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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  R
    
    QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF
1934
 June 25, 2005
 OR
 £
    
    TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF
1934
 
 0-21238
 
 LANDSTAR SYSTEM, INC.
  Delaware
    
    06-1313069(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification No.)
 13410 Sutton Park Drive South, Jacksonville, Florida   32224   (904) 398-9400
 N/A
  þ o
  þ o




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PART I
   Item 1
 Consolidated Balance Sheets as of June 25, 2005 and December 25, 2004
    
    Page 3Consolidated Statements of Income for the Twenty Six and Thirteen Weeks Ended June
25, 2005 and June 26, 2004
    
    Page 4Consolidated Statements of Cash Flows for the Twenty Six Weeks Ended June 25, 2005
and June 26, 2004
    
    Page 5Consolidated Statement of Changes in Shareholders Equity for the Twenty Six Weeks
Ended June 25, 2005
    
    Page 6Notes to Consolidated Financial Statements
    
    Page 7Item 2Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    Page 10Item 3Quantitative and Qualitative Disclosures About Market Risk
    
    Page 19Item 4Controls and Procedures
    
    Page 20Section 302 Chief Executive Officer CertificationSection 302 Chief Financial Officer CertificationSection 906 Chief Executive Officer CertificationSection 906 Chief Financial Officer Certification
   
 
 2




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June 25,
    
    
    Dec. 25,2005
    
    
    2004ASSETSCurrent AssetsCash and cash equivalents
    
    $
    61,885
    
    
    $
    61,684Short-term investments
    
    
    25,998
    
    
    
    21,942Trade accounts receivable, less allowance of $4,268 and $4,021
    
    
    279,840
    
    
    
    338,774Other receivables, including advances to independent contractors,
less allowance of $4,382 and $4,245
    
    
    14,274
    
    
    
    13,929Deferred income taxes and other current assets
    
    
    24,158
    
    
    
    13,503Total current assets
    
    
    406,155
    
    
    
    449,832Operating property, less accumulated depreciation and amortization
of $66,474 and $65,315
    
    
    80,604
    
    
    
    76,834Goodwill
    
    
    31,134
    
    
    
    31,134Other assets
    
    
    25,490
    
    
    
    26,712Total assets
    
    $
    543,383
    
    
    $
    584,512LIABILITIES AND SHAREHOLDERS EQUITYCurrent LiabilitiesCash overdraft
    
    $
    24,586
    
    
    $
    23,547Accounts payable
    
    
    104,693
    
    
    
    120,197Current maturities of long-term debt
    
    
    7,844
    
    
    
    8,797Insurance claims
    
    
    33,144
    
    
    
    32,612Other current liabilities
    
    
    52,013
    
    
    
    54,926Total current liabilities
    
    
    222,280
    
    
    
    240,079Long-term debt, excluding current maturities
    
    
    93,774
    
    
    
    83,293Insurance claims
    
    
    33,159
    
    
    
    32,430Deferred income taxes
    
    
    14,106
    
    
    
    15,871Shareholders EquityCommon stock, $0.01 par value, authorized 160,000,000 and
80,000,000 shares, issued 63,605,986 and 63,154,190
    
    
    636
    
    
    
    632Additional paid-in capital
    
    
    49,213
    
    
    
    43,845Retained earnings
    
    
    337,307
    
    
    
    295,936Cost of 4,893,210 and 2,490,930 shares of common stock in treasury
    
    
    (206,835
    )
    
    
    (127,151
    )Accumulated other comprehensive income (loss)
    
    
    (62
    )
    
    
    47Notes receivable arising from exercises of stock options
    
    
    (195
    )
    
    
    (470
    )Total shareholders equity
    
    
    180,064
    
    
    
    212,839Total liabilities and shareholders equity
    
    $
    543,383
    
    
    $
    584,512
  3




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Twenty Six Weeks Ended
    
    
    Thirteen Weeks EndedJune 25,
    
    
    June 26,
    
    
    June 25,
    
    
    June 26,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenue
    
    $
    1,041,316
    
    
    $
    903,329
    
    
    $
    539,104
    
    
    $
    482,303Investment income
    
    
    1,235
    
    
    
    542
    
    
    
    696
    
    
    
    239Costs and expenses:Purchased transportation
    
    
    783,092
    
    
    
    674,093
    
    
    
    405,514
    
    
    
    360,296Commissions to agents
    
    
    82,039
    
    
    
    70,637
    
    
    
    42,913
    
    
    
    38,203Other operating costs
    
    
    16,615
    
    
    
    18,776
    
    
    
    7,917
    
    
    
    8,882Insurance and claims
    
    
    22,904
    
    
    
    33,454
    
    
    
    9,779
    
    
    
    12,748Selling, general and administrative
    
    
    60,823
    
    
    
    57,188
    
    
    
    30,520
    
    
    
    29,778Depreciation and amortization
    
    
    7,928
    
    
    
    6,566
    
    
    
    3,966
    
    
    
    3,367Total costs and expenses
    
    
    973,401
    
    
    
    860,714
    
    
    
    500,609
    
    
    
    453,274Operating income
    
    
    69,150
    
    
    
    43,157
    
    
    
    39,191
    
    
    
    29,268Interest and debt expense
    
    
    1,989
    
    
    
    1,551
    
    
    
    1,052
    
    
    
    783Income before income taxes
    
    
    67,161
    
    
    
    41,606
    
    
    
    38,139
    
    
    
    28,485Income taxes
    
    
    25,790
    
    
    
    15,914
    
    
    
    14,646
    
    
    
    10,895Net income
    
    $
    41,371
    
    
    $
    25,692
    
    
    $
    23,493
    
    
    $
    17,590Earnings per common share (1)
    
    $
    0.69
    
    
    $
    0.43
    
    
    $
    0.40
    
    
    $
    0.29Diluted earnings per share (1)
    
    $
    0.68
    
    
    $
    0.42
    
    
    $
    0.39
    
    
    $
    0.29Average number of shares outstanding:Earnings per common share (1)
    
    
    59,878,000
    
    
    
    59,786,000
    
    
    
    59,402,000
    
    
    
    59,863,000Diluted earnings per share (1)
    
    
    61,240,000
    
    
    
    61,505,000
    
    
    
    60,639,000
    
    
    
    61,587,000
 
 (1)
    
    2004 earnings per share amounts and average number of shares outstanding have been adjusted to
give retroactive effect to a two-for-one stock split effected in the form of a 100% stock dividend
declared December 9, 2004.  4




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Twenty Six Weeks EndedJune 25,
    
    
    June 26,2005
    
    
    2004OPERATING ACTIVITIESNet income
    
    $
    41,371
    
    
    $
    25,692Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization of operating property
    
    
    7,928
    
    
    
    6,566Non-cash interest charges
    
    
    87
    
    
    
    261Provisions for losses on trade and other accounts receivable
    
    
    2,884
    
    
    
    3,291(Gains) losses on sales and disposals of operating property
    
    
    (668
    )
    
    
    102Director compensation paid in common stock
    
    
    193
    
    
    
    402Tax benefit on stock option exercises
    
    
    1,522
    
    
    
    3,490Deferred income taxes, net
    
    
    (1,765
    )
    
    
    (771
    )Changes in operating assets and liabilities:Decrease (increase) in trade and other accounts receivable
    
    
    55,705
    
    
    
    (28,899
    )Increase in other assets
    
    
    (9,382
    )
    
    
    (8,688
    )Increase (decrease) in accounts payable
    
    
    (15,504
    )
    
    
    30,624Increase (decrease) in other liabilities
    
    
    (2,239
    )
    
    
    5,323Increase in insurance claims
    
    
    1,261
    
    
    
    4,789NET CASH PROVIDED BY OPERATING ACTIVITIES
    
    
    81,393
    
    
    
    42,182INVESTING ACTIVITIESNet change in other short-term investments
    
    
    (6,067
    )
    
    
    (1,323
    )Sales and maturities of long-term investments
    
    
    3,013
    
    
    
    500Purchases of long-term investments
    
    
    (1,309
    )Purchases of operating property
    
    
    (1,184
    )
    
    
    (4,130
    )Proceeds from sales of operating property
    
    
    3,109
    
    
    
    639NET CASH USED BY INVESTING ACTIVITIES
    
    
    (2,438
    )
    
    
    (4,314
    )FINANCING ACTIVITIESIncrease (decrease) in cash overdraft
    
    
    1,039
    
    
    
    (670
    )Proceeds from repayment of notes receivable arising from exercises of stock
options
    
    
    275Proceeds from exercises of stock options
    
    
    4,018
    
    
    
    8,086Borrowings on revolving credit facility
    
    
    2,000
    
    
    
    1,000Purchases of common stock
    
    
    (80,659
    )
    
    
    (16,407
    )Principal payments on long-term debt and capital lease obligations
    
    
    (5,427
    )
    
    
    (14,196
    )NET CASH USED BY FINANCING ACTIVITIES
    
    
    (78,754
    )
    
    
    (22,187
    )Increase in cash and cash equivalents
    
    
    201
    
    
    
    15,681Cash and cash equivalents at beginning of period
    
    
    61,684
    
    
    
    42,640Cash and cash equivalents at end of period
    
    $
    61,885
    
    
    $
    58,321
  5




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NotesReceivableArisingAccumulated
    
    
    fromAddl
    
    
    
    
    
    
    Treasury Stock
    
    
    Other
    
    
    ExercisesCommon Stock
    
    
    Paid-In
    
    
    Retained
    
    
    at Cost
    
    
    Comprehensive
    
    
    of StockShares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Shares
    
    
    Amount
    
    
    Income (Loss)
    
    
    Options
    
    
    TotalBalance December
25, 2004
    
    
    63,154,190
    
    
    $
    632
    
    
    $
    43,845
    
    
    $
    295,936
    
    
    
    2,490,930
    
    
    $
    (127,151
    )
    
    $
    47
    
    
    $
    (470
    )
    
    $
    212,839Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41,371
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41,371Purchases of common
stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,421,380
    
    
    
    (80,659
    )
    
    
    
    
    
    
    
    
    
    
    (80,659
    )Exercises of stock
options and related
income tax benefit
    
    
    445,796
    
    
    
    4
    
    
    
    5,536
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,540Repayment of notes
receivable arising
from exercises of
stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    275
    
    
    
    275Director
compensation paid
in common stock
    
    
    6,000
    
    
    
    
    
    
    
    193
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    193Incentive
compensation paid
in common stock
    
    
    
    
    
    
    
    
    
    
    (361
    )
    
    
    
    
    
    
    (19,100
    )
    
    
    975
    
    
    
    
    
    
    
    
    
    
    
    614Unrealized loss on
available- for-sale
investments, net of
income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (109
    )
    
    
    
    
    
    
    (109
    )Balance June 25,
2005
    
    
    63,605,986
    
    
    $
    636
    
    
    $
    49,213
    
    
    $
    337,307
    
    
    
    4,893,210
    
    
    $
    (206,835
    )
    
    $
    (62
    )
    
    $
    (195
    )
    
    $
    180,064
  6




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Twenty Six Weeks Ended
    
    
    Thirteen Weeks EndedJune 25,
    
    
    June 26,
    
    
    June 25,
    
    
    June 26,2005
    
    
    2004
    
    
    2005
    
    
    2004Average number
of common shares
outstanding
    
    
    59,878
    
    
    
    59,786
    
    
    
    59,402
    
    
    
    59,863Incremental shares
from assumed
exercises of stock
options
    
    
    1,362
    
    
    
    1,719
    
    
    
    1,237
    
    
    
    1,724Average number of
common shares and
common share
equivalents
outstanding
    
    
    61,240
    
    
    
    61,505
    
    
    
    60,639
    
    
    
    61,587
  
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Twenty Six Weeks Ended June 25, 2005Carrier
    
    
    Multimodal
    
    
    Insurance
    
    
    Other
    
    
    TotalExternal revenue
    
    $
    783,521
    
    
    $
    242,588
    
    
    $
    15,207
    
    
    
    
    
    
    $
    1,041,316Investment income
    
    
    
    
    
    
    
    
    
    
    1,235
    
    
    
    
    
    
    
    1,235Internal revenue
    
    
    11,640
    
    
    
    888
    
    
    
    17,848
    
    
    
    
    
    
    
    30,376Operating income
    
    
    70,933
    
    
    
    9,512
    
    
    
    11,628
    
    
    $
    (22,923
    )
    
    
    69,150Goodwill
    
    
    20,496
    
    
    
    10,638
    
    
    
    
    
    
    
    
    
    
    
    31,134
 Twenty Six Weeks Ended June 26, 2004Carrier
    
    
    Multimodal
    
    
    Insurance
    
    
    Other
    
    
    TotalExternal revenue
    
    $
    685,195
    
    
    $
    203,287
    
    
    $
    14,847
    
    
    
    
    
    
    $
    903,329Investment income
    
    
    
    
    
    
    
    
    
    
    542
    
    
    
    
    
    
    
    542Internal revenue
    
    
    11,275
    
    
    
    3,446
    
    
    
    17,872
    
    
    
    
    
    
    
    32,593Operating income
    
    
    55,139
    
    
    
    6,013
    
    
    
    3,038
    
    
    $
    (21,033
    )
    
    
    43,157Goodwill
    
    
    20,496
    
    
    
    10,638
    
    
    
    
    
    
    
    
    
    
    
    31,134
 Thirteen Weeks Ended June 25, 2005Carrier
    
    
    Multimodal
    
    
    Insurance
    
    
    Other
    
    
    TotalExternal revenue
    
    $
    412,478
    
    
    $
    118,892
    
    
    $
    7,734
    
    
    
    
    
    
    $
    539,104Investment income
    
    
    
    
    
    
    
    
    
    
    696
    
    
    
    
    
    
    
    696Internal revenue
    
    
    5,756
    
    
    
    538
    
    
    
    11,258
    
    
    
    
    
    
    
    17,552Operating income
    
    
    39,575
    
    
    
    4,161
    
    
    
    7,536
    
    
    $
    (12,081
    )
    
    
    39,191
 Thirteen Weeks Ended June 26, 2004Carrier
    
    
    Multimodal
    
    
    Insurance
    
    
    Other
    
    
    TotalExternal revenue
    
    $
    363,587
    
    
    $
    111,273
    
    
    $
    7,443
    
    
    
    
    
    
    $
    482,303Investment income
    
    
    
    
    
    
    
    
    
    
    239
    
    
    
    
    
    
    
    239Internal revenue
    
    
    6,146
    
    
    
    962
    
    
    
    10,891
    
    
    
    
    
    
    
    17,999Operating income
    
    
    31,442
    
    
    
    3,274
    
    
    
    5,864
    
    
    $
    (11,312
    )
    
    
    29,268
  
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Twenty Six Weeks Ended
    
    
    Thirteen Weeks EndedJune 25,
    
    
    June 26,
    
    
    June 25,
    
    
    June 26,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income, as reported
    
    $
    41,371
    
    
    $
    25,692
    
    
    $
    23,493
    
    
    $
    17,590Deduct:Total stock-based employee
compensation expense
determined under the fair
value based method for all
awards, net of related
income tax benefits
    
    
    (2,122
    )
    
    
    (2,116
    )
    
    
    (1,069
    )
    
    
    (1,066
    )Pro forma net income
    
    $
    39,249
    
    
    $
    23,576
    
    
    $
    22,424
    
    
    $
    16,524Earnings per common share:As reported
    
    $
    0.69
    
    
    $
    0.43
    
    
    $
    0.40
    
    
    $
    0.29Pro forma
    
    $
    0.66
    
    
    $
    0.39
    
    
    $
    0.38
    
    
    $
    0.28Diluted earnings per share:As reported
    
    $
    0.68
    
    
    $
    0.42
    
    
    $
    0.39
    
    
    $
    0.29Pro forma
    
    $
    0.65
    
    
    $
    0.38
    
    
    $
    0.37
    
    
    $
    0.27
  
 
 Twenty Six Weeks Ended
    
    
    Thirteen Weeks EndedJune 25,
    
    
    June 26,
    
    
    June 25,
    
    
    June 26,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income
    
    $
    41,371
    
    
    $
    25,692
    
    
    $
    23,493
    
    
    $
    17,590Unrealized holding losses on available
-for-sale investments, net of income tax
    
    
    (109
    )
    
    
    (138
    )
    
    
    (31
    )
    
    
    (144
    )Comprehensive income
    
    $
    41,262
    
    
    $
    25,554
    
    
    $
    23,462
    
    
    $
    17,446
  
 
 
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Twenty Six Weeks Ended
    
    
    Thirteen Weeks EndedJune 25,
    
    
    June 26,
    
    
    June 25,
    
    
    June 26,2005
    
    
    2004
    
    
    2005
    
    
    2004Carrier Segment:External revenue generated through (in thousands):Independent Contractors
    
    $
    599,222
    
    
    $
    578,091
    
    
    $
    316,547
    
    
    $
    305,860Other third party truck capacity providers
    
    
    184,299
    
    
    
    107,104
    
    
    
    95,931
    
    
    
    57,727$
    783,521
    
    
    $
    685,195
    
    
    $
    412,478
    
    
    $
    363,587Revenue per revenue mile
    
    $
    1.81
    
    
    $
    1.75
    
    
    $
    1.82
    
    
    $
    1.76Revenue per load
    
    $
    1,454
    
    
    $
    1,315
    
    
    $
    1,463
    
    
    $
    1,362Average length of haul (miles)
    
    
    802
    
    
    
    752
    
    
    
    802
    
    
    
    774Number of loads
    
    
    539,000
    
    
    
    521,000
    
    
    
    282,000
    
    
    
    267,000Multimodal Segment:External revenue generated through (in thousands):Independent Contractors (1)
    
    $
    35,335
    
    
    $
    33,888
    
    
    $
    17,497
    
    
    $
    18,475Other third party truck capacity providers
    
    
    154,665
    
    
    
    118,778
    
    
    
    75,584
    
    
    
    65,294Rail, air and ocean carriers
    
    
    52,588
    
    
    
    50,621
    
    
    
    25,811
    
    
    
    27,504$
    242,588
    
    
    $
    203,287
    
    
    $
    118,892
    
    
    $
    111,273Revenue per load (2)
    
    $
    1,484
    
    
    $
    1,374
    
    
    $
    1,431
    
    
    $
    1,391Number of loads (2)
    
    
    158,000
    
    
    
    148,000
    
    
    
    82,000
    
    
    
    80,000
      June 25,
    
    
    June 26,2005
    
    
    2004Independent Contractors
    
    
    7,840
    
    
    
    7,629Other third party truck capacity providers:Approved and active (1)
    
    
    12,458
    
    
    
    9,800Other approved
    
    
    7,605
    
    
    
    6,41620,063
    
    
    
    16,216Total available truck capacity providers
    
    
    27,903
    
    
    
    23,845Number of trucks provided by Independent Contractors
    
    
    8,609
    
    
    
    8,560
    12




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Twenty Six Weeks Ended
    
    
    Thirteen Weeks EndedJune 25,
    
    
    June 26,
    
    
    June 25,
    
    
    June 26,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenue
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Investment income
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.0Costs and expenses:Purchased transportation
    
    
    75.2
    
    
    
    74.6
    
    
    
    75.2
    
    
    
    74.7Commissions to agents
    
    
    7.9
    
    
    
    7.8
    
    
    
    7.9
    
    
    
    7.9Other operating costs
    
    
    1.6
    
    
    
    2.1
    
    
    
    1.5
    
    
    
    1.8Insurance and claims
    
    
    2.2
    
    
    
    3.7
    
    
    
    1.8
    
    
    
    2.6Selling, general and administrative
    
    
    5.8
    
    
    
    6.4
    
    
    
    5.7
    
    
    
    6.2Depreciation and amortization
    
    
    0.8
    
    
    
    0.7
    
    
    
    0.7
    
    
    
    0.7Total costs and expenses
    
    
    93.5
    
    
    
    95.3
    
    
    
    92.8
    
    
    
    93.9Operating income
    
    
    6.6
    
    
    
    4.8
    
    
    
    7.3
    
    
    
    6.1Interest and debt expense
    
    
    0.2
    
    
    
    0.2
    
    
    
    0.2
    
    
    
    0.2Income before income taxes
    
    
    6.4
    
    
    
    4.6
    
    
    
    7.1
    
    
    
    5.9Income taxes
    
    
    2.4
    
    
    
    1.8
    
    
    
    2.7
    
    
    
    2.3Net income
    
    
    4.0
    %
    
    
    2.8
    %
    
    
    4.4
    %
    
    
    3.6
    %
     14




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Recently Issued Accounting Standards Not Currently Effective
   
        19




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Total Number of Shares
    
    
    Maximum Number ofPurchased as Part of
    
    
    Shares that May Yet BeTotal Number of
    
    
    Average Price Paid
    
    
    Publicly Announced
    
    
    Purchased Under theFiscal Period
    
    Shares Purchased
    
    
    Per Share
    
    
    Programs
    
    
    ProgramsMarch 26, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    405,862March 27, 2005  April 23, 2005
    
    
    405,862
    
    
    $
    33.00
    
    
    
    405,862
    
    
    
    0April 24, 2005  May 21, 2005
    
    
    589,100
    
    
    $
    31.90
    
    
    
    589,100
    
    
    
    1,410,900May 22, 2005 - June 25, 2005
    
    
    434,000
    
    
    $
    31.17
    
    
    
    434,000
    
    
    
    976,900Total
    
    
    1,428,962
    
    
    $
    31.99
    
    
    
    1,428,962
         21




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Exhibit No.
    
    Description(31)
    
    Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002:31.1 *
    
    Chief Executive Officer certification, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.31.2 *
    
    Chief Financial Officer certification, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.(32)
    
    Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.1 **
    
    Chief Executive Officer certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.32.2 **
    
    Chief Financial Officer certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
 
 *
    
    Filed herewith**
    
    Furnished herewith 23




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LANDSTAR SYSTEM, INC.Date: July 29, 2005
    
    /s/ Henry H. GerkensHenry H. GerkensPresident and Chief Executive OfficerDate: July 29, 2005
    
    /s/ Robert C. LaRoseRobert C. LaRoseExecutive Vice President and Chief FinancialOfficer
 24