PAGE 1
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, 2001
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.
(Formerly CNF Transportation Inc.)
Incorporated in the State of Delaware
I.R.S. Employer Identification No. 94-1444798
3240 Hillview Avenue, Palo Alto, California 94304
Telephone Number (650) 494-2900
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 xx No
Number of shares of Common Stock, $.625 par value,
outstanding as of April 30, 2001: 48,804,147
PAGE 2
CNF INC.
FORM 10-Q
Quarter Ended March 31, 2001
___________________________________________________________________________
___________________________________________________________________________
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets -
March 31, 2001 and December 31, 2000 3
Statements of Consolidated Income -
Three months Ended March 31, 2001 and 2000 5
Statements of Consolidated Cash Flows -
Three months Ended March 31, 2001 and 2000 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 6. Exhibits and Reports on Form 8-K 25
SIGNATURES 25
PAGE 3
ITEM 1. FINANCIAL STATEMENTS
CNF INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
March 31, December 31,
2001 2000
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 146,285 $ 104,515
Trade accounts receivable, net 823,714 881,268
Other accounts receivable (Note 8) 74,020 59,478
Operating supplies, at lower of average
cost or market 39,876 42,271
Prepaid expenses 65,274 47,301
Deferred income taxes 105,991 105,502
Total Current Assets 1,255,160 1,240,335
PROPERTY, PLANT AND EQUIPMENT, AT COST
Land 139,828 130,101
Buildings and leasehold improvements 718,998 692,312
Revenue equipment 806,553 797,444
Other equipment 430,057 420,788
2,095,436 2,040,645
Accumulated depreciation and amortization (970,489) (934,123)
1,124,947 1,106,522
OTHER ASSETS
Deferred charges and other assets (Note 7) 143,240 137,393
Capitalized software, net 90,894 89,829
Unamortized aircraft maintenance 248,037 242,468
Goodwill, net 252,640 254,887
Net non-current assets of discontinued
operations (Note 2) 122,735 173,507
857,546 898,084
TOTAL ASSETS $3,237,653 $3,244,941
The accompanying notes are an integral part of these statements.
PAGE 4
CNF INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
March 31, December 31,
2001 2000
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 399,438 $ 418,157
Accrued liabilities (Note 8) 326,639 317,650
Accrued claims costs 140,358 145,558
Current maturities of long-term debt and
capital leases 8,753 7,553
Income taxes payable 7,343 1,777
Net current liabilities of discontinued
operations (Note 2) 24,033 68,214
Total Current Liabilities 906,564 958,909
LONG-TERM LIABILITIES
Long-term debt and guarantees (Note 7) 435,490 424,116
Long-term obligations under capital leases 110,504 110,533
Accrued claims costs 105,066 82,502
Employee benefits 264,572 252,482
Other liabilities and deferred credits 48,336 51,163
Aircraft lease return provision 27,289 33,851
Deferred income taxes 142,733 144,463
Total Liabilities 2,040,554 2,058,019
COMMITMENTS AND CONTINGENCIES (Note 8)
COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED
SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY
CONVERTIBLE DEBENTURES OF THE COMPANY (Note 6) 125,000 125,000
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 819,047 and 824,902
shares, respectively 8 8
Additional paid-in capital, preferred stock 124,569 125,459
Deferred compensation, Thrift and Stock Plan (78,777) (80,602)
Total Preferred Shareholders' Equity 45,800 44,865
Common stock, $.625 par value; authorized
100,000,000 shares; issued 55,479,843
and 55,426,605 shares, respectively 34,675 34,642
Additional paid-in capital, common stock 332,558 331,282
Retained earnings 863,959 855,314
Deferred compensation, restricted stock (1,561) (1,423)
Cost of repurchased common stock
(6,742,605 and 6,770,628 shares,
respectively) (166,248) (166,939)
1,063,383 1,052,876
Accumulated Other Comprehensive
Loss (Note 3) (37,084) (35,819)
Total Common Shareholders' Equity 1,026,299 1,017,057
Total Shareholders' Equity 1,072,099 1,061,922
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $3,237,653 $3,244,941
The accompanying notes are an integral part of these statements.
PAGE 5
CNF INC.
STATEMENTS OF CONSOLIDATED INCOME
(Dollars in thousands except per share amounts)
Three Months Ended
March 31,
2001 2000
REVENUES $ 1,278,465 $ 1,321,894
Costs and Expenses
Operating expenses 1,073,786 1,086,795
General and administrative 127,202 123,354
Depreciation 43,749 40,276
1,244,737 1,250,425
OPERATING INCOME 33,728 71,469
Other Income (Expense)
Investment income 729 271
Interest expense (7,793) (6,400)
Dividend requirement on
preferred securities of
subsidiary trust (Note 6) (1,563) (1,563)
Miscellaneous, net 827 2,679
(7,800) (5,013)
Income from Continuing Operations
before Income Taxes 25,928 66,456
Income Taxes 10,371 28,244
INCOME FROM CONTINUING OPERATIONS BEFORE
ACCOUNTING CHANGE 15,557 38,212
Cumulative effect of accounting
change, net of tax (Note 1) - (2,744)
Net Income 15,557 35,468
Preferred stock dividends 2,040 2,034
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 13,517 $ 33,434
Weighted-Average Common Shares Outstanding
(Note 5)
Basic 48,658,337 48,417,660
Diluted 56,432,452 56,073,670
Earnings per Common Share (Note 5)
Basic
Net Income from Continuing Operations $ 0.28 $ 0.75
Cumulative effect of accounting
change, net of tax - (0.06)
Net Income Available to Common Shareholders $ 0.28 $ 0.69
Diluted
Net Income from Continuing Operations $ 0.26 $ 0.67
Cumulative effect of accounting
change, net of tax - (0.05)
Net Income Available to Common Shareholders $ 0.26 $ 0.62
The accompanying notes are an integral part of these statements.
PAGE 6
CNF INC.
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Dollars in thousands)
Three Months Ended
March 31,
2001 2000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $ 104,515 $ 146,263
OPERATING ACTIVITIES
Net income 15,557 35,468
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of accounting change,
net of tax - 2,744
Depreciation and amortization 51,048 46,089
Increase (decrease) in deferred income taxes (2,353) 822
Amortization of deferred compensation 1,825 1,992
Provision for uncollectible accounts 2,899 4,483
Loss (gain) from sales of property 434 (1,106)
Gain from sale of securities - (2,619)
Changes in assets and liabilities:
Receivables 53,241 (63,957)
Prepaid expenses (17,973) (17,538)
Unamortized aircraft maintenance (5,569) (11,878)
Accounts payable (16,009) 13,558
Accrued liabilities 17,179 (7,059)
Accrued incentive compensation (29,190) (17,105)
Accrued claims costs 17,364 2,287
Income taxes 5,566 20,084
Employee benefits 12,090 9,341
Aircraft lease return provision (6,562) (3,524)
Deferred charges and credits 2,162 14,280
Other (2,841) (4,148)
Net Cash Provided by Operating Activities 98,868 22,214
INVESTING ACTIVITIES
Capital expenditures (42,291) (55,925)
Software expenditures (5,508) (5,310)
Proceeds from sale of securities - 2,619
Proceeds from sales of property 915 3,162
Net Cash Used in Investing Activities (46,884) (55,454)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt - 197,452
Repayment of long-term debt, guarantees and
capital leases (7,529) (96,419)
Repayment of short-term borrowings, net - (40,000)
Proceeds from exercise of stock options 972 295
Payments of common dividends (4,872) (4,849)
Payments of preferred dividends (5,376) (5,470)
Net Cash Provided by (Used in) Financing
Activities (16,805) 51,009
Net Cash Provided by Continuing Operations 35,179 17,769
Net Cash Provided by (Used in) Discontinued
Operations 6,591 (52,617)
Increase (Decrease) in Cash and Cash
Equivalents 41,770 (34,848)
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 146,285 $ 111,415
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
The accompanying consolidated financial statements of CNF Inc.
(formerly CNF Transportation Inc.) and its wholly owned subsidiaries (the
Company) have been prepared by the Company, without audit by independent
public accountants, pursuant to the rules and regulations of the Securities
and Exchange Commission. 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 the Company's 2000 Annual
Report to Shareholders.
Recognition of Revenues
As a result of recent pronouncements, including SEC Staff Accounting
Bulletin No. 101, the Company elected to prospectively adopt, effective
January 1, 2000, a change in accounting method for recognition of its
freight transportation revenue to a preferable method. The Company now
recognizes the allocation of freight transportation revenue between
reporting periods based on relative transit time in each reporting period
with expenses recognized as incurred. Previously, revenue was recognized
when freight was received for shipment and the estimated costs of
performing the transportation service were accrued.
Reclassification
Certain amounts in prior year financial statements have been
reclassified to conform to current year presentation.
2. Discontinued Operations
On November 3, 2000, Emery Worldwide Airlines (EWA) and the U.S.
Postal Service (USPS) announced an agreement to terminate their contract
for the transportation and sortation of Priority Mail (the "Priority Mail
contract"). The contract was originally scheduled to terminate in the first
quarter of 2002, subject to renewal options. Under terms of the agreement,
the USPS on January 7, 2001, assumed operating responsibility for services
covered under the contract, except certain air transportation and related
services, which were terminated effective April 23, 2001.
PAGE 8
The USPS agreed to reimburse EWA for Priority Mail contract
termination costs, including costs of contract-related equipment,
inventory, and operating lease commitments, up to $125 million (the
"Termination Liability Cap"). On January 7, 2001, the USPS paid EWA $60
million toward the termination costs. The termination agreement provides
for this provisional payment to be adjusted if actual termination costs are
greater or less than $60 million, in which case either the USPS will be
required to make an additional payment or EWA will be required to return a
portion of the provisional payment.
The termination agreement preserves EWA's right to pursue claims for
underpayment that it believes are owed by the USPS under the Priority Mail
contract and EWA has initiated litigation in the U.S. Court of Federal
Claims for that purpose. These claims are to recover costs of operating
under the contract as well as profit and interest thereon.
As a result of the contract termination, the results of operations of
EWA's Priority Mail contract have been segregated and classified as
discontinued operations in the Statements of Consolidated Income for all
periods presented. Assets and liabilities have been reclassified in the
Consolidated Balance Sheets from their historical classifications to
separately reflect them as net assets of discontinued operations. Cash
flows related to discontinued operations have been segregated and
classified separately as net cash flows from discontinued operations in the
Statements of Consolidated Cash Flows.
The net assets of discontinued operations were as follows:
(Dollars in thousands)
March 31, December 31,
2001 2000
----------- -----------
Current assets $ 15,905 $ 26,120
Property, plant and equipment, net - 66,316
Long-term receivables and other assets 188,857 184,348
---------- -----------
Total assets of discontinued
operations 204,762 276,784
---------- -----------
Current liabilities 39,938 94,334
Long-term liabilities 66,122 77,157
---------- -----------
Total liabilities of
discontinued operations 106,060 171,491
---------- -----------
Net assets of discontinued
operations $ 98,702 $ 105,293
========== ===========
PAGE 9
The Priority Mail contract provided for the re-determination of prices
paid to EWA, which gave rise to unbilled revenue. Unbilled revenue
representing contract change orders or claims was included in revenue only
when it was probable that the change order or claim would result in
additional contract revenue and if the amount could be reliably estimated.
Unbilled revenue represents the accrual of revenue sufficient only to
recover costs and therefore does not include profit or interest on either
unbilled revenue or profit. Any unbilled revenue that EWA does not recover
would be written off and reflected in operating results for discontinued
operations in the then current period. Any amount of litigation award in
excess of unbilled revenue would be reflected as income from discontinued
operations in the then current period. Accordingly, no operating profit
has been recognized in connection with the Priority Mail contract beginning
in the third quarter of 1999, when EWA filed a claim for proposed higher
prices.
For the three months ended March 31, 2001 and 2000, revenues from the
Priority Mail contract were $10.3 million and $135.2 million, respectively.
As described above, no operating profit has been recognized in connection
with the Priority Mail contract beginning in the third quarter of 1999.
As a result of the termination of the Priority Mail contract, a loss
from discontinuance of $13.5 million was recognized in the third quarter of
2000, net of $8.6 million of income tax benefits. The loss from
discontinuance included estimates for the write-down of non-reimbursable
assets, legal and advisory fees, costs of providing transportation services
for approximately three months following the effective termination date,
certain employee-related costs and other non-reimbursable costs from
discontinuance. The amount of accrued loss from discontinuance related to
EWA's Priority Mail contract recognized at March 31, 2001 and December 31,
2000 was $12.0 million and $22.1 million, respectively, and was included in
net current liabilities of discontinued operations in the Consolidated
Balance Sheets.
The amount of unbilled revenue related to EWA's Priority Mail contract
recognized at March 31, 2001 and December 31, 2000 was $179.5 million and
$176.2 million, respectively. Unbilled revenue at March 31, 2001 and
December 31, 2000 was included in net non-current assets of discontinued
operations in the Consolidated Balance Sheets. As described above, the
Company is pursuing recovery of this amount plus profit and interest
thereon.
As a result of a decision in August 2000 in the U.S. Court of Federal
Claims, the USPS increased its provisional rate paid to EWA for
transportation and sortation of Priority Mail for 2000. The USPS also
increased the provisional rate paid to EWA for 1999. Based on these rate
adjustments, early in the fourth quarter of 2000, EWA received payments
totaling $102.1 million from the U.S. Postal Service. Unbilled revenue at
March 31, 2001 and December 31, 2000 has been reduced by the $102.1 million
payment from the USPS.
PAGE 10
3. 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
(Dollars in thousands) March 31,
2001 2000
---------- ----------
Net income $ 15,557 $ 35,468
Other comprehensive income (loss)
Cumulative effect of change in accounting
for derivative instruments and hedging
activities (Note 7) 3,005 -
Change in fair value of cash flow
hedges (Note 7) (2,796) -
Foreign currency translation adjustments (1,474) (4,620)
---------- ----------
(1,265) (4,620)
---------- ----------
Comprehensive income $ 14,292 $ 30,848
========== ==========
The following is a summary of the components of accumulated other
comprehensive loss:
March 31, December 31,
(Dollars in thousands) 2001 2000
----------- -----------
Cumulative effect of change in accounting
for derivative instruments and hedging
activities (Note 7) $ 3,005 $ -
Accumulated change in fair value of cash
flow hedges (Note 7) (2,796) -
Accumulated foreign currency translation
adjustments (28,852) (27,378)
Minimum pension liability adjustment (8,441) (8,441)
----------- -----------
Accumulated other comprehensive loss $ (37,084) $ (35,819)
=========== ===========
PAGE 11
4. Business Segments
Selected financial information about the Company's continuing
operations is shown below. The prior period has been reclassified to
exclude discontinued operations.
Three Months Ended
(Dollars in thousands) March 31,
2001 2000
----------- -----------
Revenues
Con-Way Transportation $ 469,201 $ 508,752
Emery Worldwide 583,290 603,984
Menlo Logistics 225,364 213,552
Other 9,202 15,252
----------- -----------
1,287,057 1,341,540
Intercompany Eliminations
Con-Way Transportation (231) (348)
Emery Worldwide (92) (6,249)
Menlo Logistics (2,769) (3,649)
Other (5,500) (9,400)
----------- -----------
(8,592) (19,646)
External Revenues
Con-Way Transportation 468,970 508,404
Emery Worldwide 583,198 597,735
Menlo Logistics 222,595 209,903
Other 3,702 5,852
----------- -----------
$1,278,465 $1,321,894
=========== ===========
Operating Income (Loss)
Con-Way Transportation $ 36,735 $ 56,696
Emery Worldwide (6,547) 6,824
Menlo Logistics 8,171 7,638
Other [1] (4,631) 311
----------- -----------
$ 33,728 $ 71,469
=========== ===========
[1] The first quarter of 2001 included $4.6 million of operating losses
related to startup costs for Vector SCM.
PAGE 12
5. Earnings Per Share
Basic earnings per share was computed by dividing income from
continuing operations by the weighted-average common shares outstanding.
The calculation for diluted earnings per share from continuing operations
was calculated as shown below.
Three Months Ended
(Dollars in thousands except March 31,
per share data) 2001 2000
---------- ---------
Earnings:
Net income from Continuing
Operations $ 13,517 $ 36,178
Add-backs:
Dividends on Series B
preferred stock, net
of replacement funding 319 329
Dividends on preferred
securities of subsidiary
trust, net of tax 954 954
---------- ----------
$ 14,790 $ 37,461
---------- ----------
Shares:
Basic shares (weighted-average
common shares outstanding) 48,658,337 48,417,660
Stock option dilution 632,316 396,309
Series B preferred stock 4,016,799 4,134,701
Preferred securities of
subsidiary trust 3,125,000 3,125,000
---------- ----------
56,432,452 56,073,670
---------- ----------
Diluted Earnings Per Share
from Continuing Operations
before Accounting Change $ 0.26 $ 0.67
========== ==========
6. Preferred Securities of Subsidiary Trust
On June 11, 1997, CNF Trust I (the Trust), a Delaware business trust
wholly owned by the Company, issued 2,500,000 of its $2.50 Term Convertible
Securities, Series A (TECONS) to the public for gross proceeds of $125
million. The combined proceeds from the issuance of the TECONS and the
issuance to the Company of the common securities of the Trust were invested
by the Trust in $128.9 million aggregate principal amount of 5% convertible
subordinated debentures due June 1, 2012 (the Debentures) issued by the
Company. The Debentures are the sole assets of the Trust.
Holders of the TECONS are entitled to receive cumulative cash
distributions at an annual rate of $2.50 per TECONS (equivalent to a rate
of 5% per annum of the stated liquidation amount of $50 per TECONS). The
Company has guaranteed, on a subordinated basis, distributions and other
payments due on the TECONS, to the extent the Trust has funds available
therefor and subject to certain other limitations (the Guarantee). The
Guarantee, when taken together with the obligations of the Company under
the Debentures, the Indenture pursuant to which the Debentures were issued,
and the Amended and Restated Declaration of Trust of the Trust including
its obligations to pay costs, fees, expenses, debts and other obligations
of the Trust (other than with respect to the TECONS and the common
securities of the Trust), provide a full and unconditional guarantee of
amounts due on the TECONS.
PAGE 13
The Debentures are redeemable for cash, at the option of the Company,
in whole or in part, on or after June 1, 2000, at a price equal to 103.125%
of the principal amount, declining annually to par if redeemed on or after
June 1, 2005, plus accrued and unpaid interest. In certain circumstances
relating to federal income tax matters, the Debentures may be redeemed by
the Company at 100% of the principal plus accrued and unpaid interest. Upon
any redemption of the Debentures, a like aggregate liquidation amount of
TECONS will be redeemed. The TECONS do not have a stated maturity date,
although they are subject to mandatory redemption upon maturity of the
Debentures on June 1, 2012, or upon earlier redemption.
Each TECONS is convertible at any time prior to the close of business
on June 1, 2012, at the option of the holder into shares of the Company's
common stock at a conversion rate of 1.25 shares of the Company's common
stock for each TECONS, subject to adjustment in certain circumstances.
7. Derivative Instruments and Hedging Activities
Effective January 1, 2001, the Company adopted SFAS 133, "Accounting
for Derivative Instruments and Hedging Activities," as amended by SFAS 137
and SFAS 138. SFAS 133 establishes accounting and reporting standards
requiring that every derivative instrument, as defined, be recorded on the
balance sheet as either an asset or liability measured at fair value and
that changes in fair value be recognized currently in earnings unless
specific hedge accounting criteria are met. Qualifying hedges allow a
derivative's gains and losses to offset related results on the hedged item
in the income statement or be deferred in Other Comprehensive Income (Loss)
until the hedged item is recognized in earnings.
The Company is exposed to a variety of market risks, including the
effects of interest rates, commodity prices and foreign currency exchange
rates. The Company's policy is to enter 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
commodity, interest rate 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. The Company's policy prohibits
entering into derivative instruments for speculative purposes.
The Company 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, the
Company 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, the Company 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.
PAGE 14
The Company's cash flow hedges include interest rate swap derivatives
designated to mitigate the effects of interest rate volatility on floating-
rate operating lease payments. Fair value hedges include interest rate
swap derivatives designated to mitigate the effects of interest rate
volatility on the fair value of fixed-rate long-term debt. The Company's
current interest rate swap derivatives qualify for hedge treatment under
SFAS 133.
In accordance with the transition provisions of SFAS 133, the Company
recorded in Other Assets a transition adjustment of $20.6 million to
recognize the estimated fair value of interest rate swap derivatives, a
$4.9 million ($3.0 million after tax) transition adjustment in Accumulated
Other Comprehensive Income (Loss) to recognize the estimated fair value of
interest rate swap derivatives designated as cash flow hedges, and a $15.7
million transition adjustment in Long-Term Debt to recognize the difference
between the carrying value and estimated fair value of fixed-rate debt
hedged with interest rate swap derivatives designated as fair value hedges.
In the first quarter of 2001, the change in the estimated fair value
of the Company's fair value hedges increased $4.4 million and the estimated
fair value of cash flow hedges declined $4.6 million ($2.8 million after
tax).
8. Commitments and Contingencies
In connection with the December 2, 1996 spin-off of Consolidated
Freightways Corporation (CFC), the Company's former long-haul LTL segment,
the Company agreed to indemnify certain states, insurance companies and
sureties against the failure of CFC to pay certain worker's compensation,
tax and public liability claims that were pending as of September 30, 1996.
In some cases, these indemnities are supported by letters of credit under
which the Company is liable to the issuing bank and by bonds issued by
surety companies. In order to secure CFC's obligation to reimburse and
indemnify the Company against liability with respect to these claims, CFC
had provided the Company with certain letters of credit. However, the
letters of credit have been terminated, and as of March 31, 2001, CFC
reimbursement obligations to the Company were unsecured.
The Company is currently under examination by the Internal Revenue
Service (IRS) for tax years 1987 through 1999 on various issues. In
connection with those examinations, the IRS proposed adjustments for tax
years 1987 through 1990 after which the Company filed a protest and engaged
in discussions with the Appeals Office of the IRS. After those discussions
failed to produce a settlement, in March 2000, the IRS issued a Notice of
Deficiency (the Notice) for the years 1987 through 1990 with respect to
various issues, including aircraft maintenance and matters related to CFC
for years prior to the spin-off, which are described below. Based upon the
Notice, the total amount of the deficiency for items in years 1987 through
1990, including taxes and interest, was $153 million as of March 31, 2001.
The amount originally due under the Notice was reduced in the third quarter
of 2000 by a portion of the Company's $93.4 million payment to the IRS,
which is described below.
In addition to the issues covered under the Notice for tax years 1987
through 1990, the IRS in May 2000 proposed additional adjustments for tax
years 1991 through 1996 with respect to various issues, including aircraft
maintenance and matters relating to CFC for years prior to the spin-off.
PAGE 15
Under the Notice, the IRS has assessed a substantial adjustment for
tax years 1989 and 1990 based on the IRS' position that certain aircraft
maintenance costs should have been capitalized rather than expensed for
federal income tax purposes. The Company believes that its practice of
expensing these types of aircraft maintenance costs is consistent with
industry practice and the recently issued Treasury Ruling 2001-4. The
Company intends to vigorously contest the Notice and the proposed
adjustments as they pertain to the aircraft maintenance issue.
The Company paid $93.4 million to the IRS in the third quarter of 2000
to stop the accrual of interest on amounts due under the Notice for tax
years 1987 through 1990 and under proposed adjustments for tax years 1991
through 1996 for matters relating to CFC for years prior to the spin-off
and for all other issues except aircraft maintenance costs.
As part of the spin-off, the Company and CFC entered into a tax
sharing agreement that provided a mechanism for the allocation of any
additional tax liability and related interest that arise due to adjustments
by the IRS for years prior to the spin-off. In May 2000, the Company and
CFC settled certain federal tax matters relating to CFC on issues for tax
years 1984 through 1990. Under the settlement agreement, the Company
received from CFC cash of $16.7 million, a $20.0 million note due in 2004,
and a commitment to transfer to the Company land and buildings with an
estimated value of $21.2 million.
In the last half of 2000, the Company received real property with an
estimated value of $21.2 million in settlement of CFC's commitment to
transfer land and buildings. Prior to its transfer, the real property
collateralized CFC's obligation to the Company.
In March 2001, the Company entered into an agreement to acquire real
property owned by CFC in settlement of CFC's $20.0 million note due in
2004. The agreement requires a three-way exchange among the Company, CFC
and a third party. In March 2001, the Company acquired real property, which
was previously owned by CFC, from a third party in exchange for a note
payable. Under the agreement, the Company in May 2001 will pay in full the
note payable due to the third party while concurrently receiving an equal
amount of cash from CFC in settlement of the Company's $20.0 million note
receivable due from CFC. At March 31, 2001, the third-party note payable
and the CFC note receivable were included in Accrued Liabilities and Other
Receivables, respectively, in the Consolidated Balance Sheets.
There can be no assurance that the Company will not be liable for all
of the amounts due under the Notice and proposed adjustments. As a result,
the Company is unable to predict the ultimate outcome of this matter and
there can be no assurance that this matter will not have a material adverse
effect on the Company's financial condition or results of operations.
In addition to the matters discussed above, the Company and its
subsidiaries are defendants in various lawsuits incidental to their
businesses. It is the opinion of management that the ultimate outcome of
these actions will not have a material impact on the Company's financial
condition or results of operations.
PAGE 16
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
=====================
On November 3, 2000, Emery Worldwide Airlines (EWA) and the U.S.
Postal Service (USPS) announced an agreement to terminate their contract
for the transportation and sortation of Priority Mail. Under terms of the
agreement, the USPS, on January 7, 2001, assumed responsibility for
services covered under the contract, except for certain air transportation
and related services described below under "Discontinued Operations."
Accordingly, the results of operations, net assets, and cash flows of the
Priority Mail operations have been segregated and classified as
discontinued operations. A summary of selected terms of the agreement,
summary financial data, and related information are included in Note 2 of
the Notes to Consolidated Financial Statements.
Net income available to common shareholders in the first quarter of
2001 was $13.5 million ($0.26 per diluted share), a decline from $33.4
million ($0.62 per diluted share) in the first quarter of 2000. Last
year's first quarter included a $2.7 million after-tax loss ($0.05 per
diluted share) from the cumulative effect of a change in our accounting
method for revenue recognition on in-transit freight. As described below
under "Discontinued Operations", the discontinued Priority Mail operations
had no effect on operating income in the first quarters of 2001 and 2000.
Continuing Operations
- ---------------------
Net income from continuing operations (income from continuing
operations before the cumulative effect of accounting change reduced by
preferred stock dividends) was $13.5 million ($0.26 per diluted share) in
the first quarter of 2001. Net income from continuing operations declined
from $36.2 million ($0.67 per diluted share) in the first quarter of last
year due to lower operating income and higher other net expense, partially
offset by a lower effective tax rate. Last year's first quarter also
benefited from a $2.6 million unusual net gain ($0.03 per diluted share)
from the sale of securities.
Revenue in the 2001 first quarter fell 3.3% from the first quarter of
2000 to $1.28 billion due primarily to declines in revenue from Con-Way and
Emery, partially offset by higher revenue from Menlo. Management believes
that revenue from all reporting segments in the first quarter of 2001 was
adversely affected by the continuing downturn in the U.S. economy.
Operating income declined to $33.7 million in the first quarter of
2001 from $71.5 million in the same quarter last year due to lower
operating results from all reporting segments except Menlo, which increased
operating income by 7.0%.
Other net expense increased to $7.8 million in the 2001 first quarter
from $5.0 million in the 2000 first quarter due primarily to a $2.6 million
net gain from the sale of securities in the first quarter of last year and
a $1.4 million increase in interest expense. The first quarter of 2001
included a full period of interest expense on $200 million of 8 7/8% Notes
due 2010 and lower capitalized interest compared to the same quarter last
year. The net proceeds of $197.5 million from the issuance of the $200
million 8 7/8% Notes in March 2000 were used to repay short-term and long-
term borrowings under lines of credit.
PAGE 17
The effective tax rate for the first quarter of 2001 was 40.0%
compared to 42.5% for the same period last year due in part to tax planning
strategies and resolution of tax issues.
Con-Way Transportation Services
First-quarter revenue from Con-Way Transportation Services in 2001
fell 7.8% from the same quarter last year. Although the regional carriers'
revenue per hundredweight (yield) in the 2001 first quarter increased 2.8%
over last year's first quarter, LTL and total tonnage per day (weight) for
the same period fell 3.5% and 4.0%, respectively. Con-Way's management
believes that tonnage declines in the 2001 first quarter were primarily due
to the continuing downturn in the U.S. economy and the sale of Con-Way
Truckload Services in August 2000, which accounted for $24.0 million of
last year's first-quarter revenue. Yield in the 2001 first quarter was
positively affected by a higher percentage of inter-regional joint
services, which typically command higher rates on longer lengths of haul,
and, to a lesser extent, fuel surcharges.
Con-Way's operating income in the first quarter of 2001 declined 35.2%
from the first quarter of 2000 due primarily to lower revenue, higher
employee benefit expenses and an increase in costs for vehicular and
workers' compensation claims. Higher diesel fuel costs in the first quarter
of 2001 were mitigated by Con-Way's fuel surcharge. The first quarter of
2001 was adversely affected by higher losses from developing businesses
(Con-Way Integrated Services and Con-Way Air Express) compared to the same
quarter of last year. Con-Way Air Express, a domestic air freight
forwarding company, is scheduled to begin operations on May 14, 2001.
Emery Worldwide
In the first quarter of 2001, Emery's revenue declined 2.4% from the
same period last year due primarily to lower North American airfreight
revenue. International airfreight revenue increased slightly over the same
period.
International airfreight revenue per day, including fuel surcharges,
grew 3.3% over the 2000 first quarter due primarily to a 7.6% increase in
revenue per pound (yield), partially offset by a 4.0% drop in pounds
transported per day (weight). Lower international weight in the 2001 first
quarter was due in part to declines in business from some international
markets served by Emery, including portions of Latin America and Asia.
North American airfreight revenue per day, including fuel surcharges,
fell 11.6% from the first quarter of 2000. Although first-quarter yield in
2001 increased 9.7% over the same quarter last year, weight per day over
the same period declined 19.4%. The 2001 first-quarter decline in North
American weight was attributable in part to lower business levels from the
manufacturing industry, particularly the automotive and technology sectors.
Emery's management believes that the lower business levels in the 2001
first quarter were adversely affected by the continuing downturn in the
U.S. economy and, to a lesser extent, loss of business to ground
transportation and Emery's ongoing yield management, which is designed to
eliminate or reprice certain low-margin business. Yield in the first
quarter of 2001 was positively affected by an increase in the percentage of
higher-yielding guaranteed services and Emery's ongoing yield management
efforts.
Emery's first-quarter operating loss was $6.5 million in 2001 compared
to first-quarter operating income of $6.8 million in 2000. The first-
quarter operating loss in 2001 was due primarily to a decline in North
American revenue and an increase in North American airhaul costs as a
percentage of revenue. Higher jet fuel costs in the first quarter of 2001
were mitigated by Emery's fuel surcharge. Higher employee benefits costs
also adversely affected operating results in the 2001 first quarter when
compared to the same quarter last year.
PAGE 18
In January 2001, the USPS and Federal Express Corporation (FedEx)
announced an exclusive agreement under which FedEx will transport Express
Mail and Priority Mail. EWA presently transports Express Mail and other
classes of mail under a contract with the USPS scheduled to expire in
January 2004, (the "Express Mail Contract"). In January 2001, EWA filed a
lawsuit in the U.S. Court of Federal Claims against the USPS, alleging that
the contract with FedEx violates the USPS procurement regulations, which
require that all purchases over $10,000 "must be made on the basis of
adequate competition whenever feasible or appropriate," and that the
contract violates the USPS regulatory requirement to provide "fair and
equal treatment" to all potential suppliers. The Court ruled against EWA.
The matter is now on appeal.
In May 2001, EWA received from the USPS a notice of termination for
convenience of the Express Mail Contract, effective as of August 26, 2001.
In the first quarter of 2001, EWA recognized revenue of $47.5 million
and operating income of $3.6 million from the transportation of the Express
Mail Contract, compared to revenue of $50.4 million and operating income of
$6.1 million in the first quarter of last year. EWA believes it is
entitled to its costs of early termination of the Express Mail Contract.
Early termination of the Express Mail Contract will likely have a material
adverse effect on our consolidated results of operations and financial
condition.
Emery's management intends to continue positioning Emery as a premium
service provider, focusing on achieving higher yield with a reduced cost
structure. In North America, management will seek to improve yield by
requiring compensation that is commensurate with premium services. Emery's
management is evaluating initiatives that include a reduction or revision
to EWA's fleet of aircraft and/or the North American freight service center
network. Implementation of one or more of these restructuring initiatives
would have a material adverse effect on our consolidated results of
operations and financial condition.
Internationally, Emery's management will focus on expanding its
variable-cost-based operations and actively renegotiating airhaul rates in
an effort to improve operating margins, mitigate higher fuel prices, and
balance directional capacity.
Menlo Logistics
Menlo's first-quarter revenue in 2001 increased 6.0% from the same
quarter in 2000 due to continued growth in logistics contracts and
consulting fees. Menlo's management believes that the continuing downturn
in the U.S. economy had an adverse effect on business levels of some of its
customers but the resulting adverse effect on Menlo's revenue was partially
mitigated by Menlo's ability to secure new logistics contracts.
A portion of Menlo's revenue is attributable to logistics contracts
for which Menlo manages the transportation of freight but subcontracts the
actual transportation and delivery of products to third parties. Menlo
refers to this as purchased transportation. Menlo's net revenue (revenue
less purchased transportation) in the first quarter of 2001 and 2000 was
$67.4 million and $65.0 million, respectively.
PAGE 19
Operating income for Menlo in the first quarter of 2001 increased 7.0%
from the same quarter last year. Higher operating income was primarily
attributable to increased revenue from core supply chain projects and
consulting fees.
Other Operations
In the first quarter of 2001, the Other segment included the operating
results of Road Systems and Vector SCM, a joint venture formed with General
Motors in December 2000 to provide logistics services to General Motors.
The operating results of Vector SCM are reported as an equity investment in
the Other segment. Operating losses related to startup costs for Vector
SCM in the first quarter of 2001 were $4.6 million. The Company believes
that the second-quarter operating loss for Vector SCM will approximate $4
million to $6 million due primarily to startup costs.
Discontinued Operations
- -----------------------
On November 3, 2000, EWA and the USPS announced an agreement to
terminate their contract for the transportation and sortation of Priority
Mail. Under terms of the agreement, the USPS on January 7, 2001 assumed
operating responsibility for services covered under the contract, except
certain air transportation and related services, which were terminated
effective April 23, 2001.
The USPS agreed to reimburse EWA for Priority Mail contract
termination costs, including costs of contract-related equipment,
inventory, and operating lease commitments, up to $125 million (the
"Termination Liability Cap"). On January 7, 2001, the USPS paid EWA $60
million toward the termination costs. The termination agreement provides
for this provisional payment to be adjusted if actual termination costs are
greater or less than $60 million, in which case either the USPS will be
required to make an additional payment or EWA will be required to return a
portion of the provisional payment. We believe that contract termination
costs incurred by EWA are reimbursable under the termination agreement and
do not exceed the Termination Liability Cap. However, there can be no
assurance that all termination costs incurred by Emery will be recovered.
The termination agreement preserves EWA's right to pursue claims for
underpayment that it believes are owed by the USPS under the Priority Mail
contract and EWA has initiated litigation in the U.S. Court of Federal
Claims for that purpose. These claims are to recover costs of operating
under the contract as well as profit and interest thereon.
The amount of unbilled revenue related to EWA's Priority Mail contract
recognized at March 31, 2001 and December 31, 2000 was $179.5 million and
$176.2 million, respectively. Unbilled revenue represents the accrual of
revenue sufficient only to recover costs and therefore does not include
profit or interest on either unbilled revenue or profit. Any unbilled
revenue that EWA does not recover would be written off and reflected in
operating results for discontinued operations in the then current period.
Any amount of litigation award in excess of unbilled revenue would be
reflected as income from discontinued operations in the then current
period. We believe our position with respect to claims for underpayment
under the Priority Mail contract is reasonable and well founded; however,
there can be no assurance that litigation will result in an award
sufficient to recover unbilled revenue recognized under the contract or any
award at all. The government is investigating matters relating to the
Priority Mail contract, and EWA has received subpoenas for documents from a
grand jury in Massachusetts and the USPS Inspector General. Accordingly,
we can give no assurance that matters relating to the Priority Mail
contract with the USPS will not have a material adverse effect on our
financial condition or results of operations.
PAGE 20
As a result of the above, the results of operations and net assets of
the Priority Mail operations have been segregated and classified as
discontinued operations. A summary of selected terms of the agreement,
summary financial data, and related information are included in Note 2 of
the Notes to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
===============================
Continuing Operations
- ---------------------
In the first quarter of 2001, cash and cash equivalents increased
$41.8 million to $146.3 million. Cash provided by operating activities in
the 2001 first quarter was more than sufficient to fund investing and
financing activities.
Operating activities in the 2001 first quarter generated net cash of
$98.9 million compared to $22.2 million of cash generated by operating
activities in the same quarter last year. Cash from operations in the
first quarter of 2001 was provided primarily by income from continuing
operations before depreciation and amortization and the conversion of
receivables into cash. Positive operating cash flows in the 2001 first
quarter were partially offset by changes in accrued incentive compensation,
prepaid expenses, and accounts payable.
Investing activities in the first quarter of 2001 used $8.6 million
less cash than in the first quarter of 2000. Capital expenditures of $42.3
million in the 2001 first quarter declined $13.6 million from last year's
first quarter due primarily to a $9.4 million decrease in Emery's capital
expenditures.
First-quarter financing activities in 2001 used cash of $16.8 million
compared to first-quarter financing activities that provided $51.0 million
last year. In the first quarter of last year, a portion of the net
proceeds of $197.5 million from the issuance in March 2000 of $200 million
of 8 7/8% Notes due 2010 were used to repay short-term and long-term
borrowings outstanding under lines of credit.
We maintain a $350 million unsecured credit facility with no
borrowings outstanding at March 31, 2001. The $350 million facility is also
available for issuance of letters of credit. Under that facility,
outstanding letters of credit totaled $68.2 million at March 31, 2001.
Available capacity under the $350 million facility was $281.8 million at
March 31, 2001. At March 31, 2001, we also had $100.0 million of
uncommitted lines with no outstanding borrowings. Under other unsecured
facilities, $73.5 million in letters of credit and bank guarantees were
outstanding at March 31, 2001.
PAGE 21
Our ratio of total debt to capital increased to 31.7% at March 31,
2001 from 31.4% at December 31, 2000 due primarily to the adoption of SFAS
133, "Derivative Instruments and Hedging Activities", partially offset by
2001 first-quarter debt repayment. As described in Note 7 of the Notes to
Consolidated Financial Statements, we recorded an adjustment in Long-Term
Debt to recognize the difference between the carrying value and estimated
fair value of fixed-rate long-term debt hedged with interest rate swap
derivatives designated as fair value hedges. The debt adjustment was equal
to the estimated fair value of interest rate swap derivatives, which hedge
the fair value of the long-term debt and are included in Other Assets in
the Consolidated Balance Sheets. Excluding the effects of SFAS 133, our
debt-to-capital ratio at March 31, 2001 was 30.9%.
Discontinued Operations
- -----------------------
As described above under "Results of Operations," cash flows from the
Priority Mail operations have been segregated and classified as net cash
flows from discontinued operations in the Statements of Consolidated Cash
Flows. As described in Note 2 of the Notes to Consolidated Financial
Statements, EWA in January 2001 received a $60 million provisional payment
toward reimbursable termination costs, as provided under a termination
agreement signed by EWA and the USPS in November 2000.
CYCLICALITY AND SEASONALITY
===========================
Our businesses operate in industries that are affected directly by
general economic conditions and seasonal fluctuations, both of which affect
demand for transportation services. In the trucking and airfreight
industries, for a typical year, the months of September and October usually
have the highest business levels while the months of January and February
usually have the lowest business levels.
MARKET RISK
===========
We are exposed to a variety of market risks, including the effects of
interest rates, commodity prices and foreign currency exchange rates. Our
policy is to enter 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 commodity, interest rate
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. Our policy prohibits entering into derivative instruments for
speculative purposes.
We may be exposed to the effect of interest rate fluctuations in the
fair value of our long-term debt and capital lease obligations, as
summarized in Notes 4 and 5 of our consolidated financial statements
included in our 2000 Annual Report to Shareholders. As described in Note 7
of the Notes to Consolidated Financial Statements, we use interest rate
swaps to mitigate the impact of interest rate volatility on cash flows
related to operating lease payments and on the fair value of our fixed-rate
long-term debt. At March 31, 2001, we had not entered into any derivative
contracts to hedge our foreign currency exchange exposure.
PAGE 22
ACCOUNTING STANDARDS
====================
As described in Note 7 of the Notes to Consolidated Financial
Statements, we adopted SFAS 133, "Accounting for Derivative Instruments and
Hedging Activities" effective January 1, 2001. The $3.0 million cumulative
effect of adopting the new accounting standard increased Other
Comprehensive Income (Loss).
In the first quarter of 2001, a $4.4 million increase in the estimated
fair value of our fair value hedges increased both Other Assets and Long-
Term Debt. During the same period, the estimated fair value of cash flow
hedges decreased, resulting in a $4.6 million decline in Other Assets and a
$2.8 million after-tax reduction of Other Comprehensive Income (Loss).
PAGE 23
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
As previously reported, the Company has been designated a potentially
responsible party (PRP) by the EPA with respect to the disposal of
hazardous substances at various sites. The Company expects its share of
the clean-up costs will not have a material adverse effect on the Company's
financial condition or results of operations.
The Department of Transportation, through its Office of Inspector
General, and the Federal Aviation Administration has been conducting an
investigation relating to the handling of so-called hazardous materials by
Emery. The Department of Justice has joined in the investigation and is
seeking to obtain additional information. The investigation is ongoing and
Emery is cooperating fully. The Company is unable to predict the outcome
of this investigation.
EWA has received subpoenas issued by a grand jury in Massachusetts and
the USPS Inspector General for documents relating to the Priority Mail
contract. EWA has provided, or is in the process of providing, the
documents.
On February 16, 2000, a DC-8 cargo aircraft operated by EWA personnel
crashed shortly after take-off from Mather Field, near Sacramento,
California. The crew of three was killed. The cause of the crash has not
been determined. The National Transportation Safety Board is conducting an
investigation. The Company is currently unable to predict the outcome of
this investigation or the effect it may have on Emery or the Company.
Emery, EWA and the Company have been named as defendants in wrongful
death lawsuits brought by the families of the three deceased crew members,
seeking compensatory and punitive damages. Emery, EWA and the Company also
may be subject to other claims and proceedings relating to the crash, which
could include other private lawsuits seeking monetary damages and
governmental proceedings. Although Emery, EWA and the Company maintain
insurance that is intended to cover claims that may arise in connection
with an airplane crash, there can be no assurance that the insurance will
in fact be adequate to cover all possible types of claims. In particular,
any claims for punitive damages or any sanctions resulting from possible
governmental proceedings would not be covered by insurance.
As a domestic airline, EWA operates under a certificate issued by the
Federal Aviation Administration ("FAA"). As such, EWA is subject to
maintenance, operating and other safety-related regulations promulgated by
the FAA, and routinely undergoes FAA inspections. Based on recent
inspections, the FAA has identified a number of instances where it believes
EWA has failed to comply with applicable regulations, and in some cases has
issued notices of proposed civil penalties. EWA disagrees with certain of
the FAA's findings, and is engaged in discussions with the FAA to try to
resolve the matters in dispute. However, there can be no assurance that
EWA will be able to reach agreement with the FAA on all matters in dispute,
and if no agreement is reached, the FAA may seek to impose sanctions on
EWA. The FAA has the authority to seek civil and criminal penalties and to
suspend or revoke an airline's operating certificate.
Emery and the Company have been named as defendants in a lawsuit
arising from a dispute with an aircraft lessor regarding the return of six
McDonnell Douglas DC-8 aircraft following lease termination. Plaintiff is
seeking damages in the amount of approximately $16 million, in addition to
holdover rent and interest. Emery and the Company dispute the plaintiff's
claims, and intend to vigorously defend themselves against the lawsuit.
PAGE 24
Con-Way and the Company have been named as defendants in a class
action lawsuit filed in Federal District Court in San Francisco for alleged
violations of federal and state wage and hour laws regarding classification
of freight operations supervisors for purposes of overtime pay. No motion
has yet been made for certification of the class. Because the lawsuit is
at a preliminary stage, the Company is unable to predict the outcome of
this litigation or the effect it may have on Con-Way or the Company.
ITEM 4. Submission of Matters to a Vote of Security Holders
At the Annual Shareholders Meeting held April 24, 2001, 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
Richard A. Clarke 46,590,247 804,020
W. Keith Kennedy, Jr. 46,642,334 751,933
Richard B. Madden 46,628,831 765,436
Gregory L. Quesnel 46,614,675 779,592
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, Donald E. Moffitt, Michael J. Murray,
Robert D. Rogers, William J. Schroeder, and Robert P. Wayman.
Proposal to approve amendment to the Company's Certificate of
Incorporation, changing the company name from "CNF Transportation Inc." to
"CNF Inc." was approved by the following vote: For 46,591,235; Against
528,400; Abstain 274,631.
The appointment of Arthur Andersen LLP as independent public
accountants for the year 2001 was approved by the following vote: For
45,435,620; Against 1,577,298; Abstain 381,348.
PAGE 25
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3(a) Certificate of Incorporation as amended April 24, 2001
3(b) Bylaws as amended April 30, 2001
99(a) Computation of Ratios of Earnings to Fixed Charges --
the ratios of earnings to fixed charges were 2.0x and
3.5x for the three months ended March 31, 2001 and
2000, respectively.
(b) Computation of Ratios of Earnings to Combined Fixed
Charges and Preferred Stock Dividends -- the ratios of
earnings to combined fixed charges and preferred stock
dividends were 1.9x and 3.4x for the three months
ended March 31, 2001 and 2000, respectively.
(b)Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
March 31, 2001.
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 9, 2001 /s/Greg Quesnel
Greg Quesnel
President, Chief Executive Officer
and Chief Financial Officer