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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2001
Commission File Number 1-5046
CNF 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, 2002: $1,232,949,696
Number of shares of Common Stock outstanding as of February 28, 2002:
48,981,828
DOCUMENTS INCORPORATED BY REFERENCE
Parts I, II and IV
CNF Inc. 2001 Annual Report to Shareholders (only those portions
specifically referenced herein are incorporated in this Form 10-
K).
Part III
Proxy Statement dated March 22, 2002 (only those portions
referenced specifically herein are incorporated in this Form 10-
K).
PAGE 2
CNF INC.
FORM 10-K
Year Ended December 31, 2001
------------------------------
INDEX
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Item Page
- ---- ----
PART I
1. Business 3
2. Properties 16
3. Legal Proceedings 18
4. Submission of Matters to a Vote of Stockholders 19
PART II
5. Market for the Registrant's Common Equity and
Related Stockholder Matters 20
6. Selected Financial Data 20
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 20
7A. Quantitative and Qualitative Disclosures about
Market Risk 20
8. Financial Statements and Supplementary Data 21
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 21
PART III
10. Directors and Executive Officers of the Registrant 22
11. Executive Compensation 23
12. Security Ownership of Certain Beneficial Owners
and Management 23
13. Certain Relationships and Related Transactions 23
PART IV
14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 24
PAGE 3
CNF INC.
FORM 10-K
Year Ended December 31, 2001
----------------------------
PART I
------
ITEM 1. BUSINESS
CNF Inc. (formerly Consolidated Freightways, Inc.) and
subsidiaries is a management company of global supply chain
services incorporated in Delaware in 1958. Following the 1996
spin-off of Consolidated Freightways Corporation, CNF's former
less-than-truckload motor carrier, the Company changed its name
to CNF Transportation Inc. In 2001, the Company changed its name
to CNF Inc.
As used hereinafter, all references to "CNF", "the Registrant",
"the Company","we," "us," and "our" and all similar references
mean CNF Inc. and its subsidiaries, unless otherwise expressly
stated or the context otherwise requires.
CNF is a management company of global supply chain services with
operations primarily represented by four reporting segments:
Con-Way Transportation Services (Con-Way) provides regional next-
day and second-day less-than-truckload (LTL) freight trucking
throughout the U.S., Canada and Mexico, as well as expedited
transportation, logistics, air freight forwarding and truckload
brokerage services.
Emery Worldwide (Emery) provides expedited and deferred domestic
and international heavy air freight services, ocean delivery, and
customs brokerage. Internationally, Emery operates primarily as
an air freight forwarder using commercial airlines. Prior to the
suspension and subsequent cessation of its air carrier operations
in the fourth quarter of 2001, Emery provided air transportation
services in North America using owned and leased aircraft
operated by Emery Worldwide Airlines (EWA) and owned and leased
aircraft operated by third parties. EWA, a separate subsidiary of
CNF, is included in the Emery Worldwide reporting segment, except
that EWA's operations under a contract (the "Priority Mail
contract") with the United States Postal Service (USPS) for the
sortation and transportation of Priority Mail are reported
separately as discontinued operations as a result of the
termination of that contract in November 2000. Since the
suspension in August 2001 and subsequent cessation of EWA's air
carrier operations, Emery has been utilizing aircraft operated by
third parties and its existing dedicated ground fleet to provide
its services. See "Emery Worldwide - Restructuring Charges," and
"Emery Worldwide - Regulatory Matters." Through other business
units, Emery also provides customs brokerage, ocean container
services, and logistics services.
Menlo Logistics (Menlo) provides integrated contract logistics
services, including the development and management of complex
distribution networks, and supply chain engineering and
consulting.
PAGE 4
The Other segment in 2001 included the operating results of Road
Systems, a trailer manufacturer, Vector SCM, and certain
corporate items. Vector SCM is a joint venture formed with
General Motors in December 2000 to provide logistics services to
General Motors. CNF owns a majority of the Vector SCM joint
venture; however, the operating results of Vector SCM are
reported in the Other segment as an equity method investment
based on General Motors' ability to control certain operating
decisions. In 2000, the Other reporting segment included the
operating results of Road Systems and Vector SCM. In 1999, the
Other reporting segment included Road Systems, a gain from a
corporate legal settlement and, prior to the sale of its assets
in May 1999, VantageParts, CNF's former wholesale distributor of
truck parts and supplies.
As described under "Discontinued Operations," EWA's operations
under a Priority Mail contract with the USPS are reflected as
discontinued operations due to the termination of the contract,
effective January 7, 2001.
As described below in "Emery Worldwide - Restructuring Charges,"
CNF announced on December 5, 2001 that Emery in 2002 would become
part of CNF's new Menlo Worldwide group of supply chain service
providers and would continue to provide full North American
freight forwarding services utilizing aircraft operated by other
air carriers and its existing dedicated ground fleet. As a
result, beginning with the first quarter of 2002, CNF's
operations will consist of three primary lines of business: Con-
Way, Menlo Worldwide, and Other.
In compliance with Statement of Financial Accounting Standards
131, "Disclosures about Segments of an Enterprise and Related
Information", CNF 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 CNF's reporting segments, refer
to Note 15 to the Consolidated Financial Statements contained in
the CNF 2001 Annual Report to Shareholders, which Note is
incorporated herein by reference.
CNF's operations 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 15 to the
Consolidated Financial Statements contained in the CNF 2001
Annual Report to Shareholders, which Note is incorporated herein
by reference.
PAGE 5
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CONTINUING OPERATIONS
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Con-Way Transportation Services
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The Con-Way reporting segment comprises 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 in 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.
Con-Way offers coast-to-coast service in all 50 states by fully
linking its three regional carriers. Con-Way refers to this
linked service as joint service. This permits Con-Way's regional
carriers to provide full service throughout the U.S. and to some
major cities in Canada. By offering joint services, the regional
carriers 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 would not
otherwise be serviced as part of its core territory.
Con-Way NOW, Con-Way Logistics and Con-Way Air Express
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.
In 1998, Con-Way created Con-Way Logistics (formerly Con-Way
Integrated Services) to provide logistics solutions to customers.
Con-Way Logistics offers integrated supply chain services for
shippers, using its own warehouses, transportation provided by
other ground and air carriers as well as Con-Way's regional
carriers, and alliances with leading supply chain software firms
to offer semi-customized solutions configured to its customers'
needs.
In May 2001, Con-Way opened Con-Way Air Express (CAX), an air
freight forwarder that arranges freight shipments using
transportation provided by other operators, including commercial
airlines, dedicated air operators and drayage companies. Through
an agency network and connections with other Con-Way components,
CAX provides full coverage in the United States and Puerto Rico.
PAGE 6
In January 2002, Con-Way announced the opening of Con-Way FULL
LOAD, a truckload brokerage operation that will provide truckload
services in the United States and parts of Canada through
contract arrangements with numerous truckload fleet operators.
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.
Con-Way - Competitive Conditions
The trucking, logistics, and air freight forwarding industries
are 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
- ---------------
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. CNF is the owner of 100%
of the outstanding shares of these companies.
Emery provides expedited and deferred domestic and international
heavy air freight services, ocean container services, and customs
brokerage. Internationally, Emery operates primarily as an air
freight forwarder using commercial airlines. Prior to the
suspension and subsequent cessation of its air carrier operations
in the fourth quarter of 2001, Emery provided air transportation
services in North America using owned and leased aircraft
operated by EWA and owned and leased aircraft operated by third
parties. EWA, a separate subsidiary of CNF, is included in the
Emery Worldwide reporting segment except for EWA's operations
under the Priority Mail contract, which are reported separately
as discontinued operations. Since the suspension in August 2001
and subsequent cessation of EWA's air carrier operations, Emery
has been utilizing aircraft operated by third parties and EAFC's
existing dedicated ground fleet to provide its services. See
"Emery Worldwide - Restructuring Charges," and "Emery Worldwide -
Regulatory Matters," below.
Restructuring Charges
In June 2001, Emery began an operational restructuring to align
it with management's estimates of future business prospects for
domestic heavy air freight and address changes in market
conditions, which had deteriorated due to a slowing domestic
economy, loss of EWA's contracts with the USPS to transport
Express Mail (refer to "-Express Mail Contract" below) and
Priority Mail (refer to "Discontinued Operations" below) and, to
a lesser extent, loss of business to ground transportation
providers. The $340.5 million restructuring charge recognized in
the second quarter of 2001 consisted primarily of non-cash
impairment charges and estimated future cash expenditures related
primarily to the return to the lessors of certain aircraft leased
to Emery and the termination of the related leases.
PAGE 7
As described below under "-Regulatory Matters," the Federal
Aviation Administration (FAA) required EWA to suspend its air
carrier operations on August 13, 2001. In response to the FAA
action, as well as the effects of the September 11 terrorist
attacks and a deepening global economic recession, Emery's
management re-evaluated Emery's restructuring plan. CNF
announced on December 5, 2001 that Emery in 2002 would become
part of CNF's new Menlo Worldwide group of supply chain service
providers and would continue to provide full North American
freight forwarding services utilizing aircraft operated by other
air carriers instead of EWA's fleet of aircraft, and that EWA
would cease air carrier operations. In connection with the
revised restructuring plan, in the fourth quarter of 2001 Emery
recognized additional restructuring charges of $311.7 million for
the planned disposal of leased aircraft, cessation of EWA's
remaining operations, employee separation costs, and other costs.
Refer to the information appearing under the captions "Emery
Worldwide - Restructuring Charges" and "Liquidity and Capital
Resources - Restructuring Charges and Regulatory Matters" under
"Management's Discussion and Analysis" contained in the 2001
Annual Report to Shareholders, which information is incorporated
herein by reference.
Regulatory Matters
Until August 13, 2001, EWA operated as an airline. Although EWA
has ceased air carrier operations, EWA still has an air carrier
certificate issued by the FAA and is subject to maintenance,
operating and other safety-related regulations promulgated by the
FAA and is subject to FAA inspections. Based on issues identified
during inspections conducted by the FAA, on August 13, 2001 EWA
was required to suspend its air carrier operations as part of an
interim settlement agreement with the FAA. As described above,
CNF announced on December 5, 2001 that EWA was ceasing its air
carrier operations. Since EWA's suspension of its air carrier
operations on August 13, 2001, Emery has been providing freight
forwarding service to its customers in North America by utilizing
aircraft operated by other air carriers. Emery intends to
continue to use aircraft operated by third parties and its
existing dedicated ground fleet to provide freight forwarding
service to its customers in North America. Refer to the
information appearing under the captions "Emery Worldwide -
Regulatory Matters" and "Liquidity and Capital Resources -
Restructuring Charges and Regulatory Matters" under "Management's
Discussion and Analysis" contained in the 2001 Annual Report to
Shareholders, which information is incorporated herein by
reference.
Express Mail Contract
In January 2001, the USPS and Federal Express Corporation (FedEx)
announced an exclusive agreement under which FedEx will transport
Express Mail and Priority Mail. EWA transported Express Mail and
other classes of mail for the USPS under a contract (the "Express
Mail contract"), which was originally scheduled to expire in
January 2004; however, the USPS terminated the Express Mail
contract effective August 26, 2001.
As described below under "Discontinued Operations," on November
3, 2000, EWA and the USPS announced an agreement (the
"Termination Agreement") to terminate their contract for the
transportation and sortation of Priority Mail (the "Priority Mail
contract"). On September 26, 2001, EWA entered into an agreement
with the USPS to settle claims relating to the Priority Mail
contract with the USPS (the "Settlement Agreement"). Under the
Settlement Agreement, EWA received a $235 million payment from
the USPS on September 28, 2001 to settle all non-termination
claims under the Priority Mail contract. Under the Settlement
Agreement, on September 28, 2001, EWA also received a $70 million
provisional payment from the USPS for termination costs and other
claims related to the Express Mail contract. The Settlement
Agreement provides for the provisional payment to be adjusted if
actual termination costs and other agreed upon claims relating to
the Express Mail contract are greater or less than $70 million,
in which case either the USPS will be required to make an
additional payment with interest or EWA will be required to
return a portion of the provisional payment with interest to the
USPS.
PAGE 8
The Settlement Agreement provides that the total amount payable
by the USPS for termination costs and other claims relating to
the Express Mail contract may not exceed $150 million. On
December 14, 2001, EWA filed a termination settlement proposal
with the USPS for recovery of EWA's costs of providing service
under the terminated Express Mail contract as well as costs
incurred by EWA's subcontractors for performing services under
the Express Mail contract. Any recovery of such costs would be
offset in whole or in part by the $70 million provisional payment
received in 2001.
In 2001, Emery recognized revenue of $117.0 million from the
transportation of mail under the Express Mail contract, compared
to $229.1 million in 2000 and $226.2 million in 1999. Operating
income from the Express Mail contract in 2001 was $6.3 million
compared to $28.2 million in 2000 and $35.5 million in 1999.
In addition to mail transported under the Express Mail contract,
EWA also transported mail under other separate contracts with the
USPS. Excluding revenue from the Priority Mail contract, which is
described under "Discontinued Operations", total revenue from
EWA's Express Mail contract and other contracts with the USPS was
$144.0 million in 2001, $258.2 million in 2000, and $252.6
million in 1999.
Emery Air Freight Corporation - International
Internationally, Emery operates as an air freight forwarder using
mostly commercial airlines. (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 1996 to 2001, EAFC's international air freight revenue,
including fuel surcharges, increased at an average annual rate of
6.2%, compared with a 5.6% average annual rate of decline,
including fuel surcharges, in North American air freight revenue
for the same period. For 2001, international airfreight revenue,
including fuel surcharges, was $1.05 billion or 58.3% of Emery's
total airfreight revenue.
PAGE 9
Emery Air Freight Corporation - North America
Following the suspension and subsequent cessation of EWA's air
carrier operations in 2001, EAFC has continued to provide full
North American freight forwarding services utilizing aircraft
operated by other air carriers instead of EWA's fleet of
aircraft. 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).
In addition to the Hub, EAFC operates nine regional hubs,
strategically located around the United States, and a system of
service centers and sales offices.
Emery Expedite!, Emery Ocean Services, Emery Customs Brokerage,
and Emery Global Logistics
Emery has established several variable-cost-based "strategic
business units" to enhance the range of services it can offer to
its customers. Emery Expedite! is a rapid-response freight-
handling subsidiary providing door-to-door delivery of shipments
in North America and overseas. Emery Ocean Services provides
global less-than-container, full-container and charter services.
Emery Customs Brokerage provides full-service customs clearance
regardless of mode or carrier. Emery Global Logistics operates
North American and international warehouses and distribution
centers for a variety of customers. In connection with the
announcement of the new Menlo Worldwide group described above,
Emery Global Logistics in 2002 will be integrated with Menlo
Logistics.
Competition
The air freight industry is intensely competitive. Principal
competitors of Emery include 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.
Outlook
As described above, CNF on December 5, 2001 announced that Emery
would become part of CNF's new Menlo Worldwide group effective in
2002 and would continue to provide North American freight
forwarding services utilizing aircraft operated by other air
carriers instead of EWA's fleet of aircraft, and that EWA would
cease air carrier operations. As a result, John Williford,
President of the Menlo Worldwide group of supply chain service
providers, will have responsibility for the newly-aligned Emery
Forwarding business unit. Chutta Ratnathicam, Emery's former
Chief Executive Officer, returned to his former position as CNF's
Chief Financial Officer. Management will continue Emery's focus
on expanding its variable-cost-based international operations and
actively renegotiating airhaul rates in an effort to improve
international operating margins. In North America, management
will continue to position Emery as a freight forwarder utilizing
aircraft operated by other carriers. As a result, management
expects a more flexible variable-cost-based operating structure
in North America with an increase in second-day and deferred
services. Management will continue its efforts to reduce Emery's
North American cost structure, including the service center and
hub network.
PAGE 10
Menlo Logistics
- ---------------
The Menlo reporting segment comprises 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 its customers' internal systems.
Menlo believes that its technology skills, operations processes,
and design expertise with sophisticated logistics systems have
established it as a leader in the field of contract logistics and
has provided it with a competitive advantage in managing carrier
networks, dedicated vehicle fleets and automated warehouses as an
integrated system.
Menlo believes that three industry trends have contributed to its
growth. First, Menlo believes a number of businesses are
increasingly evaluating their overall logistics costs, including
transportation, warehousing and inventory carrying costs.
Second, outsourcing of non-core services, such as distribution,
has become more commonplace with many businesses. Finally, Menlo
believes 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.
In 2001, three customers individually accounted for 19%, 13%, and
12% of Menlo's revenues, respectively. The loss of significant
revenue from any of Menlo's major customers by termination of the
customer relationship for any reason, including the business
failure of the customer, could negatively affect Menlo's results
of operations. Refer to the information appearing under the
caption "Menlo Worldwide - Loss from the Business Failure of a
Customer" under Management's Discussion and Analysis" contained
in the 2001 Annual Report to Shareholders, which information is
incorporated herein by reference.
Menlo seeks to reduce its reliance on individual customers
through continued growth in its customer base and will also
continue to evaluate the credit-worthiness of its customers.
Menlo generally seeks to reduce risks related to the termination
of a customer relationship, for reasons other than the business
failure of a customer, by 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. In addition, Menlo's logistics contracts generally
require that, if a customer terminates a contract, the customer
must purchase from Menlo any contract-specific assets purchased
by Menlo in order to provide service under the contract.
PAGE 11
Menlo - Competition
Menlo operates in the intensely competitive third-party logistics
industry. Competition for larger projects is generally based on
computer system skills and the ability to rapidly implement
logistics solutions. Competitors in the logistics 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.
Outlook
As described above, CNF on December 5, 2001 announced the
formation of CNF's new Menlo Worldwide group effective in 2002,
which will consist of Menlo Logistics, Emery Forwarding, Vector
SCM, and Menlo Worldwide Technologies, a new information
technology, supply chain engineering and consulting unit of Menlo
Worldwide. Menlo Worldwide's strategy is intended to capitalize
on the growth prospects of the global supply chain management
market by providing customers around the world with a full range
of logistics services from a single source. Menlo's management
believes that its customers will benefit from being a part of
Emery's extensive worldwide network and from Emery's extensive
international logistics projects and locations, which will be
absorbed into the new organization.
Other Segment
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In 2001, the Other segment included the operating results of Road
Systems, Vector SCM and other corporate items. In 2000, the
Other reporting segment included the operating results of Road
Systems and Vector SCM. In 1999, the Other reporting segment
included Road Systems, a gain from a corporate legal settlement,
and prior to the sale of its assets in May 1999, VantageParts.
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 CNF subsidiaries and to Consolidated Freightways
Corporation, CNF's former less-than-truckload motor carrier that
was spun-off to CNF's shareholders in 1996. 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.
Vector SCM
In December 2000, General Motors (GM) and CNF formed a joint
venture company called Vector SCM (supply chain management).
Vector SCM was established to reduce GM's supply chain costs and
improve GM's supply chain management by bringing increased speed,
flexibility and reliability to GM's global supply chain,
including shipment of parts to 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 with a shortened cycle time.
PAGE 12
Vector SCM provides logistics services through the development
and implementation of technology and physical infrastructure to
provide end-to-end visibility of the progression of products and
materials through GM's supply chain. Under the terms of the
joint venture agreement, the transition of GM's logistics
services and management to Vector SCM is expected to occur over
the three-year period from 2001 through 2003. In the first full
contract year, logistics services in North America included a
redesign of processes related to inbound production materials,
vehicle distribution and visibility, premium transportation,
international export/import and rail operations monitoring.
Vector SCM implementation is expected to expand to other regions
in varying degrees in accordance with regional business
requirements.
Under the terms of the joint venture agreement, CNF would share
in any savings realized by GM as a result of reductions in its
supply chain costs. CNF owns a majority of the Vector SCM joint
venture; however, the operating results of Vector SCM are
reported in the Other segment as an equity method investment
based on GM's ability to control certain operating decisions.
- -----------------------
DISCONTINUED OPERATIONS
- -----------------------
On November 3, 2000, EWA and the USPS announced an agreement (the
"Termination Agreement") to terminate their contract for the
transportation and sortation of Priority Mail (the "Priority Mail
contract"). The Priority Mail contract was originally scheduled
to terminate in the first quarter of 2002, subject to renewal
options. Under the terms of the Termination Agreement, the USPS
on January 7, 2001 assumed operating responsibility for services
covered under the Priority Mail contract, except certain air
transportation and related services, which were terminated
effective April 23, 2001.
The USPS 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 with interest or EWA will be required to
return a portion of the provisional payment with interest to the
USPS. The Termination Agreement preserved EWA's right to pursue
claims for underpayment of other amounts owed to EWA under the
contract, which were ultimately settled in September 2001 as
described below. CNF believes 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 EWA will receive any additional payments
relating to these termination costs or that all termination costs
incurred by EWA will be recovered.
PAGE 13
On September 26, 2001, EWA entered into an agreement with the
USPS to settle claims relating to the underpayment of amounts
owed to EWA under the Priority Mail contract (the "Settlement
Agreement"). Under the Settlement Agreement, EWA received a $235
million payment from the USPS on September 28, 2001 to settle all
non-termination claims under the Priority Mail contract. These
claims were to recover costs of operating under the contract as
well as profit and interest thereon. The Priority Mail
Termination Agreement described above is unaffected by the
Settlement Agreement.
Under the Settlement Agreement, on September 28, 2001, EWA also
received a $70 million provisional payment from the USPS to
provisionally pay EWA for termination costs and other claims
related to EWA's Express Mail contract, which was terminated by
the USPS in August 2001 as described above under "Emery
Worldwide-Express Mail Contract." Results of the Express Mail
contract are included in the Emery Worldwide reporting segment
and are therefore not reported under "Discontinued Operations."
As a result of the termination of the Priority Mail contract, the
results of operations, net assets, and cash flows of the Priority
Mail operations have been segregated and classified as
discontinued operations. Summary financial data and related
information are included in Note 2 to the Consolidated Financial
Statements contained in the 2001 Annual Report to Shareholders,
which Note 2 is incorporated herein by reference.
GENERAL
- -------
Employees
At December 31, 2001, CNF's operations had approximately 26,100
regular full-time employees. Regular full-time employees by
segment were as follows: Con-Way, 15,200; Emery Worldwide, 7,700;
Menlo, 2,100; Other segment, 1,100. Of the 1,100 regular full-
time employees included in the Other segment, approximately 800
were employed by CNF in executive, administrative and technology
positions to support CNF's operating subsidiaries.
Seasonality
CNF 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.
PAGE 14
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, is exempt from most DOT
economic regulations and is not subject to Federal Aviation
Administration (FAA) safety regulations, except security-related
rules. Although EWA ceased air carrier operations on August 13, 2001,
EWA still has an air carrier certificate issued by the FAA and is
subject to maintenance, operating and other safety-related
regulations promulgated by the FAA and is subject to FAA
inspections. See the information appearing under the caption
"Emery Worldwide - Regulatory Matters" under Management's
Discussion and Analysis" contained in the 2001 Annual Report to
Shareholders, which information is incorporated herein by
reference.
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 Emery's operations. If such
restrictions were to be imposed with respect to the airports at
which 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 Emery's operations.
Regulation - Environmental
CNF 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, CNF 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 CNF's
properties may be imposed regardless of whether CNF leases or
owns the properties in question and regardless of whether such
environmental conditions were created by CNF or by a prior owner
or tenant, and also may be imposed with respect to properties
which CNF may have owned or leased in the past.
PAGE 15
CNF's operations involve the storage, handling and use of diesel
and jet fuel and other hazardous substances. In particular, CNF
is subject to stringent environmental laws and regulations
dealing with underground fuel storage tanks and the
transportation of hazardous materials. CNF has been designated a
Potentially Responsible Party (PRP) by the EPA with respect to
the disposal of hazardous substances at various sites. CNF
expects that its share of the clean-up costs will not have a
material adverse effect on CNF's financial condition or results
of operations.
PAGE 16
ITEM 2. PROPERTIES
- ---------------------
CONTINUING OPERATIONS
- ---------------------
Con-Way Transportation Services Segment
- ---------------------------------------
As of December 31, 2001, Con-Way's regional carriers operated 332
freight service centers, of which 103 were owned and 229 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 1,400 to 229,000 square feet.
These facilities do not include meet-and-turn points, which
generally represent small owned or leased real property with no
physical structures. The total number of trucks, tractors and
trailers utilized by the Con-Way regional carriers at December
31, 2001 was approximately 27,400.
In addition, Con-Way Logistics at December 31, 2001 leased 7
warehouses near Mira Loma, California; Chicago, Illinois;
Atlanta, Georgia; Cranbury, New Jersey; Tigard, Oregon; Houston,
Texas; and Dallas, Texas. The warehouses range in size from
approximately 25,000 to 240,000 square feet.
As of December 31, 2001, Con-Way Air Express operated 14 leased
warehouse and service center facilities ranging in size from
4,800 square feet to 11,000 square feet.
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, 2001. The Hub
and related property secures the industrial revenue bonds.
As of December 31, 2001, EAFC operated 121 freight facilities in
North America, including service centers and logistics
warehouses, of which 15 were owned and 106 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, 2001, Emery operated
approximately 100 leased facilities in international locations,
including service centers, logistics warehouses and office space.
At December 31, 2001, EAFC operated approximately 1,500 trucks,
tractors and trailers, as well as equipment provided by its
agents.
In addition, Emery Global Logistics at December 31, 2001 leased 6
warehouses in Los Angeles and Milpitas, California; Mt. Vernon,
New York; Vandalia, Ohio; Allentown, Pennsylvania; and Saltillo,
Mexico ranging in size from 5,200 square feet to 170,000 square
feet.
PAGE 17
As described above under "Emery Worldwide - Restructuring
Charges", CNF announced on December 5, 2001 that EWA would cease
air carrier operations and that Emery would continue to provide
full North American freight forwarding services utilizing
aircraft operated by other air carriers instead of EWA's fleet of
aircraft, including 11 aircraft leased by Emery and operated by
another air carrier. As a result of the cessation of EWA's air
carrier operations, 37 aircraft leased by EWA were grounded and
placed in storage at December 31, 2001.
As described above under "Emery Worldwide - Express Mail
Contract", the USPS terminated the Express Mail contract
effective August 26, 2001. As a result, 18 aircraft owned by EWA
and previously used in providing service under the Express Mail
contract were grounded and placed in storage at December 31,
2001. On December 14, 2001, EWA filed a termination settlement
proposal with the USPS for recovery of EWA's costs of providing
service under the terminated Express Mail contract, including
costs related to owned aircraft.
Menlo Logistics Segment
- -----------------------
As of December 31, 2001, Menlo operated 42 warehouses. Of these
warehouses operated by Menlo, 26 were leased by Menlo and 16 were
leased or owned by Menlo's clients. The 26 facilities leased by
Menlo ranged in size from approximately 12,000 to 311,000 square
feet.
At December 31, 2001, Menlo operated approximately 500 trucks,
tractors and trailers.
Other Segment
- -------------
Principal properties of the Other segment include CNF's leased
executive offices in Palo Alto, California, and its
Administrative and Technology (AdTech) Center in Portland,
Oregon. As of December 31, 2001, CNF's administrative and
technology employees were located at three owned AdTech Center
buildings comprising approximately 476,000 square feet.
- -----------------------
DISCONTINUED OPERATIONS
- -----------------------
As described above in Item 1, "Discontinued Operations", the USPS
has agreed to reimburse CNF 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 18
ITEM 3. LEGAL PROCEEDINGS
Certain legal proceedings of CNF are summarized in Note 14 to the
Consolidated Financial Statements contained in the 2001 Annual
Report to Shareholders, which Note is incorporated herein by
reference. Discussion of environmental matters is presented in
Item 1 above.
The Department of Transportation, through its Office of Inspector
General, and the FAA have 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 through the grand
jury process. The investigation is ongoing and Emery is
cooperating fully. CNF is unable to predict the outcome of this
investigation.
EWA has received subpoenas issued by federal grand juries in
Massachusetts and the District of Columbia, and the USPS
Inspector General for documents relating to the Priority Mail
contract. EWA has provided, and is continuing to provide, 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 conclusively determined. The National
Transportation Safety Board (NTSB) is conducting an
investigation. EWA has been informed that a NTSB hearing has
been scheduled for May 9, 2002, although EWA has not yet received
a formal notice of hearing for that date. EWA is currently
unable to predict the outcome of this investigation or the effect
it may have on Emery or CNF.
Emery, EWA and CNF 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 CNF 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 CNF 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 result of EWA's suspension of its air carrier operations on
August 13, 2001, EWA furloughed approximately 400 pilots and
crewmembers. Those pilots and crewmembers are represented by the
Air Line Pilots Association (ALPA) union under a collective
bargaining agreement and ALPA filed a grievance on their behalf
protesting the furlough. The grievance sought pay during the
course of the suspension. CNF is currently involved in
arbitration with respect to this claim. On December 5, 2001, EWA
announced that it would cease operating as an air carrier, and in
connection therewith terminated the employment of all pilots and
crewmembers, bringing the total number of terminated employees in
2001 to 800. EWA is currently engaged in effects bargaining with
ALPA regarding EWA's cessation of air carrier operations. In
addition, ALPA has filed a grievance on behalf of the pilots and
crewmembers protesting the cessation of EWA's air carrier
operations and Emery's use of other air carriers. Some aspects of
the ALPA matters may be subject to binding arbitration. Based on
CNF's current evaluation, management has addressed its estimated
exposure related to the ALPA matters. However, CNF cannot predict
with certainty the ultimate outcome of these matters.
PAGE 19
EWA has been named as a defendant in a lawsuit and arbitration
proceeding brought by a subcontractor that operated aircraft
under EWA's former Express Mail contract with the USPS. The USPS
terminated the Express Mail contract for convenience on August
26, 2001. The subcontractor is seeking $28.5 million and other
unspecified damages in connection with such termination. EWA
believes it is entitled to and intends to seek recovery from the
USPS of any termination costs to which the subcontractor may be
entitled.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
Not applicable.
PAGE 20
PART II
-------
Information for Items 5 through 8 of Part II of this Report
appears in CNF's 2001 Annual Report to Shareholders on the pages
indicated below and the information responsive to the following
Items appearing on those pages is incorporated herein by
reference.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
CNF'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 2001 and
2000 51
Common shareholders of record at December 31, 2001 53
Common stock dividends for each of the quarters in 2001 and 2000 51
ITEM 6. SELECTED FINANCIAL DATA
Selected Consolidated Financial Data 53
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 14-27
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 25
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, and
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, weight, volumes, income or other financial or operating
items, any statements of the plans, strategies, expectations or
objectives of CNF or management for future operations or other
future items, any statements concerning proposed new products or
services, any statements regarding future economic conditions or
performance, any statements of estimates or 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 of those terms or
other variations of those terms or comparable terminology or by
discussions of strategy, plans or intentions. Such forward-
looking statements are necessarily dependent on assumptions, data
and 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 elsewhere in this document, in documents incorporated
by reference herein and other reports and documents filed by CNF
with the Securities and Exchange Commission, could cause actual
PAGE 21
results and other matters to differ materially from those
discussed in such forward-looking statements: changes in general
business and economic conditions, including the slowdown in the
global economy; the creditworthiness of CNF's customers and their
ability to pay for services rendered; increasing competition and
pricing pressure; changes in fuel prices; the effects of the
cessation of EWA's air carrier operations, including the expense
of using aircraft operated by other air carriers in Emery's North
American operations while also bearing the cash costs of EWA's
grounded aircraft fleet, the possibility of substantial cash
payments in connection with the early termination of aircraft
leases, the possibility of additional unusual charges and other
costs and expenses relating to Emery's operations, existing
defaults and possibility of future defaults under aircraft
leases, and the possibility of future loss of business due to
publicity surrounding the grounding of EWA's fleet of aircraft;
the possibility of defaults under CNF's $385 million credit
agreement and other debt instruments and aircraft leases,
including defaults resulting from additional unusual charges or
CNF's failure to perform in accordance with management's
expectations, and the possibility that CNF may be required to
pledge collateral to secure some of its indebtedness or to repay
other indebtedness in the event that the ratings assigned to its
long-term senior debt by credit rating agencies are reduced;
uncertainties regarding EWA's ability to recover all termination
costs relating to the termination of its former Priority Mail
contract with the USPS; uncertainties regarding EWA's ability to
recover all termination costs and other claims relating to the
termination of its former Express Mail contract with the USPS;
labor matters, including the grievance by furloughed pilots and
crewmembers, 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 aircraft maintenance tax matters); the Department of
Transportation, FAA and Department of Justice investigation
relating to Emery Worldwide's handling of hazardous materials;
the February 2000 crash of an EWA aircraft and related
investigation and litigation; and matters relating to CNF's 1996
spin-off of Consolidated Freightways. As a result of the
foregoing, no assurance can be given as to future financial
condition, cash flows, or results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page Number of Annual
Report to Shareholders
----------------------
Consolidated Balance Sheets 28
Statements of Consolidated Operations 30
Statements of Consolidated Cash Flows 31
Statements of Consolidated Shareholders' Equity 32
Notes to Consolidated Financial Statements 34-51
Selected Quarterly Financial Data 51
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PAGE 22
PART III
--------
Information for Items 10 through 12 of Part III of this Report
appears in the Proxy Statement for CNF's 2001 Annual Meeting of
Shareholders to be held on April 23, 2002, 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 CNF, their ages at December 31, 2001,
and their applicable business experience are as follows:
Gregory L. Quesnel, 53, President and Chief Executive Officer of
CNF. 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 1990, 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 CNF.
At that time, he was also elected as a member of the CNF Board of
Directors. Mr. Quesnel is a member of 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 and is a member of the Board of Directors of
Potlatch Corporation. 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 Committee of the Board.
Chutta Ratnathicam, 54, Chief Financial Officer and Senior Vice
President of CNF (formerly Chief Executive Officer of Emery
Worldwide). Mr. Ratnathicam joined CNF in 1977 as a corporate
auditor and following several increasingly responsible positions
was named Vice President Internal Audit for CNF 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 CNF. In September 2000, Mr.
Ratnathicam was named Chief Executive Officer of Emery Wordwide,
succeeding Roger Piazza, who retired. Mr. Ratnathicam returned
as Chief Financial Officer of CNF upon Emery in 2002 becoming
part of CNF's new Menlo Worldwide group of supply chain service
providers.
Gerald L. Detter, 57, President and Chief Executive Officer of
Con-Way Transportation Services and Senior Vice President of CNF.
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.
PAGE 23
Eberhard G.H. Schmoller, 58, Senior Vice President, General
Counsel and Corporate Secretary of CNF. 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 CNF in 1993.
John H. Williford, 45, President and Chief Executive Officer of
Menlo Worldwide and Senior Vice President of CNF. Mr. Williford
joined CNF in 1981 as an Economics/Senior Marketing Analyst. In
1984, he was named Director of Marketing for CNF's international
operations and was later appointed Director of Marketing for CNF.
Since its inception in 1990, Mr. Williford served as 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 CNF. In 2002, John Williford was named President and Chief
Executive Officer of Menlo Worldwide.
Information regarding members of CNF's Board of Directors is
presented on pages 3 through 8, inclusive, of CNF's Proxy
Statement dated March 22, 2002 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 9
Stock Ownership - Significant shareholders 26
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PAGE 24
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The consolidated financial statements of CNF, together with
the Notes to Consolidated Financial Statements, and the
report thereon of Arthur Andersen LLP, dated January 25,
2002 (except with respect to the increase in the unsecured
revolving credit facility as discussed in Note 5, as to
which the date is February 22, 2002), are presented on pages
28 through 52 of CNF's 2001 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, CNF's 2001 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 CNF's 2001 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
On August 14, 2001, CNF filed a Report on Form 8-K reporting
the suspension of EWA's air carrier operations as part of an
interim settlement agreement with the FAA, which is
described further in Item 1, "Emery Worldwide - Regulatory
Matters".
PAGE 25
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 INC.
(Registrant)
/s/ Gregory L. Quesnel
March 25, 2002 ---------------------------------
Gregory L. Quesnel
President and Chief Executive
Officer
/s/ Chutta Ratnathicam
March 25, 2002 ---------------------------------
Chutta Ratnathicam
Senior Vice President and
Chief Financial Officer
/s/ Kevin S. Coel
March 25, 2002 ---------------------------------
Kevin S. Coel
Controller
PAGE 26
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 25, 2002 /s/ Donald E. Moffitt
---------------------------------
Donald E. Moffitt
Chairman of the Board
/s/ Gregory L. Quesnel
March 25, 2002 ---------------------------------
Gregory L. Quesnel
President, Chief Executive
Officer and Director
/s/ Robert Alpert
March 25, 2002 ---------------------------------
Robert Alpert, Director
March 25, 2002 ---------------------------------
Richard A. Clarke, Director
March 25, 2002 /s/ Margaret G. Gill
---------------------------------
Margaret G. Gill, Director
/s/ Robert Jaunich II
March 25, 2002 ---------------------------------
Robert Jaunich II, Director
/s/ W. Keith Kennedy, Jr.
March 25, 2002 ---------------------------------
W. Keith Kennedy, Jr., Director
PAGE 27
SIGNATURES
/s/ Richard B. Madden
March 25, 2002 ---------------------------------
Richard B. Madden, Director
/s/ Michael J. Murray
March 25, 2002 ---------------------------------
Michael J. Murray, Director
/s/ Robert D. Rogers
March 25, 2002 ---------------------------------
Robert D. Rogers, Director
/s/ William J. Schroeder
March 25, 2002 ---------------------------------
William J. Schroeder, Director
/s/ Robert P. Wayman
March 25, 2002 ---------------------------------
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 25, 2002
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Shareholders and Board of Directors of
CNF Inc.:
We have audited in accordance with auditing standards generally
accepted in the United States, the consolidated financial
statements included in CNF Inc.'s 2001 Annual Report to
Shareholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated January 25, 2002 (except
with respect to the increase in the unsecured revolving credit
facility as discussed in Note 5, as to which the date is February
22, 2002). 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
purposes 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 25, 2002
S-2
SCHEDULE II
CNF INC.
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 2001
(In thousands)
DESCRIPTION
- -----------
ALLOWANCE FOR DOUBTFUL ACCOUNTS
ADDITIONS
------------------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER DEDUCTIONS AT END
OF PERIOD EXPENSES ACCOUNTS (a) PERIOD
--------- -------- -------- ---------- -------
2001 $21,722 $17,435 $ - $(16,482) $22,675
2000 26,163 9,070 - (13,511) 21,722
1999 21,098 15,229 - (10,164) 26,163
(a) Accounts written off net of recoveries.
ALLOWANCE FOR COSTS OF DISCONTINUED OPERATIONS
ADDITIONS
------------------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER DEDUCTIONS AT END
OF PERIOD EXPENSES ACCOUNTS PERIOD
--------- -------- -------- ---------- -------
2001 $22,144 $3,561 $ - $(22,448) $3,257
2000 - 22,144 $ - - 22,144
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 CNF'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 CNF'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 CNF'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 CNF'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 CNF's Amendment 1 to Form S-3 dated
May 30, 1997*)
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4.9 Form of Indenture between CNF Transportation Inc. and Bank
One Trust Company, National Association (Exhibit 4(d)(i) to CNF'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 CNF'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. CNF 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 CNF'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**)
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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 CNF'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 CNF'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 CNF's Form 10-Q for the quarterly period ended
September 30, 1993*).
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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 CNF'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 CNF'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 CNF'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 CNF'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 CNF's Form 10-K for the year ended
December 31, 1993*#)
10.19 Directors' Business Travel Insurance Plan. (Exhibit
10.36 to CNF's Form 10-K for the year ended December 31, 1993*#)
10.20 Deferred Compensation Plan for Executives 1998
Restatement. (Exhibit 10.20 to CNF'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
CNF'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 CNF'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 CNF'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 CNF'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 CNF's form
10-K for the year ended December 31, 1996.*#)
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10.26 Distribution Agreement between Consolidated
Freightways, Inc., and Consolidated Freightways Corporation dated
November 25, 1996. (Exhibit 10.34 to CNF'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 CNF'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 CNF'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 CNF's Proxy
Statement dated March 20, 2000. *#)
10.30 CNF Transportation Inc. Deferred Compensation Plan for
Directors 1998 Restatement. (Exhibit 10.34 to CNF's Form 10-K for
the year ended December 31, 1997. *#)
10.31 CNF Transportation Inc. Executive Severance Plan.
(Exhibit 10.32 to CNF's Form 10-K for the year ended December 31,
1998.*#)
10.32 CNF Inc. Summary of Incentive Compensation plans for
2002. #
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 Inc. 2001 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 CNF.
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(99) Additional documents:
99.1 CNF Transportation Inc. 2001 Notice of Annual
Meeting and Proxy Statement dated March 22, 2002 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 CNF's Form 10-K for the
year ended December 31, 1992*).
99.5 Confirmation of Arthur Andersen Representations
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.