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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-Q


X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2004

OR

___TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from N/A to N/A
----- -----

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

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---

Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
Yes X No
--- ----


Number of shares of Common Stock, $.625 par value,
outstanding as of April 30, 2004: 50,458,891



CNF INC.
FORM 10-Q
Quarter Ended March 31, 2004

_______________________________________________________________________



INDEX



PART I. FINANCIAL INFORMATION Page

Item 1. Financial Statements

Consolidated Balance Sheets -
March 31, 2004 and December 31, 2003 3

Statements of Consolidated Income -
Three Months Ended March 31, 2004 and 2003 5

Statements of Consolidated Cash Flows -
Three Months Ended March 31, 2004 and 2003 6

Notes to Consolidated Financial Statements 7

Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 17

Item 3. Quantitative and Qualitative Disclosures about Market Risk 30

Item 4. Controls and Procedures 31


PART II. OTHER INFORMATION

Item 1. Legal Proceedings 32

Item 4. Submission of Matters to a Vote of Security Holders 33

Item 6. Exhibits and Reports on Form 8-K 34

Signatures 36



PAGE 3

PART I. FINANCIAL INFORMATION



ITEM 1. Financial Statements


CNF INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)


March 31,
2004 December 31,
ASSETS (Unaudited) 2003
- ------ ----------- ------------
Current Assets
Cash and cash equivalents $399,104 $321,460
Trade accounts receivable, net 781,118 769,707
Other accounts receivable 41,877 68,611
Operating supplies, at lower of
average cost or market 15,510 14,333
Prepaid expenses 66,655 53,144
Deferred income taxes 99,929 89,440
----------- ------------
Total Current Assets 1,404,193 1,316,695
----------- ------------

Property, Plant and Equipment, at Cost
Land 157,930 159,645
Buildings and leasehold improvements 794,501 792,289
Revenue equipment 652,159 652,818
Other equipment 373,297 373,034
----------- ------------
1,977,887 1,977,786
Accumulated depreciation
and amortization (1,002,301) (980,331)
----------- ------------
975,586 997,455
----------- ------------

Other Assets
Deferred charges and other
assets (Note 3) 126,613 130,324
Capitalized software, net 67,858 68,589
Goodwill, net 240,685 240,671
----------- ------------
435,156 439,584
----------- ------------

Total Assets $2,814,935 $2,753,734
=========== ============



The accompanying notes are an integral part of these statements.



PAGE 4

CNF INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except per share amounts)


March 31,
2004 December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited) 2003
----------- ------------
Current Liabilities
Accounts payable $378,916 $354,401
Accrued liabilities (Note 8) 338,227 320,250
Accrued claims costs 114,757 120,730
Current maturities of long-term
debt and capital leases 12,902 14,230
----------- ------------
Total Current Liabilities 844,802 809,611

Long-Term Liabilities
Long-term debt and guarantees
(Note 6) 541,116 554,981
Long-term obligations under
capital leases 110,156 110,199
Accrued claims costs 109,418 114,793
Employee benefits (Note 4) 291,363 269,318
Other liabilities and deferred
credits 36,900 38,149
Deferred income taxes 29,697 37,875
----------- ------------
Total Liabilities 1,963,452 1,934,926
=========== ============

Commitments and Contingencies (Note 10)

Shareholders' Equity
Preferred stock, no par value;
authorized 5,000,000 shares:
Series B, 8.5% cumulative,
convertible, $.01 stated
value; designated 1,100,000
shares; issued 756,774 and
763,674 shares, respectively 8 8
Additional paid-in capital,
preferred stock 115,098 116,147
Deferred compensation,
Thrift and Stock Plan (55,562) (57,687)

Total Preferred ----------- ------------
Shareholders' Equity 59,544 58,468
----------- ------------
Common stock, $.625 par value;
authorized 100,000,000 shares;
issued 56,469,708 and 56,436,981
shares, respectively 35,294 35,273
Additional paid-in capital,
common stock 357,842 356,700
Retained earnings 590,157 570,751
Deferred compensation,
restricted stock (5,611) (6,188)
Cost of repurchased common stock
(6,427,077 and 6,459,732 shares,
respectively) (158,468) (159,273)
----------- ------------
819,214 797,263
Accumulated Other
ComprehensivE Loss (Note 5) (27,275) (36,923)
----------- ------------
Total Common Shareholders'
Equity 791,939 760,340
----------- ------------
Total Shareholders' Equity 851,483 818,808
----------- ------------
Total Liabilities and
Shareholders' Equity $2,814,935 $2,753,734
=========== ============


The accompanying notes are an integral part of these statements.



PAGE 5

CNF INC.
STATEMENTS OF CONSOLIDATED INCOME
(Unaudited)
(Dollars in thousands except per share amounts)



Three Months Ended
March 31,
2004 2003
----------- ------------
REVENUES $1,348,405 $1,206,241

Costs and Expenses
Operating expenses (Note 3) 1,138,504 1,013,671
Selling, general and
administrative expenses 125,074 118,290
Depreciation 32,085 33,232
----------- ------------
1,295,663 1,165,193

----------- ------------
OPERATING INCOME 52,742 41,048
----------- ------------

Other Income (Expense)
Investment income 727 586
Interest expense (Note 6) (9,040) (9,272)
Miscellaneous, net (1,103) (2,927)
----------- ------------
(9,416) (11,613)

----------- ------------

Income Before Taxes 43,326 29,435
Income Tax Provision 16,897 11,480
----------- ------------

Net Income 26,429 17,955
Preferred Stock Dividends 2,022 2,026
----------- ------------

NET INCOME AVAILABLE TO COMMON
SHAREHOLDERS $24,407 $15,929
=========== ============

Weighted-Average Common Shares
Outstanding (Note 1)
Basic 49,835,663 49,396,071
Diluted 57,125,185 53,652,665

Earnings per Common Share (Note 1)
Basic $0.49 $0.32
=========== ============
Diluted $0.45 $0.30
=========== ============

The accompanying notes are an integral part of these statements.



PAGE 6

CNF INC.
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
(Dollars in thousands)

Three Months Ended
March 31,
2004 2003
----------- ------------

Cash and Cash Equivalents,
Beginning of Period $321,460 $270,404
----------- ------------

Operating Activities
Net income 26,429 17,955
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization,
net of accretion 36,488 37,434
Increase (Decrease) in deferred
income taxes (9,116) 6,453
Amortization of deferred compensation 3,187 2,471
Provision for uncollectible accounts 3,004 2,835
Equity in earnings of joint venture (2,392) (2,976)
Loss on sales of property
and equipment, net 253 873
Loss from equity ventures -- 1,370
Changes in assets and liabilities:
Receivables (11,062) 17,190
Prepaid expenses (13,511) (12,708)
Accounts payable 31,615 (6,307)
Accrued liabilities, excluding
accrued incentive compensation 18,978 38,787
Accrued incentive compensation (538) (50,694)
Accrued claims costs (11,348) (8,094)
Income taxes 20,078 (577)
Employee benefits 17,096 7,352
Accrued aircraft lease
return provision (14) (23,656)
Deferred charges and credits 6,893 6,467
Other 388 (635)
----------- ------------
Net Cash Provided by Operating Activities 116,428 33,540
----------- ------------

Investing Activities
Capital expenditures (12,895) (44,866)
Software expenditures (4,478) (3,797)
Proceeds from sales of
property and equipment, net 2,706 458
----------- ------------
Net Cash Used in Investing Activities (14,667) (48,205)
----------- ------------

Financing Activities
Net repayment of long-term debt,
guarantees and capital leases (14,096) (10,024)
Proceeds from exercise of stock
options 433 1,327
Payments of common dividends (5,001) (4,951)
Payments of preferred dividends (5,004) (5,124)
----------- ------------
Net Cash Used in Financing Activities (23,668) (18,772)
----------- ------------

Net Cash Provided by (Used in)
Continuing Operations 78,093 (33,437)
----------- ------------
Net Cash Provided by (Used in)
Discontinued Operations (449) 930
----------- ------------
Increase (Decrease) in Cash
and Cash Equivalents 77,644 (32,507)
----------- ------------
Cash and Cash Equivalents, End of Period $399,104 $237,897
=========== ============



The accompanying notes are an integral part of these statements.





PAGE 7

CNF INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. Principal Accounting Policies

Basis of Presentation

Pursuant to the rules and regulations of the Securities and Exchange
Commission, the accompanying consolidated financial statements of CNF
Inc. and its wholly owned subsidiaries ("CNF") have been prepared by
CNF, without audit by independent public accountants. In the opinion of
management, the consolidated financial statements include all normal
recurring adjustments necessary to present fairly the information
required to be set forth therein. Certain information and note
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted from these statements pursuant to such rules and
regulations and, accordingly, should be read in conjunction with the
consolidated financial statements included in CNF's 2003 Annual Report
on Form 10-K.

As a result of adopting the revised FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities: an Interpretation of ARB
No. 51," CNF was required to deconsolidate a wholly owned subsidiary
trust effective in the quarter ended March 31, 2004, as more fully
discussed below under " - New Accounting Standards," and Note 6,
"Company-Obligated Mandatorily Redeemable Convertible Securities of CNF
Trust 1."

Earnings per Share ("EPS")

Basic EPS is computed by dividing reported net income available to
common shareholders by the weighted-average common shares outstanding.
The calculation of diluted EPS is calculated as follows:


(Dollars in thousands except per Three Months Ended
share data) March 31,
-------------------------
2004 2003
------------ -----------
Earnings:

Net income available to common shareholders $ 24,407 $ 15,929

Add-backs:
Dividends on preferred stock, net
of replacement funding 308 324
Interest expense on convertible
subordinated debentures, net of
trust dividend income (Note 6) $ 954 $ --
------------ -----------
$ 25,669 $ 16,253
Shares: ============ ===========
Weighted-average common shares
outstanding 49,835,663 49,396,071
Stock options 601,625 487,615
Series B preferred stock 3,562,897 3,768,979
Convertible subordinated debentures (Note 6) 3,125,000 --
------------ -----------
57,125,185 53,652,665
============ ===========

Diluted earnings per share $ 0.45 $ 0.30
============ ===========

For the three months ended March 31, 2003, the convertible subordinated
debentures were anti-dilutive. As a result, the assumed shares and
related add-back to net income available to common shareholders under
the if-converted method have been excluded from the calculation of
diluted EPS. If the securities had been dilutive, the assumed shares
from the convertible subordinated debentures under the if-converted
method would have been 3,125,000 shares for the three months ended
March 31, 2003.


PAGE 8

Stock-Based Compensation

Officers and non-employee directors have been granted options under
CNF's stock option plans to purchase common stock of CNF at prices
equal to the market value of the stock on the date of grant. CNF
accounts for stock-based compensation utilizing the intrinsic value
method in accordance with the provisions of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees."
Accordingly, no compensation expense is recognized for fixed option
plans because the exercise prices of employee stock options equal or
exceed the market prices of the underlying stock on the dates of grant.

The following table sets forth the effect on net income and earnings
per share if CNF had applied the fair-value based method and
recognition provisions of SFAS 123, " Accounting for Stock-Based
Compensation," to stock-based compensation:

(Dollars in thousands, except per share data) Three months ended
March 31,
-------------------------
2004 2003
------------ -----------

Net income available to common
shareholders, as reported $ 24,407 $ 15,929
Additional compensation cost, net of
tax, that would have been included in net
income if the fair-value method had been
applied (2,610) (2,215)
------------ -----------
Adjusted net income available to
common shareholders as if the fair-value
method had been applied $ 21,797 $ 13,714
============ ===========
Earnings per share:
Basic:
As reported $ 0.49 $ 0.32
============ ===========
Adjusted $ 0.44 $ 0.28
============ ===========
Diluted:
As reported $ 0.45 $ 0.30
============ ===========
Adjusted $ 0.40 $ 0.26
============ ===========

These effects of applying SFAS 123 may not be indicative of future amounts.

Foreign Currency

CNF recognizes deferred taxes to reflect the effect of temporary
differences between tax and book accounting on the translation of
foreign subsidiary financial statements. Based on expectations in
certain tax jurisdictions, CNF re-evaluated its assumptions regarding
the repatriation of foreign earnings in the first quarter of 2004. CNF
will no longer assume that past and future earnings of foreign
subsidiaries are indefinitely reinvested. Accordingly, CNF in the
first quarter of 2004 recorded a deferred tax asset of $9.4 million to
recognize the associated tax effect of the accumulated foreign currency
translation adjustment.

New Accounting Standards

In January 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities: an Interpretation of ARB No. 51" ("FIN
46"). FIN 46 requires that all special-purpose entities be designated
as either a voting-interest entity or a variable-interest entity
("VIE"). A VIE is an entity for which equity investors do not have the
characteristics of a controlling financial interest or do not have
sufficient equity at risk for the VIE to finance its activities without
additional subordinated financial support from other parties. A VIE is
required to be consolidated by its primary beneficiary if it does not
effectively disperse risks among parties involved. The primary
beneficiary of a VIE is the party that absorbs a majority of the VIE's
expected losses or receives a majority of its expected residual
returns.

The implementation of FIN 46 was required for periods beginning after
June 15, 2003. However, in October 2003, the FASB deferred the
effective date for applying FIN 46 to VIEs created before February 1,
2003 until the end of the first interim period ending after December
15, 2003. In December 2003, the FASB revised FIN 46 ("FIN 46R") to
incorporate certain revisions, including the requirement to disregard
certain rights in determining whether an entity is the primary
beneficiary in a VIE. Under FIN 46R, CNF is not the primary
beneficiary of CNF Trust 1 (the "Trust"), a wholly owned subsidiary,
and CNF was therefore required to deconsolidate the Trust effective in


PAGE 9

the quarter ended March 31, 2004. Accordingly, CNF's 5% convertible
subordinated debentures held by the Trust have been included in long-
term debt, as more fully discussed in Note 6, "Company-Obligated
Mandatorily Redeemable Convertible Securities of CNF Trust 1."

Reclassification

Certain amounts in the prior-period financial statements have been
reclassified to conform to the current-period presentation.


2. Reporting Segments

CNF discloses segment information in the manner in which the components
are organized for making operating decisions, assessing performance and
allocating resources. CNF's principal businesses consist of Con-Way
Transportation Services ("Con-Way") and Menlo Worldwide. For financial
reporting purposes, CNF is divided into five reporting segments. The
operating results of Con-Way are reported as one reporting segment
while Menlo Worldwide is divided into three reporting segments: Menlo
Worldwide Forwarding, Menlo Worldwide Logistics ("Logistics"), and
Menlo Worldwide Other. Also, certain corporate activities and the
results of Road Systems, a trailer manufacturer, are reported in the
CNF Other reporting segment.

In an effort to bring services offered by the Menlo Worldwide group of
businesses under a single brand identity, Menlo Worldwide announced in
February 2003 a plan to change the name of its forwarding segment from
Emery Forwarding to Menlo Worldwide Forwarding ("Forwarding"). The
Forwarding segment consists of the combined operating results of Menlo
Worldwide Forwarding, Inc. (formerly Emery Air Freight Corporation) and
its subsidiaries, Menlo Worldwide Expedite!, Inc. and a portion of the
operations of Emery Worldwide Airlines, Inc. ("EWA"), which ceased air
carrier operations in December 2001.


PAGE 10

Financial Data

Management evaluates segment performance primarily based on revenue
and operating income (loss); therefore, other non-operating items,
consisting primarily of interest income or expense, are not reported
in segment results. Corporate expenses are generally allocated based
on measurable services provided to each segment or, for general
corporate expenses, based on segment revenue or capital employed.
Inter-segment revenue and related operating income have been
eliminated to reconcile to consolidated revenue and operating income.


(Dollars in thousands) Three months ended
March 31,
--------------------------
2004 2003
Revenues ------------ ------------
Con-Way Transportation Services $ 593,844 $ 519,108

Menlo Worldwide
Forwarding 501,517 445,622
Logistics 252,790 241,502
------------ ------------
754,307 687,124
CNF Other 254 9
------------ ------------
$ 1,348,405 $ 1,206,241
============ ============
Inter-segment Revenue Eliminations by Segment
Con-Way Transportation Services $ 1,294 $ 110
Menlo Worldwide
Forwarding 2,547 72
Logistics -- 1,675
------------ ------------
2,547 1,747
CNF Other 6,100 5,141
------------ ------------
$ 9,941 $ 6,998
============ ============
Revenues before Inter-segment Eliminations
Con-Way Transportation Services $ 595,138 $ 519,218

Menlo Worldwide
Forwarding 504,064 445,694
Logistics 252,790 243,177
------------ ------------
756,854 688,871
CNF Other 6,354 5,150
Inter-segment Revenue Eliminations (9,941) (6,998)
------------ ------------
$ 1,348,405 $ 1,206,241
============ ============
Operating Income (Loss)
Con-Way Transportation Services $ 51,105 $ 37,192

Menlo Worldwide
Forwarding (6,409) (5,431)
Logistics 6,506 6,036
Other 2,392 2,976
------------ ------------
2,489 3,581
CNF Other (852) 275
------------ ------------
$ 52,742 $ 41,048
============ ============



PAGE 11

Terrorist Attacks

In response to the September 11, 2001 terrorist attacks, the U.S.
Congress passed the Air Transportation Safety and System Stabilization
Act (the "Act"), a $15 billion emergency economic assistance package
intended to mitigate financial losses in the air carrier industry. The
legislation provided for $5 billion in direct loss reimbursement and
other financial assistance. In March 2002, Forwarding received an
initial $11.9 million payment under the Act, resulting in a $9.9
million first-quarter net gain in 2002. In March 2003, Forwarding
received a final payment of $7.5 million, resulting in a $7.2 million
first-quarter net gain in 2003.

3. Investment in Unconsolidated Joint Venture

Vector SCM ("Vector") is a joint venture formed with General Motors
("GM") in December 2000 for the purpose of providing logistics
management services on a global basis for GM, and ultimately for
customers in addition to GM. Although Menlo Worldwide, LLC ("MW") owns
a majority interest in Vector, MW's portion of Vector's operating
results are reported in the Menlo Worldwide Other reporting segment as
an equity-method investment based on GM's ability to control certain
operating decisions. Vector is organized as a limited liability
company that has elected to be taxed as a partnership. Therefore, the
joint venture partners are responsible for income taxes applicable to
their share of Vector's taxable income. MW's portion of Vector's net
income, which is reported as a reduction of operating expenses in the
accompanying Statements of Consolidated Income, does not include any
provision for income taxes that will be incurred by CNF. MW's
undistributed earnings from Vector at March 31, 2004 and December 31,
2003, before provision for CNF's related parent income taxes, was $25.0
million and $22.6 million, respectively.

Vector participates in CNF's centralized cash management system, and,
consequently, Vector's domestic trade accounts payable are paid by CNF
and settled through Vector's affiliate accounts with CNF. In addition,
excess cash balances in Vector's bank accounts, if any, are invested by
CNF and settled through affiliate accounts, which earn interest income
based on a rate earned by CNF's cash-equivalent investments. As a
result of Vector's excess cash invested by CNF, Vector's affiliate
receivable from CNF as of March 31, 2004 and December 31, 2003 was
$18.0 million and $16.0 million, respectively.

As required by the Vector Agreements, CNF provides Vector with a $20
million line of credit for Vector's working capital and capital
expenditure requirements. Under the credit facility, which matures on
December 13, 2005, Vector may obtain loans with an annual interest rate
based on the rate CNF pays under its $385 million revolving credit
facility. CNF provides a portion of its $20 million credit commitment
to Vector through CNF's guarantee of $7.5 million of uncommitted local
currency overdraft facilities available to Vector by international
banks. At March 31, 2004, there was no balance outstanding under
Vector's uncommitted local currency overdraft facilities and no
borrowings were directly payable to CNF. At December 31, 2003, Vector
owed $5.8 million under the uncommitted local currency overdraft
facilities and no borrowings were directly payable to CNF.

CNF's capital transactions with Vector, including cash advances to and
from Vector under CNF's centralized cash management system and credit
facility described above, are reported as adjustments to MW's
investment in Vector in Deferred Charges and Other Assets in CNF's
Consolidated Balance Sheets.


4. Employee Benefit Plans

During the first quarter of fiscal 2004, CNF adopted the interim
disclosure provisions of SFAS No. 132R, "Employers' Disclosure about
Pensions and Other Postretirement Benefits, an Amendment of FASB
Statements No. 87, 88 and 106 and a Revision of FASB Statement No.
132." This statement revises employers' disclosures about pension
plans and other postretirement benefits.


PAGE 12

The following table summarizes the components of net periodic benefit
expense for CNF for the three months ended March 31:


Pension Plans Postretirement Plan
-------------------- --------------------
(Dollars in thousands) 2004 2003 2004 2003
--------- --------- --------- ---------
Service cost - benefits
earned during the quarter $ 15,391 $ 10,965 $ 488 $ 457
Interest cost on benefit
obligation 15,852 12,495 1,477 1,384
Expected return on plan
assets (15,575) (10,391) -- --
Net amortization and
deferral 2,137 2,269 69 65
--------- --------- --------- ---------
Net benefit expense $ 17,805 $ 15,338 $ 2,034 $ 1,906
========= ========= ========= =========

During the first quarter, CNF revised its forecasted contribution to
its defined benefit pension plans. At this time, CNF plans to
contribute $90 million to the plans during 2004.

5. Comprehensive Income

Comprehensive income, which is a measure of all changes in equity
except those resulting from investments by owners and distributions to
owners, was as follows:

Three months ended
March 31,
--------------------------
2004 2003
(Dollars in thousands) ------------ ------------

Net income $ 26,429 $ 17,955

Other comprehensive income (loss), net of tax:
Unrealized loss on marketable securities (211) --
Change in fair value of cash flow
hedge (Note 9) -- 93
Foreign currency translation
adjustment (Note 1) 9,859 18
------------ ------------
9,648 111
------------ ------------
Comprehensive income $ 36,077 $ 18,066
============ ============


The following is a summary of the components of Accumulated Other
Comprehensive Loss, net of tax:

March 31, December 31,
(Dollars in thousands) 2004 2003
------------ ------------
Unrealized gain on marketable
securities $ 1,833 $ 2,044
Accumulated foreign currency
translation adjustments (Note 1) (9,480) (19,339)
Minimum pension liability adjustment (19,628) (19,628)
------------ ------------
Accumulated other comprehensive loss $ (27,275) $ (36,923)
============ ============


6. Company-Obligated Mandatorily Redeemable Securities of CNF Trust 1

On June 11, 1997, CNF Trust I (the "Trust"), a Delaware business trust
wholly owned by CNF, issued 2,500,000 of its $2.50 Term Convertible
Securities, Series A ("TECONS") to the public for gross proceeds of
$125 million. The combined proceeds from the issuance of the TECONS and
the issuance to CNF of the common securities of the Trust were invested
by the Trust in $128.9 million aggregate principal amount of 5%
convertible subordinated debentures due June 1, 2012 (the "Debentures")
issued by CNF. The Debentures are the sole assets of the Trust. The
Trust pays interest on the TECONS and receives interest on the
Debentures due from CNF. Excess interest income is paid to CNF as the
common stockholder of the Trust.


PAGE 13

Holders of the TECONS are entitled to receive cumulative cash
distributions at an annual rate of $2.50 per TECONS (equivalent to a
rate of 5% per annum of the stated liquidation amount of $50 per
TECONS). Each TECONS is convertible at any time prior to the close of
business on June 1, 2012 at the option of the holder into shares of
CNF's common stock at a conversion rate of 1.25 shares of CNF's common
stock for each TECONS, subject to adjustment in certain circumstances.
The TECONS do not have a stated maturity date, although they are
subject to mandatory redemption upon maturity of the Debentures on June
1, 2012, or upon earlier redemption. CNF has guaranteed, on a
subordinated basis, distributions and other payments due on the TECONS,
to the extent the Trust has funds available therefore and subject to
certain other limitations (the "Guarantee"), as more fully discussed in
Note 9, "Preferred Securities of Subsidiary Trust," of Item 8,
"Financial Statements and Supplementary Data," in CNF's 2003 Annual
Report on Form 10-K.

The Debentures are redeemable for cash, at the option of CNF, in whole
or in part, on or after June 1, 2000 at a price equal to 103.125% of
the principal amount, declining annually to par if redeemed on or after
June 1, 2005, plus accrued and unpaid interest. Upon any redemption of
the Debentures, a like aggregate liquidation amount of TECONS will be
redeemed. On conversion of a TECONS by the holder, a like amount of
Debentures would be converted on behalf of the TECONS holder, and CNF
would then deliver the fixed number of shares of CNF common stock into
which the Debentures are convertible.

On April 30, 2004, CNF announced that it intends to redeem the
Debentures on June 1, 2004, as more fully discussed below in Note 7,
"Debt." The proceeds from the redemption of the Debentures will be
applied by the Trust to simultaneously redeem all of the outstanding
TECONS and all of the outstanding common securities.

Prior to the required deconsolidation of the Trust under FIN 46R, as
described in Note 1 "Principal Accounting Policies - New Accounting
Standards," CNF reported the TECONS as a mezzanine security ("Company-
Obligated Mandatorily Redeemable Preferred Securities of Subsidiary
Trust Holding Solely Convertible Debentures of the Company") with cash
distributions reported as a non-operating expense. Under FIN 46R,
CNF's consolidated financial statements, for all periods presented,
reflect the deconsolidation of the Trust. Accordingly, long-term debt
and interest expense reflect the obligation and interest cost,
respectively, of the Debentures described above. CNF's $3.9 million
interest in the common securities of the Trust is reported as an
investment in Deferred Charges and Other Assets while dividend income
on the common securities are reported by CNF as non-operating income.
Adoption of FIN 46R did not have a material effect on results of
operations in the periods presented, as dividends paid to holders of
the TECONS are equal to the amount by which CNF's interest expense on
the Debentures exceeds dividend income earned by CNF on the common
securities of the Trust.


7. Debt

Senior Debentures due 2034

On April 27, 2004, CNF issued $300 million of 6.70% Senior Debentures
due 2034 ("Senior Debentures") in a private placement for proceeds of
$290.0 million, net of a $7.4 million discount and $2.6 million of
underwriting costs. CNF intends to use the net proceeds to redeem
$128.9 million of Convertible Subordinated Debentures on June 1, 2004,
to repurchase from time to time or pay at maturity, $100 million of
7.35% Notes due 2005, and for working capital and general corporate
purposes. CNF's Convertible Subordinated Debentures, which are held by
a wholly owned subsidiary trust, are more fully discussed above in Note
6, "Company-Obligated Mandatorily Redeemable Securities of CNF Trust
1."

The Senior Debentures bear interest at the rate of 6.70% per year,
payable semi-annually on May 1 and November 1 of each year, beginning
on November 1, 2004. CNF may redeem the Senior Debentures, in whole or
in part, on not less than 30 nor more than 60 days' notice, at a
redemption price equal to the greater of (1) the principal amount being
redeemed, or (2) the sum of the present values of the remaining
scheduled payments of principal and interest on the Senior Debentures
being redeemed, discounted at the redemption date on a semiannual basis
at the Treasury rate payable on an equivalent debenture plus 35 basis
points. The Senior Debentures were issued under an indenture that
restricts CNF's ability, with certain exceptions, to incur debt secured
by liens.

The Senior Debentures were sold only to qualified institutional buyers
in accordance with Rule 144A under the Securities Act of 1933, as
amended. The Senior Debentures have not been registered under the
Securities Act or any applicable state securities laws and may not be
offered or sold in the United States absent registration or an
applicable exemption from such registration requirements. CNF has
entered into a registration rights agreement in which CNF has agreed to
file within 90 days of April 27, 2004 a registration statement with the
Securities and Exchange Commission to register resales of the notes
within 90 days of the closing date. CNF will be required to pay
additional interest if the registration statement is not filed within
the required period, it is not effective on or before the 180th day
after April 27, 2004 or under certain other circumstances.


PAGE 14

Thrift and Stock Plan Notes

CNF guarantees the notes issued by CNF's Thrift and Stock Plan
("TASP"), as more fully discussed in Note 6, "Debt and Other Financing
Arrangements," of Item 8, "Financial Statements and Supplementary
Data," included in CNF's 2003 Annual Report on Form 10-K.

As of March 31, 2004, there was $27.7 million aggregate principal
amount of Series A TASP notes outstanding and $62.0 million of Series B
TASP notes outstanding. Holders of the Series B notes issued by CNF's
TASP have the right to require CNF to repurchase those notes if, among
other things, both Moody's and Standard & Poor's have publicly rated
CNF's long-term senior debt at less than investment grade unless,
within 45 days, CNF shall have obtained, through a guarantee, letter of
credit or other permitted credit enhancement or otherwise, a credit
rating for such notes of at least "A" from Moody's or Standard & Poor's
(or another nationally recognized rating agency selected by the holders
of such notes) and shall maintain a rating on such notes of "A" or
better thereafter.

Following CNF's private placement of debentures in April 2004, as
described above, Moody's and Standard & Poors affirmed their investment-
grade ratings on CNF's senior unsecured debt. Also, Moody's upgraded
its outlook to "stable" from "negative."


8. Restructuring Plans

2001 Restructuring Plan

In June 2001, Forwarding 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. CNF
announced in December 2001 that Forwarding would utilize aircraft
operated by other air carriers instead of EWA operating its own fleet
of aircraft, and that EWA would permanently cease air carrier
operations. As a result, EWA terminated the employment of all of its
pilots and crew members. Those pilots and crew members are represented
by the Air Line Pilots Association ("ALPA") union under a collective
bargaining agreement. Subsequently, ALPA filed a grievance on behalf
of the pilots and crew members protesting the cessation of EWA's air
carrier operations and Forwarding's use of other air carriers. The
ALPA matters are the subject of litigation in U.S. District Court and,
depending on the outcome of that litigation, may be subject to binding
arbitration. Based on CNF's current evaluation, management believes
that it has provided for its estimated exposure related to the ALPA
matters. However, there can be no assurance in this regard as CNF
cannot predict with certainty the ultimate outcome of these matters.

Forwarding's restructuring reserves for aircraft and other costs
increased to $35.5 million at March 31, 2004 from $34.8 million at
December 31, 2003, primarily due to proceeds from sales of aircraft and
equipment, partially offset by payments of restructuring-related
obligations. None of the 37 aircraft that were grounded in connection
with Forwarding's restructuring plan remained under lease as of March
31, 2004. Restructuring reserves at March 31, 2004 consisted primarily
of CNF's estimated exposure related to the labor matters described
above, as well as other estimated remaining restructuring-related
obligations.

Refer to Note 3, "Restructuring Plans," of Item 8, "Financial
Statements and Supplementary Data," included in CNF's 2003 Annual
Report on Form 10-K for a more detailed discussion of Forwarding's 2001
restructuring plan.


2003 Restructuring Plan

In response to continued declines in North American air freight
revenue, Forwarding continued restructuring its operations in the
fourth quarter of 2003, primarily to reduce the costs of its North
American freight service center network. Under the restructuring plan,
nine service centers were closed in markets for which Forwarding
believes it can utilize cartage agents to transport customer shipments
more cost effectively. In connection with the restructuring plan,
Forwarding recognized a $7.8 million charge in the fourth quarter of
2003, primarily for the accrual of future lease payments on closed
facilities and employee termination costs. Forwarding's reserves
related to the 2003 restructuring plan declined to $3.7 million at
March 31, 2004, from $6.6 million at December 31, 2003, due to cash
payments related to employee terminations and lease payments on closed


PAGE 15

facilities. These payments are reflected in Forwarding's cash flows
when paid but will not be included in Forwarding's future operating
expenses as these costs were accrued in connection with the
restructuring charge. In addition to actions taken in connection with
the restructuring charge, Forwarding's restructuring plan also included
the renegotiation of contracts with third-party cartage agents and
other service providers.

9. Derivative Instruments and Hedging Activities

Under SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended, CNF records derivative instruments on the
balance sheet as either an asset or liability measured at fair value
with changes in fair value recognized currently in earnings unless
specific hedge accounting criteria are met. Qualifying hedges allow a
derivative's gain or loss to offset related results on the hedged item
in the income statement or be deferred in Other Comprehensive Income
(Loss) until the hedged item is recognized in earnings.

CNF is exposed to a variety of market risks, including the effects of
interest rates, commodity prices, foreign currency exchange rates and
credit risk. CNF enters into derivative financial instruments only in
circumstances that warrant the hedge of an underlying asset, liability
or future cash flow against exposure to the related risk.
Additionally, the designated hedges should have high correlation to the
underlying exposure such that fluctuations in the value of the
derivatives offset reciprocal changes in the underlying exposure.

CNF formally documents its hedge relationships, including identifying
the hedge instruments and hedged items, as well as its risk management
objectives and strategies for entering into the hedge transaction. At
hedge inception and at least quarterly thereafter, CNF assesses whether
the derivatives are effective in offsetting changes in either the cash
flows or fair value of the hedged item. If a derivative ceases to be a
highly effective hedge, CNF will discontinue hedge accounting, and any
gains or losses on the derivative instrument would be recognized in
earnings during the period it no longer qualifies for hedge accounting.

For derivatives designated as cash flow hedges, changes in the
derivative's fair value are recognized in Other Comprehensive Income
(Loss) until the hedged item is recognized in earnings. Any change in
fair value resulting from ineffectiveness is recognized immediately in
earnings. For derivatives designated as fair value hedges, changes in
the derivative's fair value are recognized in earnings and offset by
changes in the fair value of the hedged item, which are recognized in
earnings to the extent that the derivative is effective.

At March 31, 2004, CNF held two interest rate swap derivatives that
were initially entered into as cash flow hedges to mitigate the effects
of interest rate volatility on floating-rate operating lease payments.
In connection with Forwarding's 2001 restructuring plan, hedge
accounting was discontinued for these interest rate swap derivatives
when EWA settled floating-rate operating leases hedged with the
interest rate swaps. In the first quarter of 2004, decreases in the
estimated fair value of these freestanding interest rate swap
derivatives were reported as decreases in Other Assets in the
Consolidated Balance Sheets and as a non-operating loss of $0.3
million.

10. Commitments and Contingencies

Spin-Off of CFC

On December 2, 1996, CNF completed the spin-off of Consolidated
Freightways Corporation ("CFC") to CNF's shareholders. CFC was, at the
time of the spin-off, and remains a party to certain multiemployer
pension plans covering some of its current and former employees. The
cessation of its U.S. operations will result in CFC's "complete
withdrawal" (within the meaning of applicable federal law) from these
multiemployer plans, at which point it will become obligated, under
federal law, to pay its share of any unfunded vested benefits under
those plans.

It is possible that the trustees of CFC's multiemployer pension plans
may assert claims that CNF is liable for amounts owing to the plans as
a result of CFC's withdrawal from those plans and, if so, there can be
no assurance that those claims would not be material. CNF has received
requests for information regarding the spin-off of CFC from
representatives from some of the pension funds, and, in accordance with
federal law, CNF has responded to those requests. Under federal law,
representatives of CFC's multiemployer plans are entitled to request
such information to assist them in determining whether they believe any
basis exists for asserting a claim against CNF.


PAGE 16

Based on advice of legal counsel and its knowledge of the facts, CNF
believes that it would ultimately prevail if any such claims were made,
although there can be no assurance in this regard. CNF believes that
the amount of those claims, if asserted, could be material, and a
judgment against CNF for all or a significant part of these claims
could have a material adverse effect on CNF's financial condition, cash
flow and results of operations.

Prior to the enactment in April 2004 of the Pension Funding Equity Act
of 2004, if the multiemployer funds had asserted such claims against
CNF, CNF would have had a statutory obligation to make cash payments to
the funds prior to any arbitral or judicial decisions on the funds'
determinations. Under the facts related to the CFC withdrawals and the
law in effect after enactment of the Pension Funding Equity Act of
2004, CNF would no longer be required to make such payments to the
multiemployer funds unless and until final decisions in arbitration
proceedings, or in court, upheld the funds' determinations.

As a result of the matters discussed above, CNF can provide no
assurance that matters relating to the spin-off of CFC and CFC's
bankruptcy will not have a material adverse effect on CNF's financial
condition, cash flows or results of operations.

Other

CNF is a defendant in various lawsuits incidental to its businesses.
It is the opinion of management that the ultimate outcome of these
actions will not have a material impact on CNF's financial condition,
cash flows, or results of operations.


PAGE 17

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Management's Discussion and Analysis of Financial Condition and Results
of Operations (referred to as "Management's Discussion and Analysis")
is intended to assist in the understanding and assessment of the
principal factors affecting the results of operations, liquidity and
capital resources, as well as the critical accounting policies of CNF
and its subsidiaries. This discussion and analysis should be read in
conjunction with the information included in CNF's 2003 Annual Report
on Form 10-K.

CNF provides supply chain management services for commercial and
industrial shipments by land, air and sea throughout the world. CNF's
principal businesses consist of Con-Way and the Menlo Worldwide group
of businesses. However, for financial reporting purposes, CNF is
divided into five reporting segments. The operating results of Con-
Way, primarily a provider of regional less-than-truckload ("LTL")
freight services, are reported as one reporting segment while Menlo
Worldwide is divided into three reporting segments: Forwarding,
primarily a global provider of air freight and ocean forwarding
services; Logistics, a provider of integrated contract logistics
solutions; and Menlo Worldwide Other, which consists of Vector, a joint
venture with General Motors ("GM") that serves as the lead logistics
manager for GM. Also, certain corporate activities and the results of
Road Systems, a trailer manufacturer, are reported in the separate CNF
Other reporting segment.

CNF's operating results are generally expected to depend on the number
and weight of shipments transported, the prices received on those
shipments, and the mix of services provided to customers, as well as
the fixed and variable costs incurred by CNF in providing the services
and the ability to manage those costs under changing shipment levels.
Con-Way and Forwarding primarily transport shipments through freight
service center networks while Logistics and Vector manage the logistics
functions of their customers and primarily utilize third-party
transportation providers for the movement of customer shipments.


RESULTS OF OPERATIONS

CONSOLIDATED RESULTS

CNF's net income available to common shareholders in the first quarter
of 2004 was $24.4 million ($0.45 per diluted share), a 53.2% increase
from $15.9 million ($0.30 per diluted share) in the first quarter of
2003, which included a $7.2 million pre-tax net gain ($4.4 million
after-tax or $0.08 per diluted share) from a payment under the Air
Transportation Safety and System Stabilization Act (the "Stabilization
Act").

The following table compares operating results (dollars in thousands,
except per share amounts) for the three months ended March 31:

2004 2003
------------ ------------
Revenues $ 1,348,405 $ 1,206,241
Operating Income 52,742 41,048
Net Income Available to Common Shareholders 24,407 15,929
Diluted Earnings per Share 0.45 0.30

CNF's revenue in the first quarter of 2004 increased to $1.3 billion,
an 11.8% increase over the same period last year, as both Con-Way and
the Menlo Worldwide group of businesses achieved continued revenue
growth amid improved global economic conditions. Consolidated
operating income rose to $52.7 million, a 28.5% increase over the first
quarter of 2003, due principally to significantly higher operating
income from Con-Way. The collective first-quarter operating income of
the Menlo Worldwide companies fell to $2.5 million in 2004 from $3.6
million in 2003; however, the prior-year first quarter benefited from
Forwarding's $7.2 million net gain from the Stabilization Act payment.

Con-Way's operating income grew 37.4% in the first quarter of 2004 to
$51.1 million, due principally to operating leverage and a 14.4%
increase in revenue. Operating results at Menlo Worldwide also
benefited from revenue growth. In the first quarter of 2004,
Forwarding reported a 12.5% increase in revenue and a $6.4 million
operating loss. Although Forwarding's first-quarter revenue was still
insufficient to cover its costs, the first-quarter operating loss
increased by only $1.0 million from the same quarter last year despite
the prior-year benefit from the $7.2 million net gain described above.


PAGE 18

Excluding the Stabilization Act payment in last year's first quarter,
Forwarding reduced its first-quarter operating loss in 2004. Logistics
first-quarter revenue in 2004 rose 4.7% from the prior year while
operating income rose 7.8%. Vector's first-quarter 2004 operating
income of $2.4 million, which declined from $3.0 million in the first
quarter of 2003, reflects compensation earned under amended agreements
with GM, its joint venture partner and customer.

Other net expense of $9.4 million in the first quarter of 2004
declined 18.9% from the same period last year due in part to a $1.3
million favorable impact from changes in the cash-surrender value of
corporate-owned life insurance policies. Also, the prior-year first
quarter was adversely affected by equity venture losses of $1.4
million.

CON-WAY TRANSPORTATION SERVICES

The following table compares operating results (dollars in thousands),
operating margins, and the percentage increase in selected operating
statistics of the Con-Way reporting segment for the three months ended
March 31:

2004 2003
------------ ------------
Summary of Operating Results
Revenues $ 593,844 $ 519,108
Operating Income 51,105 37,192
Operating Margin 8.6% 7.2%

2004 vs.2003
------------
Selected Regional-Carrier
Operating Statistics
Revenue per day +11.3%
Yield +0.5
Weight per day:
Less-than-truckload +10.0
Total +10.7

Con-Way's revenue in the first quarter of 2004 rose 14.4% due to higher
revenue from Con-Way's regional carriers and continued growth from Con-
Way's asset-light businesses, which include Con-Way NOW, Con-Way
Logistics, and Con-Way Air Express. Revenue per day from the regional
carriers rose 11.3% from the first quarter of 2003 on a 10.7% increase
in weight per day ("weight"), which was due primarily to comparatively
better economic conditions in the U.S. First-quarter revenue per
hundredweight ("yield") in 2004 was positively affected by continued
growth in interregional joint services, which typically command higher
rates on longer lengths of haul, but was adversely affected by a 2.8%
increase in weight per shipment. Rates typically decline when weight
per shipment increases, as freight with a higher weight per shipment
typically has a lower transportation cost per unit of weight. In the
first quarter of 2004, Con-Way's asset-light businesses increased
revenue by 95.9% over the first quarter of 2003. Con-Way defines
"asset-light" businesses as those that require a comparatively smaller
capital investment than its LTL operations.

Con-Way's first-quarter operating income in 2004 increased 37.4%, due
primarily to higher revenue from the regional carriers, as well as
revenue growth from Con-Way's asset-light businesses, which reduced
their collective net operating loss in the first quarter of 2004 by
62.6% over the prior-year period. The improvement in Con-Way's
operating margin in the first quarter of 2004 reflects operating
leverage, as Con-Way's regional carrier service center network
accommodated additional shipments with proportionally smaller cost
increases. First-quarter operating income in 2004 was adversely
affected by employee costs, which rose 13.4% from the prior year.

MENLO WORLDWIDE

For financial reporting purposes, the Menlo Worldwide group is divided
into three reporting segments: Forwarding, Logistics, and Menlo
Worldwide Other. Vector SCM, a joint venture with GM, is reported in
the Menlo Worldwide Other segment as an equity-method investment. In
the first quarter of 2004, the Menlo Worldwide group of businesses
reported revenue of $754.3 million and operating income of $2.5
million.


PAGE 19

FORWARDING

The following table compares operating results (dollars in thousands),
operating margins, and the percentage increase (decrease) in selected
operating statistics of the Forwarding reporting segment for the three
months ended March 31:

2004 2003
------------ ------------

Summary of Operating Results
Revenues $ 501,517 $ 445,622
Operating Loss (6,409) (5,431)
Operating Margin -1.3% -1.2%

Item affecting comparability of
operating loss:
Net gain from a payment under the
Air Transportation Safety and -- $ 7,230
System Stabilization Act

2004 vs.2003
------------
Selected Air Freight Operating
Statistics
International
Revenue per day +14.5%
Weight per day +20.4
Yield -4.8
North America
Revenue per day +0.8
Weight per day +7.2
Yield -6.0

Forwarding's revenue in the first quarter of 2004 grew 12.5% over the
first quarter of 2003, primarily due to a significant increase in
international air freight revenue and a slight increase in North
American air freight revenue. Forwarding's first quarter in 2004
included one more working day than the same quarter of last year.
International air freight revenue per day increased 14.5% over the
first quarter of 2003 as a 20.4% increase in international average
pounds per day ("weight") was partially offset by a 4.8% decline in
international air freight revenue per pound ("yield"). Weight in the
first quarter of 2004 benefited from improved global economic
conditions, which contributed to improved business levels in the Asian,
European, and Latin American markets. The decline in international
yield was due in part to reduced volumes of higher-yield military
supply business, which benefited the first quarter of 2003, and to a
greater percentage of lower-yield delivery services in the first
quarter of 2004. Excluding the positive effect of higher fuel
surcharges, first-quarter international yield fell 5.7% from the same
quarter last year. North American air freight revenue per day in the
first quarter of 2004 increased 0.8% over the same period last year as
a 7.2% increase in weight was mostly offset by a 6.0% decline in yield.
Growth in North American weight in the first quarter of 2004 was
largely due to improved economic conditions in the U. S., while the
decline in North American yield was primarily due to a greater
percentage of lower-yield deferred delivery services. Forwarding's
efforts to increase second-day and deferred delivery services
contributed to a higher percentage of lower-yield delivery services in
the first quarter of 2004. Excluding the yield-enhancing effect of
higher fuel surcharges, North American yield in the first quarter of
2004 declined 7.7% from the first quarter of 2003.

Forwarding's first-quarter operating loss increased to $6.4 million in
2004 from $5.4 million in 2003, largely due to a first-quarter prior-
year net gain of $7.2 million from the Stabilization Act payment, as
more fully discussed below under " - Terrorist Attacks." Excluding
last year's net gain from the Stabilization Act payment, Forwarding
reduced its first-quarter operating loss in 2004 principally from
growth in air freight revenue and cost reductions to the North American
service center network. Forwarding's international gross margin as a
percentage of international air freight revenue in the first quarter of
2004 fell from the same period last year, primarily due to reduced
volumes of higher-yield military supply business, which benefited gross
margins in the first quarter of 2003. The decline in the international
gross margin as a percentage of revenue was partially offset by cost
reductions to the North American service center network in the fourth
quarter of 2003, as more fully discussed below under "-Restructuring
Plans-2003 Restructuring Plan." Forwarding's first-quarter operating
loss in the prior year reflects costs for reducing and reconfiguring
elements of the North American service center network. Management will
continue to focus on increasing the revenue and operating margins of
its variable-cost-based international operations and, in North America,
will continue its efforts to align its costs with revenues.

Restructuring Plans

2001 Restructuring Plan

In June 2001, Forwarding 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. CNF
announced in December 2001 that Forwarding would utilize aircraft
operated by other air carriers instead of EWA operating its own fleet
of aircraft, and that EWA would permanently cease air carrier
operations. As a result, EWA terminated the employment of all of its
pilots and crew members. Those pilots and crew members are represented
by the Air Line Pilots Association ("ALPA") union under a collective
bargaining agreement. Subsequently, ALPA filed a grievance on behalf
of the pilots and crew members protesting the cessation of EWA's air
carrier operations and Forwarding's use of other air carriers. The
ALPA matters are the subject of litigation in U.S. District Court and,
depending on the outcome of that litigation, may be subject to binding
arbitration. Based on CNF's current evaluation, management believes
that it has provided for its estimated exposure related to the ALPA
matters. However, there can be no assurance in this regard as CNF
cannot predict with certainty the ultimate outcome of these matters.

Forwarding's restructuring reserves for aircraft and other costs
increased to $35.5 million at March 31, 2004 from $34.8 million at
December 31, 2003, primarily due to proceeds from sales of aircraft and
equipment, partially offset by payments of restructuring-related
obligations. None of the 37 aircraft that were grounded in connection
with Forwarding's restructuring plan remained under lease as of March
31, 2004. Restructuring reserves at March 31, 2004 consisted primarily
of CNF's estimated exposure related to the labor matters described
above, as well as other estimated remaining restructuring-related
obligations.

Refer to Note 3, "Restructuring Plans," of Item 8, "Financial
Statements and Supplementary Data," included in CNF's 2003 Annual
Report on Form 10-K for a more detailed discussion of Forwarding's 2001
restructuring plan.


2003 Restructuring Plan

In response to continued declines in North American air freight
revenue, Forwarding continued restructuring its operations in the
fourth quarter of 2003, primarily to reduce the costs of its North
American freight service center network. Under the restructuring plan,
nine service centers were closed in markets for which Forwarding
believes it can utilize cartage agents to transport customer shipments
more cost effectively. In connection with the restructuring plan,
Forwarding recognized a $7.8 million charge in the fourth quarter of
2003, primarily for the accrual of future lease payments on closed
facilities and employee termination costs. Forwarding's reserves
related to the 2003 restructuring plan declined to $3.7 million at
March 31, 2004, from $6.6 million at December 31, 2003, due to cash
payments related to employee terminations and lease payments on closed
facilities. These payments are reflected in Forwarding's cash flows
when paid but will not be included in Forwarding's future operating
expenses as these costs were accrued in connection with the
restructuring charge. In addition to actions taken in connection with
the restructuring charge, Forwarding's restructuring plan also included
the renegotiation of contracts with third-party cartage agents and
other service providers. Management estimates that all actions taken
under the restructuring plan will reduce annual operating expenses in
2004 by $20 million with no adverse effect on revenue levels or the
quality and coverage of delivery service.

Forwarding's restructuring charges recognized during 2001 and 2003
reflect CNF's estimate of the costs of the related restructuring
activities. CNF believes that these estimates are adequate to cover
these costs based on information currently available and assumptions
management believes are reasonable under the circumstances. However,
there can be no assurance that actual costs will not differ from this
estimate, and that difference would be recognized as additional expense
or income in the period when and if that determination can be made.

Terrorist Attacks

In response to the September 11, 2001 terrorist attacks, the U.S.
Congress passed the Air Transportation Safety and System Stabilization
Act (the "Act"), a $15 billion emergency economic assistance package
intended to mitigate financial losses in the air carrier industry. The
legislation provided for $5 billion in direct loss reimbursement and
other financial assistance. In March 2002, Forwarding received an
$11.9 million payment under the Act, resulting in a $9.9 million first-
quarter net gain in 2002. In March 2003, Forwarding received a final
payment of $7.5 million, resulting in a $7.2 million first-quarter net
gain in 2003.


PAGE 21

Forwarding is not able to accurately quantify how the events of
September 11, or any subsequent terrorist activities, will affect the
global economy, governmental regulation, the air transportation
industry, Forwarding's costs of providing air freight services and the
demand for Forwarding's air freight services. However, Forwarding
believes that any additional security measures that may be required by
future regulations could result in additional costs and could have an
adverse effect on its operations and service.

LOGISTICS

The following table compares operating results (dollars in thousands)
and operating margins of the Logistics reporting segment for the three
months ended March 31:

2004 2003
------------ ------------

Summary of Operating Results
Revenues $ 252,790 $ 241,502
Operating Income 6,506 6,036
Operating Margin 2.6% 2.5%


Logistics' revenue in the first quarter of 2004 increased 4.7% from the
first quarter of 2003, principally due to an increase in warehouse
management services. Revenue from carrier management services in the
first quarter of 2004 was essentially unchanged despite the loss of a
significant customer in the fourth quarter of 2003, a division of a
large company that terminated the logistics outsourcing arrangements at
many of its divisions. The customer accounted for 4.2% of Logistics'
revenue in the first quarter of 2003 but was among Logistics' lowest-
margin accounts. Logistic's operating income in the first quarter of
2004 grew 7.8%, due largely to higher revenue.

A portion of Logistics' revenue is attributable to contracts for which
Logistics manages the transportation of freight but subcontracts the
actual transportation and delivery of products to third parties.
Logistics refers to this as purchased transportation. Logistics' net
revenue (revenue less purchased transportation) in the first quarter of
2004 was $76.3 million, an increase from $74.0 million in the first
quarter of 2003.


MENLO WORLDWIDE OTHER

The Menlo Worldwide Other reporting segment consists of the results of
Vector, a joint venture formed with GM in December 2000 for the purpose
of providing logistics management services on a global basis for GM,
and ultimately for customers in addition to GM. Prior to the
amendments described below, agreements pertaining to Vector
(collectively, "Vector Agreements") provided that Vector would be
compensated by sharing in efficiency gains and cost savings achieved
through the implementation of Approved Business Cases ("ABCs") and
other special projects in GM's North America region and GM's three
international regions. An ABC is a project, developed with and
approved by GM, aimed at reducing costs, assuming operational
responsibilities, and/or achieving operational changes.

In August 2003, the Vector Agreements were amended, primarily to
expedite the transition of logistics management services in the North
America region from GM to Vector. The amendments changed the
compensation principles for GM's North American logistics operations,
revised the allocation of Vector's profit between GM and MW, and
modified the formula for the valuation of Vector in the event that MW
exercises its Put Right, as described below.

The amendments to the Vector Agreements provide for Vector to be
compensated for its management of logistics for all of GM's North
America operations rather than through its sharing in efficiency gains
and cost savings under individual and separately approved ABCs in North
America. In each year of a five-year period retroactive to January 1,
2003, Vector will be compensated with a management fee based on
shipment volumes and can earn additional compensation if certain
performance criteria are achieved. In accordance with GAAP,
compensation under the volume-based management fee will be recognized
as vehicles are shipped while performance-based compensation will not
be recognized until specified levels of cost savings are achieved,
which will generally not be determinable until the fourth quarter of
each contract year. Vector will also be compensated by GM for its
direct and administrative costs in North America, subject to certain
limitations.


PAGE 22

The amended Vector Agreements also increase MW's allocation of profit
and loss from 80% to 85%. Although MW owns a majority equity interest,
the operating results of Vector are reported as an equity-method
investment based on GM's ability to control certain operating
decisions.

Under the Vector Agreements, GM has the right to purchase MW's
membership interest in Vector ("Call Right") and MW has the right to
require GM to purchase MW's membership interest in Vector ("Put
Right"). The Call Right and Put Right are exercisable at the sole
discretion of GM and MW, respectively. Prior to amendment of the
Vector Agreements, exercise of the Call Right or Put Right required GM
to pay MW for the fair value of MW's membership interest in Vector, as
determined by approved appraisers using a predetermined valuation
formula. Under the amended Vector Agreements, the amount payable by GM
to MW under the Put Right is based on a mutually agreed-upon estimated
value for MW's membership interest as of the contract amendment date
and will decline on a straight-line basis over an 8-year period
beginning January 1, 2004. Exercise of MW's Put Right or GM's Call
Right would result in MW retaining commercialization contracts
involving customers other than GM.

Reported operating income of the Menlo Worldwide Other segment in the
first quarter of 2004 was $2.4 million, a decline from $3.0 million in
the same quarter of last year. Vector began recognizing compensation
in accordance with the amended Vector Agreements in the third quarter
of 2003. As a result, operating income in the first quarter of 2004
reflects the recognition of Vector's compensation in accordance with
the amended Vector Agreements while operating income in the prior-year
first quarter was determined under the compensation principles under
the original Vector Agreements, as described above.

In each successive year covered by the amended Vector agreements,
management anticipates that performance-based compensation will
represent a growing percentage of compensation earned in GM's North
America region. Management also intends to increase the percentage of
compensation earned from commercialization activities and from GM's
international regions and aftermarket parts supply operations, which
are unaffected by the amended Vector Agreements.

CNF OTHER

The CNF Other segment consists of the results of Road Systems and
certain corporate activities. A majority of the revenue from Road
Systems was from sales to other CNF subsidiaries. The $0.9 million
operating loss in the first quarter of 2004 primarily reflects a $0.7
million net loss from the sale of a corporate property, partially
offset by the collective results of RSI and various corporate
activities. In the first quarter of last year, the CNF Other segment
reported operating income of $0.3 million.



PAGE 23

LIQUIDITY AND CAPITAL RESOURCES

In the first quarter of 2004, cash provided by operating activities was
$116.4 million, which was sufficient to fund investing activities that
used $14.7 million and financing activities that used $23.7 million.
The excess cash flow from operations increased cash and cash
equivalents from $321.5 million at December 31, 2003 to $399.1 million
at March 31, 2004.

The following table summarizes CNF's cash flows for the first quarter
ended March 31:

2004 2003
Operating Activities ------------ ------------
Net income $ 26,429 $ 17,955
Non-cash adjustments (1) 31,424 48,460
------------ ------------
57,853 66,415
Changes in assets and liabilities
Receivables (11,062) 17,190
Accounts payable and accrued
liabilities, excluding accrued
incentive compensation 50,593 32,480
Accrued incentive compensation (538) (50,694)
Accrued aircraft leases and
return provision (14) (23,656)
Income taxes 20,078 (577)
Other (482) (7,618)
------------ ------------
58,575 (32,875)

Net Cash Provided by Operating
Activities 116,428 33,540
------------ ------------
Net Cash Used in Investing
Activities (14,667) (48,205)
------------ ------------
Net Cash Used in Financing
Activities (23,668) (18,772)
------------ ------------
Net Cash Provided by (Used in)
Continuing Operations 78,093 (33,437)
Net Cash Provided by (Used in)
Discontinued Operations (449) 930
Increase (Decrease) in Cash and ------------ ------------
Cash Equivalents $ 77,644 $ (32,507)
============ ============

(1) "Non-cash adjustments" refer to depreciation,
amortization, deferred income taxes, provision for
uncollectible accounts, equity in earnings of joint venture,
and non-cash gains and losses.

CONTINUING OPERATIONS

First-quarter cash flow from operations in 2004 was $116.4 million
compared to $33.5 million in 2003. In the first quarter of 2004,
accrued incentive compensation declined by only $0.5 million while the
same quarter of the prior year reflects a $50.7 million reduction. In
the first quarter of 2004, changes in receivables consumed
$11.1 million while the collective increase in accounts payable and
accrued liabilities (excluding accrued incentive compensation) provided
$50.6 million. Changes in accrued incentive compensation reflect CNF's
payment schedule for its employee incentive plans, under which total
incentive compensation earned in an award year is paid to employees
with a partial payment in December of the award year and a final
payment in February of the next award year. Cash flow from operations
in the first quarter of 2004 also reflects an insignificant amount of
payments for restructuring-related aircraft lease payments and return
costs while the first quarter of 2003 includes $23.7 million for that
same purpose. Accrued income taxes increased in the first quarter of
2004 based on taxable income. As a result, CNF's receivable for income
tax refunds, as reported in Other Receivables in CNF's Consolidated
Balance Sheets, declined to $3.9 million at March 31, 2004 from $24.0
million at December 31, 2003. Accrued income taxes in the first
quarter of last year in part reflect the restructuring-related
payments, which were tax-deductible when paid.

Investing activities in the first quarter of 2004 used $14.7 million, a
decline from $48.2 million used in the same quarter of last year, due
substantially to a $27.4 million reduction in capital expenditures at
Con-Way. In the first quarter of last year, Con-Way invested in $38.4
million of capital acquisitions, primarily for revenue equipment.
CNF's planned capital expenditures in 2004 are more fully discussed


PAGE 24

below under "- Other." In the first quarter of 2004 and 2003, net cash
used in financing activities consisted primarily of dividend payments
and scheduled principal payments for the Thrift and Stock Plan notes
guaranteed by CNF.

CNF has a $385 million revolving credit facility that matures on July
3, 2006. The revolving credit facility is available for cash
borrowings and for the issuance of letters of credit up to $385
million. At March 31, 2004, no borrowings were outstanding under the
facility and $249.0 million of letters of credit were outstanding,
leaving $136.0 million of available capacity for additional letters of
credit or cash borrowings, subject to compliance with financial
covenants and other customary conditions to borrowing. CNF had other
uncommitted unsecured credit facilities totaling $146.5 million at
March 31, 2004, which are available to support letters of credit, bank
guarantees, and overdraft facilities; at that date, a total of $110.8
million was outstanding under these facilities. Of the total letters of
credit outstanding at March 31, 2004, $277.6 million provided
collateral for CNF workers' compensation and vehicular self-insurance
programs. See "Other Matters - Forward-Looking Statements" below, and
Note 6, "Debt and Other Financing Arrangements," in Item 8, "Financial
Statements and Supplementary Data," of CNF's 2003 Annual Report on Form
10-K for additional information concerning CNF's $385 million credit
facility and some of its other debt instruments.

Defined Benefit Pension Plan

CNF periodically reviews the funding status of its defined benefit
pension plans for non-contractual employees, and makes contributions
from time to time as necessary in order to comply with the funding
requirements of the Employee Retirement Income Security Act ("ERISA").
Funding of CNF's defined benefit pensions is based on ERISA-defined
measurements rather than the recognition and measurement criteria
prescribed by accounting principles generally accepted in the United
States ("GAAP"). CNF currently estimates it will contribute $90
million to its defined benefit pension plans in 2004, composed of a $30
million payment in the second quarter and $60 million of payments in
the third quarter. CNF also made defined benefit pension plan
contributions of $75.0 million in 2003, $76.2 million in 2002 and
$13.1 million in 2001, but made no contributions from 1996 through
2000, due in part to the high rate of return realized on plan assets
during that period. There can be no assurance that CNF will not be
required to make further cash contributions, which could be
substantial, to its defined benefit pension plan in the future.

Contractual Cash Obligations

CNF's contractual cash obligations as of December 31, 2003 are
summarized in CNF's 2003 Annual Report on Form 10-K under Item 7,
"Management's Discussion and Analysis - Liquidity and Capital Resources
- - Contractual Cash Obligations." In the first quarter of 2004, there
have been no material changes in CNF's contractual cash obligations
outside the ordinary course of business, except as described below.

For financial reporting purposes, CNF was required to deconsolidate a
wholly owned subsidiary trust effective in the first quarter of 2004
upon adoption of FIN 46R. Accordingly, CNF's 5% convertible
subordinated debentures held by the Trust have been included in long-
term debt, as more fully discussed in Note 6, "Company-Obligated
Mandatorily Redeemable Convertible Securities of CNF Trust 1," of Item
1, "Financial Statements."

On April 27, 2004, CNF issued $300 million of 6.70% Senior Debentures
due 2034 in a private placement for net proceeds of $290.0 million. As
more fully discussed in Note 7, "Debt" of Item 1, "Financial
Statements," CNF intends to use the net proceeds to redeem $128.9
million of Convertible Subordinated Debentures on June 1, 2004, to
repurchase from time to time or pay at maturity, $100 million of 7.35%
Notes due 2005, and for working capital and general corporate purposes.


Other

In 2004, CNF anticipates capital expenditures of between $170 to $180
million, primarily for the acquisition of additional tractor and
trailer equipment, which reflects an increase in business levels.
CNF's debt-to-capital ratio decreased to 43.8% at March 31, 2004 from
45.3% at December 31, 2003 due primarily to net income.


PAGE 25

DISCONTINUED OPERATIONS

On December 2, 1996, CNF completed the spin-off of Consolidated
Freightways Corporation ("CFC") to CNF's shareholders. CFC withdrew in
2002 from certain multiemployer pension funds, thereby incurring
withdrawal liabilities to such funds. Prior to enactment in April 2004
of the Pension Funding Equity Act of 2004, if the multiemployer funds
had asserted claims against CNF for such liabilities, CNF would have
had a statutory obligation to make cash payments to the funds prior to
any arbitral or judicial decisions on the funds' determinations. Under
the facts relating to the CFC withdrawals and the law in effect after
enactment of the Pension Funding Equity Act of 2004, CNF would no
longer be required to make such payments to the multiemployer funds
unless and until final decisions in arbitration proceedings, or in
court, upheld the funds' determination. Refer to Note 10, "Commitments
and Contingencies," of Item 1, "Financial Statements."




PAGE 26

OTHER MATTERS


ESTIMATES AND CRITICAL ACCOUNTING POLICIES

CNF makes estimates and assumptions when preparing its financial
statements in conformity with accounting principles generally accepted
in the United States. These estimates and assumptions affect the
amounts reported in the accompanying financial statements and notes
thereto. Actual results could differ from those estimates. CNF's most
critical accounting policies upon which management bases estimates are
described below.

Self-Insurance Reserves

CNF uses a combination of insurance and self-insurance mechanisms to
provide for the potential liabilities for medical, casualty, liability,
vehicular, cargo and workers' compensation claims. Liabilities
associated with the risks that are retained by CNF are estimated, in
part, by considering historical claims experience, medical costs,
demographic factors, severity factors and other assumptions. The
undiscounted estimated accruals for these liabilities could be
significantly affected if actual costs differ from these assumptions
and historical trends.

Income Taxes

In establishing its deferred income tax assets and liabilities, CNF
makes judgments and interpretations based on the enacted tax laws and
published tax guidance that are applicable to its operations. CNF
records deferred tax assets and liabilities and periodically evaluates
the need for a valuation allowance to reduce deferred tax assets to
realizable amounts. The likelihood of a material change in CNF's
expected realization of these assets is dependent on future taxable
income, its ability to use foreign tax credit carry forwards and carry
backs, final U.S. and foreign tax settlements, and the effectiveness of
its tax planning strategies in the various relevant jurisdictions. CNF
is also subject to examination of its income tax returns for multiple
years by the IRS and other tax authorities. CNF periodically assesses
the likelihood of adverse outcomes resulting from these examinations to
determine the adequacy of its provision and related accruals for income
taxes.

Restructuring Reserves

The restructuring charges recognized in 2003 and 2001 were based on
significant estimates and assumptions made by management. Refer to the
"Menlo Worldwide - Forwarding - Restructuring Plans" section under
"Results of Operations" above for a description of the significant
assumptions used.

Uncollectible Accounts Receivable

CNF and its subsidiaries report accounts receivable at net realizable
value and provide an allowance for uncollectible accounts when
collection is considered doubtful. Con-Way and Forwarding provide for
uncollectible accounts based on various judgments and assumptions,
including revenue levels, historical loss experience, and composition
of outstanding accounts receivable. Logistics, based on the size and
nature of its client base, performs a frequent and periodic evaluation
of its customers' creditworthiness and accounts receivable portfolio
and recognizes expense from uncollectible accounts when losses are both
probable and estimable.

Defined Benefit Pension Plan

CNF has a defined benefit pension plan that covers non-contractual
employees in the United States. The amount recognized as pension
expense and the accrued pension liability depend upon a number of
assumptions and factors, the most significant being the discount rate
used to measure the present value of pension obligations, the assumed
rate of return on plan assets, which are both affected by economic
conditions, market fluctuations, and rate of compensation increase.
CNF adjusts its discount rate periodically by taking into account a
number of factors, including changes in high-quality corporate bond
yields and the advice of its outside actuaries. CNF adjusts its
assumed rate of return on plan assets based on historic returns of the
plan assets and current market expectations.

CNF used a 6.75% discount rate for purposes of calculating its 2003
pension expense, but used a 6.25% discount rate for calculating its
2003 year-end pension liability and its 2004 pension expense, due
primarily to declines in high-quality corporate bond yields in 2003.


PAGE 27

By way of example, if all other factors were held constant, a 0.5%
decline in the discount rate would have an estimated $6 million
increase in 2004 annual pension expense. CNF used an assumed rate of
return on plan assets of 9.0% in 2003 and will assume the same rate for
2004. Using year-end plan asset values, a 0.5% decline in the assumed
rate of return on plan assets would have an estimated $3 million
increase in 2004 annual pension expense.

The determination of CNF's accrued pension benefit cost includes an
unrecognized actuarial loss that results from the cumulative difference
between estimated and actual values for the year-end projected pension
benefit obligation and the fair value of plan assets. Under GAAP, any
portion of the unrecognized actuarial loss or gain that exceeds ten
percent of the greater of the projected benefit obligation or fair
value of plan assets must be amortized as an expense over the average
service period for employees, approximately thirteen years for CNF.
Amortization of the unrecognized actuarial loss decreases the annual
pension expense in 2004 by approximately $1 million from annual pension
expense in 2003.


Goodwill and Other Long-Lived Assets

SFAS 142, "Goodwill and Other Intangible Assets" specifies that
goodwill and indefinite-lived intangible assets will not be amortized
but instead will be subject to an annual impairment test. On an annual
basis in the fourth quarter and between annual tests in certain
circumstances, CNF utilizes a third-party independent valuation
consultant to perform an impairment test of goodwill associated with
the Forwarding reporting segment. Based on an impairment test as of
December 31, 2003, CNF was not required to record a charge for goodwill
impairment.

Consistent with SFAS 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," CNF performs an impairment analysis of long-lived
assets (other than goodwill or intangible assets) whenever
circumstances indicate that the carrying amount may not be recoverable.

In assessing the recoverability of goodwill and other long-lived
assets, CNF must make various assumptions regarding estimated future
cash flows and other factors in determining the fair values of the
respective assets. If these estimates or their related assumptions
change in the future, CNF may be required to record impairment charges
for goodwill or other long-lived assets in future periods. Any such
resulting impairment charges could have a material adverse effect on
CNF's financial condition or results of operations, including
potentially triggering downgrades of debt instruments. See "- Forward-
Looking Statements" below, and Note 6, "Debt and Other Financing
Arrangements," in Item 8, "Financial Statements and Supplementary Data"
of CNF's 2003 Annual Report on Form 10-K."


CYCLICALITY AND SEASONALITY

CNF's businesses operate in industries that are affected directly by
general economic conditions and seasonal fluctuations, both of which
affect demand for transportation services. In the trucking and air
freight industries, for a typical year, the months of September and
October usually have the highest business levels while the months of
December, January and February usually have the lowest business levels.

BUSINESS INTERRUPTION

Although the operations of CNF's subsidiaries are largely
decentralized, Forwarding maintains a major hub operation at the Dayton
International Airport in Dayton, Ohio. While CNF currently maintains
property and business interruption insurance covering Forwarding's
operations at the Dayton hub, its insurance policies contain limits for
certain causes of loss, including but not limited to earthquake and
flood. Such policies do not insure against property loss or business
interruption resulting from a terrorist act. Accordingly, there can be
no assurance that this insurance coverage will be sufficient. As a
result, a major property loss or sustained interruption in the business
operations at the Dayton hub, whether due to terrorist activities or
otherwise, could have a material adverse effect on CNF's financial
condition, cash flows, and results of operations.

In addition, CNF and its subsidiaries rely on CNF Service Company for
the performance of shared administrative and technology services in the
conduct of their businesses. CNF's centralized computer facilities and
its administrative and technology employees are located at the
Administrative and Technology ("AdTech") Center in Portland, Oregon.
Although CNF maintains backup systems and has disaster recovery
processes and procedures in place, a sustained interruption in the
operation of these facilities, whether due to terrorist activities,


PAGE 28

earthquakes, floods or otherwise, could have a material adverse effect
on CNF's financial condition, cash flows, and results of operations.

HOMELAND SECURITY

CNF is subject to compliance with cargo security and transportation
regulations issued by the Transportation Security Administration and by
the Department of Homeland Security. CNF is not able to accurately
predict how new governmental regulation will affect the transportation
industry. However, CNF believes that any additional security measures
that may be required by future regulations could result in additional
costs and could have an adverse effect on its ability to serve
customers and on its financial condition, cash flows and results of
operations.

EMPLOYEES

Most of the workforce of CNF and its subsidiaries is not affiliated
with labor unions. Consequently, CNF believes that the operations of
its subsidiaries have significant advantages over comparable unionized
competitors (particularly in the trucking industry) in providing
reliable and cost-competitive customer services, including greater
efficiency and flexibility. There can be no assurance that CNF's
subsidiaries will be able to maintain their current advantages over
certain of their competitors.

NEW ACCOUNTING STANDARDS

In January 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities: an Interpretation of ARB No. 51" ("FIN
46"). FIN 46 requires that all special-purpose entities be designated
as either a voting-interest entity or a variable-interest entity
("VIE"). A VIE is an entity for which equity investors do not have the
characteristics of a controlling financial interest or do not have
sufficient equity at risk for the VIE to finance its activities without
additional subordinated financial support from other parties. A VIE is
required to be consolidated by its primary beneficiary if it does not
effectively disperse risks among parties involved. The primary
beneficiary of a VIE is the party that absorbs a majority of the VIE's
expected losses or receives a majority of its expected residual
returns.

The implementation of FIN 46 was required for periods beginning after
June 15, 2003. However, in October 2003, the FASB deferred the
effective date for applying FIN 46 to VIEs created before February 1,
2003 until the end of the first interim period ending after December
15, 2003. In December 2003, the FASB revised FIN 46 ("FIN 46R") to
incorporate certain revisions, including the requirement to disregard
certain rights in determining whether an entity is the primary
beneficiary in a VIE. Under FIN 46R, CNF is not the primary
beneficiary of CNF Trust 1 (the "Trust"), a wholly owned subsidiary,
and CNF was therefore required to deconsolidate the Trust effective in
the quarter ended March 31, 2004. Accordingly, CNF's 5% convertible
subordinated debentures held by the Trust have been included in long-
term debt, as more fully discussed in Note 6, "Company-Obligated
Mandatorily Redeemable Convertible Securities of CNF Trust 1," of Item
1, "Financial Statements."

FORWARD-LOOKING STATEMENTS

Certain statements included 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, yield, volumes, income or other financial or
operating items, any statements of the plans, strategies, expectations
or objectives of CNF or its management for future operations or other
future items, any statements concerning proposed new products or
services, any statements regarding CNF's estimated future contributions
to pension plans, any statements as to the adequacy of reserves, any
statements regarding the outcome of any claims that may be brought
against CNF by CFC's multi-employer pension plans or regarding the
amount of any periodic cash payments that CNF may be required to make
while those claims are pending or CNF's ability to make those periodic
payments, any statements regarding future economic conditions or
performance, any statements regarding the outcome of legal and other
claims and proceedings against CNF; 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


PAGE 29

addition to the matters discussed elsewhere in this document and other
reports and documents filed by CNF with the Securities and Exchange
Commission, could cause actual results and other matters to differ
materially from those discussed in such forward-looking statements:

- changes in general business and economic conditions, including 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; the
possibility of additional unusual charges and other costs and expenses
relating to Forwarding's operations;

- the possibility that CNF may, from time to time, be required to
record impairment charges for goodwill and other long-lived assets;

- the possibility of defaults under CNF's $385 million credit
agreement and other debt instruments, including defaults resulting from
additional unusual charges or from any costs or expenses that CNF may
incur, and the possibility that CNF may be required to repay certain
indebtedness in the event that the ratings assigned to its long-term
senior debt by credit rating agencies are reduced;

- labor matters, including the grievance by furloughed pilots and
crew members, renegotiations of labor contracts, labor organizing
activities, work stoppages or strikes; enforcement of and changes in
governmental regulations, including the effects of new regulations
issued by the Department of Homeland Security;

- environmental and tax matters;

- the February 2000 crash of an EWA aircraft and related litigation;

- and matters relating to CNF's 1996 spin-off of CFC, including the
possibility that CFC's multi-employer pension plans may assert claims
against CNF, that CNF may not prevail in those proceedings and may not
have the financial resources necessary to satisfy amounts payable to
those plans, and matters relating to CNF's defined benefit pension
plans.

As a result of the foregoing, no assurance can be given as to future
financial condition, cash flows, or results of operations. See Note
10, "Commitments and Contingencies" in Item 1, "Financial Statements."




PAGE 30

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

CNF is exposed to a variety of market risks, including the effects of
interest rates, commodity prices, foreign currency exchange rates and
credit risk. CNF enters into derivative financial instruments only in
circumstances that warrant the hedge of an underlying asset, liability
or future cash flow against exposure to some form of interest rate,
commodity or currency-related risk. Additionally, the designated
hedges should have high correlation to the underlying exposure such
that fluctuations in the value of the derivatives offset reciprocal
changes in the underlying exposure.

CNF is subject to the effect of interest rate fluctuations in the fair
value of its long-term debt and capital lease obligations, as
summarized in Item 8, "Financial Statements and Supplementary Data,"
under Note 6, "Debt and Other Financing Arrangements," and Note 7,
"Leases" of CNF's 2003 Annual Report on Form 10-K.

As more fully discussed in Note 9, "Derivative Instruments and Hedging
Activities," in Item 1, "Financial Statements," CNF held two
freestanding interest rate swap derivatives at March 31, 2004 that were
initially entered into as cash flow hedges to mitigate the effects of
interest rate volatility on floating-rate lease payments. In
connection with Forwarding's 2001 restructuring plan, hedge accounting
was discontinued for these interest rate swaps when EWA settled
floating-rate operating leases hedged with the interest rate swaps. At
March 31, 2004, CNF had not entered into any material derivative
contracts to hedge exposure to commodity prices or foreign currency.




PAGE 31

ITEM 4. CONTROLS AND PROCEDURES

(a) Disclosure Controls and Procedures. CNF's management, with the
participation of CNF's Chief Executive Officer and Chief Financial
Officer, has evaluated the effectiveness of CNF's disclosure controls
and procedures (as such term is defined in Rules 13a-15(e) and 15d-
15(e) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) as of the end of the period covered by this report.
Based on such evaluation, CNF's Chief Executive Officer and Chief
Financial Officer have concluded that, as of the end of such period,
CNF's disclosure controls and procedures are effective.

(b) Internal Control Over Financial Reporting. There have not been any
changes in CNF's internal control over financial reporting (as such
term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act) during the fiscal quarter to which this report relates that have
materially affected, or are reasonably likely to materially affect,
CNF's internal control over financial reporting.


PAGE 32

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

In 2001, EWA 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
cooperated fully and provided the documents requested in those
subpoenas. In September 2003, CNF received notice from the United
States Attorney's Office for the District of Columbia that EWA is being
considered for possible civil action under the False Claims Act for
allegedly submitting false invoices to the USPS for payment under the
Priority Mail contract. EWA has entered into a tolling agreement with
the government in order to give the parties more time to investigate
the allegations. EWA is in the early stages of conducting its own
investigation of the allegations and as a result CNF is currently
unable to predict the outcome of this matter. Under the False Claims
Act, the government would be entitled to recover treble damages, plus
penalties, if a court was to ultimately conclude that EWA knowingly
submitted false invoices to the USPS.

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 National Transportation
Safety Board subsequently determined that the probable cause of the
crash was the disconnection of the right elevator control tab due to
improper maintenance, but was not able to determine whether the
maintenance errors occurred during the most recent heavy maintenance
"D" check by an outside vendor or during subsequent maintenance of the
aircraft. MWF, EWA and CNF Inc. have been named as defendants in
wrongful death lawsuits brought by the families of the three deceased
crew members, seeking compensatory and punitive damages. MWF, EWA and
CNF Inc. 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 MWF, EWA and
CNF Inc. 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.

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 crew members, bringing the total number of terminated
employees in 2001 to 800. Those pilots and crew members are represented
by the Air Line Pilots Association ("ALPA") under a collective
bargaining agreement. Subsequently, ALPA filed a grievance on behalf of
the pilots and crew members protesting the cessation of EWA's air
carrier operations and Forwarding's use of other air carriers. The
ALPA matters are the subject of litigation in U.S. District Court and,
depending on the outcome of that litigation, may be subject to binding
arbitration. Based on CNF's current evaluation, management believes
that it has provided for its estimated exposure related to the ALPA
matters. However, CNF cannot predict with certainty the ultimate
outcome of these matters.

EWA, MWF, Menlo Worldwide, LLC and CNF Inc. are named as defendants in
a lawsuit filed in state court in California by approximately 140
former EWA pilots and crew members. The lawsuit alleges wrongful
termination in connection with the termination of EWA's air carrier
operations, and seeks $500 million and certain other unspecified
damages. CNF believes that the lawsuit's claims are without merit, and
intends to vigorously defend the lawsuit.

CNF has become aware of information that Emery Transnational, a
Philippines-based joint venture in which MWF may be deemed to be a
controlling partner, may be in violation of the Foreign Corrupt
Practices Act. CNF is conducting an internal investigation and has
notified the Department of Justice and the Securities and Exchange
Commission of this matter. CNF will share the results of its internal
investigation, when completed, with the appropriate regulatory
agencies, and will fully cooperate with any investigations that may be
conducted by such regulatory agencies.

Certain current and former officers of CNF, EWA and Forwarding and
certain current and former directors of CNF have been named as
defendants in a purported shareholder derivative suit filed in
September 2003 in California Superior Court for the County of San
Mateo. The complaint alleges breach of fiduciary duty, gross
mismanagement, waste and abuse of control relating to the management,
control and operation of EWA and Forwarding. CNF is named only as a
nominal defendant and no relief is sought against it. CNF maintains
insurance for the benefit of its officers and directors, and the
applicable insurance carriers have been notified of the claims asserted
in the lawsuit.




PAGE 33

ITEM 4. Submission of Matters to a Vote of Security Holders

At the Annual Shareholders Meeting held April 20, 2004, the following
proposals were presented with the indicated voting results:

For the purpose of electing members of the Board of Directors, the
votes representing shares of common and preferred stock were cast as
follows:

Nominee For Against
-------------------- ---------- ---------
W. Keith Kennedy, Jr. 49,681,549 1,234,408
John C. Pope 48,422,404 2,493,553
Gregory L. Quesnel 49,497,073 1,418,884
Peter W. Stott 49,908,433 1,007,524

The following directors did not stand for election and continued in
office as directors after the Annual Shareholders Meeting: Robert
Alpert, Margaret G. Gill, Robert Jaunich II, Michael J. Murray, Robert
D. Rogers, William J. Schroeder, Robert P. Wayman, and Chelsea C. White
III.

On April 26, 2004, Robert Alpert retired from CNF's Board of Directors.

The appointment of KPMG LLP as independent public accountants for the
year 2004 was approved by the following vote: For 48,883,195; Against
1,754,468; Abstain 278,294.




PAGE 34


ITEM 6. Exhibits and Reports on Form 8-K

(a) Exhibits

10.1 Amended and Restated Severance
Agreement By and Between CNF Inc. and Gregory L.
Quesnel dated December 4, 2001. #

10.2 Amendment No. 1 to Amended and Restated
Severance Agreement By and Between CNF Inc. and
Gregory L. Quesnel dated January 1, 2003. #

10.3 Amended and Restated Severance Agreement By
and Between CNF Inc. and Sanchayan C.
Ratnathicam dated December 4, 2001. #

10.4 Amendment No. 1 to Amended and Restated
Severance Agreement By and Between CNF Inc. and
Sanchayan C. Ratnathicam dated January 1, 2003. #

10.5 Amended and Restated Severance Agreement By
and Between CNF Inc. and Eberhard G.H. Schmoller
dated December 4, 2001. #

10.6 Amendment No. 1 to Amended and Restated
Severance Agreement By and Between CNF Inc. and
Eberhard G.H. Schmoller dated January 1, 2003. #

10.7 Amended and Restated Severance Agreement By
and Between CNF Inc. and Gerald L. Detter dated
July 31, 2000. #

10.8 Amendment No. 1 to Amended and Restated
Severance Agreement By and Between CNF Inc. and
Gerald L. Detter dated January 1, 2003. #

10.9 Severance Agreement By and Between Con-Way
Transportation Services, Inc. and Gerald L.
Detter dated July 31, 2000. #

10.10 Amendment No. 1 to Amended and Restated
Severance Agreement By and Between Con-Way
Transportation Services, Inc. and Gerald L.
Detter dated January 1, 2003. #

10.11 Amended and Restated Severance
Agreement By and Between CNF Inc. and John H.
Williford dated July 31, 2000. #

10.12 Amendment No. 1 to Amended and Restated
Severance Agreement By and Between CNF Inc. and
John H. Williford dated January 1, 2003. #

10.13 Amendment No. 2 to Amended and Restated
Severance Agreement By and Between CNF Inc. and
John H. Williford dated January 1, 2003. #

10.14 Severance Agreement By and Between
Menlo Worldwide, LLC and John H. Williford dated
August 25, 2003. #

10.15 Amendment No. 1 to Severance Agreement
By and Between Menlo Worldwide, LLC and John H.
Williford dated January 22, 2004. #

10.16 Form of CNF Inc. 2001 Amended and Restated Executive
Severance Agreement , with attached schedule. #

10.17 Form of CNF Inc. Executive Severance Agreement , with
attached schedule. #



PAGE 35

10.18 Form of Con-Way Transportation
Services, Inc., Executive Severance Agreement,
with attached schedule. #

10.19 Form of Menlo Worldwide Forwarding,
Inc. (formerly Emery Air Freight Corporation)
Executive Severance Agreement, with attached
schedule. #

10.20 Form of Menlo Logistics, Inc.,
Executive Severance Agreement, with attached
schedule. #

10.21 Form of Menlo Worldwide, LLC Executive
Severance Agreement, with attached schedule. #

10.22 Con-Way Transportation Services, Inc. Executive Severance
Plan. #

10.23 Menlo Worldwide Forwarding (formerly Emery Air Freight
Corporation) Executive Severance Plan. #

10.24 Menlo Logistics, Inc. Executive Severance Plan. #

10.25 Menlo Worldwide, LLC Executive Severance Plan. #

10.26 Menlo Worldwide Services, LLC Executive Severance Plan. #

10.27 Menlo Worldwide Technologies, LLC Executive Severance Plan. #

10.28 CNF Transportation Inc. Executive Severance Plan for Eligible
Executives of Vector SCM, LLC. #

10.29 Menlo Worldwide, LLC Executive Severance Plan for Eligible
Executives of Vector SCM, LLC. #

10.30 CNF Inc. Value Management Plan 2004 Amendment and
Restatement. #

31 Certification of Officers pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002

32 Certification of Officers pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002

(b) Reports on Form 8-K


On January 26, 2004, CNF filed a current report on Form
8-K to furnish under Item 12 CNF's press release
presenting CNF's fourth-quarter results.

On January 27, 2004, CNF filed a current report on Form
8-K to file under Item 5 CNF's press release announcing
the retirement of Donald Moffitt, chairman of the CNF
Board of Directors, effective January 31, 2004. CNF
also introduced Dr. W. Keith Kennedy, Jr. as the new
chairman.

On February 18, 2004, CNF filed a current report on Form
8-K to file under Item 5 CNF's press release announcing
the retirement of CNF Chief Executive Officer and
President Gregory L. Quesnel, effective July 6, 2004.

# Designates a contract or compensation plan for Management or
Directors.




PAGE 36

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company (Registrant) has duly caused this
Form 10-Q Quarterly Report to be signed on its behalf by the
undersigned, thereunto duly authorized.

CNF Inc.
(Registrant)

May 6, 2004 /s/Chutta Ratnathicam
--------------------------
Chutta Ratnathicam
Senior Vice President and
Chief Financial Officer