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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the Fiscal Year Ended December 25, 2004 |
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or |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period
from to |
Commission File Number: 0-21238
Landstar System, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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06-1313069 |
(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer
Identification No.) |
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13410 Sutton Park Drive South
Jacksonville, Florida |
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32224
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(Address of principal executive offices)
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(904) 398-9400
(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, $0.01 Par Value
(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 þ No o
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. o
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the
Act). Yes þ No o
The aggregate market value of the voting stock held by
non-affiliates of the registrant was $1,532,107,646 (based on
the $51.42 per share closing price on June 25, 2004, the
last business day of the Company’s second fiscal quarter,
as reported by NASDAQ National Market System, not adjusted for
the two-for-one stock split effected in the form of a 100% stock
dividend declared December 9, 2004). 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 February 24, 2005 was
59,983,218.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following document are incorporated by reference
in this Form 10-K as indicated herein:
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Part of 10-K | |
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Into Which Incorporated | |
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Proxy Statement relating to Landstar System, Inc.’s Annual
Meeting of Shareholders to be held on May 12, 2005
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Part III |
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LANDSTAR SYSTEM, INC.
2004 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
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PART I
General
Landstar System, Inc. was incorporated in January 1991 under the
laws of the State of Delaware. It 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 Carrier Services”), Landstar Logistics,
Inc. (“Landstar Logistics”), Landstar Express America,
Inc. (“Landstar Express America”), Landstar Contractor
Financing, Inc. (“LCFI”), Risk Management Claim
Services, Inc. (“RMCS”) and Signature Insurance
Company (“Signature”). Landstar Ranger, Landstar
Inway, Landstar Ligon, Landstar Gemini, Landstar Carrier
Services, Landstar Logistics and Landstar Express America are
collectively herein referred to as Landstar’s
“Operating Subsidiaries.” Landstar System, Inc., LSHI,
LCFI, RMCS, 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, proxy
and current reports on Form 8-K as soon as reasonably
practicable after such material is electronically filed with the
Securities and Exchange Commission (“SEC”). The
Company’s website is www.landstar.com. The SEC maintains a
website at www.sec.gov that contains the Company’s current
and periodic reports, proxy and information statements and other
information filed electronically with the SEC.
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 the Company. In March 1993, Landstar completed a
recapitalization which consisted of three principal components:
(i) an initial public offering of Common Stock at a price
of $13.00 per share, $1.625 per share adjusted for subsequent
stock splits, (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.
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.
On October 15, 2003, the Company declared a two-for-one
stock split effected in the form of a 100% stock dividend
distributed on November 13, 2003 to stockholders of record
on November 3, 2003.
On December 9, 2004, the Company declared a two-for-one
stock split effected in the form of a 100% stock dividend
distributed on January 7, 2005 to stockholders of record on
December 28, 2004.
Description of Business
Landstar is a non-asset based transportation services company,
providing transportation capacity and related transportation
services to shippers throughout the United States and to a
lesser extent in Canada, and between the United States, Canada
and Mexico through its operating subsidiaries. These business
services emphasize safety, information coordination and customer
service and are delivered through a network of independent
commission sales agents and third party capacity providers
linked together by a
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series of technological applications which are provided and
coordinated by the Company. The Company’s independent
commission sales agents typically enter into non-exclusive
contractual arrangements with Landstar and are responsible for
locating freight, making that freight available to
Landstar’s capacity providers and coordinating the
transportation of the freight with customers and capacity
providers. The Company’s 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, air cargo carriers, ocean carriers and railroads.
Through this network of agents and capacity providers, Landstar
operates a transportation services business throughout North
America with revenue exceeding $2.0 billion during the most
recently completed fiscal year.
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, retail, electronics, ammunition and
explosives and military hardware. In addition, Landstar provides
transportation services to other transportation companies
including logistic and less-than-truckload service providers.
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),
temperature-controlled vans and containers. In addition,
Landstar provides dedicated contract and logistics solutions,
including freight optimization and less than truckload freight
consolidations. Landstar also provides truck brokerage,
expedited land and air delivery of time-critical freight and the
movement of containers via ocean.
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. Landstar intends to continue developing
appropriate systems and technologies that offer integrated
transportation solutions to meet the total transportation needs
of its customers.
The Company has three reportable business segments. These are
the carrier, multimodal and insurance segments. The financial
information relating to the Company’s reportable business
segments as of and for the fiscal years ending 2004, 2003 and
2002 is included in Footnote 12 of Item 8, “Financial
Statements and Supplementary Data” of this Form 10-K.
The carrier segment consists of Landstar Ranger, Landstar Inway,
Landstar Ligon, Landstar Gemini and Landstar Carrier Services.
The carrier segment provides truckload transportation for a wide
range of general commodities primarily over irregular or
non-repetitive 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 (truck brokerage carriers).
The nature of the carrier segment business is such that a
significant portion of its operating costs varies directly with
revenue. At December 25, 2004, the carrier segment operated
a fleet of 8,291 tractors, provided by 7,466 Independent
Contractors, and 14,220 trailers. Approximately 5,352 of the
trailers available to the carrier segment are provided by
Independent Contractors, 2,808 are leased by the Company at
rental rates that vary with the revenue generated through the
trailer, 4,334 are owned by the Company, 1,597 are under a
long-term rental arrangement at a fixed rate, and 129 are rented
on a short-term basis from trailer rental companies. In
addition, the Company has over 18,000 qualified other third
party truck capacity providers who provide additional tractor
and trailer capacity. Over 11,000 of these qualified other third
party truck capacity providers have moved at least one load of
freight for the Company during the 180 day period
immediately preceding December 25, 2004. 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
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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 carrier segment’s network of over 900
independent commission sales agent locations provides an
in-market presence throughout the continental United States and
Canada.
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 and ocean 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 and ocean cargo carriers. Multimodal
independent commission sales agents generally receive a
percentage of the gross profit 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 either a negotiated rate for each load they haul or a
contractually agreed-upon fixed amount per load. Railroads, air
and ocean cargo carriers generally receive a contractually 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 25, 2004, the multimodal segment
operated a fleet of 386 trucks, provided by approximately
334 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 100 sales
locations. Approximately 37% of the multimodal segment’s
revenue is contributed by one independent commission sales agent
who derives the majority of his revenue from 3 customers.
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.
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. Increasingly, the larger shippers
are substantially reducing the number of authorized carriers in
favor of a small number of “core carriers”, such as
the Company, whose size and diverse service capabilities 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.
Factors Significant to the Company’s Operations
Management believes the following factors are particularly
significant to the Company’s operations:
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Management believes the Company has more independent commission
sales agents than any other domestic truckload carrier.
Landstar’s network of over 1,000 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. 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, |
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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). |
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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.
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 contractually agreed-upon percent of the revenue or the
gross profit, defined as revenue less the cost of purchased
transportation, from each load they generate if hauled by a
third party trucking company. In most cases, the carrier segment
independent commission sales agents are paid volume-based
incentives. Multimodal independent commission sales agents are
typically paid a contractually agreed-upon percentage of the
gross profit from each load they generate. |
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The Company’s primary day to day contact with its customers
is through its agents and not through employees of the Company.
Nevertheless, it is important to note that each Operating
Subsidiary contracts directly with customers and generally
assumes the credit risk and liability for freight losses or
damages. |
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The carrier segment’s independent commission sales agents
use the Company’s Landstar Electronic Administrative
Dispatch System (LEADS) software program which enables these
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
internet. 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. |
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The Operating Subsidiaries emphasize programs to support the
agents’ operations and to establish pricing parameters. 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. |
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During 2004, 427 agents generated revenue for Landstar of at
least $1 million each, or approximately $1.9 billion
of Landstar’s total revenue, and one agent generated
approximately $200,000,000 of Landstar’s total revenue. |
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Although the Company typically enters into non-exclusive
contractual relationships with its independent commission sales
agents, management believes that the majority of the agents who
generate revenue of $1 million or more choose to represent
Landstar exclusively. Historically, Landstar has experienced
very limited agent turnover among its larger-volume agents. |
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The Company relies exclusively on independent third parties for
its hauling capacity. These third party capacity providers
consist of Independent Contractors, unrelated trucking
companies, air and ocean cargo carriers and railroads.
Landstar’s use of capacity provided by its Independent
Contractors and other third party capacity providers allows it
to maintain a lower level of capital investment, resulting in
lower fixed costs. Historically, with the exception of air
revenue, the margin generated from freight hauled by Independent
Contractors has been greater than from freight hauled by other
third party capacity providers. |
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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 |
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tractor and from 73% 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. |
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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
rate, size, origin and destination when planning trips. |
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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 primarily trailing equipment
and mobile communication equipment. |
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Trucks provided to the Company by the Independent Contractors
were 8,677 at December 25, 2004 compared to 8,573 at
December 27, 2003. The number of trucks provided by
Independent Contractors fluctuates daily as a result of truck
recruiting and truck terminations. Trucks recruited were lower
in 2004 than in 2003, however, lower truck terminations in 2004
resulted in a net gain of 104 trucks. Landstar’s truck
turnover ratio was approximately 35% in 2004 compared to 45% in
2003. More than half 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. |
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Other Third Party Truck Capacity. The Company maintains a
database of over 18,000 qualified other third party truck
capacity providers who provide additional truck hauling capacity
to the Company. Other third party truck capacity providers are
paid either a negotiated rate for each load they haul or a
contractually agreed-upon amount per load. The Company recruits,
qualifies, establishes contracts with, tracks safety ratings and
service records of 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,
short-haul traffic and, in certain instances, lower priced
freight that would generally not be handled by the
Company’s Independent Contractors. |
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The Landstar Savings Plus Program leverages Landstar’s
purchasing power to provide discounts to eligible other third
party trucking companies when they purchase fuel and equipment
and provides the other third party trucking companies with an
electronic payment option. |
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Third Party Rail, Air and Ocean 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. Railroads and air and ocean cargo
carriers are generally paid a contractually fixed amount per
load. |
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Diversity of Services Offered |
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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.
Specialized services offered by the Company include those
provided by a large fleet of flatbed trailers, multi-axle
trailers capable of hauling extremely heavy or oversized loads,
drivers certified to handle ammunition and explosives 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. |
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The following table illustrates the diversity of the trailing
equipment available to the Company as of December 25, 2004: |
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Vans
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10,204 |
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Temperature-controlled
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127 |
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Flatbeds, including step decks, drop decks and low boys
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3,904 |
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Total
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14,235 |
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Management believes leadership in the development and
application of technology is an ongoing part of providing high
quality service at competitive prices. The Company’s focus
is on developing and implementing software applications which
are designed to improve its operational and administrative
efficiency, assist its independent commission sales agents in
sourcing capacity and assist its third party capacity providers
in identifying desirable freight. Landstar manages its
technology programs centrally through its information services
department. |
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The Company’s information technology systems used in
connection with its operations are located in Jacksonville,
Florida and, to a lesser extent, in Rockford, Illinois. Landstar
relies, in the regular course of its business, on the proper
operation of its information technology systems. |
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Management believes that significant advantages result from the
collective expertise and corporate services afforded by
Landstar’s corporate management. The primary services
provided are: |
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accounting,
budgeting and taxes
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quality programs |
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finance
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risk management insurance services |
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human
resource management
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safety |
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legal
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strategic planning |
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operator
and equipment compliance
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technology and management information systems |
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purchasing
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Landstar competes primarily in the transportation services
industry with truckload carriers, intermodal transportation
service providers, railroads, less-than-truckload carriers,
third party broker carriers and other non-asset based
transportation service providers. The transportation services
industry is extremely competitive and fragmented. |
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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. |
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Potential liability associated with accidents in the trucking
industry is severe and occurrences are unpredictable.
Landstar’s retained liability for individual commercial
trucking claims depends on when such claims are incurred. For
commercial trucking claims incurred subsequent to March 30,
2004, Landstar retains liability up to $5,000,000 per
occurrence. For commercial trucking claims incurred from
June 19, 2003 through March 30, 2004, Landstar retains
liability up to $10,000,000 per occurrence. For commercial
trucking claims incurred from May 1, 2001 through
June 18, 2003, |
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Landstar retains liability 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. 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. |
Dependence on Third Party
Insurance Companies
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The Company is dependent on a limited number of third party
insurance companies to provide insurance coverage in excess of
its self-insured retention amounts. Historically, the Company
has relied on various third party insurance companies to provide
insurance coverage for commercial trucking claims in excess of
specific per occurrence limits. Over the past three years, the
premiums proposed by the third party insurance companies
providing coverage for commercial trucking liability insurance
over the Company’s self insured retention amounts have
varied dramatically. In an attempt to manage the cost of these
increasing premiums required by the third party insurance
companies, the Company has historically increased or decreased
the level of its exposure to commercial trucking claims on a per
occurrence basis. To the extent that the third party insurance
companies increase their proposed premiums for coverage of
commercial trucking claims, the Company may increase its
exposure on a per occurrence basis. However, to the extent the
third party insurance companies reduce their premiums proposed
for coverage of commercial trucking claims, the Company may
reduce its exposure on a per occurrence basis. |
Regulation
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Each of the Operating Subsidiaries is a motor carrier which is
regulated by the Federal Motor Carrier Safety Administration
(FMCSA) and by various state agencies. The FMCSA has broad
regulatory powers, with respect to activities such as motor
carrier operations, practices, periodic financial reporting and
insurance. Subject to federal and state regulatory authorities
or regulation, the Company may transport most types of freight
to and from any point in the United States over any route
selected by the Company. |
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The trucking industry is subject to possible regulatory and
legislative changes (such as the possibility of more 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. |
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Interstate motor carrier operations are subject to safety
requirements prescribed by the FMCSA. Each of the Company’s
drivers are required to have a commercial driver’s license
and is subject to mandatory drug and alcohol testing. The
FMCSA’s commercial driver’s license and drug and
alcohol testing requirements have not adversely affected the
Company’s ability to source the capacity necessary to meet
its customers’ transportation needs. |
Seasonality
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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. |
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Employees
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As of December 25, 2004, the Company and its subsidiaries
employed 1,251 individuals. Approximately 31 Landstar Ranger
drivers (out of a Company total of 8,677) 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 facility is located in Jacksonville,
Florida. In addition, the Company’s corporate headquarters
are located in Jacksonville, Florida. The Rockford, Illinois
facility is owned by the Company and 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 November 1, 2002, the Owner Operator Independent Drivers
Association, Inc. (“OOIDA”) and six individual
Independent Contractors (collectively, the
“Plaintiffs”) filed a putative class action complaint
(the “Complaint”) in the United States District Court
for the Middle District of Florida (the “Court”) in
Jacksonville, Florida, against Landstar System, Inc. and certain
of its subsidiaries. The Complaint alleges that certain aspects
of Company subsidiaries’ motor carrier leases with
Independent Contractors violate certain federal leasing
regulations and seeks injunctive relief, an unspecified amount
of damages and attorney’s fees. On March 8 and June 4,
2004, the Court dismissed all claims of one of the six
individual Independent Contractor Plaintiffs on the grounds that
the ICC Termination Act (the “Act”) is not applicable
to leases signed before the Act’s January 1, 1996,
effective date, and dismissed all claims of all remaining
Plaintiffs against four of the seven Company entities previously
named as defendants (Landstar System, Inc., Landstar Express
America, Inc., Landstar Gemini, Inc. and Landstar Logistics,
Inc.). With respect to the remaining claims, the June 4,
2004 order held that the Act created a private right of action
pursuant to which claims involving certain federal leasing
regulations may be filed in federal court subject to a four-year
statute of limitations. On November 30, 2004, the Court
heard oral argument on a motion by the remaining Plaintiffs to
certify the case as a class action. On February 10, 2005,
the remaining Plaintiffs filed a motion to amend the Complaint
to expand it to include additional allegations with respect to
compliance with certain federal leasing obligations. On
February 11, 2005, the remaining Defendants filed a motion
to amend their previously filed Answer in the event the Court
certifies a plaintiffs’ class pursuant to the remaining
Plaintiffs’ pending motion. The parties are opposing each
others’ motions to amend. The Court is expected to rule
within the next several months on the class-certification motion
and on a motion, previously filed by the remaining Defendants,
for partial summary judgment. Trial is scheduled for the trial
term beginning October 3, 2005. Due to a number of factors,
including the recent filing of the proposed amended Complaint,
the related arrival of new discovery requests from the remaining
Plaintiffs, and the lack of litigated final judgments in a
number of similar cases or otherwise applicable precedents, the
Company does not believe it is in a position to conclude whether
or not there is a reasonable possibility of an adverse outcome
in this case or what damages, if any, the remaining Plaintiffs
would be awarded should they prevail on all or any part of their
claims. However, the Company believes that the remaining
Defendants have meritorious defenses and intend to continue
asserting these defenses vigorously.
The Company is involved in certain other claims and pending
litigation arising from the normal conduct of business. Based on
knowledge of the facts and, in certain cases, opinions of
outside counsel, management believes that adequate provisions
have been made for probable losses with respect to the
resolution of all such other claims and pending litigation and
that the ultimate outcome, after provisions
9
thereof, will not have a material adverse effect on the
financial condition of the Company, but could have a material
effect on the results of operations in a given quarter or year.
|
|
| 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 2004.
PART II
|
|
| Item 5. |
Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities |
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 adjusted to reflect three two-for-one stock splits each
effected in the form of a 100% stock dividend, the first being
distributed on August 12, 2002 to stockholders of record on
August 2, 2002, the second being distributed on
November 13, 2003 to stockholders of record on
November 3, 2003, and the third being distributed on
January 7, 2005 to stockholders of record on
December 28, 2004.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 Market Price | |
|
2003 Market Price | |
| |
|
| |
|
| |
| Fiscal Period |
|
High | |
|
Low | |
|
High | |
|
Low | |
| |
|
| |
|
| |
|
| |
|
| |
|
First Quarter
|
|
$ |
20.870 |
|
|
$ |
17.000 |
|
|
$ |
15.425 |
|
|
$ |
12.760 |
|
|
Second Quarter
|
|
|
26.110 |
|
|
|
20.260 |
|
|
|
16.498 |
|
|
|
13.700 |
|
|
Third Quarter
|
|
|
28.590 |
|
|
|
23.140 |
|
|
|
16.975 |
|
|
|
14.625 |
|
|
Fourth Quarter
|
|
|
37.495 |
|
|
|
27.125 |
|
|
|
19.975 |
|
|
|
15.255 |
|
The reported last sale price per share of the Common Stock as
quoted through the NASDAQ National Market System on
February 24, 2005 was $34.91 per share. As of such date,
Landstar had 59,983,218 shares of Common Stock outstanding. As
of February 24, 2005, the Company had 84 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.
On December 4, 2003, the Company announced that it had been
authorized by its Board of Directors to purchase up to 1,000,000
shares (not adjusted for the two-for-one stock split effected in
the form of a 100% stock dividend declared December 9,
2004) of its common stock from time to time in the open market
and in privately-negotiated transactions.
At December 25, 2004, the Company had 1,398,280 shares of
common stock remaining to be purchased under the authorized
program.
The Company did not purchase any shares of its common stock
during the period from September 25, 2004, the end of the
Company’s third fiscal quarter, to December 25, 2004,
the end of the Company’s fourth fiscal quarter.
10
At the May 13, 2004 annual meeting of shareholders, the
shareholders of the Company approved an amendment to
Article IV of the Company’s Restated Certificate of
Incorporation to increase the number of authorized shares of the
Company’s common stock from 50,000,000 shares to 80,000,000
shares.
The Company maintains three stock option plans and one stock
compensation plan. The following table presents information
related to securities authorized for issuance under these plans
at December 25, 2004:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Number of Securities | |
| |
|
Number of Securities | |
|
|
|
Remaining Available for | |
| |
|
to be Issued Upon | |
|
Weighted-average | |
|
Future Issuance Under | |
| |
|
Exercise of | |
|
Exercise Price of | |
|
Equity Compensation | |
| Plan Category |
|
Outstanding Options | |
|
Outstanding Options | |
|
Plans | |
| |
|
| |
|
| |
|
| |
|
Equity Compensation Plans Approved by Security Holders
|
|
|
3,115,764 |
|
|
$ |
12.3061 |
|
|
|
5,355,360 |
|
|
Equity Compensation Plans Not Approved by Security Holders
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
| Item 6. |
Selected Financial Data |
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except per share amounts)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Years | |
| |
|
| |
| Income Statement Data: |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Revenue
|
|
$ |
2,019,936 |
|
|
$ |
1,596,571 |
|
|
$ |
1,506,555 |
|
|
$ |
1,392,771 |
|
|
$ |
1,418,492 |
|
|
Investment income
|
|
|
1,346 |
|
|
|
1,220 |
|
|
|
1,950 |
|
|
|
3,567 |
|
|
|
4,317 |
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Purchased transportation
|
|
|
1,510,963 |
|
|
|
1,185,043 |
|
|
|
1,116,009 |
|
|
|
1,030,454 |
|
|
|
1,046,183 |
|
| |
Commissions to agents
|
|
|
161,011 |
|
|
|
125,997 |
|
|
|
118,864 |
|
|
|
110,513 |
|
|
|
113,721 |
|
| |
Other operating costs
|
|
|
37,130 |
|
|
|
37,681 |
|
|
|
34,325 |
|
|
|
32,750 |
|
|
|
29,568 |
|
| |
Insurance and claims
|
|
|
60,339 |
|
|
|
45,690 |
|
|
|
42,188 |
|
|
|
32,930 |
|
|
|
31,935 |
|
| |
Selling, general and administrative
|
|
|
118,461 |
|
|
|
105,849 |
|
|
|
101,918 |
|
|
|
99,762 |
|
|
|
105,786 |
|
| |
Depreciation and amortization
|
|
|
13,959 |
|
|
|
12,736 |
|
|
|
11,520 |
|
|
|
13,543 |
|
|
|
13,003 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total costs and expenses
|
|
|
1,901,863 |
|
|
|
1,512,996 |
|
|
|
1,424,824 |
|
|
|
1,319,952 |
|
|
|
1,340,196 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
119,419 |
|
|
|
84,795 |
|
|
|
83,681 |
|
|
|
76,386 |
|
|
|
82,613 |
|
|
Interest and debt expense
|
|
|
3,025 |
|
|
|
3,240 |
|
|
|
4,292 |
|
|
|
6,802 |
|
|
|
9,127 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
116,394 |
|
|
|
81,555 |
|
|
|
79,389 |
|
|
|
69,584 |
|
|
|
73,486 |
|
|
Income taxes
|
|
|
44,522 |
|
|
|
30,855 |
|
|
|
30,168 |
|
|
|
26,790 |
|
|
|
28,292 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
71,872 |
|
|
$ |
50,700 |
|
|
$ |
49,221 |
|
|
$ |
42,794 |
|
|
$ |
45,194 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share(1)
|
|
$ |
1.19 |
|
|
$ |
0.82 |
|
|
$ |
0.76 |
|
|
$ |
0.64 |
|
|
$ |
0.64 |
|
|
Diluted earnings per share(1)
|
|
$ |
1.16 |
|
|
$ |
0.79 |
|
|
$ |
0.73 |
|
|
$ |
0.63 |
|
|
$ |
0.63 |
|
|
|
| (1) |
All earnings per share amounts have been adjusted to give
retroactive effect to a two-for-one stock split effected in the
form of a 100% stock dividend declared December 9, 2004. |
11
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Dec. 25, | |
|
Dec. 27, | |
|
Dec. 28, | |
|
Dec. 29, | |
|
Dec. 30, | |
| Balance Sheet Data: |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Total assets
|
|
$ |
584,512 |
|
|
$ |
438,457 |
|
|
$ |
400,748 |
|
|
$ |
364,651 |
|
|
$ |
370,362 |
|
|
Long-term debt, including current maturities
|
|
|
92,090 |
|
|
|
91,456 |
|
|
|
77,360 |
|
|
|
101,874 |
|
|
|
94,643 |
|
|
Shareholders’ equity
|
|
|
212,839 |
|
|
|
142,515 |
|
|
|
149,093 |
|
|
|
117,440 |
|
|
|
107,859 |
|
|
|
| Item 7. |
Management’s Discussion and Analysis of Financial
Condition and Results of Operations |
Introduction
Landstar System, Inc. and its subsidiary, Landstar System
Holdings, Inc. (“Landstar” or the
“Company”), provide transportation services to a
variety of market niches throughout the United States and to a
lesser extent in Canada, and between the United States, Canada
and Mexico through its operating subsidiaries. Landstar’s
business strategy is to be a non-asset based provider of
transportation capacity delivering safe, specialized
transportation services to a broad range of customers throughout
North America utilizing a network of independent commission
sales agents and third party capacity providers. Landstar
focuses on providing transportation services which emphasize
customer service and information coordination among its
independent commission sales agents, customers and capacity
providers. The Company markets its services primarily through
independent commission sales agents and utilizes exclusively
third party capacity providers to transport customers’
freight. The nature of the Company’s business is such that
a significant portion of its operating costs varies directly
with revenue. The Company has three reportable business
segments. These are the carrier, multimodal and insurance
segments.
The carrier segment consists of Landstar Ranger, Inc., Landstar
Inway, Inc., Landstar Ligon, Inc., Landstar Gemini, Inc. and
Landstar Carrier Services, Inc. The carrier segment primarily
provides transportation services to the truckload market for a
wide range of general commodities over irregular or
non-repetitive routes utilizing 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 independent
contractors who provide truck capacity to the Company under
exclusive lease arrangements (the “Independent
Contractors”) and other third party truck capacity
providers (truck brokerage carriers).
The multimodal segment is comprised of Landstar Logistics, Inc.
and Landstar Express America, Inc. Transportation services
provided by the multimodal segment include the arrangement of
intermodal moves, contract logistics, truck brokerage and
emergency and expedited ground and air and ocean freight. The
multimodal segment markets its services primarily through
independent commission sales agents and utilizes capacity
provided by Independent Contractors and other third party
capacity providers, including truck brokerage carriers,
railroads, air and ocean cargo carriers.
The insurance segment is comprised of Signature Insurance
Company (“Signature”), a wholly-owned offshore
insurance subsidiary, and Risk Management Claim Services, Inc.
The insurance segment provides risk and claims management
services to Landstar’s operating subsidiaries. In addition,
it reinsures certain risks of the Company’s Independent
Contractors and provides certain property and casualty insurance
directly to Landstar’s Operating Subsidiaries.
During the fiscal year ended December 25, 2004, the carrier
segment contributed 72% of Landstar’s consolidated revenue,
the multimodal segment contributed 26% of Landstar’s
consolidated revenue and the insurance segment contributed 2% of
Landstar’s consolidated revenue.
|
|
|
Changes in Financial Condition and Results of Operations |
Management believes the Company’s success principally
depends on its ability to generate freight through its network
of independent commission sales agents and to efficiently
deliver that freight utilizing
12
third party capacity providers. Management believes the most
significant factors to the Company’s success include
increasing revenue, sourcing capacity and controlling costs.
While customer demand, which is subject to overall economic
conditions, ultimately drives increases or decreases in revenue,
the Company primarily relies on its independent commission sales
agents to establish customer relationships and generate revenue
opportunities. Management’s primary focus with respect to
revenue growth is on revenue generated by independent commission
sales agents who on an annual basis generate $1 million or
more of Landstar revenue (“Million Dollar Agents”).
Management believes future revenue growth is primarily dependent
on its ability to increase both the revenue generated by Million
Dollar Agents and the number of Million Dollar Agents through a
combination of recruiting new agents and increasing the revenue
opportunities generated by existing independent commission sales
agents. The following table shows the number of Million Dollar
Agents, the average revenue generated by these agents and the
percent of consolidated revenue generated by these agents during
the past three fiscal years:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Number of Million Dollar Agents
|
|
|
427 |
|
|
|
396 |
|
|
|
384 |
|
| |
|
|
|
|
|
|
|
|
|
|
Average revenue generated per Million Dollar Agent
|
|
$ |
4,374,000 |
|
|
$ |
3,584,000 |
|
|
$ |
3,483,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
Percent of consolidated revenue generated by Million Dollar
Agents
|
|
|
92 |
% |
|
|
89 |
% |
|
|
89 |
% |
| |
|
|
|
|
|
|
|
|
|
Management monitors business activity by tracking the number of
loads (volume) and revenue per load generated by the
carrier and multimodal segments. In addition, management tracks
revenue per revenue mile, average length of haul and total
revenue miles at the carrier segment. Revenue per revenue mile
and revenue per load (collectively, price) as well as the number
of loads, can be influenced by many factors which do not
necessarily indicate a change in price or volume. Those factors
include the average length of haul, freight type, special
handling and equipment requirements and delivery time
requirements. The following table summarizes this data by
reportable segment for the past three fiscal years:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Carrier Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
External revenue generated through (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Independent Contractors
|
|
$ |
1,191,605 |
|
|
$ |
1,052,346 |
|
|
$ |
1,038,298 |
|
| |
|
Other third party truck capacity providers
|
|
|
263,257 |
|
|
|
174,825 |
|
|
|
139,965 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
1,454,862 |
|
|
$ |
1,227,171 |
|
|
$ |
1,178,263 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Number of loads(1)
|
|
|
1,046,000 |
|
|
|
1,007,000 |
|
|
|
1,012,000 |
|
| |
Revenue per load
|
|
$ |
1,391 |
|
|
$ |
1,219 |
|
|
$ |
1,164 |
|
| |
Revenue per revenue mile
|
|
$ |
1.79 |
|
|
$ |
1.72 |
|
|
$ |
1.66 |
|
| |
Average length of haul (miles)
|
|
|
779 |
|
|
|
707 |
|
|
|
700 |
|
|
Multimodal Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
External revenue generated through (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Independent Contractors(2)
|
|
$ |
105,815 |
|
|
$ |
53,766 |
|
|
$ |
55,816 |
|
| |
|
Other third party truck capacity providers
|
|
|
308,106 |
|
|
|
182,333 |
|
|
|
143,317 |
|
| |
|
Rail, Air and Ocean Carriers
|
|
|
121,001 |
|
|
|
105,142 |
|
|
|
101,583 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
$ |
534,922 |
|
|
$ |
341,241 |
|
|
$ |
300,716 |
|
| |
|
|
|
|
|
|
|
|
|
|
Number of loads(3)
|
|
|
324,000 |
|
|
|
256,000 |
|
|
|
262,000 |
|
|
Revenue per load(3)
|
|
$ |
1,454 |
|
|
$ |
1,332 |
|
|
$ |
1,150 |
|
13
|
|
| (1) |
Effective with the 2004 second quarter, the Company modified its
methodology for reporting loads. The application of this new
methodology to the 2003 and 2002 fiscal year periods resulted in
an increase of 3,000 and 7,000 loads, respectively. This change
in load recognition had no impact on reported revenue in any
period. |
| |
| (2) |
Includes revenue generated through Carrier Segment Independent
Contractors. |
| |
| (3) |
Number of loads and revenue per load for the 2004 fiscal year
exclude the effect of $63,790,000 of revenue derived from
disaster relief efforts provided primarily under a contract with
the United States Federal Aviation Administration
(“FAA”) as discussed further in the paragraphs that
follow. (See the section “Use of Non-GAAP Financial
Measures” on page 18.) |
Also critical to the Company’s success is its ability to
secure capacity, particularly truck capacity, at rates that
allow the Company to profitably transport customers’
freight. The following table summarizes available truck capacity
as of the end of the three most recent fiscal years:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Dec. 25, | |
|
Dec. 27, | |
|
Dec. 28, | |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Independent Contractors
|
|
|
7,800 |
|
|
|
7,584 |
|
|
|
7,365 |
|
|
Other third party truck capacity providers:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Approved and active(1)
|
|
|
11,077 |
|
|
|
9,296 |
|
|
|
8,610 |
|
| |
Other approved
|
|
|
7,144 |
|
|
|
6,240 |
|
|
|
5,310 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
18,221 |
|
|
|
15,536 |
|
|
|
13,920 |
|
| |
|
|
|
|
|
|
|
|
|
|
Total available truck capacity providers
|
|
|
26,021 |
|
|
|
23,120 |
|
|
|
21,285 |
|
| |
|
|
|
|
|
|
|
|
|
|
Number of trucks provided by Independent Contractors
|
|
|
8,677 |
|
|
|
8,573 |
|
|
|
8,402 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| (1) |
Active refers to other third party truck capacity providers who
moved at least one load in the 180 days immediately
preceding the fiscal year end. |
Historically, the Company’s carrier segment has primarily
relied on capacity provided by Independent Contractors. Pursuant
to a plan to augment its available capacity and increase its
revenue, the Company has been increasing the carrier
segment’s use of capacity provided by other third party
truck capacity providers. The percent of consolidated revenue
generated through all truck brokerage carriers was 28.3% during
2004, 22.4% during 2003 and 18.8% during 2002.
The Company incurs costs that are directly related to the
transportation of freight that include purchased transportation
and commissions to agents. The Company incurs indirect costs
associated with the transportation of freight that include other
operating costs and insurance and claims. In addition, the
Company incurs selling, general and administrative costs
essential to administering its business operations. Management
continually monitors all components of the costs incurred by the
Company and establishes annual cost budgets which, in general,
are used to benchmark costs incurred on a monthly basis.
Purchased transportation represents the amount an Independent
Contractor or other third party capacity provider is paid to
haul freight. The amount of purchased transportation paid to an
Independent Contractor is primarily based on a contractually
agreed-upon percentage of revenue generated by the haul.
Purchased transportation for the brokerage services operations
of the carrier segment is based on a negotiated rate for each
load hauled. Purchased transportation for the brokerage services
operations of the multimodal segment is based on either a
negotiated rate for each load hauled or a contractually
agreed-upon rate. Purchased transportation for the intermodal,
air and ocean freight services operations of the multimodal
segment are based on contractually agreed-upon fixed rates.
Purchased transportation as a percentage of revenue for
brokerage services and rail intermodal operations is normally
higher than that of Landstar’s other transportation
operations. Purchased transportation is the largest component of
costs and expenses and, on a consolidated basis, increases or
decreases in proportion to the revenue generated
14
through Independent Contractors, other third party capacity
providers and revenue from the insurance segment.
Commissions to agents are primarily based on contractually
agreed-upon percentages of revenue at the carrier segment and of
gross profit, defined as revenue less the cost of purchased
transportation, at the multimodal segment. Commissions to agents
as a percentage of consolidated revenue will vary directly with
fluctuations in the percentage of consolidated revenue generated
by the carrier segment, the multimodal segment and the insurance
segment and with changes in gross profit at the multimodal
segment.
Trailing equipment rent, maintenance costs for trailing
equipment, Independent Contractor recruiting costs and bad debts
from Independent Contractors and independent commission sales
agents are the largest components of other operating costs.
Potential liability associated with accidents in the trucking
industry is severe and occurrences are unpredictable.
Landstar’s retained liability for individual commercial
trucking claims depends on when such claims are incurred. For
commercial trucking claims incurred subsequent to March 30,
2004, Landstar retains liability up to $5,000,000 per
occurrence. For commercial trucking claims incurred from
June 19, 2003 through March 30, 2004, Landstar retains
liability up to $10,000,000 per occurrence. For commercial
trucking claims incurred from May 1, 2001 through
June 18, 2003, Landstar retains liability 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. 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 such providers maintain
their own insurance coverage.
Employee compensation and benefits account for over half of the
Company’s selling, general and administrative costs.
Depreciation and amortization primarily relate to depreciation
of trailing equipment and management information services
equipment.
All historical share-related financial information presented
herein has been adjusted to reflect a two-for-one stock split
effected in the form of a 100% stock dividend distributed on
January 7, 2005 to stockholders of record on
December 28, 2004.
15
The following table sets forth the percentage relationships of
income and expense items to revenue for the periods indicated:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Revenue
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
Investment income
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Purchased transportation
|
|
|
74.8 |
|
|
|
74.2 |
|
|
|
74.1 |
|
| |
Commissions to agents
|
|
|
8.0 |
|
|
|
7.9 |
|
|
|
7.9 |
|
| |
Other operating costs
|
|
|
1.8 |
|
|
|
2.4 |
|
|
|
2.3 |
|
| |
Insurance and claims
|
|
|
3.0 |
|
|
|
2.9 |
|
|
|
2.8 |
|
| |
Selling, general and administrative
|
|
|
5.9 |
|
|
|
6.6 |
|
|
|
6.7 |
|
| |
Depreciation and amortization
|
|
|
0.7 |
|
|
|
0.8 |
|
|
|
0.7 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total costs and expenses
|
|
|
94.2 |
|
|
|
94.8 |
|
|
|
94.5 |
|
| |
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
5.9 |
|
|
|
5.3 |
|
|
|
5.6 |
|
|
Interest and debt expense
|
|
|
0.1 |
|
|
|
0.2 |
|
|
|
0.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
5.8 |
|
|
|
5.1 |
|
|
|
5.3 |
|
|
Income taxes
|
|
|
2.2 |
|
|
|
1.9 |
|
|
|
2.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
3.6 |
% |
|
|
3.2 |
% |
|
|
3.3 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended December 25, 2004 Compared to
Fiscal Year Ended December 27, 2003 |
Revenue for the fiscal year 2004 was $2,019,936,000, an increase
of $423,365,000, or 26.5%, compared to revenue for the 2003
fiscal year. Revenue increased $227,691,000, $193,681,000 and
$1,993,000 at the carrier, multimodal and insurance segments,
respectively. With respect to the carrier segment, revenue per
load increased approximately 14% while the number of loads
delivered in 2004 increased approximately 4% over the number of
loads delivered in 2003. The average length of haul per load at
the carrier segment increased approximately 10% and revenue per
revenue mile increased approximately 4%. Included in revenue at
the multimodal segment for the 2004 fiscal year was $63,790,000
of revenue related to disaster relief efforts for the storms
that impacted the southeastern United States during the 2004
third and fourth quarters. These emergency transportation
services were provided primarily under a contract between
Landstar Express America, Inc. and the United States Federal
Aviation Administration (“FAA”). Excluding the number
of loads and revenue related to the disaster relief efforts
provided by the multimodal segment in 2004, the number of loads
delivered by the multimodal segment in fiscal year 2004
increased approximately 27% over 2003 and average revenue per
load increased approximately 9%. The increase in average revenue
per load was primarily attributable to an increase in the
average length of haul.
Investment income at the insurance segment was $1,346,000 and
$1,220,000 for fiscal year 2004 and 2003, respectively. The
increase in investment income was primarily due to an increased
rate of return, attributable to a general increase in interest
rates, on investments held by the insurance segment and an
increase in the average investment balance.
Purchased transportation was 74.8% of revenue in 2004 compared
with 74.2% in 2003. The increase in purchased transportation as
a percentage of revenue was primarily attributable to increased
truck brokerage revenue and rail intermodal revenue, both of
which tend to have a higher cost of purchased transportation
than that associated with Independent Contractors, and increased
rates charged by rail capacity providers, partially offset by
increased use of Company provided trailing equipment versus
trailing equipment provided by Independent Contractors.
Commissions to agents were 8.0% of revenue in 2004 and 7.9% of
revenue in 2003. The increase in commissions to agents as a
percentage of revenue was primarily attributable to a change in
revenue mix. Other operating costs were 1.8% of revenue in 2004
and 2.4% of
16
revenue in 2003, primarily due to increased brokerage revenue,
which does not incur significant other operating costs, and
reduced trailer maintenance and repair costs, reflecting a
reduction in the average age of Company provided trailing
equipment. Insurance and claims were 3.0% of revenue in 2004 and
2.9% of revenue in 2003. The increase in insurance and claims as
a percentage of revenue was primarily attributable to $7,600,000
of costs incurred to settle one severe accident that occurred
early in fiscal year 2004 and unfavorable development of prior
year claims in 2004, partially offset by increased truck
brokerage revenue, which has a lower claims risk profile.
Selling, general and administrative costs were 5.9% of revenue
in 2004 and 6.6% in 2003. Included in selling, general and
administrative costs in 2003 was $4,150,000 of costs to defend
and settle the Gulf Bridge RoRo, Inc. litigation. Excluding
these costs, selling, general and administrative costs were 6.4%
of revenue in 2003. The decrease in selling, general and
administrative costs as a percentage of revenue, excluding the
costs of the Gulf Bridge RoRo, Inc. litigation, was primarily
due to the effect of increased revenue, partially offset by an
increased provision for bonuses under the Company’s
incentive compensation programs. Depreciation and amortization
was 0.7% of revenue in 2004 and 0.8% of revenue in 2003. The
decrease in depreciation and amortization as a percentage of
revenue was primarily due to the effect of increased revenue in
2004.
Interest and debt expense was 0.1% of revenue in 2004 and 0.2%
of revenue in 2003. This decrease was primarily attributable to
a decrease in capital lease obligations partially offset by
increased interest on the Company’s revolving credit
facility resulting from higher average borrowings.
The provisions for income taxes for the 2004 and 2003 fiscal
years were based on estimated full year combined effective
income tax rates of approximately 38.3% and 37.8%, respectively,
which are higher than the statutory federal income tax rate
primarily as a result of state income taxes and the meals and
entertainment exclusion. The increase in the combined effective
income tax rate was attributable to changes in tax laws enacted
by a number of states in which the Company operates. At
December 25, 2004, the valuation allowance of $420,000 was
attributable to deferred state income tax benefits, which
primarily represented state operating loss carryforwards at one
subsidiary. The valuation allowance and goodwill will be reduced
by $392,000 when realization of deferred state income tax
benefits becomes likely. The Company believes that deferred
income tax benefits, net of the valuation allowance, are more
likely than not to be realized because of the Company’s
ability to generate future taxable earnings.
Net income was $71,872,000, or $1.19 per common share ($1.16 per
diluted share), which included the $7,600,000 charge to settle
one accident referenced above. This charge, net of related
income tax benefits, reduced 2004 net income by $4,900,000, or
$0.08 per common share ($0.08 per diluted share). Also included
in net income for the 2004 fiscal year is approximately
$11,847,000 of operating income related to the $63,790,000 of
revenue related to emergency transportation services provided
primarily under the FAA contract. The $11,847,000 of operating
income, net of related income taxes, increased net income
approximately $7,314,000, or $0.12 per common share ($0.12 per
diluted share). Net income for the 2003 fiscal year was
$50,700,000, or $0.82 per common share ($0.79 per diluted
share). After deducting related income tax benefits of
$1,500,000, the cost of the Gulf Bridge RoRo, Inc. litigation,
reduced net income by $2,650,000, or $0.04 per common share
($0.04 per diluted share), in 2003. Excluding the costs of the
Gulf Bridge RoRo, Inc. litigation, net income would have been
$53,350,000, or $0.87 per common share ($0.84 per diluted
share), in 2003.
|
|
|
Fiscal Year Ended December 27, 2003 Compared to Fiscal
Year Ended December 28, 2002 |
Revenue for the fiscal year 2003 was $1,596,571,000, an increase
of $90,016,000, or 6.0%, compared to revenue for the 2002 fiscal
year. Revenue increased $48,908,000, $40,525,000 and $583,000 at
the carrier, multimodal and insurance segments, respectively.
With respect to the carrier segment, revenue per load increased
approximately 4% while the number of loads delivered in 2003
remained consistent with the number of loads delivered in 2002.
The average length of haul per load at the carrier segment
increased approximately 1% and revenue per revenue mile
increased approximately 3%. At the multimodal segment, the
number of loads delivered in 2003 decreased approximately 2%
compared to 2002, however average revenue per load increased
approximately 16%. The increase in average revenue per load was
primarily
17
attributable to an increase in the average size of air expedited
shipments, increased rates charged for expedited shipments and
an increased length of haul.
Investment income at the insurance segment was $1,220,000 and
$1,950,000 for fiscal year 2003 and 2002, respectively. The
decrease in investment income was primarily due to a reduced
rate of return, attributable to a general decline in interest
rates, on investments held by the insurance segment.
Purchased transportation was 74.2% of revenue in 2003 compared
with 74.1% in 2002. The increase in purchased transportation as
a percentage of revenue was primarily attributable to increased
brokerage revenue at the carrier segment, increased brokerage
and rail intermodal revenue at the multimodal segment and
increased rates charged by truck brokerage carriers, partially
offset by increased use of Company provided trailing equipment
versus trailing equipment provided by Independent Contractors.
Commissions to agents were 7.9% of revenue in 2003 and 2002. An
increase in commissions to agents as a percentage of revenue
resulting from increased brokerage revenue at the carrier
segment was offset by lower commissions as a percentage of
revenue at the multimodal segment primarily due to reduced gross
profit. Other operating costs were 2.4% of revenue in 2003 and
2.3% of revenue in 2002, as increased trailer maintenance costs
were partially offset by reductions in Independent Contractor
recruiting, qualification and incentive costs and a lower
provision for independent commission sales agent and Independent
Contractor bad debts. Insurance and claims were 2.9% of revenue
in 2003 compared with 2.8% in 2002. The increase in insurance
and claims as a percentage of revenue was primarily due to the
increased cost of premiums for insurance above the
Company’s self-insured retention amounts, partially offset
by reduced commercial trucking claims in the $4 million
excess of $1 million layer and a reduction in insurance
claims resulting from increased revenue hauled by third party
capacity providers other than the Company’s Independent
Contractors. Selling, general and administrative costs were 6.6%
of revenue in 2003 and 6.7% in 2002. Included in selling,
general and administrative costs in 2003 was $4,150,000 of costs
to defend and settle the Gulf Bridge RoRo, Inc. litigation.
Excluding these costs, selling, general and administrative costs
were 6.4% of revenue in 2003. The decrease in selling, general
and administrative costs as a percentage of revenue, excluding
the costs of the Gulf Bridge RoRo, Inc. litigation, was
primarily due to a decreased provision for bonuses under the
Company’s incentive compensation plans, decreased
communications costs and a decreased provision for customer bad
debts, attributable to an improving economic environment,
partially offset by increased administrative costs for
Independent Contractor programs at the insurance segment.
Depreciation and amortization was 0.8% of revenue in 2003 and
0.7% of revenue in 2002. The increase in depreciation and
amortization as a percentage of revenue was primarily due to
increased depreciation expense for company-owned trailing
equipment as the average number of company-owned trailers
increased during 2003.
Interest and debt expense was 0.2% of revenue in 2003 and 0.3%
of revenue in 2002. This decrease was primarily attributable to
lower interest rates and reduced average borrowings on the
Company’s senior credit facility.
The provisions for income taxes for the 2003 and 2002 fiscal
years were based on effective income tax rates of approximately
37.8% and 38.0%, respectively, which is higher than the
statutory federal income tax rate primarily as a result of state
income taxes and the meals and entertainment exclusion.
Net income was $50,700,000, or $0.82 per common share ($0.79 per
diluted share), in 2003 compared with $49,221,000, or $0.76 per
common share ($0.73 per diluted share), in 2002. After deducting
related income tax benefits of $1,500,000, the cost of the Gulf
Bridge RoRo, Inc. litigation, reduced net income by $2,650,000,
or $0.04 per common share ($0.04 per diluted share), in 2003.
Excluding the costs of the Gulf Bridge RoRo, Inc. litigation,
net income would have been $53,350,000, or $0.87 per common
share ($0.84 per diluted share), in 2003.
|
|
|
Use of Non-GAAP Financial Measures |
In this annual report on Form 10-K, Landstar provided the
following non-GAAP financial measures for the 2004 fiscal year:
(1) revenue per load for the multimodal segment excluding
revenue and loads related to emergency transportation services
provided primarily under a contract with the FAA and (2) the
18
percentage change in revenue per load for the multimodal segment
excluding revenue and loads related to emergency transportation
services provided primarily under a contract with the FAA as
compared to revenue per load for the multimodal segment for the
corresponding prior year periods. Also, in this annual report on
Form 10-K, Landstar provided the following non-GAAP
financial measures for the 2003 fiscal year: (1) selling,
general and administrative costs, excluding the costs to defend
and settle the Gulf Bridge RoRo, Inc. litigation, as a
percentage of revenue, (2) earnings per common share before
costs to defend and settle the Gulf Bridge RoRo, Inc.
litigation, (3) earnings per share before costs to defend
and settle the Gulf Bridge RoRo, Inc. litigation, and
(4) net income excluding costs relating to the defense and
settlement of the Gulf Bridge RoRo, Inc. litigation. The
non-GAAP financial information should be considered in addition
to, and not as a substitute for, the corresponding GAAP
financial information also presented in this Form 10-K.
Management believes that it is appropriate to present this
non-GAAP financial information for the following reasons:
(1) a significant portion of the emergency relief
transportation services were provided under the FAA contract on
the basis of a daily rate for the use of transportation
equipment in question, and therefore load and per load
information is not necessarily available or appropriate for a
significant portion of the related revenue, (2) the
circumstances relating to the Gulf Bridge RoRo, Inc. litigation
are unusual and unique and thus are not likely to recur as part
of Landstar’s normal operations, (3) disclosure of the
effect of the emergency transportation services provided by
Landstar relating to disaster relief efforts for the storms that
impacted the southeastern United States during the 2004 third
and fourth quarters and the settlement of the Gulf Bridge RoRo,
Inc. litigation will allow investors to better understand the
underlying trends in Landstar’s financial condition and
results of operations, (4) this information will facilitate
comparisons by investors of Landstar’s results as compared
to the results of peer companies and (5) management
considers this non-GAAP financial information in its decision
making.
Capital Resources and Liquidity
Shareholders’ equity was $212,839,000, or 70% of total
capitalization (defined as total debt plus equity), at
December 25, 2004, compared with $142,515,000, or 61% of
total capitalization, at December 27, 2003. The increase in
shareholders’ equity was attributable to current year net
income, proceeds from the exercise of stock options including
related income tax benefits and repayments of notes receivable
arising from the exercise of stock options, partially offset by
the purchase of 681,000 shares (not adjusted for the
two-for-one stock split effected in the form of a 100% stock
dividend declared December 9, 2004) of the Company’s
common stock at a total cost of $27,001,000. As of
December 25, 2004, the Company may purchase an additional
1,398,280 shares of its common stock under its authorized
stock purchase program. Long-term debt including current
maturities was $92,090,000 at December 25, 2004, compared
to $91,456,000 at December 27, 2003. Working capital and
the ratio of current assets to current liabilities were
$209,753,000 and 1.87 to 1, respectively, at December 25,
2004, compared with $147,515,000 and 1.85 to 1, respectively, at
December 27, 2003. Landstar has historically operated with
current ratios within the range of 1.5 to 1 to 2.0 to 1. Cash
provided by operating activities was $49,744,000 in 2004
compared with $53,396,000 in 2003. The decrease in cash provided
by operating activities was primarily due to an increase in
trade receivables resulting in large part from revenue related
to the emergency transportation services provided under the
contract with the FAA.
On July 8, 2004, Landstar renegotiated its existing credit
agreement with a syndicate of banks and JPMorgan Chase Bank, as
administrative agent (the “Fourth Amended and Restated
Credit Agreement”). The Fourth Amended and Restated Credit
Agreement provides $225,000,000 of borrowing capacity in the
form of a revolving credit facility, $75,000,000 of which may be
utilized in the form of letter of credit guarantees. The initial
borrowing of $70,000,000 under the facility was used to
refinance the Company’s prior credit facility, which has
been terminated.
At December 25, 2004, the Company had $63,000,000 in
borrowings outstanding and $27,357,000 of letters of credit
outstanding on its Fourth Amended and Restated Credit Agreement.
At December 25, 2004, there was $134,643,000 available for
future borrowings under the Company’s Fourth Amended and
19
Restated Credit Agreement. In addition, the Company has
$36,670,000 in letters of credit outstanding, as collateral for
insurance claims, that are secured by investments and cash
equivalents totaling $38,641,000.
Borrowings under the Fourth 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 Fourth Amended and Restated Credit Agreement. The margin is
subject to an increase of 0.125% if the aggregate amount
outstanding under the Fourth Amended and Restated Credit
Agreement exceeds 50% of the total borrowing capacity. As of
December 25, 2004, the margin was equal to 75.0/100 of 1%.
The unused portion of the Fourth Amended and Restated Credit
Agreement carries a commitment fee determined based on the level
of the Leverage Ratio, as therein defined. As of
December 25, 2004, the commitment fee for the unused
portion of the Fourth Amended and Restated Credit Agreement was
0.20%. At December 25, 2004, the weighted average interest
rate on borrowings outstanding under the Fourth Amended and
Restated Credit Agreement was 3.10%.
The Fourth Amended and Restated Credit Agreement contains a
number of covenants that limit, among other things, the
incurrence of additional indebtedness, the incurrence of
operating or capital lease obligations and the purchase of
operating property. The Fourth Amended and Restated Credit
Agreement also requires Landstar to meet certain financial
tests. Landstar is required to, among other things, maintain
minimum levels of consolidated Net Worth and Fixed Charge
Coverage, as each is defined in the Fourth Amended and Restated
Credit Agreement. Under the most restrictive covenant, Fixed
Charge Coverage, earnings before interest, taxes, depreciation
and amortization, less purchased capital expenditures, exceeded
the required minimum by approximately $100,100,000 for the
fiscal year ended December 25, 2004.
The Fourth Amended and Restated Credit Agreement provides for an
event of default related to a person or group acquiring 25% or
more of the outstanding capital stock of the Company or
obtaining the power to elect a majority of the Company’s
directors.
Borrowings under the Fourth Amended and Restated Credit
Agreement are unsecured. However, Landstar System, Inc. and all
but one of Landstar System Holdings, Inc.’s
(“LSHI”) subsidiaries guarantee LSHI’s
obligations under the Fourth Amended and Restated Credit
Agreement.
Historically, the Company has generated sufficient operating
cash flow to meet its debt service requirements, fund continued
growth, both internal and through acquisitions and to meet
working capital needs. As a non-asset based provider of
transportation capacity, the Company’s annual capital
requirements for operating property are generally for trailers
and management information services equipment. In addition, a
significant portion of the trailing equipment used by the
Company is provided by third party capacity providers and
through leases at rental rates that vary with the revenue
generated through the use of the leased equipment, thereby
reducing the Company’s capital requirements. During 2004,
the Company purchased $6,377,000 of operating property and
acquired $17,963,000 of trailing equipment by entering into
capital leases and $14,300,000 of trailing equipment by entering
into a five year operating lease with a fixed monthly payment.
Landstar anticipates acquiring between $35,000,000 and
$40,000,000 of operating property during fiscal year 2005 either
by purchase or by lease financing. Prior to 2003, the Company
historically funded its acquisition of Company provided fixed
cost trailing equipment using capital leases. During 2003 and
2004, the Company acquired van trailing equipment under a
long-term operating lease at a fixed monthly rental price per
trailer. It is expected that capital leases will fund any
significant acquisitions of Company provided trailing equipment
made during 2005. The Company does not anticipate any other
significant capital requirements in the near future.
Since 1997, the Company has purchased $315,148,000 of its common
stock under programs authorized by the Board of Directors of the
Company in open market and private block transactions. The
20
Company has used cash provided by operating activities and
borrowings on the Company’s revolving credit facilities to
fund the purchases.
Contractual Obligations and
Commitments
At December 25, 2004, the Company’s obligations and
commitments to make future payments under contracts, such as
debt and lease agreements, were as follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Payments Due By Period | |
| |
|
| |
| |
|
|
|
Less Than | |
|
1-3 | |
|
4-5 | |
|
More Than | |
| Contractual Obligation |
|
Total | |
|
1 Year | |
|
Years | |
|
Years | |
|
5 Years | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Long-term debt
|
|
$ |
63,000 |
|
|
|
|
|
|
|
|
|
|
$ |
63,000 |
|
|
|
|
|
|
Capital lease obligations
|
|
|
32,065 |
|
|
$ |
9,858 |
|
|
$ |
14,934 |
|
|
|
7,273 |
|
|
|
|
|
|
Operating leases
|
|
|
41,141 |
|
|
|
7,711 |
|
|
|
14,633 |
|
|
|
9,647 |
|
|
$ |
9,150 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
136,206 |
|
|
$ |
17,569 |
|
|
$ |
29,567 |
|
|
$ |
79,920 |
|
|
$ |
9,150 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt does not include interest. Capital lease
obligations above include $2,975,000 of imputed interest.
Operating leases primarily include $18,324,000 related to the
Company’s main office facility located in Jacksonville,
Florida and $18,158,000 related to a long-term operating lease
for trailing equipment.
Off-Balance Sheet
Arrangements
As of December 25, 2004, the Company had no off-balance
sheet arrangements, other than operating leases as disclosed in
the table of Contractual Obligations and Commitments above, that
have or are reasonably likely to have a current or future
material effect on the Company’s financial condition,
changes in financial condition, revenue or expenses, results of
operations, liquidity, capital expenditures or capital resources.
Legal Matters
On November 1, 2002, the Owner Operator Independent Drivers
Association, Inc. (“OOIDA”) and six individual
Independent Contractors (collectively, the
“Plaintiffs”) filed a putative class action complaint
(the “Complaint”) in the United States District Court
for the Middle District of Florida (the “Court”) in
Jacksonville, Florida, against Landstar System, Inc. and certain
of its subsidiaries. The Complaint alleges that certain aspects
of Company subsidiaries’ motor carrier leases with
Independent Contractors violate certain federal leasing
regulations and seeks injunctive relief, an unspecified amount
of damages and attorney’s fees. On March 8 and June 4,
2004, the Court dismissed all claims of one of the six
individual Independent Contractor Plaintiffs on the grounds that
the ICC Termination Act (the “Act”) is not applicable
to leases signed before the Act’s January 1, 1996,
effective date, and dismissed all claims of all remaining
Plaintiffs against four of the seven Company entities previously
named as defendants (Landstar System, Inc., Landstar Express
America, Inc., Landstar Gemini, Inc. and Landstar Logistics,
Inc.). With respect to the remaining claims, the June 4,
2004 order held that the Act created a private right of action
pursuant to which claims involving certain federal leasing
regulations may be filed in federal court subject to a four-year
statute of limitations. On November 30, 2004, the Court
heard oral argument on a motion by the remaining Plaintiffs to
certify the case as a class action. On February 10, 2005,
the remaining Plaintiffs filed a motion to amend the Complaint
to expand it to include additional allegations with respect to
compliance with certain federal leasing obligations. On
February 11, 2005, the remaining Defendants filed a motion
to amend their previously filed Answer in the event the Court
certifies a plaintiffs’ class pursuant to the remaining
Plaintiffs’ pending motion. The parties are opposing each
others’ motions to amend. The Court is expected to rule
within the next several months on the class-certification motion
and on a motion, previously filed by the remaining Defendants,
for partial summary judgment. Trial is scheduled for the trial
term beginning October 3, 2005. Due to a number of factors,
including the recent filing of the proposed amended Complaint,
the related arrival of new discovery requests from the
21
remaining Plaintiffs, and the lack of litigated final judgments
in a number of similar cases or otherwise applicable precedents,
the Company does not believe it is in a position to conclude
whether or not there is a reasonable possibility of an adverse
outcome in this case or what damages, if any, the remaining
Plaintiffs would be awarded should they prevail on all or any
part of their claims. However, the Company believes that the
remaining Defendants have meritorious defenses and intend to
continue asserting these defenses vigorously.
The Company is involved in certain other claims and pending
litigation arising from the normal conduct of business. Based on
knowledge of the facts and, in certain cases, opinions of
outside counsel, management believes that adequate provisions
have been made for probable losses with respect to the
resolution of all such other claims and pending litigation and
that the ultimate outcome, after provisions thereof, will not
have a material adverse effect on the financial condition of the
Company, but could have a material effect on the results of
operations in a given quarter or year.
Critical Accounting Policies and Estimates
The allowance for doubtful accounts for both trade and other
receivables represents management’s estimate of the amount
of outstanding receivables that will not be collected.
Historically, management’s estimates for uncollectible
receivables have been materially correct. Although management
believes the amount of the allowance for both trade and other
receivables at December 25, 2004 is appropriate, a
prolonged period of low or no economic growth may adversely
affect the collection of these receivables. Conversely, a more
robust economic environment may result in the realization of
some portion of the estimated uncollectible receivables.
Landstar provides for the estimated costs of self-insured claims
primarily on an actuarial basis. The amount recorded for the
estimated liability for claims incurred is based upon the facts
and circumstances known on the balance sheet date. The ultimate
resolution of these claims may be for an amount greater or less
than the amount estimated by management. Historically, the
Company has experienced both favorable and unfavorable
development of prior year claims estimates. The Company is
continually revising its existing claim estimates as new or
revised information becomes available on the status of each
claim. During fiscal year 2004, insurance and claims costs
included $4,390,000 of unfavorable adjustments to prior years
claims estimates. During fiscal year 2003, insurance and claims
costs included $498,000 of unfavorable adjustments to prior
years claims estimates. During fiscal year 2002, insurance and
claims costs included $868,000 of favorable adjustments to prior
years claims estimates. It is reasonably likely that the
ultimate outcome of settling all outstanding claims will be more
or less than the estimated claims reserve at December 25, 2004.
The Company utilizes certain income tax planning strategies to
reduce its overall cost of income taxes. Upon audit, it is
possible that certain strategies might be disallowed resulting
in an increased liability for income taxes. The Company has
provided for its estimated exposure attributable to income tax
planning strategies. Management believes that the provision for
liabilities resulting from the implementation of income tax
planning strategies is appropriate. To date, the Company has not
experienced an examination by governmental revenue authorities
that would lead management to believe that the Company’s
past provisions for exposures related to income tax planning
strategies are not appropriate.
Significant variances from management’s estimates for the
amount of uncollectible receivables, the ultimate resolution of
claims or the provision for liabilities for income tax planning
strategies can be expected to positively or negatively affect
Landstar’s earnings in a given quarter or year. However,
management believes that the ultimate resolution of these items,
given a range of reasonably likely outcomes, will not
significantly affect the long-term financial condition of
Landstar or its ability to fund its continuing operations.
22
Effects of Inflation
Management does not believe inflation has had a material impact
on the results of operations or financial condition of Landstar
in the past five years. However, inflation higher than that
experienced in the past five years might have an adverse effect
on the Company’s results of operations.
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
June, September and December.
Recently Issued Accounting Standards Not Currently
Effective
In December 2004, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 123
(revised 2004), Share-Based Payment (“FAS
No. 123”). FAS No. 123 establishes standards for
the accounting for transactions in which an entity exchanges its
equity instruments for goods and services. FAS No. 123
focuses primarily on accounting for transactions in which an
entity obtains employee services in share-based payment
transactions. Under FAS No. 123, the Company, beginning in
the third quarter of 2005, will be required to measure the cost
of employee services received in exchange for an award of equity
instruments based on the grant date fair value of the award
(with limited exceptions). The cost will be recognized over the
period during which an employee is required to provide services
in exchange for the award.
Currently, the Company discloses the estimated effect on net
income of these share-based payments in the footnotes to the
financial statements. The estimated fair value (cost) of the
share-based payments has historically been determined using the
Black-Scholes pricing model. As of the date of this report, the
Company has not determined which method to use upon
implementation of this standard. The actual compensation cost
resulting from share-based payments to be included in the
Company’s future results of operations may vary
significantly from the amounts currently disclosed in the
footnotes to the financial statements.
Forward-Looking Statements
The following is a “safe harbor” statement under the
Private Securities Litigation Reform Act of 1995. Statements
contained in this document that are not based on historical
facts are “forward-looking statements.” This
Management’s Discussion and Analysis of Financial Condition
and Results of Operations and other sections of this
Form 10-K statement contain forward-looking statements,
such as statements which relate to Landstar’s business
objectives, plans, strategies and expectations. Terms such as
“anticipates,” “believes,”
“estimates,” “expects,” “plans,”
“predicts,” “may,” “should,”
“could,” “will,” the negative thereof and
similar expressions are intended to identify forward-looking
statements. Such statements are by nature subject to
uncertainties and risks, including but not limited to: an
increase in the frequency or severity of accidents or
workers’ compensation claims; unfavorable development of
existing accident claims; dependence on independent commission
sales agents; dependence on third party capacity providers;
disruptions or failures in our computer systems; a downturn in
domestic economic growth or growth in the transportation sector;
substantial industry competition; and other operational,
financial or legal risks or uncertainties detailed in this and
Landstar’s other SEC filings from time to time and
described in the section Factors That May Affect Future Results
and/or Forward-Looking Statements immediately below. These risks
and uncertainties could cause actual results or events to differ
materially from historical results or those anticipated.
Investors should not place undue reliance on such
forward-looking statements, and the Company undertakes no
obligation to publicly update or revise any forward-looking
statements.
23
Factors That May Affect Future Results and/or Forward-Looking
Statements
Increased severity or frequency of accidents and other
claims. As noted above in Item 1,
“Business — Factors Significant to the
Company’s Operations — Insurance and
Claims,” potential liability associated with accidents in
the trucking industry is severe and occurrences are
unpredictable. Landstar’s retained liability for individual
commercial trucking claims depends on when such claims are
incurred. For commercial trucking claims incurred subsequent to
March 30, 2004, Landstar retains liability up to $5,000,000
per occurrence. For commercial trucking claims incurred from
June 19, 2003 through March 30, 2004, Landstar retains
liability up to $10,000,000 per occurrence. For commercial
trucking claims incurred from May 1, 2001 through
June 18, 2003, Landstar retains liability 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. The Company also retains liability up to
$1,000,000 for each general liability claim, $250,000 for each
workers compensation claim, and $250,000 for each cargo claim. A
material increase in the frequency or severity of accidents,
cargo or workers’ compensation claims or the unfavorable
development of existing claims could have a material adverse
effect on Landstar, including its results of operations and
financial condition.
Dependence on third party insurance companies. The
Company is dependent on a limited number of third party
insurance companies to provide insurance coverage in excess of
its self-insured retention amounts. Historically, the Company
has relied on various third party insurance companies to provide
insurance coverage for commercial trucking claims in excess of
specific per occurrence limits. Over the past three years, the
premiums proposed by the third party insurance companies
providing coverage for commercial trucking liability insurance
above the Company’s self-insured retention amounts have
varied dramatically. In an attempt to manage the cost of these
increasing premiums required by the third party insurance
companies, the Company has historically increased or decreased
the level of its exposure to commercial trucking claims on a per
occurrence basis. To the extent the third party insurance
companies increase their proposed premiums for coverage of
commercial trucking liability claims, the Company may increase
its exposure on a per occurrence basis. However, to the extent
the third party insurance companies reduce their premiums
proposed for coverage of commercial trucking claims, the Company
may reduce its exposure on a per occurrence basis.
Dependence on independent commission sales agents. As
noted above in Item 1, “Business — Factors
Significant to the Company’s Operations — Agent
Network,” the Company markets its services primarily
through independent commission sales agents, and currently has a
network of over 900 such agents. During 2004, 427 agents
generated revenue for Landstar of at least $1 million each,
or approximately 92% of Landstar’s consolidated revenue and
one agent generated approximately $200,000,000, or 9%, of
Landstar’s total revenue. Although the Company competes
with motor carriers and other third parties for the services of
these independent commission sales agents, Landstar has
historically experienced very limited agent turnover among its
larger-volume agents. However, Landstar’s contracts with
its agents are typically 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 key agents
or a significant decrease in volume generated by Landstar’s
larger agents could have a material adverse effect on Landstar,
including its results of operations and revenue.
Dependence on third party capacity providers. As noted
above in Item 1, “Business — Factors
Significant to the Company’s Operations —
Capacity,” Landstar does not own trucks or other
transportation equipment (other than trailing equipment) and
relies on third party capacity providers, including Independent
Contractors, unrelated trucking companies, railroads, air and
ocean cargo carriers to transport freight for its customers. The
Company competes with motor carriers and other third parties for
the services of Independent Contractors and other third party
capacity providers. Freight hauled by Independent Contractors
represented 64% of Landstar’s revenue in 2004. 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 revenue.
24
Change in Capacity Mix. Historically, the Company’s
carrier segment has primarily relied on capacity provided by
Independent Contractors. Pursuant to a plan to augment its
available capacity and increase its revenue, the Company has
been increasing the carrier segment’s use of capacity
provided by other third party truck capacity providers. Freight
hauled by Independent Contractors represented 64.2%, 69.3% and
72.6% of Landstar’s consolidated revenue in 2004, 2003 and
2002, respectively. Historically, with the exception of air
revenue, the net margin (defined as revenue less the cost of
purchased transportation and agent commissions) generated from
freight hauled by Independent Contractors has been greater than
freight hauled by other third party capacity providers. An
increase in the amount of revenue generated through other third
party capacity providers without an increase in total revenue
and/or a corresponding reduction in other costs, including other
operating, insurance and claims, selling, general and
administrative and depreciation and amortization could have a
negative effect on the Company’s operating margin (defined
as operating income divided by revenue).
Decreased demand for transportation services. The
transportation industry historically has experienced cyclical
financial results as a result of slowdowns in economic activity,
the business cycles of customers, price increases by capacity
providers, interest rate fluctuations, and other economic
factors beyond Landstar’s control. Certain of the
Company’s third party capacity providers can be expected to
charge higher prices to cover increased operating expenses, and
the Company’s operating income may decline if it is unable
to pass through to its customers the full amount of such higher
transportation costs. If a slowdown in economic activity or a
downturn in the Company’s customers’ business cycles
causes a reduction in the volume of freight shipped by those
customers, the Company’s operating results could be
materially adversely affected.
Substantial industry competition. As noted above in
Item 1, “Business — Factors Significant to
the Company’s Operations — 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. Management believes that competition for the freight
transported by the Company is based primarily on service and
efficiency and, to a lesser degree, on freight rates alone.
Historically, competition has created downward pressure on
freight rates. A decrease in freight rates could have a material
adverse effect on Landstar, including its revenue and operating
income.
Dependence on key personnel. The Company is dependent on
the services of its executive officers. Although the Company
believes it has an experienced and highly qualified management
group, the loss of the services of the Company’s executive
officers could have a material adverse effect on the Company.
Disruptions or failures in the Company’s computer
systems. As noted above in Item 1,
“Business — Factors Significant to the
Company’s Operations — Technology,” the
Company’s information technology systems used in connection
with its operations are located in Jacksonville, Florida and to
a lesser extent in Rockford, Illinois. Landstar relies in the
regular course of its business on the proper operation of its
information technology systems to link its extensive network of
customers, agents and third party capacity providers, including
its Independent Contractors. Any significant disruption or
failure of its technology systems could significantly disrupt
the Company’s operations and impose significant costs on
the Company.
Potential changes in fuel taxes. From time to time,
various legislative proposals are introduced to increase
federal, state, or local taxes, including taxes on motor fuels.
The Company cannot predict whether, or in what form, any
increase in such taxes applicable to the transportation services
provided by the Company will be enacted and, if enacted, whether
or not the Company’s Independent Contractors and other
third party truck capacity providers would attempt to pass the
increase onto the Company or if the Company will be able to
reflect this potential increased cost of capacity, if any, in
prices to customers. Any such increase in fuel taxes could have
a material adverse effect on Landstar, including its results of
operations and financial condition. Moreover, competition from
other transportation service companies including those that
provide non-trucking modes of transportation and intermodal
transportation would
25
likely increase if state or federal taxes on fuel were to
increase without a corresponding increase in taxes imposed upon
other modes of transportation.
Status of independent contractors. 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 commission sales agents as independent contractors
for all purposes, including employment tax and employee benefit
purposes. There can be no assurance that legislative, judicial,
or regulatory (including tax) authorities will not introduce
proposals or assert interpretations of existing rules and
regulations that would change the employee/independent
contractor classification of Independent Contractors or
independent commission sales agents currently doing business
with the Company. Although management believes that there are no
proposals currently pending that would change the
employees/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, with respect to these Independent
Contractor classifications could have a material adverse effect
on Landstar, including its results of operations and financial
condition if Landstar were unable to reflect them in its fee
arrangements with the Independent Contractors or independent
commission sales agents or in the prices charged to its
customers.
Regulatory and legislative changes. As noted above in
Item 1, “Business — Factors Significant to
the Company’s Operations — Regulation,” each
of the Operating Subsidiaries is a motor carrier which is
regulated by the Federal Motor Carrier Safety Administration
(FMCSA) and by various state agencies. 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. Any such regulatory or legislative changes
could have a material adverse effect on Landstar, including its
results of operations and financial condition.
|
|
| Item 7a. |
Quantitative and Qualitative Disclosures about Market
Risk |
The Company is exposed to changes in interest rates as a result
of its financial activities, primarily its borrowings on the
revolving credit facility, and investing activities with respect
to investments held by the insurance segment.
On July 8, 2004, Landstar entered into a new senior credit
facility with a syndicate of banks and JPMorgan Chase Bank, as
administrative agent (the “Fourth Amended and Restated
Credit Agreement”). The Fourth Amended and Restated Credit
Agreement, which expires on July 8, 2009, provides
$225,000,000 of borrowing capacity in the form of a revolving
credit facility, $75,000,000 of which may be utilized in the
form of letter of credit guarantees. The initial borrowing of
$70,000,000 under the facility has been used to refinance the
Company’s prior credit facility, which has been terminated.
Borrowings under the Fourth 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
26
defined in the Fourth Amended and Restated Credit Agreement. The
margin is subject to an increase of 0.125% if the aggregate
amount outstanding under the Fourth Amended and Restated Credit
Agreement exceeds 50% of the borrowing capacity. As of
December 25, 2004, the weighted average interest rate on
borrowings outstanding was 3.10%. During fiscal 2004, the
average outstanding balance under the Third and Fourth Amended
and Restated Credit Agreements were approximately $57,000,000.
Based on the borrowing rates in the Fourth Amended and Restated
Credit Agreement and the repayment terms, the fair value of the
outstanding borrowings as of December 25, 2004 was
estimated to approximate carrying value. Assuming that debt
levels on the Fourth Amended and Restated Credit Agreement
remain at $63,000,000, the balance at December 25, 2004, a
hypothetical increase of 100 basis points in current rates
provided for under the Fourth Amended and Restated Credit
Agreement is estimated to result in an increase in interest
expense of $630,000 on an annualized basis.
The Company’s obligations under the Fourth Amended and
Restated Credit Agreement are guaranteed by all but one of
LSHI’s subsidiaries.
Long-term investments, all of which are available-for-sale,
consist of investment grade bonds having maturities of up to
five years. Assuming that the long-term portion of investments
in bonds remains at $16,699,000, the balance at
December 25, 2004, a hypothetical increase or decrease in
interest rates of 100 basis points would not have a material
impact on future earnings on an annualized basis. Short-term
investments consist of short-term investment grade instruments
and the current maturities of investment grade bonds.
Accordingly, any future interest rate risk on these short-term
investments would not be material.
27
Item 8. Financial
Statements and Supplementary Data
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
| |
|
|
|
|
|
|
|
|
|
|
| |
|
Dec. 25, | |
|
Dec. 27, | |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
ASSETS |
|
Current Assets
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents
|
|
$ |
61,684 |
|
|
$ |
42,640 |
|
| |
Short-term investments
|
|
|
21,942 |
|
|
|
30,890 |
|
| |
Trade accounts receivable, less allowance of $4,021 and $3,410
|
|
|
338,774 |
|
|
|
219,039 |
|
| |
Other receivables, including advances to independent
contractors, less allowance of $4,245 and $4,077
|
|
|
13,929 |
|
|
|
13,196 |
|
| |
Deferred income taxes and other current assets
|
|
|
13,503 |
|
|
|
14,936 |
|
| |
|
|
|
|
|
|
| |
|
Total current assets
|
|
|
449,832 |
|
|
|
320,701 |
|
| |
|
|
|
|
|
|
|
Operating property, less accumulated depreciation and
amortization of $65,315 and $58,480
|
|
|
76,834 |
|
|
|
67,639 |
|
|
Goodwill
|
|
|
31,134 |
|
|
|
31,134 |
|
|
Other assets
|
|
|
26,712 |
|
|
|
18,983 |
|
| |
|
|
|
|
|
|
|
Total assets
|
|
$ |
584,512 |
|
|
$ |
438,457 |
|
| |
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
Current Liabilities
|
|
|
|
|
|
|
|
|
| |
Cash overdraft
|
|
$ |
23,547 |
|
|
$ |
20,523 |
|
| |
Accounts payable
|
|
|
120,197 |
|
|
|
71,713 |
|
| |
Current maturities of long-term debt
|
|
|
8,797 |
|
|
|
9,434 |
|
| |
Insurance claims
|
|
|
32,612 |
|
|
|
26,293 |
|
| |
Accrued compensation
|
|
|
14,609 |
|
|
|
6,903 |
|
| |
Other current liabilities
|
|
|
40,317 |
|
|
|
38,320 |
|
| |
|
|
|
|
|
|
| |
|
Total current liabilities
|
|
|
240,079 |
|
|
|
173,186 |
|
| |
|
|
|
|
|
|
|
Long-term debt, excluding current maturities
|
|
|
83,293 |
|
|
|
82,022 |
|
|
Insurance claims
|
|
|
32,430 |
|
|
|
27,282 |
|
|
Deferred income taxes
|
|
|
15,871 |
|
|
|
13,452 |
|
|
Shareholders’ Equity
|
|
|
|
|
|
|
|
|
| |
Common stock, $0.01 par value, authorized 80,000,000 and
50,000,000 shares, issued 63,154,190 and 31,816,860 shares
|
|
|
632 |
|
|
|
318 |
|
| |
Additional paid-in capital
|
|
|
43,845 |
|
|
|
18,382 |
|
| |
Retained earnings
|
|
|
295,936 |
|
|
|
224,368 |
|
| |
Cost of 2,490,930 and 1,809,930 shares of common stock in
treasury
|
|
|
(127,151 |
) |
|
|
(100,150 |
) |
| |
Accumulated other comprehensive income
|
|
|
47 |
|
|
|
182 |
|
| |
Notes receivable arising from exercises of stock options
|
|
|
(470 |
) |
|
|
(585 |
) |
| |
|
|
|
|
|
|
| |
|
Total shareholders’ equity
|
|
|
212,839 |
|
|
|
142,515 |
|
| |
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
$ |
584,512 |
|
|
$ |
438,457 |
|
| |
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
28
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Years Ended | |
| |
|
| |
| |
|
Dec. 25, | |
|
Dec. 27, | |
|
Dec. 28, | |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Revenue
|
|
$ |
2,019,936 |
|
|
$ |
1,596,571 |
|
|
$ |
1,506,555 |
|
|
Investment income
|
|
|
1,346 |
|
|
|
1,220 |
|
|
|
1,950 |
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Purchased transportation
|
|
|
1,510,963 |
|
|
|
1,185,043 |
|
|
|
1,116,009 |
|
| |
Commissions to agents
|
|
|
161,011 |
|
|
|
125,997 |
|
|
|
118,864 |
|
| |
Other operating costs
|
|
|
37,130 |
|
|
|
37,681 |
|
|
|
34,325 |
|
| |
Insurance and claims
|
|
|
60,339 |
|
|
|
45,690 |
|
|
|
42,188 |
|
| |
Selling, general and administrative
|
|
|
118,461 |
|
|
|
105,849 |
|
|
|
101,918 |
|
| |
Depreciation and amortization
|
|
|
13,959 |
|
|
|
12,736 |
|
|
|
11,520 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total costs and expenses
|
|
|
1,901,863 |
|
|
|
1,512,996 |
|
|
|
1,424,824 |
|
| |
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
119,419 |
|
|
|
84,795 |
|
|
|
83,681 |
|
|
Interest and debt expense
|
|
|
3,025 |
|
|
|
3,240 |
|
|
|
4,292 |
|
| |
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
116,394 |
|
|
|
81,555 |
|
|
|
79,389 |
|
|
Income taxes
|
|
|
44,522 |
|
|
|
30,855 |
|
|
|
30,168 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
71,872 |
|
|
$ |
50,700 |
|
|
$ |
49,221 |
|
| |
|
|
|
|
|
|
|
|
|
|
Earnings per common share(1)
|
|
$ |
1.19 |
|
|
$ |
0.82 |
|
|
$ |
0.76 |
|
| |
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share(1)
|
|
$ |
1.16 |
|
|
$ |
0.79 |
|
|
$ |
0.73 |
|
| |
|
|
|
|
|
|
|
|
|
|
Average number of shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Earnings per common share(1)
|
|
|
60,154,000 |
|
|
|
61,458,000 |
|
|
|
64,565,000 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Diluted earnings per share(1)
|
|
|
61,800,000 |
|
|
|
63,840,000 |
|
|
|
67,069,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| (1) |
All earnings per share amounts and average number of shares
outstanding have been adjusted to give retroactive effect to a
two-for-one stock split effected in the form of a 100% stock
dividend declared December 9, 2004. |
See accompanying notes to consolidated financial statements.
29
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Years Ended | |
| |
|
| |
| |
|
Dec. 25, | |
|
Dec. 27, | |
|
Dec. 28, | |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income
|
|
$ |
71,872 |
|
|
$ |
50,700 |
|
|
$ |
49,221 |
|
| |
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Depreciation and amortization of operating property
|
|
|
13,959 |
|
|
|
12,736 |
|
|
|
11,520 |
|
| |
|
Non-cash interest charges
|
|
|
348 |
|
|
|
272 |
|
|
|
273 |
|
| |
|
Provisions for losses on trade and other accounts receivable
|
|
|
6,250 |
|
|
|
5,094 |
|
|
|
7,514 |
|
| |
|
Losses on sales and disposals of operating property
|
|
|
215 |
|
|
|
344 |
|
|
|
642 |
|
| |
|
Director compensation paid in common stock
|
|
|
402 |
|
|
|
85 |
|
|
|
|
|
| |
|
Deferred income taxes, net
|
|
|
3,967 |
|
|
|
(2,899 |
) |
|
|
5,513 |
|
| |
|
Tax benefit on stock option exercises
|
|
|
9,035 |
|
|
|
5,110 |
|
|
|
1,404 |
|
| |
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Increase in trade and other accounts receivable
|
|
|
(126,718 |
) |
|
|
(34,637 |
) |
|
|
(11,221 |
) |
| |
|
|
Decrease (increase) in other assets
|
|
|
677 |
|
|
|
(3,335 |
) |
|
|
933 |
|
| |
|
|
Increase in accounts payable
|
|
|
48,484 |
|
|
|
11,416 |
|
|
|
4,484 |
|
| |
|
|
Increase in other liabilities
|
|
|
9,786 |
|
|
|
4,630 |
|
|
|
7,522 |
|
| |
|
|
Increase in insurance claims
|
|
|
11,467 |
|
|
|
3,880 |
|
|
|
6,508 |
|
| |
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY OPERATING ACTIVITIES
|
|
|
49,744 |
|
|
|
53,396 |
|
|
|
84,313 |
|
| |
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net change in other short-term investments
|
|
|
8,461 |
|
|
|
(27,354 |
) |
|
|
|
|
| |
|
Maturities of long-term investments
|
|
|
4,006 |
|
|
|
4,219 |
|
|
|
2,500 |
|
| |
|
Purchases of long-term investments
|
|
|
(12,606 |
) |
|
|
(4,542 |
) |
|
|
(8,889 |
) |
| |
|
Purchases of operating property
|
|
|
(6,377 |
) |
|
|
(5,557 |
) |
|
|
(4,421 |
) |
| |
|
Proceeds from sales of operating property
|
|
|
971 |
|
|
|
1,612 |
|
|
|
387 |
|
| |
|
|
|
|
|
|
|
|
|
|
NET CASH USED BY INVESTING ACTIVITIES
|
|
|
(5,545 |
) |
|
|
(31,622 |
) |
|
|
(10,423 |
) |
| |
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Increase in cash overdraft
|
|
|
3,024 |
|
|
|
3,978 |
|
|
|
3,527 |
|
| |
|
Proceeds from repayment of notes receivable arising from
exercises of stock options
|
|
|
115 |
|
|
|
605 |
|
|
|
4,867 |
|
| |
|
Proceeds from exercises of stock options
|
|
|
16,036 |
|
|
|
10,584 |
|
|
|
2,467 |
|
| |
|
Borrowings on revolving credit facility
|
|
|
71,000 |
|
|
|
38,000 |
|
|
|
|
|
| |
|
Purchases of common stock
|
|
|
(27,001 |
) |
|
|
(73,844 |
) |
|
|
(26,306 |
) |
| |
|
Principal payments on long-term debt and capital lease
obligations
|
|
|
(88,329 |
) |
|
|
(23,904 |
) |
|
|
(40,884 |
) |
| |
|
|
|
|
|
|
|
|
|
|
NET CASH USED BY FINANCING ACTIVITIES
|
|
|
(25,155 |
) |
|
|
(44,581 |
) |
|
|
(56,329 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
19,044 |
|
|
|
(22,807 |
) |
|
|
17,561 |
|
|
Cash and cash equivalents at beginning of period
|
|
|
42,640 |
|
|
|
65,447 |
|
|
|
47,886 |
|
| |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$ |
61,684 |
|
|
$ |
42,640 |
|
|
$ |
65,447 |
|
| |
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
30
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’
EQUITY
For the Fiscal Years Ended December 25, 2004,
December 27, 2003 and December 28, 2002
(Dollars in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes | |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivable | |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arising | |
|
|
| |
|
|
|
|
|
|
|
|
|
Accumulated | |
|
from | |
|
|
| |
|
Common Stock | |
|
Add’l | |
|
|
|
Treasury Stock at Cost | |
|
Other | |
|
Exercises | |
|
|
| |
|
| |
|
Paid-In | |
|
Retained | |
|
| |
|
Comprehensive | |
|
of Stock | |
|
|
| |
|
Shares | |
|
Amount | |
|
Capital | |
|
Earnings | |
|
Shares | |
|
Amount | |
|
Income | |
|
Options | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Balance December 29, 2001
|
|
|
13,328,834 |
|
|
$ |
133 |
|
|
$ |
75,036 |
|
|
$ |
258,162 |
|
|
|
5,241,841 |
|
|
$ |
(209,926 |
) |
|
|
|
|
|
$ |
(5,965 |
) |
|
$ |
117,440 |
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,221 |
|
|
Retirement of treasury stock
|
|
|
(5,241,841 |
) |
|
|
(52 |
) |
|
|
(76,389 |
) |
|
|
(133,485 |
) |
|
|
(5,241,841 |
) |
|
|
209,926 |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
Purchases of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
554,879 |
|
|
|
(26,306 |
) |
|
|
|
|
|
|
|
|
|
|
(26,306 |
) |
|
Exercises of stock options and related income tax benefit
|
|
|
116,160 |
|
|
|
1 |
|
|
|
3,962 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(92 |
) |
|
|
3,871 |
|
|
Repayment of notes receivable arising from exercises of stock
options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,867 |
|
|
|
4,867 |
|
|
Stock split effected in the form of a 100% stock dividend
|
|
|
8,134,353 |
|
|
|
81 |
|
|
|
|
|
|
|
(81 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 28, 2002
|
|
|
16,337,506 |
|
|
|
163 |
|
|
|
2,609 |
|
|
|
173,817 |
|
|
|
554,879 |
|
|
|
(26,306 |
) |
|
|
|
|
|
|
(1,190 |
) |
|
|
149,093 |
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,700 |
|
|
Purchases of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,255,051 |
|
|
|
(73,844 |
) |
|
|
|
|
|
|
|
|
|
|
(73,844 |
) |
|
Exercises of stock options and related income tax benefit
|
|
|
564,021 |
|
|
|
6 |
|
|
|
15,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,694 |
|
|
Director compensation paid in common stock
|
|
|
1,500 |
|
|
|
|
|
|
|
85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85 |
|
|
Repayment of notes receivable arising from exercises of stock
options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
605 |
|
|
|
605 |
|
|
Unrealized gain on available-for-sale investments, net of income
taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
182 |
|
|
|
|
|
|
|
182 |
|
|
Stock split effected in the form of a 100% stock dividend
|
|
|
14,913,833 |
|
|
|
149 |
|
|
|
|
|
|
|
(149 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 27, 2003
|
|
|
31,816,860 |
|
|
|
318 |
|
|
|
18,382 |
|
|
|
224,368 |
|
|
|
1,809,930 |
|
|
|
(100,150 |
) |
|
|
182 |
|
|
|
(585 |
) |
|
|
142,515 |
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,872 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,872 |
|
|
Purchases of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
681,000 |
|
|
|
(27,001 |
) |
|
|
|
|
|
|
|
|
|
|
(27,001 |
) |
|
Exercises of stock options and related income tax benefit
|
|
|
996,700 |
|
|
|
10 |
|
|
|
25,061 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,071 |
|
|
Director compensation paid in common stock
|
|
|
9,000 |
|
|
|
|
|
|
|
402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
402 |
|
|
Repayment of notes receivable arising from exercises of stock
options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115 |
|
|
|
115 |
|
|
Unrealized loss on available-for-sale investments, net of income
taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(135 |
) |
|
|
|
|
|
|
(135 |
) |
|
Stock split effected in the form of a 100% stock dividend
|
|
|
30,331,630 |
|
|
|
304 |
|
|
|
|
|
|
|
(304 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 25, 2004
|
|
|
63,154,190 |
|
|
$ |
632 |
|
|
$ |
43,845 |
|
|
$ |
295,936 |
|
|
|
2,490,930 |
|
|
$ |
(127,151 |
) |
|
$ |
47 |
|
|
$ |
(470 |
) |
|
$ |
212,839 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
31
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Significant Accounting
Policies
Consolidation
The consolidated financial statements include the accounts of
Landstar System, Inc. and its subsidiary Landstar System
Holdings, Inc. (“LSHI”). Landstar System, Inc. and its
subsidiary are herein referred to as “Landstar” or the
“Company.” Significant inter-company accounts have
been eliminated in consolidation. The preparation of the
consolidated financial statements requires the use of
management’s estimates. Actual results could differ from
those estimates.
Fiscal Year
Landstar’s fiscal year is the 52 or 53 week period
ending the last Saturday in December.
Revenue Recognition
The Company is the primary obligor with respect to freight
delivery and assumes the related credit risk. Accordingly,
revenue and the related direct freight expenses of the carrier
and multimodal segments are recognized on a gross basis upon
completion of freight delivery. Insurance premiums of the
insurance segment are recognized over the period earned, which
is usually on a monthly basis. Fuel surcharges billed to
customers for freight hauled by independent contractors who
provide truck capacity to the Company under exclusive lease
arrangements (“Independent Contractors”) are excluded
from revenue and paid in entirety to the Independent Contractors.
Insurance Claim Costs
Landstar provides, primarily on an actuarially determined basis,
for the estimated costs of cargo, property, casualty, general
liability and workers’ compensation claims both reported
and for claims incurred but not reported. Landstar retains
liability for individual commercial trucking claims incurred
subsequent to March 30, 2004, up to $5,000,000 per
occurrence. For commercial trucking claims incurred from
June 19, 2003 through March 30, 2004, Landstar retains
liability up to $10,000,000 per occurrence. For commercial
trucking claims incurred from May 1, 2001 through
June 18, 2003, Landstar retains liability 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. 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.
Tires
Tires purchased as part of trailing equipment are capitalized as
part of the cost of the equipment. Replacement tires are charged
to expense when placed in service.
Cash and Cash
Equivalents
Included in cash and cash equivalents are all investments,
except those provided for collateral, with an original maturity
of 3 months or less.
Investments
Investments, all of which are available–for-sale, consist
of investment-grade bonds having maturities of up to five years.
Investments are carried at fair value, with unrealized gains and
losses, net of related income taxes, reported as accumulated
other comprehensive income. Short-term investments include the
current maturities of the investment grade bonds and $18,931,000
of cash equivalents held at the
32
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Company’s insurance segment at December 25, 2004.
These short-term investments together with $16,699,000 of the
non-current portion of the investment grade bonds included in
other assets at December 25, 2004 provided collateral for
$36,670,000 of letters of credit issued to guarantee payment of
insurance claims. Based upon quoted market prices, unrealized
gains on these bonds at December 25, 2004 and
December 27, 2003 were $64,000 and $282,000, respectively.
Investment income represents the earnings on the insurance
segment’s assets. Investment income earned from the assets
of the insurance segment are included as a component of
operating income as the investing activities and earnings
thereon comprise a significant portion of the insurance
segment’s profitability.
Operating property is recorded at cost. Depreciation is provided
on a straight-line basis over the estimated useful lives of the
related assets. Trailing equipment is being depreciated over
7 years.
Income tax expense is equal to the current year’s liability
for income taxes and a provision for deferred income taxes.
Deferred tax assets and liabilities are recorded for the future
tax effects attributable to temporary differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using the enacted tax rates
expected to be applied to taxable income in the years in which
those temporary differences are expected to be recovered or
settled.
|
|
|
Stock-Based Compensation — Stock Options |
The Company has two employee stock option plans and one stock
option plan for members of its Board of Directors (the
“Plans”). The Company accounts for stock options
issued under the Plans pursuant to the recognition and
measurement principles of APB Opinion No. 25,
“Accounting for Stock Issued to Employees,” and
related interpretations. No stock-based employee compensation is
reflected in net income from the Plans, as all options granted
under the Plans had an exercise price equal to the fair market
value of the underlying common stock on the date of grant. The
following table illustrates the effect on net income and
earnings per share from the Plans as if the Company had applied
the fair value
33
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
recognition provisions of SFAS No. 123, “Accounting
for Stock-Based Compensation,” to stock-based employee
compensation (in thousands, except per share amounts).
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Net income, as reported
|
|
$ |
71,872 |
|
|
$ |
50,700 |
|
|
$ |
49,221 |
|
|
Deduct:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total stock-based employee compensation expense determined under
the fair value based method for all awards, net of related
income tax benefits
|
|
|
(3,607 |
) |
|
|
(3,522 |
) |
|
|
(3,102 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Pro forma net income
|
|
$ |
68,265 |
|
|
$ |
47,178 |
|
|
$ |
46,119 |
|
| |
|
|
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
As reported
|
|
$ |
1.19 |
|
|
$ |
0.82 |
|
|
$ |
0.76 |
|
| |
Pro forma
|
|
$ |
1.13 |
|
|
$ |
0.77 |
|
|
$ |
0.71 |
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
As reported
|
|
$ |
1.16 |
|
|
$ |
0.79 |
|
|
$ |
0.73 |
|
| |
Pro forma
|
|
$ |
1.11 |
|
|
$ |
0.75 |
|
|
$ |
0.70 |
|
Earnings per common share amounts are based on the weighted
average number of common shares outstanding and diluted earnings
per share amounts are based on the weighted average number of
common shares outstanding plus the incremental shares that would
have been outstanding upon the assumed exercise of all dilutive
stock options.
The following table provides a reconciliation of the number of
average common shares outstanding used to calculate earnings per
share to the number of common shares and common share
equivalents outstanding used in calculating diluted earnings per
share (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Average number of common shares outstanding
|
|
|
60,154 |
|
|
|
61,458 |
|
|
|
64,565 |
|
|
Incremental shares from assumed exercises of stock options
|
|
|
1,646 |
|
|
|
2,382 |
|
|
|
2,504 |
|
| |
|
|
|
|
|
|
|
|
|
|
Average number of common shares and common share equivalents
outstanding
|
|
|
61,800 |
|
|
|
63,840 |
|
|
|
67,069 |
|
| |
|
|
|
|
|
|
|
|
|
For the fiscal years ended December 25, 2004 and
December 28, 2002, there were 130,000 and 72,000,
respectively, of options outstanding to purchase shares of
common stock excluded from the calculation of diluted earnings
per share because of antidilution. For the fiscal year ended
December 27, 2003, there were no options outstanding to
purchase shares of common stock excluded from the calculation of
diluted earnings per share because of antidilution.
|
|
|
Recently Issued Accounting Standards Not Currently
Effective |
In December 2004, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 123
(revised 2004), Share-Based Payment (“FAS
No. 123”). FAS No. 123 establishes standards for
the accounting for transactions in which an entity exchanges its
equity instruments for goods and services. FAS No. 123
focuses primarily on accounting for transactions in which an
entity obtains employee services in share-based payment
transactions. Under FAS No. 123, the
34
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Company, beginning in the third quarter of 2005, will be
required to measure the cost of employee services received in
exchange for an award of equity instruments based on the grant
date fair value of the award (with limited exceptions). The cost
will be recognized over the period during which an employee is
required to provide services in exchange for the award.
Currently, the Company discloses the estimated effect on net
income of these share-based payments in the footnotes to the
financial statements. The estimated fair value (cost) of
the share-based payments has historically been determined using
the Black-Scholes pricing model. As of the date of this report,
the Company has not determined which method to use upon
implementation of this standard. The actual compensation cost
resulting from share-based payments to be included in the
Company’s future results of operations may vary
significantly from the amounts currently disclosed in the
footnotes to the financial statements.
(2) Stock Splits
On December 9, 2004, Landstar declared a two-for-one
stock-split of its common stock to be effected in the form of a
100% stock dividend. Stockholders of record on December 28,
2004 received one additional share of common stock for each
share held. The additional shares were distributed on
January 7, 2005.
On October 15, 2003, Landstar declared a two-for-one
stock-split of its common stock to be effected in the form of a
100% stock dividend. Stockholders of record on November 3,
2003 received one additional share of common stock for each
share held. The additional shares were distributed on
November 13, 2003.
On July 17, 2002, Landstar declared a two-for-one stock
split of its common stock to be effected in the form of a 100%
stock dividend. Stockholders of record on August 2, 2002
received one additional share of common stock for each share
held. The additional shares were distributed on August 12,
2002.
Unless otherwise indicated, all share and per share amounts have
been adjusted to give retroactive effect to all stock split
transactions.
(3) Litigation Settlement
Agreement
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 complaint alleged breach of contract, fraud
and tortious interference with contractual business
relationships against Landstar System, Inc. and Landstar
Logistics, Inc. arising out of a contract between Landstar
Logistics, Inc. and the plaintiff involving a trans-Gulf of
Mexico roll-on/roll-off shipping venture developed by the
plaintiff. The suit made claim for $25,000,000 for damages for
breach of contract and $50,000,000 in punitive and other damages
related to the fraud and tortious interference claims. Landstar
System, Inc. and all of its subsidiaries denied all claims made
by the plaintiff. In order to avoid the cost of protracted
litigation, on September 9, 2003 Landstar entered into a
comprehensive settlement agreement with the plaintiffs and the
Company’s insurance carrier with respect to all claims
asserted in this lawsuit. The total cost incurred, net of
insurance recoveries, by Landstar to defend and settle this suit
during 2003 was approximately $4,150,000. The settlement
component, net of insurance recoveries, was $2,700,000. Net of
related income tax benefits these costs reduced Landstar’s
net income for 2003 by approximately $2,650,000, or $0.04 per
common share ($0.04 per diluted share).
35
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(4) Comprehensive Income
The following table includes the components of comprehensive
income for the fiscal years ended December 25, 2004, and
December 27, 2003. The Company did not have any
transactions resulting in comprehensive income in years prior to
2003 (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
Fiscal Year | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Net income
|
|
$ |
71,872 |
|
|
$ |
50,700 |
|
|
Unrealized holding gains (losses) on available-for-sale
investments, net of income taxes
|
|
|
(135 |
) |
|
|
182 |
|
| |
|
|
|
|
|
|
|
Comprehensive income
|
|
$ |
71,737 |
|
|
$ |
50,882 |
|
| |
|
|
|
|
|
|
The unrealized holding loss on available-for-sale investments
for 2004 represents the mark-to-market adjustment of $218,000
net of related income tax benefits of $83,000. The unrealized
holding gain on available-for-sale investments for 2003
represents the mark-to-market adjustment of $282,000, net of the
related income taxes of $100,000.
(5) Income Taxes
The provisions for income taxes consisted of the following (in
thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Federal
|
|
$ |
37,233 |
|
|
$ |
25,217 |
|
|
$ |
23,362 |
|
| |
State
|
|
|
3,322 |
|
|
|
8,537 |
|
|
|
1,293 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
40,555 |
|
|
|
33,754 |
|
|
|
24,655 |
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Federal
|
|
|
3,400 |
|
|
|
3,063 |
|
|
|
4,273 |
|
| |
State
|
|
|
567 |
|
|
|
(5,962 |
) |
|
|
1,240 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
3,967 |
|
|
|
(2,899 |
) |
|
|
5,513 |
|
| |
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$ |
44,522 |
|
|
$ |
30,855 |
|
|
$ |
30,168 |
|
| |
|
|
|
|
|
|
|
|
|
36
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Temporary differences and carryforwards which gave rise to
deferred tax assets and liabilities consisted of the following
(in thousands):
| |
|
|
|
|
|
|
|
|
|
| |
|
Dec. 25, 2004 | |
|
Dec. 27, 2003 | |
| |
|
| |
|
| |
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
| |
Receivable valuations
|
|
$ |
3,538 |
|
|
$ |
3,509 |
|
| |
State net operating loss carryforwards
|
|
|
1,282 |
|
|
|
1,486 |
|
| |
Self-insured claims
|
|
|
4,045 |
|
|
|
3,182 |
|
| |
Other
|
|
|
4,125 |
|
|
|
5,677 |
|
| |
|
|
|
|
|
|
| |
|
|
12,990 |
|
|
|
13,854 |
|
| |
Valuation allowance
|
|
|
(420 |
) |
|
|
(461 |
) |
| |
|
|
|
|
|
|
| |
|
$ |
12,570 |
|
|
$ |
13,393 |
|
| |
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
| |
Operating property
|
|
$ |
16,913 |
|
|
$ |
14,321 |
|
| |
Goodwill
|
|
|
3,890 |
|
|
|
3,338 |
|
| |
|
|
|
|
|
|
| |
|
$ |
20,803 |
|
|
$ |
17,659 |
|
| |
|
|
|
|
|
|
At December 25, 2004, the valuation allowance of $420,000
was attributable to deferred state income tax benefits, which
primarily represented state operating loss carryforwards at one
subsidiary. The valuation allowance and goodwill will be reduced
by $392,000 when realization of deferred state income tax
benefits becomes likely.
The following table summarizes the differences between income
taxes calculated at the federal income tax rate of 35% on income
before income taxes and the provisions for income taxes (in
thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Year | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Income taxes at federal income tax rate
|
|
$ |
40,738 |
|
|
$ |
28,544 |
|
|
$ |
27,786 |
|
|
State income taxes, net of federal income tax benefit
|
|
|
2,528 |
|
|
|
1,674 |
|
|
|
1,646 |
|
|
Meals and entertainment exclusion
|
|
|
789 |
|
|
|
500 |
|
|
|
786 |
|
|
Other, net
|
|
|
467 |
|
|
|
137 |
|
|
|
(50 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$ |
44,522 |
|
|
$ |
30,855 |
|
|
$ |
30,168 |
|
| |
|
|
|
|
|
|
|
|
|
Landstar paid income taxes of $30,644,000 in 2004, $25,506,000
in 2003 and $23,540,000 in 2002.
37
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(6) Operating Property
Operating property is summarized as follows (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
Dec. 25, 2004 | |
|
Dec. 27, 2003 | |
| |
|
| |
|
| |
|
Land
|
|
$ |
1,999 |
|
|
$ |
1,999 |
|
|
Leasehold improvements
|
|
|
8,730 |
|
|
|
8,476 |
|
|
Buildings and improvement
|
|
|
8,221 |
|
|
|
8,250 |
|
|
Trailing equipment
|
|
|
93,739 |
|
|
|
80,355 |
|
|
Other equipment
|
|
|
29,460 |
|
|
|
27,039 |
|
| |
|
|
|
|
|
|
| |
|
|
142,149 |
|
|
|
126,119 |
|
|
Less accumulated depreciation and amortization
|
|
|
65,315 |
|
|
|
58,480 |
|
| |
|
|
|
|
|
|
| |
|
$ |
76,834 |
|
|
$ |
67,639 |
|
| |
|
|
|
|
|
|
Included above is $57,941,000 in 2004 and $51,396,000 in 2003 of
operating property under capital leases, $40,640,000 and
$33,192,000, respectively, net of accumulated amortization.
Landstar acquired operating property by entering into capital
leases in the amount of $17,963,000 in 2004 and $16,370,000 in
2002. Landstar did not acquire any property by entering into
capital leases in 2003.
(7) Retirement Plan
Landstar sponsors an Internal Revenue Code section 401(k)
defined contribution plan for the benefit of full-time employees
who have completed one year of service. Eligible employees make
voluntary contributions up to 75% of their base salary, subject
to certain limitations. Landstar contributes an amount equal to
100% of the first 3% and 50% of the next 2% of such
contributions, subject to certain limitations.
The expense for the Company-sponsored defined contribution plan
was $1,201,000 in 2004, $1,127,000 in 2003 and $1,093,000 in
2002.
(8) Debt
Long-term debt is summarized as follows (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
Dec. 25, 2004 | |
|
Dec. 27, 2003 | |
| |
|
| |
|
| |
|
Capital leases
|
|
$ |
29,090 |
|
|
$ |
21,456 |
|
|
Revolving credit facility
|
|
|
63,000 |
|
|
|
70,000 |
|
| |
|
|
|
|
|
|
| |
|
|
92,090 |
|
|
|
91,456 |
|
|
Less current maturities
|
|
|
8,797 |
|
|
|
9,434 |
|
| |
|
|
|
|
|
|
|
Total long-term debt
|
|
$ |
83,293 |
|
|
$ |
82,022 |
|
| |
|
|
|
|
|
|
On July 8, 2004, Landstar renegotiated its existing credit
agreement with a syndicate of banks and JP Morgan Chase Bank, as
administrative agent (the “Fourth Amended and Restated
Credit Agreement”). The Fourth Amended and Restated Credit
Agreement, which expires on July 8, 2009, provides
$225,000,000 of borrowing capacity in the form of a revolving
credit facility, $75,000,000 of which may be utilized in the
form of letter of credit guarantees. The initial borrowing of
$70,000,000 under the facility has been used to refinance the
Company’s prior credit facility, which has been terminated.
Borrowings under the Fourth 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
38
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
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 Fourth Amended and Restated Credit Agreement. The margin is
subject to an increase of 0.125% if the aggregate amount
outstanding under the Fourth Amended and Restated Credit
Agreement exceeds 50% of the total borrowing capacity. As of
December 25, 2004, the margin was equal to 75.0/100 of 1%.
The unused portion of the Fourth Amended and Restated Credit
Agreement carries a commitment fee determined based on the level
of the Company’s Leverage Ratio, as therein defined. As of
December 25, 2004, the commitment fee for the unused
portion of the Fourth Amended and Restated Credit Agreement was
0.20%. At December 25, 2004, the weighted average interest
rate on borrowings outstanding under the Fourth Amended and
Restated Credit Agreement was 3.10%. Based on the borrowing
rates in the Fourth Amended and Restated Credit Agreement and
the repayment terms, the fair value of the outstanding
borrowings under the Fourth Amended and Restated Credit
Agreement was estimated to approximate carrying value.
The Fourth Amended and Restated Credit Agreement contains a
number of covenants that limit, among other things, the
incurrence of additional indebtedness, the incurrence of
operating or capital lease obligations and the purchase of
operating property. The Fourth Amended and Restated Credit
Agreement also requires Landstar to meet certain financial
tests. Landstar is required to, among other things, maintain
minimum levels of Consolidated Net Worth and Fixed Charge
Coverage, as each is defined in the Fourth Amended and Restated
Credit Agreement. Under the most restrictive covenant, Fixed
Charge Coverage, earnings before interest, taxes, depreciation
and amortization, less purchased capital expenditures, exceeded
the required minimum by approximately $100,100,000 for the
fiscal year ended December 25, 2004.
The Fourth Amended and Restated Credit Agreement provides for an
event of default related to a person or group acquiring 25% or
more of the outstanding capital stock of the Company or
obtaining the power to elect a majority of the Company’s
directors.
Borrowings under the Fourth Amended and Restated Credit
Agreement are unsecured, however, Landstar System, Inc. and all
but one of LSHI’s subsidiaries guarantee LSHI’s
obligations under the Fourth Amended and Restated Credit
Agreement.
Landstar paid interest of $3,247,000 in 2004, $3,475,000 in 2003
and $4,480,000 in 2002.
39
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(9) Leases
The future minimum lease payments under all noncancelable leases
at December 25, 2004, principally for trailing equipment
and the Company’s headquarters facility in Jacksonville,
Florida, are shown in the following table (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
Capital | |
|
Operating | |
| |
|
Leases | |
|
Leases | |
| |
|
| |
|
| |
|
2005
|
|
$ |
9,858 |
|
|
$ |
7,711 |
|
|
2006
|
|
|
7,691 |
|
|
|
7,612 |
|
|
2007
|
|
|
7,243 |
|
|
|
7,021 |
|
|
2008
|
|
|
4,103 |
|
|
|
6,453 |
|
|
2009
|
|
|
3,170 |
|
|
|
3,194 |
|
|
Thereafter
|
|
|
|
|
|
|
9,150 |
|
| |
|
|
|
|
|
|
| |
|
|
32,065 |
|
|
$ |
41,141 |
|
| |
|
|
|
|
|
|
|
Less amount representing interest (3.6% to 8.3%)
|
|
|
2,975 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
Present value of minimum lease payments
|
|
$ |
29,090 |
|
|
|
|
|
| |
|
|
|
|
|
|
Total rent expense, net of sublease income, was $17,106,000 in
2004, $18,125,000 in 2003 and $19,250,000 in 2002.
(10) Stock Compensation
Plans
On May 15, 2003, the shareholders of the Company voted for
the proposal to implement a new Directors’ Stock
Compensation Plan. Under this new plan, all independent
directors who are elected or re-elected to the Board will
receive 6,000 shares of common stock of the Company,
subject to certain restrictions including restrictions on
transfer. During 2004 and 2003, 18,000 and 6,000 shares,
respectively, of the Company’s common stock were issued to
members of the Board of Directors upon re-election at the annual
shareholder meetings. During 2004 and 2003, the Company reported
$402,000 and $85,000, respectively, in compensation expense
representing the fair market value of these share awards.
Under the 1993 Stock Option Plan, as amended, the Compensation
Committee of the Board of Directors was authorized to grant
options to Company employees to purchase up to
4,460,000 shares of common stock. Under the 2002 Employee
Stock Option Plan, the Compensation Committee of the Board of
Directors was authorized to grant options to Company employees
to purchase up to 6,400,000 shares of common stock. Under
the 1994 Directors’ Stock Option Plan, as amended (the
“DSOP”), options to purchase up to 420,000 shares
of common stock were authorized to be granted to outside members
of the Board of Directors upon election or re-election to the
Board of Directors. Effective May 15, 2003, no further
grants will be made under the DSOP. Also, no further grants will
be made under the 1993 Stock Option Plan as it has expired.
Options granted under the Plans become exercisable in either
three or five equal annual installments commencing on the first
anniversary of the date of grant or vest 100% four and one-half
years from the date of grant or 100% on the fifth anniversary
from the date of grant, subject to acceleration in certain
circumstances. All options granted under the plans expire on the
tenth anniversary of the date of grant. Under the Plans, the
exercise price of each option equals the fair market price of
the Company’s common stock on the date of grant. At
December 25, 2004, there were 8,295,124 shares of the
Company’s common stock reserved for issuance upon exercise
of options granted and to be granted under the Plans and
176,000 shares reserved for issuance under the 2003
Directors’ Stock Compensation Plan.
40
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Information regarding the Company’s stock option plans is
as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Options Outstanding | |
|
Options Exercisable | |
| |
|
| |
|
| |
| |
|
|
|
Weighted Average | |
|
|
|
Weighted Average | |
| |
|
|
|
Exercise Price | |
|
|
|
Exercise Price | |
| |
|
Shares | |
|
Per Share | |
|
Shares | |
|
Per Share | |
| |
|
| |
|
| |
|
| |
|
| |
|
Options at December 29, 2001
|
|
|
4,492,160 |
|
|
$ |
5.82 |
|
|
|
1,661,440 |
|
|
$ |
4.31 |
|
| |
Granted
|
|
|
1,656,000 |
|
|
$ |
9.22 |
|
|
|
|
|
|
|
|
|
| |
Exercised
|
|
|
(654,080 |
) |
|
$ |
3.92 |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Options at December 28, 2002
|
|
|
5,494,080 |
|
|
$ |
7.07 |
|
|
|
1,861,752 |
|
|
$ |
5.29 |
|
| |
Granted
|
|
|
985,200 |
|
|
$ |
14.06 |
|
|
|
|
|
|
|
|
|
| |
Exercised
|
|
|
(1,897,556 |
) |
|
$ |
5.58 |
|
|
|
|
|
|
|
|
|
| |
Forfeited
|
|
|
(22,400 |
) |
|
$ |
10.72 |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Options at December 27, 2003
|
|
|
4,559,324 |
|
|
$ |
9.18 |
|
|
|
1,328,204 |
|
|
$ |
7.11 |
|
| |
Granted
|
|
|
660,000 |
|
|
$ |
20.59 |
|
|
|
|
|
|
|
|
|
| |
Exercised
|
|
|
(1,993,400 |
) |
|
$ |
8.04 |
|
|
|
|
|
|
|
|
|
| |
Forfeited
|
|
|
(110,160 |
) |
|
$ |
9.85 |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Options at December 25, 2004
|
|
|
3,115,764 |
|
|
$ |
12.31 |
|
|
|
664,324 |
|
|
$ |
8.56 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
The following tables summarize stock options outstanding and
exercisable at December 25, 2004:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Options Outstanding | |
| |
|
| |
| |
|
Number | |
|
Weighted Average | |
|
Weighted Average | |
| |
|
Outstanding | |
|
Remaining Contractual | |
|
Exercise Price | |
| Range of Exercise Prices Per Share |
|
Dec. 25, 2004 | |
|
Life (years) | |
|
Per Share | |
| |
|
| |
|
| |
|
| |
|
$ 3.99 - $ 6.00
|
|
|
258,640 |
|
|
|
4.2 |
|
|
$ |
4.89 |
|
|
$ 6.01 - $ 9.00
|
|
|
834,240 |
|
|
|
6.3 |
|
|
$ |
8.16 |
|
|
$ 9.01 - $13.50
|
|
|
860,084 |
|
|
|
7.5 |
|
|
$ |
10.87 |
|
|
$13.51 - $20.00
|
|
|
1,012,800 |
|
|
|
8.5 |
|
|
$ |
16.82 |
|
|
$20.01 - $26.47
|
|
|
150,000 |
|
|
|
9.5 |
|
|
$ |
25.95 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
3,115,764 |
|
|
|
7.3 |
|
|
$ |
12.31 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| |
|
Options Exercisable | |
| |
|
| |
| |
|
Number | |
|
Weighted Average | |
| |
|
Exercisable | |
|
Exercise Price | |
| Range of Exercise Prices Per Share |
|
Dec. 25, 2004 | |
|
Per Share | |
| |
|
| |
|
| |
|
$ 3.99 - $ 6.00
|
|
|
134,000 |
|
|
$ |
3.99 |
|
|
$ 6.01 - $ 9.00
|
|
|
376,000 |
|
|
$ |
7.99 |
|
|
$ 9.01 - $13.50
|
|
|
68,724 |
|
|
$ |
13.01 |
|
|
$13.51 - $14.62
|
|
|
85,600 |
|
|
$ |
14.62 |
|
| |
|
|
|
|
|
|
| |
|
|
664,324 |
|
|
$ |
8.56 |
|
| |
|
|
|
|
|
|
The fair value of each option grant on its grant date was
calculated using the Black-Scholes option pricing model with the
following assumptions for grants made in 2004, 2003 and 2002:
risk-free interest rate of 3.5%, expected lives of 5 years
and no dividend yield. The expected volatility used in
calculating the fair market value of stock options granted was
40%. The weighted average grant date fair value of stock options
granted was $8.32, $5.67 and $3.72 per share in 2004, 2003 and
2002, respectively.
41
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(11) Shareholders’
Equity
On May 15, 2003, the Company announced that it had been
authorized by its Board of Directors to purchase up to 1,000,000
shares of its common stock, (without regard to any subsequent
stock splits) from time to time in the open market and in
privately negotiated transactions. On December 4, 2003, the
Company announced that it had been authorized by its Board of
Directors to purchase up to an additional 1,000,000 shares of
its common stock (without regard to any subsequent stock splits)
from time to time in the open market and in privately negotiated
transactions.
During 2004, Landstar purchased 681,000 shares of its common
stock (not adjusted for the stock split declared on
December 9, 2004) at a total cost of $27,001,000 pursuant
to its previously announced stock purchase programs. The Company
did not purchase any shares of its common stock under the
programs during the period from September 25, 2004, the end
of the Company’s third fiscal quarter, to December 25,
2004, the end of the Company’s fourth fiscal quarter. As of
December 25, 2004, Landstar may purchase an additional
1,398,280 shares of its common stock under its authorized stock
purchase programs.
At the May 13, 2004 annual meeting of shareholders, the
shareholders of the Company approved an amendment to
Article IV of the Company’s Restated Certificate of
Incorporation to increase the number of authorized shares of the
Company’s common stock from 50,000,000 shares to 80,000,000
shares.
During 1998, the Company established an employee stock option
loan program. Under the terms of the program, the Company
provided employees financing in order for them to exercise fully
vested stock options. The loans are full recourse with the
principal repayable in lump sum on the fifth anniversary of the
loan. During 2002, $92,000 of such loans were issued. Effective
May 1, 2002, the Company ceased making loans under the employee
stock option loan program and terminated the program with
respect to future stock option exercises.
The Company has 2,000,000 shares of preferred stock authorized
and unissued.
(12) Segment Information
The Company has three reportable business segments. These are
the carrier, multimodal and insurance segments. The carrier
segment provides truckload transportation for a wide range of
general commodities over irregular routes with its fleet of dry
and specialty vans and unsided trailers, including flatbed, drop
deck and specialty. It also provides short-to-long haul movement
of containers by truck, 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 who
provide truck capacity to the Company under exclusive lease
arrangements (the “Independent Contractors”) and other
third party truck capacity providers. 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 primarily utilizes capacity provided by
Independent Contractors and other third party capacity
providers, including truck brokerage carriers, railroads and air
and ocean cargo carriers. The nature of the carrier and
multimodal segments’ business is such that a significant
portion of their operating costs varies directly with revenue.
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 and provides
certain property and casualty insurance directly to
Landstar’s operating subsidiaries.
The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. The
Company evaluates a segment’s performance based on
operating income.
42
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Internal revenue for transactions between the carrier and
multimodal segments is based on quoted rates which are believed
to approximate the cost that would have been incurred had
similar services been obtained from an unrelated third party.
Internal revenue for premiums billed by the insurance segment to
the carrier and multimodal segments is calculated each fiscal
period based on an actuarial calculation of historical loss
experience and is believed to approximate the cost that would
have been incurred by the carrier and multimodal segments had
similar insurance been obtained from an unrelated third party.
No single customer accounts for more than 10% of consolidated
revenue. In total, the various departments and agencies of the
United States government accounted for approximately 9% of
consolidated revenue, including $63,790,000 of emergency
transportation services related to disaster relief efforts for
storms that impacted the southeastern United States during the
2004 third and fourth quarters. These emergency transportation
services were provided primarily under a contract between
Landstar Express America and the United States Federal Aviation
Administration and reflected in revenue of the multimodal
segment. In addition, during 2004 approximately 8% of the
Company’s revenue was attributable to the automotive
industry. One agent in the multimodal segment contributed
approximately $200,000,000 of the Company’s revenue in
2004. Substantially all of the Company’s revenue is
generated in the United States.
The following tables summarize information about the
Company’s reportable business segments as of and for the
fiscal years ending December 25, 2004, December 27,
2003 and December 28, 2002 (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Carrier | |
|
Multimodal | |
|
Insurance | |
|
Other | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External revenue
|
|
$ |
1,454,862 |
|
|
$ |
534,922 |
|
|
$ |
30,152 |
|
|
|
|
|
|
$ |
2,019,936 |
|
|
Internal revenue
|
|
|
48,673 |
|
|
|
4,967 |
|
|
|
30,538 |
|
|
|
|
|
|
|
84,178 |
|
|
Investment income
|
|
|
|
|
|
|
|
|
|
|
1,346 |
|
|
|
|
|
|
|
1,346 |
|
|
Interest and debt expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,025 |
|
|
|
3,025 |
|
|
Depreciation and amortization
|
|
|
9,473 |
|
|
|
270 |
|
|
|
|
|
|
|
4,216 |
|
|
|
13,959 |
|
|
Operating income
|
|
|
128,400 |
|
|
|
26,211 |
|
|
|
12,456 |
|
|
|
(47,648 |
) |
|
|
119,419 |
|
|
Expenditures on long-lived assets
|
|
|
730 |
|
|
|
206 |
|
|
|
|
|
|
|
5,441 |
|
|
|
6,377 |
|
|
Goodwill
|
|
|
20,496 |
|
|
|
10,638 |
|
|
|
|
|
|
|
|
|
|
|
31,134 |
|
|
Capital lease additions
|
|
|
17,963 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,963 |
|
|
Total assets
|
|
|
317,466 |
|
|
|
136,311 |
|
|
|
91,183 |
|
|
|
39,552 |
|
|
|
584,512 |
|
| |
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External revenue
|
|
$ |
1,227,171 |
|
|
$ |
341,241 |
|
|
$ |
28,159 |
|
|
|
|
|
|
$ |
1,596,571 |
|
|
Internal revenue
|
|
|
20,852 |
|
|
|
4,300 |
|
|
|
32,442 |
|
|
|
|
|
|
|
57,594 |
|
|
Investment income
|
|
|
|
|
|
|
|
|
|
|
1,220 |
|
|
|
|
|
|
|
1,220 |
|
|
Interest and debt expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,240 |
|
|
|
3,240 |
|
|
Depreciation and amortization
|
|
|
8,728 |
|
|
|
272 |
|
|
|
|
|
|
|
3,736 |
|
|
|
12,736 |
|
|
Operating income
|
|
|
94,303 |
|
|
|
6,403 |
|
|
|
21,227 |
|
|
|
(37,138 |
) |
|
|
84,795 |
|
|
Expenditures on long-lived assets
|
|
|
2,652 |
|
|
|
712 |
|
|
|
|
|
|
|
2,193 |
|
|
|
5,557 |
|
|
Goodwill
|
|
|
20,496 |
|
|
|
10,638 |
|
|
|
|
|
|
|
|
|
|
|
31,134 |
|
|
Total assets
|
|
|
254,606 |
|
|
|
70,607 |
|
|
|
64,363 |
|
|
|
48,881 |
|
|
|
438,457 |
|
43
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Carrier | |
|
Multimodal | |
|
Insurance | |
|
Other | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External revenue
|
|
$ |
1,178,263 |
|
|
$ |
300,716 |
|
|
$ |
27,576 |
|
|
|
|
|
|
$ |
1,506,555 |
|
|
Internal revenue
|
|
|
23,703 |
|
|
|
2,483 |
|
|
|
29,860 |
|
|
|
|
|
|
|
56,046 |
|
|
Investment income
|
|
|
|
|
|
|
|
|
|
|
1,950 |
|
|
|
|
|
|
|
1,950 |
|
|
Interest and debt expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,292 |
|
|
|
4,292 |
|
|
Depreciation and amortization
|
|
|
7,546 |
|
|
|
126 |
|
|
|
|
|
|
|
3,848 |
|
|
|
11,520 |
|
|
Operating income
|
|
|
87,777 |
|
|
|
7,793 |
|
|
|
22,754 |
|
|
|
(34,643 |
) |
|
|
83,681 |
|
|
Expenditures on long-lived assets
|
|
|
329 |
|
|
|
|
|
|
|
|
|
|
|
4,092 |
|
|
|
4,421 |
|
|
Goodwill
|
|
|
20,496 |
|
|
|
10,638 |
|
|
|
|
|
|
|
|
|
|
|
31,134 |
|
|
Capital lease additions
|
|
|
16,370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,370 |
|
|
Total assets
|
|
|
241,068 |
|
|
|
59,571 |
|
|
|
70,198 |
|
|
|
29,911 |
|
|
|
400,748 |
|
(13) Commitments and
Contingencies
At December 25, 2004, in addition to the $36,670,000 of
letters of credit secured by investments, Landstar had
$27,357,000 of letters of credit outstanding under the
Company’s revolving credit facility.
On November 1, 2002, the Owner Operator Independent Drivers
Association, Inc. (“OOIDA”) and six individual
Independent Contractors (collectively, the
“Plaintiffs”) filed a putative class action complaint
(the “Complaint”) in the United States District Court
for the Middle District of Florida (the “Court”) in
Jacksonville, Florida, against Landstar System, Inc. and certain
of its subsidiaries. The Complaint alleges that certain aspects
of Company subsidiaries’ motor carrier leases with
Independent Contractors violate certain federal leasing
regulations and seeks injunctive relief, an unspecified amount
of damages and attorney’s fees. On March 8 and June 4,
2004, the Court dismissed all claims of one of the six
individual Independent Contractor Plaintiffs on the grounds that
the ICC Termination Act (the “Act”) is not applicable
to leases signed before the Act’s January 1, 1996,
effective date, and dismissed all claims of all remaining
Plaintiffs against four of the seven Company entities previously
named as defendants (Landstar System, Inc., Landstar Express
America, Inc., Landstar Gemini, Inc. and Landstar Logistics,
Inc.). With respect to the remaining claims, the June 4,
2004 order held that the Act created a private right of action
pursuant to which claims involving certain federal leasing
regulations may be filed in federal court subject to a four-year
statute of limitations. On November 30, 2004, the Court
heard oral argument on a motion by the remaining Plaintiffs to
certify the case as a class action. On February 10, 2005,
the remaining Plaintiffs filed a motion to amend the Complaint
to expand it to include additional allegations with respect to
compliance with certain federal leasing obligations. On
February 11, 2005, the remaining Defendants filed a motion
to amend their previously filed Answer in the event the Court
certifies a plaintiffs’ class pursuant to the remaining
Plaintiffs’ pending motion. The parties are opposing each
others’ motions to amend. The Court is expected to rule
within the next several months on the class-certification motion
and on a motion, previously filed by the remaining Defendants,
for partial summary judgment. Trial is scheduled for the trial
term beginning October 3, 2005. Due to a number of factors,
including the recent filing of the proposed amended Complaint,
the related arrival of new discovery requests from the remaining
Plaintiffs, and the lack of litigated final judgments in a
number of similar cases or otherwise applicable precedents, the
Company does not believe it is in a position to conclude whether
or not there is a reasonable possibility of an adverse outcome
in this case or what damages, if any, the remaining Plaintiffs
would be awarded should they prevail on all or any part of their
claims. However, the Company believes that the remaining
Defendants have meritorious defenses and intend to continue
asserting these defenses vigorously.
44
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The Company is involved in certain other claims and pending
litigation arising from the normal conduct of business. Based on
knowledge of the facts and, in certain cases, opinions of
outside counsel, management believes that adequate provisions
have been made for probable losses with respect to the
resolution of all such other claims and pending litigation and
that the ultimate outcome, after provisions thereof, will not
have a material adverse effect on the financial condition of the
Company, but could have a material effect on the results of
operations in a given quarter or year.
45
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Landstar System, Inc.:
We have audited the accompanying consolidated balance sheets of
Landstar System, Inc. and subsidiary as of December 25,
2004 and December 27, 2003, and the related consolidated
statements of income, changes in shareholders’ equity and
cash flows for the fiscal years ended December 25, 2004,
December 27, 2003 and December 28, 2002. These consolidated
financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Landstar System, Inc. and subsidiary as of
December 25, 2004 and December 27, 2003, and the
results of their operations and their cash flows for the fiscal
years ended December 25, 2004, December 27, 2003 and
December 28, 2002 in conformity with U.S. generally
accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of Landstar System, Inc.’s internal control
over financial reporting as of December 25, 2004, based on
criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), and our report dated
February 28, 2005 expressed an unqualified opinion on
management’s assessment of, and the effective operation of,
internal control over financial reporting.
Jacksonville, Florida
February 28, 2005
46
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
QUARTERLY FINANCIAL DATA
(Dollars in thousands, except per share amounts)
(Unaudited)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fourth | |
|
Third | |
|
Second | |
|
First | |
| |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
| |
|
2004 | |
|
2004 | |
|
2004 | |
|
2004 | |
| |
|
| |
|
| |
|
| |
|
| |
|
Revenue
|
|
$ |
589,724 |
|
|
$ |
526,883 |
|
|
$ |
482,303 |
|
|
$ |
421,026 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$ |
40,596 |
|
|
$ |
35,666 |
|
|
$ |
29,268 |
|
|
$ |
13,889 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$ |
39,784 |
|
|
$ |
35,004 |
|
|
$ |
28,485 |
|
|
$ |
13,121 |
|
|
Income taxes
|
|
|
15,218 |
|
|
|
13,390 |
|
|
|
10,895 |
|
|
|
5,019 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
24,566 |
|
|
$ |
21,614 |
|
|
$ |
17,590 |
|
|
$ |
8,102 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share(1,2)
|
|
$ |
0.41 |
|
|
$ |
0.36 |
|
|
$ |
0.29 |
|
|
$ |
0.14 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share(1,2)
|
|
$ |
0.40 |
|
|
$ |
0.35 |
|
|
$ |
0.29 |
|
|
$ |
0.13 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fourth | |
|
Third | |
|
Second | |
|
First | |
| |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
| |
|
2003 | |
|
2003(3) | |
|
2003 | |
|
2003 | |
| |
|
| |
|
| |
|
| |
|
| |
|
Revenue
|
|
$ |
433,997 |
|
|
$ |
406,772 |
|
|
$ |
390,084 |
|
|
$ |
365,718 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$ |
25,176 |
|
|
$ |
19,963 |
|
|
$ |
22,566 |
|
|
$ |
17,090 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$ |
24,336 |
|
|
$ |
19,107 |
|
|
$ |
21,792 |
|
|
$ |
16,320 |
|
|
Income taxes
|
|
|
9,188 |
|
|
|
7,280 |
|
|
|
8,226 |
|
|
|
6,161 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
15,148 |
|
|
$ |
11,827 |
|
|
$ |
13,566 |
|
|
$ |
10,159 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share(1,2)
|
|
$ |
0.25 |
|
|
$ |
0.20 |
|
|
$ |
0.22 |
|
|
$ |
0.16 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share(1,2)
|
|
$ |
0.24 |
|
|
$ |
0.19 |
|
|
$ |
0.21 |
|
|
$ |
0.15 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
Due to the changes in the number of average common shares and
common stock equivalents outstanding during the year, the sum of
earnings per share amounts for each quarter do not necessarily
add to the earnings per share amounts for the full year. |
| |
| (2) |
All earnings per share amounts have been adjusted to give
retroactive effect to a two-for-one stock split effected in the
form of a 100% stock dividend declared December 9, 2004. |
| |
| (3) |
Includes a pre-tax charge of $4,150 to defend and settle the
Gulf Bridge RoRo, Inc. litigation. After deducting related
income tax benefits of $1,500, the litigation reduced net income
by $2,650, or $0.04 per common share ($0.04 per
diluted share). |
47
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Landstar System, Inc.:
Under date of February 28, 2005, we reported on the
consolidated balance sheets of Landstar System, Inc. and
subsidiary as of December 25, 2004 and December 27,
2003, and the related consolidated statements of income, changes
in shareholders’ equity and cash flows for the fiscal years
ended December 25, 2004, December 27, 2003 and
December 28, 2002, as contained in the 2004 annual report
to shareholders. In connection with our audits of the
aforementioned consolidated financial statements, we also
audited the related consolidated 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.
Jacksonville, Florida
February 28, 2005
48
LANDSTAR SYSTEM, INC.
SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF
REGISTRANT
PARENT COMPANY ONLY BALANCE SHEET INFORMATION
(Dollars in thousands, except per share amounts)
| |
|
|
|
|
|
|
|
|
|
| |
|
Dec. 25, | |
|
Dec. 27, | |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
ASSETS |
|
Investment in Landstar System Holdings, Inc., net of advances
|
|
$ |
212,839 |
|
|
$ |
142,515 |
|
| |
|
|
|
|
|
|
|
Total assets
|
|
$ |
212,839 |
|
|
$ |
142,515 |
|
| |
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDER’S EQUITY |
|
Shareholders’ equity:
|
|
|
|
|
|
|
|
|
| |
Common stock, $.01 par value, authorized 80,000,000 and
50,000,000 shares, issued 63,154,190 and 31,816,860
|
|
$ |
632 |
|
|
$ |
318 |
|
| |
Additional paid-in capital
|
|
|
43,845 |
|
|
|
18,382 |
|
| |
Retained earnings
|
|
|
295,936 |
|
|
|
224,368 |
|
| |
Cost of 2,490,930 and 1,809,930 shares of common stock in
treasury
|
|
|
(127,151 |
) |
|
|
(100,150 |
) |
| |
Accumulated other comprehensive income
|
|
|
47 |
|
|
|
182 |
|
| |
Notes receivable arising from exercises of stock options
|
|
|
(470 |
) |
|
|
(585 |
) |
| |
|
|
|
|
|
|
|
Total shareholders’ equity
|
|
$ |
212,839 |
|
|
$ |
142,515 |
|
| |
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
$ |
212,839 |
|
|
$ |
142,515 |
|
| |
|
|
|
|
|
|
49
LANDSTAR SYSTEM, INC.
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. 25, | |
|
Dec. 27, | |
|
Dec. 28, | |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Equity in undistributed earnings of Landstar System Holdings,
Inc.
|
|
$ |
71,968 |
|
|
$ |
50,773 |
|
|
$ |
49,309 |
|
|
Income taxes
|
|
|
96 |
|
|
|
73 |
|
|
|
88 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
71,872 |
|
|
$ |
50,700 |
|
|
$ |
49,221 |
|
| |
|
|
|
|
|
|
|
|
|
|
Earnings per common share(1)
|
|
$ |
1.19 |
|
|
$ |
0.82 |
|
|
$ |
0.76 |
|
| |
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share(1)
|
|
$ |
1.16 |
|
|
$ |
0.79 |
|
|
$ |
0.73 |
|
| |
|
|
|
|
|
|
|
|
|
|
Average number of shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Earnings per common share(1)
|
|
|
60,154,000 |
|
|
|
61,458,000 |
|
|
|
64,565,000 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Diluted earnings per share(1)
|
|
|
61,800,000 |
|
|
|
63,840,000 |
|
|
|
67,069,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| (1) |
All earnings per share amounts and average number of shares
outstanding have been adjusted to give retroactive effect to a
two-for-one stock split effected in the form of a 100% stock
dividend declared December 9, 2004. |
50
LANDSTAR SYSTEM, INC.
SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF
REGISTRANT
PARENT COMPANY ONLY STATEMENT OF CASH FLOWS INFORMATION
(Dollars in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fiscal Years Ended | |
| |
|
| |
| |
|
Dec. 25, | |
|
Dec. 27, | |
|
Dec. 28, | |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
71,872 |
|
|
$ |
50,700 |
|
|
$ |
49,221 |
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Tax benefit on stock option exercises
|
|
|
9,035 |
|
|
|
5,110 |
|
|
|
1,404 |
|
| |
Equity in undistributed earnings of Landstar System Holdings,
Inc.
|
|
|
(71,968 |
) |
|
|
(50,773 |
) |
|
|
(49,309 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Net Cash Provided By Operating Activities
|
|
|
8,939 |
|
|
|
5,037 |
|
|
|
1,316 |
|
| |
|
|
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional investments in and advances from Landstar System
Holdings, Inc., net
|
|
|
1,911 |
|
|
|
57,618 |
|
|
|
17,656 |
|
| |
|
|
|
|
|
|
|
|
|
|
Net Cash Provided By Investing Activities
|
|
|
1,911 |
|
|
|
57,618 |
|
|
|
17,656 |
|
| |
|
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from repayment of notes arising from exercises of stock
options
|
|
|
115 |
|
|
|
605 |
|
|
|
4,867 |
|
|
Proceeds from exercises of stock options
|
|
|
16,036 |
|
|
|
10,584 |
|
|
|
2,467 |
|
|
Purchases of common stock
|
|
|
(27,001 |
) |
|
|
(73,844 |
) |
|
|
(26,306 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Net Cash Used By Financing Activities
|
|
|
(10,850 |
) |
|
|
(62,655 |
) |
|
|
(18,972 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Change in cash
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
Cash at beginning of period
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
| |
|
|
|
|
|
|
|
|
|
|
Cash at end of period
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
| |
|
|
|
|
|
|
|
|
|
51
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
For the Fiscal Year Ended December 25, 2004
(Dollars in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| COL A |
|
COL B | |
|
COL C | |
|
COL D | |
|
COL E | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
|
|
Additions | |
|
|
|
|
| |
|
|
|
| |
|
|
|
|
| |
|
|
|
|
|
Charged to | |
|
|
|
|
| |
|
Balance at | |
|
Charged to | |
|
Other | |
|
Deductions | |
|
Balance at | |
| |
|
Beginning of | |
|
Costs and | |
|
Accounts | |
|
Describe | |
|
End of | |
| |
|
Period | |
|
Expenses | |
|
Describe | |
|
(A) | |
|
Period | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Description
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Deducted from trade receivables
|
|
$ |
3,410 |
|
|
$ |
2,883 |
|
|
|
|
|
|
$ |
(2,272 |
) |
|
$ |
4,021 |
|
| |
Deducted from other receivables
|
|
|
4,077 |
|
|
|
3,348 |
|
|
|
|
|
|
|
(3,180 |
) |
|
|
4,245 |
|
| |
Deducted from other non-current receivables
|
|
|
244 |
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
263 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
7,731 |
|
|
$ |
6,250 |
|
|
|
|
|
|
$ |
(5,452 |
) |
|
$ |
8,529 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (A) |
Write-offs, net of recoveries. |
52
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
For the Fiscal Year Ended December 27, 2003
(Dollars in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| COL A |
|
COL B | |
|
COL C | |
|
COL D | |
|
COL E | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
|
|
Additions | |
|
|
|
|
| |
|
|
|
| |
|
|
|
|
| |
|
|
|
|
|
Charged to | |
|
|
|
|
| |
|
Balance at | |
|
Charged to | |
|
Other | |
|
Deductions | |
|
Balance at | |
| |
|
Beginning | |
|
Costs and | |
|
Accounts | |
|
Describe | |
|
End of | |
| |
|
of Period | |
|
Expenses | |
|
Describe | |
|
(A) | |
|
Period | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Description
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Deducted from trade receivables
|
|
$ |
3,953 |
|
|
$ |
2,401 |
|
|
|
|
|
|
$ |
(2,944 |
) |
|
$ |
3,410 |
|
| |
Deducted from other receivables
|
|
|
5,331 |
|
|
|
2,674 |
|
|
|
|
|
|
|
(3,928 |
) |
|
|
4,077 |
|
| |
Deducted from other non-current receivables
|
|
|
230 |
|
|
|
19 |
|
|
|
|
|
|
|
(5 |
) |
|
|
244 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
9,514 |
|
|
$ |
5,094 |
|
|
|
|
|
|
$ |
(6,877 |
) |
|
$ |
7,731 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (A) |
Write-offs, net of recoveries. |
53
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 | |
| |
|
| |
|
| |
|
| |
|
| |
| |
|
|
|
Additions | |
|
|
|
|
| |
|
|
|
| |
|
|
|
|
| |
|
|
|
|
|
Charged to | |
|
|
|
|
| |
|
Balance at | |
|
Charged to | |
|
Other | |
|
Deductions | |
|
Balance at | |
| |
|
Beginning | |
|
Costs and | |
|
Accounts | |
|
Describe | |
|
End of | |
| |
|
of Period | |
|
Expenses | |
|
Describe | |
|
(A) | |
|
Period | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Description
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. |
54
|
|
| Item 9. |
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure |
None.
|
|
| Item 9a. |
Controls and Procedures |
Disclosure Controls and Procedure
As of the end of the period covered by this Annual Report on
Form 10-K, 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 (as defined in Rule 13a-15(e) promulgated
under the Securities Exchange Act of 1934, as amended). Based on
that evaluation, the CEO and CFO have concluded that the
Company’s disclosure controls and procedures were effective
as of December 25, 2004 to provide reasonable assurance
that information required to be disclosed by the Company in
reports that it filed or submitted under the Securities Exchange
Act of 1934, as amended, is recorded, processed, summarized and
reported within the time periods specified in Securities and
Exchange Commission rules and forms.
In designing and evaluating the disclosure controls and
procedures, Company management recognized that any controls and
procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired
control objectives, and management necessarily was required to
apply its judgment in evaluating the cost-benefit relationship
of possible controls and procedures. Because of the inherent
limitation in any control system, no evaluation or
implementation of a control system can provide complete
assurance that all control issues and all possible instances of
fraud have been or will be detected.
Internal Control Over Financial Reporting
(a) Management’s
Report on Internal Control over Financial Reporting
Management of Landstar System, Inc. (the “Company”) is
responsible for establishing and maintaining effective internal
controls over financial reporting, as such term is defined in
Rules 13a-15(f) and 15d-15(f) under the Securities Exchange
Act, as amended.
Internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted
accounting principles. The Company’s internal control over
financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that in
reasonable detail accurately and fairly reflect the transactions
and dispositions of the assets of the Company; (2) provide
reasonable assurance that transactions are recorded as necessary
to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance
with authorizations of management and directors of the Company;
and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or
disposition of the Company’s assets that could have a
material effect on the Company’s financial statements.
Management, with the participation of the Company’s
principal executive and principal financial officers, assessed
the effectiveness of the Company’s internal control over
financial reporting as of December 25, 2004. This
assessment was performed using the criteria established under
the Internal Control-Integrated Framework established by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
Internal control over financial reporting cannot provide
absolute assurance of achieving financial reporting objectives
because of its inherent limitations, including the possibility
of human error or circumvention or overriding of internal
control. Accordingly, even effective internal control over
financial reporting can provide only reasonable assurance with
respect to financial statement preparation and reporting and may
not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies
or procedures may deteriorate.
55
Based on the assessment performed using the criteria established
by COSO, management has concluded that the Company maintained
effective internal control over financial reporting as of
December 25, 2004.
KPMG LLP, the independent registered public accounting firm that
audited the financial statements included in this Annual Report
on Form 10-K for the fiscal year ended December 25,
2004, has issued an audit report on management’s assessment
of the Company’s internal control over financial reporting.
Such report appears immediately below.
(b) Attestation Report
of the Registered Public Accounting Firm
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Landstar System, Inc:
We have audited management’s assessment, included in the
accompanying Management’s Report on Internal Control over
Financial Reporting, that Landstar System, Inc.
maintained effective internal control over financial reporting
as of December 25, 2004, based on criteria established in
Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Landstar System, Inc.’s management is responsible
for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of
internal control over financial reporting. Our responsibility is
to express an opinion on management’s assessment and an
opinion on the effectiveness of the Company’s internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
management’s assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary under the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that Landstar
System, Inc. maintained effective internal control over
financial reporting as of December 25, 2004, is fairly
stated, in all material respects, based on criteria established
in Internal Control — Integrated Framework issued by
COSO. Also, in our opinion, Landstar System, Inc.
maintained, in all material respects, effective internal control
over financial reporting
56
as of December 25, 2004, based on criteria established in
Internal Control — Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Landstar System, Inc. and
subsidiary as of December 25, 2004 and December 27, 2003,
and the related consolidated statements of income, changes in
shareholders’ equity, and cash flows for the fiscal years
ended December 25, 2004, December 27, 2003 and
December 28, 2002, and our report dated February 28, 2005
expressed an unqualified opinion on those consolidated financial
statements.
Jacksonville, Florida
February 28, 2005
|
|
| (c) |
Changes in Internal Control Over Financial
Reporting |
There were no significant changes in the Company’s internal
controls over financial reporting during the Company’s
fourth fiscal quarter that have materially affected, or are
reasonably likely to materially affect, the Company’s
internal control over financial reporting.
|
|
| Item 9b. |
Other Information |
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” and “Compliance with Section 16(a) of
the Securities Exchange Act of 1934” in the Company’s
definitive Proxy Statement for its annual meeting of
shareholders to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A, and is incorporated
herein by reference. The information required by this Item
concerning Director Independence, the Company’s Audit
Committee and the Audit Committee’s Financial Expert is set
forth under the caption “Information Regarding Board of
Directors and Committees” and “Report of the Audit
Committee” in 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.
The Company has adopted a Code of Ethics that applies to each of
its directors and employees, including its principal executive
officer, principal financial officer, controller and all other
employees performing similar functions. The Code of Ethics is
available on the Company’s website at
www.landstar.com under “Investors —
Corporate Governance”. The Company intends to satisfy the
disclosure requirement under Item 5.05 of Form 8-K
regarding amendments to, or waivers from, a provision or
provisions of the Code of Ethics by posting such information on
its website at the web address indicated above.
|
|
| 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,”
“Number of Securities Underlying Options Granted”,
“Aggregated Options Exercised in Last Fiscal Year and
Fiscal Year-End Option Values,”
57
“Report of the Compensation Committee on Executive
Compensation,” “Performance Comparison” and
“Key Executive Employment Protection Agreements” in
the Company’s definitive Proxy Statement for its annual
meeting of shareholders to be 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 pursuant to
Item 201(d) of Regulation S-K is set forth under the
caption “Market for Registrants Common Equity and Related
Stockholder Matters” in Part II, Item 5 of this
report, and is incorporated by reference herein.
The information required by this Item pursuant to Item 403
of Regulation S-K is set forth under the caption
“Security Ownership by Management and Others” in the
Company’s definitive Proxy Statement for its annual meeting
of shareholders to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A, and is incorporated
herein by reference.
|
|
| Item 13. |
Certain Relationships and Related Transactions |
None
|
|
| Item 14. |
Principal Accountant Fees and Services |
The information required by this item is set forth under the
caption “Report of the Audit Committee” and
“Ratification of Appointment of Independent Registered
Public Accounting Firm” in 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.
PART IV
|
|
| Item 15. |
Exhibits and Financial Statement Schedules |
(a)(1) Financial Statements and Supplementary Data
| |
|
|
|
|
| |
|
Page | |
| |
|
| |
|
Consolidated Balance Sheets
|
|
|
28 |
|
|
Consolidated Statements of Income
|
|
|
29 |
|
|
Consolidated Statements of Cash Flows
|
|
|
30 |
|
|
Consolidated Statements of Changes in Shareholders’ Equity
|
|
|
31 |
|
|
Notes to Consolidated Financial Statements
|
|
|
32 |
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
46 |
|
58
(2) Financial Statement Schedules
The report of the Company’s independent registered public
accounting firm with respect to the financial statement
schedules listed below appears on page 48 of this Annual Report
on Form 10-K.
| |
|
|
|
|
|
|
|
|
| Schedule | |
|
|
|
|
| Number | |
|
Description |
|
Page | |
| | |
|
|
|
| |
| |
I |
|
|
Condensed Financial Information of Registrant Parent Company
Only Balance Sheet Information |
|
|
49 |
|
| |
I |
|
|
Condensed Financial Information of Registrant Parent Company
Only Statement of Income Information |
|
|
50 |
|
| |
I |
|
|
Condensed Financial Information of Registrant Parent Company
Only Statement of Cash Flows Information |
|
|
51 |
|
| |
II |
|
|
Valuation and Qualifying Accounts For the Fiscal Year Ended
December 25, 2004 |
|
|
52 |
|
| |
II |
|
|
Valuation and Qualifying Accounts For the Fiscal Year Ended
December 27, 2003 |
|
|
53 |
|
| |
II |
|
|
Valuation and Qualifying Accounts For the Fiscal Year Ended
December 28, 2002 |
|
|
54 |
|
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
| |
|
|
|
|
| Exhibit |
|
|
| No. |
|
Description |
| |
|
|
| |
(2) |
|
|
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-K for the quarter ended June 27, 1998
(Commission File No. 0-21238)) |
| |
(3) |
|
|
Articles of Incorporation and By-Laws: |
| |
3 |
.1 |
|
Amended and Restated Certificate of Incorporation of the Company
dated February 9, 1993, Certificate of Designation of
Junior Participating Preferred Stock dated February 10,
1993 and Certificate of Amendment to the Amended and Restated
Certificate of Incorporation of the Company dated May 29,
2003. (Incorporated by reference to Exhibit 3.1 to the
Registrant’s Quarterly Report on Form 10-Q for the
quarter ended June 28, 2003 (Commission File
No. 0-21238)) |
| |
3 |
.2 |
|
Certificate of Amendment to the Amended and Restated Certificate
of Incorporation of the Company, dated July 16, 2004
(Incorporated by reference to Exhibit 3.1 to the
Registrant’s Quarterly Report on form 10-Q for the
quarter ended June 26, 2004 (Commission File
No. 0-21238)) |
| |
3 |
.3 |
|
The Company’s Bylaws, as amended and restated on
February 9, 1993. (Incorporated by reference to
Exhibit 3 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 |
|
Fourth Amended and Restated Credit Agreement, dated July 8,
2004, among LSHI, Landstar, the lenders named therein and
JPMorgan Chase Bank as administrative agent (including exhibits
and schedules thereto). (Incorporated by reference to
Exhibit 99.1 to the Registrant’s Form 8-K filed
on July 12, 2004 (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)) |
59
| |
|
|
|
|
| Exhibit | |
|
|
| No. | |
|
Description |
| | |
|
|
| |
10 |
.2+ |
|
Form of Indemnification Agreement between the Company and each
of the directors and certain executive officers of the Company.
(Incorporated by reference to Exhibit 10.2 to the
Registrant’s Annual Report on Form 10-K for the fiscal
year ended December 27, 2003 (Commission No. 0-21238)) |
| |
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
Henry H. Gerkens, Robert C. LaRose, Gary W. Hartter and Ronald
G. Stanley (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+* |
|
Form of Key Executive Employment Protection Agreement dated
December 15, 2000 between Landstar System, Inc. and James
B. Gattoni (Commission File No. 0-21238) |
| |
10 |
.7+ |
|
Amendment to Key Executive Employment Protection Agreement,
dated August 7, 2002, between Landstar System, Inc. and
Henry H. Gerkens (Incorporated by reference to Exhibit 10.7
to the Registrant’s Annual Report on Form 10-K for the
fiscal year ended December 28, 2002 (Commission File
No. 0-21238)) |
| |
10 |
.8+ |
|
Amendment to Key Executive Employment Protection Agreement,
dated August 7, 2002, between Landstar System, Inc. and
Robert C. LaRose (Incorporated by reference to Exhibit 10.8
to the Registrant’s Annual Report on Form 10-K for the
fiscal year ended December 28, 2002 (Commission File
No. 0-21238)) |
| |
10 |
.9+ |
|
Amendment to Key Executive Employment Protection Agreement,
dated August 7, 2002, between Landstar System, Inc. and
Gary W. Hartter (Incorporated by reference to Exhibit 10.9
to the Registrant’s Annual Report on Form 10-K for the
fiscal year ended December 28, 2002 (Commission File
No. 0-21238)) |
| |
10 |
.10+ |
|
Amendment to the Landstar System, Inc. 1993 Stock Option Plan
(Incorporated by reference to Exhibit 10.10 to the
Registrant’s Annual Report on Form 10-K for the fiscal
year ended December 27, 1997 (Commission File
No. 0-21238)) |
| |
10 |
.11+ |
|
First Amendment to the Landstar System, Inc. 1994 Directors
Stock Option Plan (Incorporated by reference to
Exhibit 10.8 to the Registrant’s Annual Report on
Form 10-K for the fiscal year ended December 30, 2000
(Commission File No. 0-21238)) |
| |
10 |
.12+ |
|
Second Amendment to the Landstar System, Inc. 1994 Directors
Stock Option Plan (Incorporated by reference to
Exhibit 10.9 to the Registrant’s Annual Report on
Form 10-K for the fiscal year ended December 30, 2000
(Commission File No. 0-21238)) |
| |
10 |
.13+ |
|
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 |
.14+ |
|
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 |
.15+ |
|
Letter Agreement, dated July 2, 2002 from Jeffrey C. Crowe
to Henry H. Gerkens. (Incorporated by reference to
Exhibit 10.17 to the Registrant’s Annual Report on
Form 10-K for the fiscal year ended December 28, 2002
(Commission File No. 0-21238)) |
| |
10 |
.16+ |
|
Directors Stock Compensation Plan, dated May 15, 2003
(Incorporated by reference to Exhibit 10.1 to the
Registrant’s Quarterly Report on Form 10-Q for the
quarter ended June 28, 2003 (Commission File
No. 0-21238)) |
60
| |
|
|
|
|
| Exhibit | |
|
|
| No. | |
|
Description |
| | |
|
|
| |
10 |
.17+ |
|
Letter agreement, dated April 27, 2004, between Landstar
System, Inc. and Henry H. Gerkens (Incorporated by reference to
Exhibit 10.1 to the Registrant’s Current Report on
Form 8-K filed on April 28, 2004 (Commission File
No. 0-21238) |
| |
10 |
.18+ |
|
Letter agreement, dated April 27, 2004, between Landstar
System, Inc. and Jeffrey C. Crowe (Incorporated by reference to
Exhibit 10.2 to the Registrant’s Current Report on
Form 8-K filed on April 28, 2004 (Commission
No. 0-21238) |
| |
10 |
.19+* |
|
Amendment to Key Executive Employment Protection Agreement,
dated August 7, 2002, between Landstar System, Inc. and
Ronald G. Stanley (Commission File No. 0-21238) |
| |
10 |
.20+* |
|
Amendment to Key Executive Employment Protection Agreement,
dated August 7, 2002, between Landstar System, Inc. and
James B. Gattoni (Commission File No. 0-21238) |
| |
(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 Registered Public Accounting
Firm of the Registrant |
| |
(24) |
|
|
Power of attorney: |
| |
24 |
.1* |
|
Powers of Attorney |
| |
(31) |
|
|
Certifications pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002: |
| |
31 |
.1* |
|
Chief Executive Officer certification, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 |
| |
31 |
.2* |
|
Chief Financial Officer certification, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 |
| |
(32) |
|
|
Certifications pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002: |
| |
32 |
.1** |
|
Chief Executive Officer certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 |
| |
32 |
.2** |
|
Chief Financial Officer certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 |
|
|
| + |
management contract or compensatory plan or arrangement |
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.
61
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.
|
|
| |
|
| |
Henry H. Gerkens |
| |
President and |
| |
Chief Executive Officer |
|
|
| |
|
| |
Robert C. LaRose |
| |
Executive Vice President, Chief |
| |
Financial Officer and Secretary |
Date: February 28, 2005
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 |
|
February 28, 2005 |
| |
/s/ Henry H. Gerkens
Henry
H. Gerkens |
|
Director, President and Chief Executive Officer; Principal
Executive Officer |
|
February 28, 2005 |
| |
/s/ Robert C. LaRose
Robert
C. LaRose |
|
Executive Vice President, Chief Financial Officer and Secretary;
Principal Accounting Officer |
|
February 28, 2005 |
| |
*
David
G. Bannister |
|
Director |
|
February 28, 2005 |
| |
*
Ronald
W. Drucker |
|
Director |
|
February 28, 2005 |
| |
*
Merritt
J. Mott |
|
Director |
|
February 28, 2005 |
| |
*
William
S. Elston |
|
Director |
|
February 28, 2005 |
62
| |
|
|
|
|
|
|
| Signature |
|
Title |
|
Date |
| |
|
|
|
|
| |
*
Diana
M. Murphy |
|
Director |
|
February 28, 2005 |
| |
By: /s/ Robert C.
LaRose
Robert
C. LaRose
Attorney In Fact* |
|
|
|
|
63
