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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, 1996
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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.)
First Shelton Place, 1000 Bridgeport Avenue, Shelton, Connecticut 06484-0898
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(Address of principal executive offices) (Zip Code)
(203) 925-2900
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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. [ ]
1
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 7, 1997 was 12,615,833; and the
aggregate market value of the voting stock held by non-
affiliates of the registrant was $279,050,409 (based on the
$22.875 per share closing price on that date, as reported by
NASDAQ National Market System). In making this calculation,
the registrant has assumed, without admitting for any purpose,
that all directors and executive officers of the registrant,
and no other person, are affiliates.
2
LANDSTAR SYSTEM, INC.
1996 Annual Report on Form 10-K
Table of Contents
Part I
Page
----
Item 1. Business 4
Item 2. Properties 19
Item 3. Legal Proceedings 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Part II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 20
Item 6. Selected Financial Data 21
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 21
Item 8. Financial Statements and Supplementary Data 21
Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure 22
Part III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation 22
Item 12. Security Ownership of Certain Beneficial Owners
and Management 22
Item 13. Certain Relationships and Related Transactions 22
Part IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 23
Signatures 24
Index to Exhibits 26
3
Part I
Item 1. - Business
General
Landstar System, Inc. (herein referred to as "Landstar," the
"Company" or the "Registrant") 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 Poole, Inc. ("Landstar Poole"),
Landstar Logistics, Inc. ("Landstar Logistics"), Landstar
Express America, Inc. ("Landstar Express America"), Landstar
T.L.C., Inc. ("Landstar T.L.C."), Landstar Contractor
Financing, Inc. ("LCFI"), Landstar Capacity Services,
Inc.("LCS"), Risk Management Claim Services, Inc. ("RMCS") and
Landstar Corporate Services, Inc. ("LCSI"). Landstar Ranger,
Landstar Inway, Landstar Ligon, Landstar Gemini, Landstar
Poole, Landstar Logistics, Landstar Express America and
Landstar T.L.C. are collectively herein referred to as
Landstar's "Operating Subsidiaries" or "Operating Companies".
The Company's principal executive offices are located at First
Shelton Place, 1000 Bridgeport Avenue, Shelton, Connecticut
06484 and its telephone number is (203) 925-2900.
Historical Background
In March 1988, EnviroSource, Inc. ("EnviroSource") acquired IU
International Corporation ("IU"), the former parent of
Landstar Ranger, Landstar Inway, Landstar Ligon, Landstar
Gemini, Landstar Poole and RMCS in a highly leveraged
transaction. IU was a large conglomerate engaged in various
unrelated businesses, including metals recovery, agriculture,
food distribution and transportation. EnviroSource sought to
reduce its acquisition debt by selling non-strategic assets
and operations. In connection with these sales, EnviroSource
sought to exit the transportation market and sold or closed
certain unprofitable operations. EnviroSource formed LSHI in
October 1988 to acquire the assets of certain of IU's
truckload operating companies and caused LSHI to incur
substantial debt to pay a special dividend to EnviroSource of
approximately $72.3 million, and to repay approximately $21.5
million of debt owed to EnviroSource.
In March 1991, Landstar acquired LSHI in a buy-out organized
by Kelso & Company, Inc. ("Kelso"). Investors in the
acquisition included Kelso Investment Associates IV L.P.
("KIA IV"), an affiliate of Kelso, ABS MB Limited Partnership
("ABSMB"), an affiliate of Alex. Brown & Sons Incorporated,
and certain management employees of Landstar and its
subsidiaries (the "Management Stockholders"). Landstar was
capitalized by the sale of an aggregate of 8,024,000 shares of
Common Stock for $20.1 million, as follows: KIA IV ($15.5
million), ABSMB ($3.0 million), Management Stockholders ($1.3
4
million) and certain institutional stockholders ($.3 million).
In March 1993, Landstar completed a recapitalization (the
"Recapitalization") that increased shareholders' equity,
reduced indebtedness and improved the Company's operating and
financial flexibility. The Recapitalization involved three
principal components: (i) the initial public offering (the
"IPO") of 5,387,000 shares of Common Stock, at an initial
price to the public of $13 per share, 2,500,000 of which were
sold by Landstar and 2,887,000 of which were sold by certain
of the Company's stockholders (including KIA IV), (ii) the
retirement of all $38 million outstanding principal amount of
LSHI's 14% Senior Subordinated Notes due 1998 (the "14%
Notes"), and (iii) the refinancing of the Company's then
existing senior debt facility with a senior bank credit
agreement. The net proceeds to the Company from the IPO (net
of underwriting discounts and commissions and expenses) of
$28,450,000 and proceeds from the new term loan, were used to
repay outstanding borrowings under the old credit agreement
and redeem or purchase the 14% Notes. In October 1993, a
secondary public offering by existing stockholders of
5,547,930 shares of Common Stock at an initial price to the
public of $15 per share was completed. KIA IV sold 4,492,640
shares and ABSMB sold 1,055,290 shares. Immediately
subsequent to the offering, KIA IV no longer owned any
Landstar shares of Common Stock, and affiliates of Alex. Brown
retained approximately 1% of the Common Stock outstanding.
In connection with the secondary offering, Landstar granted
the underwriters an over-allotment option of up to 554,793
shares of Common Stock. The option was exercised and Landstar
sold the 554,793 shares of Common Stock at an initial price to
the public of $15 per share. Landstar received proceeds, net
of underwriting discounts and commissions and expenses of the
secondary offering, in the amount of $7,386,000.
During the first quarter of 1995, Landstar, through different
subsidiaries of LSHI acquired the businesses and net assets of
Intermodal Transport Company ("ITCO"), a California-based
intermodal marketing company, LDS Truck Lines, Inc., a
California-based drayage company, and T.L.C. Lines, Inc., a
Missouri-based temperature-controlled and long-haul, time
sensitive dry van carrier. Also in the 1995 first quarter,
Landstar, through another subsidiary of LSHI, acquired all of
the outstanding common stock of Express America Freight
Systems, Inc., ("Express"), a North Carolina-based air freight
and truck expedited service provider. The business acquired
from ITCO comprises the majority of Landstar Logistics'
intermodal operations, while the business acquired with
Express comprises the majority of Landstar Express America's
operations.
On December 18, 1996, the Company announced a plan to
restructure its Landstar T.L.C. and Landstar Poole operations,
in addition to the relocation of its Shelton, Connecticut
corporate office headquarters to Jacksonville, Florida in the
second quarter of 1997. The plan to restructure Landstar
T.L.C. included the merger of Landstar T.L.C. into Landstar
5
Inway, the closing of the Landstar T.L.C. headquarters in St.
Clair, Missouri and the disposal of all of Landstar T.L.C.'s
company-owned tractors. The plan to restructure Landstar
Poole included the transfer of the variable cost business
component of Landstar Poole to Landstar Ranger and the
disposal of 175 Landstar Poole company-owned tractors.
Description of Business
Landstar, a transportation services company, operates one of
the largest truckload carrier businesses in North America,
with revenue of $1,283.8 million in 1996. The Company seeks
to provide transportation services which emphasize information
coordination and customer service delivered primarily by a
network of approximately 1,200 independent commission sales
agents. Landstar utilizes a wide range of specialized
equipment designed to meet customers' varied transportation
requirements, which distinguishes the Company from many other
large truckload carriers. The Company transports a variety of
freight, including iron and steel, automotive products, paper,
lumber and building products, aluminum, chemicals, foodstuffs,
heavy machinery, ammunition and explosives, and military
hardware. The Company provides truckload carrier services,
intermodal transportation services and expedited air and truck
services to shippers throughout the continental United States
and, to a lesser extent, between the United States and each of
Canada and Mexico. Four of Landstar's Operating Subsidiaries,
Landstar Ranger, Landstar Inway, Landstar Ligon and Landstar
Gemini (collectively the "Owner-Operator Companies") provide
truckload transportation services through a network of
independent commission sales agents and independent
contractors. Management believes the Owner-Operator Companies
utilize more independent contractors than any other U.S.
truckload carrier. The use of independent contractors enables
the Company to utilize a large fleet of revenue equipment
while minimizing its capital investment and fixed costs,
thereby enhancing the Company's return on investment.
Landstar Poole and Landstar T.L.C. use company-owned or leased
equipment and company-employed drivers for a substantial
portion of their operations. In 1992, Landstar Poole began to
provide truckload transportation services through independent
contractors and independent commission sales agents. In 1996,
revenue generated through independent contractors was
approximately 44% of Landstar Poole's total revenue and
approximately 65% of Landstar T.L.C.'s total revenue. During
the fourth quarter of 1996, the Company announced its plan to
restructure the operations of both Landstar Poole and Landstar
T.L.C. The Landstar Poole restructuring plan included the
transfer of the variable cost business component of Landstar
Poole to Landstar Ranger 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 and the disposal
of all the company-owned tractors.
Landstar Logistics provides customers with contract logistics
and intermodal services. Contract logistics services include
6
single source alternatives, truck brokerage and other
transportation solutions for large customers. Intermodal
transportation services primarily involves arranging for the
movement of customers' goods by a combination of rail and
truck. Both the railroad and drayage carriers utilized by
Landstar Logistics are independent contractors. Landstar
Logistics enables Landstar to market the full range of
services offered by the entire Landstar system to customers
with significant transportation needs, in addition to marketing
separate logistics services.
Historically, Landstar T.L.C. and the intermodal operations of
Landstar Logistics 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 company-owned sales
locations at Landstar Logistics and Landstar T.L.C. to
independent commission sales agent locations.
Landstar Express America provides air and surface expedited
transportation services through independent contractors,
including air cargo carriers, and principally utilizes
independent commission sales agents.
Landstar's business strategy is to offer high quality,
specialized transportation services primarily in the truckload
market to service-sensitive customers. Landstar focuses on
providing transportation services which emphasize information
coordination among its commission sales agents, customers and
Operating Subsidiaries, as well as customer service, rather
than the volume-driven approach of the generic dry van
carriers. Landstar intends to continue developing appropriate
systems and technologies to offer integrated transportation
and logistic solutions to its customers' total transportation
needs.
Since the Company is larger than most of its competitors,
Landstar has competitive marketing and operating advantages.
The Company has the overall size, geographic coverage,
equipment and service capability to meet the needs of even the
largest shippers and thereby qualifies as a "core carrier."
Increasingly, the larger shippers are substantially reducing
the number of authorized carriers in favor of a small number
of core carriers whose size and diverse service capability
enable these core carriers to satisfy most of the shippers'
transportation needs. Examples of national account customers
include the U.S. Department of Defense and shippers in
particular industries, such as automobile manufacturers.
Landstar's network of approximately 1,200 independent
commission sales agents allows the Company to provide both
large and small shippers a level of local service and quality
typically offered only by small, entrepreneurial carriers.
The Company has a number of significant competitive
advantages, including:
7
DIVERSITY OF SERVICES OFFERED. The Company offers its
customers a wide range of transportation services, primarily
truckload, through its Operating Subsidiaries, including a
fleet of diverse 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, and intermodal capability with
railroads and steamship lines, including short-to-medium haul
movement of ocean-going containers between U.S. ports and
inland cities. The Company's fleet (including revenue
equipment leased from independent contractors) consists of
9,883 power units and 14,692 trailers, including dry vans of
various capacities, a variety of flatbeds (including drop
decks and light specialty trailers), specialty and
temperature-controlled vans and containers.
The following table illustrates the diversity of this
equipment as of December 28, 1996:
Power Units 9,883
=====
Trailers:
Vans 9,088
Specialty Vans 128
Temperature-Controlled 599
Flatbeds 3,002
Drop Deck/Low Boys 1,149
Light Specialty 109
Other Specialized Flatbeds 617
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Total 14,692
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MARKETING NETWORK. The Company's network of approximately
1,200 independent commission sales agents results in regular
contact with shippers at the local level and the capability to
be highly responsive to shippers' changing needs. The agent
network enables Landstar to be responsive both in providing
specialized equipment to both large and small shippers and in
providing capacity on short notice from the Company's large
fleet to high volume shippers. Through its agent network, the
Company believes it offers smaller shippers a level of service
comparable to that typically reserved by other truckload
carriers only for their largest customers. Examples of
services that Landstar is able to make available through the
8
agent network to smaller shippers include the ability to haul
shipments on short notice (often within hours from
notification to time of pick-up), multiple pick-up and
delivery points, electronic data interchange capability and
access to specialized equipment. In addition, a number of the
Company's agents specialize in certain types of freight and
transportation services (such as oversized or heavy loads).
An agent is typically paid 7% of the revenue generated through
that agent, with volume-based incentive commissions that can
increase the percentage to 10% of revenue. During 1996, more
than 350 agents generated revenue for Landstar of at least $1
million each, or approximately $924 million of Landstar's
total revenue. The majority of the agents who generate
revenue of $1 million or more have chosen to represent
Landstar exclusively. Many of the agents represent one or
more of the Operating Companies. The ten largest agencies in
1996 generated average revenue of approximately $10.9 million.
The typical Landstar agent maintains a relationship with a
number of shippers, and services these shippers by providing a
base of operations for independent contractors, both single-
unit owner-operator and multi-unit contractors. Contracts
with agents are typically terminable upon 30 days' notice.
Historically, Landstar has experienced very limited agent
turnover, especially among its larger volume agents. The
Operating Companies emphasize programs to support the
agents' operations and to establish pricing parameters,
The Operating Companies contract directly with customers
and generally assume the credit risk and liability for
freight losses or damages. Landstar Ranger, Landstar
Inway, Landstar Gemini, Landstar T.L.C. and Landstar
Express America generally dispatch their fleets through
their local agents, while Landstar Ligon and Landstar
Poole generally operate through a central dispatch system.
The operating subsidiaries who utilize independent
commission sales agents hold regular regional agent
meetings and Landstar holds an annual Company-wide agent
convention.
TECHNOLOGY. The Company 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 program centrally through a
Vice President of Management Information Systems ("MIS") who
directs each of the Operating Companies' MIS departments.
The following technologies have been adopted by Landstar in
recent years:
CUSTOMER COMMUNICATION. The Company has capability in
Electronic Document and Data Interchange ("EDI"). These
capabilities provide operating advantages to Landstar and
enhanced customer service, including real time information
flow, reduction or elimination of paperwork, error-free
transcription and reductions in clerical personnel. EDI
allows the Company to exchange data with its customers
regarding their shipments in a variety of formats, which
significantly enhances quality control and customer service.
9
AGENT COMMUNICATION. The Company has developed a proprietary
personal computer-based software system called Landstar
Electronic Administrative Dispatch System ("LEADS") to
communicate electronically with its agents. LEADS
interconnects agents' personal computers with the information
systems of the Operating Subsidiaries. As of December 28,
1996, approximately 446 of the independent agents had
installed LEADS. The Company encourages all of its agents to
join the LEADS program. LEADS provides an agent with a
variety of functions for sending information to and receiving
information from the Operating Subsidiary. LEADS is used by
an agent to dispatch trucks, to authorize cash advances to
drivers in route (i.e., to purchase fuel or supplies) and to
transmit and receive freight invoices. The Company is in the
process of converting its current LEADS system to a Windows
environment. The Company is also in the process of the
development of an internet/intranet technology in order to
more effectively match available loads with available
equipment.
DRIVER COMMUNICATION. Management believes that onboard
communications capability will be increasingly important, and
intends to increase this capability throughout the Landstar
system. Landstar has established and will continue to develop
its Driver Communications Network, which consists of a variety
of communications methods monitored and controlled at each
Operating Subsidiary. Methods currently in use are pagers,
cellular telephones, daily driver check-ins via telephone
calls to a Company "800" number and satellite transceivers.
The most common communications device, utilized by over 7,300
employee drivers and independent contractors, is the pager.
Using the Company's directory of drivers, an agent is able to
communicate with a specific driver to ascertain shipment
status, pickup and delivery information, load availability and
other relevant information. Management believes that pagers
provide the communications capabilities required by most
shippers, but at a substantially lower cost than the satellite
communications now employed by a number of the Company's
competitors. Satellite communications that provide instant
location information and communication with the driver are
used by the Company for highly critical movements such as
Department of Defense ammunitions and explosives and "just-in-
time" automotive shipments.
Landstar has also developed and continues to try to improve a
number of additional technologies, including: an optical
character recognition system (which scans documents such as
bills of lading, driver logs and fuel receipts on to optical
disks), designed to speed information retrieval and enhance
availability and flexible utilization of data; bar coding of
load documentation; image and workflow technology to speed
paperwork processes; the use of portable computers to provide
instant price quotes, marketing support and other information;
the use of the Landstar debit card to track driver fuel and
equipment purchases; and movement towards a client/server
network computer environment.
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CORPORATE SERVICES. Significant advantages result from the
collective expertise and corporate services afforded by
Landstar's headquarters management. The primary services
provided are:
safety purchasing
risk and claims management strategic planning
technology and management information systems human resource management
marketing, particularly national accounts finance
quality programs accounting, budgeting and taxes
legal
INDEPENDENT CONTRACTORS. The Company operates the largest
fleet of truckload independent contractors in North America.
This provides marketing, operating, safety, recruiting and
retention and financial advantages to the Company. Most of
the Companies' truckload independent contractors are
compensated on the basis of a fixed percentage of the revenue
generated from the shipments they haul. This percentage
generally ranges from 60% to 70% where the independent
contractor supplies only the tractor and from 75% to 79% where
the independent contractor supplies both the tractor and the
trailer. The independent contractor must pay all the expenses
of operating his equipment, including driver wages and
benefits, fuel, physical damage insurance, maintenance,
highway use taxes and debt service. In 1996, Landstar
experienced a turnover rate among independent contractors of
approximately 82%. A significant percentage of this turnover
was attributable to independent contractors who had been
independent contractors with the Company for less than one
year. Management believes that the availability of loads is a
significant factor in turnover. Management believes other
factors that tend to limit turnover include the Company's
extensive agent network, the Company's programs to reduce the
operating costs of its independent contractors, and Landstar's
reputation for quality, service and reliability. The Landstar
Contractors' Advantage Purchasing Program ("LCAPP") leverages
Landstar's purchasing power as one of the largest truckload
carriers in North America to provide discounts to the
independent contractors when they purchase equipment, fuel,
tires and other items. Landstar also benefits from its use of
independent contractors because the Company does not have to
maintain a significant capital investment. As a result, the
Owner-Operator Companies tend to have higher variable costs
and lower fixed costs.
Description of Operating Subsidiaries
The following table presents financial and operating
information about each of the Company's Operating Subsidiaries
at or for the fiscal years ended December 28, 1996 and December 30, 1995.
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Landstar Landstar Landstar Landstar
Ranger Inway Ligon Gemini
-------- -------- -------- --------
1996 1995 1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ---- ---- ----
Revenue (in millions) $338.5 $336.4 $291.6 $270.6 $170.1 $157.4 $52.1 $54.0
Average length of haul
in miles 634 684 642 670 583 620 208 183
Number of power units 3,237 3,335 2,181 2,153 1,640 1,502 503 630
Number of trailers 5,908 5,939 3,081 3,018 2,036 1,993 - -
Number of agents 308 273 359 370 241 230 41 54
Landstar Landstar Landstar Landstar
T.L.C. Poole Express America Logistics
-------- -------- --------------- ------------
1996 1995 1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ---- ---- ----
Revenue (in millions) $105.2 $87.9 $154.0 $150.0 $35.6 $24.5 $136.7 $123.9
Average length of haul
in miles 1,253 1,495 630 635 504 334 N/A N/A
Number of power units 680 630 1,413 1,431 229 210 N/A N/A
Number of trailers 1,106 1,021 2,542 2,295 3 - 16 75
Number of agents 65 7 83 68 115 106 49 28
Each of the Operating Subsidiaries is managed by its own
personnel and follows the strategic direction of the corporate
office.
The Operating Subsidiaries are separately responsible for
pricing, approving customer credit, recruiting agents and
drivers, marketing transportation services, administering
safety programs and overseeing shipments by their customers.
In 1996, no single customer accounted for more than 10% of the
Company's revenue. Landstar's Operating Subsidiaries deliver
truckload transportation services through, as of December 28,
1996, approximately 6,900 independent contractors supplying
more than 8,900 tractors and a network of approximately 1,200
independent commission sales agents. Approximately 90.4% of
the Company's 1996 revenue was generated through independent
contractors.
LANDSTAR RANGER. Founded in 1968 and headquartered in
Jacksonville, Florida, Landstar Ranger operates a fleet of
over 3,200 tractors and over 5,900 trailers. Approximately
83% of Landstar Ranger's trailers are dry vans and specialty
vans (of varying lengths and volumes), and approximately 17%
are flatbeds (standard, drop deck, side paneled and light
specialty). Landstar Ranger operates primarily with
independent contractors and commission agents. Although
Landstar Ranger operates throughout the continental United
States and much of Canada, its heaviest traffic is within the
Southeast, within the Midwest, along east-west routes between
the Midwestern states and Pennsylvania and New York, and on
routes between the Southeast and the Midwest and eastern
United States. Landstar Ranger transports a wide range of
general commodities, including building materials, automotive
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parts, plastics, foodstuffs, beverages, chemicals, metals,
machinery and munitions. In a number of industries, Landstar
Ranger is a primary carrier, in delivery of raw materials, of
finished products, or both. In the beverage industry,
Landstar Ranger hauls aluminum sheets to can manufacturers on
flatbed trailers, ships empty cans to beverage producers in
dry vans and delivers the filled cans to beverage distributors
in temperature-controlled vans. Approximately 200 of Landstar
Ranger's drivers (out of a total of approximately 3,200) are
employees represented by the Teamsters (See "Business
Regulation"). As of December 28, 1996, Landstar Ranger had
240 non-driver employees, none of whom are represented by a
collective bargaining unit.
LANDSTAR INWAY. Founded in 1982 and headquartered in
Rockford, Illinois, Landstar Inway operates the Company's
largest fleet of flatbeds (over 1,680 trailers of various
types), nearly 1,400 dry and specialty vans, and more than
2,180 tractors. Landstar Inway operates exclusively with
independent contractors and commission sales agents. Landstar
Inway operates throughout the United States and Canada, and
between the United States and Mexico. Landstar Inway's
heaviest traffic area is the eastern United States and routes
between Texas and the Midwest. Landstar Inway transports a
wide variety of general commodities, including steel and other
metals, building materials, machinery and paper. Landstar
Inway also offers flatbed multiple pick-up and delivery
service without cross-docking and interlining typical of
less-than-truckload service offered by other carriers. As of
December 28, 1996, Landstar Inway employed 298 persons, none
of whom are represented by a collective bargaining unit.
LANDSTAR LIGON. Founded in 1962 and headquartered in
Madisonville, Kentucky, Landstar Ligon operates a fleet of
approximately 1,640 tractors, nearly 1,500 flatbed and
specialty trailers and 540 vans. Landstar Ligon offers
flatbed and dry van service, primarily in the Eastern and
Midwestern United States and on routes from Texas, Louisiana
and Arkansas to both the Midwest states and other Southern
states. Landstar Ligon operates exclusively with independent
contractors. Landstar Ligon markets its services through both
independent commission sales agents and Landstar Ligon
employees. Landstar Ligon's marketing staff focuses on large,
national accounts. Landstar Ligon has a centralized dispatch
system which links its regional terminals and agent locations
with Ligon's headquarters. Landstar Ligon has a specialized
hauling division which offers a wide range of oversized load
and heavy load services such as hauling military tanks, large
construction equipment and heavy machinery. Trailers to serve
this market feature air ride suspension and 5 to 13 axles.
Freight hauled by Landstar Ligon also includes metal products
from mills both to distribution centers and to industrial
consumers. As of December 28, 1996, Landstar Ligon employed
187 persons, none of whom are represented by a collective
bargaining unit.
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LANDSTAR GEMINI. Landstar Gemini was restructured in 1990 to
focus on offering national drayage transportation services in
order to take advantage of the growth in intermodal
transportation (the hauling of truck trailers or containers on
rail cars or ships). As part of this restructuring, Landstar
Gemini transferred all of its then existing operations,
including its independent contractors and agents, primarily to
Landstar Ranger. Landstar Gemini now operates through 41
commission agents located in major Atlantic and Gulf ports and
449 independent contractors, who provide 503 tractors.
Landstar Gemini services include short, intermediate, and long
haul of marine containers between all major continental United
States ports and inland points and intermodal drayage to and
from all major railroads. Landstar Gemini's offices are
located in Jacksonville, Florida adjacent to Landstar Ranger's
offices. As of December 28, 1996, Landstar Gemini employed 35
persons, none of whom are represented by a collective
bargaining unit.
LANDSTAR POOLE. Founded in 1950 and headquartered in
Evergreen, Alabama, Landstar Poole owns or leases the majority
of the tractors and employs most of the drivers used in its
operations. In 1996, approximately 44% of Landstar Poole's
revenue was generated through independent contractors. At
December 28, 1996, Landstar Poole's fleet consisted of over
1,400 tractors, of which 667 were provided by independent
contractors. On December 18, 1996, the Company announced a
plan to transfer the variable cost business component of
Landstar Poole to Landstar Ranger and the disposal of 175
Landstar Poole company-owned tractors. At December 28, 1996,
Landstar Poole operated over 1,850 dry vans and 680 flatbed
trailers, including various specialty flatbed trailers almost
all of which were company owned. Landstar Poole's primary
service area is the eastern United States and routes between
the eastern United States and Canada. Its principal traffic
lanes are between the South and the Northeast, the South and
the Midwest and the Midwest and the Northeast. Landstar
Poole's operating strategy is to provide a high level of
service on short and medium length regional traffic lanes.
Landstar Poole has considerable experience in hauling
specialized freight such as forest products, telephone poles
and plate glass.
Landstar Poole's executive office, located in Evergreen,
Alabama, contains office space for all administrative
activities (dispatch, accounting, customer service and
marketing) as well as facilities for equipment maintenance and
storage. As of December 28, 1996, Landstar Poole employed 975
persons, including 744 employee drivers, none of whom are
represented by a collective bargaining unit.
LANDSTAR T.L.C. In January 1995, Landstar T.L.C. purchased
the business and net assets of T.L.C. Lines, Inc., a Missouri-
based temperature-controlled and long-haul, time sensitive dry
van carrier. At December 28, 1996, Landstar T.L.C.'s fleet
14
consisted of approximately 680 tractors, of which 478 were
provided by independent contractors. At December 28, 1996,
Landstar T.L.C. operated over 1,100 dry and temperature
controlled vans and 4 flatbed trailers, most of which were
owned by Landstar T.L.C. Landstar T.L.C.'s primary service
area is routes from the Northeast to the Western United
States. Landstar T.L.C.'s length of haul is generally longer
than other Operating Subsidiaries due to their coast to coast
regular routes. As of December 28, 1996, Landstar T.L.C.
employed 447 persons, including 328 employee drivers, none of
whom are represented by a collective bargaining unit. On
December 18, 1996, the Company announced a plan to dispose of
all of Landstar T.L.C.'s company-owned equipment and to merge
Landstar T.L.C. into Landstar Inway.
LANDSTAR LOGISTICS. Landstar Logistics provides customers
with contract logistics and intermodal services. Landstar
Logistics offers contract logistics services to customers who
seek distribution solutions to their transportation needs.
Contract logistics services provide customers with logistics
support, single source alternatives, truck brokerage
and other transportation solutions. Intermodal services
primarily involves arranging for the movement of customers'
goods by a combination of rail and truck throughout the United
States. As of December 28, 1996, Landstar Logistics employed
46 persons, none of whom are represented by a collective
bargaining unit.
LANDSTAR EXPRESS AMERICA. Headquartered in Charlotte, North
Carolina, Landstar Express America provides emergency and
expedited air freight and truck services throughout the United
States marketed through independent commission sales agents
and delivered through independent contractors. Landstar
Express America's fleet consists of 229 cargo vans and
straight trucks. As of December 28, 1996, Landstar Express
America employed 65 persons, none of whom are represented by a
collective bargaining unit.
RMCS. RMCS is responsible for the development,
implementation, and administration of consistent risk
management policies and programs for all of the Operating
Subsidiaries. As of December 28, 1996, RMCS employed 12
persons, none of whom are represented by a collective
bargaining unit.
LANDSTAR CORPORATE SERVICES, INC. LCSI, a Delaware
corporation, is located in Jacksonville, Florida, and was
formed on December 15, 1993. LCSI provides administrative
support for Landstar Ranger, Landstar Gemini and Landstar
Logistics. As of December 28, 1996, LCSI employed 110
persons, none of whom are represented by a collective
bargaining unit.
LANDSTAR CONTRACTOR FINANCING, INC. and LANDSTAR CAPACITY
SERVICES, INC. LCFI and LCS, both Delaware corporations, are
located in Shelton, Connecticut, and were formed in 1996. LCFI
and LCS provide various services to independent contractors
15
including financing to purchase tractors and/or trailers,
marketing of LCAPP and management of truckstop partnerships.
Substantially all of the loans provided by LCFI to owner-
operators are secured by the equipment purchased by the owner-
operators.
COMPETITION
Landstar competes primarily in the domestic transportation
industry, focusing on the common and contract truckload
segment. This segment has been characterized by significant
change since the substantial economic deregulation of the
trucking industry in 1980, which led to a rapid influx of
small, often poorly capitalized truckload carriers and
downward pressure on freight rates. Primarily because
deregulation eliminated most route and commodity restrictions,
the market for common and contract truckload services has
grown as truckload carriers have attracted business from
railroads, less-than-truckload carriers and private fleets.
The Company believes the truckload segment will continue to
undergo significant consolidation and that the barriers to
entry will become higher. These barriers include the
capital-intensive nature of the business, purchasing economies
available only to larger carriers, increasing customer demand
for sophisticated information systems, rising insurance costs,
greater customer demand for specialized services and the
reluctance of certain shippers to do business with smaller
carriers.
The transportation services business is extremely competitive
and fragmented. Landstar competes primarily with other
truckload carriers and independent contractors and, with
respect to certain aspects of its business, intermodal
transportation, railroads and less-than-truckload carriers.
Competition for the freight transported by the Company is
based in the long term primarily on service and efficiency
and, to a lesser degree, on freight rates alone. Competition
has created downward pressure on the truckload industry's
pricing structure. Management believes that Landstar's
overall size and availability of a wide range of equipment,
together with its geographically dispersed local independent
agent network, present the Company with significant
competitive advantages over many other truckload carriers.
The Company also competes with other motor carriers for the
services of independent contractors and commission agents,
contracts with whom are terminable upon short notice. The
Company's overall size, coupled with its reputation for good
relations with agents and independent contractors, have
enabled the Company to attract a sufficient number of
qualified agents, independent contractors and drivers.
INSURANCE AND CLAIMS
Potential liability associated with accidents in the trucking
industry is severe and occurrences are unpredictable.
16
Landstar retains liability up to $1,000,000 for each
individual property, casualty and general liability claim,
$500,000 for each workers' compensation claim and $250,000 for
each cargo claim. The Company provides, on an actuarially
determined basis, for the estimated cost of property, casualty
and general liability claims reported and for claims incurred
but not reported. Although Landstar has an active training
and safety program, there can be no assurance that the
frequency or severity of accidents or workers' compensation
claims will not increase in the future, that there will not be
unfavorable development of existing claims or that insurance
premiums will not increase. A material increase in the
frequency or severity of accidents or workers' compensation
claims or the unfavorable development of existing claims can
be expected to adversely affect Landstar's operating results.
Management believes that Landstar and the Operating
Subsidiaries realize significant savings in insurance premiums
by retaining a larger amount of risk than might be prudent if
any of the Operating Subsidiaries were stand-alone companies.
POTENTIAL CHANGES IN FUEL TAXES
From time to time, various legislative proposals are
introduced to increase federal, state, or local taxes,
including taxes on motor fuels. The Company cannot predict
whether, or in what form, any increase in such taxes
applicable to the Company will be enacted and, if enacted,
whether or not the Company will be able to reflect the
increases in prices to customers. Competition from
non-trucking modes of transportation and from intermodal
transportation would be likely to increase if state or federal
taxes on fuel were to increase without a corresponding
increase in taxes imposed upon other modes of transportation.
INDEPENDENT CONTRACTOR STATUS
From time to time various legislative or regulatory proposals
are introduced at the federal or state levels to change the
status of independent contractors classification as 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, or if they have received a ruling from the
Internal Revenue Service or a court decision affirming their
treatment, or if they are following a long-standing recognized
practice.
Although management is unaware of any proposals currently
pending to change the employee/independent contractor
17
classification, the costs associated with potential changes,
if any, in the employee/independent contractor classification
could adversely affect Landstar's results of operations if
Landstar were unable to reflect them in its fee arrangements
with the independent contractors and agents or in the prices
charged to its customers.
REGULATION
Each of the Operating Subsidiaries, is a motor carrier, which
prior to January 1, 1995, were regulated by the Interstate
Commerce Commission (the "ICC") and is now regulated by the
United States Department of Transportation (the "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 regulations or limits on vehicle
weight and size) that may affect the economics of the industry
by requiring changes in operating practices or by changing the
demand for common or contract carrier services or the cost of
providing truckload services.
Congress deregulated transportation in 1994 by passage of the
Trucking Industry Regulatory Reform Act of 1994 ("TIRRA") and
the Federal Aviation Administration Authorization Act of 1994
("FAAAA"). TIRRA substantially eliminated entry procedures
for interstate transportation and eliminated the ICC tariff
filing requirements for virtually all common carriers. FAAAA
required all states to substantially deregulate intrastate
transportation as of January 1, 1995. In 1995, Congress
enacted The Interstate Commerce Commission Termination Act and
substantially eliminated certain of the functions of the ICC
and transferred most functions to the DOT.
Landstar Ranger is subject to the Multi Employer Pension Plan
Amendments Act of 1980 ("MEPPA"), which could require Landstar
Ranger, in the event of withdrawal, to fund its proportionate
share of the union sponsored plans', in which it participates,
unfunded benefit obligation. Management believes that the
liability, if any, for withdrawal from any or all of these
plans would not have a material adverse effect on the
financial condition of Landstar, but could have a material
effect on the results of operations in a given quarter or
year.
Landstar Poole has various underground storage tanks for
diesel fuel. As a result, Landstar Poole is subject to
regulations promulgated by the Environmental Protection Agency
in 1988 with respect to underground fuel storage tanks. These
regulations generally govern the design, construction and
18
operation of underground storage tanks from installation to
closure. For underground storage tanks in existence at the
time the regulation were promulgated, the regulations require
that such tanks be upgraded to meet specified standards
concerning corrosion protection, spill or overfill protection
and release detection on a phased timetable which began in
1989 and ends in 1998.
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 requirement have not adversely
affected the availability to the Company of qualified
drivers.
SEASONALITY
Landstar's operations are subject to seasonal trends common to
the trucking industry. Results of operations for the quarter
ending in March are typically lower than the quarters ending
in June, September and December due to reduced shipments and
higher operating costs in the winter months.
EMPLOYEES
As of December 28, 1996, the Company and its subsidiaries
employed 2,632 individuals. Approximately 200 Landstar
Ranger drivers are members of the Teamsters (See "Business -
Description of Operating Subsidiaries - Landstar Ranger.").
The Company considers relations with its employees
to be good.
Item 2. - Properties
The Company leases its headquarters in Shelton, Connecticut of
approximately 14,300 square feet, as well as the headquarters
of Landstar Gemini, LCSI, Landstar Logistics and Landstar
Ranger together in Jacksonville, Florida of approximately
58,000 square feet, Landstar Inway in Rockford, Illinois of
approximately 29,000 square feet, and RMCS in Madisonville,
Kentucky of approximately 2,800 square feet, from third
parties. Landstar Poole owns its headquarters located in
Evergreen, Alabama of approximately 20 acres, and Landstar
Ligon also owns its headquarters located in Madisonville,
Kentucky of approximately 73 acres. Landstar Express America
owns its headquarters in Charlotte, North Carolina, of
approximately 7,560 square feet and one terminal of
approximately 1,680 square feet. Landstar T.L.C. owns its
headquarters located in St. Clair, Missouri of approximately
39,000 square feet on approximately 35 acres. The
restructuring plan, announced on December 18, 1996, included
the planned sale of the Landstar T.L.C. headquarters and the
relocation of the Shelton, Connecticut corporate office to
Jacksonville, Florida.
19
Management believes that Landstar's owned and leased
properties are adequate for its current needs, and that leased
properties can be retained or replaced at acceptable cost.
Item 3. - Legal Proceedings
In response to a breach of contract suit filed in January 1988
by Landstar Gemini in the Circuit Court, County of Genesee, in
the state of Michigan against Vickie and Kevin Cresson,
individually and doing business as V&C Trucking (the
"Defendants"), the Defendants, who are former agents and
independent contractors of Landstar Gemini, have asserted
breach of contract, tort and state antitrust law counterclaims
against Landstar Gemini and other parties, including
EnviroSource, Landstar, Landstar Ranger and John B. Bowron, a
director and executive officer of the Company. Defendants
have claimed approximately $7,500,000 in actual damages
(subject to trebling) as well as punitive damages.
On October 24, 1996, the court rendered an opinion on the
parties' cross-motions for summary judgment. The court
granted Gemini's motion for summary judgment in its entirety
and denied Defendants motion for summary judgment in its
entirety. The court also granted Landstar Gemini's request
for costs and reasonable attorney's fees. Defendants have
appealed the judge's decision. The Company, believing that
its defenses are and will continue to be deemed good and
meritorious, will vigorously contest the appeal. Although a
trial in this matter is now considerably less likely in light
of the judges favorable rulings, any such trial would not
likely occur before 1998.
The Company is routinely a party to litigation incidental to
its business, primarily involving claims for personal injury
and property damage incurred in the transportation of freight.
The Company maintains insurance which covers liability amounts
in excess of retained liabilities from personal injury and
property damages claims.
Item 4. - Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal year 1996.
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.
20
Calendar Period 1996 Market Price 1995 Market Price
--------------- ----------------- -----------------
High Low High Low
First Quarter $27 1/4 $21 3/4 $ 37 3/4 $ 30
Second Quarter 30 5/8 23 1/4 32 1/4 21 1/4
Third Quarter 29 3/8 23 1/4 32 1/2 21 3/4
Fourth Quarter 27 1/4 21 1/2 30 1/2 22 1/4
The reported last sale price per share of the Common Stock as
quoted through the NASDAQ National Market System on March 7,
1997 was $22.875 per share. As of such date, Landstar had
12,615,833 shares of Common Stock outstanding. As of March 7,
1997, the Company had 139 stockholders of record of its Common
Stock. However, the Company estimates that it has a
significantly greater number of stockholders of record because
a substantial number of the Company's shares are held by broker
or dealers for their customers in street name.
The Company has not within the past three years paid any cash
dividends on the Common Stock, 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, restrictions
under loan agreements and other factors deemed relevant.
Landstar's ability to pay dividends on the Common Stock depends
on LSHI's ability to pay dividends to Landstar. The Company's
credit agreement limits the amount of dividends payable by LSHI
to Landstar and thereby limits Landstar's ability to pay
dividends on the Common Stock.
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 38 of the Company's 1996 Annual Report to Shareholders.
Item 7. - Management's Discussion and Analysis of Financial
Condition and Results of Operations
The information required by this item is set forth under the
caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in Exhibit 13 attached
hereto, and is incorporated by reference in this Annual Report
on Form 10-K. This information is also included on pages 21 to
25 of the Company's 1996 Annual Report to Shareholders.
Item 8. - Financial Statements and Supplementary Data
21
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 26 through 37 of the
Company's 1996 Annual Report to Shareholders.
Item 9. - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
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 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 11. - Executive Compensation
The information required by this Item is set forth under the captions
"Compensation of Directors and Executive Officers", "Summary Compensation
Table", "Options Granted in Last Fiscal Year", "Fiscal Year End Option Values",
"Report of the Compensation Committee on Executive Compensation", "Performance
Comparison" and "Employment Contracts with Management" on pages 9 through 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 12. - Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is set forth under the caption "Security
Ownership by Management and Others" on pages 14 through 17 of the Company's
definitive Proxy Statement for its annual meeting of shareholders filed with
the Securities and Exchange Commission pursuant to Regulation 14A, and is
incorporated herein by reference.
Item 13. - Certain Relationships and Related Transactions
The information required by this Item is set forth under the caption
"Indebtedness of Management" on page 11 of the Company's definitive Proxy
22
Statement for its annual meeting of shareholders filed with the Securities and
Exchange Commission pursuant to Regulation 14A, and is incorporated herein by
reference.
Part IV
Item 14. - Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) (1) Financial Statements
Financial statements of the Company and related notes thereto, together with
the report thereon of KPMG Peat Marwick LLP dated February 12, 1997, 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 26 through 36
of the Company's 1996 Annual Report to Shareholders.
(2) Financial Statement Schedules
The report of the Company's independent public accountants with respect to the
financial statement schedules listed below appears on page 30 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, 1996 S-4
II Valuation and Qualifying Accounts
For the Fiscal Year Ended December 30, 1995 S-5
II Valuation and Qualifying Accounts
For the Fiscal Year Ended December 31, 1994 S-6
All other financial statement schedules not listed above have been omitted
because the required information is included in the consolidated financial
statements or the notes thereto, or is not applicable or required.
(3) Exhibits
The response to this portion of Item 14 is submitted as a separate
section of this report (see "Exhibit Index").
THE COMPANY WILL FURNISH, WITHOUT CHARGE, TO ANY SHAREHOLDER OF THE COMPANY WHO
SO REQUESTS IN WRITING, A COPY OF ANY EXHIBITS, AS FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION. ANY SUCH REQUEST SHOULD BE DIRECTED TO LANDSTAR
SYSTEM, INC., ATTENTION: INVESTOR RELATIONS, FIRST SHELTON PLACE, 1000
BRIDGEPORT AVENUE, P.O. BOX 898, SHELTON, CONNECTICUT 06484-0898.
(b) No reports on Form 8-K were filed during the last quarter of fiscal year
1996.
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
LANDSTAR SYSTEM, INC.
By: Henry H. Gerkens
----------------------------------------
Henry H. Gerkens
Executive Vice President & Chief Financial
Officer
By: Robert C. LaRose
----------------------------------------
Robert C. LaRose
Vice President Finance & Treasurer
Date: March 14, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
Jeffrey C. Crowe Chairman of the Board, President & March 14, 1997
- ------------------- Chief Executive Officer, Principal
Jeffrey C. Crowe Executive Officer
Henry H. Gerkens Executive Vice President & March 14, 1997
- ------------------- Chief Financial Officer; Principal
Henry H. Gerkens Financial Officer
Robert C. LaRose Vice President Finance & Treasurer;
- ------------------- Principal Accounting Officer March 14, 1997
Robert C. LaRose
* Senior Vice President and Director March 14, 1997
- -------------------
John B. Bowron
* Director March 14, 1997
- -------------------
David G. Bannister
* Director March 14, 1997
- -------------------
Ronald W. Drucker
* Director March 14, 1997
- -------------------
Arthur J. Fritz, Jr.
* Director March 14, 1997
- -------------------
Merritt J. Mott
24
* Michael L. Harvey Attorney In Fact
- ----------------------
By: Michael L. Harvey
25
EXHIBIT INDEX
Form 10-K for fiscal year ended 12/28/96
Exhibit No. Description
- ----------- -----------
(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 Credit Agreement, dated as of March 12, 1993, among LSHI,
Landstar, the lenders named therein, and Chemical Bank, as agent (including the
exhibits and schedules thereto). (Incorporated by reference to Exhibit 2 to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 27,
1993 (Commission File No. 0-21238))
4.3 Amended and Restated Credit Agreement, dated as of October 7,
1994, among LSHI, Landstar, the lenders named therein, and Chemical Bank, as
agent (including the exhibits and schedules thereto). (Incorporated by
reference to Exhibit III to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 24, 1994 (Commission File No. 0-21238))
26
Exhibit Index (continued)
Form 10-K for fiscal year ended 12/28/96
Exhibit No. Description
- ----------- -----------
4.4 First Amendment, dated as of October 4, 1995, to the Amended
and Restated Credit Agreement, dated as of October 7, 1994, among LSHI,
Landstar, the lenders named therein, and Chemical Bank, as agent.
(Incorporated by reference to Exhibit 4.1 to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1995 (Commission File No. 0-
21238))
4.5* Second Amendment, dated as of March 1, 1996, to the Amended and
Restated Credit Agreement, dated as of October 7, 1994, among LSHI, Landstar,
the lenders named therein, and Chemical Bank (n/k/a Chase Manhattan Bank), as
agent.
4.6 Stockholders Agreement, dated as of March 12, 1993, among KIA
IV, ABSMB and the Company. (Incorporated by reference to Exhibit 4.9 of
Amendment No. 3 to the Registrant's Registration Statement on Form S-1
(Registration No. 33-57174))
4.7 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))
4.8 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.
(10) Material Contracts:
10.1+ Landstar System, Inc. 1993 Stock Option Plan. (Incorporated by
reference to Exhibit 10.1 to the Registrant's Registration Statement on Form
S-1 (Registration No. 33-67666))
10.2+ LSHI Investors' Plan. (Incorporated by reference to Exhibit
10.2 to the Registrant's Registration Statement on Form S-1 (Registration No.
33-57174))
10.3 Directors' and Consulting Service Agreement, dated March 27,
1991, between Alex. Brown & Sons Incorporated and the Company. (Incorporated
by reference to Exhibit 10.4 to the Registrant's Registration Statement on Form
S-1 (Registration No. 33-57174))
10.4 Management Services Agreement, dated March 27, 1991, between
Kelso and the Company. (Incorporated by reference to Exhibit 10.5 to the
Registrant's Registration Statement on Form S-1 (Registration No. 33-57174))
27
Exhibit Index (continued)
Form 10-K for fiscal year ended 12/28/96
Exhibit No. Description
- ----------- -----------
10.5 Irrevocable Guaranty, dated as of March 30, 1992, among the
Company, Kelso Insurance Services, Inc., and the American Telephone and
Telegraph Company. (Incorporated by reference to Exhibit 10.6 to the
Registrant's Registration Statement on Form S-1 (Registration No. 33-57174))
10.6 Form of Indemnification Agreement between the Company and each
of the directors and executive officers of the Company. (Incorporated by
reference to Exhibit 10.7 of Amendment No. 1 to the Registrant's Registration
Statement on Form S-1 (Registration No. 33-57174))
10.7+ LSHI Management Incentive Compensation Plan. (Incorporated by
reference to Exhibit 10.8 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 25, 1993 (Commission File No. 0-21238))
10.8+ Landstar System, Inc. 1994 Director's Stock Option Plan.
(Incorporated by reference to Exhibit 99 to the Registrant's Registration
Statement on Form S-8 filed July 5, 1995 (Registration No. 33-94304))
(11) Statement re Computation of Per Share Earnings:
11.1* Landstar System, Inc. and Subsidiary Calculation of Earnings
Per Share.
(13) Annual Report to Shareholders, Form 10-Q or Quarterly Report to
Shareholders:
13.1* Excerpts from the 1996 Annual Report to Shareholders.
28
Exhibit Index (continued)
Form 10-K for fiscal year ended 12/28/96
Exhibit No. Description
- ----------- -----------
(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 Peat Marwick LLP as Independent Auditors of the
Registrant.
(24) Power of Attorney
24.1* Powers of Attorney.
(27) Financial Data Schedule
27.1* Financial Data Schedule
___________________
+management contract or compensatory plan or arrangement
*Filed herewith.
29
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Landstar System, Inc.:
Under date of February 12, 1997, we reported on the consolidated balance sheets
of Landstar System, Inc. and subsidiary as of December 28, 1996 and December
30, 1995, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for the fiscal years ended December 28,
1996, December 30, 1995, and December 31, 1994, as contained in the 1996 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 1996. In connection with our audits of the aforementioned consolidated
financial statements, we also audited the related financial statement schedules
as listed in Item 14 (a)(2). These financial statement schedules are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present
fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Stamford, Connecticut
February 12, 1997
30
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. 30,
1996 1995
-------- --------
ASSETS
- ------
Investment in Landstar System Holdings, Inc.,
net of advances $147,344 $128,179
Operating property, less accumulated
amortization of $878 and $252 626 435
-------- --------
Total assets $147,970 $128,614
======== ========
Liabilities and Shareholders' Equity
- -----------------------------------
Long-term debt, including current
maturities of $413 and $187 $ 413 $ 218
Shareholders' equity:
Common stock, $.01 par value, authorized
20,000,000 shares, issued 12,882,874
and 12,871,674 shares 129 129
Additional paid - in capital 61,740 61,504
Retained earnings 87,655 68,730
Cost of 94,041 shares of common
stock in treasury (1,967) (1,967)
-------- --------
Total shareholders' equity 147,557 128,396
-------- --------
Total liabilities and shareholders' equity $147,970 $128,614
======== ========
S-1
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 YEAR ENDED
-----------------------------------------------
Dec. 28, Dec. 30, Dec. 31,
1996 1995 1994
---------- ---------- -----------
Rental income $ 682 $ 323 -
Amortization expense (626) (252) -
Interest expense (56) (71) -
Equity in undistributed earnings
of Landstar System Holdings, Inc. 18,942 25,019 $ 24,488
Income taxes (17) (57) (81)
---------- ---------- -----------
Net income $ 18,925 $ 24,962 $ 24,407
========== ========== ===========
Earnings per share $ 1.48 $ 1.95 $ 1.90
========== ========== ===========
Average number of common shares
outstanding 12,785,000 12,807,000 12,848,000
========== ========== ==========
S-2
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PARENT COMPANY ONLY STATEMENT OF CASH FLOWS INFORMATION
(Dollars in thousands)
FISCAL YEAR ENDED
-----------------------------------------------
Dec. 28, Dec. 30, Dec. 31,
1996 1995 1994
---------- ---------- -----------
Operating Activities
- --------------------
Net income $ 18,925 $ 24,962 $ 24,407
Adjustments to reconcile net income
to net cash provided(used) by
operating activities:
Amortization of operating property 626 252 -
Equity in undistributed earnings of
Landstar System Holdings, Inc. (18,942) (25,019) (24,488)
Decrease in other liabilities - - (216)
---------- ---------- ------------
Net Cash Provided (Used) By Operating
Activities 609 195 (297)
---------- ---------- ------------
Investing Activities
- --------------------
Additional investments in and advances
to Landstar System Holdings, Inc., net (223) 2,001 297
---------- ---------- ------------
Net Cash Provided (Used) By Investing
Activities (223) 2,001 297
---------- ---------- ------------
Financing Activities
- --------------------
Principal payments on borrowings under
capital lease obligations (622) (469) -
Proceeds from sales of common stock 236 - -
Purchases of common stock - (1,727) -
---------- --------- ------------
Net Cash Used By Financing
Activities (386) (2,196) -
---------- --------- ------------
Change in cash 0 0 0
Cash at beginning of period 0 0 0
---------- --------- -----------
Cash at end of period $ 0 $ 0 $ 0
========== ========= ===========
S-3
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEAR ENDED DECEMBER 28, 1996
(Dollars in thousands)
COL. A COL. B COL. C COL. D COL. E
- ------ ------ ------ ------ ------
Balance Additions
at --------------------------
Beginning Charged to Charged to Balance
of Costs and Other Accounts Deductions at End
Description Period Expenses Describe Describe(A) of Period
- ----------- --------- ---------- -------------- ---------- ---------
Allowance for doubtful
accounts:
Deducted from trade
receivables $ 6,923 $ 1,667 $ - $ (2,064) $ 6,526
Deducted from other
receivables 4,205 3,084 - (2,899) 4,390
Deducted from other non-
current receivables 0 17 - - 17
------- --------- ----------- -------- -------
$11,128 $ 4,768 $ - $ (4,963) $10,933
======= ========= =========== ======== =======
(A) Write-offs, net of recoveries.
S-4
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEAR ENDED DECEMBER 30, 1995
(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 (A) Describe of Period
- ----------- --------- ---------- -------------- ---------- ---------
Allowance for doubtful
accounts:
Deducted from trade
receivables $ 4,136 $ 3,755 $ 1,105 $ (2,073) $ 6,923
Deducted from other
receivables 3,662 2,477 95 (2,029) 4,205
------- --------- ----------- -------- -------
$ 7,798 $ 6,232 $ 1,200 $ (4,102)(B) $11,128
======= ========= =========== ======== =======
(A) Amounts in this column represent opening balances from new businesses
acquired during 1995.
(B) Write-offs, net of recoveries.
S-5
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
(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 (A) Describe of Period
- ----------- --------- ---------- -------------- ---------- ---------
Allowance for doubtful
accounts:
Deducted from trade
receivables $ 3,150 $ 1,867 $ (184) $ (697) $ 4,136
Deducted from other
receivables 2,169 1,708 243 (458) 3,662
Deducted from other
non-current receivables 81 - - (81) -
------- --------- ----------- -------- -------
$ 5,400 $ 3,575 $ 59 $ (1,236)(B) $ 7,798
======= ========= =========== ======== =======
(A) Amounts in this column represent recoveries and reclassifications from
trade receivables to other receivables.
(B) Write-offs.
S-6