LANDSTAR SYSTEM INC 10-Q

Item 1. Financial Statements The interim consolidated financial statements contained herein reflect all adjustments (all of a normal, recurring nature) which, in the opinion of management, are necessary for a fair statement of the financial condition, results of operations, cash flows and changes in shareholders’ equity for the periods presented. They have been prepared in accordance with Rule 10-01 of Regulation S-X and do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. Operating results for the thirteen weeks ended March 30, 2024 are not necessarily indicative of the results that may be expected for the entire fiscal year ending December 28, 2024. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s 2023 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) March 30, 2024 December 30, 2023 ASSETS Current Assets Cash and cash equivalents $ 467,671 $ 481,043 Short-term investments 62,781 59,661 Trade accounts receivable, less allowance of $ 11,764 and $ 11,738 723,841 743,762 Other receivables, including advances to independent contractors, less allowance of $ 14,310 and $ 14,010 40,535 43,339 Other current assets 15,540 24,936 Total current assets 1,310,368 1,352,741 Operating property, less accumulated depreciation and amortization of $ 442,898 and $ 436,682 279,552 284,300 Goodwill 42,381 42,275 Other assets 113,540 122,530 Total assets $ 1,745,841 $ 1,801,846 LIABILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities Cash overdraft $ 51,674 $ 61,541 Accounts payable 384,267 395,980 Current maturities of long-term debt 26,730 27,876 Insurance claims 40,683 41,825 Dividends payable —   71,433 Other current liabilities 86,318 76,569 Total current liabilities 589,672 675,224 Long-term debt, excluding current maturities 38,496 43,264 Insurance claims 59,668 58,922 Deferred income taxes and other noncurrent liabilities 40,094 40,513 Shareholders’ Equity Common stock, $ 0.01 par value, authorized 160,000,000 shares, issued 68,547,553 and 68,497,324 shares 685 685 Additional paid-in capital 254,192 254,642 Retained earnings 2,818,939 2,783,645 Cost of 32,785,515 and 32,780,651 shares of common stock in treasury ( 2,049,070 ) ( 2,048,184 ) Accumulated other comprehensive loss ( 6,835 ) ( 6,865 ) Total shareholders’ equity 1,017,911 983,923 Total liabilities and shareholders’ equity $ 1,745,841 $ 1,801,846 See accompanying notes to consolidated financial statements. 4 Table of Contents LANDSTAR SYSTEM, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per share amounts) (Unaudited) Thirteen Weeks Ended March 30, 2024 April 1, 2023 Revenue $ 1,171,043 $ 1,435,675 Investment income 3,412 1,368 Costs and expenses: Purchased transportation 905,521 1,101,294 Commissions to agents 97,282 125,675 Other operating costs, net of gains on asset sales/dispositions 14,859 12,378 Insurance and claims 26,268 27,647 Selling, general and administrative 56,422 53,567 Depreciation and amortization 14,142 15,198 Total costs and expenses 1,114,494 1,335,759 Operating income 59,961 101,284 Interest and debt (income) expense ( 1,611 ) ( 726 ) Income before income taxes 61,572 102,010 Income taxes 14,476 23,815 Net income $ 47,096 $ 78,195 Basic and diluted earnings per share $ 1.32 $ 2.17 Average basic and diluted shares outstanding 35,750,000 35,982,000 Dividends per common share $ 0.33 $ 0.30 See accompanying notes to consolidated financial statements. 5 Table of Contents LANDSTAR SYSTEM, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Dollars in thousands) (Unaudited) Thirteen Weeks Ended March 30, 2024 April 1, 2023 Net income $ 47,096 $ 78,195 Other comprehensive income (loss): Unrealized holding gains on available-for-sale investments, net of tax expense of $ 92 and $ 306 336 1,120 Foreign currency translation (losses) gains ( 306 ) 1,711 Other comprehensive income 30 2,831 Comprehensive income $ 47,126 $ 81,026 See accompanying notes to consolidated financial statements. 6 Table of Contents LANDSTAR SYSTEM, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited) Thirteen Weeks Ended March 30, 2024 April 1, 2023 OPERATING ACTIVITIES Net income $ 47,096 $ 78,195 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 14,142 15,198 Non-cash interest charges 66 66 Provisions for losses on trade and other accounts receivable 3,854 3,199 Gains on sales/disposals of operating property ( 248 ) ( 1,140 ) Deferred income taxes, net ( 1,259 ) 758 Stock-based compensation 1,724 1,852 Changes in operating assets and liabilities: Decrease in trade and other accounts receivable 18,871 67,776 Decrease in other assets 11,574 8,625 Decrease in accounts payable ( 11,713 ) ( 37,068 ) Increase in other liabilities 10,497 2,640 Decrease in insurance claims ( 396 ) ( 1,066 ) NET CASH PROVIDED BY OPERATING ACTIVITIES 94,208 139,035 INVESTING ACTIVITIES Sales and maturities of investments 19,923 40,349 Purchases of investments ( 15,869 ) ( 31,425 ) Purchases of operating property ( 9,281 ) ( 6,233 ) Proceeds from sales of operating property 1,585 1,645 NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES ( 3,642 ) 4,336 FINANCING ACTIVITIES Decrease in cash overdraft ( 9,867 ) ( 26,758 ) Dividends paid ( 83,235 ) ( 82,660 ) Proceeds from exercises of stock options —   28 Taxes paid in lieu of shares issued related to stock-based compensation plans ( 3,060 ) ( 8,236 ) Purchases of common stock —   ( 15,433 ) Principal payments on finance lease obligations ( 7,239 ) ( 9,408 ) NET CASH USED BY FINANCING ACTIVITIES ( 103,401 ) ( 142,467 ) Effect of exchange rate changes on cash and cash equivalents ( 537 ) 502 (Decrease) increase in cash and cash equivalents ( 13,372 ) 1,406 Cash and cash equivalents at beginning of period 481,043 339,581 Cash and cash equivalents at end of period $ 467,671 $ 340,987 See accompanying notes to consolidated financial statements. 7 Table of Contents LANDSTAR SYSTEM, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY Thirteen Weeks Ended March 30, 2024 and April 1, 2023 (Dollars in thousands) (Unaudited) Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock at Cost Accumulated Other  Comprehensive  (Loss) Income Shares Amount Shares Amount Total Balance December 30, 2023 68,497,324 $ 685 $ 254,642 $ 2,783,645 32,780,651 $ ( 2,048,184 ) $ ( 6,865 ) $ 983,923 Net income 47,096 47,096 Dividends ($ 0.33 per share) ( 11,802 ) ( 11,802 ) Issuance of stock related to stock-based compensation plans 50,229 ( 2,174 ) 4,864 ( 886 ) ( 3,060 ) Stock-based compensation 1,724 1,724 Other comprehensive income 30 30 Balance March 30, 2024 68,547,553 $ 685 $ 254,192 $ 2,818,939 32,785,515 $ ( 2,049,070 ) $ ( 6,835 ) $ 1,017,911 Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock at Cost Accumulated Other Comprehensive (Loss) Income Shares Amount Shares Amount    Total    Balance December 31, 2022 68,382,310 $ 684 $ 258,487 $ 2,635,960 32,455,300 $ ( 1,992,886 ) $ ( 15,024 ) $ 887,221 Net income 78,195 78,195 Dividends ($ 0.30 per share) ( 10,806 ) ( 10,806 ) Purchases of common stock 89,661 ( 15,433 ) ( 15,433 ) Issuance of stock related to stock-based compensation plans 101,653 1 ( 7,201 ) 5,891 ( 1,008 ) ( 8,208 ) Stock-based compensation 1,852 1,852 Other comprehensive income 2,831 2,831 Balance April 1, 2023 68,483,963 $ 685 $ 253,138 $ 2,703,349 32,550,852 $ ( 2,009,327 ) $ ( 12,193 ) $ 935,652 See accompanying notes to consolidated financial statements. 8 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 thirteen-week periods ended March 30, 2024 and April 1, 2023 (dollars in thousands): Thirteen Weeks Ended March 30, 2024 April 1, 2023 Mode Truck – BCO Independent Contractors 39 % 36 % Truck – Truck Brokerage Carriers 53 % 56 % Rail intermodal 2 % 2 % Ocean and air cargo carriers 5 % 4 % Truck Equipment Type Van equipment $ 628,304 $ 755,083 Unsided/platform equipment $ 343,045 $ 377,564 Less-than-truckload $ 25,617 $ 31,558 Other truck transportation (1) $ 71,966 $ 159,503 (1) Includes power-only, expedited, straight truck, cargo van, and miscellaneous other truck transportation revenue generated by the transportation logistics segment. Power-only refers to shipments where the Company furnishes a power unit and an operator but not trailing equipment, which is typically provided by the shipper or consignee. 9 Table of Contents (2) Share-based Payment Arrangements As of March 30, 2024, the Company has an employee equity incentive plan, the 2011 equity incentive plan (the “2011 EIP”). The Company also has a stock compensation plan for members of its Board of Directors, the 2022 Directors Stock Compensation Plan (the “2022 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. The 2011 EIP 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): Thirteen Weeks Ended March 30, 2024 April 1, 2023 Total cost of the Plans during the period $ 1,724 $ 1,852 Amount of related income tax benefit recognized during the period ( 1,152 ) ( 2,751 ) Net cost of the Plans during the period $ 572 $ ( 899 ) Included in income tax benefits recognized in the thirteen-week periods ended March 30, 2024 and April 1, 2023 were excess tax benefits from stock-based awards of $ 729,000 and $ 2,296,000 , respectively. As of March 30, 2024, there were 187,260 shares of the Company’s common stock reserved for issuance under the 2022 DSCP and 2,750,207 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 30, 2023 132,722 $ 138.93 Granted 102,253 $ 138.86 Vested shares ( 36,249 ) $ 131.10 Forfeited ( 2,173 ) $ 148.85 Outstanding at March 30, 2024 196,553 $ 140.23 During the thirteen-week period ended March 30, 2024, the Company granted RSUs with a performance condition and RSUs with a market condition, as further described below. Outstanding RSUs at both December 30, 2023 and March 30, 2024 include RSUs with a performance condition and RSUs with a market condition, as further described below and in the Company’s 2023 Annual Report on Form 10-K. RSUs with a performance condition granted on February 2, 2024 may vest on January 31 of 2027, 2028 and 2029 based on growth in operating income and pre-tax income per diluted share from continuing operations as compared to the results from the 2023 fiscal year. On February 2, 2024, the Company granted 58,268 RSUs that vest based on a market condition. These RSUs may vest based on the achievement of the target Company’s total shareholder return (“TSR”) compound annual growth rate, adjusted to reflect dividends (if any) paid during such periods and capital adjustments as may be necessary, and are eligible to vest annually starting after the sixth anniversary of the grant date and concluding after the tenth anniversary of the grant date. The fair value of this RSU award was determined at the time of grant based on the expected achievement of the market condition. With respect to these RSU awards, the Company reports compensation expense ratably over the service period of the award based on the number of units granted multiplied by the grant date fair value of the RSU. Previously recognized compensation cost would be reversed only if the employee did not complete the requisite service period due to termination of employment. 10 Table of Contents The Company recognized approximately $ 632,000 and $ 958,000 of share-based compensation expense related to RSU awards in the thirteen-week periods ended March 30, 2024 and April 1, 2023, respectively. As of March 30, 2024, there was a maximum of $ 49.3 million of total unrecognized compensation cost related to RSU awards granted under the Plans with an expected average remaining life of approximately 4.5 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. 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 30, 2023 46,348 $ 158.38 Granted 25,151 $ 188.78 Vested ( 16,169 ) $ 152.07 Forfeited ( 295 ) $ 169.89 Non-vested at March 30, 2024 55,035 $ 174.07 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, in two equal annual installments on the first and second anniversary of the date of the grant or 100 % on the first, third 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 the recipient’s separation from service from the Board of Directors, or, if earlier, upon a change in control event of the Company. Deferred Stock Units become vested 100 % on the first anniversary of the date of the grant. Deferred Stock Units do not represent actual ownership in shares of the Company’s common stock and the recipient does not have voting rights or other incidents of ownership until the shares are issued. However, Deferred Stock Units do contain the right to receive dividend equivalent payments prior to settlement into shares. As of March 30, 2024, there was $ 7,427,000 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 2.2 years. Stock Options The Company had no remaining issued and outstanding vested or unvested stock options or unrecognized compensation costs related to non-vested stock options granted under the Plans as of December 30, 2023 and March 30, 2024. The total intrinsic value of stock options exercised during the thirteen-week period ended April 1, 2023 was $ 218,000 . (3) Income Taxes The provisions for income taxes for the 2024 and 2023 thirteen-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 effective income tax rate for the 2024 thirteen-week period was 23.5 %. The effective income tax rate was higher than the statutory federal income tax rate of 21 % in the 2024 period primarily attributable to state taxes. The effective income tax rate for the 2023 thirteen-week period was 23.3 %. The effective income tax rate was higher than the statutory federal income tax rate of 21 % in the 2023 period primarily attributable to state taxes. (4) Earnings Per Share Basic earnings per common share are based on the weighted average number of shares outstanding, which includes outstanding non-vested restricted stock and outstanding Deferred Stock Units. Diluted earnings per share are based on the weighted average number of common shares outstanding plus the incremental shares that would have been outstanding upon the assumed exercise of all dilutive stock options. For each of the thirteen-week periods ended March 30, 2024 and April 1, 2023, the weighted-average number of common shares outstanding is the same for purposes of the calculations of both basic and diluted earnings per share. During and as of the thirteen-week 11 Table of Contents period ended March 30, 2024, there were no outstanding stock options issued by the Company. For the thirteen-week period ended April 1, 2023, the impact on earnings per share of future compensation expense related to outstanding, unvested time-based awards was greater than the incremental impact of outstanding dilutive stock options, and would therefore have an anti-dilutive effect on earnings per share if included in the calculation of earnings per share. Accordingly, the Company had no reconciling items between the average number of common shares outstanding used to calculate basic earnings per common share and the average number of common shares and common share equivalents outstanding used to calculate diluted earnings per share during each of the 2024 and 2023 thirteen-week periods. 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 2024 thirteen-week period, Landstar received income tax refunds, net of income tax payments, of $ 495,000 and paid interest of $ 825,000 . During the 2023 thirteen-week period, Landstar paid income taxes and interest of $ 895,000 and $ 1,030,000 , respectively. Landstar acquired operating property by entering into finance leases in the amount of $ 1,325,000 in the 2024 thirteen-week period. Landstar did not acquire any operating property by entering into finance leases in the 2023 thirteen-week period. (6) Segment Information The following table summarizes information about the Company’s reportable business segments as of and for the thirteen-week periods ended March 30, 2024 and April 1, 2023 (in thousands): Thirteen Weeks Ended March 30, 2024 April 1, 2023 Transportation Logistics Insurance Total Transportation Logistics Insurance Total External revenue $ 1,154,532 $ 16,511 $ 1,171,043 $ 1,416,846 $ 18,829 $ 1,435,675 Internal revenue 12,069 12,069 11,961 11,961 Investment income 3,412 3,412 1,368 1,368 Operating income 42,681 17,280 59,961 86,162 15,122 101,284 Expenditures on long-lived assets 9,281 9,281 6,233 6,233 Goodwill 42,381 42,381 41,726 41,726 In the thirteen-week periods ended March 30, 2024 and April 1, 2023, no single customer accounted for more than 10 % of the Company’s consolidated revenue. (7) Other Comprehensive Income The following table presents the components of and changes in accumulated other comprehensive (loss) income, net of related income taxes, as of and for the thirteen-week period ended March 30, 2024 (in thousands): Unrealized Holding (Losses) Gains on Available-for-Sale Securities Foreign Currency Translation Total Balance as of December 30, 2023 $ ( 5,010 ) $ ( 1,855 ) $ ( 6,865 ) Other comprehensive income (loss) 336 ( 306 ) 30 Balance as of March 30, 2024 $ ( 4,674 ) $ ( 2,161 ) $ ( 6,835 ) Amounts reclassified from accumulated other comprehensive income to investment income due to the realization of previously unrealized gains and losses in the accompanying consolidated statements of income were not significant for the thirteen-week period ended March 30, 2024. 12 Table of Contents (8) Investments Investments include primarily investment-grade corporate bonds, asset-backed securities and U.S. treasury obligations 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 non-credit-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 $ 5,954,000 and $ 6,382,000 at March 30, 2024 and December 30, 2023, respectively. The amortized cost and fair values of available-for-sale investments are as follows at March 30, 2024 and December 30, 2023 (in thousands): Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value March 30, 2024 Money market investments $ 8,303 $ —   $ —   $ 8,303 Asset-backed securities 18,019 2 2,062 15,959 Corporate bonds and direct obligations of government agencies 123,879 143 4,012 120,010 U.S. Treasury obligations 3,832 —   25 3,807 Total $ 154,033 $ 145 $ 6,099 $ 148,079 December 30, 2023 Money market investments $ 16,832 $ —   $ —   $ 16,832 Asset-backed securities 16,543 —   2,236 14,307 Corporate bonds and direct obligations of government agencies 118,481 279 4,384 114,376 U.S. Treasury obligations 6,287 2 43 6,246 Total $ 158,143 $ 281 $ 6,663 $ 151,761 13 Table of Contents For those available-for-sale investments with unrealized losses at March 30, 2024 and December 30, 2023, the following table summarizes the duration of the unrealized loss (in thousands): Less than 12 months 12 months or longer Total Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss March 30, 2024 Asset-backed securities $ —   $ —   $ 13,975 $ 2,062 $ 13,975 $ 2,062 Corporate bonds and direct obligations of government agencies 22,850 135 82,114 3,877 104,964 4,012 U.S. Treasury obligations —   —   2,323 25 2,323 25 Total $ 22,850 $ 135 $ 98,412 $ 5,964 $ 121,262 $ 6,099 December 30, 2023 Asset-backed securities $ —   $ —   $ 14,307 $ 2,236 $ 14,307 $ 2,236 Corporate bonds and direct obligations of government agencies 3,506 42 86,841 4,342 90,347 4,384 U.S. Treasury obligations —   —   2,305 43 2,305 43 Total $ 3,506 $ 42 $ 103,453 $ 6,621 $ 106,959 $ 6,663 The Company believes unrealized losses on investments were primarily caused by rising interest rates rather than changes in credit quality. The Company expects to recover, through collection of all of the contractual cash flows of each security, the amortized cost basis of these securities as it does not intend to sell, and does not anticipate being required to sell, these securities before recovery of the cost basis. For these reasons, no losses have been recognized in the Company’s consolidated statements of income. (9) Leases Landstar’s noncancelable leases are primarily comprised of finance leases for the acquisition of new trailing equipment. Each finance lease for the acquisition of trailing equipment is a five year lease with a $ 1 purchase option for the applicable equipment at lease expiration. Substantially all of Landstar’s operating lease right-of-use assets and operating lease liabilities represent leases for facilities maintained in support of the Company’s network of BCO Independent Contractors and office space used to conduct Landstar’s business. These leases do not have significant rent escalation holidays, concessions, leasehold improvement incentives or other build-out clauses. Further, the leases do not contain contingent rent provisions. Landstar also rents certain trailing equipment to supplement the Company-owned trailer fleet under “month-to-month” lease terms, which are not required to be recorded on the balance sheet due to the less than twelve month lease term exemption. Sublease income is primarily comprised of weekly trailing equipment rentals to BCO Independent Contractors. Most of Landstar’s operating leases include one or more options to renew. The exercise of lease renewal options is typically at Landstar’s sole discretion, and, as such, the majority of renewals to extend the lease terms are not included in the right-of-use assets and lease liabilities as they are not reasonably certain of exercise. Landstar regularly evaluates the renewal options, and when they are reasonably certain of exercise, Landstar includes the renewal period in the lease term. As most of Landstar’s operating leases do not provide an implicit rate, Landstar utilized its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments. Landstar has a centrally managed treasury function; therefore, based on the applicable lease terms and the current economic environment, the Company applies a portfolio approach for determining the incremental borrowing rate. 14 Table of Contents The components of lease cost for finance leases and operating leases for the thirteen weeks ended March 30, 2024 were (in thousands): Finance leases: Amortization of right-of-use assets $ 4,079 Interest on lease liability 550 Total finance lease cost 4,629 Operating leases: Lease cost 1,040 Variable lease cost —   Sublease income ( 1,407 ) Total net operating lease income ( 367 ) Total net lease cost $ 4,262 A summary of the lease classification on the Company’s consolidated balance sheet as of March 30, 2024 is as follows (in thousands): Assets: Operating lease right-of-use assets Other assets $ 1,484 Finance lease assets Operating property, less accumulated depreciation and amortization 97,244 Total lease assets $ 98,728 Liabilities: The following table reconciles the undiscounted cash flows for the finance and operating leases to the finance and operating lease liabilities recorded on the balance sheet at March 30, 2024 (in thousands): Finance Leases Operating Leases 2024 Remainder $ 22,254 $ 629 2025 23,855 547 2026 15,752 213 2027 5,358 176 2028 1,256 49 Thereafter 51 —   Total future minimum lease payments 68,526 1,614 Less amount representing interest ( 1.6 % to 6.5 %) 3,300 130 Present value of minimum lease payments $ 65,226 $ 1,484 Current maturities of long-term debt 26,730 Long-term debt, excluding current maturities 38,496 Other current liabilities 791 Deferred income taxes and other noncurrent liabilities 693 The weighted average remaining lease term and the weighted average discount rate for finance and operating leases as of March 30, 2024 were: Finance Leases Operating Leases Weighted average remaining lease term (years) 2.8 2.6 Weighted average discount rate 3.2 % 6.5 % 15 Table of Contents (10) Debt Other than the finance lease obligations as presented on the consolidated balance sheets, the Company had no outstanding debt as of March 30, 2024 and December 30, 2023. On July 1, 2022 , Landstar entered into a second amended and restated credit agreement with a bank syndicate led by JPMorgan Chase Bank, N.A., as administrative agent (the “Credit Agreement”). The 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 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 . As of March 30, 2024, the Company had no borrowings outstanding under the Credit Agreement. 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 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 $ 62,781,000 in current maturities of investments held by the Company’s insurance segment at March 30, 2024. The non-current portion of the bond portfolio of $ 85,298,000 is included in other assets. The short-term investments, together with $ 22,834,000 of non-current investments, provide collateral for the $ 77,054,000 of letters of credit issued to guarantee payment of insurance claims. As of March 30, 2024, Landstar also had $ 33,492,000 of additional letters of credit outstanding under the Company’s Credit Agreement. The Company is involved in certain claims and pending litigation arising from the normal conduct of business. Many of these claims are covered in whole or in part by insurance. Based on knowledge of the facts and, in certain cases, opinions of outside counsel, management believes that adequate provisions have been made for probable losses with respect to the resolution of all such claims and pending litigation and that the ultimate outcome, after provisions therefor, will not have a material adverse effect on the financial condition of the Company, but could have a material effect on the results of operations in a given quarter or year. (12) Recent Accounting Pronouncements Accounting Standards Issued But Not Yet Adopted In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which expands disclosures about a public entity’s reportable segments and requires more enhanced information about a reportable segment’s expenses, interim segment profit or loss, and how a public entity’s chief operating decision maker uses reported segment profit or loss information in assessing segment performance and allocating resources. ASU 2023-07 is effective for annual periods beginning after December 15, 2023. The Company is currently evaluating the impact of ASU 2023-07 on its consolidated financial statements and related disclosures. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), which expands disclosures in an entity’s income tax rate reconciliation table and regarding cash taxes paid both in the U.S. and foreign jurisdictions. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. ASU 2023-09 is not expected to have a material impact on the Company’s consolidated financial statements and related disclosures. 16