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 thirty-nine weeks ended September 28, 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.
4
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
(Unaudited)
September 28,
2024
December 30,
2023
ASSETS
Current Assets
Cash and cash equivalents
$
468,830
$
481,043
Short-term investments
62,451
59,661
Trade accounts receivable, less allowance of $ 12,134 and $ 11,738
694,633
743,762
Other receivables, including advances to independent contractors, less allowance of $ 16,759 and $ 14,010
51,533
43,339
Other current assets
33,947
24,936
Total current assets
1,311,394
1,352,741
Operating property, less accumulated depreciation and amortization of $ 456,770 and $ 436,682
289,248
284,300
Goodwill
41,122
42,275
Other assets
115,491
122,530
Total assets
$
1,757,255
$
1,801,846
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Cash overdraft
$
50,746
$
61,541
Accounts payable
397,908
395,980
Current maturities of long-term debt
27,672
27,876
Insurance claims
43,370
41,825
Dividends payable
—
71,433
Contractor escrow
30,244
28,498
Other current liabilities
42,712
48,071
Total current liabilities
592,652
675,224
Long-term debt, excluding current maturities
44,834
43,264
Insurance claims
59,861
58,922
Deferred income taxes and other noncurrent liabilities
43,990
40,513
Shareholders’ Equity
Common stock, $ 0.01 par value, authorized 160,000,000 shares, issued 68,559,269
and 68,497,324
shares
686
685
Additional paid-in
capital
255,398
254,642
Retained earnings
2,897,073
2,783,645
Cost of 33,228,096 and 32,780,651 shares of common stock in treasury
( 2,128,684
)
( 2,048,184
)
Accumulated other comprehensive loss
( 8,555
)
( 6,865
)
Total shareholders’ equity
1,015,918
983,923
Total liabilities and shareholders’ equity
$
1,757,255
$
1,801,846
See accompanying notes to consolidated financial statements.
5
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
(Unaudited)
Thirty-Nine Weeks Ended
Thirteen Weeks Ended
September 28,
2024
September 30,
2023
September 28,
2024
September 30,
2023
Revenue
$
3,609,915
$
4,098,877
$
1,213,867
$
1,289,345
Investment income
10,988
6,874
3,922
3,022
Costs and expenses:
Purchased transportation
2,799,384
3,141,234
943,805
986,743
Commissions to agents
295,801
363,397
98,703
115,244
Other operating costs, net of gains on asset sales/dispositions
44,138
40,998
15,144
15,158
Insurance and claims
83,830
86,971
30,398
29,540
Selling, general and administrative
162,613
159,071
51,252
50,975
Depreciation and amortization
44,001
44,498
15,371
14,359
Total costs and expenses
3,429,767
3,836,169
1,154,673
1,212,019
Operating income
191,136
269,582
63,116
80,348
Interest and debt (income) expense
( 4,455
)
( 2,079
)
( 1,169
)
( 1,046
)
Income before income taxes
195,591
271,661
64,285
81,394
Income taxes
45,838
65,254
14,252
19,741
Net income
$
149,753
$
206,407
$
50,033
61,653
Basic and diluted earnings per share
$
4.21
$
5.74
$
1.41
$
1.71
Average basic and diluted shares outstanding
35,608,000
35,958,000
35,420,000
35,951,000
Dividends per common share
$
1.02
$
0.93
$
0.36
$
0.33
See accompanying notes to consolidated financial statements.
6
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(Unaudited)
Thirty-Nine Weeks Ended
Thirteen Weeks Ended
September 28,
2024
September 30,
2023
September 28,
2024
September 30,
2023
Net income
$
149,753
$
206,407
$
50,033
$
61,653
Other comprehensive (loss) income:
Unrealized holding gains on available-for-sale
investments, net of tax expense of $ 828 ,
$ 263 , $ 624 and $ 49
3,023
958
2,277
176
Foreign currency translation (losses) gains
( 4,713
)
2,337
( 1,354
)
( 1,494
)
Other comprehensive (loss) income
( 1,690
)
3,295
923
( 1,318
)
Comprehensive income
$
148,063
$
209,702
$
50,956
$
60,335
See accompanying notes to consolidated financial statements.
7
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Thirty-Nine Weeks Ended
September 28,
2024
September 30,
2023
OPERATING ACTIVITIES
Net income
$
149,753
$
206,407
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
44,001
44,498
Non-cash
interest charges
198
198
Provisions for losses on trade and other accounts receivable
13,058
10,509
Gains on sales/disposals of operating property
( 1,204
)
( 3,846
)
Deferred income taxes, net
( 4,359
)
( 5,595
)
Stock-based compensation
3,573
4,270
Changes in operating assets and liabilities:
Decrease in trade and other accounts receivable
27,877
145,655
Increase in other assets
( 7,884
)
( 13,115
)
Increase (decrease) in accounts payable
727
( 62,652
)
Decrease in other liabilities
( 2,785
)
( 15,734
)
Increase (decrease) in insurance claims
2,484
( 6,810
)
NET CASH PROVIDED BY OPERATING ACTIVITIES
225,439
303,785
INVESTING ACTIVITIES
Sales and maturities of investments
81,072
93,326
Purchases of investments
( 74,297
)
( 86,115
)
Purchases of operating property
( 24,256
)
( 15,394
)
Proceeds from sales of operating property
6,265
6,631
NET CASH USED BY INVESTING ACTIVITIES
( 11,216
)
( 1,552
)
FINANCING ACTIVITIES
Decrease in cash overdraft
( 10,795
)
( 44,886
)
Dividends paid
( 107,758
)
( 105,302
)
Proceeds from exercises of stock options
—
28
Taxes paid in lieu of shares issued related to stock-based compensation plans
( 3,928
)
( 9,186
)
Purchases of common stock
( 78,697
)
( 15,433
)
Principal payments on finance lease obligations
( 22,872
)
( 28,017
)
NET CASH USED BY FINANCING ACTIVITIES
( 224,050
)
( 202,796
)
Effect of exchange rate changes on cash and cash equivalents
( 2,386
)
643
(Decrease) increase in cash and cash equivalents
( 12,213
)
100,080
Cash and cash equivalents at beginning of period
481,043
339,581
Cash and cash equivalents at end of period
$
468,830
$
439,661
See accompanying notes to consolidated financial statements.
8
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Thirty-Nine and Thirteen Weeks Ended September 28, 2024 and September 30, 2023
(Dollars in thousands)
(Unaudited)
Common Stock
Additional
Paid-In
Retained
Treasury Stock at Cost
Accumulated
Other
Comprehensive
Shares
Amount
Capital
Earnings
Shares
Amount
(Loss) Income
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
Net income
52,624
52,624
Dividends ($ 0.33 per share)
( 11,777
)
( 11,777
)
Purchases of common stock
315,649
( 56,995
)
( 56,995
)
Issuance of stock related to stock-based compensation plans
6,374
1
1,112
( 201
)
( 200
)
Stock-based compensation
1,892
1,892
Other comprehensive loss
( 2,643
)
( 2,643
)
Balance June 29, 2024
68,553,927
$
686
$
256,084
$
2,859,786
33,102,276
$
( 2,106,266
)
$
( 9,478
)
$
1,000,812
Net income
50,033
50,033
Dividends ($ 0.36 per share)
( 12,746
)
( 12,746
)
Purchases of common stock
121,270
( 22,393
)
( 22,393
)
Issuance of stock related to stock-based compensation plans
5,342
( 643
)
4,550
( 25
)
( 668
)
Stock-based compensation
( 43
)
( 43
)
Other comprehensive income
923
923
Balance September 28, 2024
68,559,269
$
686
$
255,398
$
2,897,073
33,228,096
$
( 2,128,684
)
$
( 8,555
)
$
1,015,918
9
Common Stock
Additional
Paid-In
Capital
Retained
Earnings
Treasury Stock at Cost
Accumulated
Other
Comprehensive
(Loss) Income
Total
Shares
Amount
Shares
Amount
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
Net income
66,559
66,559
Dividends ($ 0.30 per share)
( 10,780
)
( 10,780
)
Issuance of stock related to stock-based compensation plans
13,361
( 926
)
( 926
)
Stock-based compensation
1,274
1,274
Other comprehensive income
1,782
1,782
Balance July 1, 2023
68,497,324
$
685
$
253,486
$
2,759,128
32,550,852
$
( 2,009,327
)
$
( 10,411
)
$
993,561
Net income
61,653
61,653
Dividends ($ 0.33 per share)
( 11,862
)
( 11,862
)
Issuance of stock related to stock-based compensation plans
128
( 24
)
( 24
)
Stock-based compensation
1,144
1,144
Other comprehensive loss
( 1,318
)
( 1,318
)
Balance September 30, 2023
68,497,324
$
685
$
254,630
$
2,808,919
32,550,980
$
( 2,009,351
)
$
( 11,729
)
$
1,043,154
See accompanying notes to consolidated financial statements.
10
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 thirty-nine-week and thirteen-week periods ended September 28, 2024 and September 30, 2023 (dollars in thousands):
Thirty-Nine Weeks Ended
Thirteen Weeks Ended
Mode
September 28,
2024
September 30,
2023
September 28,
2024
September 30,
2023
Truck – BCO Independent Contractors
38
%
38
%
38
%
39
%
Truck – Truck Brokerage Carriers
52
%
54
%
52
%
52
%
Rail intermodal
2
%
2
%
2
%
2
%
Ocean and air cargo carriers
6
%
5
%
6
%
5
%
Truck Equipment Type
Van equipment
$
1,851,237
$
2,123,693
$
603,993
$
665,569
Unsided/platform equipment
$
1,093,753
$
1,150,483
$
369,758
$
378,147
Less-than-truckload
$
77,902
$
90,770
$
24,195
$
28,097
Other truck transportation (1)
$
242,853
$
379,471
$
93,178
$
101,951
(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.
11
(2) Share-based Payment Arrangements
As
of September 28, 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):
Thirty-Nine Weeks Ended
Thirteen Weeks Ended
September 28,
2024
September 30,
2023
September 28,
2024
September 30,
2023
Total cost of the Plans during the period
$
3,573
$
4,270
$
( 43
)
$
1,144
Amount of related income tax benefit recognized during the period
( 1,997
)
( 3,878
)
( 313
)
( 286
)
Net cost of the Plans during the period
$
1,576
$
392
$
( 356
)
$
858
Included in income tax benefits recognized in the thirty-nine-week periods ended September 28, 2024 and September 30, 2023 were excess tax benefits from stock-based awards of $ 1,122,000 and $ 2,830,000 , respectively.
As of September 28, 2024, there were 181,450 shares of the Company’s common stock reserved for issuance under the 2022 DSCP and 2,800,060 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
Weighted Average
Grant Date
RSUs
Fair Value
Outstanding at December 30, 2023
132,722
$
138.93
Granted
102,762
$
138.85
Shares earned in excess of target (1)
1,791
$
51.42
Vested shares
( 45,057
)
$
115.69
Forfeited
( 29,801
)
$
140.20
Outstanding at September 28, 2024
162,417
$
144.13
(1)
Represents additional shares earned under the April 24, 2018 and July 1, 2019 RSU awards as total shareholder return during the applicable performance period exceeded target performance level under each of those awards.
During the thirty-nine-week period ended September 28, 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 September 28, 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.
12
The Company recognized approximately $ 408,000 and $ 1,503,000 of share-based compensation expense related to RSU awards in the thirty-nine-week periods ended September 28, 2024 and September 30, 2023, respectively. As of September 28, 2024, there was a maximum of $ 40.7 million of total unrecognized compensation cost related to RSU awards granted under the Plans with an expected average remaining life of approximately 3.6 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
31,525
$
187.08
Vested
( 25,647
)
$
151.16
Forfeited
( 4,707
)
$
169.92
Non-vested
at September 28, 2024
47,519
$
180.17
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 September 28, 2024, there was $ 5,754,000 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 1.8 years.
Stock Options
The Company had no 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 or September 28, 2024. The total intrinsic value of stock options exercised during the thirty-nine-week period ended September 30, 2023 was $ 218,000 .
(3) Income Taxes
The
provisions for income taxes for the 2024 and 2023 thirty-nine-week periods were based on estimated annual effective income tax rates of 24.3 % and 24.4 %, respectively, adjusted for discrete events, such as benefits resulting from stock-based awards. The effective income tax rate for the 2024 thirty-nine-week period was 23.4 %. 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, partially offset by federal tax credits. The effective income tax rate for the 2023 thirty-nine-week period was 24.0 %. 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.
13
(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 thirty-nine-week and thirteen-week periods ended September 28, 2024 and September 30, 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 thirty-nine-week period ended September 28, 2024, there were no outstanding stock options issued by the Company. For the thirty-nine-week period ended September 30, 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 thirty-nine-week and 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 thirty-
nine -week period, Landstar paid income taxes and interest of $
45,638,000 and $
2,641,000 , respectively. During the
2023 thirty-
nine -week period, Landstar paid income taxes and interest of $
68,136,000 and $
2,814,000 , respectively. Landstar acquired operating property by entering into finance leases in the amount of $
24,238,000 in the
2024 thirty-
nine -week period. Landstar acquired $
6,690,000 of operating property for which the Company accrued a corresponding liability in accounts payable of $
1,201,000 and in other noncurrent liabilities of $
5,489,000 as of September
28 ,
2024 . Landstar did not acquire any operating property by entering into finance leases in the
2023 thirty-
nine -week period. During the
2024 thirty-
nine -week period, the Company purchased its common stock at a total cost of $
79,388 ,000 , including $
78,697 ,000 in cash purchases and accrued excise tax of $
691,000 , which is included in other current liabilities in the consolidated balance sheet at September
28 ,
2024
.
(6) Segment Information
The following
table summarizes information about the Company’s reportable business segments
as of and for the thirty-
nine -week and
thirteen -week periods ended September
28 ,
2024 and September
30 ,
2023 (in thousands):
Thirty-Nine Weeks Ended
September 28, 2024
September 30, 2023
Transportation
Logistics
Insurance
Total
Transportation
Logistics
Insurance
Total
External revenue
$
3,561,941
$
47,974
$
3,609,915
$
4,043,824
$
55,053
$
4,098,877
Internal revenue
65,411
65,411
64,138
64,138
Investment income
10,988
10,988
6,874
6,874
Operating income
141,070
50,066
191,136
222,827
46,755
269,582
Expenditures on long-lived assets
24,256
24,256
15,394
15,394
Goodwill
41,122
41,122
41,934
41,934
Thirteen Weeks Ended
September 28, 2024
September 30, 2023
Transportation
Logistics
Insurance
Total
Transportation
Logistics
Insurance
Total
External revenue
$
1,198,334
$
15,533
$
1,213,867
$
1,271,385
$
17,960
$
1,289,345
Internal revenue
12,065
12,065
11,960
11,960
Investment income
3,922
3,922
3,022
3,022
Operating income
47,618
15,498
63,116
63,974
16,374
80,348
Expenditures on long-lived assets
7,478
7,478
2,763
2,763
In the thirty-nine-week periods ended September 28, 2024 and September 30, 2023, no single customer accounted for more than 10 % of the Company’s consolidated revenue.
14
(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 thirty-nine-week period ended September 28, 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)
3,023
( 4,713
)
( 1,690
)
Balance as of September 28, 2024
$
( 1,987
)
$
( 6,568
)
$
( 8,555
)
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 thirty-nine-week period ended September 28, 2024.
(8) Investments
Investments
include primarily investment-grade corporate bonds, asset-backed securities and commercial paper 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 statements 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 money market investments and Level 2 inputs related to investment-grade corporate bonds, asset-backed securities, commercial paper and direct obligations of government agencies. Unrealized losses, net of unrealized gains, on the investments in the bond portfolio
were $ 2,531,000 and $ 6,382,000 at September 28, 2024 and December 30, 2023, respectively.
15
The amortized cost and fair values of available-for-sale
investments are as follows at September 28, 2024 and December 30, 2023 (in thousands):
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
September 28, 2024
Money market investments
$
14,998
$
—
$
—
$
14,998
Asset-backed securities
17,535
21
1,563
15,993
Corporate bonds, commercial paper and direct obligations of government
agencies
118,857
998
1,987
117,868
Total
$
151,390
$
1,019
$
3,550
$
148,859
December 30, 2023
Money market investments
$
16,832
$
—
$
—
$
16,832
Asset-backed securities
16,543
—
2,236
14,307
Corporate bonds, commercial paper 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
For those available-for-sale
investments with unrealized losses at September 28, 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
September 28, 2024
Asset-backed securities
$
—
$
—
$
13,107
$
1,563
$
13,107
$
1,563
Corporate bonds, commercial paper, and direct obligations of government agencies
—
—
65,324
1,987
65,324
1,987
Total
$
—
$
—
$
78,431
$
3,550
$
78,431
$
3,550
December 30, 2023
Asset-backed securities
$
—
$
—
$
14,307
$
2,236
$
14,307
$
2,236
Corporate bonds, commercial paper, 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.
16
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 thirty-nine weeks ended September 28, 2024 were (in thousands):
Finance leases:
Amortization of right-of-use
assets
$
12,901
Interest on lease liability
1,863
Total finance lease cost
14,764
Operating leases:
Lease cost
2,883
Variable lease cost
—
Sublease income
( 4,273
)
Total net operating lease income
( 1,390
)
Total net lease cost
$
13,374
17
A summary of the lease classification on the Company’s consolidated balance sheet as of September 28, 2024 is as follows (in thousands):
Assets:
Operating lease right-of-use
assets
Other assets
$
1,074
Finance lease assets
Operating property, less accumulated
depreciation and amortization
108,185
Total lease assets
$
109,259
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 September 28, 2024 (in thousands):
Finance
Leases
Operating
Leases
2024 Remainder
$
8,069
$
191
2025
28,968
533
2026
21,074
213
2027
10,686
175
2028
6,584
49
Thereafter
2,963
—
Total future minimum lease payments
78,344
1,161
Less amount representing interest ( 1.6 % to 6.5 %)
5,838
87
Present value of minimum lease payments
$
72,506
$
1,074
Current maturities of long-term debt
27,672
Long-term debt, excluding current maturities
44,834
Other current liabilities
618
Deferred income taxes and other noncurrent liabilities
456
The weighted average remaining lease term and the weighted average discount rate for finance and operating leases as of September 28, 2024 were:
Finance Leases
Operating Leases
Weighted average remaining lease term (years)
3.2
2.4
Weighted average discount rate
4.2
%
6.5
%
(10) Debt
Other
than the finance lease obligations as presented on the consolidated balance sheets, the Company had no outstanding debt as of September 28, 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 (as further amended as of June 21, 2024, 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 September 28, 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
.
18
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 $ 62,451,000 in current maturities of investments held by the Company’s insurance segment at September 28, 2024. The non-current
portion of the bond portfolio of $ 86,408,000 is included in other assets. The short-term investments, together with $ 18,790,000 of non-current
investments, provide collateral for the $ 73,117,000 of letters of credit issued to guarantee payment of insurance claims. As of September 28, 2024, Landstar also had $ 35,250,000 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) Change in Accounting Estimate for Self-Insured Claims
Landstar
provides for the estimated costs of self-insured claims primarily on an actuarial basis. The amount recorded for the estimated liability for claims incurred is based upon the facts and circumstances known on the applicable balance sheet date. The ultimate resolution of these claims may be for an amount greater or less than the amount estimated by management. The Company continually revises its existing claim estimates as new or revised information becomes available on the status of each claim. Historically, the Company has experienced both favorable and unfavorable development of prior years’ claims estimates within its various programs.
The following table summarizes the adverse effect of the increase in the cost of insurance claims resulting from unfavorable development of prior year self-insured claims estimates on operating income, net income and basic and diluted earnings per share set forth in the consolidated statements of income for the thirty-nine-week and thirteen-week periods ended September 28, 2024 and September 30, 2023 (in thousands, except per share
amounts):
Thirty-Nine Weeks Ended
Thirteen Weeks Ended
September 28,
2024
September 30,
2023
September 28,
2024
September 30,
2023
Operating income
$
6,666
$
5,154
$
4,550
$
2,323
Net income
$
5,046
$
3,896
$
3,444
$
1,756
Basic and diluted earnings per share
$
0.14
$
0.11
$
0.10
$
0.05
19
(13) 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 expects ASU 2023-07
to impact only its disclosures with no impacts to its financial condition, results of operations or cash flows.
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.
20
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.