-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Niu+IonpLKCyvi1OUoTBFQc3yppwRTPZbtrziPT/syp84Hvpilbim/FNdj26BqMJ dt6R0w2ayVXjsxdz63fD8A== 0000023675-98-000005.txt : 19980327 0000023675-98-000005.hdr.sgml : 19980327 ACCESSION NUMBER: 0000023675-98-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980326 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CNF TRANSPORTATION INC CENTRAL INDEX KEY: 0000023675 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 941444798 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-05046 FILM NUMBER: 98574720 BUSINESS ADDRESS: STREET 1: 3240 HILLVIEW AVE CITY: PALO A LTO STATE: CA ZIP: 94304 BUSINESS PHONE: 4154942900 FORMER COMPANY: FORMER CONFORMED NAME: CONSOLIDATED FREIGHTWAYS INC DATE OF NAME CHANGE: 19920703 10-K 1 10K DOCUMENT Page 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1997 Commission File Number 1-5046 CNF TRANSPORTATION INC. Incorporated in the State of Delaware I.R.S. Employer Identification No. 94-1444798 3240 Hillview Avenue, Palo Alto, California 94304 Telephone Number (650) 494-2900 Securities Registered Pursuant to Section 12(b) of the Act: Name of Each Exchange on Title of Each Class Which Registered Common Stock ($.625 par value) New York Stock Exchange Pacific Stock Exchange Securities Registered Pursuant to Section 12(g) of the Act: 9-1/8% Notes Due 1999 Medium-Term Notes, Series A 7.35% Notes Due 2005 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes___X___ No_______ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes ___X__ No ___ ___ Aggregate market value of voting stock held by persons other than Directors, Officers and those shareholders holding more than 5% of the outstanding voting stock, based upon the closing price per share Composite Tape on January 31, 1998: $1,905,071,000. Number of shares of Common Stock outstanding as of January 31, 1998: 47,438,525 DOCUMENTS INCORPORATED BY REFERENCE Parts I, II and IV CNF Transportation Inc. 1997 Annual Report to Shareholders (only those portions referenced herein are incorporated in this Form 10-K). Part III Proxy Statement dated March 17, 1998 (only those portions referenced herein are incorporated in this Form 10-K). Page 2 CNF TRANSPORTATION INC. FORM 10-K Year Ended December 31, 1997 ___________________________________________________________________________ INDEX Item Page PART I 1. Business 3 2. Properties 15 3. Legal Proceedings 16 4. Submission of Matters to a Vote of Security Holders 16 PART II 5. Market for the Company's Common Stock and Related Security Holder Matters 16 6. Selected Financial Data 16 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 17 8. Financial Statements and Supplementary Data 18 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 18 PART III 10. Directors and Executive Officers of the Company 18 11. Executive Compensation 19 12. Security Ownership of Certain Beneficial Owners and Management 19 13. Certain Relationships and Related Transactions 20 PART IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 20 SIGNATURES 21 INDEX TO FINANCIAL INFORMATION 24 Page 3 CNF TRANSPORTATION INC. FORM 10-K Year Ended December 31, 1997 ___________________________________________________________________________ PART I ITEM 1. BUSINESS (a) General Development of Business CNF Transportation Inc. and subsidiaries (collectively the Registrant or the Company) is a leading provider of regional less-than-truckload (LTL) trucking, heavy air freight and logistics services. The Company has three principal business units: Con-Way Transportation Services (Con-Way), which provides regional LTL trucking services in all 50 states; Emery Worldwide (Emery), which provides domestic and international air freight services; and Menlo Logistics (Menlo), a contract logistics company. Con-Way and Emery have established infrastructures which enable them to provide time- definite and day-definite delivery services throughout the United States and internationally. Emery also provides nightly air transportation services to the United States Postal Service (USPS), and entered into a new postal contract in 1997 which has broadened these services to include sortation and ground transportation of Priority Mail in the eastern United States. Menlo, the Company's contract logistics subsidiary, specializes in designing and managing complex supply and distribution networks for national and multi-national companies. The Company also provides a number of other transportation services, including truckload services, ocean forwarding and customs brokerage. On December 2, 1996, the Company completed the tax-free distribution (the Spin-off) to its shareholders of a new publicly traded company, Consolidated Freightways Corporation (CFC), a long-haul LTL motor carrier and related businesses. The Registrant's shareholders received one share of CFC stock for every two shares of the Registrant's stock owned on November 15, 1996. Following the Spin-off, the Company changed its name to CNF Transportation Inc. CNF Transportation Inc., formerly Consolidated Freightways, Inc., was incorporated in Delaware in 1958 as a successor to a business originally established in 1929. (b) Financial Information About Industry Segments The operations of the Company are primarily conducted in the U.S. but to an increasing extent are conducted in major foreign countries. An analysis by industry group of revenues, operating income, depreciation and capital expenditures for the years ended December 31, 1997, 1996 and 1995, and identifiable assets as of those dates is presented in Note 14 on pages 37 and 38 of the 1997 Annual Report to Shareholders and is incorporated herein by reference. Geographic group information is also presented therein. Intersegment revenues and related earnings have been eliminated. Page 4 (c) Narrative Description of Business The Company, for reporting purposes, has designated three principal operating segments: the Con-Way Transportation Services group which provides primarily one- and two-day, LTL service as well as highway, rail and multi-modal logistics services; the Emery Worldwide group which is responsible for all domestic and international air freight activities and ocean forwarding services; and the Other segment which is comprised of the full-service contract logistics subsidiary, Menlo Logistics, Road Systems, VantageParts and the sortation operations of the Priority Mail contract. Each segment is described in greater detail as follows: CON-WAY TRANSPORTATION SERVICES Con-Way Transportation Services, Inc. (CTS) provides time-definite and day- definite ground transportation to all 50 states through its three regional LTL motor carriers. In addition to time-definite and day-definite regional and inter-regional LTL freight transportation, CTS provides full-service, nationwide truckload freight service and ground expedited delivery. Having largely completed its geographic expansion in North America, CTS has the infrastructure in place to serve all 50 states of the United States and certain major population centers in Canada, as well as Puerto Rico and parts of Mexico. CTS' strategy will continue to emphasize operating margin improvements, particularly through efforts to increase the utilization of its freight system in the Pacific northwest and northeastern U.S. (areas in which it expanded its operations in 1995 and 1996) and through general market penetration. Con-Way Regional Carriers CTS' primary business units are three regional LTL motor carriers, each of which operates a dedicated regional trucking network principally serving core geographic territories with next-day and second-day service. The regional carriers serve manufacturing, industrial, commercial and retail business-to-business customers with a fleet of approximately 25,000 trucks, tractors and trailers at December 31, 1997. The regional carriers are as follows: Con-Way Central Express (CCX) was founded in June 1983 and today serves 23 states of the central and northeast U.S., Ontario and Quebec, Canada and Puerto Rico. At December 31, 1997, CCX operated 206 service centers. Con-Way Southern Express (CSE) was founded in April 1987. CSE serves a 12- state southern market from Texas to the Carolinas and Florida, and also serves Puerto Rico and parts of Mexico. CSE operated 102 service centers at December 31, 1997. Con-Way Western Express (CWX) was founded in May 1983 and today operates in 15 western states and serves parts of Canada and Mexico. CWX completed major geographic expansions in 1995 in the Pacific northwest and British Columbia. At December 31, 1997, CWX operated 61 service centers. Page 5 The expansion of the territories through CTS' joint service offerings permits CTS' three regional carriers to provide full regional service throughout the U.S. and to certain major population centers in Canada. By offering joint services, the three regional carriers can now provide next- day and second-day freight delivery between their respective core territories utilizing existing infrastructure. The joint service program is intended to generate additional business by allowing each carrier to provide coverage of inter-regional market lanes not serviced as part of its core territory. Due in large part, to implementation of the joint service program, the average length of haul for shipments handled by the regional carriers grew from approximately 353 miles in 1994 to approximately 497 in 1997. Also, average revenue per shipment grew from approximately $111 in 1994 to approximately $126 in 1997. The average weight per shipment was approximately 1,095 pounds in 1997. Con-Way Truckload Services and Con-Way NOW CTS' operations also include Con-Way Truckload Services (CWT), a full- service, multi-modal truckload company, and Con-Way NOW, which serves the expedited surface shipment market. CWT provides door-to-door delivery of truckload shipments by highway and rail forwarding with domestic intermodal marketing services, and assembly and distribution services. Con-Way NOW specializes in time definite shipments, such as replacement parts, medical equipment and other urgent shipments, where expedited delivery is critical. Con-Way NOW began operations in 1996 in the Midwest, expanded to parts of the southeastern U.S. in 1997, and has now extended delivery service to 48 states. Employees CTS' domestic employment has increased to approximately 15,000 regular and supplemental employees at December 31, 1997 from approximately 14,300 at December 31, 1996, and 12,400 employees at December 31, 1995. Customers There is broad diversity among customers served, size of shipments, commodities transported and length of haul. No single customer or commodity accounted for more than a small fraction of total revenues. Competition The trucking industry is intensely competitive and some of CTS' competitors have greater financial and other resources than the Company. Principal competitors of CTS include both regional and inter-regional companies and national LTL companies (some of which have continued to extend into regional markets). Competition in the trucking industry is based on, among other things, freight rates, quality of service, reliability, transit times and scope of operations. Intense competition in the trucking industry, coupled with industry over-capacity, has resulted in aggressive price discounting, narrow margins and a significant number of business failures. Page 6 Federal and State Regulation CTS' business is subject to extensive regulation by various federal and state governmental entities. As described below, deregulation of the trucking industry allowed easier access to the industry by new trucking companies, and has removed many restrictions on expansion of services by existing carriers and increased price competition. These and other factors have contributed to a consolidation in the trucking industry, as a number of trucking companies have either merged or gone out of business. Regulation of motor carriers has changed substantially in recent years. The process started with the Motor Carrier Act of 1980, which allowed easier access to the industry by new trucking companies, removed many restrictions on expansion of services by existing carriers, and increased price competition by narrowing the antitrust immunities available to the industry's collective ratemaking organizations. This deregulatory trend was continued by subsequent legislation. The process culminated with federal preemption of most economic regulation of intrastate trucking regulatory bodies effective January 1, 1995, and with legislation to terminate the Interstate Commerce Commission (ICC) effective January 1, 1996. Currently, the motor carrier industry is subject to federal regulation by the Federal Highway Administration (FHWA) and the Surface Transportation Board (STB), both of which are units of the United States Department of Transportation (DOT). The FHWA performs certain functions inherited from the ICC relating chiefly to motor carrier registration, cargo and liability insurance, extension of credit to motor carrier customers, and leasing of equipment by motor carriers from owner-operators. In addition, the FHWA enforces comprehensive trucking safety regulations relating to driver qualifications, driver hours of service, safety-related equipment requirements, vehicle inspection and maintenance, record keeping on accidents, and transportation of hazardous materials. As pertinent to the general freight trucking industry, the STB has authority to resolve certain types of pricing disputes and authorize certain types of intercarrier agreements under jurisdiction inherited from the ICC. At the state level, federal preemption of economic regulation does not prevent the states from regulating motor vehicle safety on their highways. In addition, federal law allows all states to impose insurance requirements on motor carriers conducting business within their borders, and empowers most states to require motor carriers conducting interstate operations through their territory to make annual filings verifying that they hold appropriate registrations from FHWA. Motor carriers also must pay state fuel taxes and vehicle registration fees, which normally are apportioned on the basis of mileage operated in each state. Page 7 EMERY WORLDWIDE Emery Worldwide (Emery), the Company's air freight unit, was formed when the Company purchased Emery Air Freight Corporation in April 1989. Emery provides domestic and international air freight services. Through a separate subsidiary of the Company, Emery Worldwide Airlines, Inc. (EWA), the Company provides nightly air transportation services to the USPS. In addition, as the result of a contract that the USPS awarded to EWA in 1997, EWA has broadened these services to include sortation and ground transportation of Priority Mail in the eastern United States. The ground transportation is contracted to another subsidiary of the Company. In North America, Emery relies principally on its dedicated aircraft and ground fleet to provide commercial door-to-door delivery for same-day, next- day, second-day and deferred shipments and through EWA provides air transportation services to the USPS. Internationally, Emery acts principally as a freight forwarder in providing door-to-door and airport-to- airport commercial services in approximately 200 countries. International business is defined by Emery as shipments that either originate or terminate outside of North America. Commercial business is defined by Emery as all operations except those services it provides domestically to the USPS. While Emery's freight system is designed to handle parcels, packages and shipments of a variety of sizes and weights, its commercial operations are focused primarily on heavy air freight (defined as shipments of 70 pounds or more) as opposed to envelopes. In 1997, Emery's commercial shipments weighed an average of approximately 220 pounds and generated average revenue of approximately $209 per shipment. Customers are typically concerned with timely deliveries rather than the mode of transportation used to transport freight. Because the average cost of ground transportation is considerably less than air transportation, Emery seeks to manage its costs by using trucks, rather than aircraft, to transport freight whenever possible, typically in connection with second- day deliveries. The Company believes that Emery's competitive position versus air freight forwarders in the domestic air freight industry has improved over the last several years as the availability of cargo capacity on domestic passenger airlines has decreased. Several major domestic airlines have reduced the number of wide-body aircraft they use for domestic passenger service in favor of narrow-body aircraft. This change greatly reduces the amount of belly space available for cargo. The Company believes that this trend toward the use of passenger aircraft with lower cargo capacities has reduced the availability of airlift for freight forwarders (which do not operate their own aircraft) and benefited Emery and other asset-based air freight companies. Emery provides services in North America through a system of sales offices and service centers, and overseas through foreign subsidiaries, branch sales offices, service centers and agents. Emery's door-to-door service within North America relies on Emery's own airlift system, supplemented with commercial airlines. Internationally, Emery operates primarily as an air freight forwarder using commercial airlines, while utilizing controlled lift only on a limited basis. Due in part to the Company's heightened focus on opportunities in the expanding worldwide economy, Emery's total international commercial revenues increased 76% from 1994 through 1997, compared with a 27% increase for its total North American Page 8 commercial revenues for the same period. For 1997, international revenues of approximately $900 million comprised nearly 45% of Emery's total commercial revenues. Emery's fastest-growing regions internationally are Latin America and Asia. As of December 31, 1997, Emery utilized a fleet of 74 dedicated aircraft for its commercial operations. Of these aircraft, 50 were leased on a long- term basis, 9 were owned and 15 were contracted on a short-term basis to supplement nightly capacity and to provide feeder services. At December 31, 1997, the nightly lift capacity of this aircraft fleet, excluding charters, was over 4 million pounds. At December 31, 1997, Emery also operated approximately 2,000 trucks, vans and tractor-trailers, as well as equipment provided by its agents. Emery's hub-and-spoke system is based at the Dayton, Ohio International Airport (DAY), where its leased air cargo facility (the Hub) and related support facilities are located. The Hub handles a wide variety of shipments, ranging from small packages to heavyweight cargo, with a total effective sort capacity of approximately 1.2 million pounds per hour. Beginning in 1997, Emery began a redesign and upgrade of the Hub that is expected to increase capacity 30% by the year 2000. The operation of the Hub in conjunction with Emery's airlift system enables Emery to maintain a high level of service reliability. In addition to the Dayton Hub, Emery operates nine regional hubs, strategically located around the United States near Sacramento and Los Angeles, California; Dallas, Texas; Chicago, Illinois; Poughkeepsie, New York; Charlotte, North Carolina; Atlanta, Georgia; Nashville, Tennessee; and Orlando, Florida. In 1997, Emery opened new distribution centers in Singapore and Miami to serve Asia and Latin America, respectively. Emery added a new guaranteed time-definite product in 1997, called Gold Priority Service. These services offered in North America include; 9:30 Service, which is premium service with a guaranteed 9:30 delivery to specified regions; Gold Priority Plus, which provides time specific delivery by appointment; and Gold Priority Standard, that provides guaranteed delivery by noon to a wide range of destinations. USPS contracts Through the separate subsidiary of the Company, Emery Worldwide Airlines, Inc. (EWA), the Company provides nightly air delivery services for Express Mail (a next-day delivery service) under a ten-year contract with the USPS. The original contract for this operation was awarded to EWA in 1989, and the current contract was awarded to EWA in 1993. At December 31, 1997, EWA used 24 dedicated aircraft to provide services to the USPS under this contract. In addition, EWA has also received separate contracts to carry peak-season Christmas and other mail for the USPS. The Company recognized approximately $136 million, $140 million and $126 million of revenue in 1997, 1996 and 1995, respectively from contracts to carry mail, primarily Express Mail, for the USPS. Page 9 On April 23, 1997, the USPS awarded EWA a new contract for the sortation and transportation of Priority Mail (a second-day delivery service) in portions of 13 states in the eastern United States. This contract has an initial term that ends in 2002 and may be renewed by the USPS for two successive three-year terms. The USPS has indicated that the Company could receive revenues of approximately $1.7 billion over the initial term of the contract. However, this amount is subject to a number of uncertainties and assumptions, and there can be no assurance that the revenues realized by the Company will not be less than this amount. The Priority Mail contract calls for EWA to lease or acquire, improve, equip, fully staff and operate Priority Mail Processing Centers (PMPCs) in ten major metropolitan areas, primarily along the eastern seaboard. Five of the PMPCs are operational and are currently in a start-up phase, and the remaining five are scheduled to be fully operational by the end of the second quarter of 1998. The Company must pay liquidated damages if the remaining centers are not operational on time. The Company expects that EWA will provide air transportation under the new USPS contract, that Menlo Postal Logistics, a division of EWA, will manage the ten PMPCs and provide ground transportation between the PMPCs and other USPS facilities, and that Con-Way Truckload Services, a subsidiary of the Company that provides full-service, multi-modal truckload services, will act as a subcontractor and will provide highway transportation between PMPCs. Revenues from air transportation are reported in the Emery Worldwide segment, the PMPC sortation operations are reported in the Other segment, and the highway transportation service is reported in the Con-Way Transportation segment. Other services To enhance the range of services it can offer to its customers and to provide further avenues for growth, Emery has established several non-asset based strategic business units. (The Company defines a non-asset-based business as one requiring substantially less capital investment than its principal domestic air freight and trucking business). These other units include Emery Expedite!, a rapid response freight handling subsidiary providing door-to-door delivery of shipments in North America and overseas. Emery's logistics subsidiary, Emery Global Logistics, which operates warehouse and distribution centers for customers in six countries. Emery Customs Brokerage provides full service customs clearance regardless of mode or carrier. Another business unit, Emery Ocean Services, is a global freight forwarder and non-vessel-operating common carrier that provides full and less-than-container load service. Employees As of December 31, 1997, Emery had approximately 10,000 regular full-time employees compared with approximately 9,000 employees at December 31, 1996 and 7,800 at December 31, 1995. Page 10 Approximately 11% of the regular full-time employees were represented by various labor unions. However, on July 2, 1997, Emery's pilots at the Hub voted to approve representation by the Airline Pilots Association. Contract negotiations are expected to begin prior to July 1998. The Company is unable to predict the outcome of the contract negotiations or its effect on results of operations. Customers The air freight industry is intensely competitive. Principal competitors of Emery include other integrated air freight carriers, air freight forwarders and international airlines and, to a lesser extent, trucking companies, passenger and cargo air carriers. Competition in the air freight industry is based on, among other things, freight rates, quality of service, reliability, transit times and scope of operations. Technology An important element in the movement of goods is the rapid movement of information to track freight, optimize carrier selections, and interlink and analyze customer data. Starting in 1996, Emery began to invest in what is expected to be a $75 million multi-year technology program to upgrade its hardware and software systems architecture, including its global tracking system called Emcon 2000. The Emcon 2000 system is expected to provide enhanced tracking information for shipments to reduce mis-sorts, avoid potential overloads and to signal freight with specialized handling requirements. Regulation of Air Transportation Emery's business is subject to extensive regulation by various federal, state and foreign governmental entities. The air transportation industry is subject to federal regulation under the Federal Aviation Act of 1958, as amended (Aviation Act) and regulations issued by the Department of Transportation (DOT) pursuant to the Aviation Act. Emery, as an air freight forwarder, and EWA, as an airline, are subject to different regulations. Air freight forwarders are exempted from most DOT economic regulations and are not subject to Federal Aviation Administration (FAA) safety regulations, except security-related rules. Airlines such as EWA are subject to, among other things, maintenance, operating and other safety- related regulations by the FAA, including Airworthiness Directives promulgated by the FAA which require airlines such as EWA to make modifications to aircraft. In that regard, EWA expects that it will be required to make expenditures to reinforce the floors and modify the doors of up to 17 of its Boeing 727 aircraft to comply with Airworthiness Directives. Likewise, the relative age of EWA's aircraft fleet may increase the likelihood that EWA will be required to make expenditures in order for its aircraft to comply with future government regulations. During recent years, operations at several airports have been subject to restrictions or curfews on arrivals or departures during certain night-time hours designed to reduce or eliminate noise for surrounding residential areas. None of these restrictions have materially affected Emery's operations. If such restrictions were to be imposed with respect to the airports at which Emery's activities are centered (particularly Emery's major Hub at the Dayton International Airport), and no alternative airports were available to serve the affected areas, Page 11 there could be a material adverse effect on Emery's operations. Under applicable law, the FAA is authorized to establish aircraft noise standards and the administrator of the Environmental Protection Agency is authorized to issue regulations setting forth standards for aircraft emissions. The Company believes that its present fleet of owned, leased and chartered aircraft is operating in substantial compliance with currently applicable noise and emission laws. The Aviation Noise and Capacity Act of 1990 establishes a national aviation noise policy. The FAA has promulgated regulations under this Act regarding the phase-in requirements for compliance. This legislation and the related regulations will require all of Emery's owned and leased aircraft eligible for operation in the contiguous United States to either undergo modifications or otherwise comply with Stage 3 noise restrictions by year- end 1999. Although the ultimate cost of complying with these requirements cannot be predicted with certainty, the Company may be required to make expenditures, which could be substantial, to modify owned or leased aircraft in order to comply with these requirements. Regulation of Ground Transportation When Emery provides ground transportation of cargo having prior or subsequent air movement, the ground transportation is exempt from the motor carrier registration requirements and economic regulations that were inherited from the ICC by FHWA and STB, respectively. Such ground transportation, however, is subject to comprehensive trucking safety regulation by FHWA as described in the Con-Way Transportation Services section. In addition, Emery holds FHWA motor carrier registrations which can be utilized in providing non-exempt ground transportation. For a description of applicable state regulations, refer to the discussion in the Con-Way Transportation Services section. OTHER The Other segment, in terms of revenues, is comprised primarily of Menlo Logistics Inc., but also includes the operations of VantageParts, Road Systems and the sortation operations of the Priority Mail contract. Menlo Logistics Menlo Logistics, Inc. (Menlo), founded in 1990, specializes in developing and managing complex national and global supply and distribution networks, including transportation management, dedicated contract warehousing, dedicated contract carriage and just-in-time delivery programs. In serving its customers, Menlo uses and develops transportation optimization and carrier tracking software, and also provides real time warehouse and transportation management systems. Menlo has developed the ability to link these systems both with each other and with its customers' internal systems. The Company believes that Menlo's software skills, operations processes and design expertise with respect to sophisticated logistics systems have established it as a leader in the emerging field of contract logistics. Complex projects which call upon Menlo's skills in managing carrier networks, dedicated vehicle fleets and automated warehouses as an integrated system recently have been the fastest growing segment of Menlo's business. Page 12 Menlo operates in a relatively new business area and has a limited number of major competitors. Nonetheless, competition for the provision of logistics services is intense. The Company believes that three industry trends have driven Menlo's recent growth. First, the Company believes that a number of businesses are increasingly evaluating their overall logistics costs, including transportation, warehousing and inventory carrying costs. In addition, the Company believes that outsourcing of non-core services, such as distribution, has become more commonplace with many businesses. Finally, the Company believes that the ability to access information through computer networks has increased the value of capturing real time logistics information to track inventories, shipments and deliveries. One of Menlo's primary strategies is to build upon existing relationships by increasing the services that it provides to current customers. In 1996, Menlo expanded the services it provides to existing clients such as Hewlett- Packard, Sears, Coca-Cola and IBM. Menlo was also awarded projects in 1996 and 1997 by new clients such as Imation, Nike, Frigidaire, Herman Miller, Delphi and Bell Atlantic. More than 60% of Menlo's 1997 business came from existing clients. Compensation from Menlo's customers takes different forms, including cost-plus, gain-sharing, per-piece, fixed dollar and consulting fees. In some cases, customers reimburse start-up and development costs. Menlo has sought to limit the financial commitments it undertakes by typically providing that any facility or major equipment lease that it enters into on behalf of a customer must be assumed by the customer upon termination of the contract with Menlo. However, to date relatively few customer relationships have been ended by either Menlo or its customers. At December 31, 1997, Menlo had a regular full-time workforce of approximately 1,300 employees compared to nearly 1,000 at December 31, 1996. Menlo also uses a significant number of professionals under contract for various projects. While the Company seeks to take advantage of cross-business synergies whenever possible, Menlo is operated as an independent business segment within the Company and not merely as a conduit through which business can be referred to Con-Way or Emery. The Company estimates that, for 1997, less than 4% of Menlo's operating expenses were attributable to operations that resulted in revenues to other business units of the Company. The relative independence of Menlo from the Company's other primary business units is viewed as essential to maintaining Menlo's credibility with its customers. Page 13 Road Systems and VantageParts Two non-carrier operations that are included in the Other segment generate a majority of their revenues from sales to other subsidiaries of the Company and, prior to year-end 1996, from CFC. Road Systems primarily manufactures and rebuilds trailers, converter dollies and other transportation equipment. VantageParts serves as a distributor and remanufacturer of vehicle component parts and accessories to the heavy-duty truck and trailer industry, as well as the maritime, construction and aviation industries. GENERAL The research and development activities of the Company are not significant. During 1997, 1996 and 1995 there was no single customer of the Company that accounted for more than 10% of consolidated revenues. The total number of regular, full-time employees is presented in the "Five Year Financial Summary" on page 40 of the 1997 Annual Report to Shareholders and is incorporated herein by reference. The trucking and airfreight industries are affected directly by general economic conditions and seasonal fluctuations, both of which affect the amount of freight to be transported. Freight shipments, operating costs and other results of operations can also be affected adversely by inclement weather conditions. The months of September and October of each year usually have the highest business levels while the months of January and February of each year usually have the lowest business levels. The Company is subject to stringent laws and regulations that (i) govern activities or operations that may have adverse environmental effects such as discharges to air and water, as well as handling and disposal practices for solid and hazardous waste, and (ii) impose liability for the costs of cleaning up, and certain damages resulting from, sites of past spills, disposals or other releases of hazardous materials. In particular, under applicable environmental laws, the company may be responsible for remediation of environmental conditions and may be subject to associated liabilities (including liabilities resulting from lawsuits brought by private litigants) relating to its operations and properties. Environmental liabilities relating to the Company's properties may be imposed regardless of whether the Company leases or owns the properties in question and regardless of whether such environmental conditions were created by the Company or by a prior owner or tenant, and also may be imposed with respect to properties which the Company may have owned or leased in the past. The Company's operations involve the storage, handling and use of diesel and jet fuel and other hazardous substances. In particular, the Company is subject to stringent environmental laws and regulations dealing with underground fuel storage tanks and the transportation of hazardous materials. The Company has been designated a Potentially Responsible Party (PRP) by the EPA with respect to the disposal of hazardous substances at various sites. The Company expects that its share of the clean-up costs will not have a material adverse effect on the Page 14 Company's financial position or results of operations. The Company expects the costs of complying with existing and future environmental laws and regulations to continue to increase. On the other hand, it does not anticipate that such cost increases will have a materially adverse effect on the Company. (d) Financial Information About Foreign and Domestic Operations and Export Sales Information as to revenues, operating income and identifiable assets for each of the Company's business segments and for its foreign operations in 1997, 1996 and 1995 is contained in Note 14 on pages 37 and 38 of the 1997 Annual Report to Shareholders and is incorporated herein by reference. Page 15 ITEM 2. PROPERTIES The following summarizes the freight service centers and warehouses operated by the Company at December 31, 1997: Owned Leased Total Con-Way Transportation Services 80 289 369 Emery Worldwide 29 229 258 Menlo Logistics - 16 16 The following table sets forth the location and square footage of the Company's principal freight service centers at December 31, 1997: Location Square Footage CTS - freight service centers Chicago, IL 113,116 Charlotte, NC 102,743 Des Plains, IL 100,440 Columbus, OH 86,537 Oakland, CA 85,600 Dallas, TX 82,000 Cleveland, OH 70,995 Atlanta, GA 56,160 Cincinnati, OH 55,618 Detroit, MI 66,320 St. Louis, MO 49,065 Carlstadt, NJ 48,360 Santa Fe Springs, CA 45,936 Jackson, MS 44,596 Knoxville, TN 44,460 Aurora, IL 44,235 South Bend, IN 39,320 Milwaukee, WI 36,560 Ft. Wayne, IN 35,400 Pontiac, MI 34,450 Sacramento, CA 25,968 Braintree, MA 22,160 Emery - freight service centers * Dayton, OH 620,000 Los Angeles, CA 78,264 Chicago, IL 59,976 Dallas, TX 55,104 Boston, MA 42,236 Indianapolis, IN 38,500 * Facility partially or wholly financed through the issuance of industrial revenue bonds. Principal amount of debt is secured by the property. Page 16 ITEM 3. LEGAL PROCEEDINGS The legal proceedings of the Company are summarized in Note 13 on pages 36 and 37 of the 1997 Annual Report to Shareholders and are incorporated herein by reference. Discussions of certain environmental matters are presented in Item 1 and Item 7. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS The Company's common stock is listed for trading on the New York and Pacific Stock Exchanges under the symbol "CNF". The Company's common stock prices for each of the quarters in 1997 and 1996 are included in Note 15 on page 39 of the 1997 Annual Report to Shareholders and are incorporated herein by reference. Cash dividends on common shares had been paid in every year from 1962 to 1990. In June 1990 the Company's Board of Directors suspended the quarterly dividend. In December 1994, the Board of Directors reinstated a $.10 per share quarterly cash dividend on common stock. The amounts of quarterly dividends declared on common stock for the last two years are included in Note 15 on page 39 of the 1997 Annual Report to Shareholders and are incorporated herein by reference. Under the terms of the restructured TASP Notes, as set forth in Note 4 on pages 30 and 31 of the 1997 Annual Report to Shareholders, the Company is restricted from paying dividends in an aggregate amount in excess of $10 million plus one half of the cumulative net income applicable to common shareholders since the commencement of the agreement (which allows for $148 million of dividend payments at December 31, 1997). Effective March 15, 1995, all of the 690,000 shares of the Company's Series C Preferred Stock were converted to 6,900,000 shares of common stock. As of December 31, 1997, there were 15,560 holders of record of the common stock ($.625 par value) of the Company. The number of shareholders is also presented in the "Five Year Financial Summary" on page 40 of the 1997 Annual Report to Shareholders and is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA The Selected Financial Data is presented in the "Five Year Financial Summary" on page 40 of the 1997 Annual Report to Shareholders and is incorporated herein by reference. Page 17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations is presented in the "Financial Review and Management Discussion" on pages 18 through 20, inclusive, of the 1997 Annual Report to Shareholders and is incorporated herein by reference. On March 17, 1998, the Company issued a press release reporting that lower than expected domestic and international air freight revenues and continuing startup costs from the new Priority Mail contract would result in first quarter 1998 earnings below expectations. Partially offsetting this is the expectation of the best quarterly operating income from CTS in its history. A $6 million charge will be taken in the first quarter to recognize the costs of extending the openings of five PMPC's under the Priority Mail contract. The Company expects to earn between 27 cents and 32 cents per diluted share in the quarter. Certain statements included or incorporated by reference herein constitute "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to a number of risks and uncertainties. Any such forward-looking statements contained or incorporated by reference herein should not be relied upon as predictions of future events. Certain such forward-looking statements can be identified by the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," "seeks," "approximately," "intends," "plans," "estimates" or "anticipates" or the negative thereof or other variations thereof or comparable terminology, or by discussions of strategy, plans or intentions. Such forward-looking statements are necessarily dependent on assumptions, data or methods that may be incorrect or imprecise and they may be incapable of being realized. In that regard, the following factors, among others and in addition to the matters discussed below and elsewhere in this document and in documents incorporated or deemed to be incorporated by reference herein, could cause actual results and other matters to differ materially from those in such forward-looking statements: changes in general business and economic conditions; increasing domestic and international competition and pricing pressure; changes in fuel prices; uncertainty regarding the Company's new contract with the USPS, including costs of extending the openings of the PMPCs; labor matters, including changes in labor costs, renegotiations of labor contracts and the risk of work stoppages or strikes; changes in governmental regulation; environmental and tax matters, including the aviation excise tax and aircraft maintenance tax matters discussed in documents incorporated by reference; Emery's results of operations for the first quarter of 1998 that have been adversely affected by less than planned revenues; and matters relating to the Spin-off of Consolidated Freightways Corporation (CFC). In that regard, the Company is or may be subject to substantial liabilities with respect to certain matters relating to CFC's business and operations, including, without limitation, guarantees of certain indebtedness of CFC and liabilities for employment-related matters. Although CFC is, in general, either the primary obligor or jointly and severally liable with the Company with respect to these matters, a failure to pay or other default by CFC with respect to the obligations as to which the Company is or may be, or may be perceived to be, liable, whether because of CFC's bankruptcy or insolvency or otherwise, could lead to substantial claims against the Company. As a result of Page 18 the foregoing, no assurance can be given as to future results of operations or financial condition. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements and Report of Independent Public Accountants are presented on pages 21 through 39, inclusive, of the 1997 Annual Report to Shareholders and are incorporated herein by reference. The unaudited quarterly financial data is included in Note 15 on page 39 of the 1997 Annual Report to Shareholders and is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY The identification of the Company's Directors is presented on pages 3 through 8, inclusive, of the Proxy Statement dated March 17, 1998 and those pages are incorporated herein by reference. The Executive Officers of the Company, their ages at December 31, 1997, and their applicable business experience are as follows: Donald E. Moffitt, 65, Chairman of the Board and Chief Executive Officer of the Company. Mr. Moffitt joined Consolidated Freightways Corporation of Delaware, the Company's former nationwide, full-service trucking subsidiary, as an accountant in 1955 and advanced to Vice President - Finance in 1973. In 1975, he transferred to the Company as Vice President - - Finance and Treasurer and in 1981, was elected Executive Vice President - Finance and Administration. In 1983, he assumed the additional duties of President, CF International and Air, Inc., where he directed the Company's international and air freight businesses. Mr. Moffitt was elected Vice Chairman of the Board of the Company in 1986. He retired as an employee and as Vice Chairman of the Board of Directors in 1988 and returned to the Company as Executive Vice President - Finance and Chief Financial Officer in 1990. Mr. Moffitt was named President and Chief Executive Officer of the Company and was elected to the Board of Directors in 1991. In 1995, Mr. Moffitt was named Chairman of the Board of Directors. Mr. Moffitt is regional Vice President and a member of the executive committee of the U.S. Chamber of Commerce, and is on the board of the California Business Roundtable, the Conference Board and the Business Advisory Council of the Northwestern University Transportation Center. He also serves on the boards of the San Francisco Bay Area Council, Boy Scouts of America and the American Red Cross, and is a member of the Board of Trustees of the Automotive Safety Foundation and the National Commission Against Drunk Driving. He is a former member of the Board of Directors and the Executive Committee of the Highway Users Federation. Mr. Moffitt is Chairman of the Executive Committee and serves on the Director Affairs Committee of the Company. Page 19 Gregory L. Quesnel, 49, President and Chief Operating Officer of the Company. Mr. Quesnel joined Consolidated Freightways Corporation of Delaware in 1975 as Director of Financial Accounting. Through several increasingly responsible financial positions, he advanced to become the top financial officer of CFCD. In 1989, he was elected Vice President- Accounting for the Company and in 1990, was named Vice President and Treasurer. Mr. Quesnel became Senior Vice President-Finance and Chief Financial Officer of the Company in 1991 and Executive Vice President and Chief Financial Officer in 1993. In 1997, Mr Quesnel was named President and Chief Operating Officer of the Company. David I. Beatson, 50, President and Chief Executive Officer of Emery Air Freight Corporation and Senior Vice President of the Company. Mr. Beatson joined CF AirFreight in 1977, advancing through several increasingly responsible positions to Vice President of National Accounts. After leaving the Company for a time, he returned to Emery in 1991 as Vice President of Sales and Marketing. He became President and Chief Executive Officer of Emery Air Freight Corporation in 1994. Gerald L. Detter, 53, President and Chief Executive Officer of Con-Way Transportation Services, Inc. and Senior Vice President of the Company. Mr. Detter joined CFCD in 1964 as a dockman and advanced through several positions of increasing responsibility to become Division Manager in Detroit, Michigan in 1976. In 1982, he was named the first president and chief executive officer of Con-Way Central Express. In 1997, Mr. Detter was named President and Chief Executive Officer of Con-Way Transportation Services, Inc. and Senior Vice President of the Company. Eberhard G.H. Schmoller, 54, Senior Vice President, General Counsel and Secretary of the Company. Mr. Schmoller joined CFCD in 1974 as a staff attorney and in 1976 was promoted to CFCD assistant general counsel. In 1983, he was appointed Vice President and General Counsel of CF AirFreight and assumed the same position with Emery after the acquisition in 1989. Mr. Schmoller was named Senior Vice President and General Counsel of the Company in 1993. Chutta Ratnathicam, 50, Senior Vice President and Chief Financial Officer of the Company. Mr. Ratnathicam joined the Company in 1977 as a corporate auditor and following several increasingly responsible positions was named Vice President internal auditing for the Company in 1989. In 1991, he was promoted to Vice President-international for Emery Air Freight Corporation. In 1997, Mr. Ratnathicam was named Senior Vice President and Chief Financial Officer of the Company. ITEM 11. EXECUTIVE COMPENSATION The required information for Item 11 is presented on pages 12 through 16, inclusive, of the Proxy Statement dated March 17, 1998, and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The required information for Item 12 is included on pages 9, 10 and 22 of the Proxy Statement dated March 17, 1998 and is incorporated herein by reference. Page 20 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Financial Statements and Exhibits Filed 1. Financial Statements See Index to Financial Information. 2. Financial Statement Schedules See Index to Financial Information. 3. Exhibits See Index to Exhibits. (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended December 31, 1997. Page 21 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Form 10-K Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized. CNF TRANSPORTATION INC. (Registrant) March 24, 1998 /s/Donald E. Moffitt Donald E. Moffitt Chairman and Chief Executive Officer March 24, 1998 /s/Gregory L. Quesnel Gregory L. Quesnel President and Chief Operating Officer March 24, 1998 /s/Chutta Ratnathicam Chutta Ratnathicam Senior Vice President and Chief Financial Officer March 24, 1998 /s/Gary D. Taliaferro Gary D. Taliaferro Vice President and Controller Page 22 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. March 24, 1998 /s/Donald E. Moffitt Donald E. Moffitt Chairman of the Board and Chief Executive Officer March 24, 1998 Robert Alpert, Director March 24, 1998 /s/Earl F. Cheit Earl F. Cheit, Director March 24, 1998 Richard A. Clarke, Director March 24, 1998 /s/Margaret G. Gill _ Margaret G. Gill, Director March 24, 1998 /s/Robert Jaunich II Robert Jaunich II, Director March 24, 1998 /s/W. Keith Kennedy, Jr. W. Keith Kennedy, Jr., Director March 24, 1998 /s/Richard B. Madden Richard B. Madden, Director Page 23 SIGNATURES March 24, 1998 Michael J. Murray, Director March 24, 1998 Robert D. Rogers, Director March 24, 1998 /s/William J. Schroeder William J. Schroeder, Director March 24, 1998 /s/Robert P. Wayman Robert P. Wayman, Director Page 24 CNF TRANSPORTATION INC. FORM 10-K Year Ended December 31, 1997 ___________________________________________________________________________ INDEX TO FINANCIAL INFORMATION CNF Transportation Inc. and Subsidiaries The following Consolidated Financial Statements of CNF Transportation Inc. and Subsidiaries appearing on pages 21 through 39, inclusive, of the Company's 1997 Annual Report to Shareholders are incorporated herein by reference: Report of Independent Public Accountants Consolidated Balance Sheets - December 31, 1997 and 1996 Statements of Consolidated Income - Years Ended December 31, 1997, 1996 and 1995 Statements of Consolidated Cash Flows - Years Ended December 31, 1997, 1996 and 1995 Statements of Consolidated Shareholders' Equity - Years Ended December 31, 1997, 1996 and 1995 Notes to Consolidated Financial Statements In addition to the above, the following consolidated financial information is filed as part of this Form 10-K: Page Consent of Independent Public Accountants 25 Report of Independent Public Accountants 25 Schedule II - Valuation and Qualifying Accounts 26 The other schedules have been omitted because either (1) they are neither required nor applicable or (2) the required information has been included in the consolidated financial statements or notes thereto. Page 25 SIGNATURE CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included and incorporated by reference in this Form 10-K, into the Company's previously filed Registration Statement File Nos. 2- 81030, 33-52599, 33-60619, 33-60625, 33-60629, 333-26595 and 333-30327. /s/Arthur Andersen LLP ARTHUR ANDERSEN LLP San Francisco, California March 23, 1998 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors of CNF Transportation Inc.: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in CNF Transportation Inc.'s 1997 Annual Report to Shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated January 23, 1998. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The Schedule II--Valuation and Qualifying Accounts on page 26 is the responsibility of the Company's management and is presented for the purpose of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/Arthur Andersen LLP ARTHUR ANDERSEN LLP San Francisco, California January 23, 1998 Page 26 SCHEDULE II CNF TRANSPORTATION INC. VALUATION AND QUALIFYING ACCOUNTS THREE YEARS ENDED DECEMBER 31, 1997 (In thousands) DESCRIPTION ALLOWANCE FOR DOUBTFUL ACCOUNTS ADDITIONS BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING COSTS AND OTHER END OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD 1997 $18,712 $12,528 $ - $(11,085)(a) $20,155 1996 $16,870 $16,729 $ - $(14,887)(a) $18,712 1995 $15,889 $11,017 $ - $(10,036)(a) $16,870 (a) Accounts written off net of recoveries. Page 27 INDEX TO EXHIBITS ITEM 14(a)(3) Exhibit No. (3) Articles of incorporation and by-laws: 3.1 CNF Transportation Inc. Certificate of Incorporation, as amended. (Exhibit 4(a) to the Company's registration statement on Form S-3 dated May 6, 1997.*) 3.2 CNF Transportation Inc. By-laws, as amended, May 3, 1997 (Exhibit 4(b) to the Company's registration statement on Form S- 3 dated May 6, 1997*). (4) Instruments defining the rights of security holders, including debentures: 4.1 Certificate of Designations of the Series B Cumulative Convertible Preferred Stock. (Exhibit 4.1 as filed on Form SE dated May 25, 1989*) 4.2 Indenture between the Registrant and Bank One, Columbus, NA, as successor trustee, with respect to 9-1/8% Notes Due 1999, Medium- Term Notes, Series A and 7.35% Notes due 2005. (Exhibit 4.1 as filed on Form SE dated March 20, 1990*) 4.3 Form of Security for 9-1/8% Notes Due 1999 issued by Consolidated Freightways, Inc. (Exhibit 4.1 as filed on Form SE dated August 25, 1989*) 4.4 Officers' Certificate dated as of August 24, 1989 establishing the form and terms of debt securities issued by Consolidated Freightways, Inc. (Exhibit 4.2 as filed on Form SE dated August 25, 1989*) 4.5 Form of Security for Medium-Term Notes, Series A to be issued by Consolidated Freightways, Inc. (Exhibit 4.1 as filed on Form SE dated September 18, 1989*) 4.6 Officers' Certificate dated September 18, 1989, establishing the form and terms of debt securities to be issued by Consolidated Freightways, Inc. (Exhibit 4.2 as filed on Form SE dated September 19, 1989*) 4.7 Indenture between the Registrant and The First National Bank of Chicago Bank, trustee, with respect to debt securities. (Exhibit 4(d) as filed on Form S-3 dated June 27, 1995*) 4.8 Indenture between the Registrant and Bank One, Columbus, NA, trustee, with respect to subordinated debt securities. (Exhibit 4(e) as filed on Form S-3 dated June 27, 1995*) 4.9 Form of Security for 7.35% Notes due 2005 issued by Consolidated Freightways, Inc. (Exhibit 4.4 as filed on Form S-4 dated June 27, 1995*) * Previously filed with the Securities and Exchange Commission and incorporated herein by reference. Page 28 Exhibit No. 4.10 Declaration of Trust of the Trust (Exhibit 4(k) to the Company's Amendment 1 to Form S-3 dated May 30, 1997*) 4.11 Form of Amended and Restated Declaration of Trust of the Trust, including form of Trust Preferred Security. (Exhibit 4(l) to the Company's Amendment 1 to Form S-3 dated May 9, 1997*) 4.12 Form of Guarantee Agreement with respect to Trust Preferred Securities. (Exhibit 4(m) to the Company's Amendment 1 to Form S-3 dated May 30, 1997*) Instruments defining the rights of security holders of long-term debt of CNF Transportation Inc., and its subsidiaries for which financial statements are required to be filed with this Form 10-K, of which the total amount of securities authorized under each such instrument is less than 10% of the total assets of CNF Transportation Inc. and its subsidiaries on a consolidated basis, have not been filed as exhibits to this Form 10-K. The Company agrees to furnish a copy of each applicable instrument to the Securities and Exchange Commission upon request. (10) Material contracts: 10.1 Consolidated Freightways, Inc. Long-Term Incentive Plan of 1988 as amended through Amendment 3. (Exhibit 10.2 as filed on Form SE dated March 25, 1991*#) 10.2 Consolidated Freightways, Inc. Stock Option Plan of 1988 as amended. (Exhibit 10(i) to the Company's Form 10-K for the year ended December 31, 1987 as amended in Form S-8 dated December 16, 1992*#) 10.3 Emery Air Freight Plan for Retirees, effective October 31, 1987. (Exhibit 4.23 to the Emery Air Freight Corporation Quarterly Report on Form 10-Q dated November 16, 1987**) 10.4 Consolidated Freightways, Inc. Common Stock Fund (formerly Emery Air Freight Corporation Employee Stock Ownership Plan, as effective October 1, 1987 ("ESOP"). (Exhibit 4.33 to the Emery Air Freight Corporation Annual Report on Form 10-K dated March 28, 1988**) * Previously filed with the Securities and Exchange Commission and incorporated herein by reference. ** Incorporated by reference to indicated reports filed under the Securities Act of 1934, as amended, by Emery Air Freight Corporation File No. 1-3893. # Designates a contract or compensation plan for Management or Directors. Page 29 Exhibit No. 10.5 Employee Stock Ownership Trust Agreement, dated as of October 8, 1987, as amended, between Emery Air Freight Corporation and Arthur W. DeMelle, Daniel J. McCauley and Daniel W. Shea, as Trustees under the ESOP Trust. (Exhibit 4.34 to the Emery Air Freight Corporation Annual Report on Form 10-K dated March 28, 1988**) 10.6 Amended and Restated Subscription and Stock Purchase Agreement dated as of December 31, 1987 between Emery Air Freight Corporation and Boston Safe Deposit and Trust Company in its capacity as successor trustee under the Emery Air Freight Corporation Employee Stock Ownership Plan Trust ("Boston Safe"). (Exhibit B to the Emery Air Freight Corporation Current Report on Form 8-K dated January 11, 1988**) 10.7 Supplemental Subscription and Stock Purchase Agreement dated as of January 29, 1988 between Emery Air Freight Corporation and Boston Safe. (Exhibit B to the Emery Air Freight Corporation Current Report on Form 8-K dated February 12, 1988**) 10.8 Trust Indenture, dated as of November 1, 1988, between City of Dayton, Ohio and Security Pacific National Trust Company (New York), as Trustee and Bankers Trust Company, Trustee. (Exhibit 4.1 to Emery Air Freight Corporation Current Report on Form 8-K dated December 2, 1988**) 10.9 Bond Purchase Agreement dated November 7, 1988, among the City of Dayton, Ohio, the Emery Air Freight Corporation and Drexel Burnham Lambert Incorporated. (Exhibit 28.7 to the Emery Air Freight Corporation Current Report on Form 8-K dated December 2, 1988**) 10.10 Lease agreement dated November 1, 1988 between the City of Dayton, Ohio and Emery Air Freight Corporation. (Exhibit 10.1 to the Emery Air Freight Corporation Annual Report on Form 10-K for the year ended December 31, 1988**) 10.11 $350 million Amended and Restated Credit Agreement dated November 21, 1996 among Consolidated Freightways, Inc. and various financial institutions. (Exhibit 10.18 to the Company's Form 10-K for the year ended December 31, 1996*). 10.12 Official Statement of the Issuer's Special Facilities Revenue Refunding Bonds, 1993 Series E and F dated September 29, 1993 among the City of Dayton, Ohio and Emery Air Freight Corporation. (Exhibit 10.1 to the Company's Form 10-Q for the quarterly period ended September 30, 1993*). * Previously filed with the Securities and Exchange Commission and incorporated herein by reference. ** Incorporated by reference to indicated reports filed under the Securities Act of 1934, as amended, by Emery Air Freight Corporation File No. 1-3893. # Designates a contract or compensation plan for Management or Directors. Page 30 Exhibit No. 10.13 Trust Indenture, dated September 1, 1993 between the City of Dayton, Ohio and Banker's Trust Company as Trustee. (Exhibit 10.2 to the Company's Form 10-Q for the quarterly period ended September 30, 1993*). 10.14 Supplemental Lease Agreement dated September 1, 1993 between the City of Dayton, Ohio, as Lessor, and Emery Air Freight Corporation, as Lessee. (Exhibit 10.3 to the Company's Form 10-Q for the quarterly period ended September 30, 1993*). 10.15 Supplemental Retirement Plan dated January 1, 1990. (Exhibit 10.31 to the Company's Form 10-K for the year ended December 31, 1993*#) 10.16 Directors' 24-Hour Accidental Death and Dismemberment Plan. (Exhibit 10.32 to the Company's Form 10-K for the year ended December 31, 1993*#) 10.17 Executive Split-Dollar Life Insurance Plan dated January 1, 1994. (Exhibit 10.33 to the Company's Form 10-K for the year ended December 31, 1993*#) 10.18 Board of Directors' Compensation Plan dated January 1, 1994. (Exhibit 10.34 to the Company's Form 10-K for the year ended December 31, 1993*#) 10.19 Directors' Business Travel Insurance Plan. (Exhibit 10.36 to the Company's Form 10-K for the year ended December 31, 1993*#) 10.20 Deferred Compensation Plan for Executives 1998 Restatement. # 10.21 Amended and Restated 1993 Nonqualified Employee Benefit Plans Trust Agreement dated January 1, 1995. (Exhibit 10.38 to the Company's Form 10-K for the year ended December 31, 1994.*#) 10.22 CNF Transportation Inc., 1997 Equity and Incentive Plan for Non-Employee Directors, as amended June 30, 1997. # 10.23 Amended and Restated Retirement Plan for Directors of Consolidated Freightways, Inc. dated January 1, 1994. (Exhibit 10.40 to the Company's Form 10-K for the year ended December 31, 1994.*#) 10.24 CNF Transportation Inc. Return on Equity Plan, as amended through Amendment No. 1# 10.25 Employee Benefit Matters Agreement by and between Consolidated Freightways, Inc. and Consolidated Freightways Corporation dated December 2, 1996. (Exhibit 10.33 to the Company's form 10-K for the year ended December 31, 1996.*#) * Previously filed with the Securities and Exchange Commission and incorporated herein by reference. ** Incorporated by reference to indicated reports filed under the Securities Act of 1934, as amended, by Emery Air Freight Corporation File No. 1-3893. # Designates a contract or compensation plan for Management or Directors. Page 31 Exhibit No. 10.26 Distribution Agreement between Consolidated Freightways, Inc., and Consolidated Freightways Corporation dated November 25, 1996. (Exhibit 10.34 to the Company's Form 10- K for the year ended December 31, 1996.*#) 10.27 Transition Services Agreement between CNF Service Company, Inc. and Consolidated Freightways Corporation dated December 2, 1996. (Exhibit to the Company's Form 10-K for the year ended December 31, 1996.*#) 10.28 Tax Sharing Agreement between Consolidated Freightways, Inc., and Consolidated Freightways Corporation dated December 2, 1996. (Exhibit to the Company's Form 10-K for the year ended December 31, 1996.*#) 10.29 CNF Transportation Inc. Executive Incentive Plan for 1998. # 10.30 Con-Way Transportation Services, Inc. Incentive Plan for 1998. # 10.31 Emery Worldwide Incentive Plan for 1998. # 10.32 CNF Transportation Inc. Special Bonus Plan for 1998. # 10.33 CNF Transportation Inc. 1997 Equity and Incentive Plan as amended June 30, 1997. # 10.34 CNF Transportation Inc. Deferred Compensation Plan for Directors 1998 Restatement. # (12a) Computation of ratios of earnings to fixed charges (12b) Computation of ratios of earnings to combined fixed charges and preferred stock dividends. (13) Annual report to security holders: CNF Transportation Inc. 1997 Annual Report to Shareholders (Only those portions referenced herein are incorporated in this Form 10-K. Other portions such as "Letter to Shareholders" are not required and, therefore, are not "filed" as part of this Form 10-K.) (21) Significant Subsidiaries of the Company. (27) Financial Data Schedule * Previously filed with the Securities and Exchange Commission and incorporated herein by reference. # Designates a contract or compensation plan for Management or Directors. Page 32 Exhibit No. (99) Additional documents: 99.1 CNF Transportation Inc. 1997 Notice of Annual Meeting and Proxy Statement dated March 17, 1998. (Only those portions referenced herein are incorporated in this Form 10-K. Other portions are not required and, therefore, are not "filed" as a part of this Form 10-K. *) 99.2 Note Agreement dated as of July 17, 1989, between the ESOP, Consolidated Freightways, Inc. and the Note Purchasers named therein. (Exhibit 28.1 as filed on Form SE dated July 21, 1989*) 99.3 Guarantee and Agreement dated as of July 17, 1989, delivered by Consolidated Freightways, Inc. (Exhibit 28.2 as filed on Form SE dated July 21, 1989*). 99.4 Form of Restructured Note Agreement between Consolidated Freightways, Inc., Thrift and Stock Ownership Trust as Issuer and various financial institutions as Purchasers named therein, dated as of November 3, 1992. (Exhibit 28.4 to the Company's Form 10-K for the year ended December 31, 1992*). The remaining exhibits have been omitted because either (1) they are neither required nor applicable or (2) the required information has been included in the consolidated financial statements or notes thereto. * Previously filed with the Securities and Exchange Commission and incorporated herein by reference. # Designates a compensation plan for Management or Directors. EX-10 2 EXHIBIT 10.20 EXHIBIT 10.20 CNF TRANSPORTATION INC. DEFERRED COMPENSATION PLAN FOR EXECUTIVES 1998 RESTATEMENT CNF TRANSPORTATION INC. DEFERRED COMPENSATION PLAN FOR EXECUTIVES 1998 RESTATEMENT TABLE OF CONTENTS Page Preamble Article 1 Definitions 1.1 Account Balance 1.2 Annual Bonus 1.3 Annual Deferral Amount 1.4 Base Annual Salary 1.5 Beneficiary 1.6 Beneficiary Designation Form 1.7 Board 1.8 CFC 1.9 Change in Control 2 1.10 Claimant 4 1.11 Code 4 1.12 Committee 1.13 Company 1.14 Disability 1.15 Election Form 1.16 Employer 1.17 Moody's Seasoned Corporate Bond Rate 1.18 Participant 1.19 Plan 1.20 Plan Entry Date 4 1.21 Plan Year 1.22 Pre-Retirement Distribution 1.23 Pre-Retirement Survivor Benefit 1.24 Prior Plan 1.25 Retirement 1.26 Retirement Benefit 1.27 ROE Award 5 1.28 Termination Benefit 1.29 Termination of Employment 1.30 Unforeseeable Financial Emergency 6 Article 2 Selection, Enrollment, Eligibility 2.1 Selection by Committee 2.2 Enrollment Requirement 2.3 Commencement of Participation Article 3 Deferral Commitments/Returns 3.1 Minimum Deferral 3.2 Maximum Deferral 7 3.3 Election to Defer 3.4 Withholding of Deferral Amounts 3.5 FICA Tax 3.6 Returns Prior to Distribution 8 3.7 Date on Which Crediting Occurs 3.8 Returns and Installment Distributions 3.9 Statement of Accounts 9 Article 4 Pre-Retirement Distribution/Unforeseeable Financial Emergencies 4.1 Pre-Retirement Distributions 4.2 Withdrawal Payout/Suspensions for Unforeseeable Financial Emergencies Article 5 Retirement Benefit 5.1 Retirement Benefit 5.2 Payment of Retirement Benefit 5.3 Death Prior to Completion of Retirement Benefit 11 Article 6 Pre-Retirement Survivor Benefit 6.1 Pre-Retirement Survivor Benefit 6.2 Payment of Pre-Retirement Survivor Benefit Article 7 Termination Benefit 7.1 Termination Benefit 7.2 Payment of Termination Benefit Article 8 Disability Waiver and Benefit 8.1 Disability Waiver 8.2 Disability Benefit Article 9 Beneficiary Designation 9.1 Beneficiary 9.2 Beneficiary Designation 9.3 Spousal Consent 13 9.4 No Beneficiary Designation 9.5 Doubt as to Beneficiaries 9.6 Discharge of Obligations Article 10 Leave of Absence 10.1 Paid Leave of Absence 10.2 Unpaid Leave of Absence Article 11 Termination, Amendment or Modification 14 11.1 Termination 11.2 Amendment 11.3 Effect of Payment Article 12 Administration 12.1 Committee Duties 12.2 Agents 15 12.3 Binding Effect of Decisions 15 12.4 Indemnification Article 13 Claims Procedures 13.1 Presentation of Claim 13.2 Notification of Decision 13.3 Review of a Denied Claim 13.4 Decision on Review 13.5 Legal Action 17 Article 14 Miscellaneous 14.1 Unsecured General Creditor 14.2 Employer's Liability 14.3 Company's Liability 14.4 Nonassignability 14.5 Not a Contract of Employment 14.6 Furnishing Information 18 14.7 Captions 14.8 Governing Use 14.9 Notice 14.10 Successors 14.11 Spouse's Interest 19 14.12 Incompetent 14.13 Distribution in the Event of Taxation 14.14 Legal Fees To Enforce Rights 14.15 Payment of Withholding 20 14.16 Coordination with Other Benefits 20 CNF TRANSPORTATION INC. DEFERRED COMPENSATION PLAN FOR EXECUTIVES 1998 Restatement Preamble The purpose of this Plan is to enhance the motivational value of the salaries and incentive compensation of a select group of management and highly compensated employees who contribute materially to the continued growth, development and future business success of the Company and its subsidiaries by providing them the opportunity to defer cash compensation. The Plan is intended to aid the Company and its subsidiaries in attracting and retaining key employees and give them an incentive to increase the profitability of the Company and its subsidiaries. In the future, the Company, in its discretion, may amend the Plan to include a Company contribution. The Company adopted this Plan effective October 1, 1993 as a successor to the Prior Plan, which operated for the nine month period ending September 30, 1993. The Plan was restated with a general effective date of January 1, 1996. The Company's name changed in connection with a corporate reorganization involving the distribution on December 2, 1996 of CFC stock to the Company's shareholders. In order to reflect the new Company name and to make various administrative and clarifying changes, the Company adopts this 1998 Restatement of the Plan effective January 1, 1998. ARTICLE 1 Definitions For purposes hereof, unless otherwise clearly apparent from the context, the following phrases or terms shall have the following indicated meanings: 1.1"Account Balance" means the sum of (i) the total of a Participant's Annual Deferral Amounts, plus (ii) the Participant's deferred ROE Awards, credited as of the date the ROE Award would have been paid if not deferred, plus (iii) the return credited in accordance with the Plan, reduced (iv) by all distributions made in accordance with the terms and conditions of this Plan. The Account Balance shall include the amounts deferred under the Prior Plan which shall be distributed under the terms of this Plan and in accordance with any applicable elections of time and form of payment made by the Participant at the time of deferral under the Prior Plan. This account shall be a bookkeeping entry only and shall be utilized solely as a device for the measurement and determination of the amounts to be paid to a Participant pursuant to this Plan. 1.2"Annual Bonus" means any bonus or incentive compensation, other than a ROE Award, earned by a Participant in each Plan Year under all cash bonus and incentive plans of the Company, and any subsidiary, whether or not paid in such Plan Year. 1.3"Annual Deferral Amount" means that portion of a Participant's Base Annual Salary and Annual Bonus that a Participant elects to have and is deferred, in accordance with Article 3, for any one Plan Year. In the event of Retirement, Disability, death or a Termination of Employment prior to the end of a Plan Year, such year's Annual Deferral Amount shall be the actual amount withheld prior to such event. 1.4"Base Annual Salary" means a Participant's base annual salary that is to be paid to a Participant for each Plan Year, determined as of the first day of that year, excluding bonuses, commissions, overtime, incentive payments, non- monetary awards, and other fees, before reduction for compensation deferred pursuant to all qualified, nonqualified and Internal Revenue Code Section 125 plans of the Company or any subsidiary. 1.5"Beneficiary" means one or more persons, trusts, estates or other entities, designated in accordance with Article 9, that are entitled to receive benefits under this Plan upon the death of a Participant. 1.6"Beneficiary Designation Form" means the form established from time to time by the Committee that a Participant completes, signs and returns to the Committee to designate one or more Beneficiaries. 1.7"Board" means the Board of Directors of the Company. 1.8"CFC" means Consolidated Freightways Corporation, a Delaware corporation. 1.9"Change in Control" means a change in control of the Company, which will be deemed to have occurred if: (a) any "person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") (other than (A) the Company, (B) any trustee or other fiduciary holding securities under an employee benefit plan of the Company, and (C) any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of the outstanding common stock of the Company), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such person any securities acquired directly from the Company or its Affiliates) representing 25% or more of the combined voting power of the Company's then outstanding voting securities; (b) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on January 27, 1997, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on January 27, 1997 or whose appointment, election or nomination for election was previously so approved or recommended; (c) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or such surviving or parent entity outstanding immediately after such merger or consolidation or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no "person" (as hereinabove defined), directly or indirectly, acquired 25% or more of the combined voting power of the Company's then outstanding securities (not including in the securities beneficially owned by such person any securities acquired directly from the Company or its "affiliates," as defined in Rule 12b-2 promulgated under Section 12 of the Exchange Act); or (d) the stockholders of the Company approve a plan of complete liquidation of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets (or any transaction having a similar effect), other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 50% of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale. 1.10 "Claimant" means any Participant or Beneficiary of a deceased Participant who makes a claim for determination under Section 13.1. 1.11"Code" means the Internal Revenue Code of 1986, as amended. 1.12"Committee" means the Compensation Committee of the Board or its delegates. 1.13"Company" means CNF Transportation Inc., a Delaware corporation. 1.14"Disability" means a disability for which a Participant qualifies for benefits under the CNF Transportation Inc. Long Term Disability Plan as it may be amended from time to time or, for Participants employed by CFC or one of its subsidiaries, the Consolidated Freightways Corporation. Long Term Disability Plan or any successor plan. 1.15"Election Form" means the form established from time to time by the Committee that a Participant completes, signs and returns to the Committee to make an election under the Plan. 1.16"Employer" means the Company or any of its subsidiaries that employs a Participant. CFC and its subsidiaries shall cease to be Employers effective December 2, 1996, the date of distribution of the stock of CFC to the Company's shareholders. No further deferral of compensation by their employees shall be permitted under this Plan after that date. The obligation to pay the Account Balance for such employees based on deferral of compensation before that date shall be retained by the Company. 1.17"Moody's Seasoned Corporate Bond Rate," means the arithmetic average of yields of representative bonds, including industrials, public utilities, Aaa, Aa, A and Baa bonds as published by Moody's Investors Service, Inc. or any successor to that service. For each Plan Year, this rate shall be determined by the Committee using the rate calculated for the month of October preceding the Plan Year. 1.18"Participant" for any Plan Year means any employee of an Employer who is selected to participate in the Plan for such Plan Year by the Committee and commences participation in accordance with Article 2. 1.19"Plan" means the Company's Deferred Compensation Plan for Executives, evidenced by this instrument, as amended from time to time. 1.20"Plan Entry Date" means the date on which an employee selected by the Committee to participate in the Plan commences participation in the Plan in accordance with Article 2. The Plan Entry Date shall be January 1 of the Plan Year following selection by the Committee. If an employee is first selected for participation in the Plan subsequent to January 1 of a Plan Year, but prior to July 1, such July 1 shall be an additional Plan Entry Date. 1.21"Plan Year" means the period beginning on January 1 of each year (or, in certain limited cases, July 1) and continuing through December 31 of that year. 1.22"Pre-Retirement Distribution" means the payout set forth in Section 4.1 below. 1.23"Pre-Retirement Survivor Benefit" means the benefit set forth in Article 6 below. 1.24"Prior Plan" means the Company's 1993 Executive Deferral Plan adopted effective January 1, 1993. 1.25"Retirement", "Retires" or "Retired" means (i) early retirement as defined in the CNF Transportation Inc. Retirement Plan, if the Participant elects within 60 days from the last day of regular employment to receive monthly pension benefits under such Retirement Plan starting on the first day of the month following the last day of employment, or (ii) normal or deferred retirement under such Retirement Plan. The distribution of the stock of CFC to the shareholders of the Company in December 1996 shall not cause any employee of a subsidiary of CFC to be retired. After such distribution, Retirement of an employee of CFC or one of its subsidiaries for purposes of this Plan shall occur when the employee has an early or normal retirement under the CFC Pension Plan. 1.26"Retirement Benefit" means the benefit set forth in Article 5. 1.27"ROE Award" means the Participant's award for a three- year award cycle under the CNF Transportation Inc. Return on Equity Plan. 1.28"Termination Benefit" means the benefit set forth in Article 7. 1.29"Termination of Employment" means the ceasing of employment with the Company and its subsidiaries, voluntarily or involuntarily, for any reason other than Retirement, Disability or death. The distribution of the stock of CFC to the shareholders of the Company in December 1996 shall not cause any employee of a subsidiary of CFC to have a Termination of Employment. After such distribution, Termination of Employment of an employee of CFC or one of its subsidiaries for purposes of this Plan shall occur when the employee ceases employment with CFC and its subsidiaries for any reason other than Retirement, Disability or death. 1.30 "Unforeseeable Financial Emergency" means an unanticipated emergency that is caused by an event beyond the control of the Participant that would result in severe financial hardship to the Participant resulting from (i) a sudden and unexpected illness or accident of the Participant or a dependent of the Participant, (ii) a loss of the Participant's property due to casualty, or (iii) such other extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, all as determined in the sole discretion of the Committee. ARTICLE 2 Selection, Enrollment, Eligibility 2.1Selection by Committee. Participation in the Plan shall be limited to a select group of management and highly compensated employees of the Company and its subsidiaries. The Committee shall select for each Plan Year, in its sole discretion, those employees eligible to participate in the Plan for that Plan Year. . 2.2Enrollment Requirement. The Committee shall establish from time to time such enrollment requirements as it determines in its sole discretion are necessary. 2.3Commencement of Participation. Provided an employee selected to participate in the Plan has met all enrollment requirements set forth by the Committee, that employee shall commence participation in the Plan on the Plan Entry Date that immediately follows the employee's election to participate in the Plan. ARTICLE 3 Deferral Commitments/Returns 3.1Minimum Deferral. (a) Minimum. A Participant may not elect to defer less than $2,000 of Base Annual Salary for any Plan Year, less than $2,000 of Annual Bonus for any Plan Year, nor less than $2,000 of ROE Award for an award cycle. (b) Short Participation Year. If a Participant's Plan Entry Date is July 1 of any Plan Year, he must defer a minimum of $1,000 of Base Annual Salary, a minimum of $1,000 of Annual Bonus, or a minimum of $1,000 of ROE Award. 3.2Maximum Deferral. (a) Salary and Annual Bonus. For each Plan Year, a Participant may defer up to 100% of Base Annual Salary stated as a dollar amount and up to 100% of Annual Bonus stated as a dollar or percentage amount. The amount of Base Annual Salary and/or Annual Bonus that a Participant elects to defer shall be reduced by the Committee, without the consent of the affected Participant, to the extent necessary to provide for (i) other deferrals of Base Annual Salary and/or Annual Bonus, as the case may be, by such Participant under all qualified and nonqualified plans of the Company or any subsidiary and Code Section 125 plans of the Company or any subsidiary, (ii) any taxes that are required to be withheld with respect to deferrals under the Plan, and (iii) any other amounts deducted from Base Annual Salary and/or Annual Bonus pursuant to applicable law or authorization by Participant. (b) ROE Awards. For each three-year award cycle under the CNF Transportation Inc. Return on Equity Plan, a Participant who also participates in that plan may defer up to 100 percent of the Participant's ROE Award for that cycle stated as a dollar or percentage amount. 3.3Election to Defer. The Participant shall make a deferral election by delivering to the Committee a completed and signed Election Form prior to the intended Plan Entry Date. For each succeeding Plan Year, a new Election Form must be delivered to the Committee, in accordance with the rules set forth above. If the Election Form is not delivered prior to the Plan Entry Date for a Plan Year, no Annual Deferral Amount shall be deferred for that Plan Year and no ROE Award shall be deferred for the award cycle beginning with that Plan Year. 3.4Withholding of Deferral Amounts. For each Plan Year, the Base Annual Salary portion of the Annual Deferral Amount shall be withheld each payroll period in equal amounts from the Participant's Base Annual Salary. The Annual Bonus portion of the Annual Deferral Amount shall be withheld at the time or times the Annual Bonus is or otherwise would be paid to the Participant. The deferred portion of a ROE Award shall be withheld at the time the ROE Award otherwise would be paid to the Participant. 3.5FICA Tax. Any applicable FICA and other payroll taxes on amounts deferred under this Article, including ROE Awards, shall be withheld from that portion of the Participant's Base Annual Salary, Annual Bonus, and ROE Award that is not being deferred. If necessary, the Committee shall reduce the amount of Base Annual Salary, or Annual Bonus, and/or ROE Award deferred, in order to comply with this Section 3.5. 3.6 Returns Prior to Distribution. Prior to any distribution of benefits under Articles 4, 5, 6, or 7, returns shall be credited to a Participant's Account Balance and compounded annually on a Participant's Account Balance for each Plan Year as though the Annual Deferral Amount for that Plan Year was withheld on the Participant's Plan Entry Date. Returns shall be credited on a deferral from a ROE Award as though the deferral amount was withheld on the last day of the award cycle for which the ROE Award was made. The rate of return on the Account Balance for each Plan Year shall be the Moody's Seasoned Corporate Bond Rate, or such other rate as the Committee may determine in its sole discretion prior to the beginning of a Plan Year. In the event of Retirement, death or a Termination of Employment prior to the end of a Plan Year, that Plan Year's return will be calculated using a fraction of a full Plan Year's return, based on the number of days the Participant was employed with the Employer during the Plan Year prior to the occurrence of such event. 3.7Date on Which Crediting Occurs. Account Balances will be credited with returns in accordance with Section 3.6 up to the date of distribution for a lump sum payment and up to the first date of distribution for installment payments. For purposes of crediting subsequent returns in the event that installment payments are made, the Account Balance shall be reduced as of the day on which the distribution is made. 3.8Returns and Installment Distributions. In the event a benefit is paid in installments, a Participant's unpaid Account Balance shall be credited as follows: (a) Crediting. For each Plan Year, the undistributed Account Balance shall be credited with a return equal to the Moody's Seasoned Corporate Bond Rate or such other rate as the Committee may determine in its sole discretion prior to the beginning of a Plan Year. Returns shall start to accrue under this Section 3.8 as of the date that returns cease to accrue under Section 3.7 above. (b) Installments. The installment payments shall be determined by dividing the Participant's Account Balance at the time of the commencement of the installment payments by the number of payments over the installment period. Each payment determined above will be considered the principal portion of the installment payment. In addition, each installment payment will include a return calculated for the preceding quarter using the rate determined in Section 3.8(a) above. Installment payments shall commence on the first day of the quarter following the first full quarter following such Participant's date of Retirement, or when permitted by the Committee in its sole discretion, Termination of Employment or death. All additional installment payments shall be paid on the first day of the remaining calendar quarters of the payment period. 3.9Statement of Accounts. The Committee shall send to each Participant, within 120 days after the close of each Plan Year, a statement in such form as the Committee deems desirable setting forth the amount of the Participant's Account Balance. ARTICLE 4 Pre-Retirement Distribution/ Unforeseeable Financial Emergencies 4.1Pre-Retirement Distributions. (a) In connection with each election to defer an Annual Deferral Amount or a ROE Award, a Participant may, subject to (b), elect to receive a future distribution from the Plan with respect to that Annual Deferral Amount or ROE Award prior to Retirement. This Pre-Retirement Distribution shall be a lump sum payment in an amount that is equal to the sum of the Annual Deferral Amount or ROE Award and returns credited in accordance with Section 3.6 above. The Pre- Retirement Distribution shall be paid within 60 days of the first day of the Plan Year chosen by the Participant on the Election Form for distribution. The earliest date that a Participant may receive a Pre-Retirement Distribution is 5 years after the first day of the Plan Year in which the Annual Deferral Amount or ROE Award is actually deferred. (b) If a Participant who has elected one or more Pre- Retirement Distributions has a Retirement or Termination of Employment before the start of the Plan Year chosen by the Participant for such Pre-Retirement Distribution, the Participant's Account Balance shall be paid at the time and in the form elected by the Participant in accordance with 5.2 and not as the elected Pre-Retirement Distribution. 4.2Withdrawal Payout/Suspensions for Unforeseeable Financial Emergencies. If the Participant experiences an Unforeseeable Financial Emergency, the Participant may petition the Committee to (i) suspend any deferrals required to be made by a Participant and/or (ii) receive a partial or full payout from the Plan. The Committee may, in its sole discretion, accept or deny such petition. Any payout shall not exceed the lesser of the Participant's Account Balance, calculated as if such Participant were receiving a Termination Benefit, or the amount reasonably needed to satisfy the Unforeseeable Financial Emergency. The suspension shall continue for such period of time and/or the reinstatement of deferrals shall occur at a date, as specified by the Committee, in its sole discretion. If reinstated, the deduction in each pay period shall not exceed that made immediately prior to the suspension. If the petition for a suspension and/or payout is approved, suspension shall take effect upon the date of approval and any payout shall be made within 60 days of the date of approval. ARTICLE 5 Retirement Benefit 5.1Retirement Benefit. A Participant who Retires shall receive, as a Retirement Benefit, the Participant's Account Balance. 5.2Payment of Retirement Benefit. A Participant may elect on the Election Form prior to the beginning of each Plan Year to receive the Retirement Benefit in a lump sum or in quarterly payments over a period of 5, 10, 15 or 20 years. The lump sum payment shall be made within 60 days of the Participant's Retirement. Any installment payment shall be made in accordance with Section 3.8 above. Except for employees of CFC and its subsidiaries, who shall receive payment of amounts deferred for each Plan Year (including returns) in the form elected on the Election Form for that Plan Year, an election of the form of Retirement Benefit shall be effective for a Retirement occurring in the second Plan Year following the Plan Year for which the Election Form is submitted or in any subsequent Plan Year until superseded by a new election. No election of the form of Retirement Benefit shall be effective before the first day of such second Plan Year, except as follows: (a) Upon a Retirement in a Participant's first Plan Year of participation, the election made on the Election Form for such Plan Year shall determine the form of payment. Upon a Retirement in a Participant's second Plan Year of participation, the election made on the Election Form for the preceding Plan Year shall determine the form of payment. (b) In the Election Form for 1998, a Participant may elect to have the Election Form for 1997 control the form of payment upon a Retirement in 1998 instead of the Election Form for 1996. Notwithstanding the foregoing, if the portion of the Participant's Retirement Benefit attributable to Annual Deferral Amounts (including returns), or the portion attributable to ROE Awards (including returns), is under $25,000 on the date of Retirement, such portion shall be paid in a lump sum to the Participant as soon as practicable and not in any other form specified on the Election Form then in effect. 5.3Death Prior to Completion of Retirement Benefit. If a Participant dies after Retirement but before the Retirement Benefit is paid in full, the Participant's unpaid Retirement Benefit payments shall continue and shall be paid to the Participant's Beneficiary (i) over the remaining number of calendar quarters and in the same amounts as that benefit would have been paid to the Participant had the Participant survived, or (ii) the then current Account Balance as of the date of death, in a lump sum, if allowed in the sole discretion of the Committee upon application by the Beneficiary. ARTICLE 6 Pre-Retirement Survivor Benefit 6.1Pre-Retirement Survivor Benefit. If a Participant dies before he Retires, experiences a Termination of Employment or suffers a Disability, the Participant's Beneficiary shall receive a Pre-Retirement Survivor Benefit equal to the Participant's Account Balance as of the date of death. 6.2Payment of Pre-Retirement Survivor Benefit. The Pre- Retirement Survivor Benefit shall be paid to the Participant's Beneficiary in a lump sum or, in the Committee's sole discretion upon application by the Beneficiary, in installments according to the election of the Participant that would have been in effect if the Participant had Retired on the date of death. The lump sum payment shall be made within 60 days of the Committee's receiving proof of the Participant's death. ARTICLE 7 Termination Benefit 7.1Termination Benefit. If a Participant experiences a Termination of Employment prior to Retirement, death or Disability, the Participant shall receive a Termination Benefit which shall be equal to the Participant's Account Balance determined as of the date of the Termination of Employment. 7.2Payment of Termination Benefit. The Termination Benefit shall be the then current Account Balance as of the date of Termination of Employment, paid in a lump sum within 60 days after the Termination of Employment or in installments as the Participant elected on the Election Form in effect at the time of the Termination of Employment under the rules in 5.2. Notwithstanding the foregoing, payment shall be made in a lump sum as follows in lieu of any different form provided on the Election Form then in effect: (a) If the Participant incurs a Termination of Employment within one year after a Change in Control, the Termination Benefit shall be paid in a lump sum within 20 days of the Termination of Employment. (b) If the portion of the Participant's Termination Benefit attributable to Annual Deferral Amounts (including returns), or the portion attributable to ROE Awards (including returns), is under $25,000 on the date of Termination of Employment, such portion shall be paid in a lump sum to the Participant as soon as practicable. ARTICLE 8 Disability Waiver and Benefit 8.1Disability Waiver. A Participant who is determined by the Committee to be suffering from a Disability shall be excused from fulfilling that portion of the Annual Deferral Amount commitment that would otherwise have been withheld from a Participant's Base Annual Salary or Annual Bonus for the Plan Year or portion thereof during which the Participant has a Disability. 8.2Disability Benefit. A Participant suffering a Disability shall for benefit purposes under this Plan, continue to be considered an employee and shall be eligible for the benefits provided for in Articles 4, 5, 6 or 7 in accordance with the provisions of those Articles. Notwithstanding, the Committee shall have the right, in its sole discretion upon application by the Participant, to terminate a Participant's participation in the Plan at any time during which such Participant has a Disability and pay the Account Balance in a lump sum. ARTICLE 9 Beneficiary Designation 9.1Beneficiary. Each Participant shall designate a Beneficiary to receive any benefits payable under the Plan upon the Participant's death. 9.2Beneficiary Designation. A Participant shall designate a Beneficiary by completing and signing the Beneficiary Designation Form, and submitting it to the Committee or its delegate. A Participant shall have the right to change a Beneficiary at any time without the consent of the Beneficiary, by completing, signing and otherwise complying with the terms of the Beneficiary Designation Form and the Committee's rules and procedures, as in effect from time to time. Upon the receipt by the Committee of a new Beneficiary Designation Form, all Beneficiary designations previously filed shall be canceled. The Committee shall be entitled to rely on the last Beneficiary Designation Form filed by the Participant with the Committee prior to death. 9.3Spousal Consent. A married Participant's designation of someone other than the Participant's spouse as primary beneficiary shall not be effective unless the spouse executes a consent in writing that acknowledges the effect of the designation and is witnessed by a plan representative or notary public. No consent is required if it is established to the satisfaction of the Committee that consent cannot be obtained because the spouse cannot be located. 9.4No Beneficiary Designation. If a Participant fails to designate a Beneficiary as provided above, the Participant's designated Beneficiary shall be deemed to be the surviving spouse. If the Participant has no surviving spouse, the benefits otherwise payable to a Beneficiary shall be paid to the Participant's estate. 9.5Doubt as to Beneficiaries. If the Committee has any doubt as to the proper Beneficiary to receive payments pursuant to this Plan, the Committee shall have the right, exercisable in its discretion, to withhold such payments until the matter is resolved to the Committee's satisfaction, and/or to require indemnification. 9.6Discharge of Obligations. The payment of benefits under the Plan to a Participant or Participant's Beneficiary shall fully and completely discharge the Company and the Participant's Employer from all obligations under this Plan with respect to the deceased Participant, Beneficiaries, and any others that may be entitled to such benefits. ARTICLE 10 Leave of Absence 10.1Paid Leave of Absence. If a Participant is authorized by the Company to take a paid leave of absence, the Participant shall continue to be considered employed by the Employer and the Base Annual Salary and Annual Bonus deferred by the Participant shall continue to be withheld during such paid leave of absence in accordance with Section 3.4. 10.2Unpaid Leave of Absence. If a Participant is authorized by the Company to take an unpaid leave of absence, the Participant shall continue to be considered employed by the Employer and the Participant shall be excused from making deferrals until the earlier of the date the leave of absence expires or the Participant returns to a paid employment status. Upon such expiration or return, deferrals shall resume for the remaining portion of the Plan Year in which the expiration or return occurs, based on the deferral election, if any, made for that Plan Year. ARTICLE 11 Termination, Amendment or Modification 11.1Termination. The Company reserves the right to terminate the Plan at any time. Prior to a Change in Control, the Committee shall have the right, at its sole discretion, and notwithstanding any elections made by the Participant to pay the then outstanding Account Balance in a lump sum. After a Change in Control the Company shall be required to pay such benefits in a lump sum. 11.2Amendment. The Board may, at any time, amend or modify the Plan in whole or in part, provided, however, that no amendment or modification shall decrease or restrict a Participant's Account Balance at the time the amendment or modification is made, calculated as if the Participant had experienced a Termination of Employment as of the effective date of the amendment or modification, or, if the amendment or modification occurs after the date upon which the Participant was eligible to Retire, the Participant had Retired as of the effective date of the amendment or modification. The amendment or modification of the Plan shall not affect the payment of benefits to any Participant or Beneficiary who has become entitled to the payment of benefits under the Plan as of the date of the amendment or modification. 11.3Effect of Payment. The full payment of the applicable benefit under Articles 4, 5, 6 or 7 of the Plan shall completely discharge all obligations to a Participant under this Plan. ARTICLE 12 Administration 12.1Committee Duties. This Plan shall be administered by the Committee or its delegates. The Committee shall also have the discretion and authority to make, amend, interpret, and enforce all appropriate rules and regulations for the administration of this Plan and decide or resolve any and all questions including interpretations of this Plan, as may arise in connection with the Plan. A majority of the Committee shall constitute a quorum and a majority of the members present at any meeting at which a quorum is present or acts approved in writing or in a telephone meeting by all of the members shall constitute a decision by the entire Committee. 12.2Agents. In the administration of this Plan, the Committee may, from time to time, delegate to such persons as it deems appropriate such administrative duties as it sees fit and may from time to time consult with counsel who may be counsel to the Company or a subsidiary. 12.3Binding Effect of Decisions. The decision or action of the Committee with respect to any question arising out of or in connection with the administration, interpretation and application of the Plan and the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all persons having any interest in the Plan. 12.4Indemnification. The Company shall indemnify and hold harmless the named fiduciaries and any officers or employees of the Company and its subsidiaries to which fiduciary responsibilities have been delegated from and against any and all liabilities, claims, demands, costs and expenses including attorneys fees, arising out of an alleged breach in the performance of their fiduciary duties under the Plan and ERISA, other than such liabilities, claims, demands, costs and expenses as may result from the gross negligence or willful misconduct of such person. The Company shall have the right, but not the obligation, to conduct the defense of such person in any proceeding to which this paragraph applies. ARTICLE 13 Claims Procedures 13.1Presentation of Claim. Any Participant or Beneficiary of a deceased Participant may deliver to the Committee a written claim for a determination with respect to the amounts distributable to such Claimant from the Plan. If such a claim relates to the contents of a notice received by the Claimant, the claim must be made within 60 days after such notice was received by the Claimant. All other claims must be made within 180 days of the date on which the event that caused the claim to arise occurred. The claim must state with particularity the determination desired by the Claimant. 13.2Notification of Decision. The Committee shall consider a Claimant's claim within a reasonable time, and shall notify the Claimant in writing: (a) that the Claimant's requested determination has been made, and that the claim has been allowed in full; or (b) that the Committee has reached a conclusion contrary, in whole or in part, to the Claimant's requested determination, and such notice must set forth in a manner calculated to be understood by the Claimant: (i) the specific reason(s) for the denial of the claim, or any part of it; (ii) specific reference(s) to pertinent provisions of the Plan upon which such denial was based; (iii) a description of any additional material or information necessary for the Claimant to clarify or perfect the claim, and an explanation of why such material or information is necessary; and (iv) an explanation of the claim review procedure set forth in Section 13.3 below. 13.3Review of a Denied Claim. Within 60 days after receiving a notice from the Committee that a claim has been denied, in whole or in part, a Claimant (or the Claimant's duly authorized representative) may file with the Committee a written request for a review of the denial of the claim. Thereafter, but not later than 30 days after the review procedure began, the Claimant (or the Claimant's duly authorized representative): (a) may review pertinent documents; (b) may submit written comments or other documents; and/or (c) may request a hearing, which the Committee, in its sole discretion, may grant. 13.4Decision on Review. The Committee shall render its decision on review promptly, and not later than 60 days after the filing of a written request for review of the denial, unless a hearing is held or other special circumstances require additional time, in which case the Committee's decision must be rendered within 120 days after such date. Such decision must be written in a manner calculated to be understood by the Claimant and it must contain: (a) specific reasons for the decision; (b) specific reference(s) to the pertinent Plan provisions upon which the decision was based; and (c) such other matters as the Committee deems relevant. 13.5Legal Action. A Claimant's compliance with the foregoing provisions of this Article 13 is a mandatory prerequisite to a Participant's right to commence any legal action with respect to any claim for benefits under this Plan. ARTICLE 14 Miscellaneous 14.1Unsecured General Creditor. Participants and their Beneficiaries, heirs, successors and assigns shall have no legal or equitable rights, interest or claims in any property or assets of the Company or an Employer. Any and all of the Company's assets shall be, and remain, its general, unpledged and unrestricted assets. The Company's obligation under the Plan shall be merely that of an unfunded and unsecured promise to pay money in the future. 14.2Employer's Liability. An Employer other than the Company shall have no liability to a Participant or a Participant's Beneficiary for payment of any benefits under the Plan. 14.3Company's Liability. Amounts payable to a Participant or Beneficiary under this Plan shall be paid from the general assets of the Company (including without limitation the assets of any trust established to fund payment of obligations hereunder) exclusively. 14.4Nonassignability. Neither a Participant nor any other person shall have the right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey in advance of actual receipt the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are expressly declared to be unassignable and non-transferable, except that the foregoing shall not apply to any family support obligations set forth in a court order. No part of the amounts payable shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, nor be transferable by operation of law in the event of a Participant's or any other person's bankruptcy or insolvency. 14.5Not a Contract of Employment. The terms and conditions of this Plan nor any actions taken hereunder shall not be deemed to constitute a contract of employment between the Company or an Employer and the Participant, nor give Participant any right to be retained as an employee of the Company or its subsidiaries. Such employment relationship can be terminated at any time for any reason, with or without cause, unless expressly provided in a written employment agreement. This Plan shall only create a contractual obligation on the part of the Company, and shall not be construed as creating a trust or any fiduciary relationship. 14.6Furnishing Information. A Participant will cooperate with the Committee by furnishing any and all information requested by the Committee and take such other actions as may be requested in order to facilitate the administration of the Plan and the payments of benefits hereunder, including but not limited to taking such physical examinations as the Committee may deem necessary. 14.7Captions. The captions of the articles, sections and paragraphs of this Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions. 14.8Governing Use. The provisions of this Plan shall be construed and interpreted according to the laws of the State of California. 14.9 Notice. Any notice or filing required or permitted to be given to the Committee under this Plan shall be sufficient if in writing and hand-delivered, or sent by registered or certified mail, return receipt requested, to: CNF Transportation Inc. Compensation Committee Deferred Compensation Plan for Executives 3240 Hillview Avenue Palo Alto, California 94304 Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. Any notice or filing required or permitted to be given to a Participant under this Plan shall be sufficient if in writing and hand-delivered, or sent by mail, to the last known address of the Participant. 14.10Successors. The provisions of this Plan shall be binding upon and inure to the benefit of the Company and its successors and assigns and the Participant, the Participant's Beneficiaries, and their permitted successors and assigns. 14.11 Spouse's Interest. The interest in the benefits hereunder of a spouse of a Participant who has predeceased the Participant shall automatically pass to the Participant and shall not be transferable by such spouse in any manner, including but not limited to such spouse's will, nor shall such interest pass under the laws of intestate succession. 14.12Incompetent. If the Committee determines in its discretion that a benefit under this Plan is to be paid to a minor, a person declared incompetent or to a person incapable of handling the disposition of that person's property, the Committee may direct payment of such benefit to the guardian, legal representative or person having the care and custody of such minor, incompetent or incapable person. The Committee may require proof of minority, incompetency, incapacity or guardianship, as it may deem appropriate and/or such indemnification of the Committee, the Company and the Participant's Employer and security, as it deems appropriate, in its sole discretion, prior to distribution of the benefit. Any payment of a benefit shall be a payment for the account of the Participant and the Participant's Beneficiary, as the case may be, and shall be a complete discharge of any liability under the Plan for such payment amount. 14.13Distribution in the Event of Taxation. If, for any reason, all or any portion of a Participant's benefit under this Plan becomes taxable to the Participant prior to receipt, a Participant may petition the Committee for a distribution of assets sufficient to meet the Participant's tax liability (including additions to tax, penalties and interest). Upon the grant of such a petition, which grant shall not be unreasonably withheld, the Company shall distribute to the Participant immediately available funds in an amount equal to that Participant's federal, state and local tax liability associated with such event of taxation (which amount shall not exceed a Participant's accrued benefit under the Plan), such tax liability shall be measured by using that Participant's then current highest federal, state and local marginal tax rate, plus the rates or amounts for the applicable additions to tax, penalties and interest. If the petition is granted, the tax liability distribution shall be made within 90 days of the date when the Participant's petition is granted. Such a distribution shall reduce the benefits to be paid under this Plan. 14.14Legal Fees To Enforce Rights. If the Company has failed to comply with any of its obligations under the Plan or any agreement thereunder or, if the Company, the Participant's Employer or any other person takes any action to declare the Plan void or unenforceable or institutes any litigation or other legal action designed to deny, diminish or to recover from any Participant the benefits intended to be provided, then the Company irrevocably authorizes such Participant to retain counsel chosen by the Participant and agrees to pay the reasonable legal fees and expenses of the Participant incurred in connection with the initiation or defense of any litigation or other legal action, whether by or against the Company, or any director, officer, shareholder or other person affiliated with the Company, or any successor thereto in any jurisdiction, provided that such Participant prevails in such action. 14.15Payment of Withholding. As a condition of receiving benefits under the Plan, the Participant shall pay the Company and/or the applicable Employer not less than the amount of all applicable federal, state, local and foreign taxes required by law to be paid or withheld relating to the receipt or entitlement to benefits hereunder. The Company may withhold taxes from any benefits paid and/or from Base Annual Salary or Annual Bonus, in its sole discretion. 14.16Coordination with Other Benefits. The benefits provided for a Participant and Participant's Beneficiary under the Plan are in addition to any other benefits available to such Participant under any other plan or program for employees of the Company and its subsidiaries. The Plan shall supplement and shall not supersede, modify or amend any other such plan or program except as may otherwise be expressly provided. In no event shall distributions under the Plan prior to Retirement have the effect of increasing payments otherwise due under the various retirement plans of the Company and its subsidiaries. IN WITNESS WHEREOF, the Company has signed this Restatement as of December 8, 1997. CNF TRANSPORTATION INC. By: /s/Eberhard G.H. Schmoller Its: Senior Vice President, General Counsel and Secretary EX-10 3 EX-10.22 EXHIBIT 10.22 CNF TRANSPORTATION INC. EQUITY INCENTIVE PLAN FOR NON-EMPLOYEE DIRECTORS (AS AMENDED JUNE 30, 1997) SECTION 1 INTRODUCTION 1.1 Establishment. CNF Transportation Inc., a Delaware corporation (the "Company"), hereby establishes the Amended and Restated CNF Transportation Inc. Equity Incentive Plan for Non-Employee Directors (the "Plan") for those directors ("Directors") of the Company who are neither officers nor employees of the Company, subject to approval by the holders of at least a majority of the outstanding shares of voting stock of the Company, voting in person or by proxy at the 1995 Annual Meeting of Stockholders ("Amendment Approval Date"). Any award granted hereunder in accordance with the amendments to the Plan hereunder is conditioned on such approval. If the Plan is not so approved by the stockholders, such awards shall be null and void. 1.2 Purposes. The purposes of the Plan are to encourage the Directors to own shares of the Company's stock and thereby to align their interests more closely with the interests of the other stockholders of the Company, to encourage the highest level of Director performance by providing the Directors with a direct interest in the Company's attainment of its financial goals, and to provide a financial incentive that will help attract and retain the most qualified Directors. SECTION 2 DEFINITIONS 2.1 Definitions. The following terms shall have the meanings set forth below: (a) "Annual Cash Retainer" means the then applicable annual cash retainer payable to a Director for service as a Director. (b) "Board" means the Board of Directors of the Company. (c) "Committee" means a committee consisting of members of the Board who are empowered hereunder to take actions in the administration of the Plan. The Committee shall be so constituted at all times as to permit the Plan to comply with Rule 16b-3 ("Rule 16b-3") promulgated under the Securities Exchange Act of 1934 (the "1934 Act"). Members of the Committee shall be appointed from time to time by the Board, shall serve at the pleasure of the Board and may resign at any time upon written notice to the Board. (d) "Director" means a member of the Board who is neither an officer nor an employee of the Company. For purposes of the Plan, an employee is an individual whose wages are subject to the withholding of federal income tax under Section 3401 of the Internal Revenue Code, and an officer is an individual elected or appointed by the Board or chosen in such other manner as may be prescribed in the bylaws of the Company to serve as such. (e) "Fair Market Value" means the closing price of the Stock as reported on The New York Stock Exchange ("NYSE") Composite Tape on a particular date. If there are no Stock transactions on such date, the Fair Market Value shall be determined as of the immediately preceding date on which there were Stock transactions on the NYSE. If the Stock is not listed on the NYSE at the time of an award, the Fair Market Value of the Stock on the particular date shall be as determined by the Committee using a reference comparable to the NYSE, such as the National Market System of the National Association of Securities Dealers Automated Quotation System or such other exchange or automated quotation system on which the Stock is then traded. (f) "Internal Revenue Code" means the Internal Revenue Code of 1986, as it may be amended from time to time. (g) "Option" means an option to purchase Stock granted to a Director pursuant to Section 7 hereof that is subject to certain restrictions imposed in accordance with the provisions of the Plan. (h) "Option Amount" means a number of shares of Stock resulting from multiplying 1,000 by a fraction, the numerator of which is the Annual Cash Retainer and the denominator of which is $20,000. (i) "Restricted Stock Award" means an award of Stock granted to a Director pursuant to Section 6 hereof that is subject to certain restrictions imposed in accordance with the provisions of the Plan. (j) "Restricted Stock Value" as of any grant date shall be a dollar amount equal to $12,500 on or prior to the Amendment Approval Date and 62.5% of the Annual Cash Retainer thereafter. (k) "Stock" means the Common Stock, $0.625 par value, of the Company. 2.2 Gender and Number. Except when otherwise indicated by the context, the masculine gender shall also include the feminine gender, and the definition of any term herein in the singular shall also include the plural. SECTION 3 PLAN ADMINISTRATION The Plan is intended to be self-executing pursuant to the terms hereof. However, any questions concerning interpretation or implementation of the Plan shall be decided by the Committee. Subject to the ability of the Board to amend the Plan pursuant to Section 10 hereof, the Committee shall have no authority, discretion or power to select the Directors who will receive Restricted Stock Awards or Options, determine the Restricted Stock Awards or Options to be granted pursuant to the Plan, the number of shares of Stock to be issued thereunder or the time at which such Restricted Stock Awards or Options are to be granted, establish the duration and nature of Restricted Stock Awards or Options or alter any other terms or conditions specified in the Plan, except in the sense of administering the Plan subject to the provisions of the Plan. Subject to the foregoing limitations, the Committee, by majority action thereof, is authorized to interpret the Plan, prescribe, amend and rescind rules and regulations relating to the Plan, provide for conditions and assurances deemed necessary or advisable to protect the interests of the Company and make all other determinations necessary or advisable for the administration of the Plan, but only to the extent not contrary to the express provisions of the Plan. No member of the Committee shall be liable for any action or determination made in good faith. The determinations, interpretations and other actions of the Committee pursuant to the provisions of the Plan shall be binding and conclusive for all purposes and on all persons. SECTION 4 STOCK SUBJECT TO THE PLAN 4.1 Number of Shares Available Under the Plan. Three Hundred Thousand (300,000) shares of Stock are authorized for issuance under the Plan in accordance with the provisions of the Plan and subject to such restrictions or other provisions as the Committee may from time to time deem necessary. This authorization may be increased from time to time by approval of the Board and by the stockholders of the Company if, in the opinion of counsel for the Company, such stockholder approval is required. Shares of Stock which are issued as Restricted Stock Awards or which are issued upon exercise of an Option shall be applied to reduce the maximum number of shares of Stock remaining available for use under the Plan. The Company shall at all times during the term of the Plan retain as authorized and unissued Stock at least the number of shares from time to time required under the provisions of the Plan, or otherwise assure itself of its ability to perform its obligations hereunder. 4.2 Effect of Forfeitures and Terminations on Shares Available. Any shares of Stock that are subject to a Restricted Stock Award and which are forfeited shall not be available for reissuance under the Plan. In the event that any Option grant hereunder lapses or otherwise terminates prior to being fully exercised, any shares of Stock allocable to the unexercised portion of such grant shall again be available for future Restricted Stock Awards or grants of Options under the Plan. 4.3 Adjustment Provisions. (a) If: (i) any recapitalization, reclassification, spin-off, split-up or consolidation of Stock is effected; (ii) the outstanding shares of Stock are exchanged, in connection with a merger or consolidation of the Company or a sale by the Company of all or a part of its assets, for a different number or class of shares of stock or other securities of the Company or for shares of the stock or other securities of any other corporation; (iii) new, different or additional shares or other securities of the Company or of another company are received by the holders of Stock; or (iv) any distribution is made to the holders of Stock other than a cash dividend; Then the appropriate adjustments will be made to: (i) the number and class of shares or other securities that may be issued or transferred pursuant to outstanding Options or Restricted Stock Awards; (ii) the number and class of shares or other securities available for issuance under the Plan; and (iii) the purchase price to be paid per share under outstanding Options. (b) Upon the dissolution or liquidation of the Company, the Plan shall terminate, and, except as otherwise provided herein, all Options previously granted shall terminate on the date of such dissolution or liquidation of the Company; provided that a Director shall have the right to exercise any Option held by him immediately prior to such dissolution or liquidation to the full extent not theretofore exercised. (c) Adjustments under subparagraph (a) of this Section 4.3 shall be made according to the sole discretion of the Committee, and its decision shall be binding and conclusive, subject to any legally required approval of the Board of Directors or of any other entity. (d) Except as provided in subparagraphs (a) and (b) of this Section 4.3, the issuance by the Company of shares of capital stock of any class, or securities convertible into shares of capital stock of any class shall not affect Options or Restricted Stock Awards hereunder. 4.4 Dividend Payable in Stock of Another Corporation, Etc. If the Company shall at any time pay or make any dividend or other distribution upon the Stock payable in securities or other property (except money), a proportionate part of such securities or other property shall be set aside and delivered to any Director then holding a Restricted Stock Award upon lapse of all restrictions applicable to such Restricted Stock Award. Prior to the time that any such securities or other property are delivered to a Director in accordance with the foregoing, the Director shall, subject to the same forfeiture provisions applicable to the Restricted Stock Award to which such securities or other property relates, be the owner of such securities or other property and shall have the right to vote the securities, receive any dividends payable on such securities and in all other respects shall be treated as the owner. If securities or other property which have been set aside by the Company in accordance with this Section are not delivered to a Director because restrictions applicable to such Restricted Stock Award do not lapse and such Stock is forfeited, then such securities or other property shall be forfeited to the Company and shall be dealt with by the Company as it shall determine in its sole discretion. 4.5 Rights to Subscribe. If the Company shall at any time grant to the holders of its Stock rights to subscribe pro rata for additional shares thereof or for any other securities of the Company or of any other corporation, there shall be reserved with respect to the shares then outstanding pursuant to any Restricted Stock Award the Stock or other securities which the Director would have been entitled to subscribe for if immediately prior to such grant the restrictions applicable to such Restricted Stock Award had lapsed. Upon the lapse of all restrictions applicable to Stock held pursuant to a Restricted Stock Award the Director shall be provided the opportunity to subscribe for the additional shares or other securities issuable with respect to such shares of Stock. 4.6 General Adjustment Rules. No adjustment or substitution provided for in this Section 4 shall require the Company to issue a fractional share of Stock, and the total substitution or adjustment with respect to each Restricted Stock Award shall be limited by deleting any fractional share. In the case of any such substitution or adjustment appropriate adjustments shall be made to Restricted Stock Awards to reflect any such substitution or adjustment. 4.7 Determinations by the Committee, Etc. Adjustments under this Section 4 shall be made by the Committee, whose determinations with regard thereto shall be final and binding upon all parties thereto. SECTION 5 PARTICIPATION Each Director shall receive Options and Restricted Stock Awards on the terms and conditions set forth under the Plan. Each Director shall, if required by the Committee, enter into an agreement with the Company, in such form as the Committee shall determine and which is consistent with the provisions of the Plan. In the event of any inconsistency between the provisions of the Plan and any such agreement entered into hereunder, the provisions of the Plan shall govern. SECTION 6 RESTRICTED STOCK AWARDS 6.1 Initial Restricted Stock Awards. On April 25, 1994, each Director who is then a member of the Board shall receive a Restricted Stock Award for the number of shares of Stock determined pursuant to Section 6.3 below. Thereafter, any person first appointed or elected to the Board, who qualifies as a Director immediately following such appointment or election, shall receive a Restricted Stock Award, as of the date of such election or appointment, for the number of shares of Stock determined pursuant to Section 6.3 below. 6.2 Subsequent Restricted Stock Awards. Beginning January 1, 1995, and on each January 1 thereafter, each Director who is a Director on that date shall receive a Restricted Stock Award, as of that date, for the number of shares of Stock determined pursuant to Section 6.3 below, equal to the Restricted Stock Value. 6.3 Number of Shares Awarded. The number of shares of Stock included in each such Restricted Stock Award shall be determined by dividing the Restricted Stock Value by the Fair Market Value of a share of Stock on the date of grant. In no event shall the Company be required to issue fractional shares. Whenever under the terms of this Section 6 a fractional share of Stock would otherwise be required to be issued, an amount in lieu thereof shall be paid in cash based upon the Fair Market Value of such fractional share. 6.4 Forfeiture of Awards. If a Director voluntarily resigns or is removed for cause as a Board member before completion of the fifth anniversary of the date of the grant of such Restricted Stock Award, the shares of Stock granted pursuant to such Restricted Stock Award shall be forfeited. 6.5 Restrictions. Except as otherwise provided in the Plan, shares of Stock received pursuant to a Restricted Stock Award may not be sold, assigned, pledged, hypothecated, transferred or otherwise disposed of until the restrictions applicable to such Stock have lapsed pursuant to Section 6.6. 6.6 Lapse of Restrictions. Restrictions on Stock covered by a Restricted Stock Award shall lapse upon the fifth anniversary of the date of grant of the Restricted Stock Award. In addition, all restrictions on Stock covered by a Restricted Stock Award shall lapse upon any of the following events: (a) Upon the termination of a Director's service as a board member as a result of death, disability, retirement at normal retirement age for directors, failure to be nominated for election as a director or failure to be elected by stockholders as a Board member; (b) In the event that the Company is merged or consolidated with another corporation (other than a merger or consolidation in which the Company is the continuing corporation and which does not result in any reclassification or change of outstanding Stock), or if all or substantially all of the assets or more than 50% of the outstanding Stock of the Company is acquired by any other corporation, business entity or person (other than a sale or conveyance in which the Company continues as a holding company of an entity or entities that conduct the business or businesses formerly conducted by the Company), or in case of a reorganization (other than a reorganization under the United States Bankruptcy Code) or liquidation of the Company; or (c) In the event of a change of control of the Company. For purposes of the Plan, a "change of control" shall be deemed to have occurred if during any period of two consecutive years (not including any period prior to the Effective Date), individuals who at the beginning of such period constitute the Board (and any new director whose election by the Board or whose nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority thereof. 6.7 Privileges of a Stockholder. A Director shall have all voting, dividend, liquidation and other rights with respect to Stock received by him as a Restricted Stock Award under this Section 6, whether or not restrictions have lapsed. 6.8 Enforcement of Restrictions. The Committee shall cause a legend to be placed on the Stock certificates issued pursuant to each Restricted Stock Award referring to the restrictions imposed in the Plan and, in addition, may in its sole discretion require one or more of the following methods of enforcing such restrictions: (a) Requiring the Director to keep the Stock certificates, duly endorsed, in the custody of the Company while the restrictions remain in effect; or (b) Requiring that the Stock certificates, duly endorsed, be held in the custody of a third party while the restrictions remain in effect. SECTION 7 OPTION GRANTS 7.1 Initial Option Grants. An Option to purchase such number of shares of Stock as equals 2.5 times the Option Amount shall be granted (i) on January 1, 1995 to each person who is a Director on that date, subject to and conditioned upon the approval of shareholders on the Amendment Approval Date as provided in Section 1.1, and (ii) to other Directors elected or appointed to the Board after such date on the date each first becomes a Director of the Company, subject to and conditioned upon shareholder approval as aforesaid if granted prior to the Amendment Approval Date. 7.2 Subsequent Option Grants. Beginning on January 1, 1996 and on January 1 of each year thereafter, each Director who is a Director on that date shall be granted an Option to purchase such number of shares of Stock as equals the Option Amount. 7.3 Exercise Price for Options. The exercise price per share of Stock covered by each Option shall be the Fair Market Value of the Stock on the date the Option is granted. The exercise price of an Option granted under the Plan shall be subject to adjustment to the extent provided in Section 4.3 hereof. 7.4 Terms and Conditions of Options. Each Option granted pursuant to the Plan shall be evidenced by a written stock option agreement executed by the Company and the Director to whom such Option is granted, The stock option agreement may contain such other terms, provisions and conditions as may be determined by the Committee and not inconsistent with the Plan. Each Option granted under the Plan shall vest and become exercisable as to 1/12 of the shares covered thereby on a monthly basis such that the option will be fully exercisable one year after its date of grant. The term of each Option shall be ten (10) years from the date of grant, unless a shorter period is required to comply with any applicable law, in which case such shorter period shall apply. 7.5 Assignability of Options. Each Option granted pursuant to the Plan shall, during the Director's lifetime, be exercisable only by the Director, and the Option shall not be transferable by the Director by operation of law or otherwise other than by will or the laws of descent and distribution. 7.6 Payment Upon Exercise. Payment of the exercise price upon exercise of any Option granted under the Plan shall be made in whole or in part with cash or cash equivalents (including personal checks). SECTION 8 RIGHTS OF DIRECTORS Nothing contained in the Plan or in any Option or Restricted Stock Award granted under the Plan shall interfere with or limit in any way the right of the stockholders of the Company to remove any Director from the Board pursuant to the Certificate of Incorporation or bylaws of the Company, nor confer upon any Director any right to continue in the service of the Company. SECTION 9 GENERAL RESTRICTIONS 9.1 Investment Representations. The Company may require any Director to whom an Option or Restricted Stock Award is granted, as a condition of receiving such Option or Restricted Stock Award or exercising an Option, to give written assurances in substance and form satisfactory to the Company and its counsel to the effect that such person is acquiring the Option or Stock subject to the Restricted Stock Award or Option for his own account for investment and not with any present intention of selling or otherwise distributing the same, and to such other effects as the Company deems necessary or appropriate in order to comply with Federal and applicable state securities laws. 9.2 Compliance With Securities Laws. Each Option or Restricted Stock Award shall be subject to the requirement that, if at any time counsel to the Company shall determine that the listing, registration or qualification of the shares subject to such Option or Restricted Stock Award upon any securities exchange or under any state or federal law, or the consent or approval of any governmental or regulatory body, is necessary as a condition of, or in connection with, the issuance of shares thereunder, such Restricted Stock Award or Option may not be accepted or exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained on conditions acceptable to the Committee. Nothing herein shall be deemed to require the Company to apply for or to obtain such listing, registration or qualification. 9.3 Taxes. Each Director shall make appropriate arrangements for the satisfaction of any applicable federal, state or local income or other tax withholding requirements applicable to any Restricted Stock Award or Option granted hereunder. In addition, each Director shall provide the Company with a copy of any election which such Director may make under Section 83(b) of the Code with respect to a Restricted Stock Award. SECTION 10 PLAN AMENDMENT, MODIFICATION AND TERMINATION The Board may at any time terminate and from time to time may amend or modify the Plan; provided, however, that no amendment or modification may become effective without approval of the amendment or modification by the stockholders if stockholder approval is required to enable the Plan to satisfy any applicable statutory or regulatory requirements, or if the Company, on the advice of counsel, determines that stockholder approval is otherwise necessary or desirable and, provided further that no amendment or modification shall be made more than once every six months, other than to comport with changes in the Internal Revenue Code, the Employment Retirement Income Security Act, or the rules promulgated thereunder. No amendment, modification or termination of the Plan shall in any manner adversely affect any Options or Restricted Stock Awards theretofore granted under the Plan without the consent of the Director holding such Options or Restricted Stock Awards. SECTION 11 REQUIREMENTS OF LAW 11.1 Compliance with Law. The issuance of Stock and the payment of cash pursuant to the Plan shall be subject to all applicable laws, rules and regulations. 11.2 Rule 16b-3. Awards and transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the 1934 Act. To the extent any provision of the Plan or action by the Board or the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Board or the Committee. Moreover, in the event the Plan does not include a provision required by Rule 16b-3 to be stated therein in order to qualify the Plan as a formula plan, such provision (other than one relating to eligibility requirements, or the price and amount of awards) shall be deemed automatically to be incorporated by reference into the Plan. 11.3 Governing Law. The Plan and all agreements hereunder shall be construed in accordance with and governed by the laws of the State of California. SECTION 12 DURATION OF THE PLAN The Plan shall terminate ten years after the date the Plan is first approved by stockholders of the Company or at such earlier time as may be determined by the Board, and no Options or Restricted Stock Awards shall be granted after such termination. EX-10 4 EX-10.24 EXHIBIT 10.24 CNF TRANSPORTATION INC. RETURN ON EQUITY PLAN (As Amended Through Amendment No. 1) TABLE OF CONTENTS Page ARTICLE 1 Purpose; Effective Date; Administration 1 1.01 Purpose 1 1.02 Effective Date 1 1.03 Administration 1 ARTICLE 2 Award Cycles; Eligibility; Vesting 1 2.01 Award Cycles 1 2.02 Eligibility 1 2.03 ROE Units 2 2.04 Initial Value 2 2.05 End Value 2 2.06 Vesting 3 2.07 Change in Control 3 2.08 Dividends 4 ARTICLE 3 Awards 5 3.01 Equity Increase 5 3.02 Award Amount 5 3.03 Payment of Award 6 3.04 Payment to Beneficiary 6 ARTICLE 4 Amendment; Termination 6 4.01 Amendment 6 4.02 Termination 7 ARTICLE 5 Claims Procedure 7 5.01 Submission of Claims 7 5.02 Initial Denial 7 5.03 Review of Denied Claim 7 5.04 Decision on Review 7 ARTICLE 6 General Provisions 8 6.01 Attorneys Fees 8 6.02 Applicable Law 8 6.03 Notice 8 6.04 No Assignment or Alienation 8 6.05 Tax Withholding 8 6.06 Payment to Impaired Person 9 INDEX OF DEFINED TERMS Term Section Page Annual Percentage Increase 3.02 5 Award Cycle 2.01 Beneficiary 3.04 6 Change in Control 2.07 Committee 1.03 Dividends 2.08 4 End Value 2.05 2 Equity Increase 3.01 Initial Value 2.04 Participant 2.02 1 Payout Factor 3.02 Payout Factor Schedule 3.02 ROE Units 2.03 Target API 3.02 Target Equity Increase 3.02 5 CNF TRANSPORTATION INC. RETURN ON EQUITY PLAN 1997 RESTATEMENT (As Amended Through Amendment No. 1) CNF Transportation Inc. adopted the Return On Equity Plan in 1996. The following statement of the Plan makes several revisions and supersedes all prior statements of the Plan. 1. Purpose; Effective Date; Administration 1.01 Purpose The purpose of the Plan is to provide eligible employees of the Company and its subsidiaries or affiliates with long term compensation that is linked to the financial performance of the Company, thereby providing them with an incentive to maximize financial results for shareholders. 1.02 Effective Date The Plan shall be effective January 1, 1996. 1.03 Administration The Plan shall be administered by the Compensation Committee of the Board of Directors of the Company (the "Committee"). The Committee shall interpret the Plan and determine the amount, time and form of award payments for eligible employees. Decisions by the Committee are final and binding on all parties. 2. Award Cycles; Eligibility; Vesting 2.01 Award Cycles "Award Cycle" means a period of three consecutive calendar years. Each Award Cycle shall be identified by its first calendar year. For example, the original Award Cycle runs from Jan. 1, 1996 to Dec. 31, 1998. 2.02 Eligibility The Committee shall designate the employees eligible to participate in an Award Cycle. A "Participant" must be an employee of the Company or one of its subsidiaries or affiliates as designated by the Committee. The Company shall maintain in its records a list of Participants for each Award Cycle. 2.03 ROE Units "ROE Units" means, for any Award Cycle, the units granted to Participants by the Committee for purposes of measuring awards payable under the Plan for that Award Cycle. The Company shall maintain in its records a list of the ROE Units granted to each Participant for an Award Cycle. 2.04 Initial Value "Initial Value" means the book value per common share of the Company on the last day of the year (December 31) preceding the first day of the new Award Cycle (January 1), as reported in the Company's Monthly Financial Review. If an event described in (a) or (b) below occurs during an Award Cycle, the Committee may make an appropriate adjustment to the Initial Value for that Award Cycle so that the result produced by the formula for payout effectuates the purpose of the Plan. Such an event occurred in 1996 with the spin off of CF MotorFreight. (a) The Company engages in a merger, spinoff, or other transaction that alters the equity value per share of the Company's common stock. (b) The Company has a recapitalization that changes the number of shares of its common stock outstanding, such as a stock split, a stock combination, a dividend or other distribution of additional common stock, conversion of convertible preferred stock into common, a stock buy-back, or material accounting change. The phrase "conversion of convertible preferred stock into common" shall exclude conversions of the Company's Series B Preferred Stock into common stock that occur in the ordinary course as employees cease to participate in the Company's Thrift and Stock Plan. The phrase "other distribution of additional common stock" shall exclude shares issued upon exercise of stock options. 2.05 End Value "End Value" means the book value per common share of the Company on December 31 at the end of the Award Cycle, as reported in the Company's Monthly Financial Review. However, if a Participant becomes vested earlier than the last day of the Award Cycle because of the occurrence of one of the several events described below, the End Value shall be the book value per common share as reported in the Company's Monthly Financial Review on the last day of the month before the employee becomes vested. 2.06 Vesting A Participant shall become vested in a ROE Plan Award Cycle if the employee is continuously employed by the Company or one of its subsidiaries or affiliates throughout the entire Award Cycle or until the occurrence of one of the events described below. An employee who terminates from the Company before the last day of an Award Cycle shall forfeit all rights related to the ROE Units granted unless the departure coincides with one of the following (in which case the Participant's ROE Units shall vest): (a) The Participant's death (b) The Participant's disability as defined in the Company's Long Term Disability Plan or a successor to that plan. (c) The Participant's (i) early retirement under the Company's tax qualified Retirement Plan if the Participant elects within 60 days from the last day of regular employment to receive monthly pension benefits under such Retirement Plan starting on the first day of the month following the last day of employment, or (ii) normal or deferred retirement under such Retirement Plan. (d) The Participant's Termination of Employment within 24 months after a Change in Control of the Company. 2.07 Change in Control "Change in Control" means a change in control of the Company, which will be deemed to have occurred if: (a) any "person," as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than (A) the Company, (B) any trustee or other fiduciary holding securities under an employee benefit plan of the Company, and (C) any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of Stock), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such person any securities acquired directly from the Company or its Affiliates) representing 25% or more of the combined voting power of the Company's then outstanding voting securities; (b) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on January 27, 1997, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on January 27, 1997 or whose appointment, election or nomination for election was previously so approved or recommended; (c) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving or parent entity) more than 50% of the combined voting power of the voting securities of the Company or such surviving or parent entity outstanding immediately after such merger or consolidation or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no "person" (as hereinabove defined), directly or indirectly, acquired 25% or more of the combined voting power of the Company's then outstanding securities (not including in the securities beneficially owned by such person any securities acquired directly from the Company or its "affiliates," as defined in Rule 12b-2 promulgated under Section 12 of the Exchange Act); or (d) the stockholders of the Company approve a plan of complete liquidation of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets (or any transaction having a similar effect), other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 50% of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale. 2.08 Dividends "Dividends" means, for any Award Cycle, the total of all distributions for each share of the Company's common stock during that Award Cycle. 3. Awards 3.01 Equity Increase "Equity Increase" means the increase in the equity value per common share of the Company's stock during each Award Cycle plus Dividends determined under the following formula: Equity Increase (El) equals the End Value (EV) minus the Initial Value (IV) plus Dividends (D), or .... El = (EV-IV)+D 3.02 Award Amount A Participant shall receive an award amount for each Award Cycle equal to (i) the Participant's vested ROE Units for that Award Cycle times (ii) the Target Equity Increase (TEI) times (iii) the Payout Factor (PF): Award = ROE Units x TEI x PF "Payout Factor" (PF) means a percentage from zero to 200 percent determined from the Payout Factor Schedule (attached) for that Award Cycle, based upon the Annual Percentage Increase (API). "Payout Factor Schedule" means the attached schedule setting forth a range of Annual Percentage Increases (APIs) and the corresponding Payout Factors. If the APIs are between those set forth in the schedule, the Payout Factor shall be determined by interpolation. The range of APIs is in each Payout Factor Schedule may set forth a minimum API below which the Payout Factor will be zero, and a maximum API, at and above which the Payout Factor will be 200%. The range of APIs, and the minimum and maximum APIs, may vary from Award Cycle to Award Cycle. "Annual Percentage Increase" (API) means, for any Award Cycle, the annual percentage rate of increase that, when applied to the Initial Value with annual compounding, produces the Equity Increase for that Award Cycle. "Target Equity Increase" (TEI) means the increase in the equity value per common share of the Company's stock during each Award Cycle that would result by applying an Annual Percentage Increase equal to the Target API for that Award Cycle to the Initial Value for that Award Cycle (with annual compounding). "Target API" means, for each Award Cycle, the annual percentage rate of increase that results in a 100% Payout Factor for that Award Cycle, as set forth on the Payout Factor Schedule. 3.03 Payment of Award The Company shall pay a Participant's award for an Award Cycle to the Participant in a lump sum of cash within 60 days after the End Value is determined unless the Participant has made a valid election to defer payment under the CNF Transportation Inc. Deferred Compensation Plan for Executives. 3.04 Payment to Beneficiary In the event of a Participant's death, the award payable to the Participant for an Award Cycle shall be paid to the Participant's Beneficiary. "Beneficiary" means the person or persons designated by Participant under this Plan, or if no person is specifically designated, as determined for the Participant under the beneficiary designation provisions of the Company's Deferred Compensation Plan for Executives. If no designation is made under either Plan, then the award shall be paid to the Participant's estate. Payment to the Beneficiary shall be made within 60 days after the later of the date the End Value for the Award Cycle is determined or the date of death, except as follows. If the Participant had elected deferral of the ROE Award under the Company's Deferred Compensation Plan for Executives with payment in installments, the Committee may choose, in its sole discretion upon application by the Beneficiary, to make payment to the Beneficiary in accordance with the elected installment schedule as though the date of death was the date of retirement. 4. Amendment; Termination 4.01 Amendment The Committee may amend the Plan at any time by notice to the Participants, except as follows: (a) No amendment shall reduce the award determined for an Award Cycle that has ended before the date of the amendment. (b) No amendment shall reduce the award for an Award Cycle that is in progress below the amount determined under the formula in Section 3.2 with the End Value based on the book value per common share of the Company as of the date of the amendment. 4.02 Termination The Committee may terminate the Plan at any time. The award for Award Cycles in progress shall be determined under the formula in Section 3.2 replacing End Value with the per share equity value of the Company's common stock as of the date of termination. Upon termination of the Plan, the award of each Participant shall be paid to the Participant or to a deceased Participant's Beneficiary as soon as practicable after the termination. 5. Claims Procedure 5.01 Submission of Claims Any person claiming an award or requesting an interpretation, ruling or information under the Plan shall present the request in writing to the Committee, which shall respond in writing. 5.02 Initial Denial Notice of an initial denial shall normally be given within 90 days of receipt of the claim or request or no later than 180 days if special circumstances require an extension of time. The written notice of denial shall state the following: (a) The reasons for the denial, with specific reference to the Plan provisions on which the denial is based. (b) A description of any additional materials or information required and an explanation of why it is necessary. 5.03 Review of Denied Claim Any person whose claim or request is denied or who has not received a response within the time period described above may request review by notice to the Committee. The original decision shall be reviewed by the Committee, which may, but shall not be required to, grant the claimant a hearing. On review, whether or not there is a hearing, the claimant may have representation, examine pertinent documents and submit issues and comments in writing. 5.04 Decision on Review The decision on review shall ordinarily be made within 60 days. If an extension of time is required for a hearing or other special circumstances, the claimant shall be so notified and the time limit shall be 120 days. The decision shall be in writing and shall state the reasons and the relevant plan provisions. All decisions on review shall be final and bind all parties concerned. 6. General Provisions 6.01 Attorneys Fees If suit or action is instituted to enforce any rights under this Plan, the prevailing party may recover from the other party reasonable attorneys' fees at trial and on any appeal. 6.02 Applicable Law This Plan shall be governed by and construed in accordance with the laws of the State of California, except as preempted by federal law. 6.03 Notice Any notice under this Plan shall be in writing and shall be effective when actually delivered or, if mailed, when deposited as first class mail postage prepaid. Mail to the Company shall be directed to 3240 Hillview Avenue, Palo Alto, CA 94304, or to such other address as the Company may specify by notice to all Participants. Mailed notices to a Participant shall be directed to the Participant's last known home address shown in the Company's records. Notices to the Committee shall be sent to the Company's address. 6.04 No Assignment or Alienation The rights of a Participant or Beneficiary under this Plan are personal. No interest of a Participant or Beneficiary may be directly or indirectly assigned, transferred, or encumbered. A Participant's or Beneficiary's rights to awards payable under this Plan are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, or encumbrance. Such rights shall not be subject to the debts, contracts, liabilities, engagement or torts of the Participant of Beneficiary. 6.05 Tax Withholding The Company shall make any required withholding of income taxes and of the employee's share of FICA and any other applicable payroll taxes from payments made under this Plan. If such withholding is required before the date of payment of amounts deferred under this Plan, the Company shall pay the required amount and withhold it from other compensation payable to the Participant. 6.06 Payment to Impaired Person The Committee may decide that because of the mental or physical condition of a person entitled to payments, or because of other relevant factors, it is in the best interest to make payments to others for the benefit of the person entitled to payment. In that event, the Committee may in its discretion direct that payments be made to any of the following: (a) To a parent or spouse or a child of legal age. (b) To a legal guardian. (c) To one furnishing maintenance, support, or hospitalization. CNF Transportation Inc. By: /s/Eberhard G. H. Schmoller Name: Eberhard G. H. Schmoller Title: Senior Vice President, General Counsel and Secretary Executed: December 8, 1997 EX-10 5 EX-10.29 Exhibit 10.29 CNF TRANSPORTATION INC. EXECUTIVE INCENTIVE PLAN FOR 1998 THE PLAN In order to motivate certain employees of CNF Transportation Inc. (CNFT) more effectively and efficiently, The Company (CNFT) establishes an Incentive Plan (Plan) under which payments will be made to eligible executive personnel of CNFT out of calendar year 1998 Incentive Profits. DESIGNATION OF PARTICIPANTS Participants in this Plan shall be all full-time executive personnel of CNFT. A master list of all Plan participants will be maintained in the office of the President of CNFT. ELIGIBILITY FOR PAYMENT Participants will commence participation at the beginning of the first full calendar quarter following becoming eligible. Calendar quarters begin January 1, April 1, July 1, and October 1 or the first working day thereafter. An employee who commences participation in the 1998 Plan during the 1998 Plan year, and who participates less than four full quarters, will receive a pro rata payment based on the number of full calendar quarters of Plan participation. Subject to the following exceptions, no person shall receive any payment under this Plan unless on the date that the payment is actually made that person is then currently (i) employed by CNFT and (ii) a Plan participant. EXCEPTION 1. A Plan participant who is employed by CNFT through December 31, 1998 but leaves that employment or otherwise becomes ineligible after December 31, 1998 but before the final payment is made relating to 1998, unless terminated for cause, shall be entitled to receive payments under this Plan resulting from 1998 Incentive Profits. EXCEPTION 2. An appropriate pro rata payment will be made (1) to a Plan participant who retires prior to December 31, 1998 pursuant to the CNF Transportation Inc. Retirement Plan or to the provisions of the Social Security Act and who, at the time of retirement, was an eligible participant in this Plan, (2) to the heirs, legatees, administrators or executors of a Plan participant who dies prior to December 31, 1998 and who, at the time of death, was an eligible participant in this Plan, (3) to an eligible Plan participant who is placed on an approved Medical, Sabbatical, or Military Leave of Absence prior to December 31, 1998, or (4) to an eligible Plan participant who is transferred to another subsidiary of CNF Transportation Inc. (CNFT) and who remains an employee through December 31, 1998. METHOD OF PAYMENT Each Plan participant will be assigned an incentive participation factor as a percent of annual compensation. The Incentive Participation Factor will be allocated 100% to the assigned profit goal. Incentive compensation for the assigned goals will be earned on a pro rata basis for accomplishments between the Minimum level and the Incentive Factor Goals and will continue to be earned ratably for performance over the Incentive Factor Goal. No incentive will be earned by a participant until the Minimum Profit Goal is achieved. There is a maximum percent of accomplishment for any performance goal of 200%. PERSONAL DATA SHEET A "Personal Data Sheet" for calculation of incentive earnings will be prepared for each Plan participant which designates (1) the unit to which the participant is assigned, (2) his assigned incentive participation factor, (3) the minimum level of achievement required for each assigned goal, (4) the incentive factor level of achievement for each assigned goal, and (5) the incentive earnings at the incentive factor level for each assigned goal. DATE OF PAYMENT The President of CNFT may authorize a partial payment of the estimated annual earned incentive, in December, 1998. The final payment to eligible participants, less any previous partial payment, will be made on or before March 15, 1999. INCENTIVE PROFIT Incentive Profit is defined as earnings before deducting any amounts expensed under any CNFT and qualified CNFS incentive plans and before deducting income taxes. ANNUAL COMPENSATION Annual Compensation for incentive purposes for each Plan participant is his annualized salary before any incentive or other special compensation as of the first pay period following the date the participant becomes eligible to participate in this Plan. The term "special compensation" used herein does not include deferred salary arrangements wherein the participant could have chosen to receive the deferred salary in the Plan year. MAXIMUM PAYMENT Payments under this Plan are limited as noted on the "Personal Data Sheet". LAWS GOVERNING PAYMENTS No payment shall be made under this Plan in an amount which is prohibited by law. AMENDMENT, SUSPENSION, AND ADMINISTRATION OF PLAN The Board of Directors of CNFT may at any time amend, suspend, or terminate the operation of this Plan, by thirty-day written notice to the Plan participants, and will have full discretion as to the administration and interpretation of this Plan. No participant in this Plan shall at any time have any right to receive any payment under this Plan until such time, if any, as any payment is actually made. DURATION OF PLAN This Plan is for the calendar year 1998 only. EX-10 6 EX-10.30 EXHIBIT 10.30 CON-WAY TRANSPORTATION SERVICES, INC. INCENTIVE PLAN FOR 1998 THE PLAN In order to motivate certain of its employees more effectively and efficiently, Con-Way Transportation Services, Inc. (CTS) establishes an Incentive Plan (Plan) under which payments will be made to eligible supervisory, managerial, and regular full-time nonsalaried personnel out of calendar year 1998 Incentive Profits. DESIGNATION OF PARTICIPANTS Participants in the Plan shall be all full-time supervisory, managerial, and regular nonsalaried personnel of CTS Administration. A master list of Plan participants will be maintained in the office of the President of CTS. ELIGIBILITY FOR PARTICIPATION Participants will commence participation at the beginning of the first full calendar quarter following becoming eligible. Calendar quarters begin January 1, April 1, July 1, and October 1 or the first working day thereafter. An employee who commences participation in the 1998 Plan during the 1998 Plan year, and who participates less than four full quarters, will receive a pro rata payment based on the number of full calendar quarters of Plan participation. Subject to the following exceptions, no person shall receive any payment under this Plan unless on the date that the payment is actually made that person is then currently (i) employed by CTS or any of its subsidiaries and (ii) a Plan participant. EXCEPTION 1. A Plan participant who is employed by CTS or any of its subsidiaries through December 31, 1998 but leaves that employment or otherwise becomes ineligible after December 31, 1998 but before the final payment is made relating to 1998, unless terminated for cause, shall be entitled to receive payments under this Plan resulting from 1998 Incentive Profits. EXCEPTION 2. An appropriate pro rata payment will be made (1) to a Plan participant who retires prior to December 31, 1998 pursuant to the CNF Transportation Inc. Retirement Plan or to the provisions of the Social Security Act and who, at the time of retirement, was an eligible participant in this Plan, (2) to the heirs, legatees, administrators or executors of a Plan participant who dies prior to December 31, 1998 and who, at the time of death, was an eligible participant in this Plan, (3) to an eligible Plan participant who is placed on an approved Medical, Sabbatical, or Military Leave of Absence prior to December 31, 1998, or (4) to an eligible Plan participant who is transferred to another subsidiary of CNF Transportation Inc. and who remains an employee through December 31, 1998. METHOD OF PAYMENT Each Plan participant will be assigned an incentive participation factor as a percent of Annual Compensation in accordance with the enclosed Personal Data Sheet. Unless indicated otherwise on the Data Sheet, the incentive participation factor will be allocated 100% to the assigned profit goal. An accounts receivable goal may be assigned. Incentive for assigned goals will be earned on a pro rata basis for accomplishment between the Minimum level and the Incentive Factor Goal. Incentive earnings over the Incentive Factor Goal will continue to earn at the same pro rata relationship that exists between minimum level and factor goal. No incentive will be earned by a participant until CTS has achieved its Minimum Profit Goal. Incentive earned from the achievement of the Accounts Receivable Performance Goal will be restricted to the same percent of accomplishment as profit, until CTS has reached its Incentive Factor Profit Goal. Once the CTS Incentive Factor Profit Goal has been reached, this restriction will be removed. The maximum percent of accomplishment for any goal is 200%. Actual incentive payout is subject to the CTS ICP pool, thus Incentive Earnings will be adjusted proportionately to the amount in the pool. PERSONAL DATA SHEET A "Personal Data Sheet" for calculation of incentive earnings will be prepared for each Plan participant which designates (1) the unit to which the participant is assigned, (2) his assigned incentive par- ticipation factor, (3) the minimum level of achievement required for each assigned goal, (4) the incentive factor level of achievement for each assigned goal, and (5) the incentive earnings at the incentive factor level for each assigned goal. DATE OF PAYMENT The President of CTS may authorize a partial payment of the estimated annual earned incentive, in December 1998. The final payment to eligible participants, less any previous partial payment, will be made on or before March 15, 1999. INCENTIVE PROFIT Incentive profit is defined as the consolidated earnings of all of the companies comprising CTS, before deducting any amounts expensed under this or any similar incentive or bonus plan and before deducting in- come taxes and excluding interest income and expense. ANNUAL COMPENSATION Annual Compensation for incentive purposes for each Plan participant is his annualized salary or hourly base pay before any incentive, overtime, or other special compensation as of the first pay period following the date the participant becomes eligible to participate in this Plan. MAXIMUM PAYMENT Payments under this Plan are limited as noted on the "Personal Data Sheet". LAWS GOVERNING PAYMENTS No payment shall be made under this Plan in an amount which is prohibited by law. AMENDMENT, SUSPENSION, AND ADMINISTRATION OF PLAN The Board of Directors of CTS may at any time amend, suspend, or terminate the operation of this Plan, by thirty-day written notice to the Plan participants, and will have full discretion as to the administration and interpretation of this Plan. No participant in this Plan shall at any time have any right to receive any payment under this Plan until such time, if any, as the payment is actually made. DURATION OF PLAN This Plan is for the calendar year 1998 only. EX-10 7 EX-10.31 EXHIBIT 10.31 EMERY INCENTIVE PLAN FOR 1998 1998 ICP PLAN LETTER Dear Fellow Employee: I am pleased to announce the 1998 incentive program that has been approved by our Board of Directors. The plan may be amended effective July 1, 1998 to include service improvement performance factors that will measure the quality of serice we provide to our customers. The incentive program focuses all employees on a common goal - profitability. The program consists of three distinct plans that reward employees based on their actual contributions in attaining specific unit performance goals. Hourly and salaried employees will participate in the Employee Performance Incentive Plan (EPIP), which focuses on improving profitability through increased operating efficiencies and cost containment. All sales personnel are part of the revised global Sales Incentive Plan (SIP), which is based on one or more of the following: margin contribution, margin improvement, profit plan, and days sales outstanding. As a member of management, you will participate in the Incentive Compensation Plan (ICP), which is tied to one or more of the following factors: unit performance /profit, company profit, and Days Sales Outstanding (DSO). DSO is a measure of how long it takes on average for our customers to pay us (accounts receivable). Our usual terms are payment within ten (10) calendar days from date of billing. By decreasing the time it takes us to collect our receivables (DSO), we will improve our profitability. By successfully leading and directing your team's total effort, you will benefit by the improved profitability of your unit, which will enhance your ICP rewards as well as the rewards of your team. Actual incentive compensation will be funded by an ICP pool. At the end of 1998, ICP will be calculated and a proportionate amount paid, depending on your performance and the pool. All ICP payments will be calculated and paid on an annual basis and are subject to the ICP Terms and Conditions. This is an exciting opportunity for you to earn compensation based on attaining your unit's performance goals and improving the company's DSO's. I am confident that our continued team effort to expand our air, ocean, customs brokerage, expedited and logistics services, along with your commitment to Emery Worldwide, will result in increased incentive compensation pay in 1998 and beyond. Emery Worldwide 1998 INCENTIVE COMPENSATION PERFORMANCE FACTORS (EFFECTIVE JANUARY 1, 1998) EX-10 8 EX-10.32 EXHIBIT 10.32 CNF TRANSPORTATION INC. SPECIAL BONUS PLAN FOR 1998 THE PLAN In order to motivate certain key employees more effectively, CNF Transportation Inc. (CNFT) establishes a Special Bonus Plan for 1998 (Plan) under which payments will be made to designated executive personnel out of calendar year 1998 profits. DESIGNATION OF PARTICIPANTS Participants in this Plan shall be designated full-time executive personnel of CNFT subsidiaries. A master list of all Plan participants will be maintained in the office of the Chief Financial Officer of CNFT. METHOD OF PAYMENT Each Plan participant will be assigned specific Operating Profit Ratio (O/R) performance goals. Compensation for the assigned goals will be earned on a pro rata basis for accomplishments between the Minimum level and the Target O/R Goal. No special 1998 bonus will be earned by a participant until the Minimum O/R Goal is achieved. Payments under this Plan are limited to 100 percent of each participant's annual salary. OPERATING RATIO Operating Ratio is defined as: 1) operating expense before taxes, interest and non-operating expenses, but, including all amounts expensed under any qualified Con-Way Transportation Services, Inc., Emery Worldwide, Emery Customs Brokers, Emery Priority Mail, Emery Global Logistics, Emery Expedite, Emery Worldwide Airlines, Menlo Logistics Priority Mail and Menlo Logistics, Inc. incentive and bonus plans; divided by 2) net revenue. Full year results will be used. ANNUAL SALARY Annual Salary for Bonus Plan purposes for each Plan participant is annualized salary (ie. weekly base salary as of January 1, 1998 multiplied by 52) excluding any incentive or other special compensation as of the first pay period following the date the participant becomes eligible to participate in this Plan. The term "special compensation" used herein includes deferred salary arrangements wherein the participant could have chosen to receive the deferred salary in the Plan year. PERSONAL DATA SHEET A "Personal Data Sheet" for calculation of Bonus Plan earnings (attached hereto) will be prepared for each Plan participant which designates (1) the unit to which the participant is assigned, (2) the minimum level of achievement required for the assigned O/R goal, (3) the target level of achievement for the assigned O/R goal, and (4) the earnings at the target level for the assigned O/R goal. ELIGIBILITY FOR PAYMENT Eligible employees will commence participation on January 1, 1998. An employee who commences participation after the January 1 date will receive a pro rata payment based on the number of full calendar quarters of Plan participation. Subject to the following exceptions, no person shall receive any payment under this Plan unless on the date that the payment is actually made that person is then currently (i) employed by CNF Transportation Inc. or any of its subsidiaries and (ii) a Plan participant. EXCEPTION 1. A Plan participant who is employed by CNFT or any of its subsidiaries through December 31, 1998 but leaves that employment or otherwise becomes ineligible after December 31, 1998 but before the final payment is made relating to 1998, unless terminated for cause, shall be entitled to receive payments under this Plan resulting from 1998 Incentive Profits. EXCEPTION 2. An appropriate pro rata payment will be made (1) to a Plan participant who retires prior to December 31, 1998 pursuant to the CNF Transportation Inc. Retirement Plan or to the provisions of the Social Security Act and who, at the time of retirement, was an eligible participant in this Plan, (2) to the heirs, legatees, administrators or executors of a Plan participant who dies prior to December 31, 1998 and who, at the time of death, was an eligible participant in this Plan, (3) to an eligible Plan participant who is placed on an approved Medical, Sabbatical, or Military Leave of Absence prior to December 31, 1998, or (4) to an eligible Plan participant who is transferred to another subsidiary of CNFT and who remains an employee through December 31, 1998. DATE OF PAYMENT The Chief Executive Officer of CNFT will select a date for payment to eligible participants. Such date will be no later than March 15, 1999. LAWS GOVERNING PAYMENTS No payment shall be made under this Plan in an amount which is prohibited by law. AMENDMENT, SUSPENSION, AND ADMINISTRATION OF PLAN The Board of Directors of CNFT may at any time amend, suspend, or terminate the operation of this Plan, by thirty-day written notice to the Plan participants, and will have full discretion as to the administration and interpretation of this Plan. No participant in this Plan shall at any time have any right to receive any payment under this Plan until the date for payment. DURATION OF PLAN This Plan is effective from January 1, 1998 through December 31, 1998 only. EX-10 9 EX-10.33 EXHIBIT 10.33 CNF TRANSPORTATION INC. 1997 EQUITY AND INCENTIVE PLAN As Amended June 30, 1997 The purposes of the 1997 Equity and Incentive Plan of CNF Transportation Inc. (the "Plan") are to afford an incentive to selected employees of CNF Transportation Inc. (the "Company") or any Subsidiary or Affiliate that now exists or hereafter is organized or acquired, to continue as employees, to increase their efforts on behalf of the Company and to promote the success of the Company's business. Pursuant to the Long-Term Incentive Program described herein, there may be granted stock options (including "incentive stock options" and "non-qualified stock options"), stock appreciation rights (either in connection with stock options granted under the Plan or independently of stock options), restricted stock, restricted stock units, dividend equivalents and other long- term stock- or cash-based Awards, and pursuant to the Annual Incentive Bonus Program described herein, there may be granted short-term stock- or cash-based Awards. The Plan is designed so that Awards granted hereunder intended to comply with the requirements for "performance-based compensation" under Section 162(m) of the Code may comply with such requirements and insofar as may be applicable to such Awards, the Plan shall be interpreted in a manner consistent with such requirements. . For purposes of the Plan, the following terms shall be defined as set forth below: (a)"Affiliate" means an affiliate of the Company, as defined in Rule 12b-2 promulgated under Section 12 of the Exchange Act. (b)"Annual Incentive Bonus Program" means the program described in Section 6(c) hereof. (c)"Award" means any Option, SAR, Restricted Stock, Restricted Stock Unit, Dividend Equivalent or Other Stock- Based Award or Other Cash-Based Award granted under the Plan. (d)"Award Agreement" means any written agreement, contract, or other instrument or document evidencing an Award. (e) "Board" means the Board of Directors of the Company. (f) "Change in Control" means a change in control of the Company, which will be deemed to have occurred if: (i) any "person," as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than (A) the Company, (B) any trustee or other fiduciary holding securities under an employee benefit plan of the Company, and (C) any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of Stock), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such person any securities acquired directly from the Company or its Affiliates) representing 25% or more of the combined voting power of the Company's then outstanding voting securities; (ii)the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the Effective Date, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the Effective Date or whose appointment, election or nomination for election was previously so approved or recommended; (iii)there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving or parent entity) more than 50% of the combined voting power of the voting securities of the Company or such surviving or parent entity outstanding immediately after such merger or consolidation or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no "person" (as hereinabove defined), directly or indirectly, acquired 25% or more of the combined voting power of the Company's then outstanding securities (not including in the securities beneficially owned by such person any securities acquired directly from the Company or its Affiliates); or (iv)the stockholders of the Company approve a plan of complete liquidation of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets (or any transaction having a similar effect), other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 50% of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale. (g) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (h) "Committee" means the committee established by the Board to administer the Plan, the composition of which shall at all times satisfy the provisions of Rule 16b-3 and Section 162(m) of the Code; provided, however, that the Board may, if it so chooses, retain authority to administer all or any part of the Plan and, to the extent the Board does so, references in the Plan to "Committee" shall mean and be references to the Board. (i)"Company" means CNF Transportation Inc., a corporation organized under the laws of the State of Delaware, or any successor corporation. (j) "Dividend Equivalent" means a right, granted to a Grantee under Section 6(b)(v), to receive cash or Stock equal in value to dividends paid with respect to a specified number of shares of Stock. Dividend Equivalents may be awarded on a free-standing basis or in connection with another Award, and may be paid currently or on a deferred basis. (k) "Effective Date" means January 27, 1997, the date that the Plan was adopted by the Board. (l)"Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, and as now or hereafter construed, interpreted and applied by regulations, rulings and cases. (m) "Fair Market Value" per share of Stock as of a particular date means (i) the closing sales price per share of Stock on the national securities exchange on which the Stock is principally traded, for the last preceding date on which there was a sale of such Stock on such exchange, or (ii) if the shares of Stock are then traded in an over-the- counter market, the average of the closing bid and asked prices for the shares of Stock in such over-the-counter market for the last preceding date on which there was a sale of such Stock in such market, or (iii) if the shares of Stock are not then listed on a national securities exchange or traded in an over-the-counter market, such value as the Committee, in its sole discretion, shall determine. (n)"Grantee" means a person who, as an employee of the Company, a Subsidiary or an Affiliate, has been granted an Award under the Plan. (o)"ISO" means any Option intended to be and designated as an incentive stock option within the meaning of Section 422 of the Code. (p)"Long-Term Incentive Program" means the program described in Section 6(b) hereof. (q)"NQSO" means any Option that is designated as a non- qualified stock option. (r)"Option" means a right, granted to a Grantee under Section 6(b)(i), to purchase shares of Stock. An Option may be either an ISO or an NQSO; provided that ISOs may be granted only to employees of the Company or a Subsidiary. (s)"Other Cash-Based Award" means an Award under the Annual Incentive Bonus Program or the Long-Term Incentive Program, which Award is not denominated or valued by reference to Stock, including an Award which is subject to the attainment of Performance Goals or otherwise as permitted under the Plan. (t)"Other Stock-Based Award" means an Award under the Long-Term Incentive Program that is denominated or valued in whole or in part by reference to Stock and is payable in cash. (u)"Performance Goals" means performance goals based on one or more of the following criteria: (i) pre-tax income or after-tax income, (ii) operating profit, (iii) return on equity, assets, capital or investment, (iv) earnings or book value per share, (v) sales or revenues, (vi) operating expenses, (vii) Stock price appreciation, (viii) total shareholder return (i.e., Stock price appreciation plus dividends) and (ix) implementation or completion of critical projects or processes. Where applicable, the Performance Goals may be expressed in terms of attaining a specified level of the particular criteria or the attainment of a percentage increase or decrease in the particular criteria, and may be applied to one or more of the Company, a Subsidiary or Affiliate, or a division or strategic business unit of the Company, or may be applied to the performance of the Company relative to a market index, a group of other companies or a combination thereof, all as determined by the Committee. The Performance Goals may include a threshold level of performance below which no payment will be made (or no vesting will occur), levels of performance at which specified payments will be made (or specified vesting will occur), and a maximum level of performance above which no additional payment will be made (or at which full vesting will occur). Each of the foregoing Performance Goals shall be determined in accordance with generally accepted accounting principles and shall be subject to certification by the Committee; provided that the Committee shall have the authority to make equitable adjustments to the Performance Goals in recognition of unusual or non-recurring events affecting the Company or any Subsidiary or Affiliate or the financial statements of the Company or any Subsidiary or Affiliate, in response to changes in applicable laws or regulations, or to account for items of gain, loss or expense determined to be extraordinary or unusual in nature or infrequent in occurrence or related to the disposal of a segment of a business or related to a change in accounting principles. (v)"Plan" means this CNF Transportation Inc. 1997 Equity and Incentive Plan, as amended from time to time. (w)"Plan Year" means a calendar year. (x)"Restricted Stock" means an Award of shares of Stock to a Grantee under Section 6(b)(iii) that may be subject to certain transferability and other restrictions and to a risk of forfeiture (including by reason of not satisfying certain Performance Goals). (y)"Restricted Stock Unit" means a right granted to a Grantee under Section 6(b)(iv) to receive Stock or cash at the end of a specified deferral period, which right may be conditioned on the satisfaction of certain requirements (including the satisfaction of certain Performance Goals). (z)"Rule 16b-3" means Rule 16b-3, as from time to time in effect promulgated by the Securities and Exchange Commission under Section 16 of the Exchange Act, including any successor to such Rule. (aa) "Stock" means shares of the common stock, par value $.625 per share, of the Company. (bb)"SAR" or "Stock Appreciation Right" means the right, granted to a Grantee under Section 6(b)(ii), to be paid an amount measured by the appreciation in the Fair Market Value of Stock from the date of grant to the date of exercise of the right, with payment to be made in cash or Stock as specified in the Award or determined by the Committee. (cc)"Subsidiary" means any corporation in an unbroken chain of corporations beginning with the Company if, at the time of granting of an Award, each of the corporations (other than the last corporation in the unbroken chain) owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the chain. 3.. The Plan shall be administered by the Committee. The Committee shall have the authority in its discretion, subject to and not inconsistent with the express provisions of the Plan, to administer the Plan and to exercise all the powers and authorities either specifically granted to it under the Plan or necessary or advisable in the administration of the Plan, including, without limitation, the authority to grant Awards; to determine the persons to whom and the time or times at which Awards shall be granted; to determine the type and number of Awards to be granted, the number of shares of Stock to which an Award may relate and the terms, conditions, restrictions and Performance Goals relating to any Award; to determine Performance Goals no later than such time as is required to ensure that an underlying Award which is intended to comply with the requirements of Section 162(m) of the Code so complies; to determine whether, to what extent, and under what circumstances an Award may be settled, canceled, forfeited, exchanged, or surrendered; to make adjustments in the terms and conditions (including Performance Goals) applicable to Awards; to designate Affiliates; to construe and interpret the Plan and any Award; to prescribe, amend and rescind rules and regulations relating to the Plan; to determine the terms and provisions of the Award Agreements (which need not be identical for each Grantee); and to make all other determinations deemed necessary or advisable for the administration of the Plan. Notwithstanding the foregoing and except as otherwise provided in the second paragraph of Section 5 below, the Committee shall not have the authority to lower the exercise price of any outstanding option or SAR, nor shall the Committee have the authority to settle, cancel or exchange any outstanding option or SAR in consideration for the grant of a new award with a lower exercise price. The Committee may appoint a chairperson and a secretary and may make such rules and regulations for the conduct of its business as it shall deem advisable, and shall keep minutes of its meetings. All determinations of the Committee shall be made by a majority of its members either present in person or participating by conference telephone at a meeting or by written consent. The Committee may delegate to one or more of its members or to one or more agents such administrative duties as it may deem advisable, and the Committee or any person to whom it has delegated duties as aforesaid may employ one or more persons to render advice with respect to any responsibility the Committee or such person may have under the Plan. All decisions, determinations and interpretations of the Committee shall be final and binding on all persons, including the Company, and any Subsidiary, Affiliate or Grantee (or any person claiming any rights under the Plan from or through any Grantee) and any stockholder. No member of the Board or Committee shall be liable for any action taken or determination made in good faith with respect to the Plan or any Award granted hereunder. 4.. Awards may be granted to selected employees of the Company and its present or future Subsidiaries and Affiliates, in the discretion of the Committee. In determining the persons to whom Awards shall be granted and the type of any Award (including the number of shares to be covered by such Award), the Committee shall take into account such factors as the Committee shall deem relevant in connection with accomplishing the purposes of the Plan. 5.. The maximum number of shares of Stock reserved for the grant or settlement of Awards under the Plan shall be 2,200,000, subject to adjustment as provided herein. No more than 550,000 shares of Stock may be awarded in the aggregate in respect of stock-based awards (including Options, SARs, Restricted Stock and Restricted Stock Units) to a single individual over the term of the Plan and no more than 900,000 shares of Stock may be awarded in the aggregate in respect of Restricted Stock and Restricted Stock Units to all Grantees over the term of the Plan, in each case subject to adjustment as provided herein. Determinations made in respect of the limitation set forth in the preceding sentence shall be made in a manner consistent with Section 162(m) of the Code. Such shares may, in whole or in part, be authorized but unissued shares or shares that shall have been or may be reacquired by the Company in the open market, in private transactions or otherwise. If any shares subject to an Award are forfeited, canceled, exchanged or surrendered or if an Award otherwise terminates or expires without a distribution of shares to the Grantee, the shares of stock with respect to such Award shall, to the extent of any such forfeiture, cancellation, exchange, surrender, termination or expiration, again be available for Awards under the Plan. Upon the exercise of any Award granted in tandem with any other Awards or awards, such related Awards or awards shall be canceled to the extent of the number of shares of Stock as to which the Award is exercised and, notwithstanding the foregoing, such number of shares shall no longer be available for Awards under the Plan. In the event that the Committee shall determine that any dividend or other distribution (whether in the form of cash, Stock, or recapitalization, Stock split, reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase, or share exchange, or other similar corporate transaction or event, affects the Stock such that an adjustment is appropriate in order to prevent dilution or enlargement of the rights of Grantees under the Plan, then the Committee shall make such equitable changes or adjustments as it deems necessary or appropriate to any or all of (i) the number and kind of shares of Stock or cash that may thereafter be issued in connection with Awards, (ii) the number and kind of shares of Stock or cash issued or issuable in respect of outstanding Awards, (iii) the exercise price, grant price, or purchase price relating to any Award; provided that, with respect to ISOs, such adjustment shall be made in accordance with Section 424(h) of the Code, (iv) the Performance Goals and (v) the individual limitations applicable to Awards. 6.. (a) General. The term of each Award shall be for such period as may be determined by the Committee. Subject to the terms of the Plan and any applicable Award Agreement, payments to be made by the Company or a Subsidiary or Affiliate upon the grant, maturation, or exercise of an Award may be made in Stock or cash, or a combination thereof, as the Committee shall determine at the date of grant or thereafter and may be made in a single payment or transfer, in installments, or on a deferred basis. The Committee may make rules relating to installment or deferred payments with respect to Awards, including the rate of interest to be credited with respect to such payments. In addition to the foregoing, the Committee may impose on any Award or the exercise thereof, at the date of grant or thereafter, such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall determine. (b)Long-Term Incentive Program. The Committee is authorized to grant to Grantees the following Awards under the Long-Term Incentive Program, as deemed by the Committee to be consistent with the purposes of the Plan. The Committee shall determine the terms and conditions of such Awards at the date of grant or thereafter. (i) Options. The Committee is authorized to grant Options to Grantees on the following terms and conditions: (A)Type of Award. The Award Agreement evidencing the grant of an Option under the Plan shall designate the Option as an ISO or an NQSO. (B)Exercise Price. The exercise price per share of Stock purchasable under an Option shall be determined by the Committee; provided that, such exercise price shall be not less than the Fair Market Value of a share on the date of grant of such Option. The exercise price for Stock subject to an Option may be paid in cash or by an exchange of Stock previously owned by the Grantee, or a combination of both, in an amount having a combined value equal to such exercise price. A Grantee may also elect to pay all or a portion of the aggregate exercise price by having shares of Stock with a Fair Market Value on the date of exercise equal to the aggregate exercise price withheld by the Company or sold by a broker-dealer. (C)Term and Exercisability of Options. Options shall be exercisable over the exercise period (which shall not exceed ten years from the date of grant), at such times and upon such conditions as the Committee may determine, as reflected in the Award Agreement; provided that, the Committee shall have the authority to accelerate the exercisability of any outstanding Option at such time and under such circumstances as it, in its sole discretion, deems appropriate. An Option may be exercised to the extent of any or all full shares of Stock as to which the Option has become exercisable, by giving written notice of such exercise to the Committee or its designated agent. (D)Termination of Employment, etc. An Option may not be exercised unless the Grantee is then in the employ of the Company or a Subsidiary or an Affiliate (or a company or a parent or subsidiary company of such company issuing or assuming the Option in a transaction to which Section 424(a) of the Code applies), and unless the Grantee has remained continuously so employed since the date of grant of the Option; provided that, the Award Agreement may contain provisions extending the exercisability of Options, in the event of specified terminations, to a date not later than the expiration date of such Option. (E)Other Provisions. Options may be subject to such other conditions including, but not limited to, restrictions on transferability of the shares acquired upon exercise of such Options, as the Committee may prescribe in its discretion or as may be required by applicable law. (ii)SARs. The Committee is authorized to grant SARs to Grantees on the following terms and conditions: (A)In General. Unless the Committee determines otherwise, an SAR (1) granted in tandem with an NQSO may be granted at the time of grant of the related NQSO or at any time thereafter or (2) granted in tandem with an ISO may only be granted at the time of grant of the related ISO. An SAR granted in tandem with an Option shall be exercisable only to the extent the underlying Option is exercisable. (B)SARs. An SAR shall confer on the Grantee a right to receive an amount with respect to each share subject thereto, upon exercise thereof, equal to the excess of (1) the Fair Market Value of one share of Stock on the date of exercise over (2) the grant price of the SAR (which in the case of an SAR granted in tandem with an Option shall be equal to the exercise price of the underlying Option, and which in the case of any other SAR shall be such price as the Committee may determine). (iii)Restricted Stock. The Committee is authorized to grant Restricted Stock to Grantees on the following terms and conditions: (A)Issuance and Restrictions. Restricted Stock shall be subject to such restrictions on transferability and other restrictions as the Committee may impose at the date of grant or thereafter, which restrictions may lapse separately or in combination at such times, under such circumstances, in such installments, or otherwise, as the Committee may determine; provided, however, notwithstanding the foregoing, each Restricted Stock award shall be subject to restrictions, imposed at the date of grant, relating to either of both of (1) the attainment of Performance Goals by the Company or (2) the continued employment of the Grantee with the Company, a Subsidiary or an Affiliate. All performance based Restricted Stock Awards will have a minimum vesting period of one year. With respect to any shares of Restricted Stock subject to restrictions which lapse solely based on the Grantee's continuation of employment with the Company, a Subsidiary or an Affiliate, such restrictions shall lapse over a vesting schedule (so long as the Grantee remains employed with the Company, a Subsidiary or an Affiliate) no shorter in duration than three years from the date of grant; provided that, such vesting schedule may provide for partial or installment vesting from time to time during such period. Except to the extent otherwise provided in an Award Agreement, a Grantee granted Restricted Stock shall have all of the rights of a stockholder including, without limitation, the right to vote Restricted Stock and the right to receive dividends thereon (subject to subsection (D) below). (B)Forfeiture. Upon termination of employment with the Company or a Subsidiary or Affiliate, during the applicable restriction period, Restricted Stock and any accrued but unpaid dividends or Dividend Equivalents that are at that time subject to restrictions shall be forfeited; provided that, the Committee may provide, by rule or regulation or in any Award Agreement, or may determine in any individual case, that restrictions or forfeiture conditions relating to Restricted Stock will be waived in whole or in part in the event of terminations resulting from specified causes, and the Committee may in other cases waive in whole or in part the forfeiture of Restricted Stock. (C)Certificates for Stock. Restricted Stock granted under the Plan may be evidenced in such manner as the Committee shall determine. If certificates representing Restricted Stock are registered in the name of the Grantee, such certificates shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock, and the Company shall retain physical possession of the certificate. (D)Dividends. Dividends paid on Restricted Stock shall be either paid at the dividend payment date, or deferred for payment to such date as determined by the Committee, in cash or in shares of unrestricted Stock having a Fair Market Value equal to the amount of such dividends. Stock distributed in connection with a stock split or stock dividend, and distributed as a dividend, shall be subject to restrictions and a risk of forfeiture to the same extent as the Restricted Stock with respect to which such Stock or has been distributed. (iv)Restricted Stock Units. The Committee is authorized to grant Restricted Stock Units to Grantees, subject to the following terms and conditions: (A)Award and Restrictions. Delivery of Stock or cash, as determined by the Committee, will occur upon expiration of the deferral period specified for Restricted Stock Units by the Committee. The Committee may condition the vesting and/or payment of Restricted Stock Units, in whole or in part, upon the attainment of Performance Goals. (B)Forfeiture. Upon termination of employment during the applicable deferral period or portion thereof to which forfeiture conditions apply, or upon failure to satisfy any other conditions precedent to the delivery of Stock or cash to which such Restricted Stock Units relate, all Restricted Stock Units that are then subject to deferral or restriction shall be forfeited; provided that, the Committee may provide, by rule or regulation or in any Award Agreement, or may determine in any individual case, that restrictions or forfeiture conditions relating to Restricted Stock Units will be waived in whole or in part in the event of termination resulting from specified causes, and the Committee may in other cases waive in whole or in part the forfeiture of Restricted Stock Units. (v)Dividend Equivalents. The Committee is authorized to grant Dividend Equivalents to Grantees. The Committee may provide, at the date of grant or thereafter, that Dividend Equivalents shall be paid or distributed when accrued or shall be deemed to have been reinvested in additional Stock, or other investment vehicles as the Committee may specify, provided that Dividend Equivalents (other than freestanding Dividend Equivalents) shall be subject to all conditions and restrictions of the underlying Awards to which they relate. (vi)Other Stock- or Cash-Based Awards. The Committee is authorized to grant Awards to Grantees in the form of Other Stock-Based Awards or Other Cash-Based Awards, as deemed by the Committee to be consistent with the purposes of the Plan. Awards granted pursuant to this paragraph may be granted with value and payment contingent upon the attainment of certain Performance Goals, so long as such goals relate to periods of performance in excess of one calendar year. The Committee shall determine the terms and conditions of such Awards at the date of grant or thereafter. The maximum payment that any Grantee may receive pursuant to an Award granted under this paragraph in respect of any performance period shall be $3,000,000. Payments earned hereunder may be decreased or, with respect to any Grantee who is not a "covered employee" within the meaning of Section 162(m) of the Code (a "Covered Employee"), increased in the sole discretion of the Committee based on such factors as it deems appropriate. No payment shall be made prior to the certification by the Committee that any applicable Performance Goals have been attained. The Committee may establish such other rules applicable to the Other Stock- or Cash-Based Awards to the extent not inconsistent with Section 162(m) of the Code. (c)Annual Incentive Bonus Program. The Committee is authorized to grant Awards to Grantees pursuant to the Annual Incentive Bonus Program in the form of Other Cash- Based Awards, as deemed by the Committee to be consistent with the purposes of the Plan. Grantees will be selected by the Committee with respect to participation for a Plan Year. Each Award granted under the Annual Incentive Bonus Program in respect of a Plan Year will be contingent on the attainment by the Company of one or more Performance Goals. The maximum payment that any Grantee may receive pursuant to an Award granted under the Annual Incentive Bonus Program in respect of any Plan Year shall be $3,000,000. Payments earned hereunder may be decreased or, with respect to any Grantee who is not a Covered Employee, increased in the sole discretion of the Committee based on such factors as it deems appropriate. No payment shall be made prior to the certification by the Committee that any applicable Performance Goals have been attained. The Committee may establish such other rules applicable to the Annual Incentive Bonus Program to the extent not inconsistent with Section 162(m) of the Code. 7. . Unless otherwise determined by the Committee and evidenced in an Award Agreement, in the event of a Change of Control: (a)any Award carrying a right to exercise that was not previously exercisable and vested shall become fully exercisable and vested; and (b)the restrictions, deferral limitations, payment conditions, and forfeiture conditions applicable to any other Award granted under the Plan shall lapse and such Awards shall be deemed fully vested, and any Performance Goals imposed with respect to Awards shall be deemed to be fully achieved. 8.. (a)Nontransferability. Unless otherwise provided in an Award Agreement, Awards shall not be transferable by a Grantee except by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined under the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended, and shall be exercisable during the lifetime of a Grantee only by such Grantee or his guardian or legal representative. (b)No Right to Continued Employment, etc. Nothing in the Plan or in any Award granted or any Award Agreement or other agreement entered into pursuant hereto shall confer upon any Grantee the right to continue in the employ of the Company, any Subsidiary or any Affiliate or to be entitled to any remuneration or benefits not set forth in the Plan or such Award Agreement, or other agreement or to interfere with or limit in any way the right of the Company or any such Subsidiary or Affiliate to terminate such Grantee's employment. (c)Taxes. The Company or any Subsidiary or Affiliate is authorized to withhold from any Award granted, any payment relating to an Award under the Plan, including from a distribution of Stock, or any other payment to a Grantee, amounts of withholding and other taxes due in connection with any transaction involving an Award, and to take such other action as the Committee may deem advisable to enable the Company and Grantees to satisfy obligations for the payment of withholding taxes and other tax obligations relating to any Award. This authority shall include authority to withhold or receive Stock or other property and to make cash payments in respect thereof in satisfaction of a Grantee's tax obligations. (d)Stockholder Approval; Amendment and Termination. The Plan shall take effect on the Effective Date but the Plan (and any grants of Awards made prior to the stockholder approval mentioned herein) shall be subject to the requisite approval of the stockholders of the Company, which approval must occur within twelve (12) months of the date that the Plan is adopted by the Board. In the event that the stockholders of the Company do not ratify the Plan at a meeting of the stockholders at which such issue is considered and voted upon, then upon such event the Plan and all rights hereunder shall immediately terminate and no Grantee (or any permitted transferee thereof) shall have any remaining rights under the Plan or any Award Agreement entered into in connection herewith. The Board may at any time and from time to time alter, amend, suspend, or terminate the Plan in whole or in part. Notwithstanding the foregoing, no amendment shall affect adversely any of the rights of any Grantee, without such Grantee's consent, under any Award theretofore granted under the Plan. Unless earlier terminated by the Board pursuant to the provisions of the Plan, the Plan shall terminate on the tenth anniversary of its Effective Date. No Awards shall be granted under the Plan after such termination date. (e)No Rights to Awards; No Stockholder Rights. No Grantee shall have any claim to be granted any Award under the Plan, and there is no obligation for uniformity of treatment of Grantees. Except as provided specifically herein, a Grantee or a transferee of an Award shall have no rights as a stockholder with respect to any shares covered by the Award until the date of the issuance of a stock certificate to him for such shares. (f)Unfunded Status of Awards. The Plan is intended to constitute an "unfunded" plan for incentive and deferred compensation. With respect to any payments not yet made to a Grantee pursuant to an Award, nothing contained in the Plan or any Award shall give any such Grantee any rights that are greater than those of a general creditor of the Company. (g)No Fractional Shares. No fractional shares of Stock shall be issued or delivered pursuant to the Plan or any Award. The Committee shall determine whether cash or other Awards shall be issued or paid in lieu of such fractional shares or whether such fractional shares or any rights thereto shall be forfeited or otherwise eliminated. (h)Regulations and Other Approvals. (i) The obligation of the Company to sell or deliver Stock with respect to any Award granted under the Plan shall be subject to all applicable laws, rules and regulations, including all applicable federal and state securities laws, and the obtaining of all such approvals by governmental agencies as may be deemed necessary or appropriate by the Committee. (ii)Each Award is subject to the requirement that, if at any time the Committee determines, in its absolute discretion, that the listing, registration or qualification of Stock issuable pursuant to the Plan is required by any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the grant of an Award or the issuance of Stock, no such Award shall be granted or payment made or Stock issued, in whole or in part, unless listing, registration, qualification, consent or approval has been effected or obtained free of any conditions not acceptable to the Committee. (iii)In the event that the disposition of Common Stock acquired pursuant to the Plan is not covered by a then current registration statement under the Securities Act of 1933, as amended (the "Securities Act"), and is not otherwise exempt from such registration, such Stock shall be restricted against transfer to the extent required by the Securities Act or regulations thereunder, and the Committee may require a Grantee receiving Stock pursuant to the Plan, as a condition precedent to receipt of such Stock, to represent to the Company in writing that the Stock acquired by such Grantee is acquired for investment only and not with a view to distribution. (i)Governing Law. The Plan and all determinations made and actions taken pursuant hereto shall be governed by the laws of the State of Delaware without giving effect to the conflict of laws principles thereof. EX-10 10 EX-10.34 EXHIBIT 10.34 ------------- CNF TRANSPORTATION INC. DEFERRED COMPENSATION PLAN FOR DIRECTORS 1998 RESTATEMENT TABLE OF CONTENTS Page Preamble Article 1 Definitions 1.1 Account Balance 1.2 Annual Deferral Amount 1.3 Beneficiary 1.4 Beneficiary Designation Form 1.5 Board 1.6 Change in Control 2 1.7 Claimant 1.8 Committee 1.9 Company 1.10 Director 3 1.11 Election Form 1.12 Fixed Date Distribution 3 1.13 Participant 3 1.14 Plan 3 1.15 Plan Entry Date 4 1.16 Plan Year 1.17 Termination Benefit 1.18 Termination of Service 1.19 Unforeseeable Financial Emergency Article 2 Eligibility, Enrollment 2.1 Eligibility 2.2 Enrollment Requirement 2.3 Commencement of Participation Article 3 Deferral Commitments/Returns 5 3.1 Permissible Deferrals 5 3.2 Election to Defer 5 3.3 Withholding of Deferral Amounts 3.4 Returns Prior to Distribution 3.5 Date on Which Crediting Occurs 3.6 Returns and Installment Distributions 6 3.7 Statement of Accounts Article 4 Distribution to Participant 4.1 Fixed Date Distribution 6 4.2 Withdrawal Payout/Suspensions for Unforeseeable Financial Emergencies 7 4.3 Termination Benefit 7 4.4 Payment of Termination Benefit 7 Article 5 Distribution to Beneficiary 8 5.1 Payment 8 5.2 Beneficiary Designation 8 5.3 Spousal Consent 8 5.4 No Beneficiary Designation 8 5.5 Doubt as to Beneficiaries 8 5.6 Discharge of Obligations 8 Article 6 Termination, Amendment or Modification 9 6.1 Termination 9 6.2 Amendment 9 6.3 Effect of Payment 9 Article 7 Administration 7.1 Committee Duties 7.2 Agents 7.3 Binding Effect of Decisions 10 7.4 Indemnification 10 Article 8 Claims Procedures 8.1 Presentation of Claim 8.2 Notification of Decision 8.3 Review of a Denied Claim 11 8.4 Decision on Review 8.5 Legal Action Article 9 Miscellaneous 12 9.1 Unsecured General Creditor 12 9.2 Company's Liability 12 9.3 Nonassignability 12 9.4 Furnishing Information 9.5 Captions 9.6 Governing Use 9.7 Notice 13 9.8 Successors 13 9.9 Spouse's Interest 9.10 Incompetent 9.11 Distribution in the Event of Taxation 14 9.12 Legal Fees To Enforce Rights 14 9.13 Payment of Withholding 9.14 Coordination with Other Benefits CNF TRANSPORTATION INC. DEFERRED COMPENSATION PLAN FOR DIRECTORS 1998 Restatement Preamble The purpose of this Plan is to enhance the motivational value of the fees paid to non-employee directors, who contribute materially to the continued growth, development and future business success of the Company and its subsidiaries, by providing them the opportunity to defer cash compensation. The Plan is intended to aid the Company and its subsidiaries in attracting and retaining directors and give them an incentive to increase the profitability of the Company and its subsidiaries. The Company maintains this Plan pursuant to Election Forms completed by Directors in advance of each Plan Year. In order to provide more complete documentation for the Plan, the Company adopts this 1998 Restatement effective January 1, 1998. ARTICLE 1 Definitions For purposes hereof, unless otherwise clearly apparent from the context, the following phrases or terms shall have the following indicated meanings: 1.1"Account Balance" means the sum of (i) the total of a Participant's Annual Deferral Amounts, plus (ii) the return credited in accordance with the Plan, reduced (iii) by all distributions made in accordance with the terms and conditions of this Plan. This account shall be a bookkeeping entry only and shall be utilized solely as a device for the measurement and determination of the amounts to be paid to a Participant pursuant to this Plan. 1.2"Annual Deferral Amount" means that portion of a Participant's annual retainer fee, meeting fees, and chair fees, if applicable, that a Participant elects to have and is deferred, in accordance with Article 3, for any one Plan Year. In the event of death or Termination of Service prior to the end of a Plan Year, such year's Annual Deferral Amount shall be the actual amount withheld prior to such event. 1.3 "Beneficiary" means one or more persons, trusts, estates or other entities, designated in accordance with Article 5, that are entitled to receive benefits under this Plan upon the death of a Participant. 1.4"Beneficiary Designation Form" means the form established from time to time by the Committee that a Participant completes, signs and returns to the Committee to designate one or more Beneficiaries. 1.5"Board" means the Board of Directors of the Company. 1.6"Change in Control" means a change in control of the Company, which will be deemed to have occurred if: (a) any "person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") (other than (A) the Company, (B) any trustee or other fiduciary holding securities under an employee benefit plan of the Company, and (C) any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of the outstanding common stock of the Company), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such person any securities acquired directly from the Company or its Affiliates) representing 25% or more of the combined voting power of the Company's then outstanding voting securities; (b) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on January 27, 1997, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on January 27, 1997 or whose appointment, election or nomination for election was previously so approved or recommended; (c) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or such surviving or parent entity outstanding immediately after such merger or consolidation or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no "person" (as hereinabove defined), directly or indirectly, acquired 25% or more of the combined voting power of the Company's then outstanding securities (not including in the securities beneficially owned by such person any securities acquired directly from the Company or its "affiliates," as defined in Rule 12b-2 promulgated under Section 12 of the Exchange Act); or (d) the stockholders of the Company approve a plan of complete liquidation of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets (or any transaction having a similar effect), other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 50% of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale. 1.7"Claimant" means any Participant or Beneficiary of a deceased Participant who makes a claim for determination under Section 8.1. 1.8"Committee" means the Director Affairs Committee of the Board or its delegates. 1.9"Company" means CNF Transportation Inc., a Delaware corporation. 1.10"Director" means a member of the Board. 1.11"Election Form" means the form established from time to time by the Committee that a Participant completes, signs and returns to the Committee to make an election under the Plan. 1.12"Fixed Date Distribution" means a distribution of an Annual Deferral Amount, plus returns credited in accordance with Section 3.4, on a future January specified by the Participant in accordance with Section 4.1. 1.13"Participant" for any Plan Year means any Director who commences participation in accordance with Article 2. 1.14"Plan" means the Company's Deferred Compensation Plan for Directors, evidenced by this instrument, as amended from time to time. 1.15 "Plan Entry Date" means January 1 of each Plan Year. 1.16"Plan Year" means the period beginning on January 1 of each year and continuing through December 31 of that year. 1.17"Termination Benefit" means the benefit set forth in Section 4.3. 1.18"Termination of Service" means cessation of membership on the Board for any reason. 1.19"Unforeseeable Financial Emergency" means an unanticipated emergency that is caused by an event beyond the control of the Participant that would result in severe financial hardship to the Participant resulting from (i) a sudden and unexpected illness or accident of the Participant or a dependent of the Participant, (ii) a loss of the Participant's property due to casualty, or (iii) such other extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, all as determined in the sole discretion of the Committee. ARTICLE 2 Eligibility, Enrollment 2.1Eligibility. Participation in the Plan shall be limited to Directors who are not employed by the Company or any member of the Company's controlled group of corporations. . 2.2Enrollment Requirement. The Committee shall establish from time to time such enrollment requirements as it determines in its sole discretion are necessary. 2.3Commencement of Participation. Provided a Director has met all enrollment requirements set forth by the Committee, the Director may commence participation in the Plan on the Plan Entry Date that immediately follows the Director's election to participate in the Plan. ARTICLE 3 Deferral Commitments/Returns 3.1Permissible Deferrals. A Participant may elect to defer for each Plan Year either of the following: (a) Minimum. The annual retainer portion of the Participant's Director fees payable in the Plan Year. (b)Maximum. The annual retainer and all meeting fees, plus all chair fees, if applicable, payable in the Plan Year. 3.2Election to Defer. The Participant shall make a deferral election by delivering to the Committee a completed and signed Election Form prior to the intended Plan Entry Date. For each succeeding Plan Year, a new Election Form must be delivered to the Committee, in accordance with the rules set forth above. If the Election Form is not delivered prior to the Plan Entry Date for a Plan Year, no Annual Deferral Amount shall be deferred for that Plan Year. 3.3Withholding of Deferral Amounts. For each Plan Year, the Annual Deferral Amount shall be withheld at the time or times the Participant's Director fees otherwise would be paid to the Participant. 3.4Returns Prior to Distribution. Prior to any distribution of benefits under Articles 4 or 5, returns shall be credited to a Participant's Account Balance and compounded quarterly on a Participant's Account Balance for each Plan Year as though the Annual Deferral Amount for that Plan Year was withheld on the Participant's Plan Entry Date. The rate of return on the Account Balance shall be the published prime rate of the Bank of America N.T. & S. A. as of the last day of each calendar quarter. In the event of death or a Termination of Service prior to the end of a calendar quarter, that calendar quarter's return will be calculated using a fraction of a full calendar quarter's return, based on the number of days the Participant was a Director during the calendar quarter prior to the occurrence of such event. 3.5Date on Which Crediting Occurs. Account Balances will be credited with returns in accordance with Section 3.4 up to the date of distribution for a lump sum payment and up to the first date of distribution for installment payments. For purposes of crediting subsequent returns in the event that installment payments are made, the Account Balance shall be reduced as of the day on which the distribution is made. 3.6 Returns and Installment Distributions. In the event a benefit is paid in installments, a Participant's unpaid Account Balance shall be credited as follows: (a) Crediting. As of the last day of each calendar quarter, the undistributed Account Balance shall be credited with a return equal to the published prime rate of the Bank of America N.T. & S. A. as of the last day of such calendar quarter. Returns shall start to accrue under this Section 3.6 as of the date that returns cease to accrue under Section 3.4 above. (b) Installments. The installment payments shall be determined by dividing the Participant's Account Balance at the time of the commencement of the installment payments by the number of payments over the installment period. Each payment determined above will be considered the principal portion of the installment payment. In addition, each installment payment will include a return calculated for the preceding year using the rate determined in Section 3.6(a) above. Installment payments shall commence in the January following such Participant's Termination of Service. All additional installment payments shall be paid in January of succeeding years. 3.7Statement of Accounts. The Committee shall send to each Participant, within 120 days after the close of each Plan Year, a statement in such form as the Committee deems desirable setting forth the amount of the Participant's Account Balance. ARTICLE 4 Distribution to Participant 4.1Fixed Date Distribution. (a)In connection with each election to defer an Annual Deferral Amount, a Participant may, subject to (b), elect to receive a distribution from the Plan with respect to that Annual Deferral Amount in a January one or more years after the Plan Year of deferral and prior to Termination of Service. This Fixed Date Distribution shall be an amount that is equal to the sum of the Annual Deferral Amount and returns credited in accordance with Section 3.4 above. The year in which the Fixed Date Distribution is made or commences shall be elected at the time of the election to defer the Annual Deferral Amount and shall not be changed. The Fixed Date Distribution shall be paid in a lump sum or annual installments over a period of up to five years, as determined in accordance with the rules in Section 4.4. (b)If a Participant who has elected one or more Fixed Date Distributions has a Termination of Service before the start of the Plan Year preceding the January chosen by the Participant for such Fixed Date Distribution to be made or commence, the Participant's Account Balance shall be paid at the time and in the form elected by the Participant in accordance with Section 4.4 and not as the Fixed Date Distribution. 4.2Withdrawal Payout/Suspensions for Unforeseeable Financial Emergencies. If the Participant experiences an Unforeseeable Financial Emergency, the Participant may petition the Committee to (i) suspend any deferrals required to be made by a Participant and/or (ii) receive a partial or full payout from the Plan. The Committee may, in its sole discretion, accept or deny such petition. Any payout shall not exceed the lesser of the Participant's Account Balance or the amount reasonably needed to satisfy the Unforeseeable Financial Emergency. The suspension shall continue for such period of time and/or the reinstatement of deferrals shall occur at a date, as specified by the Committee, in its sole discretion. If the petition for a suspension and/or payout is approved, suspension shall take effect upon the date of approval and any payout shall be made within 60 days of the date of approval. 4.3Termination Benefit. Upon a Participant's Termination of Service, the Participant shall receive a Termination Benefit which shall be equal to the Participant's Account Balance determined as of the date of the Termination of Service. 4.4Payment of Termination Benefit. A Participant may elect on the Election Form prior to the beginning of each Plan Year to receive the Termination Benefit for such Plan Year in a lump sum or in annual installments over a period of up to five years. The lump sum payment or the first installment shall be made in January of the year following the Plan Year in which the Termination of Service occurs. For purposes of payment, the Participant's Account Balance shall be divided into subaccounts, one for each form elected by the Participant. Notwithstanding the foregoing, payment shall be made in a lump sum as follows in lieu of any different form provided on the Election Form then in effect: (a)If the Participant incurs a Termination of Service within one year after a Change in Control, the Termination Benefit shall be paid in a lump sum within 20 days of the Termination of Service. (b)If the Participant's Termination Benefit is under $25,000 on the date of Termination of Service, such portion shall be paid in a lump sum to the Participant in the January following the Plan Year of Termination of Service. ARTICLE 5 Distribution to Beneficiary 5.1Payment. If a Participant dies with an Account Balance, the total Account Balance shall be paid to the Participant's Beneficiary within 90 days after the date of death. 5.2Beneficiary Designation. A Participant shall designate a Beneficiary by completing and signing the Beneficiary Designation Form, and submitting it to the Committee. A Participant shall have the right to change a Beneficiary at any time without the consent of the Beneficiary, by completing, signing and otherwise complying with the terms of the Beneficiary Designation Form and the Committee's rules and procedures, as in effect from time to time. Upon the receipt by the Committee of a new Beneficiary Designation Form, all Beneficiary designations previously filed shall be canceled. The Committee shall be entitled to rely on the last Beneficiary Designation Form filed by the Participant with the Committee prior to death. 5.3Spousal Consent. A married Participant's designation of someone other than the Participant's spouse as primary beneficiary shall not be effective unless the spouse executes a consent in writing that acknowledges the effect of the designation and is witnessed by a plan representative or notary public. No consent is required if it is established to the satisfaction of the Committee that consent cannot be obtained because the spouse cannot be located. 5.4No Beneficiary Designation. If a Participant fails to designate a Beneficiary as provided above, the Participant's designated Beneficiary shall be deemed to be the surviving spouse. If the Participant has no surviving spouse, the benefits otherwise payable to a Beneficiary shall be paid to the Participant's estate. 5.5Doubt as to Beneficiaries. If the Committee has any doubt as to the proper Beneficiary to receive payments pursuant to this Plan, the Committee shall have the right, exercisable in its discretion, to withhold such payments until the matter is resolved to the Committee's satisfaction, and/or to require indemnification. 5.6Discharge of Obligations. The payment of benefits under the Plan to a Participant or Participant's Beneficiary shall fully and completely discharge the Company from all obligations under this Plan with respect to the deceased Participant, Beneficiaries, and any others that may be entitled to such benefits. ARTICLE 6 Termination, Amendment or Modification 6.1Termination. The Company reserves the right to terminate the Plan at any time. Prior to a Change in Control, the Committee shall have the right, at its sole discretion, and notwithstanding any elections made by the Participant to pay the then outstanding Account Balance in a lump sum. After a Change in Control the Company shall be required to pay such benefits in a lump sum. 6.2Amendment. The Board may, at any time, amend or modify the Plan in whole or in part, provided, however, that no amendment or modification shall decrease or restrict a Participant's Account Balance at the time the amendment or modification is made, calculated as if the Participant had experienced a Termination of Service as of the effective date of the amendment or modification. The amendment or modification of the Plan shall not affect the payment of benefits to any Participant or Beneficiary who has become entitled to the payment of benefits under the Plan as of the date of the amendment or modification. 6.3Effect of Payment. The full payment of the applicable benefit under Articles 4 or 5 of the Plan shall completely discharge all obligations to a Participant under this Plan. ARTICLE 7 Administration 7.1Committee Duties. This Plan shall be administered by the Committee or its delegates. The Committee shall also have the discretion and authority to make, amend, interpret, and enforce all appropriate rules and regulations for the administration of this Plan and decide or resolve any and all questions including interpretations of this Plan, as may arise in connection with the Plan. A majority of the Committee shall constitute a quorum and a majority of the members present at any meeting at which a quorum is present or acts approved in writing or in a telephone meeting by all of the members shall constitute a decision by the entire Committee. 7.2Agents. In the administration of this Plan, the Committee may, from time to time, delegate to such persons as it deems appropriate such administrative duties as it sees fit and may from time to time consult with counsel who may be counsel to the Company or a subsidiary. 7.3Binding Effect of Decisions. The decision or action of the Committee with respect to any question arising out of or in connection with the administration, interpretation and application of the Plan and the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all persons having any interest in the Plan. 7.4Indemnification. The Company shall indemnify and hold harmless the named fiduciaries and any officers or employees of the Company and its subsidiaries to which fiduciary responsibilities have been delegated from and against any and all liabilities, claims, demands, costs and expenses including attorneys fees, arising out of an alleged breach in the performance of their fiduciary duties under the Plan and ERISA, other than such liabilities, claims, demands, costs and expenses as may result from the gross negligence or willful misconduct of such person. The Company shall have the right, but not the obligation, to conduct the defense of such person in any proceeding to which this paragraph applies. ARTICLE 8 Claims Procedures 8.1Presentation of Claim. Any Participant or Beneficiary of a deceased Participant may deliver to the Committee a written claim for a determination with respect to the amounts distributable to such Claimant from the Plan. If such a claim relates to the contents of a notice received by the Claimant, the claim must be made within 60 days after such notice was received by the Claimant. All other claims must be made within 180 days of the date on which the event that caused the claim to arise occurred. The claim must state with particularity the determination desired by the Claimant. 8.2Notification of Decision. The Committee shall consider a Claimant's claim within a reasonable time, and shall notify the Claimant in writing: (a) that the Claimant's requested determination has been made, and that the claim has been allowed in full; or (b) that the Committee has reached a conclusion contrary, in whole or in part, to the Claimant's requested determination, and such notice must set forth in a manner calculated to be understood by the Claimant: (i) the specific reason(s) for the denial of the claim, or any part of it; (ii) specific reference(s) to pertinent provisions of the Plan upon which such denial was based; (iii) a description of any additional material or information necessary for the Claimant to clarify or perfect the claim, and an explanation of why such material or information is necessary; and (iv) an explanation of the claim review procedure set forth in Section 13.3 below. 8.3Review of a Denied Claim. Within 60 days after receiving a notice from the Committee that a claim has been denied, in whole or in part, a Claimant (or the Claimant's duly authorized representative) may file with the Committee a written request for a review of the denial of the claim. Thereafter, but not later than 30 days after the review procedure began, the Claimant (or the Claimant's duly authorized representative): (a) may review pertinent documents; (b) may submit written comments or other documents; and/or (c) may request a hearing, which the Committee, in its sole discretion, may grant. 8.4Decision on Review. The Committee shall render its decision on review promptly, and not later than 60 days after the filing of a written request for review of the denial, unless a hearing is held or other special circumstances require additional time, in which case the Committee's decision must be rendered within 120 days after such date. Such decision must be written in a manner calculated to be understood by the Claimant and it must contain: (a) specific reasons for the decision; (b) specific reference(s) to the pertinent Plan provisions upon which the decision was based; and (c) such other matters as the Committee deems relevant. 8.5Legal Action. A Claimant's compliance with the foregoing provisions of this Article 13 is a mandatory prerequisite to a Participant's right to commence any legal action with respect to any claim for benefits under this Plan. ARTICLE 9 Miscellaneous 9.1Unsecured General Creditor. Participants and their Beneficiaries, heirs, successors and assigns shall have no legal or equitable rights, interest or claims in any property or assets of the Company. Any and all of the Company's assets shall be, and remain, its general, unpledged and unrestricted assets. The Company's obligation under the Plan shall be merely that of an unfunded and unsecured promise to pay money in the future. 9.2Company's Liability. Amounts payable to a Participant or Beneficiary under this Plan shall be paid from the general assets of the Company (including without limitation assets of any trust established to fund payment of obligations hereunder) exclusively. 9.3Nonassignability. Neither a Participant nor any other person shall have the right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey in advance of actual receipt the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are expressly declared to be unassignable and non- transferable, except that the foregoing shall not apply to any family support obligations set forth in a court order. No part of the amounts payable shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, nor be transferable by operation of law in the event of a Participant's or any other person's bankruptcy or insolvency. 9.4Furnishing Information. A Participant will cooperate with the Committee by furnishing any and all information requested by the Committee and take such or actions as may be requested in order to facilitate the administration of the Plan and the payments of benefits hereunder, including but not limited to taking such physical examinations as Committee may deem necessary. 9.5Captions. The captions of the articles, sections and paragraphs of this Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions. 9.6Governing Use. The provisions of this Plan shall be construed and interpreted according to the laws of the State of California. 9.7Notice. Any notice or filing required or permitted to be given to the Committee under this Plan shall be sufficient if in writing and hand-delivered, or sent by registered or certified mail, return receipt requested, to: CNF Transportation Inc. Director Affairs Committee Deferred Compensation Plan for Directors 3240 Hillview Avenue Palo Alto, California 94304 Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. Any notice or filing required or permitted to be given to a Participant under this Plan shall be sufficient if in writing and hand-delivered, or sent by mail, to the last known address of the Participant. 9.8Successors. The provisions of this Plan shall be binding upon and inure to the benefit of the Company and its successors and assigns and the Participant, the Participant's Beneficiaries, and their permitted successors and assigns. 9.9Spouse's Interest. The interest in the benefits hereunder of a spouse of a Participant who has predeceased the Participant shall automatically pass to the Participant and shall not be transferable by such spouse in any manner, including but not limited to such spouse's will, nor shall such interest pass under the laws of intestate succession. 9.10Incompetent. If the Committee determines in its discretion that a benefit under this Plan is to be paid to a minor, a person declared incompetent or to a person incapable of handling the disposition of that person's property, the Committee may direct payment of such benefit to the guardian, legal representative or person having the care and custody of such minor, incompetent or incapable person. The Committee may require proof of minority, incompetency, incapacity or guardianship, as it may deem appropriate and/or such indemnification of the Committee and the Company and security, as it deems appropriate, in its sole discretion, prior to distribution of the benefit. Any payment of a benefit shall be a payment for the account of the Participant and the Participant's Beneficiary, as the case may be, and shall be a complete discharge of any liability under the Plan for such payment amount. 9.11Distribution in the Event of Taxation. If, for any reason, all or any portion of a Participant's benefit under this Plan becomes taxable to the Participant prior to receipt, a Participant may petition the Committee for a distribution of assets sufficient to meet Participant's tax liability (including additions to tax, penalties and interest). Upon the grant of such a petition, which grant shall not be unreasonably withheld, the Company shall distribute to the Participant immediately available funds in an amount equal to that Participant's federal, state and local tax liability associated with such event of taxation (which amount shall not exceed a Participant's accrued benefit under the Plan), such tax liability shall be measured by using that Participant's then current highest federal, state and local marginal tax rate, plus the rates or amounts for the applicable additions to tax, penalties and interest. If the petition is granted, the tax liability distribution shall be made within 90 days of the date when the Participant's petition is granted. Such a distribution shall reduce the benefits to be paid under this Plan. 9.12Legal Fees To Enforce Rights. If the Company has failed to comply with any of its obligations under the Plan or any agreement thereunder or, if the Company or any other person takes any action to declare the Plan void or unenforceable or institutes any litigation or other legal action designed to deny, diminish or to recover from any Participant the benefits intended to be provided, then the Company irrevocably authorizes such Participant to retain counsel chosen by the Participant and agrees to pay reasonable legal fees and expenses of the Participant incurred in connection with the initiation or defense of any litigation or other legal action, whether by or against the Company, or any director, officer, shareholder or other person affiliated with the Company, or any successor thereto in any jurisdiction, provided that such Participant prevails in such action. 9.13Payment of Withholding. As a condition of receiving benefits under the Plan, the Participant shall pay the Company not less than the amount of all applicable federal, state, local and foreign taxes required by law to be paid or withheld relating to the receipt or entitlement to benefits hereunder. The Company may withhold taxes from any benefits paid and/or from Directors fees, in its sole discretion. 9.14Coordination with Other Benefits. The benefits provided for a Participant and Participant's Beneficiary under the Plan are in addition to any other benefits available to such Participant under any other plan or program for Directors. The Plan shall supplement and shall not supersede, modify or amend any other such plan or program except as may otherwise be expressly provided. In no event shall distributions under the Plan prior to Termination of Service have the effect of increasing payments otherwise due under the various retirement plans of the Company and its subsidiaries. IN WITNESS WHEREOF, the Company has signed this Restatement as of January 28, 1998. CNF TRANSPORTATION INC. /s/Eberhard G.H. Schmoller By: Eberhard G.H. Schmoller Its: Senior Vice President, General Counsel and Secretary EX-12 11 EX-12A Exhibit 12(a) CNF TRANSPORTATION INC. COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES Year Ended December 31, 1997 1996 1995 1994 1993 (dollars in thousands) Fixed Charges: Interest Expense $ 39,553 $ 39,766 $ 33,407 $ 27,065 $ 29,890 Capitalized Interest 2,077 2,092 731 793 531 Preferred Dividends 12,377 12,645 12,419 12,475 12,551 Total Interest 54,007 54,503 46,557 40,333 42,972 Interest Component of Rental Expense (1) 35,607 28,521 29,210 28,776 27,832 Fixed Charges 89,614 83,024 75,767 69,109 70,804 Less: Capitalized Interest 2,077 2,092 731 793 531 Preferred Dividends 12,377 12,645 12,419 12,475 12,551 Net Fixed Charges $ 75,160 $ 68,287 $ 62,617 $ 55,841 $ 57,722 Earnings: Income from continuing operations before Taxes $221,814 $147,132 $152,942 $165,129 $ 66,202 Add: Net Fixed Charges 75,160 68,287 62,617 55,841 57,722 Total Earnings $296,974 $215,419 $215,559 $220,970 $123,924 Ratio of Earnings to Fixed Charges: Total Earnings $296,974 $215,419 $215,559 $220,970 $123,924 Fixed Charges (2) 89,614 83,024 75,767 69,109 70,804 Ratio 3.3 x 2.6 x 2.8 x 3.2 x 1.8 x (1) Prior years have been restated for change in method of computing interest component of rental expense. (2) Fixed Charges represent interest on capital leases and short-term and long-term debt, capitalized interest, dividends on shares of the Series B Cumulative Convertible Preferred Stock used to pay debt service on notes issued by the Company's Thrift and Stock Plan (the "TASP"), and the applicable portion of the consolidated rent expense which approximates the interest portion of lease payments.
EX-12 12 EX-12B Exhibit 12(b) CNF TRANSPORTATION INC. COMPUTATION OF RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS Year Ended December 31, 1997 1996 1995 1994 1993 (dollars in thousands) Fixed Charges: Interest Expense $ 39,553 $ 39,766 $ 33,407 $ 27,065 $ 29,890 Capitalized Interest 2,077 2,092 731 793 531 Dividend requirement on preferred securities of subsidiary trust 3,471 - - - - Preferred Dividends 12,377 12,645 12,419 12,475 12,551 Total Interest and Dividends 57,478 54,503 46,557 40,333 42,972 Interest Component of Rental Expense (1) 35,607 28,521 29,210 28,776 27,832 Fixed Charges 93,085 83,024 75,767 69,109 70,804 Less: Capitalized Interest 2,077 2,092 731 793 531 Preferred Dividends 12,377 12,645 12,419 12,475 12,551 Net Fixed Charges $ 78,631 $ 68,287 $ 62,617 $ 55,841 $ 57,722 Earnings: Income from continuing operations before Taxes $221,814 $147,132 $152,942 $165,129 $ 66,202 Add: Net Fixed Charges 78,631 68,287 62,617 55,841 57,722 Total Earnings $300,445 $215,419 $215,559 $220,970 $123,924 Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends: Total Earnings $300,445 $215,419 $215,559 $220,970 $123,924 Combined Fixed Charges and Preferred Stock Dividends (2) 93,085 83,024 75,767 69,109 70,804 Ratio 3.2 x 2.6 x 2.8 x 3.2 x 1.8 x (1) Prior years have been restated for change in method of computing interest component of rental expense. (2) Fixed Charges represent interest on capital leases and short-term and long-term debt, capitalized interest, dividends on shares of the Series B Cumulative Convertible Preferred Stock used to pay debt service on notes issued by the Company's Thrift and Stock Plan (the "TASP"), dividends on the preferred securities of a subsidiary trust and the applicable portion of the consolidated rent expense which approximates the interest portion of lease payments.
EX-13 13 EX-13 EXHIBIT 13 ---------- CNF Transportation Inc. 1997 Annual Report Financial Review and Management Discussion The Company's total operating income for 1997 was a record $264.9 million, representing a 37.9% increase over 1996. Aided by a strong economy, the increase resulted primarily from significant operating income improvements from the Con-Way Transportation Services (CTS) and Emery segments and from Menlo Logistics, which is reported in the Other segment. Additionally, management believes that marketing strategies emphasizing a more profitable service mix, optimization of existing transportation systems, incentive plans based on operating margins and cost reduction strategies contributed to the operating margin improvement. Partially offsetting the improved 1997 results were losses, primarily in the fourth quarter, from the start- up phase of the Priority Mail contract awarded April 1997. The Company's 1996 operating income was $192.1 million, representing a 2.9% increase over 1995 and came primarily from higher operating income at CTS and the Other segment, despite severe weather conditions at the start of 1996 and higher fuel prices. Total Company revenues for 1997, also a record at $4.27 billion, increased 16.5% over the previous record achieved in 1996. Significant increases came from Emery, Menlo and the CTS regional carriers, which make up most of the CTS segment. A minor revenue increase from the Priority Mail contract, which occurred primarily in the fourth quarter, was reported among the three reporting segments based on the service provided. The Company's revenues in 1996 increased 11.3% over 1995, reflecting increased revenues at all three of the Company's segments. Operating results for 1996 and 1995 reflect the results of Consolidated Freightways Corporation, the Company's former long-haul, less-than-truckload (LTL) carrier, which was spun off to shareholders on December 2, 1996, as a discontinued operation. Con-Way Transportation Services Due to an increase in tonnage levels and revenue per hundred- weight, CTS's 1997 revenues increased 14.0% to another record compared to 1996. Total regional carrier tonnage for 1997 was 9.3% above 1996 with LTL tonnage up 9.7%. Adding to these volume increases were generally higher rates, as average revenue per hundred-weight was up about 5 percent compared to 1996. The increased rates were partially attributed to marketing of the premium service mix and the expansion into joint services among CTS regional carriers. The volume increases were attributed in part to the strong economic conditions, demand for premium regional service, increased business from prior years' geographic expansions and market share gains. CTS revenues for 1996 increased 12.1% over 1995 on a tonnage increase of 7.8% with LTL tonnage up 5.9%. Revenues for the first quarter of 1996 were adversely affected by severe winter weather. CTS reported a significant increase in operating income, 45.6% above 1996. Several factors contributed to this increase, including higher revenues from premium, more profitable services and more efficient utilization of capacity in the expanded regions. Also contributing were increased density and load factor throughout the system. Partially offsetting these improvements was a $5.0 million charge for costs from the discontinuance of a rail container service. CTS's operating margin increased significantly in 1997 to 10.0% from 7.8% in 1996. Operating income at CTS in 1996 increased 4.6% over 1995. While the first half of 1996 was affected by costs of winter storms and higher fuel costs, results improved steadily in the third and fourth quarters. Emery Worldwide Emery revenues for 1997 increased 15.5% over 1996, exceeding $2 billion for the first time. International commercial revenues increased 16.0% and domestic revenue was up 12.5%. Tonnage increases for the same international and domestic services were 13.7% and 9.8%, respectively, indicating relatively stable average annual rates compared with last year for the respective markets. Emery's 1996 revenues increased 11.4% over 1995, brought about by both domestic and international revenue growth. Emery's operating income for 1997 increased to a record $109.3 million, a 39.4% increase over 1996. The improved results reflect the benefits of the revenue growth, especially international, combined with limited benefits from the mix of premium services, the implementation of geographic zone-based rates in North America, benefits from the UPS strike, and continued cost control strategies. These increases to operating income more than offset higher information systems costs in 1997. Operating income was 4.1% lower in 1996 compared to 1995, partially due to higher fuel costs and costs of developing information systems. Emery's results of operations for the first two months of 1998 have been adversely affected by less than planned revenues. Emery management has efforts under way to improve operating efficiencies and capacity. These efforts include a redesign and upgrade of the freight sortation center located at the Dayton Hub to provide approximately 30% greater capacity, which is estimated to be completed in the year 2000 at a cost of approximately $56 million. In addition, Emery is seeking to improve operating efficiency with recent openings of new international distribution centers for Latin America and Asia and plans to add up to five wide-body aircraft to the fleet. On April 23, 1997, Emery Worldwide Airlines (EWA), a subsidiary of the Company, was awarded a multi-year contract with the U.S. Postal Service (USPS) to provide Priority Mail sortation and transportation. The USPS has indicated that the Company could receive revenues of approximately $1.7 billion over the initial term of the contract. However, the foregoing amount is subject to a number of uncertainties and assumptions, and there can be no assurance that the revenues realized by the Company will not be less than this amount. The initial term of the contract ends in February 2002, although the contract may be renewed by the USPS for two successive three-year terms. The Priority Mail contract calls for the Company to obtain, equip and fully staff ten Priority Mail processing centers in major metropolitan areas along the eastern seaboard. Five of the processing centers were fully operational by November 15, 1997, and the remaining five are scheduled to be fully operational by the end of the second quarter of 1998. The first five processing centers were operational within the prescribed time frame. The Company must pay liquidated damages if the remaining centers are not operational on time. As of December 31, 1997, the Company had incurred $64.2 million of an estimated $120 million of capital expenditures associated with the new contract. Also, the Company expects to capitalize approximately $25 million for other associated contract costs, of which approximately $20 million was capitalized as of December 31, 1997. Other Operations The Other reporting segment consists primarily of the commercial operations of Menlo Logistics, Road Systems, VantageParts and the sortation operations of the Priority Mail contract. Revenues in 1997 increased 29.7% over the prior year primarily due to a 26.9% increase in revenues from Menlo. The remaining increase was due primarily to revenues in the fourth quarter of 1997 from the sortation operation of the Priority Mail contract. Operating income for the Other segment was down 34.0% from 1996 as a result of losses incurred by the sortation operations during the start-up phase of the Priority Mail contract. However, Menlo's commercial operations reported a 71.4% increase in operating income for the year to reach $17.2 million. Menlo's improvement partially resulted from an increased mix of integrated solution projects that produced higher margins than 1996 and 1995, when the share of carrier management services was higher. Other Income (Expense) Other expense in 1997 decreased 4.4% from 1996. Interest expense remained fairly constant in 1997 and 1996 as a result of similar levels of short-term borrowings in the second half of 1996 and the first half of 1997. Short- term borrowings were paid off in June 1997 with proceeds from the issuance of the preferred securities of the subsidiary trust (TECONS). The TECONS resulted in increased expenses for the dividend requirement that were partially offset by income from temporarily invested proceeds. Other expense in 1996 increased 33.4% from 1995 as a result of interest expense on increased short-term borrowings and losses from write-offs and sales of non-operating assets. Income Taxes The effective tax rate of 45.5%, the same for both 1997 and 1996, reflecting comparable levels of non-deductible items and taxes incurred in other jurisdictions. The 1996 rate, compared to a tax rate of 43.6% in 1995, was attributable to a higher proportion of other non-deductible items. Net Income Net income from continuing operations of $113.0 million for 1997, including the preferred dividends, was 57.8% above 1996 as a result of the significant increase in operating income. Net income available to common shareholders in 1997 was up $94.0 million over the prior year due to both the increased net income from continuing operations and the $52.6 million loss from discontinued operations in 1996. Net income from continuing operations for 1996 decreased 5.1% from 1995 as a result of the increase in other expense and the higher effective tax rate. Dividends on preferred stock of the Company in 1996 decreased 20.4% from 1995 due to the absence of dividends from the Series C preferred stock that converted to common stock in March 1995. Liquidity and Capital Resources In 1997, the Company's cash and cash equivalents increased $15.5 million to $97.6 million. Cash was provided primarily by cash flow from operations of $276.7 million, net proceeds of $121.4 million from issuance of the TECONS and $41.5 million from the proceeds of exercised stock options. Cash provided by these sources was used primarily to fund capital expenditures of $242.3 million, net debt repayments of $157.0 million and dividend payments of $29.8 million. Cash flow from operations in 1997 increased $70.9 million over 1996. The increase was primarily due to higher net income, depreciation and amortization and deferred income taxes. The combined change in the working capital accounts and remaining items in operating activities used $7.5 million of cash in 1997 whereas the net change in the same items in the prior year provided $31.8 million. Capital expenditures of $242.3 million for the year ended 1997 increased $41.5 million compared to 1996 with a large portion of the 1997 increase coming in the fourth quarter. Of the capital expenditures for the year ended 1997, $64.2 million related to the new Priority Mail contract. The remaining capital expenditures of the estimated $120 million for the Priority Mail contract are expected to occur in the first half of 1998. Proceeds from the exercise of stock options in 1997 provided $41.5 million compared with $1.9 million in 1996. Payments of preferred and common dividends were $29.8 million and $29.9 million for the years 1997 and 1996, respectively. During 1997, the Company reduced debt by $157.0 million including full repayment of $155.0 million borrowed under unsecured lines of credit. In the prior year, borrowings under the unsecured lines of credit increased $105 million and repayments of debt totaled $2.4 million. The net debt repayments in 1997 were funded primarily from operating cash flow and net proceeds of $121.4 million from the issuance of the TECONS, which were applied to temporarily reduce debt pending application of such proceeds to pay costs associated with the Priority Mail contract. In December 1997, the Company, through its air freight subsidiaries, entered into an agreement to deliver Series A City of Dayton, Ohio refinancing bonds with a rate of 5.625%. The $46 million in bonds will bear this rate when delivered on October 1, 1998 and will become due in 2018. The Company's ratio of total debt to total capital decreased to 37.9% at December 31, 1997, from 55.6% at December 31, 1996. The improvement resulted primarily from the issuance of the TECONS, repayment of short-term borrowings, net income and exercises of stock options. The current ratio was 1.3 to 1 at December 31, 1997, compared to 1.0 to 1 at December 31, 1996. At December 31, 1997, letters of credit of $104.8 million were outstanding under the Company's $350 million unsecured credit facility, leaving $245.2 million available for additional borrowings and letters of credit. Under several other unsecured letter of credit facilities, the Company had outstanding letters of credit of $68.3 million at December 31, 1997, leaving $16.7 million available. In addition, the Company had available $75.0 million of capacity under other short-term uncommitted borrowing lines, none of which was drawn. Other Items The Company is currently replacing or modifying certain information systems to address year 2000 issues, but is unable to predict with certainty the total costs of addressing these issues. However, the Company currently estimates that expenditures for year 2000 compliance will total approximately $28 million. These costs represent expenditures in addition to normal systems replacement and maintenance. Management Report on Responsibility for Financial Reporting The management of CNF Transportation Inc. has prepared the accompanying financial statements and is responsible for their integrity. The statements were prepared in accordance with generally accepted accounting principles, after giving consideration to materiality, and are based on management's best estimates and judgments. The other financial information in the annual report is consistent with the financial statements. Management has established and maintains a system of internal control. Limitations exist in any control structure based on the recognition that the cost of such system should not exceed the benefits derived. Management believes its control system provides reasonable assurance as to the integrity and reliability of the financial statements, the protection of assets from unauthorized use or disposition, and the prevention and detection of fraudulent financial reporting. The system of internal control is documented by written policies and procedures that are communicated to employees. The Company's internal audit staff independently assesses the adequacy and the effectiveness of the internal controls which are also tested by the Company's independent public accountants. The Board of Directors, through its audit committee consisting of five independent directors, is responsible for engaging the independent accountants and assuring that management fulfills its responsibilities in the preparation of the financial statements. The Company's financial statements have been audited by Arthur Andersen LLP, independent public accountants. Both the internal auditors and Arthur Andersen LLP have access to the audit committee without the presence of management to discuss internal accounting controls, auditing and financial reporting matters. /s/Donald E. Moffitt, Chairman and Chief Executive Officer /s/Chutta Ratnathicam Senior Vice President and Chief Financial Officer /s/Gary D. Taliaferro Vice President and Controller Report of Independent Public Accountants To the Shareholders and Board of Directors of CNF Transportation Inc. We have audited the accompanying consolidated balance sheets of CNF Transportation Inc. (a Delaware Corporation) and subsidiaries as of December 31, 1997 and 1996, and the related statements of consolidated income, cash flows and shareholders' equity for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of CNF Transportation Inc. and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /S/Arthur Andersen LLP San Francisco, California January 23, 1998 Consolidated Balance Sheets December 31 (Dollars in thousands) 1997 1996 Assets Current Assets Cash and cash equivalents $ 97,617 $ 82,094 Trade accounts receivable, net of allowance (Note 1) 703,785 542,381 Other accounts receivable 32,067 49,278 Operating supplies, at lower of average cost or market 36,580 32,916 Prepaid expenses 35,682 31,249 Deferred income taxes (Note 6) 103,656 77,977 Total Current Assets 1,009,387 815,895 Property, Plant and Equipment, at Cost Land 109,768 104,314 Buildings and improvements 301,245 265,655 Revenue equipment 685,618 586,720 Other equipment and leasehold improvements 400,065 302,679 1,496,696 1,259,368 Accumulated depreciation and amortization (616,854) (506,719) 879,842 752,649 Other Assets Restricted funds 10,601 12,685 Deposits and other assets 120,872 95,144 Unamortized aircraft maintenance, net (Note 1) 123,352 119,927 Costs in excess of net assets of businesses acquired, net of accumulated amortization (Note 1) 277,442 285,566 532,267 513,322 Total Assets $2,421,496 $2,081,866 The accompanying notes are an integral part of these statements.
Consolidated Balance Sheets December 31 (Dollars in thousands) 1997 1996 Liabilities and Shareholders' Equity Current Liabilities Accounts payable $ 268,064 $ 210,902 Accrued liabilities (Note 3) 423,237 349,497 Accrued claims costs 99,848 87,340 Current maturities of long-term debt and capital leases (Notes 4 and 5) 4,875 3,185 Short-term borrowings (Note 4) - 155,000 Federal and other income taxes (Note 6) 10,114 9,162 Total Current Liabilities 806,138 815,086 Long-Term Liabilities Long-term debt and guarantees (Note 4) 362,671 366,305 Long-term obligations under capital leases (Note 5) 110,817 110,896 Accrued claims costs 55,030 57,912 Employee benefits (Note 9) 141,351 115,470 Other liabilities and deferred credits 72,428 75,479 Deferred income taxes (Note 6) 89,958 32,439 Total Liabilities 1,638,393 1,573,587 Commitments and Contingencies (Notes 4, 5 and 13) Company-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust Holding Solely Convertible Debentures of the Company (Note 7) 125,000 - Shareholders' Equity (Note 8) 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 865,602 and 875,191 shares, respectively 9 9 Additional paid-in capital, preferred stock 131,649 133,108 Deferred compensation (Note 10) (101,819) (108,468) Total Preferred Shareholders' Equity 29,839 24,649 Common stock, $.625 par value; authorized 100,000,000 shares; issued 54,370,182 and 51,595,827 shares, respectively 33,981 32,247 Additional paid-in capital, common stock 302,256 242,879 Deferred compensation, restricted stock (Note 11) (2,528) (187) Cumulative translation adjustment (6,647) 3,279 Retained earnings 473,250 378,744 Cost of repurchased common stock (6,977,848 and 7,029,917 shares, respectively) (172,048) (173,332) Total Common Shareholders' Equity 628,264 483,630 Total Shareholders' Equity 658,103 508,279 Total Liabilities and Shareholders' Equity $2,421,496 $2,081,866 The accompanying notes are an integral part of these statements.
Statements of Consolidated Income Years ended December 31 (Dollars in thousands except per share data) 1997 1996 1995 Revenues $4,266,801 $3,662,183 $3,290,077 Costs and Expenses Operating expenses 3,333,721 2,918,682 2,641,756 Selling and administrative expenses 557,117 463,930 391,682 Depreciation 111,096 87,423 69,952 4,001,934 3,470,035 3,103,390 Operating Income 264,867 192,148 186,687 Other Income (Expense) Investment income 1,378 52 85 Interest expense (39,553) (39,766) (33,407) Dividend requirement on preferred securities of subsidiary trust (Note 7) (3,471) - - Miscellaneous, net (1,407) (5,302) (423) (43,053) (45,016) (33,745) Income from continuing operations before income taxes 221,814 147,132 152,942 Income taxes (Note 6) 100,925 66,951 66,723 Income from Continuing Operations 120,889 80,181 86,219 Losses from discontinued operations, net of income tax benefits (Note 2) - (36,386) (28,854) Loss from discontinuance, net of income tax benefits (Note 2) - (16,247) - - (52,633) (28,854) Net income 120,889 27,548 57,365 Preferred stock dividends 7,886 8,592 10,799 Net Income Available to Common Shareholders $ 113,003 $ 18,956 $ 46,566 Basic shares (Note 1) 46,236,688 44,041,159 42,067,842 Diluted shares (Note 1) 53,077,468 49,531,101 48,531,501 Basic Earnings Per Share (Note 1) Income from continuing operations $2.44 $1.63 $1.79 Losses from discontinued operations - (0.83) (0.68) Loss from discontinuance - (0.37) - Net income $2.44 $0.43 $1.11 Diluted Earnings Per Share (Note 1) Income from continuing operations $2.19 $1.48 $1.64 Losses from discontinued operations - (0.73) (0.60) Loss from discontinuance - (0.33) - Net income $2.19 $0.42 $1.04 The accompanying notes are an integral part of these statements.
Statements of Consolidated Cash Flows Years ended December 31 (Dollars in thousands) 1997 1996 1995 Cash and Cash Equivalents, Beginning of Year $ 82,094 $ 59,787 $ 72,595 Cash Flows from Operating Activities Net income 120,889 27,548 57,365 Adjustments to reconcile income to net cash provided by operating activities: Discontinued operations - 52,633 28,854 Depreciation and amortization 123,391 95,746 79,625 Increase (decrease) in deferred income taxes 31,840 (6,705) 14,288 Amortization of deferred compensation 7,132 6,403 6,050 Losses (gains) from property disposals, net 927 (1,577) (145) Changes in assets and liabilities: Receivables (144,193) (30,006) (114,855) Accounts payable 57,162 27,661 9,942 Accrued liabilities 52,582 36,074 31,470 Accrued incentive compensation 21,158 9,366 (30,413) Accrued claims costs 9,626 11,616 9,625 Income taxes 17,564 18,040 7,454 Employee benefits 25,881 (14,565) 32,793 Deferred charges and credits (36,805) (27,367) (48,762) Other (10,467) 960 7,832 Net Cash Provided by Operating Activities 276,687 205,827 91,123 Cash Flows from Investing Activities Capital expenditures (242,343) (200,835) (167,253) Proceeds from sales of property 5,043 7,689 5,361 Net Cash Used by Investing Activities (237,300) (193,146) (161,892) Cash Flows from Financing Activities Proceeds from issuance of long-term debt 1,997 - 98,890 Repayment of long-term debt and capital lease obligations (4,020) (2,436) (2,537) Proceeds from (repayment of) net short-term borrowings (155,000) 105,000 50,000 Proceeds from issuance of subsidiary preferred securities, net of costs of issuance 121,431 - - Proceeds from exercise of stock options 41,500 1,887 10,460 Redemption of preferred stock purchase rights - - (435) Payments of common dividends (18,497) (17,604) (16,688) Payments of preferred dividends (11,275) (12,288) (14,626) Net Cash Provided (Used) by Financing Activities (23,864) 74,559 125,064 Net Cash Provided by Continuing Operations 15,523 87,240 54,295 Net Cash Used by Discontinued Operations - (64,933) (67,103) Increase (Decrease) in Cash and Cash Equivalents 15,523 22,307 (12,808) Cash and Cash Equivalents, End of Year $ 97,617 $ 82,094 $ 59,787 Supplemental Disclosure Cash paid for income taxes, net of refunds $ 38,568 $ 13,822 $ 25,956 Cash paid for interest, net of amounts capitalized $ 47,948 $ 36,047 $ 22,916 The accompanying notes are an integral part of these statements.
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY (Dollars in thousands except per share data) Preferred Stock Series B Preferred Stock Series C Common Stock Number of Number of Number of Shares Amount Shares Amount Shares Amount Balance, December 31, 1994 962,748 $ 10 690,000 $ 7 43,955,510 $ 27,472 Exercise of stock options including tax benefits of $1,122 - - - - 583,143 364 Conversion of Series C Preferred stock to Common stock - - (690,000) (7) 6,900,000 4,313 Issuance of restricted stock - - - - 12,837 8 Recognition of deferred compensation - - - - - - Redemption of preferred stock purchase rights - - - - - - Repurchased common stock issued for conversion of preferred stock (8,336) - - - - - Net income - - - - - - Common dividends declared ($.30 per share) - - - - - - Series B, Preferred dividends ($12.93 per share) net of tax benefits of $3,827 - - - - - - Series C, Preferred dividends ($3.20 per share) - - - - - - Translation adjustment - - - - - - Balance, December 31, 1995 954,412 10 - - 51,451,490 32,157 Exercise of stock options including tax benefits of $1,565 - - - - 138,027 86 Issuance of restricted stock - - - - 6,310 4 Recognition of deferred compensation - - - - - - Repurchased common stock issued for conversion of preferred stock (79,221) (1) - - - - Net income - - - - - - Common dividends declared ($.40 per share) - - - - - - Series B, Preferred dividends ($12.93 per share) net of tax benefits of $3,696 - - - - - - Distribution of investment in CFC (Note 2) - - - - - - Translation adjustment - - - - - - Balance, December 31, 1996 875,191 9 - - 51,595,827 32,247 Exercise of stock options including tax benefits of $16,612 - - - - 2,688,824 1,681 Issuance of restricted stock - - - - 85,531 53 Recognition of deferred compensation - - - - - - Repurchased common stock issued for conversion of preferred stock (9,589) - - - - - Net income - - - - - - Common dividends declared ($.40 per share) - - - - - - Series B, Preferred dividends ($12.93 per share) net of tax benefits of $3,389 - - - - - - Translation adjustment - - - - - - Balance, December 31, 1997 865,602 $ 9 - $ - 54,370,182 $ 33,981 The accompanying notes are an integral part of these financial statements
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY (Dollars in thousands except per share data) Cost of Additional Cumulative Repurchased Paid-in Translation Retained Common Deferred Capital Adjustment Earnings Stock Compensation Total Balance, December 31, 1994 $ 380,493 $ (1,170) $ 574,885 $ (187,422) $ (120,646) $ 673,629 Exercise of stock options including tax benefits of $1,122 10,096 - - - - 10,460 Conversion of Series C Preferred stock to Common stock (4,306) - - - - - Issuance of restricted stock 292 - - - (300) - Recognition of deferred compensation - - - - 6,050 6,050 Redemption of preferred stock purchase rights (435) - - - - (435) Repurchased common stock issued for conversion of preferred stock (1,288) - - 1,288 - - Net income - - 57,365 - - 57,365 Common dividends declared ($.30 per share) - - (13,052) - - (13,052) Series B, Preferred dividends ($12.93 per share) net of tax benefits of $3,827 - - (8,592) - - (8,592) Series C, Preferred dividends ($3.20 per share) - - (2,207) - - (2,207) Translation adjustment - (858) - - - (858) Balance, December 31, 1995 384,852 (2,028) 608,399 (186,134) (114,896) 722,360 Exercise of stock options including tax benefits of $1,565 3,778 - - - - 3,864 Issuance of restricted stock 158 - - - (162) - Recognition of deferred compensation - - - - 6,403 6,403 Repurchased common stock issued for conversion of preferred stock (12,801) - - 12,802 - - Net income - - 27,548 - - 27,548 Common dividends declared ($.40 per share) - - (17,604) - - (17,604) Series B, Preferred dividends ($12.93 per share) net of tax benefits of $3,696 - - (8,592) - - (8,592) Distribution of investment in CFC (Note 2) - 4,571 (231,007) - - (226,436) Translation adjustment - 736 - - - 736 Balance, December 31, 1996 375,987 3,279 378,744 (173,332) (108,655) 508,279 Exercise of stock options including tax benefits of $16,612 56,431 - - - - 58,112 Issuance of restricted stock 2,771 - - - (2,824) - Recognition of deferred compensation - - - - 7,132 7,132 Repurchased common stock issued for conversion of preferred stock (1,284) - - 1,284 - - Net income - - 120,889 - - 120,889 Common dividends declared ($.40 per share) - - (18,497) - - (18,497) Series B, Preferred dividends ($12.93 per share) net of tax benefits of $3,389 - - (7,886) - - (7,886) Translation adjustment - (9,926) - - - (9,926) Balance, December 31, 1997 $ 433,905 $ (6,647) $ 473,250 $ (172,048) $ (104,347) $ 658,103 The accompanying notes are an integral part of these financial statements
Notes to Consolidated Financial Statements 1. Principal Accounting Policies Basis of Presentation and Principles of Consolidation: The consolidated financial statements include the accounts of CNF Transportation Inc. (the Company or CNF) and its wholly owned subsidiaries. On December 2, 1996, the Company (formerly Consolidated Freightways, Inc.) completed the spin-off of Consolidated Freightways Corporation (CFC) as described in Note 2. CFC has been reflected as discontinued operations in the consolidated financial statements and, unless otherwise stated, is excluded from the accompanying notes. The continuing operations of the Company encompass three business segments: Con-Way Transportation Services (CTS), a regional trucking and full-service truckload company; Emery Worldwide (Emery), an international air freight company; and Other, which is comprised of Menlo Logistics (Menlo), a full- service contract logistics company; Road Systems, a trailer manufacturer; and VantageParts, a wholesale distributor of truck parts and supplies; and the sortation operations of the Priority Mail contract. CTS provides regional one- and two-day LTL freight trucking, full-service truckload freight delivery utilizing highway over-the-road and rail resources for transcontinental, inter- regional and regional transportation, throughout the U.S. and international services for Canada and Mexico. Emery provides expedited and deferred domestic and international air cargo services through a freight system designed for the movement of parcels and packages of all sizes and weights, and also provides ocean delivery and customs brokerage. Menlo, the primary business in the Other segment, provides full-service contract logistics using advanced management systems to cost-effectively integrate and simplify complex logistics operations, including transportation, storage and distribution, shipment tracking and invoicing. Recognition of Revenues: Transportation freight charges are recognized as revenue when freight is received for shipment. The estimated costs of performing the total transportation service are then accrued. This revenue recognition method does not result in a material difference from in-transit or completed service methods of recognition. Revenues from certain long-term contracts are recognized in accordance with contractual terms as services are provided. Cash and Cash Equivalents: The Company considers highly liquid investments with original maturities of three months or fewer to be cash equivalents. Trade Accounts Receivable, Net: Trade accounts receivable are net of allowances of $20,155,000 and $18,712,000 at December 31, 1997 and 1996, respectively. Property, Plant and Equipment: Property, plant and equipment are depreciated on a straight-line basis over their estimated useful lives, which are generally 25 years for buildings and improvements, 10 years or fewer for aircraft, 5 to 10 years for tractor and trailer equipment and 3 to 10 years for most other equipment. Leasehold improvements are amortized over the shorter of the terms of the respective leases or the useful lives of the assets. Expenditures for equipment maintenance and repairs, except for aircraft, are charged to operating expenses as incurred; betterments are capitalized. Gains (losses) on sales of equipment are recorded in operating expenses. The costs to perform required maintenance inspections of engines and aircraft frames for leased and owned aircraft are capitalized and amortized to expense over the shorter of the period until the next scheduled maintenance or the remaining term of the lease agreement. Accordingly, the Company has recorded unamortized maintenance of $175,460,000 and $169,035,000 at December 31, 1997 and 1996, respectively. Under the Company's various aircraft lease agreements, the Company is expected to return the aircraft with a stipulated number of hours remaining on the aircraft and engines until the next scheduled maintenance. The Company has recorded $52,108,000 and $49,108,000 at December 31, 1997 and 1996, respectively, to accrue for this obligation and any estimated unusable maintenance at the date of lease return or other disposal. The net amount, which represents the difference between maintenance performed currently and that required or remaining at the expiration of the lease or other disposal, is classified as Unamortized Aircraft Maintenance, net, in the Consolidated Balance Sheets. Costs in Excess of Net Assets of Businesses Acquired: The costs in excess of net assets of businesses acquired (goodwill) are capitalized and amortized on a straight-line basis up to a 40-year period. Impairment is periodically reviewed based on a comparison of estimated, undiscounted cash flows from the underlying segment to the related investment. In the event goodwill is not considered recoverable, an amount equal to the excess of carrying amount of goodwill less the estimated discounted cash flows from the segment will be charged against goodwill with a corresponding expense to the income statement. Based on this review, management does not believe goodwill is impaired. Accumulated amortization at December 31, 1997 and 1996 was $86,053,000 and $76,961,000, respectively. Income Taxes: The Company follows the liability method of accounting for income taxes. Accrued Claims Costs: The Company provides for the uninsured costs of medical, casualty, liability, vehicular, cargo and workers' compensation claims. Such costs are estimated each year based on historical claims and unfiled claims relating to operations conducted through December 31. The actual costs may vary from estimates based on trends of losses for filed claims and claims estimated to be incurred but not filed. The long-term portion of accrued claims costs relates primarily to workers' compensation claims which are payable over several years. Foreign Currency Translation: Adjustments resulting from translating foreign functional currency financial statements into U.S. dollars are included in the Cumulative Translation Adjustment in the Statements of Consolidated Shareholders' Equity. Earnings Per Share: Effective December 31, 1997, the Company adopted SFAS 128, "Earnings Per Share". SFAS 128 prescribes new calculations for Basic and Diluted Earnings Per Share (EPS), which replace the former calculations for Primary and Fully Diluted EPS. Basic EPS is computed by dividing reported earnings available to common shareholders by the weighted average shares outstanding; no dilution for any potentially dilutive securities is included. Diluted EPS is calculated differently than the Fully Diluted EPS calculation under the old rules. When applying the treasury stock method for Diluted EPS to compute dilution for options, SFAS 128 requires use of the average share price for the period, rather than the greater of the average share price or end-of-period share price. Prior period EPS data has been restated. Diluted EPS from continuing operations is calculated as follows: (Dollars in thousands except per share data) 1997 1996 1995 Earnings: Net income from continuing operations $113,003 $71,589 $75,420 Add-backs: Dividends on preferred stock, net of replacement funding 1,231 1,769 4,056 Dividends on preferred securities of subsidiary trust, net of tax 2,118 - - $116,352 $73,358 $79,476 Shares: Weighted average shares outstanding 46,236,688 44,041,159 42,067,842 Stock option and restricted stock dilution 1,029,415 1,021,417 895,739 Series B and C preferred stock 4,075,254 4,468,525 5,567,920 Subsidiary trust preferred securities 1,736,111 - - 53,077,468 49,531,101 48,531,501 Diluted Earnings Per Share $2.19 $1.48 $1.64 Estimates: Management makes estimates and assumptions when preparing the financial statements in conformity with generally accepted accounting principles. These estimates and assumptions affect the amounts reported in the accompanying financial statements and notes thereto. Actual results could differ from those estimates. Reclassification: Certain amounts in prior years' financial statements have been reclassified to conform to the current year presentation. 2. Business Divestitures On December 2, 1996, the Company completed a tax-free distribution (the Spin-off) to the Company's shareholders of all the outstanding shares of CFC. The Company's shareholders received one share of CFC common stock for every two shares of the Company's common stock owned on November 15, 1996. The accompanying consolidated financial statements have been restated to report the discontinued operations of CFC separately from continuing operations of the Company. The December 31, 1996 Consolidated Balance Sheet reflects a non- cash reduction to Retained Earnings of $231,007,000 and a ($4,571,000) adjustment to Cumulative Translation Adjustment to recognize the book value of net assets distributed. The Statements of Consolidated Income include the following operating results for the discontinued operations presented as a single classification, net of tax: (Dollars in thousands) 1996 1995 Revenues $1,982,544 $2,106,529 Operating loss (48,942) (42,786) Loss before income tax benefits (48,236) (42,069) Income tax benefits (11,850) (13,215) Losses from discontinued operations (36,386) (28,854) The Company incurred costs in connection with the Spin-off, including legal and advisory fees, costs of relocating administrative, data processing and other operating locations, severance, and other transaction costs. These costs are reported net of $7.0 million of income tax benefits in the Statements of Consolidated Income as Loss from Discontinuance in 1996. 3. Accrued Liabilities Accrued liabilities consist of the following as of December 31: (Dollars in thousands) 1997 1996 Other accrued liabilities $169,572 $130,365 Accrued holiday and vacation pay 52,263 44,922 Purchased transportation 40,732 43,328 Accrued taxes other than income taxes 36,794 33,826 Wages and salaries 28,173 24,841 Estimated revenue adjustments 34,637 23,912 Accrued interest 18,829 27,224 Accrued incentive compensation 42,237 21,079 Total accrued liabilities $423,237 $349,497 4. Debt and Guarantees As of December 31, long-term debt and guarantees consisted of the following: (Dollars in thousands) 1997 1996 91/8% Notes Due 1999 (interest payable semi-annually) $117,705 $117,705 7.35% Notes due 2005 (interest payable semi-annually) 100,000 100,000 6.14% Industrial Revenue Bonds due 2014 4,800 4,800 Other debt 1,179 20 TASP Notes guaranteed, 8.42% to 9.04%, due through 2009 143,800 146,900 367,484 369,425 Less current maturities (4,813) (3,120) Total long-term debt and guarantees $362,671 $366,305 The 91/8% notes due in 1999 and the 7.35% notes due in 2005 contain certain covenants limiting the incurrence of additional liens. The Company has a $350 million unsecured credit facility to provide for letter of credit and working capital needs. Borrowings under the agreement, which expires in 2001, bear interest at a rate based upon select indices plus a margin dependent on the Company's credit rating. The agreement contains various restrictive covenants that limit the incurrence of additional indebtedness and require the Company to maintain minimum amounts of net worth and fixed charge coverage. At December 31, 1997, the Company had no short-term borrowings and $104.8 million of letters of credit outstanding under this agreement. Short-term borrowings of $155 million were outstanding at December 31, 1996. Under several other unsecured letter of credit facilities, the Company had outstanding letters of credit of $68.3 million at December 31, 1997. Of the $143.8 million TASP Notes, $113.1 million are subject to redemption at the option of the holders should a certain designated event occur or ratings by both Moody's and S&P of senior unsecured indebtedness decline below investment grade. The remaining $30.7 million of the notes contain financial covenants including a common dividend restriction equal to $10.0 million plus one-half of the Company's earnings since inception of the agreement. The aggregate annual maturities and sinking fund requirements of long-term debt for each of the next five years ending December 31 are: 1998, $4,813,000; 1999, $123,471,000; 2000, $6,400,000; 2001, $7,500,000; and 2002, $8,700,000. The Company's interest expense as presented in the Statements of Consolidated Income is net of capitalized interest of $2,077,000 in 1997, $2,092,000 in 1996 and $731,000 in 1995. 5. Leases The Company and its subsidiaries are obligated under various non-cancelable leases.The principal capital lease, which expires in 2018, covers a sorting facility in Dayton, Ohio (the Hub). The Hub is financed by City of Dayton, Ohio, revenue bonds. Of the total bonds, $46 million bear an effective rate of 8%. In 1997, the Company entered into an agreement to deliver Series A refinancing bonds. These bonds, when delivered on October 1, 1998, will bear an interest rate of 5.625%. The remaining $62 million bear rates of interest between 6.05% and 6.20%. The bonds, due through 2018, have various call provisions and are secured by the underlying assets of the lease, certain other Emery assets and irrevocable letters of credit. Included in property, plant and equipment is $38,978,000 of equipment and leasehold improvements, net, related to the Hub. Future minimum lease payments under all leases with initial or remaining non-cancelable lease terms in excess of one year, at December 31, 1997, are as follows: Capital Operating (Dollars in thousands) Leases Leases Year ending December 31 1998 $ 9,454 $164,403 1999 8,099 121,881 2000 8,187 80,419 2001 8,286 50,086 2002 8,394 37,249 Thereafter (through 2018) 145,031 57,697 Total minimum lease payments 187,451 $511,735 Less amount representing interest (76,572) Present value of minimum lease payments 110,879 Less current maturities of obligations under capital leases (62) Long-term obligations under capital leases $110,817 Certain operating leases contain financial covenants equal to or less restrictive than covenants on debt. The Company is negotiating various agreements that will result in new operating leases that are expected to reduce the lease payments and extend the terms of six existing aircraft leases. Rental expense for operating leases is comprised of the following: (Dollars in thousands) 1997 1996 1995 Minimum rentals $203,521 $178,781 $174,951 Less: Sublease rentals (5,087) (2,355) (4,505) Amortization of deferred gains (4,487) (4,487) (1,785) $193,947 $171,939 $168,661 6. Income Taxes The components of pretax income and income taxes are as follows: (Dollars in thousands) 1997 1996 1995 Pretax income U.S. corporations $206,055 $137,918 $146,042 Foreign corporations 15,759 9,214 6,900 Total pretax income $221,814 $147,132 $152,942 Income taxes Current U.S. federal $ 49,187 $ 57,397 $ 39,666 State and local 12,109 6,430 7,979 Foreign 7,789 5,762 4,790 69,085 69,589 52,435 Deferred taxes (benefits) U.S. federal 31,162 (2,903) 12,147 State and local 678 265 2,141 31,840 (2,638) 14,288 Total income taxes $100,925 $ 66,951 $ 66,723 The components of deferred tax assets and liabilities at December 31, relate to the following: (Dollars in thousands) 1997 1996 Deferred tax assets Reserves for accrued claims costs $ 39,969 $ 28,001 Reserves for post retirement health benefits 34,732 35,743 Other reserves not currently deductible 62,011 47,496 Reserves for employee benefits 49,118 42,308 Alternative minimum tax credit carryovers 206 18,065 186,036 171,613 Deferred tax liabilities Depreciation 159,912 120,440 Unearned revenue 2,853 2,939 Other 9,573 2,696 172,338 126,075 Net deferred tax asset $ 13,698 $ 45,538 Deferred tax assets and liabilities in the Consolidated Balance Sheets are classified based on the related asset or liability creating the deferred tax. Deferred taxes not related to a specific asset or liability are classified based on the estimated period of reversal. Although realization is not assured, management believes it more likely than not that all deferred tax assets will be realized. Income taxes vary from the amounts calculated by applying the U.S. statutory income tax rate to the pretax income as set forth in the following reconciliation: 1997 1996 1995 U.S. statutory tax rate 35.0% 35.0% 35.0% State income taxes (net of federal income tax benefit) 4.3 4.4 5.0 Foreign taxes in excess of U.S. statutory rate 1.0 1.7 1.6 Non-deductible operating expenses 1.2 1.8 1.5 Amortization of costs in excess of net assets of businesses acquired 1.4 2.2 2.1 Foreign tax credits, net (1.1) - (0.3) Other, net 3.7 0.4 (1.3) Effective income tax rate 45.5% 45.5% 43.6% The cumulative undistributed earnings of the Company's foreign subsidiaries (approximately $23.7 million at December 31, 1997), which if remitted are subject to withholding tax, have been reinvested indefinitely in the respective foreign subsidiaries' operations unless it becomes advantageous for tax or foreign exchange reasons to remit these earnings. Therefore, no withholding or U.S. taxes have been provided. The amount of withholding tax that would be payable on remittance of the undistributed earnings would approximate $1.9 million. The Company is currently under examination by the Internal Revenue Service (IRS) for tax years 1987 through 1996. Except for the effect, if any, of the item discussed in the paragraph below, it is the opinion of management that any adjustments related to the examination for these years would not have a material impact on the Company's financial position or results of operations. In addition, as part of the Spin-off, the Company and CFC entered into a Tax Sharing Agreement that provides a mechanism for the allocation of any additional tax liability and related interest that arise due to adjustments from the IRS for years prior to the Spin- off. The IRS has proposed a substantial adjustment for tax years 1987 through 1990 based on the IRS position that certain aircraft maintenance costs should have been capitalized rather than expensed for federal income tax purposes. In addition, the Company believes it is likely that the IRS will propose an additional adjustment, based on the same IRS position with respect to aircraft maintenance costs, for subsequent tax years. The Company believes that its practice of expensing these types of maintenance costs is consistent with industry practice. However, if this issue is determined adversely to the Company, there can be no assurance that the Company will not have to pay substantial additional tax. The Company is unable to predict the ultimate outcome of this matter and intends to vigorously contest the proposed adjustment. 7. Preferred Securities of Subsidiary Trust On June 11, 1997, CNF Trust I (the Trust), a Delaware business trust wholly owned by the Company, issued 2,500,000 of its $2.50 Term Convertible Securities, Series A TECONS to the public for gross proceeds of $125 million. The combined proceeds from the issuance of the TECONS and the issuance to the Company of the common securities of the Trust were invested by the Trust in $128.9 million aggregate principal amount of 5% convertible subordinated debentures due June 1, 2012 (the Debentures) issued by the Company. The Debentures are the sole assets of the Trust. Holders of the TECONS are entitled to receive cumulative cash distributions at an annual rate of $2.50 per TECONS (equivalent to a rate of 5% per annum of the stated liquidation amount of $50 per TECONS). The Company has guaranteed, on a subordinated basis, distributions and other payments due on the TECONS, to the extent the Trust has funds available therefor and subject to certain other limitations (the Guarantee). The Guarantee, when taken together with the obligations of the Company under the Debentures, the Indenture pursuant to which the Debentures were issued, and the Amended and Restated Declaration of Trust of the Trust (including its obligations to pay costs, fees, expenses, debts and other obligations of the Trust [other than with respect to the TECONS and the common securities of the Trust]), provide a full and unconditional guarantee of amounts due on the TECONS. The Debentures are redeemable for cash, at the option of the Company, in whole or in part, on or after June 1, 2000, at a price equal to 103.125% of the principal amount, declining annually to par if redeemed on or after June 1, 2005, plus accrued and unpaid interest. In certain circumstances relating to federal income tax matters, the Debentures may be redeemed by the Company at 100% of the principal plus accrued and unpaid interest. Upon any redemption of the Debentures, a like aggregate liquidation amount of TECONS will be redeemed. The TECONS do not have a stated maturity date, although they are subject to mandatory redemption upon maturity of the Debentures on June 1, 2012, or upon earlier redemption. 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. 8. Shareholders' Equity In 1989, the Board of Directors designated a series of 1,100,000 preferred shares as Series B Cumulative Convertible Preferred Stock, $.01 stated value, which is held by the CNF Thrift and Stock Plan (TASP). The Series B preferred stock is convertible into common stock, as described in Note 10, at the rate of 4.71 shares for each share of preferred stock subject to antidilution adjustments in certain circumstances. Holders of the Series B preferred stock are entitled to vote with the common stock and are entitled to a number of votes in such circumstances equal to the product of (a) 1.3 multiplied by (b) the number of shares of common stock into which the Series B preferred stock is convertible on the record date of such vote. Holders of the Series B preferred stock are also entitled to vote separately as a class on certain other matters. The TASP trustee is required to vote the allocated shares based upon instructions from the participants; unallocated shares are voted in proportion to the voting instructions received from the participants with allocated shares. 9. Employee Benefit Plans The Company has a non-contributory defined benefit pension plan (the Plan) covering non-contractual employees in the United States. The Company's annual pension provision and contributions are based on an independent actuarial computation. Although it is the Company's funding policy to contribute the minimum required tax-deductible contribution for the year, it may increase its contribution above the minimum if appropriate to its tax and cash position and the plan's funded status. Benefits under the Plan are based on a career average final five-year pay formula. Approximately 82% of the Plan assets are invested in publicly traded stocks and bonds. The remainder is invested in temporary cash investments, real estate funds and investment capital funds. The following sets forth the pension liabilities included in Employee Benefits in the Consolidated Balance Sheets at December 31: (Dollars in thousands) 1997 1996 Accumulated benefit obligation, including vested benefits of $221,978 in 1997 and $169,714 in 1996 $(247,120) $(187,041) Effect of projected future compensation levels (83,538) (65,049) Projected benefit obligation (330,658) (252,090) Plan assets at market value 312,818 271,669 Plan assets over (under) projected benefit obligation (17,840) 19,579 Unrecognized prior service costs 9,000 10,183 Unrecognized net gain (18,772) (36,473) Unrecognized net asset at transition (6,775) (7,905) Plan liability $ (34,387) $ (14,616) Weighted average discount rate 7.25% 7.75% Expected long-term rate of return on assets 9.5% 9.5% Rate of increase in future compensation levels 5.0% 5.0% Net pension cost includes the following: (Dollars in thousands) 1997 1996 1995 Cost of benefits earned during the year $ 23,664 $ 22,544 $ 15,651 Interest cost on projected benefit obligation 21,818 18,214 15,702 Actual gain arising from plan assets (46,634) (36,002) (46,575) Net amortization and deferral 20,923 15,449 29,223 Net pension cost $ 19,771 $ 20,205 $ 14,001 The Company's Plan includes programs to provide additional benefits for compensation excluded from the basic Plan. The annual provision for these programs is based on independent actuarial computations using assumptions consistent with the Plan. Obligations in these supplemental programs up to the Spin-off date for participants now employed by CFC have been retained by the Company. At December 31, 1997 and 1996, the total pension liability was $15,915,000 and $12,480,000, respectively, and the total pension cost was $2,462,000 in 1997, $2,274,000 in 1996 and $1,837,000 in 1995. The Company has a retiree health plan that provides benefits to all non-contractual employees at least 55 years of age with 10 years or more of service. The retiree health plan limits benefits for participants who were not eligible to retire before January 1, 1993, to a defined dollar amount based on age and years of service and does not provide employer-subsidized retiree health care benefits for employees hired on or after January 1, 1993. The following sets forth the total post retirement benefit liability included in Employee Benefits in the Consolidated Balance Sheets at December 31: (Dollars in thousands) 1997 1996 Accumulated post retirement benefit obligation Retirees and other inactives $43,319 $38,789 Participants eligible to retire 15,974 13,581 Other active participants 20,605 19,334 79,898 71,704 Unrecognized prior service costs 444 499 Unrecognized valuation gain 7,918 12,313 Accrued post retirement benefit cost $88,260 $84,516 Weighted average discount rate 7.25% 7.75% Average health care cost trend rate First year 6.5% 8.0% Declining to (year 1999) 5.5% 6.0% Net periodic post retirement benefit cost includes the following components: (Dollars in thousands) 1997 1996 1995 Cost of benefits earned during the year $2,043 $2,422 $1,960 Interest cost on accumulated post retirement obligation 5,697 5,256 5,301 Net amortization and deferral (244) (131) (719) Net periodic post retirement benefit cost $7,496 $7,547 $6,542 The increase in the accumulated post retirement benefit obligation and the aggregate service and interest cost, given a 1% increase in the health care cost trend rate assumption, would be approximately 5% and 4%, respectively. The Company and each of its subsidiaries have adopted various plans relating to the achievement of specific goals to provide incentive-based compensation for designated employees. Total compensation earned by salaried participants of those plans was $51,900,000, $23,210,000 and $17,300,000 in 1997, 1996 and 1995, respectively, and by hourly participants was $38,100,000, $12,200,000 and $9,100,000 in 1997, 1996 and 1995, respectively. 10. Thrift and Stock Plan The Company sponsors the CNF Thrift and Stock Plan (TASP), a voluntary defined contribution plan with a leveraged ESOP feature, for non-contractual U.S. employees. The TASP satisfies the Company's contribution requirement by matching up to 50% of the first 3% of a participant's basic compensation. In 1989, the TASP borrowed $150,000,000 to purchase 986,259 shares of the Company's Series B Cumulative Convertible Preferred Stock. This stock is only issuable to the TASP trustee. Company contributions were $9,921,000 in 1997, $8,589,000 in 1996 and $7,227,000 in 1995, in the form of common and preferred stock. The Series B Preferred Stock earns a dividend of $12.93 per share and is used to repay the TASP debt. Any shortfall is paid in cash by the Company. Dividends on these preferred shares are deductible for income tax purposes and, accordingly, are reflected net of their tax benefits in the Statements of Consolidated Income. Allocation of preferred stock to participants' accounts is based upon the ratio of the current year's principal and interest payments to the total TASP debt. Since the debt is guaranteed by the Company, it is reflected in Long-term Debt and Guarantees in the Consolidated Balance Sheets. The TASP guarantees are reduced as principal is paid. Each share of preferred stock is convertible into common stock, upon an employee ceasing participation in the plan, at a rate generally equal to that number of shares of common stock that could be purchased for $152.10, but not less than the minimum conversion rate of 4.71 shares of common stock for each share of Series B Preferred Stock. Deferred compensation expense is recognized as the preferred shares are allocated to participants and is equivalent to the cost of the preferred shares allocated and the TASP interest expense for the year, reduced by the dividends paid to the TASP. During 1997, 1996 and 1995, $6,649,000, $6,250,000 and $5,918,000, respectively, of deferred compensation expense was recognized. At December 31, 1997, the TASP owned 865,602 shares of Series B Preferred Stock, of which 198,798 shares were allocated to employees. At December 31, 1997, the Company had reserved, authorized and unissued common stock adequate to satisfy the conversion feature of the Series B Preferred Stock. 11. Stock Option and Restricted Stock Plans Officers and non-employee directors have been granted options under the Company's stock option plans to purchase common stock of the Company at prices equal to the market value of the stock on the date of grant. Outstanding options become fully exercisable one year after the date of grant; any unexercised options expire after 10 years. In 1995, the Financial Accounting Standards Board issued SFAS 123, "Accounting for Stock-Based Compensation". Adoption of SFAS 123 is optional, and the Company does not intend to change its accounting for stock-based compensation. Had the Company adopted this statement in 1995, pro forma net income from continuing operations as reported net of preferred dividends would have been $109.3 million, $68.6 million, and $74.0 million for the years 1997, 1996 and 1995, respectively. Basic earnings per share would have been $2.36, $1.56 and $1.76 per share for the years 1997, 1996 and 1995, respectively. These pro forma effects of applying SFAS 123 are not indicative of future amounts. The weighted-average grant-date fair value of options granted in 1997, 1996 and 1995 were $12.28, $8.54 and $8.37 per share, respectively. The following assumptions were used with the Black-Scholes options pricing model to calculate the option values: risk-free weighted average rate, 6.1%-6.8%; expected life, 6 years; dividend yield, 1.2%; and volatility, 30.0%. Following is a summary of stock option data: Number of Wtd. Avg. Options Exercise Price Outstanding at December 31, 1994 3,778,428 $18.02 Granted 647,500 23.61 Exercised (583,143) 16.01 Expired or canceled (84,590) 26.48 Outstanding at December 31, 1995 3,758,195 19.11 Granted 537,500 21.53 Exercised (138,027) 14.30 Expired or canceled (24,319) 27.10 Adjustment for Spin-off 773,139 - Outstanding at December 31, 1996 4,906,488 16.46 Granted 492,500 32.47 Exercised (2,688,824) 15.42 Expired or canceled (122,566) 26.77 Outstanding at December 31, 1997 2,587,598 $20.12 The following is a summary of the stock options outstanding and exercisable at December 31, 1997: Outstanding Options Exercisable Options Range of Number Remaining Wtd. Avg. Number Wtd.Avg. Exercise of Life Exercise of Exercise Prices Options (Years) Price Options Price $10.98-$16.26 746,823 4.9 $13.19 687,612 $12.95 $18.05-$22.94 1,339,801 7.5 $19.38 1,339,801 $19.38 $27.66-$43.63 500,974 9.3 $32.50 23,934 $30.44 In 1997, the Company's shareholders approved a stock compensation plan for certain executives of the Company. Restricted stock awarded under the plan generally vests one- third per year dependent on the achievement of certain market prices of the Company's stock. During 1997, 79,500 shares were issued with a weighted-average grant-date fair value of $33.80. At December 31, 1997, the Company had 1,640,500 common shares reserved for the grant of stock options, restricted stock, or other equity-based incentive compensation. 12. Financial Instruments The Company has entered into interest rate swap agreements that expire in 1999. These agreements effectively convert $36 million of variable rate lease obligations to fixed rate obligations. Interest rate differentials to be paid or received are recognized over the life of each agreement as adjustments to operating expense. The Company is exposed to credit loss on the interest rate swaps in the event of non-performance by counter parties, but the Company does not anticipate non-performance by any of these counter parties. The fair values of the interest rate swaps, as presented below, reflect the estimated amounts that the Company would receive or pay to terminate the contracts at the reported date. The following table presents the carrying amounts and estimated fair values of the Company's financial instruments at December 31: (Dollars in thousands) 1997 1996 Carrying Fair Carrying Fair Amount Value Amount Value Payables for interest swaps $ - $ 900 $ - $1,351 Short-term borrowings - - 155,000 155,000 Long-term debt 367,484 396,000 369,425 400,000 Capital leases 110,879 125,000 110,961 119,000 13. Contingencies and Other Commitments In connection with the Spin-off, the Company agreed to indemnify certain states, insurance companies and sureties against the failure of CFC to pay certain worker's compensation 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 has provided the Company with approximately $30 million of letters of credit and $50 million of real property collateral. The Company has entered into a Transition Services Agreement to provide CFC with certain information systems, data processing and other administrative services and will administer CFC's retirement and benefits plans. The agreement has a three-year term although CFC may terminate any or all services with six months notice. The Company may terminate all services other than the telecommunications and data processing services at any time after the first anniversary of the agreement, with six months notice. Services performed by the Company under the agreement shall be paid by CFC on an arm's-length negotiated basis. The Internal Revenue Service has notified a subsidiary of the Company of proposed adjustments in aviation transportation excise tax caused by a difference in methods used to calculate the tax. The Company intends to vigorously defend against the proposed adjustments. Although the Company is unable to predict the ultimate outcome, it is the opinion of management that this action will not have a material impact on the Company's financial position or results of operations. The Company has received notices from the Environmental Protection Agency and others that it has been identified as a potentially responsible party (PRP) under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA) or other Federal and state environmental statutes at several hazardous waste sites. Under CERCLA, PRPs are jointly and severally liable for all site remediation and expenses. After investigating the Company's involvement at such sites, based upon cost studies performed by independent third parties, the Company believes its obligations with respect to such sites would not have a material adverse effect on the Company's financial position or results of operations. The Company and its subsidiaries are defendants in various lawsuits incidental to their businesses. It is the opinion of management that the ultimate outcome of these actions will not have a material impact on the Company's financial position or results of operations. 14. Industry Group Analysis and Foreign Operations In June 1997, the Financial Accounting Standards Board issued SFAS 131, "Disclosures about Segments of an Enterprise and Related Information". SFAS 131 changes the method of disclosure of segment information to the manner in which management organizes the segments for making operating decisions and assessing performance. SFAS 131 is required to be adopted for year-end 1998. The Company's currently-reported segment data is also the basis upon which management makes decisions and evaluates performance. Accordingly, adoption of SFAS 131 will not materially alter the current reporting format of industry and geographic segments. The following analyses are by geographic and industry group. Revenues and expenses are allocated between North America and international, depending on whether the shipments are between locations within North America or between locations where one or both are outside North America. Operating income is net of general corporate expenses, a portion of which have been allocated to subsidiaries on a revenue and capital basis. Financial results of the Priority Mail contract are included in each or the reported segments depending on the service provided. Intersegment revenues and related earnings have been eliminated. The identifiable assets of the parent consist principally of cash, cash equivalents and deposits. GEOGRAPHIC GROUP INFORMATION (Dollars in thousands) Consolidated North American International Year Ended December 31, 1997 Revenues $ 4,266,801 $ 3,364,304 $ 902,497 Operating income 264,867 201,328 63,539 Identifiable assets 2,421,496 2,365,416 56,080 Year Ended December 31, 1996 Revenues $ 3,662,183 $ 2,898,091 $ 764,092 Operating income 192,148 151,575 40,573 Identifiable assets 2,081,866 2,032,085 49,781 Year Ended December 31, 1995 Revenues $ 3,290,077 $ 2,601,193 $ 688,884 Operating income 186,687 151,379 35,308 Identifiable assets(a) 1,825,850 1,787,960 37,890 (a) Excludes net assets of discontinued operations.
INDUSTRY GROUP INFORMATION (Dollars in thousands) Industry Group Adjustments, Con-Way Eliminations and Transportation Emery Consolidated the Parent Services Worldwide Other Year Ended December 31, 1997 Revenues $ 4,266,801 $ 1,473,188 $ 2,272,075 $ 521,538 Operating expenses 3,333,721 1,072,522 1,788,941 472,258 Selling and administrative expenses 557,117 188,971 334,201 33,945 Depreciation 111,096 64,540 39,599 6,957 Operating income 264,867 $ 147,155 $ 109,334 $ 8,378 Other expense (43,053) Income before income taxes $ 221,814 Capital expenditures $ 242,343 $ 2,896 $ 109,328 $ 62,689 $ 67,430 Identifiable assets $ 2,421,496 $ 176,816 $ 727,597 $ 1,318,982 $ 198,101 Year Ended December 31, 1996 Revenues $ 3,662,183 $ 1,292,082 $ 1,968,058 $ 402,043 Operating expenses 2,918,682 973,341 1,586,855 358,486 Selling and administrative expenses 463,930 165,291 270,834 27,805 Depreciation 87,423 52,401 31,954 3,068 Operating income 192,148 $ 101,049 $ 78,415 $ 12,684 Other expense (45,016) Income before income taxes $ 147,132 Capital expenditures $ 200,835 $ 434 $ 146,377 $ 46,939 $ 7,085 Identifiable assets $ 2,081,866 $ 172,969 $ 687,821 $ 1,137,631 $ 83,445 Year Ended December 31, 1995 Revenues $ 3,290,077 $ 1,152,164 $ 1,766,301 $ 371,612 Operating expenses 2,641,756 876,505 1,422,872 342,379 Selling and administrative expenses 391,682 138,329 234,223 19,130 Depreciation 69,952 40,757 27,472 1,723 Operating income 186,687 $ 96,573 $ 81,734 $ 8,380 Other expense (33,745) Income before income taxes $ 152,942 Capital expenditures $ 167,253 $ (4,242) $ 136,546 $ 32,197 $ 2,752 Identifiable assets(a) $ 1,825,850 $ 106,080 $ 562,449 $ 1,082,507 $ 74,814 (a) Excludes net assets of discontinued operations.
Note 15: Quarterly Financial Data (Unaudited) (Dollars in thousands except per share data) 1997 - Quarter Ended March 31 June 30 September 30 December 31 Revenues $ 942,628 $ 1,002,563 $ 1,127,362 $ 1,194,248 Operating income 50,367 66,867 81,847 65,786(c) Income before income taxes 40,172 55,027 72,743 53,872 Income taxes 18,228 25,038 33,098 24,561 Net income 21,944 29,989 39,645 29,311 Net income available to common shareholders 20,005 28,018 37,694 27,286 Per share:(a) Basic income 0.44 0.61 0.81 0.58 Diluted income 0.40 0.55 0.70 0.51 Market price range $28.13-$20.25 $36.38-$26.38 $45.38-$32.13 $50.88-$37.06 Common dividends paid 0.10 0.10 0.10 0.10 1996 - Quarter Ended March 31 June 30 September 30 December 31 Revenues $ 847,873 $ 894,336 $ 935,790 $ 984,184 Operating income 35,214 52,657 54,416 49,861 Income from continuing operations before income taxes 25,683 41,323 42,065 38,061 Income taxes 12,020 17,605 18,766 18,560 Income from continuing operations 13,663 23,718 23,299 19,501 Loss from discontinued operations net of tax benefits(b) (13,383) (10,062) (3,445) (25,743)(d) Net income (loss) applicable to common shareholders (1,854) 11,473 17,713 (8,376) Per share:(a) Basic income (loss): Continuing operations 0.26 0.49 0.48 0.39 Discontinued operations(b) (0.30) (0.23) (0.08) (0.58)(d) Net income (loss) (0.04) 0.26 0.40 (0.19) Diluted Income (loss): Continuing operations 0.24 0.45 0.44 0.36 Discontinued operations(b) (0.27) (0.21) (0.07) (0.52)(d) Net income (loss) (0.03) 0.24 0.37 (0.16) Market price range $29.38-$21.00 $26.25-$21.13 $24.50-$17.25 $26.00-$21.50 Common dividends paid 0.10 0.10 0.10 0.10 (a) All periods have been restated to conform to the presentation required by SFAS 123, "Earnings Per Share." (b) Reflects the results of CFC as described in Note 2 of the Notes to the Consolidated Financial Statements. (c) Includes $5.0 million charge ($.06 per share basic and $.05 per share diluted) for costs associated with the discontinuance of a rail container service. (d) Includes $16.2 million for loss on discontinuance, net of tax benefits ($0.37 per share basic and $0.33 per share diluted).
CNF Transportation Inc. Five Year Financial Summary (Dollars in thousands except per share data) 1997 1996 1995 1994 1993 SUMMARY OF OPERATIONS Revenues 4,266,801 3,662,183 3,290,077 2,799,935 2,163,631 Con-Way Transportation Services 1,473,188 1,292,082 1,152,164 1,018,544 818,301 Emery Worldwide 2,272,075 1,968,058 1,766,301 1,567,854 1,261,273 Other 521,538 402,043 371,612 213,537 84,057 Operating income 264,867 192,148 186,687 189,977 90,754 Con-Way Transportation Services 147,155 101,049 96,573 111,220 71,854 Emery Worldwide 109,334 78,415 81,734 77,616 16,591 Other 8,378 12,684 8,380 1,141 2,309 Investment income 1,378 52 85 1,708 5,127 Interest expense 39,553 39,766 33,407 27,065 29,890 Income from continuing operations before income taxes 221,814 147,132 152,942 165,129 66,202 Income taxes 100,925 66,951 66,723 69,304 28,736 Net income from continuing operations (a) 113,003 71,589 75,420 76,762 18,499 Discontinued operations: (b) Income (loss) from discontinued operations, net of income taxes (benefits) - (36,386) (28,854) (37,442)(d) 13,108 Loss from discontinuance, net of income tax benefits - (16,247) - - - Income (loss) from discontinued operations(b) - (52,633) (28,854) (37,442) 13,108 Net Income available to common shareholders 113,003 18,956 46,566 35,710 (d) 31,607 PER SHARE Income from continuing operations, basic (c) $ 2.44 $ 1.63 $ 1.79 $ 2.12 (d) $ 0.52 Discontinued operations: (b)(c) Income (loss) from discontinued operations, net of income taxes (benefits) - (0.83) (0.68) (1.03)(d) 0.37 Loss from discontinuance, net of tax benefits - (0.37) - - - Net income available to common shareholders, basic (c) 2.44 0.43 1.11 1.09 (d) 0.89 Income from continuing operations, diluted(c) 2.19 1.48 1.64 1.81 0.46 Dividends paid on common stock 0.40 0.40 0.40 - - Common shareholders' equity 13.26 10.86 15.76 14.58 13.65 OTHER DATA Total assets 2,421,496 2,081,866 2,084,958 1,833,742 1,728,874 Capital expenditures 242,343 200,835 167,253 149,808 151,815 Effective income tax rate 45.5% 45.5% 43.6% 42.0% 43.4% Basic average shares 46,236,688 44,041,159 42,067,842 36,183,020 35,444,175 Market price range $50.88-$20.25 $29.38-$17.25 $27.88-$20.25 $29.25-$18.00 $24.00-$13.63 Number of shareholders 15,560 16,090 15,980 16,015 15,785 Number of regular full-time employees 26,300 25,100 21,400 18,500 17,000 (a) Includes preferred stock dividends. (b) Reflects the results of CFC as described in Note 2 of the Notes to the Consolidated Financial Statements. (c) Prior years have been restated to conform to the presentation required by SFAS 128, "Earnings Per Share." (d) Continuing operations include a $3.6 million extraordinary charge ($.10 per share basic and $.07 per share diluted), and discontinued operations $1.9 million ($.05 per share basic and $.04 per share diluted), net of related tax benefits, for the write-off of intrastate operating rights.
EX-21 14 EXHIBIT 21 CNF TRANSPORTATION INC. SIGNIFICANT SUBSIDIARIES OF THE COMPANY December 31, 1997 The Company and its significant subsidiaries were: State or Percent of Province or Stock Owned Country of Parent and Significant Subsidiaries by Company Incorporation CNF Transportation Inc. Delaware Significant Subsidiaries of CNF Transportation Inc. Con-Way Transportation Services, Inc. 100 Delaware Con-Way Truckload Services, Inc. 100 Delaware Emery Air Freight Corporation 100 Delaware Emery Worldwide Airlines, Inc. 100 Nevada Menlo Logistics, Inc. 100 California Road Systems, Inc. 100 California EX-27 15
5 1000 YEAR DEC-31-1997 DEC-31-1997 97617 0 723940 (20155) 36580 1009387 1496696 (616854) 2421496 806138 473488 125000 131658 336237 190208 2421496 0 4266801 0 4001934 43053 0 39553 221814 100925 120889 0 0 0 113003 2.44 2.19
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