10-Q 1 d401622d10q.htm 10-Q 10-Q
Table of Contents
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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 24, 2022
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 17, 2022 was 35,925,265.
 
 
 


Table of Contents

Index

PART I – Financial Information

 

Item 1. Financial Statements (unaudited)   

Consolidated Balance Sheets as of September 24, 2022 and December 25, 2021

     Page 4  

Consolidated Statements of Income for the Thirty Nine and Thirteen Weeks Ended September 24, 2022 and September 25, 2021

     Page 5  

Consolidated Statements of Comprehensive Income for the Thirty Nine and Thirteen Weeks Ended September 24, 2022 and September 25, 2021

     Page 6  

Consolidated Statements of Cash Flows for the Thirty Nine Weeks Ended September 24, 2022 and September 25, 2021

     Page 7  

Consolidated Statements of Changes in Shareholders’ Equity for the Thirty Nine and Thirteen Weeks Ended September 24, 2022 and September 25, 2021

     Page 8  

Notes to Consolidated Financial Statements

     Page 10  

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     Page 19  

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     Page 32  

Item 4. Controls and Procedures

     Page 33  

PART II – Other Information

 

Item 1. Legal Proceedings

     Page 33  

Item 1A. Risk Factors

     Page 33  

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     Page 34  

Item 6. Exhibits

     Page 34  

Signatures

     Page 36  
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


Table of Contents
2.5000
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 24, 2022 are not necessarily indicative of the results that may be expected for the entire fiscal year ending December 31, 2022.
These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s 2021 Annual Report on Form
10-K.
 
3

LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
(Unaudited)
 
    
September 24,

2022
   
December 25,

2021
 
ASSETS                 
Current Assets
    
 

   
Cash and cash equivalents
   $ 177,796     $ 215,522  
Short-term investments
     50,637       35,778  
Trade accounts receivable, less allowance of $10,464 and $7,074
     1,133,681       1,154,314  
Other receivables, including advances to independent contractors, less allowance of $9,877 and $8,125
     87,241       101,124  
Other current assets
     35,493       16,162  
    
 
 
   
 
 
 
Total current assets
     1,484,848       1,522,900  
    
 
 
   
 
 
 
Operating property, less accumulated depreciation and amortization of $383,458 and $344,099
     321,585       317,386  
Goodwill
     41,004       40,768  
Other assets
     141,103       164,411  
    
 
 
   
 
 
 
Total assets
   $ 1,988,540     $ 2,045,465  
    
 
 
   
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY   

 
 
 
Current Liabilities
                
Cash overdraft
   $ 97,686     $ 116,478  
Accounts payable
     644,054       604,130  
Current maturities of long-term debt
     37,375       36,561  
Insurance claims
     58,131       46,896  
Dividends payable
     —         75,387  
Other current liabilities
     104,272       130,531  
    
 
 
   
 
 
 
Total current liabilities
     941,518       1,009,983  
    
 
 
   
 
 
 
Long-term debt, excluding current maturities
     72,095       75,243  
Insurance claims
     55,765       49,509  
Deferred income taxes and other noncurrent liabilities
     45,989       48,720  
 
 
 
 
 
 
 
 
 
Shareholders’ Equity
                
Common stock, $0.01 par value, authorized 160,000,000 shares, issued 68,380,565 and 68,232,975 shares
     684       682  
Additional
paid-in
capital
     255,486       255,148  
Retained earnings
     2,625,290       2,317,184  
Cost of 32,455,300 and 30,539,235 shares of common stock in treasury
     (1,992,886     (1,705,601
Accumulated other comprehensive loss
     (15,401     (5,403
    
 
 
   
 
 
 
Total shareholders’ equity
     873,173       862,010  
    
 
 
   
 
 
 
Total liabilities and shareholders’ equity
   $ 1,988,540     $ 2,045,465  
    
 
 
   
 
 
 
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 24,

2022
    
September 25,

2021
    
September 24,

2022
    
September 25,

2021
 
Revenue
   $ 5,761,795      $ 4,592,551      $ 1,816,132      $ 1,734,299  
Investment income
     2,023        2,138        716        706  
Costs and expenses:
                                   
Purchased transportation
     4,512,341        3,583,197        1,416,323        1,356,671  
Commissions to agents
     465,759        356,997        154,125        135,295  
Other operating costs, net of gains on asset sales/dispositions
     34,878        27,117        13,356        10,572  
Insurance and claims
     96,265        75,198        31,445        29,569  
Selling, general and administrative
     165,199        158,720        53,519        59,198  
Depreciation and amortization
     42,627        36,532        14,582        12,288  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total costs and expenses
     5,317,069        4,237,761        1,683,350        1,603,593  
    
 
 
    
 
 
    
 
 
    
 
 
 
Operating income
     446,749        356,928        133,498        131,412  
Interest and debt expense
     3,275        2,974        1,047        965  
    
 
 
    
 
 
    
 
 
    
 
 
 
Income before income taxes
     443,474        353,954        132,451        130,447  
Income taxes
     105,862        85,745        32,233        31,772  
    
 
 
    
 
 
    
 
 
    
 
 
 
Net income
   $ 337,612      $ 268,209      $ 100,218      $ 98,675  
    
 
 
    
 
 
    
 
 
    
 
 
 
Diluted earnings per share
   $ 9.15      $ 7.00      $ 2.76      $ 2.58  
    
 
 
    
 
 
    
 
 
    
 
 
 
Average diluted shares outstanding
     36,886,000        38,342,000        36,334,000        38,218,000  
    
 
 
    
 
 
    
 
 
    
 
 
 
Dividends per common share
   $ 0.80      $ 0.67      $ 0.30      $ 0.25  
    
 
 
    
 
 
    
 
 
    
 
 
 
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 24,

2022
   
September 25,

2021
   
September 24,

2022
   
September 25,

2021
 
Net income
   $ 337,612     $ 268,209     $ 100,218     $ 98,675  
Other comprehensive (loss) income:
                                
Unrealized holding losses on
available-for-sale
investments, net of tax benefit of $2,461, $347, $436 and $104
     (8,987     (1,260     (1,596     (377
Foreign currency translation (losses) gains
     (1,011     320       (1,484     (710
    
 
 
   
 
 
   
 
 
   
 
 
 
Other comprehensive loss
     (9,998     (940     (3,080     (1,087
    
 
 
   
 
 
   
 
 
   
 
 
 
Comprehensive income
   $ 327,614     $ 267,269     $ 97,138     $ 97,588  
    
 
 
   
 
 
   
 
 
   
 
 
 
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 24,

2022
   
September 25,

2021
 
OPERATING ACTIVITIES
                
Net income
   $ 337,612     $ 268,209  
Adjustments to reconcile net income to net cash provided by operating activities:
                
Depreciation and amortization
     42,627       36,532  
Non-cash
interest charges
     290       336  
Provisions for losses on trade and other accounts receivable
     8,346       3,884  
Gains on sales/disposals of operating property
     (1,290     (1,259
Deferred income taxes, net
     (2,597     4,948  
Stock-based compensation
     9,409       18,717  
Changes in operating assets and liabilities:
                
Decrease (increase) in trade and other accounts receivable
     26,170       (224,503
Increase in other assets
     (17,669     (3,822
Increase in accounts payable
     39,924       167,880  
(Decrease) increase in other liabilities
     (23,932     22,837  
Increase (decrease) in insurance claims
     17,491       (76,769
    
 
 
   
 
 
 
NET CASH PROVIDED BY OPERATING ACTIVITIES
     436,381       216,990  
    
 
 
   
 
 
 
INVESTING ACTIVITIES
                
Sales and maturities of investments
     27,568       25,521  
Purchases of investments
     (30,490     (77,649
Purchases of operating property
     (21,096     (18,561
Proceeds from sales of operating property
     2,669       2,047  
Purchase of
non-marketable
securities
     (4,999     —    
    
 
 
   
 
 
 
NET CASH USED BY INVESTING ACTIVITIES
     (26,348     (68,642
    
 
 
   
 
 
 
FINANCING ACTIVITIES
                
(Decrease) increase in cash overdraft
     (18,792     14,210  
Dividends paid
     (104,893     (102,463
Payment for debt issue costs
     (1,080     —    
Proceeds from exercises of stock options
     56       134  
Taxes paid in lieu of shares issued related to stock-based compensation plans
     (10,427     (2,342
Purchases of common stock
     (285,983     (50,230
Principal payments on finance lease obligations
     (29,075     (26,513
Payment of deferred consideration
     —         (168
    
 
 
   
 
 
 
NET CASH USED BY FINANCING ACTIVITIES
     (450,194     (167,372
    
 
 
   
 
 
 
Effect of exchange rate changes on cash and cash equivalents
     (1,614     234  
    
 
 
   
 
 
 
Decrease in cash, cash equivalents and restricted cash
     (41,775     (18,790
Cash, cash equivalents and restricted cash at beginning of period
     219,571       249,354  
    
 
 
   
 
 
 
Cash and cash equivalents at end of period
   $ 177,796     $ 230,564  
    
 
 
   
 
 
 
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 24, 2022 and September 25, 2021
(Dollars in thousands)
(Unaudited)
 
 
  
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  
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
   
 
 
   
 
 
 
 
8

 
  
Common Stock
 
  
Additional
Paid-In
 
 
Retained
 
 
Treasury Stock at Cost
 
 
Accumulated
Other
Comprehensive
 
 
 
 
 
  
Shares
 
  
Amount
 
  
Capital
 
 
Earnings
 
 
Shares
 
  
Amount
 
 
(Loss) Income
 
 
Total
 
Balance December 26, 2020
     68,183,702      $ 682      $ 228,875     $ 2,046,238       29,797,639      $ (1,581,961   $ (1,999   $  691,835  
Net income
                               77,240                                77,240  
Dividends ($0.21 per share)
                               (8,067                              (8,067
Issuance of stock related to stock-based compensation plans
     28,594        —          (307             6,087        (857             (1,164
Stock-based compensation
                       4,029                                        4,029  
Other comprehensive loss
                                                        (954     (954
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
   
 
 
   
 
 
 
Balance March 27, 2021
     68,212,296      $ 682      $ 232,597     $ 2,115,411       29,803,726      $ (1,582,818   $ (2,953   $ 762,919  
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
   
 
 
   
 
 
 
Net income
                               92,294                                92,294  
Dividends ($0.21 per share)
                               (8,068                              (8,068
Purchases of common stock
                                       150,000        (23,837             (23,837
Issuance of stock related to stock-based compensation plans
     17,584        —          (1,039             355        (61             (1,100
Stock-based compensation
                       6,864                                        6,864  
Other comprehensive income
                                                        1,101       1,101  
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
   
 
 
   
 
 
 
Balance June 26, 2021
     68,229,880      $ 682      $ 238,422     $  2,199,637       29,954,081      $ (1,606,716   $ (1,852   $ 830,173  
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
   
 
 
   
 
 
 
Net income
                               98,675                                98,675  
Dividends ($0.25 per share)
                               (9,558                              (9,558
Purchases of common stock
                                       167,046        (26,393             (26,393
Issuance of stock related to stock-based compensation plans
     1,133                  56               1,300                         56  
Stock-based compensation
                       7,824                                        7,824  
Other comprehensive loss
                                                        (1,087     (1,087
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
   
 
 
   
 
 
 
Balance September 25, 2021
     68,231,013      $ 682      $ 246,302     $ 2,288,754       30,122,427      $ (1,633,109   $ (2,939   $ 899,690  
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
   
 
 
   
 
 
 
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 24, 2022 and September 25, 2021 (dollars in thousands):

 
  
Thirty Nine Weeks Ended
 
 
Thirteen Weeks Ended
 
Mode
  
September 24,

2022
 
 
September 25,

2021
 
 
September 24,

2022
 
 
September 25,

2021
 
Truck – BCO Independent Contractors
     35     41     35     40
Truck – Truck Brokerage Carriers
     53     50     53     51
Rail intermodal
     2     3     2     3
Ocean and air cargo carriers
     8     4     9     5
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Truck Equipment Type
                                
Van equipment
   $ 3,022,297     $ 2,502,025     $ 914,154     $ 918,115  
Unsided/platform equipment
   $ 1,336,956     $ 1,112,358     $ 453,924     $ 422,979  
Less-than-truckload
   $ 105,994     $ 85,551     $ 35,343     $ 30,819  
Other truck transportation (1)
   $ 632,001     $ 518,472     $ 195,345     $ 208,817  
 
(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 24, 2022, 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”). At the Company’s 2022 Annual Meeting of Stockholders held on May 11, 2022, the Company’s stockholders approved the 2022 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. No further grants can be made under the 2013 DSCP, including 56,502 shares of the Company’s common stock previously reserved for issuance, but not issued, under the 2013 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 24,

2022
 
  
September 25,

2021
 
  
September 24,

2022
 
  
September 25,

2021
 
Total cost of the Plans during the period
   $ 9,409      $ 18,717      $ 3,599      $ 7,824  
Amount of related income tax benefit recognized during the period
     (5,219      (5,636      (949      (1,919
    
 
 
    
 
 
    
 
 
    
 
 
 
Net cost of the Plans during the period
   $ 4,190      $  13,081      $  2,650      $ 5,905  
    
 
 
    
 
 
    
 
 
    
 
 
 
Included in income tax benefits recognized in the thirty-nine-week periods ended September 24, 2022 and September 25, 2021 were excess tax benefits from stock-based awards of $2,910,000 and $1,039,000 respectively.
As of September 24, 2022, there were 193,217 shares of the Company’s common stock reserved for issuance under the 2022 DSCP and 3,245,251 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 25, 2021
     209,399      $ 102.90  
Granted
     49,825      $ 139.54  
Shares earned in excess of target
(1)
     91,497      $ 92.58  
Vested shares, including shares earned in excess of target
     (177,146    $ 95.48  
Forfeited
     (21,989    $ 113.85  
    
 
 
          
Outstanding at September 24, 2022
     151,586      $ 115.80  
    
 
 
          
 
(1)
Represents additional shares earned under each of the February 2, 2017
,
 February 2, 2018 and February 1, 2019 RSU awards
,
as fiscal year 2021 financial results exceeded target performance level
 
under each such award.
During the thirty-nine-week period ended September 24, 2022, the Company granted RSUs with a performance condition. Outstanding RSUs at both December 25, 2021 and September 24, 2022 include RSUs with a performance condition and RSUs with a market condition, as further described below and in the Company’s 2021 Annual Report on Form
10-K.
RSUs with a performance condition granted on January 28, 2022 may vest on January 31 of 2025, 2026 and 2027 based on growth in operating income and
pre-tax
income per diluted share from continuing operations as compared to the results from the 2021 fiscal year.
The Company recognized approximately $7,035,000 and $16,223,000 of share-based compensation expense related to RSU awards in the thirty-nine-week periods ended September 24, 2022 and September 25, 2021, respectively. As of September 24, 2022, there was a maximum of $19.7 million of total unrecognized compensation cost related to RSU awards granted under the Plans with an expected average remaining life of approximately 3.6 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 25, 2021
     56,436      $ 125.16  
Granted
     25,354      $ 152.54  
Vested
     (27,074    $ 122.68  
Forfeited
     (6,921    $ 144.45  
    
 
 
          
Non-vested
at September 24, 2022
     47,795      $ 138.30  
    
 
 
          
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 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 24, 2022, there was $4,375,000 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 1.9 years.
Stock Options
The following table summarizes information regarding the Company’s outstanding stock options under the Plans:

 
  
Number of
Options
 
  
Weighted Average
Exercise Price
per Share
 
  
Weighted Average
Remaining
Contractual
Term (years)
 
  
Aggregate Intrinsic
Value (000s)
 
Options outstanding at December 25, 2021
     8,570      $  55.42                    
Exercised
     (4,100    $ 54.36                    
    
 
 
                            
Options outstanding at September 24, 2022
     4,470      $ 56.40        0.4      $  386  
    
 
 
                            
Options exercisable at September 24, 2022
     4,470      $ 56.40        0.4      $ 386  
    
 
 
                            
The total intrinsic value of stock options exercised during the thirty-nine-week periods ended September 24, 2022 and September 25, 2021 was $429,000 and $644,000, respectively.
As of September 24, 2022, there was no unrecognized compensation cost related to stock options granted under the Plans.
 
(3)
Income Taxes
The provisions for income taxes for the 2022 and 2021 thirty-nine-week periods were based on estimated annual effective income tax rates of 24.5% and 24.4%, respectively, adjusted for discrete events, such as benefits resulting from stock-based awards. The estimated annual effective income tax rate was higher than the statutory federal income tax rate of 21% in both periods primarily attributable to state taxes and
non-deductible
executive compensation. The effective income tax rate for the 2022 thirty-nine-week period was 23.9%, which was lower than the estimated annual effective income tax rate of 24.5%, primarily attributable to excess tax benefits realized on stock-based awards. The effective income tax rate for the 2021 thirty-nine-week period was 24.2%, which was lower than the estimated annual effective income tax rate of 24.4% primarily attributable to excess tax benefits realized on stock-based awards.
 
12

(4)
Earnings Per Share
Earnings per common share are based on the weighted average number of shares outstanding, including outstanding
non-vested
restricted stock and outstanding Deferred Stock Units. Diluted earnings per share are based on the weighted average number of common shares and Deferred Stock Units outstanding plus the incremental shares that would have been outstanding upon the assumed exercise of all dilutive stock options. During the 2022 and 2021 thirty-nine-week and thirteen-week periods, in reference to the determination of diluted earnings per share, the future compensation cost attributable to outstanding shares of
non-vested
restricted stock exceeded the impact of 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 24, 2022 and September 25, 2021, 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 2022 thirty-nine-week period, Landstar paid income taxes and interest of $125,690,000 and $3,101,000, respectively. During the 2021 thirty-nine-week period, Landstar paid income taxes and interest of $71,823,000 and $2,780,000, respectively. Landstar acquired operating property by entering into finance leases in the amount of $26,741,000 and $23,080,000 in the 2022 and 2021 thirty-nine-week periods, respectively.
 
(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 24, 2022 and September 25, 2021:

 
  
Thirty Nine Weeks Ended
 
 
  
September 24, 2022
 
  
September 25, 2021
 
 
  
Transportation

Logistics
 
  
Insurance
 
  
Total
 
  
Transportation

Logistics
 
  
Insurance
 
  
Total
 
External revenue
   $ 5,702,959      $ 58,836      $ 5,761,795      $ 4,539,561      $ 52,990      $ 4,592,551  
Internal revenue
              65,753        65,753                 53,028        53,028  
Investment income
              2,023        2,023                 2,138        2,138  
Operating income
     412,054        34,695        446,749        323,370        33,558        356,928  
Expenditures on long-lived assets
     21,096                 21,096        18,561                 18,561  
Goodwill
     41,004                 41,004        40,980                 40,980  
   
    
Thirteen Weeks Ended
 
    
September 24, 2022
    
September 25, 2021
 
    
Transportation

Logistics
    
Insurance
    
Total
    
Transportation

Logistics
    
Insurance
    
Total
 
External revenue
   $ 1,796,401      $ 19,731      $ 1,816,132      $ 1,716,004      $ 18,295      $ 1,734,299  
Internal revenue
              12,883        12,883                 9,533        9,533  
Investment income
              716        716                 706        706  
Operating income
     120,164        13,334        133,498        123,410        8,002        131,412  
Expenditures on long-lived assets
     13,629                 13,629        9,561                 9,561  
In the thirty-nine-week periods ended September 24, 2022 and September 25, 2021, 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 income (loss), net of related income taxes, as of and for the thirty-nine-week period ended September 24, 2022 (in thousands):
 
    
Unrealized
Holding Gains
(Losses) on
Available-for-Sale

Securities
    
Foreign Currency
Translation
    
Total
 
Balance as of December 25, 2021
   $ 113      $ (5,516    $ (5,403
Other comprehensive loss
     (8,987      (1,011      (9,998
    
 
 
    
 
 
    
 
 
 
Balance as of September 24, 2022
   $ (8,874    $ (6,527    $ (15,401
    
 
 
    
 
 
    
 
 
 
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 24, 2022.
 
(8)
Investments
Investments include primarily investment-grade corporate bonds 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 noncredit-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 recognized as of the beginning of any reporting period. Fair value of the bond portfolio was determined using Level 1 inputs related to U.S. Treasury obligations and money market investments and Level 2 inputs related to investment-grade corporate bonds, asset-backed securities and direct obligations of government agencies. Unrealized losses, net of unrealized gains, on the investments in the bond portfolio were $11,304,000 at September 24, 2022, while unrealized gains, net of unrealized losses, on the investments in the bond portfolio were $144,000 at December 25, 2021.
 
14

The amortized cost and fair values of
available-for-sale
investments are as follows at September 24, 2022 and December 25, 2021 (in thousands):    

 
 
  
 
 
  
Gross
 
  
Gross
 
  
 
 
  
Amortized

Cost
 
  
Unrealized

Gains
 
  
Unrealized

Losses
 
  
Fair

Value
 
September 24, 2022
                                   
Money market investments
   $ 22,062      $ —        $ —        $ 22,062  
Asset-backed securities
     19,742        —          2,666        17,076  
Corporate bonds and direct obligations of government agencies
     129,250        —          8,536        120,714  
U.S. Treasury obligations
     2,344        —          102        2,242  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total
   $ 173,398      $         $ 11,304      $  162,094  
    
 
 
    
 
 
    
 
 
    
 
 
 
December 25, 2021
                                   
Money market investments
   $ 8,750      $ —        $ —        $ 8,750  
Asset-backed securities
     22,441        —          346        22,095  
Corporate bonds and direct obligations of government agencies
     137,916        1,406        966        138,356  
U.S. Treasury obligations
     2,342        50        —          2,392  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total
   $ 171,449      $ 1,456      $ 1,312      $ 171,593  
    
 
 
    
 
 
    
 
 
    
 
 
 
For those
available-for-sale
investments with unrealized losses at September 24, 2022 and December 25, 2021, 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 24, 2022
                                                     
Asset-backed securities
   $ 3,224      $ 453      $  13,852      $  2,213      $ 17,076      $ 2,666  
Corporate bonds and direct obligations of government agencies
     68,854        2,732        51,860        5,804        120,714        8,536  
U.S. Treasury obligations
     2,242        102        —          —          2,242        102  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Total
   $ 74,320      $ 3,287      $ 65,712      $ 8,017      $ 140,032      $ 11,304  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
December 25, 2021
                                                     
Asset-backed securities
   $ 22,095      $ 346      $ —        $ —        $ 22,095      $ 346  
Corporate bonds and direct obligations of government agencies
     72,526        966        —          —          72,526        966  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Total
   $ 94,621      $ 1,312      $ —        $ —        $ 94,621      $ 1,312  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
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.
 
15

These leases do not have significant rent escalation holidays, concessions, leasehold improvement incentives or other
build-out
clauses. Further, the leases do not contain contingent rent provisions. Landstar also rents certain trailing equipment to supplement the Company-owned trailer fleet under
“month-to-month”
lease terms, which are not required to be recorded on the balance sheet due to the less than twelve month lease term exemption. Sublease income is primarily comprised of weekly trailing equipment rentals to BCO Independent Contractors.
Most of Landstar’s operating leases include one or more options to renew. The exercise of lease renewal options is typically at Landstar’s sole discretion, and, as such, the majority of renewals to extend the lease terms are not included in the
right-of-use
assets and lease liabilities as they are not reasonably certain of exercise. Landstar regularly evaluates the renewal options, and when they are reasonably certain of exercise, Landstar includes the renewal period in the lease term.
As most of Landstar’s operating leases do not provide an implicit rate, Landstar utilized its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments. Landstar has a centrally managed treasury function; therefore, based on the applicable lease terms and the current economic environment, the Company applies a portfolio approach for determining the incremental borrowing rate.
The components of lease cost for finance leases and operating leases for the thirty nine weeks ended September 24, 2022 were (in thousands):
 
Finance leases:
        
Amortization of
right-of-use
assets
   $ 16,455  
Interest on lease liability
     2,117  
    
 
 
 
Total finance lease cost
     18,572  
 
 
 
 
 
Operating leases:
        
Lease cost
     2,587  
Variable lease cost
     —    
Sublease income
     (3,711
    
 
 
 
Total net operating lease income
     (1,124
    
 
 
 
Total net lease cost
   $ 17,448  
    
 
 
 
 
16

A summary of the lease classification on our consolidated balance sheet as of September 24, 2022 is as follows (in thousands):
Assets:
Operating lease
right-of-use
assets
   Other assets    $ 1,628  
Finance lease assets
   Operating property, less accumulated depreciation and amortization      146,903  
         
 
 
 
Total lease assets
        $ 148,531  
         
 
 
 
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 24, 2022 (in thousands):
 
    
Finance

Leases
    
Operating

Leases
 
2022 Remainder
   $ 10,680      $ 194  
2023
     37,822        705  
2024
     27,969        542  
2025
     21,771        285  
2026
     13,633            
Thereafter
     3,214        —    
    
 
 
    
 
 
 
Total future minimum lease payments
     115,089        1,726  
Less amount representing interest (1.6% to 4.6%)
     5,619        98  
    
 
 
    
 
 
 
Present value of minimum lease payments
   $ 109,470      $ 1,628  
    
 
 
    
 
 
 
Current maturities of long-term debt
     37,375           
Long-term debt, excluding current maturities
     72,095