10-Q 1 d468811d10q.htm 10-Q 10-Q
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM
10-Q
 
 
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
September 30, 2023
OR
 
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
 
     
to
     
Commission File Number:
0-21238
 

 

LANDSTAR SYSTEM, INC.
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
  
06-1313069
(State or other jurisdiction of
incorporation or organization)
  
(I.R.S. Employer
Identification No.)
13410 Sutton Park Drive South, Jacksonville, Florida
(Address of principal executive offices)
32224
(Zip Code)
(904)
398-9400
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
  
Trading
Symbol(s)
  
Name of each exchange
on which registered
Common Stock
  
LSTR
  
NASDAQ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:
 
Yes
 ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files):
 
Yes
 ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act. (Check one):
 

Large accelerated filer   ☑    Accelerated filer   ☐
       
Non-accelerated filer   ☐    Smaller reporting company   ☐
       
         Emerging growth company   ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act). Yes ☐ No
 
☑
The number of shares of the registrant’s common stock, par value $
0.01
per share, outstanding as of the close of business on October 23, 2023 was 35,946,344
.



Index
PART I
– Financial Information
 
  
     Page 4  
     Page 5  
     Page 6  
     Page 7  
     Page 8  
     Page 10  
     Page 17  
     Page 31  
     Page 31  
PART II –
Other Information
 
     Page 32  
     Page 32  
     Page 34  
     Page 34  
     Page 35  
     Page 37  
EX – 31.1 Section 302 CEO Certification
   
EX – 31.2 Section 302 CFO Certification
   
EX – 32.1 Section 906 CEO Certification
   
EX – 32.2 Section 906 CFO Certification
   
 
2
PART I -
FINANCIAL INFORMATION
Item 1. Financial Statements
The interim consolidated financial statements contained herein reflect all adjustments (all of a normal, recurring nature) which, in the opinion of management, are necessary for a fair statement of the financial condition, results of operations, cash flows and changes in shareholders’ equity for the periods presented. They have been prepared in accordance with Rule
10-01
of Regulation
S-X
and do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. Operating results for the thirty-nine weeks ended September 30, 2023 are not necessarily indicative of the results that may be expected for the entire fiscal year ending December 30, 2023.
These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s 2022 Annual Report on Form
10-K.
 
3
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
(Unaudited)
 
 
  
September 30,

2023
 
 
December 31,

2022
 
ASSETS
  
 
 
 
 
 
Current Assets
                 
Cash and cash equivalents
    $ 439,661     $ 339,581  
Short-term investments
      57,099       53,955  
Trade accounts receivable, less allowance of $12,054 and $12,121
      810,801       967,793  
Other receivables, including advances to independent contractors, less allowance of $14,405 and $10,579
      57,063       56,235  
Other current assets
      30,918       21,826  
    
 
 
    
 
 
  
Total current assets
      1,395,542       1,439,390  
    
 
 
    
 
 
  
Operating property, less accumulated depreciation and amortization of $426,984 and $393,274
      284,081       314,990  
Goodwill
      41,934       41,220  
Other assets
      130,970       136,279  
    
 
 
    
 
 
  
Total assets
    $ 1,852,527     $ 1,931,879  
    
 
 
    
 
 
  
LIABILITIES AND SHAREHOLDERS’ EQUITY                 
Current Liabilities
                 
Cash overdraft
    $ 48,067     $ 92,953  
Accounts payable
      464,720       527,372  
Current maturities of long-term debt
      29,210       36,175  
Insurance claims
      45,518       50,836  
Dividends payable
      —        71,854  
Other current liabilities
      82,550       98,945  
    
 
 
    
 
 
  
Total current liabilities
      670,065       878,135  
    
 
 
    
 
 
  
Long-term debt, excluding current maturities
      46,173       67,225  
Insurance claims
      56,776       58,268  
Deferred income taxes and other noncurrent liabilities
      36,359       41,030  
Shareholders’ Equity
                 
Common stock, $0.01 par value, authorized 160,000,000 shares, issued 68,497,324 and 68,382,310 shares
      685       684  
Additional
paid-in
capital
      254,630       258,487  
Retained earnings
      2,808,919       2,635,960  
Cost of 32,550,980 and 32,455,300 shares of common stock in treasury
      (2,009,351 )      (1,992,886 ) 
Accumulated other comprehensive loss
      (11,729 )      (15,024 ) 
    
 
 
    
 
 
  
Total shareholders’ equity
      1,043,154       887,221  
    
 
 
    
 
 
  
Total liabilities and shareholders’ equity
    $ 1,852,527     $ 1,931,879  
    
 
 
    
 
 
  
See accompanying notes to consolidated financial statements.
 
4

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

 
  
Thirty-Nine Weeks Ended
 
  
Thirteen Weeks Ended
 
 
  
September 30,

2023
 
 
September 24,

2022
 
  
September 30,

2023
 
 
September 24,

2022
 
Revenue
    $ 4,098,877     $ 5,761,795      $ 1,289,345     $ 1,816,132  
Investment income
      6,874       2,023        3,022       716  
Costs and expenses:
                                  
Purchased transportation
      3,141,234       4,512,341        986,743       1,416,323  
Commissions to agents
      363,397       465,759        115,244       154,125  
Other operating costs, net of gains on asset sales/dispositions
      40,998       34,878        15,158       13,356  
Insurance and claims
      86,971       96,265        29,540       31,445  
Selling, general and administrative
      159,071       165,199        50,975       53,519  
Depreciation and amortization
      44,498       42,627        14,359       14,582  
    
 
 
    
 
 
     
 
 
    
 
 
  
Total costs and expenses
      3,836,169       5,317,069        1,212,019       1,683,350  
    
 
 
    
 
 
     
 
 
    
 
 
  
Operating income
      269,582       446,749        80,348       133,498  
Interest and debt (income) expense
      (2,079 )      3,275        (1,046 )      1,047  
    
 
 
    
 
 
     
 
 
    
 
 
  
Income before income taxes
      271,661       443,474        81,394       132,451  
Income taxes
      65,254       105,862        19,741       32,233  
    
 
 
    
 
 
     
 
 
    
 
 
  
Net income
    $ 206,407     $ 337,612        61,653     $ 100,218  
    
 
 
    
 
 
     
 
 
    
 
 
  
Basic and diluted earnings per share
    $ 5.74     $ 9.15      $ 1.71     $ 2.76  
    
 
 
    
 
 
     
 
 
    
 
 
  
Average basic and diluted shares outstanding
      35,958,000       36,886,000        35,951,000       36,334,000  
    
 
 
    
 
 
     
 
 
    
 
 
  
Dividends per common share
    $ 0.93     $ 0.80      $ 0.33     $ 0.30  
    
 
 
    
 
 
     
 
 
    
 
 
  
See accompanying notes to consolidated financial statements.
 
5

LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(Unaudited)
 
 
  
Thirty-Nine Weeks Ended
 
 
Thirteen Weeks Ended
 
 
  
September 30,

2023
 
  
September 24,

2022
 
 
September 30,

2023
 
 
September 24,

2022
 
Net income
    $ 206,407      $ 337,612     $ 61,653     $ 100,218  
Other comprehensive income (loss):
                                  
Unrealized holding gains (losses) on
available-for-sale
investments, net of tax expense (benefit) of $263, ($2,461), $49 and ($436)
      958        (8,987 )      176       (1,596 ) 
Foreign currency translation gains (losses)
      2,337        (1,011 )      (1,494 )      (1,484 ) 
    
 
 
     
 
 
    
 
 
    
 
 
  
Other comprehensive income (loss)
      3,295        (9,998 )      (1,318 )      (3,080 ) 
    
 
 
     
 
 
    
 
 
    
 
 
  
Comprehensive income
    $ 209,702      $ 327,614     $ 60,335     $ 97,138  
    
 
 
     
 
 
    
 
 
    
 
 
  
See accompanying notes to consolidated financial statements.
 
6

LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
 
 
  
Thirty-Nine Weeks Ended
 
 
  
September 30,

2023
 
 
September 24,

2022
 
OPERATING ACTIVITIES
                 
Net income
    $ 206,407     $ 337,612  
Adjustments to reconcile net income to net cash provided by operating activities:
                 
Depreciation and amortization
      44,498       42,627  
Non-cash
interest charges
      198       290  
Provisions for losses on trade and other accounts receivable
      10,509       8,346  
Gains on sales/disposals of operating property
      (3,846 )      (1,290 ) 
Deferred income taxes, net
      (5,595 )      (2,597 ) 
Stock-based compensation
      4,270       9,409  
Changes in operating assets and liabilities:
                 
Decrease in trade and other accounts receivable
      145,655       26,170  
Increase in other assets
      (13,115 )      (17,669 ) 
(Decrease) increase in accounts payable
      (62,652 )      39,924  
Decrease in other liabilities
      (15,734 )      (23,932 ) 
(Decrease) increase in insurance claims
      (6,810 )      17,491  
    
 
 
    
 
 
  
NET CASH PROVIDED BY OPERATING ACTIVITIES
      303,785       436,381  
    
 
 
    
 
 
  
INVESTING ACTIVITIES
                 
Sales and maturities of investments
      93,326       27,568  
Purchases of investments
      (86,115 )      (30,490 ) 
Purchases of operating property
      (15,394 )      (21,096 ) 
Proceeds from sales of operating property
      6,631       2,669  
Purchase of
non-marketable
securities
      —        (4,999 ) 
    
 
 
    
 
 
  
NET CASH USED BY INVESTING ACTIVITIES
      (1,552 )      (26,348 ) 
    
 
 
    
 
 
  
FINANCING ACTIVITIES
                 
Decrease in cash overdraft
      (44,886 )      (18,792 ) 
Dividends paid
      (105,302 )      (104,893 ) 
Payment for debt issue costs
      —        (1,080 ) 
Proceeds from exercises of stock options
      28       56  
Taxes paid in lieu of shares issued related to stock-based compensation plans
      (9,186 )      (10,427 ) 
Purchases of common stock
      (15,433 )      (285,983 ) 
Principal payments on finance lease obligations
      (28,017 )      (29,075 ) 
    
 
 
    
 
 
  
NET CASH USED BY FINANCING ACTIVITIES
      (202,796 )      (450,194 ) 
    
 
 
    
 
 
  
Effect of exchange rate changes on cash and cash equivalents
      643       (1,614 ) 
    
 
 
    
 
 
  
Increase (decrease) in cash, cash equivalents and restricted cash
      100,080       (41,775 ) 
Cash, cash equivalents and restricted cash at beginning of period
      339,581       219,571  
    
 
 
    
 
 
  
Cash and cash equivalents at end of period
    $ 439,661     $ 177,796  
    
 
 
    
 
 
  
See accompanying notes to consolidated financial statements.
 
7

LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Thirty-Nine and Thirteen Weeks Ended September 30, 2023 and September 24, 2022
(Dollars in thousands)
(Unaudited)

 
  
Common Stock
 
  
Additional
Paid-In
 
 
Retained
 
 
Treasury Stock at Cost
 
 
Accumulated
Other
Comprehensive
 
 
 
 
 
  
Shares
 
  
Amount
 
  
Capital
 
 
Earnings
 
 
Shares
 
  
Amount
 
 
(Loss) Income
 
 
Total
 
Balance December 31, 2022
      68,382,310      $ 684      $ 258,487     $ 2,635,960       32,455,300      $ (1,992,886 )    $ (15,024 )    $ 887,221  
Net income
                                78,195                                78,195  
Dividends ($0.30 per share)
                                (10,806 )                               (10,806 ) 
Purchases of common stock
                                        89,661        (15,433 )              (15,433 ) 
Issuance of stock related to stock-based compensation plans
      101,653        1        (7,201 )              5,891        (1,008 )              (8,208 ) 
Stock-based compensation
                        1,852                                        1,852  
Other comprehensive income
                                                         2,831       2,831  
    
 
 
     
 
 
     
 
 
    
 
 
    
 
 
     
 
 
    
 
 
    
 
 
  
Balance April 1, 2023
      68,483,963      $ 685      $ 253,138     $ 2,703,349       32,550,852      $ (2,009,327 )    $ (12,193 )    $ 935,652  
    
 
 
     
 
 
     
 
 
    
 
 
    
 
 
     
 
 
    
 
 
    
 
 
  
Net income
                                66,559                                66,559  
Dividends ($0.30 per share)
                                (10,780 )                               (10,780 ) 
Issuance of stock related to stock-based compensation plans
      13,361                 (926 )                                       (926 ) 
Stock-based compensation
                        1,274                                        1,274  
Other comprehensive income
                                                         1,782       1,782  
    
 
 
     
 
 
     
 
 
    
 
 
    
 
 
     
 
 
    
 
 
    
 
 
  
Balance July 1, 2023
      68,497,324      $ 685      $ 253,486     $ 2,759,128       32,550,852      $ (2,009,327 )    $ (10,411 )    $ 993,561  
    
 
 
     
 
 
     
 
 
    
 
 
    
 
 
     
 
 
    
 
 
    
 
 
  
Net income
                                61,653                                61,653  
Dividends ($0.33 per share)
                                (11,862 )                               (11,862 ) 
Issuance of stock related to stock-based compensation plans
                                        128        (24 )              (24 ) 
Stock-based compensation
                        1,144                                        1,144  
Other comprehensive loss
                                                         (1,318 )      (1,318 ) 
    
 
 
     
 
 
     
 
 
    
 
 
    
 
 
     
 
 
    
 
 
    
 
 
  
Balance September 30, 2023
      68,497,324      $ 685      $ 254,630     $ 2,808,919       32,550,980      $ (2,009,351 )    $ (11,729 )    $ 1,043,154  
    
 
 
     
 
 
     
 
 
    
 
 
    
 
 
     
 
 
    
 
 
    
 
 
  

8

    
Common Stock
     
Additional
Paid-In
    
Retained
    
Treasury Stock at Cost
    
Accumulated
Other
Comprehensive
        
    
Shares
     
Amount
     
Capital
    
Earnings
    
Shares
     
Amount
    
Loss
    
Total
  
Balance December 25, 2021
      68,232,975      $ 682      $ 255,148     $ 2,317,184       30,539,235      $ (1,705,601 )    $ (5,403 )    $ 862,010  
Net income
                                124,839                                124,839  
Dividends ($0.25 per share)
                                (9,324 )                               (9,324 ) 
Purchases of common stock
                                        693,550        (109,332 )              (109,332 ) 
Issuance of stock related to stock-based compensation plans
      137,176        2        (8,913 )              10,033        (1,216 )              (10,127 ) 
Stock-based compensation
                        1,995                                        1,995  
Other comprehensive loss
                                                         (3,912 )      (3,912 ) 
    
 
 
     
 
 
     
 
 
    
 
 
    
 
 
     
 
 
    
 
 
    
 
 
  
Balance March 26, 2022
      68,370,151      $ 684      $ 248,230     $ 2,432,699       31,242,818      $ (1,816,149 )    $ (9,315 )    $ 856,149  
    
 
 
     
 
 
     
 
 
    
 
 
    
 
 
     
 
 
    
 
 
    
 
 
  
Net income
                                112,555                                112,555  
Dividends ($0.25 per share)
                                (9,257 )                               (9,257 ) 
Purchases of common stock
                                        703,211        (103,300 )              (103,300 ) 
Issuance of stock related to stock-based compensation plans
      6,783        —         —                587        (86 )              (86 ) 
Stock-based compensation
                        3,815                                        3,815  
Other comprehensive loss
                                                         (3,006 )      (3,006 ) 
    
 
 
     
 
 
     
 
 
    
 
 
    
 
 
     
 
 
    
 
 
    
 
 
  
Balance June 25, 2022
      68,376,934      $ 684      $ 252,045     $ 2,535,997       31,946,616      $ (1,919,535 )    $ (12,321 )    $ 856,870  
    
 
 
     
 
 
     
 
 
    
 
 
    
 
 
     
 
 
    
 
 
    
 
 
  
Net income
                                100,218                                100,218  
Dividends ($0.30 per share)
                                (10,925 )                               (10,925 ) 
Purchases of common stock
                                        504,065        (73,351 )              (73,351 ) 
Issuance of stock related to stock-based compensation plans
      3,631        —         (158 )              4,619        —               (158 ) 
Stock-based compensation
                        3,599                                        3,599  
Other comprehensive loss
                                                         (3,080 )      (3,080 ) 
    
 
 
     
 
 
     
 
 
    
 
 
    
 
 
     
 
 
    
 
 
    
 
 
  
Balance September 24, 2022
      68,380,565      $ 684      $ 255,486     $ 2,625,290       32,455,300      $ (1,992,886 )    $ (15,401 )    $ 873,173  
    
 
 
     
 
 
     
 
 
    
 
 
    
 
 
     
 
 
    
 
 
    
 
 
  
See accompanying notes to consolidated financial statements.
 
9

LANDSTAR SYSTEM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
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.
 
(1)
Significant Accounting Policies
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 30, 2023 and September 24, 2022 (dollars in thousands):

 
  
Thirty-Nine Weeks Ended
 
 
Thirteen Weeks Ended
 
Mode
  
September 30,
2023
 
 
September 24,
2022
 
 
September 30,
2023
 
 
September 24,
2022
 
Truck – BCO Independent Contractors
      38 %      35 %      39 %      35 % 
Truck – Truck Brokerage Carriers
      54 %      53 %      52 %      53 % 
Rail intermodal
      2 %      2 %      2 %      2 % 
Ocean and air cargo carriers
      5 %      8 %      5 %      9 % 
Truck Equipment Type
                                 
Van equipment
    $  2,123,693     $  3,022,297     $  665,569     $  914,154  
Unsided/platform equipment
    $ 1,150,483     $ 1,336,956     $ 378,147     $ 453,924  
Less-than-truckload
    $ 90,770     $ 105,994     $ 28,097     $ 35,343  
Other truck transportation (1)
    $ 379,471     $ 632,001     $ 101,951     $ 195,345  
 
(1)
Includes power-only, expedited, straight truck, cargo van, and miscellaneous other truck transportation revenue generated by the transportation logistics segment. Power-only refers to shipments where the Company furnishes a power unit and an operator but not trailing equipment, which is typically provided by the shipper or consignee.
 
10
(2) Share-based Payment Arrangements
As of September 30, 2023, 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”), which replaced the Amended and Restated 2013 Directors Stock Compensation Plan (as amended and restated, the “2013 DSCP”). The provisions of the 2022 DSCP are substantially similar to the provisions of the 2013 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, 2013 DSCP 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):

 
  
Thirty-Nine Weeks Ended
 
  
Thirteen Weeks Ended
 
 
  
September 30,
2023
 
  
September 24,
2022
 
  
September 30,
2023
 
  
September 24,
2022
 
Total cost of the Plans during the period
    $ 4,270      $ 9,409      $  1,144      $ 3,599  
Amount of related income tax benefit recognized during the period
      (3,878 )       (5,219 )       (286 )       (949 ) 
    
 
 
     
 
 
     
 
 
     
 
 
  
Net cost of the Plans during the period
    $ 392      $ 4,190      $ 858      $  2,650  
    
 
 
     
 
 
     
 
 
     
 
 
  
Included in income tax benefits recognized in the thirty-nine-week periods ended September 30, 2023 and September 24, 2022 were excess tax benefits from stock-based awards of $2,830,000 and $2,910,000, respectively.
As of September 30, 2023, there were 187,260 shares of the Company’s common stock reserved for issuance under the 2022 DSCP and 3,014,492 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:
 
 
  
Number of
RSUs
 
  
Weighted Average

Grant Date
Fair Value
 
Outstanding at December 31, 2022
      151,780      $ 115.80  
Granted
      41,460      $ 165.04  
Shares earned in excess of target
(1)
      79,176      $ 98.39  
Vested shares, including shares earned in excess of target
      (137,861 )     $ 97.97  
Forfeited
      (2,011 )     $  142.67  
    
 
 
           
Outstanding at September 30, 2023
      132,544      $ 138.94  
    
 
 
           
 
(1)
Represents additional shares earned under the February 1, 2019 and January 31, 2020 RSU awards as fiscal year 2022 financial results exceeded target performance level and under the April 24, 2018 and July 1, 2019 RSU awards as total shareholder return during the applicable performance period exceeded target performance level under each of those awards.
During the thirty-nine-week period ended September 30, 2023, the Company granted RSUs with a performance condition. Outstanding RSUs at both December 31, 2022 and September 30, 2023 include RSUs with a performance condition and RSUs with a market condition, as further described below and in the Company’s 2022 Annual Report on Form
10-K.
RSUs with a performance condition granted on February 3, 2023 may vest on January 31 of 2026, 2027 and 2028 based on growth in operating income and
pre-tax
income per diluted share from continuing operations as compared to the results from the 2022 fiscal year.
The Company recognized approximately $1,503,000 and $7,035,000 of share-based compensation expense related to RSU awards in the thirty-nine-week periods ended September 30, 2023 and September 24, 2022, respectively. As of September 30, 2023, there was a maximum of $29.2 million of total unrecognized compensation cost related to RSU awards granted under the Plans with an expected average remaining life of approximately 3.5 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.
 
11

Non-vested
Restricted Stock and Deferred Stock Units
The following table summarizes information regarding the Company’s outstanding shares of
non-vested
restricted stock and Deferred Stock Units (defined below) under the Plans:
 
 
  
Number of Shares

and Deferred Stock
Units
 
  
Weighted Average

Grant Date

Fair Value
 
Non-vested
at December 31, 2022
      47,795      $ 138.30  
Granted
      22,714      $ 179.32  
Vested
      (24,161 )     $  138.35  
    
 
 
     
 
 
  
Non-vested
at September 30, 2023
      46,348      $ 158.38  
    
 
 
     
 
 
  
The fair value of each share of
non-vested
restricted stock issued and Deferred Stock Unit granted under the Plans is based on the fair value of a share of
the Company’s common stock on the date of grant. Shares of
non-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, or 100% on the first, third or fifth 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 recipient 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 30, 2023, there was $4,756,000 of total unrecognized compensation cost related to
non-vested
shares of restricted stock and Deferred Stock Units granted under the Plans. The unrecognized compensation cost related to these
non-vested
shares of restricted stock and Deferred Stock Units is expected to be recognized over a weighted average period of 2.0 years.
Stock Options
All 1,900 stock options outstanding and exercisable at December 31, 2022 were exercised at an exercise price of $56.40 as of January 31, 2023, following which the Company had no remaining issued and outstanding vested or unvested stock options.
The total intrinsic value of stock options exercised during the thirty-nine-week periods ended September 30, 2023 and September 24, 2022 was $218,000 and $429,000, respectively.
As of September 30, 2023, there was no unrecognized compensation cost related to
non-vested
stock options granted under the Plans.
(3) Income Taxes
The provisions for income taxes for the 2023 and 2022 thirty-nine-week periods were based on estimated annual effective income tax rates of 24.4% and 24.5%, respectively, adjusted for discrete events, such as benefits resulting from stock-based awards. The effective income tax rate for the 2023 thirty-nine-week period was 24.0%. The effective income tax rate was higher than the statutory federal income tax rate of 21% in the 2023 period primarily attributable to state taxes. The effective income tax rate for the 2022 thirty-nine-week period was 23.9%. The effective income tax rate was higher than the statutory federal income tax rate of 21% in the 2022 period primarily attributable to state taxes.
(4) Earnings Per Share
Basic earnings per common share are based on the weighted average number of common shares
outstanding
, which includes outstanding
non-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 incremental shares that would have been outstanding upon the assumed exercise of all dilutive stock options. For each of the thirty-nine-week periods ended September 30, 2023 and September 24, 2022, the weighted-average number of common shares outstanding is the same for purposes of the calculations of both basic and diluted earnings per share, as
 
12
the impact on earnings per share of future compensation expense related to outstanding, unvested time-based awards is greater than the incremental impact of outstanding dilutive stock options in each period, and would therefore have an anti-dilutive effect on earnings per share if included in the calculation of earnings per share. 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 the 2023 and 2022 thirty-nine-week and thirteen-week periods.

For each of the thirty-
nine
-week periods ended September 
30
,
2023
and September 
24
,
2022
,
no
options outstanding
to
purchase shares of common stock were antidilutive. 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.
(5) Additional Cash Flow Information
During the 2023 thirty-nine-week period, Landstar paid income taxes and interest of $68,136,000 and $2,814,000, respectively. During the 2022 thirty-nine-week period, Landstar paid income taxes and interest of $125,690,000 and $3,101,000, respectively. Landstar did not acquire any operating property by entering into finance leases in the 2023 thirty-nine-week period. Landstar acquired operating property by entering into finance leases in the amount of $26,741,000 in the 2022 thirty-nine-week period.
(6) Segment Information
The following table summarizes information about the Company’s reportable business segments as of and for the thirty-nine-week and thirteen-week periods ended September 30, 2023 and September 24, 2022 (in thousands):

 
 
  
Thirty-Nine Weeks Ended
 
 
  
September 30, 2023
 
  
September 24, 2022
 
 
  
Transportation

Logistics
 
  
Insurance
 
  
Total
 
  
Transportation

Logistics
 
  
Insurance
 
  
Total
 
External revenue
    $  4,043,824      $  55,053      $  4,098,877      $  5,702,959      $  58,836      $ 5,761,795  
Internal revenue
               64,138        64,138                 65,753        65,753  
Investment income
               6,874        6,874                 2,023        2,023  
Operating income
      222,827        46,755        269,582        412,054        34,695        446,749  
Expenditures on long-lived assets
      15,394                 15,394        21,096                 21,096  
Goodwill
      41,934                 41,934        41,004                 41,004  
 
 
 
 
    
Thirteen Weeks Ended
  
    
September 30, 2023
     
September 24, 2022
  
    
Transportation

Logistics
     
Insurance
     
Total
     
Transportation

Logistics
     
Insurance
     
Total
  
External revenue
    $ 1,271,385      $ 17,960      $ 1,289,345      $ 1,796,401      $ 19,731      $ 1,816,132  
Internal revenue
               11,960        11,960                 12,883        12,883  
Investment income
               3,022        3,022                 716        716  
Operating income
      63,974        16,374        80,348        120,164        13,334        133,498  
Expenditures on long-lived assets
      2,763                 2,763        13,629                 13,629  
In the thirty-nine-week periods ended
September
 30, 2023 and September 24, 2022, no single customer accounted for more than 10% of the Company’s consolidated revenue.
 
13
(7) Other Comprehensive Income
The following table presents the components of and changes in accumulated other comprehensive (loss) income, net of related income taxes, as of and for the thirty-nine-week period ended September 30, 2023 (in thousands):
 
    
Unrealized
Holding (Losses)
Gains on
Available-for-Sale

Securities
     
Foreign Currency
Translation
     
Total
  
Balance as of December 31, 2022
    $ (8,449 )     $ (6,575 )     $ (15,024 ) 
Other comprehensive income
      958        2,337        3,295  
    
 
 
     
 
 
     
 
 
  
Balance as of September 30, 2023
    $ (7,491 )     $ (4,238 )     $ (11,729 ) 
    
 
 
     
 
 
     
 
 
  
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 30, 2023.
(8) Investments
Investments include primarily investment-grade corporate bonds, U.S. treasury obligations and asset-backed securities having maturities of up to five years (the “bond portfolio”) and money market investments. Investments in the bond portfolio are reported as
available-for-sale
and are carried at fair value. Investments maturing less than one year from the balance sheet date are included in short-term investments and investments maturing more than one year from the balance sheet date are included in other assets in the consolidated balance sheets. Management performs an analysis of the nature of the unrealized losses on
available-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 of
non-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/or
non-transferability,
which are generally based on available market information. Any transfers between levels are reco
g
nized 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 and direct obligations of government agencies. Unrealized losses, net of unrealized gains, on the investments in the bond portfolio were $9,542,000 and $10,763,000 at September 30, 2023 and December 31, 2022, respectively.
The amortized cost and fair values of
available-for-sale
investments are as follows at September 30, 2023 and December 31, 2022 (in thousands):
 
 
  
Amortized
Cost
 
  
Gross
Unrealized
Gains
 
  
Gross
Unrealized
Losses
 
  
Fair Value
 
September 30, 2023
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market investments
    $ 16,032      $  —       $ —       $ 16,032  
Asset-backed securities
      17,044        —         2,708        14,336  
Corporate bonds and direct obligations of
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
government agencies
      119,632        —         6,758        112,874  
U.S. Treasury obligations
      9,203        —         76        9,127  
    
 
 
     
 
 
     
 
 
     
 
 
  
Total
    $  161,911      $ —      $ 9,542      $ 152,369  
    
 
 
     
 
 
     
 
 
     
 
 
  
December 31, 2022
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market investments
    $ 21,910      $ —      $ —      $ 21,910  
Asset-backed securities
      18,905        —        2,889        16,016  
Corporate bonds and direct obligations of
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
government agencies
      126,134        1        7,775        118,360  
U.S. Treasury obligations
      2,344        —         100        2,244  
    
 
 
     
 
 
     
 
 
     
 
 
  
Total
    $ 169,293      $ 1      $  10,764      $ 158,530  
    
 
 
     
 
 
     
 
 
     
 
 
  
 
14
For those
available-for-sale
investments with unrealized losses
a
t September 30, 2023 and December 31, 2022, the following table summarizes the duration of the unrealized loss (in thousands):

 
  
Less than 12 months
 
  
12 months or longer
 
  
Total
 
 
  
Fair

Value
 
  
Unrealized

Loss
 
  
Fair

Value
 
  
Unrealized

Loss
 
  
Fair

Value
 
  
Unrealized

Loss
 
September 30, 2023
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Asset-backed securities
    $ —       $ —       $ 14,336      $ 2,708      $ 14,336      $ 2,708  
Corporate bonds and direct obligations of government agencies
      20,707        507        92,167        6,251        112,874        6,758  
U.S. Treasury obligations
      6,849        8        2,278        68        9,127        76  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
Total
    $ 27,556      $ 515      $ 108,781      $ 9,027      $ 136,337      $ 9,542  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
December 31, 2022
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Asset-backed securities
    $ —       $ —       $ 16,016      $ 2,889      $ 16,016      $ 2,889  
Corporate bonds and direct obligations of government agencies
      54,031        1,516        62,390        6,259        116,421        7,775  
U.S. Treasury obligations
      2,244        100        —         —         2,244        100  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
Total
    $ 56,275      $  1,616      $ 78,406      $  9,148      $ 134,681      $ 10,764  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
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.
(9) Leases
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 a five 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.
 
15

The components of lease cost for finance leases and operating leases for the thirty
-
nine weeks ended September 30, 2023 were (in thousands):
 

Finance leases:
  
Amortization of
right-of-use
assets
    $ 15,634  
Interest on lease liability
      2,060  
    
 
 
  
Total finance lease cost
      17,694  
Operating leases:
         
Lease cost
      2,640  
Variable lease cost
      —   
Sublease income
      (3,963 ) 
    
 
 
  
Total net operating lease income
      (1,323 ) 
    
 
 
  
Total net lease cost
    $ 16,371  
    
 
 
  
A summary of the lease classification on our consolidated balance sheet as of September 30, 2023 is as follows (in thousands):
Assets:

Operating lease
right-of-use
assets
    Other assets    $ 1,801  
Finance lease assets
    Operating property, less accumulated depreciation and amortization      112,558  
         
 
 
  
Total lease assets
         $ 114,359  
         
 
 
  
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 30, 2023 (in thousands):
 

 
  
Finance

Leases
 
  
Operating

Leases
 
2023 Remainder
    $ 8,736      $ 226  
2024
      28,843        821  
2025
      22,658        508  
2026
      14,530        190  
2027
      4,115        169  
Thereafter
      —         49  
    
 
 
     
 
 
  
Total future minimum lease payments
      78,882        1,963  
Less amount representing interest (1.6% to 6.0%)
      3,499        162  
    
 
 
     
 
 
  
Present value of minimum lease payments
    $ 75,383      $ 1,801  
    
 
 
     
 
 
  
     
Current maturities of long-term debt
      29,210           
Long-term debt, excluding current maturities
      46,173           
Other current liabilities
               844  
Deferred income taxes and other noncurrent liabilities
               957  
The weighted average remaining lease term and the weighted average discount rate for finance and operating leases as of September 30, 2023 were:
 
     Finance Leases     Operating Leases  
Weighted average remaining lease term (years)
      2.9       2.9  
Weighted average discount rate
      3.0 %      6.0 % 
 
16
(10) Debt
Other than the finance lease obligations as presented on the consolidated balance sheets, the Company had no outstanding debt as of September 30, 2023 and December 31, 2022.
On July 1, 2022, Landstar entered into a second amended and restated credit agreement with a bank syndicate led by JPMorgan Chase Bank, N.A., as administrative agent (the “Credit Agreement”). The Credit Agreement, which matures July 1, 2027, provides for borrowing capacity in the form of a revolving credit facility of $300,000,000, $45,000,000 of which may be utilized in the form of letters of credit. The Credit Agreement also includes an “accordion” feature providing for a possible increase of up to an aggregate amount of borrowing capacity of $600,000,000. As of September 30, 2023, 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 plus 0.10% 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 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 0.20% to 0.30%, based on the Company’s 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 fixed charge coverage ratio, as described in the Credit Agreement, and maintain a Leverage Ratio, as defined in the Credit Agreement, below a specified maximum. The Credit Agreement provides for a restriction on cash dividends and other distributions to stockholders on the Company’s capital stock to the extent there is a default under the Credit Agreement. In addition, the Credit Agreement under certain circumstances limits the amount of such cash dividends and other distributions to stockholders to the extent that, after giving effect to any payment made to effect such cash dividend or other distribution, the Leverage Ratio would exceed 2.5 to 1 on a pro forma basis as of the end of the Company’s most recently completed fiscal quarter. The Credit Agreement provides for an event of default in the event 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.

(11) Commitments and Contingencies
Short-term investments include $