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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997 Commission File Number 1-5046
CNF TRANSPORTATION INC.
Incorporated in the State of Delaware
I.R.S. Employer Identification No. 94-1444798
3240 Hillview Avenue, Palo Alto, California 94304
Telephone Number (650) 494-2900
Securities Registered Pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
Common Stock ($.625 par value) New York Stock Exchange
Pacific Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act:
9-1/8% Notes Due 1999
Medium-Term Notes, Series A
7.35% Notes Due 2005
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes___X___ No_______
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
Yes ___X__ No ___ ___
Aggregate market value of voting stock held by persons other than
Directors, Officers and those shareholders holding more than 5% of the
outstanding voting stock, based upon the closing price per share Composite
Tape on January 31, 1998: $1,905,071,000.
Number of shares of Common Stock outstanding
as of January 31, 1998: 47,438,525
DOCUMENTS INCORPORATED BY REFERENCE
Parts I, II and IV
CNF Transportation Inc. 1997 Annual Report to Shareholders (only those
portions referenced herein are incorporated in this Form 10-K).
Part III
Proxy Statement dated March 17, 1998 (only those portions referenced herein
are incorporated in this Form 10-K).
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CNF TRANSPORTATION INC.
FORM 10-K
Year Ended December 31, 1997
___________________________________________________________________________
INDEX
Item Page
PART I
1. Business 3
2. Properties 15
3. Legal Proceedings 16
4. Submission of Matters to a Vote of Security Holders 16
PART II
5. Market for the Company's Common Stock and
Related Security Holder Matters 16
6. Selected Financial Data 16
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
8. Financial Statements and Supplementary Data 18
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 18
PART III
10. Directors and Executive Officers of the Company 18
11. Executive Compensation 19
12. Security Ownership of Certain Beneficial
Owners and Management 19
13. Certain Relationships and Related Transactions 20
PART IV
14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 20
SIGNATURES 21
INDEX TO FINANCIAL INFORMATION 24
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CNF TRANSPORTATION INC.
FORM 10-K
Year Ended December 31, 1997
___________________________________________________________________________
PART I
ITEM 1. BUSINESS
(a) General Development of Business
CNF Transportation Inc. and subsidiaries (collectively the Registrant or
the Company) is a leading provider of regional less-than-truckload (LTL)
trucking, heavy air freight and logistics services. The Company has three
principal business units: Con-Way Transportation Services (Con-Way), which
provides regional LTL trucking services in all 50 states; Emery Worldwide
(Emery), which provides domestic and international air freight services;
and Menlo Logistics (Menlo), a contract logistics company. Con-Way and
Emery have established infrastructures which enable them to provide time-
definite and day-definite delivery services throughout the United States
and internationally. Emery also provides nightly air transportation
services to the United States Postal Service (USPS), and entered into a new
postal contract in 1997 which has broadened these services to include
sortation and ground transportation of Priority Mail in the eastern United
States. Menlo, the Company's contract logistics subsidiary, specializes in
designing and managing complex supply and distribution networks for
national and multi-national companies. The Company also provides a number
of other transportation services, including truckload services, ocean
forwarding and customs brokerage.
On December 2, 1996, the Company completed the tax-free distribution (the
Spin-off) to its shareholders of a new publicly traded company,
Consolidated Freightways Corporation (CFC), a long-haul LTL motor carrier
and related businesses. The Registrant's shareholders received one share of
CFC stock for every two shares of the Registrant's stock owned on November
15, 1996. Following the Spin-off, the Company changed its name to CNF
Transportation Inc.
CNF Transportation Inc., formerly Consolidated Freightways, Inc., was
incorporated in Delaware in 1958 as a successor to a business originally
established in 1929.
(b) Financial Information About Industry Segments
The operations of the Company are primarily conducted in the U.S. but to an
increasing extent are conducted in major foreign countries. An analysis by
industry group of revenues, operating income, depreciation and capital
expenditures for the years ended December 31, 1997, 1996 and 1995, and
identifiable assets as of those dates is presented in Note 14 on pages 37
and 38 of the 1997 Annual Report to Shareholders and is incorporated herein
by reference. Geographic group information is also presented therein.
Intersegment revenues and related earnings have been eliminated.
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(c) Narrative Description of Business
The Company, for reporting purposes, has designated three principal
operating segments: the Con-Way Transportation Services group which
provides primarily one- and two-day, LTL service as well as highway, rail
and multi-modal logistics services; the Emery Worldwide group which is
responsible for all domestic and international air freight activities and
ocean forwarding services; and the Other segment which is comprised of the
full-service contract logistics subsidiary, Menlo Logistics, Road Systems,
VantageParts and the sortation operations of the Priority Mail contract.
Each segment is described in greater detail as follows:
CON-WAY TRANSPORTATION SERVICES
Con-Way Transportation Services, Inc. (CTS) provides time-definite and day-
definite ground transportation to all 50 states through its three regional
LTL motor carriers. In addition to time-definite and day-definite regional
and inter-regional LTL freight transportation, CTS provides full-service,
nationwide truckload freight service and ground expedited delivery.
Having largely completed its geographic expansion in North America, CTS has
the infrastructure in place to serve all 50 states of the United States and
certain major population centers in Canada, as well as Puerto Rico and
parts of Mexico. CTS' strategy will continue to emphasize operating margin
improvements, particularly through efforts to increase the utilization of
its freight system in the Pacific northwest and northeastern U.S. (areas in
which it expanded its operations in 1995 and 1996) and through general
market penetration.
Con-Way Regional Carriers
CTS' primary business units are three regional LTL motor carriers, each of
which operates a dedicated regional trucking network principally serving
core geographic territories with next-day and second-day service. The
regional carriers serve manufacturing, industrial, commercial and retail
business-to-business customers with a fleet of approximately 25,000 trucks,
tractors and trailers at December 31, 1997. The regional carriers are as
follows:
Con-Way Central Express (CCX) was founded in June 1983 and today serves 23
states of the central and northeast U.S., Ontario and Quebec, Canada and
Puerto Rico. At December 31, 1997, CCX operated 206 service centers.
Con-Way Southern Express (CSE) was founded in April 1987. CSE serves a 12-
state southern market from Texas to the Carolinas and Florida, and also
serves Puerto Rico and parts of Mexico. CSE operated 102 service centers
at December 31, 1997.
Con-Way Western Express (CWX) was founded in May 1983 and today operates in
15 western states and serves parts of Canada and Mexico. CWX completed
major geographic expansions in 1995 in the Pacific northwest and British
Columbia. At December 31, 1997, CWX operated 61 service centers.
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The expansion of the territories through CTS' joint service offerings
permits CTS' three regional carriers to provide full regional service
throughout the U.S. and to certain major population centers in Canada. By
offering joint services, the three regional carriers can now provide next-
day and second-day freight delivery between their respective core
territories utilizing existing infrastructure. The joint service program
is intended to generate additional business by allowing each carrier to
provide coverage of inter-regional market lanes not serviced as part of its
core territory. Due in large part, to implementation of the joint service
program, the average length of haul for shipments handled by the regional
carriers grew from approximately 353 miles in 1994 to approximately 497 in
1997. Also, average revenue per shipment grew from approximately $111 in
1994 to approximately $126 in 1997. The average weight per shipment was
approximately 1,095 pounds in 1997.
Con-Way Truckload Services and Con-Way NOW
CTS' operations also include Con-Way Truckload Services (CWT), a full-
service, multi-modal truckload company, and Con-Way NOW, which serves the
expedited surface shipment market. CWT provides door-to-door delivery of
truckload shipments by highway and rail forwarding with domestic intermodal
marketing services, and assembly and distribution services. Con-Way NOW
specializes in time definite shipments, such as replacement parts, medical
equipment and other urgent shipments, where expedited delivery is critical.
Con-Way NOW began operations in 1996 in the Midwest, expanded to parts of
the southeastern U.S. in 1997, and has now extended delivery service to 48
states.
Employees
CTS' domestic employment has increased to approximately 15,000 regular and
supplemental employees at December 31, 1997 from approximately 14,300 at
December 31, 1996, and 12,400 employees at December 31, 1995.
Customers
There is broad diversity among customers served, size of shipments,
commodities transported and length of haul. No single customer or
commodity accounted for more than a small fraction of total revenues.
Competition
The trucking industry is intensely competitive and some of CTS' competitors
have greater financial and other resources than the Company. Principal
competitors of CTS include both regional and inter-regional companies and
national LTL companies (some of which have continued to extend into
regional markets). Competition in the trucking industry is based on, among
other things, freight rates, quality of service, reliability, transit times
and scope of operations. Intense competition in the trucking industry,
coupled with industry over-capacity, has resulted in aggressive price
discounting, narrow margins and a significant number of business failures.
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Federal and State Regulation
CTS' business is subject to extensive regulation by various federal and
state governmental entities. As described below, deregulation of the
trucking industry allowed easier access to the industry by new trucking
companies, and has removed many restrictions on expansion of services by
existing carriers and increased price competition. These and other factors
have contributed to a consolidation in the trucking industry, as a number
of trucking companies have either merged or gone out of business.
Regulation of motor carriers has changed substantially in recent years.
The process started with the Motor Carrier Act of 1980, which allowed
easier access to the industry by new trucking companies, removed many
restrictions on expansion of services by existing carriers, and increased
price competition by narrowing the antitrust immunities available to the
industry's collective ratemaking organizations. This deregulatory trend
was continued by subsequent legislation. The process culminated with
federal preemption of most economic regulation of intrastate trucking
regulatory bodies effective January 1, 1995, and with legislation to
terminate the Interstate Commerce Commission (ICC) effective January 1,
1996.
Currently, the motor carrier industry is subject to federal regulation by
the Federal Highway Administration (FHWA) and the Surface Transportation
Board (STB), both of which are units of the United States Department of
Transportation (DOT). The FHWA performs certain functions inherited from
the ICC relating chiefly to motor carrier registration, cargo and liability
insurance, extension of credit to motor carrier customers, and leasing of
equipment by motor carriers from owner-operators. In addition, the FHWA
enforces comprehensive trucking safety regulations relating to driver
qualifications, driver hours of service, safety-related equipment
requirements, vehicle inspection and maintenance, record keeping on
accidents, and transportation of hazardous materials. As pertinent to the
general freight trucking industry, the STB has authority to resolve certain
types of pricing disputes and authorize certain types of intercarrier
agreements under jurisdiction inherited from the ICC.
At the state level, federal preemption of economic regulation does not
prevent the states from regulating motor vehicle safety on their highways.
In addition, federal law allows all states to impose insurance requirements
on motor carriers conducting business within their borders, and empowers
most states to require motor carriers conducting interstate operations
through their territory to make annual filings verifying that they hold
appropriate registrations from FHWA. Motor carriers also must pay state
fuel taxes and vehicle registration fees, which normally are apportioned on
the basis of mileage operated in each state.
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EMERY WORLDWIDE
Emery Worldwide (Emery), the Company's air freight unit, was formed when
the Company purchased Emery Air Freight Corporation in April 1989. Emery
provides domestic and international air freight services. Through a
separate subsidiary of the Company, Emery Worldwide Airlines, Inc. (EWA),
the Company provides nightly air transportation services to the USPS. In
addition, as the result of a contract that the USPS awarded to EWA in 1997,
EWA has broadened these services to include sortation and ground
transportation of Priority Mail in the eastern United States. The ground
transportation is contracted to another subsidiary of the Company. In
North America, Emery relies principally on its dedicated aircraft and
ground fleet to provide commercial door-to-door delivery for same-day, next-
day, second-day and deferred shipments and through EWA provides air
transportation services to the USPS. Internationally, Emery acts
principally as a freight forwarder in providing door-to-door and airport-to-
airport commercial services in approximately 200 countries. International
business is defined by Emery as shipments that either originate or
terminate outside of North America. Commercial business is defined by
Emery as all operations except those services it provides domestically to
the USPS.
While Emery's freight system is designed to handle parcels, packages and
shipments of a variety of sizes and weights, its commercial operations are
focused primarily on heavy air freight (defined as shipments of 70 pounds
or more) as opposed to envelopes. In 1997, Emery's commercial shipments
weighed an average of approximately 220 pounds and generated average
revenue of approximately $209 per shipment.
Customers are typically concerned with timely deliveries rather than the
mode of transportation used to transport freight. Because the average cost
of ground transportation is considerably less than air transportation,
Emery seeks to manage its costs by using trucks, rather than aircraft, to
transport freight whenever possible, typically in connection with second-
day deliveries.
The Company believes that Emery's competitive position versus air freight
forwarders in the domestic air freight industry has improved over the last
several years as the availability of cargo capacity on domestic passenger
airlines has decreased. Several major domestic airlines have reduced the
number of wide-body aircraft they use for domestic passenger service in
favor of narrow-body aircraft. This change greatly reduces the amount of
belly space available for cargo. The Company believes that this trend
toward the use of passenger aircraft with lower cargo capacities has
reduced the availability of airlift for freight forwarders (which do not
operate their own aircraft) and benefited Emery and other asset-based air
freight companies.
Emery provides services in North America through a system of sales offices
and service centers, and overseas through foreign subsidiaries, branch
sales offices, service centers and agents. Emery's door-to-door service
within North America relies on Emery's own airlift system, supplemented
with commercial airlines. Internationally, Emery operates primarily as an
air freight forwarder using commercial airlines, while utilizing controlled
lift only on a limited basis. Due in part to the Company's heightened
focus on opportunities in the expanding worldwide economy, Emery's total
international commercial revenues increased 76% from 1994 through 1997,
compared with a 27% increase for its total North American
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commercial revenues for the same period. For 1997, international revenues
of approximately $900 million comprised nearly 45% of Emery's total
commercial revenues. Emery's fastest-growing regions internationally are
Latin America and Asia.
As of December 31, 1997, Emery utilized a fleet of 74 dedicated aircraft
for its commercial operations. Of these aircraft, 50 were leased on a long-
term basis, 9 were owned and 15 were contracted on a short-term basis to
supplement nightly capacity and to provide feeder services. At December
31, 1997, the nightly lift capacity of this aircraft fleet, excluding
charters, was over 4 million pounds. At December 31, 1997, Emery also
operated approximately 2,000 trucks, vans and tractor-trailers, as well as
equipment provided by its agents.
Emery's hub-and-spoke system is based at the Dayton, Ohio International
Airport (DAY), where its leased air cargo facility (the Hub) and related
support facilities are located. The Hub handles a wide variety of
shipments, ranging from small packages to heavyweight cargo, with a total
effective sort capacity of approximately 1.2 million pounds per hour.
Beginning in 1997, Emery began a redesign and upgrade of the Hub that is
expected to increase capacity 30% by the year 2000. The operation of the
Hub in conjunction with Emery's airlift system enables Emery to maintain a
high level of service reliability. In addition to the Dayton Hub, Emery
operates nine regional hubs, strategically located around the United States
near Sacramento and Los Angeles, California; Dallas, Texas; Chicago,
Illinois; Poughkeepsie, New York; Charlotte, North Carolina; Atlanta,
Georgia; Nashville, Tennessee; and Orlando, Florida. In 1997, Emery opened
new distribution centers in Singapore and Miami to serve Asia and Latin
America, respectively.
Emery added a new guaranteed time-definite product in 1997, called Gold
Priority Service. These services offered in North America include; 9:30
Service, which is premium service with a guaranteed 9:30 delivery to
specified regions; Gold Priority Plus, which provides time specific
delivery by appointment; and Gold Priority Standard, that provides
guaranteed delivery by noon to a wide range of destinations.
USPS contracts
Through the separate subsidiary of the Company, Emery Worldwide Airlines,
Inc. (EWA), the Company provides nightly air delivery services for Express
Mail (a next-day delivery service) under a ten-year contract with the USPS.
The original contract for this operation was awarded to EWA in 1989, and
the current contract was awarded to EWA in 1993. At December 31, 1997, EWA
used 24 dedicated aircraft to provide services to the USPS under this
contract. In addition, EWA has also received separate contracts to carry
peak-season Christmas and other mail for the USPS. The Company recognized
approximately $136 million, $140 million and $126 million of revenue in
1997, 1996 and 1995, respectively from contracts to carry mail, primarily
Express Mail, for the USPS.
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On April 23, 1997, the USPS awarded EWA a new contract for the sortation
and transportation of Priority Mail (a second-day delivery service) in
portions of 13 states in the eastern United States. This contract has an
initial term that ends in 2002 and may be renewed by the USPS for two
successive three-year terms. The USPS has indicated that the Company could
receive revenues of approximately $1.7 billion over the initial term of the
contract. However, this amount is subject to a number of uncertainties and
assumptions, and there can be no assurance that the revenues realized by
the Company will not be less than this amount.
The Priority Mail contract calls for EWA to lease or acquire, improve,
equip, fully staff and operate Priority Mail Processing Centers (PMPCs) in
ten major metropolitan areas, primarily along the eastern seaboard. Five
of the PMPCs are operational and are currently in a start-up phase, and the
remaining five are scheduled to be fully operational by the end of the
second quarter of 1998. The Company must pay liquidated damages if the
remaining centers are not operational on time.
The Company expects that EWA will provide air transportation under the new
USPS contract, that Menlo Postal Logistics, a division of EWA, will manage
the ten PMPCs and provide ground transportation between the PMPCs and other
USPS facilities, and that Con-Way Truckload Services, a subsidiary of the
Company that provides full-service, multi-modal truckload services, will
act as a subcontractor and will provide highway transportation between
PMPCs. Revenues from air transportation are reported in the Emery
Worldwide segment, the PMPC sortation operations are reported in the Other
segment, and the highway transportation service is reported in the Con-Way
Transportation segment.
Other services
To enhance the range of services it can offer to its customers and to
provide further avenues for growth, Emery has established several non-asset
based strategic business units. (The Company defines a non-asset-based
business as one requiring substantially less capital investment than its
principal domestic air freight and trucking business). These other units
include Emery Expedite!, a rapid response freight handling subsidiary
providing door-to-door delivery of shipments in North America and overseas.
Emery's logistics subsidiary, Emery Global Logistics, which operates
warehouse and distribution centers for customers in six countries. Emery
Customs Brokerage provides full service customs clearance regardless of
mode or carrier. Another business unit, Emery Ocean Services, is a global
freight forwarder and non-vessel-operating common carrier that provides
full and less-than-container load service.
Employees
As of December 31, 1997, Emery had approximately 10,000 regular full-time
employees compared with approximately 9,000 employees at December 31, 1996
and 7,800 at December 31, 1995.
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Approximately 11% of the regular full-time employees were represented by
various labor unions. However, on July 2, 1997, Emery's pilots at the Hub
voted to approve representation by the Airline Pilots Association.
Contract negotiations are expected to begin prior to July 1998. The
Company is unable to predict the outcome of the contract negotiations or
its effect on results of operations.
Customers
The air freight industry is intensely competitive. Principal competitors
of Emery include other integrated air freight carriers, air freight
forwarders and international airlines and, to a lesser extent, trucking
companies, passenger and cargo air carriers. Competition in the air
freight industry is based on, among other things, freight rates, quality of
service, reliability, transit times and scope of operations.
Technology
An important element in the movement of goods is the rapid movement of
information to track freight, optimize carrier selections, and interlink
and analyze customer data. Starting in 1996, Emery began to invest in what
is expected to be a $75 million multi-year technology program to upgrade
its hardware and software systems architecture, including its global
tracking system called Emcon 2000. The Emcon 2000 system is expected to
provide enhanced tracking information for shipments to reduce mis-sorts,
avoid potential overloads and to signal freight with specialized handling
requirements.
Regulation of Air Transportation
Emery's business is subject to extensive regulation by various federal,
state and foreign governmental entities. The air transportation industry
is subject to federal regulation under the Federal Aviation Act of 1958, as
amended (Aviation Act) and regulations issued by the Department of
Transportation (DOT) pursuant to the Aviation Act. Emery, as an air
freight forwarder, and EWA, as an airline, are subject to different
regulations. Air freight forwarders are exempted from most DOT economic
regulations and are not subject to Federal Aviation Administration (FAA)
safety regulations, except security-related rules. Airlines such as EWA
are subject to, among other things, maintenance, operating and other safety-
related regulations by the FAA, including Airworthiness Directives
promulgated by the FAA which require airlines such as EWA to make
modifications to aircraft. In that regard, EWA expects that it will be
required to make expenditures to reinforce the floors and modify the doors
of up to 17 of its Boeing 727 aircraft to comply with Airworthiness
Directives. Likewise, the relative age of EWA's aircraft fleet may
increase the likelihood that EWA will be required to make expenditures in
order for its aircraft to comply with future government regulations.
During recent years, operations at several airports have been subject to
restrictions or curfews on arrivals or departures during certain night-time
hours designed to reduce or eliminate noise for surrounding residential
areas. None of these restrictions have materially affected Emery's
operations. If such restrictions were to be imposed with respect to the
airports at which Emery's activities are centered (particularly Emery's
major Hub at the Dayton International Airport), and no alternative airports
were available to serve the affected areas,
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there could be a material adverse effect on Emery's operations. Under
applicable law, the FAA is authorized to establish aircraft noise standards
and the administrator of the Environmental Protection Agency is authorized
to issue regulations setting forth standards for aircraft emissions. The
Company believes that its present fleet of owned, leased and chartered
aircraft is operating in substantial compliance with currently applicable
noise and emission laws.
The Aviation Noise and Capacity Act of 1990 establishes a national aviation
noise policy. The FAA has promulgated regulations under this Act regarding
the phase-in requirements for compliance. This legislation and the related
regulations will require all of Emery's owned and leased aircraft eligible
for operation in the contiguous United States to either undergo
modifications or otherwise comply with Stage 3 noise restrictions by year-
end 1999. Although the ultimate cost of complying with these requirements
cannot be predicted with certainty, the Company may be required to make
expenditures, which could be substantial, to modify owned or leased
aircraft in order to comply with these requirements.
Regulation of Ground Transportation
When Emery provides ground transportation of cargo having prior or
subsequent air movement, the ground transportation is exempt from the motor
carrier registration requirements and economic regulations that were
inherited from the ICC by FHWA and STB, respectively. Such ground
transportation, however, is subject to comprehensive trucking safety
regulation by FHWA as described in the Con-Way Transportation Services
section. In addition, Emery holds FHWA motor carrier registrations which
can be utilized in providing non-exempt ground transportation. For a
description of applicable state regulations, refer to the discussion in the
Con-Way Transportation Services section.
OTHER
The Other segment, in terms of revenues, is comprised primarily of Menlo
Logistics Inc., but also includes the operations of VantageParts, Road
Systems and the sortation operations of the Priority Mail contract.
Menlo Logistics
Menlo Logistics, Inc. (Menlo), founded in 1990, specializes in developing
and managing complex national and global supply and distribution networks,
including transportation management, dedicated contract warehousing,
dedicated contract carriage and just-in-time delivery programs. In serving
its customers, Menlo uses and develops transportation optimization and
carrier tracking software, and also provides real time warehouse and
transportation management systems. Menlo has developed the ability to link
these systems both with each other and with its customers' internal
systems. The Company believes that Menlo's software skills, operations
processes and design expertise with respect to sophisticated logistics
systems have established it as a leader in the emerging field of contract
logistics. Complex projects which call upon Menlo's skills in managing
carrier networks, dedicated vehicle fleets and automated warehouses as an
integrated system recently have been the fastest growing segment of Menlo's
business.
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Menlo operates in a relatively new business area and has a limited number
of major competitors. Nonetheless, competition for the provision of
logistics services is intense.
The Company believes that three industry trends have driven Menlo's recent
growth. First, the Company believes that a number of businesses are
increasingly evaluating their overall logistics costs, including
transportation, warehousing and inventory carrying costs. In addition, the
Company believes that outsourcing of non-core services, such as
distribution, has become more commonplace with many businesses. Finally,
the Company believes that the ability to access information through
computer networks has increased the value of capturing real time logistics
information to track inventories, shipments and deliveries.
One of Menlo's primary strategies is to build upon existing relationships
by increasing the services that it provides to current customers. In 1996,
Menlo expanded the services it provides to existing clients such as Hewlett-
Packard, Sears, Coca-Cola and IBM. Menlo was also awarded projects in 1996
and 1997 by new clients such as Imation, Nike, Frigidaire, Herman Miller,
Delphi and Bell Atlantic. More than 60% of Menlo's 1997 business came from
existing clients. Compensation from Menlo's customers takes different
forms, including cost-plus, gain-sharing, per-piece, fixed dollar and
consulting fees. In some cases, customers reimburse start-up and
development costs.
Menlo has sought to limit the financial commitments it undertakes by
typically providing that any facility or major equipment lease that it
enters into on behalf of a customer must be assumed by the customer upon
termination of the contract with Menlo. However, to date relatively few
customer relationships have been ended by either Menlo or its customers.
At December 31, 1997, Menlo had a regular full-time workforce of
approximately 1,300 employees compared to nearly 1,000 at December 31,
1996. Menlo also uses a significant number of professionals under contract
for various projects.
While the Company seeks to take advantage of cross-business synergies
whenever possible, Menlo is operated as an independent business segment
within the Company and not merely as a conduit through which business can
be referred to Con-Way or Emery. The Company estimates that, for 1997,
less than 4% of Menlo's operating expenses were attributable to operations
that resulted in revenues to other business units of the Company. The
relative independence of Menlo from the Company's other primary business
units is viewed as essential to maintaining Menlo's credibility with its
customers.
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Road Systems and VantageParts
Two non-carrier operations that are included in the Other segment generate
a majority of their revenues from sales to other subsidiaries of the
Company and, prior to year-end 1996, from CFC. Road Systems primarily
manufactures and rebuilds trailers, converter dollies and other
transportation equipment. VantageParts serves as a distributor and
remanufacturer of vehicle component parts and accessories to the heavy-duty
truck and trailer industry, as well as the maritime, construction and
aviation industries.
GENERAL
The research and development activities of the Company are not significant.
During 1997, 1996 and 1995 there was no single customer of the Company that
accounted for more than 10% of consolidated revenues.
The total number of regular, full-time employees is presented in the "Five
Year Financial Summary" on page 40 of the 1997 Annual Report to
Shareholders and is incorporated herein by reference.
The trucking and airfreight industries are affected directly by general
economic conditions and seasonal fluctuations, both of which affect the
amount of freight to be transported. Freight shipments, operating costs
and other results of operations can also be affected adversely by inclement
weather conditions. The months of September and October of each year
usually have the highest business levels while the months of January and
February of each year usually have the lowest business levels.
The Company is subject to stringent laws and regulations that (i) govern
activities or operations that may have adverse environmental effects such
as discharges to air and water, as well as handling and disposal practices
for solid and hazardous waste, and (ii) impose liability for the costs of
cleaning up, and certain damages resulting from, sites of past spills,
disposals or other releases of hazardous materials. In particular, under
applicable environmental laws, the company may be responsible for
remediation of environmental conditions and may be subject to associated
liabilities (including liabilities resulting from lawsuits brought by
private litigants) relating to its operations and properties.
Environmental liabilities relating to the Company's properties may be
imposed regardless of whether the Company leases or owns the properties in
question and regardless of whether such environmental conditions were
created by the Company or by a prior owner or tenant, and also may be
imposed with respect to properties which the Company may have owned or
leased in the past.
The Company's operations involve the storage, handling and use of diesel
and jet fuel and other hazardous substances. In particular, the Company is
subject to stringent environmental laws and regulations dealing with
underground fuel storage tanks and the transportation of hazardous
materials. The Company has been designated a Potentially Responsible Party
(PRP) by the EPA with respect to the disposal of hazardous substances at
various sites. The Company expects that its share of the clean-up costs
will not have a material adverse effect on the
Page 14
Company's financial position or results of operations. The Company expects
the costs of complying with existing and future environmental laws and
regulations to continue to increase. On the other hand, it does not
anticipate that such cost increases will have a materially adverse effect
on the Company.
(d) Financial Information About Foreign
and Domestic Operations and Export Sales
Information as to revenues, operating income and identifiable assets for
each of the Company's business segments and for its foreign operations in
1997, 1996 and 1995 is contained in Note 14 on pages 37 and 38 of the 1997
Annual Report to Shareholders and is incorporated herein by reference.
Page 15
ITEM 2. PROPERTIES
The following summarizes the freight service centers and warehouses
operated by the Company at December 31, 1997:
Owned Leased Total
Con-Way Transportation Services 80 289 369
Emery Worldwide 29 229 258
Menlo Logistics - 16 16
The following table sets forth the location and square footage of the
Company's principal freight service centers at December 31, 1997:
Location Square Footage
CTS - freight service centers
Chicago, IL 113,116
Charlotte, NC 102,743
Des Plains, IL 100,440
Columbus, OH 86,537
Oakland, CA 85,600
Dallas, TX 82,000
Cleveland, OH 70,995
Atlanta, GA 56,160
Cincinnati, OH 55,618
Detroit, MI 66,320
St. Louis, MO 49,065
Carlstadt, NJ 48,360
Santa Fe Springs, CA 45,936
Jackson, MS 44,596
Knoxville, TN 44,460
Aurora, IL 44,235
South Bend, IN 39,320
Milwaukee, WI 36,560
Ft. Wayne, IN 35,400
Pontiac, MI 34,450
Sacramento, CA 25,968
Braintree, MA 22,160
Emery - freight service centers
* Dayton, OH 620,000
Los Angeles, CA 78,264
Chicago, IL 59,976
Dallas, TX 55,104
Boston, MA 42,236
Indianapolis, IN 38,500
* Facility partially or wholly financed through the issuance of
industrial revenue bonds. Principal amount of debt is secured by the
property.
Page 16
ITEM 3. LEGAL PROCEEDINGS
The legal proceedings of the Company are summarized in Note 13 on pages 36
and 37 of the 1997 Annual Report to Shareholders and are incorporated
herein by reference. Discussions of certain environmental matters are
presented in Item 1 and Item 7.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The Company's common stock is listed for trading on the New York and
Pacific Stock Exchanges under the symbol "CNF".
The Company's common stock prices for each of the quarters in 1997 and 1996
are included in Note 15 on page 39 of the 1997 Annual Report to
Shareholders and are incorporated herein by reference.
Cash dividends on common shares had been paid in every year from 1962 to
1990. In June 1990 the Company's Board of Directors suspended the
quarterly dividend. In December 1994, the Board of Directors reinstated a
$.10 per share quarterly cash dividend on common stock. The amounts of
quarterly dividends declared on common stock for the last two years are
included in Note 15 on page 39 of the 1997 Annual Report to Shareholders
and are incorporated herein by reference.
Under the terms of the restructured TASP Notes, as set forth in Note 4 on
pages 30 and 31 of the 1997 Annual Report to Shareholders, the Company is
restricted from paying dividends in an aggregate amount in excess of $10
million plus one half of the cumulative net income applicable to common
shareholders since the commencement of the agreement (which allows for $148
million of dividend payments at December 31, 1997).
Effective March 15, 1995, all of the 690,000 shares of the Company's Series
C Preferred Stock were converted to 6,900,000 shares of common stock.
As of December 31, 1997, there were 15,560 holders of record of the common
stock ($.625 par value) of the Company. The number of shareholders is also
presented in the "Five Year Financial Summary" on page 40 of the 1997
Annual Report to Shareholders and is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The Selected Financial Data is presented in the "Five Year Financial
Summary" on page 40 of the 1997 Annual Report to Shareholders and is
incorporated herein by reference.
Page 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations is presented in the "Financial Review and Management Discussion"
on pages 18 through 20, inclusive, of the 1997 Annual Report to
Shareholders and is incorporated herein by reference.
On March 17, 1998, the Company issued a press release reporting that lower
than expected domestic and international air freight revenues and
continuing startup costs from the new Priority Mail contract would result
in first quarter 1998 earnings below expectations. Partially offsetting
this is the expectation of the best quarterly operating income from CTS in
its history. A $6 million charge will be taken in the first quarter to
recognize the costs of extending the openings of five PMPC's under the
Priority Mail contract. The Company expects to earn between 27 cents and
32 cents per diluted share in the quarter.
Certain statements included or incorporated by reference herein constitute
"forward-looking statements" within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended, and are subject to a number of
risks and uncertainties. Any such forward-looking statements contained or
incorporated by reference herein should not be relied upon as predictions
of future events. Certain such forward-looking statements can be
identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," "seeks," "approximately," "intends,"
"plans," "estimates" or "anticipates" or the negative thereof or other
variations thereof or comparable terminology, or by discussions of
strategy, plans or intentions. Such forward-looking statements are
necessarily dependent on assumptions, data or methods that may be incorrect
or imprecise and they may be incapable of being realized. In that regard,
the following factors, among others and in addition to the matters
discussed below and elsewhere in this document and in documents
incorporated or deemed to be incorporated by reference herein, could cause
actual results and other matters to differ materially from those in such
forward-looking statements: changes in general business and economic
conditions; increasing domestic and international competition and pricing
pressure; changes in fuel prices; uncertainty regarding the Company's new
contract with the USPS, including costs of extending the openings of the
PMPCs; labor matters, including changes in labor costs, renegotiations of
labor contracts and the risk of work stoppages or strikes; changes in
governmental regulation; environmental and tax matters, including the
aviation excise tax and aircraft maintenance tax matters discussed in
documents incorporated by reference; Emery's results of operations for the
first quarter of 1998 that have been adversely affected by less than
planned revenues; and matters relating to the Spin-off of Consolidated
Freightways Corporation (CFC). In that regard, the Company is or may be
subject to substantial liabilities with respect to certain matters relating
to CFC's business and operations, including, without limitation, guarantees
of certain indebtedness of CFC and liabilities for employment-related
matters. Although CFC is, in general, either the primary obligor or
jointly and severally liable with the Company with respect to these
matters, a failure to pay or other default by CFC with respect to the
obligations as to which the Company is or may be, or may be perceived to
be, liable, whether because of CFC's bankruptcy or insolvency or otherwise,
could lead to substantial claims against the Company. As a result of
Page 18
the foregoing, no assurance can be given as to future results of operations
or financial condition.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and Report of Independent Public
Accountants are presented on pages 21 through 39, inclusive, of the 1997
Annual Report to Shareholders and are incorporated herein by reference.
The unaudited quarterly financial data is included in Note 15 on page 39 of
the 1997 Annual Report to Shareholders and is incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The identification of the Company's Directors is presented on pages 3
through 8, inclusive, of the Proxy Statement dated March 17, 1998 and those
pages are incorporated herein by reference.
The Executive Officers of the Company, their ages at December 31, 1997, and
their applicable business experience are as follows:
Donald E. Moffitt, 65, Chairman of the Board and Chief Executive Officer of
the Company. Mr. Moffitt joined Consolidated Freightways Corporation of
Delaware, the Company's former nationwide, full-service trucking
subsidiary, as an accountant in 1955 and advanced to Vice President -
Finance in 1973. In 1975, he transferred to the Company as Vice President
- - Finance and Treasurer and in 1981, was elected Executive Vice President -
Finance and Administration. In 1983, he assumed the additional duties of
President, CF International and Air, Inc., where he directed the Company's
international and air freight businesses. Mr. Moffitt was elected Vice
Chairman of the Board of the Company in 1986. He retired as an employee
and as Vice Chairman of the Board of Directors in 1988 and returned to the
Company as Executive Vice President - Finance and Chief Financial Officer
in 1990. Mr. Moffitt was named President and Chief Executive Officer of the
Company and was elected to the Board of Directors in 1991. In 1995, Mr.
Moffitt was named Chairman of the Board of Directors. Mr. Moffitt is
regional Vice President and a member of the executive committee of the U.S.
Chamber of Commerce, and is on the board of the California Business
Roundtable, the Conference Board and the Business Advisory Council of the
Northwestern University Transportation Center. He also serves on the
boards of the San Francisco Bay Area Council, Boy Scouts of America and the
American Red Cross, and is a member of the Board of Trustees of the
Automotive Safety Foundation and the National Commission Against Drunk
Driving. He is a former member of the Board of Directors and the Executive
Committee of the Highway Users Federation. Mr. Moffitt is Chairman of the
Executive Committee and serves on the Director Affairs Committee of the
Company.
Page 19
Gregory L. Quesnel, 49, President and Chief Operating Officer of the
Company. Mr. Quesnel joined Consolidated Freightways Corporation of
Delaware in 1975 as Director of Financial Accounting. Through several
increasingly responsible financial positions, he advanced to become the top
financial officer of CFCD. In 1989, he was elected Vice President-
Accounting for the Company and in 1990, was named Vice President and
Treasurer. Mr. Quesnel became Senior Vice President-Finance and Chief
Financial Officer of the Company in 1991 and Executive Vice President and
Chief Financial Officer in 1993. In 1997, Mr Quesnel was named President
and Chief Operating Officer of the Company.
David I. Beatson, 50, President and Chief Executive Officer of Emery Air
Freight Corporation and Senior Vice President of the Company. Mr. Beatson
joined CF AirFreight in 1977, advancing through several increasingly
responsible positions to Vice President of National Accounts. After
leaving the Company for a time, he returned to Emery in 1991 as Vice
President of Sales and Marketing. He became President and Chief Executive
Officer of Emery Air Freight Corporation in 1994.
Gerald L. Detter, 53, President and Chief Executive Officer of Con-Way
Transportation Services, Inc. and Senior Vice President of the Company.
Mr. Detter joined CFCD in 1964 as a dockman and advanced through several
positions of increasing responsibility to become Division Manager in
Detroit, Michigan in 1976. In 1982, he was named the first president and
chief executive officer of Con-Way Central Express. In 1997, Mr. Detter
was named President and Chief Executive Officer of Con-Way Transportation
Services, Inc. and Senior Vice President of the Company.
Eberhard G.H. Schmoller, 54, Senior Vice President, General Counsel and
Secretary of the Company. Mr. Schmoller joined CFCD in 1974 as a staff
attorney and in 1976 was promoted to CFCD assistant general counsel. In
1983, he was appointed Vice President and General Counsel of CF AirFreight
and assumed the same position with Emery after the acquisition in 1989.
Mr. Schmoller was named Senior Vice President and General Counsel of the
Company in 1993.
Chutta Ratnathicam, 50, Senior Vice President and Chief Financial Officer
of the Company. Mr. Ratnathicam joined the Company in 1977 as a corporate
auditor and following several increasingly responsible positions was named
Vice President internal auditing for the Company in 1989. In 1991, he was
promoted to Vice President-international for Emery Air Freight Corporation.
In 1997, Mr. Ratnathicam was named Senior Vice President and Chief
Financial Officer of the Company.
ITEM 11. EXECUTIVE COMPENSATION
The required information for Item 11 is presented on pages 12 through 16,
inclusive, of the Proxy Statement dated March 17, 1998, and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The required information for Item 12 is included on pages 9, 10 and 22 of
the Proxy Statement dated March 17, 1998 and is incorporated herein by
reference.
Page 20
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements and Exhibits Filed
1. Financial Statements
See Index to Financial Information.
2. Financial Statement Schedules
See Index to Financial Information.
3. Exhibits
See Index to Exhibits.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
1997.
Page 21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Form 10-K Annual
Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CNF TRANSPORTATION INC.
(Registrant)
March 24, 1998 /s/Donald E. Moffitt
Donald E. Moffitt
Chairman and Chief Executive Officer
March 24, 1998 /s/Gregory L. Quesnel
Gregory L. Quesnel
President and Chief Operating Officer
March 24, 1998 /s/Chutta Ratnathicam
Chutta Ratnathicam
Senior Vice President and Chief
Financial Officer
March 24, 1998 /s/Gary D. Taliaferro
Gary D. Taliaferro
Vice President and Controller
Page 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
March 24, 1998 /s/Donald E. Moffitt
Donald E. Moffitt
Chairman of the Board and Chief
Executive Officer
March 24, 1998
Robert Alpert, Director
March 24, 1998 /s/Earl F. Cheit
Earl F. Cheit, Director
March 24, 1998
Richard A. Clarke, Director
March 24, 1998 /s/Margaret G. Gill _
Margaret G. Gill, Director
March 24, 1998 /s/Robert Jaunich II
Robert Jaunich II, Director
March 24, 1998 /s/W. Keith Kennedy, Jr.
W. Keith Kennedy, Jr., Director
March 24, 1998 /s/Richard B. Madden
Richard B. Madden, Director
Page 23
SIGNATURES
March 24, 1998
Michael J. Murray, Director
March 24, 1998
Robert D. Rogers, Director
March 24, 1998 /s/William J. Schroeder
William J. Schroeder, Director
March 24, 1998 /s/Robert P. Wayman
Robert P. Wayman, Director
Page 24
CNF TRANSPORTATION INC.
FORM 10-K
Year Ended December 31, 1997
___________________________________________________________________________
INDEX TO FINANCIAL INFORMATION
CNF Transportation Inc. and Subsidiaries
The following Consolidated Financial Statements of CNF Transportation Inc.
and Subsidiaries appearing on pages 21 through 39, inclusive, of the
Company's 1997 Annual Report to Shareholders are incorporated herein by
reference:
Report of Independent Public Accountants
Consolidated Balance Sheets - December 31, 1997 and 1996
Statements of Consolidated Income - Years Ended December 31, 1997,
1996 and 1995
Statements of Consolidated Cash Flows - Years Ended December 31, 1997,
1996 and 1995
Statements of Consolidated Shareholders' Equity - Years Ended
December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
In addition to the above, the following consolidated financial information
is filed as part of this Form 10-K:
Page
Consent of Independent Public Accountants 25
Report of Independent Public Accountants 25
Schedule II - Valuation and Qualifying Accounts 26
The other schedules have been omitted because either (1) they are neither
required nor applicable or (2) the required information has been included
in the consolidated financial statements or notes thereto.
Page 25
SIGNATURE
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our reports included and incorporated by reference in this Form 10-K,
into the Company's previously filed Registration Statement File Nos. 2-
81030, 33-52599, 33-60619, 33-60625, 33-60629, 333-26595 and 333-30327.
/s/Arthur Andersen LLP
ARTHUR ANDERSEN LLP
San Francisco, California
March 23, 1998
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
CNF Transportation Inc.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in CNF Transportation Inc.'s
1997 Annual Report to Shareholders incorporated by reference in this Form
10-K, and have issued our report thereon dated January 23, 1998. Our audit
was made for the purpose of forming an opinion on those statements taken as
a whole. The Schedule II--Valuation and Qualifying Accounts on page 26 is
the responsibility of the Company's management and is presented for the
purpose of complying with the Securities and Exchange Commission's rules
and is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation to
the basic financial statements taken as a whole.
/s/Arthur Andersen LLP
ARTHUR ANDERSEN LLP
San Francisco, California
January 23, 1998
Page 26
SCHEDULE II
CNF TRANSPORTATION INC.
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 1997
(In thousands)
DESCRIPTION
ALLOWANCE FOR DOUBTFUL ACCOUNTS
ADDITIONS
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
1997 $18,712 $12,528 $ - $(11,085)(a) $20,155
1996 $16,870 $16,729 $ - $(14,887)(a) $18,712
1995 $15,889 $11,017 $ - $(10,036)(a) $16,870
(a) Accounts written off net of recoveries.
Page 27
INDEX TO EXHIBITS
ITEM 14(a)(3)
Exhibit No.
(3) Articles of incorporation and by-laws:
3.1 CNF Transportation Inc. Certificate of Incorporation, as
amended. (Exhibit 4(a) to the Company's registration statement
on Form S-3 dated May 6, 1997.*)
3.2 CNF Transportation Inc. By-laws, as amended, May 3, 1997
(Exhibit 4(b) to the Company's registration statement on Form S-
3 dated May 6, 1997*).
(4) Instruments defining the rights of security holders, including
debentures:
4.1 Certificate of Designations of the Series B Cumulative
Convertible Preferred Stock. (Exhibit 4.1 as filed on Form SE
dated May 25, 1989*)
4.2 Indenture between the Registrant and Bank One, Columbus, NA, as
successor trustee, with respect to 9-1/8% Notes Due 1999, Medium-
Term Notes, Series A and 7.35% Notes due 2005. (Exhibit 4.1 as
filed on Form SE dated March 20, 1990*)
4.3 Form of Security for 9-1/8% Notes Due 1999 issued by
Consolidated Freightways, Inc. (Exhibit 4.1 as filed on Form SE
dated August 25, 1989*)
4.4 Officers' Certificate dated as of August 24, 1989 establishing
the form and terms of debt securities issued by Consolidated
Freightways, Inc. (Exhibit 4.2 as filed on Form SE dated August
25, 1989*)
4.5 Form of Security for Medium-Term Notes, Series A to be issued by
Consolidated Freightways, Inc. (Exhibit 4.1 as filed on Form SE
dated September 18, 1989*)
4.6 Officers' Certificate dated September 18, 1989, establishing the
form and terms of debt securities to be issued by Consolidated
Freightways, Inc. (Exhibit 4.2 as filed on Form SE dated
September 19, 1989*)
4.7 Indenture between the Registrant and The First National Bank of
Chicago Bank, trustee, with respect to debt securities. (Exhibit
4(d) as filed on Form S-3 dated June 27, 1995*)
4.8 Indenture between the Registrant and Bank One, Columbus, NA,
trustee, with respect to subordinated debt securities. (Exhibit
4(e) as filed on Form S-3 dated June 27, 1995*)
4.9 Form of Security for 7.35% Notes due 2005 issued by Consolidated
Freightways, Inc. (Exhibit 4.4 as filed on Form S-4 dated June
27, 1995*)
* Previously filed with the Securities and Exchange Commission
and incorporated herein by reference.
Page 28
Exhibit No.
4.10 Declaration of Trust of the Trust (Exhibit 4(k) to the
Company's Amendment 1 to Form S-3 dated May 30, 1997*)
4.11 Form of Amended and Restated Declaration of Trust of the Trust,
including form of Trust Preferred Security. (Exhibit 4(l) to
the Company's Amendment 1 to Form S-3 dated May 9, 1997*)
4.12 Form of Guarantee Agreement with respect to Trust Preferred
Securities. (Exhibit 4(m) to the Company's Amendment 1 to Form
S-3 dated May 30, 1997*)
Instruments defining the rights of security holders of long-term debt
of CNF Transportation Inc., and its subsidiaries for which
financial statements are required to be filed with this Form 10-K,
of which the total amount of securities authorized under each such
instrument is less than 10% of the total assets of CNF Transportation
Inc. and its subsidiaries on a consolidated basis, have not been filed
as exhibits to this Form 10-K. The Company agrees to furnish a copy
of each applicable instrument to the Securities and Exchange
Commission upon request.
(10) Material contracts:
10.1 Consolidated Freightways, Inc. Long-Term Incentive Plan of 1988
as amended through Amendment 3. (Exhibit 10.2 as filed on Form
SE dated March 25, 1991*#)
10.2 Consolidated Freightways, Inc. Stock Option Plan of 1988 as
amended. (Exhibit 10(i) to the Company's Form 10-K for the year
ended December 31, 1987 as amended in Form S-8 dated
December 16, 1992*#)
10.3 Emery Air Freight Plan for Retirees, effective October 31, 1987.
(Exhibit 4.23 to the Emery Air Freight Corporation
Quarterly Report on Form 10-Q dated November 16, 1987**)
10.4 Consolidated Freightways, Inc. Common Stock Fund (formerly Emery
Air Freight Corporation Employee Stock Ownership Plan,
as effective October 1, 1987 ("ESOP"). (Exhibit 4.33 to
the Emery Air Freight Corporation Annual Report on Form 10-K
dated March 28, 1988**)
* Previously filed with the Securities and Exchange Commission and
incorporated herein by reference.
** Incorporated by reference to indicated reports filed under the
Securities Act of 1934, as amended, by Emery Air Freight
Corporation File No. 1-3893.
# Designates a contract or compensation plan for Management or
Directors.
Page 29
Exhibit No.
10.5 Employee Stock Ownership Trust Agreement, dated as of October 8,
1987, as amended, between Emery Air Freight Corporation and
Arthur W. DeMelle, Daniel J. McCauley and Daniel W. Shea, as
Trustees under the ESOP Trust. (Exhibit 4.34 to the Emery Air
Freight Corporation Annual Report on Form 10-K dated March
28, 1988**)
10.6 Amended and Restated Subscription and Stock Purchase Agreement
dated as of December 31, 1987 between Emery Air Freight
Corporation and Boston Safe Deposit and Trust Company in its
capacity as successor trustee under the Emery Air Freight
Corporation Employee Stock Ownership Plan Trust ("Boston Safe").
(Exhibit B to the Emery Air Freight Corporation Current Report
on Form 8-K dated January 11, 1988**)
10.7 Supplemental Subscription and Stock Purchase Agreement dated as
of January 29, 1988 between Emery Air Freight Corporation and
Boston Safe. (Exhibit B to the Emery Air Freight Corporation
Current Report on Form 8-K dated February 12, 1988**)
10.8 Trust Indenture, dated as of November 1, 1988, between City of
Dayton, Ohio and Security Pacific National Trust Company (New
York), as Trustee and Bankers Trust Company, Trustee. (Exhibit
4.1 to Emery Air Freight Corporation Current Report on Form 8-K
dated December 2, 1988**)
10.9 Bond Purchase Agreement dated November 7, 1988, among the City
of Dayton, Ohio, the Emery Air Freight Corporation and Drexel
Burnham Lambert Incorporated. (Exhibit 28.7 to the Emery Air
Freight Corporation Current Report on Form 8-K dated December
2, 1988**)
10.10 Lease agreement dated November 1, 1988 between the City of
Dayton, Ohio and Emery Air Freight Corporation. (Exhibit 10.1
to the Emery Air Freight Corporation Annual Report on Form 10-K
for the year ended December 31, 1988**)
10.11 $350 million Amended and Restated Credit Agreement dated November
21, 1996 among Consolidated Freightways, Inc. and various
financial institutions. (Exhibit 10.18 to
the Company's Form 10-K for the year ended December 31, 1996*).
10.12 Official Statement of the Issuer's Special Facilities
Revenue Refunding Bonds, 1993 Series E and F dated
September 29, 1993 among the City of Dayton, Ohio and Emery
Air Freight Corporation.
(Exhibit 10.1 to the Company's Form 10-Q for the quarterly
period ended September 30, 1993*).
* Previously filed with the Securities and Exchange Commission and
incorporated herein by reference.
** Incorporated by reference to indicated reports filed under the
Securities Act of 1934, as amended, by Emery Air Freight
Corporation File No. 1-3893.
# Designates a contract or compensation plan for Management or
Directors.
Page 30
Exhibit No.
10.13 Trust Indenture, dated September 1, 1993 between the City of
Dayton, Ohio and Banker's Trust Company as Trustee.
(Exhibit 10.2 to the Company's Form 10-Q for the quarterly
period ended September 30, 1993*).
10.14 Supplemental Lease Agreement dated September 1, 1993 between
the City of Dayton, Ohio, as Lessor, and Emery Air Freight
Corporation, as Lessee. (Exhibit 10.3 to the Company's Form 10-Q
for the quarterly period ended September 30, 1993*).
10.15 Supplemental Retirement Plan dated January 1, 1990. (Exhibit 10.31
to the Company's Form 10-K for the year ended December 31,
1993*#)
10.16 Directors' 24-Hour Accidental Death and Dismemberment Plan.
(Exhibit 10.32 to the Company's Form 10-K for the year ended
December 31, 1993*#)
10.17 Executive Split-Dollar Life Insurance Plan dated January 1,
1994. (Exhibit 10.33 to the Company's Form 10-K for the year
ended December 31, 1993*#)
10.18 Board of Directors' Compensation Plan dated January 1, 1994.
(Exhibit 10.34 to the Company's Form 10-K for the year ended
December 31, 1993*#)
10.19 Directors' Business Travel Insurance Plan. (Exhibit 10.36 to
the Company's Form 10-K for the year ended December 31, 1993*#)
10.20 Deferred Compensation Plan for Executives 1998 Restatement. #
10.21 Amended and Restated 1993 Nonqualified Employee Benefit Plans
Trust Agreement dated January 1, 1995. (Exhibit 10.38 to the
Company's Form 10-K for the year ended December 31, 1994.*#)
10.22 CNF Transportation Inc., 1997 Equity and Incentive Plan for
Non-Employee Directors, as amended June 30, 1997. #
10.23 Amended and Restated Retirement Plan for Directors of
Consolidated Freightways, Inc. dated January 1, 1994. (Exhibit
10.40 to the Company's Form 10-K for the year ended
December 31, 1994.*#)
10.24 CNF Transportation Inc. Return on Equity Plan, as amended through
Amendment No. 1#
10.25 Employee Benefit Matters Agreement by and between Consolidated
Freightways, Inc. and Consolidated Freightways Corporation dated
December 2, 1996. (Exhibit 10.33 to the Company's form 10-K for
the year ended December 31, 1996.*#)
* Previously filed with the Securities and Exchange Commission and
incorporated herein by reference.
** Incorporated by reference to indicated reports filed under the
Securities Act of 1934, as amended, by Emery Air Freight
Corporation File No. 1-3893.
# Designates a contract or compensation plan for Management or
Directors.
Page 31
Exhibit No.
10.26 Distribution Agreement between Consolidated
Freightways, Inc., and Consolidated Freightways Corporation
dated November 25, 1996. (Exhibit 10.34 to the Company's Form 10-
K for the year ended December 31, 1996.*#)
10.27 Transition Services Agreement between CNF Service
Company, Inc. and Consolidated Freightways Corporation dated
December 2, 1996. (Exhibit to the Company's Form 10-K for the
year ended December 31, 1996.*#)
10.28 Tax Sharing Agreement between Consolidated
Freightways, Inc., and Consolidated Freightways Corporation
dated December 2, 1996. (Exhibit to the Company's Form 10-K for
the year ended December 31, 1996.*#)
10.29 CNF Transportation Inc. Executive Incentive Plan for 1998. #
10.30 Con-Way Transportation Services, Inc. Incentive Plan for 1998. #
10.31 Emery Worldwide Incentive Plan for 1998. #
10.32 CNF Transportation Inc. Special Bonus Plan for 1998. #
10.33 CNF Transportation Inc. 1997 Equity and Incentive Plan as amended
June 30, 1997. #
10.34 CNF Transportation Inc. Deferred Compensation Plan for Directors
1998 Restatement. #
(12a) Computation of ratios of earnings to fixed charges
(12b) Computation of ratios of earnings to combined fixed charges and
preferred stock dividends.
(13) Annual report to security holders:
CNF Transportation Inc. 1997 Annual Report to Shareholders (Only those
portions referenced herein are incorporated in this Form 10-K. Other
portions such as "Letter to Shareholders" are not required and, therefore,
are not "filed" as part of this Form 10-K.)
(21) Significant Subsidiaries of the Company.
(27) Financial Data Schedule
* Previously filed with the Securities and Exchange Commission and
incorporated herein by reference.
# Designates a contract or compensation plan for Management or
Directors.
Page 32
Exhibit No.
(99) Additional documents:
99.1 CNF Transportation Inc. 1997 Notice of Annual Meeting and
Proxy Statement dated March 17, 1998. (Only those portions
referenced herein are incorporated in this Form 10-K. Other
portions are not required and, therefore, are not "filed" as a
part of this Form 10-K. *)
99.2 Note Agreement dated as of July 17, 1989, between the ESOP,
Consolidated Freightways, Inc. and the Note Purchasers named
therein. (Exhibit 28.1 as filed on Form SE dated July 21,
1989*)
99.3 Guarantee and Agreement dated as of July 17, 1989, delivered by
Consolidated Freightways, Inc. (Exhibit 28.2 as filed on Form
SE dated July 21, 1989*).
99.4 Form of Restructured Note Agreement between Consolidated
Freightways, Inc., Thrift and Stock Ownership Trust as Issuer
and various financial institutions as Purchasers named therein,
dated as of November 3, 1992. (Exhibit 28.4 to the Company's
Form 10-K for the year ended December 31, 1992*).
The remaining exhibits have been omitted because either (1) they are
neither required nor applicable or (2) the required information has been
included in the consolidated financial statements or notes thereto.
* Previously filed with the Securities and Exchange Commission and
incorporated herein by reference.
# Designates a compensation plan for Management or Directors.
EXHIBIT 10.20
CNF TRANSPORTATION INC.
DEFERRED COMPENSATION PLAN FOR EXECUTIVES
1998 RESTATEMENT
CNF TRANSPORTATION INC.
DEFERRED COMPENSATION PLAN FOR EXECUTIVES
1998 RESTATEMENT
TABLE OF CONTENTS
Page
Preamble
Article 1 Definitions
1.1 Account Balance
1.2 Annual Bonus
1.3 Annual Deferral Amount
1.4 Base Annual Salary
1.5 Beneficiary
1.6 Beneficiary Designation Form
1.7 Board
1.8 CFC
1.9 Change in Control 2
1.10 Claimant 4
1.11 Code 4
1.12 Committee
1.13 Company
1.14 Disability
1.15 Election Form
1.16 Employer
1.17 Moody's Seasoned Corporate Bond Rate
1.18 Participant
1.19 Plan
1.20 Plan Entry Date 4
1.21 Plan Year
1.22 Pre-Retirement Distribution
1.23 Pre-Retirement Survivor Benefit
1.24 Prior Plan
1.25 Retirement
1.26 Retirement Benefit
1.27 ROE Award 5
1.28 Termination Benefit
1.29 Termination of Employment
1.30 Unforeseeable Financial Emergency 6
Article 2 Selection, Enrollment, Eligibility
2.1 Selection by Committee
2.2 Enrollment Requirement
2.3 Commencement of Participation
Article 3 Deferral Commitments/Returns
3.1 Minimum Deferral
3.2 Maximum Deferral 7
3.3 Election to Defer
3.4 Withholding of Deferral Amounts
3.5 FICA Tax
3.6 Returns Prior to Distribution 8
3.7 Date on Which Crediting Occurs
3.8 Returns and Installment Distributions
3.9 Statement of Accounts 9
Article 4 Pre-Retirement Distribution/Unforeseeable
Financial Emergencies
4.1 Pre-Retirement Distributions
4.2 Withdrawal Payout/Suspensions for
Unforeseeable
Financial Emergencies
Article 5 Retirement Benefit
5.1 Retirement Benefit
5.2 Payment of Retirement Benefit
5.3 Death Prior to Completion of Retirement
Benefit 11
Article 6 Pre-Retirement Survivor Benefit
6.1 Pre-Retirement Survivor Benefit
6.2 Payment of Pre-Retirement Survivor Benefit
Article 7 Termination Benefit
7.1 Termination Benefit
7.2 Payment of Termination Benefit
Article 8 Disability Waiver and Benefit
8.1 Disability Waiver
8.2 Disability Benefit
Article 9 Beneficiary Designation
9.1 Beneficiary
9.2 Beneficiary Designation
9.3 Spousal Consent 13
9.4 No Beneficiary Designation
9.5 Doubt as to Beneficiaries
9.6 Discharge of Obligations
Article 10 Leave of Absence
10.1 Paid Leave of Absence
10.2 Unpaid Leave of Absence
Article 11 Termination, Amendment or Modification 14
11.1 Termination
11.2 Amendment
11.3 Effect of Payment
Article 12 Administration
12.1 Committee Duties
12.2 Agents 15
12.3 Binding Effect of Decisions 15
12.4 Indemnification
Article 13 Claims Procedures
13.1 Presentation of Claim
13.2 Notification of Decision
13.3 Review of a Denied Claim
13.4 Decision on Review
13.5 Legal Action 17
Article 14 Miscellaneous
14.1 Unsecured General Creditor
14.2 Employer's Liability
14.3 Company's Liability
14.4 Nonassignability
14.5 Not a Contract of Employment
14.6 Furnishing Information 18
14.7 Captions
14.8 Governing Use
14.9 Notice
14.10 Successors
14.11 Spouse's Interest 19
14.12 Incompetent
14.13 Distribution in the Event of Taxation
14.14 Legal Fees To Enforce Rights
14.15 Payment of Withholding 20
14.16 Coordination with Other Benefits 20
CNF TRANSPORTATION INC.
DEFERRED COMPENSATION PLAN FOR EXECUTIVES
1998 Restatement
Preamble
The purpose of this Plan is to enhance the motivational
value of the salaries and incentive compensation of a select
group of management and highly compensated employees who
contribute materially to the continued growth, development
and future business success of the Company and its
subsidiaries by providing them the opportunity to defer cash
compensation. The Plan is intended to aid the Company and
its subsidiaries in attracting and retaining key employees
and give them an incentive to increase the profitability of
the Company and its subsidiaries. In the future, the
Company, in its discretion, may amend the Plan to include a
Company contribution.
The Company adopted this Plan effective October 1, 1993 as a
successor to the Prior Plan, which operated for the nine
month period ending September 30, 1993. The Plan was
restated with a general effective date of January 1, 1996.
The Company's name changed in connection with a corporate
reorganization involving the distribution on December 2,
1996 of CFC stock to the Company's shareholders. In order
to reflect the new Company name and to make various
administrative and clarifying changes, the Company adopts
this 1998 Restatement of the Plan effective January 1, 1998.
ARTICLE 1
Definitions
For purposes hereof, unless otherwise clearly apparent from
the context, the following phrases or terms shall have the
following indicated meanings:
1.1"Account Balance" means the sum of (i) the total of a
Participant's Annual Deferral Amounts, plus (ii) the
Participant's deferred ROE Awards, credited as of the date
the ROE Award would have been paid if not deferred, plus
(iii) the return credited in accordance with the Plan,
reduced (iv) by all distributions made in accordance with
the terms and conditions of this Plan. The Account Balance
shall include the amounts deferred under the Prior Plan
which shall be distributed under the terms of this Plan and
in accordance with any applicable elections of time and form
of payment made by the Participant at the time of deferral
under the Prior Plan. This account shall be a bookkeeping
entry only and shall be utilized solely as a device for the
measurement and determination of the amounts to be paid to a
Participant pursuant to this Plan.
1.2"Annual Bonus" means any bonus or incentive compensation,
other than a ROE Award, earned by a Participant in each Plan
Year under all cash bonus and incentive plans of the
Company, and any subsidiary, whether or not paid in such
Plan Year.
1.3"Annual Deferral Amount" means that portion of a
Participant's Base Annual Salary and Annual Bonus that a
Participant elects to have and is deferred, in accordance
with Article 3, for any one Plan Year. In the event of
Retirement, Disability, death or a Termination of Employment
prior to the end of a Plan Year, such year's Annual Deferral
Amount shall be the actual amount withheld prior to such
event.
1.4"Base Annual Salary" means a Participant's base annual
salary that is to be paid to a Participant for each Plan
Year, determined as of the first day of that year, excluding
bonuses, commissions, overtime, incentive payments, non-
monetary awards, and other fees, before reduction for
compensation deferred pursuant to all qualified,
nonqualified and Internal Revenue Code Section 125 plans of
the Company or any subsidiary.
1.5"Beneficiary" means one or more persons, trusts, estates
or other entities, designated in accordance with Article 9,
that are entitled to receive benefits under this Plan upon
the death of a Participant.
1.6"Beneficiary Designation Form" means the form established
from time to time by the Committee that a Participant
completes, signs and returns to the Committee to designate
one or more Beneficiaries.
1.7"Board" means the Board of Directors of the Company.
1.8"CFC" means Consolidated Freightways Corporation, a
Delaware corporation.
1.9"Change in Control" means a change in control of the
Company, which will be deemed to have occurred if:
(a) any "person," as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934 (the
"Exchange Act") (other than (A) the Company, (B) any trustee
or other fiduciary holding securities under an employee
benefit plan of the Company, and (C) any corporation owned,
directly or indirectly, by the stockholders of the Company
in substantially the same proportions as their ownership of
the outstanding common stock of the Company), is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the
Company (not including in the securities beneficially owned
by such person any securities acquired directly from the
Company or its Affiliates) representing 25% or more of the
combined voting power of the Company's then outstanding
voting securities;
(b) the following individuals cease for any reason to
constitute a majority of the number of directors then
serving: individuals who, on January 27, 1997, constitute
the Board and any new director (other than a director whose
initial assumption of office is in connection with an actual
or threatened election contest, including but not limited to
a consent solicitation, relating to the election of
directors of the Company) whose appointment or election by
the Board or nomination for election by the Company's
stockholders was approved or recommended by a vote of at
least two-thirds (2/3) of the directors then still in office
who either were directors on January 27, 1997 or whose
appointment, election or nomination for election was
previously so approved or recommended;
(c) there is consummated a merger or consolidation of
the Company or any direct or indirect subsidiary of the
Company with any other corporation, other than (A) a merger
or consolidation which would result in the voting securities
of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or
by being converted into voting securities of the Company or
such surviving or parent entity outstanding immediately
after such merger or consolidation or (B) a merger or
consolidation effected to implement a recapitalization of
the Company (or similar transaction) in which no "person"
(as hereinabove defined), directly or indirectly, acquired
25% or more of the combined voting power of the Company's
then outstanding securities (not including in the securities
beneficially owned by such person any securities acquired
directly from the Company or its "affiliates," as defined in
Rule 12b-2 promulgated under Section 12 of the Exchange
Act); or
(d) the stockholders of the Company approve a plan of
complete liquidation of the Company or there is consummated
an agreement for the sale or disposition by the Company of
all or substantially all of the Company's assets (or any
transaction having a similar effect), other than a sale or
disposition by the Company of all or substantially all of
the Company's assets to an entity, at least 50% of the
combined voting power of the voting securities of which are
owned by stockholders of the Company in substantially the
same proportions as their ownership of the Company
immediately prior to such sale.
1.10 "Claimant" means any Participant or Beneficiary of a
deceased Participant who makes a claim for determination
under Section 13.1.
1.11"Code" means the Internal Revenue Code of 1986, as
amended.
1.12"Committee" means the Compensation Committee of the
Board or its delegates.
1.13"Company" means CNF Transportation Inc., a Delaware
corporation.
1.14"Disability" means a disability for which a Participant
qualifies for benefits under the CNF Transportation Inc.
Long Term Disability Plan as it may be amended from time to
time or, for Participants employed by CFC or one of its
subsidiaries, the Consolidated Freightways Corporation. Long
Term Disability Plan or any successor plan.
1.15"Election Form" means the form established from time to
time by the Committee that a Participant completes, signs
and returns to the Committee to make an election under the
Plan.
1.16"Employer" means the Company or any of its subsidiaries
that employs a Participant. CFC and its subsidiaries shall
cease to be Employers effective December 2, 1996, the date
of distribution of the stock of CFC to the Company's
shareholders. No further deferral of compensation by their
employees shall be permitted under this Plan after that
date. The obligation to pay the Account Balance for such
employees based on deferral of compensation before that
date shall be retained by the Company.
1.17"Moody's Seasoned Corporate Bond Rate," means the
arithmetic average of yields of representative bonds,
including industrials, public utilities, Aaa, Aa, A and Baa
bonds as published by Moody's Investors Service, Inc. or any
successor to that service. For each Plan Year, this rate
shall be determined by the Committee using the rate
calculated for the month of October preceding the Plan Year.
1.18"Participant" for any Plan Year means any employee of an
Employer who is selected to participate in the Plan for such
Plan Year by the Committee and commences participation in
accordance with Article 2.
1.19"Plan" means the Company's Deferred Compensation Plan
for Executives, evidenced by this instrument, as amended
from time to time.
1.20"Plan Entry Date" means the date on which an employee
selected by the Committee to participate in the Plan
commences participation in the Plan in accordance with
Article 2. The Plan Entry Date shall be January 1 of the
Plan Year following selection by the Committee. If an
employee is first selected for participation in the Plan
subsequent to January 1 of a Plan Year, but prior to July 1,
such July 1 shall be an additional Plan Entry Date.
1.21"Plan Year" means the period beginning on January 1 of
each year (or, in certain limited cases, July 1) and
continuing through December 31 of that year.
1.22"Pre-Retirement Distribution" means the payout set forth
in Section 4.1 below.
1.23"Pre-Retirement Survivor Benefit" means the benefit set
forth in Article 6 below.
1.24"Prior Plan" means the Company's 1993 Executive Deferral
Plan adopted effective January 1, 1993.
1.25"Retirement", "Retires" or "Retired" means (i) early
retirement as defined in the CNF Transportation Inc.
Retirement Plan, if the Participant elects within 60 days
from the last day of regular employment to receive monthly
pension benefits under such Retirement Plan starting on the
first day of the month following the last day of employment,
or (ii) normal or deferred retirement under such Retirement
Plan. The distribution of the stock of CFC to the
shareholders of the Company in December 1996 shall not cause
any employee of a subsidiary of CFC to be retired. After
such distribution, Retirement of an employee of CFC or one
of its subsidiaries for purposes of this Plan shall occur
when the employee has an early or normal retirement under
the CFC Pension Plan.
1.26"Retirement Benefit" means the benefit set forth in
Article 5.
1.27"ROE Award" means the Participant's award for a three-
year award cycle under the CNF Transportation Inc. Return
on Equity Plan.
1.28"Termination Benefit" means the benefit set forth in
Article 7.
1.29"Termination of Employment" means the ceasing of
employment with the Company and its subsidiaries,
voluntarily or involuntarily, for any reason other than
Retirement, Disability or death. The distribution of the
stock of CFC to the shareholders of the Company in December
1996 shall not cause any employee of a subsidiary of CFC to
have a Termination of Employment. After such distribution,
Termination of Employment of an employee of CFC or one of
its subsidiaries for purposes of this Plan shall occur when
the employee ceases employment with CFC and its subsidiaries
for any reason other than Retirement, Disability or death.
1.30 "Unforeseeable Financial Emergency" means an
unanticipated emergency that is caused by an event beyond
the control of the Participant that would result in severe
financial hardship to the Participant resulting from (i) a
sudden and unexpected illness or accident of the Participant
or a dependent of the Participant, (ii) a loss of the
Participant's property due to casualty, or (iii) such other
extraordinary and unforeseeable circumstances arising as a
result of events beyond the control of the Participant, all
as determined in the sole discretion of the Committee.
ARTICLE 2
Selection, Enrollment, Eligibility
2.1Selection by Committee. Participation in the Plan shall
be limited to a select group of management and highly
compensated employees of the Company and its subsidiaries.
The Committee shall select for each Plan Year, in its sole
discretion, those employees eligible to participate in the
Plan for that Plan Year.
.
2.2Enrollment Requirement. The Committee shall establish
from time to time such enrollment requirements as it
determines in its sole discretion are necessary.
2.3Commencement of Participation. Provided an employee
selected to participate in the Plan has met all enrollment
requirements set forth by the Committee, that employee shall
commence participation in the Plan on the Plan Entry Date
that immediately follows the employee's election to
participate in the Plan.
ARTICLE 3
Deferral Commitments/Returns
3.1Minimum Deferral.
(a) Minimum. A Participant may not elect to defer
less than $2,000 of Base Annual Salary for any Plan Year,
less than $2,000 of Annual Bonus for any Plan Year, nor less
than $2,000 of ROE Award for an award cycle.
(b) Short Participation Year. If a Participant's Plan
Entry Date is July 1 of any Plan Year, he must defer a
minimum of $1,000 of Base Annual Salary, a minimum of $1,000
of Annual Bonus, or a minimum of $1,000 of ROE Award.
3.2Maximum Deferral.
(a) Salary and Annual Bonus. For each Plan Year, a
Participant may defer up to 100% of Base Annual Salary
stated as a dollar amount and up to 100% of Annual Bonus
stated as a dollar or percentage amount. The amount of Base
Annual Salary and/or Annual Bonus that a Participant elects
to defer shall be reduced by the Committee, without the
consent of the affected Participant, to the extent necessary
to provide for (i) other deferrals of Base Annual Salary
and/or Annual Bonus, as the case may be, by such Participant
under all qualified and nonqualified plans of the Company or
any subsidiary and Code Section 125 plans of the Company or
any subsidiary, (ii) any taxes that are required to be
withheld with respect to deferrals under the Plan, and (iii)
any other amounts deducted from Base Annual Salary and/or
Annual Bonus pursuant to applicable law or authorization by
Participant.
(b) ROE Awards. For each three-year award cycle under the
CNF Transportation Inc. Return on Equity Plan, a Participant
who also participates in that plan may defer up to 100
percent of the Participant's ROE Award for that cycle stated
as a dollar or percentage amount.
3.3Election to Defer. The Participant shall make a
deferral election by delivering to the Committee a completed
and signed Election Form prior to the intended Plan Entry
Date. For each succeeding Plan Year, a new Election Form
must be delivered to the Committee, in accordance with the
rules set forth above. If the Election Form is not
delivered prior to the Plan Entry Date for a Plan Year, no
Annual Deferral Amount shall be deferred for that Plan Year
and no ROE Award shall be deferred for the award cycle
beginning with that Plan Year.
3.4Withholding of Deferral Amounts. For each Plan Year, the
Base Annual Salary portion of the Annual Deferral Amount
shall be withheld each payroll period in equal amounts from
the Participant's Base Annual Salary. The Annual Bonus
portion of the Annual Deferral Amount shall be withheld at
the time or times the Annual Bonus is or otherwise would be
paid to the Participant. The deferred portion of a ROE
Award shall be withheld at the time the ROE Award otherwise
would be paid to the Participant.
3.5FICA Tax. Any applicable FICA and other payroll taxes on
amounts deferred under this Article, including ROE Awards,
shall be withheld from that portion of the Participant's
Base Annual Salary, Annual Bonus, and ROE Award that is not
being deferred. If necessary, the Committee shall reduce
the amount of Base Annual Salary, or Annual Bonus, and/or
ROE Award deferred, in order to comply with this Section
3.5.
3.6 Returns Prior to Distribution. Prior to any
distribution of benefits under Articles 4, 5, 6, or 7,
returns shall be credited to a Participant's Account Balance
and compounded annually on a Participant's Account Balance
for each Plan Year as though the Annual Deferral Amount for
that Plan Year was withheld on the Participant's Plan Entry
Date. Returns shall be credited on a deferral from a ROE
Award as though the deferral amount was withheld on the last
day of the award cycle for which the ROE Award was made.
The rate of return on the Account Balance for each Plan Year
shall be the Moody's Seasoned Corporate Bond Rate, or such
other rate as the Committee may determine in its sole
discretion prior to the beginning of a Plan Year. In the
event of Retirement, death or a Termination of Employment
prior to the end of a Plan Year, that Plan Year's return
will be calculated using a fraction of a full Plan Year's
return, based on the number of days the Participant was
employed with the Employer during the Plan Year prior to the
occurrence of such event.
3.7Date on Which Crediting Occurs. Account Balances will be
credited with returns in accordance with Section 3.6 up to
the date of distribution for a lump sum payment and up to
the first date of distribution for installment payments.
For purposes of crediting subsequent returns in the event
that installment payments are made, the Account Balance
shall be reduced as of the day on which the distribution is
made.
3.8Returns and Installment Distributions. In the event a
benefit is paid in installments, a Participant's unpaid
Account Balance shall be credited as follows:
(a) Crediting. For each Plan Year, the undistributed
Account Balance shall be credited with a return equal to the
Moody's Seasoned Corporate Bond Rate or such other rate as
the Committee may determine in its sole discretion prior to
the beginning of a Plan Year. Returns shall start to accrue
under this Section 3.8 as of the date that returns cease to
accrue under Section 3.7 above.
(b) Installments. The installment payments shall be
determined by dividing the Participant's Account Balance at
the time of the commencement of the installment payments by
the number of payments over the installment period. Each
payment determined above will be considered the principal
portion of the installment payment. In addition, each
installment payment will include a return calculated for the
preceding quarter using the rate determined in Section
3.8(a) above. Installment payments shall commence on the
first day of the quarter following the first full quarter
following such Participant's date of Retirement, or when
permitted by the Committee in its sole discretion,
Termination of Employment or death. All additional
installment payments shall be paid on the first day of the
remaining calendar quarters of the payment period.
3.9Statement of Accounts. The Committee shall send to each
Participant, within 120 days after the close of each Plan
Year, a statement in such form as the Committee deems
desirable setting forth the amount of the Participant's
Account Balance.
ARTICLE 4
Pre-Retirement Distribution/
Unforeseeable Financial Emergencies
4.1Pre-Retirement Distributions.
(a) In connection with each election to defer an Annual
Deferral Amount or a ROE Award, a Participant may, subject
to (b), elect to receive a future distribution from the Plan
with respect to that Annual Deferral Amount or ROE Award
prior to Retirement. This Pre-Retirement Distribution shall
be a lump sum payment in an amount that is equal to the sum
of the Annual Deferral Amount or ROE Award and returns
credited in accordance with Section 3.6 above. The Pre-
Retirement Distribution shall be paid within 60 days of the
first day of the Plan Year chosen by the Participant on the
Election Form for distribution. The earliest date that a
Participant may receive a Pre-Retirement Distribution is 5
years after the first day of the Plan Year in which the
Annual Deferral Amount or ROE Award is actually deferred.
(b) If a Participant who has elected one or more Pre-
Retirement Distributions has a Retirement or Termination of
Employment before the start of the Plan Year chosen by the
Participant for such Pre-Retirement Distribution, the
Participant's Account Balance shall be paid at the time and
in the form elected by the Participant in accordance with
5.2 and not as the elected Pre-Retirement Distribution.
4.2Withdrawal Payout/Suspensions for Unforeseeable Financial
Emergencies. If the Participant experiences an
Unforeseeable Financial Emergency, the Participant may
petition the Committee to (i) suspend any deferrals required
to be made by a Participant and/or (ii) receive a partial or
full payout from the Plan. The Committee may, in its sole
discretion, accept or deny such petition. Any payout shall
not exceed the lesser of the Participant's Account Balance,
calculated as if such Participant were receiving a
Termination Benefit, or the amount reasonably needed to
satisfy the Unforeseeable Financial Emergency. The
suspension shall continue for such period of time and/or the
reinstatement of deferrals shall occur at a date, as
specified by the Committee, in its sole discretion. If
reinstated, the deduction in each pay period shall not
exceed that made immediately prior to the suspension. If
the petition for a suspension and/or payout is approved,
suspension shall take effect upon the date of approval and
any payout shall be made within 60 days of the date of
approval.
ARTICLE 5
Retirement Benefit
5.1Retirement Benefit. A Participant who Retires shall
receive, as a Retirement Benefit, the Participant's Account
Balance.
5.2Payment of Retirement Benefit. A Participant may elect
on the Election Form prior to the beginning of each Plan
Year to receive the Retirement Benefit in a lump sum or in
quarterly payments over a period of 5, 10, 15 or 20 years.
The lump sum payment shall be made within 60 days of the
Participant's Retirement. Any installment payment shall be
made in accordance with Section 3.8 above. Except for
employees of CFC and its subsidiaries, who shall receive
payment of amounts deferred for each Plan Year (including
returns) in the form elected on the Election Form for that
Plan Year, an election of the form of Retirement Benefit
shall be effective for a Retirement occurring in the second
Plan Year following the Plan Year for which the Election
Form is submitted or in any subsequent Plan Year until
superseded by a new election. No election of the form of
Retirement Benefit shall be effective before the first day
of such second Plan Year, except as follows:
(a) Upon a Retirement in a Participant's first Plan
Year of participation, the election made on the Election
Form for such Plan Year shall determine the form of payment.
Upon a Retirement in a Participant's second Plan Year of
participation, the election made on the Election Form for
the preceding Plan Year shall determine the form of payment.
(b) In the Election Form for 1998, a Participant may elect
to have the Election Form for 1997 control the form of
payment upon a Retirement in 1998 instead of the Election
Form for 1996.
Notwithstanding the foregoing, if the portion of the
Participant's Retirement Benefit attributable to Annual
Deferral Amounts (including returns), or the portion
attributable to ROE Awards (including returns), is under
$25,000 on the date of Retirement, such portion shall be
paid in a lump sum to the Participant as soon as practicable
and not in any other form specified on the Election Form
then in effect.
5.3Death Prior to Completion of Retirement Benefit. If a
Participant dies after Retirement but before the Retirement
Benefit is paid in full, the Participant's unpaid Retirement
Benefit payments shall continue and shall be paid to the
Participant's Beneficiary (i) over the remaining number of
calendar quarters and in the same amounts as that benefit
would have been paid to the Participant had the Participant
survived, or (ii) the then current Account Balance as of the
date of death, in a lump sum, if allowed in the sole
discretion of the Committee upon application by the
Beneficiary.
ARTICLE 6
Pre-Retirement Survivor Benefit
6.1Pre-Retirement Survivor Benefit. If a Participant dies
before he Retires, experiences a Termination of Employment
or suffers a Disability, the Participant's Beneficiary shall
receive a Pre-Retirement Survivor Benefit equal to the
Participant's Account Balance as of the date of death.
6.2Payment of Pre-Retirement Survivor Benefit. The Pre-
Retirement Survivor Benefit shall be paid to the
Participant's Beneficiary in a lump sum or, in the
Committee's sole discretion upon application by the
Beneficiary, in installments according to the election of
the Participant that would have been in effect if the
Participant had Retired on the date of death. The lump sum
payment shall be made within 60 days of the Committee's
receiving proof of the Participant's death.
ARTICLE 7
Termination Benefit
7.1Termination Benefit. If a Participant experiences a
Termination of Employment prior to Retirement, death or
Disability, the Participant shall receive a Termination
Benefit which shall be equal to the Participant's Account
Balance determined as of the date of the Termination of
Employment.
7.2Payment of Termination Benefit. The Termination Benefit
shall be the then current Account Balance as of the date of
Termination of Employment, paid in a lump sum within 60 days
after the Termination of Employment or in installments as
the Participant elected on the Election Form in effect at
the time of the Termination of Employment under the rules in
5.2. Notwithstanding the foregoing, payment shall be made
in a lump sum as follows in lieu of any different form
provided on the Election Form then in effect:
(a) If the Participant incurs a Termination of Employment
within one year after a Change in Control, the Termination
Benefit shall be paid in a lump sum within 20 days of the
Termination of Employment.
(b) If the portion of the Participant's Termination Benefit
attributable to Annual Deferral Amounts (including returns),
or the portion attributable to ROE Awards (including
returns), is under $25,000 on the date of Termination of
Employment, such portion shall be paid in a lump sum to the
Participant as soon as practicable.
ARTICLE 8
Disability Waiver and Benefit
8.1Disability Waiver. A Participant who is determined by
the Committee to be suffering from a Disability shall be
excused from fulfilling that portion of the Annual Deferral
Amount commitment that would otherwise have been withheld
from a Participant's Base Annual Salary or Annual Bonus for
the Plan Year or portion thereof during which the
Participant has a Disability.
8.2Disability Benefit. A Participant suffering a Disability
shall for benefit purposes under this Plan, continue to be
considered an employee and shall be eligible for the
benefits provided for in Articles 4, 5, 6 or 7 in accordance
with the provisions of those Articles. Notwithstanding, the
Committee shall have the right, in its sole discretion upon
application by the Participant, to terminate a Participant's
participation in the Plan at any time during which such
Participant has a Disability and pay the Account Balance in
a lump sum.
ARTICLE 9
Beneficiary Designation
9.1Beneficiary. Each Participant shall designate a
Beneficiary to receive any benefits payable under the Plan
upon the Participant's death.
9.2Beneficiary Designation. A Participant shall designate a
Beneficiary by completing and signing the Beneficiary
Designation Form, and submitting it to the Committee or its
delegate. A Participant shall have the right to change a
Beneficiary at any time without the consent of the
Beneficiary, by completing, signing and otherwise complying
with the terms of the Beneficiary Designation Form and the
Committee's rules and procedures, as in effect from time to
time. Upon the receipt by the Committee of a new
Beneficiary Designation Form, all Beneficiary designations
previously filed shall be canceled. The Committee shall be
entitled to rely on the last Beneficiary Designation Form
filed by the Participant with the Committee prior to death.
9.3Spousal Consent. A married Participant's designation of
someone other than the Participant's spouse as primary
beneficiary shall not be effective unless the spouse
executes a consent in writing that acknowledges the effect
of the designation and is witnessed by a plan representative
or notary public. No consent is required if it is
established to the satisfaction of the Committee that
consent cannot be obtained because the spouse cannot be
located.
9.4No Beneficiary Designation. If a Participant fails to
designate a Beneficiary as provided above, the Participant's
designated Beneficiary shall be deemed to be the surviving
spouse. If the Participant has no surviving spouse, the
benefits otherwise payable to a Beneficiary shall be paid to
the Participant's estate.
9.5Doubt as to Beneficiaries. If the Committee has any
doubt as to the proper Beneficiary to receive payments
pursuant to this Plan, the Committee shall have the right,
exercisable in its discretion, to withhold such payments
until the matter is resolved to the Committee's
satisfaction, and/or to require indemnification.
9.6Discharge of Obligations. The payment of benefits under
the Plan to a Participant or Participant's Beneficiary shall
fully and completely discharge the Company and the
Participant's Employer from all obligations under this Plan
with respect to the deceased Participant, Beneficiaries, and
any others that may be entitled to such benefits.
ARTICLE 10
Leave of Absence
10.1Paid Leave of Absence. If a Participant is authorized
by the Company to take a paid leave of absence, the
Participant shall continue to be considered employed by the
Employer and the Base Annual Salary and Annual Bonus
deferred by the Participant shall continue to be withheld
during such paid leave of absence in accordance with Section
3.4.
10.2Unpaid Leave of Absence. If a Participant is authorized
by the Company to take an unpaid leave of absence, the
Participant shall continue to be considered employed by the
Employer and the Participant shall be excused from making
deferrals until the earlier of the date the leave of absence
expires or the Participant returns to a paid employment
status. Upon such expiration or return, deferrals shall
resume for the remaining portion of the Plan Year in which
the expiration or return occurs, based on the deferral
election, if any, made for that Plan Year.
ARTICLE 11
Termination, Amendment or Modification
11.1Termination. The Company reserves the right to
terminate the Plan at any time. Prior to a Change in
Control, the Committee shall have the right, at its sole
discretion, and notwithstanding any elections made by the
Participant to pay the then outstanding Account Balance in a
lump sum. After a Change in Control the Company shall be
required to pay such benefits in a lump sum.
11.2Amendment. The Board may, at any time, amend or modify
the Plan in whole or in part, provided, however, that no
amendment or modification shall decrease or restrict a
Participant's Account Balance at the time the amendment or
modification is made, calculated as if the Participant had
experienced a Termination of Employment as of the effective
date of the amendment or modification, or, if the amendment
or modification occurs after the date upon which the
Participant was eligible to Retire, the Participant had
Retired as of the effective date of the amendment or
modification. The amendment or modification of the Plan
shall not affect the payment of benefits to any Participant
or Beneficiary who has become entitled to the payment of
benefits under the Plan as of the date of the amendment or
modification.
11.3Effect of Payment. The full payment of the applicable
benefit under Articles 4, 5, 6 or 7 of the Plan shall
completely discharge all obligations to a Participant under
this Plan.
ARTICLE 12
Administration
12.1Committee Duties. This Plan shall be administered by
the Committee or its delegates. The Committee shall also
have the discretion and authority to make, amend, interpret,
and enforce all appropriate rules and regulations for the
administration of this Plan and decide or resolve any and
all questions including interpretations of this Plan, as may
arise in connection with the Plan. A majority of the
Committee shall constitute a quorum and a majority of the
members present at any meeting at which a quorum is present
or acts approved in writing or in a telephone meeting by all
of the members shall constitute a decision by the entire
Committee.
12.2Agents. In the administration of this Plan, the
Committee may, from time to time, delegate to such persons
as it deems appropriate such administrative duties as it
sees fit and may from time to time consult with counsel who
may be counsel to the Company or a subsidiary.
12.3Binding Effect of Decisions. The decision or action of
the Committee with respect to any question arising out of or
in connection with the administration, interpretation and
application of the Plan and the rules and regulations
promulgated hereunder shall be final and conclusive and
binding upon all persons having any interest in the Plan.
12.4Indemnification. The Company shall indemnify and hold
harmless the named fiduciaries and any officers or employees
of the Company and its subsidiaries to which fiduciary
responsibilities have been delegated from and against any
and all liabilities, claims, demands, costs and expenses
including attorneys fees, arising out of an alleged breach
in the performance of their fiduciary duties under the Plan
and ERISA, other than such liabilities, claims, demands,
costs and expenses as may result from the gross negligence
or willful misconduct of such person. The Company shall
have the right, but not the obligation, to conduct the
defense of such person in any proceeding to which this
paragraph applies.
ARTICLE 13
Claims Procedures
13.1Presentation of Claim. Any Participant or Beneficiary
of a deceased Participant may deliver to the Committee a
written claim for a determination with respect to the
amounts distributable to such Claimant from the Plan. If
such a claim relates to the contents of a notice received by
the Claimant, the claim must be made within 60 days after
such notice was received by the Claimant. All other claims
must be made within 180 days of the date on which the event
that caused the claim to arise occurred. The claim must
state with particularity the determination desired by the
Claimant.
13.2Notification of Decision. The Committee shall consider
a Claimant's claim within a reasonable time, and shall
notify the Claimant in writing:
(a) that the Claimant's requested determination has
been made, and that the claim has been allowed in full; or
(b) that the Committee has reached a conclusion
contrary, in whole or in part, to the Claimant's requested
determination, and such notice must set forth in a manner
calculated to be understood by the Claimant:
(i) the specific reason(s) for the denial of the
claim, or any part of it;
(ii) specific reference(s) to pertinent provisions
of the Plan upon which such denial was based;
(iii) a description of any additional material or
information necessary for the Claimant to clarify or perfect
the claim, and an explanation of why such material or
information is necessary; and
(iv) an explanation of the claim review procedure
set forth in Section 13.3 below.
13.3Review of a Denied Claim. Within 60 days after
receiving a notice from the Committee that a claim has been
denied, in whole or in part, a Claimant (or the Claimant's
duly authorized representative) may file with the Committee
a written request for a review of the denial of the claim.
Thereafter, but not later than 30 days after the review
procedure began, the Claimant (or the Claimant's duly
authorized representative):
(a) may review pertinent documents;
(b) may submit written comments or other documents;
and/or
(c) may request a hearing, which the Committee, in its
sole discretion, may grant.
13.4Decision on Review. The Committee shall render its
decision on review promptly, and not later than 60 days
after the filing of a written request for review of the
denial, unless a hearing is held or other special
circumstances require additional time, in which case the
Committee's decision must be rendered within 120 days after
such date. Such decision must be written in a manner
calculated to be understood by the Claimant and it must
contain:
(a) specific reasons for the decision;
(b) specific reference(s) to the pertinent Plan
provisions upon which the decision was based; and
(c) such other matters as the Committee deems
relevant.
13.5Legal Action. A Claimant's compliance with the
foregoing provisions of this Article 13 is a mandatory
prerequisite to a Participant's right to commence any legal
action with respect to any claim for benefits under this
Plan.
ARTICLE 14
Miscellaneous
14.1Unsecured General Creditor. Participants and their
Beneficiaries, heirs, successors and assigns shall have no
legal or equitable rights, interest or claims in any
property or assets of the Company or an Employer. Any and
all of the Company's assets shall be, and remain, its
general, unpledged and unrestricted assets. The Company's
obligation under the Plan shall be merely that of an
unfunded and unsecured promise to pay money in the future.
14.2Employer's Liability. An Employer other than the
Company shall have no liability to a Participant or a
Participant's Beneficiary for payment of any benefits under
the Plan.
14.3Company's Liability. Amounts payable to a Participant
or Beneficiary under this Plan shall be paid from the
general assets of the Company (including without limitation
the assets of any trust established to fund payment of
obligations hereunder) exclusively.
14.4Nonassignability. Neither a Participant nor any other
person shall have the right to commute, sell, assign,
transfer, pledge, anticipate, mortgage or otherwise
encumber, transfer, hypothecate or convey in advance of
actual receipt the amounts, if any, payable hereunder, or
any part thereof, which are, and all rights to which are
expressly declared to be unassignable and non-transferable,
except that the foregoing shall not apply to any family
support obligations set forth in a court order. No part of
the amounts payable shall, prior to actual payment, be
subject to seizure or sequestration for the payment of any
debts, judgments, alimony or separate maintenance owed by a
Participant or any other person, nor be transferable by
operation of law in the event of a Participant's or any
other person's bankruptcy or insolvency.
14.5Not a Contract of Employment. The terms and conditions
of this Plan nor any actions taken hereunder shall not be
deemed to constitute a contract of employment between the
Company or an Employer and the Participant, nor give
Participant any right to be retained as an employee of the
Company or its subsidiaries. Such employment relationship
can be terminated at any time for any reason, with or
without cause, unless expressly provided in a written
employment agreement. This Plan shall only create a
contractual obligation on the part of the Company, and shall
not be construed as creating a trust or any fiduciary
relationship.
14.6Furnishing Information. A Participant will cooperate
with the Committee by furnishing any and all information
requested by the Committee and take such other actions as
may be requested in order to facilitate the administration
of the Plan and the payments of benefits hereunder,
including but not limited to taking such physical
examinations as the Committee may deem necessary.
14.7Captions. The captions of the articles, sections and
paragraphs of this Plan are for convenience only and shall
not control or affect the meaning or construction of any of
its provisions.
14.8Governing Use. The provisions of this Plan shall be
construed and interpreted according to the laws of the State
of California.
14.9 Notice. Any notice or filing required or permitted to
be given to the Committee under this Plan shall be
sufficient if in writing and hand-delivered, or sent by
registered or certified mail, return receipt requested, to:
CNF Transportation Inc.
Compensation Committee
Deferred Compensation Plan for Executives
3240 Hillview Avenue
Palo Alto, California 94304
Such notice shall be deemed given as of the date of delivery
or, if delivery is made by mail, as of the date shown on the
postmark on the receipt for registration or certification.
Any notice or filing required or permitted to be given to a
Participant under this Plan shall be sufficient if in
writing and hand-delivered, or sent by mail, to the last
known address of the Participant.
14.10Successors. The provisions of this Plan shall be
binding upon and inure to the benefit of the Company and its
successors and assigns and the Participant, the
Participant's Beneficiaries, and their permitted successors
and assigns.
14.11 Spouse's Interest. The interest in the benefits
hereunder of a spouse of a Participant who has predeceased
the Participant shall automatically pass to the Participant
and shall not be transferable by such spouse in any manner,
including but not limited to such spouse's will, nor shall
such interest pass under the laws of intestate succession.
14.12Incompetent. If the Committee determines in its
discretion that a benefit under this Plan is to be paid to a
minor, a person declared incompetent or to a person
incapable of handling the disposition of that person's
property, the Committee may direct payment of such benefit
to the guardian, legal representative or person having the
care and custody of such minor, incompetent or incapable
person. The Committee may require proof of minority,
incompetency, incapacity or guardianship, as it may deem
appropriate and/or such indemnification of the Committee,
the Company and the Participant's Employer and security, as
it deems appropriate, in its sole discretion, prior to
distribution of the benefit. Any payment of a benefit shall
be a payment for the account of the Participant and the
Participant's Beneficiary, as the case may be, and shall be
a complete discharge of any liability under the Plan for
such payment amount.
14.13Distribution in the Event of Taxation. If, for any
reason, all or any portion of a Participant's benefit under
this Plan becomes taxable to the Participant prior to
receipt, a Participant may petition the Committee for a
distribution of assets sufficient to meet the Participant's
tax liability (including additions to tax, penalties and
interest). Upon the grant of such a petition, which grant
shall not be unreasonably withheld, the Company shall
distribute to the Participant immediately available funds in
an amount equal to that Participant's federal, state and
local tax liability associated with such event of taxation
(which amount shall not exceed a Participant's accrued
benefit under the Plan), such tax liability shall be
measured by using that Participant's then current highest
federal, state and local marginal tax rate, plus the rates
or amounts for the applicable additions to tax, penalties
and interest. If the petition is granted, the tax liability
distribution shall be made within 90 days of the date when
the Participant's petition is granted. Such a distribution
shall reduce the benefits to be paid under this Plan.
14.14Legal Fees To Enforce Rights. If the Company has
failed to comply with any of its obligations under the Plan
or any agreement thereunder or, if the Company, the
Participant's Employer or any other person takes any action
to declare the Plan void or unenforceable or institutes any
litigation or other legal action designed to deny, diminish
or to recover from any Participant the benefits intended to
be provided, then the Company irrevocably authorizes such
Participant to retain counsel chosen by the Participant and
agrees to pay the reasonable legal fees and expenses of the
Participant incurred in connection with the initiation or
defense of any litigation or other legal action, whether by
or against the Company, or any director, officer,
shareholder or other person affiliated with the Company, or
any successor thereto in any jurisdiction, provided that
such Participant prevails in such action.
14.15Payment of Withholding. As a condition of receiving
benefits under the Plan, the Participant shall pay the
Company and/or the applicable Employer not less than the
amount of all applicable federal, state, local and foreign
taxes required by law to be paid or withheld relating to the
receipt or entitlement to benefits hereunder. The Company
may withhold taxes from any benefits paid and/or from Base
Annual Salary or Annual Bonus, in its sole discretion.
14.16Coordination with Other Benefits. The benefits
provided for a Participant and Participant's Beneficiary
under the Plan are in addition to any other benefits
available to such Participant under any other plan or
program for employees of the Company and its subsidiaries.
The Plan shall supplement and shall not supersede, modify or
amend any other such plan or program except as may otherwise
be expressly provided. In no event shall distributions
under the Plan prior to Retirement have the effect of
increasing payments otherwise due under the various
retirement plans of the Company and its subsidiaries.
IN WITNESS WHEREOF, the Company has signed this Restatement
as of
December 8, 1997.
CNF TRANSPORTATION INC.
By:
/s/Eberhard G.H. Schmoller
Its: Senior Vice President, General
Counsel and Secretary
EXHIBIT 10.22
CNF TRANSPORTATION INC. EQUITY INCENTIVE
PLAN FOR NON-EMPLOYEE DIRECTORS
(AS AMENDED JUNE 30, 1997)
SECTION 1
INTRODUCTION
1.1 Establishment. CNF Transportation Inc., a
Delaware corporation (the "Company"), hereby establishes the
Amended and Restated CNF Transportation Inc. Equity
Incentive Plan for Non-Employee Directors (the "Plan") for
those directors ("Directors") of the Company who are neither
officers nor employees of the Company, subject to approval
by the holders of at least a majority of the outstanding
shares of voting stock of the Company, voting in person or
by proxy at the 1995 Annual Meeting of Stockholders
("Amendment Approval Date"). Any award granted hereunder in
accordance with the amendments to the Plan hereunder is
conditioned on such approval. If the Plan is not so
approved by the stockholders, such awards shall be null and
void.
1.2 Purposes. The purposes of the Plan are to
encourage the Directors to own shares of the Company's stock
and thereby to align their interests more closely with the
interests of the other stockholders of the Company, to
encourage the highest level of Director performance by
providing the Directors with a direct interest in the
Company's attainment of its financial goals, and to provide
a financial incentive that will help attract and retain the
most qualified Directors.
SECTION 2
DEFINITIONS
2.1 Definitions. The following terms shall have the
meanings set forth below:
(a) "Annual Cash Retainer" means the then
applicable annual cash retainer payable to a Director for
service as a Director.
(b) "Board" means the Board of Directors of the
Company.
(c) "Committee" means a committee consisting of
members of the Board who are empowered hereunder to take
actions in the administration of the Plan. The Committee
shall be so constituted at all times as to permit the Plan
to comply with Rule 16b-3 ("Rule 16b-3") promulgated under
the Securities Exchange Act of 1934 (the "1934 Act").
Members of the Committee shall be appointed from time to
time by the Board, shall serve at the pleasure of the Board
and may resign at any time upon written notice to the Board.
(d) "Director" means a member of the Board who is
neither an officer nor an employee of the Company. For
purposes of the Plan, an employee is an individual whose
wages are subject to the withholding of federal income tax
under Section 3401 of the Internal Revenue Code, and an
officer is an individual elected or appointed by the Board
or chosen in such other manner as may be prescribed in the
bylaws of the Company to serve as such.
(e) "Fair Market Value" means the closing price
of the Stock as reported on The New York Stock Exchange
("NYSE") Composite Tape on a particular date. If there are
no Stock transactions on such date, the Fair Market Value
shall be determined as of the immediately preceding date on
which there were Stock transactions on the NYSE. If the
Stock is not listed on the NYSE at the time of an award, the
Fair Market Value of the Stock on the particular date shall
be as determined by the Committee using a reference
comparable to the NYSE, such as the National Market System
of the National Association of Securities Dealers Automated
Quotation System or such other exchange or automated
quotation system on which the Stock is then traded.
(f) "Internal Revenue Code" means the Internal
Revenue Code of 1986, as it may be amended from time to
time.
(g) "Option" means an option to purchase Stock
granted to a Director pursuant to Section 7 hereof that is
subject to certain restrictions imposed in accordance with
the provisions of the Plan.
(h) "Option Amount" means a number of shares of
Stock resulting from multiplying 1,000 by a fraction, the
numerator of which is the Annual Cash Retainer and the
denominator of which is $20,000.
(i) "Restricted Stock Award" means an award of
Stock granted to a Director pursuant to Section 6 hereof
that is subject to certain restrictions imposed in
accordance with the provisions of the Plan.
(j) "Restricted Stock Value" as of any grant date
shall be a dollar amount equal to $12,500 on or prior to the
Amendment Approval Date and 62.5% of the Annual Cash
Retainer thereafter.
(k) "Stock" means the Common Stock, $0.625 par
value, of the Company.
2.2 Gender and Number. Except when otherwise
indicated by the context, the masculine gender shall also
include the feminine gender, and the definition of any term
herein in the singular shall also include the plural.
SECTION 3
PLAN ADMINISTRATION
The Plan is intended to be self-executing pursuant to
the terms hereof. However, any questions concerning
interpretation or implementation of the Plan shall be
decided by the Committee. Subject to the ability of the
Board to amend the Plan pursuant to Section 10 hereof, the
Committee shall have no authority, discretion or power to
select the Directors who will receive Restricted Stock
Awards or Options, determine the Restricted Stock Awards or
Options to be granted pursuant to the Plan, the number of
shares of Stock to be issued thereunder or the time at which
such Restricted Stock Awards or Options are to be granted,
establish the duration and nature of Restricted Stock Awards
or Options or alter any other terms or conditions specified
in the Plan, except in the sense of administering the Plan
subject to the provisions of the Plan.
Subject to the foregoing limitations, the Committee, by
majority action thereof, is authorized to interpret the
Plan, prescribe, amend and rescind rules and regulations
relating to the Plan, provide for conditions and assurances
deemed necessary or advisable to protect the interests of
the Company and make all other determinations necessary or
advisable for the administration of the Plan, but only to
the extent not contrary to the express provisions of the
Plan. No member of the Committee shall be liable for any
action or determination made in good faith. The
determinations, interpretations and other actions of the
Committee pursuant to the provisions of the Plan shall be
binding and conclusive for all purposes and on all persons.
SECTION 4
STOCK SUBJECT TO THE PLAN
4.1 Number of Shares Available Under the Plan. Three
Hundred Thousand (300,000) shares of Stock are authorized
for issuance under the Plan in accordance with the
provisions of the Plan and subject to such restrictions or
other provisions as the Committee may from time to time deem
necessary. This authorization may be increased from time to
time by approval of the Board and by the stockholders of the
Company if, in the opinion of counsel for the Company, such
stockholder approval is required. Shares of Stock which are
issued as Restricted Stock Awards or which are issued upon
exercise of an Option shall be applied to reduce the maximum
number of shares of Stock remaining available for use under
the Plan. The Company shall at all times during the term of
the Plan retain as authorized and unissued Stock at least
the number of shares from time to time required under the
provisions of the Plan, or otherwise assure itself of its
ability to perform its obligations hereunder.
4.2 Effect of Forfeitures and Terminations on Shares
Available. Any shares of Stock that are subject to a
Restricted Stock Award and which are forfeited shall not be
available for reissuance under the Plan. In the event that
any Option grant hereunder lapses or otherwise terminates
prior to being fully exercised, any shares of Stock
allocable to the unexercised portion of such grant shall
again be available for future Restricted Stock Awards or
grants of Options under the Plan.
4.3 Adjustment Provisions.
(a) If:
(i) any recapitalization, reclassification,
spin-off, split-up or consolidation of Stock is effected;
(ii) the outstanding shares of Stock are
exchanged, in connection with a merger or consolidation of
the Company or a sale by the Company of all or a part of its
assets, for a different number or class of shares of stock
or other securities of the Company or for shares of the
stock or other securities of any other corporation;
(iii) new, different or additional shares or
other securities of the Company or of another company are
received by the holders of Stock; or
(iv) any distribution is made to the holders
of Stock other than a cash dividend;
Then the appropriate adjustments will be made to:
(i) the number and class of shares or other
securities that may be issued or transferred pursuant to
outstanding Options or Restricted Stock Awards;
(ii) the number and class of shares or other
securities available for issuance under the Plan; and
(iii) the purchase price to be paid per
share under outstanding Options.
(b) Upon the dissolution or liquidation of the
Company, the Plan shall terminate, and, except as otherwise
provided herein, all Options previously granted shall
terminate on the date of such dissolution or liquidation of
the Company; provided that a Director shall have the right
to exercise any Option held by him immediately prior to such
dissolution or liquidation to the full extent not
theretofore exercised.
(c) Adjustments under subparagraph (a) of this
Section 4.3 shall be made according to the sole discretion
of the Committee, and its decision shall be binding and
conclusive, subject to any legally required approval of the
Board of Directors or of any other entity.
(d) Except as provided in subparagraphs (a) and
(b) of this Section 4.3, the issuance by the Company of
shares of capital stock of any class, or securities
convertible into shares of capital stock of any class shall
not affect Options or Restricted Stock Awards hereunder.
4.4 Dividend Payable in Stock of Another Corporation,
Etc. If the Company shall at any time pay or make any
dividend or other distribution upon the Stock payable in
securities or other property (except money), a proportionate
part of such securities or other property shall be set aside
and delivered to any Director then holding a Restricted
Stock Award upon lapse of all restrictions applicable to
such Restricted Stock Award. Prior to the time that any
such securities or other property are delivered to a
Director in accordance with the foregoing, the Director
shall, subject to the same forfeiture provisions applicable
to the Restricted Stock Award to which such securities or
other property relates, be the owner of such securities or
other property and shall have the right to vote the
securities, receive any dividends payable on such securities
and in all other respects shall be treated as the owner. If
securities or other property which have been set aside by
the Company in accordance with this Section are not
delivered to a Director because restrictions applicable to
such Restricted Stock Award do not lapse and such Stock is
forfeited, then such securities or other property shall be
forfeited to the Company and shall be dealt with by the
Company as it shall determine in its sole discretion.
4.5 Rights to Subscribe. If the Company shall at any
time grant to the holders of its Stock rights to subscribe
pro rata for additional shares thereof or for any other
securities of the Company or of any other corporation, there
shall be reserved with respect to the shares then
outstanding pursuant to any Restricted Stock Award the Stock
or other securities which the Director would have been
entitled to subscribe for if immediately prior to such grant
the restrictions applicable to such Restricted Stock Award
had lapsed. Upon the lapse of all restrictions applicable
to Stock held pursuant to a Restricted Stock Award the
Director shall be provided the opportunity to subscribe for
the additional shares or other securities issuable with
respect to such shares of Stock.
4.6 General Adjustment Rules. No adjustment or
substitution provided for in this Section 4 shall require
the Company to issue a fractional share of Stock, and the
total substitution or adjustment with respect to each
Restricted Stock Award shall be limited by deleting any
fractional share. In the case of any such substitution or
adjustment appropriate adjustments shall be made to
Restricted Stock Awards to reflect any such substitution or
adjustment.
4.7 Determinations by the Committee, Etc. Adjustments
under this Section 4 shall be made by the Committee, whose
determinations with regard thereto shall be final and
binding upon all parties thereto.
SECTION 5
PARTICIPATION
Each Director shall receive Options and Restricted
Stock Awards on the terms and conditions set forth under the
Plan. Each Director shall, if required by the Committee,
enter into an agreement with the Company, in such form as
the Committee shall determine and which is consistent with
the provisions of the Plan. In the event of any
inconsistency between the provisions of the Plan and any
such agreement entered into hereunder, the provisions of the
Plan shall govern.
SECTION 6
RESTRICTED STOCK AWARDS
6.1 Initial Restricted Stock Awards. On April 25,
1994, each Director who is then a member of the Board shall
receive a Restricted Stock Award for the number of shares of
Stock determined pursuant to Section 6.3 below. Thereafter,
any person first appointed or elected to the Board, who
qualifies as a Director immediately following such
appointment or election, shall receive a Restricted Stock
Award, as of the date of such election or appointment, for
the number of shares of Stock determined pursuant to Section
6.3 below.
6.2 Subsequent Restricted Stock Awards. Beginning
January 1, 1995, and on each January 1 thereafter, each
Director who is a Director on that date shall receive a
Restricted Stock Award, as of that date, for the number of
shares of Stock determined pursuant to Section 6.3 below,
equal to the Restricted Stock Value.
6.3 Number of Shares Awarded. The number of shares of
Stock included in each such Restricted Stock Award shall be
determined by dividing the Restricted Stock Value by the
Fair Market Value of a share of Stock on the date of grant.
In no event shall the Company be required to issue
fractional shares. Whenever under the terms of this Section
6 a fractional share of Stock would otherwise be required to
be issued, an amount in lieu thereof shall be paid in cash
based upon the Fair Market Value of such fractional share.
6.4 Forfeiture of Awards. If a Director voluntarily
resigns or is removed for cause as a Board member before
completion of the fifth anniversary of the date of the grant
of such Restricted Stock Award, the shares of Stock granted
pursuant to such Restricted Stock Award shall be forfeited.
6.5 Restrictions. Except as otherwise provided in the
Plan, shares of Stock received pursuant to a Restricted
Stock Award may not be sold, assigned, pledged,
hypothecated, transferred or otherwise disposed of until the
restrictions applicable to such Stock have lapsed pursuant
to Section 6.6.
6.6 Lapse of Restrictions. Restrictions on Stock
covered by a Restricted Stock Award shall lapse upon the
fifth anniversary of the date of grant of the Restricted
Stock Award. In addition, all restrictions on Stock covered
by a Restricted Stock Award shall lapse upon any of the
following events:
(a) Upon the termination of a Director's service
as a board member as a result of death, disability,
retirement at normal retirement age for directors, failure
to be nominated for election as a director or failure to be
elected by stockholders as a Board member;
(b) In the event that the Company is merged or
consolidated with another corporation (other than a merger
or consolidation in which the Company is the continuing
corporation and which does not result in any
reclassification or change of outstanding Stock), or if all
or substantially all of the assets or more than 50% of the
outstanding Stock of the Company is acquired by any other
corporation, business entity or person (other than a sale or
conveyance in which the Company continues as a holding
company of an entity or entities that conduct the business
or businesses formerly conducted by the Company), or in case
of a reorganization (other than a reorganization under the
United States Bankruptcy Code) or liquidation of the
Company; or
(c) In the event of a change of control of the
Company. For purposes of the Plan, a "change of control"
shall be deemed to have occurred if during any period of two
consecutive years (not including any period prior to the
Effective Date), individuals who at the beginning of such
period constitute the Board (and any new director whose
election by the Board or whose nomination for election by
the Company's stockholders was approved by a vote of at
least two-thirds of the directors then still in office who
either were directors at the beginning of such period or
whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority
thereof.
6.7 Privileges of a Stockholder. A Director shall
have all voting, dividend, liquidation and other rights with
respect to Stock received by him as a Restricted Stock Award
under this Section 6, whether or not restrictions have
lapsed.
6.8 Enforcement of Restrictions. The Committee shall
cause a legend to be placed on the Stock certificates issued
pursuant to each Restricted Stock Award referring to the
restrictions imposed in the Plan and, in addition, may in
its sole discretion require one or more of the following
methods of enforcing such restrictions:
(a) Requiring the Director to keep the Stock
certificates, duly endorsed, in the custody of the Company
while the restrictions remain in effect; or
(b) Requiring that the Stock certificates, duly
endorsed, be held in the custody of a third party while the
restrictions remain in effect.
SECTION 7
OPTION GRANTS
7.1 Initial Option Grants. An Option to purchase such
number of shares of Stock as equals 2.5 times the Option
Amount shall be granted (i) on January 1, 1995 to each
person who is a Director on that date, subject to and
conditioned upon the approval of shareholders on the
Amendment Approval Date as provided in Section 1.1, and (ii)
to other Directors elected or appointed to the Board after
such date on the date each first becomes a Director of the
Company, subject to and conditioned upon shareholder
approval as aforesaid if granted prior to the Amendment
Approval Date.
7.2 Subsequent Option Grants. Beginning on January 1,
1996 and on January 1 of each year thereafter, each Director
who is a Director on that date shall be granted an Option to
purchase such number of shares of Stock as equals the Option
Amount.
7.3 Exercise Price for Options. The exercise price
per share of Stock covered by each Option shall be the Fair
Market Value of the Stock on the date the Option is granted.
The exercise price of an Option granted under the Plan shall
be subject to adjustment to the extent provided in Section
4.3 hereof.
7.4 Terms and Conditions of Options. Each Option
granted pursuant to the Plan shall be evidenced by a written
stock option agreement executed by the Company and the
Director to whom such Option is granted, The stock option
agreement may contain such other terms, provisions and
conditions as may be determined by the Committee and not
inconsistent with the Plan. Each Option granted under the
Plan shall vest and become exercisable as to 1/12 of the
shares covered thereby on a monthly basis such that the
option will be fully exercisable one year after its date of
grant. The term of each Option shall be ten (10) years from
the date of grant, unless a shorter period is required to
comply with any applicable law, in which case such shorter
period shall apply.
7.5 Assignability of Options. Each Option granted
pursuant to the Plan shall, during the Director's lifetime,
be exercisable only by the Director, and the Option shall
not be transferable by the Director by operation of law or
otherwise other than by will or the laws of descent and
distribution.
7.6 Payment Upon Exercise. Payment of the exercise
price upon exercise of any Option granted under the Plan
shall be made in whole or in part with cash or cash
equivalents (including personal checks).
SECTION 8
RIGHTS OF DIRECTORS
Nothing contained in the Plan or in any Option or
Restricted Stock Award granted under the Plan shall
interfere with or limit in any way the right of the
stockholders of the Company to remove any Director from the
Board pursuant to the Certificate of Incorporation or bylaws
of the Company, nor confer upon any Director any right to
continue in the service of the Company.
SECTION 9
GENERAL RESTRICTIONS
9.1 Investment Representations. The Company may
require any Director to whom an Option or Restricted Stock
Award is granted, as a condition of receiving such Option or
Restricted Stock Award or exercising an Option, to give
written assurances in substance and form satisfactory to the
Company and its counsel to the effect that such person is
acquiring the Option or Stock subject to the Restricted
Stock Award or Option for his own account for investment and
not with any present intention of selling or otherwise
distributing the same, and to such other effects as the
Company deems necessary or appropriate in order to comply
with Federal and applicable state securities laws.
9.2 Compliance With Securities Laws. Each Option or
Restricted Stock Award shall be subject to the requirement
that, if at any time counsel to the Company shall determine
that the listing, registration or qualification of the
shares subject to such Option or Restricted Stock Award upon
any securities exchange or under any state or federal law,
or the consent or approval of any governmental or regulatory
body, is necessary as a condition of, or in connection with,
the issuance of shares thereunder, such Restricted Stock
Award or Option may not be accepted or exercised in whole or
in part unless such listing, registration, qualification,
consent or approval shall have been effected or obtained on
conditions acceptable to the Committee. Nothing herein
shall be deemed to require the Company to apply for or to
obtain such listing, registration or qualification.
9.3 Taxes. Each Director shall make appropriate
arrangements for the satisfaction of any applicable federal,
state or local income or other tax withholding requirements
applicable to any Restricted Stock Award or Option granted
hereunder. In addition, each Director shall provide the
Company with a copy of any election which such Director may
make under Section 83(b) of the Code with respect to a
Restricted Stock Award.
SECTION 10
PLAN AMENDMENT, MODIFICATION AND TERMINATION
The Board may at any time terminate and from time to
time may amend or modify the Plan; provided, however, that
no amendment or modification may become effective without
approval of the amendment or modification by the
stockholders if stockholder approval is required to enable
the Plan to satisfy any applicable statutory or regulatory
requirements, or if the Company, on the advice of counsel,
determines that stockholder approval is otherwise necessary
or desirable and, provided further that no amendment or
modification shall be made more than once every six months,
other than to comport with changes in the Internal Revenue
Code, the Employment Retirement Income Security Act, or the
rules promulgated thereunder.
No amendment, modification or termination of the Plan
shall in any manner adversely affect any Options or
Restricted Stock Awards theretofore granted under the Plan
without the consent of the Director holding such Options or
Restricted Stock Awards.
SECTION 11
REQUIREMENTS OF LAW
11.1 Compliance with Law. The issuance of Stock and
the payment of cash pursuant to the Plan shall be subject to
all applicable laws, rules and regulations.
11.2 Rule 16b-3. Awards and transactions under the
Plan are intended to comply with all applicable conditions
of Rule 16b-3 or its successors under the 1934 Act. To the
extent any provision of the Plan or action by the Board or
the Committee fails to so comply, it shall be deemed null
and void, to the extent permitted by law and deemed
advisable by the Board or the Committee. Moreover, in the
event the Plan does not include a provision required by Rule
16b-3 to be stated therein in order to qualify the Plan as a
formula plan, such provision (other than one relating to
eligibility requirements, or the price and amount of awards)
shall be deemed automatically to be incorporated by
reference into the Plan.
11.3 Governing Law. The Plan and all agreements
hereunder shall be construed in accordance with and governed
by the laws of the State of California.
SECTION 12
DURATION OF THE PLAN
The Plan shall terminate ten years after the date the
Plan is first approved by stockholders of the Company or at
such earlier time as may be determined by the Board, and no
Options or Restricted Stock Awards shall be granted after
such termination.
EXHIBIT 10.24
CNF TRANSPORTATION INC.
RETURN ON EQUITY PLAN
(As Amended Through Amendment No. 1)
TABLE OF CONTENTS
Page
ARTICLE 1 Purpose; Effective Date; Administration 1
1.01 Purpose 1
1.02 Effective Date 1
1.03 Administration 1
ARTICLE 2 Award Cycles; Eligibility; Vesting 1
2.01 Award Cycles 1
2.02 Eligibility 1
2.03 ROE Units 2
2.04 Initial Value 2
2.05 End Value 2
2.06 Vesting 3
2.07 Change in Control 3
2.08 Dividends 4
ARTICLE 3 Awards 5
3.01 Equity Increase 5
3.02 Award Amount 5
3.03 Payment of Award 6
3.04 Payment to Beneficiary 6
ARTICLE 4 Amendment; Termination 6
4.01 Amendment 6
4.02 Termination 7
ARTICLE 5 Claims Procedure 7
5.01 Submission of Claims 7
5.02 Initial Denial 7
5.03 Review of Denied Claim 7
5.04 Decision on Review 7
ARTICLE 6 General Provisions 8
6.01 Attorneys Fees 8
6.02 Applicable Law 8
6.03 Notice 8
6.04 No Assignment or Alienation 8
6.05 Tax Withholding 8
6.06 Payment to Impaired Person 9
INDEX OF DEFINED TERMS
Term Section Page
Annual Percentage Increase 3.02 5
Award Cycle 2.01
Beneficiary 3.04 6
Change in Control 2.07
Committee 1.03
Dividends 2.08 4
End Value 2.05 2
Equity Increase 3.01
Initial Value 2.04
Participant 2.02 1
Payout Factor 3.02
Payout Factor Schedule 3.02
ROE Units 2.03
Target API 3.02
Target Equity Increase 3.02 5
CNF TRANSPORTATION INC.
RETURN ON EQUITY PLAN
1997 RESTATEMENT
(As Amended Through Amendment No. 1)
CNF Transportation Inc. adopted the Return On Equity Plan in
1996. The following statement of the Plan makes several
revisions and supersedes all prior statements of the Plan.
1. Purpose; Effective Date; Administration
1.01 Purpose
The purpose of the Plan is to provide eligible employees of
the Company and its subsidiaries or affiliates with long
term compensation that is linked to the financial
performance of the Company, thereby providing them with an
incentive to maximize financial results for shareholders.
1.02 Effective Date
The Plan shall be effective January 1, 1996.
1.03 Administration
The Plan shall be administered by the Compensation Committee
of the Board of Directors of the Company (the "Committee").
The Committee shall interpret the Plan and determine the
amount, time and form of award payments for eligible
employees. Decisions by the Committee are final and binding
on all parties.
2. Award Cycles; Eligibility; Vesting
2.01 Award Cycles
"Award Cycle" means a period of three consecutive calendar
years. Each Award Cycle shall be identified by its first
calendar year. For example, the original Award Cycle runs
from Jan. 1, 1996 to Dec. 31, 1998.
2.02 Eligibility
The Committee shall designate the employees eligible to
participate in an Award Cycle. A "Participant" must be an
employee of the Company or one of its subsidiaries or
affiliates as designated by the Committee. The
Company shall maintain in its records a list of Participants
for each Award Cycle.
2.03 ROE Units
"ROE Units" means, for any Award Cycle, the units granted to
Participants by the Committee for purposes of measuring
awards payable under the Plan for that Award Cycle. The
Company shall maintain in its records a list of the ROE
Units granted to each Participant for an Award Cycle.
2.04 Initial Value
"Initial Value" means the book value per common share of the
Company on the last day of the year (December 31) preceding
the first day of the new Award Cycle (January 1), as
reported in the Company's Monthly Financial Review. If an
event described in (a) or (b) below occurs during an Award
Cycle, the Committee may make an appropriate adjustment to
the Initial Value for that Award Cycle so that the result
produced by the formula for payout effectuates the purpose
of the Plan. Such an event occurred in 1996 with the spin
off of CF MotorFreight.
(a) The Company engages in a merger, spinoff, or other
transaction that alters the equity value per share of the
Company's common stock.
(b) The Company has a recapitalization that changes the
number of shares of its common stock outstanding, such as a
stock split, a stock combination, a dividend or other
distribution of additional common stock, conversion of
convertible preferred stock into common, a stock buy-back,
or material accounting change. The phrase "conversion of
convertible preferred stock into common" shall exclude
conversions of the Company's Series B Preferred Stock into
common stock that occur in the ordinary course as employees
cease to participate in the Company's Thrift and Stock Plan.
The phrase "other distribution of additional common stock"
shall exclude shares issued upon exercise of stock options.
2.05 End Value
"End Value" means the book value per common share of the
Company on December 31 at the end of the Award Cycle, as
reported in the Company's Monthly Financial Review.
However, if a Participant becomes vested earlier than the
last day of the Award Cycle because of the occurrence of one
of the several events described below, the End Value shall
be the book value per common share as reported in the
Company's Monthly Financial Review on the last day of the
month before the employee becomes vested.
2.06 Vesting
A Participant shall become vested in a ROE Plan Award Cycle
if the employee is continuously employed by the Company or
one of its subsidiaries or affiliates throughout the entire
Award Cycle or until the occurrence of one of the events
described below. An employee who terminates from the
Company before the last day of an Award Cycle shall forfeit
all rights related to the ROE Units granted unless the
departure coincides with one of the following (in which case
the Participant's ROE Units shall vest):
(a) The Participant's death
(b) The Participant's disability as defined in the
Company's Long Term Disability Plan or a successor to that
plan.
(c) The Participant's (i) early retirement under the
Company's tax qualified Retirement Plan if the Participant
elects within 60 days from the last day of regular
employment to receive monthly pension benefits under such
Retirement Plan starting on the first day of the month
following the last day of employment, or (ii) normal or
deferred retirement under such Retirement Plan.
(d) The Participant's Termination of Employment within 24
months after a Change in Control of the Company.
2.07 Change in Control
"Change in Control" means a change in control of the
Company, which will be deemed to have occurred if:
(a) any "person," as such term is used in Sections 13(d)
and 14(d) of the Exchange Act (other than (A) the Company,
(B) any trustee or other fiduciary holding securities under
an employee benefit plan of the Company, and (C) any
corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same
proportions as their ownership of Stock), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the
Company (not including in the securities beneficially owned
by such person any securities acquired directly from the
Company or its Affiliates) representing 25% or more of the
combined voting power of the Company's then outstanding
voting securities;
(b) the following individuals cease for any reason to
constitute a majority of the number of directors then
serving: individuals who, on January 27, 1997, constitute
the Board and any new director (other than a director whose
initial assumption of office is in connection with an actual
or threatened election contest, including but not limited to
a consent solicitation, relating to the election of
directors of the Company) whose appointment or election by
the Board or nomination for election by the Company's
stockholders was approved or recommended by a vote of at
least two-thirds (2/3) of the directors then still in office
who either were directors on January 27, 1997 or whose
appointment, election or nomination for election was
previously so approved or recommended;
(c) there is consummated a merger or consolidation of the
Company or any direct or indirect subsidiary of the Company
with any other corporation, other than (A) a merger or
consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being
converted into voting securities of the surviving or parent
entity) more than 50% of the combined voting power of the
voting securities of the Company or such surviving or parent
entity outstanding immediately after such merger or
consolidation or (B) a merger or consolidation effected to
implement a recapitalization of the Company (or similar
transaction) in which no "person" (as hereinabove defined),
directly or indirectly, acquired 25% or more of the combined
voting power of the Company's then outstanding securities
(not including in the securities beneficially owned by such
person any securities acquired directly from the Company or
its "affiliates," as defined in Rule 12b-2 promulgated under
Section 12 of the Exchange Act); or
(d) the stockholders of the Company approve a plan of
complete liquidation of the Company or there is consummated
an agreement for the sale or disposition by the Company of
all or substantially all of the Company's assets (or any
transaction having a similar effect), other than a sale or
disposition by the Company of all or substantially all of
the Company's assets to an entity, at least 50% of the
combined voting power of the voting securities of which are
owned by stockholders of the Company in substantially the
same proportions as their ownership of the Company
immediately prior to such sale.
2.08 Dividends
"Dividends" means, for any Award Cycle, the total of all
distributions for each share of the Company's common stock
during that Award Cycle.
3. Awards
3.01 Equity Increase
"Equity Increase" means the increase in the equity value per
common share of the Company's stock during each Award Cycle
plus Dividends determined under the following formula:
Equity Increase (El) equals the End Value (EV) minus the
Initial Value (IV) plus Dividends (D), or ....
El = (EV-IV)+D
3.02 Award Amount
A Participant shall receive an award amount for each Award
Cycle equal to (i) the Participant's vested ROE Units for
that Award Cycle times (ii) the Target Equity Increase (TEI)
times (iii) the Payout Factor (PF):
Award = ROE Units x TEI x PF
"Payout Factor" (PF) means a percentage from zero to 200
percent determined from the Payout Factor Schedule
(attached) for that Award Cycle, based upon the Annual
Percentage Increase (API).
"Payout Factor Schedule" means the attached schedule setting
forth a range of Annual Percentage Increases (APIs) and the
corresponding Payout Factors. If the APIs are between those
set forth in the schedule, the Payout Factor shall be
determined by interpolation. The range of APIs is in each
Payout Factor Schedule may set forth a minimum API below
which the Payout Factor will be zero, and a maximum API, at
and above which the Payout Factor will be 200%. The range
of APIs, and the minimum and maximum APIs, may vary from
Award Cycle to Award Cycle.
"Annual Percentage Increase" (API) means, for any Award
Cycle, the annual percentage rate of increase that, when
applied to the Initial Value with annual compounding,
produces the Equity Increase for that Award Cycle.
"Target Equity Increase" (TEI) means the increase in the
equity value per common share of the Company's stock during
each Award Cycle that would result by applying an Annual
Percentage Increase equal to the Target API for that Award
Cycle to the Initial Value for that Award Cycle (with annual
compounding).
"Target API" means, for each Award Cycle, the annual
percentage rate of increase that results in a 100% Payout
Factor for that Award Cycle, as set forth on the Payout
Factor Schedule.
3.03 Payment of Award
The Company shall pay a Participant's award for an Award
Cycle to the Participant in a lump sum of cash within 60
days after the End Value is determined unless the
Participant has made a valid election to defer payment under
the CNF Transportation Inc. Deferred Compensation Plan for
Executives.
3.04 Payment to Beneficiary
In the event of a Participant's death, the award payable to
the Participant for an Award Cycle shall be paid to the
Participant's Beneficiary. "Beneficiary" means the person
or persons designated by Participant under this Plan, or if
no person is specifically designated, as determined for the
Participant under the beneficiary designation provisions of
the Company's Deferred Compensation Plan for Executives. If
no designation is made under either Plan, then the award
shall be paid to the Participant's estate. Payment to the
Beneficiary shall be made within 60 days after the later of
the date the End Value for the Award Cycle is determined or
the date of death, except as follows. If the Participant
had elected deferral of the ROE Award under the Company's
Deferred Compensation Plan for Executives with payment in
installments, the Committee may choose, in its sole
discretion upon application by the Beneficiary, to make
payment to the Beneficiary in accordance with the elected
installment schedule as though the date of death was the
date of retirement.
4. Amendment; Termination
4.01 Amendment
The Committee may amend the Plan at any time by notice to
the Participants, except as follows:
(a) No amendment shall reduce the award determined for an
Award Cycle that has ended before the date of the amendment.
(b) No amendment shall reduce the award for an Award Cycle
that is in progress below the amount determined under the
formula in Section 3.2 with the End Value based on the book
value per common share of the Company as of the date of the
amendment.
4.02 Termination
The Committee may terminate the Plan at any time. The award
for Award Cycles in progress shall be determined under the
formula in Section 3.2 replacing End Value with the per
share equity value of the Company's common stock as of the
date of termination. Upon termination of the Plan, the
award of each Participant shall be paid to the Participant
or to a deceased Participant's Beneficiary as soon as
practicable after the termination.
5. Claims Procedure
5.01 Submission of Claims
Any person claiming an award or requesting an
interpretation, ruling or information under the Plan shall
present the request in writing to the Committee, which shall
respond in writing.
5.02 Initial Denial
Notice of an initial denial shall normally be given within
90 days of receipt of the claim or request or no later than
180 days if special circumstances require an extension of
time. The written notice of denial shall state the
following:
(a) The reasons for the denial, with specific reference to
the Plan provisions on which the denial is based.
(b) A description of any additional materials or
information required and an explanation of why it is
necessary.
5.03 Review of Denied Claim
Any person whose claim or request is denied or who has not
received a response within the time period described above
may request review by notice to the Committee. The original
decision shall be reviewed by the Committee, which may, but
shall not be required to, grant the claimant a hearing. On
review, whether or not there is a hearing, the claimant may
have representation, examine pertinent documents and submit
issues and comments in writing.
5.04 Decision on Review
The decision on review shall ordinarily be made within 60
days. If an extension of time is required for a hearing or
other special circumstances, the claimant shall be so
notified and the time limit shall be 120 days. The decision
shall be in writing and shall state the reasons and the
relevant plan provisions. All decisions on review shall be
final and bind all parties concerned.
6. General Provisions
6.01 Attorneys Fees
If suit or action is instituted to enforce any rights under
this Plan, the prevailing party may recover from the other
party reasonable attorneys' fees at trial and on any appeal.
6.02 Applicable Law
This Plan shall be governed by and construed in accordance
with the laws of the State of California, except as
preempted by federal law.
6.03 Notice
Any notice under this Plan shall be in writing and shall be
effective when actually delivered or, if mailed, when
deposited as first class mail postage prepaid. Mail to the
Company shall be directed to 3240 Hillview Avenue, Palo
Alto, CA 94304, or to such other address as the Company may
specify by notice to all Participants. Mailed notices to a
Participant shall be directed to the Participant's last
known home address shown in the Company's records. Notices
to the Committee shall be sent to the Company's address.
6.04 No Assignment or Alienation
The rights of a Participant or Beneficiary under this Plan
are personal. No interest of a Participant or Beneficiary
may be directly or indirectly assigned, transferred, or
encumbered. A Participant's or Beneficiary's rights to
awards payable under this Plan are not subject in any manner
to anticipation, alienation, sale, transfer, assignment,
pledge, or encumbrance. Such rights shall not be subject to
the debts, contracts, liabilities, engagement or torts of
the Participant of Beneficiary.
6.05 Tax Withholding
The Company shall make any required withholding of income
taxes and of the employee's share of FICA and any other
applicable payroll taxes from payments made under this Plan.
If such withholding is required before the date of payment
of amounts deferred under this Plan, the Company shall pay
the required amount and withhold it from other compensation
payable to the Participant.
6.06 Payment to Impaired Person
The Committee may decide that because of the mental or
physical condition of a person entitled to payments, or
because of other relevant factors, it is in the best
interest to make payments to others for the benefit of the
person entitled to payment. In that event, the Committee
may in its discretion direct that payments be made to any of
the following:
(a) To a parent or spouse or a child of legal age.
(b) To a legal guardian.
(c) To one furnishing maintenance, support, or
hospitalization.
CNF Transportation Inc.
By: /s/Eberhard G. H. Schmoller
Name: Eberhard G. H. Schmoller
Title: Senior Vice President, General
Counsel and Secretary
Executed: December 8, 1997
Exhibit 10.29
CNF TRANSPORTATION INC.
EXECUTIVE INCENTIVE PLAN FOR 1998
THE PLAN
In order to motivate certain employees of CNF Transportation Inc.
(CNFT) more effectively and efficiently, The Company (CNFT)
establishes an Incentive Plan (Plan) under which payments will be made
to eligible executive personnel of CNFT out of calendar year 1998
Incentive Profits.
DESIGNATION OF PARTICIPANTS
Participants in this Plan shall be all full-time executive personnel
of CNFT. A master list of all Plan participants will be maintained in
the office of the President of CNFT.
ELIGIBILITY FOR PAYMENT
Participants will commence participation at the beginning of the first
full calendar quarter following becoming eligible. Calendar quarters
begin January 1, April 1, July 1, and October 1 or the first working
day thereafter. An employee who commences participation in the 1998
Plan during the 1998 Plan year, and who participates less than four
full quarters, will receive a pro rata payment based on the number of
full calendar quarters of Plan participation.
Subject to the following exceptions, no person shall receive any
payment under this Plan unless on the date that the payment is
actually made that person is then currently (i) employed by
CNFT and (ii) a Plan participant.
EXCEPTION 1. A Plan participant who is employed by CNFT through
December 31, 1998 but leaves that employment or otherwise becomes
ineligible after December 31, 1998 but before the final payment is
made relating to 1998, unless terminated for cause, shall be
entitled to receive payments under this Plan resulting from 1998
Incentive Profits.
EXCEPTION 2. An appropriate pro rata payment will be made (1) to
a Plan participant who retires prior to December 31, 1998 pursuant
to the CNF Transportation Inc. Retirement Plan or to the
provisions of the Social Security Act and who, at the time of
retirement, was an eligible participant in this Plan, (2) to the
heirs, legatees, administrators or executors of a Plan participant
who dies prior to December 31, 1998 and who, at the time of death,
was an eligible participant in this Plan, (3) to an eligible Plan
participant who is placed on an approved Medical, Sabbatical, or
Military Leave of Absence prior to December 31, 1998, or (4) to an
eligible Plan participant who is transferred to another subsidiary
of CNF Transportation Inc. (CNFT) and who remains an employee
through December 31, 1998.
METHOD OF PAYMENT
Each Plan participant will be assigned an incentive participation
factor as a percent of annual compensation. The Incentive
Participation Factor will be allocated 100% to the assigned profit
goal.
Incentive compensation for the assigned goals will be earned on a pro
rata basis for accomplishments between the Minimum level and the
Incentive Factor Goals and will continue to be earned ratably for
performance over the Incentive Factor Goal.
No incentive will be earned by a participant until the Minimum Profit
Goal is achieved. There is a maximum percent of accomplishment for
any performance goal of 200%.
PERSONAL DATA SHEET
A "Personal Data Sheet" for calculation of incentive earnings will be
prepared for each Plan participant which designates (1) the unit to
which the participant is assigned, (2) his assigned incentive
participation factor, (3) the minimum level of achievement required
for each assigned goal, (4) the incentive factor level of achievement
for each assigned goal, and (5) the incentive earnings at the
incentive factor level for each assigned goal.
DATE OF PAYMENT
The President of CNFT may authorize a partial payment of the estimated
annual earned incentive, in December, 1998. The final payment to
eligible participants, less any previous partial payment, will be made
on or before March 15, 1999.
INCENTIVE PROFIT
Incentive Profit is defined as earnings before deducting any amounts
expensed under any CNFT and qualified CNFS incentive plans and before
deducting income taxes.
ANNUAL COMPENSATION
Annual Compensation for incentive purposes for each Plan participant
is his annualized salary before any incentive or other special
compensation as of the first pay period following the date the
participant becomes eligible to participate in this Plan. The term
"special compensation" used herein does not include deferred salary
arrangements wherein the participant could have chosen to receive the
deferred salary in the Plan year.
MAXIMUM PAYMENT
Payments under this Plan are limited as noted on the "Personal Data
Sheet".
LAWS GOVERNING PAYMENTS
No payment shall be made under this Plan in an amount which is
prohibited by law.
AMENDMENT, SUSPENSION, AND ADMINISTRATION OF PLAN
The Board of Directors of CNFT may at any time amend, suspend, or
terminate the operation of this Plan, by thirty-day written notice to
the Plan participants, and will have full discretion as to the
administration and interpretation of this Plan. No participant in
this Plan shall at any time have any right to receive any payment
under this Plan until such time, if any, as any payment is actually
made.
DURATION OF PLAN
This Plan is for the calendar year 1998 only.
EXHIBIT 10.30
CON-WAY TRANSPORTATION SERVICES, INC.
INCENTIVE PLAN FOR 1998
THE PLAN
In order to motivate certain of its employees more effectively and
efficiently, Con-Way Transportation Services, Inc. (CTS) establishes
an Incentive Plan (Plan) under which payments will be made to eligible
supervisory, managerial, and regular full-time nonsalaried personnel
out of calendar year 1998 Incentive Profits.
DESIGNATION OF PARTICIPANTS
Participants in the Plan shall be all full-time supervisory,
managerial, and regular nonsalaried personnel of CTS Administration.
A master list of Plan participants will be maintained in the office of
the President of CTS.
ELIGIBILITY FOR PARTICIPATION
Participants will commence participation at the beginning of the first
full calendar quarter following becoming eligible. Calendar quarters
begin January 1, April 1, July 1, and October 1 or the first working
day thereafter. An employee who commences participation in the 1998
Plan during the 1998 Plan year, and who participates less than four
full quarters, will receive a pro rata payment based on the number of
full calendar quarters of Plan participation.
Subject to the following exceptions, no person shall receive any
payment under this Plan unless on the date that the payment is
actually made that person is then currently (i) employed by CTS or any
of its subsidiaries and (ii) a Plan participant.
EXCEPTION 1. A Plan participant who is employed by CTS or any of
its subsidiaries through December 31, 1998 but leaves that
employment or otherwise becomes ineligible after December 31, 1998
but before the final payment is made relating to 1998, unless
terminated for cause, shall be entitled to receive payments under
this Plan resulting from 1998 Incentive Profits.
EXCEPTION 2. An appropriate pro rata payment will be made (1) to
a Plan participant who retires prior to December 31, 1998 pursuant
to the CNF Transportation Inc. Retirement Plan or to the
provisions of the Social Security Act and who, at the time of
retirement, was an eligible participant in this Plan, (2) to the
heirs, legatees, administrators or executors of a Plan participant
who dies prior to December 31, 1998 and who, at the time of death,
was an eligible participant in this Plan, (3) to an eligible Plan
participant who is placed on an approved Medical, Sabbatical, or
Military Leave of Absence prior to December 31, 1998, or (4) to an
eligible Plan participant who is transferred to another subsidiary
of CNF Transportation Inc. and who remains an employee through
December 31, 1998.
METHOD OF PAYMENT
Each Plan participant will be assigned an incentive participation
factor as a percent of Annual Compensation in accordance with the
enclosed Personal Data Sheet. Unless indicated otherwise on the Data
Sheet, the incentive participation factor will be allocated 100% to
the assigned profit goal. An accounts receivable goal may be assigned.
Incentive for assigned goals will be earned on a pro rata basis for
accomplishment between the Minimum level and the Incentive Factor
Goal. Incentive earnings over the Incentive Factor Goal will continue
to earn at the same pro rata relationship that exists between minimum
level and factor goal.
No incentive will be earned by a participant until CTS has achieved
its Minimum Profit Goal. Incentive earned from the achievement of
the Accounts Receivable Performance Goal will be restricted to the
same percent of accomplishment as profit, until CTS has reached its
Incentive Factor Profit Goal. Once the CTS Incentive Factor Profit
Goal has been reached, this restriction will be removed. The maximum
percent of accomplishment for any goal is 200%.
Actual incentive payout is subject to the CTS ICP pool, thus Incentive
Earnings will be adjusted proportionately to the amount in the pool.
PERSONAL DATA SHEET
A "Personal Data Sheet" for calculation of incentive earnings will be
prepared for each Plan participant which designates (1) the unit to
which the participant is assigned, (2) his assigned incentive par-
ticipation factor, (3) the minimum level of achievement required for
each assigned goal, (4) the incentive factor level of achievement for
each assigned goal, and (5) the incentive earnings at the incentive
factor level for each assigned goal.
DATE OF PAYMENT
The President of CTS may authorize a partial payment of the estimated
annual earned incentive, in December 1998. The final payment to
eligible participants, less any previous partial payment, will be made
on or before March 15, 1999.
INCENTIVE PROFIT
Incentive profit is defined as the consolidated earnings of all of the
companies comprising CTS, before deducting any amounts expensed under
this or any similar incentive or bonus plan and before deducting in-
come taxes and excluding interest income and expense.
ANNUAL COMPENSATION
Annual Compensation for incentive purposes for each Plan participant
is his annualized salary or hourly base pay before any incentive,
overtime, or other special compensation as of the first pay period
following the date the participant becomes eligible to participate in
this Plan.
MAXIMUM PAYMENT
Payments under this Plan are limited as noted on the "Personal Data
Sheet".
LAWS GOVERNING PAYMENTS
No payment shall be made under this Plan in an amount which is
prohibited by law.
AMENDMENT, SUSPENSION, AND ADMINISTRATION OF PLAN
The Board of Directors of CTS may at any time amend, suspend, or
terminate the operation of this Plan, by thirty-day written notice to
the Plan participants, and will have full discretion as to the
administration and interpretation of this Plan. No participant in
this Plan shall at any time have any right to receive any payment
under this Plan until such time, if any, as the payment is actually
made.
DURATION OF PLAN
This Plan is for the calendar year 1998 only.
EXHIBIT 10.31
EMERY INCENTIVE PLAN FOR 1998
1998 ICP PLAN LETTER
Dear Fellow Employee:
I am pleased to announce the 1998 incentive program that has been approved by
our Board of Directors. The plan may be amended effective July 1, 1998 to
include service improvement performance factors that will measure the quality
of serice we provide to our customers. The incentive program focuses all
employees on a common goal - profitability.
The program consists of three distinct plans that reward employees based on
their actual contributions in attaining specific unit performance goals.
Hourly and salaried employees will participate in the Employee Performance
Incentive Plan (EPIP), which focuses on improving profitability through
increased operating efficiencies and cost containment. All sales
personnel are part of the revised global Sales Incentive Plan (SIP),
which is based on one or more of the following: margin
contribution, margin improvement, profit plan, and days sales outstanding.
As a member of management, you will participate in the Incentive Compensation
Plan (ICP), which is tied to one or more of the following factors:
unit performance /profit, company profit, and Days Sales Outstanding (DSO).
DSO is a measure of how long it takes on average for our customers to pay
us (accounts receivable). Our usual terms are payment within ten (10)
calendar days from date of billing. By decreasing the time it takes us
to collect our receivables (DSO), we will improve our profitability.
By successfully leading and directing your team's total effort, you will
benefit by the improved profitability of your unit, which will enhance your
ICP rewards as well as the rewards of your team.
Actual incentive compensation will be funded by an ICP pool. At the end
of 1998, ICP will be calculated and a proportionate amount paid, depending
on your performance and the pool. All ICP payments will be calculated and
paid on an annual basis and are subject to the ICP Terms and Conditions.
This is an exciting opportunity for you to earn compensation based on
attaining your unit's performance goals and improving the company's DSO's.
I am confident that our continued team effort to expand our air, ocean,
customs brokerage, expedited and logistics services, along with your
commitment to Emery Worldwide, will result in increased incentive
compensation pay in 1998 and beyond.
Emery Worldwide
1998 INCENTIVE COMPENSATION
PERFORMANCE FACTORS
(EFFECTIVE JANUARY 1, 1998)
EXHIBIT 10.32
CNF TRANSPORTATION INC.
SPECIAL BONUS PLAN FOR 1998
THE PLAN
In order to motivate certain key employees more effectively,
CNF Transportation Inc. (CNFT) establishes a Special Bonus Plan for
1998 (Plan) under which payments will be made to designated executive
personnel out of calendar year 1998 profits.
DESIGNATION OF PARTICIPANTS
Participants in this Plan shall be designated full-time executive
personnel of CNFT subsidiaries. A master list of all Plan
participants will be maintained in the office of the Chief Financial
Officer of CNFT.
METHOD OF PAYMENT
Each Plan participant will be assigned specific Operating Profit Ratio
(O/R) performance goals.
Compensation for the assigned goals will be earned on a pro rata basis
for accomplishments between the Minimum level and the Target O/R Goal.
No special 1998 bonus will be earned by a participant until the
Minimum O/R Goal is achieved.
Payments under this Plan are limited to 100 percent of each
participant's annual salary.
OPERATING RATIO
Operating Ratio is defined as: 1) operating expense before taxes,
interest and non-operating expenses, but, including all amounts
expensed under any qualified Con-Way Transportation Services, Inc.,
Emery Worldwide, Emery Customs Brokers, Emery Priority Mail, Emery
Global Logistics, Emery Expedite, Emery Worldwide Airlines, Menlo
Logistics Priority Mail and Menlo Logistics, Inc. incentive and bonus
plans; divided by 2) net revenue. Full year results will be used.
ANNUAL SALARY
Annual Salary for Bonus Plan purposes for each Plan participant is
annualized salary (ie. weekly base salary as of January 1, 1998
multiplied by 52) excluding any incentive or other special
compensation as of the first pay period following the date the
participant becomes eligible to participate in this Plan. The term
"special compensation" used herein includes deferred salary
arrangements wherein the participant could have chosen to receive the
deferred salary in the Plan year.
PERSONAL DATA SHEET
A "Personal Data Sheet" for calculation of Bonus Plan earnings
(attached hereto) will be prepared for each Plan participant which
designates (1) the unit to which the participant is assigned, (2) the
minimum level of achievement required for the assigned O/R goal, (3)
the target level of achievement for the assigned O/R goal, and (4) the
earnings at the target level for the assigned O/R goal.
ELIGIBILITY FOR PAYMENT
Eligible employees will commence participation on January 1, 1998. An
employee who commences participation after the January 1 date will
receive a pro rata payment based on the number of full calendar
quarters of Plan participation.
Subject to the following exceptions, no person shall receive any
payment under this Plan unless on the date that the payment is
actually made that person is then currently (i) employed by
CNF Transportation Inc. or any of its subsidiaries and (ii) a Plan
participant.
EXCEPTION 1. A Plan participant who is employed by CNFT or any of
its subsidiaries through December 31, 1998 but leaves that
employment or otherwise becomes ineligible after December 31, 1998
but before the final payment is made relating to 1998, unless
terminated for cause, shall be entitled to receive payments under
this Plan resulting from 1998 Incentive Profits.
EXCEPTION 2. An appropriate pro rata payment will be made (1) to
a Plan participant who retires prior to December 31, 1998 pursuant
to the CNF Transportation Inc. Retirement Plan or to the
provisions of the Social Security Act and who, at the time of
retirement, was an eligible participant in this Plan, (2) to the
heirs, legatees, administrators or executors of a Plan participant
who dies prior to December 31, 1998 and who, at the time of death,
was an eligible participant in this Plan, (3) to an eligible Plan
participant who is placed on an approved Medical, Sabbatical, or
Military Leave of Absence prior to December 31, 1998, or (4) to an
eligible Plan participant who is transferred to another subsidiary
of CNFT and who remains an employee through December 31, 1998.
DATE OF PAYMENT
The Chief Executive Officer of CNFT will select a date for payment to
eligible participants. Such date will be no later than March 15, 1999.
LAWS GOVERNING PAYMENTS
No payment shall be made under this Plan in an amount which is
prohibited by law.
AMENDMENT, SUSPENSION, AND ADMINISTRATION OF PLAN
The Board of Directors of CNFT may at any time amend, suspend, or
terminate the operation of this Plan, by thirty-day written notice to
the Plan participants, and will have full discretion as to the
administration and interpretation of this Plan. No participant in
this Plan shall at any time have any right to receive any payment
under this Plan until the date for payment.
DURATION OF PLAN
This Plan is effective from January 1, 1998 through December 31, 1998
only.
EXHIBIT 10.33
CNF TRANSPORTATION INC.
1997 EQUITY AND INCENTIVE PLAN
As Amended June 30, 1997
The purposes of the 1997 Equity and Incentive Plan of
CNF Transportation Inc. (the "Plan") are to afford an
incentive to selected employees of CNF Transportation Inc.
(the "Company") or any Subsidiary or Affiliate that now
exists or hereafter is organized or acquired, to continue as
employees, to increase their efforts on behalf of the
Company and to promote the success of the Company's
business. Pursuant to the Long-Term Incentive Program
described herein, there may be granted stock options
(including "incentive stock options" and "non-qualified
stock options"), stock appreciation rights (either in
connection with stock options granted under the Plan or
independently of stock options), restricted stock,
restricted stock units, dividend equivalents and other long-
term stock- or cash-based Awards, and pursuant to the Annual
Incentive Bonus Program described herein, there may be
granted short-term stock- or cash-based Awards. The Plan is
designed so that Awards granted hereunder intended to comply
with the requirements for "performance-based compensation"
under Section 162(m) of the Code may comply with such
requirements and insofar as may be applicable to such
Awards, the Plan shall be interpreted in a manner consistent
with such requirements.
.
For purposes of the Plan, the following terms shall be
defined as set forth below:
(a)"Affiliate" means an affiliate of the Company, as
defined in Rule 12b-2 promulgated under Section 12 of the
Exchange Act.
(b)"Annual Incentive Bonus Program" means the program
described in Section 6(c) hereof.
(c)"Award" means any Option, SAR, Restricted Stock,
Restricted Stock Unit, Dividend Equivalent or Other Stock-
Based Award or Other Cash-Based Award granted under the
Plan.
(d)"Award Agreement" means any written agreement,
contract, or other instrument or document evidencing an
Award.
(e) "Board" means the Board of Directors of the
Company.
(f) "Change in Control" means a change in control of the
Company, which will be deemed to have occurred if:
(i) any "person," as such term is used in Sections 13(d)
and 14(d) of the Exchange Act (other than (A) the Company,
(B) any trustee or other fiduciary holding securities under
an employee benefit plan of the Company, and (C) any
corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same
proportions as their ownership of Stock), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the
Company (not including in the securities beneficially owned
by such person any securities acquired directly from the
Company or its Affiliates) representing 25% or more of the
combined voting power of the Company's then outstanding
voting securities;
(ii)the following individuals cease for any reason
to constitute a majority of the number of directors then
serving: individuals who, on the Effective Date, constitute
the Board and any new director (other than a director whose
initial assumption of office is in connection with an actual
or threatened election contest, including but not limited to
a consent solicitation, relating to the election of
directors of the Company) whose appointment or election by
the Board or nomination for election by the Company's
stockholders was approved or recommended by a vote of at
least two-thirds (2/3) of the directors then still in office
who either were directors on the Effective Date or whose
appointment, election or nomination for election was
previously so approved or recommended;
(iii)there is consummated a merger or
consolidation of the Company or any direct or indirect
subsidiary of the Company with any other corporation, other
than (A) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of
the surviving or parent entity) more than 50% of the
combined voting power of the voting securities of the
Company or such surviving or parent entity outstanding
immediately after such merger or consolidation or (B) a
merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in
which no "person" (as hereinabove defined), directly or
indirectly, acquired 25% or more of the combined voting
power of the Company's then outstanding securities (not
including in the securities beneficially owned by such
person any securities acquired directly from the Company or
its Affiliates); or
(iv)the stockholders of the Company approve a plan
of complete liquidation of the Company or there is
consummated an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets
(or any transaction having a similar effect), other than a
sale or disposition by the Company of all or substantially
all of the Company's assets to an entity, at least 50% of
the combined voting power of the voting securities of which
are owned by stockholders of the Company in substantially
the same proportions as their ownership of the Company
immediately prior to such sale.
(g) "Code" means the Internal Revenue Code of 1986, as
amended from time to time.
(h) "Committee" means the committee established by the
Board to administer the Plan, the composition of which shall
at all times satisfy the provisions of Rule 16b-3 and
Section 162(m) of the Code; provided, however, that the
Board may, if it so chooses, retain authority to administer
all or any part of the Plan and, to the extent the Board
does so, references in the Plan to "Committee" shall mean
and be references to the Board.
(i)"Company" means CNF Transportation Inc., a
corporation organized under the laws of the State of
Delaware, or any successor corporation.
(j) "Dividend Equivalent" means a right, granted to a
Grantee under Section 6(b)(v), to receive cash or Stock
equal in value to dividends paid with respect to a specified
number of shares of Stock. Dividend Equivalents may be
awarded on a free-standing basis or in connection with
another Award, and may be paid currently or on a deferred
basis.
(k) "Effective Date" means January 27, 1997, the date
that the Plan was adopted by the Board.
(l)"Exchange Act" means the Securities Exchange Act of
1934, as amended from time to time, and as now or hereafter
construed, interpreted and applied by regulations, rulings
and cases.
(m) "Fair Market Value" per share of Stock as of a
particular date means (i) the closing sales price per share
of Stock on the national securities exchange on which the
Stock is principally traded, for the last preceding date on
which there was a sale of such Stock on such exchange, or
(ii) if the shares of Stock are then traded in an over-the-
counter market, the average of the closing bid and asked
prices for the shares of Stock in such over-the-counter
market for the last preceding date on which there was a sale
of such Stock in such market, or (iii) if the shares of
Stock are not then listed on a national securities exchange
or traded in an over-the-counter market, such value as the
Committee, in its sole discretion, shall determine.
(n)"Grantee" means a person who, as an employee of the
Company, a Subsidiary or an Affiliate, has been granted an
Award under the Plan.
(o)"ISO" means any Option intended to be and designated
as an incentive stock option within the meaning of Section
422 of the Code.
(p)"Long-Term Incentive Program" means the program
described in Section 6(b) hereof.
(q)"NQSO" means any Option that is designated as a non-
qualified stock option.
(r)"Option" means a right, granted to a Grantee under
Section 6(b)(i), to purchase shares of Stock. An Option may
be either an ISO or an NQSO; provided that ISOs may be
granted only to employees of the Company or a Subsidiary.
(s)"Other Cash-Based Award" means an Award under the
Annual Incentive Bonus Program or the Long-Term Incentive
Program, which Award is not denominated or valued by
reference to Stock, including an Award which is subject to
the attainment of Performance Goals or otherwise as
permitted under the Plan.
(t)"Other Stock-Based Award" means an Award under the
Long-Term Incentive Program that is denominated or valued in
whole or in part by reference to Stock and is payable in
cash.
(u)"Performance Goals" means performance goals based on
one or more of the following criteria: (i) pre-tax income or
after-tax income, (ii) operating profit, (iii) return on
equity, assets, capital or investment, (iv) earnings or book
value per share, (v) sales or revenues, (vi) operating
expenses, (vii) Stock price appreciation, (viii) total
shareholder return (i.e., Stock price appreciation plus
dividends) and (ix) implementation or completion of critical
projects or processes. Where applicable, the Performance
Goals may be expressed in terms of attaining a specified
level of the particular criteria or the attainment of a
percentage increase or decrease in the particular criteria,
and may be applied to one or more of the Company, a
Subsidiary or Affiliate, or a division or strategic business
unit of the Company, or may be applied to the performance of
the Company relative to a market index, a group of other
companies or a combination thereof, all as determined by the
Committee. The Performance Goals may include a threshold
level of performance below which no payment will be made (or
no vesting will occur), levels of performance at which
specified payments will be made (or specified vesting will
occur), and a maximum level of performance above which no
additional payment will be made (or at which full vesting
will occur). Each of the foregoing Performance Goals shall
be determined in accordance with generally accepted
accounting principles and shall be subject to certification
by the Committee; provided that the Committee shall have the
authority to make equitable adjustments to the Performance
Goals in recognition of unusual or non-recurring events
affecting the Company or any Subsidiary or Affiliate or the
financial statements of the Company or any Subsidiary or
Affiliate, in response to changes in applicable laws or
regulations, or to account for items of gain, loss or
expense determined to be extraordinary or unusual in nature
or infrequent in occurrence or related to the disposal of a
segment of a business or related to a change in accounting
principles.
(v)"Plan" means this CNF Transportation Inc. 1997
Equity and Incentive Plan, as amended from time to time.
(w)"Plan Year" means a calendar year.
(x)"Restricted Stock" means an Award of shares of Stock
to a Grantee under Section 6(b)(iii) that may be subject to
certain transferability and other restrictions and to a risk
of forfeiture (including by reason of not satisfying certain
Performance Goals).
(y)"Restricted Stock Unit" means a right granted to a
Grantee under Section 6(b)(iv) to receive Stock or cash at
the end of a specified deferral period, which right may be
conditioned on the satisfaction of certain requirements
(including the satisfaction of certain Performance Goals).
(z)"Rule 16b-3" means Rule 16b-3, as from time to time
in effect promulgated by the Securities and Exchange
Commission under Section 16 of the Exchange Act, including
any successor to such Rule.
(aa) "Stock" means shares of the common stock, par
value $.625 per share, of the Company.
(bb)"SAR" or "Stock Appreciation Right" means the
right, granted to a Grantee under Section 6(b)(ii), to be
paid an amount measured by the appreciation in the Fair
Market Value of Stock from the date of grant to the date of
exercise of the right, with payment to be made in cash or
Stock as specified in the Award or determined by the
Committee.
(cc)"Subsidiary" means any corporation in an unbroken
chain of corporations beginning with the Company if, at the
time of granting of an Award, each of the corporations
(other than the last corporation in the unbroken chain) owns
stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other
corporations in the chain.
3..
The Plan shall be administered by the Committee. The
Committee shall have the authority in its discretion,
subject to and not inconsistent with the express provisions
of the Plan, to administer the Plan and to exercise all the
powers and authorities either specifically granted to it
under the Plan or necessary or advisable in the
administration of the Plan, including, without limitation,
the authority to grant Awards; to determine the persons to
whom and the time or times at which Awards shall be granted;
to determine the type and number of Awards to be granted,
the number of shares of Stock to which an Award may relate
and the terms, conditions, restrictions and Performance
Goals relating to any Award; to determine Performance Goals
no later than such time as is required to ensure that an
underlying Award which is intended to comply with the
requirements of Section 162(m) of the Code so complies; to
determine whether, to what extent, and under what
circumstances an Award may be settled, canceled, forfeited,
exchanged, or surrendered; to make adjustments in the terms
and conditions (including Performance Goals) applicable to
Awards; to designate Affiliates; to construe and interpret
the Plan and any Award; to prescribe, amend and rescind
rules and regulations relating to the Plan; to determine the
terms and provisions of the Award Agreements (which need not
be identical for each Grantee); and to make all other
determinations deemed necessary or advisable for the
administration of the Plan. Notwithstanding the foregoing
and except as otherwise provided in the second paragraph of
Section 5 below, the Committee shall not have the authority
to lower the exercise price of any outstanding option or
SAR, nor shall the Committee have the authority to settle,
cancel or exchange any outstanding option or SAR in
consideration for the grant of a new award with a lower
exercise price.
The Committee may appoint a chairperson and a secretary
and may make such rules and regulations for the conduct of
its business as it shall deem advisable, and shall keep
minutes of its meetings. All determinations of the
Committee shall be made by a majority of its members either
present in person or participating by conference telephone
at a meeting or by written consent. The Committee may
delegate to one or more of its members or to one or more
agents such administrative duties as it may deem advisable,
and the Committee or any person to whom it has delegated
duties as aforesaid may employ one or more persons to render
advice with respect to any responsibility the Committee or
such person may have under the Plan. All decisions,
determinations and interpretations of the Committee shall be
final and binding on all persons, including the Company, and
any Subsidiary, Affiliate or Grantee (or any person claiming
any rights under the Plan from or through any Grantee) and
any stockholder.
No member of the Board or Committee shall be liable for
any action taken or determination made in good faith with
respect to the Plan or any Award granted hereunder.
4..
Awards may be granted to selected employees of the
Company and its present or future Subsidiaries and
Affiliates, in the discretion of the Committee. In
determining the persons to whom Awards shall be granted and
the type of any Award (including the number of shares to be
covered by such Award), the Committee shall take into
account such factors as the Committee shall deem relevant in
connection with accomplishing the purposes of the Plan.
5..
The maximum number of shares of Stock reserved for the
grant or settlement of Awards under the Plan shall be
2,200,000, subject to adjustment as provided herein. No
more than 550,000 shares of Stock may be awarded in the
aggregate in respect of stock-based awards (including
Options, SARs, Restricted Stock and Restricted Stock Units)
to a single individual over the term of the Plan and no more
than 900,000 shares of Stock may be awarded in the aggregate
in respect of Restricted Stock and Restricted Stock Units to
all Grantees over the term of the Plan, in each case subject
to adjustment as provided herein. Determinations made in
respect of the limitation set forth in the preceding
sentence shall be made in a manner consistent with Section
162(m) of the Code. Such shares may, in whole or in part,
be authorized but unissued shares or shares that shall have
been or may be reacquired by the Company in the open market,
in private transactions or otherwise. If any shares subject
to an Award are forfeited, canceled, exchanged or
surrendered or if an Award otherwise terminates or expires
without a distribution of shares to the Grantee, the shares
of stock with respect to such Award shall, to the extent of
any such forfeiture, cancellation, exchange, surrender,
termination or expiration, again be available for Awards
under the Plan. Upon the exercise of any Award granted in
tandem with any other Awards or awards, such related Awards
or awards shall be canceled to the extent of the number of
shares of Stock as to which the Award is exercised and,
notwithstanding the foregoing, such number of shares shall
no longer be available for Awards under the Plan.
In the event that the Committee shall determine that
any dividend or other distribution (whether in the form of
cash, Stock, or recapitalization, Stock split, reverse
split, reorganization, merger, consolidation, spin-off,
combination, repurchase, or share exchange, or other similar
corporate transaction or event, affects the Stock such that
an adjustment is appropriate in order to prevent dilution or
enlargement of the rights of Grantees under the Plan, then
the Committee shall make such equitable changes or
adjustments as it deems necessary or appropriate to any or
all of (i) the number and kind of shares of Stock or cash
that may thereafter be issued in connection with Awards,
(ii) the number and kind of shares of Stock or cash issued
or issuable in respect of outstanding Awards, (iii) the
exercise price, grant price, or purchase price relating to
any Award; provided that, with respect to ISOs, such
adjustment shall be made in accordance with Section 424(h)
of the Code, (iv) the Performance Goals and (v) the
individual limitations applicable to Awards.
6..
(a) General. The term of each Award shall be for such
period as may be determined by the Committee. Subject to
the terms of the Plan and any applicable Award Agreement,
payments to be made by the Company or a Subsidiary or
Affiliate upon the grant, maturation, or exercise of an
Award may be made in Stock or cash, or a combination
thereof, as the Committee shall determine at the date of
grant or thereafter and may be made in a single payment or
transfer, in installments, or on a deferred basis. The
Committee may make rules relating to installment or deferred
payments with respect to Awards, including the rate of
interest to be credited with respect to such payments. In
addition to the foregoing, the Committee may impose on any
Award or the exercise thereof, at the date of grant or
thereafter, such additional terms and conditions, not
inconsistent with the provisions of the Plan, as the
Committee shall determine.
(b)Long-Term Incentive Program. The Committee is
authorized to grant to Grantees the following Awards under
the Long-Term Incentive Program, as deemed by the Committee
to be consistent with the purposes of the Plan. The
Committee shall determine the terms and conditions of such
Awards at the date of grant or thereafter.
(i) Options. The Committee is authorized to
grant Options to Grantees on the following terms and
conditions:
(A)Type of Award. The Award Agreement
evidencing the grant of an Option under the Plan shall
designate the Option as an ISO or an NQSO.
(B)Exercise Price. The exercise price per
share of Stock purchasable under an Option shall be
determined by the Committee; provided that, such exercise
price shall be not less than the Fair Market Value of a
share on the date of grant of such Option. The exercise
price for Stock subject to an Option may be paid in cash or
by an exchange of Stock previously owned by the Grantee, or
a combination of both, in an amount having a combined value
equal to such exercise price. A Grantee may also elect to
pay all or a portion of the aggregate exercise price by
having shares of Stock with a Fair Market Value on the date
of exercise equal to the aggregate exercise price withheld
by the Company or sold by a broker-dealer.
(C)Term and Exercisability of Options.
Options shall be exercisable over the exercise period (which
shall not exceed ten years from the date of grant), at such
times and upon such conditions as the Committee may
determine, as reflected in the Award Agreement; provided
that, the Committee shall have the authority to accelerate
the exercisability of any outstanding Option at such time
and under such circumstances as it, in its sole discretion,
deems appropriate. An Option may be exercised to the extent
of any or all full shares of Stock as to which the Option
has become exercisable, by giving written notice of such
exercise to the Committee or its designated agent.
(D)Termination of Employment, etc. An Option
may not be exercised unless the Grantee is then in the
employ of the Company or a Subsidiary or an Affiliate (or a
company or a parent or subsidiary company of such company
issuing or assuming the Option in a transaction to which
Section 424(a) of the Code applies), and unless the Grantee
has remained continuously so employed since the date of
grant of the Option; provided that, the Award Agreement may
contain provisions extending the exercisability of Options,
in the event of specified terminations, to a date not later
than the expiration date of such Option.
(E)Other Provisions. Options may be subject
to such other conditions including, but not limited to,
restrictions on transferability of the shares acquired upon
exercise of such Options, as the Committee may prescribe in
its discretion or as may be required by applicable law.
(ii)SARs. The Committee is authorized to grant
SARs to Grantees on the following terms and conditions:
(A)In General. Unless the Committee
determines otherwise, an SAR (1) granted in tandem with an
NQSO may be granted at the time of grant of the related NQSO
or at any time thereafter or (2) granted in tandem with an
ISO may only be granted at the time of grant of the related
ISO. An SAR granted in tandem with an Option shall be
exercisable only to the extent the underlying Option is
exercisable.
(B)SARs. An SAR shall confer on the Grantee
a right to receive an amount with respect to each share
subject thereto, upon exercise thereof, equal to the excess
of (1) the Fair Market Value of one share of Stock on the
date of exercise over (2) the grant price of the SAR (which
in the case of an SAR granted in tandem with an Option shall
be equal to the exercise price of the underlying Option, and
which in the case of any other SAR shall be such price as
the Committee may determine).
(iii)Restricted Stock. The Committee is
authorized to grant Restricted Stock to Grantees on the
following terms and conditions:
(A)Issuance and Restrictions. Restricted
Stock shall be subject to such restrictions on
transferability and other restrictions as the Committee may
impose at the date of grant or thereafter, which
restrictions may lapse separately or in combination at such
times, under such circumstances, in such installments, or
otherwise, as the Committee may determine; provided,
however, notwithstanding the foregoing, each Restricted
Stock award shall be subject to restrictions, imposed at the
date of grant, relating to either of both of (1) the
attainment of Performance Goals by the Company or (2) the
continued employment of the Grantee with the Company, a
Subsidiary or an Affiliate. All performance based
Restricted Stock Awards will have a minimum vesting period
of one year. With respect to any shares of Restricted Stock
subject to restrictions which lapse solely based on the
Grantee's continuation of employment with the Company, a
Subsidiary or an Affiliate, such restrictions shall lapse
over a vesting schedule (so long as the Grantee remains
employed with the Company, a Subsidiary or an Affiliate) no
shorter in duration than three years from the date of grant;
provided that, such vesting schedule may provide for partial
or installment vesting from time to time during such period.
Except to the extent otherwise provided in an Award
Agreement, a Grantee granted Restricted Stock shall have all
of the rights of a stockholder including, without
limitation, the right to vote Restricted Stock and the right
to receive dividends thereon (subject to subsection (D)
below).
(B)Forfeiture. Upon termination of
employment with the Company or a Subsidiary or Affiliate,
during the applicable restriction period, Restricted Stock
and any accrued but unpaid dividends or Dividend Equivalents
that are at that time subject to restrictions shall be
forfeited; provided that, the Committee may provide, by rule
or regulation or in any Award Agreement, or may determine in
any individual case, that restrictions or forfeiture
conditions relating to Restricted Stock will be waived in
whole or in part in the event of terminations resulting from
specified causes, and the Committee may in other cases waive
in whole or in part the forfeiture of Restricted Stock.
(C)Certificates for Stock. Restricted Stock
granted under the Plan may be evidenced in such manner as
the Committee shall determine. If certificates representing
Restricted Stock are registered in the name of the Grantee,
such certificates shall bear an appropriate legend referring
to the terms, conditions, and restrictions applicable to
such Restricted Stock, and the Company shall retain physical
possession of the certificate.
(D)Dividends. Dividends paid on Restricted
Stock shall be either paid at the dividend payment date, or
deferred for payment to such date as determined by the
Committee, in cash or in shares of unrestricted Stock having
a Fair Market Value equal to the amount of such dividends.
Stock distributed in connection with a stock split or stock
dividend, and distributed as a dividend, shall be subject to
restrictions and a risk of forfeiture to the same extent as
the Restricted Stock with respect to which such Stock or has
been distributed.
(iv)Restricted Stock Units. The Committee is
authorized to grant Restricted Stock Units to Grantees,
subject to the following terms and conditions:
(A)Award and Restrictions. Delivery of Stock
or cash, as determined by the Committee, will occur upon
expiration of the deferral period specified for Restricted
Stock Units by the Committee. The Committee may condition
the vesting and/or payment of Restricted Stock Units, in
whole or in part, upon the attainment of Performance Goals.
(B)Forfeiture. Upon termination of
employment during the applicable deferral period or portion
thereof to which forfeiture conditions apply, or upon
failure to satisfy any other conditions precedent to the
delivery of Stock or cash to which such Restricted Stock
Units relate, all Restricted Stock Units that are then
subject to deferral or restriction shall be forfeited;
provided that, the Committee may provide, by rule or
regulation or in any Award Agreement, or may determine in
any individual case, that restrictions or forfeiture
conditions relating to Restricted Stock Units will be waived
in whole or in part in the event of termination resulting
from specified causes, and the Committee may in other cases
waive in whole or in part the forfeiture of Restricted Stock
Units.
(v)Dividend Equivalents. The Committee is
authorized to grant Dividend Equivalents to Grantees. The
Committee may provide, at the date of grant or thereafter,
that Dividend Equivalents shall be paid or distributed when
accrued or shall be deemed to have been reinvested in
additional Stock, or other investment vehicles as the
Committee may specify, provided that Dividend Equivalents
(other than freestanding Dividend Equivalents) shall be
subject to all conditions and restrictions of the underlying
Awards to which they relate.
(vi)Other Stock- or Cash-Based Awards. The
Committee is authorized to grant Awards to Grantees in the
form of Other Stock-Based Awards or Other Cash-Based Awards,
as deemed by the Committee to be consistent with the
purposes of the Plan. Awards granted pursuant to this
paragraph may be granted with value and payment contingent
upon the attainment of certain Performance Goals, so long as
such goals relate to periods of performance in excess of one
calendar year. The Committee shall determine the terms and
conditions of such Awards at the date of grant or
thereafter. The maximum payment that any Grantee may
receive pursuant to an Award granted under this paragraph in
respect of any performance period shall be $3,000,000.
Payments earned hereunder may be decreased or, with respect
to any Grantee who is not a "covered employee" within the
meaning of Section 162(m) of the Code (a "Covered
Employee"), increased in the sole discretion of the
Committee based on such factors as it deems appropriate. No
payment shall be made prior to the certification by the
Committee that any applicable Performance Goals have been
attained. The Committee may establish such other rules
applicable to the Other Stock- or Cash-Based Awards to the
extent not inconsistent with Section 162(m) of the Code.
(c)Annual Incentive Bonus Program. The Committee is
authorized to grant Awards to Grantees pursuant to the
Annual Incentive Bonus Program in the form of Other Cash-
Based Awards, as deemed by the Committee to be consistent
with the purposes of the Plan. Grantees will be selected by
the Committee with respect to participation for a Plan Year.
Each Award granted under the Annual Incentive Bonus Program
in respect of a Plan Year will be contingent on the
attainment by the Company of one or more Performance Goals.
The maximum payment that any Grantee may receive pursuant to
an Award granted under the Annual Incentive Bonus Program in
respect of any Plan Year shall be $3,000,000. Payments
earned hereunder may be decreased or, with respect to any
Grantee who is not a Covered Employee, increased in the sole
discretion of the Committee based on such factors as it
deems appropriate. No payment shall be made prior to the
certification by the Committee that any applicable
Performance Goals have been attained. The Committee may
establish such other rules applicable to the Annual
Incentive Bonus Program to the extent not inconsistent with
Section 162(m) of the Code.
7. .
Unless otherwise determined by the Committee and evidenced
in an Award Agreement, in the event of a Change of Control:
(a)any Award carrying a right to exercise that was not
previously exercisable and vested shall become fully
exercisable and vested; and
(b)the restrictions, deferral limitations, payment
conditions, and forfeiture conditions applicable to any
other Award granted under the Plan shall lapse and such
Awards shall be deemed fully vested, and any Performance
Goals imposed with respect to Awards shall be deemed to be
fully achieved.
8..
(a)Nontransferability. Unless otherwise provided in an
Award Agreement, Awards shall not be transferable by a
Grantee except by will or the laws of descent and
distribution or pursuant to a qualified domestic relations
order as defined under the Code or Title I of the Employee
Retirement Income Security Act of 1974, as amended, and
shall be exercisable during the lifetime of a Grantee only
by such Grantee or his guardian or legal representative.
(b)No Right to Continued Employment, etc. Nothing in
the Plan or in any Award granted or any Award Agreement or
other agreement entered into pursuant hereto shall confer
upon any Grantee the right to continue in the employ of the
Company, any Subsidiary or any Affiliate or to be entitled
to any remuneration or benefits not set forth in the Plan or
such Award Agreement, or other agreement or to interfere
with or limit in any way the right of the Company or any
such Subsidiary or Affiliate to terminate such Grantee's
employment.
(c)Taxes. The Company or any Subsidiary or Affiliate
is authorized to withhold from any Award granted, any
payment relating to an Award under the Plan, including from
a distribution of Stock, or any other payment to a Grantee,
amounts of withholding and other taxes due in connection
with any transaction involving an Award, and to take such
other action as the Committee may deem advisable to enable
the Company and Grantees to satisfy obligations for the
payment of withholding taxes and other tax obligations
relating to any Award. This authority shall include
authority to withhold or receive Stock or other property and
to make cash payments in respect thereof in satisfaction of
a Grantee's tax obligations.
(d)Stockholder Approval; Amendment and Termination.
The Plan shall take effect on the Effective Date but the
Plan (and any grants of Awards made prior to the stockholder
approval mentioned herein) shall be subject to the requisite
approval of the stockholders of the Company, which approval
must occur within twelve (12) months of the date that the
Plan is adopted by the Board. In the event that the
stockholders of the Company do not ratify the Plan at a
meeting of the stockholders at which such issue is
considered and voted upon, then upon such event the Plan and
all rights hereunder shall immediately terminate and no
Grantee (or any permitted transferee thereof) shall have any
remaining rights under the Plan or any Award Agreement
entered into in connection herewith. The Board may at any
time and from time to time alter, amend, suspend, or
terminate the Plan in whole or in part. Notwithstanding the
foregoing, no amendment shall affect adversely any of the
rights of any Grantee, without such Grantee's consent, under
any Award theretofore granted under the Plan. Unless
earlier terminated by the Board pursuant to the provisions
of the Plan, the Plan shall terminate on the tenth
anniversary of its Effective Date. No Awards shall be
granted under the Plan after such termination date.
(e)No Rights to Awards; No Stockholder Rights. No
Grantee shall have any claim to be granted any Award under
the Plan, and there is no obligation for uniformity of
treatment of Grantees. Except as provided specifically
herein, a Grantee or a transferee of an Award shall have no
rights as a stockholder with respect to any shares covered
by the Award until the date of the issuance of a stock
certificate to him for such shares.
(f)Unfunded Status of Awards. The Plan is intended to
constitute an "unfunded" plan for incentive and deferred
compensation. With respect to any payments not yet made to
a Grantee pursuant to an Award, nothing contained in the
Plan or any Award shall give any such Grantee any rights
that are greater than those of a general creditor of the
Company.
(g)No Fractional Shares. No fractional shares of Stock
shall be issued or delivered pursuant to the Plan or any
Award. The Committee shall determine whether cash or other
Awards shall be issued or paid in lieu of such fractional
shares or whether such fractional shares or any rights
thereto shall be forfeited or otherwise eliminated.
(h)Regulations and Other Approvals.
(i) The obligation of the Company to sell or
deliver Stock with respect to any Award granted under the
Plan shall be subject to all applicable laws, rules and
regulations, including all applicable federal and state
securities laws, and the obtaining of all such approvals by
governmental agencies as may be deemed necessary or
appropriate by the Committee.
(ii)Each Award is subject to the requirement that,
if at any time the Committee determines, in its absolute
discretion, that the listing, registration or qualification
of Stock issuable pursuant to the Plan is required by any
securities exchange or under any state or federal law, or
the consent or approval of any governmental regulatory body
is necessary or desirable as a condition of, or in
connection with, the grant of an Award or the issuance of
Stock, no such Award shall be granted or payment made or
Stock issued, in whole or in part, unless listing,
registration, qualification, consent or approval has been
effected or obtained free of any conditions not acceptable
to the Committee.
(iii)In the event that the disposition of Common
Stock acquired pursuant to the Plan is not covered by a then
current registration statement under the Securities Act of
1933, as amended (the "Securities Act"), and is not
otherwise exempt from such registration, such Stock shall be
restricted against transfer to the extent required by the
Securities Act or regulations thereunder, and the Committee
may require a Grantee receiving Stock pursuant to the Plan,
as a condition precedent to receipt of such Stock, to
represent to the Company in writing that the Stock acquired
by such Grantee is acquired for investment only and not with
a view to distribution.
(i)Governing Law. The Plan and all determinations made
and actions taken pursuant hereto shall be governed by the
laws of the State of Delaware without giving effect to the
conflict of laws principles thereof.
EXHIBIT 10.34
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CNF TRANSPORTATION INC.
DEFERRED COMPENSATION PLAN FOR DIRECTORS
1998 RESTATEMENT
TABLE OF CONTENTS
Page
Preamble
Article 1 Definitions
1.1 Account Balance
1.2 Annual Deferral Amount
1.3 Beneficiary
1.4 Beneficiary Designation Form
1.5 Board
1.6 Change in Control 2
1.7 Claimant
1.8 Committee
1.9 Company
1.10 Director 3
1.11 Election Form
1.12 Fixed Date Distribution 3
1.13 Participant 3
1.14 Plan 3
1.15 Plan Entry Date 4
1.16 Plan Year
1.17 Termination Benefit
1.18 Termination of Service
1.19 Unforeseeable Financial Emergency
Article 2 Eligibility, Enrollment
2.1 Eligibility
2.2 Enrollment Requirement
2.3 Commencement of Participation
Article 3 Deferral Commitments/Returns 5
3.1 Permissible Deferrals 5
3.2 Election to Defer 5
3.3 Withholding of Deferral Amounts
3.4 Returns Prior to Distribution
3.5 Date on Which Crediting Occurs
3.6 Returns and Installment Distributions 6
3.7 Statement of Accounts
Article 4 Distribution to Participant
4.1 Fixed Date Distribution 6
4.2 Withdrawal Payout/Suspensions for
Unforeseeable
Financial Emergencies 7
4.3 Termination Benefit 7
4.4 Payment of Termination Benefit 7
Article 5 Distribution to Beneficiary 8
5.1 Payment 8
5.2 Beneficiary Designation 8
5.3 Spousal Consent 8
5.4 No Beneficiary Designation 8
5.5 Doubt as to Beneficiaries 8
5.6 Discharge of Obligations 8
Article 6 Termination, Amendment or Modification 9
6.1 Termination 9
6.2 Amendment 9
6.3 Effect of Payment 9
Article 7 Administration
7.1 Committee Duties
7.2 Agents
7.3 Binding Effect of Decisions 10
7.4 Indemnification 10
Article 8 Claims Procedures
8.1 Presentation of Claim
8.2 Notification of Decision
8.3 Review of a Denied Claim 11
8.4 Decision on Review
8.5 Legal Action
Article 9 Miscellaneous 12
9.1 Unsecured General Creditor 12
9.2 Company's Liability 12
9.3 Nonassignability 12
9.4 Furnishing Information
9.5 Captions
9.6 Governing Use
9.7 Notice 13
9.8 Successors 13
9.9 Spouse's Interest
9.10 Incompetent
9.11 Distribution in the Event of Taxation 14
9.12 Legal Fees To Enforce Rights 14
9.13 Payment of Withholding
9.14 Coordination with Other Benefits
CNF TRANSPORTATION INC.
DEFERRED COMPENSATION PLAN FOR DIRECTORS
1998 Restatement
Preamble
The purpose of this Plan is to enhance the motivational value of the
fees paid to non-employee directors, who contribute materially to the
continued growth, development and future business success of the
Company and its subsidiaries, by providing them the opportunity to
defer cash compensation. The Plan is intended to aid the Company and
its subsidiaries in attracting and retaining directors and give them an
incentive to increase the profitability of the Company and its
subsidiaries.
The Company maintains this Plan pursuant to Election Forms completed by
Directors in advance of each Plan Year. In order to provide more
complete documentation for the Plan, the Company adopts this 1998
Restatement effective January 1, 1998.
ARTICLE 1
Definitions
For purposes hereof, unless otherwise clearly apparent from the
context, the following phrases or terms shall have the following
indicated meanings:
1.1"Account Balance" means the sum of (i) the total of a
Participant's Annual Deferral Amounts, plus (ii) the return
credited in accordance with the Plan, reduced (iii) by all
distributions made in accordance with the terms and conditions of
this Plan. This account shall be a bookkeeping entry only and
shall be utilized solely as a device for the measurement and
determination of the amounts to be paid to a Participant pursuant
to this Plan.
1.2"Annual Deferral Amount" means that portion of a Participant's
annual retainer fee, meeting fees, and chair fees, if applicable,
that a Participant elects to have and is deferred, in accordance
with Article 3, for any one Plan Year. In the event of death or
Termination of Service prior to the end of a Plan Year, such
year's Annual Deferral Amount shall be the actual amount withheld
prior to such event.
1.3 "Beneficiary" means one or more persons, trusts, estates or other
entities, designated in accordance with Article 5, that are
entitled to receive benefits under this Plan upon the death of a
Participant.
1.4"Beneficiary Designation Form" means the form established from
time to time by the Committee that a Participant completes, signs
and returns to the Committee to designate one or more
Beneficiaries.
1.5"Board" means the Board of Directors of the Company.
1.6"Change in Control" means a change in control of the Company,
which will be deemed to have occurred if:
(a) any "person," as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934 (the "Exchange
Act") (other than (A) the Company, (B) any trustee or other
fiduciary holding securities under an employee benefit plan of
the Company, and (C) any corporation owned, directly or
indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of the
outstanding common stock of the Company), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the
Company (not including in the securities beneficially owned by
such person any securities acquired directly from the Company
or its Affiliates) representing 25% or more of the combined
voting power of the Company's then outstanding voting
securities;
(b) the following individuals cease for any reason to
constitute a majority of the number of directors then serving:
individuals who, on January 27, 1997, constitute the Board and
any new director (other than a director whose initial
assumption of office is in connection with an actual or
threatened election contest, including but not limited to a
consent solicitation, relating to the election of directors of
the Company) whose appointment or election by the Board or
nomination for election by the Company's stockholders was
approved or recommended by a vote of at least two-thirds (2/3)
of the directors then still in office who either were
directors on January 27, 1997 or whose appointment, election
or nomination for election was previously so approved or
recommended;
(c) there is consummated a merger or consolidation of the
Company or any direct or indirect subsidiary of the Company
with any other corporation, other than (A) a merger or
consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being
converted into voting securities of the Company or such
surviving or parent entity outstanding immediately after such
merger or consolidation or (B) a merger or consolidation
effected to implement a recapitalization of the Company (or
similar transaction) in which no "person" (as hereinabove
defined), directly or indirectly, acquired 25% or more of the
combined voting power of the Company's then outstanding
securities (not including in the securities beneficially owned
by such person any securities acquired directly from the
Company or its "affiliates," as defined in Rule 12b-2
promulgated under Section 12 of the Exchange Act); or
(d) the stockholders of the Company approve a plan of
complete liquidation of the Company or there is consummated an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets (or any transaction
having a similar effect), other than a sale or disposition by
the Company of all or substantially all of the Company's
assets to an entity, at least 50% of the combined voting power
of the voting securities of which are owned by stockholders of
the Company in substantially the same proportions as their
ownership of the Company immediately prior to such sale.
1.7"Claimant" means any Participant or Beneficiary of a deceased
Participant who makes a claim for determination under Section
8.1.
1.8"Committee" means the Director Affairs Committee of the Board
or its delegates.
1.9"Company" means CNF Transportation Inc., a Delaware
corporation.
1.10"Director" means a member of the Board.
1.11"Election Form" means the form established from time to time
by the Committee that a Participant completes, signs and returns
to the Committee to make an election under the Plan.
1.12"Fixed Date Distribution" means a distribution of an Annual
Deferral Amount, plus returns credited in accordance with Section
3.4, on a future January specified by the Participant in
accordance with Section 4.1.
1.13"Participant" for any Plan Year means any Director who
commences participation in accordance with Article 2.
1.14"Plan" means the Company's Deferred Compensation Plan for
Directors, evidenced by this instrument, as amended from time to
time.
1.15 "Plan Entry Date" means January 1 of each Plan Year.
1.16"Plan Year" means the period beginning on January 1 of each
year and continuing through December 31 of that year.
1.17"Termination Benefit" means the benefit set forth in Section
4.3.
1.18"Termination of Service" means cessation of membership on the
Board for any reason.
1.19"Unforeseeable Financial Emergency" means an unanticipated
emergency that is caused by an event beyond the control of the
Participant that would result in severe financial hardship to the
Participant resulting from (i) a sudden and unexpected illness or
accident of the Participant or a dependent of the Participant,
(ii) a loss of the Participant's property due to casualty, or
(iii) such other extraordinary and unforeseeable circumstances
arising as a result of events beyond the control of the
Participant, all as determined in the sole discretion of the
Committee.
ARTICLE 2
Eligibility, Enrollment
2.1Eligibility. Participation in the Plan shall be limited to
Directors who are not employed by the Company or any member of
the Company's controlled group of corporations.
.
2.2Enrollment Requirement. The Committee shall establish from
time to time such enrollment requirements as it determines in its
sole discretion are necessary.
2.3Commencement of Participation. Provided a Director has met
all enrollment requirements set forth by the Committee, the
Director may commence participation in the Plan on the Plan Entry
Date that immediately follows the Director's election to
participate in the Plan.
ARTICLE 3
Deferral Commitments/Returns
3.1Permissible Deferrals. A Participant may elect to defer for
each Plan Year either of the following:
(a) Minimum. The annual retainer portion of the
Participant's Director fees payable in the Plan Year.
(b)Maximum. The annual retainer and all meeting fees, plus all
chair fees, if applicable, payable in the Plan Year.
3.2Election to Defer. The Participant shall make a deferral
election by delivering to the Committee a completed and signed
Election Form prior to the intended Plan Entry Date. For each
succeeding Plan Year, a new Election Form must be delivered to
the Committee, in accordance with the rules set forth above. If
the Election Form is not delivered prior to the Plan Entry Date
for a Plan Year, no Annual Deferral Amount shall be deferred for
that Plan Year.
3.3Withholding of Deferral Amounts. For each Plan Year, the
Annual Deferral Amount shall be withheld at the time or times the
Participant's Director fees otherwise would be paid to the
Participant.
3.4Returns Prior to Distribution. Prior to any distribution of
benefits under Articles 4 or 5, returns shall be credited to a
Participant's Account Balance and compounded quarterly on a
Participant's Account Balance for each Plan Year as though the
Annual Deferral Amount for that Plan Year was withheld on the
Participant's Plan Entry Date. The rate of return on the Account
Balance shall be the published prime rate of the Bank of America
N.T. & S. A. as of the last day of each calendar quarter. In the
event of death or a Termination of Service prior to the end of a
calendar quarter, that calendar quarter's return will be
calculated using a fraction of a full calendar quarter's return,
based on the number of days the Participant was a Director during
the calendar quarter prior to the occurrence of such event.
3.5Date on Which Crediting Occurs. Account Balances will be
credited with returns in accordance with Section 3.4 up to the
date of distribution for a lump sum payment and up to the first
date of distribution for installment payments. For purposes of
crediting subsequent returns in the event that installment
payments are made, the Account Balance shall be reduced as of the
day on which the distribution is made.
3.6 Returns and Installment Distributions. In the event a benefit
is paid in installments, a Participant's unpaid Account Balance
shall be credited as follows:
(a) Crediting. As of the last day of each calendar quarter,
the undistributed Account Balance shall be credited with a
return equal to the published prime rate of the Bank of
America N.T. & S. A. as of the last day of such calendar
quarter. Returns shall start to accrue under this Section 3.6
as of the date that returns cease to accrue under Section 3.4
above.
(b) Installments. The installment payments shall be
determined by dividing the Participant's Account Balance at
the time of the commencement of the installment payments by
the number of payments over the installment period. Each
payment determined above will be considered the principal
portion of the installment payment. In addition, each
installment payment will include a return calculated for the
preceding year using the rate determined in Section 3.6(a)
above. Installment payments shall commence in the January
following such Participant's Termination of Service. All
additional installment payments shall be paid in January of
succeeding years.
3.7Statement of Accounts. The Committee shall send to each
Participant, within 120 days after the close of each Plan Year, a
statement in such form as the Committee deems desirable setting
forth the amount of the Participant's Account Balance.
ARTICLE 4
Distribution to Participant
4.1Fixed Date Distribution.
(a)In connection with each election to defer an Annual Deferral
Amount, a Participant may, subject to (b), elect to receive a
distribution from the Plan with respect to that Annual
Deferral Amount in a January one or more years after the Plan
Year of deferral and prior to Termination of Service. This
Fixed Date Distribution shall be an amount that is equal to
the sum of the Annual Deferral Amount and returns credited in
accordance with Section 3.4 above. The year in which the
Fixed Date Distribution is made or commences shall be elected
at the time of the election to defer the Annual Deferral
Amount and shall not be changed. The Fixed Date Distribution
shall be paid in a lump sum or annual installments over a
period of up to five years, as determined in accordance with
the rules in Section 4.4.
(b)If a Participant who has elected one or more Fixed Date
Distributions has a Termination of Service before the start of
the Plan Year preceding the January chosen by the Participant
for such Fixed Date Distribution to be made or commence, the
Participant's Account Balance shall be paid at the time and in
the form elected by the Participant in accordance with Section
4.4 and not as the Fixed Date Distribution.
4.2Withdrawal Payout/Suspensions for Unforeseeable Financial
Emergencies. If the Participant experiences an Unforeseeable
Financial Emergency, the Participant may petition the Committee
to (i) suspend any deferrals required to be made by a Participant
and/or (ii) receive a partial or full payout from the Plan. The
Committee may, in its sole discretion, accept or deny such
petition. Any payout shall not exceed the lesser of the
Participant's Account Balance or the amount reasonably needed to
satisfy the Unforeseeable Financial Emergency. The suspension
shall continue for such period of time and/or the reinstatement
of deferrals shall occur at a date, as specified by the
Committee, in its sole discretion. If the petition for a
suspension and/or payout is approved, suspension shall take
effect upon the date of approval and any payout shall be made
within 60 days of the date of approval.
4.3Termination Benefit. Upon a Participant's Termination of
Service, the Participant shall receive a Termination Benefit
which shall be equal to the Participant's Account Balance
determined as of the date of the Termination of Service.
4.4Payment of Termination Benefit. A Participant may elect on
the Election Form prior to the beginning of each Plan Year to
receive the Termination Benefit for such Plan Year in a lump sum
or in annual installments over a period of up to five years. The
lump sum payment or the first installment shall be made in
January of the year following the Plan Year in which the
Termination of Service occurs. For purposes of payment, the
Participant's Account Balance shall be divided into subaccounts,
one for each form elected by the Participant. Notwithstanding
the foregoing, payment shall be made in a lump sum as follows in
lieu of any different form provided on the Election Form then in
effect:
(a)If the Participant incurs a Termination of Service within one
year after a Change in Control, the Termination Benefit shall
be paid in a lump sum within 20 days of the Termination of
Service.
(b)If the Participant's Termination Benefit is under $25,000 on
the date of Termination of Service, such portion shall be paid
in a lump sum to the Participant in the January following the
Plan Year of Termination of Service.
ARTICLE 5
Distribution to Beneficiary
5.1Payment. If a Participant dies with an Account Balance, the
total Account Balance shall be paid to the Participant's
Beneficiary within 90 days after the date of death.
5.2Beneficiary Designation. A Participant shall designate a
Beneficiary by completing and signing the Beneficiary Designation
Form, and submitting it to the Committee. A Participant shall
have the right to change a Beneficiary at any time without the
consent of the Beneficiary, by completing, signing and otherwise
complying with the terms of the Beneficiary Designation Form and
the Committee's rules and procedures, as in effect from time to
time. Upon the receipt by the Committee of a new Beneficiary
Designation Form, all Beneficiary designations previously filed
shall be canceled. The Committee shall be entitled to rely on
the last Beneficiary Designation Form filed by the Participant
with the Committee prior to death.
5.3Spousal Consent. A married Participant's designation of
someone other than the Participant's spouse as primary
beneficiary shall not be effective unless the spouse executes a
consent in writing that acknowledges the effect of the
designation and is witnessed by a plan representative or notary
public. No consent is required if it is established to the
satisfaction of the Committee that consent cannot be obtained
because the spouse cannot be located.
5.4No Beneficiary Designation. If a Participant fails to
designate a Beneficiary as provided above, the Participant's
designated Beneficiary shall be deemed to be the surviving
spouse. If the Participant has no surviving spouse, the benefits
otherwise payable to a Beneficiary shall be paid to the
Participant's estate.
5.5Doubt as to Beneficiaries. If the Committee has any doubt as
to the proper Beneficiary to receive payments pursuant to this
Plan, the Committee shall have the right, exercisable in its
discretion, to withhold such payments until the matter is
resolved to the Committee's satisfaction, and/or to require
indemnification.
5.6Discharge of Obligations. The payment of benefits under the
Plan to a Participant or Participant's Beneficiary shall fully
and completely discharge the Company from all obligations under
this Plan with respect to the deceased Participant,
Beneficiaries, and any others that may be entitled to such
benefits.
ARTICLE 6
Termination, Amendment or Modification
6.1Termination. The Company reserves the right to terminate the
Plan at any time. Prior to a Change in Control, the Committee
shall have the right, at its sole discretion, and notwithstanding
any elections made by the Participant to pay the then outstanding
Account Balance in a lump sum. After a Change in Control the
Company shall be required to pay such benefits in a lump sum.
6.2Amendment. The Board may, at any time, amend or modify the
Plan in whole or in part, provided, however, that no amendment or
modification shall decrease or restrict a Participant's Account
Balance at the time the amendment or modification is made,
calculated as if the Participant had experienced a Termination of
Service as of the effective date of the amendment or
modification. The amendment or modification of the Plan shall
not affect the payment of benefits to any Participant or
Beneficiary who has become entitled to the payment of benefits
under the Plan as of the date of the amendment or modification.
6.3Effect of Payment. The full payment of the applicable
benefit under Articles 4 or 5 of the Plan shall completely
discharge all obligations to a Participant under this Plan.
ARTICLE 7
Administration
7.1Committee Duties. This Plan shall be administered by the
Committee or its delegates. The Committee shall also have the
discretion and authority to make, amend, interpret, and enforce
all appropriate rules and regulations for the administration of
this Plan and decide or resolve any and all questions including
interpretations of this Plan, as may arise in connection with the
Plan. A majority of the Committee shall constitute a quorum and
a majority of the members present at any meeting at which a
quorum is present or acts approved in writing or in a telephone
meeting by all of the members shall constitute a decision by the
entire Committee.
7.2Agents. In the administration of this Plan, the Committee
may, from time to time, delegate to such persons as it deems
appropriate such administrative duties as it sees fit and may
from time to time consult with counsel who may be counsel to the
Company or a subsidiary.
7.3Binding Effect of Decisions. The decision or action of the
Committee with respect to any question arising out of or in
connection with the administration, interpretation and
application of the Plan and the rules and regulations promulgated
hereunder shall be final and conclusive and binding upon all
persons having any interest in the Plan.
7.4Indemnification. The Company shall indemnify and hold harmless
the named fiduciaries and any officers or employees of the
Company and its subsidiaries to which fiduciary responsibilities
have been delegated from and against any and all liabilities,
claims, demands, costs and expenses including attorneys fees,
arising out of an alleged breach in the performance of their
fiduciary duties under the Plan and ERISA, other than such
liabilities, claims, demands, costs and expenses as may result
from the gross negligence or willful misconduct of such person.
The Company shall have the right, but not the obligation, to
conduct the defense of such person in any proceeding to which
this paragraph applies.
ARTICLE 8
Claims Procedures
8.1Presentation of Claim. Any Participant or Beneficiary of a
deceased Participant may deliver to the Committee a written claim
for a determination with respect to the amounts distributable to
such Claimant from the Plan. If such a claim relates to the
contents of a notice received by the Claimant, the claim must be
made within 60 days after such notice was received by the
Claimant. All other claims must be made within 180 days of the
date on which the event that caused the claim to arise occurred.
The claim must state with particularity the determination desired
by the Claimant.
8.2Notification of Decision. The Committee shall consider a
Claimant's claim within a reasonable time, and shall notify the
Claimant in writing:
(a) that the Claimant's requested determination has been
made, and that the claim has been allowed in full; or
(b) that the Committee has reached a conclusion contrary, in
whole or in part, to the Claimant's requested determination,
and such notice must set forth in a manner calculated to be
understood by the Claimant:
(i) the specific reason(s) for the denial of the claim, or
any part of it;
(ii) specific reference(s) to pertinent provisions
of the Plan upon which such denial was based;
(iii) a description of any additional material or
information necessary for the Claimant to clarify or
perfect the claim, and an explanation of why such
material or information is necessary; and
(iv) an explanation of the claim review procedure
set forth in Section 13.3 below.
8.3Review of a Denied Claim. Within 60 days after receiving a
notice from the Committee that a claim has been denied, in whole
or in part, a Claimant (or the Claimant's duly authorized
representative) may file with the Committee a written request for
a review of the denial of the claim. Thereafter, but not later
than 30 days after the review procedure began, the Claimant (or
the Claimant's duly authorized representative):
(a) may review pertinent documents;
(b) may submit written comments or other documents; and/or
(c) may request a hearing, which the Committee, in its sole
discretion, may grant.
8.4Decision on Review. The Committee shall render its decision
on review promptly, and not later than 60 days after the filing
of a written request for review of the denial, unless a hearing
is held or other special circumstances require additional time,
in which case the Committee's decision must be rendered within
120 days after such date. Such decision must be written in a
manner calculated to be understood by the Claimant and it must
contain:
(a) specific reasons for the decision;
(b) specific reference(s) to the pertinent Plan provisions
upon which the decision was based; and
(c) such other matters as the Committee deems relevant.
8.5Legal Action. A Claimant's compliance with the foregoing
provisions of this Article 13 is a mandatory prerequisite to a
Participant's right to commence any legal action with respect to
any claim for benefits under this Plan.
ARTICLE 9
Miscellaneous
9.1Unsecured General Creditor. Participants and their
Beneficiaries, heirs, successors and assigns shall have no legal
or equitable rights, interest or claims in any property or assets
of the Company. Any and all of the Company's assets shall be,
and remain, its general, unpledged and unrestricted assets. The
Company's obligation under the Plan shall be merely that of an
unfunded and unsecured promise to pay money in the future.
9.2Company's Liability. Amounts payable to a Participant or
Beneficiary under this Plan shall be paid from the general assets
of the Company (including without limitation assets of any trust
established to fund payment of obligations hereunder)
exclusively.
9.3Nonassignability. Neither a Participant nor any other person
shall have the right to commute, sell, assign, transfer, pledge,
anticipate, mortgage or otherwise encumber, transfer, hypothecate
or convey in advance of actual receipt the amounts, if any,
payable hereunder, or any part thereof, which are, and all rights
to which are expressly declared to be unassignable and non-
transferable, except that the foregoing shall not apply to any
family support obligations set forth in a court order. No part
of the amounts payable shall, prior to actual payment, be subject
to seizure or sequestration for the payment of any debts,
judgments, alimony or separate maintenance owed by a Participant
or any other person, nor be transferable by operation of law in
the event of a Participant's or any other person's bankruptcy or
insolvency.
9.4Furnishing Information. A Participant will cooperate with the
Committee by furnishing any and all information requested by the
Committee and take such or actions as may be requested in order
to facilitate the administration of the Plan and the payments of
benefits hereunder, including but not limited to taking such
physical examinations as Committee may deem necessary.
9.5Captions. The captions of the articles, sections and
paragraphs of this Plan are for convenience only and shall not
control or affect the meaning or construction of any of its
provisions.
9.6Governing Use. The provisions of this Plan shall be construed
and interpreted according to the laws of the State of California.
9.7Notice. Any notice or filing required or permitted to be
given to the Committee under this Plan shall be sufficient if in
writing and hand-delivered, or sent by registered or certified
mail, return receipt requested, to:
CNF Transportation Inc.
Director Affairs Committee
Deferred Compensation Plan for Directors
3240 Hillview Avenue
Palo Alto, California 94304
Such notice shall be deemed given as of the date of delivery or,
if delivery is made by mail, as of the date shown on the postmark
on the receipt for registration or certification.
Any notice or filing required or permitted to be given to a
Participant under this Plan shall be sufficient if in writing and
hand-delivered, or sent by mail, to the last known address of the
Participant.
9.8Successors. The provisions of this Plan shall be binding upon
and inure to the benefit of the Company and its successors and
assigns and the Participant, the Participant's Beneficiaries, and
their permitted successors and assigns.
9.9Spouse's Interest. The interest in the benefits hereunder of
a spouse of a Participant who has predeceased the Participant
shall automatically pass to the Participant and shall not be
transferable by such spouse in any manner, including but not
limited to such spouse's will, nor shall such interest pass under
the laws of intestate succession.
9.10Incompetent. If the Committee determines in its discretion
that a benefit under this Plan is to be paid to a minor, a person
declared incompetent or to a person incapable of handling the
disposition of that person's property, the Committee may direct
payment of such benefit to the guardian, legal representative or
person having the care and custody of such minor, incompetent or
incapable person. The Committee may require proof of minority,
incompetency, incapacity or guardianship, as it may deem
appropriate and/or such indemnification of the Committee and the
Company and security, as it deems appropriate, in its sole
discretion, prior to distribution of the benefit. Any payment of
a benefit shall be a payment for the account of the Participant
and the Participant's Beneficiary, as the case may be, and shall
be a complete discharge of any liability under the Plan for such
payment amount.
9.11Distribution in the Event of Taxation. If, for any reason,
all or any portion of a Participant's benefit under this Plan
becomes taxable to the Participant prior to receipt, a
Participant may petition the Committee for a distribution of
assets sufficient to meet Participant's tax liability (including
additions to tax, penalties and interest). Upon the grant of
such a petition, which grant shall not be unreasonably withheld,
the Company shall distribute to the Participant immediately
available funds in an amount equal to that Participant's federal,
state and local tax liability associated with such event of
taxation (which amount shall not exceed a Participant's accrued
benefit under the Plan), such tax liability shall be measured by
using that Participant's then current highest federal, state and
local marginal tax rate, plus the rates or amounts for the
applicable additions to tax, penalties and interest. If the
petition is granted, the tax liability distribution shall be made
within 90 days of the date when the Participant's petition is
granted. Such a distribution shall reduce the benefits to be
paid under this Plan.
9.12Legal Fees To Enforce Rights. If the Company has failed to
comply with any of its obligations under the Plan or any
agreement thereunder or, if the Company or any other person takes
any action to declare the Plan void or unenforceable or
institutes any litigation or other legal action designed to deny,
diminish or to recover from any Participant the benefits intended
to be provided, then the Company irrevocably authorizes such
Participant to retain counsel chosen by the Participant and
agrees to pay reasonable legal fees and expenses of the
Participant incurred in connection with the initiation or defense
of any litigation or other legal action, whether by or against
the Company, or any director, officer, shareholder or other
person affiliated with the Company, or any successor thereto in
any jurisdiction, provided that such Participant prevails in such
action.
9.13Payment of Withholding. As a condition of receiving benefits
under the Plan, the Participant shall pay the Company not less
than the amount of all applicable federal, state, local and
foreign taxes required by law to be paid or withheld relating to
the receipt or entitlement to benefits hereunder. The Company
may withhold taxes from any benefits paid and/or from Directors
fees, in its sole discretion.
9.14Coordination with Other Benefits. The benefits provided for
a Participant and Participant's Beneficiary under the Plan are in
addition to any other benefits available to such Participant
under any other plan or program for Directors. The Plan shall
supplement and shall not supersede, modify or amend any other
such plan or program except as may otherwise be expressly
provided. In no event shall distributions under the Plan prior
to Termination of Service have the effect of increasing payments
otherwise due under the various retirement plans of the Company
and its subsidiaries.
IN WITNESS WHEREOF, the Company has signed this Restatement as
of January 28, 1998.
CNF TRANSPORTATION INC.
/s/Eberhard G.H. Schmoller
By: Eberhard G.H. Schmoller
Its: Senior Vice President, General
Counsel and Secretary
<TABLE> Exhibit 12(a)
CNF TRANSPORTATION INC.
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
<CAPTIONS>
Year Ended December 31,
1997 1996 1995 1994 1993
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Fixed Charges:
Interest Expense $ 39,553 $ 39,766 $ 33,407 $ 27,065 $ 29,890
Capitalized Interest 2,077 2,092 731 793 531
Preferred Dividends 12,377 12,645 12,419 12,475 12,551
Total Interest 54,007 54,503 46,557 40,333 42,972
Interest Component of
Rental Expense (1) 35,607 28,521 29,210 28,776 27,832
Fixed Charges 89,614 83,024 75,767 69,109 70,804
Less:
Capitalized Interest 2,077 2,092 731 793 531
Preferred Dividends 12,377 12,645 12,419 12,475 12,551
Net Fixed Charges $ 75,160 $ 68,287 $ 62,617 $ 55,841 $ 57,722
Earnings:
Income from continuing
operations before Taxes $221,814 $147,132 $152,942 $165,129 $ 66,202
Add: Net Fixed
Charges 75,160 68,287 62,617 55,841 57,722
Total Earnings $296,974 $215,419 $215,559 $220,970 $123,924
Ratio of Earnings to
Fixed Charges:
Total Earnings $296,974 $215,419 $215,559 $220,970 $123,924
Fixed Charges (2) 89,614 83,024 75,767 69,109 70,804
Ratio 3.3 x 2.6 x 2.8 x 3.2 x 1.8 x
<FN>
(1) Prior years have been restated for change in method of computing interest component of rental expense.
(2) Fixed Charges represent interest on capital leases and short-term and long-term debt, capitalized interest,
dividends on shares of the Series B Cumulative Convertible Preferred Stock used to pay debt service on notes
issued by the Company's Thrift and Stock Plan (the "TASP"), and the applicable portion of the consolidated rent
expense which approximates the interest portion of lease payments.
</FN>
</TABLE>
<TABLE> Exhibit 12(b)
<CAPTIONS>
CNF TRANSPORTATION INC.
COMPUTATION OF RATIOS OF EARNINGS
TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Year Ended December 31,
1997 1996 1995 1994 1993
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Fixed Charges:
Interest Expense $ 39,553 $ 39,766 $ 33,407 $ 27,065 $ 29,890
Capitalized Interest 2,077 2,092 731 793 531
Dividend requirement on preferred
securities of subsidiary trust 3,471 - - - -
Preferred Dividends 12,377 12,645 12,419 12,475 12,551
Total Interest and Dividends 57,478 54,503 46,557 40,333 42,972
Interest Component of
Rental Expense (1) 35,607 28,521 29,210 28,776 27,832
Fixed Charges 93,085 83,024 75,767 69,109 70,804
Less:
Capitalized Interest 2,077 2,092 731 793 531
Preferred Dividends 12,377 12,645 12,419 12,475 12,551
Net Fixed Charges $ 78,631 $ 68,287 $ 62,617 $ 55,841 $ 57,722
Earnings:
Income from continuing
operations before Taxes $221,814 $147,132 $152,942 $165,129 $ 66,202
Add: Net Fixed
Charges 78,631 68,287 62,617 55,841 57,722
Total Earnings $300,445 $215,419 $215,559 $220,970 $123,924
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends:
Total Earnings $300,445 $215,419 $215,559 $220,970 $123,924
Combined Fixed Charges and
Preferred Stock Dividends (2) 93,085 83,024 75,767 69,109 70,804
Ratio 3.2 x 2.6 x 2.8 x 3.2 x 1.8 x
<FN>
(1) Prior years have been restated for change in method of computing interest component of rental expense.
(2) Fixed Charges represent interest on capital leases and short-term and long-term debt, capitalized interest,
dividends on shares of the Series B Cumulative Convertible Preferred Stock used to pay debt service on notes
issued by the Company's Thrift and Stock Plan (the "TASP"), dividends on the preferred securities of a
subsidiary trust and the applicable portion of the consolidated rent expense which approximates the
interest portion of lease payments.
</FN>
</TABLE>
EXHIBIT 13
----------
<PAGE 18>
CNF Transportation Inc.
1997 Annual Report
Financial Review and Management Discussion
The Company's total operating income for 1997 was a
record $264.9 million, representing a 37.9% increase over
1996. Aided by a strong economy, the increase resulted
primarily from significant operating income improvements
from the Con-Way Transportation Services (CTS) and Emery
segments and from Menlo Logistics, which is reported in the
Other segment. Additionally, management believes that
marketing strategies emphasizing a more profitable service
mix, optimization of existing transportation systems,
incentive plans based on operating margins and cost
reduction strategies contributed to the operating margin
improvement. Partially offsetting the improved 1997 results
were losses, primarily in the fourth quarter, from the start-
up phase of the Priority Mail contract awarded April 1997.
The Company's 1996 operating income was $192.1 million,
representing a 2.9% increase over 1995 and came primarily
from higher operating income at CTS and the Other segment,
despite severe weather conditions at the start of 1996 and
higher fuel prices.
Total Company revenues for 1997, also a record at $4.27
billion, increased 16.5% over the previous record achieved
in 1996. Significant increases came from Emery, Menlo and
the CTS regional carriers, which make up most of the CTS
segment. A minor revenue increase from the Priority Mail
contract, which occurred primarily in the fourth quarter,
was reported among the three reporting segments based on the
service provided. The Company's revenues in 1996 increased
11.3% over 1995, reflecting increased revenues at all three
of the Company's segments.
Operating results for 1996 and 1995 reflect the results of
Consolidated Freightways Corporation, the Company's former
long-haul, less-than-truckload (LTL) carrier, which was spun
off to shareholders on December 2, 1996, as a discontinued
operation.
Con-Way Transportation Services
Due to an increase in tonnage levels and revenue per hundred-
weight, CTS's 1997 revenues increased 14.0% to another
record compared to 1996. Total regional carrier tonnage for
1997 was 9.3% above 1996 with LTL tonnage up 9.7%. Adding to
these volume increases were generally higher rates, as average
revenue per hundred-weight was up about 5 percent compared
to 1996. The increased rates were partially attributed to
marketing of the premium service mix and the expansion into joint
services among CTS regional carriers. The volume increases
were attributed in part to the strong economic conditions,
demand for premium regional service, increased business from
prior years' geographic expansions and market share gains.
CTS revenues for 1996 increased 12.1% over 1995 on a tonnage
increase of 7.8% with LTL tonnage up 5.9%. Revenues for the
first quarter of 1996 were adversely affected by severe
winter weather.
CTS reported a significant increase in operating income,
45.6% above 1996. Several factors contributed to this
increase, including higher revenues from premium, more
profitable services and more efficient utilization of
capacity in the expanded regions. Also contributing were
increased density and load factor throughout the system.
Partially offsetting these improvements was a $5.0 million
charge for costs from the discontinuance
of a rail container service. CTS's operating margin
increased significantly in 1997 to 10.0% from 7.8% in 1996.
Operating income at CTS in 1996 increased 4.6% over 1995.
While the first half of 1996 was affected by costs of winter
storms and higher fuel costs, results improved steadily in
the third and fourth quarters.
Emery Worldwide
Emery revenues for 1997 increased 15.5% over 1996, exceeding
$2 billion for the first time. International commercial
revenues increased 16.0% and domestic revenue was up 12.5%.
Tonnage increases for the same international and domestic
services were 13.7% and 9.8%, respectively, indicating
relatively stable average annual rates compared with last
year for the respective markets. Emery's 1996 revenues
increased 11.4% over 1995, brought about by both domestic
and international revenue growth.
Emery's operating income for 1997 increased to a record
$109.3 million, a 39.4% increase over 1996.
The improved results reflect the benefits of the revenue
growth, especially international, combined with limited
benefits from the mix of premium services, the
implementation of geographic zone-based rates in North
America, benefits from the UPS strike, and continued cost
control strategies. These increases to operating income more
than offset higher
<PAGE 19>
information systems costs in 1997. Operating income was
4.1% lower in 1996 compared to 1995, partially due to higher
fuel costs and costs of developing information systems.
Emery's results of operations for the first two months of
1998 have been adversely affected by less than planned
revenues. Emery management has efforts under way to improve
operating efficiencies and capacity. These efforts include a
redesign and upgrade of the freight sortation center located
at the Dayton Hub to provide approximately 30% greater
capacity, which is estimated to be completed in the year
2000 at a cost of approximately $56 million. In addition,
Emery is seeking to improve operating efficiency with recent
openings of new international distribution centers for Latin
America and Asia and plans to add up to five wide-body
aircraft to the fleet.
On April 23, 1997, Emery Worldwide Airlines (EWA), a
subsidiary of the Company, was awarded a multi-year contract
with the U.S. Postal Service (USPS) to provide Priority Mail
sortation and transportation. The USPS has indicated that
the Company could receive revenues of approximately $1.7
billion over the initial term of the contract. However, the
foregoing amount is subject to a number of uncertainties and
assumptions, and there can be no assurance that the revenues
realized by the Company will not be less than this amount.
The initial term of the contract ends in February 2002,
although the contract may be renewed by the USPS for two
successive three-year terms.
The Priority Mail contract calls for the Company to obtain,
equip and fully staff ten Priority Mail processing centers
in major metropolitan areas along the eastern seaboard. Five
of the processing centers were fully operational by November
15, 1997, and the remaining five
are scheduled to be fully operational by the end of the
second quarter of 1998. The first five processing centers
were operational within the prescribed time frame. The
Company must pay liquidated damages if the remaining centers
are not operational on time.
As of December 31, 1997, the Company had incurred $64.2
million of an estimated $120 million of capital expenditures
associated with the new contract. Also, the Company expects
to capitalize approximately $25 million for other associated
contract costs, of which approximately $20 million was
capitalized as of December 31, 1997.
Other Operations
The Other reporting segment consists primarily of the
commercial operations of Menlo Logistics, Road Systems,
VantageParts and the sortation operations of the Priority
Mail contract. Revenues in 1997 increased 29.7% over the
prior year primarily due to a 26.9% increase in revenues
from Menlo. The remaining increase was due primarily to
revenues in the fourth quarter of 1997 from the sortation
operation of the Priority Mail contract.
Operating income for the Other segment was down 34.0% from
1996 as a result of losses incurred by the sortation
operations during the start-up phase of the Priority Mail
contract. However, Menlo's commercial operations reported a
71.4% increase in operating income for the year to reach
$17.2 million. Menlo's improvement partially resulted from
an increased mix of integrated solution projects that
produced higher margins than 1996 and 1995, when the share
of carrier management services was higher.
Other Income (Expense)
Other expense in 1997 decreased 4.4% from 1996.
Interest expense remained fairly constant in 1997 and 1996
as a result of similar levels of short-term borrowings in
the second half of 1996 and the first half of 1997. Short-
term borrowings were paid off in June 1997 with proceeds
from the issuance of the preferred securities of the
subsidiary trust (TECONS). The TECONS resulted in increased
expenses for the dividend requirement that were partially
offset by income from temporarily invested proceeds. Other
expense in 1996 increased 33.4% from 1995 as a result of
interest expense on increased short-term borrowings and
losses from write-offs and sales of non-operating assets.
Income Taxes
The effective tax rate of 45.5%, the same for both 1997 and
1996, reflecting comparable levels of non-deductible items
and taxes incurred in other jurisdictions. The 1996 rate,
compared to a tax rate of 43.6% in 1995, was attributable to
a higher proportion of other non-deductible items.
<PAGE 20>
Net Income
Net income from continuing operations of $113.0 million for
1997, including the preferred dividends, was 57.8% above
1996 as a result of the significant increase in operating
income. Net income available to common shareholders in 1997
was up $94.0 million over the prior year due to both the
increased net income from continuing operations and the
$52.6 million loss from discontinued operations in 1996. Net
income from continuing operations for 1996 decreased 5.1%
from 1995 as a result of the increase in other expense and
the higher effective tax rate. Dividends on preferred stock
of the Company in 1996 decreased 20.4% from 1995 due to the
absence of dividends from the Series C preferred stock that
converted to common stock in March 1995.
Liquidity and Capital Resources
In 1997, the Company's cash and cash equivalents increased
$15.5 million to $97.6 million. Cash was provided primarily
by cash flow from operations of $276.7 million, net proceeds
of $121.4 million from issuance of the TECONS and $41.5
million from the proceeds of exercised stock options. Cash
provided by these sources was used primarily to fund capital
expenditures of $242.3 million, net debt repayments of
$157.0 million and dividend payments of $29.8 million.
Cash flow from operations in 1997 increased $70.9 million
over 1996. The increase was primarily due to higher net
income, depreciation and amortization and deferred income
taxes. The combined change in the working capital accounts
and remaining items in operating activities used $7.5
million of cash in 1997 whereas the net change in the same
items in the prior year provided $31.8 million.
Capital expenditures of $242.3 million for the year ended
1997 increased $41.5 million compared to 1996 with a large
portion of the 1997 increase coming in the fourth quarter.
Of the capital expenditures for the year ended 1997, $64.2
million related to the new Priority Mail contract. The
remaining capital expenditures of the estimated $120 million
for the Priority Mail contract are expected to occur in the
first half of 1998.
Proceeds from the exercise of stock options in 1997 provided
$41.5 million compared with $1.9 million in 1996. Payments
of preferred and common dividends were $29.8 million and
$29.9 million for the years 1997 and 1996, respectively.
During 1997, the Company reduced debt by $157.0 million
including full repayment of $155.0 million borrowed under
unsecured lines of credit. In the prior year, borrowings
under the unsecured lines of credit increased $105 million
and repayments of debt totaled $2.4 million. The net debt
repayments in 1997 were funded primarily from operating cash
flow and net proceeds of $121.4 million from the issuance of
the TECONS, which were applied to temporarily reduce debt
pending application of such proceeds to pay costs associated
with the Priority Mail contract.
In December 1997, the Company, through its air freight
subsidiaries, entered into an agreement to deliver Series A
City of Dayton, Ohio refinancing bonds with a rate of
5.625%. The $46 million in bonds will bear this rate when
delivered on October 1, 1998 and will become due in 2018.
The Company's ratio of total debt to total capital decreased
to 37.9% at December 31, 1997, from 55.6% at December 31,
1996. The improvement resulted primarily from the issuance
of the TECONS, repayment of short-term borrowings, net
income and exercises of stock options. The current ratio was
1.3 to 1 at December 31, 1997, compared to 1.0 to 1 at
December 31, 1996.
At December 31, 1997, letters of credit of $104.8 million
were outstanding under the Company's $350 million unsecured
credit facility, leaving $245.2 million available for
additional borrowings and letters of credit. Under several
other unsecured letter of credit facilities, the Company had
outstanding letters of credit of $68.3 million at December
31, 1997, leaving $16.7 million available. In addition,
the Company had available $75.0 million of capacity under
other short-term uncommitted borrowing lines, none of which
was drawn.
Other Items
The Company is currently replacing or modifying certain
information systems to address year 2000 issues, but is
unable to predict with certainty the total costs of
addressing these issues. However, the Company currently
estimates that expenditures for year 2000 compliance will
total approximately $28 million. These costs represent
expenditures in addition to normal systems replacement and
maintenance.
<PAGE 21>
Management Report on Responsibility for Financial
Reporting
The management of CNF Transportation Inc. has prepared the
accompanying financial statements and is responsible for
their integrity. The statements were prepared in accordance
with generally accepted accounting principles, after giving
consideration to materiality, and are based on management's
best estimates and judgments. The other financial
information in the annual report is consistent with the
financial statements.
Management has established and maintains a system of
internal control. Limitations exist in any control structure
based on the recognition that the cost of such system should
not exceed the benefits derived. Management believes
its control system provides reasonable assurance as to the
integrity and reliability of the financial statements, the
protection of assets from unauthorized use or disposition,
and the prevention and detection of fraudulent financial
reporting. The system of internal control is documented by
written policies and procedures that are communicated to
employees. The Company's internal audit staff independently
assesses the adequacy and the effectiveness of the internal
controls which are also tested by the Company's independent
public accountants.
The Board of Directors, through its audit committee
consisting of five independent directors, is responsible for
engaging the independent accountants and assuring that
management fulfills its responsibilities in the preparation
of the financial statements. The Company's financial
statements have been audited by Arthur Andersen LLP,
independent public accountants. Both the internal auditors
and Arthur Andersen LLP have access to the audit committee
without the presence of management to discuss internal
accounting controls, auditing and financial reporting
matters.
/s/Donald E. Moffitt,
Chairman and Chief Executive Officer
/s/Chutta Ratnathicam
Senior Vice President and Chief Financial Officer
/s/Gary D. Taliaferro
Vice President and Controller
Report of Independent Public Accountants
To the Shareholders and Board of Directors of CNF
Transportation Inc.
We have audited the accompanying consolidated balance sheets
of CNF Transportation Inc. (a Delaware Corporation) and
subsidiaries as of December 31, 1997 and 1996, and the
related statements of consolidated income, cash flows and
shareholders' equity for each
of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of CNF Transportation Inc. and subsidiaries as of
December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years
in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
/S/Arthur Andersen LLP
San Francisco, California
January 23, 1998
<PAGE 22>
<TABLE>
Consolidated Balance Sheets
<CAPTIONS>
December 31
(Dollars in thousands) 1997 1996
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 97,617 $ 82,094
Trade accounts receivable, net of allowance (Note 1) 703,785 542,381
Other accounts receivable 32,067 49,278
Operating supplies, at lower of average cost or market 36,580 32,916
Prepaid expenses 35,682 31,249
Deferred income taxes (Note 6) 103,656 77,977
Total Current Assets 1,009,387 815,895
Property, Plant and Equipment, at Cost
Land 109,768 104,314
Buildings and improvements 301,245 265,655
Revenue equipment 685,618 586,720
Other equipment and leasehold improvements 400,065 302,679
1,496,696 1,259,368
Accumulated depreciation and amortization (616,854) (506,719)
879,842 752,649
Other Assets
Restricted funds 10,601 12,685
Deposits and other assets 120,872 95,144
Unamortized aircraft maintenance, net (Note 1) 123,352 119,927
Costs in excess of net assets of businesses acquired,
net of accumulated amortization (Note 1) 277,442 285,566
532,267 513,322
Total Assets $2,421,496 $2,081,866
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE 23>
<TABLE>
Consolidated Balance Sheets
<CAPTIONS>
December 31
(Dollars in thousands) 1997 1996
<S> <C> <C>
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable $ 268,064 $ 210,902
Accrued liabilities (Note 3) 423,237 349,497
Accrued claims costs 99,848 87,340
Current maturities of long-term debt and capital leases
(Notes 4 and 5) 4,875 3,185
Short-term borrowings (Note 4) - 155,000
Federal and other income taxes (Note 6) 10,114 9,162
Total Current Liabilities 806,138 815,086
Long-Term Liabilities
Long-term debt and guarantees (Note 4) 362,671 366,305
Long-term obligations under capital leases (Note 5) 110,817 110,896
Accrued claims costs 55,030 57,912
Employee benefits (Note 9) 141,351 115,470
Other liabilities and deferred credits 72,428 75,479
Deferred income taxes (Note 6) 89,958 32,439
Total Liabilities 1,638,393 1,573,587
Commitments and Contingencies (Notes 4, 5 and 13)
Company-Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trust Holding Solely
Convertible Debentures of the Company (Note 7) 125,000 -
Shareholders' Equity (Note 8)
Preferred stock, no par value; authorized 5,000,000 shares:
Series B, 8.5% cumulative, convertible, $.01 stated
value; designated 1,100,000 shares; issued 865,602
and 875,191 shares, respectively 9 9
Additional paid-in capital, preferred stock 131,649 133,108
Deferred compensation (Note 10) (101,819) (108,468)
Total Preferred Shareholders' Equity 29,839 24,649
Common stock, $.625 par value; authorized 100,000,000
shares; issued 54,370,182 and 51,595,827 shares,
respectively 33,981 32,247
Additional paid-in capital, common stock 302,256 242,879
Deferred compensation, restricted stock (Note 11) (2,528) (187)
Cumulative translation adjustment (6,647) 3,279
Retained earnings 473,250 378,744
Cost of repurchased common stock
(6,977,848 and 7,029,917 shares, respectively) (172,048) (173,332)
Total Common Shareholders' Equity 628,264 483,630
Total Shareholders' Equity 658,103 508,279
Total Liabilities and Shareholders' Equity $2,421,496 $2,081,866
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE 24>
<TABLE>
Statements of Consolidated Income
<CAPTIONS>
Years ended December 31
(Dollars in thousands except per share data) 1997 1996 1995
<S> <C> <C> <C>
Revenues $4,266,801 $3,662,183 $3,290,077
Costs and Expenses
Operating expenses 3,333,721 2,918,682 2,641,756
Selling and administrative expenses 557,117 463,930 391,682
Depreciation 111,096 87,423 69,952
4,001,934 3,470,035 3,103,390
Operating Income 264,867 192,148 186,687
Other Income (Expense)
Investment income 1,378 52 85
Interest expense (39,553) (39,766) (33,407)
Dividend requirement on preferred securities
of subsidiary trust (Note 7) (3,471) - -
Miscellaneous, net (1,407) (5,302) (423)
(43,053) (45,016) (33,745)
Income from continuing operations before income taxes 221,814 147,132 152,942
Income taxes (Note 6) 100,925 66,951 66,723
Income from Continuing Operations 120,889 80,181 86,219
Losses from discontinued operations, net of income
tax benefits (Note 2) - (36,386) (28,854)
Loss from discontinuance, net of income tax
benefits (Note 2) - (16,247) -
- (52,633) (28,854)
Net income 120,889 27,548 57,365
Preferred stock dividends 7,886 8,592 10,799
Net Income Available to Common Shareholders $ 113,003 $ 18,956 $ 46,566
Basic shares (Note 1) 46,236,688 44,041,159 42,067,842
Diluted shares (Note 1) 53,077,468 49,531,101 48,531,501
Basic Earnings Per Share (Note 1)
Income from continuing operations $2.44 $1.63 $1.79
Losses from discontinued operations - (0.83) (0.68)
Loss from discontinuance - (0.37) -
Net income $2.44 $0.43 $1.11
Diluted Earnings Per Share (Note 1)
Income from continuing operations $2.19 $1.48 $1.64
Losses from discontinued operations - (0.73) (0.60)
Loss from discontinuance - (0.33) -
Net income $2.19 $0.42 $1.04
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE 25>
<TABLE>
Statements of Consolidated Cash Flows
Years ended December 31
(Dollars in thousands) 1997 1996 1995
<S> <C> <C> <C>
Cash and Cash Equivalents, Beginning of Year $ 82,094 $ 59,787 $ 72,595
Cash Flows from Operating Activities
Net income 120,889 27,548 57,365
Adjustments to reconcile income to net cash provided by
operating activities:
Discontinued operations - 52,633 28,854
Depreciation and amortization 123,391 95,746 79,625
Increase (decrease) in deferred income taxes
31,840 (6,705) 14,288
Amortization of deferred compensation 7,132 6,403 6,050
Losses (gains) from property disposals, net 927 (1,577) (145)
Changes in assets and liabilities:
Receivables (144,193) (30,006) (114,855)
Accounts payable 57,162 27,661 9,942
Accrued liabilities 52,582 36,074 31,470
Accrued incentive compensation 21,158 9,366 (30,413)
Accrued claims costs 9,626 11,616 9,625
Income taxes 17,564 18,040 7,454
Employee benefits 25,881 (14,565) 32,793
Deferred charges and credits (36,805) (27,367) (48,762)
Other (10,467) 960 7,832
Net Cash Provided by Operating Activities 276,687 205,827 91,123
Cash Flows from Investing Activities
Capital expenditures (242,343) (200,835) (167,253)
Proceeds from sales of property 5,043 7,689 5,361
Net Cash Used by Investing Activities (237,300) (193,146) (161,892)
Cash Flows from Financing Activities
Proceeds from issuance of long-term debt 1,997 - 98,890
Repayment of long-term debt and capital lease obligations (4,020) (2,436) (2,537)
Proceeds from (repayment of) net short-term borrowings (155,000) 105,000 50,000
Proceeds from issuance of subsidiary preferred securities,
net of costs of issuance 121,431 - -
Proceeds from exercise of stock options 41,500 1,887 10,460
Redemption of preferred stock purchase rights - - (435)
Payments of common dividends (18,497) (17,604) (16,688)
Payments of preferred dividends (11,275) (12,288) (14,626)
Net Cash Provided (Used) by Financing Activities (23,864) 74,559 125,064
Net Cash Provided by Continuing Operations 15,523 87,240 54,295
Net Cash Used by Discontinued Operations - (64,933) (67,103)
Increase (Decrease) in Cash and Cash Equivalents 15,523 22,307 (12,808)
Cash and Cash Equivalents, End of Year $ 97,617 $ 82,094 $ 59,787
Supplemental Disclosure
Cash paid for income taxes, net of refunds $ 38,568 $ 13,822 $ 25,956
Cash paid for interest, net of amounts capitalized $ 47,948 $ 36,047 $ 22,916
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE 26>
<TABLE>
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
(Dollars in thousands except per share data)
<CAPTIONS>
Preferred Stock Series B Preferred Stock Series C Common Stock
Number of Number of Number of
Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 962,748 $ 10 690,000 $ 7 43,955,510 $ 27,472
Exercise of stock options including tax
benefits of $1,122 - - - - 583,143 364
Conversion of Series C Preferred stock
to Common stock - - (690,000) (7) 6,900,000 4,313
Issuance of restricted stock - - - - 12,837 8
Recognition of deferred compensation - - - - - -
Redemption of preferred stock purchase
rights - - - - - -
Repurchased common stock issued for
conversion of preferred stock (8,336) - - - - -
Net income - - - - - -
Common dividends declared ($.30 per share) - - - - - -
Series B, Preferred dividends ($12.93
per share) net of tax benefits of $3,827 - - - - - -
Series C, Preferred dividends
($3.20 per share) - - - - - -
Translation adjustment - - - - - -
Balance, December 31, 1995 954,412 10 - - 51,451,490 32,157
Exercise of stock options including tax
benefits of $1,565 - - - - 138,027 86
Issuance of restricted stock - - - - 6,310 4
Recognition of deferred compensation - - - - - -
Repurchased common stock issued for
conversion of preferred stock (79,221) (1) - - - -
Net income - - - - - -
Common dividends declared ($.40 per share) - - - - - -
Series B, Preferred dividends ($12.93 per
share) net of tax benefits of $3,696 - - - - - -
Distribution of investment in CFC (Note 2) - - - - - -
Translation adjustment - - - - - -
Balance, December 31, 1996 875,191 9 - - 51,595,827 32,247
Exercise of stock options including tax
benefits of $16,612 - - - - 2,688,824 1,681
Issuance of restricted stock - - - - 85,531 53
Recognition of deferred compensation - - - - - -
Repurchased common stock issued for
conversion of preferred stock (9,589) - - - - -
Net income - - - - - -
Common dividends declared ($.40 per share) - - - - - -
Series B, Preferred dividends ($12.93 per
share) net of tax benefits of $3,389 - - - - - -
Translation adjustment - - - - - -
Balance, December 31, 1997 865,602 $ 9 - $ - 54,370,182 $ 33,981
<FN>
The accompanying notes are an integral part of these financial statements
</FN>
</TABLE>
<PAGE 27>
<TABLE>
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
(Dollars in thousands except per share data)
<CAPTIONS>
Cost of
Additional Cumulative Repurchased
Paid-in Translation Retained Common Deferred
Capital Adjustment Earnings Stock Compensation Total
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $ 380,493 $ (1,170) $ 574,885 $ (187,422) $ (120,646) $ 673,629
Exercise of stock options including tax
benefits of $1,122 10,096 - - - - 10,460
Conversion of Series C Preferred stock
to Common stock (4,306) - - - - -
Issuance of restricted stock 292 - - - (300) -
Recognition of deferred compensation - - - - 6,050 6,050
Redemption of preferred stock purchase
rights (435) - - - - (435)
Repurchased common stock issued for
conversion of preferred stock (1,288) - - 1,288 - -
Net income - - 57,365 - - 57,365
Common dividends declared ($.30 per share) - - (13,052) - - (13,052)
Series B, Preferred dividends ($12.93
per share) net of tax benefits of $3,827 - - (8,592) - - (8,592)
Series C, Preferred dividends
($3.20 per share) - - (2,207) - - (2,207)
Translation adjustment - (858) - - - (858)
Balance, December 31, 1995 384,852 (2,028) 608,399 (186,134) (114,896) 722,360
Exercise of stock options including tax
benefits of $1,565 3,778 - - - - 3,864
Issuance of restricted stock 158 - - - (162) -
Recognition of deferred compensation - - - - 6,403 6,403
Repurchased common stock issued for
conversion of preferred stock (12,801) - - 12,802 - -
Net income - - 27,548 - - 27,548
Common dividends declared ($.40 per share) - - (17,604) - - (17,604)
Series B, Preferred dividends ($12.93 per
share) net of tax benefits of $3,696 - - (8,592) - - (8,592)
Distribution of investment in CFC (Note 2) - 4,571 (231,007) - - (226,436)
Translation adjustment - 736 - - - 736
Balance, December 31, 1996 375,987 3,279 378,744 (173,332) (108,655) 508,279
Exercise of stock options including tax
benefits of $16,612 56,431 - - - - 58,112
Issuance of restricted stock 2,771 - - - (2,824) -
Recognition of deferred compensation - - - - 7,132 7,132
Repurchased common stock issued for
conversion of preferred stock (1,284) - - 1,284 - -
Net income - - 120,889 - - 120,889
Common dividends declared ($.40 per share) - - (18,497) - - (18,497)
Series B, Preferred dividends ($12.93 per
share) net of tax benefits of $3,389 - - (7,886) - - (7,886)
Translation adjustment - (9,926) - - - (9,926)
Balance, December 31, 1997 $ 433,905 $ (6,647) $ 473,250 $ (172,048) $ (104,347) $ 658,103
<FN>
The accompanying notes are an integral part of these financial statements
</FN>
</TABLE>
<PAGE 28>
Notes to Consolidated Financial Statements
1. Principal Accounting Policies
Basis of Presentation and Principles of Consolidation: The
consolidated financial statements include the accounts of
CNF Transportation Inc. (the Company or CNF) and
its wholly owned subsidiaries. On December 2, 1996, the
Company (formerly Consolidated Freightways, Inc.) completed
the spin-off of Consolidated Freightways
Corporation (CFC) as described in Note 2. CFC has been
reflected as discontinued operations in the consolidated
financial statements and, unless otherwise stated, is
excluded from the accompanying notes.
The continuing operations of the Company encompass three
business segments: Con-Way Transportation Services (CTS), a
regional trucking and full-service truckload company; Emery
Worldwide (Emery), an international air freight company; and
Other, which is comprised of Menlo Logistics (Menlo), a full-
service contract logistics company; Road Systems, a trailer
manufacturer; and VantageParts, a wholesale distributor of
truck parts and supplies; and the sortation operations of
the Priority Mail contract.
CTS provides regional one- and two-day LTL freight trucking,
full-service truckload freight delivery utilizing highway
over-the-road and rail resources for transcontinental, inter-
regional and regional transportation, throughout the U.S.
and international services for Canada and Mexico. Emery
provides expedited and deferred domestic and international
air cargo services through a freight system designed for the
movement of parcels and packages of all sizes and weights,
and also provides ocean delivery and customs brokerage.
Menlo, the primary business in the Other segment, provides
full-service contract logistics using advanced management
systems to cost-effectively integrate and simplify complex
logistics operations, including transportation, storage and
distribution, shipment tracking and invoicing.
Recognition of Revenues: Transportation freight charges are
recognized as revenue when freight is received for shipment.
The estimated costs of performing the total transportation
service are then accrued. This revenue recognition method
does not result in a material difference from in-transit or
completed service methods of recognition. Revenues from
certain long-term contracts are recognized in accordance
with contractual terms as services are provided.
Cash and Cash Equivalents: The Company considers highly
liquid investments with original maturities of three months
or fewer to be cash equivalents.
Trade Accounts Receivable, Net: Trade accounts receivable
are net of allowances of $20,155,000 and $18,712,000 at
December 31, 1997 and 1996, respectively.
Property, Plant and Equipment: Property, plant and equipment
are depreciated on a straight-line basis over their
estimated useful lives, which are generally 25 years for
buildings and improvements, 10 years or fewer for aircraft,
5 to 10 years for tractor and trailer equipment and 3 to 10
years for most other equipment. Leasehold improvements are
amortized over the shorter of the terms of the respective
leases or the useful lives of the assets.
Expenditures for equipment maintenance and repairs, except
for aircraft, are charged to operating expenses as incurred;
betterments are capitalized. Gains (losses) on sales of
equipment are recorded in operating expenses.
The costs to perform required maintenance inspections of
engines and aircraft frames for leased and owned aircraft
are capitalized and amortized to expense over the shorter of
the period until the next scheduled maintenance or the
remaining term of the lease agreement. Accordingly, the
Company has recorded unamortized maintenance of $175,460,000
and $169,035,000 at December 31, 1997 and 1996,
respectively. Under the Company's various aircraft lease
agreements, the Company is expected to return the aircraft
with a stipulated number of hours remaining on the aircraft
and engines until the next scheduled maintenance. The
Company has recorded $52,108,000 and $49,108,000 at December
31, 1997 and 1996, respectively, to accrue for this
obligation and any estimated unusable maintenance at the
date of lease return or other disposal. The net amount,
which represents the difference between maintenance
performed currently and that required or remaining at the
expiration of the lease or other disposal, is classified as
Unamortized Aircraft Maintenance, net, in the Consolidated
Balance Sheets.
Costs in Excess of Net Assets of Businesses Acquired: The
costs in excess of net assets of businesses acquired
(goodwill) are capitalized and amortized on a straight-line
basis up to a 40-year period. Impairment is periodically
reviewed based on a comparison of estimated, undiscounted
cash flows from the underlying segment to the related
<PAGE 29>
investment. In the event goodwill is not considered
recoverable, an amount equal to the excess of carrying
amount of goodwill less the estimated discounted cash flows
from the segment will be charged against goodwill with a
corresponding expense to the income statement. Based on this
review, management does not believe goodwill is impaired.
Accumulated amortization at December 31, 1997 and 1996 was
$86,053,000 and $76,961,000, respectively.
Income Taxes: The Company follows the liability method of
accounting for income taxes.
Accrued Claims Costs: The Company provides for the uninsured
costs of medical, casualty, liability, vehicular, cargo and
workers' compensation claims. Such costs are estimated each
year based on historical claims and unfiled claims relating
to operations conducted through December 31. The actual
costs may vary from estimates based on trends of losses for
filed claims and claims estimated to be incurred but not
filed. The long-term portion of accrued claims costs relates
primarily to workers' compensation claims which are payable
over several years.
Foreign Currency Translation: Adjustments
resulting from translating foreign functional currency
financial statements into U.S. dollars are included in the
Cumulative Translation Adjustment in the Statements of
Consolidated Shareholders' Equity.
Earnings Per Share: Effective December 31, 1997,
the Company adopted SFAS 128, "Earnings Per Share".
SFAS 128 prescribes new calculations for Basic and Diluted
Earnings Per Share (EPS), which replace the former
calculations for Primary and Fully Diluted EPS. Basic EPS is
computed by dividing reported earnings available to common
shareholders by the weighted average shares outstanding; no
dilution for any potentially dilutive securities is
included. Diluted EPS is calculated differently than the
Fully Diluted EPS calculation under the old rules. When
applying the treasury stock method for Diluted EPS to
compute dilution for options, SFAS 128 requires use of the
average share price for the period, rather than the greater
of the average share price or end-of-period share price.
Prior period EPS data has been restated. Diluted EPS from
continuing operations is calculated as follows:
(Dollars in thousands
except per share data) 1997 1996 1995
Earnings:
Net income from
continuing operations $113,003 $71,589 $75,420
Add-backs:
Dividends on preferred
stock, net of
replacement funding 1,231 1,769 4,056
Dividends on preferred
securities of
subsidiary trust,
net of tax 2,118 - -
$116,352 $73,358 $79,476
Shares:
Weighted average
shares outstanding 46,236,688 44,041,159 42,067,842
Stock option and
restricted stock
dilution 1,029,415 1,021,417 895,739
Series B and C
preferred stock 4,075,254 4,468,525 5,567,920
Subsidiary trust
preferred securities 1,736,111 - -
53,077,468 49,531,101 48,531,501
Diluted Earnings
Per Share $2.19 $1.48 $1.64
Estimates: Management makes estimates and assumptions when
preparing the financial statements in conformity with
generally accepted accounting principles. These estimates
and assumptions affect the amounts reported in the
accompanying financial statements and notes thereto. Actual
results could differ from those estimates.
Reclassification: Certain amounts in prior years' financial
statements have been reclassified to conform to the current
year presentation.
2. Business Divestitures
On December 2, 1996, the Company completed a tax-free
distribution (the Spin-off) to the Company's shareholders of
all the outstanding shares of CFC. The Company's
shareholders received one share of CFC common stock for
every two shares of the Company's common stock owned on
November 15, 1996.
<PAGE 30>
The accompanying consolidated financial statements have been
restated to report the discontinued operations of CFC
separately from continuing operations of the Company. The
December 31, 1996 Consolidated Balance Sheet reflects a non-
cash reduction to Retained Earnings of $231,007,000 and a
($4,571,000) adjustment to Cumulative Translation Adjustment
to recognize the book value of net assets distributed. The
Statements of Consolidated Income include the following
operating results for the discontinued operations presented
as a single classification, net of tax:
(Dollars in thousands) 1996 1995
Revenues $1,982,544 $2,106,529
Operating loss (48,942) (42,786)
Loss before income tax benefits (48,236) (42,069)
Income tax benefits (11,850) (13,215)
Losses from discontinued operations (36,386) (28,854)
The Company incurred costs in connection with
the Spin-off, including legal and advisory fees, costs of
relocating administrative, data processing and other
operating locations, severance, and other transaction costs.
These costs are reported net of $7.0 million of income tax
benefits in the Statements of Consolidated Income as Loss
from Discontinuance in 1996.
3. Accrued Liabilities
Accrued liabilities consist of the following as of
December 31:
(Dollars in thousands) 1997 1996
Other accrued liabilities $169,572 $130,365
Accrued holiday and vacation pay 52,263 44,922
Purchased transportation 40,732 43,328
Accrued taxes other than income taxes 36,794 33,826
Wages and salaries 28,173 24,841
Estimated revenue adjustments 34,637 23,912
Accrued interest 18,829 27,224
Accrued incentive compensation 42,237 21,079
Total accrued liabilities $423,237 $349,497
4. Debt and Guarantees
As of December 31, long-term debt and guarantees
consisted of the following:
(Dollars in thousands) 1997 1996
91/8% Notes Due 1999
(interest payable semi-annually) $117,705 $117,705
7.35% Notes due 2005
(interest payable semi-annually) 100,000 100,000
6.14% Industrial Revenue
Bonds due 2014 4,800 4,800
Other debt 1,179 20
TASP Notes guaranteed, 8.42%
to 9.04%, due through 2009 143,800 146,900
367,484 369,425
Less current maturities (4,813) (3,120)
Total long-term debt and guarantees $362,671 $366,305
The 91/8% notes due in 1999 and the 7.35% notes due in 2005
contain certain covenants limiting the incurrence of
additional liens.
The Company has a $350 million unsecured credit facility to
provide for letter of credit and working capital needs.
Borrowings under the agreement, which expires in 2001, bear
interest at a rate based upon select indices plus a margin
dependent on the Company's credit rating. The agreement
contains various restrictive covenants that limit the
incurrence of additional indebtedness and require the
Company to maintain minimum amounts of net worth and fixed
charge coverage. At December 31, 1997, the Company had no
short-term borrowings and $104.8 million of letters of
credit outstanding under this agreement. Short-term
borrowings of $155 million were outstanding at December 31,
1996.
Under several other unsecured letter of credit facilities,
the Company had outstanding letters of credit of $68.3
million at December 31, 1997.
Of the $143.8 million TASP Notes, $113.1 million are subject
to redemption at the option of the holders should a certain
designated event occur or ratings by both Moody's and S&P of
senior unsecured indebtedness decline below investment
grade. The remaining $30.7 million of the notes contain
financial covenants including a common dividend restriction
equal to $10.0 million plus one-half of the Company's
earnings since inception of the agreement.
The aggregate annual maturities and sinking fund
requirements of long-term debt for each of the next five
<PAGE 31>
years ending December 31 are: 1998, $4,813,000; 1999,
$123,471,000; 2000, $6,400,000; 2001, $7,500,000; and 2002,
$8,700,000.
The Company's interest expense as presented in the
Statements of Consolidated Income is net of capitalized
interest of $2,077,000 in 1997, $2,092,000 in 1996 and
$731,000 in 1995.
5. Leases
The Company and its subsidiaries are obligated under various
non-cancelable leases.The principal capital lease, which
expires in 2018, covers a sorting facility in Dayton, Ohio
(the Hub). The Hub is financed by City of Dayton, Ohio,
revenue bonds. Of the total bonds,
$46 million bear an effective rate of 8%. In 1997, the
Company entered into an agreement to deliver Series A
refinancing bonds. These bonds, when delivered on October 1,
1998, will bear an interest rate of 5.625%. The remaining
$62 million bear rates of interest between 6.05% and 6.20%.
The bonds, due through 2018, have various call provisions
and are secured by the underlying assets of the lease,
certain other Emery assets and irrevocable letters of
credit. Included in property, plant and equipment is
$38,978,000 of equipment and leasehold improvements, net,
related to the Hub.
Future minimum lease payments under all leases with initial
or remaining non-cancelable lease terms in excess of one
year, at December 31, 1997, are as follows:
Capital Operating
(Dollars in thousands) Leases Leases
Year ending December 31
1998 $ 9,454 $164,403
1999 8,099 121,881
2000 8,187 80,419
2001 8,286 50,086
2002 8,394 37,249
Thereafter (through 2018) 145,031 57,697
Total minimum lease payments 187,451 $511,735
Less amount representing interest (76,572)
Present value of
minimum lease payments 110,879
Less current maturities of
obligations under capital leases (62)
Long-term obligations
under capital leases $110,817
Certain operating leases contain financial covenants equal
to or less restrictive than covenants on debt.
The Company is negotiating various agreements that will
result in new operating leases that are expected to reduce
the lease payments and extend the terms of six existing
aircraft leases.
Rental expense for operating leases is comprised of the
following:
(Dollars in thousands) 1997 1996 1995
Minimum rentals $203,521 $178,781 $174,951
Less:
Sublease rentals (5,087) (2,355) (4,505)
Amortization of
deferred gains (4,487) (4,487) (1,785)
$193,947 $171,939 $168,661
6. Income Taxes
The components of pretax income and income taxes are as
follows:
(Dollars in thousands) 1997 1996 1995
Pretax income
U.S. corporations $206,055 $137,918 $146,042
Foreign corporations 15,759 9,214 6,900
Total pretax income $221,814 $147,132 $152,942
Income taxes
Current
U.S. federal $ 49,187 $ 57,397 $ 39,666
State and local 12,109 6,430 7,979
Foreign 7,789 5,762 4,790
69,085 69,589 52,435
Deferred taxes (benefits)
U.S. federal 31,162 (2,903) 12,147
State and local 678 265 2,141
31,840 (2,638) 14,288
Total income taxes $100,925 $ 66,951 $ 66,723
<PAGE 32>
The components of deferred tax assets and liabilities at
December 31, relate to the following:
(Dollars in thousands) 1997 1996
Deferred tax assets
Reserves for accrued
claims costs $ 39,969 $ 28,001
Reserves for post retirement
health benefits 34,732 35,743
Other reserves
not currently deductible 62,011 47,496
Reserves for employee benefits 49,118 42,308
Alternative minimum
tax credit carryovers 206 18,065
186,036 171,613
Deferred tax liabilities
Depreciation 159,912 120,440
Unearned revenue 2,853 2,939
Other 9,573 2,696
172,338 126,075
Net deferred tax asset $ 13,698 $ 45,538
Deferred tax assets and liabilities in the Consolidated
Balance Sheets are classified based on the related asset or
liability creating the deferred tax. Deferred taxes not
related to a specific asset or liability are classified
based on the estimated period of reversal. Although
realization is not assured, management believes it more
likely than not that all deferred tax assets will be
realized.
Income taxes vary from the amounts calculated by applying
the U.S. statutory income tax rate to the pretax income as
set forth in the following reconciliation:
1997 1996 1995
U.S. statutory tax rate 35.0% 35.0% 35.0%
State income taxes (net of
federal income tax benefit) 4.3 4.4 5.0
Foreign taxes in excess of
U.S. statutory rate 1.0 1.7 1.6
Non-deductible operating
expenses 1.2 1.8 1.5
Amortization of costs in
excess of net assets of
businesses acquired 1.4 2.2 2.1
Foreign tax credits, net (1.1) - (0.3)
Other, net 3.7 0.4 (1.3)
Effective income tax rate 45.5% 45.5% 43.6%
The cumulative undistributed earnings of the Company's
foreign subsidiaries (approximately $23.7 million at
December 31, 1997), which if remitted are subject to
withholding tax, have been reinvested indefinitely in the
respective foreign subsidiaries' operations unless it
becomes advantageous for tax or foreign exchange reasons to
remit these earnings. Therefore, no withholding or U.S.
taxes have been provided. The amount of withholding tax that
would be payable on remittance of the undistributed earnings
would approximate $1.9 million.
The Company is currently under examination by the Internal
Revenue Service (IRS) for tax years 1987 through 1996.
Except for the effect, if any, of the item discussed in the
paragraph below, it is the opinion of management that any
adjustments related to the examination for these years would
not have a material impact on the Company's financial
position or results of operations. In addition, as part of
the Spin-off, the Company and CFC entered into a Tax Sharing
Agreement that provides a mechanism for the allocation of
any additional tax liability and related interest that arise
due to adjustments from the IRS for years prior to the Spin-
off.
The IRS has proposed a substantial adjustment for tax years
1987 through 1990 based on the IRS position that certain
aircraft maintenance costs should have been capitalized
rather than expensed for federal income tax purposes. In
addition, the Company believes it is likely that the IRS
will propose an additional adjustment, based on the same IRS
position with respect to aircraft maintenance costs, for
subsequent tax years. The Company believes that its practice
of expensing these types of maintenance costs is consistent
with industry practice. However, if this issue is determined
adversely to the Company, there can be no assurance that the
Company will not have to pay substantial additional tax. The
Company is unable to predict the ultimate outcome of this
matter and intends to vigorously contest the proposed
adjustment.
7. Preferred Securities of Subsidiary Trust
On June 11, 1997, CNF Trust I (the Trust), a Delaware
business trust wholly owned by the Company, issued 2,500,000
of its $2.50 Term Convertible Securities,
<PAGE 33>
Series A TECONS to the public for gross proceeds of
$125 million. The combined proceeds from the issuance
of the TECONS and the issuance to the Company of the
common securities of the Trust were invested by the
Trust in $128.9 million aggregate principal
amount of 5% convertible subordinated debentures due June 1,
2012 (the Debentures) issued by the Company. The Debentures
are the sole assets of the Trust.
Holders of the TECONS are entitled to receive cumulative
cash distributions at an annual rate of $2.50 per TECONS
(equivalent to a rate of 5% per annum of the stated
liquidation amount of $50 per TECONS). The Company has
guaranteed, on a subordinated basis, distributions and other
payments due on the TECONS, to the extent the Trust has
funds available therefor and subject to certain other
limitations (the Guarantee). The Guarantee, when taken
together with the obligations of the Company under the
Debentures, the Indenture pursuant to which the Debentures
were issued, and the Amended and Restated Declaration of
Trust of the Trust (including its obligations to pay costs,
fees, expenses, debts and other obligations of the Trust
[other than with respect to the TECONS and the common
securities of the Trust]), provide a full and unconditional
guarantee of amounts due on the TECONS.
The Debentures are redeemable for cash, at the option of the
Company, in whole or in part, on or after June 1, 2000, at a
price equal to 103.125% of the principal amount, declining
annually to par if redeemed on or after June 1, 2005, plus
accrued and unpaid interest. In certain circumstances
relating to federal income tax matters, the Debentures may
be redeemed by the Company at 100% of the principal plus
accrued and unpaid interest. Upon any redemption of the
Debentures, a like aggregate liquidation amount of TECONS
will be redeemed. The TECONS do not have a stated maturity
date, although they are subject to mandatory redemption upon
maturity of the Debentures on June 1, 2012, or upon earlier
redemption.
Each TECONS is convertible at any time prior to the close of
business on June 1, 2012, at the option of the holder into
shares of the Company's common stock at a conversion rate of
1.25 shares of the Company's common stock for each TECONS,
subject to adjustment in certain circumstances.
8. Shareholders' Equity
In 1989, the Board of Directors designated a series of
1,100,000 preferred shares as Series B Cumulative
Convertible Preferred Stock, $.01 stated value, which is
held by the CNF Thrift and Stock Plan (TASP). The Series B
preferred stock is convertible into common stock, as
described in Note 10, at the rate of 4.71 shares for each
share of preferred stock subject to antidilution adjustments
in certain circumstances. Holders of the Series B preferred
stock are entitled to vote with the common stock and are
entitled to a number of votes in such circumstances equal to
the product of (a) 1.3 multiplied by (b) the number of
shares of common stock into which the Series B preferred
stock is convertible on the record date of such vote.
Holders of the Series B preferred stock are also entitled to
vote separately as a class on certain other matters. The
TASP trustee is required to vote the allocated shares based
upon instructions from the participants; unallocated shares
are voted in proportion to the voting instructions received
from the participants with allocated shares.
9. Employee Benefit Plans
The Company has a non-contributory defined benefit pension
plan (the Plan) covering non-contractual employees in the
United States. The Company's annual pension provision and
contributions are based on an independent actuarial
computation. Although it is the Company's funding policy to
contribute the minimum required tax-deductible contribution
for the year, it may increase its contribution above the
minimum if appropriate to its tax and cash position and the
plan's funded status. Benefits under the Plan are based on a
career average final five-year pay formula. Approximately 82% of
the Plan assets are invested in publicly traded stocks and
bonds. The remainder is invested in temporary cash
investments, real estate funds and investment capital funds.
<PAGE 34>
The following sets forth the pension liabilities included in
Employee Benefits in the Consolidated Balance Sheets at
December 31:
(Dollars in thousands) 1997 1996
Accumulated benefit obligation,
including vested benefits of
$221,978 in 1997 and
$169,714 in 1996 $(247,120) $(187,041)
Effect of projected
future compensation levels (83,538) (65,049)
Projected benefit obligation (330,658) (252,090)
Plan assets at market value 312,818 271,669
Plan assets over (under)
projected benefit obligation (17,840) 19,579
Unrecognized prior service costs 9,000 10,183
Unrecognized net gain (18,772) (36,473)
Unrecognized net asset at transition (6,775) (7,905)
Plan liability $ (34,387) $ (14,616)
Weighted average discount rate 7.25% 7.75%
Expected long-term rate of
return on assets 9.5% 9.5%
Rate of increase in future
compensation levels 5.0% 5.0%
Net pension cost includes the following:
(Dollars in thousands) 1997 1996 1995
Cost of benefits earned
during the year $ 23,664 $ 22,544 $ 15,651
Interest cost on projected
benefit obligation 21,818 18,214 15,702
Actual gain arising from
plan assets (46,634) (36,002) (46,575)
Net amortization
and deferral 20,923 15,449 29,223
Net pension cost $ 19,771 $ 20,205 $ 14,001
The Company's Plan includes programs to provide additional
benefits for compensation excluded from the basic Plan. The
annual provision for these programs is based on independent
actuarial computations using assumptions consistent with the
Plan. Obligations in these supplemental programs up to the
Spin-off date for participants now employed by CFC have been
retained by the Company. At December 31, 1997 and 1996, the
total pension liability was $15,915,000 and $12,480,000,
respectively, and the total pension cost was $2,462,000 in
1997, $2,274,000 in 1996 and $1,837,000 in 1995.
The Company has a retiree health plan that provides benefits
to all non-contractual employees at least 55 years of age
with 10 years or more of service. The retiree health plan
limits benefits for participants who were not eligible to
retire before January 1, 1993, to a defined dollar amount
based on age and years of service and does not provide
employer-subsidized retiree health care benefits for
employees hired on or after January 1, 1993.
The following sets forth the total post retirement benefit
liability included in Employee Benefits in the Consolidated
Balance Sheets at December 31:
(Dollars in thousands) 1997 1996
Accumulated post retirement
benefit obligation
Retirees and other inactives $43,319 $38,789
Participants eligible to retire 15,974 13,581
Other active participants 20,605 19,334
79,898 71,704
Unrecognized prior service costs 444 499
Unrecognized valuation gain 7,918 12,313
Accrued post retirement benefit cost $88,260 $84,516
Weighted average discount rate 7.25% 7.75%
Average health care cost trend rate
First year 6.5% 8.0%
Declining to (year 1999) 5.5% 6.0%
Net periodic post retirement benefit cost includes the
following components:
(Dollars in thousands) 1997 1996 1995
Cost of benefits earned
during the year $2,043 $2,422 $1,960
Interest cost on accumulated
post retirement obligation 5,697 5,256 5,301
Net amortization and deferral (244) (131) (719)
Net periodic post retirement
benefit cost $7,496 $7,547 $6,542
The increase in the accumulated post retirement benefit
obligation and the aggregate service and interest cost,
given a 1% increase in the health care cost trend rate
assumption, would be approximately 5% and 4%, respectively.
<PAGE 35>
The Company and each of its subsidiaries have adopted
various plans relating to the achievement of specific goals
to provide incentive-based compensation for designated
employees. Total compensation earned by salaried
participants of those plans was $51,900,000, $23,210,000 and
$17,300,000 in 1997, 1996 and 1995, respectively, and by
hourly participants was $38,100,000, $12,200,000 and
$9,100,000 in 1997, 1996 and 1995, respectively.
10. Thrift and Stock Plan
The Company sponsors the CNF Thrift and Stock Plan (TASP), a
voluntary defined contribution plan with a leveraged ESOP
feature, for non-contractual U.S. employees. The TASP
satisfies the Company's contribution requirement by matching
up to 50% of the first 3% of a participant's basic
compensation. In 1989, the TASP borrowed $150,000,000 to
purchase 986,259 shares of the Company's Series B Cumulative
Convertible Preferred Stock. This stock is only issuable to
the TASP trustee. Company contributions were $9,921,000 in
1997, $8,589,000 in 1996 and $7,227,000 in 1995, in the form
of common and preferred stock.
The Series B Preferred Stock earns a dividend of $12.93 per
share and is used to repay the TASP debt. Any shortfall is
paid in cash by the Company. Dividends on these preferred
shares are deductible for income tax purposes and,
accordingly, are reflected net of their tax benefits in the
Statements of Consolidated Income. Allocation of preferred
stock to participants' accounts is based upon the ratio of
the current year's principal and interest payments to the
total TASP debt. Since the debt is guaranteed by the
Company, it is reflected in Long-term Debt and Guarantees in
the Consolidated Balance Sheets. The TASP guarantees are
reduced as principal is paid.
Each share of preferred stock is convertible into common
stock, upon an employee ceasing participation in the plan,
at a rate generally equal to that number of shares of common
stock that could be purchased for $152.10, but not less than
the minimum conversion rate of 4.71 shares of common stock
for each share of Series B Preferred Stock.
Deferred compensation expense is recognized as the preferred
shares are allocated to participants and is equivalent to
the cost of the preferred shares allocated and the TASP
interest expense for the year, reduced by the dividends paid
to the TASP. During 1997, 1996 and 1995, $6,649,000,
$6,250,000 and $5,918,000, respectively, of deferred
compensation expense was recognized.
At December 31, 1997, the TASP owned 865,602 shares of
Series B Preferred Stock, of which 198,798 shares were
allocated to employees. At December 31, 1997, the Company
had reserved, authorized and unissued common stock adequate
to satisfy the conversion feature of the Series B Preferred
Stock.
11. Stock Option and Restricted Stock Plans
Officers and non-employee directors have been granted
options under the Company's stock option plans to purchase
common stock of the Company at prices equal to the market
value of the stock on the date of grant. Outstanding options
become fully exercisable one year after the date of grant;
any unexercised options expire after 10 years.
In 1995, the Financial Accounting Standards Board issued
SFAS 123, "Accounting for Stock-Based Compensation".
Adoption of SFAS 123 is optional, and the Company does not
intend to change its accounting for stock-based
compensation. Had the Company adopted this statement in
1995, pro forma net income from continuing operations as
reported net of preferred dividends would have been $109.3
million, $68.6 million, and $74.0 million for the years
1997, 1996 and 1995, respectively. Basic earnings per share
would have been $2.36, $1.56 and $1.76 per share for the
years 1997, 1996 and 1995, respectively. These pro forma
effects of applying SFAS 123 are not indicative of future
amounts. The weighted-average grant-date fair value of
options granted in 1997, 1996 and 1995 were $12.28, $8.54
and $8.37 per share, respectively. The following assumptions
were used with the Black-Scholes options pricing model to
calculate the option values: risk-free weighted average
rate, 6.1%-6.8%; expected life, 6 years; dividend yield,
1.2%; and volatility, 30.0%.
<PAGE 36>
Following is a summary of stock option data:
Number of Wtd. Avg.
Options Exercise Price
Outstanding at December 31, 1994 3,778,428 $18.02
Granted 647,500 23.61
Exercised (583,143) 16.01
Expired or canceled (84,590) 26.48
Outstanding at December 31, 1995 3,758,195 19.11
Granted 537,500 21.53
Exercised (138,027) 14.30
Expired or canceled (24,319) 27.10
Adjustment for Spin-off 773,139 -
Outstanding at December 31, 1996 4,906,488 16.46
Granted 492,500 32.47
Exercised (2,688,824) 15.42
Expired or canceled (122,566) 26.77
Outstanding at December 31, 1997 2,587,598 $20.12
The following is a summary of the stock options outstanding
and exercisable at December 31, 1997:
Outstanding Options Exercisable Options
Range of Number Remaining Wtd. Avg. Number Wtd.Avg.
Exercise of Life Exercise of Exercise
Prices Options (Years) Price Options Price
$10.98-$16.26 746,823 4.9 $13.19 687,612 $12.95
$18.05-$22.94 1,339,801 7.5 $19.38 1,339,801 $19.38
$27.66-$43.63 500,974 9.3 $32.50 23,934 $30.44
In 1997, the Company's shareholders approved a stock
compensation plan for certain executives of the Company.
Restricted stock awarded under the plan generally vests one-
third per year dependent on the achievement of certain
market prices of the Company's stock. During 1997, 79,500
shares were issued with a weighted-average grant-date fair
value of $33.80.
At December 31, 1997, the Company had 1,640,500 common
shares reserved for the grant of stock options, restricted
stock, or other equity-based incentive compensation.
12. Financial Instruments
The Company has entered into interest rate swap agreements that
expire in 1999. These agreements effectively convert $36 million of
variable rate lease obligations to fixed rate obligations. Interest
rate differentials to be paid or received are recognized over the
life of each agreement as adjustments to operating expense. The
Company is exposed to credit loss on the interest rate swaps in the
event of non-performance by counter parties, but the Company does
not anticipate non-performance by any of these counter parties. The
fair values of the interest rate swaps, as presented below, reflect
the estimated amounts that the Company would receive or pay to
terminate the contracts at the reported date.
The following table presents the carrying amounts and estimated
fair values of the Company's financial instruments at December 31:
(Dollars in thousands) 1997 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
Payables for
interest swaps $ - $ 900 $ - $1,351
Short-term borrowings - - 155,000 155,000
Long-term debt 367,484 396,000 369,425 400,000
Capital leases 110,879 125,000 110,961 119,000
13. Contingencies and Other Commitments
In connection with the Spin-off, the Company agreed to
indemnify certain states, insurance companies and sureties against
the failure of CFC to pay certain worker's compensation and public
liability claims that were pending as of September 30, 1996. In
some cases, these indemnities are supported by letters of credit
under which the Company is liable to the issuing bank and by bonds
issued by surety companies. In order to secure CFC's obligation to
reimburse and indemnify the Company against liability with respect
to these claims, CFC has provided the Company with approximately $30
million of letters of credit and $50 million of real property
collateral.
<PAGE 37>
The Company has entered into a Transition Services Agreement to
provide CFC with certain information systems, data processing and
other administrative services and will administer CFC's retirement
and benefits plans. The agreement has a three-year term although
CFC may terminate any or all services with six months notice. The
Company may terminate all services other than the telecommunications
and data processing services at any time after the first anniversary
of the agreement, with six months notice. Services performed by the
Company under the agreement shall be paid by CFC on an arm's-length
negotiated basis.
The Internal Revenue Service has notified a subsidiary of the
Company of proposed adjustments in aviation transportation excise
tax caused by a difference in methods used to calculate the tax.
The Company intends to vigorously defend against the proposed
adjustments. Although the Company is unable to predict the ultimate
outcome, it is the opinion of management that this action will not
have a material impact on the Company's financial position or
results of operations.
The Company has received notices from the Environmental
Protection Agency and others that it has been identified as a
potentially responsible party (PRP) under the Comprehensive
Environmental Response Compensation and Liability Act (CERCLA) or
other Federal and state environmental statutes at several hazardous
waste sites. Under CERCLA, PRPs are jointly and severally liable
for all site remediation and expenses. After investigating the
Company's involvement at such sites, based upon cost studies
performed by independent third parties, the Company believes its
obligations with respect to such sites would not have a material
adverse effect on the Company's financial position or results of
operations.
The Company and its subsidiaries are defendants in various
lawsuits incidental to their businesses. It is the opinion of
management that the ultimate outcome of these actions will not have
a material impact on the Company's financial position or results of
operations.
14. Industry Group Analysis and Foreign Operations
In June 1997, the Financial Accounting Standards Board issued
SFAS 131, "Disclosures about Segments of an Enterprise and Related
Information". SFAS 131 changes the method of disclosure of segment
information to the manner in which management organizes the segments
for making operating decisions and assessing performance. SFAS 131
is required to be adopted for year-end 1998. The Company's
currently-reported segment data is also the basis upon which
management makes decisions and evaluates performance. Accordingly,
adoption of SFAS 131 will not materially alter the current reporting
format of industry and geographic segments.
The following analyses are by geographic and industry group.
Revenues and expenses are allocated between North America and
international, depending on whether the shipments are between
locations within North America or between locations where one or
both are outside North America. Operating income is net of general
corporate expenses, a portion of which have been allocated to
subsidiaries on a revenue and capital basis. Financial results of the
Priority Mail contract are included in each or the reported segments
depending on the service provided. Intersegment revenues and related
earnings have been eliminated. The identifiable assets of the
parent consist principally of cash, cash equivalents and deposits.
<TABLE>
<CAPTIONS>
GEOGRAPHIC GROUP INFORMATION
(Dollars in thousands)
Consolidated North American International
<S> <C> <C> <C>
Year Ended December 31, 1997
Revenues $ 4,266,801 $ 3,364,304 $ 902,497
Operating income 264,867 201,328 63,539
Identifiable assets 2,421,496 2,365,416 56,080
Year Ended December 31, 1996
Revenues $ 3,662,183 $ 2,898,091 $ 764,092
Operating income 192,148 151,575 40,573
Identifiable assets 2,081,866 2,032,085 49,781
Year Ended December 31, 1995
Revenues $ 3,290,077 $ 2,601,193 $ 688,884
Operating income 186,687 151,379 35,308
Identifiable assets(a) 1,825,850 1,787,960 37,890
<FN>
(a) Excludes net assets of discontinued operations.
</TABLE>
<PAGE 38>
<TABLE>
<CAPTIONS>
INDUSTRY GROUP INFORMATION
(Dollars in thousands)
Industry Group
Adjustments, Con-Way
Eliminations and Transportation Emery
Consolidated the Parent Services Worldwide Other
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1997
Revenues $ 4,266,801 $ 1,473,188 $ 2,272,075 $ 521,538
Operating expenses 3,333,721 1,072,522 1,788,941 472,258
Selling and administrative expenses 557,117 188,971 334,201 33,945
Depreciation 111,096 64,540 39,599 6,957
Operating income 264,867 $ 147,155 $ 109,334 $ 8,378
Other expense (43,053)
Income before income taxes $ 221,814
Capital expenditures $ 242,343 $ 2,896 $ 109,328 $ 62,689 $ 67,430
Identifiable assets $ 2,421,496 $ 176,816 $ 727,597 $ 1,318,982 $ 198,101
Year Ended December 31, 1996
Revenues $ 3,662,183 $ 1,292,082 $ 1,968,058 $ 402,043
Operating expenses 2,918,682 973,341 1,586,855 358,486
Selling and administrative expenses 463,930 165,291 270,834 27,805
Depreciation 87,423 52,401 31,954 3,068
Operating income 192,148 $ 101,049 $ 78,415 $ 12,684
Other expense (45,016)
Income before income taxes $ 147,132
Capital expenditures $ 200,835 $ 434 $ 146,377 $ 46,939 $ 7,085
Identifiable assets $ 2,081,866 $ 172,969 $ 687,821 $ 1,137,631 $ 83,445
Year Ended December 31, 1995
Revenues $ 3,290,077 $ 1,152,164 $ 1,766,301 $ 371,612
Operating expenses 2,641,756 876,505 1,422,872 342,379
Selling and administrative expenses 391,682 138,329 234,223 19,130
Depreciation 69,952 40,757 27,472 1,723
Operating income 186,687 $ 96,573 $ 81,734 $ 8,380
Other expense (33,745)
Income before income taxes $ 152,942
Capital expenditures $ 167,253 $ (4,242) $ 136,546 $ 32,197 $ 2,752
Identifiable assets(a) $ 1,825,850 $ 106,080 $ 562,449 $ 1,082,507 $ 74,814
<FN>
(a) Excludes net assets of discontinued operations.
</FN>
</TABLE>
<PAGE 39>
<TABLE>
Note 15: Quarterly Financial Data (Unaudited)
(Dollars in thousands except per share data)
<CAPTIONS>
1997 - Quarter Ended March 31 June 30 September 30 December 31
<S> <C> <C> <C> <C>
Revenues $ 942,628 $ 1,002,563 $ 1,127,362 $ 1,194,248
Operating income 50,367 66,867 81,847 65,786(c)
Income before income taxes 40,172 55,027 72,743 53,872
Income taxes 18,228 25,038 33,098 24,561
Net income 21,944 29,989 39,645 29,311
Net income available to common
shareholders 20,005 28,018 37,694 27,286
Per share:(a)
Basic income 0.44 0.61 0.81 0.58
Diluted income 0.40 0.55 0.70 0.51
Market price range $28.13-$20.25 $36.38-$26.38 $45.38-$32.13 $50.88-$37.06
Common dividends paid 0.10 0.10 0.10 0.10
1996 - Quarter Ended March 31 June 30 September 30 December 31
Revenues $ 847,873 $ 894,336 $ 935,790 $ 984,184
Operating income 35,214 52,657 54,416 49,861
Income from continuing operations
before income taxes 25,683 41,323 42,065 38,061
Income taxes 12,020 17,605 18,766 18,560
Income from continuing operations 13,663 23,718 23,299 19,501
Loss from discontinued operations
net of tax benefits(b) (13,383) (10,062) (3,445) (25,743)(d)
Net income (loss) applicable to common
shareholders (1,854) 11,473 17,713 (8,376)
Per share:(a)
Basic income (loss):
Continuing operations 0.26 0.49 0.48 0.39
Discontinued operations(b) (0.30) (0.23) (0.08) (0.58)(d)
Net income (loss) (0.04) 0.26 0.40 (0.19)
Diluted Income (loss):
Continuing operations 0.24 0.45 0.44 0.36
Discontinued operations(b) (0.27) (0.21) (0.07) (0.52)(d)
Net income (loss) (0.03) 0.24 0.37 (0.16)
Market price range $29.38-$21.00 $26.25-$21.13 $24.50-$17.25 $26.00-$21.50
Common dividends paid 0.10 0.10 0.10 0.10
<FN>
(a) All periods have been restated to conform to the presentation required by SFAS 123, "Earnings Per Share."
(b) Reflects the results of CFC as described in Note 2 of the Notes to the Consolidated Financial Statements.
(c) Includes $5.0 million charge ($.06 per share basic and $.05 per share diluted) for costs associated with
the discontinuance of a rail container service.
(d) Includes $16.2 million for loss on discontinuance, net of tax benefits ($0.37 per share basic and $0.33
per share diluted).
</FN>
</TABLE>
<PAGE 40>
<TABLE>
<CAPTIONS>
CNF Transportation Inc.
Five Year Financial Summary
(Dollars in thousands except per share data) 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Revenues 4,266,801 3,662,183 3,290,077 2,799,935 2,163,631
Con-Way Transportation Services 1,473,188 1,292,082 1,152,164 1,018,544 818,301
Emery Worldwide 2,272,075 1,968,058 1,766,301 1,567,854 1,261,273
Other 521,538 402,043 371,612 213,537 84,057
Operating income 264,867 192,148 186,687 189,977 90,754
Con-Way Transportation Services 147,155 101,049 96,573 111,220 71,854
Emery Worldwide 109,334 78,415 81,734 77,616 16,591
Other 8,378 12,684 8,380 1,141 2,309
Investment income 1,378 52 85 1,708 5,127
Interest expense 39,553 39,766 33,407 27,065 29,890
Income from continuing operations before
income taxes 221,814 147,132 152,942 165,129 66,202
Income taxes 100,925 66,951 66,723 69,304 28,736
Net income from continuing operations (a) 113,003 71,589 75,420 76,762 18,499
Discontinued operations: (b)
Income (loss) from discontinued operations,
net of income taxes (benefits) - (36,386) (28,854) (37,442)(d) 13,108
Loss from discontinuance,
net of income tax benefits - (16,247) - - -
Income (loss) from discontinued operations(b) - (52,633) (28,854) (37,442) 13,108
Net Income available to common shareholders 113,003 18,956 46,566 35,710 (d) 31,607
PER SHARE
Income from continuing operations, basic (c) $ 2.44 $ 1.63 $ 1.79 $ 2.12 (d) $ 0.52
Discontinued operations: (b)(c)
Income (loss) from discontinued operations,
net of income taxes (benefits) - (0.83) (0.68) (1.03)(d) 0.37
Loss from discontinuance,
net of tax benefits - (0.37) - - -
Net income available to
common shareholders, basic (c) 2.44 0.43 1.11 1.09 (d) 0.89
Income from continuing operations, diluted(c) 2.19 1.48 1.64 1.81 0.46
Dividends paid on common stock 0.40 0.40 0.40 - -
Common shareholders' equity 13.26 10.86 15.76 14.58 13.65
OTHER DATA
Total assets 2,421,496 2,081,866 2,084,958 1,833,742 1,728,874
Capital expenditures 242,343 200,835 167,253 149,808 151,815
Effective income tax rate 45.5% 45.5% 43.6% 42.0% 43.4%
Basic average shares 46,236,688 44,041,159 42,067,842 36,183,020 35,444,175
Market price range $50.88-$20.25 $29.38-$17.25 $27.88-$20.25 $29.25-$18.00 $24.00-$13.63
Number of shareholders 15,560 16,090 15,980 16,015 15,785
Number of regular full-time employees 26,300 25,100 21,400 18,500 17,000
<FN>
(a) Includes preferred stock dividends.
(b) Reflects the results of CFC as described in Note 2 of the Notes to the Consolidated Financial Statements.
(c) Prior years have been restated to conform to the presentation required by SFAS 128, "Earnings Per Share."
(d) Continuing operations include a $3.6 million extraordinary charge ($.10 per share basic and $.07 per share diluted), and
discontinued operations $1.9 million ($.05 per share basic and $.04 per share diluted), net of related tax benefits, for
the write-off of intrastate operating rights.
</FN>
</TABLE>
EXHIBIT 21
CNF TRANSPORTATION INC.
SIGNIFICANT SUBSIDIARIES OF THE COMPANY
December 31, 1997
The Company and its significant subsidiaries were:
State or
Percent of Province or
Stock Owned Country of
Parent and Significant Subsidiaries by Company Incorporation
CNF Transportation Inc. Delaware
Significant Subsidiaries of CNF Transportation Inc.
Con-Way Transportation Services, Inc. 100 Delaware
Con-Way Truckload Services, Inc. 100 Delaware
Emery Air Freight Corporation 100 Delaware
Emery Worldwide Airlines, Inc. 100 Nevada
Menlo Logistics, Inc. 100 California
Road Systems, Inc. 100 California
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 97617
<SECURITIES> 0
<RECEIVABLES> 723940
<ALLOWANCES> (20155)
<INVENTORY> 36580
<CURRENT-ASSETS> 1009387
<PP&E> 1496696
<DEPRECIATION> (616854)
<TOTAL-ASSETS> 2421496
<CURRENT-LIABILITIES> 806138
<BONDS> 473488
125000
131658
<COMMON> 336237
<OTHER-SE> 190208
<TOTAL-LIABILITY-AND-EQUITY> 2421496
<SALES> 0
<TOTAL-REVENUES> 4266801
<CGS> 0
<TOTAL-COSTS> 4001934
<OTHER-EXPENSES> 43053
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39553
<INCOME-PRETAX> 221814
<INCOME-TAX> 100925
<INCOME-CONTINUING> 120889
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 113003
<EPS-PRIMARY> 2.44
<EPS-DILUTED> 2.19
</TABLE>
