-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AV9KRFXrLOFNXwYIvw8EQIa9iPYScmdg2gO9am4P+uppQ0SXFeSZIIvJkKlzZ90n 0etS/9TbjYKj+v+1T2GDkQ== 0000853816-97-000015.txt : 19970811 0000853816-97-000015.hdr.sgml : 19970811 ACCESSION NUMBER: 0000853816-97-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970628 FILED AS OF DATE: 19970808 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: LANDSTAR SYSTEM INC CENTRAL INDEX KEY: 0000853816 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 061245498 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-21238 FILM NUMBER: 97653548 BUSINESS ADDRESS: STREET 1: FIRST SHELTON PL STREET 2: 1000 BRIDGEPORT AVE CITY: SHELTON STATE: CT ZIP: 06484 BUSINESS PHONE: 2039252900 MAIL ADDRESS: STREET 1: FIRST SHELTON PL STREET 2: 1000 BRDGEPORT AVE CITY: SHELTON STATE: CT ZIP: 06484 10-Q 1 LANDSTAR SYSTEM, INC. FORM 10-Q, 6/28/97 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 28, 1997 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.) 4160 Woodcock Drive, Jacksonville, Florida (Address of principal executive offices) 32207 (Zip Code) (904) 390-1234 (Registrant's telephone number, including area code) First Shelton Place, 1000 Bridgeport Avenue, Shelton, Connecticut (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ( X ) No ( ) The number of shares of the registrant's Common Stock, par value $.01 per share, outstanding as of the close of business on August 7, 1997 was 12,623,933. , PART I FINANCIAL INFORMATION Item 1. Financial Statements The interim consolidated financial statements contained herein reflect all adjustments (all of a normal, recurring nature) which, in the opinion of management, are necessary for a fair statement of the financial condition, results of operations, cash flows and changes in shareholders' equity for the periods presented. They have been prepared in accordance with Rule 10-01 of Regulation S-X and do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. Operating results for the twenty-six and thirteen weeks ended June 28, 1997 are not necessarily indicative of the results that may be expected for the entire fiscal year ending December 27, 1997. These interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's 1996 Annual Report on Form 10-K. Index Item 1 Consolidated Balance Sheets as of June 28, 1997 and December 28, 1996 ................................................ Page 3 Consolidated Statements of Income for the Twenty-Six and Thirteen Weeks Ended June 28, 1997 and June 29, 1996 ................................ Page 4 Consolidated Statements of Cash Flows for the Twenty-Six Weeks Ended June 28, 1997 and June 29, 1996 ................................ Page 5 Consolidated Statement of Changes in Shareholders' Equity for the Twenty-Six Weeks Ended June 28, 1997 .................. Page 6 Notes to Consolidated Financial Statements.............................. Page 7 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations......................... Page 8 2 LANDSTAR SYSTEM, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share amounts) (Unaudited)
June 28, December 28, 1997 1996 ------------- ------------ ASSETS Current assets: Cash $ 3,612 $ 4,187 Short-term investments 3,324 Trade accounts receivable, less allowance of $6,285 169,548 176,892 and $6,526 Other receivables, including advances to independent contractors, less allowance of $4,970 and $4,390 15,335 10,740 Inventories 1,161 1,785 Prepaid expenses and other current assets 9,321 7,319 ----------- ----------- Total current assets 202,301 200,923 ----------- ----------- Operating property, less accumulated depreciation and amortization of $48,708 and $50,223 95,854 105,564 Goodwill, less accumulated amortization of $7,953 and $7,087 54,260 55,126 Deferred income taxes and other assets 8,387 9,188 ----------- ----------- Total assets $ 360,802 $ 370,801 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Cash overdraft $ 15,863 $ 13,488 Accounts payable 50,202 39,901 Current maturities of long-term debt 17,767 23,241 Estimated insurance claims 27,976 25,328 Other current liabilities 23,176 28,312 ----------- ----------- Total current liabilities 134,984 130,270 ----------- ----------- Long-term debt, excluding current maturities 43,998 67,155 Estimated insurance claims 28,499 25,819 Shareholders' equity: Common stock, $.01 par value, authorized 20,000,000 shares, issued 12,895,974 shares and 12,882,874 shares 129 129 Additional paid-in capital 62,049 61,740 Retained earnings 97,100 87,655 Cost of 273,041 and 94,041 shares of common stock in treasury (5,957) (1,967) ----------- ----------- Total shareholders' equity 153,321 147,557 ----------- ----------- Total liabilities and shareholders' equity $ 360,802 $ 370,801 =========== =========== See accompanying notes to consolidated financial statements. 3
LANDSTAR SYSTEM, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per share amounts) (Unaudited)
Twenty-Six Weeks Ended Thirteen Weeks Ended ----------------------- ----------------------- June 28, June 29, June 28, June 29, 1997 1996 1997 1996 ---------- ---------- ---------- ---------- Revenue $ 639,240 $ 624,589 $ 333,682 $ 329,112 Costs and expenses: Purchased transportation 447,069 425,229 231,947 225,016 Drivers' wages and benefits 15,250 22,730 7,105 11,225 Fuel and other operating costs 25,755 37,292 12,592 19,514 Insurance and claims 23,791 17,756 14,460 7,959 Commissions to agents and brokers 47,705 40,661 24,986 21,894 Selling, general and administrative 46,921 47,269 22,755 23,199 Depreciation and amortization 10,443 12,201 5,329 6,187 Restructuring costs 3,164 1,985 ---------- ---------- ---------- ---------- Total costs and expenses 620,098 603,138 321,159 314,994 ---------- ---------- ---------- ---------- Operating income 19,142 21,451 12,523 14,118 Interest and debt expense, net 2,861 3,973 1,422 2,051 ---------- ---------- ---------- ---------- Income before income taxes 16,281 17,478 11,101 12,067 Income taxes 6,836 7,310 4,661 5,053 ---------- ---------- ---------- ---------- Net income $ 9,445 $ 10,168 $ 6,440 $ 7,014 ========== ========== ========== ========== Earnings per share $ 0.75 $ 0.80 $ 0.51 $ 0.55 ========== ========== ========== ========== Average number of common shares outstanding 12,672,000 12,781,000 12,618,000 12,783,000 ========== ========== ========== ========== See accompanying notes to consolidated financial statements. 4
LANDSTAR SYSTEM, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited)
Twenty-Six Weeks Ended --------------------------- June 28, June 29, 1997 1996 ----------- ----------- OPERATING ACTIVITIES Net income $ 9,445 $ 10,168 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization of operating property 9,372 11,113 Amortization of goodwill and non-competition agreements 1,071 1,088 Non-cash interest charges 132 132 Provisions for losses on trade and other accounts receivable 1,476 1,361 Gains on sales of operating property (1,502) (1,183) Deferred income taxes, net 1,299 (176) Changes in operating assets and liabilities: Decrease (increase) in trade and other accounts receivable 1,273 (23,032) Increase in inventories, prepaid expenses and other assets (738) (3,958) Increase in accounts payable and other liabilities 5,165 348 Increase (decrease) in estimated insurance claims 5,328 (352) ----------- ----------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 32,321 (4,491) ----------- ----------- INVESTING ACTIVITIES Purchases of investments (4,799) Purchases of operating property (7,332) (4,774) Proceeds from sales of operating property 9,172 4,616 ----------- ----------- NET CASH USED BY INVESTING ACTIVITIES (2,959) (158) ----------- ----------- FINANCING ACTIVITIES Borrowings under revolving credit facility 16,000 Increase (decrease) in cash overdraft 2,375 (861) Proceeds from exercise of stock options and related income tax benefit 309 217 Purchases of common stock (3,990) Principal payments on long-term debt and capital lease obligations (28,631) (10,619) ----------- ----------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (29,937) 4,737 ----------- ----------- Increase (decrease) in cash (575) 88 Cash at beginning of period 4,187 3,415 ----------- ----------- Cash at end of period $ 3,612 $ 3,503 =========== =========== See accompanying notes to consolidated financial statements. 5
LANDSTAR SYSTEM, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY Twenty-Six Weeks Ended June 28, 1997 (Dollars in thousands) (Unaudited)
Treasury Stock Common Stock Additional at Cost ------------------ Paid-In Retained ---------------- Shares Amount Capital Earnings Shares Amount Total ---------- ------- --------- -------- -------- ------- --------- Balance December 28, 1996 12,882,874 $ 129 $61,740 $87,655 94,041 $(1,967) $147,557 Purchases of common stock 179,000 (3,990) (3,990) Exercise of stock options and related income tax benefit 13,100 309 309 Net income 9,445 9,445 ---------- ------- -------- -------- -------- -------- --------- Balance June 28, 1997 12,895,974 $ 129 $62,049 $97,100 273,041 $(5,957) $153,321 ========== ======= ======== ======== ======== ======== ========= 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". (1) Income Taxes The provisions for income taxes for both the 1997 and 1996 twenty-six week periods were based on an estimated combined full year effective income tax rate of approximately 42%, which is higher than the statutory federal income tax rate, primarily as a result of state income taxes, amortization of certain goodwill and the meals and entertainment exclusion. (2) Earnings Per Share Earnings per share amounts were based on the weighted average number of common shares outstanding. (3) Additional Cash Flow Information During the 1997 period, Landstar paid income taxes and interest of $9,883,000 and $3,032,000 respectively, and did not acquire any operating property by entering into capital leases. During the 1996 period, Landstar paid income taxes and interest of $10,430,000 and $3,523,000, respectively, and acquired operating property by entering into capital leases in the amount of $13,697,000. (4) Commitments and Contingencies At June 28, 1997, Landstar had commitments for letters of credit outstanding in the amount of $18,959,000, primarily as collateral for estimated insurance claims. 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. 7 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 28, 1996 and Management's Discussion and Analysis of Financial Condition and Results of Operations, included in the 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 provides truckload transportation, intermodal transportation services, expedited air and surface transportation and contract logistics services. The Company provides truckload and expedited surface transportation through independent contractors, and to a lesser extent company-owned equipment driven by company-employed drivers. The Company's intermodal and expedited air transportation services primarily involve arranging for the movement of customer's goods by a combination of rail or air and truck. Both the railroads and air cargo carriers used by the Company in its intermodal and expedited air operations are independent contractors. Contract logistics services include single source alternatives, truck brokerage and other transportation solutions for large customers. The Company markets its transportation services and provides local operating support primarily through a network of independent commission sales agents. In March 1997, Landstar formed Signature Insurance Company ("Signature"), a wholly-owned offshore insurance subsidiary. Signature's primary activity is the reinsurance of certain property, casualty and occupational accident risks of the independent contractors who have contracted to haul freight with Landstar. Prior to contracting with Landstar, these independent contractors, who provide truck capacity, must provide proof of insurance for certain coverages, which Signature may reinsure. In addition, it is the Company's intention to have Signature provide certain property, casualty and workers compensation insurance directly to Landstar's operating subsidiaries. A significant portion of the Company's operating costs vary directly with revenue due to the use of independent contractors and independent commission sales agents. 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 truckload and expedited surface transportation. Purchased transportation for intermodal and expedited air transportation is based on a contractually agreed-upon fixed rate. Purchased transportation as a percentage of revenue for intermodal transportation is normally higher than that of Landstar's other transportation services. 8 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 and brokers are primarily based on contractually agreed upon percentages of revenue or contractually agreed upon percentages of gross profit. Commissions to agents and brokers as a percentage of consolidated revenue will vary directly with the revenue generated through independent commission sales agents. Both purchased transportation and commissions to agents and brokers 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, intermodal operations or expedited air operations or through company-employed drivers. Drivers' wages and benefits represent the amount company-employed drivers are compensated. Employee drivers are compensated primarily on a cents per mile driven basis. Drivers' wages and benefits as a percentage of consolidated revenue generally will vary only if there is a change in the revenue contribution generated by Signature or through independent contractors or a change in Landstar's rate of employee driver pay or benefit structure. The Company's intention is to continue its expansion of truckload capacity provided by independent contractors and to reduce its truckload capacity provided by company-owned equipment and company-employed drivers. It is also the Company's intention to favor independent commission sales agent locations over company-owned and operated locations. Historically, the intermodal operations and a portion of the company-owned equipment operations have principally utilized a company employee sales structure and to a lesser degree, independent commission sales agents. During 1996, management completed the process of converting the majority of the company-owned sales locations to independent commission sales agent locations. Accordingly, purchased transportation and commissions to agents and brokers are anticipated to increase as a percentage of total consolidated revenue and drivers' wages and benefits are anticipated to decline as a percentage of total consolidated revenue over time. Potential liability associated with accidents in the trucking industry is severe and occurrences are unpredictable. The industry is also subject to substantial workers' compensation expense. 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. The cost of fuel, including fuel taxes, is the largest component of fuel and other operating costs. Changes in prevailing prices of fuel or increases in fuel taxes can significantly affect the operating results of the company-owned equipment operations. Also included in fuel and other operating costs are costs of equipment maintenance paid to third parties and the operating costs of Company terminals. Effective August 1, 1996, Landstar closed all but one of its Company terminals, including those that had functioned as Landstar Centers. The closings were part of the Company's strategy to reduce its fixed cost elements. Employee compensation and benefits account for more than half of the Company's selling, general and administrative expense. Other significant components of selling, general and administrative expense are data processing expense, communications costs and rent expense. 9 The following table sets forth the percentage relationships of expense items to revenue for the periods indicated:
Twenty-Six Weeks Ended Thirteen Weeks Ended -------------------------- ----------------------- June 28, June 29, June 28, June 29, 1997 1996 1997 1996 ---------- ---------- ---------- ---------- Revenue 100.0% 100.0% 100.0% 100.0% Costs and expenses: Purchased transportation 69.9% 68.1% 69.5% 68.4% Drivers' wages and benefits 2.4% 3.6% 2.1% 3.4% Fuel and other operating costs 4.0% 6.0% 3.8% 5.9% Insurance and claims 3.7% 2.8% 4.4% 2.4% Commissions to agents and brokers 7.5% 6.5% 7.5% 6.7% Selling, general and administrative 7.4% 7.6% 6.8% 7.0% Depreciation and amortization 1.6% 2.0% 1.6% 1.9% Restructuring costs 0.5% 0.6% ------- ------- ------- ------- Total costs and expenses 97.0% 96.6% 96.3% 95.7% ------- ------- ------- ------- Operating income 3.0% 3.4% 3.7% 4.3% Interest and debt expense, net 0.4% 0.6% 0.4% 0.6% ------- ------- ------- ------- Income before income taxes 2.6% 2.8% 3.3% 3.7% Income taxes 1.1% 1.2% 1.4% 1.6% ------- ------- ------- ------- Net income 1.5% 1.6% 1.9% 2.1% ======= ======= ======= =======
TWENTY-SIX WEEKS ENDED JUNE 28, 1997 COMPARED TO TWENTY-SIX WEEKS ENDED JUNE 29, 1996 Revenue for the 1997 twenty-six week period was $639,240,000, an increase of $14,651,000, or 2.3%, over the 1996 twenty-six week period. The increase in revenue was primarily attributable to premium revenue of $7,694,000 generated by Signature and an overall increase in rate per mile (price) of approximately 3%, which reflected improved freight quality. The increase in revenue was partially offset by a decrease in revenue miles (volume), which reflected the planned reduction in company-owned tractors. In the 1997 period, revenue generated through independent contractors, including railroads and air cargo carriers, was 92.5% of total consolidated revenue compared with 89.2% in the 1996 period. Purchased transportation was 69.9% of revenue in 1997 compared with 68.1% in 1996. Drivers' wages and benefits were 2.4% of revenue in 1997 compared with 3.6% in 1996. Fuel and other operating costs were 4.0% of revenue in 1997 compared with 6.0% in 1996. The increase in purchased transportation and decrease in drivers' wages and benefits and fuel and other operating costs as a percentage of revenue was primarily attributable to an increase in the 10 percentage of revenue generated through independent contractors which reflected the reduction in company-owned equipment in accordance with a previously announced restructuring plan. The decrease in fuel and other operating costs as a percentage of revenue was also attributable to reduced terminal and maintenance costs, partially offset by increased trailer costs. Insurance and claims were 3.7% of revenue in 1997 compared with 2.8% of revenue in 1996. Excluding Signature, insurance and claims were 3.1% of revenue in 1997. The increase in insurance and claims as a percentage of revenue compared to the prior year, excluding Signature, was primarily attributable to the favorable development of prior years claims during the 1996 period. Commission to agents and brokers were 7.5% of revenue in 1997 compared with 6.5% of revenue in 1996, primarily due to an increased percentage of revenue generated through independent commission sales agents, which reflected the conversion of company-owned sales locations to independent commission sales agent locations. Selling, general and administrative costs were 7.4% of revenue in 1997 compared with 7.6% in 1996, primarily due to the effect of increased revenue, partially offset by sales and marketing costs incurred by Signature and an increased provision for bonuses under the Company's management incentive compensation plan. Depreciation and amortization was 1.6% of revenue in 1997 compared with 2.0% in 1996, primarily due to a decrease in the number of company-owned tractors. During the fourth quarter of 1996, the Company announced a plan to restructure its Landstar T.L.C., Inc. ("Landstar T.L.C.") and Landstar Poole, Inc. ("Landstar Poole") operations, in addition to the relocation of its Shelton, Connecticut office headquarters to Jacksonville, Florida in the second quarter of 1997. The Landstar Poole restructuring plan included the transfer of the variable cost business component of Landstar Poole to Landstar Ranger, Inc. and the disposal of 175 company-owned tractors. The Landstar T.L.C. restructuring plan included the merger of Landstar T.L.C. into Landstar Inway, Inc. and the disposal of all the company-owned tractors. During the twenty-six week period of 1997, the Company incurred $3,164,000 of such restructuring costs. As of June 28, 1997, the restructuring was substantially complete. Interest and debt expense, net was 0.4% of revenue in 1997 and 0.6% in 1996. This decrease was primarily attributable to lower average borrowings on the senior credit facility and reduced capital lease obligations. The provisions for income taxes for both the 1997 and 1996 twenty-six week periods were based on an estimated full year combined effective income tax rate of approximately 42%, which is higher than the statutory federal income tax rate primarily as a result of state income taxes, amortization of certain goodwill and the meals and entertainment exclusion. Net income was $9,445,000, or $0.75 per share, in the 1997 period, compared with $10,168,000, or $0.80 per share, in 1996. Excluding restructuring costs, 1997 net income would have been $11,280,000, or $0.89 per share. THIRTEEN WEEKS ENDED JUNE 28, 1997 COMPARED TO THIRTEEN WEEKS ENDED JUNE 29, 1996 Revenue for the 1997 thirteen week period was $333,682,000, an increase of $4,570,000, or 1.4%, over the 1996 thirteen week period. The increase was primarily attributable to premium revenue of $7,694,000 generated by Signature. An increase in revenue per revenue mile of approximately 3%, which reflected improved freight quality, was more than offset by a decline in revenue miles, which reflected the planned reduction in company-owned tractors. In the 1997 11 period, revenue generated through independent contractors, including railroads and air cargo carriers, was 92.1% of total consolidated revenue compared with 89.7% in the 1996 period. Purchased transportation was 69.5% of revenue in 1997 compared with 68.4% in 1996. Drivers' wages and benefits were 2.1% of revenue in 1997 compared with 3.4% in 1996. Fuel and other operating costs were 3.8% of revenue in 1997 compared with 5.9% in 1996. The increase in purchased transportation and decrease in drivers' wages and benefits and fuel and other operating costs as a percentage of revenue was primarily attributable to an increase in the percentage of revenue generated through independent contractors which reflected the reduction in company-owned equipment in accordance with a previously announced restructuring plan. The decrease in fuel and other operating costs as a percentage of revenue was also attributable to reduced terminal and maintenance costs, partially offset by increased trailer costs. Insurance and claims were 4.4% of revenue in 1997 compared with 2.4% in 1996. Excluding Signature, insurance and claims were 3.1% of revenue in the 1997 period. The increase in insurance and claims as a percentage of revenue compared to the prior year, excluding Signature, was primarily attributable to the favorable development of prior years claims during the 1996 period. Commissions to agents and brokers were 7.5% of revenue in 1997 compared with 6.7% in 1996, primarily due to an increased percentage of revenue generated through independent commission sales agents, which reflected the conversion of company-owned sales locations to independent commission sales agent locations. Selling, general and administrative costs were 6.8% of revenue in 1997 compared with 7.0% of revenue in 1996, primarily due to increased revenue, partially offset by sales and marketing costs incurred by Signature. Depreciation and amortization was 1.6% of revenue in 1997 compared with 1.9% in 1996, primarily due to a decrease in the number of company-owned tractors. During the 1997 thirteen week period, the Company incurred $1,985,000 of costs associated with the previously announced restructuring plan. Interest and debt expense, net was 0.4% in 1997 and 0.6% in 1996. The decrease was primarily attributable to lower average borrowings on the senior credit facility and reduced capital lease obligations. The provisions for income taxes for both the 1997 and 1996 thirteen week periods were based on an estimated full year combined effective income tax rate of approximately 42%, which is higher than the statutory federal income tax rate primarily as a result of state income taxes, amortization of certain goodwill and the meals and entertainment exclusion. Net income was $6,440,000, or $0.51 per share, in the 1997 period, compared with $7,014,000, or $0.55 per share, in the 1996 period. Excluding restructuring costs, 1997 net income would have been $7,591,000, or $0.60 per share. 12 CAPITAL RESOURCES AND LIQUIDITY Shareholders' equity increased to $153,321,000 at June 28, 1997, compared with $147,557,000 at December 28, 1996, which reflected net income for the twenty-six weeks of 1997, partially offset by the repurchase of 179,000 shares of common stock, at an aggregate cost of $3,990,000. Shareholders' equity increased to 71.3% of total capitalization at June 28, 1997 compared with 62.0% at December 28, 1996, as a result of reduced borrowings on the acquisition line of the senior credit facility and reduced capital lease obligations. Working capital and the ratio of current assets to current liabilities were $67,317,000 and 1.50 to 1, respectively, at June 28, 1997, compared with $70,653,000 and 1.54 to 1, respectively, at December 28, 1996. Landstar has historically operated with a current ratio of approximately 1.5 to 1. Cash provided by operating activities was $32,321,000 in the 1997 twenty-six week period compared with cash used by operating activities of $4,491,000 in the 1996 twenty-six week period. The increase in cash flow provided by operating activities was primarily attributable to the timing of cash collections and payments. During the 1997 twenty-six week period, Landstar purchased $7,332,000 of operating property and did not acquire any property by entering into capital leases. Landstar plans to acquire approximately $7,700,000 of operating property during the remainder of fiscal year 1997 either by purchase or lease financing. Management believes that cash flow from operations combined with the Company's borrowing capacity under its revolving credit agreement will be adequate to meet Landstar's debt service requirements, fund continued growth, both internal and through acquisitions, and meet working capital needs. 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 February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard ("FAS") No. 128, "Earnings per Share." This statement, effective for financial statements issued for periods ending after December 15, 1997, replaces the presentation of primary earnings per share, currently required under Accounting Principals Board Opinion 15 "Earnings Per Share" ("APB 15"), with a presentation of basic earnings per share. Basic earnings per share excludes dilution and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. FAS No. 128 also requires the dual presentation of basic earnings per share and diluted earnings per share on the face of the income statement. Management believes that, upon the adoption of this statement, basic earnings per share will not differ from primary earnings per share calculated in accordance with APB 15 and diluted earnings per share will not be materially different from the basic earnings per share given the current market value of the Company's common stock and the current structure of its stock compensation plans. 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. 13 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 Annual Meeting On April 17, 1997, Landstar System, Inc. (the "Company") held its Annual Meeting of Shareholders (the "Meeting") at the Trumbull Marriott, 180 Hawley Lane, Trumbull, Connecticut 06111. The matters voted upon at the Meeting included (i) the election of two Class I directors for terms to expire at the 2000 Annual Meeting of Shareholders and (ii) the ratification of appointment of KPMG Peat Marwick LLP as the Company's independent auditors for fiscal year 1997. Pursuant to the Company's Restated Certificate of Incorporation, the Board of Directors has fixed the number of directors at six: two Class II directors whose members' terms will expire at the 1998 Annual Meeting of Shareholders; two Class III directors whose members' terms will expire at the 1999 Annual Meeting of Shareholders; and two Class I directors whose members' terms will expire at the 2000 Annual Meeting of Shareholders. With respect to the election of the two Class I directors, nominee John B. Bowron and nominee Ronald W. Drucker were elected to the Board of Directors of the Company. Mr. Bowron received 10,442,497 votes for election to the Board and 9,635 were withheld. Mr. Drucker received 10,442,597 votes for election to the board and 9,535 votes were withheld. The names of the other directors whose terms of office as a director continued after the Meeting are as follows: Arthur J. Fritz, (a Class II director), Merritt J. Mott (a Class II director), David G. Bannister (a Class III director), and Jeffrey C. Crowe (a Class III director). The appointment of KPMG Peat Marwick LLP as the Company's independent auditors for fiscal year 1997 was ratified by the Company's shareholders. Votes for the ratification were 10,424,065, votes against were 5,880 and votes abstaining were 22,187. Item 5. Other Information None. 14 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 No reports on Form 8-K were filed by the Registrant during the thirteen week period ended June 28, 1997. EXHIBIT INDEX Registrant's Commission File No.: 0-21238 Exhibit No. Description - ------------ ----------- (11) Statement re: Computation of Per Share Earnings: (11.1)* Statement re: Computation of Per Share Earnings for the Twenty-Six and Thirteen Weeks ended June 28, 1997. (11.2)* Statement re: Computation of Per Share Earnings for the Twenty-Six and Thirteen Weeks ended June 29,1996. (27) Statement re: Financial Data Schedule: (27 )* Statement re: Financial Data Schedule __________________ * Filed herewith 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LANDSTAR SYSTEM, INC. Date: August 8, 1997 Henry H. Gerkens ---------------------------- Henry H. Gerkens Executive Vice President and Chief Financial Officer; Principal Financial Officer Date: August 8, 1997 Robert C. LaRose ---------------------------- Robert C. LaRose Vice President Finance and Treasurer; Principal Accounting Officer EX-11.1 2 [DESCRIPTION] CALCULATION OF 1997 EARNINGS PER SHARE EXHIBIT 11.1 LANDSTAR SYSTEM, INC. AND SUBSIDIARY CALCULATION OF EARNINGS PER SHARE (In thousands, except per share amounts) (Unaudited)
Twenty-Six Thirteen Weeks Ending Weeks Ending June 28, June 28, 1997 1997 ------------ ------------ Earnings available for earnings per share: Net income $ 9,445 $ 6,440 ============ ============ Average number of common shares outstanding 12,672 12,618 ============ ============ Earnings per share $ 0.75 $ 0.51 ============ ============
EX-11.2 3 [DESCRIPTION] CALCULATION OF 1996 EARNINGS PER SHARE EXHIBIT 11.2 LANDSTAR SYSTEM, INC. AND SUBSIDIARY CALCULATION OF EARNINGS PER SHARE (In thousands, except per share amounts) (Unaudited)
Twenty-Six Thirteen Weeks Ending Weeks Ending June 29, June 29, 1996 1996 ------------ ------------ Earnings available for earnings per share: Net income $ 10,168 $ 7,014 ============ ============ Average number of common shares outstanding 12,781 12,783 ============ ============ Earnings per share $ 0.80 $ 0.55 ============ ============
EX-27 4 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Consolidated Balance Sheets at June 28, 1997 (Unaudited) and the Consolidated Statements of Income for the twenty-six weeks ended June 28, 1997 (Unaudited) and is qualified in its entirety by reference to such financial statements. 1,000 OTHER DEC-27-1997 DEC-29-1996 JUN-28-1997 3,612 3,324 175,833 6,285 1,161 202,301 144,562 48,708 360,802 134,984 43,998 0 0 129 153,192 360,802 0 639,240 0 488,074 23,791 1,446 2,861 16,281 6,836 9,445 0 0 0 9,445 0.75 0.75
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