Landstar System, Inc. — FY 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011 (53 weeks), compared with fiscal 2010 ended December 25, 2010. Landstar is a non-asset-based freight transportation and supply-chain services provider, relying on independent sales agents and third-party capacity providers. Its two reportable segments are transportation logistics and insurance.
Financial performance
| Metric | FY 2011 | FY 2010 | Change |
|---|---|---|---|
| Revenue | $2,649.1 million | $2,400.2 million | +10% |
| Operating income | $183.2 million | $140.0 million | +31% |
| Net income attributable to Landstar | $113.0 million | $87.5 million | +29% |
| Diluted EPS | $2.38 | $1.77 | +34% |
| Operating cash flow | $118.0 million | $108.8 million | +9% |
- Gross profit margin was 16.3%, versus 16.4%. Operating margin, as Landstar defines it (operating income divided by gross profit), improved to 42.4% from 35.5%. Operating income was 6.9% of revenue, compared with 5.8% in 2010.
- Revenue growth reflected approximately 10% higher revenue per load and 1% more loads in transportation logistics. Management cited tighter domestic truck capacity, industrial production and market-share gains. Truck capacity providers generated 92% of revenue.
- Insurance and claims expense fell to $42.8 million from $49.3 million; management attributed the improvement to a higher contribution from truck brokerage carriers and favorable accident frequency and severity. SG&A was nearly flat at $152.9 million.
- Fourth-quarter revenue was $717.5 million, operating income $51.0 million, net income attributable to Landstar $32.6 million and diluted EPS $0.70. In Q4 2010, the respective figures were $587.5 million, $35.8 million, $24.1 million and $0.50.
Liquidity, debt and capital allocation
- At year-end, cash and cash equivalents were $80.9 million, working capital was $220.7 million and the current ratio was 1.7:1, up from 1.5:1 in 2010.
- Total debt, including current maturities, was $132.3 million, compared with $121.6 million. This included $80.0 million outstanding on the revolving facility and $52.3 million in capital leases. Landstar reported $111.5 million available under its $225 million credit facility and compliance with its covenants.
- Operating cash flow of $118.0 million was supported by higher earnings, partly offset by the timing of receivable collections. The company paid $10.0 million in dividends and repurchased $50.5 million of stock during 2011.
- Management expected approximately $57 million of 2012 operating-property spending, primarily for replacement trailers and IT equipment. It said operating cash flow and available borrowing capacity should fund expected needs. No revenue or earnings guidance was provided.
Changes, outlook and material risks
- Revenue increased, but gross margin edged down. The increase in revenue per load and load volume was partly offset by changes in transportation mix and costs. A major mix change was less-than-truckload substitute line-haul revenue falling to $74.8 million from $219.9 million.
- Landstar paid $8 million in January 2011 to acquire the remaining 25% interest in A3i Acquisition. The acquired businesses’ goodwill was $26.3 million at acquisition; management reported that the 2011 goodwill impairment test found estimated fair value significantly above carrying value.
- A jury awarded approximately $40.2 million in a 2007 accident case. Landstar’s $5 million self-insured retention had already been charged in 2007; the company recorded a corresponding $40.2 million insurer receivable and insurance-claims liability at year-end and intended to appeal. The outcome and potential effect on insurance premiums remained uncertain.
- The company received a U.S. Attorney’s Civil Investigative Demand under the False Claims Act concerning certain freight billed to the government involving Fort Campbell. Landstar had responded and said it would continue cooperating; the filing does not report a resolution.
- Principal risks include claim severity and insurance availability, dependence on independent agents and third-party capacity, freight demand and rate competition, customer receivable collectibility, regulatory changes (including driver safety and independent-contractor classification), and technology or facility disruption. March quarters are typically seasonally weaker.
Important facts for investors to verify
- Whether tighter capacity and higher revenue per load persist, and how they affect purchased-transportation costs and gross margin.
- Developments in the Georgia judgment and the Fort Campbell inquiry, including insurer recovery, appeals and any effect on future insurance costs.
- Receivables and bad-debt exposure: the filing noted a higher 2011 provision, partly tied to one customer, and identified collection risk as an estimate-sensitive item.
- Execution and funding of the planned 2012 capital spending, alongside debt maturities, share repurchases and dividends.
- Landstar reported unqualified audit opinions on its financial statements and internal controls as of December 31, 2011.