What changed in this filing

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Item 1. Financial Statements

2020-10-30 compared with 2020-07-31 · 196 added, 172 removed, 338 unchanged (52% of the section changed)

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and do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements.

Operating results for the twenty six weeks ended June 27, 2020 are not necessarily indicative of the results that may be expected for the entire fiscal year ending December 26, 2020.

Operating results for the thirty nine weeks ended September 26, 2020 are not necessarily indicative of the results that may be expected for the entire fiscal year ending December 26, 2020.

These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s 2019 Annual Report on Form 10-K.

3 unchanged sentences

(Dollars in thousands, except per share amounts)

September 26,

Current Assets

32 unchanged sentences

(Dollars in thousands, except per share amounts)

Twenty Six Weeks Ended

Thirty Nine Weeks Ended

Thirteen Weeks Ended

September 26,

September 28,

September 26,

September 28,

Investment income

2 unchanged sentences

Commissions to agents

Other operating costs, net of gains on asset sales/dispositions

Other operating costs, net of gains/losses on asset sales/dispositions

Insurance and claims

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(Dollars in thousands)

Twenty Six Weeks Ended

Thirty Nine Weeks Ended

Thirteen Weeks Ended

Net income attributable to Landstar System, Inc.

September 26,

September 28,

September 26,

September 28,

N et income attributable to Landstar System, Inc.

and subsidiary

1 unchanged sentence

Unrealized holding gains on available-for-sale

investments, net of

tax expense of $ 338 , $ 494 , $ 770 and $ 222

investments, net of tax expense of $ 413 , $ 577 , $ 75 and $ 83

Foreign currency translation (losses) gains

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(Dollars in thousands)

Twenty Six Weeks Ended

Thirty Nine Weeks Ended

September 26,

September 28,

OPERATING ACTIVITIES

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Changes in operating assets and liabilities:

Decrease in trade and other accounts receivable

(Increase) decrease in trade and other accounts receivable

Increase in other assets

Decrease in accounts payable

Increase (decrease) in accounts payable

Increase (decrease) in other liabilities

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Dividends paid

Payment for debt issue costs

Proceeds from exercises of stock options

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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Twenty Six and Thirteen Weeks Ended June 27, 2020 and June 29, 2019

Thirty Nine and Thirteen Weeks Ended September 26, 2020 and September

(In thousands, except share and per share amounts)

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Balance December 28, 2019

Adoption of accounting standard (Note 1 4

Dividends ($ 0.185

Adoption of accounting standard

Dividends ($ 0.185 per share)

Purchases of common stock

Issuance of stock related to stock-based

compensation plans

Issuance of stock related to stock-based compensation plans

Stock-based compensation

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Balance March 28, 2020

Dividends ($ 0.185

Issuance of stock related to stock-based

compensation plans

Dividends ($ 0.185 per share)

Issuance of stock related to stock-based compensation plans

Stock-based compensation

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Balance June 27, 2020

Dividends ($ 0.21 per share)

Issuance of stock related to stock-based compensation plans

Stock-based compensation

Other comprehensive income

Balance September 26, 2020

Landstar System, Inc.

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Comprehensive

(Loss) Income

Non-controlling

(Loss) Income

Balance December 29,

Net income (loss)

Dividends ($ 0.165

Purchases of common stock

Purchase of noncontrolling interests

Issuance of stock related to stock-based compensation plans

Stock-based compensation

Other comprehensive income

Dividends ($ 0.165 per

Purchases of common

noncontrolling

Issuance of stock related

to stock-based

compensation plans

Other comprehensive

Balance March 30, 2019

Dividends ($ 0.165

Purchases of common stock

Issuance of stock related to stock-based compensation plans

Stock-based compensation

Other comprehensive income

Dividends ($ 0.165 per

Purchases of common

Issuance of stock related

to stock-based

compensation plans

Other comprehensive

Balance June 29, 2019

Dividends ($ 0.185 per

Purchases of common

Issuance of stock related

to stock-based

compensation plans

Other comprehensive

Balance September 28,

See accompanying notes to consolidated financial statements.

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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.

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.

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Revenue from Contracts with Customers – Disaggregation of Revenue

During the twenty six weeks ended June 27, 2020, revenue generated by BCO Independent Contractors, Truck Brokerage Carriers and railroads represented approximately 46 %, 46 % and 3 % respectively, of the Company’s consolidated revenue.

Collectively, revenue generated by air and ocean cargo carriers represented approximately 3 % of the Company’s consolidated revenue in the twenty-six-week

period ended June 27, 2020.

Included in truck transportation revenue generated by BCO Independent Contractors and Truck Brokerage Carriers during the twenty-six-week

period ended June 27, 2020 was $ 1,028,334,000 hauled via van equipment, $ 533,716,000 hauled via unsided/platform equipment and $ 45,859,000 of less-than-truckload.

During the twenty six weeks ended June 29, 2019, revenue generated by BCO Independent Contractors, Truck Brokerage Carriers and railroads represented approximately 44 %, 48 % and 3 %, respectively, of the Company’s consolidated revenue.

Collectively, revenue generated by air and ocean cargo carriers represented approximately 3 % of the Company’s consolidated revenue in the twenty-six-week

period ended June 29, 2019.

Included in truck transportation revenue generated by BCO Independent Contractors and Truck Brokerage Carriers during the twenty-six-week

period ended June 29, 2019 was $ 1,224,379,000 hauled via van equipment, $ 648,828,000 hauled via unsided/platform equipment and $ 48,108,000 of less-than-truckload.

During the thirteen weeks ended June 27, 2020, revenue generated by BCO Independent Contractors, Truck Brokerage Carriers and railroads represented approximately 46 %, 46 % and 3 % respectively, of the Company’s consolidated revenue.

Collectively, revenue generated by air and ocean cargo carriers represented approximately 4 % of the Company’s consolidated revenue in the thirteen-week period ended June 27, 2020.

Included in truck transportation revenue generated by BCO Independent Contractors and Truck Brokerage Carriers during the thirteen-week period ended June 27, 2020 was $ 483,027,000 hauled via van equipment, $ 247,388,000 hauled via unsided/platform equipment and $ 22,918,000 of less-than-truckload.

During the thirteen weeks ended June 29, 2019, revenue generated by BCO Independent Contractors, Truck Brokerage Carriers and railroads represented approximately 45 %, 47 % and 3 % respectively, of the Company’s consolidated revenue.

Collectively, revenue generated by air and ocean cargo carriers represented approximately 3 % of the Company’s consolidated revenue in the thirteen-week period ended June 29, 2019.

Included in truck transportation revenue generated by BCO Independent Contractors and Truck Brokerage Carriers during the thirteen-week period ended June 29, 2019 was $ 605,365,000 hauled via van equipment, $ 338,107,000 hauled via unsided/platform equipment and $ 24,732,000 of less-than-truckload.

The following table summarizes the percentage of consolidated revenue generated by mode of transportation

and the dollar amount included in truck transportation revenue generated by BCO Independent Contractors and Truck Brokerage Carriers hauled via equipment type during the thirty-nine-week and thirteen-week periods ended September 26, 2020 and September 28, 2019 ( dollars

in thousands):

Thirty Nine Weeks Ended

Thirteen Weeks Ended

September 26,

September 28,

September 26,

September 28,

BCO Independent Contractors –

Brokerage Carriers -

Rail intermodal

Ocean and air cargo carriers

Equipment Type - Truck

Van equipment

Unsided/platform equipment

Less-than-truckload

Acquired Business

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Cash consideration paid for the acquisition was approximately $ 2,766 ,000.

2,701 , 000 .

In addition, the Company assumed approximately $ 200,000 in liabilities consisting of additional contingent purchase price.

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income tax purposes.

ma financial information for prior periods is not presented as the Company does not believe the acquisition to be material to the Company’s consolidated results.

Pro forma financial information for prior periods is not presented as the Company does not believe the acquisition to be material to the Company’s consolidated results.

The results of operations for Landstar Blue are presented as part of the Company’s transportations logistics segment.

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Share-based Payment Arrangements

As of June 27, 2020, the Company had two employee equity incentive plans, the 2002 employee stock option and stock incentive plan (the “ESOSIP”) and the 2011 equity incentive plan (the “2011 EIP”).

As of September 26, 2020, the Company had two employee equity incentive plans, the 2002 employee stock option and stock incentive plan (the “ESOSIP”) and the 2011 equity incentive plan (the “2011 EIP”).

No further grants can be made under the ESOSIP.

The Company also has a stock compensation plan for members of its Board of Directors, the Amended and Restated 2013 Directors Stock Compensation Plan (as amended and restated as of May 17, 2016, the “2013 DSCP”).

6,000,000 shares of the Company’s common stock were authorized for issuance under the 2011 EIP and 115,000 shares of the Company’s common stock were authorized for issuance under the 2013 DSCP.

The Company also has a stock compensation plan for members of its Board of Directors, the Amended and Restated 2013 Directors Stock

Compensation Plan (as amended and restated as of May 17, 2016, the “2013 DSCP”).

6,000,000 shares of the Company’s common stock

authorized for issuance under the 2011 EIP and 115,000 shares of the Company’s common stock were authorized for issuance under the 2013 DSCP.

The ESOSIP, 2011 EIP and 2013 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):

Twenty Six Weeks Ended

Thirty Nine Weeks Ended

Thirteen Weeks Ended

September 26,

September 28,

September 26,

September 28,

Total cost of the Plans during the period

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Net cost of the Plans during the period

Included in income tax benefits recognized in the twenty-six-week

periods ended June 27, 2020 and June 29, 2019 were excess tax benefits from stock-based awards of $ 829,000 and $ 2,871,000 , respectively.

As of June 27, 2020, there were 60,586 shares of the Company’s common stock reserved for issuance under the 2013 DSCP and 3,683,524 shares of the Company’s common stock reserved for issuance in the aggregate under the ESOSIP and 2011 EIP.

Included in income tax benefits recognized in the thirty-nine-week periods ended September 26, 2020 and September 28, 2019 were excess tax benefits from stock-based awards of $ 927,000 and $ 2,968,000 , respectively.

As of September 26, 2020, there were 60,586 shares of the Company’s common stock reserved for issuance under the 2013 DSCP and 3,675,862 shares of the Company’s common stock reserved for issuance in the aggregate under the ESOSIP and 2011 EIP.

Restricted Stock Units

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Vested shares, including shares earned in excess of target

Outstanding at June 27, 2020

Represents shares earned in excess of target under the February 2, 2017 RSU awards as actual results exceeded the target under the awards as a result of fiscal year 2019 results.

During the twenty-six-week

period ended June 27, 2020, the Company granted RSUs with a performance condition.

Outstanding RSUs at both December 28, 2019 and June 27, 2020 include RSUs with a performance condition and RSUs with a market condition, as further described below and in the Company’s 2019 Annual Report on Form 10-K.

RSUs with a performance condition granted on January 31, 2020 may vest on January

31 of 2023, 2024 and 2025 based on growth in operating income and pre-tax

Outstanding at September 26, 2020

Represents additional shares earned under the February 2, 2017 RSU awards as 2019 financial results exceeded target performance level.

During the thirty-nine-week period ended September 26, 2020, the Company granted RSUs with a performance condition.

Outstanding RSUs at both December 28, 2019 and September 26, 2020 include RSUs with a performance condition and RSUs with a market condition, as further described below and in the Company’s 2019 Annual Report on Form 10-K.

RSUs with a performance condition granted on January 31, 2020 may vest on January 31 of 2023, 2024 and 2025 based on growth in operating income and pre-tax

income per diluted share from continuing operations attributable to Landstar System, Inc.

and subsidiary as compared to the results from the 2019 fiscal year.

The Company recognized approximately ($ 308,000 ) and $ 2,062,000 of share-based compensation (benefit)/expense related to RSU awards in the twenty-six-week

periods ended June 27, 2020 and June 29, 2019, respectively.

As of June 27, 2020, there was a maximum of $ 35.3 million of total unrecognized compensation cost related to RSU awards granted under the Plans with an expected average remaining life of approximately 3.3 years.

The Company recognized approximately $ 415,000 and $ 2,477,000 of share-based compensation expense related to RSU awards in the thirty-nine-week periods ended September 26, 2020 and September 28, 2019, respectively.

As of September 26, 2020, there was a maximum of $ 34.6 million of total unrecognized compensation cost related to RSU awards granted under the Plans with an expected average remaining life of approximately 3.1 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.

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Options outstanding at December 28, 2019

Options outstanding at June 27, 2020

Options exercisable at June 27, 2020

The total intrinsic value of stock options exercised during the twenty-six-week

periods ended June 27, 2020 and June 29, 2019 was $ 1,071,000 and $ 1,269,000 , respectively.

As of June 27, 2020, there was no unrecognized compensation cost related to stock options granted under the Plans.

Options outstanding at September 26, 2020

Options exercisable at September 26, 2020

The total intrinsic value of stock options exercised during the thirty-nine-week periods ended September 26, 2020 and September 28, 2019 was $ 1,599,000 and $ 1,877,000 , respectively.

As of September 26, 2020, there was no unrecognized compensation cost related to stock options granted under the Plans.

Restricted Stock and Deferred Stock Units

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at December 28, 2019

at June 27, 2020

at September 26, 2020

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.

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 2013 DSCP plan, 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.

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However, Deferred Stock Units do contain the right to receive dividend equivalent payments prior to settlement into shares.

As of June 27, 2020, there was $ 4,841,000 of total unrecognized compensation cost related to non-vested

As of September 26, 2020, there was $ 4,074,000 of total unrecognized compensation cost related to non-vested

shares of restricted stock and Deferred Stock Units granted under the Plans.

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shares of restricted stock and Deferred Stock Units is expected to be recognized over a weighted average period of 1.9 years.

The provisions for income taxes for the 2020 and 2019 twenty-six-week

periods were each based on an estimated annual effective income tax rate of 24.2 %, adjusted for discrete events, such as benefits resulting from stock-based awards.

The effective income tax rate for the 2020 twenty-six-week

period was 22.7 %, which was higher than the statutory federal income tax rate of 21 % primarily

attributable to state taxes and the meals and entertainment exclusion, partially offset by state tax refunds and excess tax benefits realized on stock -

based awards.

The effective income tax rate for the 2019 twenty-six-week

period was 22.4 %, which was higher than the statutory federal income tax rate of 21 % primarily attributable to state taxes and the meals and entertainment exclusion, partially offset by excess tax benefits realized on stock -

The provision for income taxes for the 2019 twenty-six-week

period was favorably impacted by $ 2,871,000 of excess tax benefits from stock-based awards.

The provisions for income taxes for the 2020 and 2019 thirty-nine-week periods were each based on an estimated annual effective income tax rate of 24.2 %, adjusted for discrete events, such as benefits resulting from stock-based awards.

The effective income tax rate for the 2020 thirty-nine-week period was 23.3 %, which was higher than the statutory federal income tax rate of 21 % primarily attributable to state taxes and the meals and entertainment exclusion, partially offset by excess tax benefits realized on stock-based awards and state

The provision for income taxes for the 2020 thirty-nine-week period was favorably impacted by $ 927,000 of excess tax benefits from stock-based awards.

The effective income tax rate for the 2019 thirty-nine-week period was 22.8 %, which was higher than the statutory

tax rate of 21 % primarily attributable to state taxes and the meals and entertainment

exclusion, partially offset by excess tax benefits realized on stock-based awards.

The provision for income taxes for the 2019 thirty-nine-week period was favorably impacted by $ 2,968,000 of excess tax benefits from stock-based awards.

Earnings Per Share

Earnings per common share attributable to Landstar System, Inc.

and subsidiary are based on the weighted average number of shares outstanding, including outstanding non-vested restricted stock and outstanding Deferred Stock Units.

and subsidiary 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 attributable to Landstar System, Inc.

and subsidiary 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 2020 and 2019 twenty-six-week and thirteen-week periods ,

the future compensation cost attributable to shares of

non-vested restricted stock exceeded

the incremental shares that would have been outstanding upon the assumed exercise of all dilutive stock options.

For each of the twenty-six-week

periods ended June 27, 2020 and June 29, 2019, no options outstanding to purchase shares of common stock were antidilutive.

During the 2020 and 2019 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

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 26, 2020 and September 28, 2019, no options outstanding to purchase shares of common stock were antidilutive.

Outstanding RSUs were excluded from the calculation of diluted earnings per share attributable to Landstar System, Inc.

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Additional Cash Flow Information

During the 2020 twenty-six-week

period, Landstar paid income taxes and interest of $ 16,198,000 and $ 2,057,000 , respectively.

During the 2019 twenty-six-week

period, Landstar paid income taxes and interest of $ 39,180,000 and $ 2,286,000 , respectively.

Landstar acquired operating property by entering into finance leases in the amount of $ 7,485,000 in the 2020 twenty-six-week

Landstar did no t acquire any operating property by entering into finance leases in the 2019 twenty-six-week

In addition, during the 2020 twenty-six-week

period, Landstar acquired $

1,440,000 of operating property for which the Comp a

ny accrued a corresponding liability in accounts payable as of June 27, 2020.

During the 2020 thirty-nine-week period, Landstar paid income taxes and interest of $ 28,761,000 and $ 3,087,000 , respectively.

During the 2019 thirty-nine-week period, Landstar paid income taxes and interest of $ 54,877,000 and $ 3,302,000 , respectively.

Landstar acquired operating property by entering into finance leases in the amounts of $ 7,485,000 and $ 6,481,000 in the 2020 and 2019 thirty-nine-week periods, respectively.

In addition, during the 2020 thirty-nine-week period, Landstar acquired $ 1,068,000 of operating property for which the Company accrued a corresponding liability in accounts payable as of September 26, 2020.

Capital expenditures are recorded as cash outflows from investing activities in the consolidated statement of cash flows in the period in which they are paid.

Segment Information

The following table summarizes information about the Company’s reportable business segments as of and for the twenty-six-week

and thirteen week periods ended June 27, 2020 and June 29, 2019 (in thousands):

Twenty Six Weeks Ended

June 27, 2020

June 29, 2019

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 26, 2020 and September 28, 2019 (in thousands):

Thirty Nine Weeks Ended

September 26, 2020

September 28, 2019

Transportation

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Thirteen Weeks Ended

June 27, 2020

June 29, 2019

September 26, 2020

September 28, 2019

Transportation

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Expenditures on long-lived assets

In the twenty-six-week

periods ended June 27, 2020 and June 29, 2019, no single customer accounted for more than 10 % of the Company’s consolidated revenue.

In the thirty-nine-week periods ended September

26, 2020 and September 28, 2019, no single customer accounted

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

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 twenty-six-week

period ended June 27, 2020 (in thousands):

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 26, 2020 (in thousands):

Holding Gains on

Available-for-Sale

Foreign Currency

Balance as of December 28, 2019

Other comprehensive gain (loss)

Balance as of June 27, 2020

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 twenty-six-week

period ended June 27, 2020.

Balance as of September 26, 2020

Investments include primarily investment-grade corporate bonds and U.S.

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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 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.

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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 gains, net of unrealized losses, on the investments in the bond portfolio were $ 3,002,000 and $ 1,427,000 at June 27, 2020 and December 28, 2019, respectively.

Unrealized gains, net of unrealized losses, on the investments in the bond portfolio were $ 3,350,000 and $ 1,427,000 at September 26, 2020 and December 28, 2019, respectively.

The amortized cost and fair values of available-for-sale

investments are as follows at June 27, 2020 and December 28, 2019 (in thousands):

June 27, 2020

investments are as follows at September 26, 2020 and December 28, 2019 (in thousands):

September 26, 2020

Money market investments

Asset-backed securities

Corporate bonds and direct obligations of

government agencies

Corporate bonds and direct obligations of government agencies

Treasury obligations

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Asset-backed securities

Corporate bonds and direct obligations of

government agencies

Treasury obligation s

Corporate bonds and direct obligations of government agencies

Treasury obligations

For those available-for-sale

investments with unrealized losses at June 27, 2020 and December 28, 2019, the following table summarizes the duration of the unrealized loss (in thousands):

investments with unrealized losses at September 26, 2020 and December 28, 2019, the following table summarizes the duration of the unrealized loss (in thousands):

Less than 12 months

12 months or longer

June 27, 2020

September 26, 2020

Asset-backed securities

Corporate bonds and direct obligations of

government agencies

Corporate bonds and direct obligations of government agencies

December 28, 2019

Asset-backed securities

Corporate bonds and direct obligations of

government agencies

Treasury obligation s

Corporate bonds and direct obligations of government agencies

Treasury obligations

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.

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Substantially all of Landstar’s operating lease right-of-use

assets and operating lease liabilities represent leases for orientation centers for BCO Independent Contractors and office space used to conduct Landstar’s business.

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

Further, the leases do not contain contingent rent provisions.

Landstar also leases certain trailing equipment to supplement the Company-owned trailer fleet under “month- to-month”

Landstar also leases 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.

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therefore, based on the applicable lease terms and the current economic environment, we apply a portfolio approach for determining the incremental borrowing rate.

The components of lease cost for finance leases and operating leases for the twenty six weeks ended June 27, 2020 were (in thousands):

The components of lease cost for finance leases and operating leases for the thirty nine weeks ended September 26, 2020 were (in thousands):

Finance leases:

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Sublease income

Total operating lease (income)/cost

Total lease cost

A summary of the lease classification on our consolidated balance sheet as of June 27, 2020 is as follows (in thousands):

Operating lease right-of-use

Finance lease asset s

operating lease income

A summary of the lease classification on our consolidated balance sheet as of September 26, 2020 is as follows (in thousands):

Operating lease right-of-use assets

Finance lease assets

Operating property, less accumulated depreciation and amortization

Total lease assets

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 June 27, 2020 (in thousands):

The following table reconciles the undiscounted cash flows for the finance and operating leases to the finance and operating lease liabilities recorded on the balance sheet at September 26, 2020 (in thousands):

2020 Remainder

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Long-term debt, excluding current maturities

Other current liabilitie s

Other current liabilities

Deferred income taxes and other noncurrent liabilities

The weighted average remaining lease term and the weighted average discount rate for finance and operating leases as of June 27, 2020 were:

The weighted average remaining lease term and the weighted average discount rate for finance and operating leases as of September 26, 2020 were:

Finance Leases

Operating Leases

Weighted average remaining lease term (years)

Weighted average discount rate

Other than the finance lease obligations as presented on the consolidated balance sheets, the Company had no outstanding debt as of September 26, 2020 and December 28, 2019.

On June 2, 2016 , Landstar entered into a credit agreement with a syndicate of banks and JPMorgan Chase Bank, N.A., as administrative agent, which was amended and restated on August 18, 2020 to extend the maturity date to August 2023 and amend certain other terms (as so amended and restated, the “Credit Agreement”).

The Credit Agreement provides $ 250,000,000 of borrowing capacity in the form of a revolving credit facility, $ 35,000,000 of which may be utilized in the form of letters of credit.

The Credit Agreement includes an “accordion” feature providing for a possible increase up to an aggregate borrowing capacity of $ 400,000,000 .

The revolving credit loans under the Credit Agreement, at the option of Landstar, bear interest at (i) the Eurocurrency rate plus 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 0.25 % to 0.35 %, based on the Company’s Leverage Ratio at the end of the most recent applicable fiscal quarter for which financial statements have been delivered.

As of September 26, 2020 and December 28, 2019, the Company had no borrowings outstanding under the Credit Agreement.

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 defined 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 that adjust monthly 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.

Commitments and Contingencies

Short-term investments include $ 36,274,000 in current maturities of investments held by the Company’s insurance segment at June 27, 2020.

Short-term investments include $ 39,068,000 in current maturities of investments held by the Company’s insurance segment at September 26, 2020.

The non-current

2 unchanged sentences

investments, provide collateral for the $ 59,434,000 of letters of credit issued to guarantee payment of insurance claims.

As of June 27, 2020, Landstar also had $ 34,156,000 of additional letters of credit outstanding under the Company’s Credit Agreement.

On January 25, 2019, a purported class action was filed in the Superior Court of the State of California for the County of San Bernardino against Landstar System, Inc.

and Landstar Ranger, Inc.

(together, the “Defendants”).

The complaint purported to bring this action on behalf of Hany Tanious, as an individual, and “all owner operators who performed work for the Defendants, and who were classified as independent contractors, during the four years preceding the filing of this action through the present.” The complaint asserted claims based on the alleged misclassification of Mr.

Tanious as an independent contractor and alleged violations under California law relating to overtime, minimum wage, meal and rest breaks, failure to reimburse certain expenses, wage statements, waiting time and unfair competition.

Tanious was a truck owner-operator and formerly an independent contractor who was a party to an independent contractor operating agreement with Landstar Ranger, Inc.

On June 11, 2019, the Defendants filed a Notice of Removal that resulted in the removal of the case from state court to federal court, where it was assigned to Judge Dale S.

Fischer of the United State District Court for the Central District of California.

On August 22, 2019, the Court issued an order, among other things, striking all class allegations from the complaint and stating that this matter would proceed as an individual action.

On June 15, 2020, the Court issued an order granting the Defendants’ motion to transfer venue to the United States District Court for the Middle District of Florida, where the matter was assigned to Judge Marcia Morales Howard.

On June 24, 2020, the Court, sua sponte

, issued an order striking the first amended complaint that was deemed by the Court to have been filed by the plaintiff on March 23, 2020.

On July 6, 2020, the plaintiff filed a voluntary dismissal without prejudice of all remaining claims relating to this action.

On July 15, 2020, the Court issued an order granting the voluntary dismissal of this action in full.

As of September 26, 2020, Landstar also had $ 33,618,000 of additional letters of credit outstanding under the Company’s Credit Agreement.

The Company is involved in certain claims and pending litigation arising from the normal conduct of business.

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and subsidiary and earnings per share attributable to Landstar System, Inc.

and subsidiary set forth in the consolidated statements of income for the twenty-six-week

and thirteen-week periods ended June 27, 2020 and June 29, 2019 (in thousands, except per share amounts):

Twenty Six Weeks Ended

and subsidiary set forth in the consolidated statements of income for the thirty-nine-week and thirteen-week periods ended September 26, 2020 and September 28, 2019 (in thousands, except per share amounts):

Thirty Nine Weeks Ended

Thirteen Weeks Ended

September 26,

September 28,

September 26,

September 28,

Operating income

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and subsidiary

The unfavorable development

of prior years’ claims in the thirty-nine-week period ended September 26, 2020 and the thirty

-nine-week period ended September 28, 2019 were each attributable to several claims as well as actuarially determined adjustments to prior year commercial trucking loss estimates.

Impairment of Intangible and Other Assets

During the 2020 second fiscal quarter, the Company recorded a non-cash

impairment charge of $ 2,582 ,000

in respect of certain assets, primarily customer contract and related customer relationship intangible assets, acquired on September 20, 2017, along with substantially all of the other assets of the asset-light transportation logistics business of Fletes Avella, S.A.

impairment charge of $ 2,582 ,000 in respect of certain assets, primarily customer contract and related customer relationship intangible assets, acquired on September 20, 2017, along with substantially all of the other assets of the asset-light transportation logistics business of Fletes Avella, S.A.

(“Fletes Avella”).

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Risk Factors in the Company’s Form 10-Q

for the 2020 first quarter, negative macroeconomic trends in Mexico, including issues in the international oil and gas sector, have caused significant disruptions in the M e

xican economy.

for the 2020 first quarter, negative macroeconomic trends in Mexico have caused significant disruptions in the Mexican economy.

Accordingly, management performed impairment tests of the carrying values of certain assets that primarily relate to intra-Mexico business acquired as a part of the Fletes Avella acquisition.

The impairment tests resulted in an impairment charge of

2,582,000 , as the negative macroeconomic trends in Mexico have caused current financial projections relating to these intangible assets to be substantially below those originally anticipat e

d at the acquisition date.

There was no corresponding goodwill impairment charge recorded as the fair value of the Company’s Mexico and cross-border reporting unit continues to significantly exceed its carrying value as of June 27, 2020.

The impairment tests resulted in an impairment charge of $ 2,582 ,000, as the negative macroeconomic trends in Mexico have caused current financial projections relating to these intangible assets to be substantially below those originally anticipated at the acquisition date.

Recent Accounting Pronouncements

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on December 29, 2019, under the modified retrospective transition method resulting in a $ 702,000 cumulative adjustment to retained earnings.

Subsequent Event

In October 2020, the Company announced a new initiative in support of its BCO Independent Contractor network relating to its regional field operations centers located in the United States and Canada.

It is the intent of the Company that this network of field operations centers will further support the Company’s efforts in recruiting and retaining BCO Independent Contractors.

In connection with this initiative, the Company expects to record a provision of approximately

during the 2020 fourth fiscal quarter relating to anticipated buyouts of certain incentive commission arrangements with several of its independent commission sales agents due to the Company’s discontinuation of a BCO recruitment and retention program that involved those agents.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements