UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
FOR ANNUAL REPORTS OF EMPLOYEE STOCK PURCHASE, SAVINGS AND SIMILAR
PLANS PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
X ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES AND
--- EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003
OR
TRANSITION REPORT PURSUANT TO SECTION 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. THRIFT AND STOCK PLAN
CNF INC.
Incorporated in the State of Delaware
I.R.S. Employer Identification No. 94-1444798
3240 Hillview Avenue, Palo Alto, California 94304
Telephone Number (650) 494-2900
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the trustees (or other persons administering the employee benefit
plan) have duly caused this annual report to be signed on its behalf
by the undersigned hereunto duly authorized.
CNF Inc. Thrift and Stock Plan
June 21, 2004
/s/ Mark C. Thickpenny
___________________________________
Mark C. Thickpenny
Chairman, CNF Inc. Benefits
Administrative Committee
CNF INC. THRIFT AND STOCK PLAN
FINANCIAL STATEMENTS AND SCHEDULE
AS OF DECEMBER 31, 2003 AND 2002
AND FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
TOGETHER WITH REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Report of Independent Registered Public Accounting Firm
To the Finance Committee of the
CNF Inc. Board of Directors:
We have audited the accompanying statements of net assets available
for benefits of the CNF Inc. Thrift and Stock Plan as of December 31,
2003 and 2002, and the related statements of changes in net assets
available for benefits for the years then ended. These financial
statements are the responsibility of the plan administrator. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the net assets available for
benefits of the Plan as of December 31, 2003 and 2002, and the changes
in its net assets available for benefits for the years ended December
31, 2003 and 2002, in conformity with U.S. generally accepted
accounting principles.
Our audits were performed for the purpose of forming an opinion on the
basic financial statements taken as a whole. The supplemental
schedule of assets (held at end of year) is presented for purposes of
additional analysis and is not a required part of the basic financial
statements but is supplementary information required by the Department
of Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974. The supplemental
schedule is the responsibility of the Plan's management. The
supplemental schedule has been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects, in relation to the
basic financial statements taken as a whole.
Our audits were performed for the purpose of forming an opinion on the
basic financial statements taken as a whole. The fund information in
the statements of net assets available for benefits and statements of
changes in net assets available for benefits is presented for purposes
of additional analysis rather than to present the net assets available
for benefits and changes in net assets available for benefits of each
fund. The fund information has been subjected to the auditing
procedures applied in the audit of the basic financial statements and,
in our opinion, is fairly stated in all material respects, in relation
to the basic financial statements taken as a whole.
/s/ KPMG LLP
Portland, Oregon
June 11, 2004
CNF INC. THRIFT AND STOCK PLAN
DECEMBER 31, 2003 AND 2002
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
FINANCIAL STATEMENTS:
Statement of Net Assets Available for Benefits as of December 31, 2003 1
Statement of Net Assets Available for Benefits as of December 31, 2002 2
Statement of Changes in Net Assets Available for Benefits for the Year
Ended December 31, 2003 3
Statement of Changes in Net Assets Available for Benefits for the Year
Ended December 31, 2002 4
NOTES TO FINANCIAL STATEMENTS 5
SUPPLEMENTAL SCHEDULE:
Schedule I:Schedule H, Line 4i - Schedule of Assets (Held at End of
Year) as of December 31, 2003 13
CNF INC. THRIFT AND STOCK PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
AS OF DECEMBER 31, 2003
Participant
Directed Non-Participant Directed
-------------- -------------------------------------------------------------------------
Retiree
Restricted Health
CNF CNF Preferred CNF Preferred Savings
Common Stock Stock Fund- Stock Fund- Account
Fund Allocated Unallocated (401(h)) Total
-------------- -------------- -------------- -------------- --------------
ASSETS:
Investments, at fair value-
Shares in registered
investment companies $ 401,670,700 $ - $ - $ - $ - $ 401,670,700
Common trust funds 171,045,765 - - - - 171,045,765
Participant loans 48,465,757 - - - - 48,465,757
CNF equity 39,435,308 65,130,965 78,138,264 85,597,062 - 268,301,599
-------------- -------------- -------------- -------------- -------------- --------------
Total investments 660,617,530 65,130,965 78,138,264 85,597,062 - 889,483,821
Net assets held in 401(h)
account (Notes 3 and 8) - - - - 8,928,344 8,928,344
Contributions receivable-
Participants 1,668,837 - - - - 1,668,837
CNF - 2,630,688 - - - 2,630,688
-------------- -------------- -------------- -------------- -------------- --------------
Total contributions
receivable 1,668,837 2,630,688 - - - 4,299,525
Due from CNF Preferred
Stock Fund - Unallocated - - 3,148,871 - - 3,148,871
Dividend receivable - - - 5,003,598 - 5,003,598
Cash 15,460 - - - - 15,460
-------------- -------------- -------------- -------------- -------------- --------------
Total assets 662,301,827 67,761,653 81,287,135 90,600,660 8,928,344 910,879,619
-------------- -------------- -------------- -------------- -------------- --------------
LIABILITIES:
Notes payable (Note 5) - - - (101,700,000) - (101,700,000)
Accrued interest payable - - - (3,839,150) - (3,839,150)
Due to CNF (Note 1) - - - (1,164,448) - (1,164,448)
Due to CNF Preferred Stock - - - (3,148,871) - (3,148,871)
Fund - Allocated
Amounts related to
obligation of 401(h)
account (Notes 3 and 8) - - - - (8,928,344) (8,928,344)
-------------- -------------- -------------- -------------- -------------- --------------
Total liabilities - - - (109,852,469) (8,928,344) (118,780,813)
-------------- -------------- -------------- -------------- -------------- --------------
NET ASSETS AVAILABLE FOR
BENEFITS $ 662,301,827 $ 67,761,653 $ 81,287,135 $ (19,251,809) $ - $ 792,098,806
============== ============== ============== ============== ============== ==============
See accompanying notes to financial statements.
CNF INC. THRIFT AND STOCK PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
AS OF DECEMBER 31, 2002
Participant
Directed Non-Participant Directed
-------------- -------------------------------------------------------------------------
Retiree
Restricted Health
CNF CNF Preferred CNF Preferred Savings
Common Stock Stock Fund- Stock Fund- Account
Fund Allocated Unallocated (401(h)) Total
-------------- -------------- -------------- -------------- --------------
ASSETS:
Investments, at fair value-
Shares in registered
investment companies $ 285,376,840 $ - $ - $ - $ - $ 285,376,840
Common trust funds 147,310,760 - - - - 147,310,760
Participant loans 44,596,428 - - - - 44,596,428
CNF equity 36,590,663 56,917,091 70,296,253 95,348,592 - 259,152,599
-------------- -------------- -------------- -------------- -------------- --------------
Total investments 513,874,691 56,917,091 70,296,253 95,348,592 - 736,436,627
Net assets held in 401(h)
account (Notes 3 and 8) - - - - 4,212,988 4,212,988
Contributions receivable-
Participants 2,101,154 - - - - 2,101,154
CNF - 2,722,722 - - - 2,722,722
-------------- -------------- -------------- -------------- -------------- --------------
Total contributions
receivable 2,101,154 2,722,722 - - - 4,823,876
Due from CNF Preferred Stock
Fund - Unallocated - - 3,096,095 - - 3,096,095
Dividend receivable - - - 5,123,532 - 5,123,532
Cash 7,608 - - - - 7,608
-------------- -------------- -------------- -------------- -------------- --------------
Total assets 515,983,453 59,639,813 73,392,348 100,472,124 4,212,988 753,700,726
-------------- -------------- -------------- -------------- -------------- --------------
LIABILITIES:
Notes payable (Note 5) - - - (111,800,000) - (111,800,000)
Accrued interest payable - - - (4,142,150) - (4,142,150)
Due to CNF (Note 1) - - - (981,383) - (981,383)
Due to CNF Preferred Stock
Fund - Allocated - - - (3,096,095) - (3,096,095)
Amounts related to
obligation of 401(h) - - - - (4,212,988) (4,212,988)
account (Notes 3 and 8)
-------------- -------------- -------------- -------------- -------------- --------------
Total liabilities - - - (120,019,628) (4,212,988) (124,232,616)
-------------- -------------- -------------- -------------- -------------- --------------
NET ASSETS AVAILABLE FOR
BENEFITS $ 515,983,453 $ 59,639,813 $ 73,392,348 $ (19,547,504) - $ 629,468,110
============== ============== ============== ============== ============== ==============
See accompanying notes to financial statements.
CNF INC. THRIFT AND STOCK PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 2003
Participant
Directed Non-Participant Directed
-------------- --------------------------------------------
Restricted
CNF CNF Preferred CNF Preferred
Common Stock Stock Fund- Stock Fund-
Fund Allocated Unallocated Total
-------------- -------------- -------------- --------------
ADDITIONS:
Participant contributions $ 63,254,138 $ - $ - $ - $ 63,254,138
CNF contributions - 10,162,067 - 7,706,100 17,868,167
Rollover contributions 2,375,240 - - - 2,375,240
Allocation of preferred shares
to TASP participants, at
cost - - 7,784,917 - 7,784,917
Dividend and interest income 4,074,585 733,877 - 10,072,200 14,880,662
Net appreciation
(depreciation)in fair
value of Investments
(Note 4) 108,586,213 1,719,932 3,049,385 (1,939,172) 111,416,358
-------------- -------------- -------------- -------------- --------------
Total additions 178,290,176 12,615,876 10,834,302 15,839,128 217,579,482
DEDUCTIONS:
Distributions to participants (34,360,312) (5,040,689) - - (39,401,001)
Transfers to other plans (1,897) (1,272) (1,183) - (4,352)
Allocation of preferred shares
to TASP participants, at
cost - - - (7,784,917) (7,784,917)
Allocation of preferred shares
to Menlo Worldwide
Forwarding Inc. Savings Plan
participants, at cost - - - (80,216) (80,216)
Interest expense - - - (7,678,300) (7,678,300)
-------------- -------------- -------------- -------------- --------------
Total deductions (34,362,209) (5,041,961) (1,183) (15,543,433) (54,948,786)
INTERFUND TRANSFERS, net 2,390,407 547,925 (2,938,332) - -
-------------- -------------- -------------- -------------- --------------
Net increase 146,318,374 8,121,840 7,894,787 295,695 162,630,696
-------------- -------------- -------------- -------------- --------------
NET ASSETS AVAILABLE FOR
BENEFITS, December 31, 2002 515,983,453 59,639,813 73,392,348 (19,547,504) 629,468,110
-------------- -------------- -------------- -------------- --------------
NET ASSETS AVAILABLE FOR
BENEFITS, December 31, 2003 $ 662,301,827 $ 67,761,653 $ 81,287,135 $ (19,251,809) $ 792,098,806
============== ============== ============== ============== ==============
See accompanying notes to financial statements.
CNF INC. THRIFT AND STOCK PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 2002
Participant
Directed Non-Participant Directed
-------------- --------------------------------------------
Restricted
CNF CNF Preferred CNF Preferred
Common Stock Stock Fund- Stock Fund-
Fund Allocated Unallocated Total
-------------- -------------- -------------- --------------
ADDITIONS:
Participant contributions $ 60,069,481 $ - $ - $ - $ 60,069,481
CNF contributions - 9,248,496 - 6,650,661 15,899,157
Rollover contributions 3,063,891 - - - 3,063,891
Allocation of preferred shares
to TASP participants, at
cost - - 7,574,624 - 7,574,624
Dividend and interest income 5,001,119 656,079 - 10,333,639 15,990,837
Net depreciation in fair
value of investments
(Note 4) (84,996,894) (813,583) (584,404) (6,879,949) (93,274,830)
-------------- -------------- -------------- -------------- --------------
Total additions (16,862,403) 9,090,992 6,990,220 10,104,351 9,323,160
DEDUCTIONS:
Distributions to participants (33,861,648) (5,137,057) - - (38,998,705)
Transfers to other plans (338,453) (19,997) (37,108) - (395,558)
Allocation of preferred shares
to TASP participants, at
cost - - - (7,574,624) (7,574,624)
Allocation of preferred shares
to CNF EWW Savings Plan
participants, at cost - - - (103,182) (103,182)
Interest expense - - - (8,284,300) (8,284,300)
-------------- -------------- -------------- -------------- --------------
Total deductions (34,200,101) (5,157,054) (37,108) (15,962,106) (55,356,369)
INTERFUND TRANSFERS, net 891,260 1,901,391 (2,792,651) - -
-------------- -------------- -------------- -------------- --------------
Net increase (decrease) (50,171,244) 5,835,329 4,160,461 (5,857,755) (46,033,209)
-------------- -------------- -------------- -------------- --------------
NET ASSETS AVAILABLE FOR
BENEFITS, December 31, 2001 566,154,697 53,804,484 69,231,887 (13,689,749) 675,501,319
-------------- -------------- -------------- -------------- --------------
NET ASSETS AVAILABLE FOR
BENEFITS, December 31, 2002 $ 515,983,453 $ 59,639,813 $ 73,392,348 $ (19,547,504) $ 629,468,110
============== ============== ============== ============== ==============
See accompanying notes to financial statements.
CNF INC. THRIFT AND STOCK PLAN
NOTES TO FINANCIAL STATEMENTS
1. Description of Plan
The following description of the CNF Inc. Thrift and Stock Plan
("the Plan" or "TASP") is provided for general information purposes
only. Participants should refer to the Employee Benefits Handbook for
more complete information.
General: The Plan, which is sponsored by CNF Inc. ("CNF"), consists
of a profit-sharing portion and a stock bonus portion that provides
eligible employees the opportunity to save for their retirement and to
increase their ownership in CNF by accumulating CNF stock. The plan
also provides medical benefits for retired participants, effective
January 1, 2002, as discussed below.
The Plan is intended to qualify as a profit sharing plan under
Section 401(a) of the Internal Revenue Code ("the Code"), with a
salary-deferral feature qualified under Section 401(k) of the Code and
is subject to the provisions of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"). The Plan also operates,
in relevant part, as a leveraged employee stock ownership plan
("ESOP"), and is designed to comply with Section 4975(e)(7) of the
Code. Overall responsibility for administering the Plan rests with
the CNF Inc. Benefits Administrative Committee ("the Committee"),
which is appointed by the Chief Executive Officer of CNF. The
Committee reports directly to the Finance Committee of CNF's Board of
Directors. The Plan's trustee, T. Rowe Price ("the Trustee"), is
responsible for the management and control of the Plan's assets, which
are held in individual investment accounts, collectively known as "the
Trust."
Amendments: During 2000, CNF amended the Plan and the Menlo
Worldwide Forwarding Inc. Savings Plan ("MWF Savings Plan"), formerly
the CNF Inc. EWW Savings Plan. Effective September 19, 2000, the
pilots of Emery Worldwide Airlines ceased participation in the Plan
and their elective deferrals began being contributed to the MWF
Savings Plan. Transfer of the pilots' vested balance in the Plan was
transferred to the MWF Savings Plan effective December 20, 2000. The
transferred MWF Savings Plan participant accounts will continue to be
allocated additional shares of CNF's Series B Cumulative Convertible
Preferred Stock ("Preferred Stock") as a substitute for Preferred
Stock cash dividends used for debt service, as described below.
In 2002, the Plan was amended to reflect certain provisions of the
Economic Growth and Tax Relief and Reconciliation Act of 2001
("EGTRRA"), and to reflect compliance with final regulations under
Code section 401(a)(9) by adoption of the Internal Revenue Service
("IRS") model amendment pursuant to Rev. Proc. 2002-29. The changes
made in this amendment were generally effective January 1, 2002,
except for the changes made with respect to Code section 401(a)(9),
which were effective January 1, 2003.
In 2002, CNF designated a portion of the ESOP feature of the Plan to
be a money purchase pension plan and added medical benefits for
retired participants, as described in Note 3, "Retiree Health Savings
Account" and Note 8, "Reconciliation to Form 5500."
Effective January 1, 2003, the Plan was amended and restated to
permit in-service withdrawals for financial hardship in accordance
with four "safe harbor" reasons (medical expenses, college tuition,
purchase of primary residence, or to prevent eviction). Participants
who are receiving benefits under a CNF-sponsored long-term disability
plan are eligible for in-service withdrawals from the Plan.
Previously, such withdrawals were only available if the participant
qualified for Social Security disability benefits.
Eligibility: An employee is eligible to participate in the Plan if
the employee is not covered by a collective bargaining agreement, is
not a leased employee or is not a nonresident alien. There are no age
or service requirements for eligibility except that a supplemental
employee must complete one year of service during which the employee
works 1,000 hours.
Contributions: Participants may contribute up to 50% of their
compensation, as defined by the Plan and subject to certain
limitations. CNF makes matching contributions equal to 50% of
participants' contributions, but not exceeding 1.5% of their
compensation, as defined. CNF contributions are in the form of
allocations of Preferred Stock and CNF Inc. Common Stock ("Common
Stock") or in the form of cash.
Contributions to the Plan consisted of the following:
Years ended December 31,
--------------------------
2003 2002
----------- -----------
Matching Contributions:
Preferred Stock
CNF match of Preferred Stock $3,214,643 $3,477,056
Forfeited Preferred Stock 74,000 63,913
Common Stock
CNF match of Common Stock 10,162,067 9,248,496
Forfeited Common Stock 305,032 51,100
----------- -----------
$13,755,742 $12,840,565
=========== ===========
Cash dividends on CNF preferred stock are used for debt service on
the notes payable (see Note 5). Participants are allocated additional
CNF preferred stock as a substitute for the cash dividends used for
debt service. For the years ended December 31, 2003 and 2002, annual
interest requirements were less than annual CNF preferred stock cash
dividends received by the Plan.
As reported in the Statements of Changes in Net Assets Available
for Plan Benefits, preferred shares were allocated to TASP and MWF
Savings Plan participants at a historical cost of $7,784,917 and
$80,216 for the year ended December 31, 2003, respectively, and at a
historical cost of $7,574,624 and $103,182 for the year ended December
31, 2002, respectively. The total allocation to the TASP and MWF
Savings Plan participants consisted of the following:
Years ended December 31,
------------------------
2003 2002
---------- ----------
CNF's match of preferred stock $3,214,643 $3,477,056
Additional preferred stock allocated
to participants as a substitute
for cash dividends used for debt
service 4,650,490 4,200,750
---------- ----------
Total allocation to participants $7,865,133 $7,677,806
========== ==========
In addition to its match of Preferred and Common Stock, CNF made
contributions to the Plan for repayment of the notes payable described
in Note 5. Principal payments consisted of the following:
Years ended December 31,
------------------------
2003 2002
----------- ----------
Cash contributions $7,706,100 $6,650,661
CNF preferred stock cash dividends
in excess of interest on the notes
payable 2,393,900 2,049,339
----------- ----------
Total principal payments $10,100,000 $8,700,000
=========== ==========
Participant Accounts: The Plan allows participants to select any one
or more of the twelve investment funds established under the Plan in
which contributions can be invested. CNF's matching contributions
cannot be directed by the participant and are deposited into the
Preferred Stock Fund - Allocated and Restricted CNF Common Stock Fund.
Upon reaching age 55 and having completed at least 10 years of
participation in the Plan, participants may elect once each year to
transfer up to 100% of their assets from the Restricted CNF Common
Stock Fund and Preferred Stock Fund - Allocated to investment options
other than CNF equity.
Allocations of CNF's matching contributions are based upon a
percentage of participant contributions, as described above.
Allocations of net Plan earnings are based upon participant account
balances, as defined. The benefits to which participants are entitled
are the benefits that can be provided from participants' vested
accounts.
Vesting: Participants' contributions plus earnings thereon are
immediately vested. CNF's matching contributions are fully vested
after two years of service with CNF. If the employee is terminated
prior to two years of service with CNF, the matching contributions are
forfeited. Forfeited shares of common and preferred stock are used to
reduce future CNF contributions.
Participant Loans: The Plan has a loan provision allowing
participants access to funds on a tax-free basis. Loans can be no
less than $1,000 and cannot exceed the lesser of $50,000 or 50% of a
participant's vested account balance (subject to administrative
adjustment to assure compliance with the 50% limit). Loans can be
made for a term not to exceed 4-1/2 years and bear interest at a rate
determined by the loan committee (prime rate plus 1% for 2003). Loans
outstanding at December 31, 2003 bear interest at rates ranging from
5.00% to 10.50%. Principal and interest are paid ratably through
payroll deductions.
Payments and Benefits: Participants can receive a total distribution
from their accounts upon death or termination of employment. Disabled
participants can receive a distribution of their accounts upon
determination of disability, provided they qualify for benefits under
CNF's long-term disability coverage. Other types of withdrawals are
permitted by the Plan in limited situations. Participants can elect
to have their accounts distributed in a single lump sum or in a series
of substantially equal annual installments, as defined by the Plan.
Distributions will be made in cash except that (1) participant
accounts invested in Common Stock can, at the direction of the
participant, be paid in shares and (2) participant allocations of
Preferred Stock will be converted into shares of Common Stock and can,
at the direction of the participant, be paid in shares or in cash.
Plan Termination: Although CNF has no intention of terminating the
Plan, it may do so at any time by resolution of the Board of
Directors. In the event that the Plan is terminated, the net assets
of the Plan shall be distributed to participants in the amount
credited to their accounts.
2. Summary of Significant Accounting Policies
Basis of Accounting: The accompanying financial statements have been
prepared using the accrual method of accounting.
Financial Instruments: The investments in the accompanying financial
statements are stated at quoted market prices, which approximate fair
value as of December 31, 2003 and 2002, except for (1) participant
loans outstanding that are valued at cost, which approximates fair
value and (2) CNF preferred stock, which does not have a quoted market
value and is stated at fair value, as determined by an annual
independent appraisal.
The notes payable of $101,700,000 and $111,800,000 at December 31,
2003 and 2002, respectively, in the accompanying financial statements
are stated at their carrying value. The fair value of the notes
payable as of December 31, 2003 and 2002 was approximately
$110,000,000 and $118,000,000, respectively. Fair value was estimated
based on the expected future payments discounted at market rates.
Investments: The Plan invests in various investments. Investment
securities are generally exposed to various risks, such as interest
rate, credit and overall market volatility risks. Due to the level of
risk associated with certain investment securities, it is reasonably
possible that changes in the value of investment securities will occur
in the near term and that such changes could materially affect amounts
reported in the Statements of Net Assets Available for Benefits.
Income Recognition: The difference in market value from one period
to the next is included in net appreciation (depreciation) in fair
value of investments in the accompanying Statements of Changes in Net
Assets Available for Benefits. The net appreciation (depreciation) in
fair value of investments also includes realized gains and losses.
Interest income is recorded on the accrual basis. Dividends are
recorded on the ex-dividend date. Purchases and sales of securities
are recorded on the trade-date basis.
The Plan is charged a wrap fee for each investment transaction
recorded in the Trust. Accordingly, these costs result in an overall
reduction in the investment returns recorded by each underlying asset.
Operating Expenses: During 2003, all administrative expenses of the
Plan were paid by CNF.
Payment of Benefits: Benefits paid to participants are recorded upon
distribution.
Reclassifications: Certain prior-year amounts have been reclassified
to conform with the current-year presentation.
Estimates: CNF makes estimates and assumptions when preparing the
financial statements in conformity with U.S. generally accepted
accounting principles. These estimates and assumptions affect the
amounts reported in the accompanying financial statements and notes.
Actual results could differ from those estimates.
3. Retiree Health Savings Account
Effective January 1, 2002, the Plan was amended to include a medical-
benefit component to fund a portion of the postretirement obligations
for retirees and their beneficiaries in accordance with Section 401(h)
of the Code. A separate account has been established and maintained
in the Plan for the net assets related to the medical-benefit
component (the "401(h) account"). In accordance with Code Section
401(h), the Plan's investments in the 401(h) account may not be used
for, or diverted to, any other purpose other than providing health
benefits for retirees and their beneficiaries. Plan participants do
not contribute to the 401(h) account. Employer contributions to the
401(h) account are determined annually at the discretion of CNF and
are subject to certain limitations as defined by the Code.
Upon reaching age 45, completing five or more years of service and
completing 1000 or more paid hours of service in the Plan year, each
non-contractual employee is eligible for a retiree medical allocation
with respect to that Plan year. Retiree medical allocations for each
401(h) Plan participant are equal, except participants retiring in the
current plan year, for whom the allocation will be a pro-rata portion
of the amount allocated to other participants based on the number of
quarters employed in the year of retirement. Benefits to individual
participants are limited to the total accumulated retiree medical
allocation, plus interest credited at an annual rate equal to the five-
year Treasury Constant Maturity rate as published by the Federal
Reserve Board. In order to access their benefit balance during
retirement, a participant must be at least age 55 with at least 10
years of service at retirement, or be at least age 65 at retirement.
Any remaining unclaimed benefit will be forfeited to the Plan upon a
participant's death or termination of employment prior to retirement
eligibility.
4. Investments
The following presents investments that represent 5 percent or more
of the Plan's net assets as of December 31, 2003 or 2002.
December 31,
2003 2002
------------ ------------
Participant Directed Investments:
Shares in Registered Investment
Companies:
T. Rowe Price Growth Stock Fund,
5,182,578 and 4,960,814 shares,
respectively $126,092,132 $ 92,171,921
T. Rowe Price Equity Income Fund,
3,972,435 and 3,777,698 shares,
respectively 95,974,020 74,760,642
T. Rowe Price Science and Technology
Fund, 5,039,668 and 4,457,776 shares,
respectively 94,745,756 55,410,154
PIMCO Total Return Fund, 3,424,254
and 3,195,715 shares, respectively 36,673,757 34,098,275
Common Trust Funds:
T. Rowe Price U.S. Treasury Money Market
Trust, 82,328,781 and 79,118,495 shares,
respectively 82,328,781 79,118,495
Participant Loans 48,465,757 44,596,428
Unrestricted CNF Common Stock, 1,163,283
and 1,100,802 shares, respectively 39,435,308 36,590,663
Non-Participant Directed Investments:
Restricted CNF Common Stock, 1,921,267
and 1,712,307 shares, respectively 65,130,965 56,917,091
CNF Preferred Stock - Allocated, 361,751
and 330,029 shares, respectively 78,138,264 70,296,253
CNF Preferred Stock - Unallocated,
396,283 and 447,646 shares,
respectively 85,597,062 95,348,592
The Plan's investments (including gains and losses on investments
bought and sold, as well as held during the year) appreciated
(depreciated) in value as follows:
Years ended December 31,
----------------------------
2003 2002
------------ -------------
Shares in registered investment companies $ 92,595,837 $(76,500,982)
Common trust funds 14,280,956 (8,318,879)
CNF Common Stock 3,429,352 (990,616)
CNF Preferred Stock 1,110,213 (7,464,353)
------------ -------------
$111,416,358 $(93,274,830)
============ =============
In May 1989, the Plan purchased 986,259 shares of CNF preferred
stock for $150,009,863 using proceeds from the issuance of the notes
described in Note 5. The CNF preferred stock can only be issued to
the Plan Trustee. The shares are held by the Trustee and allocated to
participant accounts. Upon allocation, the shares are first used to
pay the CNF preferred stock cash dividend on shares previously
allocated to the participants with the remainder used to satisfy a
portion of CNF's matching contribution requirement. In connection
with a participant's termination from the Plan, the CNF preferred
stock is automatically converted into Common Stock at a rate generally
equal to that number of shares of Common Stock that could be purchased
for $152.10, but not less than the minimum conversion rate of 4.708
shares of Common Stock for each share of CNF preferred stock.
At December 31, 2003, outstanding CNF preferred stock of 763,674
shares consisted of 388,095 allocated shares and 375,579 unallocated
shares. Allocated shares at December 31, 2003 included 382,454 shares
allocated to TASP participant accounts and 5,641 shares allocated to
MWF Savings Plan participant accounts. At December 31, 2002,
outstanding CNF preferred stock of 784,007 shares consisted of 356,718
allocated shares and 427,289 unallocated shares. Allocated shares at
December 31, 2002 included 350,385 shares allocated to TASP
participant accounts and 6,333 shares allocated to MWF Savings Plan
participant accounts. Unallocated shares at December 31, 2003 and
2002 were pledged as collateral against the Plan Notes, as described
below. CNF preferred stock of 20,703 and 20,356 shares were allocated
to participant accounts after December 31, 2003 and 2002,
respectively, but related to participant activity for the years ended
December 31, 2003 and 2002, respectively. Accordingly, this CNF
preferred stock is accrued as Due from (Due to) the Preferred Stock
Fund - Unallocated (Preferred Stock Fund - Allocated) to reflect the
accrued allocation between funds. CNF preferred stock is allocated at
historical cost.
5. Notes Payable
On July 18, 1989, the Plan completed the sale of $150,000,000 in
aggregate principal amount of notes ("the Plan Notes") to a group of
institutional investors. The proceeds from the sale of the original
Plan Notes were used to repay the $150,000,000 bridge loan from CNF to
the Plan. The bridge loan had earlier been made to finance the
purchase of the CNF preferred stock.
CNF guarantees the notes issued by CNF's TASP. As of December 31,
2003, there was $39,700,000 aggregate principal amount of Series A
TASP notes outstanding, bearing interest at an annual rate of 6.00%
and maturing on January 1, 2006, and $62,000,000 aggregate principal
amount of Series B TASP notes outstanding, bearing interest at an
annual rate of 8.54% and maturing on January 1, 2009. The Series A
notes contain financial covenants that require CNF to maintain minimum
amounts of net worth and fixed-charge coverage. In August 2003, the
Series A notes were amended to exclude any effect of goodwill
impairment charges and minimum pension liability adjustments on the
requirement for specified levels of consolidated net worth and fixed-
charge coverage. Holders of the Series B notes issued by CNF's TASP
have the right to require CNF to repurchase those notes if, among
other things, both Moody's and Standard & Poor's have publicly rated
CNF's long-term senior debt at less than investment grade unless,
within 45 days, CNF shall have obtained, through a guarantee, letter
of credit or other permitted credit enhancement or otherwise, a credit
rating for such notes of at least "A" from Moody's or Standard &
Poor's (or another nationally recognized rating agency selected by the
holders of such notes) and shall maintain a rating on such notes of
"A" or better thereafter. As a result, any further decrease in CNF's
long-term senior debt ratings by both of these credit rating agencies
would give the holders of TASP notes the right to require CNF to
repurchase those notes unless CNF was able to obtain appropriate
credit enhancement as described above, and there can be no assurance
that CNF would be able to do so.
The interest expense on all Plan Notes is payable semiannually on
January 1 and July 1 and is subject to adjustment in certain
circumstances including some changes in applicable tax laws. For the
years ended December 31, 2003 and 2002, principal payments were
$10,100,000 and $8,700,000, respectively.
Future maturities of the notes payable to be paid from preferred
cash dividends and/or additional cash contributions from CNF are as
follows:
Series A Series B Total
----------- ---------- -----------
2004 $12,000,000 $ - $ 12,000,000
2005 12,700,000 - 12,700,000
2006 15,000,000 - 15,000,000
2007 - 18,600,000 18,600,000
2008 - 20,700,000 20,700,000
Thereafter - 22,700,000 22,700,000
----------- ----------- ------------
$39,700,000 $62,000,000 $101,700,000
=========== =========== ============
6. Income Tax Status
The Internal Revenue Service has determined and informed CNF by a
letter dated August 20, 2003 that the Plan and related trust are
designed in accordance with applicable sections of the Code. The Plan
has been amended since receiving the determination letter. However,
the Plan administrator believes that the Plan is designed and is
currently being operated in compliance with the applicable
requirements of the Code. Therefore, the Plan administrator believes
that the Plan was qualified and the related trust was tax exempt as of
the financial statement date.
7. Related Party Transactions
Certain Plan investments are shares in registered investment
companies and common trust funds managed by T. Rowe Price. T. Rowe
Price is the trustee as defined by the Plan and, therefore, these
investments and investment transactions qualify as party-in-interest
transactions.
8. Reconciliation to Form 5500
The following is a reconciliation of net assets available for plan
benefits.
December 31,
2003 2002
------------ ------------
Net assets available for benefits -
financial statements $792,098,806 $629,468,110
Net assets held in 401(h) account included
as assets in Form 5500:
Employer contribution receivable 4,600,000 4,212,988
Shares in registered investment companies 4,328,344 -
------------ ------------
Net assets available for benefits - Form 5500 $801,027,150 $633,681,098
============ ============
The assets in the 401(h) account included in Form 5500 are not
available to pay 401(k) benefits but can be used only to pay retiree
health benefits.
The following are reconciliations of the changes in net assets
available for plan benefits:
Retiree
Health
Savings
Account
Financial (401(h)
Statements Account) Form 5500
------------ ----------- ------------
For the year ended
December31, 2003:
Net appreciation
(depreciation) in fair
value of investments $111,416,358 $ (43,158) $111,373,200
Dividend and interest
income 14,880,662 177,697 15,058,359
CNF Contributions 17,868,167 4,600,000 22,468,167
Distributions to
participants (39,401,001) (19,183) (39,420,184)
For the year ended
December 31, 2002:
Net depreciation in fair
value of investments $(93,274,830) $ - $(93,274,830)
Dividend and interest
income 15,990,837 - 15,990,837
CNF Contributions 15,899,157 4,212,988 20,112,145
Distributions to
participants (38,998,705) - (38,998,705)
9. Subsequent Event
Effective January 1, 2004, the Plan was amended to permit employees
whose company match is vested (after two years of service, as
described in Note 1, "Description of Plan--Vesting") to elect to
receive dividend payments on their CNF Common Stock in the form of a
taxable cash payment. Previously, all dividends on CNF Common Stock
were reinvested in the plan.
SCHEDULE I
CNF INC.
THRIFT AND STOCK PLAN
EIN 94-1444798
PLAN NO. 003
SCHEDULE H, LINE 4i - SCHEDULE OF ASSETS (HELD AT END OF YEAR)
AS OF DECEMBER 31, 2003
Description of Investment
Including
Identity of Issue Maturity Date, Rate of
Borrower, Lessor Interest,
Similar Collateral, Par or Current
Party Maturity Value Cost Value
---------------- ------------------------------ ------------ ------------
Shares in registered
investment companies:
*T. Rowe Price Growth Stock Fund
(5,182,578.378 shares) $132,752,756 $126,092,132
*T. Rowe Price Equity Income Fund
(3,972,434.617 shares) 88,649,662 95,974,020
*T. Rowe Price Science and Technology Fund
(5,039,667.855 shares) 136,629,044 94,745,756
*T. Rowe Price International Stock Fund
(1,934,096.439 shares) 24,052,029 22,222,768
*T. Rowe Price Small-Cap Stock Fund
(680,416.165 shares) 16,317,495 19,038,044
PIMCO PIMCO Total Return Fund
(3,424,253.719 shares) 36,579,707 36,673,757
Undiscovered Undiscovered Managers Small
Managers LLC Cap Growth Fund
(663,239.720 shares) 5,540,522 6,924,223
Common Trust Funds:
*T. Rowe Price Equity Index Trust
(1,010,908.692 shares) 29,365,255 31,206,751
*T. Rowe Price Bond Index Trust
(644,941.658 shares) 11,979,656 13,595,370
*T. Rowe Price U.S. Treasury Money Market
Trust (82,328,781.300
shares) 82,328,781 82,328,781
*T. Rowe Price Retirement Strategy
Trust-Balanced
(1,926,935.617 shares) 37,468,463 43,914,863
*Plan Participants Participant loans with
interest from 5.00% to
10.50% and maturity dates
from 2004 to 2008 - 48,465,757
Common Stock:
*CNF Inc. Unrestricted CNF Common Stock
(1,163,283.423 shares) 33,802,912 39,435,308
*CNF Inc. Restricted CNF Common Stock
(1,921,267.363 shares) 54,916,571 65,130,965
Preferred Stock:
*CNF Inc. CNF Preferred Stock -
Allocated (361,751.219 54,995,931 78,138,264
shares)
*CNF Inc. CNF Preferred Stock -
Unallocated (396,282.697 60,274,598 85,597,062
shares) ------------
$889,483,821
PIMCO Investments held in 401(h)
account:
PIMCO Total Return Fund
(404,140.475 shares) 4,371,625 4,328,344
------------
$893,812,165
============
*Represents a party-in-interest as of December 31, 2003.
NOTE: Cost is calculated using the moving average method.
See accompanying report of independent registered public accounting firm.