UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 30, 2002 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _________________ to _____________________ Commission File Number: 0-21238 LANDSTAR SYSTEM, INC. (Exact name of registrant as specified in its charter) Delaware 06-1313069 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 13410 Sutton Park Drive South, Jacksonville, Florida (Address of principal executive offices) 32224 (Zip Code) (904) 398-9400 (Registrant's telephone number, including area code) N/A (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ( X ) No ( ) The number of shares of the registrant's Common Stock, par value $.01 per share, outstanding as of the close of business on May 3, 2002 was 8,117,953.
PART I FINANCIAL INFORMATION Index Item 1 Consolidated Balance Sheets as of March 30, 2002 and December 29, 2001 ............................................... Page 3 Consolidated Statements of Income for the Thirteen Weeks Ended March 30, 2002 and March 31, 2001 ......................... Page 4 Consolidated Statements of Cash Flows for the Thirteen Weeks Ended March 30, 2002 and March 31, 2001 ......................... Page 5 Consolidated Statement of Changes in Shareholders' Equity for the Thirteen Weeks Ended March 30, 2002 .................. Page 6 Notes to Consolidated Financial Statements............................. Page 7 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations........................ Page 9 Item 3 Quantitative and Qualitative Disclosures About Market Risk............. Page 14 Item 1. Financial Statements The interim consolidated financial statements contained herein reflect all adjustments (all of a normal, recurring nature) which, in the opinion of management, are necessary for a fair statement of the financial condition, results of operations, cash flows and changes in shareholders' equity for the periods presented. They have been prepared in accordance with Rule 10-01 of Regulation S-X and do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. Operating results for the thirteen weeks ended March 30, 2002 are not necessarily indicative of the results that may be expected for the entire fiscal year ending December 28, 2002. These interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's 2001 Annual Report on Form 10-K. 2
LANDSTAR SYSTEM, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share amounts) (Unaudited) March 30, Dec. 29, 2002 2001 ---------- ------------ ASSETS Current assets: Cash $ 59,840 $ 47,886 Short-term investments 1,305 2,982 Trade accounts receivable, less allowance of $3,982 and $4,416 179,379 185,206 Other receivables, including advances to independent contractors, less allowance of $5,135 and $4,740 22,530 13,779 Prepaid expenses and other current assets 3,482 4,020 ---------- ----------- Total current assets 266,536 253,873 ---------- ----------- Operating property, less accumulated depreciation and amortization of $46,684 and $44,455 66,142 68,532 Goodwill 31,134 31,134 Other assets 14,380 11,112 ---------- ----------- Total assets $ 378,192 $ 364,651 ========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Cash overdraft $ 14,758 $ 13,018 Accounts payable 59,484 55,813 Current maturities of long-term debt 10,084 9,965 Insurance claims 22,820 21,602 Other current liabilities 41,599 31,667 ---------- ----------- Total current liabilities 148,745 132,065 ---------- ----------- Long-term debt, excluding current maturities 76,879 91,909 Insurance claims 22,735 21,585 Deferred income taxes 1,207 1,652 Shareholders' equity: Common stock, $.01 par value, authorized 20,000,000 shares, issued 13,347,594 and 13,328,834 shares 133 133 Additional paid-in capital 75,630 75,036 Retained earnings 266,676 258,162 Cost of 5,241,841 shares of common stock in treasury (209,926) (209,926) Notes receivable arising from exercise of stock options (3,887) (5,965) ---------- ----------- Total shareholders' equity 128,626 117,440 ---------- ----------- Total liabilities and shareholders' equity $ 378,192 $ 364,651 ========== =========== See accompanying notes to consolidated financial statements. 3
LANDSTAR SYSTEM, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per share amounts) (Unaudited) Thirteen Weeks Ended ----------------------- March 30, March 31, 2002 2001 ---------- ---------- Revenue $ 335,693 $ 331,281 Investment income 563 1,056 Costs and expenses: Purchased transportation 247,188 244,155 Commissions to agents 26,088 26,117 Other operating costs 8,106 8,103 Insurance and claims 10,907 7,803 Selling, general and administrative 26,048 26,862 Depreciation and amortization 2,879 3,490 ---------- ---------- Total costs and expenses 321,216 316,530 ---------- ---------- Operating income 15,040 15,807 Interest and debt expense 1,308 2,222 ---------- ---------- Income before income taxes 13,732 13,585 Income taxes 5,218 5,231 ---------- ---------- Net income $ 8,514 $ 8,354 ========== ========== Earnings per common share $ 1.05 $ 0.98 ========== ========== Diluted earnings per share $ 1.02 $ 0.96 ========== ========== Average number of shares outstanding: Earnings per common share 8,097,000 8,512,000 ========== ========== Diluted earnings per share 8,364,000 8,730,000 ========== ========== See accompanying notes to consolidated financial statements. 4
LANDSTAR SYSTEM, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited) Thirteen Weeks Ended --------------------------- March 30, March 31, 2002 2000 ----------- ----------- OPERATING ACTIVITIES Net income $ 8,514 $ 8,354 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of operating property 2,879 3,186 Amortization of goodwill 304 Non-cash interest charges 68 81 Provisions for losses on trade and other accounts receivable 1,428 1,305 Losses (gains) on sales of operating property 6 (102) Deferred income taxes, net (445) 68 Changes in operating assets and liabilities: Decrease (increase) in trade and other accounts receivable (4,352) 2,220 Decrease in prepaid expenses and other assets 2,601 2,469 Increase (decrease) in accounts payable 3,671 (2,375) Increase (decrease) in other liabilities 9,932 (3,963) Increase (decrease) in insurance claims 2,368 (3,897) ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 26,670 7,650 ----------- ----------- INVESTING ACTIVITIES Maturities of investments 2,000 498 Purchases of investments (5,722) Purchases of operating property (715) (1,309) Proceeds from sales of operating property 220 307 ----------- ----------- NET CASH USED BY INVESTING ACTIVITIES (4,217) (504) ----------- ----------- FINANCING ACTIVITIES Increase (decrease) in cash overdraft 1,740 (1,899) Proceeds from exercise of stock options 2,672 154 Principal payments on long-term debt and capital lease obligations (14,911) (10,482) ----------- ----------- NET CASH USED BY FINANCING ACTIVITIES (10,499) (12,227) ----------- ----------- Increase (decrease) in cash 11,954 (5,081) Cash at beginning of period 47,886 32,926 ----------- ----------- Cash at end of period $ 59,840 $ 27,845 =========== =========== See accompanying notes to consolidated financial statements. 5
LANDSTAR SYSTEM, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY Thirteen Weeks Ended March 30, 2002 (Dollars in thousands) (Unaudited) Notes Treasury Stock Receivable Common Stock Additional at Cost Arising from ------------------ Paid-In Retained ------------------- Exercise of Shares Amount Capital Earnings Shares Amount Stock 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 8,514 8,514 Exercises of stock options 18,760 594 2,078 2,672 ---------- ------- --------- --------- --------- --------- ------------- --------- Balance March 30, 2002 13,347,594 $ 133 $ 75,630 $ 266,676 5,241,841 $(209,926) $ (3,887) $ 128,626 ========== ======= ========= ========= ========= ========= ============= ========= See accompanying notes to consolidated financial statements. 6
LANDSTAR SYSTEM, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The consolidated financial statements include the accounts of Landstar System, Inc. and its subsidiary, Landstar System Holdings, Inc., and reflect all adjustments (all of a normal, recurring nature) which are, in the opinion of management, necessary for a fair statement of the results for the periods presented. The preparation of the consolidated financial statements requires the use of management's estimates. Actual results could differ from those estimates. Landstar System, Inc. and its subsidiary are herein referred to as "Landstar" or the "Company." (1) Income Taxes The provisions for income taxes for the 2002 and 2001 thirteen-week periods were based on estimated full year combined effective income tax rates of approximately 38.0% and 38.5%, 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 in both years and the amortization of certain goodwill in the 2001 period. (2) Earnings Per Share 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. (3) Goodwill The Company adopted Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets" in the first quarter of fiscal year 2002. SFAS No. 142 eliminated the requirement to amortize goodwill and requires that it be tested for impairment on an annual basis. During the first quarter of 2002 the Company completed the transitional goodwill impairment test and determined that the fair value of each reporting unit exceeded the carrying value of the net assets of each reporting unit. Accordingly, no impairment loss was recognized. Adoption of SFAS No. 142 resulted in the elimination of goodwill amortization expense beginning with the first quarter of 2002. During the first quarter of 2001, the Company recorded $304,000 of goodwill amortization expense. Elimination of this amortization expense would have resulted in net income of $8,658,000 in the first quarter of 2001, or an increase of $0.04 in earnings per share ($0.03 per diluted share). The Company has no other intangible assets subject to the provisions of SFAS No. 142. (4) Additional Cash Flow Information During the 2002 period, Landstar paid income taxes and interest of $25,000 and $1,097,000, respectively. During the 2001 period, Landstar paid income taxes and interest of $354,000 and $2,371,000, respectively. 7
(5) Segment Information The following tables summarize information about Landstar's reportable business segments as of and for the thirteen weeks ended March 30, 2002 and March 31, 2001 (in thousands): Thirteen Weeks Ended March 30, 2002 ------------------------------------------ Carrier Multimodal Insurance Other Total ------- ---------- --------- ----- ----- External revenue $ 269,963 $ 58,719 $ 7,011 $ 335,693 Investment income 563 563 Internal revenue 5,146 515 6,609 12,270 Operating income 16,856 1,140 5,322 $ (8,278) 15,040 Goodwill 20,496 10,638 31,134 Thirteen Weeks Ended March 31, 2001 ------------------------------------------ Carrier Multimodal Insurance Other Total ------- ---------- --------- ----- ----- External revenue $ 263,385 $ 61,829 $ 6,067 $ 331,281 Investment income 1,056 1,056 Internal revenue 6,639 482 5,366 12,487 Operating income 17,034 586 7,196 $ (9,009) 15,807 Goodwill 21,123 11,047 32,170 (6) Commitments and Contingencies At March 30, 2002, Landstar had commitments for letters of credit outstanding in the amount of $19,929,000, primarily as collateral for insurance claims. The commitments for letters of credit outstanding included $9,080,000 under the Third Amended and Restated Credit Agreement and $10,849,000 secured by assets deposited with a financial institution. Landstar is involved in certain claims and pending litigation arising from the normal conduct of business. Based on the knowledge of the facts and, in certain cases, opinions of outside counsel, management believes that adequate provisions have been made for probable losses with respect to the resolution of all claims and pending litigation and that the ultimate outcome, after provisions thereof, will not have a material adverse effect on the financial condition of Landstar, but could have a material effect on the results of operations in a given quarter or year. 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the attached interim consolidated financial statements and notes thereto, and with the Company's audited financial statements and notes thereto for the fiscal year ended December 29, 2001 and Management's Discussion and Analysis of Financial Condition and Results of Operations included in the 2001 Annual Report to Shareholders. RESULTS OF OPERATIONS Landstar System, Inc. and its subsidiary, Landstar System Holdings, Inc. ("Landstar" or the "Company"), provide transportation services to a variety of market niches throughout the United States and to a lesser extent in Canada and between the United States and Canada and Mexico through its operating subsidiaries. The Company 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. and Landstar Gemini, Inc. 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 and 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. The nature of the carrier segment's business is such that a significant portion of its operating costs varies directly with revenue. 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 freight. The multimodal segment markets its services through independent commission sales agents and utilizes capacity provided by independent contractors, including railroads and air cargo carriers. The nature of the multimodal segment's business is such that a significant portion of its operating costs also varies directly with revenue. 9
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 companies. 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. Purchased transportation represents the amount an independent contractor is paid to haul freight and is primarily based on a contractually agreed- upon percentage of revenue generated by the haul for truck capacity provided by independent contractors. Purchased transportation for the brokerage services operations of the carrier and multimodal segments is based on a negotiated rate for each load hauled. Purchased transportation for the intermodal services operations and the air freight operations of the multimodal segment is based on a contractually agreed-upon fixed rate. Purchased transportation as a percentage of revenue for the intermodal services operations and brokerage services 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 through independent contractors. Commissions to agents are primarily based on contractually agreed-upon percentages of revenue at the carrier segment and of gross profit, revenue less the cost of purchased transportation, at the multimodal segment. Commissions to agents as a percentage of consolidated revenue will vary directly with the percentage of consolidated revenue generated by the carrier segment, the multimodal segment and Signature and increases or decreases in gross profit at the multimodal segment. Trailing equipment rent and maintenance costs are the largest components of other operating costs. Potential liability associated with accidents in the trucking industry is severe and occurrences are unpredictable. A material increase in the frequency or severity of accidents or workers' compensation claims or the unfavorable development of existing claims can be expected to adversely affect Landstar's operating income. Landstar retains liability for each individual commercial trucking claim up to $1,000,000 per occurrence through April 30, 2001 and $5,000,000 per occurrence thereafter. Landstar retains liability for each individual unladen truckers liability claim (claims incurred while the vehicle is being operated without a trailer attached or is being operated with an attached trailer which does not contain or carry any cargo) up to $25,000 per occurrence through December 31, 2001 and $1,000,000 thereafter. 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. Employee compensation and benefits account for over half of the Company's selling, general and administrative expense. Other significant components of selling, general and administrative expense are communications costs and rent expense. Depreciation and amortization primarily relates to depreciation of trailing equipment and management information services equipment. 10
The following table sets forth the percentage relationships of income and expense items to revenue for the periods indicated: Thirteen Weeks Ended ------------------------ March 30, March 31, 2002 2001 ---------- ---------- Revenue 100.0% 100.0% Investment income 0.2 0.3 Costs and expenses: Purchased transportation 73.6 73.7 Commissions to agents 7.8 7.9 Other operating costs 2.4 2.4 Insurance and claims 3.2 2.4 Selling, general and administrative 7.8 8.1 Depreciation and amortization 0.9 1.0 ------- ------ Total costs and expenses 95.7 95.5 ------- ------ Operating income 4.5 4.8 Interest and debt expense 0.4 0.7 ------- ------ Income before income taxes 4.1 4.1 Income taxes 1.6 1.6 ------- ------ Net income 2.5% 2.5% ======= ====== THIRTEEN WEEKS ENDED MARCH 30, 2002 COMPARED TO THIRTEEN WEEKS ENDED MARCH 31, 2001 Revenue for the 2002 thirteen-week period was $335,693,000, an increase of $4,412,000, or 1.3%, over the 2001 thirteen-week period. The increase was attributable to increased revenue of $6,578,000 and $944,000 at the carrier and insurance segments, respectively, partially offset by decreased revenue at the multimodal segment of $3,110,000. Overall, revenue per revenue mile (price) decreased approximately 3%, while revenue miles (volume) were approximately 5% higher than 2001. The increase in premium revenue at the insurance segment was primarily attributable to an increase in the level of reinsurance underwritten for unladen truckers liability from $25,000 per occurrence to $1,000,000 per occurrence effective January 1, 2002. Investment income at the insurance segment was $563,000 and $1,056,000 in the 2002 and 2001 periods, respectively. The decrease in investment income was primarily due to a reduced rate of return, attributable to the decline in interest rates, on investments held by the insurance segment. Purchased transportation was 73.6% and 73.7% of revenue in 2002 and 2001, respectively. Commissions to agents were 7.8% and 7.9% of revenue in 2002 and 2001, respectively. The decrease in purchased transportation and commissions to agents as a percentage of revenue was primarily due to the increased premium revenue at the insurance segment. 11
Other operating costs were 2.4% of revenue in both 2002 and 2001. Insurance and claims were 3.2% of revenue in 2002 compared with 2.4% of revenue in 2001. The increase in insurance and claims as a percentage of revenue was primarily attributable to the increased level of risk assumed for the unladen truckers liability program effective January 1, 2002, favorable development of prior year claims in 2001, an increase in the percentage of revenue generated through independent contractors, which has a higher risk profile than revenue generated through broker carriers, and unfavorable development of prior year claims in 2002, partially offset by reduced premiums for commercial trucking liability insurance related to the increase in the level of self-insured retention from $1,000,000 per occurrence to $5,000,000 per occurrence effective May 1, 2001. Selling, general and administrative costs were 7.8% of revenue in 2002 compared with 8.1% of revenue in 2001. The decrease in selling, general and administrative costs as a percentage of revenue was primarily due to decreased wages, benefits and travel and entertainment expense, partially offset by an increased provision for customer bad debts. Depreciation and amortization was 0.9% of revenue in 2002 and 1.0% of revenue in 2001. The decrease in depreciation and amortization as a percentage of revenue was primarily due to the January 1, 2002 implementation of SFAS No. 142, which eliminated the amortization of goodwill. Interest and debt expense was 0.4% and 0.7% of revenue in 2002 and 2001, respectively. This decrease was primarily attributable to the effect of lower interest rates and decreased capital lease obligations for trailing equipment. The provisions for income taxes for the 2002 and 2001 thirteen-week periods were based on estimated full year combined effective income tax rates of approximately 38.0% and 38.5%, 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 in both years and the amortization of certain goodwill in the 2001 period. The decrease in the effective income tax rate was primarily attributable to the elimination of goodwill amortization in 2002. Net income was $8,514,000, or $1.05 per common share ($1.02 per diluted share), in the 2002 period compared with $8,354,000, or $0.98 per common share ($0.96 per diluted share), in the 2001 period. Excluding goodwill amortization net income for the 2001 period would have been $8,658,000, or $1.02 per common share ($0.99 per diluted share). 12
CAPITAL RESOURCES AND LIQUIDITY Shareholders' equity increased to $128,626,000 at March 30, 2002 compared with $117,440,000 at December 29, 2001, primarily as a result of net income for the period. Shareholders' equity was 60% and 54% of total capitalization at March 30, 2002 and December 29, 2001, respectively. As of March 30, 2002, the Company may purchase 500,000 shares of its common stock under its authorized stock purchase program. Working capital and the ratio of current assets to current liabilities were $117,791,000 and 1.79 to 1, respectively, at March 30, 2002, compared with $121,808,000 and 1.92 to 1, respectively, at December 29, 2001. 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 $26,670,000 in the 2002 thirteen-week period compared with $7,650,000 in the 2001 thirteen-week period. The increase in cash flow provided by operating activities was primarily attributable to timing of payments. During the 2002 period, Landstar purchased $715,000 of operating property. Management anticipates acquiring approximately $27,000,000 of operating property during the remainder of fiscal year 2002 either by purchase or lease financing. Management believes that cash flow from operations combined with the Company's borrowing capacity under its revolving credit agreement will be adequate to meet Landstar's debt service requirements, fund continued growth, both internal and through acquisitions, and meet working capital needs. 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. 13
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," "plans," "predicts," "may," "should," "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; a downturn in domestic economic growth or growth in the transportation sector; and other operational, financial or legal risks or uncertainties detailed in Landstar's SEC filings from time to time. 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. SEASONALITY Landstar's operations are subject to seasonal trends common to the trucking industry. Results of operations for the quarter ending in March is typically lower than the quarters ending June, September and December due to reduced shipments and higher operating costs in the winter months. Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company maintains a credit agreement with a syndicate of banks and JPMorgan Chase Bank, as the administrative agent, (the "Third Amended and Restated Credit Agreement") that provides $175,000,000 of borrowing capacity in the form of a revolving credit facility, $50,000,000 of which may be utilized in the form of letter of credit guarantees. Borrowings under the Third Amended and Restated Credit Agreement bear interest at rates equal to, at the option of Landstar, either (i) the greatest of (a) the prime rate as publicly announced from time to time by JPMorgan Chase Bank, (b) the three month CD rate adjusted for statutory reserves and FDIC assessment costs plus 1% and (c) the federal funds effective rate plus 1/2%, or, (ii) the rate at the time offered to JPMorgan Chase Bank in the Eurodollar market for amounts and periods comparable to the relevant loan plus a margin that is determined based on the level of the Company's Leverage Ratio, as defined in the Third Amended and Restated Credit Agreement. There have been no significant changes that would affect the information provided in Item 7a of the 2001 Annual Report on Form 10-K regarding quantitative and qualitative disclosures about market risk. 14
PART II OTHER INFORMATION Item 1. Legal Proceedings The Company is routinely a party to litigation incidental to its business, primarily involving claims for personal injury and property damage incurred in the transportation of freight. The Company maintains insurance which covers liability amounts in excess of retained liabilities from personal injury and property damages claims. Item 2. Changes in Securities None. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. 15
Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits The exhibits listed on the Exhibit Index are filed as part of this quarterly report on Form 10-Q. (b) Form 8-K None 16
EXHIBIT INDEX Registrant's Commission File No.: 0-21238 Exhibit No. Description - ------------ ----------- (11) Statement re: Computation of Per Share Earnings: 11.1 * Landstar System, Inc. and Subsidiary Calculation of Earnings Per Common Share for the Thirteen Weeks Ended March 30, 2002 and March 31, 2001 11.2 * Landstar System, Inc. and Subsidiary Calculation of Diluted Earnings Per Share for the Thirteen Weeks Ended March 30, 2002 and March 31, 2001 __________________ * Filed herewith 17
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LANDSTAR SYSTEM, INC. Date: May 10, 2002 Henry H. Gerkens ---------------------------- Henry H. Gerkens President and Chief Operating Officer Date: May 10, 2002 Robert C. LaRose ---------------------------- Robert C. LaRose Vice President, Chief Financial Officer and Secretary 18
EXHIBIT 11.1 LANDSTAR SYSTEM, INC. AND SUBSIDIARY CALCULATION OF EARNINGS PER COMMON SHARE (In thousands, except per share amounts) (Unaudited) Thirteen Weeks Ended --------------------------- March 30, March 31, 2002 2001 ------------ ------------- Net income $ 8,514 $ 8,354 ============ ============ Average number of common shares outstanding 8,097 8,512 ============ ============ Earnings per common share $ 1.05 $ 0.98 ============ ============ 19
EXHIBIT 11.2 LANDSTAR SYSTEM, INC. AND SUBSIDIARY CALCULATION OF DILUTED EARNINGS PER SHARE (In thousands, except per share amounts) (Unaudited) Thirteen Weeks Ended --------------------------- March 30, March 31, 2002 2001 ------------ ------------ Net income $ 8,514 $ 8,354 ============ ============ Average number of common shares outstanding 8,097 8,512 Plus: Incremental shares from assumed exercise of stock options 267 218 ------------ ------------ Average number of common shares and common share equivalents outstanding 8,364 8,730 ============ ============ Diluted earnings per share $ 1.02 $ 0.96 ============ ============ 20