##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 April 1, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
  -21238
 
 LANDSTAR SYSTEM, INC.
  Delaware
    
    06-1313069(State or other jurisdiction
of incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 13410 Sutton Park Drive South, Jacksonville, Florida
 32224
 (904) 398-9400
 N/A
  þ o
  þ o o
  o þ




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##### 



PART IItem 1. Financial StatementsConsolidated Balance Sheets as of April 1, 2006 and December 31, 2005
    
    Page 3Consolidated Statements of Income for the Thirteen Weeks Ended April 1, 2006 and March 26, 2005
    
    Page 4Consolidated Statements of Cash Flows for the Thirteen Weeks Ended April 1, 2006 and March 26, 2005
    
    Page 5Consolidated Statement of Changes in Shareholders Equity for the Thirteen Weeks Ended April 1, 2006
    
    Page 6Notes to Consolidated Financial Statements
    
    Page 7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    Page 11Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    Page 19Item 4. Controls and Procedures
    
    Page 19
 
 PART I




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##### 



April 1,
    
    
    Dec. 31,2006
    
    
    2005ASSETSCurrent AssetsCash and cash equivalents
    
    $
    49,401
    
    
    $
    29,398Short-term investments
    
    
    20,496
    
    
    
    20,693Trade accounts receivable, less allowance of $5,439 and $4,655
    
    
    437,286
    
    
    
    534,274Other receivables, including advances to independent
contractors, less allowance of $4,444 and $4,342
    
    
    21,644
    
    
    
    11,384Deferred income taxes and other current assets
    
    
    17,797
    
    
    
    21,106Total current assets
    
    
    546,624
    
    
    
    616,855Operating property, less accumulated depreciation and
amortization of $71,501 and $68,561
    
    
    85,449
    
    
    
    89,131Goodwill
    
    
    31,134
    
    
    
    31,134Other assets
    
    
    29,821
    
    
    
    28,694Total assets
    
    $
    693,028
    
    
    $
    765,814LIABILITIES AND SHAREHOLDERS EQUITYCurrent
LiabilitiesCash overdraft
    
    $
    23,995
    
    
    $
    29,829Accounts payable
    
    
    146,141
    
    
    
    164,509Current maturities of long-term debt
    
    
    12,250
    
    
    
    12,122Insurance claims
    
    
    31,923
    
    
    
    27,887Other current liabilities
    
    
    62,579
    
    
    
    65,149Total current liabilities
    
    
    276,888
    
    
    
    299,496Long-term debt, excluding current maturities
    
    
    91,735
    
    
    
    154,851Insurance claims
    
    
    32,244
    
    
    
    37,840Deferred income taxes
    
    
    18,471
    
    
    
    17,938Shareholders EquityCommon stock, $0.01 par value, authorized 160,000,000
shares, issued 64,391,342 and 64,151,902 shares
    
    
    644
    
    
    
    642Additional paid-in capital
    
    
    90,043
    
    
    
    84,532Retained earnings
    
    
    415,425
    
    
    
    392,549Cost of 5,579,583 and 5,344,883 shares of common stock in treasury
    
    
    (232,301
    )
    
    
    (221,776
    )Accumulated other comprehensive loss
    
    
    (74
    )
    
    
    (211
    )Note receivable arising from exercise of stock options
    
    
    (47
    )
    
    
    (47
    )Total shareholders equity
    
    
    273,690
    
    
    
    255,689Total liabilities and shareholders equity
    
    $
    693,028
    
    
    $
    765,814
  3




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##### 



Thirteen Weeks EndedApril 1,
    
    
    March 26,2006
    
    
    2005Revenue
    
    $
    610,042
    
    
    $
    502,212Investment income
    
    
    379
    
    
    
    539Costs and expenses:Purchased transportation
    
    
    458,250
    
    
    
    377,578Commissions to agents
    
    
    47,011
    
    
    
    39,126Other operating costs
    
    
    12,068
    
    
    
    8,698Insurance and claims
    
    
    11,552
    
    
    
    13,125Selling, general and administrative
    
    
    35,836
    
    
    
    31,815Depreciation and amortization
    
    
    4,093
    
    
    
    3,962Total costs and expenses
    
    
    568,810
    
    
    
    474,304Operating income
    
    
    41,611
    
    
    
    28,447Interest and debt expense
    
    
    1,850
    
    
    
    937Income before income taxes
    
    
    39,761
    
    
    
    27,510Income taxes
    
    
    15,411
    
    
    
    10,692Net income
    
    $
    24,350
    
    
    $
    16,818Earnings per common share
    
    $
    0.41
    
    
    $
    0.28Diluted earnings per share
    
    $
    0.41
    
    
    $
    0.27Average number of shares outstanding:Earnings per common share
    
    
    58,901,000
    
    
    
    60,396,000Diluted earnings per share
    
    
    59,919,000
    
    
    
    61,765,000Dividends paid per common share
    
    $
    0.025
  4




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##### 



Thirteen Weeks EndedApril 1,
    
    
    March 26,2006
    
    
    2005OPERATING ACTIVITIESNet income
    
    $
    24,350
    
    
    $
    16,818Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization of operating property
    
    
    4,093
    
    
    
    3,962Non-cash interest charges
    
    
    44
    
    
    
    44Provisions for losses on trade and other accounts receivable
    
    
    1,892
    
    
    
    1,617Gains on sales and disposals of operating property
    
    
    (158
    )
    
    
    (248
    )Deferred income taxes, net
    
    
    276
    
    
    
    (418
    )Stock-based compensation
    
    
    1,411
    
    
    
    1,512Changes in operating assets and liabilities:Decrease in trade and other accounts receivable
    
    
    84,836
    
    
    
    33,391Decrease in other assets
    
    
    2,738
    
    
    
    4,302Decrease in accounts payable
    
    
    (18,368
    )
    
    
    (20,294
    )Increase (decrease) in insurance claims
    
    
    (1,560
    )
    
    
    2,529Decrease in other liabilities
    
    
    (2,016
    )
    
    
    (910
    )NET CASH PROVIDED BY OPERATING ACTIVITIES
    
    
    97,538
    
    
    
    42,305INVESTING ACTIVITIESNet change in other short-term investments
    
    
    1,448
    
    
    
    (1,111
    )Sales and maturities of long-term investments
    
    
    10,328
    
    
    
    1,500Purchases of long-term investments
    
    
    (11,701
    )
    
    
    (1,309
    )Purchases of operating property
    
    
    (668
    )
    
    
    (739
    )Proceeds from sales of operating property
    
    
    415
    
    
    
    1,582NET CASH USED BY INVESTING ACTIVITIES
    
    
    (178
    )
    
    
    (77
    )FINANCING ACTIVITIESIncrease (decrease) in cash overdraft
    
    
    (5,834
    )
    
    
    723Proceeds from repayment of notes receivable arising from exercises of stock options
    
    
    
    
    
    
    275Dividends paid
    
    
    (1,474
    )Proceeds from exercises of stock options
    
    
    2,376
    
    
    
    2,975Excess tax benefit on stock option exercises
    
    
    1,694
    
    
    
    935Borrowings on revolving credit facility
    
    
    
    
    
    
    2,000Principal payments on long-term debt and capital lease obligations
    
    
    (62,988
    )
    
    
    (2,755
    )Purchases of common stock
    
    
    (11,131
    )
    
    
    (34,947
    )NET CASH USED BY FINANCING ACTIVITIES
    
    
    (77,357
    )
    
    
    (30,794
    )Increase in cash and cash equivalents
    
    
    20,003
    
    
    
    11,434Cash and cash equivalents at beginning of period
    
    
    29,398
    
    
    
    61,684Cash and cash equivalents at end of period
    
    $
    49,401
    
    
    $
    73,118
  5




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##### 



NoteReceivableArisingTreasury Stock
    
    
    Accumulated
    
    
    fromCommon Stock
    
    
    Addl
    
    
    
    
    
    
    at Cost
    
    
    Other
    
    
    ExercisePaid-In
    
    
    Retained
    
    
    
    
    
    
    
    
    
    
    Comprehensive
    
    
    of StockShares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Shares
    
    
    Amount
    
    
    Income (Loss)
    
    
    Options
    
    
    TotalBalance December 31, 2005
    
    
    64,151,902
    
    
    $
    642
    
    
    $
    84,532
    
    
    $
    392,549
    
    
    
    5,344,883
    
    
    $
    (221,776
    )
    
    $
    (211
    )
    
    $
    (47
    )
    
    $
    255,689Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,350
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,350Dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,474
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,474
    )Purchases of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    249,300
    
    
    
    (11,131
    )
    
    
    
    
    
    
    
    
    
    
    (11,131
    )Stock based compensation expense
    
    
    
    
    
    
    
    
    
    
    1,411
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,411Exercises of stock options, including
excess tax benefit
    
    
    239,440
    
    
    
    2
    
    
    
    4,068
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,070Incentive compensation paid in
common stock
    
    
    
    
    
    
    
    
    
    
    32
    
    
    
    
    
    
    
    (14,600
    )
    
    
    606
    
    
    
    
    
    
    
    
    
    
    
    638Change in other comprehensive
income on available-for-sale
investments, net of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    137
    
    
    
    
    
    
    
    137Balance April 1, 2006
    
    
    64,391,342
    
    
    $
    644
    
    
    $
    90,043
    
    
    $
    415,425
    
    
    
    5,579,583
    
    
    $
    (232,301
    )
    
    $
    (74
    )
    
    $
    (47
    )
    
    $
    273,690
  6




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##### 



7




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##### 



Thirteen Weeks EndedApril 1,
    
    
    March 26,2006
    
    
    2005Total cost of share-based payment
plans during the period
    
    $
    1,411
    
    
    $
    1,512Amount of related income tax benefit
recognized in income
    
    
    467
    
    
    
    452Net cost of share based payment plans
during the period
    
    $
    944
    
    
    $
    1,060
       Weighted Average
    
    
    Weighted AverageNumber of
    
    
    Exercise Price
    
    
    Remaining Contractual
    
    
    Aggregate IntrinsicOptions
    
    
    per Share
    
    
    Term (years)
    
    
    Value (000s)Options outstanding at December 31, 2005
    
    
    2,794,652
    
    
    $
    19.07Granted
    
    
    629,000
    
    
    $
    43.60Exercised
    
    
    (239,440
    )
    
    $
    9.93Forfeited/expiredOptions outstanding at April 1, 2006
    
    
    3,184,212
    
    
    $
    24.60
    
    
    
    7.6
    
    
    $
    62,479Options exercisable at April 1, 2006
    
    
    1,263,006
    
    
    $
    15.58
    
    
    
    6.3
    
    
    $
    36,177
  8




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##### 



Thirteen Weeks EndedApril 1,
    
    
    March 26,2006
    
    
    2005Average number of common shares outstanding
    
    
    58,901
    
    
    
    60,396Incremental shares from
assumed exercises of stock options
    
    
    1,018
    
    
    
    1,369Average number of common shares
and common share equivalents outstanding
    
    
    59,919
    
    
    
    61,765
    9




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##### 



Thirteen Weeks Ended April 1, 2006Carrier
    
    
    Global Logistics
    
    
    Insurance
    
    
    Other
    
    
    TotalExternal revenue
    
    $
    428,313
    
    
    $
    173,425
    
    
    $
    8,304
    
    
    
    
    
    
    $
    610,042Investment income
    
    
    
    
    
    
    
    
    
    
    379
    
    
    
    
    
    
    
    379Internal revenue
    
    
    11,856
    
    
    
    360
    
    
    
    5,939
    
    
    
    
    
    
    
    18,155Operating income
    
    
    40,571
    
    
    
    8,727
    
    
    
    6,676
    
    
    $
    (14,363
    )
    
    
    41,611Goodwill
    
    
    20,496
    
    
    
    10,638
    
    
    
    
    
    
    
    
    
    
    
    31,134
 Thirteen Weeks Ended March 26, 2005Carrier
    
    
    Global Logistics
    
    
    Insurance
    
    
    Other
    
    
    TotalExternal revenue
    
    $
    371,043
    
    
    $
    123,696
    
    
    $
    7,473
    
    
    
    
    
    
    $
    502,212Investment income
    
    
    
    
    
    
    
    
    
    
    539
    
    
    
    
    
    
    
    539Internal revenue
    
    
    5,884
    
    
    
    350
    
    
    
    6,590
    
    
    
    
    
    
    
    12,824Operating income
    
    
    31,031
    
    
    
    5,166
    
    
    
    4,092
    
    
    $
    (11,842
    )
    
    
    28,447Goodwill
    
    
    20,496
    
    
    
    10,638
    
    
    
    
    
    
    
    
    
    
    
    31,134
   Thirteen Weeks EndedApril 1,
    
    
    March 26,2006
    
    
    2005Net income
    
    $
    24,350
    
    
    $
    16,818Unrealized holding gains (losses) on
available-for- sale
investments, net of income
taxes
    
    
    137
    
    
    
    (78
    )Comprehensive income
    
    $
    24,487
    
    
    $
    16,740
     10




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Introduction
   11




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##### 



Changes in Financial Condition and Results of Operations
     Thirteen Weeks EndedApril 1,
    
    
    March 26,2006
    
    
    2005Carrier Segment:External revenue generated through (in thousands):BCO Independent Contractors
    
    $
    303,793
    
    
    $
    282,675Truck Brokerage Carriers
    
    
    124,520
    
    
    
    88,368$
    428,313
    
    
    $
    371,043Revenue per revenue mile
    
    $
    1.99
    
    
    $
    1.80Revenue per load
    
    $
    1,580
    
    
    $
    1,444Average length of haul (miles)
    
    
    793
    
    
    
    802Number of loads
    
    
    271,000
    
    
    
    257,000Global Logistics Segment:External revenue generated through (in thousands):BCO Independent Contractors(1)
    
    $
    24,832
    
    
    $
    17,838Truck Brokerage Carriers
    
    
    100,627
    
    
    
    79,081Rail, air, ocean and bus carriers(2)
    
    
    47,966
    
    
    
    26,777$
    173,425
    
    
    $
    123,696Revenue per load(3)
    
    $
    1,500
    
    
    $
    1,541Number of loads(3)
    
    
    92,000
    
    
    
    76,000
 
 (1)
    
    Includes revenue from freight hauled by carrier segment BCO Independent Contractors
for global logistics customers.(2)
    
    Included in the 2006 thirteen week period was $10,856,000 of revenue attributable
to buses provided under contract between Landstar Express America, Inc. and the United
States Department of Transportation/Federal Aviation Administration (the FAA).(3)
    
    Number of loads and revenue per load exclude the effect of
$35,449,000 in 2006 and
$7,300,000 in 2005 of revenue derived from emergency transportation services provided under
the FAA contract. 12




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##### 



April 1, 2006
    
    
    March 26, 2005BCO Independent Contractors
    
    
    8,219
    
    
    
    7,828Truck Brokerage Carriers:Approved and active(1)
    
    
    13,698
    
    
    
    11,737Other approved
    
    
    8,381
    
    
    
    7,25522,079
    
    
    
    18,992Total available truck capacity providers
    
    
    30,298
    
    
    
    26,820Number of trucks provided
by BCO Independent Contractors
    
    
    8,932
    
    
    
    8,659
 
 (1)
    
    Active refers to Truck Brokerage Carriers who moved at least one load in the 180
days immediately preceding the fiscal quarter end.    13




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##### 



Thirteen Weeks EndedApril 1,
    
    
    March 26,2006
    
    
    2005Revenue
    
    
    100.0
    %
    
    
    100.0
    %Investment income
    
    
    0.0
    
    
    
    0.1Costs and expenses:Purchased transportation
    
    
    75.1
    
    
    
    75.2Commissions to agents
    
    
    7.7
    
    
    
    7.8Other operating costs
    
    
    2.0
    
    
    
    1.7Insurance and claims
    
    
    1.9
    
    
    
    2.6Selling, general and administrative
    
    
    5.9
    
    
    
    6.3Depreciation and amortization
    
    
    0.6
    
    
    
    0.8Total costs and expenses
    
    
    93.2
    
    
    
    94.4Operating income
    
    
    6.8
    
    
    
    5.7Interest and debt expense
    
    
    0.3
    
    
    
    0.2Income before income taxes
    
    
    6.5
    
    
    
    5.5Income taxes
    
    
    2.5
    
    
    
    2.2Net income
    
    
    4.0
    %
    
    
    3.3
    %
 14




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##### 



15




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##### 



16




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##### 



17




---



##### 



18




---



##### 



19




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##### 



20




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##### 



Purchases of Equity Securities by the Company
 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
    
    programsDec. 31,
2005 
Jan. 28, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,525,227Jan. 29,
2006 
Feb. 25, 2006Feb. 26, 2006 
Apr. 1, 2006
    
    
    249,300
    
    
    $
    44.65
    
    
    
    249,300
    
    
    
    2,275,927Total
    
    
    249,300
    
    
    $
    44.65
    
    
    
    249,300
             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 22




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##### 



LANDSTAR SYSTEM, INC.Date: May 5, 2006
    /s/ Henry H. GerkensHenry H. GerkensPresident and
Chief Executive OfficerDate: May 5, 2006
    /s/ Robert C. LaRoseRobert C. LaRoseExecutive Vice President and Chief
Financial Officer 23