Item 1. Financial Statements
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 twenty six weeks ended June 25, 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
Table of Contents
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
(Unaudited)
June 25,
2022
December 25,
2021
ASSETS
Current Assets
Cash and cash equivalents
$
78,220
$
215,522
Short-term investments
41,549
35,778
Trade accounts receivable, less allowance of $ 9,940 and $ 7,074
1,216,518
1,154,314
Other receivables, including advances to independent contractors, less allowance
of $ 9,856 and $ 8,125
114,794
101,124
Other current assets
54,190
16,162
Total current assets
1,505,271
1,522,900
Operating property, less accumulated depreciation
and amortization of $ 369,344 and $ 344,099
314,191
317,386
Goodwill
40,977
40,768
Other assets
156,628
164,411
Total assets
$
2,017,067
$
2,045,465
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Cash overdraft
$
113,603
$
116,478
Accounts payable
670,534
604,130
Current maturities of long-term debt
36,827
36,561
Insurance claims
53,971
46,896
Dividends payable
—
75,387
Other current liabilities
102,956
130,531
Total current liabilities
977,891
1,009,983
Long-term debt, excluding current maturities
73,999
75,243
Insurance claims
53,303
49,509
Deferred income taxes and other noncurrent liabilities
55,004
48,720
Shareholders’ Equity
Common stock, $ 0.01 par value, authorized 160,000,000 shares, issued 68,376,934 and 68,232,975 shares
684
682
Additional paid-in
capital
252,045
255,148
Retained earnings
2,535,997
2,317,184
Cost of 31,946,616 and 30,539,235 shares of common stock in treasury
( 1,919,535
)
( 1,705,601
)
Accumulated other comprehensive loss
( 12,321
)
( 5,403
)
Total shareholders’ equity
856,870
862,010
Total liabilities and shareholders’ equity
$
2,017,067
$
2,045,465
See accompanying notes to consolidated financial statements.
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Table of Contents
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
(Unaudited)
Twenty Six Weeks Ended
Thirteen Weeks Ended
June 25,
2022
June 26,
2021
June 25,
2022
June 26,
2021
Revenue
$
3,945,663
$
2,858,252
$
1,975,064
$
1,570,718
Investment income
1,307
1,432
586
748
Costs and expenses:
Purchased transportation
3,096,018
2,226,526
1,545,688
1,228,241
Commissions to agents
311,634
221,702
161,856
121,693
Other operating costs, net of gains on asset sales/dispositions
21,522
16,545
10,381
8,903
Insurance and claims
64,820
45,629
34,052
24,124
Selling, general and administrative
111,680
99,522
58,967
54,114
Depreciation and amortization
28,045
24,244
14,288
12,143
Total costs and expenses
3,633,719
2,634,168
1,825,232
1,449,218
Operating income
313,251
225,516
150,418
122,248
Interest and debt expense
2,228
2,009
1,105
967
Income before income taxes
311,023
223,507
149,313
121,281
Income taxes
73,629
53,973
36,758
28,987
Net income
$
237,394
$
169,534
$
112,555
$
92,294
Diluted earnings per share
$
6.39
$
4.41
$
3.05
$
2.40
Average diluted shares outstanding
37,162,000
38,403,000
36,905,000
38,402,000
Dividends per common share
$
0.50
$
0.42
$
0.25
$
0.21
See accompanying notes to consolidated financial statements.
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LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(Unaudited)
Twenty Six Weeks Ended
Thirteen Weeks Ended
June 25,
2022
June 26,
2021
June 25,
2022
June 26,
2021
Net income
$
237,394
$
169,534
$
112,555
$
92,294
Other comprehensive (loss) income:
Unrealized holding losses on available-for-sale
investments, net of tax benefit of $ 2,025 , $ 243 , $ 604 and $ 96
( 7,391
)
( 883
)
( 2,204
)
( 349
)
Foreign currency translation gains (losses)
473
1,030
( 802
)
1,450
Other comprehensive (loss) income
( 6,918
)
147
( 3,006
)
1,101
Comprehensive income
$
230,476
$
169,681
$
109,549
$
93,395
See accompanying notes to consolidated financial statements.
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LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Twenty Six Weeks Ended
June 25,
2022
June 26,
2021
OPERATING ACTIVITIES
Net income
$
237,394
$
169,534
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
28,045
24,244
Non-cash
interest charges
224
224
Provisions for losses on trade and other accounts receivable
6,359
1,393
Gains on sales/disposals of operating property
( 1,213
)
( 766
)
Deferred income taxes, net
5,999
6,240
Stock-based compensation
5,810
10,893
Changes in operating assets and liabilities:
Increase in trade and other accounts receivable
( 82,233
)
( 55,236
)
Increase in other assets
( 42,742
)
( 24,704
)
Increase in accounts payable
66,404
101,206
(Decrease) increase in other liabilities
( 25,265
)
7,882
Increase (decrease) in insurance claims
10,869
( 103,734
)
NET CASH PROVIDED BY OPERATING ACTIVITIES
209,651
137,176
INVESTING ACTIVITIES
Sales and maturities of investments
21,918
17,242
Purchases of investments
( 23,883
)
( 68,366
)
Purchases of operating property
( 7,467
)
( 9,000
)
Proceeds from sales of operating property
2,358
1,438
Purchase of non-marketable
securities
( 4,999
)
—
NET CASH USED BY INVESTING ACTIVITIES
( 12,073
)
( 58,686
)
FINANCING ACTIVITIES
Decrease in cash overdraft
( 2,875
)
( 4,194
)
Dividends paid
( 93,968
)
( 92,905
)
Proceeds from exercises of stock options
56
77
Taxes paid in lieu of shares issued related to stock-based compensation plans
( 10,269
)
( 2,341
)
Purchases of common stock
( 212,632
)
( 23,837
)
Principal payments on finance lease obligations
( 19,051
)
( 19,143
)
Payment of deferred consideration
—
( 168
)
NET CASH USED BY FINANCING ACTIVITIES
( 338,739
)
( 142,511
)
Effect of exchange rate changes on cash and cash equivalents
( 190
)
1,071
Decrease in cash, cash equivalents and restricted cash
( 141,351
)
( 62,950
)
Cash, cash equivalents and restricted cash at beginning of period
219,571
249,354
Cash, cash equivalents and restricted cash at end of period
$
78,220
$
186,404
See accompanying notes to consolidated financial statements.
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LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Twenty Six and Thirteen Weeks Ended June 25, 2022 and June 26, 2021
(Dollars in thousands)
(Unaudited)
Common Stock
Additional
Paid-In
Retained
Treasury Stock at Cost
Accumulated
Other
Comprehensive
Shares
Amount
Capital
Earnings
Shares
Amount
Loss
Total
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
Net income
112,555
112,555
Dividends ($ 0.25 per share)
( 9,257
)
( 9,257
)
Purchases of common stock
703,211
( 103,300
)
( 103,300
)
Issuance of stock related to stock-based compensation plans
6,783
—
—
587
( 86
)
( 86
)
Stock-based compensation
3,815
3,815
Other comprehensive loss
( 3,006
)
( 3,006
)
Balance June 25, 2022
68,376,934
$
684
$
252,045
$
2,535,997
31,946,616
$
( 1,919,535
)
$
( 12,321
)
$
856,870
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Table of Contents
Common Stock
Additional
Paid-In
Retained
Treasury Stock at Cost
Accumulated
Other
Comprehensive
Shares
Amount
Capital
Earnings
Shares
Amount
(Loss) Income
Total
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
Net income
92,294
92,294
Dividends ($ 0.21 per share)
( 8,068
)
( 8,068
)
Purchases of common stock
150,000
( 23,837
)
( 23,837
)
Issuance of stock related to stock-based compensation plans
17,584
—
( 1,039
)
355
( 61
)
( 1,100
)
Stock-based compensation
6,864
6,864
Other comprehensive income
1,101
1,101
Balance June 26, 2021
68,229,880
$
682
$
238,422
$
2,199,637
29,954,081
$
( 1,606,716
)
$
( 1,852
)
$
830,173
See accompanying notes to consolidated financial statements.
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Table of Contents
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 twenty-six-week
and thirteen-week periods ended June 25, 2022 and June 26, 2021 (dollars in thousands):
Twenty Six Weeks Ended
Thirteen Weeks Ended
Mode
June 25,
2022
June 26,
2021
June 25,
2022
June 26,
2021
Truck – BCO Independent Contractors
36
%
42
%
35
%
41
%
Truck – Truck Brokerage Carriers
53
%
50
%
54
%
51
%
Rail intermodal
2
%
3
%
2
%
3
%
Ocean and air cargo carriers
8
%
4
%
8
%
4
%
Truck Equipment Type
Van equipment
$
2,108,143
$
1,583,911
$
1,026,938
$
854,509
Unsided/platform equipment
$
883,032
$
689,378
$
474,274
$
391,893
Less-than-truckload
$
70,651
$
54,732
$
36,931
$
29,062
Other truck transportation (1)
$
436,656
$
309,655
$
209,055
$
168,723
(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.
10
Table of Contents
(2)
Share-based Payment Arrangements
As of June 25, 2022, the Company has an employee equity incentive plan, the 2011 equity incentive plan (the “2011 EIP”). The Company also had two stock compensation plans 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”) and the 2022 Directors Stock Compensation Plan (the “2022 DSCP”), which replaced the 2013 DSCP. At the Company’s 2022 Annual Meeting of Stockholders held on May 11, 2022, the Company’s stockholders approved the 2022 DSCP. The provisions of the 2022 DSCP are substantially similar to the provisions of the 2013 DSCP.
6,000,000 shares of the Company’s common stock were authorized for issuance under the 2011 EIP, and 200,000 shares of the Company’s common stock were authorized for issuance under the 2022 DSCP. No further grants can be made under the 2013 DSCP, including 56,502 shares of the C
ompany’s c
ommon s
tock previously reserved for issuance, but not issued, under the 2013 DSCP. The 2011 EIP, 2013 DSCP and 2022 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):
Twenty Six Weeks
Ended
Thirteen Weeks
Ended
June 25,
2022
June 26,
2021
June 25,
2022
June 26,
2021
Total cost of the Plans during the period
$
5,810
$
10,893
$
3,815
$
6,864
Amount of related income tax benefit recognized during the period
( 4,270
)
( 3,717
)
( 910
)
( 2,376
)
Net cost of the Plans during the period
$
1,540
$
7,176
$
2,905
$
4,488
Included in income tax benefits recognized in the twenty-six-
week periods ended June 25, 2022 and June 26, 2021 were excess tax benefits from stock-based awards of $ 2,844,000 and $ 1,038,000 , respectively.
As of June 25, 2022, there were 193,217 shares of the Company’s common stock reserved for issuance under the 2022 DSCP and 3,233,908 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
49,596
$
139.67
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
( 16,768
)
$
105.35
Outstanding at June 25, 2022
159,358
$
115.55
(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 twenty-six-week
period ended June 25, 2022, the Company granted RSUs with a performance condition. Outstanding RSUs at both December 25, 2021 and June 25, 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 $ 4,203,000 and $ 9,249,000 of share-based compensation expense related to RSU awards in the twenty-six-week
periods ended June 25, 2022 and June 26, 2021, respectively. As of June 25, 2022, there was a maximum of $ 23.9 million of total unrecognized compensation cost related to RSU awards granted under the Plans with an expected average remaining life of approximately 3.8 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.
11
Table of Contents
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
23,791
$
153.11
Vested
( 27,074
)
$
122.68
Forfeited
( 2,302
)
$
108.59
Non-vested
at June 25, 2022
50,851
$
140.31
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 2022 DSCP, 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 June 25, 2022, there was $ 5,692,000 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 2.0 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 June 25, 2022
5,070
$
56.40
0.6
$
464
Options exercisable at June 25, 2022
5,070
$
56.40
0.6
$
464
The total intrinsic value of stock options exercised during the twenty-six-week
periods ended June 25, 2022 and June 26, 2021 was $ 369,000 and $ 521,000 , respectively.
As of June 25, 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 twenty-six-week
periods were based on 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 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 for the 2021 twenty-six-week
period was 24.1 %, which was lower than the estimated annual effective income tax rate of 24.4 % primarily attributable to excess tax benefits realized on stock-based awards.
12
Table of Contents
(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 twenty-six-week
and 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 twenty-six-week
periods ended June 25, 2022 and June 26, 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 twenty-six-week
period, Landstar paid income taxes and interest of $ 95,730,000 and $ 2,098,000 , respectively. During the 2021 twenty-six-week
period, Landstar paid income taxes and interest of $ 51,679,000 and $ 1,883,000 , respectively. Landstar acquired operating property by entering into finance leases in the amount of $ 18,073,000 in the 2022 twenty-six-week
period. Landstar did no t acquire any operating property by entering into finance leases in the 2021 twenty-six-week
period.
(6)
Segment Information
The following table summarizes information about the Company’s reportable business segments as of and for the twenty-six-week
and thirteen-week periods ended June 25, 2022 and June 26, 2021:
Twenty Six Weeks Ended
June 25, 2022
June 26, 2021
Transportation
Logistics
Insurance
Total
Transportation
Logistics
Insurance
Total
External revenue
$
3,906,558
$
39,105
$
3,945,663
$
2,823,557
$
34,695
$
2,858,252
Internal revenue
52,870
52,870
43,495
43,495
Investment income
1,307
1,307
1,432
1,432
Operating income
291,890
21,361
313,251
199,960
25,556
225,516
Expenditures on long-lived assets
7,467
7,467
9,000
9,000
Goodwill
40,977
40,977
40,973
40,973
Thirteen Weeks Ended
June 25, 2022
June 26, 2021
Transportation
Logistics
Insurance
Total
Transportation
Logistics
Insurance
Total
External revenue
$
1,955,219
$
19,845
$
1,975,064
$
1,553,058
$
17,660
$
1,570,718
Internal revenue
39,986
39,986
33,961
33,961
Investment income
586
586
748
748
Operating income
139,944
10,474
150,418
110,228
12,020
122,248
Expenditures on long-lived assets
3,858
3,858
4,924
4,924
In the twenty-six-week
periods ended June 25, 2022 and June 26, 2021, no single customer accounted for more than 10 % of the Company’s consolidated revenue.
1 3
Table of Contents
(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 twenty-six-week
period ended June 25, 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
( 7,391 )
473
( 6,918 )
Balance as of June 25, 2022
$
( 7,278 )
$
( 5,043 )
$
( 12,321 )
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 twenty-six-week
period ended June 25, 2022.
(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 $ 9,272,000 at June 25, 2022, while unrealized gains, net of unrealized losses, on the investments in the bond portfolio were $ 144,000 at December 25, 2021.
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The amortized cost and fair values of available-for-
sale
investments are as follows at June 25, 2022 and December 25, 2021 (in thousands):
Gross
Gross
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
June 25, 2022
Money market investments
$
25,368
$
—
$
—
$
25,368
Asset-backed securities
20,504
—
2,135
18,369
Corporate bonds and direct obligations of
government agencies
124,513
29
7,104
117,438
U.S. Treasury obligations
2,342
—
62
2,280
Total
$
172,727
$
29
$
9,301
$
163,455
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
For those available-for-sale
investments with unrealized losses at June 25, 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
June 25, 2022
Asset-backed securities
$
18,369
$
2,135
$
—
$
—
$
18,369
$
2,135
Corporate bonds and direct obligations of
government agencies
90,412
5,659
15,412
1,445
105,824
7,104
U.S. Treasury obligations
2,280
62
—
—
2,280
62
Total
$
111,061
$
7,856
$
15,412
$
1,445
$
126,473
$
9,301
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.
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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.
The components of lease cost for finance leases and operating leases for the twenty six weeks ended June 25, 2022 were (in thousands):
Finance leases:
Amortization of right-of-use
assets
$
10,792
Interest on lease liability
1,351
Total finance lease cost
12,143
Operating leases:
Lease cost
1,757
Variable lease cost
—
Sublease income
( 2,524
)
Total net operating lease income
( 767
)
Total net lease cost
$
11,376
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A summary of the lease classification on our consolidated balance sheet as of June 25, 2022 is as follows (in thousands):
Assets:
Operating lease right-of-use
assets
Other assets
$
1,743
Finance lease assets
Operating property, less accumulated depreciation and amortization
148,084
Total lease assets
$
149,827
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 June 25, 2022 (in thousands):
Finance
Leases
Operating
Leases
2022 Remainder
$
20,806
$
388
2023
35,904
639
2024
26,048
535
2025
19,838
284
2026
11,698
—
Thereafter
1,884
—
Total future minimum lease payments
116,178
1,846
Less amount representing interest ( 1.6 % to 4.6 %)
5,352
103
Present value of minimum lease payments
$
110,826
$
1,743
Current maturities of long-term debt
36,827
Long-term debt, excluding current maturities
73,999
Other current liabilities
712
Deferred income taxes and other noncurrent liabilities
1,031
The weighted average remaining lease term and the weighted average discount rate for finance and operating leases as of June 25, 2022 were:
Finance Leases
Operating Leases
Weighted average remaining lease term (years)
3.6
2.8
Weighted average discount rate
2.8
%
4.0
%
(10) Debt
Other than finance lease obligations as presented on the consolidated balance sheets, the Company had no outstanding debt as of June 25, 2022 and 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 “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 Second Amended and Restated Credit Agreement, which superseded and replaced the First 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.
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The revolving credit loans under the Credit Agreement, at the option of Landstar, bear interest at (i) a forward-looking term rate based on the secured overnight financing rate plus 0.10 % and 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 0.20 % to 0.30 %, based on the Company’s Leverage Ratio at the end of the most recent applicable fiscal quarter for which financial statements have been delivered.
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 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. 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 $ 41,549,000 in current maturities of investments held by the Company’s insurance segment at June 25, 2022. The non-current
portion of the bond portfolio of $ 121,906,000 is included in other assets. The short-term investments, together with $ 43,525,000 of non-current
investments, provide collateral for the $ 76,567,000 of letters of credit issued to guarantee payment of insurance claims. As of June 25, 2022, Landstar also had $ 33,495,000 of additional letters of credit outstanding under the 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.
(12) Equity investment
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.
This non-controlling investment
in units of Cavnue, LLC, is considered an investment in non-marketable
equity securities without a readily determinable market value. The carrying value of our non-marketable
equity securities going forward will be adjusted to fair value upon observable transactions for identical or similar investments of the same issuer or impairment (referred to as the measurement alternative).
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.