<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________________
TO ______________.
Commission file number 0-19791
USFREIGHTWAYS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-3790696
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9700 Higgins Rd., Ste. 570, Rosemont, Il. 60018
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (847) 696-0200
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange of which registered
Common Stock $.01 Par Value NASDAQ
Preferred Stock Purchase Rights
Securities registered pursuant to Section 12(g) of the Act:
6 5/8 % Notes Due May 1, 2000
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (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. __X____ Yes________No
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
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K ___.
The number of shares of common stock outstanding at March 19, 1999 was
26,334,513. The aggregate market value of the voting stock of the registrant as
of March 19, 1999 was approximately $885,871,672.
DOCUMENTS INCORPORATED BY REFERENCE
1) 1998 Annual Report to Shareholders for the Fiscal Year Ended December 31,
1998 (Only those portions referenced herein are incorporated in this Form
10-K).
2) Proxy Statement dated March 22, 1999 (Only those portions referenced herein
are incorporated in this Form 10-K).
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Page 2
USFreightays Corporation
Form 10-K
Fiscal Year Ended December 31, 1998
PART I
Item 1. Business
Background
USFreightways Corporation, (hereafter referred to as the "Company"),
operates five regional less than truckload ("LTL") general commodities motor
carriers. The main focus of the Company's regional trucking subsidiaries is on
overnight and second day delivery of general commodities throughout the United
States and into Canada. The Company's Truckload ("TL") subsidiary provides
premium regional and national truckload service. The Company's logistics
subsidiaries provide solutions to customers' logistics and distribution
requirements. The Company's freight forwarding subsidiaries provide domestic and
international air and ocean freight service through both exclusive and
non-exclusive agents.
The Company traces its origins to 1984 when TNT Limited, through its wholly
owned subsidiary TNT Transport Group ("Transport Group"), embarked on a strategy
to establish, through acquisition, a nationwide network of quality regional LTL
carriers. During the same period, the group of businesses that now constitute
the Company also grew as a result of internal expansion and increased
penetration of existing markets. In April 1991 the Company was incorporated as a
holding company for regional trucking companies of Transport Group.
During February 1992 the shareholders of the Company sold 19,593,750 shares
of common stock through an initial public offering for which the proceeds were
paid to Transport Group. In a subsequent transaction, the Company purchased from
Transport Group all its remaining shares in the Company.
On May 6, 1993 the Company issued, through a public offering, 6 5/8% Notes
in the principal amount of $100,000,000 due May 1, 2000. The proceeds from this
issuance were, in part, used to repay borrowings under existing revolving lines
of credit which were partially used to acquire the common stock from Transport
Group.
In February 1997, the Company sold 3,105,000 of its shares in a public
offering. The net proceeds from the sale, amounting to approximately $69,431,000
were initially used to repay outstanding debt under the Company's revolving
credit facility.
During 1997, under the purchase method of accounting, the Company acquired
all of the outstanding shares of USF Seko Worldwide Inc., an airfreight
forwarding company and the general commodities business of Mercury Distribution
Carriers, Inc. for an aggregate amount of $26,779,000 of cash and debt incurred.
During 1998, under the purchase method of accounting, the Company acquired
all of the outstanding shares of Golden Eagle Group, Inc., an international
freight forwarding company; Glen Moore Transport, Inc., a truckload freight
carrier; Moore & Son Co., a transportation logistics services company; and the
general commodities business of Vallerie's Transportation Service, Inc. for a
total of $66,379,000 of cash and debt incurred.
Following is a table depicting revenue by LTL trucking, TL trucking,
Logistics, Freight forwarding and Corporate other segments for each of the most
recent three fiscal years:
Revenue ($ in millions)
Fiscal Year 1996 % 1997 % 1998 %
------ --- ------ --- ------ ---
LTL trucking $1,231 92.5 $1,409 90.0 $1,540 83.9
TL trucking 13 0.7
Logistics 86 6.5 106 6.8 130 7.1
Freight forwarding 8 0.6 44 2.8 152 8.3
Corporate and other 6 0.4 6 0.4 0 0.0
------ ---- ------ ---- ------ ----
Total $1,331 100.0 $1,565 100.0 $1,835 100.0
------ ----- ------ ----- ------ -----
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Regional LTL Trucking
LTL shipments are defined as shipments of less than 10,000 pounds.
Typically, LTL carriers transport freight along scheduled routes from multiple
shippers to multiple consignees utilizing a network of terminals together with
fleets of line-haul and pickup and delivery tractors and trailers. Freight is
picked up from customers by local drivers and consolidated for shipment. The
freight is then loaded into intercity trailers and transferred by line-haul
drivers to the terminal servicing the delivery area. There, the freight is
transferred to local trailers and delivered to its destination by local drivers.
LTL operators are generally categorized as either regional, interregional
or long-haul carriers, depending on the distance freight travels from pickup to
final delivery. Regional carriers usually have average lengths of haul of 500
miles or less and tend to provide either overnight or second day service.
Regional LTL carriers usually are able to load freight for direct transport to a
destination terminal, thereby avoiding the costly and time-consuming use of
breakbulk terminals (where freight is rehandled and reloaded to its ultimate
destination). In contrast, long-haul LTL carriers (average lengths of haul in
excess of 1,000 miles) operate networks of breakbulk and satellite terminals
(hub-spoke systems) and rely heavily on interim handling of freight.
Interregional carriers (500 to 1,000 miles per average haul) also rely on
breakbulk terminals but to a lesser degree than long-haul carriers.
Regional LTL carriers, including the Company's trucking subsidiaries,
principally compete against other regional LTL carriers. To a lesser extent,
they compete against interregional and long-haul LTL carriers. To an even lesser
degree, regional LTL transporters compete against truckload carriers, overnight
package companies, railroads and airlines. Significant barriers to entry into
the regional LTL market exist as a result of the substantial capital
requirements for terminals and revenue equipment and the need for a large,
well-coordinated and skilled work force.
In the competitive environment of each of the Company's trucking
subsidiaries, most LTL carriers have adopted discounting programs that severely
reduce prices paid by some shippers. Additionally, when new LTL competitors
enter a geographic region, they often utilize discounted prices to lure
customers away from the Company's trucking subsidiaries. Such attempts to gain
market share through price reduction programs exert downward pressure on the
industry's price structure and profit margins and have caused many LTL carriers
to cease operations.
The LTL Trucking Subsidiaries
The following is a brief description of the Company's LTL regional trucking
subsidiaries. Statistical information for subsidiary's operations is reported in
the Company's 1998 Annual Report to the Shareholders, and is incorporated by
reference in this Form 10-K as page F21 of Exhibit 13.
USF Holland is the largest of the Company's operating subsidiaries,
transporting LTL shipments interstate throughout the central United States and
into the Southeast. USF Holland uses predominantly single 48 foot trailers. The
average length of line-haul in the year ended December 31, 1998 was
approximately 390 miles.
USF Red Star operates in the eastern United States, as well as to and from
eastern Canada. USF Red Star uses a combination of single and double trailers.
The average length of line-haul in the year ended December 31, 1998 was
approximately 292 miles. USF Red Star operates in an environment characterized
by intense price competition.
USF Bestway operates throughout the southwest region of the United States
from Texas to California. USF Bestway uses double trailers in its operations.
For the year ended December 31, 1998 the average length of line-haul for USF
Bestway was approximately 420 miles.
USF Reddaway provides LTL carriage along the I-5 corridor from California
to Washington, throughout the northwest United States and into western Canada
and Alaska. The average length of line-haul for the year ended December 31, 1998
was approximately 607 miles. USF Reddaway operates double trailers and, where
possible, triple trailer combinations.
USF Dugan provides service to the Plains states and into the southern
states from Texas to Florida. USF Dugan operates with double and triple
trailers, and the average length of line-haul for the year ended December 31,
1998 was approximately 539 miles.
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Truckload (TL) Trucking
TL shipments are defined as shipments of 10,000 or more pounds. Typically,
TL carriers transport freight along irregular routes from single shippers to
single consignees, without the necessity of a network of terminals, together
with fleets of line-haul sleeper tractors and trailers. Consolidated full
truckload freight is picked up from the customer and delivered to its final
destination by either a company long-haul driver or an independent owner-
operator that has a leasing agreement with the carrier.
TL operators are generally categorized as long-haul carriers and to a
lesser degree interregional depending on the distance freight travels from
pickup to final delivery. The average length of haul for a TL operator is in
excess of 1,000 miles.
TL carriers, including the Company's trucking subsidiary, principally
compete against other TL carriers and to some extent the railroads. TL carriers
generally do not compete against LTL carriers. Barriers to entry into the TL
market exist as a result of substantial capital requirements for revenue
equipment and the need for a well-coordinated and skilled work force. The work
force and revenue equipment requirements, to some degree, can be offset through
the leasing of independent contractors that own their equipment. This work force
is not as controllable as the company employee work force.
In the competitive environment of the Company's TL trucking subsidiary,
most TL carriers have adopted discounting programs that severely reduce prices
paid by some shippers. Additionally, when new TL competitors enter the business,
they often utilize discounted prices to lure customers away from the Company's
TL trucking subsidiary. Such attempts to gain market share through price
reduction programs exert downward pressure on the industry's price structure and
profit margins and have caused TL carriers to cease operations.
The TL Trucking Subsidiary
The following is a brief description of the Company's TL trucking
subsidiary. Statistical information for subsidiary's operations is reported in
the Company's 1998 Annual Report to the Shareholders, and is incorporated by
reference in this Form 10-K as page F21 of Exhibit 13.
Glen Moore is the Company's only TL subsidiary, transporting TL shipments
interstate throughout the United States generally from the Mid-Atlantic and
Southeast states to the West coast and into the Midwest states. Glen Moore
primarily utilizes sleeper line-haul tractors and 53 foot trailers. Glen Moore's
average lenght of haul is approximately 1,000 miles.
The Logistics Subsidiaries
The Company is engaged in business of providing logistics, interregional
and distribution services. These activities are conducted through USF Logistics,
which provides complete supply chain management services from supplying raw
materials to delivering products to customers, USF Logistics (IMC) which
provides contract warehousing services and USF Distribution Services which
collects and ships components to manufacturers and receives, sorts and moves
merchandise from suppliers to retail stores.
Freight Forwarding
The Company is engaged, through its subsidiaries USF Seko Worldwide and the
Golden Eagle Group, in providing domestic and international air and ocean
freight service through both exclusive and non-exclusive agents.
The Company is also engaged, through its subsidiaries USF Coast
Consolidators and USF Caribbean Services, in providing direct freight
transportation service from the mainland to all points in Hawaii/ Guam and
Puerto Rico, respectively.
Terminals for Regional LTL Trucking
The Company's 226 terminals are a key element in the operation of its
regional trucklines. The terminals vary significantly in size according to the
markets served. Sales personnel at each terminal are responsible for soliciting
new business. Each terminal maintains a team of dispatchers who communicate with
customers and coordinate local pickup and delivery drivers. Terminals also
maintain teams of dock workers, line-haul drivers and administrative personnel.
The larger terminals also have maintenance facilities and mechanics. Each
terminal is directed by a terminal manager who has general supervisory
responsibilities and also plays an important role in monitoring costs and
service quality.
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Revenue Equipment
At December 31, 1998 the Company operated 8,121 tractors and 18,690
trailers. Each trucking subsidiary selects its own revenue equipment to suit the
conditions prevailing in its region, such as terrain, climate, and average
length of line-haul. Tractors and trailers are built to standard specifications
and generally are not modified to fit special customer situations.
Each trucking subsidiary has a comprehensive preventive maintenance program
for its tractors and trailers to minimize equipment downtime and prolong
equipment life. Repairs and maintenance are performed regularly at the
subsidiaries' facilities and at independent contract maintenance facilities.
The Company replaces tractors and trailers based on factors such as age and
condition, the market for equipment and improvements in technology and fuel
efficiency. At December 31, 1998 the average age of the Company's line-haul
tractors was 2.6 years and the average age of its line-haul trailers was 5.9
years. Older line-haul tractors are often assigned to pickup and delivery
operations, which are generally operated at lower speeds and over shorter
distances, allowing the Company to extend the life of line-haul tractors and
improve asset utilization. The average age of the Company's pickup and delivery
tractors at December 31, 1998 was 7.4 years.
Sales and Marketing
Sales personnel as well as senior management at each subsidiary are
responsible for soliciting new business and maintaining good customer relations.
In addition, the Company maintains a national account sales department
consisting of 20 professionals who are assigned major accounts within specified
geographic regions of the continental United States. These national account
managers solicit business for the regional trucklines from distribution and
logistics executives of large shippers. In many cases, targeted corporations
maintain centralized control of multiple shipping and receiving locations.
Seasonality
The Company's results, consistent with the trucking and air freight
industry in general, show seasonal patterns with tonnage and revenue declining
during the winter months and, to a lesser degree, during vacation periods in the
summer. Furthermore, inclement weather in the winter months can further
negatively affect the Company's results.
Customers
The Company is not dependent upon any particular industry and provides
services to a wide variety of customers including many large, publicly held
companies. During the year ended December 31, 1998 no single customer accounted
for more than two percent of the Company's operating revenue and the Company's
ten largest customers as a group accounted for approximately nine percent of
total operating revenue. Many of the national account customers use more than
one of the Company's regional trucklines for their transportation requirements.
Cooperation Among Trucklines
The Company's subsidiaries cooperate with each other to market and provide
services along certain routes running between their regions. In such
circumstances, the trucklines jointly price their service and then divide
revenue in proportion to the amount of carriage provided by each company or
based on predetermined formulae.
Information Technology
Each of the Company's operating subsidiaries maintains its own management
information systems and freight tracking and data processing capabilities. These
systems vary in sophistication in accordance with the size of each operation and
the demands of its customers. Software systems are shared among the regional
trucklines where sharing is efficient and appropriate.
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Year 2000
The Company has been and continues to address the universal situation
commonly referred to as the "Year 2000 Problem". The "Year 2000 Problem" is
related to the inability of certain computer systems, software and embedded
technologies to properly recognize and process date-related information
surrounding the Year 2000.
In 1996, the Company initiated a comprehensive review of its computerized
Information Technology (IT)and non-information technology systems to identify
systems that could be affected by the Year 2000 problems and has implemented a
plan to resolve the identified issues. The Year 2000 issues were analyzed by
identifying and assessing all systems,software and embedded technologies and
business partners with internal business critical systems given a higher
priority. The Company defines a system as business critical if a failure would
cause a significant service disruption or could cause a material adverse effect
on the Company's operations or financial results. As of December 31, 1998, the
Company has modified or replaced 91% of its business critical systems. All
business critical systems have been unit tested by IT staff members and many
have been through a detailed Year 2000 test plan. Further testing and
verification on all systems will continue throughout 1999. The Company has
expended approximately $1 million as of December 31, 1998 to ensure Year 2000
compliance. The total cost to ensure Year 2000 compliance is estimated to be
less than $2 million. The cost estimate is based on the Company's structure and
those subsidiaries it owns at the present time. The acquisition of any
additional operating entity may significantly impact the total cost as it has
been estimated.
The Company expects to have contingency plans developed for business
critical systems by July 31, 1999. The contingency plans have been tested or
will be tested for plan completeness and accuracy. Should there be any
disruptions of business critical systems or critical business partners, the
Company expects to be able to continue its operations through telephonic and
facsimile communications. Therefore, some contingency plans may require
additional labor that may impact the Company's operating costs.
The Company has been contacting business partners whose Year 2000 non-
compliance could adversely affect the Company's operations, employees, or
customers. As a provider of transportation and logistics services, the Company's
operations are dependent on telecommunication, financial and utility services
provided by several entities. The Company is unaware of any of these entities or
of any significant supplier to not be Year 2000 compliant.The Company believes
the most likely worst case scenario would be the failure of a material business
partner to be Year 2000 compliant. Therefore, the Company will continue to work
with and monitor the progress of its partners and formulate a contingency plan
when the Company does not believe the business partner will be compliant.
The Company's assessment of its Year 2000 issues involves some assumptions.
These assumptions revolved primarily around the Year 2000 representation from
third parties with which the Company has business relationships, and where the
Company has not been able to independently verify these representations.
Fuel
The motor carrier industry is dependent upon the availability of diesel
fuel. Shortages of fuel, increases in fuel costs or fuel taxes, or rationing of
petroleum products could have a material adverse effect on the profitability of
the Company. The Company maintained a fuel surcharge, which was implemented
during Fiscal 1996, throughout most of Fiscal 1997 to partially offset an
increase in fuel price. The Company has not experienced any difficulty in
maintaining fuel supplies sufficient to support its operations. Fuel prices,
during 1998, were generally lower than they have been in the past two years.
Regulation
In August 1994, two pieces of legislation passed the Congress and were
signed into law that greatly affected the trucking industry. The Trucking
Industry Regulatory Reform Act ("TIRRA") reduced the ICC's authority over motor
carriers by eliminating the tariff-filing requirement for motor common carriers
using individually determined rates, classifications, rules or practices. Under
TIRRA, motor carriers are still required to provide shippers, if requested, with
a copy of the rate, classification, rules or practices of the carrier. Also,
Title VI of the Federal Aviation Administration Authorization Act of 1994 ("the
1994 Act") effectively prohibited state economic regulation of all trucking
operations for motor carriers. The 1994 Act does allow the states to continue
regulation of safety and insurance programs, including carrier inspections. On
December 29, 1995, President Clinton signed the Interstate Commerce Commission
Termination Act of 1995 ("ICCTA") which abolished the ICC as of January 1, 1996
and transferred its residual functions to the Federal Highway Administration and
a newly created Surface Transportation Board within the U. S. Department of
Transportation. Congress has prescribed a transition period during which
regulations implementing the ICCTA including insurance and safety issues must be
promulgated by the Secretary of Transportation.
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PAGE 7
The trucking industry remains subject to the possibility of regulatory and
legislative changes that can influence operating practices and the demands for
and the costs of providing services to shippers.
Interstate motor carrier operations are subject to safety requirements
prescribed by the U.S. Department of Transportation ("DOT"), while such matters
as the weight and dimensions of equipment are also subject to Federal and state
regulations. Effective April 1, 1992, truck drivers were required to be
commercial vehicle licensed in compliance with the DOT, and legislation subjects
them to strict drug testing standards. These requirements increase the safety
standards for conducting operations, but add administrative costs and have
affected the availability of qualified, safety conscious drivers throughout the
trucking industry.
The Company's freight forwarding subsidiaries' domestic and international
air services are not subject to regulation by the Department of Transporation,
and the subsidiaries' ocean freight service is subject to the jurisdiction of
the Federal Maritime Commission.
The Company uses underground storage tanks at certain terminal facilities
and maintains a comprehensive policy of testing, upgrading, replacing or
eliminating these tanks to protect the environment and comply with various
Federal and state laws. Whenever any contamination is detected, the Company
takes prompt remedial action to remove the contaminants.
Insurance and Safety
One of the risk areas in the Company's businesses is cargo loss and damage,
bodily injury, property damage and workers' compensation. The Company is
effectively self-insured on its significant operations up to $2 million per
occurrence for cargo loss and damage, bodily injury and property damage. The
Company is also predominantly self-insured for workers' compensation for amounts
to $1 million per occurrence. Additionally, the Company insures workers'
compensation for amounts in excess of $1 million per occurrence and all other
losses in excess of $2 million.
Each operating subsidiary employs safety specialists and maintains safety
programs designed to meet its specific needs. In addition, the Company employs
specialists to perform compliance checks and conduct safety tests throughout the
Company's operations. The Company's safety record to date has been good.
Employees
At December 31, 1998 the Company employed 19,179 persons, of whom 11,668
were drivers, 1,582 were dock workers, and the balance support personnel,
including office workers, managers and administrators. Approximately 49 percent
of all employees were members of unions. Approximately 88 percent of these union
workers were employed by USF Holland or USF Red Star and belonged to the
International Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of
America (the "IBT"). Members of the IBT at USF Holland and USF Red Star are
presently working under the terms of a five-year, industry-wide labor agreement
that expires in March 2003.
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PAGE 8
Item 2. Properties
The Company's executive offices are located at 9700 Higgins Road, Suite
570, Rosemont, IL 60018. The Company's 19,500 square foot facility is occupied
under a lease terminating in November 2002.
Each of the Company's operating subsidiaries also maintains a head office
as well as numerous operating facilities. Of the 225 regional LTL trucking
terminal facilities used by the Company as of December, 1998, 96 were owned and
129 were leased. These facilities range in size according to the markets served.
The Company has not experienced and does not anticipate difficulties in renewing
existing leases on favorable terms or obtaining new facilities as and when
required.
Item 3. Legal Proceedings
The Company is a party to a number of proceedings brought under the
Comprehensive Environmental Response, Compensation and Liability Act, (CERCLA).
The Company has been made a party to these proceedings as an alleged generator
of waste disposed of at hazardous waste disposal sites. In each case, the
Government alleges that the parties are jointly and severally liable for the
cleanup costs. Although joint and several liability is alleged, these
proceedings are frequently resolved on the basis of the quantity of waste
disposed of at the site by the generator. The Company's potential liability
varies greatly from site to site. For some sites the potential liability is de
minimis and for others the costs of cleanup have not yet been determined. While
it is not feasible to predict or determine the outcome of these proceedings or
similar proceedings brought by state agencies or private litigants, in the
opinion of management, the ultimate recovery or liability, if any, resulting
from such litigation, individually or in the aggregate, will not materially
adversely affect the Company's financial condition or results of operations and,
to the Company's best knowledge, such liability, if any, will represent less
than 1% of its revenues.
Steven Mark Whitworth v. TNT Bestway Transportation, Inc. n/k/a TNT
Bestway Inc. and William Orr, Case No. 96-3935-A, 14th Judicial District
Court, Dallas County, Texas.
On or about November 1, 1996, a judgment was entered against the Company's
subsidiary, USF Bestway Inc. for $3,500,000 in actual damages and $1,750,000 in
attorneys fees together with court costs and interest. USF Bestway Inc. has
appealed the judgment to the Dallas Court of Appeals. The appeal has been
scheduled for March 10, 1999
Management of the Company believes that it has good grounds for obtaining a
reversal of the judgment on appeal because it believes, among other reasons,
that the judgment entered on the basis of the procedural technicality of
counsel's failure to comply with the requirements of Texas law concerning the
signature of pleadings by counsel will not be sustained by a reviewing court.
The Company further believes the judgment will be vacated and the matter
remanded for a trial on the merits and that, in any event, the judgment, if
sustained, will not have a material adverse effect on the Company's financial
condition. In the event the judgment is sustained on appeal, management of the
Company's subsidiary, USF Bestway Inc. intends to pursue potential causes of
action against all appropriate parties.
Also, the Company is involved in other litigation arising in the ordinary course
of business, primarily involving claims for bodily injuries and property
damages. The Company maintains insurance coverage to insure against these types
of claims. Accordingly, in the opinion of management, the ultimate recovery or
liability, if any, resulting from such litigation, individually or in the
aggregate, will not materially adversely affect the Company's financial
condition or results of operations.
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PAGE 9
PART II
Item 5. Market for the Company's Common Stock and related Stockholder Matters
The Company's common stock trades on The NASDAQ Stock Market under the
symbol: USFC. On March 9, 1999 there were approximately 12,000 beneficial
holders of the Company's common stock. For the high and low sales prices for the
common stock for each full calendar quarterly period for fiscal year 1997 and
1998, see page F19 of the Company's Annual Report to the Shareholders -
Financial Statements (incorporated by reference under Item 14 herein).
Since July 2, 1992, the Company has paid a quarterly dividend of $.093333
per share. Although it is the present intention of the Company to continue
paying quarterly dividends, the timing, amount and form of future dividends will
be determined by the board of directors and will depend, among other things, on
the Company's results of operations, financial condition, cash requirements,
certain legal requirements and other factors deemed relevant by the board of
directors. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources" (incorporated by
reference under Item 14 herein).
Item 6. Selected Financial Data
The information set forth under the caption "Selected Consolidated
Financial Data" on page F20 of the Company's Annual Report to the Shareholders
Financial Statements for the year ended December 31, 1998, is incorporated by
reference under Item 14 herein.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing on pages F2 through F5 of the Company's Annual Report to
the Shareholders - Financial Statements for the year ended December 31, 1998, is
incorporated by reference under Item 14 herein.
Item 8. Financial Statements and Supplementary Data
The Financial Statements and Supplementary Data Appearing on pages F7
through F19 of the Company's Annual Report to the Shareholders - Financial
Statements for the year ended December 31, 1998, are incorporated by reference
under Item 14 herein.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
KPMG LLP was previously engaged as the principal accountant to audit the
Company's financial statements for the Company's 1996 fiscal year. On September
18, 1997, their appointment as principal accountants was terminated.
In the year ended December 28, 1996, and during the subsequent interim
period through September 18, 1997, KPMG LLP's reports on the financial
statements of the Company did not contain an adverse opinion or disclaimer of
opinion, nor were they qualified or modified as to uncertainty, audit scope, or
accounting principles. The decision to terminate the relationship with the
accountants was approved by the Company's Audit Committee on September 18, 1997.
There were no disagreements with KPMG LLP on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure
during the Company's last two fiscal years.
The Company requested KPMG LLP to furnish a letter addressed to the
Commission stating whether it agrees with the statements made by the Company,
and, if not, stating the respects in which it does not agree. A letter from KPMG
LLP stating its agreement with the statements made by the Company was included
as Exhibit 16 in a current Report on Form 8-K dated September 18, 1997.
On September 18, 1997, the Company engaged Arthur Andersen LLP as its
principal accountant to audit the Company's financial statements for the fiscal
year ending January 3, 1998.
The Company requested Arthur Andersen LLP to review the disclosure
required in a Report on Form 8-K dated September 18, 1997 before it was filed
with the Commission and provided Arthur Andersen LLP with the opportunity to
furnish the Company with a letter addressed to the Commission containing any new
information, clarification of the Company's expressions of its views, or the
respects to which it did not agree with the statements made in the Report on
Form 8-K dated September 18, 1997. Before the Company filed the current Report
on Form 8-K dated September 18, 1997, Arthur Andersen LLP informed the Company
that it had reviewed the disclosures and did not intend and was not required to
furnish the Company with such letter.
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PAGE 10
PART III
Item 10. Directors and Executive Officers of the Company
The information for directors is reported in the Company's definitive proxy
statement filed pursuant to Regulation 14A, and is incorporated by reference.
The following table sets forth certain information as of December 31, 1998
concerning the registrant's executive officers:
Name Age Position
John Campbell Carruth 68 Chairman and Chief Executive
Officer and Director
Robert V. Fasso 45 President-RegionalCarrier Group
Christopher L. Ellis 53 Senior Vice President, Finance & CFO
John Campbell Carruth, 68, was appointed as the Company's Chief
Executive Officer and President in June of 1991 and Chairman in January of 1998,
and has been a director of the Company since December of 1991.
Robert V. Fasso, 45, was appointed as the Company's President-Regional
Carrier Group in September 1997. Since July 1993, Mr. Fasso has been President
and CEO of the Company's subsidiary USF Bestway Inc. Prior to that date, he was
with Yellow Freight System.
Christopher L. Ellis, 53, has been Senior Vice President, Finance and
Chief Financial Officer of the Company since June 1991.
Item 11. Executive Compensation
This information is reported in the Company's definitive proxy statement
entitled "Management Compensation" and "Compensation Committee Interlocks and
Insider Participation" respectively which will be filed pursuant to Regulation
14A, and is incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
This information is reported in the Company's definitive proxy statement
entitled "Security Ownership of Principal Holders and Management" which will be
filed pursuant to Regulation 14A, and is incorporated by reference.
Item 13. Certain Relationships and Related Party Transactions
This information is reported in the Company's definitive proxy statement
entitled "Certain Relationships and Related Transactions" which will be filed
pursuant to Regulation 14A, and is incorporated by reference.
PART IV
Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K
(a) (1) Financial Statements
The following consolidated financial statements appearing in
the 1998 Annual Report to the Shareholders is incorporated by
reference in this Annual Report on Form 10-K as Exhibit 13:
Page Numbers of Exhibit 13
F 20 Selected Consolidated Financial Data
F 2-5 Management's Discussion and Analysis of
Financial Condition and Results of Operations
F 6 Independent Auditors' Report
F 7-10 Consolidated Financial Statements
F 11-19 Notes to Consolidated Financial Statements
<PAGE>
PAGE 11
(2) Financial Statement Schedule:
Independent Auditors' Report
The Board of Directors and Stockholders,
USFreightways Corporation:
We have audited the accompanying consolidated balance sheets of USFreightways
Corporation and subsidiaries as of December 31, 1998 and January 3, 1998 and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the two years ended December 31, 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of USFreightways
Corporation and subsidiaries as of December 31, 1998 and January 3, 1998 and the
results of their operations and their cash flows for the two years ended
December 31, 1998, in conformity with generally accepted accounting principles.
Arthur Andersen LLP, Chicago, Illinois, January 19, 1999
The Board of Directors and Stockholders, USFreightways Corporation: We have
audited the accompanying consolidated statements of operations, stockholders'
equity, and cash flows for the year ended December 28, 1996 of USFreightways
Corporation and subsidiaries. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of USFreightways
Corporation and subsidiaries as of December 28, 1996 and the results of
operations and cash flows for the year ended December 28, 1996, in conformity
with generally accepted accounting principles.
KPMG LLP, Chicago, Illinois, January 22, 1997
Schedule II - Valuation and Qualifying Accounts
USFreightways Corporation
Three Years ended December 31, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
Additions
-------------------------
Description Balance at Charges to Charged to Deductions(1) Balance at
Beginning Costs and Other End of
of Period Expenses Accounts Period
- ----------- --------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Fiscal year ended December 28,1996
Accounts receivable allowances $5,606 $4,868 $0 $3,288 $7,186
for revenue adjusmtents and doubtful accounts
Fiscal year ended January 3, 1998
Accounts receivable allowances $7,186 $6,717 $0 $3,836 $10,067
for revenue adjusmtents and doubtful accounts
Fiscal year ended December 31, 1998
Accounts receivable allowances $10,067 $6,367 $0 $5,275 $11,159
for revenue adjusmtents and doubtful accounts
(1) Primarily uncollectible accounts written off net of recoveries.
</TABLE>
<PAGE>
PAGE 12
(3) Exhibits
Exhibit Document
Number Description
3(a) Amended and Restated Certificate of Incorporation
of USFreightways Corporation (incorporated by
reference from Exhibit 3.1 to USFreightways
Corporation Transition Report on Form 10-K, from
June 29, 1991 to December 28, 1991); Certificate
of Designation for Series A Junior Participating
Cumulative Preferred Stock (incorporated by
reference from Exhibit 3(a) to USFreightways
Corporation Annual Report on Form 10-K for the
year ended January 1, 1994); Certificate of
Amendment of Restated Certificate of
Incorporation of USFreightways Corporation
(incorporated by reference from Exhibit 3(i)
to USFreightways Corporation Report on Form
10-Q for the quarter ended June 29, 1996).
3(b) Bylaws of USFreightways Corporation, as restated
January 23, 1998 (incorporated by reference from
Exhibit 3(b) to USFreightways Corporation Annual
Report on Form 10-K for the year ended January 3,
1998).
4(a) Form of Rights Agreement, dated as of February 4,
1994, between USFreightways Corporation and
Harris Trust and Savings Bank, as Rights Agent
(incorporated by reference to USFreightways
Corporation's registration statement on Form 8-A
filed with the Securities and Exchange Commission
on March 18, 1994).
4(b) Form of Indenture, dated as of May 1, 1993
between USFreightways Corporation and Harris
Trust and Savings Bank, as Trustee (incorporated
by reference from USFreightways Corporation's
Registration Statement on Form S-1, filed on
April 16, 1993, Registration No. 33-61134).
10(d) USFreightways Stock Option Plan (incorporated by
reference from Exhibit 10.18 to USFreightways
Corporation Transition Report on Form 10-K from
June 29, 1991 to December 28, 1991).
10(e) Agreement dated March 5, 1993 Supplementing the
Tax Indemnification Agreement between
USFreightways Corporation and TNT Transport Group
(incorporated by reference from Exhibit 10 to
USFreightways Corporation Annual Report on Form
10-K for the year ended January 2, 1993).
10(f) Stock Option Plan for Non-Employee Directors
dated October 29, 1993 (incorporated by reference
from Exhibit 10(f) to USFreightways Corporation
Annual Report on Form 10-K for the year ended
January 1, 1994).
10(g) Employment Agreement of Christopher L. Ellis
dated December 16, 1991 (incorporated by
reference from Exhibit 10(g) to USFreightways
Corporation Annual Report on Form 10-K for the
year ended January 1, 1994).
10(i) Form of Election of Deferral (incorporated by
reference from Exhibit 10(h) to USFreightways
Corporation Annual Report on Form 10-K for the
year ended December 31, 1994).
10(j) USFreightways Long-Term Incentive Plan
(incorporated by reference from Exhibit 10.1
to USFreightways Corporation Report on Form 10-Q
for the quarter ended March 29, 1997).
10(k) Stock Option Plan for Non-Employee Directors
amended and restated as of January 1, 1997
(incorporated by reference from Exhibit 3(ii) to
USFreightways Corporation Report on Form 10-Q for
the quarter ended March 29, 1997).
<PAGE>
PAGE 13
Exhibit Document
Number Description
10(l) Employment Agreement of Robert V. Fasso dated
December 12, 1997 (incorporated be reference from
Exhibit 10(l) to USFreightways Corporation Annual
Report on Form 10-K for the year ended January 3,
1998).
10(m) $200,000,000 Credit Agreement dated as of
November 26, 1997 among USFreightways
Corporation, the banks named therein and NBD
Bank, N. A. as agent (incorporated by reference
from Exhibit 10(l) to USFreightways Corporation
Annual Report on Form 10-K for the year ended
January 3, 1998).
10(n) Form of Irrevocable Guaranty and Indemnity
relating to the Credit Agreement described in
Exhibit 10(m) (incorporated by reference from
Exhibit 10(l) to USFreightways Corporation Annual
Report on Form 10-K for the year ended January 3,
1998).
10(p) Restricted Stock Agreement with John Campbell
Carruth dated April 27, 1998 (incorporated by
reference from Exhibit 10.1 to USFreightways
Corporation Report on Form 10-Q for the quarter
ended July 4, 1998).
10(q) USFreightways Corporation Non-Qualified Deferred
Compensation Plan (filed with this Annual Report
on Form 10-K).
13 1998 USFreightways Corporation Annual Report to
Shareholders.
21 Subsidiaries of USFreightways Corporation
(incorporated by reference from the 1998
USFreightways Annual Report to Shareholders).
23 Consent of Arthur Anderson LLP.
24 Powers of Attorney
27 Financial Data Schedule
Exhibits 2, 9, 11, 12, 16, 18, 22 and 28 are not applicable to this
filing.
(b) Reports on Form 8-K
1. On October 6, 1998 and November 3, 1998, the Company
filed a Current Report on Form 8-K.
<PAGE>
PAGE 14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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. Dated
March 29, 1999.
USFREIGHTWAYS CORPORATION
By: /s/Christopher L. Ellis
--------------------
Christopher L. Ellis
Senior Vice President, Finance and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signatures Title Date
/s/ John Campbell Carruth * Chairman of the Board March 29, 1999
Chief Executive Officer
and Director
- ---------------------
John Campbell Carruth
/s/ Morley Koffman * Director March 29, 1999
- --------------------
Morley Koffman
/s/ William N. Weaver, Jr. * Director March 29, 1999
- ----------------------------
William N. Weaver, Jr.
/s/ Robert P. Neuschel * Director March 29, 1999
- ------------------------
Robert P. Neuschel
/s/ Neil A. Springer * Director March 29, 1999
- ----------------------
Neil A. Springer
/s/ Robert V. Delaney * Director March 29, 1999
- -----------------------
Robert V. Delaney
/s/ John W. Puth * Director March 29, 1999
- ------------------
John W. Puth
/s/ Anthony J. Paoni * Director March 29, 1999
- ----------------------
Anthony J. Paoni
/s/ Christopher L. Ellis Chief Financial Officer March 29, 1999
- ------------------------
Christopher L. Ellis
/s/ Robert S. Owen Controller and Principal March 29, 1999
Accounting Officer
- ------------------
Robert S. Owen
/s/ Christopher L. Ellis
* By: Christopher L. Ellis
Attorney-in-Fact
<PAGE>
PAGE 15
EXHIBIT 10(q)
USFreightways Corporation
USFREIGHTWAYS CORPORATION
NON-QUALIFIED DEFERRED COMPENSATION PLAN
Effective as of December 1, 1998
ARTICLE 1. ESTABLISHMENT AND PURPOSE 1
Section 1.1. Establishment 1
Section 1.2. Purpose 1
ARTICLE 2. DEFINITIONS 1
Section 2.1. Definitions 1
Section 2.2. Gender and Number 3
ARTICLE 3. ELIGIBILITY AND PARTICIPATION 3
Section 3.1. Eligibility 3
Section 3.2. Limitation on Participation 3
Section 3.3. Removal from Participation3
ARTICLE 4. DEFERRAL ELECTIONS 3
Section 4.1. Participant Contributions 3
Section 4.2. Submission of Deferral Election Forms 3
Section 4.3. Deferral Period 4
Section 4.4. Nullification of Deferral Elections4
ARTICLE 5. COMPANY CONTRIBUTIONS 4
ARTICLE 6. STATUS OF DEFERRED AMOUNTS4
Section 6.1. Account 4
Section 6.2. Investment 4
Section 6.3. Report of Accrued Balance 5
Section 6.4. Treatment under Other Employee Benefit Plans 5
ARTICLE 7. DISTRIBUTIONS 5
Section 7.1. Timing and Form of Distributions 5
Section 7.2. Hardship Withdrawals 5
Section 7.3. Designation of Beneficiary6
Section 7.4. Claims Procedure 6
ARTICLE 8. PROVISIONS RELATING TO PARTICIPATION 7
Section 8.1. Extent of Rights Under Plan 7
Section 8.2. Funding 7
Section 8.3. Extent to Which Other Parties are Bound by Plan 7
Section 8.4. Payment of Taxes 7
ARTICLE 9. ADMINISTRATION AND FINANCES 7
Section 9.1. Administration 7
Section 9.2. Powers of Committee 7
Section 9.3. Actions of the Committee 7
Section 9.4. Delegation 8
Section 9.5. Indemnification 8
Section 9.6. Reports and Records 8
Section 9.7. Information to be Furnished to Committee 8
ARTICLE 10. AMENDMENTS AND TERMINATION8
Section 10.1. Amendments 8
Section 10.2. Termination 8
ARTICLE 11. MISCELLANEOUS 9
Section 11.1. No Guarantee of Employment9
Section 11.2. Non-Alienation 9
Section 11.3. Severability 9
Section 11.4. Applicable Law 9
Section 11.5 Prior Deferral Plans 9
<PAGE>
PAGE 16
USFREIGHTWAYS CORPORATION
NON-QUALIFIED DEFERRED COMPENSATION PLAN
ARTICLE 1. ESTABLISHMENT AND PURPOSE
Section 1.1. Establishment. USFreightways Corporation desires to establish a
non-qualified deferred compensation plan for the benefit of a select group of
the Company's management or highly compensated employees. This plan is known as
the USFreightways Corporation Non-Qualified Deferred Compensation Plan (the
"Plan").
Section 1.2. Purpose. The purpose of the Plan is to enhance the ability of the
Company to attract and retain qualified management personnel by providing
Participants with (a) the opportunity to defer a portion of their Compensation
that cannot be deferred under the terms of the USF Employees' 401K Retirement
Plan ("the 401K Plan") and (b) the opportunity to defer a portion of their
annual Bonus Compensation. The Plan is to be treated for all purposes of federal
income tax law as an unfunded and non-qualified deferred compensation plan.
ARTICLE 2. DEFINITIONS
Section 2.1. Definitions. Whenever used in the Plan, the following words
and phrases shall have the meanings set forth below unless the context plainly
requires a different meaning. When the defined meaning is intended, the term
is capitalized.
(a) "Account" means the deferred compensation account for each Participant
established by the Administrator pursuant to Section 6.1.
(b) "Accrued Balance" means the amount of each Participant's Deferred
Compensation that is credited to his or her Account, after adjustment under
Article 6 for interest, earnings and losses.
(c) "Administrator" means the individual or entity selected by the Committee to
carry out the administration of the Plan. If no such individual or entity is
selected, the Committee shall serve as the Administrator.
(d) "Board of Directors" means the Board of Directors of USFreightways
Corporation.
(e) "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
(f) "Committee" means that Committee designated by the Board of Directors of the
Company to administer the Plan. If no such Committee is appointed, the Board of
Directors shall serve as the Committee.
(g) "Company" means USFreightways Corporation and its wholly owned subsidiaries,
including any successor or successors.
(h) "Company Contributions" means the contributions made by the Company, if any,
described in Article 5.
(i) "Compensation" means the items of compensation subject to deferral
pursuant to the provisions of Article 4 herein.
------------
(j) "Deferred Compensation" means the amount of Compensation not yet earned, as
designated in the Enrollment Election Form, which the Participant and the
Company mutually agree shall be deferred in accordance with the provisions of
the Plan, and which may be provided either by the Participant through salary
reduction or by the Company through Employer Contributions.
(k) "Distribution Election" means the election designated by the Participants as
to the timing and form of distribution of Deferred Compensation in accordance
with Section 7.1. This election is incorporated into the Enrollment Election
Form.
(l) "Effective Date" means December 1, 1998, the date as of which eligible
employees may commence participation in the Plan.
(m) "Enrollment Election Form" means the form designated by the Committee for
use by Participants to make annual deferrals of Compensation under Article 4.
This form is included as Appendix A. This form may be changed at any time by the
Administrator with the approval of the Committee.
(n) "Participant" means any officer or other key employee of the Company who is
eligible to participate in the Plan, pursuant to Section 3.1.
(o) "Plan" means this USFreightways Corporation Non-Qualified Deferred
Compensation Plan.
<PAGE>
PAGE 17
(p) "Plan Year" means the initial Plan Year beginning December 1, 1998 and
ending December 31, 1998 and each subsequent twelve-month period beginning
January 1 and ending December 31.
(q) "Unforeseeable Emergency" means an unanticipated emergency that is caused by
an event beyond the control of the Participant and that would result in severe
financial hardship to the individual if early withdrawal were not permitted. The
Committee shall determine, in its sole discretion, whether an Unforeseeable
Emergency exists.
Section 2.2. Gender and Number. Except as otherwise indicated by context,
masculine terminology also includes the feminine, and terms used in the singular
may also include the plural.
ARTICLE 3. ELIGIBILITY AND PARTICIPATION
Section 3.1. Eligibility. Participation in the Plan shall be limited to officers
and other key employees of the Company who comprise a "select group of
management or highly compensated employees" (as that phrase is used under
Department of Labor Regulation Section 2520.104-23).
Section 3.2. Limitation on Participation. The Committee, in its sole discretion,
may change the definition of who generally qualifies as a Participant, including
any minimum or maximum deferral amounts that must be made by a Participant in
any Plan Year. Any such change shall be effective for the following Plan Year,
as designated by the Committee.
Section 3.3. Removal from Participation. Upon the direction of the
Committee, a Participant may be removed from participating in the Plan on a
prospective basis for any reason.
ARTICLE 4. DEFERRAL ELECTIONS
Section 4.1. Participant Contributions. Prior to the beginning of each Plan
Year, a Participant may elect to reduce the amount of his or her Compensation
which would otherwise be earned and payable in or with respect to the following
Plan Year by filing an Enrollment Election Form with the Administrator. For the
purposes of this Plan, "Compensation" means base salary and bonus compensation
payable under the terms of the Company's incentive compensation program. The
Participant may elect to defer a specified percentage or specified dollar amount
of his or her Compensation and may direct the deferral of base salary only,
bonus compensation only, or both base salary and bonus compensation.
A deferral shall apply only with respect to bonus compensation relating to
services performed during the Plan Year beginning after the date on which the
Enrollment Election Form is filed with the Administrator; provided, however,
that any initial Enrollment Election Form completed by a Participant with
respect to his or her first Plan Year of participation may apply to Bonus
Compensation payable with respect to services performed during the calendar year
in which such initial Enrollment Election Form is completed.
Section 4.2. Submission of Enrollment Election Forms. Each Participant who
wishes to participate in the Plan must submit the appropriate Enrollment
Election Form to the Administrator no later than 15 days prior to the last day
of the Plan Year preceding the Plan Year with respect to which the Participant
wishes to defer amounts under this Plan.
Section 4.3. Deferral Period. The deferral period shall begin on the first day
of the Plan Year with respect to which the Enrollment Election Form is filed.
The deferral period for all deferrals shall end on the date the Participant's
employment with the Company is terminated for any reason, including death,
disability or retirement; provided, however, that if the termination of
employment is for reason of retirement, the deferral period shall end no earlier
than the end of the Plan Year in which the Participant reaches age 55.
Section 4.4. Nullification of Deferral Elections. Notwithstanding the submission
of Deferral Elections pursuant to this Article, the Committee may nullify such
elections to alleviate demonstrated financial hardship, or because of changes in
tax laws. The Company or the Committee shall determine, in its discretion and on
a uniform and nondiscriminatory basis, whether a financial hardship exists.
<PAGE>
PAGE 18
ARTICLE 5. COMPANY CONTRIBUTIONS
The Company, at the discretion of its Board of Directors, may make contributions
to the Account of each of the Participants in the Plan. Such Company
Contributions, when combined with the Company Contributions made to the
Participant's Account under the 401K Retirement Plan, shall total a maximum of 3
percent of a Participant's Compensation. Employer Contributions, if made, shall
be treated as deferred amounts under Articles 4 and 6 and shall be fully vested
and nonforfeitable at all times.
ARTICLE 6. STATUS OF DEFERRED AMOUNTS
Section 6.1. Account. The Administrator shall establish an Account for each
Participant's Deferred Compensation, to reflect accurately the share of the
Participant under the Plan. Amounts deferred under Article 4 and any amounts
contributed under Article 5 shall be credited to the Account of the Participant
no later than the 15th of the month following the month in which such amounts
would have been payable to the Participant if he or she had not made the
Deferral Election.
Section 6.2. Investment. Amounts credited to Participant's Account under the
Plan shall be adjusted in accordance with the performance of one or more
investment alternatives to be selected from time to time by the Company (in
which case losses may also occur). In making the choice of which investment
alternative or alternatives will be used to determine the investment performance
of a Participant's Account, the Company may in its discretion take into account
the investment recommendations, if any, made by the Participant. Such investment
recommendations shall be made by the Participant on a Enrollment Election Form,
which is attached as Appendix A. Title to and beneficial ownership of any actual
investments of the Company (whether or not held in trust and whether or not
invested in one or more of the above-described investment alternatives) shall at
all times remain in the Company and shall constitute general assets of the
Company, subject only to claims of its general creditors. A Participant or his
or her beneficiary shall not under any circumstances acquire any proprietary or
beneficial interest in any asset of the Company by virtue of such Participant's
participation in the Plan.
Interest, gains and/or losses shall be credited to Participants' Accounts
quarterly. Participants' investment recommendations (which, as noted above, may
but need not be followed by the Company) may be revised as often as quarterly
both as to existing balances and as to future contributions. Such election
changes shall be made on the form made available by the Administrator for that
purpose and shall be delivered to the Administrator no later than 10 days prior
to the first day of the quarter for which such change is to be effective.
Section 6.3. Report of Accrued Balance. The Administrator shall advise each
Participant of his or her Accrued Balance at least annually following the end of
each Plan Year (on a date or dates to be determined by the Administrator).
Section 6.4. Treatment under Other Employee Benefit Plans. It is intended that
the amounts deferred by a Participant under Article 4 shall at the earliest time
permitted by applicable law be includable in determining benefits under any
pay-related employee benefit plans of the Company as well as under any
tax-qualified retirement plans (to the extent permitted in such plans), except
to the extent that such inclusion in any such pay-related or tax-qualified plan
would adversely affect the tax-favored status of that plan or the tax-deferred
status of Compensation deferred under the Plan.
ARTICLE 7. DISTRIBUTIONS
Section 7.1. Timing and Form of Distributions. As soon as administratively
practicable after the expiration of the deferral period described in Section
4.3, the Company shall commence payment to the Participant of his or her Accrued
Balance. The Participant's Accrued Balance shall be paid in a lump sum or in
equal annual installments as designated by the Participant on the Enrollment
Election Form.
As soon as practicable following a Participant's death, his or her entire
Accrued Balance shall be paid to his or her designated beneficiary or
beneficiaries in a lump sum or installments in accordance with the Participant's
existing election. In the event a Participant dies while receiving installment
distributions hereunder, such Participant's beneficiary or beneficiaries shall
receive the remainder of such installment payments; provided, however, that the
Committee in its sole discretion may determine that such beneficiary or
beneficiaries shall receive a lump sum payment equal to the present value of the
Participant's remaining installment payments as of the date of his or her death.
<PAGE>
PAGE 19
Section 7.2. Hardship Withdrawals. A Participant may at any time apply in
writing to the Committee for a single-sum distribution of that portion of such
Participant's Accrued Balance necessary to relieve an immediate financial need
resulting from an Unforeseeable Emergency. Whether, and the extent to which, the
Participant has incurred an Unforeseeable Emergency shall be determined by the
Committee in its sole discretion. The minimum hardship withdrawal shall be
$5,000, and the maximum hardship withdrawal shall be the amount necessary to
relieve the immediate financial need resulting from the Unforeseeable Emergency.
At the discretion of the Committee, the amount of the hardship withdrawal may be
increased to account for any income taxes that will be imposed upon the
Participant as a result of the withdrawal.
Section 7.3. Designation of Beneficiary. Each Participant shall have the right
to designate one or more individuals or entities as beneficiaries in the event
of the Participant's death. The Participant may also designate one or more
contingent beneficiaries. To become effective, these designations must be made
by the Participant on the appropriate Beneficiary Designation form (attached as
Appendix B) and must be filed with the Administrator in order to become
effective. If no designated beneficiary survives the Participant, then the
beneficiary shall be the Participant's estate.
Section 7.4. Claims Procedure. If a Participant or his or her beneficiary
(hereinafter referred to as a "Claimant") is denied all or a portion of an
expected benefit under the Plan for any reason, he or she may file a claim with
the Administrator. The Administrator shall notify the Claimant within 90 days
after receipt of the claim (or within 180 days if special circumstances apply)
of allowance or denial of the claim. If the claim for benefits is denied, in
whole or in part, the Claimant will receive a written explanation of:
(a) The specific reasons for the denial;
(b) The specific references to provisions of the Plan document that support
those reasons;
(c) Any additional information that must be provided to improve the claim and
the reasons why that information is necessary; and
(d) The procedures that are available for a further review of the claim.
A Claimant is entitled to request a review of any denial of his or her claim by
the Committee. The request for review must be submitted within 60 days of
receipt of the denial. Absent a request for review within the 60-day period, the
claim shall be deemed to be conclusively denied. The Claimant or his or her
representatives shall be entitled to review all pertinent documents and to
submit issues and comments in writing as part of any request for review. The
Committee will conduct a full and fair review of the claim and will notify the
Claimant of the decision within 60 days (or 120 days if special circumstances
apply). The decision must be in writing and will include the specific reasons
and references to Plan provisions on which the decision is based. The Committee
has the exclusive right and discretion to interpret the provisions of the Plan,
and the entitlement to benefits, and its decision is conclusive and final and
not subject to further review to the maximum extent permitted by law.
ARTICLE 8. PROVISIONS RELATING TO PARTICIPATION
Section 8.1. Extent of Rights Under Plan. Except as to amounts actually
distributed under the Plan, no Participant and no person claiming under or
through a Participant shall have any right or interest in the Plan, in any
Account (whether with respect to assets set aside in trust or otherwise) or in
the continuance of the Plan.
Section 8.2. Funding. No funds shall be segregated or earmarked for any current
or former Participant, beneficiary or other person. However, the Company may
establish one or more grantor trusts of the type referred to as a "Rabbi Trust"
in respect of its obligations under the Plan. No current or former Participant,
beneficiary or other person, individually or as a member of a group, shall have
any right, title or interest in any Account, any fund, any specific sum of
money, any grantor trust or in any asset which may be acquired by the Company in
respect of its obligations under the Plan (other than as a general creditor of
the Company with an unsecured claim against the Company's general assets).
Section 8.3. Extent to Which Other Parties are Bound by Plan. The Plan shall be
binding upon and shall inure to the benefit of the Company, including its
successors and assigns, and the Participants and their heirs, administrators and
personal representatives. In the event the USFreightways Corporation becomes
party to any merger, consolidation, or reorganization, this Plan shall remain in
full force and effect as an obligation of the USFreightways Corporation or its
successors in interest.
Section 8.4. Payment of Taxes. The Company shall to the extent required by law
withhold Federal, state and local taxes (including but not limited to income
taxes and taxes under the Federal Insurance Contributions Act) with respect to
any distribution from the Plan to any Participant or beneficiary. To the extent
permitted by law, a Participant may elect a specified federal income tax
withholding rate (i.e., above the minimum applicable withholding rate).
<PAGE>
PAGE 20
ARTICLE 9. ADMINISTRATION AND FINANCES
Section 9.1. Administration. The Plan shall be administered by the
Committee and the Administrator (to the extent administrative duties are
assigned by the Committee to the Administrator) and, as applicable, by
representatives of the Company.
Section 9.2. Powers of Committee. The Committee shall have all powers necessary
to administer the Plan, including, without limitation, the power to interpret
the provisions of the Plan and decide all questions of eligibility (within its
complete discretion), to establish rules and forms for the administration of the
Plan and to appoint the Administrator and any other individuals to assist in the
administration of the Plan.
Section 9.3. Actions of the Committee. All determinations, interpretations,
rules and decisions of the Committee shall be conclusive and binding upon all
persons having or claiming to have any interest or right under the Plan.
Section 9.4. Delegation. The Committee shall have the power to delegate specific
duties and responsibilities to officers or other employees of the Company or to
other individuals or entities, including the Administrator. Any delegation may
be rescinded by the Committee at any time. Except as otherwise required by law,
each person or entity to whom a duty or responsibility has been delegated shall
be responsible for the exercise of such duty or responsibility and shall not be
responsible for any act or failure to act of any other person or entity.
Section 9.5. Indemnification. The Administrator (if an employee of the Company
or any other entity affiliated with the Company), the present and former members
of the Committee and the present and former members of the Boards of Directors
of the Company shall be indemnified by the Company against any and all
liabilities arising by reason of any act or failure to act made in good faith in
accordance with the provisions of the Plan. For this purpose, liabilities
include expenses reasonably incurred in the defense of any claim relating to the
Plan.
Section 9.6. Reports and Records. The Committee and those to whom the Committee
has delegated duties under the Plan shall keep records of all their proceedings
and actions and shall maintain books of account, records and other data as shall
be necessary for the proper administration of the Plan and for compliance with
applicable law.
Section 9.7. Information to be Furnished to Committee. The Company shall furnish
the Committee such data and information as it may require. The records of the
Company shall be determinative of each Participant's period of employment,
termination of employment and the reason therefor, leave of absence,
reemployment, years of service, personal data and deferrals. Participants and
their beneficiaries shall furnish to the Committee such evidence, data or
information, and shall execute such documents, as the Committee reasonably
requests.
<PAGE>
PAGE 21
ARTICLE 10. AMENDMENTS AND TERMINATION
Section 10.1. Amendments. The Board of Directors of the Company may amend
the Plan, in full or in part, at any time.
Section 10.2. Termination. The Company expects the Plan to be permanent, but it
necessarily must and does reserve the right to modify, revise or terminate the
Plan at any time by action of the Board of Directors of the Company. Subject to
the final sentence of this Section 10.2, in the event the Plan is terminated,
benefits will be paid at the same time and in the same manner as would have
occurred absent such termination, and the Committee and the Administrator shall
continue to administer the terminated Plan for such purposes. Notwithstanding
the preceding sentence, the Committee, in its sole discretion, may commence the
payment of Plan benefits to Participants in a lump sum or annual installments as
previously elected by the Participants any time after the Plan is terminated
(even if the scheduled deferral periods of such individuals have not yet ended).
ARTICLE 11. MISCELLANEOUS
Section 11.1. No Guarantee of Employment. The adoption and maintenance of the
Plan shall not be deemed to be a contract of employment between the Company and
any employee. Nothing contained in the Plan shall give any Participant or other
employee the right to be retained in the employ of the Company or to interfere
with the right of the Company to discharge any employee at any time, nor shall
it give the Company the right to require any Participant or other employee to
remain in its employ or to interfere with any Participant's or other employee's
right to terminate his or her employment at any time.
Section 11.2. Non-Alienation. No benefit payable at any time under the Plan
shall be subject in any manner to alienation, sale, transfer, assignment,
pledge, attachment or encumbrance of any kind.
Section 11.3. Severability. If any provision of the Plan shall be found to
be invalid or unenforceable by a court of competent jurisdiction, the validity
or enforceability of the remaining provisions of the Plan shall remain in full
force and effect.
Section 11.4. Applicable Law. The Plan and all rights under the Plan shall
be governed by and construed according to the laws of the State of Illinois,
except to the extent preempted by federal law.
Section 11.5. Prior Deferral Plans. The deferred compensation arrangement
in existence at the adoption of this Plan shall be incorporated into this Plan
from the Effective Date.
IN WITNESS WHEREOF, USFreightways Corporation has caused this Plan to
be executed by its duly authorized officer on this day of , 1998.
USFREIGHTWAYS CORPORATION
By: /s/ Christopher L. Ellis
------------------------
Christopher L. Ellis
Its: Senior Vice President, Finance and CFO
PAGE F1
Financial Highlights
(Thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
Fiscal Year 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue
LTL Trucking $ 1,540,162 $ 1,409,086 $ 1,213,360
TL Trucking 12,877 - -
Logistics 130,323 106,299 85,601
Freight Forwarding 151,531 44,340 8,400
Corporate and other - 5,524 5,611
- ---------------------------------------------------------------------------------------------------------------------------
Total Revenue $ 1,834,893 $ 1,565,249 $ 1,330,972
- ---------------------------------------------------------------------------------------------------------------------------
Income from Operations (loss)
LTL Trucking $ 127,242 $ 103,150 $ 67,876
TL Trucking 1,138 - -
Logistics 7,976 6,414 2,655
Freight Forwarding 4,925 1,289 33
Corporate and other (11,848) (5,843) (3,436)
- ---------------------------------------------------------------------------------------------------------------------------
Total Income from Operations $ 129,433 $ 105,010 $ 67,128
- ---------------------------------------------------------------------------------------------------------------------------
Net Interest Expense $ 8,027 $ 7,423 $ 11,495
- ---------------------------------------------------------------------------------------------------------------------------
Net Income $ 71,445 $ 56,581 $ 31,478
- ---------------------------------------------------------------------------------------------------------------------------
Net Income Per Share - Diluted $ 2.70 $ 2.19 $ 1.40
- ---------------------------------------------------------------------------------------------------------------------------
Total Assets $ 974,673 $ 799,535 $ 688,508
- ---------------------------------------------------------------------------------------------------------------------------
Return on Average Stockholders' Equity 16.8% 17.1% 12.5%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PAGE F2
Management's Discussion and Analysis of Financial Conditions and Results
of Operations
USFreightways Corporation ("the Company") is a full service provider of
transportation services and innovative logistics solutions. This is accomplished
through the Company's operating subsidiaries. Regional less-than-truckload
("LTL") general commodities carriers provide overnight and second-day delivery
throughout the United States and into Canada. Logistics subsidiaries provide
solutions to customers' logistics and distribution requirements. The Company
also provides domestic and international freight forwarding as well as premium
regional and national truckload service. Principal subsidiaries in the Regional
LTL group are USF Holland Inc. ("Holland"), USF Bestway Inc. ("Bestway"), USF
Red Star Inc. ("Red Star"), USF Reddaway Inc. ("Reddaway") and USF Dugan Inc.
("Dugan"); the Logistics group consists of USF Logistics Inc. ("Logistics") and
USF Distribution Services Inc. ("Distribution Services"); the Freight Forwarding
group includes USF Seko Worldwide Inc. ("Seko Worldwide"), Golden Eagle Group
("Golden Eagle"); Glen Moore Transport Inc. ("Glen Moore") is the Company's
truckload carrier.
Results of Operations
In 1998, the Company changed its fiscal year-end to December 31st. In prior
years, the fiscal year ended on the Saturday nearest December 31st. The year
ending December 31, 1998 ("Fiscal 1998") included 52 weeks whereas ("Fiscal
1997") included 53 weeks ending on January 3, 1998 and ("Fiscal 1996") included
52 weeks ending on December 28, 1996.
Operating revenue of the Company for Fiscal 1998 was a record $1.84 billion, a
17.2% increase over total operating revenue of $1.56 billion for Fiscal 1997.
Income from operations increased by 23.3% from $105.0 million in Fiscal 1997 to
a record $129.4 million in Fiscal 1998. Net income per share increased by 23.3%
to $2.70 (diluted) in Fiscal 1998 compared to $2.19 (diluted) in Fiscal 1997.
The extra 53rd week of Fiscal 1997 contributed approximately $20.6 million of
revenue, but net income was adversely affected by approximately $0.04 per share
as that week included the New Year's holiday.
Fiscal 1997 operating revenue increased by 17.6% to $1.56 billion compared to
$1.33 billion for Fiscal 1996. Income from operations increased by 56.4% to $
105.0 million in Fiscal 1997 from $ 67.1 million (which included a $4.0 million
restructuring charge at Red Star) in Fiscal 1996. Net income per share increased
to by 56.4% to $2.19 (diluted) in Fiscal 1997 compared to $1.40 (diluted) in
Fiscal 1996.
Regional LTL. Revenue in the LTL group for the 52-week period in Fiscal 1998
increased by 9.3% to $1.54 billion from $1.41 billion in the 53 week Fiscal
1997. In Fiscal 1998, revenue from the LTL group amounted to 83.9% of the
Company's operating revenue compared to 90.0% in Fiscal 1997. For comparable 52
week periods, LTL revenue increased 10.7%, LTL shipments increased 6.0%, LTL
tonnage increased 8.4% and LTL revenue per hundredweight increased 2.1%. In
Fiscal 1998, the LTL group enacted a general rate increase of approximately 5.9%
in January and another general rate increase of approximately 5.9% in the late
fall. The LTL group enacted a 5.9% general rate increase in January 1997 also.
General rate increases apply to approximately 50% of the LTL group's revenue
base. The remaining 50% of the revenue base is subject to contractual agreements
which normally result in lower rate increases.
Operating income in Fiscal 1998 increased by 23.4% to $127.2 million from $103.1
million in Fiscal 1997. Improvements in operating results were directly
attributable to price stability, a modest improvement in the US economy,
increases in market share and a continuing emphasis on cost reduction. The LTL
group improved its ratio of operating expenses compared to operating revenue
(operating ratio) to 91.7% compared to 92.7% in Fiscal 1997. Purchased
transportation decreased to 3.2% of operating revenue from 3.5% in Fiscal 1997
as Dugan improved linehaul efficiencies and relied less on cartage agents and
broker teams to handle its freight and Holland significantly reduced short term
equipment rents. Fuel expenses were 3.4% of Fiscal 1998 revenue compared to 3.8%
of Fiscal 1997 revenue primarily due to lower prices in Fiscal 1998.
<PAGE>
PAGE F3
Revenue in the LTL group increased by 14.4% to $1.41 billion in Fiscal 1997, a
53-week period, from $1.23 billion in Fiscal 1996, a 52-week period, primarily
as a result of new customers, closure of certain competitors and expanded
business from existing customers. In Fiscal 1997, LTL shipments increased by
10.9%, LTL tonnage increased by 12.1%, LTL revenue per shipment increased by
3.4% and LTL revenue per hundredweight increased by 2.4% compared to Fiscal
1996. In Fiscal 1996, revenue from the LTL group amounted to 92.5% of the
Company's operating revenue.
Operating income for the LTL group in Fiscal 1997 increased by 52.0% to $103.1
million from $67.9 million in Fiscal 1996 with an improvement in its operating
ratio to 92.7% compared to 94.5% in Fiscal 1996. Fiscal 1996 operating income
included a one-time $4.0 million restructuring charge at Red Star. Before this
charge, the operating ratio for the LTL group was 94.2%. Improvements in
operating income were directly attributable to a relatively mild winter in
Fiscal 1997, price stability, and a strong economy, unlike Fiscal 1996 which was
adversely impacted by severe weather during the winter months, intense industry
competitive pricing and a somewhat sluggish economy during the first half of the
year. The LTL group's salaries, wages and benefits improved to 63.7% of revenue
from 64.2% in Fiscal 1996 as Bestway reduced workers' compensation expenses due
to fewer claims. Additionally, a turnaround achieved at Red Star during the
fourth quarter of Fiscal 1996, following its restructuring, continued through
Fiscal 1997. Red Star, through stricter cost controls, improved its Fiscal 1997
operating ratio to 99.6% from 102.0% (104.1% including the restructuring charge)
in Fiscal 1996. Fuel expenses, net of a fuel surcharge, were 3.8% of Fiscal 1997
revenue compared to 4.2% of Fiscal 1996 revenue due to lower prices in the
latter part of Fiscal 1997. Revenue equipment rentals, operating taxes and
terminal rental expenses collectively improved, as a percentage of revenue, to
5.0% in Fiscal 1997 compared to 5.4% in Fiscal 1996.
Approximately 80% of Holland's and Red Star's employees are members of the
Teamsters' union and are subject to a collective bargaining agreement. In 1998,
the Teamsters ratified a five-year agreement that expires at the end of March
2003. This agreement provided for, among other things, customary increases in
wages, pension and health benefits.
Truckload. The Company's truckload carrier, Glen Moore (acquired on August 31,
1998), contributed $12.9 million in revenue and its operating ratio was 91.2%
generating $1.1 million in operating profits. Glen Moore is a Pennsylvania based
carrier that operates in both regional and nationwide markets with annualized
revenue in Fiscal 1998 of approximately $35 million and operates 236 sleeper
tractors and 625 trailers. Truckload operations accounted for 0.7% of the
Company's Fiscal 1998 operating revenue.
Logistics. Revenue in the Logistics group, comprised of dedicated carriage,
assembly and distribution, supply chain management and contractual warehousing
revenue, increased by $24.0 million (a 22.6% increase) to $130.3 million in
Fiscal 1998 compared to $106.3 million in Fiscal 1997. Assembly and distribution
revenue increased in Fiscal 1998 from Fiscal 1997 primarily through growth at
existing distribution centers coupled with revenue from a new distribution
center in Atlanta, along with revenue obtained since October 1998 from the
acquisition of Moore and Son, a Columbus, Ohio based assembly and distribution
business. Moore & Son contributed approximately $3.8 million in revenue since
its acquisition. Contractual and warehousing revenue increased in Fiscal 1998
from Fiscal 1997 primarily through the addition of new customers and expanded
business with existing customers. In Fiscal 1998, the Logistics group accounted
for 7.1% of the Company's operating revenue compared to 6.8% of Fiscal 1997
revenue. Operating income for the group increased by 24.4% to $8.0 million from
$6.4 million in Fiscal 1997. The group's operating ratio improved slightly to
93.9% in Fiscal 1998 from 94.0% in Fiscal 1997.
Revenue in the Logistics group increased 24.2% to $106.3 million in Fiscal 1997
compared to $85.6 million in Fiscal 1996 primarily due to the addition of new
contractual customers and a full year of revenue at Interamerican, a warehousing
company that was acquired in July 1996. In Fiscal 1996, the Logistics group
accounted for 6.4% of the Company's operating revenue. Operating income for the
group increased by 141.6% to $6.4 million from $2.7 million in Fiscal 1996 due
primarily to a full year of profits at Interamerican. The group's operating
ratio improved 94.0% in Fiscal 1997 from 96.9% in Fiscal 1996.
<PAGE>
PAGE F4
Freight Forwarding. Revenue in the Freight Forwarding group increased by $107.2
million (a 242% increase) to $151.5 million from $44.3 million in Fiscal 1997.
The increase was derived primarily at Seko Worldwide, the Company's domestic and
international freight forwarder that was acquired on September 30, 1997, which
generated a full year of revenue in Fiscal 1998, compared to revenue generated
only during the fourth quarter of Fiscal 1997. In addition, the Company acquired
the Golden Eagle Group, a provider of international air and ocean freight
forwarding and logistics services, on November 12, 1998. Golden Eagle
contributed $9.8 million, since its acquisition, of the overall increase in the
Freight Forwarding group's Fiscal 1998 revenue. Golden Eagle's revenue for 1997,
while not included in the Company's Fiscal 1997 revenue, amounted to $84 million
of which approximately 90% was international. The Freight Forwarding group
accounted for 8.3% of the Company's Fiscal 1998 operating revenue compared to
2.8% of the Company's Fiscal 1997 operating revenue. Operating income increased
to $4.9 million from $1.3 million in Fiscal 1997, with an operating ratio of
96.7% in Fiscal 1998 compared to 97.1% in Fiscal 1997. The highly variable cost
structure of the non-asset based freight forwarding business results in
relatively stable margins at various volumes of freight.
Revenue in the Freight Forwarding group increased by $35.9 million to $44.3
million from $8.4 million in Fiscal 1996. Of this increase, Seko Worldwide alone
generated $31.8 million in revenue since its acquisition in September 1997. The
Freight Forwarding group accounted for 0.6% of the Company's Fiscal 1996
operating revenue.
The group's operating income in Fiscal 1997 was $1.3 million with $1.1 million
contributed by Seko Worldwide. This compares to an immaterial profit in Fiscal
1996.
Interest
Net interest expense for Fiscal 1998 amounted to $8.0 million compared to $7.4
million in Fiscal 1997. The principal debt of the Company is $100 million in
notes that mature May 1, 2000 and bear interest of 6 5/8%. The average interest
rate on the Company's bank debt for Fiscal 1998 was approximately 5.8% compared
to 5.9% in Fiscal 1997. Average outstanding bank debt in Fiscal 1998 and Fiscal
1997 was $17 million and $8.9 million, respectively.
Net interest expense for Fiscal 1996 amounted to $11.5 million. The average
amount of outstanding bank debt in Fiscal 1996 was $81.5 million. Average
outstanding bank debt decreased by approximately $69 million in February 1997
following the sale of approximately 3.1 million shares of common stock in a
public offering.
Liquidity and Capital Resources
The Company generated $153.2 million in cash flow from operating activities
during Fiscal 1998. Capital expenditures during the year amounted to $157.5
million, of which $74.3 million was for revenue equipment, $56.7 million for
terminals and $26.5 million for other assets. In addition, the Company paid
$42.1 million in cash for the acquisitions of Glen Moore, Moore and Son,
Vallerie's Transportation Services, and the Golden Eagle Group. Capital
expenditures for Fiscal 1997 amounted to $128.8 million plus $22.8 million in
cash for the acquisitions of Seko Worldwide and Mercury Distribution, an LTL
general commodities carrier located in the Northeast. In light of current
business levels, management expects that capital expenditures during the year
ending December 31, 1999 will approximate $170 million to $200 million,
excluding acquisitions.
The Company has a $200 million revolving credit facility with a syndicate of
commercial banks. The facility expires in 2002 and allows up to $100 million for
standby letters of credit to cover the Company's self-insurance program, and has
optional pricing of interest rates, including LIBOR or Prime base rates. The
facility has an annual fee and contains customary financial covenants including
maintenance of minimum net worth and funded debt to cash flow. During 1998, all
borrowings were drawn at LIBOR base rates, with a weighted average interest rate
for the year of 5.8%, excluding fees charged on the facility. At December 31,
1998 the Company had borrowed $45 million and had $47 million in outstanding
letters of credit under this facility.
In addition to the revolving credit facility, the Company maintains three
uncommitted lines of credit, which provide $40 million short-term funds at rates
approximating LIBOR. These facilities are used in concert with a centralized
cash management system to finance short-term working capital needs; thereby
enabling the Company to maintain minimal cash balances.
In management's opinion, cash flows from operating activities and funding from
its revolving credit facilities are adequate to finance the Company's
anticipated business activity in 1999.
At December 31, 1998 the Company had commitments to purchase approximately $13.7
million in land and improvements, $23.8 million for transportation equipment and
$1.8 million for other equipment.
During 1998, the Company declared cash dividends of $9.8 million.
<PAGE>
PAGE F5
Other
The Company uses underground storage tanks at certain terminal facilities and
maintains a comprehensive policy of testing, upgrading, replacing or eliminating
these tanks to protect the environment and comply with various Federal and state
laws. Whenever any contamination is detected, the Company takes prompt remedial
action to remove the contaminants. It is management's opinion that the total
costs related to all known incidents have been provided for in the financial
statements and management is not aware of any potential contamination incidents
that would have a material effect on the results of the Company.
Market Risk
The Company is exposed to the impact of interest rate changes. The Company's
exposure to changes in interest rates is limited to borrowings under a line of
credit agreement which has variable interest rates tied to the LIBOR rate. The
weighted average annual interest rates on borrowings under this credit agreement
were 5.8% and 5.9% in Fiscal 1998 and 1997 respectively. In addition, the
Company has $100 million of unsecured notes with a 6 5/8% fixed annual interest
rate at December 31, 1998. The Company estimates that the carrying value of the
notes approximated its market value at December 31, 1998. The Company has no
hedging instruments. From time to time, the Company invests excess cash in
overnight money market accounts.
Year 2000
The Company has been and continues to address the universal situation commonly
referred to as the "Year 2000 Problem". The "Year 2000 Problem" is related to
the inability of certain computer systems, software and embedded technologies to
properly recognize and process date-related information surrounding the Year
2000.
In 1996, the Company initiated a comprehensive review of its computerized
Information Technology (IT) to identify systems that could be affected by the
Year 2000 problems and has implemented a plan to resolve the identified issues.
The Year 2000 issues were analyzed by identifying and assessing all systems,
software and embedded technologies, with business critical systems given a
higher priority. The Company defines a system as business critical if a failure
would cause a significant service disruption or could cause a material adverse
effect on the Company's operations or financial results. As of December 31,
1998, the Company has remediated 91% of its business critical systems. Further
testing and verification on all systems will continue throughout 1999. The
Company has expended approximately $1 million as of December 31, 1998 to ensure
Year 2000 compliance. The total cost to ensure Year 2000 compliance is estimated
to be less than $2 million. The cost estimate is based on the Company's
structure and those subsidiaries it owns at the present time. The acquisition of
any additional operating entity may significantly impact the total cost as it
has been estimated.
Contingency plans are being developed for business critical systems. The Company
has tested or will be testing for plan completeness and accuracy. Some
contingency plans may require additional labor that may impact the Company's
operating costs.
The Company has been contacting business partners whose Year 2000 non-compliance
could adversely affect the Company's operations, employees, or customers. The
Company believes the most likely worst case scenario would be the failure of a
material business partner to be Year 2000 compliant. Therefore, the Company will
continue to work with and monitor the progress of its partners and formulate a
contingency plan when the Company does not believe the business partner will be
compliant.
The Company's assessment of its Year 2000 issues involves some assumptions.
These assumptions revolved primarily around the Year 2000 representation from
third parties with which the Company has business relationships, and where the
Company has not been able to independently verify these representations.
<PAGE>
PAGE F6
Independent Auditors' Report
The Board of Directors and Stockholders,
USFreightways Corporation:
We have audited the accompanying consolidated balance
sheets of USFreightways Corporation and subsidiaries as of December 31, 1998 and
January 3, 1998 and the related consolidated statements of operations,
stockholders' equity, and cash flows for the two years ended December 31, 1998.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of USFreightways
Corporation and subsidiaries as of December 31, 1998 and January 3, 1998 and the
results of their operations and their cash flows for the two years ended
December 31, 1998, in conformity with generally accepted accounting principles.
Arthur Andersen LLP, Chicago, Illinois, January 19, 1999
The Board of Directors and Stockholders,
USFreightways Corporation:
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows for the year ended December 28, 1996 of
USFreightways Corporation and subsidiaries. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of USFreightways
Corporation and subsidiaries as of December 28, 1996 and the results of
operations and cash flows for the year ended December 28, 1996, in conformity
with generally accepted accounting principles.
KPMG LLP, Chicago, Illinois, January 22, 1997
<PAGE>
PAGE F7
Consolidated Balance Sheets
Years ended December 31, 1998 and January 3, 1998
(Thousands of dollars)
<TABLE>
<CAPTION>
December 31, January 3,
1998 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash $ 5,548 $ 6,471
Accounts receivable, less allowances of $11,159 and $10,067 218,942 187,554
Operating supplies and prepaid expenses 23,067 21,176
Deferred income taxes (note 4) 32,292 21,915
- ---------------------------------------------------------------------------------------------------------------------------
Total current assets 279,849 237,116
Property and equipment:
Land 74,933 56,542
Buildings and leasehold improvements 171,229 131,543
Equipment 649,867 563,732
Other 56,994 48,892
- ---------------------------------------------------------------------------------------------------------------------------
953,023 800,709
Less accumulated depreciation (408,741) (352,394)
- ---------------------------------------------------------------------------------------------------------------------------
Total property and equipment 544,282 448,315
Intangible assets, net of accumulated amortization of $25,717 and $21,424 140,201 104,407
Other assets 10,341 9,697
- ---------------------------------------------------------------------------------------------------------------------------
$ 974,673 $ 799,535
Liabilities and Stockholders' Equity Current liabilities:
Current debt (note 3) $ 10,660 $ 650
Accounts payable 78,757 62,895
Accrued salaries, wages and benefits 66,142 55,166
Accrued claims and other 70,017 61,059
Income taxes payable 3,301 1,944
- ---------------------------------------------------------------------------------------------------------------------------
Total current liabilities 228,877 181,714
Long-term debt, less current maturities (note 3) 51,096 15,000
Notes payable (note 3) 100,000 100,000
Accrued claims and other 69,183 58,057
Deferred income taxes (note 4) 66,383 52,564
- ---------------------------------------------------------------------------------------------------------------------------
515,539 407,335
Stockholders' equity:
Cumulative preferred stock, $0.01 par value per share:
20,000,000 authorized, none issued - -
Common stock, $0.01 par value per share:
80,000,000 authorized, 26,289,344 and 26,080,459 issued 265 265
Paid in capital 253,542 251,224
Retained earnings 208,662 147,007
Treasury stock, 255,095 and 463,949 shares (3,335) (6,296)
- ---------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 459,134 392,200
- ---------------------------------------------------------------------------------------------------------------------------
$ 974,673 $ 799,535
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PAGE F8
Consolidated Statements of Operations
Fiscal years ended December 31, 1998, January 3, 1998 and December 28, 1996
(Thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
Fiscal Year 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenue
LTL Trucking $ 1,540,162 $ 1,409,086 $ 1,231,360
TL Trucking 12,877 - -
Logistics 130,323 106,299 85,601
Freight Forwarding 151,531 44,340 8,400
Corporate and other - 5,524 5,611
- ---------------------------------------------------------------------------------------------------------------------------
Total operating revenue 1,834,893 1,565,249 1,330,972
- ---------------------------------------------------------------------------------------------------------------------------
Operating expenses
LTL Trucking 1,412,920 1,305,936 1,163,484
TL Trucking 11,739 - -
Logistics 122,347 99,885 82,946
Freight Forwarding 146,606 43,051 8,367
Corporate and other 11,848 11,367 9,047
- ---------------------------------------------------------------------------------------------------------------------------
Total operating expenses 1,705,460 1,460,239 1,263,844
- ---------------------------------------------------------------------------------------------------------------------------
Income from operations 129,433 105,010 67,128
- ---------------------------------------------------------------------------------------------------------------------------
Non-operating income (expense):
Interest expense (8,784) (8,461) (12,144)
Interest income 757 1,038 649
Other, net 88 (92) (704)
- ---------------------------------------------------------------------------------------------------------------------------
Total non-operating expense (7,939) (7,515) (12,199)
- ---------------------------------------------------------------------------------------------------------------------------
Net income before income taxes 121,494 97,495 54,929
Income tax expense (note 4) (50,049) (40,914) (23,451)
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 71,445 $ 56,581 $ 31,478
- ---------------------------------------------------------------------------------------------------------------------------
Average shares outstanding-basic 26,209,281 25,544,240 22,249,499
Average shares outstanding-diluted 26,495,714 25,830,674 22,451,280
Basic earnings per common share: $ 2.73 $ 2.21 $ 1.41
- ---------------------------------------------------------------------------------------------------------------------------
Diluted earnings per common share: $ 2.70 $ 2.19 $ 1.40
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PAGE F9
Consolidated Statements of Stockholders' Equity
Fiscal years ended December 31, 1998, January 3, 1998 and December 28, 1996
(Thousands of dollars)
<TABLE>
<CAPTION>
Total
Common Paid in Retained Treasury Stockholders'
Stock Capital Earnings Stock Equity
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance December 30, 1995 $ 234 $ 176,378 $ 76,945 $ (20,405) $ 233,152
Net income - - 31,478 - 31,478
Dividends declared - - (8,315) - (8,315)
Employee stock transactions
and other - 3,891 - 9,054 12,945
- ---------------------------------------------------------------------------------------------------------------------------
Balance December 28, 1996 $ 234 $ 180,269 $ 100,108 $ (11,351) $ 269,260
Net income - - 56,581 - 56,581
Dividends declared - - (9,682) - (9,682)
Issuance of common stock 31 69,400 69,431
Employee stock transactions
and other - 1,555 - 5,055 6,610
- ---------------------------------------------------------------------------------------------------------------------------
Balance January 3, 1998 $ 265 $ 251,224 $ 147,007 $ (6,296) $ 392,200
Net income - - 71,445 - 71,445
Dividends declared - - (9,790) - (9,790)
Employee stock transactions
and other - 2,318 - 2,961 5,279
- ---------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1998 $ 265 $ 253,542 $ 208,662 $ (3,335) $ 459,134
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PAGE F10
Consolidated Statements of Cash Flows
Fiscal years ended December 31, 1998, January 3, 1998, and December 28, 1996
(Thousands of dollars)
<TABLE>
<CAPTION>
Fiscal Year 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income from continuing operations $ 71,445 $ 56,581 $ 31,478
Reconciliation to net cash provided by operating activities:
Depreciation and amortization 78,015 70,140 62,591
Deferred taxes 3,442 6,569 3,298
Changes in assets and liabilities excluding acquisitions:
Accounts receivable (14,423) (29,680) (39,767)
Other current assets 238 (2,080) 455
Accounts payable 6,091 21,161 5,525
Accrued liabilities 17,632 23,317 21,923
Other, net (9,271) (8,950) 2,096
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 153,169 137,058 87,599
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (157,476) (128,809) (94,057)
Proceeds from sale of property and equipment 10,457 12,887 4,246
Acquisitions (42,081) (22,756) (31,265)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (189,100) (138,678) (121,076)
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Dividends paid (9,771) (9,357) (8,252)
Net proceeds from sale of common stock - 69,431 -
Proceeds from sale of treasury stock 5,279 6,610 3,445
Proceeds from long-term bank debt 95,000 15,000 41,000
Payments on long-term bank debt (55,500) (77,683) (333)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 35,008 4,001 35,860
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash (923) 2,381 2,383
Cash at beginning of year 6,471 4,090 1,707
- ---------------------------------------------------------------------------------------------------------------------------
Cash at end of year $ 5,548 $ 6,471 $ 4,090
- ---------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information: Cash paid during the year for:
Interest $ 8,753 $ 7,823 $ 11,715
Income taxes 44,558 32,389 18,105
Non-cash transactions: equity, notes issued and debt assumed
in connection with acquisitions $ 24,298 $ 4,023 $ 9,500
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PAGE F11
Notes to Consolidated Financial Statements (Thousands of dollars, except
per share amounts)
1. Summary of Significant Accounting Policies
- ----------------------------------------------------------------------------
Company Overview. USFreightways Corporation ("the Company") is a full service
provider of transportation services and innovative logistics solutions. This is
accomplished through the Company's operating subsidiaries. Regional
less-than-truckload ("LTL") general commodities carriers provide overnight and
second-day delivery throughout the United States and into Canada. Logistics
subsidiaries provide solutions to customers' logistics and distribution
requirements. The Company also provides domestic and international freight
forwarding as well as premium regional and national truckload service.
Basis of Presentation. The consolidated financial statements include the
accounts of USFreightways and its wholly owned subsidiaries (the Company). The
Company's operations are further discussed in periodic SEC filings. Intercompany
balances and transactions have been eliminated. The Company's consolidated
statements of operations for prior years have been reclassified to conform with
the current presentation.
For fiscal year 1998, the Company began reporting on a calendar year basis.
Previously, the Company reported on a 52/53-week fiscal year basis concluding on
the Saturday nearest to December 31. The three fiscal years covered in the
consolidated financial statements ended on December 31, 1998, January 3, 1998,
and December 28, 1996 (Fiscal 1998, 1997 and 1996 respectively).
Revenue Recognition. Transportation revenue is recognized when freight is picked
up from the customer, at which time the related estimated expenses of performing
the total transportation services are accrued.
Cash. The Company considers demand deposits and highly liquid investments
purchased with original maturities of three months or less as cash.
Property and equipment. Purchases of property and equipment are carried at cost,
net of accumulated depreciation. Depreciation is computed using the
straight-line method over periods ranging from three to twelve years for the
majority of equipment and 30 years for buildings. Maintenance and repairs are
charged to current operations, while expenditures that add to the life of the
equipment are capitalized. When revenue equipment is traded, a gain or loss on
the trade of the equipment is recognized.
Intangible assets. These costs primarily represent goodwill which is amortized
on a straight-line basis up to 40 years. The carrying value of goodwill is
reviewed whenever events or changes in circumstances indicate that the carrying
value may not be recoverable through projected undiscounted future operating
cash flows. No reduction of the carrying value has been required for any year.
Earnings Per Share. Basic earnings per share are calculated on income available
to common stockholders divided by the weighted-average number of common shares
outstanding during the period. Diluted earnings per share are calculated using
earnings available to each share of common stock outstanding during the period
and to each share that would have been outstanding assuming the issuance of
common shares for all dilutive potential common shares outstanding during the
reporting period. Unexercised stock options, calculated under the treasury stock
method, is the only reconciling item between the Company's basic and diluted
weighted earnings per share. The number of options, included in the denominator,
used to calculate diluted earnings per share are 286,433; 286,434 and 201,781
for fiscal years 1998, 1997 and 1996 respectively.
Use of Estimates. Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
<PAGE>
PAGE F12
2. Operating Leases
- ----------------------------------------------------------------------------
The Company leases certain terminals, vehicles and data processing equipment
under long-term lease agreements that expire in various years through 2011.
The following is a schedule of future minimum rental payments on leases that
have initial or remaining non-cancelable lease terms in excess of one year at
December 31, 1998.
Fiscal Year Payments
- ----------------------------------------------------------------------------
1999 $ 15,910
2000 11,398
2001 7,002
2002 3,858
2003 2,208
Subsequent years 1,168
- ----------------------------------------------------------------------------
$ 41,544
Rental expense in the accompanying consolidated statements of operations for
fiscal years 1998, 1997, and 1996 was $22,595, $21,863, and $20,396,
respectively.
3. Long-Term Debt
- ----------------------------------------------------------------------------
Long-term debt at December 31, 1998 and January 3, 1998 consists of the
following:
December 31, January 3,
1998 1998
- ----------------------------------------------------------------------------
Unsecured notes (a) $ 100,000 $ 100,000
Unsecured lines of credit (b) 55,150 15,650
Other (c) 6,606 -
- ----------------------------------------------------------------------------
161,756 115,650
Less current maturities 10,660 650
- ----------------------------------------------------------------------------
$ 151,096 $ 115,000
(a) Unsecured notes of $100,000 are payable on May 1, 2000 and bear interest at
6 5/8%, payable semi-annually. The notes are not subject to redemption prior to
maturity and have no sinking fund requirements. Based upon the Company's
incremental borrowing rates for similar types of borrowing arrangements, the
fair value of the notes at December 31, 1998 was approximately $100,000.
(b) The Company has a $200,000 revolving credit facility through a syndicate of
commercial banks. The facility expires in 2002 and allows up to $100,000 for
standby letters of credit to cover the Company's self-insurance program, and has
optional pricing of interest rates, including LIBOR or Prime base rates. The
facility has an annual fee and contains customary financial covenants including
maintenance of minimum net worth and funded debt to cash flow. During Fiscal
1998, all borrowings were drawn at LIBOR base rates, with a weighted average
interest rate for the year of 5.8%, excluding fees charged on the facility. At
December 31, 1998 the Company had borrowed $45,150 and had $47,043 outstanding
letters of credit under this facility. In addition to the revolving credit
facility, the Company maintains three uncommitted lines of credit, which provide
$40,000 short-term funds at rates approximating LIBOR. These facilities are used
in concert with a centralized cash management system to finance short-term
working capital needs; thereby enabling the Company to maintain minimal cash
balances.
(c) In August 1998, the Company acquired Glen Moore Transport, Inc. Glen Moore's
headquarters in Carlisle, PA has a mortgage of $2,791 on the property that bears
interest at 7.25% with a final payment due in July 2005. In addition, Glen Moore
has loans payable totaling $3,815 on various pieces of revenue equipment that
bear interest from 7.5% to 14.3% with a final payment due in June 2004.
The aggregate annual maturities of debt at December 31, 1998 are as follows:
Fiscal Year Amount
- ----------------------------------------------------------------------------
1999 $ 10,660
2000 102,528
2001 95
2002 45,365
2003 -
2004 596
2005 2,512
- ----------------------------------------------------------------------------
$ 161,756
<PAGE>
PAGE F13
4. Income Taxes
- ----------------------------------------------------------------------------
A reconciliation of the statutory Federal income tax rate with the effective
income tax rate is as follows:
<TABLE>
<CAPTION>
Fiscal Year: 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax at statutory rate (35%) $ 42,523 $ 34,123 $ 19,225
State income tax 6,115 4,489 2,724
Goodwill amortization 1,363 955 823
Other 48 1,347 679
- ---------------------------------------------------------------------------------------------------------------------------
Total income tax expense $ 50,049 $ 40,914 $ 23,451
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
Fiscal Year: 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current expense:
Federal $ 36,814 $ 28,427 $ 15,610
State 8,106 5,918 4,543
- ---------------------------------------------------------------------------------------------------------------------------
44,920 34,345 20,153
- ---------------------------------------------------------------------------------------------------------------------------
Deferred expense:
Accelerated depreciation 10,043 9,099 8,555
Allowance for doubtful accounts and revenue adjustments (1,036) 3,798 (601)
Insurance and claims (3,797) (4,659) (5,036)
Vacation pay (1,254) (1,053) 597
Other 1,173 (616) (217)
- ---------------------------------------------------------------------------------------------------------------------------
5,129 6,569 3,298
- ---------------------------------------------------------------------------------------------------------------------------
Total income tax expense $ 50,049 $ 40,914 $ 23,451
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following is a summary of the components of the deferred tax assets and
liabilities at December 31, 1998 and January 3, 1998:
<TABLE>
<CAPTION>
December 31, January 3,
1998 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts and revenue adjustments $ 2,076 $ 1,027
Insurance and claims 34,751 30,953
Vacation pay 8,451 7,196
Other 7,261 3,872
- ---------------------------------------------------------------------------------------------------------------------------
$ 52,539 $ 43,048
- ---------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Property and equipment, principally due to accelerated depreciation $ 86,630 $ 73,697
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PAGE F14
5. Employee Benefit Plans
- ----------------------------------------------------------------------------
The Company maintains a salary deferral 401(k) plan covering substantially all
employees who are not members of a collective bargaining unit and who meet
specified service requirements. Contributions are based upon participants'
salary deferrals and compensation and are made within Internal Revenue Service
limitations. For the fiscal years 1998, 1997, and 1996, Company contributions
for these plans were $8,290, $6,550, and $5,715, respectively. The Company does
not offer post-employment or post-retirement benefits.
The Company contributes to several union-sponsored multi-employer pension plans.
These plans are not administered by the Company, and contributions are
determined in accordance with provisions of negotiated labor contracts. The
Multi-employer Pension Plan Amendments Act of 1980 established a continuing
liability to such union-sponsored pension plans for an allocated share of each
plan's unfunded vested benefits upon substantial or total withdrawal by the
Company or upon termination of the pension plans. To date, no withdrawal or
termination has occurred or is contemplated. For the fiscal years 1998, 1997,
and 1996, Company contributions for these pension plans were $60,748, $54,041,
and $45,094, respectively.
6. Common Stock
- ----------------------------------------------------------------------------
The Company maintains an employee stock purchase plan which provides for the
purchase of an aggregate of not more than 900,000 shares of the Company's common
stock. Each eligible employee may designate the amount of regular payroll
deductions, subject to a yearly maximum, that is used to purchase shares at 90%
of the month-end market price. At December 31, 1998; 586,975 shares had been
issued under this plan.
The Company maintains stock option plans that provide for the granting of
options to key employees and non-employee directors to purchase an aggregate of
not more than 3,760,000 shares of the Company's common stock. Stock options
issued pursuant to the plans are exercisable for periods up to 10 years from the
date an option is granted. At December 31, 1998 there were 381,170 shares
available for granting under the plans.
In accordance with the provisions of SFAS No.123, the Company applies APB
Opinion 25 and related interpretations in accounting for its stock option plans,
and accordingly, does not recognize compensation cost. If the Company had
elected to recognize compensation cost based on the fair value of the options
granted at grant date, as prescribed by SFAS No.123, net income and earnings per
share would have been reduced to the pro forma amounts indicated in the table
below:
<TABLE>
<CAPTION>
Fiscal Year 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income - as reported $ 71,445 $ 56,581 $ 31,478
Net income - pro forma 69,736 55,808 31,049
Basic earnings per share - as reported 2.73 2.21 1.41
Basic earnings per share - pro forma 2.66 2.18 1.40
Diluted earnings per share - as reported 2.70 2.19 1.40
Diluted earnings per share - pro forma 2.63 2.16 1.38
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
As prescribed under SFAS No.123, pro forma net income amounts presented above
reflect only options granted after January 1, 1995 since compensation costs for
options granted prior to that date are not considered. Compensation cost for
options granted since January 1, 1995 is reflected over the options' vesting
periods ranging from two to five years.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in fiscal years 1998, 1997, and 1996: dividend yield
ranging from 1.27% to 1.58%; expected volatility ranging from 35.69% to 49.31%;
risk-free interest rates at grant date ranging from 4.97% to 7.46%; and expected
lives ranging from 5.61 to 6.40 years.
<PAGE>
PAGE F15
A summary of the status of the Company's stock option plans is presented below:
<TABLE>
<CAPTION>
Fiscal Year 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 1,435,730 $ 23.67 1,107,250 $ 17.84 758,800 $ 16.21
Granted 1,550,000 25.10 623,500 29.93 479,000 19.49
Exercised (54,290) 16.73 (279,520) 14.98 (92,900) 13.65
Forfeited (203,450) 30.23 (15,500) 16.52 (37,650) 16.16
Outstanding at end of year 2,727,990 24.13 1,435,730 23.67 1,107,250 17.84
Options exercisable at year end 581,790 20.19 402,690 17.74 448,220 15.65
Weighted-average fair value
of options granted during
the year $ 11.66 $ 11.80 $ 8.18
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
Outstanding Options Options Exercisable
- ---------------------------------------------------------------------------------------------------------------------------
Weighted-Avg
Number Remaining Number
Range of Outstanding at Contractual Life Weighted-Avg Exercisable at Weighted-Avg
Exercise Prices 12/31/98 (years) Exercise Price 12/31/98 Exercise Price
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 13.00-15.00 143,950 3.78 $ 13.79 143,950 $ 13.79
18.25-19.63 463,000 7.50 19.48 229,600 19.33
22.50-24.94 1,722,540 9.42 24.72 133,540 22.83
25.00-30.50 273,500 8.91 29.92 54,700 29.92
31.81-35.00 125,000 8.97 32.45 20,000 31.81
2,727,990 8.72 24.13 581,790 20.19
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PAGE F16
In February, 1994 the Board of Directors approved a stockholder rights plan
designed to deter coercive takeover tactics and to prevent an acquiror from
gaining control of the Company without offering a fair price to all of the
Company's stockholders. At that time, the Company declared a distribution of one
right for each share of common stock outstanding (effected as a stock dividend)
to stockholders of record as of February 11, 1994 and generally to shares
issuable under the Company's stock option plans. Each right entitles holders to
buy one-hundredth (1/100) of a share of the Company's newly designated Series A
Junior Participating Cumulative Preferred Stock, $0.01 par value per share, for
a purchase price of $110.00. Each right is exercisable ten days after the
acquisition of 15% or more of the Company's voting stock, or the commencement of
a tender or exchange offer under which the offeror would own 19.9% or more of
the Company's stock. In the event of a proposed takeover meeting certain
additional conditions, the rights could be exercised by all holders other than
the takeover bidder at an exercise price of half of the current market price of
the Company's common stock. This would have the effect of significantly diluting
the holdings of the takeover bidder. These rights expire on February 3, 2004.
In February 1997, the Company sold 3,105,000 of its shares in a public offering.
The net proceeds from the sale, amounting to approximately $69,000,000, were
initially used to repay outstanding debt under the Company's revolving credit
facility.
7. Commitments and Contingencies
- ----------------------------------------------------------------------------
The Company is routinely involved in a number of legal proceedings and claims
arising in the ordinary course of business, primarily involving claims for
bodily injury and property damage incurred in the transportation of freight. The
estimated liability for claims included in liabilities, both current and
long-term, reflects the estimated ultimate cost of self-insured claims incurred,
but not paid, for bodily injury, property damage, cargo loss and damage, and
workers' compensation. In the opinion of management, the outcome of these
matters is not expected to have any material adverse effect on the consolidated
financial position or results of operations of the Company and have been
adequately provided for in the financial statements.
At December 31, 1998, the Company had capital purchase commitments of
approximately $13,691 for land and improvements, $23,826 for transportation
equipment, and $1,846 for other equipment.
8. Restructuring Charge
- ----------------------------------------------------------------------------
During the fourth quarter 1996, management authorized a one-time restructuring
charge at its USF Red Star subsidiary. The pre-tax restructuring charge of
$4,050 relates primarily to ongoing lease commitments for terminals no longer
occupied and severance paid in connection with the reduction of personnel. The
Company anticipates that no additional charges against its future operations
will be incurred as a result of the restructuring charge. The restructuring
charge is included in the LTL group operating expenses.
9. Acquisitions
- ----------------------------------------------------------------------------
During 1998, under the purchase method of accounting, the Company acquired all
of the outstanding shares of Golden Eagle Group, Inc., an international freight
forwarding company; Glen Moore Transport, Inc., a truckload freight carrier;
Moore and Son Co., a transportation logistics services company; and the general
commodities business of Vallerie's Transportation Service, Inc. for a total of
$66,379 of cash and debt incurred.
During 1997, under the purchase method of accounting, the Company acquired all
of the outstanding shares of SEKO Worldwide, Inc., an airfreight forwarding
company and the general commodities business of Mercury Distribution, Inc. for a
total of $26,779 of cash and debt incurred.
<PAGE>
PAGE F17
10. Business Segments
- ----------------------------------------------------------------------------
The Company has eight reportable segments: LTL trucking group (including five
regional carriers), TL trucking, logistics, and freight forwarding. The LTL
trucking group provides overnight and second-day delivery of general commodities
throughout the United States and into Canada. The Company's TL subsidiary
provides premium regional and national truckload services. The Company's
logistics subsidiaries provide solutions to customers' logistics and
distribution requirements. The Company's freight forwarding subsidiaries provide
domestic and international air and ocean freight service through both exclusive
and non-exclusive agents. The reportable segments are managed separately because
each business has differing customer requirements, either as a result of the
regional environment of the country or differences in products and services
offered.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. Intangible assets are included in
each segment's reportable assets, but the amortization of these intangible
assets is not included in the determination of a segment's operating profit or
loss. The Company evaluates performance based on profit or loss from operations
before income taxes, interest, amortization of intangibles and other
non-operating income (expenses).
An immaterial amount of revenue is generated outside the United States.
<TABLE>
<CAPTION>
Fiscal Year 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue
LTL Group:
USF Holland $ 794,012 $ 711,137 $ 595,378
USF Reddaway 215,531 198,714 177,998
USF Red Star 212,365 194,823 196,399
USF Dugan 181,971 170,962 148,527
USF Bestway 136,283 133,450 113,058
- ---------------------------------------------------------------------------------------------------------------------------
Sub total LTL Group 1,540,162 1,409,086 1,231,360
TL 12,877 - -
Logistics 130,323 106,299 85,601
Freight forwarding 151,531 44,340 8,400
Corporate and other - 5,524 5,611
- ---------------------------------------------------------------------------------------------------------------------------
Total Revenue $ 1,834,893 $ 1,565,249 $ 1,330,972
- ---------------------------------------------------------------------------------------------------------------------------
Income From Operations
LTL Group:
USF Holland $ 82,580 $ 65,244 $ 51,362
USF Reddaway 18,909 13,457 9,262
USF Red Star 3,581 871 (7,999)
USF Dugan 6,661 6,145 3,237
USF Bestway 15,511 17,433 12,014
- ---------------------------------------------------------------------------------------------------------------------------
Sub total LTL Group 127,242 103,150 67,876
TL 1,138 - -
Logistics 7,976 6,414 2,655
Freight forwarding 4,925 1,289 33
Corporate and other (7,555) (2,936) (959)
Amortization of intangibles (4,293) (2,907) (2,477)
- ---------------------------------------------------------------------------------------------------------------------------
Total Income from Operations $ 129,433 $ 105,010 $ 67,128
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PAGE F18
<TABLE>
<CAPTION>
Fiscal Year 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
LTL Group:
USF Holland $ 337,477 $ 276,810 $ 232,003
USF Reddaway 117,326 108,979 104,608
USF Red Star 146,431 137,336 133,014
USF Dugan 92,969 93,737 86,849
USF Bestway 65,815 64,266 54,287
- ---------------------------------------------------------------------------------------------------------------------------
Sub total LTL Group 760,018 681,128 610,761
TL 32,680 - -
Logistics 70,588 59,458 62,753
Freight forwarding 97,326 52,232 2,080
Corporate and other 14,061 6,717 12,914
- ---------------------------------------------------------------------------------------------------------------------------
Total Assets $ 974,673 $ 799,535 $ 688,508
- ---------------------------------------------------------------------------------------------------------------------------
Fiscal Year 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Long Lived Asset Expenditures
LTL Group:
USF Holland $ 83,908 $ 66,637 $ 43,504
USF Reddaway 21,105 19,421 14,865
USF Red Star 16,358 10,439 1,755
USF Dugan 13,707 18,134 9,070
USF Bestway 9,134 8,463 6,978
- ---------------------------------------------------------------------------------------------------------------------------
Sub total LTL Group 144,212 123,094 76,172
TL 1,844 - -
Logistics 9,830 4,799 13,573
Freight forwarding 669 280 107
Corporate and other 921 636 4,205
- ---------------------------------------------------------------------------------------------------------------------------
Total Long Lived Asset Expenditures $ 157,476 $ 128,809 $ 94,057
- ---------------------------------------------------------------------------------------------------------------------------
Depreciation Expense
LTL Group:
USF Holland $ 30,565 $ 27,603 $ 22,612
USF Reddaway 11,267 9,927 8,398
USF Red Star 7,987 7,269 7,832
USF Dugan 10,458 9,887 9,900
USF Bestway 4,723 4,802 4,383
- ---------------------------------------------------------------------------------------------------------------------------
Sub total LTL Group 65,000 59,488 53,125
TL 1,016 - -
Logistics 6,352 5,678 4,711
Freight forwarding 842 277 67
Corporate and other 512 1,790 2,211
- ---------------------------------------------------------------------------------------------------------------------------
Total Depreciation Expense $ 73,722 $ 67,233 $ 60,114
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PAGE F19
11. Quarterly Financial Information (unaudited)
<TABLE>
Quarters First Second Third Fourth Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fiscal 1998
Operating revenue $ 442,339 $ 447,026 $ 469,349 $ 476,179 $ 1,834,893
Income from Operations 25,723 32,448 34,851 36,411 129,433
Net income 13,729 18,044 19,504 20,168 71,445
Net income per share - basic 0.53 0.69 0.74 0.77 2.73
Net income per share - diluted 0.52 0.68 0.74 0.76 2.70
Dividends declared per share 0.0933 0.0933 0.0933 0.0933 .3733
Market price per share (calendar quarter) 32.37-39.50 28.37-37.12 18.44-32.62 17.87-30.12 17.87-39.50
Fiscal 1997
Operating revenue $ 355,817 $ 380,763 $ 393,462 $ 435,207 $ 1,565,249
Income from Operations 19,071 26,915 31,905 27,119 105,010
Net income 9,750 14,541 17,542 14,748 56,581
Net income per share - basic 0.40 0.56 0.68 0.57 2.21
Net income per share - diluted 0.40 0.56 0.67 0.56 2.19
Dividends declared per share 0.0933 0.0933 0.0933 0.0933 .3733
Market price per share (calendar quarter) 22.87-28.00 23.12-29.00 25.75-34.50 29.37-36.75 22.87-36.75
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PAGE F20
Selected Consolidated Financial Data (Thousands of dollars, except per
share amounts)
<TABLE>
<CAPTION>
Fiscal Year 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statements of Operations
Operating revenue $ 1,834,893 $ 1,565,249 $ 1,330,972 $ 1,144,458 $ 1,016,464
Income from operations 129,433 105,010 67,128(1) 67,543 69,666
Interest expense, net (8,027) (7,423) (11,495) (8,177) (8,417)
Other non-operating income (expense) 88 (92) (704) (878) (2,011)
- ---------------------------------------------------------------------------------------------------------------------------
Net income from operations
before income taxes 121,494 97,495 54,929 58,488 59,238
Income tax expense (50,049) (40,914) (23,451) (25,150) (25,882)
- ---------------------------------------------------------------------------------------------------------------------------
Net income from operations 71,445 56,581 31,478 33,338 33,356
Extraordinary item - operating rights - - - - (1,291)
- ---------------------------------------------------------------------------------------------------------------- Director
Net income $ 71,445 $ 56,581 $ 31,478(1) $ 33,338 $ 32,065
- ---------------------------------------------------------------------------------------------------------------------------
Basic Earnings Per Share
Net income per share from operations $ 2.73 $ 2.21 $ 1.41(1) $ 1.52 $ 1.53
Net income per share 2.73 2.21 1.41(1) 1.52 1.47
Diluted Earnings Per Share
Net income per share from operations $ 2.70 $ 2.19 $ 1.40(1) $ 1.51 $ 1.51
Net income per share 2.70 2.19 1.40(1) 1.51 1.45
Cash dividends declared per share $ 0.37 $ 0.37 $ 0.37 $ 0.37 $ 0.37
Operating Statistics
LTL Trucking Companies (in thousands)
Total tons 9,179 8,579 7,732 6,835 6,210
Total shipments 13,468 12,857 11,590 10,187 9,045
Balance Sheets
Assets:
Current assets $ 279,849 $ 237,116 $ 203,577 $ 158,611 $ 144,615
Property and equipment, net 544,282 448,315 395,500 338,846 272,264
Intangible assets, net 140,201 104,407 79,559 69,918 72,194
Other assets 10,341 9,697 9,872 10,819 11,929
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $ 974,673 $ 799,535 $ 688,508 $ 578,194 $ 501,002
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity:
Current liabilities $ 228,877 $ 181,714 $ 144,348 $ 128,484 $ 118,447
Long-term debt 151,096 115,000 178,000 137,333 105,667
Other non-current liabilities 135,566 110,621 96,900 79,225 68,794
Total stockholders' equity 459,134 392,200 269,260 233,152 208,094
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $ 974,673 $ 799,535 $ 688,508 $ 578,194 $ 501,002
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Income from operations, net income and earnings per share include the Red
Star restructuring charge of $4,050, before income tax, equivalent to $0.10 per
share, net of tax.
<PAGE>
<TABLE>
<CAPTION>
PAGE F21
STATISTICAL INFORMATION
Operating Operating LTL Tons LTL Terminals Tractors Trailers Employees
Revenue Ratio Shipments
YR. (million) (thousands) (thousands)
-- --------- --------- ----------- ----------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Holland 98 $794.0 89.6% 4,163.9 6,599.1 55 3,645 6,299 8,058
97 $711.1 90.8% 3,826.9 6,163.6 51 3,448 5,998 7,322
Red Star 98 $212.4 98.3% 961.4 1,986.2 27 995 2,231 2,232
97 $194.8 99.6% 898.0 1,887.4 26 1,007 2,190 2,108
Reddaway 98 $215.5 91.2% 858.6 1,766.3 56 1,084 2,956 2,485
97 $198.7 93.2% 810.4 1,745.1 55 1,064 2,781 2,369
Bestway 98 $136.3 88.6% 641.7 1,208.9 26 639 2,314 1,472
97 $133.5 86.9% 630.8 1,211.1 26 590 2,142 1,439
Dugan 98 $182.0 96.3% 914.9 1,686.3 61 1,008 2,985 2,107
97 $171.0 96.4% 877.4 1,642.3 59 961 2,924 2,056
Logistics 98 $130.3 93.9% NA NA NA 514 1,280 1,829
97 $106.3 94.0% NA NA NA 491 1,163 1,534
Seko 98 $151.5 96.7% NA NA NA NA NA 520
97 $ 31.8 96.5% NA NA NA NA NA 148
Glen Moore 98 $ 12.9 91.2% NA NA 1 236 625 383
</TABLE>
USFREIGHTWAYS CORPORATION
SIGNIFICANT SUBSIDIARIES OF THE COMPANY
Parent and Significant Subsidiaries State of Incorporation
UFFreightways Corporation Delaware
USF Bestway Inc. Arizona
USF Dugan Inc. Kansas
USF Holland Inc. Michigan
USF Red Star Inc. New York
USF Reddaway Inc. Oregon
USF Logistics Inc. Illinois
USF Distribution Services Inc. Illinois
USF Coast Consolidators Inc. California
USF Caribbean Services Inc. Delaware
USF Sales Corporation Delaware
USF Seko Wordwide Inc. Illinois
Glen Moore Transport Inc. Pennsylvania
USF Golden Eagle Group Inc. Delaware
EXHIBIT 23
Consent of KPMG LLP
The Board of Directors
USFreightways Corporation
We consent to incorporation by reference in Registration Statements on Form S-8
(Nos. 33-57634, 33-58290, 33-63628, 33-79160, 333-28357)of USFreightways
Corporation of our report dated January 22, 1997 relating to the consolidated
statements of operations, stockholders' equity and cash flows of USFreightways
Corporation and subsidiaries for the year ended December 28, 1996 and the
related financial statement schedule, which report appears in or is incorporated
by reference in the December 31, 1998 annual report on Form 10-K of
USFreightways Corporation.
/s/ KPMG LLP
Chicago, Illinois
March 30, 1999
EXHIBIT 24
USFREIGHTWAYS CORPORATION
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Christopher L. Ellis,
Robert S. Owen and Richard C. Pagano, or each of them, my true and lawful
attorneys-in- fact and agents, with full power of substitution, to execute on my
behalf, individually and in all capacities as an officer or director of
USFreighways Corporation, an Annual Report on Form 10-K, and all amendments
thereto for the year ended December 31, 1998, and to file the same, with all
exhibits thereto and any other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys- in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done to comply with all requirements of the
Securities and Exchange Commission, as fully and to all intents and purposes as
each might or could do in person, and the undersigned hereby ratifies and
confirms each act that said attorneys-in- fact and agents may lawfully do or
cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has executed this power of attorney on
the 10th day of March, 1999.
Signatures Title
---------- -----
/s/ John Campbell Carruth Chairman of the Board, Chief
_____________________ Executive Officer and Director
John Campbell Carruth
/s/ Robert V. Delaney Director
-----------------
Robert V. Delaney
/s/ Morley Koffman Director
--------------
Morley Koffman
/s/ Robert P. Neuschel Director
------------------
Robert P. Neuschel
/s/ Anthony J. Paoni
----------------
Anthony J. Paoni
/s/ John W. Puth Director
------------
John W. Puth
/s/ Neil A. Springer Director
----------------
Neil A. Springer
/s/ William N. Weaver, Jr. Director
----------------------
William N. Weaver, Jr.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000881791
<NAME> USFreightays Corp.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 5,548
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<RECEIVABLES> 218,942
<ALLOWANCES> 0
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0
0
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<TOTAL-LIABILITY-AND-EQUITY> 974,673
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<INCOME-TAX> 50,049
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