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 March 27, 1999
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)
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 April 30, 1999 was
10,186,833.
PART I
FINANCIAL INFORMATION
Index
Item 1
Consolidated Balance Sheets as of March 27, 1999
and December 26, 1998 ............................................... Page 3
Consolidated Statements of Income for the Thirteen Weeks
Ended March 27, 1999 and March 28, 1998 ............................. Page 4
Consolidated Statements of Cash Flows for the Thirteen Weeks
Ended March 27, 1999 and March 28, 1998 ............................. Page 5
Consolidated Statement of Changes in Shareholders'
Equity for the Thirteen Weeks Ended March 27, 1999 .................. Page 6
Notes to Consolidated Financial Statements............................. Page 7
Item 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations........................ Page 9
Item 3
Quantitative and Qualitative Disclosures About Market Risk............. Page 16
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 weeks ended March 27,
1999 are not necessarily indicative of the results that may be expected for the
entire fiscal year ending December 25, 1999.
These interim financial statements should be read in conjunction with
the audited financial statements and notes thereto included in the Company's
1998 Annual Report on Form 10-K.
2
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
(Unaudited)
March 27, December 26,
1999 1998
---------- ------------
ASSETS
Current assets:
Cash $ 33,709 $ 26,681
Trade accounts receivable, less allowance of $6,208
and $6,428 163,562 172,471
Other receivables, including advances to independent
contractors, less allowance of $3,814 and $4,007 17,948 13,980
Prepaid expenses and other current assets 4,186 5,428
---------- -----------
Total current assets 219,405 218,560
---------- -----------
Operating property, less accumulated depreciation
and amortization of $31,424 and $29,603 48,325 46,958
Goodwill, less accumulated amortization of $6,865 and $6,561 34,645 34,949
Deferred income taxes and other assets 12,756 13,198
---------- -----------
Total assets $ 315,131 $ 313,665
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash overdraft $ 13,454 $ 14,746
Accounts payable 55,973 50,624
Current maturities of long-term debt 4,881 4,708
Insurance claims 30,329 29,873
Accrued compensation 4,373 9,881
Other current liabilities 33,460 33,058
---------- -----------
Total current liabilities 142,470 142,890
---------- -----------
Long-term debt, excluding current maturities 31,248 29,732
Insurance claims 30,154 29,195
Shareholders' equity:
Common stock, $.01 par value, authorized 20,000,000
shares, issued 13,059,874 shares and 13,041,574 shares 131 130
Additional paid-in capital 65,538 65,198
Retained earnings 131,712 124,237
Cost of 2,831,341 and 2,618,041 shares of common stock in
treasury (84,248) (76,176)
Notes receivable arising from exercise of stock options (1,874) (1,541)
---------- -----------
Total shareholders' equity 111,259 111,848
---------- -----------
Total liabilities and shareholders' equity $ 315,131 $ 313,665
========== ===========
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)
Thirteen Weeks Ended
-----------------------
March 27, March 28,
1999 1998
---------- ----------
Revenue $ 311,435 $ 298,184
Investment income 544 331
Costs and expenses:
Purchased transportation 229,430 219,934
Commissions to agents and brokers 24,271 23,266
Other operating costs 6,669 7,430
Insurance and claims 10,145 12,223
Selling, general and administrative 25,518 24,272
Depreciation and amortization 2,643 2,453
---------- ----------
Total costs and expenses 298,676 289,578
---------- ----------
Operating income 13,303 8,937
Interest and debt expense 739 653
---------- ----------
Income from continuing operations
before income taxes 12,564 8,284
Income taxes 5,089 3,355
---------- ----------
Income from continuing operations 7,475 4,929
Discontinued operations, net of income taxes (437)
---------- ----------
Net income $ 7,475 $ 4,492
========== ==========
Earnings (loss) per common share:
Income from continuing operations $ 0.72 $ 0.42
Loss from discontinued operations (0.04)
---------- ----------
Earnings per common share $ 0.72 $ 0.38
========== ==========
Diluted earnings (loss) per share:
Income from continuing operations $ 0.71 $ 0.42
Loss from discontinued operations (0.04)
---------- ----------
Diluted earnings per share $ 0.71 $ 0.38
========== ==========
Average number of shares outstanding:
Earnings per common share 10,368,000 11,686,000
========== ==========
Diluted earnings per share 10,491,000 11,746,000
========== ==========
See accompanying notes to consolidated financial statements.
4
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Thirteen Weeks Ended
---------------------------
March 27, March 28,
1999 1998
----------- -----------
OPERATING ACTIVITIES OF CONTINUING OPERATIONS
Net income $ 7,475 $ 4,492
Adjustments to reconcile net income to net cash provided
by operating activities of continuing operations:
Discontinued operations 437
Depreciation and amortization of operating property 2,339 2,099
Amortization of goodwill and non-competition agreement 304 354
Non-cash interest charges 81 81
Provisions for losses on trade and other accounts receivable 934 2,050
Gains on sales of operating property (61) (97)
Deferred income taxes, net 106 114
Changes in operating assets and liabilities, net of discontinued
operations:
Decrease (increase) in trade and other accounts receivable 4,007 (1,801)
Decrease (increase) in prepaid expenses and other assets 1,497 (3,790)
Increase in accounts payable 5,349 7,837
Decrease in other liabilities (5,106) (3,987)
Increase in insurance claims 1,415 4,762
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES OF CONTINUING OPERATIONS 18,340 12,551
----------- -----------
INVESTING ACTIVITIES OF CONTINUING OPERATIONS
Purchases of operating property (822) (1,706)
Proceeds from sales of operating property 336 713
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES OF CONTINUING OPERATIONS (486) (993)
----------- -----------
FINANCING ACTIVITIES OF CONTINUING OPERATIONS
Increase (decrease) in cash overdraft (1,292) 2,372
Proceeds from exercise of stock options and related income tax benefit 8 889
Purchases of common stock (8,072) (16,912)
Principal payments on long-term debt and capital lease obligations (1,470) (1,511)
----------- -----------
NET CASH USED BY FINANCING ACTIVITIES OF CONTINUING OPERATIONS (10,826) (15,162)
----------- -----------
NET CASH USED BY DISCONTINUED OPERATIONS (3,087)
----------- -----------
Increase (decrease) in cash 7,028 (6,691)
Cash at beginning of period 26,681 17,994
----------- -----------
Cash at end of period $ 33,709 $ 11,303
=========== ===========
See accompanying notes to consolidated financial statements.
5
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY
Thirteen Weeks Ended March 27, 1999
(Dollars in thousands)
(Unaudited)
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
---------- ------- --------- --------- --------- --------- ------------- ---------
Balance December 26, 1998 13,041,574 $ 130 $ 65,198 $ 124,237 2,618,041 $ (76,176) $ (1,541) $ 111,848
Net income 7,475 7,475
Purchases of common stock 213,300 (8,072) (8,072)
Exercise of stock options
and related income tax
benefit 18,300 1 340 (333) 8
---------- ------- --------- --------- --------- --------- ------------- ---------
Balance March 27, 1999 13,059,874 $ 131 $ 65,538 $ 131,712 2,831,341 $ (84,248) $ (1,874) $ 111,259
========== ======= ========= ========= ========= ========= ============= =========
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) 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 approximately $40,435,000 in cash. Certain liabilities of the company-owned
tractor segment were retained by Landstar, primarily insurance claims, capital
lease obligations and accounts payable. Accordingly, the financial results
of this segment have been reported as discontinued operations in the
accompanying financial statements.
The loss from discontinued operations for the thirteen-week period ended
March 28, 1998 was $437,000, net of income tax benefits of $168,000.
The company-owned tractor segment had revenue of $21,984,000
for the thirteen weeks ended March 28, 1998.
(2) Income Taxes
The provisions for income taxes on continuing operations for the 1999 and
1998 thirteen-week periods were based on an estimated combined full year
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.
7
(3) Earnings Per Share
Earnings per common share amounts are based on the weighted average
number of common shares outstanding and diluted earnings per share
amounts are based on the weighted average number of common shares
outstanding plus the incremental shares that would have been outstanding
upon the assumed exercise of all dilutive stock options.
(4) Additional Cash Flow Information
During the 1999 period, Landstar paid income taxes and interest of
$4,031,000 and $777,000, respectively, and acquired operating property
by entering into capital leases in the amount of $3,159,000. During the
1998 period, Landstar paid income taxes and interest of $4,049,000 and
$821,000 ($360,000 related to Landstar Poole), respectively.
(5) Segment Information
The following tables summarize information about Landstar's reportable
business segments for the thirteen weeks ended
March 27, 1999 and March 28, 1998 (in thousands):
Thirteen Weeks Ended March 27, 1999
------------------------------------------
Carrier Multimodal Insurance Other Total
------- ---------- --------- ----- -----
External revenue $ 240,744 $ 64,459 $ 6,232 $ 311,435
Investment income 544 544
Internal revenue 6,554 96 8,900 15,550
Operating income 16,399 1,815 4,178 $ (9,089) 13,303
Thirteen Weeks Ended March 28, 1998
------------------------------------------
Carrier Multimodal Insurance Other Total
------- ---------- --------- ----- -----
External revenue $ 229,696 $ 62,578 $ 5,910 $ 298,184
Investment income 331 331
Internal revenue 8,610 120 5,242 13,972
Operating income 12,389 934 2,725 $ (7,111) 8,937
8
(6) Commitments and Contingencies
At March 27, 1999, Landstar had commitments for letters of
credit outstanding in the amount of $22,400,000, primarily as
collateral for insurance claims. The commitments for letters of credit
outstanding included $12,340,000 under the Second Amended and Restated
Credit Agreement and $10,060,000 secured by assets deposited with a
financial institution.
Landstar is involved in certain claims and pending litigation
arising from the normal conduct of business. Based on the
knowledge of the facts and, in certain cases, opinions of
outside counsel, management believes that adequate provisions
have been made for probable losses with respect to the resolution
of all claims and pending litigation and that the ultimate outcome,
after provisions thereof, will not have a material adverse effect
on the financial condition of Landstar, but could have a material
effect on the results of operations in a given quarter or year.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the
attached interim consolidated financial statements and notes
thereto, and with the Company's audited financial statements and
notes thereto for the fiscal year ended December 26, 1998 and
Management's Discussion and Analysis of Financial Condition and
Results of Operations included in the 1998 Annual Report to
Shareholders.
9
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 which employ different operating strategies. Under the provisions
of Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 131, "Disclosure about Segments of an Enterprise and Related
Information," the Company determined it has three reportable business segments.
These are the carrier, multimodal and insurance segments.
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. The carrier segment markets its services primarily through
independent commission sales agents and utilizes tractors provided by
independent contractors. The nature of the carrier segment's business is
such that a significant portion of its operating costs varies directly with
revenue.
The multimodal segment is comprised of Landstar Logistics, Inc. and Landstar
Express America, Inc. Transportation services provided by the multimodal
segment include the arrangement of intermodal moves, contract logistics, truck
brokerage, short-to-long haul movement of containers by truck and emergency and
expedited air freight and truck services. 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 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.
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 approximately $40,435,000 in cash. Accordingly, the financial results of
this segment have been reported as discontinued operations in the accompanying
financial statements.
10
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 and brokers
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 and brokers as a percentage of consolidated revenue will vary
directly with 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 or by the intermodal services or air freight operations of the
multimodal segment.
Trailer rental and maintenance costs paid to third parties are the largest
component 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.
11
The following table sets forth the percentage relationships of
income and expense items to revenue for the periods indicated:
Thirteen Weeks Ended
------------------------
March 27, March 28,
1999 1998
---------- ----------
Revenue 100.0% 100.0%
Investment income 0.2 0.1
Costs and expenses:
Purchased transportation 73.7 73.8
Commissions to agents and brokers 7.8 7.8
Other operating costs 2.1 2.5
Insurance and claims 3.3 4.1
Selling, general and administrative 8.2 8.1
Depreciation and amortization 0.8 0.8
------- ------
Total costs and expenses 95.9 97.1
------- ------
Operating income 4.3 3.0
Interest and debt expense 0.3 0.2
------- ------
Income from continuing operations
before income taxes 4.0 2.8
Income taxes 1.6 1.1
------- ------
Income from continuing operations 2.4 1.7
Discontinued operations, net of income taxes (0.2)
------- ------
Net income 2.4% 1.5%
======= ======
THIRTEEN WEEKS ENDED MARCH 27, 1999 COMPARED TO THIRTEEN WEEKS
ENDED MARCH 28, 1998
Revenue for the 1999 thirteen-week period was $311,435,000, an increase of
$13,251,000, or 4.4%, over the 1998 thirteen-week period. The increase was
attributable to increased revenue of $11,048,000, $1,881,000 and $322,000
at the carrier, multimodal and insurance segments, respectively. Overall,
revenue per revenue mile increased approximately 2%, which reflected
improved freight quality, while revenue miles were approximately 2%
higher than 1998. The insurance segment generated investment income of
$544,000 and $331,000 during the 1999 and 1998 periods, respectively.
12
Purchased transportation was 73.7% of revenue in 1999 compared with 73.8% in
1998. Excluding the effect of increased revenue at the insurance segment,
purchased transportation was approximately the same percentage of revenue in
the 1999 period as it was in the 1998 period. Commissions to agents and brokers
were 7.8% of revenue in 1999 and 1998. Other operating costs were 2.1% of
revenue in 1999 compared with 2.5% in 1998. The decrease in other operating
costs as a percentage of revenue was due to lower net trailer costs, resulting
from the conversion of a portion of the Company's trailer fleet from operating
leases to capital leases, and a one-time reduction in the cost of fuel taxes
and permits, resulting from a favorable fuel tax audit and a permit refund.
Insurance and claims were 3.3% of revenue in 1999 compared with 4.1% in 1998.
The decrease in insurance and claims as a percentage of revenue was primarily
attributable to lower premium expense and favorable development of prior year
claims. Selling, general and administrative costs were 8.2% of revenue in 1999
compared with 8.1% of revenue in 1998. This increase was primarily due to a
higher provision for bonuses under the Company's management incentive
compensation plan, increased management information services costs and
increased wages and benefits, partially offset by a decrease in the provision
for customer bad debts and $400,000 of one time costs incurred in the 1998
relocation of Landstar Express America, Inc. from Charlotte, North Carolina to
Jacksonville, Florida.
Interest and debt expense was 0.3% and 0.2% of revenue in 1998 and 1997,
respectively. The increase in interest and debt expense as a percentage of
revenue was due to increased capital lease obligations and increased average
borrowings on the senior credit facility.
The provisions for income taxes from continuing operations for the 1999 and
1998 thirteen-week periods were based on an estimated full year combined
effective income tax rate of approximately 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.
Net income was $7,475,000, or $0.72 per common share ($0.71 per diluted share),
in the 1999 period compared with $4,492,000, or $0.38 per common share ($0.38
per diluted share), in the 1998 period. The 1998 period included a loss from
discontinued operations $437,000, or $0.04 loss per common share ($0.04 loss
per diluted share).
13
CAPITAL RESOURCES AND LIQUIDITY
Shareholders' equity decreased to $111,259,000 at March 27, 1999 compared
with $111,848,000 at December 26, 1998, as a result of the purchase of 213,300
shares of the Company's common stock at an aggregate cost of $8,072,000,
partially offset by net income. Shareholders' equity was 75% and 76% of total
capitalization at March 27, 1999 and December 26, 1998, respectively.
Working capital and the ratio of current assets to current liabilities were
$76,935,000 and 1.54 to 1, respectively, at March 27, 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 of continuing operations was $18,340,000 in
the 1999 period compared with $12,551,000 in the 1998 period. The increase in
cash flow provided by operating activities of continuing operations was
primarily attributable to increased earnings and an improvement in the timing
of accounts receivable cash collections. During the 1999 period, Landstar
purchased $822,000 of operating property and acquired $3,159,000 of revenue
equipment by entering into capital leases. Management anticipates
acquiring approximately $26,000,000 of operating property during the remainder
of fiscal year 1999 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.
The Company is aware of the issues associated with the programming code in its
existing computer systems in order for the systems to recognize date sensitive
information when the year changes to 2000. The Company believes it has
identified all of its information technology ("IT") and non-information
technology ("non-IT") systems which require change to ensure all of its systems
will be year 2000 compliant. The Company plans to replace all non-IT systems
that are not year 2000 compliant with year 2000 compliant systems prior to
year-end 1999. The Company is utilizing in-house staff, with third
party assistance, to convert its IT systems to year 2000 compliance. The
Company believes that its pricing, billing and settlement systems are
critical to the Company's operations. These systems enable the Company to
invoice customers and pay independent contractors and commission sales agents
properly. The operating subsidiaries comprising the multimodal segment are
already year 2000 compliant. Several years ago the Company began to implement a
strategy to standardize the carrier group's critical IT systems using the
Landstar Ranger system as the base. The critical IT systems of Landstar Ranger,
whose revenue represents 43% of the carrier segment's revenue, have been
reprogrammed to be year 2000 compliant. The Company has successfully tested
each of the major subsystems independently and intends to perform an additional
system-wide comprehensive test during the third quarter of 1999. As part of its
ongoing system development, the Company is in the process of converting the
critical IT systems of Landstar Ligon, whose revenue represents approximately
22% of the carrier segment's revenue, to the same systems as Landstar Ranger.
This conversion is expected to be completed by July 1999. Landstar Inway, the
remaining operating company in the carrier segment, has successfully converted
approximately 90% of its critical IT systems and expects to complete the
project by May 1999. In addition, as part of the overall standardization plan,
the Company intends to convert all of its operating companies to a generic,
year 2000 compliant general ledger and accounts payable software system
during 1999.
14
As part of the Company's comprehensive review of its systems, it is continuing
to verify the year 2000 readiness of third parties (customers and vendors) who
provide services that are material to the Company's operations. The Company is
currently communicating with its material vendors and customers to assess their
year 2000 readiness and will continue to monitor their progress throughout
1999.
The vast majority of the changes necessary to make the Company's IT 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 will approximate $600,000, of which approximately
$450,000 has been incurred. Although management expects the cost of
maintaining and upgrading the Company's computer systems to increase
over the next few years compared to prior years, management does not believe
that the future costs of maintaining and upgrading Landstar's computer systems
will have a material adverse effect on the results of operations.
In the event the Company determines that one or more of its material vendors
will not become year 2000 compliant, the Company's contingency plan is to
select alternative vendors or implement alternate procedures for an interim
period.
The Company believes that the year 2000 project will be completed in sufficient
time to ensure that transactions affecting the year 2000 will be properly
recognized by the revised programming code. Failure to complete the
year 2000 project, both internal and the readiness of third party vendors,
could have a material adverse effect on the Company's future operating results
or financial condition.
INFLATION
Management does not believe inflation has had a material impact on the
results of operations or financial condition of Landstar in the past five
years. However, inflation higher than that experienced in the past five
years might have an adverse effect on the Company's results of operations.
15
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, adverse weather conditions and
the conversion of the Company's or its vendors' critical IT systems to year
2000 compliance.
SEASONALITY
Landstar's operations are subject to seasonal trends common to the
trucking industry. Results of operations for the quarter ending in
March is typically lower than the quarters ending June, September
and December due to reduced shipments and higher operating costs in
the winter months.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company maintains a credit agreement with a syndicate of banks and The
Chase Manhattan Bank, as the administrative agent, (the "Second Amended and
Restated Credit Agreement") that provides $200,000,000 of borrowing
capacity, consisting of $150,000,000 revolving credit and $50,000,000 revolving
credit to finance acquisitions. Borrowings under the Second Amended and
Restated Credit Agreement bear interest at rates equal to, at the option of
Landstar, either (i) the greatest of (a) the prime rate as publicly announced
from time to time by The Chase Manhattan Bank, (b) the three month CD rate
adjusted for statutory reserves and FDIC assessment costs plus 1% and (c) the
federal funds effective rate plus 1/2%, or, (ii) the rate at the time offered
to The Chase Manhattan Bank in the Eurodollar market for amounts and periods
comparable to the relevant loan plus a margin that is determined based on the
level of the Company's Leverage Ratio, as defined in the Second Amended and
Restated Credit Agreement. There have been no significant changes that would
affect the information provided in Item 7a of the 1998 Annual Report on
Form 10-K regarding quantitative and qualitative disclosures about market risk.
16
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
None.
17
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits listed on the Exhibit Index are filed as part
of this quarterly report on Form 10-Q.
(b) Form 8-K
None.
18
EXHIBIT INDEX
Registrant's Commission File No.: 0-21238
Exhibit No. Description
- ------------ -----------
(11) Statement re: Computation of Per Share Earnings:
11.1 * Landstar System, Inc. and Subsidiary Calculation of Earnings
Per Common Share for the Thirteen Weeks Ended
March 27, 1999 and March 28, 1998
11.2 * Landstar System, Inc. and Subsidiary Calculation of Diluted
Earnings Per Share for the Thirteen Weeks
Ended March 27, 1999 and March 28, 1998
(27) Financial Data Schedules:
27.1 * Restated 1998 Financial Data Schedule
27.2 * 1999 Financial Data Schedule
__________________
* Filed herewith
19
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: May 7, 1999 Henry H. Gerkens
----------------------------
Henry H. Gerkens
Executive Vice President and
Chief Financial Officer;
Principal Financial Officer
Date: May 7, 1999 Robert C. LaRose
----------------------------
Robert C. LaRose
Vice President Finance and Treasurer;
Principal Accounting Officer
20
EXHIBIT 11.1
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CALCULATION OF EARNINGS PER COMMON SHARE
(In thousands, except per share amounts)
(Unaudited)
Thirteen
Weeks Ended
---------------------------
March 27, March 28,
1999 1998
---------------------------
Earnings available for earnings per share:
Income from continuing operations $ 7,475 $ 4,929
Discontinued operations, net of income taxes (437)
------------ ------------
Net income $ 7,475 $ 4,492
============ ============
Average number of common shares outstanding 10,368 11,686
============ ============
Earnings (loss) per common share:
Income from continuing operations $ 0.72 $ 0.42
Loss from discontinued operations (0.04)
------------ ------------
Earnings per common share $ 0.72 $ 0.38
============ ============
21
EXHIBIT 11.2
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CALCULATION OF DILUTED EARNINGS PER SHARE
(In thousands, except per share amounts)
(Unaudited)
Thirteen
Weeks Ended
---------------------------
March 27, March 28,
1999 1998
---------------------------
Income from continuing operations $ 7,475 $ 4,929
Discontinued operations, net of income taxes (437)
------------ ------------
Net income $ 7,475 $ 4,492
============ ============
Average number of common shares
outstanding 10,368 11,686
Plus: Incremental shares from
assumed exercise of stock
options 123 60
------------ ------------
Average number of common shares
and common share equivalents
outstanding 10,491 11,746
============ ============
Diluted earnings (loss) per share:
Income from continuing operations $ 0.71 $ 0.42
Loss from discontinued operations (0.04)
------------ ------------
Diluted earnings per share $ 0.71 $ 0.38
============ ============
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
22
5
1,000
OTHER
DEC-26-1998
DEC-28-1997
MAR-28-1998
11,303
3,036
180,841
7,199
0
216,137
130,219
52,685
351,679
146,654
33,149
0
0
129
140,036
351,679
0
298,184
0
227,364
12,223
2,050
653
8,284
3,355
4,929
(437)
0
0
4,492
0.42
0.42
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5
1,000
OTHER
DEC-25-1999
DEC-27-1998
MAR-27-1999
33,709
0
169,770
6,208
0
219,405
79,749
31,424
315,131
142,470
31,248
0
0
131
111,128
315,131
0
311,435
0
236,099
10,145
934
739
12,564
5,089
0
0
0
7,475
0.72
0.71
