Landstar System, Inc. — 2014 Form 10-K Summary
Business context and reporting period
Landstar is an asset-light transportation and logistics provider, matching freight with independent sales agents and third-party capacity providers. Its fiscal year ended December 27, 2014. The company reports transportation logistics and insurance segments. In December 2013, it sold Landstar Supply Chain Solutions (LSCS); its results and sale gain are presented as discontinued operations.
Financial performance and liquidity
| Metric | FY 2014 | FY 2013 |
|---|---|---|
| Revenue | $3,184.8 million | $2,664.8 million |
| Gross profit margin | 14.8% | 15.3% |
| Operating income | $224.4 million | $176.6 million |
| Continuing-operations income | $138.8 million | $108.9 million |
| Net income | $138.8 million | $146.0 million |
| Diluted EPS | $3.07 | $3.16 |
| Operating cash flow, continuing operations | $101.9 million | $152.6 million |
- Revenue rose 20%, reflecting approximately 8% more loads and 10% higher revenue per load. Truck transportation produced 94% of consolidated revenue.
- Operating income increased 27%; continuing-operations income rose 27%. Net income and diluted EPS declined year over year because 2013 included $37.1 million of after-tax discontinued-operations income, including the $33.0 million after-tax LSCS sale gain.
- Purchased transportation increased to 77.3% of revenue from 76.8%, while gross profit margin declined to 14.8% from 15.3%. The filing attributes the purchased-transportation increase to tighter truck capacity, higher brokerage carrier rates, and a greater brokerage-carrier revenue mix.
- Cash provided by operations fell to $101.9 million, primarily because receivables grew with revenue. Capital expenditures were $10.5 million; the company also acquired $47.2 million of equipment through capital leases.
- At year-end, working capital was $321.9 million and the current ratio was 1.8. Cash and cash equivalents were $163.9 million; current investments were $37.0 million. Total debt, including current maturities, was $111.3 million, consisting of capital leases; no revolving-credit borrowings were outstanding. Revolver availability was $192.0 million.
- Total assets were $1,044.2 million and shareholders’ equity was $488.3 million. The company repurchased $56.4 million of stock in 2014.
- The company declared $1.26 per share in 2014 dividends, including a $1.00 special dividend payable in January 2015. It stated its intention to continue quarterly dividends, subject to credit-agreement restrictions.
Material changes and management commentary
Demand and market share gains increased truck volumes, while tight capacity lifted revenue per load. Truck Brokerage Carrier revenue increased to 46% of consolidated revenue from 43%; BCO Independent Contractor revenue declined to 48% from 50%. The number of BCO trucks rose to 8,932 from 8,432, and reported contractor turnover declined to approximately 22% from 27%.
Insurance and claims expense decreased to $46.3 million from $50.4 million, but included $6.7 million of unfavorable prior-year claim development, compared with $10.9 million in 2013. Selling, general and administrative expense increased to $150.3 million, including a $17.8 million incentive-compensation provision versus $6.1 million in 2013.
Outlook, risks, and unusual items
- Management anticipated approximately $73 million of 2015 operating-property acquisitions, primarily replacement trailers and information-technology equipment. It expected operating cash flow and available borrowing capacity to fund operations, growth, dividends, and authorized repurchases. No specific earnings or revenue guidance was provided.
- Key exposures include severe or more frequent trucking accidents and claims, adverse reserve development, insurance availability and cost, reliance on independent agents and third-party capacity, freight demand and rate competition, and the ability to pass increased carrier costs through to customers.
- Management identified regulatory uncertainty around independent-contractor classification, motor-carrier safety and hours-of-service rules, electronic logging requirements, and emissions rules. California compliance requirements could affect capacity and costs.
- Other disclosed risks include technology or key-vendor disruptions, customer credit losses, catastrophic facility loss, and a multi-state unclaimed-property audit whose timing and outcome were uncertain. Management said pending litigation, after provisions, was not expected to materially affect financial condition, though it could affect a particular quarter or year.
- Insurance claims liabilities totaled $46.0 million at year-end. The company had $63.8 million of letters of credit collateralized by investments for insurance claims, in addition to $33.0 million of letters of credit under its credit agreement.
- KPMG issued unqualified opinions on the financial statements and internal control over financial reporting. Management reported effective disclosure controls and internal controls as of year-end.
Important facts for investors to verify
- Whether volume growth and higher revenue per load persist if freight demand or capacity conditions change.
- How brokerage rates and capacity availability affect gross margin as the brokerage share of revenue grows.
- Subsequent development of self-insured claims, including the $46.0 million reserve and the $6.7 million unfavorable prior-year adjustment in 2014.
- Receivables, collections, and operating cash conversion following rapid revenue growth.
- Funding and cash-flow effects of planned 2015 equipment spending, capital leases, dividends, and share repurchases.
- Outcomes of the unclaimed-property audit and any material litigation or regulatory developments.