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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 25, 1999
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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.)
13410 Sutton Park Drive South, Jacksonville, Florida 32224
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(Address of principal executive offices) (Zip Code)
(904) 390-1234
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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. [X]
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Documents Incorporated by Reference
Portions of the following documents are incorporated by reference in this
Form 10-K as indicated herein:
Part of 10-K into
Document which incorporated
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1999 Annual Report to Shareholders Part II
Proxy Statement relating to Part III
Landstar System, Inc.'s Annual
Meeting of Shareholders
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 20, 2000 was 9,071,333; and the aggregate market value of the voting
stock held by non-affiliates of the registrant was $474,764,954 (based on the
$54.5625 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.
1999 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 13
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 14
Part II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 14
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15
Item 7a. Quantitative and Qualitative Disclosures about
Market Risk 15
Item 8. Financial Statements and Supplementary Data 15
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 15
Part III
Item 10. Directors and Executive Officers of the Registrant 16
Item 11. Executive Compensation 16
Item 12. Security Ownership of Certain Beneficial Owners
and Management 16
Item 13. Certain Relationships and Related Transactions 16
Part IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 16
Signatures 18
Index to Exhibits 20
</TABLE>
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Part I
Item 1. - Business
General
Landstar System, Inc. (herein referred to as "Landstar" or the "Company")
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
Logistics, Inc. ("Landstar Logistics"), Landstar Express America, Inc.
("Landstar Express America"), Landstar Contractor Financing, Inc. ("LCFI"),
Landstar Capacity Services, Inc., Risk Management Claim Services, Inc.
("RMCS"), Signature Technology Services, Inc. ("STSI") and Signature Insurance
Company ("Signature"). Landstar Ranger, Landstar Inway, Landstar Ligon,
Landstar Gemini, Landstar Logistics and Landstar Express America are
collectively herein referred to as Landstar's "Operating Subsidiaries." The
Company's principal executive offices are located at 13410 Sutton Park Drive
South, Jacksonville, Florida 32224 and its telephone number is (904) 390-1234.
The Company's website is www.landstar.com.
Historical Background
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 DB Alex. Brown LLC
(formerly known as 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($1.3 million)
and certain institutional stockholders ($.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 shares of Landstar Common Stock, and
affiliates of DB Alex. Brown LLC retained approximately 1% of the Common
Stock outstanding.
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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 businesses acquired from ITCO and Express
comprise the majority of the multimodal segment's operations, and are now
operated through Landstar Logistics and Landstar Express America, respectively.
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 the operations of Landstar T.L.C. into Landstar 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. During 1997 and
1996, the Company incurred approximately $3,247,000 and $5,937,000 of such
restructuring costs, respectively. The restructuring was completed during 1997.
In March 1997, Landstar formed Signature, a wholly-owned offshore insurance
subsidiary. Signature reinsures certain property, casualty and occupational
accident risks of certain independent contractors who have contracted to haul
freight for Landstar. In addition, Signature provides certain property and
casualty insurance directly to Landstar's operating subsidiaries.
On August 22, 1998, Landstar Poole, which comprised the entire company-owned
tractor segment, completed the sale of all of its tractors and trailers,
certain operating assets and the Landstar Poole business to Schneider
National, Inc. for $40,435,000 in cash. Accordingly, the financial results
of this segment have been reported as discontinued operations.
Description of Business
Landstar, a non asset based business services company, provides transportation
solutions to shippers throughout the United States and, to a lesser extent,
between the United States, Canada and Mexico. These business services, which
emphasize safe transportation, information coordination and customer service,
are delivered through a network of independent sales agents and independent
contractors linked together by a series of technological applications.
Through this network, Landstar operates a $1.4 billion transportation
services business throughout North America, providing truckload services,
intermodal transportation services and expedited time definite air and ground
transportation services.
Landstar provides transportation services to a variety of industries, including
iron and steel, automotive products, paper, lumber and building products,
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aluminum, chemicals, foodstuffs, heavy machinery, ammunition and explosives,
and military hardware. Landstar's transportation services include a full array
of truckload transportation utilizing a wide range of specialized equipment
including dry vans of various sizes, flatbeds, drop decks, light specialty
trailers, temperature-controlled vans and containers, dedicated contract and
logistics solutions, including freight optimization and less than truckload
freight consolidations, and expedited land and air delivery of time-critical
freight.
The Company has three reportable business segments. These are the carrier,
multimodal and insurance segments. The following table provides financial
information relating to the Company's reportable business segments as of and
for the fiscal years ending 1999, 1998 and 1997 (dollars in thousands):
<TABLE>
<CAPTION> Fiscal Year
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1999 1998 1997
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<S> <C> <C> <C>
Revenue from unaffiliated customers:
Carrier segment $1,111,912 $1,029,432 $ 997,639
Multimodal segment 250,395 229,994 202,732
Insurance segment 25,776 24,181 18,940
Inter-segment revenue:
Carrier segment $ 35,194 $ 38,302 $ 39,530
Multimodal segment 196 169 610
Insurance segment 21,790 20,716 15,452
Operating income:
Carrier segment $ 86,282 $ 69,401 $ 63,172
Multimodal segment 7,949 6,407 4,463
Insurance segment 27,141 19,479 7,863
Other (39,658) (33,833) (29,177)
Identifiable assets:
Carrier segment $ 251,922 $ 210,200 $ 204,974
Multimodal segment 57,337 55,207 51,224
Insurance segment 28,180 24,179 22,101
Discontinued segment 68,791
Other 28,002 24,079 10,089
</TABLE>
In 2000, the Company made a decision to realign the operations of Landstar
Gemini, formerly a wholly-owned subsidiary of Landstar Logistics, with the
operations of the carrier segment. Accordingly, Landstar Gemini is now included
as part of the carrier segment and is no longer included in the multimodal
segment. All historical segment information included in this Annual Report on
Form 10-k has been restated to reflect this change.
In addition to Landstar Gemini, the carrier segment consists of Landstar
Ranger, Landstar Inway and Landstar Ligon. 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
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sales agents and exclusively utilizes tractors provided by independent
contractors. The nature of the carrier segment business is such that a
significant portion of its operating costs varies directly with revenue. At
December 25, 1999, the carrier segment operated a fleet of more than 8,400
tractors, provided by over 6,900 independent contractors, and 13,634 trailers,
6,338 of which are supplied by independent contractors. Approximately 73% of
the trailers available to the carrier segment are provided by independent
contractors or are leased by the Company at rental rates that vary with the
revenue generated by the trailer. The carrier segment's trailer fleet is
comprised of 8,976 dry vans, 3,646 flatbeds, 725 specialty and 287 refrigerated
vans. The carrier segment has a network of more than 880 independent commission
sales agents. Independent commission sales agents in the carrier segment
receive a commission generally between 5% and 8% of the revenue they generate.
The use of independent contractors enables the carrier segment to utilize a
large fleet of revenue equipment while minimizing capital investment and fixed
costs, thereby enhancing return on investment. Independent contractors who
provide tractor power receive a percentage of the revenue generated for the
freight hauled and a larger percentage for providing both a tractor and
trailer.
The multimodal segment is comprised of Landstar Logistics and Landstar Express
America. Transportation services provided by the multimodal segment include the
arrangement of intermodal moves, contract logistics, truck brokerage and
emergency and expedited 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. Multimodal independent sales agents generally receive a percentage
of the gross profit, revenue less the cost of the transportation, from each
load they generate. Independent contractors who provide truck capacity to the
multimodal segment are compensated based on a percentage of the revenue
generated by the haul depending on the type and timing of the shipment.
Railroads and air cargo carriers receive a fixed amount per load. The nature of
the multimodal segment business is such that a significant portion of its
operating costs also varies directly with revenue. At December 25, 1999, the
multimodal segment operated a fleet of 370 trucks, provided by approximately
320 independent contractors. Multimodal segment independent contractors provide
cargo vans and straight trucks that are utilized for emergency and expedited
freight services. The multimodal segment has a network of more than 180
independent commission sales agents.
The insurance segment is comprised of Signature, a wholly-owned offshore
insurance subsidiary that was formed in March 1997, and RMCS. The insurance
segment provides risk and claims management services for 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.
Landstar's business strategy is to offer high quality, specialized
transportation services through its transportation group to service-sensitive
customers. Landstar focuses on providing transportation services which
emphasize customer service and information coordination among its independent
commission sales agents, customers and capacity providers, rather
than the volume-driven approach of generic dry van carriers. Landstar intends
to continue developing appropriate systems and technologies that offer
integrated transportation and logistics solutions to meet the total
transportation needs of its customers.
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The Company's overall size, geographic coverage, equipment and service
capability offer the Company significant competitive marketing and operating
advantages. These advantages allow the Company to meet the needs of even the
largest shippers and thereby qualify it 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 the three
major U.S. automobile manufacturers.
Management believes the Company has a number of significant competitive
advantages, including:
TECHNOLOGY. Management believes leadership in the development and application
of technology is an ongoing part of providing high quality service at
competitive prices. Landstar manages its carrier and multimodal segments'
technology programs centrally through its information services department.
DIVERSITY OF SERVICES OFFERED. The Company offers its customers a wide range
of transportation services through the carrier and multimodal groups, including
a fleet of diverse trailing 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, emergency and expedited surface and air cargo
services 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 following table illustrates the diversity of this equipment as of
December 25, 1999:
<TABLE>
<CAPTION>
<S> <C>
Trailers:
Vans 8,837
Specialty Vans 155
Temperature-Controlled 287
Flatbeds 2,242
Drop Deck/Low Boys 1,407
Other Specialized Flatbeds 725
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Total 13,653
======
</TABLE>
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MARKETING NETWORK. Landstar's network of more than 1,000 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 for larger customers. Examples of
services that Landstar is able to make available through the agent network to
smaller shippers include the ability to provide transportation services 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 in the carrier segment
is typically paid a percentage of the revenue generated through that agent,
with volume-based incentives. An agent in the multimodal segment is typically
paid a contractually agreed-upon percentage of the gross profit on revenue
generated through that agent. During 1999, more than 360 agents generated
revenue for Landstar of at least $1 million each, or approximately $1.2 billion
of Landstar's total revenue. The majority of the agents who generate revenue of
$1 million or more have chosen to represent Landstar exclusively. 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 and multi-unit contractors. Contracts with agents are
typically terminable upon 30 days' notice. Historically, Landstar has
experienced very limited agent turnover among its larger-volume agents.
Each operating subsidiary emphasizes programs to support the agents' operations
and to establish pricing parameters. Each operating subsidiary contracts
directly with customers and generally assumes the credit risk and liability for
freight losses or damages.
The independent commission sales agents are responsible for locating freight
and making that freight available to the Company's independent contractors and
coordinating the transportation of the freight with independent contractors.
The carrier segment's independent commission sales agents generally use the
Company's Landstar Electronic Administrative Dispatch System (LEADS) software
program which enables its independent commission sales agents to dispatch
freight and process most administrative procedures and then communicate that
information to Landstar and its independent contractors via the worldwide web.
The multimodal segment's independent commission sales agents use other Landstar
proprietary software to process customer shipments and communicate the
necessary information to independent contractors and Landstar. The Company's
web-based available freight and truck information system provides a listing of
available trucks to the Company's independent commission sales agents.
The carrier segment and multimodal segment hold regular regional agent meetings
for their independent commission sales agents and Landstar holds an annual
company-wide agent convention.
INDEPENDENT CONTRACTORS. Landstar operates the largest fleet of truckload
independent contractors in North America. This provides marketing, operating,
safety, recruiting, retention and financial advantages to the Company. Most
of the Company's truckload independent contractors are compensated based on
a fixed percentage of the revenue generated from the freight they haul. This
percentage generally ranges from 60% to 70% where the independent contractor
provides a tractor and from 75% to 79% where the independent contractor
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provides both a tractor and trailer. The independent contractor must pay all
the expenses of operating his/her equipment, including driver wages and
benefits, fuel, physical damage insurance, maintenance, highway use taxes
and debt service.
The Company maintains an internet site through which independent contractors can
view a complete listing of all the Company's available freight, allowing them
to consider size, origin and destination when planning trips.
In 1999, Landstar's truck turnover ratio was 53%. A significant portion of this
turnover was attributable to independent contractors who had been independent
contractors with the Company for less than one year. Management believes that
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. Management believes that a reduction in the amount of available
freight may cause an increase in truck turnover.
The Landstar Contractors' Advantage Purchasing Program leverages Landstar's
purchasing power to provide discounts to the independent contractors when they
purchase equipment, fuel, tires and other items. In addition, LCFI provides a
source of funds at competitive interest rates to the independent contractors to
purchase tractors, trailers or mobile communication equipment.
Landstar also benefits from its use of independent contractors. This allows the
Company to maintain a lower level of capital investment, which results in lower
fixed costs.
CORPORATE SERVICES. Significant advantages result from the collective
expertise and corporate services afforded by Landstar's corporate
management. The primary services provided are:
safety purchasing
strategic planning human resource management
technology and management information systems finance
legal accounting, budgeting and taxes
quality programs
Competition
Landstar competes primarily in the transportation services industry.
The transportation services industry is extremely competitive and fragmented.
Landstar competes primarily with truckload carriers, intermodal
transportation service providers, railroads, less-than-truckload carriers,
third party broker carriers and other non-asset based transportation service
providers.
Management believes that competition for the freight transported by the Company
is based primarily on service and efficiency and, to a lesser degree, on
freight rates alone. 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 transportation service providers.
The Company also competes with motor carriers for the services of
independent contractors and with motor carriers and other transportation
services companies for the services of independent commission sales agents,
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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 and independent contractors.
Insurance and Claims
Potential liability associated with accidents in the trucking portion of the
transportation services industry is severe and occurrences are unpredictable.
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 realizes significant savings in insurance premiums by retaining a
larger amount of risk than might be prudent for a smaller company.
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 transportation services provided by 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 other transportation service companies
including those that provide non-trucking modes of transportation and
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 to 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, 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.
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Although management is unaware of any proposals currently pending that would
change the employee/independent contractor classification of independent
contractors currently doing business with the Company, 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, was regulated by the Interstate Commerce Commission
("ICC") and is now regulated by the United States Department of
Transportation ("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'
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.
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 requirements have not adversely affected the availability of
qualified drivers to the Company.
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.
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Employees
As of December 25, 1999, the Company and its subsidiaries employed
approximately 1,316 individuals. Approximately 120 Landstar Ranger drivers
(out of a total of approximately 3,800) are members of the International
Brotherhood of Teamsters. The Company considers relations with its employees
to be good.
Item 2. - Properties
The Company owns or leases various properties in the U.S. for the Company's
operations and administrative staff that support the independent commission
sales agents and independent contractors. The carrier segment's primary
facilities are located in Jacksonville, Florida, Rockford, Illinois and
Madisonville, Kentucky. The multimodal segment's primary facilities are located
in Jacksonville, Florida. In addition, the Company's corporate headquarters are
located in Jacksonville, Florida and RMCS is located in Madisonville, Kentucky.
The Madisonville, Kentucky and Rockford, Illinois facilities of the carrier
segment are owned by the Company. All other facilities are leased.
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
On August 5, 1997, suit was filed entitled Rene Alberto Rivas vs. Landstar
System, Inc., Landstar Gemini, Inc., Landstar Ranger, Inc., Risk Management
Claim 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. On March 24, 1998,
the court granted defendant's motion to dismiss the RICO claim.
The federal court has now held that Rivas may not recover damages for
alleged violations of the federal leasing regulations without first
proceeding at the Federal Highway Administration. Further, Rivas has now
agreed to dismiss his lawsuit and submit his claim to arbitration
as provided under the motor vehicle lease agreement. It is anticipated that
arbitration will occur during 2000. The Company continues to
vigorously contest this action. It believes that the drivers in question are
properly classified as independent contractors and it also has other
meritorious defenses to the various claims.
13
<PAGE>
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 1999.
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.
<TABLE>
<CAPTION>
Calendar Period 1999 Market Price 1998 Market Price
--------------- ----------------- -----------------
<S> <C> <C> <C> <C>
High Low High Low
First Quarter $ 46 7/8 $ 31 11/16 $ 32 1/2 $ 25 1/4
Second Quarter 44 1/2 32 1/4 35 5/32 30 3/4
Third Quarter 42 34 7/8 37 1/4 27
Fourth Quarter 47 5/8 32 3/4 45 5/8 21 1/16
</TABLE>
The reported last sale price per share of the Common Stock as quoted through
the NASDAQ National Market System on March 20, 2000 was $54.5625 per share. As
of such date, Landstar had 9,071,333 shares of Common Stock outstanding. As
of March 20, 2000, the Company had 86 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 brokers or dealers for their customers in street name.
The Company has not paid any cash dividends on the Common Stock within the past
three years 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 and other factors deemed relevant.
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 44 of the Company's 1999 Annual Report to
Shareholders.
14
<PAGE>
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 27 of the Company's 1999 Annual Report to Shareholders.
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
The Company has 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. As of December 25, 1999, the weighted average
interest rate on borrowings outstanding was 6.54%. During fiscal 1999, the
average outstanding balance under the Second Amended and Restated Credit
Agreement was $47,228,000. Based on the borrowing rates in the Second Amended
and Restated Credit Agreement and the repayment terms, the fair value of the
outstanding borrowings as of December 25, 1999 was estimated to approximate
carrying value.
The Second Amended and Restated Credit Agreement expires on
October 10, 2002. The amounts outstanding on the Second Amended and Restated
Credit Agreement are payable upon the expiration of the Second Amended
and Restated Credit Agreement.
Item 8. - Financial Statements and Supplementary Data
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 28 through 43 of the
Company's 1999 Annual Report to Shareholders.
Item 9. - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
15
<PAGE>
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 11, and "Compliance with Section 16(a) of the
Securities Exchange Act of 1934" on page 24 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," "Fiscal Year-End Option Values," "Report of the Compensation
Committee on Executive Compensation," "Performance Comparison" and
"Key Executive Employment Protection Agreements" on pages 12 through 20 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 21 through 23 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 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.
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 LLP dated February 1, 2000, 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 28 through 42
of the Company's 1999 Annual Report to Shareholders.
16
<PAGE>
(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 42 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 25, 1999 S-4
II Valuation and Qualifying Accounts
For the Fiscal Year Ended December 26, 1998 S-5
II Valuation and Qualifying Accounts
For the Fiscal Year Ended December 27, 1997 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, 13410 SUTTON PARK DRIVE SOUTH,
JACKSONVILLE, FLORIDA 32224.
(b) No reports on Form 8-K were filed during the last quarter of fiscal year
1999.
17
<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 22, 2000
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 22, 2000
- ------------------- Chief Executive Officer; Principal
Jeffrey C. Crowe Executive Officer
Henry H. Gerkens Executive Vice President & March 22, 2000
- ------------------- Chief Financial Officer; Principal
Henry H. Gerkens Financial Officer
Robert C. LaRose Vice President Finance & Treasurer;
- ------------------- Principal Accounting Officer March 22, 2000
Robert C. LaRose
* Senior Vice President and Director March 22, 2000
- -------------------
John B. Bowron
* Director March 22, 2000
- -------------------
David G. Bannister
* Director March 22, 2000
- -------------------
Ronald W. Drucker
18
<PAGE>
* Director March 22, 2000
- -------------------
Merritt J. Mott
* Director March 22, 2000
- -------------------
William S. Elston
* Director March 22, 2000
- -------------------
Diana M. Murphy
* Attorney In Fact
- ----------------------
By: Michael L. Harvey
19
<PAGE>
EXHIBIT INDEX
Form 10-K for fiscal year ended 12/25/99
Exhibit No. Description
- ----------- -----------
(1) Plan of acquisition, reorganization, arrangement, liquidation
or succession
2.1 Asset Purchase Agreement by and between Landstar Poole, Inc.
as the seller, and Landstar System, Inc., as the guarantor, and Schneider
National, Inc., as the purchaser, dated as of July 15, 1998. (Incorporated by
reference to Exhibit 2.1 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 27, 1998 (Commission File No. 0-21238))
(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 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))
4.3 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))
4.4 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.
4.5 Second Amended and Restated Credit Agreement, dated
October 10, 1997, among LSHI, Landstar, the lenders named therein and The
Chase Manhattan Bank as administrative agent (including exhibits and schedules
thereto).(Incorporated by reference to Exhibit 4.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 27, 1997
(Registration No. 0-21238))
20
<PAGE>
Exhibit Index (continued)
Form 10-K for fiscal year ended 12/25/99
Exhibit No. Description
- ----------- -----------
4.6 First Amendment, dated October 30, 1998, to the Second Amended
and Restated Credit Agreement, dated October 10, 1997, among LSHI, Landstar,
the lenders named therein and The Chase Manhattan Bank as administrative agent
4.7 Second Amendment, dated September 8, 1999, to the Second
Amended and Restated Credit Agreement, dated as of October 10, 1997
(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))
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))
10.9+ Key Executive Employment Protection Agreement dated
January 30, 1998 between Landstar System, Inc. and certain officers of the
Company (Incorporated by reference to Exhibit 10.9 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 27, 1997 (Commission
File NO. 0-21238))
21
<PAGE>
Exhibit Index (continued)
Form 10-K for fiscal year ended 12/25/99
Exhibit No. Description
- ----------- -----------
10.10+ Amendment to the Landstar System, Inc. 1993 Stock Option
Plan (Incorporated by reference to Exhibit 10.10 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 27, 1997 (Commission
File No. 0-21238))
10.11+ Form of Promissory Note between the Company and certain
directors, executive officers and management of the Company.
(11) Statement re: Computation of Per Share Earnings:
11.1* Landstar System, Inc. and Subsidiary Calculation of Earnings
Per Common Share
11.2* Landstar System, Inc. and Subsidiary Calculation of Diluted
Earnings Per Share
(13) Annual Report to Shareholders, Form 10-Q or Quarterly Report to
Shareholders:
13.1* Excerpts from the 1999 Annual Report to Shareholders
(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 LLP as Independent Auditors of the Registrant
(24) Power of Attorney
24.1* Powers of Attorney
(27) Financial Data Schedules
27.1* 1999 Financial Data Schedule
___________________
+management contract or compensatory plan or arrangement
*Filed herewith.
22
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Landstar System, Inc.:
Under date of February 1, 2000, we reported on the consolidated balance sheets
of Landstar System, Inc. and subsidiary as of December 25, 1999 and December
26, 1998, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for the fiscal years ended December 25,
1999, December 26, 1998 and December 27, 1997, as contained in the 1999 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 1999. 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 LLP
Stamford, Connecticut
February 1, 2000
23
<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. 25, Dec. 26,
1999 1998
-------- --------
<S> <C> <C>
Assets
- ------
Investment in Landstar System Holdings, Inc.,
net of advances $106,884 $111,848
-------- --------
Total assets $106,884 $111,848
======== ========
Liabilities and Shareholders' Equity
- -----------------------------------
Shareholders' equity:
Common stock, $.01 par value, authorized
20,000,000 shares, issued 13,063,974
and 13,041,574 shares $ 131 130
Additional paid-in capital 65,833 65,198
Retained earnings 170,174 124,237
Cost of 3,909,041 and 2,618,041 shares of
common stock in treasury (127,560) (76,176)
Notes receivable arising from exercise of
stock options (1,694) (1,541)
-------- --------
Total shareholders' equity 106,884 111,848
-------- --------
Total liabilities and shareholders' equity $106,884 $111,848
======== ========
</TABLE>
S-1
24
<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 YEARS ENDED
----------------------------------------------
Dec. 25, Dec. 26, Dec. 27,
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Rental income $ $ 648
Amortization expense (626)
Interest expense (22)
Equity in undistributed earnings
of Landstar System Holdings, Inc. $ 46,018 11,897 24,736
Income taxes 81 5 46
---------- ---------- -----------
Net income $ 45,937 $ 11,892 $ 24,690
========== ========== ===========
Earnings per common share $ 4.60 $ 1.08 $ 1.97
========== ========== ===========
Diluted earnings per share $ 4.55 $ 1.07 $ 1.96
========== ========== ===========
Average number of shares
outstanding:
Earnings per common share 9,982,000 11,022,000 12,541,000
========== ========== ===========
Diluted earnings per share 10,102,000 11,123,000 12,580,000
========== ========== ==========
</TABLE>
S-2
25
<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 YEARS ENDED
-----------------------------------------------
Dec. 25, Dec. 26, Dec. 27,
1999 1998 1997
---------- ---------- -----------
<S> <C> <C> <C>
Operating Activities
- --------------------
Net income $ 45,937 $ 11,892 $ 24,690
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Amortization of operating property 626
Equity in undistributed earnings of
Landstar System Holdings, Inc. (46,018) (11,897) (24,736)
---------- ---------- -----------
Net Cash Provided (Used) By Operating
Activities (81) (5) 580
---------- ---------- -----------
Investing Activities
- --------------------
Additional investments in and advances
from Landstar System Holdings,
Inc., net 50,982 51,745 20,384
---------- ---------- -----------
Net Cash Provided By Investing
Activities 50,982 51,745 20,384
---------- ---------- -----------
Financing Activities
- --------------------
Principal payments on borrowings under
capital lease obligations (413)
Proceeds from sales of common stock 483 1,489 429
Purchases of common stock (51,384) (53,229) (20,980)
---------- ---------- ----------
Net Cash Used By Financing
Activities (50,901) (51,740) (20,964)
---------- ---------- ----------
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
26
<PAGE>
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEAR ENDED DECEMBER 25, 1999
(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 $ 6,428 $ 94 $ - $ (2,520) $ 4,002
Deducted from other
receivables 4,007 1,226 - (200) 5,033
Deducted from other
non-current
receivables 303 1,323 - - 1,626
------- --------- --------- -------- -------
$10,738 $ 2,643 $ - $ (2,720) $10,661
======= ========= ========= ======== =======
</TABLE>
(A) Write-offs, net of recoveries.
S-4
27
<PAGE>
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEAR ENDED DECEMBER 26, 1998
(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(A) Describe Describe(B) of Period
- ----------- --------- ---------- -------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts:
Deducted from trade
receivables $ 5,957 $ 3,238 $ - $ (2,767) $ 6,428
Deducted from other
receivables 4,009 818 - (820) 4,007
Deducted from other non-
current receivables 58 245 - - 303
------- --------- --------- -------- -------
$10,024 $ 4,301 $ - $ (3,587) $10,738
======= ========= ========= ======== =======
</TABLE>
(A) Includes $25 charged to costs and expenses of discontinued operations.
(B) Write-offs, net of recoveries.
S-5
28
<PAGE>
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEAR ENDED DECEMBER 27, 1997
(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(A) Describe Describe (B) of Period
- ----------- --------- ---------- -------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts:
Deducted from trade
receivables $ 6,526 $ 2,284 $ - $ (2,853) $ 5,957
Deducted from other
receivables 4,390 1,673 - (2,054) 4,009
Deducted from other non-
current receivables 17 41 - - 58
------- --------- ----------- -------- -------
$10,933 $ 3,998 $ - $ (4,907) $10,024
======= ========= =========== ======== =======
</TABLE>
(A) Includes $234 of recoveries related to discontinued operations.
(B) Write-offs, net of recoveries.
S-6
29
<PAGE>
EXHIBIT 11.1
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CALCULATION OF EARNINGS PER COMMON SHARE
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Fiscal Years Ended
December 25, December 26, December 27,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Income from continuing operations $ 45,937 $ 34,481 $ 25,428
Discontinued operations, net
of income taxes (22,589) (738)
------------ ------------ ------------
Net income $ 45,937 $ 11,892 $ 24,690
============ ============ ============
Average number of common shares
outstanding 9,982 11,022 12,541
============ ============ ============
Earnings per common share:
Income from continuing operations $ 4.60 $ 3.13 $ 2.03
Loss from discontinued operations (2.05) (0.06)
------------ ------------ ------------
Earnings per common share $ 4.60 $ 1.08 $ 1.97
============ ============ ============
</TABLE>
30
<PAGE>
EXHIBIT 11.2
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CALCULATION OF DILUTED EARNINGS PER SHARE
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Fiscal Years Ended
December 25, December 26, December 27,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Income from continuing operations $ 45,937 $ 34,481 $ 25,428
Discontinued operations, net
of income taxes (22,589) (738)
------------ ------------ ------------
Net income $ 45,937 $ 11,892 $ 24,690
============ ============ ============
Average number of common shares
outstanding 9,982 11,022 12,541
Plus: Incremental shares from
assumed exercise of stock
options 120 101 39
------------ ------------ ------------
Average number of common shares
and incremental shares
outstanding 10,102 11,123 12,580
============ ============ ============
Diluted earnings per share:
Income from continuing operations $ 4.55 $ 3.10 $ 2.02
Loss from discontinued operations (2.03) (0.06)
------------ ------------ ------------
Diluted earnings per share $ 4.55 $ 1.07 $ 1.96
============ ============ ============
</TABLE>
31
<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"), 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. In 2000, the Company made a
decision to realign the operations of Landstar Gemini, Inc. ("Landstar
Gemini"), formerly a wholly-owned subsidiary of Landstar Logistics, Inc.
("Landstar Logistics"), with the operations of the carrier segment.
Accordingly, Landstar Gemini is now included as part of the carrier segment and
is no longer included in the multimodal segment. All historical segment
information included in this Management's Discussion and Analysis of Financial
Condition and Results of Operations and footnote 11 - Segment Information in
the accompanying consolidated financial statements has been restated to reflect
this change.
In addition to Landstar Gemini, the carrier segment consists of Landstar
Ranger, Inc. ("Landstar Ranger"), Landstar Inway, Inc. ("Landstar Inway") and
Landstar Ligon, Inc. ("Landstar Ligon"). 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 carrier segment typically
contributes approximately 80% of Landstar's consolidated revenue.
The multimodal segment is comprised of Landstar Logistics and Landstar
Express America, Inc. ("Landstar Express America"). Transportation services
provided by the multimodal segment include the arrangement of intermodal
moves, contract logistics, truck brokerage and emergency and expedited 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. The multimodal segment
typically contributes approximately 18% of Landstar's consolidated revenue.
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<PAGE>
The insurance segment is comprised of Signature Insurance Company
("Signature"), a wholly-owned offshore insurance subsidiary that was formed
in March 1997, 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. The insurance segment typically contributes
approximately 2% of Landstar's consolidated revenue.
On August 22, 1998, Landstar Poole, Inc. ("Landstar Poole"), a wholly-owned
subsidiary of Landstar which comprised the entire company-owned tractor
segment, completed the sale of all of its tractors and trailers, certain
operating assets and the Landstar Poole business to Schneider National, Inc.
for $40,435,000 in cash. Accordingly, the historical financial results
of this segment have been reported as discontinued operations in the
accompanying financial statements.
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.
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The following table sets forth the percentage relationships of expense items to
revenue for the periods indicated:
<TABLE>
<CAPTION>
Fiscal Years
------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Revenue 100.0% 100.0% 100.0%
Investment income 0.2 0.1
Costs and expenses:
Purchased transportation 73.6 74.0 73.7
Commissions to agents 8.0 7.9 8.1
Other operating costs 2.2 2.1 2.7
Insurance and claims 2.5 3.1 3.5
Selling, general and administrative 7.2 7.4 7.0
Depreciation and amortization 0.8 0.8 0.9
Restructuring costs 0.3
------ ------ ------
Total costs and expenses 94.3 95.3 96.2
------ ------ ------
Operating income 5.9 4.8 3.8
Interest and debt expense 0.3 0.3 0.2
------ ------ ------
Income from continuing operations
before income taxes 5.6 4.5 3.6
Income taxes 2.3 1.8 1.5
------ ------ ------
Income from continuing operations 3.3 2.7 2.1
Discontinued operations, net of
income taxes (1.8) (0.1)
------ ------ ------
Net income 3.3% 0.9% 2.0%
====== ====== ======
</TABLE>
FISCAL YEAR ENDED DECEMBER 25, 1999 COMPARED TO FISCAL YEAR ENDED DECEMBER 26,
1998
Revenue for the fiscal year 1999 was $1,388,083,000, an increase of
$104,476,000, or 8.1%, over revenue for the 1998 fiscal year. The increase
was attributable to higher revenue at the carrier, multimodal and insurance
segments of $82,480,000, $20,401,000 and $1,595,000, respectively. Overall,
revenue per revenue mile (price) increased approximately 3%, which reflected
improved freight quality, and revenue miles (volume) increased approximately
6%. The increase in revenue over the prior year at the insurance segment was
attributable to increased independent contractor participation in the insurance
programs reinsured by Signature.
Purchased transportation was 73.6% of revenue in 1999 compared with 74.0% in
1998. The decrease in purchased transportation as a percentage of revenue was
primarily attributable to
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<PAGE>
reduced intermodal and air freight revenue which tend to have a higher cost
of purchased transportation and increased utilization of company-owned
or leased trailers as opposed to those supplied by independent contractors.
Commissions to agents were 8.0% of revenue in 1999 compared with 7.9% in 1998
primarily 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.
Other operating costs were 2.2% of revenue in 1999 compared with 2.1% in 1998.
The increase in other operating costs as a percentage of revenue was primarily
attributable to a higher provision for contractor bad debts, higher net trailer
costs and increased contractor recruiting costs, partially offset by a one-time
reduction in the cost of fuel taxes which resulted from a favorable fuel tax
audit. Insurance and claims were 2.5% of revenue in 1999 compared with 3.1% in
1998 primarily due to the favorable development of prior year claims in 1999.
Excluding the effects of the insurance programs available to the Company's
independent contractors which Signature reinsures, insurance and claims were
1.8% of revenue in 1999 and 2.2% in 1998. Selling, general and administrative
costs were 7.2% of revenue in 1999 and 7.4% in 1998. The decrease in selling,
general and administrative costs as a percentage of revenue was due to the
effect of the increase in revenue, a decrease in the provision for customer bad
debts and one-time costs of $560,000 attributable to the relocation in 1998 of
Landstar Express America from Charlotte, North Carolina to Jacksonville,
Florida, partially offset by increased wages and benefits, increased
information services costs and a higher provision for bonuses under the
Company's incentive compensation plan.
Interest and debt expense was 0.3% of revenue in 1999 and 1998.
The provisions for income taxes from continuing operations for the 1999 and
1998 fiscal years were based on an effective income tax rate of 40.5%, 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 25, 1999, the valuation allowance of
$658,000 was attributable to deferred state income tax benefits, which
primarily represented state operating loss carryforwards at one subsidiary.
The valuation allowance and goodwill will be reduced by $630,000
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.
35
<PAGE>
Net income was $45,937,000, or $4.60 per common share, in 1999 compared with
income from continuing operations of $34,481,000, or $3.13 per common share,
in 1998. Including the dilutive effect of the Company's stock options,
diluted earnings per share was $4.55 in 1999 and diluted earnings per share
from continuing operations was $3.10 in 1998.
The loss from discontinued operations of $22,589,000, or $2.05 per common share
($2.03 diluted loss per share), in 1998 included a loss on sale of
$21,489,000, net of income tax benefits of $2,511,000, and a loss from
operations of $1,100,000, net of income tax benefits of $597,000.
Net income was $11,892,000, or $1.08 per common share, in 1998. Including the
dilutive effect of the Company's stock options, diluted earnings per share was
$1.07 in 1998.
FISCAL YEAR ENDED DECEMBER 26, 1998 COMPARED TO FISCAL YEAR ENDED DECEMBER 27,
1997
Revenue for the fiscal year 1998 was $1,283,607,000, an increase of
$64,296,000, or 5.3%, over revenue for the 1997 fiscal year. The increase
was attributable to higher revenue at the carrier, multimodal and insurance
segments of $31,793,000, $27,262,000 and $5,241,000, respectively. Overall,
revenue per revenue mile increased approximately 3%, which reflected
improved freight quality, and revenue miles increased approximately
1%. The increase in revenue over the prior year at the insurance segment was
primarily attributable to the establishment of Signature in March 1997.
Purchased transportation was 74.0% of revenue in 1998 compared with 73.7% in
1997. Other operating costs were 2.1% of revenue in 1998 compared with 2.7% in
1997. The increase in purchased transportation and decrease in other operating
costs as a percentage of revenue was primarily attributable to the elimination
of company-owned tractors as part of the Landstar T.L.C., Inc. ("Landstar
T.L.C.") restructuring. Commissions to agents were 7.9% of revenue in 1998
compared with 8.1% in 1997 primarily due to a decrease in the percentage of
revenue contributed by the intermodal services operations of the multimodal
segment and increased premium revenue at the insurance segment. Insurance and
claims were 3.1% of revenue in 1998 compared with 3.5% in 1997 primarily due to
the favorable development of prior year claims in 1998 and favorable frequency
and severity of accidents. Excluding the effects of the insurance programs
available to the Company's independent contractors which Signature reinsures,
insurance and claims were 2.2% of revenue in 1998 and 2.7% in 1997. Selling,
general and administrative costs were 7.4% of revenue in 1998 and 7.0% in 1997.
The increase in selling, general and administrative costs as a percentage of
revenue was due to a higher provision for bonuses under the Company's incentive
compensation plan, increased management information services costs, an
increased provision for customer bad debts and one-time costs of $560,000
attributable to the relocation of Landstar Express America from Charlotte,
North Carolina to Jacksonville, Florida.
On December 18, 1996, the Company announced a plan to restructure its Landstar
T.L.C. operations, in addition to the relocation of its Shelton, Connecticut
corporate office headquarters to Jacksonville, Florida in 1997. Accordingly,
the Company recorded $3,247,000 of restructuring costs during the 1997 period.
The restructuring was completed during 1997.
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<PAGE>
Interest and debt expense was 0.3% of revenue in 1998 and 0.2% in 1997.
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, partially offset by reduced capital
lease obligations.
The provisions for income taxes from continuing operations for the 1998 and
1997 fiscal years were based on effective income tax rates of approximately
40.5% and 41.7%, 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. At December 26,
1998, the valuation allowance of $658,000 was attributable to deferred state
income tax benefits, which primarily represented state operating loss
carryforwards at one subsidiary. The valuation allowance and goodwill were
reduced by $52,000 for state operating loss carryforwards utilized in 1998.
Income from continuing operations was $34,481,000, or $3.13 per common share,
in 1998 compared with $25,428,000, or $2.03 per common share, in 1997.
Including the dilutive effect of the Company's stock options, diluted earnings
per share from continuing operations was $3.10 in 1998 and $2.02 in 1997.
Excluding restructuring costs, income from continuing operations for 1997
would have been $27,321,000, or $2.18 per common share ($2.17 diluted earnings
per share).
The loss from discontinued operations of $22,589,000, or $2.05 per common share
($2.03 diluted loss per share), in 1998, included a loss on sale of
$21,489,000, net of income tax benefits of $2,511,000, and a loss from
operations of $1,100,000, net of income tax benefits of $597,000. The loss
from discontinued operations for 1997 was $738,000, net of income tax benefits
of $310,000, or $0.06 per common share ($0.06 diluted loss per share).
Net income was $11,892,000, or $1.08 per common share, in 1998 compared with
$24,690,000, or $1.97 per common share, in the prior year. Including the
dilutive effect of the Company's stock options, diluted earnings per share was
$1.07 in 1998 and $1.96 in 1997.
CAPITAL RESOURCES AND LIQUIDITY
On October 10, 1997, Landstar renegotiated its existing Credit Agreement with a
syndicate of banks and The Chase Manhattan Bank, as administrative agent (the
"Second Amended and Restated Credit Agreement"). The Second Amended and
Restated Credit Agreement provides $200,000,000 of borrowing capacity,
consisting of $150,000,000 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 25, 1999, Landstar had commitments for letters of
credit outstanding in the amount of $22,229,000, primarily as
collateral for estimated insurance claims, $12,480,000 of which were
supported by the Second Amended and Restated Credit Agreement and $9,749,000
secured by assets deposited with a financial institution. The Second Amended
and Restated Credit Agreement expires on October 10, 2002.
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<PAGE>
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. As of
December 25, 1999, the margin was equal to 32/100 of 1%. The unused portion of
the Second Amended and Restated Credit Agreement carries a commitment fee
determined based on the level of the Leverage Ratio, as therein defined. As of
December 25, 1999, the commitment fee for the unused portion of the Second
Amended and Restated Credit Agreement was 0.100%. At December 25, 1999, the
weighted average interest rate on borrowings outstanding under the Second
Amended and Restated Credit Agreement was 6.54%.
The Second Amended and Restated Credit Agreement contains a number of covenants
that limit, among other things, the incurrence of additional indebtedness, the
incurrence of operating or capital lease obligations and the purchase of
operating property. The Second Amended and Restated 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
Second Amended and Restated Credit Agreement, and Interest and Fixed Charge
Coverages, as therein defined. Under the most restrictive covenant, Landstar
exceeded the required Interest Coverage level by $15,467,000 at
December 25, 1999.
The Second Amended and Restated Credit Agreement provides a number of events of
default related to a person or group 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 Second Amended and Restated Credit Agreement are
unsecured, however, the Company and all but one of Landstar System Holdings,
Inc.'s ("LSHI") subsidiaries guarantee LSHI's obligations under the Second
Amended and Restated Credit Agreement.
Shareholders' equity was $106,884,000, or 61% of total capitalization,
at December 25, 1999, compared with $111,848,000, or 76% of total
capitalization, at December 26, 1998. The reduction in shareholders' equity
was primarily a result of the purchase of 1,291,000 shares of the Company's
common stock at a total cost of $51,384,000, partially offset by fiscal year's
1999 net income. As of December 25, 1999, the Company may purchase an
additional 864,000 shares of its common stock under its current authorized
stock repurchase program. Long-term debt including current maturities was
$67,298,000 at December 25, 1999, $32,858,000 higher than at December 26, 1998,
primarily as a result of financing the stock repurchase program with borrowings
under the Second Amended and Restated Credit Agreement. Working capital and the
ratio of current assets to current liabilities were $81,589,000 and 1.48 to 1,
respectively, at December 25, 1999, compared with $75,670,000 and 1.53 to 1,
respectively, at December 26, 1998. Landstar has historically operated with
current ratios approximating 1.5 to 1. Cash provided by operating activities
from continuing operations was $43,392,000 in 1999 compared with $53,363,000
in 1998. The decrease in cash provided by operating activities is attributable
38
<PAGE>
to an increase in trade accounts receivable which resulted from the increase in
revenue during the 1999 fourth quarter. During the 1999 fiscal year, Landstar
purchased $12,716,000 of operating property and acquired $17,445,000 of revenue
equipment by entering into capital leases. Landstar anticipates it will acquire
approximately $26,000,000 of operating property during fiscal year 2000 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'
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 adverse effect on the results of operations in a given quarter or
year.
The Company did not experience any disruptions in its operations as a result
of the year changing to 2000. The vast majority of the changes necessary to
make the Company's information technology systems year 2000 compliant were
incurred as part of ongoing system development or as part of a company-wide
strategy to standardize computer systems. As such, management has not
separately quantified the cost of year 2000 compliance. However, management
estimates the total cost of third party assistance for year 2000 compliance
approximated $700,000.
Management believes that cash flow from operations combined with its borrowing
capacity under the Second Amended and Restated Credit Agreement will be
adequate to meet Landstar's debt service requirements, fund continued growth,
both internal and through acquisitions, complete its announced stock purchase
program 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.
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.
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<PAGE>
FORWARD-LOOKING STATEMENTS
The Company has included various statements in Management's Discussion and
Analysis of Financial Condition and Results of Operations which may be
considered as forward-looking statements of expected future results of
operations or events. Such statements, based upon management's interpretation
of currently available information, are subject to risks and uncertainties that
could cause future financial results or events to differ materially from those
which are presented. Such risks and factors which are outside of the Company's
control include general economic conditions, competition in the transportation
industry, governmental regulation, the Company's ability to recruit and retain
qualified independent contractors, fuel prices and adverse weather conditions.
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.
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<PAGE>
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION> December 25, December 26,
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 23,721 $ 26,681
Short-term investments 1,000
Trade accounts receivable, less allowance
of $4,002 and $6,428 207,024 172,471
Other receivables, including advances to independent
contractors, less allowance of $5,033
and $4,007 14,318 13,980
Prepaid expenses and other current assets 6,190 5,428
-------- --------
Total current assets 252,253 218,560
-------- --------
Operating property, less accumulated depreciation
and amortization of $34,283 and $29,603 63,797 46,958
Goodwill, less accumulated amortization of $7,777
and $6,561 33,733 34,949
Deferred income taxes and other assets 15,658 13,198
-------- --------
Total assets $365,441 $313,665
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash overdraft $ 19,471 $ 14,746
Accounts payable 67,322 50,624
Current maturities of long-term debt 6,769 4,708
Insurance claims 27,207 29,873
Accrued compensation 12,113 9,881
Other current liabilities 37,782 33,058
-------- --------
Total current liabilities 170,664 142,890
-------- --------
Long-term debt, excluding current maturities 60,529 29,732
Insurance claims 27,364 29,195
Shareholders' equity:
Common stock, $.01 par value, authorized 20,000,000
shares, issued 13,063,974 and
13,041,574 shares 131 130
Additional paid-in capital 65,833 65,198
Retained earnings 170,174 124,237
Cost of 3,909,041 and 2,618,041 shares of common
stock in treasury (127,560) (76,176)
Notes receivable arising from exercise of stock options (1,694) (1,541)
-------- --------
Total shareholders' equity 106,884 111,848
-------- --------
Total liabilities and shareholders' equity $365,441 $313,665
======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
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<PAGE>
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION> Fiscal Years Ended
December 25, December 26, December 27,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenue $ 1,388,083 $ 1,283,607 $ 1,219,311
Investment income 2,502 1,689
Costs and expenses:
Purchased transportation 1,022,203 950,343 898,746
Commissions to agents 111,666 101,409 98,425
Other operating costs 30,000 27,516 32,747
Insurance and claims 34,064 39,388 42,885
Selling, general and administrative 99,240 95,028 85,586
Depreciation and amortization 11,698 10,158 11,354
Restructuring costs 3,247
------------ ------------ ------------
Total costs and expenses 1,308,871 1,223,842 1,172,990
------------ ------------ ------------
Operating income 81,714 61,454 46,321
Interest and debt expense 4,509 3,503 2,705
------------ ------------ ------------
Income from continuing operations before
income taxes 77,205 57,951 43,616
Income taxes 31,268 23,470 18,188
------------ ------------ ------------
Income from continuing operations 45,937 34,481 25,428
Discontinued operations, net of
income taxes (22,589) (738)
------------ ------------ ------------
Net income $ 45,937 $ 11,892 $ 24,690
============ ============ ============
Earnings per common share:
Income from continuing operations $ 4.60 $ 3.13 $ 2.03
Loss from discontinued operations (2.05) (0.06)
------------ ------------ ------------
Earnings per common share $ 4.60 $ 1.08 $ 1.97
============ ============ ============
Diluted earnings per share:
Income from continuing operations $ 4.55 $ 3.10 $ 2.02
Loss from discontinued operations (2.03) (0.06)
------------ ------------ ------------
Diluted earnings per share $ 4.55 $ 1.07 $ 1.96
============ ============ ============
Average number of shares outstanding:
Earnings per common share 9,982,000 11,022,000 12,541,000
Diluted earnings per share 10,102,000 11,123,000 12,580,000
See accompanying notes to consolidated financial statements.
</TABLE> 42
<PAGE>
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION> Fiscal Years Ended
December 25, December 26, December 27,
1999 1998 1997
(Dollars in thousands) ------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES OF CONTINUING OPERATIONS
Net income $ 45,937 $ 11,892 $ 24,690
Adjustments to reconcile net income to net cash
provided by operating activities of continuing operations:
Discontinued operations 22,589 738
Depreciation and amortization of operating property 10,482 8,892 9,737
Amortization of goodwill and non-competition agreements 1,216 1,266 1,617
Non-cash interest charges 324 324 264
Provisions for losses on trade and other receivables 2,643 4,276 4,232
Losses (gains) on sales of operating property 708 (253) (600)
Deferred income taxes, net 1,788 (423) 5,670
Non-cash charge in lieu of income taxes 52 106
Changes in operating assets and liabilities,
net of discontinued operations:
Increase in trade and other accounts receivable (37,534) (7,167) (13,672)
Increase in prepaid expenses and other assets (1,329) (2,066) (195)
Increase in accounts payable 16,698 2,482 11,978
Increase (decrease) in insurance claims (4,497) 4,531 8,492
Increase in other liabilities 6,956 6,968 5,423
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES OF CONTINUING OPERATIONS 43,392 53,363 58,480
------------ ------------ ------------
INVESTING ACTIVITIES
Purchases of investments (5,005) (4,799)
Maturities of short-term investments 3,012 1,787
Purchases of operating property (12,716) (7,185) (8,944)
Proceeds from sales of operating property 2,132 2,716 13,373
Proceeds from sale of discontinued operations 40,435
------------ ------------ ------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (15,589) 38,978 1,417
------------ ------------ ------------
FINANCING ACTIVITIES OF CONTINUING OPERATIONS
Increase (decrease) in cash overdraft 4,725 2,598 (483)
Borrowings on revolving credit facility 21,500 15,000
Principal payments on long-term debt and capital lease obligations (6,087) (23,040) (29,338)
Proceeds from exercise of stock options and related income tax benefit 483 1,489 429
Purchases of common stock (51,384) (53,229) (20,980)
------------ ------------ ------------
NET CASH USED BY FINANCING ACTIVITIES OF CONTINUING OPERATIONS (30,763) (57,182) (50,372)
------------ ------------ ------------
NET CASH PROVIDED (USED) BY DISCONTINUED OPERATIONS (26,472) 4,282
------------ ------------ ------------
Increase (decrease) in cash (2,960) 8,687 13,807
Cash at beginning of period 26,681 17,994 4,187
------------ ------------ ------------
Cash at end of period $ 23,721 $ 26,681 $ 17,994
============ ============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
43
<PAGE>
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Fiscal Years Ended December 25, 1999,
December 26, 1998 and December 27, 1997
(Dollars in thousands)
<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 28, 1996 12,882,874 $ 129 $61,740 $ 87,655 94,041 $ (1,967) $147,557
Net income 24,690 24,690
Purchases of common stock 821,400 (20,980) (20,980)
Exercises of stock options
and related income tax
benefit 18,100 429 429
---------- ------ ------- -------- --------- --------- ------------- --------
Balance December 27, 1997 12,900,974 129 62,169 112,345 915,441 (22,947) 151,696
Net income 11,892 11,892
Purchases of common stock 1,702,600 (53,229) (53,229)
Exercises of stock options
and related income tax
benefit 140,600 1 3,029 $ (1,541) 1,489
---------- ------ ------- -------- --------- --------- ------------- --------
Balance December 26, 1998 13,041,574 130 65,198 124,237 2,618,041 (76,176) (1,541) 111,848
Net income 45,937 45,937
Purchases of common stock 1,291,000 (51,384) (51,384)
Exercises of stock options
and related income tax
benefit 22,400 1 635 (153) 483
---------- ------ ------- -------- --------- --------- ------------- --------
Balance December 25, 1999 13,063,974 $ 131 $65,833 $170,174 3,909,041 $(127,560) $ (1,694) $106,884
========== ====== ======= ======== ========= ========= ============= ========
See accompanying notes to consolidated financial statements.
</TABLE>
44
<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. ("LSHI"). 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.
Tires
Tires and tubes purchased as part of trailers are capitalized as part
of the cost of the equipment. Replacement tires and tubes are charged to
expense when placed in service.
Investments
Investments, all of which are intended to be held to maturity, consist of
investment grade bonds having maturities of up to three years and are carried
at amortized cost, which approximates fair value. Short-term investments
represent the current portion of these bonds and the $4,002,000 non-current
portion is included in other assets.
Operating Property
Operating property is recorded at cost. Depreciation is provided on a
straight-line basis over the estimated useful lives of the related assets.
Trailers are being depreciated over 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.
45
<PAGE>
Income Taxes
Income tax expense is equal to the current year's liability for income taxes
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 bases. 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 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.
(2) Discontinued Operations
On August 22, 1998, Landstar Poole, Inc. ("Landstar Poole"), a wholly-owned
subsidiary of Landstar which comprised the entire company-owned tractor
segment, completed the sale of all of its tractors and trailers, certain
operating assets and the Landstar Poole business to Schneider National, Inc.
for $40,435,000 in cash. Accordingly, the financial results of this segment
have been reported as discontinued operations in the accompanying financial
statements.
The loss from discontinued operations of $22,589,000 in 1998, included a
loss on sale of $21,489,000, net of income tax benefits of $2,511,000, and a
loss from operations of $1,100,000, net of income tax benefits of $597,000.
The loss from discontinued operations for 1997 was $738,000, net of income tax
benefits of $310,000. Certain liabilities of the company-owned tractor segment
were retained by Landstar, primarily insurance claims, capital lease
obligations and accounts payable.
The company-owned tractor segment had revenue of $58,715,000 and $93,393,000
for 1998 and 1997, respectively.
46
<PAGE>
(3) Restructuring Costs
On December 18, 1996, the Company announced a plan to restructure its Landstar
T.L.C., Inc. ("Landstar T.L.C.") 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 the operations
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.
During the first half of 1997, the Company recorded $3,247,000 of
restructuring costs, which included $1,647,000 for office and employee
relocation and $1,600,000 of other costs. After deducting related income tax
47
<PAGE>
benefits of $1,354,000, the restructuring charge reduced net income by
$1,893,000, or $0.15 per common share, in 1997. The restructuring was
completed during 1997.
(4) Income Taxes
The provisions for income taxes from continuing operations consisted of
the following (in thousands):
<TABLE>
<CAPTION>
Fiscal Years
------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $24,931 $21,185 $10,375
State 4,549 2,656 2,037
------- ------- -------
29,480 23,841 12,412
Deferred:
Federal 1,019 (1,268) 4,465
State 769 845 1,205
------ ------- -------
1,788 (423) 5,670
Non-cash charge in lieu of income taxes 52 106
------- ------- -------
Income taxes $31,268 $23,470 $18,188
======= ======= =======
</TABLE>
Temporary differences and carryforwards which gave rise to deferred tax assets
and liabilities consisted of the following (in thousands):
<TABLE>
<CAPTION>
Dec. 25, 1999 Dec. 26, 1998
------------- -------------
<S> <C> <C>
Deferred tax assets:
Receivable valuations $ 3,759 $ 3,263
Deferred state income tax benefits 1,665 1,396
State net operating loss carryforwards 1,439 1,536
Self insured claims 8,044 10,383
Other 3,281 2,025
--------- ---------
18,188 18,603
Valuation allowance (658) (658)
--------- ---------
$ 17,530 $ 17,945
========= =========
Deferred tax liabilities:
Operating property $ 7,321 $ 6,296
All other 6,174 5,826
--------- ---------
$ 13,495 $ 12,122
========= =========
</TABLE>
48
<PAGE>
The loss from discontinued operations included a deferred tax benefit of
$7,604,000 in 1998.
At December 25, 1999, the valuation allowance of $658,000 was attributable to
deferred state income tax benefits, which primarily represented state
operating loss carryforwards at one subsidiary. The valuation allowance and
goodwill will be reduced by $630,000 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 from continuing operations
before income taxes and the provisions for income taxes (in thousands):
<TABLE>
<CAPTION>
Fiscal Years
----------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Income taxes at federal income tax rate $27,022 $20,283 $15,266
State income taxes, net of federal income
tax benefit 3,457 2,309 2,176
Amortization of goodwill 258 258 258
Meals and entertainment exclusion 472 470 425
Other, net 59 150 63
------- -------- --------
Income taxes $31,268 $23,470 $18,188
======= ======= =======
</TABLE>
Landstar paid income taxes of $28,659,000 in 1999, $26,110,000 in 1998 and
$10,184,000 in 1997.
(5) Operating Property
Operating property is summarized as follows (in thousands):
<TABLE>
<CAPTION>
Dec. 25, 1999 Dec. 26, 1998
------------- -------------
<S> <C> <C>
Land $ 2,280 $ 2,280
Leasehold improvements 5,817 95
Buildings and improvements 8,638 9,589
Trailers 56,966 43,522
Other equipment 24,379 21,075
-------- --------
98,080 76,561
Less accumulated depreciation and amortization 34,283 29,603
-------- --------
$ 63,797 $ 46,958
======== ========
</TABLE>
Included above is $50,899,000 in 1999 and $35,438,000 in 1998 of operating
property under capital leases, $35,153,000 and $22,513,000, respectively, net
of accumulated amortization. Landstar acquired operating property by entering
49
<PAGE>
into capital leases in the amount of $17,445,000 and $12,902,000 in 1999
and 1998, respectively.
(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 16% of their
base salary, subject to certain limitations. Landstar contributes an amount
equal to 100% of the first 3% and 50% of the next 2% of such contributions,
subject to certain limitations. In addition, one subsidiary, Landstar Ranger,
Inc. ("Landstar Ranger"), makes contributions in accordance with a negotiated
labor contract (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 from continuing operations for the Company sponsored defined
contribution plan and for union sponsored plans was $1,082,000 and $1,351,000
in 1999, respectively, $624,000 and $1,265,000 in 1998, respectively and
$660,000 and $1,193,000 in 1997, respectively.
(7) Debt
Long-term debt is summarized as follows (in thousands):
<TABLE>
<CAPTION>
Dec. 25, 1999 Dec. 26, 1998
------------- -------------
<S> <C> <C>
Capital leases $27,298 $15,940
Working Capital Facility 21,500
Acquisition Facility 18,500 18,500
------- -------
67,298 34,440
Less current maturities 6,769 4,708
------- -------
Total long-term debt $60,529 $29,732
======= =======
</TABLE>
On October 10, 1997, Landstar renegotiated its existing Credit Agreement with a
syndicate of banks and The Chase Manhattan Bank, as administrative agent (the
"Second Amended and Restated Credit Agreement"). The Second Amended and
Restated Credit Agreement provides $200,000,000 of borrowing capacity,
consisting of $150,000,000 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. The Second Amended and Restated Credit Agreement expires on
October 10, 2002.
50
<PAGE>
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. As of
December 25, 1999, the margin was equal to 32/100 of 1%. The unused portion of
the Second Amended and Restated Credit Agreement carries a commitment fee
determined based on the level of the Company's Leverage Ratio, as therein
defined. As of December 25, 1999, the commitment fee for the unused portion
of the Second Amended and Restated Credit Agreement was 0.100%. At December 25,
1999, the weighted average interest rate on borrowings outstanding under the
Second Amended and Restated Credit Agreement was 6.54%. Based on the borrowing
rates in the Second Amended and Restated Credit Agreement and the repayment
terms, the fair value of the outstanding borrowings under the Second Amended
and Restated Credit Agreement was estimated to approximate carrying value.
The Second Amended and Restated Credit Agreement contains a number of covenants
that limit, among other things, the incurrence of additional indebtedness, the
incurrence of operating or capital lease obligations and the purchase of
operating property. The Second Amended and Restated 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
Second Amended and Restated Credit Agreement, and Interest and Fixed Charge
Coverages, as therein defined. Under the most restrictive covenant, Landstar
exceeded the required Interest Coverage level by approximately
$15,467,000 at December 25, 1999.
The Second Amended and Restated Credit Agreement provides a number of events of
default related to a person or group 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 Second Amended and Restated Credit Agreement are
unsecured, however, the Company and all but one of LSHI's subsidiaries
guarantee LSHI's obligations under the Second Amended and Restated Credit
Agreement.
The amounts outstanding on both the Working Capital Facility and the
Acquisition Facility are payable upon the expiration of the Second Amended and
Restated 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 $4,484,000 in 1999, $4,159,000 in 1998 and
$5,476,000 in 1997. Included in interest paid is $695,000 and $1,936,000 in
1998 and 1997, respectively, related to discontinued operations.
(8) Leases
The future minimum lease payments under all noncancelable leases at
December 25, 1999, principally for trailers and the Company's
headquarters facility in Jacksonville, Florida, are shown in the
following table (in thousands):
51
<PAGE>
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
<S> <C> <C>
2000 $ 8,370 $ 3,162
2001 7,720 2,532
2002 7,117 2,177
2003 5,691 1,742
2004 2,300 1,680
Thereafter 19,069
------- ---------
31,198 $ 30,362
=========
Less amount representing interest
(5.9% to 7.4%) 3,900
Present value of minimum -------
lease payments $27,298
=======
</TABLE>
Total rent expense from continuing operations, net of sublease income, was
$19,322,000 in 1999, $20,548,000 in 1998 and $21,022,000 in 1997.
(9) Stock Option Plans
The Company maintains two stock option plans. Under the 1993 Stock Option Plan,
as amended, (the "Plan"), the Compensation Committee of the Board of Directors
may grant options to Company employees for up to 1,115,000 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, as amended, each outside Director
will be granted 9,000 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 25, 1999, there were
1,042,700 shares of the Company's stock reserved for issuance upon exercise of
options granted under the plans.
52
<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 28, 1996 512,900 $ 24.77 201,000 $ 23.10
Granted 23,500 $ 26.38
Exercised (18,100) $ 19.89
Forfeited (36,800) $ 24.95
--------
Options at December 27, 1997 481,500 $ 25.01 276,800 $ 23.90
Granted 219,300 $ 35.02
Exercised (140,600) $ 20.66
Forfeited (39,900) $ 27.36
--------
Options at December 26, 1998 520,300 $ 30.25 203,900 $ 26.40
Granted 71,600 $ 36.33
Exercised (22,400) $ 19.88
Forfeited (300) $ 25.50
--------
Options at December 25, 1999 569,200 $ 31.42 286,520 $ 28.53
=======
</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 1999, 1998 and 1997: risk free interest rate of 6.0% in 1999,
5.0% in 1998 and 6.0% in 1997, expected lives of 5 years and no dividend yield.
The expected volatility used in calculating the fair market value of stock
options granted was 38% in 1999, 40% in 1998 and 37% in 1997. The weighted
average grant date fair value of stock options granted was $15.71, $15.02 and
$11.23 per share in 1999, 1998 and 1997, respectively.
The following table summarizes stock options outstanding at December 25, 1999:
<TABLE>
<CAPTION>
Options Outstanding
-------------------
Range of Exercise Weighted Average Weighted Average
Prices Number Outstanding Remaining Contractual Exercise Price
Per Share Dec. 25, 1999 Life (years) Per Share
----------------- ------------------ --------------------- ----------------
<S> <C> <C> <C>
$22.531 - $33.800 370,500 6.3 $ 27.89
$33.801 - $40.500 198,700 9.0 $ 38.01
----------------
$22.531 - $40.500 569,200 7.3 $ 31.42
================
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
Options Exercisable
-------------------
Range of Exercise Number Weighted Average
Prices Exercisable Exercise Price
Per Share Dec. 25, 1999 Per Share
----------------- ---------------- ----------------
<S> <C> <C>
$22.531 - $33.800 261,100 $ 27.51
$33.801 - $38.953 25,420 $ 38.95
----------------
$22.531 - $38.953 286,520 $ 28.53
================
</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 Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," the effect on net income and
earnings per common share for the fiscal year would have been $966,000, or
$0.10 per common share, in 1999, $484,000, or $0.04 per common share, in 1998
and $378,000, or $0.03 per common share, in 1997.
(10) Shareholders' Equity
During 1999, Landstar purchased 1,291,000 shares of its common stock at a total
cost of $51,384,000 pursuant to previously announced stock repurchase programs.
As of December 25, 1999, Landstar may purchase an additional 864,000 shares of
its common stock under its current authorized stock repurchase program.
During 1998, the Company established an employee stock option loan program.
Under the terms of the program, the Company will provide employees
financing in order for them to exercise fully vested stock options. The
loans are full recourse with the principal repayable in lump sum on the fifth
anniversary of the loan. During 1999 and 1998, $384,000 and $1,541,000 of such
loans were issued, respectively.
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.
54
<PAGE>
(11) Segment Information
The Company has three reportable business segments. These are the carrier,
multimodal and insurance segments. In 2000, the Company made a decision
to realign the operations of Landstar Gemini, Inc. ("Landstar Gemini"),
formerly a wholly-owned subsidiary of Landstar Logistics, Inc. ("Landstar
Logistics"), with the operations of the carrier segment. Accordingly, Landstar
Gemini is now included as part of the carrier segment and is no longer included
in the multimodal segment. All segment information included herein has been
restated to reflect this change.
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. Transportation services provided
by the multimodal segment include the arrangement of intermodal moves, contract
logistics, truck brokerage and emergency and expedited 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 carrier and multimodal
segments' business is such that a significant portion of their operating costs
varies directly with revenue. 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. Signature Insurance Company, which
comprises the majority of the insurance segment, began operations in March
1997.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company evaluates a segment's
performance based on operating income.
Inter-segment revenue for transactions between the carrier and multimodal
segments is based on quoted rates which are believed to approximate the cost
that would have been incurred had similar services been obtained from an
unrelated third party. Inter-segment revenue between the insurance segment
and the carrier and multimodal segments is calculated at the beginning of
each fiscal period based on an actuarial calculation of historical loss
experience and is believed to approximate the cost that would have been
incurred had similar insurance been obtained from an unrelated third party.
No single customer accounts for more than 10% of consolidated revenue.
However, during 1999 approximately 15% of the Company's revenue was
attributable to the automotive industry. Substantially all of the Company's
revenue is generated in the United States.
55
<PAGE>
The following tables summarize information about the Company's reportable
business segments as of and for the fiscal years ending December 25, 1999,
December 26, 1998 and December 27, 1997 (in thousands):
<TABLE>
<CAPTION>
1999
Carrier Multimodal Insurance Other Total
------- ---------- --------- ----- -----
<S> <C> <C> <C> <C> <C>
External revenue $1,111,912 $ 250,395 $ 25,776 $1,388,083
Internal revenue 35,194 196 21,790 57,180
Investment income 2,502 2,502
Interest and debt expense $ 4,509 4,509
Depreciation and
amortization 7,107 982 3,609 11,698
Operating income 86,282 7,949 27,141 (39,658) 81,714
Expenditures on
long-lived assets 374 137 12,205 12,716
Capital lease additions 17,445 17,445
Total assets 251,922 57,337 28,180 28,002 365,441
1998
Carrier Multimodal Insurance Other Total
------- ---------- --------- ----- -----
<S> <C> <C> <C> <C> <C>
External revenue $1,029,432 $ 229,994 $ 24,181 $1,283,607
Internal revenue 38,302 169 20,716 59,187
Investment income 1,689 1,689
Interest and debt expense $ 3,503 3,503
Depreciation and
amortization 6,072 1,064 3,022 10,158
Operating income 69,401 6,407 19,479 (33,833) 61,454
Expenditures on
long-lived assets 2,240 717 4,228 7,185
Capital lease additions 12,902 12,902
Total assets 210,200 55,207 24,179 24,079 313,665
1997
Carrier Multimodal Insurance Other Total
------- ---------- --------- ----- -----
<S> <C> <C> <C> <C> <C>
External revenue $ 997,639 $ 202,732 $ 18,940 $1,219,311
Internal revenue 39,530 610 15,452 55,592
Interest income 468 468
Interest and debt expense $ 3,173 3,173
Depreciation and
amortization 6,473 1,146 3,735 11,354
Restructuring costs 1,355 43 1,849 3,247
Operating income 63,172 4,463 7,863 (29,177) 46,321
Expenditures on
long-lived assets 6,314 629 2,001 8,944
Total assets 204,974 51,224 22,101 78,880 357,179
</TABLE>
56
<PAGE>
Included in total assets in the other segment at December 27, 1997 are assets
of $68,791,000 from the discontinued company-owned tractor segment.
(12) Commitments and Contingencies
At December 25, 1999, Landstar had commitments for letters of
credit outstanding in the amount of $22,229,000, primarily as
collateral for estimated insurance claims, $12,480,000 of which were
supported by 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 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.
57
<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 25, 1999 and December 26, 1998, and
the related consolidated statements of income, changes in shareholders' equity
and cash flows for the fiscal years ended December 25, 1999, December 26, 1998
and December 27, 1997. 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 25, 1999 and December 26, 1998, and the
results of their operations and their cash flows for the fiscal years ended
December 25, 1999, December 26, 1998 and December 27, 1997 in conformity with
generally accepted accounting principles.
KPMG LLP
Stamford, Connecticut
February 1, 2000
58
<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
1999 1999 1999 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue $ 380,124 $ 351,460 $ 345,064 $ 311,435
========== ========== ========== ==========
Operating income $ 27,800 $ 21,616 $ 18,995 $ 13,303
---------- ---------- ---------- ----------
Income before income taxes $ 26,272 $ 20,295 $ 18,074 $ 12,564
Income taxes 10,639 8,221 7,319 5,089
---------- ---------- ---------- ----------
Net income $ 15,633 $ 12,074 $ 10,755 $ 7,475
========== ========== ========== ==========
Earnings per common share (1) $ 1.65 $ 1.21 $ 1.06 $ 0.72
========== ========== ========== ==========
Diluted earnings per share (1) $ 1.63 $ 1.20 $ 1.05 $ 0.71
========== ========== ========== ==========
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
Fourth Third Second First
Quarter Quarter Quarter Quarter
1998 1998 1998 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue $ 333,865 $ 324,033 $ 327,525 $ 298,184
========== ========== ========== ==========
Operating income $ 19,954 $ 16,516 $ 16,047 $ 8,937
---------- ---------- ---------- ----------
Income from continuing operations
before income taxes $ 19,035 $ 15,528 $ 15,104 $ 8,284
Income taxes 7,709 6,289 6,117 3,355
---------- ---------- ---------- ----------
Income from continuing operations 11,326 9,239 8,987 4,929
Discontinued operations,
net of income taxes (22,152) (437)
---------- ---------- ---------- ----------
Net income (loss) $ 11,326 $ 9,239 $ (13,165) $ 4,492
========== ========== ========== ==========
Earnings (loss) per common share: (1)
Income from continuing operations $ 1.09 $ 0.86 $ 0.80 $ 0.42
Loss from discontinued operations (1.97) (0.04)
---------- ---------- ---------- ----------
Earnings (loss) per common share $ 1.09 $ 0.86 $ (1.17) $ 0.38
========== ========== ========== ==========
Diluted earnings (loss) per share: (1)
Income from continuing operations $ 1.07 $ 0.85 $ 0.79 $ 0.42
Loss from discontinued operations (1.95) (0.04)
---------- ---------- ---------- ----------
Diluted earnings (loss) per share $ 1.07 $ 0.85 $ (1.16) $ 0.38
========== ========== ========== ==========
</TABLE>
(1) Due to the changes in the number of average common shares and common
stock equivalents outstanding during the year, earnings per share amounts for
each quarter do not necessarily add to the earnings per share amounts for the
full year.
60
<PAGE>
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal Years
1999 1998 1997 1996 1995
------------------------------------------------------------
Income Statement Data:
Revenue $1,388,083 $1,283,607 $1,219,311 $1,129,856 $1,054,648
Investment income 2,502 1,689
Costs and expenses:
Purchased transportation 1,022,203 950,343 898,746 826,822 773,300
Commissions to agents 111,666 101,409 98,425 84,768 73,095
Other operating costs 30,000 27,516 32,747 51,385 43,369
Insurance and claims 34,064 39,388 42,885 29,774 26,722
Selling, general and administrative 99,240 95,028 85,586 79,002 81,448
Depreciation and amortization 11,698 10,158 11,354 13,814 11,287
Restructuring costs 3,247 5,937
--------- --------- --------- --------- ---------
Total costs and expenses 1,308,871 1,223,842 1,172,990 1,091,502 1,009,221
--------- --------- --------- --------- ---------
Operating income 81,714 61,454 46,321 38,354 45,427
Interest and debt expense 4,509 3,503 2,705 5,032 5,166
--------- --------- --------- --------- ---------
Income from continuing operations
before income taxes 77,205 57,951 43,616 33,322 40,261
Income taxes 31,268 23,470 18,188 13,675 16,489
--------- --------- --------- --------- ---------
Income from continuing operations 45,937 34,481 25,428(1) 19,647(2) 23,772
Discontinued operations, net of
income taxes (22,589) (738) (722) 1,190
--------- --------- --------- --------- ---------
Net income $ 45,937 $ 11,892 $ 24,690 $ 18,925 $ 24,962
========= ========= ========= ========= =========
Earnings per common share:
Income from continuing operations $ 4.60 $ 3.13 $ 2.03(1) $ 1.54(2) $ 1.86
Income (loss) from discontinued
operations (2.05) (0.06) (0.06) 0.09
--------- --------- --------- --------- ---------
Earnings per common share $ 4.60 $ 1.08 $ 1.97 $ 1.48 $ 1.95
========= ========= ========= ========= =========
Diluted earnings per share:
Income from continuing operations $ 4.55 $ 3.10 $ 2.02(1) $ 1.53(2) $ 1.85
Income (loss) from discontinued
operations (2.03) (0.06) (0.06) 0.09
--------- --------- --------- --------- ---------
Diluted earnings per share $ 4.55 $ 1.07 $ 1.96 $ 1.47 $ 1.94
========= ========= ========= ========= =========
<CAPTION>
61
<PAGE>
Dec. 25, Dec. 26, Dec. 27, Dec. 28, Dec. 30,
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets $ 365,441 $ 313,665 $ 357,179 $ 370,801 $ 353,079
Long-term debt, including
current maturities 67,298 34,440 50,446 90,396 93,867
Shareholders' equity 106,884 111,848 151,696 147,557 128,396
</TABLE>
(1) After deducting related income tax benefits of $1,354, the
restructuring costs reduced income from continuing operations by $1,893, or
$0.15 per common share ($0.15 per diluted share).
(2) After deducting related income tax benefits of $2,434, the
restructuring costs reduced income from continuing operations by $3,503, or
$0.27 per common share ($0.27 per diluted share).
62
<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
Also d/b/a Independent Freightways, Inc.
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 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
Landstar Capacity Services, Inc. Delaware 100
Signature Insurance Company Cayman Islands, BWI 100
Signature Technology 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
63
<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 1, 2000, relating to the consolidated balance sheets of
Landstar System, Inc. and subsidiary as of December 25, 1999 and December 26,
1998, and the related consolidated statements of income, changes in
shareholders' equity, and cash flows for the fiscal years ended December 25,
1999, December 26, 1998, and December 27, 1997, and all related schedules,
which reports appear in or are incorporated by reference in the December 25,
1999 annual report on Form 10-K of Landstar System, Inc.
KPMG LLP
Stamford, Connecticut
March 22, 2000
64
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
Landstar System, Inc.
Annual Report on Form 10-K
for fiscal year ended 12/25/99
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 25, 1999, 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 17, 2000
65
<PAGE>
POWER OF ATTORNEY
Landstar System, Inc.
Annual Report on Form 10-K
for fiscal year ended 12/25/99
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 25, 1999, 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 17, 2000
66
<PAGE>
POWER OF ATTORNEY
Landstar System, Inc.
Annual Report on Form 10-K
for fiscal year ended 12/25/99
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 25, 1999, 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 17, 2000
67
<PAGE>
POWER OF ATTORNEY
Landstar System, Inc.
Annual Report on Form 10-K
for fiscal year ended 12/25/99
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 25, 1999, 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.
William S. Elston
--------------------------
William S. Elston
DATED: March 17, 2000
68
<PAGE>
POWER OF ATTORNEY
Landstar System, Inc.
Annual Report on Form 10-K
for fiscal year ended 12/25/99
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 25, 1999, 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.
Diana M. Murphy
--------------------------
Diana M. Murphy
DATED: March 17, 2000
69
<PAGE>
POWER OF ATTORNEY
Landstar System, Inc.
Annual Report on Form 10-K
for fiscal year ended 12/25/99
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 25, 1999, 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 17, 2000
70
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets at December 25, 1999 and the Consolidated
Statements of Income for the fiscal year ended December 25, 1999
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-25-1999
<PERIOD-START> DEC-26-1998
<PERIOD-END> DEC-25-1999
<CASH> 23,721
<SECURITIES> 1,000
<RECEIVABLES> 211,026
<ALLOWANCES> 4,002
<INVENTORY> 0
<CURRENT-ASSETS> 252,253
<PP&E> 98,080
<DEPRECIATION> 34,283
<TOTAL-ASSETS> 365,441
<CURRENT-LIABILITIES> 170,664
<BONDS> 60,529
0
0
<COMMON> 131
<OTHER-SE> 106,753
<TOTAL-LIABILITY-AND-EQUITY> 365,441
<SALES> 0
<TOTAL-REVENUES> 1,388,083
<CGS> 0
<TOTAL-COSTS> 1,052,203
<OTHER-EXPENSES> 34,064
<LOSS-PROVISION> 2,643
<INTEREST-EXPENSE> 4,509
<INCOME-PRETAX> 77,205
<INCOME-TAX> 31,268
<INCOME-CONTINUING> 45,937
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 45,937
<EPS-BASIC> 4.60
<EPS-DILUTED> 4.55
</TABLE>
