10-Q
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Table of Contents
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM
10-Q
 
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
June
27, 2020
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
                    
to
                    
Commission File Number:
0-21238
 
 
 
LANDSTAR SYSTEM, INC.
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
06-1313069
(State or other jurisdiction
of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
13410 Sutton Park Drive South, Jacksonville, Florida
(Address of principal executive offices)
32224
(Zip Code)
(904)
398-9400
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading
Symbol(s)
 
Name of each exchange
on which registered
Common Stock
 
LSTR
 
NASDAQ
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  ☑    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files):
    Yes  ☑    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act. (Check one):
 
Large accelerated filer
 
 
Accelerated filer
 
             
Non-accelerated
filer
 
 
Smaller reporting company
 
             
 
 
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).
    Yes  ☐    No  
The number of shares of the registrant’s common stock, par value $0.01 per share, outstanding as of the close of business on July 20, 2020 was 38,379,459.
 
 
 

Table of Contents
Index
 
 
   
  
     
   
  
 
Page 4
 
   
  
 
Page 5
 
   
  
 
Page 6
 
   
  
 
Page 7
 
   
  
 
Page 8
 
   
  
 
Page 10
 
   
  
 
Page 18
 
   
  
 
Page 31
 
   
  
 
Page 32
 
 
 
   
  
 
Page 32
 
   
  
 
Page 33
 
   
  
 
Page 35
 
   
  
 
Page 35
 
   
  
 
Page 37
 
   
  
     
   
  
     
   
  
     
   
  
     
 
2

Table of Contents
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The interim consolidated financial statements contained herein reflect all adjustments (all of a normal, recurring nature) which, in the opinion of management, are necessary for a fair statement of the financial condition, results of operations, cash flows and changes in equity for the periods presented. They have been prepared in accordance with Rule
10-01
of Regulation
S-X
and do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. Operating results for the twenty six weeks ended June 27, 2020 are not necessarily indicative of the results that may be expected for the entire fiscal year ending December 26, 2020.
These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s 2019 Annual Report on Form
10-K.
 
3

Table of Contents
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
(Unaudited)
 
    
June 27,

2020
   
December 28,

2019
 
ASSETS
            
Current Assets
   
     
 
Cash and cash equivalents
  $
245,471
    $
319,515
 
Short-term investments
   
36,274
     
32,901
 
Trade accounts receivable, less allowance of $8,580 and $7,284
   
489,182
     
588,549
 
Other receivables, including advances to independent contractors, less allowance of $9,241 and $7,667
   
27,861
     
35,553
 
Other current assets
   
41,564
     
21,370
 
                 
Total current assets
   
840,352
     
997,888
 
                 
Operating property, less accumulated depreciation and amortization of $288,055 and $280,849
   
284,794
     
285,855
 
Goodwill
   
40,071
     
38,508
 
Other assets
   
106,893
     
105,460
 
                 
Total assets
  $
1,272,110
    $
1,427,711
 
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
            
Current Liabilities
   
     
 
Cash overdraft
  $
35,534
    $
53,878
 
Accounts payable
   
273,324
     
271,996
 
Current maturities of long-term debt
   
38,219
     
42,632
 
Insurance claims
   
53,764
     
44,532
 
Dividends payable
   
—  
     
78,947
 
Contractor escrow
   
25,774
     
24,902
 
Other current liabilities
   
46,845
     
36,017
 
                 
Total current liabilities
   
473,460
     
552,904
 
                 
Long-term debt, excluding current maturities
   
60,152
     
70,212
 
Insurance claims
   
34,762
     
33,575
 
Deferred income taxes and other noncurrent liabilities
   
54,615
     
49,551
 
Shareholders’ Equity
   
     
 
Common stock, $0.01 par value, authorized 160,000,000 shares, issued 68,176,787 and 68,083,419 shares
   
682
     
681
 
Additional
paid-in
capital
   
225,332
     
226,123
 
Retained earnings
   
2,012,173
     
1,962,161
 
Cost of 29,797,328 and 28,609,926 shares of common stock in treasury
   
(1,581,921
)    
(1,465,284
)
Accumulated other comprehensive loss
   
(7,145
)    
(2,212
)
                 
Total shareholders’ equity
   
649,121
     
721,469
 
                 
Total liabilities and shareholders’ equity
  $
1,272,110
    $
1,427,711
 
                 
See accompanying notes to consolidated financial statements.
4

Table of Contents
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
(Unaudited)
 
 
Twenty Six Weeks Ended
   
Thirteen Weeks Ended
 
 
June 27,
2020
 
 
June 29,
2019
 
 
June 27,
2020
 
 
June 29,
2019
 
Revenue
  $
1,751,080
    $
2,078,040
    $
823,514
    $
1,045,040
 
Investment income
   
2,002
     
2,421
     
835
     
1,283
 
Costs and expenses:
   
     
     
     
 
Purchased transportation
   
1,344,390
     
1,591,126
     
635,133
     
799,371
 
Commissions to agents
   
150,642
     
173,294
     
75,266
     
87,623
 
Other operating costs, net of gains on asset sales/dispositions
   
15,674
     
18,100
     
7,368
     
9,861
 
Insurance and claims
   
44,708
     
31,279
     
19,751
     
16,286
 
Selling, general and administrative
   
85,928
     
82,565
     
40,601
     
41,297
 
Depreciation and amortization
   
22,972
     
22,350
     
11,467
     
11,034
 
Impairment of intangible and other assets
   
2,582
     
—  
     
2,582
     
—  
 
                                 
Total costs and expenses
   
1,666,896
     
1,918,714
     
792,168
     
965,472
 
                                 
Operating income
   
86,186
     
161,747
     
32,181
     
80,851
 
Interest and debt expense
   
1,928
     
1,514
     
976
     
709
 
                                 
Income before income taxes
   
84,258
     
160,233
     
31,205
     
80,142
 
Income taxes
   
19,109
     
35,833
     
6,951
     
19,042
 
                                 
Net income
   
65,149
     
124,400
     
24,254
     
61,100
 
Less: Net loss attributable to noncontrolling interest
   
     
(17
)    
     
 
                                 
Net income attributable to Landstar System, Inc. and subsidiary
  $
65,149
    $
124,417
    $
24,254
    $
61,100
 
                                 
Earnings per common share attributable to Landstar System, Inc. and subsidiary
  $
1.68
    $
3.11
    $
0.63
    $
1.53
 
                                 
Diluted earnings per share attributable to Landstar System, Inc. and subsidiary
  $
1.68
    $
3.11
    $
0.63
    $
1.53
 
                                 
Average number of shares outstanding:
   
     
     
     
 
Earnings per common share
   
38,816,000
     
40,053,000
     
38,379,000
     
39,945,000
 
                                 
Diluted earnings per share
   
38,816,000
     
40,053,000
     
38,379,000
     
39,945,000
 
                                 
Dividends per common share
  $
0.370
    $
0.330
    $
0.185
    $
0.165
 
                                 
See accompanying notes to consolidated financial statements.
5

Table of Contents
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(Unaudited)
 
    
Twenty Six Weeks Ended
    
Thirteen Weeks Ended
 
    
June 27,

2020
   
June 29,

2019
    
June 27,

2020
    
June 29,

2019
 
Net income attributable to Landstar System, Inc. and subsidiary
  $
65,149
    $
124,417
    $
24,254
    $
61,100
 
Other comprehensive (loss) income:
   
     
     
     
 
Unrealized holding gains on
available-for-sale
investments, net of
          
tax expense of $338, $494, $770 and $222
   
1,237
     
1,805
     
2,816
     
810
 
Foreign currency translation (losses) gains
   
(6,170
)    
1,125
     
1,732
     
571
 
                                 
Other comprehensive (loss) income
   
(4,933
)    
2,930
     
4,548
     
1,381
 
                                 
Comprehensive income attributable to Landstar System, Inc. and subsidiary
  $
60,216
    $
127,347
    $
28,802
    $
62,481
 
  
 
 
   
 
 
    
 
 
    
 
 
 
See accompanying notes to consolidated financial statements.
6

Table of Contents
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
 
    
Twenty Six Weeks Ended
 
    
June 27,

2020
   
June 29,

2019
 
OPERATING ACTIVITIES
   
     
 
Net income
  $
65,149
    $
124,400
 
Adjustments to reconcile net income to net cash provided by operating activities:
   
     
 
Depreciation and amortization of operating property and intangible assets
   
22,972
     
22,350
 
Non-cash
interest charges
   
126
     
126
 
Provisions for losses on trade and other accounts receivable
   
6,528
     
4,194
 
Gains on sales/disposals of operating property
   
(1,812
)    
(1,219
)
Impairment of intangible and other assets
   
2,582
     
—  
 
Deferred income taxes, net
   
6,228
     
5,060
 
Stock-based compensation
   
1,201
     
3,368
 
Changes in operating assets and liabilities:
   
     
 
Decrease in trade and other accounts receivable
   
99,601
     
89,820
 
Increase in other assets
   
(24,809
)    
(22,808
)
Decrease in accounts payable
   
(31
)    
(28,565
)
Increase (decrease) in other liabilities
   
10,231
     
(14,315
)
Increase in insurance claims
   
10,419
     
1,665
 
                 
NET CASH PROVIDED BY OPERATING ACTIVITIES
   
198,385
     
184,076
 
                 
INVESTING ACTIVITIES
   
     
 
Net changes in other short-term investments
   
131
     
—  
 
Sales and maturities of investments
   
14,897
     
41,345
 
Purchases of investments
   
(16,382
)    
(42,812
)
Purchases of operating property
   
(17,676
)    
(9,224
)
Proceeds from sales of operating property
   
4,465
     
3,219
 
Consideration paid for acquisition
   
(2,701
)    
—  
 
                 
NET CASH USED BY INVESTING ACTIVITIES
   
(17,266
)    
(7,472
)
                 
FINANCING ACTIVITIES
   
     
 
Decrease in cash overdraft
   
(18,344
)    
(11,719
)
Dividends paid
   
(93,382
)    
(13,257
)
Proceeds from exercises of stock options
   
614
     
343
 
Taxes paid in lieu of shares issued related to stock-based compensation plans
   
(3,280
)    
(8,438
)
Purchases of common stock
   
(115,962
)    
(69,729
)
Principal payments on finance lease obligations
   
(21,958
)    
(23,658
)
Purchase of noncontrolling interest
   
—  
     
(600
)
                 
NET CASH USED BY FINANCING ACTIVITIES
   
(252,312
)    
(127,058
)
                 
Effect of exchange rate changes on cash and cash equivalents
   
(2,851
)    
930
 
                 
(Decrease) increase in cash and cash equivalents
   
(74,044
)    
50,476
 
Cash and cash equivalents at beginning of period
   
319,515
     
199,736
 
                 
Cash and cash equivalents at end of period
  $
245,471
    $
250,212
 
                 
See accompanying notes to consolidated financial statements.
7

Table of Contents
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Twenty Six and Thirteen Weeks Ended June 27, 2020 and June 29, 2019
(In thousands, except share and per share amounts)
(Unaudited)
 
 
  
Common Stock
    
Additional
Paid-In
   
Retained
   
Treasury Stock at Cost
   
Accumulated
Other
Comprehensive
   
                            
        
 
  
Shares
    
Amount
    
Capital
   
Earnings
   
Shares
    
Amount
   
(Loss) Income
   
 
    
Total
 
Balance December 28, 2019
 
 
68,083,419
 
 
$
681
 
 
$
226,123
 
 
$
1,962,161
 
 
 
28,609,926
 
 
$
(1,465,284
)
 
$
(2,212
)
 
 
 
 
 
$
721,469
 
Adoption of accounting standard (Note 1
4
)
 
 
 
 
 
 
 
 
 
 
 
(702
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(702
)
Net income
 
 
 
 
 
 
 
 
 
 
 
40,895
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
40,895
 
Dividends ($0.185
per share)
 
 
 
 
 
 
 
 
 
 
 
(7,336
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(7,336
)
Purchases of common stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,178,970
 
 
 
(115,962
)
 
 
 
 
 
 
 
 
 
(115,962
)
Issuance of stock related to
stock-based
compensation plans
 
 
84,063
 
 
 
1
 
 
 
(1,781
)
 
 
 
 
 
8,078
 
 
 
(639
)
 
 
 
 
 
 
 
 
 
(2,419
)
Stock-based compensation
 
 
 
 
 
 
 
 
631
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
631
 
Other comprehensive loss
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(9,481
)
 
 
 
 
 
 
(9,481
)
  
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
   
 
 
   
 
 
    
 
 
 
Balance March 28, 2020
 
 
68,167,482
 
 
$
682
 
 
$
224,973
 
 
$
1,995,018
 
 
 
29,796,974
 
 
$
(1,581,885
)
 
$
(11,693
)
 
 
 
 
 
$
627,095
 
  
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
   
 
 
   
 
 
    
 
 
 
Net income
 
 
 
 
 
 
 
 
 
 
 
24,254
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
24,254
 
Dividends ($0.185
per share)
 
 
 
 
 
 
 
 
 
 
 
(7,099
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(7,099
)
Issuance of stock related to
stock-based
compensation plans
 
 
9,305
 
 
 
—  
 
 
 
(211
)
 
 
 
 
 
354
 
 
 
(36
)
 
 
 
 
 
 
 
 
 
(247
)
Stock-based compensation
 
 
 
 
 
 
 
 
570
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
570
 
Other comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4,548
 
 
 
 
 
 
 
4,548
 
  
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
   
 
 
   
 
 
    
 
 
 
Balance June 27, 2020
 
 
68,176,787
 
 
$
682
 
 
$
225,332
 
 
$
2,012,173
 
 
 
29,797,328
 
 
$
(1,581,921
)
 
$
(7,145
)
 
 
 
 
 
$
649,121
 
  
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
   
 
 
   
 
 
    
 
 
 
8

Table of Contents
 
Landstar System, Inc. and Subsidiary Shareholders
   
                            
 
 
 
 
 
Common Stock
   
Additional
Paid-In
Capital
 
 
Retained
Earnings
 
 
 
Treasury Stock at Cost
   
Accumulated
Other
Comprehensive
(Loss) Income
 
 
Non-controlling
Interests
 
 
 
 
Shares
 
 
Amount
 
Shares
 
 
Amount
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance December 29, 2018
 
 
67,870,962
 
 
 
$
679
 
 
$
226,852
 
 
$
1,841,279
 
 
 
27,755,001
 
 
$
(1,376,111
)
 
$
(5,875
)
 
$
2,309
 
 
$
689,133
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
 
 
 
 
 
 
 
 
 
 
63,317
 
 
 
 
 
 
 
 
 
 
 
 
(17
)
 
 
63,300
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividends ($0.165
per share)
 
 
 
 
 
 
 
 
 
 
 
(6,629
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(6,629
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Purchases of common stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
124,481
 
 
 
(12,977
)
 
 
 
 
 
 
 
 
(12,977
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Purchase of noncontrolling interests
 
 
 
 
 
 
 
 
1,842
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(2,442
)
 
 
(600
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Issuance of stock related to stock-based compensation plans
 
 
176,079
 
 
 
1
 
 
 
(7,081
)
 
 
 
 
 
5,199
 
 
 
(524
)
 
 
 
 
 
 
 
 
(7,604
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock-based compensation
 
 
 
 
 
 
 
 
1,938
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,938
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,549
 
 
 
150
 
 
 
1,699
 
                                                                         
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance March 30, 2019
 
 
68,047,041
 
 
$
680
 
 
$
223,551
 
 
$
1,897,967
 
 
 
27,884,681
 
 
$
(1,389,612
)
 
$
(4,326
)
 
$
  
 
 
$
728,260
 
                                                                         
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
 
 
 
 
 
 
 
 
 
 
61,100
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
61,100