What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-04-29 compared with 2021-10-29 · 92 added, 169 removed, 269 unchanged (49% of the section changed)

7 unchanged sentences

Such statements are by nature subject to uncertainties and risks, including but not limited to:

the impact of the Russian conflict with Ukraine on the operations of certain independent commission sales agents, including the Company’s largest such agent by revenue in the 2021 fiscal year;

the impact of the coronavirus (COVID-19)

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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 Landstar’s Form 10-K

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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.

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 1,200 independent commission sales agents and over 108,000 third party capacity providers, primarily truck capacity providers, linked together by a series of digital technologies which are provided and coordinated by the Company.

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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., Landstar Metro, S.A.P.I.

Landstar Metro, S.A.P.I.

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

Transportation services offered by the Company include truckload, less-than-truckload and power-only 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.

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

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.

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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 25, 2021, revenue generated by BCO Independent Contractors, Truck Brokerage Carriers and railroads represented approximately 41%, 50% and 3%, respectively, of the Company’s consolidated revenue.

Collectively, revenue generated by air and ocean cargo carriers represented approximately 4% of the Company’s consolidated revenue in the thirty-nine-week period ended September 25, 2021.

During the thirteen weeks ended March 26, 2022, revenue generated by BCO Independent Contractors, Truck Brokerage Carriers and railroads represented approximately 37%, 52% and 2%, respectively, of the Company’s consolidated revenue.

Collectively, revenue generated by air and ocean cargo carriers represented approximately 8% of the Company’s consolidated revenue in the thirteen-week period ended March 26, 2022.

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.

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 thirty-nine-week period ended September 25, 2021.

Revenue from Landstar Blue represented less than 1% of the Company’s transportation logistics segment revenue in the thirteen-week period ended March 26, 2022.

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

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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 25, 2021.

Changes in Financial Condition and Results of Operations

Management believes the Company’s success principally depends on its ability to generate freight revenue through its network of independent commission sales agents and to safely and efficiently deliver 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.

Revenue at the insurance segment represented approximately 1% of the Company’s consolidated revenue for the thirteen-week period ended Mar

Changes in Financial Condition and Results of Operati

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

Management believes the most significant factors to the Company’s success include increasing revenue, sourcing capacity, empowering its network through 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 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 25,

September 26,

September 25,

September 26,

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 25, 2021

September 26, 2020

March 26, 2022

March 27, 2021

BCO Independent Contractors

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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.

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

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).

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).

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.

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, 2021, with respect to the annual policy year ending April 30, 2022, 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 $10,000,000.

Moreover, the Company increased the level of its financial exposure to commercial trucking claims in excess of $10,000,000, 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.

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 ended 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 $35 million incurred during the annual policy year ending April 30, 2022, the Company would have an aggregate financial exposure of approximately $10 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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Selling, general and administrative

During the thirty-nine-week period ended September 25, 2021, employee compensation and benefits accounted for approximately seventy-five percent of the Company’s selling, general and administrative costs.

During the thirteen-week period ended March 26, 2022, employee compensation and benefits accounted for approximately 70% 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

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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 agents in order to provide services to our customers.

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:

Thirty Nine Weeks Ended

Thirteen Weeks Ended

September 25,

September 26,

September 25,

September 26,

Costs of revenue:

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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 46% of the Company’s consolidated revenue in the thirty-nine-week period ended September 25, 2021 was generated under transactions that pay a fixed percentage of revenue to the third party capacity provider and/or agents while 54% was generated under transactions that pay a variable percentage of revenue to the third party capacity provider and/or agents.

Approximately 41% of the Company’s consolidated revenue in the thirteen-week period ended March 26, 2022 was generated under transactions that pay a fixed percentage of revenue to the third party capacity provider and/or agents while 59% 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

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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;

(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.

Thirty Nine Weeks Ended

Thirteen Weeks Ended

September 25,

September 26,

September 25,

September 26,

Operating income

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Operating income as % of variable contribution

The increase in operating income as a percentage of gross profit from the 2020 thirty-nine-week period to the 2021 thirty-nine-week period and from the 2020 thirteen-week period to the 2021 thirteen-week period resulted from operating income increasing at a more rapid percentage rate than the increase in gross profit, as the Company was able to increase operating efficiencies during the period by scaling our fixed cost infrastructure, primarily certain components of selling, general and administrative costs, across a larger gross profit base.

The increase in operating income as a percentage of variable contribution from the 2020 thirty-nine-week period to the 2021 thirty-nine-week period and from the 2020 thirteen-week period to the 2021 thirteen-week period resulted from operating income increasing at a more rapid percentage rate than the increase in variable contribution, as the Company was able to increase operating efficiencies during the period by scaling 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 increase in operating income as a percentage of gross profit from the 2021 thirteen-week period to the 2022 thirteen-week period 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 increase in operating income as a percentage of variable contribution from the 2021 thirteen-week period to the 2022 thirteen-week period 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.

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

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

THIRTY NINE WEEKS ENDED SEPTEMBER 25, 2021 COMPARED TO THIRTY NINE WEEKS ENDED SEPTEMBER 26, 2020

Revenue for the 2021 thirty-nine-week period was $4,592,551,000, an increase of $1,755,925,000, or 62%, compared to the 2020 thirty-nine-week period.

Transportation revenue increased $1,744,505,000, or 62%.

The increase in transportation revenue was attributable to increased revenue per load of approximately 31% and an increased number of loads hauled of approximately 24% compared to the 2020 thirty-nine-week period.

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

(1) consumer demand for durable goods, building products and e-commerce

drove revenue during the 2021 period to record levels;

and (2) transportation revenue from the 2020 period was significantly adversely impacted by the effect of the COVID-19

pandemic on the U.S.

In particular, the 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 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.

Reinsurance premiums were $52,990,000 and $41,570,000 for the 2021 and 2020 thirty-nine-week periods, 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 the 2021 thirty-nine-week period compared to the 2020 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 2021 thirty-nine-week period was $4,218,406,000, representing 92% of total revenue, an increase of $1,604,319,000, or 61%, compared to the 2020 thirty-nine-week period.

Revenue per load on loads hauled by third party truck capacity providers increased approximately 30% compared to the 2020 thirty-nine-week period, and the number of loads hauled by third party truck capacity providers increased approximately 24% 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 the 2021 thirty-nine-week period.

During the 2021 thirty-nine-week period, 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

Revenue per load on loads hauled via van equipment increased 34%, 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 41% as compared to the 2020 thirty-nine-week period.

The increase in the number of loads hauled via truck compared to the 2020 thirty-nine-week period was due to a broad-based increase in demand for the Company’s truck transportation services during the 2021 period, particularly those services provided via van equipment and other truck transportation loadings, primarily power-only, compared to the 2020 period, which was adversely impacted by the COVID-19

Loads hauled via van equipment increased 26%, loads hauled via unsided/platform equipment increased 13%, loads hauled via less-than-truckload increased 13% and loads hauled via other truck transportation increased 47% as compared to the 2020 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 $74,195,000 and $43,570,000 in the 2021 and 2020 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 2021 thirty-nine-week period was $312,491,000, or 7% of total revenue, an increase of $141,742,000, or 83%, compared to the 2020 thirty-nine-week period.

Revenue per load on revenue generated by multimode capacity providers increased approximately 47% in the 2021 thirty-nine-week period compared to the 2020 thirty-nine-week period, and the number of loads hauled by multimode capacity providers increased approximately 25% 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.

Revenue per load on loads hauled via ocean, air and rail intermodal increased 62%, 47% and 22%, respectively, during the 2021 thirty-nine-week period as compared to the 2020 thirty-nine-week period.

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 the 2021 period as well as the adverse impact of the COVID-19

pandemic on multimode loadings during the 2020 period.

Purchased transportation was 78.0% and 77.0% of revenue in the 2021 and 2020 thirty-nine-week periods, 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 revenue due to the impact of COVID-19

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

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 8.3% of revenue in the 2021 and 2020 thirty-nine-week periods, 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 impact of the COVID-19

pandemic relief incentive payments to agents included in the 2020 period and 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.

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 $2,138,000 and $2,716,000 in the 2021 and 2020 thirty-nine-week periods, respectively.

The decrease in investment income was primarily attributable to lower average rates of return on investments in the 2021 thirty-nine-week period, partially offset by a higher average investment balance held by the insurance segment in the 2021 thirty-nine-week period.

Other operating costs increased $4,082,000 in the 2021 thirty-nine-week period compared to the 2020 thirty-nine-week period.

The increase in other operating costs compared to the prior year was primarily due to increased trailing equipment maintenance costs, decreased gains on sales of used trailing equipment, increased BCO recruiting and qualification costs 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 $8,635,000 in the 2021 thirty-nine-week period compared to the 2020 thirty-nine-week period.

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 the 2021 thirty-nine-week period, and an increase in BCO miles traveled in the 2021 period, 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 the 2020 period, a $3,500,000 charge relating to additional premium the Company was required to pay under its existing multi-year insurance arrangements in connection with certain aggregated losses incurred during the 2020 period, as well as the impact of decreased net unfavorable development of prior years’ claims in the 2021 thirty-nine-week period.

During the 2021 and 2020 thirty-nine-week periods, insurance and claims costs included $4,522,000 and $6,162,000 of net unfavorable adjustments to prior years’ claims estimates, respectively.

Selling, general and administrative costs increased $33,941,000 in the 2021 thirty-nine-week period compared to the 2020 thirty-nine-week period.

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 $18,717,000 and $2,691,000 for the 2021 and 2020 thirty-nine-week periods, respectively, and incentive compensation expense of $21,370,000 and $6,190,000 for the 2021 and 2020 thirty-nine-week periods, respectively.

Depreciation and amortization increased $2,320,000 in the 2021 thirty-nine-week period compared to the 2020 thirty-nine-week period.

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”).

Interest and debt expense in the 2021 thirty-nine-week period increased $38,000 compared to the 2020 thirty-nine-week period.

The provisions for income taxes for the 2021 and 2020 thirty-nine-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 thirty-nine-week period was 24.2%, 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 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 in the 2021 thirty-nine-week period of 24.2% 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 the 2021 thirty-nine-week period.

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.

Net income was $268,209,000, or $7.00 per diluted share, in the 2021 thirty-nine-week period.

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

Net income was unfavorably impacted by approximately $12,593,000, or $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 25, 2021 COMPARED TO THIRTEEN WEEKS ENDED SEPTEMBER 26, 2020

THIRTEEN WEEKS ENDED MARCH 26, 2022 COMPARED TO THIRTEEN WEEKS ENDED MARCH 27, 2021

Revenue for the 2022 thirteen-week period was $1,970,599,000, an increase of $683,065,000, or 53%, compared to the 2021 thirteen-week period.

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The increase in transportation revenue was attributable to increased revenue per load of approximately 28% and an increased number of loads hauled of approximately 20% compared to the 2021 thirteen-week period.

The increase in revenue in the 2021 period from the 2020 period was primarily attributable to consumer demand for durable goods and e-commerce,

which drove revenue in the 2021 period to record levels.

Reinsurance premiums were $19,260,000 and $17,035,000 for the 2022 and 2021 thirteen-week periods, 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 the 2021 thirteen-week period compared to the 2020 thirteen-week period.

Truck transportation revenue generated by third party truck capacity providers for the 2021 thirteen-week period was $1,580,730,000, representing 91% of total revenue, an increase of $574,552,000, or 57%, compared to the 2020 thirteen-week period.

Revenue per load on loads hauled by third party truck capacity providers increased approximately 29% compared to the 2020 thirteen-week period and the number of loads hauled via truck increased approximately 22% in the 2021 thirteen-week period compared to the 2020 thirteen-week period.

The increase in revenue per load on loads hauled by third party truck capacity providers primarily was due to an extremely tight truck capacity environment experienced during the 2021 period.

During the 2021 thirteen-week period, the demand for truck capacity, particularly with respect to van capacity, remained at heightened levels and the supply of available truck capacity in the marketplace did not increase sufficiently to balance the heightened demand for truck capacity that has resulted in connection with the recovery of the U.S.

economy from the impact of the COVID-19

The increase in revenue from reinsurance premiums was primarily attributable to an 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 2022 thirteen-week period compared to the 2021 thirteen-week period.

Truck transportation revenue generated by BCO Independent Contractors and Truck Brokerage Carriers (together, the “third party truck capacity providers”) for the 2022 thirteen-week period was $1,751,284,000, representing 89% of total revenue, an increase of $557,795,000, or 47%, compared to the 2021 thirteen-week period.

Revenue per load on loads hauled by third party truck capacity providers increased approximately 22% compared to the 2021 thirteen-week period, and the number of loads hauled by third party truck capacity providers increased approximately 20% in the 2022 thirteen-week period compared to the 2021 thirteen-week period.

The increase in revenue per load on loads hauled via truck was primarily due to a continuation into the 2022 first fiscal quarter of the extremely tight truck capacity environment experienced during the fourth fiscal quarter of 2021, which resulted in less readily available truck capacity as compared to the 2021 thirteen-week period.

Revenue per load on loads hauled via van equipment increased 27%, revenue per load on loads hauled via unsided/platform equipment increased 19%, revenue per load on less-than-truckload loadings increased 12% and revenue per load on loads hauled via other truck transportation increased 12% as compared to the 2021 thirteen-week period.

The increase in the number of loads hauled via truck compared to the 2020 thirteen-week period was due to a broad-based increase in demand for the Company’s truck transportation services during the 2021 period.

Revenue per load on loads hauled via truck increased 25% in January, 29% in February and 17% in March, respectively, as compared to the corresponding periods in 2021, as the comparisons to prior year periods became more challenging in March due to an atypical increase in truck revenue per load of 11% on a sequential basis from fiscal February 2021 to fiscal March 2021.

The increase in the number of loads hauled via truck compared to the 2021 thirteen-week period was due to a broad-based increase in demand for the Company’s truck transportation services, particularly van services and power-only services included in other truck transportation services.

Loads hauled via van equipment increased 17%, loads hauled via unsided/platform equipment increased 15%, loads hauled via less-than-truckload increased 18% and loads hauled via other truck transportation increased 44% as compared to the 2021 thirteen-week period.

The number of loads hauled via truck increased 25% in July, 22% in August and 19% in September, respectively, as compared to the corresponding periods in 2020, as the comparisons to prior year periods began to normalize due to the strong recovery from the COVID-19

pandemic experienced during the Company’s 2020 third fiscal quarter.

The number of loads hauled via truck increased 17% in January, 30% in February and 14% in March, respectively, as compared to the corresponding periods in 2021, as the comparisons to prior year periods became more challenging in March due to (1) the impact of the Russian invasion of Ukraine on one independent commission sales agency that maintains administrative operations in Ukraine and (2) an atypical increase in the number of loads hauled via truck from fiscal February 2021 to fiscal March 2021 that resulted from severe winter weather experienced during the last week of fiscal February 2021, which shifted truck volume in 2021 from fiscal February to fiscal March.

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 $37,485,000 and $19,234,000 in the 2022 and 2021 thirteen-week periods, respectively.

Transportation revenue generated by multimode capacity providers for the 2021 thirteen-week period was $128,583,000, or 7% of total revenue, an increase of $66,399,000, or 107%, compared to the 2020 thirteen-week period.

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

rate that do 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 2022 thirteen-week period was $194,745,000, or 10% of total revenue, an increase of $115,437,000, or 146%, compared to the 2021 thirteen-week period.

Revenue per load on revenue generated by multimode capacity providers increased approximately 112% in the 2022 thirteen-week period compared to the 2021 thirteen-week period, and the number of loads hauled by multimode capacity providers increased approximately 16% 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 supply chain disruptions.

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 128%, 122% and 25%, respectively, during the 2022 thirteen-week period as compared to the 2021 thirteen-week period.

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 and ocean service offerings, partially offset by decreased air loadings, primarily attributable to decreased loadings at one specific customer.

The increase in the number of loads hauled by multimode capacity providers was due to a 64% increase in ocean loadings and an 8% increase in rail loadings, partially offset by a 32% decrease in air loadings.

The 64% increase in ocean loadings was due to a broad-based increase in demand across many customers for the Company’s ocean services, whereas the 8% increase in rail loadings was primarily attributable to one specific agency.

The 32% decrease in air loadings was entirely attributable to decreased loadings at one specific customer.

Purchased transportation was 78.7% and 77.5% of revenue in the 2022 and 2021 thirteen-week periods, respectively.

The increase in purchased transportation as a percentage of revenue was primarily due to (i) an increased percentage of revenue generated by Truck Brokerage Carriers, which typically has a higher rate of purchased transportation than revenue generated by BCO Independent Contractors;

(ii) an increased percentage of revenue generated by multimode capacity providers, which typically has a higher rate of purchased transportation than third party truck capacity providers;

and (iii) to a lesser extent, an increased rate of purchased transportation paid to Truck Brokerage Carriers, partially offset by a lower rate of purchased transportation on revenue generated by BCO Independent Contractors due to an increased percentage of revenue generated by BCO Independent Contractors who use their own tractors and Landstar-owned trailers, which has a lower rate of purchased transportation than revenue generated by BCO Independent Contractors who use their own tractors and their own trailers.

Commissions to agents were 7.6% and 7.8% of revenue in the 2022 and 2021 thirteen-week periods, respectively.

The decrease in commissions to agents as a percentage of revenue was primarily attributable to a decreased commission rate paid on revenue generated by BCO Independent Contractors, primarily attributable 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, partially offset by an increased commission amount paid on revenue generated by Truck Brokerage Carriers due to a decreased cost of purchased transportation as a percentage of revenue on revenue generated by Truck Brokerage Carriers.

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.

Investment income was $721,000 and $684,000 in the 2022 and 2021 thirteen-week periods, respectively.

Other operating costs increased $3,499,000 in the 2022 thirteen-week period compared to the 2021 thirteen-week period.

The increase in other operating costs compared to the prior year was primarily due to an increased provision for contractor bad debt, increased trailing equipment maintenance costs and increased BCO recruiting and qualification costs.

The increase in other operating costs compared to the prior year was primarily due to increased trailing equipment maintenance costs as a result of (i) increased labor and parts costs as the Company retained older equipment to support current business levels;

and (ii) an increased average trailer fleet size during the 2022 thirteen-week period, an increased provision for contractor bad debt and the impact of the resumption of large in-person

events for the Company’s BCO Independent Contractors and independent commission sales agents.

Insurance and claims increased $9,263,000 in the 2022 thirteen-week period compared to the 2021 thirteen-week period.

The increase in insurance and claims expense compared to the prior year was primarily due to increased severity of current year claims, increased insurance premiums, primarily for commercial trucking liability coverage, and increased net unfavorable development of prior years’ claims in the 2021 thirteen-week period.

During the 2021 and 2020 thirteen-week periods, insurance and claims costs included $3,542,000 and $1,123,000 of net unfavorable adjustments to prior years’ claims estimates, respectively.

The increase in insurance and claims expense compared to the prior year was primarily due to the impact of net unfavorable development of prior years’ claims in the 2022 thirteen-week period, as well as increased severity of current year trucking claims during the 2022 period and an increase in insurance premiums, primarily for commercial auto and excess liability coverage.

During the 2022 and 2021 thirteen-week periods, insurance and claims costs included $4,273,000 of net unfavorable and $292,000 of net favorable adjustments to prior years’ claims estimates, respectively.

Selling, general and administrative costs increased $7,305,000 in the 2022 thirteen-week period compared to the 2021 thirteen-week period.

The increase in selling, general and administrative costs compared to prior year was attributable to an increased provision for incentive compensation, increased stock-based compensation expense and increased wages and employee benefit costs.

Included in selling, general and administrative costs was incentive compensation expense of $8,755,000 and $2,133,000 for the 2021 and 2020 thirteen-week periods, respectively, and stock-based compensation expense of $7,824,000 and $1,490,000 for the 2021 and 2020 thirteen-week periods, respectively.

The increase in selling, general and administrative costs compared to prior year was attributable to increased wages and employee benefit costs, an increased provision for customer bad debt and an increased provision for incentive compensation, partially offset by decreased stock-based compensation expense.

Included in selling, general and administrative costs was stock-based compensation expense of $1,995,000 and $4,029,000 for the 2022 and 2021 thirteen-week periods, respectively, and incentive compensation expense of $5,199,000 and $4,289,000 for the 2022 and 2021 thirteen-week periods, respectively.

Depreciation and amortization increased $1,656,000 in the 2022 thirteen-week period compared to the 2021 thirteen-week period.

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

Interest and debt expense in the 2021 thirteen-week period decreased $43,000 compared to the 2020 thirteen-week period.

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.

The effective income tax rate for the 2020 thirteen-week period was 23.9%, which was higher than the statutory federal income tax rate of 21% primarily attributable to state taxes and the meals and entertainment exclusion, partially offset by excess tax benefits realized on stock- based awards.

The effective income tax rate in the 2021 thirteen-week period of 24.4% approximated the 24.4% estimated annual effective income tax rate.

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

Interest and debt expense in the 2022 thirteen-week period increased $81,000 compared to the 2021 thirteen-week period.

The increase in interest and debt expense was primarily attributable to increased average borrowings on the Company’s revolving credit facility during the 2022 period, as the Company had no borrowings during the 2021 period.

The provisions for income taxes for the 2022 and 2021 thirteen-week periods were each based on an estimated annual effective income tax rate of 24.5% and 24.4%, respectively, adjusted for discrete events, such as benefits resulting from stock-based awards.

The estimated annual effective income tax rate was higher than the statutory federal income tax rate of 21% in both periods primarily attributable to state taxes and nondeductible executive compensation.

The effective income tax rate for the 2022 thirteen-week period was 22.8%, which was lower than the estimated annual effective income tax rate of 24.5%, primarily attributable to excess tax benefits realized on stock-based awards.

The effective income tax rate for the 2021 thirteen-week period of 24.4% was equal to the estimated annual effective income tax rate during the 2021 period.

Net income was $124,839,000, or $3.34 per diluted share, in the 2022 thirteen-week period.

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CAPITAL RESOURCES AND LIQUIDITY

Working capital and the ratio of current assets to current liabilities were $564,816,000 and 1.7 to 1, respectively, at September 25, 2021, compared with $402,038,000 and 1.5 to 1, respectively, at December 26, 2020.

Working capital and the ratio of current assets to current liabilities were $588,247,000 and 1.6 to 1, respectively, at March 26, 2022, compared with $512,917,000 and 1.5 to 1, respectively, at December 25, 2021.

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 $216,990,000 in the 2021 thirty-nine-week period compared with $185,548,000 in the 2020 thirty-nine-week period.

The increase in cash flow provided by operating activities was primarily attributable to increased net income, partially offset by the 62% increase in revenue year-over-year, which increased net receivables, defined as accounts receivable less accounts payable.

The Company declared and paid $0.67 per share, or $25,693,000 in the aggregate, in cash dividends during the thirty-nine-week period ended September 25, 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 $0.58 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.

During the thirty-nine-week period ended September 25, 2021, the Company purchased 317,046 shares of its common stock at a total cost of $50,230,000.

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.

As of September 25, 2021, the Company may purchase in the aggregate up to 1,503,984 shares of its common stock under its authorized stock purchase program.

Long-term debt, including current maturities, was $97,341,000 at September 25, 2021, $3,433,000 lower than at December 26, 2020.

Shareholders’ equity was $899,690,000, or 90% of total capitalization (defined as long-term debt including current maturities plus equity), at September 25, 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 purchases of shares of the Company’s common stock and dividends declared by the Company in the 2021 thirty-nine-week period.

Cash provided by operating activities was $94,965,000 in the 2022 thirteen-week period compared with $69,891,000 in the 2021 thirteen-week period.

The increase in cash flow provided by operating activities for fiscal year 2021 was primarily attributable to increased net income, partially offset by the 53% increase in revenue year-over-year, which increased net receivables, defined as accounts receivable less accounts payable.

The Company declared and paid $0.25 per share, or $9,324,000 in the aggregate, in cash dividends during the thirteen-week period ended March 26, 2022 and, during such period, also paid $75,387,000 of dividends payable which were declared during fiscal year 2021 and included in current liabilities in the consolidated balance sheet at December 25, 2021.

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.

During the thirteen-week period ended March 26, 2022, the Company purchased 693,550 shares of its common stock at a total cost of $109,332,000.

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

As of March 26, 2022, the Company may purchase in the aggregate up to 2,306,450 shares of its common stock under its authorized stock purchase programs.

Long-term debt, including current maturities, was $172,272,000 at March 26, 2022, $60,468,000 higher than at December 25, 2021.

Shareholders’ equity was $856,149,000, or 83% of total capitalization (defined as long-term debt including current maturities plus equity), at March 26, 2022, compared to $862,010,000, or 89% of total capitalization, at December 25, 2021.

The decrease in shareholders’ equity was primarily the result of purchases of shares of the Company’s common stock, taxes paid in lieu of shares issued related to stock-based compensation plans and dividends declared by the Company in the 2022 thirteen-week period, partially offset by net income.

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

At September 25, 2021, the Company had no borrowings outstanding and $33,577,000 of letters of credit outstanding under the Credit Agreement.

At September 25, 2021, there was $216,423,000 available for future borrowings under the Credit Agreement.

In addition, the Company has $69,434,000 in letters of credit outstanding as collateral for insurance claims that are secured by investments totaling $77,149,000 at September 25, 2021.

At March 26, 2022, the Company had $70,000,000 in borrowings outstanding and $33,170,000 of letters of credit outstanding under the Credit Agreement.

At March 26, 2022, there was $146,830,000 available for future borrowings under the Credit Agreement.

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 $80,142,000 at March 26, 2022.

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.

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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 2021 thirty-nine-week period, the Company acquired $23,080,000 of trailing equipment by entering into finance leases.

During the 2021 thirty-nine-week period, the Company also purchased $18,561,000 of operating property.

During the 2022 thirteen-week period, the Company purchased $3,609,000 of operating property.

Landstar anticipates acquiring either by purchase or lease financing during the remainder of fiscal year 2022 approximately $81,000,000 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 program 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 2021 and 2020 thirty-nine-week periods, insurance and claims costs included $4,522,000 and $6,162,000 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 25, 2021.

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 26, 2022.

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis