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 Memo To: All Senior Staff From: Kristen Huffman, CEO & President Re: New Strategic Direction Thank you for attending our annual strategic planning session. Given recent changes in the economy and customer needs, a new direction for our company is necessary. After reviewing how other companies restructured themselves in recent years, we will mirror how UPS® conducts business as a partner/consultant with large customers. For our company, however, we will go a step further and become a warehousing/local just-in-time (JIT) delivery source, instead of providing logistics advice to clients, as UPS® does. To accomplish this, we must integrate this new direction into our upcoming strategic plan and financial planning. First, I need all department managers to prepare their budgets. I would also like our accounting department to move ahead on a preliminary set of pro forma statements, even without final budgets, using the following assumptions. They must determine if external funding is needed. I have attached a summary of assumptions about this new direction. New Strategic Direction  Page 2 1. Assume inflation of 4% on expenses, not including depreciation and taxes. This is in addition to the new initiative’s costs. New Strategic Initiative Assumptions Huffman may overcome increased competition and economic slowdown by initiating a new strategy; this will turn our company into a one-stop shop and key logistics company. We will provide consulting services, generate revenues, and become a JIT warehouse/delivery source. A local retailer selling products from a distant manufacturing plant, for example, may accept JIT deliveries, instead of 40-foot trailer loads. This would be fulfilled by the local operation. 2. Assume the following regarding variables versus fixed-nature-of-income-statement operating expenses for the existing business: a. 80% of wage benefits is variable and 20% is fixed. b. 100% of fuel expenses, purchased transportation, and operating supplies is variable. c. 100% of operating taxes is fixed. d. 20% of insurance and claims is fixed; the balance is variable. e. Assume depreciation, even with new expenditures, is fixed as the retirement of written-off assets, equaling new equipment. 3. There will be new spending areas reflected on future budgets to reflect added satellite warehouse costs and space rental and costs of running the locations. a. In the first year, add $10 million of inflation, space rental, and operating costs at 25% of revenues from the new initiative. b. In the second year, add $10 million space rental, with inflation at the same variable percentage of sales. c. In the third year, add $7.5 million of the variable percentage of sales. 4. In marketing, budget accounts have been added for new incurred costs. We will continue our present promotion and launch a new program, with the assistance of our marketing partner, the ABC Marketing Agency. They will advise us on the type, frequency, and content of new messages. Assume 100% of the existing budget is fixed with respect to volume along with new expenses. We expect incremental expenses, with $5 million of inflation in the first three years. 5. Our existing sales force, comprised of four national account managers, will call on clients such as Wal-Mart®, Sears®, and Best Buy®. Existing expenses are assumed to be 100% fixed in relation to revenue. To tap into specialized markets, our strategy is aimed at adding four industry-specific managers, each with a salary base of $50,000 and 2% commission of generated revenues. 6. The human resources budget will not change substantially aside from added hiring, recruiting, training, and drug testing fees. Assume 10% of expenses is fixed; the balance is variable with volume. New Strategic Direction  Page 3 7. Assume current assets and liabilities are variable. Expect an addition of $10 million to operating property, spent in the first year. Our payment to vendors, suppliers, and taxes will be in thirty-day terms. We expect all payments to be in sixty-day terms. 8. Assume revenue growth from our existing business will grow at 8% versus 10% in past years. Our new strategy, however, adds incremental consulting revenues of $3.5, $4.5, and $6.5 million in the first, second, and third years. New warehousing will add revenue of $10, $30, and $40 million in the first, second, and third years. All new revenue will be subject to commissions for industry-specific managers.

  Huffman Trucking

Balance Sheet

(Unaudited)

  December 31st

  2011 2010

  (In Thousands)

Assets

Current Assets  

Cash & Cash Equivalents $89,664 $58,003

Accounts Receivable 51,869 81,557

Prepaid Expenses & Supplies 6,267 5,529

Total Current Assets $147,800 $145,089

Carrier Operating Property (at cost) $85,306 $81,461

Less: Allowance for Depreciation (69,536) (67,119)

Net Carrier Operating Property $15,770 $14,342

Assets of Discontinued Operations 7,516 8,739

Goodwill (net) 49,852 49,852

Other Assets 46,327 37,306

Total Assets $267,265 $255,328

Liabilities and Shareholders' Equity

Current Liabilities  

Accounts Payable $40,843 $45,381

Salaries & Wages 37,299 33,014

Current Portion of Long-Term Debt 1,752 1,343

Freight & Casualty Claims Payable 10,389 9,697

Total Current Liabilities $90,283 $89,435

Accrued Pension & Post-Retirement Health Care $64,058 $58,672

Long-Term Debt 7,307 6,562

Total Long-Term Liabilities $71,365 $65,234

Common Stock ($1.00 par value Authorized: 20,000,000

shares)

Treasury Shares (1.952) (1.952)

Retained Earnings 105,615 100,657

Total Shareholders' Equity $105,617 $100,659

Long-Term Liabilities  

Shareholders' Equity  

$3.882 $3.882

Total Liabilities and Shareholders' Equity $267,265 $255,328

Historic Balance Sheet Data (Excel 2003 Version)

Huffman Trucking

Statement of Income

(Unaudited)

  December 31st

  2011 2010

  (In Thousands)

Revenue $1,109,295 $969,240

Operating Expenses  

Salaries, Wages & Benefits $406,191 $367,993

Fuel Expense 318,737 258,904

Operating Supplies and Expenses 117,670 105,875

Purchased Transportation 138,140 114,250

Operating Taxes & Licenses 19,033 17,753

Insurance & Claims 11,995 12,493

Provision for Depreciation 3,009 2,773

Total Operating Expenses $1,014,775 $880,041

Operating Income form Continuing Operations $94,520 $89,199

Interest Expense $466 $768

Tax Expense 34,887 32,923

Net Income $59,167 $55,508

Historic Income Statement Data (Excel 2003 Version)

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2003 Wages and Benefits Analysis - Drivers

Avg. Weekly

Wage

Avg. Annual

Wage

# of

Drivers

Annual Cost for

Drivers (000s)

% of Annual

Wages

% of Sales

($620,000,000)

Over the Road Drivers Rate

Wages (per mile

driven)

Paid Vacation (based

on seniority)

Paid Holidays   $ 1,058 $ 2,115   $ 7,192 3.8% 1.2%

Paid Sick Days   $ 1,058 $ 1,058   $ 3,596 1.9% 0.6%

Health & Welfare

Contributions

Pension Fund

Contributions

FICA Match   $ 3,738   $ 12,709 6.8% 2.0%

Medicare Match   $ 874   $ 2,972 1.6% 0.5%

FUTA Contributions   $ 434   $ 1,476 0.8% 0.2%

SUTA Contributions   $ 585   $ 1,989 1.1% 0.3%

Workers'

Compensation

Average annual cost   $ 83,953   $ 297,841 59.3% 48.0%

Avg. Miles

Driven Per Year

$0.50 110,000 $ 1,058 $ 55,000 3,400 $187,000   30.2%

    $ 1,058 $ 2,115   $ 7,192 3.8% 1.2%

  $ 9,194   $ 31,258 16.7% 5.0%

  $ 8,840   $ 30,056 16.1% 4.8%

  $ 12,400 6.6% 2.0%

Total Payroll Less Drivers Remaining Salaries # of remaining Avg. per employee

(000s) (000s) (000s) employees

$ 386,896 $ 297,841 $ 89,055 1,800 $ 49,475