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 26, 1998
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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.)
4160 Woodcock Drive, Jacksonville, Florida 32207
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(Address of principal executive offices) (Zip Code)
(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. [ ]
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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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1998 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 22, 1999 was 10,276,833; and the aggregate market value of the voting
stock held by non-affiliates of the registrant was $329,815,872 (based on the
$33.188 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.
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LANDSTAR SYSTEM, INC.
1998 Annual Report on Form 10-K
Table of Contents
Part I
Page
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Item 1. Business 4
Item 2. Properties 14
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Part II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 15
Item 6. Selected Financial Data 15
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15
Item 7a. Quantitative and Qualitative Disclosures about
Market Risk 16
Item 8. Financial Statements and Supplementary Data 16
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 16
Part III
Item 10. Directors and Executive Officers of the Registrant 17
Item 11. Executive Compensation 17
Item 12. Security Ownership of Certain Beneficial Owners
and Management 17
Item 13. Certain Relationships and Related Transactions 17
Part IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 18
Signatures 19
Index to Exhibits 21
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Part I
Item 1. - Business
General
Landstar System, Inc. (herein referred to as "Landstar" or the "Company")
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 Contractor Financing, Inc. ("LCFI"),
Landstar Capacity Services, Inc., Risk Management Claim Services, Inc.
("RMCS"), Landstar Corporate Services, Inc. and Signature Insurance
Company ("Signature"). Landstar Ranger, Landstar Inway, Landstar Ligon,
Landstar Gemini, Landstar Logistics and Landstar Express
America are collectively herein referred to as Landstar's "Operating
Subsidiaries" or "Operating Companies." The Company's principal executive
offices are located at 4160 Woodcock Drive, Jacksonville, Florida 32207 and
its telephone number is (904) 390-1234.
Historical Background
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), 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($1.3 million)
and certain institutional stockholders ($.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 shares of Landstar Common Stock, and
affiliates of BT Alex. Brown retained approximately 1% of the Common Stock
outstanding.
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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-
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 businesses acquired from ITCO and Express
comprise the majority of the multimodal 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 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. During 1997 and
1996, the Company incurred approximately $3,247,000 and $5,937,000 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.
On August 22, 1998, Landstar Poole, which comprised the entire company-owned
tractor segment, completed the sale of all of its tractors and trailers,
certain operating assets and the Landstar Poole business to Schneider
National, Inc. for approximately $40,435,000 in cash. Accordingly, the
financial results of this segment have been reported as discontinued
operations.
Description of Business
Landstar, a transportation services company, operates one of the largest
truckload carrier businesses in North America, with revenue of $1.3 billion
in 1998. The Company provides transportation services which
emphasize information coordination and customer service delivered primarily by
a network of over 1,000 independent commission sales agents. The
Company's truckload capacity is provided by independent contractors.
Landstar distinguishes itself from many other large truckload carriers by
utilizing a wide range of specialized equipment designed to meet customers'
varied transportation requirements. The Company transports a variety of
freight, including iron and steel, automotive products, paper, lumber and
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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
services to shippers throughout the continental United States and, to a lesser
extent, between the United States and each of Canada and Mexico.
The Company has determined it has three reportable business segments under the
provisions of Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 131, "Disclosure about Segments of an Enterprise and
Related Information." These are the carrier, multimodal and insurance segments.
The following table provides financial information relating to the Company's
reportable business segments as of and for the fiscal years ending 1998, 1997
and 1996 (dollars in thousands):
Fiscal Year
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1998 1997 1996
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Revenue from unaffiliated customers:
Carrier segment $ 981,427 $ 945,330 $ 905,472
Multimodal segment 277,999 255,041 224,384
Insurance segment 24,181 18,940
Inter-segment revenue:
Carrier segment $ 38,517 $ 39,453 $ 37,479
Multimodal segment 535 968 1,160
Insurance segment 24,175 15,452
Operating income:
Carrier segment $ 67,536 $ 62,280 $ 57,031
Multimodal segment 8,272 5,355 4,584
Insurance segment 19,479 7,863 (799)
Other (33,833) (29,177) (22,462)
Identifiable assets:
Carrier segment $ 199,287 $ 192,143 $ 212,034
Multimodal segment 66,120 64,055 56,547
Insurance segment 24,179 22,101 480
Discontinued segment 68,791 85,526
Other 24,079 10,089 16,214
The carrier segment is comprised of three of Landstar's operating subsidiaries,
Landstar Ranger, Landstar Inway and Landstar Ligon. The carrier segment
provides truckload transportation for a wide range of general commodities over
irregular routes with its fleet of dry and specialty vans and unsided trailers,
including flatbed, drop deck and specialty. The carrier segment markets its
services primarily through independent commission sales agents and utilizes
tractors provided by independent contractors. The nature of the carrier segment
business is such that a significant portion of its operating costs varies
directly with revenue. At December 26, 1998, the carrier segment operated a
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fleet of approximately 7,900 tractors, provided by approximately 6,200
independent contractors, and approximately 12,300 trailers, 6,100 of which are
supplied by independent contractors. Approximately 77% 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
by the trailer. The carrier segment's trailer fleet is comprised of
approximately 7,700 dry vans, 3,400 flatbeds, 900 specialty and 300
refrigerated vans. The carrier segment has a network of approximately 840
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
generated. The use of independent contractors enables the carrier segment to
utilize a large fleet of revenue equipment while minimizing capital investment
and fixed costs, thereby enhancing return on investment. Independent
contractors who provide truckload capacity to the carrier segment are
compensated on the basis of a fixed percentage of the revenue generated from
the shipments they haul.
The multimodal segment is comprised of Landstar Logistics and 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, 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. Agent
compensation in the multimodal segment is based on a percentage 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-upon fixed fee. The nature
of the multimodal segment business is such that a significant portion of its
operating costs varies directly with revenue. At December 26, 1998, the
multimodal segment operated a fleet of 630 trucks, provided by approximately
570 independent contractors. Multimodal segment independent contractors provide
primarily power-only truck capacity, whereby the freight is hauled by an
independent contractor in a customer trailer or container. Cargo vans and
straight trucks are utilized for emergency and expedited freight services.
The multimodal segment has a network of approximately 240 independent
commission sales agents.
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The insurance segment is comprised of Signature, a wholly-owned offshore
insurance subsidiary that was formed in March 1997, and RMCS. The insurance
segment provides risk and claims management services for 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.
Landstar's business strategy is to offer high quality, specialized
transportation services through its transportation group to service-sensitive
customers. Landstar focuses on providing transportation services which
emphasize customer service and information coordination among its independent
commission sales agents, customers and capacity providers, rather
than the volume-driven approach of generic dry van carriers. Landstar intends
to continue developing appropriate systems and technologies that offer
integrated transportation and logistics solutions to meet the total
transportation needs of its customers.
The Company'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 qualify 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.
Management believes the Company has a number of significant competitive
advantages, including:
DIVERSITY OF SERVICES OFFERED. The Company offers its customers a wide range
of primarily truckload transportation services through the carrier and
multimodal groups, 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.
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The following table illustrates the diversity of this equipment as of
December 26, 1998:
Trailers:
Vans 7,593
Specialty Vans 95
Temperature-Controlled 328
Flatbeds 2,428
Drop Deck/Low Boys 1,027
Light Specialty 64
Other Specialized Flatbeds 826
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Total 12,361
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MARKETING NETWORK. Landstar's network of over 1,000
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 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 a percentage of the
revenue generated through that agent, with volume-based incentives. An agent in
the multimodal segment is typically paid a contractually agreed-upon percentage
of the gross profit on revenue generated through that agent. During 1998, more
than 370 agents generated revenue for Landstar of at least $1 million each, or
approximately $1.0 billion of Landstar's total revenue. The majority of the
agents who generate revenue of $1 million or more have chosen to represent
Landstar exclusively. 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-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 among its larger volume agents. Each operating subsidiary emphasizes
programs to support the agents' operations and to establish pricing
parameters. Each operating subsidiary contracts directly with customers and
generally assumes the credit risk and liability for freight losses or damages.
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The carrier segment and multimodal segment generally dispatch their fleets
through their local agents. The carrier segment and multimodal segment hold
regular regional agent meetings for their independent commission sales agents
and Landstar holds an annual company-wide agent convention.
TECHNOLOGY. Management 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 programs centrally through its information services department.
The Company is aware of the issues associated with the programming code in its
existing computer systems in order for the systems to recognize date sensitive
information when the year changes to 2000. Information regarding the Company's
computer system year 2000 status is included in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages 25 to 31 of
the Company's 1998 Annual Report to shareholders and is included in this report
on Form 10-K as Exhibit 13.
CORPORATE SERVICES. Significant advantages result from the collective
expertise and corporate services afforded by Landstar's corporate
management. The primary services provided are:
safety purchasing
strategic planning human resource management
technology and management information systems finance
legal accounting, budgeting and taxes
quality programs
INDEPENDENT CONTRACTORS. Landstar operates the largest fleet of truckload
independent contractors in North America. This provides marketing, operating,
safety, recruiting, retention and financial advantages to the Company. Most
of the Company's truckload independent contractors are compensated based on
a fixed percentage of the revenue generated from the freight they haul. This
percentage generally ranges from 60% to 70% where the independent contractor
provides a tractor and from 75% to 79% where the independent contractor
provides both a tractor and trailer. The independent contractor must pay all
the expenses of operating his/her equipment, including driver wages and
benefits, fuel, physical damage insurance, maintenance, highway use taxes
and debt service.
In 1998, Landstar experienced a turnover rate among independent contractors of
approximately 51%. A significant percentage of this turnover was attributable
to independent contractors who had been independent contractors with the
Company for less than one year. Management believes that the lack of
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 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. This allows the
Company to maintain a lower level of capital investment, which results in lower
fixed costs.
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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.
Deregulation 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, although competition has created downward
pressure on the truckload industry's pricing structure, the Company has been
able to increase its overall revenue per revenue mile (price) by improving its
freight quality during the most recent years. 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
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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
("ICC") and is now regulated by the United States Department of
Transportation ("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.
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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'
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 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 requirements have not adversely affected the availability of
qualified drivers to the Company.
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 26, 1998, the Company and its subsidiaries employed
approximately 1,278 individuals. Approximately 130 Landstar Ranger drivers
(out of a total of approximately 3,700) are members of the International
Brotherhood of Teamsters. The Company considers relations with its employees
to be good.
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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. In addition, the Company's corporate headquarters are
located in Jacksonville, Florida and RMCS is located in Madisonville, Kentucky.
The Madisonville, Kentucky and Rockford, Illinois facilities of the carrier
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. On March 24, 1998, the court granted
defendant's motion to dismiss the RICO claim. Briefs were submitted on the
question of a private right of action to enforce the federal leasing
regulations at the court's behest and a decision is pending. The court will
likely refer Rivas' remaining claims to arbitration if a private right of
action and Federal court jurisdiction is sustained. Plaintiff may appeal
dismissal of the RICO claim. The Company continues to vigorously contest this
action. It believes that the drivers in question are properly classified as
independent contractors and 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 1998.
14
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.
Calendar Period 1998 Market Price 1997 Market Price
--------------- ----------------- -----------------
High Low High Low
First Quarter $ 32 1/2 $ 25 1/4 $ 26 1/2 $ 21 3/4
Second Quarter 35 5/32 30 3/4 29 23 1/2
Third Quarter 37 1/4 27 28 1/2 23 1/2
Fourth Quarter 45 5/8 21 1/16 28 3/4 23 5/8
The reported last sale price per share of the Common Stock as quoted through
the NASDAQ National Market System on March 22, 1999 was $33.188 per share. As
of such date, Landstar had 10,276,833 shares of Common Stock outstanding. As
of March 22, 1999, the Company had 86 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 brokers or dealers for their customers in street name.
The Company has not paid any cash dividends on the Common Stock within the past
three years 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 and other factors deemed relevant.
Item 6. - Selected Financial Data
The information required by this Item 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 46 of the Company's 1998 Annual Report to
Shareholders.
Item 7. - Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required by this Item 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
25 to 31 of the Company's 1998 Annual Report to Shareholders.
15
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
The Company has 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. As of December 26, 1998, the weighted average
interest rate on borrowings outstanding was 5.69%. During fiscal 1998, the
average outstanding balance under the Second Amended and Restated Credit
Agreement was $38,974,000. Based on the borrowing rates in the Second Amended
and Restated Credit Agreement and the repayment terms, the fair value of the
outstanding borrowings as of December 26, 1998 was estimated to approximate
carrying value.
The Second Amended and Restated Credit Agreement expires on
October 10, 2002. The amount outstanding on the acquisition facility is
payable upon the expiration of the Second Amended and Restated Credit
Agreement.
Item 8. - Financial Statements and Supplementary Data
The information required by this Item 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 32 through 45 of the
Company's 1998 Annual Report to Shareholders.
Item 9. - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
16
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 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 11. - Executive Compensation
The information required by this Item is set forth under the captions
"Compensation of Directors and Executive Officers," "Summary Compensation
Table," "Fiscal Year-End Option Values," "Report of the Compensation
Committee on Executive Compensation," "Performance Comparison" and
"Key Executive Employment Protection Agreements" on pages 9 through 14 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 15 through 16 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
Statement for its annual meeting of shareholders filed with the Securities and
Exchange Commission pursuant to Regulation 14A, and is incorporated herein by
reference.
17
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 LLP dated February 9, 1999, 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 32 through 44
of the Company's 1998 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 24 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 26, 1998 S-4
II Valuation and Qualifying Accounts
For the Fiscal Year Ended December 27, 1997 S-5
II Valuation and Qualifying Accounts
For the Fiscal Year Ended December 28, 1996 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, 4160 WOODCOCK DRIVE, JACKSONVILLE,
FLORIDA 32207.
(b) No reports on Form 8-K were filed during the last quarter of fiscal year
1998.
18
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 24, 1999
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 24, 1999
- - ------------------- Chief Executive Officer, Principal
Jeffrey C. Crowe Executive Officer
Henry H. Gerkens Executive Vice President & March 24, 1999
- - ------------------- Chief Financial Officer; Principal
Henry H. Gerkens Financial Officer
Robert C. LaRose Vice President Finance & Treasurer;
- - ------------------- Principal Accounting Officer March 24, 1999
Robert C. LaRose
* Senior Vice President and Director March 24, 1999
- - -------------------
John B. Bowron
* Director March 24, 1999
- - -------------------
David G. Bannister
* Director March 24, 1999
- - -------------------
Ronald W. Drucker
19
* Director March 24, 1999
- - -------------------
Merritt J. Mott
* Director March 24, 1999
- - -------------------
William S. Elston
* Director March 24, 1999
- - -------------------
Diana M. Murphy
* Attorney In Fact
- - ----------------------
By: Michael L. Harvey
20
EXHIBIT INDEX
Form 10-K for fiscal year ended 12/26/98
Exhibit No. Description
- - ----------- -----------
(1) Plan of acquisition, reorganization, arrangement, liquidation
or succession
2.1 Asset Purchase Agreement by and between Landstar Poole, Inc.
as the seller, and Landstar System, Inc., as the guarantor, and Schneider
National, Inc. as the purchaser dated as of July 15, 1998. (Incorporated by
reference to Exhibit 2.1 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 27, 1998 (Commission File No. 0-21238))
(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 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))
4.3 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))
4.4 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.
21
Exhibit Index (continued)
Form 10-K for fiscal year ended 12/26/98
Exhibit No. Description
- - ----------- -----------
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))
4.6* First Amendment, dated October 30, 1998, to the 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
(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))
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 (Incorporated by reference to Exhibit 10.9 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 27, 1997 (Commission
File NO. 0-21238))
22
Exhibit Index (continued)
Form 10-K for fiscal year ended 12/26/98
Exhibit No. Description
- - ----------- -----------
10.10+ Amendment to the Landstar System, Inc. 1993 Stock Option
Plan (Incorporated by reference to Exhibit 10.10 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 27, 1997 (Commission
File No. 0-21238))
10.11+* Form of Promissory Note between the Company and certain
directors, executive officers and management of the Company.
(11) Statement re: Computation of Per Share Earnings:
11.1* Landstar System, Inc. and Subsidiary Calculation of Earnings
Per 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 1998 Annual Report to Shareholders
(21) Subsidiaries of the Registrant:
21.1* List of Subsidiary Corporations of the Registrant
(23) Consents of Experts and Counsel:
23.1* Consent of KPMG LLP as Independent Auditors of the Registrant
(24) Power of Attorney
24.1* Powers of Attorney
(27) Financial Data Schedules
27.1* 1998 Financial Data Schedule
27.2* Restated 1997 Financial Data Schedule
___________________
+management contract or compensatory plan or arrangement
*Filed herewith.
23
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Landstar System, Inc.:
Under date of February 9, 1999, we reported on the consolidated balance sheets
of Landstar System, Inc. and subsidiary as of December 26, 1998 and December
27, 1997, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for the fiscal years ended December 26,
1998, December 27, 1997 and December 28, 1996, as contained in the 1998 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 1998. 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 LLP
Stamford, Connecticut
February 9, 1999
24
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. 26, Dec. 27,
1998 1997
-------- --------
Assets
- - ------
Investment in Landstar System Holdings, Inc.,
net of advances $111,848 $151,696
-------- --------
Total assets $111,848 $151,696
======== ========
Liabilities and Shareholders' Equity
- - -----------------------------------
Shareholders' equity:
Common stock, $.01 par value, authorized
20,000,000 shares, issued 13,041,574
and 12,900,974 shares $ 130 129
Additional paid-in capital 65,198 62,169
Retained earnings 124,237 112,345
Cost of 2,618,041 and 915,441 shares of common
stock in treasury (76,176) (22,947)
Notes receivable arising from exercise of
stock options (1,541)
-------- --------
Total shareholders' equity 111,848 151,696
-------- --------
Total liabilities and shareholders' equity $111,848 $151,696
======== ========
S-1
25
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 YEARS ENDED
-----------------------------------------------
Dec. 26, Dec. 27, Dec. 28,
1998 1997 1996
---------- ---------- -----------
Rental income $ 648 $ 682
Amortization expense (626) (626)
Interest expense (22) (56)
Equity in undistributed earnings
of Landstar System Holdings, Inc. $ 11,897 24,736 18,942
Income taxes (5) (46) (17)
---------- ---------- -----------
Net income $ 11,892 $ 24,690 $ 18,925
========== ========== ===========
Earnings per common share $ 1.08 $ 1.97 $ 1.48
========== ========== ===========
Diluted earnings per share $ 1.07 $ 1.96 $ 1.47
========== ========== ===========
Average number of shares
outstanding:
Earnings per common share 11,022,000 12,541,000 12,785,000
========== ========== ===========
Diluted earnings per share 11,123,000 12,580,000 12,831,000
========== ========== ==========
S-2
26
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PARENT COMPANY ONLY STATEMENT OF CASH FLOWS INFORMATION
(Dollars in thousands)
FISCAL YEARS ENDED
-----------------------------------------------
Dec. 26, Dec. 27, Dec. 28,
1998 1997 1996
---------- ---------- -----------
Operating Activities
- - --------------------
Net income $ 11,892 $ 24,690 $ 18,925
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Amortization of operating property 626 626
Equity in undistributed earnings of
Landstar System Holdings, Inc. (11,897) (24,736) (18,942)
---------- ---------- -----------
Net Cash Provided (Used) By Operating
Activities (5) 580 609
---------- ---------- -----------
Investing Activities
- - --------------------
Additional investments in and advances
from (to) Landstar System Holdings,
Inc., net 51,745 20,384 (223)
---------- ---------- -----------
Net Cash Provided (Used) By Investing
Activities 51,745 20,384 (223)
---------- ---------- -----------
Financing Activities
- - --------------------
Principal payments on borrowings under
capital lease obligations (413) (622)
Proceeds from sales of common stock 1,489 429 236
Purchases of common stock (53,229) (20,980)
---------- ---------- ----------
Net Cash Used By Financing
Activities (51,740) (20,964) (386)
---------- ---------- ----------
Change in cash 0 0 0
Cash at beginning of period 0 0 0
---------- --------- -----------
Cash at end of period $ 0 $ 0 $ 0
========== ========= ===========
S-3
27
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEAR ENDED DECEMBER 26, 1998
(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(A) Describe Describe(B) of Period
- - ----------- --------- ---------- -------------- ---------- ---------
Allowance for doubtful
accounts:
Deducted from trade
receivables $ 5,957 $ 3,238 $ - $ (2,767) $ 6,428
Deducted from other
receivables 4,009 818 - (820) 4,007
Deducted from other
non-current
receivables 58 245 - - 303
------- --------- --------- -------- -------
$10,024 $ 4,301 $ - $ (3,587) $10,738
======= ========= ========= ======== =======
(A) Includes $25 charged to costs and expenses of discontinued operations.
(B) Write-offs, net of recoveries.
S-4
28
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(A) Describe Describe(B) 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) Includes $234 of recoveries related to discontinued operations.
(B) Write-offs, net of recoveries.
S-5
29
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(A) Describe Describe (B) 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) Includes $715 charged to costs and expenses of discontinued operations.
(B) Write-offs, net of recoveries.
S-6