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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 27, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 0-21238
 (LANDSTAR LOGO)
 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
(Address of principal executive offices)
32224
(Zip Code)
(904) 398-9400
(Registrants telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
  þ o
  o o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
  o þ




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##### 



PART I Financial InformationItem 1.Financial Statements (unaudited)Consolidated Balance Sheets as of March 27, 2010 and December 26, 2009
    
    Page 4Consolidated Statements of Income for the Thirteen Weeks Ended March 27, 2010 and March 28, 2009
    
    Page 5Consolidated Statements of Cash Flows for the Thirteen Weeks Ended March 27, 2010 and March 28, 2009
    
    Page 6Consolidated Statement of Changes in Equity for the Thirteen Weeks Ended March 27, 2010
    
    Page 7Notes to Consolidated Financial Statements
    
    Page 8Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    Page 13Item 3.Quantitative and Qualitative Disclosures About Market Risk
    
    Page 21Item 4.Controls and Procedures
    
    Page 22PART II Other InformationItem 1.Legal Proceedings
    
    Page 22Item 1A.Risk Factors
    
    Page 23Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
    
    Page 23Item 6.Exhibits
    
    Page 24Signatures
    
    Page 26EX-31.1EX-31.2EX-32.1EX-32.2
  
 PART I 
 
   2




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March 27,
    
    
    December 26,2010
    
    
    2009ASSETSCurrent AssetsCash and cash equivalents
    
    $
    82,493
    
    
    $
    85,719Short-term investments
    
    
    24,391
    
    
    
    24,325Trade accounts receivable, less allowance of $5,399 and $5,547
    
    
    290,785
    
    
    
    278,854Other receivables, including advances to independent contractors, less allowance
of $5,954 and $5,797
    
    
    28,073
    
    
    
    18,149Deferred income taxes and other current assets
    
    
    13,890
    
    
    
    19,565Total current assets
    
    
    439,632
    
    
    
    426,612Operating property, less accumulated depreciation and amortization of $129,949
and $124,810
    
    
    140,188
    
    
    
    116,656Goodwill
    
    
    57,470
    
    
    
    57,470Other assets
    
    
    49,068
    
    
    
    48,054Total assets
    
    $
    686,358
    
    
    $
    648,792LIABILITIES AND EQUITYCurrent LiabilitiesCash overdraft
    
    $
    23,291
    
    
    $
    28,919Accounts payable
    
    
    133,505
    
    
    
    121,030Current maturities of long-term debt
    
    
    25,562
    
    
    
    24,585Insurance claims
    
    
    38,194
    
    
    
    41,627Other current liabilities
    
    
    50,011
    
    
    
    42,474Total current liabilities
    
    
    270,563
    
    
    
    258,635Long-term debt, excluding current maturities
    
    
    82,641
    
    
    
    68,313Insurance claims
    
    
    30,931
    
    
    
    30,680Deferred income taxes
    
    
    22,345
    
    
    
    23,013EquityLandstar System, Inc. and subsidiary shareholders equityCommon stock, $0.01 par value, authorized 160,000,000 shares, issued 66,281,824
and 66,255,358 shares
    
    
    663
    
    
    
    663Additional paid-in capital
    
    
    162,614
    
    
    
    161,261Retained earnings
    
    
    780,954
    
    
    
    766,040Cost of 16,142,282 and 16,022,111 shares of common stock in treasury
    
    
    (664,953
    )
    
    
    (660,446
    )Accumulated other comprehensive income
    
    
    684
    
    
    
    498Total Landstar System, Inc. and subsidiary shareholders equity
    
    
    279,962
    
    
    
    268,016Noncontrolling interest
    
    
    (84
    )
    
    
    135Total equity
    
    
    279,878
    
    
    
    268,151Total liabilities and equity
    
    $
    686,358
    
    
    $
    648,792
  4




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Thirteen Weeks EndedMarch 27,
    
    
    March 28,2010
    
    
    2009Revenue
    
    $
    548,088
    
    
    $
    469,247Investment income
    
    
    285
    
    
    
    425Costs and expenses:Purchased transportation
    
    
    417,201
    
    
    
    351,324Commissions to agents
    
    
    40,408
    
    
    
    38,324Other operating costs
    
    
    7,536
    
    
    
    7,450Insurance and claims
    
    
    12,298
    
    
    
    9,002Selling, general and administrative
    
    
    36,843
    
    
    
    34,369Depreciation and amortization
    
    
    5,792
    
    
    
    5,485Total costs and expenses
    
    
    520,078
    
    
    
    445,954Operating income
    
    
    28,295
    
    
    
    23,718Interest and debt expense
    
    
    854
    
    
    
    1,163Income before income taxes
    
    
    27,441
    
    
    
    22,555Income taxes
    
    
    10,484
    
    
    
    8,661Net income
    
    
    16,957
    
    
    
    13,894Less: Net loss attributable to noncontrolling interest
    
    
    (219
    )
    
    
    Net income attributable to Landstar System, Inc. and subsidiary
    
    $
    17,176
    
    
    $
    13,894Earnings per common share attributable to Landstar System, Inc. and subsidiary
    
    $
    0.34
    
    
    $
    0.27Diluted earnings per share attributable to Landstar System, Inc. and subsidiary
    
    $
    0.34
    
    
    $
    0.27Average number of shares outstanding:Earnings per common share
    
    
    50,207,000
    
    
    
    51,575,000Diluted earnings per share
    
    
    50,318,000
    
    
    
    51,782,000Dividends paid per common share
    
    $
    0.0450
    
    
    $
    0.0400
  5




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Thirteen Weeks EndedMarch 27,
    
    
    March 28,2010
    
    
    2009OPERATING ACTIVITIESNet income
    
    $
    16,957
    
    
    $
    13,894Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization of operating property and intangible assets
    
    
    5,792
    
    
    
    5,485Non-cash interest charges
    
    
    55
    
    
    
    55Provisions for losses on trade and other accounts receivable
    
    
    1,027
    
    
    
    2,743Losses on sales/disposals of operating property
    
    
    20
    
    
    
    2Deferred income taxes, net
    
    
    (805
    )
    
    
    783Stock-based compensation
    
    
    1,185
    
    
    
    1,389Changes in operating assets and liabilities:Decrease (increase) in trade and other accounts receivable
    
    
    (22,882
    )
    
    
    71,948Decrease in other assets
    
    
    5,977
    
    
    
    7,278Increase (decrease) in accounts payable
    
    
    12,475
    
    
    
    (17,845
    )Increase (decrease) in other liabilities
    
    
    7,490
    
    
    
    (5,149
    )Increase (decrease) in insurance claims
    
    
    (3,182
    )
    
    
    410NET CASH PROVIDED BY OPERATING ACTIVITIES
    
    
    24,109
    
    
    
    80,993INVESTING ACTIVITIESNet change in other short-term investments
    
    
    (1,237
    )
    
    
    6,505Sales and maturities of investments
    
    
    6,082
    
    
    
    442Purchases of investments
    
    
    (6,275
    )
    
    
    (8,828
    )Purchases of operating property
    
    
    (22,239
    )
    
    
    (555
    )Proceeds from sales of operating property
    
    
    55
    
    
    
    28NET CASH USED BY INVESTING ACTIVITIES
    
    
    (23,614
    )
    
    
    (2,408
    )FINANCING ACTIVITIESDecrease in cash overdraft
    
    
    (5,628
    )
    
    
    (8,230
    )Dividends paid
    
    
    (2,262
    )
    
    
    (2,068
    )Proceeds from exercises of stock options
    
    
    159
    
    
    
    533Excess tax benefit on stock option exercises
    
    
    9
    
    
    
    239Borrowings on revolving credit facility
    
    
    15,000
    
    
    
    Purchases of common stock
    
    
    (4,507
    )
    
    
    (11,958
    )Principal payments on long-term debt and capital lease obligations
    
    
    (6,592
    )
    
    
    (25,540
    )NET CASH USED BY FINANCING ACTIVITIES
    
    
    (3,821
    )
    
    
    (47,024
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    100
    
    
    
    (87
    )Increase (decrease) in cash and cash equivalents
    
    
    (3,226
    )
    
    
    31,474Cash and cash equivalents at beginning of period
    
    
    85,719
    
    
    
    98,904Cash and cash equivalents at end of period
    
    $
    82,493
    
    
    $
    130,378
  6




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Landstar System, Inc. and Subsidiary ShareholdersAccumulatedAdditional
    
    
    
    
    
    Treasury Stock
    
    Other
    
    Non-Common Stock
    
    Paid-In
    
    Retained
    
    at Cost
    
    Comprehensive
    
    controllingShares
    
    Amount
    
    Capital
    
    Earnings
    
    Shares
    
    Amount
    
    Income
    
    Interest
    
    TotalBalance December 26, 2009
    
    
    66,255,358
    
    
    $
    663
    
    
    $
    161,261
    
    
    $
    766,040
    
    
    
    16,022,111
    
    
    $
    (660,446
    )
    
    $
    498
    
    
    $
    135
    
    
    $
    268,151Net income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,176
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (219
    )
    
    
    16,957Dividends paid ($0.045 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,262
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,262
    )Purchases of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    120,171
    
    
    
    (4,507
    )
    
    
    
    
    
    
    
    
    
    
    (4,507
    )Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    1,185
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,185Exercises of stock options and issuance of
non-vested stock,
including excess tax benefit
    
    
    26,466
    
    
    
    
    
    
    
    168
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    168Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100
    
    
    
    
    
    
    
    100Unrealized gain on available-for-sale
investments, net of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    86
    
    
    
    
    
    
    
    86Balance March 27, 2010
    
    
    66,281,824
    
    
    $
    663
    
    
    $
    162,614
    
    
    $
    780,954
    
    
    
    16,142,282
    
    
    $
    (664,953
    )
    
    $
    684
    
    
    $
    (84
    )
    
    $
    279,878
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Thirteen Weeks EndedMarch 27,
    
    
    March 28,2010
    
    
    2009Total cost of the Plans during the period
    
    $
    1,185
    
    
    $
    1,389Amount of related income tax benefit
recognized during the period
    
    
    299
    
    
    
    353Net cost of the Plans during the period
    
    $
    886
    
    
    $
    1,036
  2010
    
    2009Expected volatility
    
    
    37.0
    %
    
    
    38.0
    %Expected dividend yield
    
    
    0.400
    %
    
    
    0.400
    %Risk-free interest rate
    
    
    2.50
    %
    
    
    1.50
    %Expected lives (in years)
    
    
    4.2
    
    
    
    4.4
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Weighted AverageWeighted Average
    
    RemainingNumber of
    
    Exercise Price
    
    Contractual
    
    Aggregate IntrinsicOptions
    
    per Share
    
    Term (years)
    
    Value (000s)Options outstanding at December 26, 2009
    
    
    2,557,802
    
    
    $
    36.86Granted
    
    
    223,250
    
    
    $
    37.37Exercised
    
    
    (44,920
    )
    
    $
    26.95Forfeited
    
    
    (50,367
    )
    
    $
    43.22Options outstanding at March 27, 2010
    
    
    2,685,765
    
    
    $
    36.95
    
    
    
    6.7
    
    
    $
    11,945Options exercisable at March 27, 2010
    
    
    1,316,815
    
    
    $
    33.43
    
    
    
    5.1
    
    
    $
    10,501
     Number of
    
    Grant DateShares
    
    Fair ValueRestricted stock outstanding at December 26, 2009
    
    
    11,500
    
    
    $
    34.82Granted
    
    
    8,400
    
    
    $
    39.10Restricted stock outstanding at March 27, 2010
    
    
    19,900
    
    
    $
    36.63
     9




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Thirteen Weeks EndedMarch 27,
    
    
    March 28,2010
    
    
    2009Average number of common shares outstanding
    
    
    50,207
    
    
    
    51,575Incremental shares from assumed exercises of stock options
    
    
    111
    
    
    
    207Average number of common shares and common share
equivalents outstanding
    
    
    50,318
    
    
    
    51,782
      Thirteen Weeks EndedMarch 27, 2010
    
    March 28, 2009Transportation
    
    
    
    
    
    
    
    
    
    TransportationLogistics
    
    Insurance
    
    Total
    
    Logistics
    
    Insurance
    
    TotalExternal revenue
    
    $
    539,615
    
    
    $
    8,473
    
    
    $
    548,088
    
    
    $
    459,934
    
    
    $
    9,313
    
    
    $
    469,247Investment income
    
    
    
    
    
    
    285
    
    
    
    285
    
    
    
    
    
    
    
    425
    
    
    
    425Internal revenue
    
    
    
    
    
    
    5,903
    
    
    
    5,903
    
    
    
    
    
    
    
    5,831
    
    
    
    5,831Operating income
    
    
    22,527
    
    
    
    5,768
    
    
    
    28,295
    
    
    
    15,106
    
    
    
    8,612
    
    
    
    23,718Expenditures on long-lived assets
    
    
    22,239
    
    
    
    
    
    
    
    22,239
    
    
    
    555
    
    
    
    
    
    
    
    555Goodwill
    
    
    57,470
    
    
    
    
    
    
    
    57,470
    
    
    
    31,134
    
    
    
    
    
    
    
    31,134
    Thirteen Weeks EndedMarch 27,
    
    
    March 28,2010
    
    
    2009Net income attributable to Landstar System, Inc. and subsidiary
    
    $
    17,176
    
    
    $
    13,894Unrealized gains/(losses) on available-for-sale investments, net of income taxes
    
    
    86
    
    
    
    (152
    )Foreign currency translation gains/(losses)
    
    
    100
    
    
    
    (87
    )Comprehensive income attributable to Landstar System, Inc. and subsidiary
    
    $
    17,362
    
    
    $
    13,655
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Gross
    
    
    Gross
    
    
    FairAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    MarketCost
    
    
    Gains
    
    
    Losses
    
    
    ValueMarch 27, 2010Corporate bonds and direct obligations of U.S.
government agencies
    
    $
    39,372
    
    
    $
    609
    
    
    $
    32
    
    
    $
    39,949U.S. Treasury obligations
    
    
    11,492
    
    
    
    4
    
    
    
    
    
    
    
    11,496Total
    
    $
    50,864
    
    
    $
    613
    
    
    $
    32
    
    
    $
    51,445December 26, 2009Corporate bonds and direct obligations of U.S.
government agencies
    
    $
    39,261
    
    
    $
    668
    
    
    $
    226
    
    
    $
    39,703U.S. Treasury obligations
    
    
    11,489
    
    
    
    6
    
    
    
    
    
    
    
    11,495Total
    
    $
    50,750
    
    
    $
    674
    
    
    $
    226
    
    
    $
    51,198
  Less than 12 months
    
    12 months or longer
    
    TotalFair Market
    
    Unrealized
    
    Fair Market
    
    Unrealized
    
    Fair Market
    
    UnrealizedValue
    
    Loss
    
    Value
    
    Loss
    
    Value
    
    LossMarch 27, 2010Corporate bonds and direct obligations of
U.S. government agencies
    
    $
    2,019
    
    
    $
    4
    
    
    $
    780
    
    
    $
    28
    
    
    $
    2,799
    
    
    $
    32December 26, 2009Corporate bonds and direct obligations of
U.S. government agencies
    
    $
    1,989
    
    
    $
    10
    
    
    $
    1,192
    
    
    $
    216
    
    
    $
    3,181
    
    
    $
    226
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Introduction
  13




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Changes in Financial Condition and Results of Operations
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Thirteen Weeks EndedMarch 27,
    
    
    March 28,2010
    
    
    2009Revenue generated through (in thousands):BCO Independent Contractors
    
    $
    286,141
    
    
    $
    262,065Truck Brokerage Carriers
    
    
    219,755
    
    
    
    164,243Rail intermodal
    
    
    14,776
    
    
    
    19,318Ocean cargo carriers
    
    
    9,135
    
    
    
    8,851Air cargo carriers
    
    
    4,603
    
    
    
    5,387Other (1)
    
    
    13,678
    
    
    
    9,383$
    548,088
    
    
    $
    469,247Number of loads:BCO Independent Contractors
    
    
    197,750
    
    
    
    170,650Truck Brokerage Carriers
    
    
    149,350
    
    
    
    117,650Rail intermodal
    
    
    6,870
    
    
    
    9,580Ocean cargo carriers
    
    
    1,460
    
    
    
    1,240Air cargo carriers
    
    
    1,500
    
    
    
    3,260356,930
    
    
    
    302,380Revenue per load:BCO Independent Contractors
    
    $
    1,447
    
    
    $
    1,536Truck Brokerage Carriers
    
    
    1,471
    
    
    
    1,396Rail intermodal
    
    
    2,151
    
    
    
    2,016Ocean cargo carriers
    
    
    6,257
    
    
    
    7,138Air cargo carriers
    
    
    3,069
    
    
    
    1,652
 
 (1)
    
    Includes premium revenue generated by the insurance segment and warehousing revenue
and transportation management fees generated by the transportation logistics segment.  15




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March 27,
    
    
    March 28,2010
    
    
    2009BCO Independent Contractors
    
    
    7,800
    
    
    
    8,424Truck Brokerage Carriers:Approved and active (1)
    
    
    15,644
    
    
    
    14,877Other approved
    
    
    9,674
    
    
    
    10,68225,318
    
    
    
    25,559Total available truck capacity providers
    
    
    33,118
    
    
    
    33,983Number of trucks provided by BCO Independent Contractors
    
    
    8,384
    
    
    
    9,013
 
 (1)
    
    Active refers to Truck Brokerage Carriers who moved at least one load in the 180
days immediately preceding the fiscal
quarter end.       16




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Thirteen Weeks EndedMarch 27,
    
    March 28,2010
    
    2009Revenue
    
    
    100.0
    %
    
    
    100.0
    %Investment income
    
    
    0.1
    
    
    
    0.1Costs and expenses:Purchased transportation
    
    
    76.1
    
    
    
    74.9Commissions to agents
    
    
    7.4
    
    
    
    8.1Other operating costs
    
    
    1.4
    
    
    
    1.6Insurance and claims
    
    
    2.2
    
    
    
    1.9Selling, general and administrative
    
    
    6.7
    
    
    
    7.3Depreciation and amortization
    
    
    1.1
    
    
    
    1.2Total costs and expenses
    
    
    94.9
    
    
    
    95.0Operating income
    
    
    5.2
    
    
    
    5.1Interest and debt expense
    
    
    0.2
    
    
    
    0.3Income before income taxes
    
    
    5.0
    
    
    
    4.8Income taxes
    
    
    1.9
    
    
    
    1.8Net income
    
    
    3.1
    %
    
    
    3.0
    %
    17




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Purchases of Equity Securities by the Company
  Total Number of Shares
    
    
    Maximum Number ofPurchased as Part of
    
    
    Shares That May YetTotal Number of
    
    
    Average Price Paid
    
    
    Publicly Announced
    
    
    Be Purchased UnderFiscal Period
    
    Shares Purchased
    
    
    Per Share
    
    
    Programs
    
    
    the ProgramsDecember 26, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,375,453Dec. 27, 2009  Jan. 23, 2010
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    1,375,453Jan. 24, 2010  Feb. 20, 2010
    
    
    80,882
    
    
    $
    35.70
    
    
    
    80,882
    
    
    
    1,294,571Feb. 21, 2010  Mar. 27, 2010
    
    
    39,289
    
    
    $
    41.23
    
    
    
    39,289
    
    
    
    1,255,282Total
    
    
    120,171
    
    
    $
    37.51
    
    
    
    120,171
   23




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##### Table of Contents



Dividend Amount
    
    Declaration
    
    Record
    
    Paymentper share
    
    Date
    
    Date
    
    Date$0.045
    
    January 26, 2010
    
    February 5, 2010
    
    February 26, 2010
        
   24




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##### Table of Contents



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 25




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##### Table of Contents



LANDSTAR SYSTEM, INC.Date: April 30, 2010
    
    /s/ Henry H. GerkensHenry H. GerkensChairman, President andChief Executive OfficerDate: April 30, 2010
    
    /s/ James B. GattoniJames B. GattoniVice President and ChiefFinancial Officer
 26