What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-02-18 compared with 2021-02-23 · 232 added, 158 removed, 268 unchanged (59% of the section changed)

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regulations focused on diesel emissions and other air quality matters;

catastrophic loss of a Company facility;

intellectual property;

unclaimed property;

and other operational, financial or legal risks or uncertainties detailed in this and Landstar’s other SEC filings from time to time and described in Item 1A in this Form 10-K

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and its subsidiary, Landstar System Holdings, Inc.

(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.

(collectively referred to herein with their subsidiaries and other affiliated companies as “Landstar” or the “Company”), is a worldwide technology-enabled, 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.

Landstar provides services principally throughout the United States and to a lesser extent in Canada and Mexico, and between the United States and Canada, Mexico and other countries around the world.

The Company’s services emphasize safety, information coordination and customer service and are delivered through a network of over 1,100 independent commission sales agents and approximately 79,000 third party capacity providers, primarily truck capacity providers, linked together by a series of digital technologies which are provided and coordinated by the Company.

The Company’s services emphasize safety, information coordination and customer service and are delivered through a network of over 1,200 independent commission sales agents and over 101,000 third party capacity providers, primarily truck capacity providers, linked together by a series of digital technologies which are provided and coordinated by the Company.

The nature of the Company’s business is such that a significant portion of its operating costs varies directly with revenue.

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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 $6.5 billion during the most recently completed fiscal year.

The Company reports the results of two operating segments:

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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., and as further described below, Landstar Metro, Landstar Servicios and 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, consumer durables, building products, metals, chemicals, foodstuffs, heavy machinery, retail, electronics and military equipment.

Transportation services offered by the Company include truckload and less-than-truckload and other truck 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.

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.

Each of the independent commission sales agents has the opportunity to market all of the services provided by the transportation logistics segment.

The independent commission sales agents market services provided by the transportation logistics segment.

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.

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During 2017, the Company incorporated Landstar Metro, S.A.P.I.

de C.V., a transportation logistics company (“Landstar Metro”), and Landstar Metro Servicios S.A.P.I.

de C.V., a services company (“Landstar Servicios”), each based in Mexico City, Mexico.

de C.V., a transportation logistics company (“Landstar Metro”), based in Mexico City, Mexico.

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 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.

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

On September 20, 2017, Landstar Metro acquired substantially all of the assets of the asset-light transportation logistics business of a Mexican transportation logistics company.

In connection with the acquisition, individuals affiliated with the seller subscribed for equity interests in Landstar Metro and Landstar Servicios, and as of December 29, 2018, owned in the aggregate approximately 21% of the equity interests of each of them.

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.

In connection with the acquisition, individuals affiliated with the seller subscribed for equity interests in Landstar Metro, and as of December 29, 2018, owned in the aggregate approximately 21% of its equity interests.

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

Accordingly, as of such date, Landstar Metro became a wholly owned subsidiary of the Company.

Revenue from Landstar Metro represented less than 1% of the Company’s transportation logistics segment revenue during fiscal year 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.

Landstar Blue arranges truckload brokerage services with a focus on the contract services market.

Landstar Blue also helps the Company to develop and test digital technologies and processes for the benefit of all Landstar independent commission sales agents.

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

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Management believes the Company’s success principally depends on its ability to generate freight through its network of independent commission sales agents and to safely and efficiently deliver that freight utilizing third party capacity providers.

Management believes the most significant factors to the Company’s success include increasing revenue, sourcing capacity and controlling costs, including insurance and claims.

Management believes the most significant factors to the Company’s success include increasing revenue, sourcing capacity, enabling technology-based tools and controlling costs, including insurance and claims.

While customer demand, which is subject to overall economic conditions, ultimately drives increases or decreases in revenue, the Company primarily relies on its independent commission sales agents to establish customer relationships and generate revenue opportunities.

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The change in the number of Million Dollar Agents on a year-over-year basis is influenced by many factors and is not solely the result of terminations of contractual relationships between agents and the Company, whether such terminations are initiated by the agent or the Company.

Such other factors include consolidations among agencies or transactions in connection with ownership changes often due to retirement planning, estate planning or similar transitional issues.

Such other factors include consolidations among agencies or transactions in connection with ownership changes often due to retirement planning, estate planning or similar transitional matters.

The change in the number of Million Dollar Agents on a year-over-year basis may also be affected by agents that remain with the Company yet experienced lower year-over-year revenue that resulted in such agent moving below the Million Dollar Agent category.

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pandemic impacted the number of agents generating under $5 million of Landstar revenue both with respect to existing agents, some of whom had difficulty operating their small businesses during the pandemic due to personal issues, staffing issues and/or customer issues, and with respect to the Company’s ability to recruit new independent sales agents to the Landstar network, given the uncertain operating environment and challenges we experienced in building personal relationships with prospective agent candidates during the pandemic.

In fiscal year 2021, the change in the number of Million Dollar Agents was attributable to growth in existing agents who were former Million Dollar Agents whose businesses were temporarily impacted in fiscal year 2020 by the COVID-19

pandemic as well as new agents and existing agents who were not formerly Million Dollar Agents.

Included among the Company’s Million Dollar Agents in the 2021 fiscal year, the Company had 115 independent sales agencies that generated at least $10 million in Landstar revenue.

Management monitors business activity by tracking the number of loads (volume) and revenue per load by mode of transportation.

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Less-than-truckload

Other truck transportation (1)

Total truck transportation

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Less-than-truckload

Other truck transportation (1)

Total truck transportation

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Less-than-truckload

Other truck transportation (1)

Total truck transportation

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Ocean and air cargo carriers

Includes power-only, expedited, straight truck, cargo van, and miscellaneous other truck transportation revenue generated by the transportation logistics segment.

Power-only refers to shipments where the Company furnishes a power unit and an operator but not trailing equipment, which is typically provided by the shipper or consignee.

Includes primarily reinsurance premium revenue generated by the insurance segment and intra-Mexico transportation services revenue generated by Landstar Metro.

Purchased transportation

Also critical to the Company’s success is its ability to secure capacity, particularly truck capacity, at rates that allow the Company to profitably transport customers’ freight.

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Active refers to Truck Brokerage Carriers who moved at least one load in the 180 days immediately preceding the fiscal year end.

The Company incurs costs that are directly related to the transportation of freight that include purchased transportation and commissions to agents.

The Company incurs indirect costs associated with the transportation of freight that include other operating costs and insurance and claims.

In addition, the Company incurs selling, general and administrative costs essential to administering its business operations.

Management continually monitors all components of the costs incurred by the Company and establishes annual cost budgets which, in general, are used to benchmark costs incurred on a monthly basis.

Purchased transportation represents the amount a BCO Independent Contractor or other third party capacity provider is paid to haul freight.

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Purchased transportation costs are recognized over the freight transit period as the performance obligation to the customer is completed.

Commissions to agents are based on contractually agreed-upon percentages of revenue or net revenue, defined as revenue less the cost of purchased transportation, or net revenue less a contractually agreed upon percentage of revenue retained by Landstar.

Commissions to agents as a percentage of consolidated revenue will vary directly with fluctuations in the percentage of consolidated revenue generated by the various modes of transportation and reinsurance premiums and with changes in net revenue margin, defined as net revenue divided by revenue, on services provided by Truck Brokerage Carriers, railroads, air cargo carriers and ocean cargo carriers.

Commissions to agents

Commissions to agents are based on contractually agreed-upon percentages of (i) revenue, (ii) revenue less the cost of purchased transportation, or (iii) revenue less a contractually agreed upon percentage of revenue retained by Landstar and the cost of purchased transportation (the “retention contracts”).

Commissions to agents as a percentage of consolidated revenue vary directly with fluctuations in the percentage of consolidated revenue generated by the various modes of transportation and reinsurance premiums and, in general, vary inversely with changes in the amount of purchased transportation as a percentage of revenue on services provided by Truck Brokerage Carriers, railroads, air cargo carriers and ocean cargo carriers.

Commissions to agents are recognized over the freight transit period as the performance obligation to the customer is completed.

The Company defines gross profit as revenue less the cost of purchased transportation and commissions to agents.

Gross profit divided by revenue is referred to as gross profit margin.

The Company’s operating margin is defined as operating income divided by gross profit.

In general, gross profit margin on revenue generated by BCO Independent Contractors represents a fixed percentage of revenue due to the nature of the contracts that pay a fixed percentage of revenue to both the BCO Independent Contractors and independent commission sales agents.

For revenue generated by Truck Brokerage Carriers, gross profit margin is either fixed or variable as a percent of revenue, depending on the contract with each individual independent commission sales agent.

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”).

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 50% of the Company’s consolidated revenue in fiscal year 2020 was generated under contracts that have a fixed gross profit margin while 50% was under contracts that have a variable gross profit margin.

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

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

Also included in other operating costs are trailer rental costs, the provision for uncollectible advances and other receivables due from BCO Independent Contractors and independent commission sales agents and gains/losses, if any, on sales of Company-owned trailing equipment.

Insurance and claims

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

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 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

For periods prior to May 1, 2019, Landstar retains liability for commercial trucking claims up to $5 million per occurrence and maintains various third party insurance arrangements for liabilities in excess of its $5 million 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 million and $10 million (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 provides for a limit for a single loss of $5 million, with an aggregate limit of $15 million for each policy year, an aggregate limit of $20 million for the thirty-six

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

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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).

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 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.

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

maximum amount of $3.5 million, 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 million.

These third party arrangements provide coverage on a per occurrence or aggregated basis.

Due to the increasing cost of commercial auto liability claims throughout the United States in recent years, the availability of such excess coverage has significantly decreased and the pricing associated with such excess coverage, to the extent available, has significantly increased.

Effective May 1, 2020 with respect to the annual policy year ending April 30, 2021, the Company experienced an increase of approximately $14 million, or over 170%, in the premiums charged by third party insurance companies to the Company for excess coverage for commercial trucking liabilities in excess of $10,000,000.

In recent years, there has been a significant increase in the occurrence of trials in courts throughout the United States involving catastrophic injury and fatality claims against commercial motor carriers that have resulted in verdicts in excess of $10 million.

Within the transportation logistics industry, these verdicts are often referred to as “Nuclear Verdicts.” The increase in Nuclear Verdicts has had a significant impact on the cost of commercial auto liability claims throughout the United States.

Due to the increasing cost of commercial auto liability claims, the availability of excess coverage has significantly decreased, and the pricing associated with such excess coverage, to the extent available, has significantly increased.

With respect to the annual policy year ending April 30, 2021, as compared to the annual policy year ended April 30, 2020, the Company experienced an increase of approximately $14 million, or over 170%, in the premiums charged by third party insurance companies to the Company for excess coverage for commercial trucking liabilities in excess of $10 million.

Effective May 1, 2021, with respect to the annual policy year ending April 30, 2022, as compared to the annual policy year ended April 30, 2021, the Company experienced an increase of approximately $3 million, or 19%, in the premiums charged by third party insurance companies to the Company for excess coverage for commercial trucking liabilities in excess of $10 million.

Moreover, the Company increased the level of its financial exposure to commercial trucking claims in excess of $10 million, including through the use of additional self-insurance, deductibles, aggregate loss limits, quota shares and other arrangements with third party insurance companies, based on the availability of coverage within certain excess insurance coverage layers and estimated cost differentials between proposed premiums from third party insurance companies and historical and actuarially projected losses experienced by the Company at various levels of excess insurance coverage.

For example, with respect to a hypothetical claim in the amount of $100 million incurred during the annual policy year ending April 30, 2022, the Company would have an aggregate financial exposure of approximately $18 million.

Furthermore, the Company’s third party insurance arrangements provide excess coverage up to an uppermost coverage layer, in excess of which the Company retains additional financial exposure.

No assurances can be given that the availability of excess coverage for commercial trucking claims will not continue to deteriorate, that the pricing associated with such excess coverage, to the extent available, will not continue to increase, nor that insurance coverage from third party insurers for excess coverage of commercial trucking claims will even be available on commercially reasonable terms at certain levels.

Moreover, the occurrence of a Nuclear Verdict, or the settlement of a catastrophic injury and/or fatality claim that could have otherwise resulted in a Nuclear Verdict, could have a material adverse effect on Landstar’s cost of insurance and claims and its results of operations.

Further, the Company retains liability of up to $1,000,000 for each general liability claim, up to $250,000 for each workers’ compensation claim and up to $250,000 for each cargo claim.

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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 2020 fiscal year, employee compensation and benefits accounted for approximately sixty-six

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

Selling, general and administrative

During the 2021 fiscal year, employee compensation and benefits accounted for approximately 75% of the Company’s selling, general and administrative costs.

Employee compensation and benefits include wages and employee benefit costs as well as incentive compensation and stock-based compensation expense.

Incentive compensation and stock-based compensation expense is highly variable in nature in comparison to wages and employee benefit costs.

Depreciation and amortization

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:

Costs of revenue

The Company incurs costs of revenue related to the transportation of freight and, to a much lesser extent, to reinsurance premiums received by Signature.

Costs of revenue include variable costs of revenue and other costs of revenue.

Variable costs of revenue include purchased transportation and commissions to agents, as these costs are entirely variable on a shipment-by-shipment

Other costs of revenue include fixed costs of revenue and semi-variable costs of revenue, where such costs may vary over time based on certain economic factors or operational metrics such as the number of Company-controlled trailers, the number of BCO Independent Contractors, the frequency and severity of insurance claims, the number of miles traveled by BCO Independent Contractors, or the number and/or scale of information technology projects in process or in-service

to support revenue generating activities, rather than on a shipment-by-shipment

Other costs of revenue associated with the transportation of freight include:

(i) other operating costs, primarily consisting of trailer maintenance and BCO Independent Contractor recruiting and qualification costs, as reported in the Company’s Consolidated Statements of Income, (ii) transportation-related insurance premiums paid and claim costs incurred, included as a portion of insurance and claims in the Company’s Consolidated Statements of Income, (iii) costs incurred related to internally developed software including ASC 350-40

amortization, implementation costs, hosting costs and other support costs utilized to support our independent commission sales agents, third party capacity providers, and customers, included as a portion of depreciation and amortization and of selling, general and administrative in the Company’s Consolidated Statements of Income;

and (iv) depreciation on Company-owned trailing equipment, included as a portion of depreciation and amortization in the Company’s Consolidated Statements of Income.

Other costs of revenue associated with reinsurance premiums received by Signature are comprised of broker commissions and other fees paid related to the administration of insurance programs to BCO Independent Contractors and are included in selling, general and administrative in the Company’s Consolidated Statements of Income.

In addition to costs of revenue, the Company incurs various other costs relating to its business, including most selling, general and administrative costs and portions of costs attributable to insurance and claims and depreciation and amortization.

Management continually monitors all components of the costs incurred by the Company and establishes annual cost budgets that, in general, are used to benchmark costs incurred on a monthly basis.

Gross Profit, Variable Contribution, Gross Profit Margin and Variable Contribution Margin

The following table sets forth calculations of gross profit, defined as revenue less costs of revenue, and gross profit margin defined as gross profit divided by revenue, for the periods indicated.

The Company refers to revenue less variable costs of revenue as “variable contribution” and variable contribution divided by revenue as “variable contribution margin”.

Variable contribution and variable contribution margin are each non-GAAP

financial measures.

The closest comparable GAAP financial measures to variable contribution and variable contribution margin are, respectively, gross profit and gross profit margin.

The Company believes variable contribution and variable contribution margin are useful measures of the variable costs that we incur at a shipment-by-shipment

level attributable to our transportation network of third-party capacity providers and independent commission sales agents in order to provide services to our customers.

The Company believes variable contribution and variable contribution margin are important performance measurements and management considers variable contribution and variable contribution margin in evaluating the Company’s financial performance and in its decision-making, such as budgeting for infrastructure, trailing equipment and selling, general and administrative costs.

The reconciliations of gross profit to variable contribution and gross profit margin to variable contribution margin are each presented below:

Costs of revenue:

Purchased transportation

Commissions to agents

Variable costs of revenue

Trailing equipment depreciation

Information technology costs

Insurance-related costs (1)

Other operating costs

Other costs of revenue

Total costs of revenue

Gross profit margin

Investment income

Indirect costs and expenses:

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

Insurance and claims

Selling, general and administrative

Depreciation and amortization

Impairment of intangible and other assets

Commission program termination costs

Total costs and expenses

Operating margin

Management believes that a discussion of indirect costs as a percentage of gross profit is useful and meaningful to investors for the following principal reasons:

(1) disclosure of these relative measures (i.e., each indirect operating cost line item as a percentage of gross profit) allows investors to better understand the underlying trends in the Company’s results of operations;

(2) due to the generally fixed nature of these indirect costs (other than insurance and claims costs), these relative measures are meaningful to investors’ evaluations of the Company’s management of its indirect costs attributable to operations;

(3) management considers this financial information in its decision-making, such as budgeting for infrastructure, trailing equipment and selling, general and administrative costs;

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’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.

other costs of revenue

Variable contribution

Variable contribution margin

Insurance-related costs in the table above include (i) other costs of revenue related to the transportation of freight that are included as a portion of insurance and claims in the Company’s Consolidated Statements of Income and (ii) certain other costs of revenue related to reinsurance premiums received by Signature that are included as a portion of selling, general and administrative in the Company’s Consolidated Statements of Income.

Insurance and claims costs included in other costs of revenue relating to the transportation of freight primarily consist of insurance premiums paid for commercial auto liability, general liability, cargo and other lines of coverage related to the transportation of freight and the related cost of claims incurred under those programs, and, to a lesser extent, the cost of claims incurred under insurance programs available to BCO Independent Contractors that are reinsured by Signature.

Other insurance and claims costs included in costs of revenue that are included in selling, general and administrative in the Company’s Consolidated Statements of Income consist of brokerage commissions and other fees incurred by Signature relating to the administration of insurance programs available to BCO Independent Contractors that are reinsured by Signature.

In general, variable contribution margin on revenue generated by BCO Independent Contractors represents a fixed percentage due to the nature of the contracts that pay a fixed percentage of revenue to both the BCO Independent Contractors and independent commission sales agents.

For revenue generated by Truck Brokerage Carriers, variable contribution margin may be either a fixed or variable percentage, depending on the contract with each individual independent commission sales agent.

Variable contribution 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 the amount represented by revenue less purchased transportation for these types of shipments.

Approximately 44% of the Company’s consolidated revenue in fiscal year 2021 was generated under transactions that pay a fixed percentage of revenue to the third party capacity provider and/or agents while 56% was generated under transactions that pay a variable percentage of revenue to the third party capacity provider and/or agents.

Operating income as a percentage of gross profit and operating income as a percentage of variable contribution

The following table presents operating income as a percentage of gross profit and operating income as a percentage of variable contribution.

The Company’s operating income as a percentage of variable contribution is a non-GAAP

financial measure calculated as operating income divided by variable contribution.

The Company believes that operating income as a percentage of variable contribution is useful and meaningful to investors for the following principal reasons:

(i) the variable costs of revenue for a significant portion of the business are highly influenced by short-term market-based trends in the freight transportation industry, whereas other costs, including other costs of revenue, are much less impacted by short-term freight market trends;

(ii) disclosure of this measure allows investors to better understand the underlying trends in the Company’s results of operations;

(iii) this measure is meaningful to

investors’ evaluations of the Company’s management of costs attributable to operations other than the purely variable costs associated with purchased transportation and commissions to agents that the Company incurs to provide services to our customers;

and (iv) management considers this financial information in its decision-making, such as budgeting for infrastructure, trailing equipment and selling, general and administrative costs.

Operating income

Operating income as % of gross profit

Variable contribution

Operating income

Operating income as % of variable contribution

The increase in operating income as a percentage of gross profit from fiscal year 2020 to fiscal year 2021 resulted from operating income increasing at a more rapid percentage rate than the increase in gross profit, as the Company was able to scale our fixed cost infrastructure, primarily certain components of selling, general and administrative costs, across a larger gross profit base.

The decrease in operating income as a percentage of gross profit from fiscal year 2019 to fiscal year 2020 resulted from operating income decreasing at a more rapid percentage rate than the decrease in gross profit, primarily due to the impact of one-time

costs related to buyouts of certain agent incentive commission arrangements and impairment charges.

The increase in operating income as a percentage of variable contribution from fiscal year 2020 to fiscal year 2021 resulted from operating income increasing at a more rapid percentage rate than the increase in variable contribution, as the Company was able to scale our fixed cost infrastructure, primarily certain components of selling, general and administrative costs, as well as our other costs of revenue, across a larger variable contribution base.

The decrease in operating income as a percentage of variable contribution from fiscal year 2019 to fiscal year 2020 resulted from operating income decreasing at a more rapid percentage rate than the decrease in variable contribution, primarily due to the impact of one-time

costs related to buyouts of certain agent incentive commission arrangements and impairment charges.

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

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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.

The discussion of 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.

Management believes this presentation format is the most appropriate to assist users of the financial statements in understanding the Company’s business for the following reasons:

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Transportation revenue increased $2,389,192,000, or 59%.

The increase in transportation revenue was attributable to an increased revenue per load of approximately 3%, partially offset by a decreased number of loads hauled of approximately 2% in fiscal year 2020 compared to fiscal year 2019.

The increase in transportation revenue was attributable to increased revenue per load of approximately 29% and an increased number of loads hauled of approximately 23% compared to fiscal year 2020.

The significant increase in revenue in 2021 from 2020 was primarily related to two factors:

(1) consumer demand for durable goods

and e-commerce

drove revenue during the 2021 period to record levels;

and (2) ongoing supply chain disruptions in connection with the impact of the COVID-19

pandemic on the U.S.

In particular, the adverse impact of the COVID-19

pandemic on demand for the Company’s truck transportation services significantly accelerated during the last week of the Company’s 2020 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 2020 fiscal year and significantly accelerated in fiscal year 2021.

This significant, rapid decrease in demand early in the pandemic was followed by a substantially longer and greater sequential increase in demand that was unprecedented in the history of the Company.

Reinsurance premiums were $71,857,000 and $56,462,000 for fiscal years 2021 and 2020, respectively.

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 fiscal year 2021 compared to fiscal year 2020.

Truck transportation revenue generated by BCO Independent Contractors and Truck Brokerage Carriers (together, the “third party truck capacity providers”) for fiscal year 2021 was $5,963,218,000, representing 91% of total revenue, an increase of $2,147,437,000, or 56%, compared to fiscal year 2020.

Revenue per load on loads hauled by third party truck capacity providers increased approximately 27% compared to fiscal year 2020, and the number of loads hauled by third party truck capacity providers increased approximately 23% over the same period.

The increase in revenue per load on loads hauled via truck was primarily due to an extremely tight truck capacity environment experienced during fiscal year 2021.

During fiscal year 2021, the demand for truck capacity, particularly with respect to van capacity, increased more rapidly than the supply of available truck capacity in the marketplace as the U.S.

economy recovered from the impact of the COVID-19

pandemic coupled with the impact of domestic supply chain disruptions.

Revenue per load on loads hauled via van equipment increased 29%, revenue per load on loads hauled via unsided/platform equipment increased 22%, revenue per load on less-than-truckload loadings increased 7% and revenue per load on loads hauled via other truck transportation increased 30% as compared to fiscal year 2020.

The increase in the number of loads hauled via truck compared to fiscal year 2020 was due to a broad-based increase in demand for the Company’s truck transportation services during fiscal year 2021, particularly those services provided via van equipment and other truck transportation loadings, primarily power-only, compared to fiscal year 2020.

Loads hauled via van equipment increased 25%, loads hauled via unsided/platform equipment increased 14%, loads hauled via less-than-truckload increased 13% and loads hauled via other truck transportation increased 46% as compared to fiscal year 2020.

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 $107,776,000 and $60,118,000 in fiscal years 2021 and 2020, 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 fiscal year 2021 was $487,134,000, or 7% of total revenue, an increase of $240,641,000, or 98%, compared to fiscal year 2020.

Revenue per load on revenue generated by multimode capacity providers increased approximately 65% in fiscal year 2021 compared to fiscal year 2020, and the number of loads hauled by multimode capacity providers increased approximately 20% 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 the impact of global supply chain disruptions which were particularly acute with respect to international ocean and air freight.

Revenue per load on loads hauled via ocean, air and rail intermodal increased 86%, 54% and 24%, respectively, during fiscal year 2021 as compared to fiscal year 2020.

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 due to a broad-based increase in demand across many customers for the Company’s rail, air and ocean service offerings during fiscal year 2021.

Purchased transportation was 78.2% and 77.3% of revenue in fiscal years 2021 and 2020, respectively.

The increase in purchased transportation as a percentage of revenue was primarily due to 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, and an increased rate of purchased transportation on revenue generated by Truck Brokerage Carriers, partially offset by a decreased rate of

purchased transportation paid on revenue generated by BCO Independent Contractor due to (i) an increased percentage of revenue generated by BCO Independent Contractors who use Landstar-owned trailers and (ii) the impact of COVID-19

pandemic relief incentive payments in fiscal year 2020.

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 7.8% and 8.2% of revenue in fiscal years 2021 and 2020, respectively.

The decrease in commissions to agents as a percentage of revenue was primarily attributable to an increased cost of purchased transportation as a percentage of revenue 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 and the impact of the COVID-19

pandemic relief incentive payments to agents included in fiscal year 2020.

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

pandemic relief incentive payments during fiscal year 2020.

Investment income was $2,857,000 and $3,399,000 in fiscal years 2021 and 2020, respectively.

The decrease in investment income was primarily attributable to lower average rates of return on investments during fiscal year 2021, partially offset by a higher average investment balance held by the insurance segment during fiscal year 2021.

Other operating costs increased $6,068,000 in fiscal year 2021 compared to fiscal year 2020.

The increase in other operating costs compared to the prior year was primarily due to increased trailing equipment maintenance costs, increased BCO recruiting and qualification costs, decreased gains on sales of used trailing equipment, the impact of the resumption of an event for the Company’s BCO Independent Contractors that was cancelled in 2020 due to the COVID-19

pandemic and increased payments of up to $2,000 made to BCO Independent Contractors who tested positive for COVID-19

and were placed out of service.

Insurance and claims increased $17,690,000 in fiscal year 2021 compared to fiscal year 2020.

The increase in insurance and claims expense compared to the prior year was primarily due to an increase in insurance premiums, primarily for commercial trucking liability coverage, in fiscal year 2021, increased severity of current year trucking claims during the 2021 period and an increase in BCO miles traveled in fiscal year 2021, partially offset by a $5,000,000 charge for the Company’s self-insured retention with respect to a tragic vehicular accident involving a fatality during fiscal year 2020 and a $3,500,000 charge relating to additional premium the Company was required to pay under the Initial Excess Policy in connection with certain aggregated losses incurred during fiscal year 2020.

During fiscal years 2021 and 2020, insurance and claims costs included $9,708,000 and $9,196,000 of net unfavorable adjustments to prior years’ claims estimates, respectively.

Selling, general and administrative costs increased $53,645,000 in fiscal year 2021 compared to fiscal year 2020.

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, partially offset by a decreased provision for customer bad debt.

Included in selling, general and administrative costs was stock-based compensation expense of $27,537,000 and $4,639,000 for fiscal years 2021 and 2020, respectively, and incentive compensation expense of $29,361,000 and $7,841,000 for fiscal years 2021 and 2020, respectively.

Depreciation and amortization increased $3,754,000 in fiscal year 2021 compared to fiscal year 2020.

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

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

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

(“Fletes Avella”).

There was no corresponding goodwill impairment charge recorded as the fair value of the Company’s Mexico and cross-border reporting unit continued to significantly exceed its carrying value as of December 26, 2020.

During the 2020 fourth fiscal quarter, the Company recorded commission program termination costs of $15,494,000 related to buyouts of certain incentive commission arrangements with several of its independent sales agents due to the Company’s discontinuation of a truck owner-operator recruitment and retention program formerly involving those agents.

Interest and debt expense in fiscal year 2021 increased $23,000 compared to fiscal year 2020.

The provisions for income taxes for fiscal years 2021 and 2020 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 actual effective income tax rate for fiscal year 2021 was 24.0%, 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 actual effective income tax rate for fiscal year 2020 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 favorable resolution of certain tax matters during the 2020 fiscal year and state tax refunds.

The effective income tax rate in fiscal year 2021 of 24.0% was lower than the 24.4% estimated annual effective income tax rate primarily due to excess tax benefits recognized on stock-based compensation arrangements in fiscal year 2021.

The effective income tax rate in fiscal year 2020 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, the favorable resolution of certain tax matters during the 2020 fiscal year and state tax refunds in the 2020 fiscal year.

Net income was $381,524,000, or $9.98 per diluted share, in fiscal year 2021.

Net income was $192,106,000, or $4.98 per diluted share, in fiscal year 2020.

Net income during fiscal year 2020 was unfavorably impacted by $15,494,000, or $0.31 per diluted share, related to a one-time

cost to buyout certain incentive commission arrangements with several agents, $12,593,000, or $0.25 per diluted share, related to the impact of the COVID-19

pandemic relief incentive payments and $2,582,000, or $0.05 per diluted share, of non-cash

impairment charges related to certain assets, primarily customer contract and related customer relationship intangible assets of the Company’s Mexico subsidiaries.

Fiscal Year Ended December 26, 2020 Compared to Fiscal Year Ended December 28, 2019

Revenue for fiscal year 2020 was $4,132,981,000, an increase of $48,404,000, or 1%, compared to fiscal year 2019.

Transportation revenue increased $48,183,000, or 1%.

Reinsurance premiums were $56,462,000 and $56,241,000 for fiscal years 2020 and 2019, respectively.

Truck transportation revenue generated by third party truck capacity providers for fiscal year 2020 was $3,815,781,000, representing 92% of total revenue, an increase of $50,452,000, or 1%, compared to fiscal year 2019.

Revenue per load on loads hauled by third party truck capacity providers increased approximately 3% in fiscal year 2020 compared to fiscal year 2019, while the number of loads hauled by third party truck capacity providers decreased approximately 2% in fiscal year 2020 compared to fiscal year 2019.

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Also adversely impacting revenue per load on loads hauled via unsided/platform equipment was a decrease in revenue per load on heavy specialized loadings of 10% in the 2020 fiscal year compared to the 2019 fiscal year.

Additionally, revenue per load on less-than-truckload loadings decreased 5% from fiscal year 2019 to fiscal year 2020.

Additionally, revenue per load on less-than-truckload loadings decreased 5% while revenue per load on loads hauled via other truck transportation increased 17% from fiscal year 2019 to fiscal year 2020.

During fiscal year 2020 as compared to fiscal year 2019, loads hauled via van equipment decreased 2% and loads hauled via unsided/platform equipment decreased 7%, for similar reasons as described above with respect to the overall decrease in the number of loads hauled via truck in fiscal year 2020 compared to fiscal year 2019.

Less-than-truckload volumes increased 5% in fiscal year 2020 compared to fiscal year 2019.

Less-than-truckload volumes increased 5% and loads hauled via other truck transportation increased 9% in fiscal year 2020 compared to fiscal year 2019.

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

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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 fiscal year 2020 was $246,493,000, or 6% of total revenue, an increase of $6,703,000, or 3%, compared to fiscal year 2019.

Transportation revenue generated by multimode capacity providers for fiscal year 2020 was $246,493,000, or 6% of total revenue, an increase of $6,703,000, or 3%, compared to fiscal year 2019.

Revenue per load on revenue generated by multimode capacity providers increased approximately 2% in the 2020 fiscal year compared to the 2019 fiscal year, and the number of loads hauled by multimode capacity providers increased approximately 1% over the same period.

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The decrease in investment income was primarily attributable to lower average rates of return on investments during fiscal year 2020, partially offset by a slightly higher average investment balance held by the insurance segment during fiscal year 2020.

Other operating costs decreased $6,811,000 in fiscal year 2020 compared to fiscal year 2019 and represented 5.1% of gross profit in fiscal year 2020 compared to 6.1% in fiscal year 2019.

Other operating costs decreased $6,811,000 in fiscal year 2020 compared to fiscal year 2019.

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

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costs due to the impact of the COVID-19

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 $7,454,000 in fiscal year 2020 compared to fiscal year 2019 and represented 14.6% of gross profit in fiscal year 2020 compared to 13.1% in fiscal year 2019.

Insurance and claims increased $7,454,000 in fiscal year 2020 compared to fiscal year 2019.

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 additional premium the Company paid 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 fiscal years 2020 and 2019, insurance and claims costs included $9,196,000 and $16,679,000 of net unfavorable adjustments to prior years’ claims estimates, respectively.

The increase in insurance and claims as a percentage 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 $8,680,000 in fiscal year 2020 compared to fiscal year 2019 and represented 28.0% of gross profit in fiscal year 2020 compared to 25.9% of gross profit in fiscal year 2019.

Selling, general and administrative costs increased $8,680,000 in fiscal year 2020 compared to fiscal year 2019.

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 travel and entertainment costs related to the impact of the COVID-19

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Included in selling, general and administrative costs was incentive compensation expense of $7,841,000 and $1,517,000 for the 2020 and 2019 fiscal years, respectively.

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

Depreciation and amortization increased $1,387,000 in fiscal year 2020 compared to fiscal year 2019 and represented 7.7% of gross profit in fiscal year 2020 compared to 7.2% of gross profit in fiscal year 2019.

Depreciation and amortization increased $1,387,000 in fiscal year 2020 compared to fiscal year 2019.

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 increased depreciation and the effect of decreased gross profit.

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

impairment charge of $2,582,000, representing 0.4% of gross profit, in respect of certain assets, primarily customer contract and related customer relationship intangible assets, acquired on September 20, 2017, along with substantially all of the other assets of the asset-light transportation logistics business of Fletes Avella, S.A.

(“Fletes Avella”).

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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 December 26, 2020.

During the 2020 fourth fiscal quarter, the Company recorded commission program termination costs of $15,494,000, representing 2.6% of gross profit, related to buyouts of certain incentive commission arrangements with several of its independent sales agents due to the Company’s discontinuation of a truck owner-operator recruitment and retention program formerly involving those agents.

Interest and debt expense in fiscal year 2020 increased $812,000 compared to fiscal year 2019.

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The provisions for income taxes for both the 2020 and 2019 fiscal years were based on estimated annual effective income tax rates of 24.2%, adjusted for discrete events, such as benefits resulting from stock-based awards.

The actual effective income tax rate for fiscal year 2020 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 favorable resolution of certain tax matters during the 2020 fiscal year and state tax refunds.

The actual effective income tax rate for fiscal year 2020 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 favorable resolution of certain tax matters during the 2020 fiscal year and state tax refunds.

The actual effective income tax rate for fiscal year 2019 was 23.0%, 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.

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The effective income tax rate in the 2019 fiscal year of 23.0% was lower than the 24.2% estimated effective income tax rate primarily due to excess tax benefits recognized on stock-based compensation arrangements in the 2019 fiscal year.

Net income was $192,106,000, or $4.98 per common share ($4.98 per diluted share), in fiscal year 2020.

Net income attributable to the Company was $227,720,000, or $5.72 per common share ($5.72 per diluted share), in fiscal year 2019.

Net income during fiscal year 2020 was unfavorably impacted by $15,494,000, or $0.31 per common share ($0.31 per diluted share) related to a one-time

cost to buyout certain incentive commission arrangements with several agents, $12,593,000, or $0.25 per common share ($0.25 per diluted share) related to the impact of the COVID-19

pandemic relief incentive payments and $2,582,000, or $0.05 per common share ($0.05 per diluted share) of non-cash

Net income was $192,106,000, or $4.98 per diluted share, in fiscal year 2020.

Net income attributable to the Company was $227,720,000, or $5.72 per diluted share, in fiscal year 2019.

Net income during fiscal year 2020 was unfavorably impacted by $15,494,000, $0.31 per diluted share related to a one-time

cost to buyout certain incentive commission arrangements with several agents, $12,593,000, or $0.25 per diluted share related to the impact of the COVID-19

pandemic relief incentive payments and $2,582,000, or $0.05 per diluted share of non-cash

impairment charges related to certain assets, primarily customer contract and related customer relationship intangible assets of the Company’s Mexico subsidiaries.

Fiscal Year Ended December 28, 2019 Compared to Fiscal Year Ended December 29, 2018

Revenue for fiscal year 2019 was $4,084,577,000, a decrease of $530,567,000, or 11%, compared to fiscal year 2018.

Transportation revenue decreased $534,460,000, or 12%.

The decrease in transportation revenue was attributable to decreased revenue per load of approximately 9% and a decreased number of loads hauled of approximately 3% in fiscal year 2019 compared to fiscal year 2018.

Reinsurance premiums were $56,241,000 and $52,348,000 for fiscal years 2019 and 2018, respectively.

The increase in revenue from reinsurance premiums was primarily attributable to the increase in the average number of trucks provided by BCO Independent Contractors and an increase in the aggregate value of equipment insured by BCO Independent Contractors under a physical damage program reinsured by Signature in the 2019 fiscal year compared to the 2018 fiscal year.

Truck transportation revenue generated by third party truck capacity providers for fiscal year 2019 was $3,765,329,000, representing 92% of total revenue, a decrease of $515,083,000, or 12%, compared to fiscal year 2018.

Revenue per load on loads hauled by third party truck capacity providers decreased approximately 10% in fiscal year 2019 compared to fiscal year 2018, and the number of loads hauled by third party truck capacity providers decreased approximately 3% in fiscal year 2019 compared to fiscal year 2018.

The decrease in revenue per load on loads hauled via truck was primarily due to a softer freight demand environment experienced during the 2019 fiscal year, which resulted in more readily available truck capacity as compared to the 2018 fiscal year.

Revenue per load on loads hauled via van equipment decreased 11%, revenue per load on loads hauled via unsided/platform equipment decreased 6% and revenue per load on less-than-truckload loadings decreased 10% as compared to the 2018 fiscal year.

The decrease in the number of loads hauled via truck compared to fiscal year 2018 was primarily attributable to a decrease in demand for the Company’s truckload services provided via van equipment.

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 $79,486,000 and $101,346,000 in fiscal years 2019 and 2018, 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 multimode capacity providers for fiscal year 2019 was $239,790,000, or 6% of total revenue, a decrease of $23,763,000, or 9%, compared to fiscal year 2018.

The number of loads hauled by multimode capacity providers decreased approximately 5% in the 2019 fiscal year compared to the 2018 fiscal year, and revenue per load on revenue generated by multimode capacity providers decreased approximately 4% 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 three specific agencies.

The decrease in revenue per load of 4% on loads hauled by multimode capacity providers was primarily attributable to decreased revenue per load on air loadings due to the impact of air loadings provided in support of disaster relief efforts during fiscal year 2018.

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 76.6% and 77.4% of revenue in fiscal years 2019 and 2018, respectively.

The decrease in purchased transportation as a percentage of revenue was primarily due to a decreased rate of purchased transportation paid on Truck Brokerage Carrier revenue and an increased percentage of revenue contributed by BCO Independent Contractors.

Commissions to agents were 8.4% and 8.2% of revenue in fiscal years 2019 and 2018, respectively.

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

Investment income was $5,041,000 and $3,816,000 in fiscal years 2019 and 2018, respectively.

The increase in investment income was primarily attributable to higher average rates of return on investments and a higher average investment balance held by the insurance segment during fiscal year 2019.

Other operating costs increased $5,471,000 in fiscal year 2019 compared to fiscal year 2018 and represented 6.1% of gross profit in fiscal year 2019 compared to 4.8% in fiscal year 2018.

The increase in other operating costs compared to the prior fiscal year was primarily due to increased trailing equipment maintenance costs as a result of an increased number of Company-owned trailers and an increased provision for contractor bad debt.

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

Insurance and claims increased $4,642,000 in fiscal year 2019 compared to fiscal year 2018 and represented 13.1% of gross profit in fiscal year 2019 compared to 11.3% in fiscal year 2018.

The increase in insurance and claims expense compared to the prior fiscal year was primarily due to increased net unfavorable development of prior years’ claims and increased severity of current year claims in the BCO programs reinsured by Signature.

Net unfavorable development of prior years’ claims was $16,679,000 and $13,960,000 in fiscal years 2019 and 2018, respectively.

The increase in insurance and claims as a percentage 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 decreased $29,259,000 in fiscal year 2019 compared to fiscal year 2018 and represented 25.9% of gross profit in fiscal year 2019 compared to 28.2% of gross profit in fiscal year 2018.

The decrease in selling, general and administrative costs compared to prior fiscal year was attributable to a decreased provision for incentive compensation and decreased stock-based compensation expense, partially offset by increased wages.

Included in selling, general and administrative costs was incentive compensation expense of $1,517,000 and $19,210,000 for the 2019 and 2018 fiscal years, respectively, and stock-based compensation expense of $4,236,000 and $18,256,000 for the 2019 and 2018 fiscal years, respectively.

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

Depreciation and amortization increased $898,000 in fiscal year 2019 compared to fiscal year 2018 and represented 7.2% of gross profit in fiscal year 2019 compared to 6.5% of gross profit in fiscal year 2018.

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

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

Interest and debt expense in fiscal year 2019 decreased $213,000 compared to fiscal year 2018.

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

The provisions for income taxes for the 2019 and 2018 fiscal years were based on estimated annual effective income tax rates of 24.2% and 24.5%, respectively, adjusted for discrete events, such as benefits resulting from stock-based awards.

The actual effective income tax rate for fiscal year 2018 was 22.3%, which was higher than the statutory federal income tax rate of 21% primarily attributable to state taxes, the Tax Cuts and Jobs Act’s (the “Tax Reform Act”) elimination of the performance-based compensation exception under Section 162(m) and the meals and entertainment exclusion.

The effective income tax rate in the 2018 fiscal year of 22.3% was lower than the 24.5% estimated annual effective income tax rate primarily due to excess tax benefits recognized on stock-based compensation arrangements in the 2018 fiscal year, favorable adjustments recognized during the 2018 fiscal year relating to federal domestic production activities deductions and research and development credits and the favorable resolution of certain tax matters during the 2018 fiscal year.

The net loss attributable to noncontrolling interest of $17,000 and $68,000 in the 2019 and 2018 fiscal years, respectively, represents the former noncontrolling investors’ share of the net loss incurred by Landstar Metro and Landstar Servicios.

Net income attributable to the Company was $227,720,000, or $5.72 per common share ($5.72 per diluted share), in fiscal year 2019.

Net income attributable to the Company was $255,281,000, or $6.19 per common share ($6.18 per diluted share), in fiscal year 2018.

Capital Resources and Liquidity

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Cash provided by operating activities was $276,740,000, $210,717,000, and $307,840,000 in fiscal years 2021, 2020 and 2019, respectively.

The increase in cash flow provided by operating activities for fiscal year 2021 was primarily attributable to increased net income, partially offset by the 58% increase in revenue year-over-year, which increased net receivables, defined as accounts receivable less accounts payable.

The decrease in cash flow provided by operating activities for fiscal year 2020 was primarily attributable to the increase in trade and other accounts receivable as of the end of the 2020 fiscal year as compared to as of the end of the 2019 fiscal year driven by the significant growth in revenue during the fourth fiscal quarter of 2020.

The increase in cash flow provided by operating activities for fiscal year 2019 was primarily attributable to the timing of collections of trade receivables.

The Company declared and paid $0.92 per share, or $35,191,000 in the aggregate, in cash dividends during fiscal year 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.

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Dividends payable of $75,387,000 related to this special dividend were included in current liabilities in the consolidated balance sheet at December 25, 2021.

The Company declared and paid $0.79 per share, or $30,557,000 in the aggregate, in cash dividends during fiscal year 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 $0.70 per share, or $27,891,000 in the aggregate, in cash dividends during fiscal year 2019.

The Company declared and paid $0.63 per share, or $25,933,000 in the aggregate, in cash dividends during fiscal year 2018 and, during such period, also paid $62,985,000 of dividends payable which were declared during fiscal year 2017 and included in current liabilities in the consolidated balance sheet at December 30, 2017.

Since paying its first cash dividend in August 2005, the Company has paid approximately $616,000,000 in cash dividends in the aggregate to its stockholders, inclusive of the $2.00 per share special dividend paid on January 21, 2022

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Long-term debt, including current maturities, was $111,804,000 at December 25, 2021, compared to $100,774,000 at December 26, 2020 and $112,844,000 at December 28, 2019.

Equity was $691,835,000, or 87% of total capitalization (defined as long-term debt including current maturities plus equity), at December 26, 2020, compared to $721,469,000, or 86% of total capitalization, at December 28, 2019 and $689,133,000, or 84% of total capitalization, at December 29, 2018.

Shareholders’ equity was $862,010,000, or 89% of total capitalization (defined as long-term debt including current maturities plus equity), at December 25, 2021, compared to $691,835,000, or 87% of total capitalization at December 26, 2020 and $721,469,000, or 86% of total capitalization, at December 28, 2019.

The increase in shareholders’ equity was primarily the result of net income, partially offset by purchases of shares of the Company’s Common Stock and dividends declared by the Company in fiscal year 2021.

The decrease in equity in fiscal year 2020 was primarily the result of purchases of shares of the Company’s Common Stock and dividends declared by the Company in fiscal year 2020, partially offset by net income.

The increase in equity in fiscal year 2019 was primarily the result of net income, partially offset by purchases of shares of the Company’s Common Stock and dividends declared by the Company in fiscal year 2019.

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”).

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The Credit Agreement provides for a restriction on cash dividends and other distributions to stockholders on the Company’s capital stock to the extent there is a default under the Credit Agreement.

dividend or other distribution, the Leverage Ratio would exceed 2.5 to 1 on a pro forma basis as of the end of the Company’s most recently completed fiscal quarter.

In addition, the Credit Agreement under certain circumstances limits the amount of such cash dividends and other distributions to stockholders to the extent that, after giving effect to any payment made to effect such cash dividend or other distribution, the Leverage Ratio would exceed 2.5 to 1 on a pro forma basis as of the end of the Company’s most recently completed fiscal quarter.

The Credit Agreement provides for an event of default in the event that, among other things, a person or group acquires 35% or more of the outstanding capital stock of the Company or obtains power to elect a majority of the Company’s directors or the directors cease to consist of a majority of Continuing Directors, as defined in the Credit Agreement.

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At December 25, 2021, there was $216,830,000 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 December 26, 2020.

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

Treasury obligations having maturities of up to five years.

In addition, the Company has $72,267,000 in letters of credit outstanding as collateral for insurance claims that are secured by investments and restricted cash totaling $79,847,000 at December 25, 2021.

Investments, all of which are carried at fair value, include primarily investment-grade bonds and asset-backed securities having maturities of up to five years.

Fair value of investments is based primarily on quoted market prices.

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During fiscal years 2021, 2020 and 2019, the Company acquired $48,674,000, $31,633,000 and $29,054,000, respectively, of trailing equipment by entering into finance leases.

During fiscal years 2020, 2019 and 2018, the Company also purchased $30,626,000, $19,416,000 and $9,747,000, respectively, of operating property.

Included in the $9,747,000 of purchases of operating property during the 2018 fiscal year was $2,162,000 related to the completion of its Laredo, Texas facility for which the Company accrued a corresponding liability in accounts payable as of December 30, 2017.

During fiscal year 2020, Landstar acquired $500,000 of operating property for which the Company accrued a corresponding liability in accounts payable as of December 26, 2020.

Landstar anticipates acquiring either by purchase or lease financing approximately $77,000,000 in new trailing equipment primarily to replace older trailing equipment in fiscal 2021.

Landstar anticipates spending approximately $23,000,000 on information technology hardware and software in fiscal 2021, $16,000,000 of which relates to either building or buying software applications that enhance or add to the Company’s technology ecosystem.

As previously disclosed in the Company’s 2019 Annual Report on Form 10-K,

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

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

During fiscal years 2021, 2020 and 2019, the Company also purchased $23,261,000, $30,626,000 and $19,416,000, respectively, of

operating property.

Included in the $23,261,000 of purchases of operating property during the 2021 fiscal year was $500,000 for which the Company accrued a corresponding liability in accounts payable as of December 26, 2020.

Landstar anticipates acquiring either by purchase or lease financing approximately $116,000,000 in new trailing equipment primarily to replace older trailing equipment in fiscal year 2022.

Landstar anticipates spending approximately $23,000,000 on information technology hardware and software in fiscal year 2022, $17,000,000 of which relates to either building or buying software applications that enhance or add to the Company’s technology ecosystem.

In addition, Landstar anticipates spending approximately $16,000,000 on buildings and improvements.

As previously disclosed on January 29, 2019, Landstar acquired all of the remaining equity interests in Landstar Metro held by its former minority equityholders.

As of such date, Landstar Metro became a wholly owned subsidiary of the Company.

Cash consideration paid in the 2019 fiscal year to purchase these remaining equity interests was $600,000.

Further, 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.

Total cash consideration paid for the acquisition was approximately $2,934,000.

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.

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Based on knowledge of the facts and, in certain cases, opinions of outside counsel, management believes that adequate provisions have been made for probable losses with respect to the resolution of all such claims and pending litigation and that the ultimate outcome, after provisions therefor, will not have a material adverse effect on the financial condition of the Company, but could have a material effect on the results of operations in a given quarter or year.

Critical Accounting Policies and Estimates

Critical Accounting Estimates

Landstar provides for the estimated costs of self-insured claims primarily on an actuarial basis.

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

During fiscal

years 2020, 2019 and 2018, insurance and claims costs included $9,196,000, $16,679,000 and $13,960,000 of net unfavorable adjustments to prior years’ claims estimates, respectively.

The unfavorable development of prior years’ claims in the 2020 and 2019 fiscal years was attributable in each year to several specific claims as well as to actuarially determined adjustments to prior year commercial trucking loss estimates.

During fiscal years 2021, 2020 and 2019, insurance and claims costs included $9,708,000, $9,196,000 and $16,679,000 of net unfavorable adjustments to prior years’ claims estimates, respectively.

The unfavorable development of prior years’ claims in the 2021 fiscal year was primarily attributable to five claims.

The unfavorable development of prior year’s claims in the 2020 and 2019 fiscal years was attributable in each year to several specific claims as well as to actuarially determined adjustments to prior year commercial trucking loss estimates.

It is reasonably likely that the ultimate outcome of settling all outstanding claims will be more or less than the estimated claims liability at December 25, 2021.

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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-K

Item 7. Management’s Discussion and Analysis