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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 28, 2002
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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.)
13410 Sutton Park Drive South, Jacksonville, Florida 32224
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(Address of principal executive offices) (Zip Code)
(904) 398-9400
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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. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ X ] No[ ]
1
The aggregate market value of the voting stock held by non-affiliates
of the registrant was $861,771,215 (based on the $53.425 per share closing
price on June 28, 2002, the last business day of the Company's second fiscal
quarter, 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.
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 3, 2003 was 15,725,977.
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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2002 Annual Report to Shareholders Part II
Proxy Statement relating to Part III
Landstar System, Inc.'s Annual
Meeting of Shareholders
2
LANDSTAR SYSTEM, INC.
2002 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 15
Part II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 16
Item 6. Selected Financial Data 16
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 17
Item 7a. Quantitative and Qualitative Disclosures about
Market Risk 17
Item 8. Financial Statements and Supplementary Data 17
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 17
Part III
Item 10. Directors and Executive Officers of the Registrant 18
Item 11. Executive Compensation 18
Item 12. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters 18
Item 13. Certain Relationships and Related Transactions 18
Item 14. Controls and Procedures 18
Part IV
Item 15. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 18
Signatures 20
Index to Exhibits 23
3
Part I
Item 1. - Business
General
Landstar System, Inc. 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 Gemini, Inc. ("Landstar Gemini"), Landstar Carrier
Services, Inc., 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"), Signature Technology Services, Inc. ("STSI")
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." Landstar System, Inc., LSHI, LCFI, RMCS, STSI, Signature and the
Operating Subsidiaries are collectively referred to herein as "Landstar" or the
"Company," unless the context otherwise requires. The Company's principal
executive offices are located at 13410 Sutton Park Drive South, Jacksonville,
Florida 32224 and its telephone number is (904) 398-9400. The Company makes
available free of charge through its website its annual report on Form 10-K,
quarterly reports on Form 10-Q and current reports on Form 8-K as soon as
reasonably practicable after such material is electronically filed with the
Securities and Exchange Commission. The Company's website is www.landstar.com.
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, an affiliate of DB Alex. Brown LLC (formerly known as Alex.
Brown & Sons Incorporated), and certain management employees of Landstar
and its subsidiaries. In March 1993, Landstar completed a recapitalization
which consisted of three principal components: (i) an initial public offering
of Common Stock, (ii) the retirement of all its outstanding 14% Senior
Subordinated Notes, and (iii) the refinancing of the Company's then existing
senior debt facility with a senior bank credit agreement. In October 1993, the
Company completed a secondary public offering. Immediately subsequent to the
offering, KIA IV no longer owned any shares of Landstar Common Stock, and
affiliates of DB Alex. Brown LLC retained approximately 1% of the Common
Stock outstanding.
4
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 (as defined below) 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, Inc., formerly a wholly-owned operating
subsidiary of LSHI that comprised the entire company-owned tractor segment of
the Company, completed the sale of all of its tractors and trailers, certain
operating assets and the Landstar Poole business to Schneider National, Inc.
for $40,435,000 in cash. Accordingly, the financial results of this segment
have been reported as discontinued operations.
On July 17, 2002, the Company declared a two-for-one stock split effected in
the form of a 100% stock dividend distributed on August 12, 2002 to
stockholders of record on August 2, 2002.
Description of Business
Landstar, a non-asset based provider of transportation capacity, provides
transportation services to shippers throughout the United States and, to
a lesser extent, between the United States, Canada and Mexico. These business
services, which emphasize safe transportation, information coordination and
customer service, are delivered through a network of independent commission
sales agents and third party capacity providers linked together by a series of
technological applications. These third party capacity providers consist of
independent contractors who provide truck capacity to the Company under
exclusive lease arrangements (the "Independent Contractors"), unrelated
trucking companies, airlines and railroads. Through this network of agents and
capacity providers, Landstar operates a $1.5 billion transportation services
business throughout North America.
Landstar provides transportation services to a variety of industries, including
iron and steel, automotive products, paper, lumber and building products,
aluminum, chemicals, foodstuffs, heavy machinery, ammunition and explosives,
and military hardware. Landstar's transportation services include a full array
of truckload transportation utilizing a wide range of specialized equipment
including dry vans of various sizes, flatbeds, including drop decks and light
specialty trailers, and temperature-controlled vans and containers, dedicated
contract and logistics solutions, including freight optimization and less than
truckload freight consolidations, truck brokerage and expedited land and air
delivery of time-critical freight.
5
The Company has three reportable business segments. 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 2002, 2001 and 2000 (dollars in thousands):
Fiscal Year
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2002 2001 2000
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Revenue from unaffiliated customers:
Carrier segment $1,178,263 $1,098,268 $1,117,042
Multimodal segment 300,716 270,849 277,087
Insurance segment 27,576 23,654 24,363
Internal revenue:
Carrier segment $ 23,703 $ 28,587 $ 34,669
Multimodal segment 2,483 2,367 1,241
Insurance segment 29,860 27,313 21,919
Operating income:
Carrier segment $ 87,777 $ 76,105 $ 88,507
Multimodal segment 7,793 5,343 9,346
Insurance segment 22,754 30,644 24,464
Other (34,643) (35,706) (39,704)
Identifiable assets:
Carrier segment $ 241,068 $ 234,164 $ 256,690
Multimodal segment 59,571 47,795 54,294
Insurance segment 70,198 46,440 33,267
Other 29,911 36,252 26,111
The carrier segment consists of Landstar Ranger, Landstar Inway, Landstar
Ligon and Landstar Gemini. The carrier segment provides truckload
transportation for a wide range of general commodities primarily over irregular
routes utilizing a fleet of dry and specialty vans and unsided trailers,
including flatbed, drop deck and specialty. It also provides short-to-long haul
movement of containers by truck, dedicated power-only truck capacity and truck
brokerage. The carrier segment markets its services primarily through
independent commission sales agents and utilizes tractors provided by
Independent Contractors and other third party truck capacity providers.
6
The nature of the carrier segment business is such that a significant
portion of its operating costs varies directly with revenue. At December
28, 2002, the carrier segment operated a fleet of 8,072 tractors, provided by
7,074 Independent Contractors, and 14,719 trailers. Approximately 5,514 of
the trailers available to the carrier segment are provided by Independent
Contractors, 4,724 are leased by the Company at rental rates that vary with
the revenue generated by the trailer, 4,152 are owned by the Company and 329
are rented on a short-term basis from trailer rental companies. In addition,
the Company utilizes over 10,000 qualified other third party truck capacity
providers who provide additional tractor and trailer capacity. The carrier
segment's network of more than 800 independent commission sales agents provide
almost 1,000 sales locations. Independent commission sales agents in the
carrier segment receive a commission generally between 5% and 8% of the revenue
they generate if the load is hauled by an Independent Contractor and a variable
percent of the revenue they generate if hauled by a third party trucking
company. The use of Independent Contractors and other third party capacity
providers 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 a tractor
receive a percentage of the revenue generated for the freight hauled and a
larger percentage of such revenue for providing both a tractor and a trailer.
Other third party truck capacity providers are paid a negotiated rate for each
load 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 and
emergency and expedited ground and air freight. The multimodal segment markets
its services through independent commission sales agents and utilizes capacity
provided by Independent Contractors, other third party truck capacity
providers, railroads and air cargo carriers. Multimodal independent commission
sales agents generally receive a percentage of the gross profit, defined as
revenue less the cost of purchased transportation, from each load they
generate. Independent Contractors who provide truck capacity to the multimodal
segment are compensated based on a percentage of the revenue generated by the
haul depending on the type and timing of the shipment. Other third party truck
capacity providers are paid a negotiated rate for each load they haul.
Railroads and air cargo carriers receive a fixed amount per load. The nature
of the multimodal segment business is such that a significant portion of its
operating costs also varies directly with revenue. At December 28, 2002,
the multimodal segment operated a fleet of 330 trucks, provided by
approximately 291 Independent Contractors. Multimodal segment Independent
Contractors primarily provide cargo vans and straight trucks that are utilized
for emergency and expedited freight services. The multimodal segment's
network of approximately 100 independent commission sales agents provide over
140 sales locations.
The insurance segment is comprised of Signature, a wholly-owned offshore
insurance subsidiary and RMCS. The insurance segment provides risk and claims
management services to Landstar's Operating Subsidiaries. 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 be a non asset based provider of
transportation capacity offering high quality, specialized transportation
services 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 solutions to meet the
total transportation needs of its customers.
7
Management believes that 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 many of the companies included in
the Fortune 500.
Management believes the following factors are particularly significant
to the Company's operations:
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 technology programs centrally through
its information services department.
The Company's information technology systems used in connection with its
operations are centralized in Jacksonville, FL and, to a lesser extent, in
Rockford, IL. Landstar relies in the regular course of its business on the
proper operation of its information technology systems. Any significant
disruption or failure of its technology systems could significantly disrupt
the Company's operations and impose significant costs on the Company.
DIVERSITY OF SERVICES OFFERED. The Company offers its customers a wide range
of transportation services through the Operating Subsidiaries, 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, to a lesser extent,
steamship lines.
The following table illustrates the diversity of this equipment as of
December 28, 2002:
Trailers:
Vans 10,445
Temperature-Controlled 200
Flatbeds, Including Drop Decks and Low Boys 2,198
Other Specialized 1,876
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Total 14,719
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8
MARKETING NETWORK. Management believes the Company has more independent
commissioned sales agents than any other domestic truckload carrier.
Landstar's network of over 1,100 independent commission sales agent
locations provides the Company with regular contact with shippers
at the local level and the capability to be highly responsive to shippers'
changing needs. The agent network also 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 enjoyed only
by larger customers. Examples of services that Landstar is able to make
available through the agent network to smaller shippers include the ability to
provide transportation services 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, defined as revenue less the cost of purchased transportation,
generated through that agent. During 2002, 384 agents generated revenue for
Landstar of at least $1 million each, or approximately $1.3 billion of
Landstar's total revenue and one agent generated over $84 million of Landstar's
total revenue. Management believes that 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 the
Company's Independent Contractors and other third party capacity providers.
Historically, Landstar has experienced very limited agent turnover among its
larger-volume agents. The Operating Subsidiaries emphasize programs to support
the agents' operations and to establish pricing parameters. Although the
primary relationship with the shipper is with the agent and not the Company,
each Operating Subsidiary contracts directly with customers and generally
assumes the credit risk and liability for freight losses or damages.
The independent commission sales agents are responsible for locating freight,
making that freight available to the Company's capacity providers and
coordinating the transportation of the freight with customers and capacity
providers. The carrier segment's independent commission sales agents
use the Company's Landstar Electronic Administrative Dispatch System (LEADS)
software program which enables its independent commission sales agents to enter
available freight, dispatch capacity and process most administrative procedures
and then communicate that information to Landstar and its capacity providers
via the worldwide web. The multimodal segment's independent commission sales
agents use other Landstar proprietary software to process customer shipments
and communicate the necessary information to third party capacity providers
and Landstar. The Company's web-based available freight and truck information
system provides a listing of available trucks to the Company's independent
commission sales 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.
9
Although the Company competes with motor carriers and other parties for the
services of independent commission sales agents, Landstar, as noted above, has
historically experienced very limited turnover among its larger-volume agents.
However, Landstar's contracts with its agents are generally terminable
upon 10 to 30 days notice by either party and do not restrict the ability
of a former agent to compete with Landstar following any such termination.
The loss of some of the Company's larger-volume agents or significant
decrease in volume from Landstar's larger agents could have a material
adverse effect on Landstar including its results of operations and revenue.
CAPACITY. The Company relies exclusively on independent third parties for
its hauling capacity. These third party capacity providers consist of
Independent Contractors, unrelated trucking companies, airlines and railroads.
INDEPENDENT CONTRACTORS. Management believes the Company has the largest
fleet of truckload Independent Contractors in the United States. This provides
marketing, operating, safety, recruiting, retention and financial advantages to
the Company. The Company's 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 only a tractor and from 75% to 79% where the Independent Contractor
provides both a tractor and a trailer. The Independent Contractor must pay
substantially all of the expenses of operating his/her equipment, including
driver wages and benefits, fuel, physical damage insurance, maintenance,
highway use taxes and debt service.
The Company maintains an internet site through which Independent Contractors
can view a complete listing of all the Company's available freight, allowing
them to consider size, origin and destination when planning trips.
The number of trucks provided by Independent Contractors fluctuates daily as a
result of truck recruiting and truck terminations. Although the Company
experienced slightly improved truck turnover results during 2002, total
truck count decreased compared to the prior year due to a reduction in
the number of trucks recruited in 2002 compared to 2001. Landstar's truck
turnover ratio was approximately 56% in 2002 compared to 60% in 2001. A
significant portion of this turnover was attributable to Independent
Contractors who had been Independent Contractors with the Company for less
than one year. Management believes that factors that have historically
favorably impacted 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. Management
believes that a reduction in the amount of available freight may cause an
increase in truck turnover.
The Landstar Contractors' Advantage Purchasing Program leverages Landstar's
purchasing power to provide discounts to eligible 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 trailing equipment and mobile communication equipment.
10
OTHER THIRD PARTY TRUCK CAPACITY. The Company maintains a database of over
10,000 qualified third party truck capacity providers who provide additional
truck hauling capacity to the Company. The Company recruits, qualifies,
establishes contracts, tracks safety ratings and service records and generally
maintains the relationships with these third party trucking companies. In
addition to augmenting the Company's capability during periods of extraordinary
demand and traffic lane imbalance, the use of third party carriers enables the
Company to pursue different types and quality of freight such as
temperature-controlled and short-haul traffic that would generally not
be handled by the Company's Independent Contractors.
THIRD PARTY RAIL AND AIR CAPACITY. The Company maintains contractual
relationships with various railroads and air cargo capacity providers. These
relationships allow the Company to pursue the freight best serviced by these
forms of transportation capacity.
Landstar benefits from its use of capacity provided by its Independent
Contractors and other third party capacity providers, which allows the Company
to maintain a lower level of capital investment, resulting in lower fixed
costs. Historically, the margin generated from freight hauled by Independent
Contractors has been greater than from freight hauled by other third party
capacity providers.
The Company competes with motor carriers and other third parties for the
services of third party capacity providers. A significant decrease in available
capacity provided by either the Company's Independent Contractors or other
third party capacity providers could have a material adverse effect on
Landstar including its results of operations and its revenue.
A significant change in the mix of freight hauled by Independent Contractors,
on the one hand, and other third party capacity providers, on the other hand,
could have a material effect on Landstar's results of operations.
CORPORATE SERVICES. Management believes that 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
operator and equipment compliance quality programs
risk management insurance services
Competition
Landstar competes primarily in the transportation services industry.
The transportation services industry is extremely competitive and fragmented.
Landstar competes primarily with truckload carriers, intermodal
transportation service providers, railroads, less-than-truckload carriers,
third party broker carriers and other non-asset based transportation service
providers.
11
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. 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 transportation service providers.
The Company also competes with motor carriers for the services of
independent contractors and with motor carriers and other third parties for the
services of independent commission sales agents, contracts with whom are
typically terminable upon 10 to 30 day notice.
INSURANCE AND CLAIMS
Potential liability associated with accidents in the trucking industry is
severe and occurrences are unpredictable. Landstar retains liability for
each individual commercial trucking claim up to $5,000,000 per occurrence.
For commercial trucking claims incurred prior to May 1, 2001, Landstar
retains liability up to $1,000,000 per occurrence. To reduce its
exposure to unladen truckers liability claims (claims incurred while a vehicle
is being operated without a trailer attached or is being operated with an
attached trailer which does not contain or carry any cargo), Landstar requires
its Independent Contractors to maintain unladen truckers liability coverage of
$1,000,000 per occurrence. Under the Company's unladen truckers liability
program, Independent Contractors purchase unladen truckers liability coverage
from a third party insurance company. Signature then reinsures this unladen
truckers liability coverage for Independent Contractors who participate in the
Company's unladen program up to $1,000,000 per occurrence. For unladen claims
incurred prior to January 1, 2002, Landstar retains liability up to $25,000
per occurrence. The Company also retains liability for each general liability
claim up to $1,000,000, $250,000 for each workers' compensation claim and
$250,000 for each cargo claim. The Company's exposure to liability associated
with accidents incurred by other third party capacity providers who haul
freight on behalf of the Company is reduced by various factors including the
extent to which they maintain their own insurance coverage. A material increase
in the frequency or severity of accidents, cargo or workers' compensation
claims or the unfavorable development of existing claims could be expected to
materially adversely affect Landstar's results of operations.
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 transportation services provided by 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 other transportation service companies
including those that provide non-trucking modes of transportation and
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.
12
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.
The Company classifies all of its Independent Contractors and independent
commissioned sales agents as independent contractors for all purposes,
including employment taxes and employee benefit purposes. Although
management is unaware of any proposals currently pending that would
change the employee/independent contractor classification of Independent
Contractors or independent commission sales agents currently doing business
with the Company, the costs associated with potential changes, if any, in the
employee/independent contractor classification could adversely affect
Landstar's results of operations and revenue if Landstar were unable to reflect
them in its fee arrangements with the Independent Contractors and independent
commission sales agents or in the prices charged to its customers.
REGULATION
Each of the Operating Subsidiaries is a motor carrier which is 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.
The trucking industry is subject to possible regulatory and legislative changes
(such as increasingly stringent environmental and/or safety/security
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.
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.
13
At December 28, 2002, approximately 43 Landstar Ranger drivers were
represented by the International Brotherhood of Teamsters (the "Teamsters").
As a result of its withdrawal from the various Teamster-sponsored pension
plans, payment of withdrawal liability to one of the Teamster pension funds
and the terms of the current collective bargaining agreement with the
Teamsters, Landstar Ranger no longer participates in any multi-employer
pension plans.
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.
Employees
As of December 28, 2002, the Company and its subsidiaries employed
1,224 individuals. Approximately 43 Landstar Ranger drivers (out of a total
of approximately 4,500) are members of the International Brotherhood of
Teamsters. The Company considers relations with its employees to be good.
Item 2. - Properties
The Company owns or leases various properties in the U.S. for the Company's
operations and administrative staff that support its independent commission
sales agents, Independent Contractors and other third party capacity providers.
The carrier segment's primary facilities are located in Jacksonville, Florida
and Rockford, Illinois. The multimodal segment's primary facilities are located
in Jacksonville, Florida. In addition, the Company's corporate headquarters
are located in Jacksonville, Florida. The Rockford, Illinois facility of the
carrier segment is owned by the Company. All other primary 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 an acceptable cost.
Item 3. - Legal Proceedings
On September 20, 2001, a suit was filed entitled Gulf Bridge RoRo, Inc.
v. Landstar System, Inc., Landstar Logistics, Inc. and Ford Motor Co., Inc. in
Federal District Court in Mobile, Alabama. The suit alleges breach
of contract and misrepresentation against Landstar and Landstar Logistics and
certain other causes of action arising out of a contract between Landstar
Logistics and the plaintiff involving a trans-Gulf of Mexico roll-on/roll-off
shipping venture developed by the plaintiff. The complaint and discovery
developed after the filing of the suit indicate that plaintiff's
principal claim is that Landstar and Landstar Logistics breached a duty under
the contract to use "best efforts" to aid in the arrangement of freight for
plaintiff's vessel and that Landstar and Landstar Logistics misrepresented
material facts which induced Plaintiff to enter into the contract with
Landstar Logistics. The suit makes claim for $25,000,000 for damages for
breach of contract and $50,000,000 punitive and other damages related to the
misrepresentation counts. The Company has filed motions for summary judgment
with the court seeking, in addition to a judgment in its favor, to dismiss
Landstar from the litigation, to limit the amount of damages obtainable by
the plaintiff, to preclude fraud and other theories upon which plaintiff
seeks to obtain damages, and to exclude certain evidence concerning damages
sought to be introduced at trial by plaintiff, among other things. Subject to
the outcome of these motions, which is anticipated in March 2003, discovery
has been substantially completed in this matter, and the Company anticipates
that the matter will be tried in April of 2003.
14
The Company believes it has meritorious defenses to this litigation and intends
to defend it vigorously. The Company also believes that if this litigation were
determined adversely to it, the liability of the Company, exclusive of any
available insurance recoveries, would not be reasonably likely to have a
material adverse effect on the financial condition of the Company but that it
could have a material adverse effect on the results of operations in a given
quarter or year. The Company has notified its third-party insurance carrier
that it believes that a portion of the claims made in this lawsuit are covered
under insurance provided by that carrier, and the carrier has agreed to pay the
fees and expenses and to participate in the defense of this litigation, subject
to a reservation of rights. The Company also intends to pursue its rights with
respect to this coverage vigorously. No assurances can be given as to the
outcome of this litigation or any related matter, however.
On November 1, 2002, the Owner Operator Independent Drivers Association, Inc.
("OOIDA") and six individual Independent Contractors filed a putative class
action suit in the U.S. Court in Jacksonville, Florida, against the Company.
The suit alleges that certain aspects of Landstar's motor carrier's leases with
owner operators violate the federal leasing regulations. OOIDA seeks injunctive
relief, damages and attorneys' fees. On December 17, 2002, the Company filed
a Motion to Dismiss and a Motion to Stay and Compel Arbitration with respect
to all of the leases that contain arbitration clauses. Landstar believes it has
meritorious defenses to this litigation and intends to defend it vigorously.
Landstar also believes that it treats its Independent Contractors fairly and
in a manner which reflects the important role they play in the Company's
operations.
The Company is routinely a party to other 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 2002.
15
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. All historical share-related
financial information presented herein has been restated to reflect a
two-for-one stock split effected in the form of a 100% stock dividend
distributed on August 12, 2002 to stockholders of record on August, 2, 2002.
Calendar Period 2002 Market Price 2001 Market Price
--------------- ----------------- -----------------
High Low High Low
First Quarter $ 47.565 $ 35.926 $ 36.438 $ 27.625
Second Quarter 55.150 44.500 36.000 31.250
Third Quarter 57.150 42.860 40.570 30.000
Fourth Quarter 59.950 41.270 37.920 30.250
The reported last sale price per share of the Common Stock as quoted through
the NASDAQ National Market System on March 3, 2003 was $54.17 per share. As
of such date, Landstar had 15,725,977 shares of Common Stock outstanding. As
of March 10, 2003, the Company had 68 stockholders of record of its Common
Stock. However, the Company estimates that it has a significantly greater
number of stockholders 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 by the Board of Directors.
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 50 of the Company's 2002 Annual Report to
Shareholders.
16
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
24 to 33 of the Company's 2002 Annual Report to Shareholders.
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
The Company has a credit agreement with a syndicate of banks and JPMorgan
Chase Bank, as the administrative agent, (the "Third Amended and
Restated Credit Agreement") that provides $175,000,000 of borrowing
capacity. Borrowings under the Third 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
JPMorgan Chase 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 JPMorgan
Chase 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 Third Amended and Restated Credit
Agreement. The margin is subject to an increase of .125% if the aggregate
amount outstanding under the Third Amended and Restated Credit Agreement
exceeds 50% of the total borrowing capacity. As of December 28, 2002, the
weighted average interest rate on borrowings outstanding was 2.27%. During
fiscal 2002, the average outstanding balance under the Third Amended and
Restated Credit Agreement was $81,712,000. Based on the borrowing rates
in the Third Amended and Restated Credit Agreement and the repayment
terms, the fair value of the outstanding borrowings as of
December 28, 2002 was estimated to approximate carrying value.
The Third Amended and Restated Credit Agreement expires on
January 5, 2005. The amount outstanding on the Third Amended and Restated
Credit Agreement is payable upon the expiration of the Third Amended
and Restated Credit Agreement.
The Company's obligations under the Third Amended and Restated Credit Agreement
are guaranteed by all but one of LSHI's subsidiaries.
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 34 through 49 of the
Company's 2002 Annual Report to Shareholders.
Item 9. - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
17
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 19 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 11 and 13
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 12. - Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
The information required by this Item is set forth under the caption "Security
Ownership by Management and Others" on pages 17 through 19 and "Equity
Compensation Plan Information" on page 12 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 pages 12 and 13 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 14. Controls and Procedures
Within the 90-day period prior to the filing of this report, an evaluation was
carried out, under the supervision and with the participation of the Company's
management, including the Chief Executive Officer ("CEO") and Chief Financial
Officer ("CFO"), of the effectiveness of the Company's disclosure controls and
procedures pursuant to Exchange Act Rule 13a-14. Based on that evaluation,
the CEO and CFO have concluded that the Company's disclosure controls and
procedures are effective to ensure that information required to be disclosed
by the Company in reports that it files or submits under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within
the time periods specified in Securities and Exchange Commission rules and
forms. Subsequent to the date of such evaluation, there were no significant
changes in the Company's internal controls or in other factors that could
significantly affect these controls.
Part IV
Item 15. - 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 5, 2003, 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 34 through 48 of the
Company's 2002 Annual Report to Shareholders.
18
(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 26 of this Annual
Report on Form 10-K.
Schedule Number Description Page
- --------------- ----------- ----
I Condensed Financial Information of Registrant
Parent Company Only Balance Sheet Information S-1
I Condensed Financial Information of Registrant
Parent Company Only Statement of Income Information S-2
I Condensed Financial Information of Registrant
Parent Company Only Statement of Cash
Flows Information S-3
II Valuation and Qualifying Accounts
For the Fiscal Year Ended December 28, 2002 S-4
II Valuation and Qualifying Accounts
For the Fiscal Year Ended December 29, 2001 S-5
II Valuation and Qualifying Accounts
For the Fiscal Year Ended December 30, 2000 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
(a) The response to this portion of Item 15 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, 13410 SUTTON PARK DRIVE SOUTH,
JACKSONVILLE, FLORIDA 32224.
(b) The Company's Form 8-K filed with the Securities and Exchange Commission
on November 1, 2002 contained the Company's Principal Executive Officer's
and Principal Financial Officer's certifications pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
19
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: /s/ Jeffrey C. Crowe
----------------------------------------
Jeffrey C. Crowe
Chairman of the Board
and Chief Executive Officer
By: /s/ Robert C. LaRose
----------------------------------------
Robert C. LaRose
Vice President, Chief Financial Officer
and Secretary
Date: March 10, 2003
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
--------- ----- ----
/s/ Jeffrey C. Crowe Chairman of the Board and Chief March 10, 2003
- ------------------- Executive Officer; Principal
Jeffrey C. Crowe Executive Officer
/s/ Henry H. Gerkens Director, President and Chief March 10, 2003
- ------------------- Operating Officer
Henry H. Gerkens
/s/ Robert C. LaRose Vice President, Chief Financial March 10, 2003
- ------------------- Officer and Secretary; Principal
Robert C. LaRose Accounting Officer
* Director March 10, 2003
- -------------------
David G. Bannister
* Director March 10, 2003
- -------------------
Ronald W. Drucker
* Director March 10, 2003
- -------------------
Merritt J. Mott
* Director March 10, 2003
- -------------------
William S. Elston
* Director March 10, 2003
- -------------------
Diana M. Murphy
/s/ Robert C. LaRose Attorney In Fact *
- -------------------
By: Robert C. LaRose
20
CERTIFICATIONS
I, Jeffrey C. Crowe, certify that:
1. I have reviewed this annual report on Form 10-K of Landstar
System, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: March 10, 2003
/s/ Jeffrey C. Crowe
_______________________
Jeffrey C. Crowe
Chairman of the Board and
Chief Executive Officer
21
CERTIFICATIONS
I, Robert C. LaRose, certify that:
1. I have reviewed this annual report on Form 10-K of
Landstar System, Inc.;
2. Based on my knowledge, this annual report does not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the
period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: March 10, 2003
/s/ Robert C. LaRose
_______________________
Robert C. LaRose
Vice President, Chief
Financial Officer and Secretary
22
EXHIBIT INDEX
Form 10-K for fiscal year ended 12/28/02
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 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))
4.3 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.
23
Exhibit Index (continued)
Form 10-K for fiscal year ended 12/28/02
Exhibit No. Description
- ----------- -----------
4.4 First Amendment of the Rights Agreement, dated December 22, 2000,
between the Company and Mellon Investor Services, LLC, as successor by merger
to Chemical Bank.
4.5 Third Amended and Restated Credit Agreement, dated December 20,
2001, among LSHI, Landstar, the lenders named therein and JPMorgan Chase
Bank as administrative agent (including exhibits and schedules thereto).
(Incorporated by reference to Exhibit 4.1 to the Registrant's Form 8-K filed
on December 21, 2001 (Commission File No. 0-21238))
(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+ 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))
10.3+ 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))
10.4+ 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))
10.5+ Form of Key Executive Employment Protection Agreement dated
January 30, 1998 between Landstar System, Inc. and each of Jeffrey C. Crowe,
Henry H. Gerkens, Robert C. LaRose, Gary W. Hartter and James R. Hertwig
(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))
10.6+* Amendment to Key Executive Employment Protection Agreement,
dated August 7, 2002, between Landstar System, Inc. and Jeffrey C. Crowe.
10.7+* Amendment to Key Executive Employment Protection Agreement,
dated August 7, 2002, between Landstar System, Inc. and Henry H. Gerkens.
10.8+* Amendment to Key Executive Employment Protection Agreement,
dated August 7, 2002, between Landstar System, Inc. and Robert C. LaRose.
10.9+* Amendment to Key Executive Employment Protection Agreement,
dated August 7, 2002, between Landstar System, Inc. and Gary W. Hartter.
10.10+* Amendment to Key Executive Employment Protection Agreement,
dated August 7, 2002, between Landstar System, Inc. and James R. Hertwig.
24
Exhibit Index (continued)
Form 10-K for fiscal year ended 12/28/02
Exhibit No. Description
- ----------- -----------
10.11+ 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))
10.12+ Form of Promissory Notes between the Company and certain
directors, executive officers and management of the Company.
10.13+ First Amendment to the Landstar System, Inc. 1994 Directors
Stock Option Plan
10.14+ Second Amendment to the Landstar System, Inc. 1994 Directors
Stock Option Plan
10.15+ Landstar System, Inc. 2002 Employee Stock Option Plan
(Incorporated by reference to Exhibit A to the Registrant's
Definitive Proxy Statement filed on March 22, 2002
(Commission File No. 0-21238))
10.16+ Landstar System, Inc. Executive Incentive Compensation Plan
(Incorporated by reference to Exhibit B to the Registrant's
Definitive Proxy Statement filed on March 22, 2002 (Commission File
No. 0-21238))
10.17+* Letter Agreement, dated July 2, 2002 from Jeffrey C. Crowe to
Henry H. Gerkens.
(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 2002 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
___________________
+management contract or compensatory plan or arrangement
*Filed herewith.
25
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Landstar System, Inc.:
Under date of February 5, 2003, we reported on the consolidated balance sheets
of Landstar System, Inc. and subsidiary as of December 28, 2002 and December
29, 2001, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for the fiscal years ended December 28,
2002, December 29, 2001 and December 30, 2000, as contained in the 2002 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 2002. In connection with our audits of the aforementioned consolidated
financial statements, we also audited the related financial statement schedules
as listed in Item 15 (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.
/s/ KPMG LLP
Jacksonville, Florida
February 5, 2003
26
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. 28, Dec. 29,
2002 2001
-------- --------
Assets
- ------
Investment in Landstar System Holdings, Inc.,
net of advances $149,093 $117,440
-------- --------
Total assets $149,093 $117,440
======== ========
Liabilities and Shareholders' Equity
- -----------------------------------
Shareholders' equity:
Common stock, $.01 par value, authorized
20,000,000 shares, issued 16,337,506
and 13,328,834 shares $ 163 $ 133
Additional paid-in capital 2,609 75,036
Retained earnings 173,817 258,162
Cost of 554,879 and 5,241,841 shares of
common stock in treasury (26,306) (209,926)
Notes receivable arising from exercise of
stock options (1,190) (5,965)
-------- --------
Total shareholders' equity 149,093 117,440
-------- --------
Total liabilities and shareholders' equity $149,093 $117,440
======== ========
S-1
27
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. 28, Dec. 29, Dec. 30,
2002 2001 2000
---------- ---------- ----------
Equity in undistributed earnings
of Landstar System Holdings, Inc. $ 49,309 $ 42,838 $ 45,296
Income taxes 88 44 102
---------- ---------- ----------
Net income $ 49,221 $ 42,794 $ 45,194
========== ========== ==========
Earnings per common share (1) $ 3.05 $ 2.57 $ 2.57
========== ========== ==========
Diluted earnings per share (1) $ 2.94 $ 2.50 $ 2.52
========== ========== ==========
Average number of shares
outstanding:
Earnings per common share (1) 16,141,000 16,672,000 17,562,000
========== ========== ==========
Diluted earnings per share (1) 16,767,000 17,092,000 17,962,000
========== ========== ==========
(1) All earnings per share amounts and average number of shares outstanding
have been restated to give retroactive effect to a two-for-one stock split
effected in the form of a 100% stock dividend declared July 17, 2002.
S-2
28
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. 28, Dec. 29, Dec. 30,
2002 2001 2000
---------- ---------- ----------
Operating Activities
- --------------------
Net income $ 49,221 $ 42,794 $ 45,194
Adjustments to reconcile net income
to net cash used by
operating activities:
Equity in undistributed earnings of
Landstar System Holdings, Inc. (49,309) (42,838) (45,296)
---------- ---------- ----------
Net Cash Used By Operating
Activities (88) (44) (102)
---------- ---------- ----------
Investing Activities
- --------------------
Additional investments in and advances
from Landstar System Holdings,
Inc., net 19,060 34,082 46,144
---------- ---------- ----------
Net Cash Provided By Investing
Activities 19,060 34,082 46,144
---------- ---------- ----------
Financing Activities
- --------------------
Proceeds from repayment of notes
receivable arising from exercises
of stock options 4,867 1,397 51
Proceeds from exercises of
stock options 2,467 1,764 92
Purchases of common stock (26,306) (37,199) (46,185)
---------- ---------- ----------
Net Cash Used By Financing
Activities (18,972) (34,038) (46,042)
---------- ---------- ----------
Change in cash 0 0 0
Cash at beginning of period 0 0 0
---------- ---------- ----------
Cash at end of period $ 0 $ 0 $ 0
========== ========== ==========
S-3
29
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEAR ENDED DECEMBER 28, 2002
(Dollars in thousands)
COL. A COL. B COL. C COL. D COL. E
- ------ ------ ------ ------ ------
Balance Additions
at --------------------------
Beginning Charged to Charged to Balance
of Costs and Other Accounts Deductions at End
Description Period Expenses Describe Describe (A) of Period
- ----------- --------- ---------- -------------- ---------- ---------
Allowance for doubtful
accounts:
Deducted from trade
receivables $ 4,416 $ 3,936 $ - $ (4,399) $ 3,953
Deducted from other
receivables 4,740 3,576 - (2,985) 5,331
Deducted from other non-
current receivables 228 2 - 230
------- --------- ----------- -------- -------
$ 9,384 $ 7,514 $ - $ (7,384) $ 9,514
======= ========= =========== ======== =======
(A) Write-offs, net of recoveries.
S-4
30
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEAR ENDED DECEMBER 29, 2001
(Dollars in thousands)
COL. A COL. B COL. C COL. D COL. E
- ------ ------ ------ ------ ------
Balance Additions
at --------------------------
Beginning Charged to Charged to Balance
of Costs and Other Accounts Deductions at End
Description Period Expenses Describe Describe(A) of Period
- ----------- --------- ---------- -------------- ---------- ---------
Allowance for doubtful
accounts:
Deducted from trade
receivables $ 4,450 $ 4,384 $ - $ (4,418) $ 4,416
Deducted from other
receivables 5,089 3,958 - (4,307) 4,740
Deducted from other
non-current
receivables 1,816 (189) - (1,399) 228
------- --------- --------- -------- -------
$11,355 $ 8,153 $ - $(10,124) $ 9,384
======= ========= ========= ======== =======
(A) Write-offs, net of recoveries.
S-5
31
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEAR ENDED DECEMBER 30, 2000
(Dollars in thousands)
COL. A COL. B COL. C COL. D COL. E
- ------ ------ ------ ------ ------
Balance Additions
at --------------------------
Beginning Charged to Charged to Balance
of Costs and Other Accounts Deductions at End
Description Period Expenses Describe Describe(A) of Period
- ----------- --------- ---------- -------------- ---------- ---------
Allowance for doubtful
accounts:
Deducted from trade
receivables $ 4,002 $ 1,915 $ - $ (1,467) $ 4,450
Deducted from other
receivables 5,033 2,479 - (2,423) 5,089
Deducted from other non-
current receivables 1,626 198 - (8) 1,816
------- --------- --------- -------- -------
$10,661 $ 4,592 $ - $ (3,898) $11,355
======= ========= ========= ======== =======
(A) Write-offs, net of recoveries.
S-6
32