LANDSTAR SYSTEM INC 10-Q

Item 1. Financial Statements The interim consolidated financial statements contained herein reflect all adjustments (all of a normal, recurring nature) which, in the opinion of management, are necessary for a fair statement of the financial condition, results of operations, cash flows and changes in shareholders’ equity for the periods presented. They have been prepared in accordance with Rule 10-01 of Regulation S-X and do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. Operating results for the thirteen weeks ended March 26, 2022 are not necessarily indicative of the results that may be expected for the entire fiscal year ending December 31, 2022. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s 2021 Annual Report on Form 10-K. 3 LANDSTAR SYSTEM, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share amounts) (Unaudited) March 26, 2022 December 25, 2021 ASSETS Current Assets Cash and cash equivalents $ 146,025 $ 215,522 Short-term investments 35,679 35,778 Trade accounts receivable, less allowance of $ 7,940 and $ 7,074 1,223,123 1,154,314 Other receivables, including advances to independent contractors, less allowance of $ 8,838 and $ 8,125 123,231 101,124 Other current assets 10,441 16,162 Total current assets 1,538,499 1,522,900 Operating property, less accumulated depreciation and amortization of $ 356,988 and $ 344,099 307,044 317,386 Goodwill 40,945 40,768 Other assets 159,325 164,411 Total assets $ 2,045,813 $ 2,045,465 LIABILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities Cash overdraft $ 96,215 $ 116,478 Accounts payable 626,337 604,130 Current maturities of long-term debt 34,983 36,561 Insurance claims 52,644 46,896 Dividends payable — 75,387 Accrued income taxes 50,280 18,403 Other current liabilities 89,793 112,128 Total current liabilities 950,252 1,009,983 Long-term debt, excluding current maturities 137,289 75,243 Insurance claims 51,132 49,509 Deferred income taxes and other noncurrent liabilities 50,991 48,720 Shareholders’ Equity Common stock, $ 0.01 par value, authorized 160,000,000 shares, issued 68,370,151 and 68,232,975 shares 684 682 Additional paid-in capital 248,230 255,148 Retained earnings 2,432,699 2,317,184 Cost of 31,242,818 and 30,539,235 shares of common stock in treasury ( 1,816,149 ) ( 1,705,601 ) Accumulated other comprehensive loss ( 9,315 ) ( 5,403 ) Total shareholders’ equity 856,149 862,010 Total liabilities and shareholders’ equity $ 2,045,813 $ 2,045,465 See accompanying notes to consolidated financial statements. 4 LANDSTAR SYSTEM, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per share amounts) (Unaudited) Thirteen Weeks Ended March 26, 2022 March 27, 2021 Revenue $ 1,970,599 $ 1,287,534 Investment income 721 684 Costs and expenses: Purchased transportation 1,550,330 998,285 Commissions to agents 149,778 100,009 Other operating costs, net of gains on asset sales/dispositions 11,141 7,642 Insurance and claims 30,768 21,505 Selling, general and administrative 52,713 45,408 Depreciation and amortization 13,757 12,101 Total costs and expenses 1,808,487 1,184,950 Operating income 162,833 103,268 Interest and debt expense 1,123 1,042 Income before income taxes 161,710 102,226 Income taxes 36,871 24,986 Net income $ 124,839 $ 77,240 Diluted earnings per share $ 3.34 $ 2.01 Average diluted shares outstanding 37,418,000 38,404,000 Dividends per common share $ 0.25 $ 0.21 See accompanying notes to consolidated financial statements. 5 LANDSTAR SYSTEM, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Dollars in thousands) (Unaudited) Thirteen Weeks Ended March 26, 2022 March 27, 202 2 Net income $ 124,839 $ 77,240 Other comprehensive loss: Unrealized holding losses on available-for-sale investments, net of tax benefits of $ 1,421 and $ 147 ( 5,187 ) ( 534 ) Foreign currency translation gains (losses) 1,275 ( 420 ) Other comprehensive loss ( 3,912 ) ( 954 ) Comprehensive income $ 120,927 $ 76,286 See accompanying notes to consolidated financial statements. 6 LANDSTAR SYSTEM, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited) Thirteen Weeks Ended March 26, 2022 March 27, 2021 OPERATING ACTIVITIES Net income $ 124,839 $ 77,240 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 13,757 12,101 Non-cash interest charges 112 112 Provisions for losses on trade and other accounts receivable 2,626 547 Gains on sales/disposals of operating property ( 165 ) ( 24 ) Deferred income taxes, net 1,324 ( 1,110 ) Stock-based compensation 1,995 4,029 Changes in operating assets and liabilities: (Increase) decrease in trade and other accounts receivable ( 93,542 ) 33,440 Decrease in other assets 2,531 6,175 Increase in accounts payable 22,207 33,935 Increase in other liabilities 11,910 13,008 Increase (decrease) in insurance claims 7,371 ( 109,562 ) NET CASH PROVIDED BY OPERATING ACTIVITIES 94,965 69,891 INVESTING ACTIVITIES Sales and maturities of investments 12,420 7,957 Purchases of investments ( 13,428 ) ( 8,716 ) Purchases of operating property ( 3,609 ) ( 4,076 ) Proceeds from sales of operating property 643 500 NET CASH USED BY INVESTING ACTIVITIES ( 3,974 ) ( 4,335 ) FINANCING ACTIVITIES (Decrease) increase in cash overdraft ( 20,263 ) 6 Dividends paid ( 84,711 ) ( 84,837 ) Proceeds from exercises of stock options 56 77 Taxes paid in lieu of shares issued related to stock-based compensation plans ( 10,183 ) ( 1,241 ) Borrowings on revolving credit facility 70,000 — Purchases of common stock ( 109,332 ) — Principal payments on finance lease obligations ( 9,532 ) ( 9,778 ) NET CASH USED BY FINANCING ACTIVITIES ( 163,965 ) ( 95,773 ) Effect of exchange rate changes on cash and cash equivalents 815 252 Decrease in cash, cash equivalents and restricted cash ( 72,159 ) ( 29,965 ) Cash, cash equivalents and restricted cash at beginning of period 219,571 249,354 Cash, cash equivalents and restricted cash at end of period $ 147,412 $ 219,389 See accompanying notes to consolidated financial statements. 7 LANDSTAR SYSTEM, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY Thirteen Weeks Ended March 26, 2022 and March 27, 2021 (Dollars in thousands) (Unaudited) Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock at Cost Accumulated Other Comprehensive Loss Total Shares Amount Shares Amount Balance December 25, 2021 68,232,975 $ 682 $ 255,148 $ 2,317,184 30,539,235 $ ( 1,705,601 ) $ ( 5,403 ) $ 862,010 Net income 124,839 124,839 Dividends ($ 0.25 per share) ( 9,324 ) ( 9,324 ) Purchases of common stock 693,550 ( 109,332 ) ( 109,332 ) Issuance of stock related to stock-based compensation plans 137,176 2 ( 8,913 ) 10,033 ( 1,216 ) ( 10,127 ) Stock-based compensation 1,995 1,995 Other comprehensive loss ( 3,912 ) ( 3,912 ) Balance March 26, 2022 68,370,151 $ 684 $ 248,230 $ 2,432,699 31,242,818 $ ( 1,816,149 ) $ ( 9,315 ) $ 856,149 Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock at Cost Accumulated Other Comprehensive Loss Total Shares Amount Shares Amount Balance December 26, 2020 68,183,702 $ 682 $ 228,875 $ 2,046,238 29,797,639 $ ( 1,581,961 ) $ ( 1,999 ) $ 691,835 Net income 77,240 77,240 Dividends ($ 0.21 per share) ( 8,067 ) ( 8,067 ) Issuance of stock related to stock-based compensation plans 28,594 — ( 307 ) 6,087 ( 857 ) ( 1,164 ) Stock-based compensation 4,029 4,029 Other comprehensive loss ( 954 ) ( 954 ) Balance March 27, 2021 68,212,296 $ 682 $ 232,597 $ 2,115,411 29,803,726 $ ( 1,582,818 ) $ ( 2,953 ) $ 762,919 See accompanying notes to consolidated financial statements. 8 LANDSTAR SYSTEM, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The consolidated financial statements include the accounts of Landstar System, Inc. and its subsidiary, Landstar System Holdings, Inc., and reflect all adjustments (all of a normal, recurring nature) which are, in the opinion of management, necessary for a fair statement of the results for the periods presented. The preparation of the consolidated financial statements requires the use of management’s estimates. Actual results could differ from those estimates. Landstar System, Inc. and its subsidiary are herein referred to as “Landstar” or the “Company.” Significant intercompany accounts have been eliminated in consolidation. (1) Significant Accounting Policies Revenue from Contracts with Customers – Disaggregation of Revenue The following table summarizes (i) the percentage of consolidated revenue generated by mode of transportation and (ii) the total amount of truck transportation revenue hauled by BCO Independent Contractors and Truck Brokerage Carriers generated by equipment type during the thirteen-week periods ended March 26, 2022 and March 27, 2021 (dollars in thousands): Thirteen Weeks Ended Mode March 26, 2022 March 27, 2021 Truck – BCO Independent Contractors 37 % 44 % Truck – Truck Brokerage Carriers 52 % 49 % Rail intermodal 2 % 2 % Ocean and air cargo carriers 8 % 4 % Truck Equipment Type Van equipment $ 1,081,206 $ 729,402 Unsided/platform equipment $ 408,757 $ 297,485 Less-than-truckload $ 33,720 $ 25,670 Other truck transportation (1) $ 227,601 $ 140,932 (1) 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. 9 (2) Share-based Payment Arrangements As of March 26, 2022, the Company has an employee equity incentive plan, the 2011 equity incentive plan (the “2011 EIP”). The Company also has a stock compensation plan for members of its Board of Directors, the Amended and Restated 2013 Directors Stock Compensation Plan (as amended and restated as of May 17, 2016, the “2013 DSCP”). 6,000,000 shares of the Company’s common stock were authorized for issuance under the 2011 EIP and 115,000 shares of the Company’s common stock were authorized for issuance under the 2013 DSCP. The 2011 EIP and 2013 DSCP are each referred to herein as a “Plan,” and, collectively, as the “Plans.” Amounts recognized in the financial statements with respect to these Plans are as follows (in thousands): Thirteen Weeks Ended March 26, 2022 March 27, 2021 Total cost of the Plans during the period $ 1,995 $ 4,029 Amount of related income tax benefit recognized during the period ( 3,360 ) ( 1,341 ) Net cost of the Plans during the period $ ( 1,365 ) $ 2,688 Included in income tax benefits recognized in the thirteen-week periods ended March 26, 2022 and March 27, 2021 were excess tax benefits from stock-based awards of $ 2,869,000 and $ 343,000 , respectively. As of March 26, 2022, there were 56,502 shares of the Company’s common stock reserved for issuance under the 2013 DSCP and 3,230,826 shares of the Company’s common stock reserved for issuance under the 2011 EIP. Restricted Stock Units The following table summarizes information regarding the Company’s outstanding restricted stock unit (“RSU”) awards with either a performance condition or a market condition under the Plans: Number of RSUs Weighted Average Grant Date Fair Value Outstanding at December 25, 2021 209,399 $ 102.90 Granted 49,405 $ 139.78 Shares earned in excess of target (1) 91,497 $ 92.58 Vested shares, including shares earned in excess of target ( 174,366 ) $ 96.14 Forfeited ( 15,044 ) $ 103.31 Outstanding at March 26, 2022 160,891 $ 115.64 (1) Represents additional shares earned under each of the February 2, 2017; February 2, 2018 and February 1, 2019 RSU awards as fiscal year 2021 financial results exceeded target performance level. During the thirteen-week period ended March 26, 2022, the Company granted RSUs with a performance condition. Outstanding RSUs at both December 25, 2021 and March 26, 2022 include RSUs with a performance condition and RSUs with a market condition, as further described below and in the Company’s 2021 Annual Report on Form 10-K. RSUs with a performance condition granted on January 28, 2022 may vest on January 31 of 2025, 2026 and 2027 based on growth in operating income and pre-tax income per diluted share from continuing operations as compared to the results from the 2021 fiscal year. The Company recognized approximately $ 1,301,000 and $ 3,223,000 of share-based compensation expense related to RSU awards in the thirteen-week periods ended March 26, 2022 and March 27, 2021, respectively. As of March 26, 2022, there was a maximum of $ 27.3 million of total unrecognized compensation cost related to RSU awards granted under the Plans with an expected average remaining life of approximately 3.9 years. With respect to RSU awards with a performance condition, the amount of future compensation expense to be recognized will be determined based on future operating results. 10 Non-vested Restricted Stock and Deferred Stock Units The following table summarizes information regarding the Company’s outstanding shares of non-vested restricted stock and Deferred Stock Units (defined below) under the Plans: Number of Shares and Deferred Stock Units Weighted Average Grant Date Fair Value Non-vested at December 25, 2021 56,436 $ 125.16 Granted 17,008 $ 152.44 Vested ( 21,500 ) $ 110.16 Forfeited ( 2,302 ) $ 108.59 Non-vested at March 26, 2022 49,642 $ 141.77 The fair value of each share of non-vested restricted stock issued and Deferred Stock Unit granted under the Plans is based on the fair value of a share of the Company’s common stock on the date of grant. Shares of non-vested restricted stock are generally subject to vesting in three equal annual installments either on the first, second and third anniversary of the date of the grant or the third, fourth and fifth anniversary of the date of the grant, or 100 % on the first or fifth anniversary of the date of the grant. For restricted stock awards granted under the 2013 DSCP plan, each recipient may elect to defer receipt of shares and instead receive restricted stock units (“Deferred Stock Units”), which represent contingent rights to receive shares of the Company’s common stock on the date of recipient separation from service from the Board of Directors, or, if earlier, upon a change in control event of the Company. Deferred Stock Units become vested 100 % on the first anniversary of the date of the grant. Deferred Stock Units do not represent actual ownership in shares of the Company’s common stock and the recipient does not have voting rights or other incidents of ownership until the shares are issued. However, Deferred Stock Units do contain the right to receive dividend equivalent payments prior to settlement into shares. As of March 26, 2022, there was $ 5,555,000 of total unrecognized compensation cost related to non-vested shares of restricted stock and Deferred Stock Units granted under the Plans. The unrecognized compensation cost related to these non-vested shares of restricted stock and Deferred Stock Units is expected to be recognized over a weighted average period of 2.4 years. Stock Options The following table summarizes information regarding the Company’s outstanding stock options under the Plans: Number of Options Weighted Average Exercise Price per Share Weighted Average Remaining Contractual Term (years) Aggregate Intrinsic Value (000s) Options outstanding at December 25, 2021 8,570 $ 55.42 Exercised ( 3,500 ) $ 54.01 Options outstanding at March 26, 2022 5,070 $ 56.40 0.8 $ 495 Options exercisable at March 26, 2022 5,070 $ 56.40 0.8 $ 495 The total intrinsic value of stock options exercised during the thirteen-week periods ended March 26, 2022 and March 27, 2021 was $ 369,000 and $ 521,000 , respectively. As of March 26, 2022, there was no unrecognized compensation cost related to stock options granted under the Plans. (3) Income Taxes The provisions for income taxes for the 2022 and 2021 thirteen-week periods were 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 non-deductible executive compensation. The effective income tax rate for the 2022 thirteen-week period w as 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 o f 24.4 % was equal to the estimated annual effective income tax rate during the 2021 period. 11 (4) Earnings Per Share Earnings per common share are based on the weighted average number of shares outstanding, including outstanding non-vested restricted stock and outstanding Deferred Stock Units. Diluted earnings per share are based on the weighted average number of common shares and Deferred Stock Units outstanding plus the incremental shares that would have been outstanding upon the assumed exercise of all dilutive stock options. During the 2022 and 2021 thirteen-week periods, in reference to the determination of diluted earnings per share, the future compensation cost attributable to outstanding shares of non-vested restricted stock exceeded the impact of incremental shares that would have been outstanding upon the assumed exercise of all dilutive stock options. For each of the thirteen-week periods ended March 26, 2022 and March 27, 2021, no options outstanding to purchase shares of common stock were antidilutive. Outstanding RSUs were excluded from the calculation of diluted earnings per share for all periods because the performance metric requirements or market condition for vesting had not been satisfied. (5) Additional Cash Flow Information During the 2022 thirteen-week period, Landstar paid income taxes and interest of $ 2,031,000 and $ 1,029,000 , respectively. During the 2021 thirteen-week period, Landstar paid income taxes and interest of $ 353,000 and $ 983,000 , respectively. Landstar did no t acquire any operating property by entering into finance leases in either the 2022 or 2021 thirteen-week periods. (6) Segment Information The following table summarizes information about the Company’s reportable business segments as of and for the thirteen-week periods ended March 26, 2022 and March 27, 2021 (in thousands): Thirteen Weeks Ended March 26, 2022 March 27, 2021 Transportation Logistics Insurance Total Transportation Logistics Insurance Total External revenue $ 1,951,339 $ 19,260 $ 1,970,599 $ 1,270,499 $ 17,035 $ 1,287,534 Internal revenue 12,884 12,884 9,534 9,534 Investment income 721 721 684 684 Operating income 151,946 10,887 162,833 89,732 13,536 103,268 Expenditures on long-lived assets 3,609 3,609 4,076 4,076 Goodwill 40,945 40,945 40,732 40,732 In the thirteen-week periods ended March 26, 2022 and March 27, 2021, no single customer accounted for more than 10 % of the Company’s consolidated revenue. (7) Other Comprehensive Income The following table presents the components of and changes in accumulated other comprehensive income (loss), net of related income taxes, as of and for the thirteen-week period ended March 26, 2022 (in thousands): Unrealized Holding Gains (Losses) on Available-for-Sale Securities Foreign Currency Translation Total Balance as of December 25, 2021 $ 113 $ ( 5,516 ) $ ( 5,403 ) Other comprehensive (loss) income ( 5,187 ) 1,275 ( 3,912 ) Balance as of March 26, 2022 $ ( 5,074 ) $ ( 4,241 ) $ ( 9,315 ) Amounts reclassified from accumulated other comprehensive income to investment income due to the realization of previously unrealized gains and losses in the accompanying consolidated statements of income were not significant for the thirteen-week period ended March 26, 2022. 12 (8) Investments Investments include primarily investment-grade corporate bonds and asset-backed securities having maturities of up to five years (the “bond portfolio”) and money market investments. Investments in the bond portfolio are reported as available-for-sale and are carried at fair value. Investments maturing less than one year from the balance sheet date are included in short-term investments and investments maturing more than one year from the balance sheet date are included in other assets in the consolidated balance sheets. Management performs an analysis of the nature of the unrealized losses on available-for-sale investments to determine whether an allowance for credit loss is necessary. Unrealized losses, representing the excess of the purchase price of an investment over its fair value as of the end of a period, considered to be a result of credit-related factors, are to be included as a charge in the statement of income, while unrealized losses considered to be a result of noncredit-related factors are to be included as a component of shareholders’ equity. Investments whose values are based on quoted market prices in active markets are classified within Level 1. Investments that trade in markets that are not considered to be active, but are valued based on quoted market prices, are classified within Level 2. As Level 2 investments include positions that are not traded in active markets, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information. Any transfers between levels are recognized as of the beginning of any reporting period. Fair value of the bond portfolio was determined using Level 1 inputs related to U.S. Treasury obligations and money market investments and Level 2 inputs related to investment-grade corporate bonds, asset-backed securities and direct obligations of government agencies. Unrealized losses, net of unrealized gains, on the investments in the bond portfolio were $ 6,464,000 at March 26, 2022, while unrealized gains, net of unrealized losses, on the investments in the bond portfolio were $ 144,000 at December 25, 2021. The amortized cost and fair values of available-for-sale investments are as follows at March 26, 2022 and December 25, 2021 (in thousands): Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value March 26, 2022 Money market investments $ 14,913 $ — $ — $ 14,913 Asset-backed securities 21,259 — 1,435 19,824 Corporate bonds and direct obligations of government agencies 133,645 212 5,203 128,654 U.S. Treasury obligations 2,342 — 38 2,304 Total $ 172,159 $ 212 $ 6,676 $ 165,695 December 25, 2021 Money market investments $ 8,750 $ — $ — $ 8,750 Asset-backed securities 22,441 — 346 22,095 Corporate bonds and direct obligations of government agencies 137,916 1,406 966 138,356 U.S. Treasury obligations 2,342 50 — 2,392 Total $ 171,449 $ 1,456 $ 1,312 $ 171,593 13 For those available-for-sale investments with unrealized losses at March 26, 2022 and December 25, 2021, the following table summarizes the duration of the unrealized loss (in thousands): Less than 12 months 12 months or longer Total Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss March 26, 2022 Asset-backed securities $ 19,824 $ 1,435 $ — $ — $ 19,824 $ 1,435 Corporate bonds and direct obligations of government agencies 96,962 4,768 4,147 435 101,109 5,203 U.S. Treasury obligations 2,304 38 — — 2,304 38 Total $ 119,090 $ 6,241 $ 4,147 $ 435 $ 123,237 $ 6,676 December 25, 2021 Asset-backed securities $ 22,095 $ 346 $ — $ — $ 22,095 $ 346 Corporate bonds and direct obligations of government agencies 72,526 966 — — 72,526 966 Total $ 94,621 $ 1,312 $ — $ — $ 94,621 $ 1,312 The Company believes unrealized losses on investments were primarily caused by rising interest rates rather than changes in credit quality. The Company expects to recover, through collection of all of the contractual cash flows of each security, the amortized cost basis of these securities as it does not intend to sell, and does not anticipate being required to sell, these securities before recovery of the cost basis. For these reasons, no losses have been recognized in the Company’s consolidated statements of income. (9) Leases Landstar’s noncancelable leases are primarily comprised of finance leases for the acquisition of new trailing equipment. Each finance lease for the acquisition of trailing equipment is a five year lease with a $ 1 purchase option for the applicable equipment at lease expiration. Substantially all of Landstar’s operating lease right-of-use assets and operating lease liabilities represent leases for facilities maintained in support of the Company’s network of BCO Independent Contractors and office space used to conduct Landstar’s business. These leases do not have significant rent escalation holidays, concessions, leasehold improvement incentives or other build-out clauses. Further, the leases do not contain contingent rent provisions. Landstar also rents certain trailing equipment to supplement the Company-owned trailer fleet under “month-to-month” lease terms, which are not required to be recorded on the balance sheet due to the less than twelve month lease term exemption. Sublease income is primarily comprised of weekly trailing equipment rentals to BCO Independent Contractors. Most of Landstar’s operating leases include one or more options to renew. The exercise of lease renewal options is typically at Landstar’s sole discretion, and, as such, the majority of renewals to extend the lease terms are not included in the right-of-use assets and lease liabilities as they are not reasonably certain of exercise. Landstar regularly evaluates the renewal options, and when they are reasonably certain of exercise, Landstar includes the renewal period in the lease term. As most of Landstar’s operating leases do not provide an implicit rate, Landstar utilized its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments. Landstar has a centrally managed treasury function; therefore, based on the applicable lease terms and the current economic environment, the Company applies a portfolio approach for determining the incremental borrowing rate. 14 The components of lease cost for finance leases and operating leases for the thirteen weeks ended March 26, 2022 were (in thousands): Finance leases: Amortization of right-of-use assets $ 5,327 Interest on lease liability 700 Total finance lease cost 6,027 Operating leases: Lease cost 926 Variable lease cost — Sublease income ( 1,213 ) Total net operating lease income ( 287 ) Total net lease cost $ 5,740 A summary of the lease classification on our consolidated balance sheet as of March 26, 2022 is as follows (in thousands): Assets: Operating lease right-of-use assets Other assets $ 1,916 Finance lease assets Operating property, less accumulated depreciation and amortization 137,818 Total lease assets $ 139,734 Liabilities: The following table reconciles the undiscounted cash flows for the finance and operating leases to the finance and operating lease liabilities recorded on the balance sheet at March 26, 2022 (in thousands): Finance Leases Operating Leases 2022 Remainder $ 28,777 $ 583 2023 31,916 638 2024 22,045 534 2025 15,820 282 2026 7,668 — Thereafter — — Total future minimum lease payments 106,226 2,037 Less amount representing interest ( 1.6 % to 4.4 %) 3,954 121 Present value of minimum lease payments $ 102,272 $ 1,916 Current maturities of long-term debt 34,983 Long-term debt, excluding current maturities 67,289 Other current liabilities 744 Deferred income taxes and other noncurrent liabilities 1,172 The weighted average remaining lease term and the weighted average discount rate for finance and operating leases as of March 26, 2022 were: Finance Leases Operating Leases Weighted average remaining lease term (years) 3.4 3.4 Weighted average discount rate 2.5 % 4.0 % 15 (10) Debt In addition to the finance lease obligations as presented on the consolidated balance sheets, the Company had $ 70,000,000 in outstanding debt as of March 26, 2022, consisting of borrowings under the Company’s revolving credit facility. The Company had no borrowings under the revolving credit facility as of December 25, 2021. On August 18, 2020 , Landstar entered into an amended and restated credit agreement with a syndicate of banks and JPMorgan Chase Bank, N.A., as administrative agent (the “Credit Agreement”). The Credit Agreement, which matures on August 18, 2023, provides $ 250,000,000 of borrowing capacity in the form of a revolving credit facility, $ 35,000,000 of which may be utilized in the form of letters of credit. The Credit Agreement includes an “accordion” feature providing for a possible increase up to an aggregate borrowing capacity of $ 400,000,000 . The revolving credit loans under the Credit Agreement, at the option of Landstar, bear interest at (i) the Eurocurrency rate plus an applicable margin ranging from 1.25 % to 2.00 %, or (ii) an alternate base rate plus an applicable margin ranging from 0.25 % to 1.00 %, in each case with the applicable margin determined based upon the Company’s Leverage Ratio, as defined in the Credit Agreement, at the end of the most recent applicable fiscal quarter for which financial statements have been delivered. The revolving credit facility bears a commitment fee, payable quarterly in arrears, of 0.25 % to 0.35 %, based on the Company’s Leverage Ratio at the end of the most recent applicable fiscal quarter for which financial statements have been delivered. As of March 26, 2022, the weighted average interest rate on borrowings outstanding was 1.66 %. The Credit Agreement contains a number of covenants that limit, among other things, the incurrence of additional indebtedness. The Company is required to, among other things, maintain a minimum Fixed Charge Coverage Ratio, as defined in the Credit Agreement, and maintain a Leverage Ratio, as defined in the Credit Agreement, below a specified maximum. The Credit Agreement provides for a restriction on cash dividends and other distributions to stockholders on the Company’s capital stock to the extent there is a default under the Credit Agreement. In addition, the Credit Agreement under certain circumstances limits the amount of such cash dividends and other distributions to stockholders to the extent that, after giving effect to any payment made to effect such cash dividend or other distribution, the Leverage Ratio would exceed 2.5 to 1 on a pro forma basis as of the end of the Company’s most recently completed fiscal quarter. The Credit Agreement provides for an event of default in the event that, among other things, a person or group acquires 35 % or more of the outstanding capital stock of the Company or obtains power to elect a majority of the Company’s directors or the directors cease to consist of a majority of Continuing Directors, as defined in the Credit Agreement. None of these covenants are presently considered by management to be materially restrictive to the Company’s operations, capital resources or liquidity. The Company is currently in compliance with all of the debt covenants under the Credit Agreement. The interest rates on borrowings under the revolving credit facility are typically tied to short-term interest rates that adjust monthly and, as such, carrying value approximates fair value. Interest rates on borrowings under finance leases approximate the interest rates that would currently be available to the Company under similar terms and, as such, carrying value approximates fair value. (11) Commitments and Contingencies Short-term investments include $ 34,292,000 in current maturities of investments and $ 1,387,000 in restricted cash held by the Company’s insurance segment at March 26, 2022. The non-current portion of the bond portfolio of $ 131,403,000 is included in other assets. The short-term investments, together with $ 44,463,000 of non-current investments, provide collateral for the $ 72,267,000 of letters of credit issued to guarantee payment of insurance claims. As of March 26, 2022, Landstar also had $ 33,170,000 of additional letters of credit outstanding under the Company’s Credit Agreement. The Company is involved in certain claims and pending litigation arising from the normal conduct of business. Many of these claims are covered in whole or in part by insurance. 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. 16