LANDSTAR SYSTEM INC

The consolidated financial statements include the accounts of Landstar System, Inc. and its subsidiary, Landstar System Holdings, Inc., and reflect all adjustments (all of a normal, recurring nature) which are, in the opinion of management, necessary for a fair statement of the results for the periods presented. The preparation of the consolidated financial

statements

requires the use of management’s estimates. Actual results could differ from those estimates. Landstar System, Inc. and its subsidiary are herein referred to as “Landstar” or the “Company.” Significant intercompany accounts have been eliminated in consolidation.

These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s 2025 Annual Report on Form

10-K.

Revenue from Contracts with Customers – Disaggregation of Revenue

The following table summarizes (i) the percentage of consolidated revenue generated by mode of transportation and (ii) the total amount of truck transportation revenue hauled by BCO Independent Contractors and Truck Brokerage Carriers generated by equipment type during the thirty-nine-week and thirteen-week periods ended September 26, 2026 and September 27, 2025 (dollars in thousands):

As of September 26, 2026, the Company has an employee equity incentive plan, the 2011 equity incentive plan (the “2011 EIP”). The Company also has a stock compensation plan for members of its Board of Directors, the 2022 Directors Stock Compensation Plan (the “2022 DSCP”).6,000,000 shares of the Company’s common stock were authorized for issuance under the 2011 EIP and 200,000 shares of the Company’s common stock were authorized for issuance under the 2022 DSCP. The 2011 EIP and 2022 DSCP are each referred to herein as a “Plan,” and, collectively, as the “Plans.” Amounts recognized in the financial statements with respect to these Plans are as follows (in thousands):

Included in income tax benefits recognized in the thirty-nine-week periods ended September 26, 2026 and September 27, 2025 were (excess tax benefits) tax deficiencies from stock-based awards of ($14,000) and $106,000, respectively.

As of September 26, 2026, there were 161,928 shares of the Company’s common stock reserved for issuance under the 2022 DSCP and 2,589,785 shares of the Company’s common stock reserved for issuance under the 2011 EIP.

Restricted Stock Units

The following table summarizes information regarding the Company’s outstanding restricted stock unit (“RSU”) awards with either a performance condition or a market condition under the Plans:

During the thirty-nine-week period ended September 26, 2026, the Company granted RSUs with a performance condition and RSUs with a market condition, as further described below. Outstanding RSUs at both December 27, 2025 and September 26, 2026 include RSUs with a performance condition and RSUs with a market condition, as further described below and in the Company’s 2025 Annual Report on Form 10-K.

RSUs with a performance condition granted during the thirty-nine-week period ended September 26, 2026 may vest on January 31 of 2029, 2030 and 2031 based on growth in diluted earnings per share as compared to the results from the 2025 fiscal year, adjusted to reflect the add back of (i) the charge taken by the Company in the 2025 first quarter in connection with a supply chain fraud relating to the Company’s international freight forwarding operations; and (ii) impairment charges recorded in the Company’s 2025 fiscal year related to: the decision to actively market for sale Landstar Metro, S.A.P.I. de C.V., the Company’s wholly-owned Mexican operating subsidiary; the decision to wind down the Landstar Blue TMS; anda non-controlling equity investment made by the Company in Cavnue, LLC, a privately held technology start-up company.

On January 30, 2026, the Company granted 6,715 RSUs that vest based on a market condition. These RSUs may vest based on the achievement of a specific total shareholder return (“TSR”) compound annual growth rate, adjusted to reflect dividends (if any) paid during such periods and capital adjustments as may be necessary, and are eligible to vest annually starting after the sixth anniversary of the grant date and concluding after the tenth anniversary of the grant date. The fair value of this RSU award was determined at the time of grant based on the expected achievement of the market condition. With respect to these RSU awards, the Company reports compensation expense ratably over the service period of the award based on the number of units granted multiplied by the grant date fair value of the RSU. Previously recognized compensation cost would be reversed only if the employee did not complete the requisite service period due to termination of employment.

The Company recognized approximately $4,858,000 and $1,586,000 of share-based compensation expense related to RSU awards in the thirty-nine-week periods ended September 26, 2026 and September 27, 2025, respectively. As of September 26, 2026, there was a maximum of $46.4 million of total unrecognized compensation cost related to RSU awards granted under the Plans with an expected average remaining life of approximately 2.9 years. With respect to RSU awards with a performance condition, the amount of future compensation expense to be recognized will be determined based on future operating results.

Non-vested

Restricted Stock and Deferred Stock Units

The following table summarizes information regarding the Company’s outstanding shares ofnon-vested restricted stock and Deferred Stock Units (defined below) under the Plans:

The fair value of each share of

restricted stock issued and Deferred Stock Unit granted under the Plans is based on the fair value of a share ofthe Company’s common stock on the date of grant. Shares ofnon-vested restricted stock are generally subject to vesting in three equal annual installments either on the first, second and third anniversary of the date of the grant or the third, fourth and fifth anniversary of the date of the grant, in two equal annual installments on the first and second anniversary of the date of the grant or 100% on the first or third anniversary of the date of the grant. For restricted stock awards granted under the 2022 DSCP, each recipient may elect to defer receipt of shares and instead receive restricted stock units (“Deferred Stock Units”), which represent contingent rights to receive shares of the Company’s common stock on the date of the recipient’s separation from service from the Board of Directors, or, if earlier, upon a change in control event of the Company. Deferred Stock Units become vested 100% on the first anniversary of the date of the grant. Deferred Stock Units do not represent actual ownership in shares of the Company’s common stock and the recipient does not have voting rights or other incidents of ownership until the shares are issued. However, Deferred Stock Units do contain the right to receive dividend equivalent payments prior to settlement into shares.

As of September 26, 2026, there was $6,683,000 of total unrecognized compensation cost related to

shares of restricted stock and Deferred Stock Units granted under the Plans. The unrecognized compensation cost related to these

shares of restricted stock and Deferred Stock Units is expected to be recognized over a weighted average period of 1.8 years.

The provisions for income taxes for the 2026 and 2025 thirty-nine-week periods were based on estimated annual effective income tax rates of 25.4% and 24.6%, respectively, adjusted for discrete events, such as excess tax benefits or deficiencies resulting from stock-based awards. The effective income tax rate for the 2026 thirty-nine-week period was 25.6%. The effective income tax rate was higher than the statutory federal income tax rate of 21% in the 2026 period primarily attributable to state taxes. The effective income tax rate for the 2025 thirty-nine-week period was 24.9%. The effective income tax rate was higher than the statutory federal income tax rate of 21% in the 2025 period primarily attributable to state taxes.

Basic earnings per common share are based on the weighted average number of shares outstanding, which includes outstandingnon-vested restricted stock and outstanding Deferred Stock Units. Diluted earnings per share are based on the weighted average number of common shares outstanding plus the dilutive effect of outstanding stock awards, if applicable. Outstanding RSUs were excluded from the calculation of diluted earnings per share for all periods because the performance metric requirements or market condition for vesting had not been satisfied. Accordingly, the Company had no reconciling items between the average number of common shares outstanding used to calculate basic earnings per common share and the average number of common shares and common share equivalents outstanding used to calculate diluted earnings per share during each of the 2026 and 2025 thirty-nine-week periods.

During the thirty-nine-week period ended September 26, 2026, Landstar paid income taxes and interest of $29,409,000 and $3,583,000, respectively. During the thirty-nine-week period ended September 27, 2025, Landstar paid income taxes and interest of $45,646,000 and $4,107,000, respectively. Landstar acquired operating property by entering into finance leases in the amount of $28,608,000 in the thirty-nine-week period ended September 26, 2026. Landstar did not acquire any operating property by entering into finance leases in the thirty-nine-week period ended September 27, 2025. During the thirty-nine-week period ended September 26, 2026, the Company purchased its common stock at a total cost of $64,003,000, including $63,416,000 in cash purchases and accrued excise tax of $587,000, which is included in other current liabilities in the consolidated balance sheet at September 26, 2026. The Company also paid $1,762,000 in excise tax on its common stock purchases, which was included in other current liabilities in the consolidated balance sheet at December 27, 2025. During the thirty-nine-week period ended September 27, 2025, the Company purchased its common stock at a total cost of $143,908,000, including $142,512,000 in cash purchases and accrued excise tax of $1,396,000, which was included in other current liabilities in the consolidated balance sheet at September 27, 2025.

The Company reports the results oftwo operating segments: the transportation logistics segment and the insurance segment. The Company’s chief operating decision maker (“CODM”) is our Chief Executive Officer. The CODM evaluates each segment’s performance and makes decisions about resource allocations primarily based on operating income, which is the principal financial metric utilized to monitor budgeted versus actual results by segment of the Company. Asset information by segment is not typically provided to the CODM for purposes of evaluating performance or allocating resources, and therefore such information has not been presented.

The following tables summarize information aboutthe Company’s reportable business segments as of and for the thirty-nine-week and thirteen-week periods ended September 26, 2026 and September 27, 2025 (in thousands):

In the thirty-nine-week periods ended September 26, 2026 and September 27, 2025, no single customer accounted

fo

r more than 10% of the Company’s consolidated revenue.

The following table presents the components of and changes in accumulated other comp rehensive loss, net of related income taxes, as of and for the thirty-nine-week period ended September 26, 2026 (in thousands):

Amounts reclassified from accumulated other comprehensive income to investment income due to the realization of previously unrealized gains and losses in the accompanying consolidated statements of income were not significant for the thirty-nine-week period ended September 26, 2026.

Investments include primarily investment-grade corporate bonds, asset-backed securities, commercial paper and U.S. Treasury obligations having maturities of up tofive years (the “bond portfolio”) and money market investments. Investments in the bond portfolio are reported asavailable-for-sale and are carried at fair value. Investments maturing less than one year from the balance sheet date are included in short-term investments and investments maturing more than one year from the balance sheet date are included in other assets in the consolidated balance sheets. Management performs an analysis of the nature of the unrealized losses onavailable-for-sale investments to determine whether an allowance for credit loss is necessary. Unrealized losses, representing the excess of the purchase price of an investment over its fair value as of the end of a period, considered to be a result of credit-related factors, are to be included as a charge in the statement of income, while unrealized losses considered to be a result ofnon-credit-related factors are to be included as a component of shareholders’ equity. Investments whose values are based on quoted market prices in active markets are classified within Level 1. Investments that trade in markets that are not considered to be active, but are valued based on quoted market prices, are classified within Level 2. As Level 2 investments include positions that are not traded in active markets, valuations may be adjusted to reflect illiquidity and/ornon-transferability, which are generally based on available market information. Any transfers between levels are recognized as of the beginning of any reporting period. Fair value of the bond portfolio was determined using Level 1 inputs related to U.S. Treasury obligations and money market investments and Level 2 inputs related to investment-grade corporate bonds, asset-backed securities, commercial paper and direct obligations of government agencies. Unrealized losses, net of unrealized gains, on the investments in the bond portfolio were $3,350,000 and $504,000 at September 26, 2026 and December 27, 2025, respecti vely.

The amortized cost and fair values ofavailable-for-sale investments are as follows at September 26, 2026 and December 27, 2025 (in thousands):

For those available-for-sale investments with unrealized losses at September 26, 2026 and December 27, 2025, the following table summarizes the duration of the unrealized loss (in thousands):

The Company believes unrealized losses on investments were primarily caused by rising interest rates rather than changes in credit quality. The Company expects to recover, through collection of all of the contractual cash flows of each security, the amortized cost basis of these securities as it does not intend to sell, and does not anticipate being required to sell, these securities before recovery of the cost basis. For these reasons, no losses have been recognized in the Company’s consolidated statements of income.

Landstar’s noncancelable leases are primarily comprised of finance leases for the acquisition of new trailing equipment. Each finance lease for the acquisition of trailing equipment is afive year lease with a $1 purchase option for the applicable equipment at lease expiration. Substantially all of Landstar’s operating lease right-of-use assets and operating lease liabilities represent leases for facilities maintained in support of the Company’s network of BCO Independent Contractors and office space used to conduct Landstar’s business.

These leases do not have significant rent escalation holidays, concessions, leasehold improvement incentives or other

build-out

clauses. Further, the leases do not contain contingent rent provisions. Landstar also rents certain trailing equipment to supplement the Company-owned trailer fleet under

“month-to-month”

lease terms, which are not required to be recorded on the balance sheet due to the less than twelve month lease term exemption. Sublease income is primarily comprised of weekly trailing equipment rentals to BCO Independent Contractors.

Most of Landstar’s operating leases include one or more options to renew. The exercise of lease renewal options is typically at Landstar’s sole discretion, and, as such, the majority of renewals to extend the lease terms are not included in the

right-of-use

assets and lease liabilities as they are not reasonably certain of exercise. Landstar regularly evaluates the renewal options, and when they are reasonably certain of exercise, Landstar includes the renewal period in the lease term.

As most of Landstar’s operating leases do not provide an implicit rate, Landstar utilized its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments. Landstar has a centrally managed treasury function; therefore, based on the applicable lease terms and the current economic environment, the Company applies a portfolio approach for determining the incremental borrowing rate.

The components of lease cost for finance leases and operating leases for the thirty-nine weeks ended September 26, 2026 were (in thousands):

A summary of the lease classification on the Company’s consolidated balance sheet as of September 26, 2026 is as follows (in thousands):

Assets:

Liabilities:

The following table reconciles the undiscounted cash flows for the finance and operating leases to the finance and operating lease liabilities recorded on the balance sheet at September 26, 2026 (in thousands):

The weighted average remaining lease term and the weighted average discount rate for finance and operating leases as of September 26, 2026 were:

Other than the finance lease obligations as presented on the consolidated balance sheets, the Company had no outstanding debt as of September 26, 2026 and December 27, 2025.

On June 30, 2026, and as previously disclosed in a Form 8-K filed with the SEC on July 6, 2026, Landstar entered into a third amended and restated credit agreement, dated June 30, 2026, with a bank syndicate led by JPMorgan Chase Bank, N.A., as administrative agent (the “Third Amended and Restated Credit Agreement”), which amended and restated thethen-existing second amended and restated credit agreement. The Third Amended and Restated Credit Agreement, which matures June 30, 2031, provides for borrowing capacity in the form of a revolving credit facility of $300,000,000, $100,000,000 of which may be utilized in the form of letters of credit. The Third Amended and Restated Credit Agreement also includes an uncommitted “accordion” feature permitting up to an additional $500,000,000 in increases to the revolving credit facility.

The Third Amended and Restated Credit Agreement is referred to herein as the “Credit Agreement.” As of September 26, 2026, the Company had no borrowings outstanding under the Credit Agreement.

The revolving credit loans under the Credit Agreement, at the option of Landstar, bear interest at (i) a forward-looking term rate based on the secured overnight financing rate and an applicable margin ranging from 1.25% to 2.00%, or (ii) an alternate base rate plus an applicable margin ranging from 0.25% to 1.00%, in each case with the applicable margin determined based upon the Company’s Net Leverage Ratio, as defined in the Credit Agreement, at the end of the most recent applicable fiscal quarter for which financial statements have been delivered. The revolving credit facility bears a commitment fee, payable quarterly in arrears, of 0.175% to 0.25%, based on the Company’s Net Leverage Ratio at the end of the most recent applicable fiscal quarter for which financial statements have been delivered.

The Credit Agreement contains a number of covenants that limit, among other things, the incurrence of additional indebtedness. The Company is required to, among other things, maintain a minimum interest coverage ratio, as described in the Credit Agreement, and maintain a Net Leverage Ratio, as defined in the Credit Agreement, below a specified maximum. The Credit Agreement provides for a restriction on cash dividends and other distributions to stockholders on the Company’s capital stock to the extent there is a default under the Credit Agreement. In addition, the Credit Agreement under certain circumstances limits the amount of such cash dividends and other distributions to stockholders to the extent that, after giving effect to any payment made to effect such cash dividend or other distribution, the Net Leverage Ratio would exceed 2.5 to 1 on a pro forma basis as of the end of the Company’s most recently completed fiscal quarter. The Credit Agreement provides for an event of default in the event that, among other things, a person or group acquires 35% or more of the outstanding capital stock of the Company or obtains power to elect a majority of the Company’s directors or the directors cease to consist of a majority of Continuing Directors, as defined in the Credit Agreement. None of these covenants are presently considered by management to be materially restrictive to the Company’s operations, capital resources or liquidity. The Company is currently in compliance with all of the debt covenants under the Credit Agreement.

The interest rates on borrowings under the revolving credit facility are typically tied to short-term interest rates and, as such, carrying value approximates fair value. Interest rates on borrowings under finance leases approximate the interest rates that would currently be available to the Company under similar terms and, as such, carrying value approximates fair value.

Short-term investments include $53,683,000 in current maturities of investments held by the Company’s insurance segment at September 26, 2026. Thenon-current portion of the bond portfolio of $94,938,000 is included in other assets. The short-term investments, together with $30,018,000 ofnon-current investments, provide collateral for the $75,331,000 of letters of credit issued to guarantee payment of insurance claims. As of September 26, 2026, Landstar also had $34,786,000 of additional letters of credit outstanding under the Company’s Credit Agreement.

The Company is involved in certain claims and pending litigation arising from the normal conduct of business. Many of these claims are covered in whole or in part by insurance. Based on knowledge of the facts and, in certain cases, opinions of outside counsel, management believes that adequate provisions have been made for probable and reasonably estimable losses with respect to the resolution of all such claims and pending litigation and that the ultimate outcome, after provisions therefor, will not have a material adverse effect on the financial condition of the Company, but could have a material effect on the results of operations in a given quarter or year.

Third party insurance arrangements providing excess coverage for commercial trucking liabilities in excess of the Company’s self-insured retention, or applicable deductible, generally require that the Company fund settlement payments to claimants and seek reimbursement from the applicable third party insurance providers. In connection with settlements of claims in excess of the Company’s self-insured retention or applicable deductible, the Company accrues for the anticipated settlement payments and records a corresponding receivable for the amounts it expects to collect from its third party insurance providers following payment of those settlement amounts. The liability and the related receivable are presented on a gross basis. As of September 26, 2026, the Company’s consolidated balance sheet included an aggregate liability of $21,000,000 for anticipated settlement payments in excess of the Company’s self-insured retention or deductible. The Company believes collection of these receivables from its third party insurance providers is probable following its payment of the settlement amounts included in the accrual. The Company evaluates the collectability of these receivables based on the creditworthiness and surplus of the applicable third party insurance provider, its prior experience with that provider, and the contractual terms of the applicable insurance arrangement.

Landstar provides for the estimated costs of self-insured claims primarily on an actuarial basis. The amount recorded for the estimated liability for claims incurred is based upon the facts and circumstances known on the applicable balance sheet date. The ultimate resolution of these claims may be for an amount greater or less than the amount estimated by management. The Company continually revises its existing claim estimates as new or revised information becomes available on the status of each claim. Historically, the Company has experienced both favorable and unfavorable development of prior years’ claims estimates within its various programs.

The following table summarizes the adverse effect of the increase in the cost of insurance claims resulting from unfavorable development of prior year self-insured claims estimates on operating income, net income and basic and diluted earnings per share set forth in the consolidated statements of income for the thirty-nine-week and thirteen-week periods ended September 26, 2026 and September 27, 2025 (in thousands, except per share amounts):

The unfavorable development of prior years’ claims during the thirty-nine-week period ended September 26, 2026 was primarily attributable to an increase in the Company’s actuarially determined claim reserves, several specific commercial trucking claims involving BCO Independent Contractors leased on with motor carrier subsidiaries of the Company, several specific truck brokerage claims and cargo loss experience as a result of fraud and theft in the supply chain.

During the 2025 fiscal year, the Company entered into an arrangement with a financial advisor to actively market its Mexican subsidiary, Landstar Metro, S.A.P.I. de C.V. (“Landstar Metro”) and to consider other strategic alternatives for this subsidiary. During the second fiscal quarter of 2026, the Company stopped actively marketing Landstar Metro and initiated a wind-down of its operations and sales of certain assets. As such, the assets and liabilities of Landstar Metro are no longer presented as held for sale within the consolidated balance sheet at September 26, 2026. It is not anticipated that the disposition of Landstar Metro will adversely affect the Company’s ability to provide U.S.-Mexico cross-border services, given that Landstar Metro was principally engaged in intra-Mexico truck transportation services.

In the thirty-nine-week period ended September 26, 2026, the Company recognized an impairment of $679,000 included in selling, general and administrative costs within the Company’s consolidated statements of income related to Landstar Metro. As of the end of the 2026 third quarter, the Company is substantially complete with the wind-down process. While the Company does not currently anticipate any further charges to be incurred as a result of the wind-down process, no assurances can be provided that there will not be additional charges and expenses incurred by the Company in connection with any ultimate dissolution of Landstar Metro.

Accounting Standards Issued But Not Yet Adopted

In November 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”), which expands disclosures about certain categories of expenses. ASU 2024-03 is effective for annual periods beginning after December 15, 2026. The Company is currently evaluating the impact of ASU 2024-03 on its disclosures, but this standard update is not expected to impact the Company’s results of operations or financial condition.