INVESTMENT OPINION

We are initiating coverage of LSTR with a NEUTRAL rating and a $103 price target –
23x our blended 2018E/2019E EPS estimate of $4.49 – which implies 4% upside to
current levels.
Our NEUTRAL rating mainly reflects valuation as the stock is currently trading at 24.4x
our forward blended EPS, which is modestly above consensus, and a new historical
high. We note into periods ahead of sustained earnings growth acceleration the stock
has traded closer to 22x-23x. Notably, LSTR earnings during 2017E – we are modeling
for $3.70 which includes an estimated $5M ($0.12/share) tax benefit booked during
2H17 – implies a double digit teen rate of growth compared to its asset based TL
peers which are still facing earnings contraction. I.e., from an earnings cyclicality and
valuation perspective LSTR’s multiple could face headwinds as we get closer to peak
earnings.
We are very positive on the current U.S. Truckload environment, as we believe signals
in the spot market as well as our survey are suggesting the potential for a cyclical
recovery, which was potentially underway during 3Q17. Further, we believe that ELD
regulation change could remove a meaningful amount of industry capacity from the
market place beginning in 2018E, which most likely plays to LSTR’s favor in the form
of (1) upside pricing across its Trucking operations (93% of 2017E revenue) as well as
(2) additional volume particularly in the company’s Truck Brokerage operations where
the company can funnel incremental volume among its base of 55.8K approved
carrier partners.
Upside pricing within LSTR’s Trucking operations is likely the greatest potential
earnings needle mover in our opinion, as we note our private carrier TL respondents
in our most recent survey – published 9/29 – cited the potential for 4%-9% contract
rate increases through the 2018E bid season as the market has very quickly become
capacity constrained in what is historically a slower seasonal period (3Q). Given LSTR’s
revenue share model, LSTR’s sensitivity to price looks more like that of an Asset
Owning Truck carrier versus that of a Broker – i.e. there is operating leverage in the
model and the company tends to keep a large percentage of price improvement
versus paying this out as increased purchased transportation costs and seeing
meaningful margin headwinds.
We also note LSTR has likely greater exposure to the overall Industrial economy when
compared to its TL brethren – as 20% of its total trailing equipment is unsided/flatbed
equipment utilized in the move of heavy machinery, oil and gas, construction
materials, and other like goods. While we note the U.S. Industrial economy has
witnessed a sooner and stronger pickup when compared to other areas – ISM has
been in expansion mode since September 2016 – we believe the second leg up could
be accelerating U.S. Infrastructure spend if the government were to announce a
change in its funding policy.
Into potentially accelerating earnings, and given lower levels of required investment
as an Asset Light transportation provider, LSTR should continue to generate higher
end levels of FCF (we highlight a ~4.8% FCF yield for 2017E), which is piling up on the
 balance sheet – LSTR is currently sitting near an all-time company record amount of
cash and equivalents at $222M ($6.53/share) as of 2Q17. While LSTR pays a small
dividend ($0.40/share for a 1.5% yield), we assume that an increased share buyback
program or special dividend could potentially be in the cards over the next twelve
months – as we see M&A as a less likely area for capital deployment given LSTR’s
unique model.

VALUATION
We arrive at our $103 price target by applying a 23x target P/E to our forward
blended 2018E/2019E EPS of $4.49. LSTR currently trades at 24.8x our NTM forward
EPS estimate, which compares to the stock’s one and three year average forward P/Es
of 23.4x and 20.6x. While it is likely warranted that LSTR trades closer to the upper
end of its valuation range – given our sense that we are early cycle into a potentially
stronger U.S. Truckload market place – we note the stock is trading at a new historical
high. LSTR’s valuation compares to the BRG Truckload Group currently trading at
23.0x forward P/E on average.
Figure 1. LSTR Valuation vs. Peers
Price P/E EV/EBITDA
Price 52-wk YTD FCF Div LTM FY2 LTM FY2
Ticker Rating Target Mkt Cap 10/19/17 Low High Perf Yield Yield ROE ROIC Range 2017E 2018E 5Y Avg 10Y Avg 10Y Low Range 2017E 2018E 5Y Avg 10Y Avg
INTERMODAL
JBHT BUY $124 $11,470M $104.45 $76.89 $111.98 8.0% 2.0% 0.9% 31.8% 18.4% 20.6x-29.1x 28.0x 23.3x 20.0x 18.9x 10.9x 9x-12.3x 12.8x 10.9x 9.1x 8.5x
HUBG NEUTRAL $43 1,348M 39.15 33.17 52.50 -9.7% -0.3% 0.0% 11.7% 9.9% 15.5x-25.4x 25.4 21.3 17.4 17.7 9.3 6.9x-11.1x 9.1 8.1 9.1 9.5
Average $6,409M -0.9% 0.8% 0.4% 21.8% 14.1% 26.7x 22.3x 18.7x 18.3x 10.1x 10.9x 9.5x 9.1x 9.0x
TRUCKLOAD
KNX BUY $50 $6,983M $39.27 $26.85 $44.45 19.1% 3.3% 0.6% 12.3% 11.3% 20.9x-43.3x 33.0x 20.4x 19.7x 19.6x 14.1x 8.3x-13.5x 4.8x 3.5x 7.4x 7.2x
SNDR BUY $29 4,395M 24.69 17.69 26.85 - - 0.8% 14.0% 9.7% 11.2x-15.3x 26.0 21.6 19.6 19.6 16.9 6.3x-8.5x 7.3 6.4 6.2 6.2
WERN BUY $41 2,578M 35.40 21.45 37.00 32.1% -11.6% 0.8% 8.2% 7.3% 15.6x-33.2x 28.6 21.4 16.9 16.6 12.4 4.9x-7.9x 6.0 5.2 5.1 4.8
Average $4,652M 25.6% -4.1% 0.7% 11.5% 9.5% 29.2x 21.1x 18.7x 18.6x 14.4x 6.0x 5.1x 6.2x 6.1x
BROKERAGE
LSTR NEUTRAL $103 4,156M 98.55 65.55 102.55 16.2% 4.7% 0.4% 27.2% 23.2% 21.8x-28.8x 26.6 24.0 19.2 18.7 12.9 11.1x-14.9x 12.2 10.9 10.5 10.3

Source: Buckingham Research Group

Historically, LSTR’s P/E has reflected a certain level of cyclicality, albeit it’s less than
other names given the company’s model has a higher level of variable versus fixed
costs when compared to many of its Transport comps. During the last downturn,
which for the Truckload (TL) names actually occurred about a year before the broader
2008-2009 contraction, the stock into peak earnings (2008) traded at a trough P/E of
18x on average, and into sustainable earnings recovery, traded on average at around
23x. During the most recent slowdown this cycle, which appeared to be more
Industrial and Transportation centric – versus the broader economy – LSTR’s valuation
troughed at closer to 18x P/E, with current valuation (24.8x) now pricing in
expectations for a strong reacceleration in earnings.
RISKS
LSTR relies on third parties for all of its transportation capacity. The company uses
independent trucking contractors, air and sea cargo carriers, and various railroads to
transport freight and is vulnerable to disruptions these carriers may suffer. Rail
networks have slowed for much of 2017 compared to last year, with velocity down
4.7% on average. Additional capacity tightness is also expected on the trucking side
following December's ELD mandate deadline.
Driver shortages could have a negative impact on LSTR revenue. An ongoing
shortage of qualified truck drivers has been a headwind against industry growth and
appears likely to continue as the industry experiences difficulty competing against
better-paying construction and oil & gas employers for new recruits. LSTR may face
margin headwinds if driver costs for capacity providers increase. Further, we note
that LSTR relies on a greater amount of owner operators for its capacity, which is a
market sub-segment that could be more negatively impacted through the ELD
mandate.
Regulatory changes expected to reduce industry capacity may pressure margins.
Electronic Logging Device (ELD) laws being put into effect at the end of 2017 are
expected to reduce current freight capacity upwards of 5% by simplifying the
enforcement of existing Hours-of-Service (HOS) laws. Capacity tightness resulting
from these regulatory changes may force LSTR to absorb price increases and lower
their margins.
An economic shock or recession could reduce demand for transportation capacity
and would likely have a negative impact on LSTR’s business. Annual truckloads are
highly correlated with U.S. GDP and an economic downturn could dampen demand
for freight transport, causing LSTR to face margin pressure or lose revenue.

REASONS FOR INVESTMENT OPINION

Revenue and EPS poised for growth acceleration into strengthening Truckload
fundamentals. Our sense is LSTR revenue and EPS growth – after outperforming most
of its Asset Based trucking peers this year – is potentially entering a period of
acceleration as a result of climbing Truck market pricing and to a lesser extent
demand. Our increased conviction in stronger Truck fundamentals is mainly founded
in recent TL market activity, with spot market supply/demand reaching record levels
in 3Q17. We are modeling for consolidated revenue of $3.5B during 2017E,
representing 9.6% y/y growth up from a 4.6% decline during 2016, with the majority
of the increase driving by LSTR’s Trucking (BCO and Truck Brokerage) segments. Even
off of a tougher comparison, we are modeling for stronger revenue during 2018E with
total sales of $3.8B (+9.8% y/y), as LSTR likely reaps more TL price upside in the
coming year as market rates reset. We believe growing top line and moderate levels
of operating leverage should contribute to continued double digit rates of EPS growth
moving forward, our 2017E and 2018E modestly above consensus estimates of $3.70
and $4.10 imply y/y growth of 13.7% and 10.9%, respectively.
Figure 2. LSTR Revenue and EBIT, BRG/Actual vs. Consensus

Revenue, BRG & Consensus ($M) EPS, BRG & Consensus

$4,500 $4,207 25% $5.00 $4.62 35%
$4,000 $3,814 $4.50 $4.10 30%
$3,472 20%
$3,500 $3,322 $4.00 $3.70 25%
$3,186 $3,169
15% $3.37 $3.25
$3.50 $3.07 20%
$3,000 $2,666
10% $3.00 15%
$2,500 $2.36
$2.50 10%
$2,000 5%
$2.00 5%
$1,500
0% $1.50 0%
$1,000 $1.00 -5%
-5%
$500 $0.50 -10%
$0 -10% $0.00 -15%
2013 2014 2015 2016 2017E 2018E 2019E 2013 2014 2015 2016 2017E 2018E 2019E
BRG/Act. $2,666 $3,186 $3,322 $3,169 $3,472 $3,814 $4,207 BRG/Act. $2.36 $3.07 $3.37 $3.25 $3.70 $4.10 $4.62
Cons. $3,487 $3,759 $4,042 Cons. $3.62 $4.10 $4.57
BRG/Act. Y/Y -3.8% 19.5% 4.3% -4.6% 9.6% 9.8% 10.3% BRG/Act. Y/Y -13% 30% 10% -3% 14% 11% 13%
Cons. Y/Y 7.8% 7.5% Cons. Y/Y 13% 11%

Source: Buckingham Research Group

Truck pricing and volume growth key driver to potentially accelerating revenue
growth. We believe that favorable trends in LSTR’s largest segments – BCO and Truck
Brokerage – which combined represent 93% of 2017E revenue – likely drive growth
acceleration with further potential for upside moving forward. Our consolidated
2017E revenue projection of $3.5B (+9.6% y/y) includes 8.0% and 12.9% y/y growth at
LSTR’s BCO and Truck Brokerage segments – with greater contribution from yield
growth as TL market pricing continues to grow. We highlight a similar dynamic during
2018E – i.e. we’ve factored in even stronger yield growth for both which is a larger
contributor to accelerated revenue during this time period. Our conviction in the
pricing story playing out at LSTR and the broader TL market stems from both where
current supply/demand is trending – at all-time record levels during a seasonally
slower 3Q17 – and ELD regulation impact on the market as the mandate likely
materially reduces overall supply beginning in 2018E.
Figure 3. LSTR Revenue Bridge 2017E-2019E
$4,800

$4,600
Truck Rail Ocean
Broker- Inter- and
$4,400
age modal Air Other
+$249M +$8M +$12M +$3M $4.2B
$4,200
Truck Rail Ocean
BCO
$4,000 Broker- Inter- and Other
+$121M
age modal Air +$2M
$3.8B
+$224M +$7M +$11M
$3,800
BCO
+$98M 2019E
$3,600
$3.5B

$3,400 2018E

$3,200 2017E

$3,000
Source: Buckingham Research Group

Greater top line and fixed cost leverage results in higher rates of EBIT growth. We
believe that LSTR should be able to leverage a portion of its fixed costs – which are a
lesser percentage of total expenses when compared to its Asset Based Trucking peers
– and grow EBIT at a faster rate moving forward. Our current 2017E EBIT estimate of
$244M implies 9.4% y/y growth with this accelerating – mainly due to TL market price
upside potential – to $274M (+12.1% y/y) in 2018E. The main source of operating
leverage in the LSTR model is derived from revenue growth at a faster rate than fixed
cost expenses (D&A and other operating costs) associated with the company’s owned
trailer pool. We also highlight that in our estimates, we’ve assumed relatively
conservative incremental operating margins of 7% and 9% during both 2017E and
2018E, which is below historical periods of closer to 11%-12% (2010-2012, 2014-
2015).
A portion of the cautious stance on incremental margins is based on LSTR currently
being in the later stages of a multi-year technology upgrade project aimed at
improving company and sales agent efficiency. We believe expenses related to this
project are around $6.5M-$9.5M ($0.10/share-$0.15/share) per year which will be
incurred both this year and likely in 2018E. Further, there are some costs pressures –
outside of increasing purchased transportation costs and agent commissions – that
are likely headwinds moving forward into a tighter overall Truck market place –
mainly around the recruitment and qualification of the business capacity owners
(BCOs) that the company relies on for a portion of its capacity to move customer
freight.
Figure 4. LSTR Projected EBIT Growth 2017E-2018E
350 7.3%
$300M
$274M +9.4% Y/Y
300
+12.1% Y/Y
$244M
+9.4% Y/Y 7.2%
250

EBIT Margin
200
EBIT ($M)

7.1%
150
Incremental
Incremental Margin
100 Margin 6.5%
8.7% 7.0%

50

0 6.9%
2017E 2018E 2019E
Source: BRG Estimates

FCF generation likely to climb as earnings growth strengthens. We believe that LSTR
should generate increasing levels of FCF as earnings grow and capex stays relatively
level – one of the attractive features of an Asset Light transportation model. We are
modeling for FCF generation of $194M ($4.73/share) and $203M ($4.93/share) during
2017E and 2018E, respectively, as a contribution from greater net income is only
modestly offset by potentially our conservatively modeled capex. We note
management is currently guiding for gross capex of $8M during 2017E – with a fair
amount of investment being allocated to increased trailer ownership – however, we
don’t believe capex rises meaningfully higher over the next couple of years. We note
the spike in capex during 2016 was mostly related to LSTR investing in a Laredo, TX
trans-border facility that cost around $25M to construct.
Our sense is incremental FCF generation moving forward is most likely put towards (1)
chipping away at the company’s modest debt level, (2) dividends (including a special
dividend which is potentially more likely with a growing cash balance), and (2) share
repurchases moving forward. LSTR does pay a modest annual dividend ($0.36/share
or 0.4% yield), so an increase in the payout would not be a stretch by any means. The
company also has 1M shares remaining under its share repurchase authorization as of
the end of 2Q17, albeit management has not bought back company shares since
3Q16, which was prior to the stock seeing meaningful appreciation. While we are not
ruling out M&A, this avenue of deploying capital seems less likely in our opinion,
mostly due to LSTR’s unique operating model which does not lend itself to very many
combinations.
Figure 5. LSTR Free Cash Flow, FCF per Share, Share Repurchases, Dividends per Share, Cash from Operations, CapEx

CFO ($M) Capex ($M)

$250 $25
$231 $23
$216
$210
$202
$200 $190 $20

$162

$150 $15
$126 $12 $12
$102 $11
$100 $10
$8
$6
$5
$50 $5

$0
$0 $0
2012 2013 2014 2015 2016 2017E 2018E 2019E 2012 2013 2014 2015 2016 2017E 2018E 2019E

FCF ($M) FCF per Share ($)

$250 $6.00 $5.59
$223
$213
$203 $4.86 $4.94
$194 $5.00 $4.73
$200
$178 $4.21
$165
$4.00 $3.58
$150
$128
$3.00 $2.74
$99
$100 $2.19
$2.00

$50
$1.00

$0 $0.00
2012 2013 2014 2015 2016 2017E 2018E 2019E 2012 2013 2014 2015 2016 2017E 2018E 2019E

Share Repurchases ($M) Dividend per Share ($)

$180 $0.80
$161 $0.73
$160 $0.70

$140
$0.60
$120
$0.50
$100 $0.40 $0.40 $0.40
$0.40
$0.34
$80 $0.30
$59 $56 $60 $60 $60 $0.30 $0.26
$60 $51
$0.20
$40
$26
$20 $0.10
$0.00
$0 $0.00
2012 2013 2014 2015 2016 2017E 2018E 2019E 2012 2013 2014 2015 2016 2017E 2018E 2019E

Source: Buckingham Research Group

 Strong balance sheet highlighted by net cash position. We highlight the company’s
strong balance sheet – we’re projecting a net cash position of $163M for 2017E. As of
2Q17, LSTR had $224M ($5.36/share) of total cash and equivalents on its balance
sheet, which we believe most likely grows into a strengthening Transport landscape,
even under the assumptions that management increases the dividend and executes
on a moderate level of share repurchase activity.
Figure 6. LSTR Net Debt, Total Debt, Net Debt to EBITDA, Debt to Total Capital
Net Debt ($M) Total Debt ($M)
$100 $160
$40
$10 $138
$140
$0 $124
$120 $114 $111
-$41 $108
-$53 $102
($100) -$79 $100
$78
($200) -$163 $80

$60
($300) $48
-$294
$40
($400)
$20
-$447
($500) $0
2012 2013 2014 2015 2016 2017E 2018E 2019E 2012 2013 2014 2015 2016 2017E 2018E 2019E

Net Debt to EBITDA Debt to Total Cap

0.60 25% 23%
0.40 21%
0.17 20%
0.20 0.04 20% 18% 19%
0.00
15%
-0.20 15%
-0.21 -0.16
-0.40
-0.39 10%
-0.60 10%
-0.57
-0.80 6%
-1.00 -0.92 5%
-1.20
-1.40 -1.28 0%
2012 2013 2014 2015 2016 2017E 2018E 2019E 2012 2013 2014 2015 2016 2017E 2018E 2019E

LSTR TL LSTR TL

Source: Buckingham Research Group

LSTR continues to generate impressive financial returns. We highlight LSTR’s

impressive historical ROE and ROIC metrics, which reflects both management’s
diligence as well as the company’s Asset Light based operating model with relatively
low levels of required investment when compared to its Asset based peers. We are
not modeling for significant changes in returns moving forward – we note the modest
decrease in ROE during 2017E-2019E mainly reflects the equity base growing at a
faster rate than net income generation. ROIC is expected over the next couple years is
 expected to stay relatively level with 2017E, seeing some relative benefit from our
assumption that management pays down a portion of debt moving forward.
Figure 7. LSTR ROE, ROIC

ROE ROIC
40% 37.2% 30%
25.6%
35% 24.8%
25% 24.0%
30.9%
29.4% 21.6% 21.9% 22.0% 22.0%
30% 27.2% 20.8%
26.1% 26.6%
25.1% 20%
24.0%
25%

20% 15%

15%
10%
10%
5%
5%

0% 0%
2012 2013 2014 2015 2016 2017E 2018E 2019E 2012 2013 2014 2015 2016 2017E 2018E 2019E

LSTR TL LSTR TL

Source: Buckingham Research Group

Truck market in early innings of potentially strong and sustained TL price cycle; ELD
mandate could exacerbate supply constraints beginning in 2018E. Indications from
current spot market activity – with supply/demand reaching an all-time high for 3Q
per our BRG Dry Van and Flatbed Indices – suggests the potential for stronger Truck
market fundamentals moving forward. This should equate to multiple incremental
positives for LSTR – including (1) upside yield potential within its BCO and Brokerage
Truck Transportation divisions (93% of 2017E revenue), (2) incremental Truck volume
opportunities as the company leverages its IT and broad carrier network (both BCO
and external), and (3) LSTR capturing spill over volume in other modes mainly
Intermodal (3% of 2017E revenue).
Figure 8. BRG Supply/Demand Index (2013-2017 YTD)

Dry Van
250
Index moderation as
Market already running markets 1) normalize
200 ahead of 2014 levels in post hurricanes, 2)
July - August reflect seasonal trends

150

100

50

2013 2014 2015 2016 2017

Flatbed

1000

800

600

400

200

2013 2014 2015 2016 2017

Source: BRG Estimates

We believe that fundamentals in the Truckload spot market – which represents an

estimated 10% of total industry volume – improved at a faster than expected rate
during 3Q17 signaling potentially stronger volume and more so pricing power over
the next twelve months. We highlight in Figure 8 above, that our BRG Dry Van and
Flatbed Truck Indices record levels during 3Q17 and into the first two weeks of
October. Our indices are at parity with 2014 levels, which was an exceptional year for
Truckload pricing – with Dry Van and Flatbed TL contract rates resetting at the
beginning of the year in a mid-single digit range. Even more promising is that Dry Van
and Flatbed spot rates in the first two weeks of October, are now on par with rates
 recorded during 2014. This exceptional squeeze on capacity potentially worsens, in
our opinion as we move into 2018E, given the ELD mandate which goes into effect at
the end of December (12/18/17
Truckload spot market price improving into better supply/demand. We believe that
the recent increase in Truckload spot pricing suggests that broader market (spot and
contract) supply could become incrementally tighter moving forward, which we view
as a positive for LSTR future pricing. In Figure 9 below, we compare Y/Y changes in our
BRG Dry Van supply/demand index – an estimated 80% of LSTR’s Truck capacity – to
DAT spot pricing. We note growth in our index suggests that, on a relative basis, there
is less supply than demand, driving spot pricing upwards. On an absolute basis, spot
pricing (with fuel) is trending similarly to 2014 levels, which was a more robust period
for TL pricing, implying stronger contract rate increases during 1H18, in our opinion.

Figure 9. t Van Trucking Supply/Demand Index vs. DAT Dry Van Spot Market Pricing
BRG Dry
h
e Dry Van
250 $2.40
e
200 n $2.20
d
150 $2.00
o
100 f $1.80

50 $1.60
D
0
e $1.40
c
May-13

May-14

May-15

May-16

May-17
Aug-13

Aug-14

Aug-15

Aug-16

Aug-17
Nov-13

Nov-14

Nov-15

Nov-16
Feb-14

Feb-15

Feb-16

Feb-17

e
m BRG Dry Van Index DAT Van Spot
b
e
Flatbed
r
1000 $2.70
(
800 $2.50
1
600 2 $2.30
/
400 $2.10
1
200 8 $1.90
/
0 1 $1.70
Aug-13

Aug-14

Aug-15

Aug-16

Aug-17
May-13

May-14

May-15

May-16

May-17
Feb-14

Feb-15

Feb-16

Feb-17
Nov-13

Nov-14

Nov-15

Nov-16

7
)
. BRG Flatbed Index DAT Flatbed Spot
T
r
Source: DAT; BRG Estimates
 Truckload contract rates most likely will get a lift from increasing spot market
pricing. A continued increase in absolute spot pricing most likely will be a directional
positive for future LSTR contract rates. In Figure 10 below, we highlight the
relationship between our BRG Dry Van supply/demand index and all in publicly traded
Truckload stock yields (revenue per mile ex fuel) – which capture both spot and more
so contract pricing. Evident from a timing perspective, our BRG Dry Van
supply/demand index leads spot pricing, with spot pricing historically eventually
influencing contract rates. This is of importance, as we believe our BRG Index – which
we track on a weekly basis – gives us timely visibility into the potential direction and
magnitude of future contract rate increase.
Figure 10. BRG Dry Van Trucking Supply/Demand Index vs. TL Yield (ex fuel surcharge)

400% 20%

300% 15%

200% 10%

100% 5%

0% 0%

-100% -5%

-200% -10%

-300% -15%

BRG Dry Van Index - Y/Y Chg TL Yield - Y/Y Chg

Source: Company Reports; BRG Estimates

LSTR has solid exposure to changes in Truckload market rates. We estimate that
100% of LSTR’s total Truck Transportation (BCO and Truck Brokerage) Freight reprices
within one year, which equates to $0.08/share of earnings for every 100bps of change
yield. We note the analysis could prove somewhat conservative, given changes in spot
pricing usually outpaces contract rates both in good and bad markets – our uniform
100bp assumption does not take this into consideration. Albeit some of this is
mitigated by LSTR’s model – as the company’s base of revenue is derived from
revenue share agreements with its sales agents and capacity providers. Baked into
our current 2018E Truck Transportation (BCO and Truck) yield growth assumption of
4.5% Y/Y is contract pricing resetting at a 5% rate – compared to roughly flat earlier
this year – and spot market rate increase in the low double digits. We believe that the
 potential for an accelerating U.S. economy and/or the ELD mandate could drive
Truckload pricing meaningfully higher when compared to our current assumptions.
Figure 11. LSTR Truck (BCO and Truck Brokerage) Price Sensitivity Analysis

HUBG JBHT KNX LSTR SNDR WERN

2018E Truckload Revenue ($M) $258.0 $2,246.3 $4,408.3 $3,565.3 $2,323.1 $1,673.6
Estimated % Spot 0% 5% 6% 40% 5% 10%
Estimated % One Year Contract 33% 44% 79% 60% 95% 62%

Total (Spot and One Year Contract) 33% 49% 84% 100% 100% 72%

Revenue Impacted $85.1 $1,100.7 $3,712.0 $3,565.3 $2,323.1 $1,205.0

100bp change in yield (EPS) $0.02 $0.06 $0.13 $0.08 $0.08 $0.10
% of 2018E EPS estimate 0.9% 1.4% 7.5% 2% 7.3% 6.8%

2018E EPS Estimate $1.84 $4.47 $1.74 $4.10 $1.14 $1.51

2018E Estimated Yield Growth (1) 4.0% 4.0% 4.0% 4.5% - 3.8%

(1) Revenue per total mile

Source: Company Reports; BRG Estimates

LSTR has more relative exposure to Industrial versus Retail economies when
compared to its Trucking peers. We believe LSTR has more relative exposure to
Industrial end markets versus Retail/Consumer, when compared to its Truckload
peers. This is evident in Figure 12 below, which displays LSTR volume – as of 2Q17 –
by equipment type/mode. We note roughly half of LSTR’s Truck Transportation
volume is generated through the movement of unsided/platform equipment – with
Freight that travels via this trailer type originating in Industrial markets (machinery,
energy, construction products, etc.). This differentiator is one of the reasons – along
with management’s continued success in taking market share – LSTR booked
improvement in volume/demand sooner than traditional Dry Van truckload carriers.
I.e. LSTR rallied with the U.S. Industrial market that started to realize stronger
fundamentals ahead of Consumer/Retail end markets.
Figure 12. LSTR Truck Transportation Volume by Equipment/Mode Type (as of 2Q17)

Unsided/ Van
Platform Equipment
Equipment 48%
50%

LTL
2%

Source: Company Reports

A potential play on accelerating infrastructure spend. We believe that LSTR would

see meaningful benefit if the U.S. government passed policy to increase rates of
infrastructure investment – due to the company’s mix of equipment and end market
exposure (see Figure 13 below) and trailing equipment ownership. Increased
government funding of infrastructure investment and private investment – whatever
form and mix it could potentially take – would likely drive incremental demand for
construction equipment (heavy machinery), building products, and other related
goods where LSTR already has a meaningful amount of exposure. We roughly
estimate that about 50% of LSTR’s revenue and 30% of equipment could be positively
impacted by accelerated U.S. infrastructure investment spurred by potential a
meaningful increase in government funding.
Figure 13. LSTR End Market Exposure and Trailing Equipment

Temp 2016 Total Trailers: 15,170

Controlled
113
1%
Consumer Unsided
Other
Durables 3,043
22%
21% 20%
Energy
4%
Machinery
Foodstuffs Van
15%
5% 12,014
79%
AA&E,
Hazmat Building
9% Products Automotive
Metals 9% 8%
7%
Source: Company Reports

LSTR’s growing drop and hook trailer fleet incrementally more attractive in HOS
constrained environment. We believe that management’s focus on growing its
owned trailer fleet to support its drop and hook services has and will likely continue
to result in market share gains. Our sense is drop and hook capabilities for shippers
and trucking companies have become incrementally more attractive post a change in
HOS rules (2013) and in a generally tighter market place, as it results in more efficient
pickups on drop offs. As way of background, drop and hook services allow trucking
companies to drop full trailers off at a customer’s loading dock, with the ability to
hook up an empty trailer on the outbound, greatly reducing valuable wait time. We
note LSTR’s owned trailer fleet has grown 30% since 2010 to 11K units, with the
potential for further growth and market share gains especially if the market were to
tighten further.
Figure 14. LSTR Total Trailer Fleet

16,000

14,000

12,000

10,000
Units

8,000

6,000

4,000

2,000

0 2009
2000
2001
2002
2003
2004
2005
2006
2007
2008

2010
2011
2012
2013
2014
2015
2016
Owned Leased Contractor-Provided

Source: Company Reports

LSTR has exposure greater relative exposure to Industrial economy. This is evident
by the major end markets the company services and also its trailer fleet, which
includes 20% unsided/platform equipment. We believe further acceleration in the
U.S. Industrial market would likely drive greater volume growth at LSTR when
compared to its TL peers which have more relative exposure to the Dry Van market. A
stronger Industrial economy includes the potential for accelerated rates of U.S.
Infrastructure investment, spurred by increased government funding of such projects,
which has yet to come to fruition. We highlight to investors that LSTR’s combined BCO
and Truck Brokerage volume shares +0.61 and +0.62 respective correlations with the
ISM Manufacturing Index and U.S. Retail Sales.
Figure 15. LSTR BCO + Truck Volume vs. ISM Manufacturing Index and Retail Sales
25% 20

20%
15
15%
10
10%
5
5%

0% 0

-5%
-5
-10%
-10
-15%
-15
-20%

-25% -20
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Combined BCO+Truck Volume, Y/Y Retail Sales, Y/Y Chg ISM Mfg. Index (diff. from 50)

Source: Buckingham Research Group

Secular intermodal growth reflects continued Truckload to Rail conversions. We

highlight to investors Intermodal’s secular growth story – as this mode of
transportation likely continues to take market share from the over the road truck
market – given its (1) relative cost advantage (on average at a 15%-20% discount to
TL), (2) greater accessibility (East Coast markets) and (3) improving service levels. We
note in Figure 16 below, the Intermodal industry’s growth outperformance relative to
Truck as we compare Class I rail intermodal volume versus the ATA’s Truck Load index
over historical periods of time. Specifically, Intermodal volume has expanded at 3.2%
and 3.5% CAGRs since 2001 and 2010, respectively, vastly outpacing the ATA’s Truck
Load index at 1.2% and 1.0%. Intermodal’s likely future share gains should provide
continued growth tailwinds for LSTR’s Intermodal division (3% of 2017E revenue).
Figure 16. Historical Class I Intermodal Railcar Loadings versus ATA TL Loads

1,800,000 140

1,600,000 130

1,400,000 120

1,200,000 110

1,000,000 100

800,000 90

600,000 80
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Intermodal Carloadings - Monthly

TL Loads
6 per. Mov. Avg. (Intermodal Carloadings - Monthly)

Source: Association of American Railroads (AAR), American Trucking Association (ATA), BRG Estimates

LSTR Intermodal volume growth has been more volatile. Figure 17 compares LSTR’s
historical and projected volume growth versus the industry (Class I rails), evident is
that the company has actually underperformed meaningfully – i.e. from 2007-2016
LSTR’s intermodal division volume grew at a -2.7% CAGR compared to total Class I
volume at +3.3%. We believe some of the volatility around LSTR volume growth, and
the fact that it has lagged the overall market, likely is a result of the company being a
smaller provider and not having an integrated network of owned assets – i.e. it lacks
presence when compared to market share leaders JBHT and HUBG. We are currently
modeling for 5% LSTR Intermodal segment volume growth during both 2018E and
2019E, which is above the historical average, and represents improvement from an
anticipated decline of 12% during 2017E.
Figure 17. LSTR Historical and Projected Intermodal Volume Growth

60%

40%

20%

0%

-20%

-40%

-60%
1Q07
3Q07
1Q08
3Q08
1Q09
3Q09
1Q10
3Q10
1Q11
3Q11
1Q12
3Q12
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
LSTR Y/Y Growth Intermodal Carloadings Y/Y Growth

Source: Association of American Railroads (AAR), Company Reports; BRG Estimates

TRUCKING INDUSTRY TRENDS
SUMMARY
We believe that the U.S. Truck services market – after two years of suffering through
weak fundamentals – is clearly in recovery mode and has shown recent signs of
strength that leave us bullish on future prospects for our covered Truckload (TL), Less-
than-Truckload (LTL), and Truck Leasing and Rental companies. These recent positive
indicators include:
1) Truckload spot market supply/demand – a strong leading indicator – inflected
during 3Q17, currently at a three year highs
2) Recent surge in Truckload spot market rates – which has driven more constructive
contract price negotiations
3) Recovery in the U.S. Used Truck market place per our BRG Used Truck Price Index
4) Healthier macro data points – increased U.S. Retail Sales growth with moderating
levels of inventory and continued U.S. Industrial market expansion (ISM Index)
Most of the signals that we track that historically have equated to healthier future
Truck service market fundamentals are now pointing in the right direction, and we
also have macro data points that support solid growth within the broader Transport
industry. Further, we highlight to investors a major upcoming regulation change
within Truckload – the mandated use of Electronic Logging Devices (ELD) – which
could remove a meaningful amount of TL industry supply. We estimate a 5% potential
reduction in industry capacity during the first 12 months following ELD deadline (Dec.
2017) which could drive meaningful upside for carrier pricing as well as present share
gain opportunities for larger incumbents already using ELDs.

BACKGROUND
U.S. For Hire Truckload market remains very fragmented. Despite increased rates of
consolidation over the last decade, the U.S. for-hire Truckload market (which is very
large, at an estimated $300B) remains extremely fragmented. The greater degree of
market fragmentation versus other transportation industries is mainly driven by lower
relative barriers to entry. We note that the top ten Truckload carriers hold only a
single digit percentage (5.4%) of estimated market share. We highlight the market
share table includes KNX’s recent (closed 3Q17) acquisition of SWFT, which positions
the combined entity (Knight-Swift Transportation) as the leading Truckload carrier in
the U.S. with over $4B in estimated 2017 annual revenue. Our sense is that Truckload
industry consolidation is more likely to accelerate over the next couple of years, as
the industry contends with continued operating cost increases as well as more
stringent regulations. Further, we believe that ELD regulations could be a major
catalyst for increased rates of consolidation among small and midsized carriers –
which represent a large predominance of the market – and will likely experience
greater negative impact with respect to network utilization as well as profitability on a
go-forward basis.
Figure 1. Truckload Industry Market Share (by 2016 Annual Revenue)

% of ~$300B Top Ten TL

Company Revenue (2016) Total Market Total For- 5%
Knight-Swift $3,919 1.3% Hire
Schneider 2,091 0.7% Truckload
J.B. Hunt Transport Services Inc. 1,921 0.6% Market
Werner Enterprises Inc. 1,534 0.5%
Landstar System 1,489 0.5%
U.S. Xpress Enterprises 1,320 0.4%
TFI International 1,232 0.4% Other
Ryder Dedicated Transportation Solutions 1,021 0.3% Carriers
CRST International 905 0.3% 95%

Celadon Trucking Services 850 0.3%

Top Ten Market Share 16,282 5.4%

Total Estimated For Hire Truckload Market ~$300B

Source: Transport Topics, Buckingham Research Group Estimates

DEMAND
Truckload demand historically tied to broader economic growth. Historically,
Truckload volume has tracked similarly with the overall growth of the U.S. economy.
Figure 2 below compares U.S. Real GDP growth and YoY changes in the ATA’s Load
index – we note from 1992 to date (as of 3Q17) the two share a +0.8% correlation.
Notable is the relatively less robust rate of GDP and Truck load volume growth when
compared to prior cycles – GDP and Truck loads growing at roughly 2% each from
2011-2016. This compares to 2.7% and 0.4% during the last TL Freight upcycle (2002-
2006) and 3.9% and 7.0% the cycle (1992-1999) before that. We also believe that
transportation mode shift – mainly over the road Truck freight to Intermodal (Rail)
has also partially fed into lower rates of Truckload volume growth when compared to
prior cycles.
 Figure 2. U.S. Real GDP Growth vs. ATA Truckload Load Index
0.025 25%
Correlation: +0.80
0.02 20%

0.015 15%

0.01 10%

TL Loads Index, YOY Chg

0.005 5%
GDP YOY Chg

0 0%

-0.005 -5%

-0.01 -10%

-0.015 -15%

-0.02 -20%

-0.025 -25%
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Real GDP Y/Y Total Loads SA Y/Y

Source: U.S. Census Bureau, American Trucking Associations (ATA)

Truckload volume growth gradually improving off of lower end levels. We believe
demand within the for-hire Truckload market – which is likely a fair proxy for activity
in the private fleet market and more importantly the broader U.S. economy – has
been gradually improving this year. In Figure 3 below, we plot Truck market volume –
as represented by YoY changes in the American Trucking Associations’ (ATA) load and
mile indices – and compare it to our BRG Truckload Dry Van supply/demand index
which is mostly reflective of spot market activity. We note that the BRG index
historically has led the ATA’s load and mile indices by about four months, and has
recently accelerated. On an absolute basis the BRG supply/demand index reached a
three year high – levels not witnessed since 2014 which was a considerably stronger
time period for Truckload market fundamentals. We note ATA’s load index is up 3.8%
on a YoY basis thus far in 2017 which, on a relative basis, has improved from 1.8%
during 2016. Most recently, the ATA load index inflected in August, up 5.4% Y/Y,
which we believe coincided with a pickup in overall Trucking demand during 3Q17.
 Figure 3. ATA Load and Mile Indices vs BRG Dry Van Supply/Demand Index (Y/Y)
10% 200%

8%
150%

6%
100%
4%

50%
2%
Loads/Miles Y/Y

BRG Index Y/Y

0% 0%

-2%
-50%

-4%
-100%
-6%

-150%
-8%

-10% -200%
2011 2012 2013 2014 2015 2016 2017

ATA TL Loads Y/Y Retail Sales Y/Y BRG Dry Van Index Y/Y

Source: American Trucking Associations (ATA), BRG Estimates

Recent U.S. Retail Sales growth acceleration coinciding with healthier Truckload
marketplace. We note recent strength in U.S. Retail Sales growth has also coincided
with stronger Truckload fundamentals – which is not surprising given roughly an
estimated 70-80% of Truckload freight is classified as consumer/retail and the two
data sets share a +0.75 correlation historically. We also highlight that the timing of
strengthened U.S. Retail sales growth has also coincided with a decreased levels of
overall inventories, which should bode well for future Truckload demand. We note
that ecommerce, though widely portrayed as an imminent threat to store-based
retail, comprises only ~8% of total retail sales at this point in time and generates
comparable demand for trucking services as “brick-and-mortar” retail Freight moves
are shifted to “distribution center to fulfillment” locations.
 Figure 4. U.S. Retail Sales versus ATA Truckload Load Index
20.0%

15.0%

10.0%

5.0%

0.0%

-5.0%

-10.0%

-15.0%

-20.0%
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Retail Sales Y/Y Total Loads SA Y/Y

Source: U.S. Census Bureau, BRG Estimates

Retail inventory to sales ratio moderating a likely positive for future Truckload
demand. Below in Figure 5, we provide a historical view of the relationship between
U.S. retail inventory to sales and the ATA’s Truckload load index growth on a Y/Y
basis. Evident is that a lower inventory to sales ratio has historically corresponded
with a stronger rate of Truckload market volume growth – i.e., as the economy
strengthens through the cycle companies build inventory on hand and in order to do
so move more Freight via Truckload transportation. The reverse can be said during
periods of slower economic growth. We note more recently that the U.S. retail
inventory to sales ratio has moderated off of prior cycle highs – which could bode well
for future Truckload market volume growth, in our opinion.
 Figure 5. U.S. Inventory to Sales vs. ATA Truckload Load Index
20%

15%

10%

5%

0%

-5%

-10%

-15%

-20%

-25%
1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017
ATA TL Loads Y/Y Retail Inv/Sales Ratio Y/Y

Source: U.S. Census Bureau, American Trucking Associations (ATA)

We believe the broader and longer term trend with respect to inventory levels –
through each cycle – has been a decrease in the level of inventory held on hand by
consumer and retail businesses. We believe that two major but related forces were
likely at play including companies (1) looking to improve their working capital profiles
and (2) migrate closer towards just-in-time supply chains.

SUPPLY
Class 8 orders have moderated from peak levels. Post peaking in late 2014, Class 8
order activity has sustainably contracted to lower end levels into weakened Truckload
market fundamentals. Class 8 orders entered negative territory Y/Y during the end of
1Q15 – and remained below year ago levels – contracting for a little less than two
years (see Figure 6 below). We believe this sustained period of less new equipment
entering the market has contributed to more moderate levels of Truckload capacity
availability and healthier recent Truck supply/demand levels, as evidenced by TL spot
market activity.
 Figure 6. Class 8 Orders (Absolute and YOY)
60,000 370%

320%
50,000
270%

40,000 220%

170%
Units

30,000
120%

20,000 70%

20%
10,000
-30%

0 -80%
2005
2000
2001
2002
2003
2004

2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Class 8 Orders Y/Y Chg

Source: ACT Research, BRG estimates

Class 8 order activity is trending in line with replacement demand. We believe that
Class 8 demand activity – after a weak 2016 due in part to softer Truckload market
fundamentals – is now trending back in line with historical replacements levels. Our
sense is new Class 8 demand recovery has likely been driven by stabilization in both
Trucking services fundamentals as well as the used equipment market. Year-to-date
(September 2017) total Class 8 orders at 211K units are up 44% Y/Y (albeit off of a
very easy comparison). We do note that estimated vocational (waste hauling, fire,
and dump trucks) Class 8 orders – which have historically represented 30% on
average of total industry orders and are less cyclical in nature – have been
exceptionally strong partially contributing to the ramp in orders. Figure 7 below plots
historical Class 8 monthly orders by total, straight truck (vocational), and tractor
(linehaul and metro).
 Figure 7. Class 8 Orders (Absolute and YOY)
50000

40000

Monthly Orders

30000

20000

10000

0
2012 2013 2014 2015 2016

Tractor Straight Total Cl 8

Source: ACT Research, BRG estimates

Class 8 deliveries expected to remain at replacement levels over the next two years.
Figure 8 below plots annual Class 8 orders and deliveries. We highlight ACT’s annual
total Class 8 delivery estimates for 2017E and 2018E at 245K and 253K units,
respectively, places the supply of new equipment into the Truck services market
within an average replacement estimate pace of 225K-250K units per year. Again our
sense is Class 8 order activity is being spurred by stabilization in Trucking service
market fundamentals – including a gradual sequential improvement in Class 8 used
truck values. We believe Class 8 new equipment entering the market at replacement
levels likely bodes well for the broader Trucking market place – i.e., a flat North
American Class 8 population with a growing Freight base likely equates to Trucking
services companies (Truckload, Less than Truckload, and Lease / Rental) garnering
price increases during this time period.
 Figure 8. Annual U.S. Class 8 Orders and Deliveries
450,000

400,000

350,000
Yearly Orders/ Deliveries

300,000

250,000

200,000

150,000

100,000

50,000

2014
2015
2016
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013

2017E
2018E
Replacement Range (225K-250K) Class 8 Orders Class 8 Deliveries
Source: ACT Research

Our main concern with Class 8 equipment is the potential for too much supply
entering the market, working against TL and LTL pricing power. We note earlier this
cycle, Class 8 orders and deliveries strongly accelerated during 2014 and 2015 (see
Figure 8 above), respectively, introducing above average supply to the market. This
was likely a contributing factor – in addition to weaker overall demand – to Truck
market fundamentals decelerating with spot and contract Truckload pricing going
negative in subsequent years (2015 and 2016).
Average age of Class 8 equipment is back to more normalized levels. We believe that
the average age of the U.S. Class 8 active population has retraced back to more
normalized levels aided by (1) above average prior year order activity and (2) an
increased rate of scrapping. Per ACT estimates, we believe as of year-end 2016, the
average age of active Class 8 equipment in the U.S. was 5.96 years, nearly equal to
the trailing 17-year average of 5.95 years from 1990-2016. A lower average age of
Class 8 population, we believe, potentially could equate to lower end levels of market
replacement orders, which could constrain future industry capacity growth and
therefore serve as a tailwind for Trucking service providers (across Truckload, Less
than Truckload, and Leasing / Rental companies).
 Figure 9. U.S. Class 8 Active Population Average Age and Scrappage %
8 12%

7
10%
6
8%
5
Age in Years

4 6%

3
4%
2
2%
1

- 0%

Class 8 Average Age Average Age 1990-2016

Scrappage as % of Active Stock

Source: ACT Research

Active Class 8 population growth has moderated. Class 8 total U.S. tractor
population growth – has in recent years – decelerated given a decrease in deliveries
due to softer Trucking service (mainly Truckload) market fundamentals which we view
as a positive for future pricing. We highlight in Figure 10 below, 2017 total U.S. Class 8
active population – as estimated by ACT – is anticipated at 2.1M units, representing
~1% YoY growth, well below the prior year growth rate of ~2%. This moderation is
U.S. total Class 8 fleet growth, combined with (1) the potential for accelerating US
economic activity and (2) a decrease in supply brought on mainly by ELD regulation
change (effective 12/18/17), we believe could result in strongly reaccelerating
Trucking service (Truckload, Less-than-Truckload, and Truck Rental) market pricing in
future years.
 Figure 10. U.S. Class 8 Population – Active and Reserve (Units)
3,000,000 15%

2,500,000 10%

2,000,000 5%
Number of Vehicles

% Change
1,500,000 0%

1,000,000 -5%

500,000 -10%

- -15%
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017E
2018E
Active Population Reserve Capacity Active Population Y/Y% Chg

Source: ACT Research

PRICING
Truckload spot market near 2014 peak levels; positive for future contract rates. We
believe that the recent acceleration in Truckload spot pricing suggests that broader
market (spot and contract) supply will continue tightening moving forward and is a
positive for future contract pricing – which we expect will rise in the 5% - 10% range
this bid season. In Figure 11 below, we compare Y/Y changes in our BRG Dry Van
supply/demand index compared to DAT spot market pricing. We note growth in our
index suggests – on a relative basis – that there is less supply versus demand and thus
spot market pricing has increased. We note on an absolute basis, spot market pricing
(including fuel) is trending similarly to 2014 levels, the most recent peak in the
Truckload market.
 Figure 11. BRG Dry Van Supply/Demand Index vs. DAT Dry Van Spot Market Pricing
250 $2.40

200 $2.20

150 $2.00
BRG Index

Spot Rate
100 $1.80

50 $1.60

0 $1.40
May-13

May-14

May-15

May-16

May-17
Aug-13

Aug-14

Aug-15

Aug-16

Aug-17
Nov-13

Nov-14

Nov-15

Nov-16
Feb-14

Feb-15

Feb-16

Feb-17
BRG Dry Van Index DAT Dry Van Spot Rate

Source: DAT, BRG estimates

Truckload contract rates most likely will get a lift from increasing spot market
pricing. A continued increase in absolute spot pricing most likely will be a directional
positive for future contract rates. In Figure 12 below, we highlight the relationship
between our BRG Dry Van supply/demand index and all in publicly traded Truckload
stock yields (revenue per mile ex fuel) – which capture both spot and more so
contract pricing. We note most carriers rely on the spot market for only a small
percentage of their total Freight mix (5-15%). Evident from a timing perspective, our
BRG Dry Van supply/demand index leads spot pricing (see Figure 11 above), with spot
pricing eventually influencing contract rates. This is of importance, as we believe our
BRG index – which we track on a weekly basis – gives us timely visibility into the
potential direction and magnitude of future contract rate increase.
 Figure 12. BRG Dry Van Supply/Demand Index vs. TL Yield (ex fuel)

400%

300%
10%

200%

Public TL Yields, Y/Y Chg

5%
100%
Index Y/Y Chg

0% 0%

-100%
-5%
-200%

-300% -10%
1Q08
3Q08
1Q09
3Q09
1Q10

1Q11
3Q11
1Q12
3Q12
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16

3Q17
3Q10

1Q17
BRG Dry Van Index, Y/Y Chg Public TL Yields, Y/Y Chg

Source: DAT, BRG estimates

USED EQUIPMENT MARKET

Used commercial vehicle market stabilized and potentially improving. We believe
gradual improvement in Trucking services fundamentals – as evidenced by increased
tightness in the TL spot market – has also provided some support for used Truck
equipment and could potentially prove R management’s 2017 guidance for used
equipment pricing too conservative. In Figure 13 below, we compare the BRG Used
Class 8 Truck Price Index and the published quarterly changes in R Tractor (Class 8)
and Truck (Class 3-7) used equipment sale price. We note (1) the BRG index shares
+77% and +62% correlations with R used Tractor and Truck sales and (2) a more
recent directional improvement in the BRG index. Year to date, the BRG Index is down
11% which compares to R total (Truck and Tractor) pricing at -16% YoY. For the year, R
management expects used vehicle pricing to decline between 18% and 20% YoY.
While we note there are some mix differences when comparing the BRG Index versus
R used equipment pricing – mainly R is expecting to sell a greater amount of
equipment through wholesale versus retail channels during 2017E – directional BRG
index data points gives us increased conviction that R used equipment pricing has
found a bottom.
 Figure 13. BRG Class 8 Used Truck Price Index vs. R Used Truck and Tractor Price (YOY)

70%

60%

50%

40%

30%

20%

10%

0%

-10%

-20%

-30%

-40%
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
BRG Price Index Y/Y R Used Tractor Y/Y Prices R Used Truck Y/Y Prices

Source: Company reports, BRG estimates

R, which we regard as an industry bellwether, is now holding average levels of used

equipment. Into what is potentially a stabilizing to improving used Truck market – we
highlight to investors that R is holding about an average level of used equipment
(Tractors, Trucks and Trailers) which better positions the company versus earlier in
the cycle. We note, as of 2Q17, R held 7.5K total units for sale – which represented
4.0% of its total active fleet of 185K – which compares to a trailing average (2005-
2017) average of 4.2%. This compares to 2016 at 4.5% on average as the company
was holding greater levels of used inventory into a decelerating market. R holding
more average levels of equipment for sale at this point in the cycle leaves use more
comfortable with the “volume” component of gains and proceeds from sales – i.e. we
don’t believe R is in a position where the company is holding an above average level
of equipment and therefor would have to sell a greater amount to de-fleet, which
could negative impact pricing due to (1) more volume sold into the market or (2) R
having to rely more on the wholesale vs. the retail channel to move units and hence
accept lower relative price per unit. With respect to the overall industry, we believe
that used truck and tractor inventory for the U.S. market as a whole has improved
over the last few quarters.
 Figure 14. R Equipment Units Held for Sale (Absolute and as a % of Total Active Units)
14,000 8%

12,000 7%

6%
10,000

5%
8,000
4%
6,000
3%

4,000
2%

2,000 1%

0 0%
3Q05
1Q06
3Q06
1Q07
3Q07
1Q08
3Q08
1Q09
3Q09
1Q10
3Q10
1Q11
3Q11
1Q12
3Q12
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
End of Period Held for Sale % of Total Units Held for Sale
2005-2017 Avg. % Held for Sale

Source: Company reports

DRIVERS
Driver turnover has recently increased as market rapidly tightened. Driver turnover
– as provided by the American Trucking Associations (ATA) – has recently upticked
likely to to meaningful improvement in market demand. Historically, Truck industry
driver turnover tends to decrease when fundamentals are weaker and Trucking
companies are competing less for headcount, with the reverse true in more robust
demand environments. Increased turnover is usually associated with driver cost
inflation.
 Figure 15. ATA Driver Turnover

160%

140%

120%

100%

80%

60%

40%

20%

0%
3Q95
3Q96
3Q97
3Q98
3Q99
3Q00
3Q01
3Q02
3Q03
3Q04

3Q06
3Q07
3Q08
3Q09
3Q10
3Q11

3Q13
3Q14
3Q15
3Q16
3Q05

3Q12
Large TL Small TL

Source: American Trucking Associations (ATA)

Longer term issues could contribute to increasing driver shortages moving forward.
In general, Truck industry driver shortages and high rates of turnover have long been
a headwind for the industry – Truckload more than Less-than-Truckload – given the
challenges of the job mainly lower relative pay and quality of life. We note, potentially
exacerbating the issue moving forward is the average age of the estimated 1.7M U.S.
commercial heavy duty truck drivers which skews older, and introduces the risk of
greater driver work force attrition through retirement in coming years. In Figure 16
below, we provide the median age and age bands of the Trucking and Construction
industries. Evident is Trucking median age at 47 years is well above both Construction
(43) and all U.S. employees at 42. To frame this a different way, 57% of total Trucking
jobs – including Truck drivers – are held by persons 45 years of age or greater, which
compares to 44% for both the Construction industry and total U.S. workforce. Given
these demographics, our sense is that greater rates of Truck driver attrition through
retirement could potentially increase driver shortages over the next decade.
 Figure 16. Truck and Construction Industry Employee Age
30.0%
Trucking Median Age: 47.2
Construction Median Age: 42.7
25.0% All Employees Median Age: 42.2

20.0%

15.0%

10.0%

5.0%

0.0%
16-19 20-24 25-34 35-44 45-54 55-64 65+

Trucking Construction All

Source: Buckingham Research Group

Truck driver employment pool sees continued competition from construction and
other industries. Potentially exacerbating truck driver shortages is continued
competition for employment opportunities from other industries. Traditionally,
Trucking service and Construction companies have drawn from similar sub-segments
of the overall U.S. employment pool. On a relative basis, construction jobs are more
attractive given a greater quality and wage opportunity. Further, the Construction
industry, relative to Truck transportation, is also much larger from a headcount
perspective – we highlight per BLS data at the end of 2Q17 the Construction industry
employed 1.5M FTEs in total compared to the Trucking industry at 6.9M.
 Figure 17. Total Truck Driver Employment (Y/Y)

10%

5%

0%

-5%

-10%

-15%
2010 2011 2012 2013 2014 2015 2016 2017

Truck Transportation Y/Y Construction Y/Y

Source: Bureau of Labor Statistic (BLS)

Figure 17 above plots total U.S. Construction and Truck employment figures on a Y/Y
basis. We highlight the relative outperformance of Construction versus Trucking
beginning in the middle of 2013 that has continued to date. While it’s difficult to
directly prove that the Construction industry directly contributed to a lower rate of
Truck employment growth and additional shortages into the 2014 Truckload industry
capacity crunch, our sense (and the feeling of many of our industry contacts) is it was
one of the contributing factors.

REGULATORY ENVIRONMENT
While there is a number of future Trucking industry regulations that could prove
influential with respect to market place fundamentals, we believe that ELD regulation
change – with a mandate deadline of 12/18/17 – will be most impactful. We believe
ELD regulation will (1) meaningfully reduce Truckload industry supply which will drive
a strong increase in pricing, and (2) likely creates share gain opportunities for carriers
already utilizing ELDs.
Figure 18. US Truck Market Regulations

Commercial Carrier Regulations 2011 2012 2013 2014 2015 2016 2017 2018 2019
7/1/13: Updated
>11 hour driving limit after 10 hours off-duty 12/27/11: Final Rule s took effect
3/6/17 Once-per-
>60/70 hour limit in 7/8 consecutive days rule publ i s hed (11 hour/da y
2/27/12: Effe cti ve wee k res ta rt a nd
>8 Hours max on-duty before 30 minute required for upda te d l i mi t, 60/70 hour
Hours of Service Da te for final 1a m-5a m
rest break drivi ng l i mi t in 7/8 days ,
updated rul e res tri cti ons
>Drivers be off duty from 1am-5am on 2 l i mi ts /re gul ation requi re d re st
remove d
consecutive nights before restarting weely work s brea k, 1a m-5am
res tri cti ons )
2/16/16: Pa per 12/16/19:
ELDs synchronize with vehicle engine to Logs, Loggi ng 12/18/17: AOBRDS Regi s tere d ELDs
Electronic Logging Devices automatically record driving time, for easier, more Software, or Certi fi e d ELDs that compl y wi th
accurate HOS recording. AOBRDS, or ELDs mus t be us ed re qui reme nt mus
mus t be us e d be us e d
8/26/16: DoT
propos e d rule
Proposed Rule: Force trucks to be equipped w/
requiri ng trucks
Speed Limitations speed limiting devices. Potentional limited speeds
to be equi pped
are 60mph, 65mph, and 68mph
w/ s peed l i miti ng
de vice s
8/1/13: Ne w 30%
s horte r stoppi ng
Commercial Vehicle di s tance
30% shorter stopping distance requirements
Stopping Distance requi re ments for
tra ctors i s
i mpl emented
12/4/15: FAST Act
s igned i nto la w,
Drug and Alcohol al lows for hai r
foll i cl e drug
testing

12/1/16: Rul e s
were pas sed in
Salaried employees are eligible for overtime pay if
June 2016 - put on
Overtime Law they earn < $47,476 per year (double the old
hold a nd under
threshold of $23,660) revi ew by new
admi nis trati on

Source: Department of Transportation (DOT), Federal Motor Carrier Safety Administration (FMCSA)

Electronic Logging Device (ELD) regulations will likely meaningfully reduce Truckload
industry capacity. ELD regulations will likely consolidate industry capacity through the
following means: (1) greater enforcement of Hours of Service (HOS) rules will reduce
carriers miles driven and hence industry utilization, (2) may drive increased carrier
consolidation through M&A as carriers look to offset a portion of lost utilization and
profitability through synergies, and (3) carriers outright exiting the industry given the
inability to consistently generated profits under more strictly enforced HOS rules.
While calculating the magnitude of potential total supply removed from the Truckload
market place is almost an impossible task, in this section, we present some facts and
some hypotheticals. I.e. we roughly know what the market place looks like from a
carrier composition perspective – with the vast majority of Truckload industry
capacity held by small and medium sized carriers (an estimated 59% of TL market
capacity represented by fleets of 50 tractors or less) that have not yet adopted ELD
technology. We then assign a rough estimate as to the total number of miles that
carriers run in excess of HOS rules, garnered through conversations with industry
participants.
What is the Electronic Logging Device (ELD) rule? The rule requires commercial
drivers to use a certified and registered electronic logging device (ELD) to track hours
of service (HOS), which is expected to be immediately presentable to law
enforcement at their request. The ELD rule creates an industry standard for tracking
driver HOS, with the aim to reduce or eliminate carriers who violate HOS rules and
improve road safety.
When will it go into effect? The final rule compliance date is 12/18/17, at which time
it is mandated that all Truckload carriers utilize ELD devices to track hours of service
(HOS). We note for a two year period following this date, carriers can utilize
Automatic On Board Recording Devices (AOBRDs), but paper logs or logging software
are no longer acceptable means for tracking records of duty status (RODs), and
therefor misrepresenting HOS records would be very difficult.
Which carriers are potentially impacted? The ELD rule will apply to most motor
carriers and commercial drivers who are required to maintain records of duty status
(RODS). This includes commercial truck and bus drivers in the U.S., as well as Canada
and Mexico.
Which carriers does the rule exclude? Only a small percentage of commercial truck
companies are exempt from the ELD rule including (1) those conducting short haul
business, (2) drivers using paper logs for eight days or less during a 30 day period, (3)
drive-away-tow-away operators, and (4) drivers of vehicles manufactured before
2000. We believe this represents a very small percentage of the total overall
Truckload market.
ELD mandate likely has greater impact on small and medium sized carriers. We
believe the ELD rule will most likely have the greatest impact on small to medium
sized for hire Truckload carriers – given it is speculated this tranche of the market is
the least complaint with current HOS rules. From a carrier count perspective, small
and medium sized Truckload carriers represent a disproportionately greater amount
of the overall for hire North American For Hire Truckload market – see Figure 19
below. In fact, it is estimated that For Hire Truckload carriers – including owner
operators – with five or fewer tractors in their fleet represent close to 90% of the
market representing 59% of total industry capacity.

Figure 19. North American For Hire Truckload Carriers by Estimated Tractor Count

Estimated % of
For Hire Carrier Fleet Tractor Count (units) # of Carriers Total
1-5 183,916 89.0%
6-50 20,691 10.0%
51-399 1,890 0.9%
400-3999 227 0.1%
+4000 22 0.0%
Total 206,746 100.0%
Source: CHRW Investor Presentation, FMCSA MCMIS Census Data

ELD regulations could remove up to +5% of Truckload industry supply. We estimate

that the headwind from small and medium sized carriers running less miles alone
could remove more than 5% of Truckload industry capacity. Figure 20 below includes
the inputs to our analysis and assumes the following (1) of the estimated 2.1M active
Class 8 tractors in the U.S., 830K units operate within the for hire Truckload market,
(2) small and medium sized fleets are potentially in noncompliance with HOS rules to
 the tune of 5%-7.5% (miles driven) and (3) all large carriers are currently complying
with HOS rules. We note, our industry supply reduction estimate excludes the impact
from (1) carriers potentially exiting the market post the ELD mandate given they can
no longer generate desirable levels of profitability or (2) a reduction in net market
capacity from consolidation as some firms may be forced to combine in order to meet
targeted profitability.

Figure 20. ELD Regulation Change Estimated Impact on Truckload Supply

Units
Active Tractor (Class 8) Population 2,087,251
Estimated Vocational Market Population 521,813

Active Tractor (Class 8) Population ex Vocational 1,565,438

For Hire Carriers 829,682

Estimated
For Hire Carrier Fleet Tractor Count (units) % of market Utilization Impact
1-5 367,832 44% 7.5% 3.3%
6-50 124,146 15% 7.5% 1.1%
51-399 113,400 14% 5.0% 0.7%
400-3999 136,200 16% 0.0% 0.0%
+4000 88,104 11% 0.0% 0.0%
Total 829,682 100% 5.1%
Source: CHRW Investor Presentation, FMCSA MCMIS Census Data; BRG Estimates
 LANDSTAR SYSTEM (LSTR) ANNUAL INCOME STATEMENT ($ IN MILLIONS)
2013 2014 2015 2016 2017E 2018E 2019E
93.4%
GROSS REVENUE $3,244.1 $3,565.3
Business Capacity Owners (BCOs) $1,327.5 $1,514.3 $1,521.4 $1,488.9 $1,607.6 $1,705.4 $1,826.4
Truck Brokerage 1,141.0 1,474.3 1,562.9 1,449.7 1,636.4 1,860.0 2,109.2
Rail Intermodal 73.8 81.2 105.3 103.7 90.6 98.0 106.0
Ocean and air cargo 85.7 75.0 86.7 78.5 87.5 98.2 110.2
Other 36.8 40.0 44.8 46.8 48.3 50.7 53.2
TOTAL OPERATING REVENUE $2,664.8 $3,184.8 $3,321.1 $3,167.6 $3,470.5 $3,812.2 $4,205.0
Investment Income 1.5 1.4 1.4 1.5 2.0 2.0 2.0
TOTAL GROSS REVENUE 2,666.3 3,186.2 3,322.5 3,169.1 3,472.5 3,814.2 4,207.0
Y-o-Y Change -3.8% 19.5% 4.3% -4.6% 9.6% 9.8% 10.3%

NET REVENUE 408.0 474.2 500.9 489.3 531.8 586.6 643.7

Y-o-Y Change -3.8% 16.2% 5.6% -2.3% 8.7% 10.3% 9.7%

GROSS YIELD (NET REVENUE MARGIN) 15.3% 14.9% 15.1% 15.4% 15.3% 15.4% 15.3%
Y-o-Y Change (bp) 1bp -42bp 19bp 36bp -12bp 6bp -8bp

EXPENSES
Purchased Transportation $2,046.9 $2,461.1 $2,551.3 $2,415.7 $2,657.3 $2,914.8 $3,218.4
Commissions to Agents 211.4 250.8 270.3 264.2 283.3 312.8 345.0
Other Operating Costs 21.6 25.8 31.6 29.7 30.8 34.3 37.9
Insurance and Claims 50.4 46.3 48.8 57.3 56.6 57.2 61.0
Selling, General, and Administrative Costs 131.7 150.3 149.7 143.2 159.3 175.5 194.8
Depreciation and Amortization 27.7 27.6 29.1 35.8 40.9 45.8 50.5
TOTAL EXPENSES $2,489.7 $2,961.8 $3,080.8 $2,945.9 $3,228.2 $3,540.3 $3,907.5

EXPENSES (CONT) AS A % OF GROSS REVENUE

Purchased Transportation 76.8% 77.2% 76.8% 76.2% 76.5% 76.4% 76.5%
Commissions to Agents 7.9% 7.9% 8.1% 8.3% 8.2% 8.2% 8.2%
Other Operating Costs 0.8% 0.8% 1.0% 0.9% 0.9% 0.9% 0.9%
Insurance and Claims 1.9% 1.5% 1.5% 1.8% 1.6% 1.5% 1.5%
Selling, General, and Administrative Costs 4.9% 4.7% 4.5% 4.5% 4.6% 4.6% 4.6%
Depreciation and Amortization 1.0% 0.9% 0.9% 1.1% 1.2% 1.2% 1.2%
TOTAL EXPENSES 93.4% 93.0% 92.7% 93.0% 93.0% 92.8% 92.9%
Y-o-Y Change (bp) -62bp 42bp 23bp -23bp -1bp 15bp -6bp

OPERATING INCOME $176.6 $224.4 $241.7 $223.3 $244.2 $273.9 $299.5

Y-o-Y Change -12.0% 27.1% 7.7% -7.6% 9.4% 12.1% 9.4%
Net operating margin 43.3% 47.3% 48.3% 45.6% 45.9% 46.7% 46.5%
Gross operating margin 6.6% 7.0% 7.3% 7.0% 7.0% 7.2% 7.1%

TOTAL OPERATING RATIO 93.4% 93.0% 92.7% 93.0% 93.0% 92.8% 92.9%
Y-o-Y Change (bp) -62bp 42bp 23bp -23bp -1bp 15bp -6bp

OTHER INCOME (EXPENSE)

Interest and Debt Expense ($3.2) ($3.2) ($2.9) ($3.8) ($3.5) ($2.8) ($2.0)

INCOME BEFORE INCOME TAXES $173.4 $221.2 $238.8 $219.5 $240.7 $271.0 $297.6

INCOME TAX EXPENSE $64.5 $82.4 $91.1 $82.1 $85.9 $103.5 $113.7
Effective Tax Rate 37.2% 37.2% 38.1% 37.4% 35.7% 38.2% 38.2%

Net gain (loss) attributable to noncontrolling interest $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0

CONTINUING NET INCOME $108.9 $138.8 $147.7 $137.4 $154.8 $167.5 $183.9
Non Recurring Gains (Losses) 37.1 0.0 0.0 0.0 0.0 0.0 0.0
TOTAL NET INCOME 146.0 138.8 147.7 137.4 154.8 167.5 183.9

CONTINUING EPS $2.36 $3.07 $3.37 $3.25 $3.70 $4.10 $4.62

Non Recurring Gains (Losses) 0.80 0.00 0.00 0.00 0.00 0.00 0.00
TOTAL GAAP EPS 3.16 3.07 3.37 3.25 3.70 4.10 4.62
Y-o-Y Change -12.7% 30.4% 9.7% -3.5% 13.7% 10.9% 12.6%

WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING 46.2 45.2 43.8 42.2 41.8 40.8 39.8
 LANDSTAR SYSTEM (LSTR) CASHFLOW STATEMENT ($ IN MILLIONS)
2012 2013 2014 2015 2016 2017E 2018E 2019E
CASH FLOW FROM OPERATING ACTIVITIES
Net income $129.8 $146.0 $138.8 $147.7 $137.4 $154.8 $167.5 $183.9
Depreciation and amortization 27.5 27.7 27.6 29.1 35.8 40.9 45.8 50.5
Non-cash interest charges 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2
Provisions for losses on trade and other accounts receivable 5.0 3.8 5.3 5.9 5.7 4.0 4.0 4.0
Losses (gains) on sales and disposals of operating property (2.8) (3.4) (2.1) (0.2) (3.5) 0.0 0.0 0.0
Deferred income taxes 4.3 4.7 5.4 6.8 6.3 1.0 1.0 1.0
Stock-based compensation 6.1 4.9 6.8 6.9 2.7 7.0 7.0 7.0
Director compensation paid in common stock 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Other 0.0 (37.1) 0.0 0.0 0.0 0.0 0.0 0.0
Changes in working capital:
Decrease (increase) in trade and other accounts receivable ($47.4) ($28.6) ($60.5) $20.7 ($6.2) ($84.9) ($95.0) ($95.0)
Decrease (increase) in other assets 3.2 (1.2) (9.0) (1.2) 9.3 (2.7) (2.7) (2.7)
Increase (decrease) in accounts payable 25.7 8.9 62.3 3.6 (9.6) 79.8 80.0 80.0
Increase (decrease) in other liabilities (8.2) (3.3) (2.5) 1.2 0.3 1.8 1.8 1.8
Increase (decrease) in insurance claims (17.7) 30.0 (70.4) (4.8) 11.8 0.0 0.0 0.0
TOTAL CASH FLOW FROM OPERATING ACTIVITIES $125.6 $162.0 $101.9 $216.0 $190.2 $201.9 $209.6 $230.7

CASH FLOW FROM INVESTING ACTIVITIES

Purchases of operating property ($7.1) ($6.4) ($10.5) ($4.8) ($22.6) ($8.0) ($12.0) ($12.0)
Proceeds from sales of operating property 9.7 9.7 7.5 1.7 10.2 4.0 4.0 4.0
Net capex 2.7 3.3 (3.1) (3.1) (12.4) (4.0) (8.0) (8.0)
Net change in other short-term investments 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Sales and maturities of investments 33.0 38.8 34.7 38.7 41.8 0.0 0.0 0.0
Purchases of investments (56.9) (50.6) (36.5) (44.2) (43.5) 0.0 0.0 0.0
Acquisitions 0.0 74.5 0.0 0.0 0.0 0.0 0.0 0.0
TOTAL CASH FLOW FROM INVESTING ACTIVITIES ($21.2) $65.8 ($4.8) ($8.7) ($14.2) ($4.0) ($8.0) ($8.0)

CASH FLOW FROM FINANCING ACTIVITIES

Borrowings on revolving credit facility $60.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Increase (decrease) in cash overdraft 7.7 2.6 6.8 1.0 0.6 0.0 0.0 0.0
Principal payments on long-term debt and capital lease obligations (121.3) (61.8) (37.4) (36.5) (48.5) (48.0) (34.0) (34.0)
NET CHANGE IN DEBT ($53.5) ($59.2) ($30.6) ($35.5) ($47.9) ($48.0) ($34.0) ($34.0)
Dividends paid (34.0) 0.0 (27.6) (57.9) (14.3) (15.1) (16.3) (15.9)
Proceeds from exercises of stock options 1.4 2.3 3.8 1.5 2.3 2.0 2.0 2.0
Excess tax benefit on stock option exercises 0.8 (1.4) (1.5) (1.6) (1.7) 2.0 2.0 2.0
Purchases of common stock (25.8) (59.5) (56.4) (161.2) (50.5) (60.0) (60.0) (60.0)
Purchase of non controlling interest 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
TOTAL CASH FLOW FROM FINANCING ACTIVITIES ($111.2) ($121.1) ($112.3) ($254.7) ($112.1) ($119.1) ($106.3) ($105.9)

Exchange rate change effect on cash $0.2 ($0.7) ($1.0) ($2.1) $0.4 ($0.5) ($0.5) ($0.5)

CASH AND CASH EQUIVALENTS

Cash and cash equivalents at beginning of period $77.9 $74.3 $180.3 $163.9 $114.5 $178.9 $257.3 $352.0
Net (decrease) increase in cash and cash equivalents (6.6) 106.0 (16.4) (49.4) 64.4 78.4 94.7 116.3
Cash and cash equivalents at end of period 74.3 180.3 163.9 114.5 178.9 257.3 352.0 468.3

CASHFLOW ANALYSIS (ABSOLUTE)

EBITDA $228.2 $204.3 $251.9 $270.8 $259.0 $285.2 $319.6 $350.0
Free Cash Flow (2) 128.2 165.4 98.8 212.9 177.8 197.9 201.6 222.7
Free Cash Flow (Less Dividends) (3) 94.3 165.4 71.2 155.0 163.5 182.9 185.2 206.8
Free Cash Flow (Less Dividends and Share Repurchases) (4)
68.4 105.9 14.8 -6.1 113.0 122.9 125.2 146.8

CASHFLOW ANALYSIS (PER SHARE)

EBITDA $4.87 $4.42 $5.58 $6.18 $6.14 $6.82 $7.83 $8.79
Free Cash Flow (2) 2.74 3.58 2.19 4.86 4.21 4.73 4.94 5.59
Free Cash Flow (Less Dividends) (3) 2.01 3.58 1.58 3.54 3.87 4.37 4.54 5.19
Free Cash Flow (Less Dividends and Share Repurchases) (4)
1.46 2.29 0.33 -0.14 2.68 2.94 3.07 3.69

(1) Financials prior to 2004 do not include expensing of stock options (company has not provided restated historical financials going back prior to 2004).
(2) Cash flow from operations less net capex
(3) Cash flow from operations less net capex and dividends
(4) Cash flow from operations less net capex, dividends, and share repurchases
 LANDSTAR SYSTEM (LSTR) BALANCE SHEET ($ IN MILLIONS)
2012 2013 2014 2015 2016 2017E 2018E 2019E
ASSETS

CURRENT ASSETS
Cash and cash equivalents $74.3 $180.3 $163.9 $114.5 $178.9 $257.3 $352.0 $468.3
Short-term investments 35.5 34.9 37.0 48.8 66.6 66.6 66.6 66.6
Trade accounts receivable 408.8 378.7 492.6 462.7 463.1 463.1 463.1 463.1
Other receivables 55.3 73.9 15.1 18.5 18.6 20.3 22.3 24.6
Deferred income taxes and other current assets 18.1 14.6 23.6 18.2 10.3 10.6 10.9 11.2
TOTAL CURRENT ASSETS $591.9 $682.5 $732.3 $662.7 $737.4 $817.8 $914.9 $1,033.8
Operating property less D&A 159.0 177.3 202.2 225.9 272.8 274.0 276.4 278.8
Goodwill 57.5 31.1 31.1 31.1 31.1 31.1 31.1 31.1
Other assets 71.1 79.8 78.5 78.3 55.2 40.5 37.0 32.4
TOTAL $287.5 $288.2 $311.9 $335.4 $359.2 $345.7 $344.6 $342.4

TOTAL ASSETS $879.4 $970.7 $1,044.2 $998.1 $1,096.6 $1,163.6 $1,259.5 $1,376.2

CURRENT LIABILITIES
Cash overdraft $33.6 $27.8 $34.6 $35.6 $36.3 $36.3 $36.3 $36.3
Accounts payable 189.0 157.8 220.1 223.7 219.4 241.3 265.5 292.0
Current maturities of long-term debt 19.0 27.6 35.1 42.5 45.0 35.4 28.6 21.8
Insurance claims 64.5 92.3 24.2 19.8 26.1 28.7 31.6 34.8
Accrued income taxes 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Other current liabilities 38.2 69.3 96.4 48.0 53.5 58.8 64.7 71.2
TOTAL CURRENT LIABILITIES $344.3 $374.7 $410.5 $369.5 $380.3 $400.6 $426.7 $456.1
Long-term debt, excluding current maturities 95.1 73.9 76.3 81.8 93.3 54.9 27.7 0.5
TOTAL LONG TERM DEBT $95.1 $73.9 $76.3 $81.8 $93.3 $54.9 $27.7 $0.5
Insurance claims 21.9 24.2 21.8 21.5 26.9 26.9 26.9 26.9
Deferred income taxes 38.6 43.4 47.5 59.0 53.6 58.9 64.8 71.3
TOTAL LONG TERM LIABILITIES $60.5 $67.6 $69.2 $80.5 $80.5 $85.8 $91.7 $98.2

TOTAL LIABILITIES $500.0 $516.2 $556.0 $531.8 $554.0 $541.3 $546.1 $554.7

SHAREHOLDER EQUITY
Common stock $0.7 $0.7 $0.7 $0.7 $0.7 $0.7 $0.7 $0.7
Additional paid-in capital 174.0 179.8 189.0 195.8 199.4 199.4 199.4 199.4
Retained earnings 1043.0 1173.0 1255.4 1390.0 1513.0 1652.7 1803.9 1971.9
Treasury Stock (839.5) (899.0) (955.6) (1,116.8) (1167.4) (1,227.4) (1,287.4) (1,347.4)
Accumulated other comprehensive income (loss) 1.4 0.0 (1.2) (3.5) (3.1) (3.1) (3.1) (3.1)
Non controlling interest 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
TOTAL SHAREHOLDER EQUITY $379.5 $454.5 $488.3 $466.2 $542.6 $622.3 $713.4 $821.4

TOTAL LIABILITIES AND SHAREHOLDER EQUITY $879.4 $970.7 $1,044.2 $998.1 $1,096.6 $1,163.6 $1,259.5 $1,376.2

OFF BALANCE SHEET DEBT 5.8 2.0 1.7 2.0 1.4 1.4 1.4 1.4

LEVERAGE RATIOS
Total Debt / Total Capital 23.1% 18.3% 18.6% 21.0% 20.3% 12.7% 7.3% 2.6%
Total Debt (Including OBD) / Total Capital 24.0% 18.5% 18.8% 21.3% 20.5% 12.8% 7.5% 2.8%
Total Debt (Including OBD) / Equity 31.6% 22.8% 23.1% 27.1% 25.7% 14.7% 8.1% 2.9%
Net Debt to EBITDA 0.17 -0.39 -0.21 0.04 -0.16 -0.59 -0.93 -1.27

PROFIT MARGIN RATIOS/ FINANCIAL RETURNS

Return on Average Assets 15.0% 11.8% 13.8% 14.5% 13.1% 13.7% 13.8% 14.0%
Return on Average Equity 37.2% 26.1% 29.4% 30.9% 27.2% 26.6% 25.1% 24.0%
Return on Average Total Capital 25.6% 20.8% 24.0% 24.8% 21.6% 22.2% 22.6% 22.8%

BALANCE SHEET CALCULATIONS

Total Cash and Equivalents 74.3 180.3 163.9 114.5 178.9 257.3 352.0 468.3
Long Term Debt -839.5 -899.0 -955.6 -1116.8 -1167.4 -1227.4 -1287.4 -1347.4
Total Debt 114.1 101.5 111.3 124.3 138.3 90.3 56.3 22.3
Net Debt 39.9 -78.8 -52.6 9.8 -40.6 -166.9 -295.7 -446.0
Total Capital (Debt plus Equity) 493.6 556.0 599.6 590.5 680.9 712.6 769.7 843.7
Total Invested Capital (Net Debt plus Equity) 419.3 375.7 435.6 476.0 502.0 455.3 417.8 375.5

LIQUIDITY ANALYSIS
Current Ratio 1.7 1.8 1.8 1.8 1.9 2.0 2.1 2.3
Quick Ratio 0.3 0.6 0.5 0.4 0.6 0.8 1.0 1.2
Working Capital 219.8 220.9 272.6 239.0 243.7 221.8 197.6 171.1
Working Capital (Less Cash) 145.5 40.6 108.6 124.5 64.8 -35.5 -154.4 -297.2
Trade Working Capital (Receivables + Inventory - Payables)
275.1 294.8 287.7 257.5 262.3 242.1 220.0 195.7
 PRESIDENT & CEO, DIRECTOR OF RESEARCH HEAD OF INSTITUTIONAL TRADING HEAD OF INSTITUTIONAL SALES HEAD OF CAPITAL MARKETS
Joseph C. Amaturo, CFA Nilsa Vazquez Francis M. McCartan Jeffrey Posner
212.922.1815 212.922.5543 212.922.2042 212.922.5523
jamaturo@buckresearch.com nvazquez@buckresearch.com fmccartan@buckresearch.com jposner@buckresearch.com
RESEARCH TEAM
CONSUMER INDUSTRIALS, MATERIALS & TRANSPORTATION INSTITUTIONAL SALES
Apparel Manufacturers & Retailers Aerospace & Defense Richard Brady 212.922.5513 Francis McCartan 212.922.2042
Eric Tracy 212.210.0066 Richard Safran 212.922.5527 rbrady@buckresearch.com fmccartan@buckresearch.com
etracy@buckresearch.com rsafran@buckresearch.com Christopher Cattani 212.922.0453 Sasha Murray 212.922.2008
Dave Delahunt 212.922.2020 Airlines / Cruiselines ccattani@buckresearch.com
ddelahunt@buckresearch.com Daniel McKenzie, CFA 212.922.5531 smurray@buckresearch.com
Jeff Easter 212.682.2940
Footwear, Apparel & Accessories dmckenzie@buckresearch.com Kyle Norton 617.830.7992
jeaster@buckresearch.com
Scott Krasik, CFA 212.557.5019 Scott Park 212.922.2026 knorton@buckresearch.com
Bob Efstathiou 212.922.5522
skrasik@buckresearch.com spark@buckresearch.com Conor O’Brien 617.830.2123
befstathiou@buckresearch.com
Matt Gulmi 212.210.0081 Automotive cobrien@buckresearch.com
Andrew Ferremi 212.210.0087
mgulmi@buckresearch.com Joseph C. Amaturo, CFA 212.922.1815 Sandy Park 415.549.4951
aferremi@buckresearch.com
Specialty Retail jamaturo@buckresearch.com sandy@buckresearch.com
Brandon Heller 212.922.2004
Kelly Halsor, CFA 212.557.5197 Glenn E. Chin, CPA 212.210.0080 Michael Perillo 212.922.2006
bheller@buckresearch.com
khalsor@buckresearch.com gchin@buckresearch.com mperillo@buckresearch.com
Steven Hodge 212.922.5549
John Steger, CFA 212.922.2033 Alanna Crank 212.922.2028 Greg Pringle 617.830.2121
shodge@buckresearch.com
jsteger@buckresearch.com acrank@buckresearch.com gpringle@buckresearch.com
Marc Luchansky 212.922.5512
Food & Food Services Paper & Forest Products / Homebuilding Douglas Rogers 212.922.5762
mluchansky@buckresearch.com
Eric J. Larson, CFA 212.210.0067 Mark Weintraub, CFA 212.922.2029 drogers@buckresearch.com
elarson@buckresearch.com mweintraub@buckresearch.com
Steven Haynes 212.922.2023 Brendan Munson 212.922.2030
shaynes@buckresearch.com bmunson@buckresearch.com
INSTITUTIONAL TRADING
New York: 212.922.5543 OFFICE LOCATIONS
Transportation & Logistics
FINANCIALS Matt Brooklier 212.557.6850 Nilsa Vazquez
Banks & Brokers 750 Third Avenue
mbrooklier@buckresearch.com nvazquez@buckresearch.com
James Mitchell 212.922.5534 6th Floor
Matt Volpe 212.922.2031 John DeMartini
jmitchell@buckresearch.com New York, NY 10017
mvolpe@buckresearch.com jdemartini@buckresearch.com
Chris Walsh 212.922.2019 ---
Machinery Christopher Kern
cwalsh@buckresearch.com Neil Frohnapple 212.922.2058
101 Federal Street
Property and Casualty Insurance ckern@buckresearch.com
nfrohnapple@buckresearch.com Suite 1900
Amit Kumar 212.922.2047 Kevin Platt
Joe Nolan 212.682.3318 Boston, MA 02110
akumar@buckresearch.com kplatt@buckresearch.com
jnolan@buckresearch.com ---
Ella Soltz 212.922.2021 7760 France Ave. South, Suite 1100
esoltz@buckresearch.com TECHNOLOGY Minneapolis, MN 55435
CAPITAL MARKETS
Payments/Financial Technology Technology, Media & Telecom
Jeffrey Posner 212.922.5523 ---
Chris Brendler 212.682.4938 Matthew Harrigan 212.922.2051
mharrigan@buckresearch.com jposner@buckresearch.com 24600 Center Ridge Road
cbrendlar@buckresearch.com
Michael Peirce 212.922.2050 Video Games and Consumer Internet Gane Duggan 212.922.2039 King James 3; Suite 260
mpeirce@buckresearch.com Scott Krasik, CFA 212.557.5019 gduggan@buckresearch.com Westlake, OH 44145
skrasik@buckresearch.com
Matt Gulmi 212.210.0081 CORPORATE ACCESS
mgulmi@buckresearch.com Sasha Murray 212.922.2008
Financial Technology smurray@buckresearch.com Main 212.922.5500 | Fax 212.922.5537
Chris Brendler 212.682.4938
cbrendlar@buckresearch.com
PRODUCT MANAGEMENT
Michael Peirce 212.922.2050 Alanna Crank 212.922.2028
mpeirce@buckresearch.com acrank@buckresearch.com