PAGE F1

Financial Highlights

(Thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>


Fiscal Year                                                                             1999            1998           1997
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>            <C>            <C>
Revenue

   LTL Trucking                                                                  $ 1,745,958    $ 1,540,162    $  1,409,086
   TL Trucking                                                                        44,593         12,877              -
   Logistics                                                                         206,881        130,323         106,299
   Freight Forwarding                                                                225,010        151,531          44,340
   Corporate and other                                                                     -              -           5,524
---------------------------------------------------------------------------------------------------------------------------
Total Revenue                                                                    $ 2,222,442    $ 1,834,893    $  1,565,249
---------------------------------------------------------------------------------------------------------------------------

Income from Operations (loss)
   LTL Trucking                                                                  $   171,910    $   127,242    $    103,150
   TL Trucking                                                                         3,147          1,138               -
   Logistics                                                                          16,873          7,976           6,414
   Freight Forwarding                                                                  8,175          4,925           1,289
   Corporate and other                                                               (11,237)       (11,848)         (5,843)
---------------------------------------------------------------------------------------------------------------------------
Total Income from Operations                                                     $   188,868    $   129,433    $    105,010
---------------------------------------------------------------------------------------------------------------------------

Interest Expense                                                                 $   (14,003)   $    (8,784)    $    (8,461)
---------------------------------------------------------------------------------------------------------------------------

Net Income                                                                       $   104,240    $    71,445    $     56,581
---------------------------------------------------------------------------------------------------------------------------

Net Income Per Share - Diluted                                                   $      3.79    $      2.70    $       2.19
---------------------------------------------------------------------------------------------------------------------------

Total Assets                                                                     $ 1,212,167    $   974,673    $    799,535
---------------------------------------------------------------------------------------------------------------------------

Return on Average Stockholders' Equity                                                  20.5%         16.8%           17.1%
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

                                PAGE F2

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS

USFreightways  Corporation ("the Company") provides  comprehensive  supply chain
management  services.  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 integrated supply chain solutions,  value
added logistics solutions,  reverse logistics services and software and complete
warehouse  fulfillment  services to its  customers.  The Company  also  provides
domestic and international  freight forwarding,  import and export air and ocean
services as well as premium  regional and  national  truckload  ("TL")  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"),  USF Processors Inc ("Processors")
and USF  Distribution  Services  Inc.  ("Distribution  Services");  the  Freight
Forwarding  group includes  several  companies that all now trade under the name
USF Worldwide Inc.  ("Worldwide");  USF Glen Moore Transport Inc. ("Glen Moore")
is the Company's TL carrier.

                         Results of Operations

In 1999 ("Fiscal 1999"), the Company reported on a calendar year basis. In 1998,
the Company  changed its year-end to December  31st  ("Fiscal  1998").  The year
ending January 3, 1998 ("Fiscal 1997") included 53 weeks.

Operating  revenue of the Company for Fiscal 1999 was a record $2.22 billion,  a
21.1% increase over total  operating  revenue of $ 1.84 billion for Fiscal 1998.
Income from operations increased by 45.9% from $ 129.4 million in Fiscal 1998 to
a record $188.9 million in Fiscal 1999. Net income per share  increased by 40.4%
to $3.79 (diluted) in Fiscal 1999 compared to $2.70 (diluted) in Fiscal 1998.

Fiscal 1998 operating  revenue increased by 17.2% to $1.84 billion compared to $
1.56  billion for 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.
Income from operations increased by 23.3% to $ 129.4 million in Fiscal 1998 from
$105.0  million in Fiscal  1997.  Net income per share  increased to by 23.3% to
$2.70 (diluted) in Fiscal 1998 compared to $2.19 (diluted) in Fiscal 1997.

Regional LTL

Revenue in the LTL group for Fiscal  1999  increased  by 13.3% to $1.75  billion
from $1.54  billion in Fiscal 1998.  In Fiscal 1999,  revenue from the LTL group
amounted to 78.6% of the Company's operating revenue compared to 83.9% in Fiscal
1998. LTL revenue  increased  13.3%,  LTL shipments  increased 9.8%, LTL tonnage
increased  10.9% and LTL revenue per  hundredweight  increased  2.1%.  In Fiscal
1999,  Red Star  completed an asset purchase  transaction  with CBL Trucking,  a
Mid-Atlantic  and New England LTL carrier.  Revenue realized in Fiscal 1999 from
this  transaction  amounted to approximately  $15.2 million.  Early in the third
quarter of Fiscal 1999, Preston Trucking,  a competitor of Red Star and Holland,
and Nationsway  Transport,  a competitor of Reddaway,  ceased  operations.  As a
result,  Holland,  Red Star and to a lesser degree Reddaway obtained  additional
revenue for the balance of Fiscal 1999. In Fiscal 1999,  the LTL group enacted a
general rate increase of approximately 5.7% in October.  The LTL group enacted a
5.9% general rate increase in January 1998 and another  general rate increase of
approximately   5.9%  in  the  late  fall.   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 1999 increased by 35.1% to $171.9 million from $127.2
million  in  Fiscal  1998.  Improvements  in  operating  results  were  directly
attributable to price stability, a strong 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 90.1%
compared to 91.7% in Fiscal 1998. Salaries, wages and benefits improved to 62.8%
of revenue from 63.9% in Fiscal 1998 as Holland,  Red Star and  Reddaway  mainly
continued to improve operational efficiencies.  Fuel expense, net of a surcharge
generally  implemented  in the latter third of Fiscal 1999 to offset rising fuel
costs,  was  virtually the same as a percentage  of revenue  (3.4%)  compared to
Fiscal 1998.  Depreciation,  terminal  rents,  operating  taxes and licenses and
operating expenses each improved by 0.1% of revenue compared to Fiscal 1998.

<PAGE>
                                    PAGE F3

Revenue in the LTL group for the  52-week  period in 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%.  The LTL group  enacted a 5.9%
general rate increase in January 1997.

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 emphasis on cost reduction. The LTL group improved
its operating ratio to 91.7% compared to 92.7% in Fiscal 1997.  Salaries,  wages
and benefits were 63.9% of Fiscal 1998 revenue  compared to 63.7% of Fiscal 1997
revenue.  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.

Approximately  82% 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 TL carrier,  Glen Moore,  contributed  $44.6 million in revenue in
Fiscal  1999 and its  operating  ratio  was 92.9%  generating  $3.1  million  in
operating  profits  compared to $12.9  million in revenue in Fiscal 1998 (it was
acquired on August 31, 1998). Operating income, in Fiscal 1998, was $1.1 million
and its operating  ratio was 91.2%.  Glen Moore is a Pennsylvania  based carrier
that operates in both regional and nationwide  markets.  On August 2, 1999, Glen
Moore  acquired  Underwood  Trucking  ("Underwood")  an Indiana based TL carrier
which was  merged  into Glen  Moore.  At the  acquisition  date,  Underwood  was
operating  approximately 50 tractors and 250 trailers. For the five months since
its  acquisition,  Underwood  has  contributed  approximately  $1.4  million  in
revenue. At the end of the current fiscal year, Glen Moore operated 288 tractors
(mainly sleeper units) and 864 trailers. TL operations accounted for 2.0% of the
Company's Fiscal 1999 operating revenue compared to 0.7% of Fiscal 1998 revenue.

On January 10, 2000, Glen Moore acquired  Tri-Star  Transportation,  a Tennessee
based TL carrier.  Tri-Star  operates  170  tractor/trailer  units and while not
included in the Company's Fiscal 1999 revenue,  generated $28 million in revenue
for 1999, with approximately two-thirds coming from dedicated fleet operations.

Logistics

Revenue in the Logistics group,  comprised of dedicated  carriage,  assembly and
distribution,   supply  chain  management,   contractual  warehousing,   reverse
logistics services and software and fulfillment services to online retailers and
manufacturers,  increased by $76.6 million (a 58.8%  increase) to $206.9 million
in  Fiscal  1999  compared  to  $130.3  million  in Fiscal  1998.  Assembly  and
distribution revenue increased in Fiscal 1999 from Fiscal 1998 primarily through
growth  at  existing   distribution   centers  coupled  with  revenue  from  new
distribution  centers in Kansas City, MO, Montgomery,  AL and Fontana, CA, along
with revenue  obtained since July 1999 from the acquisition of Special  Dispatch
of Dallas,  a Dallas,  TX based  assembly  and  distribution  business.  Special
Dispatch   contributed   approximately   $3.7  million  in  revenue   since  its
acquisition.  Contractual and warehousing  revenue increased in Fiscal 1999 from
Fiscal  1998  primarily  through  the  addition of new  customers  and  expanded
business  with  existing  customers.  Reverse  logistics  services  and software
revenue  was  contributed  by USF  Processors,  a Dallas,  TX based  provider of
reverse logistics services to the drug and grocery industries, that was acquired
in  March,   1999.  Since  its  acquisition,   USF  Processors  has  contributed
approximately  $43.6  million in revenue in Fiscal  1999.  In Fiscal  1999,  the
Logistics group accounted for 9.3% of the Company's  operating  revenue compared
to 7.1% in Fiscal 1998.  Operating  income for the group  increased by 111.5% to
$16.9  million  from $8.0 million in Fiscal 1998.  The group's  operating  ratio
improved to 91.8% in Fiscal 1999 from 93.9% in Fiscal 1998.  Operating  expenses
and  supplies  improved  to 13.6% of Fiscal  1999  revenue  compared to 15.3% in
Fiscal  1998.  Operating  taxes and  licenses  improved  to 2.1% of Fiscal  1999
revenue compared to 3.1% in Fiscal 1998. Depreciation improved to 3.6% of Fiscal
1999 revenue  compared to 4.9% in Fiscal 1998.  Building rents increased to 5.5%
of Fiscal 1999 revenue  compared to 4.6% in Fiscal 1998 and salaries,  wages and
benefits  increased to 54.3% of Fiscal 1999 revenue  compared to 53.4% in Fiscal
1998.  Most of these  changes  were  brought  on as a result  of the  Processors
acquisition.  Processors rents,  rather than owns, its operating sites and has a
small amount of  depreciable  fixed assets.  Processors'  business is more labor
intensive than other traditional transportation businesses.

<PAGE>
                                        PAGE F4

Revenue in the Logistics group, 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  in Fiscal  1998  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 1997, the Logistics group  accounted for 6.8% of the Company's  operating
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 was 93.9% in Fiscal
1998 and 94.0% in Fiscal 1997. Salaries, wages and benefits improved to 53.4% of
Fiscal 1998 revenue compared to 56.6% of Fiscal 1997 revenue,  but was offset by
an increase  in  purchased  transportation  and  operating  expenses to 22.1% of
Fiscal 1998 revenue compared to 19.1% of Fiscal 1997 revenue.

Freight Forwarding

Worldwide's  revenue  increased  by $73.5  million (a 48.5%  increase) to $225.0
million from $151.5 million in Fiscal 1998.  The increase was derived  primarily
from  international  freight  forwarding  revenue for a full year in Fiscal 1999
from the Golden Eagle Group that was acquired on November 12, 1998. Golden Eagle
contributed  approximately $64.3 million in Fiscal 1999 revenue and $9.8 million
in Fiscal 1998 revenue.  In October 1999,  Worldwide formed a partnership  under
the trading name USF Asia Group. USF Asia Group provides freight services to the
Asian  market  through  four  countries.  Worldwide  accounted  for 10.1% of the
Company's Fiscal 1999 operating revenue compared to 8.3% of the Company's Fiscal
1998 operating  revenue.  Operating income  increased to $8.2 million,  net of a
$0.5  million  charge for costs  associated  with the startup of USF Asia Group,
from $4.9  million in Fiscal 1998,  with an  operating  ratio of 96.4% in Fiscal
1999 compared to 96.7% in Fiscal 1998. The highly variable cost structure of the
non-asset based freight forwarding business results in relatively stable margins
at various volumes of freight.

Worldwide's  revenue  increased  by $107.2  million (a 242%  increase) to $151.5
million from $44.3  million in Fiscal 1997.  The increase was derived  primarily
from the domestic  freight  forwarding  sector  through the  acquisition of Seko
Worldwide  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 Worldwide'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.
Worldwide  accounted for 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.

                                Interest

Net interest expense for Fiscal 1999 amounted to $12.9 million (interest expense
of $14.0 million and interest  income of $1.1 million)  compared to $8.0 million
(interest expense of $8.8 million and interest income of $0.8 million) in Fiscal
1998.  The Company's  average  outstanding  debts in Fiscal 1999 and Fiscal 1998
were $197.2 million and $117.0 million, respectively. The $80.2 million increase
in average  debt  outstanding  was  directly  responsible  for the $5.2  million
increase in interest expense in Fiscal 1999 compared to Fiscal 1998.

The principal  debts of the Company are $100 million in notes that mature May 1,
2000 and bear interest of 6 5/8% and $100 million in notes,  issued May 1, 1999,
that  mature  May 1,  2009 and  bear  interest  of 6 1/2%.  In  addition  to the
aforementioned  notes,  the Company had  borrowings  under a $200,000  revolving
credit facility and borrowings  under three  uncommitted  lines of credit ("bank
debt"). The average interest rate on the Company's bank debt for Fiscal 1999 was
approximately 5.5% compared to 5.8% in Fiscal 1998.

Net interest expense for Fiscal 1997 amounted to $7.4 million  (interest expense
of $8.5  million and interest  income of $1.1  million).  The average  amount of
outstanding  debt in Fiscal 1997 was $108.9 million.  Outstanding 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.

<PAGE>
                                        PAGE F5

                     Liquidity and Capital Resources

The Company  generated  $163.6 million in cash flows from  operating  activities
during  Fiscal 1999.  Capital  expenditures  during the year  amounted to $202.5
million,  of which $111.7 million was for revenue  equipment,  $60.9 million for
terminals,  $29.9 million for other assets. In addition,  the Company paid $50.7
million in cash for the acquisitions of Processors Unlimited Company,  Ltd., CBL
Trucking Inc., Airgo, Inc., Scan Trans, Inc., Pace Transportation, Ltd., Special
Dispatch of Dallas,  Inc.,  Underwood  Trucking Inc., Best Ways Air Cargo,  Gulf
International  Freight,  The Cuxhaven Group and Pre-Trans.  Capital expenditures
for Fiscal 1998  amounted to $157.5  million plus $42.1  million in cash for the
acquisitions of Glen Moore, Moore and Son,  Vallerie's  Transportation  Services
and the Golden  Eagle Group.  In light of current  business  levels,  management
expects that capital  expenditures during the year ending December 31, 2000 will
approximate $220 million to $250 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 1999, all
borrowings were drawn at LIBOR base rates, with a weighted average interest rate
for the year of 5.4%,  excluding  fees charged on the facility.  At December 31,
1999 the Company had borrowed $30 million and had $48.5  million in  outstanding
letters of credit under this facility.

On May 1, 2000,  notes  amounting  to $100,000  and  bearing  interest at 6 5/8%
mature. The Company plans to fund the repayment of these notes either by issuing
new notes or through its revolving credit facilities.

The Company issued  unsecured  guaranteed  notes of $100,000 on May 1, 1999 that
are due May 1,2009 and bear interest at 6 1/2%, payable semi-annually. The notes
may be redeemed  prior to maturity  and have no sinking fund  requirements.  Net
proceeds from the sale of the notes amounted to $98,452.

In addition to the  revolving  credit  facility,  the  Company  maintains  three
uncommitted lines of credit, which provide $50 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.  At December 31, 1999,
the Company had borrowed $16.5 million under these facilities.

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 2000.

At December 31, 1999 the Company had commitments to purchase  approximately $6.2
million in land and improvements, $25.3 million for transportation equipment and
$4.6 million for other equipment.

During 1999, the Company declared cash dividends of $9.9 million.

                                      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  5.4% and 5.8% in  Fiscal  1999 and 1998  respectively.  In  addition,  the
Company has $100 million of unsecured  notes with a 6 5/8% fixed annual interest
rate and $100  million of unsecured  notes with a 6 1/2% fixed  annual  interest
rate at December  31,  1999.  The Company  estimates  that the fair value of the
notes  approximated  its market value at December  31, 1999.  The Company has no
hedging  instruments.  From time to time,  the  Company  invests  excess cash in
overnight money market accounts.

                                    Year 2000

During  Fiscal  1999,  the  Company  completed  remediation  and  testing of its
business  critical  systems in order to ensure a smooth  transition  to the Year
2000. The Company  expended  approximately $2 million to ensure it was Year 2000
compliant.  The Company experienced no measurable business  interruptions at the
onset of the Year 2000, but continues to monitor its business  critical  systems
for possible Year 2000 failures.

<PAGE>

                                     PAGE F6

Report of Independent Public Accountants

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, 1999 and
December  31,  1998  and the  related  consolidated  statements  of  operations,
stockholders' equity, and cash flows for the three 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 31,1999 and December 31,1998 and the
results  of their  operations  and their cash  flows for the three  years  ended
December 31, 1999, in conformity with generally accepted accounting principles.

Arthur Andersen LLP

Chicago, Illinois
January 19, 2000

<PAGE>

                                     PAGE F7

Consolidated Balance Sheets

Years ended  December  31, 1999 and  December  31, 1998  (Thousands  of dollars)
<TABLE> <CAPTION>

                                                                                                December 31,     December 31,
                                                                                                       1999           1998
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                    <C>           <C>
Assets
Current assets:

   Cash                                                                                        $      6,862    $      5,548
   Accounts receivable, less allowances of $10,623 and $11,159                                      293,989         218,942
   Operating supplies and prepaid expenses                                                           27,624          23,067
   Deferred income taxes (note 4)                                                                    34,453          32,292
---------------------------------------------------------------------------------------------------------------------------
Total current assets                                                                                362,928         279,849

Property and equipment:
   Land                                                                                              85,657          74,933
   Buildings and leasehold improvements                                                             224,828         171,229
   Equipment                                                                                        764,347         649,867
   Other                                                                                             70,757          56,994
---------------------------------------------------------------------------------------------------------------------------
                                                                                                  1,145,589         953,023

   Less accumulated depreciation                                                                   (485,079)       (408,741)
---------------------------------------------------------------------------------------------------------------------------
Total property and equipment                                                                        660,510         544,282

Intangible assets, net of accumulated amortization of $32,210 and $25,717                           174,538         140,201
Other assets                                                                                         14,191          10,341
---------------------------------------------------------------------------------------------------------------------------
                                                                                               $  1,212,167    $    974,673

Liabilities and Stockholders' Equity Current liabilities:
   Current debt (note 3)                                                                       $     20,561    $     10,660
   Notes payable (note 3)                                                                           100,000               -
   Accounts payable                                                                                  89,193          78,757
   Accrued salaries, wages and benefits                                                              79,156          66,142
   Accrued claims and other                                                                          77,310          70,017
   Income taxes payable                                                                               4,124           3,301
---------------------------------------------------------------------------------------------------------------------------
Total current liabilities                                                                           370,344         228,877

Long-term debt, less current maturities (note 3)                                                     33,137          51,096
Notes payable (note 3)                                                                              100,000         100,000
Accrued claims and other                                                                             76,777          69,183
Deferred income taxes (note 4)                                                                       73,050          66,383
---------------------------------------------------------------------------------------------------------------------------
                                                                                                    653,308         515,539

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, 26,498,976 and 26,289,344 issued                                            265            265
   Paid in capital                                                                                   256,081        253,542
   Retained earnings                                                                                 303,032        208,662
   Treasury stock, 45,463 and 255,095 shares                                                            (519)        (3,335)
---------------------------------------------------------------------------------------------------------------------------

Total stockholders' equity                                                                           558,859        459,134
---------------------------------------------------------------------------------------------------------------------------
                                                                                               $   1,212,167   $    974,673

</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

                                     PAGE F8

Consolidated Statements of Operations

Fiscal  years ended  December  31,  1999,  December 31, 1998 and January 3, 1998
(Thousands of dollars, except per share amounts) <TABLE> <CAPTION>

Fiscal Year                                                                             1999            1998           1997
-----------------------------------------------------------------------------------------------------------------------------
     <S>                                                                                <C>            <C>            <C>
Operating revenue

   LTL Trucking                                                                   $  1,745,958    $ 1,540,162    $  1,409,086
   TL Trucking                                                                          44,593         12,877              -
   Logistics                                                                           206,881        130,323         106,299
   Freight Forwarding                                                                  225,010        151,531          44,340
   Corporate and other                                                                                     -            5,524
------------------------------------------------------------------------------------------------------------------------------
Total operating revenue                                                              2,222,442      1,834,893       1,565,249
------------------------------------------------------------------------------------------------------------------------------

Operating expenses

   LTL Trucking                                                                      1,574,048      1,412,920       1,305,936
   TL Trucking                                                                          41,446         11,739              -
   Logistics                                                                           190,008        122,347          99,885
   Freight Forwarding                                                                  216,835        146,606          43,051
   Corporate and other                                                                  11,237         11,848          11,367
------------------------------------------------------------------------------------------------------------------------------
Total operating expenses                                                             2,033,574      1,705,460       1,460,239
------------------------------------------------------------------------------------------------------------------------------

Income from operations                                                                 188,868        129,433         105,010
------------------------------------------------------------------------------------------------------------------------------

Non-operating income (expense):
   Interest expense                                                                    (14,003)        (8,784)         (8,461)
   Interest income                                                                       1,129            757           1,038
   Other, net                                                                             (414)            88             (92)
------------------------------------------------------------------------------------------------------------------------------

Total non-operating expense                                                            (13,288)        (7,939)         (7,515)
------------------------------------------------------------------------------------------------------------------------------

Net income before income taxes                                                         175,580         121,494          97,495
Income tax expense (note 4)                                                            (71,340)        (50,049)        (40,914)
------------------------------------------------------------------------------------------------------------------------------


Net income                                                                        $    104,240     $    71,445    $     56,581
------------------------------------------------------------------------------------------------------------------------------

Average shares outstanding-basic                                                    26,416,631      26,209,281      25,544,240
Average shares outstanding-diluted                                                  27,478,479      26,495,714      25,830,674


Basic earnings per common share:                                                  $       3.95     $      2.73    $       2.21
------------------------------------------------------------------------------------------------------------------------------

Diluted earnings per common share:                                                $       3.79     $      2.70    $       2.19
------------------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

                                     PAGE F9

Consolidated Statements of Stockholders' Equity

Fiscal  years ended  December  31,  1999,  December 31, 1998 and january 3, 1998
(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 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                             -           1,555              -            5,055          6,610
      and other
---------------------------------------------------------------------------------------------------------------------------

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                             -           2,318               -            2,961         5,279
      and other
---------------------------------------------------------------------------------------------------------------------------


Balance December 31, 1998                        $        265    $   253,542     $   208,662    $     (3,335)   $   459,134

   Net income                                              -              -          104,240              -         104,240
   Dividends declared                                      -              -           (9,870)             -          (9,870)

   Employee stock transactions

      and other                                            -          2,539                -           2,816          5,355
---------------------------------------------------------------------------------------------------------------------------

Balance December 31, 1999                        $       265    $   256,081      $   303,032    $       (519)    $  558,859
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

                                    PAGE F10

Consolidated Statements of Cash Flows

Fiscal  years ended  December  31,  1999,  December 31, 1998 and January 3, 1998
(Thousands of dollars) <TABLE> <CAPTION>

Fiscal Year                                                                             1999            1998           1997
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>                 <C>            <C>
Cash flows from operating activities:
   Net income from continuing operations                                         $    104,240    $     71,445    $     56,581
      Reconciliation to net cash provided by operating activities:
         Depreciation and amortization                                                 93,354          78,015          70,140
         Deferred taxes                                                                 4,506           3,442           6,569
         Changes in assets and liabilities excluding acquisitions:
                  Accounts receivable                                                 (63,651)        (14,423)        (29,680)
                  Other current assets                                                 (3,691)            238          (2,080)
                  Accounts payable                                                      7,707           6,091          21,161
                  Accrued liabilities                                                  18,311          17,632          23,317
                  Other, net                                                            2,845          (9,271)         (8,950)
------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                             163,621         153,169         137,058
------------------------------------------------------------------------------------------------------------------------------

Cash flows from investing activities:

   Capital expenditures                                                              (202,474)       (157,476)       (128,809)
   Proceeds from sale of property and equipment                                         4,933          10,457          12,887
Acquisitions                                                                          (50,666)        (42,081)        (22,756)
-------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities                                                (248,207)       (189,100)       (138,678)
-------------------------------------------------------------------------------------------------------------------------------

Cash flows from financing activities:

   Dividends paid                                                                      (9,849)         (9,771)        (9,357)
   Net proceeds from sale of common stock                                                   -               -          69,431
   Proceeds from sale of treasury stock                                                 5,355           5,279          6,610
   Net proceeds from sale of notes                                                     98,452               -             -
   Proceeds from long-term bank debt                                                  155,000          89,500         15,000
   Payments on long-term bank debt                                                   (163,058)        (50,000)       (77,683)
------------------------------------------------------------------------------------------------------------------------------

Net cash provided by financing activities                                              85,900          35,008          4,001
------------------------------------------------------------------------------------------------------------------------------

Net increase (decrease) in cash                                                         1,314            (923)         2,381

Cash at beginning of year                                                               5,548            6,471         4,090
------------------------------------------------------------------------------------------------------------------------------

Cash at end of year                                                              $      6,862     $      5,548    $    6,471
------------------------------------------------------------------------------------------------------------------------------

Supplemental disclosure of cash flow information: Cash paid during the year for:

      Interest                                                                   $     12,348     $      8,753    $     7,823
      Income taxes                                                                     66,782           44,558         32,389

   Non-cash transactions: equity, notes issued and debt assumed
      in connection with acquisitions                                            $      1,388     $    24,298    $      4,023
------------------------------------------------------------------------------------------------------------------------------
</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 ("TL") 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.

In 1999 ("Fiscal 1999"), the Company reported on a calendar year basis. In 1998,
the Company  changed its year-end to December  31st  ("Fiscal  1998").  The year
ending January 3, 1998 ("Fiscal 1997") included 53 weeks.

Revenue Recognition

Revenue for  Less-than-truckload  and Truckload  operations  is recognized  when
freight is picked up from the  customer.  Freight  forwarding  revenue  from air
freight  shipments  is  recognized  when the  shipment  is  placed  on board the
aircraft and revenue from ocean  shipments is recognized  when the vessel sails.
Logistics  revenue from warehousing is recognized under the terms of the various
contracts  and  revenue  from  dedicated  fleet  shipments  is  recognized  upon
delivery, which is generally the same day as the pickup. In all cases, estimated
expenses  of   performing   the  total   transportation   services  are  accrued
concurrently with the revenue recognition.

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  operations
currently,  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.

<PAGE>
                                PAGE F12

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  1,061,848;  286,433 and 286,434 for
fiscal years 1999, 1998, and 1997 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.

2.  OPERATING LEASES
-------------------------------------------------------------------------------
The Company leases certain  terminals,  vehicles and data  processing  equipment
under long-term lease agreements that expire in various years through 2014.

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, 1999.

Fiscal Year                                           Payments
----------------------------------------------------------------------------


2000                                               $    21,651
2001                                                    18,551
2002                                                    12,318
2003                                                     7,717
2004                                                     4,031
Subsequent years                                        12,978
----------------------------------------------------------------------------
                                                   $    77,246
                                                   -----------

Rental  expense in the  accompanying  consolidated  statements of operations for
Fiscal  years  1999,  1998,  and  1997  was  $29,667,   $22,595,   and  $21,863,
respectively.

<PAGE>
                                        PAGE F13

3. Long-Term Debt

----------------------------------------------------------------------------

Long-term  debt at December  31,  1999 and  December  31,  1998  consists of the
following:

                                                December 31,     December 31,
                                                       1999           1998
----------------------------------------------------------------------------

Unsecured notes (a)                            $   200,000     $   100,000
Unsecured lines of credit (b)                       46,500          55,150
Other                                                7,198           6,606
----------------------------------------------------------------------------
                                                   253,698         161,756

Less current maturities                            120,561          10,660
----------------------------------------------------------------------------
                                               $   133,137     $   151,096
                                               -----------     -----------

(a) Unsecured  notes of $100,000 are payable on May 1, 2000 and bear interest at
6 5/8%,  payable  semi-annually.  The Company also issued  guaranteed  unsecured
notes of $100,000 on May 1, 1999 that are due May 1,2009 and bear  interest at 6
1/2%,  payable  semi-annually.  The notes are subject to  redemption in whole or
part any time 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, 1999 was approximately
$200,000.

(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
1999, all  borrowings  were drawn at LIBOR base rates,  with a weighted  average
interest rate for the year of 5.4%,  excluding fees charged on the facility.  At
December 31, 1999 the Company had borrowed  $30,000 and had $48,550  outstanding
letters of credit  under this  facility.  In  addition to the  revolving  credit
facility, the Company maintains three uncommitted lines of credit, which provide
$50,000 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.  At December  31, 1999 the Company had  borrowed  $16,500  under these
facilities.

The aggregate annual maturities of debt at December 31, 1999 are as follows:

Fiscal Year                                               Amount
----------------------------------------------------------------------------

2000                                                 $   120,561
2001                                                          46
2002                                                      30,080
2003                                                          51
2004                                                         546
Subsequent years                                         102,414
----------------------------------------------------------------------------
                                                     $   253,698
                                                     -----------
<PAGE>

                                PAGE F14

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:                                                                            1997            1998           1997
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>                 <C>            <C>
Federal income tax at statutory rate (35%)                                       $     61,453   $     42,523    $     34,123
State income tax                                                                        7,136          6,115           4,489
Goodwill amortization                                                                   2,006          1,363             955
Other                                                                                     745             48           1,347
---------------------------------------------------------------------------------------------------------------------------
Total income tax expense                                                         $     71,340   $     50,049    $     40,914
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

The components of the provision for income taxes are as follows:

<TABLE>
<CAPTION>

Fiscal Year:                                                                            1999            1998           1997
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>                 <C>            <C>
Current expense:
   Federal                                                                       $     56,285    $    36,814    $     28,427
   State                                                                               10,549          8,106           5,918
---------------------------------------------------------------------------------------------------------------------------
                                                                                       66,834         44,920          34,345
---------------------------------------------------------------------------------------------------------------------------
Deferred expense:
   Accelerated depreciation                                                            11,438         10,043           9,099
   Allowance for doubtful accounts and revenue adjustments                               (587)        (1,036)          3,798
   Insurance and claims                                                                (5,043)        (3,797)         (4,659)
   Vacation pay                                                                          (389)        (1,254)         (1,053)
   Other                                                                                 (913)         1,173            (616)
---------------------------------------------------------------------------------------------------------------------------
                                                                                 $      4,506     $    5,129      $    6,569
---------------------------------------------------------------------------------------------------------------------------

Total income tax expense                                                         $     71,340     $   50,049    $     40,914
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

The  following  is a summary of the  components  of the  deferred tax assets and
liabilities at December 31, 1999 and December 31, 1998:

<TABLE>
<CAPTION>

                                                                                                 December 31,     December 31,
                                                                                                        1999           1998
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                     <C>            <C>
Deferred tax assets:
   Allowance for doubtful accounts and revenue adjustments                                      $     2,663      $    2,076
   Insurance and claims                                                                              39,794          34,751
   Vacation pay                                                                                       8,840           8,451
   Other                                                                                              6,256           7,261
---------------------------------------------------------------------------------------------------------------------------
                                                                                                $    57,553     $    52,539
---------------------------------------------------------------------------------------------------------------------------

Deferred tax liabilities:
   Property and equipment, principally due to accelerated depreciation                          $    96,150     $    86,630
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>

                               PAGE F15

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 1999, 1998, and 1997,  Company  contributions
for these plans were $9,536, $8,290 and $6,550,  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 1999,  1998,
and 1997,  Company  contributions for these pension plans were $72,536,  $60,748
and $54,041 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, 1999;  641,040  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  4,710,000  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,  1999 there were  646,370  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                                                                             1999            1998           1997
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>                 <C>            <C>
Net income - as reported                                                         $    104,240    $    71,445    $     56,581
Net income - pro forma                                                                100,681         69,736          55,808

Basic earnings per share - as reported                                                   3.95           2.73            2.21
Basic earnings per share - pro forma                                                     3.81           2.66            2.18

Diluted earnings per share - as reported                                                 3.79           2.70            2.19
Diluted earnings per share - pro forma                                                   3.66           2.63            2.16
---------------------------------------------------------------------------------------------------------------------------
</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 1999, 1998, and 1997: dividend yield
ranging from 0.93% to 1.58%;  expected volatility ranging from 37.07% to 49.31%;
risk-free interest rates at grant date ranging from 4.97% to 6.89%; and expected
lives ranging from 4.28 to 5.69 years.

<PAGE>

                                    PAGE F16

A summary of the status of the Company's stock option plans is presented below:

<TABLE>
<CAPTION>

Fiscal Year                                              1999                           1998                           1997
---------------------------------------------------------------------------------------------------------------------------

                                                    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    2,727,790      $   24.13       1,435,730    $      23.67      1,107,250     $     17.84
Granted                               693,000          41.05       1,550,000           25.10        623,500           29.93
Exercised                            (135,900)         17.94         (54,290)          16.73       (279,520)          14.98
Forfeited                              (8,000)         43.30        (203,450)          30.23        (15,500)          16.52
                                    ----------     ---------       ----------   ------------      ---------     -----------
Outstanding at end of year          3,276,890          27.92        2,727,990          24.13      1,435,730           23.67
                                    ----------     ----------      ----------   ------------      ---------     -----------
Options exercisable at year end       671,990          22.27          581,790          20.19        402,690           17.74
                                    ----------     ----------      ----------   ------------      ---------
Weighted-average fair value
   of options granted during
      the year                    $     16.84                     $    11.66                    $     11.80
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

The following table summarizes  information  about stock options  outstanding at
December 31, 1999:

<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             12/31/99              (years)       Exercise Price             12/31/99      Exercise Price
---------------------------------------------------------------------------------------------------------------------------
          <S>                      <C>                     <C>                <C>                   <C>                 <C>
  $     13.00-15.00               97,550                 2.72    $           13.78               97,550    $          13.78
        18.25-19.63              406,000                 6.55                19.63              262,900               19.63
        22.50-24.94            1,689,340                 8.50                24.76              138,640               23.00
        25.94-30.50              293,500                 8.00                29.74              127,900               29.88
        31.81-35.00              250,000                 8.58                32.01               45,000               32.17
        42.88-44.69              540,500                 9.77                43.70                  -                    -
---------------------------------------------------------------------------------------------------------------------------
                               3,276,890                 8.26                27.92              671,990               22.27
                               ---------                                                        -------

</TABLE>
<PAGE>

                                       PAGE F17

The Company has 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.  In the event of a
non-permitted transaction, the Company would declare a distribution of one right
for each share of common stock  outstanding  to  stockholders  and  generally to
shares  issuable  under the  Company's  stock  option  plans.  In the event of a
proposed takeover meeting certain  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,  1999,  the  Company  had  capital  purchase   commitments  of
approximately  $6,207  for land and  improvements,  $25,327  for  transportation
equipment, and $4,559 for other equipment.

8. Acquisitions

----------------------------------------------------------------------------

During 1999,  under the purchase method of accounting,  the Company acquired all
of the outstanding shares of Processors  Unlimited Company,  Ltd., a provider of
reverse logistics services to the grocery and drug industries;  Special Dispatch
of Dallas, Inc., a Texas based provider of assembly and distributions  services;
Cuxhaven  Group,   Inc.,  a  domestic  freight  forwarding  company  and  former
Baltimore,  MD agent for Worldwide;  Airgo,  Inc., a domestic freight forwarding
company and former Seattle, WA agent for Worldwide;  Scan Trans, Inc. a domestic
freight  forwarding  company and former San  Francisco,  CA agent for Worldwide;
Pace  Transportation,  Ltd., a domestic  freight  forwarding  company and former
Baltimore, MD agent for Worldwide;  Best Ways Air Cargo, a Puerto Rico-based air
freight forwarder and Underwood  Trucking,  an Indiana -based truckload carrier.
The Company  also  purchased  the general  commodities  business of CBL Trucking
Inc.,  a  Mid-Atlantic  and New  England  LTL  carrier;  certain  assets of Gulf
International  Freight, a domestic freight forwarding company and certain assets
of Pre Trans,  a Puerto  Rico  business  unit of Caro Trans  International  that
provides ocean services.  Total  consideration  for all Fiscal 1999 acquisitions
amounted to $52,054 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 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.

<PAGE>

                              PAGE F18


9. Business Segments

----------------------------------------------------------------------------

The  Company  has nine  reportable  business  segments:  the five  regional  LTL
trucking  companies , TL trucking,  Logistics,  Freight forwarding and Corporate
and other. 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 TL 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 Corporate and other group  includes  mainly the
costs for the Company's head office and risk management  groups.  The reportable
business  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                                                                             1999            1998           1997
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                       <C>            <C>            <C>
Revenue
   LTL Group:

      USF Holland                                                                 $   912,765    $   794,012    $    711,137
      USF Reddaway                                                                    244,000        215,531         198,714
      USF Red Star                                                                    249,369        212,365         194,823
      USF Dugan                                                                       193,336        181,971         170,962
      USF Bestway                                                                     146,488        136,283         133,450
---------------------------------------------------------------------------------------------------------------------------
         Total LTL Group                                                            1,745,958      1,540,162       1,409,086
   TL                                                                                  44,593         12,877               -
   Logistics                                                                          206,881        130,323         106,299
   Freight forwarding                                                                 225,010        151,531          44,340
   Corporate and other                                                                                     -           5,524
---------------------------------------------------------------------------------------------------------------------------
Total Revenue                                                                     $ 2,222,442    $ 1,834,893    $  1,565,249
---------------------------------------------------------------------------------------------------------------------------

Income From Operations
   LTL Group:

      USF Holland                                                                 $   111,203    $    82,580    $     65,244
      USF Reddaway                                                                     28,221         18,909          13,457
      USF Red Star                                                                      7,275          3,581             871
      USF Dugan                                                                         8,678          6,661           6,145
      USF Bestway                                                                      16,533         15,511          17,433
---------------------------------------------------------------------------------------------------------------------------
         Total LTL Group                                                              171,910        127,242         103,150
   TL                                                                                   3,147          1,138              -
   Logistics                                                                           16,873          7,976           6,414
   Freight forwarding                                                                   8,175          4,925           1,289
   Corporate and other                                                                 (4,744)        (7,555)         (2,936)
   Amortization of intangibles                                                         (6,493)        (4,293)         (2,907)
---------------------------------------------------------------------------------------------------------------------------
Total Income from Operations                                                      $   188,868    $   129,433    $    105,010
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

                                    PAGE F19

<TABLE>
<CAPTION>

Fiscal Year                                                                             1999            1998           1997
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                      <C>        <C>            <C>
Assets
   LTL Group:

      USF Holland                                                                 $   433,887    $   337,477    $    276,810
      USF Reddaway                                                                    131,254        117,326         108,979
      USF Red Star                                                                    159,804        146,431         137,336
      USF Dugan                                                                        98,212         92,969          93,737
      USF Bestway                                                                      80,347         65,815          64,266
---------------------------------------------------------------------------------------------------------------------------
         Total LTL Group                                                              903,504        760,018         681,128
   TL                                                                                  44,054         32,680              -
   Logistics                                                                          129,809         70,588          59,458
   Freight forwarding                                                                 126,111         97,326          52,232
   Corporate and other                                                                  8,689         14,061           6,717
---------------------------------------------------------------------------------------------------------------------------
Total Assets                                                                      $ 1,212,167    $   974,673    $    799,535
---------------------------------------------------------------------------------------------------------------------------

Fiscal Year                                                                             1999            1998           1997
---------------------------------------------------------------------------------------------------------------------------

Long Lived Asset Expenditures
   LTL Group:

      USF Holland                                                                 $    111,254   $    83,908    $     66,637
      USF Reddaway                                                                      17,511        21,105          19,421
      USF Red Star                                                                      13,788        16,358          10,439
      USF Dugan                                                                          9,932        13,707          18,134
      USF Bestway                                                                       16,982         9,134           8,463
---------------------------------------------------------------------------------------------------------------------------
         Total LTL Group                                                               169,467       144,212         123,094
   TL                                                                                   10,994         1,844              -
   Logistics                                                                            18,976         9,830           4,799
   Freight forwarding                                                                    1,931           669             280
   Corporate and other                                                                   1,106           921             636
---------------------------------------------------------------------------------------------------------------------------
Total Long Lived Asset Expenditures                                               $    202,474   $   157,476    $    128,809
---------------------------------------------------------------------------------------------------------------------------

Depreciation Expense
   LTL Group:

      USF Holland                                                                $      36,669   $    30,565    $     27,603
      USF Reddaway                                                                      12,048        11,267           9,927
      USF Red Star                                                                       9,748         7,987           7,269
      USF Dugan                                                                         10,857        10,458           9,887
      USF Bestway                                                                        5,540         4,723           4,802
---------------------------------------------------------------------------------------------------------------------------
         Total LTL Group                                                                74,862        65,000          59,488
   TL                                                                                    4,083         1,016               -
   Logistics                                                                             7,799         6,352           5,678
   Freight forwarding                                                                    1,381           842             277
   Corporate and other                                                                     694           512           1,790
---------------------------------------------------------------------------------------------------------------------------
Total Depreciation Expense                                                        $     88,819   $    73,722    $     67,233
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

                                    PAGE F20

10. Quarterly Financial Information (unaudited)
<TABLE>

Quarters                                                First         Second           Third          Fourth          Total
---------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>            <C>            <C>            <C>


Fiscal 1999
   Operating revenue                             $    513,229    $   548,856     $   571,946    $    588,411    $ 2,222,442
   Income from Operations                              32,231         47,787          53,304          55,546        188,868
   Net income                                          17,508         26,271          29,723          30,738        104,240
   Net income per share - basic                          0.67           1.00            1.12            1.16           3.95
   Net income per share - diluted                        0.65           0.96            1.07            1.11           3.79
   Dividends declared per share                        0.0933         0.0933          0.0933          0.0933          .3733
   Market price per share (calendar quarter)      28.87-34.87    27.31-47.37     42.09-51.75     41.06-49.87    27.31-51.75

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

---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>

                                             PAGE F21

Selected Consolidated Financial Data (Thousands of dollars, except per
share amounts)
<TABLE>
<CAPTION>


Fiscal Year                                              1999           1998            1997            1996           1995
---------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>            <C>                 <C>            <C>
Statements of Operations

Operating revenue                                $  2,222,442    $  1,834,893    $ 1,565,249      $ 1,330,972    $  1,144,458
Income from operations                                188,868         129,433        105,010           67,128(1)       67,543

Interest expense                                      (14,003)         (8,784)        (8,461)         (12,144)         (8,884)
Interest income                                         1,129             757          1,038              649             707
Other non-operating income (expense)                     (414)             88            (92)            (704)           (878)
-----------------------------------------------------------------------------------------------------------------------------
Net income before income taxes                        175,580         121,494         97,495           54,929          58,488

Income tax expense                                    (71,340)        (50,049)       (40,914)         (23,451)        (25,150)
-----------------------------------------------------------------------------------------------------------------------------

Net income                                       $    104,240     $    71,445     $   56,581      $    31,478(1)  $    33,338
-----------------------------------------------------------------------------------------------------------------------------

Basic Earnings Per Share

Net income per share                             $       3.95     $      2.73     $     2.21      $      1.41(1)   $    1.52

Diluted Earnings Per Share

Net  income per share                            $       3.79     $      2.70     $     2.19      $      1.40(1)   $    1.51

Cash dividends declared per share                $       0.37     $      0.37     $     0.37     $       0.37      $    0.37

Operating Statistics
LTL Trucking Companies (in thousands)
Total tons                                             10,220          9,177          8,579            7,732           6,835
Total shipments                                        14,797         13,468         12,857           11,590          10,187

Balance Sheets
Assets:

Current assets                                   $    362,928   $    279,849    $   237,116     $    203,577    $    158,611
Property and equipment, net                           660,510        544,282        448,315          395,500         338,846
Intangible assets, net                                174,538        140,201        104,407           79,559          69,918
Other assets                                           14,191         10,341          9,697            9,872          10,819
----------------------------------------------------------------------------------------------------------------------------
Total assets                                     $  1,212,167   $    974,673    $   799,535     $    688,508    $    578,194
----------------------------------------------------------------------------------------------------------------------------

Liabilities and Stockholders' Equity:
Current liabilities                              $    370,344   $    228,877    $   181,714     $    144,348    $    128,484
Long-term debt                                        133,137        151,096        115,000          178,000         137,333
Other non-current liabilities                         149,827        135,566        110,621           96,900          79,225
Total stockholders' equity                            558,859        459,134        392,200          269,260         233,152
----------------------------------------------------------------------------------------------------------------------------
Total liabilities and

   stockholders' equity                          $  1,212,167   $    974,673    $   799,535     $    688,508    $    578,194
----------------------------------------------------------------------------------------------------------------------------
</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 F22

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        99   $912.8    87.8%     4,694.6         7,392.1         60        4,163     6,668     9,003
               98   $794.0    89.6%     4,163.9         6,599.1         55        3,645     6,299     8,058
Red Star       99   $249.4    97.1%     1,102.3         2,234.4         33        1,126     2,770     2,441
               98   $212.4    98.3%       961.4         1,986.2         33          995     2,231     2,232
Reddaway       99   $244.0    88.4%       950.1         1,926.4         56        1,118     3,179     2,666
               98   $215.5    91.2%       858.6         1,766.3         56        1,084     2,956     2,485
Bestway        99   $146.5    88.7%       658.5         1,269.0         33          660     2,522     1,521
               98   $136.3    88.6%       640.6         1,208.9         22          639     2,314     1,472
Dugan          99   $193.3    95.5%       955.4         1,723.4         59        1,062     3,195     2,116
               98   $182.0    96.3%       914.9         1,686.3         61        1,008     2,985     2,107
Logistics      99   $206.9    91.8%        NA               NA          97          598     1,520     3,682
               98   $130.3    93.9%        NA               NA          33          514     1,280     1,829
Worldwide(1)   99   $225.0    96.4%        NA               NA          59            4         2       637
               98   $151.5    96.7%        NA               NA          51          NA        NA        520
Glen Moore(2)  99   $ 44.6    92.9%        NA               NA           2          288       864       464
               98   $ 12.9    91.2%        NA               NA           1          236       625       383

(1)   USF Worldwide acquired Golden Eagle on November 12, 1998.  Golden Eagle's
      revenue, profits and employees are included with USF Worldwide.
(2)   Acquired on August 31, 1998.


</TABLE>