<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 28, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________________ to _____________________
Commission File Number: 0-21238
LANDSTAR SYSTEM, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1313069
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
First Shelton Place, 1000 Bridgeport Avenue, Shelton, Connecticut
(Address of principal executive offices)
06484-0898
(Zip Code)
(203) 925-2900
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes ( X ) No ( )
The number of shares of the registrant's Common Stock, par value $.01 per
share, outstanding as of the close of business on November 6, 1996 was
12,788,833.
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
The interim consolidated financial statements contained herein reflect
all adjustments (all of a normal, recurring nature) which, in the opinion of
management, are necessary for a fair statement of the financial condition,
results of operations, cash flows and changes in shareholders' equity
for the periods presented. They have been prepared in accordance with Rule
10-01 of Regulation S-X and do not include all the information and footnotes
required by generally accepted accounting principles for complete financial
statements. Operating results for the thirteen and thirty-nine weeks
ended September 28, 1996 are not necessarily indicative of the results that may
be expected for the entire fiscal year ending December 28, 1996.
These interim financial statements should be read in conjunction with
the audited financial statements and notes thereto included in the Company's
1995 Annual Report on Form 10-K.
Index
Item 1
Consolidated Balance Sheets as of September 28, 1996
and December 30, 1995 ................................................ Page 3
Consolidated Statements of Income for the Thirty-Nine and
Thirteen Weeks Ended September 28, 1996 and September 30, 1995 ....... Page 4
Consolidated Statements of Cash Flows for the Thirty-Nine Weeks
Ended September 28, 1996 and September 30, 1995....................... Page 5
Consolidated Statement of Changes in Shareholders'
Equity for the Thirty-Nine Weeks Ended September 28, 1996............. Page 6
Notes to Consolidated Financial Statements.............................. Page 7
Item 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations......................... Page 9
<PAGE>
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION> September 28, December 30,
1996 1995
------------- ------------
ASSETS
<S> <C> <C>
Current assets:
Cash $ 4,966 $ 3,415
Trade accounts receivable, less allowance of $7,115 179,022 151,009
and $6,923
Other receivables, including advances to independent
contractors, less allowance of $5,617 and $4,205 11,996 13,359
Inventories 2,320 2,292
Prepaid expenses and other current assets 12,000 8,501
---------- -----------
Total current assets 210,304 178,576
---------- -----------
Operating property, less accumulated depreciation
and amortization of $49,469 and $39,796 109,485 108,052
Goodwill, less accumulated amortization of $6,653 and $5,354 55,750 57,049
Deferred income taxes and other assets 8,770 9,402
---------- -----------
Total assets $ 384,309 $ 353,079
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash overdraft $ 13,457 $ 13,449
Accounts payable 44,275 37,427
Current maturities of long-term debt 35,780 20,668
Estimated insurance claims 23,393 23,654
Other current liabilities 28,617 32,018
---------- -----------
Total current liabilities 145,522 127,216
---------- -----------
Long-term debt, excluding current maturities 68,107 73,199
Estimated insurance claims 24,186 24,031
Other liabilities 237
Shareholders' equity:
Common stock, $.01 par value, authorized 20,000,000
shares, issued 12,882,874 shares and 12,871,674 shares 129 129
Additional paid-in capital 61,740 61,504
Retained earnings 86,592 68,730
Cost of 94,041 shares of common stock in treasury (1,967) (1,967)
---------- -----------
Total shareholders' equity 146,494 128,396
---------- -----------
Total liabilities and shareholders' equity $ 384,309 $ 353,079
========== ===========
See accompanying notes to consolidated financial statements.
3
</TABLE>
<PAGE>
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Thirty-Nine Weeks Ended Thirteen Weeks Ended
------------------------- -----------------------
Sept. 28, Sept. 30, Sept. 28, Sept. 30,
1996 1995 1996 1995
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue $ 954,784 $ 902,535 $ 330,195 $ 298,681
Costs and expenses:
Purchased transportation 654,537 608,174 229,308 200,684
Drivers' wages and benefits 32,277 36,077 9,547 11,928
Fuel and other operating costs 53,118 49,727 15,826 16,248
Insurance and claims 26,069 28,030 8,313 8,602
Commissions to agents and brokers 63,499 54,287 22,838 18,781
Selling, general and administrative 70,578 71,853 23,309 22,908
Depreciation and amortization 17,994 15,171 5,793 5,364
---------- ---------- ---------- ----------
Total costs and expenses 918,072 863,319 314,934 284,515
---------- ---------- ---------- ----------
Operating income 36,712 39,216 15,261 14,166
Interest and debt expense, net 5,909 5,651 1,936 1,981
---------- ---------- ---------- ----------
Income before income taxes 30,803 33,565 13,325 12,185
Income taxes 12,941 13,812 5,631 5,009
---------- ---------- ---------- ----------
Net income $ 17,862 $ 19,753 $ 7,694 $ 7,176
========== ========== ========== ==========
Earnings per share $ 1.40 $ 1.54 $ 0.60 $ 0.56
========== ========== ========== ==========
Average number of common
shares outstanding 12,783,000 12,816,000 12,788,000 12,778,000
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
4
</TABLE>
<PAGE>
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION> Thirty-Nine Weeks Ended
---------------------------
Sept. 28, Sept. 30,
1996 1995
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 17,862 $ 19,753
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization of operating property 16,376 13,754
Amortization of goodwill and non-competition agreements 1,618 1,417
Non-cash interest charges 198 187
Provisions for losses on trade and other accounts
receivable 3,411 2,939
Gains on sales of operating property (1,719) (1,474)
Deferred income taxes, net 888 726
Changes in operating assets and liabilities,
net of businesses acquired:
Increase in trade and other accounts receivable (30,061) (8,198)
Increase in inventories, prepaid expenses and
other assets (4,300) (3,275)
Increase (decrease) in accounts payable and
other liabilities 3,210 (15,422)
Increase (decrease) in estimated insurance claims (106) 4,250
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 7,377 14,657
----------- -----------
INVESTING ACTIVITIES
Purchases of businesses, net of cash acquired (32,373)
Purchases of operating property (8,481) (5,410)
Proceeds from sales of operating property 7,133 4,617
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (1,348) (33,166)
----------- -----------
FINANCING ACTIVITIES
Borrowings to finance businesses acquired 45,900
Borrowings under revolving credit facility 16,000 10,000
Increase in cash overdraft 8 1,461
Proceeds from exercise of stock options and
related income tax benefit 236
Purchases of Common Stock (1,727)
Principal payments on long-term debt and capital lease
obligations (20,722) (47,616)
----------- -----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (4,478) 8,018
----------- -----------
Increase (decrease) in cash 1,551 (10,491)
Cash at beginning of period 3,415 17,755
----------- -----------
Cash at end of period $ 4,966 $ 7,264
=========== ===========
See accompanying notes to consolidated financial statements.
5
</TABLE>
<PAGE>
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY
Thirty-Nine Weeks Ended September 28, 1996
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Treasury Stock
Common Stock Additional at Cost
---------------- Paid-In Retained -----------------
Shares Amount Capital Earnings Shares Amount Total
-------- ------ --------- ---------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 30, 1995 12,871,674 $ 129 $ 61,504 $ 68,730 94,041 $(1,967) $128,396
Exercise of stock options
and related income tax
benefit 11,200 236 236
Net income 17,862 17,862
---------- ------- --------- -------- ------ -------- --------
Balance September 28, 1996 12,882,874 $ 129 $ 61,740 $ 86,592 94,041 $(1,967) $146,494
========== ======= ========= ========= ====== ======== ========
See accompanying notes to consolidated financial statements.
6
</TABLE>
<PAGE>
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The consolidated financial statements include the accounts of
Landstar System, Inc. and its subsidiary, Landstar System Holdings,
Inc., and reflect all adjustments (all of a normal, recurring
nature) which are, in the opinion of management, necessary for a
fair statement of the results for the periods presented. The
preparation of the consolidated financial statements requires
the use of management's estimates. Actual results could differ
from those estimates. Landstar System, Inc. and its subsidiary
are herein referred to as "Landstar".
(1) Acquisitions
During the first quarter of 1995, Landstar, through different
subsidiaries of Landstar System Holdings, Inc. ("LSHI"),
acquired the businesses and net assets of Intermodal Transport
Company, a California-based intermodal marketing company, LDS
Truck Lines, Inc., a California-based drayage company, and
T.L.C. Lines, Inc., a Missouri-based temperature-controlled
and long-haul, time sensitive dry van carrier. Also in the
1995 first quarter, Landstar, through another subsidiary of
LSHI, acquired all of the outstanding common stock of Express
America Freight Systems, Inc., a North Carolina-based air
freight and truck expedited service provider.
The following unaudited pro forma information represents the
consolidated results of operations of Landstar and the four
acquired businesses as if the acquisitions had occurred at the
beginning of the period presented, and gives effect to increased
depreciation of operating property, amortization of goodwill and
non-competition agreements and increased interest expense, at
rates available to Landstar under the acquisition line of its
revolving credit facility (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Thirty-Nine
Weeks Ended
Sept. 30,
1995
-------------
<S> <C>
Revenue $ 912,135
Net income $ 19,133
Earnings per share $ 1.49
</TABLE>
The above pro forma information is not necessarily indicative
of the results of operations which actually would have been
obtained during such period.
7
<PAGE>
(2) Income Taxes
The provisions for income taxes for the 1996 and 1995
thirty-nine week periods were based on estimated combined
full year effective income tax rates of approximately 42%
and 41%, respectively, which are higher than the statutory
federal income tax rate, primarily as a result of state
income taxes, amortization of certain goodwill and the
meals and entertainment exclusion.
(3) Earnings Per Share
Earnings per share amounts were based on the weighted average
number of common shares outstanding.
(4) Additional Cash Flow Information
During the 1996 period, Landstar paid income taxes and
interest of $14,040,000 and $5,525,000, respectively, and
acquired operating property by entering into capital leases in
the amount of $14,742,000. During the 1995 period, Landstar
paid income taxes and interest of $16,748,000 and $5,669,000,
respectively, and acquired operating property by entering into
capital leases in the amount of $21,287,000.
(5) Commitments and Contingencies
At September 28, 1996, Landstar had commitments for letters of
credit outstanding in the amount of $21,439,000, primarily as
collateral for estimated insurance claims.
Landstar is involved in certain claims and pending litigation
arising from the normal conduct of business. Based on the
knowledge of the facts and, in certain cases, opinions of
outside counsel, management believes that adequate provisions
have been made for probable losses with respect to the resolution
of all claims and pending litigation and that the ultimate outcome,
after provisions thereof, will not have a material adverse effect
on the financial condition of Landstar, but could have a material
effect on the results of operations in a given quarter or year.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
attached interim consolidated financial statements and notes
thereto, and with the Company's audited financial statements and
notes thereto for the fiscal year ended December 30, 1995 and
Management's Discussion and Analysis of Financial Condition and
Results of Operations, included in the Annual Report to
Shareholders.
RESULTS OF OPERATIONS
Introduction
Landstar System, Inc. and its subsidiary, Landstar System Holdings,
Inc. ("Landstar" or the "Company"), serve a variety of different
market niches through its operating subsidiaries which employ
different operating strategies. Four of Landstar's subsidiaries,
Landstar Ranger, Inc., Landstar Inway, Inc., Landstar Ligon, Inc.
and Landstar Gemini, Inc. (collectively, the "Owner-Operator
Companies"), provide truckload transportation services through
independent contractors and independent commission sales agents.
The nature of the Owner-Operator Companies' business is such that a
significant portion of their operating costs vary directly with
revenue.
Landstar Poole, Inc.("Poole")and Landstar T.L.C., Inc.("TLC")
provide truckload transportation services using both company-owned
or leased equipment driven by company-employed drivers, and independent
contractors. During the thirty-nine week period ended September 28, 1996,
revenue generated through independent contractors was 42.5% of Poole's
total revenue and 63.4% of TLC's total revenue.
During the first quarter of 1996, the operations of Landstar ITCO,
Inc. and Landstar Logistics, Inc. ("Logistics") were combined.
As a result, Logistics' operations have been divided into a contract
services division and an intermodal services division. The contract
services division provides logistics support, single source alternatives,
dedicated fleet services, brokerage and other transportation solutions
to large customers. The intermodal services division provides intermodal
transportation services primarily by arranging for the movement of
customers' goods by a combination of rail and truck. Both the railroad
and drayage carriers utilized by Logistics are independent contractors.
Landstar Express America, Inc. ("Express") provides air and surface
expedited transportation services through independent contractors,
including air cargo carriers, and principally utilizes independent
commission sales agents.
9
<PAGE>
Purchased transportation represents the amount an independent contractor
is paid to haul freight and is primarily based on a contractually agreed upon
percentage of revenue generated by the haul for truck operations.
Purchased transportation for the intermodal services division of Logistics and
the air freight operations of Express is based on a contractually
agreed-upon fixed rate. Purchased transportation as a percentage of revenue
for the intermodal services division of Logistics is normally higher than
that of Landstar's other transportation companies. Purchased transportation
is the largest component of costs and expenses and, on a consolidated basis,
increases or decreases in proportion to the revenue generated through
independent contractors. Commissions to agents and brokers are primarily
based on contractually agreed upon percentages of revenue or contractually
agreed upon percentages of gross profit. Commissions to agents and brokers
as a percentage of consolidated revenue will vary directly with the revenue
generated through independent commission sales agents. Both purchased
transportation and commissions to agents and brokers generally will also
increase or decrease as a percentage of the Company's consolidated revenue
if there is a change in the percentage of revenue contributed by the
intermodal services division of Logistics or through the air freight operations
of Express or through company-employed drivers.
Drivers' wages and benefits represent the amount Poole and TLC employed drivers
are compensated. Drivers are compensated on a cents per mile driven basis.
Drivers' wages and benefits as a percentage of consolidated revenue generally
will vary only if there is a change in the revenue contribution generated
through independent contractors or a change in Poole's or TLC's rate of driver
pay or benefit structure.
The Company's intention is to continue its expansion of truckload
capacity provided by independent contractors and to reduce its
truckload capacity provided by company-owned equipment and company-
employed drivers. It is also the Company's intention to favor independent
commission sales agent locations over company-owned and operated locations.
Historically, the intermodal services division of Logistics and TLC have
principally utilized a company employee sales structure and to a lesser degree,
independent commission sales agents. During the second quarter of 1995,
management began the process of converting company-owned sales locations to
independent commission sales agent locations. Accordingly, purchased
transportation and commissions to agents and brokers are anticipated to
increase as a percentage of total consolidated revenue and drivers' wages
and benefits are anticipated to decline as a percentage of total
consolidated revenue over time.
10
<PAGE>
Potential liability associated with accidents in the trucking
industry is severe and occurrences are unpredictable. The industry
is also subject to substantial workers' compensation expense. A
material increase in the frequency or severity of accidents or
workers' compensation claims or the unfavorable development of
existing claims can be expected to adversely affect Landstar's
operating income.
The cost of fuel is the largest component of fuel and other
operating costs. Changes in prevailing prices of fuel or increases
in fuel taxes can significantly affect Poole's or TLC's operating
results. Also included in fuel and other operating costs are costs of
equipment maintenance paid to third parties and the operating costs of Poole
and TLC terminals. Effective August 1, 1996, Landstar closed all but one of
the Landstar Poole terminals, including those that had functioned as Landstar
Centers. The closings are part of Landstar's strategy to reduce the fixed cost
elements of Landstar Poole.
Employee compensation and benefits account for more than half of the
Company's selling, general and administrative expense. Other
significant components of selling, general and administrative
expense are data processing expense, communications costs and rent
expense.
The following table sets forth the percentage relationships of
expense items to revenue for the periods indicated:
<TABLE>
<CAPTION>
Thirty-Nine Weeks Ended Thirteen Weeks Ended
------------------------ -----------------------
Sept. 28, Sept. 30, Sept. 28, Sept. 30,
1996 1995 1996 1995
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Purchased transportation 68.6% 67.4% 69.4% 67.2%
Drivers' wages and benefits 3.4% 4.0% 2.9% 4.0%
Fuel and other operating costs 5.6% 5.5% 4.8% 5.4%
Insurance and claims 2.7% 3.1% 2.5% 2.9%
Commissions to agents and brokers 6.6% 6.0% 6.9% 6.3%
Selling, general and administrative 7.4% 8.0% 7.1% 7.7%
Depreciation and amortization 1.9% 1.7% 1.8% 1.8%
------- ------- ------- -------
Total costs and expenses 96.2% 95.7% 95.4% 95.3%
------- ------- ------- -------
Operating income 3.8% 4.3% 4.6% 4.7%
Interest and debt expense, net 0.6% 0.6% 0.6% 0.6%
------- ------- ------- -------
Income before income taxes 3.2% 3.7% 4.0% 4.1%
Income taxes 1.3% 1.5% 1.7% 1.7%
------- ------- ------- -------
Net income 1.9% 2.2% 2.3% 2.4%
======= ======= ======= =======
</TABLE>
11
<PAGE>
THIRTY-NINE WEEKS ENDED SEPTEMBER 28, 1996 COMPARED TO THIRTY-NINE WEEKS
ENDED SEPTEMBER 30, 1995
Revenue for the 1996 thirty-nine week period was $954,784,000, an
increase of $52,249,000, or 5.8%, over the 1995 thirty-nine week
period. The increase was primarily attributable to an increase in revenue
miles (volume) of approximately 41,924,000, or 7.4%, to 604,773,000, which
included the revenue of the businesses acquired during the first quarter
of 1995 for the full thirty-nine weeks of 1996. This increase was partially
offset by a decrease of less than 1% in revenue per revenue mile (price).
In the 1996 period, revenue generated through independent contractors,
including railroads and air cargo carriers, was 89.9% of total consolidated
revenue compared with 88.3% in the 1995 period.
Purchased transportation was 68.6% of revenue in 1996 compared
with 67.4% in 1995. Drivers' wages and benefits were 3.4% of revenue in 1996
compared with 4.0% in 1995. The increase in purchased transportation and
decrease in drivers' wages and benefits as a percentage of revenue was
primarily attributable to an increase in the percentage of revenue generated
through independent contractors.
Fuel and other operating costs were 5.6% of revenue in 1996 compared
with 5.5% in 1995. The increase in fuel and other operating costs as a
percentage of revenue was attributable to the effects of the 1995 first
quarter acquisition of TLC, increased trailer costs and an increased
provision for contractor bad debts. Insurance and claims were 2.7% of
revenue in 1996 compared with 3.1% in 1995. The favorable variance to
prior year was due to lower third party premiums, reduced accident severity
and favorable development of prior years' claims. Commissions to agents
and brokers were 6.6% of revenue in 1996 compared with 6.0% in 1995,
primarily due to an increased percentage of revenue generated through
independent commission sales agents. Selling, general and administrative
costs were 7.4% of revenue in 1996 compared with 8.0% of revenue in 1995,
primarily due to increased revenue, a lower bonus accrual under the Company's
management incentive compensation plan and a lower provision for customer bad
debts.
Depreciation and amortization was 1.9% of revenue in 1996 compared with 1.7%
in 1995, primarily due to increased depreciation on company-owned trucks
and data processing equipment.
The provisions for income taxes for the 1996 and 1995 thirty-nine week periods
were based on estimated full year combined effective income tax rates of
approximately 42% and 41%, respectively, which are higher than the statutory
federal income tax rate primarily as a result of state income taxes, amortiza-
tion of certain goodwill and the meals and entertainment exclusion.
12
<PAGE>
Net income was $17,862,000, or $1.40 per share, in the 1996 period,
compared with $19,753,000, or $1.54 per share, in the 1995 period. If
the 1995 first quarter acquisitions had taken place at the beginning
of 1995, net income for the 1995 period would have been $19,133,000, or
$1.49 per share.
THIRTEEN WEEKS ENDED SEPTEMBER 28, 1996 COMPARED TO THIRTEEN WEEKS
ENDED SEPTEMBER 30, 1995
Revenue for the 1996 thirteen week period was $330,195,000, an
increase of $31,514,000, or 10.6%, over the 1995 thirteen week
period. The increase was primarily attributable to an increase
in revenue miles of approximately 23,531,000 to 184,969,000 partially
offset by a decrease in revenue per revenue mile of less then 1%. In the
1996 period, revenue generated through independent contractors, including
railroads and air cargo carriers, was 91.1% of total consolidated revenue
compared with 88.5% in the 1995 period.
Purchased transportation was 69.4% of revenue in 1996 compared
with 67.2% in 1995. Drivers' wages and benefits were 2.9% of revenue in 1996
compared with 4.0% in 1995. The increase in purchased transportation
and decrease in drivers' wages and benefits as a percentage of
revenue was primarily attributable to an increase in the percentage of
revenue generated through independent contractors.
Fuel and other operating costs were 4.8% of revenue in 1996 compared
with 5.4% in 1995. The decrease in fuel and other operating costs as a
percentage of revenue was attributable to an increase in the percentage
of revenue generated through independent contractors and savings from closing
the Poole terminals effective August 1, 1996, partially offset by an increase
in the provision for contractor bad debt and an increase in trailer costs.
Insurance and claims were 2.5% of revenue in 1996 compared with 2.9% in 1995.
The favorable variance to prior year was primarily attributable to lower third
party premiums and reduced severity of accidents, partially offset by
unfavorable development of prior years' claims. Commissions to agents and
brokers were 6.9% of revenue in 1996 compare with 6.3% in 1995, primarily due
to an increased percentage of revenue generated through independent commission
sales agents. Selling, general and administrative costs were 7.1% of revenue in
1996 compared with 7.7% of revenue in 1995, primarily due to the increase in
revenue over the prior year quarter.
13
<PAGE>
The provisions for income taxes for the 1996 and 1995 thirteen
week periods were based on estimated full year combined
effective income tax rates of approximately 42% and 41%, respectively,
which are higher than the statutory federal income tax rate primarily
as a result of state income taxes, amortization of certain goodwill and
the meals and entertainment exclusion.
Net income was $7,694,000, or $0.60 per share, in the 1996 period compared
with $7,176,000, or $0.56 per share, in the 1995 period.
CAPITAL RESOURCES AND LIQUIDITY
Shareholders' equity increased to $146,494,000 at September 28,
1996, compared with $128,396,000 at December 30, 1995,
reflecting the results of operations for the period. Shareholders'
equity increased to 58.5% of total capitalization at September 28, 1996,
compared with 57.8% at December 30, 1995.
Working capital and the ratio of current assets to current
liabilities were $64,782,000 and 1.45 to 1, respectively, at September
28, 1996, compared with $51,360,000 and 1.40 to 1, respectively, at
December 30, 1995. Landstar has historically operated with a current
ratio of approximately 1.4 to 1. Cash provided by operating activities was
$7,377,000 in the 1996 thirty-nine week period compared with $14,657,000 in the
1995 thirty-nine week period. The decrease in cash flow provided by operating
activities was primarily attributable to the timing of cash collections and
payments and reduced earnings. During the 1996 thirty-nine week period,
Landstar purchased $8,481,000 of operating property and acquired $14,742,000 of
operating property by entering into capital leases. Landstar plans to acquire
approximately $13,000,000 of operating property during the remainder of fiscal
year 1996 either by purchase or by lease financing.
Management believes that cash flow from operations combined with the Company's
borrowing capacity under its revolving credit agreement will be adequate to
meet Landstar's debt service requirements, fund continued growth, both internal
and through acquisitions, and meet working capital needs.
Management does not believe inflation has had a material impact on the
results of operations or financial condition of Landstar in the past five
years. However, inflation higher than that experienced in the past five
years might have an adverse effect on the Company's results of operations.
SEASONALITY
Landstar's operations are subject to seasonal trends common to the
trucking industry. Results of operations for the quarter ending in
March is typically lower than the quarters ending June, September
and December due to reduced shipments and higher operating costs in
the winter months.
14
<PAGE> PART II
OTHER INFORMATION
Item 1. Legal Proceedings
In response to a breach of contract suit filed in January 1988 by Gemini in
the Circuit Court, County of Genesee, in the state of Michigan against Vicki
and Kevin Cresson, individually and doing business as V&C Trucking (the
"Defendants"), the Defendants, who are former agents and independent
contractors of Gemini, have asserted breach of contract, tort and state
antitrust law counterclaims against Gemini and other parties, including
EnviroSource, Landstar, Ranger and John B. Bowron, a director and executive
officer of the Company. Defendants have claimed approximately $7,500,000 in
actual damages (subject to trebling) as well as punitive damages.
On October 24, 1996, the court rendered an opinion on the parties' cross-
motions for summary judgment. The court granted Gemini's motion for summary
judgment in its entirety and denied Defendants motion for summary judgment in
its entirety. The court also granted Gemini's request for costs and reasonable
attorney's fees. It is anticipated that Defendants will appeal the judges
decision. The Company, believing that its defenses are and will continue to
be deemed good and meritorious, will vigorously contest any such appeal.
Although a trial in this matter is now considerably less likely in light of the
judges favorable rulings, any such trial would not likely occur before mid to
late 1997.
The Company is routinely a party to litigation incidental to its business,
primarily involving claims for personal injury and property damage incurred
in the transportation of freight. The Company maintains insurance which
covers liability amounts in excess of retained liabilities from personal injury
and property damages claims.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None.
15
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits listed on the Exhibit Index are filed as part
of this quarterly report on Form 10-Q.
(b) Form 8-K
No reports on Form 8-K were filed by the Registrant during the
thirty-nine week period ended September 28, 1996.
EXHIBIT INDEX
Registrant's Commission File No.: 0-21238
Exhibit No. Description
- ----------- -----------
(11) Statement re: Computation of Per Share Earnings:
(11.1)* Statement re: Computation of Per Share Earnings for the
Thirty-Nine and Thirteen Weeks ended September 28, 1996.
(11.2)* Statement re: Computation of Per Share Earnings for the
Thirty-Nine and Thirteen Weeks ended September 30, 1995.
(27) Statement re: Financial Data Schedule
(27 )* Statement re: Financial Data Schedule
__________________
* Filed herewith
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LANDSTAR SYSTEM, INC.
Date: November 7, 1996 Henry H. Gerkens
----------------------------
Henry H. Gerkens
Executive Vice President and
Chief Financial Officer;
Principal Financial Officer
Date: November 7, 1996 Robert C. LaRose
----------------------------
Robert C. LaRose
Vice President Finance and Treasurer
Principal Accounting Officer
<PAGE>
[DESCRIPTION] CALCULATION OF 1996 EARNINGS PER SHARE
EXHIBIT 11.1
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CALCULATION OF EARNINGS PER SHARE
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Thirty-Nine Thirteen
Weeks Ending Weeks Ending
September 28, September 28,
1996 1996
------------ ------------
Earnings available for earnings per share:
<S> <C> <C>
Net income $ 17,862 $ 7,694
============ ============
Average number of common shares outstanding 12,783 12,788
============ ============
Earnings per share $ 1.40 $ 0.60
============ ============
</TABLE>
<PAGE>
[DESCRIPTION] CALCULATION OF 1995 EARNINGS PER SHARE
EXHIBIT 11.2
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CALCULATION OF EARNINGS PER SHARE
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Thirty-Nine Thirteen
Weeks Ending Weeks Ending
Sept. 30, Sept. 30,
1995 1995
------------ ------------
Earnings available for earnings per share:
<S> <C> <C>
Net income $ 19,753 $ 7,176
============ ============
Average number of common shares outstanding 12,816 12,778
============ ============
Earnings per share $ 1.54 $ 0.56
============ ============
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets at September 28, 1996 (Unaudited) and the Consolidated
Statements of Income for the thirty-nine weeks ended September 28, 1996 (Unaudited)
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> SEPT-28-1996
<CASH> 4,966
<SECURITIES> 0
<RECEIVABLES> 186,137
<ALLOWANCES> 7,115
<INVENTORY> 2,320
<CURRENT-ASSETS> 210,304
<PP&E> 158,954
<DEPRECIATION> 49,469
<TOTAL-ASSETS> 384,309
<CURRENT-LIABILITIES> 145,522
<BONDS> 68,107
0
0
<COMMON> 129
<OTHER-SE> 146,365
<TOTAL-LIABILITY-AND-EQUITY> 384,309
<SALES> 0
<TOTAL-REVENUES> 954,784
<CGS> 0
<TOTAL-COSTS> 739,932
<OTHER-EXPENSES> 26,069
<LOSS-PROVISION> 3,411
<INTEREST-EXPENSE> 5,909
<INCOME-PRETAX> 30,803
<INCOME-TAX> 12,941
<INCOME-CONTINUING> 17,862
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,862
<EPS-PRIMARY> 1.40
<EPS-DILUTED> 1.40
</TABLE>
