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, 1999
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
Title of Each Class on Which Registered
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Common Stock ($.625 par value) New York Stock Exchange
Pacific Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act:
7.35% Notes Due 2005
8 7/8% Notes Due 2010
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, 2000: $1,258,097,931
Number of shares of Common Stock outstanding as of February 29,2000:
48,493,099
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DOCUMENTS INCORPORATED BY REFERENCE
Parts I, II and IV
CNF Transportation Inc. 1999 Annual Report to Shareholders (only
those portions referenced herein are incorporated in this Form 10-
K).
Part III
Proxy Statement dated March 20, 2000 (only those portions
referenced herein are incorporated in this Form 10-K).
- PAGE 2 -
CNF TRANSPORTATION INC.
FORM 10-K
Year Ended December 31, 1999
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INDEX
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Item Page
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PART I
1. Business.............................................3
2. Properties..........................................13
3. Legal Proceedings...................................15
4. Submission of Matters to a Vote of
Security Holders..................................15
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...............16
7A. Quantitative and Qualitative Discussions about
Market Risk.......................................16
8. Financial Statements and Supplementary Data.........17
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...............17
PART III
10. Directors and Executive Officers of the Company.....17
11. Executive Compensation..............................19
12. Security Ownership of Certain Beneficial Owners
and Management....................................19
13. Certain Relationships and Related Transactions......19
PART IV
14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K.......................................19
- PAGE 3 -
CNF TRANSPORTATION INC.
FORM 10-K
Year Ended December 31, 1999
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PART I
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ITEM 1. BUSINESS
CNF Transportation Inc. and subsidiaries (collectively the
Registrant or the Company) is a management company of global
supply-chain services with businesses in regional less-than-
truckload trucking, multi-modal full truckload, multi-client
warehousing and expedited ground transport (Con-Way
Transportation Services); domestic and international airfreight,
ocean freight, customs brokerage and logistics services (Emery
Worldwide); full-service logistics management (Menlo Logistics);
postal sortation and transportation services (Emery Worldwide
Airlines), and trailer manufacturing (Road Systems).
In compliance with Statement of Financial Accounting Standards
(SFAS) 131, "Disclosures about Segments of an Enterprise and
Related Information", the Company discloses segment information
in the manner in which the components are organized for making
operating decisions, assessing performance and allocating
resources. The Company's four segments, which are discussed
below, include Con-Way Transportation Services, Emery Worldwide,
Menlo Logistics and Other. The Other segment consists primarily
of the operations under a Priority Mail contract with the U.S.
Postal Service, and includes Road Systems and, prior to the sale
of its assets in May 1999, VantageParts. For financial
information concerning the Company's business segments, refer to
Note 13 of the Notes to Consolidated Financial Statements
contained in the Company's 1999 Annual Report to Shareholders,
which is incorporated herein by reference.
The operations of the Company are primarily conducted in the U.S.
but to an increasing extent are conducted in foreign countries.
For geographic group information, also refer to Note 13 of the
Notes to Consolidated Financial Statements contained in the 1999
Annual Report to Shareholders.
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 less-than-truckload (LTL) motor carrier and its related
businesses. The Registrant's shareholders received one share of
CFC stock for every two shares of the Registrant's stock that
were owned on November 15, 1996. Following the Spin-off, the
Company changed its name to CNF Transportation Inc. The Company,
formerly Consolidated Freightways, Inc., was incorporated in
Delaware in 1958.
- PAGE 4 -
CON-WAY TRANSPORTATION SERVICES SEGMENT
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The Con-Way reporting segment consists of Con-Way Transportation
Services Inc. and its subsidiaries.
Con-Way Regional Carriers
Con-Way's primary business units are three regional LTL motor
carriers that operate dedicated regional trucking networks.
These regional LTL carriers principally serve core geographic
territories with next-day and second-day service to
manufacturing, industrial, commercial and retail business-to-
business customers.
Con-Way's regional carriers include Con-Way Central Express
(CCX), which serves 25 states of the central and northeast U.S.,
Ontario and Quebec, Canada and Puerto Rico; Con-Way Southern
Express (CSE), which serves a 12-state southern market from Texas
to Virginia and Florida, and also operates in Puerto Rico and
parts of Mexico; and Con-Way Western Express (CWX), which
operates in 13 western states and serves parts of Canada and
Mexico.
In 1998, Con-Way began offering coast-to-coast service in all 50
states by fully linking its three regional carriers. The
expansion of Con-Way's joint service offerings permits Con-Way's
regional carriers to provide full service throughout the U.S. and
to major cities in Canada. By offering joint services, the
regional carriers can provide next-day and second-day freight
delivery between their respective core territories utilizing
existing infrastructure. The joint service allows each carrier
to provide coverage of inter-regional market lanes that were not
previously serviced as part of its core territory.
In February 1999, Con-Way began offering customers a new
guaranteed delivery service option. The new service offers an
automatic 100% delivery guarantee for an additional charge to the
customer.
Con-Way Truckload Services, Con-Way NOW and Con-Way Integrated
Services
Con-Way Truckload Services (CWT) is a full-service, multi-modal
truckload company that provides door-to-door delivery of
truckload shipments by highway and rail forwarding with domestic
intermodal marketing services, and assembly and distribution
services. In addition, CWT is a subcontractor for the Priority
Mail operation, which is discussed below in the "Other" segment.
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 has delivery
service in 48 states and parts of Canada.
- PAGE 5 -
In 1998, Con-Way created a new business, Con-Way Integrated
Services (CIS), to provide logistics solutions to customers. CIS
offers integrated supply chain services for shippers, using its
own multi-client warehouses, its multi-modal carrier
relationships, and alliances with leading supply chain software
firms to bring semi-customized solutions configured to its
customers' needs.
Con-Way - Competitive Conditions
The trucking industry is intensely competitive. Principal
competitors of Con-Way include regional and national LTL
companies. Competition in the trucking industry is based on
freight rates, service, reliability, transit times and scope of
operations.
EMERY WORLDWIDE SEGMENT
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The Emery Worldwide reporting segment includes the combined
accounts of Emery Air Freight Corporation and its subsidiaries
(EAFC), a portion of the operations of Emery Worldwide Airlines,
Inc. (EWA), and Emery Expedite!, Inc. The Registrant is the owner
of 100% of the outstanding shares of these companies. EWA
primarily provides nightly air delivery services for EAFC and
Express Mail (a next-day delivery service) under a contract
awarded by the U.S. Postal Service (USPS). The operations of the
Express Mail contract are reported in the Emery Worldwide
business segment. In 1997, EWA was awarded a contract for the
sortation and transportation of Priority Mail, a second-day
delivery service, in the eastern United States. The operations
of the Priority Mail contract are reported in the Other business
segment.
- PAGE 6 -
Emery Air Freight Corporation
Emery Air Freight Corporation (EAFC) provides both domestic and
international air freight services. In North America, EAFC
relies principally on the dedicated aircraft of EWA and EAFC's
ground fleet to provide commercial door-to-door delivery for next-
day, second-day and deferred shipments. Internationally, EAFC
acts principally as a freight forwarder by providing door-to-door
and airport-to-airport commercial services in over 200 countries.
Emery Air Freight Corporation - North America
EAFC's hub-and-spoke system is centered at the Dayton, Ohio
International Airport, 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, generally handling
over 5 million pounds of freight daily. While Emery's freight
system is designed to handle parcels, packages and shipments of a
variety of sizes and weights, its air freight operations are
focused primarily on heavy air freight (defined as shipments of
70 pounds or more). The operation of the Hub in conjunction with
EWA's airlift system contributes to EAFC's ability to maintain
service reliability. As of December 31, 1999, EAFC had
substantially completed a $75 million redesign and expansion of
the Hub that is expected to increase freight handling capacity
30% in the year 2000.
In addition to the Dayton Hub, EAFC 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.
EAFC provides services in North America through a system of sales
offices and service centers. EAFC's door-to-door service within
North America relies on the airlift system of EWA, supplemented
with commercial airlines. Customers are typically concerned with
timely deliveries rather than the mode of transportation. Because
the average cost of ground transportation is considerably less
than air transportation, EAFC seeks to manage its costs by using
trucks, rather than aircraft, to transport freight whenever
possible, typically in connection with second-day and deferred
deliveries.
Emery Air Freight Corporation - International
Internationally, EAFC operates primarily as an air freight
forwarder using commercial airlines, while utilizing controlled
lift only on a limited basis. (International business is defined
as shipments that either originate or terminate outside of the
United States). EAFC provides services internationally through
foreign subsidiaries, branches, service centers and agents. In
1997, EAFC opened new distribution centers in Singapore and Miami
to serve Asia and Latin America, respectively.
EAFC's expansion plans have been focused on international
operations due to the expectation of greater opportunities in an
expanding worldwide economy and the lower capital requirements of
the variable-cost based international operations. From 1995 to
1999, EAFC's international air freight revenue increased 37.5%,
compared with a 13.8% increase in North American air freight
revenue for the same period. Emery's fastest-growing regions
internationally have been Latin America and Asia. In 1998,
however, business in Asia declined as a result of a severe
regional economic downturn that also adversely impacted other
international regions.
- PAGE 7 -
Emery Worldwide Airlines
In addition to providing aircraft for EAFC's commercial air
freight operations, EWA uses its aircraft to provide charter
services and also to provide air delivery services for Express
Mail (a next-day delivery service) under a ten-year contract with
the USPS. The current Express Mail contract was awarded to EWA
in 1993. In addition, EWA has also received separate contracts
to carry peak-season Christmas and other mail for the USPS.
Emery recognized approximately $253 million, $214 million and
$163 million of revenue in 1999, 1998 and 1997, respectively,
from Express Mail and other contracts for the USPS, excluding
Priority Mail revenue that is reported in the "Other" segment.
Emery Expedite!, Emery Global Logistics and Emery Customs
Brokerage
To enhance the range of services it can offer to its customers
and to provide further avenues for growth, Emery has established
several variable-cost based "strategic business units." These
units include Emery Expedite!, a rapid response freight handling
subsidiary providing door-to-door delivery of shipments in North
America and overseas. Emery Global Logistics operates North
American and international warehouses and distribution centers
for a variety of customers. Emery Customs Brokerage (ECB)
provides full service customs clearance regardless of mode or
carrier. Through ECB, Emery also serves as a global freight
forwarder and non-vessel-operating common carrier that provides
full and less-than-container load service.
Emery - Competition
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 intense and
is based on, among other things, freight rates, quality of
service, reliability, transit times and scope of operations.
Emery - Strategic Initiatives
Management will continue to focus on positioning Emery as a
premium service provider. In North America, management intends
to continue developing an infrastructure capable of servicing a
higher volume of premium and guaranteed delivery services and
will seek to reduce the costs associated with its infrastructure.
Key initiatives include replacing older and less reliable
aircraft with newer aircraft having lower maintenance costs and
the recent reconfiguration of its Hub sortation center.
- PAGE 8 -
Internationally, Emery's management will focus on expanding its
variable-cost-based operations and will continue its efforts to
increase international revenue as a percentage of total revenue.
For 1999, total international revenue of $1.09 billion comprised
45% of Emery's total revenue.
An important element in providing premium service is the ability
to track freight information, 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. Emery's management expects the Emcon 2000
system to be implemented in 2000 in its North American operations
and in 2001 for its international operations.
MENLO LOGISTICS SEGMENT
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The Menlo reporting segment consists of Menlo Logistics, Inc.,
which was founded in 1990, and its subsidiaries (Menlo). Menlo
specializes in developing and managing complex national and
global supply and distribution networks, including transportation
management, dedicated contract warehousing and dedicated contract
carriage. In serving its customers, Menlo uses and develops
logistics optimization and customer order and shipment tracking
software, and also provides real-time warehouse, transportation
and order management systems. Menlo has developed the ability to
link these systems with each other and with its customers'
internal systems.
The Company believes that Menlo's technology skills, operations
processes and design expertise with 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.
The Company believes that three industry trends have driven
Menlo's growth. First, the Company believes that a number of
businesses are increasingly evaluating their overall logistics
costs, including transportation, warehousing and inventory
carrying costs. Second, 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.
Menlo's ability to provide solutions to intricate distribution
issues for large companies with complex supply chains has helped
Menlo to secure new projects and expand services for existing
customers. In 1998, Menlo secured six new significant contracts.
In 1999, Menlo began new projects with Delphi, Williams-Sonoma,
The North Face, and a major tool manufacturer. Also in 1999,
Menlo agreed to expand certain projects for Hewlett-Packard.
Compensation from Menlo's customers takes different forms,
including cost-plus, gain-sharing, per-piece, fixed-dollar and
consulting fees. In most cases, customers reimburse start-up and
development costs.
- PAGE 9 -
Menlo seeks 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, few customer relationships have been ended by either
Menlo or its customers.
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 as a conduit through
which business can be referred to Con-Way or Emery. The
independence of Menlo from the Company's other primary business
units is viewed as essential to maintaining Menlo's credibility
with its customers.
Menlo - Competition
Menlo operates in the relatively new but intensely competitive
third-party logistics (3PL) industry. Competition is based
largely on computer system skills and the ability to rapidly
implement logistics solutions. Competitors in the 3PL industry
are numerous and include domestic and foreign logistics companies
and the logistics arms of integrated transportation companies;
however, Menlo primarily competes against a limited number of
major competitors that have resources sufficient to service large
logistics contracts.
OTHER SEGMENT
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The Other segment consists primarily of the operations under a
Priority Mail contract with the USPS, and includes Road Systems,
a trailer manufacturer, and prior to the sale of its assets in
May 1999, VantageParts, a wholesale distributor of truck parts
and supplies.
Priority Mail Contract
In April 1997, the USPS awarded EWA a 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 expires in February 2002 and may be renewed, at the
option of the USPS, for two additional terms of three years. The
Company recognized $555.5 million, $410.8 million, and $51.6
million of revenue from the Priority Mail contract in 1999, 1998,
and 1997, respectively.
Among other things, the Priority Mail contract calls for EWA to
lease or acquire, equip, fully staff and operate ten Priority
Mail Processing Centers (PMPCs) in ten major metropolitan areas,
primarily along the eastern seaboard. All ten of the PMPCs were
operational as of June 30, 1998. EWA also provides air
transportation under the contract and provides ground
transportation between the PMPCs and other USPS facilities. Con-
Way Truckload Services, a subsidiary of Con-Way Transportation
Services, acts as a subcontractor and provides line-haul
transportation between PMPCs.
- PAGE 10 -
Issues arising from the Priority Mail contract, including an
ongoing dispute as to pricing terms under the contract, are
discussed in Management's Discussion and Analysis - Other Segment
contained in the Company's 1999 Annual Report to Shareholders,
which is incorporated herein by reference. The Company has had
discussions with the USPS on a range of possibilities for
restructuring the activities under the Priority Mail contract.
Although the Company cannot predict whether these discussions
will in fact result in additional payments to the Company or a
modification to the contract, the wide range of alternatives
discussed has included both increasing and decreasing the scope
of the Company's activities under the contract and both partial
and total termination of the contract. In addition, both the
Company and the USPS have notified each other of alleged breaches
under the contract. If the Company's activities under the
contract are curtailed or terminated, the costs could be
material. Likewise, it is possible that the USPS could assert
claims against the Company for breach of the contract or other
matters, which could be significant.
In March 2000, the Company filed a claim with the USPS related to
the Priority Mail contract to recover actual and expected
reductions to EWA's contract pricing. This claim was filed in
response to a reduction by the USPS in contract pricing for both
prior and future periods. The claim is in addition to the
previously reported 1999 pricing claim and substantially covers
the remaining initial term of the contract.
Road Systems and VantageParts
A majority of the revenue from Road Systems and, prior to the
sale of its assets in May 1999, VantageParts, was from sales to
other subsidiaries of the Company and to CFC. Road Systems
primarily manufactures and rebuilds trailers, converter dollies
and other transportation equipment.
Prior to the sale of its assets in May 1999, VantageParts served
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
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Employees
At December 31, 1999, the Company had approximately 34,400
regular employees of which 30,800 were regular full-time
employees. The 34,400 regular part-time and full-time employees
by segment were as follows: Con-Way, 15,100; Emery Worldwide,
11,900; Menlo, 2,200; Other segment, 4,300. Approximately 900
regular employees were employed by CNF in executive,
administrative and technology positions to support the Company's
operating subsidiaries.
- PAGE 11 -
Seasonality
The Company operates in industries that are affected directly by
general economic conditions and seasonal fluctuations, both of
which affect demand for transportation services. In a typical
year for the trucking and air freight industries, the months of
September and October usually have the highest business levels
while the months of January and February usually have the lowest
business levels. Operations under the Priority Mail contract
peak in December due primarily to higher shipping demand related
to the holiday season.
Regulation - Ground Transportation
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 Interstate Commerce
Commission (ICC) relating chiefly to motor carrier registration,
cargo and liability insurance, extension of credit to motor
carrier customers, leasing of equipment by motor carriers from
owner-operators and enforces comprehensive trucking safety
regulations. 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.
Regulation - Air Transportation
The air transportation industry is subject to extensive
regulation by various federal, state and foreign governmental
entities. The industry is subject to federal regulation under
the Federal Aviation Act of 1958, as amended (Aviation Act) and
regulations issued by the DOT pursuant to the Aviation Act.
EAFC, 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.
- PAGE 12 -
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 EWA's or EAFC's operations.
If such restrictions were to be imposed with respect to the
airports at which EWA's or EAFC's activities are centered
(particularly EAFC's major Hub at the Dayton International
Airport), and no alternative airports were available to serve the
affected areas, there could be a material adverse effect on EWA's
or EAFC'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.
Regulation - Environmental
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 Company's
financial position or results of operations.
- PAGE 13 -
ITEM 2. PROPERTIES
CON-WAY TRANSPORTATION SERVICES SEGMENT
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As of December 31, 1999, Con-Way operated 318 freight service
centers, of which 86 were owned and 232 were leased. The service
centers, which are strategically located to cover the geographic
area served by Con-Way, represent physical buildings and real
property with dock, office and/or shop space ranging in size from
approximately 1,000 to 96,000 square feet. These facilities do
not include meet-and-turn points, which generally represent small
owned or leased real property with no physical structures.
In addition to freight service centers operated by Con-Way's
regional carriers, Con-Way Integrated Services leases 3
warehouses near Los Angeles, California; Chicago, Illinois; and
Jersey City, New Jersey. The warehouses range in size from
approximately 103,000 to 171,000 square feet.
The total number of trucks, tractors and trailers utilized in the
Con-Way operations at December 31, 1999 was approximately 27,700.
EMERY WORLDWIDE SEGMENT
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Emery's hub system is centered at the Dayton, Ohio International
Airport (the Hub), where its leased air cargo facility and
related support facilities are located. The Hub, which
encompasses approximately 800,000 square feet, was financed by
City of Dayton, Ohio revenue bonds. The Hub and related property
secures the principal amount of the industrial revenue bonds.
As of December 31, 1999, EAFC operated 232 freight service
centers, of which 11 were owned. The service centers are
strategically located to cover the geographic areas served by
Emery. These facilities range in size from approximately 1,000
to 112,000 square feet of office, dock and/or shop space.
In addition to the freight service centers operated by EAFC, Emery
also leases various customer-dedicated warehouses and 4 large multi-
user warehouses in Dayton, Ohio; Miami, Florida; the Netherlands,
and Singapore. The multi-user warehouses range from approximately
104,000 to 136,000 square feet.
At December 31, 1999, Emery operated 74 aircraft, of which 26
were owned and 48 were leased. In addition to owned and leased
aircraft, Emery "wet leases" aircraft on a short-term basis to
supplement nightly capacity and to provide feeder services. The
wet lease agreements call for the owner-lessor to provide flight
crews, insurance, maintenance, fuel and other supplies required
to operate the aircraft. Although aircraft under wet leases can
vary depending on seasonal demand, 17 aircraft were used in
connection with these agreements as of December 31, 1999. At
December 31, 1999, EWA had entered into commitments for operating
leases for 9 new aircraft to be delivered in 2000.
- PAGE 14 -
As of December 31, 1999, 1 aircraft was dedicated for exclusive
use in the Priority Mail operations and 19 of the aircraft
reported above were designated for shared use with the Priority
Mail operation. These aircraft, which are used primarily at
night in EWA's commercial non-Priority Mail freight operations,
are also used in "daylight turns" of aircraft for the
transportation of Priority Mail. As of December 31, 1999, 26
aircraft were dedicated to service the Express Mail contract with
the USPS. Operations related to the Express Mail contract are
included in the Emery Worldwide segment and the Priority Mail
operations are included in the Other segment.
At December 31, 1999, EAFC operated approximately 1,700 trucks,
tractors and trailers, as well as equipment provided by its
agents.
MENLO LOGISTICS SEGMENT
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As of December 31, 1999, Menlo operated 35 warehouses. Of these
warehouses operated by Menlo, 25 were leased by Menlo and 9 were
leased or owned by Menlo's clients. The 25 facilities leased by
Menlo ranged in size from approximately 16,000 to 366,000 square
feet.
At December 31, 1999, Menlo operated approximately 400 trucks,
tractors and trailers.
OTHER SEGMENT
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The principal operating properties of the Other segment are
comprised primarily of 10 Priority Mail Processing Centers
(PMPCs) and related sortation and transportation equipment. The
PMPCs, which are large warehouses modified for efficient
sortation of mail, range in size from approximately 120,000 to
300,000 square feet. The 10 PMPCs are located in the eastern
United States in Newark and Bridgeport, New Jersey; Bethpage and
Rochester, New York; Nashua, New Hampshire; Pittsburgh,
Pennsylvania; Springfield, Massachusetts; and Jacksonville, Miami
and Orlando, Florida.
As discussed above under "Emery Worldwide Segment", as of
December 31, 1999, 1 aircraft in EWA's fleet was used exclusively
in the Priority Mail operations and 19 of the aircraft that are
dedicated to Emery's operations were designated for shared use
with the Priority Mail operation. These aircraft, which are used
primarily at night in EWA's commercial non-Priority Mail freight
operations, are also used in "daylight turns" of aircraft for the
transportation of Priority Mail.
At December 31, 1999, approximately 900 trucks, tractors and
trailers were operated by EWA in the Priority Mail operation.
- PAGE 15 -
ITEM 3. LEGAL PROCEEDINGS
The legal proceedings of the Company are summarized in Note 12 of
the Notes to Consolidated Financial Statements contained in the
1999 Annual Report to Shareholders and is incorporated herein by
reference. Discussion of environmental matters is presented in
Item 1.
The Department of Transportation, through its Office of Inspector
General, and the Federal Aviation Administration are conducting
an investigation relating to the handling of hazardous materials
by Emery. The investigation is ongoing and Emery is cooperating
fully. Because the investigation is at a preliminary stage, we
are unable to predict the outcome of this investigation.
On February 16, 2000, a DC-8 cargo aircraft operated by EWA
crashed shortly after take-off from Mather Field, near
Sacramento, California. The crew of three was killed. There
were no reported injuries on the ground. The cause of the crash
has not been determined. The National Transportation Safety
Board has begun an investigation.
We are currently unable to predict the outcome of this matter or
the effect it may have on the Company. We may be subject to
claims and proceedings relating to the crash, which could include
private lawsuits seeking monetary damages and governmental
proceedings. Although EWA maintains insurance that is intended
to cover claims that may arise in connection with an airplane
crash, the Company cannot assure that the insurance will in fact
be adequate to cover all possible types of claims. In
particular, any claims for punitive damages or any impact of
possible government proceedings or other sanctions would not be
covered by insurance.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
- PAGE 16 -
PART II
-------
Information for Items 5 through 8 of Part II of this Report
appears in the Company's 1999 Annual Report to Shareholders as
indicated below and is incorporated herein by reference.
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".
Page Number of Annual
Report to Shareholders
----------------------
Range of common stock prices for each of the quarters
in 1999 and 1998 32
Common shareholders of record at December 31, 1999 34
Dividends paid on common stock for each of the quarters
in 1999 and 1998 32
ITEM 6. SELECTED FINANCIAL DATA
Selected Consolidated Financial Data 34
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 12
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 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, particularly in light
of recent fuel price increases; uncertainty regarding the
Company's Priority Mail contract with the USPS, including
uncertainties regarding the Company's claims under the contract
described herein or incorporated by reference; 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
- PAGE 17 -
claims made by the Internal Revenue Service with respect to the
aviation excise tax and aircraft maintenance tax matters
discussed in documents incorporated by reference; 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, tax and environmental matters, including the
tax matters discussed in documents incorporated by reference.
Although CFC is, in general, either the primary or secondary
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
successfully contesting their obligation to reimburse the Company
or otherwise, could lead to substantial claims against the
Company. As a result of the foregoing, no assurance can be given
as to future results of operations or financial condition.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page Number of Annual
Report to Shareholders
----------------------
Consolidated Balance Sheets 14
Statements of Consolidated Income 16
Statements of Consolidated Cash Flows 17
Statements of Consolidated Shareholders' Equity 18
Notes to Consolidated Financial Statements 20
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
--------
Information for Items 10 through 12 of Part III of this Report
appears in the Proxy Statement for the Company's 1999 Annual
Meeting of Shareholders to be held on April 25, 2000, as
indicated below and is incorporated by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The Executive Officers of the Company, their ages at December 31,
1999, and their applicable business experience are as follows:
Gregory L. Quesnel, 51, President and Chief Executive Officer of
the Company. Mr. Quesnel joined the CNF organization as Director
of Accounting in 1975, following several years of professional
experience with major corporations in the petroleum and wood
products industries. Mr. Quesnel advanced through increasingly
responsible positions and in 1986 was promoted to the top
financial officer position at the Company's largest subsidiary.
In 1990, Mr. Quesnel was elected Vice President and Treasurer of
CNF; in 1991, he was elected Senior Vice President and Chief
Financial Officer; and he was promoted to Executive Vice
President and Chief Financial Officer in 1994. As part of a
planned succession, Mr. Quesnel was elected President and Chief
Operating Officer in July 1997. In May 1998, Mr. Quesnel was
named President and Chief Executive Officer of the Company. At
that time, he was also elected as a member of the CNF Board of
Directors. Mr. Quesnel is a member of the Financial Executives
Institute, the California Business Roundtable, and the Conference
Board. He also serves as a member of the Executive Committee of
the Bay Area Council of the Boy Scouts of America. Mr. Quesnel
earned a bachelor's degree in finance from the University of
Oregon and holds a master's degree in business administration
from the University of Portland. Mr. Quesnel is a member of the
Executive and Director Affairs Committees of the Board.
- PAGE 18 -
Gerald L. Detter, 55, President and Chief Executive Officer of
Con-Way Transportation Services and Senior Vice President of the
Company. Mr. Detter joined the former Consolidated Freightways
Corporation of Delaware (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 to his current
position.
Roger Piazza, 60, President and Chief Executive Officer of Emery
Worldwide and Senior Vice President of the Company. Mr. Piazza
originally joined the former CF AirFreight in 1976 as manager of
the Detroit Service Center. During the following ten years he
served as a division manager and area vice president. Following
the merger of CF AirFreight and Emery Worldwide in 1989, Mr.
Piazza was named Vice President - North America. In 1999, Mr.
Piazza was named to his current position.
Chutta Ratnathicam, 52, 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 Audit for
the Company in 1989. In 1991, he was promoted to Vice President-
International for Emery. In 1997, Mr. Ratnathicam was named
Senior Vice President and Chief Financial Officer of the Company.
Eberhard G.H. Schmoller, 56, 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 the former 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.
John H. Williford, 43, President and Chief Executive Officer of
Menlo Logistics and Senior Vice President of the Company. Mr.
Williford joined the Company in 1981 as an Economics/Senior
Marketing Analyst. In 1984, he was named Director of Marketing
for the Company's international operations and was later
appointed Director of Marketing for the Company. Since its
inception in 1990, Mr. Williford has been the principal executive
in charge of Menlo Logistics, first as General Manager and then
as President and Chief Executive Officer. In 1998, Mr. Williford
was named Senior Vice President of the Company.
- PAGE 19 -
Information regarding members of the Company's Board of Directors
is presented on pages 3 through 9, inclusive, of the Company's
Proxy Statement dated March 20, 2000 and is incorporated herein
by reference.
ITEM 11. EXECUTIVE COMPENSATION
Page Number of
Proxy Statement
---------------
Compensation Information 13
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Stock Ownership - Directors and Executive Officers 10
Stock Ownership - Significant shareholders 32
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The consolidated financial statements of the Company,
together with the Notes to Consolidated Financial
Statements, and the report thereon of Arthur Andersen LLP,
dated January 28, 2000, are presented on pages 14 through 33
of the Company's 1999 Annual Report to Shareholders and are
incorporated herein by reference. With the exception of the
information incorporated by reference in Items 1, 3, 5, 6,
7, 7A, 8 and 14 hereof, the Company's 1999 Annual Report to
Shareholders is not to be deemed as filed as part of this
Report.
2. FINANCIAL STATEMENT SCHEDULE
Page Number
in Form 10-K
------------
Report of Independent Public Accountants
on Financial Statement Schedule S-1
Schedule II - Valuation and Qualifying Accounts S-2
All other financial statement schedules have been omitted
because they are not applicable or the required information
is included in the consolidated financial statements, or the
notes thereto, contained in the Company's 1999 Annual Report
to Shareholders and incorporated herein by reference.
- PAGE 20 -
3. EXHIBITS
Exhibits are being filed in connection with this Report and
are incorporated herein by reference. The Exhibit Index on
pages E-1 through E-6 is incorporated herein by reference.
(b) REPORTS ON FORM 8-K
On March 8, 2000, the Registrant filed a Report on Form 8-K
in connection with the issuance of $200 million aggregate
principal amount of its 8 7/8% Notes due 2010 (the "Notes")
under the Company's shelf registration statement on Form S-3
(File No. 333-56667). In the Report on Form 8-K, the
Company filed an Underwriting Agreement, Indenture and form
of Note executed in connection with the previously announced
public offering of the Notes.
- 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 27, 2000 /s/ Gregory L. Quesnel
--------------------------------
President and Chief Executive
Officer
March 27, 2000 /s/ Chutta Ratnathicam
---------------------------------
Chutta Ratnathicam
Senior Vice President and
Chief Financial Officer
March 27, 2000 /s/ Gary D. Taliaferro
---------------------------------
Gary D. Taliaferro
Corporate 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 27, 2000 /s/ Donald E. Moffitt
---------------------------------
Donald E. Moffitt
Chairman of the Board
March 27, 2000 /s/ Gregory L. Quesnel
---------------------------------
Gregory L. Quesnel
President, Chief Executive
Officer and Director
March 27, 2000 /s/ Robert Alpert
---------------------------------
Robert Alpert, Director
March 27, 2000 /s/ Richard A. Clarke
---------------------------------
Richard A. Clarke, Director
March 27, 2000 /s/ Margaret G. Gill
---------------------------------
Margaret G. Gill, Director
March 27, 2000
---------------------------------
Robert Jaunich II, Director
March 27, 2000 /s/ W. Keith Kennedy, Jr.
---------------------------------
W. Keith Kennedy, Jr., Director
- PAGE 23 -
SIGNATURES
March 27, 2000 /s/ Richard B. Madden
--------------------------------
Richard B. Madden, Director
March 27, 2000 /s/ Michael J. Murray
--------------------------------
Michael J. Murray, Director
March 27, 2000 /s/ Robert D. Rogers
--------------------------------
Robert D. Rogers, Director
March 27, 2000
--------------------------------
William J. Schroeder, Director
March 27, 2000 /s/ Robert P. Wayman
--------------------------------
Robert P. Wayman, Director
- S-1 -
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, 333-30327, 333-48733, 333-56667, and
333-92399
/s/Arthur Andersen LLP
----------------------
ARTHUR ANDERSEN LLP
San Francisco, California
March 24, 2000
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 1999 Annual Report to Shareholders
incorporated by reference in this Form 10-K, and have issued our
report thereon dated January 28, 2000. 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 S-2 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 28, 2000
- S-2 -
SCHEDULE II
CNF TRANSPORTATION INC.
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 1999
(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
--------- -------- -------- ---------- -------
1999 $21,098 $15,229 $ - $(10,164)(a) $26,163
1998 $20,155 $11,050 $ - $(10,107)(a) $21,098
1997 $18,712 $12,528 $ - $(11,085)(a) $20,155
(a) Accounts written off net of recoveries.
- E-1 -
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
September 28, 1998 (Exhibit 4(b) to the Company's
registration statement on Form S-3 dated November 10,
1998.*).
(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 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*)
4.4 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*)
4.5 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*)
4.6 Declaration of Trust of the Trust (Exhibit 4(k) to the
Company's Amendment 1 to Form S-3 dated May 30, 1997*)
4.7 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*)
4.8 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*)
- E-2 -
4.9 Form of Indenture between CNF Transportation Inc. and Bank
One Trust Company, National Association (Exhibit 4(d)(i) to the
Company's Form 8-K dated March 3, 2000*).
4.10 Form of Security for 8 7/8% Notes due 2010 issued by CNF
Transportation Inc. (Exhibit 4(i) to the Company's Form 8-K
dated March 3, 2000*).
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**)
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**)
- E-3 -
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*).
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*).
- E-4 -
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. (Exhibit 10.20 to the Company's Form 10-K for the
year ended December 31, 1997. *#)
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. (Exhibit
10.33 to the Company's Form 10-K for the year ended December 31,
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 (Exhibit 10.24 to the Company's
Form 10-K for the year ended December 31, 1997. *#)
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.*#)
- E-5 -
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. 1997 Equity and Incentive Plan
as amended as of January 31, 2000. (Exhibit A to the Company's
Proxy Statement dated March 20, 2000. *#)
10.30 CNF Transportation Inc. Deferred Compensation Plan for
Directors 1998 Restatement. (Exhibit 10.34 to the Company's Form
10-K for the year ended December 31, 1997. *#)
10.31 CNF Transportation Inc. Executive Severance Plan. (Exhibit 10.32
to the Company's Form 10-K for the year ended December 31,
1998.*#)
10.32 CNF Transportation Inc. Summary of Incentive Compensation
plans for 2000. #
10.33 Value Management Plan dated June 28, 1999.#
(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. 1999 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
- E-6 -
(99) Additional documents:
99.1 CNF Transportation Inc. 1999 Notice of Annual
Meeting and Proxy Statement dated March 20, 2000 and
filed on Form DEF 14A. (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.
Footnotes to Exhibit Index
---------------------------
* 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.
Exhibit 10.32
CNF TRANSPORTATION INC.
SUMMARY OF INCENTIVE COMPENSATION PLANS FOR
2000
For 2000, CNF Transportation Inc. and certain of its
subsidiaries (each a "CNF Company") have adopted short-
term incentive compensation plans that provide for annual
incentive compensation to be paid to plan participants if
certain performance goals are met by the applicable CNF
Company. This document summarizes the general terms of
those plans. The plans vary in terms of the performance
measures to be met, and the amount of compensation to be
paid, but generally contain the terms as described below.
THE PLANS
In order to motivate eligible employees to perform more
effectively and efficiently, each CNF Company has
established a short-term incentive compensation plan
(Plan), under which participants are eligible to receive
short-term incentive compensation payments based upon
calendar year 2000 Incentive Performance Goals.
DESIGNATION OF PARTICIPANTS
Participation in each Plan is limited to full-time non-
contractual employees of the applicable CNF Company. A
master list of each Plan's participants is maintained in
the office of the President of the applicable CNF
Company.
ELIGIBILITY FOR PAYMENT
Participants generally commence participation in the
Plans on January 1, 2000. Eligible employees who are
employed by a CNF Company after January 1 commence
participation at the beginning of the first full calendar
quarter after joining the CNF Company. Calendar quarters
begin January 1, April 1, July 1, and October 1 or the
first working day thereafter. A participant who
commences participation in the Plan during the 2000 Plan
year, and who participates less than four full quarters,
receives a pro rata payment based on the number of full
calendar quarters of Plan participation.
Subject to the following exceptions, no participant is
eligible to receive any payment under a Plan unless on
the date the payment is actually made that person is then
currently (i) employed by a CNF Company and (ii) a Plan
participant.
EXCEPTION 1. A Plan participant who is employed by a
CNF Company through December 31, 2000 but leaves that
employment or otherwise becomes ineligible after December
31, 2000 but before the final payment is made relating to
2000, unless terminated for cause, is entitled to receive
payments under the Plan.
EXCEPTION 2. An appropriate pro rata payment will be
made (1) to a Plan participant who retires prior to
December 31, 2000 pursuant to the CNF Transportation Inc.
Retirement Plan and who, at the time of retirement, was a
participant in the Plan, (2) to the heirs, legatees,
administrators or executors of a Plan participant who
dies prior to December 31, 2000 and who, at the time of
death, was a participant in the Plan, (3) to a Plan
participant who is placed on an approved leave prior to
December 31, 2000, or (4) to a Plan participant who is
transferred to another CNF Company and who remains an
employee through December 31, 2000.
METHOD OF PAYMENT
Each Plan participant is assigned an incentive
participation factor as a percent of annual compensation.
The incentive participation factor is indexed to specific
performance goals such as revenue, profit, service, etc.
Minimum and incentive factor performance goals are
established separately for each Plan. Participants are
not entitled to any payments under the Plan until the
minimum performance goal is achieved. 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.
The maximum payment that any Plan participant may receive
is 200% of incentive compensation factor. In addition,
the aggregate amount of payments to all participants is
limited to the amount of a specified pool of funds.
DATE OF PAYMENT
The President of each CNF Company may authorize a partial
payment of the estimated annual incentive compensation
earned under the Plan to be made in December 2000. The
final payment to participants, less any previous partial
payment, is to be made on or before March 15, 2001.
INCENTIVE PERFORMANCE GOALS
Incentive Performance Goals are defined by each Plan but
generally consist of profits equal to earnings before
deducting any amounts expensed under a Company and/or
qualified subsidiary incentive plans, before deducting
income taxes and for some plans exclude interest income
and expense. Incentive Performance Goals may also
include specific levels of revenue, profit, service or
other measurable factors.
ANNUAL COMPENSATION
Annual Compensation for incentive purposes for each Plan
participant is that participant's annualized salary
before any incentive or other special compensation
(including long term disability insurance plan payments)
as of the first pay period following the date the
participant becomes eligible to participate in this Plan.
For certain Plans, the annualized salary is based on the
last pay period of the calendar year. 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.
LAWS GOVERNING PAYMENTS
No payment shall be made under this Plan in an amount
that is prohibited by law.
AMENDMENT, SUSPENSION, AND ADMINISTRATION OF PLAN
The Board of Directors of the CNF Company may at any time
amend, suspend, or terminate the operation of the Plans,
by thirty-day written notice to the Plan participants,
and has 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 PLANS
The Plans are for the calendar year 2000 only.
Exhibit 10.33
CNF TRANSPORTATION INC.
VALUE MANAGEMENT PLAN
1 . Purpose; Effective Date; Administration
1.1 Purpose
The purpose of the CNF Transportation Inc. Value Management
Plan (the "Plan") is to provide eligible employees of CNF
Transportation Inc. (the "Company") and its subsidiaries or
affiliates with long term compensation that is linked to
both the Company's mission of creating long-term shareholder
value and to the "Total Business Return" (as defined in
Section 3.1) of (i) the Company, (ii) a specified subsidiary
of the Company, (iii) a business unit or division of the
Company or a subsidiary of the Company, or (iv) a
combination of the foregoing, thereby providing them with an
incentive to maximize financial results for shareholders.
This Plan is adopted pursuant to the Company's 1997 Equity
and Incentive Plan, as amended (the "1997 Plan") in order to
provide for the grant of "Other Cash-Based Awards" (as
defined in the 1997 Plan), and is subject to all of the
applicable terms and provisions of the 1997 Plan.
1.2 Effective Date
The Plan shall be effective December 1, 1999.
1.3 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
2.1 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 2000 Award Cycle runs from
January 1, 2000 to December 31, 2002.
2.2 Award Payout
"Award Payout" means, for any Award Cycle, the cash award
that a Participant is eligible to receive under the Plan for
that Award Cycle.
2.3 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, and must be
designated as eligible as of the beginning of each Award
Cycle. The Company shall maintain in its records a list of
Participants for each Award Cycle.
The Committee shall also designate, for each Participant
during each Award Cycle, whether such Participant's Award
Payout is to be based upon the Total Business Return of (i)
the Company, (ii) a subsidiary of the Company, (iii) a
business unit or division of the Company or a subsidiary, or
(iv) a combination of the foregoing. Any entity upon whose
Total Business Return an Award Payout is based, in whole or
in part, whether such entity is the Company, a subsidiary of
the Company, or a business unit or division of the Company
or a subsidiary, is referred to herein as a "Business Unit."
2.4 Vesting
A Participant shall become vested in his or her right to
receive an Award Payout if the employee is continuously
employed by the Company or one of its Business Units
throughout the entire applicable 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 his or her right to receive
an Award Payout unless the departure coincides with one of
the following (in which case the Participant's right to
receive an Award Payout 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.
In addition, a Participant's right to receive an Award
Payout shall vest upon the occurrence of a Change in
Control.
Award Payouts that vest pursuant to this Section 2.4 shall
be payable as provided in Section 3.3.
2.5 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 or its affiliates, (B) any trustee or other
fiduciary holding securities under an employee benefit plan
of the Company or its affiliates, and (C) any corporation
owned, directly or indirectly, by the shareholders of the
Company in substantially the same proportions as their
ownership of the common stock, par value $0.625 per share,
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 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;
(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 defined above),
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
(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 assets having an aggregate book value at the time
of such sale or disposition of more than 75% of the total
book value of the Company's assets on a consolidated basis
(or any transaction having a similar effect), other than any
such sale or disposition by the Company (including by way of
spin-off or other distribution) to an entity, at least 50%
of the combined voting power of the voting securities of
which are owned immediately following such sale or
disposition by stockholders of the Company in substantially
the same proportions as their ownership of the Company
immediately prior to such sale or disposition.
"Board" means the Board of Directors of the Company or any
successor thereto.
"Effective Date" has the meaning given to such term in
Section 1.2.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.
3 . Awards
3.1 Award Payouts
Subject to Section 3.4 and the other terms and provisions of
this Plan, a Participant shall be entitled to receive an
Award Payout, payable as provided in Section 3.2, in an
amount equal to (i) the Participant's Beginning Base Salary
("BBS") times (ii) the Award Opportunity ("AO") times (iii)
the TBR Performance Multiple ("PM") times (iv) the Relative
TSR Performance Adjustment ("RPA").
Award Payout = BBS x AO x PM x RPA
In the event that the Committee designates that a
Participant's Award Payout is to be based upon the Total
Business Return of more than one Business Unit, the
Committee shall designate the weighting of such
Participant's Award Payout that is to be based upon the
Total Business Return of each such Business Unit. At the
end of the applicable Award Cycle, an Award Payout shall be
calculated utilizing the formula stated above based upon
the Total Business Return of each such Business Unit and the
applicable Award Opportunity and TBR Performance Multiple;
and the total Award Payout payable to such Participant shall
be the sum of the weighted Award Payouts so calculated.
"Annualized TBR" means, for each Business Unit during each
Award Cycle, the compound annual change in Total Business
Return (expressed as a percent) of such Business Unit during
such Award Cycle.
Example: Assume that the Total Business
Return for a Business Unit during a three-year
Award Cycle is 60%. In order to produce a 60%
return over a three-year period, the compound
annual rate of return required to produce such
Total Business Return is 17%. [(1.17) x
(1.17) x (1.17) = 1.60].
"Award Opportunity" means the percentage of a Participant's
Beginning Base Salary that the Participant is eligible to
receive as a cash award at the end of an Award Cycle. The
Committee shall determine each Participant's Award
Opportunity for an Award Cycle prior to the commencement of
such Award Cycle and shall inform such Participant in
writing of such determination.
"Beginning Base Salary" means a Participant's annual base
salary in effect during the first full payroll week of an
Award Cycle.
"Business Unit" has the meaning given to that term in
Section 2.3.
"Factor" means, for each Business Unit during each Award
Cycle, a factor specified by the Committee for such Award
Cycle for purposes of calculating the Total Business Return
of such Business Unit for such Award Cycle. In the event
that the Committee fails to specify a Factor for any
Business Unit for any Award Cycle, the Factor shall be
deemed to be the same as the Factor applicable to such
Business Unit for the immediately preceding Award Cycle, or,
if no Factor was specified for such Business Unit during the
preceding Award Cycle, the factor applicable to the Company
for such previous Award Cycle.
"Relative TSR Performance Adjustment" means, for any Award
Cycle, either 1.15, 0.85 or 1 (i.e., the Award Payout at the
end of any Award Cycle will be increased by 15%, decreased
by 15% or not changed), depending on whether the Company's
Total Shareholder Return during such Award Cycle (a) is in
the top quartile relative to the companies (other than the
Company) (1) that comprise the Dow Jones Transportation
Average ("DJTA") as of the end of such Award Cycle and (2)
the common stock of which has been publicly traded at all
times during the period commencing 60 trading days prior to
the commencement of such Award Cycle and ending on the last
day of such Award Cycle, (b) is below the median relative to
such companies or (c) is below the top quartile but above
the median relative to such companies for the period
covered by the Award Cycle.
"TBR Performance Multiple" means, for each Business Unit, a
number from 0 to 2, depending on the Annualized TBR attained
by such Business Unit during such Award Cycle. The
Committee shall set a Target Annualized TBR, a Superior
Annualized TBR and a Threshold Annualized TBR for each
Business Unit for each Award Cycle, and shall also set the
TBR Performance Multiple that shall apply when the Threshold
Annualized TBR is attained. If the Target Annualized TBR is
attained, the TBR Performance Multiple shall be equal to 1;
if the Superior Annualized TBR is attained, the TBR
Performance Multiple shall be equal to 2; and if the
Annualized TBR is less than the Threshold Annualized TBR,
the TBR Performance Multiple shall be equal to 0. If the
Annualized TBR is between the Threshold Annualized TBR and
the Target Annualized TBR, or if the Annualized TBR is
between the Target Annualized TBR and the Superior
Annualized TBR then the TBR Performance Multiple shall be
determined by interpolation.
"Total Business Return" ("TBR") is a method of simulating
the return shareholders would earn from investing in a
Business Unit. It shall be determined for each Award Cycle
for each Business Unit. The Total Business Return is
determined by dividing (a) the sum of (i) the cumulative
increase in net cash earnings ("Increase in NCE") of the
Business Unit from the beginning of an Award Cycle to the
end of an Award Cycle, multiplied by the applicable Factor
("F") and (ii) the free cash flow ("FCF") of such Business
Unit, by (b) the excess of (i) the net cash earnings
("NCE") of such Business Unit, determined as of December 31
of the year prior to the first year of the applicable Award
Cycle, multiplied by the applicable Factor ("F"), over (ii)
the outstanding Debt of such Business Unit at the beginning
of the Award Cycle, and adding to the amount so determined
the adjustment factor ("AF").
TBR =[((Increase in NCE x F) + FCF) / ((NCE x F) - Debt)] +
AF
For purposes of determining TBR, (i) the term "net cash
earnings" shall mean, for any Business Unit for any period,
the net income plus depreciation plus amortization of such
Business Unit for such period; (ii) the term "free cash
flow" shall mean, for any Business Unit for any period, the
net cash earnings minus capital expenditures minus increase
in working capital of such Business Unit for such period;
(iii) the term "working capital" shall mean, for any
Business Unit, the currents assets minus the non-Debt
liabilities of such Business Unit; (iv) the term "Debt"
shall mean, for any Business Unit on any date, the debt as
shown on the books of such Business Unit as of such date
plus an allocated portion of the debt of the Company on such
date; and (v) the term "adjustment factor" shall mean, for
any Business Unit for any Award Cycle, an adjustment factor
specified by the Committee for such Award Cycle.
"Total Shareholder Return" shall mean, for any company whose
common stock is publicly traded, for any period, the
percentage (expressed as a decimal) obtained by dividing (i)
the sum of (a) the appreciation in the value of a share of
common stock of such company during such period, as measured
by the difference between the market price of such share of
stock at the beginning and end of such period, plus (b) the
dividends payable on such share of common stock during such
period, divided by (ii) the market price of such share of
stock at the beginning of such period.
For purposes of determining "Total Shareholder Return," (x)
the term "market price" shall mean, for any share of
publicly-traded stock on any date, the average closing price
of such share of stock for the sixty (60) trading days
immediately preceding such date, and (y) appropriate
adjustments shall be made to reflect stock splits, reverse
stock splits, spinoffs, recapitalizations and other similar
transactions to the extent that they materially alter the
equity value of a share of common stock.
3.2 Payment of Award
Except as otherwise provided in Section 3.3, 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 of such Award Cycle, unless the Participant has made a
valid election to defer payment under the CNF Transportation
Inc. Deferred Compensation Plan for Executives.
3.3 Payments Upon Early Vesting
In the event that, pursuant to Section 2.4, a Participant
shall become vested in his or her right to receive an Award
Payout prior to the end of an Award Cycle, then (i) the
Award Cycle applicable to such Participant shall be deemed
to have ended (A) in the case of a Change in Control, as of
the end of the month immediately preceding such Change in
Control and (B) in all other cases, as of the end of the
calendar year in which such vesting occurs, (ii) the Award
Payout shall be determined pursuant to Section 3.1 based
upon the Total Business Return of the applicable Business
Unit(s) for such Award Cycle, and (iii) such Award Payout
shall be paid to such Participant within sixty (60) days
after the end of such Award Cycle or, in the event of a
Participant's death, as provided in the next paragraph.
In the event of a Participant's death, the Award Payout
payable to the Participant for an Award Cycle shall be paid
to the Participant's Beneficiary. "Beneficiary" means the
person or persons designated by the Participant pursuant to
a beneficiary designation form properly completed and
delivered to the Corporate Secretary. If no such
beneficiary designation is made, then the award shall be
paid to the Participant's estate. Payment to the
Beneficiary shall be made within 60 days after the end of
the applicable Award Cycle; provided, however, that if the
Participant had elected deferral of the Award Payout 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.
3.4 Adjustments
Subject to the terms of the 1997 Plan, in the event that the
Committee determines (i) that the Award Payout payable to
one or more Participants for an Award Cycle has been
materially affected as a result of events or circumstances
that were unanticipated at the beginning of the Award Cycle
and/or extraordinary in nature and (ii) that the goals of
the Plan would be frustrated if adjustments were not made to
such Award Payouts, then the Committee, in its sole
discretion, may make such adjustments to such Award Payouts
as it deems appropriate, which adjustments may have the
effect of increasing or decreasing the amount of the Award
Payouts otherwise payable pursuant to this Plan.
4 . Amendment; Termination
4.1 Amendment
The Committee may amend the Plan at any time by notice to
the Participants, except that no amendment shall reduce the
award determined for an Award Cycle that has ended before
the date of the amendment.
4.2 Termination
The Committee may terminate the Plan at any time.
Notwithstanding the termination of the Plan, the Award
Payouts for each Award Cycle then in progress shall be
calculated, and be payable, following the completion of each
such Award Cycle, in accordance with the provisions of
Sections 3.1 through 3.4.
5
. Claims Procedure
5.1 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.
5.2 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.
5.3 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.
5.4 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
6.1 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.
6.2 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.
6.3 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.
6.4 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.
6.5 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.
6.6 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: June 28, 1999
<TABLE>
Exhibit 12(a)
CNF TRANSPORTATION INC.
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
<CAPTION>
Year Ended December 31,
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Fixed Charges:
Interest expense $ 25,972 $ 32,627 $ 39,553 $ 39,766 $ 33,407
Capitalized interest 5,864 2,342 2,077 2,092 731
Dividend requirement on Series B
Preferred Stock(1) 10,992 12,133 12,377 12,645 12,419
Interest component of
rental expense (2) 41,363 40,750 35,607 28,521 29,210
------------- ------------- ------------- ------------- -------------
Fixed Charges $ 84,191 $ 87,852 $ 89,614 $ 83,024 $ 75,767
============= ============= ============= ============= =============
Earnings:
Income from continuing
operations before taxes $ 337,122 $ 250,411 $ 221,814 $ 147,132 $ 152,942
Fixed charges 84,191 87,852 89,614 83,024 75,767
Capitalized interest (5,864) (2,342) (2,077) (2,092) (731)
Preferred dividend requirements(3) (10,992) (12,133) (12,377) (12,645) (12,419)
------------- ------------- ------------- ------------- -------------
$ 404,457 $ 323,788 $ 296,974 $ 215,419 $ 215,559
============= ============= ============= ============= =============
Ratio 4.8 x 3.7 x 3.3 x 2.6 x 2.8 x
<FN>
(1) Dividends on shares of the Series B cumulative convertible preferred stock are used to pay debt
service on notes issued by the Company's Thrift and Stock Plan.
(2) Estimate of the interest portion of lease payments.
(3) Preferred stock dividend requirements included in Fixed Charges but not deducted in
the determination of Income from Continuing Operations Before Income Taxes.
</TABLE>
<TABLE>
Exhibit 12(b)
CNF TRANSPORTATION INC.
COMPUTATION OF RATIOS OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
<CAPTION>
Year Ended December 31,
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Combined Fixed Charges and Preferred
Stock Dividends:
Interest expense $ 25,972 $ 32,627 $ 39,553 $ 39,766 $ 33,407
Capitalized interest 5,864 2,342 2,077 2,092 731
Dividend requirement on Series B
Preferred Stock(1) 10,992 12,133 12,377 12,645 12,419
Dividend requirement on Series C
Preferred Stock (1) - - - - 2,207
Dividend requirement on preferred
securities of subsidiary trust 6,250 6,250 3,471 - -
Interest component of
rental expense (2) 41,363 40,750 35,607 28,521 29,210
------------- ------------- ------------- ------------- -------------
Fixed Charges $ 90,441 $ 94,102 $ 93,085 $ 83,024 $ 77,974
============= ============= ============= ============= =============
Earnings:
Income from continuing
operations before taxes $ 337,122 $ 250,411 $ 221,814 $ 147,132 $ 152,942
Fixed charges: 90,441 94,102 93,085 83,024 77,974
Capitalized interest (5,864) (2,342) (2,077) (2,092) (731)
Preferred dividend requirements(3) (10,992) (12,133) (12,377) (12,645) (14,626)
------------- ------------- ------------- ------------- -------------
$ 410,707 $ 330,038 $ 300,445 $ 215,419 $ 215,559
============= ============= ============= ============= =============
Ratio 4.5 x 3.5 x 3.2 x 2.6 x 2.8 x
<FN>
(1) Dividends on shares of the Series B cumulative convertible preferred stock are used to pay debt
service on notes issued by the Company's Thrift and Stock Plan. Preferred stock dividends include
dividends on the Series C Conversion Preferred Stock, all of which was converted into Common
Stock in March 1995.
(2) Estimate of the interest portion of lease payments.
(3) Preferred stock dividend requirements included in Combined Fixed Charges but not deducted in
the determination of Income from Continuing Operations Before Income Taxes.
</TABLE>
Exhibit 13
PAGE 8
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Consolidated Results
Net income available to common shareholders for 1999 increased 39.3% over
1998 to a record $182.3 million ($3.78 per basic share and $3.35 per
diluted share) due primarily to higher operating income, a decline in other
net expense, and a lower effective tax rate. Operating income of $359.1
million increased 23.6% over 1998 on double-digit percentage growth at all
of our reporting segments. Higher operating income in 1999 was largely
attributable to a 13.2% increase in revenue to $5.59 billion. Higher
consolidated revenue in 1999 was comprised of increases from all of our
reporting segments and was aided by improved international economic
conditions and continued strength in the domestic economy.
Results of operations in 1999 included three unusual gains. Operating
income benefited from a $16.5 million net gain ($0.19 per basic share and
$0.17 per diluted share) on the settlement of a lawsuit in January 1999. In
May 1999, another non-recurring net gain of $10.1 million ($0.12 per basic
share and $0.10 per diluted share) was recognized in operating income on
the sale of the assets of VantageParts, our wholesale distributor of truck
parts and supplies. Also, other net expense in 1999 included a $9.6 million
net gain from the sale of equity securities in December 1999 ($0.11 per
basic share and $0.10 per diluted share). Excluding the unusual gains, net
income available to common shareholders for 1999 would have been $161.8
million ($3.36 per basic share and $2.98 per diluted share).
Net income available to common shareholders for 1998 increased 15.8% over
1997 to $130.8 million ($2.74 per basic share and $2.45 per diluted share)
due primarily to higher operating income, a decrease in other net expense,
and a lower effective tax rate. The increase in 1998 operating income was
primarily the result of significantly higher income from Con-Way
Transportation Services, increased income from Menlo Logistics and a
reduction in loss from the Other segment, which consists mostly of the
operations under the Priority Mail contract with the U.S. Postal Service.
Revenue in 1998 of $4.94 billion increased 15.8% over 1997 due primarily to
higher revenue from Con-Way, Menlo and the Other segment. The Other
segment's revenue in 1998 benefited from higher revenue from the Priority
Mail operations, which were fully implemented late in the second quarter of
1998.
Con-Way Transportation Services
Con-Way's revenue in 1999 increased to a record $1.88 billion, an 11.5%
increase over 1998. Higher revenue was primarily the result of increased
tonnage (weight) and revenue per hundredweight (yield). Total weight
transported by the Con-Way regional carriers increased 7.0% and less-than-
truckload (LTL) weight increased 7.1% over 1998. Yield in 1999 was 5.7%
higher than in 1998 due primarily to higher rates earned on Con-Way's core
premium services and a larger percentage of inter-regional joint services,
which command higher rates on longer lengths of haul. We believe that
closures of two of Con-Way's competitors in the second quarter of 1999
created additional demand for Con-Way's services in the last half of 1999.
Revenue in 1998 was 14.3% higher than in 1997 as Con-Way's regional
carriers increased total weight by 6.2%, LTL weight by 6.6%, and yield by
approximately 10%.
Con-Way's operating income in 1999 grew 10.6% over 1998 to a record $228.8
million. Increased operating income in 1999 was due primarily to higher
revenue, better capacity utilization, increased load factor, and other
operating efficiencies. Start-up costs incurred during the first year of
operations for Con-Way's new multi-client warehousing and logistics
business negatively affected operating income in 1999. Con-Way's 1998
operating income of $206.9 million increased 40.6% over 1997 due primarily
to expansion of core premium services, growth in inter-regional joint
services, lower fuel costs and productivity improvements, including better
capacity utilization, increased load factor, and freight handling
efficiencies.
Emery Worldwide
In 1999, Emery increased revenue 9.3% over 1998 to a record $2.41 billion.
Increases in international airfreight revenue and revenue from an Express
Mail contract with the U.S. Postal Service were partially offset by
slightly lower North American airfreight revenue. Growth in international
revenue was accomplished primarily with a 10.2% increase in pounds
transported (weight or freight volume) and 2.4% higher revenue per pound
(yield). Freight volume and yield were favorably affected by improved
economic conditions in the international markets served by Emery. The small
0.7% decline in North American airfreight revenue was primarily the result
of a 5.7% drop in weight partially offset by a 5.3% increase in yield.
PAGE 9
Improved yield in North America was achieved in part from an increase in the
percentage of higher yielding guaranteed service, which was introduced in
January 1999, and Emery's yield management program, which is designed to
eliminate or reprice low-margin business. Although Emery's yield management
program in North America was a factor in achieving higher yield, it also
contributed to lower weight transported.
Emery's revenue in 1998 decreased 2.1% from 1997 due primarily to lower
North American and international airfreight revenue partially offset by
higher revenue from other transportation services, including the Express
Mail contract. North American airfreight revenue in 1998 declined 9.6% from
1997 due primarily to an 8.2% decrease in weight with essentially no change
in yield. Airfreight volume in North America fell in 1998 from 1997 due
largely to lower demand from certain industries served by Emery, increased
ground-based transportation and Emery's yield management program.
International airfreight revenue was down 5.0% on a weight decline of 0.8%
and a 3.4% decrease in yield. International freight volume and yield were
negatively affected by adverse economic conditions in the international
markets served by Emery.
Emery's operating income in 1999 increased 17.4% from 1998 due primarily to
higher airfreight revenue and revenue from the Express Mail contract.
Higher operating income on airfreight revenue in 1999 was achieved
primarily with a strong 1999 fourth quarter in which international
airfreight revenue increased 25.8%. Operating income in 1998 declined 43.6%
from 1997 due primarily to higher incremental costs of implementing service
initiatives and lower revenue. Initiatives intended to improve Emery's
domestic premium service mix included increases in short-term airlift costs
and modification of other freight handling processes. With lower revenue in
1998, the additional costs of the service initiatives contributed to a more
dramatic margin decline.
Management will continue to focus on positioning Emery as a premium service
provider. In North America, management intends to continue to develop an
infrastructure capable of servicing a higher volume of premium and
guaranteed delivery services and to reduce costs. Key initiatives include
replacing older aircraft with newer aircraft having lower maintenance
costs, including wide-body aircraft, and the recent reconfiguration of its
hub sortation center. Internationally, Emery's management will focus on
expanding its variable-cost-based operations and will continue its efforts
to increase international revenue as a percentage of total revenue.
Menlo Logistics
Menlo's 1999 record revenue of $716.0 million exceeded 1998 revenue by
22.0% due in part to a full year of revenue from several large logistics
contracts secured in the second quarter of 1998 and higher revenue from
other contracts secured prior to 1999. Several additional large contracts
were also secured in the fourth quarter of 1999. Menlo's revenue in 1998 of
$586.8 million was 28.7% higher than 1997 due in part to the addition of
the new contracts secured in the second quarter of 1998 and an increase in
revenue from contracts existing prior to 1998.
Menlo's operating income of $22.3 million in 1999 increased 14.4% from 1998
due primarily to increased revenue. Higher business development and
information systems costs incurred during 1999 contributed to lower
operating income as a percentage of revenue than in 1998. In 1998, Menlo
increased operating income to $19.5 million, a 13.3% improvement over 1997.
Higher revenue and better margins from existing contracts in 1998 were
partially offset by the costs of implementing several large new contracts
in the second quarter of 1998.
Other Operations
The Other segment consists primarily of the operations under a Priority
Mail contract with the U.S. Postal Service, and includes the operating
results of Road Systems and, prior to the sale of its assets in May 1999,
VantageParts. Also included in the Other segment's operating income for
1999 were net gains on the settlement of a lawsuit in January 1999 and on
the VantageParts asset sale.
The Other segment's revenue of $590.2 million in
1999 increased 26.3% over 1998 due primarily to revenue of $555.5 million
from the Priority Mail operation, a 35.2% increase over 1998. The Priority
Mail operation was not fully implemented until late in the second quarter
of 1998. Higher Priority Mail revenue was partially offset by loss of
revenue from VantageParts following the sale of its assets in May 1999.
PAGE 10
Revenue for the Other segment in 1998 increased to $467.2 million from
$88.1 million in 1997 due to an increase in Priority Mail revenue to $410.8
million in 1998 from $51.6 million in 1997. Revenue in 1998 benefited from
the operation of 10 Priority Mail Processing Centers, which were not fully
implemented until late in the second quarter of 1998.
In 1999, operating income of $32.5 million for the Other segment increased
from essentially break-even results in 1998 due primarily to a $16.5
million net gain from a lawsuit settled in January 1999 and a $10.1 million
net gain on the sale of the assets of VantageParts. In addition, the
Priority Mail operation in 1999 generated operating income of $4.8 million
compared with an operating loss of $3.0 million incurred during the start-
up phase of the Priority Mail contract in 1998. As discussed below, all
Priority Mail operating income in 1999 was recognized in the first six
months and break-even results were recognized in the second half. The near
break-even results of the Other segment in 1998 increased from the $13.4
million operating loss recorded in 1997. The improvement in 1998 operating
income was primarily the result of a reduction in the Priority Mail
operating loss to $3.0 million in 1998 from $13.0 million in 1997. The 1998
operating loss for Priority Mail reflected costs incurred during completion
of the start-up phase in the first half of 1998 and the costs of
maintaining service levels and making required system modifications for the
December 1998 holiday season. The Priority Mail operating loss in 1997
included higher cost levels during the start-up phase of operations.
In accordance with the Priority Mail contract, in February 1999, Emery
Worldwide Airlines (EWA), our subsidiary that operates the contract,
submitted a proposal to the U.S. Postal Service (USPS) for 1999 pricing. We
believe that our proposal was reasonably determined and justifiable based
upon EWA's experience of operating under the Priority
Mail contract.
EWA did not receive a counter-proposal from the USPS. Consequently, EWA in
the third quarter of 1999 filed a claim with the USPS for proposed higher
prices.
Through the second quarter of 1999, Priority Mail contract revenue was
billed at a provisional rate set by the USPS, pending a final price
determination. The USPS responded to the EWA claim with unilateral price
reductions for both prior and future periods. The current rate is below
EWA's cost to service this contract. Unless the rate is increased or until
negotiation or litigation results in favorable pricing or contract changes,
EWA will be compensated below its cost of operating the contract.
Also, in August 1999, the USPS denied EWA's previously filed claim for
reimbursement of additional costs incurred during the 1998 holiday season.
Consistent with our accounting policies described in Note 1 of the Notes to
Consolidated Financial Statements, unbilled revenue from the Priority Mail
contract is recognized in our financial statements. In accordance with
generally accepted accounting principles, EWA recognizes unbilled revenue
related to claims sufficient only to recover costs of operating under the
contract. Accordingly, no operating profit was recognized in connection
with the Priority Mail contract in the last half of 1999. As a result of
the claims discussed above and the USPS's decision to assert price
reductions, EWA recognized $123.7 million of revenue through December 31,
1999 that is now in dispute and attributable to claims made by EWA under
the contract. Until the dispute is resolved, we expect that any shortfall
between EWA's billed revenue from the Priority Mail contract and its costs
of operating under the contract will be recognized as unbilled revenue and
as a result, we will generally continue to record break-even operating
results under the Priority Mail contract in our financial statements.
If we determine that the unbilled revenue is not collectable, the
uncollectable amount will be charged as expense to operations in the period
when and if that determination is made.
We are in active negotiations with the USPS to resolve the pricing and
operational issues involving the Priority Mail contract. We disagree with
the USPS's actions and intend to vigorously contest our claim for price
determination and denial of the 1998 holiday claim by appropriate action.
While every attempt is being made to conclude the negotiations in a
beneficial manner, we intend to pursue litigation should negotiations fail.
We believe our position is reasonable and well founded; however, there can
be no assurance as to the outcome. Likewise, if determined adversely to us,
there can be no assurance that this matter will not have a material adverse
effect on our results of operations.
PAGE 11
Other Net Expense
Other net expense in 1999 decreased 45.2% from 1998 due primarily to a $9.6
million net gain from the sale of equity securities and lower interest
expense. The decline in interest expense was partially due to the July 1998
refinancing of a capital lease obligation at a lower interest rate and the
repayment of the 91/8% Notes at maturity. The repayment of $117.7 million
of 91/8% Notes in August 1999 was funded in part with $90.0 million of
lower-interest rate long-term borrowings under unsecured lines of credit.
Partially offsetting lower interest expense in 1999 was increased interest
expense on higher average short-term borrowings. Capitalized interest on
construction projects in 1999 also contributed to lower interest expense
compared to 1998. Other net expense for 1998 was down 6.8% compared to 1997
from the beneficial refinancing of debt obligations in 1998 and 1997. Lower
interest expense on lower average short-term borrowings in 1998 was
partially offset by dividend requirements on preferred securities of a
subsidiary trust (TECONs) issued in June 1997.
The net gain from the sale of equity securities discussed above resulted
from the sale by Emery in December 1999 of 34% of its holdings in Equant
N.V., an international data network services provider. As discussed in Note
11 of the Notes to Consolidated Financial Statements, the remaining shares
held by Emery are carried at essentially no cost and are subject to
transferability restrictions.
Income Taxes
The effective tax rate for 1999 decreased to 43.5% from 44.5% in 1998 due
primarily to higher income in 1999. The effective tax rate for 1998 was
44.5% compared to a rate of 45.5% for 1997. The decline in the 1998 tax
rate was primarily attributable to higher income, the implementation of tax
planning strategies and lower non-deductible expenses.
LIQUIDITY AND CAPITAL RESOURCES
In 1999, cash and cash equivalents increased $72.4 million to $146.3
million. Cash from operations of $445.1 million provided funding for $369.7
million of capital and software expenditures, $36.0 million of net debt
reduction and $30.4 million of dividend payments. The $72.4 million
increase in cash during 1999 included three unusual gains. Operating
activities included a $16.5 million net gain on a settlement of a lawsuit
and investing activities included $29.3 million of proceeds on the sale of
the assets of VantageParts and $9.6 million of net proceeds on the sale of
equity securities. In 1998, net capital and software expenditures of $303.2
million and dividend payments of $30.3 million exceeded the $266.8 million
of cash flow provided by operating activities. These requirements were
funded with a $23.7 million decline in cash and cash equivalents and a
$43.0 million increase in short-term borrowings.
Cash from operations in 1999 increased $178.3 million over 1998 and was
provided primarily by net income before depreciation, amortization and
deferred taxes. Cash from operations in 1998, which declined $21.4 million
from 1997, was generated primarily from net income before depreciation,
amortization and deferred taxes.
Investing activities in 1999 used $10.6 million more cash than in 1998.
Capital expenditures of $335.0 million in 1999 increased $67.3 million from
1998 due primarily to a $109.7 million increase in Con-Way's capital
expenditures, partially offset by a $39.5 million decline in capital
expenditures for the Priority Mail contract. During 1999, Con-Way spent
$212.0 million, primarily on revenue equipment and infrastructure in
connection with its capital reinvestment program. Partially offsetting the
increased capital expenditures in 1999 was a $16.7 million decline in
software expenditures from 1998 and $38.9 million of proceeds on the sale
of the assets of VantageParts and equity securities. Cash used in investing
activities in 1998 was $54.9 million higher than in 1997 due primarily to a
$25.3 million increase in capital expenditures and a $40.4 million increase
in software expenditures. Higher capital expenditures by Emery were
partially offset by lower expenditures for the Priority Mail operation.
Capital expenditures related to the Priority Mail contract during 1998
declined compared to 1997 given required capital expenditures in 1997
related to the start-up phase of the Priority Mail contract.
Financing activities in 1999 used $58.9 million compared to $12.7 million
provided by financing activities in 1998 due primarily to fluctuations in
borrowings. As discussed in Note 3 of the Notes to Consolidated Financial
Statements, $72.4 million of Thrift and Stock Plan notes guaranteed by CNF
were refinanced at a lower rate in July 1999. Financing activities provided
PAGE 12
$12.7 million in 1998 compared to $24.4 million used in 1997, reflecting
increased short-term borrowings in 1998. In October 1998, we refinanced
$46.0 million of Series A revenue bonds.
As discussed above under "Results of Operations" for the "Other" segment,
the rate currently being paid to EWA by the USPS under the Priority Mail
contract is below EWA's cost to service the contract. Until the dispute
over pricing is resolved, our liquidity will be negatively affected by the
shortfall between EWA's compensation from the contract and its cost of
operation.
In addition to the $350 million unsecured credit facility, we entered into
a supplemental $100 million unsecured credit facility in September 1999.
This supplemental credit facility was to provide additional liquidity until
designated long-term borrowings under lines of credit are refinanced with a
longer-term instrument, as discussed below. At December 31, 1999, we had
$130.0 million of borrowings outstanding under these unsecured credit
facilities. Of the $130.0 million outstanding under the unsecured credit
facilities, $90.0 million were classified as long-term debt based on our
ability and intent to refinance the borrowings on a long-term basis. The
$90.0 million of long-term borrowings under lines of credit were used to
partially fund the repayment of $117.7 million of 91/8% Notes, which
matured in August 1999.
The $350 million facility is also available for issuance of letters of
credit. Under that facility, outstanding letters of credit totaled $59.8
million at December 31, 1999. Available capacity under the $350 million
facility and the supplemental line of credit was $260.2 million at December
31, 1999.
At December 31, 1999, we also had $150.0 million of uncommitted lines with
$12.3 million in letters of credit outstanding, leaving $137.7 million of
additional short-term borrowing availability. Under other unsecured
facilities, $50.4 million in letters of credit were outstanding at December
31, 1999.
We filed a shelf registration statement with the Securities and Exchange
Commission in June 1998 that covers $250 million of debt and equity
securities for future issuance with terms to be decided when and if issued.
In February 2000, we intend to issue $200.0 million of debentures with a 30-
year term. The proceeds from this offering are intended to be used
primarily to repay borrowings under the unsecured credit facilities and for
other general corporate purposes.
Our ratio of total debt to capital decreased to 30.5% at December 31, 1999,
from 36.4% at December 31, 1998, primarily due to lower borrowings and
higher shareholders' equity from net income. Our 36.4% debt-to-capital
ratio at December 31, 1998 declined from 37.9% at December 31, 1997 due to
higher shareholders' equity from net income.
CYCLICALITY AND SEASONALITY
Our businesses operate in industries that are affected directly by general
economic conditions and seasonal fluctuations, both of which affect demand
for transportation services. In the trucking and airfreight industries, for
a typical year, the months of September and October usually have the
highest business levels while the months of January and February usually
have the lowest business levels. Operations under the Priority Mail
contract peak in December primarily due to higher shipping demand related
to the holiday season.
MARKET RISK
Our policy is to enter into derivative financial instruments only in
circumstances that warrant the hedge of an underlying asset or liability
against exposure to some form of market, interest rate or currency-related
risk. This policy also prohibits entering into derivative instruments for
trading purposes.
In certain situations, we used derivative financial instruments to mitigate
potential volatility in interest rates. At December 31, 1999, these
derivatives consisted of plain vanilla interest rate swaps with high
correlation to the underlying exposure such that fluctuations in the value
of the derivatives offset reciprocal changes in the underlying exposure.
The underlying exposure consists primarily of equipment lease obligations
with variable interest rate components that are adjusted quarterly. At
December 31, 1999, we estimate that the net payments under the swaps given
a hypothetical adverse change of 10% in market interest rates would not
have a material effect on our financial position or results of operations.
We may also be exposed to the effect of interest rate fluctuations in the
fair value of our long-term debt and capital lease obligations, as
described in Notes 3 and 4 of the Notes to Consolidated Financial
Statements. The change in the fair value of our long-term obligations given
a hypothetical 10% change in interest rates would be approximately $14
million at December 31, 1999.
PAGE 13
During 1999, we entered into fuel purchase contracts to hedge our market
exposure to fuel prices. At December 31, 1999, we estimate that a change in
the fair value of these contracts given a hypothetical 10% change in the
price of the hedged fuel would not have a material effect on our financial
position or results of operations.
At December 31, 1999, we had not entered into any derivative contracts to
hedge our foreign currency exchange exposure.
ACCOUNTING STANDARDS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" (SOP 98-1). SOP 98-1,
which provides for the capitalization of the costs of internal-use software
if certain criteria are met, is effective for fiscal years beginning after
December 15, 1998. As provided by SOP 98-1, we elected to adopt the
pronouncement early and applied the new provisions prospectively as of
January 1, 1998. Prior to adoption of SOP 98-1, it was our policy to
capitalize purchased software costs and to expense all internally developed
internal-use software costs. For the years ended December 31, 1999 and
1998, costs of $27.3 million and $35.9 million, respectively, were
capitalized as internally developed internal-use software.
In June 1999, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 137,
"Accounting for Derivative Instruments and Hedging Activities-Deferral of
the Effective Date of FASB Statement No. 133" (SFAS 137). SFAS 137 delays
by one year the effective date of FASB Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133). SFAS 133
establishes accounting and reporting standards requiring that every
derivative instrument be recorded in the balance sheet as either an asset
or liability measured at its fair value and that changes in fair value be
recognized currently in earnings unless specific hedge accounting criteria
are met. Qualifying hedges allow a derivative's gains and losses to offset
related results on the hedged item in the income statement. SFAS 133 will
now be effective January 1, 2001. We do not expect the adoption of SFAS 133
to have a material impact on our financial position or results of
operations and we plan to adopt the statement in the first quarter of 2001.
YEAR 2000
State of Readiness
As of January 31, 2000, we have not experienced any significant adverse
effects related to Y2K compliance issues. Additionally, we are not aware of
any problems experienced by third parties with which we transact business.
Costs to Address Y2K Compliance
In 1996, we began assessing and correcting potential Y2K information
systems problems for our mission-critical business systems. Since that
time, we expensed $38.1 million on Y2K compliance through December 31,
1999. All Y2K costs have been funded from operations. We expensed $14.9
million and $19.7 million for the years ended December 31, 1999 and 1998,
respectively. For the year ended December 31, 1999, we capitalized $7.4
million of purchased software costs and $27.3 million of internally
developed software costs. A portion of the capitalized software costs was
for new financial and administrative systems that are Y2K compliant. These
systems replaced non-compliant systems.
Risks & Contingency Plans
We believe our efforts to address Y2K issues have been successful in
avoiding any material adverse effect on our financial position or results
of operations. We do not expect any material adverse effect on our
financial position and results of operations but will continue to monitor
for Y2K-related problems. Should problems arise, we will implement the Y2K
business resumption contingency plans we previously established.
FORWARD LOOKING STATEMENTS
Certain statements in this annual report, including statements regarding
anticipated earnings, constitute "forward-looking statements" and are
subject to a number of risks and uncertainties, and should not be relied
upon as predictions of future events. The factors included in this report
and in Item 7 of our 1999 Annual Report on Form 10-K as well as other
filings with the Securities and Exchange Commission, could cause actual
results and other matters to differ materially from those in such forward-
looking statements. As a result, no assurance can be given as to future
financial position or results of operations.
PAGE 14
<TABLE>
CNF TRANSPORTATION INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
(Dollars in thousands)
<CAPTION>
1999 1998
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 146,263 $ 73,897
Trade accounts receivable, net of allowance (Note 1) 914,307 810,550
Other accounts receivable 25,419 51,865
Operating supplies, at lower of average cost or market 46,019 41,764
Prepaid expenses 41,971 32,741
Deferred income taxes (Note 5) 26,254 89,544
Total Current Assets 1,200,233 1,100,361
Property, Plant and Equipment, at Cost
Land 119,403 114,146
Buildings and leasehold improvements 573,688 468,123
Revenue equipment 854,519 714,195
Other equipment 447,962 425,476
1,995,572 1,721,940
Accumulated depreciation and amortization (864,538) (737,464)
1,131,034 984,476
Other Assets
Deferred charges and other assets (Note 12) 200,739 128,627
Capitalized software, net (Note 1) 88,157 64,285
Unamortized aircraft maintenance, net (Note 1) 162,951 143,349
Goodwill, net (Note 1) 265,896 268,314
717,743 604,575
Total Assets $3,049,010 $2,689,412
<FN>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
</TABLE>
PAGE 15
<TABLE>
CNF TRANSPORTATION INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
(Dollars in thousands except per share data)
<CAPTION>
1999 1998
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 305,954 $ 285,832
Accrued liabilities (Note 2) 543,353 446,171
Accrued claims costs 99,940 108,028
Current maturities of long-term debt and capital leases (Notes 3 and 4) 6,452 5,259
Short-term borrowings (Note 3) 40,000 43,000
Income taxes payable (Notes 5 and 12) 53,455 12,340
Total Current Liabilities 1,049,154 900,630
Long-Term Liabilities
Long-term debt and guarantees (Note 3) 322,800 356,905
Long-term obligations under capital leases (Note 4) 110,646 110,730
Accrued claims costs 81,978 58,388
Employee benefits (Note 8) 217,519 190,268
Other liabilities and deferred credits 45,450 55,268
Deferred income taxes (Note 5) 128,515 115,868
Total Liabilities 1,956,062 1,788,057
Commitments and Contingencies (Notes 3, 4 and 12)
Company-Obligated Mandatorily Redeemable Preferred Securities
of Subsidiary Trust Holding Solely Convertible Debentures of
the Company (Note 6) 125,000 125,000
Shareholders' Equity (Note 7)
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 840,407 and 854,191 respectively 8 9
Additional paid-in capital, preferred stock 127,817 129,914
Deferred compensation, Thrift and Stock Plan (Note 9) (87,600) (94,836)
Total Preferred Shareholders' Equity 40,225 35,087
Common stock, $.625 par value; authorized 100,000,000 shares;
issued 55,306,947 and 54,797,707 shares, respectively 34,567 34,249
Additional paid-in capital, common stock 328,721 314,440
Retained earnings 747,936 584,991
Deferred compensation, restricted stock (Note 10) (2,010) (4,599)
Cost of repurchased common stock
(6,856,567 and 6,922,285 shares, respectively) (169,057) (170,678)
940,157 758,403
Accumulated foreign currency translation adjustments (8,039) (9,140)
Minimum pension liability adjustment (Note 8) (4,395) (7,995)
Accumulated Other Comprehensive Loss (12,434) (17,135)
Total Common Shareholders' Equity 927,723 741,268
Total Shareholders' Equity 967,948 776,355
Total Liabilities and Shareholders' Equity $3,049,010 $2,689,412
<FN>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
</TABLE>
PAGE 16
<TABLE>
CNF TRANSPORTATION INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
YEARS ENDED DECEMBER 31
(Dollars in thousands except per share data)
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
REVENUES $ 5,592,810 $ 4,941,490 $ 4,266,801
Costs and Expenses
Operating expenses 4,576,967 4,045,047 3,474,447
General and administrative expenses 516,326 461,230 416,391
Depreciation 166,995 144,695 111,096
Net gain on sale of assets of parts distribution operation (10,112) - -
Net gain on legal settlement (16,466) - -
5,233,710 4,650,972 4,001,934
OPERATING INCOME 359,100 290,518 264,867
Other Income (Expense)
Interest expense (25,972) (32,627) (39,553)
Dividend requirement on preferred securities of
subsidiary trust (Note 6) (6,250) (6,250) (3,471)
Miscellaneous, net (Note 11) 10,244 (1,230) (29)
(21,978) (40,107) (43,053)
Income before income taxes 337,122 250,411 221,814
Income taxes (Note 5) 146,648 111,433 100,925
NET INCOME 190,474 138,978 120,889
Preferred stock dividends 8,218 8,169 7,886
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 182,256 $ 130,809 $ 113,003
Average Shares Outstanding (Note 1)
Basic 48,189,618 47,659,745 46,236,688
Diluted 56,019,317 55,514,318 53,077,468
Earnings Per Share (Note 1)
Basic $ 3.78 $ 2.74 $ 2.44
Diluted $ 3.35 $ 2.45 $ 2.19
<FN>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
</TABLE>
PAGE 17
<TABLE>
CNF TRANSPORTATION INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
YEARS ENDED DECEMBER 31
(Dollars in thousands)
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Cash and Cash Equivalents, Beginning of Year $ 73,897 $ 97,617 $ 82,094
Operating Activities
Net income 190,474 138,978 120,889
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 190,461 163,382 123,391
Increase in deferred income taxes 75,937 40,022 31,840
Amortization of deferred compensation 11,858 9,764 7,132
Provision for uncollectible accounts 15,229 11,050 12,528
Losses (gains) from property disposals, net 3,038 (1,309) 927
Gain on sale of assets of parts distribution operation, net (10,112) - -
Gain on sale of equity securities (9,625) - -
Changes in assets and liabilities:
Receivables (97,853) (137,613) (156,721)
Prepaid expenses (9,287) 2,941 (4,433)
Accounts payable 20,900 17,768 57,663
Accrued liabilities 96,403 22,934 73,740
Accrued claims costs 14,082 18,390 9,626
Income taxes (11,885) 2,226 17,564
Employee benefits 30,851 34,070 25,881
Deferred charges and credits (52,338) (40,937) (25,783)
Other (13,014) (14,873) (6,034)
Net Cash Provided by Operating Activities 445,119 266,793 288,210
Investing Activities
Capital expenditures (335,008) (267,668) (242,343)
Software expenditures (34,705) (51,415) (11,022)
Proceeds from sale of equity securities 9,625 - -
Proceeds from sale of assets of parts distribution operation 29,260 - -
Proceeds from sales of properties 16,986 15,836 5,043
Net Cash Used in Investing Activities (313,842) (303,247) (248,322)
Financing Activities
Proceeds from issuance of long-term debt 162,400 46,000 1,997
Repayment of long-term debt, guarantees and capital leases (195,396) (51,469) (4,020)
Proceeds from (repayment of) net short-term borrowings (3,000) 43,000 (155,000)
Proceeds from issuance of subsidiary preferred securities, net of
costs of issuance - - 121,431
Proceeds from exercise of stock options 7,474 5,483 41,500
Payments of common dividends (19,311) (19,068) (18,497)
Payments of preferred dividends (11,078) (11,212) (11,776)
Net Cash Provided by (Used in) Financing Activities (58,911) 12,734 (24,365)
Increase (Decrease) in Cash and Cash Equivalents 72,366 (23,720) 15,523
Cash and Cash Equivalents, End of Year $ 146,263 $ 73,897 $ 97,617
Supplemental Disclosure
Cash paid for income taxes, net of refunds $ 63,207 $ 67,955 $ 38,568
Cash paid for interest, net of amounts capitalized 35,833 33,141 47,948
<FN>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
</TABLE>
PAGE 18
<TABLE>
CNF TRANSPORTATION INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
(Dollars in thousands except per share data)
<CAPTION>
Preferred Stock Series B Common Stock Additional
Number of Number of Paid-in
Shares Amount Shares Amount Capital
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 875,191 $ 9 51,595,827 $ 32,247 $ 375,987
Net income - - - - -
Other comprehensive loss:
Foreign currency translation adjustment - - - - -
Comprehensive income - - - - -
Exercise of stock options including
tax benefits of $16,612 - - 2,688,824 1,681 56,431
Issuance of restricted stock - - 85,531 53 2,771
Recognition of deferred compensation - - - - -
Repurchased common stock issued
for conversion of preferred stock (9,589) - - - (1,284)
Common dividends declared ($.40 per share) - - - - -
Series B, Preferred dividends ($12.93 per
share) net of tax benefits of $3,389 - - - - -
Balance, December 31, 1997 865,602 9 54,370,182 33,981 433,905
Net income - - - - -
Other comprehensive loss:
Foreign currency translation adjustment - - - - -
Minimum pension liability adjustment - - - - -
Comprehensive income - - - - -
Exercise of stock options including
tax benefits of $2,576 - - 321,079 201 7,858
Issuance of restricted stock, net of forfeitures - - 106,446 67 3,935
Issuance of employee stock awards - - - - 13
Recognition of deferred compensation - - - - -
Repurchased common stock issued
for conversion of preferred stock (11,411) - - (1,357)
Common dividends declared ($.40 per share) - - - - -
Series B, Preferred dividends ($12.93 per
share) net of tax benefits of $2,982 - - - - -
Balance, December 31, 1998 854,191 9 54,797,707 34,249 444,354
Net income - - - - -
Other comprehensive income:
Foreign currency translation adjustment - - - - -
Minimum pension liability adjustment - - - - -
Comprehensive income - - - - -
Exercise of stock options including
tax benefits of $4,198 - - 446,128 279 11,393
Issuance of restricted stock, net of forfeitures - - 63,112 39 2,387
Issuance of employee stock awards - - - - 12
Recognition of deferred compensation - - - - -
Repurchased common stock issued
for conversion of preferred stock (13,784) (1) - - (1,608)
Common dividends declared ($.40 per share) - - - - -
Series B, Preferred dividends ($12.93 per
share) net of tax benefits of $2,774 - - - - -
Balance, December 31, 1999 840,407 $ 8 55,306,947 $ 34,567 $ 456,538
<FN>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
</TABLE>
PAGE 19
<TABLE>
CNF TRANSPORTATION INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
(Dollars in thousands except per share data)
<CAPTION>
Cost of Accumulated
Repurchased Other
Deferred Retained Common Comprehensive Comprehensive
Compensation Earnings Stock Income (Loss) Income
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $ (108,655) $ 378,744 $(173,332) $ 3,279
Net income - 120,889 - - $ 120,889
Other comprehensive loss:
Foreign currency translation adjustment - - - (9,926) (9,926)
Comprehensive income - - - - $ 110,963
Exercise of stock options including
tax benefits of $16,612 - - - -
Issuance of restricted stock (2,824) - - -
Recognition of deferred compensation 7,132 - - -
Repurchased common stock issued
for conversion of preferred stock - - 1,284 -
Common dividends declared ($.40 per share) - (18,497) - -
Series B, Preferred dividends ($12.93 per
share) net of tax benefits of $3,389 - (7,886) - -
Balance, December 31, 1997 (104,347) 473,250 (172,048) (6,647)
Net income - 138,978 - - $ 138,978
Other comprehensive loss:
Foreign currency translation adjustment - - - (2,493) (2,493)
Minimum pension liability adjustment - - - (7,995) (7,995)
Comprehensive income - - - $ 128,490
Exercise of stock options including
tax benefits of $2,576 - - - -
Issuance of restricted stock, net of forfeitures (4,852) - - -
Issuance of employee stock awards - - 13 -
Recognition of deferred compensation 9,764 - - -
Repurchased common stock issued
for conversion of preferred stock - - 1,357 -
Common dividends declared ($.40 per share) - (19,068) - -
Series B, Preferred dividends ($12.93 per
share) net of tax benefits of $2,982 - (8,169) - -
Balance, December 31, 1998 (99,435) 584,991 (170,678) (17,135)
Net income - 190,474 - - $ 190,474
Other comprehensive income:
Foreign currency translation adjustment - - - 1,101 1,101
Minimum pension liability adjustment - - - 3,600 3,600
Comprehensive income - - - - $ 195,175
Exercise of stock options including
tax benefits of $4,198 - - - -
Issuance of restricted stock, net of forfeitures (2,033) - - -
Issuance of employee stock awards - - 13 -
Recognition of deferred compensation 11,858 - - -
Repurchased common stock issued
for conversion of preferred stock - - 1,608 -
Common dividends declared ($.40 per share) - (19,311) - -
Series B, Preferred dividends ($12.93 per
share) net of tax benefits of $2,774 - (8,218) - -
Balance, December 31, 1999 $ (89,610) $ 747,936 $(169,057) $ (12,434)
<FN>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
</TABLE>
PAGE 20
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. and
its wholly owned subsidiaries (the Company or CNF).
Organization: CNF is a management company of global supply chain services
with businesses in regional less-than-truckload (LTL) trucking, domestic
and international air freight, full service logistics management, postal
sortation and transportation services, and trailer manufacturing. See Note
13 "Segment Reporting" for further discussion of the Company's operating
segments, markets and product lines.
Recognition of Revenues: Freight transportation revenue is recognized 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.
Revenue from long-term contracts is recognized in accordance with
contractual terms as services are provided. Under certain long-term
contracts, there are provisions for price re-determination that give rise
to unbilled revenue. Unbilled revenue representing contract change orders
or claims is included in revenue only when it is probable that the change
order or claim will result in additional contract revenue and if the amount
can be reliably estimated. The Company recognizes unbilled revenue related
to claims sufficient only to recover costs. When adjustments in contract
revenue are determined, any changes from prior estimates are reflected in
earnings in the current period. The amount of unbilled revenue recognized
in Trade Accounts Receivable in the Consolidated Balance Sheets at December
31, 1999 and 1998 was $106.2 million and $11.0 million, respectively. In
addition, as a result of the U.S. Postal Service's unilateral price
reductions discussed under "Other" segment in "Management's Discussion and
Analysis," $17.5 million of revenue actually collected by the Company is
now in dispute.
Cash Equivalents: Short-term interest-bearing instruments with maturities
of three months or less at the date of purchase are considered cash
equivalents.
Trade Accounts Receivable: Trade accounts receivable are net of allowances
of $26,163,000 and $21,098,000 at December 31, 1999 and 1998, 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
less 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
estimated 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.
Capitalized Software: Capitalized Software, net, consists of costs to
purchase and develop internal-use software. In March 1998, the American
Institute of Certified Public Accountants issued Statement of Position 98-1
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" (SOP 98-1). SOP 98-1, which provides for the capitalization
of the costs of internal-use software if certain criteria are met, was
effective for fiscal years beginning after December 15, 1998. As provided
by SOP 98-1, the Company elected to adopt the pronouncement early and
applied the new provisions prospectively as of January 1, 1998. Prior to
adoption of SOP 98-1, it was the Company's policy to capitalize purchased
software costs and to expense all internally developed internal-use
software costs. For the years ended December 31, 1999 and 1998, costs of
$27.3 million ($0.32 per basic share and $0.28 per diluted share) and $35.9
million ($0.42 per basic share and $0.36 per diluted share) were
capitalized as internally developed internal-use software and are included
in Capitalized Software, net, in the Consolidated Balance Sheets.
Amortization of capitalized software is computed on an item-by-item basis
over a period of 3 to 10 years, depending on the estimated useful life of
the software.
PAGE 21
Unamortized Aircraft Maintenance: 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
$226,629,000 and $198,973,000 at December 31, 1999 and 1998, respectively.
Under certain of the Company's 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 $63,678,000 and $55,624,000 at December 31, 1999 and
1998, 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.
Goodwill: Goodwill, net, which represents the costs in excess of net assets
of businesses acquired, is 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 investment. In the event goodwill is not considered
recoverable, an amount equal to the excess of the 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, 1999 and 1998 was
$105,887,000 and $95,194,000, 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 relate primarily to workers' compensation
and vehicular claims that 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 Foreign Currency Translation Adjustment in the Statements
of Consolidated Shareholders' Equity.
Earnings Per Share (EPS): Basic EPS is computed by dividing reported Net
Income Available to Common Shareholders by the weighted-average shares
outstanding. Diluted EPS is calculated as follows:
(Dollars in thousands
except per share data) 1999 1998 1997
Earnings:
Net income available to
common shareholders $182,256 $130,809 $113,003
Add-backs
Dividends on preferred
stock, net of replacement
funding 1,337 1,274 1,231
Dividends on preferred
securities of subsidiary
trust, net of tax 3,816 3,816 2,118
$187,409 $135,899 $116,352
Shares:
Weighted-average shares
Outstanding 48,189,618 47,659,745 46,236,688
Stock option and restricted
stock dilution 695,099 708,042 1,029,415
Series B preferred stock 4,009,600 4,021,531 4,075,254
Preferred securities of
subsidiary trust 3,125,000 3,125,000 1,736,111
56,019,317 55,514,318 53,077,468
Diluted earnings per share $3.35 $2.45 $2.19
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.
Recent Pronouncements: In December 1999, the Securities and Exchange
Commission released Staff Accounting Bulletin No. 101 (SAB 101). In
addition to providing guidance on the recognition and disclosure of revenue
in financial statements, SAB 101 also addresses the income statement
presentation of revenue for certain business activities. SAB 101 clarifies
issues to be considered in assessing whether revenue for certain
transactions should be reported gross, with a separate display of costs of
services to arrive at gross profit, or on a net basis. The Company is
PAGE 22
currently evaluating SAB 101 to determine the effect, if any, on the income
statement presentation of its revenue.
Reclassification: Certain amounts in prior years' financial statements have
been reclassified to conform to the current year presentation.
2. Accrued Liabilities
Accrued liabilities consisted of the following as of December 31:
(Dollars in thousands) 1999 1998
Other accrued liabilities $187,172 $113,397
Purchased transportation 101,651 83,446
Taxes other than income taxes 70,830 56,840
Holiday and vacation pay 66,232 59,237
Wages and salaries 39,086 40,550
Incentive compensation 36,382 34,587
Estimated revenue adjustments 33,546 39,799
Interest 8,454 18,315
Total accrued liabilities $543,353 $446,171
3. Debt and Guarantees
As of December 31, long-term debt and guarantees consisted of the
following:
(Dollars in thousands) 1999 1998
Long-term borrowings under
lines of credit $ 90,000 $ -
7.35% Notes due 2005 (interest
payable semi-annually) 100,000 100,000
6.14% Industrial Revenue Bonds
due 2014 (interest payable
quarterly) 4,800 4,800
TASP Notes guaranteed, 6.00% to
8.54%, due through 2009 (interest
payable semi-annually) 134,400 139,600
91/8% Notes due 1999 (interest
payable semi-annually) - 117,705
329,200 362,105
Less current maturities (6,400) (5,200)
Total long-term debt
and guarantees $322,800 $356,905
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 December 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, 1999 and
1998, the Company had $50.0 million and $28.0 million, respectively, of
borrowings and $59.8 million and $66.6 million, respectively, of letters of
credit outstanding under this agreement. In September 1999, the Company
obtained an additional $100 million unsecured credit facility with a one-
year term to supplement the $350 million credit facility described above.
At December 31, 1999, $80.0 million was outstanding under the supplemental
unsecured facility.
At December 31, 1999, the Company had $150.0 million of other uncommitted
lines of credit with $12.3 million issued under letters of credit and no
borrowings, leaving $137.7 million available for additional short-term
borrowings. At December 31, 1998, $150.0 million of uncommitted lines of
credit had $11.2 million in letters of credit outstanding and $15.0 million
of short-term borrowings.
At December 31, 1999, $40.0 million of the $130.0 million outstanding under
the unsecured credit lines were classified as short term with the remaining
$90.0 million classified as long term based on the Company's ability and
intent to refinance this amount on a long-term basis. At December 31, 1998,
all borrowings under lines of credit were classified as short term.
The weighted-average interest rate of borrowings under lines of credit
outstanding at December 31, 1999 and 1998, was 7.2% and 7.1%, respectively.
The aggregate principal amount of $117.7 million of the Company's unsecured
91/8% Notes was paid in full on the August 15, 1999 maturity date. The
redemption of these notes was made in part with $90.0 million of borrowings
under lines of credit.
The Company guarantees the notes issued by the Company's Thrift and Stock
Plan (TASP). On July 1, 1999, the Company refinanced $45.25 million of
Series A and $27.15 million of Series A Restructured TASP Notes. These
notes, with respective interest rates of 8.42% and 9.04%, were replaced
with $72.4 million of new TASP notes with an interest rate of 6.0% and a
maturity date of January 1, 2006. These refinanced notes contain financial
covenants that require the Company to maintain minimum amounts of net worth
and fixed charge coverage. The remaining $62.0 million of TASP notes
PAGE 23
outstanding at December 31, 1999 are subject to redemption at the option of
the holders should a designated event occur or ratings by both Moody's and
Standard & Poors of senior unsecured indebtedness decline below investment
grade.
The 7.35% Notes due in 2005 contain covenants limiting the incurrence of
additional liens.
The Company's interest expense as presented on the Statements of
Consolidated Income is net of capitalized interest of $5,864,000 in 1999,
$2,342,000 in 1998 and $2,077,000 in 1997.
The aggregate annual maturities of Long-Term Debt and Guarantees for the
next five years ending December 31 are $6.4 million in 2000, $97.5 million
in 2001, $8.7 million in 2002, $10.1 million in 2003, and $12.0 million in
2004.
4. Leases
The Company and its subsidiaries are obligated under non-cancelable leases.
The principal capital lease covers a sorting facility in Dayton, Ohio (the
Hub). The Hub is financed by City of Dayton, Ohio revenue bonds. These
bonds consist of $46.0 million of Series A bonds due in February 2018 with
an interest rate of 5.625%. The remaining $62.0 million are due in 2009 and
bear rates of interest between 6.05% and 6.20%, and have call provisions.
Included in property, plant and equipment is $33,215,000 of equipment and
leasehold improvements, net, related to the Hub.
Future minimum lease payments with initial or remaining non-cancelable
lease terms in excess of one year, at December 31, 1999, are as follows:
Capital Operating
(Dollars in thousands) Leases Leases
Year ending December 31
2000 $ 6,819 $187,825
2001 6,819 123,889
2002 6,819 79,920
2003 6,819 53,551
2004 6,819 33,435
Thereafter (through 2018) 163,389 36,570
Total minimum lease payments 197,484 $515,190
Amount representing interest (86,786)
Present value of minimum lease
Payments 110,698
Current maturities of obligations
under capital leases (52)
Long-term obligations under
capital leases $110,646
Certain operating leases contain financial covenants equal to or less
restrictive than covenants on debt. Certain operating leases also contain
provisions that allow the Company to extend the leases for various renewal
periods.
The Company has entered into commitments for operating leases for nine new
aircraft to be delivered in 2000. Subject to delivery, the total amount of
these operating lease commitments will be approximately $9.4 million in
2000, $20.2 million in 2001 through 2003, $15.3 million in 2004, and $36.0
million thereafter.
Rental expense for operating leases is comprised of the following:
(Dollars in thousands) 1999 1998 1997
Minimum rentals $253,425 $232,008 $203,521
Sublease rentals (7,436) (4,001) (5,087)
Amortization of deferred
Gains (1,639) (4,012) (4,487)
$244,350 $223,995 $193,947
5. Income Taxes
The components of pretax income and income taxes are as follows:
(Dollars in thousands) 1999 1998 1997
Pretax income
U.S. corporations $324,320 $240,838 $206,055
Foreign corporations 12,802 9,573 15,759
Total pretax income $337,122 $250,411 $221,814
Income taxes
Current
U.S. federal $ 50,348 $ 59,429 $ 49,187
State and local 13,211 7,829 12,109
Foreign 7,152 4,153 7,789
$ 70,711 $ 71,411 $ 69,085
Deferred
U.S. federal $ 73,474 $ 37,284 $ 31,162
State and local 2,463 2,738 678
75,937 40,022 31,840
Total income taxes $146,648 $111,433 $100,925
PAGE 24
The components of deferred tax assets and liabilities at December 31,
relate to the following:
(Dollars in thousands) 1999 1998
Deferred tax assets
Reserves for accrued claims
costs $ 44,034 $ 44,400
Reserves for post retirement
health benefits 42,417 39,452
Reserves for employee benefits 82,438 66,916
Other reserves not currently
deductible 44,195 45,904
213,084 196,672
Deferred tax liabilities
Depreciation and amortization 218,700 194,691
Unbilled revenue 57,239 4,601
Other 39,406 23,704
315,345 222,996
Net deferred tax liability $(102,261) $(26,324)
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:
1999 1998 1997
U.S. statutory tax rate 35.0% 35.0% 35.0%
State income taxes (net of federal
income tax benefit) 3.3 3.8 4.3
Foreign taxes in excess of
U.S. statutory rate 0.8 0.9 1.0
Non-deductible operating expenses 0.9 1.1 1.2
Amortization of goodwill 0.9 1.2 1.4
Foreign tax credits, net (0.4) (1.6) (1.1)
Other, net 3.0 4.1 3.7
Effective income tax rate 43.5% 44.5% 45.5%
The cumulative undistributed earnings of the Company's foreign subsidiaries
(approximately $24.4 million at December 31, 1999), 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 $3.1 million.
Certain contingencies related to income taxes are discussed in Note 12
"Contingencies and Other Commitments."
6. 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, 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.
PAGE 25
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.
7. Shareholders' Equity
Series B Preferred Stock
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 9
"Thrift and Stock Plan," at the rate of 4.71 shares for each share of
preferred stock subject to anti-dilution 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 1.3 multiplied by 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.
Comprehensive Income
In 1998, the Company adopted Statement of Financial Accounting Standards
(SFAS) 130, "Reporting Comprehensive Income," which requires companies to
report a measure of all changes in equity except those resulting from
investment by owners and distribution to owners, in a financial statement
for the period in which they are recognized. The Company has elected to
disclose Comprehensive Income in the Statements of Consolidated
Shareholders' Equity.
8. Employee Benefit Plans
Pension 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
92% 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.
The following sets forth the change in funded status and the determination
of the accrued benefit cost included in Employee Benefits in the
Consolidated Balance Sheets at December 31:
(Dollars in thousands) 1999 1998
Change in benefit obligation
Projected benefit obligation
at beginning of year $390,867 $330,658
Service cost-benefits earned
during the year 37,733 30,497
Interest cost on projected
benefit obligation 30,525 25,338
Actuarial loss (gain) (51,645) 10,712
Benefits paid (10,359) (6,338)
Projected benefit obligation
at end of year 397,121 390,867
Change in plan assets
Fair value of plan assets
at beginning of year 354,550 312,818
Actual return on plan assets 88,878 46,136
Transfers from defined
contribution plan 1,278 1,934
Benefits paid (10,359) (6,338)
Fair value of plan assets
at end of year 434,347 354,550
Funded status 37,226 (36,317)
Unrecognized actuarial gain (135,214) (26,745)
Unrecognized prior service costs 6,632 7,816
Unrecognized net asset at transition (4,517) (5,646)
Accrued benefit cost $ (95,873) $(60,892)
Weighted-average assumptions as of
December 31
Discount rate 8.00% 7.00%
Expected long-term rate of
return on assets 9.50% 9.50%
Rate of compensation increase 5.00% 5.00%
PAGE 26
Net pension cost included the following:
(Dollars in thousands) 1999 1998 1997
Service cost-benefits earned
during the year $37,733 $30,497 $23,664
Interest cost on projected
benefit obligation 30,525 25,338 21,818
Expected return on plan assets (33,298) (29,386) (25,511)
Net amortization and deferral 21 56 (200)
Net pension cost $34,981 $26,505 $19,771
The Company also has a supplemental retirement program that provides
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. At December 31,
1999 and 1998, the accrued benefit cost was $16,706,000 and $14,174,000,
respectively, and the net periodic pension cost was $4,290,000 in 1999,
$4,036,000 in 1998 and $2,462,000 in 1997.
Also included in Employee Benefits in the Consolidated Balance Sheets at
December 31, 1999 and 1998 was a minimum pension liability for the unfunded
supplemental program. At December 31, 1999, the non-cash adjustment for the
minimum pension liability of $6,111,000 was offset by an intangible asset
of $1,716,000 and accumulated other comprehensive loss of $4,395,000.
Post Retirement Plans
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 change in accumulated benefit obligation and
the determination of the accrued benefit cost included in Employee Benefits
in the Consolidated Balance Sheets at December 31:
(Dollars in thousands) 1999 1998
Change in benefit obligation
Accumulated benefit obligation at
beginning of year $89,947 $79,898
Service cost-benefits earned
during the year 1,558 2,228
Interest cost on accumulated
benefit obligation 6,289 6,046
Benefit payments (4,343) (3,966)
Actuarial loss (gain) (8,677) 5,741
Accumulated benefit obligation
at end of year 84,774 89,947
Unrecognized net actuarial gain 10,854 2,177
Unrecognized prior service
benefit 334 389
Accrued benefit cost $95,962 $92,513
Weighted-average discount rate
at December 31 8.00% 7.00%
At December 31, 1999, a 6.5% annual rate of increase in the per capita cost
of covered medical benefits was assumed for 2000 and was assumed to
decrease gradually to 5.5% for 2002 and remain at that level thereafter. A
5.5% annual rate of increase in the per capita cost of dental and vision
benefits was assumed for 2000 and was assumed to remain at that level
thereafter.
Net periodic post retirement benefit cost included the following:
(Dollars in thousands) 1999 1998 1997
Service cost-benefits earned
during the year $1,558 $2,228 $2,043
Interest cost on accumulated
benefit obligation 6,289 6,046 5,697
Net amortization and deferral (55) (55) (244)
Net periodic post retirement
benefit cost $7,792 $8,219 $7,496
A one-percentage-point change in assumed health care cost trend rates would
change the aggregate service and interest cost by $693,000 and the
accumulated benefit obligation by approximately $8,474,000.
Other Compensation Plans
The Company and each of its subsidiaries have adopted various plans
relating to the achievement of specific goals to provide incentive
compensation for designated employees. Total compensation earned by
salaried participants of those plans was $47,799,000, $34,929,000 and
$51,900,000 in 1999, 1998 and 1997, respectively, and by hourly
participants was $26,220,000, $36,500,000 and $38,100,000 in 1999, 1998 and
1997, respectively.
PAGE 27
9. Thrift and Stock Plan
The Company sponsors the CNF Thrift and Stock Plan (TASP), a voluntary
defined contribution plan with a leveraged employee stock ownership plan
feature, for non-contractual U.S. employees. 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. The TASP satisfies the Company's contribution requirement by
matching up to 50% of the first 3% of a participant's basic compensation.
Company contributions to the TASP were $13,735,000 in 1999, $10,491,000 in
1998 and $9,921,000 in 1997, 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 principal and interest serviced. Since
the Company guarantees the debt, 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 TASP, 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. In 1999, 1998 and 1997, $7,236,000, $6,983,000
and $6,649,000, respectively, of deferred compensation expense was
recognized.
At December 31, 1999, the TASP owned 840,407 shares of Series B preferred
stock, of which 267,494 shares have been allocated to employees. At
December 31, 1999, the Company has reserved, authorized and unissued common
stock adequate to satisfy the conversion feature of the Series B preferred
stock.
10. Stock-Based Compensation
Stock Options
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. Options
granted prior to June 30, 1998 generally are exercisable one year from the
date of grant. Stock options granted subsequent to June 30, 1998 generally
vest ratably over four years following the grant date. The options
generally expire 10 years from the dates of grant.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees." Had compensation cost for the Company's
stock-based compensation plans been determined in accordance with SFAS 123,
"Accounting for Stock-Based Compensation," pro forma net income as reported
net of preferred dividends would have been $175.1 million, $123.6 million
and $109.3 million in 1999, 1998 and 1997, respectively. Diluted earnings
per share would have been $3.22, $2.32 and $2.12 per share in 1999, 1998
and 1997, respectively. These pro forma effects of applying SFAS 123 are
PAGE 28
not indicative of future amounts. The weighted-average grant-date fair
value of options granted in 1999, 1998 and 1997 was $15.65, $17.22 and
$12.28 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, 5.0%-6.5%; expected life, 5.8 years;
dividend yield, 1.0%; and volatility, 50.0%.
The following is a summary of stock option data:
Wtd. Avg.
Number of Exercise
Options Price
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
Granted 711,350 38.29
Exercised (321,079) 17.07
Expired or canceled (46,850) 38.24
Outstanding at December 31, 1998 2,931,019 24.60
Granted 751,100 30.92
Exercised (446,128) 16.75
Expired or canceled (10,995) 30.78
Outstanding at December 31, 1999 3,224,996 $27.13
Options exercisable as of December 31
1999 2,020,646 $23.66
1998 2,194,975 20.66
1997 2,051,347 17.35
The following is a summary of the stock options outstanding and exercisable
at December 31, 1999:
Outstanding Options Exercisable Options
Remaining Wtd. Avg. Wtd. Avg.
Range of Number Life in Exercise Number Exercise
Exercise Prices of Options Years Price of Options Price
$11.08-$16.26 428,109 3.5 $13.93 428,109 $13.93
$18.05-$22.75 922,637 5.6 19.37 922,637 19.37
$29.63-$43.63 1,874,250 8.9 33.97 669,900 35.77
Restricted Stock
Under terms of the Company's stock-based compensation plans, shares of the
Company's common stock are awarded to executive officers and, to a lesser
extent, directors. Restrictions on the shares generally expire one-third
per year dependent on the achievement of goals. Shares are initially valued
at the market price of the Company's common stock at the date of award.
The following table summarizes information about restricted stock awards
for the years ended December 31:
1999 1998 1997
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Shares Fair Value Shares Fair Value Shares Fair Value
Awarded 63,112 $33.08 112,113 $38.51 85,531 $33.02
Forfeited - - 5,667 34.41 - -
Total compensation expense recognized for restricted stock in 1999, 1998
and 1997 was $4,622,000, $2,781,000 and $483,000, respectively.
At December 31, 1999, the Company had 281,159 common shares available for
the grant of stock options, restricted stock, or other stock-based
compensation.
11. Financial Instruments
The Company has several interest rate swap agreements, including swaps
entered into in 1999. These agreements, which expire through 2005,
effectively convert $119.9 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. At December 31, 1999, the Company had fuel purchase contracts to
hedge the market price fluctuations of 4.5 million gallons of jet fuel. The
Company is exposed to credit loss on the interest rate swaps and fuel
purchase contracts, but does not anticipate any loss due to the credit-
worthiness of its counterparties. The fair values of the interest rate
swaps and fuel purchase contracts, as presented below, reflect the
estimated amounts that the Company would receive upon the termination of
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:
1999 1998
Carrying Fair Carrying Fair
(Dollars in thousands) Amount Value Amount Value
Short-term borrowings $ 40,000 $ 40,000 $ 43,000 $ 43,000
Long-term debt and
guarantees 329,200 315,000 362,105 385,000
Off-balance sheet
receivables
Interest rate swaps - 7,600 - 700
Fuel purchase
contracts - 1,100 - -
PAGE 29
In December 1999, the Company recognized a $9.6 million net gain on the
sale of Emery's holdings in the equity securities of Equant N.V., an
international data network service provider. Approximately 34% of Emery's
holdings in the securities were sold in December 1999 and the resulting
gain was recognized in Miscellaneous, net in the Statements of Consolidated
Income. The remaining shares held by Emery are carried at essentially no
cost at December 31, 1999, and are subject to transferability restrictions
that only allow the Company to sell the securities when and if certain
secondary offerings are made. The transferability restrictions lapse in
June 2000.
12. Contingencies and Other Commitments
In addition to letters of credit outstanding under its $350 million
unsecured credit facility and other uncommitted lines of credit discussed
in Note 3 "Debt and Guarantees," the Company, at December 31, 1999, had
$50.4 million of letters of credit outstanding under other unsecured letter
of credit facilities.
In connection with the December 2, 1996 spin-off of Consolidated
Freightways Corporation (CFC), the Company's former long-haul LTL segment,
the Company agreed to indemnify certain states, insurance companies and
sureties against the failure of CFC to pay a number of worker's
compensation, tax 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, as of December 31, 1999, CFC had provided the Company with
approximately $11.0 million of letters of credit and $7.5 million of real
property collateral. However, the letters of credit and collateral provided
by CFC are less than the Company's maximum contingent liability under these
indemnities.
The Company is currently under examination by the Internal Revenue Service
(IRS) for tax years 1987 through 1996 on various issues. In connection with
that examination, the IRS is seeking additional taxes, plus interest, for
certain matters relating to CFC for those periods. 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 by the IRS for years prior to the
spin-off. The Company believes it is entitled to and will pursue
reimbursement from CFC under the tax sharing agreement for any payments
that the Company makes to the IRS with respect to these additional taxes.
Any failure to receive reimbursement for a significant portion of those
payments, whether due to CFC successfully contesting their obligation to
reimburse us or for any other reason, could have a material adverse effect
on the Company's results of operations. At December 31, 1999, the Company
has recognized approximately $53 million in Deferred Charges and Other
Assets in the Consolidated Balance Sheets for amounts receivable from CFC
and a corresponding payable for amounts due the IRS.
The IRS has proposed a substantial adjustment for tax years 1987 through
1990 based on the IRS' position that some of our 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 has filed a protest concerning the proposed adjustment for tax
years 1987 through 1990 and is engaged in discussions with the Appeals
Office of the IRS. The Company is unable to predict whether or not it will
be able to resolve this issue with the Appeals Office. The Company expects
that, if it is unable to resolve this issue with the Appeals Office, it
will receive a statutory notice of assessment from the IRS during 2000. If
this occurs, the Company intends to contest the assessment by appropriate
legal proceedings.
PAGE 30
The Company believes that its practice of expensing these types of aircraft
maintenance costs is consistent with industry practice and intends to
continue to vigorously contest the proposed adjustment. However, if this
matter is determined adversely to the Company, there can be no assurance
that the Company will not be liable for substantial additional taxes, plus
accrued interest. As a result, the Company is unable to predict the
ultimate outcome of this matter and there can be no assurance that this
matter will not have a material adverse effect on the Company's results of
operations.
The IRS has also proposed adjustments that would require Emery Worldwide to
pay substantial additional aviation excise taxes for the period from
January 1, 1990 through September 30, 1995. The Company has filed protests
contesting these proposed adjustments and is engaged in discussions with
the Appeals Office of the IRS.
The Company believes that there is legal authority to support the manner in
which it has calculated and paid the aviation excise taxes and,
accordingly, the Company intends to continue to vigorously challenge the
proposed adjustments. Nevertheless, the Company is unable to predict the
ultimate outcome of this matter. As a result, there can be no assurance
that the Company will not be liable for a substantial amount of additional
aviation excise taxes for the 1990 through 1995 tax period, plus interest.
In addition, it is possible that the IRS may seek to increase the amount of
the aviation excise tax payable by Emery Worldwide for periods subsequent
to September 30, 1995. As a result, there can be no assurance that this
matter will not have a material adverse effect on the Company's results of
operations.
In addition to the matters discussed above, 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.
13. Segment Reporting
In 1998, the Company adopted SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS 131 changes the method of
disclosing segment information to the manner in which the Company's chief
operating decision maker organizes the components for making operating
decisions, assessing performance and allocating resources. The Company has
organized the segments based on the type of transportation services
provided.
The operations of the Company are comprised of four business segments: Con-
Way Transportation Services, Emery Worldwide, Menlo Logistics, and Other.
Con-Way provides regional one- and two-day LTL freight trucking and full-
service truckload freight delivery throughout the U.S., Canada and Mexico,
expedited and guaranteed ground transportation, and integrated supply chain
services. Emery provides expedited and deferred domestic and international
air cargo services, ocean delivery, and customs brokerage. Domestically,
Emery relies primarily on its dedicated aircraft and ground fleet to
provide its services. Internationally, Emery acts principally as a freight
forwarder. Menlo is a full-service contract logistics company that
specializes in developing and managing complex distribution networks.
The Other segment consists primarily of the operations under a Priority
Mail contract with the U.S. Postal Service, and includes Road Systems, a
trailer manufacturer, and prior to the sale of its assets in May 1999,
VantageParts, a wholesale distributor of truck parts and supplies.
Intersegment revenues and related operating income have been eliminated to
reconcile to consolidated revenue and operating income. Management
evaluates segment performance primarily based on revenue and operating
income; therefore, other items included in pretax income, consisting
primarily of interest income or expense, are not reported in segment
results. Operating income is net of all corporate expenses, which are
allocated based on measurable services provided each segment or for general
corporate expenses allocated on a revenue and capital basis.
PAGE 31
Identifiable corporate assets consist primarily of deferred charges and
other assets, property and equipment and deferred taxes. Certain corporate
assets that are used to provide shared data processing and other
administrative services are not allocated to individual segments.
For geographic information, revenues are allocated between the United
States and international (except Canada), depending on whether the
shipments are between locations within the United States or between
locations where one or both are outside the United States. Canada, which
operates as an integrated part of the North American operation, includes 50
percent of the revenue where one of the locations is in the United States
or an international location. Long-lived assets outside the United States
were immaterial for all periods presented.
Geographic Information
(Dollars in thousands) 1999 1998 1997
Revenues
United States $4,365,686 $3,870,722 $3,177,792
Canada 132,190 112,721 114,001
North America 4,497,876 3,983,443 3,291,793
International 1,094,934 958,047 975,008
Total $5,592,810 $4,941,490 $4,266,801
<TABLE>
Operating Segments
(Dollars in thousands)
<CAPTIONS>
Adjustments, Con-Way
Eliminations Transportation Emery Menlo
Consolidated and the Parent Services Worldwide Logistics Other
<S> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1999
Revenues $5,592,810 $ (93,970) $1,903,056 $2,420,220 $727,593 $635,911
Inter-company eliminations - 93,970 (24,840) (11,804) (11,585) (45,741)
Net revenues 5,592,810 - 1,878,216 2,408,416 716,008 590,170
Operating income 359,100 - 228,820 75,514 22,255 32,511(a)
Depreciation and amortization 190,461 10,241 85,418 61,781 6,842 26,179
Capital expenditures 335,008 6,359 211,971 100,219 5,642 10,817
Identifiable assets 3,049,010 219,243 968,507 1,459,189 141,184 260,887
Year Ended December 31, 1998
Revenues 4,941,490 (103,292) 1,710,345 2,232,815 598,750 502,872
Inter-company eliminations - 103,292 (26,354) (29,341) (11,915) (35,682)
Net revenues 4,941,490 - 1,683,991 2,203,474 586,835 467,190
Operating income (loss) 290,518 - 206,945 64,299 19,459 (185)
Depreciation and amortization 163,382 6,601 77,269 55,025 6,138 18,349
Capital expenditures 267,668 6,052 102,290 101,935 7,115 50,276
Identifiable assets 2,689,412 196,980 825,615 1,278,228 125,728 262,861
Year Ended December 31, 1997
Revenues 4,266,801 (100,712) 1,480,364 2,278,755 473,379 135,015
Inter-company eliminations - 100,712 (7,176) (29,161) (17,487) (46,888)
Net revenues 4,266,801 - 1,473,188 2,249,594 455,892 88,127
Operating income (loss) 264,867 - 147,155 113,963 17,178 (13,429)
Depreciation and amortization 123,391 6,262 65,560 45,483 4,331 1,755
Capital expenditures 242,343 2,896 109,328 58,795 11,504 59,820
Identifiable assets 2,421,496 166,840 736,449 1,257,140 109,291 151,776
<FN>
(a) Includes a $16.5 million net gain on a lawsuit settled in January 1999,
and a $10.1 million net gain on the VantageParts asset sale in May 1999.
</TABLE>
PAGE 32
<TABLE>
Note 14. Quarterly Financial Data (Unaudited)
(Dollars in thousands except per share data)
<CAPTIONS>
1999-Quarter Ended March 31 June 30 September 30 December 31
<S> <C> <C> <C> <C>
Revenues $1,255,323 $1,361,637 $1,408,391 $1,567,459
Operating income 82,595(a) 95,334(b) 85,768 95,403
Income before income taxes 74,861 86,343 78,202 97,716(c)
Income taxes 32,565 37,559 34,018 42,506
Net income 42,296 48,784 44,184 55,210
Net income available to common
shareholders 40,269 46,723 42,147 53,117
Per share
Basic earnings 0.84(a) 0.97(b) 0.87 1.10(c)
Diluted earnings 0.74(a) 0.86(b) 0.77 0.97(c)
Market price range 34.15-44.55 32.56-45.52 34.64-45.19 28.28-38.38
Common dividends paid 0.10 0.10 0.10 0.10
1998-Quarter Ended March 31 June 30 September 30 December 31
Revenues $1,089,866 $1,199,654 $1,282,510 $1,369,460
Operating income 44,805 84,003 89,043 72,667(d)
Income before income taxes 34,077 74,533 79,227 62,574
Income taxes 15,164 33,167 35,257 27,845
Net income 18,913 41,366 43,970 34,729
Net income available to common
shareholders 16,906 39,326 41,939 32,638
Per share
Basic earnings 0.36 0.83 0.88 0.68(d)
Diluted earnings 0.33 0.73 0.78 0.61(d)
Market price range 34.81-49.94 35.00-44.50 26.81-47.94 21.63-38.94
Common dividends paid 0.10 0.10 0.10 0.10
<FN>
(a) Includes a $16.5 million net gain ($0.19 per basic share and $0.16 per
diluted share) on a lawsuit settled in January 1999.
(b) Includes a $10.1 million net gain ($0.12 per basic share and $0.10 per
diluted share) on the VantageParts asset sale in May 1999.
(c) Includes a $9.6 million net gain ($0.11 per basic share and $0.09 per
diluted share) on the sale of equity securities in December 1999.
(d) Includes $5.1 million of income ($0.06 per basic share and $0.05 per
diluted share) for the recovery of a portion of costs charged in 1997 from the
discontinuance of rail container service and other unusual items.
</TABLE>
PAGE 33
Reports
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/Gregory L. Quesnel
Gregory L. Quesnel
President and Chief Executive Officer
/S/Chutta Ratnathicam
Chutta Ratnathicam
Senior Vice President and Chief Financial Officer
/S/Gary D. Taliaferro
Gary D. Taliaferro
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, 1999 and 1998, and the related statements of consolidated
income, cash flows and shareholders' equity for each of the three years in
the period ended December 31, 1999. 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, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
As explained in Note 1 to the consolidated financial statements, effective
January 1, 1998, the Company changed its method of accounting for the costs
of internal use software to reflect the adoption of Statement of Position
98-1, "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use."
/s/Arthur Andersen LLP
San Francisco, California
January 28, 2000
PAGE 34
<TABLE>
Five Year Financial Summary
<CAPTIONS>
(Dollars in thousands
except per share data) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Summary of Operations
Revenues(a) $5,592,810 $4,941,490 $4,266,801 $3,662,183 $3,290,077
Con-Way Transportation
Services 1,878,216 1,683,991 1,473,188 1,292,082 1,152,164
Emery Worldwide 2,408,416 2,203,474 2,249,594 1,968,058 1,766,301
Menlo Logistics 716,008 586,835 455,892 359,377 287,652
Other 590,170 467,190 88,127 42,666 83,960
Operating income (loss)(a) 359,100 290,518 264,867 192,148 186,687
Con-Way Transportation
Services 228,820 206,945 147,155 101,049 96,573
Emery Worldwide 75,514 64,299 113,963 78,415 81,734
Menlo Logistics 22,255 19,459 17,178 10,918 6,325
Other 32,511(d) (185) (13,429) 1,766 2,055
Interest expense 25,972 32,627 39,553 39,766 33,407
Income from continuing
operations before income
taxes 337,122(e) 250,411 221,814 147,132 152,942
Income taxes 146,648 111,433 100,925 66,951 66,723
Income from continuing
operations(b) 182,256 130,809 113,003 71,589 75,420
Loss from discontinued
operations(c) - - - (52,633) (28,854)
Net income available to
common shareholders 182,256 130,809 113,003 18,956 46,566
Per Share
Net income from continuing
operations, basic $ 3.78(d,e) $ 2.74 $ 2.44 $ 1.63 $ 1.79
Loss from discontinued
operations(c) - - - (1.20) (0.68)
Net income available to
common shareholders, basic 3.78 2.74 2.44 0.43 1.11
Net income from continuing
operations, diluted 3.35(d,e) 2.45 2.19 1.48 1.64
Dividends paid on common stock 0.40 0.40 0.40 0.40 0.40
Common shareholders' equity 19.15 15.48 13.26 10.86 15.76
Statistics
Total Assets $3,049,010 $2,689,412 $2,421,496 $2,081,866 $2,084,958
Long-term obligations 433,446 467,635 473,488 477,201 480,410
Capital expenditures 335,008 267,668 242,343 200,835 167,253
Effective income tax rate 43.5% 44.5% 45.5% 45.5% 43.6%
Basic average shares 48,189,618 47,659,745 46,236,688 44,041,159 42,067,842
Market price range $28.28-$45.52 $21.63-$49.94 $20.25-$50.88 $17.25-$29.38 $20.25-$27.88
Number of shareholders 9,520 9,870 15,560 16,090 15,980
Number of regular full-time
employees(f) 30,800 29,200 26,300 25,100 21,400
<FN>
(a) In 1998, the Company adopted SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." As required by SFAS 131, 1995 through 1997
figures have been restated.
(b) Includes preferred stock dividends.
(c) Reflects the results of Consolidated Freightways Corporation, the Company's
former long-haul LTL segment, that was spun off in December 1996.
(d) Includes a $16.5 million net gain ($0.19 per basic share and $0.17 per
diluted share) on a lawsuit settled in January 1999, and a $10.1 million net
gain ($0.12 per basic share and $0.10 per diluted share) on the VantageParts
asset sale in May 1999.
(e) Includes a $9.6 million net gain ($0.11 per basic share and $0.10 per
diluted share) on the sale of equity securities in December 1999.
(f) Excludes supplemental and regular part-time employees.
</TABLE>
Exhibit 21
CNF TRANSPORTATION INC.
SIGNIFICANT SUBSIDIARIES OF THE COMPANY
December 31, 1999
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
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-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 146,263
<SECURITIES> 0
<RECEIVABLES> 940,470
<ALLOWANCES> (26,163)
<INVENTORY> 46,019
<CURRENT-ASSETS> 1,200,233
<PP&E> 1,131,034
<DEPRECIATION> (864,538)
<TOTAL-ASSETS> 3,049,010
<CURRENT-LIABILITIES> 1,049,154
<BONDS> 433,446
125,000
127,825
<COMMON> 363,721
<OTHER-SE> 476,835
<TOTAL-LIABILITY-AND-EQUITY> 3,049,010
<SALES> 0
<TOTAL-REVENUES> 5,592,810
<CGS> 0
<TOTAL-COSTS> 5,233,710
<OTHER-EXPENSES> 21,978
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,972
<INCOME-PRETAX> 337,122
<INCOME-TAX> 146,648
<INCOME-CONTINUING> 190,474
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 182,256
<EPS-BASIC> 3.78
<EPS-DILUTED> 3.35
</TABLE>
