PAGE F1

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


Fiscal Year                                                                             1998            1997           1996
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>            <C>            <C>
Revenue
   LTL Trucking                                                                  $ 1,540,162    $  1,409,086    $ 1,213,360
   TL Trucking                                                                        12,877              -              -
   Logistics                                                                         130,323         106,299         85,601
   Freight Forwarding                                                                151,531          44,340          8,400
   Corporate and other                                                                    -            5,524          5,611
---------------------------------------------------------------------------------------------------------------------------
Total Revenue                                                                    $ 1,834,893    $  1,565,249    $ 1,330,972
---------------------------------------------------------------------------------------------------------------------------

Income from Operations (loss)
   LTL Trucking                                                                  $   127,242    $    103,150    $    67,876
   TL Trucking                                                                         1,138              -              -
   Logistics                                                                           7,976           6,414          2,655
   Freight Forwarding                                                                  4,925           1,289             33
   Corporate and other                                                               (11,848)         (5,843)        (3,436)
---------------------------------------------------------------------------------------------------------------------------
Total Income from Operations                                                     $   129,433    $    105,010    $    67,128
---------------------------------------------------------------------------------------------------------------------------

Net Interest Expense                                                             $     8,027    $      7,423    $    11,495
---------------------------------------------------------------------------------------------------------------------------

Net Income                                                                       $    71,445    $     56,581    $    31,478
---------------------------------------------------------------------------------------------------------------------------

Net Income Per Share - Diluted                                                   $      2.70    $       2.19    $      1.40
---------------------------------------------------------------------------------------------------------------------------

Total Assets                                                                     $   974,673    $    799,535    $   688,508
---------------------------------------------------------------------------------------------------------------------------

Return on Average Stockholders' Equity                                                 16.8%           17.1%          12.5%
--------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>
                                    PAGE F2

Management's Discussion and Analysis of Financial Conditions and Results
of Operations

USFreightways  Corporation  ("the  Company")  is  a  full  service  provider  of
transportation services and innovative logistics solutions. This is accomplished
through  the  Company's  operating  subsidiaries.  Regional  less-than-truckload
("LTL") general  commodities  carriers provide overnight and second-day delivery
throughout  the United States and into Canada.  Logistics  subsidiaries  provide
solutions to customers'  logistics and  distribution  requirements.  The Company
also provides domestic and international  freight  forwarding as well as premium
regional and national truckload service.  Principal subsidiaries in the Regional
LTL group are USF Holland Inc. ("Holland"),  USF Bestway Inc.  ("Bestway"),  USF
Red Star Inc. ("Red Star"),  USF Reddaway Inc.  ("Reddaway")  and USF Dugan Inc.
("Dugan");  the Logistics group consists of USF Logistics Inc. ("Logistics") and
USF Distribution Services Inc. ("Distribution Services"); the Freight Forwarding
group includes USF Seko Worldwide Inc.  ("Seko  Worldwide"),  Golden Eagle Group
("Golden  Eagle");  Glen Moore  Transport  Inc.  ("Glen Moore") is the Company's
truckload carrier.

Results of Operations

In 1998,  the Company  changed its fiscal  year-end to December  31st.  In prior
years,  the fiscal year ended on the Saturday  nearest  December  31st. The year
ending  December 31, 1998 ("Fiscal  1998")  included 52 weeks  whereas  ("Fiscal
1997")  included 53 weeks ending on January 3, 1998 and ("Fiscal 1996") included
52 weeks ending on December 28, 1996.

Operating  revenue of the Company for Fiscal 1998 was a record $1.84 billion,  a
17.2%  increase over total  operating  revenue of $1.56 billion for Fiscal 1997.
Income from operations  increased by 23.3% from $105.0 million in Fiscal 1997 to
a record $129.4 million in Fiscal 1998. Net income per share  increased by 23.3%
to $2.70  (diluted) in Fiscal 1998  compared to $2.19  (diluted) in Fiscal 1997.
The extra 53rd week of Fiscal 1997  contributed  approximately  $20.6 million of
revenue,  but net income was adversely affected by approximately $0.04 per share
as that week included the New Year's holiday.

Fiscal 1997 operating  revenue  increased by 17.6% to $1.56 billion  compared to
$1.33 billion for Fiscal 1996.  Income from  operations  increased by 56.4% to $
105.0 million in Fiscal 1997 from $ 67.1 million (which  included a $4.0 million
restructuring charge at Red Star) in Fiscal 1996. Net income per share increased
to by 56.4% to $2.19  (diluted)  in Fiscal 1997  compared to $1.40  (diluted) in
Fiscal 1996.

Regional  LTL.  Revenue in the LTL group for the  52-week  period in Fiscal 1998
increased  by 9.3% to $1.54  billion  from $1.41  billion in the 53 week  Fiscal
1997.  In  Fiscal  1998,  revenue  from the LTL group  amounted  to 83.9% of the
Company's  operating revenue compared to 90.0% in Fiscal 1997. For comparable 52
week periods,  LTL revenue  increased 10.7%,  LTL shipments  increased 6.0%, LTL
tonnage  increased  8.4% and LTL revenue per  hundredweight  increased  2.1%. In
Fiscal 1998, the LTL group enacted a general rate increase of approximately 5.9%
in January and another general rate increase of  approximately  5.9% in the late
fall.  The LTL group  enacted a 5.9% general rate increase in January 1997 also.
General rate increases  apply to  approximately  50% of the LTL group's  revenue
base. The remaining 50% of the revenue base is subject to contractual agreements
which normally result in lower rate increases.

Operating income in Fiscal 1998 increased by 23.4% to $127.2 million from $103.1
million  in  Fiscal  1997.  Improvements  in  operating  results  were  directly
attributable  to  price  stability,  a  modest  improvement  in the US  economy,
increases in market share and a continuing  emphasis on cost reduction.  The LTL
group  improved its ratio of operating  expenses  compared to operating  revenue
(operating  ratio)  to  91.7%  compared  to  92.7%  in  Fiscal  1997.  Purchased
transportation  decreased to 3.2% of operating  revenue from 3.5% in Fiscal 1997
as Dugan improved  linehaul  efficiencies  and relied less on cartage agents and
broker teams to handle its freight and Holland  significantly reduced short term
equipment rents. Fuel expenses were 3.4% of Fiscal 1998 revenue compared to 3.8%
of Fiscal 1997 revenue primarily due to lower prices in Fiscal 1998.
<PAGE>
                                   PAGE F3

Revenue in the LTL group  increased by 14.4% to $1.41  billion in Fiscal 1997, a
53-week period,  from $1.23 billion in Fiscal 1996, a 52-week period,  primarily
as a result of new  customers,  closure  of  certain  competitors  and  expanded
business from existing  customers.  In Fiscal 1997,  LTL shipments  increased by
10.9%,  LTL tonnage  increased by 12.1%,  LTL revenue per shipment  increased by
3.4% and LTL  revenue per  hundredweight  increased  by 2.4%  compared to Fiscal
1996.  In  Fiscal  1996,  revenue  from the LTL group  amounted  to 92.5% of the
Company's operating revenue.

Operating  income for the LTL group in Fiscal 1997  increased by 52.0% to $103.1
million from $67.9 million in Fiscal 1996 with an  improvement  in its operating
ratio to 92.7% compared to 94.5% in Fiscal 1996.  Fiscal 1996  operating  income
included a one-time $4.0 million  restructuring  charge at Red Star. Before this
charge,  the  operating  ratio  for the LTL  group was  94.2%.  Improvements  in
operating  income were  directly  attributable  to a  relatively  mild winter in
Fiscal 1997, price stability, and a strong economy, unlike Fiscal 1996 which was
adversely impacted by severe weather during the winter months,  intense industry
competitive pricing and a somewhat sluggish economy during the first half of the
year. The LTL group's salaries,  wages and benefits improved to 63.7% of revenue
from 64.2% in Fiscal 1996 as Bestway reduced workers'  compensation expenses due
to fewer  claims.  Additionally,  a  turnaround  achieved at Red Star during the
fourth quarter of Fiscal 1996,  following its  restructuring,  continued through
Fiscal 1997. Red Star, through stricter cost controls,  improved its Fiscal 1997
operating ratio to 99.6% from 102.0% (104.1% including the restructuring charge)
in Fiscal 1996. Fuel expenses, net of a fuel surcharge, were 3.8% of Fiscal 1997
revenue  compared  to 4.2% of Fiscal  1996  revenue  due to lower  prices in the
latter part of Fiscal  1997.  Revenue  equipment  rentals,  operating  taxes and
terminal rental expenses  collectively  improved, as a percentage of revenue, to
5.0% in Fiscal 1997 compared to 5.4% in Fiscal 1996.

Approximately  80% of  Holland's  and Red Star's  employees  are  members of the
Teamsters' union and are subject to a collective bargaining agreement.  In 1998,
the Teamsters  ratified a five-year  agreement  that expires at the end of March
2003. This agreement  provided for, among other things,  customary  increases in
wages, pension and health benefits.

Truckload.  The Company's truckload carrier,  Glen Moore (acquired on August 31,
1998),  contributed  $12.9 million in revenue and its operating  ratio was 91.2%
generating $1.1 million in operating profits. Glen Moore is a Pennsylvania based
carrier that operates in both regional and  nationwide  markets with  annualized
revenue in Fiscal 1998 of  approximately  $35 million and  operates  236 sleeper
tractors  and 625  trailers.  Truckload  operations  accounted  for  0.7% of the
Company's Fiscal 1998 operating revenue.

Logistics.  Revenue in the  Logistics  group,  comprised of dedicated  carriage,
assembly and distribution,  supply chain management and contractual  warehousing
revenue,  increased by $24.0  million (a 22.6%  increase)  to $130.3  million in
Fiscal 1998 compared to $106.3 million in Fiscal 1997. Assembly and distribution
revenue  increased in Fiscal 1998 from Fiscal 1997  primarily  through growth at
existing  distribution  centers  coupled with  revenue  from a new  distribution
center in Atlanta,  along with  revenue  obtained  since  October  1998 from the
acquisition of Moore and Son, a Columbus,  Ohio based assembly and  distribution
business.  Moore & Son contributed  approximately  $3.8 million in revenue since
its acquisition.  Contractual and warehousing  revenue  increased in Fiscal 1998
from Fiscal 1997  primarily  through the addition of new  customers and expanded
business with existing customers.  In Fiscal 1998, the Logistics group accounted
for 7.1% of the  Company's  operating  revenue  compared  to 6.8% of Fiscal 1997
revenue.  Operating income for the group increased by 24.4% to $8.0 million from
$6.4 million in Fiscal 1997. The group's  operating  ratio improved  slightly to
93.9% in Fiscal 1998 from 94.0% in Fiscal 1997.

Revenue in the Logistics  group increased 24.2% to $106.3 million in Fiscal 1997
compared to $85.6  million in Fiscal 1996  primarily  due to the addition of new
contractual customers and a full year of revenue at Interamerican, a warehousing
company that was  acquired in July 1996.  In Fiscal 1996,  the  Logistics  group
accounted for 6.4% of the Company's operating revenue.  Operating income for the
group  increased  by 141.6% to $6.4 million from $2.7 million in Fiscal 1996 due
primarily  to a full year of profits at  Interamerican.  The  group's  operating
ratio improved 94.0% in Fiscal 1997 from 96.9% in Fiscal 1996.
<PAGE>

                                PAGE F4

Freight Forwarding.  Revenue in the Freight Forwarding group increased by $107.2
million (a 242%  increase) to $151.5  million from $44.3 million in Fiscal 1997.
The increase was derived primarily at Seko Worldwide, the Company's domestic and
international  freight  forwarder that was acquired on September 30, 1997, which
generated a full year of revenue in Fiscal 1998,  compared to revenue  generated
only during the fourth quarter of Fiscal 1997. In addition, the Company acquired
the Golden  Eagle  Group,  a provider  of  international  air and ocean  freight
forwarding  and  logistics   services,   on  November  12,  1998.  Golden  Eagle
contributed $9.8 million, since its acquisition,  of the overall increase in the
Freight Forwarding group's Fiscal 1998 revenue. Golden Eagle's revenue for 1997,
while not included in the Company's Fiscal 1997 revenue, amounted to $84 million
of which  approximately  90% was  international.  The Freight  Forwarding  group
accounted for 8.3% of the Company's  Fiscal 1998 operating  revenue  compared to
2.8% of the Company's Fiscal 1997 operating revenue.  Operating income increased
to $4.9 million from $1.3  million in Fiscal  1997,  with an operating  ratio of
96.7% in Fiscal 1998 compared to 97.1% in Fiscal 1997. The highly  variable cost
structure  of  the  non-asset  based  freight  forwarding  business  results  in
relatively stable margins at various volumes of freight.

Revenue in the Freight  Forwarding  group  increased  by $35.9  million to $44.3
million from $8.4 million in Fiscal 1996. Of this increase, Seko Worldwide alone
generated  $31.8 million in revenue since its acquisition in September 1997. The
Freight  Forwarding  group  accounted  for  0.6% of the  Company's  Fiscal  1996
operating revenue.

The group's  operating  income in Fiscal 1997 was $1.3 million with $1.1 million
contributed by Seko Worldwide.  This compares to an immaterial  profit in Fiscal
1996.

Interest
Net interest  expense for Fiscal 1998 amounted to $8.0 million  compared to $7.4
million in Fiscal  1997.  The  principal  debt of the Company is $100 million in
notes that mature May 1, 2000 and bear interest of 6 5/8%. The average  interest
rate on the Company's bank debt for Fiscal 1998 was approximately  5.8% compared
to 5.9% in Fiscal 1997. Average  outstanding bank debt in Fiscal 1998 and Fiscal
1997 was $17 million and $8.9 million, respectively.

Net  interest  expense for Fiscal 1996  amounted to $11.5  million.  The average
amount  of  outstanding  bank debt in Fiscal  1996 was  $81.5  million.  Average
outstanding  bank debt decreased by  approximately  $69 million in February 1997
following  the sale of  approximately  3.1 million  shares of common  stock in a
public offering.

Liquidity and Capital Resources
The Company  generated  $153.2  million in cash flow from  operating  activities
during  Fiscal 1998.  Capital  expenditures  during the year  amounted to $157.5
million,  of which $74.3  million was for revenue  equipment,  $56.7 million for
terminals  and $26.5  million for other  assets.  In addition,  the Company paid
$42.1  million  in cash  for the  acquisitions  of Glen  Moore,  Moore  and Son,
Vallerie's   Transportation  Services,  and  the  Golden  Eagle  Group.  Capital
expenditures  for Fiscal 1997  amounted to $128.8  million plus $22.8 million in
cash for the  acquisitions  of Seko Worldwide and Mercury  Distribution,  an LTL
general  commodities  carrier  located  in the  Northeast.  In light of  current
business levels,  management expects that capital  expenditures  during the year
ending  December  31,  1999  will  approximate  $170  million  to $200  million,
excluding acquisitions.

The Company has a $200 million  revolving  credit  facility  with a syndicate of
commercial banks. The facility expires in 2002 and allows up to $100 million for
standby letters of credit to cover the Company's self-insurance program, and has
optional  pricing of interest rates,  including  LIBOR or Prime base rates.  The
facility has an annual fee and contains customary  financial covenants including
maintenance of minimum net worth and funded debt to cash flow.  During 1998, all
borrowings were drawn at LIBOR base rates, with a weighted average interest rate
for the year of 5.8%,  excluding  fees charged on the facility.  At December 31,
1998 the Company  had  borrowed  $45 million and had $47 million in  outstanding
letters of credit under this facility.

In addition to the  revolving  credit  facility,  the  Company  maintains  three
uncommitted lines of credit, which provide $40 million short-term funds at rates
approximating  LIBOR.  These  facilities  are used in concert with a centralized
cash management  system to finance  short-term  working  capital needs;  thereby
enabling the Company to maintain minimal cash balances.

In management's  opinion,  cash flows from operating activities and funding from
its  revolving   credit   facilities  are  adequate  to  finance  the  Company's
anticipated business activity in 1999.

At December 31, 1998 the Company had commitments to purchase approximately $13.7
million in land and improvements, $23.8 million for transportation equipment and
$1.8 million for other equipment.

During 1998, the Company declared cash dividends of $9.8 million.
<PAGE>
                              PAGE F5

Other
The Company uses underground  storage tanks at certain  terminal  facilities and
maintains a comprehensive policy of testing, upgrading, replacing or eliminating
these tanks to protect the environment and comply with various Federal and state
laws. Whenever any contamination is detected,  the Company takes prompt remedial
action to remove the  contaminants.  It is  management's  opinion that the total
costs  related to all known  incidents  have been  provided for in the financial
statements and management is not aware of any potential  contamination incidents
that would have a material effect on the results of the Company.

Market Risk
The Company is exposed to the impact of interest  rate  changes.  The  Company's
exposure to changes in interest  rates is limited to borrowings  under a line of
credit  agreement which has variable  interest rates tied to the LIBOR rate. The
weighted average annual interest rates on borrowings under this credit agreement
were  5.8% and 5.9% in  Fiscal  1998 and 1997  respectively.  In  addition,  the
Company has $100 million of unsecured  notes with a 6 5/8% fixed annual interest
rate at December 31, 1998. The Company  estimates that the carrying value of the
notes  approximated  its market value at December  31, 1998.  The Company has no
hedging  instruments.  From time to time,  the  Company  invests  excess cash in
overnight money market accounts.

Year 2000
The Company has been and continues to address the universal  situation  commonly
referred to as the "Year 2000  Problem".  The "Year 2000  Problem" is related to
the inability of certain computer systems, software and embedded technologies to
properly  recognize and process  date-related  information  surrounding the Year
2000.

In 1996,  the  Company  initiated  a  comprehensive  review of its  computerized
Information  Technology  (IT) to identify  systems that could be affected by the
Year 2000 problems and has implemented a plan to resolve the identified  issues.
The Year 2000 issues were  analyzed by  identifying  and  assessing all systems,
software and embedded  technologies,  with  business  critical  systems  given a
higher priority.  The Company defines a system as business critical if a failure
would cause a significant  service  disruption or could cause a material adverse
effect on the  Company's  operations  or financial  results.  As of December 31,
1998, the Company has remediated 91% of its business critical  systems.  Further
testing and  verification  on all systems will  continue  throughout  1999.  The
Company has expended  approximately $1 million as of December 31, 1998 to ensure
Year 2000 compliance. The total cost to ensure Year 2000 compliance is estimated
to be less  than $2  million.  The  cost  estimate  is  based  on the  Company's
structure and those subsidiaries it owns at the present time. The acquisition of
any additional  operating entity may  significantly  impact the total cost as it
has been estimated.

Contingency plans are being developed for business critical systems. The Company
has  tested  or will  be  testing  for  plan  completeness  and  accuracy.  Some
contingency  plans may require  additional  labor that may impact the  Company's
operating costs.

The Company has been contacting business partners whose Year 2000 non-compliance
could adversely affect the Company's operations,  employees,  or customers.  The
Company  believes the most likely worst case scenario  would be the failure of a
material business partner to be Year 2000 compliant. Therefore, the Company will
continue to work with and monitor the progress of its  partners and  formulate a
contingency  plan when the Company does not believe the business partner will be
compliant.

The  Company's  assessment of its Year 2000 issues  involves  some  assumptions.
These assumptions  revolved primarily around the Year 2000  representation  from
third parties with which the Company has business  relationships,  and where the
Company  has  not  been  able to  independently  verify  these  representations.
<PAGE>
                                  PAGE F6

Independent   Auditors'   Report  

The  Board  of  Directors  and   Stockholders,
USFreightways Corporation: 

We have audited the accompanying consolidated balance
sheets of USFreightways Corporation and subsidiaries as of December 31, 1998 and
January  3,  1998  and  the  related  consolidated   statements  of  operations,
stockholders'  equity, and cash flows for the two years ended December 31, 1998.
These consolidated  financial statements are the responsibility of the Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position of  USFreightways
Corporation and subsidiaries as of December 31, 1998 and January 3, 1998 and the
results  of their  operations  and their  cash  flows  for the two  years  ended
December 31, 1998, in conformity with generally accepted accounting principles.

Arthur Andersen LLP, Chicago, Illinois, January 19, 1999

The Board of Directors  and  Stockholders,  
USFreightways  Corporation:  

We  have  audited  the  accompanying   consolidated  statements  of  operations,
stockholders'  equity,  and cash flows for the year ended  December  28, 1996 of
USFreightways   Corporation  and  subsidiaries.   These  consolidated  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.

An audit includes  examining,  on a test basis,  evidence supporting the amounts
and disclosures in the financial  statements.  An audit also includes  assessing
the accounting principles used and significant estimates made by management,  as
well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position of  USFreightways
Corporation  and  subsidiaries  as of  December  28,  1996  and the  results  of
operations  and cash flows for the year ended  December 28, 1996,  in conformity
with generally accepted accounting principles.

KPMG LLP, Chicago, Illinois, January 22, 1997
<PAGE>
                                      PAGE F7


Consolidated Balance Sheets
Years ended December 31, 1998 and January 3, 1998
(Thousands of dollars)
<TABLE>
<CAPTION>


                                                                                                December 31,     January 3,
                                                                                                       1998           1998
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                    <C>           <C>
Assets
Current assets:
   Cash                                                                                         $      5,548    $     6,471
   Accounts receivable, less allowances of $11,159 and $10,067                                       218,942        187,554
   Operating supplies and prepaid expenses                                                            23,067         21,176
   Deferred income taxes (note 4)                                                                     32,292         21,915
---------------------------------------------------------------------------------------------------------------------------
Total current assets                                                                                 279,849        237,116

Property and equipment:
   Land                                                                                               74,933         56,542
   Buildings and leasehold improvements                                                              171,229        131,543
   Equipment                                                                                         649,867        563,732
   Other                                                                                              56,994         48,892
---------------------------------------------------------------------------------------------------------------------------
                                                                                                     953,023        800,709
   Less accumulated depreciation                                                                    (408,741)      (352,394)
---------------------------------------------------------------------------------------------------------------------------
Total property and equipment                                                                         544,282        448,315

Intangible assets, net of accumulated amortization of $25,717 and $21,424                            140,201        104,407
Other assets                                                                                          10,341          9,697
---------------------------------------------------------------------------------------------------------------------------
                                                                                                $    974,673    $   799,535

Liabilities and Stockholders' Equity Current liabilities:
   Current debt (note 3)                                                                        $     10,660    $       650
   Accounts payable                                                                                   78,757         62,895
   Accrued salaries, wages and benefits                                                               66,142         55,166
   Accrued claims and other                                                                           70,017         61,059
   Income taxes payable                                                                                3,301          1,944
---------------------------------------------------------------------------------------------------------------------------
Total current liabilities                                                                            228,877        181,714

Long-term debt, less current maturities (note 3)                                                      51,096         15,000
Notes payable (note 3)                                                                               100,000        100,000
Accrued claims and other                                                                              69,183         58,057
Deferred income taxes (note 4)                                                                        66,383         52,564
---------------------------------------------------------------------------------------------------------------------------
                                                                                                     515,539        407,335
Stockholders' equity:
   Cumulative preferred stock, $0.01 par value per share:
      20,000,000 authorized, none issued                                                                  -              -
   Common stock, $0.01 par value per share:
      80,000,000 authorized, 26,289,344 and 26,080,459 issued                                            265            265
   Paid in capital                                                                                   253,542        251,224
   Retained earnings                                                                                 208,662        147,007
   Treasury stock, 255,095 and 463,949 shares                                                         (3,335)        (6,296)
---------------------------------------------------------------------------------------------------------------------------

Total stockholders' equity                                                                           459,134        392,200
---------------------------------------------------------------------------------------------------------------------------
                                                                                                $    974,673    $   799,535

</TABLE>
See accompanying notes to consolidated financial statements.

<PAGE>
                                       PAGE F8


Consolidated Statements of Operations
Fiscal  years ended  December  31,  1998,  January 3, 1998 and December 28, 1996
(Thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>


Fiscal Year                                                                             1998            1997           1996
---------------------------------------------------------------------------------------------------------------------------
     <S>                                                                             <C>            <C>            <C>
Operating revenue
   LTL Trucking                                                                  $ 1,540,162    $  1,409,086    $ 1,231,360
   TL Trucking                                                                        12,877              -              -
   Logistics                                                                         130,323         106,299         85,601
   Freight Forwarding                                                                151,531          44,340          8,400
   Corporate and other                                                                    -            5,524          5,611
---------------------------------------------------------------------------------------------------------------------------
Total operating revenue                                                            1,834,893       1,565,249      1,330,972
---------------------------------------------------------------------------------------------------------------------------

Operating expenses
   LTL Trucking                                                                    1,412,920       1,305,936      1,163,484
   TL Trucking                                                                        11,739              -              -
   Logistics                                                                         122,347          99,885         82,946
   Freight Forwarding                                                                146,606          43,051          8,367
   Corporate and other                                                                11,848          11,367          9,047
---------------------------------------------------------------------------------------------------------------------------
Total operating expenses                                                           1,705,460       1,460,239      1,263,844
---------------------------------------------------------------------------------------------------------------------------

Income from operations                                                               129,433         105,010         67,128
---------------------------------------------------------------------------------------------------------------------------

Non-operating income (expense):
   Interest expense                                                                   (8,784)         (8,461)       (12,144)
   Interest income                                                                       757           1,038            649
   Other, net                                                                             88             (92)          (704)
---------------------------------------------------------------------------------------------------------------------------

Total non-operating expense                                                           (7,939)         (7,515)       (12,199)
---------------------------------------------------------------------------------------------------------------------------

Net income before income taxes                                                       121,494          97,495         54,929
Income tax expense (note 4)                                                          (50,049)        (40,914)       (23,451)
---------------------------------------------------------------------------------------------------------------------------


Net income                                                                       $    71,445    $     56,581    $    31,478
---------------------------------------------------------------------------------------------------------------------------

Average shares outstanding-basic                                                  26,209,281      25,544,240     22,249,499
Average shares outstanding-diluted                                                26,495,714      25,830,674     22,451,280


Basic earnings per common share:                                                 $      2.73    $       2.21    $      1.41
---------------------------------------------------------------------------------------------------------------------------

Diluted earnings per common share:                                               $      2.70    $       2.19     $     1.40
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.
<PAGE>

                                       PAGE F9


Consolidated Statements of Stockholders' Equity
Fiscal  years ended  December  31,  1998,  January 3, 1998 and December 28, 1996
(Thousands of dollars)
<TABLE>
<CAPTION>


                                                                                                                     Total
                                                       Common        Paid in        Retained        Treasury         Stockholders'
                                                        Stock        Capital        Earnings           Stock         Equity
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>            <C>            <C>            <C>            <C>
Balance December 30, 1995                        $        234    $   176,378     $    76,945    $    (20,405)   $   233,152

   Net income                                              -              -           31,478              -          31,478
   Dividends declared                                      -              -           (8,315)             -          (8,315)
   Employee stock transactions
      and other                                            -           3,891              -            9,054         12,945
---------------------------------------------------------------------------------------------------------------------------

Balance December 28, 1996                        $        234    $   180,269     $   100,108    $    (11,351)   $   269,260

   Net income                                              -              -           56,581              -          56,581
   Dividends declared                                      -              -           (9,682)             -          (9,682)
   Issuance of common stock                                31         69,400                                         69,431
   Employee stock transactions
      and other                                            -           1,555              -            5,055          6,610
---------------------------------------------------------------------------------------------------------------------------


Balance January 3, 1998                          $        265    $   251,224     $   147,007    $     (6,296)   $   392,200

   Net income                                              -              -           71,445              -          71,445
   Dividends declared                                      -              -           (9,790)             -          (9,790)
   Employee stock transactions
      and other                                            -           2,318               -            2,961         5,279
---------------------------------------------------------------------------------------------------------------------------

Balance December 31, 1998                        $        265    $   253,542     $   208,662    $     (3,335)   $   459,134
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>

                                   PAGE F10


Consolidated Statements of Cash Flows
Fiscal years ended  December 31,  1998,  January 3, 1998,  and December 28, 1996
(Thousands of dollars)
<TABLE>
<CAPTION>


Fiscal Year                                                                             1998            1997           1996
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>                 <C>            <C>
Cash flows from operating activities:
   Net income from continuing operations                                         $    71,445    $     56,581    $    31,478
      Reconciliation to net cash provided by operating activities:
         Depreciation and amortization                                                78,015          70,140         62,591
         Deferred taxes                                                                3,442           6,569          3,298
         Changes in assets and liabilities excluding acquisitions:
                  Accounts receivable                                                (14,423)        (29,680)       (39,767)
                  Other current assets                                                   238          (2,080)           455
                  Accounts payable                                                     6,091          21,161          5,525
                  Accrued liabilities                                                 17,632          23,317         21,923
                  Other, net                                                          (9,271)         (8,950)         2,096
---------------------------------------------------------------------------------------------------------------------------

Net cash provided by operating activities                                            153,169         137,058         87,599
---------------------------------------------------------------------------------------------------------------------------

Cash flows from investing activities:
   Capital expenditures                                                             (157,476)       (128,809)       (94,057)
   Proceeds from sale of property and equipment                                       10,457          12,887          4,246
Acquisitions                                                                         (42,081)        (22,756)       (31,265)
---------------------------------------------------------------------------------------------------------------------------

Net cash used in investing activities                                               (189,100)       (138,678)      (121,076)
---------------------------------------------------------------------------------------------------------------------------

Cash flows from financing activities:
   Dividends paid                                                                     (9,771)         (9,357)        (8,252)
   Net proceeds from sale of common stock                                                 -           69,431             -
   Proceeds from sale of treasury stock                                                5,279           6,610          3,445
   Proceeds from long-term bank debt                                                  95,000          15,000         41,000
   Payments on long-term bank debt                                                   (55,500)        (77,683)          (333)
---------------------------------------------------------------------------------------------------------------------------

Net cash provided by financing activities                                             35,008           4,001         35,860
---------------------------------------------------------------------------------------------------------------------------

Net increase (decrease) in cash                                                         (923)          2,381          2,383

Cash at beginning of year                                                              6,471           4,090          1,707
---------------------------------------------------------------------------------------------------------------------------

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

Supplemental disclosure of cash flow information: Cash paid during the year for:
      Interest                                                                   $     8,753    $      7,823    $    11,715
      Income taxes                                                                    44,558          32,389         18,105

   Non-cash transactions: equity, notes issued and debt assumed
      in connection with acquisitions                                            $    24,298    $      4,023    $     9,500
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>

                                  PAGE F11


Notes to Consolidated Financial Statements (Thousands of dollars, except
per share amounts)


1. Summary of Significant Accounting Policies
----------------------------------------------------------------------------

Company  Overview.  USFreightways  Corporation ("the Company") is a full service
provider of transportation services and innovative logistics solutions.  This is
accomplished   through   the   Company's   operating   subsidiaries.    Regional
less-than-truckload  ("LTL") general commodities  carriers provide overnight and
second-day  delivery  throughout  the United  States and into Canada.  Logistics
subsidiaries   provide  solutions  to  customers'   logistics  and  distribution
requirements.  The Company  also  provides  domestic and  international  freight
forwarding as well as premium regional and national truckload service.

Basis  of  Presentation.  The  consolidated  financial  statements  include  the
accounts of USFreightways and its wholly owned  subsidiaries (the Company).  The
Company's operations are further discussed in periodic SEC filings. Intercompany
balances and  transactions  have been  eliminated.  The  Company's  consolidated
statements of operations for prior years have been  reclassified to conform with
the current presentation.

For fiscal year 1998,  the Company  began  reporting  on a calendar  year basis.
Previously, the Company reported on a 52/53-week fiscal year basis concluding on
the  Saturday  nearest to December  31. The three  fiscal  years  covered in the
consolidated  financial  statements ended on December 31, 1998, January 3, 1998,
and December 28, 1996 (Fiscal 1998, 1997 and 1996 respectively).

Revenue Recognition. Transportation revenue is recognized when freight is picked
up from the customer, at which time the related estimated expenses of performing
the total transportation services are accrued.

Cash. The Company  considers  demand deposits and highly liquid  investments
purchased with original maturities of three months or less as cash.

Property and equipment. Purchases of property and equipment are carried at cost,
net  of   accumulated   depreciation.   Depreciation   is  computed   using  the
straight-line  method over  periods  ranging  from three to twelve years for the
majority of equipment and 30 years for  buildings.  Maintenance  and repairs are
charged to current  operations,  while  expenditures that add to the life of the
equipment are capitalized.  When revenue  equipment is traded, a gain or loss on
the trade of the equipment is recognized.

Intangible assets.  These costs primarily  represent goodwill which is amortized
on a  straight-line  basis up to 40 years.  The  carrying  value of  goodwill is
reviewed whenever events or changes in circumstances  indicate that the carrying
value may not be recoverable  through  projected  undiscounted  future operating
cash flows. No reduction of the carrying value has been required for any year.

Earnings Per Share.  Basic earnings per share are calculated on income available
to common stockholders divided by the  weighted-average  number of common shares
outstanding  during the period.  Diluted earnings per share are calculated using
earnings  available to each share of common stock outstanding  during the period
and to each share that would have been  outstanding  assuming  the  issuance  of
common shares for all dilutive  potential common shares  outstanding  during the
reporting period. Unexercised stock options, calculated under the treasury stock
method,  is the only  reconciling  item between the Company's  basic and diluted
weighted earnings per share. The number of options, included in the denominator,
used to calculate  diluted  earnings per share are 286,433;  286,434 and 201,781
for fiscal years 1998, 1997 and 1996 respectively.

Use of  Estimates.  Management of the Company has made a number of estimates and
assumptions  relating  to the  reporting  of  assets  and  liabilities  and  the
disclosure  of contingent  assets and  liabilities  to prepare  these  financial
statements in conformity with generally accepted accounting  principles.  Actual
results could differ from those estimates.
<PAGE>
                              PAGE F12

2. Operating Leases
----------------------------------------------------------------------------

The Company leases certain  terminals,  vehicles and data  processing  equipment
under long-term lease agreements that expire in various years through 2011.

The  following is a schedule of future  minimum  rental  payments on leases that
have  initial or remaining  non-cancelable  lease terms in excess of one year at
December 31, 1998.

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

1999                                               $    15,910
2000                                                    11,398
2001                                                     7,002
2002                                                     3,858
2003                                                     2,208
Subsequent years                                         1,168
----------------------------------------------------------------------------
                                                   $    41,544

Rental  expense in the  accompanying  consolidated  statements of operations for
fiscal  years  1998,  1997,  and  1996  was  $22,595,   $21,863,   and  $20,396,
respectively.

3. Long-Term Debt
----------------------------------------------------------------------------

Long-term  debt at  December  31,  1998 and  January  3,  1998  consists  of the
following:

                                                December 31,     January 3,
                                                       1998           1998
----------------------------------------------------------------------------

Unsecured notes (a)                            $    100,000    $   100,000
Unsecured lines of credit (b)                        55,150         15,650
Other (c)                                             6,606              -
----------------------------------------------------------------------------
                                                    161,756        115,650
Less current maturities                              10,660            650
----------------------------------------------------------------------------
                                               $    151,096    $   115,000

(a) Unsecured  notes of $100,000 are payable on May 1, 2000 and bear interest at
6 5/8%, payable semi-annually.  The notes are not subject to redemption prior to
maturity  and have no  sinking  fund  requirements.  Based  upon  the  Company's
incremental  borrowing  rates for similar types of borrowing  arrangements,  the
fair value of the notes at December 31, 1998 was approximately $100,000.

(b) The Company has a $200,000  revolving credit facility through a syndicate of
commercial  banks.  The  facility  expires in 2002 and allows up to $100,000 for
standby letters of credit to cover the Company's self-insurance program, and has
optional  pricing of interest rates,  including  LIBOR or Prime base rates.  The
facility has an annual fee and contains customary  financial covenants including
maintenance  of minimum  net worth and funded debt to cash flow.  During  Fiscal
1998, all  borrowings  were drawn at LIBOR base rates,  with a weighted  average
interest rate for the year of 5.8%,  excluding fees charged on the facility.  At
December 31, 1998 the Company had borrowed  $45,150 and had $47,043  outstanding
letters of credit  under this  facility.  In  addition to the  revolving  credit
facility, the Company maintains three uncommitted lines of credit, which provide
$40,000 short-term funds at rates approximating LIBOR. These facilities are used
in concert  with a  centralized  cash  management  system to finance  short-term
working  capital needs;  thereby  enabling the Company to maintain  minimal cash
balances.

(c) In August 1998, the Company acquired Glen Moore Transport, Inc. Glen Moore's
headquarters in Carlisle, PA has a mortgage of $2,791 on the property that bears
interest at 7.25% with a final payment due in July 2005. In addition, Glen Moore
has loans payable  totaling  $3,815 on various pieces of revenue  equipment that
bear interest from 7.5% to 14.3% with a final payment due in June 2004.

The aggregate annual maturities of debt at December 31, 1998 are as follows:


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

1999                                                 $    10,660
2000                                                     102,528
2001                                                          95
2002                                                      45,365
2003                                                         -
2004                                                         596
2005                                                       2,512
----------------------------------------------------------------------------
                                                     $   161,756
<PAGE>
                                PAGE F13

4. Income Taxes
----------------------------------------------------------------------------

A  reconciliation  of the statutory  Federal  income tax rate with the effective
income tax rate is as follows:
<TABLE>
<CAPTION>

Fiscal Year:                                                                            1998            1997           1996
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>                 <C>            <C>
Federal income tax at statutory rate (35%)                                       $    42,523    $     34,123    $    19,225
State income tax                                                                       6,115           4,489          2,724
Goodwill amortization                                                                  1,363             955            823
Other                                                                                     48           1,347            679
---------------------------------------------------------------------------------------------------------------------------
Total income tax expense                                                         $    50,049    $     40,914    $    23,451
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>

Fiscal Year:                                                                            1998            1997           1996
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>                 <C>            <C>
Current expense:
   Federal                                                                       $    36,814    $     28,427    $    15,610
   State                                                                               8,106           5,918          4,543
---------------------------------------------------------------------------------------------------------------------------
                                                                                      44,920          34,345         20,153
---------------------------------------------------------------------------------------------------------------------------
Deferred expense:
   Accelerated depreciation                                                           10,043           9,099          8,555
   Allowance for doubtful accounts and revenue adjustments                            (1,036)          3,798           (601)
   Insurance and claims                                                               (3,797)         (4,659)        (5,036)
   Vacation pay                                                                       (1,254)         (1,053)           597
   Other                                                                               1,173            (616)          (217)
---------------------------------------------------------------------------------------------------------------------------
                                                                                       5,129           6,569          3,298
---------------------------------------------------------------------------------------------------------------------------

Total income tax expense                                                         $    50,049    $     40,914    $    23,451
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

The  following  is a summary of the  components  of the  deferred tax assets and
liabilities at December 31, 1998 and January 3, 1998:
<TABLE>
<CAPTION>
        
                                                                                                 December 31,     January 3,
                                                                                                        1998           1998
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                     <C>            <C>
Deferred tax assets:
   Allowance for doubtful accounts and revenue adjustments                                      $      2,076    $     1,027
   Insurance and claims                                                                               34,751         30,953
   Vacation pay                                                                                        8,451          7,196
   Other                                                                                               7,261          3,872
---------------------------------------------------------------------------------------------------------------------------
                                                                                                $     52,539    $    43,048
---------------------------------------------------------------------------------------------------------------------------

Deferred tax liabilities:
   Property and equipment, principally due to accelerated depreciation                          $     86,630    $    73,697
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
                               PAGE F14

5. Employee Benefit Plans
----------------------------------------------------------------------------

The Company  maintains a salary deferral 401(k) plan covering  substantially all
employees  who are not  members  of a  collective  bargaining  unit and who meet
specified  service  requirements.  Contributions  are based  upon  participants'
salary  deferrals and  compensation and are made within Internal Revenue Service
limitations.  For the fiscal years 1998, 1997, and 1996,  Company  contributions
for these plans were $8,290, $6,550, and $5,715, respectively.  The Company does
not offer post-employment or post-retirement benefits.

The Company contributes to several union-sponsored multi-employer pension plans.
These  plans  are  not  administered  by  the  Company,  and  contributions  are
determined in accordance  with  provisions of negotiated  labor  contracts.  The
Multi-employer  Pension Plan  Amendments  Act of 1980  established  a continuing
liability to such  union-sponsored  pension plans for an allocated share of each
plan's  unfunded  vested  benefits upon  substantial or total  withdrawal by the
Company or upon  termination  of the pension  plans.  To date,  no withdrawal or
termination has occurred or is  contemplated.  For the fiscal years 1998,  1997,
and 1996, Company  contributions for these pension plans were $60,748,  $54,041,
and $45,094, respectively.

6. Common Stock
----------------------------------------------------------------------------

The Company  maintains an employee  stock  purchase plan which  provides for the
purchase of an aggregate of not more than 900,000 shares of the Company's common
stock.  Each  eligible  employee  may  designate  the amount of regular  payroll
deductions,  subject to a yearly maximum, that is used to purchase shares at 90%
of the month-end  market price.  At December 31, 1998;  586,975  shares had been
issued under this plan.

The Company  maintains  stock  option  plans that  provide  for the  granting of
options to key employees and non-employee  directors to purchase an aggregate of
not more than  3,760,000  shares of the Company's  common  stock.  Stock options
issued pursuant to the plans are exercisable for periods up to 10 years from the
date an option is  granted.  At  December  31,  1998 there were  381,170  shares
available for granting under the plans.

In  accordance  with the  provisions  of SFAS  No.123,  the Company  applies APB
Opinion 25 and related interpretations in accounting for its stock option plans,
and  accordingly,  does not  recognize  compensation  cost.  If the  Company had
elected to  recognize  compensation  cost based on the fair value of the options
granted at grant date, as prescribed by SFAS No.123, net income and earnings per
share would have been  reduced to the pro forma  amounts  indicated in the table
below:
<TABLE>
<CAPTION>

Fiscal Year                                                                             1998            1997           1996
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>                 <C>            <C>
Net income - as reported                                                         $    71,445    $     56,581    $    31,478
Net income - pro forma                                                                69,736          55,808         31,049

Basic earnings per share - as reported                                                  2.73            2.21           1.41
Basic earnings per share - pro forma                                                    2.66            2.18           1.40

Diluted earnings per share - as reported                                                2.70            2.19           1.40
Diluted earnings per share - pro forma                                                  2.63            2.16           1.38
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
As prescribed  under SFAS No.123,  pro forma net income amounts  presented above
reflect only options granted after January 1, 1995 since  compensation costs for
options  granted prior to that date are not  considered.  Compensation  cost for
options  granted  since January 1, 1995 is reflected  over the options'  vesting
periods ranging from two to five years.

The fair value of each option  grant is estimated on the date of grant using the
Black-Scholes   option-pricing   model  with  the   following   weighted-average
assumptions used for grants in fiscal years 1998, 1997, and 1996: dividend yield
ranging from 1.27% to 1.58%;  expected volatility ranging from 35.69% to 49.31%;
risk-free interest rates at grant date ranging from 4.97% to 7.46%; and expected
lives ranging from 5.61 to 6.40 years.
<PAGE>
                                    PAGE F15

A summary of the status of the Company's stock option plans is presented below:
<TABLE>
<CAPTION>


Fiscal Year                                              1998                           1997                           1996
---------------------------------------------------------------------------------------------------------------------------

                                                    Weighted-                      Weighted-                      Weighted-
                                                      Average                        Average                        Average
                                                     Exercise                       Exercise                       Exercise
                                       Shares           Price         Shares           Price          Shares          Price
---------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>            <C>            <C>            <C>            <C>                 <C>       
Outstanding at beginning of year    1,435,730    $      23.67      1,107,250     $     17.84         758,800    $     16.21
Granted                             1,550,000           25.10        623,500           29.93         479,000          19.49
Exercised                             (54,290)          16.73       (279,520)          14.98         (92,900)         13.65
Forfeited                            (203,450)          30.23        (15,500)          16.52         (37,650)         16.16
Outstanding at end of year          2,727,990           24.13      1,435,730           23.67       1,107,250          17.84

Options exercisable at year end       581,790           20.19        402,690           17.74         448,220          15.65

Weighted-average fair value
   of options granted during
      the year                    $     11.66                    $     11.80                    $       8.18
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes  information  about stock options  outstanding at
December 31, 1998:
<TABLE>
<CAPTION>


                                                               Outstanding Options                      Options Exercisable
---------------------------------------------------------------------------------------------------------------------------

                                                 Weighted-Avg
                                  Number            Remaining                                    Number
           Range of       Outstanding at     Contractual Life         Weighted-Avg       Exercisable at        Weighted-Avg
    Exercise Prices             12/31/98              (years)       Exercise Price             12/31/98      Exercise Price
---------------------------------------------------------------------------------------------------------------------------
          <S>                      <C>                     <C>                <C>                   <C>                 <C>        
  $     13.00-15.00              143,950                 3.78    $           13.79              143,950    $          13.79
        18.25-19.63              463,000                 7.50                19.48              229,600               19.33
        22.50-24.94            1,722,540                 9.42                24.72              133,540               22.83
        25.00-30.50              273,500                 8.91                29.92               54,700               29.92
        31.81-35.00              125,000                 8.97                32.45               20,000               31.81
                               2,727,990                 8.72                24.13              581,790               20.19
---------------------------------------------------------------------------------------------------------------------------

</TABLE>
<PAGE>
                         PAGE F16

In February,  1994 the Board of  Directors  approved a  stockholder  rights plan
designed to deter  coercive  takeover  tactics  and to prevent an acquiror  from
gaining  control  of the  Company  without  offering  a fair price to all of the
Company's stockholders. At that time, the Company declared a distribution of one
right for each share of common stock outstanding  (effected as a stock dividend)
to  stockholders  of record as of  February  11,  1994 and  generally  to shares
issuable under the Company's stock option plans.  Each right entitles holders to
buy one-hundredth  (1/100) of a share of the Company's newly designated Series A
Junior Participating  Cumulative Preferred Stock, $0.01 par value per share, for
a  purchase  price of  $110.00.  Each  right is  exercisable  ten days after the
acquisition of 15% or more of the Company's voting stock, or the commencement of
a tender or exchange  offer  under which the offeror  would own 19.9% or more of
the  Company's  stock.  In the  event of a  proposed  takeover  meeting  certain
additional  conditions,  the rights could be exercised by all holders other than
the takeover  bidder at an exercise price of half of the current market price of
the Company's common stock. This would have the effect of significantly diluting
the holdings of the takeover bidder. These rights expire on February 3, 2004.

In February 1997, the Company sold 3,105,000 of its shares in a public offering.
The net proceeds from the sale,  amounting to  approximately  $69,000,000,  were
initially used to repay  outstanding  debt under the Company's  revolving credit
facility.

7. Commitments and Contingencies
----------------------------------------------------------------------------

The Company is routinely  involved in a number of legal  proceedings  and claims
arising in the  ordinary  course of  business,  primarily  involving  claims for
bodily injury and property damage incurred in the transportation of freight. The
estimated  liability  for claims  included  in  liabilities,  both  current  and
long-term, reflects the estimated ultimate cost of self-insured claims incurred,
but not paid, for bodily injury,  property  damage,  cargo loss and damage,  and
workers'  compensation.  In the  opinion  of  management,  the  outcome of these
matters is not expected to have any material  adverse effect on the consolidated
financial  position  or  results  of  operations  of the  Company  and have been
adequately provided for in the financial statements.

At  December  31,  1998,  the  Company  had  capital  purchase   commitments  of
approximately  $13,691 for land and  improvements,  $23,826  for  transportation
equipment, and $1,846 for other equipment.

8. Restructuring Charge
----------------------------------------------------------------------------

During the fourth quarter 1996, management  authorized a one-time  restructuring
charge  at its USF Red Star  subsidiary.  The  pre-tax  restructuring  charge of
$4,050 relates  primarily to ongoing lease  commitments  for terminals no longer
occupied and severance paid in connection  with the reduction of personnel.  The
Company  anticipates  that no additional  charges against its future  operations
will be  incurred as a result of the  restructuring  charge.  The  restructuring
charge is included in the LTL group operating expenses.

9. Acquisitions
----------------------------------------------------------------------------

During 1998,  under the purchase method of accounting,  the Company acquired all
of the outstanding shares of Golden Eagle Group, Inc., an international  freight
forwarding  company;  Glen Moore Transport,  Inc., a truckload  freight carrier;
Moore and Son Co., a transportation  logistics services company; and the general
commodities business of Vallerie's  Transportation  Service, Inc. for a total of
$66,379 of cash and debt incurred.

During 1997,  under the purchase method of accounting,  the Company acquired all
of the  outstanding  shares of SEKO  Worldwide,  Inc., an airfreight  forwarding
company and the general commodities business of Mercury Distribution, Inc. for a
total of $26,779 of cash and debt incurred.
<PAGE>

                              PAGE F17


10. Business Segments
----------------------------------------------------------------------------

The Company has eight  reportable  segments:  LTL trucking group (including five
regional carriers),  TL trucking,  logistics,  and freight  forwarding.  The LTL
trucking group provides overnight and second-day delivery of general commodities
throughout  the United  States and into  Canada.  The  Company's  TL  subsidiary
provides  premium  regional  and  national  truckload  services.  The  Company's
logistics   subsidiaries   provide   solutions  to   customers'   logistics  and
distribution requirements. The Company's freight forwarding subsidiaries provide
domestic and  international air and ocean freight service through both exclusive
and non-exclusive agents. The reportable segments are managed separately because
each business has  differing  customer  requirements,  either as a result of the
regional  environment  of the country or  differences  in products  and services
offered.

The accounting  policies of the segments are the same as those  described in the
summary of significant  accounting  policies.  Intangible assets are included in
each segment's  reportable  assets,  but the  amortization  of these  intangible
assets is not included in the  determination of a segment's  operating profit or
loss. The Company evaluates  performance based on profit or loss from operations
before  income  taxes,   interest,   amortization   of  intangibles   and  other
non-operating income (expenses).

An immaterial amount of revenue is generated outside the United States.
<TABLE>
<CAPTION>


Fiscal Year                                                                             1998            1997           1996
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                       <C>            <C>            <C>
Revenue
   LTL Group:
      USF Holland                                                                $   794,012    $    711,137    $   595,378
      USF Reddaway                                                                   215,531         198,714        177,998
      USF Red Star                                                                   212,365         194,823        196,399
      USF Dugan                                                                      181,971         170,962        148,527
      USF Bestway                                                                    136,283         133,450        113,058
---------------------------------------------------------------------------------------------------------------------------
         Sub total LTL Group                                                       1,540,162       1,409,086      1,231,360
   TL                                                                                 12,877               -              -
   Logistics                                                                         130,323         106,299         85,601
   Freight forwarding                                                                151,531          44,340          8,400
   Corporate and other                                                                     -           5,524          5,611
---------------------------------------------------------------------------------------------------------------------------
Total Revenue                                                                    $ 1,834,893    $  1,565,249    $ 1,330,972
---------------------------------------------------------------------------------------------------------------------------

Income From Operations
   LTL Group:
      USF Holland                                                                $    82,580    $     65,244    $    51,362
      USF Reddaway                                                                    18,909          13,457          9,262
      USF Red Star                                                                     3,581             871         (7,999)
      USF Dugan                                                                        6,661           6,145          3,237
      USF Bestway                                                                     15,511          17,433         12,014
---------------------------------------------------------------------------------------------------------------------------
         Sub total LTL Group                                                         127,242         103,150         67,876
   TL                                                                                  1,138              -              -
   Logistics                                                                           7,976           6,414          2,655
   Freight forwarding                                                                  4,925           1,289             33
   Corporate and other                                                                (7,555)         (2,936)          (959)
   Amortization of intangibles                                                        (4,293)         (2,907)        (2,477)
---------------------------------------------------------------------------------------------------------------------------
Total Income from Operations                                                     $   129,433    $    105,010    $    67,128
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

                                    PAGE F18

<TABLE>
<CAPTION>                                                                                 
Fiscal Year                                                                             1998            1997           1996
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                      <C>        <C>            <C>
Assets
   LTL Group:
      USF Holland                                                                $   337,477    $    276,810    $   232,003
      USF Reddaway                                                                   117,326         108,979        104,608
      USF Red Star                                                                   146,431         137,336        133,014
      USF Dugan                                                                       92,969          93,737         86,849
      USF Bestway                                                                     65,815          64,266         54,287
---------------------------------------------------------------------------------------------------------------------------
         Sub total LTL Group                                                         760,018         681,128        610,761
   TL                                                                                 32,680              -              -
   Logistics                                                                          70,588          59,458         62,753
   Freight forwarding                                                                 97,326          52,232          2,080
   Corporate and other                                                                14,061           6,717         12,914
---------------------------------------------------------------------------------------------------------------------------
Total Assets                                                                     $   974,673    $    799,535    $   688,508
---------------------------------------------------------------------------------------------------------------------------

Fiscal Year                                                                             1998            1997           1996
---------------------------------------------------------------------------------------------------------------------------

Long Lived Asset Expenditures
   LTL Group:
      USF Holland                                                                $    83,908    $     66,637    $    43,504
      USF Reddaway                                                                    21,105          19,421         14,865
      USF Red Star                                                                    16,358          10,439          1,755
      USF Dugan                                                                       13,707          18,134          9,070
      USF Bestway                                                                      9,134           8,463          6,978
---------------------------------------------------------------------------------------------------------------------------
         Sub total LTL Group                                                         144,212         123,094         76,172
   TL                                                                                  1,844              -              -
   Logistics                                                                           9,830           4,799         13,573
   Freight forwarding                                                                    669             280            107
   Corporate and other                                                                   921             636          4,205
---------------------------------------------------------------------------------------------------------------------------
Total Long Lived Asset Expenditures                                              $   157,476    $    128,809    $    94,057
---------------------------------------------------------------------------------------------------------------------------

Depreciation Expense
   LTL Group:
      USF Holland                                                                $    30,565    $     27,603    $    22,612
      USF Reddaway                                                                    11,267           9,927          8,398
      USF Red Star                                                                     7,987           7,269          7,832
      USF Dugan                                                                       10,458           9,887          9,900
      USF Bestway                                                                      4,723           4,802          4,383
---------------------------------------------------------------------------------------------------------------------------
         Sub total LTL Group                                                          65,000          59,488         53,125
   TL                                                                                  1,016               -              -
   Logistics                                                                           6,352           5,678          4,711
   Freight forwarding                                                                    842             277             67
   Corporate and other                                                                   512           1,790          2,211
---------------------------------------------------------------------------------------------------------------------------
Total Depreciation Expense                                                       $    73,722    $     67,233    $    60,114
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>


                                     PAGE F19

11. Quarterly Financial Information (unaudited)
<TABLE>

Quarters                                                First         Second           Third          Fourth          Total
---------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>            <C>            <C>            <C>
Fiscal 1998
   Operating revenue                             $    442,339    $   447,026     $   469,349    $    476,179    $ 1,834,893
   Income from Operations                              25,723         32,448          34,851          36,411        129,433
   Net income                                          13,729         18,044          19,504          20,168         71,445
   Net income per share - basic                          0.53           0.69            0.74            0.77           2.73
   Net income per share - diluted                        0.52           0.68            0.74            0.76           2.70
   Dividends declared per share                        0.0933         0.0933          0.0933          0.0933          .3733
   Market price per share (calendar quarter)      32.37-39.50    28.37-37.12     18.44-32.62     17.87-30.12    17.87-39.50

Fiscal 1997
   Operating revenue                             $    355,817    $   380,763     $   393,462    $    435,207    $ 1,565,249
   Income from Operations                              19,071         26,915          31,905          27,119        105,010
   Net income                                           9,750         14,541          17,542          14,748         56,581
   Net income per share - basic                          0.40           0.56            0.68            0.57           2.21
   Net income per share - diluted                        0.40           0.56            0.67            0.56           2.19
   Dividends declared per share                        0.0933         0.0933          0.0933          0.0933          .3733
   Market price per share (calendar quarter)      22.87-28.00    23.12-29.00     25.75-34.50     29.37-36.75    22.87-36.75
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
                                             PAGE F20

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


Fiscal Year                                              1998           1997            1996            1995           1994
---------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>            <C>                 <C>            <C>            <C>
Statements of Operations
Operating revenue                                $  1,834,893    $ 1,565,249     $ 1,330,972    $  1,144,458    $ 1,016,464
Income from operations                                129,433       105,010           67,128(1)       67,543         69,666

Interest expense, net                                  (8,027)        (7,423)        (11,495)         (8,177)        (8,417)
Other non-operating income (expense)                       88            (92)           (704)           (878)        (2,011)
---------------------------------------------------------------------------------------------------------------------------
Net income from operations
   before income taxes                                121,494         97,495          54,929          58,488         59,238

Income tax expense                                    (50,049)       (40,914)        (23,451)        (25,150)       (25,882)
---------------------------------------------------------------------------------------------------------------------------

Net income from operations                             71,445         56,581          31,478          33,338         33,356

Extraordinary item - operating rights                      -              -               -               -          (1,291)
----------------------------------------------------------------------------------------------------------------   Director



Net income                                       $     71,445    $    56,581     $    31,478(1) $     33,338    $    32,065
---------------------------------------------------------------------------------------------------------------------------

Basic Earnings Per Share
Net  income per share from operations            $       2.73    $      2.21     $      1.41(1) $       1.52    $      1.53
Net income per share                                     2.73           2.21            1.41(1)         1.52           1.47

Diluted Earnings Per Share
Net income per share from operations             $       2.70    $      2.19     $      1.40(1) $       1.51    $      1.51
Net  income per share                                    2.70           2.19            1.40(1)         1.51           1.45

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

Operating Statistics
LTL Trucking Companies (in thousands)
Total tons                                              9,179          8,579           7,732           6,835          6,210
Total shipments                                        13,468         12,857          11,590          10,187          9,045

Balance Sheets
Assets:
Current assets                                   $    279,849    $   237,116     $   203,577    $    158,611    $   144,615
Property and equipment, net                           544,282        448,315         395,500         338,846        272,264
Intangible assets, net                                140,201        104,407          79,559          69,918         72,194
Other assets                                           10,341          9,697           9,872          10,819         11,929
---------------------------------------------------------------------------------------------------------------------------
Total assets                                     $    974,673    $   799,535     $   688,508    $    578,194    $   501,002
--------------------------------------------------------------------------------------------------------------------------- 

Liabilities and Stockholders' Equity:
Current liabilities                              $    228,877    $   181,714     $   144,348    $    128,484    $   118,447
Long-term debt                                        151,096        115,000         178,000         137,333        105,667
Other non-current liabilities                         135,566        110,621          96,900          79,225         68,794
Total stockholders' equity                            459,134        392,200         269,260         233,152        208,094
---------------------------------------------------------------------------------------------------------------------------
Total liabilities and
   stockholders' equity                          $    974,673    $   799,535     $   688,508    $    578,194    $   501,002
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Income from  operations,  net income and earnings per share  include the Red
Star restructuring charge of $4,050,  before income tax, equivalent to $0.10 per
share, net of tax.



<PAGE>
<TABLE>
<CAPTION>


                                             PAGE F21

STATISTICAL INFORMATION

               Operating Operating LTL Tons       LTL            Terminals Tractors  Trailers  Employees
               Revenue   Ratio                    Shipments
          YR.  (million)           (thousands)    (thousands)
          --   --------- --------- -----------    -----------    --------- --------  --------  ---------
  <S>     <C>      <C>        <C>       <C>            <C>            <C>       <C>       <C>       <C>  

Holland    98   $794.0    89.6%     4,163.9         6,599.1         55        3,645     6,299     8,058
           97   $711.1    90.8%     3,826.9         6,163.6         51        3,448     5,998     7,322  
Red Star   98   $212.4    98.3%       961.4         1,986.2         27          995     2,231     2,232   
           97   $194.8    99.6%       898.0         1,887.4         26        1,007     2,190     2,108 
Reddaway   98   $215.5    91.2%       858.6         1,766.3         56        1,084     2,956     2,485   
           97   $198.7    93.2%       810.4         1,745.1         55        1,064     2,781     2,369
Bestway    98   $136.3    88.6%       641.7         1,208.9         26          639     2,314     1,472   
           97   $133.5    86.9%       630.8         1,211.1         26          590     2,142     1,439
Dugan      98   $182.0    96.3%       914.9         1,686.3         61        1,008     2,985     2,107   
           97   $171.0    96.4%       877.4         1,642.3         59          961     2,924     2,056
Logistics  98   $130.3    93.9%        NA               NA          NA          514     1,280     1,829 
           97   $106.3    94.0%        NA               NA          NA          491     1,163     1,534
Seko       98   $151.5    96.7%        NA               NA          NA          NA        NA        520   
           97   $ 31.8    96.5%        NA               NA          NA          NA        NA        148
Glen Moore 98   $ 12.9    91.2%        NA               NA           1          236       625       383



</TABLE>