What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-07-29 compared with 2022-04-29 · 194 added, 86 removed, 275 unchanged (50% of the section changed)

15 unchanged sentences

decreased demand for transportation services;

foreign trade relationships;

U.S trade relationships;

substantial industry competition;

8 unchanged sentences

and other operational, financial or legal risks or uncertainties detailed in Landstar’s Form 10-K

for the 2021 fiscal year, described in Item 1A “Risk Factors”, in this report or in Landstar’s other Securities and Exchange Commission filings from time to time.

for the 2021 fiscal year, described in Item 1A “Risk Factors”, Landstar’s Form 10-Q

for the 2022 first quarter, described in Part II, Item 1A “Risk Factors”, and in this report or in Landstar’s other Securities and Exchange Commission filings from time to time.

These risks and uncertainties could cause actual results or events to differ materially from historical results or those anticipated.

2 unchanged sentences

and its subsidiary, Landstar System Holdings, Inc.

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

(collectively referred to herein with their subsidiaries and other affiliated companies as “Landstar” or the “Company”), a Fortune 500 company, is a worldwide, technology-enabled, asset-light provider of integrated transportation management solutions delivering safe, specialized transportation services to a broad range of customers utilizing a network of agents, third party capacity providers and employees.

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.

11 unchanged sentences

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

Landstar Ranger, Inc., Landstar Inway, Inc., Landstar Ligon, Inc., Landstar Gemini, Inc., Landstar Transportation Logistics, Inc., Landstar Global Logistics, Inc., Landstar Express America, Inc., Landstar Canada, Inc.,

Landstar Metro, S.A.P.I.

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

4 unchanged sentences

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

During the 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.

During the twenty-six-week

period ended June 25, 2022, revenue generated by BCO Independent Contractors, Truck Brokerage Carriers and railroads represented approximately 36%, 53% 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 twenty-six-week

period ended June 25, 2022.

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

3 unchanged sentences

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

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

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

period ended June 25, 2022.

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

2 unchanged sentences

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

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

Changes in Financial Condition and Results of Operati

Revenue at the insurance segment represented approximately 1% of the Company’s consolidated revenue for the twenty-six-week

period ended June 25, 2022.

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 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.

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.

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.

8 unchanged sentences

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

Twenty Six Weeks Ended

Thirteen Weeks Ended

41 unchanged sentences

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

March 26, 2022

March 27, 2021

June 25, 2022

June 26, 2021

BCO Independent Contractors

8 unchanged sentences

Purchased transportation paid to a Truck Brokerage Carrier is based on either a negotiated rate for each load hauled or, to a lesser extent, a contractually agreed-upon fixed rate per load.

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

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

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

Purchased transportation paid to air cargo carriers is generally based on a negotiated rate for each load hauled.

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

13 unchanged sentences

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

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

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

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

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

amounts of additional premium.

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 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 $3.5 million, which was provided for in insurance and claims costs for the Company’s 2020 fiscal first quarter.

The Company subsequently extended the Initial Excess Policy for one additional policy year, from May 1, 2022 through April 30, 2023.

For commercial trucking claims incurred on or after May 1, 2022 through April 30, 2023, the extended Initial Excess Policy provides for a limit for a single loss of $5 million, with a remaining aggregate limit of $10 million for the policy period ending April 30, 2023, and an option to increase such aggregate limit for a pre-established

amount of additional premium.

If aggregate losses under the Initial Excess Policy exceed the aggregate limit for the period ending April 30, 2023, and the Company did not elect to increase such aggregate limit for a pre-established

amount of additional premium, the Company 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 policy period ending April 30, 2023.

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

5 unchanged sentences

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.

Effective May 1, 2022, with respect to the annual policy year ending April 30, 2023, as compared to the annual policy year ended April 30, 2022, the Company experienced an increase of approximately $2.3 million, or 10%, 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, in recent years the Company has 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, 2023, the Company would have an aggregate financial exposure of approximately $10 million.

7 unchanged sentences

Selling, general and administrative

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.

During the twenty-six-week

period ended June 25, 2022, employee compensation and benefits accounted for approximately 67% 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.

25 unchanged sentences

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

Twenty Six Weeks Ended

Thirteen Weeks Ended

June 25, 2022

June 26, 2021

June 25, 2022

June 26, 2021

Costs of revenue:

18 unchanged sentences

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 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.

Approximately 41% of the Company’s consolidated revenue in the twenty-six-week

period ended June 25, 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

3 unchanged sentences

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;

(i) the variable costs of revenue for a significant portion of the

business are highly influenced by short-term market-based trends in the freight transportation industry, whereas other costs, including other costs of revenue, are much less impacted by short-term freight market trends;

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

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

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

Twenty Six Weeks Ended

Thirteen Weeks Ended

4 unchanged sentences

Operating income as % of variable contribution

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.

The increase in operating income as a percentage of gross profit from the 2021 twenty-six-week

period to the 2022 twenty-six-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 twenty-six-week

period to the 2022 twenty-six-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 certain components of our other costs of revenue, across a larger variable contribution base.

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

7 unchanged sentences

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

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

TWENTY SIX WEEKS ENDED JUNE 25, 2022 COMPARED TO TWENTY SIX WEEKS ENDED JUNE 26, 2021

Revenue for the 2022 twenty-six-week

period was $3,945,663,000, an increase of $1,087,411,000, or 38%, compared to the 2021 twenty-six-week

Transportation revenue increased $1,083,001,000, or 38%.

The increase in transportation revenue was attributable to increased revenue per load of approximately 21% and an increased number of loads hauled of approximately 14% compared to the 2021 twenty-six-week

Reinsurance premiums were $39,105,000 and $34,695,000 for the 2022 and 2021 twenty-six-week

periods, respectively.

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 twenty-six-week

period compared to the 2021 twenty-six-week

Truck transportation revenue generated by BCO Independent Contractors and Truck Brokerage Carriers (together, the “third party truck capacity providers”) for the 2022 twenty-six-week

period was $3,498,482,000, representing 89% of total revenue, an increase of $860,806,000, or 33%, compared to the 2021 twenty-six-week

Revenue per load on loads hauled by third party truck capacity providers increased approximately 16% compared to the 2021 twenty-six-week

period, and the number of loads hauled by third party truck capacity providers increased approximately 15% in the 2022 twenty-six-week

period compared to the 2021 twenty-six-week

The increase in revenue per load on loads hauled via truck was due a tight truck capacity environment experienced during the 2022 twenty-six-week

period, which resulted in less readily available truck capacity as compared to the 2021 twenty-six-week

The increase was also attributable to the impact of higher diesel fuel costs on loads hauled via Truck Brokerage Carriers and was partially offset by (i) a decrease in the number of loads hauled via heavy specialized equipment, which typically have a higher revenue per load, as a percentage of total truck loads and (ii) a decrease in length of haul during the 2022 twenty-six-week

Revenue per load on loads hauled via van equipment increased 18%, revenue per load on loads hauled via unsided/platform equipment increased 14%, revenue per load on less-than-truckload loadings increased 13% and other truck transportation services revenue per load increased 8% as compared to the 2021 twenty-six-week

The increase in the number of loads hauled via truck compared to the 2021 twenty-six-week

period was due to a broad-based increase in demand for the Company’s truck transportation services.

Loads hauled via van equipment increased 13%, loads hauled via unsided/platform equipment increased 13%, loads hauled via less-than-truckload increased 14% and other truck transportation services load count increased 31% as compared to the 2021 twenty-six-week

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 $94,537,000 and $45,574,000 in the 2022 and 2021 twenty-six-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 2022 twenty-six-week

period was $397,014,000, or 10% of total revenue, an increase of $213,106,000, or 116%, compared to the 2021 twenty-six-week

Revenue per load on revenue generated by multimode capacity providers increased approximately 112% in the 2022 twenty-six-week

period compared to the 2021 twenty-six-week

period, and the number of loads hauled by multimode capacity providers increased approximately 2% over the same period.

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

and global economic recoveries coupled with the impact of global supply chain disruptions which were particularly acute with respect to international ocean and air freight.

Revenue per load on loads hauled via air, ocean and rail intermodal increased 145%, 123% and 25%, respectively, during the 2022 twenty-six-week

period as compared to the 2021 twenty-six-week

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 44% increase in ocean loadings, almost entirely offset by a 26% decrease in air loadings and a 10% decrease in rail loadings.

The 44% increase in ocean loadings was due to a broad-based increase in demand across many customers for the Company’s ocean services.

The 26% decrease in air loadings was entirely attributable to decreased loadings at one specific customer, and the 10% decrease in rail loadings was primarily attributable to decreased loadings at one specific agency.

Purchased transportation was 78.5% and 77.9% of revenue in the 2022 and 2021 twenty-six-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 and (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, partially offset by a lower rate of purchased transportation on revenue generated by Truck Brokerage Carriers.

Commissions to agents were 7.9% and 7.8% of revenue in the 2022 and 2021 twenty-six-week

periods, respectively.

The increase in commissions to agents as a percentage of revenue was primarily attributable to a decreased cost of purchased transportation as a percentage of revenue on revenue generated by Truck Brokerage Carriers.

Investment income was $1,307,000 and $1,432,000 in the 2022 and 2021 twenty-six-week

periods, respectively.

The decrease in investment income was primarily attributable to a lower average investment balance held by the insurance segment in the 2022 twenty-six-week

period, partially offset by higher average rates of return on investments in the 2022 twenty-six-week

Other operating costs increased $4,977,000 in the 2022 twenty-six-week

period compared to the 2021 twenty-six-week

The increase in other operating costs compared to the prior year was primarily due to (i) increased trailing equipment maintenance costs as a result of (x) increased labor and parts costs charged by the Company’s network of third party trailer maintenance facilities as the Company retained older trailing equipment to support current business levels;

and (y) an increased average trailer fleet size during the 2022 twenty-six-week

period, and (ii) an increased provision for contractor bad debt, partially offset by increased gains on the sale of operating property.

Insurance and claims increased $19,191,000 in the 2022 twenty-six-week

period compared to the 2021 twenty-six-week

The increase in insurance and claims expense compared to the prior year was primarily due to increased severity of current year trucking claims during the 2022 twenty-six-week

period, the impact of net unfavorable development of prior years’ claims in the 2022 twenty-six-week

period and increased insurance premiums, primarily for commercial auto and excess liability coverage.

During the 2022 and 2021 twenty-six-week

periods, insurance and claims costs included $5,381,000 and $980,000 of net unfavorable adjustments to prior years’ claims estimates, respectively.

Selling, general and administrative costs increased $12,158,000 in the 2022 twenty-six-week

period compared to the 2021 twenty-six-week

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

Included in selling, general and administrative costs was stock-based compensation expense of $5,810,000 and $10,893,000 for the 2022 and 2021 twenty-six-week

periods, respectively, and incentive compensation expense of $9,723,000 and $12,615,000 for the 2022 and 2021 twenty-six-week

periods, respectively.

Depreciation and amortization expense increased $3,801,000 in the 2022 twenty-six-week

period compared to the 2021 twenty-six-week

The increase in depreciation and amortization expense was primarily due to increased depreciation on digital technology tools in connection with the deployment of new and upgraded applications for use by the Company’s network of agents, capacity providers and employees, and to a lesser extent, in connection with increased trailing equipment depreciation.

Interest and debt expense in the 2022 twenty-six-week

period increased $219,000 compared to the 2021 twenty-six-week

The increase in interest and debt expense was entirely attributable to increased average borrowings on the Company’s revolving credit facility during the 2022 twenty-six-week

period, as the Company had no borrowings under its revolving credit facility during the 2021 period.

The Company had no borrowings under its revolving credit facility as of the end of the 2022 twenty-six-week

The provisions for income taxes for the 2022 and 2021 twenty-six-week

periods were based on estimated annual effective income tax rates 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 twenty-six-week

period was 23.7%, 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 in the 2021 twenty-six-week

period of 24.1% was lower than the 24.4% estimated annual effective income tax rate, primarily due to excess tax benefits realized on stock-based awards in the 2021 twenty-six-week

Net income was $237,394,000, or $6.39 per diluted share, in the 2022 twenty-six-week

Net income was $169,534,000, or $4.41 per diluted share, in the 2021 twenty-six-week

THIRTEEN WEEKS ENDED JUNE 25, 2022 COMPARED TO THIRTEEN WEEKS ENDED JUNE 26, 2021

Revenue for the 2022 thirteen-week period was $1,975,064,000, an increase of $404,346,000, or 26%, compared to the 2021 thirteen-week period.

3 unchanged sentences

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.

Truck transportation revenue generated by third party truck capacity providers for the 2022 thirteen-week period was $1,747,198,000, representing 88% of total revenue, an increase of $303,011,000, or 21%, compared to the 2021 thirteen-week period.

Revenue per load on loads hauled by third party truck capacity providers increased approximately 10% compared to the 2021 thirteen-week period, and the number of loads hauled by third party truck capacity providers increased approximately 10% 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.

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 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.

The increase in revenue per load on loads hauled via truck was due a relatively tighter truck capacity environment experienced during the 2022 thirteen-week period, which resulted in less readily available truck capacity as compared to the 2021 thirteen-week period and the impact of higher diesel fuel costs on loads hauled via Truck Brokerage Carriers, partially offset by a decreased average length of haul during the 2022 thirteen-week period.

Revenue per load on loads hauled via van equipment increased 11%, revenue per load on loads hauled via unsided/platform equipment increased 10%, revenue per load on less-than-truckload loadings increased 15% and other truck transportation services revenue per load increased 3% as compared to the 2021 thirteen-week period.

Revenue per load on loads hauled via truck increased 15%, 8% and 7% in April, May and June, respectively, as compared to the corresponding periods in 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.

Loads hauled via van equipment increased 9%, loads hauled via unsided/platform equipment increased 10%, loads hauled via less-than-truckload increased 10% and other truck transportation services load count increased 20% as compared to the 2021 thirteen-week period.

The number of loads hauled via truck increased 13%, 11% and 8% in April, May and June, respectively, as compared to the corresponding periods in 2021.

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 $57,052,000 and $26,340,000 in the 2022 and 2021 thirteen-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 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.

Transportation revenue generated by multimode capacity providers for the 2022 thirteen-week period was $202,269,000, or 10% of total revenue, an increase of $97,669,000, or 93%, compared to the 2021 thirteen-week period.

Revenue per load on revenue generated by multimode capacity providers increased approximately 114% in the 2022 thirteen-week period compared to the 2021 thirteen-week period, while the number of loads hauled by multimode capacity providers decreased approximately 10% over the same period.

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

and global economic recoveries coupled with the impact of global supply chain disruptions which were particularly acute with respect to international ocean and air freight.

Revenue per load on loads hauled via ocean, air and rail intermodal increased 128%, 122% and 25%, respectively, during the 2022 thirteen-week period as compared to the 2021 thirteen-week period.

Revenue per load on loads hauled via air, ocean and rail intermodal increased 160%, 119% and 28%, 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 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.

The decrease in the number of loads hauled by multimode capacity providers was due to a 23% decrease in rail loadings and a 21% decrease in air loadings, partially offset by a 28% increase in ocean loadings.

The 23% decrease in rail loadings was broad-based across several agencies and customers, while the 21% decrease in air loadings was entirely attributable to one specific customer.

The 28% increase in ocean loadings was due to a broad-based increase in demand across many customers for the Company’s ocean services.

Purchased transportation was 78.3% and 78.2% of revenue in the 2022 and 2021 thirteen-week periods, respectively.

(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.

and (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, partially offset by a lower rate of purchased transportation on revenue generated by Truck Brokerage Carriers.

Commissions to agents were 8.2% and 7.7% 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 an increased cost of purchased transportation as a percentage of revenue on revenue generated by Truck Brokerage Carriers.

Investment income was $586,000 and $748,000 in the 2022 and 2021 thirteen-week periods, respectively.

The decrease in investment income was primarily attributable to a lower average investment balance held by the insurance segment in the 2022 thirteen-week period, partially offset by higher average rates of return on investments in the 2022 thirteen-week period.

Other operating costs increased $1,478,000 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 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.

The increase in other operating costs compared to the prior year was primarily due to (i) increased trailing equipment maintenance costs as a result of (x) increased labor and parts costs as the Company retained older equipment to support current business levels, and (y) an increased average trailer fleet size during the 2022 thirteen-week period, and (ii) an increased provision for contractor bad debt, partially offset by increased gains on the sale of operating property.

Insurance and claims increased $9,928,000 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 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.

The increase in insurance and claims expense compared to the prior year was primarily due to increased severity of current year trucking claims during the 2022 thirteen-week period, primarily due to the impact of two tragic vehicular accidents during the 2022 thirteen-week period.

Selling, general and administrative costs increased $4,853,000 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 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.

The increase in selling, general and administrative costs compared to prior year was attributable to increased wages and benefits, an increased provision for customer bad debt and approximately $2,000,000 in expense related to the return of the Company’s annual agent convention held in April 2022, partially offset by a decreased provision for incentive compensation and decreased stock-based compensation expense.

Included in selling, general and administrative costs was incentive compensation expense of $4,524,000 and $8,326,000 for the 2022 and 2021 thirteen-week periods, respectively, and stock-based compensation expense of $3,815,000 and $6,864,000 for the 2022 and 2021 thirteen-week periods, respectively.

Depreciation and amortization expense increased $2,145,000 in the 2022 thirteen-week period compared to the 2021 thirteen-week period.

Interest and debt expense in the 2022 thirteen-week period increased $138,000 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 increase in interest and debt expense was entirely 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 based on an estimated annual effective income tax rates of 24.5% and 24.4%, respectively, adjusted for discrete events, such as benefits resulting from stock-based awards.

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.

The effective income tax rate for the 2022 thirteen-week period was 24.6%, which was higher than the estimated annual effective income tax rate of 24.5%, primarily attributable to tax shortfalls realized on stock-based awards in the 2022 period.

The effective income tax rate in the 2021 thirteen-week period of 23.9% 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 thirteen-week period.

Net income was $112,555,000, or $3.05 per diluted share, in the 2022 thirteen-week period.

1 unchanged sentence

CAPITAL RESOURCES AND LIQUIDITY

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.

Working capital and the ratio of current assets to current liabilities were $527,380,000 and 1.5 to 1, respectively, at June 25, 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 $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”).

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.

Cash provided by operating activities was $209,651,000 in the 2022 twenty-six-week

period compared with $137,176,000 in the 2021 twenty-six-week

The increase in cash flow provided by operating activities was primarily attributable to increased net income as the change in net working capital was relatively consistent in both the 2022 and 2021 twenty-six-week

The Company declared and paid $0.50 per share, or $18,581,000 in the aggregate, in cash dividends during the twenty-six-week

period ended June 25, 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 $0.42 per share, or $16,135,000 in the aggregate, in cash dividends during the twenty-six-week

period ended June 26, 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 twenty-six-week

period ended June 25, 2022, the Company purchased 1,396,761 shares of its common stock at a total cost of $212,632,000.

During the twenty-six-week

period ended June 26, 2021, the Company purchased 150,000 shares of its common stock at a total cost of $23,837,000.

As of June 25, 2022, the Company may purchase in the aggregate up to 1,603,239 shares of its common stock under its authorized stock purchase program.

Long-term debt, including current maturities, was $110,826,000 at June 25, 2022, $978,000 lower than at December 25, 2021.

Shareholders’ equity was $856,870,000, or 89% of total capitalization (defined as long-term debt including current maturities plus equity), at June 25, 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, dividends declared by the Company in the 2022 twenty-six-week

period and taxes paid in lieu of shares issued related to stock-based compensation plans, 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 “First Amended and Restated Credit Agreement”).

As previously disclosed in a Form 8-K

filed with the SEC on July 8, 2022, Landstar entered into a second amended and restated credit agreement, dated July 1, 2022, with a bank syndicate led by JPMorgan Chase Bank, N.A., as administrative agent (the “Second Amended and Restated Credit Agreement”) that superseded and replaced the First Amended and Restated Credit Agreement.

The Second Amended and Restated Credit Agreement which matures July 1, 2027, provides for borrowing capacity in the form of a revolving credit facility of $300,000,000, $45,000,000 of which may be utilized in the form of letters of credit.

The Second Amended and Restated Credit Agreement also includes an “accordion” feature providing for a possible increase of up to an aggregate amount of borrowing capacity of $600,000,000.

The First Amended and Restated Credit Agreement, as superseded and replaced by the Second Amended and Restated Credit Agreement, is referred to herein as the “Credit Agreement.” As of June 25, 2022, there were no borrowings outstanding under the revolving credit facility of the Credit Agreement.

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 Company is required to, among other things, maintain a minimum fixed charge coverage ratio, as described 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.

3 unchanged sentences

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

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.

At June 25, 2022, the Company had no borrowings outstanding and $33,495,000 of letters of credit outstanding under the Credit Agreement.

At June 25, 2022, there was $216,505,000 available for future borrowings under the Credit Agreement.

In addition, the Company has $76,567,000 in letters of credit outstanding as collateral for insurance claims that are secured by investments totaling $85,074,000 at June 25, 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.

4 unchanged sentences

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

During the 2022 twenty-six-week

period, the Company purchased $7,467,000 of operating property and acquired $18,073,000 of trailing equipment by entering into finance leases.

Landstar anticipates acquiring either by purchase or lease financing during the remainder of fiscal year 2022 approximately $59,000,000 in operating property, consisting primarily of new trailing equipment to replace older trailing equipment and information technology equipment.

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

On April 1, 2022, Landstar Investment Holdco, LLC, a newly formed Delaware LLC and wholly-owned subsidiary of Landstar System Holdings, Inc., purchased Class A units of Cavnue, LLC for approximately $4,999,000 in cash consideration.

Cavnue, LLC is a privately held company focused on combining technology and road infrastructure to unlock the full potential of connected and autonomous vehicles.

LEGAL MATTERS

8 unchanged sentences

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

It is reasonably likely that the ultimate outcome of settling all outstanding claims will be more or less than the estimated claims liability at March 26, 2022.

During the 2022 and 2021 twenty-six-week

periods, insurance and claims costs included $5,381,000 and $980,000 of net unfavorable adjustments to prior years’ claims estimates, respectively.

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

3 unchanged sentences

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