<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 28, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________________ to _____________________
Commission File Number: 0-21238
LANDSTAR SYSTEM, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1313069
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
4160 Woodcock Drive, Jacksonville, Florida
(Address of principal executive offices)
32207
(Zip Code)
(904) 390-1234
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes ( X ) No ( )
The number of shares of the registrant's Common Stock, par value $.01 per
share, outstanding as of the close of business on May 6, 1998 was 11,331,733.
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
The interim consolidated financial statements contained herein reflect
all adjustments (all of a normal, recurring nature) which, in the opinion of
management, are necessary for a fair statement of the financial condition,
results of operations, cash flows and changes in shareholders' equity
for the periods presented. They have been prepared in accordance with Rule
10-01 of Regulation S-X and do not include all the information and footnotes
required by generally accepted accounting principles for complete financial
statements. Operating results for the thirteen weeks ended March 28, 1998
are not necessarily indicative of the results that may be expected for the
entire fiscal year ending December 26, 1998.
These interim financial statements should be read in conjunction with
the audited financial statements and notes thereto included in the Company's
1997 Annual Report on Form 10-K.
Index
Item 1
Consolidated Balance Sheets as of March 28, 1998
and December 27, 1997 ................................................ Page 3
Consolidated Statements of Income for the Thirteen Weeks
Ended March 28, 1998 and March 29, 1997 .............................. Page 4
Consolidated Statements of Cash Flows for the Thirteen Weeks
Ended March 28, 1998 and March 29, 1997 .............................. Page 5
Consolidated Statement of Changes in Shareholders'
Equity for the Thirteen Weeks Ended March 28, 1998 ................... Page 6
Notes to Consolidated Financial Statements.............................. Page 7
Item 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations......................... Page 9
2
<PAGE>
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
March 28, December 27,
1998 1997
------------- ------------
ASSETS
<S> <C> <C>
Current assets:
Cash $ 11,303 $ 17,994
Short-term investments 3,036 3,012
Trade accounts receivable, less allowance of $7,199
and $5,957 173,642 176,785
Other receivables, including advances to independent
contractors, less allowance of $4,555 and $4,009 16,505 12,599
Prepaid expenses and other current assets 11,651 7,832
---------- -----------
Total current assets 216,137 218,222
---------- -----------
Operating property, less accumulated depreciation
and amortization of $52,685 and $50,301 77,534 81,258
Goodwill, less accumulated amortization of $9,252 and $8,818 52,855 53,289
Other assets 5,153 4,410
---------- -----------
Total assets $ 351,679 $ 357,179
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash overdraft $ 14,730 $ 12,475
Accounts payable 58,652 50,394
Current maturities of long-term debt 13,070 14,228
Insurance claims 30,210 28,247
Other current liabilities 29,992 33,827
---------- -----------
Total current liabilities 146,654 139,171
---------- -----------
Long-term debt, excluding current maturities 33,149 36,218
Insurance claims 29,008 27,890
Deferred income taxes 2,703 2,204
Shareholders' equity:
Common stock, $.01 par value, authorized 20,000,000
shares, issued 12,936,974 shares and 12,900,974 shares 129 129
Additional paid-in capital 63,058 62,169
Retained earnings 116,837 112,345
Cost of 1,513,441 and 915,441 shares of common stock in treasury (39,859) (22,947)
---------- -----------
Total shareholders' equity 140,165 151,696
---------- -----------
Total liabilities and shareholders' equity $ 351,679 $ 357,179
========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
3
<PAGE>
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
-----------------------
March 28, March 29,
1998 1997
---------- ----------
<S> <C> <C>
Revenue $ 320,168 $ 305,558
Investment income 331
Costs and expenses:
Purchased transportation 223,277 213,626
Drivers' wages and benefits 6,202 8,145
Fuel and other operating costs 14,067 14,659
Insurance and claims 13,416 9,331
Commissions to agents and brokers 23,576 22,719
Selling, general and administrative 26,396 24,166
Depreciation and amortization 4,873 5,114
Restructuring costs 1,179
---------- ----------
Total costs and expenses 311,807 298,939
---------- ----------
Operating income 8,692 6,619
Interest and debt expense 1,013 1,439
---------- ----------
Income before income taxes 7,679 5,180
Income taxes 3,187 2,175
---------- ----------
Net income $ 4,492 $ 3,005
========== ==========
Earnings per common share $ 0.38 $ 0.24
========== ==========
Diluted earnings per share $ 0.38 $ 0.24
========== ==========
Average number of shares outstanding:
Earnings per common share 11,686,000 12,726,000
========== ==========
Diluted earnings per share 11,746,000 12,756,000
========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
4
<PAGE>
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
---------------------------
March 28, March 29,
1998 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,492 $ 3,005
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization of operating property 4,389 4,579
Amortization of goodwill and non-competition agreements 484 535
Non-cash interest charges 81 66
Provisions for losses on trade and other accounts
receivable 2,048 622
Gains on sales of operating property (436) (762)
Deferred income taxes, net 499 76
Changes in operating assets and liabilities:
Decrease (increase) in trade and other
accounts receivable (2,811) 12,961
Increase in prepaid expenses and other assets (4,717) (867)
Increase in accounts payable 8,258 9,519
Increase (decrease) in other liabilities (3,835) 1,023
Increase in insurance claims 3,081 1,670
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 11,533 32,427
----------- -----------
INVESTING ACTIVITIES
Purchases of operating property (1,717) (4,289)
Proceeds from sales of operating property 1,488 5,729
----------- -----------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (229) 1,440
----------- -----------
FINANCING ACTIVITIES
Increase (decrease) in cash overdraft 2,255 (5,301)
Proceeds from exercise of stock options and
related income tax benefit 889 146
Purchases of common stock (16,912) (3,990)
Principal payments on long-term debt and capital lease
obligations (4,227) (20,887)
----------- -----------
NET CASH USED BY FINANCING ACTIVITIES (17,995) (30,032)
----------- -----------
Increase (decrease) in cash (6,691) 3,835
Cash at beginning of period 17,994 4,187
----------- -----------
Cash at end of period $ 11,303 $ 8,022
=========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
5
<PAGE>
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY
Thirteen Weeks Ended March 28, 1998
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Treasury Stock
Common Stock Additional at Cost
------------------ Paid-In Retained ------------------
Shares Amount Capital Earnings Shares Amount Total
---------- ------- --------- -------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 27, 1997 12,900,974 $ 129 $62,169 $112,345 915,441 $(22,947) $151,696
Purchases of common stock 598,000 (16,912) (16,912)
Exercise of stock options
and related income tax
benefit 36,000 889 889
Net income 4,492 4,492
---------- ------- -------- -------- --------- --------- ---------
Balance March 28, 1998 12,936,974 $ 129 $63,058 $116,837 1,513,441 $(39,859) $140,165
========== ======= ======== ========= ========= ========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
6
<PAGE>
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The consolidated financial statements include the accounts of Landstar System,
Inc. and its subsidiary, Landstar System Holdings, Inc., and reflect all
adjustments (all of a normal, recurring nature) which are, in the opinion of
management, necessary for a fair statement of the results for the periods
presented. The preparation of the consolidated financial statements requires
the use of management's estimates. Actual results could differ from those
estimates. Landstar System, Inc. and its subsidiary are herein referred to as
"Landstar".
(1) Reclassification of Certain Costs
Certain costs in the amount of $1,496,000 were reclassified from
purchased transportation to fuel and other operating costs for the 1997
period in order to conform with the classification of these costs in
1998. The reclassification had no effect on operating income or net
income for the period.
(2) Income Taxes
The provisions for income taxes for the 1998 and 1997 thirteen-week
periods were based on estimated combined full year effective income
tax rates of 41.5% and 42.0%, which are higher than the statutory federal
income tax rate, primarily as a result of state income taxes,
amortization of certain goodwill and the meals and entertainment
exclusion.
(3) Earnings Per Share
Earnings per common share amounts are based on the weighted average
number of common shares outstanding and diluted earnings per share
amounts are based on the weighted average number of common shares
outstanding plus the incremental shares that would have been outstanding
upon the assumed exercise of all dilutive stock options.
(4) Additional Cash Flow Information
During the 1998 period, Landstar paid income taxes and
interest of $4,049,000 and $821,000, respectively.
During the 1997 period, Landstar paid income taxes and
interest of $813,000 and $1,719,000, respectively.
7
<PAGE>
(5) Segment Information
The following tables summarize information about Landstar's reportable
business segments for the thirteen weeks ending March 28, 1998
and March 29, 1997 (in thousands):
<TABLE>
<CAPTION>
Thirteen Weeks Ending March 28, 1998
------------------------------------ Company-
owned
Carrier Multimodal Tractor Insurance Other Total
------- ---------- ------- --------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
External revenue $ 229,696 $ 62,578 $ 21,984 $ 5,910 $ 320,168
Investment income 331 331
Internal revenue 8,610 120 639 5,242 14,611
Operating income 12,389 934 (245) 3,064 $(7,450) 8,692
Thirteen Weeks Ending March 29, 1997
------------------------------------ Company-
owned
Carrier Multimodal Tractor Insurance Other Total
------- ---------- ------- --------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
External revenue $ 221,473 $ 56,792 $ 27,293 $ 305,558
Internal revenue 11,326 188 3,193 14,707
Operating income 13,406 643 (675) $(6,755) 6,619
</TABLE>
(6) Commitments and Contingencies
At March 28, 1998, Landstar had commitments for letters of
credit outstanding in the amount of $24,659,000, primarily as
collateral for insurance claims. The commitments for letters of credit
outstanding included $17,659,000 under the Second Amended and Restated
Credit Agreement and $7,000,000 secured by assets deposited with a
financial institution.
Landstar is involved in certain claims and pending litigation
arising from the normal conduct of business. Based on the
knowledge of the facts and, in certain cases, opinions of
outside counsel, management believes that adequate provisions
have been made for probable losses with respect to the resolution
of all claims and pending litigation and that the ultimate outcome,
after provisions thereof, will not have a material adverse effect
on the financial condition of Landstar, but could have a material
effect on the results of operations in a given quarter or year.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
attached interim consolidated financial statements and notes
thereto, and with the Company's audited financial statements and
notes thereto for the fiscal year ended December 27, 1997 and
Management's Discussion and Analysis of Financial Condition and
Results of Operations included in the 1997 Annual Report to
Shareholders.
RESULTS OF OPERATIONS
Landstar System, Inc. and its subsidiary, Landstar System Holdings, Inc.
("Landstar" or the "Company"), provide transportation services to a variety
of market niches throughout the United States and to a lesser extent in Canada
and between the United States and Canada and Mexico through its operating
subsidiaries which employ different operating strategies. The Company
has four reportable business segments: the carrier segment, the multimodal
segment, the company-owned tractor segment and the insurance segment.
The carrier segment consists of Landstar Ranger, Inc. ("Landstar Ranger"),
Landstar Inway, Inc. ("Landstar Inway") and Landstar Ligon, Inc. The carrier
segment provides truckload transportation for a wide range of general
commodities over irregular routes with its fleet of dry and specialty vans and
unsided trailers, including flatbed, drop deck and specialty. The carrier
segment markets its services primarily through independent commission sales
agents and utilizes tractors provided by independent contractors. The nature
of the carrier segment's business is such that a significant portion of its
operating costs varies directly with revenue.
The multimodal segment is comprised of Landstar Logistics, Inc. and Landstar
Express America, Inc. ("Landstar Express"). Transportation services provided
by the multimodal segment include the arrangement of intermodal moves, contract
logistics, truck brokerage, short-to-long haul movement of containers by truck
and emergency and expedited air freight and truck services. The multimodal
segment markets its services through independent commission sales agents and
utilizes capacity provided by independent contractors, including railroads
and air cargo carriers. The nature of the multimodal segment's business is
such that a significant portion of its operating costs also varies directly
with revenue.
The company-owned tractor segment consists of Landstar Poole, Inc. ("Landstar
Poole"). This segment provides truckload transportation services over short and
medium length regional traffic lanes. The company-owned tractor segment
primarily markets its services through an employee sales force
and primarily utilizes company-owned and employee-driven tractors.
9
<PAGE>
The insurance segment is Signature Insurance Company ("Signature"), a wholly-
owned offshore insurance subsidiary, formed in March 1997. The insurance
segment reinsures certain property, casualty and occupational accident risks of
certain independent contractors who have contracted to haul freight for
Landstar. In addition, the insurance segment provides certain property and
casualty insurance directly to Landstar's operating subsidiaries.
During the fourth quarter of 1996, the Company announced a plan to
restructure the operations of both Landstar Poole and Landstar T.L.C., Inc.
("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 the operations of Landstar T.L.C.
into Landstar Inway and the disposal of all the company-owned tractors. The
restructuring was substantially completed by June 28, 1997.
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 capacity provided by
independent contractors. Purchased transportation for the intermodal services
operations and the air freight operations of the multimodal segment is based on
a contractually agreed-upon fixed rate. Purchased transportation as a
percentage of revenue for the intermodal services operations is normally higher
than that of Landstar's other transportation operations. 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
revenue generated through independent commission sales agents. Both purchased
transportation and commissions to agents and brokers generally will also
increase or decrease as a percentage of the Company's consolidated revenue
if there is a change in the percentage of revenue contributed by the intermodal
services operations or the air freight operations of the multimodal segment or
through the company-employed drivers of the company-owned tractor segment.
Drivers' wages and benefits represent the amount the Company's 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 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 maintain or 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. Accordingly, purchased
transportation and commissions to agents and brokers are anticipated to increase
as a percentage of total consolidated revenue and drivers' wages and benefits
are anticipated to decline as a percentage of total consolidated revenue over
time.
10
<PAGE>
Potential liability associated with accidents in the trucking industry is
severe and occurrences are unpredictable. The industry is also subject to
substantial workers' compensation expense. A material increase in the
frequency or severity of accidents or workers' compensation claims or the
unfavorable development of existing claims can be expected to adversely affect
Landstar's operating income.
The cost of fuel is the largest component of fuel and other operating costs.
Changes in prevailing prices of fuel or increases in fuel taxes can
significantly affect the company-owned tractor segment's operating results.
Also included in fuel and other operating costs are costs of equipment
maintenance paid to third parties.
Employee compensation and benefits account for over 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.
Depreciation and amortization primarily relate to depreciation of tractors
and trailers.
The following table sets forth the percentage relationships of
expense items and investment income to revenue for the periods indicated:
<TABLE>
<CAPTION>
Thirteen Weeks Ended
-----------------------
March 28, March 29,
1998 1997
---------- ----------
<S> <C> <C>
Revenue 100.0% 100.0%
Investment income 0.1%
Costs and expenses:
Purchased transportation 69.7% 69.9%
Drivers' wages and benefits 1.9% 2.7%
Fuel and other operating costs 4.4% 4.8%
Insurance and claims 4.2% 3.0%
Commissions to agents and brokers 7.4% 7.4%
Selling, general and administrative 8.3% 7.9%
Depreciation and amortization 1.5% 1.7%
Restructuring costs 0.4%
------- ------
Total costs and expenses 97.4% 97.8%
------- ------
Operating income 2.7% 2.2%
Interest and debt expense 0.3% 0.5%
------- ------
Income before income taxes 2.4% 1.7%
Income taxes 1.0% 0.7%
------- ------
Net income 1.4% 1.0%
======= ======
</TABLE>
11
<PAGE>
THIRTEEN WEEKS ENDED MARCH 28, 1998 COMPARED TO THIRTEEN WEEKS
ENDED MARCH 29, 1997
Revenue for the 1998 thirteen-week period was $320,168,000, an increase of
$14,610,000, or 4.8%, over the 1997 thirteen-week period. The increase was
attributable to higher revenue of $8,223,000 and $5,786,000 at the carrier
and multimodal segments, respectively, and premium revenue of $5,910,000
generated by the insurance segment. These increases were partially offset
by a $5,309,000 revenue decline at the company-owned tractor segment, which
resulted from the restructuring of the operations of Landstar Poole. Overall,
revenue per revenue mile (price) increased approximately 5%, which reflected
improved freight quality, while revenue miles (volume) were approximately 3%
lower than 1997, primarily as a result of the restructuring of the operations
of Landstar Poole and Landstar T.L.C. During the 1998 and 1997 periods, revenue
generated through all independent contractors, including railroads and air
cargo carriers, was 92.9% of consolidated revenue. During the 1998 period,
$331,000 of investment income was generated by the insurance segment.
Purchased transportation was 69.7% of revenue in 1998 compared with 69.9% in
1997. Drivers' wages and benefits were 1.9% of revenue in 1998 compared with
2.7% in 1997. Fuel and other operating costs were 4.4% of revenue in 1998
compared with 4.8% in 1997. The decrease in purchased transportation as
a percentage of revenue was primarily attributable to the effect of the premium
revenue generated at the insurance segment, partially offset by an increase in
the percentage of revenue (excluding premium revenue) generated
through independent contractors due to the reduction of company-owned tractors
as a result of the Landstar Poole and Landstar T.L.C. restructuring. The
decrease in drivers' wages and benefits and fuel and other operating costs was
due primarily to the effect of premium revenue generated at the insurance
segment and the reduction of company-owned tractors as a result of the
restructuring. Insurance and claims were 4.2% of revenue in 1998 compared with
3.0% in 1997. The increase in insurance and claims as a percentage of revenue
was primarily attributable to the effects of insurance programs available to
the Company's independent contractors which Signature reinsures. Excluding the
premium revenue and insurance and claims expense related to the above
reinsurance programs, insurance and claims as a percentage of revenue was 3.0%
in 1998. Commissions to agents and brokers were 7.4% of revenue in both 1998
and 1997. Selling, general and administrative costs were 8.3% of revenue in
1998 compared with 7.9% of revenue in 1997, primarily due to a higher provision
for customer bad debts, increased management information systems costs,
marketing and administrative costs at Signature and one time costs related to
the relocation of Landstar Express from Charlotte, North Carolina
to Jacksonville, Florida. Depreciation and amortization was 1.5% of revenue
in 1998 compared with 1.7% in 1997, primarily due to the effect of increased
revenue including the premium revenue generated at the insurance segment.
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 first quarter of 1997, the
Company recorded $1,179,000 of restructuring costs. The restructuring was
substantially completed by June 28, 1997.
12
<PAGE>
Interest and debt expense was 0.3% of revenue in 1998 and 0.5% in 1997.
This decrease was primarily attributable to the effect of lower average
borrowings on the senior credit facility and reduced capital lease obligations.
The provisions for income taxes for the 1998 and 1997 thirteen-week periods
were based on estimated full year combined effective income tax rates of
approximately 41.5% and 42.0%, respectively, which are higher than the
statutory federal income tax rate primarily as a result of state income taxes,
amortization of certain goodwill and the meals and entertainment exclusion.
Net income was $4,492,000, or $0.38 per common share, in the 1998 period
compared with $3,005,000, or $0.24 per common share, in the 1997 period.
Including the dilutive effect of the Company's stock options, diluted earnings
per share was $0.38 in the 1998 period and $0.24 in the 1997 period. Excluding
restructuring costs, net income for the 1997 period would have been $3,689,000,
or $0.29 per common share ($0.29 diluted earnings per share).
CAPITAL RESOURCES AND LIQUIDITY
Shareholders' equity decreased to $140,165,000 at March 28, 1998, compared with
$151,696,000 at December 27, 1997, as a result of the repurchase of 598,000
shares of common stock, at an aggregate cost of $16,912,000, partially offset by
net income for the period. Shareholders' equity was 75% of total
capitalization at both March 28, 1998 and December 27, 1997.
Working capital and the ratio of current assets to current
liabilities were $69,483,000 and 1.47 to 1, respectively, at March
28, 1998, compared with $79,051,000 and 1.57 to 1, respectively, at
December 27, 1997. Landstar has historically operated with a current
ratio of approximately 1.5 to 1. Cash provided by operating activities was
$11,533,000 in the 1998 period compared with $32,427,000 in the
1997 period. The decrease in cash flow provided by operating
activities was primarily attributable to the timing of cash collections and
payments. During the 1998 period, Landstar purchased $1,717,000
of operating property. Landstar plans to acquire approximately $23,000,000 of
operating property during the remainder of fiscal year 1998 either by purchase
or lease financing.
The Company is aware of the issues associated with the programming code in its
existing computer systems in order for the systems to recognize date-sensitive
information when the year changes to 2000. The Company believes it has
identified and is in the process of modifying all computer software which
requires change to ensure its computer systems will be year 2000 compliant as
part of its scheduled maintenance and normal system upgrades. As such,
13
<PAGE>
management has not separately quantified the cost of year 2000 compliance,
however, management does not believe that the future costs of maintaining and
upgrading Landstar's computer systems will have a material adverse effect on
results of operations. It is anticipated that all reprogramming and testing
efforts will be completed by May 1999. To date, confirmations have been
received from the Company's primary outside processing vendors that plans have
been developed to address the year 2000 issue.
Management believes that cash flow from operations combined with the Company's
borrowing capacity under its revolving credit agreement will be adequate to
meet Landstar's debt service requirements, fund continued growth, both internal
and through acquisitions, and meet working capital needs.
Management does not believe inflation has had a material impact on the
results of operations or financial condition of Landstar in the past five
years. However, inflation higher than that experienced in the past five
years might have an adverse effect on the Company's results of operations.
SEASONALITY
Landstar's operations are subject to seasonal trends common to the
trucking industry. Results of operations for the quarter ending in
March is typically lower than the quarters ending June, September
and December due to reduced shipments and higher operating costs in
the winter months.
14
<PAGE> PART II
OTHER INFORMATION
Item 1. Legal Proceedings
On August 5, 1997, suit was filed entitled Rene Alberto Rivas Vs. Landstar
System, Inc., Landstar Gemini, Inc., Landstar Ranger, Inc., Risk Management
Claims Services, Inc., Insurance Management Corporation, and Does 1 through
500, inclusive, in federal district court in Los Angeles. The suit claims Rivas
represents a class of all drivers who, according to the suit, should be
classified as employees and are therefore allegedly aggrieved by the practice
of Landstar Gemini, Inc. requiring such drivers, as independent contractors, to
provide either a worker's compensation certificate or to participate in an
occupational accident insurance program. Rivas claims violations of federal
leasing regulations for allegedly improperly disclosing the program. Rivas also
claims violations of Racketeer Influence and Corrupt Organizations ("RICO") Act
and the California Business and Professions Act. He seeks on behalf of himself
and the class damages of $15 million trebled by virtue of trebling provisions
in the RICO Act plus punitive damages. A motion to dismiss these claims was
argued to the court on February 9, 1998, and the court's decision is pending.
On March 24, 1998, the court granted defendant's motion to dismiss the RICO
claim and invited briefs on the question of a private right of action to
enforce the federal leasing regulations. The court will likely refer Rivas'
remaining claims to arbitration if a private right of action and Federal court
jurisdiction is sustained. Plaintiff may appeal dismissal of the RICO claim.
The Company continues to vigorously contest this action. It believes that the
drivers in question are properly classified as independent contractors and
that it also has other meritorious defenses to the various claims.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None.
15
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits listed on the Exhibit Index are filed as part
of this quarterly report on Form 10-Q.
(b) Form 8-K
No reports on Form 8-K were filed by the Registrant during the
thirteen week period ended March 28, 1998.
EXHIBIT INDEX
Registrant's Commission File No.: 0-21238
Exhibit No. Description
- ------------ -----------
(11) Statement re: Computation of Per Share Earnings:
11.1 * Landstar System, Inc. and Subsidiary Calculation of Earnings
Per Common Share for the Thirteen Weeks Ending
March 28, 1998 and March 29, 1997
11.2 * Landstar System, Inc. and Subsidiary Calculation of Diluted
Earnings Per Share for the Thirteen Weeks Ending
March 28, 1998 and March 29, 1997
(27) Financial Data Schedules:
27.1 * 1998 Financial Data Schedule
__________________
* Filed herewith
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LANDSTAR SYSTEM, INC.
Date: May 8, 1998 Henry H. Gerkens
----------------------------
Henry H. Gerkens
Executive Vice President and
Chief Financial Officer;
Principal Financial Officer
Date: May 8, 1998 Robert C. LaRose
----------------------------
Robert C. LaRose
Vice President Finance and Treasurer;
Principal Accounting Officer
[DESCRIPTION] CALCULATION OF EARNINGS PER SHARE
<PAGE>
EXHIBIT 11.1
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CALCULATION OF EARNINGS PER COMMON SHARE
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Thirteen
Weeks Ending Weeks Ending
March 28, March 29,
1998 1997
------------ ------------
Earnings available for earnings per share:
<S> <C> <C>
Net income $ 4,492 $ 3,005
============ ============
Average number of common shares outstanding 11,686 12,726
============ ============
Earnings per common share $ 0.38 $ 0.24
============ ============
</TABLE>
<PAGE>
EXHIBIT 11.2
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CALCULATION OF DILUTED EARNINGS PER SHARE
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Thirteen
Weeks Ending Weeks Ending
March 28, March 29,
1998 1997
------------ ------------
<S> <C> <C>
Net income $ 4,492 $ 3,005
============ ============
Average number of common shares
outstanding 11,686 12,726
============ ============
Plus: Incremental shares from
assumed exercise of stock
options 60 30
------------ ------------
Average number of common shares
and common share equivalents
outstanding 11,746 12,756
============ ============
Diluted earnings per share $ 0.38 $ 0.24
============ ============
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets at March 28, 1998 (Unaudited) and the Consolidated
Statements of Income for the thirteen weeks ended March 28, 1998 (Unaudited)
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-26-1998
<PERIOD-START> DEC-28-1997
<PERIOD-END> MAR-28-1998
<CASH> 11,303
<SECURITIES> 3,036
<RECEIVABLES> 180,841
<ALLOWANCES> 7,199
<INVENTORY> 0
<CURRENT-ASSETS> 216,137
<PP&E> 130,219
<DEPRECIATION> 52,685
<TOTAL-ASSETS> 351,679
<CURRENT-LIABILITIES> 146,654
<BONDS> 33,149
0
0
<COMMON> 129
<OTHER-SE> 140,036
<TOTAL-LIABILITY-AND-EQUITY> 351,679
<SALES> 0
<TOTAL-REVENUES> 320,499
<CGS> 0
<TOTAL-COSTS> 243,546
<OTHER-EXPENSES> 13,416
<LOSS-PROVISION> 2,048
<INTEREST-EXPENSE> 1,013
<INCOME-PRETAX> 7,679
<INCOME-TAX> 3,187
<INCOME-CONTINUING> 4,492
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,492
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.38
</TABLE>
