UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

Commission File Number 1-5046

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

www.cnf.com

Securities Registered Pursuant to Section 12(b) of the Act:

Securities Registered Pursuant to Section 12(g) of the Act:

8⁷/8% Notes Due 2010

7.35% Notes Due 2005

6.70% Senior Debentures due 2034

      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     o

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).      Yes þ          No o

      State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.

      Aggregate market value of voting stock held by persons other than Directors, Officers and those shareholders holding more than 5% of the outstanding voting stock, based upon the closing price per share Composite Tape on June 30, 2004: $1,384,517,912

Number of shares of Common Stock outstanding as of January 31, 2005: 52,737,867

DOCUMENTS INCORPORATED BY REFERENCE

Part III

      Proxy Statement for CNF’s Annual Meeting of Shareholders to be held on April  19, 2005 (only those portions referenced specifically herein are incorporated in this Form 10-K).

CNF INC.

FORM 10-K

Year Ended December 31, 2004

INDEX

CNF INC.

Form 10-K

Year Ended December 31, 2004

PART I

Legal Organization

      CNF Inc. was incorporated in Delaware in 1958, and in 2001, changed its name from CNF Transportation Inc. to CNF Inc. CNF Inc. and its subsidiaries (“CNF”) provide transportation and supply chain management services for a wide range of manufacturing, industrial, and retail customers.

      At December 31, 2004, CNF owned 100% of the capital stock of Con-Way Transportation Services, Inc., Con-Way NOW, Inc., Con-Way Logistics, Inc., Con-Way Air Express, Inc., Menlo Worldwide, LLC, Emery Worldwide Airlines, Inc., and other less significant wholly owned subsidiaries. In December 2002, CNF transferred 100% of the capital stock of Menlo Worldwide Forwarding, Inc., Menlo Worldwide Expedite!, Inc. and Menlo Logistics, Inc. (also known as Menlo Worldwide Logistics or “MWL”) to Menlo Worldwide, LLC. In August 2003, CNF also transferred its majority ownership interest in the Vector SCM joint venture with General Motors to Menlo Worldwide, LLC (“MW”). In December 2004, CNF completed the sale of Menlo Worldwide Forwarding, Inc. and its subsidiaries and Menlo Worldwide Expedite!, Inc. (hereinafter collectively referred to as “MWF”) to United Parcel Service, Inc. (“UPS”), as more fully discussed in Note 2, “Discontinued Operations,” of Item 8, “Financial Statements and Supplementary Data.”

Reporting Segments

      Information on reporting segments is presented in the manner in which components are organized for making operating decisions, assessing performance and allocating resources, which may be different than the manner in which components are organized for legal purposes, as described above. Accordingly, for financial reporting purposes, CNF is divided into four segments. Menlo Worldwide, LLC (“MW”), which was formed effective in 2002, represents the collective operating results of the separate Menlo Worldwide Logistics and Menlo Worldwide Other reporting segments.

      For financial information concerning CNF’s geographic and reporting segment operating results, refer to Item 8, “Financial Statements and Supplementary Data,” under Note 12, “Segment Reporting.”

      CNF makes available, free of charge, on its website at “www.cnf.com,” under the headings “Investor Relations/ Annual Report, Proxy and Other SEC Filings,” copies of its annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and any amendments to those reports, in each case as soon as reasonably practicable after such reports are electronically filed with or furnished to the Securities and Exchange Commission.

      In addition, CNF makes available, free of charge, on its website at “www.cnf.com,” under the headings “Investor Relations/ Corporate Governance,” current copies of the following documents: (i) the charters of the Audit, Compensation, and Director Affairs Committees of its Board of Directors; (ii) its Corporate Governance Guidelines; (iii) its Code of Ethics for Chief Executive and Senior Financial Officers; (iv) its Code of Business Conduct and Ethics for Directors; and (v) its Code of Ethics for employees. Copies of these documents are also available in print to shareholders upon request, addressed to the Corporate Secretary at 3240 Hillview Avenue, Palo Alto, California 94304.

      None of the information on CNF’s website shall be deemed to be a part of this report.

Con-Way Transportation Services

      Con-Way’s primary business units are regional less-than-truckload (“LTL”) motor carriers that operate a combined network of freight service centers that provide complete market coverage in North America. The regional carriers provide industry-leading day-definite delivery service to manufacturing, industrial, and retail customers, and consist of Con-Way Western Express (“CWX”), which serves 13 Western states, including Hawaii and Alaska, with service into Mexico; Con-Way Central Express (“CCX”), which serves 25 central and eastern states; Con-Way Southern Express (“CSE”), which serves 12 southeastern states, the District of Columbia and Puerto Rico; and Con-Way Canada Express, which serves 11 Canadian provinces. In 2004, the regional carriers accounted for 92.6% of Con-Way’s revenue.

      Typically, LTL carriers transport shipments weighing between 100 and 15,000 pounds from multiple shippers utilizing a network of freight service centers combined with a fleet of line-haul and pickup-and-delivery tractors and trailers. Freight is picked up from customers and consolidated for shipment at the originating service center. The freight is then loaded into trailers and transferred to the destination service center providing service to the delivery area. At the destination service center, the freight is delivered to the customer.

      In addition to the regional LTL carriers, Con-Way operates a group of businesses, including Con-Way NOW, Con-Way Logistics, and Con-Way Air Express. In June 2004, Con-Way announced the formation of a new operating company, Con-Way Truckload (“CTL”), which began operations in January 2005.

      Con-Way NOW specializes in time-definite shipments, such as replacement parts, medical equipment and other urgent shipments, where expedited delivery is critical. Con-Way NOW has delivery service in 48 states and parts of Canada. Con-Way Air Express (“CAX”) is a freight forwarder that arranges freight shipments using transportation provided by other operators, including commercial airlines, dedicated air operators, for-hire truckload and LTL operators, and cartage companies. Through an agency network and connections with other Con-Way components, CAX provides full-service coverage in the United States, Canada, and Puerto Rico. Con-Way Logistics offers integrated supply chain services for shippers, using its own warehouses, transportation provided by other ground and air carriers as well as Con-Way’s regional carriers and alliances with leading supply chain software firms. As more fully discussed below under “Menlo Worldwide — Logistics,” the Con-Way Logistics business will be integrated with Menlo Worldwide Logistics effective in 2005.

      CTL will serve Con-Way’s three regional LTL carriers by providing linehaul service on full loads of LTL shipments moving in transcontinental lanes and eventually offer the services to other customers. The formation of CTL is expected to reduce future linehaul expense and protect service with inter-company operations that operate

in tandem with current truckload vendors. CTL will utilize Con-Way’s existing infrastructure and administrative support services to minimize the required investment. Con-Way’s management expects the new company will allow Con-Way to build a potential truckload revenue base by providing truckload services to its customers.

      The trucking, logistics and freight forwarding industries are intensely competitive. Principal competitors of Con-Way include regional and national LTL companies. Competition in the trucking industry is based on freight rates, service, reliability, transit times and scope of operations.

Menlo Worldwide

      Effective January 1, 2002, CNF combined its Logistics and Vector SCM units to form MW, which was intended to address a trend among businesses to outsource the management of increasingly complex supply chain and logistics services to lower costs, reduce inventories and increase speed, flexibility and efficiency. The MW companies were aligned to meet this demand by combining extensive proprietary information systems and value-added supply chain management services including transportation, warehouse and inventory management on a global scale.

Menlo Worldwide — Logistics

      Logistics specializes in developing and managing complex national and global supply and distribution networks, including transportation management, dedicated contract warehousing, dedicated contract carriage, and supply chain consulting services. Logistics also provides scaleable supply chain and logistics services to a growing number of middle-market customers. Transportation management refers to the management of third-party transportation providers for customers’ inbound/outbound supply chain needs through the use of state-of-the-art logistics management systems to consolidate, book and track shipments. Contract warehousing refers to the optimization of warehouse operations for customers using technology and warehouse management systems to reduce inventory carrying costs and supply chain cycle times. For several customers, contract-warehousing operations include light assembly or kitting operations, where manuals and cords are packed with the finished goods prior to distribution. Logistics’ ability to link these systems with its customers’ internal enterprise resource planning systems is intended to provide customers with improved visibility to their supply chains.

      Since the formation of Logistics in 1990, the third-party logistics industry has grown significantly as the outsourcing of distribution and other non-core functions has become more commonplace and businesses increasingly evaluate overall logistics costs. The ability to access information through computer networks also increases the value of capturing real-time logistics information to track inventories, shipments and deliveries. These industry trends, combined with Logistics’ ability to provide solutions for complex supply chain issues, have helped it to secure new contracts and expand contracts with existing customers, which are primarily large companies.

      At December 31, 2004, Logistics’ client base included approximately 100 companies, many of which are Fortune 200 businesses. Four customers, each with a Standard & Poor’s investment-grade credit rating, collectively accounted for 53.5% of the revenue reported for the Logistics reporting segment in 2004. In 2004, Logistics’ largest customer accounted for 5.0% of the consolidated revenue of CNF. The loss of significant revenue from any of Logistics’ major customers by termination of the customer relationship for any reason, including the business failure of the customer, could have an adverse effect on Logistics’ results of operations. Logistics generally seeks to mitigate risks related to the termination of a customer relationship, for reasons other than the business failure of a customer, by requiring that any facility or major equipment lease that it enters into on behalf of a customer must be assumed by the customer upon termination of the arrangement. Compensation from Logistics’ customers takes different forms, including cost-plus, gain-sharing, transaction, fixed-dollar and consulting fees.

      During 2005, Logistics will integrate the Con-Way Logistics business into its operations. The integration of the two businesses is intended to provide an enterprise solution offering for Logistics’ customers that want to use Con-Way as a primary transportation provider. The integration is also expected to expand Con-Way Logistics’ multi-client warehousing service to Logistics’ larger warehouse network.

      Beginning in 2005, Logistics will segment its business based on customer vertical alignment, rather than service offerings. The new industry-focused groups will leverage the capabilities of personnel, systems and solutions throughout the MW organization to give customers a resource to meet the challenges in their specific automotive, consumer products and other industries. As part of this realignment, MW has combined resources and personnel of Logistics’ automotive projects and Vector SCM to form a new division called Menlo Automotive Group (“MAG”). MAG will focus on the special supply chain and logistics needs of the global automotive industry.

      The third-party logistics industry is intensely competitive. Competition for larger projects is generally based on the ability to rapidly implement technology-based transportation and logistics solutions. Competitors in the logistics industry are numerous and include domestic and foreign logistics companies, the logistics arms of integrated transportation companies and contract manufacturers; however, Logistics primarily competes against a limited number of major competitors that have resources sufficient to provide services under large logistics contracts.

Menlo Worldwide Other

      In December 2000, CNF and GM formed the Vector SCM (supply chain management) joint venture for the purpose of providing logistics management services on a global basis for GM, and ultimately for customers in addition to GM. Although MW owns a majority interest in Vector, MW’s portion of Vector’s operating results are reported in the Menlo Worldwide Other reporting segment as an equity-method investment based on GM’s ability to control certain operating decisions. Vector was established to reduce GM’s supply chain costs and improve GM’s supply chain management by bringing increased speed, flexibility and reliability to GM’s global supply chain, including shipment of parts to manufacturing plants and vehicles to dealers.

      Prior to the amendments described below, agreements pertaining to Vector (collectively, “Vector Agreements”) provided that Vector would be compensated by sharing in efficiency gains and cost savings achieved through the implementation of Approved Business Cases (“ABCs”) and other special projects in GM’s North America region and three international regions. An ABC is a project, developed with and approved by GM, aimed at reducing costs, assuming operational responsibilities, and/or achievement of operational changes.

      In August 2003, the Vector Agreements were amended, primarily to expedite the transition of logistics services in the North America region from GM to Vector. The amendments changed the compensation principles for GM’s North American logistics operations, revised the allocation of Vector’s profit between GM and MW, and modified the formula for the valuation of Vector in the event that MW exercises its Put Right. In January 2005, all of the ABC’s for GM’s European region were amended to compensate Vector with cost reimbursement and a management fee based on vehicle production volumes, rather than through its sharing in efficiency gains and cost savings under the individual ABC’s. Refer to Item 7, “Management’s Discussion and Analysis,” under “Results of Operations – Menlo Worldwide — Menlo Worldwide Other.” Also refer to Note 3, “Investment in Unconsolidated Joint Venture,” in Item 8, “Financial Statements and Supplementary Data.”

CNF Other

      The CNF Other reporting segment included the operating results of Road Systems, Inc. and certain corporate activities. A majority of the revenue from Road Systems is from sales to other CNF subsidiaries.

Discontinued Operations

      On December 19, 2004, CNF completed the sale of MWF to UPS, as more fully discussed in Note 2, “Discontinued Operations,” of Item 8, “Financial Statements and Supplementary Data.”

      On November 3, 2000, 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”). As described in Note 2, “Discontinued Operations,” of Item 8, “Financial Statements and Supplementary Data,” claims relating to amounts owed to EWA under the Priority Mail contract were settled in connection with payments from the USPS to EWA in 2002 and 2001.

      On December 2, 1996, CNF completed the spin-off of Consolidated Freightways Corporation (“CFC”) to CNF’s shareholders. Refer to Note 2, “Discontinued Operations,” and Note 11, “Commitments and Contingencies,” in Item 8, “Financial Statements and Supplementary Data,” for a discussion of matters related to CFC’s filing for bankruptcy in September 2002.

General

      At December 31, 2004, CNF’s continuing operations had approximately 20,100 regular full-time employees. The approximate number of regular full-time employees by segment was as follows: Con-Way, 17,100; Logistics, 2,000; Menlo Worldwide Other, 200; CNF Other, 800. The 800 employees included in the CNF Other segment consist primarily of executive, administrative and technology positions that support CNF’s operating subsidiaries.

      CNF’s businesses operate in industries that are affected by general economic conditions and seasonal fluctuations, both of which affect demand for transportation services. In the trucking industry for a typical year, the months of September and October usually have the highest business levels while the months of December, January and February usually have the lowest business levels.

Regulation

      The motor carrier industry is subject to federal regulation by the Federal Motor Carrier Safety Administration (“FMCSA”) and the Surface Transportation Board (“STB”), both of which are units of the U.S. Department of Transportation (“DOT”). The FMCSA enforces comprehensive trucking safety regulations and performs certain functions relating to such matters as motor carrier registration, cargo and liability insurance, extension of credit to motor carrier customers, and leasing of equipment by motor carriers from owner-operators. The STB has authority to resolve certain types of pricing disputes and authorize certain types of intercarrier agreements.

      At the state level, federal preemption of economic regulation does not prevent the states from regulating motor vehicle safety on their highways. In addition, federal law allows all states to impose insurance requirements on motor carriers conducting business within their borders, and empowers most states to require motor carriers conducting interstate operations through their territory to make annual filings verifying that they hold appropriate registrations from FMCSA. Motor carriers also must pay state fuel taxes and vehicle registration fees, which normally are apportioned on the basis of mileage operated in each state.

      In April of 2003, the FMCSA issued a final rule to change the regulations governing hours of service (“HOS”) for commercial truck drivers. The new rules increase the total consecutive off-duty hours a driver must

take prior to driving in interstate commerce and reduce the total daily consecutive driving and on-duty hours allowed. In July of 2004, the United States Court of Appeals for the District of Columbia legally voided the HOS rules that were issued by the FMCSA. However, The United States Congress extended the current HOS rules until September 2005. The presidential administration has since asked Congress to permanently codify the current HOS regulations and the FMCSA has issued a Notice of Proposed Rulemaking (“NPRM”) indicating their intent to reissue the existing HOS rules. Given the uncertainty in the status of the HOS rules, CNF cannot predict whether the rules as finally adopted will materially affect its operations.

      CNF is subject to laws and regulations that (i) govern activities or operations that may have adverse environmental effects such as discharges to air and water, as well as handling and disposal practices for solid and hazardous waste, and (ii) impose liability for the costs of cleaning up, and certain damages resulting from sites of past spills, disposals or other releases of hazardous materials. Environmental liabilities relating to CNF’s properties may be imposed regardless of whether CNF leases or owns the properties in question and regardless of whether such environmental conditions were created by CNF or by a prior owner or tenant, and also may be imposed with respect to properties that CNF may have owned or leased in the past. CNF has provided for its estimate of remediation costs at these sites.

      CNF’s operations involve the storage, handling and use of diesel fuel and other hazardous substances. In particular, CNF is subject to environmental laws and regulations dealing with underground fuel storage tanks and the transportation of hazardous materials laws.

      CNF has been designated a Potentially Responsible Party (“PRP”) by the EPA with respect to the disposal of hazardous substances at various sites. CNF expects that its share of the clean-up costs will not have a material adverse effect on CNF’s financial condition, cash flows, or results of operations.

      CNF is subject to compliance with cargo security and transportation regulations issued by the Transportation Security Administration and by the Department of Homeland Security, including regulation by the new Bureau of Customs and Border Protection (“CBP”). CNF believes that it will be able to comply with pending CBP rules, which will require pre-notification of cross-border shipments, with no material effect on its operations.

      Con-Way’s regional carriers, as well as certain other subsidiaries, are approved by the CBP to participate in the voluntary Customs-Trade Partnership Against Terrorism program (“C-TPAT”). The C-TPAT was designed in 2002 to provide a process to facilitate the efficient release of goods and provide resolution of any outstanding issues affecting CBP processing of cross-border shipments. As participants of C-TPAT, these subsidiaries have developed security measures that have been reviewed and certified by the CBP.

      CNF believes that its facilities are suitable and adequate, that they are being appropriately utilized, and that they have sufficient capacity to meet operational needs in the foreseeable future. Management continuously reviews anticipated requirements for facilities and may acquire additional facilities and/or dispose of existing facilities as appropriate.

Con-Way Transportation Services

      As of December 31, 2004, Con-Way’s regional carriers operated 337 freight service centers, of which 144 were owned and 193 were leased. The service centers, which are strategically located to cover the geographic areas served by Con-Way, represent physical buildings and real property with dock, office and/or shop space. These facilities do not include meet-and-turn points, which generally represent small owned or leased real property with no physical structures. The total number of trucks, tractors and trailers utilized by the Con-Way regional carriers at December 31, 2004 was approximately 30,200.

      At December 31, 2004, Con-Way Logistics leased 6 warehouses in the U.S. and Con-Way Air Express operated 13 leased warehouse and service center facilities.

Menlo Worldwide Logistics

      As of December 31, 2004, Logistics operated 56 warehouses in North America, of which 36 were leased by Logistics and 20 were leased or owned by clients of Logistics. Internationally, Logistics operated an additional 23 warehouses, of which 15 were leased by Logistics and 8 were leased or owned by clients.

      At December 31, 2004, Logistics operated approximately 70 trucks, tractors, and trailers.

CNF Other

      Principal properties of the CNF Other segment included CNF’s leased executive offices in Palo Alto, California, and its owned Administrative and Technology Center in Portland, Oregon.

      Certain legal proceedings of CNF are also discussed in Item 1, “Business,” under “Regulation — Environmental,” and in Note 2, “Discontinued Operations,” and Note 11, “Commitments and Contingencies,” of Item 8, “Financial Statements and Supplementary Data.”

      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. Menlo Worldwide Forwarding, Inc. (“MWF, Inc.”), EWA and CNF Inc. were named as defendants in wrongful death lawsuits brought by the families of the three deceased crew members, seeking compensatory and punitive damages. The lawsuits brought by two of the three families have now been settled, with each settlement fully covered by insurance. The parties to the lawsuit filed by the family of the third deceased crew member have concluded settlement negotiations on all material terms of settlement, but the final documents have not yet been signed. The settlement of that lawsuit also will be fully covered by insurance.

      EWA, MWF, Inc., MW and CNF Inc. are named as defendants in a lawsuit filed in state court in California by approximately 140 former EWA pilots and crew members. The lawsuit alleges wrongful termination in connection with the termination of EWA’s air carrier operations, and seeks $500 million and certain other unspecified damages. CNF believes that the lawsuit’s claims are without merit, and is vigorously defending the lawsuit.

      In 2003, CNF became aware of information that Emery Transnational, a Philippines-based joint venture in which MWF, Inc. may be deemed to be a controlling partner, may have made certain payments in violation of the Foreign Corrupt Practices Act. CNF promptly notified the Department of Justice and the Securities and Exchange Commission of this matter, and MWF, Inc. instituted policies and procedures in the Philippines designed to prevent such payments from being made in the future. CNF was subsequently advised by the Department of Justice that it is not pursuing an investigation of this matter. CNF has conducted an internal investigation of approximately 40 other MWF, Inc. international locations and has shared the results of the internal investigation with the SEC. The internal investigation revealed that Menlo Worldwide Forwarding (Thailand) Limited, a Thailand-based joint venture, also may have made certain payments in violation of the Foreign Corrupt Practices Act. MWF, Inc. made certain personnel changes and instituted policies and procedures in Thailand designed to prevent such payments from being made in the future. In December 2004, CNF completed the sale of its air freight forwarding business (including the stock of MWF, Inc., Emery Transnational and Menlo Worldwide Forwarding (Thailand) Limited) to an affiliate of UPS. In connection with that sale, CNF agreed to indemnify UPS for certain losses resulting from violations of the Foreign Corrupt Practices Act. CNF is currently unable to predict whether it will be required to make payments under the indemnity.

      Certain current and former officers of CNF, EWA and MWF, Inc. and certain current and former directors of CNF were named as defendants in a purported shareholder derivative suit filed in September 2003 in California Superior Court for the County of San Mateo. The complaint alleged breach of fiduciary duty, gross mismanagement, waste and abuse of control relating to the management, control and operation of EWA and MWF, Inc. CNF

was named only as a nominal defendant and no relief was sought against it. CNF maintains insurance for the benefit of its officers and directors, and the applicable insurance carriers were notified of the claims asserted in the lawsuit. On November 5, 2004, the Court granted preliminary approval to a settlement negotiated by the parties, and on February 4, 2005, the Court gave final approval of the settlement. Under terms of the non-monetary settlement, the individually named defendants expressly denied any wrongdoing or liability. The Court’s final judgment of dismissal with prejudice is subject to a 60-day appeals period.

      CNF did not submit any matter to a vote of security holders during the fourth quarter of the fiscal year covered by this Annual Report.

PART II

      CNF’s common stock is listed for trading on the New York Stock Exchange (“NYSE”) and the Pacific Exchange under the symbol “CNF.”

      See Item 8, “Financial Statements and Supplementary Data” under Note 13, “Quarterly Financial Data,” for the range of common stock prices as reported on the NYSE and common stock dividends paid for each of the quarters in 2004 and 2003. At January 31, 2005, CNF had 7,413 common shareholders of record.

      In January 2005, the Board of Directors authorized the repurchase of up to $300 million in CNF’s common stock from time to time within the next two years in open market purchases and privately negotiated transactions.

CNF Inc.

Five-Year Financial Summary

      CNF’s results from continuing operations included various income or loss items that affected the year-to-year comparisons of the reported operating income (loss) of its reporting segments. Other materially significant items affecting the year-to-year comparisons of net income from continuing operations in the years reported above are described in the notes below and in Item 7, “Management’s Discussion and Analysis.”

Introduction

      Management’s Discussion and Analysis of Financial Condition and Results of Operations (referred to as “Management’s Discussion and Analysis”) is intended to assist in a historical and prospective understanding of CNF’s results of operations, financial condition and cash flows, including a discussion and analysis of the following:

Overview of Business

      CNF provides transportation and supply chain management services for a wide range of manufacturing, industrial, and retail customers. CNF’s principal businesses consist of Con-Way and MW. However, for financial reporting purposes, CNF is divided into four reporting segments. The operating results of Con-Way, primarily a provider of regional LTL freight services, are reported as one reporting segment while MW is divided into two reporting segments: Logistics, a provider of integrated contract logistics solutions; and Menlo Worldwide Other, which consists of Vector, a joint venture with GM that serves as the lead logistics manager for GM. Also, certain corporate activities and the results of Road Systems, a trailer manufacturer, are reported in the separate CNF Other reporting segment.

      CNF’s operating results are generally expected to depend on the number and weight of shipments transported, the prices received on those shipments, and the mix of services provided to customers, as well as the fixed and variable costs incurred by CNF in providing the services and the ability to manage those costs under changing shipment levels. Con-Way primarily transports shipments through a freight service center network while Logistics and Vector manage the logistics functions of their customers and primarily utilize third-party transportation providers for the movement of customer shipments.

      As more fully discussed under “Results of Operations — Discontinued Operations,” CNF in 2004 sold MWF to UPS for $150 million and the assumption of $110 million of debt. Accordingly, the results of operations, net assets, and cash flows of the Menlo Worldwide Forwarding (“Forwarding”) segment have been segregated and reported as discontinued operations.

Results of Operations

      CNF’s net income from continuing operations (after preferred stock dividends and income taxes) in 2004 rose 26.7% to $142.2 million ($2.57 per diluted share), due primarily to significantly higher operating income from Con-Way. Net income from continuing operations was offset by a $266.3 million net loss ($4.72 per diluted share) from discontinued operations, which primarily reflects a loss from the disposition of MWF. The resulting net loss applicable to common shareholders in 2004 was $124.1 million ($2.15 per diluted share).

      In 2003, net income from continuing operations improved 6.0% to $112.2 million ($2.07 per diluted share), due largely to increased operating income from Con-Way. Net income from continuing operations in 2003 was partially offset by a $28.5 million net loss ($.50 per diluted share) from the operations of the discontinued Forwarding segment. Net income applicable to common shareholders in 2003 of $83.8 million ($1.57 per diluted share) fell 10.4% from 2002, as the improved results from continuing operations was more than offset by a higher loss from discontinued operations.

      The following table summarizes CNF’s consolidated operating results:

Continuing Operations

Overview — 2004 Compared to 2003

      In 2004, CNF’s revenue increased 15.0% to $3.71 billion, due to higher revenue at all reporting segments, which benefited from improved economic conditions. Consolidated operating income in 2004 rose 26.3%, as significantly higher operating income from Con-Way was partially offset by lower operating income from MW. The increase in Con-Way’s operating income was due principally to the effect of operating leverage on revenue growth, as Con-Way’s operating income in 2004 increased 34.1% on revenue growth of 17.7%. The MW companies reported lower operating income in 2004 due primarily to a decline in operating income from Vector, partially offset by improvement from Logistics. Vector’s operating income in 2004 fell $2.5 million to $18.3 million while Logistics reported a 3.9% increase in operating income on an 8.8% growth in revenue. Operating income from Con-Way and Logistics, as presented in the accompanying financial statements, includes CNF corporate expenses previously allocated to the discontinued Forwarding segment, as more fully discussed below under “Discontinued Operations.”

      Other net expense in 2004 increased $9.9 million to $37.3 million, due primarily to increases in interest expense and other net non-operating expenses, partially offset by higher interest income on marketable securities. Interest expense in 2004 rose $10.1 million, due largely to the net effect of financing transactions, including the issuance in April 2004 of 6.7% Senior Debentures and the redemption in June 2004 of 5% Convertible Debentures, as more fully discussed, in Note 5, “Debt and Other Financing Arrangements” of Item 8, “Financial Statements and Supplementary Data.” Other net miscellaneous non-operating expenses in 2004 reflects a $4.3 million decline in the income from corporate-owned life insurance (“COLI”) policies that were terminated

in the third quarter of 2004, $2.7 million of costs associated with the redemption of the Convertible Debentures, and a $1.3 million decline in foreign exchange gain, partially offset by prior-year equity venture losses of $3.7 million.

      In 2004, the increase in net income from continuing operations (after income taxes and preferred stock dividends) reflects improved operating income on higher revenue, partially offset by the increase in other net non-operating expense. The effective tax rate in 2004 and 2003 was 39.0%.

Overview — 2003 Compared to 2002

      CNF’s revenue in 2003 grew 7.8% to $3.23 billion, as both Con-Way and the Logistics businesses achieved revenue growth amid comparatively better economic conditions. Consolidated operating income rose 24.7% to $224.9 million on significantly higher operating income from Con-Way. In 2003, Con-Way’s operating income grew 35.6% to $183.1 million, due principally to the effect of operating leverage on a 10.0% increase in revenue. Operating income from the MW companies fell in 2003, as lower operating income from Logistics was partially offset by higher operating income from Vector. Logistics’ operating income in 2003 fell 23.0% to $23.5 million as a higher percentage of lower-margin services contributed to lower operating income despite a 3.6% increase in revenue. Vector’s operating income, which rose 13.9% to $20.7 million, reflects compensation earned under amended agreements with GM, its joint venture partner and customer.

      In 2003, other net expense fell 2.1% as a $6.8 million increase in interest expense and a $3.0 million decline in investment income was largely offset by an $8.1 million increase in the cash-surrender value of COLI policies. Higher interest expense in 2003 was primarily due to the settlement of interest rate swaps in December 2002, which effectively converted long-term debt from fixed-rate to floating-rate prior to their termination. CNF recognized equity venture losses of $3.7 million in 2003 and $4.6 million in 2002.

      CNF’s net income from continuing operations in 2003 reflects an increase in the effective tax rate to 39.0% in 2003 from 25.1% in 2002, which benefited from a $14.0 million reversal of accrued taxes from the settlement of tax matters in 2002.

Con-Way Transportation Services

      The following table compares operating results (dollars in thousands), operating margins, and the percentage increase in selected operating statistics of the Con-Way reporting segment for the years ended December 31:

      In 2004, Con-Way’s revenue rose 17.7% due to a 16.1% increase in revenue from Con-Way’s regional carriers and revenue growth of 60.0% from Con-Way’s other businesses, which include Con-Way NOW, Con-Way Logistics, and Con-Way Air Express. Revenue per day from the regional carriers rose 16.0% from 2003 on a 12.5% increase in weight per day (“weight”) and a 3.1% increase in revenue per hundredweight (“yield”). In 2004, weight improvement was due primarily to comparatively better economic conditions in the U.S., and to a lesser extent, a change in the composition of freight. A higher proportion of the freight in 2004 was composed of

shipments in excess of 10,000 pounds, resulting from a newly initiated spot-quote program and concerns from shippers regarding hours-of-service regulations affecting the service provided by truckload carriers. Yield increases primarily reflect an increase in fuel surcharges. Excluding fuel surcharges, yield in 2004 increased 0.3% from 2003. Yields in 2004 also benefited from continued growth in higher-rated interregional joint services and general rate increases, but were adversely affected by a 4.3% increase in weight per shipment. Rates typically decline when weight per shipment increases, as freight with a higher weight per shipment typically has a lower transportation cost per unit of weight.

      Con-Way’s operating income in 2004 increased 34.1%, due largely to higher revenue and improved margins from the regional carriers as well as revenue growth from Con-Way’s other businesses, which reduced their collective net operating loss in 2004 by $9.8 million from 2003. The improvement in Con-Way’s operating margin in 2004 also reflects operating leverage, as Con-Way’s regional-carrier service center network accommodated additional shipments with proportionally smaller cost increases. Operating income in 2004 was affected by employee costs, which rose 14.8%, due primarily to increases in employee payroll and benefits. Employee payroll grew 16.4% due largely to increases in variable compensation and employee headcount. Employee benefits expense rose 11.1%, as workers’ compensation costs increased due in part to a higher unit cost and volume of claims and to a third-quarter entry to correct the cumulative under-recognition of expense on certain prior-period claims, which had a $3.9 million adverse effect, net of incentive compensation. Employee benefits expense in 2004 also reflects an increase in payroll taxes and other employee benefits. Certain corporate expenses previously allocated to the discontinued Forwarding segment are reported in continuing operations, as more fully discussed in Note 2 “Discontinued Operations,” of Item 8, “Financial Statements and Supplementary Data.” The additional corporate overhead charge allocated to the Con-Way reporting segment was $14.8 million in 2004 and $12.2 million in 2003 and 2002.

      In June 2004, Con-Way announced the formation of CTL, which began operations in January 2005. As more fully discussed in Item 1, “Business”, the new company will initially serve Con-Way’s three regional LTL carriers by providing linehaul service on full loads of LTL shipments moving in transcontinental lanes and eventually offer the services to other customers. CTL is expected to allow Con-Way to reduce future linehaul expense, but did not have a material effect on CNF’s financial condition, results of operations, or cash flows as of and for the year ended December 31, 2004.

      In 2003, Con-Way’s revenue rose 10.0% due to higher revenue from Con-Way’s regional carriers and continued growth from Con-Way’s other businesses. Revenue per day from the regional carriers rose 8.8% from 2002 on increases in yield and weight. In 2003, growth in weight transported was due in part to comparatively better economic conditions. Yield improvement in 2003 was achieved through general rate increases, continued growth in interregional joint services and higher fuel surcharges. Excluding fuel surcharges, yield in 2003 rose 3.6%. Con-Way’s operating income in 2003 increased 35.6% and reflects operating leverage on higher revenue from the regional carriers as well as revenue growth from Con-Way’s other businesses, which reduced their collective net operating loss in 2003 by $4.1 million. Operating income in 2003 benefited from a 45.2% decline in variable employee compensation, which was partially offset by a 6.6% increase in pension expense. Operating income in 2002 included an $8.7 million net gain from the sale of a property.

Menlo Worldwide

      For financial reporting purposes, the MW group is divided into two reporting segments: Logistics and Menlo Worldwide Other. Vector SCM, a joint venture with GM, is reported in the Menlo Worldwide Other segment as an equity-method investment.

Logistics

      The following table compares operating results (dollars in thousands) and operating margins of the Logistics reporting segment for the years ended December 31:

      Logistics’ revenue in 2004 increased 8.8% over 2003, due principally to increases in carrier-management and warehouse-management services. In 2004, Logistics’ operating income increased 3.9% due primarily to revenue growth, partially offset by the effect of lower operating margins. Lower operating margins in 2004 were attributable in part to the competitive transportation pricing environment, the renegotiation of certain contracts with existing customers, a decrease in margins during the start-up phase of new contracts and to employee costs, which rose 7.9%, due largely to higher employee benefits and variable compensation. Operating income in 2003 was adversely affected by $3.1 million of contract termination costs. These costs, of which $1.9 million was incurred in the fourth quarter of 2003, were related to contracts that were terminated due to customer failure, scheduled expiration, or termination of the outsourcing arrangement. Certain corporate expenses previously allocated to the discontinued Forwarding segment are reported in continuing operations, as more fully discussed in Note 2, “Discontinued Operations,” of Item 8, “Financial Statements and Supplementary Data.” The additional corporate overhead charge allocated to the Logistics reporting segment was $2.1 million in 2004 and $1.8 million in 2003 and 2002.

      In 2003, Logistics’ revenue rose 3.6% over 2002, due principally to an increase in carrier-management and warehouse-management services, partially offset by lower revenue from consulting services. Operating income in 2003 declined 23% to $23.5 million, due primarily to the effects of contract terminations and a lower operating margin on revenue. Contract terminations in 2003 accounted for additional costs of $3.1 million, as described above, while the termination of a customer contract in 2002 resulted in a net gain of $1.9 million. The lower operating margin in 2003 was due principally to an increase in lower-margin carrier-management services and a decline in higher-margin consulting fee revenue.

      Logistics’ carrier-management revenue is attributable to contracts for which Logistics manages the transportation of freight but subcontracts the actual transportation and delivery of products to third parties, which Logistics refers to as purchased transportation. Logistics’ net revenue (revenue less purchased transportation) was $316.8 million in 2004, an increase from $304.7 million in 2003 and $302.2 million in 2002.

Menlo Worldwide Other

      The Menlo Worldwide Other reporting segment consists of the results of Vector, a joint venture formed with GM in December 2000 for the purpose of providing logistics management services on a global basis for GM, and ultimately for customers in addition to GM. Operating income reported by the Menlo Worldwide Other segment declined to $18.3 million in 2004 from $20.7 million in 2003. Consistent with the amended Vector agreements described below, MW’s operating income in 2004 included $9.2 million related to performance-based compensation and ABCs earned by Vector and $9.1 million from Vector’s volume-based compensation. In 2003, all of Vector’s compensation was volume-based. MW’s operating income from Vector of $20.7 million in 2003 increased $2.5 million from $18.2 million in 2002. Vector’s operating income in 2002 was determined under the compensation principles of the original Vector agreements.

      Prior to the amendments described below, agreements pertaining to Vector provided that Vector would be compensated by sharing in efficiency gains and cost savings achieved through the implementation of Approved

Business Cases (“ABCs”) and other special projects in GM’s North America region and GM’s three international regions. An ABC is a project, developed with and approved by GM, aimed at reducing costs, assuming operational responsibilities, and/or achieving operational changes.

      Under the Vector Agreements, GM has the right to purchase MW’s membership interest in Vector (“Call Right”) and MW has the right to require GM to purchase MW’s membership interest in Vector (“Put Right”). The Call Right and Put Right are exercisable at the sole discretion of GM and MW, respectively. Prior to amendment of the Vector Agreements, exercise of the Call Right or Put Right required GM to pay MW for the fair value of MW’s membership interest in Vector, as determined by approved appraisers using a predetermined valuation formula. Under the amended Vector Agreements, the amount payable by GM to MW under the Put Right is based on a mutually agreed-upon estimated value for MW’s membership interest as of the contract amendment date and will decline on a straight-line basis over an 8-year period beginning January 1, 2004. Exercise of MW’s Put Right or GM’s Call Right would result in MW retaining commercialization contracts involving customers other than GM.

      In August 2003, the Vector Agreements were amended, primarily to expedite the transition of logistics services in the North America region from GM to Vector. The amendments changed the compensation principles for GM’s North American logistics operations, revised the allocation of Vector’s profit between GM and MW, and modified the formula for the valuation of Vector in the event that MW exercises its Put Right, as described above.

      The amendments to the Vector Agreements provide for Vector to be compensated for its management of logistics for all of GM’s North America operations rather than through its sharing in efficiency gains and cost savings under individual and separately approved ABCs in North America. In each year of a five-year period retroactive to January 1, 2003, Vector will be compensated with a management fee based on shipment volumes and, beginning in 2004, can earn additional compensation if certain performance criteria are achieved. In accordance with GAAP, compensation under the volume-based management fee is recognized as vehicles are shipped while performance-based compensation is recognized on the achievement of specified levels of cost savings, which will generally not be determinable until the fourth quarter of each contract year. Vector will also be compensated by GM for its direct and administrative costs in North America, subject to certain limitations. In each successive year covered by the amended Vector agreements, management anticipates that performance-based compensation will represent a growing percentage of compensation earned in GM’s North America region.

      The amended Vector Agreements also increase Vector’s allocation of profit and loss from 80% to 85%. Although MW owns a majority equity interest, the operating results of Vector are reported as an equity-method investment based on GM’s ability to control certain operating decisions.

      In January 2005, all of the ABC’s for GM’s European region were amended to compensate Vector with cost reimbursement and a management fee based on vehicle production volumes, rather than through its sharing in efficiency gains and cost savings under the individual ABC’s. After 2005, Vector’s compensation for GM’s European regions will again be based on the separately approved ABC’s, unless further amendments are negotiated. The compensation principles for GM’s other international regions are unaffected by the 2005 amendments in the European region.

CNF Other

      The CNF Other segment consists of the results of Road Systems and certain corporate activities. A majority of the revenue from Road Systems was from sales to Con-Way. The CNF Other operating losses of $4.0 million in 2004 and $2.4 million in 2003 primarily reflect the net loss from the sale of corporate properties, while the operating loss in 2002 was primarily the net result of a $3.6 million loss from uncollectible non-trade receivables following the business failure of CFC and a $2.4 million net gain from the sale of a corporate property.

Discontinued Operations

      Discontinued operations in the periods presented relate to the sale of MWF, the spin-off of CFC, and to EWA and its terminated Priority Mail Contract with the USPS. For all periods presented, the results of operations, net assets, and cash flows of discontinued operations have been segregated from continuing operations, except where otherwise noted. The operating results and net assets of discontinued operations are summarized in Note 2, “Discontinued Operations,” of Item 8, “Financial Statements and Supplementary Data.”

Menlo Worldwide Forwarding

      On October 5, 2004, CNF and MW entered into a stock purchase agreement with UPS and United Parcel Service of America, Inc. to sell all of the issued and outstanding capital stock of MWF. CNF completed the sale on December 19, 2004. The agreement excludes certain assets and liabilities of MWF and includes certain assets and liabilities of CNF or its subsidiaries related to the business conducted by MWF. Among the assets and liabilities so excluded are those related to EWA, and the obligation related to MWF employees covered under CNF’s domestic pension, postretirement medical and long-term disability plans. Under the agreement, CNF will be reimbursed for the actuarially determined estimate of its obligation related to MWF employees covered under CNF’s long-term disability and postretirement medical plans. Upon completion of the sale of MWF, MW received cash consideration of $150 million, which is subject to certain adjustments, including adjustments for cash held by MWF at closing and MWF’s net working capital as of closing. In addition, UPS assumed indebtedness associated with the MWF business, including approximately $110 million of debt owed by MWF in connection with the City of Dayton, Ohio, Special Facilities Revenue Refunding Bonds, certain capital leases and other debt, other letters of credit, and overdraft facilities. Under the stock purchase agreement, CNF has agreed to a three-year non-compete covenant that, subject to certain exceptions, will limit CNF’s annual air freight and ocean forwarding and/or customs brokerage revenues to $175 million. CNF has also agreed to indemnify UPS against certain losses that UPS may incur after the closing of the sale with certain limitations. Any losses related to these indemnification obligations or any other costs, including any future cash expenditures, related to the sale that have not been estimated and recognized at this time will be recognized in future periods as an additional loss from disposal when and if incurred. For additional details, refer to the stock purchase agreement filed as an exhibit to CNF’s Form 8-K dated October 5, 2004 and the amendment to the stock purchase agreement filed as an exhibit to CNF’s Form 8-K dated December 21, 2004.

      Although the stock purchase agreement described above was entered into on October 5, 2004, decisions by CNF’s management and its Board of Directors and the third-quarter sale negotiations with UPS established CNF’s commitment to sell MWF as of September 30, 2004. In the process of evaluating several strategic alternatives for MW’s Forwarding segment, CNF was approached by UPS in the third quarter of 2004 with interest in acquiring MWF. Accordingly, in the third quarter of 2004, CNF classified MWF as held for sale and recognized a $260.5 million impairment charge to write down the recorded book value of MWF to its anticipated selling price, less costs to sell, as required by SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” The impairment charge was based on the agreement to sell MWF, as described above and primarily represents the estimated write-down to the carrying value of MWF’s goodwill and long-lived assets, including MWF’s accumulated foreign currency translation adjustment, as well as estimated selling costs. CNF agreed to accept less than the recorded book value of MWF due primarily to management’s assessment of the risk and resource requirements associated with other strategic alternatives related to MWF’s operations. On completion of the sale, CNF recognized a fourth-quarter loss from disposal of $15.8 million (net of a $3.6 million tax benefit), as the adjusted carrying value of MWF exceeded the cash consideration. CNF’s third-quarter and fourth-quarter losses from the disposal of MWF are treated as capital losses for tax purposes. Under current tax law, capital losses can only be used to offset capital gains. Since CNF does not currently forecast any significant taxable capital gains in the tax carry-forward period, tax benefits from the disposal were only recognized to the extent of capital gains in 2004. Accordingly, the $41.0 million tax benefit recognized on the disposition of MWF was fully offset by an equal valuation allowance.

      As described above, the stock purchase agreement excludes the obligation related to MWF employees covered under certain CNF-sponsored employee benefit plans, including pension, postretirement and long-term disability plans that cover the noncontractual employees and former employees of both continuing and

discontinued operations. These plans also include certain pension plans that cover only the current and former employees of the discontinued Forwarding segment (the “Forwarding Plans”). For financial reporting purposes, the prepaid benefit cost of the Forwarding Plans is reported in Assets of Discontinued Operations while the accrued benefit cost related to MWF employees covered under the other legally separate CNF-sponsored plans are reported in Employee Benefits of continuing operations. At December 31, 2004, CNF had not been reimbursed for its obligation related to MWF employees covered under CNF’s long-term disability and postretirement medical plans, pending conclusion of actuarially determined estimates. Accordingly, at December 31, 2004, Other Accounts Receivable of continuing operations included a $94.1 million receivable for CNF’s estimate of these employee benefit obligations as well as its estimate of the reimbursable MWF cash balance. Settlement of the cash balance is subject to an in-process evaluation and any difference between the estimated and actual cash position at December 31, 2004 would be recognized in future periods as a gain or loss from disposal when and if incurred.

      As described above, the stock purchase agreement excludes the assets and liabilities of EWA, including restructuring reserves related to its 2001 restructuring plan. EWA’s restructuring reserves decreased to $33.8 million at December 31, 2004 from $34.8 million at December 31, 2003, primarily due to payments of restructuring-related obligations, partially offset by proceeds from sales of aircraft equipment. Restructuring reserves at December 31, 2004, which are primarily classified above as Accrued Liabilities of discontinued operations, consisted primarily of CNF’s estimated exposure related to the labor matters described below, as well as other estimated remaining restructuring-related obligations.

      In connection with the cessation of its air carrier operations in 2001, EWA terminated the employment of all of its pilots and crew members. Those pilots and crew members are represented by the Air Line Pilots Association (“ALPA”) union under a collective bargaining agreement. Subsequently, ALPA filed a grievance on behalf of the pilots and crew members protesting the cessation of EWA’s air carrier operations and MWF’s use of other air carriers. The ALPA matters are the subject of litigation in U.S. District Court and, depending on the outcome of that litigation, may be subject to binding arbitration. Based on CNF’s current evaluation, management believes that it has provided for its estimated exposure related to the ALPA matters. However, there can be no assurance in this regard as CNF cannot predict with certainty the ultimate outcome of these matters.

Spin-Off of CFC

      On December 2, 1996, CNF completed the spin-off of CFC to CNF’s shareholders. In connection with the spin-off of CFC, CNF agreed to indemnify certain states, insurance companies and sureties against the failure of CFC to pay certain workers’ 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 and surety bonds under which CNF is liable to the issuing bank or the surety company.

      In September 2002, CFC filed for bankruptcy and ceased most U.S. operations. Following the commencement of its bankruptcy proceeding, CFC ceased making payments with respect to these workers’ compensation and public liability claims. CNF was required to take over payment of some of these claims and expects that demands for payment will likely be made against it with respect to the remaining claims. CNF estimated the aggregate amount of all of these claims, plus other costs, to be $25.0 million. As a result, CNF accrued additional reserves, primarily in Self-Insurance Accruals in the Consolidated Balance Sheets, and in 2002 recognized a loss from disposal of $15.3 million (net of $9.7 million of income taxes). Based on actual payment experience for these claims through December 31, 2004, CNF accrued additional reserves and recognized a loss from disposal of $2.4 million (net of $1.6 million of income taxes) in the fourth quarter of 2004. CNF is seeking reimbursement from CFC in its bankruptcy proceeding of amounts that CNF pays in respect of all of these claims, although there can be no assurance that CNF will be successful in recovering all or any portion of such payments.

Priority Mail Contract

      On November 3, 2000, EWA and the USPS announced an agreement (the “Termination Agreement”) to terminate their contract for the transportation and sortation of Priority Mail (the “Priority Mail contract”). Under the terms of the Termination Agreement, the USPS agreed to reimburse EWA for Priority Mail contract termination costs. On January 7, 2001, the USPS paid EWA $60.0 million toward the termination costs and on July 3, 2002, the USPS

paid EWA $6.0 million to fully settle EWA’s Priority Mail contract termination costs, which resulted in a 2002 third-quarter gain from discontinuance of $2.9 million, net of $1.8 million of income taxes.

Liquidity and Capital Resources

      Cash and cash equivalents rose to $386.9 million at December 31, 2004 from $38.2 million at December 31, 2003, as $379.6 million of cash provided by operating activities and $175.5 million provided by financing activities exceeded $184.3 million used in investing activities. Cash provided by financing activities primarily reflects net proceeds of $292.6 million received from the issuance of $300 million of Senior Debentures in April 2004, partially offset by the redemption in June 2004 of $128.9 million of Convertible Debentures. Cash used in investing activities primarily reflects capital expenditures of $151.5 million, and a $185.9 million increase in short-term marketable securities, partially offset by cash proceeds of $150.0 million from the sale of MWF, as more fully discussed in “Results of Operations — Discontinued Operations.”

      CNF’s cash flows are summarized in the table below.

Continuing Operations

      Cash flow from continuing operations in 2004 increased $153.4 million to $379.6 million. Higher operating cash flow in 2004 was primarily due to an increase in net income before non-cash items, which in 2004 included a $276.3 million non-cash net loss from the disposal of MWF, and to asset and liability changes related to the

liquidation of corporate-owned life insurance (“COLI”) policies, pension funding payments, and incentive compensation. Based on the volatility and insufficiency of returns on its COLI investments, CNF in 2004 fully liquidated its corporate-owned policies, which were reported in Deferred Charges and Other Assets in the Consolidated Balance Sheets. Changes in employee benefits in the years presented reflect the net effect of defined benefit pension plan funding contributions of $90.8 million in 2004, $75.0 million in 2003, and $76.2 million in 2002, as described below under “— Defined Benefit Pension Plans,” partially offset by expense accruals for CNF’s pension obligation. Accrued incentive compensation increased by $29.4 million in 2004, while 2003 reflects a $27.9 million reduction. For all periods presented, changes in accrued incentive compensation reflect CNF’s payment schedule for its employee incentive plans, under which total incentive compensation earned in an award year is paid to employees with a partial payment in December of the award year and a final payment in February of the next award year. In 2004, incentive compensation expense accruals exceeded payments, while in 2003, payments for incentive compensation exceeded expense accruals.

      Operating cash flow in 2003 declined from 2002 by $7.8 million to $226.2 million, as an increase in net income before non-cash items was more than offset by changes in assets and liabilities, which related primarily to income taxes, accrued incentive compensation and the termination of interest rate swaps in 2002. Accrued income taxes increased in 2003 based on taxable income, but declined in 2002 based on taxable losses. Accrued incentive compensation declined in 2003 but increased in 2002 based on the timing of expense accruals and payments, as described above. Operating cash flows in 2002 benefited from $31.0 million received as partial payment in connection with the termination of interest rate swaps, as more fully discussed in Note 5, “Debt and Other Financing Arrangements,” in Item 8, Financial Statements and Supplementary Data.”

      Investing activities in 2004 used $184.3 million compared to $303.4 million used in 2003. In all periods presented, investing activities consisted primarily of capital expenditures and the investment of cash into short-term marketable securities. In 2004, investing activities also included the sale of MWF, for which CNF received $150.0 million in December 2004. Capital expenditures in 2004 increased $23.7 million from 2003 due substantially to increased expenditures at Con-Way, which increased its tractor and trailer acquisitions to $144.5 million in 2004 from $118.2 million in 2003. Capital expenditures in 2003 increased $51.9 million from 2002, due principally to a $53.0 million increase at Con-Way. Investments in marketable securities, which fluctuate depending on investable cash balances, increased in 2004 and 2003 by $185.9 million and $169.4 million, respectively, and fell by $96.0 million in 2002.

      Financing activities provided cash of $175.5 million in 2004 and used cash of $33.6 million in 2003. In April 2004, CNF issued $300 million of 6.70% Senior Debentures due 2034 in a private placement with exchange rights for net proceeds of $292.6 million. CNF used a portion of the proceeds to redeem $128.9 million of CNF’s Convertible Debentures on June 1, 2004, as more fully discussed in Note 5, “Debt and Other Financing Arrangements,” of Item 8, “Financial Statements and Supplementary Data.” CNF intends to use the remaining proceeds to repurchase from time to time or pay at maturity, $100 million of 7.35% Notes due in June 2005, and for working capital and general corporate purposes. Financing activities in all years presented also reflect dividend payments and scheduled principal payments for the Thrift and Stock Plan notes guaranteed by CNF.

      In January 2005, the Board of Directors authorized the repurchase of up to $300 million in CNF’s common stock from time to time within the next two years in open market purchases and privately negotiated transactions. CNF currently estimates it will repurchase approximately $150 million of CNF’s common stock annually in 2005 and 2006.

      CNF has a $385 million revolving credit facility that matures on July 3, 2006. The revolving credit facility is available for cash borrowings and for the issuance of letters of credit up to $385 million. At December 31, 2004 and 2003, no borrowings were outstanding under the facility and, at December 31, 2004, $229.7 million of letters of credit were outstanding, leaving $155.3 million of available capacity for additional letters of credit or cash borrowings, subject to compliance with financial covenants and other customary conditions to borrowing. CNF

had other uncommitted unsecured credit facilities totaling $120.0 million at December 31, 2004, which are available to support letters of credit, bank guarantees, and overdraft facilities; at that date, a total of $39.1 million was outstanding under these facilities. Of the total letters of credit outstanding at December 31, 2004, $259.3 million provided collateral for CNF workers’ compensation and vehicular self-insurance programs. In March 2005, CNF entered into a new five-year $400 million unsecured revolving credit facility that replaced the existing $385 million facility. See “Other Matters — Forward-Looking Statements” below, and Note 5, “Debt and Other Financing Arrangements,” in Item 8, “Financial Statements and Supplementary Data,” for additional information concerning CNF’s $385 million credit facility, its new facility entered into in March 2005, and some of its other debt instruments.

      As more fully discussed above under “Results of Operations — Discontinued Operations,” CNF recognized a $276.3 million non-cash net loss from the disposal of MWF in 2004. To remain in compliance with certain financial covenants, CNF obtained an amendment to the credit agreement for CNF’s $385 million revolving credit facility. Additionally, the credit agreement contains restrictions on the sale of subsidiary guarantors and a threshold for the sale of assets. CNF has obtained the necessary creditors’ consent for the sale of MWF. See “Other Matters — Forward-Looking Statements” below, and Note 5, “Debt and Other Financing Arrangements,” in Item 8, “Financial Statements and Supplementary Data.”

Defined Benefit Pension Plans

      CNF periodically reviews the funding status of its defined benefit pension plans for non-contractual employees, and makes contributions from time to time as necessary in order to comply with the funding requirements of the Employee Retirement Income Security Act (“ERISA”). Funding of CNF’s defined benefit pensions is based on ERISA-defined measurements rather than the recognition and measurement criteria prescribed by accounting principles generally accepted in the United States (“GAAP”).

      CNF contributed $90.8 million to its defined benefit pension plans in 2004 and currently estimates it will contribute $75 million in 2005. CNF also made defined benefit pension plan contributions of $75.0 million in 2003, and $76.2 million in 2002, and $13.1 million in 2001 but made no contributions from 1996 through 2000, due in part to the high rate of return realized on plan assets and for the lack of tax deductibility of funding during that period.

Contractual Cash Obligations

      The table below summarizes contractual cash obligations for CNF as of December 31, 2004. Some of the amounts in the table are based on management’s estimates and assumptions about these obligations, including their duration, the possibility of renewal, and other factors. Because of these estimates and assumptions, the actual future payments may vary from those reflected in the table. These contractual cash obligations are reflected in the Consolidated Balance Sheets, except for operating leases, which are disclosed as future obligations under GAAP.

      As presented above, contractual obligations on long-term debt and guarantees represent principal payments while contractual obligations for operating leases represent the payments under the lease arrangements. Certain liabilities, including those related to pension and postretirement benefit plans and self-insurance accruals, are reported in CNF’s consolidated balance sheets but not reflected in the table above due to the absence of stated maturities. As described above, CNF currently estimates that it will contribute $75 million to its defined benefit pension plan in 2005.

      As described above under “— Continuing Operations,” letters of credit of $259.3 million were outstanding at December 31, 2004 to provide collateral for CNF’s workers’ compensation and vehicular self-insurance programs. These letters of credit are generally required under self-insurance programs and do not represent additional liabilities as the underlying self-insurance accruals are already reflected on CNF’s consolidated balance sheets.

      In accordance with GAAP, CNF’s operating leases are not included in CNF’s consolidated balance sheets. CNF’s operating leases were determined to provide economic benefits preferable to ownership based primarily on after-tax cash flows, financial and operating flexibility, and the effect on CNF’s capitalization. Under certain operating leases, Con-Way guarantees the residual value of tractors and trailers at the end of the lease term. At December 31, 2004, the residual value guaranteed under these lease agreements was $18.5 million. CNF recognizes a liability for any shortfall between the residual value guarantee and the equipment’s estimated fair value, which fluctuates depending on market conditions.

      In 2005, CNF anticipates capital expenditures of approximately $250 million, primarily for the acquisition of additional tractor and trailer equipment, including $20 million of capital expenditures planned for 2004 that was not invested in 2004 as the result of equipment production delays. CNF’s capital expenditure requirements may increase or decrease depending on business levels and other factors.

      For further discussion, see Note 5, “Debt and Other Financing Arrangements,” and Note 6, “Leases,” included in Item 8, “Financial Statements and Supplementary Data.”

Other

      CNF’s ratio of total debt to capital increased to 47.9% at December 31, 2004 from 41.0% at December 31, 2003 due primarily to the net effect of the second-quarter financing transactions in 2004, as described above, and to the decline in retained earnings resulting from the loss from disposal of MWF in 2004, as discussed under “Results of Operations — Discontinued Operations.”

Discontinued Operations

Sale Agreement with UPS

      On December 19, 2004, CNF completed the sale of MWF to UPS for $150 million in cash, which amount is subject to adjustment for cash held by MWF at closing and the net capital of MWF as of closing. As more fully discussed under “Results of Operations — Discontinued Operations,” as of December 31, 2004, CNF had not been reimbursed for its obligation related to MWF employees covered under CNF’s long-term disability and postretirement medical plans, pending conclusion of actuarially determined estimates. Accordingly, at December 31, 2004, Other Accounts Receivable included a $94.1 million receivable for CNF’s estimate of these employee benefit obligations as well as its estimate of the reimbursable MWF cash balance. Settlement of the cash balance is subject to an in-process evaluation and any difference between the estimated and actual cash position at December 31, 2004 would be recognized in future periods as a gain or loss from disposal when and if incurred.

Spin-Off of CFC

      On December 2, 1996, CNF completed the spin-off of CFC to CNF’s shareholders. CFC withdrew in 2002 from certain multiemployer pension funds, thereby incurring withdrawal liabilities to such funds. Prior to enactment in April 2004 of the Pension Funding Equity Act of 2004, if the multiemployer funds had asserted claims against CNF for such liabilities, CNF would have had a statutory obligation to make cash payments to the funds prior to any arbitral or judicial decisions on the funds’ determinations. Under the facts relating to the CFC withdrawals and the law in effect after enactment of the Pension Funding Equity Act of 2004, CNF would no longer be required to make such payments to the multiemployer funds unless and until final decisions in arbitration proceedings, or in court, upheld the funds’ determination. Refer to Note 11, “Commitments and Contingencies,” of Item 8, “Financial Statements and Supplementary Data.”

Estimates and Critical Accounting Policies

      The preparation of financial statements in accordance with accounting principles generally accepted in the U.S. requires management to adopt accounting policies and make significant judgments and estimates. In many cases, there are alternative policies or estimation techniques that could be used. CNF maintains a process to evaluate the appropriateness of its accounting policies and estimation techniques, including discussion with and review by the Audit Committee of its Board of Directors and its independent auditors. Accounting policies and estimates may require adjustment based on changing facts and circumstances and actual results could differ from estimates. The policies and estimates discussed below include those that are most critical to the financial statements.

Self-Insurance Accruals

      CNF uses a combination of insurance and self-insurance programs to provide for the costs of medical, casualty, liability, vehicular, cargo and workers’ compensation claims. In the measurement of these costs, CNF considers historical claims experience, medical costs, demographic and severity factors and other assumptions. Self-insurance accruals are developed based on the estimated, undiscounted cost of claims, including those claims incurred but not reported as of the balance sheet date. The long-term portion of self-insurance accruals relates primarily to workers’ compensation and vehicular claims that are payable over several years. The actual costs may vary from estimates.

Income Taxes

      In establishing its deferred income tax assets and liabilities, CNF makes judgments and interpretations based on the enacted tax laws and published tax guidance that are applicable to its operations. CNF records deferred tax assets and liabilities and periodically evaluates the need for a valuation allowance to reduce deferred tax assets to realizable amounts. The likelihood of a material change in CNF’s expected realization of these assets is dependent on future taxable income, future capital gains, its ability to use foreign tax credit carry forwards and carry backs, final U.S. and foreign tax settlements, and the effectiveness of its tax planning strategies in the various relevant jurisdictions. CNF is also subject to examination of its income tax returns for multiple years by the IRS and other tax authorities. CNF periodically assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of its provision and related accruals for income taxes.

Disposition and Restructuring Estimates

      As more fully discussed under “Results of Operations — Discontinued Operations,” CNF’s management made significant estimates and assumptions in connection with the restructuring of EWA in 2001 and the disposition of MWF in 2004. Actual results could differ from estimates, which could affect related amounts reported in the financial statements.

Uncollectible Accounts Receivable

      CNF and its subsidiaries report accounts receivable at net realizable value and provide an allowance for uncollectible accounts when collection is considered doubtful. Con-Way provides for uncollectible accounts based on various judgments and assumptions, including revenue levels, historical loss experience, and composition of outstanding accounts receivable. Logistics, based on the size and nature of its client base, performs a frequent and periodic evaluation of its customers’ creditworthiness and accounts receivable portfolio and recognizes expense from uncollectible accounts when losses are both probable and estimable.

Defined Benefit Pension Plans

      CNF has defined benefit pension plans that cover non-contractual employees in the United States. The amount recognized as pension expense and the accrued pension liability depend upon a number of assumptions and factors, the most significant being the discount rate used to measure the present value of pension obligations, the assumed rate of return on plan assets, which are both affected by economic conditions and market fluctuations, and the rate of compensation increase.

      CNF assumed a discount rate of 6.25% and 6.75% for purposes of calculating its pension expense in 2004 and 2003, respectively, and assumed a discount rate of 6.25% in calculating its year-end liability for both 2004 and 2003. The decline in the assumed discount rate for pension expense was due primarily to declines in high-quality corporate bond yields in 2004. CNF adjusts its discount rate periodically by taking into account changes in high-quality corporate bond yields and the guidance of its outside actuaries. In determining the appropriate discount rate, CNF in 2004 began utilizing a bond model that incorporates expected cash flows of plan obligations. The bond model uses a selected portfolio of Moody’s Aa-or-better rated bonds with cash flows and maturities that match the projected benefit payments of CNF’s pension plans. CNF’s discount rate is equal to the yield on the portfolio of bonds, which will typically exceed the Moody’s Aa corporate bond index due to the long duration of expected benefit payments from CNF’s plan. If all other factors were held constant, a 0.25% decline in the discount rate would result in an estimated $6 million increase in 2005 annual pension expense.

      CNF adjusts its assumed rate of return on plan assets based on historic returns of the plan assets and current market expectations. The rate of return is based on a mean-expected 20-year return on the current asset allocation and the effect of actively managing the plan, net of fees and expenses. For purposes of calculating its pension expense, CNF assumed a rate of return on plan assets of 9.0% in both 2004 and 2003 and expects to use a rate of 8.5% for 2005. Using year-end plan asset values, a 0.5% decline in the assumed rate of return on plan assets would result in an estimated $4 million increase in 2005 annual pension expense.

      The determination of CNF’s accrued pension benefit cost includes an unrecognized actuarial loss that results from the cumulative difference between estimated and actual values for the year-end projected pension benefit obligation and the fair value of plan assets. Under GAAP, any portion of the unrecognized actuarial loss or gain that exceeds ten percent of the greater of the projected benefit obligation or fair value of plan assets must be amortized as an expense over the average service period for employees, approximately thirteen years for CNF. Lower amortization of the unrecognized actuarial loss reduces the annual pension expense in 2005 by approximately $6 million from the annual pension expense in 2004.

Goodwill and Long-Lived Assets

      CNF performs an impairment analysis of long-lived assets whenever circumstances indicate that the carrying amount may not be recoverable. For assets that are to be held and used, an impairment charge is recognized when the estimated undiscounted cash flows associated with the asset or group of assets is less than carrying value. If impairment exists, a charge is recognized for the difference between the carrying value and the fair value. Fair values are determined using quoted market values, discounted cash flows, or external appraisals, as applicable. Assets held for disposal are carried at the lower of carrying value or estimated net realizable value.

      CNF tests the recoverability of goodwill on an annual basis in the fourth quarter and between annual tests in certain circumstances. A fair-value approach is used to test goodwill for impairment. An impairment charge is recognized if the carrying amount of goodwill exceeds its fair value. CNF utilized a third-party independent valuation consultant to perform the impairment test of goodwill associated with the Forwarding reporting segment as of December 31, 2003. Based on the annual impairment test in the fourth quarter of 2003, which assumed improving cash flows, CNF was not required to record a charge for goodwill impairment.

      As more fully discussed in “Results of Operations — Discontinued Operations,” CNF committed to sell MWF in the third quarter of 2004 and recognized a $260.5 million impairment charge to write down the recorded book value of MWF to its anticipated selling price, less costs to sell. The impairment charge was based on an agreement to sell MWF and represented the estimated write-down to the carrying value of MWF’s goodwill and long-lived assets, including MWF’s accumulated foreign currency translation adjustment, as well as estimated selling costs. CNF agreed to accept less than the recorded book value of MWF due primarily to management’s assessment of the risk and resource requirements associated with other strategic alternatives related to MWF’s operations.

Other Matters

Cyclicality and Seasonality

      CNF’s businesses operate in industries that are affected directly by general economic conditions and seasonal fluctuations, which affect demand for transportation services. In the trucking and air freight industries, for a typical year, the months of September and October usually have the highest business levels while the months of December, January and February usually have the lowest business levels.

Business Interruption

      CNF and its subsidiaries rely on CNF Service Company for the performance of shared administrative and technology services in the conduct of their businesses. CNF’s centralized computer facilities and its administrative and technology employees are located at the Administrative and Technology (“AdTech”) Center in Portland, Oregon. Although CNF maintains backup systems and has disaster recovery processes and procedures in place, a sustained interruption in the operation of these facilities, whether due to terrorist activities, earthquakes, floods or otherwise, could have a material adverse effect on CNF’s financial condition, cash flows, and results of operations.

Homeland Security

      CNF is subject to compliance with cargo security and transportation regulations issued by the Transportation Security Administration and by the Department of Homeland Security. CNF is not able to accurately predict how new governmental regulation will affect the transportation industry. However, CNF believes that any additional security measures that may be required by future regulations could result in additional costs and could have an adverse effect on its ability to serve customers and on its financial condition, results of operations, and cash flows.

Employees

      The workforce of CNF and its subsidiaries is not affiliated with labor unions. Consequently, CNF believes that the operations of its subsidiaries have significant advantages over comparable unionized competitors (particularly in the trucking industry) in providing reliable and cost-competitive customer services, including greater efficiency and flexibility. There can be no assurance that CNF’s subsidiaries will be able to maintain their current advantages over certain of their competitors.

New Accounting Standards

      In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities: an Interpretation of ARB No. 51” (“FIN 46”). FIN 46 requires that all special-purpose entities be designated as either a voting-interest entity or a variable-interest entity (“VIE”). A VIE is an entity for which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the VIE to finance its activities without additional subordinated financial support from other parties. A VIE is required to be consolidated by its primary beneficiary if it does not effectively disperse risks among parties involved. The primary beneficiary of a VIE is the party that absorbs a majority of the VIE’s expected losses or receives a majority of its expected residual returns.

      The implementation of FIN 46 was required for periods beginning after June 15, 2003. However, in October 2003, the FASB deferred the effective date for applying FIN 46 to VIE’s created before February 1, 2003 until the end of the first interim period ending after December 15, 2003. In December 2003, the FASB revised FIN 46 (“FIN 46R”) to incorporate certain revisions, including the requirement to disregard certain rights in determining whether an entity is the primary beneficiary in a VIE. Under FIN 46R, CNF was not the primary beneficiary of CNF Trust 1 (the “Trust”), a wholly owned subsidiary, and CNF was therefore required to deconsolidate the Trust effective in the quarter ended March 31, 2004. Accordingly, CNF’s 5% Convertible Debentures held by the Trust, which were redeemed by CNF on June 1, 2004, were included in long-term debt at March 31, 2004, and

prior periods were restated to reflect adoption of FIN 46R, as more fully discussed in Note 5, “Debt and Other Financing Arrangements” of Item 8, “Financial Statements and Supplementary Data.”

      In December 2004, the FASB issued SFAS No. 123R, “Share-Based Payment” (“SFAS 123R”), a revision of SFAS 123 that supersedes APB 25 and its related implementation guidance. SFAS 123R eliminates the alternative to use APB 25’s intrinsic-value method of accounting that was provided in SFAS 123 as originally issued, and requires companies to recognize the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards (with limited exceptions) over the period during which an employee is required to provide service in exchange for the award.

      SFAS 123R also amends FASB Statement No. 95, “Statement of Cash Flows,” to require that the benefits associated with the tax deductions in excess of recognized compensation cost be reported as financing cash flows, rather than as a reduction of taxes paid. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after the effective date. These future amounts cannot be estimated because they depend on factors that cannot be predicted, including when employees exercise stock options.

      The effective date of SFAS 123R is as of the beginning of the first reporting period that begins after June 15, 2005, which for CNF is the third quarter of 2005. CNF is currently assessing the impact that SFAS 123R will have on its financial statements.

Forward-Looking Statements

      Certain statements included herein constitute “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to a number of risks and uncertainties, and should not be relied upon as predictions of future events. All statements other than statements of historical fact are forward-looking statements, including any projections of earnings, revenues, weight, yield, volumes, income or other financial or operating items, any statements of the plans, strategies, expectations or objectives of CNF or its management for future operations or other future items, any statements concerning proposed new products or services, any statements regarding CNF’s estimated future contributions to pension plans, any statements as to the adequacy of reserves, any statements regarding the outcome of any claims that may be brought against CNF by CFC’s multi-employer pension plans or any statements regarding future economic conditions or performance, any statements regarding the outcome of legal and other claims and proceedings against CNF; any statements of estimates or belief and any statements or assumptions underlying the foregoing.

      Certain such forward-looking statements can be identified by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates” or “anticipates” or the negative of those terms or other variations of those terms or comparable terminology or by discussions of strategy, plans or intentions. Such forward-looking statements are necessarily dependent on assumptions, data and methods that may be incorrect or imprecise and there can be no assurance that they will be realized. In that regard, the following factors, among others and in addition to the matters discussed elsewhere in this document and other reports and documents filed by CNF with the Securities and Exchange Commission, could cause actual results and other matters to differ materially from those discussed in such forward-looking statements:

      As a result of the foregoing, no assurance can be given as to future financial condition, results of operations, and cash flows. See Note 11, “Commitments and Contingencies” in Item 8, “Financial Statements and Supplementary Data.”

      CNF is exposed to a variety of market risks, including the effects of interest rates, fuel prices, and foreign currency exchange rates. CNF enters 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 interest rate, commodity 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.

      CNF is subject to the effect of interest rate fluctuations on the fair value of its long-term debt. Based on the fixed interest rates and maturities of its long-term debt, fluctuations in market interest rates would not significantly affect operating results or cash flows, but may have a material effect on the fair value of long-term debt. Based on current interest rates offered for debt with similar terms and maturities, the estimated fair value of CNF’s long-term debt was approximately $760 million as of December 31, 2004. Given a hypothetical 10% change in interest rates, the change in fair value of long-term debt would be approximately $30 million. As more fully discussed in Note 5, “Debt and Other Financing Arrangements,” in Item 8, “Financial Statements and Supplementary Data,” CNF in December 2002 terminated four interest rate swap derivatives designated as fair value hedges of fixed-rate long-term debt. Except for the effect of these terminated interest rate swaps, derivative financial instruments did not have a material effect on CNF’s financial condition, results of operations, or cash flows.

      CNF has market risk for changes in the price of diesel fuel. However, the risk associated with increases in fuel prices is mitigated by revenue from fuel surcharges. Therefore, a hypothetical 10% increase in the price of fuel would not be expected to have a material adverse effect on results of operations.

      The assets and liabilities of CNF’s foreign subsidiaries are denominated in foreign currencies, which creates exposure to changes in foreign currency exchange rates. However, the market risk related to foreign currency exchange rates is not material to CNF’s financial condition, results of operations, or cash flows.

CNF Inc.

Consolidated Balance Sheets

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

CNF Inc.

Consolidated Balance Sheets

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

CNF Inc.

Statements of Consolidated Operations

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

CNF Inc.

Statements of Consolidated Cash Flows

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

CNF INC.

STATEMENTS OF CONSOLIDATED SHAREHOLDERS’ EQUITY