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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 28, 1996
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
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Commission File Number: 0-21238
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LANDSTAR SYSTEM, INC.
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(Exact name of registrant as specified in its charter)
Delaware 06-1313069
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
First Shelton Place, 1000 Bridgeport Avenue, Shelton, Connecticut 06484-0898
- -------------------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(203) 925-2900
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value Common Stock Rights
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(Title of class) (Title of class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
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The number of shares of the registrant's common stock, par
value $.01 per share, (the "Common Stock") outstanding as of
the close of business on March 7, 1997 was 12,615,833; and the
aggregate market value of the voting stock held by non-
affiliates of the registrant was $279,050,409 (based on the
$22.875 per share closing price on that date, as reported by
NASDAQ National Market System). In making this calculation,
the registrant has assumed, without admitting for any purpose,
that all directors and executive officers of the registrant,
and no other person, are affiliates.
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LANDSTAR SYSTEM, INC.
1996 Annual Report on Form 10-K
Table of Contents
<TABLE>
<CAPTION>
Part I
Page
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Item 1. Business 4
Item 2. Properties 19
Item 3. Legal Proceedings 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Part II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 20
Item 6. Selected Financial Data 21
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 21
Item 8. Financial Statements and Supplementary Data 21
Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure 22
Part III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation 22
Item 12. Security Ownership of Certain Beneficial Owners
and Management 22
Item 13. Certain Relationships and Related Transactions 22
Part IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 23
Signatures 24
Index to Exhibits 26
</TABLE>
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Part I
Item 1. - Business
General
Landstar System, Inc. (herein referred to as "Landstar," the
"Company" or the "Registrant") was incorporated in January
1991 under the laws of the State of Delaware and acquired all
of the capital stock of its predecessor, Landstar System
Holdings, Inc. ("LSHI") on March 28, 1991. LSHI owns directly
or indirectly all of the common stock of Landstar Ranger, Inc.
("Landstar Ranger"), Landstar Inway, Inc. ("Landstar Inway"),
Landstar Ligon, Inc. ("Landstar Ligon"), Landstar Gemini, Inc.
("Landstar Gemini"), Landstar Poole, Inc. ("Landstar Poole"),
Landstar Logistics, Inc. ("Landstar Logistics"), Landstar
Express America, Inc. ("Landstar Express America"), Landstar
T.L.C., Inc. ("Landstar T.L.C."), Landstar Contractor
Financing, Inc. ("LCFI"), Landstar Capacity Services,
Inc.("LCS"), Risk Management Claim Services, Inc. ("RMCS") and
Landstar Corporate Services, Inc. ("LCSI"). Landstar Ranger,
Landstar Inway, Landstar Ligon, Landstar Gemini, Landstar
Poole, Landstar Logistics, Landstar Express America and
Landstar T.L.C. are collectively herein referred to as
Landstar's "Operating Subsidiaries" or "Operating Companies".
The Company's principal executive offices are located at First
Shelton Place, 1000 Bridgeport Avenue, Shelton, Connecticut
06484 and its telephone number is (203) 925-2900.
Historical Background
In March 1988, EnviroSource, Inc. ("EnviroSource") acquired IU
International Corporation ("IU"), the former parent of
Landstar Ranger, Landstar Inway, Landstar Ligon, Landstar
Gemini, Landstar Poole and RMCS in a highly leveraged
transaction. IU was a large conglomerate engaged in various
unrelated businesses, including metals recovery, agriculture,
food distribution and transportation. EnviroSource sought to
reduce its acquisition debt by selling non-strategic assets
and operations. In connection with these sales, EnviroSource
sought to exit the transportation market and sold or closed
certain unprofitable operations. EnviroSource formed LSHI in
October 1988 to acquire the assets of certain of IU's
truckload operating companies and caused LSHI to incur
substantial debt to pay a special dividend to EnviroSource of
approximately $72.3 million, and to repay approximately $21.5
million of debt owed to EnviroSource.
In March 1991, Landstar acquired LSHI in a buy-out organized
by Kelso & Company, Inc. ("Kelso"). Investors in the
acquisition included Kelso Investment Associates IV L.P.
("KIA IV"), an affiliate of Kelso, ABS MB Limited Partnership
("ABSMB"), an affiliate of Alex. Brown & Sons Incorporated,
and certain management employees of Landstar and its
subsidiaries (the "Management Stockholders"). Landstar was
capitalized by the sale of an aggregate of 8,024,000 shares of
Common Stock for $20.1 million, as follows: KIA IV ($15.5
million), ABSMB ($3.0 million), Management Stockholders ($1.3
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million) and certain institutional stockholders ($.3 million).
In March 1993, Landstar completed a recapitalization (the
"Recapitalization") that increased shareholders' equity,
reduced indebtedness and improved the Company's operating and
financial flexibility. The Recapitalization involved three
principal components: (i) the initial public offering (the
"IPO") of 5,387,000 shares of Common Stock, at an initial
price to the public of $13 per share, 2,500,000 of which were
sold by Landstar and 2,887,000 of which were sold by certain
of the Company's stockholders (including KIA IV), (ii) the
retirement of all $38 million outstanding principal amount of
LSHI's 14% Senior Subordinated Notes due 1998 (the "14%
Notes"), and (iii) the refinancing of the Company's then
existing senior debt facility with a senior bank credit
agreement. The net proceeds to the Company from the IPO (net
of underwriting discounts and commissions and expenses) of
$28,450,000 and proceeds from the new term loan, were used to
repay outstanding borrowings under the old credit agreement
and redeem or purchase the 14% Notes. In October 1993, a
secondary public offering by existing stockholders of
5,547,930 shares of Common Stock at an initial price to the
public of $15 per share was completed. KIA IV sold 4,492,640
shares and ABSMB sold 1,055,290 shares. Immediately
subsequent to the offering, KIA IV no longer owned any
Landstar shares of Common Stock, and affiliates of Alex. Brown
retained approximately 1% of the Common Stock outstanding.
In connection with the secondary offering, Landstar granted
the underwriters an over-allotment option of up to 554,793
shares of Common Stock. The option was exercised and Landstar
sold the 554,793 shares of Common Stock at an initial price to
the public of $15 per share. Landstar received proceeds, net
of underwriting discounts and commissions and expenses of the
secondary offering, in the amount of $7,386,000.
During the first quarter of 1995, Landstar, through different
subsidiaries of LSHI acquired the businesses and net assets of
Intermodal Transport Company ("ITCO"), 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., ("Express"), a North Carolina-based air freight
and truck expedited service provider. The business acquired
from ITCO comprises the majority of Landstar Logistics'
intermodal operations, while the business acquired with
Express comprises the majority of Landstar Express America's
operations.
On December 18, 1996, the Company announced a plan to
restructure its Landstar T.L.C. and Landstar Poole operations,
in addition to the relocation of its Shelton, Connecticut
corporate office headquarters to Jacksonville, Florida in the
second quarter of 1997. The plan to restructure Landstar
T.L.C. included the merger of Landstar T.L.C. into Landstar
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Inway, the closing of the Landstar T.L.C. headquarters in St.
Clair, Missouri and the disposal of all of Landstar T.L.C.'s
company-owned tractors. The plan to restructure Landstar
Poole included the transfer of the variable cost business
component of Landstar Poole to Landstar Ranger and the
disposal of 175 Landstar Poole company-owned tractors.
Description of Business
Landstar, a transportation services company, operates one of
the largest truckload carrier businesses in North America,
with revenue of $1,283.8 million in 1996. The Company seeks
to provide transportation services which emphasize information
coordination and customer service delivered primarily by a
network of approximately 1,200 independent commission sales
agents. Landstar utilizes a wide range of specialized
equipment designed to meet customers' varied transportation
requirements, which distinguishes the Company from many other
large truckload carriers. The Company transports a variety of
freight, including iron and steel, automotive products, paper,
lumber and building products, aluminum, chemicals, foodstuffs,
heavy machinery, ammunition and explosives, and military
hardware. The Company provides truckload carrier services,
intermodal transportation services and expedited air and truck
services to shippers throughout the continental United States
and, to a lesser extent, between the United States and each of
Canada and Mexico. Four of Landstar's Operating Subsidiaries,
Landstar Ranger, Landstar Inway, Landstar Ligon and Landstar
Gemini (collectively the "Owner-Operator Companies") provide
truckload transportation services through a network of
independent commission sales agents and independent
contractors. Management believes the Owner-Operator Companies
utilize more independent contractors than any other U.S.
truckload carrier. The use of independent contractors enables
the Company to utilize a large fleet of revenue equipment
while minimizing its capital investment and fixed costs,
thereby enhancing the Company's return on investment.
Landstar Poole and Landstar T.L.C. use company-owned or leased
equipment and company-employed drivers for a substantial
portion of their operations. In 1992, Landstar Poole began to
provide truckload transportation services through independent
contractors and independent commission sales agents. In 1996,
revenue generated through independent contractors was
approximately 44% of Landstar Poole's total revenue and
approximately 65% of Landstar T.L.C.'s total revenue. During
the fourth quarter of 1996, the Company announced its plan to
restructure the operations of both Landstar Poole and Landstar
T.L.C. The Landstar Poole restructuring plan included the
transfer of the variable cost business component of Landstar
Poole to Landstar Ranger and the disposal of 175 company-owned
tractors. The Landstar T.L.C. restructuring plan included the
merger of Landstar T.L.C. into Landstar Inway and the disposal
of all the company-owned tractors.
Landstar Logistics provides customers with contract logistics
and intermodal services. Contract logistics services include
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single source alternatives, truck brokerage and other
transportation solutions for large customers. Intermodal
transportation services primarily involves arranging for the
movement of customers' goods by a combination of rail and
truck. Both the railroad and drayage carriers utilized by
Landstar Logistics are independent contractors. Landstar
Logistics enables Landstar to market the full range of
services offered by the entire Landstar system to customers
with significant transportation needs, in addition to marketing
separate logistics services.
Historically, Landstar T.L.C. and the intermodal operations of
Landstar Logistics have principally utilized a company
employee sales structure and to a lesser degree, independent
commission sales agents. During 1996, management completed
the process of converting the majority of company-owned sales
locations at Landstar Logistics and Landstar T.L.C. to
independent commission sales agent locations.
Landstar Express America provides air and surface expedited
transportation services through independent contractors,
including air cargo carriers, and principally utilizes
independent commission sales agents.
Landstar's business strategy is to offer high quality,
specialized transportation services primarily in the truckload
market to service-sensitive customers. Landstar focuses on
providing transportation services which emphasize information
coordination among its commission sales agents, customers and
Operating Subsidiaries, as well as customer service, rather
than the volume-driven approach of the generic dry van
carriers. Landstar intends to continue developing appropriate
systems and technologies to offer integrated transportation
and logistic solutions to its customers' total transportation
needs.
Since the Company is larger than most of its competitors,
Landstar has competitive marketing and operating advantages.
The Company has the overall size, geographic coverage,
equipment and service capability to meet the needs of even the
largest shippers and thereby qualifies as a "core carrier."
Increasingly, the larger shippers are substantially reducing
the number of authorized carriers in favor of a small number
of core carriers whose size and diverse service capability
enable these core carriers to satisfy most of the shippers'
transportation needs. Examples of national account customers
include the U.S. Department of Defense and shippers in
particular industries, such as automobile manufacturers.
Landstar's network of approximately 1,200 independent
commission sales agents allows the Company to provide both
large and small shippers a level of local service and quality
typically offered only by small, entrepreneurial carriers.
The Company has a number of significant competitive
advantages, including:
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DIVERSITY OF SERVICES OFFERED. The Company offers its
customers a wide range of transportation services, primarily
truckload, through its Operating Subsidiaries, including a
fleet of diverse equipment and extensive geographic coverage.
Examples of the specialized services offered include a large
fleet of flatbed trailers, multi-axle trailers capable of
hauling extremely heavy or oversized loads, drivers certified
to handle ammunition and explosive shipments for the U.S.
Department of Defense, and intermodal capability with
railroads and steamship lines, including short-to-medium haul
movement of ocean-going containers between U.S. ports and
inland cities. The Company's fleet (including revenue
equipment leased from independent contractors) consists of
9,883 power units and 14,692 trailers, including dry vans of
various capacities, a variety of flatbeds (including drop
decks and light specialty trailers), specialty and
temperature-controlled vans and containers.
The following table illustrates the diversity of this
equipment as of December 28, 1996:
<TABLE>
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Power Units 9,883
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Trailers:
Vans 9,088
Specialty Vans 128
Temperature-Controlled 599
Flatbeds 3,002
Drop Deck/Low Boys 1,149
Light Specialty 109
Other Specialized Flatbeds 617
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Total 14,692
======
</TABLE>
MARKETING NETWORK. The Company's network of approximately
1,200 independent commission sales agents results in regular
contact with shippers at the local level and the capability to
be highly responsive to shippers' changing needs. The agent
network enables Landstar to be responsive both in providing
specialized equipment to both large and small shippers and in
providing capacity on short notice from the Company's large
fleet to high volume shippers. Through its agent network, the
Company believes it offers smaller shippers a level of service
comparable to that typically reserved by other truckload
carriers only for their largest customers. Examples of
services that Landstar is able to make available through the
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agent network to smaller shippers include the ability to haul
shipments on short notice (often within hours from
notification to time of pick-up), multiple pick-up and
delivery points, electronic data interchange capability and
access to specialized equipment. In addition, a number of the
Company's agents specialize in certain types of freight and
transportation services (such as oversized or heavy loads).
An agent is typically paid 7% of the revenue generated through
that agent, with volume-based incentive commissions that can
increase the percentage to 10% of revenue. During 1996, more
than 350 agents generated revenue for Landstar of at least $1
million each, or approximately $924 million of Landstar's
total revenue. The majority of the agents who generate
revenue of $1 million or more have chosen to represent
Landstar exclusively. Many of the agents represent one or
more of the Operating Companies. The ten largest agencies in
1996 generated average revenue of approximately $10.9 million.
The typical Landstar agent maintains a relationship with a
number of shippers, and services these shippers by providing a
base of operations for independent contractors, both single-
unit owner-operator and multi-unit contractors. Contracts
with agents are typically terminable upon 30 days' notice.
Historically, Landstar has experienced very limited agent
turnover, especially among its larger volume agents. The
Operating Companies emphasize programs to support the
agents' operations and to establish pricing parameters,
The Operating Companies contract directly with customers
and generally assume the credit risk and liability for
freight losses or damages. Landstar Ranger, Landstar
Inway, Landstar Gemini, Landstar T.L.C. and Landstar
Express America generally dispatch their fleets through
their local agents, while Landstar Ligon and Landstar
Poole generally operate through a central dispatch system.
The operating subsidiaries who utilize independent
commission sales agents hold regular regional agent
meetings and Landstar holds an annual Company-wide agent
convention.
TECHNOLOGY. The Company believes leadership in the
development and application of technology is an ongoing part
of providing high quality service at competitive prices.
Landstar manages its technology program centrally through a
Vice President of Management Information Systems ("MIS") who
directs each of the Operating Companies' MIS departments.
The following technologies have been adopted by Landstar in
recent years:
CUSTOMER COMMUNICATION. The Company has capability in
Electronic Document and Data Interchange ("EDI"). These
capabilities provide operating advantages to Landstar and
enhanced customer service, including real time information
flow, reduction or elimination of paperwork, error-free
transcription and reductions in clerical personnel. EDI
allows the Company to exchange data with its customers
regarding their shipments in a variety of formats, which
significantly enhances quality control and customer service.
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AGENT COMMUNICATION. The Company has developed a proprietary
personal computer-based software system called Landstar
Electronic Administrative Dispatch System ("LEADS") to
communicate electronically with its agents. LEADS
interconnects agents' personal computers with the information
systems of the Operating Subsidiaries. As of December 28,
1996, approximately 446 of the independent agents had
installed LEADS. The Company encourages all of its agents to
join the LEADS program. LEADS provides an agent with a
variety of functions for sending information to and receiving
information from the Operating Subsidiary. LEADS is used by
an agent to dispatch trucks, to authorize cash advances to
drivers in route (i.e., to purchase fuel or supplies) and to
transmit and receive freight invoices. The Company is in the
process of converting its current LEADS system to a Windows
environment. The Company is also in the process of the
development of an internet/intranet technology in order to
more effectively match available loads with available
equipment.
DRIVER COMMUNICATION. Management believes that onboard
communications capability will be increasingly important, and
intends to increase this capability throughout the Landstar
system. Landstar has established and will continue to develop
its Driver Communications Network, which consists of a variety
of communications methods monitored and controlled at each
Operating Subsidiary. Methods currently in use are pagers,
cellular telephones, daily driver check-ins via telephone
calls to a Company "800" number and satellite transceivers.
The most common communications device, utilized by over 7,300
employee drivers and independent contractors, is the pager.
Using the Company's directory of drivers, an agent is able to
communicate with a specific driver to ascertain shipment
status, pickup and delivery information, load availability and
other relevant information. Management believes that pagers
provide the communications capabilities required by most
shippers, but at a substantially lower cost than the satellite
communications now employed by a number of the Company's
competitors. Satellite communications that provide instant
location information and communication with the driver are
used by the Company for highly critical movements such as
Department of Defense ammunitions and explosives and "just-in-
time" automotive shipments.
Landstar has also developed and continues to try to improve a
number of additional technologies, including: an optical
character recognition system (which scans documents such as
bills of lading, driver logs and fuel receipts on to optical
disks), designed to speed information retrieval and enhance
availability and flexible utilization of data; bar coding of
load documentation; image and workflow technology to speed
paperwork processes; the use of portable computers to provide
instant price quotes, marketing support and other information;
the use of the Landstar debit card to track driver fuel and
equipment purchases; and movement towards a client/server
network computer environment.
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CORPORATE SERVICES. Significant advantages result from the
collective expertise and corporate services afforded by
Landstar's headquarters management. The primary services
provided are:
safety purchasing
risk and claims management strategic planning
technology and management information systems human resource management
marketing, particularly national accounts finance
quality programs accounting, budgeting and taxes
legal
INDEPENDENT CONTRACTORS. The Company operates the largest
fleet of truckload independent contractors in North America.
This provides marketing, operating, safety, recruiting and
retention and financial advantages to the Company. Most of
the Companies' truckload independent contractors are
compensated on the basis of a fixed percentage of the revenue
generated from the shipments they haul. This percentage
generally ranges from 60% to 70% where the independent
contractor supplies only the tractor and from 75% to 79% where
the independent contractor supplies both the tractor and the
trailer. The independent contractor must pay all the expenses
of operating his equipment, including driver wages and
benefits, fuel, physical damage insurance, maintenance,
highway use taxes and debt service. In 1996, Landstar
experienced a turnover rate among independent contractors of
approximately 82%. A significant percentage of this turnover
was attributable to independent contractors who had been
independent contractors with the Company for less than one
year. Management believes that the availability of loads is a
significant factor in turnover. Management believes other
factors that tend to limit turnover include the Company's
extensive agent network, the Company's programs to reduce the
operating costs of its independent contractors, and Landstar's
reputation for quality, service and reliability. The Landstar
Contractors' Advantage Purchasing Program ("LCAPP") leverages
Landstar's purchasing power as one of the largest truckload
carriers in North America to provide discounts to the
independent contractors when they purchase equipment, fuel,
tires and other items. Landstar also benefits from its use of
independent contractors because the Company does not have to
maintain a significant capital investment. As a result, the
Owner-Operator Companies tend to have higher variable costs
and lower fixed costs.
Description of Operating Subsidiaries
The following table presents financial and operating
information about each of the Company's Operating Subsidiaries
at or for the fiscal years ended December 28, 1996 and December 30, 1995.
<TABLE>
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Landstar Landstar Landstar Landstar
Ranger Inway Ligon Gemini
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ---- ---- ----
Revenue (in millions) $338.5 $336.4 $291.6 $270.6 $170.1 $157.4 $52.1 $54.0
Average length of haul
in miles 634 684 642 670 583 620 208 183
Number of power units 3,237 3,335 2,181 2,153 1,640 1,502 503 630
Number of trailers 5,908 5,939 3,081 3,018 2,036 1,993 - -
Number of agents 308 273 359 370 241 230 41 54
Landstar Landstar Landstar Landstar
T.L.C. Poole Express America Logistics
-------- -------- --------------- ------------
1996 1995 1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ---- ---- ----
Revenue (in millions) $105.2 $87.9 $154.0 $150.0 $35.6 $24.5 $136.7 $123.9
Average length of haul
in miles 1,253 1,495 630 635 504 334 N/A N/A
Number of power units 680 630 1,413 1,431 229 210 N/A N/A
Number of trailers 1,106 1,021 2,542 2,295 3 - 16 75
Number of agents 65 7 83 68 115 106 49 28
Each of the Operating Subsidiaries is managed by its own
personnel and follows the strategic direction of the corporate
office.
The Operating Subsidiaries are separately responsible for
pricing, approving customer credit, recruiting agents and
drivers, marketing transportation services, administering
safety programs and overseeing shipments by their customers.
In 1996, no single customer accounted for more than 10% of the
Company's revenue. Landstar's Operating Subsidiaries deliver
truckload transportation services through, as of December 28,
1996, approximately 6,900 independent contractors supplying
more than 8,900 tractors and a network of approximately 1,200
independent commission sales agents. Approximately 90.4% of
the Company's 1996 revenue was generated through independent
contractors.
LANDSTAR RANGER. Founded in 1968 and headquartered in
Jacksonville, Florida, Landstar Ranger operates a fleet of
over 3,200 tractors and over 5,900 trailers. Approximately
83% of Landstar Ranger's trailers are dry vans and specialty
vans (of varying lengths and volumes), and approximately 17%
are flatbeds (standard, drop deck, side paneled and light
specialty). Landstar Ranger operates primarily with
independent contractors and commission agents. Although
Landstar Ranger operates throughout the continental United
States and much of Canada, its heaviest traffic is within the
Southeast, within the Midwest, along east-west routes between
the Midwestern states and Pennsylvania and New York, and on
routes between the Southeast and the Midwest and eastern
United States. Landstar Ranger transports a wide range of
general commodities, including building materials, automotive
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parts, plastics, foodstuffs, beverages, chemicals, metals,
machinery and munitions. In a number of industries, Landstar
Ranger is a primary carrier, in delivery of raw materials, of
finished products, or both. In the beverage industry,
Landstar Ranger hauls aluminum sheets to can manufacturers on
flatbed trailers, ships empty cans to beverage producers in
dry vans and delivers the filled cans to beverage distributors
in temperature-controlled vans. Approximately 200 of Landstar
Ranger's drivers (out of a total of approximately 3,200) are
employees represented by the Teamsters (See "Business
Regulation"). As of December 28, 1996, Landstar Ranger had
240 non-driver employees, none of whom are represented by a
collective bargaining unit.
LANDSTAR INWAY. Founded in 1982 and headquartered in
Rockford, Illinois, Landstar Inway operates the Company's
largest fleet of flatbeds (over 1,680 trailers of various
types), nearly 1,400 dry and specialty vans, and more than
2,180 tractors. Landstar Inway operates exclusively with
independent contractors and commission sales agents. Landstar
Inway operates throughout the United States and Canada, and
between the United States and Mexico. Landstar Inway's
heaviest traffic area is the eastern United States and routes
between Texas and the Midwest. Landstar Inway transports a
wide variety of general commodities, including steel and other
metals, building materials, machinery and paper. Landstar
Inway also offers flatbed multiple pick-up and delivery
service without cross-docking and interlining typical of
less-than-truckload service offered by other carriers. As of
December 28, 1996, Landstar Inway employed 298 persons, none
of whom are represented by a collective bargaining unit.
LANDSTAR LIGON. Founded in 1962 and headquartered in
Madisonville, Kentucky, Landstar Ligon operates a fleet of
approximately 1,640 tractors, nearly 1,500 flatbed and
specialty trailers and 540 vans. Landstar Ligon offers
flatbed and dry van service, primarily in the Eastern and
Midwestern United States and on routes from Texas, Louisiana
and Arkansas to both the Midwest states and other Southern
states. Landstar Ligon operates exclusively with independent
contractors. Landstar Ligon markets its services through both
independent commission sales agents and Landstar Ligon
employees. Landstar Ligon's marketing staff focuses on large,
national accounts. Landstar Ligon has a centralized dispatch
system which links its regional terminals and agent locations
with Ligon's headquarters. Landstar Ligon has a specialized
hauling division which offers a wide range of oversized load
and heavy load services such as hauling military tanks, large
construction equipment and heavy machinery. Trailers to serve
this market feature air ride suspension and 5 to 13 axles.
Freight hauled by Landstar Ligon also includes metal products
from mills both to distribution centers and to industrial
consumers. As of December 28, 1996, Landstar Ligon employed
187 persons, none of whom are represented by a collective
bargaining unit.
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LANDSTAR GEMINI. Landstar Gemini was restructured in 1990 to
focus on offering national drayage transportation services in
order to take advantage of the growth in intermodal
transportation (the hauling of truck trailers or containers on
rail cars or ships). As part of this restructuring, Landstar
Gemini transferred all of its then existing operations,
including its independent contractors and agents, primarily to
Landstar Ranger. Landstar Gemini now operates through 41
commission agents located in major Atlantic and Gulf ports and
449 independent contractors, who provide 503 tractors.
Landstar Gemini services include short, intermediate, and long
haul of marine containers between all major continental United
States ports and inland points and intermodal drayage to and
from all major railroads. Landstar Gemini's offices are
located in Jacksonville, Florida adjacent to Landstar Ranger's
offices. As of December 28, 1996, Landstar Gemini employed 35
persons, none of whom are represented by a collective
bargaining unit.
LANDSTAR POOLE. Founded in 1950 and headquartered in
Evergreen, Alabama, Landstar Poole owns or leases the majority
of the tractors and employs most of the drivers used in its
operations. In 1996, approximately 44% of Landstar Poole's
revenue was generated through independent contractors. At
December 28, 1996, Landstar Poole's fleet consisted of over
1,400 tractors, of which 667 were provided by independent
contractors. On December 18, 1996, the Company announced a
plan to transfer the variable cost business component of
Landstar Poole to Landstar Ranger and the disposal of 175
Landstar Poole company-owned tractors. At December 28, 1996,
Landstar Poole operated over 1,850 dry vans and 680 flatbed
trailers, including various specialty flatbed trailers almost
all of which were company owned. Landstar Poole's primary
service area is the eastern United States and routes between
the eastern United States and Canada. Its principal traffic
lanes are between the South and the Northeast, the South and
the Midwest and the Midwest and the Northeast. Landstar
Poole's operating strategy is to provide a high level of
service on short and medium length regional traffic lanes.
Landstar Poole has considerable experience in hauling
specialized freight such as forest products, telephone poles
and plate glass.
Landstar Poole's executive office, located in Evergreen,
Alabama, contains office space for all administrative
activities (dispatch, accounting, customer service and
marketing) as well as facilities for equipment maintenance and
storage. As of December 28, 1996, Landstar Poole employed 975
persons, including 744 employee drivers, none of whom are
represented by a collective bargaining unit.
LANDSTAR T.L.C. In January 1995, Landstar T.L.C. purchased
the business and net assets of T.L.C. Lines, Inc., a Missouri-
based temperature-controlled and long-haul, time sensitive dry
van carrier. At December 28, 1996, Landstar T.L.C.'s fleet
14
<PAGE>
consisted of approximately 680 tractors, of which 478 were
provided by independent contractors. At December 28, 1996,
Landstar T.L.C. operated over 1,100 dry and temperature
controlled vans and 4 flatbed trailers, most of which were
owned by Landstar T.L.C. Landstar T.L.C.'s primary service
area is routes from the Northeast to the Western United
States. Landstar T.L.C.'s length of haul is generally longer
than other Operating Subsidiaries due to their coast to coast
regular routes. As of December 28, 1996, Landstar T.L.C.
employed 447 persons, including 328 employee drivers, none of
whom are represented by a collective bargaining unit. On
December 18, 1996, the Company announced a plan to dispose of
all of Landstar T.L.C.'s company-owned equipment and to merge
Landstar T.L.C. into Landstar Inway.
LANDSTAR LOGISTICS. Landstar Logistics provides customers
with contract logistics and intermodal services. Landstar
Logistics offers contract logistics services to customers who
seek distribution solutions to their transportation needs.
Contract logistics services provide customers with logistics
support, single source alternatives, truck brokerage
and other transportation solutions. Intermodal services
primarily involves arranging for the movement of customers'
goods by a combination of rail and truck throughout the United
States. As of December 28, 1996, Landstar Logistics employed
46 persons, none of whom are represented by a collective
bargaining unit.
LANDSTAR EXPRESS AMERICA. Headquartered in Charlotte, North
Carolina, Landstar Express America provides emergency and
expedited air freight and truck services throughout the United
States marketed through independent commission sales agents
and delivered through independent contractors. Landstar
Express America's fleet consists of 229 cargo vans and
straight trucks. As of December 28, 1996, Landstar Express
America employed 65 persons, none of whom are represented by a
collective bargaining unit.
RMCS. RMCS is responsible for the development,
implementation, and administration of consistent risk
management policies and programs for all of the Operating
Subsidiaries. As of December 28, 1996, RMCS employed 12
persons, none of whom are represented by a collective
bargaining unit.
LANDSTAR CORPORATE SERVICES, INC. LCSI, a Delaware
corporation, is located in Jacksonville, Florida, and was
formed on December 15, 1993. LCSI provides administrative
support for Landstar Ranger, Landstar Gemini and Landstar
Logistics. As of December 28, 1996, LCSI employed 110
persons, none of whom are represented by a collective
bargaining unit.
LANDSTAR CONTRACTOR FINANCING, INC. and LANDSTAR CAPACITY
SERVICES, INC. LCFI and LCS, both Delaware corporations, are
located in Shelton, Connecticut, and were formed in 1996. LCFI
and LCS provide various services to independent contractors
15
<PAGE>
including financing to purchase tractors and/or trailers,
marketing of LCAPP and management of truckstop partnerships.
Substantially all of the loans provided by LCFI to owner-
operators are secured by the equipment purchased by the owner-
operators.
COMPETITION
Landstar competes primarily in the domestic transportation
industry, focusing on the common and contract truckload
segment. This segment has been characterized by significant
change since the substantial economic deregulation of the
trucking industry in 1980, which led to a rapid influx of
small, often poorly capitalized truckload carriers and
downward pressure on freight rates. Primarily because
deregulation eliminated most route and commodity restrictions,
the market for common and contract truckload services has
grown as truckload carriers have attracted business from
railroads, less-than-truckload carriers and private fleets.
The Company believes the truckload segment will continue to
undergo significant consolidation and that the barriers to
entry will become higher. These barriers include the
capital-intensive nature of the business, purchasing economies
available only to larger carriers, increasing customer demand
for sophisticated information systems, rising insurance costs,
greater customer demand for specialized services and the
reluctance of certain shippers to do business with smaller
carriers.
The transportation services business is extremely competitive
and fragmented. Landstar competes primarily with other
truckload carriers and independent contractors and, with
respect to certain aspects of its business, intermodal
transportation, railroads and less-than-truckload carriers.
Competition for the freight transported by the Company is
based in the long term primarily on service and efficiency
and, to a lesser degree, on freight rates alone. Competition
has created downward pressure on the truckload industry's
pricing structure. Management believes that Landstar's
overall size and availability of a wide range of equipment,
together with its geographically dispersed local independent
agent network, present the Company with significant
competitive advantages over many other truckload carriers.
The Company also competes with other motor carriers for the
services of independent contractors and commission agents,
contracts with whom are terminable upon short notice. The
Company's overall size, coupled with its reputation for good
relations with agents and independent contractors, have
enabled the Company to attract a sufficient number of
qualified agents, independent contractors and drivers.
INSURANCE AND CLAIMS
Potential liability associated with accidents in the trucking
industry is severe and occurrences are unpredictable.
16
<PAGE>
Landstar retains liability up to $1,000,000 for each
individual property, casualty and general liability claim,
$500,000 for each workers' compensation claim and $250,000 for
each cargo claim. The Company provides, on an actuarially
determined basis, for the estimated cost of property, casualty
and general liability claims reported and for claims incurred
but not reported. Although Landstar has an active training
and safety program, there can be no assurance that the
frequency or severity of accidents or workers' compensation
claims will not increase in the future, that there will not be
unfavorable development of existing claims or that insurance
premiums will not increase. 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 results.
Management believes that Landstar and the Operating
Subsidiaries realize significant savings in insurance premiums
by retaining a larger amount of risk than might be prudent if
any of the Operating Subsidiaries were stand-alone companies.
POTENTIAL CHANGES IN FUEL TAXES
From time to time, various legislative proposals are
introduced to increase federal, state, or local taxes,
including taxes on motor fuels. The Company cannot predict
whether, or in what form, any increase in such taxes
applicable to the Company will be enacted and, if enacted,
whether or not the Company will be able to reflect the
increases in prices to customers. Competition from
non-trucking modes of transportation and from intermodal
transportation would be likely to increase if state or federal
taxes on fuel were to increase without a corresponding
increase in taxes imposed upon other modes of transportation.
INDEPENDENT CONTRACTOR STATUS
From time to time various legislative or regulatory proposals
are introduced at the federal or state levels to change the
status of independent contractors classification as employees
for either employment tax purposes (withholding, social
security, Medicare and unemployment taxes) or other "benefits"
available to employees. Currently, most individuals are
classified as employees or independent contractors for
employment tax purposes based on 20 "common-law" factors
rather than any definition found in the Internal Revenue Code
or Internal Revenue Service regulations. In addition, under
Section 530 of the Revenue Act of 1978, taxpayers that meet
certain criteria may treat an individual as an independent
contractor for employment tax purposes if they have been
audited without being told to treat similarly situated workers
as employees, or if they have received a ruling from the
Internal Revenue Service or a court decision affirming their
treatment, or if they are following a long-standing recognized
practice.
Although management is unaware of any proposals currently
pending to change the employee/independent contractor
17
<PAGE>
classification, the costs associated with potential changes,
if any, in the employee/independent contractor classification
could adversely affect Landstar's results of operations if
Landstar were unable to reflect them in its fee arrangements
with the independent contractors and agents or in the prices
charged to its customers.
REGULATION
Each of the Operating Subsidiaries, is a motor carrier, which
prior to January 1, 1995, were regulated by the Interstate
Commerce Commission (the "ICC") and is now regulated by the
United States Department of Transportation (the "DOT") and by
various state agencies. The DOT has broad powers, generally
governing activities such as the regulation of, to a limited
degree motor carrier operations, rates, accounting systems,
periodic financial reporting and insurance. Subject to
federal and state regulatory authorities or regulation, the
Company may transport most types of freight to and from any
point in the United States over any route selected by the
Company. The trucking industry is subject to possible
regulatory and legislative changes (such as increasingly
stringent environmental regulations or limits on vehicle
weight and size) that may affect the economics of the industry
by requiring changes in operating practices or by changing the
demand for common or contract carrier services or the cost of
providing truckload services.
Congress deregulated transportation in 1994 by passage of the
Trucking Industry Regulatory Reform Act of 1994 ("TIRRA") and
the Federal Aviation Administration Authorization Act of 1994
("FAAAA"). TIRRA substantially eliminated entry procedures
for interstate transportation and eliminated the ICC tariff
filing requirements for virtually all common carriers. FAAAA
required all states to substantially deregulate intrastate
transportation as of January 1, 1995. In 1995, Congress
enacted The Interstate Commerce Commission Termination Act and
substantially eliminated certain of the functions of the ICC
and transferred most functions to the DOT.
Landstar Ranger is subject to the Multi Employer Pension Plan
Amendments Act of 1980 ("MEPPA"), which could require Landstar
Ranger, in the event of withdrawal, to fund its proportionate
share of the union sponsored plans', in which it participates,
unfunded benefit obligation. Management believes that the
liability, if any, for withdrawal from any or all of these
plans would 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.
Landstar Poole has various underground storage tanks for
diesel fuel. As a result, Landstar Poole is subject to
regulations promulgated by the Environmental Protection Agency
in 1988 with respect to underground fuel storage tanks. These
regulations generally govern the design, construction and
18
<PAGE>
operation of underground storage tanks from installation to
closure. For underground storage tanks in existence at the
time the regulation were promulgated, the regulations require
that such tanks be upgraded to meet specified standards
concerning corrosion protection, spill or overfill protection
and release detection on a phased timetable which began in
1989 and ends in 1998.
Interstate motor carrier operations are subject to safety
requirements prescribed by the DOT. All of the Company's
drivers are required to have national commercial driver's
licenses and are subject to mandatory drug and alcohol
testing. The DOT's national commercial driver's license and
drug and alcohol testing requirement have not adversely
affected the availability to the Company of qualified
drivers.
SEASONALITY
Landstar's operations are subject to seasonal trends common to
the trucking industry. Results of operations for the quarter
ending in March are typically lower than the quarters ending
in June, September and December due to reduced shipments and
higher operating costs in the winter months.
EMPLOYEES
As of December 28, 1996, the Company and its subsidiaries
employed 2,632 individuals. Approximately 200 Landstar
Ranger drivers are members of the Teamsters (See "Business -
Description of Operating Subsidiaries - Landstar Ranger.").
The Company considers relations with its employees
to be good.
Item 2. - Properties
The Company leases its headquarters in Shelton, Connecticut of
approximately 14,300 square feet, as well as the headquarters
of Landstar Gemini, LCSI, Landstar Logistics and Landstar
Ranger together in Jacksonville, Florida of approximately
58,000 square feet, Landstar Inway in Rockford, Illinois of
approximately 29,000 square feet, and RMCS in Madisonville,
Kentucky of approximately 2,800 square feet, from third
parties. Landstar Poole owns its headquarters located in
Evergreen, Alabama of approximately 20 acres, and Landstar
Ligon also owns its headquarters located in Madisonville,
Kentucky of approximately 73 acres. Landstar Express America
owns its headquarters in Charlotte, North Carolina, of
approximately 7,560 square feet and one terminal of
approximately 1,680 square feet. Landstar T.L.C. owns its
headquarters located in St. Clair, Missouri of approximately
39,000 square feet on approximately 35 acres. The
restructuring plan, announced on December 18, 1996, included
the planned sale of the Landstar T.L.C. headquarters and the
relocation of the Shelton, Connecticut corporate office to
Jacksonville, Florida.
19
<PAGE>
Management believes that Landstar's owned and leased
properties are adequate for its current needs, and that leased
properties can be retained or replaced at acceptable cost.
Item 3. - Legal Proceedings
In response to a breach of contract suit filed in January 1988
by Landstar Gemini in the Circuit Court, County of Genesee, in
the state of Michigan against Vickie and Kevin Cresson,
individually and doing business as V&C Trucking (the
"Defendants"), the Defendants, who are former agents and
independent contractors of Landstar Gemini, have asserted
breach of contract, tort and state antitrust law counterclaims
against Landstar Gemini and other parties, including
EnviroSource, Landstar, 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 Landstar Gemini's request
for costs and reasonable attorney's fees. Defendants have
appealed the judge's decision. The Company, believing that
its defenses are and will continue to be deemed good and
meritorious, will vigorously contest the 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 1998.
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 4. - Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal year 1996.
Part II
Item 5. - Market for Registrant's Common Equity and Related Stockholder Matters
The Common Stock of the Company is quoted through the National
Association of Securities Dealers, Inc. National Market System
(the "NASDAQ National Market System") under the symbol "LSTR".
The following table sets forth the high and low reported sale
prices for the Common Stock as quoted through the NASDAQ
National Market System for the periods indicated.
20
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Calendar Period 1996 Market Price 1995 Market Price
--------------- ----------------- -----------------
<S> <C> <C> <C> <C>
High Low High Low
First Quarter $27 1/4 $21 3/4 $ 37 3/4 $ 30
Second Quarter 30 5/8 23 1/4 32 1/4 21 1/4
Third Quarter 29 3/8 23 1/4 32 1/2 21 3/4
Fourth Quarter 27 1/4 21 1/2 30 1/2 22 1/4
</TABLE>
The reported last sale price per share of the Common Stock as
quoted through the NASDAQ National Market System on March 7,
1997 was $22.875 per share. As of such date, Landstar had
12,615,833 shares of Common Stock outstanding. As of March 7,
1997, the Company had 139 stockholders of record of its Common
Stock. However, the Company estimates that it has a
significantly greater number of stockholders of record because
a substantial number of the Company's shares are held by broker
or dealers for their customers in street name.
The Company has not within the past three years paid any cash
dividends on the Common Stock, and does not intend to pay
dividends on the Common Stock for the foreseeable future. The
declaration and payment of any future dividends will be
determined by the Company's Board of Directors, based on
Landstar's results of operations, financial condition, cash
requirements, certain corporate law requirements, restrictions
under loan agreements and other factors deemed relevant.
Landstar's ability to pay dividends on the Common Stock depends
on LSHI's ability to pay dividends to Landstar. The Company's
credit agreement limits the amount of dividends payable by LSHI
to Landstar and thereby limits Landstar's ability to pay
dividends on the Common Stock.
Item 6. - Selected Financial Data
The information required by this item is set forth under the
caption "Selected Consolidated Financial Data" in Exhibit 13
attached hereto, and is incorporated by reference in this
Annual Report on Form 10-K. This information is also included
on page 38 of the Company's 1996 Annual Report to Shareholders.
Item 7. - Management's Discussion and Analysis of Financial
Condition and Results of Operations
The information required by this item is set forth under the
caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in Exhibit 13 attached
hereto, and is incorporated by reference in this Annual Report
on Form 10-K. This information is also included on pages 21 to
25 of the Company's 1996 Annual Report to Shareholders.
Item 8. - Financial Statements and Supplementary Data
21
<PAGE>
The information required by this item is set forth under the
captions "Consolidated Balance Sheets", "Consolidated
Statements of Income", "Consolidated Statements of Cash
Flows", "Consolidated Statements of Changes in Shareholders'
Equity", "Notes to Consolidated Financial Statements",
"Independent Auditors' Report" and "Quarterly Financial Data"
in Exhibit 13 attached hereto, and are incorporated by
reference in this Annual Report on Form 10-K. This
information is also included on pages 26 through 37 of the
Company's 1996 Annual Report to Shareholders.
Item 9. - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Part III
Item 10. - Directors and Executive Officers of the Registrant
The information required by this Item concerning the Directors (and nominees
for Directors) and Executive Officers of the Company is set forth under the
captions "Election of Directors", "Directors of the Company", "Information
Regarding Board of Directors and Committees", and "Executive Officers of the
Company" on pages 2 through 8, and "Compliance with Section 16(a) of the
Securities Exchange Act of 1934" on page 16 of the Company's definitive Proxy
Statement for its annual meeting of shareholders filed with the Securities and
Exchange Commission pursuant to Regulation 14A, and is incorporated herein by
reference.
Item 11. - Executive Compensation
The information required by this Item is set forth under the captions
"Compensation of Directors and Executive Officers", "Summary Compensation
Table", "Options Granted in Last Fiscal Year", "Fiscal Year End Option Values",
"Report of the Compensation Committee on Executive Compensation", "Performance
Comparison" and "Employment Contracts with Management" on pages 9 through 13 of
the Company's definitive Proxy Statement for its annual meeting of shareholders
filed with the Securities and Exchange Commission pursuant to Regulation 14A,
and is incorporated herein by reference.
Item 12. - Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is set forth under the caption "Security
Ownership by Management and Others" on pages 14 through 17 of the Company's
definitive Proxy Statement for its annual meeting of shareholders filed with
the Securities and Exchange Commission pursuant to Regulation 14A, and is
incorporated herein by reference.
Item 13. - Certain Relationships and Related Transactions
The information required by this Item is set forth under the caption
"Indebtedness of Management" on page 11 of the Company's definitive Proxy
22
<PAGE>
Statement for its annual meeting of shareholders filed with the Securities and
Exchange Commission pursuant to Regulation 14A, and is incorporated herein by
reference.
Part IV
Item 14. - Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) (1) Financial Statements
Financial statements of the Company and related notes thereto, together with
the report thereon of KPMG Peat Marwick LLP dated February 12, 1997, are
in Exhibit 13 attached hereto, and are incorporated by reference in this Annual
Report on Form 10-K. This information is also included on pages 26 through 36
of the Company's 1996 Annual Report to Shareholders.
(2) Financial Statement Schedules
The report of the Company's independent public accountants with respect to the
financial statement schedules listed below appears on page 30 of this Annual
Report on Form 10-K.
<TABLE>
<CAPTION>
Schedule Number Description Page
- --------------- ----------- ----
<S> <C> <C>
I Condensed Financial Information of Registrant
Parent Company Only Balance Sheet Information S-1
I Condensed Financial Information of Registrant
Parent Company Only Statement of Income Information S-2
I Condensed Financial Information of Registrant
Parent Company Only Statement of Cash
Flows Information S-3
II Valuation and Qualifying Accounts
For the Fiscal Year Ended December 28, 1996 S-4
II Valuation and Qualifying Accounts
For the Fiscal Year Ended December 30, 1995 S-5
II Valuation and Qualifying Accounts
For the Fiscal Year Ended December 31, 1994 S-6
</TABLE>
All other financial statement schedules not listed above have been omitted
because the required information is included in the consolidated financial
statements or the notes thereto, or is not applicable or required.
(3) Exhibits
The response to this portion of Item 14 is submitted as a separate
section of this report (see "Exhibit Index").
THE COMPANY WILL FURNISH, WITHOUT CHARGE, TO ANY SHAREHOLDER OF THE COMPANY WHO
SO REQUESTS IN WRITING, A COPY OF ANY EXHIBITS, AS FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION. ANY SUCH REQUEST SHOULD BE DIRECTED TO LANDSTAR
SYSTEM, INC., ATTENTION: INVESTOR RELATIONS, FIRST SHELTON PLACE, 1000
BRIDGEPORT AVENUE, P.O. BOX 898, SHELTON, CONNECTICUT 06484-0898.
(b) No reports on Form 8-K were filed during the last quarter of fiscal year
1996.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: Henry H. Gerkens
----------------------------------------
Henry H. Gerkens
Executive Vice President & Chief Financial
Officer
By: Robert C. LaRose
----------------------------------------
Robert C. LaRose
Vice President Finance & Treasurer
Date: March 14, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
Jeffrey C. Crowe Chairman of the Board, President & March 14, 1997
- ------------------- Chief Executive Officer, Principal
Jeffrey C. Crowe Executive Officer
Henry H. Gerkens Executive Vice President & March 14, 1997
- ------------------- Chief Financial Officer; Principal
Henry H. Gerkens Financial Officer
Robert C. LaRose Vice President Finance & Treasurer;
- ------------------- Principal Accounting Officer March 14, 1997
Robert C. LaRose
* Senior Vice President and Director March 14, 1997
- -------------------
John B. Bowron
* Director March 14, 1997
- -------------------
David G. Bannister
* Director March 14, 1997
- -------------------
Ronald W. Drucker
* Director March 14, 1997
- -------------------
Arthur J. Fritz, Jr.
* Director March 14, 1997
- -------------------
Merritt J. Mott
24
<PAGE>
* Michael L. Harvey Attorney In Fact
- ----------------------
By: Michael L. Harvey
25
<PAGE>
EXHIBIT INDEX
Form 10-K for fiscal year ended 12/28/96
Exhibit No. Description
- ----------- -----------
(3) Articles of Incorporation and Bylaws:
3.1 Amended and Restated Certificate of Incorporation of the
Company dated February 9, 1993 and Certificate of Designation of Junior
Participating Preferred Stock. (Incorporated by reference to Exhibit 3.1 to
the Registrant's Registration Statement on Form S-1 (Registration No. 33-
57174))
3.2 The Company's Bylaws, as amended and restated on February 9,
1993. (Incorporated by reference to Exhibit 3.2 to the Registrant's
Registration Statement on Form S-1 (Registration No. 33-57174))
(4) Instruments defining the rights of security holders,
including indentures:
4.1 Specimen of Common Stock Certificate. (Incorporated by
reference to Exhibit 4.1 to the Registrant's Registration Statement on Form S-1
(Registration No. 33-57174))
4.2 Credit Agreement, dated as of March 12, 1993, among LSHI,
Landstar, the lenders named therein, and Chemical Bank, as agent (including the
exhibits and schedules thereto). (Incorporated by reference to Exhibit 2 to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 27,
1993 (Commission File No. 0-21238))
4.3 Amended and Restated Credit Agreement, dated as of October 7,
1994, among LSHI, Landstar, the lenders named therein, and Chemical Bank, as
agent (including the exhibits and schedules thereto). (Incorporated by
reference to Exhibit III to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 24, 1994 (Commission File No. 0-21238))
26
<PAGE>
Exhibit Index (continued)
Form 10-K for fiscal year ended 12/28/96
Exhibit No. Description
- ----------- -----------
4.4 First Amendment, dated as of October 4, 1995, to the Amended
and Restated Credit Agreement, dated as of October 7, 1994, among LSHI,
Landstar, the lenders named therein, and Chemical Bank, as agent.
(Incorporated by reference to Exhibit 4.1 to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1995 (Commission File No. 0-
21238))
4.5* Second Amendment, dated as of March 1, 1996, to the Amended and
Restated Credit Agreement, dated as of October 7, 1994, among LSHI, Landstar,
the lenders named therein, and Chemical Bank (n/k/a Chase Manhattan Bank), as
agent.
4.6 Stockholders Agreement, dated as of March 12, 1993, among KIA
IV, ABSMB and the Company. (Incorporated by reference to Exhibit 4.9 of
Amendment No. 3 to the Registrant's Registration Statement on Form S-1
(Registration No. 33-57174))
4.7 Rights Agreement, dated as of February 10, 1993, between the
Company and Chemical Bank, as Rights Agent. (Incorporated by reference to
Exhibit 4.14 of Amendment No. 1 to the Registrant's Registration Statement on
Form S-1 (Registration No. 33-57174))
4.8 The Company agrees to furnish copies of any instrument defining
the rights of holders of long-term debt of the Company and its respective
consolidated subsidiaries that does not exceed 10% of the total assets of the
Company and its respective consolidated subsidiaries to the Securities and
Exchange Commission upon request.
(10) Material Contracts:
10.1+ Landstar System, Inc. 1993 Stock Option Plan. (Incorporated by
reference to Exhibit 10.1 to the Registrant's Registration Statement on Form
S-1 (Registration No. 33-67666))
10.2+ LSHI Investors' Plan. (Incorporated by reference to Exhibit
10.2 to the Registrant's Registration Statement on Form S-1 (Registration No.
33-57174))
10.3 Directors' and Consulting Service Agreement, dated March 27,
1991, between Alex. Brown & Sons Incorporated and the Company. (Incorporated
by reference to Exhibit 10.4 to the Registrant's Registration Statement on Form
S-1 (Registration No. 33-57174))
10.4 Management Services Agreement, dated March 27, 1991, between
Kelso and the Company. (Incorporated by reference to Exhibit 10.5 to the
Registrant's Registration Statement on Form S-1 (Registration No. 33-57174))
27
<PAGE>
Exhibit Index (continued)
Form 10-K for fiscal year ended 12/28/96
Exhibit No. Description
- ----------- -----------
10.5 Irrevocable Guaranty, dated as of March 30, 1992, among the
Company, Kelso Insurance Services, Inc., and the American Telephone and
Telegraph Company. (Incorporated by reference to Exhibit 10.6 to the
Registrant's Registration Statement on Form S-1 (Registration No. 33-57174))
10.6 Form of Indemnification Agreement between the Company and each
of the directors and executive officers of the Company. (Incorporated by
reference to Exhibit 10.7 of Amendment No. 1 to the Registrant's Registration
Statement on Form S-1 (Registration No. 33-57174))
10.7+ LSHI Management Incentive Compensation Plan. (Incorporated by
reference to Exhibit 10.8 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 25, 1993 (Commission File No. 0-21238))
10.8+ Landstar System, Inc. 1994 Director's Stock Option Plan.
(Incorporated by reference to Exhibit 99 to the Registrant's Registration
Statement on Form S-8 filed July 5, 1995 (Registration No. 33-94304))
(11) Statement re Computation of Per Share Earnings:
11.1* Landstar System, Inc. and Subsidiary Calculation of Earnings
Per Share.
(13) Annual Report to Shareholders, Form 10-Q or Quarterly Report to
Shareholders:
13.1* Excerpts from the 1996 Annual Report to Shareholders.
28
<PAGE>
Exhibit Index (continued)
Form 10-K for fiscal year ended 12/28/96
Exhibit No. Description
- ----------- -----------
(21) Subsidiaries of the Registrant:
21.1* List of Subsidiary Corporations of the Registrant.
(23) Consents of Experts and Counsel:
23.1* Consent of KPMG Peat Marwick LLP as Independent Auditors of the
Registrant.
(24) Power of Attorney
24.1* Powers of Attorney.
(27) Financial Data Schedule
27.1* Financial Data Schedule
___________________
+management contract or compensatory plan or arrangement
*Filed herewith.
29
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Landstar System, Inc.:
Under date of February 12, 1997, we reported on the consolidated balance sheets
of Landstar System, Inc. and subsidiary as of December 28, 1996 and December
30, 1995, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for the fiscal years ended December 28,
1996, December 30, 1995, and December 31, 1994, as contained in the 1996 annual
report to shareholders. These consolidated financial statements and our report
thereon are incorporated by reference in the annual report on Form 10-K for the
year 1996. In connection with our audits of the aforementioned consolidated
financial statements, we also audited the related financial statement schedules
as listed in Item 14 (a)(2). These financial statement schedules are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present
fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Stamford, Connecticut
February 12, 1997
30
<PAGE>
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PARENT COMPANY ONLY BALANCE SHEET INFORMATION
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Dec. 28, Dec. 30,
1996 1995
-------- --------
<S> <C> <C>
ASSETS
- ------
Investment in Landstar System Holdings, Inc.,
net of advances $147,344 $128,179
Operating property, less accumulated
amortization of $878 and $252 626 435
-------- --------
Total assets $147,970 $128,614
======== ========
Liabilities and Shareholders' Equity
- -----------------------------------
Long-term debt, including current
maturities of $413 and $187 $ 413 $ 218
Shareholders' equity:
Common stock, $.01 par value, authorized
20,000,000 shares, issued 12,882,874
and 12,871,674 shares 129 129
Additional paid - in capital 61,740 61,504
Retained earnings 87,655 68,730
Cost of 94,041 shares of common
stock in treasury (1,967) (1,967)
-------- --------
Total shareholders' equity 147,557 128,396
-------- --------
Total liabilities and shareholders' equity $147,970 $128,614
======== ========
</TABLE>
S-1
<PAGE>
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PARENT COMPANY ONLY STATEMENT OF INCOME INFORMATION
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------
Dec. 28, Dec. 30, Dec. 31,
1996 1995 1994
---------- ---------- -----------
<S> <C> <C> <C>
Rental income $ 682 $ 323 -
Amortization expense (626) (252) -
Interest expense (56) (71) -
Equity in undistributed earnings
of Landstar System Holdings, Inc. 18,942 25,019 $ 24,488
Income taxes (17) (57) (81)
---------- ---------- -----------
Net income $ 18,925 $ 24,962 $ 24,407
========== ========== ===========
Earnings per share $ 1.48 $ 1.95 $ 1.90
========== ========== ===========
Average number of common shares
outstanding 12,785,000 12,807,000 12,848,000
========== ========== ==========
</TABLE>
S-2
<PAGE>
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PARENT COMPANY ONLY STATEMENT OF CASH FLOWS INFORMATION
(Dollars in thousands)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------
Dec. 28, Dec. 30, Dec. 31,
1996 1995 1994
---------- ---------- -----------
<S> <C> <C> <C>
Operating Activities
- --------------------
Net income $ 18,925 $ 24,962 $ 24,407
Adjustments to reconcile net income
to net cash provided(used) by
operating activities:
Amortization of operating property 626 252 -
Equity in undistributed earnings of
Landstar System Holdings, Inc. (18,942) (25,019) (24,488)
Decrease in other liabilities - - (216)
---------- ---------- ------------
Net Cash Provided (Used) By Operating
Activities 609 195 (297)
---------- ---------- ------------
Investing Activities
- --------------------
Additional investments in and advances
to Landstar System Holdings, Inc., net (223) 2,001 297
---------- ---------- ------------
Net Cash Provided (Used) By Investing
Activities (223) 2,001 297
---------- ---------- ------------
Financing Activities
- --------------------
Principal payments on borrowings under
capital lease obligations (622) (469) -
Proceeds from sales of common stock 236 - -
Purchases of common stock - (1,727) -
---------- --------- ------------
Net Cash Used By Financing
Activities (386) (2,196) -
---------- --------- ------------
Change in cash 0 0 0
Cash at beginning of period 0 0 0
---------- --------- -----------
Cash at end of period $ 0 $ 0 $ 0
========== ========= ===========
</TABLE>
S-3
<PAGE>
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEAR ENDED DECEMBER 28, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ------ ------ ------ ------ ------
Balance Additions
at --------------------------
Beginning Charged to Charged to Balance
of Costs and Other Accounts Deductions at End
Description Period Expenses Describe Describe(A) of Period
- ----------- --------- ---------- -------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts:
Deducted from trade
receivables $ 6,923 $ 1,667 $ - $ (2,064) $ 6,526
Deducted from other
receivables 4,205 3,084 - (2,899) 4,390
Deducted from other non-
current receivables 0 17 - - 17
------- --------- ----------- -------- -------
$11,128 $ 4,768 $ - $ (4,963) $10,933
======= ========= =========== ======== =======
</TABLE>
(A) Write-offs, net of recoveries.
S-4
<PAGE>
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEAR ENDED DECEMBER 30, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ------ ------ ------ ------ ------
Balance Additions
at --------------------------
Beginning Charged to Charged to Balance
of Costs and Other Accounts Deductions at End
Description Period Expenses Describe (A) Describe of Period
- ----------- --------- ---------- -------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts:
Deducted from trade
receivables $ 4,136 $ 3,755 $ 1,105 $ (2,073) $ 6,923
Deducted from other
receivables 3,662 2,477 95 (2,029) 4,205
------- --------- ----------- -------- -------
$ 7,798 $ 6,232 $ 1,200 $ (4,102)(B) $11,128
======= ========= =========== ======== =======
</TABLE>
(A) Amounts in this column represent opening balances from new businesses
acquired during 1995.
(B) Write-offs, net of recoveries.
S-5
<PAGE>
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ------ ------ ------ ------ ------
Balance Additions
at --------------------------
Beginning Charged to Charged to Balance
of Costs and Other Accounts Deductions at End
Description Period Expenses Describe (A) Describe of Period
- ----------- --------- ---------- -------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts:
Deducted from trade
receivables $ 3,150 $ 1,867 $ (184) $ (697) $ 4,136
Deducted from other
receivables 2,169 1,708 243 (458) 3,662
Deducted from other
non-current receivables 81 - - (81) -
------- --------- ----------- -------- -------
$ 5,400 $ 3,575 $ 59 $ (1,236)(B) $ 7,798
======= ========= =========== ======== =======
</TABLE>
(A) Amounts in this column represent recoveries and reclassifications from
trade receivables to other receivables.
(B) Write-offs.
S-6
<PAGE>
Exhibit 4.5
Execution Copy
--------------
SECOND AMENDMENT
----------------
SECOND AMENDMENT, dated as of March 1, 1996 (this "Amendment"), to
the Amended and Restated Credit Agreement, dated as of October 7, 1994 (as
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), among LANDSTAR SYSTEM HOLDINGS, INC., a Delaware Corporation (the
"Borrower"), LANDSTAR SYSTEM, INC., a Delaware corporation (the "Parent"), the
lenders parties thereto (the "Lenders") and CHEMICAL BANK, a New York banking
corporation, as agent (in such capacity, the "Agent").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Borrower, the Parent, the Lenders and the Agent are
parties to the Credit Agreement; and
WHEREAS, the Borrower and the Parent have requested that the Lenders
agree to amend or waive certain provisions of the Credit Agreement and the
Lenders are agreeable to such request upon the terms and subject to the
conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and mutual
agreements contained herein, and for other valuable consideration the receipt
of which is hereby acknowledged, the Borrower, the Parent and the Agent hereby
agree as follows:
1. Definitions. All terms defined in the Credit
Agreement shall have such defined meanings when used herein unless otherwise
defined herein.
2. Amendment of Subsection 1.1. Subsection 1.1 of the Credit
Agreement is hereby amended by deleting the word "required" in the sixth line
<PAGE>
of the definition of "Permitted Specified Additional Debt" and inserting in
lieu thereof the word "scheduled."
3. Amendment of Subsection 7.4. Subsection 7.4 of the Credit
Agreement is hereby amended by (a) deleting paragraph (f) in its entirety and
adding the following new paragraph (f):
"(f) Guarantee Obligations of the Parent, the Borrower or any
Subsidiary of the parent in respect of loans made pursuant to
the Operator Financing Program which are sold as described in
clause (iii) of the definition of such term, provided that
such Guarantee Obligations do not, in the aggregate, exceed
$50 million at any one time outstanding."
and (b)
relettering paragraph (h) as (i) and adding the following new paragraph (h):
"(h) Guarantee Obligations relating to obligations of any
kind of the Borrower, the Parent, or any of the Parent's
subsidiaries that are not prohibited by this Agreement".
4. Waivers. The Lenders hereby waive any Default or Event of Default
that may have arisen by the reason of the incurrence, prior to the effective
date of this Amendment, of a Guarantee Obligation of a type covered by
subsection 7.4(h) of the Credit Agreement, as amended hereby.
5. Representations; No Default. On and as of the date hereof, and
after giving effect to this Amendment, the Borrower confirms, reaffirms and
restates that the representations and warranties set forth in Section 4 of the
Credit Agreement are true and correct in all material respects, provided that
the references to the Credit Agreement therein shall be deemed to be references
to this Amendment and to the Credit Agreement as amended by this Amendment.
6. Conditions to Effectiveness. This Amendment shall become
effective on the date on which the Agent shall have received counterparts of
this Amendment, duly executed and delivered by a duly authorized officer of
each of the Borrower, the Parent, each Guarantor which is a party to the
Subsidiaries Guarantee and the Required Lenders.
<PAGE>
7. Limited Effect. Except as expressly amended herein, the Credit
Agreement shall continue to be, and shall remain, in full force and effect.
This Amendment shall not be deemed to be a waiver of, or consent to, or a
modification or amendment of, any other term or condition of the Credit
Agreement or to prejudice any other right or rights which the Lenders may now
have or may have in the future under or in connection with the Credit Agreement
or any of the instruments or agreements referred to therein, as the same may be
amended from time to time.
8. Costs and Expenses. The Borrower agrees to pay or reimburse the
Agent for all its reasonable and customary out-of-pocket costs and expenses
incurred in connection with this Amendment, including, without limitation, the
reasonable fees and disbursements of its counsel.
9. Counterparts. This Amendment may be executed by one or more of
the parties hereto in any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
10. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed and delivered by their respective duly authorized officers as of
the date first above written.
<PAGE>
LANDSTAR SYSTEM HOLDINGS, INC.
By: Robert C. LaRose
-------------------------------
Title: Vice President Finance
and Treasurer
LANDSTAR SYSTEM, INC.
By: Robert C. LaRose
-------------------------------
Title: Vice President Finance
and Treasurer
CHEMICAL BANK, as Agent and as a Lender
By: Rosemary Bradley
-------------------------------
Title: Vice President
ABN AMRO Bank N.V.
By: Frances O'R Logan
-------------------------------
Title: Vice President
By: Thomas Rogers
-------------------------------
Title: Assistant Vice President
AMSOUTH BANK OF ALABAMA
By: R. Mark Graf
-------------------------------
Title: Vice President
<PAGE>
THE BANK OF NEW YORK
By: Nancy McEwen
-------------------------------
Title: Vice President
BARNETT BANK OF JACKSONVILLE, N.A.
By: Glenn Romm
-------------------------------
Title: Vice President
CORESTATES BANK, N.A.
By: Verna R. Prentice
-------------------------------
Title: Vice President
THE FIRST NATIONAL BANK OF BOSTON
By: Michael J. Blake
-------------------------------
Title: Director
FLEET BANK, NATIONAL ASSOCIATION
By: John V. Raliegh
-------------------------------
Title: Vice President
THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED, NEW YORK BRANCH
By: Nobru Kubota
-------------------------------
Title: Deputy General Manager
<PAGE>
NATIONSBANK N.A. (CAROLINAS)
By:
-------------------------------
Title:
PNC BANK, NATIONAL ASSOCIATION
By: Nancy S. Goldman
-------------------------------
Title: Vice President
FIRST UNION BANK f/k/a FIRST FIDELITY BANK
By: Donald W. Whitman
-------------------------------
Title: Vice President
The undersigned Guarantors do hereby consent and
agree to the execution and delivery by the Borrower and the Parent of the
foregoing Amendment:
LANDSTAR GEMINI, INC. (f.k.a. GEMINI TRANSPORTATION SERVICES, INC.)
LANDSTAR ITCO, INC. (f.k.a. LANDSTAR INTERMODAL, INC.)
LANDSTAR EXPEDITED, INC.
LANDSTAR GEMINI ACQUISITION
LANDSTAR CORPORATE SERVICES, INC.
LANDSTAR RANGER, INC. (f.k.a. RANGER TRANSPORTATION, INC.)
LANDSTAR LIGON, INC. (f.k.a. LIGON NATIONWIDE, INC.)
<PAGE>
LANDSTAR POOLE, INC. (f.k.a. POOLE TRUCK LINE, INC.)
<PAGE>
RISK MANAGEMENT CLAIM SERVICES, INC.
LANDSTAR TRANSPORTATION SERVICE, INC.
LANDSTAR EXPRESS AMERICA, INC.
LANDSTAR T.L.C., INC.
LANDSTAR INWAY, INC. (f.k.a. INDEPENDENT FREIGHTWAY, INC.)
By: Robert C. LaRose
-------------------------------
Title: Vice President Finance
and Treasurer
<PAGE>
EXHIBIT 11.1
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CALCULATION OF EARNINGS PER SHARE
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Fiscal Year Ended
December 28, December 30, December 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net income $ 18,925 $ 24,962 $ 24,407
============ ============ ============
Average number of common shares
outstanding 12,785 12,807 12,848
============ ============ ============
Earnings per share $ 1.48 $ 1.95 $ 1.90
============ ============ ============
</TABLE>
<PAGE>
EXHIBIT 13.1
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 Ranger"),
Landstar Inway, Inc. ("Landstar Inway"), 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. ("Landstar Poole") and Landstar T.L.C., Inc.
("Landstar T.L.C.") provide truckload transportation services using both
company-owned and leased equipment driven by company-employed drivers and
independent contractors. The percentage of Landstar Poole's total revenue
generated through independent contractors was approximately 44% in 1996, 29% in
1995 and 17% in 1994. The percentage of Landstar T.L.C.'s total revenue
generated through independent contractors was approximately 65% in 1996 and 62%
in 1995. During the fourth quarter of 1996, the Company announced its plan to
restructure the operations of both Landstar Poole and Landstar T.L.C. The
Landstar Poole restructuring plan includes the transfer of the variable cost
business component of Landstar Poole to Landstar Ranger and the disposal of 175
company-owned tractors. The Landstar T.L.C. restructuring plan includes the
merger of Landstar T.L.C. into Landstar Inway and the disposal of all the
company-owned tractors. Another Landstar subsidiary, Landstar Logistics, Inc.
("Landstar Logistics"), provides customers with contract logistics and
intermodal services. Contract logistics services include single source
alternatives, truck brokerage and other transportation solutions for large
customers. Intermodal transportation services primarily involves arranging for
the movement of customers' goods by a combination of rail and truck. Both the
railroad and drayage carriers utilized by Landstar Logistics are independent
contractors. Landstar Express America, Inc. ("Landstar Express America"),
provides air and surface expedited transportation services through independent
contractors, including air cargo carriers, and principally utilizes independent
commission sales agents.
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 ("ITCO"), a California-based intermodal
marketing company, LDS Truck Lines, Inc., a California-based drayage company,
and T.L.C. Lines, Inc.("TLC"), 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. ("Express"), a North
Carolina-based air freight and truck expedited service provider. The business
acquired from ITCO comprises the majority of Landstar Logistics' intermodal
operations, while the business acquired with Express comprises the majority of
Landstar Express America's operations.
<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 operations of Landstar Logistics and
the air freight operations of Landstar Express America is based on a
contractually agreed upon fixed rate. Purchased transportation as a percentage
of revenue for the intermodal operations of Landstar 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
operations of Landstar Logistics or through the air freight operations of
Landstar Express America or through company-employed drivers.
Drivers' wages and benefits represent the amount Landstar Poole and Landstar
T.L.C. employee drivers are compensated. Employee drivers are compensated
primarily 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 the independent
contractors or a change in the rate of employee 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, Landstar T.L.C. and
the intermodal operations of Landstar Logistics have principally utilized a
company employee sales structure and to a lesser degree, independent commission
sales agents. During 1996, management completed the process of converting the
majority of company-owned sales locations at Landstar Logistics and Landstar
T.L.C. 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.
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 Landstar Poole's or Landstar T.L.C.'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 Landstar Poole and
Landstar T.L.C. terminals. Effective August 1, 1996, Landstar closed all but
<PAGE>
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>
Fiscal Year
------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Revenue 100.0% 100.0% 100.0%
Costs and expenses:
Purchased transportation 69.0 67.5 66.3
Drivers' wages and benefits 3.2 4.0 3.9
Fuel and other operating costs 5.5 5.6 5.5
Insurance and claims 2.8 3.1 3.6
Commissions to agents and brokers 6.8 6.2 6.3
Selling, general and administrative 7.1 7.7 8.4
Depreciation and amortization 1.9 1.7 1.4
Restructuring costs 0.6
------ ------ ------
Total costs and expenses 96.9 95.8 95.4
------ ------ ------
Operating income 3.1 4.2 4.6
Interest and debt expense, net 0.6 0.7 0.4
------ ------ ------
Income before income taxes 2.5 3.5 4.2
Income taxes 1.0 1.4 1.7
------ ------ ------
Net income 1.5% 2.1% 2.5%
====== ====== ======
</TABLE>
FISCAL YEAR ENDED DECEMBER 28, 1996 COMPARED TO FISCAL YEAR ENDED DECEMBER 30,
1995
Revenue for the fiscal year 1996 was $1,283,801,000, an increase of
$79,134,000, or 6.6%, over the 1995 fiscal year. The increase was primarily
attributable to an increase in revenue miles (volume) of 6.5%, which included
the revenue of the businesses acquired during the first quarter of 1995 for the
full fifty-two weeks of 1996, and an increase of less than 1% in revenue per
revenue mile (price). During the 1996 year, revenue generated through
independent contractors, including railroads and air cargo carriers, was 90.4%
of consolidated revenue compared with 88.5% in the 1995 year.
Purchased transportation was 69.0% of revenue in 1996 compared with 67.5% in
1995. Drivers' wages and benefits were 3.2% of revenue in 1996 compared with
4.0% in 1995. Fuel and other operating costs were 5.5% of revenue in 1996
compared with 5.6% in 1995. The increase in purchased transportation and
decrease in drivers' wages and benefits and fuel and other operating costs as a
percentage of revenue was primarily attributable to an increase in the
<PAGE>
percentage of revenue generated through independent contractors. The decrease
in fuel and other operating costs was partially offset by an increase in fuel
prices. Insurance and claims were 2.8% of revenue in 1996 compared with 3.1%
in 1995 due to a decrease in third-party premiums and favorable development of
prior year claims. Commissions to agents and brokers were 6.8% of revenue in
1996 compared with 6.2% in 1995 due to an increase in the percentage of revenue
generated through independent commission sales agents which reflected the
conversion of company-owned sales locations to independent commission sales
agent locations. Selling, general and administrative costs were 7.1% of
revenue in 1996 compared with 7.7% of revenue in 1995, primarily due to a lower
provision for customer bad debts, reduced employee sales costs which reflected
the conversion of company-owned sales locations to independent commission sales
agent locations and the effect of increased revenue.
On December 18, 1996, the Company announced a plan to restructure its Landstar
T.L.C and Landstar Poole operations, in addition to the relocation of its
Shelton, Connecticut corporate office headquarters to Jacksonville, Florida in
the second quarter of 1997. During the 1996 fourth quarter, the Company
recorded $7,263,000 in restructuring costs, which included approximately
$4,166,000 for impairment of certain long-lived assets, $939,000 for the early
termination of certain operating leases, $850,000 for employee termination
costs and $1,308,000 of other costs. Long-lived assets, having an aggregate
carrying value of $16,500,000, were reduced to their estimated sales value and
primarily represented revenue equipment to be sold. The Company anticipates to
incur additional pre-tax restructuring costs of approximately $2,200,000 during
the 1997 first half.
Interest and debt expense, net was 0.6% of revenue in 1996 and 0.7% in 1995.
This decrease was primarily attributable to the effect of increased revenue.
The provisions for income taxes for both the 1996 and 1995 fiscal years were
based on an effective income tax rate of approximately 41%, which is 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. At December 28, 1996, the valuation allowance of $816,000 was
attributable to deferred state income tax benefits, primarily state operating
loss carryforwards at one subsidiary. The valuation allowance and goodwill
were reduced by $190,000 for state operating loss carryforwards utilized in
1996. The valuation allowance was reduced by an additional $265,000 for state
operating loss carryforwards that had expired. The valuation allowance and
goodwill will be further reduced by $788,000 when realization of deferred state
income tax benefits becomes likely. The Company believes that deferred income
tax benefits, net of the valuation allowance, are more likely than not to be
realized because of the Company's ability to generate future taxable earnings.
Net income was $18,925,000, or $1.48 per share, in 1996 compared with
$24,962,000, or $1.95 per share, in the prior year. Excluding restructuring
costs, 1996 net income would have been $23,174,000, or $1.81 per share. If the
acquisitions had taken place at the beginning of 1995, pro forma net income for
1995 would have been $24,352,000, or $1.90 per share.
FISCAL YEAR ENDED DECEMBER 30, 1995 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1994
Revenue for the fiscal year 1995 was $1,204,667,000, an increase of
$220,308,000, or 22.4%, over the 1994 fiscal year. Revenue from the acquired
businesses of ITCO, TLC and Express accounted for $198,926,000 of the increase.
<PAGE>
The remaining increase of $21,382,000, or 2.2%, was attributable to an increase
in revenue miles of approximately 1% and an increase in revenue per revenue
mile of approximately 1%. During the 1995 year, revenue generated through
independent contractors, including railroads and air cargo carriers, was 88.5%
of consolidated revenue compared with 87.8% in the 1994 year.
Purchased transportation was 67.5% of revenue in 1995 compared with 66.3% in
1994. Drivers' wages and benefits were 4.0% of revenue in 1995 compared with
3.9% in 1994. Fuel and other operating costs were 5.6% of revenue in 1995
compared with 5.5% in 1994. The increase in purchased transportation as a
percentage of revenue was primarily attributable to the purchased
transportation incurred by the intermodal operations of Landstar Logistics
which reflected the higher cost of intermodal purchased transportation. The
increase in drivers' wages and benefits as a percentage of revenue was
primarily attributable to the acquisition of TLC and the increase in Landstar
Poole's driver pay package, partially offset by the increase in the percentage
of revenue generated through independent contractors. The increase in fuel and
other operating costs as a percentage of revenue was primarily attributable to
the acquisition of TLC. Insurance and claims were 3.1% of revenue in 1995
compared with 3.6% in 1994. Excluding the 1995 revenue and insurance and
claims of the intermodal operations of Landstar Logistics, which has a
significantly lower risk of claims exposure due to the nature of its intermodal
operations, insurance and claims as a percentage of revenue were 3.4% in 1995
versus 3.6% in 1994. This percentage decrease was primarily attributable to a
decrease in the severity of accidents and a decrease in third-party premiums as
a percentage of revenue. Commissions to agents and brokers were 6.2% of
revenue in 1995 compared with 6.3% in 1994. The decrease was primarily
attributable to an increase in the percentage of revenue generated through
company store locations and employees, which reflected the sales structure of
the acquired companies. No bonuses were accrued under the Company's management
incentive compensation plan for the 1995 year. As a result, selling, general
and administrative costs were 7.7% of revenue in 1995 compared with 8.4% of
revenue in 1994.
Interest and debt expense, net was 0.7% of revenue in 1995 and 0.4% in 1994.
This increase was primarily attributable to borrowings to finance the
acquisitions.
The provisions for income taxes for the 1995 and 1994 fiscal years were based
on an effective income tax rate of approximately 41%, which is 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 $24,962,000, or $1.95 per share, in 1995 compared with
$24,407,000, or $1.90 per share, in the prior year. If the acquisitions had
taken place at the beginning of both fiscal years, pro forma net income for
1995 would have been $24,352,000, or $1.90 per share, compared to $22,876,000,
or $1.78 per share in 1994.
CAPITAL RESOURCES AND LIQUIDITY
Landstar has a credit facility with a syndicate of banks and Chase Manhattan
Bank, as agent (the "Credit Agreement"). The Credit Agreement provides
$150,000,000 of borrowing capacity, consisting of $100,000,000 of revolving
credit (the "Working Capital Facility") and $50,000,000 of revolving credit
available to finance acquisitions (the "Acquisition Facility"). $50,000,000 of
the total borrowing capacity under the Working Capital Facility may be utilized
<PAGE>
in the form of letter of credit guarantees. At December 28, 1996, Landstar had
no borrowings outstanding under the Working Capital Facility, $28,500,000
outstanding under the Acquisition Facility and had commitments for letters of
credit outstanding in the amount of $20,459,000, primarily as collateral for
estimated insurance claims. The Credit Agreement expires on October 7, 2000,
and may be extended to October 7, 2002 upon Landstar's request and bank
approval.
Borrowings under the Credit Agreement bear interest at rates equal to, at the
option of Landstar, either (i) the greatest of (a) the prime rate as publicly
announced from time to time by Chase Manhattan Bank, (b) the three-month CD
rate adjusted for statutory reserves and FDIC assessment costs plus 1% and (c)
the federal funds effective rate plus 1/2%, or, (ii) the rate at the time
offered to Chase Manhattan Bank in the Eurodollar market for amounts and
periods comparable to the relevant loan plus a margin that is determined based
on the level of certain financial ratios. As of December 28, 1996, the margin
was equal to 1/2 of 1%. The unused portion of the Credit Agreement carries a
commitment fee determined based on the level of certain financial ratios. As
of December 28, 1996, the commitment fee for the unused portion of the Credit
Agreement was 0.200%. At December 28, 1996, the weighted average interest rate
on borrowings outstanding under the Acquisition Facility was 6.09%. Based on
the borrowing rates in the Credit Agreement and the repayment terms, the fair
value of the outstanding borrowings under the Acquisition Facility were
estimated to approximate carrying value.
The Credit Agreement contains a number of covenants that limit, among other
things, the payment of dividends, the incurrence of additional indebtedness,
the incurrence of operating or capital lease obligations and the purchase of
operating property. The Credit Agreement also requires Landstar to meet
certain financial tests. Landstar is required to, among other things, maintain
minimum levels of Net Worth, as defined in the Credit Agreement, and Interest
and Fixed Charge Coverages, as therein defined. Under the most restrictive
covenant, Landstar exceeded the required minimum Interest Charge Coverage level
by approximately $2,345,000 at December 28, 1996. The Credit Agreement limits
the payment of dividends in any fiscal year to the lesser of 50% of Excess
Cash Flow, as therein defined, or 25% of Consolidated Net Income, as therein
defined.
The Credit Agreement provides a number of events of default related to a person
or group of persons acquiring 25% or more of the outstanding capital stock of
the Company or obtaining the power to elect a majority of the Company's
directors. Borrowings under the Credit Agreement are unsecured, however, the
Company and each of LSHI's subsidiaries guarantee LSHI's obligations under the
Credit Agreement.
Shareholders' equity increased to $147,557,000, or 62.0% of total
capitalization, at December 28, 1996, compared with $128,396,000, or 57.8% of
total capitalization, at December 30, 1995, primarily as a result of earnings
for the period. Working capital and the ratio of current assets to current
liabilities were $70,653,000 and 1.54 to 1, respectively, at December 28, 1996,
compared with $51,360,000 and 1.40 to 1, respectively, at December 30, 1995.
Landstar has historically operated with current ratios ranging between 1.0 to 1
and 1.5 to 1. Cash provided by operating activities was $24,994,000 in 1996
compared with $19,963,000 in 1995. The increase in cash provided by operating
activities was primarily attributable to the timing of payments, partially
offset by reduced earnings. During the 1996 fiscal year, Landstar purchased
$12,853,000 of operating property and acquired $20,690,000 of operating
<PAGE>
property by entering into capital leases. Landstar plans to acquire
approximately $15,000,000 of operating property during fiscal year 1997 either
by purchase or by lease financing.
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.
Landstar Ranger is subject to the Multi Employer Pension Plan Amendments Act of
1980 ("MEPPA"), which could require Landstar Ranger, in the event of
withdrawal, to fund its proportionate share of the union sponsored plans', in
which it participates, unfunded benefit obligation. However, management
believes that the liability, if any, for withdrawal from any or all of these
plans would 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.
Management believes that cash flow from operations combined with its borrowing
capacity under the 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 are typically
lower than the quarters ending June, September and December due to reduced
shipments and higher operating costs in the winter months.
<PAGE>
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 28, December 30,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 4,187 $ 3,415
Trade accounts receivable, less allowance
of $6,526 and $6,923 176,892 151,009
Other receivables, including advances to independent
contractors, less allowance of $4,390
and $4,205 10,740 13,359
Inventories 1,785 2,292
Prepaid expenses and other current assets 7,319 8,501
-------- --------
Total current assets 200,923 178,576
-------- --------
Operating property, less accumulated depreciation
and amortization of $50,223 and $39,796 105,564 108,052
Goodwill, less accumulated amortization of $7,087
and $5,354 55,126 57,049
Deferred income taxes and other assets 9,188 9,402
-------- --------
Total assets $370,801 $353,079
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash overdraft $ 13,488 $ 13,449
Accounts payable 39,901 37,427
Current maturities of long-term debt 23,241 20,668
Estimated insurance claims 25,328 23,654
Other current liabilities 28,312 32,018
-------- --------
Total current liabilities 130,270 127,216
-------- --------
Long-term debt, excluding current maturities 67,155 73,199
Estimated insurance claims 25,819 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 87,655 68,730
Cost of 94,041 shares of common
stock in treasury (1,967) (1,967)
-------- --------
Total shareholders' equity 147,557 128,396
-------- --------
Total liabilities and shareholders' equity $370,801 $353,079
======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal Year Ended
December 28, December 30, December 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenue $ 1,283,801 $ 1,204,667 $ 984,359
Costs and expenses:
Purchased transportation 885,500 813,003 653,076
Drivers' wages and benefits 41,210 47,970 38,287
Fuel and other operating costs 70,207 67,861 53,627
Insurance and claims 36,495 37,816 35,413
Commissions to agents and brokers 87,935 73,974 61,542
Selling, general and administrative 91,267 93,194 83,143
Depreciation and amortization 24,027 20,841 13,509
Restructuring costs 7,263
------------ ----------- ------------
Total costs and expenses 1,243,904 1,154,659 938,597
------------ ----------- ------------
Operating income 39,897 50,008 45,762
Interest and debt expense, net 7,547 7,552 4,134
------------ ----------- ------------
Income before income taxes 32,350 42,456 41,628
Income taxes 13,425 17,494 17,221
------------ ----------- ------------
Net income $ 18,925 $ 24,962 $ 24,407
============ =========== ============
Earnings per share $ 1.48 $ 1.95 $ 1.90
============ =========== ============
Average number of common shares outstanding 12,785,000 12,807,000 12,848,000
============ =========== ============
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended
December 28, December 30, December 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 18,925 $ 24,962 $ 24,407
Adjustments to reconcile net income to net cash
provided by operating activities:
Impairment of long-lived assets 4,166
Depreciation and amortization of operating property 21,878 18,824 12,612
Amortization of goodwill and non-competition
agreements 2,149 2,017 897
Non-cash interest charges 264 253 366
Provisions for losses on trade and other receivables 4,768 6,232 3,575
Losses (gains) on sales of operating property (2,530) (2,080) 185
Deferred income taxes, net 355 (419) (1,540)
Non-cash charge in lieu of income taxes 190
Changes in operating assets and liabilities,
net of businesses acquired:
Increase in trade and other accounts receivable (28,032) (14,417) (29,237)
Decrease (increase) in other assets 868 (2,635) (2,170)
Increase (decrease) in accounts payable 2,474 (2,928) 5,673
Increase in estimated insurance claims 3,462 7,179 7,875
Increase (decrease) in other liabilities (3,943) (17,025) 13,707
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 24,994 19,963 36,350
------------ ------------ ------------
INVESTING ACTIVITIES
Purchases of businesses, net of cash acquired (33,932)
Purchases of operating property (12,853) (7,286) (7,491)
Proceeds from sales of operating property 12,517 7,154 2,460
------------ ------------ ------------
NET CASH USED BY INVESTING ACTIVITIES (336) (34,064) (5,031)
------------ ------------ ------------
FINANCING ACTIVITIES
Borrowings to finance businesses acquired 45,900
Borrowings under revolving credit facility 16,000 10,000
Increase in cash overdraft 39 4,029 280
Proceeds from exercise of stock options and
related income tax benefit 236
Purchases of common stock (1,727)
Principal payments on borrowings under revolving
credit facility, long-term debt and capital lease
obligations (40,161) (58,441) (28,964)
------------ ----------- -----------
NET CASH USED BY FINANCING ACTIVITIES (23,886) (239) (28,684)
------------ ----------- -----------
Increase (decrease) in cash 772 (14,340) 2,635
Cash at beginning of period 3,415 17,755 15,120
------------ ----------- -----------
Cash at end of period $ 4,187 $ 3,415 $ 17,755
============ =========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
LANDSTAR SYSTEM INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Fiscal Year Ended December 28, 1996,
December 30, 1995 and December 31, 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
Additional Treasury Stock
Common Stock Paid-In Retained at Cost
Shares Amount Capital Earnings Shares Amount Total
----------------- --------- -------- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 25, 1993 12,871,674 $ 129 $61,504 $19,361 24,041 $ (240) $ 80,754
Net income 24,407 24,407
---------- ------ ------- ------- ------ --------- --------
Balance December 31, 1994 12,871,674 129 61,504 43,768 24,041 (240) 105,161
Net income 24,962 24,962
Purchases of common stock 70,000 (1,727) (1,727)
---------- ------ ------- ------- ------ --------- --------
Balance December 30, 1995 12,871,674 129 61,504 68,730 94,041 (1,967) 128,396
Net income 18,925 18,925
Exercise of stock options
and related income tax
benefit 11,200 236 236
---------- ------ ------- ------- ------ --------- --------
Balance December 28, 1996 12,882,874 $ 129 $61,740 $87,655 94,041 $ (1,967) $147,557
========== ====== ======= ======= ====== ========= ========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Significant Accounting Policies
Consolidation
The consolidated financial statements include the accounts of Landstar System,
Inc. and its subsidiary Landstar System Holdings, Inc. Landstar System, Inc.
and its subsidiary are herein referred to as "Landstar" or the "Company".
Significant inter-company accounts have been eliminated in consolidation. The
preparation of the consolidated financial statements requires the use of
management's estimates. Actual results could differ from those estimates.
Fiscal Year
Landstar's fiscal year is the 52 or 53 week period ending the last Saturday in
December.
Revenue Recognition
Revenue and the related direct freight expenses are recognized upon completion
of freight delivery.
Insurance Claim Costs
Landstar provides, on an actuarially determined basis, for the estimated costs
of cargo, property, casualty, general liability and workers' compensation
claims both reported and for claims incurred but not reported. Landstar
retains liability up to $1,000,000 for each individual property, casualty and
general liability claim, $500,000 for each workers' compensation claim and
$250,000 for each cargo claim.
Inventories
Inventories, consisting of fuel, tires and vehicle repair parts, are valued at
the lower of average cost or market.
Tires
Tires and tubes purchased as part of revenue equipment are capitalized as part
of the cost of the equipment. Replacement tires and tubes are charged to
expense when placed in service.
Operating Property
Operating property is recorded at cost. Depreciation is provided on the
straight-line basis over the estimated useful lives of the related assets.
Revenue equipment is being depreciated over a maximum of 7 years.
Goodwill
Goodwill represents the excess of purchase cost over the estimated fair value
of net assets acquired. It is being amortized on a straight-line basis over
periods of twenty and forty years. The Company assesses the recoverability of
goodwill by determining whether the amortization of the goodwill balance over
its remaining useful life can be recovered through projected undiscounted
future operating cash flows. The amount of goodwill impairment, if any, is
measured based on projected discounted future operating cash flows using a
discount rate reflecting the Company's current average cost of funds.
Income Taxes
Income tax expense is equal to the current year's liability for income taxes
<PAGE>
and a provision for deferred income taxes. Deferred tax assets and
liabilities are recorded for the future tax effects attributable to temporary
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax basis. Deferred tax assets
and liabilities are measured using the enacted tax rates expected to be
applied to taxable income in the years in which those temporary differences
are expected to be recovered or settled.
Stock-Based Compensation
Compensation cost for the Company's stock options is measured as the excess,
if any, of the quoted market price of the Company's stock at the date of grant
over the exercise price of the stock option.
Earnings Per Share
Earnings per share amounts are based on the weighted average number of common
shares outstanding.
(2) Restructuring Costs
On December 18, 1996, the Company announced a plan to restructure its Landstar
T.L.C., Inc. ("Landstar T.L.C.") and Landstar Poole, Inc. ("Landstar Poole")
operations, in addition to the relocation of its Shelton, Connecticut
corporate office headquarters to Jacksonville, Florida, in the second quarter
of 1997.
The plan to restructure Landstar T.L.C. includes the merger of Landstar
T.L.C. into Landstar Inway, Inc., the closing of the Landstar T.L.C.
headquarters in St. Clair, Missouri and the disposal of all of Landstar
T.L.C.'s company-owned tractors. The plan to restructure Landstar Poole
includes the transfer of the variable cost business component of Landstar
Poole to Landstar Ranger, Inc. ("Landstar Ranger") and the disposal of 175
Landstar Poole company-owned tractors.
During the 1996 fourth quarter, the Company recorded $7,263,000 in
restructuring costs, which included $4,166,000 for the impairment of certain
long-lived assets, $939,000 for the early termination of certain operating
leases, $850,000 for employee termination costs and $1,308,000 of other costs.
Long-lived assets, having an aggregate carrying value of $16,500,000, were
reduced to their estimated sales value and primarily represented revenue
equipment to be sold. After deducting related income tax benefits of
$3,014,000, the restructuring charge reduced net income by $4,249,000, or
$0.33 per share, in 1996. The Company anticipates to complete the
restructuring by the end of fiscal year 1997 and to incur additional pre-tax
restructuring costs of approximately $2,200,000.
(3) 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 aggregate purchase price of
<PAGE>
the four acquisitions, including expenses, was $34,076,000, plus the
assumption of $24,162,000 of long-term indebtedness, including current
maturities.
The aggregate purchase price and a portion of the indebtedness
assumed was paid or refinanced with proceeds received from $34,500,000 of
borrowings under the acquisition line of Landstar's revolving credit facility,
$11,400,000 of borrowings from Fleet Bank, N.A. and Mark Twain Bank, and
available cash.
The acquisitions were accounted for under the purchase method and the net
assets acquired and the results of operations of the four acquisitions were
included in Landstar's consolidated financial statements from their respective
dates of acquisition. The aggregate purchase price was allocated to the
assets acquired, including $22,036,000 of operating property, and the
liabilities assumed based on their respective estimated fair values. The
aggregate purchase price exceeded the fair value of the net assets acquired by
$27,415,000 of which $1,200,000 was assigned to non-competition agreements and
$26,215,000 was assigned to goodwill. The non-competition agreements are
being amortized on the straight-line method over the two and three year lives
of the agreements, and goodwill is being amortized on the straight-line method
over periods of twenty and forty years.
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 periods 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>
Fiscal Year
--------------------------
1995 1994
---- ----
<S> <C> <C>
Revenue $1,214,267 $1,195,582
Net income $ 24,352 $ 22,876
Earnings per share $ 1.90 $ 1.78
</TABLE>
The above pro forma information is not necessarily indicative of the results of
operations which actually would have been obtained during such periods.
<PAGE>
(4) Income Taxes
The provisions for income taxes consisted of the following (in thousands):
<TABLE>
<CAPTION>
Fiscal Year
------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $10,830 $14,838 $16,121
State 2,050 3,075 2,640
------- ------- -------
12,880 17,913 18,761
Deferred:
Federal 869 413 (1,553)
State (514) (832) 13
------ ------- -------
355 (419) (1,540)
Non-cash charge in lieu of income taxes 190
------- ------- -------
Provision for income taxes $13,425 $17,494 $17,221
======= ======= =======
</TABLE>
Temporary differences and carryforwards which gave rise to deferred tax assets
and liabilities consisted of the following (in thousands):
<TABLE>
<CAPTION>
Dec. 28, 1996 Dec. 30, 1995
------------- -------------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 3,750 $ 3,954
Deferred state income tax benefits 812 992
State net operating loss carryforwards 3,235 2,943
Self insured claims 20,294 19,570
Compensated absences 620 630
All other 1,245 837
--------- ---------
29,956 28,926
Valuation allowance (816) (1,271)
--------- ---------
$ 29,140 $ 27,655
========= =========
Deferred tax liabilities:
Operating property $ 20,254 $ 18,482
All other 4,470 4,402
--------- ---------
$ 24,724 $ 22,884
========= =========
</TABLE>
<PAGE>
At December 28, 1996, the valuation allowance of $816,000 was attributable to
deferred state income tax benefits, primarily state operating loss carry-
forwards at one subsidiary. The valuation allowance and goodwill were reduced
by $190,000 for state operating loss carryforwards utilized in 1996. The
valuation allowance was reduced by an additional $265,000 for state operating
loss carryforwards that had expired. The valuation allowance and goodwill will
be further reduced by $788,000 when realization of deferred state income tax
benefits becomes likely.
The following table summarizes the differences between income taxes calculated
at the federal income tax rate of 35% on income before income taxes and the
provision for income taxes (in thousands):
<TABLE>
<CAPTION>
Fiscal Year
----------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income taxes at federal income tax rate $11,323 $14,860 $14,570
State income taxes, net of federal income
tax benefit 1,122 1,458 1,724
Amortization of goodwill 439 420 314
Meals and entertainment exclusion 448 647 452
Other, net 93 109 161
------- -------- --------
Provision for income taxes $13,425 $17,494 $17,221
======= ======= =======
</TABLE>
Landstar paid income taxes of $15,949,000 in 1996, $19,679,000 in 1995, and
$16,407,000 in 1994.
(5) Operating Property
Operating property is summarized as follows (in thousands):
<TABLE>
<CAPTION>
Dec. 28, 1996 Dec. 30, 1995
------------- -------------
<S> <C> <C>
Land $ 2,309 $ 2,947
Leasehold improvements 366 373
Buildings and improvements 10,937 8,387
Revenue equipment 125,124 123,258
Other equipment 17,051 12,883
-------- --------
155,787 147,848
Less accumulated depreciation and amortization 50,223 39,796
-------- --------
$105,564 $108,052
======== ========
</TABLE>
<PAGE>
Included above is $110,936,000 in 1996 and $93,616,000 in 1995 of operating
property under capital lease, $74,792,000 and $69,114,000, respectively, net
of accumulated amortization. Landstar acquired operating property by entering
into capital leases in the amount of $20,690,000 in 1996, $28,566,000 in 1995
and $24,570,000 in 1994.
(6) Pension Plans
Landstar sponsors an Internal Revenue Code section 401(k) defined contribution
plan for the benefit of full time employees who have completed one year of
service. Eligible employees make voluntary contributions up to 6% of their
base salary subject to certain limitations. Landstar contributes an amount
equal to 50% of such contributions, subject to certain limitations. In
addition, one subsidiary, Landstar Ranger, makes contributions in accordance
with negotiated labor contracts (generally based on the number of weeks
worked) to union sponsored multi-employer defined benefit pension plans for
the benefit of approximately 200 union drivers.
Landstar Ranger is subject to the Multi Employer Pension Plan Amendments Act
of 1980 ("MEPPA"), which could require Landstar Ranger, in the event of
withdrawal, to fund its proportionate share of these union sponsored plans'
unfunded benefit obligation. Management believes that the liability, if any,
for withdrawal from any or all of these plans would 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.
The expense for the Company sponsored defined contribution plan and for union
sponsored plans was $1,144,000 and $1,085,000 in 1996, respectively,
$1,185,000 and $937,000 in 1995, respectively, and $1,012,000 and $1,268,000
in 1994, respectively.
(7) Debt
Long-term debt is summarized as follows (in thousands):
<TABLE>
<CAPTION>
Dec. 28, 1996 Dec. 30, 1995
------------- -------------
<S> <C> <C>
Capital leases $61,896 $65,367
Acquisition Facility 28,500 28,500
------- -------
90,396 93,867
Less current maturities 23,241 20,668
------- -------
Total long-term debt $67,155 $73,199
======= =======
</TABLE>
Landstar has a credit facility with a syndicate of banks and Chase Manhattan
Bank, as agent (the "Credit Agreement"). The Credit Agreement provides
$150,000,000 of borrowing capacity, consisting of $100,000,000 of revolving
credit (the "Working Capital Facility") and $50,000,000 of revolving credit
available to finance acquisitions (the "Acquisition Facility"). $50,000,000 of
the total borrowing capacity under the Working Capital Facility may be
utilized in the form of letter of credit guarantees. At December 28, 1996,
<PAGE>
Landstar had commitments for letters of credit outstanding in the amount of
$20,459,000, primarily as collateral for estimated insurance claims. The
Credit Agreement expires on October 7, 2000, and may be extended to October 7,
2002 upon Landstar's request and bank approval.
Borrowings under the Credit Agreement bear interest at rates equal to, at the
option of Landstar, either (i) the greatest of (a) the prime rate as publicly
announced from time to time by Chase Manhattan Bank, (b) the three-month CD
rate adjusted for statutory reserves and FDIC assessment costs plus 1% and (c)
the federal funds effective rate plus 1/2%, or, (ii) the rate at the time
offered to Chase Manhattan Bank in the Eurodollar market for amounts and
periods comparable to the relevant loan plus a margin that is determined based
on the level of certain financial ratios. As of December 28, 1996, the margin
was equal to 1/2 of 1%. The unused portion of the Credit Agreement carries a
commitment fee determined based on the level of certain financial ratios. As
of December 28, 1996, the commitment fee for the unused portion of the Credit
Agreement was 0.200%. At December 28, 1996, the weighted average interest
rate on borrowings outstanding under the Acquisition Facility was 6.09%.
Based on the borrowing rates in the Credit Agreement and the repayment terms,
the fair value of the outstanding borrowings under the Acquisition Facility
was estimated to approximate carrying value.
The Credit Agreement contains a number of covenants that limit, among other
things, the payment of dividends, the incurrence of additional indebtedness,
the incurrence of operating or capital lease obligations and the purchase of
operating property. The Credit Agreement also requires Landstar to meet
certain financial tests. Landstar is required to, among other things, maintain
minimum levels of Net Worth, as defined in the Credit Agreement, and Interest
and Fixed Charge Coverages, as therein defined. Under the most restrictive
covenant, Landstar exceeded the required minimum Interest Charge Coverage
level by approximately $2,345,000 at December 28, 1996. The Credit Agreement
limits the payment of dividends in any fiscal year to the lesser of 50% of
Excess Cash Flow, as therein defined, or 25% of Consolidated Net Income, as
therein defined.
The Credit Agreement provides a number of events of default related to a
person or group of persons acquiring 25% or more of the outstanding capital
stock of the Company or obtaining the power to elect a majority of the
Company's directors.
Borrowings under the Credit Agreement are unsecured, however, the Company and
each of LSHI's subsidiaries guarantee LSHI's obligations under the Credit
Agreement.
The amount outstanding on the Acquisition Facility is payable upon expiration
of the Credit Agreement. There are no other installments of long-term debt,
excluding capital lease obligations, maturing in the next five years.
Landstar paid interest of $7,180,000 in 1996, $7,359,000 in 1995 and
$4,286,000 in 1994.
<PAGE>
(8) Leases
The future minimum lease payments under all noncancellable leases at
December 28, 1996, principally for revenue equipment, are shown in the
following table (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
<S> <C> <C>
1997 $26,920 $ 2,762
1998 20,889 1,762
1999 12,833 1,266
2000 6,828 540
2001 1,680 282
Thereafter 209
------- ---------
69,150 $ 6,821
=========
Less amount representing interest
(6.0% to 10.7%) 7,254
Present value of minimum -------
lease payments $61,896
=======
</TABLE>
Total rent expense, net of sublease income, was $16,778,000 in 1996,
$16,127,000 in 1995 and $14,779,000 in 1994.
(9) Stock Option Plans
The Company maintains two stock option plans. Under the 1993 Stock Option
Plan (the "Plan"), the Compensation Committee of the Board of Directors may
grant options to Company employees for up to 615,000 shares of common stock.
Under the 1994 Directors Stock Option Plan (the "DSOP"), outside members of
the Board of Directors will be granted up to an aggregate of 120,000 options
to purchase common stock. Under the DSOP, each outside Director will be
granted 12,000 options to purchase common stock upon election or re-election
to the Board of Directors.
Options granted become exercisable in five equal annual installments under the
Plan and three equal annual installments under the DSOP, commencing on the
first anniversary of the date of grant, subject to acceleration in certain
circumstances, and expire on the tenth anniversary of the date of grant.
Under the plans, the exercise price of each option equals the market price of
the Company's stock on the date of grant. At December 28, 1996, there were
723,800 shares of the Company's stock reserved for issuance upon exercise of
options granted under the plans.
<PAGE>
Information regarding the Company's stock option plans is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------- --------------------------
Weighted Average Weighted Average
Exercise Price Exercise Price
Shares Per Share Shares Per Share
-------- ----------------- -------- ----------------
<S> <C> <C> <C> <C>
Options at December 25, 1993 186,000 $ 18.33
Granted 203,000 $ 25.50
-------
Options at December 31, 1994 389,000 $ 22.07 37,200 $ 18.33
Granted 212,000 $ 30.06
Forfeited (1,500) $ 25.50
-------
Options at December 30, 1995 599,500 $ 24.89 121,100 $ 21.10
Granted 35,000 $ 27.53
Exercised (11,200) $ 18.50
Forfeited (110,400) $ 26.94
--------
Options at December 28, 1996 512,900 $ 24.77 201,000 $ 23.10
========
</TABLE>
The fair value of each option grant on its grant date was calculated using
the Black-Scholes option pricing model with the following assumptions for
grants made in 1996 and 1995: expected volatility of 39%, risk free interest
rate of 6.0%, expected lives of 5 years and no dividend yield. The weighted
average grant date fair value of stock options granted was $12.06 and $13.20
per share in 1996 and 1995, respectively.
The following table summarizes stock options outstanding at December 28,1996:
<TABLE>
<CAPTION>
Options Outstanding
-------------------
Range of Exercise Weighted Average Weighted Average
Prices Number Outstanding Remaining Contractual Exercise Price
Per Share Dec. 28, 1996 Life (years) Per Share
----------------- ------------------ --------------------- ----------------
<S> <C> <C> <C>
$14.625 - $21.50 143,000 7.0 $ 18.47
$21.50 - $32.25 369,900 8.5 $ 27.20
----------------
$14.625 - $32.25 512,900 8.1 $ 24.77
================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Options Exercisable
-------------------
Range of Exercise Number Weighted Average
Prices Exercisable Exercise Price
Per Share Dec. 28, 1996 Per Share
----------------- ------------------ ----------------
<S> <C> <C>
$14.625 - $21.50 84,600 $ 18.47
$21.50 - $32.25 116,400 $ 26.46
----------------
$14.625 - $32.25 201,000 $ 23.10
================
</TABLE>
The Company accounts for its stock option plans using the intrinsic value
method as prescribed in Accounting Principal Board Opinion No. 25, Accounting
for Stock Issued to Employees. Had compensation cost for the Company's stock
option plans been determined using the fair value at grant date method as
prescribed by Financial Accounting Standards Board Statement No. 123,
Accounting for Stock-based Compensation, the effect on net income and earnings
per share for fiscal years 1996 and 1995 would not have been material.
(10) Shareholders' Equity
The Company has 2,000,000 shares of preferred stock authorized and unissued.
Under the terms of a Shareholder Rights Agreement (the "Agreement"), a
preferred stock purchase right (the "Right") accompanies each outstanding
share of common stock. Each Right entitles the holder to purchase from the
Company one one-hundredth of a share of preferred stock at an exercise price
of $60. Within the time limits and under the circumstances specified in the
Agreement, the Rights entitle the holder to acquire shares of common stock in
the Company, or the surviving Company in a business combination, having a
value of two times the exercise price. The Rights may be redeemed prior to
becoming exercisable by action of the Board of Directors at a redemption price
of $.01 per Right. The Rights expire February 10, 2003. Until a Right is
exercised, it has no rights including, without limitation, the right to vote
or to receive dividends.
(11) Commitments and Contingencies
Landstar is involved in certain claims and pending litigation arising from the
normal conduct of business. Based on 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.
<PAGE>
Independent Auditors' Report
- ----------------------------
Landstar System, Inc. and Subsidiary
The Board of Directors and Shareholders
Landstar System, Inc.:
We have audited the accompanying consolidated balance sheets of Landstar
System, Inc. and subsidiary as of December 28, 1996 and December 30, 1995, and
the related consolidated statements of income, changes in shareholders' equity
and cash flows for the fiscal years ended December 28, 1996, December 30, 1995,
and December 31, 1994. 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 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 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 Landstar System,
Inc. and subsidiary as of December 28, 1996 and December 30, 1995, and the
results of their operations and their cash flows for the fiscal years ended
December 28, 1996, December 30, 1995 and December 31, 1994, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Stamford, Connecticut
February 12, 1997
<PAGE>
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
QUARTERLY FINANCIAL DATA
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Fourth Third Second First
Quarter Quarter Quarter Quarter
1996 (1) 1996 1996 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue $329,017 $330,195 $329,112 $295,477
======== ======== ======== ========
Operating income $ 3,185 $ 15,261 $ 14,118 $ 7,333
-------- -------- -------- --------
Income before income taxes $ 1,547 $ 13,325 $ 12,067 $ 5,411
Income taxes 484 5,631 5,053 2,257
-------- -------- -------- --------
Net income $ 1,063 $ 7,694 $ 7,014 $ 3,154
======== ======== ======== ========
Net income per share $ 0.08 $ 0.60 $ 0.55 $ 0.25
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Fourth Third Second First
Quarter Quarter Quarter Quarter
1995 1995 1995 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue $302,132 $298,681 $308,148 $295,706
======== ======== ======== ========
Operating income $ 10,792 $ 14,166 $ 15,352 $ 9,698
-------- -------- -------- --------
Income before income taxes $ 8,891 $ 12,185 $ 13,210 $ 8,170
Income taxes 3,682 5,009 5,390 3,413
-------- -------- -------- --------
Net income $ 5,209 $ 7,176 $ 7,820 $ 4,757
======== ======== ======== ========
Net income per share $ 0.41 $ 0.56 $ 0.61 $ 0.37
======== ======== ======== ========
</TABLE>
(1) Includes pre-tax restructuring costs of $7,263. After deducting related
income tax benefits of $3,014, the restructuring charges reduced net income by
$4,249, or $0.33 per share.
<PAGE>
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal Year
----------------------------------------------------------
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenue $1,283,801 $1,204,667 $984,359 $ 780,520 $672,450
Costs and expenses:
Purchased transportation 885,500 813,003 653,076 500,368 426,137
Drivers' wages & benefits 41,210 47,970 38,287 37,124 35,354
Fuel and other operating costs 70,207 67,861 53,627 55,376 55,209
Insurance and claims 36,495 37,816 35,413 30,314 21,238
Commissions to agents and brokers 87,935 73,974 61,542 45,965 37,783
Selling, general and administrative 91,267 93,194 83,143 68,390(2) 62,019
Depreciation and amortization 24,027 20,841 13,509 12,759 11,839
Restructuring costs 7,263
---------- --------- ------- --------- --------
Total costs and expenses 1,243,904 1,154,659 938,597 750,296 649,579
---------- --------- ------- --------- --------
Operating income 39,897 50,008 45,762 30,224 22,871
Interest and debt expense, net 7,547 7,552 4,134 5,711 9,701
---------- --------- ------- --------- --------
Income before income taxes and
extraordinary loss 32,350 42,456 41,628 24,513 13,170
Income taxes 13,425 17,494 17,221 10,955 6,820
---------- --------- ------- --------- --------
Income before extraordinary loss 18,925 24,962 24,407 13,558 6,350
Extraordinary loss (1,830)(3)
---------- --------- ------- --------- --------
Net income $ 18,925(1) $ 24,962 $24,407 $ 11,728 $ 6,350
========== ========= ======= ======== ========
Earnings per share:
Income before extraordinary loss $ 1.48(1) $ 1.95 $ 1.90 $ 1.14 (2) $ 0.67
Extraordinary loss (0.15)(3)
========== ========= ======= ======== ========
Net income $ 1.48(1) $ 1.95 $ 1.90 $ 0.99(2),(4)$ 0.67
========== ========= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
Dec. 28, Dec. 30, Dec. 31, Dec. 25, Dec. 26,
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets $ 370,801 $ 353,079 $ 267,084 $ 219,412 $ 181,078
Long-term debt, including
current maturities 90,396 93,867 43,680 48,074 68,307
Warrants 2,899
Shareholders' equity 147,557 128,396 105,161 80,754 29,857
</TABLE>
<PAGE>
(1) After deducting related income tax benefits of $3,014, the
restructuring charges reduced net income by $4,249, or $0.33
per share.
(2) Included in selling, general and administrative costs in
1993 are one-time charges in the amount of $1,200 for the
termination of consulting and management services agreements
with two parties in interest. After deducting related income
tax benefits of $504, these charges reduced earnings per share
by $.06 per share.
(3) Represents the after-tax loss on the early extinguishment
of the Company's 14% senior subordinated notes.
(4) If the initial public offering and the redemption of the
Company's 14% senior subordinated notes had taken place at the
beginning of 1993, net income per share for 1993 would have
been $1.16.
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARY CORPORATIONS OF LANDSTAR SYSTEM, INC.
Jurisdiction % of Voting
Name of Incorporation Securities Owned
- ---- ---------------- ----------------
Subsidiary of Landstar System, Inc.:
Landstar System Holdings, Inc. Delaware 100
Subsidiaries of Landstar System Holdings, Inc.:
Landstar Express America, Inc. Delaware 100
Landstar Inway, Inc. Delaware 100
Also d/b/a Inway Nationwide Transportation Services
Landstar Logistics, Inc. Delaware 100
Landstar Ligon, Inc. Delaware 100
Also d/b/a Ligon Contract Services in Kentucky
Landstar Poole, Inc. Alabama 100
Landstar Ranger, Inc. Delaware 100
Also d/b/a Ranger/Landstar, Inc. in South Carolina
Risk Management Claim Services, Inc. Kentucky 100
Also d/b/a RMCS, Inc. in Alabama and California
Landstar Contractor Financing, Inc. Delaware 100
Landstar Capacity Services, Inc. Delaware 100
Subsidiary of Landstar Gemini, Landstar Inway,
Landstar Ligon, Landstar Poole and Landstar Ranger:
Landstar Corporate Services, Inc. Delaware 100
Subsidiary of Landstar Inway, Inc.
Landstar T.L.C., Inc. Delaware 100
Subsidiary of Landstar Logistics, Inc.
Landstar Gemini, Inc. Delaware 100
Also d/b/a Gemini Transportation Services of
Greensburg, PA in Ontario and New Jersey
Also d/b/a GTSI Transportation Services in Ontario
<PAGE>
Exhibit 23.1
Independent Auditors' Consent
The Board of Directors
Landstar System, Inc.:
We consent to incorporation by reference in the registration statements (No.
33-76340 and No 33-94304) on Form S-8 of Landstar System, Inc. of our reports
dated February 12, 1997, relating to the consolidated balance sheets of
Landstar System, Inc. and subsidiary as December 28, 1996 and December 30,
1995, and the related consolidated statements of income, changes in
shareholders' equity, and cash flows for the fiscal years ended December 28,
1996, December 30, 1995, and December 31, 1994, and all related schedules,
which reports appear in or are incorporated by reference in the December 28,
1996 annual report on Form 10-K of Landstar System, Inc.
KPMG Peat Marwick LLP
Stamford, Connecticut
March 17, 1997
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
Landstar System, Inc.
Annual Report on Form 10-K
for fiscal year ended 12/28/96
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby make,
constitute and appoint Henry H. Gerkens, and Michael L. Harvey, and each of
them, with full power in each to act without the other, his true and lawful
attorney-in-fact and agent, in his name, place and stead to execute on his
behalf, as an officer and/or director of Landstar System, Inc.
(the "Company"), the Annual Report on Form 10-K of the Company for the fiscal
year ended December 28, 1996, and file the same with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission (the "SEC") pursuant to Sections 13 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Act"), and any and all other instruments
which either of said attorneys-in-fact and agents deems necessary or advisable
to enable the Company to comply with the Act, the rules, regulations and
requirements of the SEC in respect thereof, giving and granting to each of said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing whatsoever necessary or appropriate to be done in and
about the premises as fully to all intents as he might or could do if
personally present at the doing thereof, with full power of substitution and
resubstitution, hereby ratifying and confirming all that his said attorneys-in-
fact and agents or substitutes may or shall lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date
indicated below.
David G. Bannister
--------------------------
David G. Bannister
DATED: March 4, 1997
<PAGE>
POWER OF ATTORNEY
Landstar System, Inc.
Annual Report on Form 10-K
for fiscal year ended 12/28/96
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby make,
constitute and appoint Henry H. Gerkens, and Michael L. Harvey, and each of
them, with full power in each to act without the other, his true and lawful
attorney-in-fact and agent, in his name, place and stead to execute on his
behalf, as an officer and/or director of Landstar System, Inc.
(the "Company"), the Annual Report on Form 10-K of the Company for the fiscal
year ended December 28, 1996, and file the same with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission (the "SEC") pursuant to Sections 13 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Act"), and any and all other instruments
which either of said attorneys-in-fact and agents deems necessary or advisable
to enable the Company to comply with the Act, the rules, regulations and
requirements of the SEC in respect thereof, giving and granting to each of said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing whatsoever necessary or appropriate to be done in and
about the premises as fully to all intents as he might or could do if
personally present at the doing thereof, with full power of substitution and
resubstitution, hereby ratifying and confirming all that his said attorneys-in-
fact and agents or substitutes may or shall lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date
indicated below.
John B. Bowron
--------------------------
John B. Bowron
DATED: March 4, 1997
<PAGE>
POWER OF ATTORNEY
Landstar System, Inc.
Annual Report on Form 10-K
for fiscal year ended 12/28/96
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby make,
constitute and appoint Henry H. Gerkens, and Michael L. Harvey, and each of
them, with full power in each to act without the other, his true and lawful
attorney-in-fact and agent, in his name, place and stead to execute on his
behalf, as an officer and/or director of Landstar System, Inc.
(the "Company"), the Annual Report on Form 10-K of the Company for the fiscal
year ended December 28, 1996, and file the same with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission (the "SEC") pursuant to Sections 13 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Act"), and any and all other instruments
which either of said attorneys-in-fact and agents deems necessary or advisable
to enable the Company to comply with the Act, the rules, regulations and
requirements of the SEC in respect thereof, giving and granting to each of said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing whatsoever necessary or appropriate to be done in and
about the premises as fully to all intents as he might or could do if
personally present at the doing thereof, with full power of substitution and
resubstitution, hereby ratifying and confirming all that his said attorneys-in-
fact and agents or substitutes may or shall lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date
indicated below.
Ronald W. Drucker
--------------------------
Ronald W. Drucker
DATED: March 4, 1997
<PAGE>
POWER OF ATTORNEY
Landstar System, Inc.
Annual Report on Form 10-K
for fiscal year ended 12/28/96
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby make,
constitute and appoint Henry H. Gerkens, and Michael L. Harvey, and each of
them, with full power in each to act without the other, his true and lawful
attorney-in-fact and agent, in his name, place and stead to execute on his
behalf, as an officer and/or director of Landstar System, Inc.
(the "Company"), the Annual Report on Form 10-K of the Company for the fiscal
year ended December 28, 1996, and file the same with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission (the "SEC") pursuant to Sections 13 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Act"), and any and all other instruments
which either of said attorneys-in-fact and agents deems necessary or advisable
to enable the Company to comply with the Act, the rules, regulations and
requirements of the SEC in respect thereof, giving and granting to each of said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing whatsoever necessary or appropriate to be done in and
about the premises as fully to all intents as he might or could do if
personally present at the doing thereof, with full power of substitution and
resubstitution, hereby ratifying and confirming all that his said attorneys-in-
fact and agents or substitutes may or shall lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date
indicated below.
Arthur J. Fritz, Jr.
--------------------------
Arthur J. Fritz, Jr.
DATED: March 4, 1997
<PAGE>
POWER OF ATTORNEY
Landstar System, Inc.
Annual Report on Form 10-K
for fiscal year ended 12/28/96
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby make,
constitute and appoint Henry H. Gerkens, and Michael L. Harvey, and each of
them, with full power in each to act without the other, his true and lawful
attorney-in-fact and agent, in his name, place and stead to execute on his
behalf, as an officer and/or director of Landstar System, Inc.
(the "Company"), the Annual Report on Form 10-K of the Company for the fiscal
year ended December 28, 1996, and file the same with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission (the "SEC") pursuant to Sections 13 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Act"), and any and all other instruments
which either of said attorneys-in-fact and agents deems necessary or advisable
to enable the Company to comply with the Act, the rules, regulations and
requirements of the SEC in respect thereof, giving and granting to each of said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing whatsoever necessary or appropriate to be done in and
about the premises as fully to all intents as he might or could do if
personally present at the doing thereof, with full power of substitution and
resubstitution, hereby ratifying and confirming all that his said attorneys-in-
fact and agents or substitutes may or shall lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date
indicated below.
Merritt J. Mott
--------------------------
Merritt J. Mott
DATED: March 4, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets at December 28, 1996 and the Consolidated
Statements of Income for the fiscal year ended December 28, 1996
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> DEC-28-1996
<CASH> 4,187
<SECURITIES> 0
<RECEIVABLES> 183,418
<ALLOWANCES> 6,526
<INVENTORY> 1,785
<CURRENT-ASSETS> 200,923
<PP&E> 155,787
<DEPRECIATION> 50,223
<TOTAL-ASSETS> 370,801
<CURRENT-LIABILITIES> 130,270
<BONDS> 67,155
0
0
<COMMON> 129
<OTHER-SE> 147,428
<TOTAL-LIABILITY-AND-EQUITY> 370,801
<SALES> 0
<TOTAL-REVENUES> 1,283,801
<CGS> 0
<TOTAL-COSTS> 996,917
<OTHER-EXPENSES> 36,495
<LOSS-PROVISION> 4,768
<INTEREST-EXPENSE> 7,547
<INCOME-PRETAX> 32,350
<INCOME-TAX> 13,425
<INCOME-CONTINUING> 18,925
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,925
<EPS-PRIMARY> 1.48
<EPS-DILUTED> 1.48
<PAGE>
</TABLE>
