Landstar System, Inc. was incorporated in January 1991 under the laws of the State of Delaware. It acquired all of the capital stock of its predecessor, Landstar System Holdings, Inc. (“LSHI”) on March 28, 1991. Landstar System, Inc. has been a publicly held company since its initial public offering in March 1993. LSHI owns directly or indirectly all of the common stock of Landstar Ranger, Inc. (“Landstar Ranger”), Landstar Inway, Inc. (“Landstar Inway”), Landstar Ligon, Inc. (“Landstar Ligon”), Landstar Gemini, Inc. (“Landstar Gemini”), Landstar Carrier Services, Inc. (“Landstar Carrier Services”), Landstar Global Logistics, Inc. (“Landstar Global Logistics”), Landstar Logistics, Inc. (“Landstar Logistics”), Landstar Express America, Inc. (“Landstar Express America”), Landstar Canada Holdings, Inc. (“LCHI”), Landstar Canada, Inc. (“Landstar Canada”), Landstar Contractor Financing, Inc. (“LCFI”), Risk Management Claim Services, Inc. (“RMCS”) and Signature Insurance Company (“Signature”). Landstar Ranger, Landstar Inway, Landstar Ligon, Landstar Gemini, Landstar Carrier Services, Landstar Global Logistics, Landstar LogisticsExpress America and Landstar Express AmericaCanada are collectively herein referred to as Landstar’s “Operating Subsidiaries.” Landstar System, Inc., LSHI, LCFI, RMCS, LCHI, Signature and the Operating Subsidiaries are collectively referred to herein as “Landstar” or the “Company,” unless the context otherwise requires. The Company’s principal executive offices are located at 13410 Sutton Park Drive South, Jacksonville, Florida 32224 and its telephone number is(904) 398-9400. The Company makes available free of charge through its website its annual report onForm 10-K, quarterly reports onForm 10-Q, proxy and current reports onForm 8-K as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission (“SEC”). The Company’s website is www.landstar.com. The SEC maintains a website athttp://www.sec.gov that contains the Company’s current and periodic reports, proxy and information statements and other information filed electronically with the SEC.

In March 1991, Landstar acquired LSHI in a buy-out organized by Kelso & Company, Inc. (“Kelso”). Investors in the acquisition included Kelso Investment Associates IV, L.P. (“KIA IV”), an affiliate of Kelso, ABS MB Limited Partnership, an affiliate of DB Alex. Brown LLC (formerly known as Alex. Brown & Sons Incorporated), and certain management employees of the Company. In March 1993, Landstar completed a recapitalization which consisted of three principal components: (i) anits initial public offering of Common Stock at a price of $13.00 per share, $1.625 per share adjusted for subsequent stock splits, (ii) the retirement of all its outstanding 14% Senior Subordinated Notes, and (iii) the refinancing of the Company’s then existing senior debt facility with a senior bank credit agreement.

Landstar is a non-asset based transportation and logistics services company, providing transportation capacity and related transportation services to shippers throughout the United States, and to a lesser extent, in Canada, and between the United States and Canada, Mexico and other countries. These business services emphasize safety, information coordination and customer service and are delivered through a network of independent commission sales agents and third party capacity providers linked together by a series of technological applications which are provided and coordinated by the Company. The Company’sCompany markets its services primarily through independent

The transportation logistics segment provides a wide range of transportation and logistics services including truckload transportation, rail intermodal, air cargo and ocean cargo services, the arrangement of multimodal (ground, air, ocean and rail) moves and warehousing to a variety of industries including iron and steel, automotive products, paper, lumber and building products, aluminum,metals, chemicals, foodstuffs, heavy machinery, retail, electronics, ammunition and explosives and military hardware. In addition, Landstarthe transportation logistics segment provides transportation services to other transportation companies, including logistics andless-than-truckload service providers. Landstar’sThe transportation services include a full array of truckload transportation utilizing a wide range of specialized equipment including dry vans of various sizes, flatbeds (including drop decks and light specialty trailers), temperature-controlled vans and containers. In addition, Landstarlogistics segment also provides dedicated contract and logistics solutions, including freight optimization and less than truckloadless-than-truckload freight consolidations. Landstar also providesconsolidations, expedited landground and air delivery of time-critical freight and the movement of containers via ocean.

Truck Services.  The transportation logistics segment’s truck services include a full array of truckload transportation for a wide range of general commodities, much of which are over irregular or non-repetitive routes, utilizing a wide range of specialized equipment, including dry and specialty vans of various sizes, unsided trailers (including flatbeds, drop decks and light specialty trailers), temperature-controlled vans and containers. Available truckload services also include short-to-long haul movement of containers by truck and expedited ground and dedicated power-only truck capacity. The Company also offers less-than-truckload services. During fiscal year 2008, revenue hauled by BCO Independent Contractors and Truck Brokerage Carriers was 58% and 42%, respectively, of total truck services revenue. The Company’s truck services contributed 90% of total revenue in fiscal year 2008.

Rail Intermodal Services.  The transportation logistics segment has contracts with all of the second half of 2006,Class 1 railroads in North America and all major asset-based intermodal equipment providers, including agreements with stacktrain operators and various container and trailing equipment providers. In addition, the Company beganhas contracts with a vast network of local trucking companies that handlepick-up and delivery of rail freight. These contracts provide Landstar the roll-out of its warehouse initiative.ability to transport freight via rail throughout the United States, Canada and Mexico. Landstar’s rail intermodal services include trailer on flat car, container on flat car, box car and railcar service capabilities. The Company’s strategy israil intermodal services contributed 5% of total revenue in fiscal year 2008.

Air and Ocean Services.  The transportation logistics segment provides domestic and international air and ocean services to offerits customers utilizing airlines and ocean lines. Landstar executes international air freight transportation as an indirect air carrier (“IAC”) registered with the U.S. Department of Transportation (the “DOT”) and as an endorsed cargo network services (“CNS”) agent accredited by the International Air Transport Association (“IATA”). Landstar provides international ocean freight transportation solutions as a Federal Maritime Commission (“FMC”) licensed non-vessel operating common carrier (“NVOCC”) and ocean freight forwarder (“OFF”). Through its network of independent commission sales agents and relationships within a global network of foreign freight forwarders, Landstar provides efficient and cost effectivedoor-to-door transportation to most points in the world for a vast array of cargo types such as over-sized

Warehousing Services.  The transportation logistics segment offers its customers, through its independent commission sales agent network, national warehousing services without owning or leasing facilities or hiring employees to work at warehouses. The initial phase of developing the product offering included the identification of qualified independent regional warehouse facilities. As of December 30, 2006, the Company has entered into non-exclusive arrangements with 102 independent warehouse capacity providers (“Warehouse Capacity Owners” or “WCOs”) in the United States. The Company’s warehouse offering is designed to provide the availability of warehouse capacity nationally to its customers utilizing a network of independently owned and operated regional warehouse facilities linked by a single warehouse information technology application. The Company believes the addition of warehousing services to its transportation and logistics product offerings will contribute to additional freight transportation opportunities to and from the network of warehouse facilities. Revenue derived directly from warehouse storage and services will be reported net of the amount earned by the WCO. In general, WCOs are paid a fixed percentage of the gross revenue for storage and services provided through their warehouse. The roll-out of warehousing services will continue throughout 2007. Warehousing services were not a significant contributor to revenue or earnings in 2006.

The independent commission sales agents are paid volume-based incentives for freight hauleduse a variety of proprietary and third-party technological applications, depending on the mode of transportation, provided by BCO Independent Contractors. Global logisticsthe Company to service the requirements of shippers. For truck services, the Company’s independent commission sales agents are typically paid a contractuallyagreed-upon percentage of the gross profit from each load they generate or a percentage of the gross revenue from sourcing warehousing services.

During 2006, 4902008, 484 agents generated revenue for Landstar of at least $1 million each, or approximately $2.3$2.4 billion of Landstar’s total revenue, andrevenue. During 2008, one agent generated approximately $196,000,000$246,000,000, or 9%, of Landstar’s total revenue.

The Company maintains an internet site through which BCO 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.

Trucks provided to the Company by the BCO Independent Contractors were 9,2059,039 at December 30, 2006,27, 2008, compared to 8,7288,993 at December 31, 2005.29, 2007. At December 27, 2008, 97% of the trucks provided by BCO Independent Contractors were provided by BCO Independent Contractors who lease 5 or less trucks to the Company. The number of trucks provided by BCO Independent Contractors fluctuates daily as a result of truck recruiting and truck terminations. Trucks recruited were higherlower in 20062008 than in 2005 and truck terminations2007, but trucks terminated were also lower in 20062008 compared to 20052007, resulting in a net gain of 47746 trucks. Landstar’s truck turnover ratio was approximately 28%32% in 20062008 compared to 31%37% in 2005.2007. Approximately half of this turnover was attributable to BCO Independent Contractors who had been BCO Independent Contractors with the Company for less than one year. Management believes that factors that have historically favorably impacted turnover include the Company’s financial stability, its extensive agent network, the Company’s programs to reduce the operating costs of its BCO Independent Contractors and Landstar’s reputation for quality, service and reliability. Management believes that a reduction in the amount of available freight may cause an increase in truck turnover.

Truck Brokerage Carriers.  The Company maintains a database of over 23,00025,000 qualified Truck Brokerage Carriers who provide additional truck hauling capacity to the Company. Truck Brokerage Carriers provide truck capacity to the Company under non-exclusive contractual arrangements and each operates under their own DOT issued motor carrier operating authority. Truck Brokerage Carriers are paid either a negotiated rate for each load they haul or a contractuallyagreed-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 augmentingproviding additional capacity to the Company’s capability,Company, the use of Truck Brokerage Carriers enables the Company to pursue different types and quality of freight such as temperature-controlled, short-haul traffic and, in certain instances, lower pricedlower-priced freight that generally would generally not be handled by the Company’s BCO Independent Contractors.

The Company maintains an internet site through which Truck Brokerage Carriers can view a listing of all the Company’s freight that is available to be hauled by Truck Brokerage Carriers.

The Company has historically maintained insurance coverage above its self-insured retention amounts. For the fiscal year ended and as of December 30, 2006,27, 2008, 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 insuredself-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, theThe 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.

Certain of the Operating Subsidiaries are considered motor carriersand/or brokers authorized to arrange for transportation services by motor carriers which are regulated by the Federal Motor Carrier Safety Administration (the “FMCSA”) and by various state agencies. The FMCSA has broad regulatory powers with respect to activities such as motor carrier operations, practices, periodic financial reporting and insurance. Subject to federal and state regulatory authorities or regulation, the Company may transport most types of freight to and from any point in the United States over any route selected by the Company.

In addition, certain of the Operating Subsidiaries are licensed as ocean transportation intermediaries by the U.S. Federal Maritime Commission as non-vessel-operating common carriersand/or as ocean freight forwarders. The Company’s air transportation activities in the United States are subject to regulation by the U.S. Department of Transportation as an indirect air carrier. The Company is also subject to regulations and requirements relating to safety and security promulgated by, among others, the U.S. Department of Homeland Security through the Bureau of U.S. Customs and Border Protection and the Transportation Security Administration, the Canada Border Services Agency and various state and local agencies and port authorities.

The transportation industry is subject to possible regulatory and legislative changes (such as 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

Dependence on third party capacity providers.  As noted above in Item 1, “Business — Factors Significant to the Company’s Operations — Transportation Capacity,” Landstar does not own trucks or other transportation equipment (other than trailing equipment) and relies on third party capacity providers, including BCO Independent Contractors, Truck Brokerage Carriers, railroads and air and ocean cargo carriers, to transport freight for its customers. The Company competes with motor carriers and other third parties for the services of BCO Independent Contractors and other third party capacity providers. Freight hauled by BCO Independent Contractors represented 54.7% of Landstar’s revenue in 2006. 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 itsLandstar’s results of operations and revenue.

None.

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 carriertransportation logistics segment’s primary facilities are located in Jacksonville, Florida and Rockford, Illinois. The 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.

On November 1, 2002,As further described in periodic and current reports previously filed by the Company with the SEC, the Company and certain of its subsidiaries (the “Defendants”) are defendants in a suit (the “Litigation”) brought in the United States District Court for the Middle District of Florida (the “District Court”) by the Owner-Operator Independent Drivers Association, Inc. (“OOIDA”) and certainfour former BCO Independent Contractors (as defined below) (collectively(the “Named Plaintiffs” and, with OOIDA, the “Plaintiffs”) filed a putative class action complaint on behalf of all independent contractors who provide truck capacity to the Company and its subsidiaries under exclusive lease arrangements (“BCO(the “BCO Independent Contractors”) in the United States District Court for the Middle District of Florida (the “Court”) in Jacksonville, Florida, against the Company and certain of its subsidiaries, which was amended on April 7, 2005 (the “Amended Complaint”). The Amended Complaint allegesPlaintiffs allege that certain aspects of the Company’s motor carrier leases and related practices with its BCO Independent Contractors violate certain federal leasing regulations and seeksseek injunctive relief, an unspecified amount of damages and attorney’sattorneys’ fees. On August 30, 2005, the Court granted a motion by the Plaintiffs to certify the case as a class action.

On October 6, 2006,March 29, 2007, the District Court denied the request by Plaintiffs for injunctive relief, entered a judgment in favor of the Defendants and issued written orders setting forth its rulings related to the decertification of the plaintiff class and other important elements of the Litigation relating to liability,

On September 3, 2008, the Appellate Court issued a summary judgmentits ruling, which, found, among other things, affirmed the District Court’s rulings that (1) the lease agreements of(i) the Defendants (as defined below) literally compliedare not prohibited by the applicable federal leasing regulations from charging administrative or other fees to BCO Independent Contractors in connection with voluntary programs offered by the requirements of Section 376.12(d)Defendants through which a BCO Independent Contractor may purchase discounted products and services for a charge that is deducted against the compensation payable to the BCO Independent Contractor (a “Charge-back Deduction”), (ii) the Plaintiffs are not entitled to restitution or disgorgement with respect to violations by Defendants of the applicable federal leasing regulations in regards to provisions relating to reductions to revenue derived from freight uponbut instead may recover only actual damages, if any, which BCO Independent Contractors’ compensation is calculated, (2) charge-back amounts which include fees and profits to the motor carrier are not unlawful under Section 376.12(h) and (3) the Defendants had violated 376.12(h) of the regulations by failing to provide access to documents to determine the validity of certain charges. On January 12, 2007, the Court ruled that the monetary remedy available to the Plaintiffs would be limited to damagesthey sustained as a result of any such violations and (iii) the violation and rejected Plaintiffs’ request for equitable relief in the form of restitution or disgorgement.

However, the ruling of the Appellate Court reversed the District Court’s rulings (i) that an old version of the lease formerly used by Defendants but not in use with any current BCO Independent Contractor complied with applicable disclosure requirements under the federal leasing regulations with respect to adjustments to compensation payable to BCO Independent Contractors on certain loads sourced from the U.S. Dept. of Defense, and (ii) that the Defendants had provided sufficient documentation to BCO Independent Contractors under the applicable federal leasing regulations relating to how the component elements of Charge-back Deductions were computed. The Appellate Court then remanded the case to the District Court to permit the Plaintiffs had failed to presentseek injunctive relief with respect to these violations of the federal leasing regulations and to hold an evidentiary hearing to give the Named Plaintiffs an opportunity to produce evidence of any damages they actually sustained as a result of such violations.

Each of the parties to the Litigation has filed a petition with the Appellate Court seeking rehearing of the Appellate Court’s ruling; however, there can be no assurance that any petition for rehearing will be granted.

Although no assurances can be given with respect to the outcome of the

The Common Stock of the Company is listed and traded on the NASDAQ Global Select Market under the symbol “LSTR.” The following table sets forth the high and low reported sale prices for the Common Stock on the NASDAQ Global Select Market and the per share value of dividends declared for the periods indicated.

The reported last sale price per share of the Common Stock as reported on the NASDAQ Global Select Market on February 1, 2007January 30, 2009 was $45.73$35.87 per share. As of such date, Landstar had 55,969,93451,690,580 shares of Common Stock outstanding. As of February 1, 2007,January 30, 2009, the Company had 8366 stockholders of record of its Common Stock. However, the Company estimates that it has a significantly greater number of stockholders because a substantial number of the Company’s shares are held by brokers or dealers for their customers in street name.

It is the intention of the Board of Directors to pay a quarterly dividend going forward.

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 30, 2006:27, 2008:

Included in the number of securities remaining available for future issuance under equity compensation plans was 164,000138,423 shares of Common Stock reserved for issuance under the 2003 Directors’ Stock Compensation Plan.

The following graph illustrates the return that would have been realized assuming reinvestment of dividends by an investor who invested $100 in each of the Company’s Common Stock, the Standard and Poor’s 500 Stock Index and the Dow Jones Transportation Stock Index for the period commencing December 31, 200127, 2003 through December 31, 2006.27, 2008.

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 contain forward-looking statements, such as statements which relate to Landstar’s

Landstar System, Inc. and its subsidiary, Landstar System Holdings, Inc. (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 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, globally, utilizing a network of independent commission sales agents, third party capacity providers and employees. Landstar focuses on providing transportation services which emphasize safety, 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 exclusively utilizes third party capacity providers exclusively 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

Historically, the Company hasreported the results of three reportable business segments. These areoperating segments: the carrier segment, the global logistics segment and the insurance segments.segment. Beginning in the thirteen-week period ended March 29, 2008, the Company revised the presentation format of its segment disclosure to consolidate the previously reported three segments to two segments: the transportation logistics segment and the insurance segment. This change in segment reporting reflected increased centralization and consolidation of certain administrative and sales functions across all of the Company’s operating subsidiaries and the increased similarity of the services provided by the operations of the Company’s various operating subsidiaries, primarily with respect to truck brokerage services. As a result of this change in presentation, the revenue and operating results formerly separated into the carrier and global logistics segments, together with corporate overhead, which was previously included as “other” in the segment information, were consolidated into the transportation logistics segment. This change in segment reporting had no impact on the Company’s consolidated balance sheets, statements of income, statements of cash flows or statements of changes in shareholders’ equity for any periods. This change in reporting also had no impact on reporting with respect to the insurance segment.

The carriertransportation logistics segment consistsmarkets its services primarily through independent commission sales agents. The transportation logistics segment provides a wide range of Landstar Ranger, Inc., Landstar Inway, Inc., Landstar Ligon, Inc., Landstar Gemini, Inc.transportation and logistics services including truckload transportation, rail intermodal, air cargo and ocean cargo services, the arrangement of multimodal (ground, air, ocean and rail) moves and warehousing to a variety of industries including automotive products, paper, lumber and building products, metals, chemicals, foodstuffs, heavy machinery, retail, electronics, ammunition and explosives and military hardware. In addition, Landstar Carrier Services, Inc. The carrier segment primarily provides transportation services to other transportation companies including logistics andless-than-truckload service providers. Landstar also provides dedicated contract and logistics solutions, including freight optimization andless-than-truckload freight consolidations, expedited land and air delivery of time-critical freight and the truckloadmovement of containers via ocean. Each of the independent commission sales agents has the opportunity to market all of the services provided by the transportation logistics segment.

Truckload services primarily are provided for a wide range of general commodities, much of which are over irregular or non-repetitive routes, utilizing dry and specialty vans and unsided trailers, including flatbed, drop deck and specialty. Itspecialty trailers. Available truckload services also providesincludeshort-to-long haul movement of containers by truck and expedited ground and dedicated power-only truck capacity and truck brokerage. The carrier segment markets itscapacity. These services primarily through independent commission sales agents and utilizesare provided by independent contractors who provide truck capacity to the Company under exclusive lease arrangements (the “Business Capacity Owner Independent Contractors” or “BCO Independent Contractors”) and other third party truck capacity providers under non-exclusive contractual arrangements (“Truck Brokerage Carriers”).

The insurance segment is comprised of Signature Insurance Company (“Signature”), a wholly-ownedwholly 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

Management monitors business activity by tracking the number of loads (volume) and revenue per load generated by the carrier and global logistics segments. In addition, management tracks revenue per revenue mile, average lengthmode of haul and total revenue miles at the carrier segment.transportation. 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 indicateother than a change in price or volume.price. Those factors include the average length of haul, freight type, special handling and equipment requirements and delivery time requirements. For shipments involving two or more modes of transportation, revenue is classified by the mode of transportation having the highest cost for the load. The following table summarizes this data by reportable segmentmode of transportation for the past three fiscal years:

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:

The Company incurs costs that are directly related to the transportation of freight that include purchased transportation and commissions to agents. The Company incurs indirect costs associated with the transportation of freight that include other operating costs and insurance and claims. In addition, the Company incurs selling, general and administrative costs essential to administering its business operations. Management continually monitors all components of the costs incurred by the Company and establishes annual cost budgets which, in general, are used to benchmark costs incurred on a monthly basis.

Purchased transportation represents the amount a BCO Independent Contractor or other third partytransportation capacity provider is paid to haul freight. The amount of purchased transportation paid to a BCO Independent Contractor is primarily based on a contractuallyagreed-upon percentage of revenue generated by the haul. Purchased transportation for the brokerage services operations of the carrier segment is based onpaid to a negotiated rate for each load hauled. Purchased transportation for the brokerage services operations of the global logistics segmentTruck Brokerage Carrier is based on either a negotiated rate for each load hauled or a contractuallyagreed-upon rate. Purchased transportation for thepaid to rail intermodal, air cargo and ocean freight operations of the global logistics segmentcargo carriers is based on contractuallyagreed-upon fixed rates. Purchased transportation paid to bus capacity providers was based on a contractuallyagreed-upon fixed 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 brokeragewith respect to services provided by Truck Brokerage Carriers, rail intermodal carriers, ocean cargo carriers and bus operationscapacity providers is normally higher than that of Landstar’s other transportation operations.provided by BCO Independent Contractors and air cargo carriers. Purchased transportation is the largest component of costs and expenses and, on a consolidated basis, increases or decreases in proportion to the revenue generated through BCO Independent Contractors and other third party capacity providers and revenue from the insurance segment. Purchased transportation costs are recognized upon the completion of freight delivery.

Commissions to agents are based on contractuallyagreed-upon percentages of revenue or gross profit, defined as revenue less the cost of purchased transportation, attransportation. No commissions to agents were incurred in connection with the carrier segment and of gross profit at the global logistics segment.2008 Bus Revenue. 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 global logistics segmentvarious modes of transportation and the insurance segment and with changes in gross profit aton services provided by Truck Brokerage Carriers, rail intermodal carriers, air cargo carriers, ocean cargo carriers and bus capacity providers. Commissions to agents are recognized upon the global logistics segment and the truck brokerage operationscompletion of the carrier segment.freight delivery.

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

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.

Revenue for the 2008 fiscal year 2006period was $2,513,756,000,$2,643,069,000, an increase of $155,792,000, or 6.3%, compared to revenue of $2,517,828,000 for the 20052007 fiscal year.year period. Revenue increased $104,948,000 and $3,574,000$155,805,000, or 6.4%, at the carrier and insurance segments, respectively, and decreased $112,594,000 at the globaltransportation logistics segment primarily attributabledue to decreaseda 13% increase in revenue hauled by Truck Brokerage Carriers, increased revenue hauled by ocean cargo carriers and increased revenue from bus capacity provided for evacuation assistance related to disaster relief services forthe storms that impacted the United States. With respectGulf Coast in September 2008 (“Bus Revenue”), partially offset by lower revenue hauled by air cargo carriers. The number of loads in the 2008 period hauled by BCO Independent Contractors, Truck Brokerage Carriers, rail intermodal and air cargo carriers, decreased 4%, 3%, 7% and 29% , respectively, compared to the carrier segment, revenue per load increased approximately 5% while the number of loads deliveredhauled in 2006the 2007 period. Loads hauled by ocean cargo carriers increased 16% over the 2007 period. Revenue per load for loads hauled by BCO Independent Contractors, Truck Brokerage Carriers and rail intermodal, air cargo and ocean cargo carriers increased 5%, 16%, 9%, 6% and 37%, respectively, over the 2007 period. The increase in revenue per load hauled by Truck Brokerage Carriers and rail intermodal, air cargo and ocean cargo carriers was partly attributable to increased fuel surcharges identified separately in billings to customers in the 2008 period

Investment income at the insurance segment was $3,339,000 and $5,347,000 in the 2008 and 2007 fiscal year periods, respectively. The decrease in investment income was primarily due to a decreased rate of return, attributable to a general decrease in interest rates, on investments held by the insurance segment in the 2008 period.

Investment income at the insurance segment was $5,347,000 and $4,250,000 in the 2007 and $2,695,000 for2006 fiscal years 2006 and 2005,year periods, 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 average investments held at the insurance segment.

Purchased transportation was 75.2%75.8% of revenue in 20062007 compared with 74.7%75.2% in 2005.2006. The increase in purchased transportation as a percentage of revenue was primarily attributable to an increase in the portioneffect of decreased revenue generated under the FAA contract, attributablewhich tends to bus, air and fuel delivery services, which have a higherlower cost of purchased transportation, and increased truck brokerage andrates for purchased transportation paid to rail intermodal revenue, which tend to have a higher cost of purchased transportation compared to revenue generated through BCO Independent Contractors,carriers, partially offset by lowerdecreased rates for purchased transportation paid to Truck Brokerage Carriers. Commissions to agents were 8.1% of revenue in 2007 and 8.0% of revenue in 2006 and 8.1% of revenue in 2005.2006. The decreaseincrease in commissions to agents as a percentage of revenue was primarily attributable to the change in the mix ofdecreased revenue generatedfor disaster relief services provided under the FAA contract, in 2006 towards transportation services which tends to have a lower agent commission rate.rate, and increased commissions to agents primarily attributable to increased gross profit on revenue hauled by Truck Brokerage Carriers. Other operating costs were 1.1% of revenue in 2007 and 1.8% of revenue in 2006 and 1.5%2006. The decrease in other operating costs as a percentage of revenue in 2005,was primarily attributable to reduced trailer rental costs incurred in support of disaster relief services provided under the FAA contract, partially offset by reduced other trailer rent expense and maintenance costs, as a result of the Company’s on-going effort to reduce the cost of Company provided trailing equipment.contract. Insurance and claims were 2.0% of revenue in 2007 and 1.6% of revenue in 2006 and 2.0% of revenue in 2005.2006. The decreaseincrease in insurance and claims as a percentage of revenue was primarily attributable to favorable developmenta $5,000,000 charge for the estimated cost of prior year claims in 2006, lower frequency and severityone severe accident that occurred during the first quarter of commercial trucking accidents in 2006,2007 and increased truck brokerage revenue, which has a lowercargo claims risk profile than revenue hauled by BCO Independent Contractors.expense in 2007. Selling, general and administrative costs were 5.3%5.0% of revenue in 20062007 and 5.5%5.3% in 2005.2006. The decrease in selling, general and administrative costs as a percentage of revenue was primarily attributable to a decreased provision for bonuses under the Company’s incentive compensation programs. Depreciation and amortization was 0.8% of revenue in 2007 and 0.7% of revenue in 2006 and 0.6% of revenue in 2005.2006. The increase in depreciation and amortization as a percentage of revenue was primarily due to an increase in Company ownedCompany-owned trailing equipment as opposed to trailing equipment obtained through operating leases.equipment.

Interest and debt expense was 0.3% of revenue in 2006both 2007 and 0.2% of revenue in 2005. This increase in interest and debt expense 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 during the first half of 2006, which were used to fund a portion of the December 31, 2005 receivable from the FAA and to fund purchases of the Company’s common stock under its authorized share repurchase program.2006.

The provisions for income taxes for the 20062007 and 20052006 fiscal years were based on an estimated full year combined effective income tax raterates of approximately 38.4% and 38.7% for each annual period,, respectively, which isare higher than the statutory federal income tax rate primarily as a result of state income taxes, the meals and entertainment exclusion and non-deductible stock compensation expense. The decrease in the effective income tax rate was primarily attributable to changes in the mix of income apportioned to the states in which the Company generates revenue and previously unrecognized tax benefits for uncertain tax positions that were recognized in 2007 that had reached the statute of limitations. 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 2007 fiscal year was $109,653,000, or $2.01 per common share ($1.99 per diluted share), which included approximately $2,153,000 of operating income related to the $8,511,000 of revenue related to emergency transportation services provided primarily under the FAA contract. The $2,153,000 of operating income, net of related income taxes, increased net income approximately $1,325,000, or $0.02 per common share ($0.02 per diluted share). Net income for the 2006 fiscal year was $113,085,000, or $1.95 per common share ($1.93 per diluted share), which included approximately $14,590,000 of operating income related to the $100,655,000 of revenue related to emergency transportation services provided primarily under the FAA contract. The $14,590,000 of operating income, net of related income taxes, increased net income approximately $8,944,000, or $0.15 per

Shareholders’ equity was $230,274,000,$253,136,000, or 64%65% of total capitalization (defined as total debt plus equity), at December 30, 2006,27, 2008, compared with $255,689,000,$180,786,000, or 60%52% of total capitalization, at December 31, 2005.29, 2007. The decreaseincrease in shareholders’ equity was primarily attributable toa result of net income and the effect of the exercises of stock options during the period, partially offset by the purchase of 3,697,7261,303,778 shares of the Company’s common stock at a total cost of $156,492,000, partially offset by current year net income.$51,576,000 and dividends paid. The Company paid $0.155 per share, or $8,136,000, in cash dividends during 2008. It is the intention of the Board of Directors to continue to pay a quarterly dividend. As of December 30, 2006,27, 2008, the Company may purchase an additional 827,5011,430,623 shares of its common stock under its authorized stock purchase program. Long-term debt including current maturities was $129,321,000$136,445,000 at December 30, 2006,27, 2008, compared to $166,973,000$164,753,000 at December 31, 2005. 29, 2007.

Working capital and the ratio of current assets to current liabilities were $221,168,000$238,817,000 and 1.92.0 to 1, respectively, at December 30, 2006,27, 2008, compared with $317,359,000$184,078,000 and 2.11.7 to 1, respectively, at December 31, 2005.29, 2007. 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 $292,168,000$119,689,000 in 20062008 compared with cash used by operating activities of $507,000 in 2005. Included in

Since January 1997, the Company has purchased $588,220,000$816,386,000 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.

At December 30, 2006,27, 2008, the Company’s obligations and commitments to make future payments under contracts, such as debt and lease agreements, were as follows (in thousands):

Long-term debt represents borrowings under the Fourth Amended and Restated Credit Agreement and does not include interest. Capital lease obligations above include $7,594,000$5,467,000 of imputed interest. Operating leases primarily include $15,553,000$11,866,000 related to the Company’s main office facility located in Jacksonville, Florida and $9,518,000 related to a long-term operating lease for trailing equipment.Florida.

As of December 30, 2006,27, 2008, 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.

On November 1, 2002,As further described in periodic and current reports previously filed by the Company with the Securities and Exchange Commission, the Company and certain of its subsidiaries (the “Defendants”) are defendants in a suit (the “Litigation”) brought in the United States District Court for the Middle District of Florida (the “District Court”) by the Owner-Operator Independent Drivers Association, Inc. (“OOIDA”) and certain four former