LANDSTAR SYSTEM, INC. The following discussion should be read in conjunction with the interim
consolidated financial statements and notes thereto included herein, and with
the Company's audited financial statements and notes thereto for the fiscal year
ended
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-Q contain forward-looking statements, such as statements which relate toLandstar's business objectives, plans, strategies and expectations. Terms such as "anticipates," "believes," "estimates," "intention," "expects," "plans," "predicts," "may," "should," "could," "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: the impact of the Russian conflict withUkraine on the operations of certain independent commission sales agents, including the Company's largest such agent by revenue in the 2021 fiscal year; the impact of the coronavirus (COVID-19) pandemic; an increase in the frequency or severity of accidents or other claims; unfavorable development of existing accident claims; dependence on third party insurance companies; dependence on independent commission sales agents; dependence on third party capacity providers; decreased demand for transportation services;U.S. foreign trade relationships; substantial industry competition; disruptions or failures in the Company's computer systems; cyber and other information security incidents; dependence on key vendors; changes in fuel taxes; status of independent contractors; regulatory and legislative changes; regulations focused on diesel emissions and other air quality matters; intellectual property; and other operational, financial or legal risks or uncertainties detailed inLandstar's Form 10-K for the 2021 fiscal year, described in Item 1A "Risk Factors", in this report or inLandstar's otherSecurities and Exchange Commission 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. Introduction
The transportation logistics segment provides a wide range of integrated
transportation management solutions. Transportation services are provided by
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Landstar Metro,
On
The insurance segment is comprised of
Changes in Financial Condition and Results of Operati ons
Management believes the Company's success principally depends on its ability to generate freight revenue through its network of independent commission sales agents and to deliver freight safely and efficiently utilizing third party capacity providers. Management believes the most significant factors to the Company's success include increasing revenue, sourcing capacity, empowering its network through technology-based tools and controlling costs, including insurance and claims.
Revenue
While customer demand, which is subject to overall economic conditions,
ultimately drives increases or decreases in revenue, the Company primarily
relies on its independent commission sales agents to establish customer
relationships and generate revenue opportunities. Management's emphasis with
respect to revenue growth is on revenue generated by independent commission
sales agents who on an annual basis generate
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Management monitors business activity by tracking the number of loads (volume) and revenue per load by mode of transportation. Revenue per load can be influenced by many factors other than a change in price. Those factors include the average length of haul, freight type, special handling and equipment requirements, fuel costs and delivery time requirements. For shipments involving two or more modes of transportation, revenue is generally classified by the mode of transportation having the highest cost for the load. The following table summarizes this information by trailer type for truck transportation and by mode for all others:
Thirteen Weeks Ended
March 26, March 27,
2022 2021
Revenue generated through (in thousands):
Truck transportation
Truckload:
Van equipment $ 1,081,206 $ 729,402
Unsided/platform equipment 408,757 297,485
Less-than-truckload 33,720 25,670
Other truck transportation (1) 227,601 140,932
Total truck transportation 1,751,284 1,193,489
Rail intermodal 42,688 31,708
Ocean and air cargo carriers 152,057 47,600
Other (2) 24,750 14,737
$ 1,970,599 $ 1,287,534
Revenue on loads hauled via BCO Independent
Contractors included in total truck transportation $ 727,574 $ 560,114
Number of loads:
Truck transportation
Truckload:
Van equipment 376,268 321,212
Unsided/platform equipment 131,829 114,263
Less-than-truckload 47,843 40,692
Other truck transportation (1) 85,930 59,663
Total truck transportation 641,870 535,830
Rail intermodal 12,630 11,700
Ocean and air cargo carriers 11,560 9,230
666,060 556,760
Loads hauled via BCO Independent Contractors included in total truck transportation
262,240 245,950
Revenue per load:
Truck transportation
Truckload:
Van equipment $ 2,873 $ 2,271
Unsided/platform equipment 3,101 2,604
Less-than-truckload 705 631
Other truck transportation (1) 2,649 2,362
Total truck transportation 2,728 2,227
Rail intermodal 3,380 2,710
Ocean and air cargo carriers 13,154 5,157
Revenue per load on loads hauled via BCO Independent Contractors
$ 2,774 $ 2,277
Revenue by capacity type (as a % of total revenue): Truck capacity providers: BCO Independent Contractors
37 % 44 %
Truck Brokerage Carriers 52 % 49 %
Rail intermodal 2 % 2 %
Ocean and air cargo carriers 8 % 4 %
Other 1 % 1 %
(1) Includes power-only, expedited, straight truck, cargo van, and
miscellaneous other truck transportation revenue generated by the
transportation logistics segment. Power-only refers to shipments where
the Company furnishes a power unit and an operator but not trailing
equipment, which is typically provided by the shipper or consignee.
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(2) Includes primarily reinsurance premium revenue generated by the insurance
segment and intra-Mexico transportation services revenue generated by
Landstar Metro.
Expenses
Purchased transportation
Also critical to the Company's success is its ability to secure capacity, particularly truck capacity, at rates that allow the Company to profitably transport customers' freight. The following table summarizes the number of available truck capacity providers on the dates indicated:
March 26, 2022 March 27, 2021
BCO Independent Contractors 11,089 10,498
Truck Brokerage Carriers:
Approved and active (1) 68,859 49,538
Other approved 28,094 23,246
96,953 72,784
Total available truck capacity providers 108,042 83,282
Trucks provided by BCO Independent Contractors 11,935 11,268
(1) Active refers to Truck Brokerage Carriers who moved at least one load in
the 180 days immediately preceding the fiscal quarter end.
Purchased transportation represents the amount a BCO Independent Contractor or other third party capacity provider is paid to haul freight. The amount of purchased transportation paid to a BCO Independent Contractor is primarily based on a contractually agreed-upon percentage of revenue generated by loads hauled by the BCO Independent Contractor. Purchased transportation paid to a Truck Brokerage Carrier is based on either a negotiated rate for each load hauled or, to a lesser extent, a contractually agreed-upon fixed rate per load. Purchased transportation paid to railroads is based on either a negotiated rate for each load hauled or a contractually agreed-upon fixed rate per load. Purchased transportation paid to air cargo carriers is generally based on a negotiated rate for each load hauled and purchased transportation paid to ocean cargo carriers is generally based on contractually agreed-upon fixed rates per load. Purchased transportation as a percentage of revenue for truck brokerage, rail intermodal and ocean cargo services is normally higher than that of BCO Independent Contractor and air cargo services. Purchased transportation is the largest component of costs and expenses and, on a consolidated basis, increases or decreases as a percentage of consolidated revenue in proportion to changes in the percentage of consolidated revenue generated through BCO Independent Contractors and other third party capacity providers and external revenue from the insurance segment, consisting of reinsurance premiums. Purchased transportation as a percent of revenue also increases or decreases in relation to the availability of truck brokerage capacity and with changes in the price of fuel on revenue generated from shipments hauled by Truck Brokerage Carriers. The Company passes 100% of fuel surcharges billed to customers for freight hauled by BCO Independent Contractors to its BCO Independent Contractors. These fuel surcharges are excluded from revenue and the cost of purchased transportation. Purchased transportation costs are recognized over the freight transit period as the performance obligation to the customer is completed.
Commissions to agents
Commissions to agents are based on contractually agreed-upon percentages of
(i) revenue, (ii) revenue less the cost of purchased transportation, or
(iii) revenue less a contractually agreed upon percentage of revenue retained by
Other operating costs, net of gains on asset sales/dispositions
Maintenance costs for Company-provided trailing equipment and BCO Independent Contractor recruiting and qualification costs are the largest components of other operating costs. Also included in other operating costs are trailer rental costs, the provision for uncollectible advances and other receivables due from BCO Independent Contractors and independent commission sales agents and gains/losses, if any, on sales of Company-owned trailing equipment.
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Insurance and claims
With respect to insurance and claims cost, potential liability associated with accidents in the trucking industry is severe and occurrences are unpredictable.
EffectiveMay 1, 2019 , the Company entered into a new three year commercial auto liability insurance arrangement for losses incurred between$5 million and$10 million (the "Initial Excess Policy") with a third party insurance company. For commercial trucking claims incurred on or afterMay 1, 2019 throughApril 30, 2022 , the Initial Excess Policy provides for a limit for a single loss of$5 million , with an aggregate limit of$15 million for each policy year, an aggregate limit of$20 million for the thirty-six month term endedApril 30, 2022 , and options to increase such aggregate limits for pre-established amounts of additional premium. If aggregate losses under the Initial Excess Policy exceed either the annual aggregate limit or the aggregate limit for the three year period endingApril 30, 2022 , and the Company did not elect to increase such aggregate limits for a pre-established amount of additional premium,Landstar would retain liability of up to$10 million per occurrence, inclusive of its$5 million self-insured retention for commercial trucking claims during the remainder of the applicable policy year(s). Moreover, as a result of the Company's aggregate loss experience since it entered into the Initial Excess Policy, the Initial Excess Policy required the Company to pay additional premium relating to its existing coverage up to a pre-established maximum amount of$3.5 million , which was provided for in insurance and claims costs for the Company's 2020 fiscal first quarter.
The Company also maintains third party insurance arrangements providing excess
coverage for commercial trucking liabilities in excess of
Further, the Company retains liability of up to
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Selling, general and administrative
During the thirteen-week period ended
Depreciation and amortization
Depreciation and amortization primarily relate to depreciation of trailing equipment and information technology hardware and software.
Costs of revenue
The Company incurs costs of revenue related to the transportation of freight and, to a much lesser extent, to reinsurance premiums received by Signature. Costs of revenue include variable costs of revenue and other costs of revenue. Variable costs of revenue include purchased transportation and commissions to agents, as these costs are entirely variable on a shipment-by-shipment basis. Other costs of revenue include fixed costs of revenue and semi-variable costs of revenue, where such costs may vary over time based on certain economic factors or operational metrics such as the number of Company-controlled trailers, the number of BCO Independent Contractors, the frequency and severity of insurance claims, the number of miles traveled by BCO Independent Contractors, or the number and/or scale of information technology projects in process or in-service to support revenue generating activities, rather than on a shipment-by-shipment basis. Other costs of revenue associated with the transportation of freight include: (i) other operating costs, primarily consisting of trailer maintenance and BCO Independent Contractor recruiting and qualification costs, as reported in the Company's Consolidated Statements of Income, (ii) transportation-related insurance premiums paid and claim costs incurred, included as a portion of insurance and claims in the Company's Consolidated Statements of Income, (iii) costs incurred related to internally developed software including ASC 350-40 amortization, implementation costs, hosting costs and other support costs utilized to support our independent commission sales agents, third party capacity providers, and customers, included as a portion of depreciation and amortization and of selling, general and administrative in the Company's Consolidated Statements of Income; and (iv) depreciation on Company-owned trailing equipment, included as a portion of depreciation and amortization in the Company's Consolidated Statements of Income. Other costs of revenue associated with reinsurance premiums received by Signature are comprised of broker commissions and other fees paid related to the administration of insurance programs to BCO Independent Contractors and are included in selling, general and administrative in the Company's Consolidated Statements of Income. In addition to costs of revenue, the Company incurs various other costs relating to its business, including most selling, general and administrative costs and portions of costs attributable to insurance and claims and depreciation and amortization. Management continually monitors all components of the costs incurred by the Company and establishes annual cost budgets that, in general, are used to benchmark costs incurred on a monthly basis.
Gross Profit, Variable Contribution, Gross Profit Margin and Variable Contribution Margin
The following table sets forth calculations of gross profit, defined as revenue
less costs of revenue, and gross profit margin defined as gross profit divided
by revenue, for the periods indicated. The Company refers to revenue less
variable costs of revenue as "variable contribution" and variable contribution
divided by revenue as "variable contribution margin". Variable contribution and
variable contribution margin are each
non-GAAP
financial measures. The closest comparable GAAP financial measures to variable
contribution and variable contribution margin are, respectively, gross profit
and gross profit margin. The Company believes variable contribution and variable
contribution margin are useful measures of the variable costs that we incur at a
shipment-by-shipment
level attributable to our transportation network of third-party capacity
providers and independent commission sales agents in order to provide services
to our customers. The Company believes variable contribution and variable
contribution margin are important performance measurements and management
considers variable contribution and variable contribution margin in evaluating
the Company's financial performance and in its decision-making, such as
budgeting for infrastructure, trailing equipment and selling, general and
administrative costs.
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The reconciliations of gross profit to variable contribution and gross profit margin to variable contribution margin are each presented below:
Thirteen Weeks Ended
March 26, March 27,
2022 2021
Revenue $ 1,970,599 $ 1,287,534
Costs of revenue:
Purchased transportation 1,550,330 998,285
Commissions to agents 149,778 100,009
Variable costs of revenue 1,700,108 1,098,294
Trailing equipment depreciation 9,083 8,907
Information technology costs 4,046 2,938
Insurance-related costs (1) 31,655 22,622
Other operating costs 11,141 7,642
Other costs of revenue 55,925 42,109
Total costs of revenue 1,756,033 1,140,403
Gross profit $ 214,566 $ 147,131
Gross profit margin 10.9 % 11.4 %
Plus: other costs of revenue 55,925 42,109
Variable contribution $ 270,491 $ 189,240
Variable contribution margin 13.7 % 14.7 %
(1) Insurance-related costs in the table above include (i) other costs of
revenue related to the transportation of freight that are included as a
portion of insurance and claims in the Company's Consolidated Statements
of Income and (ii) certain other costs of revenue related to reinsurance
premiums received by Signature that are included as a portion of selling,
general and administrative in the Company's Consolidated Statements of
Income. Insurance and claims costs included in other costs of revenue
relating to the transportation of freight primarily consist of insurance
premiums paid for commercial auto liability, general liability, cargo and
other lines of coverage related to the transportation of freight and the
related cost of claims incurred under those programs, and, to a lesser
extent, the cost of claims incurred under insurance programs available to
BCO Independent Contractors that are reinsured by Signature. Other
insurance and claims costs included in costs of revenue that are included
in selling, general and administrative in the Company's Consolidated
Statements of Income consist of brokerage commissions and other fees
incurred by Signature relating to the administration of insurance
programs available to BCO Independent Contractors that are reinsured by
Signature.
In general, variable contribution margin on revenue generated by BCO Independent
Contractors represents a fixed percentage due to the nature of the contracts
that pay a fixed percentage of revenue to both the BCO Independent Contractors
and independent commission sales agents. For revenue generated by Truck
Brokerage Carriers, variable contribution margin may be either a fixed or
variable percentage, depending on the contract with each individual independent
commission sales agent. Variable contribution margin on revenue generated from
shipments hauled by railroads, air cargo carriers, ocean cargo carriers and
Truck Brokerage Carriers, other than those under retention contracts, is
variable in nature, as the Company's contracts with independent commission sales
agents provide commissions to agents at a contractually agreed upon percentage
of the amount represented by revenue less purchased transportation for these
types of shipments. Approximately 41% of the Company's consolidated revenue in
the thirteen-week period ended
Operating income as a percentage of gross profit and operating income as a percentage of variable contribution
The following table presents operating income as a percentage of gross profit and operating income as a percentage of variable contribution. The Company's operating income as a percentage of variable contribution is a non-GAAP financial measure calculated as operating income divided by variable contribution. The Company believes that operating income as a percentage of variable contribution is useful and meaningful to investors for the following principal reasons: (i) the variable costs of revenue for a significant portion of the business are highly influenced by short-term market-based trends in the freight transportation industry, whereas other costs, including other costs of revenue, are much less impacted by short-term freight market trends; (ii) disclosure of this measure allows investors to better
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understand the underlying trends in the Company's results of operations; (iii) this measure is meaningful to investors' evaluations of the Company's management of costs attributable to operations other than the purely variable costs associated with purchased transportation and commissions to agents that the Company incurs to provide services to our customers; and (iv) management considers this financial information in its decision-making, such as budgeting for infrastructure, trailing equipment and selling, general and administrative costs.
Thirteen Weeks Ended
March 26, March 27,
2022 2021
Gross profit $ 214,566 $ 147,131
Operating income $ 162,833 $ 103,268
Operating income as % of gross profit 75.9 % 70.2 %
Variable contribution $ 270,491 $ 189,240
Operating income $ 162,833 $ 103,268 Operating income as % of variable contribution 60.2 % 54.6 %
The increase in operating income as a percentage of gross profit from the 2021 thirteen-week period to the 2022 thirteen-week period resulted from operating income increasing at a more rapid percentage rate than the increase in gross profit, as the Company was able to scale our fixed cost infrastructure, primarily certain components of selling, general and administrative costs, across a larger gross profit base.
The increase in operating income as a percentage of variable contribution from the 2021 thirteen-week period to the 2022 thirteen-week period resulted from operating income increasing at a more rapid percentage rate than the increase in variable contribution, as the Company was able to scale our fixed cost infrastructure, primarily certain components of selling, general and administrative costs, as well as our other costs of revenue, across a larger variable contribution base.
Also, as previously mentioned, the Company reports two operating segments: the transportation logistics segment and the insurance segment. External revenue at the insurance segment, representing reinsurance premiums, has historically been relatively consistent on an annual basis at 2% or less of consolidated revenue and generally corresponds directly with the number of trucks provided by BCO Independent Contractors. The discussion of cost line items in Management's Discussion and Analysis of Financial Condition and Results of Operations considers the Company's costs on a consolidated basis rather than on a segment basis. Management believes this presentation format is the most appropriate to assist users of the financial statements in understanding the Company's business for the following reasons: (1) the insurance segment has no other operating costs; (2) discussion of insurance and claims at either segment without reference to the other may create confusion amongst investors and potential investors due to intercompany arrangements and specific deductible programs that affect comparability of financial results by segment between various fiscal periods but that have no effect on the Company from a consolidated reporting perspective; (3) selling, general and administrative costs of the insurance segment comprise less than 10% of consolidated selling, general and administrative costs and have historically been relatively consistent on a year-over-year basis; and (4) the insurance segment has no depreciation and amortization.
THIRTEEN WEEKS ENDED
Revenue for the 2022 thirteen-week period was
Truck transportation revenue generated by BCO Independent Contractors and Truck
Brokerage Carriers (together, the "third party truck capacity providers") for
the 2022 thirteen-week period was
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The increase in revenue per load on loads hauled via truck was primarily due to
a continuation into the 2022 first fiscal quarter of the extremely tight truck
capacity environment experienced during the fourth fiscal quarter of 2021, which
resulted in less readily available truck capacity as compared to the 2021
thirteen-week period. Revenue per load on loads hauled via van equipment
increased 27%, revenue per load on loads hauled via unsided/platform equipment
increased 19%, revenue per load on less-than-truckload loadings increased 12%
and revenue per load on loads hauled via other truck transportation increased
12% as compared to the 2021 thirteen-week period. Revenue per load on loads
hauled via truck increased 25% in January, 29% in February and 17% in March,
respectively, as compared to the corresponding periods in 2021, as the
comparisons to prior year periods became more challenging in March due to an
atypical increase in truck revenue per load of 11% on a sequential basis from
fiscal
The increase in the number of loads hauled via truck compared to the 2021
thirteen-week period was due to a broad-based increase in demand for the
Company's truck transportation services, particularly van services and
power-only services included in other truck transportation services. Loads
hauled via van equipment increased 17%, loads hauled via unsided/platform
equipment increased 15%, loads hauled via less-than-truckload increased 18% and
loads hauled via other truck transportation increased 44% as compared to the
2021 thirteen-week period. The number of loads hauled via truck increased 17% in
January, 30% in February and 14% in March, respectively, as compared to the
corresponding periods in 2021, as the comparisons to prior year periods became
more challenging in March due to (1) the impact of the Russian invasion of
Fuel surcharges billed to customers on revenue generated by BCO Independent Contractors are excluded from revenue. Fuel surcharges on Truck Brokerage Carrier revenue identified separately in billings to customers and included as a component of Truck Brokerage Carrier revenue were$37,485,000 and$19,234,000 in the 2022 and 2021 thirteen-week periods, respectively. It should be noted that billings to many customers of the Company's truck brokerage services include a single all-in rate that do not separately identify fuel surcharges on loads hauled via Truck Brokerage Carriers. Accordingly, the overall impact of changes in fuel prices on revenue and revenue per load on loads hauled via truck is likely to be greater than that indicated.
Transportation revenue generated by rail intermodal, air cargo and ocean cargo
carriers (collectively, the "multimode capacity providers") for the 2022
thirteen-week period was
Purchased transportation was 78.7% and 77.5% of revenue in the 2022 and 2021
thirteen-week periods, respectively. The increase in purchased transportation as
a percentage of revenue was primarily due to (i) an increased percentage of
revenue generated by Truck Brokerage Carriers, which typically has a higher rate
of purchased transportation than revenue generated by BCO Independent
Contractors; (ii) an increased percentage of revenue generated by multimode
capacity providers, which typically has a higher rate of purchased
transportation than third party truck capacity providers; and (iii) to a lesser
extent, an increased rate of purchased transportation paid to Truck Brokerage
Carriers, partially offset by a lower rate of purchased transportation on
revenue generated by BCO Independent Contractors due to an increased percentage
of revenue generated by BCO Independent Contractors who use their own tractors
and
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Investment income was
Other operating costs increased$3,499,000 in the 2022 thirteen-week period compared to the 2021 thirteen-week period. The increase in other operating costs compared to the prior year was primarily due to increased trailing equipment maintenance costs as a result of (i) increased labor and parts costs as the Company retained older equipment to support current business levels; and (ii) an increased average trailer fleet size during the 2022 thirteen-week period, an increased provision for contractor bad debt and the impact of the resumption of large in-person events for the Company's BCO Independent Contractors and independent commission sales agents.
Insurance and claims increased
Selling, general and administrative costs increased
Depreciation and amortization increased
Interest and debt expense in the 2022 thirteen-week period increased
The provisions for income taxes for the 2022 and 2021 thirteen-week periods were each based on an estimated annual effective income tax rate of 24.5% and 24.4%, respectively, adjusted for discrete events, such as benefits resulting from stock-based awards. The estimated annual effective income tax rate was higher than the statutory federal income tax rate of 21% in both periods primarily attributable to state taxes and nondeductible executive compensation. The effective income tax rate for the 2022 thirteen-week period was 22.8%, which was lower than the estimated annual effective income tax rate of 24.5%, primarily attributable to excess tax benefits realized on stock-based awards. The effective income tax rate for the 2021 thirteen-week period of 24.4% was equal to the estimated annual effective income tax rate during the 2021 period.
Net income was
CAPITAL RESOURCES AND LIQUIDITY
Working capital and the ratio of current assets to current liabilities were
The Company declared and paid
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also paid
Shareholders' equity was
On
The Credit Agreement contains a number of covenants that limit, among other things, the incurrence of additional indebtedness. The Company is required to, among other things, maintain a minimum Fixed Charge Coverage Ratio, as defined in the Credit Agreement, and maintain a Leverage Ratio, as defined in the Credit Agreement, below a specified maximum. The Credit Agreement provides for a restriction on cash dividends and other distributions to stockholders on the Company's capital stock to the extent there is a default under the Credit Agreement. In addition, the Credit Agreement under certain circumstances limits the amount of such cash dividends and other distributions to stockholders to the extent that, after giving effect to any payment made to effect such cash dividend or other distribution, the Leverage Ratio would exceed 2.5 to 1 on a pro forma basis as of the end of the Company's most recently completed fiscal quarter. The Credit Agreement provides for an event of default in the event that, among other things, a person or group acquires 35% or more of the outstanding capital stock of the Company or obtains power to elect a majority of the Company's directors or the directors cease to consist of a majority of Continuing Directors, as defined in the Credit Agreement. None of these covenants are presently considered by management to be materially restrictive to the Company's operations, capital resources or liquidity. The Company is currently in compliance with all of the debt covenants under the Credit Agreement.
At
Historically, the Company has generated sufficient operating cash flow to meet
its debt service requirements, fund continued growth, both organic and through
acquisitions, complete or execute share purchases of its common stock under
authorized share purchase programs, pay dividends and meet working capital
needs. As an asset-light provider of integrated transportation management
solutions, the Company's annual capital requirements for operating property are
generally for trailing equipment and information technology hardware and
software. In addition, a significant portion of the trailing equipment used by
the Company is provided by third party capacity providers, thereby reducing the
Company's capital requirements. During the 2022 thirteen-week period, the
Company purchased
Management believes that cash flow from operations combined with the Company's
borrowing capacity under the Credit Agreement will be adequate to meet
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LEGAL MATTERS
The Company is involved in certain claims and pending litigation arising from the normal conduct of business. Many of these claims are covered in whole or in part by insurance. 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 claims and pending litigation and that the ultimate outcome, after provisions therefor, 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.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Significant variances from management's estimates for the ultimate resolution of
self-insured claims could be expected to positively or negatively affect
SEASONALITY
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