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 31, 2011
or
 
¨	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	 	32224	
Jacksonville, Florida	 	(Zip Code)	
(Address of principal executive offices)	 	 	
(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   ¨
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   ¨    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   ¨
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   þ     No    ¨
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 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   ¨	  	Non-accelerated filer  ¨	 	Smaller reporting company   ¨	
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes   ¨    No   þ
The aggregate market value of the voting stock held by non-affiliates of the registrant was $2,130,401,000 (based on the per share closing price on June 25, 2011, 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 27, 2012 was 46,721,147.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following document are incorporated by reference in this Form 10-K as indicated herein:

Document	 	Part of 10-K
Into Which
Incorporated	 	
Proxy Statement relating to Landstar System, Inc.’s Annual Meeting of Stockholders scheduled to be held on May 24, 2012	 	 	Part III	  	

 

LANDSTAR SYSTEM, INC.
2011 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	  	 	16	  	
Item 2.	  	Properties	  	 	16	  	
Item 3.	  	Legal Proceedings	  	 	16	  	
Item 4.	  	Mine Safety Disclosures	  	 	17	  	
 	 	 	
 	  	PART II	  	 	 	 	
Item 5.	  	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	  	 	18	  	
Item 6.	  	Selected Financial Data	  	 	21	  	
Item 7.	  	Management’s Discussion and Analysis of Financial Condition and Results of Operations	  	 	21	  	
Item 7A.	  	Quantitative and Qualitative Disclosures about Market Risk	  	 	34	  	
Item 8.	  	Financial Statements and Supplementary Data	  	 	35	  	
Item 9.	  	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	  	 	57	  	
Item 9A.	  	Controls and Procedures	  	 	57	  	
Item 9B.	  	Other Information	  	 	60	  	
 	 	 	
 	  	PART III	  	 	 	 	
Item 10.	  	Directors, Executive Officers and Corporate Governance	  	 	61	  	
Item 11.	  	Executive Compensation	  	 	61	  	
Item 12.	  	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	  	 	61	  	
Item 13.	  	Certain Relationships and Related Transactions, and Director Independence	  	 	61	  	
Item 14.	  	Principal Accounting Fees and Services	  	 	61	  	
 	 	 	
 	  	PART IV	  	 	 	 	
Item 15.	  	Exhibits and Financial Statement Schedules	  	 	62	  	
Signatures	  	 	65	  	

EX – 31.1 Section 302 CEO Certification
EX – 31.2 Section 302 CFO Certification
EX – 32.1 Section 906 CEO Certification
EX – 32.2 Section 906 CFO Certification
EX – 101 Instance Document
EX – 101 Schema Document
EX – 101 Calculation Linkbase Document
EX – 101 Labels Linkbase Document
EX – 101 Presentation Linkbase Document
EX – 101 Definition Linkbase Document	
 
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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”), Signature Technology Services, Inc. (“STSI”), Risk Management Claim Services, Inc. (“RMCS”), Landstar Supply Chain Solutions, Inc. (“LSCS”), Landstar Supply Chain Solutions LLC (“LSCSLLC”) and Signature Insurance Company (“Signature”). Landstar Ranger, Landstar Inway, Landstar Ligon, Landstar Gemini, Landstar Transportation Logistics, Landstar Global Logistics, Landstar Express America, LSCS, LSCSLLC and Landstar Canada are collectively herein referred to as Landstar’s “Operating Subsidiaries.” Landstar System, Inc., LSHI, LCFI, STSI, RMCS, LCHI, 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.
Description of Business
Landstar is a non-asset based provider of freight transportation services and supply chain solutions. The Company offers services to its customers 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 information technology systems which are provided and coordinated by the Company. Landstar exclusively utilizes third party capacity providers to transport and store customers’ freight. The nature of the Company’s business is such that a significant portion of its operating costs varies directly with revenue.
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 third party 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”). Through this network of agents and capacity providers linked together by Landstar’s information technology systems, Landstar operates a transportation services and supply chain solutions business primarily throughout North America with revenue of $2.6 billion during the most recently completed fiscal year.
 
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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 utilizing intellectual property that may be owned by the Company or licensed from third parties. Such solutions as offered to shippers by the Company may include integrated multi-modal solutions, outsourced logistics, supply chain engineering and warehousing. 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 equipment. In addition, the transportation logistics segment provides transportation services to other transportation companies, including logistics and less-than-truckload service providers. Each of the Company’s 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.” See “Notes to Consolidated Financial Statements” for the amount of revenue from external customers, measure of profit and total assets attributable to the transportation logistics segment for the last three fiscal years.
Truck Services.    The transportation logistics segment’s truckload services include a full array of truckload transportation for a wide range of commodities, much of which are transported over irregular or non-repetitive routes. The Company utilizes a broad assortment of 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 the fifty-three week fiscal year 2011, revenue hauled by BCO Independent Contractors and Truck Brokerage Carriers was 53% and 40%, respectively, of total transportation logistics segment revenue. The Company’s truck services contributed 92%, 92% and 91% of total revenue in fiscal year 2011, 2010 and 2009, respectively.
Rail Intermodal Services.    The transportation logistics segment has contracts with Class 1 domestic and Canadian railroads, certain short-line railroads and most 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 service capabilities include trailer on flat car, container on flat car, box car and railcar. The transportation logistics segment’s rail intermodal services contributed 3% of total revenue in fiscal year 2011.
Air and Ocean Services.    The transportation logistics segment has contracts with domestic and international airlines and ocean lines. These contracts give the transportation logistics segment the capability to provide domestic and international air services and international ocean services to its customers. 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
 
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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. The transportation logistics segment’s air and ocean services contributed 3% of total revenue in fiscal year 2011.
Supply Chain Services.    The transportation logistics segment offers customers technology-based supply chain solutions and other value-added services on a fee-for-service basis and in conjunction with the Company’s transportation service offerings. Service capabilities include logistics order management, shipment planning and optimization, rate management, transportation sourcing, in-transit visibility and shipment execution. The transportation logistics segment also offers warehousing solutions that provide customers with nationwide access to available warehouse capacity utilizing a network of independently owned and operated regional warehouse facilities without Landstar owning or leasing facilities or hiring employees to work at warehouses. The transportation logistics segment’s transportation management fee services contributed 1% of total revenue in fiscal year 2011.
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 1% of total revenue in fiscal year 2011. See “Notes to Consolidated Financial Statements” for the amount of revenue from external customers, measure of profit and total assets attributable to the Insurance Segment for the last three fiscal years.
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, to a lesser extent, 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 information technology systems 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 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. It is important to note that the Operating Subsidiaries, and not the Company’s agents, contract directly with customers and generally assume the related credit risk and potential liability for freight losses or damages when the Company is providing transportation services as a motor carrier.
Management believes the Company has more independent commission sales agents than any other non-asset based transportation and logistics services company. Landstar’s vast network of 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 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 of 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
 
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freight and transportation services (such as oversized or heavy loads and/or rail, air and international freight transportation). Each independent commission sales agent has the opportunity to market all of the services provided by the transportation logistics segment.
The independent commission sales agents use a variety of proprietary and third party information technology 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 information technology applications provided by the Company.
Commissions to agents are based on contractually agreed-upon percentages of revenue or net revenue, defined as revenue less the cost of purchased transportation, or net revenue 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 net revenue margin 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 Company reported 504 and 468 agents who generated at least $1 million each in Landstar revenue during 2011 and 2010, respectively (the “Million Dollar Agents”). Landstar revenue from Million Dollar Agents in the aggregate represented 91% and 89% of total Landstar revenue in 2011 and 2010, respectively. During 2010, one agent generated approximately $216,000,000, or 9%, of Landstar’s total revenue, but contributed less than 1% of Landstar’s gross profit, defined as revenue less the cost of purchased transportation and commissions to agents. Historically, the Company has experienced very low turnover among its Million Dollar Agents, as annual turnover among Million Dollar Agents is typically less than 3%. Management believes that the majority of the Million Dollar Agents choose to represent the Company 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 by third parties allows it to maintain a lower level of capital investment, resulting in lower fixed costs. During the most recently completed fiscal year, revenue hauled by BCO Independent Contractors, Truck Brokerage Carriers and rail intermodal, air and ocean cargo carriers represented 53%, 40%, 3%, 1% and 2%, respectively, of the Company’s transportation logistics segment revenue. Transportation management fees represented 1% of the transportation logistics segment revenue in the most recently completed fiscal year. Historically, the gross profit margin (defined as gross profit divided by revenue) generated from freight hauled by BCO Independent Contractors has been greater than that 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.

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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 2011, the Company billed customers $285.7 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 BCO Independent Contractors was 8,371 at December 31, 2011, compared to 8,452 at December 25, 2010. At December 31, 2011, 97% of the trucks provided by BCO Independent Contractors were provided by BCO Independent Contractors who provided five 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 lower in 2011 than in 2010, and trucks terminated were also lower in 2011 compared to 2010, resulting in a net loss of 81 trucks during 2011. Landstar’s BCO Independent Contractor truck turnover was approximately 27% in 2011 compared to 31% in 2010. Approximately 36% of 2011 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, available freight, the Company’s programs to reduce the operating costs of its BCO Independent Contractors and Landstar’s reputation for quality, service and reliability and its financial strength.
Truck Brokerage Carriers.   At December 31, 2011, the Company maintained a database of over 28,000 approved Truck Brokerage Carriers who provide truck hauling capacity to the Company. Truck Brokerage 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.
 
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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 Intermodal, Air and Ocean.   The Company has contracts with Class 1 domestic and Canadian railroads, certain short-line railroads and 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 service providers, 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 revenue is reported net of the amount earned by the Warehouse Capacity Owner. Historically, warehousing services have not been a significant contributor to revenue or earnings. However, management believes that this service offering and relationships with Warehouse Capacity Owners provide the Company with additional transportation services opportunities.
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, along with its network of capacity providers, offers the largest fleet of heavy/specialized trailing equipment in the United States.
The following table illustrates the diversity of the trailing equipment as of December 31, 2011, 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	  	 	9,823	  	
Flatbeds, including step decks, drop decks and low boys	  	 	3,424	  	
Temperature-controlled	  	 	73	  	
 	  	 	 	 	
Total	  	 	13,320	  	
 	  	 	 	 	
At December 31, 2011, 8,776 of the trailers available to the BCO Independent Contractors were owned by the Company and 353 were rented by the Company under short-term rental arrangements. In addition, at December 31, 2011, 4,191 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 44% and 49%, respectively, of the Company’s revenue during fiscal years 2011 and 2010. Management believes that the Company’s overall
 
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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 10 transportation service providers, including 3PLs, included in the Company’s top 25 customers for the fiscal year ended December 31, 2011. 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 2011 revenue.
Technology
Management believes leadership in the development and application of information systems 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. In 2009, the Company completed two separate acquisitions of companies that each offer customers technology-based supply chain solutions and other value-added services. These services provide the Company with the ability to offer customers complete enterprise solutions and compete in the freight management segment of the transportation industry. 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.
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 Southfield, 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 its independent commission sales agents, third party capacity providers and customers. These, 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.
 
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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 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 cost of insurance and claims and its results of operations.
For the fiscal year ended and as of December 31, 2011, 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 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 up to the Company’s self-insured retention amounts have typically exceeded the Company’s cost of claims. In an attempt to manage the cost of insurance and claims, 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 based on the estimated cost differential between proposed premiums from the third-party insurance companies and historical losses experienced by the Company at various levels of self-insured retention.
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.
 
10

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 may be 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 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 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 motor carrier services or the cost of providing truckload or other transportation or logistics services.
In addition, because the U.S. government is one of the Company’s customers, the Company must comply with and is affected by laws and regulations related to doing business with the federal government. U.S. government agencies, including various agency Inspectors General, routinely audit and investigate government contractors. See “Risk Factors — Doing Business with the Federal Government.”
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 31, 2011, the Company and its subsidiaries employed 1,351 individuals. Approximately 11 Landstar Ranger drivers (out of a Company total of 8,371 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 claims or workers’ compensation claims or the unfavorable development of existing claims could be expected to materially adversely affect Landstar’s results of operations, particularly given the Company’s relatively high self-insured retention on commercial trucking claims.
 
11

Dependence on third party insurance companies.   As noted above in Item 1, “Business — Factors Significant to the Company’s Operations —Self-Insured Claims,” 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. In an attempt to manage the cost of insurance and claims, 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 based on the estimated cost differential between proposed premiums from third-party insurance companies and historical losses experienced by the Company at various levels of self-insured retention. To the extent that the third party insurance companies propose increases to their premiums for coverage of commercial trucking claims, the Company may pay such increased premiums or increase its financial exposure on an aggregate or per occurrence basis, including by increasing the amount of its self-insured retention. However, to the extent the third party insurance companies propose reduced premiums for coverage of commercial trucking claims, the Company may reduce its financial exposure on an aggregate or per occurrence basis, including by decreasing the amount of its self-insured retention. In addition, no assurance can be given that insurance coverage from third party insurers for claims in excess of its current $5 million self-insured retention will continue to be available on commercially reasonable terms.
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. During 2011, 504 agents generated revenue for Landstar of at least $1 million each (the “Million Dollar Agents”), or approximately 91% of Landstar’s consolidated revenue. Landstar 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 Million Dollar Agents. There can be no assurances, however, that Landstar will continue to experience very limited turnover of its Million Dollar Agents in the future. Landstar’s contracts with its agents, including its Million Dollar Agents, are typically terminable without cause upon 10 to 30 days’ notice by either party and generally contain significant but not unqualified non-compete provisions limiting the ability of a former agent to compete with Landstar for a specified period of time post-termination, and other restrictive covenants. The loss of some of the Company’s Million Dollar Agents and/or a significant decrease in volume generated by other Million Dollar 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. The market for qualified truck owner-operators is very competitive among motor carriers and no assurances can be given that the Company will be able to maintain or expand the number of BCO Independent Contractors. 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.
 
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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, such as any increases in the cost of fuel, 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. This 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 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. As noted above, there were 10 transportation service providers, including 3PLs, included in the Company’s top 25 customers for the fiscal year ended December 31, 2011. Usage by large shippers of 3PLs often provides 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 Southfield, 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 or those of third-party data centers on which it relies could significantly disrupt the Company’s operations and impose significant costs on the Company.
Dependence on key vendors.    As described above under “Dependence on third party insurance companies” and “Disruptions or failures in the Company’s computer systems, ” the Company is dependent on certain vendors, including third party insurance companies, third party data center providers, third party information technology application providers and third party payment system providers. Any inability to negotiate satisfactory terms with one of these key vendors or any other significant disruption to or termination of a relationship with one of these key vendors could disrupt the Company’s operations and impose significant costs on the Company.
 
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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 benefits. 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 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 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. 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.
 
14

In December 2010, the FMCSA initiated its Compliance Safety Accountability (CSA) motor carrier oversight program (formerly Comprehensive Safety Analysis 2010). The Company believes the intent is to improve regulatory oversight of motor carriers and commercial drivers using a safety measurement system methodology that is fundamentally different from the methodology that the FMCSA had historically relied upon. The FMCSA is attempting to implement changes to the hours of service regulations which govern the work hours of commercial drivers and is consistently proposing regulatory changes that affect the operation of commercial motor carriers across the United States. It is difficult to predict which and in what form CSA or any other regulations may be implemented, modified or enforced and what impact any such regulation may have on motor carrier operations or the aggregate number of trucks that provide hauling capacity to the Company. In addition, recent focus on climate change and related environmental matters has led to efforts by federal and local governmental agencies to support legislation and regulations 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. Moreover, federal and state governmental agencies, such as efforts by the California Air Resources Board, may also focus on regulation in relation to trailing equipment specifications in an effort to achieve, among other things, lower carbon emissions. Increased regulation on tractor or trailing equipment specifications, including emissions created by diesel engines, could create substantial costs on the Company and the Company’s third-party capacity providers and, in turn, increase the cost of purchased transportation to the Company. An increase in the costs to purchase, lease or maintain trailing equipment or in purchased transportation cost caused by new regulations 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.
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 Southfield, Michigan due to hurricanes, flooding, tornados, other weather conditions, natural disasters, terrorist attacks 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.   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, now collectively known as LSCS and (ii) A3 Integration, LLC, now known as LSCSLLC, through A3i Acquisition LLC (“A3i Acquisition”) an entity in which the Company owned 100% of the non-voting, preferred interests and, from the date of acquisition to January 2011, 75% of the voting, common equity interests. LSCS purchased the remaining 25% of the voting, common equity interests in A3i Acquisition in January 2011. These two acquisitions are referred to herein collectively as the “2009 Acquisitions.” LSCS’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, LSCSLLC was a startup company with no customers under contract. LSCSLLC licenses its principal software technology from an unaffiliated third party. The Company’s strategic initiatives of the 2009 Acquisitions are to increase freight transportation opportunities of the Company by identifying and engaging agents and customers to utilize LSCSLLC’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 2009 Acquisitions. The two acquired entities are considered one reporting unit as it relates to business valuation. As it relates to goodwill recorded upon the acquisition of these companies in July 2009, should the automotive industry experience a significant downturn and should the Company fail to add customers
 
15

to the technology platform acquired with the start-up company, the Company could determine that its goodwill is impaired in the future. The Company will continue to monitor the economic environment and test for impairment of goodwill as necessary.
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.
Doing business with the federal government.   The Company must comply with and is affected by laws and regulations relating to doing business with the federal government. In addition, U.S. government agencies, including various agency Inspectors General, routinely audit and investigate government contractors like the Company. Government contractors may also be subject to investigation by the U.S. Department of Justice as a result of or in connection with allegations made by third parties. In connection with an audit or investigation by a U.S. government agency or the U.S. Department of Justice, the Government may allege violations of specific laws and regulations by the Company or those doing business with the Company. The Government may also seek remedies against the Company, such as fines and penalties, the termination of our contracts, or suspension or prohibition from doing business with the U.S. Government, any of which could cause the Company to suffer serious reputational harm and other adverse consequences.
 
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 Southfield, Michigan. In addition, the Company’s corporate headquarters are located in Jacksonville, Florida. The Jacksonville, Florida and Rockford, Illinois facilities are owned by the Company, and the Southfield, Michigan facility is leased. 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	
In June 2011, Landstar System, Inc. received a Civil Investigative Demand (the “CID”) from the United States Attorney for the Western District of Kentucky issued pursuant to the False Claims Act. The CID requests documents and written interrogatories limited to freight hauled to or from Fort Campbell, Kentucky by certain subsidiaries of the Company and billed to the U.S. government. The Company submitted its response to the CID in August 2011. Since that time, the Company has cooperated fully, and intends to continue to cooperate fully with the U.S. Attorney.
 
16

On September 23, 2011, a jury sitting in a state court in Cobb County, Georgia, entered a damage award of approximately $40.2 million (such amount, plus pre-judgment interest and a portion of plaintiffs’ attorney fees in an amount not yet determined are collectively referred to herein as the “Damage Award”) against Landstar Ranger, Inc., Landstar System Holdings, Inc. and Landstar System, Inc. The Damage Award arises out of an accident that occurred in February, 2007, involving a truck owner-operator leased to Landstar Ranger, Inc. Under the terms of the commercial trucking insurance program that Landstar had in place in 2007, Landstar retained liability for up to $5 million with respect to the accident giving rise to the Damage Award. Landstar has third party insurance in place covering all amounts of the Damage Award in excess of such retention, including all related out-of-pocket expenses, such as the costs of an appeal bond, post-judgment interest and attorney fees comprising the Damage Award. The Company recorded a $5 million charge representing its self-insured retention in respect of this accident in the consolidated financial results of the Company in the 2007 first quarter. Accordingly, the Company’s portion of the Damage Award was previously recorded and therefore did not reduce consolidated operating income or net income for the Company’s 2011 fiscal year. Under the terms of the Company’s insurance policies, the Company is the primary obligor of the amount of the Damage Award, and as such, the Company has reported a $40.2 million receivable from the third party insurance providers in other receivables and a corresponding liability of the same amount in insurance claims in the consolidated balance sheets at December 31, 2011. The Company and its insurers intend to appeal the Damage Award. No assurances can be given regarding the outcome of such appeal, including as to the impact of the Damage Award on the premiums charged by the Company’s third party insurers from time to time for commercial trucking insurance.
The Company is involved in certain claims and pending litigation, including those described herein, 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 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.	Mine Safety Disclosures	
Not applicable.
 
17

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.

 	  	2011 Market Price	 	  	2010 Market Price	 	  	Dividends Declared	 	
Fiscal Period	  	High	 	  	Low	 	  	High	 	  	Low	 	  	2011	 	  	2010	 	
First Quarter	  	$	45.66	  	  	$	40.50	  	  	$	42.40	  	  	$	34.86	  	  	$	0.050	  	  	$	0.045	  	
Second Quarter	  	 	48.31	  	  	 	42.89	  	  	 	46.23	  	  	 	38.69	  	  	 	0.050	  	  	 	0.045	  	
Third Quarter	  	 	49.66	  	  	 	36.64	  	  	 	41.95	  	  	 	35.10	  	  	 	0.055	  	  	 	0.050	  	
Fourth Quarter	  	 	48.69	  	  	 	38.16	  	  	 	40.93	  	  	 	35.85	  	  	 	0.055	  	  	 	0.050	  	
The reported last sale price per share of the Common Stock as reported on the NASDAQ Global Select Market on January 27, 2012 was $51.55 per share. As of such date, Landstar had 46,721,147 shares of Common Stock outstanding. As of January 27, 2012, the Company had 65 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 25, 2011 to December 31, 2011, the Company’s fourth fiscal quarter:

Fiscal Period	 	Total Number of
Shares Purchased	 	 	Average Price
Paid Per  Share	 	 	Total Number of Shares
Purchased as Part of
Publicly Announced
Programs	 	 	Maximum Number of
Shares That May Yet Be
Purchased Under the
Programs	 	
September 24, 2011	 	 	 	 	 	 	 	 	 	 	 	 	 	 	709,155	  	
Sept. 25, 2011 — Oct. 22, 2011	 	 	—	  	 	$	—	  	 	 	—	  	 	 	709,155	  	
Oct. 23, 2011 — Nov. 19, 2011	 	 	77,137	  	 	 	43.91	  	 	 	77,137	  	 	 	632,018	  	
Nov. 20, 2011 — Dec. 31, 2011	 	 	115,467	  	 	 	44.15	  	 	 	115,467	  	 	 	516,551	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	 	192,604	  	 	$	44.05	  	 	 	192,604	  	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
On August 16, 2011, Landstar System, Inc. announced that it had been authorized by its Board of Directors to purchase up to 1,000,000 shares of its Common Stock from time to time in the open market and in privately negotiated transactions. As of December 31, 2011, the Company may purchase 516,551 shares of its Common Stock under this authorization. No specific expiration date has been assigned to the August 16, 2011 authorization.
During 2011, Landstar paid dividends as follows:

Dividend Amount per Share	  	Declaration
Date	 	  	Record
Date	 	  	Payment
Date	 	
$0.050	  	 	January 25, 2011	  	  	 	February 14, 2011	  	  	 	March 11, 2011	  	
$0.050	  	 	April 20, 2011	  	  	 	May 5, 2011	  	  	 	May 27, 2011	  	
$0.055	  	 	July 20, 2011	  	  	 	August 8, 2011	  	  	 	August 26, 2011	  	
$0.055	  	 	October 19, 2011	  	  	 	November 8, 2011	  	  	 	December 2, 2011	  	
On February 2, 2012, the Company announced the declaration of a quarterly dividend of $0.055 per share payable on March 16, 2012 to shareholders of record as of February 20, 2012.
 
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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 (as defined in the Credit Agreement) 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 one stock compensation plan for members of its Board of Directors and two employee equity incentive plans. The following table presents information related to securities authorized for issuance under these plans at December 31, 2011:

Plan Category	  	Number of Securities
to be Issued Upon
Exercise of
Outstanding Options	 	  	Weighted-average
Exercise Price of
Outstanding Options	 	  	Number of  Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans	 	
Equity Compensation Plans
Approved by Security Holders	  	 	2,326,776	  	  	$	40.11	  	  	 	6,116,959	  	
Equity Compensation Plans Not Approved by Security Holders	  	 	0	  	  	 	0	  	  	 	0	  	
Under the 2011 Equity Incentive Plan (the “2011 EIP”), 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 were 118,959 shares of Common Stock reserved for issuance under the 2003 Directors’ Stock Compensation Plan.
 
19

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 30, 2006 through December 31, 2011.

 
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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:	  	2011	 	 	2010	 	 	2009	 	 	2008	 	  	2007	 	
Revenue	  	$	2,649,082	  	 	$	2,400,170	  	 	$	2,008,796	  	 	$	2,643,069	  	  	$	2,487,277	  	
Investment income	  	 	1,705	  	 	 	1,558	  	 	 	1,268	  	 	 	3,339	  	  	 	5,347	  	
Costs and expenses:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Purchased transportation	  	 	2,007,102	  	 	 	1,824,308	  	 	 	1,503,520	  	 	 	2,033,384	  	  	 	1,884,207	  	
Commissions to agents	  	 	210,088	  	 	 	181,405	  	 	 	160,571	  	 	 	203,058	  	  	 	200,630	  	
Other operating costs	  	 	28,865	  	 	 	28,826	  	 	 	29,173	  	 	 	28,033	  	  	 	28,997	  	
Insurance and claims	  	 	42,766	  	 	 	49,334	  	 	 	45,918	  	 	 	36,374	  	  	 	49,832	  	
Selling, general and administrative	  	 	152,907	  	 	 	153,080	  	 	 	133,612	  	 	 	137,758	  	  	 	125,177	  	
Depreciation and amortization	  	 	25,814	  	 	 	24,804	  	 	 	23,528	  	 	 	20,960	  	  	 	19,088	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Total costs and expenses	  	 	2,467,542	  	 	 	2,261,757	  	 	 	1,896,322	  	 	 	2,459,567	  	  	 	2,307,931	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Operating income	  	 	183,245	  	 	 	139,971	  	 	 	113,742	  	 	 	186,841	  	  	 	184,693	  	
Interest and debt expense	  	 	3,112	  	 	 	3,623	  	 	 	4,030	  	 	 	7,351	  	  	 	6,685	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Income before income taxes	  	 	180,133	  	 	 	136,348	  	 	 	109,712	  	 	 	179,490	  	  	 	178,008	  	
Income taxes	  	 	67,188	  	 	 	49,766	  	 	 	39,762	  	 	 	68,560	  	  	 	68,355	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Net income	  	 	112,945	  	 	 	86,582	  	 	 	69,950	  	 	 	110,930	  	  	 	109,653	  	
Less: Net loss attributable to noncontrolling interest	  	 	(62	) 	 	 	(932	) 	 	 	(445	) 	 	 	—	  	  	 	—	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Net income attributable to Landstar System, Inc. and subsidiary	  	$	113,007	  	 	$	87,514	  	 	$	70,395	  	 	$	110,930	  	  	$	109,653	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Earnings per common share attributable to Landstar System, Inc. and subsidiary	  	$	2.38	  	 	$	1.77	  	 	$	1.38	  	 	$	2.11	  	  	$	2.01	  	
Diluted earnings per share attributable to Landstar System, Inc. and subsidiary	  	$	2.38	  	 	$	1.77	  	 	$	1.37	  	 	$	2.10	  	  	$	1.99	  	
Dividends paid per common share	  	$	0.210	  	 	$	0.190	  	 	$	0.170	  	 	$	0.155	  	  	$	0.135	  	

Balance Sheet Data:	  	Dec. 31,
2011	 	  	Dec. 25,
2010	 	  	Dec. 26,
2009	 	  	Dec. 27,
2008	 	  	Dec. 29,
2007	 	
Total assets	  	$	808,449	  	  	$	683,882	  	  	$	648,792	  	  	$	663,530	  	  	$	629,001	  	
Long-term debt, including current maturities	  	 	132,342	  	  	 	121,611	  	  	 	92,898	  	  	 	136,445	  	  	 	164,753	  	
Equity	  	 	300,577	  	  	 	250,967	  	  	 	268,151	  	  	 	253,136	  	  	 	180,786	  	
 
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 risks, including but not limited to: an increase in the frequency or severity of accidents or other claims; unfavorable development
 
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of existing accident claims; dependence on third party insurance companies; dependence on independent commission sales agents; dependence on third party capacity providers; decreased demand for transportation services; substantial industry competition; disruptions or failures in our computer systems; dependence on key vendors; changes in fuel taxes; status of independent contractors; regulatory and legislative changes; catastrophic loss of a Company facility; acquired businesses; intellectual property; doing business with the federal government; 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 services to its customers 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 customers’ freight. The nature of the Company’s business is such that a significant portion of its operating costs varies directly with revenue.
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 Class 1 domestic and Canadian railroads, certain short-line railroads and domestic and international airlines and ocean lines. Through this network of agents and capacity providers linked together by Landstar’s information technology systems, Landstar operates a transportation services and supply chain solutions business primarily throughout North America with revenue of $2.6 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 utilizing intellectual property that may be owned by the Company or licensed from third parties. Such solutions as offered by the Company may include integrated multi-modal solutions, outsourced logistics, supply chain engineering and warehousing. In the Company’s 2009 fiscal third quarter, the Company acquired LSCSLLC and its subsidiaries through A3i Acquisition, an entity in which the Company owned 100% of the non-voting, preferred interests and, from the time of acquisition through January 2011, 75% of the voting, common equity interests. In January 2011, the
 
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Company purchased the remaining 25% of the voting, common equity interests in A3i Acquisition. 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 equipment. 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.” During 2011, transportation services revenue hauled by BCO Independent Contractors, Truck Brokerage Carriers and rail intermodal, air cargo and ocean cargo carriers represented 53%, 40%, 3%, 1%, and 2%, respectively, of the Company’s transportation logistics segment revenue. Transportation management fees represented 1% of the Company’s transportation logistics segment revenue in 2011.
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 1% of the Company’s total revenue for 2011.
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, including insurance and claims.
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. The following table shows the number of Million Dollar Agents, the average revenue generated by these agents and the percent of consolidated revenue generated by these agents during the past three fiscal years:

 	  	Fiscal Year	 	
 	  	2011	 	 	2010	 	 	2009	 	
Number of Million Dollar Agents	  	 	504	  	 	 	468	  	 	 	405	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Average revenue generated per Million Dollar Agent	  	$	4,778,000	  	 	$	4,576,000	  	 	$	4,292,000	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Percent of consolidated revenue generated by Million Dollar Agents	  	 	91	% 	 	 	89	% 	 	 	87	% 	

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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, fuel costs 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 information by mode of transportation for the past three fiscal years:

 	  	Fiscal Year	 	
 	  	2011	 	  	2010	 	  	2009	 	
Revenue generated through (in thousands):	  	 	 	 	  	 	 	 	  	 	 	 	
BCO Independent Contractors	  	$	1,374,664	  	  	$	1,289,395	  	  	$	1,140,004	  	
Truck Brokerage Carriers	  	 	1,052,605	  	  	 	919,605	  	  	 	694,467	  	
Rail intermodal	  	 	75,979	  	  	 	70,299	  	  	 	76,346	  	
Ocean cargo carriers	  	 	52,744	  	  	 	46,064	  	  	 	33,835	  	
Air cargo carriers	  	 	37,680	  	  	 	20,104	  	  	 	17,621	  	
Other(1)	  	 	55,410	  	  	 	54,703	  	  	 	46,523	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	$	2,649,082	  	  	$	2,400,170	  	  	$	2,008,796	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Number of loads:	  	 	 	 	  	 	 	 	  	 	 	 	
BCO Independent Contractors	  	 	808,210	  	  	 	821,330	  	  	 	761,940	  	
Truck Brokerage Carriers	  	 	613,790	  	  	 	591,810	  	  	 	501,980	  	
Rail intermodal	  	 	31,370	  	  	 	31,070	  	  	 	37,890	  	
Ocean cargo carriers	  	 	8,490	  	  	 	6,830	  	  	 	5,370	  	
Air cargo carriers	  	 	7,950	  	  	 	6,880	  	  	 	7,780	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	 	1,469,810	  	  	 	1,457,920	  	  	 	1,314,960	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Revenue per load:	  	 	 	 	  	 	 	 	  	 	 	 	
BCO Independent Contractors	  	$	1,701	  	  	$	1,570	  	  	$	1,496	  	
Truck Brokerage Carriers	  	 	1,715	  	  	 	1,554	  	  	 	1,383	  	
Rail intermodal	  	 	2,422	  	  	 	2,263	  	  	 	2,015	  	
Ocean cargo carriers	  	 	6,212	  	  	 	6,744	  	  	 	6,301	  	
Air cargo carriers	  	 	4,740	  	  	 	2,922	  	  	 	2,265	  	
 
(1)	Includes premium revenue generated by the insurance segment and warehousing and transportation management fee revenue generated by the transportation logistics segment.	
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. 31,
2011	 	  	Dec. 25,
2010	 	  	Dec. 26,
2009	 	
BCO Independent Contractors	  	 	7,871	  	  	 	7,865	  	  	 	7,926	  	
Truck Brokerage Carriers:	  	 	 	 	  	 	 	 	  	 	 	 	
Approved and active(1)	  	 	19,223	  	  	 	18,049	  	  	 	14,887	  	
Other approved	  	 	9,272	  	  	 	9,938	  	  	 	9,886	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	 	28,495	  	  	 	27,987	  	  	 	24,773	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Total available truck capacity providers	  	 	36,366	  	  	 	35,852	  	  	 	32,699	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Number of trucks provided by BCO Independent Contractors	  	 	8,371	  	  	 	8,452	  	  	 	8,519	  	

(1)	Active refers to Truck Brokerage Carriers who moved at least one load in the 180 days immediately preceding the fiscal year end.	
 
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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 generally 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 net revenue, defined as revenue less the cost of purchased transportation, or net revenue 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 revenue from the insurance segment and with changes in net revenue on services provided by Truck Brokerage Carriers and rail intermodal, air cargo and ocean cargo carriers. Commissions to agents are recognized upon the completion of freight delivery.
The Company defines gross profit as revenue less the cost of purchased transportation and commissions to agents. Gross profit divided by revenue is referred to as gross profit margin. The Company’s operating margin is defined as operating income divided by gross profit.
In general, gross profit 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, gross profit margin is either fixed or variable as a percent of revenue, depending on the contract with each individual independent commission sales agent. Under certain 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”). Gross profit 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 net revenue for these types of loads. Approximately 66% of the Company’s revenue in 2011 had a fixed gross profit margin.
Maintenance costs for Company-provided trailing equipment, BCO Independent Contractor recruiting costs and the provision for uncollectible advances and other receivables due from BCO Independent Contractors and independent commission sales agents are the largest components of other operating costs.

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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 have a material adverse effect on Landstar’s cost of insurance and claims and its 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 and depreciation of information technology hardware and software.
The following table sets forth the percentage relationship of purchased transportation and commissions to agents, both being direct costs, to revenue and indirect costs as a percentage of gross profit for the period indicated:

 	  	Fiscal Year	 	
 	  	2011	 	 	2010	 	 	2009	 	
Revenue	  	 	100.0	% 	 	 	100.0	% 	 	 	100.0	% 	
Purchased transportation	  	 	75.8	  	 	 	76.0	  	 	 	74.8	  	
Commissions to agents	  	 	7.9	  	 	 	7.6	  	 	 	8.0	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Gross profit margin	  	 	16.3	% 	 	 	16.4	% 	 	 	17.2	% 	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Gross profit	  	 	100.0	% 	 	 	100.0	% 	 	 	100.0	% 	
Investment income	  	 	0.4	  	 	 	0.4	  	 	 	0.4	  	
Indirect costs and expenses:	  	 	 	 	 	 	 	 	 	 	 	 	
Other operating costs	  	 	6.7	  	 	 	7.3	  	 	 	8.5	  	
Insurance and claims	  	 	9.9	  	 	 	12.5	  	 	 	13.3	  	
Selling, general and administrative	  	 	35.4	  	 	 	38.8	  	 	 	38.8	  	
Depreciation and amortization	  	 	6.0	  	 	 	6.3	  	 	 	6.8	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Total costs and expenses	  	 	58.0	  	 	 	64.9	  	 	 	67.4	  	
Operating margin	  	 	42.4	% 	 	 	35.5	% 	 	 	33.0	% 	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Fiscal Year Ended December 31, 2011 Compared to Fiscal Year Ended December 25, 2010
Revenue for fiscal year 2011 was $2,649,082,000, an increase of $248,912,000, or 10%, compared to fiscal year 2010. Revenue increased $248,707,000, or 11%, at the transportation logistics segment. The increase in revenue at the transportation logistics segment was primarily attributable to a higher revenue per load of approximately 10% and a 1% increase in the number of loads hauled. Included in fiscal years 2011 and 2010 were transportation management fees of $20,516,000 and $17,652,000, respectively. Revenue, representing premiums on reinsurance programs provided to BCO Independent Contractors, at the insurance segment was $34,343,000 and $34,138,000 for fiscal years 2011 and 2010, respectively.
Truck transportation revenue hauled by BCO Independent Contractors and Truck Brokerage Carriers (together, the “third-party truck capacity providers”) for fiscal year 2011, which represented 92% of total revenue, was $2,427,269,000, an increase of $218,269,000, or 10%, compared to fiscal year 2010. The number of loads hauled by third-party truck capacity providers in fiscal year 2011 increased 1% compared to fiscal year 2010, and revenue per load increased 9% compared to fiscal year 2010. The increase in the number of loads
 
26

hauled by third-party truck capacity providers was primarily attributable to increased industrial production in the domestic marketplace as well as the impact of market share gains from agents recruited during 2011 and 2010, partially offset by the anticipated reduction of freight hauled on behalf of one customer in the Company’s less-than-truckload substitute line haul service offering. Less-than-truckload substitute line haul revenue was $74,823,000 and $219,872,000 in fiscal years 2011 and 2010, respectively. The increase in revenue per load on revenue hauled by third-party truck capacity providers was primarily attributable to tighter truck capacity in the domestic market during 2011. Fuel surcharges on Truck Brokerage Carrier revenue identified separately in billings to customers and included as a component of Truck Brokerage Carrier revenue were $101,114,000 and $79,898,000 in fiscal years 2011 and 2010, respectively. Fuel surcharges billed to customers on revenue hauled by BCO Independent Contractors are excluded from revenue.
Transportation revenue hauled by rail intermodal, air cargo and ocean cargo carriers (together the “multimode capacity providers”) for fiscal year 2011, which represented 6% of total revenue, was $166,403,000, an increase of $29,936,000, or 22%, compared to fiscal year 2010. The number of loads hauled by multimode capacity providers in fiscal year 2011 increased 7% compared to fiscal year 2010, and revenue per load increased 14% over the same period. The increase in revenue per load on revenue hauled by multimode capacity providers is influenced by many factors including the mode of transportation used, length of haul, complexity of freight, density of freight lanes, fuel costs and availability of capacity.
Purchased transportation was 75.8% and 76.0% of revenue in fiscal years 2011 and 2010, respectively. The decrease in purchased transportation as a percentage of revenue was primarily attributable to reduced less-than-truckload substitute line-haul revenue, which has a higher rate of purchased transportation, partially offset by an increase in the percentage of revenue hauled by Truck Brokerage Carriers excluding less-than-truckload substitute line-haul revenue. Commissions to agents were 7.9% of revenue in fiscal year 2011 and 7.6% of revenue in fiscal year 2010. The increase in commissions to agents as a percentage of revenue was primarily attributable to decreased less-than-truckload substitute line-haul revenue, which typically has a lower commission rate.
Investment income at the insurance segment was $1,705,000 and $1,558,000 in fiscal years 2011 and 2010, respectively. The increase in investment income was primarily due to an increased average rate of return on investments held by the insurance segment, partly offset by a lower average investment balance during fiscal year 2011.
Other operating costs were 6.7% and 7.3% of gross profit in fiscal years 2011 and 2010, respectively. The decrease in other operating costs as a percentage of gross profit was primarily attributable to the effect of increased gross profit and a reduction in certain outsourced logistics services costs in fiscal year 2011. Insurance and claims were 9.9% of gross profit in fiscal year 2011 and 12.5% of gross profit in fiscal year 2010. The decrease in insurance and claims as a percentage of gross profit was primarily due to an increase in the percent of gross profit contributed from revenue hauled by Truck Brokerage Carriers in fiscal year 2011, which has a lower claims risk profile and favorable frequency and severity of accidents in fiscal year 2011. Selling, general and administrative costs were 35.4% of gross profit in fiscal year 2011 and 38.8% of gross profit in fiscal year 2010. The decrease in selling, general and administrative costs as a percentage of gross profit was primarily attributable to the effect of increased gross profit and a lower provision for bonuses under the Company’s incentive compensation plan, partially offset by an increase in the provision for customer bad debt in fiscal year 2011 with a significant portion related to one specific customer. In addition, selling, general and administrative costs included a one-time charge in fiscal year 2010 of $3,800,000 related to the buyout by the Company of its remaining contingent payment obligations relating to an acquisition completed in 2009. Depreciation and amortization was 6.0% of gross profit in fiscal year 2011 and 6.3% of gross profit in fiscal year 2010. The decrease in depreciation and amortization as a percentage of gross profit was primarily due to the effect of increased gross profit in fiscal year 2011.
 
27

Interest and debt expense in fiscal year 2011 was $511,000 lower than fiscal year 2010. The decrease in interest and debt expense was primarily attributable to lower average capital lease obligations and lower average borrowing rates on capital leases, partially offset by increased average borrowings on the Company’s revolving credit facility during fiscal year 2011.
The provisions for income taxes for fiscal years 2011 and 2010 were based on estimated full year combined effective income tax rates of approximately 37.3% and 36.5%, 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, partly offset by recognition of benefits relating to several uncertain tax provisions in both years.
The net losses attributable to noncontrolling interest of $62,000 and $932,000 in fiscal years 2011 and 2010, respectively, represent the noncontrolling investor’s 25% share of the net loss incurred by A3i Acquisition through January 2011. The Company purchased the remaining 25% of A3i Acquisition in January 2011.
Net income attributable to the Company was $113,007,000, or $2.38 per common share ($2.38 per diluted share), in fiscal year 2011. Net income attributable to the Company was $87,514,000, or $1.77 per common share ($1.77 per diluted share), in fiscal year 2010.
Fiscal Year Ended December 25, 2010 Compared to Fiscal Year Ended December 26, 2009
Revenue for 2010 was $2,400,170,000, an increase of $391,374,000, or 19%, compared to 2009. Revenue increased $393,169,000, or 20%, at the transportation logistics segment. The increase in revenue at the transportation logistics segment was primarily attributable to an 11% increase in the number of loads hauled and a higher revenue per load of approximately 8%. Included in 2010 and 2009 were transportation management fees of $17,652,000 and $8,111,000, respectively.
Truck transportation revenue hauled by third-party truck capacity providers for 2010, which represented 92% of total revenue, was $2,209,000,000, an increase of $374,529,000, or 20%, compared to 2009. The number of loads hauled by third-party truck capacity providers in 2010 increased 12% compared to 2009, and revenue per load increased 8% compared to 2009. The increase in the number of loads hauled by third-party truck capacity providers was generally attributable to improved industrial production in the U.S. during 2010 and the impact of market share gains from agents recruited during 2010 and 2009. The increase in revenue per load on revenue hauled by third-party truck capacity providers was generally attributable to increased demand and tighter truck capacity in 2010. Fuel surcharges on Truck Brokerage Carrier revenue identified separately in billings to customers and included as a component of Truck Brokerage Carrier revenue were $79,898,000 and $48,095,000 in 2010 and 2009, respectively. Fuel surcharges billed to customers on revenue hauled by BCO Independent Contractors are excluded from revenue.
Transportation revenue hauled by multimode capacity providers for 2010, which represented 6% of total revenue, was $136,467,000, an increase of $8,665,000, or 7%, compared to 2009. The number of loads hauled by multimode capacity providers in 2010 decreased 12% compared to 2009, while revenue per load increased 22% over the same period. The decrease in the number of loads hauled by multimode capacity providers in 2010 was primarily due to the loss of a small number of Million Dollar Agents in 2009 and 2010 whose businesses were concentrated in rail and air transportation services. The increase in revenue per load on revenue hauled by multimode capacity providers is influenced by many factors including the mode of transportation used, length of haul, complexity of freight, density of freight lanes, fuel costs and availability of capacity.
Purchased transportation was 76.0% and 74.8% of revenue in 2010 and 2009, respectively. The increase in purchased transportation as a percentage of revenue was primarily attributable to increased revenue hauled by Truck Brokerage Carriers, which tends to have a higher cost of purchased transportation, and increased rates of purchased transportation paid to Truck Brokerage Carriers due to increased freight demand and reduced industry wide truck capacity. Commissions to agents were 7.6% of revenue in 2010 and 8.0% of revenue in 2009. The decrease in commissions to agents as a percentage of revenue was primarily attributable to the increased rate of purchased transportation on revenue hauled by Truck Brokerage Carriers.
 
28

Investment income at the insurance segment was $1,558,000 and $1,268,000 in 2010 and 2009, respectively. The increase in investment income was primarily due to an increased average rate of return on investments held by the insurance segment in 2010.
Other operating costs were 7.3% and 8.5% of gross profit in 2010 and 2009, respectively. The decrease in other operating costs as a percentage of gross profit was primarily attributable to the effect of increased gross profit in 2010. Insurance and claims were 12.5% of gross profit in 2010 and 13.3% of gross profit in 2009. The decrease in insurance and claims as a percentage of gross profit was primarily due to the effect of increased gross profit, partially offset by favorable development of prior year claims reported in 2009. Selling, general and administrative costs were 38.8% of gross profit in both 2010 and 2009. Included in selling, general and administrative costs in 2010 was a provision for bonuses under the Company’s incentive compensation plans of $15,093,000, whereas no such provision was included in 2009. In addition, included in selling, general, and administrative costs were $19,185,000 in 2010 and $7,138,000 in 2009 of costs attributable to entities acquired in the 2009 fiscal third quarter. As noted above, the results of entities acquired in the 2009 fiscal third quarter were included in the Company results for the full 2010 fiscal year as compared to approximately half of the 2009 fiscal year. Depreciation and amortization was 6.3% of gross profit in 2010 compared with 6.8% of gross profit in 2009. The decrease in depreciation and amortization as a percentage of gross profit was primarily due to the effect of increased gross profit, partially offset by amortization of identifiable intangible assets attributed to the two entities acquired in July 2009.
Interest and debt expense in 2010 was $407,000 lower than 2009. The decrease in interest and debt expense was primarily attributable to lower average capital lease obligations during 2010, partially offset by increased average borrowings under the Company’s revolving credit facility.
The provisions for income taxes for 2010 and 2009 were based on estimated full year combined effective income tax rates of approximately 36.5% and 36.2% 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, partly offset by a recognition of benefits relating to several uncertain tax positions in both years.
The net loss attributable to noncontrolling interest of $932,000 and $445,000 in 2010 and 2009, respectively, represents the noncontrolling investor’s 25% share of the net losses incurred by A3 Integration, LLC, now known as LSCSLLC.
Net income attributable to the Company was $87,514,000, or $1.77 per common share ($1.77 per diluted share), in 2010. Net income attributable to the Company was $70,395,000, or $1.38 per common share ($1.37 per diluted share), in 2009.
Capital Resources and Liquidity
Working capital and the ratio of current assets to current liabilities were $220,679,000 and 1.7 to 1, respectively, at December 31, 2011, compared with $142,571,000 and 1.5 to 1, respectively, at December 25, 2010 and $167,977,000 and 1.6 to 1, respectively, at December 26, 2009. 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 $118,034,000, $108,758,000, and $144,964,000 in 2011, 2010 and 2009, respectively. The increase in cash flow provided by operating activities for 2011 compared to 2010 was primarily attributable to increased net income and the timing of payments, partially offset by timing of collections of trade receivables. The decrease in cash flow provided by operating activities for 2010 compared to 2009 was primarily attributable to the timing of collections of trade receivables.
 
29

The Company paid $0.21, $0.19, and $0.17 per share, or $9,983,000, $9,422,000 and $8,686,000 in cash dividends during 2011, 2010, and 2009, respectively. It is the intention of the Board of Directors to continue to pay a quarterly dividend. During 2011, the Company purchased 1,206,111 shares of its Common Stock at a total cost of $50,450,000. During 2010 and 2009, the Company purchased 2,652,791 and 1,624,547 shares of its Common Stock at a total cost of $102,736,000 and $55,757,000, respectively. As of December 31, 2011, the Company may purchase up to an additional 516,551 shares of its Common Stock under its authorized stock purchase program. The Company has used cash provided by operating activities and borrowings on the Company’s revolving credit facilities to fund the purchases. Since January 1997, the Company has purchased over $1,025,000,000 of its Common Stock under programs authorized by the Board of Directors of the Company in open market and private block transactions. Long-term debt, including current maturities, was $132,342,000 at December 31, 2011, compared to $121,611,000 at December 25, 2010 and $92,898,000 at December 26, 2009.
Equity was $300,577,000, or 69% of total capitalization (defined as long-term debt including current maturities plus equity), at December 31, 2011, compared to $250,967,000, or 67% of total capitalization, at December 25, 2010 and $268,151,000, or 74% of total capitalization at December 26, 2009. The increase in equity in 2011 over 2010 was primarily a result of net income and the effect of the exercises of stock options during the period, partially offset by the January 2011 purchase of the noncontrolling interest, purchases of shares of the Company’s Common Stock and dividends paid by the Company. The increase in equity in 2010 over 2009 was primarily the result of net income and the effect of the exercises of stock options during the period, partially offset by the purchase of shares of the Company’s Common Stock.
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 (as defined in the Credit Agreement) 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 31, 2011, the Company had $80,000,000 in borrowings outstanding and $33,499,000 of letters of credit outstanding under the Credit Agreement. At December 31, 2011, there was $111,501,000 available for future borrowings under the Credit Agreement. In addition, the Company has $45,165,000 in letters of credit outstanding as collateral for insurance claims that are secured by investments and cash equivalents totaling $50,183,000. Investments, all of which are carried at fair value, include primarily investment-grade corporate bonds and U.S. Treasury obligations having maturities of up to five years. Fair value of investments is based primarily on quoted market prices. See Notes to Consolidated Financial Statements for further discussion on measurement of fair value of investments.
 
30

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 information technology hardware and software. 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 2011, 2010 and 2009, the Company purchased $4,337,000, $27,505,000 and $2,715,000, respectively, of operating property and acquired $34,044,000, $14,986,000 and $12,284,000, respectively, of trailing equipment by entering into capital leases. The Company purchased its primary facility in Jacksonville, Florida in 2010 for $21,135,000. Landstar anticipates acquiring approximately $57,000,000 in operating property, primarily new trailing equipment to replace older trailing equipment, and information technology equipment during fiscal year 2012 either by purchase or lease financing. The Company does not currently anticipate any other significant capital requirements in 2012.
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.
Contractual Obligations and Commitments
At December 31, 2011, 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	 	
Contractual Obligation	  	Total	 	  	Less Than
1 Year	 	  	1-3
Years	 	  	3-5
Years	 	  	More Than
5 Years	 	
Long-term debt obligations	  	$	80,000	  	  	 	 	 	  	$	80,000	  	  	 	 	 	  	 	 	 	
Capital lease obligations	  	 	55,415	  	  	$	18,553	  	  	 	22,425	  	  	$	14,437	  	  	 	 	 	
Operating lease obligations	  	 	8,293	  	  	 	2,661	  	  	 	3,091	  	  	 	1,421	  	  	$	1,120	  	
Purchase obligations	  	 	20,406	  	  	 	17,042	  	  	 	3,025	  	  	 	339	  	  	 	—	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	$	164,114	  	  	$	38,256	  	  	$	108,541	  	  	$	16,197	  	  	$	1,120	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Long-term debt obligations represent borrowings under the Credit Agreement and do not include interest. Capital lease obligations above include $3,073,000 of imputed interest. At December 31, 2011, the Company has gross unrecognized tax benefits of $7,364,000. 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 31, 2011, the Company has insurance claims liabilities of $104,118,000. 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 the consolidated balance sheets primarily on an actuarially determined basis. Included in purchase obligations in the table above is $13,447,000 of obligations related to trailing equipment to replace older trailer equipment.
Off-Balance Sheet Arrangements
As of December 31, 2011, 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.
 
31

Legal Matters
In June 2011, Landstar System, Inc. received a Civil Investigative Demand (the “CID”) from the United States Attorney for the Western District of Kentucky issued pursuant to the False Claims Act. The CID requests documents and written interrogatories limited to freight hauled to or from Fort Campbell, Kentucky by certain subsidiaries of the Company and billed to the U.S. government. The Company submitted its response to the CID in August 2011. Since that time, the Company has cooperated fully, and intends to continue to cooperate fully with the U.S. Attorney.
On September 23, 2011, a jury sitting in a state court in Cobb County, Georgia, entered a damage award of approximately $40.2 million (such amount, plus pre-judgment interest and a portion of plaintiffs’ attorney fees in an amount not yet determined are collectively referred to herein as the “Damage Award”) against Landstar Ranger, Inc., Landstar System Holdings, Inc. and Landstar System, Inc. The Damage Award arises out of an accident that occurred in February, 2007, involving a truck owner-operator leased to Landstar Ranger, Inc. Under the terms of the commercial trucking insurance program that Landstar had in place in 2007, Landstar retained liability for up to $5 million with respect to the accident giving rise to the Damage Award. Landstar has third party insurance in place covering all amounts of the Damage Award in excess of such retention, including all related out-of-pocket expenses, such as the costs of an appeal bond, post-judgment interest and attorney fees comprising the Damage Award. The Company recorded a $5 million charge representing its self-insured retention in respect of this accident in the consolidated financial results of the Company in the 2007 first quarter. Accordingly, the Company’s portion of the Damage Award was previously recorded and therefore did not reduce consolidated operating income or net income for the Company’s 2011 fiscal year. Under the terms of the Company’s insurance policies, the Company is the primary obligor of the amount of the Damage Award, and as such, the Company has reported a $40.2 million receivable from the third party insurance providers in other receivables and a corresponding liability of the same amount in insurance claims in the consolidated balance sheets at December 31, 2011. The Company and its insurers intend to appeal the Damage Award. No assurances can be given regarding the outcome of such appeal, including the impact of the Damage Award on the premiums charged by the Company’s third party insurers for commercial trucking insurance.
The Company is involved in certain claims and pending litigation, including those described herein, 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 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. 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 31, 2011 is appropriate, a prolonged period of low or no economic growth may adversely affect the collection of these receivables. In addition, liquidity concerns and/or unanticipated bankruptcy proceedings at any of the Company’s larger customers in which the Company is carrying a significant receivable could result in an increase in the provision for uncollectible receivables and have a significant impact on the Company’s results of operations in a given quarter or year. However, it is not expected that a provision for uncollectible accounts receivable resulting from an individual customer would have a significant impact on the Company’s financial position. Conversely, a more robust economic environment or the recovery of a previously provided for uncollectible receivable from an individual customer may result in the realization of some portion of the estimated uncollectible receivables.
 
32

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 2011, 2010 and 2009, insurance and claims costs included $505,000, $1,582,000 and $4,113,000, 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 31, 2011.
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.
The Company tests for impairment of goodwill at least annually, typically in the fourth quarter, based on a two-step impairment test. The first step compares the fair value of each reporting unit with its carrying amount, including goodwill. Fair value of each reporting unit is estimated using a discounted cash flow model. The model includes a number of significant assumptions and estimates including future cash flows and discount rates. Such assumptions and estimates necessarily involve management judgments concerning, among other things, future revenues and profitability. If the carrying amount exceeds fair value under the first step of the impairment test, then the second step is performed to measure the amount of any impairment loss. Only the first step of the impairment test was required in 2011 as the estimated fair value of the reporting units exceeded carrying value.
The Company purchased two companies in July 2009, one of which is highly dependent on the U.S. automotive manufacturing industry and one start-up. On the date of the acquisitions, the Company recorded $26,300,000 of goodwill. The two acquired entities are considered one reporting unit as it relates to business valuation. As it relates to goodwill recorded upon the acquisition of these companies in July 2009, should the automotive industry experience a significant downturn and should the Company fail to add customers to the technology platform acquired with the start-up company, the Company could determine that its goodwill is impaired in the future. The Company will continue to monitor the economic environment and test for impairment of goodwill as necessary.
Significant variances from management’s estimates for the amount of uncollectible receivables, the ultimate resolution of self-insured claims, the provision for uncertainty in income tax positions and impairment of goodwill 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.

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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 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 31, 2011 and December 25, 2010, the weighted average interest rate on borrowings outstanding was 1.15% and 1.14%, respectively. During the fourth quarter of 2011 and 2010, the average outstanding balance under the Credit Agreement was approximately $85,296,000 and $87,062,000, respectively. The balance outstanding under the Credit Agreement was $80,000,000 at both December 31, 2011 and December 25, 2010. Assuming that debt levels on the Credit Agreement remain at $80,000,000, the balance at December 31, 2011, 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 $800,000 on an annualized basis. Based on the borrowing rates in the Credit Agreement and the repayment terms, the fair value of the outstanding borrowings as of December 31, 2011 was estimated to approximate carrying value.
Long-term investments, all of which are available-for-sale and are carried at fair value, include primarily investment-grade corporate bonds and U.S. Treasury obligations having maturities of up to five years. The balance of the long-term portion of investments was $40,544,000 and $54,401,000 at December 31, 2011 and December 25, 2010, respectively. Assuming that the long-term portion of investments remains at $40,544,000, the balance at December 31, 2011, 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 corporate bonds and U.S. Treasury obligations. 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 the Company’s Canadian subsidiary at December 31, 2011 were, 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.
 
34

Item 8.	Financial Statements and Supplementary Data	
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)

 	  	Dec. 31,
2011	 	 	Dec. 25,
2010	 	
ASSETS	  	
Current Assets	  	 	 	 	 	 	 	 	
Cash and cash equivalents	  	$	80,900	  	 	$	44,706	  	
Short-term investments	  	 	27,944	  	 	 	23,266	  	
Trade accounts receivable, less allowance of $6,591 and $5,324	  	 	368,377	  	 	 	307,350	  	
Other receivables, including advances to independent contractors, less allowance of $5,384 and $5,511	  	 	53,263	  	 	 	23,943	  	
Deferred income taxes and other current assets	  	 	21,308	  	 	 	21,652	  	
 	  	 	 	 	 	 	 	 	
Total current assets	  	 	551,792	  	 	 	420,917	  	
 	  	 	 	 	 	 	 	 	
Operating property, less accumulated depreciation and amortization of $145,804 and $137,830	  	 	142,146	  	 	 	132,649	  	
Goodwill	  	 	57,470	  	 	 	57,470	  	
Other assets	  	 	57,041	  	 	 	72,846	  	
 	  	 	 	 	 	 	 	 	
Total assets	  	$	808,449	  	 	$	683,882	  	
 	  	 	 	 	 	 	 	 	
LIABILITIES AND EQUITY	  	
Current Liabilities	  	 	 	 	 	 	 	 	
Cash overdraft	  	$	25,905	  	 	$	24,877	  	
Accounts payable	  	 	163,307	  	 	 	137,297	  	
Current maturities of long-term debt	  	 	17,212	  	 	 	22,172	  	
Insurance claims	  	 	76,624	  	 	 	40,215	  	
Other current liabilities	  	 	48,065	  	 	 	53,785	  	
 	  	 	 	 	 	 	 	 	
Total current liabilities	  	 	331,113	  	 	 	278,346	  	
 	  	 	 	 	 	 	 	 	
Long-term debt, excluding current maturities	  	 	115,130	  	 	 	99,439	  	
Insurance claims	  	 	27,494	  	 	 	31,468	  	
Deferred income taxes	  	 	34,135	  	 	 	23,662	  	
Equity	  	 	 	 	 	 	 	 	
Landstar System, Inc. and subsidiary shareholders’ equity:	  	 	 	 	 	 	 	 	
Common stock, $0.01 par value, authorized 160,000,000 shares, issued 66,602,486 and 66,535,169 shares	  	 	666	  	 	 	665	  	
Additional paid-in capital	  	 	165,712	  	 	 	169,268	  	
Retained earnings	  	 	947,156	  	 	 	844,132	  	
Cost of 19,882,289 and 18,674,902 shares of common stock in treasury	  	 	(813,684	) 	 	 	(763,182	) 	
Accumulated other comprehensive income	  	 	727	  	 	 	881	  	
 	  	 	 	 	 	 	 	 	
Total Landstar System, Inc. and subsidiary shareholders’ equity	  	 	300,577	  	 	 	251,764	  	
 	  	 	 	 	 	 	 	 	
Noncontrolling interest	  	 	—	  	 	 	(797	) 	
 	  	 	 	 	 	 	 	 	
Total equity	  	 	300,577	  	 	 	250,967	  	
 	  	 	 	 	 	 	 	 	
Total liabilities and equity	  	$	808,449	  	 	$	683,882	  	
 	  	 	 	 	 	 	 	 	
See accompanying notes to consolidated financial statements.
 
35

LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)

 	  	Fiscal Years Ended	 	
 	  	Dec. 31,
2011	 	 	Dec. 25,
2010	 	 	Dec. 26,
2009	 	
Revenue	  	$	2,649,082	  	 	$	2,400,170	  	 	$	2,008,796	  	
Investment income	  	 	1,705	  	 	 	1,558	  	 	 	1,268	  	
Costs and expenses:	  	 	 	 	 	 	 	 	 	 	 	 	
Purchased transportation	  	 	2,007,102	  	 	 	1,824,308	  	 	 	1,503,520	  	
Commissions to agents	  	 	210,088	  	 	 	181,405	  	 	 	160,571	  	
Other operating costs	  	 	28,865	  	 	 	28,826	  	 	 	29,173	  	
Insurance and claims	  	 	42,766	  	 	 	49,334	  	 	 	45,918	  	
Selling, general and administrative	  	 	152,907	  	 	 	153,080	  	 	 	133,612	  	
Depreciation and amortization	  	 	25,814	  	 	 	24,804	  	 	 	23,528	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Total costs and expenses	  	 	2,467,542	  	 	 	2,261,757	  	 	 	1,896,322	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Operating income	  	 	183,245	  	 	 	139,971	  	 	 	113,742	  	
Interest and debt expense	  	 	3,112	  	 	 	3,623	  	 	 	4,030	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Income before income taxes	  	 	180,133	  	 	 	136,348	  	 	 	109,712	  	
Income taxes	  	 	67,188	  	 	 	49,766	  	 	 	39,762	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Net income	  	 	112,945	  	 	 	86,582	  	 	 	69,950	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Less: Net loss attributable to noncontrolling interest	  	 	(62	) 	 	 	(932	) 	 	 	(445	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Net income attributable to Landstar System, Inc. and subsidiary	  	$	113,007	  	 	$	87,514	  	 	$	70,395	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Earnings per common share attributable to Landstar System, Inc. and subsidiary	  	$	2.38	  	 	$	1.77	  	 	$	1.38	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Diluted earnings per share attributable to Landstar System, Inc. and subsidiary	  	$	2.38	  	 	$	1.77	  	 	$	1.37	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Average number of shares outstanding:	  	 	 	 	 	 	 	 	 	 	 	 	
Earnings per common share	  	 	47,444,000	  	 	 	49,523,000	  	 	 	51,095,000	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Diluted earnings per share	  	 	47,524,000	  	 	 	49,580,000	  	 	 	51,280,000	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Dividends paid per common share	  	$	0.21	  	 	$	0.19	  	 	$	0.17	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	
See accompanying notes to consolidated financial statements.
 
36

LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)

 	  	Fiscal Years Ended	 	
 	  	Dec. 31,
2011	 	 	Dec. 25,
2010	 	 	Dec. 26,
2009	 	
OPERATING ACTIVITIES	  	 	 	 	 	 	 	 	 	 	 	 	
Net income	  	$	112,945	  	 	$	86,582	  	 	$	69,950	  	
Adjustments to reconcile net income to net cash provided by operating activities:	  	 	 	 	 	 	 	 	 	 	 	 	
Depreciation and amortization of operating property and intangible assets	  	 	25,814	  	 	 	24,804	  	 	 	23,528	  	
Non-cash interest charges	  	 	218	  	 	 	219	  	 	 	218	  	
Provisions for losses on trade and other accounts receivable	  	 	7,804	  	 	 	3,916	  	 	 	7,986	  	
Losses (gains) on sales/disposals of operating property, net	  	 	(266	) 	 	 	1,058	  	 	 	(55	) 	
Deferred income taxes, net	  	 	10,071	  	 	 	525	  	 	 	2,419	  	
Stock-based compensation	  	 	5,012	  	 	 	4,769	  	 	 	4,968	  	
Changes in operating assets and liabilities:	  	 	 	 	 	 	 	 	 	 	 	 	
Decrease (increase) in trade and other accounts receivable	  	 	(98,151	) 	 	 	(38,206	) 	 	 	32,780	  	
Decrease (increase) in other assets	  	 	1,871	  	 	 	(1,752	) 	 	 	8,068	  	
Increase (decrease) in accounts payable	  	 	26,010	  	 	 	16,267	  	 	 	(1,634	) 	
Increase (decrease) in other liabilities	  	 	(5,729	) 	 	 	11,200	  	 	 	(13,748	) 	
Increase (decrease) in insurance claims	  	 	32,435	  	 	 	(624	) 	 	 	10,484	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	
NET CASH PROVIDED BY OPERATING ACTIVITIES	  	 	118,034	  	 	 	108,758	  	 	 	144,964	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	
INVESTING ACTIVITIES	  	 	 	 	 	 	 	 	 	 	 	 	
Net change in other short-term investments	  	 	—	  	 	 	1,730	  	 	 	28,024	  	
Sales and maturities of investments	  	 	67,174	  	 	 	39,187	  	 	 	15,932	  	
Purchases of investments	  	 	(58,413	) 	 	 	(65,818	) 	 	 	(49,965	) 	
Purchases of operating property	  	 	(4,337	) 	 	 	(27,505	) 	 	 	(2,715	) 	
Proceeds from sales of operating property	  	 	4,385	  	 	 	1,686	  	 	 	841	  	
Consideration paid for acquisitions	  	 	—	  	 	 	—	  	 	 	(14,888	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES	  	 	8,809	  	 	 	(50,720	) 	 	 	(22,771	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	
FINANCING ACTIVITIES	  	 	 	 	 	 	 	 	 	 	 	 	
Increase (decrease) in cash overdraft	  	 	1,028	  	 	 	(4,042	) 	 	 	(3,146	) 	
Dividends paid	  	 	(9,983	) 	 	 	(9,422	) 	 	 	(8,686	) 	
Proceeds from exercises of stock options	  	 	923	  	 	 	1,660	  	 	 	1,128	  	
Excess (shortfall) tax effect on stock option exercises	  	 	(683	) 	 	 	1,580	  	 	 	773	  	
Borrowings on revolving credit facility	  	 	10,000	  	 	 	40,000	  	 	 	40,000	  	
Purchases of common stock	  	 	(50,450	) 	 	 	(102,736	) 	 	 	(55,757	) 	
Capital contribution from noncontrolling interest	  	 	—	  	 	 	—	  	 	 	580	  	
Principal payments on long-term debt and capital lease obligations	  	 	(33,313	) 	 	 	(26,273	) 	 	 	(110,817	) 	
Purchase of noncontrolling interest	  	 	(8,000	) 	 	 	—	  	 	 	—	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	
NET CASH USED BY FINANCING ACTIVITIES	  	 	(90,478	) 	 	 	(99,233	) 	 	 	(135,925	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Effect of exchange rate changes on cash and cash equivalents	  	 	(171	) 	 	 	182	  	 	 	547	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Increase (decrease) in cash and cash equivalents	  	 	36,194	  	 	 	(41,013	) 	 	 	(13,185	) 	
Cash and cash equivalents at beginning of period	  	 	44,706	  	 	 	85,719	  	 	 	98,904	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents at end of period	  	$	80,900	  	 	$	44,706	  	 	$	85,719	  	

See accompanying notes to consolidated financial statements.
 
37

LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the Fiscal Years Ended December 31, 2011,
December 25, 2010 and December 26, 2009
(Dollars in thousands)

 	 	Landstar System, Inc. and Subsidiary Shareholders	 	 	 	 	 	 	 	 	
 	 	Common Stock	 	 	Additional
Paid-In
Capital	 	 	Retained
Earnings	 	 	Treasury
Stock at Cost	 	 	Accumulated
Other
Comprehensive
Income (Loss)	 	 	Non-
controlling
Interest	 	 	Total	 	 	
 	 	Shares	 	 	Amount	 	 	 	 	 	 	 	 	Shares	 	 	Amount	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
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 ($0.17 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 effect	 	 	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	  	 	 	 	 	 	 	 	
Net income (loss)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	87,514	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(932	) 	 	 	86,582	  	 	 	 	 	 	 	 	
Dividends paid ($0.19 per share)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(9,422	) 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(9,422	) 	 	 	 	 	 	 	 	
Purchases of common stock	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	2,652,791	  	 	 	(102,736	) 	 	 	 	 	 	 	 	 	 	 	(102,736	) 	 	 	 	 	 	 	 	
Exercises of stock options and issuance of non-vested stock, including excess tax effect	 	 	279,811	  	 	 	2	  	 	 	3,238	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	3,240	  	 	 	 	 	 	 	 	
Stock-based compensation	 	 	 	 	 	 	 	 	 	 	4,769	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	4,769	  	 	 	 	 	 	 	 	
Foreign currency translation	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	182	  	 	 	 	 	 	 	182	  	 	 	 	 	 	 	 	
Unrealized gain on available-for-sale investments, net of income taxes	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	201	  	 	 	 	 	 	 	201	  	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance December 25, 2010	 	 	66,535,169	  	 	$	665	  	 	$	169,268	  	 	$	844,132	  	 	 	18,674,902	  	 	$	(763,182	) 	 	$	881	  	 	$	(797	) 	 	$	250,967	  	 	 	 	 	 	 	 	
Net income (loss)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	113,007	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(62	) 	 	 	112,945	  	 	 	 	 	 	 	 	
Dividends paid ($0.21 per share)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(9,983	) 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(9,983	) 	 	 	 	 	 	 	 	
Purchases of common stock	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	1,206,111	  	 	 	(50,450	) 	 	 	 	 	 	 	 	 	 	 	(50,450	) 	 	 	 	 	 	 	 	
Purchase of noncontrolling interest	 	 	 	 	 	 	 	 	 	 	(8,859	) 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	859	  	 	 	(8,000	) 	 	 	 	 	 	 	 	
Exercises of stock options and issuance and vesting of non-vested stock, including shortfall tax effect	 	 	67,317	  	 	 	1	  	 	 	291	  	 	 	 	 	 	 	1,276	  	 	 	(52	) 	 	 	 	 	 	 	 	 	 	 	240	  	 	 	 	 	 	 	 	
Stock-based compensation	 	 	 	 	 	 	 	 	 	 	5,012	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	5,012	  	 	 	 	 	 	 	 	
Foreign currency translation	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(171	) 	 	 	 	 	 	 	(171	) 	 	 	 	 	 	 	 	
Unrealized gain on available-for-sale investments, net of income taxes	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	17	  	 	 	 	 	 	 	17	  	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance December 31, 2011	 	 	66,602,486	  	 	$	666	  	 	$	165,712	  	 	$	947,156	  	 	 	19,882,289	  	 	$	(813,684	) 	 	$	727	  	 	$	—	  	 	$	300,577	  	 	 	 	 	 	 	 	

See accompanying notes to consolidated financial statements.
 
38

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.” 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.

39

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.
Financial Instruments
The Company’s financial instruments include cash equivalents, short and long term investments, trade and other accounts receivable, accounts payable, other accrued liabilities, current and non-current insurance claims and long term debt plus current maturities (“Debt”). The carrying value of cash equivalents, trade and other accounts receivable, accounts payable, current insurance claims and other accrued liabilities approximate fair value as the assets and liabilities are short term in nature. Short and long term investments are carried at fair value as further described in the “Investments” footnote below. The carrying value of non-current insurance claims approximate fair value as the Company generally has the ability to, but is not required to, settle claims in a short term. The Company’s Debt includes borrowings under the Company’s revolving credit facility plus borrowings relating to capital lease obligations used to finance trailing equipment. The interest rates on borrowings under the revolving credit facility are typically tied to short-term LIBOR rates that adjust monthly and, as such, carrying value approximates fair value. Interest rates on borrowings under capital leases approximate the interest rates that would currently be available to the Company under similar terms and, as such, carrying value approximates fair value.
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 specific identification, historical collection results, current economic trends and changes in payment terms. Following is a summary of the activity in the allowance for doubtful accounts for fiscal years ending December 31, 2011, December 25, 2010 and December 26, 2009 (in thousands):

 	  	Balance at
Beginning
of  Period	 	  	Charged to
Costs and
Expenses	 	  	Write-offs,
Net of
Recoveries	 	 	Balance at
End of
Period	 	
For the Fiscal Year Ended December 31, 2011	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	
Trade receivables	  	$	5,324	  	  	$	4,503	  	  	$	(3,236	) 	 	$	6,591	  	
Other receivables	  	 	7,499	  	  	 	3,293	  	  	 	(3,024	) 	 	 	7,768	  	
Other non-current receivables	  	 	312	  	  	 	8	  	  	 	(46	) 	 	 	274	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	
 	  	$	13,135	  	  	$	7,804	  	  	$	(6,306	) 	 	$	14,633	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	
For the Fiscal Year Ended December 25, 2010	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	
Trade receivables	  	$	5,547	  	  	$	1,395	  	  	$	(1,618	) 	 	$	5,324	  	
Other receivables	  	 	6,727	  	  	 	2,516	  	  	 	(1,744	) 	 	 	7,499	  	
Other non-current receivables	  	 	319	  	  	 	5	  	  	 	(12	) 	 	 	312	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	
 	  	$	12,593	  	  	$	3,916	  	  	$	(3,374	) 	 	$	13,135	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	
For the Fiscal Year Ended December 26, 2009	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	
Trade receivables	  	$	6,230	  	  	$	3,801	  	  	$	(4,484	) 	 	$	5,547	  	
Other receivables	  	 	4,866	  	  	 	4,182	  	  	 	(2,321	) 	 	 	6,727	  	
Other non-current receivables	  	 	316	  	  	 	3	  	  	 	 	 	 	 	319	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	
 	  	$	11,412	  	  	$	7,986	  	  	$	(6,805	) 	 	$	12,593	  	

40

LANDSTAR SYSTEM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
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. Buildings and improvements are being depreciated over 30 years. Trailing equipment is being depreciated over 7 years. Hardware and software included in other 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. The Company tests for impairment of goodwill at least annually, typically in the fourth quarter, based on a two-step impairment test. The first step compares the fair value of each reporting unit with its carrying amount, including goodwill. Fair value of each reporting unit is estimated using a discounted cash flow model. The model includes a number of significant assumptions and estimates including future cash flows and discount rates. If the carrying amount exceeds fair value under the first step of the impairment test, then the second step is performed to measure the amount of any impairment loss. Only the first step of the impairment test was required in 2011 as the estimated fair value of the reporting units significantly exceeded carrying value. 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 shares outstanding, including outstanding non-vested 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 non-vested restricted stock, plus the incremental shares that would have been outstanding upon the assumed exercise of all dilutive stock options.
The following table provides a reconciliation of the average number of common shares outstanding used to calculate earnings per common 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	 	
 	  	2011	 	  	2010	 	  	2009	 	
Average number of common shares outstanding	  	 	47,444	  	  	 	49,523	  	  	 	51,095	  	
Incremental shares from assumed exercises of stock options	  	 	80	  	  	 	57	  	  	 	185	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Average number of common shares and common share equivalents outstanding	  	 	47,524	  	  	 	49,580	  	  	 	51,280	  	

41

LANDSTAR SYSTEM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
For the fiscal years ended December 31, 2011, December 25, 2010 and December 26, 2009, there were 220,244, 1,349,313 and 1,895,742 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.
 
(2)	Noncontrolling Interest	
In the Company’s 2009 fiscal third quarter, the Company acquired A3 Integration, LLC and its subsidiaries through A3i Acquisition LLC, an entity in which the Company owned 100% of the non-voting, preferred interests and, from the date of acquisition to January 2011, 75% of the voting, common equity interests. A subsidiary of the Company purchased the remaining 25% of the voting, common equity interests in A3i Acquisition LLC in January 2011.
 
(3)	Comprehensive Income	
The following table includes the components of comprehensive income attributable to Landstar System, Inc. and subsidiary for the fiscal years ended December 31, 2011, December 25, 2010 and December 26, 2009 (in thousands):

 	  	Fiscal Year	 	
 	  	2011	 	 	2010	 	 	2009	 	
Net income attributable to Landstar System, Inc. and subsidiary	  	$	113,007	  	 	$	87,514	  	 	$	70,395	  	
Unrealized holding gains on available-for-sale investments	  	 	26	  	 	 	312	  	 	 	791	  	
Income tax expense on unrealized holding gains on available-for-sale investments	  	 	(9	) 	 	 	(111	) 	 	 	(279	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Net unrealized holding gains on available-for-sale investments	  	 	17	  	 	 	201	  	 	 	512	  	
Foreign currency translation gains (losses)	  	 	(171	) 	 	 	182	  	 	 	547	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Comprehensive income attributable to Landstar System, Inc. and subsidiary	  	$	112,853	  	 	$	87,897	  	 	$	71,454	  	

42

LANDSTAR SYSTEM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The foreign currency translation loss during 2011 represents the unrealized net loss on the translation of the financial statements of the Company’s Canadian operations. The foreign currency translation gains during 2010 and 2009 represent the unrealized net gain 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 31, 2011 of $727,000 represents the unrealized net gain on the translation of the financial statements of the Company’s Canadian operations of $219,000 and the cumulative unrealized holding gains on available-for-sale investments, net of income taxes, of $508,000.
 
(4)	Investments	
Investments include primarily investment-grade corporate bonds and U.S. Treasury obligations having maturities of up to five years (the “bond portfolio”). Investments in the bond portfolio are reported as available-for-sale and are carried at fair value. Investments maturing less than one year from the balance sheet date are included in short-term investments and investments 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 purchase price of an investment over its fair 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. Transfers between levels are recognized as of the beginning of the period. Fair value of the bond portfolio was determined using Level 1 inputs related to U.S. Treasury obligations and money market investments and Level 2 inputs related to investment-grade corporate bonds, mortgage-backed securities and direct obligations of government agencies. Unrealized gains, net of unrealized losses, on the investments in the bond portfolio were $786,000 and $760,000 at December 31, 2011 and December 25, 2010, respectively.
The amortized cost and fair market values of available-for-sale investments are as follows at December 31, 2011 and December 25, 2010 (in thousands):

 	  	Amortized
Cost	 	  	Gross
Unrealized
Gains	 	  	Gross
Unrealized
Losses	 	  	Fair
Market
Value	 	
December 31, 2011	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Money market investments	  	$	1,989	  	  	$	—	  	  	$	—	  	  	$	1,989	  	
Mortgage-backed securities	  	 	3,017	  	  	 	61	  	  	 	18	  	  	 	3,060	  	
Corporate bonds and direct obligations of government agencies	  	 	51,014	  	  	 	819	  	  	 	126	  	  	 	51,707	  	
U.S. Treasury obligations	  	 	11,682	  	  	 	51	  	  	 	1	  	  	 	11,732	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	67,702	  	  	$	931	  	  	$	145	  	  	$	68,488	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
December 25, 2010	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Money market investments	  	$	535	  	  	$	—	  	  	$	—	  	  	$	535	  	
Mortgage-backed securities	  	 	3,458	  	  	 	64	  	  	 	8	  	  	 	3,514	  	
Corporate bonds and direct obligations of government agencies	  	 	60,330	  	  	 	872	  	  	 	151	  	  	 	61,051	  	
U.S. Treasury obligations	  	 	12,584	  	  	 	6	  	  	 	23	  	  	 	12,567	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	76,907	  	  	$	942	  	  	$	182	  	  	$	77,667	  	

43

LANDSTAR SYSTEM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
For those available-for-sale investments with unrealized losses at December 31, 2011 and December 25, 2010, the following table summarizes the duration of the unrealized loss (in thousands):

 	  	Less than 12 months	 	  	12 months or longer	 	  	Total	 	
 	  	Fair Market
Value	 	  	Unrealized
Loss	 	  	Fair Market
Value	 	  	Unrealized
Loss	 	  	Fair Market
Value	 	  	Unrealized
Loss	 	
December 31, 2011	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Mortgage-backed securities	  	$	468	  	  	$	18	  	  	$	—	  	  	$	—	  	  	$	468	  	  	$	18	  	
Corporate bonds and direct obligations of government agencies	  	 	6,067	  	  	 	126	  	  	 	—	  	  	 	—	  	  	 	6,067	  	  	 	126	  	
U.S. Treasury obligations	  	 	591	  	  	 	1	  	  	 	—	  	  	 	—	  	  	 	591	  	  	 	1	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	7,126	  	  	$	145	  	  	$	—	  	  	$	—	  	  	$	7,126	  	  	$	145	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
December 25, 2010	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Mortgage-backed securities	  	$	225	  	  	$	8	  	  	$	—	  	  	$	—	  	  	$	225	  	  	$	8	  	
Corporate bonds and direct obligations of government agencies	  	 	11,615	  	  	 	151	  	  	 	—	  	  	 	—	  	  	 	11,615	  	  	 	151	  	
U.S. Treasury obligations	  	 	774	  	  	 	23	  	  	 	—	  	  	 	—	  	  	 	774	  	  	 	23	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	12,614	  	  	$	182	  	  	$	—	  	  	$	—	  	  	$	12,614	  	  	$	182	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Short-term investments include $27,944,000 in current maturities of investments held by the Company’s insurance segment at December 31, 2011. These short-term investments together with $22,239,000 of the non-current portion of investments included in other assets at December 31, 2011 provide collateral for the $45,165,000 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 investment of these assets is critical to providing collateral, liquidity and earnings with respect to the operation of the Company’s insurance programs.
 
(5)	Income Taxes	
The provisions for income taxes consisted of the following (in thousands):

 	  	Fiscal Year	 	
 	  	2011	 	  	2010	 	 	2009	 	
Current:	  	 	 	 	  	 	 	 	 	 	 	 	
Federal	  	$	53,413	  	  	$	46,164	  	 	$	35,878	  	
State	  	 	3,247	  	  	 	2,199	  	 	 	656	  	
Canadian	  	 	1,023	  	  	 	878	  	 	 	809	  	
 	  	 	 	 	  	 	 	 	 	 	 	 	
 	  	$	57,683	  	  	$	49,241	  	 	$	37,343	  	
 	  	 	 	 	  	 	 	 	 	 	 	 	
Deferred:	  	 	 	 	  	 	 	 	 	 	 	 	
Federal	  	$	9,056	  	  	$	801	  	 	$	2,035	  	
State	  	 	449	  	  	 	(276	) 	 	 	384	  	
 	  	 	 	 	  	 	 	 	 	 	 	 	
 	  	 	9,505	  	  	 	525	  	 	 	2,419	  	
 	  	 	 	 	  	 	 	 	 	 	 	 	
Income taxes	  	$	67,188	  	  	$	49,766	  	 	$	39,762	  	

44

LANDSTAR SYSTEM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Temporary differences and carryforwards which gave rise to deferred tax assets and liabilities consisted of the following (in thousands):

 	  	Dec. 31,
2011	 	  	Dec. 25,
2010	 	
Deferred tax assets:	  	 	 	 	  	 	 	 	
Receivable valuations	  	$	4,570	  	  	$	5,014	  	
Share-based payments	  	 	5,843	  	  	 	5,797	  	
Self-insured claims	  	 	5,940	  	  	 	5,861	  	
Other	  	 	5,316	  	  	 	6,137	  	
 	  	 	 	 	  	 	 	 	
 	  	$	21,669	  	  	$	22,809	  	
 	  	 	 	 	  	 	 	 	
Deferred tax liabilities:	  	 	 	 	  	 	 	 	
Operating property	  	$	38,040	  	  	$	29,084	  	
Other	  	 	8,259	  	  	 	8,284	  	
 	  	 	 	 	  	 	 	 	
 	  	$	46,299	  	  	$	37,368	  	
 	  	 	 	 	  	 	 	 	
Net deferred tax liability	  	$	24,630	  	  	$	14,559	  	
 	  	 	 	 	  	 	 	 	
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	 	
 	  	2011	 	  	2010	 	  	2009	 	
Income taxes at federal income tax rate	  	$	63,047	  	  	$	47,722	  	  	$	38,399	  	
State income taxes, net of federal income tax benefit	  	 	2,424	  	  	 	695	  	  	 	676	  	
Meals and entertainment exclusion	  	 	972	  	  	 	691	  	  	 	870	  	
Share-based payments	  	 	708	  	  	 	550	  	  	 	636	  	
Other, net	  	 	37	  	  	 	108	  	  	 	(819	) 	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Income taxes	  	$	67,188	  	  	$	49,766	  	  	$	39,762	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
As of December 31, 2011 and December 25, 2010, the Company had $5,069,000 and $6,415,000, respectively, 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 31, 2011 and December 25, 2010 there was $2,214,000 and $2,797,000, 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 2012.
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 2007 and prior years. The Company’s wholly owned Canadian subsidiary, Landstar Canada, Inc., is subject to Canadian income and other taxes.
 
45

LANDSTAR SYSTEM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The following table summarizes the rollforward of the total amounts of gross unrecognized tax benefits for fiscal years 2011 and 2010 (in thousands):

 	  	Fiscal Year	 	
 	  	2011	 	 	2010	 	
Gross unrecognized tax benefits — beginning of the year	  	$	9,209	  	 	$	11,966	  	
Gross increases related to current year tax positions	  	 	553	  	 	 	210	  	
Gross increases related to prior year tax positions	  	 	755	  	 	 	412	  	
Gross decreases related to prior year tax positions	  	 	(2,098	) 	 	 	(2,822	) 	
Settlements	  	 	(274	) 	 	 	—	  	
Lapse of statute of limitations	  	 	(781	) 	 	 	(557	) 	
 	  	 	 	 	 	 	 	 	
Gross unrecognized tax benefits — end of the year	  	$	7,364	  	 	$	9,209	  	
 	  	 	 	 	 	 	 	 	
Landstar paid income taxes of $59,442,000 in 2011, $51,542,000 in 2010 and $32,913,000 in 2009.
 
(6)	Operating Property	
Operating property is summarized as follows (in thousands):

 	  	Dec. 31,
2011	 	  	Dec. 25,
2010	 	
Land	  	$	7,982	  	  	$	7,982	  	
Leasehold improvements	  	 	10,180	  	  	 	10,038	  	
Buildings and improvements	  	 	23,875	  	  	 	23,520	  	
Trailing equipment	  	 	204,117	  	  	 	188,176	  	
Other equipment	  	 	41,796	  	  	 	40,763	  	
 	  	 	 	 	  	 	 	 	
 	  	 	287,950	  	  	 	270,479	  	
Less accumulated depreciation and amortization	  	 	145,804	  	  	 	137,830	  	
 	  	 	 	 	  	 	 	 	
 	  	$	142,146	  	  	$	132,649	  	
 	  	 	 	 	  	 	 	 	
Included above is $112,599,000 in 2011 and $114,017,000 in 2010 of operating property under capital leases, $76,603,000 and $70,154,000, respectively, net of accumulated amortization. Landstar acquired operating property by entering into capital leases in the amount of $34,044,000 in 2011, $14,986,000 in 2010 and $12,284,000 in 2009.
 
(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 $1,754,000 in 2011, $1,663,000 in 2010 and $1,598,000 in 2009.
 
46

LANDSTAR SYSTEM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
(8)	Debt	
Long-term debt is summarized as follows (in thousands):

 	  	Dec. 31,
2011	 	  	Dec. 25,
2010	 	
Capital leases	  	$	52,342	  	  	$	41,611	  	
Revolving credit facility	  	 	80,000	  	  	 	80,000	  	
 	  	 	 	 	  	 	 	 	
 	  	 	132,342	  	  	 	121,611	  	
Less current maturities	  	 	17,212	  	  	 	22,172	  	
 	  	 	 	 	  	 	 	 	
Total long-term debt	  	$	115,130	  	  	$	99,439	  	
 	  	 	 	 	  	 	 	 	
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 date of the Credit Agreement.
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 31, 2011, the weighted average interest rate on borrowings outstanding was 1.15%.
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.
The interest rates on borrowings under the revolving credit facility are typically tied to short-term LIBOR rates that adjust monthly and, as such, carrying value approximates fair value. Interest rates on borrowings under capital leases approximate the interest rates that would currently be available to the Company under similar terms and, as such, carrying value approximates fair value.
 
47

LANDSTAR SYSTEM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Landstar paid interest of $3,133,000 in 2011, $3,785,000 in 2010 and $4,398,000 in 2009.
 
(9)	Leases	
The future minimum lease payments under all noncancelable leases at December 31, 2011, principally for trailing equipment, are shown in the following table (in thousands):

 	  	Capital
Leases	 	  	Operating
Leases	 	
2012	  	$	18,553	  	  	$	2,661	  	
2013	  	 	11,574	  	  	 	1,816	  	
2014	  	 	10,851	  	  	 	1,275	  	
2015	  	 	8,574	  	  	 	804	  	
2016	  	 	5,863	  	  	 	617	  	
Thereafter	  	 	—	  	  	 	1,120	  	
 	  	 	 	 	  	 	 	 	
 	  	 	55,415	  	  	$	8,293	  	
 	  	 	 	 	  	 	 	 	
Less amount representing interest (2.3% to 5.9%)	  	 	3,073	  	  	 	 	 	
 	  	 	 	 	  	 	 	 	
Present value of minimum lease payments	  	$	52,342	  	  	 	 	 	
 	  	 	 	 	  	 	 	 	
Total rent expense, net of sublease income, was $1,238,000 in 2011, $356,000 in 2010 and $2,664,000 in 2009.
 
(10)	  Share-Based Payment Arrangements	
Employee Equity Plans
As of December 31, 2011, the Company had two employee equity incentive plans, the 2002 employee stock option and stock incentive plan (the “ESOSIP”) and the 2011 equity incentive plan (the “2011 EIP”). The Company also has a stock compensation plan for members of its Board of Directors (the “Directors Stock Compensation Plan”). The ESOSIP, 2011 EIP and Directors Stock Compensation Plan are each referred to herein as a “Plan,” and, collectively, as the “Plans.” In May 2011, the Company’s shareholders approved the 2011 EIP. The provisions of the 2011 EIP are substantially similar to the provisions of the ESOSIP. 6,000,000 shares of the Company’s Common Stock were authorized for issuance under the 2011 EIP. No further grants can be made under the ESOSIP, including 2,239,117 shares of the Company’s Common Stock previously reserved for issuance under the ESOSIP. Amounts recognized in the financial statements with respect to these Plans are as follows (in thousands):

 	  	Fiscal Years	 	
 	  	2011	 	  	2010	 	  	2009	 	
Total cost of the Plans during the period	  	$	5,012	  	  	$	4,769	  	  	$	4,968	  	
Amount of related income tax benefit recognized during the period	  	 	983	  	  	 	1,194	  	  	 	1,163	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Net cost of the Plans during the period	  	$	4,029	  	  	$	3,575	  	  	$	3,805	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
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.
 
48

LANDSTAR SYSTEM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
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 2011, 2010 and 2009:

 	  	2011	 	 	2010	 	 	2009	 	
Expected volatility	  	 	35.0	% 	 	 	37.0	% 	 	 	38.0	% 	
Expected dividend yield	  	 	0.450	% 	 	 	0.400	% 	 	 	0.400	% 	
Risk-free interest rate	  	 	1.75	% 	 	 	2.50	% 	 	 	1.50	% 	
Expected lives (in years)	  	 	4.0	  	 	 	4.2	  	 	 	4.4	  	
The Company utilizes historical data, including exercise patterns and employee departure behavior, in estimating the term that 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 2011, 2010 and 2009 was $12.06, $12.03 and $12.30, respectively.
The following table summarizes information regarding the Company’s stock options granted under the Plans:

 	  	Options Outstanding	 	  	Options Exercisable	 	
 	  	Number of
Options	 	 	Weighted Average
Exercise Price
per Share	 	  	Number of
Options	 	  	Weighted Average
Exercise Price
per Share	 	
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	  	
Granted	  	 	230,250	  	 	$	37.41	  	  	 	 	 	  	 	 	 	
Exercised	  	 	(424,354	) 	 	$	20.73	  	  	 	 	 	  	 	 	 	
Forfeited	  	 	(67,867	) 	 	$	42.64	  	  	 	 	 	  	 	 	 	
 	  	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	
Options at December 25, 2010	  	 	2,295,831	  	 	$	39.73	  	  	 	936,081	  	  	$	38.85	  	
Granted	  	 	273,000	  	 	$	41.79	  	  	 	 	 	  	 	 	 	
Exercised	  	 	(111,355	) 	 	$	34.84	  	  	 	 	 	  	 	 	 	
Forfeited	  	 	(130,700	) 	 	$	41.48	  	  	 	 	 	  	 	 	 	
 	  	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	
Options at December 31, 2011	  	 	2,326,776	  	 	$	40.11	  	  	 	1,110,743	  	  	$	39.74	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	
The following tables summarize stock options outstanding and exercisable at December 31, 2011:

 	  	Options Outstanding	 	
Range of Exercise Prices Per Share	  	Number
Outstanding	 	  	Weighted Average
Remaining  Contractual
Term (years)	 	  	Weighted Average
Exercise Price
per Share	 	
$14.62 - $15.00	  	 	25,100	  	  	 	1.0	  	  	$	14.62	  	
$15.01 - $25.00	  	 	49,763	  	  	 	2.1	  	  	$	19.64	  	
$25.01 - $35.00	  	 	109,801	  	  	 	3.2	  	  	$	32.60	  	
$35.01 - $40.00	  	 	639,750	  	  	 	6.8	  	  	$	37.92	  	
$40.01 - $44.00	  	 	1,282,118	  	  	 	6.1	  	  	$	42.19	  	
$44.01 - $48.15	  	 	220,244	  	  	 	5.4	  	  	$	45.62	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	 	2,326,776	  	  	 	5.9	  	  	$	40.11	  	

49

LANDSTAR SYSTEM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	Options Exercisable	 	
Range of Exercise Prices Per Share	  	Number
Exercisable	 	  	Weighted Average
Remaining Contractual
Term (years)	 	  	Weighted Average
Exercise Price
per Share	 	
$14.62 - $15.00	  	 	25,100	  	  	 	1.0	  	  	$	14.62	  	
$15.01 - $25.00	  	 	49,763	  	  	 	2.1	  	  	$	19.64	  	
$25.01 - $35.00	  	 	109,801	  	  	 	3.2	  	  	$	32.60	  	
$35.01 - $40.00	  	 	160,383	  	  	 	5.7	  	  	$	37.40	  	
$40.01 - $44.00	  	 	593,952	  	  	 	4.9	  	  	$	42.81	  	
$44.01 - $48.15	  	 	171,744	  	  	 	5.3	  	  	$	45.35	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	 	1,110,743	  	  	 	4.7	  	  	$	39.74	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
At December 31, 2011, the total intrinsic value of options outstanding was $18,179,000. As of December 31, 2011, there were 73,000 stock options that were out-of-the-money based on the year end per share closing market price of $47.92 as reported on the NASDAQ Global Select Market. The remaining stock options outstanding as of December 31, 2011 that were in-the-money had an aggregate intrinsic value of $18,196,000. At December 31, 2011, the total intrinsic value of options outstanding and exercisable was $9,091,000. As of December 31, 2011, there were 44,400 exercisable stock options outstanding that were out-of-the-money based on the year end per share closing market price of $47.92 as reported on the NASDAQ Global Select Market. The remaining exercisable stock options outstanding as of December 31, 2011 that were in-the-money had an intrinsic value of $9,101,000. The total intrinsic value of stock options exercised during 2011, 2010 and 2009 was $1,052,000, $9,657,000 and $3,816,000, respectively.
As of December 31, 2011, there was $8,114,000 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 2.7 years.
The 2011 EIP provides the Compensation Committee of the Board of Directors with the authority to issues shares of Common Stock of the Company, subject to certain vesting and other restrictions on transfer (“restricted stock”). Shares of restricted stock generally are granted under the 2011 EIP subject to vesting in three year annual installments or 100% on the third or fifth anniversary of the date of grant and the shares of restricted stock remain subject to forfeiture unless the grantee remains continuously employed with the Company or a subsidiary thereof through the applicable vesting date. The fair value of each share of non-vested restricted stock issued under the Plans is based on the fair value of a share of the Company’s Common Stock on the date of grant.
The following table summarizes information regarding the Company’s non-vested restricted stock under the Plans:

 	  	Number of
Shares	 	 	Weighted Average
Grant Date
Fair Value	 	
Non-vested restricted stock outstanding at December 25, 2010	  	 	29,854	  	 	$	39.49	  	
Granted	  	 	22,410	  	 	$	44.82	  	
Vested	  	 	(8,333	) 	 	$	42.14	  	
Forfeited	  	 	(2,938	) 	 	$	37.13	  	
 	  	 	 	 	 	 	 	 	
Non-vested restricted stock outstanding at December 31, 2011	  	 	40,993	  	 	$	42.03	  	

50

LANDSTAR SYSTEM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
As of December 31, 2011, there was $1,227,000 of total unrecognized compensation cost related to non-vested shares of restricted stock granted under the Plans. The unrecognized compensation cost related to these non-vested shares of restricted stock is expected to be recognized over a weighted average period of 2.1 years.
As of December 31, 2011, there were 8,324,776 shares of the Company’s Common Stock reserved for issuance under the Plans.
Directors’ Stock Compensation Plan
Upon election or re-election to the Board of Directors for a three year term, outside members of the Board of Directors may receive a grant of such number of restricted shares of the Company’s Common Stock equal to the quotient of $225,000 divided by the fair market value of a share of Common Stock on the date immediately following the date of such Director’s re-election or election to the Board. In 2011 and 2010, 9,510 and 9,954 restricted shares, respectively, were granted to outside Directors upon their re-election to the Board. The restricted shares vest in three equal annual installments on the first three annual anniversary dates of the date of grant. During 2011 and 2010, $242,000 and $98,000, respectively, of compensation cost was recorded for the grant of these restricted shares.
Prior to 2010, under the Directors’ Stock Compensation Plan, outside members of the Board of Directors who were elected or re-elected to the Board received 6,000 shares of Common Stock of the Company, subject to certain restrictions including restrictions on transfer. There were no such shares issued in 2009.
As of December 31, 2011, there were 118,959 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 August 23, 2010, 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 2011 third quarter, the Company completed the purchase of shares authorized for purchase under this program. On August 16, 2011, Landstar System, Inc. announced that it had been authorized by its Board of Directors to purchase up to an additional 1,000,000 shares of its Common Stock from time to time in the open market and in privately negotiated transactions. As of December 31, 2011, Landstar may purchase 516,551 shares of its Common Stock under this authorization. No specific expiration date has been assigned to the August 16, 2011 authorization. During 2011, Landstar purchased a total of 1,206,111 shares of its Common Stock at a total cost of $50,450,000 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 31, 2011, in addition to the $45,165,000 letters of credit secured by investments, Landstar had $33,499,000 of letters of credit outstanding under the Credit Agreement.
In June 2011, Landstar System, Inc. received a Civil Investigative Demand (the “CID”) from the United States Attorney for the Western District of Kentucky issued pursuant to the False Claims Act. The CID requests documents and written interrogatories limited to freight hauled to or from Fort Campbell, Kentucky by certain subsidiaries of the Company and billed to the U.S. government. The Company submitted its response to the CID in August 2011. Since that time, the Company has cooperated fully, and intends to continue to cooperate fully with the U.S. Attorney.
 
51

LANDSTAR SYSTEM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
On September 23, 2011, a jury sitting in a state court in Cobb County, Georgia, entered a damage award of approximately $40.2 million (such amount, plus pre-judgment interest and a portion of plaintiffs’ attorney fees in an amount not yet determined are collectively referred to herein as the “Damage Award”) against Landstar Ranger, Inc., Landstar System Holdings, Inc. and Landstar System, Inc. The Damage Award arises out of an accident that occurred in February, 2007, involving a truck owner-operator leased to Landstar Ranger, Inc. Under the terms of the commercial trucking insurance program that Landstar had in place in 2007, Landstar retained liability for up to $5 million with respect to the accident giving rise to the Damage Award. Landstar has third party insurance in place covering all amounts of the Damage Award in excess of such retention, including all related out-of-pocket expenses, such as the costs of an appeal bond, post-judgment interest and attorney fees comprising the Damage Award. The Company recorded a $5 million charge representing its self-insured retention in respect of this accident in the consolidated financial results of the Company in the 2007 first quarter. Accordingly, the Company’s portion of the Damage Award was previously recorded and therefore did not reduce consolidated operating income or net income for the Company’s 2011 fiscal year. Under the terms of the Company’s insurance policies, the Company is the primary obligor of the amount of the Damage Award, and as such, the Company has reported a $40.2 million receivable from the third party insurance providers in other receivables and a corresponding liability of the same amount in insurance claims in the consolidated balance sheets at December 31, 2011. The Company and its insurers intend to appeal the Damage Award. No assurances can be given regarding the outcome of such appeal, including the impact of the Damage Award on the premiums charged by the Company’s third party insurers for commercial trucking insurance.
The Company is involved in certain claims and pending litigation, including those described herein, 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 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 Class 1 domestic and Canadian railroads, certain short-line railroads and domestic and international airlines and ocean lines. Through this network of agents and capacity providers linked together by Landstar’s information technology systems, Landstar operates a transportation services and supply chain solutions business primarily throughout North America with revenue of $2.6 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 utilizing intellectual property that may be owned by the
 
52

LANDSTAR SYSTEM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Company or licensed from third parties. Such solutions as offered to shippers by the Company may include integrated multi-modal solutions, outsourced logistics, supply chain engineering and warehousing. In the Company’s 2009 fiscal third quarter, the Company acquired LSCSLLC (formerly known as A3 Integration, LLC) and its subsidiaries through A3i Acquisition, an entity which the Company owned 100% of the non-voting, preferred interests and, from the date of acquisition to January 2011, 75% of the voting, common equity interests. In January 2011, the Company purchased the remaining 25% of the voting, common equity interests in A3i Acquisition. In June 2011, the Company merged A3i Acquisition into its parent company, LSCS. 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.
The insurance segment is comprised of Signature Insurance Company, a wholly owned offshore insurance subsidiary, and Risk Management Claim Services, Inc. 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 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 2011, 2010 or 2009. 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 31, 2011, December 25, 2010 and December 26, 2009 (in thousands):

 	  	Transportation
Logistics	 	  	Insurance	 	  	Total	 	
2011	  	 	 	 	  	 	 	 	  	 	 	 	
External revenue	  	$	2,614,739	  	  	$	34,343	  	  	$	2,649,082	  	
Internal revenue	  	 	 	 	  	 	27,544	  	  	 	27,544	  	
Investment income	  	 	 	 	  	 	1,705	  	  	 	1,705	  	
Interest and debt expense	  	 	3,112	  	  	 	 	 	  	 	3,112	  	
Depreciation and amortization	  	 	25,814	  	  	 	 	 	  	 	25,814	  	
Operating income	  	 	156,354	  	  	 	26,891	  	  	 	183,245	  	
Expenditures on long-lived assets	  	 	4,337	  	  	 	 	 	  	 	4,337	  	
Goodwill	  	 	57,470	  	  	 	 	 	  	 	57,470	  	
Capital lease additions	  	 	34,044	  	  	 	 	 	  	 	34,044	  	
Total assets	  	 	647,002	  	  	 	161,447	  	  	 	808,449	  	
 
53

LANDSTAR SYSTEM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 	  	Transportation
Logistics	 	  	Insurance	 	  	Total	 	
2010	  	 	 	 	  	 	 	 	  	 	 	 	
External revenue	  	$	2,366,032	  	  	$	34,138	  	  	$	2,400,170	  	
Internal revenue	  	 	 	 	  	 	27,535	  	  	 	27,535	  	
Investment income	  	 	 	 	  	 	1,558	  	  	 	1,558	  	
Interest and debt expense	  	 	3,623	  	  	 	 	 	  	 	3,623	  	
Depreciation and amortization	  	 	24,804	  	  	 	 	 	  	 	24,804	  	
Operating income	  	 	116,512	  	  	 	23,459	  	  	 	139,971	  	
Expenditures on long-lived assets	  	 	27,505	  	  	 	 	 	  	 	27,505	  	
Goodwill	  	 	57,470	  	  	 	 	 	  	 	57,470	  	
Capital lease additions	  	 	14,986	  	  	 	 	 	  	 	14,986	  	
Total assets	  	 	576,334	  	  	 	107,548	  	  	 	683,882	  	
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	  	
 
54

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 31, 2011 and December 25, 2010, and the related consolidated statements of income, changes in equity and cash flows for each of the fiscal years ended December 31, 2011, December 25, 2010 and December 26, 2009. 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 31, 2011 and December 25, 2010, and the results of their operations and their cash flows for each of the fiscal years ended December 31, 2011, December 25, 2010 and December 26, 2009, 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 31, 2011, 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 24, 2012, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/S/    KPMG LLP	
February 24, 2012
Jacksonville, Florida
Certified Public Accountants
 
55

LANDSTAR SYSTEM, INC. AND SUBSIDIARY
QUARTERLY FINANCIAL DATA
(Dollars in thousands, except per share amounts)
(Unaudited)

 	  	Fourth
Quarter
2011	 	 	Third
Quarter
2011	 	 	Second
Quarter
2011	 	 	First
Quarter
2011	 	
Revenue	  	$	717,522	  	 	$	684,013	  	 	$	675,561	  	 	$	571,986	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating income	  	$	50,950	  	 	$	49,533	  	 	$	48,670	  	 	$	34,092	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income before income taxes	  	$	50,178	  	 	$	48,798	  	 	$	47,893	  	 	$	33,264	  	
Income taxes	  	 	17,546	  	 	 	18,640	  	 	 	18,295	  	 	 	12,707	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	  	$	32,632	  	 	$	30,158	  	 	$	29,598	  	 	$	20,557	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Less: Net loss attributable to noncontrolling interest	  	 	—	  	 	 	—	  	 	 	—	  	 	 	(62	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income attributable to Landstar System, Inc. and subsidiary	  	$	32,632	  	 	$	30,158	  	 	$	29,598	  	 	$	20,619	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings per common share attributable to Landstar System, Inc. and subsidiary(1)	  	$	0.70	  	 	$	0.64	  	 	$	0.62	  	 	$	0.43	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted earnings per share attributable to Landstar System, Inc. and subsidiary(1)	  	$	0.70	  	 	$	0.64	  	 	$	0.62	  	 	$	0.43	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Dividends paid per common share	  	$	0.055	  	 	$	0.055	  	 	$	0.050	  	 	$	0.050	  	

 	  	Fourth
Quarter
2010	 	 	Third
Quarter
2010	 	 	Second
Quarter
2010	 	 	First
Quarter
2010	 	
Revenue	  	$	587,535	  	 	$	622,826	  	 	$	641,721	  	 	$	548,088	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating income	  	$	35,808	  	 	$	35,886	  	 	$	39,982	  	 	$	28,295	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income before income taxes	  	$	34,884	  	 	$	34,851	  	 	$	39,172	  	 	$	27,441	  	
Income taxes	  	 	11,005	  	 	 	13,315	  	 	 	14,962	  	 	 	10,484	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	  	$	23,879	  	 	$	21,536	  	 	$	24,210	  	 	$	16,957	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Less: Net loss attributable to noncontrolling interest	  	 	(220	) 	 	 	(266	) 	 	 	(227	) 	 	 	(219	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income attributable to Landstar System, Inc. and subsidiary	  	$	24,099	  	 	$	21,802	  	 	$	24,437	  	 	$	17,176	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings per common share attributable to Landstar System, Inc. and subsidiary(1)	  	$	0.50	  	 	$	0.44	  	 	$	0.49	  	 	$	0.34	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted earnings per share attributable to Landstar System, Inc. and subsidiary(1)	  	$	0.50	  	 	$	0.44	  	 	$	0.49	  	 	$	0.34	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Dividends paid per common share	  	$	0.050	  	 	$	0.050	  	 	$	0.045	  	 	$	0.045	  	

(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.	
 
56

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 31, 2011 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 31, 2011. 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
 
57

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.
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 31, 2011.
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 31, 2011, 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
 
58

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 31, 2011, 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 31, 2011, 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 31, 2011 and December 25, 2010, and the related consolidated statements of income, changes in equity, and cash flows for each of the fiscal years ended December 31, 2011, December 25, 2010 and December 26, 2009, and our report dated February 24, 2012, expressed an unqualified opinion on those consolidated financial statements.
/S/ KPMG LLP
February 24, 2012
Jacksonville, Florida
Certified Public Accountants
 
59

(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
 
60

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.
 
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.
 
61

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 Statements of Changes in Equity	  	 	37	  	
Notes to Consolidated Financial Statements	  	 	38	  	
Report of Independent Registered Public Accounting Firm	  	 	53	  	
(2) Financial Statement Schedules
Financial statement schedules 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 February 21, 2011. (Incorporated by reference to Exhibit 3.2 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 25, 2010 (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:	
 
62

 	 	 	
Exhibit
No.	  	Description	
  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, 2012.	
  10.4+	  	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))	
  10.5+*	  	Landstar System, Inc. 2011 Equity Incentive Plan, as amended through November 29, 2011	
  10.6+	  	Directors Stock Compensation Plan, as amended and restated as of February 22, 2010 (Incorporated by reference to Exhibit 10.7 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 26, 2009 (Commission File No. 0-21238))	
  10.7+	  	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))	
  10.8+	  	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))	
  10.9+	  	Form of Amendment to Key Executive Employment Protection Agreement between Landstar System, Inc. and each of the Executive Officers of the Company (Incorporated by reference to Exhibit 10.12 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 27, 2008 (Commission File No. 0-21238))	
  10.10+	  	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))	
  10.11+	  	Letter Agreement, dated January 3, 2012, 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 January 3, 2012 (Commission File No. 0-21238))	
  10.12+	  	Consulting Services Agreement, dated as of December 18, 2009, between Landstar System, Inc. and Jeffrey C. Crowe (Incorporated by reference to Exhibit 10.13 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 26, 2009 (Commission File No. 0-21238))	
(21)	  	Subsidiaries of the Registrant:	
  21.1*	  	List of Subsidiaries 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:	
 
63

 	 	 	
Exhibit
No.	 	Description	
    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	
  101.INS**	 	XBRL Instance Document	
  101.SCH**	 	XBRL Schema Document	
  101.CAL**	 	XBRL Calculation Linkbase Document	
  101.LAB**	 	XBRL Labels Linkbase Document	
  101.PRE**	 	XBRL Presentation Linkbase Document	
  101.DEF**	 	XBRL Definition Linkbase Document	
 
   +	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.
 
64

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.

Date: February 24, 2012	 	 	 	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	
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 24, 2012	
 	 	 	
/s/    JAMES B. GATTONI        
James B. Gattoni	  	Vice President and
Chief Financial Officer;
Principal Accounting Officer	 	February 24, 2012	
 	 	 	
*
David G. Bannister	  	Director	 	February 24, 2012	
 	 	 	
*
Jeffrey C. Crowe	  	Director	 	February 24, 2012	
 	 	 	
*
William S. Elston	  	Director	 	February 24, 2012	
 	 	 	
*
Michael A. Henning	  	Director	 	February 24, 2012	
 	 	 	
*
Diana M. Murphy	  	Director	 	February 24, 2012	

 	 	
By:	 	/s/    MICHAEL K. KNELLER        	
 	 	Michael K. Kneller	
 	 	Attorney In Fact*	
 
65

Exhibit 10.3
LANDSTAR SYSTEM, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
As Amended and Restated Effective January 1, 2012
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 amended and restated the Plan effective January 1, 2010, to make certain additional changes, and now wishes to amend and restate the Plan effective January 1, 2012, to make further 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, 2012 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, 2012.

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.
Notwithstanding the foregoing, any election made with respect to the 2012 Plan Year (or the election made with respect to any later Plan Year if no election is made with respect to the 2012 Plan Year) shall apply to all Deferral Contributions and Matching Contributions (and earnings on such contributions) credited to his or her Individual Account for such Plan Year and all subsequent Plan Years, subject to the Participant’s ability to change such election pursuant to Section 2.4.

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 or begin to 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).
Notwithstanding the foregoing, any election made with respect to the 2012 Plan Year (or the election made with respect to any later Plan Year if no election is made with respect to the 2012 Plan Year) shall apply to all Deferral Contributions and Matching Contributions (and earnings on such contributions) credited to his or her Individual Account for such Plan Year and all subsequent Plan Years, subject to the Participant’s ability to change such election pursuant to Section 2.4.
2.4. Changing Elections. With respect to Deferral Contributions and Matching Contributions credited to a Participant’s Individual Account on or after January 1, 2012 (and earnings on such contributions), the Participant may change the form elected under Section 2.2 or the timing elected under Section 2.3; provided, however, that such election to change the form or timing is subject to the following rules:
(a) the new election must be made at least 12 months prior to the date the distribution is scheduled to be paid to the Participant in accordance with his or her election under Section 2.3;
(b) the new payment date will be at least five (5) years from the date such distribution was originally scheduled to be paid in accordance with the Participant’s election under Section 2.3; and
(c) the new election is irrevocable, but will not take effect until 12 months after the date on which the election is made.
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 with respect to elections made prior to January 1, 2012 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 10.5
LANDSTAR SYSTEM, INC.
2011 EQUITY INCENTIVE PLAN
As amended through November 29, 2011
SECTION 1.
PURPOSE
The purpose of the Plan is to foster and promote the long-term financial success of the Company and materially increase shareholder value by ( a ) motivating superior performance by means of performance-related incentives, ( b ) encouraging and providing for the acquisition of an ownership interest in the Company by Employees, and ( c ) enabling the Company to attract and retain the services of an outstanding management team upon whose judgment, interest, and special effort the successful conduct of its operations is largely dependent.
SECTION 2.
DEFINITIONS
2.1 Definitions. Whenever used herein, the following terms shall have the respective meanings set forth below:
(a) “Act” means the Securities Exchange Act of 1934, as amended.
(b) “Award” means any grant or award pursuant to Sections 6 through 10 of the Plan.
(c) “Award Agreement” means an agreement between the Company and a Participant, setting forth the terms and conditions relating to an Award granted under the Plan.
(d) “Board” means the Board of Directors of the Company.
(e) “Cause” means (i) the willful failure by the Participant to perform substantially his duties as an Employee of the Company (other than due to physical or mental illness) after reasonable notice to the Participant of such failure, (ii) the Participant’s engaging in serious misconduct that is injurious to the Company or any Subsidiary, (iii) the Participant’s having been convicted of, or entered a plea of nolo contendere to, a crime that constitutes a felony or (iv) the breach by the Participant of any material written policy of the Company or any Subsidiary, or any written covenant or agreement with the Company or any Subsidiary not to disclose any information pertaining to the Company or any Subsidiary or not to compete or interfere with the Company or any Subsidiary.
(f) “Change in Control” means the occurrence of any of the following events:
any “person” including a “group” (as such terms are used in Sections 13(d) and 14(d)(2) of the Act, but excluding the Company, any of its Subsidiaries, any employee benefit plan of the Company or any of its Subsidiaries) is or becomes the “beneficial owner” (as defined in Rule 13(d)(3) under the Act), directly or indirectly, of securities of the Company representing 35% or more of the combined voting power of the Company’s then outstanding securities; or the consummation of a (a) merger or other business combination of the Company with or into another corporation, a majority of the directors of which were not directors of the Company immediately prior to the merger and in which the stockholders of the Company immediately prior to the effective date of such merger directly or indirectly own less than 50% of the voting power in such corporation or (b) sale or other disposition in a transaction or a series of related transactions of all or substantially all of the assets of the Company; provided that if a Participant’s employment with the Company is terminated between the date the stockholders of the Company approve a transaction described in the preceding clauses (a) or (b) and the date of the consummation of such transaction, such Participant shall be entitled to the provisions of Section 11 as if such Participant had remained continuously employed through the date of such consummation; or the purchase of Stock pursuant to any tender or exchange offer made by any “person,” including a “group” (as such terms are used in Sections 13(d) and 14(d)(2) of the Act), other than the Company, any of its Subsidiaries, an employee benefit plan of the Company or any of its Subsidiaries, for 35% or more of the Stock of the Company.

(g) “Change in Control Price” means the price per share of Stock paid in conjunction with any transaction resulting in a Change in Control (as determined in good faith by the Committee if any part of the offered price is payable other than in cash) provided, however that to the extent necessary to comply with Section 409A of the Code, the Change in Control Price should not exceed the fair market value of the Stock.
(h) “Code” means the Internal Revenue Code of 1986, as amended.
(i) “Committee” means the Compensation Committee of the Board, which is expected to consist of two or more “outside directors” within the meaning of Section 1-162-27(e) of the Treasury Regulations issued pursuant to Section 162(m) of the Code, each of whom is “independent” under the NASDAQ/NMS requirements.
(j) “Company” means Landstar System, Inc., a Delaware corporation, and any successor thereto.
(k) “Disability” means total disability as determined in accordance with the terms of the long-term disability plan of the Company or any of its Subsidiaries in which the Participant is eligible to participate, provided, that in the case of any Award subject to Section 409A of the Code, Disability shall have the meaning set forth in Section 409A of the Code.
(l) “Effective Date” means the date, following adoption of this Plan by the Board, on which this Plan is approved by a majority of the votes cast at a duly constituted meeting of the shareholders of the Company.
(m) “Employee” means any officer or other key executive and management employee of the Company or any of its Subsidiaries.
(n) “Fair Market Value” means, on any date, the average of the bid and asked for price of a share of Stock as reported on the National Association of Securities Dealers Automated Quotation/National Market System (or on such other recognized market or quotation system on which the trading prices of the Stock are traded or quoted at the relevant time) on such date. In the event that there are no Stock transactions reported on NASDAQ/NMS (or such other system) on such date, Fair Market Value shall mean the closing price on the immediately preceding date on which Stock transactions were so reported.
(o) “Net Exercise” means the exercise of an Option or any portion thereof by the delivery of the greatest number of whole shares of 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 Stock subject to the Option (or the portion of such Option then being exercised) and the aggregate exercise price for all such shares of 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.
(p) “Option” means the right to purchase Stock at a stated price for a specified period of time. For purposes of the Plan, an Option may be either (i) an “Incentive Stock Option” within the meaning of Section 422 of the Code or (ii) a “Nonstatutory Stock Option.”
(q) “Participant” means any Employee designated by the Committee to receive an Award under the Plan.
(r) “Performance Criteria” means the objectives established by the Committee pursuant to Section 9 of the Plan for the purpose of determining the extent to which a Performance Related Award has been earned or vested.
(s) “Performance Related Award” means Performance Related Cash Awards or Performance Related Stock Awards that vest (in whole or in part) upon the achievement of specified Performance Criteria.
(t) “Plan” means the Landstar System, Inc. 2011 Equity Incentive Plan, as in effect from time to time.
(u) “Restricted Stock” means shares of Stock contingently granted to a Participant under Section 8 of the Plan.
(v) “Restriction Period” means the period of time selected by the Committee during which a grant of Restricted Stock is subject to forfeiture and/or restrictions on transfer pursuant to the terms of the Plan.
(w) “Retirement” means termination of a Participant’s employment on or after the date the Participant attains age 62.
(x) “Stock” means the common stock of the Company, par value $0.01 per share.
(y) “Stock Appreciation Right” or “SAR” means the right to receive a payment from the Company in cash and/or shares of Stock equal to the product of (i) the excess, if any, of the Fair Market Value of one share of Stock on the exercise date over a specified price fixed by the Committee on the grant date, multiplied by (ii) a stated number of shares of Stock. The number of shares to be

issued shall be calculated on the basis of the Fair Market Value of the shares at the time of exercise. Notwithstanding the foregoing, the Committee may elect, at any time and from time to time, in lieu of issuing all or any portion of the shares of Stock otherwise issuable upon any exercise of any such SAR, to pay the grantee an amount in cash or other marketable property of a value equivalent to the aggregate Fair Market Value at the time of exercise to the number of shares of Stock that the Committee is electing to settle in cash or other marketable property.
(z) “Stock Based Award” means an Award described in Section 10 of the Plan.
(aa) “Subsidiary” means any corporation or partnership in which the Company owns, directly or indirectly, 50% or more of the total combined voting power of all classes of stock of such corporation or of the capital interest or profits interest of such partnership.
(bb) “Unit Award” means a Restricted Stock Unit Award granted pursuant to Section 8 of the Plan or a Performance Related Stock Award granted pursuant to Section 9 of the Plan, in each case, representing a contractual right to receive a share of Stock (or the cash equivalent thereof) upon the satisfaction, in whole or in part, of the terms and conditions applicable to such Award. Unless otherwise determined by the Committee and set forth in the applicable Award Agreement, Unit Awards shall be settled upon the satisfaction or waiver of such Unit Award’s terms and conditions. Unless otherwise determined by the Committee and set forth in the applicable Award Agreement, the holder of a Unit Award shall not be entitled to receive dividends with respect to any shares of Stock underlying such Unit Awards.
2.2 Gender and Number. Except when otherwise indicated by the context, words in the masculine gender used in the Plan shall include the feminine gender, the singular shall include the plural, and the plural shall include the singular.
SECTION 3.
ELIGIBILITY AND PARTICIPATION
Participants in the Plan shall be those Employees selected by the Committee to participate in the Plan. The selection of an Employee as a Participant shall neither entitle such Employee to, nor disqualify such Employee from, participation in any other award or incentive plan.
SECTION 4.
POWERS OF THE COMMITTEE
4.1 Power to Grant. The Committee shall determine the Participants to whom Awards shall be granted and the terms and conditions of any and all such Awards. The Chairman of the Board may suggest to the Committee the Participants who should receive Awards under the Plan. The terms and conditions of each Award shall be determined by the Committee at the time of grant, and such terms and conditions shall not be subsequently changed in a manner which would be adverse to participants without the consent of the Participant to whom such Award has been granted. The Committee may establish different terms and conditions for different Participants receiving Awards and for the same Participant for each Award such Participant may receive, whether or not granted at different times.
4.2 Administration. The Committee shall be responsible for the administration of the Plan. The Committee, by majority action thereof, is authorized to prescribe, amend and rescind rules and regulations relating to the Plan and any Award thereunder, to establish the person(s) to whom Awards shall be payable or exercisable upon the death of a Participant, to provide for conditions deemed necessary or advisable to protect the interests of the Company, and to make all other determinations necessary or advisable for the administration and interpretation of the Plan in order to carry out its provisions and purposes. Determinations, interpretations, or other actions made or taken by the Committee pursuant to the provisions of the Plan shall be final, binding, and conclusive for all purposes and upon all persons.
SECTION 5.
STOCK SUBJECT TO PLAN
5.1 Number. Subject to the provisions of Section 5.3, the number of shares of Stock subject to Awards under the Plan may not exceed 6,000,000 shares of Stock. The shares to be delivered under the Plan may consist, in whole or in part, of treasury Stock or authorized but unissued Stock, not reserved for any other purpose. Any shares of Stock issued in connection with an Option or SAR

shall be counted against the limit as one (1) share of Stock issued; for Awards other than Options and SARs, any shares of Stock issued shall be counted against this limit as two shares of Stock for every one (1) share issued. The maximum number of shares of Stock that may be granted in the form of Incentive Stock Options shall be 6,000,000. The maximum number of shares of Stock available for issuance under the Plan shall not be reduced to reflect any dividends or dividend equivalents that are reinvested into additional shares of Stock or credited as additional Restricted Stock or Stock Based Awards.
5.2 Cancelled, Terminated, Settled or Forfeited Awards. Any shares of Stock subject to any portion of any Award granted under the Plan or any Award granted under the Landstar System, Inc. 2002 Amended and Restated Stock Option and Stock Incentive Plan (the “ Prior Plan ”) which is cancelled, forfeited or otherwise expires without having been exercised, in the case of an Option or SAR, or having become vested, in the case of any other Award shall again be available for grant under the Plan. For purposes of applying the share limit set forth in Section 5.1, upon the Net Exercise of any Options or the exercise of any SAR (whether granted under the Plan or granted under the Prior Plan), the gross number of shares of Stock as to which such Option or SAR is being exercised, and not just the net number of shares of Stock delivered upon such exercise, shall be treated as having been issued pursuant to the Plan or the Prior Plan, as applicable.
5.3 Adjustment in Capitalization. In the event of any Stock dividend or Stock split, 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, the aggregate number of shares of Stock reserved for issuance under the Plan, the number and Option price of shares subject to outstanding Options or SARs granted under the Plan, and the number of shares subject to other outstanding Awards granted under the Plans may be appropriately adjusted by the Committee, in its sole discretion, and whose determination shall be conclusive.
SECTION 6.
STOCK OPTIONS
6.1 Grant of Options. Options may be granted to Participants alone, in addition to, or in tandem with other Awards granted under the Plan, at such time or times as shall be determined by the Committee. Options granted under the Plan may be of two types: ( i ) Incentive Stock Options and ( ii ) Nonstatutory Stock Options. The Committee shall have complete discretion in determining the number of Options, if any, to be granted to a Participant, provided that no Participant shall receive more than 400,000 shares of Stock subject to Options and/or SARs during any fiscal year of the Company. Each Option shall be evidenced by an Award Agreement that shall specify the type of Option granted, the exercise price, the duration of the Option, the number of shares of Stock to which the Option pertains, and such other terms and conditions not inconsistent with the Plan as the Committee shall determine. Notwithstanding any other Plan provision, no Incentive Stock Option may be granted on or after the tenth anniversary of the date the Plan was first adopted by the Board.
6.2 Option Price. Nonstatutory Stock Options and Incentive Stock Options granted pursuant to the Plan shall have an exercise price which is not less than the Fair Market Value on the date the Option is granted. Without the express approval of the Company’s stockholders, except as otherwise provided in Section 5.3, the Committee shall not be entitled to amend or otherwise modify any Option to lower the option price per share below the Fair Market Value on the date of grant, or to issue any replacement Option or similar Award in exchange for an Option with a higher exercise price.
6.3 Exercise of Options. Options awarded to a Participant under the Plan shall be exercisable at such times and shall be subject to such restrictions and conditions including the performance of a minimum period of service or the satisfaction of performance goals, as the Committee may impose either at or after the time of grant of such Options, subject to the Committee’s right to accelerate the exercisability of such Option in its discretion. Notwithstanding the foregoing, no Option shall be exercisable more than 10 years after the date on which it is granted.
6.4 Payment. The Committee 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. The Committee may, in its discretion, permit a Participant to 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, the Committee may permit a Participant to Net Exercise any Nonstatutory Stock Option. 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 Participant a certificate or certificates representing the acquired shares of Stock.
6.5 Incentive Stock Options. Notwithstanding anything in the Plan to the contrary, no term of the Plan relating to Incentive Stock Options shall be interpreted, amended or altered, nor shall any discretion or authority granted under the Plan be so exercised, so as to disqualify the Plan under Section 422 of the Code, or, without the consent of any Participant affected thereby, to cause any Incentive Stock Option previously granted to fail to qualify for the Federal income tax treatment afforded under Section 421 of the Code.

6.6 Termination of Employment Due to Retirement. Unless otherwise determined by the Committee at or after the time of grant, in the event a Participant’s employment terminates by reason of Retirement, any Options granted to such Participant which are then outstanding (whether or not exercisable prior to the date of such termination) may be exercised at any time prior to the expiration of the term of the Options or within one (1) year (or such other period as the Committee shall determine at or after the time of grant) following the Participant’s termination of employment, whichever period is shorter.
6.7 Termination of Employment Due to Death or Disability. Unless otherwise determined by the Committee at or after the time of grant, in the event a Participant’s employment terminates by reason of death or Disability, any Options granted to such Participant which are then outstanding (whether or not exercisable prior to the date of such termination) may be exercised by the Participant or the Participant’s designated beneficiary (in accordance with procedures as may be determined by the Committee at or after the time of grant) and if none is named, at any time prior to the expiration date of the term of the options or within one ( 1 ) year (or such other period as the Committee shall determine at or after the time of grant) following the Participant’s termination of employment, whichever period is shorter.
6.8 Termination of Employment for Cause. Unless otherwise determined by the Committee at or after the time of grant, in the event a Participant’s employment is terminated for Cause, any Options granted to such Participant which are then outstanding (whether or not exercisable prior to the date of such termination) shall be forfeited.
6.9 Termination of Employment for Any Other Reason. Unless otherwise determined by the Committee at or after the time of grant, in the event the employment of the Participant shall terminate for any reason other than one described in Section 6.6, 6.7, or 6.8, any Options granted to such Participant which are exercisable at the date of the Participant’s termination of employment shall be exercisable at any time prior to the expiration of the term of such Options or the thirtieth day following the Participant’s termination of employment, whichever period is shorter.
SECTION 7.
STOCK APPRECIATION RIGHTS
7.1 Grant. Stock Appreciation Rights may be granted alone, in addition to, or in tandem with, other Awards granted under the Plan. Any Stock Appreciation Right granted under the Plan shall be in such form as the Committee may from time to time approve. Stock Appreciation Rights may be granted in conjunction with all or part of any Option granted under the Plan. In the case of a Nonstatutory Stock Option, such rights may be granted either at or after the time of the grant of such Option. In the case of an Incentive Stock Option, unless the Participant otherwise consents, such rights may be granted only at the time of grant of such Option. Stock Appreciation Rights shall be subject to such terms and conditions, not inconsistent with the provisions of the Plan, as shall be determined from time to time by the Committee.
7.2 Exercisability. Stock Appreciation Rights shall be exercisable at such time and subject to such conditions as the Committee shall specify, except that any Stock Appreciation Right granted in tandem with an Option (or portion thereof) shall be exercisable only at such time or times and to the extent that the Options to which they relate shall be exercisable, including in the event of the termination of the Participant’s employment, in accordance with the provisions of Section 6 of the Plan. Any Stock Appreciation Right granted on a stand-alone basis shall be subject to the same rules regarding exercisability (including those pertaining to periods following termination of employment) that apply to Options under Section 6.
7.3 Shares Delivered on Exercise. Upon the exercise of a Stock Appreciation Right, a grantee shall be entitled to receive an amount in shares of Stock (or, solely to the extent determined by the Committee, cash) equal in value to the excess of the Fair Market Value (at the time of exercise) of one share of Stock over the base price per share specified with respect to the Stock Appreciation Right, multiplied by the number of shares in respect of which the Stock Appreciation Right shall have been exercised. When payment is to be made in shares, the number of shares to be paid shall be calculated on the basis of the Fair Market Value of the shares at the time of exercise. Notwithstanding anything in this Section 7.3 to the contrary, the base price in respect of any Stock Appreciation Right shall not be less than the Fair Market Value of the Stock at the time the Stock Appreciation Right is granted, or in the case of a Stock Appreciation Right granted in tandem with an Option, the Fair Market Value of the Stock at the time the related Option was granted. Without the express approval of the Company’s stockholders, except as otherwise provided in Section 5.3, the Committee shall not be entitled to amend or otherwise modify any Stock Appreciation Right to lower the exercise price below the applicable Fair Market Value established under the preceding sentence, or to issue any replacement Stock Appreciation Right or similar Award in exchange for a Stock Appreciation Right with a higher base price.
7.4 Exercise of SARs. A Stock Appreciation Right may be exercised by a grantee, subject to Section 7.3, in accordance with the procedures established by the Committee from time to time for such purposes. Upon such exercise, the grantee shall be entitled to receive an amount determined in the manner prescribed in Section 7.3.

7.5 Exercise of Tandem Option. A Stock Appreciation Right or applicable portion thereof granted with respect to a given Option shall terminate and no longer be exercisable upon the termination or upon the exercise of the related Option (and similarly the related Option shall no longer be exercisable upon the exercise or termination of the related Stock Appreciation Right), subject to such provisions as the Committee may specify at grant where a Stock Appreciation Right is granted with respect to less than the full number of shares covered by a related Option.
SECTION 8.
RESTRICTED STOCK
8.1 Administration. Restricted Stock and Restricted Stock Unit Awards may be issued either alone, in addition to, or in tandem with, other Awards granted under the Plan and/or awards made outside of the Plan. The Committee shall determine the eligible persons to whom, and the time or times at which, grants of Restricted Stock and/or Restricted Stock Unit Awards will be made, the number of shares to be awarded, the price (if any) to be paid by the recipient of Restricted Stock and/or Restricted Stock Unit Awards, the time or times within which such Awards may be subject to forfeiture, and all other terms and conditions of the Awards. The Committee may condition the grant of Restricted Stock and/or Restricted Stock Unit Awards upon the attainment of specified Performance Criteria or such other factors as the Committee may determine, in its sole discretion. The provisions of Restricted Stock and Restricted Stock Unit Awards need not be the same with respect to each recipient. The shares of Restricted Stock and the Restricted Stock Unit Awards awarded pursuant to this Section 8 shall be subject to the terms and conditions set forth herein.
8.2 Restriction Period. Subject to the provisions of this Plan and the Award Agreement, during the Restriction Period for any Restricted Stock or Restricted Stock Unit Award, the Participant shall not be permitted to sell, transfer, pledge or assign shares or units awarded under such Award. Where the Restriction Period will lapse or expire based on service, the Restriction Period shall be at least three (3) years, provided that such Restriction Period may lapse ratably over such minimum three-year period and may be waived in the event of death, Disability, Retirement or a Change in Control. Where the Restriction Period will lapse or expire based on performance objectives, the Restriction Period shall be at least one (1) year, but may be waived in the event of death, Disability, Retirement or a Change of Control. Subject to the two immediately preceding sentences, the Committee, in its sole discretion, may provide for the lapse of any restrictions imposed on any Restricted Stock and/or Restricted Stock Unit Award in installments and may accelerate or waive such restrictions in whole or in part, based on service, Performance Criteria and/or such other factors as the Committee may determine, in its sole discretion.
8.3 Stock Certificates and Delivery. If and when the Restriction Period expires without a prior forfeiture of the Restricted Stock and/or Restricted Stock Unit Award subject to such Restriction Period (except to the extent the Committee decides to settle the Award in cash), the Committee may ( i ) cause the Company to record on its books and records, in a manner generally consistent with its then current procedures for recording stock ownership, the Participant’s ownership of an appropriate number of unrestricted shares of Stock, or ( ii ) deliver certificates for an appropriate number of unrestricted shares of Stock to the Participant promptly after the lapse of the Restriction Period.
SECTION 9.
PERFORMANCE RELATED AWARDS
9.1 Performance Objectives. Notwithstanding anything else contained in the Plan to the contrary, unless the Committee otherwise determines at the time of grant, any Award of Restricted Stock and/or Restricted Stock Unit Award to an officer who is subject to the reporting requirements of Section 16(a) of the Act, other than an Award which will vest solely on the basis of the passage of time, shall become vested, if at all, upon the determination by the Committee that performance objectives established by the Committee have been attained, in whole or in part (a “Performance Related Stock Award”). In addition, the Committee may grant dollar denominated awards to any Participant the vesting of which shall be subject to the determination by the Committee that performance objectives established by the Committee shall have been satisfied, in whole or in part (a “Performance Related Cash Award”). The performance objectives upon which any Performance Related Award shall be based shall be determined over a measurement period or periods established by the Committee (which period or periods shall not be less than one (1) year) and related to at least one of the following criteria, which may be determined solely by reference to the performance of: (i) the Company; (ii) a Subsidiary or (iii) a division or unit of any of the foregoing or based on comparative performance of any of the foregoing relative to past performance or to other companies: (A) actual and/or diluted earnings per share; (B) budgeted earnings per share; (C) return on equity; (D) total shareholder return; (E) revenues; (F) cash flows, revenues and/or earnings relative to other parameters (e.g., net or gross assets); (G) operating income; (H) return on investment; (I) changes in the value of the Stock; (J) return on assets; (K) return on invested capital; (L) net revenue (defined as revenue less purchased transportation); (M) net revenue percentage (defined as net revenue divided by revenue); (N) gross profit (defined as revenue less purchased transportation and agent commissions); (O) gross profit margin (defined as gross profit divided by revenue); (P) operating margin (defined as operating income divided by gross profit);

and (Q) certain costs (which may include other operating costs, insurance and claim costs, selling, general and administrative costs and/or depreciation and amortization costs) in gross dollars, and/or as a percentage of revenue, net revenue, gross profit, or operating income (the “Performance Criteria”). In addition to the performance conditions established pursuant to the immediately preceding sentence, the Committee may further condition the vesting of any Performance Related Award on achieving such additional performance conditions of whatever nature that the Committee deems appropriate. Excluding Options and/or Stock Appreciation Rights granted hereunder, the maximum number of shares of Stock that may be subject to any such Performance Related Stock Award granted to any key employee in any calendar year shall not exceed 750,000 shares, as such number may be adjusted pursuant to Section 5; provided that, based on the level of achievement of the performance objectives, the number of shares of Stock issuable in respect of any Performance Related Stock Award upon achievement of the applicable performance conditions may be up to twice the number of shares initially granted. The maximum initial dollar value of any Performance Related Cash Award granted may not exceed $3,000,000; provided that, based on the level of achievement of the performance objectives, the actual amount payable in respect of any such Performance Related Cash Award upon achievement of the applicable performance conditions may be twice the initial dollar value.
9.2 Interpretation. Notwithstanding anything else contained in the Plan to the contrary, to the extent required to so qualify any Performance Related Award as other performance based compensation within the meaning of Section 162(m)(4)(C) of the Code, the Committee shall not be entitled to exercise any discretion otherwise authorized under the Plan (such as the right to accelerate vesting without regard to the achievement of the relevant performance objectives) with respect to such Performance Related Award if the ability to exercise such discretion (as opposed to the exercise of such discretion) would cause such Award to fail to qualify as such other performance based compensation.
SECTION 10.
STOCK BASED AWARDS
10.1 Stock Based Awards. The Committee may grant other types of equity-based or equity-related awards (“Stock Based Awards ”) not otherwise described by the terms of this Plan (including the grant or offer for sale of unrestricted shares of Stock) in such amounts and subject to such terms and conditions as the Committee shall determine. Such Stock Based Awards may be granted as an inducement to enter the employ of the Company or any Subsidiary or in satisfaction of any obligation of the Company or any Subsidiary to an officer or other key employee, whether pursuant to this Plan or otherwise, that would otherwise have been payable in cash. Additionally, Stock Based Awards in respect of not more than five percent of the shares of Stock available for issuance under Section 5.1 may be granted for such other purposes as the Committee shall determine. Such Stock Based Awards may entail the transfer of actual shares of Stock, or payment in cash or otherwise of amounts based on the value of shares of Stock and may include, without limitation, Awards designed to comply with or take advantage of the applicable local laws of jurisdictions other than the United States.
10.2 Termination of Service. The Committee shall specify the extent to which the Participant shall have the right to receive Stock Based Awards following termination of the Participant’s employment with the Company and its Subsidiaries. Such provisions need not be uniform among all Stock Based Awards, and may reflect distinctions based on the reasons for such termination.
10.3 Transferability. Except as the Committee shall otherwise specify at or after grant, Stock Based Awards may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution, and during the Participant’s lifetime only by the Participant.
SECTION 11.
CHANGE IN CONTROL
11.1 Accelerated Vesting and Payment. Subject to the provisions of Section 11.2 below, in the event of a Change in Control, (a) each Option and SAR shall, at the discretion of the Committee, either be cancelled in exchange for a payment in cash of an amount equal to the excess of the Change in Control Price over the exercise price for such Option or the base price for such SAR, whichever is applicable, or, in the case of Options, be fully exercisable regardless of the exercise schedule otherwise applicable to such Option and (b) the Restriction Period applicable to all shares of Restricted Stock and Restricted Stock Unit Awards shall expire and all such shares shall become nonforfeitable and immediately exercisable.
11.2 Alternative Awards. Notwithstanding Section 11.1, no cancellation, acceleration of exercisability or vesting or cash settlement or other payment shall occur with respect to any Award if the Committee reasonably determines in good faith prior to the occurrence of a Change in Control that such Award shall be honored or assumed, or new rights substituted therefore (such honored, assumed or substituted award hereinafter called an “Alternative Award”), by a Participant’s employer (or the parent or a subsidiary of

such employer) immediately following the Change in Control, provided that any such Alternative Award must: be based on stock which is traded on an established securities market, or which will be so traded within 60 days of the Change in Control; provide such Participant (or each Participant in a class of Participants) with rights and entitlements substantially equivalent to or better than the rights, terms and conditions applicable under such Award, including, but not limited to, an identical or better exercise or vesting schedule and identical or better timing and methods of payment; have substantially equivalent economic value to such Award (determined at the time of the Change in Control); have terms and conditions which provide that in the event that the Participant’s employment is involuntarily terminated or constructively terminated, any conditions on a Participant’s rights under, or any restrictions on transfer or exercisability applicable to, each such Alternative Award shall be waived or shall lapse, as the case may be.
11.3 Performance Related Awards. In the event of a Change in Control, each Participant shall be deemed to have earned Performance Related Stock Awards with respect to each of his Performance Related Stock Awards outstanding at the date of such Change in Control. The number of shares so earned for each Award shall be computed by determining the number of Performance Related Stock Awards that would have been paid if the subject measurement period had ended on the Company’s fiscal year ended immediately preceding the Change in Control (based on the conditions set by the Committee for payment of Performance Related Awards for the subject measurement period), provided that in no event shall the number of shares earned be less than the aggregate number of Performance Related Stock Awards at the target level (as identified in the applicable Award Agreement) with respect to such Award. Performance Related Stock Awards granted in the year of the Change in Control shall be earned at the same percentage as Awards granted in the year preceding the year of the Change in Control. Each Performance Related Stock Award so earned shall either (a) be paid in shares of Stock or (b) be cancelled in exchange for an immediate payment in cash of an amount based upon the Change in Control Price, in the discretion of the Committee.
11.4 Compliance with Section 409A. Notwithstanding the foregoing, to the extent that the provisions of this Section 11 would result in a distribution of any amount that would be treated as deferred compensation under Section 409A of the Code (after taking into account any and all applicable exemptions from such status), no such distribution shall be made upon the occurrence of the event constituting the Change in Control unless it also constitutes a change in control within the meaning of such Section 409A. The immediately preceding sentence shall not be construed to deny any Participant the right to vest in any such Award on account of a Change in Control. If any amount is not payable at the time of a change in control by reason of this Section 11.4, such amount shall be paid at the time it would otherwise be payable in accordance with its terms.
SECTION 12.
AMENDMENT, MODIFICATION AND TERMINATION OF PLAN
The Board may at any time 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 shareholders at which a quorum representing a majority of the shares of Stock is present in person or by proxy, no amendment or modification to the Plan may ( i ) materially increase the benefits accruing to participants under the Plan, ( ii ) except as otherwise expressly provided in Section 5.3, materially increase the number of shares of Stock subject to Awards under the Plan or the number of Awards that may be granted to a participant in a single calendar year under the Plan, ( iii ) materially modify the requirements for participation in the Plan or ( iv ) permit the repricing of any Option or Stock Appreciation Right. No amendment, modification, or termination of the Plan shall in any manner adversely affect any Award theretofore granted under the Plan, without the consent of the Participant.
SECTION 13.
STOCK BASED AWARDS
13.1 Nontransferability of Awards. No Awards granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. All rights with respect to Awards granted to a Participant under the Plan shall be exercisable during his lifetime only by such Participant.
13.2 No Guarantee of Employment or Participation. Nothing in the Plan shall interfere with or limit in any way the right of the Company or any Subsidiary to terminate any Participant’s employment at any time, nor confer upon any Participant any right to continue in the employ of the Company or any Subsidiary or affiliate. No Employee shall have a right to be selected as a Participant, or, having been so selected, to receive any future Awards.
13.3 Tax Withholding. The Company shall have the power to withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy federal, state and local withholding tax requirements on any Award under the Plan, and the Company may defer payment of cash or issuance of Stock until such requirements are satisfied.

13.4 Clawback. Any payment paid or Award made to a Participant is subject to recovery or “clawback” by the Company if the payment or Award is based on materially inaccurate financial statements or any other materially inaccurate performance metric criteria, or as otherwise required by applicable law.
13.5 Indemnification. Each person who is or shall have been a member of the Committee or of the Board shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him in connection with or resulting from any claim, action, suit, or proceeding to which he may be made a party or in which he may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by him in settlement thereof, with the Company’s approval, or paid by him in satisfaction of any judgment in any such action, suit, or proceeding against him, provided he shall give the Company an opportunity, at its own expense, to handle and defend the same before he undertakes to handle and defend it on his own behalf. The foregoing right of indemnification shall not be exclusive and shall be independent of any other rights of indemnification to which such persons may be entitled under the Company’s Articles of Incorporation or Bylaws, by contract, as a matter of law, or otherwise.
13.6 No Limitation on Compensation. Nothing in the Plan shall be construed to limit the right of the Company to establish other plans or to pay compensation to its employees in cash or property, in a manner which is not expressly authorized under the Plan.
13.7 Requirements of Law. The granting of Awards and the issuance of shares of Stock shall be subject to all applicable laws, rules and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.
13.8 Term of Plan. The Plan shall be effective upon its adoption by the Board and approval by a majority of the shareholders of the Company. The Plan shall continue in effect, unless sooner terminated pursuant to Section 12, until the tenth anniversary of the date on which it is adopted by the Board.
13.9 Governing Law. The Plan, and all Awards hereunder, shall be construed in accordance with and governed by the laws of the State of Delaware.
13.10 No Impact on Benefits. Awards granted under the Plan are not compensation for purposes of calculating an Employee’s rights under any employee benefit plan.
13.11 Freedom of Action. Subject to Section 12, nothing in the Plan or any Award Agreement shall be construed as limiting or preventing the Company or any subsidiary thereof from taking any action with respect to the operation or conduct of its business that it deems appropriate or in its best interest.
13.12 Headings and Captions. The headings and captions herein are provided for reference and convenience only, shall not be considered part of the Plan and shall not be employed in the construction of the Plan.
13.13 No Rights as Stockholder. No Participant shall have any voting or other rights as a stockholder of the Company with respect to any Stock covered by any Option until the Participant becomes the holder or record owner of such Stock. No adjustment shall be made for dividends or other rights for which the record date is prior to the date the Participant becomes the holder or record owner of such Stock.
13.14 Delay of Distributions. Any Plan provision to the contrary notwithstanding and subject to Section 409A of the Code, to the extent required by Section 409A of the Code, payment made to a Specified Employee upon a “separation from service” as defined in Section 409A of the Code may not be made before the date that is six months after the date of such separation from service (or, if earlier, the date of death of the Specified Employee). A Specified Employee is any Employee with respect to April 1 of each calendar year, who meets the definition of “key employee” of an Employer under Code Section 416(i) (without regard to Code Section 416(i)(5)) at any time during the preceding calendar year, all as provided in Code Section 409A.

Exhibit 21.1
LIST OF SUBSIDIARIES OF LANDSTAR SYSTEM, INC.

Name	  	Jurisdiction of
Incorporation	  	% of Voting
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	  	
Subsidiary of Landstar Supply Chain Solutions, Inc.	  	 	  	 	 	 	
Landstar Supply Chain Solutions 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. 333-68454, No. 333-68452, No. 333-105618, No. 333-105619 and No. 333-175890) on Form S-8 of Landstar System, Inc. of our reports dated February 24, 2012, with respect to the consolidated balance sheets of Landstar System, Inc. and subsidiary as of December 31, 2011 and December 25, 2010, and the related consolidated statements of income, changes in equity, and cash flows for each of the fiscal years ended December 31, 2011, December 25, 2010 and December 26, 2009, and the effectiveness of internal control over financial reporting as of December 31, 2011, which reports appear in the December 31, 2011 annual report on Form 10-K of Landstar System, Inc.
/s/ KPMG LLP
February 24, 2012
Jacksonville, Florida
Certified Public Accountants

Exhibit 24.1
POWER OF ATTORNEY
Landstar System, Inc.
Annual Report on Form 10-K
for fiscal year ended 12/31/11
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 31, 2011, 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 25, 2012

POWER OF ATTORNEY
Landstar System, Inc.
Annual Report on Form 10-K
for fiscal year ended 12/31/11
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 31, 2011, 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 25, 2012

POWER OF ATTORNEY
Landstar System, Inc.
Annual Report on Form 10-K
for fiscal year ended 12/31/11
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 31, 2011, 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 25, 2012

POWER OF ATTORNEY
Landstar System, Inc.
Annual Report on Form 10-K
for fiscal year ended 12/31/11
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 31, 2011, 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 25, 2012

POWER OF ATTORNEY
Landstar System, Inc.
Annual Report on Form 10-K
for fiscal year ended 12/31/11
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 31, 2011, 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 25, 2012

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.
Date: February 24 , 2012

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

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.
Date: February 24, 2012

/s/ James B. Gattoni	
James B. Gattoni	
Vice President and Chief Financial Officer	

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 31, 2011, 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 24, 2012

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 31, 2011, 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 24, 2012