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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).
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
------ ----- ------ ----- ------ -----
PAGE 3
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.
PAGE 4
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.
PAGE 5
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.
PAGE 6
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.
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.
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.
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.
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 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)
Additions
-------------------------
Description Balance at Charges to Charged to Deductions(1) Balance at
Beginning Costs and Other End of
of Period Expenses Accounts Period
- ----------- --------- ---------- ----------- ---------- ---------
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.
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 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 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 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 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 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 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 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 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 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