The following table illustrates the diversity of the trailing equipment available to the Company as of December 31, 2005:


Trailers by Type

Vans			9,755
Temperature-controlled			108
Flatbeds, including step decks, drop decks and low boys			3,566

Total			13,429

Customers

The Company has a diversified group of customers. The Company’s top 100 customers accounted for approximately 55% and 53% of the Company’s revenue during fiscal 2005 and 2004, respectively. Management believes that the Company’s overall size, geographic coverage, equipment and 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. Increasingly, ~~the~~ larger shippers are substantially 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. Examples of national account customers include the ~~U.S.~~United States Department of Defense, the United States Department of Transportation/Federal Aviation Administration (the “FAA”) 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. In turn, 3PLs require significant amounts of capacity from carriers, such as the Company, to service the needs of customers. In addition, other transportation companies utilize the Company’s transportation capacity to satisfy their obligations to their shippers. There were 13 transportation service providers, including 3PLs, included in the Company’s top 25 revenue generating accounts for the fiscal year ended December 31, 2005. In addition, 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”).

~~Factors Significant~~

Prior to fiscal year 2005, no customer accounted for more than 10% of the Company’s revenue. Historically, the United States Government has been the Company’s largest customer. During 2005 and 2004, revenue derived from the United States Government, which is included as a top 100 customer, was approximately 17% and 9% of revenue, respectively. Included in the revenue derived from the United States Government in both fiscal years was revenue related to disaster relief services provided by the Company for storms that impacted the United States. These disaster relief services were provided primarily under a contract with the FAA. Revenue included $275.9 million and $63.8 million in 2005 and 2004, respectively, under the FAA contract. The FAA contract expires December 31, 2006.

There can be no assurance with respect to the ~~Company’s Operations~~provision of disaster relief services provided by Landstar Express America under a contract with the FAA following the expiration of the FAA contract (see “Expiration of contract with the United States Department of Transportation/Federal Aviation Administration” under Item 1A “Risk Factors”).

~~Management believes~~

The amount of revenue derived under the ~~following factors are particularly significant~~FAA contract, if any, is dependent on the occurrence of specific events, primarily disasters, natural or otherwise, for which the Company provides emergency transportation services in support of disaster relief efforts undertaken by the United States Government and administered by the FAA. Because of the unpredictable nature of the occurrence and severity of such events, even if Landstar Express America were to ~~the Company’s operations:~~enter into a new FAA contract, there can be no assurance that such events will occur,


	*~~Agent Network~~*

Management believes the Company has more independent commission sales agents than any other domestic truckload carrier. Landstar’s network of over 1,000 independent commission sales agent locations provides the Company with regular contact with shippers at the local level and the capability to be highly responsive to shippers’ changing needs. The agent network also enables Landstar to be responsive both in providing specialized equipment to both large and small shippers and in providing capacity on short notice from the Company’s large fleet. Through its agent network, the Company believes it offers smaller shippers a level of service comparable to that typically enjoyed only by larger customers. Examples of services that Landstar is able to make available through the agent network to smaller shippers include the ability to provide transportation services on short notice (often within hours from notification to time of pick-up), multiple pick-up and delivery points,

electronic data interchange capability and access to specialized equipment. In addition, a number of the Company’s agents specialize in certain types of freight and transportation services (such as oversized or heavy loads).
      The typical Landstar agent maintains a relationship with a number of shippers and services these shippers by providing a base of operations for the Company’s Independent Contractors and other third party capacity providers. Independent commission sales agents in the carrier segment receive a commission generally between 5% and 8% of the revenue they generate if the load is hauled by an Independent Contractor and a contractually agreed-upon percent of the revenue or the gross profit, defined as revenue less the cost of purchased transportation, from each load they generate if hauled by a third party trucking company. In most cases, the carrier segment independent commission sales agents are paid volume-based incentives. Multimodal independent commission sales agents are typically paid a contractually agreed-upon percentage of the gross profit from each load they generate.
      The Company’s primary day to day contact with its customers is through its agents and not through employees of the Company. Nevertheless, it is important to note that each Operating Subsidiary contracts directly with customers and generally assumes the credit risk and liability for freight losses or damages.
      The carrier segment’s independent commission sales agents use the Company’s Landstar Electronic Administrative Dispatch System (LEADS) software program which enables these 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 multimodal segment’s independent commission sales agents use other Landstar proprietary software to process customer shipments and communicate the necessary information to third party capacity providers and Landstar. The Company’s web-based available freight and truck information system provides a listing of available trucks to the Company’s independent commission sales agents.
      The Operating Subsidiaries emphasize programs to support the agents’ operations and to establish pricing parameters. The carrier segment and multimodal segment hold regular regional agent meetings for their independent commission sales agents and Landstar holds an annual company-wide agent convention.
      During 2004, 427 agents generated revenue for Landstar of at least $1 million each, or approximately $1.9 billion of Landstar’s total revenue, and one agent generated approximately $200,000,000 of Landstar’s total revenue.
      Although the Company typically enters into non-exclusive contractual relationships with its independent commission sales agents, management believes that the majority of the agents who generate revenue of $1 million or more choose to represent Landstar exclusively. Historically, Landstar has experienced very limited agent turnover among its larger-volume agents.


	*~~Capacity~~*


	The Company relies exclusively on independent third parties for its hauling capacity. These third party capacity providers consist of Independent Contractors, unrelated trucking companies, air and ocean cargo carriers and railroads. Landstar’s use of capacity provided by its Independent Contractors and other third party capacity providers allows it to maintain a lower level of capital investment, resulting in lower fixed costs. Historically, with the exception of air revenue, the margin generated from freight hauled by Independent Contractors has been greater than from freight hauled by other third party capacity providers.

	~~Independent Contractors.~~ Management believes the Company has the largest fleet of truckload Independent Contractors in the United States. This provides marketing, operating, safety, recruiting, retention and financial advantages to the Company. The Company’s Independent Contractors are compensated based on a fixed percentage of the revenue generated from the freight they haul. This percentage generally ranges from 60% to 70% where the Independent Contractor provides only a

tractor and from 73% to 79% where the Independent Contractor provides both a tractor and a trailer. The 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.
      The Company maintains an internet site through which Independent Contractors can view a complete listing of all the Company’s available freight, allowing them to consider rate, size, origin and destination when planning trips.
      The Landstar Contractors’ Advantage Purchasing Program leverages Landstar’s purchasing power to provide discounts to eligible 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 Independent Contractors to purchase primarily trailing equipment and mobile communication equipment.
      Trucks provided to the Company by the Independent Contractors were 8,677 at December 25, 2004 compared to 8,573 at December 27, 2003. The number of trucks provided by Independent Contractors fluctuates daily as a result of truck recruiting and truck terminations. Trucks recruited were lower in 2004 than in 2003, however, lower truck terminations in 2004 resulted in a net gain of 104 trucks. Landstar’s truck turnover ratio was approximately 35% in 2004 compared to 45% in 2003. More than half of this turnover was attributable to Independent Contractors who had been Independent Contractors with the Company for less than one year. Management believes that factors that have historically favorably impacted turnover include the Company’s extensive agent network, the Company’s programs to reduce the operating costs of its Independent Contractors and Landstar’s reputation for quality, service and reliability. Management believes that a reduction in the amount of available freight may cause an increase in truck turnover.
~~Other Third Party Truck Capacity.~~ The Company maintains a database of over 18,000 qualified other third party truck capacity providers who provide additional truck hauling capacity to the Company. Other third party truck capacity providers 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 augmenting the Company’s capability during periods of extraordinary demand and traffic lane imbalance, the use of third party carriers enables the Company to pursue different types and quality of freight such as temperature-controlled, short-haul traffic and, in certain instances, lower priced freight that would generally not be handled by the Company’s Independent Contractors.
      The Landstar Savings Plus Program leverages Landstar’s purchasing power to provide discounts to eligible other third party trucking companies when they purchase fuel and equipment and provides the other third party trucking companies with an electronic payment option.
~~Third Party Rail, Air and Ocean Capacity.~~ The Company maintains contractual relationships with various railroads and air cargo capacity providers. 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.


	*~~Diversity of Services Offered~~*

The Company offers its customers a wide range of transportation services through the Operating Subsidiaries, including a fleet of diverse trailing equipment and extensive geographic coverage. Specialized services offered by the Company include those provided by a large fleet of flatbed trailers, multi-axle trailers capable of hauling extremely heavy or oversized loads, drivers certified to handle ammunition and explosives shipments for the U.S. Department of Defense, emergency and expedited surface and air cargo services and intermodal capability with railroads and, to a lesser extent, steamship lines.

and if such events occur, the extent to which the FAA will require the services of Landstar Express America, if at all.


	~~The following table illustrates the diversity of the trailing equipment available to the Company as of December 25, 2004:~~


~~Trailers by Type~~

~~Vans~~		~~10,204~~
~~Temperature-controlled~~		~~127~~
~~Flatbeds, including step decks, drop decks and low boys~~		~~3,904~~

	~~Total~~	~~14,235~~


	*~~Technology~~*

Technology


	Management believes leadership in the development and application of technology is an ongoing part of providing high quality service at competitive prices. The Company’s focus is on 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 assist its third party capacity providers in identifying desirable freight. Landstar manages its technology programs centrally through its information services department.

	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. Landstar relies, in the regular course of its business, on the proper operation of its information technology systems.


	*~~Corporate Services~~*

Management believes leadership in the development and application of technology is an ongoing part of providing high quality service at competitive prices. The Company’s focus is on developing and implementing software applications which are designed to improve its operational and administrative efficiency, assist its independent commission sales agents in sourcing capacity, assist customers in meeting their transportation needs and to assist its third party capacity providers in identifying desirable freight. Landstar manages its technology programs centrally through its information services department.


	~~Management believes that significant advantages result from the collective expertise and corporate services afforded by Landstar’s corporate management. The primary services provided are:~~

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. Landstar relies, in the regular course of its business, on the proper operation of its information technology systems.

Corporate Services

Management believes that significant advantages result from the collective expertise and corporate services afforded by Landstar’s corporate management. The primary services provided are:


accounting, budgeting and taxes		quality programs
finance		risk management insurance services
human resource management		safety
�� legal		strategic planning
~~operator and equipment compliance~~purchasing		technology and management information systems
~~purchasing~~

Competition

Landstar competes primarily in the transportation services industry with truckload carriers, intermodal transportation and logistics service providers, railroads,less-than-truckload carriers, third party broker carriers and other non-asset based transportation and logistics service providers. The transportation services industry is extremely competitive and fragmented.

Management believes that competition for the freight transported by the Company is based primarily on service and efficiency and, to a lesser degree, on freight rates alone. Management believes that Landstar’s overall size and availability of a wide range of equipment, together with its geographically-dispersed local independent agent network, 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. Landstar’s retained liability for individual commercial trucking claims depends on when such claims are incurred. For commercial trucking claims incurred prior to June 19, 2003 and subsequent to March 30, 2004, Landstar retains liability up to $5,000,000 per occurrence. For commercial trucking claims incurred from June 19, 2003 through March 30, 2004, Landstar retains liability up to $10,000,000 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 $250,000 for each cargo claim. The Company’s exposure to liability associated with accidents incurred by Truck Brokerage Carriers and other third party capacity providers who transport freight on behalf of the Company is reduced by various factors including the extent to which they maintain their own insurance coverage. A material increase in the frequency or severity of accidents, cargo or workers’ compensation claims or the unfavorable development of existing claims could be expected to materially adversely affect Landstar’s results of operations.

Insurance Above Self-Insured Retention

The Company has historically maintained insurance coverage above its self-insured retention amounts. For the fiscal year ended and as of December 31, 2005, the Company maintains insurance for liabilities attributable to commercial trucking accidents with third party insurance companies for each and every occurrence in an amount in excess of $200,000,000 per occurrence above the Company’s $5,000,000 self insured retention. Historically, the Company has relied on a limited number of third party insurance companies to provide insurance coverage for commercial trucking claims in excess of specific per occurrence limits, up to various maximum amounts. Over the past few years, the premiums proposed by the third party insurance companies providing coverage for commercial trucking liability insurance over the Company’s self insured retention amounts have varied dramatically. In an attempt to manage the significant fluctuations in the cost of these premiums required by the third party insurance companies, the Company has historically increased or decreased the level of its exposure to commercial trucking claims on a per occurrence basis. To the extent that the third party insurance companies increase their proposed premiums for coverage of commercial trucking claims, the Company may increase its exposure in aggregate or on a per occurrence basis. However, to the extent the third party insurance companies reduce their premiums proposed for coverage of commercial trucking claims, the Company may reduce its exposure in aggregate or on a per occurrence basis.

Regulation

Certain of the Operating Subsidiaries are considered 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 may transport most types of freight to and from any point in the United States over any route selected by the Company.

The trucking industry is subject to possible regulatory and legislative changes (such as the possibility of more stringent environmentaland/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 services.

Interstate motor carrier operations are subject to safety requirements prescribed by the FMCSA. Each driver, whether a BCO Independent Contractor or Truck Brokerage Carrier, is required to have a commercial driver’s license and is subject to mandatory drug and alcohol testing. The FMCSA’s commercial driver’s license and drug and alcohol testing requirements have not adversely affected the Company’s ability to source the capacity necessary to meet its customers’ transportation needs.

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, 2005, the Company and its subsidiaries employed 1,285 individuals. Approximately 24 Landstar Ranger drivers (out of a Company total of 8,728 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. Landstar’s retained liability for

individual commercial trucking claims depends on when such claims are incurred. For commercial trucking claims incurred prior to June 19, 2003 and subsequent to March 30, 2004, Landstar retains liability up to $5,000,000 per occurrence. For commercial trucking claims incurred from June 19, 2003 through March 30, 2004, Landstar retains liability up to $10,000,000 per occurrence. The Company also retains liability up to $1,000,000 for each general liability claim, $250,000 for each workers compensation claim, and $250,000 for each cargo claim. A material increase in the frequency or severity of accidents, cargo or workers’ compensation claims or the unfavorable development of existing claims could have a material adverse effect on Landstar, including its results of operations and financial condition.

Dependence on third party insurance companies. As noted above in Item 1, “Business — Factors Significant to the Company’s Operations — Insurance Above Self-Insured Retention,” the Company is dependent on a limited number of third party insurance companies to provide insurance coverage in excess of its self-insured retention amounts. Historically, the Company has maintained insurance coverage for commercial trucking claims in excess of specific per occurrence limits, up to various maximum amounts, with a limited number of third party insurance companies. Over the past three years, the premiums proposed by the third party insurance companies providing coverage for commercial trucking liability insurance above the Company’s self-insured retention amounts have varied dramatically. In an attempt to manage the significant fluctuations in the cost of these premiums required by the third party insurance companies, the Company has historically increased or decreased the level of its exposure to commercial trucking claims on a per occurrence basis. To the extent the third party insurance companies increase their proposed premiums for coverage of commercial trucking liability claims, the Company may increase its exposure or reduce the maximum amount of coverage in aggregate or on a per occurrence basis. However, to the extent the third party insurance companies reduce their premiums proposed for coverage of commercial trucking claims, the Company may reduce its exposure or increase the maximum amount of coverage in aggregate or on a per occurrence basis.

Dependence on independent commission sales agents. As noted above in Item 1, “Business — Factors Significant to the Company’s Operations — Agent Network,” the Company markets its services primarily through independent commission sales agents, and currently has a network of over 900 such agents. During 2005, 466 agents generated revenue for Landstar of at least $1 million each, or approximately 94% of Landstar’s consolidated revenue and one agent generated approximately $197,000,000, or 8%, of Landstar’s total revenue. Although the Company competes with motor carriers and other third parties for the services of these independent commission sales agents, Landstar has historically experienced very limited agent turnover among its larger-volume agents. However, Landstar’s contracts with its agents are typically terminable upon 10 to 30 days notice by either party and generally do not restrict the ability of a former agent to compete with Landstar following any such termination. The loss of some of the Company’s key agents or a significant decrease in volume generated by Landstar’s larger agents could have a material adverse effect on Landstar, including its results of operations and revenue.

Dependence on third party capacity providers. As noted above in Item 1, “Business — Factors Significant to the Company’s Operations — 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. Freight hauled by BCO Independent Contractors represented 55.9% of Landstar’s revenue in 2005. 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.

Change in capacity mix. Historically, the Company’s carrier segment has primarily relied on capacity provided by BCO Independent Contractors. Pursuant to a plan to augment its available capacity and increase its revenue, the Company has been increasing the carrier segment’s use of capacity provided by Truck Brokerage Carriers. Freight hauled by BCO Independent Contractors represented 55.9%, 64.2% and 69.3% of Landstar’s consolidated revenue in 2005, 2004 and 2003, respectively. Historically, with the exception of air revenue, the net margin (defined as revenue less the cost of purchased transportation and agent commissions) generated from freight hauled by BCO Independent Contractors has been greater than freight hauled by other

third party capacity providers. An increase in the amount of revenue generated through other third party capacity providers without an increase in total revenueand/or a corresponding reduction in other costs, including other operating, insurance and claims, selling, general and administrative and depreciation and amortization could have a negative effect on the Company’s operating margin (defined as operating income divided by revenue).

Expiration of contract with the United States Department of Transportation/Federal Aviation Administration. Historically, the United States Government has been the Company’s largest customer. During fiscal years 2001 through 2003, revenue derived from various departments of the United States Government, primarily the United States Department of Defense, contributed between 5.0% and 7.5% of the Company’s annual revenue. During 2005 and 2004, revenue derived from the United States Government, represented approximately 17% and 9% of consolidated revenue, respectively. Included in revenue derived from United States Government during fiscal years 2005 and 2004 was $275.9 million and $63.8 million of revenue, respectively, related to disaster relief services provided by the Company for storms that impacted the United States. These emergency transportation services were provided primarily under a contract with the FAA. The $275.9 million recognized under the FAA contract during the 2005 fiscal year generated $51.9 million of operating income which, net of related income taxes, increased net income by $31.6 million. The $63.8 million of revenue recognized under the FAA contract during the 2004 fiscal year generated $11.8 million of operating income which, net of related income taxes, increased net income $7.3 million. The FAA contract expires December 31, 2006.

It is expected that the FAA will request proposals from various companies for a new contract regarding disaster relief services to be provided subsequent to 2006. The Company cannot predict whether a request for proposal, if any, will: a) be made to Landstar Express America, b) include pricing and other provisions that are the same or similar to the current contract provisions, or c) if a request for proposal is received by Landstar Express America, there can be no assurances that Landstar Express America would submit a proposal, or if it did, the FAA would select Landstar Express America as the transportation provider for disaster relief services in years subsequent to 2006.

The amount of revenue derived under the FAA contract, if any, is dependent on the occurrence of specific events, primarily disasters, natural or otherwise, for which the Company provides emergency transportation services in support of disaster relief efforts undertaken by the United States Government and administered by the FAA. Because of the unpredictable nature of the occurrence and severity of such events, even if Landstar Express America were to enter into a new FAA contract, there can be no assurance that such events will occur, and if such events occur, the extent to which the FAA will require the services of Landstar Express America, if at all.

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, interest rate fluctuations, and other economic factors beyond Landstar’s control. Certain of the Company’s third party capacity providers can be expected to charge higher prices to cover increased operating expenses, and the Company’s operating income may decline if it is unable to pass through to its customers the full amount of such higher transportation costs. If a slowdown in economic activity or a downturn in the Company’s customers’ business cycles causes 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 services industry. The transportation services industry is extremely competitive and fragmented. Landstar competes primarily with truckload carriers, intermodal transportation service providers, railroads,less-than-truckload carriers, third party broker carriers and other non-asset based transportation and logistics service providers. Management believes that competition for the freight transported by the Company is based primarily on service and efficiency and, to a lesser degree, on freight rates alone. Historically, competition has created downward pressure on freight rates. A decrease in freight rates could have a material adverse effect on Landstar, including its revenue and operating income.

Dependence on key personnel. The Company is dependent on the services of certain of its executive officers. Although the Company believes it has an experienced and highly qualified management group, the loss of the services of certain of the Company’s executive officers could have a material adverse effect on the Company.

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. 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. Any significant disruption or failure of its technology systems could significantly disrupt the Company’s operations and impose significant costs on the Company.

Potential changes in fuel taxes. From time to time, various legislative proposals are introduced to increase federal, state, or local taxes, including taxes on motor fuels. The Company cannot predict whether, or in what form, any increase in such taxes applicable to the transportation services provided by the Company will be enacted and, if enacted, whether or not the Company’s BCO Independent Contractors and Truck Brokerage Carriers would attempt to pass the increase onto 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 could have a material adverse effect on Landstar, including its results of operations and financial condition. Moreover, competition from other transportation service companies including those that provide non-trucking modes of transportation and intermodal transportation would likely increase if state or federal taxes on fuel were to increase without a corresponding increase in taxes imposed upon other modes of transportation.

Status of independent contractors. From time to time, various legislative or regulatory proposals are introduced at the federal or state levels to change the status of independent contractors’ classification to employees for either employment tax purposes (withholding, social security, medicare and unemployment taxes) or other benefits available to employees. Currently, most individuals are classified as employees or independent contractors for employment tax purposes based on 20 “common-law” factors rather than any definition found in the Internal Revenue Code or Internal Revenue Service regulations. In addition, under Section 530 of the Revenue Act of 1978, taxpayers that meet certain criteria may treat an individual as an independent contractor for employment tax purposes if they have been audited without being told to treat similarly situated workers as employees, if they have received a ruling from the Internal Revenue Service or a court decision affirming their treatment, or if they are following a long-standing recognized practice.

The Company classifies all of its BCO Independent Contractors and independent commission sales agents as independent contractors for all purposes, including employment tax and employee benefit purposes. There can be no assurance that legislative, judicial, or regulatory (including tax) authorities will not introduce proposals or assert interpretations of existing rules and regulations that would change the employee/independent contractor classification of BCO Independent Contractors or independent commission sales agents currently doing business with the Company. Although management believes that there are no proposals currently pending that would change the employees/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 classifications could have a material adverse effect on Landstar, including its results of operations and financial condition if Landstar were unable to reflect them in its fee arrangements with the BCO Independent Contractors or independent commission sales agents or in the prices charged to its customers.

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 which are regulated by the Federal Motor Carrier Safety Administration (FMCSA) and by various state agencies. The trucking industry is subject to possible regulatory and legislative changes (such as increasingly stringent environmentaland/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 services. Any such regulatory or legislative

changes 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 and Rockford, Illinois due to hurricanes, flooding, tornados or other weather conditions or natural disasters, terrorist attack or otherwise. The Company’s corporate headquarters and approximately two-thirds of the Company’s employees are located in its Jacksonville, Florida facility and a significant portion of the Company’s operations with respect to the carrier segment and Truck Brokerage Carriers is located in its Rockford, Illinois facility. In particular, a Category 3, 4 or 5 hurricane that impacts the Jacksonville, Florida metropolitan area or a tornado that strikes the Rockford, Illinois 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 either the Jacksonville, Florida or Rockford, Illinois facility. 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.

Item 1B. Unresolved Staff Comments

None


Item 2.	*~~Competition~~Properties*


	Landstar competes primarily in the transportation services industry with truckload carriers, intermodal transportation service providers, railroads, less-than-truckload carriers, third party broker carriers and other non-asset based transportation service providers. The transportation services industry is extremely competitive and fragmented.

	Management believes that competition for the freight transported by the Company is based primarily on service and efficiency and, to a lesser degree, on freight rates alone. Management believes that Landstar’s overall size and availability of a wide range of equipment, together with its geographically-dispersed local independent agent network, present the Company with significant competitive advantages over many transportation service providers.


	*~~Insurance and Claims~~*

Landstar retains liability up to $5,000,000 per occurrence. For commercial trucking claims incurred prior to May 1, 2001, Landstar retains liability up to $1,000,000 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 $250,000 for each cargo claim. The Company’s exposure to liability associated with accidents incurred by other third party capacity providers who haul freight on behalf of the Company is reduced by various factors including the extent to which they maintain their own insurance coverage. A material increase in the frequency or severity of accidents, cargo or workers’ compensation claims or the unfavorable development of existing claims could be expected to materially adversely affect Landstar’s results of operations.

~~Dependence on Third Party Insurance Companies~~

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 relied on various third party insurance companies to provide insurance coverage for commercial trucking claims in excess of specific per occurrence limits. Over the past three years, the premiums proposed by the third party insurance companies providing coverage for commercial trucking liability insurance over the Company’s self insured retention amounts have varied dramatically. In an attempt to manage the cost of these increasing premiums required by the third party insurance companies, the Company has historically increased or decreased the level of its exposure to commercial trucking claims on a per occurrence basis. To the extent that the third party insurance companies increase their proposed premiums for coverage of commercial trucking claims, the Company may increase its exposure on a per occurrence basis. However, to the extent the third party insurance companies reduce their premiums proposed for coverage of commercial trucking claims, the Company may reduce its exposure on a per occurrence basis.

~~Regulation~~


	Each of the Operating Subsidiaries is a motor carrier which is regulated by the Federal Motor Carrier Safety Administration (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 may transport most types of freight to and from any point in the United States over any route selected by the Company.

	The trucking industry is subject to possible regulatory and legislative changes (such as the possibility of more stringent environmental 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 services.

	Interstate motor carrier operations are subject to safety requirements prescribed by the FMCSA. Each of the Company’s drivers are required to have a commercial driver’s license and is subject to mandatory drug and alcohol testing. The FMCSA’s commercial driver’s license and drug and alcohol testing requirements have not adversely affected the Company’s ability to source the capacity necessary to meet its customers’ transportation needs.

~~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 25, 2004, the Company and its subsidiaries employed 1,251 individuals. Approximately 31 Landstar Ranger drivers (out of a Company total of 8,677) are members of the International Brotherhood of Teamsters. The Company considers relations with its employees to be good.

~~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 carrier segment’s primary facilities are located in Jacksonville, Florida and Rockford, Illinois. The ~~multimodal~~global logistics segment’s primary facility is located in Jacksonville, Florida. In addition, the Company’s corporate headquarters are located in Jacksonville, Florida. The Rockford, Illinois facility is owned by the Company and all other primary facilities are leased.

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*

~~Item 3.~~ ~~Legal Proceedings~~

On November 1, 2002, the Owner Operator Independent Drivers Association, Inc. (“OOIDA”) and six individual BCO Independent Contractors ~~(collectively, the~~(the “Plaintiffs”) filed a putative class action complaint (the “Complaint”) in the United States District Court for the Middle District of Florida (the “Court”) in Jacksonville, Florida, against ~~Landstar System, Inc. and certain of its subsidiaries.~~the Company. The Complaint alleges that certain aspects of ~~Company subsidiaries’~~the Company’s motor carrier leases with its BCO Independent Contractors violate certain federal leasing regulations and seeks injunctive relief, an unspecified amount of damages and attorney’s fees. On March 8 and June 4, 2004, the Court dismissed all claims of one of the six individual ~~Independent Contractor~~ Plaintiffs on the grounds that the ICC Termination Act (the “Act”) is not applicable to leases signed before the Act’s January 1, 1996, effective date, and dismissed all claims of all remaining Plaintiffs against four of the seven Company entities previously named as ~~defendants (Landstar System,~~defendants. Claims currently survive against the following Company entities: Landstar Inway, Inc., Landstar ~~Express America, Inc., Landstar Gemini,~~Ligon, Inc. and Landstar ~~Logistics,~~Ranger, Inc. (the “Defendants”). With respect to the remaining claims, the June 4, 2004 order held that the Act created a private right of action ~~pursuant~~ to which ~~claims involving certain federal leasing regulations may be filed in federal court subject to~~ a four-year statute of ~~limitations.~~limitation applies. On ~~November~~April 7, 2005, Plaintiffs filed an Amended Complaint that included additional allegations with respect to violations of certain federal leasing regulations. On August 30, ~~2004,~~2005, the Court ~~heard oral argument on~~granted a motion by ~~the remaining~~ Plaintiffs to certify the case as a class action. On ~~February 10,~~October 19, 2005, the ~~remaining~~U.S. Court of Appeals for the Eleventh Circuit denied the Defendants’ petition for permission to file an interlocutory appeal of theclass-certification order.

Discovery is ongoing in the case, which is set for a jury trial in October 2006. On January 13, 2006, the Plaintiffs filed a motion ~~to amend the Complaint to expand it to include additional allegations with respect to compliance with certain federal leasing obligations.~~for partial summary judgment on liability. On February ~~11, 2005,~~15, 2006, the ~~remaining~~ Defendants filed atheir opposition to that motion and their own motion for partial summary judgment to ~~amend their previously~~address the claims of the Amended Complaint. The Defendants’ motion for partial summary judgment filed ~~Answer in the event~~February 15, 2006 supersedes and replaces prior motions for partial summary judgment filed with the Court ~~certifies a plaintiffs’ class pursuant~~on April 18 and June 10, 2005. On March 6, 2006, the Plaintiffs filed their opposition to the ~~remaining Plaintiffs’ pending motion.~~Defendants’ motion for partial summary judgement. The ~~parties are opposing each others’ motions to amend. The~~District Court is expected to rule ~~within the next several months~~prior to trial on the ~~class-certification motion and on a motion, previously filed by the remaining Defendants,~~pending motions for partial summary judgment. ~~Trial is scheduled for the trial term beginning October 3, 2005.~~

Due to a number of factors, including the ~~recent filing~~unresolved motions for summary judgment, the incomplete state of discovery in this matter, particularly classwide discovery, the ~~proposed amended Complaint, the related arrival~~absence of ~~new discovery requests from the remaining Plaintiffs,~~final expert reports and the lack of litigated final judgments in a number of similar cases or otherwise applicable precedents, the Company does not believe it is in a position to conclude whether or not there is a reasonable possibility of an adverse outcome in this case or what damages, if any, ~~the remaining~~ Plaintiffs would be awarded should they prevail on all or any part of their claims. However, the Company believes ~~that the remaining Defendants have~~it has meritorious defenses, including to the expanded allegations in the Amended Complaint, and ~~intend~~it intends to continue asserting these defenses vigorously.

thereof, will not have a material adverse effect on the financial condition of the Company, but could have a material effect on the results of operations in a given quarter or year.


Item 4.	*Submission of Matters to a Vote of Security Holders*

No matters were submitted to a vote of security holders during the fourth quarter of fiscal year ~~2004.~~2005.

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 quoted through the National Association of Securities Dealers, Inc. National Market System (the “NASDAQ National Market System”) under the symbol “LSTR.” The following table sets forth the high and low reported sale prices for the Common Stock as quoted through the NASDAQ National Market System for the periods indicated. All historical ~~share-related~~share- related financial information presented herein has been adjusted to reflect threetwo-for-one stock splits, each effected in the form of a 100% stock ~~dividend, the~~dividend. The first ~~being~~such stock split was distributed on August 12, 2002 to stockholders of record on August 2, 2002, the second ~~being~~such stock split was distributed on November 13, 2003 to stockholders of record on November 3, 2003, and the third ~~being~~such stock split was distributed on January 7, 2005 to stockholders of record on December 28, 2004.

2004 Market Price 2003 Market Price

Fiscal Period High Low High Low

First Quarter $ 20.870 $ 17.000 $ 15.425 $ 12.760
Second Quarter 26.110 20.260 16.498 13.700
Third Quarter 28.590 23.140 16.975 14.625
Fourth Quarter 37.495 27.125 19.975 15.255


	2005 Market Price				2004 Market Price
Fiscal Period	High		Low		High		Low

First Quarter	$	39.250	$	29.250	$	20.870	$	17.000
Second Quarter		35.850		26.750		26.110		20.260
Third Quarter		40.420		27.450		28.590		23.140
Fourth Quarter		44.500		36.100		37.495		27.125

The reported last sale price per share of the Common Stock as quoted through the NASDAQ National Market System on ~~February 24, 2005~~March 7, 2006 was ~~$34.91~~$44.77 per share. As of such date, Landstar had ~~59,983,218~~58,973,419 shares of Common Stock outstanding. As of February ~~24, 2005,~~17, 2006, the Company had 8487 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.

The Company has not paid any cash dividends on the Common Stock within the past three years and does not intend to pay dividends on the Common Stock for the foreseeable future. The declaration and payment of any future dividends will be determined by the Company’s

On July 28, 2005, Landstar System, Inc. announced that its Board of Directors ~~based~~declared the Company’s first ever cash dividend of $0.025 per share with respect to its outstanding shares of Common Stock. The distribution date for this cash dividend was on ~~Landstar’s results~~August 31, 2005, to stockholders of ~~operations, financial condition,~~record on August 17, 2005. On October 13, 2005, Landstar System, Inc. announced that its Board of Directors declared its second quarterly dividend of $0.025 per share. The distribution date for this cash ~~requirements, certain corporate law requirements and other factors deemed relevant by~~dividend was on November 30, 2005, to stockholders of record at the close of business on November 10, 2005. It is the intention of the Board of ~~Directors.~~Directors to pay a quarterly dividend going forward. No such cash dividends were paid in 2004.

On ~~December 4, 2003, the Company~~April 28, 2005, Landstar System, Inc. announced that it had been authorized by its Board of Directors to purchase up to ~~1,000,000~~an additional 2,000,000 shares ~~(not adjusted for the two-for-one stock split effected in the form of a 100% stock dividend declared December 9, 2004)~~ of its ~~common stock~~Common Stock from time to time in the open market and in ~~privately-negotiated~~privately negotiated transactions.

On July 28, 2005, Landstar System, Inc. announced that it had been authorized by its Board of Directors to purchase up to an additional 2,000,000 shares of its Common Stock from time to time in the open market and in privately negotiated transactions.

At December ~~25, 2004, the Company~~31, 2005, Landstar System, Inc. had ~~1,398,280~~2,525,227 shares of ~~common stock~~Common Stock remaining to be purchased under the authorized ~~program.~~share repurchase programs.

The Company did not purchase any shares of its ~~common stock~~Common Stock during the period from September ~~25, 2004,~~24, 2005, the end of the Company’s third fiscal quarter, to December ~~25, 2004,~~31, 2005, the end of the Company’s fourth fiscal quarter.

At the May ~~13, 2004~~12, 2005 annual meeting of ~~shareholders,~~stockholders, the ~~shareholders~~stockholders of the Company approved an amendment to Article IV of the Company’s Restated Certificate of Incorporation to increase the number of authorized shares of the Company’s ~~common stock~~Common Stock from ~~50,000,000~~80,000,000 shares to ~~80,000,000~~160,000,000 shares.

The Company maintains three stock option plans and one stock compensation plan. The following table presents information related to securities authorized for issuance under these plans at December ~~25, 2004:~~31, 2005:

Number of Securities
Number of Securities Remaining Available for
to be Issued Upon Weighted-average Future Issuance Under
Exercise of Exercise Price of Equity Compensation
Plan Category Outstanding Options Outstanding Options Plans

Equity Compensation Plans Approved by Security Holders 3,115,764 $ 12.3061 5,355,360
Equity Compensation Plans Not Approved by Security Holders 0 0 0

Number of Securities

Remaining Available for

to be Issued Upon

Weighted-Average

Future Issuance Under

Exercise of

Exercise Price of

Equity Compensation

Plan Category

Outstanding Options

Plans

Equity Compensation Plans Approved by Security Holders

2,794,652

19.07

4,677,160

Equity Compensation Plans Not Approved by Security Holders

Included in the number of securities remaining available for future issuance under equity compensation plans was 170,000 shares of Common Stock reserved for issuance under the 2003 Directors’ Stock Compensation Plan.


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: 2004 2003 2002 2001 2000

Revenue $ 2,019,936 $ 1,596,571 $ 1,506,555 $ 1,392,771 $ 1,418,492
Investment income 1,346 1,220 1,950 3,567 4,317
Costs and expenses:
Purchased transportation 1,510,963 1,185,043 1,116,009 1,030,454 1,046,183
Commissions to agents 161,011 125,997 118,864 110,513 113,721
Other operating costs 37,130 37,681 34,325 32,750 29,568
Insurance and claims 60,339 45,690 42,188 32,930 31,935
Selling, general and administrative 118,461 105,849 101,918 99,762 105,786
Depreciation and amortization 13,959 12,736 11,520 13,543 13,003

Total costs and expenses 1,901,863 1,512,996 1,424,824 1,319,952 1,340,196

Operating income 119,419 84,795 83,681 76,386 82,613
Interest and debt expense 3,025 3,240 4,292 6,802 9,127

Income before income taxes 116,394 81,555 79,389 69,584 73,486
Income taxes 44,522 30,855 30,168 26,790 28,292

Net income $ 71,872 $ 50,700 $ 49,221 $ 42,794 $ 45,194

Earnings per common share(1) $ 1.19 $ 0.82 $ 0.76 $ 0.64 $ 0.64
Diluted earnings per share(1) $ 1.16 $ 0.79 $ 0.73 $ 0.63 $ 0.63


	Fiscal Years
Income Statement Data:	2005		2004		2003		2002		2001
	(Dollars in thousands, except per share amounts)

Revenue	$	2,517,828	$	2,019,936	$	1,596,571	$	1,506,555	$	1,392,771
Investment income		2,695		1,346		1,220		1,950		3,567
Costs and expenses:
Purchased transportation		1,880,431		1,510,963		1,185,043		1,116,009		1,030,454
Commissions to agents		203,730		161,011		125,997		118,864		110,513
Other operating costs		36,709		37,130		37,681		34,325		32,750
Insurance and claims		50,166		60,339		45,690		42,188		32,930
Selling, general and administrative		134,085		118,461		105,849		101,918		99,762
Depreciation and amortization		15,920		13,959		12,736		11,520		13,543

Total costs and expenses		2,321,041		1,901,863		1,512,996		1,424,824		1,319,952

Operating income		199,482		119,419		84,795		83,681		76,386
Interest and debt expense		4,744		3,025		3,240		4,292		6,802

Income before income taxes		194,738		116,394		81,555		79,389		69,584
Income taxes		74,782		44,522		30,855		30,168		26,790

Net income	$	119,956	$	71,872	$	50,700	$	49,221	$	42,794

Earnings per common share	$	2.03	$	1.19	$	0.82	$	0.76	$	0.64
Diluted earnings per share	$	1.98	$	1.16	$	0.79	$	0.73	$	0.63
Dividends paid per common share	$	0.05


	Dec. 31,		Dec. 25,		Dec. 27,		Dec. 28,		Dec. 29,
Balance Sheet Data:	2005		2004		2003		2002		2001

Total assets	$	762,760	$	584,512	$	438,457	$	400,748	$	364,651
Long-term debt, including current maturities		166,973		92,090		91,456		77,360		101,874
Shareholders’ equity		252,635		212,839		142,515		149,093		117,440


~~(1)~~	~~All earnings per share amounts have been adjusted to give retroactive effect to a two-for-one stock split effected in the form of a 100% stock dividend declared December 9, 2004.~~

Dec. 25, Dec. 27, Dec. 28, Dec. 29, Dec. 30,
Balance Sheet Data: 2004 2003 2002 2001 2000

Total assets $ 584,512 $ 438,457 $ 400,748 $ 364,651 $ 370,362
Long-term debt, including current maturities 92,090 91,456 77,360 101,874 94,643
Shareholders’ equity 212,839 142,515 149,093 117,440 107,859


Item 7.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations*

~~Introduction~~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 thisForm 10-K statement 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 workers’ compensation claims; unfavorable development of existing accident claims; dependence on independent commission sales agents; dependence on third party capacity providers; disruptions or failures in our computer systems; a downturn in domestic economic growth or growth in the transportation sector; substantial industry competition; 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 thisForm 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. ~~(“Landstar”~~(together, referred to herein as “Landstar” or the “Company”), provide transportation services to a variety of market niches throughout the United States and to a lesser extent in Canada, and between the United States and Canada, Mexico and ~~Mexico~~other countries through its operating subsidiaries. Landstar’s business strategy is to be a non-asset based provider of transportation capacity and logistics services delivering safe, specialized transportation services ~~to a broad range of customers throughout North America~~globally utilizing a network of independent commission sales agents and third party capacity providers. Landstar focuses on providing transportation services which emphasize customer service and information coordination among its independent commission sales agents, customers and capacity providers. The Company markets its services primarily through independent commission sales agents and utilizes exclusively third party capacity providers to transport customers’ freight. The nature of the Company’s business is such that a significant portion of its operating costs varies directly with revenue. The Company has three reportable business segments. These are the carrier, ~~multimodal~~global logistics (formerly multimodal) and insurance segments.

The carrier segment consists of Landstar Ranger, Inc., Landstar Inway, Inc., Landstar Ligon, Inc., Landstar Gemini, Inc. and Landstar Carrier Services, Inc. The carrier segment primarily provides transportation services to the truckload market for a wide range of general commodities over irregular or non-repetitive routes utilizing dry and specialty vans and unsided trailers, including flatbed, drop deck and specialty. It also providesshort-to-long haul movement of containers by truck, dedicated power-only truck capacity and truck brokerage. The carrier segment markets its services primarily through independent commission sales agents and utilizes independent contractors who provide truck capacity to the Company under exclusive lease arrangements (the ~~“Independent~~“Business Capacity Owner Independent Contractors” or “BCO Independent Contractors”) and other third party truck capacity providers ~~(truck brokerage carriers)~~under non-exclusive contractual arrangements (“Truck Brokerage Carriers”).

The ~~multimodal~~global logistics segment is comprised of Landstar Global Logistics, Inc. and its subsidiaries, Landstar Logistics, Inc. and Landstar Express America, Inc. Transportation and logistics services provided by the ~~multimodal~~global logistics segment include the arrangement of ~~intermodal~~multimodal (ground, air, ocean and rail) moves, contract logistics, truck brokerage, ~~and~~ emergency and expedited ground, ~~and~~ air and ocean ~~freight.~~freight and buses. The ~~multimodal~~global logistics segment markets its services primarily through independent commission sales agents and utilizes capacity provided by BCO Independent Contractors and other third party capacity providers, including ~~truck brokerage carriers,~~Truck Brokerage Carriers, railroads, air and ocean cargo ~~carriers.~~carriers and bus providers.

The insurance segment is comprised of Signature Insurance Company (“Signature”), a wholly-owned offshore insurance subsidiary, and Risk Management Claim Services, Inc. The insurance segment provides risk and claims management services to 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 Landstar’s ~~Operating Subsidiaries.~~operating subsidiaries.

During the fiscal year ended December ~~25, 2004,~~31, 2005, the carrier segment contributed ~~72%~~67% of Landstar’s consolidated revenue, the ~~multimodal~~global logistics segment contributed ~~26%~~32% of Landstar’s consolidated revenue and the insurance segment contributed 2%1% of Landstar’s consolidated revenue.


	~~Changes in Financial Condition and Results of Operations~~

Changes in Financial Condition and Results of Operations

Management believes the Company’s success principally depends on its ability to generate freight through its network of independent commission sales agents and to efficiently deliver that freight utilizing

third party capacity providers. Management believes the most significant factors to the Company’s success include increasing revenue, sourcing capacity and controlling costs.

While customer demand, which is subject to overall economic conditions, ultimately drives increases or decreases in revenue, the Company primarily relies on its independent commission sales agents to establish customer relationships and generate revenue opportunities. Management’s primary focus with respect to revenue growth is on revenue generated by independent commission sales agents who on an annual basis generate $1 million or more of Landstar revenue (“Million Dollar Agents”). Management believes future revenue growth is primarily dependent on its ability to increase both the revenue generated by Million Dollar Agents and the number of Million Dollar Agents through a combination of recruiting new agents and increasing the revenue opportunities generated by existing independent commission sales agents. 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

2004 2003 2002

Number of Million Dollar Agents 427 396 384

Average revenue generated per Million Dollar Agent $ 4,374,000 $ 3,584,000 $ 3,483,000

Percent of consolidated revenue generated by Million Dollar Agents 92 % 89 % 89 %


	Fiscal Year
	2005			2004			2003

Number of Million Dollar Agents		466			427			396

Average revenue generated per Million Dollar Agent	$	5,063,000		$	4,374,000		$	3,584,000

Percent of consolidated revenue generated by Million Dollar Agents		94	%		92	%		89	%

Management monitors business activity by tracking the number of loads (volume) and revenue per load generated by the carrier and ~~multimodal~~global logistics segments. In addition, management tracks revenue per revenue mile, average length of haul and total revenue miles at the carrier segment. Revenue per revenue mile and revenue per load (collectively, price) as well as the number of loads, can be influenced by many factors which do not necessarily indicate a change in price or volume. Those factors include the average length of haul, freight type, special handling and equipment requirements and delivery time requirements. The following table summarizes this data by reportable segment for the past three fiscal years:

Fiscal Year

2004 2003 2002

Carrier Segment:
External revenue generated through (in thousands):
Independent Contractors $ 1,191,605 $ 1,052,346 $ 1,038,298
Other third party truck capacity providers 263,257 174,825 139,965

$ 1,454,862 $ 1,227,171 $ 1,178,263

Number of loads(1) 1,046,000 1,007,000 1,012,000
Revenue per load $ 1,391 $ 1,219 $ 1,164
Revenue per revenue mile $ 1.79 $ 1.72 $ 1.66
Average length of haul (miles) 779 707 700
Multimodal Segment:
External revenue generated through (in thousands):
Independent Contractors(2) $ 105,815 $ 53,766 $ 55,816
Other third party truck capacity providers 308,106 182,333 143,317
Rail, Air and Ocean Carriers 121,001 105,142 101,583

$ 534,922 $ 341,241 $ 300,716

Number of loads(3) 324,000 256,000 262,000
Revenue per load(3) $ 1,454 $ 1,332 $ 1,150


	Fiscal Year
	2005		2004		2003

Carrier Segment:
External revenue generated through (in thousands):
BCO Independent Contractors	$	1,249,159	$	1,191,605	$	1,052,346
Truck Brokerage Carriers		442,509		263,257		174,825

	$	1,691,668	$	1,454,862	$	1,227,171

Revenue per revenue mile	$	1.92	$	1.79	$	1.72
Revenue per load	$	1,542	$	1,391	$	1,219
Average length of haul (miles)		804		779		707
Number of loads		1,097,000		1,046,000		1,007,000
Global Logistics Segment:
External revenue generated through (in thousands):
BCO Independent Contractors(1)	$	159,273	$	105,815	$	53,766
Truck Brokerage Carriers		439,604		308,106		182,333
Rail, Air, Ocean and Bus Carriers(2)		196,259		121,001		105,142

	$	795,136	$	534,922	$	341,241

Revenue per load(3)	$	1,555	$	1,454	$	1,332
Number of loads(3)		334,000		324,000		256,000


(1)		Includes revenue from freight hauled by carrier segment BCO Independent Contractors for global logistics customers.


~~(1)~~ (2)	~~Effective with~~	Included in the ~~2004 second quarter, the Company modified its methodology for reporting loads. The application of this new methodology to the 2003 and 2002~~2005 fiscal year ~~periods resulted in an increase~~was $44,007,000 of ~~3,000~~revenue attributable to buses provided under a contract between Landstar Express America, Inc. and ~~7,000 loads, respectively. This change in load recognition had no impact on reported revenue in any period.~~

~~(2)~~	~~Includes revenue generated through Carrier Segment Independent Contractors.~~the United States Department of Transportation/Federal Aviation Administration (the “FAA”).

(3)		Number of loads and revenue per load for the 2005 and 2004 fiscal ~~year~~years exclude the effect of $275,929,000 and $63,790,000, respectively, of revenue derived from disaster relief efforts provided primarily under a contract with the ~~United States Federal Aviation Administration (“FAA”)~~FAA as discussed further in the paragraphs that follow. (See the section “Use of Non-GAAP Financial Measures” on page ~~18.~~24.)

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. 25, Dec. 27, Dec. 28,
2004 2003 2002

Independent Contractors 7,800 7,584 7,365
Other third party truck capacity providers:
Approved and active(1) 11,077 9,296 8,610
Other approved 7,144 6,240 5,310

18,221 15,536 13,920

Total available truck capacity providers 26,021 23,120 21,285

Number of trucks provided by Independent Contractors 8,677 8,573 8,402


	Dec. 31,		Dec. 25,		Dec. 27,
	2005		2004		2003

BCO Independent Contractors		8,011		7,800		7,584
Truck Brokerage Carriers:
Approved and active(1)		14,014		11,077		9,296
Other approved		8,497		7,144		6,240

		22,511		18,221		15,536

Total available truck capacity providers		30,522		26,021		23,120

Number of trucks provided by BCO Independent Contractors		8,728		8,677		8,573


(1)		Active refers to ~~other third party truck capacity providers~~Truck Brokerage Carriers who moved at least one load in the 180 days immediately preceding the fiscal year end.

Historically, the Company’s carrier segment has primarily relied on capacity provided by BCO Independent Contractors. Pursuant to a continuing plan to augment its available capacity and increase its revenue, the Company has been increasing the carrier segment’s use of capacity provided by ~~other third party truck capacity providers.~~Truck Brokerage Carriers. The percent of consolidated revenue generated through all ~~truck brokerage carriers~~Truck Brokerage Carriers was 35.0% during 2005, 28.3% during 2004 and 22.4% during ~~2003 and 18.8% during 2002.~~2003.

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 ana BCO Independent Contractor or other third party capacity provider is paid to haul freight. The amount of purchased transportation paid to ana BCO Independent Contractor is primarily based on a contractually agreed-upon percentage of revenue generated by the haul. Purchased transportation for the brokerage services operations of the carrier segment is based on a negotiated rate for each load hauled. Purchased transportation for the brokerage services operations of the ~~multimodal~~global logistics segment is based on either a negotiated rate for each load hauled or a contractually agreed-upon rate. Purchased transportation for the rail intermodal, air and ocean freight ~~services~~ operations of the ~~multimodal~~global logistics segment ~~are~~is based on a contractually agreed-upon fixed ~~rates.~~rate. Purchased transportation for bus services is based upon a negotiated rate per mile or per day. Purchased transportation as a percentage of revenue for truck brokerage services, ~~and~~ rail intermodal and bus operations is normally higher than that of Landstar’s other transportation operations. 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, other third party capacity providers and revenue from the insurance segment.

Commissions to agents are ~~primarily~~ based on contractually agreed-upon percentages of revenue ~~at the carrier segment and of~~or gross profit, defined as revenue less the cost of purchased transportation, at the ~~multimodal~~carrier segment and of gross profit at the

global logistics segment. Commissions to agents as a percentage of consolidated revenue will vary directly with fluctuations in the percentage of consolidated revenue generated by the carrier segment, the ~~multimodal~~global logistics segment and the insurance segment and with changes in gross profit at the ~~multimodal~~global logistics segment and the truck brokerage operations of the carrier segment.

Trailing equipment rent, maintenance costs for trailing equipment, BCO Independent Contractor recruiting costs and bad debts from BCO Independent Contractors and independent commission sales agents are the largest components of other operating costs.

Potential liability associated with accidents in the trucking industry is severe and occurrences are unpredictable. Landstar’s retained liability for individual commercial trucking claims depends on when such claims are incurred. For commercial trucking claims incurred prior to June 19, 2003 and subsequent to March 30, 2004, Landstar retains liability up to $5,000,000 per occurrence. For commercial trucking claims incurred from June 19, 2003 through March 30, 2004, Landstar retains liability up to $10,000,000 per occurrence. For commercial trucking claims incurred from May 1, 2001 through June 18, 2003, Landstar retains liability up to $5,000,000 per occurrence. For commercial trucking claims incurred prior to May 1, 2001, Landstar retains liability up to $1,000,000 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 $250,000 for each cargo claim. The Company’s exposure to liability associated with accidents incurred by other third party capacity providers who haul freight on behalf of the Company is reduced by various factors including the extent to which ~~such providers~~they maintain their own insurance coverage. A material increase in the frequency or severity of accidents, cargo or workers’ compensation claims or the unfavorable development of existing claims could be expected to materially adversely affect Landstar’s results of operations.

Employee compensation and benefits account for over half of the Company’s selling, general and administrative costs.

Depreciation and amortization primarily relate to depreciation of trailing equipment and management information services equipment.

All historical share-related financial information presented herein has been adjusted to reflect a two-for-one stock split effected in the form of a 100% stock dividend distributed on January 7, 2005 to stockholders of record on December 28, 2004.

The following table sets forth the percentage relationships of income and expense items to revenue for the periods indicated:

Fiscal Year

2004 2003 2002

Revenue 100.0 % 100.0 % 100.0 %
Investment income 0.1 0.1 0.1
Costs and expenses:
Purchased transportation 74.8 74.2 74.1
Commissions to agents 8.0 7.9 7.9
Other operating costs 1.8 2.4 2.3
Insurance and claims 3.0 2.9 2.8
Selling, general and administrative 5.9 6.6 6.7
Depreciation and amortization 0.7 0.8 0.7

Total costs and expenses 94.2 94.8 94.5

Operating income 5.9 5.3 5.6
Interest and debt expense 0.1 0.2 0.3

Income before income taxes 5.8 5.1 5.3
Income taxes 2.2 1.9 2.0

Net income 3.6 % 3.2 % 3.3 %


	Fiscal Year
	2005			2004			2003

Revenue		100.0	%		100.0	%		100.0	%
Investment income		0.1			0.1			0.1
Costs and expenses:
Purchased transportation		74.7			74.8			74.2
Commissions to agents		8.1			8.0			7.9
Other operating costs		1.5			1.8			2.4
Insurance and claims		2.0			3.0			2.9
Selling, general and administrative		5.3			5.9			6.6
Depreciation and amortization		0.6			0.7			0.8

Total costs and expenses		92.2			94.2			94.8

Operating income		7.9			5.9			5.3
Interest and debt expense		0.2			0.1			0.2

Income before income taxes		7.7			5.8			5.1
Income taxes		2.9			2.2			1.9

Net income		4.8	%		3.6	%		3.2	%


	*~~Fiscal Year Ended December 25, 2004 Compared to Fiscal Year Ended December 27, 2003~~*

Fiscal Year Ended December 31, 2005 Compared to Fiscal Year Ended December 25, 2004

Revenue for the fiscal year 2005 was $2,517,828,000, an increase of $497,892,000, or 24.6%, compared to revenue for the 2004 fiscal year. Revenue increased $236,806,000, $260,214,000 and $872,000 at the

carrier, global logistics and insurance segments, respectively. With respect to the carrier segment, revenue per load increased approximately 11% while the number of loads delivered in 2005 increased approximately 5% over the number of loads delivered in 2004. The average length of haul per load at the carrier segment increased approximately 3% and revenue per revenue mile increased approximately 7%. Included in revenue at the global logistics segment for the 2005 and 2004 fiscal years was $275,929,000 and $63,790,000, respectively, of revenue related to disaster relief efforts for the storms that impacted the United States. These emergency transportation services were provided primarily under a contract between Landstar Express America, Inc. and the United States Department of Transportation/Federal Aviation Administration (the “FAA”). Excluding the number of loads and revenue related to the disaster relief efforts provided by the global logistics segment in 2005 and 2004, the number of loads delivered by the global logistics segment in fiscal year 2005 increased approximately 3% over 2004 and average revenue per load increased approximately 7%. The increase in average revenue per load was primarily attributable to an increase in the average length of haul of truck brokerage loads.

Investment income at the insurance segment was $2,695,000 and $1,346,000 for fiscal years 2005 and 2004, respectively. The increase in investment income was primarily due to an increased rate of return, attributable to a general increase in interest rates, on investments held by the insurance segment.

Purchased transportation was 74.7% of revenue in 2005 compared with 74.8% in 2004. The decrease in purchased transportation as a percentage of revenue was primarily attributable to increased revenue provided for disaster relief services under the FAA contract which tends to have a lower cost of purchased transportation and lower rates paid to Truck Brokerage Carriers for non-FAA related revenue. These reductions in costs were partially offset by an increase in revenue generated through truck brokerage which tends to have a higher cost of purchased transportation compared to revenue generated through BCO Independent Contractors. Commissions to agents were 8.1% of revenue in 2005 and 8.0% of revenue in 2004. The increase in commissions to agents as a percentage of revenue was primarily attributable to a change in revenue mix and the increase in gross profit on truck brokerage loads. Other operating costs were 1.5% of revenue in 2005 and 1.8% of revenue in 2004, primarily due to increased brokerage revenue, which does not incur significant other operating costs, and reduced trailer maintenance and repair costs, reflecting a reduction in the average age of Company provided trailing equipment. Insurance and claims were 2.0% of revenue in 2005 and 3.0% of revenue in 2004. The decrease in insurance and claims as a percentage of revenue was primarily attributable to $7,600,000 of costs incurred to settle one severe accident that occurred early in fiscal year 2004, favorable development of prior year claims in 2005 and increased truck brokerage revenue, which has a lower claims risk profile than revenue hauled by BCO Independent Contractors. Selling, general and administrative costs were 5.3% of revenue in 2005 and 5.9% in 2004. The decrease in selling, general and administrative costs as a percentage of revenue was primarily due to the effect of increased revenue, partially offset by an increased provision for bonuses under the Company’s incentive compensation programs. Depreciation and amortization was 0.6% of revenue in 2005 and 0.7% of revenue in 2004. The decrease in depreciation and amortization as a percentage of revenue was due to the effect of increased revenue in 2005.

Interest and debt expense was 0.2% of revenue in 2005 and 0.1% of revenue in 2004. This increase was primarily attributable to increased interest rates on the Company’s revolving credit facility, increased capital lease obligations and increased borrowings under the Company’s credit facility, partially offset by the effect of increased revenue.

The provisions for income taxes for the 2005 and 2004 fiscal years were based on estimated full year combined effective income tax rates of approximately 38.4% and 38.3%, respectively, which are higher than the statutory federal income tax rate primarily as a result of state income taxes and the meals and entertainment exclusion. The increase in the combined effective income tax rate was primarily attributable to increased apportionment of income to states having higher tax rates and changes in tax laws enacted by a number of states in which the Company operates. The Company believes that deferred income tax benefits are more likely than not to be realized because of the Company’s ability to generate future taxable earnings.

Net income for the 2005 fiscal year was $119,956,000, or $2.03 per common share ($1.98 per diluted share), which included approximately $51,945,000 of operating income related to the $275,929,000 of revenue

related to emergency transportation services provided primarily under the FAA contract. The $51,945,000 of operating income, net of related income taxes, increased net income approximately $31,626,000, or $0.53 per common share ($0.52 per diluted share). Net income for the 2004 fiscal year was $71,872,000, or $1.19 per common share ($1.16 per diluted share), which included the $7,600,000 charge to settle one accident referenced above. This charge, net of related income tax benefits, reduced 2004 net income by $4,900,000, or $0.08 per common share ($0.08 per diluted share). Also included in net income for the 2004 fiscal year is approximately $11,847,000 of operating income related to the $63,790,000 of revenue related to emergency transportation services provided primarily under the FAA contract. The $11,847,000 of operating income, net of related income taxes, increased net income approximately $7,314,000, or $0.12 per common share ($0.12 per diluted share).

Fiscal Year Ended December 25, 2004 Compared to Fiscal Year Ended December 27, 2003

Revenue for the fiscal year 2004 was $2,019,936,000, an increase of $423,365,000, or 26.5%, compared to revenue for the 2003 fiscal year. Revenue increased $227,691,000, $193,681,000 and $1,993,000 at the carrier, ~~multimodal~~global logistics and insurance segments, respectively. With respect to the carrier segment, revenue per load increased approximately 14% while the number of loads delivered in 2004 increased approximately 4% over the number of loads delivered in 2003. The average length of haul per load at the carrier segment increased approximately 10% and revenue per revenue mile increased approximately 4%. Included in revenue at the ~~multimodal~~global logistics segment for the 2004 fiscal year was $63,790,000 of revenue related to disaster relief efforts for the storms that impacted the ~~southeastern~~ United States during the 2004 third and fourth quarters. These emergency transportation services were provided primarily under a contract between Landstar Express America, Inc. and the ~~United States Federal Aviation Administration (“FAA”).~~FAA. Excluding the number of loads and revenue related to the disaster relief efforts provided by the ~~multimodal~~global logistics segment in 2004, the number of loads delivered by the ~~multimodal~~global logistics segment in fiscal year 2004 increased approximately 27% over 2003 and average revenue per load increased approximately 9%. The increase in average revenue per load was primarily attributable to an increase in the average length of haul.

Investment income at the insurance segment was $1,346,000 and $1,220,000 for fiscal ~~year~~years 2004 and 2003, respectively. The increase in investment income was primarily due to an increased rate of return, attributable to a general increase in interest rates, on investments held by the insurance segment and an increase in the average investment balance.

Purchased transportation was 74.8% of revenue in 2004 compared with 74.2% in 2003. The increase in purchased transportation as a percentage of revenue was primarily attributable to increased truck brokerage revenue and rail intermodal revenue, both of which tend to have a higher cost of purchased transportation than that associated with BCO Independent Contractors, and increased rates charged by rail capacity providers, partially offset by increased use of Company provided trailing equipment versus trailing equipment provided by BCO Independent Contractors. Commissions to agents were 8.0% of revenue in 2004 and 7.9% of revenue in 2003. The increase in commissions to agents as a percentage of revenue was primarily attributable to a change in revenue mix. Other operating costs were 1.8% of revenue in 2004 and 2.4% of

revenue in 2003, primarily due to increased brokerage revenue, which does not incur significant other operating costs, and reduced trailer maintenance and repair costs, reflecting a reduction in the average age of Company provided trailing equipment. Insurance and claims were 3.0% of revenue in 2004 and 2.9% of revenue in 2003. The increase in insurance and claims as a percentage of revenue was primarily attributable to $7,600,000 of costs incurred to settle one severe accident that occurred early in fiscal year 2004 and unfavorable development of prior year claims in 2004, partially offset by increased truck brokerage revenue, which has a lower claims risk profile. Selling, general and administrative costs were 5.9% of revenue in 2004 and 6.6% in 2003. Included in selling, general and administrative costs in 2003 was $4,150,000 of costs to defend and settle the Gulf Bridge RoRo, Inc. litigation. Excluding these costs, selling, general and administrative costs were 6.4% of revenue in 2003. The decrease in selling, general and administrative costs as a percentage of revenue, excluding the costs of the Gulf Bridge RoRo, Inc. litigation, was primarily due to the effect of increased revenue, partially offset by an increased provision for bonuses under the Company’s incentive compensation programs. Depreciation

and amortization was 0.7% of revenue in 2004 and 0.8% of revenue in 2003. The decrease in depreciation and amortization as a percentage of revenue was primarily due to the effect of increased revenue in 2004.

Interest and debt expense was 0.1% of revenue in 2004 and 0.2% of revenue in 2003. This decrease was primarily attributable to a decrease in capital lease obligations partially offset by increased interest on the Company’s revolving credit facility resulting from higher average borrowings.

The provisions for income taxes for the 2004 and 2003 fiscal years were based on estimated full year combined effective income tax rates of approximately 38.3% and 37.8%, respectively, which are higher than the statutory federal income tax rate primarily as a result of state income taxes and the meals and entertainment exclusion. The increase in the combined effective income tax rate was attributable to changes in tax laws enacted by a number of states in which the Company operates. At December 25, 2004, the valuation allowance of $420,000 was attributable to deferred state income tax benefits, which primarily represented state operating loss carryforwards at one subsidiary. The valuation allowance and goodwill will be reduced by $392,000 when realization of deferred state income tax benefits becomes likely. The Company believes that deferred income tax benefits, net of the valuation allowance, are more likely than not to be realized because of the Company’s ability to generate future taxable earnings.

Net income was $71,872,000, or $1.19 per common share ($1.16 per diluted share), which included the $7,600,000 charge to settle one accident referenced above. This charge, net of related income tax benefits, reduced 2004 net income by $4,900,000, or $0.08 per common share ($0.08 per diluted share). Also included in net income for the 2004 fiscal year is approximately $11,847,000 of operating income related to the $63,790,000 of revenue related to emergency transportation services provided primarily under the FAA contract. The $11,847,000 of operating income, net of related income taxes, increased net income approximately $7,314,000, or $0.12 per common share ($0.12 per diluted share). Net income for the 2003 fiscal year was $50,700,000, or $0.82 per common share ($0.79 per diluted share). After deducting related income tax benefits of $1,500,000, the cost of the Gulf Bridge RoRo, Inc. litigation, reduced net income by $2,650,000, or $0.04 per common share ($0.04 per diluted share), in 2003. Excluding the costs of the Gulf Bridge RoRo, Inc. litigation, net income would have been $53,350,000, or $0.87 per common share ($0.84 per diluted share), in 2003.


	~~Fiscal Year Ended December 27, 2003 Compared to Fiscal Year Ended December 28, 2002~~ *Use of Non-GAAP Financial Measures*

Revenue for the fiscal year 2003 was $1,596,571,000, an increase of $90,016,000, or 6.0%, compared to revenue for the 2002 fiscal year. Revenue increased $48,908,000, $40,525,000 and $583,000 at the carrier, multimodal and insurance segments, respectively. With respect to the carrier segment, revenue per load increased approximately 4% while the number of loads delivered in 2003 remained consistent with the number of loads delivered in 2002. The average length of haul per load at the carrier segment increased approximately 1% and revenue per revenue mile increased approximately 3%. At the multimodal segment, the number of loads delivered in 2003 decreased approximately 2% compared to 2002, however average revenue per load increased approximately 16%. The increase in average revenue per load was primarily

~~attributable to an increase in the average size of air expedited shipments, increased rates charged for expedited shipments and an increased length of haul.~~

Investment income at the insurance segment was $1,220,000 and $1,950,000 for fiscal year 2003 and 2002, respectively. The decrease in investment income was primarily due to a reduced rate of return, attributable to a general decline in interest rates, on investments held by the insurance segment.

Purchased transportation was 74.2% of revenue in 2003 compared with 74.1% in 2002. The increase in purchased transportation as a percentage of revenue was primarily attributable to increased brokerage revenue at the carrier segment, increased brokerage and rail intermodal revenue at the multimodal segment and increased rates charged by truck brokerage carriers, partially offset by increased use of Company provided trailing equipment versus trailing equipment provided by Independent Contractors. Commissions to agents were 7.9% of revenue in 2003 and 2002. An increase in commissions to agents as a percentage of revenue resulting from increased brokerage revenue at the carrier segment was offset by lower commissions as a percentage of revenue at the multimodal segment primarily due to reduced gross profit. Other operating costs were 2.4% of revenue in 2003 and 2.3% of revenue in 2002, as increased trailer maintenance costs were partially offset by reductions in Independent Contractor recruiting, qualification and incentive costs and a lower provision for independent commission sales agent and Independent Contractor bad debts. Insurance and claims were 2.9% of revenue in 2003 compared with 2.8% in 2002. The increase in insurance and claims as a percentage of revenue was primarily due to the increased cost of premiums for insurance above the Company’s self-insured retention amounts, partially offset by reduced commercial trucking claims in the $4 million excess of $1 million layer and a reduction in insurance claims resulting from increased revenue hauled by third party capacity providers other than the Company’s Independent Contractors. Selling, general and administrative costs were 6.6% of revenue in 2003 and 6.7% in 2002. Included in selling, general and administrative costs in 2003 was $4,150,000 of costs to defend and settle the Gulf Bridge RoRo, Inc. litigation. Excluding these costs, selling, general and administrative costs were 6.4% of revenue in 2003. The decrease in selling, general and administrative costs as a percentage of revenue, excluding the costs of the Gulf Bridge RoRo, Inc. litigation, was primarily due to a decreased provision for bonuses under the Company’s incentive compensation plans, decreased communications costs and a decreased provision for customer bad debts, attributable to an improving economic environment, partially offset by increased administrative costs for Independent Contractor programs at the insurance segment. Depreciation and amortization was 0.8% of revenue in 2003 and 0.7% of revenue in 2002. The increase in depreciation and amortization as a percentage of revenue was primarily due to increased depreciation expense for company-owned trailing equipment as the average number of company-owned trailers increased during 2003.

Interest and debt expense was 0.2% of revenue in 2003 and 0.3% of revenue in 2002. This decrease was primarily attributable to lower interest rates and reduced average borrowings on the Company’s senior credit facility.

The provisions for income taxes for the 2003 and 2002 fiscal years were based on effective income tax rates of approximately 37.8% and 38.0%, respectively, which is higher than the statutory federal income tax rate primarily as a result of state income taxes and the meals and entertainment exclusion.

Net income was $50,700,000, or $0.82 per common share ($0.79 per diluted share), in 2003 compared with $49,221,000, or $0.76 per common share ($0.73 per diluted share), in 2002. After deducting related income tax benefits of $1,500,000, the cost of the Gulf Bridge RoRo, Inc. litigation, reduced net income by $2,650,000, or $0.04 per common share ($0.04 per diluted share), in 2003. Excluding the costs of the Gulf Bridge RoRo, Inc. litigation, net income would have been $53,350,000, or $0.87 per common share ($0.84 per diluted share), in 2003.


	*~~Use of Non-GAAP Financial Measures~~*

In this annual report onForm 10-K, Landstar provided the following information that may be deemed non-GAAP financial measures for the 2005 and 2004 fiscal ~~year:~~years: (1) revenue per load for the ~~multimodal~~global logistics segment excluding revenue and loads related to emergency transportation services provided primarily under a contract with the FAA and (2) the

percentage change in revenue per load for the ~~multimodal~~global logistics segment excluding revenue and loads related to emergency transportation services provided primarily under a contract with the FAA as compared to revenue per load for the ~~multimodal~~global logistics segment for the corresponding prior year periods. Also, in this annual report onForm 10-K, Landstar provided the following information that may be deemed non-GAAP financial measures for the 2003 fiscal year: (1) selling, general and administrative costs, excluding the costs to defend and settle the Gulf Bridge RoRo, Inc. litigation, as a percentage of revenue, (2) earnings per common share before costs to defend and settle the Gulf Bridge RoRo, Inc. litigation, (3) earnings per diluted share before costs to defend and settle the Gulf Bridge RoRo, Inc. litigation, and (4) net income excluding costs relating to the defense and settlement of the Gulf Bridge RoRo, Inc. litigation. ~~The non-GAAP~~Each of the foregoing financial ~~information~~measures should be considered in addition to, and not as a substitute for, the corresponding GAAP financial information also presented in ~~this Form 10-K.~~the press release.

Management believes that it is appropriate to present ~~this non-GAAP~~these financial ~~information~~measures for the following reasons: (1) a significant portion of the emergency relief transportation services were provided under the FAA contract on the basis of a daily rate for the use of transportation equipment in question, and therefore load and per load information is not necessarily available or appropriate for a significant portion of the related revenue, (2) the circumstances relating to the Gulf Bridge RoRo, Inc. litigation are unusual and unique and thus are not likely to recur as part of Landstar’s normal operations, (3) disclosure of the effect of the emergency transportation services provided by Landstar relating to disaster relief efforts for the storms that impacted the ~~southeastern~~ United States during ~~the~~2005 and 2004 ~~third and fourth quarters~~ and the settlement of the Gulf Bridge RoRo, Inc. litigation will allow investors to better understand the underlying trends in Landstar’s financial condition and results of operations, (4) this information will facilitate comparisons by investors of Landstar’s results as compared to the results of peer companies, and (5) management considers ~~this non-GAAP~~these financial ~~information~~measures in its decision making.

Capital Resources and Liquidity

Shareholders’ equity was ~~$212,839,000,~~$252,635,000, or ~~70%~~60% of total capitalization (defined as total debt plus equity), at December ~~25, 2004,~~31, 2005, compared with ~~$142,515,000,~~$212,839,000, or ~~61%~~70% of total capitalization, at December ~~27, 2003.~~25, 2004. The increase in shareholders’ equity was primarily attributable to current year net income, ~~proceeds from the exercise of stock options including related income tax benefits and repayments of notes receivable arising from the exercise of stock options,~~ partially offset by the purchase of ~~681,000~~2,873,053 shares ~~(not adjusted for the two-for-one stock split effected in the form of a 100% stock dividend declared December 9, 2004)~~ of the Company’s common stock at a total cost of ~~$27,001,000.~~$95,600,000. As of December ~~25, 2004,~~31, 2005, the Company may purchase an additional ~~1,398,280~~2,525,227 shares of its common stock under its authorized stock purchase program. Long-term debt including current maturities was $166,973,000 at December 31, 2005, compared to $92,090,000 at December 25, ~~2004, compared to $91,456,000 at December 27, 2003.~~2004. Working capital and the ratio of current assets to current liabilities were $314,305,000 and 2.0 to 1, respectively, at December 31, 2005, compared with $209,753,000 and 1.87 to 1, respectively, at December 25, ~~2004, compared with $147,515,000 and 1.85 to 1, respectively, at December 27, 2003.~~2004. 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 $6,529,000 in 2005 compared with $49,744,000 in ~~2004 compared~~2004. Included in accounts receivable at December 31, 2005 was trade accounts receivable due from various departments of the United States Government of $226,057,000, which includes $215,250,000 in trade receivables from disaster relief services provided under the contract with ~~$53,396,000 in 2003.~~the FAA. The decrease in cash provided by operating activities was primarily due to an increase in trade receivables resulting in large part from revenue related to the emergency transportation services provided under the ~~contract~~FAA contract. The financing of a portion of this $215,250,000 receivable from the FAA with borrowings under the ~~FAA.~~Company’s revolving credit agreement is the primary reason for the increase in long term debt.

On July 8, 2004, Landstar renegotiated its existing credit agreement with a syndicate of banks and JPMorgan Chase Bank, as administrative agent (the “Fourth Amended and Restated Credit Agreement”). The Fourth Amended and Restated Credit Agreement 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 initial borrowing of $70,000,000 under the facility was used to refinance the Company’s prior credit facility, which has been terminated.~~

At December ~~25, 2004,~~31, 2005, the Company had ~~$63,000,000~~$120,000,000 in borrowings outstanding and ~~$27,357,000~~$27,219,000 of letters of credit outstanding onunder its Fourth Amended and Restated Credit Agreement. At December ~~25, 2004,~~31, 2005, there was ~~$134,643,000~~$77,781,000 available for future borrowings under the Company’s Fourth Amended and

Restated Credit Agreement. In addition, the Company has ~~$36,670,000~~$39,054,000 in letters of credit outstanding, as collateral for insurance claims, that are secured by investments and cash equivalents totaling ~~$38,641,000.~~$41,095,000.

The unused portion of the Fourth Amended and Restated Credit Agreement carries a commitment fee determined based on the level of the Leverage Ratio, as therein defined. As of December 25, 2004, the commitment fee for the unused portion of the Fourth Amended and Restated Credit Agreement was 0.20%. At December 25, 2004, the weighted average interest rate on borrowings outstanding under the Fourth Amended and Restated Credit Agreement was 3.10%.

The Fourth Amended and Restated Credit Agreement contains a number of covenants that limit, among other things, the incurrence of additional indebtedness, the incurrence of operating or capital lease obligations and the purchase of operating property. The Fourth Amended and Restated Credit Agreement also requires Landstar to meet certain financial tests. Landstar is required to, among other things, maintain minimum levels of consolidated Net Worth and Fixed Charge Coverage, as each is defined in the Fourth Amended and Restated Credit Agreement. Under the most restrictive covenant, Fixed Charge Coverage, earnings before interest, taxes, depreciation and amortization, less purchased capital expenditures, exceeded the required minimum by approximately $100,100,000 for the fiscal year ended December 25, 2004.

The Fourth Amended and Restated Credit Agreement provides for an event of default related to a person or group acquiring 25% or more of the outstanding capital stock of the Company or obtaining the power to elect a majority of the Company’s directors.

Borrowings under the Fourth Amended and Restated Credit Agreement are unsecured. However, Landstar System, Inc. and all but one of Landstar System Holdings, Inc.’s (“LSHI”) subsidiaries guarantee LSHI’s obligations under the Fourth Amended and Restated Credit Agreement.

Historically, the Company has generated sufficient operating cash flow to meet its debt service requirements, fund continued growth, both internal and through acquisitions and to meet working capital needs. As a non-asset based provider of transportation capacity, the Company’s annual capital requirements for operating property are generally for trailers and management information services equipment. In addition, a significant portion of the trailing equipment used by the Company is provided by third party capacity providers and through leases at rental rates that vary with the revenue generated through the use of the leased equipment, thereby reducing the Company’s capital requirements. During 2004, the Company purchased $6,377,000 of operating property and acquired $17,963,000 of trailing equipment by entering into capital leases and $14,300,000 of trailing equipment by entering into a five year operating lease with a fixed monthly payment. Landstar anticipates acquiring between $35,000,000 and $40,000,000 of operating property during fiscal year 2005 either by purchase or by lease financing. Prior to 2003, the Company historically funded its acquisition of Company provided fixed cost trailing equipment using capital leases. During 2003 and 2004, the Company acquired van trailing equipment under a long-term operating lease at a fixed monthly rental price per trailer. It is expected that capital leases will fund any significant acquisitions of Company provided trailing equipment made during 2005. The Company does not anticipate any other significant capital requirements in the near future.

~~Since 1997, the Company has purchased $315,148,000 of its common stock under programs authorized by the Board of Directors of the Company in open market and private block transactions. The~~

~~Company has used cash provided by operating activities and borrowings on the Company’s revolving credit facilities to fund the purchases.~~

~~Contractual Obligations and Commitments~~

~~At December 25, 2004, the Company’s obligations and commitments to make future payments under contracts, such as debt and lease agreements, were as follows (in thousands):~~

Payments Due By Period

Less Than 1-3 4-5 More Than
Contractual Obligation Total 1 Year Years Years 5 Years

Long-term debt $ 63,000 $ 63,000
Capital lease obligations 32,065 $ 9,858 $ 14,934 7,273
Operating leases 41,141 7,711 14,633 9,647 $ 9,150

$ 136,206 $ 17,569 $ 29,567 $ 79,920 $ 9,150

Long-term debt does not include interest. Capital lease obligations above include $2,975,000 of imputed interest. Operating leases primarily include $18,324,000 related to the Company’s main office facility located in Jacksonville, Florida and $18,158,000 related to a long-term operating lease for trailing equipment.

~~Off-Balance Sheet Arrangements~~

As of December 25, 2004, the Company had no off-balance sheet arrangements, other than operating leases as disclosed in the table of Contractual Obligations and Commitments above, that have or are reasonably likely to have a current or future material effect on the Company’s financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.

~~Legal Matters~~

On November 1, 2002, the Owner Operator Independent Drivers Association, Inc. (“OOIDA”) and six individual Independent Contractors (collectively, the “Plaintiffs”) filed a putative class action complaint (the “Complaint”) in the United States District Court for the Middle District of Florida (the “Court”) in Jacksonville, Florida, against Landstar System, Inc. and certain of its subsidiaries. The Complaint alleges that certain aspects of Company subsidiaries’ motor carrier leases with Independent Contractors violate certain federal leasing regulations and seeks injunctive relief, an unspecified amount of damages and attorney’s fees. On March 8 and June 4, 2004, the Court dismissed all claims of one of the six individual Independent Contractor Plaintiffs on the grounds that the ICC Termination Act (the “Act”) is not applicable to leases signed before the Act’s January 1, 1996, effective date, and dismissed all claims of all remaining Plaintiffs against four of the seven Company entities previously named as defendants (Landstar System, Inc., Landstar Express America, Inc., Landstar Gemini, Inc. and Landstar Logistics, Inc.). With respect to the remaining claims, the June 4, 2004 order held that the Act created a private right of action pursuant to which claims involving certain federal leasing regulations may be filed in federal court subject to a four-year statute of limitations. On November 30, 2004, the Court heard oral argument on a motion by the remaining Plaintiffs to certify the case as a class action. On February 10, 2005, the remaining Plaintiffs filed a motion to amend the Complaint to expand it to include additional allegations with respect to compliance with certain federal leasing obligations. On February 11, 2005, the remaining Defendants filed a motion to amend their previously filed Answer in the event the Court certifies a plaintiffs’ class pursuant to the remaining Plaintiffs’ pending motion. The parties are opposing each others’ motions to amend. The Court is expected to rule within the next several months on the class-certification motion and on a motion, previously filed by the remaining Defendants, for partial summary judgment. Trial is scheduled for the trial term beginning October 3, 2005. Due to a number of factors, including the recent filing of the proposed amended Complaint, the related arrival of new discovery requests from the

remaining Plaintiffs, and the lack of litigated final judgments in a number of similar cases or otherwise applicable precedents, the Company does not believe it is in a position to conclude whether or not there is a reasonable possibility of an adverse outcome in this case or what damages, if any, the remaining Plaintiffs would be awarded should they prevail on all or any part of their claims. However, the Company believes that the remaining Defendants have meritorious defenses and intend to continue asserting these defenses vigorously.

The Company is involved in certain other claims and pending litigation arising from the normal conduct of business. Based on knowledge of the facts and, in certain cases, opinions of outside counsel, management believes that adequate provisions have been made for probable losses with respect to the resolution of all such other claims and pending litigation and that the ultimate outcome, after provisions thereof, 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 25, 2004 is appropriate, a prolonged period of low or no economic growth may adversely affect the collection of these receivables. Conversely, a more robust economic environment may result in the realization of some portion of the estimated uncollectible receivables.

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 balance sheet date. The ultimate resolution of these claims may be for an amount greater or less than the amount estimated by management. Historically, the Company has experienced both favorable and unfavorable development of prior year claims estimates. The Company is continually revising its existing claim estimates as new or revised information becomes available on the status of each claim. During fiscal year 2004, insurance and claims costs included $4,390,000 of unfavorable adjustments to prior years claims estimates. During fiscal year 2003, insurance and claims costs included $498,000 of unfavorable adjustments to prior years claims estimates. During fiscal year 2002, insurance and claims costs included $868,000 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 25, 2004.

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. The Company has provided for its estimated exposure attributable to income tax planning strategies. Management believes that the provision for liabilities resulting from the implementation of income tax planning strategies 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 income tax planning strategies are not appropriate.

Significant variances from management’s estimates for the amount of uncollectible receivables, the ultimate resolution of claims or the provision for liabilities for income tax planning strategies can 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 higher than that experienced in the past five years might have an adverse effect on the Company’s results of operations.

~~Seasonality~~

~~Recently Issued Accounting Standards Not Currently Effective~~

In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (“FAS No. 123”). FAS No. 123 establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods and services. FAS No. 123 focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. Under FAS No. 123, the Company, beginning in the third quarter of 2005, will be required to measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award (with limited exceptions). The cost will be recognized over the period during which an employee is required to provide services in exchange for the award.

Currently, the Company discloses the estimated effect on net income of these share-based payments in the footnotes to the financial statements. The estimated fair value (cost) of the share-based payments has historically been determined using the Black-Scholes pricing model. As of the date of this report, the Company has not determined which method to use upon implementation of this standard. The actual compensation cost resulting from share-based payments to be included in the Company’s future results of operations may vary significantly from the amounts currently disclosed in the footnotes to the financial statements.

~~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 statement 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 workers’ compensation claims; unfavorable development of existing accident claims; dependence on independent commission sales agents; dependence on third party capacity providers; disruptions or failures in our computer systems; a downturn in domestic economic growth or growth in the transportation sector; substantial industry competition; 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 the section Factors That May Affect Future Results and/or Forward-Looking Statements immediately below. 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.

~~Factors That May Affect Future Results and/or Forward-Looking Statements~~

~~Increased severity or frequency of accidents and other claims.~~ As noted above in Item 1, “Business — Factors Significant to the Company’s Operations — Insurance and Claims,” potential liability associated with accidents in the trucking industry is severe and occurrences are unpredictable. Landstar’s retained liability for individual commercial trucking claims depends on when such claims are incurred. For commercial trucking claims incurred subsequent to March 30, 2004, Landstar retains liability up to $5,000,000 per occurrence. For commercial trucking claims incurred from June 19, 2003 through March 30, 2004, Landstar retains liability up to $10,000,000 per occurrence. For commercial trucking claims incurred from May 1, 2001 through June 18, 2003, Landstar retains liability up to $5,000,000 per occurrence. For commercial trucking claims incurred prior to May 1, 2001, Landstar retains liability up to $1,000,000 per occurrence. The Company also retains liability up to $1,000,000 for each general liability claim, $250,000 for each workers compensation claim, and $250,000 for each cargo claim. A material increase in the frequency or severity of accidents, cargo or workers’ compensation claims or the unfavorable development of existing claims could have a material adverse effect on Landstar, including its results of operations and financial condition.

~~Dependence on third party insurance companies.~~ 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 relied on various third party insurance companies to provide insurance coverage for commercial trucking claims in excess of specific per occurrence limits. Over the past three years, the premiums proposed by the third party insurance companies providing coverage for commercial trucking liability insurance above the Company’s self-insured retention amounts have varied dramatically. In an attempt to manage the cost of these increasing premiums required by the third party insurance companies, the Company has historically increased or decreased the level of its exposure to commercial trucking claims on a per occurrence basis. To the extent the third party insurance companies increase their proposed premiums for coverage of commercial trucking liability claims, the Company may increase its exposure on a per occurrence basis. However, to the extent the third party insurance companies reduce their premiums proposed for coverage of commercial trucking claims, the Company may reduce its exposure on a per occurrence basis.

~~Dependence on independent commission sales agents.~~ As noted above in Item 1, “Business — Factors Significant to the Company’s Operations — Agent Network,” the Company markets its services primarily through independent commission sales agents, and currently has a network of over 900 such agents. During 2004, 427 agents generated revenue for Landstar of at least $1 million each, or approximately 92% of Landstar’s consolidated revenue and one agent generated approximately $200,000,000, or 9%, of Landstar’s total revenue. Although the Company competes with motor carriers and other third parties for the services of these independent commission sales agents, Landstar has historically experienced very limited agent turnover among its larger-volume agents. However, Landstar’s contracts with its agents are typically terminable upon 10 to 30 days notice by either party and do not restrict the ability of a former agent to compete with Landstar following any such termination. The loss of some of the Company’s key agents or a significant decrease in volume generated by Landstar’s larger agents could have a material adverse effect on Landstar, including its results of operations and revenue.

~~Dependence on third party capacity providers.~~ As noted above in Item 1, “Business — Factors Significant to the Company’s Operations — Capacity,” Landstar does not own trucks or other transportation equipment (other than trailing equipment) and relies on third party capacity providers, including Independent Contractors, unrelated trucking companies, railroads, 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 Independent Contractors and other third party capacity providers. Freight hauled by Independent Contractors represented 64% of Landstar’s revenue in 2004. A significant decrease in available capacity provided by either the Company’s Independent Contractors or other third party capacity providers could have a material adverse effect on Landstar, including its results of operations and revenue.

~~Change in Capacity Mix.~~ Historically, the Company’s carrier segment has primarily relied on capacity provided by Independent Contractors. Pursuant to a plan to augment its available capacity and increase its revenue, the Company has been increasing the carrier segment’s use of capacity provided by other third party truck capacity providers. Freight hauled by Independent Contractors represented 64.2%, 69.3% and 72.6% of Landstar’s consolidated revenue in 2004, 2003 and 2002, respectively. Historically, with the exception of air revenue, the net margin (defined as revenue less the cost of purchased transportation and agent commissions) generated from freight hauled by Independent Contractors has been greater than freight hauled by other third party capacity providers. An increase in the amount of revenue generated through other third party capacity providers without an increase in total revenue and/or a corresponding reduction in other costs, including other operating, insurance and claims, selling, general and administrative and depreciation and amortization could have a negative effect on the Company’s operating margin (defined as operating income divided by revenue).

~~Decreased demand for transportation services.~~ The transportation industry historically has experienced cyclical financial results as a result of slowdowns in economic activity, the business cycles of customers, price increases by capacity providers, interest rate fluctuations, and other economic factors beyond Landstar’s control. Certain of the Company’s third party capacity providers can be expected to charge higher prices to cover increased operating expenses, and the Company’s operating income may decline if it is unable to pass through to its customers the full amount of such higher transportation costs. If a slowdown in economic activity or a downturn in the Company’s customers’ business cycles causes 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 services industry. The transportation services industry is extremely competitive and fragmented. Landstar competes primarily with truckload carriers, intermodal transportation service providers, railroads, less-than-truckload carriers, third party broker carriers and other non-asset based transportation service providers. Management believes that competition for the freight transported by the Company is based primarily on service and efficiency and, to a lesser degree, on freight rates alone. Historically, competition has created downward pressure on freight rates. A decrease in freight rates could have a material adverse effect on Landstar, including its revenue and operating income.

~~Dependence on key personnel.~~ The Company is dependent on the services of its executive officers. Although the Company believes it has an experienced and highly qualified management group, the loss of the services of the Company’s executive officers could have a material adverse effect on the Company.

~~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. 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 Independent Contractors. Any significant disruption or failure of its technology systems could significantly disrupt the Company’s operations and impose significant costs on the Company.

~~Potential changes in fuel taxes.~~ From time to time, various legislative proposals are introduced to increase federal, state, or local taxes, including taxes on motor fuels. The Company cannot predict whether, or in what form, any increase in such taxes applicable to the transportation services provided by the Company will be enacted and, if enacted, whether or not the Company’s Independent Contractors and other third party truck capacity providers would attempt to pass the increase onto 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 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 Independent Contractors and independent commission sales agents as independent contractors for all purposes, including employment tax and employee benefit purposes. There can be no assurance that legislative, judicial, or regulatory (including tax) authorities will not introduce proposals or assert interpretations of existing rules and regulations that would change the employee/independent contractor classification of Independent Contractors or independent commission sales agents currently doing business with the Company. Although management believes that there are no proposals currently pending that would change the employees/independent contractor classification of 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 Independent Contractor classifications could have a material adverse effect on Landstar, including its results of operations and financial condition if Landstar were unable to reflect them in its fee arrangements with the Independent Contractors or independent commission sales agents or in the prices charged to its customers.

~~Regulatory and legislative changes.~~ As noted above in Item 1, “Business — Factors Significant to the Company’s Operations — Regulation,” each of the Operating Subsidiaries is a motor carrier which is regulated by the Federal Motor Carrier Safety Administration (FMCSA) and by various state agencies. The trucking industry is subject to possible regulatory and legislative changes (such as increasingly stringent environmental 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 services. Any such regulatory or legislative changes could have a material adverse effect on Landstar, including its results of operations and financial condition.


~~Item 7a.~~	*~~Quantitative and Qualitative Disclosures about Market Risk~~*

The Company is exposed to changes in interest rates as a result of its financial activities, primarily its borrowings on the revolving credit facility, and investing activities with respect to investments held by the insurance segment.

On July 8, 2004, Landstar entered into a new senior credit facility with a syndicate of banks and JPMorgan Chase Bank, as administrative agent (the “Fourth Amended and Restated Credit Agreement”). The Fourth Amended and Restated Credit Agreement, which expires on July 8, 2009, 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 initial borrowing of $70,000,000 under the facility has been used to refinance the Company’s prior credit facility, which has been terminated.

The unused portion of the Fourth Amended and Restated Credit Agreement carries a commitment fee determined based on the level of the Leverage Ratio, as therein defined. As of December 31, 2005, the commitment fee for the unused portion of the Fourth Amended and Restated Credit Agreement was 0.20%. At December 31, 2005, the weighted average interest rate on borrowings outstanding under the Fourth Amended and Restated Credit Agreement was 5.09%.

The Fourth Amended and Restated Credit Agreement contains a number of covenants that limit, among other things, the incurrence of additional indebtedness, the incurrence of operating or capital lease obligations and the purchase of operating property. The Fourth Amended and Restated Credit Agreement also requires Landstar to meet certain financial tests. Landstar is required to, among other things, maintain minimum levels of consolidated Net Worth and Fixed Charge Coverage and limit its borrowings to a specified ratio of indebtedness to earnings before interest, taxes, depreciation and amortization (the “Leverage Ratio”), as each is defined in the Fourth Amended and Restated Credit Agreement. Under the most restrictive covenant, the

Leverage Ratio, borrowings were $160,766,000 lower than the maximum amount allowed at December 31, 2005.

Borrowings under the Fourth Amended and Restated Credit Agreement are unsecured, however, Landstar System, Inc., LSHI and all but one subsidiary guarantee the obligations under the Fourth Amended and Restated Credit Agreement.

The Fourth Amended and Restated Credit Agreement provides for a restriction on cash dividends on the Company’s capital stock only to the extent there is an event of default under the Fourth Amended and Restated Credit Agreement.

Historically, the Company has generated sufficient operating cash flow to meet its debt service requirements, fund continued growth, both internal and through acquisitions, pay dividends and to meet working capital needs. As a non-asset based provider of transportation capacity and logistics services, the Company’s annual capital requirements for operating property are generally for trailers and management information services equipment. In addition, a significant portion of the trailing equipment used by the Company is provided by third party capacity providers and through leases at rental rates that vary with the revenue generated through the use of the leased equipment, thereby reducing the Company’s capital requirements. During 2005, the Company purchased $3,857,000 of operating property and acquired $28,512,000 of trailing equipment by entering into capital leases. Landstar anticipates acquiring approximately $45,000,000 of operating property during fiscal year 2006 either by purchase or by lease financing. Prior to 2003, the Company historically funded its acquisition of Company provided fixed cost trailing equipment using capital leases. During 2004 and 2003, the Company acquired van trailing equipment under a long-term operating lease at a fixed monthly rental price per trailer. It is expected that capital leases will fund any significant acquisitions of Company provided trailing equipment made during 2006. The Company does not currently anticipate any other significant capital requirements in 2006.

Since 1997, the Company has purchased $410,748,000 of its common stock under programs authorized by the Board of Directors of the Company in open market and private block transactions. The Company has used cash provided by operating activities and borrowings on the Company’s revolving credit facilities to fund the purchases.

Contractual Obligations and Commitments

At December 31, 2005, the Company’s obligations and commitments to make future payments under contracts, such as debt and lease agreements, were as follows (in thousands):


	Payments Due by Period
			Less Than		1-3		4-5		More Than
Contractual Obligation	Total		1 Year		Years		Years		5 Years

Long-term debt	$	120,000					$	120,000
Capital lease obligations		51,560	$	14,005	$	23,987		13,568
Operating leases		34,761		7,691		13,719		5,379	$	7,972

	$	206,321	$	21,696	$	37,706	$	138,947	$	7,972

Long-term debt represents borrowings under the Fourth Amended and Restated Credit Agreement and does not include interest. Capital lease obligations above include $4,587,000 of imputed interest. Operating leases primarily include $17,397,000 related to the Company’s main office facility located in Jacksonville, Florida and $13,838,000 related to a long-term operating lease for trailing equipment.

Off-Balance Sheet Arrangements

As of December 31, 2005, the Company had no off-balance sheet arrangements, other than operating leases as disclosed in the table of Contractual Obligations and Commitments above, that have or are reasonably likely to have a current or future material effect on the Company’s financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.

Legal Matters

On November 1, 2002, the Owner Operator Independent Drivers Association, Inc. (“OOIDA”) and six individual BCO Independent Contractors (the “Plaintiffs”) filed a putative class action complaint (the “Complaint”) in the United States District Court for the Middle District of Florida (the “Court”) in Jacksonville, Florida, against the Company. The Complaint alleges that certain aspects of the Company’s motor carrier leases with its BCO Independent Contractors violate certain federal leasing regulations and seeks injunctive relief, an unspecified amount of damages and attorney’s fees. On March 8 and June 4, 2004, the Court dismissed all claims of one of the six individual Plaintiffs on the grounds that the ICC Termination Act (the “Act”) is not applicable to leases signed before the Act’s January 1, 1996, effective date, and dismissed all claims of all remaining Plaintiffs against four of the seven Company entities previously named as defendants. Claims currently survive against the following Company entities: Landstar Inway, Inc., Landstar Ligon, Inc. and Landstar Ranger, Inc. (the “Defendants”). With respect to the remaining claims, the June 4, 2004 order held that the Act created a private right of action to which a four-year statute of limitation applies. On April 7, 2005, Plaintiffs filed an Amended Complaint that included additional allegations with respect to violations of certain federal leasing regulations. On August 30, 2005, the Court granted a motion by Plaintiffs to certify the case as a class action. On October 19, 2005, the U.S. Court of Appeals for the Eleventh Circuit denied the Defendants’ petition for permission to file an interlocutory appeal of theclass-certification order.

Discovery is ongoing in the case, which is set for a jury trial in October 2006. On January 13, 2006, the Plaintiffs filed a motion for partial summary judgment on liability. On February 15, 2006, the Defendants filed their opposition to that motion and their own motion for partial summary judgment to address the claims of the Amended Complaint. The Defendants’ motion for partial summary judgment filed February 15, 2006 supersedes and replaces prior motions for partial summary judgment filed with the Court on April 18 and June 10, 2005. On March 6, 2006, the Plaintiffs filed their opposition to the Defendants’ motion for partial summary judgement. The District Court is expected to rule prior to trial on the pending motions for partial summary judgment.

Due to a number of factors, including the unresolved motions for summary judgment, the incomplete state of discovery in this matter, particularly classwide discovery, the absence of final expert reports and the lack of litigated final judgments in a number of similar cases or otherwise applicable precedents, the Company does not believe it is in a position to conclude whether or not there is a reasonable possibility of an adverse outcome in this case or what damages, if any, Plaintiffs would be awarded should they prevail on all or any part of their claims. However, the Company believes it has meritorious defenses, including to the expanded allegations in the Amended Complaint, and it intends to continue asserting these defenses vigorously.

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, 2005 is appropriate, a prolonged period of low or no economic growth may adversely affect the collection of these receivables. Conversely, a

more robust economic environment may result in the realization of some portion of the estimated uncollectible receivables.

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 balance sheet date. The ultimate resolution of these claims may be for an amount greater or less than the amount estimated by management. Historically, the Company has experienced both favorable and unfavorable development of prior year claims estimates. The Company is continually revising its existing claim estimates as new or revised information becomes available on the status of each claim. During fiscal year 2005, insurance and claims costs included $1,525,000 of favorable adjustments to prior years claims estimates. During fiscal years 2004 and 2003, insurance and claims costs included $4,390,000 and $498,000, respectively, of unfavorable 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, 2005.

Effects of Inflation

Seasonality

Recently Issued Accounting Standards Not Currently Effective

In December 2004, the Financial Accounting Standards Board issued FAS No. 123 (revised 2004), Share-Based Payment (“FAS No. 123R”). FAS No. 123R establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods and services. FAS No. 123R focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. Under FAS No. 123R, the Company, beginning in the first quarter of 2006, will be required to measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. The cost will be recognized over the period during which an employee is required to provide services in exchange for the award.

The estimated fair value (cost) of the share-based payments has historically been determined using the Black-Scholes pricing model. The estimated effect on net income of share based payments for fiscal years ended 2005, 2004 and 2003 are disclosed in Item 8, “Financial Statements and Supplementary Data”, footnote 1.

The Company expects to continue to utilize the Black-Scholes pricing model to determine the fair value of future option grants. Under the Black-Scholes pricing model, the Company expects to report compensation cost

of approximately $7 to $8 million, $5 to $6 million net of related income tax benefits, or approximately $0.09 per share, $0.09 per diluted share during 2006. The calculation of estimated compensation cost for 2006 includes various assumptions, such as estimates of the number of awards to be granted during 2006, the timing of such awards, the price of the Company’s common stock on the date of grant, the number of options to be forfeited, the value of option awards eligible for tax benefits, the volatility of the price of the Company’s common stock, the risk free interest rate and dividend yield on the Company’s common stock and the average number of common shares and common share equivalents outstanding during 2006. If the actual number of awards granted, the stock price on the date of grant, the number of options forfeited, the value of option awards eligible for tax benefits, the volatility of the price of the Company’s common stock, the risk free interest rate or dividend yield on the Company’s common stock or the average number of common shares or common share equivalents outstanding during 2006 differ from those assumptions used in calculating the estimate above, the actual compensation cost reported in 2006 may differ significantly from the estimate provided.


Item 7a.	*Quantitative and Qualitative Disclosures about Market Risk*

The Company is exposed to changes in interest rates as a result of its financial activities, primarily its borrowings under the revolving credit facility, and investing activities with respect to investments held by the insurance segment.

Borrowings under the Fourth Amended and Restated Credit Agreement bear interest at rates equal to, at the option of Landstar, either (i) the greatest of (a) the prime rate as publicly announced from time to time by JPMorgan Chase Bank, (b) the three month CD rate adjusted for statutory reserves and FDIC assessment costs plus 1% and (c) the federal funds effective rate plus1/2%, or, (ii) the rate at the time offered to JPMorgan Chase Bank in the Eurodollar market for amounts and periods comparable to the relevant loan plus a margin that is determined based on the level of the Company’s Leverage Ratio, as defined in the Fourth Amended and Restated Credit Agreement. The margin is subject to an increase of 0.125% if the aggregate amount outstanding under the Fourth Amended and Restated Credit Agreement exceeds 50% of the borrowing capacity. As of December ~~25, 2004,~~31, 2005, the weighted average interest rate on borrowings outstanding was ~~3.10%~~5.09%. During fiscal ~~2004,~~2005, the average outstanding balance under the ~~Third and~~ Fourth Amended and Restated Credit ~~Agreements were~~Agreement was approximately ~~$57,000,000.~~$78,500,000. Based on the borrowing rates in the Fourth Amended and Restated Credit Agreement and the repayment terms, the fair value of the outstanding borrowings as of December ~~25, 2004~~31, 2005 was estimated to approximate carrying value. Assuming that debt levels on the Fourth Amended and Restated Credit Agreement remain at ~~$63,000,000,~~$120,000,000, the balance at December ~~25, 2004,~~31, 2005, a hypothetical increase of 100 basis points in current rates provided for under the Fourth Amended and Restated Credit Agreement is estimated to result in an increase in interest expense of ~~$630,000~~$1,200,000 on an annualized basis.

~~The Company’s obligations~~

Borrowings under the Fourth Amended and Restated Credit Agreement are ~~guaranteed by~~unsecured, however, Landstar System, Inc., LSHI and all but one ~~of LSHI’s subsidiaries.~~subsidiary guarantee the obligations under the Fourth Amended and Restated Credit Agreement.

Long-term investments, all of which areavailable-for-sale, consist of investment grade bonds having maturities of up to five years. Assuming that the long-term portion of investments in bonds remains at ~~$16,699,000,~~$20,402,000, the balance at December ~~25, 2004,~~31, 2005, a hypothetical increase or decrease in interest rates of 100 basis points would not have a material impact on future earnings on an annualized basis. Short-term investments consist of short-term investment grade instruments and the current maturities of investment grade bonds. Accordingly, any future interest rate risk on these short-term investments would not be material.


Item 8.	*Financial Statements and Supplementary Data*

~~Item 8.~~ ~~Financial Statements and Supplementary Data~~

LANDSTAR SYSTEM, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands,

except per share amounts)


	Dec. 31,			Dec. 25,
	2005			2004

ASSETS
Current Assets
Cash and cash equivalents	$	29,398		$	61,684
Short-term investments		20,693			21,942
Trade accounts receivable, less allowance of $4,655 and $4,021		534,274			338,774
Other receivables, including advances to independent contractors, less allowance of $4,342 and $4,245		11,384			13,929
Deferred income taxes and other current assets		18,052			13,503

Total current assets		613,801			449,832

Operating property, less accumulated depreciation and amortization of $68,561 and $65,315		89,131			76,834
Goodwill		31,134			31,134
Other assets		28,694			26,712

Total assets	$	762,760		$	584,512


LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Cash overdraft	$	29,829		$	23,547
Accounts payable		164,509			120,197
Current maturities of long-term debt		12,122			8,797
Insurance claims		27,887			32,612
Accrued compensation		20,299			14,609
Other current liabilities		44,850			40,317

Total current liabilities		299,496			240,079

Long-term debt, excluding current maturities		154,851			83,293
Insurance claims		37,840			32,430
Deferred income taxes		17,938			15,871
Shareholders’ Equity
Common stock, $0.01 par value, authorized 160,000,000 and 80,000,000 shares, issued 64,151,902 and 63,154,190 shares		642			632
Additional paid-in capital		61,057			43,845
Retained earnings		412,970			295,936
Cost of 5,344,883 and 2,490,930 shares of common stock in treasury		(221,776	)		(127,151	)
Accumulated other comprehensive income (loss)		(211	)		47
Notes receivable arising from exercises of stock options		(47	)		(470	)

Total shareholders’ equity		252,635			212,839

Total liabilities and shareholders’ equity	$	762,760		$	584,512

See accompanying notes to consolidated financial statements.

LANDSTAR SYSTEM, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share amounts)

Dec. 25, Dec. 27,
2004 2003

ASSETS
Current Assets
Cash and cash equivalents $ 61,684 $ 42,640
Short-term investments 21,942 30,890
Trade accounts receivable, less allowance of $4,021 and $3,410 338,774 219,039
Other receivables, including advances to independent contractors, less allowance of $4,245 and $4,077 13,929 13,196
Deferred income taxes and other current assets 13,503 14,936

Total current assets 449,832 320,701

Operating property, less accumulated depreciation and amortization of $65,315 and $58,480 76,834 67,639
Goodwill 31,134 31,134
Other assets 26,712 18,983

Total assets $ 584,512 $ 438,457

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Cash overdraft $ 23,547 $ 20,523
Accounts payable 120,197 71,713
Current maturities of long-term debt 8,797 9,434
Insurance claims 32,612 26,293
Accrued compensation 14,609 6,903
Other current liabilities 40,317 38,320

Total current liabilities 240,079 173,186

Long-term debt, excluding current maturities 83,293 82,022
Insurance claims 32,430 27,282
Deferred income taxes 15,871 13,452
Shareholders’ Equity
Common stock, $0.01 par value, authorized 80,000,000 and 50,000,000 shares, issued 63,154,190 and 31,816,860 shares 632 318
Additional paid-in capital 43,845 18,382
Retained earnings 295,936 224,368
Cost of 2,490,930 and 1,809,930 shares of common stock in treasury (127,151 ) (100,150 )
Accumulated other comprehensive income 47 182
Notes receivable arising from exercises of stock options (470 ) (585 )

Total shareholders’ equity 212,839 142,515

Total liabilities and shareholders’ equity $ 584,512 $ 438,457


	Fiscal Years Ended
	Dec. 31,		Dec. 25,		Dec. 27,
	2005		2004		2003

Revenue	$	2,517,828	$	2,019,936	$	1,596,571
Investment income		2,695		1,346		1,220
Costs and expenses:
Purchased transportation		1,880,431		1,510,963		1,185,043
Commissions to agents		203,730		161,011		125,997
Other operating costs		36,709		37,130		37,681
Insurance and claims		50,166		60,339		45,690
Selling, general and administrative		134,085		118,461		105,849
Depreciation and amortization		15,920		13,959		12,736

Total costs and expenses		2,321,041		1,901,863		1,512,996

Operating income		199,482		119,419		84,795
Interest and debt expense		4,744		3,025		3,240

Income before income taxes		194,738		116,394		81,555
Income taxes		74,782		44,522		30,855

Net income	$	119,956	$	71,872	$	50,700

Earnings per common share	$	2.03	$	1.19	$	0.82

Diluted earnings per share	$	1.98	$	1.16	$	0.79

Average number of shares outstanding:
Earnings per common share		59,199,000		60,154,000		61,458,000

Diluted earnings per share		60,492,000		61,800,000		63,840,000

Dividends paid per common share	$	0.05

See accompanying notes to consolidated financial statements.

LANDSTAR SYSTEM, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF ~~INCOME~~CASH FLOWS

(Dollars in ~~thousands, except per share amounts)~~thousands)

Fiscal Years Ended

Dec. 25, Dec. 27, Dec. 28,
2004 2003 2002

Revenue $ 2,019,936 $ 1,596,571 $ 1,506,555
Investment income 1,346 1,220 1,950
Costs and expenses:
Purchased transportation 1,510,963 1,185,043 1,116,009
Commissions to agents 161,011 125,997 118,864
Other operating costs 37,130 37,681 34,325
Insurance and claims 60,339 45,690 42,188
Selling, general and administrative 118,461 105,849 101,918
Depreciation and amortization 13,959 12,736 11,520

Total costs and expenses 1,901,863 1,512,996 1,424,824

Operating income 119,419 84,795 83,681
Interest and debt expense 3,025 3,240 4,292

Income before income taxes 116,394 81,555 79,389
Income taxes 44,522 30,855 30,168

Net income $ 71,872 $ 50,700 $ 49,221

Earnings per common share(1) $ 1.19 $ 0.82 $ 0.76

Diluted earnings per share(1) $ 1.16 $ 0.79 $ 0.73

Average number of shares outstanding:
Earnings per common share(1) 60,154,000 61,458,000 64,565,000

Diluted earnings per share(1) 61,800,000 63,840,000 67,069,000


	Fiscal Years Ended
	Dec. 31,			Dec. 25,			Dec. 27,
	2005			2004			2003

OPERATING ACTIVITIES
Net income	$	119,956		$	71,872		$	50,700
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of operating property		15,920			13,959			12,736
Non-cash interest charges		174			348			272
Provisions for losses on trade and other accounts receivable		5,939			6,250			5,094
(Gains) losses on sales and disposals of operating property		(340	)		215			344
Director compensation paid in common stock		193			402			85
Deferred income taxes, net		(1,255	)		3,967			(2,899	)
Tax benefit on stock option exercises		8,174			9,035			5,110
Changes in operating assets and liabilities:
Increase in trade and other accounts receivable		(198,894	)		(126,718	)		(34,637	)
Decrease (increase) in other assets		686			677			(3,335	)
Increase in accounts payable		44,312			48,484			11,416
Increase in other liabilities		10,979			9,786			4,630
Increase in insurance claims		685			11,467			3,880

NET CASH PROVIDED BY OPERATING ACTIVITIES		6,529			49,744			53,396

INVESTING ACTIVITIES
Net change in other short-term investments		(1,747	)		8,461			(27,354	)
Sales and maturities of investments		4,977			4,006			4,219
Purchases of long-term investments		(6,450	)		(12,606	)		(4,542	)
Purchases of operating property		(3,857	)		(6,377	)		(5,557	)
Proceeds from sales of operating property		4,492			971			1,612

NET CASH USED BY INVESTING ACTIVITIES		(2,585	)		(5,545	)		(31,622	)

FINANCING ACTIVITIES
Increase in cash overdraft		6,282			3,024			3,978
Proceeds from repayment of notes receivable arising from exercises of stock options		423			115			605
Dividends paid		(2,922	)
Proceeds from exercises of stock options		9,216			16,036			10,584
Borrowings on revolving credit facility		57,000			71,000			38,000
Purchases of common stock		(95,600	)		(27,001	)		(73,844	)
Principal payments on long-term debt and capital lease obligations		(10,629	)		(88,329	)		(23,904	)

NET CASH USED BY FINANCING ACTIVITIES		(36,230	)		(25,155	)		(44,581	)

Increase (decrease) in cash and cash equivalents		(32,286	)		19,044			(22,807	)
Cash and cash equivalents at beginning of period		61,684			42,640			65,447

Cash and cash equivalents at end of period	$	29,398		$	61,684		$	42,640


~~(1)~~	All earnings per share amounts and average number of shares outstanding have been adjusted to give retroactive effect to a two-for-one stock split effected in the form of a 100% stock dividend declared December 9, 2004.

See accompanying notes to consolidated financial statements.

LANDSTAR SYSTEM, INC. AND SUBSIDIARY

CONSOLIDATED ~~STATEMENTS~~STATEMENT OF ~~CASH FLOWS~~

CHANGES IN SHAREHOLDERS’ EQUITY

For the Fiscal Years Ended December 31, 2005,
December 25, 2004 and December 27, 2003
(Dollars in thousands)

Fiscal Years Ended

Dec. 25, Dec. 27, Dec. 28,
2004 2003 2002

OPERATING ACTIVITIES
Net income $ 71,872 $ 50,700 $ 49,221
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of operating property 13,959 12,736 11,520
Non-cash interest charges 348 272 273
Provisions for losses on trade and other accounts receivable 6,250 5,094 7,514
Losses on sales and disposals of operating property 215 344 642
Director compensation paid in common stock 402 85
Deferred income taxes, net 3,967 (2,899 ) 5,513
Tax benefit on stock option exercises 9,035 5,110 1,404
Changes in operating assets and liabilities:
Increase in trade and other accounts receivable (126,718 ) (34,637 ) (11,221 )
Decrease (increase) in other assets 677 (3,335 ) 933
Increase in accounts payable 48,484 11,416 4,484
Increase in other liabilities 9,786 4,630 7,522
Increase in insurance claims 11,467 3,880 6,508

NET CASH PROVIDED BY OPERATING ACTIVITIES 49,744 53,396 84,313

INVESTING ACTIVITIES
Net change in other short-term investments 8,461 (27,354 )
Maturities of long-term investments 4,006 4,219 2,500
Purchases of long-term investments (12,606 ) (4,542 ) (8,889 )
Purchases of operating property (6,377 ) (5,557 ) (4,421 )
Proceeds from sales of operating property 971 1,612 387

NET CASH USED BY INVESTING ACTIVITIES (5,545 ) (31,622 ) (10,423 )

FINANCING ACTIVITIES
Increase in cash overdraft 3,024 3,978 3,527
Proceeds from repayment of notes receivable arising from exercises of stock options 115 605 4,867
Proceeds from exercises of stock options 16,036 10,584 2,467
Borrowings on revolving credit facility 71,000 38,000
Purchases of common stock (27,001 ) (73,844 ) (26,306 )
Principal payments on long-term debt and capital lease obligations (88,329 ) (23,904 ) (40,884 )

NET CASH USED BY FINANCING ACTIVITIES (25,155 ) (44,581 ) (56,329 )

Increase (decrease) in cash and cash equivalents 19,044 (22,807 ) 17,561
Cash and cash equivalents at beginning of period 42,640 65,447 47,886

Cash and cash equivalents at end of period $ 61,684 $ 42,640 $ 65,447


																				Notes
																				Receivable
																				Arising
																	Accumulated			from
					Add’l												Other			Exercises
	Common Stock				Paid-In			Retained			Treasury Stock at Cost						Comprehensive			of Stock
	Shares		Amount		Capital			Earnings			Shares			Amount			Income (Loss)			Options			Total

Balance December 28, 2002		16,337,506	$	163	$	2,609		$	173,817			554,879		$	(26,306	)				$	(1,190	)	$	149,093
Net income									50,700															50,700
Purchases of common stock												1,255,051			(73,844	)								(73,844	)
Exercises of stock options and related income tax benefit		564,021		6		15,688																		15,694
Director compensation paid in common stock		1,500				85																		85
Repayment of notes receivable arising from exercises of stock options																					605			605
Unrealized gain onavailable-for-sale investments, net of income taxes																	$	182						182
Stock split effected in the form of a 100% stock dividend		14,913,833		149					(149	)														—

Balance December 27, 2003		31,816,860		318		18,382			224,368			1,809,930			(100,150	)		182			(585	)		142,515
Net income									71,872															71,872
Purchases of common stock												681,000			(27,001	)								(27,001	)
Exercises of stock options and related income tax benefit		996,700		10		25,061																		25,071
Director compensation paid in common stock		9,000				402																		402
Repayment of notes receivable arising from exercises of stock options																					115			115
Unrealized loss onavailable-for-sale investments, net of income taxes																		(135	)					(135	)
Stock split effected in the form of a 100% stock dividend		30,331,630		304					(304	)														—

Balance December 25, 2004		63,154,190		632		43,845			295,936			2,490,930			(127,151	)		47			(470	)		212,839
Net income									119,956															119,956
Dividends paid									(2,922	)														(2,922	)
Purchases of common stock												2,873,053			(95,600	)								(95,600	)
Exercises of stock options and related income tax benefit		991,712		10		17,380																		17,390
Director compensation paid in common stock		6,000				193																		193
Repayment of notes receivable arising from exercises of stock options																					423			423
Incentive compensation paid in common stock						(361	)					(19,100	)		975									614
Unrealized loss onavailable-for-sale investments, net of income taxes																		(258	)					(258	)

Balance December 31, 2005		64,151,902	$	642	$	61,057		$	412,970			5,344,883		$	(221,776	)	$	(211	)	$	(47	)	$	252,635

See accompanying notes to consolidated financial statements.

LANDSTAR SYSTEM, INC. AND SUBSIDIARY

~~CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY~~

~~For the Fiscal Years Ended December 25, 2004,~~

~~December 27, 2003 and December 28, 2002~~

~~(Dollars in thousands)~~

Notes
Receivable
Arising
Accumulated from
Common Stock Add’l Treasury Stock at Cost Other Exercises
Paid-In Retained Comprehensive of Stock
Shares Amount Capital Earnings Shares Amount Income Options Total

Balance December 29, 2001 13,328,834 $ 133 $ 75,036 $ 258,162 5,241,841 $ (209,926 ) $ (5,965 ) $ 117,440
Net income 49,221 49,221
Retirement of treasury stock (5,241,841 ) (52 ) (76,389 ) (133,485 ) (5,241,841 ) 209,926 —
Purchases of common stock 554,879 (26,306 ) (26,306 )
Exercises of stock options and related income tax benefit 116,160 1 3,962 (92 ) 3,871
Repayment of notes receivable arising from exercises of stock options 4,867 4,867
Stock split effected in the form of a 100% stock dividend 8,134,353 81 (81 ) —

Balance December 28, 2002 16,337,506 163 2,609 173,817 554,879 (26,306 ) (1,190 ) 149,093
Net income 50,700 50,700
Purchases of common stock 1,255,051 (73,844 ) (73,844 )
Exercises of stock options and related income tax benefit 564,021 6 15,688 15,694
Director compensation paid in common stock 1,500 85 85
Repayment of notes receivable arising from exercises of stock options 605 605
Unrealized gain on available-for-sale investments, net of income taxes $ 182 182
Stock split effected in the form of a 100% stock dividend 14,913,833 149 (149 ) —

Balance December 27, 2003 31,816,860 318 18,382 224,368 1,809,930 (100,150 ) 182 (585 ) 142,515
Net income 71,872 71,872
Purchases of common stock 681,000 (27,001 ) (27,001 )
Exercises of stock options and related income tax benefit 996,700 10 25,061 25,071
Director compensation paid in common stock 9,000 402 402
Repayment of notes receivable arising from exercises of stock options 115 115
Unrealized loss on available-for-sale investments, net of income taxes (135 ) (135 )
Stock split effected in the form of a 100% stock dividend 30,331,630 304 (304 ) —

Balance December 25, 2004 63,154,190 $ 632 $ 43,845 $ 295,936 2,490,930 $ (127,151 ) $ 47 $ (470 ) $ 212,839

~~See accompanying notes to consolidated financial statements.~~

~~LANDSTAR SYSTEM, INC. AND SUBSIDIARY~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~(1) Significant Accounting Policies~~


(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. 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

The Company is the primary obligor with respect to freight delivery and assumes the related credit risk. Accordingly, revenue and the related direct freight expenses of the carrier and ~~multimodal~~global logistics segments are recognized on a gross basis 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 “Business Capacity Owner Independent Contractors” or “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 incurred prior to June 19, 2003 or subsequent to March 30, 2004, up to $5,000,000 per occurrence. For commercial trucking claims incurred from June 19, 2003 through March 30, 2004, Landstar retains liability up to $10,000,000 per occurrence. For commercial trucking claims incurred from May 1, 2001 through June 18, 2003, Landstar retains liability up to $5,000,000 per occurrence. For commercial trucking claims incurred prior to May 1, 2001, Landstar retains liability up to $1,000,000 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 $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.

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.

Investments

Investments, all of which are ~~available–for-sale,~~available-for-sale, consist of investment-grade bonds having maturities of up to five years. Investments are carried at fair value, with unrealized gains and losses, net of related income taxes, reported as accumulated other comprehensive income. Short-term investments include the current maturities of the investment grade bonds and ~~$18,931,000~~$20,678,000 of cash equivalents held at the

~~LANDSTAR SYSTEM, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

Company’s insurance segment at December ~~25, 2004.~~31, 2005. These short-term investments together with ~~$16,699,000~~$20,402,000 of the non-current portion of the investment grade bonds included in other assets at December ~~25, 2004~~31, 2005 provided collateral for ~~$36,670,000~~$39,054,000 of letters of credit issued to guarantee payment of insurance claims. Based upon quoted market

LANDSTAR SYSTEM, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

prices, the unrealized ~~gains~~loss on these bonds at December 31, 2005 was $336,000. Unrealized gains on bonds was $64,000 at December 25, ~~2004 and December 27, 2003 were $64,000 and $282,000, respectively.~~2004.

Investment income represents the earnings on the insurance segment’s assets. Investment income earned from the assets of the insurance segment are included as a component of operating income as the investing activities and earnings thereon comprise a significant portion of the insurance segment’s profitability.


	*~~Operating Property~~*

Operating Property

Operating property is recorded at cost. Depreciation is provided on a straight-line basis over the estimated useful lives of the related assets. Trailing equipment is being depreciated over 7 years. Hardware and software included in management information services equipment is generally being depreciated over 3 years.


	*~~Income Taxes~~*

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.


	*~~Stock-Based Compensation — Stock Options~~*

Stock-Based Compensation — Stock Options

The Company has two employee stock option plans and one stock option plan for members of its Board of Directors (the “Plans”). The Company accounts for stock options issued under the Plans pursuant to the recognition and measurement principles of ~~APB~~Accounting Principal Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. No stock-based employee compensation is reflected in net income from the Plans as all options granted under the Plans had an exercise price equal to the fair market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share from the Plans as if the Company had applied the fair value

~~LANDSTAR SYSTEM, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

recognition provisions of ~~SFAS~~Statement of Financial Accounting Standard (“FAS No. ~~123,~~123”), “Accounting for Stock-Based Compensation,” to stock-based employee compensation (in thousands, except per share amounts).

Fiscal Year

2004 2003 2002

Net income, as reported $ 71,872 $ 50,700 $ 49,221
Deduct:
Total stock-based employee compensation expense determined under the fair value based method for all awards, net of related income tax benefits (3,607 ) (3,522 ) (3,102 )

Pro forma net income $ 68,265 $ 47,178 $ 46,119

Earnings per common share:
As reported $ 1.19 $ 0.82 $ 0.76
Pro forma $ 1.13 $ 0.77 $ 0.71
Diluted earnings per share:
As reported $ 1.16 $ 0.79 $ 0.73
Pro forma $ 1.11 $ 0.75 $ 0.70

Fiscal Year
2005 2004 2003

Net income, as reported $ 119,956 $ 71,872 $ 50,700
Deduct:
Total stock-based employee compensation expense determined under the fair value based method for all awards, net of related income tax benefits (4,358 ) (3,607 ) (3,522 )

Pro forma net income $ 115,598 $ 68,265 $ 47,178

Earnings per common share:
As reported $ 2.03 $ 1.19 $ 0.82
Pro forma $ 1.95 $ 1.13 $ 0.77
Diluted earnings per share:
As reported $ 1.98 $ 1.16 $ 0.79
Pro forma $ 1.92 $ 1.11 $ 0.75
~~Earnings Per Share~~

35

LANDSTAR SYSTEM, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The estimated fair value (cost) of the share-based payments has historically been determined using the Black-Scholes pricing model. The Company expects to continue to utilize the Black-Scholes pricing model to determine the fair value of future option grants. The estimated effect on net income of these share-based payments are disclosed above in this footnote.

Earnings Per Share

Earnings per common share amounts are based on the weighted average number of common shares outstanding and diluted earnings per share amounts are based on the weighted average number of common shares outstanding 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 number of average common shares outstanding used to calculate earnings per share to the number of common shares and common share equivalents outstanding used in calculating diluted earnings per share (in thousands):

Fiscal Year

2004 2003 2002

Average number of common shares outstanding 60,154 61,458 64,565
Incremental shares from assumed exercises of stock options 1,646 2,382 2,504

Average number of common shares and common share equivalents outstanding 61,800 63,840 67,069

Fiscal Year
2005 2004 2003

Average number of common shares outstanding 59,199 60,154 61,458
Incremental shares from assumed exercises of stock options 1,293 1,646 2,382

Average number of common shares and common share equivalents outstanding 60,492 61,800 63,840

For the fiscal years ended December 31, 2005 and December 25, 2004, ~~and December 28, 2002,~~ there were ~~130,000~~470,000 and ~~72,000,~~130,000, respectively, of options outstanding to purchase shares of common stock excluded from the calculation of diluted earnings per share because of antidilution. For the fiscal year ended December 27, 2003, there were no options outstanding to purchase shares of common stock excluded from the calculation of diluted earnings per share because of antidilution.
(2)   ~~Recently Issued Accounting Standards Not Currently Effective~~Stock Splits and Dividends
In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (“FAS No. 123”). FAS No. 123 establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods and services. FAS No. 123 focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. Under FAS No. 123, the
34
~~LANDSTAR SYSTEM, INC. AND SUBSIDIARY~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~
Company, beginning in the third quarter of 2005, will be required to measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award (with limited exceptions). The cost will be recognized over the period during which an employee is required to provide services in exchange for the award.
      Currently, the Company discloses the estimated effect on net income of these share-based payments in the footnotes to the financial statements. The estimated fair value (cost) of the share-based payments has historically been determined using the Black-Scholes pricing model. As of the date of this report, the Company has not determined which method to use upon implementation of this standard. The actual compensation cost resulting from share-based payments to be included in the Company’s future results of operations may vary significantly from the amounts currently disclosed in the footnotes to the financial statements.
~~(2)     Stock Splits~~
On December 9, 2004, Landstar declared atwo-for-one stock-split of its common stock to be effected in the form of a 100% stock dividend. Stockholders of record on December 28, 2004 received one additional share of common stock for each share held. The additional shares were distributed on January 7, 2005.

On October 15, 2003, Landstar declared atwo-for-one stock-split of its common stock to be effected in the form of a 100% stock dividend. Stockholders of record on November 3, 2003 received one additional share of common stock for each share held. The additional shares were distributed on November 13, 2003.
~~On July 17, 2002, Landstar declared a two-for-one stock split~~
During 2005, the Company paid cash dividends of ~~its~~$0.05 per common ~~stock~~share. Dividends of $0.025 per common share were paid on November 30, 2005 and August 31, 2005 to ~~be effected in the form of a 100% stock dividend. Stockholders~~stockholders of record on November 10, 2005 and August ~~2, 2002 received one additional share of common stock for each share held. The additional shares were distributed on August 12, 2002.~~17, 2005, respectively.

36

~~Unless otherwise indicated, all share and per share amounts have been adjusted to give retroactive effect to all stock split transactions.~~

~~(3) Litigation Settlement Agreement~~LANDSTAR SYSTEM, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


(3)	Litigation Settlement Agreement

On September 20, 2001, a suit was filed entitled Gulf Bridge RoRo, Inc. v. Landstar System, Inc., Landstar Logistics, Inc. and Ford Motor Co., Inc. in Federal District Court in Mobile, Alabama. The complaint alleged breach of contract, fraud and tortious interference with contractual business relationships against Landstar System, Inc. and Landstar Logistics, Inc. arising out of a contract between Landstar Logistics, Inc. and the plaintiff involving a trans-Gulf of Mexico roll-on/roll-off shipping venture developed by the plaintiff. The suit made claim for $25,000,000 for damages for breach of contract and $50,000,000 in punitive and other damages related to the fraud and tortious interference claims. Landstar System, Inc. and all of its subsidiaries denied all claims made by the plaintiff. In order to avoid the cost of protracted litigation, on September 9, 2003 Landstar entered into a comprehensive settlement agreement with the plaintiffs and the Company’s insurance carrier with respect to all claims asserted in this lawsuit. The total cost incurred, net of insurance recoveries, by Landstar to defend and settle this suit during 2003 was approximately $4,150,000. The settlement component, net of insurance recoveries, was $2,700,000. Net of related income tax benefits these costs reduced Landstar’s net income for 2003 by approximately $2,650,000, or $0.04 per common share ($0.04 per diluted share).

~~LANDSTAR SYSTEM, INC. AND SUBSIDIARY~~


(4)	Comprehensive Income

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~(4) Comprehensive Income~~

The following table includes the components of comprehensive income for the fiscal years ended December 31, 2005, December 25, 2004 and December 27, ~~2003. The Company did not have any transactions resulting in comprehensive income in years prior to~~ 2003 (in thousands):

Fiscal Year

2004 2003

Net income $ 71,872 $ 50,700
Unrealized holding gains (losses) on available-for-sale investments, net of income taxes (135 ) 182

Comprehensive income $ 71,737 $ 50,882

Fiscal Year
2005 2004 2003

Net income $ 119,956 $ 71,872 $ 50,700
Unrealized holding gains (losses) onavailable-for-sale investments, net of income taxes
(258 ) (135 ) 182

Comprehensive income $ 119,698 $ 71,737 $ 50,882

The unrealized holding loss onavailable-for-sale investments for 2005 represents themark-to-market adjustment of $400,000 net of related income tax benefits of $142,000. The unrealized holding loss onavailable-for-sale investments for 2004 represents themark-to-market adjustment of $218,000 net of related income tax benefits of $83,000. The unrealized holding gain onavailable-for-sale investments for 2003 represents themark-to-market adjustment of $282,000, net of the related income taxes of $100,000.

37

~~(5) Income Taxes~~LANDSTAR SYSTEM, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


(5)	Income Taxes

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

Fiscal Year

2004 2003 2002

Current:
Federal $ 37,233 $ 25,217 $ 23,362
State 3,322 8,537 1,293

40,555 33,754 24,655
Deferred:
Federal 3,400 3,063 4,273
State 567 (5,962 ) 1,240

3,967 (2,899 ) 5,513

Income taxes $ 44,522 $ 30,855 $ 30,168

~~LANDSTAR SYSTEM, INC. AND SUBSIDIARY~~

Fiscal Year
2005 2004 2003

Current:
Federal $ 66,787 $ 37,233 $ 25,217
State 9,250 3,322 8,537

76,037 40,555 33,754
Deferred:
Federal (1,443 ) 3,400 3,063
State 188 567 (5,962 )

(1,255 ) 3,967 (2,899 )

Income taxes $ 74,782 $ 44,522 $ 30,855

~~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. 25, 2004 Dec. 27, 2003

Deferred tax assets:
Receivable valuations $ 3,538 $ 3,509
State net operating loss carryforwards 1,282 1,486
Self-insured claims 4,045 3,182
Other 4,125 5,677

12,990 13,854
Valuation allowance (420 ) (461 )

$ 12,570 $ 13,393

Deferred tax liabilities:
Operating property $ 16,913 $ 14,321
Goodwill 3,890 3,338

$ 20,803 $ 17,659

Dec. 31,
Dec. 25,

2005 2004

Deferred tax assets:
Receivable valuations $ 3,702 $ 3,538
State net operating loss carryforwards 633 1,282
Self-insured claims 4,365 4,045
Other 5,165 4,125

13,865 12,990
Valuation allowance (420 )

$ 13,865 $ 12,570

Deferred tax liabilities:
Operating property $ 16,384 $ 16,913
Goodwill 4,459 3,890

$ 20,843 $ 20,803

Net deferred tax liability $ 6,978 $ 8,233

At December 25, 2004, the valuation allowance of $420,000 was attributable to deferred state income tax benefits, which primarily represented state operating loss carryforwards at one subsidiary. ~~The~~During 2005, the loss carryforwards were charged against the valuation ~~allowance and goodwill will be reduced by $392,000 when realization of deferred state income tax benefits becomes likely.~~allowance.

38

LANDSTAR SYSTEM, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table summarizes the differences between income taxes calculated at the federal income tax rate of 35% on income before income taxes and the provisions for income taxes (in thousands):

Fiscal Year

2004 2003 2002

Income taxes at federal income tax rate $ 40,738 $ 28,544 $ 27,786
State income taxes, net of federal income tax benefit 2,528 1,674 1,646
Meals and entertainment exclusion 789 500 786
Other, net 467 137 (50 )

Income taxes $ 44,522 $ 30,855 $ 30,168

Fiscal Year
2005 2004 2003

Income taxes at federal income tax rate $ 68,158 $ 40,738 $ 28,544
State income taxes, net of federal income tax benefit 6,135 2,528 1,674
Meals and entertainment exclusion 229 789 500
Other, net 260 467 137

Income taxes $ 74,782 $ 44,522 $ 30,855

Landstar paid income taxes of $65,367,000 in 2005, $30,644,000 in 2004 and $25,506,000 in ~~2003 and $23,540,000 in 2002.~~
37
~~LANDSTAR SYSTEM, INC. AND SUBSIDIARY~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~
~~(6)     Operating Property~~2003.

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

Dec. 25, 2004 Dec. 27, 2003

Land $ 1,999 $ 1,999
Leasehold improvements 8,730 8,476
Buildings and improvement 8,221 8,250
Trailing equipment 93,739 80,355
Other equipment 29,460 27,039

142,149 126,119
Less accumulated depreciation and amortization 65,315 58,480

$ 76,834 $ 67,639

Dec. 31,
Dec. 25,

2005 2004

Land $ 1,921 $ 1,999
Leasehold improvements 8,926 8,730
Buildings and improvement 8,117 8,221
Trailing equipment 110,226 93,739
Other equipment 28,502 29,460

157,692 142,149
Less accumulated depreciation and amortization 68,561 65,315

$ 89,131 $ 76,834

Included above is $62,708,000 in 2005 and $57,941,000 in 2004 ~~and $51,396,000 in 2003~~ of operating property under capital leases, ~~$40,640,000~~$52,841,000 and ~~$33,192,000,~~$40,640,000, respectively, net of accumulated amortization. Landstar acquired operating property by entering into capital leases in the amount of $28,512,000 in 2005 and $17,963,000 in ~~2004 and $16,370,000 in 2002.~~2004. Landstar did not acquire any property by entering into capital leases in 2003.
~~(7)     Retirement Plan~~
(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 was $1,312,000 in 2005, $1,201,000 in 2004 and $1,127,000 in ~~2003 and $1,093,000 in 2002.~~2003.

39

~~(8) Debt~~LANDSTAR SYSTEM, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


(8)	Debt

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

Dec. 25, 2004 Dec. 27, 2003

Capital leases $ 29,090 $ 21,456
Revolving credit facility 63,000 70,000

92,090 91,456
Less current maturities 8,797 9,434

Total long-term debt $ 83,293 $ 82,022

Dec. 31,
Dec. 25,

2005 2004

Capital leases $ 46,973 $ 29,090
Revolving credit facility 120,000 63,000

166,973 92,090
Less current maturities 12,122 8,797

Total long-term debt $ 154,851 $ 83,293

On July 8, 2004, Landstar renegotiated its existing credit agreement with a syndicate of banks and JP Morgan Chase Bank, as administrative agent (the “Fourth Amended and Restated Credit Agreement”). The Fourth Amended and Restated Credit Agreement, which expires on July 8, 2009, 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 initial borrowing of $70,000,000 under the facility has been used to refinance the Company’s prior credit facility, which has been terminated.~~

Borrowings under the Fourth Amended and Restated Credit Agreement bear interest at rates equal to, at the option of Landstar, either (i) the greatest of (a) the prime rate as publicly announced from time to time by JPMorgan Chase Bank, (b) the three month CD rate adjusted for statutory reserves and FDIC
38
~~LANDSTAR SYSTEM, INC. AND SUBSIDIARY~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~
assessment costs plus 1% and (c) the federal funds effective rate plus¹/2% 1/2%, or, (ii) the rate at the time offered to JPMorgan Chase Bank in the Eurodollar market for amounts and periods comparable to the relevant loan plus a margin that is determined based on the level of the Company’s Leverage Ratio, as defined in the Fourth Amended and Restated Credit Agreement. The margin is subject to an increase of 0.125% if the aggregate amount outstanding under the Fourth Amended and Restated Credit Agreement exceeds 50% of the total borrowing capacity. As of December ~~25, 2004,~~31, 2005, the margin was equal to ~~75.0/~~87.5/100 of 1%.

The unused portion of the Fourth Amended and Restated Credit Agreement carries a commitment fee determined based on the level of the Company’s Leverage Ratio, as therein defined. As of December ~~25, 2004,~~31, 2005, the commitment fee for the unused portion of the Fourth Amended and Restated Credit Agreement was 0.20%. At December ~~25, 2004,~~31, 2005, the weighted average interest rate on borrowings outstanding under the Fourth Amended and Restated Credit Agreement was ~~3.10%~~5.09%. Based on the borrowing rates in the Fourth Amended and Restated Credit Agreement and the repayment terms, the fair value of the outstanding borrowings under the Fourth Amended and Restated Credit Agreement was estimated to approximate carrying value.

The Fourth Amended and Restated Credit Agreement contains a number of covenants that limit, among other things, the incurrence of additional indebtedness, the incurrence of operating or capital lease obligations and the purchase of operating property. The Fourth Amended and Restated Credit Agreement also requires Landstar to meet certain financial tests. Landstar is required to, among other things, maintain minimum levels of ~~Consolidated~~consolidated Net Worth and Fixed Charge Coverage and limit its borrowings to a specified ratio of indebtedness to earnings before interest, taxes, depreciation and amortization (the “Leverage Ratio”), as each is defined in the Fourth Amended and Restated Credit Agreement. Under the most restrictive covenant, ~~Fixed Charge Coverage, earnings before interest, taxes, depreciation~~the Leverage Ratio, borrowings were $160,766,000 lower than the maximum amount allowed at December 31, 2005.
The Company’s Fourth Amended and ~~amortization, less purchased~~Restated Credit Agreement provides for a restriction on cash dividends on the Company’s capital ~~expenditures, exceeded~~stock only to the ~~required minimum by approximately $100,100,000 for~~extent there is an event of default under the ~~fiscal year ended December 25, 2004.~~Fourth Amended and Restated Credit Agreement.

40

LANDSTAR SYSTEM, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Borrowings under the Fourth Amended and Restated Credit Agreement are unsecured, however, Landstar System, Inc., LSHI and all but one ~~of LSHI’s subsidiaries~~subsidiary guarantee ~~LSHI’s~~the obligations under the Fourth Amended and Restated Credit Agreement.

Landstar paid interest of $5,040,000 in 2005, $3,247,000 in 2004 and $3,475,000 in ~~2003 and $4,480,000 in 2002.~~

~~LANDSTAR SYSTEM, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~(9) Leases~~2003.


(9)	Leases

The future minimum lease payments under all noncancelable leases at December ~~25, 2004,~~31, 2005, principally for trailing equipment and the Company’s headquarters facility in Jacksonville, Florida, are shown in the following table (in thousands):

Capital Operating
Leases Leases

2005 $ 9,858 $ 7,711
2006 7,691 7,612
2007 7,243 7,021
2008 4,103 6,453
2009 3,170 3,194
Thereafter 9,150

32,065 $ 41,141

Less amount representing interest (3.6% to 8.3%) 2,975

Present value of minimum lease payments $ 29,090

Capital
Operating

Leases Leases

2006 $ 14,005 $ 7,691
2007 13,558 7,092
2008 10,429 6,627
2009 9,497 3,277
2010 4,071 2,102
Thereafter 7,972

51,560 $ 34,761

Less amount representing interest (3.6% to 5.3%) 4,587

Present value of minimum lease payments $ 46,973

Total rent expense, net of sublease income, was $17,969,000 in 2005, $17,106,000 in 2004 and $18,125,000 in ~~2003 and $19,250,000 in 2002.~~
~~(10) Stock Compensation Plans~~2003.

(10) Stock Compensation Plans
On May 15, 2003, the ~~shareholders~~stockholders of the Company voted for the proposal to implement a new Directors’ Stock Compensation Plan. Under this new plan, all independent directors who are elected or re-elected to the Board will receive 6,000 shares of common stock of the Company, subject to certain restrictions including restrictions on transfer. During 2005, 2004 and 2003, 6,000, 18,000 and 6,000 shares, respectively, of the Company’s common stock were issued to members of the Board of Directors upon re-election at the annual ~~shareholder~~stockholder meetings. During 2005, 2004 and 2003, the Company reported $193,000, $402,000 and $85,000, respectively, in compensation expense representing the fair market value of these share awards.

Under the 1993 Stock Option Plan, as amended, the Compensation Committee of the Board of Directors was authorized to grant options to Company employees to purchase up to 4,460,000 shares of common stock. Under the 2002 Employee Stock Option Plan, the Compensation Committee of the Board of Directors was authorized to grant options to Company employees to purchase up to 6,400,000 shares of common stock. Under the 1994 Directors’ Stock Option Plan, as amended (the “DSOP”), options to purchase up to 420,000 shares of common stock were authorized to be granted to outside members of the Board of Directors upon election or re-election to the Board of Directors. Effective May 15, 2003, no further grants will be made under the DSOP. Also, no further grants will be made under the 1993 Stock Option Plan as it has expired.

41

LANDSTAR SYSTEM, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Options granted under the Plans become exercisable in either three or five equal annual installments commencing on the first anniversary of the date of grant or vest 100% four and one-half years from the date of grant or 100% on the fifth anniversary from the date of grant, subject to acceleration in certain circumstances. All options granted under the ~~plans~~Plans expire on the tenth anniversary of the date of grant. Under the Plans, the exercise price of each option equals the fair market ~~price~~value of the Company’s common stock on the date of grant. At December ~~25, 2004,~~31, 2005, there were ~~8,295,124~~7,301,812 shares of the Company’s common stock reserved for issuance upon exercise of options granted and to be granted under the Plans and ~~176,000~~170,000 shares reserved for issuance under the 2003 Directors’ Stock Compensation Plan.

~~LANDSTAR SYSTEM, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

Information regarding the Company’s stock option plans is as follows:

Options Outstanding Options Exercisable

Weighted Average Weighted Average
Exercise Price Exercise Price
Shares Per Share Shares Per Share

Options at December 29, 2001 4,492,160 $ 5.82 1,661,440 $ 4.31
Granted 1,656,000 $ 9.22
Exercised (654,080 ) $ 3.92

Options at December 28, 2002 5,494,080 $ 7.07 1,861,752 $ 5.29
Granted 985,200 $ 14.06
Exercised (1,897,556 ) $ 5.58
Forfeited (22,400 ) $ 10.72

Options at December 27, 2003 4,559,324 $ 9.18 1,328,204 $ 7.11
Granted 660,000 $ 20.59
Exercised (1,993,400 ) $ 8.04
Forfeited (110,160 ) $ 9.85

Options at December 25, 2004 3,115,764 $ 12.31 664,324 $ 8.56

Options Outstanding Options Exercisable
Weighted Average
Weighted Average

Exercise Price
Exercise Price

Shares per Share Shares per Share

Options at December 28, 2002 5,494,080 $ 7.07 1,861,752 $ 5.29
Granted 985,200 $ 14.06
Exercised (1,897,556 ) $ 5.58
Forfeited (22,400 ) $ 10.72

Options at December 27, 2003 4,559,324 $ 9.18 1,328,204 $ 7.11
Granted 660,000 $ 20.59
Exercised (1,993,400 ) $ 8.04
Forfeited (110,160 ) $ 9.85

Options at December 25, 2004 3,115,764 $ 12.31 664,324 $ 8.56
Granted 683,000 $ 35.77
Exercised (991,712 ) $ 9.29
Forfeited (12,400 ) $ 22.31

Options at December 31, 2005 2,794,652 $ 19.07 855,816 $ 10.37

The following tables summarize stock options outstanding and exercisable at December ~~25, 2004:~~31, 2005:

Options Outstanding

Number Weighted Average Weighted Average
Outstanding Remaining Contractual Exercise Price
Range of Exercise Prices Per Share Dec. 25, 2004 Life (years) Per Share

$ 3.99 - $ 6.00 258,640 4.2 $ 4.89
$ 6.01 - $ 9.00 834,240 6.3 $ 8.16
$ 9.01 - $13.50 860,084 7.5 $ 10.87
$13.51 - $20.00 1,012,800 8.5 $ 16.82
$20.01 - $26.47 150,000 9.5 $ 25.95

3,115,764 7.3 $ 12.31

Options Exercisable

Number Weighted Average
Exercisable Exercise Price
Range of Exercise Prices Per Share Dec. 25, 2004 Per Share

$ 3.99 - $ 6.00 134,000 $ 3.99
$ 6.01 - $ 9.00 376,000 $ 7.99
$ 9.01 - $13.50 68,724 $ 13.01
$13.51 - $14.62 85,600 $ 14.62

664,324 $ 8.56

Options Outstanding
Number

Outstanding
Weighted Average
Weighted Average

Dec. 31,
Remaining Contractual
Exercise Price

Range of Exercise Prices per Share
2005 Life (Years) per Share

$ 3.99 - $ 6.00 113,176 2.5 $ 4.14
$ 6.01 - $ 9.00 643,600 5.2 $ 8.12
$ 9.01 - $13.50 299,860 6.9 $ 13.08
$13.51 - $20.00 913,016 7.6 $ 17.06
$20.01 - $30.00 148,000 8.5 $ 26.02
$30.01 - $37.31 677,000 9.0 $ 35.80

2,794,652 7.2 $ 19.07

42

LANDSTAR SYSTEM, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Options Exercisable
Number

Exercisable
Weighted Average

Dec. 31,
Exercise Price

Range of Exercise Prices per Share
2005 per Share

$ 3.99 - $ 6.00 113,176 $ 4.14
$ 6.01 - $ 9.00 416,880 $ 8.03
$ 9.01 - $13.50 78,340 $ 12.98
$13.51 - $19.03 247,420 $ 16.33

855,816 $ 10.37

The fair value of each option grant on its grant date was calculated using the Black-Scholes option pricing model with the following assumptions for grants made in 2005, 2004 ~~2003~~ and ~~2002:~~2003: risk-free interest rate of 4.5% in 2005 and 3.5%, in 2004 and 2003, expected lives of 5 years and no dividend yield. The expected volatility used in calculating the fair market value of stock options granted was 31% in 2005 and 40%. in 2004 and 2003. The weighted average grant date fair value of stock options granted was $12.76, $8.32 ~~$5.67~~ and ~~$3.72~~$5.67 per share in 2005, 2004 and 2003, ~~and 2002,~~ respectively.

~~LANDSTAR SYSTEM, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~(11) Shareholders’ Equity~~


(11)	Shareholders’ Equity

On May 15, 2003, the Company announced that it had been authorized by its Board of Directors to purchase up to 1,000,000 shares of its common stock, (without regard to any subsequent stock splits) from time to time in the open market and in privately negotiated transactions. On December 4, 2003,April 28, 2005, the Company announced that it had been authorized by its Board of Directors to purchase up to an additional ~~1,000,000~~2,000,000 shares of its common stock ~~(without regard~~from time to ~~any subsequent~~time in the open market and in privately negotiated transactions. On July 28, 2005, the Company announced that it had been authorized by its Board of Directors to purchase up to an additional 2,000,000 shares of its common stock ~~splits)~~ from time to time in the open market and in privately negotiated transactions.

During ~~2004,~~2005, Landstar purchased ~~681,000~~2,873,053 shares of its common stock ~~(not adjusted for the stock split declared on December 9, 2004)~~ at a total cost of ~~$27,001,000~~$95,600,000 pursuant to its previously announced stock purchase programs. The Company did not purchase any shares of its common stock under the programs during the period from September ~~25, 2004,~~24, 2005, the end of the Company’s third fiscal quarter, to December ~~25, 2004,~~31, 2005, the end of the Company’s fourth fiscal quarter. As of December ~~25, 2004,~~31, 2005, Landstar may purchase an additional ~~1,398,280~~2,525,227 shares of its common stock under its authorized stock purchase programs.

At the May ~~13, 2004~~12, 2005 annual meeting of ~~shareholders,~~stockholders, the ~~shareholders~~stockholders of the Company approved an amendment to Article IV of the Company’s Restated Certificate of Incorporation to increase the number of authorized shares of the Company’s common stock from ~~50,000,000~~80,000,000 shares to ~~80,000,000~~160,000,000 shares.

During 1998, the Company established an employee stock option loan program. Under the terms of the program, the Company provided employees financing in order for them to exercise fully vested stock options. The loans are full recourse with the principal repayable in lump sum on the fifth anniversary of the loan. During 2002, $92,000 of such loans were issued. Effective May 1, 2002, the Company ceased making loans under the employee stock option loan program and terminated the program with respect to future stock option exercises.

The Company has 2,000,000 shares of preferred stock authorized and unissued.

~~(12) Segment Information~~


(12)	Segment Information

The Company has three reportable business segments. These are the carrier, ~~multimodal~~global logistics (formerly multimodal) and insurance segments. The carrier segment provides truckload transportation for a wide range of general commodities primarily over irregular or non-repetitive routes with its fleet of dry and specialty vans and unsided trailers, including flatbed, drop deck and specialty. It also providesshort-to-long haul movement

LANDSTAR SYSTEM, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

of containers by truck, dedicated power-only truck capacity and truck brokerage. The carrier segment markets its services primarily through independent commission sales agents and utilizes tractors provided by independent contractors who provide truck capacity to the Company under exclusive lease arrangements (the ~~“Independent~~“Business Capacity Owner Independent Contractors” or “BCO Independent Contractors”) and other third party truck capacity ~~providers.~~providers who provide truck capacity to the Company under non-exclusive contractual arrangements (“Truck Brokerage Carriers”). Transportation services provided by the ~~multimodal~~global logistics segment include the arrangement of intermodal moves, contract logistics, truck brokerage and emergency and expedited ground and air ~~freight.~~freight, ocean cargo and buses. The ~~multimodal~~global logistics segment markets its services through independent commission sales agents and primarily utilizes capacity provided by BCO Independent Contractors and other third party capacity providers, including ~~truck brokerage carriers,~~Truck Brokerage Carriers, railroads, ~~and~~ air and ocean cargo ~~carriers.~~carriers and bus providers. The nature of the carrier and ~~multimodal~~global logistics segments’ ~~business~~businesses is such that a significant portion of their operating costs varies directly with revenue. The insurance segment provides risk and claims management services to Landstar’s operating subsidiaries. In addition, it reinsures certain property, casualty and occupational accident risks of certain BCO Independent Contractors and provides certain property and casualty insurance directly to Landstar’s operating subsidiaries.

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.

~~LANDSTAR SYSTEM, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

Internal revenue for transactions between the carrier and ~~multimodal~~global logistics segments is based on quoted rates which are believed to approximate the cost that would have been incurred had similar services been obtained from an unrelated third party. Internal revenue for premiums billed by the insurance segment to the carrier and ~~multimodal~~global logistics segments 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 carrier and ~~multimodal~~global logistics segments had similar insurance been obtained from an unrelated third party.

~~No single customer accounts for more than 10% of consolidated revenue. In total, the~~

During 2005, 2004 and 2003, revenue derived from various departments ~~and agencies~~ of the United States ~~government accounted for approximately~~Government represented 17%, 9% and 7%, respectively, of consolidated revenue. Included in consolidated revenue ~~including~~derived from the various departments of the United States Government in 2005 and 2004 was $275,929,000 and $63,790,000, respectively, of emergency transportation services related to disaster relief efforts for storms that impacted the ~~southeastern~~ United ~~States during the 2004 third and fourth quarters.~~States. These emergency transportation services were provided primarily under a contract between Landstar Express America and the United States Department of Transportation/Federal Aviation Administration and reflected in revenue of the ~~multimodal~~global logistics segment. No other single customer accounted for more than 10% of consolidated revenue in 2005, 2004 or 2003. In addition, during ~~2004~~2005 approximately 8%9% of the Company’s revenue was attributable to the automotive industry. One agent in the ~~multimodal~~global logistics segment contributed approximately ~~$200,000,000~~$197,000,000 of the Company’s revenue in ~~2004.~~2005. Substantially all of the Company’s revenue is generated in the United States.

LANDSTAR SYSTEM, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following tables summarize information about the Company’s reportable business segments as of and for the fiscal years ending December 31, 2005, December 25, 2004 and December 27, 2003 ~~and December 28, 2002~~ (in thousands):

Carrier Multimodal Insurance Other Total

2004

External revenue $ 1,454,862 $ 534,922 $ 30,152 $ 2,019,936
Internal revenue 48,673 4,967 30,538 84,178
Investment income 1,346 1,346
Interest and debt expense $ 3,025 3,025
Depreciation and amortization 9,473 270 4,216 13,959
Operating income 128,400 26,211 12,456 (47,648 ) 119,419
Expenditures on long-lived assets 730 206 5,441 6,377
Goodwill 20,496 10,638 31,134
Capital lease additions 17,963 17,963
Total assets 317,466 136,311 91,183 39,552 584,512

2003

External revenue $ 1,227,171 $ 341,241 $ 28,159 $ 1,596,571
Internal revenue 20,852 4,300 32,442 57,594
Investment income 1,220 1,220
Interest and debt expense $ 3,240 3,240
Depreciation and amortization 8,728 272 3,736 12,736
Operating income 94,303 6,403 21,227 (37,138 ) 84,795
Expenditures on long-lived assets 2,652 712 2,193 5,557
Goodwill 20,496 10,638 31,134
Total assets 254,606 70,607 64,363 48,881 438,457

Global

Carrier Logistics Insurance Other Total

2005

External revenue $ 1,691,668 $ 795,136 $ 31,024 $ 2,517,828
Internal revenue 95,872 2,222 31,036 129,130
Investment income 2,695 2,695
Interest and debt expense $ 4,744 4,744
Depreciation and amortization 11,262 309 4,349 15,920
Operating income 171,236 60,856 19,374 (51,984 ) 199,482
Expenditures on long-lived assets 798 20 3,039 3,857
Goodwill 20,496 10,638 31,134
Capital lease additions 28,512 28,512
Total assets 360,083 304,727 58,379 39,571 762,760

2004

External revenue $ 1,454,862 $ 534,922 $ 30,152 $ 2,019,936
Internal revenue 48,673 4,967 30,538 84,178
Investment income 1,346 1,346
Interest and debt expense $ 3,025 3,025
Depreciation and amortization 9,473 270 4,216 13,959
Operating income 128,400 26,211 12,456 (47,648 ) 119,419
Expenditures on long-lived assets 730 206 5,441 6,377
Goodwill 20,496 10,638 31,134
Capital lease additions 17,963 17,963
Total assets 317,466 136,311 91,183 39,552 584,512

2003

External revenue $ 1,227,171 $ 341,241 $ 28,159 $ 1,596,571
Internal revenue 20,852 4,300 32,442 57,594
Investment income 1,220 1,220
Interest and debt expense $ 3,240 3,240
Depreciation and amortization 8,728 272 3,736 12,736
Operating income 94,303 6,403 21,227 (37,138 ) 84,795
Expenditures on long-lived assets 2,652 712 2,193 5,557
Goodwill 20,496 10,638 31,134
Total assets 254,606 70,607 64,363 48,881 438,457
43
45

LANDSTAR SYSTEM, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Carrier Multimodal Insurance Other Total

2002

External revenue $ 1,178,263 $ 300,716 $ 27,576 $ 1,506,555
Internal revenue 23,703 2,483 29,860 56,046
Investment income 1,950 1,950
Interest and debt expense $ 4,292 4,292
Depreciation and amortization 7,546 126 3,848 11,520
Operating income 87,777 7,793 22,754 (34,643 ) 83,681
Expenditures on long-lived assets 329 4,092 4,421
Goodwill 20,496 10,638 31,134
Capital lease additions 16,370 16,370
Total assets 241,068 59,571 70,198 29,911 400,748

~~(13) Commitments and Contingencies~~


(13)	Significant Concentrations of Credit

At December ~~25, 2004,~~31, 2005, trade accounts receivable included $226,057,000 receivable from various departments of the United States Government, including $215,250,000 due with respect to disaster relief services provided under the FAA contract.


(14)	Commitments and Contingencies

At December 31, 2005, in addition to the ~~$36,670,000 of~~$39,054,000 letters of credit secured by investments, Landstar had ~~$27,357,000~~$27,219,000 of letters of credit outstanding under the Company’s revolving credit facility.

~~LANDSTAR SYSTEM, INC. AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

45
46

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 as of December ~~25, 2004~~31, 2005 and December ~~27, 2003,~~25, 2004, and the related consolidated statements of income, changes in shareholders’ equity and cash flows for the fiscal years ended December 31, 2005, December 25, 2004 and December 27, ~~2003 and December 28, 2002.~~2003. 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 ~~25, 2004~~31, 2005 and December ~~27, 2003,~~25, 2004, and the results of their operations and their cash flows for the fiscal years ended December 31, 2005, December 25, 2004 and December 27, 2003, ~~and December 28, 2002~~ 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), the effectiveness of Landstar System, Inc.’s internal control over financial reporting as of December ~~25, 2004,~~31, 2005, 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 28, 2005~~March 9, 2006 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.
~~/s/ KPMG LLP~~
/s/ KPMG LLP
March 9, 2006
Jacksonville, Florida
~~February 28, 2005~~Certified Public Accountants

47
46

LANDSTAR SYSTEM, INC. AND SUBSIDIARY

QUARTERLY FINANCIAL DATA

(Dollars in thousands, except per share amounts)
(Unaudited)

~~(Unaudited)~~

Fourth Third Second First
Quarter Quarter Quarter Quarter
2004 2004 2004 2004

Revenue $ 589,724 $ 526,883 $ 482,303 $ 421,026

Operating income $ 40,596 $ 35,666 $ 29,268 $ 13,889

Income before income taxes $ 39,784 $ 35,004 $ 28,485 $ 13,121
Income taxes 15,218 13,390 10,895 5,019

Net income $ 24,566 $ 21,614 $ 17,590 $ 8,102

Earnings per common share(1,2) $ 0.41 $ 0.36 $ 0.29 $ 0.14

Diluted earnings per share(1,2) $ 0.40 $ 0.35 $ 0.29 $ 0.13

Fourth Third Second First
Quarter Quarter Quarter Quarter
2003 2003(3) 2003 2003

Revenue $ 433,997 $ 406,772 $ 390,084 $ 365,718

Operating income $ 25,176 $ 19,963 $ 22,566 $ 17,090

Income before income taxes $ 24,336 $ 19,107 $ 21,792 $ 16,320
Income taxes 9,188 7,280 8,226 6,161

Net income $ 15,148 $ 11,827 $ 13,566 $ 10,159

Earnings per common share(1,2) $ 0.25 $ 0.20 $ 0.22 $ 0.16

Diluted earnings per share(1,2) $ 0.24 $ 0.19 $ 0.21 $ 0.15

Fourth
Third
Second
First

Quarter
Quarter
Quarter
Quarter

2005 2005 2005 2005

Revenue $ 800,442 $ 676,070 $ 539,104 $ 502,212

Operating income $ 71,295 $ 59,037 $ 39,191 $ 29,959

Income before income taxes $ 69,745 $ 57,832 $ 38,139 $ 29,022
Income taxes 26,785 22,207 14,646 11,144

Net income $ 42,960 $ 35,625 $ 23,493 $ 17,878

Earnings per common share(1) $ 0.73 $ 0.61 $ 0.40 $ 0.30

Diluted earnings per share(1) $ 0.72 $ 0.60 $ 0.39 $ 0.29

Dividends paid per common share $ 0.025 $ 0.025

Fourth
Third
Second
First

Quarter
Quarter
Quarter
Quarter

2004 2004 2004 2004

Revenue $ 589,724 $ 526,883 $ 482,303 $ 421,026

Operating income $ 40,596 $ 35,666 $ 29,268 $ 13,889

Income before income taxes $ 39,784 $ 35,004 $ 28,485 $ 13,121
Income taxes 15,218 13,390 10,895 5,019

Net income $ 24,566 $ 21,614 $ 17,590 $ 8,102

Earnings per common share(1) $ 0.41 $ 0.36 $ 0.29 $ 0.14

Diluted earnings per share(1) $ 0.40 $ 0.35 $ 0.29 $ 0.13

Dividends paid per common share
(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 add to the earnings per share amounts for the full year.
~~(2)~~ ~~All earnings per share amounts have been adjusted to give retroactive effect to a two-for-one stock split effected in the form of a 100% stock dividend declared December 9, 2004.~~
~~(3)~~ Includes a pre-tax charge of $4,150 to defend and settle the Gulf Bridge RoRo, Inc. litigation. After deducting related income tax benefits of $1,500, the litigation reduced net income by $2,650, or $0.04 per common share ($0.04 per diluted share).

48
47

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders

Landstar System, Inc.:

Under date of ~~February 28, 2005,~~March 9, 2006, we reported on the consolidated balance sheets of Landstar System, Inc. and subsidiary as of December ~~25, 2004~~31, 2005 and December ~~27, 2003,~~25, 2004, and the related consolidated statements of income, changes in shareholders’ equity and cash flows for the fiscal years ended December 31, 2005, December 25, 2004 and December 27, 2003, ~~and December 28, 2002,~~ as contained in the ~~2004~~2005 annual report to shareholders. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedules as listed in Item 15(a)(2). These financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statement schedules based on our audits.

In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.


	~~/s/ KPMG LLP~~

/s/ KPMG LLP

March 9, 2006

Jacksonville, Florida

~~February 28, 2005~~Certified Public Accountants

LANDSTAR SYSTEM, INC.

SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF REGISTRANT

PARENT COMPANY ONLY BALANCE SHEET INFORMATION

(Dollars in thousands, except per share amounts)

Dec. 25, Dec. 27,
2004 2003

ASSETS
Investment in Landstar System Holdings, Inc., net of advances $ 212,839 $ 142,515

Total assets $ 212,839 $ 142,515

LIABILITIES AND SHAREHOLDER’S EQUITY
Shareholders’ equity:
Common stock, $.01 par value, authorized 80,000,000 and 50,000,000 shares, issued 63,154,190 and 31,816,860 $ 632 $ 318
Additional paid-in capital 43,845 18,382
Retained earnings 295,936 224,368
Cost of 2,490,930 and 1,809,930 shares of common stock in treasury (127,151 ) (100,150 )
Accumulated other comprehensive income 47 182
Notes receivable arising from exercises of stock options (470 ) (585 )

Total shareholders’ equity $ 212,839 $ 142,515

Total liabilities and shareholders’ equity $ 212,839 $ 142,515

Dec. 31,
Dec. 25,

2005 2004

ASSETS
Investment in Landstar System Holdings, Inc., net of advances $ 252,635 $ 212,839

Total assets $ 252,635 $ 212,839

LIABILITIES AND SHAREHOLDERS’ EQUITY
Shareholders’ equity:
Common stock, $.01 par value, authorized 160,000,000 and 80,000,000 shares, issued 64,151,902 and 63,154,190 $ 642 $ 632
Additional paid-in capital 61,057 43,845
Retained earnings 412,970 295,936
Cost of 5,344,883 and 2,490,930 shares of common stock in treasury (221,776 ) (127,151 )
Accumulated other comprehensive income (loss) (211 ) 47
Notes receivable arising from exercises of stock options (47 ) (470 )

Total shareholders’ equity 252,635 212,839

Total liabilities and shareholders’ equity $ 252,635 $ 212,839

50
49

LANDSTAR SYSTEM, INC.

SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF REGISTRANT

PARENT COMPANY ONLY STATEMENT OF INCOME INFORMATION

(Dollars in thousands, except per share amounts)

Fiscal Years Ended

Dec. 25, Dec. 27, Dec. 28,
2004 2003 2002

Equity in undistributed earnings of Landstar System Holdings, Inc. $ 71,968 $ 50,773 $ 49,309
Income taxes 96 73 88

Net income $ 71,872 $ 50,700 $ 49,221

Earnings per common share(1) $ 1.19 $ 0.82 $ 0.76

Diluted earnings per share(1) $ 1.16 $ 0.79 $ 0.73

Average number of shares outstanding:
Earnings per common share(1) 60,154,000 61,458,000 64,565,000

Diluted earnings per share(1) 61,800,000 63,840,000 67,069,000

Fiscal Years Ended
Dec. 31,
Dec. 25,
Dec. 27,

2005 2004 2003

Equity in undistributed earnings of Landstar System Holdings, Inc $ 119,378 $ 71,968 $ 50,773
Income taxes (578 ) 96 73

Net income $ 119,956 $ 71,872 $ 50,700

Earnings per common share $ 2.03 $ 1.19 $ 0.82

Diluted earnings per share $ 1.98 $ 1.16 $ 0.79

Dividends paid per common share $ 0.05

Average number of shares outstanding:
Earnings per common share 59,199,000 60,154,000 61,458,000

Diluted earnings per share 60,492,000 61,800,000 63,840,000

~~(1)~~ All earnings per share amounts and average number of shares outstanding have been adjusted to give retroactive effect to a two-for-one stock split effected in the form of a 100% stock dividend declared December 9, 2004.

51
50

LANDSTAR SYSTEM, INC.

SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF REGISTRANT

PARENT COMPANY ONLY STATEMENT OF CASH FLOWS INFORMATION

(Dollars in thousands)

Fiscal Years Ended

Dec. 25, Dec. 27, Dec. 28,
2004 2003 2002

Operating Activities
Net income $ 71,872 $ 50,700 $ 49,221
Adjustments to reconcile net income to net cash provided by operating activities:
Tax benefit on stock option exercises 9,035 5,110 1,404
Equity in undistributed earnings of Landstar System Holdings, Inc. (71,968 ) (50,773 ) (49,309 )

Net Cash Provided By Operating Activities 8,939 5,037 1,316

Investing Activities
Additional investments in and advances from Landstar System Holdings, Inc., net 1,911 57,618 17,656

Net Cash Provided By Investing Activities 1,911 57,618 17,656

Financing Activities
Proceeds from repayment of notes arising from exercises of stock options 115 605 4,867
Proceeds from exercises of stock options 16,036 10,584 2,467
Purchases of common stock (27,001 ) (73,844 ) (26,306 )

Net Cash Used By Financing Activities (10,850 ) (62,655 ) (18,972 )

Change in cash 0 0 0
Cash at beginning of period 0 0 0

Cash at end of period $ 0 $ 0 $ 0

Fiscal Years Ended
Dec. 31,
Dec. 25,
Dec. 27,

2005 2004 2003

Operating Activities
Net income $ 119,956 $ 71,872 $ 50,700
Adjustments to reconcile net income to net cash provided by operating activities:
Tax benefit on stock option exercises 8,174 9,035 5,110
Equity in undistributed earnings of Landstar System Holdings, Inc. (119,378 ) (71,968 ) (50,773 )

Net Cash Provided By Operating Activities 8,752 8,939 5,037

Investing Activities
Additional investments in and advances from Landstar System Holdings, Inc., net 80,131 1,911 57,618

Net Cash Provided By Investing Activities 80,131 1,911 57,618

Financing Activities
Proceeds from repayment of notes arising from exercises of stock options 423 115 605
Proceeds from exercises of stock options 9,216 16,036 10,584
Dividends Paid (2,922 )
Purchases of common stock (95,600 ) (27,001 ) (73,844 )

Net Cash Used By Financing Activities (88,883 ) (10,850 ) (62,655 )

Change in cash 0 0 0
Cash at beginning of period 0 0 0

Cash at end of period $ 0 $ 0 $ 0

52
51

LANDSTAR SYSTEM, INC. AND SUBSIDIARY

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

For the Fiscal Year Ended December 31, 2005

(Dollars in thousands)

Col C
Additions
Col B Charged to
Col E
Balance at
Charged to
Other
Col D Balance at

Beginning of
Costs and
Accounts
Deductions
End of

Col A
Period Expenses Describe Describe(A) Period

Description
Allowance for doubtful accounts:
Deducted from trade receivables $ 4,021 $ 3,399 $ (2,765 ) $ 4,655
Deducted from other receivables 4,245 2,521 (2,424 ) 4,342
Deducted from other non-current receivables 263 19 282

$ 8,529 $ 5,939 $ (5,189 ) $ 9,279

(A) Write-offs, net of recoveries.

53

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
For the Fiscal Year Ended December 25, 2004
(Dollars in thousands)

COL A COL B COL C COL D COL E

Additions

Charged to
Balance at Charged to Other Deductions Balance at
Beginning of Costs and Accounts Describe End of
Period Expenses Describe (A) Period

Description
Allowance for doubtful accounts:
Deducted from trade receivables $ 3,410 $ 2,883 $ (2,272 ) $ 4,021
Deducted from other receivables 4,077 3,348 (3,180 ) 4,245
Deducted from other non-current receivables 244 19 263

$ 7,731 $ 6,250 $ (5,452 ) $ 8,529

Col C
Additions
Col B Charged to
Col E
Balance at
Charged to
Other
Col D Balance at

Beginning of
Costs and
Accounts
Deductions
End of

Col A
Period Expenses Describe Describe(A) Period

Description
Allowance for doubtful accounts:
Deducted from trade receivables $ 3,410 $ 2,883 $ (2,272 ) $ 4,021
Deducted from other receivables 4,077 3,348 (3,180 ) 4,245
Deducted from other non-current receivables 244 19         263

$ 7,731 $ 6,250 $ (5,452 ) $ 8,529

(A) Write-offs, net of recoveries.

54
52
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
For the Fiscal Year Ended December 27, 2003
(Dollars in thousands)

COL A COL B COL C COL D COL E

Additions

Charged to
Balance at Charged to Other Deductions Balance at
Beginning Costs and Accounts Describe End of
of Period Expenses Describe (A) Period

Description
Allowance for doubtful accounts:
Deducted from trade receivables $ 3,953 $ 2,401 $ (2,944 ) $ 3,410
Deducted from other receivables 5,331 2,674 (3,928 ) 4,077
Deducted from other non-current receivables 230 19 (5 ) 244

$ 9,514 $ 5,094 $ (6,877 ) $ 7,731

Col C
Additions
Col B Charged to
Col E
Balance at
Charged to
Other
Col D Balance at

Beginning
Costs and
Accounts
Deductions
End of

Col A
of Period Expenses Describe Describe(A) Period

Description
Allowance for doubtful accounts:
Deducted from trade receivables $ 3,953 $ 2,401 $ (2,944 ) $ 3,410
Deducted from other receivables 5,331 2,674 (3,928 ) 4,077
Deducted from other non-current receivables 230 19         (5 ) 244

$ 9,514 $ 5,094 $ (6,877 ) $ 7,731

~~(A)~~ ~~Write-offs, net of recoveries.~~
53
~~LANDSTAR SYSTEM, INC. AND SUBSIDIARY~~
~~SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS~~
~~For the Fiscal Year Ended December 28, 2002~~
~~(Dollars in thousands)~~

COL A COL B COL C COL D COL E

Additions

Charged to
Balance at Charged to Other Deductions Balance at
Beginning Costs and Accounts Describe End of
of Period Expenses Describe (A) Period

Description
Allowance for doubtful accounts:
Deducted from trade receivables $ 4,416 $ 3,936 $ (4,399 ) $ 3,953
Deducted from other receivables 4,740 3,576 (2,985 ) 5,331
Deducted from other non-current receivables 228 2 230

$ 9,384 $ 7,514 $ (7,384 ) $ 9,514

(A) Write-offs, net of recoveries.

55
54
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.
Item ~~9a.~~9A.   Controls and Procedures
Disclosure Controls and Procedure

As of the end of the period covered by this Annual Report onForm 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 inRule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended). Based on that evaluation, the CEO and CFO have concluded that the Company’s disclosure controls and procedures were effective as of December ~~25, 2004~~31, 2005 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 the disclosure controls and procedures, Company management recognized that any 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 inRules 13a-15(f) and15d-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 ~~25, 2004.~~31, 2005. 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).

56
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations, including the possibility of human error or circumvention or overriding of internal control. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation and reporting and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
55

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 ~~25, 2004.~~31, 2005.

KPMG LLP, the independent registered public accounting firm that audited the financial statements included in this Annual Report onForm 10-K for the fiscal year ended December ~~25, 2004,~~31, 2005, has issued an audit report on management’s assessment of the Company’s internal control over financial reporting. Such report appears immediately below.

57
(b)  Attestation Report of the Registered Public Accounting Firm
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders

Landstar System, Inc:

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting,that Landstar System, Inc. maintained effective internal control over financial reporting as of December ~~25, 2004,~~31, 2005, 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. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of 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, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary ~~under~~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, management’s assessment that Landstar System, Inc. maintained effective internal control over financial reporting as of December ~~25, 2004,~~31, 2005, is fairly stated, in all material respects, based on criteria established in Internal Control — Integrated Framework issued by ~~COSO~~.COSO. Also, in our opinion, Landstar System, Inc. maintained, in all material respects, effective internal control over financial reporting
56
as of December ~~25, 2004,~~31, 2005, 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 ~~25, 2004~~31, 2005 and December ~~27, 2003,~~25, 2004, and the related consolidated statements of income, changes in shareholders’ equity, and cash flows for the fiscal years ended December 31, 2005, December 25, 2004 and December 27, 2003, and ~~December 28, 2002, and~~ our report dated ~~February 28, 2005~~March 9, 2006 expressed an unqualified opinion on those consolidated financial statements.
~~/s/ KPMG LLP~~
/s/  KPMG LLP
March 9, 2006
Jacksonville, Florida
~~February 28, 2005~~Certified Public Accountants

58
(c)  Changes in Internal Control Over Financial Reporting
     ~~(c)~~ ~~Changes in Internal Control Over Financial Reporting~~
There were no significant changes in the Company’s internal controls over financial reporting during the Company’s fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9b.  Other Information
None.
PART III
Item ~~9b.~~10. ~~Other Information~~
      ~~None.~~
~~PART III~~
~~Item 10.~~ Directors and Executive Officers of the Registrant

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 ~~shareholders~~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 Director Independence, 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 ~~shareholders~~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 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 is available on the Company’s website atwww.landstar.comunder “Investors — Corporate Governance”. The Company intends to satisfy the disclosure requirement under Item 5.05 ofForm 8-K regarding amendments to, or waivers from, a provision or provisions of the Code of Ethics 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 and Executive Officers,” “Summary Compensation Table,” “Number of Securities Underlying Options ~~Granted”,~~Granted,” “Aggregated Options Exercised in Last Fiscal Year and Fiscal Year-End Option Values,”
57
~~“Report~~ “Report of the Compensation Committee on Executive Compensation,” “Performance Comparison” and “Key Executive Employment Protection Agreements” in the Company’s definitive Proxy Statement for its annual meeting of ~~shareholders~~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) ofRegulation S-K is set forth under the caption “Market for Registrants Common Equity and Related Stockholder Matters” in Part II, Item 5 of this report, and is incorporated by reference herein.

The information required by this Item pursuant to Item 403 ofRegulation 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 ~~shareholders~~stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, and is incorporated herein by reference.

59
Item 13. Certain Relationships and Related Transactions
~~None~~
None.
Item 14. Principal ~~Accountant~~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 ~~shareholders~~stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, and is incorporated herein by reference.
PART IV
Item 15. Exhibits and Financial Statement Schedules

(a)(1)Financial Statements and Supplementary Data

Page
Consolidated Balance Sheets
30
~~Consolidated Balance Sheets~~ 28
Consolidated Statements of Income
2931
Consolidated Statements of Cash Flows
3032
Consolidated ~~Statements~~Statement of Changes in Shareholders’ Equity
3133
Notes to Consolidated Financial Statements
3234
Report of Independent Registered Public Accounting Firm
4647
58

(2) Financial Statement Schedules

The report of the Company’s independent registered public accounting firm with respect to the financial statement schedules listed below appears on page 4849 of this Annual Report onForm 10-K.

Schedule

Number
Description
Page
I
~~Description~~ ~~Page~~
I Condensed Financial Information of Registrant Parent Company Only Balance Sheet Information 4950
I
Condensed Financial Information of Registrant Parent Company Only Statement of Income Information 5051
I
Condensed Financial Information of Registrant Parent Company Only Statement of Cash Flows Information 5152
II
Valuation and Qualifying Accounts For the Fiscal Year Ended December 31, 2005 53
II
Valuation and Qualifying Accounts For the Fiscal Year Ended December 25, 2004 5254
II
Valuation and Qualifying Accounts For the Fiscal Year Ended December 27, 2003 5355
II ~~Valuation and Qualifying Accounts For the Fiscal Year Ended December 28, 2002~~ 54

All other financial statement schedules not listed above have been omitted because the required information is included in the consolidated financial statements or the notes thereto, or is not applicable or required.

(3)Exhibits

Exhibit
No. Description

(2) Plan of acquisition, reorganization, arrangement, liquidation or succession
2 .1 Asset Purchase Agreement by and between Landstar Poole, Inc. as the seller, and Landstar System, Inc., as the guarantor, and Schneider National, Inc., as the purchaser, dated as of July 15, 1998. (Incorporated by reference to Exhibit 2.1 to the Registrant’s Quarterly Report on Form 10-K for the quarter ended June 27, 1998 (Commission File No. 0-21238))
(3) Articles of Incorporation and By-Laws:
3 .1 Amended and Restated Certificate of Incorporation of the Company dated February 9, 1993, Certificate of Designation of Junior Participating Preferred Stock dated February 10, 1993 and Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Company dated May 29, 2003. (Incorporated by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 28, 2003 (Commission File No. 0-21238))
3 .2 Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Company, dated July 16, 2004 (Incorporated by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on form 10-Q for the quarter ended June 26, 2004 (Commission File No. 0-21238))
3 .3 The Company’s Bylaws, as amended and restated on February 9, 1993. (Incorporated by reference to Exhibit 3 to the Registrant’s Registration Statement on Form S-1 (Registration No. 33-57174))
(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 Fourth Amended and Restated Credit Agreement, dated July 8, 2004, among LSHI, Landstar, the lenders named therein and JPMorgan Chase Bank 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 12, 2004 (Commission File No. 0-21238))
(10) Material contracts:
10 .1+ Landstar System, Inc. 1993 Stock Option Plan. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S-1. (Registration No. 33-67666))

Exhibit

No.

Description

(2) Plan of acquisition, reorganization, arrangement, liquidation or succession
2 .1 Asset Purchase Agreement by and between Landstar Poole, Inc. as the seller, and Landstar System, Inc., as the guarantor, and Schneider National, Inc., as the purchaser, dated as of July 15, 1998. (Incorporated by reference to Exhibit 2.1 to the Registrant’s Quarterly Report onForm 10-K for the quarter ended June 27, 1998 (Commission FileNo. 0-21238))

60
59

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
3 .2 The Company’s Bylaws, as amended and restated on February 9, 1993. (Incorporated by reference to Exhibit 3 to the Registrant’s Registration Statement onForm S-1 (RegistrationNo. 33-57174))
(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 onForm S-1 (RegistrationNo. 33-57174))
4 .2 Fourth Amended and Restated Credit Agreement, dated July 8, 2004, among LSHI, Landstar, the lenders named therein and JPMorgan Chase Bank as administrative agent (including exhibits and schedules thereto). (Incorporated by reference to Exhibit 99.1 to the Registrant’sForm 8-K filed on July 12, 2004 (Commission FileNo. 0-21238))
(10) Material contracts:
10 .1† Landstar System, Inc. Executive Incentive Compensation Plan (Incorporated by reference to Exhibit B to the Registrant’s Definitive Proxy Statement filed on March 22, 2002 (Commission FileNo. 0-21238))
10 .2† LSHI Management Incentive Compensation Plan. (Incorporated by reference to Exhibit 10.8 to the Registrant’s Annual Report onForm 10-K for the fiscal year ended December 25, 1993. (Commission File No.0-21238))
10 .3† Landstar System, Inc. 1993 Stock Option Plan. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement onForm S-1. (RegistrationNo. 33-67666))
10 .4† Amendment to the Landstar System, Inc. 1993 Stock Option Plan (Incorporated by reference to Exhibit 10.10 to the Registrant’s Annual Report onForm 10-K for the fiscal year ended December 27, 1997 (Commission FileNo. 0-21238))
10 .5† Landstar System, Inc. 2002 Employee Stock Option Plan (Incorporated by reference to Exhibit A to the Registrant’s Definitive Proxy Statement filed on March 22, 2002 (Commission FileNo. 0-21238))
10 .6† Landstar System, Inc. 1994 Director’s Stock Option Plan. (Incorporated by reference to Exhibit 99 to the Registrant’s Registration Statement onForm S-8 filed July 5, 1995. (RegistrationNo. 33-94304))
10 .7† First Amendment to the Landstar System, Inc. 1994 Directors Stock Option Plan (Incorporated by reference to Exhibit 10.8 to the Registrant’s Annual Report onForm 10-K for the fiscal year ended December 30, 2000 (Commission FileNo. 0-21238))
10 .8† Second Amendment to the Landstar System, Inc. 1994 Directors Stock Option Plan (Incorporated by reference to Exhibit 10.9 to the Registrant’s Annual Report onForm 10-K for the fiscal year ended December 30, 2000 (Commission FileNo. 0-21238))
10 .9† Directors Stock Compensation Plan, dated May 15, 2003 (Incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report onForm 10-Q for the quarter ended June 28, 2003 (Commission File No.0-21238))
10 .10† Form of Indemnification Agreement between the Company and each of the directors and certain executive officers of the Company. (Incorporated by reference to Exhibit 10.2 to the Registrant’s Annual Report onForm 10-K for the fiscal year ended December 27, 2003 (Commission No.0-21238))
10 .11† Form of Key Executive Employment Protection Agreement dated January  30, 1998 between Landstar System, Inc. and each of Henry H. Gerkens, Robert C. LaRose, Jeffrey Pundt and Ronald G. Stanley (Incorporated by reference to Exhibit 10.9 to the Registrant’s Annual Report onForm 10-K for the fiscal year ended December 27, 1997 (Commission File No.0-21238))
61

Exhibit

No.

Description

10 .12*† Form of Key Executive Employment Protection Agreement between Landstar System, Inc. and each of James B. Gattoni and Joseph J. Beacom
10 .13*† Key Executive Employment Agreement dated June 27, 2005 between Landstar System, Inc. and Michael K. Kneller
10 .14† Amendment to Key Executive Employment Protection Agreement, dated August 7, 2002, between Landstar System, Inc. and Henry H. Gerkens (Incorporated by reference to Exhibit 10.7 to the Registrant’s Annual Report onForm 10-K for the fiscal year ended December 28, 2002 (Commission FileNo. 0-21238))
10 .15† Amendment to Key Executive Employment Protection Agreement, dated August 7, 2002, between Landstar System, Inc. and Robert C. LaRose (Incorporated by reference to Exhibit 10.8 to the Registrant’s Annual Report onForm 10-K for the fiscal year ended December 28, 2002 (Commission FileNo. 0-21238))
10 .16*† Amendment to Key Executive Employment Protection Agreement, dated August 7, 2002, between Landstar System, Inc. and Jeffrey L. Pundt
10 .17† Amendment to Key Executive Employment Protection Agreement, dated August 7, 2002, between Landstar System, Inc. and Ronald G. Stanley (Incorporated by reference to Exhibit 10.19 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 25, 2004 (Commission FileNo. 0-21238))
10 .18*† Form of Amendment to Key Executive Employment Protection Agreement, dated August 7, 2002, between Landstar System, Inc. and each of James B. Gattoni and Joseph J. Beacom
10 .19† 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 onForm 10-K for the fiscal year ended December 28, 2002 (Commission FileNo. 0-21238))
10 .20† Letter agreement, dated April 27, 2004, between Landstar System, Inc. and Henry H. Gerkens (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report onForm 8-K filed on April 28, 2004 (Commission FileNo. 0-21238))
10 .21† Letter Agreement, dated April 27, 2004, between Landstar System, Inc. and Jeffrey C. Crowe (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report onForm 8-K filed on April 28, 2004 (CommissionNo. 0-21238))
10 .22 Solicitation, Offer and Award Agreement, dated October 1, 2002, as amended January 31, 2003, January 1, 2004, January 10, 2005 and September 12, 2005, between the United States Department of Transportation/Federal Aviation Administration and Landstar Express America, Inc. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report onForm 10-Q for the fiscal quarter ended September 24, 2005.) (Commission FileNo. 0-21238)
(21) Subsidiaries of the Registrant:
21 .1* List of Subsidiary Corporations of the Registrant
(23) Consents of experts and counsel:
23 .1* Consent of KPMG LLP as Independent Registered Public Accounting Firm of the Registrant
(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
62

Exhibit

No.

Description

10 ~~.2+~~ Form of Indemnification Agreement between the Company and each of the directors and certain 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 ~~.3+~~ LSHI Management Incentive Compensation Plan. (Incorporated by reference to Exhibit 10.8 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 25, 1993. (Commission File No. 0-21238))
10 ~~.4+~~ Landstar System, Inc. 1994 Director’s Stock Option Plan. (Incorporated by reference to Exhibit 99 to the Registrant’s Registration Statement on Form S-8 filed July 5, 1995. (Registration No. 33-94304))
10 ~~.5+~~ Form of Key Executive Employment Protection Agreement dated January 30, 1998 between Landstar System, Inc. and each of Henry H. Gerkens, Robert C. LaRose, Gary W. Hartter and Ronald G. Stanley (Incorporated by reference to Exhibit 10.9 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 27, 1997 (Commission File No. 0-21238))
10 .6+* ~~Form of Key Executive Employment Protection Agreement dated December 15, 2000 between Landstar System, Inc. and James B. Gattoni (Commission File No. 0-21238)~~
10 ~~.7+~~ Amendment to Key Executive Employment Protection Agreement, dated August 7, 2002, between Landstar System, Inc. and Henry H. Gerkens (Incorporated by reference to Exhibit 10.7 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 28, 2002 (Commission File No. 0-21238))
10 ~~.8+~~ Amendment to Key Executive Employment Protection Agreement, dated August 7, 2002, between Landstar System, Inc. and Robert C. LaRose (Incorporated by reference to Exhibit 10.8 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 28, 2002 (Commission File No. 0-21238))
10 ~~.9+~~ Amendment to Key Executive Employment Protection Agreement, dated August 7, 2002, between Landstar System, Inc. and Gary W. Hartter (Incorporated by reference to Exhibit 10.9 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 28, 2002 (Commission File No. 0-21238))
10 ~~.10+~~ Amendment to the Landstar System, Inc. 1993 Stock Option Plan (Incorporated by reference to Exhibit 10.10 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 27, 1997 (Commission File No. 0-21238))
10 ~~.11+~~ First Amendment to the Landstar System, Inc. 1994 Directors Stock Option Plan (Incorporated by reference to Exhibit 10.8 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 30, 2000 (Commission File No. 0-21238))
10 ~~.12+~~ Second Amendment to the Landstar System, Inc. 1994 Directors Stock Option Plan (Incorporated by reference to Exhibit 10.9 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 30, 2000 (Commission File No. 0-21238))
10 ~~.13+~~ ~~Landstar System, Inc. 2002 Employee Stock Option Plan (Incorporated by reference to Exhibit A to the Registrant’s Definitive Proxy Statement filed on March 22, 2002 (Commission File No. 0-21238))~~
10 ~~.14+~~ Landstar System, Inc. Executive Incentive Compensation Plan (Incorporated by reference to Exhibit B to the Registrant’s Definitive Proxy Statement filed on March 22, 2002 (Commission File No. 0-21238))
10 ~~.15+~~ 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 ~~.16+~~ Directors Stock Compensation Plan, dated May 15, 2003 (Incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 28, 2003 (Commission File No. 0-21238))
60
(32)
~~Exhibit~~
~~No.~~ ~~Description~~
10 ~~.17+~~ Letter agreement, dated April 27, 2004, between Landstar System, Inc. and Henry H. Gerkens (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on April 28, 2004 (Commission File No. 0-21238)
10 ~~.18+~~ Letter agreement, dated April 27, 2004, between Landstar System, Inc. and Jeffrey C. Crowe (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on April 28, 2004 (Commission No. 0-21238)
10 .19+* ~~Amendment to Key Executive Employment Protection Agreement, dated August 7, 2002, between Landstar System, Inc. and Ronald G. Stanley (Commission File No. 0-21238)~~
10 .20+* ~~Amendment to Key Executive Employment Protection Agreement, dated August 7, 2002, between Landstar System, Inc. and James B. Gattoni (Commission File No. 0-21238)~~
~~(21)~~ ~~Subsidiaries of the Registrant:~~
21 .1* ~~List of Subsidiary Corporations of the Registrant~~
~~(23)~~ ~~Consents of experts and counsel:~~
23 .1* ~~Consent of KPMG LLP as Independent Registered Public Accounting Firm of the Registrant~~
~~(24)~~ ~~Power of attorney:~~
24 .1* ~~Powers of Attorney~~
~~(31)~~ ~~Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002:~~
31 .1* ~~Chief Executive Officer certification, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~
31 .2* ~~Chief Financial Officer certification, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~
~~(32)~~ Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002:
32 .1** Chief Executive Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32 .2** Chief Financial Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

+ † management contract or compensatory plan or arrangement
* * Filed herewith.
** Furnished herewith.

THE COMPANY WILL FURNISH, WITHOUT CHARGE, TO ANY SHAREHOLDER OF THE COMPANY WHO SO REQUESTS IN WRITING, A COPY OF ANY EXHIBITS, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. ANY SUCH REQUEST SHOULD BE DIRECTED TO LANDSTAR SYSTEM, INC., ATTENTION: INVESTOR RELATIONS, 13410 SUTTON PARK DRIVE SOUTH, JACKSONVILLE, FLORIDA 32224.
63
61

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
~~Landstar System, Inc.~~
LANDSTAR SYSTEM, INC.
By:
/s/Henry H. Gerkens
~~Henry H. Gerkens~~
~~President and~~
~~Chief Executive Officer~~
Henry H. Gerkens
President and Chief Executive Officer
By:
/s/Robert C. ~~LaRose~~Larose
~~Robert C. LaRose~~
~~Executive Vice President, Chief~~
~~Financial Officer and Secretary~~
~~Date: February 28, 2005~~
Robert C. LaRose
Executive Vice President and
Chief Financial Officer

Date: March 9, 2006
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
*
Jeffrey C. Crowe Chairman of the Board March 9, 2006

*
~~Jeffrey C. Crowe~~ ~~Chairman of the Board~~ ~~February 28, 2005~~
/s/Henry H. Gerkens
Henry H. Gerkens Director, President and Chief Executive Officer; Principal Executive Officer ~~February 28, 2005~~March 9, 2006

/s/Robert C. LaRose

Robert C. LaRose Executive Vice President and Chief Financial ~~Officer and Secretary;~~Officer; Principal Accounting Officer ~~February 28, 2005~~March 9, 2006

*
David G. Bannister Director ~~February 28, 2005~~March 9, 2006

*
Ronald W. Drucker Director ~~February 28, 2005~~March 9, 2006

*
Merritt J. Mott Director ~~February 28, 2005~~March 9, 2006

*
William S. Elston Director ~~February 28, 2005~~March 9, 2006
62
*
Diana M. Murphy Director March 9, 2006

~~Signature~~By: ~~Title~~ ~~Date~~
/s/ *MICHAEL K. KNELLER

~~Diana M. Murphy~~ ~~Director~~ ~~February 28, 2005~~
~~By: /s/Robert C. LaRose~~
~~Robert C. LaRose~~Michael K. Kneller
Attorney In Fact*

64
63


(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 ~~25, 2004~~31, 2005

or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the transition period from to


Delaware		06-1313069
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

13410 Sutton Park Drive South Jacksonville, Florida		~~32224~~ ~~(Zip Code)~~
(Address of principal executive offices)		32224 (Zip Code)


	Partof 10-K
Document	~~Into~~into Which Incorporated

Proxy Statement relating to Landstar System, Inc.’s Annual Meeting of ~~Shareholders~~Stockholders to be held on May ~~12, 2005~~4, 2006		Part III


Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o


		Page

PART I
Item 1.	Business		23
Item 1A.	Risk Factors		10
Item 1B.	Unresolved Staff Comments		14
Item 2.	Properties		914
Item 3.	Legal Proceedings		914
Item 4.	Submission of Matters to a Vote of Security Holders		1015

PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		1015
Item 6.	Selected Financial Data		1117
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		1217
Item ~~7a.~~7A.	Quantitative and Qualitative Disclosures ~~about~~About Market Risk		2629
Item 8.	Financial Statements and Supplementary Data		2830
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		5556
Item ~~9a.~~9A.	Controls and Procedures		5556
Item ~~9b.~~9B.	Other Information		5759

PART III
Item 10.	Directors and Executive Officers of the Registrant		5759
Item 11.	Executive Compensation		5759
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		5859
Item 13.	Certain Relationships and Related Transactions		5860
Item 14.	Principal Accounting Fees and Services		5860

~~PART IV~~
PART IV
Item 15.	Exhibits, Financial Statement Schedules		5860
Signatures			6264
Restated Certificate of Incorporation
Form of Key Executive Employment ~~Protection~~Protective Agrmt.
Form of Key Executive Employment Agreement
Amendment to Key Executive Employment ~~Protection~~ Agreement
Form of Amendment to Key Executive ~~Employment~~ Protection ~~Agreement~~Agrmt
List of Subsidiaries
Consent of KPMG LLP
Powers of Attorney
Section 302 CEO Certification
Section 302 CFO Certification
Section 906 CEO Certification
Section 906 CFO Certification


	electronic data interchange capability and access to specialized equipment. In addition, a number of the Company’s agents specialize in certain types of freight and transportation services (such as oversized or heavy loads).

	The typical Landstar agent maintains a relationship with a number of shippers and services these shippers by providing a base of operations for the Company’s Independent Contractors and other third party capacity providers. Independent commission sales agents in the carrier segment receive a commission generally between 5% and 8% of the revenue they generate if the load is hauled by an Independent Contractor and a contractually agreed-upon percent of the revenue or the gross profit, defined as revenue less the cost of purchased transportation, from each load they generate if hauled by a third party trucking company. In most cases, the carrier segment independent commission sales agents are paid volume-based incentives. Multimodal independent commission sales agents are typically paid a contractually agreed-upon percentage of the gross profit from each load they generate.

	The Company’s primary day to day contact with its customers is through its agents and not through employees of the Company. Nevertheless, it is important to note that each Operating Subsidiary contracts directly with customers and generally assumes the credit risk and liability for freight losses or damages.

	The carrier segment’s independent commission sales agents use the Company’s Landstar Electronic Administrative Dispatch System (LEADS) software program which enables these 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 multimodal segment’s independent commission sales agents use other Landstar proprietary software to process customer shipments and communicate the necessary information to third party capacity providers and Landstar. The Company’s web-based available freight and truck information system provides a listing of available trucks to the Company’s independent commission sales agents.

	The Operating Subsidiaries emphasize programs to support the agents’ operations and to establish pricing parameters. The carrier segment and multimodal segment hold regular regional agent meetings for their independent commission sales agents and Landstar holds an annual company-wide agent convention.

	During 2004, 427 agents generated revenue for Landstar of at least $1 million each, or approximately $1.9 billion of Landstar’s total revenue, and one agent generated approximately $200,000,000 of Landstar’s total revenue.

	Although the Company typically enters into non-exclusive contractual relationships with its independent commission sales agents, management believes that the majority of the agents who generate revenue of $1 million or more choose to represent Landstar exclusively. Historically, Landstar has experienced very limited agent turnover among its larger-volume agents.


	tractor and from 73% to 79% where the Independent Contractor provides both a tractor and a trailer. The 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.

	The Company maintains an internet site through which Independent Contractors can view a complete listing of all the Company’s available freight, allowing them to consider rate, size, origin and destination when planning trips.

	The Landstar Contractors’ Advantage Purchasing Program leverages Landstar’s purchasing power to provide discounts to eligible 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 Independent Contractors to purchase primarily trailing equipment and mobile communication equipment.

	Trucks provided to the Company by the Independent Contractors were 8,677 at December 25, 2004 compared to 8,573 at December 27, 2003. The number of trucks provided by Independent Contractors fluctuates daily as a result of truck recruiting and truck terminations. Trucks recruited were lower in 2004 than in 2003, however, lower truck terminations in 2004 resulted in a net gain of 104 trucks. Landstar’s truck turnover ratio was approximately 35% in 2004 compared to 45% in 2003. More than half of this turnover was attributable to Independent Contractors who had been Independent Contractors with the Company for less than one year. Management believes that factors that have historically favorably impacted turnover include the Company’s extensive agent network, the Company’s programs to reduce the operating costs of its Independent Contractors and Landstar’s reputation for quality, service and reliability. Management believes that a reduction in the amount of available freight may cause an increase in truck turnover.

	~~Other Third Party Truck Capacity.~~ The Company maintains a database of over 18,000 qualified other third party truck capacity providers who provide additional truck hauling capacity to the Company. Other third party truck capacity providers 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 augmenting the Company’s capability during periods of extraordinary demand and traffic lane imbalance, the use of third party carriers enables the Company to pursue different types and quality of freight such as temperature-controlled, short-haul traffic and, in certain instances, lower priced freight that would generally not be handled by the Company’s Independent Contractors.

	The Landstar Savings Plus Program leverages Landstar’s purchasing power to provide discounts to eligible other third party trucking companies when they purchase fuel and equipment and provides the other third party trucking companies with an electronic payment option.

	~~Third Party Rail, Air and Ocean Capacity.~~ The Company maintains contractual relationships with various railroads and air cargo capacity providers. 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.


	2004 Market Price				2003 Market Price

Fiscal Period	High		Low		High		Low

First Quarter	$	20.870	$	17.000	$	15.425	$	12.760
Second Quarter		26.110		20.260		16.498		13.700
Third Quarter		28.590		23.140		16.975		14.625
Fourth Quarter		37.495		27.125		19.975		15.255


			Fiscal Years

Income Statement Data:			2004		2003		2002		2001		2000

Revenue			$	2,019,936	$	1,596,571	$	1,506,555	$	1,392,771	$	1,418,492
Investment income				1,346		1,220		1,950		3,567		4,317
Costs and expenses:
	Purchased transportation			1,510,963		1,185,043		1,116,009		1,030,454		1,046,183
	Commissions to agents			161,011		125,997		118,864		110,513		113,721
	Other operating costs			37,130		37,681		34,325		32,750		29,568
	Insurance and claims			60,339		45,690		42,188		32,930		31,935
	Selling, general and administrative			118,461		105,849		101,918		99,762		105,786
	Depreciation and amortization			13,959		12,736		11,520		13,543		13,003

		Total costs and expenses		1,901,863		1,512,996		1,424,824		1,319,952		1,340,196

Operating income				119,419		84,795		83,681		76,386		82,613
Interest and debt expense				3,025		3,240		4,292		6,802		9,127

Income before income taxes				116,394		81,555		79,389		69,584		73,486
Income taxes				44,522		30,855		30,168		26,790		28,292

Net income			$	71,872	$	50,700	$	49,221	$	42,794	$	45,194

Earnings per common share(1)			$	1.19	$	0.82	$	0.76	$	0.64	$	0.64
Diluted earnings per share(1)			$	1.16	$	0.79	$	0.73	$	0.63	$	0.63


	Dec. 25,		Dec. 27,		Dec. 28,		Dec. 29,		Dec. 30,
Balance Sheet Data:	2004		2003		2002		2001		2000

Total assets	$	584,512	$	438,457	$	400,748	$	364,651	$	370,362
Long-term debt, including current maturities		92,090		91,456		77,360		101,874		94,643
Shareholders’ equity		212,839		142,515		149,093		117,440		107,859


	Fiscal Year

	2004			2003			2002

Number of Million Dollar Agents		427			396			384

Average revenue generated per Million Dollar Agent	$	4,374,000		$	3,584,000		$	3,483,000

Percent of consolidated revenue generated by Million Dollar Agents		92	%		89	%		89	%


	Payments Due By Period

			Less Than		1-3		4-5		More Than
Contractual Obligation	Total		1 Year		Years		Years		5 Years

Long-term debt	$	63,000					$	63,000
Capital lease obligations		32,065	$	9,858	$	14,934		7,273
Operating leases		41,141		7,711		14,633		9,647	$	9,150

	$	136,206	$	17,569	$	29,567	$	79,920	$	9,150


			Fiscal Years Ended

			Dec. 25,		Dec. 27,		Dec. 28,
			2004		2003		2002

Revenue			$	2,019,936	$	1,596,571	$	1,506,555
Investment income				1,346		1,220		1,950
Costs and expenses:
	Purchased transportation			1,510,963		1,185,043		1,116,009
	Commissions to agents			161,011		125,997		118,864
	Other operating costs			37,130		37,681		34,325
	Insurance and claims			60,339		45,690		42,188
	Selling, general and administrative			118,461		105,849		101,918
	Depreciation and amortization			13,959		12,736		11,520

		Total costs and expenses		1,901,863		1,512,996		1,424,824

Operating income				119,419		84,795		83,681
Interest and debt expense				3,025		3,240		4,292

Income before income taxes				116,394		81,555		79,389
Income taxes				44,522		30,855		30,168

Net income			$	71,872	$	50,700	$	49,221

Earnings per common share(1)			$	1.19	$	0.82	$	0.76

Diluted earnings per share(1)			$	1.16	$	0.79	$	0.73

Average number of shares outstanding:
	Earnings per common share(1)			60,154,000		61,458,000		64,565,000

	Diluted earnings per share(1)			61,800,000		63,840,000		67,069,000


Item 1.	*Business*


																						Notes
																						Receivable
																						Arising
																			Accumulated			from
	Common Stock						Add’l						Treasury Stock at Cost						Other			Exercises
							Paid-In			Retained									Comprehensive			of Stock
	Shares			Amount			Capital			Earnings			Shares			Amount			Income			Options			Total

Balance December 29, 2001		13,328,834		$	133		$	75,036		$	258,162			5,241,841		$	(209,926	)				$	(5,965	)	$	117,440
Net income											49,221															49,221
Retirement of treasury stock		(5,241,841	)		(52	)		(76,389	)		(133,485	)		(5,241,841	)		209,926									—
Purchases of common stock														554,879			(26,306	)								(26,306	)
Exercises of stock options and related income tax benefit		116,160			1			3,962															(92	)		3,871
Repayment of notes receivable arising from exercises of stock options																							4,867			4,867
Stock split effected in the form of a 100% stock dividend		8,134,353			81						(81	)														—

Balance December 28, 2002		16,337,506			163			2,609			173,817			554,879			(26,306	)					(1,190	)		149,093
Net income											50,700															50,700
Purchases of common stock														1,255,051			(73,844	)								(73,844	)
Exercises of stock options and related income tax benefit		564,021			6			15,688																		15,694
Director compensation paid in common stock		1,500						85																		85
Repayment of notes receivable arising from exercises of stock options																							605			605
Unrealized gain on available-for-sale investments, net of income taxes																			$	182						182
Stock split effected in the form of a 100% stock dividend		14,913,833			149						(149	)														—

Balance December 27, 2003		31,816,860			318			18,382			224,368			1,809,930			(100,150	)		182			(585	)		142,515
Net income											71,872															71,872
Purchases of common stock														681,000			(27,001	)								(27,001	)
Exercises of stock options and related income tax benefit		996,700			10			25,061																		25,071
Director compensation paid in common stock		9,000						402																		402
Repayment of notes receivable arising from exercises of stock options																							115			115
Unrealized loss on available-for-sale investments, net of income taxes																				(135	)					(135	)
Stock split effected in the form of a 100% stock dividend		30,331,630			304						(304	)														—

Balance December 25, 2004		63,154,190		$	632		$	43,845		$	295,936			2,490,930		$	(127,151	)	$	47		$	(470	)	$	212,839


(2)	~~Recently Issued Accounting Standards Not Currently Effective~~Stock Splits and Dividends


		Dec. 25, 2004			Dec. 27, 2003

Deferred tax assets:
	Receivable valuations	$	3,538		$	3,509
	State net operating loss carryforwards		1,282			1,486
	Self-insured claims		4,045			3,182
	Other		4,125			5,677

			12,990			13,854
	Valuation allowance		(420	)		(461	)

		$	12,570		$	13,393

Deferred tax liabilities:
	Operating property	$	16,913		$	14,321
	Goodwill		3,890			3,338

		$	20,803		$	17,659


	Dec. 25, 2004		Dec. 27, 2003

Land	$	1,999	$	1,999
Leasehold improvements		8,730		8,476
Buildings and improvement		8,221		8,250
Trailing equipment		93,739		80,355
Other equipment		29,460		27,039

		142,149		126,119
Less accumulated depreciation and amortization		65,315		58,480

	$	76,834	$	67,639


	Dec. 25, 2004		Dec. 27, 2003

Capital leases	$	29,090	$	21,456
Revolving credit facility		63,000		70,000

		92,090		91,456
Less current maturities		8,797		9,434

Total long-term debt	$	83,293	$	82,022


	Capital		Operating
	Leases		Leases

2005	$	9,858	$	7,711
2006		7,691		7,612
2007		7,243		7,021
2008		4,103		6,453
2009		3,170		3,194
Thereafter				9,150

		32,065	$	41,141

Less amount representing interest (3.6% to 8.3%)		2,975

Present value of minimum lease payments	$	29,090


	Capital		Operating
	Leases		Leases

2006	$	14,005	$	7,691
2007		13,558		7,092
2008		10,429		6,627
2009		9,497		3,277
2010		4,071		2,102
Thereafter				7,972

		51,560	$	34,761

Less amount representing interest (3.6% to 5.3%)		4,587

Present value of minimum lease payments	$	46,973


		Options Outstanding					Options Exercisable

					Weighted Average				Weighted Average
					Exercise Price				Exercise Price
		Shares			Per Share		Shares		Per Share

Options at December 29, 2001			4,492,160		$	5.82		1,661,440	$	4.31
	Granted		1,656,000		$	9.22
	Exercised		(654,080	)	$	3.92

Options at December 28, 2002			5,494,080		$	7.07		1,861,752	$	5.29
	Granted		985,200		$	14.06
	Exercised		(1,897,556	)	$	5.58
	Forfeited		(22,400	)	$	10.72

Options at December 27, 2003			4,559,324		$	9.18		1,328,204	$	7.11
	Granted		660,000		$	20.59
	Exercised		(1,993,400	)	$	8.04
	Forfeited		(110,160	)	$	9.85

Options at December 25, 2004			3,115,764		$	12.31		664,324	$	8.56


	Options Outstanding					Options Exercisable
				Weighted Average				Weighted Average
				Exercise Price				Exercise Price
	Shares			per Share		Shares		per Share

Options at December 28, 2002		5,494,080		$	7.07		1,861,752	$	5.29
Granted		985,200		$	14.06
Exercised		(1,897,556	)	$	5.58
Forfeited		(22,400	)	$	10.72

Options at December 27, 2003		4,559,324		$	9.18		1,328,204	$	7.11
Granted		660,000		$	20.59
Exercised		(1,993,400	)	$	8.04
Forfeited		(110,160	)	$	9.85

Options at December 25, 2004		3,115,764		$	12.31		664,324	$	8.56
Granted		683,000		$	35.77
Exercised		(991,712	)	$	9.29
Forfeited		(12,400	)	$	22.31

Options at December 31, 2005		2,794,652		$	19.07		855,816	$	10.37


	Options Outstanding

	Number		Weighted Average		Weighted Average
	Outstanding		Remaining Contractual		Exercise Price
Range of Exercise Prices Per Share	Dec. 25, 2004		Life (years)		Per Share

$ 3.99 - $ 6.00		258,640		4.2	$	4.89
$ 6.01 - $ 9.00		834,240		6.3	$	8.16
$ 9.01 - $13.50		860,084		7.5	$	10.87
$13.51 - $20.00		1,012,800		8.5	$	16.82
$20.01 - $26.47		150,000		9.5	$	25.95

		3,115,764		7.3	$	12.31


	Options Outstanding
	Number
	Outstanding		Weighted Average		Weighted Average
	Dec. 31,		Remaining Contractual		Exercise Price
Range of Exercise Prices per Share	2005		Life (Years)		per Share

$ 3.99 - $ 6.00		113,176		2.5	$	4.14
$ 6.01 - $ 9.00		643,600		5.2	$	8.12
$ 9.01 - $13.50		299,860		6.9	$	13.08
$13.51 - $20.00		913,016		7.6	$	17.06
$20.01 - $30.00		148,000		8.5	$	26.02
$30.01 - $37.31		677,000		9.0	$	35.80

		2,794,652		7.2	$	19.07


	Options Exercisable
	Number
	Exercisable		Weighted Average
	Dec. 31,		Exercise Price
Range of Exercise Prices per Share	2005		per Share

$ 3.99 - $ 6.00		113,176	$	4.14
$ 6.01 - $ 9.00		416,880	$	8.03
$ 9.01 - $13.50		78,340	$	12.98
$13.51 - $19.03		247,420	$	16.33

		855,816	$	10.37


	Carrier		Multimodal		Insurance		Other			Total

2004
External revenue	$	1,454,862	$	534,922	$	30,152				$	2,019,936
Internal revenue		48,673		4,967		30,538					84,178
Investment income						1,346					1,346
Interest and debt expense							$	3,025			3,025
Depreciation and amortization		9,473		270				4,216			13,959
Operating income		128,400		26,211		12,456		(47,648	)		119,419
Expenditures on long-lived assets		730		206				5,441			6,377
Goodwill		20,496		10,638							31,134
Capital lease additions		17,963									17,963
Total assets		317,466		136,311		91,183		39,552			584,512

2003
External revenue	$	1,227,171	$	341,241	$	28,159				$	1,596,571
Internal revenue		20,852		4,300		32,442					57,594
Investment income						1,220					1,220
Interest and debt expense							$	3,240			3,240
Depreciation and amortization		8,728		272				3,736			12,736
Operating income		94,303		6,403		21,227		(37,138	)		84,795
Expenditures on long-lived assets		2,652		712				2,193			5,557
Goodwill		20,496		10,638							31,134
Total assets		254,606		70,607		64,363		48,881			438,457


			Global
	Carrier		Logistics		Insurance		Other			Total

2005
External revenue	$	1,691,668	$	795,136	$	31,024				$	2,517,828
Internal revenue		95,872		2,222		31,036					129,130
Investment income						2,695					2,695
Interest and debt expense							$	4,744			4,744
Depreciation and amortization		11,262		309				4,349			15,920
Operating income		171,236		60,856		19,374		(51,984	)		199,482
Expenditures on long-lived assets		798		20				3,039			3,857
Goodwill		20,496		10,638							31,134
Capital lease additions		28,512									28,512
Total assets		360,083		304,727		58,379		39,571			762,760



2004
External revenue	$	1,454,862	$	534,922	$	30,152				$	2,019,936
Internal revenue		48,673		4,967		30,538					84,178
Investment income						1,346					1,346
Interest and debt expense							$	3,025			3,025
Depreciation and amortization		9,473		270				4,216			13,959
Operating income		128,400		26,211		12,456		(47,648	)		119,419
Expenditures on long-lived assets		730		206				5,441			6,377
Goodwill		20,496		10,638							31,134
Capital lease additions		17,963									17,963
Total assets		317,466		136,311		91,183		39,552			584,512



2003
External revenue	$	1,227,171	$	341,241	$	28,159				$	1,596,571
Internal revenue		20,852		4,300		32,442					57,594
Investment income						1,220					1,220
Interest and debt expense							$	3,240			3,240
Depreciation and amortization		8,728		272				3,736			12,736
Operating income		94,303		6,403		21,227		(37,138	)		84,795
Expenditures on long-lived assets		2,652		712				2,193			5,557
Goodwill		20,496		10,638							31,134
Total assets		254,606		70,607		64,363		48,881			438,457


	Fourth		Third		Second		First
	Quarter		Quarter		Quarter		Quarter
	2004		2004		2004		2004

Revenue	$	589,724	$	526,883	$	482,303	$	421,026

Operating income	$	40,596	$	35,666	$	29,268	$	13,889

Income before income taxes	$	39,784	$	35,004	$	28,485	$	13,121
Income taxes		15,218		13,390		10,895		5,019

Net income	$	24,566	$	21,614	$	17,590	$	8,102

Earnings per common share(1,2)	$	0.41	$	0.36	$	0.29	$	0.14

Diluted earnings per share(1,2)	$	0.40	$	0.35	$	0.29	$	0.13


	Fourth		Third		Second		First
	Quarter		Quarter		Quarter		Quarter
	2005		2005		2005		2005

Revenue	$	800,442	$	676,070	$	539,104	$	502,212

Operating income	$	71,295	$	59,037	$	39,191	$	29,959

Income before income taxes	$	69,745	$	57,832	$	38,139	$	29,022
Income taxes		26,785		22,207		14,646		11,144

Net income	$	42,960	$	35,625	$	23,493	$	17,878

Earnings per common share(1)	$	0.73	$	0.61	$	0.40	$	0.30

Diluted earnings per share(1)	$	0.72	$	0.60	$	0.39	$	0.29

Dividends paid per common share	$	0.025	$	0.025


(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 add to the earnings per share amounts for the full year.

~~(2)~~	~~All earnings per share amounts have been adjusted to give retroactive effect to a two-for-one stock split effected in the form of a 100% stock dividend declared December 9, 2004.~~

~~(3)~~	Includes a pre-tax charge of $4,150 to defend and settle the Gulf Bridge RoRo, Inc. litigation. After deducting related income tax benefits of $1,500, the litigation reduced net income by $2,650, or $0.04 per common share ($0.04 per diluted share).


			Col C
			Additions
	Col B				Charged to				Col E
	Balance at		Charged to		Other	Col D			Balance at
	Beginning of		Costs and		Accounts	Deductions			End of
Col A	Period		Expenses		Describe	Describe(A)			Period

Description
Allowance for doubtful accounts:
Deducted from trade receivables	$	4,021	$	3,399		$	(2,765	)	$	4,655
Deducted from other receivables		4,245		2,521			(2,424	)		4,342
Deducted from other non-current receivables		263		19						282

	$	8,529	$	5,939		$	(5,189	)	$	9,279


COL A		COL B		COL C			COL D			COL E

				Additions

						Charged to
		Balance at		Charged to		Other	Deductions			Balance at
		Beginning of		Costs and		Accounts	Describe			End of
		Period		Expenses		Describe	(A)			Period

Description
Allowance for doubtful accounts:
	Deducted from trade receivables	$	3,410	$	2,883		$	(2,272	)	$	4,021
	Deducted from other receivables		4,077		3,348			(3,180	)		4,245
	Deducted from other non-current receivables		244		19						263

		$	7,731	$	6,250		$	(5,452	)	$	8,529


Item 9.	*Changes in and Disagreements with Accountants on Accounting and Financial Disclosure*