UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 28, 199627, 1997
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
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Commission File Number: 0-21238
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LANDSTAR SYSTEM, INC.
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(Exact name of registrant as specified in its charter)
Delaware 06-1313069
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
First Shelton Place, 1000 Bridgeport Avenue, Shelton, Connecticut 06484-08984160 Woodcock Drive, Jacksonville, Florida 32207
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(Address of principal executive offices) (Zip Code)
(203) 925-2900(904) 390-1234
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value Common Stock Rights
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(Title of class) (Title of class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
1
Documents Incorporated by Reference
Portions of the following documents are incorporated by reference in this
Form 10-K as indicated herein:
Part of 10-K into
Document which incorporated
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1997 Annual Report to Shareholders Part II
Proxy Statement relating to Part III
Landstar System, Inc.'s Annual
Meeting of Shareholders
The number of shares of the registrant's common stock, par value $.01 per
share, (the "Common Stock") outstanding as of the close of business on
March 7, 199720, 1998 was 12,615,833;11,433,533; and the aggregate market value of the voting
stock held by non-
affiliatesnon-affiliates of the registrant was $279,050,409$349,260,947 (based on the
$22.875$31.375 per share closing price on that date, as reported by NASDAQ National
Market System). In making this calculation, the registrant has assumed,
without admitting for any purpose, that all directors and executive officers
of the registrant, and no other person, are affiliates.
2
LANDSTAR SYSTEM, INC.
19961997 Annual Report on Form 10-K
Table of Contents
Part I
Page
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Item 1. Business 4
Item 2. Properties 1914
Item 3. Legal Proceedings 2014
Item 4. Submission of Matters to a Vote of Security Holders 2014
Part II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 2015
Item 6. Selected Financial Data 2115
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 2115
Item 8. Financial Statements and Supplementary Data 2116
Item 9. Changes in and Disagreements Withwith Accountants
on Accounting and Financial Disclosure 2216
Part III
Item 10. Directors and Executive Officers of the Registrant 16
Item 11. Executive Compensation 2216
Item 12. Security Ownership of Certain Beneficial Owners
and Management 2216
Item 13. Certain Relationships and Related Transactions 2216
Part IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 2317
Signatures 2418
Index to Exhibits 2620
3
Part I
Item 1. - Business
General
Landstar System, Inc. (herein referred to as "Landstar,""Landstar" or the "Company" or the "Registrant")
was incorporated in January 1991 under the laws of the State of
Delaware and acquired all of the capital stock of its predecessor, Landstar
System Holdings, Inc. ("LSHI") on March 28, 1991. LSHI owns directly or
indirectly all of the common stock of Landstar Ranger, Inc. ("Landstar
Ranger"), Landstar Inway, Inc. ("Landstar Inway"), Landstar Ligon, Inc.
("Landstar Ligon"), Landstar T.L.C., Inc. (Landstar T.L.C.), Landstar Gemini,
Inc. ("Landstar Gemini"), Landstar Poole, Inc. ("Landstar Poole"), Landstar
Logistics, Inc. ("Landstar Logistics"), Landstar Express America, Inc.
("Landstar Express America"), Landstar T.L.C., Inc. ("Landstar T.L.C."), Landstar Contractor Financing, Inc. ("LCFI"),
Landstar Capacity Services, Inc.("LCS"), Risk Management Claim Services, Inc.
("RMCS") and, Landstar Corporate Services, Inc. ("LCSI") and Signature Insurance
Company ("Signature"). Landstar Ranger, Landstar Inway, Landstar Ligon,
Landstar Gemini, Landstar Poole, Landstar Logistics and Landstar Express
America and
Landstar T.L.C. are collectively herein referred to as Landstar's "Operating
Subsidiaries" or "Operating Companies". The Company's principal executive
offices are located at First
Shelton Place, 1000 Bridgeport Avenue, Shelton, Connecticut
064844160 Woodcock Drive, Jacksonville, Florida 32207 and
its telephone number is (203) 925-2900.(904) 390-1234.
Historical Background
In March 1988, EnviroSource, Inc. ("EnviroSource") acquired IU
International Corporation ("IU"), the former parent of
Landstar Ranger, Landstar Inway, Landstar Ligon, Landstar
Gemini, Landstar Poole and RMCS in a highly leveraged
transaction. IU was a large conglomerate engaged in various
unrelated businesses, including metals recovery, agriculture,
food distribution and transportation. EnviroSource sought to
reduce its acquisition debt by selling non-strategic assets
and operations. In connection with these sales, EnviroSource
sought to exit the transportation market and sold or closed
certain unprofitable operations. EnviroSource formed LSHI in
October 1988 to acquire the assets of certain of IU's
truckload operating companies and caused LSHI to incur
substantial debt to pay a special dividend to EnviroSource of
approximately $72.3 million, and to repay approximately $21.5
million of debt owed to EnviroSource.
In March 1991, Landstar acquired LSHI in a buy-out organized by Kelso &
Company, Inc. ("Kelso"). Investors in the acquisition included Kelso
Investment Associates IV L.P. ("KIA IV"), an affiliate of Kelso, ABS MB
Limited Partnership ("ABSMB"), an affiliate of BT Alex. Brown, Inc. ("BT Alex.
Brown") (formerly known as Alex. Brown & Sons Incorporated,Incorporated), and certain
management employees of Landstar and its subsidiaries (the "Management
Stockholders"). Landstar was capitalized by the sale of an aggregate of
8,024,000 shares of Common Stock for $20.1 million, as follows: KIA IV
($15.5 million), ABSMB ($3.0 million), Management Stockholders ($Stockholders($1.3
4
million)
and certain institutional stockholders ($.3 million). In March 1993, Landstar
completed a recapitalization (the "Recapitalization") that increased
shareholders' equity, reduced indebtedness and improved the Company's
operating and financial flexibility. The Recapitalization involved three
principal components: (i) the initial public offering (the "IPO") of 5,387,000
shares of Common Stock, at an initial price to the public of $13 per share,
2,500,000 of which were sold by Landstar and 2,887,000 of which were sold by
certain of the Company's stockholders (including KIA IV), (ii) the retirement
of all $38 million outstanding principal amount of LSHI's 14% Senior
Subordinated Notes due 1998 (the "14% Notes"), and (iii) the refinancing of
the Company's then existing senior debt facility with a senior bank credit
agreement. The net proceeds to the Company from the IPO (net of underwriting
discounts and commissions and expenses) of $28,450,000 and proceeds from the
new term loan, were used to repay outstanding borrowings under the old credit
agreement and redeem or purchase the 14% Notes. In October 1993, a secondary
public offering by existing stockholders of 5,547,930 shares of Common Stock
at an initial price to the public of $15 per share was completed. KIA IV sold
4,492,640 shares and ABSMB sold 1,055,290 shares. Immediately subsequent to
the offering, KIA IV no longer owned any Landstar shares of Common Stock, and
affiliates of BT Alex. Brown retained approximately 1% of the Common Stock
outstanding.
4
In connection with the secondary offering, Landstar granted the underwriters
an over-allotment option of up to 554,793 shares of Common Stock. The option
was exercised and Landstar sold the 554,793 shares of Common Stock at an
initial price to the public of $15 per share. Landstar received proceeds, net
of underwriting discounts and commissions and expenses of the secondary
offering, in the amount of $7,386,000.
During the first quarter of 1995, Landstar, through different subsidiaries of
LSHI acquired the businesses and net assets of Intermodal Transport Company
("ITCO"), a California-based intermodal marketing company, LDS Truck Lines,
Inc., a California-based drayage company, and T.L.C. Lines, Inc., a Missouri-basedMissouri-
based temperature-controlled and long-haul, time sensitive dry van carrier.
Also in the 1995 first quarter, Landstar, through another subsidiary of LSHI,
acquired all of the outstanding common stock of Express America Freight
Systems, Inc., ("Express"), a North Carolina-based air freight and truck
expedited service provider. The businessbusinesses acquired from ITCO comprisesand Express
comprise the majority of Landstar Logistics'
intermodal operations, while the business acquired with
Express comprises the majority of Landstar Express America'smultimodal segment's operations.
On December 18, 1996, the Company announced a plan to restructure its Landstar
T.L.C. and Landstar Poole operations, in addition to the relocation of its
Shelton, Connecticut corporate office headquarters to Jacksonville, Florida in
the second quarter of 1997. The plan to restructure Landstar T.L.C. included
the merger of the operations of Landstar T.L.C. into Landstar
5
Inway, the
closing of the Landstar T.L.C. headquarters in St. Clair, Missouri and the
disposal of all of Landstar T.L.C.'s company-owned tractors. The plan to
restructure Landstar Poole included the transfer of the variable cost business
component of Landstar Poole to Landstar Ranger and the disposal of 175 Landstar
Poole company-owned tractors. During 1997 and 1996, the Company incurred
approximately $3,164,000 and $7,263,000 of such restructuring costs,
respectively. In addition, in January 1997, the operations of Landstar Gemini
were merged into the operations of Landstar Logistics. The Company's
restructuring plan was substantially completed by June 28, 1997.
In March 1997, Landstar formed Signature, a wholly-owned offshore insurance
subsidiary. Signature reinsures certain property, casualty and occupational
accident risks of certain independent contractors who have contracted to haul
freight for Landstar. In addition, Signature provides certain property and
casualty insurance directly to Landstar's Operating Subsidiaries.
Description of Business
Landstar, a transportation services company, operates one of the largest
truckload carrier businesses in North America, with revenue of $1,283.8$1,312.7
million in 1996.1997. The Company seeks to provide transportation services which
emphasize information coordination and customer service delivered primarily by
a network of approximately 1,2001,150 independent commission sales agents. The vast
majority of the Company's truckload capacity is provided by independent
contractors.
Landstar utilizes a wide range of specialized equipment designed to meet
customers' varied transportation requirements, which distinguishes the Company
from many other large truckload carriers. The Company transports a variety of
freight, including iron and steel, automotive products, paper, lumber and
building products, aluminum, chemicals, foodstuffs, heavy machinery, ammunition
and explosives, and military hardware. The Company provides truckload carrier
services, intermodal transportation services and expedited air and truck
5
services to shippers throughout the continental United States and, to a lesser
extent, between the United States and each of Canada and Mexico.
FourUnder 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 has determined it has four
reportable business segments. These are the carrier segment, multimodal
segment, company-owned tractor segment and insurance segment. The following
table provides financial information relating to the Company's reportable
business segments as of and for the fiscal years ending 1997, 1996 and 1995
(dollars in thousands):
Fiscal Year Ended
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1997 1996 1995
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Revenue from unaffiliated customers:
Carrier segment $ 945,330 $ 905,472 $ 852,235
Multimodal segment 255,041 224,384 202,413
Company-owned tractor segment 93,393 153,945 150,019
Insurance segment 18,940
Inter-segment revenue:
Carrier segment $ 39,453 $ 37,479 $ 30,874
Multimodal segment 968 1,160 563
Company-owned tractor segment 6,785 6,956 9,238
Insurance segment 15,452
Operating income:
Carrier segment $ 62,280 $ 57,031 $ 70,307
Multimodal segment 5,355 4,584 1,497
Company-owned tractor segment 849 1,543 4,581
Insurance segment 8,933
Other (30,247) (23,261) (26,377)
Identifiable assets:
Carrier segment $ 192,143 $ 212,034 $ 189,414
Multimodal segment 64,055 56,547 49,987
Company-owned tractor segment 68,791 85,526 97,098
Insurance segment 21,538
Other 10,652 16,694 16,580
The carrier segment is comprised of three of Landstar's Operating Subsidiaries,operating subsidiaries,
Landstar Ranger, Landstar Inway Landstar Ligon and Landstar Gemini (collectively the "Owner-Operator Companies") provideLigon. 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 a network of independent commission sales agents and utilizes
tractors provided by independent contractors. Management believesThe nature of the Owner-Operator Companies
utilize morecarrier segment
business is such that a significant portion of its operating costs vary
directly with revenue. At December 27, 1997, the carrier segment operated a
6
fleet of approximately 7,500 tractors, provided by approximately 5,800
independent contractors, than any other U.S.
truckload carrier.and approximately 12,000 trailers, 5,800 of which are
supplied by independent contractors. Approximately 70% of the trailers
available to the carrier segment are provided by independent contractors or are
leased by the Company at rental rates that vary with the revenue generated
through the trailer. The carrier segment's trailer fleet is comprised of
approximately 7,200 dry vans, 3,000 flatbeds, 1,300 specialty and 400
refrigerated vans. The carrier segment has a network of approximately 860
independent commission sales agents. An agent in the carrier segment is
typically paid 7% of the revenue generated through that agent, with volume-
based incentive commissions that can increase the percentage to 10% of revenue.
The use of independent contractors enables the Companycarrier segment to utilize a
large fleet of revenue equipment while minimizing its capital investment and fixed
costs, thereby enhancing the Company'scarrier segment's return on investment.
Landstar Poole and Landstar T.L.C. use company-owned or leased
equipment and company-employed drivers for a substantial
portion of their operations. In 1992, Landstar Poole began toIndependent contractors who provide truckload transportation services through independent
contractors and independent commission sales agents.capacity to the carrier segment
are compensated on the basis of a fixed percentage of the revenue generated
from the shipments they haul. In 1996,1997, revenue generated through independent
contractors was approximately 44%99% of Landstar Poole's total revenue and
approximately 65% of Landstar T.L.C.'s totalcarrier segment revenue.
During
the fourth quarter of 1996, the Company announced its plan to
restructure the operations of both Landstar Poole and Landstar
T.L.C. The Landstar Poole restructuring plan included the
transfer of the variable cost business component of Landstar
Poole to Landstar Ranger 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 and the disposal
of all the company-owned tractors.
Landstar Logistics provides customers with contract logistics
and intermodal services. Contract logistics services include
6
single source alternatives, truck brokerage and other
transportation solutions for large customers. Intermodal
transportation services primarily involves arranging for the
movement of customers' goods by a combination of rail and
truck. Both the railroad and drayage carriers utilized by
Landstar Logistics are independent contractors. Landstar
Logistics enables Landstar to market the full range of
services offered by the entire Landstar system to customers
with significant transportation needs, in addition to marketing
separate logistics services.
Historically, Landstar T.L.C. and the intermodal operationsmultimodal segment is comprised of Landstar Logistics have principally utilizedand Landstar Express
America. 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. An agent
in the multimodal segment is compensated based on a companypercentage of the gross
profit on revenue generated through that agent. Independent contractors who
provide truck capacity to the multimodal segment are compensated based on a
percentage of the revenue generated from the shipments they haul. Railroads and
air cargo carriers are paid a contractually agreed fixed fee. The nature
of the multimodal segment business is such that a significant portion of its
operating costs vary directly with revenue. At December 27, 1997, the
multimodal segment operated a fleet of 600 trucks, provided by approximately
530 independent contractors. The truck capacity provided by the independent
contractors to the multimodal segment is primarily power only, in which the
freight is hauled by an independent contractor in a customer trailer or
container, or cargo van and straight truck for emergency and expedited freight
services. The multimodal segment has a network of approximately 230 independent
commission sales agents. In 1997, revenue generated through independent
contractors, including railroads and air cargo carriers, was 100% of multimodal
segment revenue.
The company-owned tractor segment is comprised of Landstar Poole. The company-
owned tractor segment provides truckload transportation services over short and
medium length regional traffic lanes. The company-owned tractor segment
primarily markets its services through an employee sales structureforce and primarily
utilizes company-owned and employee-driven tractors and to a lesser degree,extent
7
independent commission sales agents. During 1996, management completedcontractors who are compensated on a cents-per-mile driven basis.
At December 27, 1997, the processcompany-owned tractor segment operated a fleet of
convertingapproximately 870 tractors, including 190 tractors provided by 171 independent
contractors, and approximately 1,400 trailers. The trailer fleet of the
majoritycompany-owned tractor segment is comprised of company-owned sales
locations at Landstar Logisticsapproximately 1,200 dry vans and
Landstar T.L.C. to
independent commission sales agent locations.
Landstar Express America provides air and surface expedited
transportation services220 flatbeds. In 1997, revenue generated through independent contractors including air cargo carriers,was
18% of company-owned tractor segment revenue.
The insurance segment is Signature, a wholly-owned offshore insurance
subsidiary that was formed in March 1997. The insurance segment reinsures
certain property, casualty and principally utilizesoccupational accident risks of certain
independent commission sales agents.contractors who have contracted to haul freight for Landstar. In
addition, the insurance segment provides certain property and casualty
insurance directly to the Company's transportation group.
Landstar's business strategy is to offer high quality, specialized
transportation services primarily in the truckload
marketthrough its transportation group to service-sensitive
customers. Landstar focuses on providing transportation services which
emphasize information coordination among its independent commission sales
agents, customers and Operating Subsidiaries,capacity providers, as well as customer service, rather
than the volume-drivenvolume driven approach of the generic dry van carriers. Landstar intends
to continue developing appropriate systems and technologies to offer
integrated transportation and logistic solutions in order to meet its
customers' total transportation needs.
Since the Company is larger than most of its competitors,
Landstar has competitive marketing and operating advantages.
The Company has theCompany's overall size, geographic coverage, equipment and service
capability offer the Company significant competitive marketing and operating
advantages. These advantages allow the Company to meet the needs of even the
largest shippers and thereby qualifiesqualify it as a "core carrier." Increasingly, the
larger shippers are substantially reducing the number of authorized carriers
in favor of a small number of core carriers whose size and diverse service
capability enable these core carriers to satisfy most of the shippers'
transportation needs. Examples of national account customers include the U.S.
Department of Defense and shippers in particular industries, such as the three
major U.S. automobile manufacturers.
Landstar's network of approximately 1,200 independent
commission sales agents allowsManagement believes the Company to provide both
large and small shippers a level of local service and quality
typically offered only by small, entrepreneurial carriers.
The Company has a number of significant competitive
advantages, including:
7
DIVERSITY OF SERVICES OFFERED. The Company offers its customers a wide range
of transportation services, primarily truckload, through its Operating Subsidiaries,transportation
group, including a fleet of diverse trailing equipment and extensive geographic
coverage. Examples of the specialized services offered include a large fleet
of flatbed trailers, multi-axle trailers capable of hauling extremely heavy or
oversized loads, drivers certified to handle ammunition and explosive shipments
for the U.S. Department of Defense, emergency and expedited surface and air
cargo services and intermodal capability with railroads and steamship lines,
including short-to-medium haul movement of ocean-going containers between U.S.
ports and inland cities.
The Company's fleet (including revenue
equipment leased from independent contractors) consists of
9,883 power units and 14,692 trailers, including dry vans of
various capacities, a variety of flatbeds (including drop
decks and light specialty trailers), specialty and
temperature-controlled vans and containers.8
The following table illustrates the diversity of this equipment as of
December 28, 1996:27, 1997:
Power Units 9,883
=====
Trailers:
Vans 9,0888,360
Specialty Vans 128116
Temperature-Controlled 599420
Flatbeds 3,0022,721
Drop Deck/Low Boys 1,149499
Light Specialty 10979
Other Specialized Flatbeds 6171,236
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Total 14,69213,431
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MARKETING NETWORK. The Company'sLandstar's network of approximately 1,2001,150
independent commission sales agents results in regular contact with shippers at
the local level and the capability to be highly responsive to shippers'
changing needs. The agent network enables Landstar to be responsive both in
providing specialized equipment to both large and small shippers and in
providing capacity on short notice from the Company's large fleet to high
volume shippers. Through its agent network, the Company believes it offers
smaller shippers a level of service comparable to that typically reserved by
other truckload carriers only for their largest customers. Examples of services
that Landstar is able to make available through the 8
agent network to smaller
shippers include the ability to haul shipments on short notice (often within
hours from notification to time of pick-up), multiple pick-up and delivery
points, electronic data interchange capability and access to specialized
equipment. In addition, a number of the Company's agents specialize in certain
types of freight and transportation services (such as oversized or heavy
loads). An agent in the carrier segment is typically paid 7%a percentage of the
revenue generated through that agent, with volume-based incentive commissionsincentives. An agent in
the multimodal segment is typically paid a contractually agreed upon percentage
of the gross profit on revenue generated through that can
increase the percentage to 10% of revenue.agent. During 1996,1997, more
than 350360 agents generated revenue for Landstar of at least $1 million each, or
approximately $924$981.7 million of Landstar's total revenue. The majority of the
agents who generate revenue of $1 million or more have chosen to represent
Landstar exclusively. Many of the agents represent one or
more of the Operating Companies. The ten largest agencies in
1996 generated average revenue of approximately $10.9 million. The typical Landstar agent maintains a relationship with
a number of shippers and services these shippers by providing a base of
operations for independent contractors, both single-
unitsingle-unit owner-operator and
multi-unit contractors. Contracts with agents are typically terminable upon 30
days' notice. Historically, Landstar has experienced very limited agent
turnover especially among its larger volume agents. The
Operating Companies emphasizeEach operating subsidiary emphasizes
programs to support the agents' operations and to establish pricing
parameters,
The Operating Companies contract9
parameters. Each operating subsidiary contracts directly with customers and
generally assumeassumes the credit risk and liability for freight losses or damages.
Landstar Ranger, Landstar
Inway, Landstar Gemini, Landstar T.L.C.The carrier segment and Landstar
Express Americamultimodal segment generally dispatch their fleets
through their local agents, while Landstar Ligon and Landstar
Poolethe company-owned tractor segment generally
operateoperates through a central dispatch system. The operating subsidiaries who utilize independent
commission sales agentscarrier segment and multimodal
segment hold regular regional agent meetings for their independent commission
sales agents and Landstar holds an annual Company-widecompany-wide agent convention.
TECHNOLOGY. The CompanyManagement believes leadership in the development and application
of technology is an ongoing part of providing high quality service at
competitive prices. Landstar manages its carrier and multimodal segments'
technology programprograms centrally through a Vice President of ManagementChief Information Systems ("MIS") who
directs eachOfficer. The
technology programs of the Operating Companies' MIS departments.
The following technologies have been adoptedcompany-owned equipment segment are controlled by
Landstar in
recent years:
CUSTOMER COMMUNICATION. The Company has capability in
Electronic Document and Data Interchange ("EDI"). These
capabilities provide operating advantages to Landstar and
enhanced customer service, including real time information
flow, reduction or eliminationmanagement of paperwork, error-free
transcription and reductions in clerical personnel. EDI
allows the Company to exchange data with its customers
regarding their shipments in a variety of formats, which
significantly enhances quality control and customer service.
9
AGENT COMMUNICATION. The Company has developed a proprietary
personal computer-based software system called Landstar
Electronic Administrative Dispatch System ("LEADS") to
communicate electronically with its agents. LEADS
interconnects agents' personal computers with the information
systems of the Operating Subsidiaries. As of December 28,
1996, approximately 446 of the independent agents had
installed LEADS. The Company encourages all of its agents to
join the LEADS program. LEADS provides an agent with a
variety of functions for sending information to and receiving
information from the Operating Subsidiary. LEADS is used by
an agent to dispatch trucks, to authorize cash advances to
drivers in route (i.e., to purchase fuel or supplies) and to
transmit and receive freight invoices. The Company is in the
process of converting its current LEADS system to a Windows
environment. The Company is also in the process of the
development of an internet/intranet technology in order to
more effectively match available loads with available
equipment.
DRIVER COMMUNICATION. Management believes that onboard
communications capability will be increasingly important, and
intends to increase this capability throughout the Landstar
system. Landstar has established and will continue to develop
its Driver Communications Network, which consists of a variety
of communications methods monitored and controlled at each
Operating Subsidiary. Methods currently in use are pagers,
cellular telephones, daily driver check-ins via telephone
calls to a Company "800" number and satellite transceivers.
The most common communications device, utilized by over 7,300
employee drivers and independent contractors, is the pager.
Using the Company's directory of drivers, an agent is able to
communicate with a specific driver to ascertain shipment
status, pickup and delivery information, load availability and
other relevant information. Management believes that pagers
provide the communications capabilities required by most
shippers, but at a substantially lower cost than the satellite
communications now employed by a number of the Company's
competitors. Satellite communications that provide instant
location information and communication with the driver are
used by the Company for highly critical movements such as
Department of Defense ammunitions and explosives and "just-in-
time" automotive shipments.
Landstar has also developed and continues to try to improve a
number of additional technologies, including: an optical
character recognition system (which scans documents such as
bills of lading, driver logs and fuel receipts on to optical
disks), designed to speed information retrieval and enhance
availability and flexible utilization of data; bar coding of
load documentation; image and workflow technology to speed
paperwork processes; the use of portable computers to provide
instant price quotes, marketing support and other information;
the use of the Landstar debit card to track driver fuel and
equipment purchases; and movement towards a client/server
network computer environment.
10
segment.
CORPORATE SERVICES. Significant advantages result from the collective
expertise and corporate services afforded by Landstar's headquarterscorporate
management. The primary services provided are:
safety purchasing
risk and claims management strategic planning
technology and management information systems human resource management
marketing, particularly national accountslegal finance
quality programs accounting, budgeting and taxes
legal
INDEPENDENT CONTRACTORS. The CompanyLandstar operates the largest fleet of truckload
independent contractors in North America. This provides marketing, operating,
safety, recruiting and retention and financial advantages to the Company. Most
of the Companies'Company's truckload independent contractors are compensated on the basis
of a fixed percentage of the revenue generated from the shipmentsfreight they haul. This
percentage generally ranges from 60% to 70% where the independent contractor
supplies only theprovides a tractor and from 75% to 79% where the independent contractor
suppliesprovides both thea tractor and the trailer. The independent contractor must pay all
the expenses of operating hishis/her equipment, including driver wages and
benefits, fuel, physical damage insurance, maintenance, highway use taxes
and debt service. In 1996,1997, Landstar experienced a turnover rate among
independent contractors of approximately 82%79%. A significant percentage of
this turnover was attributable to independent contractors who had been
independent contractors with the Company for less than one year.year and the effect
of the restructuring. Management believes that the availability of loads is
a significant factor in turnover. Management believes other factors that tend
to limit turnover include the Company's extensive agent network, the Company's
programs to reduce the operating costs of its independent contractors, and
Landstar's reputation for quality, service and reliability. The Landstar
Contractors' Advantage Purchasing Program ("LCAPP") leverages Landstar's
purchasing power as one of the largest truckload carriers in North America to
provide discounts to the independent contractors when they purchase equipment,
fuel, tires and other items. In addition, LCFI provides a source of funds at
competitive interest rates to the independent contractors to purchase tractors,
trailers or mobile communication equipment. Landstar also benefits from its use
of independent contractors becauseas it allows the Company does not have to maintain a significantlower level
of capital investment. As a result, the Owner-Operator Companiescarrier and multimodal segments tend to
have higher variable costs and lower fixed costs.
Description10
Competition
Landstar competes primarily in the domestic transportation industry, focusing
on the common and contract truckload segment. This segment has been
characterized by significant change since the substantial economic
deregulation of the trucking industry in 1980, and again in 1994 and 1995,
which have led to a rapid influx of small, often poorly capitalized truckload
carriers and downward pressure on freight rates. Primarily because deregulation
eliminated most route, commodity and rate restrictions, the market for common
and contract truckload services has grown as truckload carriers have attracted
business from railroads, less-than-truckload carriers and private fleets.
Management believes the truckload segment will continue to undergo significant
consolidation and that the barriers to entry may become harder to overcome.
These barriers include the capital-intensive nature of the business, purchasing
economies available only to larger carriers, increasing customer demand for
sophisticated information systems, rising insurance costs, greater customer
demand for specialized services and the reluctance of certain shippers to do
business with smaller carriers.
The transportation services business is extremely competitive and fragmented.
Landstar competes primarily with other truckload carriers and independent
contractors and, with respect to certain aspects of its business, intermodal
transportation, railroads and less-than-truckload carriers.
Management believes that competition for the freight transported by the Company
is based primarily on service and efficiency and, to a lesser degree, on
freight rates alone. Historically, competition has created downward pressure
on the truckload industry's pricing structure, however, during the most recent
years the Company has been able to increase its overall revenue per revenue
mile (price) by improving its freight quality. Management believes that
Landstar's overall size and availability of a wide range of equipment, together
with its geographically dispersed local independent agent network, present the
Company with significant competitive advantages over many other truckload
carriers. The Company also competes with other motor carriers for the services
of independent contractors and independent commission sales agents, contracts
with whom are terminable upon short notice. The Company's overall size,
coupled with its reputation for good relations with agents and independent
contractors, have enabled the Company to attract a sufficient number of
qualified agents, independent contractors and drivers.
Insurance and Claims
Potential liability associated with accidents in the trucking industry is
severe and occurrences are unpredictable. Landstar retains liability up to
$1,000,000 for each individual property, casualty and general liability
claim, $500,000 for each workers' compensation claim and $250,000 for each
cargo claim. The Company provides, on an actuarially determined basis, for the
estimated cost of property, casualty and general liability claims reported and
for claims incurred but not reported. Although Landstar has an active training
and safety program, there can be no assurance that the frequency or severity of
accidents or workers' compensation claims will not increase in the future, that
there will not be unfavorable development of existing claims or that insurance
premiums will not increase. 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
11
results. Management believes that Landstar realizes significant savings in
insurance premiums by retaining a larger amount of risk than might be prudent
for a smaller company.
Potential Changes in Fuel Taxes
From time to time, various legislative proposals are introduced to increase
federal, state, or local taxes, including taxes on motor fuels. The Company
cannot predict whether, or in what form, any increase in such taxes applicable
to the Company will be enacted and, if enacted, whether or not the Company
will be able to reflect the increases in prices to customers. Competition
from non-trucking modes of transportation and from intermodal transportation
would be likely to increase if state or federal taxes on fuel were to increase
without a corresponding increase in taxes imposed upon other modes of
transportation.
Independent Contractor Status
From time to time, various legislative or regulatory proposals are introduced
at the federal or state levels to change the status of independent contractors'
classification to employees for either employment tax purposes (withholding,
social security, Medicare and unemployment taxes) or other benefits
available to employees. Currently, most individuals are classified as
employees or independent contractors for employment tax purposes based on 20
"common-law" factors rather than any definition found in the Internal Revenue
Code or Internal Revenue Service regulations. In addition, under Section 530
of the Revenue Act of 1978, taxpayers that meet certain criteria may treat an
individual as an independent contractor for employment tax purposes if they
have been audited without being told to treat similarly situated workers as
employees, if they have received a ruling from the Internal Revenue Service
or a court decision affirming their treatment, or if they are following a
long-standing recognized practice.
Although management is unaware of any proposals currently pending to change
the employee/independent contractor classification, the costs associated with
potential changes, if any, in the employee/independent contractor
classification could adversely affect Landstar's results of operations if
Landstar were unable to reflect them in its fee arrangements with the
independent contractors and agents or in the prices charged to its customers.
Regulation
Each of the Operating Subsidiaries is a motor carrier which, prior to
January 1, 1995, was regulated by the Interstate Commerce Commission
(the "ICC") and is now regulated by the United States Department of
Transportation (the "DOT") and by various state agencies. The following table presentsDOT has broad
powers, generally governing activities such as the regulation of, to a limited
degree, motor carrier operations, rates, accounting systems, periodic
financial reporting and insurance. Subject to federal and state regulatory
authorities or regulation, the Company may transport most types of freight to
and from any point in the United States over any route selected by the Company.
12
The trucking industry is subject to possible regulatory and legislative changes
(such as increasingly stringent environmental regulations or limits on vehicle
weight and size) that may affect the economics of the industry by requiring
changes in operating information about eachpractices or by changing the demand for common or contract
carrier services or the cost of providing truckload services.
Congress deregulated transportation in 1994 by passage of the Trucking
Industry Regulatory Reform Act of 1994 ("TIRRA") and the Federal Aviation
Administration Authorization Act of 1994 ("FAAAA"). TIRRA substantially
eliminated entry procedures for interstate transportation and eliminated the
ICC tariff filing requirements for virtually all common carriers. FAAAA
required all states to substantially deregulate intrastate transportation as
of January 1, 1995. In 1995, Congress enacted The Interstate Commerce
Commission Termination Act and substantially eliminated certain of the
functions of the ICC and transferred most functions to the DOT.
Landstar Ranger is subject to the Multi Employer Pension Plan Amendments Act
of 1980 ("MEPPA"), which could require Landstar Ranger, in the event of
withdrawal, to fund its proportionate share of the union sponsored plans'
unfunded benefit obligation. Management believes that the liability, if any,
for withdrawal from any or all of these plans would 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.
Interstate motor carrier operations are subject to safety requirements
prescribed by the DOT. All of the Company's Operating Subsidiaries
at ordrivers are required to have
national commercial driver's licenses and are subject to mandatory drug and
alcohol testing. The DOT's national commercial driver's license and drug and
alcohol testing requirement have not adversely affected the availability to
the Company of qualified drivers.
Seasonality
Landstar's operations are subject to seasonal trends common to the trucking
industry. Results of operations for the fiscal years ended December 28, 1996quarter ending in March are typically
lower than the quarters ending in June, September and December 30, 1995.
11
Landstar Landstar Landstar Landstar
Ranger Inway Ligon Gemini
-------- -------- -------- --------
1996 1995 1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ---- ---- ----
Revenue (in millions) $338.5 $336.4 $291.6 $270.6 $170.1 $157.4 $52.1 $54.0
Average length of haul
in miles 634 684 642 670 583 620 208 183
Number of power units 3,237 3,335 2,181 2,153 1,640 1,502 503 630
Number of trailers 5,908 5,939 3,081 3,018 2,036 1,993 - -
Number of agents 308 273 359 370 241 230 41 54
Landstar Landstar Landstar Landstar
T.L.C. Poole Express America Logistics
-------- -------- --------------- ------------
1996 1995 1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ---- ---- ----
Revenue (in millions) $105.2 $87.9 $154.0 $150.0 $35.6 $24.5 $136.7 $123.9
Average length of haul
in miles 1,253 1,495 630 635 504 334 N/A N/A
Number of power units 680 630 1,413 1,431 229 210 N/A N/A
Number of trailers 1,106 1,021 2,542 2,295 3 - 16 75
Number of agents 65 7 83 68 115 106 49 28
Each of the Operating Subsidiaries is managed by its own
personnel and follows the strategic direction of the corporate
office.
The Operating Subsidiaries are separately responsible for
pricing, approving customer credit, recruiting agents and
drivers, marketing transportation services, administering
safety programs and overseeing shipments by their customers.
In 1996, no single customer accounted for more than 10% of the
Company's revenue. Landstar's Operating Subsidiaries deliver
truckload transportation services through, as of December 28,
1996, approximately 6,900 independent contractors supplying
more than 8,900 tractors and a network of approximately 1,200
independent commission sales agents. Approximately 90.4% of
the Company's 1996 revenue was generated through independent
contractors.
LANDSTAR RANGER. Founded in 1968 and headquartered in
Jacksonville, Florida, Landstar Ranger operates a fleet of
over 3,200 tractors and over 5,900 trailers. Approximately
83% of Landstar Ranger's trailers are dry vans and specialty
vans (of varying lengths and volumes), and approximately 17%
are flatbeds (standard, drop deck, side paneled and light
specialty). Landstar Ranger operates primarily with
independent contractors and commission agents. Although
Landstar Ranger operates throughout the continental United
States and much of Canada, its heaviest traffic is within the
Southeast, within the Midwest, along east-west routes between
the Midwestern states and Pennsylvania and New York, and on
routes between the Southeast and the Midwest and eastern
United States. Landstar Ranger transports a wide range of
general commodities, including building materials, automotive
12
parts, plastics, foodstuffs, beverages, chemicals, metals,
machinery and munitions. In a number of industries, Landstar
Ranger is a primary carrier, in delivery of raw materials, of
finished products, or both. In the beverage industry,
Landstar Ranger hauls aluminum sheets to can manufacturers on
flatbed trailers, ships empty cans to beverage producers in
dry vans and delivers the filled cans to beverage distributors
in temperature-controlled vans. Approximately 200 of Landstar
Ranger's drivers (out of a total of approximately 3,200) are
employees represented by the Teamsters (See "Business
Regulation"). As of December 28, 1996, Landstar Ranger had
240 non-driver employees, none of whom are represented by a
collective bargaining unit.
LANDSTAR INWAY. Founded in 1982 and headquartered in
Rockford, Illinois, Landstar Inway operates the Company's
largest fleet of flatbeds (over 1,680 trailers of various
types), nearly 1,400 dry and specialty vans, and more than
2,180 tractors. Landstar Inway operates exclusively with
independent contractors and commission sales agents. Landstar
Inway operates throughout the United States and Canada, and
between the United States and Mexico. Landstar Inway's
heaviest traffic area is the eastern United States and routes
between Texas and the Midwest. Landstar Inway transports a
wide variety of general commodities, including steel and other
metals, building materials, machinery and paper. Landstar
Inway also offers flatbed multiple pick-up and delivery
service without cross-docking and interlining typical of
less-than-truckload service offered by other carriers. As of
December 28, 1996, Landstar Inway employed 298 persons, none
of whom are represented by a collective bargaining unit.
LANDSTAR LIGON. Founded in 1962 and headquartered in
Madisonville, Kentucky, Landstar Ligon operates a fleet of
approximately 1,640 tractors, nearly 1,500 flatbed and
specialty trailers and 540 vans. Landstar Ligon offers
flatbed and dry van service, primarily in the Eastern and
Midwestern United States and on routes from Texas, Louisiana
and Arkansas to both the Midwest states and other Southern
states. Landstar Ligon operates exclusively with independent
contractors. Landstar Ligon markets its services through both
independent commission sales agents and Landstar Ligon
employees. Landstar Ligon's marketing staff focuses on large,
national accounts. Landstar Ligon has a centralized dispatch
system which links its regional terminals and agent locations
with Ligon's headquarters. Landstar Ligon has a specialized
hauling division which offers a wide range of oversized load
and heavy load services such as hauling military tanks, large
construction equipment and heavy machinery. Trailers to serve
this market feature air ride suspension and 5 to 13 axles.
Freight hauled by Landstar Ligon also includes metal products
from mills both to distribution centers and to industrial
consumers. As of December 28, 1996, Landstar Ligon employed
187 persons, none of whom are represented by a collective
bargaining unit.
13
LANDSTAR GEMINI. Landstar Gemini was restructured in 1990 to
focus on offering national drayage transportation services in
order to take advantage of the growth in intermodal
transportation (the hauling of truck trailers or containers on
rail cars or ships). As part of this restructuring, Landstar
Gemini transferred all of its then existing operations,
including its independent contractors and agents, primarily to
Landstar Ranger. Landstar Gemini now operates through 41
commission agents located in major Atlantic and Gulf ports and
449 independent contractors, who provide 503 tractors.
Landstar Gemini services include short, intermediate, and long
haul of marine containers between all major continental United
States ports and inland points and intermodal drayage to and
from all major railroads. Landstar Gemini's offices are
located in Jacksonville, Florida adjacent to Landstar Ranger's
offices. As of December 28, 1996, Landstar Gemini employed 35
persons, none of whom are represented by a collective
bargaining unit.
LANDSTAR POOLE. Founded in 1950 and headquartered in
Evergreen, Alabama, Landstar Poole owns or leases the majority
of the tractors and employs most of the drivers used in its
operations. In 1996, approximately 44% of Landstar Poole's
revenue was generated through independent contractors. At
December 28, 1996, Landstar Poole's fleet consisted of over
1,400 tractors, of which 667 were provided by independent
contractors. On December 18, 1996, the Company announced a
plan to transfer the variable cost business component of
Landstar Poole to Landstar Ranger and the disposal of 175
Landstar Poole company-owned tractors. At December 28, 1996,
Landstar Poole operated over 1,850 dry vans and 680 flatbed
trailers, including various specialty flatbed trailers almost
all of which were company owned. Landstar Poole's primary
service area is the eastern United States and routes between
the eastern United States and Canada. Its principal traffic
lanes are between the South and the Northeast, the South and
the Midwest and the Midwest and the Northeast. Landstar
Poole's operating strategy is to provide a high level of
service on short and medium length regional traffic lanes.
Landstar Poole has considerable experience in hauling
specialized freight such as forest products, telephone poles
and plate glass.
Landstar Poole's executive office, located in Evergreen,
Alabama, contains office space for all administrative
activities (dispatch, accounting, customer service and
marketing) as well as facilities for equipment maintenance and
storage. As of December 28, 1996, Landstar Poole employed 975
persons, including 744 employee drivers, none of whom are
represented by a collective bargaining unit.
LANDSTAR T.L.C. In January 1995, Landstar T.L.C. purchased
the business and net assets of T.L.C. Lines, Inc., a Missouri-
based temperature-controlled and long-haul, time sensitive dry
van carrier. At December 28, 1996, Landstar T.L.C.'s fleetdue to reduced
shipments and higher operating costs in the winter months.
Employees
As of December 27, 1997, the Company and its subsidiaries employed
approximately 2,050 individuals. Approximately 150 Landstar Ranger drivers
(out of a total of approximately 3,600) are members of the International
Brotherhood of Teamsters. The Company considers relations with its employees
to be good.
13
Item 2. - Properties
The Company owns or leases various properties in the U.S. for the Company's
operations and administrative staff that support the independent commission
sales agents and independent contractors. The carrier segment's primary
facilities are located in Jacksonville, Florida, Rockford, Illinois and
Madisonville, Kentucky. The multimodal segment's primary facilities are located
in Jacksonville, Florida, and Charlotte, North Carolina. The company-owned
tractor segment's primary facility is located in Evergreen, Alabama. In
addition, the Company's corporate headquarters are located in Jacksonville,
Florida and RMCS is located in Madisonville, Kentucky. The Evergreen, Alabama
facility of the company-owned tractor segment, the Madisonville, Kentucky and
Rockford, Illinois facilities of the carrier segment and the Charlotte, North
Carolina facility of the multimodal segment are owned by the Company. All other
facilities are leased.
Management believes that Landstar's owned and leased properties are adequate
for its current needs and that leased properties can be retained or replaced
at acceptable cost.
Item 3. - 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
Claims Services, Inc., Insurance Management Corporation, and Does 1 through
500, inclusive, in federal district court in Los Angeles. The suit claims Rivas
represents a class of all drivers who, according to the suit, should be
classified as employees and are 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 claims violations of federal
leasing regulations for allegedly improperly disclosing the program. Rivas also
claims violations of Racketeer Influence and Corrupt Organizations ("RICO") Act
and the California Business and Professions Act. He seeks on behalf of himself
and the class damages of $15 million trebled by virtue of trebling provisions
in the RICO Act plus punitive damages. A motion to dismiss these claims was
argued to the court on February 9, 1998, and the court's decision is pending.
The Company is vigorously defending this action. It believes that the drivers
in question are properly classified as independent contractors and that it also
has other meritorious defenses to the various claims.
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 4. - Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal year 1997.
14
consisted of approximately 680 tractors, of which 478 were
provided by independent contractors. At December 28, 1996,
Landstar T.L.C. operated over 1,100 dry and temperature
controlled vans and 4 flatbed trailers, most of which were
owned by Landstar T.L.C. Landstar T.L.C.'s primary service
area is routes from the Northeast to the Western United
States. Landstar T.L.C.'s length of haul is generally longer
than other Operating Subsidiaries due to their coast to coast
regular routes. As of December 28, 1996, Landstar T.L.C.
employed 447 persons, including 328 employee drivers, none of
whom are represented by a collective bargaining unit. On
December 18, 1996, the Company announced a plan to dispose of
all of Landstar T.L.C.'s company-owned equipment and to merge
Landstar T.L.C. into Landstar Inway.
LANDSTAR LOGISTICS. Landstar Logistics provides customers
with contract logistics and intermodal services. Landstar
Logistics offers contract logistics services to customers who
seek distribution solutions to their transportation needs.
Contract logistics services provide customers with logistics
support, single source alternatives, truck brokerage
and other transportation solutions. Intermodal services
primarily involves arranging for the movement of customers'
goods by a combination of rail and truck throughout the United
States. As of December 28, 1996, Landstar Logistics employed
46 persons, none of whom are represented by a collective
bargaining unit.
LANDSTAR EXPRESS AMERICA. Headquartered in Charlotte, North
Carolina, Landstar Express America provides emergency and
expedited air freight and truck services throughout the United
States marketed through independent commission sales agents
and delivered through independent contractors. Landstar
Express America's fleet consists of 229 cargo vans and
straight trucks. As of December 28, 1996, Landstar Express
America employed 65 persons, none of whom are represented by a
collective bargaining unit.
RMCS. RMCS is responsible for the development,
implementation, and administration of consistent risk
management policies and programs for all of the Operating
Subsidiaries. As of December 28, 1996, RMCS employed 12
persons, none of whom are represented by a collective
bargaining unit.
LANDSTAR CORPORATE SERVICES, INC. LCSI, a Delaware
corporation, is located in Jacksonville, Florida, and was
formed on December 15, 1993. LCSI provides administrative
support for Landstar Ranger, Landstar Gemini and Landstar
Logistics. As of December 28, 1996, LCSI employed 110
persons, none of whom are represented by a collective
bargaining unit.
LANDSTAR CONTRACTOR FINANCING, INC. and LANDSTAR CAPACITY
SERVICES, INC. LCFI and LCS, both Delaware corporations, are
located in Shelton, Connecticut, and were formed in 1996. LCFI
and LCS provide various services to independent contractors
15
including financing to purchase tractors and/or trailers,
marketing of LCAPP and management of truckstop partnerships.
Substantially all of the loans provided by LCFI to owner-
operators are secured by the equipment purchased by the owner-
operators.
COMPETITION
Landstar competes primarily in the domestic transportation
industry, focusing on the common and contract truckload
segment. This segment has been characterized by significant
change since the substantial economic deregulation of the
trucking industry in 1980, which led to a rapid influx of
small, often poorly capitalized truckload carriers and
downward pressure on freight rates. Primarily because
deregulation eliminated most route and commodity restrictions,
the market for common and contract truckload services has
grown as truckload carriers have attracted business from
railroads, less-than-truckload carriers and private fleets.
The Company believes the truckload segment will continue to
undergo significant consolidation and that the barriers to
entry will become higher. These barriers include the
capital-intensive nature of the business, purchasing economies
available only to larger carriers, increasing customer demand
for sophisticated information systems, rising insurance costs,
greater customer demand for specialized services and the
reluctance of certain shippers to do business with smaller
carriers.
The transportation services business is extremely competitive
and fragmented. Landstar competes primarily with other
truckload carriers and independent contractors and, with
respect to certain aspects of its business, intermodal
transportation, railroads and less-than-truckload carriers.
Competition for the freight transported by the Company is
based in the long term primarily on service and efficiency
and, to a lesser degree, on freight rates alone. Competition
has created downward pressure on the truckload industry's
pricing structure. Management believes that Landstar's
overall size and availability of a wide range of equipment,
together with its geographically dispersed local independent
agent network, present the Company with significant
competitive advantages over many other truckload carriers.
The Company also competes with other motor carriers for the
services of independent contractors and commission agents,
contracts with whom are terminable upon short notice. The
Company's overall size, coupled with its reputation for good
relations with agents and independent contractors, have
enabled the Company to attract a sufficient number of
qualified agents, independent contractors and drivers.
INSURANCE AND CLAIMS
Potential liability associated with accidents in the trucking
industry is severe and occurrences are unpredictable.
16
Landstar retains liability up to $1,000,000 for each
individual property, casualty and general liability claim,
$500,000 for each workers' compensation claim and $250,000 for
each cargo claim. The Company provides, on an actuarially
determined basis, for the estimated cost of property, casualty
and general liability claims reported and for claims incurred
but not reported. Although Landstar has an active training
and safety program, there can be no assurance that the
frequency or severity of accidents or workers' compensation
claims will not increase in the future, that there will not be
unfavorable development of existing claims or that insurance
premiums will not increase. 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 results.
Management believes that Landstar and the Operating
Subsidiaries realize significant savings in insurance premiums
by retaining a larger amount of risk than might be prudent if
any of the Operating Subsidiaries were stand-alone companies.
POTENTIAL CHANGES IN FUEL TAXES
From time to time, various legislative proposals are
introduced to increase federal, state, or local taxes,
including taxes on motor fuels. The Company cannot predict
whether, or in what form, any increase in such taxes
applicable to the Company will be enacted and, if enacted,
whether or not the Company will be able to reflect the
increases in prices to customers. Competition from
non-trucking modes of transportation and from intermodal
transportation would be likely to increase if state or federal
taxes on fuel were to increase without a corresponding
increase in taxes imposed upon other modes of transportation.
INDEPENDENT CONTRACTOR STATUS
From time to time various legislative or regulatory proposals
are introduced at the federal or state levels to change the
status of independent contractors classification as employees
for either employment tax purposes (withholding, social
security, Medicare and unemployment taxes) or other "benefits"
available to employees. Currently, most individuals are
classified as employees or independent contractors for
employment tax purposes based on 20 "common-law" factors
rather than any definition found in the Internal Revenue Code
or Internal Revenue Service regulations. In addition, under
Section 530 of the Revenue Act of 1978, taxpayers that meet
certain criteria may treat an individual as an independent
contractor for employment tax purposes if they have been
audited without being told to treat similarly situated workers
as employees, or if they have received a ruling from the
Internal Revenue Service or a court decision affirming their
treatment, or if they are following a long-standing recognized
practice.
Although management is unaware of any proposals currently
pending to change the employee/independent contractor
17
classification, the costs associated with potential changes,
if any, in the employee/independent contractor classification
could adversely affect Landstar's results of operations if
Landstar were unable to reflect them in its fee arrangements
with the independent contractors and agents or in the prices
charged to its customers.
REGULATION
Each of the Operating Subsidiaries, is a motor carrier, which
prior to January 1, 1995, were regulated by the Interstate
Commerce Commission (the "ICC") and is now regulated by the
United States Department of Transportation (the "DOT") and by
various state agencies. The DOT has broad powers, generally
governing activities such as the regulation of, to a limited
degree motor carrier operations, rates, accounting systems,
periodic financial reporting and insurance. Subject to
federal and state regulatory authorities or regulation, the
Company may transport most types of freight to and from any
point in the United States over any route selected by the
Company. The trucking industry is subject to possible
regulatory and legislative changes (such as increasingly
stringent environmental regulations or limits on vehicle
weight and size) that may affect the economics of the industry
by requiring changes in operating practices or by changing the
demand for common or contract carrier services or the cost of
providing truckload services.
Congress deregulated transportation in 1994 by passage of the
Trucking Industry Regulatory Reform Act of 1994 ("TIRRA") and
the Federal Aviation Administration Authorization Act of 1994
("FAAAA"). TIRRA substantially eliminated entry procedures
for interstate transportation and eliminated the ICC tariff
filing requirements for virtually all common carriers. FAAAA
required all states to substantially deregulate intrastate
transportation as of January 1, 1995. In 1995, Congress
enacted The Interstate Commerce Commission Termination Act and
substantially eliminated certain of the functions of the ICC
and transferred most functions to the DOT.
Landstar Ranger is subject to the Multi Employer Pension Plan
Amendments Act of 1980 ("MEPPA"), which could require Landstar
Ranger, in the event of withdrawal, to fund its proportionate
share of the union sponsored plans', in which it participates,
unfunded benefit obligation. Management believes that the
liability, if any, for withdrawal from any or all of these
plans would 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.
Landstar Poole has various underground storage tanks for
diesel fuel. As a result, Landstar Poole is subject to
regulations promulgated by the Environmental Protection Agency
in 1988 with respect to underground fuel storage tanks. These
regulations generally govern the design, construction and
18
operation of underground storage tanks from installation to
closure. For underground storage tanks in existence at the
time the regulation were promulgated, the regulations require
that such tanks be upgraded to meet specified standards
concerning corrosion protection, spill or overfill protection
and release detection on a phased timetable which began in
1989 and ends in 1998.
Interstate motor carrier operations are subject to safety
requirements prescribed by the DOT. All of the Company's
drivers are required to have national commercial driver's
licenses and are subject to mandatory drug and alcohol
testing. The DOT's national commercial driver's license and
drug and alcohol testing requirement have not adversely
affected the availability to the Company of qualified
drivers.
SEASONALITY
Landstar's operations are subject to seasonal trends common to
the trucking industry. Results of operations for the quarter
ending in March are typically lower than the quarters ending
in June, September and December due to reduced shipments and
higher operating costs in the winter months.
EMPLOYEES
As of December 28, 1996, the Company and its subsidiaries
employed 2,632 individuals. Approximately 200 Landstar
Ranger drivers are members of the Teamsters (See "Business -
Description of Operating Subsidiaries - Landstar Ranger.").
The Company considers relations with its employees
to be good.
Item 2. - Properties
The Company leases its headquarters in Shelton, Connecticut of
approximately 14,300 square feet, as well as the headquarters
of Landstar Gemini, LCSI, Landstar Logistics and Landstar
Ranger together in Jacksonville, Florida of approximately
58,000 square feet, Landstar Inway in Rockford, Illinois of
approximately 29,000 square feet, and RMCS in Madisonville,
Kentucky of approximately 2,800 square feet, from third
parties. Landstar Poole owns its headquarters located in
Evergreen, Alabama of approximately 20 acres, and Landstar
Ligon also owns its headquarters located in Madisonville,
Kentucky of approximately 73 acres. Landstar Express America
owns its headquarters in Charlotte, North Carolina, of
approximately 7,560 square feet and one terminal of
approximately 1,680 square feet. Landstar T.L.C. owns its
headquarters located in St. Clair, Missouri of approximately
39,000 square feet on approximately 35 acres. The
restructuring plan, announced on December 18, 1996, included
the planned sale of the Landstar T.L.C. headquarters and the
relocation of the Shelton, Connecticut corporate office to
Jacksonville, Florida.
19
Management believes that Landstar's owned and leased
properties are adequate for its current needs, and that leased
properties can be retained or replaced at acceptable cost.
Item 3. - Legal Proceedings
In response to a breach of contract suit filed in January 1988
by Landstar Gemini in the Circuit Court, County of Genesee, in
the state of Michigan against Vickie and Kevin Cresson,
individually and doing business as V&C Trucking (the
"Defendants"), the Defendants, who are former agents and
independent contractors of Landstar Gemini, have asserted
breach of contract, tort and state antitrust law counterclaims
against Landstar Gemini and other parties, including
EnviroSource, Landstar, Landstar Ranger and John B. Bowron, a
director and executive officer of the Company. Defendants
have claimed approximately $7,500,000 in actual damages
(subject to trebling) as well as punitive damages.
On October 24, 1996, the court rendered an opinion on the
parties' cross-motions for summary judgment. The court
granted Gemini's motion for summary judgment in its entirety
and denied Defendants motion for summary judgment in its
entirety. The court also granted Landstar Gemini's request
for costs and reasonable attorney's fees. Defendants have
appealed the judge's decision. The Company, believing that
its defenses are and will continue to be deemed good and
meritorious, will vigorously contest the appeal. Although a
trial in this matter is now considerably less likely in light
of the judges favorable rulings, any such trial would not
likely occur before 1998.
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 4. - Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal year 1996.
Part II
Item 5. - Market for Registrant's Common Equity and Related Stockholder Matters
The Common Stock of the Company is quoted through the National Association of
Securities Dealers, Inc. National Market System (the "NASDAQ National Market
System") under the symbol "LSTR". The following table sets forth the high and
low reported sale prices for the Common Stock as quoted through the NASDAQ
National Market System for the periods indicated.
20
Calendar Period 19961997 Market Price 19951996 Market Price
--------------- ----------------- -----------------
High Low High Low
First Quarter $27$26 1/42 $21 3/4 $ 3727 1/4 $ 21 3/4
$ 30
Second Quarter 29 23 1/2 30 5/8 23 1/4
32 1/4 21 1/4
Third Quarter 28 1/2 23 1/2 29 3/8 23 1/4
32 1/2 21Fourth Quarter 28 3/4 Fourth Quarter23 5/8 27 1/4 21 1/2 30 1/2 22 1/4
The reported last sale price per share of the Common Stock as quoted through
the NASDAQ National Market System on March 7,
199720, 1998 was $22.875$31.375 per share. As
of such date, Landstar had 12,615,83311,433,533 shares of Common Stock outstanding. As
of March 7,
1997,20, 1998, the Company had 139105 stockholders of record of its Common
Stock. However, the Company estimates that it has a significantly greater
number of stockholders of record because a substantial number of the Company's
shares are held by broker or dealers for their customers in street name.
The Company has not within the past three years paid any cash dividends on the
Common Stock, and does not intend to pay dividends on the Common Stock for the
foreseeable future. The declaration and payment of any future dividends will
be determined by the Company's Board of Directors, based on Landstar's results
of operations, financial condition, cash requirements, certain corporate law
requirements restrictions
under loan agreements and other factors deemed relevant.
Landstar's ability to pay dividends on the Common Stock depends
on LSHI's ability to pay dividends to Landstar. The Company's
credit agreement limits the amount of dividends payable by LSHI
to Landstar and thereby limits Landstar's ability to pay
dividends on the Common Stock.
Item 6. - Selected Financial Data
The information required by this itemItem is set forth under the caption "Selected
Consolidated Financial Data" in Exhibit 13 attached hereto, and is
incorporated by reference in this Annual Report on Form 10-K. This
information is also included on page 3845 of the Company's 19961997 Annual Report to
Shareholders.
Item 7. - Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required by this itemItem is set forth under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Exhibit 13 attached hereto, and is incorporated by reference in
this Annual Report on Form 10-K. This information is also included on pages
2125 to 2530 of the Company's 19961997 Annual Report to Shareholders.
15
Item 8. - Financial Statements and Supplementary Data
21
The information required by this itemItem is set forth under the captions
"Consolidated Balance Sheets", "Consolidated Statements of Income",
"Consolidated Statements of Cash Flows", "Consolidated Statements of Changes
in Shareholders' Equity", "Notes to Consolidated Financial Statements",
"Independent Auditors' Report" and "Quarterly Financial Data" in Exhibit 13
attached hereto, and are incorporated by reference in this Annual Report on
Form 10-K. This information is also included on pages 2631 through 3744 of the
Company's 19961997 Annual Report to Shareholders.
Item 9. - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Part III
Item 10. - Directors and Executive Officers of the Registrant
The information required by this Item concerning the Directors (and nominees
for Directors) and Executive Officers of the Company is set forth under the
captions "Election of Directors", "Directors of the Company", "Information
Regarding Board of Directors and Committees", and "Executive Officers of the
Company" on pages 2 through 8, and "Compliance with Section 16(a) of the
Securities Exchange Act of 1934" on page 1617 of the Company's definitive Proxy
Statement for its annual meeting of shareholders filed with the Securities and
Exchange Commission pursuant to Regulation 14A, and is incorporated herein by
reference.
Item 11. - Executive Compensation
The information required by this Item is set forth under the captions
"Compensation of Directors and Executive Officers", "Summary Compensation
Table", "Options Granted in Last Fiscal Year", "Fiscal Year EndYear-End Option Values", "Report of the Compensation
Committee on Executive Compensation", "Performance Comparison" and
"Employment Contracts with Management""Key Executive Employment Protection Agreements" on pages 9 through 1314 of
the Company's definitive Proxy Statement for its annual meeting of shareholders
filed with the Securities and Exchange Commission pursuant to Regulation 14A,
and is incorporated herein by reference.
Item 12. - Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is set forth under the caption "Security
Ownership by Management and Others" on pages 1415 through 17 of the Company's
definitive Proxy Statement for its annual meeting of shareholders filed with
the Securities and Exchange Commission pursuant to Regulation 14A, and is
incorporated herein by reference.
Item 13. - Certain Relationships and Related Transactions
The information required by this Item is set forth under the caption
"Indebtedness of Management" on page 11 of the Company's definitive Proxy
22
Statement for its annual meeting of shareholders filed with the Securities and
Exchange Commission pursuant to Regulation 14A, and is incorporated herein by
reference.
16
Part IV
Item 14. - Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) (1) Financial Statements
Financial statements of the Company and related notes thereto, together with
the report thereon of KPMG Peat Marwick LLP dated February 12, 1997,10, 1998, are
in Exhibit 13 attached hereto, and are incorporated by reference in this Annual
Report on Form 10-K. This information is also included on pages 2631 through 3643
of the Company's 19961997 Annual Report to Shareholders.
(2) Financial Statement Schedules
The report of the Company's independent public accountants with respect to the
financial statement schedules listed below appears on page 3023 of this Annual
Report on Form 10-K.
Schedule Number Description Page
- --------------- ----------- ----
I Condensed Financial Information of Registrant
Parent Company Only Balance Sheet Information S-1
I Condensed Financial Information of Registrant
Parent Company Only Statement of Income Information S-2
I Condensed Financial Information of Registrant
Parent Company Only Statement of Cash
Flows Information S-3
II Valuation and Qualifying Accounts
For the Fiscal Year Ended December 28, 199627, 1997 S-4
II Valuation and Qualifying Accounts
For the Fiscal Year Ended December 30, 199528, 1996 S-5
II Valuation and Qualifying Accounts
For the Fiscal Year Ended December 31, 199430, 1995 S-6
All other financial statement schedules not listed above have been omitted
because the required information is included in the consolidated financial
statements or the notes thereto, or is not applicable or required.
(3) Exhibits
The response to this portion of Item 14 is submitted as a separate
section of this report (see "Exhibit Index").
THE COMPANY WILL FURNISH, WITHOUT CHARGE, TO ANY SHAREHOLDER OF THE COMPANY WHO
SO REQUESTS IN WRITING, A COPY OF ANY EXHIBITS, AS FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION. ANY SUCH REQUEST SHOULD BE DIRECTED TO LANDSTAR
SYSTEM, INC., ATTENTION: INVESTOR RELATIONS, FIRST SHELTON PLACE, 1000
BRIDGEPORT AVENUE, P.O. BOX 898, SHELTON, CONNECTICUT 06484-0898.4160 WOODCOCK DRIVE, JACKSONVILLE,
FLORIDA 32207.
(b) No reports on Form 8-K were filed during the last quarter of fiscal year
1996.
231997.
17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: Henry H. Gerkens
----------------------------------------
Henry H. Gerkens
Executive Vice President & Chief Financial
Officer
By: Robert C. LaRose
----------------------------------------
Robert C. LaRose
Vice President Finance & Treasurer
Date: March 14, 199725, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
Jeffrey C. Crowe Chairman of the Board, President & March 14, 199725, 1998
- ------------------- Chief Executive Officer, Principal
Jeffrey C. Crowe Executive Officer
Henry H. Gerkens Executive Vice President & March 14, 199725, 1998
- ------------------- Chief Financial Officer; Principal
Henry H. Gerkens Financial Officer
Robert C. LaRose Vice President Finance & Treasurer;
- ------------------- Principal Accounting Officer March 14, 199725, 1998
Robert C. LaRose
* Senior Vice President and Director March 14, 199725, 1998
- -------------------
John B. Bowron
* Director March 14, 199725, 1998
- -------------------
David G. Bannister
* Director March 14, 199725, 1998
- -------------------
Ronald W. Drucker
* Director March 14, 199725, 1998
- -------------------
Arthur J. Fritz, Jr.
* Director March 14, 199725, 1998
- -------------------
Merritt J. Mott
2418
* Michael L. Harvey Attorney In Fact
- ----------------------
By: Michael L. Harvey
2519
EXHIBIT INDEX
Form 10-K for fiscal year ended 12/28/9627/97
Exhibit No. Description
- ----------- -----------
(3) Articles of Incorporation and Bylaws:
3.1 Amended and Restated Certificate of Incorporation of the
Company dated February 9, 1993 and Certificate of Designation of Junior
Participating Preferred Stock. (Incorporated by reference to Exhibit 3.1 to
the Registrant's Registration Statement on Form S-1 (Registration No. 33-
57174))
3.2 The Company's Bylaws, as amended and restated on February 9,
1993. (Incorporated by reference to Exhibit 3.2 to the Registrant's
Registration Statement on Form S-1 (Registration No. 33-57174))
(4) Instruments defining the rights of security holders,
including indentures:
4.1 Specimen of Common Stock Certificate. (Incorporated by
reference to Exhibit 4.1 to the Registrant's Registration Statement on Form S-1
(Registration No. 33-57174))
4.2 Credit Agreement, dated as of March 12, 1993, among LSHI,
Landstar, the lenders named therein, and Chemical Bank, as agent (including the
exhibits and schedules thereto). (Incorporated by reference to Exhibit 2 to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 27,
1993 (Commission File No. 0-21238))
4.3 Amended and Restated Credit Agreement, dated as of October 7,
1994, among LSHI, Landstar, the lenders named therein, and Chemical Bank, as
agent (including the exhibits and schedules thereto). (Incorporated by
reference to Exhibit III to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 24, 1994 (Commission File No. 0-21238))
26
Exhibit Index (continued)
Form 10-K for fiscal year ended 12/28/96
Exhibit No. Description
- ----------- -----------
4.4 First Amendment, dated as of October 4, 1995, to the Amended
and Restated Credit Agreement, dated as of October 7, 1994, among LSHI,
Landstar, the lenders named therein, and Chemical Bank, as agent.
(Incorporated by reference to Exhibit 4.1 to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1995 (Commission File No. 0-
21238))
4.5* Second Amendment, dated as of March 1, 1996, to the Amended and
Restated Credit Agreement, dated as of October 7, 1994, among LSHI, Landstar,
the lenders named therein, and Chemical Bank (n/k/a Chase Manhattan Bank), as
agent.
4.6 Stockholders Agreement, dated as of March 12, 1993, among KIA
IV, ABSMB and the Company. (Incorporated by reference to Exhibit 4.9 of
Amendment No. 3 to the Registrant's Registration Statement on Form S-1
(Registration No. 33-57174))
4.74.3 Rights Agreement, dated as of February 10, 1993, between the
Company and Chemical Bank, as Rights Agent. (Incorporated by reference to
Exhibit 4.14 of Amendment No. 1 to the Registrant's Registration Statement on
Form S-1 (Registration No. 33-57174))
4.84.4 The Company agrees to furnish copies of any instrument defining
the rights of holders of long-term debt of the Company and its respective
consolidated subsidiaries that does not exceed 10% of the total assets of the
Company and its respective consolidated subsidiaries to the Securities and
Exchange Commission upon request.
4.5 Second Amended and Restated Credit Agreement, dated
October 10, 1997, among LSHI, Landstar, the lenders named
therein and The Chase Manhattan Bank as administrative agent
(including exhibits and schedules thereto).(Incorporated by reference to
Exhibit 4.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 27, 1997 (Registration No. 0-21238))
20
Exhibit Index (continued)
Form 10-K for fiscal year ended 12/27/97
Exhibit No. Description
- ----------- -----------
(10) Material Contracts:
10.1+ Landstar System, Inc. 1993 Stock Option Plan. (Incorporated by
reference to Exhibit 10.1 to the Registrant's Registration Statement on Form
S-1 (Registration No. 33-67666))
10.2+ LSHI Investors' Plan. (Incorporated by reference to Exhibit
10.2 to the Registrant's Registration Statement on Form S-1 (Registration No.
33-57174))
10.3 Directors' and Consulting Service Agreement, dated March 27,
1991, between Alex. Brown & Sons Incorporated and the Company. (Incorporated
by reference to Exhibit 10.4 to the Registrant's Registration Statement on Form
S-1 (Registration No. 33-57174))
10.4 Management Services Agreement, dated March 27, 1991, between
Kelso and the Company. (Incorporated by reference to Exhibit 10.5 to the
Registrant's Registration Statement on Form S-1 (Registration No. 33-57174))
27
Exhibit Index (continued)
Form 10-K for fiscal year ended 12/28/96
Exhibit No. Description
- ----------- -----------
10.5 Irrevocable Guaranty, dated as of March 30, 1992, among the
Company, Kelso Insurance Services, Inc., and the American Telephone and
Telegraph Company. (Incorporated by reference to Exhibit 10.6 to the
Registrant's Registration Statement on Form S-1 (Registration No. 33-57174))
10.6 Form of Indemnification Agreement between the Company and each
of the directors and executive officers of the Company. (Incorporated by
reference to Exhibit 10.7 of Amendment No. 1 to the Registrant's Registration
Statement on Form S-1 (Registration No. 33-57174))
10.7+ LSHI Management Incentive Compensation Plan. (Incorporated by
reference to Exhibit 10.8 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 25, 1993 (Commission File No. 0-21238))
10.8+ Landstar System, Inc. 1994 Director's Stock Option Plan.
(Incorporated by reference to Exhibit 99 to the Registrant's Registration
Statement on Form S-8 filed July 5, 1995 (Registration No. 33-94304))
10.9*+ Key Executive Employment Protection Agreement dated
January 30, 1998 between Landstar System, Inc. and certain officers of the
Company
21
Exhibit Index (continued)
Form 10-K for fiscal year ended 12/27/97
Exhibit No. Description
- ----------- -----------
10.10*+ Amendment to the Landstar System, Inc. 1993 Stock Option Plan
(11) Statement rere: Computation of Per Share Earnings:
11.1* Landstar System, Inc. and Subsidiary Calculation of Earnings
Per Share.Common Share
11.2* Landstar System, Inc. and Subsidiary Calculation of Diluted
Earnings Per Share
(13) Annual Report to Shareholders, Form 10-Q or Quarterly Report to
Shareholders:
13.1* Excerpts from the 19961997 Annual Report to Shareholders.
28
Exhibit Index (continued)
Form 10-K for fiscal year ended 12/28/96
Exhibit No. Description
- ----------- -----------Shareholders
(21) Subsidiaries of the Registrant:
21.1* List of Subsidiary Corporations of the Registrant.Registrant
(23) Consents of Experts and Counsel:
23.1* Consent of KPMG Peat Marwick LLP as Independent Auditors of the
Registrant.Registrant
(24) Power of Attorney
24.1* Powers of Attorney.Attorney
(27) Financial Data Schedules
27.1* 1997 Financial Data Schedule
27.1*27.2* Restated 1996 Financial Data Schedule
___________________
+management contract or compensatory plan or arrangement
*Filed herewith.
2922
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Landstar System, Inc.:
Under date of February 12, 1997,10, 1998, we reported on the consolidated balance sheets
of Landstar System, Inc. and subsidiary as of December 28, 199627, 1997 and December
30, 1995,28, 1996, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for the fiscal years ended December 27,
1997, December 28, 1996 and December 30, 1995, and December 31, 1994, as contained in the 19961997 annual
report to shareholders. These consolidated financial statements and our report
thereon are incorporated by reference in the annual report on Form 10-K for the
year 1996.1997. In connection with our audits of the aforementioned consolidated
financial statements, we also audited the related financial statement schedules
as listed in Item 14 (a)(2). These financial statement schedules are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present
fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Stamford, Connecticut
February 12, 1997
3010, 1998
23
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PARENT COMPANY ONLY BALANCE SHEET INFORMATION
(Dollars in thousands, except per share amounts)
Dec. 27, Dec. 28,
Dec. 30,1997 1996 1995
-------- --------
ASSETSAssets
- ------
Investment in Landstar System Holdings, Inc.,
net of advances $151,696 $147,344 $128,179
Operating property, less accumulated
amortization of $1,504 and $878 and $252 626 435
-------- --------
Total assets $151,696 $147,970 $128,614
======== ========
Liabilities and Shareholders' Equity
- -----------------------------------
Long-term debt, including currentCurrent maturities of $413 and $187long-term debt $ 413 $ 218
Shareholders' equity:
Common stock, $.01 par value, authorized
20,000,000 shares, issued 12,900,974
and 12,882,874 and 12,871,674 shares $ 129 129
Additional paid - inpaid-in capital 62,169 61,740 61,504
Retained earnings 112,345 87,655 68,730
Cost of 915,441 and 94,041 shares of common
stock in treasury (1,967)(22,947) (1,967)
-------- --------
Total shareholders' equity 151,696 147,557 128,396
-------- --------
Total liabilities and shareholders' equity $151,696 $147,970 $128,614
======== ========
S-1
24
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PARENT COMPANY ONLY STATEMENT OF INCOME INFORMATION
(Dollars in thousands, except per share amounts)
FISCAL YEAR ENDED
-----------------------------------------------
Dec. 27, Dec. 28, Dec. 30,
Dec. 31,1997 1996 1995 1994
---------- ---------- -----------
Rental income $ 648 $ 682 $ 323
-
Amortization expense (626) (626) (252) -
Interest expense (22) (56) (71) -
Equity in undistributed earnings
of Landstar System Holdings, Inc. 24,736 18,942 25,019 $ 24,48825,019
Income taxes (46) (17) (57) (81)
---------- ---------- -----------
Net income $ 24,690 $ 18,925 $ 24,962 $ 24,407
========== ========== ===========
Earnings per common share $ 1.97 $ 1.48 $ 1.95
========== ========== ===========
Diluted earnings per share $ 1.901.96 $ 1.47 $ 1.94
========== ========== ===========
Average number of shares
outstanding:
Earnings per common shares
outstandingshare 12,541,000 12,785,000 12,807,000
12,848,000========== ========== ===========
Diluted earnings per share 12,580,000 12,831,000 12,898,000
========== ========== ==========
S-2
25
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PARENT COMPANY ONLY STATEMENT OF CASH FLOWS INFORMATION
(Dollars in thousands)
FISCAL YEAR ENDED
-----------------------------------------------
Dec. 27, Dec. 28, Dec. 30,
Dec. 31,1997 1996 1995 1994
---------- ---------- -----------
Operating Activities
- --------------------
Net income $ 24,690 $ 18,925 $ 24,962 $ 24,407
Adjustments to reconcile net income
to net cash provided(used)provided by
operating activities:
Amortization of operating property 626 626 252 -
Equity in undistributed earnings of
Landstar System Holdings, Inc. (24,736) (18,942) (25,019)
(24,488)
Decrease in other liabilities - - (216)
---------- ---------- -----------------------
Net Cash Provided (Used) By Operating
Activities 580 609 195
(297)
---------- ---------- -----------------------
Investing Activities
- --------------------
Additional investments in and advances
tofrom (to) Landstar System Holdings,
Inc., net 20,384 (223) 2,001
297
---------- ---------- -----------------------
Net Cash Provided (Used) By Investing
Activities 20,384 (223) 2,001
297
---------- ---------- -----------------------
Financing Activities
- --------------------
Principal payments on borrowings under
capital lease obligations (413) (622) (469) -
Proceeds from sales of common stock 429 236 - -
Purchases of common stock -(20,980) (1,727)
-
---------- --------- ---------------------- ----------
Net Cash Used By Financing
Activities (20,964) (386) (2,196)
-
---------- --------- ---------------------- ----------
Change in cash 0 0 0
Cash at beginning of period 0 0 0
---------- --------- -----------
Cash at end of period $ 0 $ 0 $ 0
========== ========= ===========
S-3
26
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEAR ENDED DECEMBER 27, 1997
(Dollars in thousands)
COL. A COL. B COL. C COL. D COL. E
- ------ ------ ------ ------ ------
Balance Additions
at --------------------------
Beginning Charged to Charged to Balance
of Costs and Other Accounts Deductions at End
Description Period Expenses Describe Describe(A) of Period
- ----------- --------- ---------- -------------- ---------- ---------
Allowance for doubtful
accounts:
Deducted from trade
receivables $ 6,526 $ 2,284 $ - $ (2,853) $ 5,957
Deducted from other
receivables 4,390 1,673 - (2,054) 4,009
Deducted from other non-
current receivables 17 41 - - 58
------- --------- ----------- -------- -------
$10,933 $ 3,998 $ - $ (4,907) $10,024
======= ========= =========== ======== =======
(A) Write-offs, net of recoveries.
S-4
27
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEAR ENDED DECEMBER 28, 1996
(Dollars in thousands)
COL. A COL. B COL. C COL. D COL. E
- ------ ------ ------ ------ ------
Balance Additions
at --------------------------
Beginning Charged to Charged to Balance
of Costs and Other Accounts Deductions at End
Description Period Expenses Describe Describe(A)Describe (A) of Period
- ----------- --------- ---------- -------------- ---------- ---------
Allowance for doubtful
accounts:
Deducted from trade
receivables $ 6,923 $ 1,667 $ - $ (2,064) $ 6,526
Deducted from other
receivables 4,205 3,084 - (2,899) 4,390
Deducted from other non-
current receivables 0 17 - - 17
------- --------- ----------- -------- -------
$11,128 $ 4,768 $ - $ (4,963) $10,933
======= ========= =========== ======== =======
(A) Write-offs, net of recoveries.
S-4S-5
28
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEAR ENDED DECEMBER 30, 1995
(Dollars in thousands)
COL. A COL. B COL. C COL. D COL. E
- ------ ------ ------ ------ ------
Balance Additions
at --------------------------
Beginning Charged to Charged to Balance
of Costs and Other Accounts Deductions at End
Description Period Expenses Describe (A) Describe of Period
- ----------- --------- ---------- -------------- ---------- ---------
Allowance for doubtful
accounts:
Deducted from trade
receivables $ 4,136 $ 3,755 $ 1,105 $ (2,073) $ 6,923
Deducted from other
receivables 3,662 2,477 95 (2,029) 4,205
------- --------- -------------------- -------- -------
$ 7,798 $ 6,232 $ 1,200 $ (4,102)(B) $11,128
======= ========= ==================== ======== =======
(A) Amounts in this column represent opening balances from new businessesbusiness
acquired during 1995.
(B) Write-offs, net of recoveries.
S-5
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
(Dollars in thousands)
COL. A COL. B COL. C COL. D COL. E
- ------ ------ ------ ------ ------
Balance Additions
at --------------------------
Beginning Charged to Charged to Balance
of Costs and Other Accounts Deductions at End
Description Period Expenses Describe (A) Describe of Period
- ----------- --------- ---------- -------------- ---------- ---------
Allowance for doubtful
accounts:
Deducted from trade
receivables $ 3,150 $ 1,867 $ (184) $ (697) $ 4,136
Deducted from other
receivables 2,169 1,708 243 (458) 3,662
Deducted from other
non-current receivables 81 - - (81) -
------- --------- ----------- -------- -------
$ 5,400 $ 3,575 $ 59 $ (1,236)(B) $ 7,798
======= ========= =========== ======== =======
(A) Amounts in this column represent recoveries and reclassifications from
trade receivables to other receivables.
(B) Write-offs.
S-6