<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 June 24, 2000
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.)
13410 Sutton Park Drive South, Jacksonville, Florida
(Address of principal executive offices)
32224
(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 July 21, 2000 was
8,750,833.
<PAGE>
PART I
FINANCIAL INFORMATION
Index
Item 1
Consolidated Balance Sheets as of June 24, 2000
and December 25, 1999 ............................................... Page 3
Consolidated Statements of Income for the Twenty Six and Thirteen Weeks
Ended June 24, 2000 and June 26, 1999 ............................. Page 4
Consolidated Statements of Cash Flows for the Twenty Six Weeks
Ended June 24, 2000 and June 26, 1999 ............................. Page 5
Consolidated Statement of Changes in Shareholders'
Equity for the Twenty Six Weeks Ended June 24, 2000 .................. 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
Item 3
Quantitative and Qualitative Disclosures About Market Risk............. Page 15
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 twenty six weeks ended June 24,
2000 are not necessarily indicative of the results that may be expected for the
entire fiscal year ending December 30, 2000.
These interim financial statements should be read in conjunction with
the audited financial statements and notes thereto included in the Company's
1999 Annual Report on Form 10-K.
2
<PAGE>
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
June 24, December 25,
2000 1999
---------- ------------
ASSETS
<S> <C> <C>
Current assets:
Cash $ 31,907 $ 23,721
Short-term investments 1,060 1,000
Trade accounts receivable, less allowance of $3,263
and $4,002 192,011 207,024
Other receivables, including advances to independent
contractors, less allowance of $4,783 and $5,033 16,688 14,318
Prepaid expenses and other current assets 9,868 6,190
---------- -----------
Total current assets 251,534 252,253
---------- -----------
Operating property, less accumulated depreciation
and amortization of $35,252 and $34,283 72,400 63,797
Goodwill, less accumulated amortization of $8,386 and $7,777 33,124 33,733
Deferred income taxes and other assets 15,819 15,658
---------- -----------
Total assets $ 372,877 $ 365,441
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash overdraft $ 17,142 $ 19,471
Accounts payable 66,407 67,322
Current maturities of long-term debt 8,328 6,769
Insurance claims 27,530 27,207
Accrued compensation 4,973 12,113
Other current liabilities 29,579 37,782
---------- -----------
Total current liabilities 153,959 170,664
---------- -----------
Long-term debt, excluding current maturities 92,390 60,529
Insurance claims 28,465 27,364
Shareholders' equity:
Common stock, $.01 par value, authorized 20,000,000
shares, issued 13,135,374 and 13,063,974 shares 131 131
Additional paid-in capital 68,097 65,833
Retained earnings 187,950 170,174
Cost of 4,384,541 and 3,909,041 shares of common stock in
treasury (154,743) (127,560)
Notes receivable arising from exercise of stock options (3,372) (1,694)
---------- -----------
Total shareholders' equity 98,063 106,884
---------- -----------
Total liabilities and shareholders' equity $ 372,877 $ 365,441
========== ===========
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>
Twenty Six Weeks Ended Thirteen Weeks Ended
----------------------- -----------------------
June 24, June 26, June 24, June 26,
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue $ 685,561 $ 656,499 $ 358,555 $ 345,064
Investment income 1,954 1,118 1,024 574
Costs and expenses:
Purchased transportation 505,108 483,277 264,118 253,847
Commissions to agents 53,938 52,148 28,034 27,877
Other operating costs 15,245 13,769 7,798 7,100
Insurance and claims 19,086 21,963 9,982 11,818
Selling, general and administrative 51,704 48,731 25,756 23,213
Depreciation and amortization 6,190 5,431 3,136 2,788
Restructuring costs 3,040 3,040
---------- ---------- ---------- ----------
Total costs and expenses 654,311 625,319 341,864 326,643
---------- ---------- ---------- ----------
Operating income 33,204 32,298 17,715 18,995
Interest and debt expense 3,823 1,660 2,118 921
---------- ---------- ---------- ----------
Income before income taxes 29,381 30,638 15,597 18,074
Income taxes 11,605 12,408 6,160 7,319
---------- ---------- ---------- ----------
Net income $ 17,776 $ 18,230 $ 9,437 $ 10,755
========== ========== ========== ==========
Earnings per common share $ 1.97 $ 1.78 $ 1.06 $ 1.06
========== ========== ========== ==========
Diluted earnings per share $ 1.92 $ 1.76 $ 1.04 $ 1.05
========== ========== ========== ==========
Average number of shares outstanding:
Earnings per common share 9,024,000 10,246,000 8,880,000 10,125,000
========== ========== ========== ==========
Diluted earnings per share 9,237,000 10,366,000 9,104,000 10,242,000
========== ========== ========== ==========
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>
Twenty Six Weeks Ended
---------------------------
June 24, June 26,
2000 1999
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 17,776 $ 18,230
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization of operating property 5,581 4,822
Amortization of goodwill 609 609
Non-cash interest charges 162 162
Provisions for losses on trade and other accounts receivable 1,122 22
Gains on sales of operating property (139) (142)
Deferred income taxes, net 702 673
Changes in operating assets and liabilities:
Decrease (increase) in trade and other accounts receivable 11,521 (4,679)
Increase in prepaid expenses and other assets (4,703) (5,892)
Increase (decrease) in accounts payable (915) 7,312
Decrease in other liabilities (13,881) (3,614)
Increase in insurance claims 1,424 3,049
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 19,259 20,552
----------- -----------
INVESTING ACTIVITIES
Maturities of short-term investments 1,000
Purchases of short-term investments (1,060)
Purchases of operating property (4,101) (1,419)
Proceeds from sales of operating property 636 856
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (3,525) (563)
----------- -----------
FINANCING ACTIVITIES
Increase (decrease) in cash overdraft (2,329) 1,558
Borrowings on revolving credit facility 26,500
Proceeds from exercise of stock options and related income tax benefit 142 293
Purchases of common stock (28,201) (14,799)
Principal payments on capital lease obligations (3,660) (3,109)
----------- -----------
NET CASH USED BY FINANCING ACTIVITIES (7,548) (16,057)
----------- -----------
Increase in cash 8,186 3,932
Cash at beginning of period 23,721 26,681
----------- -----------
Cash at end of period $ 31,907 $ 30,613
=========== ===========
See accompanying notes to consolidated financial statements.
</TABLE> 5
<PAGE>
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY
Twenty Six Weeks Ended June 24, 2000
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Notes
Treasury Stock Receivable
Common Stock Additional at Cost Arising from
------------------ Paid-In Retained ------------------- Exercise of
Shares Amount Capital Earnings Shares Amount Stock Options Total
---------- ------- --------- --------- --------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December 25, 1999 13,063,974 $ 131 $ 65,833 $ 170,174 3,909,041 $(127,560) $ (1,694) $ 106,884
Net income 17,776 17,776
Purchases of common stock 506,700 (28,201) (28,201)
Exercise of stock options
and related income tax
benefit 71,400 1,820 (1,678) 142
Incentive compensation paid
in common stock 444 (31,200) 1,018 1,462
---------- ------- --------- --------- --------- --------- ------------- ---------
Balance June 24, 2000 13,135,374 $ 131 $ 68,097 $ 187,950 4,384,541 $(154,743) $ (3,372) $ 98,063
========== ======= ========= ========= ========= ========= ============= =========
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" or the "Company".
(1) Restructuring Costs
On March 28, 2000, the Company announced a plan to restructure the
operations of Landstar Ligon, Inc. and to relocate its headquarters
from Madisonville, Kentucky to Jacksonville, Florida in June of 2000.
As a result of this restructuring and relocation, a one-time charge in
the amount of $3,040,000 was recorded during the second quarter of 2000
representing approximately $1,370,000 of employee and office relocation
costs, $1,000,000 of severance costs and $670,000 of other costs.
Severance benefits were provided for 139 employees. As of June 24, 2000,
99 employees had terminated employment and $481,000 of severance costs
were paid. After deducting income tax benefits of $1,225,000, this
one-time restructuring charge reduced net income by $1,815,000, or $.20
per share ($.20 per diluted share), in both the 2000 twenty six and
thirteen week periods.
(2) Income Taxes
The provisions for income taxes for the 2000 and 1999 twenty-six-week
periods were based on estimated full year combined effective income
tax rates of approximately 39.5% and 40.5%, respectively, 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.
(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 2000 period, Landstar paid income taxes and interest of
$15,858,000 and $4,073,000, respectively and acquired operating property
by entering into capital leases in the amount of $10,580,000. During
the 1999 period, Landstar paid income taxes and interest of $16,014,000
and $1,802,000, respectively, and acquired operating property by entering
into capital leases in the amount of $9,110,000.
7
<PAGE>
(5) Segment Information
The following tables summarize information about Landstar's reportable
business segments for the twenty six and thirteen weeks ended
June 24, 2000 and June 26, 1999 (in thousands):
<TABLE>
<CAPTION>
Twenty Six Weeks Ended June 24, 2000
------------------------------------------
Carrier Multimodal Insurance Other Total
------- ---------- --------- ----- -----
<S> <C> <C> <C> <C> <C>
External revenue $ 538,509 $ 134,847 $ 12,205 $ 685,561
Investment income 1,954 1,954
Internal revenue 18,508 241 11,566 30,315
Operating income 38,970 (1) 3,983 10,127 $(19,876) 33,204 (1)
Twenty Six Weeks Ended June 26, 1999
------------------------------------------
Carrier Multimodal Insurance Other Total
------- ---------- --------- ----- -----
<S> <C> <C> <C> <C> <C>
External revenue $ 530,129 $ 113,644 $ 12,726 $ 656,499
Investment income 1,118 1,118
Internal revenue 15,749 79 11,477 27,305
Operating income 38,947 3,495 8,619 $(18,763) 32,298
Thirteen Weeks Ended June 24, 2000
------------------------------------------
Carrier Multimodal Insurance Other Total
------- ---------- --------- ----- -----
<S> <C> <C> <C> <C> <C>
External revenue $ 282,704 $ 69,649 $ 6,202 $ 358,555
Investment income 1,024 1,024
Internal revenue 9,428 193 6,363 15,984
Operating income 20,258 (1) 2,201 5,328 $(10,072) 17,715 (1)
Thirteen Weeks Ended June 26, 1999
------------------------------------------
Carrier Multimodal Insurance Other Total
------- ---------- --------- ----- -----
<S> <C> <C> <C> <C> <C>
External revenue $ 278,498 $ 60,072 $ 6,494 $ 345,064
Investment income 574 574
Internal revenue 9,402 45 6,271 15,718
Operating income 22,121 2,107 4,441 $ (9,674) 18,995
(1) Includes pre-tax restructuring costs of $3,040,000.
/TABLE>
8
<PAGE>
(6) Commitments and Contingencies
At June 24, 2000, Landstar had commitments for letters of
credit outstanding in the amount of $19,829,000, primarily as
collateral for insurance claims. The commitments for letters of credit
outstanding included $10,080,000 under the Second Amended and Restated
Credit Agreement and $9,749,000 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.
Item 2. 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 25, 1999 and Management's Discussion and Analysis of Financial
Condition and Results of Operations included in the 1999 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. The Company has three reportable business segments. These are
the carrier, multimodal and insurance segments.
The carrier segment consists of Landstar Ranger, Inc., Landstar Inway, Inc.,
Landstar Ligon, Inc. ("Landstar Ligon") and Landstar Gemini, 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. It also provides
short-to-long haul movement of containers by truck and dedicated power-only
truck capacity. 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. Transportation services provided by the multimodal
segment include the arrangement of intermodal moves, contract logistics, truck
brokerage and emergency and expedited ground and air freight. 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.
9
<PAGE>
The insurance segment is comprised of Signature Insurance Company
("Signature"), a wholly-owned offshore insurance subsidiary and Risk Management
Claim Services, Inc. The insurance segment provides risk and claims management
services to Landstar's operating companies. In addition, it reinsures certain
property, casualty and occupational accident risks of certain independent
contractors who have contracted to haul freight for Landstar and provides
certain property and casualty insurance directly to Landstar's operating
subsidiaries.
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
are primarily based on contractually agreed-upon percentages of revenue at the
carrier segment and of gross profit at the multimodal segment. Commissions to
agents as a percentage of consolidated revenue will vary directly
with the percentage of consolidated revenue generated through independent
commission sales agents. Both purchased transportation and commissions to
agents 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 Signature or by the intermodal services operations or
the air freight operations of the multimodal segment.
Trailer rent and maintenance costs are the largest components of other
operating costs.
Potential liability associated with accidents in the trucking industry is
severe and occurrences are unpredictable. 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.
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 communications costs and rent
expense.
Depreciation and amortization primarily relates to depreciation of trailers
and management information services equipment.
10
<PAGE>
The following table sets forth the percentage relationships of
income and expense items to revenue for the periods indicated:
</TABLE>
<TABLE>
<CAPTION>
Twenty Six Weeks Ended Thirteen Weeks Ended
------------------------ ------------------------
June 24, June 26, June 24, June 26,
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue 100.0% 100.0% 100.0% 100.0%
Investment income 0.3 0.2 0.3 0.2
Costs and expenses:
Purchased transportation 73.7 73.6 73.7 73.6
Commissions to agents 7.9 8.0 7.8 8.1
Other operating costs 2.2 2.1 2.2 2.1
Insurance and claims 2.8 3.4 2.8 3.4
Selling, general and administrative 7.5 7.4 7.2 6.7
Depreciation and amortization 0.9 0.8 0.9 0.8
Restructuring costs 0.4 0.8
------- ------ ------- ------
Total costs and expenses 95.4 95.3 95.4 94.7
------- ------ ------- ------
Operating income 4.9 4.9 4.9 5.5
Interest and debt expense 0.6 0.2 0.6 0.3
------- ------ ------- ------
Income before income taxes 4.3 4.7 4.3 5.2
Income taxes 1.7 1.9 1.7 2.1
------- ------ ------- ------
Net income 2.6% 2.8% 2.6% 3.1%
======= ====== ======= ======
</TABLE>
TWENTY SIX WEEKS ENDED JUNE 24, 2000 COMPARED TO TWENTY SIX WEEKS
ENDED JUNE 26, 1999
Revenue for the 2000 twenty six week period was $685,561,000, an increase of
$29,062,000, or 4.4%, over the 1999 twenty six week period. The increase was
attributable to increased revenue of $8,380,000 and $21,203,000
at the carrier and multimodal segments, respectively, partially offset by
decreased revenue at the insurance segment of $521,000. Overall,
revenue per revenue mile (price) increased approximately 4%, which reflected
improved freight quality, while revenue miles (volume) increased approximately
1%. Investment income at the insurance segment was
$1,954,000 and $1,118,000 in the 2000 and 1999 periods, respectively.
Purchased transportation was 73.7% of revenue in 2000 compared with 73.6% in
1999. The increase in purchased transportation as a percentage of revenue was
primarily due to increased revenue contributed by the multimodal segment
which tends to have a higher cost of transportation and decreased premium
revenue at the insurance segment. In addition, purchased transportation costs
at the multimodal segment were generally higher due to increased fuel costs
incurred by its capacity providers. Commissions to agents were 7.9% of revenue
in 2000 compared with 8.0% in 1999. The decrease in commissions to agents as a
11
<PAGE>
percentage of revenue was caused by the increased purchased transportation
costs incurred at the multimodal segment which negatively impacted gross profit
and resulted in lower agent commissions. Other operating costs were 2.2% of
revenue in 2000 compared with 2.1% in 1999. The increase in other operating
costs as a percentage of revenue was primarily due to higher net trailer costs
and an increased provision for contractor bad debts. Insurance and claims
were 2.8% of revenue in 2000 compared with 3.4% in 1999. The decrease in
insurance and claims as a percentage of revenue was primarily attributable to
increased revenue at the multimodal segment which has a lower claims risk
profile and favorable development of prior year claims in 2000. Selling,
general and administrative costs were 7.5% of revenue in 2000 compared with
7.4% of revenue in 1999. The increase in selling, general and administrative
costs as a percentage of revenue was primarily due to an increased
provision for customer bad debts, increased management information services
costs, increased building operating costs related to the new Jacksonville,
Florida headquarters and increased wages and benefits, partially offset by a
lower provision for bonuses under the management incentive compensation plan.
Depreciation and amortization was .9% of revenue in 2000 compared with .8% in
1999. The increase in depreciation and amortization as a percentage of revenue
was primarily attributable to increased Company owned trailers in the
2000 period.
On March 28, 2000, the Company announced a plan to restructure the operations
of Landstar Ligon and to relocate its headquarters from Madisonville,
Kentucky to Jacksonville, Florida in June of 2000. As a result of the
restructuring and relocation, a one-time charge in the amount of $3,040,000 was
recorded during the second quarter of 2000 representing approximately
$1,370,000 of employee and office relocation costs, $1,000,000 of severance
costs and $670,000 of other costs. Severance benefits have been provided for
139 employees. As of June 24, 2000, 99 employees had terminated employment and
$481,000 of severance costs were paid. Management anticipates future savings
of selling, general and administrative costs as a result of this restructuring
to approximate $1,000,000 per annum.
Interest and debt expense was 0.6% and 0.2% of revenue in 2000 and 1999,
respectively. This increase was primarily attributable to the effect of higher
average borrowings on the senior credit facility, which were used to finance a
portion of the Company's stock repurchase program and increased capital lease
obligations for trailing equipment.
The provisions for income taxes for the 2000 and 1999 twenty six week periods
were based on estimated full year combined effective income tax rates of
approximately 39.5% and 40.5%, respectively, 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 $17,776,000, or $1.97 per common share ($1.92 per diluted
share), in the 2000 period compared with $18,230,000, or $1.78 per common share
($1.76 per diluted share), in the 1999 period. After deducting income tax
benefits of $1,225,000, the restructuring charge reduced net income by
$1,815,000 in the 2000 period. Excluding restructuring costs, net income would
have been $19,591,000, or $2.17 per common share ($2.12 diluted earnings per
share) in the 2000 period.
12
<PAGE>
THIRTEEN WEEKS ENDED JUNE 24, 2000 COMPARED TO THIRTEEN WEEKS
ENDED JUNE 26, 1999
Revenue for the 2000 thirteen week period was $358,555,000, an increase of
$13,491,000, or 3.9%, over the 1999 thirteen week period. The increase was
attributable to increased revenue of $4,206,000 and $9,577,000
at the carrier and multimodal segments, respectively, partially offset by
decreased revenue at the insurance segment of $292,000. Overall,
revenue per revenue mile increased approximately 5%, which reflected
improved freight quality, while revenue miles were approximately 2%
lower than 1999. Investment income at the insurance segment was
$1,024,000 and $574,000 in the 2000 and 1999 periods, respectively.
Purchased transportation was 73.7% of revenue in 2000 compared with 73.6% in
1999. The increase in purchased transportation as a percentage of revenue was
primarily attributable to increased revenue contributed by the multimodal
segment and decreased premium revenue at the insurance segment. In addition,
purchased transportation costs at the multimodal segment were generally higher
due to increased fuel costs incurred by its capacity providers. Commissions to
agents were 7.8% of revenue in 2000 compared with 8.1% in 1999. The decrease in
commissions to agents as a percentage of revenue was caused by increased
purchased transportation costs incurred at the multimodal segment which
negatively impacted gross profit and resulted in lower agent commissions.
Other operating costs were 2.2% of revenue in 2000 compared with 2.1%
in 1999. The increase in other operating costs as a percentage of revenue was
primarily due to higher net trailer costs and an increased provision for
contractor bad debts. Insurance and claims were 2.8% of revenue in 2000
compared with 3.4% in 1999. The decrease in insurance and claims as a
percentage of revenue was primarily attributable to increased revenue at the
multimodal segment which has a lower claims risk profile and favorable
development of prior year claims in 2000. Selling, general and administrative
costs were 7.2% of revenue in 2000 compared with 6.7% of revenue in 1999. This
increase was primarily due to an increased provision for customer bad debts and
increased wages and benefits, partially offset by a decreased provision for
bonuses under the management incentive compensation plan. Depreciation and
amortization was .9% of revenue in 2000 compared with .8% in 1999. The increase
in depreciation and amortization as a percentage of revenue was primarily
attributable to increased Company owned trailers in the 2000 period.
Interest and debt expense was 0.6% and 0.3% of revenue in 2000 and 1999,
respectively. This increase was primarily attributable to the effect of higher
average borrowings on the senior credit facility, which were used to finance
the Company's stock repurchase program and increased capital lease obligations
for trailing equipment.
The provisions for income taxes for the 2000 and 1999 thirteen week periods
were based on estimated full year combined effective income tax rates of
approximately 39.5% and 40.5%, respectively, 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 $9,437,000, or $1.06 per common share ($1.04 per diluted share),
in the 2000 period compared with $10,755,000, or $1.06 per common share ($1.05
per diluted share), in the 1999 period. Excluding restructuring costs, net
income would have been $11,252,000, or $1.27 per common share ($1.24 diluted
earnings per share) in the 2000 period.
13
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CAPITAL RESOURCES AND LIQUIDITY
Shareholders' equity decreased to $98,063,000 at June 24, 2000 compared
with $106,884,000 at December 25, 1999, primarily as a result of the repurchase
of 506,700 shares of the Company's common stock at an aggregate cost of
$28,201,000, partially offset by net income for the period. Shareholders'
equity was 49% and 61% of total capitalization at June 24, 2000 and December
25, 1999, respectively.
Working capital and the ratio of current assets to current liabilities were
$97,575,000 and 1.63 to 1, respectively, at June 24, 2000, compared with
$81,589,000 and 1.48 to 1, respectively, at December 25, 1999. Landstar has
historically operated with current ratios approximating 1.5 to 1. Cash
provided by operating activities was $19,259,000 in the 2000 period compared
with $20,552,000 in the 1999 period. The decrease in cash flow provided by
operating activities was primarily attributable to timing of payments to
vendors and reduced earnings, partially offset by timing of the collection of
accounts receivable. During the 2000 period, Landstar purchased $4,101,000 of
operating property and acquired $10,580,000 of revenue equipment by entering
into capital leases. Management anticipates acquiring approximately $11,000,000
of operating property during the remainder of fiscal year 2000 either by
purchase or lease financing.
Management believes that cash flow from operations combined with the Company's
borrowing capacity under its revolving credit agreement will be adequate to
meet Landstar's debt service requirements, fund continued growth, both internal
and through acquisitions, complete its announced stock repurchase program and
meet working capital needs.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Investments and Hedging Activities." This Statement,
effective for fiscal years beginning after June 15, 2000, establishes standards
for reporting and display of derivative investments and for hedging activities.
Management believes that upon adoption of this Statement, Landstar's financial
statements will not be affected, considering the nature of the transactions the
Company routinely enters into.
INFLATION
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.
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FORWARD-LOOKING STATEMENTS
The Company has included various statements in Management's Discussion and
Analysis of Financial Condition and Results of Operations, such as statements
that related to Landstar's business objectives, plans, strategies and
expectations. The words "believe," "anticipate," "should" and similar
expressions identify forward-looking statements. While made in good faith and
with a reasonable basis based on information currently available to Landstar's
management, there is no assurance that such opinions, beliefs or expectations
will be achieved or accomplished. Various factors could cause actual results
and events to vary significantly from those expressed in any forward-looking
statement. Such types of statements are intended to be forward-looking
statements for purposes of the Private Securities Litigation Reform Act of
1995. The Company is under no obligation to update any forward-looking
statement to the extent it becomes aware that it will not be achieved for
any reason.
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company maintains a credit agreement with a syndicate of banks and The
Chase Manhattan Bank, as the administrative agent, (the "Second Amended and
Restated Credit Agreement") that provides $200,000,000 of borrowing
capacity, consisting of $150,000,000 revolving credit and $50,000,000 revolving
credit to finance acquisitions. Borrowings under the Second Amended and
Restated 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 The 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 The 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 the Company's Leverage Ratio, as defined in the Second Amended and
Restated Credit Agreement. There have been no significant changes that would
affect the information provided in Item 7a of the 1999 Annual Report on
Form 10-K regarding quantitative and qualitative disclosures about market risk.
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PART II
OTHER INFORMATION
Item 1. Legal Proceedings
The Company is routinely a party to litigation incidental to its business,
primarily involving claims for personal injury and property damage incurred
in the transportation of freight. The Company maintains insurance which covers
liability amounts in excess of retained liabilities from personal injury and
property damages claims.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
On May 16, 2000, Landstar System, Inc. (the "Company") held its Annual Meeting
of Shareholders (the "Meeting") at the Ponte Vedra Inn, Ponte Vedra Beach,
Florida, 32082. The matters voted upon at the Meeting included (i) the election
of two Class I directors for the terms to expire at the 2003 Annual Meeting
of Shareholders, (ii) the ratification of appointment of KPMG LLP
as the Company's independent auditors for fiscal year 2000, (iii) a proposal to
increase the number of shares available for distribution from the Company's
1994 Director's Stock Option Plan and (iv) a proposal to amend Article IV of
the Certificate of Incorporation to increase the authorized capital stock of
the Company.
Pursuant to the Company's Restated Certificate of Incorporation, the Board of
Directors has fixed the number of directors at seven: two Class III directors
whose members' terms will expire at the 2002 Annual Meeting of Shareholders;
two Class I directors whose members' terms will expire at the 2003 Annual
Meeting of Shareholders; and three Class II directors whose members' terms
will expire at the 2001 Annual Meeting of Shareholders. With respect to the
election of the two Class I directors at the Meeting, nominee Henry H. Gerkens,
and nominee Ronald W. Drucker were elected to the Board of Directors of the
Company. Mr. Gerkens received 7,752,437 votes for election to the Board and
184,778 were withheld. Mr. Drucker received 7,752,387 votes for election to the
Board and 184,828 were withheld. The names of the other directors whose terms
of office as a director continued after the Meeting are as follows: Jeffrey C.
Crowe (a Class III director), David G. Bannister (a Class III director),
William S. Elston (a Class II director), Merritt J. Mott (a Class II
director), and Diana M. Murphy (a Class II director).
The proposal to appoint KPMG LLP as the Company's independent auditors
for fiscal year 2000 was ratified by the Company's shareholders. Votes for the
ratification were 7,935,058, votes against were 967 and votes abstaining
were 1,190.
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The proposal to increase the number of shares available for distribution from
the Company's 1994 Director's Stock Option Plan was ratified by the Company's
shareholders. Votes for the ratification were 5,228,431, votes against were
2,702,511 and votes abstaining were 6,273.
The proposal to amend Article IV of the Certificate of Incorporation to
increase the authorized capital stock of the Company was not approved by the
Company's shareholders. Votes against the ratification were 3,687,300, votes
for were 3,475,095 and votes abstaining were 4,733.
Item 5. Other Information
None.
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
None.
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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 Twenty Six and Thirteen Weeks Ended
June 24, 2000 and June 26, 1999
11.2 * Landstar System, Inc. and Subsidiary Calculation of Diluted
Earnings Per Share for the Twenty Six and Thirteen Weeks
Ended June 24, 2000 and June 26, 1999
(27) Financial Data Schedules:
27.1 * 2000 Financial Data Schedule
__________________
* Filed herewith
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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: July 25, 2000 Henry H. Gerkens
----------------------------
Henry H. Gerkens
Executive Vice President and
Chief Financial Officer;
Principal Financial Officer
Date: July 25, 2000 Robert C. LaRose
----------------------------
Robert C. LaRose
Vice President Finance and Treasurer;
Principal Accounting Officer
19
