Landstar System, Inc. — FY2012 Form 10-K
Business context and reporting period: Landstar is a non-asset-based freight transportation and logistics provider, relying on independent sales agents and third-party carriers. Its fiscal year ended December 29, 2012; this filing reports full-year results and unaudited fourth-quarter data. Truck services generated 92% of revenue. The company reports transportation logistics and insurance segments.
Financial performance
Amounts below are in millions of dollars except per-share data and percentages.
| Metric | FY2012 | FY2011 | Change |
|---|---|---|---|
| Revenue | $2,793.4 | $2,649.1 | +5% |
| Operating income | $205.9 | $183.2 | +12% |
| Net income attributable to Landstar | $129.8 | $113.0 | +15% |
| Diluted EPS | $2.77 | $2.38 | +16% |
| Gross profit margin | 16.0% | 16.3% | -0.3 percentage points |
| Operating margin on revenue | 7.4% | 6.9% | +0.5 percentage points |
| Cash from operations | $125.6 | $118.0 | +$7.6 |
- FY2012 revenue growth reflected 4% more loads and approximately 1% higher revenue per load in transportation logistics. Third-party truck capacity revenue rose 6%; multimode revenue fell 9%, mainly due to fewer chartered air loads and lower international air freight demand.
- Purchased transportation rose to 76.2% of revenue from 75.8%, reflecting a greater share of Truck Brokerage Carrier loads and higher brokerage rates. Lower claims costs and other operating costs helped support operating income growth despite the lower gross margin.
- Fourth-quarter 2012 revenue was $691.3 million versus $717.5 million a year earlier; operating income was $49.5 million versus $51.0 million, and net income was $34.0 million versus $32.6 million. Quarterly diluted EPS was $0.73 versus $0.70.
Cash, liquidity and debt
- Cash and cash equivalents were $74.3 million; short-term investments were $35.5 million. Working capital was $247.6 million and the current ratio was 1.7 at year-end, unchanged from 2011.
- Total debt, including current maturities, was $114.1 million, down from $132.3 million; this comprised $40.0 million of revolving-credit borrowings and $74.1 million of capital leases. Shareholders’ equity was $379.5 million, or 77% of total capitalization.
- The $225 million revolving credit facility matures June 29, 2017. At year-end, $152.2 million was available after borrowings and facility letters of credit; Landstar reported compliance with its covenants. Operating cash flow was $125.6 million.
- 2012 dividends totaled $0.73 per share, including a special $0.50 dividend. The company said it did not expect to declare quarterly dividends for the four quarters of FY2013 and first three quarters of FY2014. It repurchased 524,674 shares for $25.8 million in 2012.
Management outlook, risks and unusual items
- Management expected approximately $65 million of FY2013 operating-property purchases, primarily replacement trailers and information technology equipment, and believed operating cash flow and available borrowing capacity would meet anticipated needs. The filing provides no specific revenue or earnings guidance.
- Key business sensitivities include freight demand and rates, availability and cost of third-party capacity, agent retention, competition, independent-contractor classification, regulatory changes, IT and vendor disruption, and the frequency and severity of insurance claims. Results are seasonal, with March-quarter performance typically lower than other quarters.
- Self-insured exposure includes up to $5 million per commercial trucking occurrence. A Georgia jury had awarded approximately $40.2 million in a 2007 accident case; execution was stayed while post-trial motions were pending. Landstar recorded a $38.7 million insurance receivable and matching claims liability, expected insurer coverage above its $5 million retention, and intended to appeal. The $5 million retention had already been expensed in 2007.
- The long-running OOIDA litigation was settled in December 2012 after claims against Landstar were denied at trial. A separate False Claims Act-related inquiry concerning freight billed to the U.S. government was dismissed in November 2012.
- The annual financial statements received an unqualified audit opinion; management and the auditor reported effective internal control over financial reporting as of year-end.
Important facts for investors to verify
- Whether truck brokerage capacity costs and the shift in transportation mix continue to pressure gross profit margin.
- Subsequent developments in the Georgia accident award, insurance recovery, appeal and potential effect on insurance premiums.
- Actual FY2013 capital spending, cash generation, revolver availability and compliance with credit-agreement covenants.
- Whether the special dividend is followed by resumed regular dividends, and how remaining share-repurchase authorization is used.
- Changes in freight volumes and pricing, agent and contractor capacity, claims experience, and regulatory treatment of independent contractors.