UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 2001
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________________ to _____________________
Commission File Number: 0-21238
LANDSTAR SYSTEM, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1313069
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
13410 Sutton Park Drive South, Jacksonville, Florida
(Address of principal executive offices)
32224
(Zip Code)
(904) 390-1234
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes ( X ) No ( )
The number of shares of the registrant's Common Stock, par value $.01 per
share, outstanding as of the close of business on August 3, 2001 was
8,435,993.
PART I
FINANCIAL INFORMATION
Index
Item 1
Consolidated Balance Sheets as of June 30, 2001
and December 30, 2000 ............................................... Page 3
Consolidated Statements of Income for the Twenty-Six and Thirteen Weeks
Ended June 30, 2001 and June 24, 2000 ............................. Page 4
Consolidated Statements of Cash Flows for the Twenty-Six Weeks
Ended June 30, 2001 and June 24, 2000 ............................. Page 5
Consolidated Statement of Changes in Shareholders'
Equity for the Twenty-Six Weeks Ended June 30, 2001 .................. Page 6
Notes to Consolidated Financial Statements............................. Page 7
Item 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations........................ Page 9
Item 3
Quantitative and Qualitative Disclosures About Market Risk............. Page 15
Item 1. Financial Statements
The interim consolidated financial statements contained herein reflect
all adjustments (all of a normal, recurring nature) which, in the opinion of
management, are necessary for a fair statement of the financial condition,
results of operations, cash flows and changes in shareholders' equity
for the periods presented. They have been prepared in accordance with Rule
10-01 of Regulation S-X and do not include all the information and footnotes
required by generally accepted accounting principles for complete financial
statements. Operating results for the twenty-six weeks ended June 30,
2001 are not necessarily indicative of the results that may be expected for the
entire fiscal year ending December 29, 2001.
These interim financial statements should be read in conjunction with
the audited financial statements and notes thereto included in the Company's
2000 Annual Report on Form 10-K.
2
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
(Unaudited)
June 30, Dec 30,
2001 2000
---------- ------------
ASSETS
Current assets:
Cash $ 27,839 $ 32,926
Short-term investments 3,016 1,500
Trade accounts receivable, less allowance of $4,737
and $4,450 193,214 195,398
Other receivables, including advances to independent
contractors, less allowance of $5,897 and $5,089 14,345 13,122
Prepaid expenses and other current assets 4,956 6,062
---------- -----------
Total current assets 243,370 249,008
---------- -----------
Operating property, less accumulated depreciation
and amortization of $41,226 and $37,497 72,095 76,049
Goodwill, less accumulated amortization of $9,602 and $8,993 31,865 32,474
Deferred income taxes and other assets 15,368 12,831
---------- -----------
Total assets $ 362,698 $ 370,362
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash overdraft $ 15,401 $ 17,496
Accounts payable 69,153 63,002
Current maturities of long-term debt 9,736 9,766
Insurance claims 21,829 23,364
Other current liabilities 32,310 40,662
---------- -----------
Total current liabilities 148,429 154,290
---------- -----------
Long-term debt, excluding current maturities 72,000 84,877
Insurance claims 21,774 23,336
Shareholders' equity:
Common stock, $.01 par value, authorized 20,000,000
shares, issued 13,277,974 and 13,233,874 shares 133 132
Additional paid-in capital 72,696 71,325
Retained earnings 234,655 215,368
Cost of 4,858,141 and 4,741,841 shares of common stock in
treasury (180,602) (172,727)
Notes receivable arising from exercise of stock options (6,387) (6,239)
---------- -----------
Total shareholders' equity 120,495 107,859
---------- -----------
Total liabilities and shareholders' equity $ 362,698 $ 370,362
========== ===========
See accompanying notes to consolidated financial statements.
3
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
(Unaudited)
Twenty-Six Weeks Ended Thirteen Weeks Ended
----------------------- -----------------------
June 30, June 24, June 30, June 24,
2001 2000 2001 2000
---------- ---------- ---------- ----------
Revenue $ 689,299 $ 685,561 $ 358,018 $ 358,555
Investment income 1,959 1,954 903 1,024
Costs and expenses:
Purchased transportation 510,037 505,108 265,882 264,118
Commissions to agents 54,007 53,938 27,890 28,034
Other operating costs 16,895 15,245 8,792 7,798
Insurance and claims 17,025 19,086 9,222 9,982
Selling, general and administrative 50,975 51,704 24,113 25,756
Depreciation and amortization 7,026 6,190 3,536 3,136
Non-recurring costs 3,040 3,040
---------- ---------- ---------- ----------
Total costs and expenses 655,965 654,311 339,435 341,864
---------- ---------- ---------- ----------
Operating income 35,293 33,204 19,486 17,715
Interest and debt expense 3,932 3,823 1,710 2,118
---------- ---------- ---------- ----------
Income before income taxes 31,361 29,381 17,776 15,597
Income taxes 12,074 11,605 6,843 6,160
---------- ---------- ---------- ----------
Net income $ 19,287 $ 17,776 $ 10,933 $ 9,437
========== ========== ========== ==========
Earnings per common share $ 2.27 $ 1.97 $ 1.29 $ 1.06
========== ========== ========== ==========
Diluted earnings per share $ 2.21 $ 1.92 $ 1.26 $ 1.04
========== ========== ========== ==========
Average number of shares outstanding:
Earnings per common share 8,503,000 9,024,000 8,494,000 8,880,000
========== ========== ========== ==========
Diluted earnings per share 8,718,000 9,237,000 8,707,000 9,104,000
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
4
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Twenty-Six Weeks Ended
---------------------------
June 30, June 24,
2001 2000
----------- -----------
OPERATING ACTIVITIES
Net income $ 19,287 $ 17,776
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization of operating property 6,417 5,581
Amortization of goodwill 609 609
Non-cash interest charges 86 162
Provisions for losses on trade and other accounts receivable 3,406 1,122
Gains on sales of operating property (195) (139)
Deferred income taxes, net (120) 702
Changes in operating assets and liabilities:
Decrease (increase) in trade and other accounts receivable (2,445) 11,521
Increase in prepaid expenses and other assets (3,412) (4,703)
Increase (decrease) in accounts payable 6,151 (915)
Decrease in other liabilities (8,352) (13,881)
Increase (decrease) in insurance claims (3,097) 1,424
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 18,335 19,259
----------- -----------
INVESTING ACTIVITIES
Maturities of short-term investments 499 1,000
Purchases of short-term investments (1,060)
Purchases of operating property (2,825) (4,101)
Proceeds from sales of operating property 557 636
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (1,769) (3,525)
----------- -----------
FINANCING ACTIVITIES
Decrease in cash overdraft (2,095) (2,329)
Borrowings on revolving credit facility 26,500
Proceeds from exercise of stock options 1,224 142
Purchases of common stock (7,875) (28,201)
Principal payments on long-term debt and capital lease obligations (12,907) (3,660)
----------- -----------
NET CASH USED BY FINANCING ACTIVITIES (21,653) (7,548)
----------- -----------
Increase (decrease) in cash (5,087) 8,186
Cash at beginning of period 32,926 23,721
----------- -----------
Cash at end of period $ 27,839 $ 31,907
=========== ===========
See accompanying notes to consolidated financial statements.
5
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY
Twenty-Six Weeks Ended June 30, 2001
(Dollars in thousands)
(Unaudited)
Notes
Treasury Stock Receivable
Common Stock Additional at Cost Arising from
------------------ Paid-In Retained ------------------- Exercise of
Shares Amount Capital Earnings Shares Amount Stock Options Total
---------- ------- --------- --------- --------- --------- ------------- ---------
Balance December 30, 2000 13,233,874 $ 132 $ 71,325 $ 215,368 4,741,841 $(172,727) $ (6,239) $ 107,859
Net income 19,287 19,287
Purchases of common stock 116,300 (7,875) (7,875)
Exercises of stock options 44,100 1 1,371 (148) 1,224
---------- ------- --------- --------- --------- --------- ------------- ---------
Balance June 30, 2001 13,277,974 $ 133 $ 72,696 $ 234,655 4,858,141 $(180,602) $ (6,387) $ 120,495
========== ======= ========= ========= ========= ========= ============= =========
See accompanying notes to consolidated financial statements.
6
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The consolidated financial statements include the accounts of Landstar System,
Inc. and its subsidiary, Landstar System Holdings, Inc., and reflect all
adjustments (all of a normal, recurring nature) which are, in the opinion of
management, necessary for a fair statement of the results for the periods
presented. The preparation of the consolidated financial statements requires
the use of management's estimates. Actual results could differ from those
estimates. Landstar System, Inc. and its subsidiary are herein referred to as
"Landstar" or the "Company."
(1) Non-recurring Costs
On March 28, 2000, the Company announced a plan to restructure the
operations of Landstar Ligon, Inc. and to relocate its headquarters
from Madisonville, Kentucky to Jacksonville, Florida in June of 2000.
As a result of this restructuring and relocation, a one-time charge in
the amount of $3,040,000 was recorded during the second quarter of 2000
representing approximately $1,370,000 of employee and office relocation
costs, $1,000,000 of severance costs and $670,000 of other costs. The
restructuring and relocation were substantially completed by
September 23, 2000. After deducting related income tax benefits of
$1,225,000, this one-time restructuring charge reduced net income by
$1,815,000, or $.20 per share ($.20 per diluted share), in both the
2000 twenty-six and thirteen-week periods.
(2) Income Taxes
The provisions for income taxes for the 2001 and 2000 twenty-six-week
and thirteen-week periods were based on estimated full year combined
effective income tax rates of approximately 38.5% and 39.5%,
respectively, which is higher than the statutory federal income tax rate
primarily as a result of state income taxes, amortization of certain
goodwill and the meals and entertainment exclusion.
(3) Earnings Per Share
Earnings per common share amounts are based on the weighted average
number of common shares outstanding and diluted earnings per share
amounts are based on the weighted average number of common shares
outstanding plus the incremental shares that would have been outstanding
upon the assumed exercise of all dilutive stock options.
(4) Additional Cash Flow Information
During the 2001 period, Landstar paid income taxes and interest of
$15,232,000 and $4,450,000, respectively. During the 2000 period,
Landstar paid income taxes and interest of $15,858,000 and $4,073,000,
respectively, and acquired operating property by entering into capital
leases in the amount of $10,580,000.
7
(5) Segment Information
The following tables summarize information about Landstar's reportable
business segments for the twenty-six and thirteen weeks ended
June 30, 2001 and June 24, 2000 (in thousands):
Twenty-Six Weeks Ended June 30, 2001
------------------------------------------
Carrier Multimodal Insurance Other Total
------- ---------- --------- ----- -----
External revenue $ 543,559 $ 134,019 $ 11,721 $ 689,299
Investment income 1,959 1,959
Internal revenue 14,431 1,121 13,054 28,606
Operating income 37,603 2,121 13,708 $(18,139) 35,293
Twenty-Six Weeks Ended June 24, 2000
------------------------------------------
Carrier Multimodal Insurance Other Total
------- ---------- --------- ----- -----
External revenue $ 538,509 $ 134,847 $ 12,205 $ 685,561
Investment income 1,954 1,954
Internal revenue 18,508 241 11,566 30,315
Operating income 38,970 (1) 3,983 10,127 $(19,876) 33,204 (1)
Thirteen Weeks Ended June 30, 2001
------------------------------------------
Carrier Multimodal Insurance Other Total
------- ---------- --------- ----- -----
External revenue $ 280,174 $ 72,190 $ 5,654 $ 358,018
Investment income 903 903
Internal revenue 7,792 639 7,688 16,119
Operating income 20,569 1,535 6,512 $ (9,130) 19,486
Thirteen Weeks Ended June 24, 2000
------------------------------------------
Carrier Multimodal Insurance Other Total
------- ---------- --------- ----- -----
External revenue $ 282,704 $ 69,649 $ 6,202 $ 358,555
Investment income 1,024 1,024
Internal revenue 9,428 193 6,363 15,984
Operating income 20,258 (1) 2,201 5,328 $(10,072) 17,715 (1)
(1) Includes pre-tax restructuring costs of $3,040.
8
(6) Commitments and Contingencies
At June 30, 2001, Landstar had commitments for letters of
credit outstanding in the amount of $22,496,000, primarily as
collateral for insurance claims. The commitments for letters of credit
outstanding included $10,080,000 under the Second Amended and Restated
Credit Agreement and $12,416,000 secured by assets deposited with a
financial institution.
Landstar is involved in certain claims and pending litigation
arising from the normal conduct of business. Based on the
knowledge of the facts and, in certain cases, opinions of
outside counsel, management believes that adequate provisions
have been made for probable losses with respect to the resolution
of all claims and pending litigation and that the ultimate outcome,
after provisions thereof, will not have a material adverse effect
on the financial condition of Landstar, but could have a material
effect on the results of operations in a given quarter or year.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the attached
interim consolidated financial statements and notes thereto, and with the
Company's audited financial statements and notes thereto for the fiscal year
ended December 30, 2000 and Management's Discussion and Analysis of Financial
Condition and Results of Operations included in the 2000 Annual Report to
Shareholders.
RESULTS OF OPERATIONS
Landstar System, Inc. and its subsidiary, Landstar System Holdings, Inc.
("Landstar" or the "Company"), provide transportation services to a variety
of market niches throughout the United States and to a lesser extent in Canada
and between the United States and Canada and Mexico through its operating
subsidiaries. The Company has three reportable business segments. These are
the carrier, multimodal and insurance segments.
The carrier segment consists of Landstar Ranger, Inc., Landstar Inway, Inc.,
Landstar Ligon, Inc. ("Landstar Ligon") and Landstar Gemini, Inc. The carrier
segment provides truckload transportation for a wide range of general
commodities over irregular routes with its fleet of dry and specialty vans and
unsided trailers, including flatbed, drop deck and specialty. It also provides
short-to-long haul movement of containers by truck and dedicated power-only
truck capacity. The carrier segment markets its services primarily through
independent commission sales agents and utilizes tractors provided by
independent contractors. The nature of the carrier segment's business is such
that a significant portion of its operating costs varies directly with revenue.
The multimodal segment is comprised of Landstar Logistics, Inc. and Landstar
Express America, Inc. Transportation services provided by the multimodal
segment include the arrangement of intermodal moves, contract logistics, truck
brokerage and emergency and expedited ground and air freight. The multimodal
segment markets its services through independent commission sales agents and
utilizes capacity provided by independent contractors, including railroads and
air cargo carriers. The nature of the multimodal segment's business is such
that a significant portion of its operating costs also varies directly with
revenue.
9
The insurance segment is comprised of Signature Insurance Company
("Signature"), a wholly-owned offshore insurance subsidiary and Risk Management
Claim Services, Inc. The insurance segment provides risk and claims management
services to Landstar's operating companies. In addition, it reinsures certain
property, casualty and occupational accident risks of certain independent
contractors who have contracted to haul freight for Landstar and provides
certain property and casualty insurance directly to Landstar's operating
subsidiaries.
Purchased transportation represents the amount an independent contractor
is paid to haul freight and is primarily based on a contractually agreed-
upon percentage of revenue generated by the haul for truck capacity provided by
independent contractors. Purchased transportation for the intermodal services
operations and the air freight operations of the multimodal segment is based on
a contractually agreed-upon fixed rate. Purchased transportation as a
percentage of revenue for the intermodal services operations is normally higher
than that of Landstar's other transportation operations. Purchased
transportation is the largest component of costs and expenses and, on a
consolidated basis, increases or decreases in proportion to the revenue
generated through independent contractors. Commissions to agents
are primarily based on contractually agreed-upon percentages of revenue at the
carrier segment and of gross profit at the multimodal segment. Commissions to
agents as a percentage of consolidated revenue will vary directly
with the percentage of consolidated revenue generated through independent
commission sales agents. Both purchased transportation and commissions to
agents generally will also increase or decrease as a percentage of the
Company's consolidated revenue if there is a change in the percentage of
revenue contributed by Signature or by the intermodal services operations or
the air freight operations of the multimodal segment.
Trailer rent and maintenance costs are the largest components of other
operating costs.
Potential liability associated with accidents in the trucking industry is
severe and occurrences are unpredictable. A material increase in the
frequency or severity of accidents or workers' compensation claims or the
unfavorable development of existing claims can be expected to adversely affect
Landstar's operating income. Landstar retains liability for each individual
commerical trucking claim up to $1,000,000 through April 30, 2001 and
$5,000,000 thereafter. The Company also retains liability for each general
liability claim up to $1,000,000, $250,000 for each workers' compensation
claim and $100,000 for each cargo claim.
Employee compensation and benefits account for over half of the Company's
selling, general and administrative expense. Other significant components of
selling, general and administrative expense are communications costs and rent
expense.
Depreciation and amortization primarily relates to depreciation of trailers
and management information services equipment.
10
The following table sets forth the percentage relationships of
income and expense items to revenue for the periods indicated:
Twenty-Six Weeks Ended Thirteen Weeks Ended
------------------------ ------------------------
June 30, June 24, June 30, June 24,
2001 2000 2001 2000
---------- ---------- ---------- ----------
Revenue 100.0% 100.0% 100.0% 100.0%
Investment income 0.3 0.3 0.3 0.3
Costs and expenses:
Purchased transportation 74.0 73.7 74.3 73.7
Commissions to agents 7.8 7.9 7.8 7.8
Other operating costs 2.5 2.2 2.4 2.2
Insurance and claims 2.5 2.8 2.6 2.8
Selling, general and administrative 7.4 7.5 6.7 7.2
Depreciation and amortization 1.0 0.9 1.0 0.9
Non-recurring costs 0.4 0.8
------- ------ ------- ------
Total costs and expenses 95.2 95.4 94.8 95.4
------- ------ ------- ------
Operating income 5.1 4.9 5.5 4.9
Interest and debt expense 0.6 0.6 0.5 0.6
------- ------ ------- ------
Income before income taxes 4.5 4.3 5.0 4.3
Income taxes 1.7 1.7 1.9 1.7
------- ------ ------- ------
Net income 2.8% 2.6% 3.1% 2.6%
======= ====== ======= ======
TWENTY-SIX WEEKS ENDED JUNE 30, 2001 COMPARED TO TWENTY-SIX WEEKS
ENDED JUNE 24, 2000
Revenue for the 2001 twenty-six-week period was $689,299,000, an increase of
$3,738,000 over the 2000 twenty-six-week period. The increase was attributable
to increased revenue of $5,050,000 at the carrier segment, partially offset by
decreased revenue at the multimodal and insurance segments of $828,000 and
$484,000, respectively. Overall, revenue per revenue mile (price) increased
approximately 1%, which reflected improved freight quality. Investment income
at the insurance segment was $1,959,000 and $1,954,000 in the 2001 and 2000
periods, respectively.
Purchased transportation was 74.0% of revenue in 2001 compared with 73.7% in
2000. The increase in purchased transportation as a percentage of revenue was
primarily due to increased rates charged by third party capacity providers at
the multimodal segment, decreased revenue at the insurance segment and
increased brokerage revenue at the carrier segment. Commissions to agents were
7.8% of revenue in 2001 compared with 7.9% in 2000. The decrease in commissions
to agents as a percentage of revenue was caused by the increased purchased
transportation costs incurred at the multimodal segment which negatively
11
impacted gross profit and resulted in lower agent commissions. Other operating
costs were 2.5% of revenue in 2001 compared with 2.2% in 2000. The increase
in other operating costs as a percentage of revenue was primarily due to higher
net trailer costs, increased independent contractor recruiting and
qualification costs and an increased provision for contractor bad debts.
Insurance and claims were 2.5% of revenue in 2001 compared with 2.8% in 2000.
The decrease in insurance and claims as a percentage of revenue was primarily
attributable to favorable development of prior year claims in 2001 and reduced
property and casualty insurance premiums. Selling, general and administrative
costs were 7.4% of revenue in 2001 compared with 7.5% of revenue in 2000. The
decrease in selling, general and administrative costs as a percentage of
revenue was primarily due to a reduction in the provision for bonuses under the
Company's management incentive compensation plan, partially offset by an
increased provision for customer bad debt. Depreciation and amortization was
1.0% of revenue in 2001 compared with 0.9% in 2000. The increase in
depreciation and amortization as a percentage of revenue was primarily
attributable to increased Company-owned trailers.
On March 28, 2000, the Company announced a plan to restructure the operations
of Landstar Ligon and to relocate its headquarters from Madisonville, Kentucky
to Jacksonville, Florida in June of 2000. As a result of the restructuring and
relocation, a one-time charge in the amount of $3,040,000 was recorded during
the second quarter of 2000 representing approximately $1,370,000 of employee
and office relocation costs, $1,000,000 of severance costs and $670,000 of
other costs. The restructuring and relocation were substantially completed as
of September 23, 2000.
Interest and debt expense was 0.6% of revenue in 2001 and 2000.
The provisions for income taxes for the 2001 and 2000 twenty-six-week periods
were based on estimated full year combined effective income tax rates of
approximately 38.5% and 39.5%, respectively, which are higher than the
statutory federal income tax rate primarily as a result of state income taxes,
amortization of certain goodwill and the meals and entertainment exclusion.
The decrease in the effective income tax rate was attributable to the
implementation of state income tax planning strategies.
Net income was $19,287,000, or $2.27 per common share ($2.21 per diluted
share), in the 2001 period compared with $17,776,000, or $1.97 per common share
($1.92 per diluted share), in the 2000 period. Excluding restructuring costs,
net income would have been $19,591,000, or $2.17 per common share ($2.12
diluted earnings per share) in the 2000 period.
12
THIRTEEN WEEKS ENDED JUNE 30, 2001 COMPARED TO THIRTEEN WEEKS
ENDED JUNE 24, 2000
Revenue for the 2001 thirteen-week period was $358,018,000, a decrease of
$537,000 compared to the 2000 thirteen-week period. The decrease was
attributable to decreased revenue of $2,530,000 and $548,000 at the carrier
and insurance segments, respectively, partially offset by increased revenue
at the multimodal segment of $2,541,000. Overall, revenue miles (volume) were
approximately 1% higher than 2000. Investment income at the insurance segment
was $903,000 and $1,024,000 in the 2001 and 2000 periods, respectively.
Purchased transportation was 74.3% of revenue in 2001 compared with 73.7% in
2000. The increase in purchased transportation as a percentage of revenue was
primarily attributable to increased revenue contributed by the multimodal
segment, which tends to pay higher rates for purchased transportation,
decreased premium revenue at the insurance segment and increased brokerage
revenue at the carrier segment. Commissions to agents were 7.8% of revenue
in 2001 and in 2000. Other operating costs were 2.4% of revenue in 2001
compared with 2.2% in 2000. The increase in other operating costs as a
percentage of revenue was primarily due to higher net trailer costs, an
increased provision for contractor bad debts and increased independent
contractor recruiting and qualification costs. Insurance and claims were
2.6% of revenue in 2001 compared with 2.8% in 2000. The decrease in insurance
and claims as a percentage of revenue was primarily attributable to reduced
property and casualty insurance premiums, resulting from the assumption of
increased risk for property and casualty claims from $1 million to $5 million
effective May 2001. Selling, general and administrative costs were 6.7% of
revenue in 2001 compared with 7.2% of revenue in 2000. This decrease was
primarily due to a decrease in the provision for bonuses under the management
incentive compensation plan, partially offset by an increase in the provision
for customer bad debt. Depreciation and amortization was 1.0% of revenue in
2001 compared with 0.9% in 2000. The increase in depreciation and amortization
as a percentage of revenue was primarily attributable to increased
Company-owned trailers.
Interest and debt expense was 0.5% and 0.6% of revenue in 2001 and 2000,
respectively. The decrease was primarily attributable to the effect of lower
average borrowings on the senior credit facility and lower interest rates.
The provisions for income taxes for the 2001 and 2000 thirteen-week periods
were based on estimated full year combined effective income tax rates of
approximately 38.5% and 39.5%, respectively, which are higher than the
statutory federal income tax rate primarily as a result of state income taxes,
amortization of certain goodwill and the meals and entertainment exclusion.
The decrease in the effective income tax rate was attributable to the
implementation of state income tax planning strategies.
Net income was $10,933,000, or $1.29 per common share ($1.26 per diluted
share), in the 2001 period compared with $9,437,000, or $1.06 per common
share ($1.04 per diluted share), in the 2000 period. Excluding restructuring
costs, net income would have been $11,252,000, or $1.27 per common share
($1.24 diluted earnings per share) in the 2000 period.
13
CAPITAL RESOURCES AND LIQUIDITY
Shareholders' equity increased to $120,495,000 at June 30, 2001 compared
with $107,859,000 at December 30, 2000, primarily as a result of net income
for the period, partially offset by the repurchase of 116,300 shares of the
Company's common stock at an aggregate cost of $7,875,000. Shareholders' equity
was 60% and 53% of total capitalization at June 30, 2001 and December 30, 2000,
respectively.
Working capital and the ratio of current assets to current liabilities were
$94,941,000 and 1.64 to 1, respectively, at June 30, 2001, compared with
$94,718,000 and 1.61 to 1, respectively, at December 30, 2000. Landstar has
historically operated with current ratios approximating 1.5 to 1. Cash
provided by operating activities was $18,335,000 in the 2001 period compared
with $19,259,000 in the 2000 period. The decrease in cash flow provided by
operating activities was primarily attributable timing of the collection of
accounts receivable. During the 2001 period, Landstar purchased $2,825,000 of
operating property. Management anticipates acquiring approximately $8,000,000
of operating property during the remainder of fiscal year 2001 either by
purchase or lease financing.
Management believes that cash flow from operations combined with the Company's
borrowing capacity under its revolving credit agreement will be adequate to
meet Landstar's debt service requirements, fund continued growth, both internal
and through acquisitions, complete its announced stock repurchase program and
meet working capital needs.
Management does not believe inflation has had a material impact on the
results of operations or financial condition of Landstar in the past five
years. However, inflation higher than that experienced in the past five
years might have an adverse effect on the Company's results of operations.
In June 2001, the Financial Accounting Standards Board issued SFAS No. 142,
"Goodwill and Other Intangible Assets." This Statement, effective for fiscal
years beginning after December 15, 2001, establishes standards for recognizing
and measuring goodwill and other intangible assets. The Company believes other
than the elimination of amortization expense for goodwill currently reflected
on the Company's balance sheet, the adoption of this Statement will not
materially affect the financial position or results of operations of the
Company or materially affect the Company's financial statements.
14
FORWARD-LOOKING STATEMENTS
The following is a "safe harbor" statement under the Private Securities
Litigation Reform Act of 1995. Statements contained in this document that are
not based on historical facts are "forward-looking statements." This
Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this Form 10-Q statement contain forward-
looking statements, such as statements which relate to Landstar's business
objectives, plans, strategies and expectations. Terms such as "anticipates,"
"believes," "might," "will," the negative thereof and similar expressions
are intended to identify forward-looking statements. Such statements are
subject to uncertainties and risks, including but not limited to; an increase
in the frequency or severity of accidents or workers' compensation claims;
unfavorable development of existing accident claims; a downturn in domestic
economic growth or growth in the transportation sector; and other operational,
financial or legal risks or uncertainties detailed in Landstar's Securities
and Exchange Commission filings from time to time. These risks and
uncertainties could cause actual results or events to differ materially from
historical results or those anticipated. Investors should not place undue
reliance on such forward-looking statements and the Company undertakes no
obligation to publicly update or revise any forward-looking statements.
SEASONALITY
Landstar's operations are subject to seasonal trends common to the
trucking industry. Results of operations for the quarter ending in
March is typically lower than the quarters ending June, September
and December due to reduced shipments and higher operating costs in
the winter months.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company maintains a credit agreement with a syndicate of banks and The
Chase Manhattan Bank, as the administrative agent, (the "Second Amended and
Restated Credit Agreement") that provides $200,000,000 of borrowing
capacity, consisting of $150,000,000 revolving credit and $50,000,000 revolving
credit to finance acquisitions. Borrowings under the Second Amended and
Restated Credit Agreement bear interest at rates equal to, at the option of
Landstar, either (i) the greatest of (a) the prime rate as publicly announced
from time to time by The Chase Manhattan Bank, (b) the three month CD rate
adjusted for statutory reserves and FDIC assessment costs plus 1% and (c) the
federal funds effective rate plus 1/2%, or, (ii) the rate at the time offered
to The Chase Manhattan Bank in the Eurodollar market for amounts and periods
comparable to the relevant loan plus a margin that is determined based on the
level of the Company's Leverage Ratio, as defined in the Second Amended and
Restated Credit Agreement. There have been no significant changes that would
affect the information provided in Item 7a of the 2000 Annual Report on
Form 10-K regarding quantitative and qualitative disclosures about market risk.
15
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
The Company is routinely a party to litigation incidental to its business,
primarily involving claims for personal injury and property damage incurred
in the transportation of freight. The Company maintains insurance which covers
liability amounts in excess of retained liabilities from personal injury and
property damages claims.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
On May 16, 2001, Landstar System, Inc. (the "Company") held its Annual Meeting
of Shareholders (the "Meeting") at the Ponte Vedra Inn, Ponte Vedra Beach,
Florida, 32082. The matters voted upon at the Meeting included (i) the election
of three Class II directors for the terms to expire at the 2004 Annual Meeting
of Shareholders and (ii) the ratification of appointment of KPMG LLP
as the Company's independent auditors for fiscal year 2001.
Pursuant to the Company's Restated Certificate of Incorporation, the Board of
Directors has fixed the number of directors at seven: two Class I directors
whose members' terms will expire at the 2003 Annual Meeting of Shareholders;
three Class II directors whose members' terms will expire at the 2004 Annual
Meeting of Shareholders; and two Class III directors whose members' terms
will expire at the 2002 Annual Meeting of Shareholders. With respect to the
election of the three Class II directors at the Meeting, nominee Merritt J.
Mott, nominee William S. Elston and nominee Diana M. Murphy were elected to the
Board of Directors of the Company. Mr. Mott received 7,694,611 votes for
election to the Board and 51,122 were withheld. Mr. Elston received 7,694,536
votes for election to the Board and 51,197 were withheld. Ms. Murphy received
7,694,627 votes for election to the Board and 51,106 were withheld. The names
of the other directors whose terms of office as a director continued after the
Meeting are as follows: Jeffrey C. Crowe (a Class III director), David G.
Bannister (a Class III director), Henry H. Gerkens (a Class I director) and
Ronald W. Drucker (a Class I director).
The proposal to appoint KPMG LLP as the Company's independent auditors
for fiscal year 2001 was ratified by the Company's shareholders. Votes for the
ratification were 7,669,684, votes against were 75,085 and votes abstaining
were 964.
16
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits listed on the Exhibit Index are filed as part
of this quarterly report on Form 10-Q.
(b) Form 8-K
None.
17
EXHIBIT INDEX
Registrant's Commission File No.: 0-21238
Exhibit No. Description
- ------------ -----------
(11) Statement re: Computation of Per Share Earnings:
11.1 * Landstar System, Inc. and Subsidiary Calculation of Earnings
Per Common Share for the Twenty-Six and Thirteen Weeks Ended
June 30, 2001 and June 24, 2000
11.2 * Landstar System, Inc. and Subsidiary Calculation of Diluted
Earnings Per Share for the Twenty-Six and Thirteen Weeks
Ended June 30, 2001 and June 24, 2000
__________________
* Filed herewith
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LANDSTAR SYSTEM, INC.
Date: August 10, 2001 Henry H. Gerkens
----------------------------
Henry H. Gerkens
President and
Chief Financial Officer;
Principal Financial Officer
Date: August 10, 2001 Robert C. LaRose
----------------------------
Robert C. LaRose
Vice President Finance and Treasurer;
Principal Accounting Officer
19