-----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, E0PMshniXQ3N8aHq9TGZCJZxhfWzbbNZ6rd0n6c6lCAS4Hyk8bwA84/XEZGh8oKX HrDZsdq3PIquitAvPhRRxA== 0000023675-01-500004.txt : 20010511 0000023675-01-500004.hdr.sgml : 20010511 ACCESSION NUMBER: 0000023675-01-500004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CNF 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-Q SEC ACT: SEC FILE NUMBER: 001-05046 FILM NUMBER: 1628118 BUSINESS ADDRESS: STREET 1: 3240 HILLVIEW AVE CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 6504942900 MAIL ADDRESS: STREET 1: 1717 NW 21ST AVE CITY: PORTLAND STATE: OR ZIP: 97209 FORMER COMPANY: FORMER CONFORMED NAME: CNF TRANSPORTATION INC DATE OF NAME CHANGE: 19970509 FORMER COMPANY: FORMER CONFORMED NAME: CONSOLIDATED FREIGHTWAYS INC DATE OF NAME CHANGE: 19920703 10-Q 1 cnf10q.txt PAGE 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 OR ___TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from N/A to N/A COMMISSION FILE NUMBER 1-5046 CNF Inc. (Formerly CNF Transportation Inc.) Incorporated in the State of Delaware I.R.S. Employer Identification No. 94-1444798 3240 Hillview Avenue, Palo Alto, California 94304 Telephone Number (650) 494-2900 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes xx No Number of shares of Common Stock, $.625 par value, outstanding as of April 30, 2001: 48,804,147 PAGE 2 CNF INC. FORM 10-Q Quarter Ended March 31, 2001 ___________________________________________________________________________ ___________________________________________________________________________ INDEX PART I. FINANCIAL INFORMATION Page Item 1. Financial Statements Consolidated Balance Sheets - March 31, 2001 and December 31, 2000 3 Statements of Consolidated Income - Three months Ended March 31, 2001 and 2000 5 Statements of Consolidated Cash Flows - Three months Ended March 31, 2001 and 2000 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 16 PART II. OTHER INFORMATION Item 1. Legal Proceedings 23 Item 4. Submission of Matters to a Vote of Security Holders 24 Item 6. Exhibits and Reports on Form 8-K 25 SIGNATURES 25 PAGE 3 ITEM 1. FINANCIAL STATEMENTS CNF INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands) March 31, December 31, 2001 2000 ASSETS CURRENT ASSETS Cash and cash equivalents $ 146,285 $ 104,515 Trade accounts receivable, net 823,714 881,268 Other accounts receivable (Note 8) 74,020 59,478 Operating supplies, at lower of average cost or market 39,876 42,271 Prepaid expenses 65,274 47,301 Deferred income taxes 105,991 105,502 Total Current Assets 1,255,160 1,240,335 PROPERTY, PLANT AND EQUIPMENT, AT COST Land 139,828 130,101 Buildings and leasehold improvements 718,998 692,312 Revenue equipment 806,553 797,444 Other equipment 430,057 420,788 2,095,436 2,040,645 Accumulated depreciation and amortization (970,489) (934,123) 1,124,947 1,106,522 OTHER ASSETS Deferred charges and other assets (Note 7) 143,240 137,393 Capitalized software, net 90,894 89,829 Unamortized aircraft maintenance 248,037 242,468 Goodwill, net 252,640 254,887 Net non-current assets of discontinued operations (Note 2) 122,735 173,507 857,546 898,084 TOTAL ASSETS $3,237,653 $3,244,941 The accompanying notes are an integral part of these statements. PAGE 4 CNF INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands) March 31, December 31, 2001 2000 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 399,438 $ 418,157 Accrued liabilities (Note 8) 326,639 317,650 Accrued claims costs 140,358 145,558 Current maturities of long-term debt and capital leases 8,753 7,553 Income taxes payable 7,343 1,777 Net current liabilities of discontinued operations (Note 2) 24,033 68,214 Total Current Liabilities 906,564 958,909 LONG-TERM LIABILITIES Long-term debt and guarantees (Note 7) 435,490 424,116 Long-term obligations under capital leases 110,504 110,533 Accrued claims costs 105,066 82,502 Employee benefits 264,572 252,482 Other liabilities and deferred credits 48,336 51,163 Aircraft lease return provision 27,289 33,851 Deferred income taxes 142,733 144,463 Total Liabilities 2,040,554 2,058,019 COMMITMENTS AND CONTINGENCIES (Note 8) COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY CONVERTIBLE DEBENTURES OF THE COMPANY (Note 6) 125,000 125,000 SHAREHOLDERS' EQUITY Preferred stock, no par value; authorized 5,000,000 shares: Series B, 8.5% cumulative, convertible, $.01 stated value; designated 1,100,000 shares; issued 819,047 and 824,902 shares, respectively 8 8 Additional paid-in capital, preferred stock 124,569 125,459 Deferred compensation, Thrift and Stock Plan (78,777) (80,602) Total Preferred Shareholders' Equity 45,800 44,865 Common stock, $.625 par value; authorized 100,000,000 shares; issued 55,479,843 and 55,426,605 shares, respectively 34,675 34,642 Additional paid-in capital, common stock 332,558 331,282 Retained earnings 863,959 855,314 Deferred compensation, restricted stock (1,561) (1,423) Cost of repurchased common stock (6,742,605 and 6,770,628 shares, respectively) (166,248) (166,939) 1,063,383 1,052,876 Accumulated Other Comprehensive Loss (Note 3) (37,084) (35,819) Total Common Shareholders' Equity 1,026,299 1,017,057 Total Shareholders' Equity 1,072,099 1,061,922 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $3,237,653 $3,244,941 The accompanying notes are an integral part of these statements. PAGE 5 CNF INC. STATEMENTS OF CONSOLIDATED INCOME (Dollars in thousands except per share amounts) Three Months Ended March 31, 2001 2000 REVENUES $ 1,278,465 $ 1,321,894 Costs and Expenses Operating expenses 1,073,786 1,086,795 General and administrative 127,202 123,354 Depreciation 43,749 40,276 1,244,737 1,250,425 OPERATING INCOME 33,728 71,469 Other Income (Expense) Investment income 729 271 Interest expense (7,793) (6,400) Dividend requirement on preferred securities of subsidiary trust (Note 6) (1,563) (1,563) Miscellaneous, net 827 2,679 (7,800) (5,013) Income from Continuing Operations before Income Taxes 25,928 66,456 Income Taxes 10,371 28,244 INCOME FROM CONTINUING OPERATIONS BEFORE ACCOUNTING CHANGE 15,557 38,212 Cumulative effect of accounting change, net of tax (Note 1) - (2,744) Net Income 15,557 35,468 Preferred stock dividends 2,040 2,034 NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 13,517 $ 33,434 Weighted-Average Common Shares Outstanding (Note 5) Basic 48,658,337 48,417,660 Diluted 56,432,452 56,073,670 Earnings per Common Share (Note 5) Basic Net Income from Continuing Operations $ 0.28 $ 0.75 Cumulative effect of accounting change, net of tax - (0.06) Net Income Available to Common Shareholders $ 0.28 $ 0.69 Diluted Net Income from Continuing Operations $ 0.26 $ 0.67 Cumulative effect of accounting change, net of tax - (0.05) Net Income Available to Common Shareholders $ 0.26 $ 0.62 The accompanying notes are an integral part of these statements. PAGE 6 CNF INC. STATEMENTS OF CONSOLIDATED CASH FLOWS (Dollars in thousands) Three Months Ended March 31, 2001 2000 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $ 104,515 $ 146,263 OPERATING ACTIVITIES Net income 15,557 35,468 Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect of accounting change, net of tax - 2,744 Depreciation and amortization 51,048 46,089 Increase (decrease) in deferred income taxes (2,353) 822 Amortization of deferred compensation 1,825 1,992 Provision for uncollectible accounts 2,899 4,483 Loss (gain) from sales of property 434 (1,106) Gain from sale of securities - (2,619) Changes in assets and liabilities: Receivables 53,241 (63,957) Prepaid expenses (17,973) (17,538) Unamortized aircraft maintenance (5,569) (11,878) Accounts payable (16,009) 13,558 Accrued liabilities 17,179 (7,059) Accrued incentive compensation (29,190) (17,105) Accrued claims costs 17,364 2,287 Income taxes 5,566 20,084 Employee benefits 12,090 9,341 Aircraft lease return provision (6,562) (3,524) Deferred charges and credits 2,162 14,280 Other (2,841) (4,148) Net Cash Provided by Operating Activities 98,868 22,214 INVESTING ACTIVITIES Capital expenditures (42,291) (55,925) Software expenditures (5,508) (5,310) Proceeds from sale of securities - 2,619 Proceeds from sales of property 915 3,162 Net Cash Used in Investing Activities (46,884) (55,454) FINANCING ACTIVITIES Proceeds from issuance of long-term debt - 197,452 Repayment of long-term debt, guarantees and capital leases (7,529) (96,419) Repayment of short-term borrowings, net - (40,000) Proceeds from exercise of stock options 972 295 Payments of common dividends (4,872) (4,849) Payments of preferred dividends (5,376) (5,470) Net Cash Provided by (Used in) Financing Activities (16,805) 51,009 Net Cash Provided by Continuing Operations 35,179 17,769 Net Cash Provided by (Used in) Discontinued Operations 6,591 (52,617) Increase (Decrease) in Cash and Cash Equivalents 41,770 (34,848) CASH AND CASH EQUIVALENTS, END OF PERIOD $ 146,285 $ 111,415 The accompanying notes are an integral part of these statements. PAGE 7 CNF INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Principal Accounting Policies Basis of Presentation The accompanying consolidated financial statements of CNF Inc. (formerly CNF Transportation Inc.) and its wholly owned subsidiaries (the Company) have been prepared by the Company, without audit by independent public accountants, pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the consolidated financial statements include all normal recurring adjustments necessary to present fairly the information required to be set forth therein. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted from these statements pursuant to such rules and regulations and, accordingly, should be read in conjunction with the consolidated financial statements included in the Company's 2000 Annual Report to Shareholders. Recognition of Revenues As a result of recent pronouncements, including SEC Staff Accounting Bulletin No. 101, the Company elected to prospectively adopt, effective January 1, 2000, a change in accounting method for recognition of its freight transportation revenue to a preferable method. The Company now recognizes the allocation of freight transportation revenue between reporting periods based on relative transit time in each reporting period with expenses recognized as incurred. Previously, revenue was recognized when freight was received for shipment and the estimated costs of performing the transportation service were accrued. Reclassification Certain amounts in prior year financial statements have been reclassified to conform to current year presentation. 2. Discontinued Operations On November 3, 2000, Emery Worldwide Airlines (EWA) and the U.S. Postal Service (USPS) announced an agreement to terminate their contract for the transportation and sortation of Priority Mail (the "Priority Mail contract"). The contract was originally scheduled to terminate in the first quarter of 2002, subject to renewal options. Under terms of the agreement, the USPS on January 7, 2001, assumed operating responsibility for services covered under the contract, except certain air transportation and related services, which were terminated effective April 23, 2001. PAGE 8 The USPS agreed to reimburse EWA for Priority Mail contract termination costs, including costs of contract-related equipment, inventory, and operating lease commitments, up to $125 million (the "Termination Liability Cap"). On January 7, 2001, the USPS paid EWA $60 million toward the termination costs. The termination agreement provides for this provisional payment to be adjusted if actual termination costs are greater or less than $60 million, in which case either the USPS will be required to make an additional payment or EWA will be required to return a portion of the provisional payment. The termination agreement preserves EWA's right to pursue claims for underpayment that it believes are owed by the USPS under the Priority Mail contract and EWA has initiated litigation in the U.S. Court of Federal Claims for that purpose. These claims are to recover costs of operating under the contract as well as profit and interest thereon. As a result of the contract termination, the results of operations of EWA's Priority Mail contract have been segregated and classified as discontinued operations in the Statements of Consolidated Income for all periods presented. Assets and liabilities have been reclassified in the Consolidated Balance Sheets from their historical classifications to separately reflect them as net assets of discontinued operations. Cash flows related to discontinued operations have been segregated and classified separately as net cash flows from discontinued operations in the Statements of Consolidated Cash Flows. The net assets of discontinued operations were as follows: (Dollars in thousands) March 31, December 31, 2001 2000 ----------- ----------- Current assets $ 15,905 $ 26,120 Property, plant and equipment, net - 66,316 Long-term receivables and other assets 188,857 184,348 ---------- ----------- Total assets of discontinued operations 204,762 276,784 ---------- ----------- Current liabilities 39,938 94,334 Long-term liabilities 66,122 77,157 ---------- ----------- Total liabilities of discontinued operations 106,060 171,491 ---------- ----------- Net assets of discontinued operations $ 98,702 $ 105,293 ========== =========== PAGE 9 The Priority Mail contract provided for the re-determination of prices paid to EWA, which gave rise to unbilled revenue. Unbilled revenue representing contract change orders or claims was included in revenue only when it was probable that the change order or claim would result in additional contract revenue and if the amount could be reliably estimated. Unbilled revenue represents the accrual of revenue sufficient only to recover costs and therefore does not include profit or interest on either unbilled revenue or profit. Any unbilled revenue that EWA does not recover would be written off and reflected in operating results for discontinued operations in the then current period. Any amount of litigation award in excess of unbilled revenue would be reflected as income from discontinued operations in the then current period. Accordingly, no operating profit has been recognized in connection with the Priority Mail contract beginning in the third quarter of 1999, when EWA filed a claim for proposed higher prices. For the three months ended March 31, 2001 and 2000, revenues from the Priority Mail contract were $10.3 million and $135.2 million, respectively. As described above, no operating profit has been recognized in connection with the Priority Mail contract beginning in the third quarter of 1999. As a result of the termination of the Priority Mail contract, a loss from discontinuance of $13.5 million was recognized in the third quarter of 2000, net of $8.6 million of income tax benefits. The loss from discontinuance included estimates for the write-down of non-reimbursable assets, legal and advisory fees, costs of providing transportation services for approximately three months following the effective termination date, certain employee-related costs and other non-reimbursable costs from discontinuance. The amount of accrued loss from discontinuance related to EWA's Priority Mail contract recognized at March 31, 2001 and December 31, 2000 was $12.0 million and $22.1 million, respectively, and was included in net current liabilities of discontinued operations in the Consolidated Balance Sheets. The amount of unbilled revenue related to EWA's Priority Mail contract recognized at March 31, 2001 and December 31, 2000 was $179.5 million and $176.2 million, respectively. Unbilled revenue at March 31, 2001 and December 31, 2000 was included in net non-current assets of discontinued operations in the Consolidated Balance Sheets. As described above, the Company is pursuing recovery of this amount plus profit and interest thereon. As a result of a decision in August 2000 in the U.S. Court of Federal Claims, the USPS increased its provisional rate paid to EWA for transportation and sortation of Priority Mail for 2000. The USPS also increased the provisional rate paid to EWA for 1999. Based on these rate adjustments, early in the fourth quarter of 2000, EWA received payments totaling $102.1 million from the U.S. Postal Service. Unbilled revenue at March 31, 2001 and December 31, 2000 has been reduced by the $102.1 million payment from the USPS. PAGE 10 3. Comprehensive Income Comprehensive Income, which is a measure of all changes in equity except those resulting from investments by owners and distributions to owners, was as follows: Three Months Ended (Dollars in thousands) March 31, 2001 2000 ---------- ---------- Net income $ 15,557 $ 35,468 Other comprehensive income (loss) Cumulative effect of change in accounting for derivative instruments and hedging activities (Note 7) 3,005 - Change in fair value of cash flow hedges (Note 7) (2,796) - Foreign currency translation adjustments (1,474) (4,620) ---------- ---------- (1,265) (4,620) ---------- ---------- Comprehensive income $ 14,292 $ 30,848 ========== ========== The following is a summary of the components of accumulated other comprehensive loss: March 31, December 31, (Dollars in thousands) 2001 2000 ----------- ----------- Cumulative effect of change in accounting for derivative instruments and hedging activities (Note 7) $ 3,005 $ - Accumulated change in fair value of cash flow hedges (Note 7) (2,796) - Accumulated foreign currency translation adjustments (28,852) (27,378) Minimum pension liability adjustment (8,441) (8,441) ----------- ----------- Accumulated other comprehensive loss $ (37,084) $ (35,819) =========== =========== PAGE 11 4. Business Segments Selected financial information about the Company's continuing operations is shown below. The prior period has been reclassified to exclude discontinued operations. Three Months Ended (Dollars in thousands) March 31, 2001 2000 ----------- ----------- Revenues Con-Way Transportation $ 469,201 $ 508,752 Emery Worldwide 583,290 603,984 Menlo Logistics 225,364 213,552 Other 9,202 15,252 ----------- ----------- 1,287,057 1,341,540 Intercompany Eliminations Con-Way Transportation (231) (348) Emery Worldwide (92) (6,249) Menlo Logistics (2,769) (3,649) Other (5,500) (9,400) ----------- ----------- (8,592) (19,646) External Revenues Con-Way Transportation 468,970 508,404 Emery Worldwide 583,198 597,735 Menlo Logistics 222,595 209,903 Other 3,702 5,852 ----------- ----------- $1,278,465 $1,321,894 =========== =========== Operating Income (Loss) Con-Way Transportation $ 36,735 $ 56,696 Emery Worldwide (6,547) 6,824 Menlo Logistics 8,171 7,638 Other [1] (4,631) 311 ----------- ----------- $ 33,728 $ 71,469 =========== =========== [1] The first quarter of 2001 included $4.6 million of operating losses related to startup costs for Vector SCM. PAGE 12 5. Earnings Per Share Basic earnings per share was computed by dividing income from continuing operations by the weighted-average common shares outstanding. The calculation for diluted earnings per share from continuing operations was calculated as shown below. Three Months Ended (Dollars in thousands except March 31, per share data) 2001 2000 ---------- --------- Earnings: Net income from Continuing Operations $ 13,517 $ 36,178 Add-backs: Dividends on Series B preferred stock, net of replacement funding 319 329 Dividends on preferred securities of subsidiary trust, net of tax 954 954 ---------- ---------- $ 14,790 $ 37,461 ---------- ---------- Shares: Basic shares (weighted-average common shares outstanding) 48,658,337 48,417,660 Stock option dilution 632,316 396,309 Series B preferred stock 4,016,799 4,134,701 Preferred securities of subsidiary trust 3,125,000 3,125,000 ---------- ---------- 56,432,452 56,073,670 ---------- ---------- Diluted Earnings Per Share from Continuing Operations before Accounting Change $ 0.26 $ 0.67 ========== ========== 6. Preferred Securities of Subsidiary Trust On June 11, 1997, CNF Trust I (the Trust), a Delaware business trust wholly owned by the Company, issued 2,500,000 of its $2.50 Term Convertible Securities, Series A (TECONS) to the public for gross proceeds of $125 million. The combined proceeds from the issuance of the TECONS and the issuance to the Company of the common securities of the Trust were invested by the Trust in $128.9 million aggregate principal amount of 5% convertible subordinated debentures due June 1, 2012 (the Debentures) issued by the Company. The Debentures are the sole assets of the Trust. Holders of the TECONS are entitled to receive cumulative cash distributions at an annual rate of $2.50 per TECONS (equivalent to a rate of 5% per annum of the stated liquidation amount of $50 per TECONS). The Company has guaranteed, on a subordinated basis, distributions and other payments due on the TECONS, to the extent the Trust has funds available therefor and subject to certain other limitations (the Guarantee). The Guarantee, when taken together with the obligations of the Company under the Debentures, the Indenture pursuant to which the Debentures were issued, and the Amended and Restated Declaration of Trust of the Trust including its obligations to pay costs, fees, expenses, debts and other obligations of the Trust (other than with respect to the TECONS and the common securities of the Trust), provide a full and unconditional guarantee of amounts due on the TECONS. PAGE 13 The Debentures are redeemable for cash, at the option of the Company, in whole or in part, on or after June 1, 2000, at a price equal to 103.125% of the principal amount, declining annually to par if redeemed on or after June 1, 2005, plus accrued and unpaid interest. In certain circumstances relating to federal income tax matters, the Debentures may be redeemed by the Company at 100% of the principal plus accrued and unpaid interest. Upon any redemption of the Debentures, a like aggregate liquidation amount of TECONS will be redeemed. The TECONS do not have a stated maturity date, although they are subject to mandatory redemption upon maturity of the Debentures on June 1, 2012, or upon earlier redemption. Each TECONS is convertible at any time prior to the close of business on June 1, 2012, at the option of the holder into shares of the Company's common stock at a conversion rate of 1.25 shares of the Company's common stock for each TECONS, subject to adjustment in certain circumstances. 7. Derivative Instruments and Hedging Activities Effective January 1, 2001, the Company adopted SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS 137 and SFAS 138. SFAS 133 establishes accounting and reporting standards requiring that every derivative instrument, as defined, be recorded on the balance sheet as either an asset or liability measured at fair value and that changes in fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Qualifying hedges allow a derivative's gains and losses to offset related results on the hedged item in the income statement or be deferred in Other Comprehensive Income (Loss) until the hedged item is recognized in earnings. The Company is exposed to a variety of market risks, including the effects of interest rates, commodity prices and foreign currency exchange rates. The Company's policy is to enter into derivative financial instruments only in circumstances that warrant the hedge of an underlying asset, liability or future cash flow against exposure to some form of commodity, interest rate or currency-related risk. Additionally, the designated hedges should have high correlation to the underlying exposure such that fluctuations in the value of the derivatives offset reciprocal changes in the underlying exposure. The Company's policy prohibits entering into derivative instruments for speculative purposes. The Company formally documents its hedge relationships, including identifying the hedge instruments and hedged items, as well as its risk management objectives and strategies for entering into the hedge transaction. At hedge inception and at least quarterly thereafter, the Company assesses whether the derivatives are effective in offsetting changes in either the cash flows or fair value of the hedged item. If a derivative ceases to be a highly effective hedge, the Company will discontinue hedge accounting, and any gains or losses on the derivative instrument would be recognized in earnings during the period it no longer qualifies for hedge accounting. For derivatives designated as cash flow hedges, changes in the derivative's fair value are recognized in Other Comprehensive Income (Loss) until the hedged item is recognized in earnings. Any change in fair value resulting from ineffectiveness is recognized immediately in earnings. For derivatives designated as fair value hedges, changes in the derivative's fair value are recognized in earnings and offset by changes in the fair value of the hedged item, which are recognized in earnings to the extent that the derivative is effective. PAGE 14 The Company's cash flow hedges include interest rate swap derivatives designated to mitigate the effects of interest rate volatility on floating- rate operating lease payments. Fair value hedges include interest rate swap derivatives designated to mitigate the effects of interest rate volatility on the fair value of fixed-rate long-term debt. The Company's current interest rate swap derivatives qualify for hedge treatment under SFAS 133. In accordance with the transition provisions of SFAS 133, the Company recorded in Other Assets a transition adjustment of $20.6 million to recognize the estimated fair value of interest rate swap derivatives, a $4.9 million ($3.0 million after tax) transition adjustment in Accumulated Other Comprehensive Income (Loss) to recognize the estimated fair value of interest rate swap derivatives designated as cash flow hedges, and a $15.7 million transition adjustment in Long-Term Debt to recognize the difference between the carrying value and estimated fair value of fixed-rate debt hedged with interest rate swap derivatives designated as fair value hedges. In the first quarter of 2001, the change in the estimated fair value of the Company's fair value hedges increased $4.4 million and the estimated fair value of cash flow hedges declined $4.6 million ($2.8 million after tax). 8. Commitments and Contingencies In connection with the December 2, 1996 spin-off of Consolidated Freightways Corporation (CFC), the Company's former long-haul LTL segment, the Company agreed to indemnify certain states, insurance companies and sureties against the failure of CFC to pay certain worker's compensation, tax and public liability claims that were pending as of September 30, 1996. In some cases, these indemnities are supported by letters of credit under which the Company is liable to the issuing bank and by bonds issued by surety companies. In order to secure CFC's obligation to reimburse and indemnify the Company against liability with respect to these claims, CFC had provided the Company with certain letters of credit. However, the letters of credit have been terminated, and as of March 31, 2001, CFC reimbursement obligations to the Company were unsecured. The Company is currently under examination by the Internal Revenue Service (IRS) for tax years 1987 through 1999 on various issues. In connection with those examinations, the IRS proposed adjustments for tax years 1987 through 1990 after which the Company filed a protest and engaged in discussions with the Appeals Office of the IRS. After those discussions failed to produce a settlement, in March 2000, the IRS issued a Notice of Deficiency (the Notice) for the years 1987 through 1990 with respect to various issues, including aircraft maintenance and matters related to CFC for years prior to the spin-off, which are described below. Based upon the Notice, the total amount of the deficiency for items in years 1987 through 1990, including taxes and interest, was $153 million as of March 31, 2001. The amount originally due under the Notice was reduced in the third quarter of 2000 by a portion of the Company's $93.4 million payment to the IRS, which is described below. In addition to the issues covered under the Notice for tax years 1987 through 1990, the IRS in May 2000 proposed additional adjustments for tax years 1991 through 1996 with respect to various issues, including aircraft maintenance and matters relating to CFC for years prior to the spin-off. PAGE 15 Under the Notice, the IRS has assessed a substantial adjustment for tax years 1989 and 1990 based on the IRS' position that certain aircraft maintenance costs should have been capitalized rather than expensed for federal income tax purposes. The Company believes that its practice of expensing these types of aircraft maintenance costs is consistent with industry practice and the recently issued Treasury Ruling 2001-4. The Company intends to vigorously contest the Notice and the proposed adjustments as they pertain to the aircraft maintenance issue. The Company paid $93.4 million to the IRS in the third quarter of 2000 to stop the accrual of interest on amounts due under the Notice for tax years 1987 through 1990 and under proposed adjustments for tax years 1991 through 1996 for matters relating to CFC for years prior to the spin-off and for all other issues except aircraft maintenance costs. As part of the spin-off, the Company and CFC entered into a tax sharing agreement that provided a mechanism for the allocation of any additional tax liability and related interest that arise due to adjustments by the IRS for years prior to the spin-off. In May 2000, the Company and CFC settled certain federal tax matters relating to CFC on issues for tax years 1984 through 1990. Under the settlement agreement, the Company received from CFC cash of $16.7 million, a $20.0 million note due in 2004, and a commitment to transfer to the Company land and buildings with an estimated value of $21.2 million. In the last half of 2000, the Company received real property with an estimated value of $21.2 million in settlement of CFC's commitment to transfer land and buildings. Prior to its transfer, the real property collateralized CFC's obligation to the Company. In March 2001, the Company entered into an agreement to acquire real property owned by CFC in settlement of CFC's $20.0 million note due in 2004. The agreement requires a three-way exchange among the Company, CFC and a third party. In March 2001, the Company acquired real property, which was previously owned by CFC, from a third party in exchange for a note payable. Under the agreement, the Company in May 2001 will pay in full the note payable due to the third party while concurrently receiving an equal amount of cash from CFC in settlement of the Company's $20.0 million note receivable due from CFC. At March 31, 2001, the third-party note payable and the CFC note receivable were included in Accrued Liabilities and Other Receivables, respectively, in the Consolidated Balance Sheets. There can be no assurance that the Company will not be liable for all of the amounts due under the Notice and proposed adjustments. As a result, the Company is unable to predict the ultimate outcome of this matter and there can be no assurance that this matter will not have a material adverse effect on the Company's financial condition or results of operations. In addition to the matters discussed above, the Company and its subsidiaries are defendants in various lawsuits incidental to their businesses. It is the opinion of management that the ultimate outcome of these actions will not have a material impact on the Company's financial condition or results of operations. PAGE 16 PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS ===================== On November 3, 2000, Emery Worldwide Airlines (EWA) and the U.S. Postal Service (USPS) announced an agreement to terminate their contract for the transportation and sortation of Priority Mail. Under terms of the agreement, the USPS, on January 7, 2001, assumed responsibility for services covered under the contract, except for certain air transportation and related services described below under "Discontinued Operations." Accordingly, the results of operations, net assets, and cash flows of the Priority Mail operations have been segregated and classified as discontinued operations. A summary of selected terms of the agreement, summary financial data, and related information are included in Note 2 of the Notes to Consolidated Financial Statements. Net income available to common shareholders in the first quarter of 2001 was $13.5 million ($0.26 per diluted share), a decline from $33.4 million ($0.62 per diluted share) in the first quarter of 2000. Last year's first quarter included a $2.7 million after-tax loss ($0.05 per diluted share) from the cumulative effect of a change in our accounting method for revenue recognition on in-transit freight. As described below under "Discontinued Operations", the discontinued Priority Mail operations had no effect on operating income in the first quarters of 2001 and 2000. Continuing Operations - --------------------- Net income from continuing operations (income from continuing operations before the cumulative effect of accounting change reduced by preferred stock dividends) was $13.5 million ($0.26 per diluted share) in the first quarter of 2001. Net income from continuing operations declined from $36.2 million ($0.67 per diluted share) in the first quarter of last year due to lower operating income and higher other net expense, partially offset by a lower effective tax rate. Last year's first quarter also benefited from a $2.6 million unusual net gain ($0.03 per diluted share) from the sale of securities. Revenue in the 2001 first quarter fell 3.3% from the first quarter of 2000 to $1.28 billion due primarily to declines in revenue from Con-Way and Emery, partially offset by higher revenue from Menlo. Management believes that revenue from all reporting segments in the first quarter of 2001 was adversely affected by the continuing downturn in the U.S. economy. Operating income declined to $33.7 million in the first quarter of 2001 from $71.5 million in the same quarter last year due to lower operating results from all reporting segments except Menlo, which increased operating income by 7.0%. Other net expense increased to $7.8 million in the 2001 first quarter from $5.0 million in the 2000 first quarter due primarily to a $2.6 million net gain from the sale of securities in the first quarter of last year and a $1.4 million increase in interest expense. The first quarter of 2001 included a full period of interest expense on $200 million of 8 7/8% Notes due 2010 and lower capitalized interest compared to the same quarter last year. The net proceeds of $197.5 million from the issuance of the $200 million 8 7/8% Notes in March 2000 were used to repay short-term and long- term borrowings under lines of credit. PAGE 17 The effective tax rate for the first quarter of 2001 was 40.0% compared to 42.5% for the same period last year due in part to tax planning strategies and resolution of tax issues. Con-Way Transportation Services First-quarter revenue from Con-Way Transportation Services in 2001 fell 7.8% from the same quarter last year. Although the regional carriers' revenue per hundredweight (yield) in the 2001 first quarter increased 2.8% over last year's first quarter, LTL and total tonnage per day (weight) for the same period fell 3.5% and 4.0%, respectively. Con-Way's management believes that tonnage declines in the 2001 first quarter were primarily due to the continuing downturn in the U.S. economy and the sale of Con-Way Truckload Services in August 2000, which accounted for $24.0 million of last year's first-quarter revenue. Yield in the 2001 first quarter was positively affected by a higher percentage of inter-regional joint services, which typically command higher rates on longer lengths of haul, and, to a lesser extent, fuel surcharges. Con-Way's operating income in the first quarter of 2001 declined 35.2% from the first quarter of 2000 due primarily to lower revenue, higher employee benefit expenses and an increase in costs for vehicular and workers' compensation claims. Higher diesel fuel costs in the first quarter of 2001 were mitigated by Con-Way's fuel surcharge. The first quarter of 2001 was adversely affected by higher losses from developing businesses (Con-Way Integrated Services and Con-Way Air Express) compared to the same quarter of last year. Con-Way Air Express, a domestic air freight forwarding company, is scheduled to begin operations on May 14, 2001. Emery Worldwide In the first quarter of 2001, Emery's revenue declined 2.4% from the same period last year due primarily to lower North American airfreight revenue. International airfreight revenue increased slightly over the same period. International airfreight revenue per day, including fuel surcharges, grew 3.3% over the 2000 first quarter due primarily to a 7.6% increase in revenue per pound (yield), partially offset by a 4.0% drop in pounds transported per day (weight). Lower international weight in the 2001 first quarter was due in part to declines in business from some international markets served by Emery, including portions of Latin America and Asia. North American airfreight revenue per day, including fuel surcharges, fell 11.6% from the first quarter of 2000. Although first-quarter yield in 2001 increased 9.7% over the same quarter last year, weight per day over the same period declined 19.4%. The 2001 first-quarter decline in North American weight was attributable in part to lower business levels from the manufacturing industry, particularly the automotive and technology sectors. Emery's management believes that the lower business levels in the 2001 first quarter were adversely affected by the continuing downturn in the U.S. economy and, to a lesser extent, loss of business to ground transportation and Emery's ongoing yield management, which is designed to eliminate or reprice certain low-margin business. Yield in the first quarter of 2001 was positively affected by an increase in the percentage of higher-yielding guaranteed services and Emery's ongoing yield management efforts. Emery's first-quarter operating loss was $6.5 million in 2001 compared to first-quarter operating income of $6.8 million in 2000. The first- quarter operating loss in 2001 was due primarily to a decline in North American revenue and an increase in North American airhaul costs as a percentage of revenue. Higher jet fuel costs in the first quarter of 2001 were mitigated by Emery's fuel surcharge. Higher employee benefits costs also adversely affected operating results in the 2001 first quarter when compared to the same quarter last year. PAGE 18 In January 2001, the USPS and Federal Express Corporation (FedEx) announced an exclusive agreement under which FedEx will transport Express Mail and Priority Mail. EWA presently transports Express Mail and other classes of mail under a contract with the USPS scheduled to expire in January 2004, (the "Express Mail Contract"). In January 2001, EWA filed a lawsuit in the U.S. Court of Federal Claims against the USPS, alleging that the contract with FedEx violates the USPS procurement regulations, which require that all purchases over $10,000 "must be made on the basis of adequate competition whenever feasible or appropriate," and that the contract violates the USPS regulatory requirement to provide "fair and equal treatment" to all potential suppliers. The Court ruled against EWA. The matter is now on appeal. In May 2001, EWA received from the USPS a notice of termination for convenience of the Express Mail Contract, effective as of August 26, 2001. In the first quarter of 2001, EWA recognized revenue of $47.5 million and operating income of $3.6 million from the transportation of the Express Mail Contract, compared to revenue of $50.4 million and operating income of $6.1 million in the first quarter of last year. EWA believes it is entitled to its costs of early termination of the Express Mail Contract. Early termination of the Express Mail Contract will likely have a material adverse effect on our consolidated results of operations and financial condition. Emery's management intends to continue positioning Emery as a premium service provider, focusing on achieving higher yield with a reduced cost structure. In North America, management will seek to improve yield by requiring compensation that is commensurate with premium services. Emery's management is evaluating initiatives that include a reduction or revision to EWA's fleet of aircraft and/or the North American freight service center network. Implementation of one or more of these restructuring initiatives would have a material adverse effect on our consolidated results of operations and financial condition. Internationally, Emery's management will focus on expanding its variable-cost-based operations and actively renegotiating airhaul rates in an effort to improve operating margins, mitigate higher fuel prices, and balance directional capacity. Menlo Logistics Menlo's first-quarter revenue in 2001 increased 6.0% from the same quarter in 2000 due to continued growth in logistics contracts and consulting fees. Menlo's management believes that the continuing downturn in the U.S. economy had an adverse effect on business levels of some of its customers but the resulting adverse effect on Menlo's revenue was partially mitigated by Menlo's ability to secure new logistics contracts. A portion of Menlo's revenue is attributable to logistics contracts for which Menlo manages the transportation of freight but subcontracts the actual transportation and delivery of products to third parties. Menlo refers to this as purchased transportation. Menlo's net revenue (revenue less purchased transportation) in the first quarter of 2001 and 2000 was $67.4 million and $65.0 million, respectively. PAGE 19 Operating income for Menlo in the first quarter of 2001 increased 7.0% from the same quarter last year. Higher operating income was primarily attributable to increased revenue from core supply chain projects and consulting fees. Other Operations In the first quarter of 2001, the Other segment included the operating results of Road Systems and Vector SCM, a joint venture formed with General Motors in December 2000 to provide logistics services to General Motors. The operating results of Vector SCM are reported as an equity investment in the Other segment. Operating losses related to startup costs for Vector SCM in the first quarter of 2001 were $4.6 million. The Company believes that the second-quarter operating loss for Vector SCM will approximate $4 million to $6 million due primarily to startup costs. Discontinued Operations - ----------------------- On November 3, 2000, EWA and the USPS announced an agreement to terminate their contract for the transportation and sortation of Priority Mail. Under terms of the agreement, the USPS on January 7, 2001 assumed operating responsibility for services covered under the contract, except certain air transportation and related services, which were terminated effective April 23, 2001. The USPS agreed to reimburse EWA for Priority Mail contract termination costs, including costs of contract-related equipment, inventory, and operating lease commitments, up to $125 million (the "Termination Liability Cap"). On January 7, 2001, the USPS paid EWA $60 million toward the termination costs. The termination agreement provides for this provisional payment to be adjusted if actual termination costs are greater or less than $60 million, in which case either the USPS will be required to make an additional payment or EWA will be required to return a portion of the provisional payment. We believe that contract termination costs incurred by EWA are reimbursable under the termination agreement and do not exceed the Termination Liability Cap. However, there can be no assurance that all termination costs incurred by Emery will be recovered. The termination agreement preserves EWA's right to pursue claims for underpayment that it believes are owed by the USPS under the Priority Mail contract and EWA has initiated litigation in the U.S. Court of Federal Claims for that purpose. These claims are to recover costs of operating under the contract as well as profit and interest thereon. The amount of unbilled revenue related to EWA's Priority Mail contract recognized at March 31, 2001 and December 31, 2000 was $179.5 million and $176.2 million, respectively. Unbilled revenue represents the accrual of revenue sufficient only to recover costs and therefore does not include profit or interest on either unbilled revenue or profit. Any unbilled revenue that EWA does not recover would be written off and reflected in operating results for discontinued operations in the then current period. Any amount of litigation award in excess of unbilled revenue would be reflected as income from discontinued operations in the then current period. We believe our position with respect to claims for underpayment under the Priority Mail contract is reasonable and well founded; however, there can be no assurance that litigation will result in an award sufficient to recover unbilled revenue recognized under the contract or any award at all. The government is investigating matters relating to the Priority Mail contract, and EWA has received subpoenas for documents from a grand jury in Massachusetts and the USPS Inspector General. Accordingly, we can give no assurance that matters relating to the Priority Mail contract with the USPS will not have a material adverse effect on our financial condition or results of operations. PAGE 20 As a result of the above, the results of operations and net assets of the Priority Mail operations have been segregated and classified as discontinued operations. A summary of selected terms of the agreement, summary financial data, and related information are included in Note 2 of the Notes to Consolidated Financial Statements. LIQUIDITY AND CAPITAL RESOURCES =============================== Continuing Operations - --------------------- In the first quarter of 2001, cash and cash equivalents increased $41.8 million to $146.3 million. Cash provided by operating activities in the 2001 first quarter was more than sufficient to fund investing and financing activities. Operating activities in the 2001 first quarter generated net cash of $98.9 million compared to $22.2 million of cash generated by operating activities in the same quarter last year. Cash from operations in the first quarter of 2001 was provided primarily by income from continuing operations before depreciation and amortization and the conversion of receivables into cash. Positive operating cash flows in the 2001 first quarter were partially offset by changes in accrued incentive compensation, prepaid expenses, and accounts payable. Investing activities in the first quarter of 2001 used $8.6 million less cash than in the first quarter of 2000. Capital expenditures of $42.3 million in the 2001 first quarter declined $13.6 million from last year's first quarter due primarily to a $9.4 million decrease in Emery's capital expenditures. First-quarter financing activities in 2001 used cash of $16.8 million compared to first-quarter financing activities that provided $51.0 million last year. In the first quarter of last year, a portion of the net proceeds of $197.5 million from the issuance in March 2000 of $200 million of 8 7/8% Notes due 2010 were used to repay short-term and long-term borrowings outstanding under lines of credit. We maintain a $350 million unsecured credit facility with no borrowings outstanding at March 31, 2001. The $350 million facility is also available for issuance of letters of credit. Under that facility, outstanding letters of credit totaled $68.2 million at March 31, 2001. Available capacity under the $350 million facility was $281.8 million at March 31, 2001. At March 31, 2001, we also had $100.0 million of uncommitted lines with no outstanding borrowings. Under other unsecured facilities, $73.5 million in letters of credit and bank guarantees were outstanding at March 31, 2001. PAGE 21 Our ratio of total debt to capital increased to 31.7% at March 31, 2001 from 31.4% at December 31, 2000 due primarily to the adoption of SFAS 133, "Derivative Instruments and Hedging Activities", partially offset by 2001 first-quarter debt repayment. As described in Note 7 of the Notes to Consolidated Financial Statements, we recorded an adjustment in Long-Term Debt to recognize the difference between the carrying value and estimated fair value of fixed-rate long-term debt hedged with interest rate swap derivatives designated as fair value hedges. The debt adjustment was equal to the estimated fair value of interest rate swap derivatives, which hedge the fair value of the long-term debt and are included in Other Assets in the Consolidated Balance Sheets. Excluding the effects of SFAS 133, our debt-to-capital ratio at March 31, 2001 was 30.9%. Discontinued Operations - ----------------------- As described above under "Results of Operations," cash flows from the Priority Mail operations have been segregated and classified as net cash flows from discontinued operations in the Statements of Consolidated Cash Flows. As described in Note 2 of the Notes to Consolidated Financial Statements, EWA in January 2001 received a $60 million provisional payment toward reimbursable termination costs, as provided under a termination agreement signed by EWA and the USPS in November 2000. CYCLICALITY AND SEASONALITY =========================== Our businesses operate in industries that are affected directly by general economic conditions and seasonal fluctuations, both of which affect demand for transportation services. In the trucking and airfreight industries, for a typical year, the months of September and October usually have the highest business levels while the months of January and February usually have the lowest business levels. MARKET RISK =========== We are exposed to a variety of market risks, including the effects of interest rates, commodity prices and foreign currency exchange rates. Our policy is to enter into derivative financial instruments only in circumstances that warrant the hedge of an underlying asset, liability or future cash flow against exposure to some form of commodity, interest rate or currency-related risk. Additionally, the designated hedges should have high correlation to the underlying exposure such that fluctuations in the value of the derivatives offset reciprocal changes in the underlying exposure. Our policy prohibits entering into derivative instruments for speculative purposes. We may be exposed to the effect of interest rate fluctuations in the fair value of our long-term debt and capital lease obligations, as summarized in Notes 4 and 5 of our consolidated financial statements included in our 2000 Annual Report to Shareholders. As described in Note 7 of the Notes to Consolidated Financial Statements, we use interest rate swaps to mitigate the impact of interest rate volatility on cash flows related to operating lease payments and on the fair value of our fixed-rate long-term debt. At March 31, 2001, we had not entered into any derivative contracts to hedge our foreign currency exchange exposure. PAGE 22 ACCOUNTING STANDARDS ==================== As described in Note 7 of the Notes to Consolidated Financial Statements, we adopted SFAS 133, "Accounting for Derivative Instruments and Hedging Activities" effective January 1, 2001. The $3.0 million cumulative effect of adopting the new accounting standard increased Other Comprehensive Income (Loss). In the first quarter of 2001, a $4.4 million increase in the estimated fair value of our fair value hedges increased both Other Assets and Long- Term Debt. During the same period, the estimated fair value of cash flow hedges decreased, resulting in a $4.6 million decline in Other Assets and a $2.8 million after-tax reduction of Other Comprehensive Income (Loss). PAGE 23 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings As previously reported, the Company has been designated a potentially responsible party (PRP) by the EPA with respect to the disposal of hazardous substances at various sites. The Company expects its share of the clean-up costs will not have a material adverse effect on the Company's financial condition or results of operations. The Department of Transportation, through its Office of Inspector General, and the Federal Aviation Administration has been conducting an investigation relating to the handling of so-called hazardous materials by Emery. The Department of Justice has joined in the investigation and is seeking to obtain additional information. The investigation is ongoing and Emery is cooperating fully. The Company is unable to predict the outcome of this investigation. EWA has received subpoenas issued by a grand jury in Massachusetts and the USPS Inspector General for documents relating to the Priority Mail contract. EWA has provided, or is in the process of providing, the documents. On February 16, 2000, a DC-8 cargo aircraft operated by EWA personnel crashed shortly after take-off from Mather Field, near Sacramento, California. The crew of three was killed. The cause of the crash has not been determined. The National Transportation Safety Board is conducting an investigation. The Company is currently unable to predict the outcome of this investigation or the effect it may have on Emery or the Company. Emery, EWA and the Company have been named as defendants in wrongful death lawsuits brought by the families of the three deceased crew members, seeking compensatory and punitive damages. Emery, EWA and the Company also may be subject to other claims and proceedings relating to the crash, which could include other private lawsuits seeking monetary damages and governmental proceedings. Although Emery, EWA and the Company maintain insurance that is intended to cover claims that may arise in connection with an airplane crash, there can be no assurance that the insurance will in fact be adequate to cover all possible types of claims. In particular, any claims for punitive damages or any sanctions resulting from possible governmental proceedings would not be covered by insurance. As a domestic airline, EWA operates under a certificate issued by the Federal Aviation Administration ("FAA"). As such, EWA is subject to maintenance, operating and other safety-related regulations promulgated by the FAA, and routinely undergoes FAA inspections. Based on recent inspections, the FAA has identified a number of instances where it believes EWA has failed to comply with applicable regulations, and in some cases has issued notices of proposed civil penalties. EWA disagrees with certain of the FAA's findings, and is engaged in discussions with the FAA to try to resolve the matters in dispute. However, there can be no assurance that EWA will be able to reach agreement with the FAA on all matters in dispute, and if no agreement is reached, the FAA may seek to impose sanctions on EWA. The FAA has the authority to seek civil and criminal penalties and to suspend or revoke an airline's operating certificate. Emery and the Company have been named as defendants in a lawsuit arising from a dispute with an aircraft lessor regarding the return of six McDonnell Douglas DC-8 aircraft following lease termination. Plaintiff is seeking damages in the amount of approximately $16 million, in addition to holdover rent and interest. Emery and the Company dispute the plaintiff's claims, and intend to vigorously defend themselves against the lawsuit. PAGE 24 Con-Way and the Company have been named as defendants in a class action lawsuit filed in Federal District Court in San Francisco for alleged violations of federal and state wage and hour laws regarding classification of freight operations supervisors for purposes of overtime pay. No motion has yet been made for certification of the class. Because the lawsuit is at a preliminary stage, the Company is unable to predict the outcome of this litigation or the effect it may have on Con-Way or the Company. ITEM 4. Submission of Matters to a Vote of Security Holders At the Annual Shareholders Meeting held April 24, 2001, the following proposals were presented with the indicated voting results: For the purpose of electing members of the Board of Directors, the votes representing shares of Common and Preferred stock were cast as follows: Nominee For Against Richard A. Clarke 46,590,247 804,020 W. Keith Kennedy, Jr. 46,642,334 751,933 Richard B. Madden 46,628,831 765,436 Gregory L. Quesnel 46,614,675 779,592 The following directors did not stand for election and continued in office as directors after the Annual Shareholders Meeting: Robert Alpert, Margaret G. Gill, Robert Jaunich II, Donald E. Moffitt, Michael J. Murray, Robert D. Rogers, William J. Schroeder, and Robert P. Wayman. Proposal to approve amendment to the Company's Certificate of Incorporation, changing the company name from "CNF Transportation Inc." to "CNF Inc." was approved by the following vote: For 46,591,235; Against 528,400; Abstain 274,631. The appointment of Arthur Andersen LLP as independent public accountants for the year 2001 was approved by the following vote: For 45,435,620; Against 1,577,298; Abstain 381,348. PAGE 25 ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits 3(a) Certificate of Incorporation as amended April 24, 2001 3(b) Bylaws as amended April 30, 2001 99(a) Computation of Ratios of Earnings to Fixed Charges -- the ratios of earnings to fixed charges were 2.0x and 3.5x for the three months ended March 31, 2001 and 2000, respectively. (b) Computation of Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividends -- the ratios of earnings to combined fixed charges and preferred stock dividends were 1.9x and 3.4x for the three months ended March 31, 2001 and 2000, respectively. (b)Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended March 31, 2001. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company (Registrant) has duly caused this Form 10-Q Quarterly Report to be signed on its behalf by the undersigned, thereunto duly authorized. CNF Inc. (Registrant) May 9, 2001 /s/Greg Quesnel Greg Quesnel President, Chief Executive Officer and Chief Financial Officer EX-3 2 cnf_3a.txt ARTICLES OF INCORPORATION AS AMENDED CNF INC. INCORPORATED IN DELAWARE AUGUST 13, 1958 UNDER THE CORPORATE NAME OF CONSOLIDATED FREIGHTWAYS COMPANY CERTIFICATE OF INCORPORATION As Amended April 24, 2001 CERTIFICATE OF INCORPORATION of CNF INC. As Amended April 24, 2001 FIRST. The name of the corporation is CNF INC. SECOND. Its principal office in the State of Delaware is located at 1209 Orange Street, in the City of Wilmington, County of New Castle. The name and address of its resident agent is The Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801. THIRD. The nature of the business of the corporation and the objects or purposes to be transacted, promoted or carried on by it are hereinafter set forth in Section 3.2 of this ARTICLE THIRD: 3.1 The following definitions shall apply to the following terms as used in this ARTICLE THIRD: (a) Transport Instrumentality: Anything used or useful in or for transportation, including, without limiting the generality thereof, trucks, tractors, trailers, automobiles, vehicles, vessels, ships, boats, aircraft and other conveyances and equipment of any and all kinds; (b) Evidence of Indebtedness: Bonds, debentures, notes, coupons, mortgages, commercial paper and any other instrument evidencing indebtedness, however created, issued or granted and whether full paid or subject to further payment; (c) Certificate of Interest: Certificates of stock, script, interim receipts, participation certificates, voting trust certificates, subscription warrants, option warrants and any other instruments evidencing interest in shares, capital or other property, however created, issued or granted and whether full paid or subject to further payment; (d) Entity: Corporations, public, quasi-public or private, of any kind, wherever and however organized, as well as individuals, partnerships and firms, joint stock companies, associations, syndicates, trusts, trustees, governments, governmental subdivisions and municipalities. 3.2 The nature of the business of the corporation and the objects or purposes to be transacted, promoted or carried on by it are: (a) To buy, lease, hire, exchange, and otherwise acquire, own or hold, deal in, sell, mortgage, or otherwise encumber and dispose of real property and any and all interests therein; to improve such real property and to engage in the business of owning, erecting, constructing, maintaining and managing buildings and other improvements of any kind and character. (b) To manufacture, buy, lease, hire, exchange, and otherwise acquire, own or hold, deal in, sell, mortgage or otherwise encumber and dispose of personal property of every kind and character and any and all interests therein. (c) To manufacture, buy, lease, hire, exchange, and otherwise acquire, own or hold, deal in, sell, mortgage or otherwise encumber and dispose of any Transport Instrumentality. (d) To manufacture, buy, exchange, barter and otherwise acquire, own, handle, prepare for market, trade, deal in, sell, exchange and otherwise dispose of goods, wares, merchandise, commodities, materials, and supplies of every kind, class and description. (e) To subscribe for or cause to be subscribed for, purchase, receive, or otherwise acquire, own or hold, mortgage, pledge, sell, assign, negotiate, deal in, exchange, transfer, or otherwise dispose of Certificates of Interest and Evidences of Indebtedness created, issued or granted by any Entity, and while the owner thereof to possess and to exercise in respect thereof all rights, powers and privileges of ownership, including the right to vote thereon or in respect thereof, and to do any acts or things designed to protect, preserve, or enhance the value of any thereof; to guarantee the payment of dividends on any Certificate of Interest of any Entity, and to become surety in respect to, endorse, or otherwise guarantee the payment of the principal of or interest on any Evidence of Indebtedness of any Entity; to become surety for or to guarantee the carrying out or performance of any and all contracts, leases and obligations of every kind of any Entity, and in particular, of any Entity the Certificates of Interest or Evidences of Indebtedness of which are at any time held by or for the corporation; and to do any acts or things designed to protect, preserve, improve, or enhance the value of any such Certificate of Interest or Evidence of Indebtedness. (f) To buy, lease, hire, exchange, and otherwise acquire, own or hold, deal in, sell, mortgage, or otherwise encumber or dispose of all or any part of the business, good will, rights to property and assets of every kind of any Entity. (g) To pay for any and all properties of the corporation in whole or in part with cash or other property or with Certificates of Interest or Evidences of Indebtedness of the corporation or otherwise. (h) To purchase, apply for, obtain, register, take on lease or otherwise acquire, hold, own, use, mortgage, pledge, sell, assign, lease, transfer, or otherwise dispose of, grant licenses in respect of, or otherwise turn to account letters patent, trade marks, trade names, copyrights, and similar rights and property however created, issued, or granted, or any interest therein, or rights thereunder, or any inventions, improvements, processes, licenses, formulas, or devices which may seem capable of being used for or in connection with any of the objects or purposes of the corporation. (i) To borrow or raise money for any of the objects or purposes of the corporation without limit as to amount; to issue from time to time Evidences of Indebtedness, secured or unsecured, of the corporation for money so borrowed, or in payment for property acquired, or for any of the other objects or purposes of the corporation, or in connection with its business, and to secure such Evidences of Indebtedness by mortgage, deed of trust, pledge or other lien upon, or assignment or agreement in respect of any or all the properties, assets, rights, licenses, privileges or franchises of the corporation, acquired or to be acquired, and to pledge, sell, or otherwise dispose of any or all such Evidences of Indebtedness of the corporation for its corporate purposes. (j) To participate in or in the formation of, or to organize any group or syndicate which shall acquire by purchase, subscription, or otherwise, or which shall underwrite the issue of or the offer to any class of security holders of any Certificates of Interest or Evidences of Indebtedness of any Entity. (k) To enter into a partnership (as general or special partner) or joint venture with any Entity. (l) To lend money with or without security therefor to any Entity; to promote, organize, incorporate, reorganize, finance, procure capital or credit for or assist financially or otherwise any Entity in any manner or by any method whatsoever, and to do any and all things necessary or convenient to carry any such purposes into effect. (m) To issue, own and hold, sell, transfer, reissue or cancel Evidences of Indebtedness or Certificates of Interest of the corporation in the manner and to the extent now or hereafter authorized or permitted by the laws of the State of Delaware. (n) To carry out all or any part of the foregoing objects and purposes as principal, agent, broker, factor, contractor, or otherwise, either alone or in conjunction with any Entity, and in any part of the world; and in carrying on its business, and for the purpose of attaining or furthering any of its objects or purposes, to make and perform such contracts of every kind and description, to do such acts and things and to exercise any and all such powers as a natural person could lawfully make, perform, do or exercise. (o) To carry on any or all of the operations or business of the corporation in any and all states, territories, possessions, colonies, and dependencies of the United States of America, in the District of Columbia, and in any or all foreign countries; to have one or more offices within and without the State of Delaware; to do any and all things necessary, suitable, convenient or proper for or in connection with or incidental to the accomplishment of any of the purposes or the attainment of any one or more of the objects herein enumerated or designed directly or indirectly to promote the interests of the corporation or to enhance the value of any of its properties; and in general, to do any and all things and exercise any and all powers which it may now or hereafter be lawful for the corporation to do or to exercise under the laws of the State of Delaware now or hereafter applicable to the corporation. Provided, however, that anything in the foregoing clauses to the contrary notwithstanding, the corporation shall not engage in the business of transportation of passengers or property for compensation in interstate or foreign commerce. 3.3 The objects and purposes specified in the foregoing clauses of Section 3.2 shall, except where otherwise expressed, be in no wise limited or restricted by reference to or inference from the objects and purposes specified in any other clause in the Certificate of Incorporation, but the objects and purposes specified in each of the foregoing clauses of Section 3.2 shall be regarded as independent objects and purposes. FOURTH. A. Number of Classes of Shares Authorized The total number of shares of all classes of stock which the corporation shall have authority to issue is 105,000,000 shares, of which 5,000,000 shares shall constitute Preferred Stock (the "Preferred Stock"), without par value, and 100,000,000 shares shall constitute Common Stock (the "Common Stock") having a par value of $.625 per share. B. Reclassification of Outstanding Common Stock Each share of Common Stock (par value $1.25 per share) of the corporation issued and outstanding (including treasury shares) is hereby reclassified, changed into and shall be two (2) fully paid and non-assessable shares of Common Stock (par value $.625 per share) of the corporation. C. Description of Classes of Stock The designations and the powers, preferences and rights of the Preferred Stock and of the Common Stock, and the qualifications, limitations or restrictions thereof, are as follows: 1. Preferred Stock to be Issued in Series Any of the shares of Preferred Stock may be issued from time to time in one or more series. Subject to the limitations and restrictions in this ARTICLE FOURTH set forth, the Board of Directors, by resolution or resolutions, is authorized to create or provide for any such series, and to fix the designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, including, without limitation, the authority to fix or alter the dividend rights, dividend rates, conversion rights, exchange rights, voting rights, rights and terms of redemption (including sinking and purchase fund provisions), the redemption price or prices, the dissolution preferences and the rights in respect to any distribution of assets of any wholly unissued series of Preferred Stock and the number of shares constituting any such series, and the designation thereof, or any of them and to increase or decrease the number of shares of any series so created, subsequent to the issue of that series but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series. 2. Provisions Applicable to All Series of Preferred Stock and to the Common Stock (a) There shall be no limitation or restriction on any variation between any of the different series of Preferred Stock as to the designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof; and the several series of Preferred Stock may, except as hereinafter in this ARTICLE FOURTH otherwise expressly provided, vary in any and all respects as fixed and determined by the resolution or resolutions of the Board of Directors providing for the issuance of the various series; provided, however, that all shares of any one series of Preferred Stock shall have the same designation, preferences and relative, participating, optional or other special rights and qualifications, limitations and restrictions. (b) No holder of Preferred Stock or of Common Stock shall be entitled as such, as a matter of right, to subscribe for or purchase any shares of Preferred Stock or Common Stock of the corporation, whether now or hereafter authorized, or securities convertible into, exchangeable for, or carrying the right to acquire, Preferred Stock or Common Stock of the corporation whether now or hereafter authorized. (c) The entire voting power and all voting rights, except as otherwise required by law, or as otherwise fixed by resolution or resolutions of the Board of Directors with respect to one or more series of Preferred Stock, shall be vested exclusively in the Common Stock. The amount of either the authorized Preferred Stock or Common Stock, or the amount of both such classes of stock, may be increased or decreased by the affirmative vote of the holders of a majority of the stock of the corporation entitled to vote. Each stockholder of the corporation who at the time possesses voting power for any purpose shall be entitled to one vote for each share of such stock standing in his name on the books of the corporation. FIFTH. The minimum amount of capital with which the corporation will commence business is One Thousand Dollars ($1,000.00). SIXTH. The names and places of residence of the incorporators are as follows: Names Residences H.K. Webb ..................... Wilmington, Delaware S.E. Manuel ................... Wilmington, Delaware A.D. Atwell ................... Wilmington, Delaware SEVENTH. The corporation is to have perpetual existence. EIGHTH. The private property of the stockholders shall not be subject to the payment of corporate debts to any extent whatever. NINTH. In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized: (a) To make, alter or repeal the by-laws of the corporation. (b) To authorize and cause to be executed mortgages and liens upon the real and personal property of the corporation. (c) To set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and to abolish any such reserve in the manner in which it was created. (d) By resolution passed by a majority of the whole Board, to designate one or more committees, each committee to consist of two or more of the directors of the corporation, which, to the extent provided in the resolution or in the by-laws of the corporation, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it. Such committee or committees shall have such name or names as may be stated in the by-laws of the corporation or as may be determined from time to time by resolution adopted by the Board of Directors. (e) When and as authorized by the affirmative vote of the holders of a majority of the stock issued and outstanding having voting power given at a stockholders' meeting duly called for that purpose, or when authorized by the written consent of the holders of a majority of the voting stock issued and outstanding, to sell, lease or exchange all of the property and assets of the corporation, including its good will and its corporate franchises, upon such terms and conditions and for such consideration, which may be in whole or in part shares of stock, and/or other securities of, any other corporation or corporations, as its Board of Directors shall deem expedient and for the best interests of the corporation. TENTH. Whenever a compromise or arrangement is proposed between the corporation and its creditors or any class of them and/or between the corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of the corporation or of any creditor or stockholder thereof, or on the application of any receiver or receivers appointed for the corporation under the provisions of section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for the corporation under the provisions of section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of the corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of the corporation, as the case may be, and also on the corporation. ELEVENTH. A. Meetings of stockholders may be held outside the State of Delaware, if the by-laws so provide. The books of the corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the by-laws of the corporation. Elections of directors need not be by ballot unless the by-laws of the corporation shall so provide. B. The number of directors shall be determined by the Board of Directors or the stockholders, provided, however, that the number thereof shall never be less than twelve nor greater than fifteen. A director need not be a stockholder. The directors shall be divided into three classes, designated Class I, Class II, and Class III, as nearly equal in number as the then total number of directors permits. At the 1985 annual meeting of stockholders, Class I directors shall be elected for a one-year term, Class II directors for a two-year term and Class III directors for a three-year term. At each succeeding annual meeting of stockholders beginning in 1986, successors to the class of directors whose term expires at that annual meeting shall be elected for a three-year term. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional directors of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until the annual meeting for the year in which his term expires and until his successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. Any vacancy on the Board of Directors, including any vacancy that results from an increase in the number of directors may be filled by a majority of the Board of Directors then in office, although less than a quorum, or by a sole remaining director. Any director elected to fill a vacancy shall have the same remaining term as that of his predecessor. Notwithstanding the foregoing, whenever the holders of any one or more classes or series of Preferred Stock issued by the corporation shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of this Certificate of Incorporation applicable thereto, and such directors so elected shall not be divided into classes pursuant to this Article unless expressly provided by such terms. Any amendment, change or repeal of this Article, or any other amendment to this Certificate of Incorporation that will have the effect of permitting circumvention of or modifying this paragraph B of ARTICLE ELEVENTH, shall require the favorable vote, at a stockholders' meeting, of the holders of at least 80 of the then-outstanding shares of stock of the corporation entitled to vote. TWELFTH. Notwithstanding anything in this Certificate of Incorporation to the contrary, any action required or permitted to be taken at a meeting of stockholders may be taken without a meeting only if 80 or more of the voting power of the stockholders entitled to vote thereon consent thereto in writing. Any amendment, change or repeal of this ARTICLE TWELFTH, or any other amendment to this Certificate of Incorporation that will have the effect of permitting circumvention or modifying this ARTICLE TWELFTH, shall require the favorable vote, at a stockholders' meeting, of the holders of at least 80 of the then-outstanding shares of stock of the corporation entitled to vote. THIRTEENTH. The corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. FOURTEENTH. To the fullest extent permitted by Delaware statutory or decisional law, as amended or interpreted, no director of the Corporation shall be personally liable to the Corporation or its shareholders for monetary damages for breach of fiduciary duty as a director. This Article Fourteenth does not affect the availability of equitable remedies for breach of fiduciary duties. We, THE UNDERSIGNED, being each of the incorporators hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation law of the State of Delaware, do make this certificate, hereby declaring and certifying that the facts herein stated are true, and accordingly have hereunto set our hands and seals this 12th day of August, A.D. 1958. H.K. WEBB (Seal) S.E. MANUEL (Seal) A.D. ATWELL (Seal) STATE OF DELAWARE COUNTY OF NEW CASTLE-ss: BE IT REMEMBERED that on this 12th day of August, A.D. 1958, personally came before me, a Notary Public for the State of Delaware, H.K. Webb, S.E. Manuel and A.D. Atwell, all of the parties to the foregoing Certificate of Incorporation, known to me personally to be such and severally acknowledged the said certificate to be the act and deed of the signers respectively and that the facts therein stated are truly set forth. GIVEN under my hand and seal of office the day and year aforesaid. M. RUTH MANNERING Notary Public M. Ruth Mannering Notary Public Appointed Feb. 12, 1957 State of Delaware Term Two Years CERTIFICATE THE UNDERSIGNED, Eberhard G. H. Schmoller, Secretary of CNF Inc., does hereby certify that the foregoing is a true and correct copy of the Certificate of Incorporation of CNF INC., as amended to date hereof. IN WITNESS whereof the undersigned has hereunto set his hand and affixed the seal of said corporation this 24th day of April, 2001. /s/ Eberhard G. H. Schmoller Secretary of CNF Inc. EX-3 3 cnf_3b.txt BY-LAWS AS AMENDED CNF INC. INCORPORATED IN DELAWARE AUGUST 13, 1958 UNDER THE CORPORATE NAME OF CONSOLIDATED FREIGHTWAYS COMPANY BYLAWS As Amended April 30, 2001 CNF INC. BYLAWS As Amended April 30, 2001 ARTICLE I OFFICES SECTION 1. Registered Office. The registered office of the Corporation in the State of Delaware shall be in the City of Wilmington, County of New Castle. SECTION 2. Other Offices. The Corporation shall also have and maintain a principal office or place of business at such place as may be fixed by the Board of Directors, and may also have other offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or as the business of the Corporation may require. ARTICLE II STOCKHOLDERS' MEETINGS SECTION 1. Place of Meetings. Meetings of the stockholders of the Corporation shall be held at such place, either within or without the State of Delaware, as may be designated from time to time by the Board of Directors or, if not so designated, then at the principal office of the Corporation. SECTION 2. Annual Meetings. The annual meetings of the stockholders of the Corporation for the purpose of election of directors and for such other business as may lawfully come before the meetings shall be held on a date and at a time designated from time to time by the Board of Directors. No business may be transacted at an annual meeting of stockholders, other than business that is either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (b) otherwise properly brought before the annual meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (c) otherwise properly brought before the annual meeting by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 2 and on the record date for the determination of stockholders entitled to vote at such annual meeting and (ii) who complies with the notice procedures set forth in this Section 2. In addition to any other applicable requirement, for business to be properly brought before an annual meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. To be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than ninety (90) days nor more than one hundred twenty (120) days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within thirty (30) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which notice of the date of the annual meeting was mailed or public disclosure of the date of the annual meeting was made, whichever first occurs. To be in proper written form, a stockholder's notice to the Secretary must set forth as to each matter such stockholder proposes to bring before this annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of such stockholder, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iv) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in business and (v) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting. Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures set forth in this Section 2. The Chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 2, and if he should so determine, he shall so declare to the meeting and any such business shall not be transacted. SECTION 3. Special Meetings. Special Meetings. Special meetings of the stockholders of the Corporation may be called, for any purpose or purposes, by the Chief Executive Officer or the Board of Directors at any time. Upon written request of any stockholder or stockholders holding in the aggregate a majority of the voting power of all stockholders, the Secretary shall call a meeting of stockholders to be held not less than thirty (30) and not more than ninety (90) days after the receipt of the request, on such date and at such time and place as may be designated by the Board of Directors. If the Secretary, within forty-five (45) days following receipt of the request, shall neglect or refuse to call the meeting in accordance with the provisions of the preceding sentence, the stockholder or stockholders making the request may do so. SECTION 4. Notice of Meetings. Except as otherwise provided by law or the Certificate of Incorporation, written notice of each meeting of stockholders shall be given not less than ten nor more than 50 days before the date of the meeting to each stockholder entitled to vote thereat, directed to his address as it appears upon the books of the Corporation; said notice to specify the place, date and hour and purpose or purposes of the meeting. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken unless the adjournment is for more than thirty days, or unless after the adjournment a new record date is fixed for the adjourned meeting, in which event a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Notice of the time, place and purpose of any meeting of stockholders may be waived in writing, either before or after such meeting, and will be waived by any stockholder by his attendance thereat in person or by proxy. Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given. SECTION 5. Quorum. At all meetings of stockholders, except where otherwise provided by statute or by the Certificate of Incorporation, or by the Bylaws, the presence, in person or by proxy duly authorized, of the holders of a majority of the outstanding shares of stock entitled to vote shall constitute a quorum for the transaction of business. Shares, the voting of which at said meeting has been enjoined, or which for any reason cannot be lawfully voted at such meeting shall not be counted to determine a quorum at said meeting. In the absence of a quorum any meeting of stockholders may be adjourned, from time to time, by vote of the holders of a majority of the shares represented thereat, but no other business shall be transacted at such meeting. At such adjourned meeting at which a quorum is present or represented any business may be transacted which might have been transacted at the original meeting. The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, all action taken by the holders of a majority of the voting power represented at any meeting at which a quorum is present shall be valid and binding upon the Corporation. SECTION 6. Voting Rights. Except as otherwise provided by law, only persons in whose names shares entitled to vote stand on the stock records of the Corporation on the record date for determining the stockholders entitled to vote at said meeting shall be entitled to vote at such meeting. Shares standing in the names of two or more persons shall be voted or represented in accordance with the determination of the majority of such persons, or, if only one of such persons is present in person or represented by proxy, such person shall have the right to vote such shares and such shares shall be deemed to be represented for the purpose of determining a quorum. Every person entitled to vote or execute consents shall have the right to do so either in person or by an agent or agents authorized by a written proxy executed by such person or his duly authorized agent, which proxy shall be filed with the Secretary of the Corporation at or before the meeting at which it is to be used. Said proxy so appointed need not be a stockholder. No proxy shall be voted on after three years from its date unless the proxy provides for a longer period. List of Stockholders. SECTION 7. List of Stockholders. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held and which place shall be specified in the notice of the meeting, or, if not specified, at the place where said meeting is to be held, and the list shall be produced and kept at the time and place of meeting during the whole time thereof, and may be inspected by any stockholder who is present. SECTION 8. Action Without Meeting. Whenever the vote of stockholders at a meeting thereof is required or permitted to be taken in connection with any corporate action by any provisions of the statutes or of the Certificate of Incorporation, the meeting and vote of stockholders may be dispensed with: (1) if all of the stockholders who would have been entitled to vote upon the action if such meeting were held shall consent in writing to such corporate action being taken; or (2) if the Certificate of Incorporation authorizes the action to be taken with the written consent of the holders of less than all of the stock who would have been entitled to vote upon the action if a meeting were held, then on the written consent of the stockholders having not less than such percentage of the number of votes as may be authorized in the Certificate of Incorporation; provided that in no case shall the written consent be by the holders of stock having less than the minimum percentage of the vote required by statute for the proposed corporate action, and provided that prompt notice must be given to all stockholders of the taking of corporate action without a meeting and by less than unanimous written consent. SECTION 9. Rules of Conduct. The Board of Directors of the Company shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to stockholders of record of the Corporation and their duly authorized and constituted proxies, and such other persons as the chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot. Unless, and to the extent, determined by the Board of Directors or the chairman of the meeting, meetings of shareholders shall not be required to be held in accordance with rules of parliamentary procedure. ARTICLE III ARTICLE III DIRECTORS SECTION 1. Powers. The powers of the Corporation shall be exercised, its business conducted and its property controlled by the Board of Directors. SECTION 2. Number, Qualifications and Classification. (a) A majority of the directors holding office may by resolution increase or decrease the number of directors, provided, however, that the number thereof shall never be less than twelve nor greater than fifteen. A director need not be a stockholder. The directors shall be divided into three classes, designated Class I, Class II and Class III, as nearly equal in number as the then total number of directors permits. At the 1985 annual meeting of stockholders, Class I directors shall be elected for a one-year term, Class II directors for a two-year term and Class III directors for a three-year term. At each succeeding annual meeting of stockholders beginning in 1986, successors to the class of directors whose term expires at that annual meeting shall be elected for a three-year term. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional directors of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until the annual meeting for the year in which his term expires and until his successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. Any vacancy on the Board of Directors, including any vacancy that results from an increase in the number of directors, may be filled by a majority of the Board of Directors then in office, although less than a quorum, or by a sole remaining director. Any director elected to fill a vacancy shall have the same remaining term as that of his predecessor. (b) Notwithstanding the foregoing, whenever the holders of any one or more classes or series of Preferred Stock issued by the Corporation shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of the Certificate of Incorporation applicable thereto, and such directors so elected shall not be divided into classes pursuant to these Bylaws unless expressly provided by such terms. (c) Any amendment, change or repeal of this Section 2 of Article III, or any other amendment to these Bylaws that will have the effect of permitting circumvention of or modifying this Section 2 of Article III, shall require the favorable vote, at a stockholders' meeting, of the holders of at least 80% of the then-outstanding shares of stock of the Corporation entitled to vote. SECTION 3. [Intentionally Omitted.] SECTION 4. Vacancies. A vacancy in the Board of Directors shall be deemed to exist in the case of the death, resignation or removal of any director, or if the number of directors constituting the whole Board be increased, or if the stockholders, at any meeting of stockholders at which directors are to be elected, fail to elect the number of directors then constituting the whole Board. SECTION 5. Resignations. Any director may resign at any time by delivering his written resignation to the Secretary, such resignation to specify whether it will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the Board of Directors. If no such specification is made, it shall be deemed effective at the pleasure of the Board of Directors. SECTION 6. Meetings. (a) The annual meeting of the Board of Directors shall be held at such time and place as the Board may determine. No notice of the annual meeting of the Board of Directors shall be necessary if such meeting is held immediately after the annual stockholders' meeting and at the place where such stockholders' meeting is held. If the annual meeting of the Board of Directors is held on a different date, or at a different time or place, notice of the date, time and place of such annual meeting of the Board of Directors shall be furnished to each director in accordance with the procedures of Article III, Section 6(c) of these Bylaws. The annual meeting of the Board of Directors shall be held for the purpose of electing officers and transacting such other business as may lawfully come before it. (b) Regular meetings of the Board of Directors shall be held at such place within or without the State of Delaware, and at such times as the Board may from time to time determine, and if so determined no notice thereof need be given. (c) Special meetings may be called at any time and place within or without the State of Delaware upon the call of the Chief Executive Officer or Secretary or any two directors. Notice of the date, time, place and purposes of each special meeting, and notice of the date, time and place of each annual and regular meeting for which notice is required to be given, shall be sent by mail at least seventy-two hours in advance of the time of the meeting, or by telegram at least forty-eight hours in advance of the time of the meeting, or by facsimile at least twenty-four hours in advance of the time of the meeting, to the address or facsimile number (as applicable) of each director. Notice of any special meeting may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat. SECTION 7. Quorum and Voting. (a) A majority of the whole Board of Directors shall constitute a quorum for all purposes, provided, however, at any meeting whether a quorum be present or otherwise, a majority of the directors present may adjourn from time to time and place to place, within or without the State of Delaware, without notice other than by announcement at the meeting. (b) At each meeting of the Board at which a quorum is present all questions and business shall be determined by a vote of a majority of the directors present, unless a different vote be required by law or by the Certificate of Incorporation. SECTION 8. Action Without Meeting. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or of such committee, as the case may be, consent thereto in writing, and such writing or writings are filed with the minutes of proceedings of the Board or committee. SECTION 9. Fees and Compensation. Directors shall not receive any stated salary for their services as directors, but, by resolution of the Board, compensation in a reasonable amount may be fixed by the Board, including, without limitation, compensation in the form of an annual retainer, a fee for each Board or Board Committee meeting attended, reimbursement for expenses of attendance at any such meeting, or any combination of any of the foregoing. Nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity as an officer, agent, employee, or otherwise, and receiving compensation therefor. SECTION 10. Maximum Age of Directors. Directors who have attained the age of 72 years shall be ineligible to stand for election or reelection as a director. Except as may otherwise be determined by the Board of Directors, a director who has attained the age of 72 years whose term as a director continues beyond the annual meeting of shareholders next following attainment of 72 years shall retire and resign as a director at the first directors' meeting following such annual meeting of shareholders. Unless otherwise determined by the Board of Directors in accordance with the preceding sentence, for this purpose such resignation will be automatic and need not meet the requirements for resignation set forth in Section 5 of this Article III. SECTION 11. Nominations of Persons for Election to the Board of Directors. Only persons who are nominated in accordance with the following procedures set forth in these Bylaws shall be eligible for election as directors of the Corporation. Nominations of persons for election to the Board of Directors may be made at any annual meeting of stockholders (a) by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (b) by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 11 and on the record date for the determination of stockholders entitled to vote and (II) who complies with the notice procedures set forth in this Section 11. In addition to any other applicable requirements, for a nomination to be made by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. To be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than ninety (90) days nor more than one hundred twenty (120) days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within thirty (30) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which notice of the date of the annual meeting was mailed or public disclosure of the date of the annual meeting was made, whichever first occurs. To be in proper written form, a stockholder's notice to the Secretary must set forth (a) as to each person whom the stockholder proposes to nominate for election as a director (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by the person and (iv) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder; and (b) as to the stockholder giving the notice (i) the name and record address of such stockholder, (ii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iii) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (iv) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to nominate the persons named in its notice and (v) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to be named as a nominee and to serve as a director if elected. The Corporation may require any proposed nominee to furnish any other information that may reasonably be required by the Corporation to determine the qualifications of such proposed nominee to serve as a director of the Corporation. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth herein. These provisions shall not apply to nomination of any persons entitled to be separately elected by holders of Preferred Stock. The Chairman of the annual meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedures, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. ARTICLE IV OFFICERS AND COMMITTEES SECTION 1. Officers Designated. The executive officers of the Corporation shall be chosen by the Board of Directors and shall be the Chairman of the Board, the President, one or more Vice Presidents, the Secretary, one or more Assistant Secretaries, the Treasurer, one or more Assistant Treasurers, and such other executive officers as the Board of Directors from time to time may designate. The Board of Directors shall designate either the Chairman of the Board or the President as the Chief Executive Officer of the Corporation. The officer so designated shall have charge of the actual conduct and operation of the business of the Corporation, subject to the control and direction of the Board of Directors. The Chief Executive Officer shall, with the consent of the Board of Directors, assign such additional titles to Vice Presidents as he shall deem appropriate and designate the succession of officers to act in his stead in his absence or disability. He may appoint additional Vice Presidents who shall not, however, be executive officers. He shall assign all duties not otherwise specified by these Bylaws to all officers and employees of the Corporation. SECTION 2. Election, Qualification, Tenure of Office, and Duties of Executive Officers and Other Officers. (a) At the annual meeting of the Board of Directors following their election by the stockholders, the directors shall elect all executive officers of the Corporation. Any one person may hold any number of offices of the Corporation at any one time unless specifically prohibited therefrom by law. The Chairman of the Board shall be a director but no other officer need be a director. (b) Each executive officer shall hold office from the date of his election either until the date of his voluntary resignation, or death, or until the next annual meeting of the Board of Directors and until a successor shall have been duly elected and qualified, whichever shall first occur; provided that any such officer may be removed by the Board of Directors whenever in its judgment the best interest of the Corporation will be served thereby, and the Board may elect another in the place and stead of the person so removed. (c) Chairman of the Board: The Chairman of the Board shall preside at all meetings of the stockholders, of the Board of Directors, and of the Executive Committee. He shall have the responsibility of keeping the directors informed on all policy matters, and shall have such other powers and perform such other duties as may be prescribed by the Board. (d) President: The President shall, in the absence of the Chairman of the Board preside at all meetings of the stockholders, the Board of Directors and the Executive Committee. He shall exercise all of the powers and discharge all of the other duties of the Chairman of the Board in the absence of the Chairman of the Board. He shall perform such other duties as may be prescribed by the Chairman of the Board. (e) Vice Presidents: The Vice Presidents shall have such duties and have such other powers as shall be prescribed by the Chief Executive Officer. Such Vice President as may be designated by the Board of Directors or the Chairman of the Board shall preside at all meetings of the stockholders. (f) Secretary: The Secretary shall record all the proceedings of the meetings of the Corporation and of the directors in a book or books kept for that purpose. He shall attend to the giving and serving of all notices on behalf of the Corporation. He shall have the custody of the corporate seal and affix the same to such instruments as may be required. He shall have such other powers and perform such other duties as may be prescribed by the Chief Executive Officer. (g) Assistant Secretaries: Assistant Secretaries shall assist the Secretary in the performance of his duties and any one of the Assistant Secretaries may perform all of the duties of the Secretary if at any time he shall be unable to act. Assistant Secretaries shall have such other powers and perform such other duties as may be prescribed by the Chief Executive Officer. (h) Treasurer: The Treasurer shall have charge of the custody, control and disposition of all funds of the Corporation and shall account for same. He shall have such other powers and perform such other duties as may be prescribed by the Chief Executive Officer. (i) Assistant Treasurers: Assistant Treasurers shall assist the Treasurer in the performance of his duties and any one of the Assistant Treasurers may perform all of the duties of the Treasurer if at any time he shall be unable to act. Assistant Treasurers shall have such other powers and perform such other duties as may be prescribed by the Chief Executive Officer. SECTION 3. Committees. (a) Executive Committee. The Board of Directors shall, by resolution passed by a majority of the whole Board, appoint an Executive Committee of not less than three members, all of whom shall be directors. The Executive Committee, to the extent permitted by law, shall have and may exercise when the Board of Directors is not in session all powers of the Board in the management of the business and affairs of the Corporation and may authorize the seal of the Corporation to be affixed to all papers which may require it. It shall be the duty of the Secretary of the Corporation to record the minutes of all actions of the Executive Committee. (b) Other Committees. The Board of Directors may, by resolution passed by a majority of the whole Board, from time to time appoint such other committees as may be permitted by law. The Chief Executive Officer may appoint such other committees as he finds necessary to the conduct of the Corporation's business. Such other committees appointed by the Board of Directors or the Chief Executive Officer shall have such powers and perform such duties as may be prescribed by the body or person appointing such committee. (c) Term; Number of Committee Members. The members of all committees of the Board of Directors shall serve a term coexistent with that member's remaining term as a member of the Board of Directors, or until such time as the Board of Directors shall replace that member on such committee or ask that member to accept another committee assignment in its stead. The Board, subject to the provisions of subsection (a) and (b) of this Section 3, may at any time increase or decrease the number of members of a committee or terminate the existence of a committee; provided, that no committee, while it exists, shall consist of less than three members. The membership of a committee member shall terminate on the date of his death or voluntary resignation, but the Board may at any time for any reason remove any individual committee member and the Board may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. The Board of Directors may designate one or more directors as alternate members of any committee, to replace any absent or disqualified member at any meeting of the committee. If the qualified members of a committee, in attendance at a committee meeting, believe that the absence or disqualification of one or more members of that committee seriously impairs the function of that committee, such remaining qualified members, whether or not constituting a quorum, may by unanimous action appoint another member of the Board of Directors to act as a committee member at that meeting. (d) Notice of Committee Meetings. Notice of the date, time and place of each committee meeting shall be sent to each committee member by mail at least seventy-two hours in advance of the time of the meeting, or by telegram at least forty-eight hours in advance of the time of the meeting, or by facsimile at least twenty-four hours in advance of the time of the meeting, to the address or facsimile number (as applicable) of each committee member. ARTICLE V CAPITAL STOCK SECTION 1. Form and Execution of Certificates. Certificates for the shares of stock of the Corporation shall be in such form as are consistent with the Certificate of Incorporation and applicable law. Every holder of stock in the Corporation shall be entitled to have a certificate signed by, or in the name of the Corporation by, the Chairman of the Board, President or any Vice President and by the Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary, certifying the number of shares owned by him in the Corporation. Where such certificate is countersigned by a transfer agent other than the Corporation or its employee, or by a registrar other than the Corporation or its employee, any other signature on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. SECTION 2. Lost Certificates. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost or destroyed. SECTION 3. Transfers. Transfers of record of shares of the capital stock of the Corporation shall be made upon its books by the holders thereof, in person or by attorney duly authorized, and upon the surrender of a certificate or certificates for a like number of shares, properly endorsed or accompanied by a properly endorsed stock power. SECTION 4. Fixing Record Dates. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. If no record date is fixed: (1) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; and (2) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. SECTION 5. Registered Stockholders. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE VI OTHER SECURITIES OF THE CORPORATION All bonds, debentures and other corporate securities of the Corporation, other than stock certificates, may be signed by the Chairman of the Board, the President or any Vice President, or such other person as may be authorized by the Board of Directors, and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer, or such other person as may be authorized by the Board of Directors; provided, however, that where any such bond, debenture or other corporate security shall be authenticated by a trustee under an indenture pursuant to which such bond, debenture or other corporate securities shall be issued, the signatures of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the Corporation, or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any person who shall have signed or attested any bond, debenture or other corporate security, or whose facsimile signature shall appear thereon or on any such interest coupon, shall have ceased to be an officer before the bond, debenture or other corporate security so signed or attested shall have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the Corporation and issued and delivered as though the person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the Corporation. ARTICLE VII SECURITIES OWNED BY THE CORPORATION Power to Vote. Unless otherwise ordered by the Board of Directors, the Chief Executive Officer, or any officer designated in writing by the Chief Executive Officer, shall have full power and authority in the name and on behalf of the Corporation, to vote and to act either in person or by proxy at any meeting of the holders of stock or securities in any corporation upon and in respect of any securities therein which the Corporation may hold, and shall possess and may exercise in the name of the Corporation any and all rights and powers incident to the ownership of such stock or securities which, as the owner thereof, the Corporation shall possess and might exercise including the right to give written consents in respect to action taken or to be taken. The Board of Directors may from time to time confer like powers upon any other person or persons. ARTICLE VIII CORPORATE SEAL The corporate seal shall consist of a die bearing the inscription, CNF Inc. Corporate Seal Delaware. ARTICLE IX AMENDMENTS These Bylaws may be repealed, altered or amended or new Bylaws adopted by written consent of stockholders in the manner authorized by Section 8 of Article II or at any meeting of the stockholders, either annual or special, by the affirmative vote of a majority of the stock entitled to vote at such meeting. The Board of Directors shall also have the authority to repeal, alter or amend these Bylaws or adopt new Bylaws by unanimous written consent or by the affirmative vote of a majority of the whole Board at any annual, regular, or special meeting subject to the power of the stockholders to change or repeal such Bylaws. ARTICLE X MISCELLANEOUS SECTION 1. Definitions. As used in these Bylaws and wherever the context shall require, the word person shall include associations, partnerships and corporations as well as individuals; words in the masculine gender shall include the feminine and associations, partnerships and corporations; words in the singular shall include the plural and words in the plural may mean only the singular, and words additional compensation shall mean and include all bonus, profit sharing, retirement, deferred compensation, and all other additional compensation plans or arrangements affecting persons individually or as a group. SECTION 2. Notices. Whenever, under any provisions of these Bylaws, notice is required to be given to any stockholder, the same shall be given in writing, timely and duly deposited in the United States Mail, postage prepaid, and addressed to his last known post office address as shown by the stock record of the Corporation or its transfer agent. Any notice required to be given to any director may be given by the method hereinabove stated, by personal delivery, or by telegram, except that such notice, other than one which is delivered personally, shall be sent to such address as such director shall have filed in writing with the Secretary of the Corporation, or, in the absence of such filing, to the last known post office address of such director. If no address of a stockholder or director be known, such notice may be sent to the principal office of the Corporation. An affidavit of mailing, executed by a duly authorized and competent employee of the Corporation or its transfer agent appointed with respect to the class of stock affected, specifying the name and address or the names and addresses of the stockholder or stockholders, director or directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall be conclusive evidence of the statements therein contained. All notices given by mail, as above provided, shall be deemed to have been given as at the time of mailing and all notices given by telegram shall be deemed to have been given as at the sending time recorded by the telegraph company transmitting the same. It shall not be necessary that the same method of giving be employed in respect of all directors, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others. The period or limitation of time within which any stockholder may exercise any option or right, or enjoy any privilege or benefit, or be required to act, or within which any directors may exercise any power or right, or enjoy any privilege, pursuant to any notice sent him in the manner above provided, shall not be affected or extended in any manner by the failure of such stockholder or such director to receive such notice. Whenever any notice is required to be given under the provisions of the statutes or of the Certificate of Incorporation, or of these Bylaws, a waiver thereof in writing signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Whenever notice is required to be given, under any provision of law or of the Certificate of Incorporation or Bylaws of the Corporation, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the Corporation is such as to require the filing of a certificate under any provision of the Delaware General Corporation Law, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful. SECTION 3. Indemnification of Officers, Directors, Employees and Agents. (a) Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is involved in any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (hereinafter a Proceeding), by reason of the fact that he, or a person of whom he is the legal representative, is or was a director, officer, employee, or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation or of a partnership, joint venture, trust, or other enterprise, including service with respect to employee benefit plans, whether the basis of the Proceeding is alleged action in an official capacity as a director, officer, employee, or agent or in any other capacity while serving as a director, officer, employee, or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than were permitted prior to amendment) against all expenses, liability, and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties, and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith; provided, however, that except as to actions to enforce indemnification rights pursuant to paragraph (c) of this Section, the Corporation shall indemnify any such person seeking indemnification in connection with a Proceeding (or part thereof) initiated by such person only if the Proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The right to indemnification conferred in this Article shall be a contract right for the benefit of the Corporation's directors, officers, employees, and agents. (b) Authority to Advance Expenses. Expenses incurred (including attorneys' fees) by an officer or director (acting in his capacity as such) in defending a Proceeding shall be paid by the Corporation in advance of the final disposition of such Proceeding, provided, however, that if required by the Delaware General Corporation Law, as amended, such expenses shall be advanced only upon delivery to the Corporation of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article or otherwise. Such expenses incurred by other employees or agents of the Corporation (or by the directors or officers not acting in their capacity as such, including service with respect to employee benefit plans) may be advanced upon such terms and conditions as the Board of Directors deems appropriate. (c) Right of Claimant to Bring Suit. If a claim under paragraph (a) or (b) of this Section is not paid in full by the Corporation within sixty days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense (including attorneys' fees) of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending a Proceeding in advance of its final disposition where the required undertaking has been tendered to the Corporation) that the claimant has not met the standards of conduct that make it permissible under the Delaware General Corporation Law for the Corporation to indemnify the claimant for the amount claimed. The burden of proving such a defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper under the circumstances because he has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant had not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. (d) Provisions Nonexclusive. The rights conferred on any person by this Section shall not be exclusive of any other rights that such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. (e) Authority to Insure. The Corporation may purchase and maintain insurance to protect itself and any person who is or was a director, officer, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise against any liability, expense, or loss asserted against or incurred by such person, whether or not the Corporation would have the power to indemnify him against such liability, expense, or loss under applicable law or the provisions of this Article. (f) Survival of Rights. The rights provided by this Section shall continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person. (g) Effect of Amendment. Any amendment, repeal, or modification of this Section shall not (a) adversely affect any right or protection of any director, officer, employee, or agent existing at the time of such amendment, repeal, or modification, or (b) apply to the indemnification of any such person for liability, expense, or loss stemming from actions or omissions occurring prior to such amendment, repeal, or modification. CERTIFICATE The undersigned, Eberhard G. H. Schmoller, Secretary of CNF INC., does hereby certify that the foregoing is a true and correct copy of the Bylaws of CNF INC., as amended to date hereof. In witness whereof the undersigned has hereunto set his hand and affixed the seal of said corporation this 30th day of April, 2001. /s/ Eberhard G. H. Schmoller Secretary of CNF Inc. EX-99 4 cnf_99a.txt Exhibit 99(a) CNF INC. COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES (Dollars in thousands) Three Months Ended March 31, 2001 2000 Fixed Charges: Interest Expense $ 7,793 $ 6,400 Capitalized Interest 609 1,748 Dividend Requirement on Series B Preferred Stock [1] 2,666 2,717 Interest Component of Rental Expense [2] 11,477 13,806 $ 22,545 $ 24,671 Earnings: Income from Continuing Operations before Taxes $ 25,928 $ 66,456 Fixed Charges 22,545 24,671 Capitalized Interest (609) (1,748) Preferred Dividend Requirements [3] (2,666) (2,717) $ 45,198 $ 86,662 Ratio of Earnings to Fixed Charges: 2.0 x 3.5 x [1] Dividends on shares of the Series B cumulative convertible preferred stock are used to pay debt service on notes issued by the Company's Thrift and Stock Plan. [2] Estimate of the interest portion of lease payments. [3] Preferred stock dividend requirements included in fixed charges but not deducted in the determination of Income from Continuing Operations before Taxes. EX-99 5 cnf_99b.txt Exhibit 99(b) CNF INC. COMPUTATION OF RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (Dollars in thousands) Three Months Ended March 31, 2001 2000 Combined Fixed Charges and Preferred Stock Dividends: Interest Expense $ 7,793 $ 6,400 Capitalized Interest 609 1,748 Dividend Requirement on Series B Preferred Stock [1] 2,666 2,717 Dividend Requirement on Preferred Securities of Subsidiary Trust 1,563 1,563 Interest Component of Rental Expense [2] 11,477 13,806 $ 24,108 $ 26,234 Earnings: Income from Continuing Operations before Taxes $ 25,928 $ 66,456 Fixed Charges 24,108 26,234 Capitalized Interest (609) (1,748) Preferred Dividend Requirements [3] (2,666) (2,717) $ 46,761 $ 88,225 Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends: 1.9 x 3.4 x [1] Dividends on shares of the Series B cumulative convertible preferred stock are used to pay debt service on notes issued by the Company's Thrift and Stock Plan. [2] Estimate of the interest portion of lease payments. [3] Preferred stock dividend requirements included in fixed charges but not deducted in the determination of Income from Continuing Operations before Taxes. -----END PRIVACY-ENHANCED MESSAGE-----