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, 2004
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 27, 2005 /s/ Mark C. Thickpenny
----------------------------
Mark C. Thickpenny
Chairman, CNF Inc. Benefits
Administrative Committee
CNF INC. THRIFT AND STOCK PLAN
Financial Statements and Schedule
December 31, 2004 and 2003
(With Report of Independent Registered Public Accounting Firm Thereon)
CNF INC. THRIFT AND STOCK PLAN
Index to Financial Statements and Schedule
Page
Report of Independent Registered Public Accounting Firm 1
Financial Statements:
Statement of Net Assets Available for Benefits as of
December 31, 2004 3
Statement of Net Assets Available for Benefits as of
December 31, 2003 4
Statement of Changes in Net Assets Available for Benefits
for the Year Ended December 31, 2004 5
Statement of Changes in Net Assets Available for Benefits
for the Year Ended December 31, 2003 6
Notes to Financial Statements 7
Supplemental Schedule:
Schedule I: Schedule H, Line 4i - Schedule of Assets
(Held at End of Year) as of December 31, 2004 16
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, 2004 and
2003, 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's management. 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, 2004 and 2003, and the changes in its net assets available
for benefits for the years then ended 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 17, 2005
CNF INC. THRIFT AND STOCK PLAN
Statement of Net Assets Available for Benefits
December 31, 2004
Participant-
Directed Nonparticipant-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 $ 462,279,394 $ - $ - $ - $ - $ 462,279,394
Common trust funds 185,924,705 - - - - 185,924,705
Participant loans 54,838,141 - - - - 54,838,141
CNF equity 58,945,926 100,784,667 100,874,660 87,238,011 - 347,843,264
-------------- -------------- -------------- -------------- -------------- ---------------
Total investments 761,988,166 100,784,667 100,874,660 87,238,011 - 1,050,885,504
-------------- -------------- -------------- -------------- -------------- ---------------
Net assets held in 401(h)
account (Notes 3 and 8) - - - - 13,712,186 13,712,186
Contributions receivable:
Participants 1,063,577 - - - - 1,063,577
CNF 179,627 2,624,673 - - - 2,804,300
-------------- -------------- -------------- -------------- -------------- ---------------
Total contributions
receivable 1,243,204 2,624,673 - - - 3,867,877
-------------- -------------- -------------- -------------- -------------- ---------------
Due from CNF Preferred
Stock Fund - Unallocated - - 3,452,522 - - 3,452,522
Dividend receivable - - - 4,860,705 - 4,860,705
Cash 19,604 - - - - 19,604
-------------- -------------- -------------- -------------- -------------- ---------------
Total assets 763,250,974 103,409,340 104,327,182 92,098,716 13,712,186 1,076,798,398
-------------- -------------- -------------- -------------- -------------- ---------------
Liabilities:
Notes payable (Note 5) - - - (89,700,000) - (89,700,000)
Accrued interest payable - - - (3,479,150) - (3,479,150)
Due to CNF (Note 1) - - - (1,381,555) - (1,381,555)
Due to CNF Preferred Stock - - - (3,452,522) - (3,452,522)
Fund - Allocated
Amounts related to
obligation of 401(h)
account (Notes 3 and 8) - - - - (13,712,186) (13,712,186)
-------------- -------------- -------------- -------------- -------------- ---------------
Total liabilities - - - (98,013,227) (13,712,186) (111,725,413)
-------------- -------------- -------------- -------------- -------------- ---------------
Net assets available for
benefits $ 763,250,974 $ 103,409,340 $ 104,327,182 $ (5,914,511) $ - $ 965,072,985
============== ============== ============== ============== ============== ===============
See accompanying notes to financial statements.
CNF INC. THRIFT AND STOCK PLAN
Statement of Net Assets Available for Benefits
December 31, 2003
Participant-
Directed Nonparticipant-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 Changes in Net Assets Available for Benefits
Year ended December 31, 2004
Participant-
Directed Nonparticipant-Directed
-------------- --------------------------------------------
Restricted
CNF CNF Preferred CNF Preferred
Common Stock Stock Fund- Stock Fund-
Fund Allocated Unallocated Total
-------------- -------------- -------------- --------------
Additions:
Participant contributions $ 67,234,135 $ - $ - $ - $ 67,234,135
CNF contributions (Note 1) 792,715 9,781,873 - 9,160,443 19,735,031
Rollover contributions 4,195,538 - - - 4,195,538
Allocation of preferred shares
to TASP participants, at
cost - - 8,437,726 - 8,437,726
Dividend and interest income 4,087,407 789,331 - 9,797,859 14,674,597
Net appreciation in fair
value of Investments
(Note 4) 66,841,309 31,369,712 18,181,852 9,847,291 126,240,164
-------------- -------------- -------------- -------------- --------------
Total additions 143,151,104 41,940,916 26,619,578 28,805,593 240,517,191
-------------- -------------- -------------- -------------- --------------
Deductions:
Distributions to participants (45,149,447) (6,855,322) - - (52,004,769)
Transfers to other plans (46,453) (7,496) (15,999) - (69,948)
Allocation of preferred shares
to TASP participants, at
cost - - - (8,437,726) (8,437,726)
Allocation of preferred shares
to Menlo Worldwide
Forwarding Inc. Savings Plan
participants, at cost - - - (72,269) (72,269)
Interest expense - - - (6,958,300) (6,958,300)
-------------- -------------- -------------- -------------- --------------
Total deductions (45,195,900) (6,862,818) (15,999) (15,468,295) (67,543,012)
-------------- -------------- -------------- -------------- --------------
Interfund transfers, net 2,993,943 569,589 (3,563,532) - -
-------------- -------------- -------------- -------------- --------------
Net increase 100,949,147 35,647,687 23,040,047 13,337,298 172,974,179
Net assets available for
benefits, December 31, 2003 662,301,827 67,761,653 81,287,135 (19,251,809) 792,098,806
-------------- -------------- -------------- -------------- --------------
Net assets available for
benefits, December 31, 2004 $ 763,250,974 $ 103,409,340 $ 104,327,182 $ (5,914,511) $ 965,072,985
============== ============== ============== ============== ==============
See accompanying notes to financial statements.
CNF INC. THRIFT AND STOCK PLAN
Statement of Changes in Net Assets Available for Benefits
Year ended December 31, 2003
Participant-
Directed Nonparticipant-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
Notes to Financial Statement
(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.
(a) 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 by accumulating
CNF stock. The plan also provides medical benefits for retired
participants, as described in note 3.
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 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 participant investment
accounts, collectively known as "the Trust."
(b) 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. 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, 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.
Effective January 1, 2004, upon reaching age 55 and having completed
at least 10 years of participation in the Plan, participants receive
common stock matching contributions in the Unrestricted CNF Common
Stock Fund, as discussed below.
In December 2004, CNF completed the sale of Menlo Worldwide
Forwarding, Inc. and its subsidiaries and Menlo Worldwide Expedite!,
Inc. (collectively referred to as MWF) to United Parcel Service, Inc.
(UPS). The active employees of MWF ceased participation in the
Plan as of the sale date and were permitted to transfer their
Plan account balances to a UPS-sponsored defined contribution plan.
In February and March 2005, transfers were made from the TASP to the
UPS defined contribution plan totaling approximately $56,500,000 in
rollover assets and $3,800,000 in outstanding loans.
(c) 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.
(d) 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 generally not exceeding 1.5% of their compensation, as defined in
the Plan document. CNF matching contributions are in the form of
allocations of Preferred Stock and open-market purchases of CNF Inc.
Common Stock (Common Stock) from cash contributions by CNF.
Matching Contributions to the Plan consisted of the following:
Years ended December 31
------------------------------
2004 2003
-------------- --------------
Matching contributions:
Preferred stock:
CNF match of preferred stock $ 3,448,310 $ 3,214,643
Forfeited preferred stock 89,956 74,000
Common stock:
CNF match of unrestricted common
stock 792,715 -
CNF match of restricted common
stock 9,781,873 10,162,067
Forfeited restricted common stock 330,000 305,032
-------------- --------------
$ 14,442,854 $ 13,755,742
============== ==============
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, 2004 and 2003, 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 $8,437,726 and $72,269 for
the year ended December 31, 2004, respectively, and at a historical
cost of $7,784,917 and $80,216 for the year ended December 31, 2003,
respectively. The total allocation to the TASP and MWF Savings Plan
participants consisted of the following:
Years ended December 31
------------------------------
2004 2003
-------------- --------------
CNF's match of preferred stock $ 3,448,310 $ 3,214,643
Additional preferred stock allocated
to participants as a substitute
for cash dividends used for
debt service 5,061,685 4,650,490
-------------- --------------
Total allocations to participants $ 8,509,995 $ 7,865,133
============== ==============
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
------------------------------
2004 2003
-------------- --------------
Cash contributions $ 9,160,443 $ 7,706,100
CNF preferred stock cash dividends
in excess of interest on the
notes payable 2,839,557 2,393,900
-------------- --------------
Total principal payments $ 12,000,000 $ 10,100,000
============== ==============
(e) Participant Accounts
The Plan allows participants to select any one or more of the 21
investment funds established under the Plan in which contributions can
be invested. CNF's matching contributions are deposited into the
Preferred Stock Fund - Allocated and the Restricted or Unrestricted
CNF Common Stock Fund. Upon a participant reaching age 55 and having
completed at least 10 years of participation in the Plan, balances in
the Restricted CNF Common Stock Fund are transferred to the
Unrestricted CNF Common Stock Fund and any future common stock
matching contributions are deposited into the Unrestricted CNF Common
Stock Fund. Participants meeting the eligibility requirements may
elect once each year to transfer up to 100% of their assets from the
Preferred Stock Fund - Allocated to the Unrestricted CNF Common Stock
Fund based on the conversion formula described in note 4, Investments.
Balances in the Unrestricted CNF Common Stock Fund can be transferred
to investments 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.
(f) Vesting
Participants' contributions plus earnings thereon vest immediately.
CNF's matching contributions generally vest 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. At December 31, 2004, forfeitures totaling $128,000
were available to reduce future contributions.
(g) 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 2004). Loans outstanding at December 31, 2004 bear
interest at rates ranging from 5.00% to 10.50%. Principal and interest
are paid ratably through payroll deductions.
(h) Payments and Benefits
Participants can receive a total distribution from their accounts upon
death or termination of employment. Disabled participants can receive
a partial distribution of their accounts, excluding matching
contributions received after January 1, 2002, 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, then be paid in common shares or
in cash.
(i) Plan Termination
Although CNF has no current 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
(a) Basis of Accounting
The accompanying financial statements have been prepared using the
accrual method of accounting.
(b) Financial Instruments
The investments in the accompanying financial statements are stated at
quoted market prices, which approximate fair value as of December 31,
2004 and 2003, 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 $89,700,000 and $101,700,000 at December 31, 2004
and 2003, respectively, in the accompanying financial statements are
stated at their carrying value. The fair value of the notes payable as
of December 31, 2004 and 2003 was approximately $101,000,000 and
$110,000,000, respectively. Fair value was estimated based on the
expected future payments discounted at market rates.
(c) Investments
The Plan offers 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.
(d) 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.
(e) Operating Expenses
During 2004 and 2003, all administrative expenses of the Plan were
paid by CNF.
(f) Payment of Benefits
Benefits paid to participants are recorded upon distribution.
(g) 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
noncontractual 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% or more of the
Plan's net assets as of December 31, 2004 or 2003.
2004 2003
------------- -------------
Participant-directed investments:
Shares in registered investment
companies:
T. Rowe Price Growth Stock Fund,
5,161,418 and 5,182,578 shares,
respectively $ 137,655,027 $ 126,092,132
T. Rowe Price Equity Income Fund,
4,188,428 and 3,972,435 shares,
respectively 111,370,306 95,974,020
T. Rowe Price Science and Technology
Fund, 4,874,452 and 5,039,668 shares,
respectively 93,102,041 94,745,756
Common trust funds:
T. Rowe Price U.S. Treasury Money
Market Trust, 86,891,263 and
82,328,781 shares, respectively 86,891,263 82,328,781
T. Rowe Price Retirement Strategy
Trust-Balanced 1,995,902 and
1,926,936 shares, respectively 49,458,452 43,914,863
Participant loans 54,838,141 48,465,757
Unrestricted CNF Common stock, 1,176,565 and
1,163,283 shares, respectively 58,945,926 39,435,308
Nonparticipant-directed investments:
Restricted CNF Common stock, 2,011,670
and 1,921,267 shares, respectively 100,784,667 65,130,965
CNF Preferred stock - allocated, 395,587
and 361,751 shares, respectively 100,874,660 78,138,264
CNF Preferred stock - unallocated,
342,110 and 396,283 shares, respectively 87,238,011 85,597,062
The Plan's investments (including gains and losses on investments bought
and sold, as well as held during the year) appreciated in value as
follows:
Years ended December 31
------------------------------
2004 2003
-------------- --------------
Shares in registered investment companies $ 38,866,209 $ 92,595,837
Common trust funds 7,925,263 14,280,956
CNF Common stock 51,419,549 3,429,352
CNF Preferred stock 28,029,143 1,110,213
-------------- --------------
$ 126,240,164 $ 111,416,358
============== ==============
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 and held by 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
account distribution, 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, 2004, outstanding CNF preferred stock of 742,995 shares
consisted of 423,586 allocated shares and 319,409 unallocated shares.
Allocated shares at December 31, 2004 included 418,286 shares allocated
to TASP participant accounts and 5,300 shares allocated to MWF Savings
Plan participant accounts. 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. Unallocated
shares at December 31, 2004 and 2003 were pledged as collateral against
the Plan Notes, as described below. CNF preferred stock of 22,699 and
20,703 shares were allocated to participant accounts after December 31,
2004 and 2003, respectively, but related to participant activity for the
years ended December 31, 2004 and 2003, 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 the Plan. As of December 31, 2004, there
was $27,700,000 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. The Note and Guarantee Agreement with the holders of
the Series A TASP 6.00% notes contains a financial covenant restricting
the sale or merger of any significant subsidiary to a third party. CNF
obtained a waiver from the required holders of the 6.00% notes for the
sale of MWF to remain in compliance with certain financial covenants in
that agreement.
Holders of the Series B notes issued by the Plan 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. At December 31, 2004,
CNF's senior unsecured debt was rated as investment grade by both Moody's
(Baa3) and Standard and Poor's (BBB-).
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, 2004 and 2003, principal payments were
$12,000,000 and $10,100,000, 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
------------ ------------ ------------
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
2009 22,700,000 22,700,000
------------ ------------ ------------
$ 27,700,000 $ 62,000,000 $ 89,700,000
============ ============ ============
(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
------------------------------
2004 2003
-------------- --------------
Net assets available for benefits -
financial statements $ 965,072,985 $ 792,098,806
Net assets held in 401(h) account
included as assets in Form 5500:
Employer contribution receivable 4,608,136 4,600,000
Shares in registered investment companies 9,104,050 4,328,344
-------------- --------------
Net assets available for
benefits - Form 5500 $ 978,785,171 $ 801,027,150
============== ==============
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) Form
statements Account) 5500
------------- ------------ -------------
Year ended December 31, 2004:
Net appreciation (depreciation)
in fair value of investments $126,240,164 $ (134,824) $126,105,340
Dividend and interest
income 14,674,597 445,048 15,119,645
CNF Contributions 19,735,031 4,608,136 24,343,167
Distributions to participants (52,004,769) (134,518) (52,139,287)
Year ended December 31, 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)
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)
December 31, 2004
Identity
of issue
borrower, Description of investment
lessor including maturity date,
or similar rate of interest,collateral, Current
party par or maturity value Cost value
---------- ----------------------------- ------------- -------------
Shares in registered
investment companies:
*T.Rowe Price Growth Stock Fund
(5,161,418.351 shares) $ 131,872,338 $ 137,655,027
*T.Rowe Price Equity Income Fund
(4,188,428.221 shares) 95,585,486 111,370,306
*T.Rowe Price Science and Technology Fund
(4,874,452.420 shares) 125,431,695 93,102,041
*T.Rowe Price International Stock Fund
(2,054,635.665 shares) 25,375,109 26,566,439
*T.Rowe Price Small-Cap Stock Fund
(875,024.258 shares) 22,794,375 27,843,272
PIMCO PIMCO Total Return Fund
(3,612,997.773 shares) 38,673,613 38,550,686
J.P. Morgan
Investment Undiscovered Managers Small Cap
Managers,Inc Growth Fund(742,125.398 shares) 6,662,488 7,577,100
*T.Rowe Price Retirement Income Fund
(74,637.188 shares) 879,579 915,052
*T.Rowe Price Retirement 2005 Fund
(106,205.968 shares) 1,049,228 1,122,597
*T.Rowe Price Retirement 2010 Fund
(31,040.299 shares) 4,094,797 4,358,161
*T.Rowe Price Retirement 2015 Fund
(336,812.354 shares) 3,341,783 3,617,365
*T.Rowe Price Retirement 2020 Fund
(282,516.196 shares) 3,944,829 4,206,666
*T.Rowe Price Retirement 2025 Fund
(250,767.271 shares) 2,502,975 2,730,856
*T.Rowe Price Retirement 2030 Fund
(117,400.284 shares) 1,686,465 1,819,704
*T.Rowe Price Retirement 2035 Fund
(40,695.949 shares) 409,422 444,400
*T.Rowe Price Retirement 2040 Fund
(25,672.535 shares) 369,988 399,722
Common trust funds:
*T.Rowe Price Equity Index Trust
(1,065,616.158 shares) 31,532,950 36,412,104
*T.Rowe Price Bond Index Trust
(599,129.985 shares) 11,464,164 13,162,886
*T.Rowe Price U.S. Treasury Money Market Trust
(86,891,263.090 shares) 86,891,263 86,891,263
*T.Rowe Price Retirement Strategy Trust-Balanced
(1,995,902.007 shares) 40,199,122 49,458,452
*Plan Participant loans with interest
Participants from 5.00% to 10.50% and maturity
dates from 2005 to 2009 - 54,838,141
Common stock:
*CNF Inc. Unrestricted CNF Common Stock
(1,176,565.390 shares) 36,501,755 58,945,926
*CNF Inc. Restricted CNF Common Stock
(2,011,670.003 shares) 60,183,666 100,784,667
Preferred stock:
*CNF Inc. CNF Preferred Stock - Allocated
(395,586.899 shares) 60,143,796 100,874,660
*CNF Inc. CNF Preferred Stock - Unallocated
(342,109.848 shares) 52,034,908 87,238,011
-------------
1,050,885,504
Investments held in 401(h) account:
PIMCO PIMCO Total Return Fund
(853,238.073 shares) 9,281,065 9,104,050
-------------
$1,059,989,554
==============
*Represents a party-in-interest as of December 31, 2004.
Note: Cost is calculated using the moving average method.
See accompanying report of independent registered public
accounting firm.