project a positive change in invested capital. We project FCF of approximately $100 million for the next four years, and after discounting it back to the present, the carrying value of $17,246 billion is where most of the price is derived. After discounting each year’s free cash flows and the CV by the calculated WACC of 6.53% we arrived at an operating value of $13.838 billion. To arrive at the value of equity we adjust for non-operating assets and liabilities. As of 4/19/2016 we calculated the partial year adjusted intrinsic value price of $77.40. When calculating

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economic profit, we project that ROIC for 2016 and 2017 will be 6.21% and 6.42% respectively. Because our WACC is 6.5%, we estimate that Ryder will not reach positive economic profit until 2018. Given its nature of operating leases and high amounts of PPE it is not surprising that economic profit remains negative. We remain confident in our target price because our key inputs accurately and realistically reflect historical growth assumptions and are comparable to DDM and Relative Valuation models. Dividend Discount Model (DDM) Over the course of 6 years, Ryder has increased dividends per share by 7% compounded annually. In addition, Ryder has done well in retaining shareholder value as ROE has been on average around 14% the last 5 years. We expect management to maintain the payout ratio and continue to increase dividends per share by 8% annually. Using a conservative CV growth rate of 3% and our cost of equity rate of 10.07% we arrived at a partial year adjusted intrinsic value of $81.86 as of 4/19/2016. Relative Valuation For our relative valuation, we used the P/E and PEG ratios for 2016 and 2017. We decided to eliminate two companies because they were projected to have negative earnings per share and PEG ratios. As a result, we decided to use PAG, HTZ, RUSHA, UHAL, and PCAR to determine our relative valuation projection. We calculated an industry average P/E ratio of 12.1 and 10.9 for 2016 and 2017. In order to obtain Ryder’s relative 2016 P/E value, we multiplied our 2016 EPS estimate by industry peers average P/E ratio. The implied relative P/E valuation for Ryder for 2016 was $74.28, which suggests that the current stock price is slightly undervalued relative to the industry. With respect to the

PEG ratio, we obtained Ryder’s 2016 implied value through the relative PEG ratio by multiplying there 2016 EPS estimate by projected estimated growth, multiplied again by industry peers. Relative to industry peers, Ryder appears to be priced slightly undervalued as their PEG ratios are 1.2 for 2016 and 2017 compared to the average PEG ratios of 2.1 and 2.0 for 2016 and 2017 respectively. Management forecasts 2016 earnings of $6.10 and they expect growth of 6% to approximately $7.0 billion. We think management is overly optimistic and given the uncertainty of the economic condition and industry competition, we expect net earnings of $6.07 and revenues of approximately $6.8 billion. This is a line with our current relative valuation as the intrinsic value relative to industry peers is about $74 which is a 12% premium relative to the current price. Ryder offers specialized products through various segments and as a result we believe that is the reason they are trading at a lower P/E ratio relative to industry peers. High P/E ratios as seen by UHAL is because they focus solely on leasing whereas Hertz operates under rental car business. Ryder business segments that focus on offering specialized products through various industry makes them an attractive purchase for the long-term. Historically, the company has trades as high as 23 times earnings during 2014, but conservatory should trade more in the 15-16 times earnings level over the long term given their strategic market position. Should this situation occur we could expect to see a price break out to around $90/share. This could be attractive to long-term investors.

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WACC Our model is sensitive to changes in WACC. At the current level of 6.53% a .5% increase in WACC will result in a price drop of $42.71. On the flipside, a decrease in the WACC to 6.00% would result in a price of $129.57. We believe that if capital structure were to change, it would likely increase the WACC, which would result in a significant decrease in the current stock price. If CV growth rates maintains 3% while WACC increases, this would reflect significant negative impacts on the current stock price. CV Growth CV Growth and ROIC are key drivers in our value assumptions. For the fiscal year 2015 ROIC is slightly below the WACC but we forecast that ROIC levels will increase within the next two years above the WACC. Our conservative approach to choosing 3% is in our favor. An increase in 1% in the CV Growth while maintaining our assumption of 7.45% of NOPLAT would increase share price to $98.66. In our opinion, we believe that Ryder’s ability to offer specialized products to a diverse customer segment would more than likely increase the CV Growth and ROIC. In any case, we would expect stock prices to peak over $100 per share which would make the current price an attractive buy. Risk free Rate Ryder’s beta is currently at 1.5 which means it fluctuates more relative to market moves. A quick look at the beta and it suggests that the company is a pretty risky investment. Nonetheless, changes in the risk free rate

compares to changes in beta does not have significant impacts on Ryder. This is due to the fact that Ryder has a high debt to equity to finance operations. ROIC and WACC ROIC and WACC are the two biggest value drivers when determining the stock price and Ryder is very sensitive to change in both. We expect Ryder to maintain current capital structure for the foreseeable future and if they are able to increase their ROIC to 8.5%, stock prices would increase to just below $100 or a 50% premium to the current stock price of $66. % Sales Growth for Leasing Revenue Leasing revenue which accounts for their FMS business segment could see an increase in growth due to the fact that management plans to add 3,500 vehicles to their fleet. Sales growth services revenues are fairly correlated with this change but if we maintain current levels of growth at 2% while increasing leasing revenues to 8% we could see Ryder break $100. More conservatively, a 1% increase in the growth rate assumption under leasing revenue would result in a stock price of $89.24. On the flip side, we acknowledge that the trucking industry is very competitive and if Ryder is not able to offer specialized products and services and saw a decrease in growth to 4% the stock price could hit $53 which would suggest that the current stock price is overvalued.

Sensitivity Analysis

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% Sales Growth for Services Revenue Services revenues which accounts for SMS and DTS solutions is the wild card. DTS solutions are a new business segments as of 2015 which could imply value-added to companies looking to outsource their logistics completely. In the case of services revenue increasing anywhere from 4%-5% would see an increase in the overall stock price to $84.74-$94.34, assuming a leasing revenue growth stays constant. We believe that most companies will likely start to outsource most of their logistics and supply-chain related problems as increases in regulatory concerns, oil prices, and employees cause added stress to companies. With this increase in demand for SMS and DTS solutions, FMS may decrease. In this case a decrease to 4% growth in leasing revenue (which Ryder has maintained at least 6% over the last 5 years) and an increase to 5% growth in services revenue would result in a stock price of $82.49 which is a 25% premium relative to the current stock price of $66.

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References

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Ryder System, Inc.Revenue Decomposition(In Millions, except vehicles and customers in thousands)Segment % of Total Revenue 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E CV 2020EFleet Management Solutions 63.50% 63.60% 62.90% 62.90% 62.80% 62.80% 62.80% 62.80% 62.80% 62.80%Supply Chain Solutions 26.50% 36.40% 37.10% 37.10% 23.60% 23.60% 23.60% 23.60% 23.60% 23.60%Dedicated Transportation Solutions 0% 0% 0% 0% 13.60% 13.60% 13.60% 13.60% 13.60% 13.60%Eliminations (Net Vehicle Gains) 9.90% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

Revenue by Market 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E CV 2020EDomestic 5,075 5,232 5,411 5,614 5,604 5,636 6,164 6,264 6,371 6,481 % of Total Revenue 83.88% 83.62% 84.30% 84.56% 85.27% 83.98% 90.41% 90.43% 90.54% 90.66%

International 975 1,025 1,008 1,025 968 1,075 654 662 665 668 % of Total Revenue 16.11% 16.38% 15.70% 15.44% 14.73% 16.01% 9.60% 9.56% 9.46% 9.35%

Total 6,051 6,257 6,419 6,639 6,572 6,711 6,818 6,926 7,037 7,149

# of Vehicles by Market (in thousands) 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E CV 2020EDomestic: Full service leasing 95.5 96.9 98.9 101.4 107.8 111.0 114.4 117.8 121.3 125.0

% Growth 2.47% 1.47% 2.06% 2.53% 6.31% 3.00% 3.00% 3.00% 3.00% 3.00%

Commercial rent 31.3 33.1 29 31.3 33.5 34.6 35.6 36.8 37.9 39.1 % Growth 7.56% 5.75% -12.39% 7.93% 7.03% 3.15% 3.15% 3.15% 3.15% 3.15%

Contract maintenance 28.7 27.8 33.3 36.7 41.2 44.5 48.1 51.9 56.1 60.5 % Growth 16.67% -3.14% 19.78% 10.21% 12.26% 8.00% 8.00% 8.00% 8.00% 8.00%

Total Domestic 155.5 157.8 161.2 169.4 182.5 190.1 198.1 206.5 215.3 224.6 International: Full service leasing 25.5 25.5 24 24.1 24 24.8 25.7 26.6 27.5 28.5

% Growth 42.46% 0.00% -5.88% 0.42% -0.41% 3.50% 3.50% 3.50% 3.50% 3.50%

Commercial rent 4 4.7 9.2 8.6 8.6 8.9 9.3 9.7 10.1 10.5 % Growth -6.98% 17.50% 95.74% -6.52% 0.00% 4.00% 4.00% 4.00% 4.00% 4.00%

Contract maintenance 10.9 10.2 4.1 5.7 5.5 5.6 5.7 5.8 6.0 6.1 % Growth 113.73% -6.42% -59.80% 39.02% -3.51% 2.00% 2.00% 2.00% 2.00% 2.00%

Total International 40.4 40.4 37.3 38.4 38.1 39.4 40.7 42.1 43.6 45.0 Total # of Vehicles 195.9 198.2 198.5 207.8 220.6 229.5 238.8 248.6 258.9 269.7

# of Customers by Market (in thousands) 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E CV 2020EDomestic: Full service leasing 10.6 10.6 10.5 10.5 10.9 11.3 11.7 12.1 12.5 12.9

% Growth 1.92% 0.00% -0.94% 0.00% 3.81% 3.50% 3.50% 3.50% 3.50% 3.50%

Commercial rent 33.2 32.2 31.7 32.1 32.9 33.5 34.1 34.7 35.3 36.0 % Growth 304.88% -3.01% -1.55% 1.26% 2.49% 1.80% 1.80% 1.80% 1.80% 1.80%

Contract maintenance 1.2 1.3 1.3 1.4 1.5 1.6 1.6 1.7 1.8 1.8 % Growth 0.00% 8.33% 0.00% 7.69% 7.14% 4.00% 4.00% 4.00% 4.00% 4.00%

Total Domestic 45 44.1 43.5 44.0 45.3 46.3 47.4 48.5 49.6 50.7International: Full service leasing 2.4 2.4 2.4 2.8 2.7 2.7 2.8 2.8 2.8 2.8

% Growth 9.09% 0.00% 0.00% 16.67% -3.57% 1.00% 1.00% 1.00% 1.00% 1.00%

Commercial rent 6.5 6.5 6 6.6 6.4 6.5 6.7 6.8 6.9 7.1 % Growth 12.07% 0.00% -7.69% 10.00% -3.03% 2.00% 2.00% 2.00% 2.00% 2.00%

Contract maintenance 0.2 0.2 0.2 0.3 0.4 0.4 0.4 0.5 0.5 0.5 % Growth 0.00% 0.00% 0.00% 50.00% 33.33% 6.00% 6.00% 6.00% 6.00% 6.00%

Total International 9.1 9.1 8.6 9.7 9.5 9.7 9.9 10.0 10.2 10.4Total # of Customers 54.1 53.2 52.1 53.7 54.8 56.0 57.3 58.5 59.8 61.2

Lease and Rental Services 2553.877 2695.376 2770.03 2939.42 3121.55 % Growth 10.57% 5.54% 2.77% 6.12% 6.20%Services Revenue 2609.174 2707.013 2819.67 2911.47 2912.06 % Growth 23.7% 3.7% 4.2% 3.3% 0.0%Fuel Services 887.483 854.578 829.59 787.89 538.28 % Growth 23.80% -3.71% -2.92% -5.03% -31.68%

Ryder System, IncStatement of EarningsYears ended December 31 (in millions)

2013 2014 2015 2016E 2017E 2018E 2019E 2020ELease and rental revenues 2,770.03 2,939.42 3,121.55 3,308.85 3,507.38 3,717.82 3,940.89 4,177.34 Services revenue 2,819.67 2,911.47 2,912.06 2,970.30 3,029.71 3,090.30 3,152.11 3,215.15 Fuel services revenue 829.59 787.89 538.28 511.36 501.14 496.12 515.97 541.77 Total revenues 6,419.29 6,638.77 6,571.89 6,790.51 7,038.22 7,304.25 7,608.97 7,934.26

Cost of lease and rental 1,925.55 2,036.88 2,153.45 2,239.59 2,329.17 2,422.34 2,519.23 2,620.00 Cost of services 2,359.88 2,447.87 2,413.16 2,509.68 2,610.07 2,714.47 2,823.05 2,935.97 Cost of fuel services 814.06 768.29 519.84 509.45 499.26 489.27 479.49 469.90 Other operating expenses 131.66 126.57 135.04 137.81 140.63 143.51 146.46 149.46 Selling, general and administrative expenses 790.68 816.98 844.50 869.83 895.93 922.80 950.49 979.00 Pension lump sum settlement expense - 97.23 - - - - - - Gains on vehicle sales, net (96.18) (126.82) (117.81) (119.58) (121.37) (123.19) (125.04) (126.91) Interest expense 140.46 144.74 150.43 153.82 157.28 160.82 164.44 168.14 Miscellaneous income, net (15.37) (13.61) (10.16) (10.36) (10.57) (10.78) (10.99) (11.21) Restructuring and other charges (recoveries), net (4.70) 2.39 14.23 14.25 14.28 14.31 14.34 14.37

6,050.27 6,300.51 6,102.68 6,304.49 6,514.68 6,733.56 6,961.46 7,198.71

Earnings from continuing operations before income taxe 369.02 338.27 469.22 486.02 523.54 570.69 647.51 735.55 Provision for income taxes 125.74 118.04 163.23 166.90 170.65 174.49 178.42 182.43 Earnings from continuing operations 243.28 220.23 305.99 319.12 352.89 396.19 469.09 553.12 Loss from discontinued operations, net of tax (5.40) (1.88) (1.22) - - - - - Net earnings 237.87 218.34 304.77 319.12 352.89 396.19 469.09 553.12

Earnings (loss) per common share — Basic Continuing operations 4.67 4.18 5.78 6.07 6.76 7.65 9.13 10.86 Discontinued operations -0.10 -0.04 -0.02 -0.10 -0.10 -0.10 -0.10 -0.10 Net earnings 4.57 4.14 5.75 5.97 6.66 7.55 9.03 10.76

Shares Outstanding 52.05 52.74 53.00 52.59 52.18 51.77 51.36 50.95Dividends Per Share 1.30 1.42 1.56 1.68 1.82 1.97 2.12 2.29

Ryder System, IncStatement of EarningsYears ended December 31 (in millions) 2013 2014 2015 2016E 2017E 2018E 2019E 2020ELease and rental revenues 43.15% 44.28% 47.50% 48.73% 49.83% 50.90% 51.79% 52.65%Services revenue 43.93% 43.86% 44.31% 43.74% 43.05% 42.31% 41.43% 40.52%Fuel services revenue 12.92% 11.87% 8.19% 7.53% 7.12% 6.79% 6.78% 6.83% Total revenues 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

Cost of lease and rental 30.00% 30.68% 32.77% 32.98% 33.09% 33.16% 33.11% 33.02%Cost of services 36.76% 36.87% 36.72% 36.96% 37.08% 37.16% 37.10% 37.00%Cost of fuel services 12.68% 11.57% 7.91% 7.50% 7.09% 6.70% 6.30% 5.92%Other operating expenses 2.05% 1.91% 2.05% 2.03% 2.00% 1.96% 1.92% 1.88%Selling, general and administrative expenses 12.32% 12.31% 12.85% 12.81% 12.73% 12.63% 12.49% 12.34%Pension lump sum settlement expense 0.00% 1.46% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Gains on vehicle sales, net -1.50% -1.91% -1.79% -1.76% -1.72% -1.69% -1.64% -1.60%Interest expense 2.19% 2.18% 2.29% 2.27% 2.23% 2.20% 2.16% 2.12%Miscellaneous income, net -0.24% -0.21% -0.15% -0.15% -0.15% -0.15% -0.14% -0.14%Restructuring and other charges (recoveries), net -0.07% 0.04% 0.22% 0.21% 0.20% 0.20% 0.19% 0.18%

94.25% 94.90% 92.86% 92.84% 92.56% 92.19% 91.49% 90.73%

Earnings from continuing operations before incom 5.75% 5.10% 7.14% 7.16% 7.44% 7.81% 8.51% 9.27%Provision for income taxes 1.96% 1.78% 2.48% 2.46% 2.42% 2.39% 2.34% 2.30% Earnings from continuing operations 3.79% 3.32% 4.66% 4.70% 5.01% 5.42% 6.16% 6.97%Loss from discontinued operations, net of tax -0.08% -0.03% -0.02% 0.00% 0.00% 0.00% 0.00% 0.00% Net earnings 3.71% 3.29% 4.64% 4.70% 5.01% 5.42% 6.16% 6.97%

Ryder System, Inc.Balance Sheet (Industrial)(In Millions)

Assets: 2013 2014 2015 2016E 2017E 2018E 2019E 2020E Current Assets: Cash and cash equivalents 61.6 50.1 60.9 144.5 204.3 310.5 503.4 747.6 Receivables, Net 777.4 794.9 835.5 935.7 1,048.0 1,173.8 1,314.7 1,472.4 Inventories 64.3 66.0 63.7 64.4 65.0 65.7 66.3 67.0 Prepaid expenses and other current assets 159.3 132.7 138.1 140.9 143.7 146.6 149.5 152.5 Total Current Assets 1,062.5 1,043.6 1,098.3 1,285.5 1,461.1 1,696.5 2,034.0 2,439.6 Revenue Earning and operating equipment, Net 7,124.7 7,901.5 8,899.7 9,371.6 9,920.2 10,486.6 11,061.8 11,694.5 Goodwill 383.7 393.0 389.1 389.1 389.1 389.1 389.1 389.1 Intangible assets 72.4 66.6 55.2 55.2 55.2 55.2 55.2 55.2 Direct financing leases and other assets 460.5 446.1 525.5 568.8 615.8 666.6 721.6 781.1 Total Assets 9,103.8 9,850.9 10,967.8 11,670.3 12,441.4 13,294.1 14,261.7 15,359.5

Liabilities and shareholders' equity: Current liabilities: ST Debt and current portion of LT debt 259.4 36.3 634.5 687.4 744.7 806.7 874.0 946.8 Accounts payable 475.4 560.9 502.4 552.6 607.9 668.7 735.5 809.1 Accrued expenses and other current liabilities 496.3 513.7 543.4 588.4 637.3 690.2 747.5 809.5 Total current liabilities 1,231.1 1,110.8 1,680.3 1,828.5 1,989.8 2,165.6 2,357.0 2,565.4 Long-term debt 3,930.0 4,694.3 4,883.3 5,029.8 5,180.7 5,336.1 5,496.2 5,661.1 Other non-current liabilities 655.1 783.3 829.6 935.4 1,054.6 1,189.1 1,340.7 1,511.7 Deferred income taxes 1,390.9 1,443.3 1,587.5 1,714.5 1,851.7 1,999.8 2,159.8 2,332.6 Total Liabilities 7,207.1 8,031.8 8,980.7 9,508.2 10,076.9 10,690.7 11,353.7 12,070.7

Shareholders' equity: Preferred stock - - - - - - - - Additional paid-in capital & common stock 944.2 988.9 1,032.8 1,005.0 977.2 949.5 921.7 893.9 Retained earnings 1,390.8 1,450.5 1,667.1 1,869.8 2,100.0 2,366.7 2,699.0 3,107.6 Accumulated other comprehensive loss (438.2) (620.3) (712.7) (712.7) (712.7) (712.7) (712.7) (712.7) Total shareholders' equity 1,896.7 1,819.1 1,987.1 2,162.1 2,364.5 2,603.4 2,908.0 3,288.7 Total liabilities and shareholders' equity 9,103.8 9,850.9 10,967.8 11,670.3 12,441.4 13,294.1 14,261.7 15,359.5

- - - 0.0 0.0 0.0 0.0 0.0

Ryder System, Inc.Common Size Balance Sheet (Industrial) (% of sales)

Assets: 2013 2014 2015 2016E 2017E 2018E 2019E 2020E Current Assets: Cash and cash equivalents 0.96% 0.75% 0.93% 2.13% 2.90% 4.25% 6.62% 9.42% Receivables, Net 12.11% 11.97% 12.71% 13.78% 14.89% 16.07% 17.28% 18.56% Inventories 1.00% 0.99% 0.97% 0.95% 0.92% 0.90% 0.87% 0.84% Prepaid expenses and other current assets 2.48% 2.00% 2.10% 2.07% 2.04% 2.01% 1.97% 1.92% Total Current Assets 16.55% 15.72% 16.71% 18.93% 20.76% 23.23% 26.73% 30.75% Revenue Earning Equipment, Net 101.12% 108.48% 124.54% 138.01% 140.95% 143.57% 145.38% 147.39% Goodwill 5.98% 5.92% 5.92% 5.73% 5.53% 5.33% 5.11% 4.90% Intangible assets 1.13% 1.00% 0.84% 0.81% 0.78% 0.76% 0.73% 0.70% Direct financing leases and other assets 7.17% 6.72% 8.00% 8.38% 8.75% 9.13% 9.48% 9.84%Total Assets 141.83% 148.38% 166.89% 171.86% 176.77% 182.00% 187.43% 193.58%

Liabilities and shareholders' equity: Current liabilities: ST Debt and current portion of LT debt 4.04% 0.55% 9.66% 10.12% 10.58% 11.04% 11.49% 11.93% Accounts payable 7.41% 8.45% 7.64% 8.14% 8.64% 9.15% 9.67% 10.20% Accrued expenses and other current liabilities 7.73% 7.74% 8.27% 8.67% 9.05% 9.45% 9.82% 10.20% Total current liabilities 19.18% 16.73% 25.57% 26.93% 28.27% 29.65% 30.98% 32.33% Long-term debt 61.22% 70.71% 74.31% 74.07% 73.61% 73.06% 72.23% 71.35% Other non-current liabilities 10.21% 11.80% 12.62% 13.77% 14.98% 16.28% 17.62% 19.05% Deferred income taxes 21.67% 21.74% 24.16% 25.25% 26.31% 27.38% 28.38% 29.40%Total Liabilities 112.28% 120.98% 136.65% 140.02% 143.17% 146.36% 149.21% 152.13%

Shareholders' equity: Preferred stock - - - Additional paid-in capital & common stock 14.71% 14.89% 15.71% 14.80% 13.88% 13.00% 12.11% 11.27% Retained earnings 21.67% 21.85% 25.37% 27.54% 29.84% 32.40% 35.47% 39.17% Accumulated other comprehensive loss -6.83% -9.34% -10.85% -10.50% -10.13% -9.76% -9.37% -8.98%Total shareholders' equity 29.55% 27.40% 30.24% 31.84% 33.60% 35.64% 38.22% 41.45%Total liabilities and shareholders' equity 141.83% 148.38% 166.89% 171.86% 176.77% 182.00% 187.43% 193.58%

Ryder System, Inc.

Statement of Cash Flows (Industrial)

(in Millions)

Fiscal Year Ending December 31st 2013 2014 2015

Operating Activities

Net Income / Starting Line 243.20 220.46 305.99

Depreciation, Depletion & Amortization 965.14 1,040.26 1,146.92

Deferred Taxes & Investment Tax Credit 113.58 104.76 154.04

Other Funds (28.48) 38.58 (32.87)

Funds from Operations 1,293.44 1,404.05 1,574.09

Changes in Working Capital (70.36) (34.06) (132.30)

Net Operating Cash Flow 1,223.08 1,369.99 1,441.79

Investing Activities

Capital Expenditures (2,140.46) (2,259.16) (2,667.98)

Acquisitions (1.86) (9.97) -

Sale of Fixed Assets & Businesses 452.37 622.79 427.50

Other Funds 62.50 65.94 69.88

Net Investing Cash Flow (1,627.45) (1,580.41) (2,170.60)

Financing Activities

Cash Dividends Paid (67.72) (74.87) (83.20)

Change in Capital 90.65 (59.72) 17.49

Issuance/Reduction of Debt, Net 365.56 332.54 800.37

Other Funds 5.15 0.70 (3.18)

Net Financing Cash Flow 393.64 198.65 731.49

Exchange Rate Effect 5,558.00 297.00 37.00

Miscellaneous Funds - - -

Net Change in Cash (4.83) (11.47) 10.85

Ryder System, Inc.Statement of Cash Flows (Industrial)(in Millions)Fiscal Year Ending December 31st 2016E 2017E 2018E 2019E CV 2020E

Operating Activities:Net Income 319.1 352.9 396.2 469.1 553.1 Depreciation, Depletion & Amortization 1,169.9 1,193.3 1,217.1 1,241.5 1,266.3 Deferred Taxes & Investment Tax Credit 127.0 137.2 148.1 160.0 172.8 Gains on sales of vehicles (119.6) (121.4) (123.2) (125.0) (126.9) Funds from Operations 1,496.4 1,561.9 1,638.3 1,745.5 1,865.3 Changes in Working Capital and other 54.1 60.7 68.1 76.3 85.6 Receivables (100.3) (112.3) (125.8) (140.9) (157.8) Inventories (0.6) (0.6) (0.7) (0.7) (0.7) Prepaid Expenses and Other Assets (2.8) (2.8) (2.9) (2.9) (3.0) Accounts Payable 50.2 55.3 60.8 66.9 73.6 Accrued Expenses and Other Liabilities 45.1 48.8 52.9 57.3 62.0 Other non-current assets and liabilites 62.4 72.3 83.7 96.6 111.4 Net Operating Cash Flow 1,550.5 1,622.6 1,706.3 1,821.8 1,950.9

Investing ActivitiesCapital Expenditures (2,001.0) (2,061.0) (2,122.8) (2,186.5) (2,252.1) Acquisitions - - - - - Sale of revenue generating equipment 478.8 440.5 462.5 494.9 480.1 Other Funds - - - - - Net Investing Cash Flow (1,522.2) (1,620.5) (1,660.3) (1,691.6) (1,772.1)

Financing ActivitiesCash Dividends Paid (88.6) (95.0) (101.7) (109.0) (116.8) Change in Capital Stock (27.8) (27.8) (27.8) (27.8) (27.8) Sale of Common Stock 12.2 12.2 12.2 12.2 12.2 Share repurchases (40.0) (40.0) (40.0) (40.0) (40.0) Change in debt 199.4 208.2 217.5 227.3 237.7 Other FundsNet Financing Cash Flow 55.2 57.7 60.2 62.8 65.4

Net Change in Cash 83.6 59.8 106.2 193.0 244.2 Cash, Beg of year 60.9 144.5 204.3 310.5 503.4 Cash, End of year 144.5 204.3 310.5 503.4 747.6

Ryder Systems, IncValue Driver Estimation(In Millions)Fiscal Years En 2,012.0 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

NOPLAT COMPUTATIONNet Sales 6,257.0 6,419.3 6,638.8 6,571.9 6,790.5 7,038.2 7,304.2 7,609.0 7,934.3 Less: Cost of Lease and Ren 1,925.6 2,036.9 2,153.5 2,239.6 2,329.2 2,422.3 2,519.2 2,620.0 Less: Cost of Services 2,359.9 2,447.9 2,413.2 2,509.7 2,610.1 2,714.5 2,823.1 2,936.0 Less: Fuel Services 814.1 768.3 519.8 509.4 499.3 489.3 479.5 469.9 Less: Other Operating Expe 131.7 126.6 135.0 137.8 140.6 143.5 146.5 149.5 Less: SG & A 766.7 790.7 817.0 844.5 869.8 895.9 922.8 950.5 979.0 Plus: Implied 160.9 185.4 203.1 217.0 228.5 241.9 255.7 269.7 285.1 EBITA 582.9 645.3 722.9 752.6 805.0 867.5 959.9 1,065.0

Income Tax Pr 102.2 125.7 118.1 163.2 166.9 170.7 174.5 178.4 182.4 Plus: Tax Sh 52.7 49.0 52.8 55.2 56.5 57.7 59.0 60.3 61.7 Less: Tax on 4.4 5.4 5.0 3.7 3.8 3.9 4.0 4.0 4.1 Plus: Tax Sh - - 35.5 - - - - - - Plus: Tax Shield on Restruct 0.2 0.9 5.2 5.2 5.2 5.3 5.3 5.3 Plus: Tax Shield on Non-Ope (5.4) (1.9) (1.2) - - - - - Less: Tax on Gains on Vehic 33.6 46.3 43.2 43.9 44.5 45.2 45.9 46.6 Plus: Tax Sh 11.3 13.0 14.2 15.2 16.0 17.0 17.9 18.9 20.0 Total Adju 154.9 143.5 168.4 190.7 196.9 202.2 207.5 213.0 218.7

Deferred Tax L 1,753.2 1,390.9 1,443.3 1,587.5 1,714.5 1,851.7 1,999.8 2,159.8 2,332.6 Deferred Tax C 605.3 - - - - - - - - Net Deferre 1,147.9 1,390.9 1,443.3 1,587.5 1,714.5 1,851.7 1,999.8 2,159.8 2,332.6

Net Change in Deferred T 242.9 52.4 144.2 127.0 137.2 148.1 160.0 172.8

NOPLAT 682.2 529.3 676.4 682.7 740.0 808.1 906.9 1,019.1

INVESTED CAPITALOperating Current Assets "Normal" Ca 0.7 213.1 104.6 66.4 61.6 50.1 60.9 144.5 204.3 Accounts Re 775.8 777.4 794.9 835.5 935.7 1,048.0 1,173.8 1,314.7 1,472.4 Inventories 64.1 64.3 66.0 63.7 64.4 65.0 65.7 66.3 67.0 Prepaid Exp 133.9 159.3 132.7 138.1 140.9 143.7 146.6 149.5 152.5 Operating 974.5 1,214.0 1,098.1 1,103.8 1,202.6 1,306.9 1,447.0 1,675.0 1,896.2

Operating Current Liabilities Accounts Pa 399.0 475.4 560.9 502.4 552.6 607.9 668.7 735.5 809.1 Accrued Exp 505.7 496.3 513.7 543.4 588.4 637.3 690.2 747.5 809.5 Income Taxe 1,177.1 1,390.9 1,443.3 1,587.5 1,714.5 1,851.7 1,999.8 2,159.8 2,332.6 Operating 2,081.8 2,362.6 2,517.8 2,633.2 2,855.6 3,096.8 3,358.7 3,642.8 3,951.2

Net Operating (1,107.3) (1,148.6) (1,419.7) (1,529.5) (1,653.0) (1,790.0) (1,911.7) (1,967.8) (2,055.0)

Plus: Net PPE 6,379.5 7,124.7 7,901.5 8,899.7 9,371.6 9,920.2 10,486.6 11,061.8 11,694.5 Plus: PV of Op 2,295.8 2,644.7 2,896.8 3,095.2 3,259.3 3,450.1 3,647.1 3,847.1 4,067.2 Plus: Tangible 434.6 460.5 446.1 525.5 557.0 590.4 625.9 663.4 703.2

Invested C 8,002.6 9,081.2 9,824.6 10,990.9 11,534.9 12,170.8 12,847.9 13,604.6 14,410.0

VALUE DRIVERSNOPLAT 682.2 529.3 676.4 682.7 740.0 808.1 906.9 1,019.1 BEG. INVESTED CAPITAL 8,002.6 9,081.2 9,824.6 10,990.9 11,534.9 12,170.8 12,847.9 13,604.6 ROIC 8.53% 5.83% 6.88% 6.21% 6.42% 6.64% 7.06% 7.49%

BEG. INVESTED CAPITAL 8,002.6 9,081.2 9,824.6 10,990.9 11,534.9 12,170.8 12,847.9 13,604.6 ROIC 8.5% 5.8% 6.9% 6.2% 6.4% 6.6% 7.1% 7.5%WACC 8.0% 8.0% 8.0% 6.5% 6.5% 6.5% 6.5% 6.5% EP 42.0 (197.2) (109.6) (34.9) (13.2) 13.4 68.0 130.8

NOPLAT 682.2 529.3 676.4 682.7 740.0 808.1 906.9 1,019.1 BEG. INVESTED CAPITAL 8,002.6 9,081.2 9,824.6 10,990.9 11,534.9 12,170.8 12,847.9 13,604.6 ENDING INVES 8,002.6 9,081.2 9,824.6 10,990.9 11,534.9 12,170.8 12,847.9 13,604.6 14,410.0 FCF (8,002.6) (396.4) (214.1) (489.8) 138.7 104.2 131.0 150.2 213.7

Ryder Systems, Inc.Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)Risk Free Rate 2.57%Implied Market Risk-Premium 5%Beta (Bloomberg) 1.5Cost of Equity 10.068%

Risk Free Rate 2.57%Corporate Bond Spread (BBB+) 4.44%Pre-tax Cost of Debt 7.01%Marginal Tax Rate 36.70%After-tax Cost of Debt 4.43%

Cost of Preferred Stock 0%

Target Weights: Debt 62.81% Equity 37.19% Preferred 0%Total 100%

WACC Calculation: Cost of Equity (Re) 10.07% Cost of Debt (Rd) 7.01% Cost of Preferred (Rpfd) 0% Marginal Tax Rate (t) 36.70% MV of Equity E 3,267.64$ MV of Debt (D) 5,517.80$ MV of Firm (E+D+PFD) 8,785.44$ WACC 6.53%

Ryder Systems, Inc.Discounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models

Key Inputs: CV Growth 3.00% CV ROIC 7.45% WACC 6.53% Cost of Equity 10.07%

DCF Model:Fiscal Years Ending Dec. 31 2016E 2017E 2018E 2019E 2020E

NOPLAT 682.73 740.03 808.12 906.91 1,019.12 Δ Invested Capital 544.04 635.88 677.13 756.67 805.37 FCF 138.68 104.16 131.00 150.24 213.74 CV 17,246.55 Periods to Discount 1 2 3 4 4Discounting Factor 1.065 1.135 1.209 1.288 1.288PV(CF) 130.18 91.78 108.35 116.65 13,391.25

Value of Operating Assets 13,838.2 Plus: Excess Cash - Plus: Direct Financing Leases 525.5 Plus: Intangible Assets 55.2 Less: Short & Long-Term Debt 5,517.9 Less: ESOP 18.6 Less: PV Operating Lease 4,067.2 Less: Other Liabilities 829.6 Value of Equity 3,985.6 Shares Outstanding 53.0 Intrinsic Value 75.20

Fraction of FY elapsed 30.05%Intrinsic Value Partial Year Adjusted as of 4/19/2016 77.40$

EP ModelFiscal Years Ending Dec. 31 2016E 2017E 2018E 2019E 2020CVNOPLAT 682.7 740.0 808.1 906.9 1,019.1 Beg. Invested Capital 10,990.9 11,534.9 12,170.8 12,847.9 13,604.6 ROIC 6.21% 6.42% 6.64% 7.06% 7.49%WACC 6.5% 6.5% 6.5% 6.5% 6.5%Economic Profit (34.9) (13.2) 13.4 68.0 130.8 Continuing Value 3,641.9 Periods to discount 1 2 3 4 4 Discounting Factor 1.065 1.135 1.209 1.288 1.288 PV EP -32.79287 -11.590757 11.0975926 52.794474 2827.81907

PV of EP 2,847.3 Add: Beg. IC 10,990.9 EP Value of Operations 13,838.2 Add: Excess Cash - Direct financing leases 525.5 Intangible assets 55.2 Less: Short & Long-Term Debt 5,517.9 ESOP 18.6 PV operating lease 4,067.2 Other Liabilities 829.6 Equity Value 3,985.6 Shares Outstanding 53.0

Intrinsic Value 75.20$

Intrinsic Value Partial Year Adjusted as of 77.40$ 4/14/2016

Ryder Systems, Inc.Dividend Discount Model (DDM)

Key Assumptions CV Growth 3.00% CV ROE 11.00% Cost of Equity 10.07%

Fiscal Years Ending December 31 2016E 2017E 2018E 2019E CV2020EPS 5.97 6.66 7.55 9.03 10.76Dividend per share 1.68 1.82 1.97 2.12 2.29Future Stock Price 110.6681Period 1 2 3 4 4Discounted Cash Flow 1.53069 1.501931 1.473712 1.446023 75.40119Intrinsic Value 81.35$

Fraction of FY elapsed 30.05%Intrinsic Value Partial Year Adjusted as of 4/19/2016 81.86$

Ryder Systems, Inc. Relative Valuation Models

EPS EPS Est. 5yrTicker Company Price 2016 2017E P/E 16 P/E 17 EPS gr. PEG 16 PEG 17PAG Penske Aut $35.93 $3.86 $4.20 9.3 8.6 10.3 0.91 0.83 HTZ Hertz Globa $8.83 $1.00 $1.23 8.8 7.2 23.2 0.38 0.31 RUSHA Rush Enterp $17.82 $1.23 $1.55 14.5 11.5 6.8 2.13 1.69 UHAL AMERCO $341.53 $25.10 $27.75 13.6 12.3 15.0 0.91 0.82 PCAR Paccar Inc. $55.98 $3.90 $3.80 14.4 14.7 2.4 6.06 6.22

Average 12.1 10.9 2.1 2.0

R Ryder Syste $66.48 $6.13 $6.48 10.8 10.3 8.90 1.2 1.2

Implied Value: Relative P/E (EPS16) $ 74.28 Relative P/E (EPS17) 70.33$ PEG Ratio (EPS16) 1.512 PEG Ratio (EPS17) 1.520

Ryder Systems, Inc.Sensitivity Analysis

77.40$ 6.00% 6.25% 6.53% 6.75% 7.00%2.80% 123.21 98.35 74.51 58.12 41.632.90% 126.29 100.51 75.91 59.06 42.163.00% 129.57 102.81 77.40 60.05 42.713.10% 133.08 105.25 78.96 61.10 43.303.20% 136.83 107.85 80.63 62.20 43.91

77.40$ 1.3 1.4 1.5 1.6 1.72.40% 77.16 77.26 77.37 77.47 77.582.50% 77.17 77.28 77.38 77.49 77.602.57% 77.18 77.29 77.40 77.50 77.612.70% 77.20 77.31 77.42 77.52 77.632.80% 77.22 77.33 77.43 77.54 77.64

77.40$ 1.00% 2.00% 3.00% 4.00% 5.00%6.45% 52.16 51.40 50.22 48.09 43.196.90% 54.97 58.26 63.42 72.66 93.987.45% 57.94 65.52 77.40 98.66 147.728.00% 60.51 71.78 89.45 121.08 194.078.45% 62.36 76.30 98.14 137.25 227.51

77.40$ 5.00% 6.00% 6.53% 7.00% 8.00%6.50% 256.01 98.82 51.74 20.50 -26.287.00% 282.85 116.04 66.09 32.94 -16.697.45% 303.92 129.57 77.36 42.71 -9.168.00% 326.46 144.03 89.41 53.16 -1.118.50% 344.42 155.56 99.01 61.49 5.31

77.40$ 4.00% 5.00% 6.00% 7.00% 8.00%-1.00% 24.92 36.76 48.61 60.45 72.300.00% 34.52 46.36 58.20 70.05 81.891.00% 44.11 55.96 67.80 79.64 91.492.00% 53.71 65.55 77.40 89.24 101.083.00% 63.30 75.15 86.99 98.83 110.684.00% 72.90 84.74 96.59 108.43 120.275.00% 82.49 94.34 106.18 118.03 129.87

WACC

ROIC

% Sales Growth Leasing Revenue

% Sales Growth Services Rev

WACC

CV Growth of NOPLAT

Beta

Risk-Free Rate

CV Growth of NOPLAT

ROIC

Ryder Systems, Inc.Key RatiosFiscal Years Ending Dec. 31 2013 2014 2015 2016E 2017E 2018E 2019E CV 2020E

Liquidity RatiosCurrent Ratio 0.86 0.94 0.65 0.70 0.73 0.78 0.86 0.95 Quick Ratio 0.81 0.88 0.62 0.67 0.70 0.75 0.83 0.92 Net Working Capital (168.65) (67.18) (581.96) (542.95) (528.79) (469.04) (323.02) (125.84)

Activity or Asset-Management RatiosTotal Asset Turnover 0.71 0.67 0.60 0.58 0.57 0.55 0.53 0.52Fixed Asset Turnover 0.90 0.84 0.74 0.72 0.71 0.70 0.69 0.68 Receivables Turnover 8.26 8.35 7.87 7.26 6.72 6.22 5.79 5.39

Financial Leverage RatiosDebt to Equity Ratio 220.88% 260.05% 277.68% 264.43% 250.60% 235.96% 219.06% 200.93%Equity Ratio 20.83% 18.47% 18.12% 18.53% 19.01% 19.58% 20.39% 21.41%Debt Ratio 46.02% 48.02% 50.31% 48.99% 47.63% 46.21% 44.67% 43.02%Capitalization Ratio 68.84% 72.23% 73.52% 72.56% 71.48% 70.23% 68.66% 66.77%

Profitability RatiosROA 2.61% 2.22% 2.78% 2.73% 2.84% 2.98% 3.29% 3.60%ROE 12.54% 12.00% 15.34% 14.76% 14.92% 15.22% 16.13% 16.82%Net Profit Margin 3.71% 3.29% 4.64% 4.70% 5.01% 5.42% 6.16% 6.97%

Payout Policy RatiosDividend Payout Ratio 28% 34% 27% 28% 27% 26% 23% 21%Dividends per Share 0.92$ 0.96$ 1.04$ 1.12$ 1.20$ 1.30$ 1.42$ 1.56$

Present Value of Operating Lease Obligations (2015) Present Value of Operating Lease Obligations (2014) Present Value of Operating Lease Obligations (2013)

Operating Operating OperatingOperatingFiscal Years Ending Dec. 31 Leases Fiscal Years Ending Dec. 31 Leases Fiscal Years Ending Leases Leases2016 1049 2015 974 2014 887 9922017 857 2016 795 2015 718 7492018 678 2017 627 2016 568 5772019 481 2018 465 2017 420 4342020 298 2019 296 2018 277 284Thereafter 241 Thereafter 219 Thereafter 216 189Total Minimum Payments 3604 Total Minimum Payments 3376 Total Minimum Payments 3086 3225Less: Interest 509 Less: Interest 479 Less: Interest 441 449PV of Minimum Payments 3095 PV of Minimum Payments 2897 PV of Minimum Payments 2645 2776

Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases

Pre-Tax Cost of Debt 6.00% Pre-Tax Cost of Debt 6.00% Pre-Tax Cost of Debt 6.00% 6.00%Number Years Implied by Year 6 Payme 1.0 Number Years Implied by Year 6 Payme 1.0 Number Years Implied by Year 6 Payme 1.0 1.0

Lease PV Lease Lease PV Lease Lease PV Lease PV LeaseYear Commitment Payment Year Commitment Payment Year Commitment Payment Payment1 1049 989.6 1 974 918.9 1 887 836.8 935.82 857 762.7 2 795 707.5 2 718 639.0 666.63 678 569.3 3 627 526.4 3 568 476.9 484.54 481 381.0 4 465 368.3 4 420 332.7 343.85 298 222.7 5 296 221.2 5 277 207.0 212.26 & beyond 241 169.9 6 & beyond 219 154.4 6 & beyond 216 152.3 133.2PV of Minimum Payments 3095.2 PV of Minimum Payments 2896.8 PV of Minimum Payments 2644.7 2776.1

Forecasted PV of Operating Leases:

2016 2017 2018 2019 20203259.31 3450.11 3647.10 3847.15 4067.19

Net PPE2015 2016 2017 2018 2019 2020

8,899.71 9,371.61 9,920.25 10,486.64 11,061.85 11,694.54

Effects of ESOP Exercise and Share Repurchases on Common Stock Balance Sheet Account and Number of Shares Outstanding

Number of Options Outstanding (shares): 1,263,000Average Time to Maturity (years): 6.60Expected Annual Number of Options Exercised 191,364

Current Average Strike Price: 63.93$ Cost of Equity: 10.07%Current Stock Price: $66.53

2016E 2017E 2018E 2019E 2020E CV2021Increase in Shares Outstanding: 191,364 191,364 191,364 191,364 191,364 191,364Average Strike Price: 63.93$ 63.93$ 63.93$ 63.93$ 63.93$ 63.93$ Increase in Common Stock Account: 12,233,901 12,233,901 12,233,901 12,233,901 12,233,901 12,233,901

Dollar shares repurchased 40Expected Price of Repurchased Shares: $66.53Number of Shares Repurchased: 0.60123

Shares Outstanding (beginning of the year) 53.00 51Plus: Shares Issued Through ESOP 0.19 0.19 0.19 0.19 0.19 0.19Less: Shares Repurchased in Treasury 0.60 0.60 0.60 0.60 0.60 0.60Shares Outstanding (end of the year) 52.59 52.18 51.77 51.36 50.95 50.54

VALUATION OF OPTIONS GRANTED IN ESOP

Ticker Symbol RCurrent Stock Price $66.53Risk Free Rate 2.57%Current Dividend Yield 0.00%Annualized St. Dev. of Stock Returns 15.18%

Average Average B-S ValueRange of Number Exercise Remaining Option of OptionsOutstanding Options of Shares Price Life (yrs) Price GrantedRange 1 1,263,000 68.13 6.60 14.75$ 18,631,123$ Total 1,263,000 68.13$ 6.60 14.75$ 18,631,123$