UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 29, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________________ to _____________________.
Commission File Number: 0-21238
LANDSTAR SYSTEM, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1313069
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
First Shelton Place, 1000 Bridgeport Avenue, Shelton, Connecticut
(Address of principal executive offices)
06484-0898
(Zip Code)
(203) 925-2900
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes ( X ) No ( )
The number of shares of the registrant's Common Stock, par value $.01 per
share, outstanding as of the close of business on August 7, 1996 was
12,787,833.
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
The interim consolidated financial statements contained herein reflect
all adjustments (all of a normal, recurring nature) which, in the opinion of
management, are necessary for a fair statement of the financial condition,
results of operations, cash flows and changes in shareholders' equity
for the periods presented. They have been prepared in accordance with Rule
10-01 of Regulation S-X and do not include all the information and footnotes
required by generally accepted accounting principles for complete financial
statements. Operating results for the thirteen and twenty-six weeks
ended June 29, 1996 are not necessarily indicative of the results that may be
expected for the entire fiscal year ending December 28, 1996.
These interim financial statements should be read in conjunction with
the audited financial statements and notes thereto included in the Company's
1995 Annual Report on Form 10-K.
Index
Item 1
Consolidated Balance Sheets as of June 29, 1996
and December 30, 1995 ........................................ Page 3
Consolidated Statements of Income for the Twenty-Six and
Thirteen Weeks Ended June 29, 1996 and July 1, 1995 .......... Page 4
Consolidated Statements of Cash Flows for the Twenty-Six Weeks
Ended June 29, 1996 and July 1, 1995 ......................... Page 5
Consolidated Statement of Changes in Shareholders'
Equity for the Twenty-Six Weeks Ended June 29, 1996........... Page 6
Notes to Consolidated Financial Statements...................... Page 7
Item 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations ................ Page 9
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
(Unaudited)
June 29, December 30,
1996 1995
---------- -----------
ASSETS
Current assets:
Cash $ 3,503 $ 3,415
Trade accounts receivable, less allowance of $6,132 174,300 151,009
and $6,923
Other receivables, including advances to independent
contractors, less allowance of $5,316 and $4,205 11,739 13,359
Inventories 2,119 2,292
Prepaid expenses and other current assets 12,586 8,501
---------- -----------
Total current assets 204,247 178,576
---------- -----------
Operating property, less accumulated depreciation
and amortization of $47,984 and $39,796 111,977 108,052
Goodwill, less accumulated amortization of $6,219 and $5,354 56,184 57,049
Deferred income taxes and other assets 9,269 9,402
---------- -----------
Total assets $ 381,677 $ 353,079
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash overdraft $ 12,588 $ 13,449
Accounts payable 43,809 37,427
Current maturities of long-term debt 39,236 20,668
Estimated insurance claims 22,241 23,654
Other current liabilities 26,043 32,018
---------- -----------
Total current liabilities 143,917 127,216
---------- -----------
Long-term debt, excluding current maturities 73,709 73,199
Estimated insurance claims 25,092 24,031
Other liabilities 178 237
Shareholders' equity:
Common stock, $.01 par value, authorized 20,000,000
shares, issued 12,881,874 shares and 12,871,674 shares 129 129
Additional paid-in capital 61,721 61,504
Retained earnings 78,898 68,730
Cost of 94,041 shares of common stock in treasury (1,967) (1,967)
---------- -----------
Total shareholders' equity 138,781 128,396
---------- -----------
Total liabilities and shareholders' equity $ 381,677 $ 353,079
========== ===========
See accompanying notes to consolidated financial statements.
3
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 29, July 1, June 29, July 1,
1996 1995 1996 1995
----------- ---------- ---------- ----------
Revenue $ 624,589 $ 603,854 $ 329,112 $ 308,148
Costs and expenses:
Purchased transportation 425,229 407,490 225,016 206,466
Drivers' wages and benefits 22,730 24,149 11,225 12,228
Fuel and other operating costs 37,292 33,479 19,514 16,572
Insurance and claims 17,756 19,428 7,959 9,833
Commissions to agents and brokers 40,661 35,506 21,894 18,286
Selling, general and administrative 47,269 48,945 23,199 24,275
Depreciation and amortization 12,201 9,807 6,187 5,136
---------- ---------- ---------- ----------
Total costs and expenses 603,138 578,804 314,994 292,796
---------- ---------- ---------- ----------
Operating income 21,451 25,050 14,118 15,352
Interest and debt expense, net 3,973 3,670 2,051 2,142
---------- ---------- ---------- ----------
Income before income taxes 17,478 21,380 12,067 13,210
Income taxes 7,310 8,803 5,053 5,390
---------- ---------- ---------- ----------
Net income $ 10,168 $ 12,577 $ 7,014 $ 7,820
========== ========== ========== ==========
Earnings per share $ 0.80 $ 0.98 $ 0.55 $ 0.61
========== ========== ========== ==========
Average number of common
shares outstanding 12,781,000 12,836,000 12,783,000 12,824,000
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
4
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Twenty-Six Weeks Ended
---------------------------
June 29, July 1,
1996 1995
---------- -----------
OPERATING ACTIVITIES
Net income $ 10,168 $ 12,577
Adjustments to reconcile net income to net cash used
by operating activities:
Depreciation and amortization of operating property 11,113 8,896
Amortization of goodwill and non-competition agreements 1,088 911
Non-cash interest charges 132 125
Provisions for losses on trade and other accounts
receivable 1,361 1,675
Gains on sales of operating property (1,183) (435)
Deferred income taxes, net (176) 1,073
Changes in operating assets and liabilities,
net of businesses acquired:
Increase in trade and other accounts receivable (23,032) (6,841)
Increase inventories, prepaid expenses and
other assets (3,958) (1,740)
Increase (decrease) in accounts payable and
other liabilities 348 (19,903)
Increase (decrease) in estimated insurance claims (352) 3,140
----------- -----------
NET CASH USED BY OPERATING ACTIVITIES (4,491) (522)
----------- -----------
INVESTING ACTIVITIES
Purchases of businesses, net of cash acquired (32,373)
Purchases of operating property (4,774) (4,126)
Proceeds from sales of operating property 4,616 2,623
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (158) (33,876)
----------- -----------
FINANCING ACTIVITIES
Borrowings to finance businesses acquired 45,900
Borrowings under revolving credit facility 16,000 10,000
Proceeds from exercise of stock options and
related income tax benefit 217
Increase (decrease) in cash overdraft (861) 543
Purchases of Common Stock (1,727)
Principal payments on long-term debt and capital lease
obligations (10,619) (32,416)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,737 22,300
----------- -----------
Increase (decrease) in cash 88 (12,098)
Cash at beginning of period 3,415 17,755
----------- -----------
Cash at end of period $ 3,503 $ 5,657
=========== ===========
See accompanying notes to consolidated financial statements.
5
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY
Twenty-Six Weeks Ended June 29, 1996
(Dollars in thousands)
(Unaudited)
Treasury Stock
Common Stock Additional at Cost
---------------- Paid-In Retained -----------------
Shares Amount Capital Earnings Shares Amount Total
-------- ------ --------- ---------- -------- -------- -------
Balance December 30, 1995 12,871,674 $ 129 $ 61,504 $ 68,730 94,041 $(1,967) $128,396
Exercise of stock options
and related income tax
benefit 10,200 217 217
Net income 10,168 10,168
---------- ------- --------- -------- ------ -------- --------
Balance June 29, 1996 12,881,874 $ 129 $ 61,721 $ 78,898 94,041 $(1,967) $138,781
========== ======= ========= ======== ====== ======== ========
See accompanying notes to consolidated financial statements.
6
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The consolidated financial statements include the accounts of
Landstar System, Inc. and its subsidiary, Landstar System Holdings,
Inc., and reflect all adjustments (all of a normal, recurring
nature) which are, in the opinion of management, necessary for a
fair statement of the results for the periods presented. The
preparation of the consolidated financial statements requires
the use of management's estimates. Actual results could differ
from those estimates. Landstar System, Inc. and its subsidiary
are herein referred to as "Landstar".
(1) Acquisitions
During the first quarter of 1995, Landstar, through different
subsidiaries of Landstar System Holdings, Inc. ("LSHI"),
acquired the businesses and net assets of Intermodal Transport
Company, a California-based intermodal marketing company, LDS
Truck Lines, Inc., a California-based drayage company, and
T.L.C. Lines, Inc., a Missouri-based temperature-controlled
and long-haul, time sensitive dry van carrier. Also in the
1995 first quarter, Landstar, through another subsidiary of
LSHI, acquired all of the outstanding common stock of Express
America Freight Systems, Inc., a North Carolina-based air
freight and truck expedited service provider.
The following unaudited pro forma information represents the
consolidated results of operations of Landstar and the four
acquired businesses as if the acquisitions had occurred at the
beginning of the period presented, and gives effect to increased
depreciation of operating property, amortization of goodwill and
non-competition agreements and increased interest expense, at
rates available to Landstar under the acquisition line of its
revolving credit facility (in thousands, except per share amounts):
Twenty-Six
Weeks Ended
July 1,
1995
----------
Revenue $ 613,454
Net income $ 11,957
Earnings per share $ .93
The above pro forma information is not necessarily indicative
of the results of operations which actually would have been
obtained during such period.
7
(2) Income Taxes
The provisions for income taxes for the 1996 and 1995
twenty-six week periods were based on estimated combined
full year effective income tax rates of approximately 42%
and 41%, 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.
(3) Earnings Per Share
Earnings per share amounts were based on the weighted average
number of common shares outstanding.
(4) Additional Cash Flow Information
During the 1996 period, Landstar paid income taxes and
interest of $10,430,000 and $3,523,000, respectively, and
acquired operating property by entering into capital leases in
the amount of $13,697,000. During the 1995 period, Landstar
paid income taxes and interest of $13,060,000 and $3,563,000,
respectively, and acquired operating property by entering into
capital leases in the amount of $15,964,000.
(5) Commitments and Contingencies
At June 29, 1996, Landstar had commitments for letters of
credit outstanding in the amount of $22,939,000, primarily as
collateral for estimated insurance claims.
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.
(6) Subsequent Event
On July 1, 1996, Landstar announced it would close all but one of
the Landstar Poole, Inc. terminals, including those that function
as Landstar Centers, effective August 1, 1996. A provision for the
cost of closing the facilities in the amount $347,000 was recorded
in the 1996 thirteen week period. This charge, after related income
tax benefits of $145,000, reduced earnings per share by $.02 in the
1996 thirteen and twenty-six week periods.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
attached interim consolidated financial statements and notes
thereto, and with the Company's audited financial statements and
notes thereto for the fiscal year ended December 30, 1995 and
Management's Discussion and Analysis of Financial Condition and
Results of Operations, included in the Annual Report to
Shareholders.
RESULTS OF OPERATIONS
Introduction
Landstar System, Inc. and its subsidiary, Landstar System Holdings,
Inc. ("Landstar" or the "Company"), serve a variety of different
market niches through its operating subsidiaries which employ
different operating strategies. Four of Landstar's subsidiaries,
Landstar Ranger, Inc., Landstar Inway, Inc., Landstar Ligon, Inc.
and Landstar Gemini, Inc. (collectively, the "Owner-Operator
Companies"), provide truckload transportation services through
independent contractors and independent commission sales agents.
The nature of the Owner-Operator Companies' business is such that a
significant portion of their operating costs vary directly with
revenue.
Landstar Poole, Inc.("Poole")and Landstar T.L.C., Inc.("TLC")
provide truckload transportation services using both company-owned
or leased equipment driven by company-employed drivers, and independent
contractors. During the twenty-six week period ended June 29, 1996,
revenue generated through independent contractors was 39.3% of Poole's
total revenue and 61.7% of TLC's total revenue.
During the first quarter of 1996, the operations of Landstar ITCO,
Inc. and Landstar Logistics, Inc. ("Logistics") were combined.
As a result, Logistics' operations have been divided into a contract
services division and an intermodal services division. The contract
services division provides logistics support, single source alternatives,
dedicated fleet services, brokerage and other transportation solutions
to large customers. The intermodal services division provides intermodal
transportation services primarily by arranging for the movement of
customers' goods by a combination of rail and truck. Both the railroad
and drayage carriers utilized by Logistics are independent contractors.
Landstar Express America, Inc. ("Express") provides air and surface
expedited transportation services through independent contractors,
including air cargo carriers, and principally utilizes independent
commission sales agents.
9
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 the Owner-
Operator Companies, TLC and the truck operations of Express. Purchased
transportation for Poole is primarily based on a fixed rate per mile.
Purchased transportation for the intermodal services division of
Logistics and the air freight operations of Express is based on a
contractually agreed-upon fixed rate. Purchased transportation
as a percentage of revenue for the intermodal services division of
Logistics is normally higher than that of Landstar's other transportation
companies. Purchased transportation is the largest component of costs
and expenses and, on a consolidated basis, increases or decreases in
proportion to the revenue generated through independent contractors.
Commissions to agents and brokers are primarily based on contractually
agreed upon percentages of revenue or contractually agreed upon percentages
of gross profit. Commissions to agents and brokers as a percentage of
consolidated revenue will vary directly with the revenue generated through
independent commission sales agents. Both purchased transportation and
commissions to agents and brokers generally will also increase or decrease
as a percentage of the Company's consolidated revenue if there is a change
in the percentage of revenue contributed by the intermodal services division
of Logistics or through air cargo carriers or through company-employed drivers.
Drivers' wages and benefits represent the amount Poole and TLC
employed drivers are compensated. Drivers are compensated on a
cents per mile driven basis. Drivers' wages and benefits as a
percentage of consolidated revenue generally will vary only if
there is a change in the revenue contribution generated through
independent contractors or a change in Poole's or TLC's rate of
driver pay or benefit structure.
The Company's intention is to continue its expansion of truckload
capacity provided by independent contractors and to reduce its
truckload capacity provided by company-owned equipment and company-
employed drivers. It is also the Company's intention to favor independent
commission sales agent locations over company-owned and operated locations.
Historically, the intermodal services division of Logistics, and TLC have
principally utilized a company employee sales structure and to a lesser degree,
independent commission sales agents. During the second quarter of 1995,
Management began the process of converting company-owned sales locations to
independent commission sales agent locations. Accordingly, purchased
transportation and commissions to agents and brokers are anticipated to
increase as a percentage of total consolidated revenue and drivers' wages
and benefits are anticipated to decline as a percentage of total
consolidated revenue over time.
10
Potential liability associated with accidents in the trucking
industry is severe and occurrences are unpredictable. The industry
is also subject to substantial workers' compensation expense. A
material increase in the frequency or severity of accidents or
workers' compensation claims or the unfavorable development of
existing claims can be expected to adversely affect Landstar's
operating income.
The cost of fuel is the largest component of fuel and other
operating costs. Changes in prevailing prices of fuel or increases
in fuel taxes can significantly affect Poole's or TLC's operating
results. Also included in fuel and other operating costs are costs of
equipment maintenance paid to third parties and the operating costs of Poole
and TLC terminals. On July 1, 1996, Landstar announced it would close all
but one of the Landstar Poole terminals, including those that function as
Landstar Centers, effective August 1, 1996. The closings are part of Landstar's
strategy to reduce the fixed cost elements of Landstar Poole.
Employee compensation and benefits account for more than half of the
Company's selling, general and administrative expense. Other
significant components of selling, general and administrative
expense are data processing expense, communications costs and rent
expense.
The following table sets forth the percentage relationships of
expense items to revenue for the periods indicated:
Twenty-Six Weeks Ended Thirteen Weeks Ended
------------------------ -----------------------
June 29, July 1, June 29, July 1,
1996 1995 1996 1995
--------- ---------- ---------- ----------
Revenue 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Purchased transportation 68.1% 67.5% 68.4% 67.0%
Drivers' wages and benefits 3.6% 4.0% 3.4% 4.0%
Fuel and other operating costs 6.0% 5.5% 5.9% 5.4%
Insurance and claims 2.8% 3.2% 2.4% 3.2%
Commissions to agents and brokers 6.5% 5.9% 6.7% 5.9%
Selling, general and administrative 7.6% 8.1% 7.0% 7.9%
Depreciation and amortization 2.0% 1.6% 1.9% 1.6%
------- ------- ------- -------
Total costs and expenses 96.6% 95.8% 95.7% 95.0%
------- ------- ------- -------
Operating income 3.4% 4.2% 4.3% 5.0%
Interest and debt expense, net 0.6% 0.6% 0.6% 0.7%
------- ------- ------- -------
Income before income taxes 2.8% 3.6% 3.7% 4.3%
Income taxes 1.2% 1.5% 1.6% 1.8%
------- ------- ------- -------
Net income 1.6% 2.1% 2.1% 2.5%
======= ======= ======= =======
11
TWENTY-SIX WEEKS ENDED JUNE 29, 1996 COMPARED TO TWENTY-SIX WEEKS
ENDED JULY 1, 1995
Revenue for the 1996 twenty-six week period was $624,589,000, an
increase of $20,735,000, or 3.4%, over the 1995 twenty-six week
period entirely due to the inclusion of the revenue of the businesses
acquired during the first quarter of 1995 for the full twenty-six weeks
in 1996. Revenue from the Owner-Operator Companies and Poole decreased
$1,599,000 which was attributable to a decrease of approximately 840,000
revenue miles (volume) to approximately 326,900,000 and a decrease in
revenue per revenue mile (price) of less than 1%. In the 1996 period,
revenue generated through independent contractors, including railroads
and air cargo carriers, was 89.2% of total consolidated revenue compared
with 88.2% in the 1995 period.
Purchased transportation was 68.1% of revenue in 1996 compared
with 67.5% in 1995. Drivers' wages and benefits were 3.6% of revenue in 1996
compared with 4.0% in 1995. The increase in purchased transportation and
decrease in drivers' wages and benefits as a percentage of revenue was
primarily attributable to an increase in the percentage of revenue generated
through independent contractors.
Fuel and other operating costs were 6.0% of revenue in 1996 compared
with 5.5% in 1995. The increase in fuel and other operating costs as a
percentage of revenue was attributable to the effects of the 1995 first
quarter acquisition of TLC, increased net trailer costs, which primarily
reflected decreased rental income from independent contractors for
trailers, increased provision for contractor bad debts and a $347,000
charge to record certain costs associated with closing the Poole
and Landstar Center terminals. Insurance and claims were 2.8% of revenue in
1996 compared with 3.2% in 1995. The favorable variance to prior year was due
to lower third party premiums and favorable development of prior years'
claims. Commissions to agents and brokers were 6.5% of revenue in 1996
compared with 5.9% in 1995, primarily due to an increased percentage of
revenue generated through independent commission sales agents. Selling,
general and administrative costs were 7.6% of revenue in 1996 compared with
8.1% of revenue in 1995, primarily due to a lower bonus accrual under the
Company's management incentive compensation plan and a lower provision for
customer bad debts.
Depreciation and amortization was 2.0% of revenue in 1996 compared with 1.6%
in 1995, primarily due to increased depreciation of company tractors.
Although the number of company-owned or leased tractors has decreased
compared to the 1995 period, depreciation increased as a percentage of revenue
as a result of the modernization of the company-owned or leased fleet.
Interest and debt expense, net was 0.6% of revenue both in 1996 and in 1995.
The provisions for income taxes for the 1996 and 1995 twenty-six
week periods were based on estimated full year combined effective income
tax rates of approximately 42% and 41%, 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.
12
Net income was $10,168,000, or $0.80 per share, in the 1996 period,
compared with $12,577,000, or $0.98 per share, in the 1995 period. If
the 1995 first quarter acquisitions had taken place at the beginning
of 1995, net income for the 1995 period would have been $11,957,000, or
$0.93 per share.
THIRTEEN WEEKS ENDED JUNE 29, 1996 COMPARED TO THIRTEEN WEEKS
ENDED JULY 1, 1995
Revenue for the 1996 thirteen week period was $329,112,000, an
increase of $20,964,000, or 6.8%, over the 1995 thirteen week
period. The increase was primarily attributable to an increase
in revenue miles of approximately 16,200,000 to 202,800,000 and an
increase in revenue per revenue mile of approximately 1%, at the
Owner-Operator Companies, Poole and TLC. In the 1996 period, revenue
generated through independent contractors, including railroads and air
cargo carriers, was 89.7% of total consolidated revenue compared with
88.1% in the 1995 period.
Purchased transportation was 68.4% of revenue in 1996 compared
with 67.0% in 1995. Drivers' wages and benefits were 3.4% of revenue in 1996
compared with 4.0% in 1995. The increase in purchased transportation
and decrease in drivers' wages and benefits as a percentage of
revenue was primarily attributable to an increase in the percentage of
revenue generated through independent contractors.
Fuel and other operating costs were 5.9% of revenue in 1996 compared
with 5.4% in 1995. The increase in fuel and other operating costs as a
percentage of revenue was attributable to increased net trailer costs,
which primarily reflected decreased rental income from independent contractors
for trailers, increased fuel costs, increased provision for contractor bad
debts and the costs associated with closing the Poole and Landstar Center
terminals. Insurance and claims were 2.4% of revenue in 1996 compared with
3.2% in 1995. The favorable variance to prior year was primarily attributable
to lower third party premiums and favorable development of prior years'
claims. Commissions to agents and brokers were 6.7% of revenue in 1996 compare
with 5.9% in 1995, primarily due to an increased percentage of revenue
generated through independent commission sales agents. Selling, general and
administrative costs were 7.0% of revenue in 1996 compared with 7.9% of revenue
in 1995, primarily due to a lower bonus accrual under the Company's management
incentive compensation plan and a lower provision for customer bad debts in
1996.
Depreciation and amortization was 1.9% of revenue in 1996 compared with
1.6% in 1995, primarily due to increased depreciation of company-owned or
leased tractors.
Interest and debt expense, net was 0.6% of revenue in 1996 and 0.7% in 1995
primarily attributable to lower average borrowings outstanding under the senior
credit facility during the 1996 period.
13
The provisions for income taxes for the 1996 and 1995 thirteen
week periods were based on estimated full year combined
effective income tax rates of approximately 42% and 41%, respectively,
which are higher than the statutory federal income tax rate primarily
as a result of state income taxes, amortization of certain goodwill and
the meals and entertainment exclusion.
Net income was $7,014,000, or $0.55 per share, in the 1996 period compared
with $7,820,000, or $0.61 per share, in the 1995 period.
CAPITAL RESOURCES AND LIQUIDITY
Shareholders' equity increased to $138,781,000 at June 29,
1996, compared with $128,396,000 at December 30, 1995,
reflecting the results of operations for the period. Shareholders'
equity declined to 55.1% of total capitalization at June 29, 1996,
compared with 57.8% at December 30, 1995, as a result of net borrowings,
including capital lease additions, in excess of net income during the 1996
period.
Working capital and the ratio of current assets to current
liabilities were $60,330,000 and 1.42 to 1, respectively, at June
29, 1996, compared with $51,360,000 and 1.40 to 1, respectively, at
December 30, 1995. Landstar has historically operated with current
ratios ranging from approximately 1.0 to 1 to 1.4 to 1. Cash used
by operating activities was $4,491,000 in the 1996 twenty-six week
period compared with $522,000 in the 1995 twenty-six week period.
The increase in cash flow used by operating activities was primarily
attributable to reduced earnings and the timing of cash collections
and payments. During the 1996 twenty-six week period, Landstar
purchased $4,774,000 of operating property and acquired $13,697,000
of operating property by entering into capital leases. Landstar plans
to acquire approximately $18,000,000 of operating property during the
remainder of fiscal year 1996 either by purchase or by lease financing.
Management believes that cash flow from operations combined with
its borrowing capacity under the Amended and Restated Credit Agreement
will be adequate to meet Landstar's debt service requirements, fund
continued growth, both internal and through acquisitions, and meet
working capital needs.
Management does not believe inflation has had a material impact on the
results of operations or financial condition of Landstar in the past five
years. However, inflation higher than that experienced in the past five
years might have an adverse effect on the Company's results of operations.
SEASONALITY
Landstar's operations are subject to seasonal trends common to the
trucking industry. Results of operations for the quarter ending in
March is typically lower than the quarters ending June, September
and December due to reduced shipments and higher operating costs in
the winter months.
14
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
The Company is routinely a party to litigation incidental to
its business, primarily involving claims for personal injury
and property damage incurred in the transportation of freight.
The Company maintains insurance which covers liability amounts
in excess of retained liabilities from personal injury and property
damages claims.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
On April 18, 1996, Landstar System, Inc. (the "Company") held its
Annual Meeting of Shareholders (the "Meeting") at the Trumbull
Marriott, 180 Hawley Lane, Trumbull, Connecticut 06611. The matters
voted upon at the Meeting included (i) the election of two Class III
directors for terms to expire at the 1999 Annual Meeting of Shareholders
and (ii) the ratification of appointment of KPMG Peat Marwick LLP as
the Company's independent auditors for fiscal year 1996.
Pursuant to the Company's Restated Certificate of Incorporation, the
Board of Directors has fixed the number of directors at six: two ClassI
directors whose members' terms will expire at the 1997 Annual Meeting of
Shareholders; two Class II directors whose members' terms will expire at
the 1998 Annual Meeting of Shareholders; and two Class III directors whose
members' terms will expire at the 1999 Annual Meeting of Shareholders. With
respect to the election of the two Class III directors, nominee David G.
Bannister and nominee Jeffrey C. Crowe were elected to the Board of Directors
of the Company. Mr. Bannister received 10,769,496 votes for election to
the Board and 22,843 votes were withheld. Mr. Crowe received 10,678,159 votes
for election to the Board and 114,180 votes were withheld. The names of the
other directors whose terms of office as a director continued after the Meeting
are as follows: John B. Bowron (a Class I director), Ronald W. Drucker
(a Class I director), Arthur J. Fritz, Jr. (a Class II director), and
Merritt J. Mott (a Class II director).
The appointment of KPMG Peat Marwick LLP as the Company's independent auditors
for fiscal year 1996 was ratified by the Company's shareholders. Votes for the
ratification were 10,776,769, votes against were 13,345, and votes abstaining
were 2,225.
Item 5. Other Information
None.
15
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits listed on the Exhibit Index are filed as part
of this quarterly report on Form 10-Q.
(b) Form 8-K
No reports on Form 8-K were filed by the Registrant during the
twenty-six week period ended June 29, 1996.
EXHIBIT INDEX
Registrant's Commission File No.: 0-21238
Exhibit No. Description
- ----------- -----------
(11) Statement re: Computation of Per Share Earnings:
(11.1)* Statement re: Computation of Per Share Earnings for the
Twenty-Six and Thirteen Weeks ended June 29, 1996.
(11.2)* Statement re: Computation of Per Share Earnings for the
Twenty-Six and Thirteen Weeks ended July 1, 1995.
(27) Statement re: Financial Data Schedule:
(27 )* Statement re: Financial Data Schedule
__________________
* Filed herewith
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LANDSTAR SYSTEM, INC.
Date: August 8, 1996 Henry H. Gerkens
----------------------------
Henry H. Gerkens
Executive Vice President and
Chief Financial Officer;
Principal Financial Officer
Date: August 8, 1996 Robert C. LaRose
----------------------------
Robert C. LaRose
Vice President Finance and Treasurer
Principal Accounting Officer
[DESCRIPTION] CALCULATION OF 1996 EARNINGS PER SHARE
EXHIBIT 11.1
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CALCULATION OF EARNINGS PER SHARE
(In thousands, except per share amounts)
(Unaudited)
Twenty-Six Thirteen
Weeks Ending Weeks Ending
June 29, June 29,
1996 1996
------------ ------------
Earnings available for earnings per share:
Net income $ 10,168 $ 7,014
============ ============
Average number of common shares outstanding 12,781 12,783
============ ============
Earnings per share $ 0.80 $ 0.55
============ ============
[DESCRIPTION] CALCULATION OF 1995 EARNINGS PER SHARE
EXHIBIT 11.2
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CALCULATION OF EARNINGS PER SHARE
(In thousands, except per share amounts)
(Unaudited)
Twenty-Six Thirteen
Weeks Ending Weeks Ending
July 1, July 1,
1995 1995
------------ ------------
Earnings available for earnings per share:
Net income $ 12,577 $ 7,820
============ ============
Average number of common shares outstanding 12,836 12,824
============ ============
Earnings per share $ 0.98 $ 0.61
============ ============
5
1,000
OTHER
DEC-28-1996
DEC-31-1995
JUN-29-1996
3,503
0
180,432
6,132
2,119
204,247
159,961
47,984
381,677
143,917
73,709
0
0
129
138,652
381,677
0
624,589
0
485,251
17,756
1,361
3,973
17,478
7,310
10,168
0
0
0
10,168
0.80
0.80
