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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K

(Mark One)	 	 	
þ	 	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	
 	 	For the Fiscal Year Ended December 26, 2009	
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 System, Inc.
(Exact name of registrant as specified in its charter)

Delaware	 	06-1313069	
(State or other jurisdiction of
incorporation or organization)	 	(I.R.S. Employer
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)
 
Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	 	Name of Exchange on Which Registered	
 	 	 	
Common Stock, $0.01 Par Value	 	The NASDAQ Stock Market, Inc.	
 
Securities Registered Pursuant to Section 12(g) of the Act:
None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes þ     No o
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o     No þ
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  þ      No  o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files):  Yes  o      No  o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   þ
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 	 	 	 	 	 	 	
Large accelerated filer þ	 	Accelerated filer o	 	Non-accelerated filer o
(Do not check if a smaller reporting company)	 	Smaller reporting company o	
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o     No þ
 
The aggregate market value of the voting stock held by non-affiliates of the registrant was $1,833,883,000 (based on the per share closing price on June 27, 2009, the last business day of the Company’s second fiscal quarter, as reported on the NASDAQ Global Select Market). In making this calculation, the registrant has assumed, without admitting for any purpose, that all directors and executive officers of the registrant, and no other persons, are affiliates.
 
The number of shares of the registrant’s common stock, par value $0.01 per share (the “Common Stock”), outstanding as of the close of business on January 29, 2010 was 50,248,214.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Portions of the following document are incorporated by reference in this Form 10-K as indicated herein:

 	 	Part of 10-K
	
 	 	into Which
	
Document	 	Incorporated	
 	 	 	
Proxy Statement relating to Landstar System, Inc.’s Annual Meeting of Stockholders scheduled to be held on April 29, 2010	 	Part III	

 

LANDSTAR SYSTEM, INC.

2009 ANNUAL REPORT ON FORM 10-K
 
TABLE OF CONTENTS

 	 	 	 	Page	
 	 	 	 	 	 	 	 	 	
PART I	
 	Item 1.	 	 	Business	 	 	3	 	
 	Item 1A.	 	 	Risk Factors	 	 	11	 	
 	Item 1B.	 	 	Unresolved Staff Comments	 	 	15	 	
 	Item 2.	 	 	Properties	 	 	15	 	
 	Item 3.	 	 	Legal Proceedings	 	 	15	 	
 	Item 4.	 	 	Submission of Matters to a Vote of Security Holders	 	 	16	 	
 	
PART II	
 	Item 5.	 	 	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	 	 	17	 	
 	Item 6.	 	 	Selected Financial Data	 	 	20	 	
 	Item 7.	 	 	Management’s Discussion and Analysis of Financial Condition and Results of Operations	 	 	20	 	
 	Item 7A.	 	 	Quantitative and Qualitative Disclosures About Market Risk	 	 	32	 	
 	Item 8.	 	 	Financial Statements and Supplementary Data	 	 	34	 	
 	Item 9.	 	 	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	 	 	63	 	
 	Item 9A.	 	 	Controls and Procedures	 	 	63	 	
 	Item 9B.	 	 	Other Information	 	 	65	 	
 	
PART III	
 	Item 10.	 	 	Directors, Executive Officers and Corporate Governance	 	 	65	 	
 	Item 11.	 	 	Executive Compensation	 	 	65	 	
 	Item 12.	 	 	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	 	 	66	 	
 	Item 13.	 	 	Certain Relationships and Related Transactions, and Director Independence	 	 	66	 	
 	Item 14.	 	 	Principal Accounting Fees and Services	 	 	66	 	
 	
PART IV	
 	Item 15.	 	 	Exhibits and Financial Statement Schedules	 	 	66	 	
Signatures	 	 	69	 	
 EX-10.3	
 EX-10.6.4	
 EX-10.7	
 EX-10.13	
 EX-21.1	
 EX-23.1	
 EX-24.1	
 EX-31.1	
 EX-31.2	
 EX-32.1	
 EX-32.2	

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PART I

Item 1.  	Business	
 
General
 
Landstar System, Inc. was incorporated in January 1991 under the laws of the State of Delaware. It acquired all of the capital stock of its predecessor, Landstar System Holdings, Inc. (“LSHI”) on March 28, 1991. Landstar System, Inc. has been a publicly held company since its initial public offering in March 1993. LSHI owns directly or indirectly all of the common stock of Landstar Ranger, Inc. (“Landstar Ranger”), Landstar Inway, Inc. (“Landstar Inway”), Landstar Ligon, Inc. (“Landstar Ligon”), Landstar Gemini, Inc. (“Landstar Gemini”), Landstar Transportation Logistics, Inc. (“Landstar Transportation Logistics”), Landstar Global Logistics, Inc. (“Landstar Global Logistics”), Landstar Express America, Inc. (“Landstar Express America”), Landstar Canada Holdings, Inc. (“LCHI”), Landstar Canada, Inc. (“Landstar Canada”), Landstar Contractor Financing, Inc. (“LCFI”), Risk Management Claim Services, Inc. (“RMCS”), Landstar Supply Chain Solutions, Inc. (“LSCS”), National Logistics Management Co. (“NLM”) and Signature Insurance Company (“Signature”). LSCS owns 100% of the non-voting, preferred interests and 75% of the voting, common equity interests in A3i Acquisition, LLC (“A3i Acquisition”). A3 Integration, LLC (“A3i”) is a wholly-owned subsidiary of A3i Acquisition. Landstar Ranger, Landstar Inway, Landstar Ligon, Landstar Gemini, Landstar Transportation Logistics, Landstar Global Logistics, Landstar Express America, NLM, A3i and Landstar Canada are collectively herein referred to as Landstar’s “Operating Subsidiaries.” Landstar System, Inc., LSHI, LCFI, RMCS, LCHI, LSCS, A3i Acquisition, Signature and the Operating Subsidiaries are collectively referred to herein as “Landstar” or the “Company,” unless the context otherwise requires. The Company’s principal executive offices are located at 13410 Sutton Park Drive South, Jacksonville, Florida 32224 and its telephone number is (904) 398-9400. The Company makes available free of charge through its website its annual report on Form 10-K, quarterly reports on Form 10-Q, proxy and current reports on Form 8-K as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission (“SEC”). The Company’s website is www.landstar.com. The SEC maintains a website at http://www.sec.gov that contains the Company’s current and periodic reports, proxy and information statements and other information filed electronically with the SEC.
 
In the Company’s 2009 fiscal third quarter, the Company completed the acquisitions of (i) NLM (together with a limited liability company and certain corporate subsidiaries and affiliates) and (ii) A3i through A3i Acquisition, an entity in which the Company owns 100% of the non-voting, preferred interests and 75% of the voting, common equity interests. A3i is a wholly-owned subsidiary of A3i Acquisition. These two acquisitions are referred to herein collectively as the “Recent Acquisitions.” NLM is a non-asset based third-party logistics provider which utilizes proprietary technology to manage transportation services for shippers and provides software-as-a-service technology to customers to perform their own transportation execution management. A3i operates as a software-as-a-service business which utilizes proprietary technology from a third party as well as its own internally developed technology to offer supply chain systems integration and solutions to large and small shippers, including transportation order management, shipment planning and optimization, rate management, transportation sourcing, global in-transit visibility and shipment execution.
 
Description of Business
 
Landstar is a non-asset based provider of freight transportation services and supply chain solutions. The Company offers shippers services across multiple transportation modes, with the ability to arrange for individual shipments of freight to enterprise-wide solutions to manage all of a shipper’s transportation and logistics needs. The Company provides services to shippers principally throughout the United States and Canada, between the United States, Canada and Mexico, and, to a lesser extent, in other countries around the world. These business services emphasize safety, information coordination and customer service and are delivered through a network of independent commission sales agents and third party capacity providers linked together by a series of technological applications which are provided and coordinated by the Company.
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Landstar markets its freight transportation services and supply chain solutions primarily through independent commission sales agents. Landstar’s independent commission sales agents enter into contractual arrangements with the Company and are primarily responsible for locating freight, making that freight available to Landstar’s third party capacity providers and coordinating the transportation of the freight with customers and third party capacity providers. The Company’s third party capacity providers consist of independent contractors who provide truck capacity to the Company under exclusive lease arrangements (the “BCO Independent Contractors”), unrelated trucking companies who provide truck capacity to the Company under non-exclusive contractual arrangements (the “Truck Brokerage Carriers”), air cargo carriers, ocean cargo carriers, railroads and independent warehouse capacity providers (“Warehouse Capacity Owners”). The Company has contracts with all of the Class 1 domestic and Canadian railroads and certain short-line railroads and contracts with domestic and international airlines and ocean lines. Through its network of employees, agents and capacity providers linked together by Landstar’s technological applications, Landstar operates a transportation services and supply chain solutions business primarily throughout North America with revenue of approximately $2.0 billion during the most recently completed fiscal year. The Company reports the results of two operating segments: the transportation logistics segment and the insurance segment.
 
Transportation Logistics Segment
 
The transportation logistics segment provides a wide range of transportation services and supply chain solutions. Transportation services offered by the Company include truckload and less-than-truckload transportation, rail intermodal, air cargo, ocean cargo, expedited ground and air delivery of time-critical freight, heavy-haul/specialized, U.S.-Canada and U.S.-Mexico cross-border, project cargo and customs brokerage. Supply chain solutions are based on advanced technology solutions offered by the Company and include integrated multi-modal solutions, outsourced logistics, supply chain engineering and warehousing. Also, supply chain solutions can be delivered through a software-as-a-service model. Industries serviced by the transportation logistics segment include automotive products, paper, lumber and building products, metals, chemicals, foodstuffs, heavy machinery, retail, electronics, ammunition and explosives and military hardware. In addition, the transportation logistics segment provides transportation services to other transportation companies, including logistics and less-than-truckload service providers. Each of the independent commission sales agents has the opportunity to market all of the services provided by the transportation logistics segment. Freight transportation services are typically charged to customers on a per shipment basis for the physical transportation of freight. Supply chain solution customers are generally charged fees for the services provided. Revenue recognized by the transportation logistics segment when providing capacity to customers to haul their freight is referred to herein as “transportation services revenue” and revenue for freight management services recognized on a fee-for-service basis is referred to herein as “transportation management fees.”
 
Truck Services.  The transportation logistics segment’s truckload services include a full array of truckload transportation for a wide range of general commodities, much of which are transported over irregular or non-repetitive routes. The Company utilizes a broad assortment of specialized equipment, including dry and specialty vans of various sizes, unsided trailers (including flatbeds, drop decks and light specialty trailers), temperature-controlled vans and containers. Available truckload services also include short-to-long haul movement of containers by truck and expedited ground and dedicated power-only truck capacity. During fiscal year 2009, revenue hauled by BCO Independent Contractors and Truck Brokerage Carriers was 58% and 35%, respectively, of total transportation logistics segment revenue. The Company’s truck services contributed 91% of total revenue in fiscal year 2009.
 
Rail Intermodal Services.  The transportation logistics segment has contracts with all of the Class 1 domestic and Canadian railroads and certain short-line railroads and all major asset-based intermodal equipment providers, including agreements with stacktrain operators and container and trailing equipment companies. In addition, the transportation logistics segment has contracts with a vast network of local trucking companies that handle pick-up and delivery of rail freight. These contracts provide the transportation logistics segment the ability to transport freight via rail throughout the United States, Canada and Mexico. The transportation logistics segment’s rail intermodal services include trailer on flat car, container on flat car, box
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car and railcar service capabilities. The transportation logistics segment’s rail intermodal services contributed 4% of total revenue in fiscal year 2009.
 
Air and Ocean Services.  The transportation logistics segment provides international ocean and air services to its customers utilizing international airlines and ocean lines. The transportation logistics segment executes international freight transportation as an IATA certified Indirect Air Carrier (IAC) and Federal Maritime Commission (FMC) licensed non-vessel operating common carrier (NVOCC). The transportation logistics segment also provides international freight transportation solutions as a licensed freight forwarder. Through its network of independent commission sales agents and relationships within a global network of foreign freight forwarders, the transportation logistics segment provides efficient and cost effective door-to-door transportation to most points in the world for a vast array of cargo types such as over sized break bulk, consolidations, full container loads and refrigerated cargo. The transportation logistics segment’s air and ocean services contributed 3% of total revenue in fiscal year 2009.
 
Advanced Technology Solutions.  In the Company’s 2009 fiscal third quarter, the Company completed the Recent Acquisitions. NLM and A3i are supply chain transportation integration companies offering customers technology-based supply chain solutions and other value added services on a fee-for-service basis. The services provided by NLM and A3i, along with the Company’s existing capabilities, offer shippers supply chain solutions, including logistics order management, shipment planning and optimization, rate management, transportation sourcing, global in-transit visibility and shipment execution. Supply chain solutions offered by the Company can be managed by the Company through its transportation services offerings or be utilized by shippers as a software-as-a service offering, in which the shipper manages its carriers and executes its own shipments utilizing the Company’s technology. The Company’s supply chain solution services are capable of handling world-wide transportation and logistics services in multiple currencies.
 
Warehousing Services.  The transportation logistics segment’s warehouse offering provides customers with nationwide access to available warehouse capacity utilizing a network of independently owned and operated regional warehouse facilities linked by a single warehouse information technology application without Landstar owning or leasing facilities or hiring employees to work at warehouses.
 
Other Services.  During the fiscal year ended December 27, 2008, revenue for passenger bus capacity provided for evacuation assistance related to the storms that impacted the Gulf Coast in September 2008 (“Bus Revenue”) represented 1% of the Company’s transportation logistics segment revenue in 2008.
 
Insurance Segment
 
The insurance segment is comprised of Signature, a wholly owned offshore insurance subsidiary, and RMCS. This segment provides risk and claims management services to certain of Landstar’s Operating Subsidiaries. In addition, it reinsures certain risks of the Company’s BCO Independent Contractors and provides certain property and casualty insurance directly to certain of Landstar’s Operating Subsidiaries. Revenue, representing premiums on reinsurance programs provided to the Company’s BCO Independent Contractors, at the insurance segment represented approximately 2% of the Company’s total 2009 revenue.
 
Factors Significant to the Company’s Operations
 
Management believes the following factors are particularly significant to the Company’s operations:
 
Agent Network
 
The Company’s primary day-to-day contact with its customers is through its network of independent commission sales agents and not typically through employees of the Company. The typical Landstar independent commission sales agent maintains a relationship with a number of shippers and services these shippers utilizing the Company’s network of technological applications and the various modes of transportation made available through the Company’s network of third party capacity providers. The Company provides assistance to the agents in developing additional relationships with shippers and enhancing agent and Company relationships with larger shippers through the Company’s field employees, located throughout the United States
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and, to a lesser degree, in Canada. The Operating Subsidiaries emphasize programs to support the agents’ operations and to provide guidance on establishing pricing parameters for freight hauled by the various modes of transportation available to the agents. Nevertheless, it is important to note that Operating Subsidiaries contract directly with customers and generally assume the credit risk and liability for freight losses or damages.
 
Management believes the Company has more independent commission sales agents than any other non-asset based transportation and logistics services company. Landstar’s network of over 1,350 independent commission sales agent locations provides the Company regular contact with shippers at the local level and the capability to be highly responsive to shippers’ changing needs. The Company’s large fleet of available capacity, as further described below, provides the agent network the resources needed to service both large and small shippers. Through its agent network, the Company offers smaller shippers a level of service comparable to that typically enjoyed only by larger customers. Examples include the ability to provide transportation services on short notice (often within hours from notification to time of pick-up), multiple pick-up and delivery points, electronic data interchange capability and access to specialized equipment. In addition, a number of the Company’s agents specialize in certain types of freight and transportation services (such as oversized or heavy loads). Each independent commission sales agent has the opportunity to market all of the services provided by the transportation logistics segment.
 
Commissions to agents are generally between 5% and 10% of the revenue generated and are based on contractually agreed-upon percentages of transportation services revenue or gross profit, defined as revenue less the cost of purchased transportation or gross profit less a contractually agreed upon percentage of revenue retained by Landstar. Commissions to agents as a percentage of consolidated revenue will vary directly with fluctuations in the percentage of consolidated revenue generated by the various modes of transportation, transportation management fees and the insurance segment and with changes in gross profit on services provided by Truck Brokerage Carriers, rail intermodal carriers, air cargo carriers and ocean cargo carriers. Commissions to agents are recognized upon the completion of freight delivery.
 
The independent commission sales agents use a variety of proprietary and third party technological applications, depending on the mode of transportation, provided by the Company to service the requirements of shippers. For truck services, the Company’s independent commission sales agents use Landstar proprietary software which enables agents to enter available freight, dispatch capacity and process most administrative procedures and then communicate that information to Landstar and its capacity providers via the internet. The Company’s web-based available truck information system provides a listing of available truck capacity to the Company’s independent commission sales agents. For other modes, the independent commission sales agents utilize mostly third party technological applications provided by the Company.
 
The Company reported 405 and 484 agents who generated at least $1 million each in revenue during 2009 and 2008, respectively. The significant decrease in the number of million dollar agents experienced during 2009 was primarily attributable to the significant downturn in the domestic economy that began in the later part of 2008 and continued throughout 2009. The decrease in million dollar agents was primarily due to 93 agents who achieved $1 million each in revenue in 2008, but, due to the soft freight environment, produced less than $1 million each in revenue in 2009. Turnover, representing the percentage of the 484 million dollar agents who terminated during 2009, was approximately 3 percent. Historically, Landstar has experienced very low turnover among its agents who annually generate revenue of $1 million or more. Management believes that the majority of the agents who annually generate revenue of $1 million or more choose to represent Landstar exclusively.
 
Transportation Capacity
 
The Company relies exclusively on independent third parties for its hauling capacity other than for a portion of the Company’s available trailing equipment owned or leased by the Company and utilized primarily by the BCO Independent Contractors. These third party transportation capacity providers consist of BCO Independent Contractors, Truck Brokerage Carriers, air and ocean cargo carriers and railroads. Landstar’s use of capacity provided exclusively by third parties allows it to maintain a lower level of capital investment,
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resulting in lower fixed costs. During the most recently completed fiscal year, revenue hauled by BCO Independent Contractors, Truck Brokerage Carriers, rail intermodal, air and ocean carriers represented 58%, 35%, 4%, 1% and 2%, respectively, of the Company’s transportation logistics segment revenue. Historically, with the exception of air revenue, the net margin (defined as revenue less the cost of purchased transportation and commissions to agents divided by revenue) generated from freight hauled by BCO Independent Contractors has been greater than from freight hauled by other third party capacity providers. However, the Company’s insurance and claims costs and other operating costs are incurred primarily in support of the BCO Independent Contractor capacity. In addition, as further described in the “Corporate Services” section that follows, the Company incurs significantly higher selling, general and administrative costs in support of the BCO Independent Contractor capacity as compared to the other modes of transportation. Purchased transportation costs are recognized upon the completion of freight delivery.
 
BCO Independent Contractors.  Management believes the Company has the largest fleet of truckload BCO Independent Contractors in the United States. BCO Independent Contractors provide truck capacity to the Company under exclusive lease arrangements. Each BCO Independent Contractor operates under the motor carrier operating authority issued by the U.S. Department of Transportation (“DOT”) to Landstar’s Operating Subsidiary to which such BCO Independent Contractor has leased his or her services and equipment. The Company’s network of BCO Independent Contractors provides marketing, operating, safety, recruiting, retention and financial advantages to the Company.
 
The Company’s BCO Independent Contractors are compensated based on a fixed percentage of the revenue generated from the freight they haul. This percentage generally ranges from 62% to 73% where the BCO Independent Contractor provides only a tractor and 73% to 75% where the BCO Independent Contractor provides both a tractor and a trailer. The BCO Independent Contractor must pay substantially all of the expenses of operating his/her equipment, including driver wages and benefits, fuel, physical damage insurance, maintenance, highway use taxes and debt service, if applicable. The Company passes 100% of fuel surcharges billed to customers for freight hauled by BCO Independent Contractors to its BCO Independent Contractors. During 2009, the Company billed customers $128.4 million in fuel surcharges and passed 100% of such fuel surcharges to the BCO Independent Contractors. These fuel surcharges are excluded from revenue.
 
The Company maintains an internet site through which BCO Independent Contractors can view a comprehensive listing of the Company’s available freight, allowing them to consider rate, size, origin and destination when planning trips. The Landstar Contractors’ Advantage Purchasing Program (LCAPP) leverages Landstar’s purchasing power to provide discounts to eligible BCO Independent Contractors when they purchase equipment, fuel, tires and other items. In addition, LCFI provides a source of funds at competitive interest rates to the BCO Independent Contractors to purchase primarily trailing equipment and mobile communication equipment.
 
The number of trucks provided to the Company by the BCO Independent Contractors was 8,519 at December 26, 2009, compared to 9,039 at December 27, 2008. At December 26, 2009, 96% of the trucks provided by BCO Independent Contractors were provided by BCO Independent Contractors who provided 5 or fewer trucks to the Company. The number of trucks provided by BCO Independent Contractors fluctuates daily as a result of truck recruiting and truck terminations. Trucks recruited were higher in 2009 than in 2008, and trucks terminated were also higher in 2009 compared to 2008, resulting in a net loss of 520 trucks during 2009. Landstar’s truck turnover was approximately 41% in 2009 compared to 32% in 2008. Approximately half of this turnover was attributable to BCO Independent Contractors who had been with the Company for less than one year. Management believes that factors that have historically favorably impacted turnover include the Company’s extensive agent network, the Company’s programs to reduce the operating costs of its BCO Independent Contractors and Landstar’s reputation for quality, service and reliability. Management believes that a reduction in the amount of freight made available from the Company to the BCO Independent Contractors may cause an increase in the BCO Independent Contractor truck turnover ratio, as experienced in 2009.
 
Truck Brokerage Carriers.  At December 26, 2009, the Company maintained a database of over 24,000 qualified Truck Brokerage Carriers who provide truck hauling capacity to the Company. Truck Brokerage
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Carriers provide truck capacity to the Company under non-exclusive contractual arrangements and each operates under their own DOT-issued motor carrier operating authority. Truck Brokerage Carriers are paid either a negotiated rate for each load they haul or a contractually agreed-upon amount per load. The Company recruits, qualifies, establishes contracts with, tracks safety ratings and service records of and generally maintains the relationships with these third party trucking companies. In addition to providing additional capacity to the Company, the use of Truck Brokerage Carriers enables the Company to pursue different types and quality of freight such as temperature-controlled, short-haul traffic and less-than-truckload and, in certain instances, lower-priced freight that generally would not be handled by the Company’s BCO Independent Contractors.
 
The Company maintains an internet site through which Truck Brokerage Carriers can view a listing of the Company’s freight that is available to be hauled by Truck Brokerage Carriers. The Landstar Savings Plus Program leverages Landstar’s purchasing power to provide discounts to eligible Truck Brokerage Carriers when they purchase fuel and equipment and provides the Truck Brokerage Carriers with an electronic payment option.
 
Third Party Rail, Air, Ocean and Other Transportation Capacity.  The Company has contracts with all of the Class 1 domestic and Canadian railroads and certain short-line railroads and contracts with domestic and international airlines and ocean lines. These relationships allow the Company to pursue the freight best serviced by these forms of transportation capacity. Railroads and air and ocean cargo carriers are generally paid a contractually fixed amount per load. The Company also contracts with other third party capacity providers, such as air charter or passenger bus companies, when required by specific customer needs.
 
Warehouse Capacity
 
The Company has contracts with Warehouse Capacity Owners throughout the United States. The services available to the Company’s customers provided from the warehouse capacity network include storage, order fulfillment, repackaging, labeling, inventory consolidations, sub-assembly and temperature and climate options. In general, Warehouse Capacity Owners are paid a fixed percentage of the gross revenue for storage and services provided through their warehouse. Warehouse storage and services are reported net of the amount earned by the Warehouse Capacity Owner. Warehousing services were not a significant contributor to revenue or earnings in 2009, 2008 and 2007.
 
Trailing Equipment
 
The Company offers its customers a large and diverse fleet of trailing equipment. Specialized services offered by the Company include those provided by a large fleet of flatbed trailers and multi-axle trailers capable of hauling extremely heavy or oversized loads. Management believes the Company offers the largest motor carrier fleet of heavy/specialized trailing equipment in the United States.
 
The following table illustrates the diversity of the trailing equipment, as of December 26, 2009, either provided by the BCO Independent Contractors or owned or leased by the Company and made available primarily to BCO Independent Contractors. In general, Truck Brokerage Carriers utilize their own trailing equipment when providing transportation services on behalf of Landstar. Truck Brokerage Carrier trailing equipment is not included in the following table:

Trailers by Type	 	 	 	
 	 	 	 	 	
Vans	 	 	9,551	 	
Flatbeds, including step decks, drop decks and low boys	 	 	3,661	 	
Temperature-controlled	 	 	90	 	
 	 	 	 	 	
Total	 	 	13,302	 	

At December 26, 2009, 8,505 of the trailers available to the BCO Independent Contractors were owned by the Company, 32 were leased by the Company with monthly rental payments equal to a fixed percentage of revenue hauled by the trailer, and 254 trailers were rented by the Company under short-term rental
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arrangements. In addition, at December 26, 2009, 4,511 trailers were provided by the BCO Independent Contractors.
 
Customers
 
The Company’s customer base is highly diversified and dispersed across many industries, commodities and geographic regions. The Company’s top 100 customers accounted for approximately 51% and 52%, respectively, of the Company’s revenue during fiscal 2009 and 2008. Management believes that the Company’s overall size, technological applications, geographic coverage, access to equipment and diverse service capability offer the Company significant competitive marketing and operating advantages. These advantages allow the Company to meet the needs of even the largest shippers. Larger shippers often consider reducing the number of authorized carriers they use in favor of a small number of “core carriers,” such as the Company, whose size and diverse service capabilities enable these core carriers to satisfy most of the shippers’ transportation needs. The Company’s national account customers include the United States Department of Defense and many of the companies included in the Fortune 500. Large shippers are also using third party logistics providers (“3PLs”) to outsource the management and coordination of their transportation needs. The Company’s supply chain solutions services provide shippers the opportunity to outsource the management and coordination of their transportation needs and provide these shippers the opportunity to utilize the significant amount of capacity available from the Company. 3PL’s and other transportation companies also utilize the Company’s transportation capacity to satisfy their obligations to their shippers. There were nine transportation service providers, including 3PLs, included in the Company’s top 25 customers for the fiscal year ended December 26, 2009. Management believes the Company’s network of agents and third party capacity providers allows it to efficiently attract and service smaller shippers which may not be as desirable to other large transportation providers (see above under “Agent Network”). No customer accounted for more than 10% of the Company’s 2009 revenue.
 
Technology
 
Management believes leadership in the development and application of technology is an ongoing part of providing high quality service at competitive prices. The Company continues to focus on identifying, purchasing or developing and implementing software applications which are designed to improve its operational and administrative efficiency, assist its independent commission sales agents in sourcing capacity and pricing transportation services, assist customers in meeting their supply chain needs and assist its third party capacity providers in identifying desirable freight. Landstar focuses on providing transportation services and supply chain solutions which emphasize customer service and information coordination among its independent commission sales agents, customers and capacity providers. Landstar intends to continue to purchase or develop appropriate systems and technologies that offer integrated transportation and logistics solutions to meet the total needs of its customers. In 2009, the Company completed the Recent Acquisitions that offer customers technology-based supply chain solutions and other value added services on a fee-for-service basis. The services provided by NLM and A3i along with the Company’s existing capabilities provide the Company with the ability to offer customers complete enterprise solutions and compete in the ‘freight management’ segment of the transportation industry.
 
The Company’s information technology systems used in connection with its operations are located in Jacksonville, Florida and, to a lesser extent, in Rockford, Illinois and Detroit, Michigan. In addition, the Company utilizes several third-party data centers throughout the U.S. Landstar relies, in the regular course of its business, on the proper operation of its information technology systems.
 
Corporate Services
 
The Company provides many administrative support services to its network of independent commission sales agents, third party capacity providers and customers. Management believes that the technological applications purchased or developed and maintained by the Company and its administrative support services provide operational and financial advantages to the independent commission sales agents, third party capacity
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providers and customers, and in turn, enhance the operational and financial efficiency of all aspects of the network.
 
Administrative support services that provide operational and financial advantages to the network include customer contract administration, customer credit review and approvals, sales administration and pricing, customer billing, accounts receivable collections, third party capacity payment, safety and operator and equipment compliance management, insurance claims handling, coordination of vendor discount programs and third party capacity quality programs. The Company also provides marketing and advertising strategies.
 
Management also believes that significant advantages result from the collective expertise and corporate services provided by Landstar’s corporate management. The primary functions provided by management include finance and treasury services, accounting, strategic initiatives, budgeting, taxes, legal and human resource management.
 
Competition
 
Landstar competes primarily in the transportation and logistics services industry with truckload carriers, third party logistics companies, intermodal transportation and logistics service providers, railroads, less-than-truckload carriers and other non-asset based transportation and logistics service providers. The transportation and logistics services industry is extremely competitive and fragmented.
 
Management believes that competition for freight transported by the Company is based on service, efficiency and freight rates, which are influenced significantly by the economic environment, particularly the amount of available transportation capacity and freight demand. Management believes that Landstar’s overall size and availability of a wide range of equipment, together with its geographically dispersed local independent agent network and wide range of service offerings, present the Company with significant competitive advantages over many transportation and logistics service providers.
 
Self-Insured Claims
 
Potential liability associated with accidents in the trucking industry is severe and occurrences are unpredictable. For commercial trucking claims, Landstar retains liability up to $5,000,000 per occurrence. The Company also retains liability for each general liability claim up to $1,000,000, $250,000 for each workers’ compensation claim and up to $250,000 for each cargo claim. The Company’s exposure to liability associated with accidents incurred by Truck Brokerage Carriers, rail intermodal carriers, air cargo carriers and ocean cargo carriers who transport freight on behalf of the Company is reduced by various factors including the extent to which they maintain their own insurance coverage. A material increase in the frequency or severity of accidents, cargo or workers’ compensation claims or the unfavorable development of existing claims could have a material adverse effect on Landstar’s results of operations.
 
Insurance Coverage Above Self-Insured Retention
 
For the fiscal year ended and as of December 26, 2009, the Company maintains insurance for liabilities attributable to commercial trucking accidents with third party insurance companies for each and every occurrence in an amount in excess of $200,000,000 per occurrence above the Company’s $5,000,000 self insured retention. Historically, the Company has relied on a limited number of third party insurance companies to provide insurance coverage for commercial trucking claims in excess of specific per occurrence limits, up to various maximum amounts. The premiums proposed by the third party insurance companies providing coverage for commercial trucking liability insurance over the Company’s self insured retention amounts have varied dramatically. In an attempt to manage the significant fluctuations in the cost of these premiums required by the third party insurance companies, the Company has historically increased or decreased the level of its financial exposure to commercial trucking claims on a per occurrence basis by increasing or decreasing its level of self-insured retention.
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Regulation
 
Certain of the Operating Subsidiaries are considered motor carriers and/or brokers authorized to arrange for transportation services by motor carriers which are regulated by the Federal Motor Carrier Safety Administration (the “FMCSA”) and by various state agencies. The FMCSA has broad regulatory powers with respect to activities such as motor carrier operations, practices, periodic financial reporting and insurance. Subject to federal and state regulatory authorities or regulation, the Company’s capacity providers may transport most types of freight to and from any point in the United States over any route selected.
 
Interstate motor carrier operations are subject to safety requirements prescribed by the FMCSA. Each driver, whether a BCO Independent Contractor or Truck Brokerage Carrier, is required to have a commercial driver’s license and is subject to mandatory drug and alcohol testing. The FMCSA’s commercial driver’s license and drug and alcohol testing requirements have not adversely affected the Company’s ability to source the capacity necessary to meet its customers’ transportation needs.
 
In addition, certain of the Operating Subsidiaries are licensed as ocean transportation intermediaries by the U.S. Federal Maritime Commission as non-vessel-operating common carriers and/or as ocean freight forwarders. The Company’s air transportation activities are subject to regulation by the U.S. Department of Transportation as an indirect air carrier. The Company is also subject to regulations and requirements relating to safety and security promulgated by, among others, the U.S. Department of Homeland Security through the Bureau of U.S. Customs and Border Protection and the Transportation Security Administration, the Canada Border Services Agency and various state and local agencies and port authorities.
 
The transportation industry is subject to possible other regulatory and legislative changes (such as the possibility of more stringent environmental, climate change and/or safety/security regulations or limits on vehicle weight and size) that may affect the economics of the industry by requiring changes in operating practices or by changing the demand for common or contract carrier services or the cost of providing truckload or other transportation or logistics services.
 
Seasonality
 
Landstar’s operations are subject to seasonal trends common to the trucking industry. Results of operations for the quarter ending in March are typically lower than the quarters ending in June, September and December.
 
Employees
 
As of December 26, 2009, the Company and its subsidiaries employed 1,374 individuals. Approximately 14 Landstar Ranger drivers (out of a Company total of 8,519 drivers for BCO Independent Contractors) are members of the International Brotherhood of Teamsters. The Company considers relations with its employees to be good.

Item 1A.  	Risk Factors	
 
Increased severity or frequency of accidents and other claims.  As noted above in Item 1, “Business — Factors Significant to the Company’s Operations — Self-Insured Claims,” potential liability associated with accidents in the trucking industry is severe and occurrences are unpredictable. For commercial trucking claims, Landstar retains liability up to $5,000,000 per occurrence. The Company also retains liability for each general liability claim up to $1,000,000, $250,000 for each workers’ compensation claim and up to $250,000 for each cargo claim. The Company’s exposure to liability associated with accidents incurred by Truck Brokerage Carriers, rail intermodal carriers, air cargo carriers and ocean cargo carriers who transport freight on behalf of the Company is reduced by various factors including the extent to which they maintain their own insurance coverage. A material increase in the frequency or severity of accidents, cargo or workers’ compensation claims
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or the unfavorable development of existing claims could have a material adverse effect on Landstar’s results of operations.
 
Dependence on third party insurance companies.  As noted above in Item 1, “Business — Factors Significant to the Company’s Operations — Insurance Coverage Above Self-Insured Retention,” the Company is dependent on a limited number of third party insurance companies to provide insurance coverage in excess of its self-insured retention amounts. Historically, the Company has maintained insurance coverage for commercial trucking claims in excess of specific per occurrence limits, up to various maximum amounts, with a limited number of third party insurance companies. The premiums proposed by the third party insurance companies providing coverage for commercial trucking liability insurance above the Company’s self-insured retention amounts have varied dramatically. In an attempt to manage the significant fluctuations in the cost of these premiums required by the third party insurance companies, the Company has historically increased or decreased the level of its financial exposure to commercial trucking claims on a per occurrence basis by increasing or decreasing its level of self-insured retention.
 
Dependence on independent commission sales agents.  As noted above in Item 1, “Business — Factors Significant to the Company’s Operations — Agent Network,” the Company markets its services primarily through independent commission sales agents, and currently has a network of over 1,350 agent locations. During 2009, 405 agents generated revenue for Landstar of at least $1 million each, or approximately 87% of Landstar’s consolidated revenue. Although the Company competes with motor carriers and other third parties for the services of these independent commission sales agents, Landstar has historically experienced very limited agent turnover among its larger-volume agents. However, Landstar’s contracts with its agents are typically terminable upon 10 to 30 days notice by either party and generally restrict the ability of a former agent to compete with Landstar for a specific period of time following any such termination. The loss of some of the Company’s key agents or a significant decrease in volume generated by Landstar’s larger agents could have a material adverse effect on Landstar, including its results of operations and revenue.
 
Dependence on third party capacity providers.  As noted above in Item 1, “Business — Factors Significant to the Company’s Operations — Transportation Capacity,” Landstar does not own trucks or other transportation equipment (other than trailing equipment) and relies on third party capacity providers, including BCO Independent Contractors, Truck Brokerage Carriers, railroads and air and ocean cargo carriers, to transport freight for its customers. The Company competes with motor carriers and other third parties for the services of BCO Independent Contractors and other third party capacity providers. A significant decrease in available capacity provided by either the Company’s BCO Independent Contractors or other third party capacity providers could have a material adverse effect on Landstar, including its results of operations and revenue.
 
Decreased demand for transportation services.  The transportation industry historically has experienced cyclical financial results as a result of slowdowns in economic activity, the business cycles of customers, price increases by capacity providers and other economic factors beyond Landstar’s control. The Company’s third party capacity providers other than BCO Independent Contractors can be expected to charge higher prices to cover increased operating expenses and the Company’s operating income may decline if it is unable to pass through to its customers the full amount of such higher transportation costs. If a slowdown in economic activity or a downturn in the Company’s customers’ business cycles cause a reduction in the volume of freight shipped by those customers, the Company’s operating results could be materially adversely affected.
 
Substantial industry competition.  As noted above in Item 1, “Business — Factors Significant to the Company’s Operations — Competition,” Landstar competes primarily in the transportation and logistics services industry. The transportation and logistics services industry is extremely competitive and fragmented. Landstar competes primarily with truckload carriers, intermodal transportation service providers, railroads, less-than-truckload carriers, third party logistics companies and other non-asset based transportation and logistics service providers. Management believes that competition for the freight transported by the Company is based on service, efficiency and freight rates, which are influenced significantly by the economic environment, particularly the amount of available transportation capacity and freight demand. Historically, competition has created downward pressure on freight rates. In addition, many large shippers are using third
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party logistics providers (“3PLs”) other than the Company to outsource the management and coordination of their transportation needs rather than directly arranging for transportation services with carriers. Usage by large shippers of 3PLs often provide carriers, such as the Company, with a less direct relationship with the shipper and, as a result, may increase pressure on freight rates while making it more difficult for the Company to compete primarily based on service and efficiency. A decrease in freight rates could have a material adverse effect on Landstar, including its revenue and operating income.
 
Disruptions or failures in the Company’s computer systems.  As noted above in Item 1, “Business — Factors Significant to the Company’s Operations — Technology,” the Company’s information technology systems used in connection with its operations are located in Jacksonville, Florida and to a lesser extent in Rockford, Illinois and Detroit, Michigan. In addition, the Company utilizes several third-party data centers throughout the U.S. Landstar relies in the regular course of its business on the proper operation of its information technology systems to link its extensive network of customers, agents and third party capacity providers, including its BCO Independent Contractors. Although the Company has redundant systems for its critical operations, any significant disruption or failure of its technology systems could significantly disrupt the Company’s operations and impose significant costs on the Company.
 
Potential changes in fuel taxes.  From time to time, various legislative proposals are introduced to increase federal, state, or local taxes, including taxes on motor fuels. The Company cannot predict whether, or in what form, any increase in such taxes applicable to the transportation services provided by the Company will be enacted and, if enacted, whether or not the Company’s Truck Brokerage Carriers would attempt to pass the increase on to the Company or if the Company will be able to reflect this potential increased cost of capacity, if any, in prices to customers. Any such increase in fuel taxes, without a corresponding increase in price to the customer, could have a material adverse effect on Landstar, including its results of operations and financial condition. Moreover, competition from other transportation service companies including those that provide non-trucking modes of transportation and intermodal transportation would likely increase if state or federal taxes on fuel were to increase without a corresponding increase in taxes imposed upon other modes of transportation.
 
Status of independent contractors.  From time to time, various legislative or regulatory proposals are introduced at the federal or state levels to change the status of independent contractors’ classification to employees for either employment tax purposes (withholding, social security, Medicare and unemployment taxes) or other benefits available to employees. Currently, most individuals are classified as employees or independent contractors for employment tax purposes based on 20 “common-law” factors rather than any definition found in the Internal Revenue Code or Internal Revenue Service regulations. In addition, under Section 530 of the Revenue Act of 1978, taxpayers that meet certain criteria may treat an individual as an independent contractor for employment tax purposes if they have been audited without being told to treat similarly situated workers as employees, if they have received a ruling from the Internal Revenue Service or a court decision affirming their treatment, or if they are following a long-standing recognized practice.
 
The Company classifies all of its BCO Independent Contractors and independent commission sales agents as independent contractors for all purposes, including employment tax and employee benefit purposes. There can be no assurance that legislative, judicial, or regulatory (including tax) authorities will not introduce proposals or assert interpretations of existing rules and regulations that would change the employee/independent contractor classification of BCO Independent Contractors or independent commission sales agents currently doing business with the Company. Although management believes that there are no proposals currently pending that would significantly change the employee/independent contractor classification of BCO Independent Contractors or independent commission sales agents currently doing business with the Company, the costs associated with potential changes, if any, with respect to these BCO Independent Contractor and independent commission sales agent classifications could have a material adverse effect on Landstar, including its results of operations and financial condition if Landstar were unable to pass through to its customers the full amount of such higher transportation costs.
 
Regulatory and legislative changes.  As noted above in Item 1, “Business — Factors Significant to the Company’s Operations — Regulation,” certain of the Operating Subsidiaries are motor carriers and/or property
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brokers authorized to arrange for transportation services by motor carriers which are regulated by the Federal Motor Carrier Safety Administration (FMCSA), an agency of the U.S. Department of Transportation, and by various state agencies. The FMCSA has stated its intent to implement Comprehensive Safety Analysis 2010 beginning in July of 2010. We believe the intent is to improve regulatory oversight of motor carriers and commercial drivers using a Safety Measurement System methodology that may be fundamentally different from the methodology that the FMCSA currently relies upon. Certain of the Operating Subsidiaries are licensed as ocean transportation intermediaries by the U.S. Federal Maritime Commission as non-vessel-operating common carriers and/or as ocean freight forwarders. The Company’s air transportation activities in the United States are subject to regulation by the U.S. Department of Transportation as an indirect air carrier. The Company is also subject to regulations and requirements relating to safety and security promulgated by, among others, the U.S. Department of Homeland Security through the Bureau of U.S. Customs and Border Protection and the Transportation Security Administration, the Canada Border Services Agency and various state and local agencies and port authorities. The transportation industry is subject to possible regulatory and legislative changes (such as increasingly stringent environmental, climate change and/or safety/security regulations or limits on vehicle weight and size) that may affect the economics of the industry by requiring changes in operating practices or by changing the demand for common or contract carrier services or the cost of providing truckload or other transportation or logistics services.
 
Any such regulatory or legislative changes could have a material adverse effect on Landstar, including its results of operations and financial condition.
 
Recent focus on climate change and related environmental matters has led to efforts by federal and local governmental agencies to support legislation to limit the amount of carbon emissions, including emissions created by diesel engines utilized in tractors operated by the Company’s BCO Independent Contractors and Truck Brokerage Carriers. Increased regulation on emissions created by diesel engines could create substantial costs on the Company’s third-party capacity providers and, in turn, increase the cost of purchased transportation to the Company.
 
Catastrophic loss of a Company facility.  The Company faces the risk of a catastrophic loss of the use of all or a portion of its facilities located in Jacksonville, Florida, Rockford, Illinois and Detroit, Michigan due to hurricanes, flooding, tornados or other weather conditions or natural disasters, terrorist attack or otherwise. The Company’s corporate headquarters and approximately two-thirds of the Company’s employees are located in its Jacksonville, Florida facility. In particular, a significant hurricane that impacts the Jacksonville, Florida metropolitan area could significantly disrupt the Company’s operations and impose significant costs on the Company.
 
Although the Company maintains insurance covering its facilities, including business interruption insurance, the Company’s insurance may not be adequate to cover all losses that may be incurred in the event of a catastrophic loss of one of the Company’s facilities. In addition, such insurance, including business interruption insurance, could in the future become more expensive and difficult to maintain and may not be available on commercially reasonable terms or at all.
 
Acquired businesses.  On July 2, 2009, the Company completed the Recent Acquisitions. See “Business — General.” NLM’s business is heavily dependent on the automotive industry which has been very volatile in the past few years. As of the time of its acquisition by the Company, A3i was a startup company with no customers under contract. It licenses its principal software technology from an unaffiliated third party. The Company’s strategic initiatives of the Recent Acquisitions were to increase freight transportation opportunities by diversifying NLM into industries other than the domestic automotive industry and to identify and engage customers to utilize A3i’s supply chain solutions technology. The Company makes no assurance that the Company will be able to successfully achieve its strategic initiatives as it relates to the Recent Acquisitions. If the Company fails to do so, or if the Company does so but at a greater cost than anticipated, or if NLM and A3i experience earnings growth significantly below those anticipated, the Company’s financial results may be adversely affected.
 
The Company periodically considers acquisitions that it believes are strategically important based on the potential that any such acquisition candidates would further strengthen the Company’s service offerings,
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information technology platform and customer base and would generate additional revenue and earnings growth.
 
Intellectual property.  The Company uses both internally developed and purchased technology in conducting its business. Whether internally developed or purchased, it is possible that the use of these technologies could be claimed to infringe upon or violate the intellectual property rights of third parties. In the event that a claim is made against the Company by a third party for the infringement of intellectual property rights, any settlement or adverse judgment against the Company either in the form of increased costs of licensing or a cease and desist order in using the technology could have an adverse effect on the Company’s business and its results of operations.

Item 1B.  	Unresolved Staff Comments	
 
None.

Item 2.  	Properties	
 
The Company owns or leases various properties in the U.S. for the Company’s operations and administrative staff that support its independent commission sales agents, BCO Independent Contractors and other third party capacity providers. The transportation logistics segment’s primary facilities are located in Jacksonville, Florida, Rockford, Illinois and Detroit, Michigan. In addition, the Company’s corporate headquarters are located in Jacksonville, Florida. The Rockford, Illinois facility is owned by the Company and all other primary facilities are leased. The Company’s primary facility in Jacksonville, Florida (the “Jacksonville Facility”) is leased under a lease agreement that provides the Company with an option to purchase the Jacksonville Facility, including the land and fixtures located thereon, at a fixed price of $21,135,000 in the first quarter of 2010. The Company has entered into a contract of sale with its landlord to purchase the Jacksonville Facility in the first quarter of 2010, as is, subject to the satisfaction of certain customary conditions under the terms of the contract of sale. It is expected the purchase will be funded from the Company’s existing cash and cash equivalents or from available funds under the Company’s senior credit facility.
 
Management believes that Landstar’s owned and leased properties are adequate for its current needs and that leased properties can be retained or replaced at an acceptable cost.

Item 3.  	Legal Proceedings	
 
As further described in periodic and current reports previously filed by Landstar System, Inc. (the “Company”) with the Securities and Exchange Commission, the Company and certain of its subsidiaries (the “Defendants”) are defendants in a suit (the “Litigation”) brought in the United States District Court for the Middle District of Florida (the “District Court”) by the Owner-Operator Independent Drivers Association, Inc. (“OOIDA”) and four former BCO Independent Contractors (the “Named Plaintiffs” and, with OOIDA, the “Plaintiffs”) on behalf of all independent contractors who provide truck capacity to the Company and its subsidiaries under exclusive lease arrangements (the “BCO Independent Contractors”). The Plaintiffs allege that certain aspects of the Company’s motor carrier leases and related practices with its BCO Independent Contractors violate certain federal leasing regulations and seek injunctive relief, an unspecified amount of damages and attorneys’ fees.
 
On March 29, 2007, the District Court denied the request by Plaintiffs for injunctive relief, entered a judgment in favor of the Defendants and issued written orders setting forth its rulings related to the decertification of the plaintiff class and other important elements of the Litigation relating to liability, injunctive relief and monetary relief. The Plaintiffs filed an appeal with the United States Court of Appeals for the Eleventh Circuit (the “Appellate Court”) of certain of the District Court’s rulings in favor of the Defendants. The Defendants asked the Appellate Court to affirm such rulings and filed a cross-appeal with the Appellate Court with respect to certain other rulings of the District Court.
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On September 3, 2008, the Appellate Court issued its ruling, which, among other things, affirmed the District Court’s rulings that (i) the Defendants are not prohibited by the applicable federal leasing regulations from charging administrative or other fees to BCO Independent Contractors in connection with voluntary programs offered by the Defendants through which a BCO Independent Contractor may purchase discounted products and services for a charge that is deducted against the compensation payable to the BCO Independent Contractor (a “Charge-back Deduction”), (ii) the Plaintiffs are not entitled to restitution or disgorgement with respect to violations by Defendants of the applicable federal leasing regulations but instead may recover only actual damages, if any, which they sustained as a result of any such violations and (iii) the claims of BCO Independent Contractors may not be handled on a class action basis for purposes of determining the amount of actual damages, if any, they sustained as a result of any violations. Further, the analysis of the Appellate Court confirmed the absence of any violations alleged by the Plaintiffs of the federal leasing regulations with respect to the written terms of all leases currently in use between the Defendants and BCO Independent Contractors.
 
However, the ruling of the Appellate Court reversed the District Court’s rulings (i) that an old version of the lease formerly used by Defendants but not in use with any current BCO Independent Contractor complied with applicable disclosure requirements under the federal leasing regulations with respect to adjustments to compensation payable to BCO Independent Contractors on certain loads sourced from the U.S. Dept. of Defense, and (ii) that the Defendants had provided sufficient documentation to BCO Independent Contractors under the applicable federal leasing regulations relating to how the component elements of Charge-back Deductions were computed. The Appellate Court then remanded the case to the District Court to permit the Plaintiffs to seek injunctive relief with respect to these violations of the federal leasing regulations and to hold an evidentiary hearing to give the Named Plaintiffs an opportunity to produce evidence of any damages they actually sustained as a result of such violations.
 
Each of the parties to the Litigation has filed a petition with the Appellate Court seeking rehearing of the Appellate Court’s ruling; however, there can be no assurance that any petition for rehearing will be granted.
 
Although no assurances can be given with respect to the outcome of the Litigation, including any possible award of attorneys’ fees to the Plaintiffs, the Company believes that (i) no Plaintiff has sustained any actual damages as a result of any violations by the Defendants of the federal leasing regulations and (ii) injunctive relief, if any, that may be granted by the District Court on remand is unlikely to have a material adverse financial effect on the Company.
 
The Company is involved in certain other claims and pending litigation arising from the normal conduct of business. 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 other 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.

Item 4.  	Submission of Matters to a Vote of Security Holders	
 
No matters were submitted to a vote of security holders during the fourth quarter of fiscal year 2009.
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PART II

Item 5.  	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	
 
The Common Stock of the Company is listed and traded on the NASDAQ Global Select Market under the symbol “LSTR.” The following table sets forth the high and low reported sale prices for the Common Stock on the NASDAQ Global Select Market and the per share value of dividends declared for the periods indicated.

 	 	2009 Market Price	 	2008 Market Price	 	Dividends Declared	
Fiscal Period	 	High	 	Low	 	High	 	Low	 	2009	 	2008	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
First Quarter	 	$	40.16	 	 	$	27.21	 	 	$	54.24	 	 	$	37.39	 	 	$	0.0400	 	 	$	0.0375	 	
Second Quarter	 	 	41.65	 	 	 	32.35	 	 	 	59.21	 	 	 	48.71	 	 	 	0.0400	 	 	 	0.0375	 	
Third Quarter	 	 	38.91	 	 	 	33.22	 	 	 	56.30	 	 	 	43.24	 	 	 	0.0450	 	 	 	0.0400	 	
Fourth Quarter	 	 	40.00	 	 	 	34.44	 	 	 	45.74	 	 	 	27.37	 	 	 	0.0450	 	 	 	0.0400	 	
 
The reported last sale price per share of the Common Stock as reported on the NASDAQ Global Select Market on January 29, 2010 was $36.29 per share. As of such date, Landstar had 50,248,214 shares of Common Stock outstanding. As of January 29, 2010, the Company had 71 stockholders of record of its Common Stock. However, the Company estimates that it has a significantly greater number of stockholders because a substantial number of the Company’s shares are held by brokers or dealers for their customers in street name.
 
It is the intention of the Board of Directors to pay a quarterly dividend going forward.
 
Purchases of Equity Securities by the Company
 
The following table provides information regarding the Company’s purchases of its Common Stock during the period from September 26, 2009 to December 26, 2009, the Company’s fourth fiscal quarter:

 	 	 	 	 	 	Total Number of Shares
	 	Maximum Number of
	
 	 	 	 	 	 	Purchased as Part of
	 	Shares that May Yet be
	
 	 	Total Number of
	 	Average Price
	 	Publicly Announced
	 	Purchased Under the
	
Fiscal Period	 	Shares Purchased	 	Paid per Share	 	Programs	 	Programs	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
September 26, 2009	 	 	 	 	 	 	 	 	 	 	 	 	 	 	2,040,296	 	
Sept. 27, 2009 — Oct. 24, 2009	 	 	349,852	 	 	$	36.86	 	 	 	349,852	 	 	 	1,690,444	 	
Oct. 25, 2009 — Nov. 21, 2009	 	 	314,991	 	 	 	35.56	 	 	 	314,991	 	 	 	1,375,453	 	
Nov. 22, 2009 — Dec. 26, 2009	 	 	—	 	 	 	—	 	 	 	—	 	 	 	1,375,453	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	 	664,843	 	 	$	36.24	 	 	 	664,843	 	 	 	 	 	

On July 16, 2008, Landstar System, Inc. announced that it had been authorized by its Board of Directors to purchase up to 2,000,000 shares of its Common Stock from time to time in the open market and in privately negotiated transactions. During its 2009 fourth fiscal quarter, the Company completed the purchase of shares authorized for purchase under this program. On January 28, 2009, Landstar System, Inc. announced that it had been authorized by its Board of Directors to purchase up to an additional 1,569,377 shares of its common stock from time to time in the open market and in privately negotiated transactions. As of December 26, 2009, the Company may purchase 1,375,453 shares of its common stock under this authorization. No specific expiration date has been assigned to the January 28, 2009 authorization.
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During 2009, Landstar paid dividends as follows:

 	 	Declaration
	 	 	Record
	 	 	Payment
	 	
Dividend Amount per Share	 	Date	 	 	Date	 	 	Date	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
$0.0400	 	 	January 27, 2009	 	 	 	February 6, 2009	 	 	 	February 27, 2009	 	
$0.0400	 	 	April 14, 2009	 	 	 	May 7, 2009	 	 	 	May 29, 2009	 	
$0.0450	 	 	July 15, 2009	 	 	 	August 10, 2009	 	 	 	August 28, 2009	 	
$0.0450	 	 	October 13, 2009	 	 	 	November 2, 2009	 	 	 	November 27, 2009	 	
 
On June 27, 2008 Landstar entered into a credit agreement with a syndicate of banks and JPMorgan Chase Bank, N.A., as administrative agent (the “Credit Agreement”). 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 in the event 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 Company maintains two stock option plans, one stock compensation plan and one employee stock option and stock incentive plan (the “ESOSIP”). The following table presents information related to securities authorized for issuance under these plans at December 26, 2009:

 	 	 	 	 	 	Number of Securities
	
 	 	Number of Securities
	 	 	 	Remaining Available for
	
 	 	to be Issued Upon
	 	Weighted-average
	 	Future Issuance Under
	
 	 	Exercise of
	 	Exercise Price of
	 	Equity Compensation
	
Plan Category	 	Outstanding Options	 	Outstanding Options	 	Plans	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Equity Compensation Plans Approved by Security Holders	 	 	2,557,802	 	 	$	36.86	 	 	 	2,722,823	 	
Equity Compensation Plans Not Approved by Security Holders	 	 	0	 	 	 	0	 	 	 	0	 	
 
Under the ESOSIP, the issuance of a non-vested share of Landstar common stock counts as the issuance of two securities against the number of securities available for future issuance. Included in the number of securities remaining available for future issuance under equity compensation plans was 138,423 shares of Common Stock reserved for issuance under the 2003 Directors’ Stock Compensation Plan.
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Financial Model Shareholder Returns
 
The following graph illustrates the return that would have been realized assuming reinvestment of dividends by an investor who invested $100 in each of the Company’s Common Stock, the Standard and Poor’s 500 Stock Index and the Dow Jones Transportation Stock Index for the period commencing December 25, 2004 through December 26, 2009.
 
Financial Model
Shareholder Returns

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Item 6.  	Selected Financial Data	
 
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except per share amounts)

 	 	Fiscal Years	 	
Income Statement Data:	 	2009	 	 	2008	 	 	2007	 	 	2006	 	 	2005	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue	 	$	2,008,796	 	 	$	2,643,069	 	 	$	2,487,277	 	 	$	2,513,756	 	 	$	2,517,828	 	
Investment income	 	 	1,268	 	 	 	3,339	 	 	 	5,347	 	 	 	4,250	 	 	 	2,695	 	
Costs and expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Purchased transportation	 	 	1,503,520	 	 	 	2,033,384	 	 	 	1,884,207	 	 	 	1,890,755	 	 	 	1,880,431	 	
Commissions to agents	 	 	160,571	 	 	 	203,058	 	 	 	200,630	 	 	 	199,775	 	 	 	203,730	 	
Other operating costs	 	 	29,173	 	 	 	28,033	 	 	 	28,997	 	 	 	45,700	 	 	 	36,709	 	
Insurance and claims	 	 	45,918	 	 	 	36,374	 	 	 	49,832	 	 	 	39,522	 	 	 	50,166	 	
Selling, general and administrative	 	 	133,612	 	 	 	137,758	 	 	 	125,177	 	 	 	134,239	 	 	 	140,345	 	
Depreciation and amortization	 	 	23,528	 	 	 	20,960	 	 	 	19,088	 	 	 	16,796	 	 	 	15,920	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total costs and expenses	 	 	1,896,322	 	 	 	2,459,567	 	 	 	2,307,931	 	 	 	2,326,787	 	 	 	2,327,301	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating income	 	 	113,742	 	 	 	186,841	 	 	 	184,693	 	 	 	191,219	 	 	 	193,222	 	
Interest and debt expense	 	 	4,030	 	 	 	7,351	 	 	 	6,685	 	 	 	6,821	 	 	 	4,744	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income before income taxes	 	 	109,712	 	 	 	179,490	 	 	 	178,008	 	 	 	184,398	 	 	 	188,478	 	
Income taxes	 	 	39,762	 	 	 	68,560	 	 	 	68,355	 	 	 	71,313	 	 	 	72,880	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	 	69,950	 	 	 	110,930	 	 	 	109,653	 	 	 	113,085	 	 	 	115,598	 	
Less: Net loss attributable to noncontrolling interest	 	 	(445	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income attributable to Landstar System, Inc. and subsidiary	 	$	70,395	 	 	$	110,930	 	 	$	109,653	 	 	$	113,085	 	 	$	115,598	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings per common share attributable to Landstar System, Inc. and subsidiary	 	$	1.38	 	 	$	2.11	 	 	$	2.01	 	 	$	1.95	 	 	$	1.95	 	
Diluted earnings per share attributable to Landstar System, Inc. and subsidiary	 	$	1.37	 	 	$	2.10	 	 	$	1.99	 	 	$	1.93	 	 	$	1.91	 	
Dividends paid per common share	 	$	0.170	 	 	$	0.155	 	 	$	0.135	 	 	$	0.110	 	 	$	0.050	 	

 	 	Dec. 26,
	 	 	Dec. 27,
	 	 	Dec. 29,
	 	 	Dec. 30,
	 	 	Dec. 31,
	 	
Balance Sheet Data:	 	2009	 	 	2008	 	 	2007	 	 	2006	 	 	2005	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total assets	 	$	648,792	 	 	$	663,530	 	 	$	629,001	 	 	$	646,651	 	 	$	765,814	 	
Long-term debt, including current maturities	 	 	92,898	 	 	 	136,445	 	 	 	164,753	 	 	 	129,321	 	 	 	166,973	 	
Equity	 	 	268,151	 	 	 	253,136	 	 	 	180,786	 	 	 	230,274	 	 	 	255,689	 	

Item 7.  	Management’s Discussion and Analysis of Financial Condition and Results of Operations	
 
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-K contain forward-looking statements, such as statements which relate to Landstar’s business objectives, plans, strategies and expectations. Terms such as “anticipates,” “believes,” “estimates,” “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
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risks, including but not limited to: 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; substantial industry competition; disruptions or failures in our computer systems; changes in fuel taxes; status of independent contractors; a downturn in economic growth or growth in the transportation sector; acquired businesses; intellectual property; and other operational, financial or legal risks or uncertainties detailed in this and Landstar’s other SEC filings from time to time and described in Item 1A of this Form 10-K under the heading “Risk Factors.” 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
 
Landstar System, Inc. and its subsidiary, Landstar System Holdings, Inc. (together, referred to herein as “Landstar” or the “Company”), is a non-asset based provider of freight transportation services and supply chain solutions. The Company offers customers services across multiple transportation modes, with the ability to arrange for individual shipments of freight to enterprise-wide solutions to manage all of a customer’s transportation and logistics needs. Landstar provides services principally throughout the United States and to a lesser extent in Canada, and between the United States and Canada, Mexico and other countries around the world. The Company’s services emphasize safety, information coordination and customer service and are delivered through a network of independent commission sales agents and third party capacity providers linked together by a series of technological applications which are provided and coordinated by the Company. Landstar markets its freight transportation services and supply chain solutions primarily through independent commission sales agents and exclusively utilizes third party capacity providers to transport and store customer’s freight. The nature of the Company’s business is such that a significant portion of its operating costs varies directly with revenue.
 
In the Company’s 2009 fiscal third quarter, the Company completed the acquisitions of (i) National Logistics Management Co. (together with a limited liability company and certain corporate subsidiaries and affiliates, “NLM”) and (ii) A3 Integration LLC (“A3i”) through A3i Acquisition LLC, an entity which the Company owns 100% of the non-voting, preferred interests and 75% of the voting, common equity interests. A3i is a wholly-owned subsidiary of A3i Acquisition. These two acquisitions are referred to herein collectively as the “Recent Acquisitions.” NLM and A3i offer customers technology-based supply chain solutions and other value-added services on a fee-for-service basis. NLM and A3i are herein referred to as the “Acquired Entities.”
 
Landstar markets its freight transportation services and supply chain solutions primarily through independent commission sales agents who enter into contractual arrangements with the Company and are responsible for locating freight, making that freight available to Landstar’s capacity providers and coordinating the transportation of the freight with customers and capacity providers. The Company’s third party capacity providers consist of independent contractors who provide truck capacity to the Company under exclusive lease arrangements (the “BCO Independent Contractors”), unrelated trucking companies who provide truck capacity to the Company under non-exclusive contractual arrangements (the “Truck Brokerage Carriers”), air cargo carriers, ocean cargo carriers, railroads and independent warehouse capacity providers (“Warehouse Capacity Owners”). The Company has contracts with all of the Class 1 domestic and Canadian railroads and certain short-line railroads and contracts with domestic and international airlines and ocean lines. Through this network of agents and capacity providers linked together by Landstar’s technological applications, Landstar operates a transportation services and supply chain solutions business primarily throughout North America with revenue of approximately $2.0 billion during the most recently completed fiscal year. The Company reports the results of two operating segments: the transportation logistics segment and the insurance segment.
 
The transportation logistics segment provides a wide range of transportation services and supply chain solutions. Transportation services offered by the Company include truckload and less-than-truckload transportation, rail intermodal, air cargo, ocean cargo, expedited ground and air delivery of time-critical freight, heavy-
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haul/specialized, U.S.-Canada and U.S.-Mexico cross-border, project cargo and customs brokerage. Supply chain solutions are based on advanced technology solutions offered by the Company and include integrated multi-modal solutions, outsourced logistics, supply chain engineering and warehousing. Also, supply chain solutions can be delivered through a software-as-a-service model. Industries serviced by the transportation logistics segment include automotive products, paper, lumber and building products, metals, chemicals, foodstuffs, heavy machinery, retail, electronics, ammunition and explosives and military hardware. In addition, the transportation logistics segment provides transportation services to other transportation companies, including logistics and less-than-truckload service providers. Each of the independent commission sales agents has the opportunity to market all of the services provided by the transportation logistics segment. Freight transportation services are typically charged to customers on a per shipment basis for the physical transportation of freight. Supply chain solution customers are generally charged fees for the services provided. Revenue recognized by the transportation logistics segment when providing capacity to customers to haul their freight is referred to herein as “transportation services revenue” and revenue for freight management services recognized on a fee-for-service basis is referred to herein as “transportation management fees.”
 
The insurance segment is comprised of Signature Insurance Company, a wholly owned offshore insurance subsidiary, and Risk Management Claim Services, Inc. This segment provides risk and claims management services to certain of Landstar’s Operating Subsidiaries. In addition, it reinsures certain risks of the Company’s BCO Independent Contractors and provides certain property and casualty insurance directly to certain of Landstar’s Operating Subsidiaries. Revenue, representing premiums on reinsurance programs provided to the Company’s BCO Independent Contractors, at the insurance segment represented approximately 2% of the Company’s total revenue for 2009.
 
Changes in Financial Condition and Results of Operations
 
Management believes the Company’s success principally depends on its ability to generate freight through its network of independent commission sales agents and to efficiently deliver that freight utilizing third party capacity providers. Management believes the most significant factors to the Company’s success include increasing revenue, sourcing capacity and controlling costs.
 
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 primary focus with respect to revenue growth is on revenue generated by independent commission sales agents who on an annual basis generate $1 million or more of Landstar revenue (“Million Dollar Agents”). Management believes future revenue growth is primarily dependent on its ability to increase both the revenue generated by Million Dollar Agents and the number of Million Dollar Agents through a combination of recruiting new agents and increasing the revenue opportunities generated by existing independent commission sales agents. Management believes the decrease in the number of Million Dollar Agents in 2009 resulted from the significant downturn in the domestic economy that began in the later part of 2008 and continued throughout 2009, and not necessarily from agent turnover. There were 93 Million Dollar Agents from 2008 whose revenue fell below $1 million in 2009, primarily due to the economic downturn. The following table shows the number of Million Dollar Agents, the average revenue generated by these agents, the percent of consolidated revenue generated by these agents during the past three fiscal years and the number of agent locations at each fiscal year end:

 	 	Fiscal Year	 	
 	 	2009	 	 	2008	 	 	2007	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Number of Million Dollar Agents	 	 	405	 	 	 	484	 	 	 	495	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Average revenue generated per Million Dollar Agent	 	$	4,292,000	 	 	$	4,907,000	 	 	$	4,571,000	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Percent of consolidated revenue generated by Million Dollar Agents	 	 	87	%	 	 	90	%	 	 	91	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Number of independent commission sales agent locations at year end	 	 	1,366	 	 	 	1,428	 	 	 	1,397	 	

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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 and delivery time requirements. For shipments involving two or more modes of transportation, revenue is classified by the mode of transportation having the highest cost for the load. The following table summarizes this data by mode of transportation for the past three fiscal years:

 	 	Fiscal Year	 	
 	 	2009	 	 	2008	 	 	2007	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue generated through (in thousands):	 	 	 	 	 	 	 	 	 	 	 	 	
BCO Independent Contractors	 	$	1,140,004	 	 	$	1,388,353	 	 	$	1,377,083	 	
Truck Brokerage Carriers	 	 	694,467	 	 	 	996,269	 	 	 	884,577	 	
Rail intermodal	 	 	76,346	 	 	 	136,367	 	 	 	133,878	 	
Ocean cargo carriers	 	 	33,835	 	 	 	42,153	 	 	 	26,498	 	
Air cargo carriers	 	 	17,621	 	 	 	14,891	 	 	 	19,692	 	
Other(1)	 	 	46,523	 	 	 	65,036	 	 	 	45,549	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	$	2,008,796	 	 	$	2,643,069	 	 	$	2,487,277	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Number of loads :	 	 	 	 	 	 	 	 	 	 	 	 	
BCO Independent Contractors	 	 	761,940	 	 	 	820,680	 	 	 	857,200	 	
Truck Brokerage Carriers	 	 	501,980	 	 	 	571,600	 	 	 	588,660	 	
Rail intermodal	 	 	37,890	 	 	 	58,510	 	 	 	62,720	 	
Ocean cargo carriers	 	 	5,370	 	 	 	5,380	 	 	 	4,620	 	
Air cargo carriers	 	 	7,780	 	 	 	8,260	 	 	 	11,600	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	1,314,960	 	 	 	1,464,430	 	 	 	1,524,800	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue per load :	 	 	 	 	 	 	 	 	 	 	 	 	
BCO Independent Contractors	 	$	1,496	 	 	$	1,692	 	 	$	1,606	 	
Truck Brokerage Carriers	 	 	1,383	 	 	 	1,743	 	 	 	1,503	 	
Rail intermodal	 	 	2,015	 	 	 	2,331	 	 	 	2,135	 	
Ocean cargo carriers	 	 	6,301	 	 	 	7,835	 	 	 	5,735	 	
Air cargo carriers	 	 	2,265	 	 	 	1,803	 	 	 	1,698	 	

 	 	 	
(1)	 	Includes premium revenue generated by the insurance segment and warehousing and transportation management fee revenue generated by the transportation logistics segment. 2009 includes $8,111 of transportation management fee revenue. Also, included in the 2008 and 2007 fiscal years was $27,638 and $8,511, respectively, of revenue derived from transportation services provided in support of disaster relief efforts provided under contracts that have expired.	

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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 available truck capacity providers as of the end of the three most recent fiscal years:

 	 	Dec. 26,
	 	 	Dec. 27,
	 	 	Dec. 29,
	 	
 	 	2009	 	 	2008	 	 	2007	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
BCO Independent Contractors	 	 	7,926	 	 	 	8,455	 	 	 	8,403	 	
Truck Brokerage Carriers:	 	 	 	 	 	 	 	 	 	 	 	 	
Approved and active(1)	 	 	14,887	 	 	 	16,135	 	 	 	16,053	 	
Other approved	 	 	9,886	 	 	 	10,036	 	 	 	9,362	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	24,773	 	 	 	26,171	 	 	 	25,415	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total available truck capacity providers	 	 	32,699	 	 	 	34,626	 	 	 	33,818	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Number of trucks provided by BCO Independent Contractors	 	 	8,519	 	 	 	9,039	 	 	 	8,993	 	

 
 	 	 	
(1)	 	Active refers to Truck Brokerage Carriers who moved at least one load in the 180 days immediately preceding the fiscal year end.	
 
The Company incurs costs that are directly related to the transportation of freight that include purchased transportation and commissions to agents. The Company incurs indirect costs associated with the transportation of freight that include other operating costs and insurance and claims. In addition, the Company incurs selling, general and administrative costs essential to administering its business operations. Management continually monitors all components of the costs incurred by the Company and establishes annual cost budgets which, in general, are used to benchmark costs incurred on a monthly basis.
 
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 the haul. Purchased transportation paid to a Truck Brokerage Carrier is based on either a negotiated rate for each load hauled or a contractually agreed-upon rate. Purchased transportation paid to rail intermodal, air cargo or ocean cargo carriers is based on contractually agreed-upon fixed rates. 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 in proportion to the revenue generated through BCO Independent Contractors and other third party capacity providers, transportation management fees and revenue from the insurance segment. Purchased transportation as a percent of revenue also increases or decreases in relation to the availability of truck brokerage capacity, the price of fuel on revenue hauled by Truck Brokerage Carriers and, to a lesser extent, on revenue hauled by railroads and air and ocean cargo carriers. Purchased transportation costs are recognized upon the completion of freight delivery.
 
Commissions to agents are based on contractually agreed-upon percentages of revenue or gross profit, defined as revenue less the cost of purchased transportation, or gross profit less a contractually agreed upon percentage of revenue retained by Landstar. Commissions to agents as a percentage of consolidated revenue will vary directly with fluctuations in the percentage of consolidated revenue generated by the various modes of transportation, transportation management fees and the insurance segment and with changes in gross profit on services provided by Truck Brokerage Carriers, rail intermodal, air cargo and ocean cargo carriers. Commissions to agents are recognized upon the completion of freight delivery.
 
Revenue less the cost of purchased transportation and commissions to agents is referred to as net revenue. Net revenue over revenue is referred to as net margin. In general, net margin on revenue hauled by BCO Independent Contractors represents a fixed percentage of revenue 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 hauled by Truck Brokerage Carriers, net margin is either fixed or variable as a percent of revenue, depending on the contract with each individual independent commission sales agent. Under certain
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contracts with independent commission sales agents, the Company retains a fixed percentage of revenue and the agent retains the amount remaining less the cost of purchased transportation (the “retention contracts”). Net margin on revenue hauled by rail, air cargo carriers, ocean cargo carriers and Truck Brokerage Carriers, other than those under retention contracts, are variable in nature as the Company’s contracts with independent commission sales agents provide commissions to agents at a contractually agreed upon percentage of gross profit, representing revenue less the cost of purchased transportation. In general, approximately 75% of the Company’s revenue in 2009 had a fixed net margin.
 
Maintenance costs for Company-provided trailing equipment, BCO Independent Contractor recruiting costs and bad debts from BCO Independent Contractors and independent commission sales agents are the largest components of other operating costs.
 
Potential liability associated with accidents in the trucking industry is severe and occurrences are unpredictable. For commercial trucking claims, Landstar retains liability up to $5,000,000 per occurrence. The Company also retains liability for each general liability claim up to $1,000,000, $250,000 for each workers’ compensation claim and up to $250,000 for each cargo claim. The Company’s exposure to liability associated with accidents incurred by Truck Brokerage Carriers, rail intermodal capacity providers and air cargo and ocean cargo carriers who transport freight on behalf of the Company is reduced by various factors including the extent to which they maintain their own insurance coverage. A material increase in the frequency or severity of accidents, cargo claims or workers’ compensation claims or the unfavorable development of existing claims could be expected to materially adversely affect Landstar’s results of operations.
 
Employee compensation and benefits account for over half of the Company’s selling, general and administrative costs.
 
Depreciation and amortization primarily relate to depreciation of trailing equipment, amortization of intangible assets attributed to the acquisitions in 2009 and management information services equipment.
 
The following table sets forth the percentage relationships of income and expense items to revenue for the periods indicated:

 	 	Fiscal Year	 	
 	 	2009	 	 	2008	 	 	2007	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue	 	 	100.0	%	 	 	100.0	%	 	 	100.0	%	
Investment income	 	 	0.1	 	 	 	0.1	 	 	 	0.2	 	
Costs and expenses:	 	 	 	 	 	 	 	 	 	 	 	 	
Purchased transportation	 	 	74.8	 	 	 	76.9	 	 	 	75.8	 	
Commissions to agents	 	 	8.0	 	 	 	7.7	 	 	 	8.1	 	
Other operating costs	 	 	1.5	 	 	 	1.0	 	 	 	1.1	 	
Insurance and claims	 	 	2.3	 	 	 	1.4	 	 	 	2.0	 	
Selling, general and administrative	 	 	6.6	 	 	 	5.2	 	 	 	5.0	 	
Depreciation and amortization	 	 	1.2	 	 	 	0.8	 	 	 	0.8	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total costs and expenses	 	 	94.4	 	 	 	93.0	 	 	 	92.8	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating income	 	 	5.7	 	 	 	7.1	 	 	 	7.4	 	
Interest and debt expense	 	 	0.2	 	 	 	0.3	 	 	 	0.3	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Income before income taxes	 	 	5.5	 	 	 	6.8	 	 	 	7.1	 	
Income taxes	 	 	2.0	 	 	 	2.6	 	 	 	2.7	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	 	3.5	%	 	 	4.2	%	 	 	4.4	%	

Fiscal Year Ended December 26, 2009 Compared to Fiscal Year Ended December 27, 2008
 
Revenue for 2009 was $2,008,796,000, a decrease of $634,273,000, or 24.0%, compared to 2008. Revenue decreased $633,353,000, or 24.3%, at the transportation logistics segment. The overall decrease in
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revenue was primarily due to the significant downturn in the economy. Revenue hauled by BCO Independent Contractors, Truck Brokerage Carriers, rail intermodal carriers and ocean cargo carriers in 2009 decreased 18%, 30%, 44% and 20%, respectively, compared to 2008 while revenue hauled by air cargo carriers increased 18%. The number of loads in 2009 hauled by BCO Independent Contractors, Truck Brokerage Carriers, rail intermodal carriers and air cargo carriers decreased 7%, 12%, 35% and 6%, respectively, compared to 2008, while the number of loads hauled by ocean cargo carriers was flat. Revenue per load in 2009 for loads hauled by BCO Independent Contractors, Truck Brokerage Carriers, rail intermodal carriers and ocean cargo carriers decreased approximately 12%, 21%, 14% and 20%, respectively, compared to 2008, while revenue per load for loads hauled by air cargo carriers increased 26%. The decrease in the number of loads and revenue per load hauled by BCO Independent Contractors, Truck Brokerage Carriers, rail intermodal and ocean cargo carriers was primarily attributable to lower demand due to the overall weak economic conditions which caused increased pressure on price. In addition, the decrease in revenue per load on Truck Brokerage Carrier revenue was partly attributable to decreased fuel surcharges identified separately in billings to customers in 2009 compared to 2008. Fuel surcharges on Truck Brokerage Carrier revenue identified separately in billings to customers and included as a component of Truck Brokerage Carrier revenue were $48,095,000 and $134,230,000 in 2009 and 2008, respectively. Fuel surcharges billed to customers on revenue hauled by BCO Independent Contractors are excluded from revenue and paid in entirety to the BCO Independent Contractors.
 
Investment income at the insurance segment was $1,268,000 and $3,339,000 in 2009 and 2008, respectively. The decrease in investment income was primarily due to a decreased rate of return, attributable to a general decrease in interest rates, on investments held by the insurance segment in 2009.
 
Purchased transportation was 74.8% and 76.9% of revenue in 2009 and 2008, respectively. The decrease in purchased transportation as a percentage of revenue was primarily attributable to decreased rates of purchased transportation paid to Truck Brokerage Carriers, due to lower cost of fuel and excess truck capacity industry wide, and an increase in the percentage of revenue hauled by BCO Independent Contractors, which tends to have a lower cost of purchased transportation. Commissions to agents were 8.0% of revenue in 2009 and 7.7% of revenue in 2008. The increase in commissions to agents as a percentage of revenue was primarily attributable to increased gross profit on revenue hauled by Truck Brokerage Carriers. Other operating costs were 1.5% and 1.0% of revenue in 2009 and 2008, respectively. The increase in other operating costs as a percentage of revenue was primarily attributable to the effect of decreased revenue, $1,702,000 of other operating costs from the Acquired Entities, increased trailing equipment maintenance costs and an increased provision for contractor bad debt, partially offset by decreased trailing equipment rental costs. Insurance and claims were 2.3% of revenue in 2009 and 1.4% of revenue in 2008. The increase in insurance and claims as a percentage of revenue was primarily due to an increase in the severity of commercial trucking claims incurred in 2009 and decreased favorable development of prior year claims reported in 2009. Selling, general and administrative costs were 6.6% of revenue in 2009 and 5.2% of revenue in 2008. The increase in selling, general and administrative costs as a percentage of revenue was primarily attributable to the effect of decreased revenue, $2,005,000 of one-time acquisition related costs and $7,138,000 of selling, general and administrative costs from the Acquired Entities in 2009, partially offset by a decreased provision for bonuses under the Company’s incentive compensation programs in 2009. Depreciation and amortization was 1.2% of revenue in 2009 compared with 0.8% in 2008. The increase in depreciation and amortization as a percentage of revenue was primarily due to the effect of decreased revenue, depreciation on Company-owned trailing equipment and amortization of identifiable intangible assets attributed to the Acquired Entities.
 
Interest and debt expense was 0.2% of revenue in 2009, compared to 0.3% in 2008. The decrease in interest and debt expense as a percentage of revenue was primarily attributable to lower average borrowings on the Company’s senior credit facility, a lower average rate on borrowings under the Company’s senior credit facility and lower average capital lease obligations during 2009, partially offset by the effect of decreased revenue in 2009.
 
The provisions for income taxes for 2009 and 2008 were based on estimated full year combined effective income tax rates of approximately 36.2% and 38.2%, respectively, which were higher than the statutory federal income tax rate primarily as a result of state taxes, the meals and entertainment exclusion and non-deductible stock compensation expense. The decrease in the effective income tax rate was primarily attributable to
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recognition of benefits relating to several uncertain tax positions for which the applicable statute of limitations passed in 2009.
 
The net loss attributable to noncontrolling interest of $445,000 represents the noncontrolling investor’s 25 percent share of the net loss incurred by A3i during the 2009 period.
 
Net income attributable to the Company was $70,395,000, or $1.38 per common share ($1.37 per diluted share), in 2009. Net income attributable to the Company was $110,930,000, or $2.11 per common share ($2.10 per diluted share), in 2008.
 
Fiscal Year Ended December 27, 2008 Compared to Fiscal Year Ended December 29, 2007
 
Revenue for 2008 was $2,643,069,000, an increase of $155,792,000, or 6.3%, compared to 2007. Revenue increased $155,805,000, or 6.4%, at the transportation logistics segment primarily due to a 13% increase in revenue hauled by Truck Brokerage Carriers, increased revenue hauled by ocean cargo carriers and increased revenue for bus capacity provided for evacuation assistance related to the storms that impacted the Gulf Coast in September 2008 (“Bus Revenue”), partially offset by lower revenue hauled by air cargo carriers. The number of loads in 2008 hauled by BCO Independent Contractors, Truck Brokerage Carriers, rail intermodal and air cargo carriers, decreased 4%, 3%, 7% and 29% , respectively, compared to the number of loads hauled in 2007. Loads hauled by ocean cargo carriers increased 16% over 2007. Revenue per load for loads hauled by Truck Brokerage Carriers, BCO Independent Contractors and rail intermodal, air cargo and ocean cargo carriers increased 16%, 5%, 9%, 6% and 37%, respectively, over 2007. The increase in revenue per load hauled by Truck Brokerage Carriers and rail intermodal, air cargo and ocean cargo carriers was partly attributable to increased fuel surcharges identified separately in billings to customers in 2008 compared to 2007. Fuel surcharges on truck brokerage revenue identified separately in billings to customers and included as a component of truck brokerage revenue were $134,230,000 and $85,256,000 in 2008 and 2007, respectively. Fuel surcharges billed to customers on revenue hauled by BCO Independent Contractors are excluded from revenue.
 
Investment income at the insurance segment was $3,339,000 and $5,347,000 in 2008 and 2007, respectively. The decrease in investment income was primarily due to a decreased rate of return, attributable to a general decrease in interest rates, on investments held by the insurance segment in 2008.
 
Purchased transportation was 76.9% and 75.8% of revenue in 2008 and 2007, respectively. The increase in purchased transportation as a percentage of revenue was primarily attributable to increased rates of purchased transportation paid to Truck Brokerage Carriers and ocean cargo carriers, partially attributable to the increased cost of fuel in 2008, increased revenue hauled by Truck Brokerage Carriers and ocean cargo carriers, both of which tend to have a higher cost of purchased transportation, and the effect of disaster relief services revenue, which also had a higher rate of purchased transportation. Commissions to agents were 7.7% of revenue in 2008 and 8.1% of revenue in 2007. The decrease in commissions to agents as a percentage of revenue was primarily attributable to decreased gross profit on revenue hauled by Truck Brokerage Carriers. Other operating costs were 1.0% and 1.1% of revenue in 2008 and 2007, respectively. The decrease in other operating costs as a percentage of revenue was primarily attributable to the effect of increased revenue hauled by Truck Brokerage Carriers and ocean cargo carriers in 2008, neither of which incur significant other operating costs, partially offset by lower gains on the sales of trailing equipment in 2008 compared to 2007. Insurance and claims were 1.4% of revenue in 2008, compared with 2.0% of revenue in 2007. The decrease in insurance and claims as a percentage of revenue was primarily due to a $5,000,000 charge for the estimated cost of one severe accident that occurred during the first quarter of 2007, favorable development of prior year claims in 2008 and a lower cost of cargo claims in 2008. Selling, general and administrative costs were 5.2% of revenue in 2008, compared with 5.0% of revenue in 2007. The increase in selling, general and administrative costs as a percentage of revenue was primarily attributable to an increased provision for bonuses under the Company’s incentive compensation programs and an increased provision for customer bad debt, partially offset by the effect of increased revenue. Depreciation and amortization was 0.8% of revenue in both 2008 and 2007.
 
Interest and debt expense was 0.3% of revenue in both 2008 and 2007.
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The provisions for income taxes for 2008 and 2007 were based on estimated full year combined effective income tax rates of approximately 38.2% and 38.4%, respectively, which were higher than the statutory federal income tax rate primarily as a result of state taxes, the meals and entertainment exclusion and non-deductible stock compensation expense.
 
Net income attributable to the Company was $110,930,000, or $2.11 per common share ($2.10 per diluted share), in 2008, compared to $109,653,000, or $2.01 per common share ($1.99 per diluted share), in 2007.
 
Capital Resources and Liquidity
 
Equity was $268,151,000, or 74% of total capitalization (defined as total debt plus equity), at December 26, 2009, compared with $253,136,000, or 65% of total capitalization, at December 27, 2008. The increase in equity was primarily a result of net income and the effect of the exercises of stock options during the period, partially offset by the purchase of 1,624,547 shares of the Company’s common stock at a total cost of $55,757,000.
 
The Company paid $0.17 per share, or $8,686,000, in cash dividends during 2009. It is the intention of the Board of Directors to continue to pay a quarterly dividend. As of December 26, 2009, the Company may purchase an additional 1,375,453 shares of its common stock under its authorized stock purchase program. Long-term debt, including current maturities, was $92,898,000 at December 26, 2009, compared to $136,445,000 at December 27, 2008.
 
Working capital and the ratio of current assets to current liabilities were $167,977,000 and 1.6 to 1, respectively, at December 26, 2009, compared with $238,817,000 and 2.0 to 1, respectively, at December 27, 2008. Landstar has historically operated with current ratios within the range of 1.5 to 1 to 2.0 to 1. Cash provided by operating activities was $144,964,000 and $119,689,000 in 2009 and 2008, respectively. The increase in cash flow provided by operating activities was primarily attributable to the timing of collections of trade receivables.
 
On June 27, 2008, Landstar entered into a credit agreement with a syndicate of banks and JPMorgan Chase Bank, N.A., as administrative agent (the “Credit Agreement”). The Credit Agreement, which expires on June 27, 2013, provides $225,000,000 of borrowing capacity in the form of a revolving credit facility, $75,000,000 of which may be utilized in the form of letter of credit guarantees.
 
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 in the event 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, among other things, that a person or group acquires 25% or more of the outstanding capital stock of the Company or obtains power to elect a majority of the Company’s directors. 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 December 26, 2009, the Company had $40,000,000 in borrowings outstanding and $33,857,000 of letters of credit outstanding under the Credit Agreement. At December 26, 2009, there was $151,143,000 available for future borrowings under the Credit Agreement. In addition, the Company has $45,008,000 in letters of credit outstanding, as collateral for insurance claims, that are secured by investments and cash equivalents totaling $49,817,000. Investments, all of which are carried at fair value, consist of investment-grade bonds having maturities of up to five years. Fair value of investments is based primarily on quoted market prices.
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Historically, the Company has generated sufficient operating cash flow to meet its debt service requirements, fund continued growth, both internal 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 a non-asset based provider of transportation services and supply chain solutions, the Company’s annual capital requirements for operating property are generally for trailing equipment and management information services equipment. 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 2009, 2008 and 2007, the Company purchased $2,715,000, $8,289,000 and $6,514,000, respectively, of operating property and acquired $12,284,000, $4,802,000 and $36,046,000, respectively, of trailing equipment by entering into capital leases. The Company’s primary facility in Jacksonville, Florida (the “Jacksonville Facility”) is leased under a lease agreement that provides the Company with an option to purchase the Jacksonville Facility, including the land and fixtures located thereon, at a fixed price of $21,135,000 in the first quarter of 2010. In January 2010, the Company has entered into a contract of sale with its landlord to purchase the Jacksonville Facility in the first quarter of 2010, as is, subject to the satisfaction of certain customary conditions under the terms of the contract of sale. It is expected the purchase will be funded from the Company’s existing cash and cash equivalents or from available funds under the Company’s senior credit facility. In addition, Landstar anticipates acquiring approximately $27,000,000 in operating property, primarily new trailing equipment to replace older trailing equipment, and information technology equipment during fiscal year 2010 either by purchase or lease financing. The Company does not currently anticipate any other significant capital requirements in 2010.
 
In the Company’s 2009 fiscal third quarter, the Company completed the Recent Acquisitions. Consideration paid plus net liabilities assumed for the Recent Acquisitions was approximately $35,300,000 in the aggregate. As it relates to the noncontrolling interest of A3i Acquisition, the Company has the option, during the period commencing on the fourth anniversary of June 29, 2009, (the “Closing Date”), and ending on the sixth anniversary of the Closing Date, to purchase at fair value all but not less than all of the noncontrolling interest (the “A3i Call Right”). The noncontrolling interest is also subject to customary restrictions on transfer, including a right of first refusal in favor of the Company, and drag-along rights. If the Company does not exercise the A3i Call Right, the owner of the noncontrolling interest has the right, but not the obligation, for a specified period following each of the sixth, seventh and eighth anniversaries of the Closing Date, to sell at fair value to the Company up to one third annually of the investment then held by such owner. The owner of the noncontrolling interest also has certain preemptive rights and tag-along rights. In addition, as it relates to NLM, the Company may be required to pay additional consideration to the prior owner of NLM contingent on NLM achieving certain levels of earnings through December 2014.
 
Since January 1997, the Company has purchased over $872,000,000 of its common stock under programs authorized by the Board of Directors of the Company in open market and private block transactions. The Company has used cash provided by operating activities and borrowings on the Company’s revolving credit facilities to fund the purchases.
 
Management believes that cash flow from operations combined with the Company’s borrowing capacity under the Credit Agreement will be adequate to meet Landstar’s debt service requirement, fund continued growth, both internal and through acquisitions, pay dividends, complete the authorized share purchase program and meet working capital needs.
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Contractual Obligations and Commitments
 
At December 26, 2009, the Company’s obligations and commitments to make future payments under contracts, such as debt and lease agreements, were as follows (in thousands):

 	 	Payments Due by Period	 	
 	 	 	 	 	Less Than
	 	 	1-3
	 	 	4-5
	 	 	More Than
	 	
Contractual Obligation	 	Total	 	 	1 Year	 	 	Years	 	 	Years	 	 	5 Years	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Long-term debt obligations	 	$	40,000	 	 	 	 	 	 	 	 	 	 	$	40,000	 	 	 	 	 	
Capital lease obligations	 	 	56,226	 	 	$	26,661	 	 	$	28,244	 	 	 	1,321	 	 	 	 	 	
Operating lease obligations	 	 	14,232	 	 	 	4,134	 	 	 	5,688	 	 	 	4,410	 	 	 	 	 	
Purchase obligations	 	 	19,094	 	 	 	16,756	 	 	 	2,304	 	 	 	34	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	$	129,552	 	 	$	47,551	 	 	$	36,236	 	 	$	45,765	 	 	$	—	 	

Long-term debt represents borrowings under the Credit Agreement and does not include interest. Capital lease obligations above include $3,328,000 of imputed interest. At December 26, 2009, the Company has gross unrecognized tax benefits of $11,966,000. This amount is excluded from the table above as the Company cannot reasonably estimate the period of cash settlement with the respective taxing authorities. At December 26, 2009, the Company has insurance claims liabilities of $72,307,000. This amount is excluded from the table above as the Company cannot reasonably estimate the period of cash settlement on these liabilities. The short term portion of the insurance claims liability is reported on an actuarially determined basis. Included in purchase obligations in the table above is $14,134,000 of obligations related to trailing equipment to replace older trailing equipment.
 
In January 2010, the Company entered into a contract of sale with the landlord of its Jacksonville, FL facility to purchase its headquarters in the first quarter of 2010. The purchase price of the facility, including the land and fixtures located thereon, is $21,135,000. Included above under operating lease obligations is $10,006,000 of rental payments for the Jacksonville Facility. If the purchase is completed, the remaining operating lease obligations on this facility will no longer be payable.
 
Off-Balance Sheet Arrangements
 
As of December 26, 2009, the Company had no off-balance sheet arrangements, other than operating leases as disclosed in the table of Contractual Obligations and Commitments above, that have or are reasonably likely to have a current or future material effect on the Company’s financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.
 
Legal Matters
 
As further described in periodic and current reports previously filed by Landstar System, Inc. (the “Company”) with the Securities and Exchange Commission, the Company and certain of its subsidiaries (the “Defendants”) are defendants in a suit (the “Litigation”) brought in the United States District Court for the Middle District of Florida (the “District Court”) by the Owner-Operator Independent Drivers Association, Inc. (“OOIDA”) and four former BCO Independent Contractors (the “Named Plaintiffs” and, with OOIDA, the “Plaintiffs”) on behalf of all independent contractors who provide truck capacity to the Company and its subsidiaries under exclusive lease arrangements (the “BCO Independent Contractors”). The Plaintiffs allege that certain aspects of the Company’s motor carrier leases and related practices with its BCO Independent Contractors violate certain federal leasing regulations and seek injunctive relief, an unspecified amount of damages and attorneys’ fees.
 
On March 29, 2007, the District Court denied the request by Plaintiffs for injunctive relief, entered a judgment in favor of the Defendants and issued written orders setting forth its rulings related to the decertification of the plaintiff class and other important elements of the Litigation relating to liability, injunctive relief and monetary relief. The Plaintiffs filed an appeal with the United States Court of Appeals for
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the Eleventh Circuit (the “Appellate Court”) of certain of the District Court’s rulings in favor of the Defendants. The Defendants asked the Appellate Court to affirm such rulings and filed a cross-appeal with the Appellate Court with respect to certain other rulings of the District Court.
 
On September 3, 2008, the Appellate Court issued its ruling, which, among other things, affirmed the District Court’s rulings that (i) the Defendants are not prohibited by the applicable federal leasing regulations from charging administrative or other fees to BCO Independent Contractors in connection with voluntary programs offered by the Defendants through which a BCO Independent Contractor may purchase discounted products and services for a charge that is deducted against the compensation payable to the BCO Independent Contractor (a “Charge-back Deduction”), (ii) the Plaintiffs are not entitled to restitution or disgorgement with respect to violations by Defendants of the applicable federal leasing regulations but instead may recover only actual damages, if any, which they sustained as a result of any such violations and (iii) the claims of BCO Independent Contractors may not be handled on a class action basis for purposes of determining the amount of actual damages, if any, they sustained as a result of any violations. Further, the analysis of the Appellate Court confirmed the absence of any violations alleged by the Plaintiffs of the federal leasing regulations with respect to the written terms of all leases currently in use between the Defendants and BCO Independent Contractors.
 
However, the ruling of the Appellate Court reversed the District Court’s rulings (i) that an old version of the lease formerly used by Defendants but not in use with any current BCO Independent Contractor complied with applicable disclosure requirements under the federal leasing regulations with respect to adjustments to compensation payable to BCO Independent Contractors on certain loads sourced from the U.S. Dept. of Defense, and (ii) that the Defendants had provided sufficient documentation to BCO Independent Contractors under the applicable federal leasing regulations relating to how the component elements of Charge-back Deductions were computed. The Appellate Court then remanded the case to the District Court to permit the Plaintiffs to seek injunctive relief with respect to these violations of the federal leasing regulations and to hold an evidentiary hearing to give the Named Plaintiffs an opportunity to produce evidence of any damages they actually sustained as a result of such violations.
 
Each of the parties to the Litigation has filed a petition with the Appellate Court seeking rehearing of the Appellate Court’s ruling; however, there can be no assurance that any petition for rehearing will be granted.
 
Although no assurances can be given with respect to the outcome of the Litigation, including any possible award of attorneys’ fees to the Plaintiffs, the Company believes that (i) no Plaintiff has sustained any actual damages as a result of any violations by the Defendants of the federal leasing regulations and (ii) injunctive relief, if any, that may be granted by the District Court on remand is unlikely to have a material adverse financial effect on the Company.
 
The Company is involved in certain other claims and pending litigation arising from the normal conduct of business. 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 other 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
 
The allowance for doubtful accounts for both trade and other receivables represents management’s estimate of the amount of outstanding receivables that will not be collected. Recently, the Company has experienced a higher level of customer bad debt expense than typically experienced in the past. Management believes this resulted from the difficult economic environment experienced by the Company’s customers. Historically, management’s estimates for uncollectible receivables have been materially correct. Although management believes the amount of the allowance for both trade and other receivables at December 26, 2009 is appropriate, a prolonged period of low or no economic growth may adversely affect the collection of these receivables. Conversely, a more robust economic environment may result in the realization of some portion of the estimated uncollectible receivables.
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Landstar provides for the estimated costs of self-insured claims primarily on an actuarial basis. The amount recorded for the estimated liability for claims incurred is based upon the facts and circumstances known on the applicable balance sheet date. The ultimate resolution of these claims may be for an amount greater or less than the amount estimated by management. The Company continually revises its existing claim estimates as new or revised information becomes available on the status of each claim. Historically, the Company has experienced both favorable and unfavorable development of prior year claims estimates. During fiscal years 2009, 2008 and 2007, insurance and claims costs included $4,113,000, $9,968,000 and $8,296,000, respectively, of favorable adjustments to prior years’ claims estimates. It is reasonably likely that the ultimate outcome of settling all outstanding claims will be more or less than the estimated claims reserve at December 26, 2009.
 
The Company utilizes certain income tax planning strategies to reduce its overall cost of income taxes. Upon audit, it is possible that certain strategies might be disallowed resulting in an increased liability for income taxes. Certain of these tax planning strategies result in a level of uncertainty as to whether the related tax positions taken by the Company will result in a recognizable benefit. The Company has provided for its estimated exposure attributable to such tax positions due to the corresponding level of uncertainty with respect to the amount of income tax benefit that may ultimately be realized. Management believes that the provision for liabilities resulting from the uncertainty in such income tax positions is appropriate. To date, the Company has not experienced an examination by governmental revenue authorities that would lead management to believe that the Company’s past provisions for exposures related to the uncertainty of such income tax positions are not appropriate.
 
Significant variances from management’s estimates for the amount of uncollectible receivables, the ultimate resolution of self-insured claims or the provision for uncertainty in income tax positions can all be expected to positively or negatively affect Landstar’s earnings in a given quarter or year. However, management believes that the ultimate resolution of these items, given a range of reasonably likely outcomes, will not significantly affect the long-term financial condition of Landstar or its ability to fund its continuing operations.
 
Effects of Inflation
 
Management does not believe inflation has had a material impact on the results of operations or financial condition of Landstar in the past five years. However, inflation in excess of historical trends might have an adverse effect on the Company’s results of operations.
 
Seasonality
 
Landstar’s operations are subject to seasonal trends common to the trucking industry. Results of operations for the quarter ending in March are typically lower than the quarters ending June, September and December.

Item 7a.  	Quantitative and Qualitative Disclosures about Market Risk	
 
The Company is exposed to changes in interest rates as a result of its financing activities, primarily its borrowings on the revolving credit facility, and investing activities with respect to investments held by the insurance segment.
 
On June 27, 2008, Landstar entered into a credit agreement with a syndicate of banks and JPMorgan Chase Bank, N.A., as administrative agent (the “Credit Agreement”). The Credit Agreement, which expires on June 27, 2013, provides $225,000,000 of borrowing capacity in the form of a revolving credit facility, $75,000,000 of which may be utilized in the form of letter of credit guarantees.
 
Borrowings under the Credit Agreement bear interest at rates equal to, at the option of the Company, either (i) the greater of (a) the prime rate as publicly announced from time to time by JPMorgan Chase Bank, N.A. and (b) the federal funds effective rate plus .5%, or, (ii) the rate at the time offered to JPMorgan Chase Bank, N.A. in the Eurodollar market for amounts and periods comparable to the relevant loan plus, in either
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case, a margin that is determined based on the level of the Company’s Leverage Ratio, as defined in the Credit Agreement. As of December 26, 2009 and December 27, 2008, the weighted average interest rate on borrowings outstanding was 1.12% and 2.63%, respectively. During the fourth quarter of 2009 and 2008, the average outstanding balance under the Credit Agreement was approximately $33,120,000 and $84,500,000, respectively. Based on the borrowing rates in the Credit Agreement and the repayment terms, the fair value of the outstanding borrowings as of December 26, 2009 was estimated to approximate carrying value. The balance outstanding under the Credit Agreement was $40,000,000 and $70,000,000 at December 26, 2009 and December 27, 2008, respectively. Assuming that debt levels on the Credit Agreement remain at $40,000,000, the balance at December 26, 2009, a hypothetical increase of 100 basis points in current rates provided for under the Credit Agreement is estimated to result in an increase in interest expense of $400,000 on an annualized basis.
 
Long-term investments, all of which are available-for-sale, consist of investment-grade bonds having maturities of up to five years. The balance of the long-term portion of investments in bonds was $28,603,000 and $14,431,000 at December 26, 2009 and December 27, 2008, respectively. Assuming that the long-term portion of investments in bonds remains at $28,603,000, the balance at December 26, 2009, a hypothetical increase or decrease in interest rates of 100 basis points would not have a material impact on future earnings on an annualized basis. Short-term investments consist of short-term investment-grade instruments and the current maturities of investment-grade bonds. Accordingly, any future interest rate risk on these short-term investments would not be material.
 
Assets and liabilities of the Company’s Canadian operation are translated from their functional currency to U.S. dollars using exchange rates in effect at the balance sheet date and revenue and expense accounts are translated at average monthly exchange rates during the period. Adjustments resulting from the translation process are included in accumulated other comprehensive income. Transactional gains and losses arising from receivable and payable balances, including intercompany balances, in the normal course of business that are denominated in a currency other than the functional currency of the operation are recorded in the statements of income when they occur. The net assets held at Landstar’s Canadian subsidiary at December 26, 2009 was, as translated to U.S. dollars, less than 1% of total consolidated net assets. Accordingly, any translation gain or loss related to the Canadian operation would not be material.
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Item 8.  	Financial Statements and Supplementary Data	
 
LANDSTAR SYSTEM, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)

 	 	Dec. 26,
	 	 	Dec. 27,
	 	
 	 	2009	 	 	2008	 	
 	 	 	 	 	 	 	 	 	
ASSETS	
Current Assets	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	85,719	 	 	$	98,904	 	
Short-term investments	 	 	24,325	 	 	 	23,479	 	
Trade accounts receivable, less allowance of $5,547 and $6,230	 	 	278,854	 	 	 	315,065	 	
Other receivables, including advances to independent contractors, less allowance of $5,797 and $4,298	 	 	18,149	 	 	 	10,083	 	
Deferred income taxes and other current assets	 	 	19,565	 	 	 	27,871	 	
 	 	 	 	 	 	 	 	 	
Total current assets	 	 	426,612	 	 	 	475,402	 	
 	 	 	 	 	 	 	 	 	
Operating property, less accumulated depreciation and amortization of $124,810 and $106,635	 	 	116,656	 	 	 	124,178	 	
Goodwill	 	 	57,470	 	 	 	31,134	 	
Other assets	 	 	48,054	 	 	 	32,816	 	
 	 	 	 	 	 	 	 	 	
Total assets	 	$	648,792	 	 	$	663,530	 	

LIABILITIES AND EQUITY	
Current Liabilities	 	 	 	 	 	 	 	 	
Cash overdraft	 	$	28,919	 	 	$	32,065	 	
Accounts payable	 	 	121,030	 	 	 	105,882	 	
Current maturities of long-term debt	 	 	24,585	 	 	 	24,693	 	
Insurance claims	 	 	41,627	 	 	 	23,545	 	
Accrued income taxes	 	 	9,957	 	 	 	12,239	 	
Other current liabilities	 	 	32,517	 	 	 	38,161	 	
 	 	 	 	 	 	 	 	 	
Total current liabilities	 	 	258,635	 	 	 	236,585	 	
 	 	 	 	 	 	 	 	 	
Long-term debt, excluding current maturities	 	 	68,313	 	 	 	111,752	 	
Insurance claims	 	 	30,680	 	 	 	38,278	 	
Deferred income taxes	 	 	23,013	 	 	 	23,779	 	
Equity	 	 	 	 	 	 	 	 	
Landstar System, Inc. and subsidiary shareholders’ equity:	 	 	 	 	 	 	 	 	
Common stock, $0.01 par value, authorized 160,000,000 shares, issued 66,255,358 and 66,109,547 shares	 	 	663	 	 	 	661	 	
Additional paid-in capital	 	 	161,261	 	 	 	154,533	 	
Retained earnings	 	 	766,040	 	 	 	704,331	 	
Cost of 16,022,111 and 14,424,887 shares of common stock in treasury	 	 	(660,446	)	 	 	(605,828	)	
Accumulated other comprehensive income (loss)	 	 	498	 	 	 	(561	)	
 	 	 	 	 	 	 	 	 	
Total Landstar System, Inc. and subsidiary shareholders’ equity	 	 	268,016	 	 	 	253,136	 	
 	 	 	 	 	 	 	 	 	
Noncontrolling interest	 	 	135	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	
Total equity	 	 	268,151	 	 	 	253,136	 	
 	 	 	 	 	 	 	 	 	
Total liabilities and equity	 	$	648,792	 	 	$	663,530	 	

See accompanying notes to consolidated financial statements.
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LANDSTAR SYSTEM, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)

 	 	Fiscal Years Ended	 	
 	 	Dec. 26,
	 	 	Dec. 27,
	 	 	Dec. 29,
	 	
 	 	2009	 	 	2008	 	 	2007	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue	 	$	2,008,796	 	 	$	2,643,069	 	 	$	2,487,277	 	
Investment income	 	 	1,268	 	 	 	3,339	 	 	 	5,347	 	
Costs and expenses:	 	 	 	 	 	 	 	 	 	 	 	 	
Purchased transportation	 	 	1,503,520	 	 	 	2,033,384	 	 	 	1,884,207	 	
Commissions to agents	 	 	160,571	 	 	 	203,058	 	 	 	200,630	 	
Other operating costs	 	 	29,173	 	 	 	28,033	 	 	 	28,997	 	
Insurance and claims	 	 	45,918	 	 	 	36,374	 	 	 	49,832	 	
Selling, general and administrative	 	 	133,612	 	 	 	137,758	 	 	 	125,177	 	
Depreciation and amortization	 	 	23,528	 	 	 	20,960	 	 	 	19,088	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total costs and expenses	 	 	1,896,322	 	 	 	2,459,567	 	 	 	2,307,931	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating income	 	 	113,742	 	 	 	186,841	 	 	 	184,693	 	
Interest and debt expense	 	 	4,030	 	 	 	7,351	 	 	 	6,685	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Income before income taxes	 	 	109,712	 	 	 	179,490	 	 	 	178,008	 	
Income taxes	 	 	39,762	 	 	 	68,560	 	 	 	68,355	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	69,950	 	 	$	110,930	 	 	$	109,653	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Less: Net loss attributable to noncontrolling interest	 	 	(445	)	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income attributable to Landstar System, Inc. and subsidiary	 	$	70,395	 	 	$	110,930	 	 	$	109,653	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings per common share attributable to Landstar System, Inc. and subsidiary	 	$	1.38	 	 	$	2.11	 	 	$	2.01	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted earnings per share attributable to Landstar System, Inc. and subsidiary	 	$	1.37	 	 	$	2.10	 	 	$	1.99	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Average number of shares outstanding:	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings per common share	 	 	51,095,000	 	 	 	52,503,000	 	 	 	54,681,000	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted earnings per share	 	 	51,280,000	 	 	 	52,854,000	 	 	 	55,156,000	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Dividends paid per common share	 	$	0.170	 	 	$	0.155	 	 	$	0.135	 	

See accompanying notes to consolidated financial statements.
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LANDSTAR SYSTEM, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)

 	 	Fiscal Years Ended	 	
 	 	Dec. 26,
	 	 	Dec. 27,
	 	 	Dec. 29,
	 	
 	 	2009	 	 	2008	 	 	2007	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
OPERATING ACTIVITIES	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	69,950	 	 	$	110,930	 	 	$	109,653	 	
Adjustments to reconcile net income to net cash provided by operating activities:	 	 	 	 	 	 	 	 	 	 	 	 	
Depreciation and amortization of operating property and intangible assets	 	 	23,528	 	 	 	20,960	 	 	 	19,088	 	
Non-cash interest charges	 	 	218	 	 	 	196	 	 	 	174	 	
Provisions for losses on trade and other accounts receivable	 	 	7,986	 	 	 	6,937	 	 	 	4,100	 	
Losses (gains) on sales and disposals of operating property, net	 	 	(55	)	 	 	176	 	 	 	(1,648	)	
Deferred income taxes, net	 	 	2,419	 	 	 	3,873	 	 	 	521	 	
Stock-based compensation	 	 	4,968	 	 	 	6,636	 	 	 	7,610	 	
Director compensation paid in common stock	 	 	—	 	 	 	634	 	 	 	678	 	
Changes in operating assets and liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	
Decrease (increase) in trade and other accounts receivable	 	 	32,780	 	 	 	(10,657	)	 	 	7,653	 	
Decrease (increase) in other assets	 	 	8,068	 	 	 	28	 	 	 	(3,207	)	
Decrease in accounts payable	 	 	(1,634	)	 	 	(11,240	)	 	 	(5,191	)	
Decrease in other liabilities	 	 	(13,748	)	 	 	(4,813	)	 	 	(3,147	)	
Increase (decrease) in insurance claims	 	 	10,484	 	 	 	(3,971	)	 	 	4,324	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
NET CASH PROVIDED BY OPERATING ACTIVITIES	 	 	144,964	 	 	 	119,689	 	 	 	140,608	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
INVESTING ACTIVITIES	 	 	 	 	 	 	 	 	 	 	 	 	
Net change in other short-term investments	 	 	28,024	 	 	 	(7,887	)	 	 	3,272	 	
Sales and maturities of investments	 	 	15,932	 	 	 	13,801	 	 	 	44,224	 	
Purchases of investments	 	 	(49,965	)	 	 	(6,921	)	 	 	(48,266	)	
Purchases of operating property	 	 	(2,715	)	 	 	(8,289	)	 	 	(6,514	)	
Proceeds from sales of operating property	 	 	841	 	 	 	146	 	 	 	3,708	 	
Consideration paid for acquisitions	 	 	(14,888	)	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
NET CASH USED BY INVESTING ACTIVITIES	 	 	(22,771	)	 	 	(9,150	)	 	 	(3,576	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
FINANCING ACTIVITIES	 	 	 	 	 	 	 	 	 	 	 	 	
Increase (decrease) in cash overdraft	 	 	(3,146	)	 	 	6,296	 	 	 	334	 	
Dividends paid	 	 	(8,686	)	 	 	(8,136	)	 	 	(7,389	)	
Proceeds from exercises of stock options	 	 	1,128	 	 	 	12,249	 	 	 	12,862	 	
Excess tax benefit on stock option exercises	 	 	773	 	 	 	2,231	 	 	 	3,624	 	
Borrowings on revolving credit facility	 	 	40,000	 	 	 	87,000	 	 	 	58,000	 	
Purchases of common stock	 	 	(55,757	)	 	 	(51,576	)	 	 	(176,590	)	
Capital contribution from noncontrolling interest	 	 	580	 	 	 	—	 	 	 	—	 	
Principal payments on long-term debt and capital lease obligations	 	 	(110,817	)	 	 	(120,110	)	 	 	(58,614	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
NET CASH USED BY FINANCING ACTIVITIES	 	 	(135,925	)	 	 	(72,046	)	 	 	(167,773	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Effect of exchange rate changes on cash and cash equivalents	 	 	547	 	 	 	(339	)	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Increase (decrease) in cash and cash equivalents	 	 	(13,185	)	 	 	38,154	 	 	 	(30,741	)	
Cash and cash equivalents at beginning of period	 	 	98,904	 	 	 	60,750	 	 	 	91,491	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents at end of period	 	$	85,719	 	 	$	98,904	 	 	$	60,750	 	

See accompanying notes to consolidated financial statements.
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LANDSTAR SYSTEM, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the Fiscal Years Ended December 26, 2009,
December 27, 2008 and December 29, 2007
(Dollars in thousands)

 	 	Landstar System, Inc. and Subsidiary Shareholders	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Accumulated
	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	Additional
	 	 	 	 	 	Treasury
	 	 	Other
	 	 	Non-
	 	 	 	 	
 	 	Common Stock	 	 	Paid-In
	 	 	Retained
	 	 	Stock at Cost	 	 	Comprehensive
	 	 	Controlling
	 	 	 	 	
 	 	Shares	 	 	Amount	 	 	Capital	 	 	Earnings	 	 	Shares	 	 	Amount	 	 	Income (Loss)	 	 	Interest	 	 	Total	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance December 30, 2006	 	 	64,993,143	 	 	$	650	 	 	$	108,020	 	 	$	499,273	 	 	 	9,028,009	 	 	$	(377,662	)	 	$	(7	)	 	$	0	 	 	$	230,274	 	
Net income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	109,653	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	109,653	 	
Dividends paid ($0.135 per share)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(7,389	)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(7,389	)	
Purchases of common stock	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	4,093,100	 	 	 	(176,590	)	 	 	 	 	 	 	 	 	 	 	(176,590	)	
Exercises of stock options, including excess tax benefit	 	 	623,663	 	 	 	6	 	 	 	16,480	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	16,486	 	
Director compensation paid in common stock	 	 	13,577	 	 	 	 	 	 	 	678	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	678	 	
Stock-based compensation	 	 	 	 	 	 	 	 	 	 	7,610	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	7,610	 	
Unrealized gain on available-for-sale investments, net of income taxes	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	64	 	 	 	 	 	 	 	64	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance December 29, 2007	 	 	65,630,383	 	 	$	656	 	 	$	132,788	 	 	$	601,537	 	 	 	13,121,109	 	 	$	(554,252	)	 	$	57	 	 	$	0	 	 	$	180,786	 	
Net income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	110,930	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	110,930	 	
Dividends paid ($0.155 per share)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(8,136	)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(8,136	)	
Purchases of common stock	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	1,303,778	 	 	 	(51,576	)	 	 	 	 	 	 	 	 	 	 	(51,576	)	
Exercises of stock options, including excess tax benefit	 	 	467,164	 	 	 	5	 	 	 	14,475	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	14,480	 	
Director compensation paid in common stock	 	 	12,000	 	 	 	 	 	 	 	634	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	634	 	
Stock-based compensation	 	 	 	 	 	 	 	 	 	 	6,636	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	6,636	 	
Foreign currency translation	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(339	)	 	 	 	 	 	 	(339	)	
Unrealized loss on available-for-sale investments, net of income taxes	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(279	)	 	 	 	 	 	 	(279	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance December 27, 2008	 	 	66,109,547	 	 	$	661	 	 	$	154,533	 	 	$	704,331	 	 	 	14,424,887	 	 	$	(605,828	)	 	$	(561	)	 	$	0	 	 	$	253,136	 	
Net income (loss)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	70,395	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(445	)	 	 	69,950	 	
Dividends paid ($0.170 per share)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(8,686	)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(8,686	)	
Purchases of common stock	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	1,624,547	 	 	 	(55,757	)	 	 	 	 	 	 	 	 	 	 	(55,757	)	
Exercises of stock options and issuance of non-vested stock, including excess tax benefit	 	 	145,811	 	 	 	2	 	 	 	1,899	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	1,901	 	
Capital contribution from noncontrolling interest	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	580	 	 	 	580	 	
Consideration for acquisition paid in common stock	 	 	 	 	 	 	 	 	 	 	(139	)	 	 	 	 	 	 	(27,323	)	 	 	1,139	 	 	 	 	 	 	 	 	 	 	 	1,000	 	
Stock-based compensation	 	 	 	 	 	 	 	 	 	 	4,968	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	4,968	 	
Foreign currency translation	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	547	 	 	 	 	 	 	 	547	 	
Unrealized gain on available-for-sale investments, net of income taxes	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	512	 	 	 	 	 	 	 	512	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance December 26, 2009	 	 	66,255,358	 	 	$	663	 	 	$	161,261	 	 	$	766,040	 	 	 	16,022,111	 	 	$	(660,446	)	 	$	498	 	 	$	135	 	 	$	268,151	 	

See accompanying notes to consolidated financial statements.
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LANDSTAR SYSTEM, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)  	Significant Accounting Policies	
 
Consolidation
 
The consolidated financial statements include the accounts of Landstar System, Inc. and its subsidiary Landstar System Holdings, Inc. (“LSHI”). Landstar System, Inc. and its subsidiary are herein referred to as “Landstar” or the “Company.” Landstar owns, through various subsidiaries, a controlling interest in A3i Acquisition LLC, which in turn owns 100% of A3 Integration, LLC (A3i Acquisition LLC, A3 Integration, LLC and its subsidiaries are collectively referred to herein as “A3i”), a supply chain transportation integration company acquired in the Company’s 2009 fiscal third quarter. Given Landstar’s controlling interest in A3i Acquisition, the accounts of A3i have been consolidated herein and a noncontrolling interest has been recorded for the noncontrolling investor’s interests in the net assets and operations of A3i. Significant inter-company accounts have been eliminated in consolidation.
 
Estimates
 
The preparation of the consolidated financial statements requires the use of management’s estimates. Actual results could differ from those estimates.
 
Fiscal Year
 
Landstar’s fiscal year is the 52 or 53 week period ending the last Saturday in December.
 
Revenue Recognition
 
When providing the physical transportation of freight, the Company is the primary obligor with respect to freight delivery and assumes the related credit risk. Accordingly, transportation services revenue billed to customers for the physical transportation of freight and the related direct freight expenses are recognized on a gross basis upon completion of freight delivery. In general, when providing transportation management services under a fee-for-service basis, the Company does not assume credit risk for billings related to the physical transportation of freight. Accordingly, transportation management fee revenue is recognized net of freight expenses upon completion of freight delivery. Insurance premiums of the insurance segment are recognized over the period earned, which is usually on a monthly basis. Fuel surcharges billed to customers for freight hauled by independent contractors who provide truck capacity to the Company under exclusive lease arrangements (the “BCO Independent Contractors”) are excluded from revenue and paid in entirety to the BCO Independent Contractors.
 
Insurance Claim Costs
 
Landstar provides, primarily on an actuarially determined basis, for the estimated costs of cargo, property, casualty, general liability and workers’ compensation claims both reported and for claims incurred but not reported. Landstar retains liability for individual commercial trucking claims up to $5,000,000 per occurrence. The Company also retains liability for each general liability claim up to $1,000,000, $250,000 for each workers’ compensation claim and up to $250,000 for each cargo claim.
 
Tires
 
Tires purchased as part of trailing equipment are capitalized as part of the cost of the equipment. Replacement tires are charged to expense when placed in service.
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LANDSTAR SYSTEM, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Cash and Cash Equivalents
 
Included in cash and cash equivalents are all investments, except those provided for collateral, with an original maturity of 3 months or less.
 
Trade and Other Receivables
 
The allowance for doubtful accounts for both trade and other receivables represents management’s estimate of the amount of outstanding receivables that will not be collected. Estimates are used to determine the allowance for doubtful accounts for both trade and other receivables and are generally based on historical collection results, current economic trends and changes in payment terms.
 
Operating Property
 
Operating property is recorded at cost. Depreciation is provided on a straight-line basis over the estimated useful lives of the related assets. Trailing equipment is being depreciated over 7 years. Hardware and software included in management information services equipment is generally being depreciated over 3 to 7 years.
 
Goodwill and Other Intangible Assets
 
Goodwill represents the excess of the purchase price paid over the fair value of the net assets of acquired businesses. The Company has two reporting units within the transportation logistics segment that report goodwill. Goodwill is subject to impairment testing which the Company performs annually. Other intangible assets, which consist primarily of non-contractual customer relationships, developed technology, trademarks and non-compete agreements, are included in other assets on the consolidated balance sheets and are amortized over their estimated useful lives, which range from five to ten years.
 
Income Taxes
 
Income tax expense is equal to the current year’s liability for income taxes and a provision for deferred income taxes. Deferred tax assets and liabilities are recorded for the future tax effects attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled.
 
Earnings Per Share
 
Earnings per common share attributable to Landstar System, Inc. and subsidiary are based on the weighted average number of common shares outstanding, including outstanding restricted stock, and diluted earnings per share attributable to Landstar System, Inc. and subsidiary are based on the weighted average number of common shares outstanding, including outstanding restricted stock, plus the incremental shares that would have been outstanding upon the assumed exercise of all dilutive stock options.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The following table provides a reconciliation of the average number of common shares outstanding used to calculate earnings per share attributable to Landstar System, Inc. and subsidiary to the average number of common shares and common share equivalents outstanding used to calculate diluted earnings per share attributable to Landstar System, Inc. and subsidiary (in thousands):

 	 	Fiscal Year	 	
 	 	2009	 	 	2008	 	 	2007	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Average number of common shares outstanding	 	 	51,095	 	 	 	52,503	 	 	 	54,681	 	
Incremental shares from assumed exercises of stock options	 	 	185	 	 	 	351	 	 	 	475	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Average number of common shares and common share equivalents outstanding	 	 	51,280	 	 	 	52,854	 	 	 	55,156	 	

For the fiscal years ended December 26, 2009, December 27, 2008 and December 29, 2007, there were 1,895,742, 90,000 and 9,000 options outstanding, respectively, to purchase shares of common stock excluded from the calculation of diluted earnings per share attributable to Landstar System, Inc. and subsidiary because they were antidilutive.
 
Share-Based Payments
 
The Company estimates the fair value of stock option awards on the date of grant using the Black-Scholes pricing model and recognizes compensation cost for stock option awards expected to vest on a straight-line basis over the requisite service period for the entire award. Forfeitures are estimated at grant date based on historical experience and anticipated employee turnover. The fair value of each share of non-vested restricted stock is based on the fair value of such share on the date of grant and compensation costs for non-vested restricted stock is recognized on a straight-line basis over the requisite service period for the award.
 
Foreign Currency Translation
 
Assets and liabilities of the Company’s Canadian operation are translated from their functional currency to U.S. dollars using exchange rates in effect at the balance sheet date and revenue and expense accounts are translated at average monthly exchange rates during the period. Adjustments resulting from the translation process are included in accumulated other comprehensive income. Transactional gains and losses arising from receivable and payable balances, including intercompany balances, in the normal course of business that are denominated in a currency other than the functional currency of the operation are recorded in the statements of income when they occur.
 
Subsequent Events
 
The Company has evaluated the impact of subsequent events through February 23, 2010, the date on which the financial statements were available to be issued, and has determined that all subsequent events have been appropriately reflected in the accompanying financial statements.
 
The Company’s primary facility in Jacksonville, Florida (the “Jacksonville Facility”) is leased under a lease agreement that provides the Company with an option to purchase the Jacksonville Facility, including the land and fixtures located thereon, at a fixed price of $21,135,000 in the first quarter of 2010. In January 2010, the Company entered into a contract of sale with its landlord to purchase the Jacksonville Facility in the first quarter of 2010, as is, subject to the satisfaction of certain customary conditions under the terms of the contract of sale. It is expected the purchase will be funded from the Company’s existing cash and cash equivalents or from available funds under the Company’s senior credit facility.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 	 	
(2)  	Acquisitions	
 
In the Company’s 2009 fiscal third quarter, the Company completed the acquisitions of (i) National Logistics Management Co. (together with a limited liability company and certain corporate subsidiaries and affiliates, “NLM”) and (ii) A3i. Consideration paid with respect to the acquisitions, net of cash acquired of $2.4 million, was approximately $15.9 million, which included 27,323 shares, or $1.0 million, of common stock of Landstar, subject to certain vesting and other restrictions including restrictions on transfer. Net liabilities acquired were approximately $17.0 million. Identified in the allocation of purchase price was approximately $9.0 million of identifiable intangible assets which are included in other assets on the consolidated balance sheets. The resulting goodwill arising from the acquisitions was approximately $26.3 million, all of which is expected to be deductible for income tax purposes. The results of operations from NLM and A3i are presented as part of the Company’s transportation logistics segment. During 2009, the Company incurred $2,005,000, or $0.02 per common share ($0.02 per diluted share), in one-time costs related to the completion of these acquisitions.

(3)  	Comprehensive Income	
 
The following table includes the components of comprehensive income for the fiscal years ended December 26, 2009, December 27, 2008 and December 29, 2007 (in thousands):

 	 	Fiscal Year	 	
 	 	2009	 	 	2008	 	 	2007	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income attributable to Landstar System, Inc. and subsidiary	 	$	70,395	 	 	$	110,930	 	 	$	109,653	 	
Unrealized holding gains (losses) on available-for-sale investments, net of income taxes	 	 	512	 	 	 	(279	)	 	 	64	 	
Foreign currency translation gains (losses)	 	 	547	 	 	 	(339	)	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Comprehensive income attributable to Landstar System, Inc. and subsidiary	 	$	71,454	 	 	$	110,312	 	 	$	109,717	 	

The unrealized holding gain on available-for-sale investments during 2009 represents the mark-to-market adjustment of $791,000 net of related income taxes of $279,000. The unrealized holding loss on available-for-sale investments during 2008 represents the mark-to-market adjustment of $431,000 net of related income taxes of $152,000. The unrealized holding gain on available-for-sale investments during 2007 represents the mark-to-market adjustment of $99,000 net of related income taxes of $35,000. The foreign currency translation gain during 2009 represents the unrealized net gain on the translation of the financial statements of the Company’s Canadian operations. The foreign currency translation loss during 2008 represents the unrealized net loss on the translation of the financial statements of the Company’s Canadian operations. Accumulated other comprehensive income as reported as a component of equity at December 26, 2009 of $498,000 represents the unrealized net gain on the translation of the financial statements of the Company’s Canadian operations of $208,000 and the cumulative unrealized holding gains on available-for-sale investments, net of income taxes, of $290,000.

(4)  	Investments	
 
Investments consist of investment-grade bonds having maturities of up to five years (the “bond portfolio”). Bonds in the bond portfolio are reported as available-for-sale and are carried at fair value. Bonds maturing less than one year from the balance sheet date are included in short-term investments and bonds maturing more than one year from the balance sheet date are included in other assets in the consolidated balance sheets. Management has performed an analysis of the nature of the unrealized losses on available-for-sale investments to determine whether such losses are other-than-temporary. Unrealized losses, representing the excess of the
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purchase price of an investment over its market value as of the end of a period, considered to be other-than-temporary, are to be included as a charge in the statement of income while unrealized losses considered to be temporary are to be included as a component of equity. Investments whose values are based on quoted market prices in active markets are classified within Level 1. Investments that trade in markets that are not considered to be active, but are valued based on quoted market prices, are classified within Level 2. As Level 2 investments include positions that are not traded in active markets, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information. Fair value of the bond portfolio was determined using Level 1 inputs related to U.S. Treasury obligations and Level 2 inputs related to investment-grade corporate bonds and direct obligations of U.S. government agencies. Unrealized gains on the bonds in the bond portfolio were $448,000 at December 26, 2009, while unrealized losses on the bonds in the bond portfolio were $343,000 at December 27, 2008. The accumulated unrealized loss on available-for-sale investments as of December 27, 2008 was considered by management to be temporary and therefore was reported as a component of equity.
 
The amortized cost and fair market values of investments are as follows at December 26, 2009 and December 27, 2008 (in thousands):

 	 	 	 	 	Gross
	 	 	Gross
	 	 	Fair
	 	
 	 	Amortized
	 	 	Unrealized
	 	 	Unrealized
	 	 	Market
	 	
 	 	Cost	 	 	Gains	 	 	Losses	 	 	Value	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
December 26, 2009	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Corporate bonds and direct obligations of U.S. government agencies	 	$	39,261	 	 	$	668	 	 	$	226	 	 	$	39,703	 	
U.S. Treasury obligations	 	 	11,489	 	 	 	6	 	 	 	—	 	 	 	11,495	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	50,750	 	 	$	674	 	 	$	226	 	 	$	51,198	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
December 27, 2008	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Corporate bonds and direct obligations of U.S. government agencies	 	$	15,135	 	 	$	166	 	 	$	599	 	 	$	14,702	 	
U.S. Treasury obligations	 	 	1,642	 	 	 	90	 	 	 	—	 	 	 	1,732	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	16,777	 	 	$	256	 	 	$	599	 	 	$	16,434	 	

For those available-for-sale investments with unrealized losses at December 26, 2009 and December 27, 2008, the following table summarizes the duration of the unrealized loss (in thousands):

 	 	Less Than 12 Months	 	12 Months or Longer	 	Total	
 	 	Fair Market
	 	Unrealized
	 	Fair Market
	 	Unrealized
	 	Fair Market
	 	 	 	Unrealized
	
 	 	Value	 	Loss	 	Value	 	Loss	 	Value	 	 	 	Loss	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
December 26, 2009	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Corporate bonds and direct obligations of U.S. government agencies	 	$	1,989	 	 	$	10	 	 	$	1,192	 	 	$	216	 	 	$	3,181	 	 	 	 	 	 	$	226	 	
December 27, 2008	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Corporate bonds and direct obligations of U.S. government agencies	 	$	5,473	 	 	$	139	 	 	$	2,491	 	 	$	460	 	 	$	7,964	 	 	 	 	 	 	$	599	 	
 
Short-term investments include $22,595,000 in current maturities of investment-grade bonds and $1,730,000 of cash equivalents held by the Company’s insurance segment at December 26, 2009. These short-term investments together with $25,492,000 of the non-current portion of investment-grade bonds at
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
December 26, 2009, provide collateral for the $45,008,000 of letters of credit issued to guarantee payment of insurance claims.
 
Investment income represents the earnings on the insurance segment’s assets. Investment income earned from the assets of the insurance segment are included as a component of operating income as the investing activities and earnings thereon generally comprise a significant portion of the insurance segment’s profitability.

(5)  	Income Taxes	
 
The provisions for income taxes consisted of the following (in thousands):

 	 	Fiscal Year	 	
 	 	2009	 	 	2008	 	 	2007	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Current:	 	 	 	 	 	 	 	 	 	 	 	 	
Federal	 	$	35,878	 	 	$	57,249	 	 	$	61,266	 	
State	 	 	656	 	 	 	6,267	 	 	 	6,568	 	
Canadian	 	 	809	 	 	 	1,171	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	$	37,343	 	 	$	64,687	 	 	$	67,834	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Deferred:	 	 	 	 	 	 	 	 	 	 	 	 	
Federal	 	$	2,035	 	 	$	3,438	 	 	$	296	 	
State	 	 	384	 	 	 	435	 	 	 	225	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	2,419	 	 	 	3,873	 	 	 	521	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Income taxes	 	$	39,762	 	 	$	68,560	 	 	$	68,355	 	

Temporary differences and carryforwards which gave rise to deferred tax assets and liabilities consisted of the following (in thousands):

 	 	Dec. 26,
	 	 	Dec. 27,
	 	
 	 	2009	 	 	2008	 	
 	 	 	 	 	 	 	 	 	
Deferred tax assets:	 	 	 	 	 	 	 	 	
Receivable valuations	 	$	4,787	 	 	$	5,401	 	
Share-based payments	 	 	5,426	 	 	 	5,050	 	
Self-insured claims	 	 	5,288	 	 	 	6,782	 	
Other	 	 	5,938	 	 	 	2,807	 	
 	 	 	 	 	 	 	 	 	
 	 	$	21,439	 	 	$	20,040	 	
 	 	 	 	 	 	 	 	 	
Deferred tax liabilities:	 	 	 	 	 	 	 	 	
Operating property	 	$	27,433	 	 	$	25,758	 	
Other	 	 	8,040	 	 	 	5,897	 	
 	 	 	 	 	 	 	 	 	
 	 	$	35,473	 	 	$	31,655	 	
 	 	 	 	 	 	 	 	 	
Net deferred tax liability	 	$	14,034	 	 	$	11,615	 	

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The following table summarizes the differences between income taxes calculated at the federal income tax rate of 35% on income before income taxes and the provisions for income taxes (in thousands):

 	 	Fiscal Year	 	
 	 	2009	 	 	2008	 	 	2007	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Income taxes at federal income tax rate	 	$	38,399	 	 	$	62,822	 	 	$	62,303	 	
State income taxes, net of federal income tax benefit	 	 	676	 	 	 	4,356	 	 	 	4,415	 	
Meals and entertainment exclusion	 	 	870	 	 	 	493	 	 	 	802	 	
Share-based payments	 	 	636	 	 	 	515	 	 	 	598	 	
Other, net	 	 	(819	)	 	 	374	 	 	 	237	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Income taxes	 	$	39,762	 	 	$	68,560	 	 	$	68,355	 	

As of December 26, 2009, the Company had $8,761,000 of net unrecognized tax benefits representing the provision for the uncertainty of certain tax positions plus a component of interest and penalties. Estimated interest and penalties on the provision for the uncertainty of certain tax positions is included in income tax expense. At December 26, 2009 and December 27, 2008 there was $3,852,000 and $6,186,000, respectively, accrued for estimated interest and penalties related to the uncertainty of certain tax positions. The Company does not currently anticipate any significant increase or decrease to the unrecognized tax benefit during 2010.
 
The Company files a consolidated U.S. federal income tax return. The Company or its subsidiaries file state tax returns in the majority of the U.S. state tax jurisdictions. With few exceptions, the Company and its subsidiaries are no longer subject to U.S. federal or state income tax examinations by tax authorities for 2005 and prior years. At the end of 2007, the Company formed a wholly owned Canadian subsidiary, Landstar Canada, Inc. which is subject to Canadian income and other taxes.
 
The following table summarizes the rollforward of the total amounts of gross unrecognized tax benefits for fiscal years 2009 and 2008 (in thousands):

 	 	Fiscal Year	 	
 	 	2009	 	 	2008	 	
 	 	 	 	 	 	 	 	 	
Gross unrecognized tax benefits — beginning of the year	 	$	16,110	 	 	$	16,401	 	
Gross increases related to current year tax positions	 	 	635	 	 	 	2,161	 	
Gross increases related to prior year tax positions	 	 	2,570	 	 	 	1,759	 	
Gross decreases related to prior year tax positions	 	 	(3,420	)	 	 	(1,163	)	
Settlements	 	 	(381	)	 	 	(352	)	
Lapse of statute of limitations	 	 	(3,548	)	 	 	(2,696	)	
 	 	 	 	 	 	 	 	 	
Gross unrecognized tax benefits — end of the year	 	$	11,966	 	 	$	16,110	 	

Landstar paid income taxes of $32,913,000 in 2009, $63,712,000 in 2008 and $64,366,000 in 2007.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 	 	
(6)  	Operating Property	
 
Operating property is summarized as follows (in thousands):

 	 	Dec. 26,
	 	 	Dec. 27,
	 	
 	 	2009	 	 	2008	 	
 	 	 	 	 	 	 	 	 	
Land	 	$	1,921	 	 	$	1,921	 	
Leasehold improvements	 	 	9,749	 	 	 	9,654	 	
Buildings and improvements	 	 	8,218	 	 	 	8,206	 	
Trailing equipment	 	 	183,247	 	 	 	173,254	 	
Other equipment	 	 	38,331	 	 	 	37,778	 	
 	 	 	 	 	 	 	 	 	
 	 	 	241,466	 	 	 	230,813	 	
Less accumulated depreciation and amortization	 	 	124,810	 	 	 	106,635	 	
 	 	 	 	 	 	 	 	 	
 	 	$	116,656	 	 	$	124,178	 	

Included above is $127,684,000 in 2009 and $123,733,000 in 2008 of operating property under capital leases, $81,722,000 and $88,054,000, respectively, net of accumulated amortization. Landstar acquired operating property by entering into capital leases in the amount of $12,284,000 in 2009, $4,802,000 in 2008 and $36,046,000 in 2007.

(7)  	Retirement Plan	
 
Landstar sponsors an Internal Revenue Code section 401(k) defined contribution plan for the benefit of full-time employees who have completed one year of service. Eligible employees make voluntary contributions up to 75% of their base salary, subject to certain limitations. Landstar contributes an amount equal to 100% of the first 3% and 50% of the next 2% of such contributions, subject to certain limitations.
 
The expense for the Company-sponsored defined contribution plan included in selling, general and administrative expense was $1,598,000 in 2009, $1,571,000 in 2008 and $1,461,000 in 2007.

(8)  	Debt	
 
Long-term debt is summarized as follows (in thousands):

 	 	Dec. 26,
	 	 	Dec. 27,
	 	
 	 	2009	 	 	2008	 	
 	 	 	 	 	 	 	 	 	
Capital leases	 	$	52,898	 	 	$	66,445	 	
Revolving credit facility	 	 	40,000	 	 	 	70,000	 	
 	 	 	 	 	 	 	 	 	
 	 	 	92,898	 	 	 	136,445	 	
Less current maturities	 	 	24,585	 	 	 	24,693	 	
 	 	 	 	 	 	 	 	 	
Total long-term debt	 	$	68,313	 	 	$	111,752	 	

On June 27, 2008, Landstar entered into a credit agreement with a syndicate of banks and JPMorgan Chase Bank, N.A., as administrative agent (the “Credit Agreement”). The Credit Agreement, which expires on June 27, 2013, provides $225,000,000 of borrowing capacity in the form of a revolving credit facility, $75,000,000 of which may be utilized in the form of letter of credit guarantees. Borrowings under the Credit Agreement are unsecured, however, all but two of the Company’s subsidiaries guarantee the obligations under the Credit Agreement. All amounts outstanding under the Credit Agreement are payable on June 27, 2013, the expiration of the Credit Agreement.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Borrowings under the Credit Agreement bear interest at rates equal to, at the option of the Company, either (i) the greater of (a) the prime rate as publicly announced from time to time by JPMorgan Chase Bank, N.A. and (b) the federal funds effective rate plus 0.5%, or, (ii) the rate at the time offered to JPMorgan Chase Bank, N.A. in the Eurodollar market for amounts and periods comparable to the relevant loan plus, in either case, a margin that is determined based on the level of the Company’s Leverage Ratio, as defined in the Credit Agreement. The unused portion of the revolving credit facility under the Credit Agreement carries a commitment fee determined based on the level of the Leverage Ratio, as therein defined. The commitment fee for the unused portion of the revolving credit facility under the Credit Agreement ranges from .175% to .350%, based on achieving certain levels of the Leverage Ratio. As of December 26, 2009, the weighted average interest rate on borrowings outstanding was 1.12%.
 
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 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 in the event 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, among other things, that a person or group acquires 25% or more of the outstanding capital stock of the Company or obtains power to elect a majority of the Company’s directors. 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.
 
Interest on borrowings under the Credit Agreement is based on interest rates that vary with changes in the rate offered to JPMorgan Chase Bank, N.A. in the Eurodollar market for amounts and periods comparable to the relevant loan and, therefore, borrowings under the Company’s senior credit facility approximate fair value. Interest on the Company’s capital lease obligations is based on interest rates that approximate currently available interest rates and, therefore, indebtedness under the Company’s capital lease obligations approximates fair value.
 
Landstar paid interest of $4,398,000 in 2009, $7,904,000 in 2008 and $7,518,000 in 2007.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 	 	
(9)  	Leases	
 
The future minimum lease payments under all noncancelable leases at December 26, 2009, principally for trailing equipment and the Company’s headquarters facility in Jacksonville, Florida, are shown in the following table (in thousands):

 	 	Capital
	 	 	Operating
	 	
 	 	Leases	 	 	Leases	 	
 	 	 	 	 	 	 	 	 	
2010	 	$	26,661	 	 	$	4,134	 	
2011	 	 	20,274	 	 	 	3,060	 	
2012	 	 	7,970	 	 	 	2,628	 	
2013	 	 	1,022	 	 	 	2,392	 	
2014	 	 	299	 	 	 	2,018	 	
Thereafter	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	
 	 	 	56,226	 	 	$	14,232	 	
 	 	 	 	 	 	 	 	 	
Less amount representing interest (3.1% to 5.9%)	 	 	3,328	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Present value of minimum lease payments	 	$	52,898	 	 	 	 	 	

Total rent expense, net of sublease income, was $2,664,000 in 2009, $5,744,000 in 2008 and $9,893,000 in 2007.
 
In January 2010, the Company entered into a contract of sale with the landlord of its Jacksonville, FL facility to purchase its headquarters in the first quarter of 2010. The purchase price of the facility, including the land and fixtures located thereon, is $21,135,000. Included above under operating leases is $10,006,000 of rental payments for the Jacksonville Facility. If the purchase is completed, the remaining operating lease obligations on this facility will no longer be payable.

(10)  	Share-Based Payment Arrangements	
 
Employee and Director Equity Plans
 
The Company’s Board of Directors amended and restated the Company’s 2002 Employee Stock Option Plan. As amended and restated, the 2002 Employee Stock Option Plan is now called the Amended and Restated 2002 Employee Stock Option and Stock Incentive Plan (the “ESOSIP”). The ESOSIP was approved by vote of the Company’s shareholders at the Annual Meeting of Stockholders on April 30, 2009. The amendment and restatement of the ESOSIP, among other things, provides the Compensation Committee of the Company’s Board of Directors the power to grant equity and equity-based awards in addition to stock options, including restricted stock, stock appreciation rights, performance shares and other stock-based awards. It also extended the term of the ESOSIP to 10 years after the date it was amended and restated by the Company’s Board of Directors for all awards, except for incentive stock options which may not be granted after the tenth anniversary of the date the 2002 Employee Stock Option Plan was originally adopted by the Board.
 
In revising the ESOSIP, the Company did not increase the number of shares available for grant under the 2002 Employee Stock Option Plan. As originally adopted, 800,000 shares were authorized for issuance. Through the adjustment provisions of the 2002 Employee Stock Option Plan, to reflect stock splits with respect to the Company’s common stock, the number of shares authorized for issuance had been adjusted to be 6,400,000 shares. Awards of restricted stock, performance shares or other stock-based awards now authorized under the ESOSIP will be made from the existing pool of shares available under the 2002 Employee Stock Option Plan. Moreover, to the extent that the awards of restricted stock, performance shares or other stock-based awards provide the recipient with the “full value” of the shares, and the settlement of an existing
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obligation is not otherwise payable in cash, each share granted will count as two shares against the share limit in the ESOSIP. Certain provisions in the agreements for awards of stock options allow for the automatic vesting of outstanding stock options if there is a change in control for the Company.
 
As of December 26, 2009, the Company had an employee stock option plan, the ESOSIP and one stock option plan for members of its Board of Directors (the “Plans”). No further grants can be made under the employee stock option plan as its term for granting stock options has expired. In addition, no further grants are to be made under the stock option plan for members of the Board of Directors. Amounts recognized in the financial statements with respect to these Plans are as follows (in thousands):

 	 	Fiscal Years	 	
 	 	Dec. 26,
	 	 	Dec. 27,
	 	 	Dec. 29,
	 	
 	 	2009	 	 	2008	 	 	2007	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total cost of the Plans during the period	 	$	4,968	 	 	$	6,636	 	 	$	7,610	 	
Amount of related income tax benefit recognized during the period	 	 	1,163	 	 	 	1,973	 	 	 	2,187	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net cost of the Plans during the period	 	$	3,805	 	 	$	4,663	 	 	$	5,423	 	

Options granted under the Plans generally become exercisable in either three or five equal annual installments commencing on the first anniversary of the date of grant or 100% four and one-half years from the date of grant or 100% on the third or fifth anniversary from the date of grant, subject to acceleration in certain circumstances. All options granted under the Plans expire on the tenth anniversary of the date of grant. Under the Plans, the exercise price of each option equals the fair market value of the Company’s common stock on the date of grant. As of December 26, 2009, there were 5,142,202 shares of the Company’s common stock reserved for issuance upon exercise of options granted and to be granted under the Plans.
 
The fair value of each option grant on its grant date was calculated using the Black-Scholes option pricing model with the following weighted average assumptions for grants made in 2009, 2008 and 2007:

 	 	2009	 	 	2008	 	 	2007	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Expected volatility	 	 	38.0	%	 	 	33.0	%	 	 	33.0	%	
Expected dividend yield	 	 	0.400	%	 	 	0.375	%	 	 	0.300	%	
Risk-free interest rate	 	 	1.50	%	 	 	3.00	%	 	 	4.75	%	
Expected lives (in years)	 	 	4.4	 	 	 	4.1	 	 	 	4.2	 	
 
The Company utilizes historical data, including exercise patterns and employee departure behavior, in estimating the term options will be outstanding. Expected volatility was based on historical volatility and other factors, such as expected changes in volatility arising from planned changes to the Company’s business, if any. The risk-free interest rate was based on the yield of zero coupon U.S. Treasury bonds for terms that approximated the terms of the options granted. The weighted average grant date fair value of stock options granted during 2009, 2008 and 2007 was $12.30, $12.60 and $14.26, respectively.
 
The total intrinsic value of stock options exercised during 2009, 2008 and 2007 was $3,816,000, $11,587,000 and $16,616,000, respectively. At December 26, 2009, the total intrinsic value of stock options outstanding was $7,331,000. At December 26, 2009, the total intrinsic value of options outstanding and exercisable was $8,954,000.
 
As of December 26, 2009, there was $11,321,000 of total unrecognized compensation cost related to non-vested stock options granted under the Plans. The unrecognized compensation cost related to these non-vested options is expected to be recognized over a weighted average period of 3.1 years.
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The following table summarizes information regarding the Company’s stock options under the Plans:

 	 	Options Outstanding	 	 	Options Exercisable	 	
 	 	 	 	 	Weighted Average
	 	 	 	 	 	Weighted Average
	 	
 	 	 	 	 	Exercise Price
	 	 	 	 	 	Exercise Price
	 	
 	 	Shares	 	 	per Share	 	 	Shares	 	 	per Share	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Options at December 30, 2006	 	 	2,566,571	 	 	$	27.35	 	 	 	779,739	 	 	$	16.29	 	
Granted	 	 	275,500	 	 	$	43.00	 	 	 	 	 	 	 	 	 	
Exercised	 	 	(623,663	)	 	$	20.62	 	 	 	 	 	 	 	 	 	
Forfeited	 	 	(19,100	)	 	$	39.73	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Options at December 29, 2007	 	 	2,199,308	 	 	$	31.11	 	 	 	747,626	 	 	$	24.73	 	
Granted	 	 	777,500	 	 	$	42.30	 	 	 	 	 	 	 	 	 	
Exercised	 	 	(467,164	)	 	$	26.22	 	 	 	 	 	 	 	 	 	
Forfeited	 	 	(4,000	)	 	$	44.63	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Options at December 27, 2008	 	 	2,505,644	 	 	$	35.47	 	 	 	822,211	 	 	$	30.75	 	
Granted	 	 	367,000	 	 	$	38.20	 	 	 	 	 	 	 	 	 	
Exercised	 	 	(207,342	)	 	$	19.31	 	 	 	 	 	 	 	 	 	
Forfeited	 	 	(107,500	)	 	$	42.77	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Options at December 26, 2009	 	 	2,557,802	 	 	$	36.86	 	 	 	1,225,802	 	 	$	32.43	 	

The following tables summarize stock options outstanding and exercisable at December 26, 2009:

 	 	Options Outstanding	 	
 	 	Number
	 	 	Weighted Average
	 	 	Weighted Average
	 	
 	 	Outstanding
	 	 	Remaining Contractual
	 	 	Exercise Price
	 	
Range of Exercise Prices Per Share	 	Dec. 26, 2009	 	 	Life (Years)	 	 	per Share	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
$ 8.08 - $10.00	 	 	73,800	 	 	 	1.4	 	 	$	8.25	 	
$10.01 - $15.00	 	 	122,776	 	 	 	2.9	 	 	$	13.67	 	
$15.01 - $25.00	 	 	191,000	 	 	 	4.0	 	 	$	19.37	 	
$25.01 - $35.00	 	 	166,979	 	 	 	5.0	 	 	$	31.29	 	
$35.01 - $40.00	 	 	600,167	 	 	 	7.7	 	 	$	37.96	 	
$40.01 - $44.00	 	 	1,134,580	 	 	 	7.3	 	 	$	42.36	 	
$44.01 - $48.15	 	 	268,500	 	 	 	7.4	 	 	$	45.56	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	2,557,802	 	 	 	6.6	 	 	$	36.86	 	

 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Options Exercisable	 	
 	 	Number
	 	 	Weighted Average
	 	 	Weighted Average
	 	
 	 	Exercisable
	 	 	Remaining Contractual
	 	 	Exercise Price
	 	
Range of Exercise Prices Per Share	 	Dec. 26, 2009	 	 	Life (Years)	 	 	per Share	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
$ 8.08 - $10.00	 	 	73,800	 	 	 	1.4	 	 	$	8.25	 	
$10.01 - $15.00	 	 	122,776	 	 	 	2.9	 	 	$	13.67	 	
$15.01 - $25.00	 	 	191,000	 	 	 	4.0	 	 	$	19.37	 	
$25.01 - $35.00	 	 	139,779	 	 	 	5.0	 	 	$	31.13	 	
$35.01 - $40.00	 	 	178,667	 	 	 	5.0	 	 	$	37.33	 	
$40.01 - $44.00	 	 	415,780	 	 	 	6.3	 	 	$	43.44	 	
$44.01 - $48.15	 	 	104,000	 	 	 	7.3	 	 	$	44.97	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	1,225,802	 	 	 	5.1	 	 	$	32.43	 	

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As of December 26, 2009, there were 11,500 shares of common stock of the Company, subject to certain vesting and other restrictions including restrictions on transfer, issued under the ESOSIP and outstanding. The fair value of each share of non-vested restricted stock issued under the ESOSIP is based on the fair value of a share of the Company’s common stock on the date of grant. During 2009, 11,500 shares of restricted stock were issued under the ESOSIP with a grant date fair value of $400,000, or $34.82 per share. None of these shares vested or forfeited during 2009. As of December 26, 2009, there was $366,000 of total unrecognized compensation cost related to non-vested shares granted under the ESOSIP. The unrecognized compensation cost related to these non-vested shares of restricted stock is expected to be recognized over a weighted average period of 4.6 years.
 
Directors’ Stock Compensation Plan
 
Under the Directors’ Stock Compensation Plan, outside members of the Board of Directors who are elected or re-elected to the Board receive 6,000 shares of common stock of the Company, subject to certain restrictions including restrictions on transfer. The Company issued 12,000 and 13,577, respectively, shares of the Company’s common stock to members of the Board of Directors upon such members’ re-election at the 2008 and 2007 annual stockholders’ meetings. During 2008 and 2007, the Company reported $634,000 and $678,000, respectively, in compensation expense representing the fair market value of these share awards. There were no such shares issued in 2009. As of December 26, 2009, there were 138,423 shares of the Company’s common stock reserved for issuance upon the grant of common stock under the Directors’ Stock Compensation Plan.

(11)  	Equity	
 
On July 16, 2008, Landstar System, Inc. announced that it had been authorized by its Board of Directors to purchase up to 2,000,000 shares of its common stock from time to time in the open market and in privately negotiated transactions. During its 2009 fourth quarter, the Company completed the purchase of shares authorized for purchase under this program. On January 28, 2009, Landstar System, Inc. announced that it had been authorized by its Board of Directors to purchase up to an additional 1,569,377 shares of its common stock from time to time in the open market and in privately negotiated transactions. As of December 26, 2009, Landstar may purchase an additional 1,375,453 shares of its common stock under its most recently authorized stock purchase program. During 2009, Landstar purchased a total 1,624,547 shares of its common stock at a total cost of $55,757,000 pursuant to its previously announced stock purchase programs.
 
The Company has 2,000,000 shares of preferred stock authorized and unissued.

(12)  	Commitments and Contingencies	
 
At December 26, 2009, in addition to the $45,008,000 letters of credit secured by investments, Landstar had $33,857,000 of letters of credit outstanding under the Company’s Credit Agreement.
 
In the Company’s 2009 fiscal third quarter, the Company completed the acquisitions of NLM and A3i. As it relates to NLM, the Company may be required to pay additional consideration to the prior owner of NLM contingent on NLM achieving certain levels of earnings through December 2014. As it relates to the noncontrolling interest of A3i Acquisition, the Company has the option, during the period commencing on the fourth anniversary of June 29, 2009, the closing date of the acquisition (the “Closing Date”), and ending on the sixth anniversary of the Closing Date, to purchase at fair value all but not less than all of the noncontrolling interest. The noncontrolling interest is also subject to customary restrictions on transfer, including a right of first refusal in favor of the Company, and drag-along rights. For a specified period following each of the sixth, seventh and eighth anniversaries of the Closing Date, the owner of the noncontrolling interest shall have the right, but not the obligation, to sell at fair value to the Company up to
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one third annually of the investment then held by such owner. The owner of the non-controlling interest also has certain preemptive rights and tag-along rights.
 
As further described in periodic and current reports previously filed by Landstar System, Inc. (the “Company”) with the Securities and Exchange Commission, the Company and certain of its subsidiaries (the “Defendants”) are defendants in a suit (the “Litigation”) brought in the United States District Court for the Middle District of Florida (the “District Court”) by the Owner-Operator Independent Drivers Association, Inc. (“OOIDA”) and four former BCO Independent Contractors (the “Named Plaintiffs” and, with OOIDA, the “Plaintiffs”) on behalf of all independent contractors who provide truck capacity to the Company and its subsidiaries under exclusive lease arrangements (the “BCO Independent Contractors”). The Plaintiffs allege that certain aspects of the Company’s motor carrier leases and related practices with its BCO Independent Contractors violate certain federal leasing regulations and seek injunctive relief, an unspecified amount of damages and attorneys’ fees.
 
On March 29, 2007, the District Court denied the request by Plaintiffs for injunctive relief, entered a judgment in favor of the Defendants and issued written orders setting forth its rulings related to the decertification of the plaintiff class and other important elements of the Litigation relating to liability, injunctive relief and monetary relief. The Plaintiffs filed an appeal with the United States Court of Appeals for the Eleventh Circuit (the “Appellate Court”) of certain of the District Court’s rulings in favor of the Defendants. The Defendants asked the Appellate Court to affirm such rulings and filed a cross-appeal with the Appellate Court with respect to certain other rulings of the District Court.
 
On September 3, 2008, the Appellate Court issued its ruling, which, among other things, affirmed the District Court’s rulings that (i) the Defendants are not prohibited by the applicable federal leasing regulations from charging administrative or other fees to BCO Independent Contractors in connection with voluntary programs offered by the Defendants through which a BCO Independent Contractor may purchase discounted products and services for a charge that is deducted against the compensation payable to the BCO Independent Contractor (a “Charge-back Deduction”), (ii) the Plaintiffs are not entitled to restitution or disgorgement with respect to violations by Defendants of the applicable federal leasing regulations but instead may recover only actual damages, if any, which they sustained as a result of any such violations and (iii) the claims of BCO Independent Contractors may not be handled on a class action basis for purposes of determining the amount of actual damages, if any, they sustained as a result of any violations. Further, the analysis of the Appellate Court confirmed the absence of any violations alleged by the Plaintiffs of the federal leasing regulations with respect to the written terms of all leases currently in use between the Defendants and BCO Independent Contractors.
 
However, the ruling of the Appellate Court reversed the District Court’s rulings (i) that an old version of the lease formerly used by Defendants but not in use with any current BCO Independent Contractor complied with applicable disclosure requirements under the federal leasing regulations with respect to adjustments to compensation payable to BCO Independent Contractors on certain loads sourced from the U.S. Dept. of Defense, and (ii) that the Defendants had provided sufficient documentation to BCO Independent Contractors under the applicable federal leasing regulations relating to how the component elements of Charge-back Deductions were computed. The Appellate Court then remanded the case to the District Court to permit the Plaintiffs to seek injunctive relief with respect to these violations of the federal leasing regulations and to hold an evidentiary hearing to give the Named Plaintiffs an opportunity to produce evidence of any damages they actually sustained as a result of such violations.
 
Each of the parties to the Litigation has filed a petition with the Appellate Court seeking rehearing of the Appellate Court’s ruling; however, there can be no assurance that any petition for rehearing will be granted.
 
Although no assurances can be given with respect to the outcome of the Litigation, including any possible award of attorneys’ fees to the Plaintiffs, the Company believes that (i) no Plaintiff has sustained any actual damages as a result of any violations by the Defendants of the federal leasing regulations and (ii) injunctive
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relief, if any, that may be granted by the District Court on remand is unlikely to have a material adverse financial effect on the Company.
 
The Company is involved in certain other claims and pending litigation arising from the normal conduct of business. 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 other 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.

(13)  	Segment Information	
 
Landstar markets its freight transportation services and supply chain solutions primarily through independent commission sales agents who enter into contractual arrangements with the Company and are responsible for locating freight, making that freight available to Landstar’s capacity providers and coordinating the transportation of the freight with customers and capacity providers. The Company’s third party capacity providers consist of independent contractors who provide truck capacity to the Company under exclusive lease arrangements (the “BCO Independent Contractors”), unrelated trucking companies who provide truck capacity to the Company under non-exclusive contractual arrangements (the “Truck Brokerage Carriers”), air cargo carriers, ocean cargo carriers, railroads and independent warehouse capacity providers (“Warehouse Capacity Owners”). The Company has contracts with all of the Class 1 domestic and Canadian railroads and certain short-line railroads and contracts with domestic and international airlines and ocean lines. Through this network of agents and capacity providers linked together by Landstar’s technological applications, Landstar operates a transportation services and supply chain solutions business primarily throughout North America with revenue of approximately $2.0 billion during the most recently completed fiscal year. The Company reports the results of two operating segments: the transportation logistics segment and the insurance segment.
 
The transportation logistics segment provides a wide range of transportation services and supply chain solutions. Transportation services offered by the Company include truckload and less-than-truckload transportation, rail intermodal, air cargo, ocean cargo, expedited ground and air delivery of time-critical freight, heavy-haul/specialized, U.S.-Canada and U.S.-Mexico cross-border, project cargo and customs brokerage. Supply chain solutions are based on advanced technology solutions offered by the Company and include integrated multi-modal solutions, outsourced logistics, supply chain engineering and warehousing. Also, supply chain solutions can be delivered through a software-as-a-service model. Industries serviced by the transportation logistics segment include automotive products, paper, lumber and building products, metals, chemicals, foodstuffs, heavy machinery, retail, electronics, ammunition and explosives and military hardware. In addition, the transportation logistics segment provides transportation services to other transportation companies, including logistics and less-than-truckload service providers. Each of the independent commission sales agents has the opportunity to market all of the services provided by the transportation logistics segment. Freight transportation services are typically charged to customers on a per shipment basis for the physical transportation of freight. Supply chain solution customers are generally charged fees for the services provided. Revenue recognized by the transportation logistics segment when providing capacity to customers to haul their freight is referred to herein as “transportation services revenue” and revenue for freight management services recognized on a fee-for-service basis is referred to herein as “transportation management fees.”
 
The insurance segment provides risk and claims management services to certain of Landstar’s Operating Subsidiaries. In addition, it reinsures certain risks of the Company’s BCO Independent Contractors and provides certain property and casualty insurance directly to certain of Landstar’s Operating Subsidiaries. Internal revenue for premiums billed by the insurance segment to the transportation logistics segment is calculated each fiscal period based primarily on an actuarial calculation of historical loss experience and is
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believed to approximate the cost that would have been incurred by the transportation logistics segment had similar insurance been obtained from an unrelated third party.
 
The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates a segment’s performance based on operating income.
 
No single customer accounted for more than 10% of consolidated revenue in 2009, 2008 or 2007. Substantially all of the Company’s revenue is generated in North America, primarily through customers located in the United States.
 
The following tables summarize information about the Company’s reportable business segments as of and for the fiscal years ending December 26, 2009, December 27, 2008 and December 29, 2007 (in thousands):

 	 	Transportation
	 	 	 	 	
 	 	Logistics	 	Insurance	 	Total	
 	 	 	 	 	 	 	 	 	 	 	 	 	
2009	 	 	 	 	 	 	 	 	 	 	 	 	
External revenue	 	$	1,972,863	 	 	$	35,933	 	 	$	2,008,796	 	
Internal revenue	 	 	 	 	 	 	27,179	 	 	 	27,179	 	
Investment income	 	 	 	 	 	 	1,268	 	 	 	1,268	 	
Interest and debt expense	 	 	4,030	 	 	 	 	 	 	 	4,030	 	
Depreciation and amortization	 	 	23,528	 	 	 	 	 	 	 	23,528	 	
Operating income	 	 	88,176	 	 	 	25,566	 	 	 	113,742	 	
Expenditures on long-lived assets	 	 	2,715	 	 	 	 	 	 	 	2,715	 	
Goodwill	 	 	57,470	 	 	 	 	 	 	 	57,470	 	
Capital lease additions	 	 	12,284	 	 	 	 	 	 	 	12,284	 	
Total assets	 	 	524,584	 	 	 	124,208	 	 	 	648,792	 	
2008	 	 	 	 	 	 	 	 	 	 	 	 	
External revenue	 	$	2,606,216	 	 	$	36,853	 	 	$	2,643,069	 	
Internal revenue	 	 	 	 	 	 	27,565	 	 	 	27,565	 	
Investment income	 	 	 	 	 	 	3,339	 	 	 	3,339	 	
Interest and debt expense	 	 	7,351	 	 	 	 	 	 	 	7,351	 	
Depreciation and amortization	 	 	20,960	 	 	 	 	 	 	 	20,960	 	
Operating income	 	 	148,385	 	 	 	38,456	 	 	 	186,841	 	
Expenditures on long-lived assets	 	 	8,289	 	 	 	 	 	 	 	8,289	 	
Goodwill	 	 	31,134	 	 	 	 	 	 	 	31,134	 	
Capital lease additions	 	 	4,802	 	 	 	 	 	 	 	4,802	 	
Total assets	 	 	530,163	 	 	 	133,367	 	 	 	663,530	 	
2007	 	 	 	 	 	 	 	 	 	 	 	 	
External revenue	 	$	2,450,411	 	 	$	36,866	 	 	$	2,487,277	 	
Internal revenue	 	 	 	 	 	 	29,217	 	 	 	29,217	 	
Investment income	 	 	 	 	 	 	5,347	 	 	 	5,347	 	
Interest and debt expense	 	 	6,685	 	 	 	 	 	 	 	6,685	 	
Depreciation and amortization	 	 	19,088	 	 	 	 	 	 	 	19,088	 	
Operating income	 	 	150,638	 	 	 	34,055	 	 	 	184,693	 	
Expenditures on long-lived assets	 	 	6,514	 	 	 	 	 	 	 	6,514	 	
Goodwill	 	 	31,134	 	 	 	 	 	 	 	31,134	 	
Capital lease additions	 	 	36,046	 	 	 	 	 	 	 	36,046	 	
Total assets	 	 	539,618	 	 	 	89,383	 	 	 	629,001	 	

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
The Board of Directors and Shareholders
Landstar System, Inc.:
 
We have audited the accompanying consolidated balance sheets of Landstar System, Inc. and subsidiary (the Company) as of December 26, 2009 and December 27, 2008, and the related consolidated statements of income, changes in equity and cash flows for the fiscal years ended December 26, 2009, December 27, 2008 and December 29, 2007. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Landstar System, Inc. and subsidiary as of December 26, 2009 and December 27, 2008, and the results of their operations and their cash flows for the fiscal years ended December 26, 2009, December 27, 2008 and December 29, 2007, in conformity with U.S. generally accepted accounting principles.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Landstar System, Inc.’s internal control over financial reporting as of December 26, 2009, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 23, 2010, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
 
/s/  KPMG LLP
 
February 23, 2010
Jacksonville, Florida
Certified Public Accountants
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LANDSTAR SYSTEM, INC. AND SUBSIDIARY
QUARTERLY FINANCIAL DATA
(Dollars in thousands, except per share amounts)
(Unaudited)

 	 	Fourth
	 	 	Third
	 	 	Second
	 	 	First
	 	
 	 	Quarter
	 	 	Quarter
	 	 	Quarter
	 	 	Quarter
	 	
 	 	2009	 	 	2009	 	 	2009	 	 	2009	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue	 	$	547,715	 	 	$	500,670	 	 	$	491,164	 	 	$	469,247	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating income	 	$	27,570	 	 	$	32,678	 	 	$	29,776	 	 	$	23,718	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income before income taxes	 	$	26,633	 	 	$	31,721	 	 	$	28,803	 	 	$	22,555	 	
Income taxes	 	 	8,296	 	 	 	11,859	 	 	 	10,946	 	 	 	8,661	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	18,337	 	 	$	19,862	 	 	$	17,857	 	 	$	13,894	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Less: Net loss attributable to noncontrolling interest	 	 	(231	)	 	 	(214	)	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income attributable to Landstar System, Inc and subsidiary	 	$	18,568	 	 	$	20,076	 	 	$	17,857	 	 	$	13,894	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings per common share attributable to Landstar System, Inc. and subsidiary(1)	 	$	0.37	 	 	$	0.39	 	 	$	0.35	 	 	$	0.27	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted earnings per share attributable to Landstar System, Inc. and subsidiary(1)	 	$	0.37	 	 	$	0.39	 	 	$	0.35	 	 	$	0.27	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Dividends paid per common share	 	$	0.0450	 	 	$	0.0450	 	 	$	0.0400	 	 	$	0.0400	 	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Fourth
	 	 	Third
	 	 	Second
	 	 	First
	 	
 	 	Quarter
	 	 	Quarter
	 	 	Quarter
	 	 	Quarter
	 	
 	 	2008	 	 	2008	 	 	2008	 	 	2008	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenue	 	$	603,837	 	 	$	732,753	 	 	$	697,651	 	 	$	608,828	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating income	 	$	40,977	 	 	$	54,690	 	 	$	50,185	 	 	$	40,989	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income before income taxes	 	$	39,261	 	 	$	52,933	 	 	$	48,449	 	 	$	38,847	 	
Income taxes	 	 	14,656	 	 	 	20,116	 	 	 	18,684	 	 	 	15,104	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	24,605	 	 	$	32,817	 	 	$	29,765	 	 	$	23,743	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Less: Net income attributable to noncontrolling interest	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income attributable to Landstar System, Inc and subsidiary	 	$	24,605	 	 	$	32,817	 	 	$	29,765	 	 	$	23,743	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings per common share attributable to Landstar System, Inc. and subsidiary(1)	 	$	0.47	 	 	$	0.62	 	 	$	0.56	 	 	$	0.45	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted earnings per share attributable to Landstar System, Inc. and subsidiary(1)	 	$	0.47	 	 	$	0.62	 	 	$	0.56	 	 	$	0.45	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Dividends paid per common share	 	$	0.0400	 	 	$	0.0400	 	 	$	0.0375	 	 	$	0.0375	 	

 
 	 	 	
(1)	 	Due to the changes in the number of average common shares and common stock equivalents outstanding during the year, the sum of earnings per share amounts for each quarter do not necessarily sum in the aggregate to the earnings per share amounts for the full year.	

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
The Board of Directors and Shareholders
Landstar System, Inc.:
 
Under date of February 23, 2010, we reported on the consolidated balance sheets of Landstar System, Inc. and subsidiary (the Company) as of December 26, 2009 and December 27, 2008, and the related consolidated statements of income, changes in equity and cash flows for the fiscal years ended December 26, 2009, December 27, 2008 and December 29, 2007, which are included in the 2009 annual report to shareholders. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedules as listed in Item 15(a) (2). These financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statement schedules based on our audits.
 
In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
 
/s/  KPMG LLP
 
February 23, 2010
Jacksonville, Florida
Certified Public Accountants
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LANDSTAR SYSTEM, INC.
 
SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PARENT COMPANY ONLY BALANCE SHEET INFORMATION
(Dollars in thousands, except per share amounts)

 	 	Dec. 26,
	 	 	Dec. 27,
	 	
 	 	2009	 	 	2008	 	
 	 	 	 	 	 	 	 	 	
ASSETS	
Investment in Landstar System Holdings, Inc., net of advances	 	$	268,151	 	 	$	253,136	 	
 	 	 	 	 	 	 	 	 	
Total assets	 	$	268,151	 	 	$	253,136	 	

LIABILITIES AND EQUITY	
Equity:	 	 	 	 	 	 	 	 	
Landstar System, Inc. and subsidiary shareholders’ equity	 	 	 	 	 	 	 	 	
Common stock, $0.01 par value, authorized 160,000,000 shares, issued 66,255,358 and 66,109,547	 	$	663	 	 	$	661	 	
Additional paid-in capital	 	 	161,261	 	 	 	154,533	 	
Retained earnings	 	 	766,040	 	 	 	704,331	 	
Cost of 16,022,111 and 14,424,887 shares of common stock in treasury	 	 	(660,446	)	 	 	(605,828	)	
Accumulated other comprehensive income/(loss)	 	 	498	 	 	 	(561	)	
 	 	 	 	 	 	 	 	 	
Total Landstar System, Inc. and subsidiary shareholders’ equity	 	 	268,016	 	 	 	253,136	 	
Noncontrolling interest	 	 	135	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	
Total liabilities and equity	 	$	268,151	 	 	$	253,136	 	

See Report of Independent Registered Public Accounting Firm.
57

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LANDSTAR SYSTEM, INC.
 
SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PARENT COMPANY ONLY STATEMENT OF INCOME INFORMATION
(Dollars in thousands, except per share amounts)

 	 	Fiscal Years Ended	 	
 	 	Dec. 26,
	 	 	Dec. 27,
	 	 	Dec. 29,
	 	
 	 	2009	 	 	2008	 	 	2007	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Equity in undistributed earnings of Landstar System Holdings, Inc. 	 	$	70,341	 	 	$	110,331	 	 	$	109,200	 	
Income taxes	 	 	(54	)	 	 	(599	)	 	 	(453	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income attributable to Landstar System, Inc. and subsidiary	 	$	70,395	 	 	$	110,930	 	 	$	109,653	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings per common share attributable to Landstar System, Inc. and subsidiary	 	$	1.38	 	 	$	2.11	 	 	$	2.01	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted earnings per share attributable to Landstar System, Inc. and subsidiary	 	$	1.37	 	 	$	2.10	 	 	$	1.99	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Dividends paid per common share	 	$	0.170	 	 	$	0.155	 	 	$	0.135	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Average number of shares outstanding:	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings per common share	 	 	51,095,000	 	 	 	52,503,000	 	 	 	54,681,000	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted earnings per share	 	 	51,280,000	 	 	 	52,854,000	 	 	 	55,156,000	 	

See Report of Independent Registered Public Accounting Firm.
58

Table of Contents
LANDSTAR SYSTEM, INC.
 
SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PARENT COMPANY ONLY STATEMENT OF CASH FLOWS INFORMATION
(Dollars in thousands)

 	 	Fiscal Years Ended	 	
 	 	Dec. 26,
	 	 	Dec. 27,
	 	 	Dec. 29,
	 	
 	 	2009	 	 	2008	 	 	2007	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating Activities	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	70,395	 	 	$	110,930	 	 	$	109,653	 	
Adjustments to reconcile net income to net cash provided by operating activities:	 	 	 	 	 	 	 	 	 	 	 	 	
Equity in undistributed earnings of Landstar System Holdings, Inc. 	 	 	(70,341	)	 	 	(110,331	)	 	 	(109,200	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Cash Provided By Operating Activities	 	 	54	 	 	 	599	 	 	 	453	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Investing Activities	 	 	 	 	 	 	 	 	 	 	 	 	
Additional investments in and advances from Landstar System Holdings, Inc., net	 	 	61,941	 	 	 	44,972	 	 	 	167,040	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Cash Provided By Investing Activities	 	 	61,941	 	 	 	44,972	 	 	 	167,040	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Financing Activities	 	 	 	 	 	 	 	 	 	 	 	 	
Excess tax benefit on stock option exercises	 	 	773	 	 	 	2,231	 	 	 	3,624	 	
Proceeds from exercises of stock options	 	 	1,128	 	 	 	12,249	 	 	 	12,862	 	
Dividends paid	 	 	(8,686	)	 	 	(8,136	)	 	 	(7,389	)	
Purchases of common stock	 	 	(55,757	)	 	 	(51,576	)	 	 	(176,590	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Cash Used By Financing Activities	 	 	(62,542	)	 	 	(45,232	)	 	 	(167,493	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Effect of exchange rate changes on cash and cash equivalents	 	 	547	 	 	 	(339	)	 	 	0	 	
Change in cash and cash equivalents	 	 	0	 	 	 	0	 	 	 	0	 	
Cash and cash equivalents at beginning of period	 	 	0	 	 	 	0	 	 	 	0	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents at end of period	 	$	0	 	 	$	0	 	 	$	0	 	

See Report of Independent Registered Public Accounting Firm.
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Table of Contents
LANDSTAR SYSTEM, INC. AND SUBSIDIARY

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
For the Fiscal Year Ended December 26, 2009
(Dollars in thousands)

COL A	 	COL B	 	 	COL C	 	 	COL D	 	 	COL E	 	
 	 	 	 	 	Additions	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	Charged to
	 	 	 	 	 	 	 	
 	 	Balance at
	 	 	Charged to
	 	 	Other
	 	 	Deductions
	 	 	Balance at
	 	
 	 	Beginning of
	 	 	Costs and
	 	 	Accounts
	 	 	Describe
	 	 	End of
	 	
 	 	Period	 	 	Expenses	 	 	Describe	 	 	(A)	 	 	Period	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Description	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Allowance for doubtful accounts:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Deducted from trade receivables	 	$	6,230	 	 	$	3,801	 	 	 	 	 	 	$	(4,484	)	 	$	5,547	 	
Deducted from other receivables	 	 	4,866	 	 	 	4,182	 	 	 	 	 	 	 	(2,321	)	 	 	6,727	 	
Deducted from other non-current receivables	 	 	316	 	 	 	3	 	 	 	 	 	 	 	 	 	 	 	319	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	$	11,412	 	 	$	7,986	 	 	 	          	 	 	$	(6,805	)	 	$	12,593	 	

 
 	 	 	
(A)	 	Write-offs, net of recoveries.	
 
See Report of Independent Registered Public Accounting Firm.
60

Table of Contents
LANDSTAR SYSTEM, INC. AND SUBSIDIARY

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
For the Fiscal Year Ended December 27, 2008
(Dollars in thousands)

COL A	 	COL B	 	 	COL C	 	 	COL D	 	 	COL E	 	
 	 	 	 	 	Additions	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	Charged to
	 	 	 	 	 	 	 	
 	 	Balance at
	 	 	Charged to
	 	 	Other
	 	 	Deductions
	 	 	Balance at
	 	
 	 	Beginning of
	 	 	Costs and
	 	 	Accounts
	 	 	Describe
	 	 	End of
	 	
 	 	Period	 	 	Expenses	 	 	Describe	 	 	(A)	 	 	Period	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Description	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Allowance for doubtful accounts:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Deducted from trade receivables	 	$	4,469	 	 	$	4,641	 	 	 	 	 	 	$	(2,880	)	 	$	6,230	 	
Deducted from other receivables	 	 	4,792	 	 	 	2,290	 	 	 	 	 	 	 	(2,216	)	 	 	4,866	 	
Deducted from other non-current receivables	 	 	310	 	 	 	6	 	 	 	 	 	 	 	 	 	 	 	316	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	$	9,571	 	 	$	6,937	 	 	 	          	 	 	$	(5,096	)	 	$	11,412	 	

 
 	 	 	
(A)	 	Write-offs, net of recoveries.	
 
See Report of Independent Registered Public Accounting Firm.
61

Table of Contents
LANDSTAR SYSTEM, INC. AND SUBSIDIARY

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
For the Fiscal Year Ended December 29, 2007
(Dollars in thousands)

COL A	 	COL B	 	 	COL C	 	 	COL D	 	 	COL E	 	
 	 	 	 	 	Additions	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	Charged to
	 	 	 	 	 	 	 	
 	 	Balance at
	 	 	Charged to
	 	 	Other
	 	 	Deductions
	 	 	Balance at
	 	
 	 	Beginning of
	 	 	Costs and
	 	 	Accounts
	 	 	Describe
	 	 	End of
	 	
 	 	Period	 	 	Expenses	 	 	Describe	 	 	(A)	 	 	Period	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Description	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Allowance for doubtful accounts:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Deducted from trade receivables	 	$	4,834	 	 	$	2,501	 	 	 	 	 	 	$	(2,866	)	 	$	4,469	 	
Deducted from other receivables	 	 	4,512	 	 	 	1,586	 	 	 	 	 	 	 	(1,306	)	 	 	4,792	 	
Deducted from other non-current receivables	 	 	297	 	 	 	13	 	 	 	 	 	 	 	 	 	 	 	310	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	$	9,643	 	 	$	4,100	 	 	 	          	 	 	$	(4,172	)	 	$	9,571	 	

 
 	 	 	
(A)	 	Write-offs, net of recoveries	
 
See Report of Independent Registered Public Accounting Firm.
62

Table of Contents
 	 	
Item 9.  	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	
 
None.

Item 9A.  	Controls and Procedures	
 
Disclosure Controls and Procedures
 
As of the end of the period covered by this Annual Report on Form 10-K, an evaluation was carried out, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended). Based on that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of December 26, 2009 to provide reasonable assurance that information required to be disclosed by the Company in reports that it filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.
 
In designing and evaluating disclosure controls and procedures, Company management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitation in any control system, no evaluation or implementation of a control system can provide complete assurance that all control issues and all possible instances of fraud have been or will be detected.
 
Internal Control Over Financial Reporting

(a)  	Management’s Report on Internal Control over Financial Reporting	
 
Management of Landstar System, Inc. (the “Company”) is responsible for establishing and maintaining effective internal controls over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act, as amended.
 
Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the Company’s financial statements.
 
Management, with the participation of the Company’s principal executive and principal financial officers, assessed the effectiveness of the Company’s internal control over financial reporting as of December 26, 2009. This assessment was performed using the criteria established under the Internal Control-Integrated Framework established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
 
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations, including the possibility of human error or circumvention or overriding of internal control. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation and reporting and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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Based on the assessment performed using the criteria established by COSO, management has concluded that the Company maintained effective internal control over financial reporting as of December 26, 2009.
 
KPMG LLP, the independent registered public accounting firm that audited the financial statements included in this Annual Report on Form 10-K for the fiscal year ended December 26, 2009, has issued an audit report on the effectiveness of the Company’s internal control over financial reporting. Such report appears immediately below.

(b)  	Attestation Report of the Registered Public Accounting Firm	
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
The Board of Directors and Shareholders
Landstar System, Inc:
 
We have audited Landstar System, Inc.’s internal control over financial reporting as of December 26, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Landstar System, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying management report on internal control over financial reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
 
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
In our opinion, Landstar System, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 26, 2009, based on criteria established in Internal Control — Integrated Framework issued by COSO.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Landstar System, Inc. and subsidiary as of December 26, 2009 and December 27, 2008, and the related consolidated statements of income, changes in
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equity, and cash flows for the fiscal years ended December 26, 2009, December 27, 2008 and December 29, 2007, and our report dated February 23, 2010, expressed an unqualified opinion on those consolidated financial statements.
 
/S/KPMG LLP
 
February 23, 2010
Jacksonville, Florida
Certified Public Accountants

(c)  	Changes in Internal Control Over Financial Reporting	
 
There were no significant changes in the Company’s internal controls over financial reporting during the Company’s fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B.  	Other Information	
 
None
 
PART III

Item 10.  	Directors, Executive Officers and Corporate Governance	
 
The information required by this Item concerning the Directors (and nominees for Directors) and Executive Officers of the Company is set forth under the captions “Election of Directors,” “Directors of the Company,” “Information Regarding Board of Directors and Committees,” and “Executive Officers of the Company” and “Compliance with Section 16(a) of the Securities Exchange Act of 1934” in the Company’s definitive Proxy Statement for its annual meeting of stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, and is incorporated herein by reference. The information required by this Item concerning the Company’s Audit Committee and the Audit Committee’s Financial Expert is set forth under the caption “Information Regarding Board of Directors and Committees” and “Report of the Audit Committee” in the Company’s definitive Proxy Statement for its annual meeting of stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, and is incorporated herein by reference.
 
The Company has adopted a Code of Ethics and Business Conduct that applies to each of its directors and employees, including its principal executive officer, principal financial officer, controller and all other employees performing similar functions. The Code of Ethics and Business Conduct is available on the Company’s website at  www.landstar.com  under “Investor Relations — Corporate Governance.” The Company intends to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding amendments to, or waivers from, a provision or provisions of the Code of Ethics and Business Conduct by posting such information on its website at the web address indicated above.

Item 11.  	Executive Compensation	
 
The information required by this Item is set forth under the captions “Compensation of Directors,” “Compensation of Executive Officers,” “Compensation Discussion and Analysis,” “Summary Compensation Table,” “Grants of Plan-Based Awards,” “Option Exercises and Stock Vested,” “Outstanding Equity Awards at Fiscal Year End,” “Nonqualified Deferred Compensation,” “Report of the Compensation Committee on Executive Compensation” and “Key Executive Employment Protection Agreements” in the Company’s definitive Proxy Statement for its annual meeting of stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, and is incorporated herein by reference.
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Item 12.  	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	
 
The information required by this Item pursuant to Item 201(d) of Regulation S-K is set forth under the caption “Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” in Part II, Item 5 of this report, and is incorporated by reference herein.
 
The information required by this Item pursuant to Item 403 of Regulation S-K is set forth under the caption “Security Ownership by Management and Others” in the Company’s definitive Proxy Statement for its annual meeting of stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, and is incorporated herein by reference.

Item 13.  	Certain Relationships and Related Transactions, and Director Independence	
 
None, other than information required to be disclosed under this item in regard to Director Independence, which is set forth under the caption “Independent Directors” in the Company’s definitive Proxy Statement for its annual meeting of stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A and incorporated herein by reference.

Item 14.  	Principal Accounting Fees and Services	
 
The information required by this item is set forth under the caption “Report of the Audit Committee” and “Ratification of Appointment of Independent Registered Public Accounting Firm” in the Company’s definitive Proxy Statement for its annual meeting of stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, and is incorporated herein by reference.
 
PART IV

Item 15.  	Exhibits and Financial Statement Schedules	
 
(a)(1) Financial Statements and Supplementary Data

 	 	Page	
 	 	 	 	 	
Consolidated Balance Sheets	 	 	34	 	
Consolidated Statements of Income	 	 	35	 	
Consolidated Statements of Cash Flows	 	 	36	 	
Consolidated Statement of Changes in Equity	 	 	37	 	
Notes to Consolidated Financial Statements	 	 	38	 	
Report of Independent Registered Public Accounting Firm	 	 	54	 	

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(2) Financial Statement Schedules
 
The report of the Company’s independent registered public accounting firm with respect to the financial statement schedules listed below appears on page 56 of this Annual Report on Form 10-K.

Schedule
	 	 	 	 	
Number	 	Description	 	Page	
 	 	 	 	 	 	 	 	 	
 	I	 	 	Condensed Financial Information of Registrant Parent Company Only Balance Sheet Information	 	 	57	 	
 	I	 	 	Condensed Financial Information of Registrant Parent Company Only Statement of Income Information	 	 	58	 	
 	I	 	 	Condensed Financial Information of Registrant Parent Company Only Statement of Cash Flows Information	 	 	59	 	
 	II	 	 	Valuation and Qualifying Accounts For the Fiscal Year Ended December 26, 2009	 	 	60	 	
 	II	 	 	Valuation and Qualifying Accounts For the Fiscal Year Ended December 27, 2008	 	 	61	 	
 	II	 	 	Valuation and Qualifying Accounts For the Fiscal Year Ended December 29, 2007	 	 	62	 	
 
All other financial statement schedules not listed above have been omitted because the required information is included in the consolidated financial statements or the notes thereto, or is not applicable or required.
 
(3) Exhibits

Exhibit
	 	 	
No.	 	Description	
 	 	 	 	 	
 	(3)	 	 	Articles of Incorporation and By-Laws:	
 	3	.1	 	Restated Certificate of Incorporation of the Company dated March 6, 2006, including Certificate of Designation of Junior Participating Preferred Stock dated February 10, 1993. (Incorporated by reference to Exhibit 3.1 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005 (Commission File No. 0-21238))	
 	3	.2	 	The Company’s Bylaws, as amended and restated on November 1, 2007. (Incorporated by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 29, 2007 (Commission File No. 0-21238))	
 	(4)	 	 	Instruments defining the rights of security holders, including indentures:	
 	4	.1	 	Specimen of Common Stock Certificate. (Incorporated by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form S-1 (Registration No. 33-57174))	
 	4	.2	 	Credit Agreement, dated as of June 27, 2008, among LSHI, Landstar, the lenders named therein and JPMorgan Chase Bank, N.A., as administrative agent (including exhibits and schedules thereto). (Incorporated by reference to Exhibit 99.1 to the Registrant’s Form 8-K filed on July 3, 2008 (Commission File No. 0-21238))	
 	(10)	 	 	Material contracts:	
 	10	.1+	 	Landstar System, Inc. Executive Incentive Compensation Plan (Incorporated by reference to Exhibit A to the Registrant’s Definitive Proxy Statement filed on April 2, 2007 (Commission File No. 0-21238))	
 	10	.2+	 	Amendment to the Landstar System, Inc. Executive Incentive Compensation Plan, effective as of December 3, 2008 (Incorporated by reference to Exhibit 10.2 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 27, 2008 (Commission File No. 0-21238))	
 	10	.3+*	 	Landstar System, Inc. Supplemental Executive Retirement Plan, as amended and restated as of January 1, 2010	
 	10	.4+	 	Landstar System, Inc. 1993 Stock Option Plan, as amended as of December 31, 2008 (Incorporated by reference to Exhibit 99.2 to the Registrant’s Current Report on Form 8-K filed on January 7, 2009 (Commission File No. 0-21238))	
 	10	.5+	 	Amended and Restated Landstar System, Inc. 2002 Employee Stock Option and Stock Incentive Plan (Incorporated by reference to Exhibit A to the Registrant’s Definitive Proxy Statement filed on March 23, 2009 (Commission File No. 0-21238))	
 	10	.6.1+	 	Landstar System, Inc. 1994 Directors Stock Option Plan. (Incorporated by reference to Exhibit 99 to the Registrant’s Registration Statement on Form S-8 filed July 5, 1995 (Registration No. 33-94304))	

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Exhibit
	 	 	
No.	 	Description	
 	 	 	 	 	
 	10	.6.2+	 	First Amendment to the Landstar System, Inc. 1994 Directors Stock Option Plan (Incorporated by reference to Exhibit 10.8 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 30, 2000 (Commission File No. 0-21238))	
 	10	.6.3+	 	Second Amendment to the Landstar System, Inc. 1994 Directors Stock Option Plan (Incorporated by reference to Exhibit 10.9 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 30, 2000 (Commission File No. 0-21238))	
 	10	.6.4+*	 	Third Amendment to the Landstar System, Inc. 1994 Directors Stock Option Plan	
 	10	.7+*	 	Directors Stock Compensation Plan, as amended and restated as of February 22, 2010	
 	10	.8+	 	Form of Indemnification Agreement between the Company and each of the directors and executive officers of the Company. (Incorporated by reference to Exhibit 10.2 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 27, 2003 (Commission No. 0-21238))	
 	10	.9+	 	Form of Key Executive Employment Protection Agreement between Landstar System, Inc. and each of the Executive Officers of the Company (Incorporated by reference to Exhibit 10.13 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 30, 2006 (Commission File No. 0-21238))	
 	10	.10+	 	Form of Amendment to Key Executive Employment Protection Agreement between Landstar System, Inc. and each of the Executive Officers of the Company	
 	10	.11+	 	Letter Agreement, dated July 2, 2002 from Jeffrey C. Crowe to Henry H. Gerkens. (Incorporated by reference to Exhibit 10.17 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 28, 2002 (Commission File No. 0-21238))	
 	10	.12+	 	Letter Agreement, dated December 31, 2008, between Landstar System, Inc. and Henry H. Gerkens (Incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed on December 31, 2008 (Commission File No. 0-21238))	
 	10	.13+*	 	Consulting Services Agreement, dated as of December 18, 2009, between Landstar System, Inc. and Jeffrey C. Crowe	
 	(21)	 	 	Subsidiaries of the Registrant:	
 	21	.1*	 	List of Subsidiary Corporations of the Registrant	
 	(23)	 	 	Consents of experts and counsel:	
 	23	.1*	 	Consent of KPMG LLP as Independent Registered Public Accounting Firm	
 	(24)	 	 	Power of attorney:	
 	24	.1*	 	Powers of Attorney	
 	(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	

 	 	 	
+	 	management contract or compensatory plan or arrangement	
 	 	 	
*	 	Filed herewith.	
 	 	 	
**	 	Furnished herewith.	
 
THE COMPANY WILL FURNISH, WITHOUT CHARGE, TO ANY SHAREHOLDER OF THE COMPANY WHO SO REQUESTS IN WRITING, A COPY OF ANY EXHIBITS, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. ANY SUCH REQUEST SHOULD BE DIRECTED TO LANDSTAR SYSTEM, INC., ATTENTION: INVESTOR RELATIONS, 13410 SUTTON PARK DRIVE SOUTH, JACKSONVILLE, FLORIDA 32224.
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SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
LANDSTAR SYSTEM, INC.

 	By: 	/s/  HENRY H. GERKENS	
Henry H. Gerkens
Chairman of the Board, President and
Chief Executive Officer

 	By: 	/s/  JAMES B. GATTONI	
James B. Gattoni
Vice President and Chief Financial Officer
 
Date: February 23, 2010
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	 	Title	 	Date	

/s/  HENRY H. GERKENS

Henry H. Gerkens	 	Chairman, President and
Chief Executive Officer;
Principal Executive Officer	 	February 23, 2010	
 	 	 	 	 	
/s/  JAMES B. GATTONI

James B. Gattoni	 	Vice President and
Chief Financial Officer;
Principal Accounting Officer	 	February 23, 2010	
 	 	 	 	 	
*

David G. Bannister	 	Director	 	February 23, 2010	
 	 	 	 	 	
*

Jeffrey C. Crowe	 	Director	 	February 23, 2010	
 	 	 	 	 	
*

William S. Elston	 	Director	 	February 23, 2010	
 	 	 	 	 	
*

Michael A. Henning	 	Director	 	February 23, 2010	
 	 	 	 	 	
*

Diana M. Murphy	 	Director	 	February 23, 2010	
 	 	 	 	 	 	 	
By:	 	/s/  MICHAEL K. KNELLER

Michael K. Kneller
Attorney In Fact*	 	 	 	 	

69

Exhibit 10.3
 
LANDSTAR SYSTEM, INC.

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
 
As Amended and Restated Effective January 1, 2010
 
In recognition of the valuable services provided to Landstar System, Inc., and its subsidiaries, by its key employees, the Board of Directors adopted this Plan to provide additional retirement benefits to those individuals whose benefits under the Company’s qualified retirement plan are restricted by operation of the provisions of the Internal Revenue Code of 1986, as amended. The Plan was originally effective February 1, 1994 and was amended and restated by the Company as of January 1, 1999 and again as of January 1, 2008, to bring it into compliance with Code Section 409A and the regulations issued thereunder. The Company now wishes to amend and restate the Plan effective January 1, 2010, to make certain additional changes. The Company intends that the Plan shall at all times be maintained on an unfunded basis for federal income tax purposes under the Code and administered as a non-qualified, “top hat” plan exempt from the substantive requirements of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The Plan, as amended, shall provide benefits under the terms and conditions hereinafter set forth. This Plan also reflects the transfer sponsorship of the Plan from Landstar System, Inc. to Landstar System Holdings, Inc. effective February 25, 2008.
 
This January 1, 2010 amendment and restatement shall apply to all amounts credited under Section 3.1 on or after January 1, 2005, but shall not affect Grandfathered Accounts (as defined below), which shall continue to be subject to, and governed by, the terms of the Plan as in effect on December 31, 2004.
 
ARTICLE 1

DEFINITIONS
 
1.1 “Accrued Benefit” means the balance of a Participant’s Individual Account maintained pursuant to Article 3 hereof.
 
1.2 “Beneficiary” means the person(s) designated by a Participant to receive any benefits payable under this Plan subsequent to the Participant’s death. In the event a Participant has not filed a Beneficiary designation with the Employer, the Beneficiary shall be the Participant’s surviving spouse or, if there is no surviving spouse, the Participant’s estate.
 
1.3 “Board” means the Board of Directors of Landstar System, Inc. Effective February 25, 2008, “Board” means the Board of Directors of Landstar System Holdings, Inc.
 
1.4 “Code” means the Internal Revenue Code of 1986, as amended.
 
1.5 “Committee” means the administrative committee appointed by the Board to administer the Savings Plan.
 
1.6 “Company” means Landstar System, Inc, a Delaware corporation, and any successor in interest thereto that agrees to assume the Plan. Effective February 25, 2008, “Company” means Landstar System Holdings, Inc., a Delaware corporation, and any successor in interest thereto that agrees to assume the Plan.
 
1.7 “Compensation” means “compensation” as defined in the Savings Plan (without regard to the limits imposed by Code Section 401(a)(17)) plus Deferral Contributions hereunder.
 
1.8 “Deferral Contributions” means a Participant’s deferred contributions under Section 3.2 of the Plan to a maximum of 75% of Compensation minus the amount of Savings Plan Deferral Contributions made by that Participant. “Savings Plan Deferral Contributions” means the deferred contributions under the Savings Plan.
 
1.9 “Effective Date” means February 1, 1994. “Amendment Effective Date” means January 1, 2010.

 
1.10 “Employer” means the Company and each subsidiary that adopts the Plan pursuant to the authorization of the Board. An Employer, other than the Company, may terminate the Plan only as to its employees and a subsidiary’s status as an “Employer” may be revoked by the Board in which case the Plan shall be deemed terminated only as to such subsidiary’s employees.
 
1.11 “Employee” means any individual employed on a regular basis by the Employer in the capacity of an officer of the Company or of any other Employer; provided, however, that to qualify as an “Employee” for purposes of the Plan, the individual must be a member of a group of “key management or other highly compensated employees” within the meaning of Sections 201, 301 and 401 of the Employee Retirement Income Security of 1974, as amended.
 
1.12 “Grandfathered Account” means that portion of an Employee’s Individual Account that was credited as of December 31, 2004, and shall include earnings credited to such account under the terms of the Plan irrespective of when credited. The Grandfathered Account shall be calculated in accordance with Code Section 409A. The Company shall maintain a separate record of Grandfathered Accounts. All Grandfathered Accounts shall be subject to, and governed by, the terms of the Plan as in effect on December 31, 2004.
 
1.13 “Individual Account” means the account established pursuant to Section 3.1.
 
1.14 “Matching Contributions” means the matching contributions under the Savings Plan.
 
1.15 “Participant” means any Employee who satisfies the eligibility requirements set forth in Section 2. In the event of the death or incompetency of a Participant, the term shall mean his personal representative or guardian.
 
1.16 “Plan” means the Landstar System, Inc. Supplemental Executive Retirement Plan as set forth herein and as the same may be amended from time to time.
 
1.17 “Plan Year” means the calendar year.
 
1.18 “Savings Plan” means the Landstar System, Inc. 401(k) Savings Plan.
 
1.19 “Termination of Employment” shall have the same meaning as “separation from service” under Code Section 409A and the regulations thereunder.
 
ARTICLE 2

ELIGIBILITY AND ELECTIONS
 
2.1 Eligibility.  Each Employee who is a Participant in the Plan on the Amendment Effective Date shall continue to participate and each other Employee shall be eligible to participate on or after the first day of the month following such eligibility by filing an election with the Committee in accordance with the provisions of Section 3.2 hereof.
 
2.2 Election as to Form of Payment.  For each Plan Year for which a Participant elects to make Deferral Contributions, the Participant shall make an irrevocable election as to the form in which amounts credited to his or her Individual Account for such Plan Year will be paid, as follows:
 
(a) Single sum payment; or
 
(b) Annual installments over a period of ten (10) years in an amount equal to a fraction of the Individual Account as of the date of each installment distribution, as follows: 1/10 in the first year, 1/9 in the second year, 1/8 in the third year, and so on until the entire remaining balance is paid in the tenth year.
 
2.3 Election as to Time of Payment.  For each Plan Year for which a Participant elects to make Deferral Contributions, the Participant shall make an irrevocable election as to when amounts credited to his or her Individual Account for such Plan Year will be paid, as follows:
 
(a) Within 30 days following the six-month anniversary of the Participant’s Termination of Employment; or

 
(b) Within 30 days of March 1 of the year following the year in which the Participant’s Termination of Employment occurs (if later than the date that is six months following the Participant’s Termination of Employment).
 
ARTICLE 3

INDIVIDUAL ACCOUNT
 
3.1 Creation of Individual Account.  The Employer shall create and maintain an unfunded account (the “Individual Account”) for each Participant electing to contribute to the Plan under Section 3.2 to which it shall credit the amounts described in this Article 3.
 
3.2 Election to Make Deferral Contributions.
 
(a) For each Plan Year, a Participant may irrevocably elect, in the manner provided by the Committee, to have the Employer credit to the Participant’s Individual Account the amount of Deferral Contributions (which may be expressed as a percentage of Compensation) that the Participant elects to contribute to the Plan with respect to that Plan Year. The Participant’s election under this Section 3.2 shall be independent from any election the Participant may have made under the Savings Plan for such Plan Year. If the Participant elects to have an amount credited to the Individual Account for a Plan Year, the amount of the Participant’s Compensation otherwise payable from the Employer with respect to that Plan Year shall be reduced by a corresponding amount.
 
(b) A Participant’s election with respect to a Plan Year must be made no later than the December 31 preceding the Plan Year in which the Compensation would have been earned by the Participant; provided, however, that for the first Plan Year in which a Participant is eligible to participate in the Plan, such election may be made at any time during the 30 day period commencing on the date of eligibility as determined under Section 2.1. Any election by a Participant pursuant to this Section 2.2 shall be irrevocable and may not be modified in any respect.
 
(c) If the Participant fails to make any election for any Plan Year, the Participant’s election in effect for the prior Plan Year as to the amount of Deferral Contributions, if any, and the form of payment applicable to Deferral Contributions, shall continue in effect for such Plan Year.
 
3.3 Matching Contributions.  For each Plan Year, the Employer shall credit the Participant’s Individual Account with an amount equal to 100% of the Deferral Contributions and Savings Plan Deferral Contributions made on behalf of the Participant, up to the first 3% of the Participant’s Compensation, plus 50% of the Deferral Contributions and Savings Plan Deferral Contributions made on behalf of the Participant, up to the next 2% of the Participant’s Compensation, reduced by all matching contributions actually made under the Savings Plan.
 
3.4 Earnings.  The amount credited to a Participant’s Individual Account shall be deemed to be invested in the investment funds in the proportions the Participant elects in a deemed investment election in accordance with such procedures as are specified by the Committee. Notwithstanding the foregoing, no contributions or new investments may be directed into the Company stock fund on or after October 1, 2004, but amounts invested in the Company stock fund as of October 1, 2004, shall continue to be invested in such fund subject to any subsequent election by the Participant to transfer amounts out of the Company stock fund. During each Plan Year, the Employer shall credit the Participant’s Individual Account with interest, earnings or appreciation (less losses and depreciation) with respect to the then balance of the Participant’s Individual Account, equal to the actual investment results of the Participant’s deemed investment elections. Notwithstanding the Participant’s investment elections under this Plan, the Company shall be under no obligation to actually invest the amounts credited to the Participant’s Individual Account in such manner, or in any manner, and such investment elections shall be used solely to determine the amounts by which the balance credited to the Participant’s Individual Account shall be adjusted.

 
ARTICLE 4

DISTRIBUTIONS OF RETIREMENT BENEFITS
 
4.1 Payment of Individual Account.  The amount credited to the Participant’s Individual Account under Article 3 shall, upon the Participant’s Termination of Employment, be paid in the form elected by the Participant under Section 2.2 and at the same time elected by the Participant under Section 2.3. Such distribution shall be equal to the total amount credited to the Participant’s Individual Account as of the date of distribution and shall include any additional credit to the Participant’s Individual Account made after such termination under Section 3.2 on account of Deferral Contributions made during the Plan Year in which the Participant has a Termination of Employment for any reason.
 
4.2 Separate Payments.  For purposes of Code Section 409A, each payment under this Plan shall be treated as a separate payment.
 
4.3 Distributions of Grandfathered Account.  The amount credited to the Participant’s Grandfathered Account shall, upon the Participant’s termination of employment, be paid in the same form and at the same time as the benefit payable to the Participant under the Savings Plan at termination of employment; provided, however, that, notwithstanding the form and timing of the payment of benefits under the Savings Plan, the Participant may elect to receive a single sum payment on March 1 of the Plan Year following the Plan Year in which the Participant terminates employment for any reason, by making an election prior to the date on which such termination occurred and benefits under the Savings Plan are paid or commence, in the manner specified by the Committee. Such distribution shall be equal to the total amount credited to the Participant’s Grandfathered Account as of the date of distribution and shall include any additional credit to the Participant’s Grandfathered Account made after such termination under Section 3.4.
 
ARTICLE 5

DEATH BENEFIT
 
5.1 In the event of a Participant’s death prior to the commencement of the Participant’s benefit payments pursuant to Article 4, his Beneficiary will receive a lump sum distribution equal to the balance of the Participant’s Individual Account on the date of the Participant’s death. The payment to the Beneficiary will be made as soon as practicable following the completion of the valuation for the date on which the Participant died. If the Participant is due an additional credit to the Participant’s Individual Account for the Plan Year in which the balance of the Individual Account becomes payable hereunder, the additional credit will be paid to the Participant’s Beneficiary as soon as practicable following the Plan Year-end valuation. In the event of a Participant’s death after the commencement of the Participant’s benefits in annual installments, his Beneficiary will receive payments at the same time and in the same manner as if the Participant had survived.
 
ARTICLE 6

VESTING
 
6.1 The balance of a Participant’s Individual Account shall be 100% vested at all times.
 
ARTICLE 7

FUNDING
 
7.1 The Board may, but shall not be required to, authorize the establishment of a trust by the Company to serve as the funding vehicle for the benefits described herein. In any event, the Employer’s obligations hereunder shall constitute a general, unsecured obligation, payable solely out of its general assets, which may include the assets of any such trust established for purposes of the Plan, but no Participant shall have any right to any specific assets of the Employer.

 
ARTICLE 8

ADMINISTRATION
 
8.1 Powers and Duties of the Committee.  The Committee shall have full power and authority to interpret and administer this Plan and the Committee’s actions in doing so shall be final, conclusive and binding on all persons interested in the Plan. The Committee may from time to time adopt rules and regulations governing this Plan. Any action required of the Company, the Employer or the Board under the Plan shall be made in the Company’s, the Employer’s or the Board’s sole discretion which need not be uniformly applied to similarly situated persons. Any such action shall be final, conclusive and binding on all persons interested in the Plan.
 
8.2 Claim for Benefits.  A Participant who believes that he or she is being denied a benefit to which he or she is entitled under the Plan may file a written request for such benefit with the Committee, setting forth the claim.
 
(a) Initial Review.  Upon receipt of a claim, the Committee shall advise the Participant that a reply will be forthcoming within 90 days and shall, in fact, deliver such reply within such period. The Committee may, however, extend the reply period for an additional 90 days for reasonable cause. If the claim is denied in whole or in part, the Participant shall be provided a written decision, using language calculated to be understood by the Participant, setting forth:
 
(i) the specific reason or reasons for such denial;
 
(ii) the specific reference to relevant provisions of this Plan on which such denial is based;
 
(iii) a description of any additional material or information necessary for the Participant to perfect his or her claim and an explanation why such material or such information is necessary;
 
(iv) appropriate information as to the steps to be taken if the Participant wishes to submit the claim for review;
 
(v) the time limits for requesting a review under Paragraph (b) below and for review under Paragraph (c) below; and
 
(vi) the Participant’s right to bring an action for benefits under Section 502 of ERISA.
 
(b) Appeal.  Within 60 days after the receipt by the Participant of a decision to deny the claim, the Participant may request in writing that the Committee review the determination of the Committee. The Participant or his or her duly authorized representative may, but need not, review the relevant documents and submit issues and comment in writing for consideration by the Committee. If the Participant does not request a review of the initial determination within such 60-day period, the Participant shall be barred and stopped from challenging the determination.
 
(c) Decision on Review.  After considering all materials presented by the Participant, the Committee will render a written decision, setting forth the specific reasons for the decision and, if the Participant’s claim is denied, in whole or in part, such written decision will contain the required information described in Paragraph (b) above. The Committee shall render its decision within 60 days of receipt of the Participant’s request for review; provided, however, the Committee may extend the reply period for an additional 60 days for reasonable cause. The Committee’s decision shall be final and binding on all parties.
 
ARTICLE 9

AMENDMENT
 
9.1 The Board shall have the right to amend or modify the Plan at any time in any manner whatsoever; provided, however, that no amendment shall operate to reduce the Accrued Benefit which any Participant who is participating in the Plan or entitled to a benefit payment at the time the amendment is adopted would otherwise receive hereunder.

 
ARTICLE 10

TERMINATION
 
10.1 Continuance of the Plan is completely voluntary and is not assumed as a contractual obligation of the Employer. The Board shall have the right at any time to discontinue the Plan; provided, however, that the termination shall not operate to reduce the Accrued Benefit which any Participant who is participating in the Plan or entitled to a benefit payment at the time the termination is approved would otherwise receive hereunder. If the Plan is terminated, Participants shall be entitled to a distribution of their benefit under the Plan as soon as practicable following termination of the Plan if on account of an event described in Treas. Reg. § 1.409A-3(j)(4)(ix)(A), (B), (C) or (D) and the requirements, as applicable, of such regulations are met with respect to the termination of the Plan and distribution of benefits hereunder. Otherwise, distribution shall occur in accordance with the terms of the Plan.
 
ARTICLE 11

MISCELLANEOUS
 
11.1 Rights of Participants.  Nothing contained herein (a) shall be deemed to exclude a Participant from any compensation, bonus, pension, insurance, severance pay or other benefit to which the Participant otherwise is or might become entitled to as an Employee or (b) shall be construed as conferring upon an Employee the right to continue in the employ of the Employer as an executive or in any other capacity.
 
11.2 Effect on Other Plans.  Any amounts payable by the Employer hereunder shall not be deemed salary or other compensation to a Participant for the purposes of computing benefits to which the Participant may be entitled under any other arrangement established by the Employer for the benefit of its Employees.
 
11.3 Binding Nature of Plan.  The rights and obligations created hereunder shall be binding on a Participant’s heirs, executors and administrators and on the successors and assigns of the Employer.
 
11.4 Governing Law.  The Plan shall be construed in accordance with and governed by the laws of the State of Florida, to the extent not superseded by federal law, without reference to the principles of conflict of laws.
 
11.5 No Assignment.  The rights of any Participant under this Plan are personal and may not be assigned, transferred, pledged or encumbered. Any attempt to do so shall be void.
 
11.6 No Liability.  Neither the Company, the Employer nor any member of the Board or the Committee shall be responsible or liable in any manner to any Participant, Beneficiary or any person claiming through them for any benefit or action taken or omitted in connection with the granting of benefits, the continuation of benefits or the interpretation and administration of this Plan.
 
11.7 Section 409A.  The Plan is intended to comply with the applicable requirements of Code Section 409A and its corresponding regulations and related guidance, and shall be administered in accordance with Code Section 409A to the extent Code Section 409A applies to the Plan. To the extent that any provision of the Plan would cause a conflict with the requirements of Code Section 409A, or would cause the administration of the Plan to fail to satisfy the requirements of Code Section 409A, such provision shall be deemed null and void to the extent permitted by applicable law.

Exhibit 10.6.4
 
THIRD AMENDMENT TO
THE LANDSTAR SYSTEM, INC.
1994 DIRECTORS STOCK OPTION PLAN
 
WHEREAS, LANDSTAR SYSTEM, INC. (the “Company”) adopted the 1994 Directors Stock Option Plan (the “Plan”); and
 
WHEREAS, pursuant to Section 12(a) of the Plan, the Board of Directors retained the right to amend the Plan;
 
NOW, THEREFORE, the plan is amended as follows:
 
1. Section 6(f) of the Plan is deleted in its entirety and a new Section 6(f) added to read as follows:
 
(f) Procedure for Exercise.  The Board shall establish procedures governing the exercise of Options, which shall require that written notice of exercise be given and that the Option price be paid in full in cash or cash equivalents, including by personal check, at the time of exercise. Unless otherwise determined by the Board, an Eligible Director may make payment in Stock already owned by him or her, valued at its Fair Market Value on the date of exercise, as partial or full payment of the exercise price. Alternatively, unless otherwise determined by the Board, the Eligible Director may “Net Exercise” his or her Options. For purposes of this Plan, ‘‘ Net Exercise ” means the exercise of an Option or any portion thereof by the Company’s delivery of the greatest number of whole shares of Common Stock having a Fair Market Value on the date of exercise not in excess of the difference between the aggregate Fair Market Value of the shares of Common Stock subject to the Option (or the portion of such Option then being exercised) and the aggregate exercise price for all such shares of Common Stock under the Option (or the portion thereof then being exercised), with any fractional share that would result from such equation to be payable in cash. As soon as practicable after receipt of a written exercise notice and full payment of the exercise price (if applicable), the Company shall deliver to the Eligible Director a certificate or certificates representing the acquired shares of Common Stock.
 
2. This Third Amendment to the Plan shall be effective as of January 27, 2010.
 
IN WITNESS WHEREOF, the Company has caused this Second Amendment to be executed by its duly authorized officer on the 27th of January, 2010.
 
LANDSTAR SYSTEM, INC.

 	By: 	/s/  Michael K. Kneller	
Michael K. Kneller, Secretary

EXHIBIT 10.7
LANDSTAR SYSTEM, INC.
AMENDED AND RESTATED DIRECTORS STOCK COMPENSATION PLAN
ARTICLE I
PURPOSES AND TERM
     1.1 Purposes. The purposes of the Amended and Restated Landstar System, Inc. Directors Stock Compensation Plan (the “ Plan ”) are to enable Landstar System, Inc. (the “ Company ”) to attract, retain and motivate the best-qualified directors and to enhance a long-term mutuality of interest between the directors and stockholders of the Company by providing directors of the Company who are neither officers nor employees of the Company or any of its subsidiaries (such directors, the “ Eligible Directors ”) with compensation in the form of shares of the common stock, par value $0.01 per share, of the Company (“ Shares ”).
     1.2 Term. The Plan became effective as of the annual meeting of the stockholders of the Company (an “Annual Meeting ”) held on May 15, 2003. The Plan shall continue in effect, unless sooner terminated pursuant to Article V, until February 5, 2013, the tenth anniversary of the date on which it was adopted by the Board of Directors of the Company (the “ Board ”). Awards made under the Plan prior to calendar year 2010 shall be governed by the terms and conditions set forth in the Plan at the time such awards were granted. Any awards made under the Plan during or following calendar year 2010 shall be made pursuant to and governed by the terms and conditions of the Plan as amended and restated herein.
ARTICLE II
ADMINISTRATION
     2.1 Rules, Interpretation and Determination. The Plan shall be administered by the Board. The Board shall have full authority to interpret and administer the Plan, to establish, amend and rescind rules for carrying out the purposes of the Plan, and to take all other actions that it deems necessary or advisable for administering the Plan. Any authority exercised by the Board under the Plan and any determination or interpretation made by the Board in respect of the Plan shall be exercised or made by it in its sole discretion, and all determinations, interpretations or other actions made or taken by the Board pursuant to the provisions of the Plan shall be final, binding and conclusive for all purposes and upon all persons.
     2.2 Delegation by the Board. All the powers, duties and responsibilities of the Board specified in the Plan may, to the full extent permitted by applicable law, be exercised and performed by a committee of the Board to the extent authorized by the Board to exercise and perform such powers, duties and responsibilities. Any authority duly exercised by such committee and any determination or interpretation made by such committee in the exercise of such authority shall be exercised or made in its sole discretion and shall be final, binding and conclusive for all purposes and upon all persons.

 
     2.3 Agents and Indemnification. The Board or any committee thereof may employ such legal counsel, consultants and agents as it may deem desirable for the administration of the Plan, and may rely upon any opinion received from any such counsel or consultant and any computation received from any such consultant or agent. No member or former member of the Board or any committee thereof shall be liable for any action or determination made in good faith with respect to the Plan. To the maximum extent permitted by applicable law and the Company’s Certificate of Incorporation and Bylaws, each member or former member of the Board or any committee thereof shall be indemnified and held harmless by the Company against any cost or expense (including counsel fees) or liability (including any sum paid in settlement of a claim with the approval of the Company) arising out of any act or omission to act in connection with the Plan, unless arising out of such person’s own fraud or bad faith. Such indemnification shall be in addition to any rights of indemnification the person may have as a director, officer or employee or under the Certificate of Incorporation of the Company or the Bylaws of the Company.
ARTICLE III
SHARE AWARDS
     3.1 Share Awards. During the remaining term of the Plan, each Eligible Director who is elected or re-elected at an Annual Meeting to serve a three-year term on the Board shall receive, on the first business day after such Annual Meeting, a number of Shares equal to the quotient of ( i ) $225,000 divided by ( ii ) the fair market value (as determined under the Amended and Restated Landstar System, Inc. 2002 Employee Stock Option and Stock Incentive Plan, as in effect from time to time (the “ ESOSIP ”)) of one Share on the date of grant, rounded to the nearest whole number of Shares. For the avoidance of doubt, and notwithstanding anything in this Plan to the contrary, no Shares shall be granted hereunder after the term of this Plan expires.
     3.2 Service of Fewer than Three Years. In the event that an Eligible Director commences service to the Board on a date during the term of the Plan that is between Annual Meetings, or otherwise commences a term of fewer than three years, such Eligible Director shall be entitled to receive a number of Shares equal to the quotient of ( i ) $225,000 multiplied by a fraction, the numerator of which is the number of days in such term and the denominator of which is 1,095, divided by ( ii ) the fair market value (as determined under the ESOSIP, as in effect from time to time) of one Share on the date of grant, rounded to the nearest whole number of Shares. The Eligible Director shall receive this pro rata number of Shares within 10 business days following his or her commencement of services.
     3.3 Adjustments. Subject to Article V, and provided that such adjustment is permitted under Section 409A of the Internal Revenue Code of 1986, as amended, the Board may at any time and from time to time adjust the time and form of payment and amount of any compensation payable under this Plan.
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     3.4 Forfeiture of Shares. Except as otherwise determined by the Board, the Shares issued to an Eligible Director shall be forfeited upon the termination of such Eligible Director’s service as a director of the Company prior to the third anniversary of the Annual Meeting in respect of which such Shares were granted. Notwithstanding the foregoing, except as otherwise determined by the Board, the forfeiture provisions set forth in the immediately preceding sentence shall automatically lapse, subject to the Eligible Director’s continuous service through the applicable anniversary of such Annual Meeting, ( i ) with respect to one-third of such Shares on the first anniversary of such Annual Meeting and ( ii ) with respect to an additional one-third of such Shares on the second anniversary of such Annual Meeting.
     3.5 Restrictions on Disposition of Shares. Except as otherwise determined by the Board, for the three-year period following the Annual Meeting in respect of which the Shares were granted to an Eligible Director, neither such Eligible Director nor any of such Eligible Director’s heirs or representatives shall sell, assign, transfer, pledge or otherwise directly or indirectly dispose of or encumber any such Shares to or with any other person, firm or corporation (including, without limitation, transfers to any other holder of the Company’s capital stock, dispositions by gift, by will, by a corporation as a distribution in liquidation and by operation of law, other than a transfer of such Shares by operation of law to the estate of the Eligible Director upon the death of the Eligible Director, provided that such estate shall be bound by all provisions of the Plan). Notwithstanding the foregoing, the restrictions on the transfer of such Shares under this section shall automatically lapse (and the legend referred to in Section 3.5 shall be removed) upon the termination of such Eligible Director’s service as a director of the Company, to the extent such Shares are not forfeited under Section 3.4.
     3.6 Issuance of Stock Certificates; Legends. Upon the issuance of Shares pursuant to this Plan, the Company shall either (i) record on its books and records, in a manner generally consistent with its then current procedures for recording stock ownership, the Eligible Director’s ownership of an appropriate number of Shares, or ( ii ) deliver a certificate or certificates for the Shares issued by the Company in the name of the Eligible Director receiving such Shares, such certificate(s) to be delivered to or upon the order of such Eligible Director. Certificates for Shares issued hereunder shall bear such legend or legends as the Board, in its discretion, determines to be necessary or appropriate to prevent a violation of, or to perfect an exemption from, the registration requirements of the Securities Act of 1933, as amended, or to implement the provisions of the Plan or any agreements between the Company and the Eligible Director with respect to such Shares including, without limitation, a legend reflecting the restrictions on the transfer of such Shares under Section 3.5, which will include, without limitation, the following language:
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“THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS (INCLUDING TRANSFER RESTRICTIONS) CONTAINED IN THE LANDSTAR SYSTEM, INC. AMENDED AND RESTATED DIRECTORS STOCK COMPENSATION PLAN AND NEITHER THIS CERTIFICATE NOR THE SHARES REPRESENTED BY IT ARE ASSIGNABLE OR OTHERWISE TRANSFERABLE EXCEPT IN ACCORDANCE WITH SUCH PLAN, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.”
     3.7 Securities Law Matters. The Board, in its discretion, may require an Eligible Director to make such representations and furnish such information, as it may consider appropriate in connection with the issuance of Shares in compliance with applicable laws, rules, and regulations.
ARTICLE IV
SHARES SUBJECT TO PLAN
     4.1 Shares Available. Subject to the provisions of Section 4.2, the maximum number of Shares that may be issued under this Plan may not exceed 200,000 in the aggregate.
     4.2 Adjustment in Capitalization. The number of Shares that are eligible for grant or available for issuance under this Plan may be adjusted by the Board if it shall deem such an adjustment to be necessary or appropriate to reflect any stock dividend, stock split or share combination, or any recapitalization (including, without limitation, the payment of an extraordinary dividend), merger, consolidation, combination, spin-off, distribution of assets to stockholders, exchange of shares, or other similar corporate change.
     4.3 Delivery of Shares. Any Shares to be delivered under this Plan may consist, in whole or in part, of treasury shares or authorized but unissued shares not reserved for any other purpose.
ARTICLE V
TERMINATION, MODIFICATION AND AMENDMENT
     The Board at any time may terminate or suspend the Plan, and from time to time may amend or modify the Plan; provided that without the approval by a majority of the votes cast at a meeting of stockholders at which a quorum representing a majority of the Shares is present in person or by proxy, no amendment or modification may (i) materially increase the benefits accruing to Eligible Directors under the Plan, (ii) except as expressly provided in Section 4.2, materially increase the number of Shares subject to the Plan, (iii) materially modify the requirements for participation in the Plan, or (iv) make any other amendment or modification that would require the approval of the stockholders of the Company under applicable laws, rules or regulations.
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ARTICLE VI
GENERAL PROVISIONS
     6.1 Requirements of Law. The Plan, the obligations of the Company hereunder and the compensation of Eligible Directors shall be subject to all applicable laws, rules and regulations, and to such approvals by any governmental agencies or national or foreign securities exchanges as may be appropriate or required, as determined by the Board. Notwithstanding any other provision of this Plan, no Shares shall be issued if the Board determines that such payment or issuance would result in a violation of applicable law, rule or regulation, including the federal securities laws and any applicable state or foreign securities laws. The Company shall not be obligated by virtue of any provision of the Plan to issue Shares in violation of any such laws, rules, or regulations, and neither the Company nor its directors or officers shall have any obligation or liability to any person because of such non-issuance.
     6.2 Listing of Shares. If at any time the Board shall determine in its discretion that the listing, registration or qualification of the Shares covered by this Plan upon any national securities exchange or under any United States or non-United States federal, state or other law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the issuance of Shares under this Plan, no Shares will be issued unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained, or otherwise provided for, free of any conditions not acceptable to the Board.
     6.3 No Right to Remain as a Director. This Plan shall not impose any obligations on the Company to retain any Eligible Director as a director of the Company nor shall it impose any obligation on the part of any Eligible Director to remain in service to the Company.
     6.4 No Rights as a Stockholder. Except as provided in the Plan, neither an Eligible Director nor any person or persons to whom such Eligible Director’s Shares shall have passed by will or by the laws of descent and distribution, as the case may be, shall have any voting, dividend or other rights or privileges as a stockholder of the Company with respect to any Shares unless and until a certificate for Shares is issued in respect thereof.
     6.5 Tax Withholding. The Company shall have the power to withhold, or require an Eligible Director to remit to the Company promptly upon notification of the amount due, an amount determined by the Company to be sufficient to satisfy all federal, state, local and foreign withholding tax requirements (if any) in respect of the issuance of Shares and the Company may defer the issuance of Shares until such requirements are satisfied. The Board may permit or require an Eligible Director to satisfy his tax withholding obligation hereunder in such other manner subject to such conditions, as the Board shall determine.
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     6.6 Beneficiary Designation. Each Eligible Director under this Plan may from time to time name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid or by whom any right under the Plan is to be exercised in case of his death. Each designation will revoke all prior designations by the same Eligible Director, shall be in a form prescribed by the Company, and will be effective only when filed by the Eligible Director in writing with the Company during his lifetime. In the absence of any such designation, benefits remaining unpaid at the Eligible Director’s death shall be paid to or exercised by the Eligible Director’s surviving spouse, if any, or otherwise to or by his estate.
     6.7 Controlling Law. This Plan shall be construed and enforced according to the laws of the State of Delaware without regard to its conflicts of laws principles.
     6.8 Freedom of Action. Subject to Article V, nothing in the Plan shall be construed as limiting or preventing the Company or any of its subsidiaries from taking any action with respect to the operation or conduct of its business that it deems appropriate or in its best interest.
     6.9 Non-Exclusivity. Subject to applicable laws, rules and regulations, neither the adoption of the Plan by the Board nor the submission of the Plan to the stockholders of the Company shall be construed as creating any limitations on the power of the Board to adopt such other compensatory arrangements for directors of the Company as it may deem desirable.
     6.10 Headings and Captions. The headings and captions herein are provided for reference and convenience only, shall not be considered part of this Plan, and shall not be employed for construction of the Plan.
     6.11 Severability. In the event that one or more provisions of this Plan shall become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby.
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Exhibit 10.13
 
CONSULTING SERVICES AGREEMENT
 
CONSULTING SERVICES AGREEMENT (the “Agreement”), dated as of December 18, 2009, by and between Landstar System, Inc. (the “Company”), and Jeffrey C. Crowe (“Consultant”).
 
WHEREAS, since April 27, 2004, Consultant has been serving as the Chairman of the Company’s Board of Directors (the “Board”) and as a common law employee of the Company pursuant to the terms of a letter agreement, dated April 27, 2004, between the Company and Consultant (the “Letter Agreement”);
 
WHEREAS, effective as of January 4, 2010 (the “Retirement Date”), Consultant has determined to retire from such employment with the Company and to cease to serve as the Chairman of the Board, but to remain on the Board as a director at least for the balance of his term ending at the Annual Meeting of the Company’s Stockholders in 2011;
 
WHEREAS, as provided for under the Letter Agreement, from and after the Retirement Date, the Company wishes to continue to avail itself of Consultant’s knowledge, expertise and experience for a transition period by appointment of Consultant as a consultant to provide services that are helpful to the operation of the business of the Company in accordance with the terms and conditions set forth below; and
 
WHEREAS, as provided for under the Letter Agreement, Consultant is willing to serve as a consultant to the Company upon the terms and conditions set forth below.
 
NOW, THEREFORE, in consideration of their mutual promises, the Company and Consultant agree as follows:
 
1. Retirement as Chairman.  Effective as of the Retirement Date, Consultant shall cease to serve as the Chairman of the Board, but shall remain on the Board as a director at least for the balance of his term ending at the Annual Meeting of the Company’s Stockholders in 2011.
 
2. Consulting Services.  Subject to paragraph 8 hereof, during the period (the “Consulting Period”) beginning on  January 5, 2010 , the day after the Retirement Date, and continuing until  January 5, 2012 , the second anniversary thereof, Consultant shall personally provide to the Chief Executive Officer of the Company (“CEO”) or the Board such consulting services as either the CEO or the Board may reasonably request from time to time. Such consulting services shall be of a nature and scope that will generally be of a type consistent with Consultant’s stature and experience.
 
3. Time, Location and Maximum Commitment.  Consultant shall provide the consulting services at such time and in such locations as Consultant shall determine, unless the Company shall otherwise request a specific time and location upon reasonable advance notice. Consultant shall honor any such request unless he has a conflicting business or personal commitment that would preclude him from performing such services at the time and/or place requested by the Company, and in such circumstances the parties shall make reasonable efforts to arrange a mutually satisfactory alternative. The Company shall use its reasonable best efforts not to require the performance of consulting services in any manner that unreasonably interferes with any other business or pre-scheduled personal activity of Consultant. It is not intended and in no event shall Consultant be required to perform services for the Company hereunder at a level that would require Consultant to devote to such services twenty percent (20%) or more of the average level of bona fide services performed by Consultant while an employee of the Company over the 36 month period immediately preceding the Retirement Date (the “Maximum Commitment”). The Company and Consultant acknowledge that they have established the Maximum Commitment so that Consultant will have incurred a separation from service as of the Retirement Date pursuant to, and in accordance with, the regulations promulgated under Section 409A of the Internal Revenue Code of 1986, as amended, and will act accordingly.
 
4. Status.  Consultant shall not, by virtue of the consulting services provided hereunder, be considered to be an officer or employee of the Company or any of its affiliates, and shall not have the power or authority to contract in the name of or bind the Company or any such affiliates. As an independent contractor, Consultant may perform services for others, provided that in the event Consultant

 
performs services for a competitor of the Company, the Company will have the right to terminate Consultant’s services hereunder in accordance with paragraph 8 hereof. Consultant shall at all times be treated as an independent contractor and shall be responsible for the payment of all taxes with respect to all amounts paid to him hereunder. Consultant understands and acknowledges that from and after the Retirement Date, Consultant shall no longer be entitled to participate in any employee benefits plan or fringe benefit or perquisite program made available only to employees or officers of the Company and its subsidiaries, including its health and welfare plans. Nothing in this Agreement shall be construed to limit the rights of Consultant to receive any benefits or compensation otherwise payable to Consultant in respect of his prior services as an officer and employee of the Company under the express terms and conditions of any agreement between him and the Company or the applicable terms and conditions of any employee benefit plan, program or arrangement.
 
5. Consulting Fees.  In respect of the services to be performed hereunder during the Consulting Period, the Company shall pay Consultant at the annual rate of $250,000 per annum, payable quarterly, in advance; it being understood and agreed that such amount will be in lieu of any and all fees and other compensation that might otherwise be payable to Consultant for services as a director during the Consulting Period; provided the Company shall pay or reimburse Consultant for reasonable expenses incurred by Consultant in connection with services provided as a director during the Consulting Period subject to the terms and conditions of the expense reimbursement policies applicable to expenses incurred by directors of the Company.
 
6. Expenses.  The Company shall pay or reimburse Consultant for such reasonable expenses incurred by Consultant in the course or on account of rendering consulting services hereunder in accordance with, and subject to the terms and conditions of, the expense reimbursement policy applicable to expenses incurred by senior officers of the Company, as in effect on the date hereof.
 
7. Confidential Information.  Consultant understands and agrees that in the course of his services hereunder he will acquire and/or have access to confidential information, trade secrets, proprietary data and/or non-public information concerning the business, professional and/or personal affairs, activities and operations of the Company, the Company’s subsidiaries and affiliates and/or the officers, employees and/or representatives of any of them (collectively, the “Companies”) and the Companies’ plans, methods of doing business and practices and procedures, as well as confidential information disclosed to the Companies from time to time by third parties, any or all of which shall be referred to herein as the “Confidential Information.” Without the prior written consent of a duly authorized officer of the Company, and except to the extent required in connection with the performance of his duties hereunder, by an order of a court having competent jurisdiction or under subpoena from an appropriate government agency, Consultant shall not disclose any Confidential Information to any third person, unless such Confidential Information has been previously disclosed to the public by the Companies or has become public knowledge other than by Consultant’s breach of this Agreement or any other agreement with the Company by which he may be bound. The Consultant’s duties and obligations under this paragraph 7 are in addition to, and not intended to supersede, limit, amend or otherwise modify any existing covenant made by Consultant in favor of the Company in connection with, as a condition of, or pursuant to the terms of any agreement entered during the term of, his employment or directorship with the Company, whether pertaining to the preservation of confidential information or otherwise.
 
8. Early Termination of Consulting Period.  Notwithstanding anything in this Agreement to the contrary, the Consulting Period, and the Company’s obligations to make any payments to Consultant hereunder, shall immediately terminate ( i ) if, in the event Consultant performs services for a competitor of the Company, the Company provides Consultant written notice of such termination or ( ii ) upon Consultant’s death.
 
9. Miscellaneous.  This Agreement is for the personal services of Consultant and may not be subcontracted or assigned by Consultant in any fashion, whether by operation of law, or by conveyance of any type, without the prior written consent of the Company, which consent the Company may withhold in its sole discretion. Effective on the Retirement Date, the Letter Agreement shall terminate and be of no further force or effect. This Agreement may be amended only by a written instrument signed by the Company and Consultant. Except as otherwise expressly provided hereunder, this Agreement shall

 
constitute the entire agreement between the Company and Consultant with respect to the provision of consulting services by the Consultant to the Company. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.
 
10. Governing Law.  This Agreement shall be governed by the laws of New York, without reference to the principles of conflicts of law.
 
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day first written above.
 
LANDSTAR SYSTEM, INC.
 
/s/  Henry H. Gerkens
 	 	 	
 	By: 	Henry H. Gerkens	
 	 	 	
 	Title: 	President and Chief Executive Officer	
 
JEFFREY C. CROWE
 
/s/  Jeffrey C. Crowe

Exhibit 21.1
 
LIST OF SUBSIDIARY CORPORATIONS OF LANDSTAR SYSTEM, INC.

 	 	Jurisdiction of
	 	% of Voting
	 	
Name	 	Incorporation	 	Securities Owned	 	
 	 	 	 	 	 	 	
Subsidiary of Landstar System, Inc.:	 	 	 	 	 	 	
Landstar System Holdings, Inc. 	 	Delaware	 	 	100	 	
Subsidiaries of Landstar System Holdings, Inc.:	 	 	 	 	 	 	
Landstar Inway, Inc. 	 	Delaware	 	 	100	 	
Landstar Global Logistics, Inc. 	 	Delaware	 	 	100	 	
Landstar Ligon, Inc. 	 	Delaware	 	 	100	 	
Landstar Ranger, Inc. 	 	Delaware	 	 	100	 	
Risk Management Claim Services, Inc. 	 	Kentucky	 	 	100	 	
Also d/b/a RMCS, Inc. in Alabama and California	 	 	 	 	 	 	
Landstar Transportation Logistics, Inc. 	 	Delaware	 	 	100	 	
Also d/b/a Landstar Carrier Services, Inc.	 	 	 	 	 	 	
Landstar Contractor Financing, Inc. 	 	Delaware	 	 	100	 	
Signature Insurance Company	 	Cayman Islands, BWI	 	 	100	 	
Landstar Canada Holdings, Inc. 	 	Delaware	 	 	100	 	
Signature Technology Services, Inc. 	 	Delaware	 	 	100	 	
Landstar Supply Chain Solutions, Inc. 	 	Delaware	 	 	100	 	
Subsidiaries of Landstar Supply Chain Solutions, Inc.	 	 	 	 	 	 	
National Logistics Management Co. 	 	Michigan	 	 	 	 	
A3I Acquisition LLC	 	Delaware	 	 	75	 	
Subsidiary of A3I Acquisition LLC	 	 	 	 	 	 	
A3 Integration, LLC	 	Delaware	 	 	100	 	
Subsidiary of Landstar Canada Holdings, Inc.	 	 	 	 	 	 	
Landstar Canada, Inc. 	 	Ontario, Canada	 	 	100	 	
Also d/b/a Enterprise Landstar Canada in Quebec	 	 	 	 	 	 	
Also d/b/a Landstar Canada Forwarding	 	 	 	 	 	 	
Subsidiary of Landstar Global Logistics, Inc.	 	 	 	 	 	 	
Landstar Express America, Inc. 	 	North Carolina	 	 	100	 	
Subsidiary of Landstar Ranger, Inc.	 	 	 	 	 	 	
Landstar Gemini, Inc. 	 	Delaware	 	 	100	 	
Also d/b/a Landstar Less Than Truck Load	 	 	 	 	 	 	
Also d/b/a Landstar LTL	 	 	 	 	 	 	

Exhibit 23.1
 
Consent of Independent Registered Public Accounting Firm
 
The Board of Directors
Landstar System, Inc.:
 
We consent to incorporation by reference in the registration statements (No. 33-76340 and No. 33-94304) on Form S-8 of Landstar System, Inc. of our reports dated February 23, 2010, with respect to the consolidated balance sheets of Landstar System, Inc. and subsidiary as of December 26, 2009 and December 27, 2008, and the related consolidated statements of income, changes in equity, and cash flows for the fiscal years ended December 26, 2009, December 27, 2008 and December 29, 2007, and all related financial statement schedules, and the effectiveness of internal control over financial reporting as of December 26, 2009, which reports appear in the December 26, 2009 annual report on Form 10-K of Landstar System, Inc.
 
/s/ KPMG LLP
 
February 23, 2010
Jacksonville, Florida
Certified Public Accountants

Exhibit 24.1
 
POWER OF ATTORNEY
 
Landstar System, Inc.
Annual Report on Form 10-K
for fiscal year ended 12/26/09
 
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby make, constitute and appoint James B. Gattoni and Michael K. Kneller, and each of them, with full power in each to act without the other, his true and lawful attorney-in-fact and agent, in his name, place and stead to execute on his behalf, as an officer and/or director of Landstar System, Inc. (the “Company”), the Annual Report on Form 10-K of the Company for the fiscal year ended December 26, 2009, and file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission (the “SEC”) pursuant to Sections 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Act”), and any and all other instruments which either of said attorneys-in-fact and agents deems necessary or advisable to enable the Company to comply with the Act, the rules, regulations and requirements of the SEC in respect thereof, giving and granting to each of said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing whatsoever necessary or appropriate to be done in and about the premises as fully to all intents as he might or could do if personally present at the doing thereof, with full power of substitution and resubstitution, hereby ratifying and confirming all that his said attorneys-in-fact and agents or substitutes may or shall lawfully do or cause to be done by virtue hereof.
 
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date indicated below.
 
/s/ David G. Bannister
David G. Bannister
 
DATED: January 26, 2010

 
POWER OF ATTORNEY
 
Landstar System, Inc.
Annual Report on Form 10-K
for fiscal year ended 12/26/09
 
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby make, constitute and appoint James B. Gattoni and Michael K. Kneller, and each of them, with full power in each to act without the other, his true and lawful attorney-in-fact and agent, in his name, place and stead to execute on his behalf, as an officer and/or director of Landstar System, Inc. (the “Company”), the Annual Report on Form 10-K of the Company for the fiscal year ended December 26, 2009, and file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission (the “SEC”) pursuant to Sections 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Act”), and any and all other instruments which either of said attorneys-in-fact and agents deems necessary or advisable to enable the Company to comply with the Act, the rules, regulations and requirements of the SEC in respect thereof, giving and granting to each of said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing whatsoever necessary or appropriate to be done in and about the premises as fully to all intents as he might or could do if personally present at the doing thereof, with full power of substitution and resubstitution, hereby ratifying and confirming all that his said attorneys-in-fact and agents or substitutes may or shall lawfully do or cause to be done by virtue hereof.
 
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date indicated below.
 
/s/ William S. Elston
William S. Elston
 
DATED: January 26, 2010

 
POWER OF ATTORNEY
 
Landstar System, Inc.
Annual Report on Form 10-K
for fiscal year ended 12/26/09
 
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby make, constitute and appoint James B. Gattoni and Michael K. Kneller, and each of them, with full power in each to act without the other, his true and lawful attorney-in-fact and agent, in his name, place and stead to execute on his behalf, as an officer and/or director of Landstar System, Inc. (the “Company”), the Annual Report on Form 10-K of the Company for the fiscal year ended December 26, 2009, and file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission (the “SEC”) pursuant to Sections 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Act”), and any and all other instruments which either of said attorneys-in-fact and agents deems necessary or advisable to enable the Company to comply with the Act, the rules, regulations and requirements of the SEC in respect thereof, giving and granting to each of said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing whatsoever necessary or appropriate to be done in and about the premises as fully to all intents as he might or could do if personally present at the doing thereof, with full power of substitution and resubstitution, hereby ratifying and confirming all that his said attorneys-in-fact and agents or substitutes may or shall lawfully do or cause to be done by virtue hereof.
 
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date indicated below.
 
/s/ Diana M. Murphy
Diana M. Murphy
 
DATED: January 26, 2010

 
POWER OF ATTORNEY
 
Landstar System, Inc.
Annual Report on Form 10-K
for fiscal year ended 12/26/09
 
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby make, constitute and appoint James B. Gattoni and Michael K. Kneller, and each of them, with full power in each to act without the other, his true and lawful attorney-in-fact and agent, in his name, place and stead to execute on his behalf, as an officer and/or director of Landstar System, Inc. (the “Company”), the Annual Report on Form 10-K of the Company for the fiscal year ended December 26, 2009, and file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission (the “SEC”) pursuant to Sections 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Act”), and any and all other instruments which either of said attorneys-in-fact and agents deems necessary or advisable to enable the Company to comply with the Act, the rules, regulations and requirements of the SEC in respect thereof, giving and granting to each of said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing whatsoever necessary or appropriate to be done in and about the premises as fully to all intents as he might or could do if personally present at the doing thereof, with full power of substitution and resubstitution, hereby ratifying and confirming all that his said attorneys-in-fact and agents or substitutes may or shall lawfully do or cause to be done by virtue hereof.
 
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date indicated below.
 
/s/ Jeffrey C. Crowe
Jeffrey C. Crowe
 
DATED: January 26, 2010

 
POWER OF ATTORNEY
 
Landstar System, Inc.
Annual Report on Form 10-K
for fiscal year ended 12/26/09
 
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby make, constitute and appoint James B. Gattoni and Michael K. Kneller, and each of them, with full power in each to act without the other, his true and lawful attorney-in-fact and agent, in his name, place and stead to execute on his behalf, as an officer and/or director of Landstar System, Inc. (the “Company”), the Annual Report on Form 10-K of the Company for the fiscal year ended December 26, 2009, and file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission (the “SEC”) pursuant to Sections 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Act”), and any and all other instruments which either of said attorneys-in-fact and agents deems necessary or advisable to enable the Company to comply with the Act, the rules, regulations and requirements of the SEC in respect thereof, giving and granting to each of said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing whatsoever necessary or appropriate to be done in and about the premises as fully to all intents as he might or could do if personally present at the doing thereof, with full power of substitution and resubstitution, hereby ratifying and confirming all that his said attorneys-in-fact and agents or substitutes may or shall lawfully do or cause to be done by virtue hereof.
 
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the date indicated below.
 
/s/  Michael A. Henning
Michael A. Henning
 
DATED: January 26, 2010

EXHIBIT 31.1
 
SECTION 302 CERTIFICATION
 
I, Henry H. Gerkens, certify that:
 
1. I have reviewed this annual report on Form 10-K of Landstar System, Inc.;
 
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:
 
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
/s/ Henry H. Gerkens
Henry H. Gerkens
Chairman of the Board, President and Chief
Executive Officer
 
Date: February 23, 2010

EXHIBIT 31.2
 
SECTION 302 CERTIFICATION
 
I, James B. Gattoni, certify that:
 
1. I have reviewed this annual report on Form 10-K of Landstar System, Inc.;
 
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:
 
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
/s/ James B. Gattoni
James B. Gattoni
Vice President and
Chief Financial Officer
 
Date: February 23, 2010

EXHIBIT 32.1
 
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the Annual Report of Landstar System, Inc. (the “Company”) on Form 10-K for the period ending December 26, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Henry H. Gerkens, Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
 
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and
 
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
/s/ Henry H. Gerkens
Henry H. Gerkens
Chairman of the Board, President and Chief Executive
Officer
 
February 23, 2010

EXHIBIT 32.2
 
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the Annual Report of Landstar System, Inc. (the “Company”) on Form 10-K for the period ending December 26, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James B. Gattoni, Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
 
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and
 
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
/s/ James B. Gattoni
James B. Gattoni
Vice President and
Chief Financial Officer
 
February 23, 2010