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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM
10-Q
 
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 25, 2022
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to _____________________
Commission File Number:
0-21238
 
 
 
LANDSTAR SYSTEM, INC.
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
06-1313069
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
13410 Sutton Park Drive South, Jacksonville, Florida
(Address of principal executive offices)
32224
(Zip Code)
(904)
398-9400
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock
 
LSTR
 
NASDAQ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:
Yes  
    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files):
Yes  
    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act. (Check one):

Large accelerated filer      Accelerated filer  
       
Non-accelerated filer      Smaller reporting company  
       
         Emerging growth company  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).    Yes  ☐    No  
The number of shares of the registrant’s common stock, par value $0.01 per share, outstanding as of the close of business on July 18, 2022 was 36,427,385
.
 
 
 

Table of Contents
Index
 
PART I
Financial Information
  
Item 1.
Financial Statements (unaudited)
  
Consolidated Balance Sheets as of June 25, 2022 and December 25, 2021    Page 4
Consolidated Statements of Income for the Twenty Six and Thirteen Weeks Ended June 25, 2022 and June 26, 2021    Page 5
Consolidated Statements of Comprehensive Income for the Twenty Six and Thirteen Weeks Ended June 25, 2022 and June 26, 2021    Page 6
Consolidated Statements of Cash Flows for the Twenty Six Weeks Ended June 25, 2022 and June 26, 2021    Page 7
Consolidated Statements of Changes in Shareholders’ Equity for the Twenty Six and Thirteen Weeks Ended June 25, 2022 and June 26, 2021    Page 8
Notes to Consolidated Financial Statements    Page 10
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
   Page 19
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
   Page 32
Item 4.
Controls and Procedures
   Page 33
PART II –
Other Information
Item 1.
Legal Proceedings
   Page 33
Item 1A.
Risk Factors
   Page 33
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
   Page 35
Item 6.
Exhibits
   Page 35
Signatures    Page 37
 
EX – 31.1 Section 302 CEO Certification
EX – 31.2 Section 302 CFO Certification
EX – 32.1 Section 906 CEO Certification
EX – 32.2 Section 906 CFO Certification
 
2

Table of Contents
PART I -
FINANCIAL INFORMATION
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.
 
4

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.
 
5

Table of Contents
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.
 
6

Table of Contents
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.
 
7

Table of Contents
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  
    
 
 
    
 
 
    
 
 
   
 
 
   
 
 
    
 
 
   
 
 
   
 
 
 
 
8

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.
 
9

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 not 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

(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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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the interim consolidated financial statements and notes thereto included herein, and with the Company’s audited financial statements and notes thereto for the fiscal year ended December 25, 2021 and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the 2021 Annual Report on Form
10-K.
FORWARD-LOOKING STATEMENTS
The following is a “safe harbor” statement under the Private Securities Litigation Reform Act of 1995. Statements contained in this document that are not based on historical facts are “forward-looking statements.” This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections of this Form
10-Q
contain forward-looking statements, such as statements which relate to Landstar’s business objectives, plans, strategies and expectations. Terms such as “anticipates,” “believes,” “estimates,” “intention,” “expects,” “plans,” “predicts,” “may,” “should,” “could,” “will,” the negative thereof and similar expressions are intended to identify forward-looking statements. Such statements are by nature subject to uncertainties and risks, including but not limited to: the impact of the Russian conflict with Ukraine on the operations of certain independent commission sales agents, including the Company’s largest such agent by revenue in the 2021 fiscal year; the impact of the coronavirus
(COVID-19)
pandemic; an increase in the frequency or severity of accidents or other claims; unfavorable development of existing accident claims; dependence on third party insurance companies; dependence on independent commission sales agents; dependence on third party capacity providers; decreased demand for transportation services; U.S trade relationships; substantial industry competition; disruptions or failures in the Company’s computer systems; cyber and other information security incidents; dependence on key vendors; changes in fuel taxes; status of independent contractors; regulatory and legislative changes; regulations focused on diesel emissions and other air quality matters; intellectual property; and other operational, financial or legal risks or uncertainties detailed in Landstar’s Form
10-K
for the 2021 fiscal year, described in Item 1A “Risk Factors”, Landstar’s Form
10-Q
for the 2022 first quarter, described in Part II, Item 1A “Risk Factors”, and in this report or in Landstar’s other Securities and Exchange Commission filings from time to time. These risks and uncertainties could cause actual results or events to differ materially from historical results or those anticipated. Investors should not place undue reliance on such forward-looking statements and the Company undertakes no obligation to publicly update or revise any forward-looking statements.
Introduction
Landstar System, Inc. and its subsidiary, Landstar System Holdings, Inc. (collectively referred to herein with their subsidiaries and other affiliated companies as “Landstar” or the “Company”), a Fortune 500 company, is a worldwide, technology-enabled, asset-light provider of integrated transportation management solutions delivering safe, specialized transportation services to a broad range of customers utilizing a network of agents, third party capacity providers and employees. The Company offers services to its customers across multiple transportation modes, with the ability to arrange for individual shipments of freight to comprehensive third party logistics solutions to meet all of a customer’s transportation needs. Landstar provides services principally throughout the United States and to a lesser extent in Canada and Mexico, and between the United States and Canada, Mexico and other countries around the world. The Company’s services emphasize safety, information coordination and customer service and are delivered through a network of over 1,200 independent commission sales agents and over 111,000 third party capacity providers, primarily truck capacity providers, linked together by a series of digital technologies which are provided and coordinated by the Company. The nature of the Company’s business is such that a significant portion of its operating costs varies directly with revenue.
Landstar markets its integrated transportation management solutions primarily through independent commission sales agents and exclusively utilizes third party capacity providers to transport customers’ freight. Landstar’s independent commission sales agents enter into contractual arrangements with the Company and are responsible for locating freight, making that freight available to Landstar’s capacity providers and coordinating the transportation of the freight with customers and capacity providers. The Company’s third party capacity providers consist of independent contractors who provide truck capacity to the Company under exclusive lease arrangements (the “BCO Independent Contractors”), unrelated trucking companies who provide truck capacity to the Company under
non-exclusive
contractual arrangements (the “Truck Brokerage Carriers”), air cargo carriers, ocean cargo carriers and railroads. Through this network of agents and capacity providers linked together by Landstar’s ecosystem of digital technologies, Landstar operates an integrated transportation management solutions business primarily throughout North America with revenue of $6.5 billion during the most recently completed fiscal year. The Company reports the results of two operating segments: the transportation logistics segment and the insurance segment.
 
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The transportation logistics segment provides a wide range of integrated transportation management solutions. Transportation services are provided by Landstar’s “Operating Subsidiaries”: Landstar Ranger, Inc., Landstar Inway, Inc., Landstar Ligon, Inc., Landstar Gemini, Inc., Landstar Transportation Logistics, Inc., Landstar Global Logistics, Inc., Landstar Express America, Inc., Landstar Canada, Inc., Landstar Metro, S.A.P.I. de C.V., and as further described below, Landstar Blue. Transportation services offered by the Company include truckload and less-than-truckload transportation and other truck transportation, rail intermodal, air cargo, ocean cargo, expedited ground and air delivery of time-critical freight, heavy-haul/specialized, U.S.-Canada and U.S.-Mexico cross-border, intra-Mexico, intra-Canada, project cargo and customs brokerage. Examples of the industries serviced by the transportation logistics segment include automotive parts and assemblies, consumer durables, building products, metals, chemicals, foodstuffs, heavy machinery, retail, electronics and military equipment. In addition, the transportation logistics segment provides transportation services to other transportation companies, including third party logistics and less-than-truckload service providers. The independent commission sales agents market services provided by the transportation logistics segment. Billings for freight transportation services are typically charged to customers on a per shipment basis for the physical transportation of freight and are referred to as transportation revenue. During the
twenty-six-week
period ended June 25, 2022, revenue generated by BCO Independent Contractors, Truck Brokerage Carriers and railroads represented approximately 36%, 53% and 2%, respectively, of the Company’s consolidated revenue. Collectively, revenue generated by air and ocean cargo carriers represented approximately 8% of the Company’s consolidated revenue in the
twenty-six-week
period ended June 25, 2022.
On May 6, 2020, the Company formed a new subsidiary that was subsequently renamed Landstar Blue, LLC (“Landstar Blue”). Landstar Blue arranges truckload brokerage services with a focus on the contract services market. Landstar Blue also helps the Company to develop and test digital technologies and processes for the benefit of all Landstar independent commission sales agents. On June 15, 2020, Landstar Blue completed the acquisition of an independent agent of the Company whose business focused on truckload brokerage services. The results of operations from Landstar Blue are presented as part of the Company’s transportation logistics segment. Revenue from Landstar Blue represented less than 1% of the Company’s transportation logistics segment revenue in the
twenty-six-week
period ended June 25, 2022.
The insurance segment is comprised of Signature Insurance Company (“Signature”), a wholly owned offshore insurance subsidiary, and Risk Management Claim Services, Inc. The insurance segment provides risk and claims management services to certain of Landstar’s operating subsidiaries. In addition, it reinsures certain risks of the Company’s BCO Independent Contractors and provides certain property and casualty insurance directly to certain of Landstar’s operating subsidiaries. Revenue at the insurance segment represents reinsurance premiums from third party insurance companies that provide insurance programs to BCO Independent Contractors where all or a portion of the risk is ultimately borne by Signature. Revenue at the insurance segment represented approximately 1% of the Company’s consolidated revenue for the
twenty-six-week
period ended June 25, 2022.
Changes in Financial Condition and Results of Operations
Management believes the Company’s success principally depends on its ability to generate freight revenue through its network of independent commission sales agents and to deliver freight safely and efficiently utilizing third party capacity providers. Management believes the most significant factors to the Company’s success include increasing revenue, sourcing capacity, empowering its network through technology-based tools and controlling costs.
Revenue
While customer demand, which is subject to overall economic conditions, ultimately drives increases or decreases in revenue, the Company primarily relies on its independent commission sales agents to establish customer relationships and generate revenue opportunities. Management’s emphasis with respect to revenue growth is on revenue generated by independent commission sales agents who on an annual basis generate $1 million or more of Landstar revenue (“Million Dollar Agents”). Management believes future revenue growth is primarily dependent on its ability to increase both the revenue generated by Million Dollar Agents and the number of Million Dollar Agents through a combination of recruiting new agents, increasing the revenue opportunities generated by existing independent commission sales agents and providing its independent commission sales agents with digital technologies they may use to grow revenue and increase efficiencies at their businesses. During the 2021 fiscal year, 593 independent commission sales agents generated $1 million or more of Landstar revenue and thus qualified as Million Dollar Agents. During the 2021 fiscal year, the average revenue generated by a Million Dollar Agent was $6,150,000 and revenue generated by Million Dollar Agents in the aggregate represented 94% of consolidated revenue.
 
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Management monitors business activity by tracking the number of loads (volume) and revenue per load by mode of transportation. Revenue per load can be influenced by many factors other than a change in price. Those factors include the average length of haul, freight type, special handling and equipment requirements, fuel costs and delivery time requirements. For shipments involving two or more modes of transportation, revenue is generally classified by the mode of transportation having the highest cost for the load. The following table summarizes this information by trailer type for truck transportation and by mode for all others:
 
    
Twenty Six Weeks Ended
   
Thirteen Weeks Ended
 
    
June 25,
2022
   
June 26,
2021
   
June 25,
2022
   
June 26,
2021
 
Revenue generated through (in thousands):
        
Truck transportation
        
Truckload:
        
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  
  
 
 
   
 
 
   
 
 
   
 
 
 
Total truck transportation
     3,498,482       2,637,676       1,747,198       1,444,187  
Rail intermodal
     86,110       76,068       43,422       44,360  
Ocean and air cargo carriers
     310,904       107,840       158,847       60,240  
Other
(2)
     50,167       36,668       25,597       21,931  
  
 
 
   
 
 
   
 
 
   
 
 
 
   $ 3,945,663     $ 2,858,252     $ 1,975,064     $ 1,570,718  
  
 
 
   
 
 
   
 
 
   
 
 
 
Revenue on loads hauled via BCO Independent Contractors included in total truck transportation
   $ 1,415,963     $ 1,209,056     $ 688,389     $ 648,942  
Number of loads:
        
Truck transportation
        
Truckload:
        
Van equipment
     763,750       678,253       387,482       357,041  
Unsided/platform equipment
     279,345       248,262       147,516       133,999  
Less-than-truckload
     96,828       85,095       48,985       44,403  
Other truck transportation
(1)
     166,747       127,160       80,817       67,497  
  
 
 
   
 
 
   
 
 
   
 
 
 
Total truck transportation
     1,306,670       1,138,770       664,800       602,940  
Rail intermodal
     24,220       26,800       11,590       15,100  
Ocean and air cargo carriers
     22,890       19,460       11,330       10,230