Back to GetFilings.com
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
| |
|
|
|
(Mark One)
|
|
|
|
þ
|
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
| |
| |
|
For the Fiscal Year Ended December 25, 2004 |
| |
|
or |
| |
|
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
| |
| |
|
For the transition period
from to |
Commission File Number: 0-21238
Landstar System, Inc.
(Exact name of registrant as specified in its charter)
| |
|
|
|
Delaware
|
|
06-1313069 |
(State or other jurisdiction of
incorporation or organization) |
|
(I.R.S. Employer
Identification No.) |
| |
13410 Sutton Park Drive South
Jacksonville, Florida |
|
32224
(Zip Code) |
|
(Address of principal executive offices)
|
|
|
(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:
| |
|
|
|
|
| |
|
Part of 10-K | |
| Document |
|
Into Which Incorporated | |
| |
|
| |
|
Proxy Statement relating to Landstar System, Inc.’s Annual
Meeting of Shareholders to be held on May 12, 2005
|
|
|
Part III |
|
LANDSTAR SYSTEM, INC.
2004 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
1
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
2
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
3
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:
|
|
| |
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, |
4
|
|
| |
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). |
| |
| |
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. |
| |
| |
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. |
| |
| |
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. |
| |
| |
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. |
| |
| |
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. |
| |
| |
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. |
|
|
| |
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. |
| |
| |
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 |
5
|
|
| |
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. |
| |
| |
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. |
| |
| |
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. |
| |
| |
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. |
| |
| |
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. |
| |
| |
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. |
| |
| |
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. |
|
|
|
Diversity of Services Offered |
|
|
| |
The Company offers its customers a wide range of transportation
services through the Operating Subsidiaries, including a fleet
of diverse trailing equipment and extensive geographic coverage.
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. |
6
|
|
| |
The following table illustrates the diversity of the trailing
equipment available to the Company as of December 25, 2004: |
| |
|
|
|
|
|
| Trailers by Type |
|
|
| |
|
|
|
Vans
|
|
|
10,204 |
|
|
Temperature-controlled
|
|
|
127 |
|
|
Flatbeds, including step decks, drop decks and low boys
|
|
|
3,904 |
|
| |
|
|
|
| |
Total
|
|
|
14,235 |
|
| |
|
|
|
|
|
| |
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. |
| |
| |
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. |
|
|
| |
Management believes that significant advantages result from the
collective expertise and corporate services afforded by
Landstar’s corporate management. The primary services
provided are: |
| |
|
|
|
accounting,
budgeting and taxes
|
|
quality programs |
|
finance
|
|
risk management insurance services |
|
human
resource management
|
|
safety |
|
legal
|
|
strategic planning |
|
operator
and equipment compliance
|
|
technology and management information systems |
|
purchasing
|
|
|
|
|
| |
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. |
| |
| |
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. |
|
|
| |
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, |
7
|
|
| |
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
|
|
| |
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
|
|
| |
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. |
| |
| |
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. |
| |
| |
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
|
|
| |
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. |
8
Employees
|
|
| |
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 Service
