What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-04-30 compared with 2020-10-30 · 81 added, 181 removed, 226 unchanged (54% of the section changed)

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disruptions or failures in the Company’s computer systems;

cyber and other information security

cyber and other information security incidents;

dependence on key vendors;

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and its subsidiary, Landstar System Holdings, Inc.

(together, referred to herein as “Landstar” or the “Company”), is a worldwide asset-light provider of integrated transportation management solutions.

(collectively referred to herein with their subsidiaries and other affiliated companies as “Landstar” or the “Company”), is a worldwide asset-light provider of integrated transportation management solutions.

The Company offers services to its customers across multiple transportation modes, with the ability to arrange for individual shipments of freight to comprehensive third party logistics solutions to meet all of a customer’s transportation needs.

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contractual arrangements (the “Truck Brokerage Carriers”), air cargo carriers, ocean cargo carriers and railroads.

Through this network of agents and capacity providers linked together by Landstar’s series of digital technologies, Landstar operates an integrated transportation management solutions business primarily throughout North America with revenue of $4.1 billion during the most recently completed fiscal year.

Through this network of agents and capacity providers linked together by Landstar’s ecosystem of digital technologies, Landstar operates an integrated transportation management solutions business primarily throughout North America with revenue of $4.1 billion during the most recently completed fiscal year.

The Company reports the results of two operating segments:

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The transportation logistics segment provides a wide range of integrated transportation management solutions.

Transportation services are provided by Landstar’s “Operating Subsidiaries”:

Landstar Ranger, Inc., Landstar Inway, Inc., Landstar Ligon, Inc., Landstar Gemini, Inc., Landstar Transportation Logistics, Inc., Landstar Global Logistics, Inc., Landstar Express America, Inc., Landstar Canada, Inc., Landstar Metro, S.A.P.I.

de C.V., Landstar Servicios, S.A.P.I.

de C.V., and as further described below, Landstar Blue.

Transportation services offered by the Company include truckload and less-than-truckload transportation, rail intermodal, air cargo, ocean cargo, expedited ground and air delivery of time-critical freight, heavy-haul/specialized, U.S.-Canada and U.S.-Mexico cross-border, intra-Mexico, intra-Canada, project cargo and customs brokerage.

Examples of the industries serviced by the transportation logistics segment include automotive parts and assemblies, building products, metals, chemicals, foodstuffs, heavy machinery, retail, electronics and military equipment.

Examples of the industries serviced by the transportation logistics segment include automotive parts and assemblies, consumer durables, building products, metals, chemicals, foodstuffs, heavy machinery, retail, electronics and military equipment.

In addition, the transportation logistics segment provides transportation services to other transportation companies, including third party logistics and less-than-truckload service providers.

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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 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.

(“Landstar Metro”) provides freight and logistics services within the country of Mexico and in conjunction with Landstar’s U.S./Mexico cross-border services.

Landstar Metro Servicios S.A.P.I.

(“Landstar Servicios”) provides various administrative, financial, operational, safety and compliance services to Landstar Metro.

The results of operations from Landstar Metro and Landstar Servicios are presented as part of the Company’s transportation logistics segment.

On January 29, 2019, Landstar acquired all of the remaining equity interests in Landstar Metro and Landstar Servicios held by their former minority equityholders.

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 thirty-nine-week period ended September 26, 2020.

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

formed a new subsidiary that was subsequently renamed Landstar Blue, LLC (“Landstar Blue”).

During the thirteen weeks ended March 27, 2021, revenue generated by BCO Independent Contractors, Truck Brokerage Carriers and railroads represented approximately 44%, 49% and 2%, 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 March 27, 2021.

On May 6, 2020, the Company formed a new subsidiary that was subsequently renamed Landstar Blue, LLC (“Landstar Blue”).

Landstar Blue arranges truckload brokerage services while helping the Company to develop and test digital technologies and processes for the benefit of all Landstar independent commission sales agents.

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

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 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.

On June 15, 2020, Landstar Blue completed the acquisition of an independent agent of the Company whose business focused on truckload brokerage services.

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

Revenue from Landstar Blue represented less than 1% of the Company’s transportation logistics segment revenue in the thirteen-week period ended March 27, 2021.

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

The insurance segment provides risk and claims management services to certain of Landstar’s operating subsidiaries.

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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 1% of the Company’s consolidated revenue for the thirty-nine-week period ended September 26, 2020.

Revenue at the insurance segment represented approximately 1% of the Company’s consolidated revenue for the thirteen-week period ended March 27, 2021.

Changes in Financial Condition and Results of Operations

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

Thirty Nine Weeks Ended

Thirteen Weeks Ended

September 26,

September 28,

September 26,

September 28,

Revenue generated through (in thousands):

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

September 26, 2020

September 28, 2019

March 27, 2021

March 28, 2020

BCO Independent Contractors

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Purchased transportation paid to railroads is based on either a negotiated rate for each load hauled or a contractually agreed-upon fixed rate per load.

Purchased transportation paid to air cargo carriers is generally based on a negotiated rate for each load hauled and purchased transportation paid to ocean cargo carriers is generally based on a contractually agreed-upon fixed rate per load.

Purchased transportation as a percentage of revenue for truck brokerage, rail intermodal and ocean cargo services is normally higher than that of BCO Independent Contractor and air cargo services.

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Under certain contracts with independent commission sales agents, the Company retains a fixed percentage of revenue and the agent retains the amount remaining less the cost of purchased transportation (the “retention contracts”).

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 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.

Gross profit margin on revenue generated from shipments hauled by railroads, air cargo carriers, ocean cargo carriers and Truck Brokerage Carriers, other than those under retention contracts, is variable in nature as the 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 48% of the Company’s consolidated revenue in the thirteen-week period ended March 27, 2021 was generated under contracts that have a fixed gross profit margin while 52% 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.

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With respect to insurance and claims cost, potential liability associated with accidents in the trucking industry is severe and occurrences are unpredictable.

For periods prior to May 1, 2019, Landstar retains liability for commercial trucking claims up to $5,000,000 per occurrence and maintains various third party insurance arrangements for liabilities in excess of its $5,000,000 self-insured retention.

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.

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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).

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.

Moreover, as a result of the Company’s aggregate loss experience since it entered into the Initial Excess Policy, the Initial Excess Policy required the Company to pay additional premium relating to its existing coverage up to a pre-established

maximum amount of $3,500,000, which 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.

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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 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.

During the thirteen-week period ended March 27, 2021, employee compensation and benefits accounted for approximately seventy-three 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:

Thirty Nine Weeks Ended

Thirteen Weeks Ended

September 26,

September 28,

September 26,

September 28,

Purchased transportation

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Indirect costs and expenses:

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

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

Insurance and claims

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Depreciation and amortization

Impairment of intangible and other assets

Total costs and expenses

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and (4) this information facilitates comparisons by investors of the Company’s results to the results of other non-asset

or asset-light companies in the transportation and logistics services industry who report “net revenue” in Management Discussion and Analysis, which represents revenue less the cost of purchased transportation.

The difference between the Company’s use of the term “gross profit” and use of the term “net revenue” by other companies in the transportation and logistics services industry is due to the direct cost of commissions to agents under the Landstar business model, whereas other companies in this industry generally have no commissions to agents.

or asset-light companies in the transportation and logistics services industry who report “net revenue” in Management’s Discussion and Analysis, which represents revenue less the cost of purchased transportation.

The difference between the Company’s use of the term “gross profit” and the use of the term “net revenue” by other companies in the transportation and logistics services industry is due to the direct cost of commissions to agents under the Landstar business model, whereas other companies in this industry generally have no commissions to agents.

Also, as previously mentioned, the Company reports two operating segments:

the transportation logistics segment and the insurance segment.

External revenue at the insurance segment, representing reinsurance premiums, has historically been relatively consistent at 2% or less of consolidated revenue and generally corresponds directly with the number of trucks provided by BCO Independent Contractors.

External revenue at the insurance segment, representing reinsurance premiums, has historically been relatively consistent on an annual basis at 2% or less of consolidated revenue and generally corresponds directly with the number of trucks provided by BCO Independent Contractors.

The discussion of indirect cost line items in Management’s Discussion and Analysis of Financial Condition and Results of Operations considers the Company’s costs on a consolidated basis rather than on a segment basis.

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

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 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 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 $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

rate that does not separately identify fuel surcharges on loads hauled via Truck Brokerage Carriers.

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 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 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 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 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 $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 $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.

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, S.A.

(“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 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 September 26, 2020.

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

THIRTEEN WEEKS ENDED MARCH 27, 2021 COMPARED TO THIRTEEN WEEKS ENDED MARCH 28, 2020

Revenue for the 2021 thirteen-week period was $1,287,534,000, an increase of $359,968,000, or 39%, compared to the 2020 thirteen-week period.

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Reinsurance premiums were $17,035,000 and $13,682,000 for the 2021 and 2020 thirteen-week periods, respectively.

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.

The increase in revenue from reinsurance premiums was primarily attributable to increased premiums from a third party insurance company relating to unladen insurance provided to certain BCO Independent Contractors and an increase in the average number of trucks provided by BCO Independent Contractors in the 2021 thirteen-week period compared to the 2020 thirteen-week period.

Truck transportation revenue generated by BCO Independent Contractors and Truck Brokerage Carriers (together, the “third party truck capacity providers”) for the 2021 thirteen-week period was $1,193,489,000, representing 93% of total revenue, an increase of $338,913,000, or 40%, compared to the 2020 thirteen-week period.

Revenue per load on loads hauled by third party truck capacity providers increased approximately 24% compared to the 2020 thirteen-week period, and the number of loads hauled by third party truck capacity providers increased approximately 13% in the 2021 thirteen-week period compared to the 2020 thirteen-week period.

The increase in revenue per load on loads hauled via truck was primarily due to a tight truck capacity environment during the 2021 thirteen-week period, which resulted in less readily available truck capacity as compared to the 2020 thirteen-week period.

The tight truck capacity environment was exacerbated during fiscal March by the impact of severe winter weather across the United States.

Year-over-year truck revenue per load increased compared to the corresponding period of 2020 by 18%, 19% and 31% for January, February and March, respectively.

Revenue per load on loads hauled via van equipment increased 30%, revenue per load on loads hauled via unsided/platform equipment increased 14% and revenue per load on less-than-truckload loadings increased 5% as compared to the 2020 thirteen-week period.

The increase in the number of loads hauled via truck compared to the 2020 thirteen-week period was due to increased demand for the Company’s truck transportation services, particularly those services provided via van equipment in the 2021 period compared to the 2020 period.

Loads hauled via van equipment increased 17%, loads hauled via unsided/platform equipment increased 5% and less-than-truckload volumes increased 6% as compared to the 2020 thirteen-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 $19,234,000 and $17,196,000 in the 2021 and 2020 thirteen-week periods, respectively.

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.

Transportation revenue generated by rail intermodal, air cargo and ocean cargo carriers (collectively, the “multimode capacity providers”) for the 2021 thirteen-week period was $79,308,000, or 6% of total revenue, an increase of $24,592,000, or 45%, compared to the 2020 thirteen-week period.

Revenue per load on revenue generated by multimode capacity providers increased approximately 29% in the 2021 thirteen-week period compared to the 2020 thirteen-week period, and the number of loads hauled by multimode capacity providers increased approximately 12% over the same period.

Revenue per load on loads hauled by multimode capacity providers increased for all modes, primarily due to strong U.S.

and global economic recoveries coupled with supply chain disruptions.

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.

The increase in the number of loads hauled by multimode capacity providers was primarily due to a 33% increase in air loadings and a 29% increase in ocean loadings.

The 33% increase in air loadings was primarily attributable to increased loadings at one specific agency, while the 29% increase in ocean loadings was broad-based across many customers.

Purchased transportation was 77.5% and 76.5% of revenue in the 2021 and 2020 thirteen-week periods, respectively.

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.

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 and an increased percentage of revenue contributed by Truck Brokerage Carriers, which typically has a higher rate of purchased transportation than revenue generated by BCO Independent Contractors.

Commissions to agents were 7.8% and 8.1% of revenue in the 2021 and 2020 thirteen-week periods, respectively.

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.

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 and a decreased commission rate paid on revenue generated by BCO Independent Contractors due to the elimination as of the end of the 2020 fiscal year of certain incentive commission arrangements formerly paid to agents relating to a discontinued BCO recruitment and retention program.

Investment income was $684,000 and $1,167,000 in the 2021 and 2020 thirteen-week periods, respectively.

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Other operating costs decreased $664,000 in the 2021 thirteen-week period compared to the 2020 thirteen-week period and represented 4.0% of gross profit in the 2021 period compared to 5.8% of gross profit 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.

The decrease in other operating costs compared to the prior year was primarily due to a decreased provision for contractor bad debt and decreased trailing equipment maintenance costs, partially offset by decreased gains on sales of used trailing equipment.

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

Insurance and claims decreased $3,452,000 in the 2021 thirteen-week period compared to the 2020 thirteen-week period and represented 11.4% of gross profit in the 2021 period compared to 17.5% of gross profit in the 2020 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 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.

The decrease in insurance and claims expense compared to the prior year was primarily due to a severe claim incurred in the 2020 period, as well as the impact of net unfavorable development of prior years’ claims in the 2020 thirteen-week period, partially offset by an increase in insurance premiums, primarily for commercial trucking liability coverage.

During the 2021 and 2020 thirteen-week periods, insurance and claims costs included $292,000 of net favorable and $2,223,000 of net unfavorable adjustments to prior years’ claims estimates, respectively.

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

Selling, general and administrative costs increased $81,000 in the 2021 thirteen-week period compared to the 2020 thirteen-week period and represented 24.0% of gross profit in the 2021 period compared to 31.7% of gross profit in the 2020 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 increase in selling, general and administrative costs compared to prior year was attributable to increased stock-based compensation expense, an increased provision for incentive compensation and increased wages, almost entirely offset by a decreased provision for customer bad debt, decreased employee benefit costs, decreased travel and entertainment costs and decreased event costs.

Included in selling, general and administrative costs was stock-based compensation expense of $4,029,000 and $631,000 for the 2021 and 2020 thirteen-week periods, respectively, and incentive compensation expense of $4,289,000 and $2,031,000 for the 2021 and 2020 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.

Depreciation and amortization increased $596,000 in the 2021 thirteen-week period compared to the 2020 thirteen-week period and represented 6.4% of gross profit in the 2021 period compared to 8.0% of gross profit in the 2020 period.

The increase in depreciation and amortization expenses was primarily due to increased depreciation on information technology assets.

The decrease in depreciation and amortization as a percentage of gross profit was due to the effect of increased gross profit, partially offset by the increase in depreciation and amortization.

Interest and debt expense in the 2021 thirteen-week period increased $90,000 compared to the 2020 thirteen-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 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 provisions for income taxes for the 2021 and 2020 thirteen-week periods were based on estimated annual effective income tax rates of 24.4% and 24.2%, respectively, adjusted for discrete events, such as benefits resulting from stock-based awards.

The increase in the estimated annual effective income tax rate was primarily attributable to an increased provision for nondeductible executive compensation during the 2021 period.

The effective income tax rate for the 2021 thirteen-week period was 24.4%, which was higher than the statutory federal income tax rate of 21% primarily attributable to state taxes and nondeductible executive compensation, partially offset by excess tax benefits realized on stock based awards.

The effective income tax rate for the 2020 thirteen-week period was 22.9%, 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 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

The effective income tax rate in the 2020 thirteen-week period of 22.9% 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 $77,240,000, or $2.01 per common share ($2.01 per diluted share), in the 2021 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 $40,895,000, or $1.04 per common share ($1.04 per diluted share), in the 2020 thirteen-week period.

CAPITAL RESOURCES AND LIQUIDITY

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.

Working capital and the ratio of current assets to current liabilities were $474,654,000 and 1.7 to 1, respectively, at March 27, 2021, compared with $402,038,000 and 1.5 to 1, respectively, at December 26, 2020.

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 $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.

Cash provided by operating activities was $69,891,000 in the 2021 thirteen-week period compared with $99,216,000 in the 2020 thirteen-week period.

The decrease in cash flow provided by operating activities was primarily attributable to the 39% increase in revenue year-over-year, which increased net receivables, defined as accounts receivable less accounts payable.

The Company declared and paid $0.21 per share, or $8,067,000 in the aggregate, in cash dividends during the thirteen-week period ended March 27, 2021 and, during such period, also paid $76,770,000 of dividends payable which were declared during fiscal year 2020 and included in current liabilities in the consolidated balance sheet at December 26, 2020.

The Company declared and paid $0.185 per share, or $7,336,000 in the aggregate, in cash dividends during the thirteen-week period ended March 28, 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.

During the thirteen-week period ended March 27, 2021, the Company did not purchase any shares of its common stock.

During the thirteen-week period ended March 28, 2020, the Company purchased 1,178,970 shares of its common stock at a total cost of $115,962,000.

As of March 27, 2021, 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 $90,996,000 at March 27, 2021, $9,778,000 lower than at December 26, 2020.

Shareholders’ equity was $762,919,000, or 89% of total capitalization (defined as long-term debt including current maturities plus equity), at March 27, 2021, compared to $691,835,000, or 87% of total capitalization, at December 26, 2020.

The increase in shareholders’ equity was primarily the result of net income, partially offset by dividends declared by the Company in the 2021 thirteen-week period.

On August 18, 2020, Landstar entered into an amended and restated 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 August 18, 2023, 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.

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

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.

At March 27, 2021, the Company had no borrowings outstanding and $33,620,000 of letters of credit outstanding under the Credit Agreement.

At March 27, 2021, there was $216,380,000 available for future borrowings under the Credit Agreement.

In addition, the Company has $64,934,000 in letters of credit outstanding as collateral for insurance claims that are secured by investments totaling $72,149,000 at March 27, 2021.

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 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.

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

During the 2021 thirteen-week period, the Company purchased $4,076,000 of operating property.

Landstar anticipates acquiring either by purchase or lease financing during the remainder of fiscal year 2021 approximately $107,000,000 in operating property, consisting primarily of new trailing equipment to replace older trailing equipment and information technology equipment.

Management believes that cash flow from operations combined with the Company’s borrowing capacity under the Credit Agreement will be adequate to meet Landstar’s debt service requirements, fund continued growth, both internal and through acquisitions, pay dividends, complete the authorized share purchase programs and meet working capital needs.

LEGAL MATTERS

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

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.

It is reasonably likely that the ultimate outcome of settling all outstanding claims will be more or less than the estimated claims liability at March 27, 2021.

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.

However, management believes that the ultimate resolution of these items, given a range of reasonably likely outcomes, will not significantly affect the long-term financial condition of Landstar or its ability to fund its continuing operations.

EFFECTS OF INFLATION

Management does not believe inflation has had a material impact on the results of operations or financial condition of Landstar in the past five years.

However, inflation in excess of historic trends might have an adverse effect on the Company’s results of operations in the future.

Landstar’s operations are subject to seasonal trends common to the trucking industry.

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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