UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 29, 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 $0.01 per
share, outstanding as of the close of business on November 8, 2001 was
8,086,993.
PART I
FINANCIAL INFORMATION
Index
Item 1
Consolidated Balance Sheets as of September 29, 2001
and December 30, 2000 ............................................... Page 3
Consolidated Statements of Income for the Thirty-Nine and Thirteen Weeks
Ended September 29, 2001 and September 23, 2000 ................... Page 4
Consolidated Statements of Cash Flows for the Thirty-Nine Weeks
Ended September 29, 2001 and September 23, 2000 ................... Page 5
Consolidated Statement of Changes in Shareholders'
Equity for the Thirty-Nine Weeks Ended September 29, 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 thirty-nine weeks ended September 29,
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)
Sept. 29, Dec. 30,
2001 2000
---------- ------------
ASSETS
Current assets:
Cash $ 35,079 $ 32,926
Short-term investments 3,002 1,500
Trade accounts receivable, less allowance of $4,712
and $4,450 198,549 195,398
Other receivables, including advances to independent
contractors, less allowance of $6,746 and $5,089 11,997 13,122
Prepaid expenses and other current assets 4,898 6,062
---------- -----------
Total current assets 253,525 249,008
---------- -----------
Operating property, less accumulated depreciation
and amortization of $42,708 and $37,497 71,100 76,049
Goodwill, less accumulated amortization of $9,904 and $8,993 31,563 32,474
Deferred income taxes and other assets 10,757 12,831
---------- -----------
Total assets $ 366,945 $ 370,362
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash overdraft $ 16,706 $ 17,496
Accounts payable 67,793 63,002
Current maturities of long-term debt 9,833 9,766
Insurance claims 21,350 23,364
Other current liabilities 30,679 40,662
---------- -----------
Total current liabilities 146,361 154,290
---------- -----------
Long-term debt, excluding current maturities 94,433 84,877
Insurance claims 21,328 23,336
Shareholders' equity:
Common stock, $0.01 par value, authorized 20,000,000
shares, issued 13,328,834 and 13,233,874 shares 133 132
Additional paid-in capital 74,211 71,325
Retained earnings 246,585 215,368
Cost of 5,241,841 and 4,741,841 shares of common stock in
treasury (209,926) (172,727)
Notes receivable arising from exercise of stock options (6,180) (6,239)
---------- -----------
Total shareholders' equity 104,823 107,859
---------- -----------
Total liabilities and shareholders' equity $ 366,945 $ 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)
Thirty-Nine Weeks Ended Thirteen Weeks Ended
----------------------- -----------------------
Sept. 29, Sept. 23, Sept. 29, Sept. 23,
2001 2000 2001 2000
---------- ---------- ---------- ----------
Revenue $1,044,983 $1,037,917 $ 355,684 $ 352,356
Investment income 2,861 3,154 902 1,200
Costs and expenses:
Purchased transportation 774,162 764,698 264,125 259,590
Commissions to agents 82,291 82,440 28,284 28,502
Other operating costs 24,841 22,413 7,946 7,168
Insurance and claims 23,802 25,317 6,777 6,231
Selling, general and administrative 76,127 76,739 25,152 25,035
Depreciation and amortization 10,328 9,534 3,302 3,344
Non-recurring costs 5,270 2,230
---------- ---------- ---------- ----------
Total costs and expenses 991,551 986,411 335,586 332,100
---------- ---------- ---------- ----------
Operating income 56,293 54,660 21,000 21,456
Interest and debt expense 5,529 6,243 1,597 2,420
---------- ---------- ---------- ----------
Income before income taxes 50,764 48,417 19,403 19,036
Income taxes 19,547 19,125 7,473 7,520
---------- ---------- ---------- ----------
Net income $ 31,217 $ 29,292 $ 11,930 $ 11,516
========== ========== ========== ==========
Earnings per common share $ 3.71 $ 3.29 $ 1.45 $ 1.33
========== ========== ========== ==========
Diluted earnings per share $ 3.62 $ 3.21 $ 1.41 $ 1.30
========== ========== ========== ==========
Average number of shares outstanding:
Earnings per common share 8,419,000 8,909,000 8,251,000 8,677,000
========== ========== ========== ==========
Diluted earnings per share 8,635,000 9,120,000 8,472,000 8,883,000
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
4
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Thirty-Nine Weeks Ended
---------------------------
Sept. 29, Sept. 23,
2001 2000
----------- -----------
OPERATING ACTIVITIES
Net income $ 31,217 $ 29,292
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization of operating property 9,417 8,623
Amortization of goodwill 911 911
Non-cash interest charges 86 243
Provisions for losses on trade and other accounts receivable 5,300 2,145
Gains on sales of operating property (197) (191)
Deferred income taxes, net (192) 1,154
Changes in operating assets and liabilities:
Decrease (increase) in trade and other accounts receivable (7,326) 8,354
Decrease (increase) in prepaid expenses and other assets 1,329 (473)
Increase (decrease) in accounts payable 4,791 (6,832)
Decrease in other liabilities (9,983) (10,261)
Decrease in insurance claims (4,022) (4,031)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 31,331 28,934
----------- -----------
INVESTING ACTIVITIES
Maturities of short-term investments 1,009 1,000
Purchase of short-term investment (496) (1,560)
Purchases of operating property (4,902) (6,220)
Proceeds from sales of operating property 631 1,396
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (3,758) (5,384)
----------- -----------
FINANCING ACTIVITIES
Increase (decrease) in cash overdraft (790) 6,016
Borrowings on revolving credit facility 25,000 27,500
Proceeds from exercise of stock options 2,946 142
Purchases of common stock (37,199) (46,185)
Principal payments on long-term debt and capital lease obligations (15,377) (5,941)
----------- -----------
NET CASH USED BY FINANCING ACTIVITIES (25,420) (18,468)
----------- -----------
Increase in cash 2,153 5,082
Cash at beginning of period 32,926 23,721
----------- -----------
Cash at end of period $ 35,079 $ 28,803
=========== ===========
See accompanying notes to consolidated financial statements.
5
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY
Thirty-Nine Weeks Ended September 29, 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 31,217 31,217
Purchases of common stock 500,000 (37,199) (37,199)
Exercises of stock options 94,960 1 2,886 59 2,946
---------- ------- --------- --------- --------- --------- ------------- ---------
Balance September 29, 2001 13,328,834 $ 133 $ 74,211 $ 246,585 5,241,841 $(209,926) $ (6,180) $ 104,823
========== ======= ========= ========= ========= ========= ============= =========
See accompanying notes to consolidated financial statements.
6
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The consolidated financial statements include the accounts of Landstar System,
Inc. and its subsidiary, Landstar System Holdings, Inc., and reflect all
adjustments (all of a normal, recurring nature) which are, in the opinion of
management, necessary for a fair statement of the results for the periods
presented. The preparation of the consolidated financial statements requires
the use of management's estimates. Actual results could differ from those
estimates. Landstar System, Inc. and its subsidiary are herein referred to as
"Landstar" or the "Company."
(1) Non-recurring Costs
Approximately 100 Landstar Ranger, Inc. ("Landstar Ranger") drivers
are represented by the International Brotherhood of Teamsters (the
"Teamsters"). The vast majority of these unionized drivers
participate in the Teamsters' Central States Southeast and Southwest
Areas Pension Fund (the "Fund"). Under a prior collective bargaining
agreement, Landstar Ranger was required to make contributions to various
Teamster pension funds for 205 drivers regardless of the actual number
of unionized drivers. Effective April 1, 2000, a new collective
bargaining agreement required Landstar Ranger to make pension
contributions for only the actual number of unionized drivers.
As a result of the elimination of the requirement to make contributions
for more than the actual number of unionized drivers, the Trustees of the
Fund have terminated participation in the Fund by Landstar Ranger
effective October 1, 2000. The Trustees of the Fund regard this action as
a withdrawal by Landstar Ranger. In the third quarter of 2000, the
Company recorded a charge in the amount of $2,230,000 for its estimated
withdrawal liability from the Fund. After deducting income tax benefits
of $880,000, this charge reduced net income by $1,350,000, or $0.15
per share ($0.15 per diluted share) in the 2000 thirty-nine-week period
and $0.16 per share ($0.15 per diluted share) in the 2000 thirteen-week
period.
On March 28, 2000, the Company announced a plan to restructure the
operations of Landstar Ligon, Inc. and to relocate its headquarters
from Madisonville, Kentucky to Jacksonville, Florida in June of 2000.
As a result of this restructuring and relocation, a one-time charge in
the amount of $3,040,000 was recorded during the second quarter of 2000.
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 $0.20 per share ($0.20 per diluted share), in the 2000
thirty-nine-week period.
(2) Income Taxes
The provisions for income taxes for the 2001 and 2000 thirty-nine-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 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.
(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 thirty-nine-week period, Landstar paid income taxes and
interest of $19,131,000 and $6,175,000, respectively. The Company has not
acquired operating property by entering into capital leases during 2001.
During the 2000 thirty-nine-week period, Landstar paid income taxes and
interest of $21,332,000 and $6,653,000, respectively, and acquired
operating property by entering into capital leases in the amount of
$17,710,000.
7
(5) Segment Information
The following tables summarize information about Landstar's reportable
business segments for the thirty-nine and thirteen weeks ended
September 29, 2001 and September 23, 2000 (in thousands):
Thirty-Nine Weeks Ended September 29, 2001
------------------------------------------
Carrier Multimodal Insurance Other Total
------- ---------- --------- ----- -----
External revenue $ 820,055 $ 207,209 $ 17,719 $1,044,983
Investment income 2,861 2,861
Internal revenue 22,100 1,764 20,185 44,049
Operating income 56,055 3,836 22,932 $(26,530) 56,293
Thirty-Nine Weeks Ended September 23, 2000
------------------------------------------
Carrier Multimodal Insurance Other Total
------- ---------- --------- ----- -----
External revenue $ 816,079 $ 203,541 $ 18,297 $1,037,917
Investment income 3,154 3,154
Internal revenue 26,913 604 16,860 44,377
Operating income 61,519 (1) 6,056 17,263 $(30,178) 54,660 (1)
Thirteen Weeks Ended September 29, 2001
------------------------------------------
Carrier Multimodal Insurance Other Total
------- ---------- --------- ----- -----
External revenue $ 276,496 $ 73,190 $ 5,998 $ 355,684
Investment income 902 902
Internal revenue 7,669 643 7,131 15,443
Operating income 18,452 1,715 9,224 $(8,391) 21,000
Thirteen Weeks Ended September 23, 2000
------------------------------------------
Carrier Multimodal Insurance Other Total
------- ---------- --------- ----- -----
External revenue $ 277,570 $ 68,694 $ 6,092 $ 352,356
Investment income 1,200 1,200
Internal revenue 8,405 363 5,294 14,062
Operating income 22,549 (2) 2,073 7,136 $(10,302) 21,456 (2)
(1) Includes pre-tax non-recurring costs of $5,270.
(2) Includes pre-tax non-recurring costs of $2,230.
8
(6) Commitments and Contingencies
At September 29, 2001, Landstar had commitments for letters of
credit outstanding in the amount of $20,929,000, primarily as
collateral for insurance claims. The commitments for letters of credit
outstanding included $10,080,000 under the Second Amended and Restated
Credit Agreement and $10,849,000 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 Ranger"),
Landstar Inway, Inc., Landstar Ligon, Inc. ("Landstar Ligon") and Landstar
Gemini, Inc. The carrier segment provides truckload transportation for a wide
range of general commodities over irregular routes with its fleet of dry and
specialty vans and unsided trailers, including flatbed, drop deck and
specialty. It also provides short-to-long haul movement of containers by truck
and dedicated power-only truck capacity. The carrier segment markets its
services primarily through independent commission sales agents and utilizes
tractors provided by independent contractors. The nature of the carrier
segment's business is such that a significant portion of its operating costs
varies directly with revenue.
The multimodal segment is comprised of Landstar Logistics, Inc. and Landstar
Express America, Inc. Transportation services provided by the multimodal
segment include the arrangement of intermodal moves, contract logistics, truck
brokerage and emergency and expedited ground and air freight. The multimodal
segment markets its services through independent commission sales agents and
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
commercial 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:
Thirty-Nine Weeks Ended Thirteen Weeks Ended
------------------------ ------------------------
Sept. 29, Sept. 23, Sept. 29, Sept. 23,
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 74.1 73.7 74.3 73.7
Commissions to agents 7.8 7.9 8.0 8.1
Other operating costs 2.4 2.2 2.2 2.0
Insurance and claims 2.3 2.4 1.9 1.8
Selling, general and administrative 7.3 7.4 7.1 7.1
Depreciation and amortization 1.0 0.9 0.9 0.9
Non-recurring costs 0.5 0.6
------- ------ ------- ------
Total costs and expenses 94.9 95.0 94.4 94.2
------- ------ ------- ------
Operating income 5.4 5.3 5.9 6.1
Interest and debt expense 0.5 0.6 0.4 0.7
------- ------ ------- ------
Income before income taxes 4.9 4.7 5.5 5.4
Income taxes 1.9 1.9 2.1 2.1
------- ------ ------- ------
Net income 3.0% 2.8% 3.4% 3.3%
======= ====== ======= ======
THIRTY-NINE WEEKS ENDED SEPTEMBER 29, 2001 COMPARED TO THIRTY-NINE WEEKS
ENDED SEPTEMBER 23, 2000
Revenue for the 2001 thirty-nine-week period was $1,044,983,000, an increase of
$7,066,000 over the 2000 thirty-nine-week period. The increase was attributable
to increased revenue of $3,976,000 at the carrier segment and $3,668,000 at the
multimodal segment, partially offset by decreased revenue at the insurance
segment of $578,000. Overall, revenue per revenue mile (price) increased
approximately 1.5%, which reflected improved freight quality primarily at the
multimodal segment, and more than offset a slight decline in revenue miles
(volume).
Investment income at the insurance segment was $2,861,000 and $3,154,000 in the
2001 and 2000 periods, respectively. The decrease in investment income was
primarily due to a reduced rate of return on the investment portfolio held by
the insurance segment.
Purchased transportation was 74.1% 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, increased brokerage revenue at the carrier segment and
decreased revenue at the insurance 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
impacted gross profit and resulted in lower agent commissions.
11
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, increased independent contractor recruiting
and qualification costs and an increased provision for contractor bad debts.
Insurance and claims were 2.3% of revenue in 2001 compared with 2.4% in 2000.
The decrease in insurance and claims as a percentage of revenue was primarily
attributable to reduced premiums for commercial trucking liability insurance
and increased brokerage revenue as a percentage of total revenue, which has a
lower claims risk profile. Selling, general and administrative costs were 7.3%
of revenue in 2001 compared with 7.4% 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 debts. 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.
Approximately 100 Landstar Ranger drivers are represented by the International
Brotherhood of Teamsters (the "Teamsters"). The vast majority of these
unionized drivers participate in the Teamsters' Central States Southeast and
Southwest Areas Pension Fund (the "Fund"). Under a prior collective bargaining
agreement, Landstar Ranger was required to make contributions to various
Teamster pension funds for 205 drivers regardless of the actual number
of unionized drivers. Effective April 1, 2000, a new collective
bargaining agreement required Landstar Ranger to make pension
contributions for only the actual number of unionized drivers.
As a result of the elimination of the requirement to make contributions
for more than the actual number of unionized drivers, the Trustees of the
Fund have terminated participation in the Fund by Landstar Ranger
effective October 1, 2000. The Trustees of the Fund regard this action as
a withdrawal by Landstar Ranger. In the third quarter of 2000, the Company
recorded a charge in the amount of $2,230,000 for its estimated withdrawal
liability from the Fund.
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. The restructuring and relocation were substantially
completed as of September 23, 2000.
Interest and debt expense was 0.5% of revenue in 2001 and 0.6% of revenue in
2000. The decrease in interest expense as a percentage of revenue was primarily
attributable to lower interest rates, partially offset by increased capital
lease obligations for trailing equipment.
The provisions for income taxes for the 2001 and 2000 thirty-nine-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 $31,217,000, or $3.71 per common share ($3.62 per diluted
share), in the 2001 period compared with $29,292,000, or $3.29 per common share
($3.21 per diluted share), in the 2000 period. Excluding non-recurring costs,
net income would have been $32,457,000, or $3.64 per common share ($3.56
diluted earnings per share) in the 2000 period.
12
THIRTEEN WEEKS ENDED SEPTEMBER 29, 2001 COMPARED TO THIRTEEN WEEKS
ENDED SEPTEMBER 23, 2000
Revenue for the 2001 thirteen-week period was $355,684,000, an increase of
$3,328,000 over the 2000 thirteen-week period. The increase was
attributable to increased revenue at the multimodal segment of $4,496,000,
partially offset by decreased revenue of $1,074,000 and $94,000 at the carrier
and insurance segments, respectively. Overall, revenue per revenue mile
increased approximately 2%, which reflected improved freight quality primarily
at the multimodal segment, and more than offset a 1% decline in revenue miles.
Investment income at the insurance segment was $902,000 and $1,200,000 in
the 2001 and 2000 periods, respectively. The decrease in investment income
was primarily due to a reduced rate of return on the investment portfolio
held by the insurance segment.
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 due to increased purchased transportation rates charged by third
party capacity providers at the multimodal segment and increased brokerage
revenue at the carrier segment. Commissions to agents were 8.0% of revenue in
2001 and 8.1% of revenue in 2000. The decrease in commissions to agents as a
percentage of revenue was primarily caused by the increased purchase
transportation costs incurred at the multimodal segment which negatively
impacted gross profit and resulted in lower agent commissions. Other operating
costs were 2.2% of revenue in 2001 compared with 2.0% in 2000. The increase in
other operating costs as a percentage of revenue was primarily due to higher
net trailer costs and increased independent contractor recruiting and
qualification costs. Insurance and claims were 1.9% of revenue in 2001 compared
with 1.8% in 2000. The increase in insurance and claims as a percentage of
revenue was primarily attributable to favorable development of prior year
claims in 2000, partially offset by reduced premiums for commercial trucking
liability insurance in 2001. Selling, general and administrative costs were
7.1% of revenue in 2001 and 2000. Depreciation and amortization was 0.9% of
revenue in 2001 and 2000.
Interest and debt expense was 0.4% and 0.7% of revenue in 2001 and 2000,
respectively. The decrease was primarily attributable to 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 $11,930,000, or $1.45 per common share ($1.41 per diluted
share), in the 2001 period compared with $11,516,000, or $1.33 per common
share ($1.30 per diluted share), in the 2000 period. Excluding the non-
recurring costs related to the estimated withdrawal liability, net income
would have been $12,866,000, or $1.48 per common share ($1.45 diluted earnings
per share) in the 2000 period.
13
CAPITAL RESOURCES AND LIQUIDITY
Shareholders' equity decreased to $104,823,000 at September 29, 2001 compared
with $107,859,000 at December 30, 2000, primarily as a result of the purchase
of 500,000 shares of the Company's common stock at an aggregate cost of
$37,199,000, partially offset by net income for the period. Shareholders'
equity was 50% and 53% of total capitalization at September 29, 2001 and
December 30, 2000, respectively. As of September 29, 2001 the Company may
purchase an additional 500,000 shares of its common stock under its
authorized stock repurchase program.
Working capital and the ratio of current assets to current liabilities were
$107,164,000 and 1.73 to 1, respectively, at September 29, 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 $31,331,000 in the 2001 period compared
with $28,934,000 in the 2000 period. The increase in cash flow provided by
operating activities was primarily attributable timing of payments.
During the 2001 period, Landstar purchased $4,902,000 of operating property.
Management anticipates purchasing approximately $1,000,000 of operating
property during the remainder of fiscal year 2001.
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
None.
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
The Company's Form 8-K filed with the Securities and Exchange
Commission on August 15, 2001 made comment to erroneous
information on four separate Form 4 filings that were made
by the Company on August 10, 2001.
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 Thirty-Nine and Thirteen Weeks Ended
September 29, 2001 and September 23, 2000
11.2 * Landstar System, Inc. and Subsidiary Calculation of Diluted
Earnings Per Share for the Thirty-Nine and Thirteen Weeks
Ended September 29, 2001 and September 23, 2000
__________________
* Filed herewith
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LANDSTAR SYSTEM, INC.
Date: November 8, 2001 Henry H. Gerkens
----------------------------
Henry H. Gerkens
President and
Chief Financial Officer;
Principal Financial Officer
Date: November 8, 2001 Robert C. LaRose
----------------------------
Robert C. LaRose
Vice President Finance, Treasurer and
Secretary; Principal
Accounting Officer
19