1 Huffman Trucking 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 ...

1. 1
Huffman Trucking
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.

2. They must determine if external funding is
needed.
I have attached a summary of assumptions about this new
direction.
New Strategic Direction
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:

3. 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

4. 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
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

5. $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.
An Overview of Finance & Accounting Systems
NOTE: All finance and accounting systems applications support
(as are all other Huffman Systems) to include hardware,
modifications, version updates, etc., are performed under
contract by Smith Systems Consulting.
By design and necessity, Huffman Finance & Accounting
Systems are tightly integrated with the Fleet Maintenance
System and the Enterprise Transportation Application.
The Fleet Maintenance System is integrated to capture financial
and accounting data/information relative to:
Maintenance costing
Fuel management and costing
Warranty management
Materials inventory management
Fixed assets
The Enterprise Transportation Systems is integrated to capture
financial and accounting data/information relative to:
Fuel Tax reporting
Revenue analysis
Driver management (cost & settlements)
Claims
Collections
Licensing costs
Payroll (driver only)
Freight Billing (LTL & Truckload)
Imagining
Interline Payables
Insurance

6. The Finance & Accounting Application is licensed on an annual
per user basis from a vendor specializing in F & A systems for
the transportation industry. While functionality is tailored to the
needs of the transportation industry…the modules are fairly
standard for an F & A Software Package:
General ledger
Accounts Payable
Accounts Receivable
Cash Management
Billing/Invoicing
Credit/Collections
Costing
Property Management
Assets
Taxes
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

7. 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

8. $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
Long-Term Liabilities
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
Shareholders' Equity
Common Stock ($1.00 par value Authorized: 20,000,000 shares)
$3.882
$3.882
Treasury Shares
(1.952)
(1.952)
Retained Earnings

9. 105,615
100,657
Total Shareholders' Equity
$105,617
$100,659
Total Liabilities and Shareholders' Equity
$267,265
$255,328
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

10. 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

11. 2003 Wages and Benefits Analysis - Drivers
Over the Road Drivers
Rate
Avg. Miles Driven Per Year
Avg. Weekly Wage
Avg. Annual Wage
# of Drivers
Annual Cost for Drivers (000s)
% of Annual Wages
% of Sales ($620,000,000)
Wages (per mile driven)
$0.50
110,000
$ 1,058
$ 55,000
3,400
$187,000
30.2%
Paid Vacation (based on seniority)
$ 1,058
$ 2,115
$ 7,192
3.8%
1.2%
Paid Holidays
$ 1,058
$ 2,115
$ 7,192
3.8%
1.2%

12. Paid Sick Days
$ 1,058
$ 1,058
$ 3,596
1.9%
0.6%
Health & Welfare Contributions
$ 9,194
$ 31,258
16.7%
5.0%
Pension Fund Contributions
$ 8,840
$ 30,056
16.1%
4.8%
FICA Match
$ 3,738
$ 12,709
6.8%
2.0%
Medicare Match
$ 874
$ 2,972
1.6%
0.5%

13. FUTA Contributions
$ 434
$ 1,476
0.8%
0.2%
SUTA Contributions
$ 585
$ 1,989
1.1%
0.3%
Workers' Compensation
$ 12,400
6.6%
2.0%
Average annual cost
$ 83,953
$ 297,841
59.3%
48.0%
Total Payroll
(000s)
Less Drivers
(000s)
Remaining Salaries
(000s)
# of remaining employees
Avg. per employee
$ 386,896

14. $ 297,841
$ 89,055
1,800
$ 49,475
Huffman Trucking - HRIS
The company has an HRIS system that was developed by in-
house programmers prior to the decision to outsource all IT
services. Smith Consulting is recommending that Huffman
convert to a new system that was developed by Smith for its
clients.
The current system is integrated to track employees from an
operational and financial perspective. Data is organized into
several major categories.
Employee Personal Information
This part of the database includes information needed to prepare
payroll and maintain employee “census” information, such as:
· Personal information, such as name, address, marital status,
birth date, etc.
· Pay rate
· Personal exemptions for tax purposes
· Hire date
· Seniority date (which is sometimes different than the hire
date)
· Organizational information (department for budget purposes,
manager's name, etc.)
· Vacation hours accrued and used (for non-exempt employees)
Employees can go online through the company's intranet and
update this personal information as necessary. An employee
without access to the company intranet may submit changes in
writing to his/her supervisor, who will forward the information
to Human Resources for processing.
Compliance Information
For each employee, a separate part of the database contains
information required for complying with federal and state
highway standards. This information includes:

15. · Drug testing results
· Hours/miles driven
· Safety records - all violations and corrective actions
· Attendance at mandatory training workshops
· Injuries, workers compensation history
· Licenses and training certifications
Employee/Labor Relations Information
· Grievances filed
· Resolution of grievances
· Any investigations of employees
Applicant Tracking
Each recruiter maintains applicant information for open
positions. Résumés and applications are filed in a central
storage area. Basic applicant tracking statistics required for
compliance reporting are entered into an in-house applicant
tracking system, which can be accessed by all recruiters.
Applicants may also apply via the company's internet site, a
recent systems addition by Smith Consulting.
Official employee files are kept by the HR department.
Individual managers may not maintain copies for their personal
use, however selected information for each subordinate may be
accessed via the intranet. Supervisors are expected to send
originals of performance reviews, disciplinary actions, etc. to
HR for permanent record storage.
HR personnel are also responsible for tracking FMLA absences
and any requests for accommodation under the ADA. Employees
who request FMLA accommodation must fill out a request and
send it to HR, where the request is investigated and approved or
denied. HR staff members will work with the employee and
manager to determine whether accommodations are feasible.
The compensation manager keeps an Excel spreadsheet with the
results of job analyses, salary surveys, and individual
compensation decisions. The labor relations department keeps a
separate set of records related to union negotiations.