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 September 30, 2023
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
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(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 | ||
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:
☑ 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 Yes
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): ☑ 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): | ☑ | 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 ☐ NoThe number of shares of the registrant’s common stock, par value $35,946,344
0.01
per share, outstanding as of the close of business on October 23, 2023 was .
Index
PART I
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PART II –
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| Page 37 | ||||
EX – 31.1 Section 302 CEO Certification |
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EX – 31.2 Section 302 CFO Certification |
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EX – 32.1 Section 906 CEO Certification |
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EX – 32.2 Section 906 CFO Certification |
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2
PART I -
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 30, 2023 are not necessarily indicative of the results that may be expected for the entire fiscal year ending December 30, 2023. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s 2022 Annual Report on Form
10-K.
3
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
(Unaudited)
September 30, 2023 |
December 31, 2022 |
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ASSETS |
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| Current Assets |
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| Cash and cash equivalents |
$ | $ | ||||||
| Short-term investments |
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| Trade accounts receivable, less allowance of $ |
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| Other receivables, including advances to independent contractors, less allowance of $ |
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| Other current assets |
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| Total current assets |
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| Operating property, less accumulated depreciation and amortization of $ |
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| Goodwill |
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| Other assets |
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| Total assets |
$ | $ | ||||||
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| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current Liabilities |
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| Cash overdraft |
$ | $ | ||||||
| Accounts payable |
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| Current maturities of long-term debt |
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| Insurance claims |
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| Dividends payable |
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| Other current liabilities |
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| Total current liabilities |
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| Long-term debt, excluding current maturities |
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| Insurance claims |
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| Deferred income taxes and other noncurrent liabilities |
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| Shareholders’ Equity |
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| Common stock, $ |
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| Additional paid-in capital |
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| Retained earnings |
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| Cost of |
( |
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| Accumulated other comprehensive loss |
( |
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| Total shareholders’ equity |
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| Total liabilities and shareholders’ equity |
$ | $ | ||||||
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See accompanying notes to consolidated financial statements.
4
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
(Unaudited)
Thirty-Nine Weeks Ended |
Thirteen Weeks Ended |
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September 30, 2023 |
September 24, 2022 |
September 30, 2023 |
September 24, 2022 |
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| Revenue |
$ | $ | $ | $ | ||||||||||||
| Investment income |
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| Costs and expenses: |
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| Purchased transportation |
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| Commissions to agents |
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| Other operating costs, net of gains on asset sales/dispositions |
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| Insurance and claims |
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| Selling, general and administrative |
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| Depreciation and amortization |
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| Total costs and expenses |
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| Operating income |
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| Interest and debt (income) expense |
( |
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| Income before income taxes |
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| Income taxes |
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| Net income |
$ | $ | $ | |||||||||||||
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| Basic and diluted earnings per share |
$ | $ | $ | $ | ||||||||||||
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| Average basic and diluted shares outstanding |
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| Dividends per common share |
$ | $ | $ | $ | ||||||||||||
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See accompanying notes to consolidated financial statements.
5
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(Unaudited)
Thirty-Nine Weeks Ended |
Thirteen Weeks Ended |
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September 30, 2023 |
September 24, 2022 |
September 30, 2023 |
September 24, 2022 |
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Net income |
$ | $ | $ | $ | ||||||||||||
Other comprehensive income (loss): |
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Unrealized holding gains (losses) on available-for-sale |
( |
) | ( |
) | ||||||||||||
Foreign currency translation gains (losses) |
( |
) | ( |
) | ( |
) | ||||||||||
Other comprehensive income (loss) |
( |
) | ( |
) | ( |
) | ||||||||||
Comprehensive income |
$ | $ | $ | $ | ||||||||||||
See accompanying notes to consolidated financial statements.
6
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Thirty-Nine Weeks Ended |
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September 30, 2023 |
September 24, 2022 |
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| OPERATING ACTIVITIES |
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| Net income |
$ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
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| Depreciation and amortization |
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| Non-cash interest charges |
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| Provisions for losses on trade and other accounts receivable |
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| Gains on sales/disposals of operating property |
( |
) | ( |
) | ||||
| Deferred income taxes, net |
( |
) | ( |
) | ||||
| Stock-based compensation |
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| Changes in operating assets and liabilities: |
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| Decrease in trade and other accounts receivable |
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| Increase in other assets |
( |
) | ( |
) | ||||
| (Decrease) increase in accounts payable |
( |
) | ||||||
| Decrease in other liabilities |
( |
) | ( |
) | ||||
| (Decrease) increase in insurance claims |
( |
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| NET CASH PROVIDED BY OPERATING ACTIVITIES |
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| INVESTING ACTIVITIES |
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| Sales and maturities of investments |
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| Purchases of investments |
( |
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) | ||||
| Purchases of operating property |
( |
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| Proceeds from sales of operating property |
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| Purchase of non-marketable securities |
( |
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| NET CASH USED BY INVESTING ACTIVITIES |
( |
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| FINANCING ACTIVITIES |
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| Decrease in cash overdraft |
( |
) | ( |
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| Dividends paid |
( |
) | ( |
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| Payment for debt issue costs |
( |
) | ||||||
| Proceeds from exercises of stock options |
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| Taxes paid in lieu of shares issued related to stock-based compensation plans |
( |
) | ( |
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| Purchases of common stock |
( |
) | ( |
) | ||||
| Principal payments on finance lease obligations |
( |
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| NET CASH USED BY FINANCING ACTIVITIES |
( |
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| Effect of exchange rate changes on cash and cash equivalents |
( |
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| Increase (decrease) in cash, cash equivalents and restricted cash |
( |
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| Cash, cash equivalents and restricted cash at beginning of period |
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| Cash and cash equivalents at end of period |
$ | $ | ||||||
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See accompanying notes to consolidated financial statements.
7
LANDSTAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Thirty-Nine and Thirteen Weeks Ended September 30, 2023 and September 24, 2022
(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 |
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| Balance December 31, 2022 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
| Net income |
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| Dividends ($ |
( |
) | ( |
) | ||||||||||||||||||||||||||||
| Purchases of common stock |
( |
) | ( |
) | ||||||||||||||||||||||||||||
| Issuance of stock related to stock-based compensation plans |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Stock-based compensation |
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| Other comprehensive income |
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| Balance April 1, 2023 |
$ | $ | $ | $ | ( |
) | $ | ( |
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| Net income |
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| Dividends ($ |
( |
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| Issuance of stock related to stock-based compensation plans |
( |
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| Stock-based compensation |
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| Other comprehensive income |
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| Balance July 1, 2023 |
$ | $ | $ | $ | ( |
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| Net income |
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| Dividends ($ |
( |
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| Issuance of stock related to stock-based compensation plans |
( |
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| Stock-based compensation |
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| Other comprehensive loss |
( |
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| Balance September 30, 2023 |
$ | $ | $ | $ | ( |
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8
Common Stock |
Additional Paid-In |
Retained |
Treasury Stock at Cost |
Accumulated Other Comprehensive |
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Shares |
Amount |
Capital |
Earnings |
Shares |
Amount |
Loss |
Total |
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| Balance December 25, 2021 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
| Net income |
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| Dividends ($ |
( |
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) | ||||||||||||||||||||||||||||
| Purchases of common stock |
( |
) | ( |
) | ||||||||||||||||||||||||||||
| Issuance of stock related to stock-based compensation plans |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Stock-based compensation |
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| Other comprehensive loss |
( |
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| Balance March 26, 2022 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
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| Net income |
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| Dividends ($ |
( |
) | ( |
) | ||||||||||||||||||||||||||||
| Purchases of common stock |
( |
) | ( |
) | ||||||||||||||||||||||||||||
| Issuance of stock related to stock-based compensation plans |
( |
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) | ||||||||||||||||||||||||||||
| Stock-based compensation |
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| Other comprehensive loss |
( |
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| Balance June 25, 2022 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
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| Net income |
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| Dividends ($ |
( |
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| Purchases of common stock |
( |
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) | ||||||||||||||||||||||||||||
| Issuance of stock related to stock-based compensation plans |
( |
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| Stock-based compensation |
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| Other comprehensive loss |
( |
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| Balance September 24, 2022 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
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See accompanying notes to consolidated financial statements.
9
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 30, 2023 and September 24, 2022 (dollars in thousands):
Thirty-Nine Weeks Ended |
Thirteen Weeks Ended |
|||||||||||||||
Mode |
September 30, 2023 |
September 24, 2022 |
September 30, 2023 |
September 24, 2022 |
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Truck – BCO Independent Contractors |
% | % | % | % | ||||||||||||
Truck – Truck Brokerage Carriers |
% | % | % | % | ||||||||||||
Rail intermodal |
% | % | % | % | ||||||||||||
Ocean and air cargo carriers |
% | % | % | % | ||||||||||||
Truck Equipment Type |
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Van equipment |
$ | |
$ | |
$ | |
$ | |
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Unsided/platform equipment |
$ | $ | $ | $ | ||||||||||||
Less-than-truckload |
$ | $ | $ | $ | ||||||||||||
Other truck transportation (1) |
$ | $ | $ | $ | ||||||||||||
| (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
(2) Share-based Payment Arrangements
As of September 30, 2023, 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”), which replaced the Amended and Restated 2013 Directors Stock Compensation Plan (as amended and restated, the “2013 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. 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):
Thirty-Nine Weeks Ended |
Thirteen Weeks Ended |
|||||||||||||||
September 30, 2023 |
September 24, 2022 |
September 30, 2023 |
September 24, 2022 |
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Total cost of the Plans during the period |
$ | $ | $ | |
$ | |||||||||||
Amount of related income tax benefit recognized during the period |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Net cost of the Plans during the period |
$ | $ | $ | $ | |
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Included in income tax benefits recognized in the thirty-nine-week periods ended September 30, 2023 and September 24, 2022 were excess tax benefits from stock-based awards of $2,830,000 and $2,910,000 , respectively.
As of September 30, 2023, there were 187,260 shares of the Company’s common stock reserved for issuance under the 2022 DSCP and 3,014,492 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 31, 2022 |
$ | |||||||
Granted |
$ | |||||||
Shares earned in excess of target (1) |
$ | |||||||
Vested shares, including shares earned in excess of target |
( |
) | $ | |||||
Forfeited |
( |
) | $ | |
||||
Outstanding at September 30, 2023 |
$ | |||||||
(1) |
Represents additional shares earned under the February 1, 2019 and January 31, 2020 RSU awards as fiscal year 2022 financial results exceeded target performance level and 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 30, 2023, the Company granted RSUs with a performance condition. Outstanding RSUs at both December 31, 2022 and September 30, 2023 include RSUs with a performance condition and RSUs with a market condition, as further described below and in the Company’s 2022 Annual Report on Form
10-K.
RSUs with a performance condition granted on February 3, 2023 may vest on January 31 of 2026, 2027 and 2028 based on growth in operating income and
pre-tax
income per diluted share from continuing operations as compared to the results from the 2022 fiscal year. The Company recognized approximately $1,503,000 and $7,035,000 of share-based compensation expense related to RSU awards in the thirty-nine-week periods ended September 30, 2023 and September 24, 2022, respectively. As of September 30, 2023, there was a maximum of $29.2 million of total unrecognized compensation cost related to RSU awards granted under the Plans with an expected average remaining life of approximately 3.5 years. With respect to RSU awards with a performance condition, the amount of future compensation expense to be recognized will be determined based on future operating results.
11
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 31, 2022 |
$ | |||||||
Granted |
$ | |||||||
Vested |
( |
) | $ | |
||||
Non-vested at September 30, 2023 |
$ | |||||||
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
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 from service from the Board of Directors, or, if earlier, upon a change in control event of the Company. Deferred Stock Units become vested
% 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 30, 2023, there was $4,756,000 of total unrecognized compensation cost related to 2.0 years.
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 Stock Options
All 1,900 56.40 no
The total intrinsic value of stock options exercised during the thirty-nine-week periods ended September 30, 2023 and September 24, 2022 was $218,000 and $429,000 , respectively.
As of September 30, 2023, there was no unrecognized compensation cost related to
non-vested
stock options granted under the Plans. (3) Income Taxes
The provisions for income taxes for the 2023 and 2022 thirty-nine-week periods were based on estimated annual effective income tax rates of 24.4 % and 24.5 %, respectively, adjusted for discrete events, such as benefits resulting from stock-based awards. 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. The effective income tax rate for the 2022 thirty-nine-week period was 23.9 %. The effective income tax rate was higher than the statutory federal income tax rate of 21 % in the 2022 period primarily attributable to state taxes.
(4) Earnings Per Share
Basic earnings per common share are based on the weighted average number of common 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 periods ended September 30, 2023 and September 24, 2022, the weighted-average number of common shares outstanding is the same for purposes of the calculations of both basic and diluted earnings per share, asthe impact on earnings per share of future compensation expense related to outstanding, unvested time-based awards is greater than the incremental impact of outstanding dilutive stock options in each period, 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 the 2023 and 2022 thirty-nine-week and thirteen-week periods.
For each of the thirty-
nine-week periods ended September
30,
2023 and September
24,
2022,
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 2023 thirty-nine-week period, Landstar paid income taxes and interest of $68,136,000 and $2,814,000 , respectively. During the 2022 thirty-nine-week period, Landstar paid income taxes and interest of $125,690,000 and $3,101,000 , respectively. Landstar did not acquire any operating property by entering into finance leases in the 2023 thirty-nine-week period. Landstar acquired operating property by entering into finance leases in the amount of $26,741,000 in the 2022 thirty-nine-week period.
(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 30, 2023 and September 24, 2022 (in thousands):
Thirty-Nine Weeks Ended |
||||||||||||||||||||||||
September 30, 2023 |
September 24, 2022 |
|||||||||||||||||||||||
Transportation Logistics |
Insurance |
Total |
Transportation Logistics |
Insurance |
Total |
|||||||||||||||||||
External revenue |
$ | |
$ | |
$ | |
$ | |
$ | |
$ | |||||||||||||
Internal revenue |
||||||||||||||||||||||||
Investment income |
||||||||||||||||||||||||
Operating income |
||||||||||||||||||||||||
Expenditures on long-lived assets |
||||||||||||||||||||||||
Goodwill |
||||||||||||||||||||||||
Thirteen Weeks Ended |
||||||||||||||||||||||||
September 30, 2023 |
September 24, 2022 |
|||||||||||||||||||||||
Transportation Logistics |
Insurance |
Total |
Transportation Logistics |
Insurance |
Total |
|||||||||||||||||||
External revenue |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
Internal revenue |
||||||||||||||||||||||||
Investment income |
||||||||||||||||||||||||
Operating income |
||||||||||||||||||||||||
Expenditures on long-lived assets |
||||||||||||||||||||||||
In the thirty-nine-week periods ended no 10
September
30, 2023 and September 24, 2022, 13
(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 30, 2023 (in thousands):
Unrealized Holding (Losses) Gains on Available-for-Sale Securities |
Foreign Currency Translation |
Total |
||||||||||
Balance as of December 31, 2022 |
$ | ( |
) | $ | ( |
) | $ | ( |
) | |||
Other comprehensive income |
||||||||||||
Balance as of September 30, 2023 |
$ | ( |
) | $ | ( |
) | $ | ( |
) | |||
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 30, 2023. (8) Investments
Investments include primarily investment-grade corporate bonds, U.S. treasury obligations 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 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 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 9,542,000 and $10,763,000 at September 30, 2023 and December 31, 2022, respectively.
available-for-sale
available-for-sale
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 recog
nized 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 $The amortized cost and fair values of investments are as follows at September 30, 2023 and December 31, 2022 (in thousands):
available-for-sale
Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
|||||||||||||
September 30, 2023 |
||||||||||||||||
Money market investments |
$ | $ | |
$ | $ | |||||||||||
Asset-backed securities |
||||||||||||||||
Corporate bonds and direct obligations of |
||||||||||||||||
government agencies |
||||||||||||||||
U.S. Treasury obligations |
||||||||||||||||
Total |
$ | |
$ | $ | $ | |||||||||||
December 31, 2022 |
||||||||||||||||
Money market investments |
$ | $ | $ | $ | ||||||||||||
Asset-backed securities |
||||||||||||||||
Corporate bonds and direct obligations of |
||||||||||||||||
government agencies |
||||||||||||||||
U.S. Treasury obligations |
||||||||||||||||
Total |
$ | $ | $ | |
$ | |||||||||||
For those investments with unrealized losses
available-for-sale
a
t September 30, 2023 and December 31, 2022, 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 30, 2023 |
||||||||||||||||||||||||
Asset-backed securities |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
Corporate bonds and direct obligations of government agencies |
||||||||||||||||||||||||
U.S. Treasury obligations |
||||||||||||||||||||||||
Total |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
December 31, 2022 |
||||||||||||||||||||||||
Asset-backed securities |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
Corporate bonds and direct obligations of government agencies |
||||||||||||||||||||||||
U.S. Treasury obligations |
||||||||||||||||||||||||
Total |
$ | $ | |
$ | $ | |
$ | $ | ||||||||||||||||
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 assets and operating lease liabilities represent leases for facilities maintained in support of the Company’s network of BCO Independent Contractors and office space used to conduct Landstar’s business. These leases do not have significant rent escalation holidays, concessions, leasehold improvement incentives or other 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.
right-of-use
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”
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 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.
right-of-use
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.
15
The components of lease cost for finance leases and operating leases for the thirty
-
nine weeks ended September 30, 2023 were (in thousands): Finance leases: |
||||
Amortization of right-of-use |
$ | |||
Interest on lease liability |
||||
Total finance lease cost |
||||
Operating leases: |
||||
Lease cost |
||||
Variable lease cost |
||||
Sublease income |
( |
) | ||
Total net operating lease income |
( |
) | ||
Total net lease cost |
$ | |||
A summary of the lease classification on our consolidated balance sheet as of September 30, 2023 is as follows (in thousands):
Assets:
Operating lease right-of-use |
Other assets | $ | ||||
Finance lease assets |
Operating property, less accumulated depreciation and amortization | |||||
Total lease assets |
$ | |||||
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 30, 2023 (in thousands):
Finance Leases |
Operating Leases |
|||||||
2023 Remainder |
$ | $ | ||||||
2024 |
||||||||
2025 |
||||||||
2026 |
||||||||
2027 |
||||||||
Thereafter |
||||||||
Total future minimum lease payments |
||||||||
Less amount representing interest ( |
||||||||
Present value of minimum lease payments |
$ | $ | ||||||
Current maturities of long-term debt |
||||||||
Long-term debt, excluding current maturities |
||||||||
The weighted average remaining lease term and the weighted average discount rate for finance and operating leases as of September 30, 2023 were:
| Finance Leases | Operating Leases | |||||||
Weighted average remaining lease term (years) |
||||||||