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 28, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________________ to _____________________
Commission File Number: 0-21238
LANDSTAR SYSTEM, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1313069
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
4160 Woodcock Drive, Jacksonville, Florida
(Address of principal executive offices)
32207
(Zip Code)
(904) 390-1234
(Registrant's telephone number, including area code)
First Shelton Place, 1000 Bridgeport Avenue, Shelton, Connecticut
(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, 1997 was 12,623,933.
,
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 twenty-six and thirteen weeks ended June 28, 1997
are not necessarily indicative of the results that may be expected for the
entire fiscal year ending December 27, 1997.
These interim financial statements should be read in conjunction with the
audited financial statements and notes thereto included in the Company's 1996
Annual Report on Form 10-K.
Index
Item 1
Consolidated Balance Sheets as of June 28, 1997
and December 28, 1996 ................................................ Page 3
Consolidated Statements of Income for the Twenty-Six and Thirteen Weeks
Ended June 28, 1997 and June 29, 1996 ................................ Page 4
Consolidated Statements of Cash Flows for the Twenty-Six Weeks
Ended June 28, 1997 and June 29, 1996 ................................ Page 5
Consolidated Statement of Changes in Shareholders'
Equity for the Twenty-Six Weeks Ended June 28, 1997 .................. Page 6
Notes to Consolidated Financial Statements.............................. Page 7
Item 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations......................... Page 8
2
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
(Unaudited)
June 28, December 28,
1997 1996
------------- ------------
ASSETS
Current assets:
Cash $ 3,612 $ 4,187
Short-term investments 3,324
Trade accounts receivable, less allowance of $6,285 169,548 176,892
and $6,526
Other receivables, including advances to independent
contractors, less allowance of $4,970 and $4,390 15,335 10,740
Inventories 1,161 1,785
Prepaid expenses and other current assets 9,321 7,319
----------- -----------
Total current assets 202,301 200,923
----------- -----------
Operating property, less accumulated depreciation
and amortization of $48,708 and $50,223 95,854 105,564
Goodwill, less accumulated amortization of $7,953 and $7,087 54,260 55,126
Deferred income taxes and other assets 8,387 9,188
----------- -----------
Total assets $ 360,802 $ 370,801
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash overdraft $ 15,863 $ 13,488
Accounts payable 50,202 39,901
Current maturities of long-term debt 17,767 23,241
Estimated insurance claims 27,976 25,328
Other current liabilities 23,176 28,312
----------- -----------
Total current liabilities 134,984 130,270
----------- -----------
Long-term debt, excluding current maturities 43,998 67,155
Estimated insurance claims 28,499 25,819
Shareholders' equity:
Common stock, $.01 par value, authorized 20,000,000
shares, issued 12,895,974 shares and 12,882,874 shares 129 129
Additional paid-in capital 62,049 61,740
Retained earnings 97,100 87,655
Cost of 273,041 and 94,041 shares of common stock in treasury (5,957) (1,967)
----------- -----------
Total shareholders' equity 153,321 147,557
----------- -----------
Total liabilities and shareholders' equity $ 360,802 $ 370,801
=========== ===========
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 28, June 29, June 28, June 29,
1997 1996 1997 1996
---------- ---------- ---------- ----------
Revenue $ 639,240 $ 624,589 $ 333,682 $ 329,112
Costs and expenses:
Purchased transportation 447,069 425,229 231,947 225,016
Drivers' wages and benefits 15,250 22,730 7,105 11,225
Fuel and other operating costs 25,755 37,292 12,592 19,514
Insurance and claims 23,791 17,756 14,460 7,959
Commissions to agents and brokers 47,705 40,661 24,986 21,894
Selling, general and administrative 46,921 47,269 22,755 23,199
Depreciation and amortization 10,443 12,201 5,329 6,187
Restructuring costs 3,164 1,985
---------- ---------- ---------- ----------
Total costs and expenses 620,098 603,138 321,159 314,994
---------- ---------- ---------- ----------
Operating income 19,142 21,451 12,523 14,118
Interest and debt expense, net 2,861 3,973 1,422 2,051
---------- ---------- ---------- ----------
Income before income taxes 16,281 17,478 11,101 12,067
Income taxes 6,836 7,310 4,661 5,053
---------- ---------- ---------- ----------
Net income $ 9,445 $ 10,168 $ 6,440 $ 7,014
========== ========== ========== ==========
Earnings per share $ 0.75 $ 0.80 $ 0.51 $ 0.55
========== ========== ========== ==========
Average number of common shares outstanding 12,672,000 12,781,000 12,618,000 12,783,000
========== ========== ========== ==========
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 28, June 29,
1997 1996
----------- -----------
OPERATING ACTIVITIES
Net income $ 9,445 $ 10,168
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation and amortization of operating property 9,372 11,113
Amortization of goodwill and non-competition agreements 1,071 1,088
Non-cash interest charges 132 132
Provisions for losses on trade and other accounts
receivable 1,476 1,361
Gains on sales of operating property (1,502) (1,183)
Deferred income taxes, net 1,299 (176)
Changes in operating assets and liabilities:
Decrease (increase) in trade and other
accounts receivable 1,273 (23,032)
Increase in inventories,
prepaid expenses and other assets (738) (3,958)
Increase in accounts payable and
other liabilities 5,165 348
Increase (decrease) in estimated insurance claims 5,328 (352)
----------- -----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 32,321 (4,491)
----------- -----------
INVESTING ACTIVITIES
Purchases of investments (4,799)
Purchases of operating property (7,332) (4,774)
Proceeds from sales of operating property 9,172 4,616
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (2,959) (158)
----------- -----------
FINANCING ACTIVITIES
Borrowings under revolving credit facility 16,000
Increase (decrease) in cash overdraft 2,375 (861)
Proceeds from exercise of stock options and
related income tax benefit 309 217
Purchases of common stock (3,990)
Principal payments on long-term debt and capital lease
obligations (28,631) (10,619)
----------- -----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (29,937) 4,737
----------- -----------
Increase (decrease) in cash (575) 88
Cash at beginning of period 4,187 3,415
----------- -----------
Cash at end of period $ 3,612 $ 3,503
=========== ===========
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 28, 1997
(Dollars in thousands)
(Unaudited)
Treasury Stock
Common Stock Additional at Cost
------------------ Paid-In Retained ----------------
Shares Amount Capital Earnings Shares Amount Total
---------- ------- --------- -------- -------- ------- ---------
Balance December 28, 1996 12,882,874 $ 129 $61,740 $87,655 94,041 $(1,967) $147,557
Purchases of common stock 179,000 (3,990) (3,990)
Exercise of stock options
and related income tax
benefit 13,100 309 309
Net income 9,445 9,445
---------- ------- -------- -------- -------- -------- ---------
Balance June 28, 1997 12,895,974 $ 129 $62,049 $97,100 273,041 $(5,957) $153,321
========== ======= ======== ======== ======== ======== =========
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) Income Taxes
The provisions for income taxes for both the 1997 and 1996 twenty-six
week periods were based on an estimated combined full year effective
income tax rate of approximately 42%, 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.
(2) Earnings Per Share
Earnings per share amounts were based on the weighted average number of
common shares outstanding.
(3) Additional Cash Flow Information
During the 1997 period, Landstar paid income taxes and interest of
$9,883,000 and $3,032,000 respectively, and did not acquire any
operating property by entering into capital leases. 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.
(4) Commitments and Contingencies
At June 28, 1997, Landstar had commitments for letters of credit
outstanding in the amount of $18,959,000, 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.
7
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 28, 1996 and Management's Discussion and Analysis of Financial
Condition and Results of Operations, included in the Annual Report to
Shareholders.
RESULTS OF OPERATIONS
Landstar System, Inc. and its subsidiary, Landstar System Holdings, Inc.
("Landstar" or the "Company") provide transportation services to a variety of
market niches throughout the United States and to a lesser extent in Canada and
between the United States and Canada and Mexico through its operating
subsidiaries. The Company provides truckload transportation, intermodal
transportation services, expedited air and surface transportation and contract
logistics services.
The Company provides truckload and expedited surface transportation through
independent contractors, and to a lesser extent company-owned equipment driven
by company-employed drivers. The Company's intermodal and expedited air
transportation services primarily involve arranging for the movement of
customer's goods by a combination of rail or air and truck. Both the railroads
and air cargo carriers used by the Company in its intermodal and expedited air
operations are independent contractors. Contract logistics services include
single source alternatives, truck brokerage and other transportation solutions
for large customers. The Company markets its transportation services and
provides local operating support primarily through a network of independent
commission sales agents.
In March 1997, Landstar formed Signature Insurance Company ("Signature"), a
wholly-owned offshore insurance subsidiary. Signature's primary activity is
the reinsurance of certain property, casualty and occupational accident risks
of the independent contractors who have contracted to haul freight with
Landstar. Prior to contracting with Landstar, these independent contractors,
who provide truck capacity, must provide proof of insurance for certain
coverages, which Signature may reinsure. In addition, it is the Company's
intention to have Signature provide certain property, casualty and workers
compensation insurance directly to Landstar's operating subsidiaries.
A significant portion of the Company's operating costs vary directly with
revenue due to the use of independent contractors and independent commission
sales agents. 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 truckload and
expedited surface transportation. Purchased transportation for intermodal
and expedited air transportation is based on a contractually agreed-upon fixed
rate. Purchased transportation as a percentage of revenue for intermodal
transportation is normally higher than that of Landstar's other transportation
services.
8
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 Signature,
intermodal operations or expedited air operations or through company-employed
drivers.
Drivers' wages and benefits represent the amount company-employed drivers are
compensated. Employee drivers are compensated primarily on a cents per
mile driven basis. Drivers' wages and benefits as a percentage of consolidated
revenue generally will vary only if there is a change in the revenue
contribution generated by Signature or through independent contractors or a
change in Landstar's rate of employee driver pay or benefit structure.
The Company's intention is to continue its expansion of truckload capacity
provided by independent contractors and to 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
operations and a portion of the company-owned equipment operations have
principally utilized a company employee sales structure and to a lesser degree,
independent commission sales agents. During 1996, management completed the
process of converting the majority of the 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.
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, including fuel taxes, is the largest component of fuel and
other operating costs. Changes in prevailing prices of fuel or increases in
fuel taxes can significantly affect the operating results of the company-owned
equipment operations. Also included in fuel and other operating costs are
costs of equipment maintenance paid to third parties and the operating costs of
Company terminals. Effective August 1, 1996, Landstar closed all but one of
its Company terminals, including those that had functioned as Landstar Centers.
The closings were part of the Company's strategy to reduce its fixed cost
elements.
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.
9
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 28, June 29, June 28, June 29,
1997 1996 1997 1996
---------- ---------- ---------- ----------
Revenue 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Purchased transportation 69.9% 68.1% 69.5% 68.4%
Drivers' wages and benefits 2.4% 3.6% 2.1% 3.4%
Fuel and other operating costs 4.0% 6.0% 3.8% 5.9%
Insurance and claims 3.7% 2.8% 4.4% 2.4%
Commissions to agents and brokers 7.5% 6.5% 7.5% 6.7%
Selling, general and administrative 7.4% 7.6% 6.8% 7.0%
Depreciation and amortization 1.6% 2.0% 1.6% 1.9%
Restructuring costs 0.5% 0.6%
------- ------- ------- -------
Total costs and expenses 97.0% 96.6% 96.3% 95.7%
------- ------- ------- -------
Operating income 3.0% 3.4% 3.7% 4.3%
Interest and debt expense, net 0.4% 0.6% 0.4% 0.6%
------- ------- ------- -------
Income before income taxes 2.6% 2.8% 3.3% 3.7%
Income taxes 1.1% 1.2% 1.4% 1.6%
------- ------- ------- -------
Net income 1.5% 1.6% 1.9% 2.1%
======= ======= ======= =======
TWENTY-SIX WEEKS ENDED JUNE 28, 1997 COMPARED TO TWENTY-SIX
WEEKS ENDED JUNE 29, 1996
Revenue for the 1997 twenty-six week period was $639,240,000, an increase of
$14,651,000, or 2.3%, over the 1996 twenty-six week period. The increase in
revenue was primarily attributable to premium revenue of $7,694,000 generated
by Signature and an overall increase in rate per mile (price) of approximately
3%, which reflected improved freight quality. The increase in revenue was
partially offset by a decrease in revenue miles (volume), which reflected the
planned reduction in company-owned tractors. In the 1997 period, revenue
generated through independent contractors, including railroads and air cargo
carriers, was 92.5% of total consolidated revenue compared with 89.2% in the
1996 period.
Purchased transportation was 69.9% of revenue in 1997 compared with 68.1% in
1996. Drivers' wages and benefits were 2.4% of revenue in 1997 compared with
3.6% in 1996. Fuel and other operating costs were 4.0% of revenue in 1997
compared with 6.0% in 1996. The increase in purchased transportation and
decrease in drivers' wages and benefits and fuel and other operating costs as a
percentage of revenue was primarily attributable to an increase in the
10
percentage of revenue generated through independent contractors which reflected
the reduction in company-owned equipment in accordance with a previously
announced restructuring plan. The decrease in fuel and other operating costs
as a percentage of revenue was also attributable to reduced terminal and
maintenance costs, partially offset by increased trailer costs. Insurance and
claims were 3.7% of revenue in 1997 compared with 2.8% of revenue in 1996.
Excluding Signature, insurance and claims were 3.1% of revenue in 1997. The
increase in insurance and claims as a percentage of revenue compared to the
prior year, excluding Signature, was primarily attributable to the favorable
development of prior years claims during the 1996 period. Commission to agents
and brokers were 7.5% of revenue in 1997 compared with 6.5% of revenue in 1996,
primarily due to an increased percentage of revenue generated through
independent commission sales agents, which reflected the conversion of
company-owned sales locations to independent commission sales agent locations.
Selling, general and administrative costs were 7.4% of revenue in 1997
compared with 7.6% in 1996, primarily due to the effect of increased revenue,
partially offset by sales and marketing costs incurred by Signature and an
increased provision for bonuses under the Company's management incentive
compensation plan. Depreciation and amortization was 1.6% of revenue in 1997
compared with 2.0% in 1996, primarily due to a decrease in the number of
company-owned tractors.
During the fourth quarter of 1996, the Company announced a plan to restructure
its Landstar T.L.C., Inc. ("Landstar T.L.C.") and Landstar Poole, Inc.
("Landstar Poole") operations, in addition to the relocation of its Shelton,
Connecticut office headquarters to Jacksonville, Florida in the second quarter
of 1997. The Landstar Poole restructuring plan included the transfer of the
variable cost business component of Landstar Poole to Landstar Ranger, Inc. and
the disposal of 175 company-owned tractors. The Landstar T.L.C. restructuring
plan included the merger of Landstar T.L.C. into Landstar Inway, Inc. and the
disposal of all the company-owned tractors. During the twenty-six week period
of 1997, the Company incurred $3,164,000 of such restructuring costs. As of
June 28, 1997, the restructuring was substantially complete.
Interest and debt expense, net was 0.4% of revenue in 1997 and 0.6% in 1996.
This decrease was primarily attributable to lower average borrowings on the
senior credit facility and reduced capital lease obligations.
The provisions for income taxes for both the 1997 and 1996 twenty-six week
periods were based on an estimated full year combined effective income tax
rate of approximately 42%, which is higher than the statutory federal income
tax rate primarily as a result of state income taxes, amortization of certain
goodwill and the meals and entertainment exclusion.
Net income was $9,445,000, or $0.75 per share, in the 1997 period, compared
with $10,168,000, or $0.80 per share, in 1996. Excluding restructuring costs,
1997 net income would have been $11,280,000, or $0.89 per share.
THIRTEEN WEEKS ENDED JUNE 28, 1997 COMPARED TO THIRTEEN WEEKS
ENDED JUNE 29, 1996
Revenue for the 1997 thirteen week period was $333,682,000, an increase of
$4,570,000, or 1.4%, over the 1996 thirteen week period. The increase was
primarily attributable to premium revenue of $7,694,000 generated by Signature.
An increase in revenue per revenue mile of approximately 3%, which reflected
improved freight quality, was more than offset by a decline in revenue miles,
which reflected the planned reduction in company-owned tractors. In the 1997
11
period, revenue generated through independent contractors, including railroads
and air cargo carriers, was 92.1% of total consolidated revenue compared with
89.7% in the 1996 period.
Purchased transportation was 69.5% of revenue in 1997 compared with 68.4% in
1996. Drivers' wages and benefits were 2.1% of revenue in 1997 compared with
3.4% in 1996. Fuel and other operating costs were 3.8% of revenue in 1997
compared with 5.9% in 1996. The increase in purchased transportation and
decrease in drivers' wages and benefits and fuel and other operating costs as a
percentage of revenue was primarily attributable to an increase in the
percentage of revenue generated through independent contractors which reflected
the reduction in company-owned equipment in accordance with a previously
announced restructuring plan.
The decrease in fuel and other operating costs as a percentage of revenue was
also attributable to reduced terminal and maintenance costs, partially offset
by increased trailer costs. Insurance and claims were 4.4% of revenue in 1997
compared with 2.4% in 1996. Excluding Signature, insurance and claims were
3.1% of revenue in the 1997 period. The increase in insurance and claims as a
percentage of revenue compared to the prior year, excluding Signature, was
primarily attributable to the favorable development of prior years claims
during the 1996 period. Commissions to agents and brokers were 7.5% of revenue
in 1997 compared with 6.7% in 1996, primarily due to an increased percentage of
revenue generated through independent commission sales agents, which reflected
the conversion of company-owned sales locations to independent commission sales
agent locations. Selling, general and administrative costs were 6.8% of
revenue in 1997 compared with 7.0% of revenue in 1996, primarily due to
increased revenue, partially offset by sales and marketing costs incurred by
Signature.
Depreciation and amortization was 1.6% of revenue in 1997 compared with 1.9% in
1996, primarily due to a decrease in the number of company-owned tractors.
During the 1997 thirteen week period, the Company incurred $1,985,000 of costs
associated with the previously announced restructuring plan.
Interest and debt expense, net was 0.4% in 1997 and 0.6% in 1996. The decrease
was primarily attributable to lower average borrowings on the senior credit
facility and reduced capital lease obligations.
The provisions for income taxes for both the 1997 and 1996 thirteen week
periods were based on an estimated full year combined effective income tax
rate of approximately 42%, which is higher than the statutory federal income
tax rate primarily as a result of state income taxes, amortization of certain
goodwill and the meals and entertainment exclusion.
Net income was $6,440,000, or $0.51 per share, in the 1997 period, compared
with $7,014,000, or $0.55 per share, in the 1996 period. Excluding
restructuring costs, 1997 net income would have been $7,591,000, or $0.60 per
share.
12
CAPITAL RESOURCES AND LIQUIDITY
Shareholders' equity increased to $153,321,000 at June 28, 1997, compared with
$147,557,000 at December 28, 1996, which reflected net income for the
twenty-six weeks of 1997, partially offset by the repurchase of 179,000 shares
of common stock, at an aggregate cost of $3,990,000. Shareholders' equity
increased to 71.3% of total capitalization at June 28, 1997 compared with 62.0%
at December 28, 1996, as a result of reduced borrowings on the acquisition line
of the senior credit facility and reduced capital lease obligations.
Working capital and the ratio of current assets to current liabilities were
$67,317,000 and 1.50 to 1, respectively, at June 28, 1997, compared with
$70,653,000 and 1.54 to 1, respectively, at December 28, 1996. Landstar has
historically operated with a current ratio of approximately 1.5 to 1. Cash
provided by operating activities was $32,321,000 in the 1997 twenty-six week
period compared with cash used by operating activities of $4,491,000 in the
1996 twenty-six week period. The increase in cash flow provided by operating
activities was primarily attributable to the timing of cash collections and
payments. During the 1997 twenty-six week period, Landstar purchased
$7,332,000 of operating property and did not acquire any property by entering
into capital leases. Landstar plans to acquire approximately $7,700,000 of
operating property during the remainder of fiscal year 1997 either by purchase
or lease financing.
Management believes that cash flow from operations combined with the Company's
borrowing capacity under its revolving credit agreement will be adequate to
meet Landstar's debt service requirements, fund continued growth, both internal
and through acquisitions, 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 February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("FAS") No. 128, "Earnings per Share." This
statement, effective for financial statements issued for periods ending after
December 15, 1997, replaces the presentation of primary earnings per share,
currently required under Accounting Principals Board Opinion 15 "Earnings Per
Share" ("APB 15"), with a presentation of basic earnings per share. Basic
earnings per share excludes dilution and is computed by dividing income
available to common shareholders by the weighted average number of common
shares outstanding for the period. FAS No. 128 also requires the dual
presentation of basic earnings per share and diluted earnings per share on the
face of the income statement. Management believes that, upon the adoption of
this statement, basic earnings per share will not differ from primary earnings
per share calculated in accordance with APB 15 and diluted earnings per share
will not be materially different from the basic earnings per share given the
current market value of the Company's common stock and the current structure of
its stock compensation plans.
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.
13
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 Annual Meeting
On April 17, 1997, Landstar System, Inc. (the "Company") held its Annual
Meeting of Shareholders (the "Meeting") at the Trumbull Marriott, 180 Hawley
Lane, Trumbull, Connecticut 06111. The matters voted upon at the Meeting
included (i) the election of two Class I directors for terms to expire at the
2000 Annual Meeting of Shareholders and (ii) the ratification of
appointment of KPMG Peat Marwick LLP as the Company's independent auditors for
fiscal year 1997.
Pursuant to the Company's Restated Certificate of Incorporation, the Board of
Directors has fixed the number of directors at six: two Class II directors whose
members' terms will expire at the 1998 Annual Meeting of Shareholders; two
Class III directors whose members' terms will expire at the 1999 Annual Meeting
of Shareholders; and two Class I directors whose members' terms will expire
at the 2000 Annual Meeting of Shareholders. With respect to the election of
the two Class I directors, nominee John B. Bowron and nominee Ronald W.
Drucker were elected to the Board of Directors of the Company. Mr. Bowron
received 10,442,497 votes for election to the Board and 9,635 were withheld.
Mr. Drucker received 10,442,597 votes for election to the board and 9,535 votes
were withheld. The names of the other directors whose terms of office as a
director continued after the Meeting are as follows: Arthur J. Fritz, (a Class
II director), Merritt J. Mott (a Class II director), David G. Bannister (a Class
III director), and Jeffrey C. Crowe (a Class III director).
The appointment of KPMG Peat Marwick LLP as the Company's independent auditors
for fiscal year 1997 was ratified by the Company's shareholders. Votes for the
ratification were 10,424,065, votes against were 5,880 and votes abstaining
were 22,187.
Item 5. Other Information
None.
14
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits listed on the Exhibit Index are filed as part
of this quarterly report on Form 10-Q.
(b) Form 8-K
No reports on Form 8-K were filed by the Registrant during the
thirteen week period ended June 28, 1997.
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 28, 1997.
(11.2)* Statement re: Computation of Per Share Earnings for the
Twenty-Six and Thirteen Weeks ended June 29,1996.
(27) Statement re: Financial Data Schedule:
(27 )* Statement re: Financial Data Schedule
__________________
* Filed herewith
15
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, 1997 Henry H. Gerkens
----------------------------
Henry H. Gerkens
Executive Vice President and
Chief Financial Officer;
Principal Financial Officer
Date: August 8, 1997 Robert C. LaRose
----------------------------
Robert C. LaRose
Vice President Finance and Treasurer;
Principal Accounting Officer
[DESCRIPTION] CALCULATION OF 1997 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 28, June 28,
1997 1997
------------ ------------
Earnings available for earnings per share:
Net income $ 9,445 $ 6,440
============ ============
Average number of common shares outstanding 12,672 12,618
============ ============
Earnings per share $ 0.75 $ 0.51
============ ============
[DESCRIPTION] CALCULATION OF 1996 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
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
============ ============
5
1,000
OTHER
DEC-27-1997
DEC-29-1996
JUN-28-1997
3,612
3,324
175,833
6,285
1,161
202,301
144,562
48,708
360,802
134,984
43,998
0
0
129
153,192
360,802
0
639,240
0
488,074
23,791
1,446
2,861
16,281
6,836
9,445
0
0
0
9,445
0.75
0.75
