Edgar Filing: Con-way Inc.

form10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2011

___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from N/A to N/A

COMMISSION FILE NUMBER 1-5046

Con-way Inc.

Incorporated in the State of Delaware

I.R.S. Employer Identification No. 94-1444798

2211 Old Earhart Road, Suite 100, Ann Arbor, Michigan 48105

Telephone Number (734) 994-6600

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Large accelerated filer x Accelerated filer o Non-accelerated filer o Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

Number of shares of Common Stock, $0.625 par value,

outstanding as of July 31, 2011: 55,573,894

CON-WAY INC.
FORM 10-Q
Quarter Ended June 30, 2011


Table of Contents

					Page
PART I. FINANCIAL INFORMATION

	Item 1.	Financial Statements

			Consolidated Balance Sheets -
				June 30, 2011 and December 31, 2010	3

			Statements of Consolidated Income -
				Three and Six Months Ended June 30, 2011 and 2010	5

			Statements of Consolidated Cash Flows -
				Six Months Ended June 30, 2011 and 2010	6

			Notes to Consolidated Financial Statements		7

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations			18

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk			31

	Item 4.	Controls and Procedures			32

PART II. OTHER INFORMATION

	Item 1.	Legal Proceedings			33

	Item 1A.	Risk Factors			33

	Item 6.	Exhibits			33

	Signatures				34

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PART I. FINANCIAL INFORMATION



ITEM 1. FINANCIAL STATEMENTS


CON-WAY INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)



	June 30,			December 31,
ASSETS	2011			2010
	(Unaudited)
Current Assets
Cash and cash equivalents	$	469,413		$	421,420
Trade accounts receivable, net		629,126			539,849
Other accounts receivable		54,276			79,065
Operating supplies, at lower of average cost or market		25,807			23,868
Prepaid expenses		45,290			47,345
Deferred income taxes		18,592			8,530
		1,242,504			1,120,077


Property, Plant and Equipment
Land		194,818			194,818
Buildings and leasehold improvements		819,966			817,599
Revenue equipment		1,532,935			1,480,561
Other equipment		311,912			306,215
		2,859,631			2,799,193
Accumulated depreciation		(1,428,371	)		(1,394,608	)
		1,431,260			1,404,585

Other Assets
Deferred charges and other assets		36,438			39,107
Capitalized software, net		18,772			19,083
Marketable securities		5,774			6,039
Intangible assets, net		15,630			17,191
Goodwill		338,073			337,650
		414,687			419,070

Total Assets	$	3,088,451		$	2,943,732




The accompanying notes are an integral part of these statements.

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CON-WAY INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except per share amounts)



	June 30,			December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY	2011			2010
	(Unaudited)
Current Liabilities
Accounts payable	$	373,139		$	304,176
Accrued liabilities		227,665			203,231
Self-insurance accruals		101,856			105,857
Short-term borrowings		19,185			18,552
Current maturities of long-term debt and capital leases		20,397			20,074
Total Current Liabilities		742,242			651,890

Long-Term Liabilities
Long-term debt		718,274			718,215
Long-term obligations under capital leases		66,069			75,735
Self-insurance accruals		158,454			169,311
Employee benefits		401,944			418,731
Other liabilities and deferred credits		43,674			41,789
Deferred income taxes		86,781			48,529
Total Liabilities		2,217,438			2,124,200

Commitments and Contingencies (Note 10)

Shareholders' Equity
Common stock, $0.625 par value; authorized 100,000,000 shares;
issued 62,995,517 and 62,750,994 shares, respectively		39,345			39,143
Additional paid-in capital, common stock		590,993			580,008
Retained earnings		838,208			821,187
Cost of repurchased common stock
(7,466,906 and 7,884,597 shares, respectively)		(322,417	)		(340,912	)
Total Common Shareholders' Equity		1,146,129			1,099,426
Accumulated Other Comprehensive Loss		(275,116	)		(279,894	)
Total Shareholders' Equity		871,013			819,532
Total Liabilities and Shareholders' Equity	$	3,088,451		$	2,943,732



The accompanying notes are an integral part of these statements.

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CON-WAY INC.
STATEMENTS OF CONSOLIDATED INCOME
(Unaudited)
(Dollars in thousands except per share amounts)



		Three Months Ended						Six Months Ended
		June 30,						June 30,
		2011			2010			2011			2010

Revenues		$	1,348,549		$	1,306,263		$	2,594,176		$	2,468,174

Costs and Expenses
	Salaries, wages and employee benefits		508,874			523,950			1,000,514			1,013,409
	Purchased transportation		348,526			344,039			665,516			621,680
	Fuel and fuel-related taxes		150,110			122,335			286,137			236,684
	Other operating expenses		142,018			140,191			272,700			273,942
	Depreciation and amortization		50,540			47,938			100,854			92,964
	Maintenance		32,509			32,016			61,981			63,501
	Rents and leases		28,730			30,319			56,521			59,051
	Purchased labor		27,077			30,043			53,092			54,344
	Loss from impairment of intangible assets		-			-			-			2,767
			1,288,384			1,270,831			2,497,315			2,418,342

Operating Income			60,165			35,432			96,861			49,832

Other Income (Expense)
	Investment income		227			325			549			707
	Interest expense		(13,923	)		(14,688	)		(27,842	)		(31,088	)
	Miscellaneous, net		(1,025	)		(758	)		(2,763	)		(2,054	)
			(14,721	)		(15,121	)		(30,056	)		(32,435	)

Income before Income Tax Provision			45,444			20,311			66,805			17,397
	Income Tax Provision		16,022			6,448			30,461			7,571
Net Income Available to Common Shareholders		$	29,422		$	13,863		$	36,344		$	9,826

Weighted-Average Common Shares Outstanding
	Basic		55,413,243			51,665,047			55,227,528			50,506,809
	Diluted		56,136,065			52,362,407			55,939,330			51,184,703

Earnings per Common Share
	Basic
	Net Income Available to Common Shareholders	$	0.53		$	0.27		$	0.66		$	0.19

	Diluted
	Net Income Available to Common Shareholders	$	0.52		$	0.26		$	0.65		$	0.19


The accompanying notes are an integral part of these statements.

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STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
(Dollars in thousands)

	Six Months Ended
	June 30,
	2011			2010

Cash and Cash Equivalents, Beginning of Period	$	421,420		$	476,575

Operating Activities
Net income		36,344			9,826
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization, net of accretion		100,364			90,349
Non-cash compensation and employee benefits		12,207			10,174
Increase in deferred income taxes		26,224			2,574
Provision for uncollectible accounts		3,159			2,924
Loss from impairment of intangible assets		-			2,767
Loss (Gain) from sales of property and equipment, net		(1,632	)		783
Changes in assets and liabilities:
Receivables		(96,076	)		(121,567	)
Prepaid expenses		2,055			(3,265	)
Accounts payable		63,386			71,243
Accrued variable compensation		(1,506	)		(591	)
Accrued liabilities, excluding accrued variable compensation
and employee benefits		25,000			16,635
Self-insurance accruals		(14,858	)		22,019
Accrued income taxes		29,942			(6,388	)
Employee benefits		1,389			13,269
Deferred charges and credits		1,699			(2,300	)
Other		(1,751	)		(2,114	)
Net Cash Provided by Operating Activities		185,946			106,338

Investing Activities
Capital expenditures		(138,834	)		(88,351	)
Software expenditures		(3,854	)		(4,700	)
Proceeds from sales of property and equipment		19,891			2,436
Purchases of marketable securities		-			(49,260	)
Proceeds from sales of marketable securities		300			10,300
Net Cash Used in Investing Activities		(122,497	)		(129,575	)

Financing Activities
Repayment of long-term debt and capital leases		(9,272	)		(204,316	)
Net proceeds from short-term borrowings		245			6,035
Proceeds from issuance of common stock		-			143,325
Proceeds from exercise of stock options		4,087			1,148
Excess tax benefit from stock-option exercises		544			146
Payments of common dividends		(11,060	)		(9,924	)
Net Cash Used in Financing Activities		(15,456	)		(63,586	)

Increase (Decrease) in Cash and Cash Equivalents		47,993			(86,823	)
Cash and Cash Equivalents, End of Period	$	469,413		$	389,752

Supplemental Disclosures
Cash paid (refunded) for income taxes, net	$	(28,881	)	$	16,463
Cash paid for interest, net of amounts capitalized	$	27,421		$	35,560

Non-cash Financing Activities
Capital lease incurred to acquire revenue equipment	$	-		$	35,104
Repurchased common stock issued under defined contribution plan	$	17,307		$	17,945

The accompanying notes are an integral part of these statements.

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CON-WAY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Principal Accounting Policies

Organization

Con-way Inc. and its consolidated subsidiaries (“Con-way”) provide transportation, logistics and supply-chain management services for a wide range of manufacturing, industrial and retail customers. Con-way’s business units operate in regional and transcontinental less-than-truckload and full-truckload freight transportation, contract logistics and supply-chain management, multimodal freight brokerage, and trailer manufacturing. As more fully discussed in Note 4, “Segment Reporting,” for financial reporting purposes, Con-way is divided into four reporting segments: Freight, Logistics, Truckload and Other.

Basis of Presentation

These interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and Rule 10-01 of Regulation S-X, and should be read in conjunction with Con-way’s 2010 Annual Report on Form 10-K. Accordingly, significant accounting policies and other disclosures normally provided have been omitted.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, including normal recurring adjustments, necessary to present fairly Con-way’s financial condition, results of operations and cash flows for the periods presented. Results for the interim periods presented are not necessarily indicative of annual results.

Earnings per Share (“EPS”)

Basic EPS is computed by dividing reported earnings by the weighted-average common shares outstanding. Diluted EPS is calculated as follows:

(Dollars in thousands except per share data)	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Numerator:
Net income available to common
shareholders, as reported	$	29,422	$	13,863	$	36,344	$	9,826

Denominator:
Weighted-average common shares outstanding		55,413,243		51,665,047		55,227,528		50,506,809
Stock options and nonvested stock		722,822		697,360		711,802		677,894
		56,136,065		52,362,407		55,939,330		51,184,703

Diluted earnings per share	$	0.52	$	0.26	$	0.65	$	0.19

Antidilutive securities excluded from the
computation of diluted EPS		2,004,579		1,559,367		2,004,579		1,578,359

New Accounting Standards

In June 2011, the FASB issued Accounting Standards Update (“ASU”) 2011-05, “Presentation of Comprehensive Income.” This ASU, codified in the “Comprehensive Income” topic of the FASB Accounting Standards Codification, eliminates the option to present the components of other comprehensive income as part of the statement of shareholders’ equity. Instead, entities are required to present net income and other comprehensive income in either a single continuous statement or in two separate, but consecutive statements. In addition, items that are reclassified from other comprehensive income to net income must be presented on the face of the financial statements. The accounting guidance in ASU 2011-05 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 and requires full retrospective application. Con-way currently reports other comprehensive income in the statement of shareholders’ equity. Upon adoption, Con-way will be required to reclassify prior-period reported amounts and present net income, other comprehensive income and comprehensive income in accordance with the amended standards.

- 7 -

Reclassifications

Certain amounts in the prior-period financial statements have been reclassified to conform to the current-period presentation.

2. Goodwill and Intangible Assets

Goodwill

Goodwill is recorded as the excess of an acquired entity’s purchase price over the amounts assigned to assets acquired (including separately recognized intangible assets) and liabilities assumed. Goodwill is not amortized but is assessed for impairment on an annual basis in the fourth quarter, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The assessment requires the comparison of the fair value of a reporting unit to the carrying value of its net assets, including allocated goodwill. If the carrying value of the reporting unit exceeds its fair value, Con-way must then compare the implied fair value of the reporting-unit goodwill with the carrying amount of the goodwill. If the carrying amount of the reporting-unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.

The following table shows the changes in the gross carrying amounts of goodwill attributable to each applicable segment:

(Dollars in thousands)	Logistics			Truckload			Other		Total

Balance at December 31, 2009
Goodwill	$	54,968		$	464,598		$	727	$	520,293
Accumulated impairment losses		(31,822	)		(134,813	)		--		(166,635	)
		23,146			329,785			727		353,658

Impairment charge		(16,414	)		--			--		(16,414	)
Change in foreign currency exchange rates		406			--			--		406
Balances at December 31, 2010
Goodwill		55,374			464,598			727		520,699
Accumulated impairment losses		(48,236	)		(134,813	)		--		(183,049	)
		7,138			329,785			727		337,650

Change in foreign currency exchange rates		423			--			--		423
Balances at June 30, 2011
Goodwill		55,797			464,598			727		521,122
Accumulated impairment losses		(48,236	)		(134,813	)		--		(183,049	)
	$	7,561		$	329,785		$	727	$	338,073

Intangible Assets

The fair value of intangible assets is amortized on a straight-line basis over the estimated useful life. In the second quarter and first half of 2011, amortization expense related to intangible assets was $0.8 million and $1.6 million, respectively, compared to $0.8 million and $1.7 million in the same respective periods of 2010. Intangible assets consisted of the following:

	June 30, 2011				December 31, 2010
(Dollars in thousands)	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization

Customer relationships	$	27,792	$	12,162	$	27,530	$	10,339

In the first quarter of 2010, Con-way evaluated the fair value of Chic Logistics’ customer-relationship intangible asset due to lower projected revenues from customers comprising the customer relationship intangible asset. As a result, Menlo Worldwide Logistics recognized a $2.8 million impairment loss to reduce the carrying amount of the intangible asset to zero.

- 8 -

Estimated amortization expense for the next five years is presented in the following table:

(Dollars in thousands)

Year ending December 31:
Remaining six months of 2011	$	1,600
2012		2,600
2013		2,400
2014		2,400
2015		2,400
2016		2,400

3. Restructuring Activities

As more fully discussed below, Con-way recognized restructuring charges of $1.2 million and $1.7 million in the second quarter and first half of 2011, respectively, and expects to recognize $0.4 million of additional expense in the second half of 2011. In the second quarter and first half of 2010, Con-way recognized restructuring charges of $0.6 million and $1.4 million, respectively. Con-way reported the employee-separation costs in salaries, wages and employee benefits and all other costs in other operating expenses. Con-way’s remaining liability for amounts expensed but not yet paid was $0.2 million at June 30, 2011. The remaining liability relates to employee-separation costs that are expected to be paid through 2011.

Outsourcing Initiative

In 2009, as part of an ongoing effort to reduce costs and improve efficiencies, Con-way initiated a project to outsource a significant portion of its information-technology infrastructure function and a small portion of its administrative and accounting functions. Con-way does not expect to incur additional restructuring charges for the outsourcing initiative.

The following table summarizes the effect of the outsourcing initiative:

(Dollars in thousands)	Employee-Separation Costs		Contract-Termination Costs			Total
Balance at December 31, 2010	$	--	$	371		$	371
Cash payments		--		(371	)		(371	)
Balance at June 30, 2011	$	--	$	--		$	--

Total expense recognized to date	$	5,126	$	728		$	5,854

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Consolidation of Executive Offices

In the third quarter of 2010, in an effort to more closely align corporate functions and better support the business, Con-way initiated a project to consolidate its executive offices located in San Mateo, California and Ann Arbor, Michigan. The consolidation was substantially completed in the second quarter of 2011 when the executive office in San Mateo closed. The remaining liability and expenses are expected to be settled in 2011.

The following table summarizes the effect of the initiative:

(Dollars in thousands)	Employee-Separation Costs			Relocation and Other Costs			Total
Balance at December 31, 2010	$	2,496		$	--		$	2,496
2011 charges		1,063			645			1,708
Cash payments		(3,387	)		(645	)		(4,032	)
Balance at June 30, 2011	$	172		$	--		$	172

Total expense recognized to date	$	3,559		$	645		$	4,204
Expected remaining expenses	$	--		$	427		$	427

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4. Segment Reporting

Con-way discloses segment information in the manner in which the business units are organized for making operating decisions, assessing performance and allocating resources. For the periods presented, Con-way is divided into the following four reporting segments:

Freight. The Freight segment consists of the operating results of the Con-way Freight business unit, which provides regional, inter-regional and transcontinental less-than-truckload freight services throughout North America.

Logistics. The Logistics segment consists of the operating results of the Menlo Worldwide Logistics business unit, which develops contract-logistics solutions, including the management of complex distribution networks and supply-chain engineering and consulting, and also provides multimodal freight brokerage services.

Truckload. The Truckload segment consists of the operating results of the Con-way Truckload business unit, which provides asset-based full-truckload freight services throughout North America.

Other. The Other reporting segment consists of the operating results of Road Systems, a trailer manufacturer, and certain corporate activities for which the related income or expense has not been allocated to other reporting segments.

Financial Data

Management evaluates segment performance primarily based on revenue and operating income (loss). Accordingly, investment income, interest expense, and other non-operating items are not reported in segment results. Corporate expenses are generally allocated based on measurable services provided to each segment, or for general corporate expenses, based on segment revenue. Inter-segment revenue and related operating income (loss) have been eliminated to reconcile to consolidated revenue and operating income (loss). Transactions between segments are generally based on negotiated prices.

(Dollars in thousands)	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Revenues before Inter-segment Eliminations
Freight	$	839,829		$	816,965		$	1,607,570		$	1,541,968
Logistics		394,012			385,775			763,987			740,958
Truckload		155,451			145,454			300,666			286,070
Other		12,297			14,019			24,294			25,858
Inter-segment Revenue Eliminations		(53,040	)		(55,950	)		(102,341	)		(126,680	)
	$	1,348,549		$	1,306,263		$	2,594,176		$	2,468,174

Inter-segment Revenue Eliminations
Freight	$	12,435		$	12,934		$	23,726		$	25,382
Logistics		8,644			5,360			14,805			8,530
Truckload		21,524			25,676			42,370			69,786
Other		10,437			11,980			21,440			22,982
	$	53,040		$	55,950		$	102,341		$	126,680

Revenues from External Customers
Freight	$	827,394		$	804,031		$	1,583,844		$	1,516,586
Logistics		385,368			380,415			749,182			732,428
Truckload		133,927			119,778			258,296			216,284
Other		1,860			2,039			2,854			2,876
	$	1,348,549		$	1,306,263		$	2,594,176		$	2,468,174
Operating Income (Loss)
Freight	$	39,155		$	17,226		$	59,499		$	14,073
Logistics		12,095			13,008			20,741			25,864
Truckload		10,323			5,132			17,406			8,107
Other		(1,408	)		66			(785	)		1,788
	$	60,165		$	35,432		$	96,861		$	49,832

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5. Fair-Value Measurements

Assets and liabilities reported at fair value are classified in one of the following three levels within the fair-value hierarchy:

Level 1: Quoted market prices in active markets for identical assets or liabilities

Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data

Level 3: Unobservable inputs that are not corroborated by market data

The following table summarizes the valuation of financial instruments within the fair-value hierarchy:

	June 30, 2011
(Dollars in thousands)	Total		Level 1		Level 2		Level 3

Cash equivalents	$	438,033	$	105,800	$	332,233	$	--
Other marketable securities		5,774		--		--		5,774

	December 31, 2010
(Dollars in thousands)	Total		Level 1		Level 2		Level 3

Cash equivalents	$	388,053	$	118,763	$	269,290	$	--
Other marketable securities		6,039		--		--		6,039

Cash equivalents consist of short-term interest-bearing instruments (primarily commercial paper, certificates of deposit and money-market funds) with maturities of three months or less at the date of purchase.

Money-market funds reflect their published net asset value and are classified as Level 1 instruments within the fair-value hierarchy. Commercial paper and certificates of deposit are generally valued using published interest rates for instruments with similar terms and maturities, and accordingly, are classified as Level 2 instruments within the fair-value hierarchy. At June 30, 2011, the weighted-average remaining maturity of the cash equivalents was less than one month. Based on their short maturities, the carrying amount of the cash equivalents approximates their fair value.

Con-way holds one auction-rate security, which is valued with an income approach that utilizes a discounted cash flow model. The following table summarizes the change in fair values of Con-way’s auction-rate security, which was valued using Level 3 inputs:


(Dollars in thousands)	Auction-rate security
Balance at December 31, 2009	$	6,691
Unrealized gain		48
Partial redemption		(700	)
Balance at December 31, 2010	$	6,039
Unrealized gain		35
Partial redemption		(300	)
Balance at June 30, 2011	$	5,774

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6. Employee Benefit Plans

In the periods presented, employees of Con-way and its subsidiaries in the U.S. were covered under several retirement benefit plans, including defined benefit pension plans, defined contribution retirement plans, a postretirement medical plan and a long-term disability plan. See Note 11, “Employee Benefit Plans,” of Item 8, “Financial Statements and Supplementary Data,” in Con-way’s 2010 Annual Report on Form 10-K for additional information concerning its employee benefit plans. See “Cost-Reduction Actions” below for a discussion of employee benefits changes that were effective in April 2009.

Defined Benefit Pension Plans

As a result of plan amendments in previous years, no additional benefits accrue under these plans and already-accrued benefits will not be adjusted for future increases in compensation. The following table summarizes the components of net periodic benefit expense (income) for Con-way’s domestic defined benefit pension plans:

	Qualified Pension Plans
	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2011			2010			2011			2010

Interest cost on benefit obligation	$	17,685		$	17,204		$	35,655		$	34,568
Expected return on plan assets		(21,426	)		(18,138	)		(42,968	)		(37,519	)
Amortization of net loss		2,534			2,307			5,273			4,535
Net periodic benefit expense (income)	$	(1,207	)	$	1,373		$	(2,040	)	$	1,584

	Non-Qualified Pension Plans
	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)		2011			2010			2011			2010

Interest cost on benefit obligation	$	957		$	966		$	1,894		$	1,940
Amortization of net loss		182			115			339			226
Net periodic benefit expense	$	1,139		$	1,081		$	2,233		$	2,166

Con-way expects to make required contributions of $22.0 million and discretionary contributions of $40.6 million to its Qualified Pension Plans in 2011, including $9.7 million contributed through July 2011. Con-way’s estimate of its 2011 contribution is subject to change based on variations in interest rates, asset returns, Pension Protection Act requirements and other factors.

Defined Contribution Retirement Plans

Con-way’s defined contribution retirement plans consist mostly of the primary defined contribution retirement plan (the “Primary DC Plan”).

Con-way’s expense under the Primary DC Plan was $8.8 million and $17.7 million in the second quarter and first six months of 2011, respectively, compared to $10.3 million and $19.2 million in the same periods of 2010. At June 30, 2011 and December 31, 2010, Con-way had recognized accrued liabilities of $10.8 million and $10.4 million, respectively, for its contributions related to the Primary DC Plan.

In the first six months of 2011 and 2010, Con-way used 461,151 shares and 511,319 shares, respectively, of repurchased common stock (also referred to as treasury stock), to fund $17.3 million and $17.9 million, respectively, of contributions to the Primary DC Plan. Effective in July 2011, Con-way’s contributions to the Primary DC Plan will be in the form of cash, rather than in treasury stock.

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Postretirement Medical Plan

The following table summarizes the components of net periodic benefit expense for the postretirement medical plan:

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2011			2010			2011			2010

Service cost	$	316		$	305		$	721		$	703
Interest cost on benefit obligation		1,125			1,195			2,246			2,416
Amortization of prior service credit		(303	)		(300	)		(606	)		(601	)
Net periodic benefit expense	$	1,138		$	1,200		$	2,361		$	2,518

Long-term Disability Plan

Con-way’s expense associated with the long-term disability plan was $3.7 million and $6.3 million in the second quarter and first six months of 2011, respectively, compared to $4.0 million and $7.1 million in the same respective periods of 2010. In Con-way’s consolidated balance sheets, the long-term and current portions of the long-term disability plan obligation are reported in employee benefits and accrued liabilities, respectively. At June 30, 2011, the long-term and current portions of the obligation were $21.8 million and $11.4 million, respectively, and at December 31, 2010, were $22.1 million and $11.4 million, respectively.

Cost-Reduction Actions

In response to economic conditions, in March 2009 Con-way announced several measures to reduce costs and conserve cash, as detailed below. The measures announced in March 2009 consisted of the suspension or curtailment of employee benefits and a reduction in salaries and wages.

Salaries and Wages

Effective in March 2009, the salaries and wages of certain employees were reduced by 5%, including corporate and shared-services employees and those at the Con-way Freight and Road Systems business units. Effective in January 2010, Con-way restored one-half of the salary and wage reductions. Con-way restored the remaining one-half of salary and wage reductions effective in January 2011.

Compensated Absences

Effective in April 2009, a compensated-absences benefit was suspended at Con-way Freight. During the period of suspension, no compensated-absences benefits were earned for current-year service; however, employees could use previously vested benefits. Also, effective in March 2009, Menlo Worldwide Logistics reduced its compensated-absences benefit by 25%. Effective in April 2010, Con-way Freight and Menlo Worldwide Logistics reinstated their compensated-absences benefits.

Defined Contribution Plan

Effective in April 2009, employer contributions to Con-way’s Primary DC Plan were suspended or limited. The “matching” and “transition” contributions were suspended and the “basic” contribution was limited to no more than 3% of an employee’s eligible compensation. In July 2011, Con-way announced that it has elected to prospectively reinstate the “basic” and “transition” contributions to their prior levels in the fourth quarter of 2011. The reinstated contributions, which are based on employees’ years of service, will consist of a “basic” contribution that ranges from 3% to 5% of eligible compensation and a “transition” contribution that ranges from 1% to 3% of eligible compensation.

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7. Shareholders’ Equity

Comprehensive Income

Comprehensive income, which is a measure of all changes in equity except those resulting from investments by owners and distributions to owners, was as follows:

(Dollars in thousands)	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011		2010

Net income	$	29,422		$	13,863		$	36,344	$	9,826

Other comprehensive income (loss):
Foreign currency translation adjustment		709			(1,392	)		1,703		(2,438	)
Unrealized gain (loss) on available-for-sale
security, net of deferred tax of $10, $16,
$14, and $22, respectively		(16	)		(24	)		21		34
Employee benefit plans, net of deferred tax of
$941, $828, $1,952, and $3,887,
respectively		1,472			1,294			3,054		4,790
Comprehensive income	$	31,587		$	13,741		$	41,122	$	12,212

Common Stock Offering

In May 2010, Con-way sold 4,300,000 shares of repurchased common stock in an underwritten public offering at a price of $35.00 per share. The net proceeds from the offering were $143.3 million after deducting the underwriting discount and direct costs. The $42.8 million difference between the net proceeds and the $186.1 million historical cost of the repurchased common stock was recorded as a reduction to retained earnings in common shareholders’ equity.

8. Share-Based Compensation

Under terms of its share-based compensation plans, Con-way grants various types of share-based compensation awards to employees and directors. The plans provide for awards in the form of stock options, nonvested stock (also known as restricted stock), performance-share plan units and stock appreciation rights (“SARs”). See Note 12, “Share-Based Compensation,” of Item 8, “Financial Statements and Supplementary Data,” in Con-way’s 2010 Annual Report on Form 10-K for additional information concerning its share-based compensation awards.

The following expense was recognized for share-based compensation:

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2011			2010			2011			2010

Salaries, wages and employee benefits	$	4,406		$	3,320		$	9,169		$	6,895
Deferred income tax benefit		(1,732	)		(1,286	)		(3,576	)		(2,657	)
Net share-based compensation expense	$	2,674		$	2,034		$	5,593		$	4,238

The SARs are liability-classified awards and, as a result, Con-way re-measures the fair value of the awards each reporting period until the awards are settled. At June 30, 2011 and December 31, 2010, Con-way had recognized accrued liabilities for cash-settled SARs of $4.6 million and $2.9 million, respectively, using a fair value per SAR of $18.28 and $16.41, respectively.

9. Income Taxes

Con-way’s second-quarter and year-to-date effective tax rates in 2011 were 35.3% and 45.6%, respectively. In the second quarter and first half of 2010, the effective tax rates were 31.7% and 43.5%, respectively. The tax provision in 2011 included a $1.1 million second-quarter income-tax benefit associated with the reversal of a portion of Con-way’s accrued liability for uncertain tax positions and a $5.9 million first-quarter charge due to the matter discussed below under “Uncertain Tax Positions.” In 2010, the tax provision included a $2.2 million second-quarter income-tax benefit and a $2.3 million first-quarter charge related to health care legislation. Excluding these items and other less material discrete adjustments, the second-quarter and year-to-date effective tax rates in 2011 were 37.7% and 37.6%, respectively, compared to 42.6% in both periods of 2010. The rates in 2011 declined from 2010 due primarily to a benefit associated with a fuel-related tax credit that was not in effect during 2010 until legislation was enacted in December 2010.

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Other accounts receivable in the consolidated balance sheets include income tax receivables of $10.6 million and $41.2 million at June 30, 2011 and December 31, 2010, respectively.

Uncertain Tax Positions

Con-way is subject to examination for federal income taxes for 2005 to 2010. The Internal Revenue Service ("IRS") has issued a Revenue Agent's Report for tax years 2005 through 2007 proposing certain adjustments, one of which relates primarily to the treatment of certain payments to retirees and former employees of Menlo Worldwide Forwarding, Inc. and its subsidiaries and Menlo Worldwide Expedite!, Inc. (collectively “MWF”) by Con-way after the sale of MWF to United Parcel Service, Inc. in 2004. Con-way disagrees with this proposed adjustment and has contested it through the IRS administrative appeals process. Con-way met with the IRS Appeals Division, and following negotiations, the IRS requested an offer from Con-way in July 2011 to settle. In July 2011, the IRS accepted Con-way’s offer to settle at an amount approximating the current liability recognized. Ultimate resolution of this matter is subject to final approval and documentation.

Due primarily to the matter discussed above, Con-way’s estimated liability for unrecognized tax benefits increased to $18.2 million (including $6.5 million of accrued interest and penalties) at June 30, 2011 from $15.9 million (including $6.1 million of accrued interest and penalties) at December 31, 2010.

10. Commitments and Contingencies

Purchase Obligations

In connection with its outsourcing initiative, Con-way entered into agreements with third-party service providers in the first quarter of 2010. Payments to the third-party providers are estimated to be $240 million between 2011 and 2016, when the agreements are expected to expire. The payments under the terms of the agreements are subject to change depending on the quantities and types of services consumed. The estimated payments reflect amounts based on projections of services expected to be consumed. The contracts also contain provisions that allow Con-way to terminate the contract at any time; however, Con-way would be required to pay additional fees if termination is for causes other than the failure of the service providers to perform. If Con-way had elected, for convenience, to terminate the contract for the outsourced information-technology services at December 31, 2010, the termination fee would have been approximately $39 million, compared to approximately $34 million if Con-way elects to terminate the contract on December 31, 2011.

Menlo Worldwide, LLC

Menlo Worldwide, LLC (“MW”) has asserted claims against the sellers of Chic Holdings, which MW acquired in 2007, alleging inaccurate books and records, misstatement of revenue, and other similar matters related to the pre-sale financial performance of the Chic businesses and is pursuing all legal and equitable remedies available to MW. There currently exists a $9 million hold-back in escrow against which MW may apply any award for breach of warranty under the purchase agreement. The ultimate outcome of this matter is uncertain and any resulting award will not be recognized until received.

Emery Worldwide Airlines, Inc.

In February 2002, a lawsuit was filed against Emery Worldwide Airlines, Inc. (“EWA”) in the District Court for the Southern District of Ohio, alleging violations of the Worker Adjustment and Retraining Notification Act (the “WARN Act”) in connection with employee layoffs and ultimate terminations due to the August 2001 grounding of EWA’s airline operations and the shutdown of the airline operations in December 2001. The court subsequently certified the lawsuit as a class action on behalf of affected employees laid off between August 11 and August 15, 2001. The WARN Act generally requires employers to give 60-days notice, or 60-days pay and benefits in lieu of notice, of any shutdown of operations or mass layoff at a site of employment. The lawsuit was tried in early January 2009, and on September 28, 2009, the court issued its decision in favor of EWA. The Plaintiffs appealed the judgment and the District Court’s decision was affirmed on February 16, 2011. Plaintiffs’ petitions for rehearing of the appellate court’s decision were denied by orders dated March 4, 2011 and March 9, 2011. Plaintiffs filed a petition with the Supreme Court on June 7, 2011 arguing that the lower courts were wrong in ruling that there is no right to a jury trial in a WARN Act case. Plaintiffs contend that there is a split in the circuit courts on the issue and that the Supreme Court should review the case to resolve that split. Con-way filed its opposition to the petition on July 14, 2011.

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Con-way is a defendant in various other lawsuits incidental to its businesses. It is the opinion of management that the ultimate outcome of these actions will not have a material effect on Con-way’s financial position, results of operations or cash flows.

11. Subsequent Event

Con-way has a $325 million unsecured revolving credit facility, which is more fully discussed in Note 7, “Debt and Other Financing Arrangements,” of Item 8, “Financial Statements and Supplementary Data,” in Con-way’s 2010 Annual Report on Form 10-K. On August 2, 2011, Con-way amended the revolving credit facility to extend the maturity date from November 4, 2014 to August 2, 2016. The amended facility also includes revised pricing that lowers Con-way’s cost of utilizing the facility. The financial covenants and available credit provided to Con-way under the facility are unchanged by the amendment.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 Con-way’s financial condition, results of operations and cash flows, including a discussion and analysis of the following:

Overview of Business

Results of Operations

Liquidity and Capital Resources

Critical Accounting Policies and Estimates

Forward-Looking Statements

Overview of Business

Con-way provides transportation, logistics and supply-chain management services for a wide range of manufacturing, industrial and retail customers through three primary business units: Con-way Freight, Menlo Worldwide Logistics and Con-way Truckload. These business units operate in regional and transcontinental less-than-truckload and full-truckload freight transportation, contract logistics and supply-chain management, and multimodal freight brokerage. For financial reporting purposes, Con-way is divided into four reporting segments:

Truckload. The Truckload segment consists of the operating results of the Con-way Truckload business unit, which provides asset-based full-truckload freight services throughout North America.

Con-way’s primary business-unit results generally depend on the number, weight and distance of shipments transported, the prices received on those shipments or services and the mix of services provided to customers, as well as the fixed and variable costs incurred by Con-way in providing the services and the ability to manage those costs under changing circumstances. Con-way’s primary business units are affected by the timing and degree of fluctuations in fuel prices and their ability to recover incremental fuel costs through fuel-surcharge programs and/or cost-recovery mechanisms, as more fully discussed in Item 3, “Quantitative and Qualitative Disclosures About Market Risk – Fuel.”

Con-way Freight primarily transports shipments utilizing a network of freight service centers combined with a fleet of company-operated line-haul and pickup-and-delivery tractors and trailers. Menlo Worldwide Logistics manages the logistics functions of its customers and primarily utilizes third-party transportation providers for the movement of customer shipments. Con-way Truckload primarily transports shipments using a fleet of company-operated long-haul tractors and trailers.

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Results of Operations

The overview below provides a high-level summary of Con-way’s results of operations for the periods presented and is intended to provide context for the remainder of the discussion on reporting segments. Refer to “Reporting Segment Review” below for more complete and detailed discussion and analysis.

(Dollars in thousands except per share amounts)	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010

Revenues	$	1,348,549	$	1,306,263	$	2,594,176	$	2,468,174
Costs and expenses
Other costs and expenses		1,288,384		1,270,831		2,497,315		2,415,575
Loss from impairment of intangible assets		---		--		---		2,767
		1,288,384		1,270,831		2,497,315		2,418,342
Operating income		60,165		35,432		96,861		49,832
Other non-operating expense		14,721		15,121		30,056		32,435
Income before income tax provision		45,444		20,311		66,805		17,397
Income tax provision		16,022		6,448		30,461		7,571
Net income available to
common shareholders	$	29,422	$	13,863	$	36,344	$	9,826

Diluted earnings per share	$	0.52	$	0.26	$	0.65	$	0.19

Overview

Con-way’s consolidated revenue for the second quarter of 2011 increased 3.2% from the second quarter of 2010 and, in the first half of 2011, increased 5.1% from the same prior-year period. The increase in revenue reflects higher revenue at the Freight, Logistics and Truckload reporting segments.

Con-way’s second-quarter consolidated operating income increased 69.8% to $60.2 million in 2011 from $35.4 million in 2010. In the year-to-date periods, operating income nearly doubled to $96.9 million in 2011 compared to $49.8 million in 2010. The increases in operating income were due to improved operating results at Freight and Truckload, partially offset by lower operating income at the Logistics and Other segments. Improved operating results at Freight and Truckload reflect increased pricing and cost controls, while lower operating income at Logistics was due to increased expenses.

Non-operating expense in the second quarter of 2011 decreased $0.4 million from the second quarter of 2010 and, in the first half of 2011, decreased $2.4 million from the same prior-year period, primarily reflecting lower interest expense. Lower interest expense in 2011 reflects the net effect of various financing transactions, including the repayment in the second quarter of 2010 of the $200 million outstanding under Con-way’s 8 7/8% Notes and capital-lease transactions entered into during the second and fourth quarters of 2010.

Con-way’s second-quarter and year-to-date effective tax rates in 2011 were 35.3% and 45.6%, respectively. In the second quarter and first half of 2010, the effective tax rates were 31.7% and 43.5%, respectively. The tax provision in 2011 included a $1.1 million second-quarter income-tax benefit associated with the reversal of a portion of Con-way’s accrued liability for uncertain tax positions and a $5.9 million first-quarter charge due to the matter discussed in Note 9, “Income Taxes,” of Item 1, “Financial Statements.” In 2010, the tax provision included a $2.2 million second-quarter income-tax benefit and a $2.3 million first-quarter charge related to health care legislation. Excluding these items and other less material discrete adjustments, the second-quarter and year-to-date effective tax rates in 2011 were 37.7% and 37.6%, respectively, compared to 42.6% in both periods of 2010. The rates in 2011 declined from 2010 due primarily to a benefit associated with a fuel-related tax credit that was not in effect during 2010 until legislation was enacted in December 2010.

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Cost-Reduction Actions

In response to economic conditions, in March 2009 Con-way announced several employee-related measures to reduce costs and conserve cash, as detailed in Note 6, “Employee Benefit Plans,” of Item 1, “Financial Statements.” Effective in January 2010, Con-way restored one-half of the salary and wage reductions, and effective in April 2010, Con-way reinstated the compensated-absences benefits. Con-way restored the remaining one-half of salary and wage reductions effective in January 2011. In July 2011, Con-way announced that it will prospectively reinstate the “basic” and “transition” contributions to the defined contribution retirement plan to their prior levels in the fourth quarter of 2011. Any future merit-based pay increases for those companies that instituted salary and wage reductions, and the reinstatement of Con-way’s “matching” contributions to the defined contribution retirement plan are based on a number of factors and are not currently subject to specified financial metrics.

The table below compares the estimated cost savings from employee-related cost-reduction measures. The predominant amount of the reported cost savings relate to the Freight segment. Actual results may differ from the estimated amounts depending on factors such as employee count and turnover and assumptions related to employee retirement plan contributions.

(Dollars in millions)	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010

Salaries and wages	$	--	$	8	$	--	$	15
Compensated absences		--		--		--		15
Defined contribution plan
Matching		9		9		17		17
Basic and transition		6		6		12		12
Total estimated cost savings	$	15	$	23	$	29	$	59

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Reporting Segment Review

For the discussion and analysis of segment operating results, management utilizes revenue before inter-segment eliminations. Management believes that revenue before inter-segment eliminations, combined with the detailed operating expense information, provides the most meaningful analysis of segment results. Revenue before inter-segment eliminations is reconciled to revenue from external customers in Note 4, “Segment Reporting,” of Item 1, “Financial Statements.”

Freight

The following table compares operating results, operating margins, and the percentage change in selected operating statistics of the Freight reporting segment:

(Dollars in thousands)	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010

Revenue before inter-segment eliminations	$	839,829		$	816,965		$	1,607,570		$	1,541,968

Salaries, wages and employee benefits		375,916			389,091			737,658			745,925
Purchased transportation		136,718			138,317			258,241			258,324
Fuel and fuel-related taxes		103,722			84,629			196,454			161,810
Other operating expenses		115,748			117,515			223,495			231,352
Depreciation and amortization		27,591			25,343			55,167			48,259
Maintenance		23,935			22,195			45,233			43,871
Rents and leases		11,913			13,686			22,775			25,094
Purchased labor		5,131			8,963			9,048			13,260
Total operating expenses		800,674			799,739			1,548,071			1,527,895
Operating income	$	39,155		$	17,226		$	59,499		$	14,073

Operating margin		4.7	%		2.1	%		3.7	%		0.9	%

	2011 vs. 2010						2011 vs. 2010
Selected Operating Statistics
Weight per day		-8.3	%					-6.6	%
Revenue per hundredweight (“yield”)		+11.2	%					+10.5	%
Shipments per day (“volume”)		-10.1	%					-9.2	%
Weight per shipment		+2.1	%					+2.9	%

Freight’s revenue in the second quarter of 2011 increased 2.8% from the second quarter of 2010 and, in the first half of 2011, increased 4.3% from the same prior-year period. Revenue increased in the second quarter due to an 11.2% increase in yield, partially offset by an 8.3% decline in weight per day. The 8.3% decline in weight per day reflects a 10.1% decrease in shipments per day and a 2.1% increase in weight per shipment. In the first half of 2011, revenue increased due to a 10.5% increase in yield and a one-day increase in the number of working days, partially offset by a 6.6% decline in weight per day. The 6.6% decline in weight per day reflects a 9.2% decrease in shipments per day and a 2.9% increase in weight per shipment.

Excluding fuel surcharges, yields in the second quarter and first half of 2011 increased 6.0% and 5.7%, respectively. In the second quarter, Freight’s fuel-surcharge revenue increased to 17.7% of revenue in 2011 from 13.5% in 2010, and in the first six months, increased to 16.9% of revenue in 2011 from 13.0% in 2010. The fuel surcharge is intended to compensate Con-way Freight for the adverse effects of higher fuel costs and fuel-related increases in purchased transportation. Fuel surcharges are only one part of Con-way Freight’s overall rate structure, and the total price that Con-way Freight receives from customers for its services is governed by market forces, as more fully discussed below in Item 3, “Quantitative and Qualitative Disclosures About Market Risk – Fuel.”

Con-way Freight’s management believes that the variations in yield and weight per day were due in part to sales and pricing initiatives implemented in 2010 that increased base freight rates and moderated the amount of freight transported, and reflect improved pricing conditions in the less-than-truckload market.

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For the second quarter, Freight reported operating income of $39.2 million in 2011 compared to $17.2 million in 2010 and, in the first half, $59.5 million in 2011 compared to $14.1 million in 2010. Improved operating results in 2011 were due largely to higher revenue on improved yields and reflect strategic efforts in the second and third quarters of 2010 to moderate the amount of freight transported to improve network efficiency and control costs. Operating results in the periods presented include the effect of the cost-reduction measures announced in March 2009; however, the 2011 periods included higher expenses than the 2010 periods due to the reinstatement in 2010 and 2011 of certain benefits previously curtailed under the cost-reductions measures.

In the second quarter and first half of 2011, expenses for salaries, wages and employee benefits decreased 3.4% and 1.1%, respectively, from the same periods in 2010. Salaries and wages, excluding variable compensation, decreased 4.2% and 2.4%, respectively, due primarily to a lower average employee count, partially offset by the reinstatement of salary and wage reductions. In the second quarter and first half of 2011, employee benefits expense decreased 5.6% and 2.1%, respectively. Employee-benefit cost declines in the second quarter of 2011 primarily reflect lower expenses for workers’ compensation claims. Lower employee benefits expenses in the first half of 2011 were due primarily to decreases in expenses for workers’ compensation and employee medical claims, partially offset by higher expenses for compensated absences, which increased $17.0 million. Lower expenses for workers’ compensation and employee medical claims were due largely to decreases in the number of claims. The increase in the year-to-date expense for compensated-absences benefits was primarily due to the reinstatement of the benefit effective in April 2010. Variable compensation expense increased $4.4 million in the second quarter of 2011 and $8.8 million in first half of 2011 based on variations in performance measures relative to variable-compensation plan targets.

Purchased transportation expense declined 1.2% in the second quarter of 2011 and was essentially unchanged in the first half of 2011 due primarily to declines in the freight transported by third-party providers, partially offset by fuel-related rate increases.

Expenses for fuel and fuel-related taxes increased 22.6% in the second quarter of 2011 and 21.4% in the first half of 2011 due primarily to the increase in the cost per gallon of diesel fuel, partially offset by lower fuel consumption due to a moderation in shipment volumes.

Other operating expenses declined 1.5% and 3.4% in the second quarter and first half of 2011, respectively, due largely to decreases in self-insurance expense, particularly cargo claims, and lower marketing costs, partially offset by higher administrative corporate allocations for information-technology services. The decrease in cargo-claims expense reflects lower shipment volumes and improved freight handling, which was due in part to the utilization of the SafeStackTM cargo loading system for trailers that was deployed during 2010.

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Logistics

The table below compares operating results and operating margins of the Logistics reporting segment. The table summarizes Logistics’ revenue as well as net revenue (revenue less purchased transportation expense). Carrier-management revenue is attributable to contracts for which Menlo Worldwide Logistics manages the transportation of freight but subcontracts to third parties the actual transportation and delivery of products, which Menlo Worldwide Logistics refers to as purchased transportation. Menlo Worldwide Logistics’ management places emphasis on net revenue as a meaningful measure of the relative importance of its principal services since revenue earned on most carrier-management services includes the third-party carriers’ charges to Menlo Worldwide Logistics for transporting the shipments. The table also includes operating income and operating margin excluding the loss from impairment of intangible assets. Management believes these measures are relevant to evaluate its on-going operations.

(Dollars in thousands)	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010

Revenue before inter-segment eliminations	$	394,012		$	385,775		$	763,987		$	740,958
Purchased transportation expense		(247,028	)		(242,978	)		(474,682	)		(453,912	)
Net revenue		146,984			142,797			289,305			287,046

Salaries, wages and employee benefits		56,621			54,285			109,970			106,517
Fuel and fuel-related taxes		285			216			541			429
Other operating expense		37,520			36,016			76,979			73,213
Depreciation and amortization		2,795			3,201			5,636			6,264
Maintenance		719			591			1,421			1,165
Rents and leases		15,679			15,506			31,387			31,751
Purchased labor		21,270			19,974			42,630			39,076
Loss from impairment of intangible assets		--			--			--			2,767
Total operating expenses excluding
purchased transportation		134,889			129,789			268,564			261,182
Operating income	$	12,095		$	13,008		$	20,741		$	25,864
Operating income excluding impairment	$	12,095		$	13,008		$	20,741		$	28,631

Operating margin on revenue		3.1	%		3.4	%		2.7	%		3.5	%
Operating margin on net revenue		8.2	%		9.1	%		7.2	%		9.0	%
Operating margin on revenue excluding impairment		3.1	%		3.4	%		2.7	%		3.9	%
Operating margin on net revenue excluding impairment		8.2	%		9.1	%		7.2	%		10.0	%

Logistics’ revenue in the second quarter and first half of 2011 increased 2.1% and 3.1%, respectively, due to increases in revenue from both carrier-management and warehouse-management services. In 2011, revenue from carrier-management services in the second quarter and first half increased 2.2% and 4.1%, respectively, while revenue from warehouse-management services increased 2.0% and 0.7%, respectively. Higher revenue from carrier-management services was due primarily from growth at existing customers and increased freight brokerage volumes. Increased revenue from warehouse-management services was due primarily to the addition of new customers.

Logistics’ net revenue in the second quarter and first half of 2011 increased 2.9% and 0.8%, respectively, when compared to the prior-year periods. Purchased transportation expense increased 1.7% and 4.6% in the second quarter and first half of 2011, respectively, due primarily to increased carrier-management volumes.

Logistics’ operating income in the second quarter and first half of 2011 declined 7.0% and 19.8%, respectively, when compared to the prior-year periods. As discussed more fully in Note 2, “Goodwill and Intangible Assets,” of Item 1, “Financial Statements,” Logistics recognized a $2.8 million charge in the first quarter of 2010 for the impairment of a customer-relationship intangible asset. Excluding the impairment, Logistics operating income in the first half of 2011 declined 27.6%. The declines in operating income reflect lower margins on both warehouse-management and carrier-management services. Lower margins on warehouse-management services were due largely to increased start-up costs associated with new customer contracts. Lower margins on carrier-management services were due largely to the decline in the amount of revenue recognized under performance-based arrangements. Under performance-based arrangements, revenue is recognized upon the achievement of contractually specified performance measures typically without an associated increase in operating expenses. The level of achievement, if any, relating to these performance measures varies each reporting period.

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Salaries, wages and employee benefits increased 4.3% and 3.2% in the second quarter and first half of 2011. In the second quarter and first six months, salaries and wages, excluding variable compensation, rose 8.4% and 7.2%, respectively, due primarily to salary and wage rate increases and increased average employee counts. Variable compensation expense decreased $1.0 million or 21.3% in the second quarter of 2011 and $3.0 million or 31.2% in first half of 2011 based on variations in performance measures relative to variable-compensation plan targets. Employee benefits expense increased 2.6% and 5.2% in the second quarter and first half of 2011, respectively, due primarily to increased costs associated with providing benefits to international employees and expenses related to Con-way’s share-based compensation plans.

Other operating expenses increased 4.2% and 5.1% in the second quarter and first half of 2011, respectively. Increased other operating expenses reflect higher costs for information-technology projects (including administrative corporate allocations), increased usage of outside services related to a government contract and costs associated with a customer claim.

Purchased labor expense increased 6.5% and 9.1% in the second quarter and first half of 2011, respectively, due to increased labor demands as the result of warehouse relocations and the start-up of new warehouse-management facilities.

Truckload

The table below compares operating results, operating margins and the percentage change in selected operating statistics of the Truckload reporting segment. The table summarizes the segment’s revenue before inter-segment eliminations, including freight revenue, fuel-surcharge revenue and other non-freight revenue.

(Dollars in thousands)	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010

Freight revenue	$	113,965		$	116,498		$	224,578		$	232,700
Fuel-surcharge revenue		37,152			25,039			67,469			45,784
Other revenue		4,334			3,917			8,619			7,586
Revenue before inter-segment eliminations		155,451			145,454			300,666			286,070

Salaries, wages and employee benefits		52,053			52,710			102,420			105,628
Purchased transportation		7,033			6,437			12,863			12,625
Fuel and fuel-related taxes		45,971			37,431			88,965			74,331
Other operating expenses		14,605			18,697			28,954			35,315
Depreciation and amortization		17,145			15,323			33,829			30,672
Maintenance		7,784			9,139			15,155			18,301
Rents and leases		264			261			533			480
Purchased labor		273			324			541			611
Total operating expenses		145,128			140,322			283,260			277,963
Operating income	$	10,323		$	5,132		$	17,406		$	8,107

Operating margin on revenue		6.6	%		3.5	%		5.8	%		2.8	%
Operating margin on revenue
excluding fuel-surcharge revenue		8.7	%		4.3	%		7.5	%		3.4	%


	2011 vs. 2010						2011 vs. 2010
Selected Operating Statistics
Loaded miles		-6.1	%					-7.2	%
Freight revenue per loaded mile		+4.2	%					+4.0	%

Truckload’s revenue increased 6.9% in the second quarter of 2011 from the same period of 2010, due primarily to a 48.4% increase in fuel-surcharge revenue, partially offset by a 2.2% decline in freight revenue. The 2.2% decline in freight revenue reflects a 6.1% decline in loaded miles and a 4.2% increase in revenue per loaded mile. In the first half of 2011, Truckload’s revenue increased 5.1% from the same prior-year period, reflecting a 47.4% increase in fuel-surcharge revenue, partially offset by a 3.5% decline in freight revenue. The 3.5% decline in freight revenue reflects a 7.2% decline in loaded miles and a 4.0% increase in revenue per loaded mile. In the periods presented, higher fuel-surcharge revenue was due primarily to higher fuel prices in 2011 compared to 2010. The decrease in loaded miles was due primarily to a decline in the number tractors operated by two-person teams, which resulted in lower miles per tractor, and a smaller fleet.

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For the second quarter, Truckload reported operating income of $10.3 million in 2011 compared to $5.1 million in 2010 and, in the first half, $17.4 million in 2011 compared to $8.1 million in 2010. Higher operating income was due primarily to lower vehicular self-insurance expense and improved fuel-surcharge recovery rates.

Salaries, wages and employee benefits decreased 1.2% and 3.0% in the second quarter and first half of 2011, respectively, reflecting a decline in salaries and wages, excluding variable compensation, partially offset by an increase in variable compensation. Salaries and wages, excluding variable compensation, declined 6.3% and 6.2% in the second quarter and first half of 2011, respectively, due primarily to fewer miles. Variable compensation expense increased $1.9 million in the second quarter of 2011 and $2.8 million in first half of 2011 based on variations in performance measures relative to variable-compensation plan targets.

Expenses for fuel and fuel-related taxes increased 22.8% and 19.7% in the second quarter and first half of 2011, respectively, due primarily to a higher fuel cost per gallon, partially offset by a decrease in miles driven.

Other operating expenses decreased 21.9% and 18.0% in the second quarter and first half of 2011, respectively, due primarily to declines in vehicular self-insurance expense resulting from declines in the severity and number of claims. Vehicular self-insurance expense decreased $4.1 million and $6.7 million in the second quarter and first half of 2011, respectively.

Increased expense for depreciation and amortization and lower expense for maintenance reflect a tractor replacement program initiated in 2010.

Other

The Other reporting segment consists of the operating results of Road Systems, a trailer manufacturer, and certain corporate activities for which the related income or expense has not been allocated to other reporting segments. The table below summarizes the operating results for the Other reporting segment:

(Dollars in thousands)	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010

Revenue
Road Systems	$	12,297		$	14,019		$	24,294		$	25,858

Operating income (loss)
Road Systems	$	6		$	91		$	(79	)	$	(18	)
Con-way re-insurance activities		(1,289	)		271			36			2,418
Con-way corporate properties		(371	)		(247	)		(730	)		(584	)
Other		246			(49	)		(12	)		(28	)
	$	(1,408	)	$	66		$	(785	)	$	1,788

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Liquidity and Capital Resources

Cash and cash equivalents increased to $469.4 million at June 30, 2011 from $421.4 million at December 31, 2010, as $185.9 million provided by operating activities exceeded $122.5 million used in investing activities and $15.5 million used in financing activities. Cash provided by operating activities came primarily from net income after adjustment for non-cash items. Cash used in investing activities primarily reflects capital expenditures. Cash used in financing activities primarily reflects the payment of common dividends and repayment of capital leases.

(Dollars in thousands)	Six Months Ended June 30,
	2011			2010
Operating Activities
Net income	$	36,344		$	9,826
Non-cash adjustments (1)		140,322			109,571
Changes in assets and liabilities		9,280			(13,059	)
Net Cash Provided by Operating Activities		185,946			106,338

Net Cash Used in Investing Activities		(122,497	)		(129,575	)

Net Cash Used in Financing Activities		(15,456	)		(63,586	)

Increase (Decrease) in Cash and Cash Equivalents	$	47,993		$	(86,823	)

(1) “Non-cash adjustments” refer to depreciation, amortization, impairment charges, deferred income taxes,
provision for uncollectible accounts, and other non-cash income and expenses.

Operating Activities

The most significant items affecting the comparison of Con-way’s operating cash flows for the periods presented are summarized below:

In the first six months of 2011, net income and non-cash adjustments collectively increased $57.3 million from the same period of 2010.

Changes in assets and liabilities were a source of cash in the first six months of 2011 and a use of cash in the first six months of 2010. The net change of $22.3 million increased operating cash flows in 2011 compared to 2010. Comparative changes were primarily associated with accrued income taxes, receivables, and self-insurance accruals.

Accrued income taxes provided $29.9 million in the first six months of 2011, compared to $6.4 million used in the same prior-year period due primarily to variations in income tax refunds and payments. In the first six months of 2011, Con-way received $28.9 million of net refunds, and in the first six months of 2010, Con-way made net payments of $16.5 million.

In the first six months of 2011, receivables used $96.1 million, compared to $121.6 million used in the first six months of 2010. Changes in receivables reflect variations in revenue and average collection periods.

The change in self-insurance accruals used $14.9 million in the first six months of 2011, compared to $22.0 million provided in the first six months of 2010. The cash used in the first six months of 2011 was due primarily to decreases in the liabilities for vehicular and workers compensation claims. The cash provided in the first six months of 2010 was due primarily to increases in the liabilities for vehicular and cargo claims.

Investing Activities

The most significant items affecting the comparison of Con-way’s investing cash flows for the periods presented are summarized below:

In the first six months, capital expenditures were $138.8 million in 2011, compared to $88.4 million in 2010. Increased capital expenditures in 2011 were due primarily to the acquisition of tractor equipment at Con-way Truckload. Higher capital expenditures at Con-way Truckload in the first six months of 2011 reflect an accelerated fleet replacement program that was approved by the Con-way board of directors in June 2010.

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Proceeds from sales of property and equipment increased to $19.9 million in the first six months of 2011 compared to $2.4 million in the first six months of 2010 due primarily to the sale of tractors in connection with the tractor replacement program at Con-way Truckload.

In the first six months of 2010, $39.0 million of cash was used as the result of a net investment in marketable securities, compared to $0.3 million of net proceeds received in the first six months of 2011.

Financing Activities

The most significant items affecting the comparison of Con-way’s financing cash flows for the periods presented are summarized below:

Financing activities used cash of $15.5 million in the first half of 2011, compared to $63.6 million used in the same period of 2010. The first half of both 2011 and 2010 primarily reflect payments of dividends and the repayment of capital leases, while the first half of 2010 also includes the $200.0 million repayment of the amount outstanding under the 8 7/8% Notes Due 2010 and proceeds from the issuance of common stock. In the second quarter of 2010, Con-way issued repurchased common stock (also referred to as treasury stock) in a public offering and received net proceeds of $143.3 million, as discussed more fully in Note 7, “Shareholders’ Equity,” of Item 1, “Financial Statements.”

Contractual Cash Obligations

Con-way’s contractual cash obligations as of December 31, 2010 are summarized in Item 7, “Management’s Discussion and Analysis – Liquidity and Capital Resources – Contractual Cash Obligations,” of Con-way’s 2010 Annual Report on Form 10-K. In the first six months of 2011, there have been no material changes in Con-way’s contractual obligations outside the ordinary course of business.

Capital Resources and Liquidity Outlook

Con-way’s capital requirements relate primarily to the acquisition of revenue equipment to support growth and/or replacement of older equipment with newer equipment. In funding these capital expenditures and meeting working-capital requirements, Con-way utilizes various sources of liquidity and capital, including cash and cash equivalents, cash flow from operations, credit facilities and access to capital markets. Con-way may also manage its liquidity requirements and cash-flow generation by varying the timing and amount of capital expenditures and by implementing cost-reduction initiatives, as more fully discussed under “Results of Operations – Overview.”

Con-way has a $325 million unsecured revolving credit facility that matures on November 4, 2014. The revolving facility is available for cash borrowings and issuance of letters of credit. At June 30, 2011, no cash borrowings were outstanding under the credit facility; however, $180.9 million of letters of credit were outstanding, leaving $144.1 million of available capacity for additional letters of credit or cash borrowings. The revolving facility is guaranteed by certain of Con-way’s material domestic subsidiaries and contains two financial covenants: (i) a leverage ratio and (ii) a fixed-charge coverage ratio. At June 30, 2011, Con-way was in compliance with the revolving credit facility’s financial covenants and expects to remain in compliance through December 31, 2011 and thereafter. On August 2, 2011, Con-way amended its revolving credit facility, as more fully discussed in Note 11, “Subsequent Event,” of Item 1, “Financial Statements.”

Con-way had other uncommitted unsecured credit facilities totaling $64.1 million at June 30, 2011, which are available to support short-term borrowings, letters of credit, bank guarantees and overdraft facilities. At June 30, 2011, $19.2 million of cash borrowings and $28.0 million of other credit commitments were outstanding leaving $16.9 million of available capacity.

See “– Forward-Looking Statements” below and Item 1A, “Risk Factors,” and Note 7, “Debt and Other Financing Arrangements,” of Item 8, “Financial Statements and Supplementary Data,” in Con-way’s 2010 Annual Report on Form 10-K for additional information concerning Con-way’s $325 million credit facility and its other debt instruments.

In 2011, Con-way anticipates capital and software expenditures of approximately $300 million, net of asset dispositions, primarily for the acquisition of tractor equipment. Con-way’s actual 2011 capital expenditures may differ from the estimated amount depending on factors such as availability and timing of delivery of equipment.

In the first six months of 2011 and 2010, Con-way used treasury stock to fund $17.3 million and $17.9 million, respectively, of contributions to the defined contribution retirement plan. Effective in July 2011, the contributions will be in the form of cash contributed by Con-way, rather than in treasury stock.

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During 2011, Con-way’s net cash flows will benefit from capital expenditure-related tax legislation enacted in December 2010. As a result of the legislation, Con-way will be able to deduct a substantial portion of its 2011 capital expenditures in the 2011 tax year.

At June 30, 2011, Con-way’s senior unsecured debt was rated as investment grade by Standard and Poor’s (BBB-), Fitch Ratings (BBB-), and Moody’s (Baa3). Standard and Poor’s and Moody’s assigned an outlook of “negative,” while Fitch Ratings assigned an outlook of “stable.”

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Critical Accounting Policies and Estimates

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. Con-way 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. Con-way believes that the accounting policies that are most judgmental and material to the financial statements are those related to the following:

Defined Benefit Pension Plans

Goodwill

Income Taxes

Property, Plant and Equipment and Other Long-Lived Assets

Revenue Recognition

Self-Insurance Accruals

There have been no significant changes to the critical accounting policies and estimates disclosed in Con-way’s 2010 Annual Report on Form 10-K.

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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 Con-way’s management for future operations or other future items;

any statements concerning proposed new products or services;

any statements regarding Con-way’s estimated future contributions to pension plans;

any statements as to the adequacy of reserves;

any statements regarding the outcome of any legal and other claims and proceedings that may be brought against Con-way;

any statements regarding future economic conditions or performance;

any statements regarding strategic acquisitions; and

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, certain important factors, among others and in addition to the matters discussed elsewhere in this document and other reports and documents filed by Con-way with the Securities and Exchange Commission, could cause actual results and other matters to differ materially from those discussed in such forward-looking statements. A detailed description of certain of these risk factors is included in Item 1A, “Risk Factors,” of Con-way’s 2010 Annual Report on Form 10-K.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Con-way is exposed to a variety of market risks, including the effects of interest rates, fuel prices and foreign currency exchange rates.

Con-way 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. Con-way held no derivative financial instruments at June 30, 2011.

Interest Rates

Con-way is subject to the effect of interest-rate fluctuations on the fair value of its long-term debt and on the amount of interest income earned on cash-equivalent investments and marketable securities, as more fully discussed in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of Con-way’s 2010 Annual Report on Form 10-K.

Fuel

Con-way is subject to risks associated with the availability and price of fuel, which are subject to political, economic and market factors that are outside of Con-way’s control.

Con-way would be adversely affected by an inability to obtain fuel in the future. Although historically Con-way has been able to obtain fuel from various sources and in the desired quantities, there can be no assurance that this will continue to be the case in the future.

Con-way may also be adversely affected by the timing and degree of fluctuations in fuel prices. Currently, Con-way’s business units have fuel-surcharge revenue programs or cost-recovery mechanisms in place with a majority of customers. Con-way Freight and Con-way Truckload maintain fuel-surcharge programs designed to offset or mitigate the adverse effect of rising fuel prices. Menlo Worldwide Logistics has cost-recovery mechanisms incorporated into most of its customer contracts under which it recognizes fuel-surcharge revenue designed to eliminate the adverse effect of rising fuel prices on purchased transportation.

Con-way’s competitors in the less-than-truckload (“LTL”) and truckload markets also impose fuel surcharges. Although fuel surcharges are generally based on a published national index, there is no industry-standard fuel-surcharge formula. As a result, fuel-surcharge revenue constitutes only part of the overall rate structure. Revenue excluding fuel surcharges (sometimes referred to as base freight rates) represents the collective pricing elements that exclude fuel surcharges. In the LTL market, changes in base freight rates reflect numerous factors such as length of haul, freight class, weight per shipment and customer-negotiated adjustments. In the truckload market, changes in base freight rates primarily reflect differences in origin and destination location and customer-negotiated adjustments. Ultimately, the total amount that Con-way Freight and Con-way Truckload can charge for their services is determined by competitive pricing pressures and market factors.

Historically, Con-way Freight’s fuel-surcharge program has enabled it to more than recover increases in fuel costs and fuel-related increases in purchased transportation. As a result, Con-way Freight may be adversely affected if fuel prices fall and the resulting decrease in fuel-surcharge revenue is not offset by an equivalent increase in base freight-rate revenue. Although lower fuel surcharges may improve Con-way Freight’s ability to increase the freight rates that it would otherwise charge, there can be no assurance in this regard. Con-way Freight may also be adversely affected if fuel prices increase or return to historically high levels. Customers faced with fuel-related increases in transportation costs often seek to negotiate lower rates through reductions in the base freight rates and/or limitations on the fuel surcharges charged by Con-way Freight, which adversely affect Con-way Freight’s ability to offset higher fuel costs with higher revenue.

Con-way Truckload’s fuel-surcharge program mitigates the effect of rising fuel prices but does not always result in Con-way Truckload fully recovering increases in its cost of fuel. The extent of recovery may vary depending on the amount of customer-negotiated adjustments and the degree to which Con-way Truckload is not compensated due to empty and out-of-route miles or from engine idling during cold or warm weather.

Con-way would be adversely affected if, due to competitive and market factors, its business units are unable to continue their current fuel-surcharge programs and/or cost-recovery mechanisms. In addition, there can be no assurance that these programs, as currently maintained or as modified in the future, will be sufficiently effective to offset increases in the price of fuel.

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Foreign Currency

The assets and liabilities of Con-way’s foreign subsidiaries are denominated in foreign currencies, which create exposure to changes in foreign currency exchange rates. Con-way does not currently use derivative financial instruments to manage foreign currency risk.

ITEM 4. CONTROLS AND PROCEDURES

(a) Disclosure Controls and Procedures

Con-way's management, with the participation of Con-way's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of Con-way's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on such evaluation, Con-way's Chief Executive Officer and Chief Financial Officer have concluded that Con-way’s disclosure controls and procedures are effective as of the end of such period.

(b) Internal Control Over Financial Reporting

There have not been any changes in Con-way's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, Con-way’s internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Certain legal proceedings of Con-way are discussed in Note 10, “Commitments and Contingencies,” of Item 1, “Financial Statements.”

ITEM 1A. RISK FACTORS

There are no material changes to the risk factors previously disclosed in Item 1A, “Risk Factors,” of Con-way’s 2010 Annual Report on Form 10-K.

ITEM 6. EXHIBITS

Exhibit No.

(10)	Material contracts:

	10.1	Summary of Certain Compensation Arrangements (Item 5.02 to Con-way’s Report on Form 8-K filed on April 27, 2011).*#

(31)	Certification of Officers pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

(32)	Certification of Officers pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(101)	The following financial statements from Con-way’s Form 10-Q for the quarter ended June 30, 2011, filed on August 8, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Statements of Consolidated Income, (iii) Statements of Consolidated Cash Flows, and (iv) Notes to Consolidated Financial Statements.


* Previously filed with the Securities and Exchange Commission and incorporated herein by reference.
# Designates a contract or compensation plan for Management or Directors.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Con-way Inc.
	(Registrant)

August 8, 2011	/s/ Stephen L. Bruffett
	Stephen L. Bruffett
	Executive Vice President and
	Chief Financial Officer

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