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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
 March 29, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
 0-21238
 
 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
   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 StatementsConsolidated Balance Sheets as of March 29, 2008 and December 29, 2007
    
    Page 3Consolidated Statements of Income for the Thirteen Weeks Ended March 29, 2008 and March 31, 2007
    
    Page 4Consolidated Statements of Cash Flows for the Thirteen Weeks Ended March 29, 2008 and March 31, 2007
    
    Page 5Consolidated Statement of Changes in Shareholders Equity for the Thirteen Weeks Ended March 29, 2008
    
    Page 6Notes to Consolidated Financial Statements
    
    Page 7Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    Page 10Item 3.Quantitative and Qualitative Disclosures About Market Risk
    
    Page 16Item 4.Controls and Procedures
    
    Page 17PART II Other InformationItem 1.Legal Proceedings
    
    Page 17Item 1A.Risk Factors
    
    Page 18Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
    
    Page 18Item 6.Exhibits
    
    Page 19Signatures
    
    Page 20EX-31.1 Section 302 Certification of CEOEX-31.2 Section 302 Certification of CFOEX-32.1 Section 906 Certification of CEOEX-32.2 Section 906 Certification of CFO
  
 PART I 
 
    2




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March 29,
    
    
    Dec 29,2008
    
    
    2007ASSETSCurrent AssetsCash and cash equivalents
    
    $
    80,980
    
    
    $
    60,750Short-term investments
    
    
    24,046
    
    
    
    22,921Trade accounts receivable, less allowance of $4,264 and $4,469
    
    
    303,588
    
    
    
    310,258Other receivables, including advances to independent contractors, less allowance
of $4,987 and $4,792
    
    
    19,896
    
    
    
    11,170Deferred income taxes and other current assets
    
    
    17,252
    
    
    
    28,554Total current assets
    
    
    445,762
    
    
    
    433,653Operating property, less accumulated depreciation and amortization of $93,254
and $88,284
    
    
    128,291
    
    
    
    132,369Goodwill
    
    
    31,134
    
    
    
    31,134Other assets
    
    
    33,010
    
    
    
    31,845Total assets
    
    $
    638,197
    
    
    $
    629,001LIABILITIES AND SHAREHOLDERS EQUITYCurrent LiabilitiesCash overdraft
    
    $
    27,211
    
    
    $
    25,769Accounts payable
    
    
    110,980
    
    
    
    117,122Current maturities of long-term debt
    
    
    23,525
    
    
    
    23,155Insurance claims
    
    
    27,705
    
    
    
    28,163Accrued income taxes
    
    
    15,278
    
    
    
    14,865Other current liabilities
    
    
    41,239
    
    
    
    40,501Total current liabilities
    
    
    245,938
    
    
    
    249,575Long-term debt, excluding current maturities
    
    
    124,172
    
    
    
    141,598Insurance claims
    
    
    36,458
    
    
    
    37,631Deferred income taxes
    
    
    21,063
    
    
    
    19,411Shareholders EquityCommon stock, $0.01 par value, authorized 160,000,000 shares, issued 65,856,787
and 65,630,383 shares
    
    
    659
    
    
    
    656Additional paid-in capital
    
    
    140,590
    
    
    
    132,788Retained earnings
    
    
    623,308
    
    
    
    601,537Cost of 13,121,109 shares of common stock in treasury
    
    
    (554,252
    )
    
    
    (554,252
    )Accumulated other comprehensive income
    
    
    261
    
    
    
    57Total shareholders equity
    
    
    210,566
    
    
    
    180,786Total liabilities and shareholders equity
    
    $
    638,197
    
    
    $
    629,001
  3




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Thirteen Weeks EndedMarch 29,
    
    
    March 31,2008
    
    
    2007Revenue
    
    $
    608,828
    
    
    $
    576,649Investment income
    
    
    1,096
    
    
    
    1,740Costs and expenses:Purchased transportation
    
    
    465,029
    
    
    
    434,058Commissions to agents
    
    
    46,814
    
    
    
    46,632Other operating costs
    
    
    6,584
    
    
    
    5,506Insurance and claims
    
    
    9,521
    
    
    
    17,540Selling, general and administrative
    
    
    35,857
    
    
    
    33,165Depreciation and amortization
    
    
    5,130
    
    
    
    4,617Total costs and expenses
    
    
    568,935
    
    
    
    541,518Operating income
    
    
    40,989
    
    
    
    36,871Interest and debt expense
    
    
    2,142
    
    
    
    1,592Income before income taxes
    
    
    38,847
    
    
    
    35,279Income taxes
    
    
    15,104
    
    
    
    13,675Net income
    
    $
    23,743
    
    
    $
    21,604Earnings per common share
    
    $
    0.45
    
    
    $
    0.39Diluted earnings per share
    
    $
    0.45
    
    
    $
    0.38Average number of shares outstanding:Earnings per common share
    
    
    52,601,000
    
    
    
    55,926,000Diluted earnings per share
    
    
    53,003,000
    
    
    
    56,470,000Dividends paid per common share
    
    $
    0.0375
    
    
    $
    0.0300
  4




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Thirteen Weeks EndedMarch 29,
    
    
    March 31,2008
    
    
    2007OPERATING ACTIVITIESNet income
    
    $
    23,743
    
    
    $
    21,604Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization of operating property
    
    
    5,130
    
    
    
    4,617Non-cash interest charges
    
    
    43
    
    
    
    43Provisions for losses on trade and other accounts receivable
    
    
    1,045
    
    
    
    392Losses (gains) on sales/disposals of operating property
    
    
    12
    
    
    
    (979
    )Deferred income taxes, net
    
    
    1,684
    
    
    
    654Stock-based compensation
    
    
    1,693
    
    
    
    1,792Changes in operating assets and liabilities:Decrease (increase) in trade and other accounts receivable
    
    
    (3,101
    )
    
    
    10,481Decrease in other assets
    
    
    10,750
    
    
    
    9,689Decrease in accounts payable
    
    
    (6,142
    )
    
    
    (1,909
    )Increase (decrease) in other liabilities
    
    
    1,040
    
    
    
    (3,348
    )Increase (decrease) in insurance claims
    
    
    (1,631
    )
    
    
    9,043NET CASH PROVIDED BY OPERATING ACTIVITIES
    
    
    34,266
    
    
    
    52,079INVESTING ACTIVITIESNet change in other short-term investments
    
    
    (4,217
    )
    
    
    1Sales and maturities of investments
    
    
    4,037
    
    
    
    12,232Purchases of investments
    
    
    (1,318
    )
    
    
    (15,505
    )Purchases of operating property
    
    
    (361
    )
    
    
    (2,327
    )Proceeds from sales of operating property
    
    
    
    
    
    
    2,165NET CASH USED BY INVESTING ACTIVITIES
    
    
    (1,859
    )
    
    
    (3,434
    )FINANCING ACTIVITIESIncrease (decrease) in cash overdraft
    
    
    1,442
    
    
    
    (275
    )Dividends paid
    
    
    (1,972
    )
    
    
    (1,682
    )Proceeds from exercises of stock options
    
    
    4,964
    
    
    
    2,026Excess tax benefit on stock option exercises
    
    
    1,148
    
    
    
    508Purchases of common stock
    
    
    
    
    
    
    (23,585
    )Principal payments on long-term debt and capital lease obligations
    
    
    (17,759
    )
    
    
    (39,348
    )NET CASH USED BY FINANCING ACTIVITIES
    
    
    (12,177
    )
    
    
    (62,356
    )Increase (decrease) in cash and cash equivalents
    
    
    20,230
    
    
    
    (13,711
    )Cash and cash equivalents at beginning of period
    
    
    60,750
    
    
    
    91,491Cash and cash equivalents at end of period
    
    $
    80,980
    
    
    $
    77,780
  5




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AccumulatedAdditional
    
    
    
    
    
    

Treasury
Stock
    
    
    OtherCommon
Stock
    
    
    Paid-In
    
    
    Retained
    
    
    at Cost
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Shares
    
    
    Amount
    
    
    Income
    
    
    TotalBalance December 29, 2007
    
    
    65,630,383
    
    
    $
    656
    
    
    $
    132,788
    
    
    $
    601,537
    
    
    
    13,121,109
    
    
    $
    (554,252
    )
    
    $
    57
    
    
    $
    180,786Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,743
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,743Dividends paid ($0.0375 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,972
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,972
    )Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    1,693
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,693Exercises of stock options,
including
excess tax benefit
    
    
    226,404
    
    
    
    3
    
    
    
    6,109
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,112Unrealized gain on
available-for-sale investments,
net of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    204
    
    
    
    204Balance March 29, 2008
    
    
    65,856,787
    
    
    $
    659
    
    
    $
    140,590
    
    
    $
    623,308
    
    
    
    13,121,109
    
    
    $
    (554,252
    )
    
    $
    261
    
    
    $
    210,566
  6




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(1)
    
    Share-based Payments
  Thirteen Weeks EndedMarch 29,
    
    
    March 31,2008
    
    
    2007Total cost of the Plans during the period
    
    $
    1,693
    
    
    $
    1,792Amount of related income tax benefit recognized
during the period
    
    
    530
    
    
    
    523Net cost of the Plans during the period
    
    $
    1,163
    
    
    $
    1,269
  2008
    
    
    2007Expected volatility
    
    
    33.0
    %
    
    
    33.0
    %Expected dividend yield
    
    
    0.0375
    %
    
    
    0.0300
    %Risk-free interest rate
    
    
    3.00
    %
    
    
    4.75
    %Expected lives (in years)
    
    
    4.1
    
    
    
    4.2
   Weighted Average
    
    
    Weighted AverageNumber of
    
    
    Exercise Price
    
    
    Remaining Contractual
    
    
    Aggregate IntrinsicOptions
    
    
    per Share
    
    
    Term (years)
    
    
    Value (000s)Options outstanding at December 29, 2007
    
    
    2,198,308
    
    
    $
    31.10Granted
    
    
    777,500
    
    
    $
    42.30Exercised
    
    
    (226,404
    )
    
    $
    21.92Forfeited
    
    
    (2,000
    )
    
    $
    43.99Options outstanding at March 29, 2008
    
    
    2,747,404
    
    
    $
    35.02
    
    
    
    7.6
    
    
    $
    48,474Options exercisable at March 29, 2008
    
    
    1,049,438
    
    
    $
    30.54
    
    
    
    6.2
    
    
    $
    23,210
   7




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(2)
    
    Income Taxes
  (3)
    
    Earnings Per Share
   Thirteen Weeks EndedMarch 29,
    
    
    March 31,2008
    
    
    2007Average number of common shares outstanding
    
    
    52,601
    
    
    
    55,926Incremental shares from assumed exercises of stock options
    
    
    402
    
    
    
    544Average number of common shares and common share
equivalents outstanding
    
    
    53,003
    
    
    
    56,470
  (4)
    
    Additional Cash Flow Information
  (5)
    
    Segment Information
  8




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Thirteen Weeks EndedMarch 29, 2008
    
    
    March 31, 2007Transportation
    
    
    
    
    
    
    
    
    
    
    TransportationLogistics
    
    
    Insurance
    
    
    Total
    
    
    Logistics
    
    
    Insurance
    
    
    TotalExternal revenue
    
    $
    599,600
    
    
    $
    9,228
    
    
    $
    608,828
    
    
    $
    567,439
    
    
    $
    9,210
    
    
    $
    576,649Investment income
    
    
    
    
    
    
    1,096
    
    
    
    1,096
    
    
    
    
    
    
    
    1,740
    
    
    
    1,740Internal revenue
    
    
    
    
    
    
    5,852
    
    
    
    5,852
    
    
    
    
    
    
    
    6,196
    
    
    
    6,196Operating income
    
    
    32,386
    
    
    
    8,603
    
    
    
    40,989
    
    
    
    33,512
    
    
    
    3,359
    
    
    
    36,871Goodwill
    
    
    31,134
    
    
    
    
    
    
    
    31,134
    
    
    
    31,134
    
    
    
    
    
    
    
    31,134
 (6)
    
    Comprehensive Income
  Thirteen Weeks EndedMarch 29,
    
    
    March 31,2008
    
    
    2007Net income
    
    $
    23,743
    
    
    $
    21,604Unrealized holding
gains on
available-for-sale
investments, net of
income taxes
    
    
    204
    
    
    
    15Comprehensive income
    
    $
    23,947
    
    
    $
    21,619
  (7)
    
    Commitments and Contingencies
      9




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Introduction
     10




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Changes in Financial Condition and Results of Operations
    Thirteen Weeks EndedMarch 29,
    
    
    March 31,2008
    
    
    2007Revenue generated through (in thousands):BCO Independent Contractors
    
    $
    324,804
    
    
    $
    320,533Truck Brokerage Carriers
    
    
    228,633
    
    
    
    205,897Rail intermodal
    
    
    33,789
    
    
    
    26,971Ocean carriers
    
    
    8,434
    
    
    
    5,970Air carriers
    
    
    3,589
    
    
    
    4,615Other (1)
    
    
    9,579
    
    
    
    12,663$
    608,828
    
    
    $
    576,649Number of loads:BCO Independent Contractors
    
    
    203,200
    
    
    
    205,600Truck Brokerage Carriers
    
    
    142,030
    
    
    
    137,820Rail intermodal
    
    
    14,980
    
    
    
    12,100Ocean carriers
    
    
    1,250
    
    
    
    1,040Air carriers
    
    
    1,990
    
    
    
    3,280363,450
    
    
    
    359,840Revenue per load:BCO Independent Contractors
    
    $
    1,598
    
    
    $
    1,559Truck Brokerage Carriers
    
    
    1,610
    
    
    
    1,494Rail intermodal
    
    
    2,256
    
    
    
    2,229Ocean carriers
    
    
    6,747
    
    
    
    5,740Air carriers
    
    
    1,804
    
    
    
    1,407
 
 (1)
    
    Includes premium revenue generated by the insurance segment, warehousing revenue
generated by the transportation logistics segment and revenue derived from transportation
services provided in support of disaster relief efforts provided primarily under a contract
between Landstar Express America, Inc. and the United States Department of
Transportation/Federal Aviation Administration. 11




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##### Table of Contents



March 29,
    
    
    March 31,2008
    
    
    2007BCO Independent Contractors
    
    
    8,277
    
    
    
    8,510Truck Brokerage Carriers:Approved and active (1)
    
    
    15,820
    
    
    
    14,784Other approved
    
    
    9,515
    
    
    
    8,75825,335
    
    
    
    23,542Total available truck capacity providers
    
    
    33,612
    
    
    
    32,052Number of trucks provided by BCO Independent Contractors
    
    
    8,856
    
    
    
    9,158
 
 (1)
    
    Active refers to Truck Brokerage Carriers who moved at least one load in the 180
days immediately preceding the fiscal quarter end.       12




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Thirteen Weeks EndedMarch 29,
    
    
    March 31,2008
    
    
    2007Revenue
    
    
    100.0
    %
    
    
    100.0
    %Investment income
    
    
    0.2
    
    
    
    0.3Costs and expenses:Purchased transportation
    
    
    76.4
    
    
    
    75.3Commissions to agents
    
    
    7.7
    
    
    
    8.1Other operating costs
    
    
    1.1
    
    
    
    1.0Insurance and claims
    
    
    1.6
    
    
    
    3.0Selling, general and administrative
    
    
    5.9
    
    
    
    5.7Depreciation and amortization
    
    
    0.8
    
    
    
    0.8Total costs and expenses
    
    
    93.5
    
    
    
    93.9Operating income
    
    
    6.7
    
    
    
    6.4Interest and debt expense
    
    
    0.3
    
    
    
    0.3Income before income taxes
    
    
    6.4
    
    
    
    6.1Income taxes
    
    
    2.5
    
    
    
    2.4Net income
    
    
    3.9
    %
    
    
    3.7
    %
      13




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16




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17




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Purchases of Equity Securities by the Company
   Dividend Amount
    
    Declaration
    
    Record
    
    Paymentper share
    
    Date
    
    Date
    
    Date$0.0375
    
    January 31, 2008
    
    February 8, 2008
    
    February 29, 2008
        18




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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 19




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LANDSTAR SYSTEM, INC.Date: May 1, 2008
    /s/ Henry H. GerkensHenry H. GerkensPresident and
Chief Executive OfficerDate: May 1, 2008
    /s/ James B. GattoniJames B. GattoniVice President and Chief
Financial Officer 20