Back to GetFilings.com
PAGE 1
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, 2000
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
------------------------------ ----------------------
Common Stock ($.625 par value) New York Stock Exchange
Pacific Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act:
8 7/8% Notes Due 2010
7.35% Notes Due 2005
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Sections 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Yes X No
----- -----
Aggregate market value of voting stock held by persons other than
Directors, Officers and those shareholders holding more than 5%
of the outstanding voting stock, based upon the closing price per
share Composite Tape on January 31, 2001: $ 1,525,251,999
Number of shares of Common Stock outstanding as of February 28,
2001: 48,724,884
DOCUMENTS INCORPORATED BY REFERENCE
Parts I, II and IV
CNF Transportation Inc. 2000 Annual Report to Shareholders (only
those portions referenced herein are incorporated in this Form 10-
K).
Part III
Proxy Statement dated March 8, 2001 (only those portions
referenced herein are incorporated in this Form 10-K).
PAGE 2
CNF TRANSPORTATION INC.
FORM 10-K
Year Ended December 31, 2000
------------------------------
INDEX
-----
Item Page
- ---- ----
PART I
1. Business 3
2. Properties 14
3. Legal Proceedings 16
4. Submission of Matters to a Vote of Stockholders 17
PART II
5. Market for the Registrant's Common Equity
and Related Stockholder Matters 18
6. Selected Financial Data 18
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 18
7A. Quantitative and Qualitative Discussions about
Market Risk 20
8. Financial Statements and Supplementary Data 20
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 20
PART III
10. Directors and Executive Officers of the Registrant 21
11. Executive Compensation 22
12. Security Ownership of Certain Beneficial Owners
and Management 22
13. Certain Relationships and Related Transactions 22
PART IV
14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 23
PAGE 3
CNF TRANSPORTATION INC.
FORM 10-K
Year Ended December 31, 2000
----------------------------
PART I
------
ITEM 1. BUSINESS
CNF Transportation Inc. and subsidiaries (collectively the
Registrant or the Company) is a management company of global
supply-chain services. The Company, formerly Consolidated
Freightways, Inc., was incorporated in Delaware in 1958.
Following the Spin-off of Consolidated Freightways Corporation,
which is described below, the Company changed its name to CNF
Transportation Inc. The continuing operations of the Company
comprise four business segments: Con-Way Transportation Services,
Emery Worldwide, Menlo Logistics, and Other.
Con-Way provides regional one- and two-day less-than-truckload
(LTL) freight trucking 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 EWA's 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 Road Systems, a trailer
manufacturer, and Vector SCM, a joint venture formed with General
Motors in December 2000. Vector SCM will serve as a logistics
service provider to General Motors. VantageParts, the Company's
former wholesale distributor of truck parts and supplies, was
also included in the Other segment prior to the sale of its
assets in May 1999.
As described below under "Discontinued Operations", the sortation
and transportation operations with the U.S. Postal Service are
reflected as discontinued operations due to the termination of
the Priority Mail contract, effective January 7, 2001.
The results of Consolidated Freightways Corporation (CFC), the
Company's former long-haul LTL motor carrier and now a separate
publicly traded company, are also reported as discontinued
operations due to the tax-free distribution of CFC's common stock
(the Spin-off) to the Registrant's shareholders on December 2,
1996. The Company's shareholders received one share of CFC stock
for every two shares of the Registrant's stock that were owned on
November 15, 1996.
In compliance with Statement of Financial Accounting Standards
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. For
financial information concerning the Company's business segments,
refer to Note 14 of the Notes to Consolidated Financial
Statements contained in the Company's 2000 Annual Report to
Shareholders, which Note is incorporated herein by reference.
PAGE 4
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 14 of the
Notes to Consolidated Financial Statements contained in the 2000
Annual Report to Shareholders, which Note is incorporated herein
by reference.
- ---------------------
CONTINUING OPERATIONS
- ---------------------
Con-Way Transportation Services Segment
- -----------------------------------
The Con-Way Transportation Services (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 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 serves
13 western states and 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. This
permitted 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 regional carrier to provide service into other
regions on routes 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 a
100% delivery guarantee for an additional charge to the customer.
Con-Way NOW, Con-Way Integrated Services, and Con-Way Truckload
Services
Con-Way NOW specializes in time-definite shipments, such as
replacement parts, medical equipment and other urgent shipments,
where expedited delivery is critical. Con-Way NOW 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 warehouses, its multi-modal carrier relationships, and
alliances with leading supply chain software firms to offer semi-
customized solutions configured to its customers' needs.
In November 2000, CIS launched a new consulting company called
Con-Way Business Solutions (CBS). The new company is designed to
help small to medium-sized firms use technology to redefine
traditional business processes. CBS will seek to provide a full
range of supply chain management and Internet solutions to
manufacturers, distributors and emerging Internet companies.
Prior to the sale of most of its assets in August 2000, Con-Way
Truckload Services (CWT) was a full-service, multi-modal
truckload company that provided door-to-door delivery of
truckload shipments. Although profitable, CWT was a small
company in the truckload market. Con-Way's management believed
that CWT's operation was not large enough to generate an
acceptable level of profitability in the truckload segment of the
trucking industry.
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
- -----------------------
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
for Express Mail (a next-day delivery service) under a contract
awarded in 1993 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 described below
under "Discontinued Operations" due to the termination of the
Priority Mail contract, effective January 7, 2001.
Emery Air Freight Corporation
Emery Air Freight Corporation 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.
PAGE 6
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. 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. A
$75 million redesign and expansion of the Hub during 1999 and
2000 improved freight handling efficiency and increased
throughput capacity by approximately 30%.
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. The Company believes that 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 owned or
leased aircraft only on a limited basis. (International business
comprises shipments that either originate or terminate outside of
the United States). EAFC provides services internationally
through foreign subsidiaries, branches, service centers and
agents.
EAFC's expansion plans have been focused on international
operations due to the expectation of greater opportunities in an
expanding worldwide economy and the generally lower capital
requirements of its variable-cost-based international operations.
From 1995 to 2000, EAFC's international air freight revenue,
including fuel surcharges, increased at an average annual rate of
11.8%, compared with a 3.4% average annual rate of increase in
North American air freight revenue for the same period. For 2000,
international airfreight revenue, including fuel surcharges was
$1.21 billion, or 54% of Emery's total airfreight revenue,
including fuel surcharges. In 1999, revenue from the Asian
region was adversely impacted by a severe regional economic
downturn that also affected other international regions.
PAGE 7
Emery Worldwide Airlines
In addition to providing aircraft for EAFC's commercial air
freight operations, EWA uses its owned and leased 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 Express Mail contract was
awarded to EWA in 1993 and expires in 2004. In addition, EWA was
also awarded separate contracts to carry peak-season Christmas
and other mail for the USPS. Emery recognized $258.2 million,
$252.6 million and $214.0 million of revenue in 2000, 1999 and
1998, respectively, from Express Mail and other contracts for the
USPS, excluding revenue from the Priority Mail contract, which is
described under "Discontinued Operations".
In January 2001, the USPS and Federal Express Corporation (FedEx)
announced an exclusive agreement in which the USPS will pay FedEx
to haul Express Mail and Priority Mail. In 2000, EWA recognized
revenue of $229.1 million and operating income of $28.2 million
from its 10 year contract with the USPS to transport Express
Mail. Even though EWA has received no notice of termination of
its Express Mail contract from the USPS, there can be no
assurance that the USPS will renew its Express Mail contract with
EWA when it expires in January 2004 or that the USPS will not
terminate EWA's Express Mail contract prior to its scheduled
expiration. Any termination or non-renewal of this contract will
likely have a material adverse effect on the Company's results of
operations. EWA filed a lawsuit in the U.S. Court of Federal
Claims against the USPS alleging that its exclusive contract with
FedEx violates the USPS' own procurement regulations, which
require that all purchases over $10,000 ``must be made on the
basis of adequate competition whenever feasible or appropriate,''
and that such a contract violates the USPS' regulatory
requirement to provide ``fair and equal treatment'' to all
potential suppliers. In March 2001, the U.S. Court of Federal
Claims ruled against EWA by upholding the contract between the
USPS and FedEx. EWA is considering its legal options and may
appeal the court decision. If the USPS terminates the Express
Mail contract with EWA before its scheduled expiration date, EWA
believes that it is entitled to reimbursement of costs related to
servicing the contract.
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.
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 and passenger and cargo
air carriers. Competition in the air freight industry is based
on, among other things, freight rates, quality of service,
reliability, transit times and scope of operations.
PAGE 8
Emery - Strategic Initiatives and Outlook
In September 2000, Chutta Ratnathicam was named chief executive
officer of Emery Worldwide, succeeding Roger Piazza, who retired.
Mr. Ratnathicam most recently served as CNF's chief financial
officer and served as Emery's interim chief executive officer for
a brief period in 1998 prior to Mr. Piazza's appointment.
Under Mr. Ratnathicam, Emery's management intends to continue
positioning Emery as a premium service provider, focusing on
achieving higher yield with a reduced cost structure. In North
America, management will seek to improve yield by requiring
compensation that is commensurate with premium services.
Internationally, management will focus on expanding its variable-
cost-based operations and actively renegotiating airhaul rates in
an effort to improve operating margins, mitigate higher fuel
prices, and balance directional capacity.
Emery's management believes that a slowing domestic economy in
2001 has contributed to a significant decline in pounds
transported by EAFC's North American operations in the first two
months of 2001 when compared to the same period last year.
Emery's management is evaluating initiatives for increasing its
return on capital. Certain of these initiatives include a
reduction or revision to EAFC's North American freight service
center network and/or EWA's fleet of aircraft. There can be no
assurance that implementation of one or more of these initiatives
will not have a material adverse effect on its results of
operations and financial condition.
Menlo Logistics Segment
- -----------------------
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 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.
PAGE 9
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 believes that its 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. 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 Menlo's customer-specific start-up and
development costs.
Menlo seeks to limit the financial commitments it undertakes by
typically requiring 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, relatively few relationships between Menlo and its
customers have been terminated.
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 transportation business is routinely referred to Con-Way or
Emery. The Company considers Menlo's independence from the
Company's other primary business units as essential to Menlo's
business.
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
- -------------
The Other segment consists primarily of Road Systems, a trailer
manufacturer, and Vector SCM, a joint venture described below.
VantageParts, the Company's former wholesale distributor of truck
parts and supplies, was also included in the Other segment prior
to the sale of its assets in May 1999.
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.
PAGE 10
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.
Vector SCM
General Motors (GM) and CNF announced in December 2000 the
formation of a joint venture company called Vector SCM (supply
chain management). Under the terms of the joint venture
agreement, Vector SCM, which is headquartered in Novi, Michigan,
is expected to become GM's lead logistics service provider
worldwide. Vector SCM was established to reduce GM's supply
chain costs and improve GM's supply chain management by bringing
increased speed and reliability to the shipment of parts to GM's
manufacturing plants and its vehicles to dealers. With more
dependable deliveries, GM's goal is to build a vehicle to
schedule when necessary and deliver that vehicle as promised to
the consumer.
Under the terms of the joint venture agreement, the transition of
logistics services and management to Vector SCM is expected to
occur over three years. The initial transition of logistics
services in North America is expected to include inbound
production material, vehicle distribution, premium transportation
and international export/import. Vector SCM implementation is
expected to expand to other regions in varying degrees in
accordance with regional business requirements.
Under the joint venture agreement, CNF would share in any savings
realized by GM as a result of reductions in its supply chain
costs. The Vector SCM joint venture is included in the Company's
financial statements using the equity method of accounting.
- -----------------------
DISCONTINUED OPERATIONS
- -----------------------
On November 3, 2000, Emery Worlwide Airlines (EWA) and the U.S.
Postal Service (USPS) announced an agreement to terminate their
contract for the transportation and sortation of Priority Mail.
The contract was originally scheduled to terminate in the first
quarter of 2002, subject to renewal options. Under terms of the
agreement, the USPS on January 7, 2001 assumed operating
responsibility for services covered under the contract, except
certain air transportation and related services. As a part of
the termination agreement, EWA agreed to provide certain air
transportation and related services to the USPS for a transition
period of not less than ninety days. In January 2001, EWA
received notification from the USPS of its intention to terminate
the requirement for EWA to provide transition air transportation
and related services, effective April 23, 2001.
The USPS has agreed to reimburse EWA for Priority Mail contract
termination costs, including costs of contract-related equipment,
inventory, and operating lease commitments, up to $125 million
(the "Termination Liability Cap"). On January 7, 2001, the USPS
paid EWA $60 million toward the termination costs. The
termination agreement provides for this provisional payment to be
adjusted if actual termination costs are greater or less than $60
million, in which case either the USPS will be required to make
an additional payment or EWA will be required to return a portion
of the provisional payment. We believe that contract termination
costs incurred by EWA are reimbursable under the termination
agreement and do not exceed the Termination Liability Cap.
However, there can be no assurance that all termination costs
incurred by Emery will be recovered.
PAGE 11
Under the termination agreement, EWA agreed to dismiss a
complaint filed in April 2000 in the U.S. Court of Federal Claims
that requested a declaration of contract rights under the
Priority Mail contract and a ruling that the USPS was in breach
of contractual payment obligations. However, the termination
agreement preserves EWA's right to pursue claims for
underpayment, and EWA has initiated litigation in the U.S. Court
of Federal Claims for that purpose. These claims are to recover
costs of operating under the contract as well as profit and
interest thereon.
At December 31, 2000, the Company's consolidated financial
statements included $176.2 million of unbilled revenue with
respect to the Priority Mail contract. (Unbilled revenue at
December 31, 2000 reflects payments totaling $102.1 million
received from the USPS in October 2000). As described in Note 2
of the Notes to Consolidated Financial Statements included in the
2000 Annual Report to Shareholders, which Note is incorporated by
reference, unbilled revenue represents the accrual of revenue
sufficient only to recover EWA's costs of operating under the
Priority Mail contract and therefore does not include either
profit or interest on unbilled revenue or profit. Any unbilled
revenue that EWA does not recover would be written off and
reflected in operating results for discontinued operations in the
period in which the write-off occurs. Any amount of litigation
award in excess of unbilled revenue would be reflected as income
from discontinued operations in the then current period. The
Company believes that its position with respect to claims for
underpayment under the Priority Mail contract is reasonable and
well founded; however, there can be no assurance that litigation
will result in an award sufficient to recover unbilled revenue
recognized under the contract. The government is investigating
matters relating to the Priority Mail contract, and EWA
has received subpoenas for documents from a grand jury in
Massachusetts and the USPS Inspector General. Accordingly, the
Company can give no assurance that matters relating to the
Priority Mail contract with the USPS will not have a material
adverse effect on its financial condition or results of operations.
As a result of the contract termination, the results of
operations of the Company's Priority Mail contract have been
segregated and classified as discontinued operations in the
Company's financial statements included in the 2000 Annual Report
to Shareholders, which financial statements are incorporated by
reference.
GENERAL
- -------
Employees
At December 31, 2000, the Company's continuing operations had
approximately 28,700 regular full-time employees. Regular full-
time employees by segment were as follows: Con-Way, 15,300; Emery
Worldwide, 10,100; Menlo, 2,100; Other segment, 1,200. Of the
1,200 regular full-time employees included in the Other segment,
approximately 900 were employed by CNF in executive,
administrative and technology positions to support the Company's
operating subsidiaries. At December 31, 2000, the discontinued
Priority Mail operations had approximately 2,200 regular full-
time employees.
PAGE 12
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.
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, and leasing of equipment by motor carriers
from owner-operators and also 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 13
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 has 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 14
ITEM 2. PROPERTIES
- ---------------------
CONTINUING OPERATIONS
- ---------------------
Con-Way Transportation Services Segment
- ---------------------------------------
As of December 31, 2000, Con-Way operated 333 freight service
centers, of which 119 were owned and 214 were leased. The
service centers, which are strategically located to cover the
geographic areas 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 5
warehouses near Mira Loma, California; Chicago, Illinois;
Atlanta, Georgia; Houston, Texas; and Dallas Texas. The
warehouses range in size from approximately 50,000 to 240,000
square feet.
The total number of trucks, tractors and trailers utilized in the
Con-Way operations at December 31, 2000 was approximately 27,700.
Emery Worldwide Segment
- -----------------------
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, of which $108 million in
principal amount was outstanding as of December 31, 2000. The Hub
and related property secures the industrial revenue bonds.
As of December 31, 2000, EAFC operated 130 freight facilities in
North America, including service centers and logistics
warehouses, of which 15 were owned and 115 were leased. The
freight 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. At December 31, 2000, Emery operated
approximately 100 leased facilities in international locations,
including service centers, logistics warehouses and office space.
At December 31, 2000, Emery's aircraft fleet included 74
aircraft, of which 25 were owned and 49 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-
operator to provide the aircraft, flight crews, maintenance,
insurance, and other supplies required to operate the aircraft.
The number of aircraft operating under wet leases can vary
depending on seasonal demand.
PAGE 15
As of December 31, 2000, 2 aircraft were dedicated to the
Priority Mail operations and 19 of the aircraft reported above
were designated for shared use with the Priority Mail operation.
These aircraft are used primarily at night in EWA's commercial
non-Priority Mail freight operations. However, prior to
termination of the Priority Mail contract, effective January 7,
2001, the 19 designated aircraft were also used in "daylight
turns" of aircraft for the transportation of Priority Mail. As
of December 31, 2000, 25 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 described under
"Discontinued Operations".
At December 31, 2000, EAFC operated approximately 1,700 trucks,
tractors and trailers, as well as equipment provided by its
agents.
Menlo Logistics Segment
- -----------------------
As of December 31, 2000, Menlo operated 64 warehouses. Of these
warehouses operated by Menlo, 25 were leased by Menlo and 39 were
leased or owned by Menlo's clients. The 25 facilities leased by
Menlo ranged in size from approximately 12,000 to 390,000 square
feet.
At December 31, 2000, Menlo operated approximately 500 trucks,
tractors and trailers.
Other Segment
- -------------
Principal properties of the Other segment include the Company's
leased executive offices in Palo Alto, California, and its
Administrative and Technology (AdTech) Center in Portland,
Oregon. As of December 31, 2000, the Company's administrative
and technology employees were located at the Company-owned
125,000 square-foot AdTech Center and in several other nearby
leased office facilities. At January 31, 2001, the Company had
substantially completed a new 250,000 square-foot building that
will expand the existing AdTech campus and will eliminate the
need to lease nearby office space.
- -----------------------
DISCONTINUED OPERATIONS
- -----------------------
As described above in Item 1, "Discontinued Operations", the USPS
has agreed to reimburse the Company for Priority Mail contract
termination costs, including costs of contract-related equipment,
inventory and operating lease commitments. Reimbursement by the
USPS is subject to the Termination Liability Cap and the terms
discussed above.
PAGE 16
Contract-related equipment at December 31, 2000 included
approximately 900 trucks, tractors and trailers. As discussed
above under "Emery Worldwide Segment", as of December 31, 2000, 2
aircraft in EWA's fleet were dedicated to the Priority Mail
operations and 19 aircraft were designated for shared use with
the Priority Mail operation prior to termination of the Priority
Mail contract, effective January 7, 2001. As described above in
Item 1, "Discontinued Operations", EWA agreed to provide certain
air transportation and related services to the USPS until April
23, 2001. The 2 aircraft in EWA's fleet that were dedicated to
the Priority Mail operations prior to termination of the Priority
Mail contract, effective January 7, 2001, are expected to be
utilized in providing transition air transportation and related
services to the USPS until April 23, 2001. Thereafter, these
aircraft are expected to be used in EAFC's commercial air freight
operations.
Operating lease commitments at December 31, 2000 were comprised
primarily of leases on 10 Priority Mail Processing Centers, which
are large sortation facilities located in the eastern United
States. Under the termination agreement described above, the
USPS assumed these leases on January 7, 2001.
ITEM 3. LEGAL PROCEEDINGS
Certain legal proceedings of the Company are summarized in Note
13 of the Notes to Consolidated Financial Statements contained in
the 2000 Annual Report to Shareholders, which Note 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 has been
conducting an investigation relating to the handling of so-called
hazardous materials by Emery. The Department of Justice has
joined in the investigation and is seeking to obtain additional
information. The investigation is ongoing and Emery is
cooperating fully. The Company is unable to predict the outcome
of this investigation.
EWA has received subpoenas issued by a grand jury in Massachusetts
and the USPS Inspector General for documents relating to the
Priority Mail contract. EWA has provided, or is in the process of
providing, the documents.
On February 16, 2000, a DC-8 cargo aircraft operated by EWA
personnel crashed shortly after take-off from Mather Field, near
Sacramento, California. The crew of three was killed. The cause
of the crash has not been determined. The National
Transportation Safety Board is conducting an investigation. The
Company is currently unable to predict the outcome of this
investigation or the effect it may have on the Company.
Emery, EWA and the Company have been named as defendants in
wrongful death lawsuits brought by the families of the three
deceased crew members, seeking compensatory and punitive damages.
Emery, EWA and the Company also may be subject to other claims
and proceedings relating to the crash, which could include other
private lawsuits seeking monetary damages and governmental
proceedings. Although Emery, EWA and the Company maintain
insurance that is intended to cover claims that may arise in
connection with an airplane crash, there can be no assurance that
the insurance will in fact be adequate to cover all possible
types of claims. In particular, any claims for punitive damages
or any sanctions resulting from possible governmental proceedings
would not be covered by insurance.
As a domestic airline, EWA operates under a certificate issued by
the Federal Aviation Administration ("FAA"). As such, EWA is
subject to maintenance, operating and other safety-related
regulations promulgated by the FAA, and routinely undergoes FAA
inspections. Based on recent inspections, the FAA has identified
a number of instances where it believes EWA has failed to comply
with applicable regulations, and in some cases has issued notices
of proposed civil penalties. EWA disagrees with certain of the
FAA's findings, and is engaged in discussions with the FAA to try
to resolve the matters in dispute.
However, there can be no assurance that EWA will be able to reach
agreement with the FAA on all matters in dispute, and if no
agreement is reached, the FAA may seek to impose sanctions on
EWA. The FAA has the authority to seek civil and criminal
penalties and to suspend or revoke an airline's operating
certificate.
PAGE 17
Emery and the Company have been named as defendants in a lawsuit
arising from a dispute with an aircraft lessor regarding the
return of six McDonnell Douglas DC-8 aircraft following lease
termination. Plaintiff is seeking damages in the amount of
approximately $16 million, in addition to holdover rent and
interest. Emery and the Company dispute the plaintiff's claims,
and intend to vigorously defend themselves against the lawsuit.
Con-Way and the Company have been named as defendants in a class
action lawsuit filed in Federal District Court in San Francisco
for alleged violations of federal and state wage and hour laws
regarding classification of freight operations supervisors for
purposes of overtime pay. No motion has yet been made for
certification of the class. Because the lawsuit is at a
preliminary stage, the Company is unable to predict the outcome
of this litigation or the effect it may have on Con-Way or the
Company
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
Not applicable.
PAGE 18
PART II
-------
Information for Items 5 through 8 of Part II of this Report
appears in the Company's 2000 Annual Report to Shareholders as
indicated below and those pages are incorporated herein by
reference.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER 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 2000 and 1999 38
Common shareholders of record at December 31, 2000 40
Dividends paid on common stock for each of the quarters
in 2000 and 1999 38
ITEM 6. SELECTED FINANCIAL DATA
Selected Consolidated Financial Data 40
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 14
Recent Developments
On March 14, 2001, the Company announced that it expected first-
quarter 2001 earnings to be below those of the first quarter of
2000. The Company estimates that diluted earnings per share in
the first quarter of 2001 will be in the range of $0.22 to $0.27.
The Company's core transportation businesses are each
experiencing substantial tonnage and revenue declines as a result
of a continuing slowdown of the U.S. economy.
The Company believes that the slowdown was first noted late in
the third quarter of 2000 and has become more pronounced in each
successive month through February of 2001. March is
traditionally the Company's strongest month of the first quarter;
however, the decline in operating results for March 2001 compared
to March 2000 has been consistent with lower operating results
for January and February of 2001 when compared to the same months
last year.
The Company expects that Con-Way's operating income in the first
quarter of 2001 will decline from operating income in the same
quarter last year. Tonnage shipped by Con-Way in the 2001 first
quarter is expected to be lower than last year's first quarter,
with an estimated percentage decline from 3 to 7 percent.
The Company expects that Emery will incur an operating loss in
the first quarter of 2001. The Company believes that Emery's
domestic airfreight volumes in the first quarter of 2001 will be
lower than the same quarter last year due to continued and
significant weakness in the automotive and technology sectors,
with an estimated percentage decline from 15 to 19 percent.
Emery's international airfreight volumes in the first quarter of
2001 are expected to be essentially unchanged from the same
quarter last year.
PAGE 19
The Company expects that Menlo's operating income in the first
quarter of 2001 will be slightly higher than the same quarter
last year.
Management has initiated cost control programs throughout the
Company and Emery, in particular, is continuing its restructuring
program to bring its size in line with lower business levels.
Management also believes that weather conditions adversely
affected revenues and costs at Emery and Con-Way.
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.
All statements other than statements of historical fact are
forward-looking statements including any projections of earnings,
revenues, tonnage, volumes, income or other financial or
operating items, any statements of the plans, strategies and
objectives of management for future operations, any statements
concerning proposed new products or services, any statements
regarding future economic conditions or performance, statements
of estimates and belief and any statements or assumptions
underlying the foregoing. 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 there can be no
assurance that they will be 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, including lower business levels that the Company has
experienced during the first quarter of 2001 and which the
Company expects will continue; increasing domestic and
international competition and pricing pressure; changes in fuel
prices, particularly in light of recent fuel price increases;
uncertainty regarding EWA's claims under its former Priority Mail
contract with the USPS described herein or incorporated by
reference; uncertainties regarding EWA's existing Express Mail
contract with the USPS; labor matters, including changes in labor
costs, renegotiations of labor contracts and the risk of work
stoppages or strikes; enforcement of and changes in governmental
regulations; environmental and tax matters, including claims made
by the Internal Revenue Service with respect to the aircraft
maintenance tax matters discussed in documents incorporated by
reference; the Department of Transportation investigation
relating to Emery Worldwide's handling of hazardous materials;
the February 2000 crash of an EWA aircraft and related
litigation; 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.
PAGE 20
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page Number of Annual
Report to Shareholders
----------------------
Consolidated Balance Sheets 20
Statements of Consolidated Income 22
Statements of Consolidated Cash Flows 23
Statements of Consolidated Shareholders' Equity 24
Notes to Consolidated Financial Statements 26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PAGE 21
PART III
--------
Information for Items 10 through 12 of Part III of this Report
appears in the Proxy Statement for the Company's 2000 Annual
Meeting of Shareholders to be held on April 24, 2001, as
indicated below and that information on those pages is
incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Executive Officers of the Company, their ages at December 31,
2000, and their applicable business experience are as follows:
Gregory L. Quesnel, 52, 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.
Gerald L. Detter, 56, 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.
Chutta Ratnathicam, 53, Chief Executive Officer of Emery
Worldwide and Senior Vice President 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. In September 2000, Mr.
Ratnathicam was named to his current position, succeeding Roger
Piazza, who retired.
PAGE 22
Eberhard G.H. Schmoller, 57, Senior Vice President, General
Counsel and Corporate 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, 44, 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.
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 8, 2001 and is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
Page Number of
Proxy Statement
---------------
Compensation Information 14
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Stock Ownership - Directors and Executive Officers 10
Stock Ownership - Significant shareholders 27
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PAGE 23
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 26, 2001, are presented on pages 20 through 39
of the Company's 2000 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 2000 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 2000 Annual Report
to Shareholders and incorporated herein by reference.
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
No reports on Form 8-K were filed during the quarter ended
December 31, 2000.
PAGE 24
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 26, 2001 /s/ Gregory L. Quesnel
---------------------------------
President, Chief Executive
Officer and Interim Chief
Financial Officer
PAGE 25
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 26, 2001 /s/ Donald E. Moffitt
---------------------------------
Donald E. Moffitt
Chairman of the Board
March 26, 2001 /s/ Gregory L. Quesnel
---------------------------------
Gregory L. Quesnel
President, Chief Executive
Officer and Director
March 26, 2001 /s/ Robert Alpert
---------------------------------
Robert Alpert, Director
March 26, 2001 /s/ Richard A. Clarke
---------------------------------
Richard A. Clarke, Director
March 26, 2001
---------------------------------
Margaret G. Gill, Director
March 26, 2001 /s/ Robert Jaunich II
---------------------------------
Robert Jaunich II, Director
March 26, 2001 /s/ W. Keith Kennedy, Jr.
---------------------------------
W. Keith Kennedy, Jr., Director
March 26, 2001 /s/ Richard B. Madden
---------------------------------
Richard B. Madden, Director
March 26, 2001 /s/ Michael J. Murray
---------------------------------
Michael J. Murray, Director
March 26, 2001 /s/ Robert D. Rogers
---------------------------------
Robert D. Rogers, Director
March 26, 2001 /s/ William J. Schroeder
---------------------------------
William J. Schroeder, Director
March 26, 2001 /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, 333-
92399, 333-36180 and 333-54558.
/s/Arthur Andersen LLP
----------------------
ARTHUR ANDERSEN LLP
San Francisco, California
March 26, 2001
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Shareholders and Board of Directors of
CNF Transportation Inc.:
We have audited in accordance with auditing standards generally
accepted in the United States, the consolidated financial
statements included in CNF Transportation Inc.'s 2000 Annual
Report to Shareholders incorporated by reference in this Form
10-K, and have issued our report thereon dated January 26, 2001.
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 26, 2001
S-2
SCHEDULE II
CNF TRANSPORTATION INC.
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 2000
(In thousands)
DESCRIPTION
- -----------
ALLOWANCE FOR DOUBTFUL ACCOUNTS
ADDITIONS
------------------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER DEDUCTIONS END
OF PERIOD EXPENSES ACCOUNTS (a) PERIOD
--------- -------- -------- ---------- -------
2000 $26,163 $9,070 $ - $(13,511) $21,722
1999 $21,098 $15,229 $ - $(10,164) $26,163
1998 $20,155 $11,050 $ - $(10,107) $21,098
(a) Accounts written off net of recoveries.
ALLOWANCE FOR COSTS OF DISCONTINUED OPERATIONS
ADDITIONS
------------------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER DEDUCTIONS END
OF PERIOD EXPENSES ACCOUNTS PERIOD
--------- -------- -------- ---------- -------
2000 $ - 22,144 $ - $(513) $21,631
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 2001. #
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. 2000 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.)
(18) Preferability letter regarding change in accounting
principle
(21) Significant Subsidiaries of the Company.
E-6
(99) Additional documents:
99.1 CNF Transportation Inc. 2000 Notice of Annual
Meeting and Proxy Statement dated March 8, 2001 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.