What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-10-30 compared with 2020-07-31 · 138 added, 214 removed, 269 unchanged (57% of the section changed)

9 unchanged sentences

an increase in the frequency or severity of accidents or other claims;

development of existing accident claims;

unfavorable development of existing accident claims;

dependence on third party insurance companies;

5 unchanged sentences

disruptions or failures in the Company’s computer systems;

cyber and other information security incidents;

cyber and other information security

dependence on key vendors;

30 unchanged sentences

Billings for freight transportation services are typically charged to customers on a per shipment basis for the physical transportation of freight and are referred to as transportation 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.

During the thirty nine weeks ended September 26, 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 thirty-nine-week period ended September 26, 2020.

Landstar Metro, S.A.P.I.

5 unchanged sentences

Accordingly, as of such date, Landstar Metro and Landstar Servicios each became wholly owned subsidiaries of the Company.

Revenue from Landstar Metro represented less than 1% of the Company’s transportation logistics segment revenue in the twenty-six-week

period ended June 27, 2020.

Revenue from Landstar Metro represented less than 1% of the Company’s transportation logistics segment revenue in the thirty-nine-week period ended September 26, 2020.

On May 6, 2020, Landstar System Holdings, Inc.

3 unchanged sentences

The Company expects that Landstar Blue will not have a material effect on its revenues and earnings for the remainder of fiscal year 2020.

Revenue from Landstar Blue represented less than 1% of the Company’s transportation logistics segment revenue in the twenty-six-week

period ended June 27, 2020.

Revenue from Landstar Blue represented less than 1% of the Company’s transportation logistics segment revenue in the thirty-nine-week period ended September 26, 2020.

The insurance segment is comprised of Signature Insurance Company, a wholly owned offshore insurance subsidiary (“Signature”), and Risk Management Claim Services, Inc.

2 unchanged sentences

Revenue at the insurance segment represents reinsurance premiums from third party insurance companies that provide insurance programs to BCO Independent Contractors where all or a portion of the risk is ultimately borne by Signature.

Revenue at the insurance segment represented approximately 2% of the Company’s consolidated revenue for the twenty-six-week

period ended June 27, 2020.

Revenue at the insurance segment represented approximately 1% of the Company’s consolidated revenue for the thirty-nine-week period ended September 26, 2020.

Changes in Financial Condition and Results of Operations

11 unchanged sentences

The following table summarizes this information by trailer type for truck transportation and by mode for all others:

Twenty Six Weeks Ended

Thirty Nine Weeks Ended

Thirteen Weeks Ended

September 26,

September 28,

September 26,

September 28,

Revenue generated through (in thousands):

34 unchanged sentences

The following table summarizes the number of available truck capacity providers on the dates indicated:

June 27, 2020

June 29, 2019

September 26, 2020

September 28, 2019

BCO Independent Contractors

31 unchanged sentences

Company’s contracts with independent commission sales agents provide commissions to agents at a contractually agreed upon percentage of net revenue for these types of shipments.

Approximately 52% of the Company’s consolidated revenue in the twenty-six-week

period ended June 27, 2020 was generated under contracts that have a fixed gross profit margin while 48% was under contracts that have a variable gross profit margin.

Approximately 52% of the Company’s consolidated revenue in the thirty-nine-week period ended September 26, 2020 was generated under contracts that have a fixed gross profit margin while 48% was under contracts that have a variable gross profit margin.

Maintenance costs for Company-provided trailing equipment and BCO Independent Contractor recruiting and qualification costs are the largest components of other operating costs.

3 unchanged sentences

Effective May 1, 2019, the Company entered into a new three year commercial auto liability insurance arrangement for losses incurred between $5,000,000 and $10,000,000 (the “Initial Excess Policy”) with a third party insurance company.

For commercial trucking claims incurred on or after May 1, 2019 through April 30, 2022, the Initial Excess Policy initially provided for a limit for a single loss of $5,000,000, with an aggregate limit of $10,000,000 for each policy year, an aggregate limit of $15,000,000 for the thirty-six

For commercial trucking claims incurred on or after May 1, 2019 through April 30, 2022, the Initial Excess Policy provides for a limit for a single loss of $5,000,000, with an aggregate limit of $15,000,000 for each policy year, an aggregate limit of $20,000,000 for the thirty-six

month term ended April 30, 2022, and options to increase such aggregate limits for pre-established

amounts of additional premium.

In the event paid aggregate losses under the Initial Excess Policy during any policy year (May 1 to April 30) exceeded $10,000,000, the Company would retain liability of up to $10,000,000 per occurrence, inclusive of its $5,000,000 self-insured retention, for the remainder of such policy year.

Moreover, in the event paid aggregate losses under the Initial Excess Policy during the three year period ending April 30, 2022 exceeded a pre-determined

threshold amount, the Initial Excess Policy would require the Company to pay additional premium up to a maximum amount of $3,500,000.

As previously disclosed, BCO Independent Contractors with a subsidiary of the Company were involved in two tragic accidents during the policy year ending April 30, 2020, the first of which occurred in the 2019 third quarter and the second of which occurred in the 2020 first quarter.

Following these two tragic accidents, the Company exercised its option under the Initial Excess Policy to increase its aggregate limits to $15,000,000 for each policy year and $20,000,000 for the thirty-six

month term ended April 30, 2022.

If aggregate losses under the Initial Excess Policy exceed either the new annual aggregate limit or the new aggregate limit for the three year period ending April 30, 2022, and the Company declined the option to increase such aggregate limits for a pre-established

If aggregate losses under the Initial Excess Policy exceed either the annual aggregate limit or the aggregate limit for the three year period ending April 30, 2022, and the Company did not elect to increase such aggregate limits for a pre-established

amount of additional premium, Landstar would retain liability of up to $10,000,000 per occurrence, inclusive of its $5,000,000 self-insured retention for commercial trucking claims during the remainder of the applicable policy year(s).

In addition, as a result of the Company’s aggregate loss experience since it entered into the Initial Excess Policy, it believes it is probable it will be required to pay additional premium under the Initial Excess Policy, which amount of additional premium was provided for in insurance and claims costs for the Company’s 2020 fiscal first quarter.

Moreover, in the event paid aggregate losses under the Initial Excess Policy during the three year period ending April 30, 2022 exceed a pre-determined

threshold amount, the Initial Excess Policy would require the Company to pay additional premium up to a maximum amount of $3,500,000.

As a result of the Company’s aggregate loss experience since it entered into the Initial Excess Policy, the Company believes it is probable it will be required to pay additional premium under the Initial Excess Policy, which amount of additional premium was provided for in insurance and claims costs for the Company’s 2020 fiscal first quarter.

The Company also maintains third party insurance arrangements providing excess coverage for commercial trucking liabilities in excess of $10,000,000.

5 unchanged sentences

In addition, under reinsurance arrangements by Signature of certain risks of the Company’s BCO Independent Contractors, the Company retains liability of up to $500,000, $1,000,000 or $2,000,000 with respect to certain occupational accident claims and up to $750,000 with respect to certain workers’ compensation claims.

The Company’s exposure to liability associated with accidents incurred by Truck Brokerage Carriers, railroads and air and ocean cargo carriers who transport freight

on behalf of the Company is reduced by various factors including the extent to which such carriers maintain their own insurance coverage.

The Company’s exposure to liability associated with accidents incurred by Truck Brokerage Carriers, railroads and air and ocean cargo carriers who transport freight on behalf of the Company is reduced by various factors including the extent to which such carriers maintain their own insurance coverage.

A material increase in the frequency or severity of accidents, cargo claims or workers’ compensation claims or the material unfavorable development of existing claims could have a material adverse effect on Landstar’s cost of insurance and claims and its results of operations.

During the twenty-six-week

period ended June 27, 2020, employee compensation and benefits accounted for approximately sixty-four percent of the Company’s selling, general and administrative costs.

During the thirty-nine-week period ended September 26, 2020, employee compensation and benefits accounted for approximately sixty-six

percent of the Company’s selling, general and administrative costs.

Depreciation and amortization primarily relate to depreciation of trailing equipment and information technology hardware and software.

The following table sets forth the percentage relationship of purchased transportation and commissions to agents, both being direct costs, to revenue and indirect costs as a percentage of gross profit for the periods indicated:

Twenty Six Weeks Ended

Thirty Nine Weeks Ended

Thirteen Weeks Ended

September 26,

September 28,

September 26,

September 28,

Purchased transportation

3 unchanged sentences

Indirect costs and expenses:

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

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

Insurance and claims

17 unchanged sentences

(1) the insurance segment has no other operating costs;

affect comparability of financial results by segment between various fiscal periods but that have no effect on the Company from a consolidated reporting perspective;

(2) discussion of insurance and claims at either segment without reference to the other may create confusion amongst investors and potential investors due to intercompany arrangements and specific deductible programs that affect comparability of financial results by segment between various fiscal periods but that have no effect on the Company from a consolidated reporting perspective;

(3) selling, general and administrative costs of the insurance segment comprise less than 10% of consolidated selling, general and administrative costs and have historically been relatively consistent on a year-over-year basis;

and (4) the insurance segment has no depreciation and amortization.

TWENTY SIX WEEKS ENDED JUNE 27, 2020 COMPARED TO TWENTY SIX WEEKS ENDED JUNE 29, 2019

Revenue for the 2020 twenty-six-week

period was $1,751,080,000, a decrease of $326,960,000, or 16%, compared to the 2019 twenty-six-week

THIRTY NINE WEEKS ENDED SEPTEMBER 26, 2020 COMPARED TO THIRTY NINE WEEKS ENDED SEPTEMBER 28, 2019

Revenue for the 2020 thirty-nine-week period was $2,836,626,000, a decrease of $253,072,000, or 8%, compared to the 2019 thirty-nine-week period.

Transportation revenue decreased $252,273,000, or 8%.

The decrease in transportation revenue was attributable to a decreased number of loads hauled of approximately 11% and decreased revenue per load of approximately 6% compared to the 2019 twenty-six-week

Reinsurance premiums were $27,398,000 and $28,263,000 for the 2020 and 2019 twenty-six-week

periods, respectively.

The decrease in revenue from reinsurance premiums was primarily attributable to the decrease in the average number of trucks provided by BCO Independent Contractors in the 2020 twenty-six-week

period compared to the 2019 twenty-six-week

Truck transportation revenue generated by BCO Independent Contractors and Truck Brokerage Carriers (together, the “third party truck capacity providers”) for the 2020 twenty-six-week

period was $1,607,909,000, representing 92% of total revenue, a decrease of $313,406,000, or 16%, compared to the 2019 twenty-six-week

The number of loads hauled by third party truck capacity providers decreased approximately 11% in the 2020 twenty-six-week

period compared to the 2019 twenty-six-week

period, and revenue per load on loads hauled by third party truck capacity providers decreased approximately 6% compared to the 2019 twenty-six-week

The decrease in the number of loads hauled via truck compared to the 2019 twenty-six-week

period was due to relative softness in the U.S.

The decrease in transportation revenue was attributable to a decreased number of loads hauled of approximately 6% and decreased revenue per load of approximately 2% compared to the 2019 thirty-nine-week period.

Reinsurance premiums were $41,570,000 and $42,369,000 for the 2020 and 2019 thirty-nine-week periods, respectively.

The decrease in revenue from reinsurance premiums was primarily attributable to the decrease in the average number of trucks provided by BCO Independent Contractors in the 2020 thirty-nine-week period compared to the 2019 thirty-nine-week period.

Truck transportation revenue generated by BCO Independent Contractors and Truck Brokerage Carriers (together, the “third party truck capacity providers”) for the 2020 thirty-nine-week period was $2,614,087,000, representing 92% of total revenue, a decrease of $239,424,000, or 8%, compared to the 2019 thirty-nine-week period.

The number of loads hauled by third party truck capacity providers decreased approximately 7% in the 2020 thirty-nine-week period compared to the 2019 thirty-nine-week period, and revenue per load on loads hauled by third party truck capacity providers decreased approximately 2% compared to the 2019 thirty-nine-week period.

The decrease in the number of loads hauled via truck compared to the 2019 thirty-nine-week period was due to relative softness in the U.S.

manufacturing sector in the 2020 period compared to the 2019 period and the unfavorable impact of the COVID-19

pandemic, which began during the last week of the Company’s first fiscal quarter and persisted throughout the second fiscal quarter.

Loads hauled via van equipment decreased 13% and loads hauled via unsided/platform equipment decreased 11%, while less-than-truckload volumes increased 5% as compared to the 2019 twenty-six-week

The decrease in revenue per load on loads hauled via truck was primarily due to a softer freight demand environment experienced during the 2020 twenty-six-week

period, which resulted in more readily available truck capacity as compared to the 2019 twenty-six-week

Revenue per load on loads hauled via van equipment decreased 4%, revenue per load on loads hauled via unsided/platform equipment decreased 7% and revenue per load on less-than-truckload loadings decreased 9% as compared to the 2019 twenty-six-week

pandemic on demand for the Company’s truck transportation services, which significantly accelerated during the last week of the Company’s first fiscal quarter.

However, following the demand lows experienced by the Company in April and May 2020, demand for the Company’s truck transportation services sequentially increased throughout the remainder of the thirty-nine week period.

This significant, rapid decrease in demand followed by a similarly significant yet more gradual sequential increase in demand was unprecedented in the history of the Company.

During the 2020 thirty-nine week period as compared to the 2019 thirty-nine-week period, loads hauled via van equipment decreased 7% and loads hauled via unsided/platform equipment decreased 9%, while less-than-truckload volumes increased 3%.

The decrease in revenue per load on loads hauled via truck was primarily due to less demand for unsided/platform and heavy specialized freight services during the 2020 thirty-nine-week period.

While revenue per load on loads hauled via van equipment increased 1%, revenue per load on loads hauled via unsided/platform equipment decreased 5% and revenue per load on less-than-truckload loadings decreased 7% as compared to the 2019 thirty-nine-week period.

Revenue per load on heavy specialized loadings, which is included as a component of unsided/platform loadings, decreased 10% as compared to the 2019 thirty-nine-week period.

Fuel surcharges billed to customers on revenue generated by BCO Independent Contractors are excluded from revenue.

Fuel surcharges on Truck Brokerage Carrier revenue identified separately in billings to customers and included as a component of Truck Brokerage Carrier revenue were $29,302,000 and $41,321,000 in the 2020 and 2019 twenty-six-week

periods, respectively.

Fuel surcharges on Truck Brokerage Carrier revenue identified separately in billings to customers and included as a component of Truck Brokerage Carrier revenue were $43,570,000 and $60,206,000 in the 2020 and 2019 thirty-nine-week periods, respectively.

It should be noted that billings to many customers of the Company’s truck brokerage services include a single all-in

1 unchanged sentence

Accordingly, the overall impact of changes in fuel prices on revenue and revenue per load on loads hauled via truck is likely to be greater than that indicated.

Transportation revenue generated by rail intermodal, air cargo and ocean cargo carriers (collectively, the “multimode capacity providers”) for the 2020 twenty-six-week

period was $108,565,000, or 6% of total revenue, a decrease of $8,913,000, or 8%, compared to the 2019 twenty-six-week

The number of loads hauled by multimode capacity providers decreased approximately 7% in the 2020 twenty-six-week

period compared to the 2019 twenty-six-week

period, and revenue per load on revenue generated by multimode capacity providers decreased approximately 1% over the same period.

The decrease in the number of loads hauled by multimode capacity providers was primarily due to a 10% decrease in rail intermodal loadings, mostly attributable to decreased loadings at two specific customers, and a 7% decrease in ocean loadings, primarily due to decreased shipments originating in China for export to the United States.

The decrease in revenue per load of 1% on loads hauled by multimode capacity providers was entirely attributable to decreased revenue per load on rail intermodal shipments.

Transportation revenue generated by rail intermodal, air cargo and ocean cargo carriers (collectively, the “multimode capacity providers”) for the 2020 thirty-nine-week period was $170,749,000, or 6% of total revenue, a decrease of $6,064,000, or 3%, compared to the 2019 thirty-nine-week period.

The number of loads hauled by multimode capacity providers decreased approximately 2% in the 2020 thirty-nine-week period compared to the 2019 thirty-nine-week period, and revenue per load on revenue generated by multimode capacity providers decreased approximately 1% over the same period.

The decrease in the number of loads hauled by multimode capacity providers was primarily due to a 6% decrease in rail intermodal loadings, mostly attributable to decreased loadings at four specific agencies, and a 4% decrease in ocean loadings, primarily due to decreased shipments originating in China for export to the United States.

The decrease in revenue per load of 1% on loads hauled by multimode capacity providers was primarily attributable to decreased revenue per load on air shipments.

Also, revenue per load on revenue generated by multimode capacity providers is influenced by many factors, including revenue mix among the various modes of transportation used, length of haul, complexity of freight, density of freight lanes, fuel costs and availability of capacity.

Purchased transportation was 76.8% and 76.6% of revenue in the 2020 and 2019 twenty-six-week

periods, respectively.

Purchased transportation was 77.0% and 76.6% of revenue in the 2020 and 2019 thirty-nine-week periods, respectively.

The increase in purchased transportation as a percentage of revenue was primarily due to an increased rate of purchased transportation paid on BCO Independent Contractor revenue due to the impact of COVID-19

pandemic relief incentive payments.

Under that program, for each load delivered by a BCO Independent Contractor with a confirmed delivery date from April 1, 2020 through May 30, 2020, the Company paid each of the BCO Independent Contractor who hauled the load and the independent commission sales agent who dispatched the load an extra $50.

Commissions to agents were 8.6% and 8.3% of revenue in the 2020 and 2019 twenty-six-week

periods, respectively.

The increase in commissions to agents as a percentage of revenue was primarily attributable to the impact of COVID-19

pandemic relief incentive payments to agents.

pandemic relief incentive payments and an increased rate of purchased transportation paid on Truck Brokerage Carrier revenue.

Under the pandemic relief program, for each load delivered by a BCO Independent Contractor with a confirmed delivery date from April 1, 2020 through May 30, 2020, the Company paid each of the BCO Independent Contractor who hauled the load and the independent commission sales agent who dispatched the load an extra $50.

Commissions to agents were 8.3% of revenue in each of the 2020 and 2019 thirty-nine-week periods.

Commissions to agents on BCO Independent Contractor revenue were higher during the 2020 thirty-nine-week period due to the impact of COVID-19

pandemic relief incentive payments, whereas commissions to agents on Truck Brokerage Carrier revenue were lower as compared to the 2019 thirty-nine-week period due to the impact of a decreased net revenue margin on revenue generated by Truck Brokerage Carriers.

The Company paid a total of $12,593,000 in COVID-19

pandemic relief incentive payments during the 2020 twenty-six

Investment income was $2,002,000 and $2,421,000 in the 2020 and 2019 twenty-six-week

periods, respectively.

The decrease in investment income was primarily attributable to lower average rates of return on investments in the 2020 twenty-six-week period,

partially offset by a higher average investment balance held by the insurance segment in the 2020 twenty-six

Other operating costs decreased $2,426,000 in the 2020 twenty-six-week

period compared to the 2019 twenty-six-week

period and represented 6.1% of gross profit in the 2020 period compared to 5.8% of gross profit in the 2019 period.

The decrease in other operating costs compared to the prior year was primarily due to decreased BCO Independent Contractor recruiting costs, increased gains on the sales of used trailing equipment and decreased trailer rental expense.

The increase in other operating costs as a percentage of gross profit was caused by the effect of decreased gross profit, partially offset by the decrease in other operating costs.

Insurance and claims increased $13,429,000 in the 2020 twenty-six-week

period compared to the 2019 twenty-six-week

period and represented 17.5% of gross profit in the 2020 period compared to 10.0% of gross profit in the 2019 period.

The increase in insurance and claims expense compared to the prior year was primarily due to a $5,000,000 charge for the Company’s self-insured retention with respect to a tragic vehicular accident involving a fatality, a $3,500,000 charge relating to anticipated additional premium the Company expects to pay under its existing multi-year insurance arrangements in connection with certain aggregated losses, increased insurance premiums incurred in May and June for commercial trucking liability coverage following the Company’s May 1, 2020 insurance renewal, increased net unfavorable development of prior years’ claims and increased severity of current year claims in the 2020 period.

During the 2020 and 2019 twenty-six-week

periods, insurance and claims costs included $5,039,000 and $2,900,000 of net unfavorable adjustments to prior years’ claims estimates, respectively.

pandemic relief incentive payments during the 2020 thirty-nine week period.

Investment income was $2,716,000 and $3,736,000 in the 2020 and 2019 thirty-nine-week periods, respectively.

The decrease in investment income was primarily attributable to lower average rates of return on investments in the 2020 thirty-nine-week period, partially offset by a higher average investment balance held by the insurance segment in the 2020 thirty-nine week period.

Other operating costs decreased $5,496,000 in the 2020 thirty-nine-week period compared to the 2019 thirty-nine-week period and represented 5.5% of gross profit in the 2020 period compared to 6.1% of gross profit in the 2019 period.

The decrease in other operating costs compared to the prior year was primarily due to a decreased provision for contractor bad debt, the impact of the cancellation of an event for the Company’s BCO Independent Contractors due to the COVID-19

pandemic, increased gains on the sales of used trailing equipment and decreased trailer rental costs.

The decrease in other operating costs as a percentage of gross profit was caused by the decrease in other operating costs, partially offset by the effect of decreased gross profit.

Insurance and claims increased $11,315,000 in the 2020 thirty-nine-week period compared to the 2019 thirty-nine-week period and represented 16.0% of gross profit in the 2020 period compared to 11.9% of gross profit in the 2019 period.

The increase in insurance and claims expense compared to the prior year was primarily due to a $5,000,000 charge for the Company’s self-insured retention with respect to a tragic vehicular accident involving a fatality, a $3,500,000 charge relating to anticipated additional premium the Company expects to pay under the Initial Excess Policy in connection with certain aggregated losses, increased insurance premiums incurred for commercial trucking liability coverage following the Company’s May 1, 2020 insurance renewal and increased severity of current year claims, partially offset by decreased net unfavorable development of prior years’ claims in the 2020 period.

During the 2020 and 2019 thirty-nine-week periods, insurance and claims costs included $6,162,000 and $9,497,000 of net unfavorable adjustments to prior years’ claims estimates, respectively.

The increase in insurance and claims as a percent of gross profit was caused by the increase in insurance and claims costs and the effect of decreased gross profit.

Selling, general and administrative costs increased $3,363,000 in the 2020 twenty-six-week

period compared to the 2019 twenty-six-week

period and represented 33.6% of gross profit in the 2020 period compared to 26.3% of gross profit in the 2019 period.

The increase in selling, general and administrative costs compared to prior year was attributable to an increased provision for customer bad debt, an increased provision for incentive compensation and increased information technology costs, partially offset by decreased stock-based compensation expense, decreased agent convention costs and decreased travel and entertainment costs related to the impact of the COVID-19

Included in selling, general and administrative costs was incentive compensation expense of $4,057,000 and $1,911,000 for the 2020 and 2019 twenty-six-week

periods, respectively, and stock-based compensation expense of $1,201,000 and $3,368,000 for the 2020 and 2019 twenty-six-week

periods, respectively.

Selling, general and administrative costs increased $4,062,000 in the 2020 thirty-nine-week period compared to the 2019 thirty-nine-week period and represented 29.9% of gross profit in the 2020 period compared to 25.9% of gross profit in the 2019 period.

The increase in selling, general and administrative costs compared to prior year was attributable to an increased provision for incentive compensation, increased information technology costs and an increased provision for customer bad debt, partially offset by decreased agent convention costs, decreased stock-based compensation expense and decreased travel and entertainment costs related to the impact of the COVID-19

Included in selling, general and administrative costs was incentive compensation expense of $6,190,000 and $1,588,000 for the 2020 and 2019 thirty-nine-week periods, respectively, and stock-based compensation expense of $2,691,000 and $4,470,000 for the 2020 and 2019 thirty-nine-week periods, respectively.

The increase in selling, general and administrative costs as a percent of gross profit was due to the effect of decreased gross profit and the increase in selling, general and administrative costs.

Depreciation and amortization increased $622,000 in the 2020 twenty-six-week

period compared to the 2019 twenty-six-week

period and represented 9.0% of gross profit in the 2020 period compared to 7.1% of gross profit in the 2019 period.

Depreciation and amortization increased $1,167,000 in the 2020 thirty-nine-week period compared to the 2019 thirty-nine-week period and represented 8.2% of gross profit in the 2020 period compared to 7.1% of gross profit in the 2019 period.

The increase in depreciation and amortization expenses was primarily due to increased depreciation on information technology assets, partially offset by a decrease in trailing equipment depreciation.

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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 Mexican 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 anticipated 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.

Interest and debt expense in the 2020 twenty-six-week

period increased $414,000 compared to the 2019 twenty-six-week

Interest and debt expense in the 2020 thirty-nine-week period increased $658,000 compared to the 2019 thirty-nine-week period.

The increase in interest and debt expense was primarily attributable to decreased interest income earned on cash balances held by the transportation logistics segment.

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 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-based awards.

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

period of 22.7% was lower than the 24.2% estimated annual effective income tax rate primarily due to excess tax benefits recognized on stock-based compensation arrangements in the 2020 twenty-six-week

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

period of 22.4% was lower than the 24.2% estimated annual effective income tax rate primarily due to excess tax benefits recognized on stock-based compensation arrangements in the 2019 twenty-six-week

The net loss attributable to noncontrolling interest of $17,000 in the 2019 twenty-six-week

period represents the former noncontrolling investors’ share of the net loss incurred by Landstar Metro and Landstar Servicios.

Net income was $65,149,000, or $1.68 per common share ($1.68 per diluted share), in the 2020 twenty-six-week

Net income attributable to the Company was $124,417,000, or $3.11 per common share ($3.11 per diluted share), in the 2019 twenty-six-week

Net income was unfavorably impacted by approximately $12,593,000, or $0.24 per common share ($0.24 per diluted share), during the 2020 twenty-six-week

period, related to the impact of the COVID-19

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 tax refunds.

The effective income tax rate for the 2019 thirty-nine-week period was 22.8%, 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.

The effective income tax rate in the 2020 thirty-nine-week period of 23.3% was lower than the 24.2% estimated annual effective income tax rate primarily due to excess tax benefits recognized on stock-based compensation arrangements and state tax refunds in the 2020 thirty-nine-week period.

The effective income tax rate in the 2019 thirty-nine-week period of 22.8% was lower than the 24.2% estimated annual effective income tax rate primarily due to excess tax benefits recognized on stock-based compensation arrangements in the 2019 thirty-nine-week period.

The net loss attributable to noncontrolling interest of $17,000 in the 2019 thirty-nine-week period represents the former noncontrolling investors’ share of the net loss incurred by Landstar Metro and Landstar Servicios.

Net income was $127,035,000, or $3.28 per common share ($3.28 per diluted share), in the 2020 thirty-nine-week period.

Net income attributable to the Company was $177,672,000, or $4.45 per common share ($4.45 per diluted share), in the 2019 thirty-nine-week period.

Net income was unfavorably impacted by approximately $12,593,000, or $0.25 per common share ($0.25 per diluted share), during the 2020 thirty-nine-week period, related to the impact of the COVID-19

pandemic relief incentive payments.

THIRTEEN WEEKS ENDED JUNE 27, 2020 COMPARED TO THIRTEEN WEEKS ENDED JUNE 29, 2019

Revenue for the 2020 thirteen-week period was $823,514,000, a decrease of $221,526,000, or 21%, compared to the 2019 thirteen-week period.

Transportation revenue decreased $221,018,000, or 21%.

The decrease in transportation revenue was attributable to a decreased number of loads hauled of approximately 16% and decreased revenue per load of approximately 6% compared to the 2019 thirteen-week period.

THIRTEEN WEEKS ENDED SEPTEMBER 26, 2020 COMPARED TO THIRTEEN WEEKS ENDED SEPTEMBER 28, 2019

Revenue for the 2020 thirteen-week period was $1,085,546,000, an increase of $73,888,000, or 7%, compared to the 2019 thirteen-week period.

Transportation revenue increased $73,822,000, or 7%.

The increase in transportation revenue was attributable to increased revenue per load of approximately 5% and an increased number of loads hauled of approximately 3% compared to the 2019 thirteen-week period.

Reinsurance premiums were $14,172,000 and $14,106,000 for the 2020 and 2019 thirteen-week periods, respectively.

The decrease in revenue from reinsurance premiums was primarily attributable to the decrease in the average number of trucks provided by BCO Independent Contractors in the 2020 thirteen-week period compared to the 2019 thirteen-week period.

Truck transportation revenue generated by third party truck capacity providers for the 2020 thirteen-week period was $753,333,000, representing 91% of total revenue, a decrease of $214,871,000, or 22%, compared to the 2019 thirteen-week period.

The number of loads hauled by third party truck capacity providers decreased approximately 16% in the 2020 thirteen-week period compared to the 2019 thirteen-week period, and revenue per load on loads hauled by third party truck capacity providers decreased approximately 7% compared to the 2019 thirteen-week period.

The decrease in the number of loads hauled via truck compared to the 2019 thirteen-week period was due to the unfavorable impact of the COVID-19

pandemic experienced during the 2020 thirteen-week period as the result of actions taken by governmental authorities and businesses to reduce the further spread of COVID-19.

The number of loads hauled via truck was below the prior year comparable period by 21 %

for April, May and June, respectively.

Loads hauled via van equipment decreased 17% and loads hauled via unsided/platform equipment decreased 19%, while less-than-truckload volumes increased 1% as compared to the 2019 thirteen-week period.

The decrease in revenue per load on loads hauled via truck was primarily due to a softer freight demand environment experienced during the 2020 thirteen-week period, which resulted in more readily available truck capacity as compared to the 2019 thirteen-week period.

Revenue per load on loads hauled via van equipment decreased 3%, revenue per load on loads hauled via unsided/platform equipment decreased 10% and revenue per load on less-than-truckload loadings decreased 8% as compared to the 2019 thirteen-week period.

Truck transportation revenue generated by third party truck capacity providers for the 2020 thirteen-week period was $1,006,178,000, representing 93% of total revenue, an increase of $73,982,000, or 8%, compared to the 2019 thirteen-week period.

Revenue per load on loads hauled by third party truck capacity providers increased approximately 5% in the 2020 thirteen-week period compared to the 2019 thirteen-week period, and the number of loads hauled by third party truck capacity providers increased approximately 3% compared to the 2019 thirteen-week period.

The increase in revenue per load on loads hauled via truck was primarily due to a comparatively tighter truck capacity environment during the 2020 thirteen-week period compared to the 2019 thirteen-week period, as the domestic economy began to re-open

and recover from the actions taken earlier this year by governmental authorities and businesses to reduce the spread of COVID-19.

During the 2020 thirteen-week period, truck capacity throughout the United States gradually tightened on a sequential basis throughout the quarter, particularly with respect to the dry van spot market.

Revenue per load on loads hauled via van equipment increased 10%, while revenue per load on loads hauled via unsided/platform equipment decreased 2% and revenue per load on less-than-truckload loadings decreased 2% as compared to the 2019 thirteen-week period.

The increase in the number of loads hauled via truck compared to the 2019 thirteen-week period was due to increased demand for the Company’s truck transportation services, particularly those services provided via van equipment, as we moved through the third fiscal quarter.

Loads hauled via van equipment increased 5%, and loads hauled via less-than-truckload increased 1%, while unsided/platform equipment volumes decreased 4% as compared to the 2019 thirteen-week period.

The number of loads hauled via truck decreased 1%, increased 2% and increased 7% during fiscal July, August and September, respectively, as compared to the corresponding periods in 2019.

Fuel surcharges billed to customers on revenue generated by BCO Independent Contractors are excluded from revenue.

Fuel surcharges on Truck Brokerage Carrier revenue identified separately in billings to customers and included as a component of Truck Brokerage Carrier revenue were $14,268,000 and $18,885,000 in the 2020 and 2019 thirteen-week periods, respectively.

Transportation revenue generated by multimode capacity providers for the 2020 thirteen-week period was $53,849,000, or 7% of total revenue, a decrease of $2,945,000, or 5%, compared to the 2019 thirteen-week period.

The number of loads hauled by multimode capacity providers decreased approximately 7% in the 2020 thirteen-week period compared to the 2019 thirteen-week period, while revenue per load on revenue generated by multimode capacity providers increased approximately 2% over the same period.

The decrease in the number of loads hauled by multimode capacity providers was primarily due to a 13% decrease in rail intermodal loadings, mostly attributable to decreased loadings at three specific customers.

The increase in revenue per load of 2% on loads hauled by multimode capacity providers was primarily attributable to increased revenue per load on air cargo shipments and an increase in ocean loads as a percentage of loads hauled by multimode capacity providers, as ocean loads typically generate a higher revenue per load compared to loads hauled by rail or air cargo carriers.

Transportation revenue generated by multimode capacity providers for the 2020 thirteen-week period was $62,184,000, or 6% of total revenue, an increase of $2,849,000, or 5%, compared to the 2019 thirteen-week period.

The number of loads hauled by multimode capacity providers increased approximately 7% in the 2020 thirteen-week period compared to the 2019 thirteen-week period, while revenue per load on revenue generated by multimode capacity providers decreased approximately 2% over the same period.

The increase in the number of loads hauled by multimode capacity providers was primarily due to a 34% increase in air loadings, almost entirely attributable to increased loadings at one specific customer.

The decrease in revenue per load of 2% on loads hauled by multimode capacity providers was primarily attributable to decreased revenue per load on air cargo shipments and a decrease in ocean loads as a percentage of

loads hauled by multimode capacity providers, as ocean loads typically generate a higher revenue per load compared to loads hauled by rail or air cargo carriers.

Purchased transportation was 77.3% and 76.6% of revenue in the 2020 and 2019 thirteen-week periods, respectively.

pandemic relief incentive payments.

The increase in purchased transportation as a percentage of revenue was primarily due to an increased rate of purchased transportation on revenue generated by Truck Brokerage Carriers.

Commissions to agents were 7.9% and 8.4% of revenue in the 2020 and 2019 thirteen-week periods, respectively.

The increase in commissions to agents as a percentage of revenue was primarily attributable to the impact of COVID-19

pandemic relief incentive payments to agents.

The Company paid a total of $12,593,000 in COVID-19

pandemic relief incentive payments during the 2020 thirteen-week period.

The decrease in commissions to agents as a percentage of revenue was primarily attributable to a decreased net revenue margin on revenue generated by Truck Brokerage Carriers.

Investment income was $714,000 and $1,315,000 in the 2020 and 2019 thirteen-week periods, respectively.

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Other operating costs decreased $3,070,000 in the 2020 thirteen-week period compared to the 2019 thirteen-week period and represented 4.6% of gross profit in the 2020 period compared to 6.8% of gross profit in the 2019 period.

The decrease in other operating costs compared to the prior year was primarily due to a decreased provision for contractor bad debt, decreased BCO Independent Contractor recruiting costs, increased gains on the sales of used trailing equipment and decreased trailer rental expense.

The increase in other operating costs as a percentage of gross profit was caused by the effect of decreased gross profit, partially offset by the decrease in other operating costs.

Insurance and claims increased $3,465,000 in the 2020 thirteen-week period compared to the 2019 thirteen-week period and represented 17.5% of gross profit in the 2020 period compared to 10.3% of gross profit in the 2019 period.

The increase in insurance and claims expense compared to the prior year was primarily due to increased net unfavorable development of prior years’ claims, increased insurance premiums incurred in May and June for commercial trucking liability coverage following the Company’s May 1, 2020 insurance renewal and increased severity of current year claims in the 2020 period, partially offset by reduced frequency of claims in the 2020 period.

pandemic and increased gains on the sales of used trailing equipment.

The decrease in other operating costs as a percentage of gross profit was caused by the decrease in other operating costs and the effect of increased gross profit.

Insurance and claims decreased $2,114,000 in the 2020 thirteen-week period compared to the 2019 thirteen-week period and represented 13.6% of gross profit in the 2020 period compared to 15.7% of gross profit in the 2019 period.

The decrease in insurance and claims expense compared to the prior year was primarily due to decreased net unfavorable development of prior years’ claims and decreased severity of current year claims in the 2020 period, partially offset by increased insurance premiums incurred for commercial trucking liability coverage following the Company’s May 1, 2020 insurance renewal.

During the 2020 and 2019 thirteen-week periods, insurance and claims costs included $1,123,000 and $6,597,000 of net unfavorable adjustments to prior years’ claims estimates, respectively.

The increase in insurance and claims as a percent of gross profit was caused by the effect of decreased gross profit and the increase in insurance and claims costs.

Selling, general and administrative costs decreased $696,000 in the 2020 thirteen-week period compared to the 2019 thirteen-week period and represented 35.9% of gross profit in the 2020 period compared to 26.1% of gross profit in the 2019 period.

The decrease in selling, general and administrative costs compared to prior year was attributable to decreased agent convention costs and decreased travel and entertainment costs related to the impact of the COVID-19

pandemic and decreased stock-based compensation expense, partially offset by an increased provision for incentive compensation, an increased provision for customer bad debt, and increased information technology costs.

Included in selling, general and administrative costs was incentive compensation expense of $2,026,000 and $873,000 for the 2020 and 2019 thirteen-week periods, respectively, and stock-based compensation expense of $570,000 and $1,430,000 for the 2020 and 2019 thirteen-week periods, respectively.

The increase in selling, general and administrative costs as a percent of gross profit was due to the effect of decreased gross profit, partially offset by the decrease in selling, general and administrative costs.

Depreciation and amortization increased $433,000 in the 2020 thirteen-week period compared to the 2019 thirteen-week period and represented 10.1% of gross profit in the 2020 period compared to 7.0% of gross profit in the 2019 period.

The decrease in insurance and claims as a percent of gross profit was caused by the decrease in insurance and claims costs and the effect of increased gross profit.

Selling, general and administrative costs increased $699,000 in the 2020 thirteen-week period compared to the 2019 thirteen-week period and represented 24.1% of gross profit in the 2020 period compared to 25.0% of gross profit in the 2019 period.

The increase in selling, general and administrative costs compared to prior year was attributable to an increased provision for incentive compensation, increased information technology costs and increased stock-based compensation expense, partially offset by a decreased provision for customer bad debt and decreased travel and entertainment costs related to the impact of the COVID-19

Included in selling, general and administrative costs was incentive compensation expense/(benefit) of $2,133,000 and ($323,000) for the 2020 and 2019 thirteen-week periods, respectively, and stock-based compensation expense of $1,490,000 and $1,102,000 for the 2020 and 2019 thirteen-week periods, respectively.

The decrease in selling, general and administrative costs as a percent of gross profit was due to the effect of increased gross profit, partially offset by the increase in selling, general and administrative costs.

Depreciation and amortization increased $545,000 in the 2020 thirteen-week period compared to the 2019 thirteen-week period and represented 7.0% of gross profit in each of the 2020 and 2019 periods.

The increase in depreciation and amortization expenses was primarily due to increased depreciation on information technology assets, partially offset by a decrease in trailing equipment depreciation.

The increase in depreciation and amortization as a percentage of gross profit was due to the effect of decreased gross profit and increased depreciation.

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.

As previously disclosed in Item 1A.

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 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.

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.

Interest and debt expense in the 2020 thirteen-week period increased $244,000 compared to the 2019 thirteen-week period.

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The provisions for income taxes for the 2020 and 2019 thirteen-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 thirteen-week period was 22.3%, 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 state tax refunds received during the 2020 thirteen-week period and excess tax benefits realized on stock -

based awards.

The effective income tax rate for the 2019 thirteen-week period was 23.8%, 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.

The effective income tax rate in the 2020 thirteen-week period of 22.3% was lower than the 24.2% estimated annual effective income tax rate primarily due to the impact of the state tax refund and excess tax benefits recognized on stock-based compensation arrangements in the 2020 thirteen-week period.

The effective income tax rate for the 2020 thirteen-week period was 23.9%, 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.

The effective income tax rate in the 2020 thirteen-week period of 23.9% was lower than the 24.2% estimated annual effective income tax rate primarily due to excess tax benefits recognized on stock-based compensation arrangements in the 2020 thirteen-week period.

The effective income tax rate in the 2019 thirteen-week period of 23.8% was lower than the 24.2% estimated annual effective income tax rate primarily due to excess tax benefits recognized on stock-based compensation arrangements in the 2019 thirteen-week period.

Net income was $61,886,000, or $1.61 per common share ($1.61 per diluted share), in the 2020 thirteen-week period.

Net income attributable to the Company was $53,255,000 or $1.35 per common share ($1.35 per diluted share), in the 2019 thirteen-week period.

Net income was unfavorably impacted by approximately $12,593,000, or

$0.25 per common share ($0.25 per diluted share), during the 2020 thirteen-week period, related to the impact of the COVID-19 pandemic relief incentive

CAPITAL RESOURCES AND LIQUIDITY

Working capital and the ratio of current assets to current liabilities were $366,892,000 and 1.8 to 1, respectively, at June 27, 2020, compared with $444,984,000 and 1.8 to 1, respectively, at December 28, 2019.

Working capital and the ratio of current assets to current liabilities were $420,519,000 and 1.8 to 1, respectively, at September 26, 2020, compared with $444,984,000 and 1.8 to 1, respectively, at December 28, 2019.

Landstar has historically operated with current ratios within the range of 1.5 to 1 to 2.0 to 1.

Cash provided by operating activities was $198,385,000 in the 2020 twenty-six-week

period compared with $184,076,000 in the 2019 twenty-six-week

The increase in cash flow provided by operating activities was primarily attributable to favorable working capital adjustments including timing of collections of receivables and payments of accounts payable, partially offset by decreased net income.

The Company declared and paid $0.37 per share, or $14,435,000 in the aggregate, in cash dividends during the twenty-six-week

period ended June 27, 2020 and, during such period, also paid $78,947,000 of dividends payable which were declared during fiscal year 2019 and included in current liabilities in the consolidated balance sheet at December 28, 2019.

The Company declared and paid $0.33 per share, or $13,257,000 in the aggregate, in cash dividends during the twenty-six-week

period ended June 29, 2019.

During the twenty-six-week

period ended June 27, 2020, the Company purchased 1,178,970 shares of its common stock at a total cost of $115,962,000.

During the twenty-six-week

period ended June 29, 2019, the Company purchased 674,410 shares of its common stock at a total cost of $69,729,000.

As of June 27, 2020, the Company may purchase in the aggregate up to 1,821,030 shares of its common stock under its authorized stock purchase program.

Long-term debt, including current maturities, was $98,371,000 at June 27, 2020, $14,473,000 lower than at December 28, 2019.

Shareholders’ equity was $649,121,000, or 87% of total capitalization (defined as long-term debt including current maturities plus equity), at June 27, 2020, compared to $721,469,000, or 86% of total capitalization, at December 28, 2019.

The decrease in equity was primarily the result of purchases of shares of the Company’s common stock and dividends declared by the Company in the 2020 twenty-six-week

period, partially offset by net income.

On June 2, 2016, Landstar entered into a credit agreement with a syndicate of banks and JPMorgan Chase Bank, N.A., as administrative agent (the “Credit Agreement”).

The Credit Agreement, which matures on June 2, 2021, provides $250,000,000 of borrowing capacity in the form of a revolving credit facility, $50,000,000 of which may be utilized in the form of letter of credit guarantees.

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

The Company’s prior credit agreement was terminated on June 2, 2016.

Cash provided by operating activities was $185,548,000 in the 2020 thirty-nine-week period compared with $260,714,000 in the 2019 thirty-nine-week period.

The decrease in cash flow provided by operating activities was primarily attributable to the timing of collections of receivables and decreased net income, partially offset by the timing of payments of accounts payable.

The Company declared and paid $0.58 per share, or $22,495,000 in the aggregate, in cash dividends during the thirty-nine-week period ended September 26, 2020 and, during such period, also paid $78,947,000 of dividends payable which were declared during fiscal year 2019 and included in current liabilities in the consolidated balance sheet at December 28, 2019.

The Company declared and paid $0.515 per share, or $20,589,000 in the aggregate, in cash dividends during the thirty-nine-week period ended September 28, 2019.

During the thirty-nine-week period ended September 26, 2020, the Company purchased 1,178,970 shares of its common stock at a total cost of $115,962,000.

During the thirty-nine-week period ended September 28, 2019, the Company purchased 849,068 shares of its common stock at a total cost of $88,578,000.

As of September 26, 2020, the Company may purchase in the aggregate up to 1,821,030 shares of its common stock under its authorized stock purchase program.

Long-term debt, including current maturities, was $87,293,000 at September 26, 2020, $25,551,000 lower than at December 28, 2019.

Shareholders’ equity was $705,634,000, or 89% of total capitalization (defined as long-term debt including current maturities plus equity), at September 26, 2020, compared to $721,469,000, or 86% of total capitalization, at December 28, 2019.

The decrease in equity was primarily the result of purchases of shares of the Company’s common stock and dividends declared by the Company in the 2020 thirty-nine-week period, partially offset by net income.

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 Credit Agreement contains a number of covenants that limit, among other things, the incurrence of additional indebtedness.

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The Company is currently in compliance with all of the debt covenants under the Credit Agreement.

At June 27, 2020, the Company had no borrowings outstanding and $34,156,000 of letters of credit outstanding under the Credit Agreement.

At June 27, 2020, there was $215,844,000 available for future borrowings under the Credit Agreement.

In addition, the Company has $61,503,000 in letters of credit outstanding as collateral for insurance claims that are secured by investments totaling $68,337,000 at June 27, 2020.

At September 26, 2020, the Company had no borrowings outstanding and $33,618,000 of letters of credit outstanding under the Credit Agreement.

At September 26, 2020, there was $216,382,000 available for future borrowings under the Credit Agreement.

In addition, the Company has $59,434,000 in letters of credit outstanding as collateral for insurance claims that are secured by investments totaling

$66,037,000 at September 26, 2020.

Investments, all of which are carried at fair value, include primarily investment-grade bonds and U.S.

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In addition, a significant portion of the trailing equipment used by the Company is provided by third party capacity providers, thereby reducing the Company’s capital requirements.

During the 2020 twenty-six-week

period, the Company purchased $17,676,000 of operating property.

In addition, during the 2020 twenty-six

week period Landstar acquired $1,440,000 of operating property for which the Company accrued a corresponding liability in accounts payable as of June 27, 2020.

During the 2020 thirty-nine-week period, the Company purchased $25,426,000 of operating property.

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.

In addition, on June 15, 2020, Landstar Blue completed the acquisition of an independent agent of the Company.

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LEGAL MATTERS

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, the Court issued an order granting the voluntary dismissal of this action in full.

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

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Historically, the Company has experienced both favorable and unfavorable development of prior years’ claims estimates.

During the 2020 and 2019 twenty-six-week

periods, insurance and claims costs included $5,039,000 and $2,900,000 of net unfavorable adjustments to prior years’ claims estimates, respectively.

It is reasonably likely that the ultimate outcome of settling all outstanding claims will be more or less than the estimated claims liability at June 27, 2020.

During the 2020 and 2019 thirty-nine-week periods, insurance and claims costs included $6,162,000 and $9,497,000 of net unfavorable adjustments to prior years’ claims estimates, respectively.

It is reasonably likely that the ultimate outcome of settling all outstanding claims will be more or less than the estimated claims liability at September 26, 2020.

Significant variances from management’s estimates for the ultimate resolution of self-insured claims could be expected to positively or negatively affect Landstar’s earnings in a given quarter or year.

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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 2. Management’s Discussion and Analysis