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 September 23, 2000
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.)
13410 Sutton Park Drive South, Jacksonville, Florida
(Address of principal executive offices)
32224
(Zip Code)
(904) 398-9400
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
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 October 27, 2000 was
8,393,533.
PART I
FINANCIAL INFORMATION
Index
Item 1
Consolidated Balance Sheets as of September 23, 2000
and December 25, 1999 ............................................... Page 3
Consolidated Statements of Income for the Thirty Nine and Thirteen Weeks
Ended September 23, 2000 and September 25, 1999 ................... Page 4
Consolidated Statements of Cash Flows for the Thirty Nine Weeks
Ended September 23, 2000 and September 25, 1999 ................... Page 5
Consolidated Statement of Changes in Shareholders'
Equity for the Thirty Nine Weeks Ended September 23, 2000 ............ Page 6
Notes to Consolidated Financial Statements............................. Page 7
Item 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations........................ Page 10
Item 3
Quantitative and Qualitative Disclosures About Market Risk............. Page 17
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 thirty nine weeks ended September 23,
2000 are not necessarily indicative of the results that may be expected for the
entire fiscal year ending December 30, 2000.
These interim financial statements should be read in conjunction with
the audited financial statements and notes thereto included in the Company's
1999 Annual Report on Form 10-K.
2
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
(Unaudited)
Sept 23, Dec 25,
2000 1999
---------- ------------
ASSETS
Current assets:
Cash $ 28,803 $ 23,721
Short-term investments 1,560 1,000
Trade accounts receivable, less allowance of $3,363
and $4,002 198,705 207,024
Other receivables, including advances to independent
contractors, less allowance of $5,132 and $5,033 12,138 14,318
Prepaid expenses and other current assets 7,244 6,190
---------- -----------
Total current assets 248,450 252,253
---------- -----------
Operating property, less accumulated depreciation
and amortization of $37,625 and $34,283 77,899 63,797
Goodwill, less accumulated amortization of $8,688 and $7,777 32,822 33,733
Deferred income taxes and other assets 13,680 15,658
---------- -----------
Total assets $ 372,851 $ 365,441
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash overdraft $ 25,487 $ 19,471
Accounts payable 60,490 67,322
Current maturities of long-term debt 9,661 6,769
Insurance claims 25,203 27,207
Other current liabilities 38,172 49,895
---------- -----------
Total current liabilities 159,013 170,664
---------- -----------
Long-term debt, excluding current maturities 96,906 60,529
Insurance claims 25,337 27,364
Shareholders' equity:
Common stock, $.01 par value, authorized 20,000,000
shares, issued 13,135,374 and 13,063,974 shares 131 131
Additional paid-in capital 68,097 65,833
Retained earnings 199,466 170,174
Cost of 4,741,841 and 3,909,041 shares of common stock in
treasury (172,727) (127,560)
Notes receivable arising from exercise of stock options (3,372) (1,694)
---------- -----------
Total shareholders' equity 91,595 106,884
---------- -----------
Total liabilities and shareholders' equity $ 372,851 $ 365,441
========== ===========
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)
Thirty Nine Weeks Ended Thirteen Weeks Ended
----------------------- -----------------------
Sept 23, Sept 25, Sept 23, Sept 25,
2000 1999 2000 1999
---------- ---------- ---------- ----------
Revenue $1,037,917 $1,007,959 $ 352,356 $ 351,460
Investment income 3,154 1,751 1,200 633
Costs and expenses:
Purchased transportation 764,698 742,442 259,590 259,165
Commissions to agents 82,440 80,587 28,502 28,439
Other operating costs 22,413 21,627 7,168 7,858
Insurance and claims 25,317 29,030 6,231 7,067
Selling, general and administrative 76,739 73,304 25,035 24,573
Depreciation and amortization 9,534 8,806 3,344 3,375
Non-recurring costs 5,270 2,230
---------- ---------- ---------- ----------
Total costs and expenses 986,411 955,796 332,100 330,477
---------- ---------- ---------- ----------
Operating income 54,660 53,914 21,456 21,616
Interest and debt expense 6,243 2,981 2,420 1,321
---------- ---------- ---------- ----------
Income before income taxes 48,417 50,933 19,036 20,295
Income taxes 19,125 20,629 7,520 8,221
---------- ---------- ---------- ----------
Net income $ 29,292 $ 30,304 $ 11,516 $ 12,074
========== ========== ========== ==========
Earnings per common share $ 3.29 $ 2.99 $ 1.33 $ 1.21
========== ========== ========== ==========
Diluted earnings per share $ 3.21 $ 2.95 $ 1.30 $ 1.20
========== ========== ========== ==========
Average number of shares outstanding:
Earnings per common share 8,909,000 10,149,000 8,677,000 9,954,000
========== ========== ========== ==========
Diluted earnings per share 9,120,000 10,270,000 8,883,000 10,076,000
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
4
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Thirty Nine Weeks Ended
---------------------------
Sept 23, Sept 25,
2000 1999
----------- -----------
OPERATING ACTIVITIES
Net income $ 29,292 $ 30,304
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization of operating property 8,623 7,893
Amortization of goodwill 911 913
Non-cash interest charges 243 243
Provisions for losses on trade and other accounts receivable 2,145 1,122
Losses (gains) on sales of operating property (191) 179
Deferred income taxes, net 1,154 2,003
Changes in operating assets and liabilities:
Decrease (increase) in trade and other accounts receivable 8,354 (14,349)
Increase in prepaid expenses and other assets (473) (11,052)
Increase (decrease) in accounts payable (6,832) 16,470
Increase (decrease) in other liabilities (10,261) 96
Decrease in insurance claims (4,031) (329)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 28,934 33,493
----------- -----------
INVESTING ACTIVITIES
Maturities of short-term investments 1,000
Purchases of short-term investments (1,560)
Purchases of operating property (6,220) (2,369)
Proceeds from sales of operating property 1,396 1,303
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (5,384) (1,066)
----------- -----------
FINANCING ACTIVITIES
Increase in cash overdraft 6,016 1,219
Borrowings on revolving credit facility 27,500
Proceeds from exercise of stock options and related income tax benefit 142 293
Purchases of common stock (46,185) (25,853)
Principal payments on capital lease obligations (5,941) (4,699)
----------- -----------
NET CASH USED BY FINANCING ACTIVITIES (18,468) (29,040)
----------- -----------
Increase in cash 5,082 3,387
Cash at beginning of period 23,721 26,681
----------- -----------
Cash at end of period $ 28,803 $ 30,068
=========== ===========
See accompanying notes to consolidated financial statements.
5
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY
Thirty Nine Weeks Ended September 23, 2000
(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 25, 1999 13,063,974 $ 131 $ 65,833 $ 170,174 3,909,041 $(127,560) $ (1,694) $ 106,884
Net income 29,292 29,292
Purchases of common stock 864,000 (46,185) (46,185)
Exercise of stock options
and related income tax
benefit 71,400 1,820 (1,678) 142
Incentive compensation paid
in common stock 444 (31,200) 1,018 1,462
---------- ------- --------- --------- --------- --------- ------------- ---------
Balance September 23, 2000 13,135,374 $ 131 $ 68,097 $ 199,466 4,741,841 $(172,727) $ (3,372) $ 91,595
========== ======= ========= ========= ========= ========= ============= =========
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" or the "Company."
(1) Non-recurring Costs
Approximately 100 Landstar Ranger, Inc. ("Landstar Ranger") drivers
are represented by the International Brotherhood of Teamsters (the
"Teamsters"). The vast majority of these unionized drivers
participate in the Teamsters' Central States Southeast and Southwest
Areas Pension Fund (the "Fund"). Under a prior collective bargaining
agreement, Landstar Ranger was required to make contributions to various
Teamster pension funds for 205 drivers regardless of the actual number
of unionized drivers. Effective April 1, 2000, a new collective
bargaining agreement required Landstar Ranger to make pension
contributions for only the actual number of unionized drivers.
As a result of the elimination of the requirement to make contributions
for more than the actual number of unionized drivers, the Trustees of the
Fund have terminated participation in the Fund by Landstar Ranger
effective October 1, 2000. The Trustees of the Fund regard this action as
a withdrawal by Landstar Ranger. To date, Landstar Ranger has not
received a formal demand for payment of withdrawal liability from the
Fund, nevertheless management believes that the Fund will issue such a
demand and, as such, recorded a charge in the amount of $2,230,000 for
its estimated withdrawal liability from the Fund. After deducting income
tax benefits of $880,000, this charge reduced net income by $1,350,000,
or $0.15 per share ($0.15 per diluted share) in the 2000 thirty-nine-week
period and $0.16 per share ($0.15 per diluted share) in the 2000
thirteen-week period.
On March 28, 2000, the Company announced a plan to restructure the
operations of Landstar Ligon, Inc. and to relocate its headquarters
from Madisonville, Kentucky to Jacksonville, Florida in June of 2000.
As a result of this restructuring and relocation, a one-time charge in
the amount of $3,040,000 was recorded during the second quarter of 2000
representing approximately $1,370,000 of employee and office relocation
costs, $1,000,000 of severance costs and $670,000 of other costs.
The restructuring and relocation were substantially complete as of
September 23, 2000. After deducting income tax benefits of $1,225,000,
this one-time restructuring charge reduced net income by $1,815,000, or
$0.20 per share ($0.20 per diluted share), in the 2000 thirty-nine-week
period.
7
(2) Income Taxes
The provisions for income taxes for the 2000 and 1999 thirty-nine-week
periods were based on estimated full year combined effective income
tax rates of approximately 39.5% and 40.5%, respectively, 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.
(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 2000 period, Landstar paid income taxes and interest of
$21,332,000 and $6,653,000, respectively and acquired operating property
by entering into capital leases in the amount of $17,710,000. During
the 1999 period, Landstar paid income taxes and interest of $24,126,000
and $3,095,000, respectively, and acquired operating property by entering
into capital leases in the amount of $11,735,000.
8
(5) Segment Information
The following tables summarize information about Landstar's reportable
business segments for the thirty nine and thirteen weeks ended
September 23, 2000 and September 25, 1999 (in thousands):
Thirty Nine Weeks Ended September 23, 2000
------------------------------------------
Carrier Multimodal Insurance Other Total
------- ---------- --------- ----- -----
External revenue $ 816,079 $ 203,541 $ 18,297 $1,037,917
Investment income 3,154 3,154
Internal revenue 26,913 604 16,860 44,377
Operating income 61,519 (1) 6,056 17,263 $(30,178) 54,660 (1)
Thirty Nine Weeks Ended September 25, 1999
------------------------------------------
Carrier Multimodal Insurance Other Total
------- ---------- --------- ----- -----
External revenue $ 811,216 $ 177,578 $ 19,165 $1,007,959
Investment income 1,751 1,751
Internal revenue 25,102 112 20,327 45,541
Operating income 60,862 5,552 15,982 $(28,482) 53,914
Thirteen Weeks Ended September 23, 2000
------------------------------------------
Carrier Multimodal Insurance Other Total
------- ---------- --------- ----- -----
External revenue $ 277,570 $ 68,694 $ 6,092 $ 352,356
Investment income 1,200 1,200
Internal revenue 8,405 363 5,294 14,062
Operating income 22,549 (2) 2,073 7,136 $(10,302) 21,456 (2)
Thirteen Weeks Ended September 25, 1999
------------------------------------------
Carrier Multimodal Insurance Other Total
------- ---------- --------- ----- -----
External revenue $ 281,087 $ 63,934 $ 6,439 $ 351,460
Investment income 633 633
Internal revenue 9,353 33 5,156 14,542
Operating income 21,915 2,057 7,363 $ (9,719) 21,616
(1) Includes pre-tax non-recurring costs of $5,270.
(2) Includes pre-tax non-recurring costs of $2,230.
/TABLE>
9
(6) Commitments and Contingencies
At September 23, 2000, Landstar had commitments for letters of
credit outstanding in the amount of $20,144,000, primarily as
collateral for insurance claims. The commitments for letters of credit
outstanding included $10,080,000 under the Second Amended and Restated
Credit Agreement and $10,064,000 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 25, 1999 and Management's Discussion and Analysis of Financial
Condition and Results of Operations included in the 1999 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 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 Ligon, Inc. ("Landstar Ligon") and Landstar
Gemini, Inc. The carrier segment provides truckload transportation for a wide
range of general commodities over irregular routes with its fleet of dry and
specialty vans and unsided trailers, including flatbed, drop deck and
specialty. It also provides short-to-long haul movement of containers by truck
and dedicated power-only truck capacity. The carrier segment markets its
services primarily through independent commission sales agents and utilizes
tractors provided by independent contractors. The nature of the carrier
segment's business is such that a significant portion of its operating costs
varies directly with revenue.
The 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 and emergency and expedited ground and air freight. The multimodal
segment markets its services through independent commission sales agents and
10
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 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.
Purchased transportation represents the amount an independent contractor
is paid to haul freight and is primarily based on a contractually agreed-
upon percentage of revenue generated by the haul for truck capacity provided by
independent contractors. Purchased transportation for the intermodal services
operations and the air freight operations of the multimodal segment is based on
a contractually agreed-upon fixed rate. Purchased transportation as a
percentage of revenue for the intermodal services operations is normally higher
than that of Landstar's other transportation operations. Purchased
transportation is the largest component of costs and expenses and, on a
consolidated basis, increases or decreases in proportion to the revenue
generated through independent contractors. Commissions to agents
are primarily based on contractually agreed-upon percentages of revenue at the
carrier segment and of gross profit at the multimodal segment. Commissions to
agents as a percentage of consolidated revenue will vary directly
with the percentage of consolidated revenue generated through independent
commission sales agents. Both purchased transportation and commissions to
agents generally will also increase or decrease as a percentage of the
Company's consolidated revenue if there is a change in the percentage of
revenue contributed by Signature or by the intermodal services operations or
the air freight operations of the multimodal segment.
Trailer rent and maintenance costs are the largest components of other
operating costs.
Potential liability associated with accidents in the trucking industry is
severe and occurrences are unpredictable. A material increase in the
frequency or severity of accidents or workers' compensation claims or the
unfavorable development of existing claims can be expected to adversely affect
Landstar's operating income.
Employee compensation and benefits account for over half of the Company's
selling, general and administrative expense. Other significant components of
selling, general and administrative expense are communications costs and rent
expense.
Depreciation and amortization primarily relates to depreciation of trailers
and management information services equipment.
11
The following table sets forth the percentage relationships of
income and expense items to revenue for the periods indicated:
Thirty Nine Weeks Ended Thirteen Weeks Ended
------------------------ ------------------------
Sept. 23, Sept. 25, Sept. 23, Sept. 25,
2000 1999 2000 1999
---------- ---------- ---------- ----------
Revenue 100.0% 100.0% 100.0% 100.0%
Investment income 0.3 0.2 0.3 0.2
Costs and expenses:
Purchased transportation 73.7 73.6 73.7 73.7
Commissions to agents 7.9 8.0 8.1 8.1
Other operating costs 2.2 2.1 2.0 2.2
Insurance and claims 2.4 2.9 1.8 2.0
Selling, general and administrative 7.4 7.3 7.1 7.0
Depreciation and amortization 0.9 0.9 0.9 1.0
Non-recurring costs 0.5 0.6
------- ------ ------- ------
Total costs and expenses 95.0 94.8 94.2 94.0
------- ------ ------- ------
Operating income 5.3 5.4 6.1 6.2
Interest and debt expense 0.6 0.3 0.7 0.4
------- ------ ------- ------
Income before income taxes 4.7 5.1 5.4 5.8
Income taxes 1.9 2.1 2.1 2.4
------- ------ ------- ------
Net income 2.8% 3.0% 3.3% 3.4%
======= ====== ======= ======
THIRTY NINE WEEKS ENDED SEPTEMBER 23, 2000 COMPARED TO THIRTY NINE WEEKS
ENDED SEPTEMBER 25, 1999
Revenue for the 2000 thirty-nine-week period was $1,037,917,000, an increase of
$29,958,000, or 3.0%, over the 1999 thirty-nine-week period. The increase was
attributable to increased revenue of $4,863,000 and $25,963,000
at the carrier and multimodal segments, respectively, partially offset by
decreased revenue at the insurance segment of $868,000. Overall,
revenue per revenue mile (price) increased approximately 4%, which reflected
improved freight quality, while revenue miles (volume) decreased approximately
1%. Investment income at the insurance segment was $3,154,000 and $1,751,000
in the 2000 and 1999 periods, respectively.
Purchased transportation was 73.7% of revenue in 2000 compared with 73.6% in
1999. The increase in purchased transportation as a percentage of revenue was
primarily due to increased revenue contributed by the multimodal segment
which tends to have a higher cost of transportation and decreased premium
revenue at the insurance segment. In addition, purchased transportation costs
at the multimodal segment were generally higher due to increased fuel costs
incurred by its capacity providers. Commissions to agents were 7.9% of revenue
in 2000 compared with 8.0% in 1999. The decrease in commissions to agents as a
12
percentage of revenue was attributable to the increased purchased
transportation costs incurred at the multimodal segment which negatively
impacted gross profit and resulted in lower agent commissions. Other
operating costs were 2.2% of revenue in 2000 compared with 2.1% in 1999. The
increase in other operating costs as a percentage of revenue was primarily due
to higher net trailer costs. Insurance and claims were 2.4% of revenue in 2000
compared with 2.9% in 1999. The decrease in insurance and claims as a
percentage of revenue was primarily attributable to increased revenue at the
multimodal segment which has a lower claims risk profile, lower frequency and
severity and favorable development of prior year claims in 2000. Selling,
general and administrative costs were 7.4% of revenue in 2000 compared with
7.3% of revenue in 1999. The increase in selling, general and administrative
costs as a percentage of revenue was primarily due to an increased provision
for customer bad debts, increased management information services costs and
increased wages and benefits, partially offset by a lower provision for bonuses
under the management incentive compensation plan. Depreciation and
amortization was 0.9% of revenue in 2000 and 1999.
Approximately 100 Landstar Ranger, Inc. ("Landstar Ranger") drivers
are represented by the International Brotherhood of Teamsters (the
"Teamsters"). The vast majority of these unionized drivers
participate in the Teamsters' Central States Southeast and Southwest
Areas Pension Fund (the "Fund"). Under a prior collective bargaining
agreement, Landstar Ranger was required to make contributions to various
Teamster pension funds for 205 drivers regardless of the actual number
of unionized drivers. Effective April 1, 2000, a new collective
bargaining agreement required Landstar Ranger to make pension
contributions for only the actual number of unionized drivers.
As a result of the elimination of the requirement to make contributions
for more than the actual number of unionized drivers, the Trustees of the
Fund have terminated participation in the Fund by Landstar Ranger effective
October 1, 2000. The Trustees of the Fund regard this action as a withdrawal
by Landstar Ranger. To date, Landstar Ranger has not received a formal demand
for payment of withdrawal liability from the Fund, nevertheless management
believes that the Fund will issue such a demand and, as such, recorded a
charge in the amount of $2,230,000 for its estimated withdrawal liability from
the Fund. Management estimates the elimination of the requirement to make
contributions for more than the actual number of union drivers will result
in annual savings of approximately $800,000.
13
On March 28, 2000, the Company announced a plan to restructure the operations
of Landstar Ligon and to relocate its headquarters from Madisonville,
Kentucky to Jacksonville, Florida in June of 2000. As a result of the
restructuring and relocation, a one-time charge in the amount of $3,040,000 was
recorded during the second quarter of 2000 representing approximately
$1,370,000 of employee and office relocation costs, $1,000,000 of severance
costs and $670,000 of other costs. This restructuring and relocation were
substantially complete as of September 23, 2000. Management anticipates future
savings of selling, general and administrative costs as a result of this
restructuring to approximate $1,000,000 per annum.
Interest and debt expense was 0.6% and 0.3% of revenue in 2000 and 1999,
respectively. This increase was primarily attributable to the effect of higher
average borrowings on the senior credit facility, which were used to finance a
portion of the Company's stock repurchase program, increased capital lease
obligations for trailing equipment and higher interest rates.
The provisions for income taxes for the 2000 and 1999 thirty-nine-week periods
were based on estimated full year combined effective income tax rates of
approximately 39.5% and 40.5%, respectively, 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 $29,292,000, or $3.29 per common share ($3.21 per diluted
share), in the 2000 period compared with $30,304,000, or $2.99 per common share
($2.95 per diluted share), in the 1999 period. After deducting income tax
benefits of $2,105,000, the non-recurring costs reduced net income by
$3,165,000 in the 2000 period. Excluding non-recurring costs, net income would
have been $32,457,000, or $3.64 per common share ($3.56 diluted earnings per
share) in the 2000 period.
14
THIRTEEN WEEKS ENDED SEPTEMBER 23, 2000 COMPARED TO THIRTEEN WEEKS
ENDED SEPTEMBER 25, 1999
Revenue for the 2000 thirteen-week period was $352,356,000, an increase of
$896,000, or 0.3%, over the 1999 thirteen-week period. The increase was
attributable to increased revenue of $4,760,000 at the multimodal segment,
partially offset by decreased revenue at the carrier and insurance segments
of $3,517,000 and $347,000, respectively. Overall, revenue per revenue mile
increased approximately 3%, which reflected improved freight quality, while
revenue miles were approximately 3% lower than 1999. Investment income at
the insurance segment was $1,200,000 and $633,000 in the 2000 and 1999
periods, respectively.
Purchased transportation was 73.7% of revenue in 2000 and 1999. Commissions
to agents were 8.1% of revenue in 2000 and 1999.Other operating costs were 2.0%
of revenue in 2000 compared with 2.2% in 1999. The decrease in other operating
costs as a percentage of revenue was primarily due to a decreased provision for
contractor bad debt, partially offset by higher net trailer costs. Insurance
and claims were 1.8% of revenue in 2000 compared with 2.0% in 1999. The
decrease in insurance and claims as a percentage of revenue was primarily
attributable to increased revenue at the multimodal segment which has a lower
claims risk profile, lower frequency and severity of accidents and favorable
development of prior year claims in 2000. Selling, general and administrative
costs were 7.1% of revenue in 2000 compared with 7.0% of revenue in 1999. This
increase was primarily due to an increased provision for customer bad debts and
increased wages and benefits, partially offset by a decreased provision for
bonuses under the management incentive compensation plan. Depreciation and
amortization was 0.9% of revenue in 2000 compared with 1.0% in 1999. The
decrease in depreciation and amortization as a percentage of revenue was
primarily attributable to the relocation of Landstar Ligon, Inc. from their
owned facility in Madisonville, Kentucky to Jacksonville, Florida in the
second quarter of 2000.
Interest and debt expense was 0.7% and 0.4% of revenue in 2000 and 1999,
respectively. This increase was primarily attributable to the effect of higher
average borrowings on the senior credit facility, which were used to finance
the Company's stock repurchase program, increased capital lease obligations
for trailing equipment and higher interest rates.
The provisions for income taxes for the 2000 and 1999 thirteen-week periods
were based on estimated full year combined effective income tax rates of
approximately 39.5% and 40.5%, respectively, 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 $11,516,000, or $1.33 per common share ($1.30 per diluted
share), in the 2000 period compared with $12,074,000, or $1.21 per common
share ($1.20 per diluted share), in the 1999 period. Excluding the
non-recurring costs related to the estimated withdrawal liability, net
income would have been $12,866,000, or $1.48 per common share ($1.45 diluted
earnings per share) in the 2000 period.
15
CAPITAL RESOURCES AND LIQUIDITY
Shareholders' equity decreased to $91,595,000 at September 23, 2000 compared
with $106,884,000 at December 25, 1999, as a result of the repurchase
of 864,000 shares of the Company's common stock at an aggregate cost of
$46,185,000, partially offset by net income for the period. The Company has
completed its previously authorized share repurchase program. Shareholders'
equity was 46% and 61% of total capitalization at September 23, 2000 and
December 25, 1999, respectively.
Working capital and the ratio of current assets to current liabilities were
$89,437,000 and 1.56 to 1, respectively, at September 23, 2000, compared with
$81,589,000 and 1.48 to 1, respectively, at December 25, 1999. Landstar has
historically operated with current ratios approximating 1.5 to 1. Cash
provided by operating activities was $28,934,000 in the 2000 period compared
with $33,493,000 in the 1999 period. The decrease in cash flow provided by
operating activities was primarily attributable to timing of payments partially
offset by the timing of the collection of accounts receivable.
During the 2000 period, Landstar purchased $6,220,000 of operating property
and acquired $17,710,000 of revenue equipment by entering into capital leases.
Management anticipates acquiring approximately $2,000,000 of operating property
during the remainder of fiscal year 2000 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.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Investments and Hedging Activities." This Statement,
effective for fiscal years beginning after June 15, 2000, establishes standards
for reporting and display of derivative investments and for hedging activities.
Management believes that upon adoption of this Statement, Landstar's financial
statements will not be affected, considering the nature of the transactions the
Company routinely enters into.
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.
16
FORWARD-LOOKING STATEMENTS
The Company has included various statements in Management's Discussion and
Analysis of Financial Condition and Results of Operations, such as statements
that related to Landstar's business objectives, plans, strategies and
expectations. The words "believe," "anticipate," "should" and similar
expressions identify forward-looking statements. While made in good faith and
with a reasonable basis based on information currently available to Landstar's
management, there is no assurance that such opinions, beliefs or expectations
will be achieved or accomplished. Various factors could cause actual results
and events to vary significantly from those expressed in any forward-looking
statement. Such types of statements are intended to be forward-looking
statements for purposes of the Private Securities Litigation Reform Act of
1995. The Company is under no obligation to update any forward-looking
statement to the extent it becomes aware that it will not be achieved for
any reason.
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 1999 Annual Report on
Form 10-K regarding quantitative and qualitative disclosures about market risk.
17
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
On August 5, 1997, suit was filed entitled Rene Alberto Rivas vs. Landstar
System, Inc., Landstar Gemini, Inc., Landstar Ranger, Inc., Risk Management
Claim Services, Inc., Insurance Management Corporation, and Does 1 through 500,
inclusive, in federal district court in Los Angeles. The suit claimed Rivas
represents a class of all drivers who, according to the suit, should be
classified as employees and were therefore allegedly aggrieved by the practice
of Landstar Gemini, Inc. requiring such drivers, as independent contractors, to
provide either a worker's compensation certificate or to participate in an
occupational accident insurance program. Rivas also claimed violations of
federal leasing regulations for allegedly improperly disclosing the program.
Rivas also claimed violations of Racketeer Influence and Corrupt Organizations
("RICO") Act and the California Business and Professions Act. He sought on
behalf of himself and the class damages of $15 million trebled by virtue of
trebling provisions in the RICO Act plus punitive damages. On March 24, 1998,
the court granted defendant's motion to dismiss the RICO claim. This matter
was settled in the third quarter for a non-material amount and plaintiff has
agreed to dismiss all claims with prejudice.
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.
18
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.
19
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 Thirty Nine and Thirteen Weeks Ended
September 23, 2000 and September 25, 1999
11.2 * Landstar System, Inc. and Subsidiary Calculation of Diluted
Earnings Per Share for the Thirty Nine and Thirteen Weeks
Ended September 23, 2000 and September 25, 1999
(27) Financial Data Schedules:
27.1 * 2000 Financial Data Schedule
__________________
* Filed herewith
20
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: November 6, 2000 Henry H. Gerkens
----------------------------
Henry H. Gerkens
Executive Vice President and
Chief Financial Officer;
Principal Financial Officer
Date: November 6, 2000 Robert C. LaRose
----------------------------
Robert C. LaRose
Vice President Finance and Treasurer;
Principal Accounting Officer
21
EXHIBIT 11.1
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CALCULATION OF EARNINGS PER COMMON SHARE
(In thousands, except per share amounts)
(Unaudited)
Thirty Nine Thirteen
Weeks Ended Weeks Ended
--------------------------- ---------------------------
Sept 23, Sept 25, Sept 23, Sept 25,
2000 1999 2000 1999
------------ ------------- ------------- -----------
Earnings available for earnings per share:
Net income $ 29,292 $ 30,304 $ 11,516 $ 12,074
============ ============ ============ ============
Average number of common shares outstanding 8,909 10,149 8,677 9,954
============ ============ ============ ============
Earnings per common share $ 3.29 $ 2.99 $ 1.33 $ 1.21
============ ============ ============ ============
22
EXHIBIT 11.2
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CALCULATION OF DILUTED EARNINGS PER SHARE
(In thousands, except per share amounts)
(Unaudited)
Thirty Nine Thirteen
Weeks Ended Weeks Ended
--------------------------- ---------------------------
Sept 23, Sept 25, Sept 23, Sept 25,
2000 1999 2000 1999
------------ ------------ ------------- -----------
Net income $ 29,292 $ 30,304 $ 11,516 $ 12,074
============ ============ ============ ============
Average number of common shares
outstanding 8,909 10,149 8,677 9,954
Plus: Incremental shares from
assumed exercise of stock
options 211 121 206 122
------------ ------------ ------------ ------------
Average number of common shares
and common share equivalents
outstanding 9,120 10,270 8,883 10,076
============ ============ ============ ============
Diluted earnings per share $ 3.21 $ 2.95 $ 1.30 $ 1.20
============ ============ ============ ============
23
5
1,000
OTHER
DEC-30-2000
DEC-26-1999
SEP-23-2000
28,803
1,560
202,068
3,363
0
248,450
115,524
37,625
372,851
159,013
96,906
0
0
131
91,464
372,851
0
1,037,917
0
787,111
25,317
2,145
6,243
48,417
19,125
29,292
0
0
0
29,292
3.29
3.21
