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, 2017~~

March 28, 2020

☐	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.~~

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 ☑

☒

☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Website, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files):

Yes ☑

☒

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting ~~company”~~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	☐

~~Non-accelerated filer~~	~~☐ (Do not check if a smaller reporting company)~~	~~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 ~~October 23, 2017~~April 20, 2020 was ~~41,965,797.~~

38,370,508.

Table of Contents

LANDSTAR SYSTEM, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share amounts)

(Unaudited)

   September 30,
2017 December 31,
2016
ASSETS
Current Assets

Cash and cash equivalents
   $ 249,741 $ 178,897
Short-term investments
   45,687 66,560
Trade accounts receivable, less allowance of $6,163 and $5,161
   546,826 463,102
Other receivables, including advances to independent contractors, less allowance of $6,306 and $5,523
   18,704 18,567
Other current assets
   16,925 10,281


Total current assets
   877,883 737,407


Operating property, less accumulated depreciation and amortization of $210,018 and $190,374
   261,465 272,843
Goodwill
   39,914 31,134
Other assets
   84,077 55,207


Total assets
   $ 1,263,339 $ 1,096,591


LIABILITIES AND EQUITY
Current Liabilities

Cash overdraft
   $ 33,853 $ 36,251
Accounts payable
   269,389 219,409
Current maturities of long-term debt
   40,610 45,047
Insurance claims
   34,211 26,121
Other current liabilities
   68,854 53,483


Total current liabilities
   446,917 380,311


Long-term debt, excluding current maturities
   76,792 93,257
Insurance claims
   32,804 26,883
Deferred income taxes and other noncurrent liabilities
   52,853 53,583
Equity

Landstar System, Inc. and subsidiary shareholders’ equity

Common stock, $0.01 par value, authorized 160,000,000 shares, issued 67,715,290 and 67,585,675 shares
   677 676
Additional paid-in capital
   205,396 199,414
Retained earnings
   1,613,590 1,512,993
Cost of 25,749,493 and 25,747,541 shares of common stock in treasury
   (1,167,600 ) (1,167,437 )
Accumulated other comprehensive loss
   (1,708 ) (3,089 )


Total Landstar System, Inc. and subsidiary shareholders’ equity
   650,355 542,557
Noncontrolling interest
   3,618 —


Total equity
   653,973 542,557


Total liabilities and equity
   $ 1,263,339 $ 1,096,591


	March 28, 2020			December 28, 2019
ASSETS
Current Assets
Cash and cash equivalents	$	177,224		$	319,515
Short-term investments		33,627			32,901
Trade accounts receivable, less allowance of $8,536 and $7,284		562,528			588,549
Other receivables, including advances to independent contractors, less allowance of $8,847 and $7,667		35,153			35,553
Other current assets		7,624			21,370

Total current assets		816,156			997,888

Operating property, less accumulated depreciation and amortization of $286,593 and $280,849		276,663			285,855
Goodwill		37,182			38,508
Other assets		106,432			105,460

Total assets	$	1,236,433		$	1,427,711

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Cash overdraft	$	36,002		$	53,878
Accounts payable		272,175			271,996
Current maturities of long-term debt		39,944			42,632
Insurance claims		50,773			44,532
Dividends payable		—			78,947
Contractor escrow		24,517			24,902
Other current liabilities		41,420			36,017

Total current liabilities		464,831			552,904

Long-term debt, excluding current maturities		61,977			70,212
Insurance claims		33,456			33,575
Deferred income taxes and other noncurrent liabilities		49,074			49,551
Shareholders’ Equity
Common stock, $0.01 par value, authorized 160,000,000 shares, issued 68,167,482 and 68,083,419 shares		682			681
Additional paid-in capital		224,973			226,123
Retained earnings		1,995,018			1,962,161
Cost of 29,796,974 and 28,609,926 shares of common stock in treasury		(1,581,885	)		(1,465,284	)
Accumulated other comprehensive loss		(11,693	)		(2,212	)

Total shareholders’ equity		627,095			721,469

Total liabilities and shareholders’ equity	$	1,236,433		$	1,427,711

See accompanying notes to consolidated financial statements.

Table of Contents

LANDSTAR SYSTEM, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share amounts)

(Unaudited)

   Thirty Nine Weeks Ended    Thirteen Weeks Ended
   September 30,
2017 September 24,
2016    September 30,
2017 September 24,
2016
Revenue
   $ 2,594,772 $ 2,274,805    $ 943,430 $ 787,938
Investment income
   1,733 1,100    711 357
Costs and expenses:

Purchased transportation
   1,989,938 1,730,745    726,827 601,002
Commissions to agents
   210,678 189,075    76,598 65,144
Other operating costs, net of gains on asset sales/dispositions
   22,497 21,484    8,097 7,492
Insurance and claims
   46,333 42,795    17,927 12,488
Selling, general and administrative
   123,179 106,211    43,995 34,692
Depreciation and amortization
   29,961 26,109    10,130 9,016




Total costs and expenses
   2,422,586 2,116,419    883,574 729,834




Operating income
   173,919 159,486    60,567 58,461
Interest and debt expense
   2,559 2,725    657 948




Income before income taxes
   171,360 156,761    59,910 57,513
Income taxes
   59,047 58,985    17,490 21,235




Net income
   112,313 97,776    42,420 36,278
Less: Net loss attributable to noncontrolling interest
   (23 ) —      (23 ) —




Net income attributable to Landstar System, Inc. and subsidiary
   $ 112,336 $ 97,776    $ 42,443 $ 36,278




Earnings per common share attributable to Landstar System, Inc. and subsidiary
   $ 2.68 $ 2.32    $ 1.01 $ 0.86




Diluted earnings per share attributable to Landstar System, Inc. and subsidiary
   $ 2.67 $ 2.31    $ 1.01 $ 0.86




Average number of shares outstanding:

Earnings per common share
   41,924,000 42,223,000    41,957,000 42,039,000




Diluted earnings per share
   42,013,000 42,341,000    42,028,000 42,170,000




Dividends per common share
   $ 0.28 $ 0.25    $ 0.10 $ 0.09


	Thirteen Weeks Ended
	March 28, 2020		March 30, 2019
Revenue	$	927,566	$	1,033,000
Investment income		1,167		1,138
Costs and expenses:
Purchased transportation		709,257		791,755
Commissions to agents		75,376		85,671
Other operating costs, net of gains on asset sales/dispositions		8,306		8,239
Insurance and claims		24,957		14,993
Selling, general and administrative		45,327		41,268
Depreciation and amortization		11,505		11,316

Total costs and expenses		874,728		953,242

Operating income		54,005		80,896
Interest and debt expense		952		805

Income before income taxes		53,053		80,091
Income taxes		12,158		16,791

Net income		40,895		63,300
Less: Net loss attributable to noncontrolling interest		—		(17	)

Net income attributable to Landstar System, Inc. and subsidiary	$	40,895	$	63,317

Earnings per common share attributable to Landstar System, Inc. and subsidiary	$	1.04	$	1.58

Diluted earnings per share attributable to Landstar System, Inc. and subsidiary	$	1.04	$	1.58

Average number of shares outstanding:
Earnings per common share		39,254,000		40,161,000

Diluted earnings per share		39,254,000		40,166,000

Dividends per common share	$	0.185	$	0.165

See accompanying notes to consolidated financial statements.

Table of Contents

LANDSTAR SYSTEM, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

   Thirty Nine Weeks Ended
   September 30,
2017 September 24,
2016
OPERATING ACTIVITIES

Net income
   $ 112,313 $ 97,776
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization of operating property and intangible assets
   29,961 26,109
Non-cash interest charges
   189 175
Provisions for losses on trade and other accounts receivable
   5,643 4,076
Gains on sales/disposals of operating property
   (900 ) (3,221 )
Deferred income taxes, net
   (708 ) 8,925
Stock-based compensation
   3,660 2,718
Changes in operating assets and liabilities:

(Increase) decrease in trade and other accounts receivable
   (89,504 ) 50,957
(Increase) decrease in other assets
   (8,671 ) 3,820
Increase (decrease) in accounts payable
   53,290 (25,074 )
Increase (decrease) in other liabilities
   12,980 (5,436 )
Increase in insurance claims
   14,011 10,472


NET CASH PROVIDED BY OPERATING ACTIVITIES
   132,264 171,297


INVESTING ACTIVITIES

Sales and maturities of investments
   42,917 30,580
Purchases of investments
   (44,423 ) (31,938 )
Purchases of operating property
   (8,800 ) (17,833 )
Proceeds from sales of operating property
   3,594 8,622
Consideration paid for acquisitions
   (8,199 ) —


NET CASH USED BY INVESTING ACTIVITIES
   (14,911 ) (10,569 )


FINANCING ACTIVITIES

Decrease in cash overdraft
   (2,398 ) (7,884 )
Dividends paid
   (11,739 ) (10,572 )
Payment for debt issue costs
   —   (1,048 )
Proceeds from exercises of stock options
   2,531 1,440
Taxes paid in lieu of shares issued related to stock-based compensation plans
   (371 ) (1,715 )
Excess tax benefits from stock-based awards
   —   343
Purchases of common stock
   —   (50,516 )
Principal payments on capital lease obligations
   (35,662 ) (35,147 )


NET CASH USED BY FINANCING ACTIVITIES
   (47,639 ) (105,099 )


Effect of exchange rate changes on cash and cash equivalents
   1,130 656


Increase in cash and cash equivalents
   70,844 56,285
Cash and cash equivalents at beginning of period
   178,897 114,520


Cash and cash equivalents at end of period
   $ 249,741 $ 170,805


	Thirteen Weeks Ended
	March 28, 2020			March 30, 2019
OPERATING ACTIVITIES
Net income	$	40,895		$	63,300
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of operating property and intangible assets		11,505			11,316
Non-cash interest charges		63			63
Provisions for losses on trade and other accounts receivable		4,122			2,150
Gains on sales/disposals of operating property		(858	)		(876	)
Deferred income taxes, net		797			2,079
Stock-based compensation		631			1,938
Changes in operating assets and liabilities:
Decrease in trade and other accounts receivable		21,369			84,505
Decrease in other assets		9,987			2,229
Increase (decrease) in accounts payable		179			(40,953	)
Increase (decrease) in other liabilities		4,404			(3,776	)
Increase (decrease) in insurance claims		6,122			(559	)

NET CASH PROVIDED BY OPERATING ACTIVITIES		99,216			121,416

INVESTING ACTIVITIES
Net changes in other short-term investments		131			—
Sales and maturities of investments		7,963			25,739
Purchases of investments		(8,830	)		(26,707	)
Purchases of operating property		(5,799	)		(4,576	)
Proceeds from sales of operating property		2,081			2,130

NET CASH USED BY INVESTING ACTIVITIES		(4,454	)		(3,414	)

FINANCING ACTIVITIES
Decrease in cash overdraft		(17,876	)		(13,820	)
Dividends paid		(86,283	)		(6,629	)
Proceeds from exercises of stock options		575			319
Taxes paid in lieu of shares issued related to stock-based compensation plans		(2,994	)		(7,923	)
Purchases of common stock		(115,962	)		(12,977	)
Principal payments on finance lease obligations		(10,923	)		(11,995	)
Purchase of noncontrolling interest		—			(600	)

NET CASH USED BY FINANCING ACTIVITIES		(233,463	)		(53,625	)

Effect of exchange rate changes on cash and cash equivalents		(3,590	)		512

(Decrease) increase in cash and cash equivalents		(142,291	)		64,889
Cash and cash equivalents at beginning of period		319,515			199,736

Cash and cash equivalents at end of period	$	177,224		$	264,625

See accompanying notes to consolidated financial statements.

Table of Contents

LANDSTAR SYSTEM, INC. AND SUBSIDIARY

CONSOLIDATED ~~STATEMENT~~STATEMENTS OF CHANGES IN EQUITY

~~Thirty Nine~~

Thirteen Weeks Ended ~~September~~March 28, 2020 and March 30, ~~2017~~

2019

(Dollars in thousands)

(Unaudited)

   Landstar System, Inc. and Subsidiary Shareholders
   Common Stock    Additional
Paid-In    Retained Treasury Stock at Cost Accumulated
Other
Comprehensive
Non-
controlling

   Shares    Amount    Capital    Earnings Shares    Amount (Loss) Income Interests Total
Balance December 31, 2016
   67,585,675    $ 676    $ 199,414    $ 1,512,993 25,747,541    $ (1,167,437 ) $ (3,089 ) —   $ 542,557
Net income (loss)
            112,336    (23 ) 112,313
Dividends ($0.28 per share)
            (11,739 )    (11,739 )
Issuance of stock related to stock-based compensation plans
   129,615    1    2,322    1,952    (163 ) 2,160
Stock-based compensation
         3,660       3,660
Other comprehensive income
               1,381 1,381
Acquired business and noncontrolling interests
               3,641 3,641










Balance September 30, 2017
   67,715,290    $ 677    $ 205,396    $ 1,613,590 25,749,493    $ (1,167,600 ) $ (1,708 ) $ 3,618 $ 653,973


	Common Stock				Additional Paid-In			Retained			Treasury Stock at Cost					Accumulated Other Comprehensive
	Shares		Amount		Capital			Earnings			Shares		Amount			Loss			Total
Balance December 28, 2019		68,083,419	$	681	$	226,123		$	1,962,161			28,609,926	$	(1,465,284	)	$	(2,212	)	$	721,469
Adoption of accounting standard (Note 1 1 )									(702	)										(702	)
Net income									40,895											40,895
Dividends ($0.185 per share)									(7,336	)										(7,336	)
Purchases of common stock												1,178,970		(115,962	)					(115,962	)
Issuance of stock related to stock-based compensation plans		84,063		1		(1,781	)					8,078		(639	)					(2,419	)
Stock-based compensation						631														631
Other comprehensive loss																	(9,481	)		(9,481	)

Balance March 28, 2020		68,167,482	$	682	$	224,973		$	1,995,018			29,796,974	$	(1,581,885	)	$	(11,693	)	$	627,095


	Landstar System, Inc. and Subsidiary Shareholders
	Common Stock				Additional Paid-In			Retained			Treasury Stock at Cost					Accumulated Other Comprehensive			Non-controlling
	Shares		Amount		Capital			Earnings			Shares		Amount			(Loss) Income			Interests			Total
Balance December 29, 2018		67,870,962	$	679	$	226,852		$	1,841,279			27,755,001	$	(1,376,111	)	$	(5,875	)	$	2,309		$	689,133
Net income (loss)									63,317											(17	)		63,300
Dividends ($0.165 per share)									(6,629	)													(6,629	)
Purchases of common stock												124,481		(12,977	)								(12,977	)
Purchase of noncontrolling interests						1,842														(2,442	)		(600	)
Issuance of stock related to stock-based compensation plans		176,079		1		(7,081	)					5,199		(524	)								(7,604	)
Stock-based compensation						1,938																	1,938
Other comprehensive income																	1,549			150			1,699

Balance March 30, 2019		68,047,041	$	680	$	223,551		$	1,897,967			27,884,681	$	(1,389,612	)	$	(4,326	)	$	—		$	728,260

See accompanying notes to consolidated financial statements.

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.

~~Landstar owns, through various subsidiaries, a controlling interest in Landstar Metro, S.A.P.I. de C.V.~~

(1)	Significant Accounting Policies

Revenue from Contracts with Customers – Disaggregation of Revenue

During the thirteen weeks ended March 28, 2020, revenue generated by BCO Independent Contractors, Truck Brokerage Carriers and railroads represented approximately 46%, ~~a transportation logistics company (“Landstar Metro”),~~46% and Landstar Metro Servicios S.A.P.I. de C.V., a services company (“Landstar Servicios”), each based in Mexico City, Mexico. Given Landstar’s controlling interest in each of Landstar Metro and Landstar Servicios, the accounts of Landstar Metro and Landstar Servicios have been consolidated herein and a noncontrolling interest has been recorded for the noncontrolling investors’ interests in the net assets and operations of Landstar Metro and Landstar Servicios.

~~(1) Acquired Business and Noncontrolling Interests~~

During 2017, the Company incorporated each of Landstar Metro and Landstar Servicios. On September 20, 2017, Landstar Metro acquired substantially all of the assets of the asset-light transportation logistics business of Fletes Avella, S.A. de C.V., a Mexican transportation logistics company. Cash consideration paid in the quarter for the acquisition was approximately $8,199,000. In addition, the Company assumed approximately $2,200,000 in liabilities consisting of additional contingent purchase price and associated indirect taxes. In connection with the acquisition, individuals affiliated with the seller subscribed in the aggregate for a 30% equity interest in each of Landstar Metro and Landstar Servicios. The asset acquisition by Landstar Metro was accounted for as a business combination in accordance with Accounting Standards Codification 805,~~Business Combinations~~ (“ASC 805”). The resulting goodwill arising from the acquisition was approximately $8,800,000. With respect to this goodwill, 70% is expected to be deductible by the Company for U.S. income tax purposes, and following the purchase of the noncontrolling interests by the Company, up to 100% of this goodwill would be expected to be deductible by the Company. Pro forma financial information for prior periods is not presented as the Company does not believe the acquisition to be material to our consolidated results. The results of operations from Landstar Metro and Landstar Servicios are presented as part3% respectively, of the Company’s ~~transportations logistics segment. It is not anticipated that Landstar Metro~~consolidated revenue. Collectively, revenue generated by air and ~~Landstar Servicios will have a material effect on the revenue and earnings~~ocean cargo carriers represented approximately 3% of the ~~Company for~~Company’s consolidated revenue in the ~~remainder~~thirteen-week period ended March 28, 2020. Included in truck transportation revenue generated by BCO Independent Contractors and Truck Brokerage Carriers during the thirteen-week period ended March 28, 2020 was $545,307,000 hauled via van equipment, $286,328,000 hauled via unsided/platform equipment and $22,941,000 of ~~fiscal year 2017.~~less-than-truckload. During the ~~thirty-nine-week~~thirteen weeks ended March 30, 2019, revenue generated by BCO Independent Contractors, Truck Brokerage Carriers and railroads represented approximately 43%, 49% and 3%, respectively, of the Company’s consolidated revenue. Collectively, revenue generated by air and ocean cargo carriers represented approximately 3% of the Company’s consolidated revenue in the thirteen-week period ended ~~September~~March 30, ~~2017, the Company incurred approximately $1,000,000, or $0.01 per common share ($0.01 per diluted share),~~2019. Included in~~one-time~~ ~~costs related to the completion of the acquisition~~ truck transportation revenue generated by BCO Independent Contractors and ~~subscription of thenon-controlling~~ ~~interests.~~

~~As it relates to the noncontrolling interests of Landstar Metro and Landstar Servicios, the Company has the option to purchase, and the minority equityholders have the option to sell,~~Truck Brokerage Carriers during the thirteen-week period ~~commencing on the third anniversary~~ended March 30, 2019 was $619,014,000 hauled via van equipment, $310,721,000 hauled via unsided/platform equipment and $23,376,000 of September 20, 2017, the closing date of the subscription by the minority equityholders (the “Closing Date”), and at any time after the fourth anniversary of the Closing Date, at fair value all but not less than all of the noncontrolling interests in Landstar Metro and Landstar Servicios. The noncontrolling interests are also subject to customary restrictions on transfer, including a right of first refusal in favor of the Company.

~~(2) Share-based Payment Arrangements~~

less-than-truckload.

(2)	Share-based Payment Arrangements

As of ~~September 30, 2017,~~March 28, 2020, the Company had ~~two~~2 employee equity incentive plans, the 2002 employee stock option and stock incentive plan (the “ESOSIP”) and the 2011 equity incentive plan (the “2011 EIP”). No further grants can be made under the ESOSIP. The Company also has a stock compensation plan 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”). 6,000,000 shares of the Company’s common stock were authorized for issuance under the 2011 EIP and 115,000 shares of the Company’s common stock were authorized for issuance under the 2013 DSCP. The ESOSIP, 2011 EIP and 2013 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,
2017    September 24,
2016    September 30,
2017    September 24,
2016
Total cost of the Plans during the period
   $ 3,660    $ 2,718    $ 1,423    $ 652
Amount of related income tax benefit
recognized during the period
   (2,492 )    (1,128 )    (678 )    (292 )








Net cost of the Plans during the period
   $ 1,168    $ 1,590    $ 745    $ 360


	Thirteen Weeks Ended
	March 28, 2020			March 30, 2019
Total cost of the Plans during the period	$	631		$	1,938
Amount of related income tax benefit recognized during the period		(873	)		(3,062	)

Net cost of the Plans during the period	$	(242	)	$	(1,124	)

Included in income tax benefits recognized in the ~~thirty-nine-week~~thirteen-week periods ended ~~September~~March 28, 2020 and March 30, ~~2017~~2019 were excess tax benefits from stock-based awards of $706,000 and ~~September 24, 2016~~$2,571,000, respectively. Also included in income tax benefits recognized in the thirteen-week periods ended March 28, 2020 and March 30, 2019 were income tax benefits of ~~$310,000~~$12,000 and ~~$261,000,~~$16,000, respectively, recognized on disqualifying dispositions of the Company’s common stock by employees who obtained shares of common stock through exercises of incentive stock options. ~~Also included in income tax benefits recognized in the thirty-nine-week period ended September 30, 2017 were excess tax benefits from stock-based awards~~

Table of ~~$868,000, as required by the Company’s adoption of Accounting Standards Update2016-09~~ ~~during the first fiscal quarter of 2017. See Note 11, Recent Accounting Pronouncements, for further information.~~

Contents

As of ~~September 30, 2017,~~March 28, 2020, there were ~~78,682~~66,454 shares of the Company’s common stock reserved for issuance under the 2013 DSCP and ~~4,725,200~~3,692,315 shares of the Company’s common stock reserved for issuance in the aggregate under the ESOSIP and 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, 2016
   378,238    $ 50.46
Granted
   67,769    $ 76.85
Forfeited
   (58,779 )    $ 46.00



Outstanding at September 30, 2017
   387,228    $ 55.75


	Number of RSUs			Weighted Average Grant Date Fair Value
Outstanding at December 28, 2019		198,875		$	84.37
Granted		59,230		$	102.70
Shares earned in excess of target (1)		11,648		$	77.00
Vested shares, including shares earned in excess of target		(70,247	)	$	77.00
Forfeited		(10,237	)	$	100.55

Outstanding at March 28, 2020		189,269		$	91.51

(1)	Represents shares earned in excess of target under the February 2, 2017 RSU awards as actual results exceeded the target under the awards as a result of fiscal year 2019 results.

During the ~~thirty-nine-week~~thirteen-week period ended ~~September 30, 2017,~~March 28, 2020, the Company granted RSUs with a performance condition. Outstanding RSUs at both December 28, 2019 and March 28, 2020 include RSUs with a performance condition and RSUs with a market condition, as further described below and in the Company’s 2019 Annual Report on Form

10-K.

RSUs with a performance condition granted on ~~February 2, 2017~~January 31, 2020 may vest on January 31 of ~~2020, 2021~~2023, 2024 and ~~2022~~2025 based on growth in operating income and

pre-tax

income per

diluted ~~earnings per~~

share from continuing operations attributable to Landstar System, Inc. and subsidiary as compared to the results from the ~~2016~~2019 fiscal year. Outstanding RSUs at both December 31, 2016 and September 30, 2017 include RSUs with a performance condition and RSUs with a market condition, as further described in the Company’s 2016 Annual Report on Form~~10-K.~~

The Company recognized approximately ~~$2,254,000~~($136,000) and ~~$1,322,000~~$1,307,000 of share-based compensation (benefit)/expense related to RSU awards in the ~~thirty-nine-week~~thirteen-week periods ended ~~September~~March 28, 2020 and March 30, ~~2017 and September 24, 2016,~~2019, respectively. As of ~~September 30, 2017,~~March 28, 2020, there was a maximum of ~~$32.1~~$35.2 million of total unrecognized compensation cost related to RSU awards granted under the Plans with an expected average remaining life of approximately ~~2.8~~3.6 years. With respect to RSU awards with a performance condition, the amount of future compensation expense to be recognized will be determined based on future operating results.

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 31, 2016
   372,561 $ 48.24
Exercised
   (134,461 ) $ 46.38
Forfeited
   (1,200 ) $ 55.67



Options outstanding at September 30, 2017
   236,900 $ 49.25    4.0    $ 11,940



Options exercisable at September 30, 2017
   217,000 $ 48.59    3.9    $ 11,081


	Number of Options			Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value (000s)
Options outstanding at December 28, 2019		44,467		$	51.24
Exercised		(15,767	)	$	47.50

Options outstanding at March 28, 2020		28,700		$	53.29		2.3	$	1,128

Options exercisable at March 28, 2020		28,700		$	53.29		2.3	$	1,128

The total intrinsic value of stock options exercised during the ~~thirty-nine-week~~thirteen-week periods ended ~~September~~March 28, 2020 and March 30, ~~2017~~2019 was $1,023,000 and ~~September 24, 2016 was $5,303,000 and $1,938,000,~~$944,000, respectively.

As of ~~September 30, 2017,~~March 28, 2020, there was ~~$91,000 of total~~no unrecognized compensation cost related to~~non-vested~~ stock options granted under the Plans. ~~The unrecognized compensation cost related to thesenon-vested~~ ~~options is expected to be recognized during 2017.~~

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 31, 2016
   28,409    $ 58.91
Granted
   42,123    $ 84.26
Vested
   (16,227 )    $ 61.50



Non-vested at September 30, 2017
   54,305    $ 77.80


	Number of Shares and Deferred Stock Units			Weighted Average Grant Date Fair Value
Non-vested at December 28, 2019		64,808		$	98.24
Granted		20,736		$	111.73
Vested		(19,878	)	$	97.95
Forfeited		(2,351	)	$	106.34

Non-vested at March 28, 2020		63,315		$	102.45

The fair value of each share ofnon-vested restricted stock issued and Deferred Stock Unit granted under the Plans ~~are~~is based on the fair value of a share of the Company’s common stock on the date of grant. Shares ofnon-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 2013 DSCP plan, 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 ~~will~~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, 2017,~~March 28, 2020, there was ~~$3,353,000~~$5,174,000 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 ~~3.0~~2.4 years.

~~(3) Income Taxes~~

(3)	Income Taxes

The provisions for income taxes for ~~both~~ the ~~2017~~2020 and ~~2016 thirty-nine-week~~2019 thirteen-week periods were each based on an estimated annual effective income tax ~~rates~~rate of ~~37.8% and 38.1%~~24.2%, ~~respectively,~~ adjusted for discrete events, such as benefits resulting from disqualifying dispositions of the Company’s common stock by employees who obtained the stock through exercises of incentive stock options. The effective income tax rates for the 2017 and 2016 thirty-nine-week periods were 34.5% and 37.6%, respectively.stock-based awards. The effective income tax rate for the ~~2017 thirty-nine week~~2020 thirteen-week period was ~~lower~~22.9%, which was higher than the statutory federal income tax rate of 21% primarily ~~as a result of federal domestic production activities deductions~~attributable to state taxes and ~~research~~the meals and ~~development credits recognized as discrete items during the thirteen-week period ended September 30, 2017,~~entertainment exclusion, partially offset by excess tax benefits realized on stock based awards. The effective income tax rate for the ~~effect~~2019 thirteen-week period was 21.0%, which approximated the statutory federal income tax rate of 21%. The provision for income taxes for the 2019 thirteen-week period was favorably impacted by $2,571,000 of excess tax benefits from stock-based awards, which essentially offset the impact of state taxes and the meals and entertainment exclusion. ~~The effective income tax rate for the 2016 thirty-nine-week period was higher than the statutory federal income tax rate primarily as a result of state taxes and the meals and entertainment exclusion.~~

~~During the first fiscal quarter of 2017, the Company adopted ASU2016-09,~~ ~~as further described in footnote 11. As required by ASU2016-09,~~ ~~the Company recognized $868,000 of excess tax benefits on stock-based awards in its provision for income taxes in the thirty-nine-week period ended September 30, 2017.~~

~~(4) Earnings Per Share~~

(4)	Earnings Per Share

Earnings per common share attributable to Landstar System, Inc. and subsidiary 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 attributable to Landstar System, Inc. and subsidiary 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.

Table of Contents

The following table provides a reconciliation of the average number of common shares outstanding used to calculate earnings per common share attributable to Landstar System, Inc. and subsidiary to the average number of common shares and common share equivalents outstanding used to calculate diluted earnings per share attributable to Landstar System, Inc. and subsidiary (in thousands):

   Thirty Nine Weeks Ended    Thirteen Weeks Ended
   September 30,
2017    September 24,
2016    September 30,
2017    September 24,
2016
Average number of common shares outstanding
   41,924    42,223    41,957    42,039
Incremental shares from assumed exercises of stock options
   89    118    71    131








Average number of common shares and common share equivalents outstanding
   42,013    42,341    42,028    42,170


	Thirteen Weeks Ended
	March 28, 2020		March 30, 2019
Average number of common shares outstanding		39,254		40,161
Incremental shares from assumed exercises of stock options		—		5

Average number of common shares and common share equivalents outstanding		39,254		40,166

For each of the ~~thirty-nine-week~~thirteen-week periods ended ~~September~~March 28, 2020 and March 30, ~~2017 and September 24, 2016, no~~2019, 0 options outstanding to purchase shares of common stock were antidilutive. Outstanding RSUs were excluded from the calculation of diluted earnings per share attributable to Landstar System, Inc. and subsidiary for all periods because the performance metric requirements or market condition for vesting had not been satisfied.

~~(5) Additional Cash Flow Information~~

(5)	Additional Cash Flow Information

During the ~~2017 thirty-nine-week~~2020 thirteen-week period, Landstar paid income taxes and interest of ~~$65,688,000~~$7,000 and ~~$2,981,000,~~$1,079,000, respectively. During the ~~2016 thirty-nine-week~~2019 thirteen-week period, Landstar ~~paid~~received income ~~taxes~~tax refunds, net of income tax payments, of $3,624,000 and paid interest of ~~$48,615,000 and $2,730,000, respectively.~~$1,198,000. Landstar ~~acquired~~did 0t acquire any operating property by entering into ~~capital~~finance leases in either the amounts of $14,760,000 and $46,456,000 in the 2017 and 2016 thirty-nine-week periods, respectively. In addition, during the 2017 thirty-nine-week period Landstar acquired $945,000 of operating property for which the Company accrued a corresponding liability in accounts payable as of September 30, 2017 related to the completion of a new freight staging and transload facility in Laredo, TX. The Company had unpaid capital expenditure purchases included in accounts payable of $1,988,000 and $5,298,000 at September 30, 2017 and December 31, 2016, respectively.2020 or 2019 thirteen-week periods. Capital ~~expenditure purchases~~expenditures are recorded as cash outflows from investing activities in the consolidated statement of cash flows in the period in which they are paid.

~~(6) Segment Information~~

(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~~March 28, 2020 and March 30, ~~2017 and September 24, 2016~~2019 (in thousands):

   Thirty Nine Weeks Ended
   September 30, 2017    September 24, 2016
   Transportation
Logistics    Insurance    Total    Transportation
Logistics    Insurance    Total
External revenue
   $ 2,559,847    $ 34,925    $ 2,594,772    $ 2,240,169    $ 34,636    $ 2,274,805
Internal revenue
      29,773    29,773       28,890    28,890
Investment income
      1,733    1,733       1,100    1,100
Operating income
   148,693    25,226    173,919    133,342    26,144    159,486
Expenditures on long-lived assets
   8,800       8,800    17,833       17,833
Goodwill
   39,914       39,914    31,134       31,134

   Thirteen Weeks Ended
   September 30, 2017    September 24, 2016
   Transportation
Logistics    Insurance    Total    Transportation
Logistics    Insurance    Total
External revenue
   $ 931,692    $ 11,738    $ 943,430    $ 776,397    $ 11,541    $ 787,938
Internal revenue
      7,335    7,335       7,229    7,229
Investment income
      711    711       357    357
Operating income
   54,181    6,386    60,567    47,541    10,920    58,461
Expenditures on long-lived assets
   2,172       2,172    8,878       8,878


	Thirteen Weeks Ended
	March 28, 2020							March 30, 2019
	Transportation Logistics		Insurance			Total		Transportation Logistics		Insurance		Total
External revenue	$	913,884	$	13,682		$	927,566	$	1,018,961	$	14,039	$	1,033,000
Internal revenue				9,079			9,079				9,614		9,614
Investment income				1,167			1,167				1,138		1,138
Operating income		55,044		(1,039	)		54,005		67,583		13,313		80,896
Expenditures on long-lived assets		5,799					5,799		4,576				4,576
Goodwill		37,182					37,182		38,343				38,343

In the ~~thirty-nine and~~ thirteen-week periods ended ~~September~~March 28, 2020 and March 30, ~~2017 and September 24, 2016, no~~2019, 0 single customer accounted for more than 10% of the Company’s consolidated revenue.

~~(7) Other Comprehensive Income~~

Table of Contents

(7)	Other Comprehensive Income

The following table presents the components of and changes in accumulated other comprehensive income ~~attributable to Landstar System, Inc. and subsidiary,~~(loss), net of related income taxes, as of and for the ~~thirty-nine-week~~thirteen-week period ended ~~September 30, 2017~~March 28, 2020 (in thousands):

   Unrealized
Holding (Losses)
Gains on
Available-for-Sale
Securities    Foreign Currency
Translation    Total
Balance as of December 31, 2016
   $ (71 )    $ (3,018 )    $ (3,089 )
Other comprehensive income
   251    1,130    1,381






Balance as of September 30, 2017
   $ 180    $ (1,888 )    $ (1,708 )


	Unrealized Holding Gains (Losses) on Available-for-Sale Securities			Foreign Currency Translation			Total
Balance as of December 28, 2019	$	1,120		$	(3,332	)	$	(2,212	)
Other comprehensive loss		(1,579	)		(7,902	)		(9,481	)

Balance as of March 28, 2020	$	(459	)	$	(11,234	)	$	(11,693	)

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~~thirteen-week period ended ~~September 30, 2017.~~

~~(8) Investments~~

March 28, 2020.

(8)	Investments

Investments include primarily investment-grade corporate bonds and U.S. Treasury obligations having maturities of up to five years (the “bond portfolio”). and money market investments. Investments in the bond portfolio are reported as

available-for-sale

and are carried at fair value. Investments maturing less than one year from the balance sheet date are included in short-term investments and investments maturing more than one year from the balance sheet date are included in other assets in the consolidated balance sheets. Management performs an analysis of the nature of the unrealized losses on

available-for-sale

investments to determine whether ~~such losses are other-than-temporary.~~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 ~~other-than-temporary,~~a result of credit-related factors, are to be included as a charge in the statement of income, while unrealized losses considered to be ~~temporary~~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 $584,000 at March 28, 2020, while unrealized gains, net of unrealized losses, on the investments in the bond portfolio were ~~$278,000 at September 30, 2017, while unrealized losses, net of unrealized gains, on the investments in the bond portfolio were $109,000~~$1,427,000 at December ~~31, 2016,~~28, 2019, respectively.

The amortized cost and fair values of

available-for-sale

investments are as follows at ~~September 30, 2017~~March 28, 2020 and December ~~31, 2016~~28, 2019 (in thousands):

   Amortized
Cost    Gross
Unrealized
Gains    Gross
Unrealized
Losses    Fair Value
September 30, 2017

Money market investments
   $ 16,823    $ —      $ —      $ 16,823
Asset-backed securities
   3,497    2    5    3,494
Corporate bonds and direct obligations of government agencies
   84,885    373    91    85,167
U.S. Treasury obligations
   5,496    —      1    5,495








Total
   $ 110,701    $ 375    $ 97    $ 110,979








December 31, 2016

Money market investments
   $ 12,395    $ —      $ —      $ 12,395
Asset-backed securities
   4,027    3    19    4,011
Corporate bonds and direct obligations of government agencies
   70,069    150    239    69,980
U.S. Treasury obligations
   23,037    2    6    23,033








Total
   $ 109,528    $ 155    $ 264    $ 109,419


			Gross		Gross
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
March 28, 2020
Money market investments	$	15,815	$	—	$	—	$	15,815
Asset-backed securities		571		—		48		523
Corporate bonds and direct obligations of government agencies		98,287		1,038		1,710		97,615
U.S. Treasury obligations		2,336		136		—		2,472

Total	$	117,009	$	1,174	$	1,758	$	116,425


December 28, 2019
Money market investments	$	15,691	$	—	$	—	$	15,691
Asset-backed securities		572		—		1		571
Corporate bonds and direct obligations of government agencies		97,583		1,465		44		99,004
U.S. Treasury obligations		2,335		12		5		2,342

Total	$	116,181	$	1,477	$	50	$	117,608

For those

available-for-sale

investments with unrealized losses at ~~September 30, 2017~~March 28, 2020 and December ~~31, 2016,~~28, 2019, 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, 2017

Asset-backed securities
   $ —      $ —      $ 2,311    $ 5    $ 2,311    $ 5
Corporate bonds and direct obligations of government agencies
   15,429    21    13,215    70    28,644    91
U.S. Treasury obligations
   5,495    1    —      —      5,495    1












Total
   $ 20,924    $ 22    $ 15,526    $ 75    $ 36,450    $ 97












December 31, 2016

Asset-backed securities
   $ 1,363    $ 6    $ 2,314    $ 13    $ 3,677    $ 19
Corporate bonds and direct obligations of government agencies
   28,809    195    1,367    44    30,176    239
U.S. Treasury obligations
   12,734    6    —      —      12,734    6












Total
   $ 42,906    $ 207    $ 3,681    $ 57    $ 46,587    $ 264


	Less than 12 months				12 months or longer				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
March 28, 2020
Asset-backed securities	$	523	$	48	$	—	$	—	$	523	$	48
Corporate bonds and direct obligations of government agencies		49,348		1,710		—		—		49,348		1,710

Total	$	49,871	$	1,758	$	—	$	—	$	49,871	$	1,758

December 28, 2019
Asset-backed securities	$	571	$	1	$	—	$	—	$	571	$	1
Corporate bonds and direct obligations of government agencies		8,728		41		4,260		3		12,988		44
U.S. Treasury obligations		1,226		5		—		—		1,226		5

Total	$	10,525	$	47	$	4,260	$	3	$	14,785	$	50

The Company believes that unrealized losses on investments were primarily due to the widening of credit spreads in the fixed income market related to the coronavirus

(“COVID-19”)

worldwide pandemic. 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 does~~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 orientation centers for BCO Independent Contractors and office space used to conduct Landstar’s business. These leases do not ~~consider~~have significant rent escalation holidays, concessions, leasehold improvement incentives or other

build-out

clauses. Further, the ~~unrealized losses on these securities~~leases do not contain contingent rent provisions. Landstar also leases certain trailing equipment to supplement the Company-owned trailer fleet under

“month-to-month”

lease terms, which are not required to be ~~other-than-temporary~~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 our 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 ~~September 30, 2017.~~

~~(9)~~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, we apply a portfolio approach for determining the incremental borrowing rate.

The following table reconciles the undiscounted cash flows for the finance and operating leases to the finance and operating lease liabilities recorded on the balance sheet at March 28, 2020 (in thousands):


	Finance Leases		Operating Leases
2020 Remainder	$	33,862	$	517
2021		31,278		637
2022		22,123		639
2023		15,100		510
2024		5,156		433
Thereafter		—		54

Total future minimum lease payments		107,519		2,790
Less amount representing interest (2.1% to 4.4%)		5,598		236

Present value of minimum lease payments	$	101,921	$	2,554

Current maturities of long-term debt		39,944
Long-term debt, excluding current maturities		61,977
Other current liabilities				657
Deferred income taxes and other noncurrent liabilities				1,897

The weighted average remaining lease term and the weighted average discount rate for finance and operating leases as of March 28, 2020 were:


	Finance Leases			Operating Leases
Weighted average remaining lease term (years)		3.2			4.4
Weighted average discount rate		3.2	%		4.0	%

Table of Contents

(10) Commitments and Contingencies

Short-term investments include ~~$45,687,000~~$33,627,000 in current maturities of investments held by the Company’s insurance segment at ~~September 30, 2017.~~March 28, 2020. The

non-current

portion of the bond portfolio of ~~$65,292,000~~$82,798,000 is included in other assets. The short-term investments, together with ~~$20,979,000~~$34,710,000 of

non-current

investments, provide collateral for the ~~$59,999,000~~$61,503,000 of letters of credit issued to guarantee payment of insurance claims. As of ~~September 30, 2017,~~March 28, 2020, Landstar also had ~~$33,127,000~~$34,368,000 of additional letters of credit outstanding under the Company’s Credit Agreement.

The Company is involved in certain claims and pending litigation arising from the normal conduct of business. Many of these claims are covered in whole or in part by insurance. Based on knowledge of the facts and, in certain cases, opinions of outside counsel, management believes that adequate provisions have been made for probable losses with respect to the resolution of all such claims and pending litigation and that the ultimate outcome, after provisions therefor, will not have a material adverse effect on the financial condition of the Company, but could have a material effect on the results of operations in a given quarter or year.

~~(10) Change in Accounting Estimate for Self-Insured Claims~~

The following table summarizes the effect of the increase (decrease) in the cost of insurance claims resulting from unfavorable (favorable) development of prior year self-insured claims estimates on operating income, net income attributable to Landstar System, Inc. and subsidiary and earnings per share attributable to Landstar System, Inc. and subsidiary amounts in the consolidated statements of income for the thirty-nine-week and thirteen-week periods ended September 30, 2017 and September 24, 2016 (in thousands, except per share amounts):

   Thirty Nine Weeks Ended    Thirteen Weeks Ended
   September 30,
2017    September 24,
2016    September 30,
2017    September 24,
2016
Operating income
   $ 1,327    $ 698    $ 1,124    $ (2,118 )
Net income attributable to Landstar System, Inc. and subsidiary
   825    431    699    (1,309 )
Earnings per share attributable to Landstar System, Inc. and subsidiary
   $ 0.02    $ 0.01    $ 0.02    $ (0.03 )
Diluted earnings per share attributable to Landstar System, Inc. and subsidiary
   $ 0.02    $ 0.01    $ 0.02    $ (0.03 )

(11) Recent Accounting Pronouncements

~~In May 2014, the Financial~~

Adoption of New Accounting Standards ~~Board (“FASB”) issued Accounting Standards Update2014-09-~~~~Revenue from Contracts with Customers~~ ~~(“ASU2014-09”).~~ ~~ASU2014-09~~ is a comprehensive revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. The standard requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. ASU~~2014-09~~ becomes effective for us January 1, 2018 and permits either a full retrospective or a modified retrospective transition approach. We plan to adopt this new standard on January 1, 2018 under the modified retrospective transition method with a cumulative adjustment to retained earnings instead of retrospectively adjusting prior periods. We anticipate the adoption of this standard will change the timing of revenue recognition for most of our transportation business from at delivery to over the transit period as our performance obligation is completed. Due to our average length of haul for our truckload movements as well as our corresponding direct costs of revenue, purchased transportation and commissions to agents, we do not expect this change to have a material impact on our results of operations, financial position or cash flows once implemented.

~~In February 2016, the FASB issued Accounting Standards Update2016-02~~ –~~Leases~~ ~~(“ASU2016-02”).~~ ~~ASU2016-02~~ ~~requires a company to recognize aright-of-use~~ asset and lease liability for the obligation to make lease payments measured at the present value of the lease payments for all leases with terms greater than twelve months. Companies are required to use a modified retrospective transition approach to recognize leases at the beginning of the earliest period presented. ASU~~2016-02~~ ~~is effective for annual reporting periods beginning after December 15, 2018, and interim periods therein, and early adoption is permitted. ASU2016-02~~ ~~is not expected to have a material impact on the Company’s financial statements.~~

~~In March 2016, the FASB issued Accounting Standards Update2016-09~~ –~~Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting~~ ~~(“ASU2016-09”),~~ which is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU~~2016-09~~ ~~is effective for annual periods beginning after December 15, 2016, and interim periods therein. As such, the Company adopted ASU2016-09~~ during the first quarter of 2017 with an effective date of January 1, 2017. As a result of the adoption, the Company recognized excess tax benefits in the consolidated statement of income of $868,000 for the thirty-nine-week period ended September 30, 2017. Prior period amounts have not been reclassified.

In June 2016, the FASB issued Accounting Standards Update

2016-13–

Financial Instruments –

Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“

(“ASU

2016-13”),

which requires measurement and recognition of expected versus incurred credit losses for financial assets held. ~~ASU2016-13~~ ~~is effective for annual periods beginning after December 15, 2019, and interim periods therein.~~ The Company ~~is currently evaluating~~adopted ASU

2016-13

on December 29, 2019, under the modified retrospective transition method resulting in a $702,000 cumulative adjustment to retained earnings.

(12) Subsequent Events

COVID-19

was first identified in Wuhan, China in December 2019. The

COVID-19

outbreak was subsequently declared a pandemic by the World Health Organization on March 11, 2020. The

COVID-19

pandemic has caused significant disruptions in the global economy, which significantly intensified in the United States in late March and early April 2020, and has fueled concerns that it will lead to a global recession. These conditions are expected to continue and worsen in the near term. This could have a material adverse impact on the demand for our services and our ability to obtain financing on favorable terms or at all. The situation continues to evolve rapidly and its effects, both short and long-term, remain unknown.

In connection with the impact of ~~ASU2016-13~~the

COVID-19

pandemic, the Company experienced a significant decline in truckload volumes during the last week of its fiscal quarter ended March 28, 2020. The Company believes the

COVID-19

pandemic is likely to have a significant adverse impact on truckload volumes in its 2020 second fiscal quarter. Although it does not appear the impact of the

COVID-19

pandemic had a significant impact on truckload pricing in the 2020 first quarter, no assurance can be given regarding the potential impact of the pandemic on truckload pricing in future periods, including the 2020 second quarter. The extent to which the

COVID-19

pandemic impacts the Company’s results in the 2020 second quarter as well as in future quarters will depend on future developments that are highly uncertain and cannot be predicted, including the duration of the pandemic, new information that may emerge concerning the severity of the pandemic, the actions taken to contain its impact and the role of federal, state and local governments in lifting

stay-at-home

orders and taking other measures that will be needed to help the economy transition back to more normal operating conditions.

COVID-19

support to its independent agents and/or BCO Independent Contractors during the 2020 second quarter as part of the Company’s pandemic relief efforts. These pandemic relief efforts will have an impact on the Company’s financial results for the 2020 second quarter.

Moreover, the

COVID-19

virus continues to spread in areas where we provide services. While we have implemented risk management and contingency plans and taken preventive measures and other precautions, no predictions of specific scenarios can be made with respect to the

COVID-19

Table of Contents

coordination and dispatch services, freight tracking, trailer management and numerous other operational functions. Similarly, the Landstar network includes tens of thousands of truck capacity providers who operate throughout North America without any Landstar truck terminals. Management believes the decentralized nature of our model provides resiliency to Landstar’s freight operations in an environment where social distancing can disrupt centralized business structures. A significant impact to our independent agent network and/or a significant decrease in available truck capacity providers due to illness or government restrictions related to the

COVID-19

pandemic could have a material adverse effect on our ability to source capacity to service our customers and could have a significant impact on Landstar, including our results of operations, revenue and cash flows.

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 ~~31, 2016~~28, 2019 and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the ~~2016~~2019 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 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. foreign 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; catastrophic loss of a Company facility; intellectual property; unclaimed property; ~~acquired businesses;~~ and other operational, financial or legal risks or uncertainties detailed in Landstar’s Form

10-K

for the ~~2016~~2019 fiscal year,

described in Item 1A “Risk Factors”, 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. (together, referred to herein as “Landstar” or the “Company”), is a worldwide asset-light provider of integrated transportation management solutions. The Company offers services to its customers across multiple transportation modes, with the ability to arrange for individual shipments of freight to enterprise-wide solutions to manage 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 approximately 65,000 third party capacity providers, primarily truck capacity providers, linked together by a series of ~~technological~~mobile and digital applications 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 information technology systems, Landstar operates an integrated transportation management solutions business primarily throughout North America with revenue of ~~$3.2~~$4.1 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.

Table of Contents

The transportation logistics segment provides a wide range of integrated transportation management solutions. Transportation services offered by the Company include truckload and less-than-truckload 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 ~~products,~~parts and assemblies, building products, metals, chemicals, foodstuffs, heavy machinery, retail, electronics ~~ammunition and explosives~~ 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. Each of the independent commission sales agents has the opportunity to market all of the 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 ~~thirty-nine~~thirteen weeks ended ~~September 30, 2017,~~March 28, 2020, revenue generated by BCO Independent Contractors, Truck Brokerage Carriers and railroads represented approximately ~~47%~~46%, ~~47%~~46% and 3%, respectively, of the Company’s consolidated revenue. Collectively, revenue generated by air and ocean cargo carriers represented approximately 3% of the Company’s consolidated revenue in the ~~thirty-nine-week~~thirteen-week period ended ~~September 30, 2017.~~

~~During 2017, the Company incorporated~~ March 28, 2020.

Landstar Metro, S.A.P.I. de C.V.~~, a transportation logistics company~~ (“Landstar Metro”), and Landstar Metro Servicios S.A.P.I. de C.V., a services company (“Landstar Servicios”), each based in Mexico City, Mexico. On September 20, 2017, Landstar Metro acquired substantially all of the assets of the asset-light transportation logistics business of a Mexican transportation logistics company. In connection with the acquisition, individuals affiliated with the seller subscribed in the aggregate for a 30% equity interest in each of Landstar Metro and Landstar Servicios. Landstar Metro provides freight and logistics services within the country of Mexico and in conjunction with Landstar’s U.S./Mexico cross-border services. Landstar Metro Servicios S.A.P.I. de C.V. (“Landstar Servicios”) provides various administrative, financial, operational, safety and compliance services to Landstar Metro. The results of operations from Landstar Metro and Landstar Servicios are presented as part of the Company’s transportation logistics segment. ~~The Company expects that~~On January 29, 2019, Landstar acquired all of the remaining equity interests in Landstar Metro and Landstar Servicios ~~will not have a material effect on its revenues and earnings for the remainder~~held by their former minority equityholders. Accordingly, as of ~~fiscal year 2017. Revenue from~~such date, Landstar Metro and Landstar Servicios each became wholly owned subsidiaries of the Company. Revenue from Landstar Metro represented less than 1% of the Company’s transportation logistics segment revenue in the ~~2017 thirty-nine-week period.~~

thirteen-week period ended March 28, 2020.

The insurance segment is comprised of Signature Insurance Company, a wholly owned offshore insurance subsidiary (“Signature”), and Risk Management Claim Services, Inc. ~~This~~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 ~~thirty-nine-week~~thirteen-week period ended ~~September~~March 28, 2020.

Recent Developments

COVID-19

was first identified in Wuhan, China in December 2019. The

COVID-19

outbreak was subsequently declared a pandemic by the World Health Organization on March 11, 2020. The

COVID-19

In connection with the impact of the

COVID-19

pandemic, the Company experienced a significant decline in truckload volumes during the last week of its fiscal quarter ended March 28, 2020. The Company believes the

COVID-19

pandemic is likely to have a significant adverse impact on truckload volumes in its 2020 second fiscal quarter. Although it does not appear the impact of the

COVID-19

stay-at-home

orders and taking other measures that will be needed to help the economy transition back to more normal operating conditions.

Table of Contents

2020, the Company will pay an extra $50 to both the BCO hauling the load and the Landstar agent dispatching the load. The Company subsequently announced the extension of this program through May 15, 2020. The Company estimates that Landstar BCOs will deliver between 60,000 and 70,000 loads in April 2020 and 30,000 to 35,000 from May 1, 2020 through May 15, 2020. In addition, if a Landstar BCO tests positive for

COVID-19

or is placed under a mandatory quarantine by a public health authority, the Company will provide up to $2,000 to the affected BCO. Further, in the event that current market conditions persist, it is possible that Landstar will provide additional financial support to its independent agents and/or BCO Independent Contractors during the 2020 second quarter as part of the Company’s pandemic relief efforts. These pandemic relief efforts will have an impact on the Company’s financial results for the 2020 second quarter.

Moreover, the

COVID-19

pandemic and such measures may not adequately protect our business from the impact of such events. The Landstar network includes over 1,200 independent agent locations throughout North America where such independent agents provide shipment coordination and dispatch services, freight tracking, trailer management and numerous other operational functions. Similarly, the Landstar network includes tens of thousands of truck capacity providers who operate throughout North America without any Landstar truck terminals. Management believes the decentralized nature of our model provides resiliency to Landstar’s freight operations in an environment where social distancing can disrupt centralized business structures. A significant impact to our independent agent network and/or a significant decrease in available truck capacity providers due to illness or government restrictions related to the

COVID-19

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 safely and efficiently deliver ~~that~~ freight utilizing third party capacity providers. Management believes the most significant factors to the Company’s success include increasing revenue, sourcing capacity and controlling costs, including insurance and claims.

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, ~~and~~ increasing the revenue opportunities generated by existing independent commission sales ~~agents.~~agents and providing its independent commission sales agents with technology-based tools they may use to grow revenue and increase efficiencies at their businesses. During the ~~2016~~2019 fiscal year, ~~502~~555 independent commission sales agents generated $1 million or more of Landstar revenue and thus qualified as Million Dollar Agents. During the ~~2016~~2019 fiscal year, the average revenue generated by a Million Dollar Agent was ~~$5,831,000~~$6,880,000 and revenue generated by Million Dollar Agents in the aggregate represented ~~92%~~93% of consolidated revenue.

Table of Contents

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:

   Thirty Nine Weeks Ended    Thirteen Weeks Ended
   September 30,
2017    September 24,
2016    September 30,
2017    September 24,
2016
Revenue generated through (in thousands):

Truck transportation

Truckload:

Van equipment
   $ 1,529,402    $ 1,351,980    $ 550,484    $ 465,785
Unsided/platform equipment
   825,194    700,369    304,536    248,939
Less-than-truckload
   65,397    54,066    22,598    18,139








Total truck transportation
   2,419,993    2,106,415    877,618    732,863
Rail intermodal
   68,570    76,987    24,213    24,650
Ocean and air cargo carriers
   70,708    56,500    29,523    18,790
Other (1)
   35,501    34,903    12,076    11,635








   $ 2,594,772    $ 2,274,805    $ 943,430    $ 787,938








Revenue on loads hauled via BCO Independent Contractors included in total truck transportation
   $ 1,211,564    $ 1,086,848    $ 435,479    $ 379,196
Number of loads:

Truck transportation

Truckload:

Van equipment
   942,894    847,208    329,329    291,089
Unsided/platform equipment
   362,936    331,226    126,509    112,192
Less-than-truckload
   98,740    84,316    34,232    28,589








Total truck transportation
   1,404,570    1,262,750    490,070    431,870
Rail intermodal
   32,040    36,120    11,080    11,940
Ocean and air cargo carriers
   18,150    14,910    6,210    5,130








   1,454,760    1,313,780    507,360    448,940

Loads hauled via BCO Independent Contractors included in total truck transportation
   686,830    630,880    232,970    216,220
Revenue per load:

Truck transportation

Truckload:

Van equipment
   $ 1,622    $ 1,596    $ 1,672    $ 1,600
Unsided/platform equipment
   2,274    2,114    2,407    2,219
Less-than-truckload
   662    641    660    634
Total truck transportation
   1,723    1,668    1,791    1,697
Rail intermodal
   2,140    2,131    2,185    2,064
Ocean and air cargo carriers
   3,896    3,789    4,754    3,663
Revenue per load on loads hauled via BCO Independent Contractors
   $ 1,764    $ 1,723    $ 1,869    $ 1,754

Revenue by capacity type (as a % of total revenue):

Truck capacity providers:

BCO Independent Contractors
   47 % 48 % 46 % 48 %
Truck Brokerage Carriers
   47 % 45 % 47 % 45 %
Rail intermodal
   3 % 3 % 3 % 3 %
Ocean and air cargo carriers
   3 % 2 % 3 % 2 %
Other
   1 % 2 % 1 % 1 %


	Thirteen Weeks Ended
	March 28,			March 30,
	2020			2019
Revenue generated through (in thousands):
Truck transportation
Truckload:
Van equipment	$	545,307		$	619,014
Unsided/platform equipment		286,328			310,721
Less-than-truckload		22,941			23,376

Total truck transportation		854,576			953,111
Rail intermodal		28,129			30,015
Ocean and air cargo carriers		26,587			30,669
Other (1)		18,274			19,205

	$	927,566		$	1,033,000

Revenue on loads hauled via BCO Independent Contractors included in total truck transportation	$	431,279		$	449,308
Number of loads:
Truck transportation
Truckload:
Van equipment		315,345		��	341,821
Unsided/platform equipment		120,589			125,170
Less-than-truckload		38,356			35,309

Total truck transportation		474,290			502,300
Rail intermodal		11,540			12,460
Ocean and air cargo carriers		7,070			7,510

		492,900			522,270

Loads hauled via BCO Independent Contractors included in total truck transportation		233,400			234,850
Revenue per load:
Truck transportation
Truckload:
Van equipment	$	1,729		$	1,811
Unsided/platform equipment		2,374			2,482
Less-than-truckload		598			662
Total truck transportation		1,802			1,897
Rail intermodal		2,438			2,409
Ocean and air cargo carriers		3,761			4,084
Revenue per load on loads hauled via BCO Independent Contractors	$	1,848		$	1,913
Revenue by capacity type (as a % of total revenue):
Truck capacity providers:
BCO Independent Contractors		46	%		43	%
Truck Brokerage Carriers		46	%		49	%
Rail intermodal		3	%		3	%
Ocean and air cargo carriers		3	%		3	%
Other		2	%		2	%

⁽¹⁾	Includes primarily reinsurance premium revenue generated by the insurance ~~segment.~~segment and intra-Mexico transportation services revenue generated by Landstar Metro.

Table of Contents

Also critical to the Company’s success is its ability to secure capacity, particularly truck capacity, at rates that allow the Company to profitably transport customers’ freight. The following table summarizes the number of available truck capacity providers on the dates indicated:

   September 30,
2017    September 24,
2016
BCO Independent Contractors
   8,939    8,889
Truck Brokerage Carriers:

Approved and active⁽¹⁾
   32,925    30,860
Other approved
   15,138    15,691




   48,063    46,551




Total available truck capacity providers
   57,002    55,440




Trucks provided by BCO Independent Contractors
   9,548    9,510


	March 28, 2020		March 30, 2019
BCO Independent Contractors		9,444		9,911
Truck Brokerage Carriers:
Approved and active (1)		38,879		40,404
Other approved		16,657		18,659

		55,536		59,063

Total available truck capacity providers		64,980		68,974

Trucks provided by BCO Independent Contractors		10,112		10,637

⁽¹⁾	Active refers to Truck Brokerage Carriers who moved at least one load in the 180 days immediately preceding the fiscal quarter end.

The Company incurs costs that are directly related to the transportation of freight that include purchased transportation and commissions to agents. The Company incurs indirect costs associated with the transportation of freight that include other operating costs and insurance and claims. In addition, the Company incurs selling, general and administrative costs essential to administering its business operations. Management continually monitors all components of the costs incurred by the Company and establishes annual cost budgets which, in general, are used to benchmark costs incurred on a monthly basis.

Purchased transportation represents the amount a BCO Independent Contractor or other third party capacity provider is paid to haul freight. The amount of purchased transportation paid to a BCO Independent Contractor is primarily based on a contractually agreed-upon percentage of revenue generated by loads hauled by the BCO Independent Contractor. Purchased transportation paid to a Truck Brokerage Carrier is based on either a negotiated rate for each load hauled or, to a lesser extent, a contractually agreed-upon fixed rate per load. Purchased transportation paid to railroads is based on either a negotiated rate for each load hauled or a contractually agreed-upon fixed rate per load. Purchased transportation paid to air cargo carriers is generally based on a negotiated rate for each load hauled and purchased transportation paid to ocean cargo carriers is generally based on a contractually agreed-upon fixed ~~rates.~~rate per load. Purchased transportation as a percentage of revenue for truck brokerage, rail intermodal and ocean cargo services is normally higher than that of BCO Independent Contractor and air cargo services. Purchased transportation is the largest component of costs and expenses and, on a consolidated basis, increases or decreases as a percentage of consolidated revenue in proportion to changes in the percentage of consolidated revenue generated through BCO Independent Contractors and other third party capacity providers and external revenue from the insurance segment, consisting of reinsurance premiums. Purchased transportation as a percent

of revenue also increases or decreases in relation to the availability of truck brokerage capacity and with changes in the price of fuel on revenue generated by Truck Brokerage Carriers. The Company passes 100% of fuel surcharges billed to customers for freight hauled by BCO Independent Contractors to its BCO Independent Contractors. These fuel surcharges are excluded from revenue and the cost of purchased transportation. Purchased transportation costs are recognized ~~upon~~over the ~~completion of~~ freight ~~delivery.~~

transit period as the performance obligation to the customer is completed.

Commissions to agents are based on contractually agreed-upon percentages of revenue or net revenue, defined as revenue less the cost of purchased transportation, or net revenue less a contractually agreed upon percentage of revenue retained by Landstar. Commissions to agents as a percentage of consolidated revenue will vary directly with fluctuations in the percentage of consolidated revenue generated by the various modes of transportation and reinsurance premiums and with changes in net revenue margin, defined as net revenue divided by revenue, on services provided by Truck Brokerage Carriers, railroads, air cargo carriers and ocean cargo carriers. Commissions to agents are recognized ~~upon~~over the ~~completion of~~ freight ~~delivery.~~

transit period as the performance obligation to the customer is completed.

The Company defines gross profit as revenue less the cost of purchased transportation and commissions to agents. Gross profit divided by revenue is referred to as gross profit margin. The Company’s operating margin is defined as operating income divided by gross profit.

In general, gross profit margin on revenue generated by BCO Independent Contractors represents a fixed percentage of revenue due to the nature of the contracts that pay a fixed percentage of revenue to both the BCO Independent Contractors and independent commission sales agents. For revenue generated by Truck Brokerage Carriers, gross profit margin is either fixed or variable as a percent of revenue, depending on the contract with each individual independent commission sales agent. Under certain contracts with independent commission sales agents, the Company retains a fixed percentage of revenue and the agent retains the amount remaining less the cost of purchased transportation (the “retention contracts”). Gross profit margin on revenue generated by railroads, air cargo carriers, ocean cargo carriers and Truck Brokerage Carriers, other than those under retention contracts, is variable in nature as the Company’s contracts with

Table of Contents

independent commission sales agents provide commissions to agents at a contractually agreed upon percentage of net revenue for these ~~type~~types of loads. Approximately ~~54%~~52% of the Company’s consolidated revenue in the ~~thirty-nine-week~~thirteen-week period ended ~~September 30, 2017~~March 28, 2020 was generated under contracts that have a fixed gross profit margin while ~~46%~~48% was under contracts that have a variable gross profit margin.

Maintenance costs for Company-provided trailing equipment and BCO Independent Contractor recruiting and qualification costs are the largest components of other operating costs. Also included in other operating costs are trailer rental costs, the provision for uncollectible advances and other receivables due from BCO Independent Contractors and independent commission sales agents and gains/losses, if any, on sales of Company-owned trailing equipment.

With respect to insurance and claims cost, potential liability associated with accidents in the trucking industry is severe and occurrences are unpredictable.

For periods prior to May 1, 2019, Landstar retains liability for commercial trucking claims ~~Landstar retains liability~~ up to $5,000,000 per ~~occurrence. In addition,~~occurrence and maintains various third party insurance arrangements for ~~commercial trucking claims exceeding~~liabilities in excess of its $5,000,000 ~~per occurrence~~ self-insured ~~retention,~~retention.

Effective May 1, 2019, the Company ~~retains~~entered into a new three year commercial auto liability ~~up to an additional $700,000 in the aggregate on any~~insurance arrangement for losses incurred between $5,000,000 and $10,000,000 (the “Initial Excess Policy”) with a third party insurance company. For commercial trucking claims incurred on or after May 1, ~~2016~~2019 through April 30, ~~2017,~~2022, the Initial Excess Policy initially provided for a limit for a single loss of $5,000,000, with an aggregate limit of $10,000,000 for each policy year, an aggregate limit of $15,000,000 for the

thirty-six

month term ended April 30, 2022, and options to increase such aggregate limits for

pre-established

amounts of additional premium. In the event paid aggregate losses under the Initial Excess Policy during any policy year (May 1 to April 30) exceeded $10,000,000, the Company would retain liability of up to ~~an additional $500,000~~$10,000,000 per occurrence, inclusive of its $5,000,000 self-insured retention, for the remainder of such policy year. Moreover, in the event paid aggregate ~~on any claims incurred on or after May 1, 2017 through~~losses under the Initial Excess Policy during the three year period ending April 30, ~~2018.~~ 2022 exceeded a

pre-determined

threshold amount, the Initial Excess Policy would require the Company to pay additional premium up to a maximum amount of $3,500,000.

As previously disclosed, BCO Independent Contractors with a subsidiary of the Company have been involved in two tragic accidents during the policy year ending April 30, 2020, the first of which occurred in the 2019 third quarter and the second of which occurred in the 2020 first quarter. Following these two tragic accidents, the Company exercised its option under the Initial Excess Policy to increase its aggregate limits to $15,000,000 for each policy year and $20,000,000 for the

thirty-six

month term ended April 30, 2022. If aggregate losses under the Initial Excess Policy exceed either the new annual aggregate limit or the new aggregate limit for the three year period ending April 30, 2022, and the Company declined the option to increase such aggregate limits for a

pre-established

amount of additional premium, Landstar would retain liability of up to $10,000,000 per occurrence, inclusive of its self-insured retention for commercial trucking claims during the remainder of the applicable policy year(s). In addition, as a result of the Company’s aggregate loss experience since it entered into the Initial Excess Policy, it believes it is probable it will be required to pay additional premium under the Initial Excess Policy, which amount of additional premium was included in insurance and claims costs for the Company’s 2020 fiscal first quarter. The Company continues to maintain third party insurance arrangements providing excess coverage on a per occurrence basis for commercial trucking liabilities in excess of $10,000,000.

The Company also retains liability of up to $1,000,000 for each general liability claim, up to $250,000 for each workers’ compensation claim and up to $250,000 for each cargo claim. In addition, under reinsurance arrangements by Signature of certain risks of the Company’s BCO Independent Contractors, the Company retains liability of up to $500,000, $1,000,000 or $2,000,000 with respect to certain occupational accident claims and up to $750,000 with respect to certain workers’ compensation claims. The Company’s exposure to liability associated with accidents incurred by Truck Brokerage Carriers, railroads and air and ocean cargo carriers who transport freight on behalf of the Company is reduced by various factors including the extent to which such carriers maintain their own insurance coverage. A material increase in the frequency or severity of accidents, cargo claims or workers’ compensation claims or the material unfavorable development of existing claims could have a material adverse effect on Landstar’s cost of insurance and claims and its results of operations.

During the ~~thirty-nine-week~~thirteen-week period ended ~~September 30, 2017,~~March 28, 2020, employee compensation and benefits accounted for approximately ~~seventy~~sixty-three percent of the Company’s selling, general and administrative costs.

Depreciation and amortization primarily relate to depreciation of trailing equipment and information technology hardware and software.

Table of Contents

The following table sets forth the percentage relationship of purchased transportation and commissions to agents, both being direct costs, to revenue and indirect costs as a percentage of gross profit for the periods indicated:

   Thirty Nine Weeks Ended Thirteen Weeks Ended
   September 30,
2017 September 24,
2016 September 30,
2017 September 24,
2016
Revenue
   100.0 % 100.0 % 100.0 % 100.0 %
Purchased transportation
   76.7 76.1 77.0 76.3
Commissions to agents
   8.1 8.3 8.1 8.3


Gross profit margin
   15.2 % 15.6 % 14.8 % 15.5 %


Gross profit
   100.0 % 100.0 % 100.0 % 100.0 %
Investment income
   0.4 0.3 0.5 0.3
Indirect costs and expenses:

Other operating costs, net of gains on asset sales/dispositions
   5.7 6.1 5.8 6.2
Insurance and claims
   11.8 12.1 12.8 10.3
Selling, general and administrative
   31.3 29.9 31.4 28.5
Depreciation and amortization
   7.6 7.4 7.2 7.4


Total costs and expenses
   56.3 55.4 57.2 52.3


Operating margin
   44.1 % 44.9 % 43.3 % 48.0 %


	Thirteen Weeks Ended
	March 28, 2020			March 30, 2019
Revenue		100.0	%		100.0	%
Purchased transportation		76.5			76.6
Commissions to agents		8.1			8.3

Gross profit margin		15.4	%		15.1	%

Gross profit		100.0	%		100.0	%
Investment income		0.8			0.7
Indirect costs and expenses:
Other operating costs, net of gains on asset sales/dispositions		5.8			5.3
Insurance and claims		17.5			9.6
Selling, general and administrative		31.7			26.5
Depreciation and amortization		8.0			7.3

Total costs and expenses		63.0			48.7

Operating margin		37.8	%		52.0	%

Management believes that a discussion of indirect costs as a percentage of gross profit is useful and meaningful to ~~potential~~ investors for the following principal reasons: (1) disclosure of these relative measures (i.e., each indirect operating cost line item as a percentage of gross profit) allows investors to better understand the underlying trends in the Company’s results of operations; (2) due to the generally fixed nature of these indirect costs (other than insurance and claims costs), these relative measures are meaningful to investors’ evaluations of the Company’s management of its indirect costs attributable to operations; (3) management considers this financial information in its decision-making, such as budgeting for infrastructure, trailing equipment and selling, general and administrative costs; and (4) this information facilitates comparisons by investors of the Company’s results to the results of other

non-asset

or asset-light companies in the transportation and logistics services industry who report “net revenue” in Management Discussion and Analysis, which represents revenue less the cost of purchased transportation. The difference between the Company’s use of the term “gross profit” and use of the term “net revenue” by other companies in the transportation and logistics services industry is due to the direct cost of commissions to agents under the Landstar business model, whereas other companies in this industry generally have no commissions to agents.

Also, as previously mentioned, the Company reports two operating segments: the transportation logistics segment and the insurance segment. External revenue at the insurance segment, representing reinsurance premiums, has historically been relatively consistent ~~on a year-over-year basis~~ at 2% or less of consolidated revenue and generally corresponds directly with the number of trucks provided by BCO Independent Contractors. The discussion of indirect cost line items in Management’s Discussion and Analysis of Financial Condition and Results of Operations considers the Company’s costs on a consolidated basis rather than on a segment basis. Management believes this presentation format is the most appropriate to assist users of the financial statements in understanding the Company’s business for the following reasons: (1) the insurance segment has no other operating costs; (2) discussion of insurance and claims at either segment without reference to the other may create confusion amongst investors and potential investors due to intercompany arrangements and specific deductible programs that affect comparability of financial results by segment between various fiscal periods but that have no effect on the Company from a consolidated reporting perspective; (3) selling, general and administrative costs of the insurance segment comprise less than 10% of consolidated selling, general and administrative costs and have historically been relatively consistent on a year-over-year basis; and (4) the insurance segment has no depreciation and amortization.

~~THIRTY NINE~~

THIRTEEN WEEKS ENDED ~~SEPTEMBER 30, 2017~~MARCH 28, 2020 COMPARED TO ~~THIRTY NINE~~THIRTEEN WEEKS ENDED ~~SEPTEMBER 24, 2016~~

MARCH 30, 2019

Revenue for the ~~2017 thirty-nine-week~~2020 thirteen-week period was ~~$2,594,772,000, an increase~~$927,566,000, a decrease of ~~$319,967,000,~~$105,434,000, or ~~14%~~10%, compared to the ~~2016 thirty-nine-week~~2019 thirteen-week period. Transportation revenue ~~increased $319,678,000,~~decreased $105,077,000, or ~~14%~~10%. The ~~increase~~decrease in transportation revenue was attributable to ~~an increased~~decreased revenue per load of approximately 5% and a decreased number of loads hauled of approximately ~~11% and increased revenue per load~~6% compared to the 2019

Table of ~~approximately 3%.~~Contents

thirteen-week period. Reinsurance premiums were ~~$34,925,000~~$13,682,000 and ~~$34,636,000~~$14,039,000 for the ~~2017~~2020 and ~~2016 thirty-nine-week~~2019 thirteen-week periods, respectively.

The decrease in revenue from reinsurance premiums was primarily attributable to the decrease in the average number of trucks provided by BCO Independent Contractors in the 2020 thirteen-week period compared to the 2019 thirteen-week period.

Truck transportation revenue generated by BCO Independent Contractors and Truck Brokerage Carriers (together, the “third party truck capacity providers”) for the ~~2017 thirty-nine-week~~2020 thirteen-week period was ~~$2,419,993,000,~~$854,576,000, representing ~~93%~~92% of total revenue, ~~an increase~~a decrease of ~~$313,578,000,~~$98,535,000, or ~~15%~~10%, compared to the ~~2016 thirty-nine-week~~2019 thirteen-week period. The number of loads hauled by third party truck capacity providers ~~increased~~decreased approximately ~~11%~~6% in the ~~2017 thirty-nine-week~~2020 thirteen-week period compared to the ~~2016 thirty-nine-week~~2019 thirteen-week period, and revenue per load ~~increased~~on loads hauled by third party truck capacity providers decreased approximately 3%5% compared to the ~~2016 thirty-nine-week~~2019 thirteen-week period. The ~~increase~~decrease in the number of loads hauled via truck compared to the ~~2016 thirty-nine-week~~2019 thirteen-week period was due to ~~a broad-based increase~~relative softness in ~~demand across many customers~~in the U.S. manufacturing sector in the 2020 period compared to the 2019 period and ~~industries for Landstar’s various truck service offerings.~~the unfavorable impact of the

COVID-19

pandemic experienced during the last week of the 2020 first fiscal quarter. Loads hauled via van equipment decreased 8% and loads hauled via unsided/platform equipment decreased 4%, while less-than-truckload volumes increased 9% as compared to the 2019 thirteen-week period. The ~~increase~~decrease in revenue per load on loads hauled via truck ~~of 3%~~ was primarily due to ~~an 8% increase~~a softer freight demand environment experienced during the 2020 thirteen-week period, which resulted in more readily available truck capacity as compared to the 2019 thirteen-week period. Revenue per load on loads hauled via van equipment decreased 5%, revenue per load on loads hauled via unsided/platform equipment ~~inclusive of a 10% increase in heavy/specialized~~decreased 4% and revenue per load ~~and~~on less-than-truckload loadings decreased 10% as compared to the ~~impact of higher diesel fuel costs on loads hauled via Truck Brokerage Carriers.~~2019 thirteen-week period. Fuel surcharges billed to customers on revenue generated by BCO Independent Contractors are excluded from revenue. Fuel surcharges on Truck Brokerage Carrier revenue identified separately in billings to customers and included as a component of Truck Brokerage Carrier revenue were ~~$46,479,000~~$17,196,000 and ~~$37,723,000~~$20,987,000 in the ~~2017~~2020 and ~~2016 thirty-nine-week~~2019 thirteen-week periods, respectively. It should be noted that billings to many customers of the Company’s truck brokerage services ~~require~~include a single

all-in

rate that does not separately identify fuel ~~surcharges.~~surcharges on loads hauled via Truck Brokerage Carriers. Accordingly, the overall impact of changes in fuel prices on revenue and revenue per load on loads hauled via truck is likely to be greater than that indicated.

Transportation revenue generated by rail intermodal, air cargo and ocean cargo carriers (collectively, the “multimode capacity providers”) for the ~~2017 thirty-nine-week~~2020 thirteen-week period was ~~$139,278,000,~~$54,716,000, or 5%6% of total revenue, ~~an increase~~a decrease of ~~$5,791,000,~~$5,968,000, or 4%10%, compared to the ~~2016 thirty-nine-week~~2019 thirteen-week period. ~~Revenue per load on revenue generated by multimode capacity providers increased approximately 6% in the 2017 thirty-nine-week period compared to the 2016 thirty-nine-week period, while the~~The number of loads hauled by multimode capacity providers decreased approximately 2%7% in the 2020 thirteen-week period compared to the 2019 thirteen-week period, and revenue per load on revenue generated by multimode capacity providers decreased approximately 3% over the same period. The ~~increase~~decrease in the number of loads hauled by multimode capacity providers was primarily due to a 7% decrease in rail intermodal loadings, mostly attributable to decreased loadings at two specific customers, and a 13% decrease in ocean loadings, primarily due to decreased shipments originating in China for export to the United States. The decrease in revenue per load of 6%3% on loads hauled by multimode capacity providers was primarily ~~driven by an increase in~~attributable to decreased revenue per load ~~generated by~~on air cargo ~~carriers, entirely attributable to the impact of air loadings provided in support of disaster relief efforts during the 2017 thirty-nine-week period.~~shipments. Also, revenue per load on revenue generated by multimode capacity providers is influenced by many factors, including revenue mix among the various modes of transportation used, length of haul, complexity of freight, density of freight lanes, fuel costs and availability of capacity. The decrease in loads hauled by multimode capacity providers was due to an 11% decrease in rail intermodal loads, entirely attributable to decreased loadings at two specific agencies, partially offset by a 22% increase in loads hauled by air and ocean cargo carriers. The 22% increase in loads hauled by air and ocean cargo carriers was broad-based across many customers.

Purchased transportation was ~~76.7%~~76.5% and ~~76.1%~~76.6% of revenue in the ~~2017~~2020 and ~~2016 thirty-nine-week~~2019 thirteen-week periods, respectively. The ~~increase~~decrease in purchased transportation as a percentage of revenue was primarily due to an increased ~~rate of purchased transportation paid to Truck Brokerage Carriers and a decrease in the~~ percentage of revenue contributed by BCO Independent Contractors, which typically has a lower rate of purchased transportation than revenue generated by Truck Brokerage Carriers. Commissions to agents were 8.1% and 8.3% of revenue in the ~~2017~~2020 and 2016 thirty-nine-week periods, respectively. The decrease in commissions to agents as a percentage of revenue was primarily attributable to a decreased net revenue margin on revenue generated by Truck Brokerage Carriers.

Investment income was $1,733,000 and $1,100,000 in the 2017 and 2016 thirty-nine-week periods, respectively. The increase in investment income was primarily due to higher average rates of return on investments during the 2017 period and a higher average investment balance held by the insurance segment in the 2017 period.

Other operating costs increased $1,013,000 in the 2017 thirty-nine-week period compared to the 2016 thirty-nine-week period and represented 5.7% of gross profit in the 2017 period compared to 6.1% of gross profit in the 2016 period. The increase in other operating costs compared to the prior year was primarily due to decreased gains on sales of used trailing equipment and an increased provision for contractor bad debt, partially offset by decreased trailing equipment maintenance costs due to a lower average age of the Company-owned trailer fleet. The decrease in other operating costs as a percentage of gross profit was caused by the effect of increased gross profit, partially offset by the increase in other operating costs.

Insurance and claims increased $3,538,000 in the 2017 thirty-nine-week period compared to the 2016 thirty-nine-week period and represented 11.8% of gross profit in the 2017 period compared to 12.1% of gross profit in the 2016 period. The increase in insurance and claims expense compared to prior year was due to increased severity of current year claims in the 2017 period, increased net unfavorable development of prior years’ claims in the 2017 period and increased insurance premiums on the Company’s commercial trucking liability coverage. Unfavorable development of prior years’ claims was $1,327,000 and $698,000 in the 2017 and 2016 thirty-nine-week periods, respectively. The decrease in insurance and claims as a percent of gross profit was caused by the effect of increased gross profit, partially offset by the increase in insurance and claims costs.

Selling, general and administrative costs increased $16,968,000 in the 2017 thirty-nine-week period compared to the 2016 thirty-nine-week period and represented 31.3% of gross profit in the 2017 period compared to 29.9% of gross profit in the 2016 period. The increase in selling, general and administrative costs compared to prior year was attributable to a $13,634,000 provision for incentive compensation in the 2017 thirty-nine-week period compared to an $875,000 provision in the 2016 thirty-nine-week period and increased wages. The increase in selling, general and administrative costs as a percent of gross profit was due primarily to the increase in selling, general and administrative costs, partially offset by the effect of increased gross profit.

Depreciation and amortization increased $3,852,000 in the 2017 thirty-nine-week period compared to the 2016 thirty-nine-week period and represented 7.6% of gross profit in the 2017 period compared to 7.4% of gross profit in the 2016 period. The increase in depreciation and amortization expenses was due to an increased number of owned trailers in response to increased customer demand for the Company’s drop and hook services and a lower average age of the trailer fleet during the 2017 thirty-nine-week period as compared to the 2016 thirty-nine-week period. The increase in depreciation and amortization as a percentage of gross profit was primarily due to the increased depreciation costs, partially offset by the effect of increased gross profit.

~~Interest and debt expense in the 2017 thirty-nine-week period decreased $166,000 compared to the 2016 thirty-nine-week period.~~

The provisions for income taxes for the 2017 and 2016 thirty-nine-week periods were based on estimated annual effective income tax rates of 37.8% and 38.1%, respectively, adjusted for discrete events, such as benefits resulting from disqualifying dispositions of the Company’s common stock by employees who obtained the stock through exercises of incentive stock options. The effective income tax rates for the 2017 and 2016 thirty-nine-week periods were 34.5% and 37.6%, respectively. The effective income tax rate for the 2017 thirty-nine week period was lower than the 35% statutory federal income tax rate primarily as a result of federal domestic production activities deductions and research and development credits recognized as discrete items during the thirteen-week period ended September 30, 2017, partially offset by the effect of state taxes and the meals and entertainment exclusion. The effective income tax rate for the 2016 thirty-nine-week period was higher than the statutory federal income tax rate primarily as a result of state taxes and the meals and entertainment exclusion. The effective income tax rate in the 2017 thirty-nine-week period of 34.5% was less than the 37.8% estimated annual effective income tax rate primarily as a result of federal domestic production activities deductions and research and development credits recognized during 2017 of approximately $5,200,000, excess tax benefits recognized on stock-based compensation arrangements resulting from the Company’s adoption of ASU~~2016-09~~ during 2017 and disqualifying dispositions of the Company’s common stock by employees who obtained the stock through the exercises of incentive stock options in the 2017 period. The effective income tax rate in the 2016 thirty-nine-week period of 37.6% was less than the 38.1% estimated annual effective income tax rate primarily due to certain federal income tax credits realized in the 2016 period and disqualifying dispositions of the Company’s common stock by employees who obtained the stock through exercises of incentive stock options in the 2016 period.

The net loss attributable to noncontrolling interest of $23,000 in the 2017 thirty-nine-week period represents the noncontrolling investors’ 30% share of the net loss incurred by Landstar Metro and Landstar Servicios.

Net income attributable to the Company was $112,336,000, or $2.68 per common share ($2.67 per diluted share), in the 2017 thirty-nine-week period. Net income attributable to the Company was $97,776,000, or $2.32 per common share ($2.31 per diluted share), in the 2016 thirty-nine-week period.

~~THIRTEEN WEEKS ENDED SEPTEMBER 30, 2017 COMPARED TO THIRTEEN WEEKS ENDED SEPTEMBER 24, 2016~~

Revenue for the 2017 thirteen-week period was $943,430,000, an increase of $155,492,000, or 20%, compared to the 2016 thirteen-week period. Transportation revenue increased $155,295,000, or 20%. The increase in transportation revenue was attributable to an increased number of loads hauled of approximately 13% and increased revenue per load of approximately 6%. The Company recognized approximately $23,000,000 in revenue, on approximately 16,000 loads, in the 2017 third quarter in support of local, state and federal relief efforts related to recent hurricanes that impacted Texas, the southeastern United States and Puerto Rico. Reinsurance premiums were $11,738,000 and $11,541,000 for the 2017 and 2016 thirteen-week periods, respectively.

Truck transportation revenue generated by third party capacity providers for the 2017 thirteen-week period was $877,618,000, representing 93% of total revenue, an increase of $144,755,000, or 20%, compared to the 2016 thirteen-week period. The number of loads hauled by third party truck capacity providers increased approximately 13% in the 2017 thirteen-week period compared to the 2016 thirteen-week period, and revenue per load increased approximately 6% compared to the 2016 thirteen-week period. The

increase in the number of loads hauled via truck compared to the 2016 thirteen-week period was due to a broad-based increase in demand across many customers and industries for Landstar’s various truck service offerings and the impact of approximately 16,000 loads hauled in support of disaster relief efforts. The increase in revenue per load on loads hauled via truck of 6% was due to a tighter freight environment experienced during the 2017 thirteen-week period, which resulted in less readily available truck capacity as compared to the 2016 thirteen-week period, and the impact of higher diesel fuel costs on loads hauled via Truck Brokerage Carriers. The freight environment during the 2017 thirteen-week period was also impacted by the hurricanes experienced in Texas and the southeastern United States, which further tightened capacity in the latter part of the quarter. Revenue per load on loads hauled via unsided/platform equipment increased 8%, revenue per load on loads hauled via van equipment increased 5% and revenue per load on less-than-truckload loadings increased 4% as compared to the 2016 thirteen-week period. Fuel surcharges on Truck Brokerage Carrier revenue identified separately in billings to customers and included as a component of Truck Brokerage Carrier revenue were $16,171,000 and $14,016,000 in the 2017 and 2016 thirteen-week periods, respectively.

Transportation revenue generated by multimode capacity providers for the thirteen-week period ended September 30, 2017 was $53,736,000, or 6% of total revenue, an increase of $10,296,000, or 24%, compared to the 2016 thirteen-week period, primarily attributable to approximately $9,000,000 of revenue generated in support of disaster relief efforts. Revenue per load on revenue generated by multimode capacity providers increased approximately 22% compared to the prior year period and the number of loads hauled by multimode capacity providers in the 2017 thirteen-week period increased approximately 1% compared to the 2016 thirteen-week period. The increase in revenue per load of 22% was primarily attributable to the impact of air loadings provided in support of disaster relief efforts during the 2017 thirteen-week period. The increase in loads hauled by multimode capacity providers was primarily due to a 21% increase in loads hauled by air and ocean cargo carriers, where the demand was broad-based across many customers, partially offset by a 7% decrease in loads hauled by rail intermodal loads, entirely attributable to decreased loadings at one specific agency.

Purchased transportation was 77.0% and 76.3% of revenue in the 2017 and 2016 thirteen-week periods, respectively. The increase in purchased transportation as a percentage of revenue was primarily due to an increased rate of purchased transportation paid to Truck Brokerage Carriers and a decrease in the percentage of revenue contributed by BCO Independent Contractors, which typically has a lower rate of purchased transportation than revenue generated by Truck Brokerage Carriers. Commissions to agents were 8.1% and 8.3% of revenue in the 2017 and 20162019 thirteen-week periods, respectively. The decrease in commissions to agents as a percentage of revenue was primarily attributable to a decreased net revenue margin on revenue generated by Truck Brokerage Carriers.

Investment income was ~~$711,000~~$1,167,000 and ~~$357,000~~$1,138,000 in the ~~2017~~2020 and ~~2016~~2019 thirteen-week periods, respectively. The increase in investment income was due to higher average rates of return on investments during the 2017 period and a higher average investment balance held by the insurance segment in the 2017 period.

Other operating costs increased ~~$605,000~~$67,000 in the ~~2017~~2020 thirteen-week period compared to the ~~2016~~2019 thirteen-week period and represented 5.8% of gross profit in the ~~2017~~2020 period compared to ~~6.2%~~5.3% of gross profit in the ~~2016~~2019 period. The increase in other operating costs compared to the prior year was primarily due to ~~decreased gains on sales of used~~an increased provision for contractor bad debt and increased trailing equipment maintenance costs, partially offset by decreased ~~trailing equipment maintenance costs.~~trailer rental expense. The ~~decrease~~increase in other operating costs as a percentage of gross profit was caused by the effect of ~~increased~~decreased gross ~~profit, partially offset by the increase in other operating costs.~~

profit.

Insurance and claims increased ~~$5,439,000~~$9,964,000 in the ~~2017~~2020 thirteen-week period compared to the ~~2016~~2019 thirteen-week period and represented ~~12.8%~~17.5% of gross profit in the ~~2017~~2020 period compared to ~~10.3%~~9.6% of gross profit in the ~~2016~~2019 period. The increase in insurance and claims expense compared to the prior year was primarily due to a $5,000,000 charge for the Company’s self-insured retention with respect to a tragic vehicular accident involving a fatality, a $3,500,000 charge relating to anticipated additional premium the Company expects to

Table of Contents

pay under its existing multi-year insurance arrangements in connection with certain aggregated losses and, to a lesser extent, increased net unfavorable development of prior years’ claims. During the 2020 and 2019 thirteen-week periods, insurance and claims ~~in the 2017 period~~costs included $2,223,000 and ~~increased severity~~$1,407,000 of ~~current year claims, in particular, related~~net unfavorable adjustments to ~~a single severe accident in the 2017 period. Unfavorable development of~~ prior years’ claims ~~was $1,124,000 in the 2017 thirteen-week period whereas favorable development of prior year’s claims was $2,118,000 in the 2016 thirteen-week period.~~estimates, respectively. The increase in insurance and claims as a percent of gross profit was caused by the increase in insurance and claims costs ~~partially offset by~~and the effect of ~~increased~~decreased gross profit.

Selling, general and administrative costs increased ~~$9,303,000~~$4,059,000 in the ~~2017~~2020 thirteen-week period compared to the ~~2016~~2019 thirteen-week period and represented ~~31.4%~~31.7% of gross profit in the ~~2017~~2020 period compared to ~~28.5%~~26.5% of gross profit in the ~~2016~~2019 period. The increase in selling, general and administrative costs compared to prior year was ~~primarily~~ attributable to a $6,848,000 provision for incentive compensation in the 2017 thirteen-week period compared to a $427,000 provision in the 2016 thirteen-week period as the Company is significantly exceeding earnings targets during the 2017 period, an increased provision for customer bad debt, an increased provision for incentive compensation and increased wages and employee benefit costs, partially offset by decreased stock-based compensation expense. Included in selling, general and administrative costs in the 2020 thirteen-week period is approximately $757,000 related to the cancellation due to the COVID-19 pandemic of the Company’s annual agent convention previously planned to occur in the Company’s 2020 second quarter. Included in selling, general and administrative costs was incentive compensation expense of $2,031,000 and $1,038,000 for the 2020 and 2019 thirteen-week periods, respectively, and stock-based compensation expense of $631,000 and ~~increased wages.~~$1,938,000 for the 2020 and 2019 thirteen-week periods, respectively. The increase in selling, general and administrative costs as a percent of gross profit was due ~~primarily~~ to the increase in selling, general and administrative costs ~~partially offset by~~and the effect of ~~increased~~decreased gross profit.

Depreciation and amortization increased ~~$1,114,000~~$189,000 in the ~~2017~~2020 thirteen-week period compared to the ~~2016~~2019 thirteen-week period and represented ~~7.2%~~8.0% of gross profit in the ~~2017~~2020 period compared to ~~7.4%~~7.3% of gross profit in the ~~2016~~2019 period. The increase in depreciation and amortization expenses was primarily due to an increased ~~number of owned trailers~~depreciation on information technology assets, partially offset by a decrease in ~~response to increased customer demand for the Company’s drop and hook services.~~trailing equipment depreciation. The ~~decrease~~increase in depreciation and amortization as a percentage of gross profit was ~~primarily~~ due to the effect of ~~increased~~decreased gross profit ~~partially offset by~~and increased ~~depreciation and amortization expense.~~

depreciation.

Interest and debt expense in the ~~2017~~2020 thirteen-week period ~~decreased $291,000~~increased $147,000 compared to the ~~2016~~2019 thirteen-week period. The ~~decrease~~increase in interest and debt expense was primarily attributable to ~~increased~~decreased interest income earned on ~~deposits~~cash balances held atby the transportation logistics segment.

The provisions for income taxes for the ~~2017~~2020 and ~~2016~~2019 thirteen-week periods were each based on an estimated annual effective income tax ~~rates~~rate of ~~37.8% and 38.1%~~24.2%, ~~respectively,~~ adjusted for discrete events, such as benefits resulting from disqualifying dispositions of the Company’s common stock by employees who obtained the stock through exercises of incentive stock options. The effective income tax rates for the 2017 and 2016 thirteen-week periods were 29.2% and 36.9%, respectively.stock-based awards. The effective income tax rate for the ~~2017~~2020 thirteen-week period was ~~lower~~22.9%, which was higher than the statutory federal income tax rate of 21% primarily ~~as a result of federal domestic production activities deductions~~attributable to state taxes and ~~research~~the meals and ~~development credits recognized as discrete items during the thirteen-week period ended September 30, 2017,~~entertainment exclusion, partially offset by excess tax benefits realized on stock based awards. The effective income tax rate for the ~~effect~~2019 thirteen-week period was 21.0%, which approximated the statutory federal income tax rate. The effective income tax rate in the 2020 thirteen-week period of 22.9% was lower than the 24.2% estimated annual effective income tax rate primarily due to excess tax benefits recognized on stock-based compensation arrangements in the 2020 thirteen-week period. The effective income tax rate in the 2019 thirteen-week period of 21.0% was lower than the 24.2% estimated annual effective income tax rate primarily due to excess tax benefits recognized on stock-based compensation arrangements in the 2019 thirteen-week period, which essentially offset the impact of state taxes and the meals and entertainment exclusion. The effective income tax rate for the 2016 thirteen-week period was higher than the 35% statutory federal income tax rate primarily as a result of state taxes and the meals and entertainment exclusion. The effective income tax rate in the 2017 thirteen-week period of 29.2% was less than the 37.8% estimated annual effective income tax rate primarily as a result of federal domestic production activities deductions and research and development credits recognized as discrete items during the thirteen-week period ended September 30, 2017, excess tax benefits recognized on stock-based compensation arrangements resulting from the Company’s adoption of ASU~~2016-09~~ during 2017 and disqualifying dispositions of the Company’s common stock by employees who obtained the stock through the exercises of incentive stock options in the 2017 period. The effective income tax rate in the 2016 thirteen-week period of 36.9% was less than the 38.1% estimated annual effective income tax rate primarily due to certain federal income tax credits realized in the 2016 period and disqualifying dispositions of the Company’s common stock by employees who obtained the stock through exercises of incentive stock options in the 2016 period.

The net loss attributable to noncontrolling interest of ~~$23,000~~$17,000 in the ~~2017~~2019 thirteen-week period represents the former noncontrolling investors’ ~~30%~~ share of the net loss incurred by Landstar Metro and Landstar Servicios.

Net income ~~attributable to the Company~~ was ~~$42,443,000,~~$40,895,000, or ~~$1.01~~$1.04 per common share ($~~1.01~~1.04 per diluted share), in the ~~2017~~2020 thirteen-week period. Net income ~~attributable to the Company~~ was ~~$36,278,000,~~$63,317,000, or ~~$0.86~~$1.58 per common share ($~~0.86~~1.58 per diluted share), in the ~~2016~~2019 thirteen-week period.

CAPITAL RESOURCES AND LIQUIDITY

Working capital and the ratio of current assets to current liabilities were ~~$430,966,000~~$351,325,000 and ~~2.0~~1.8 to 1, respectively, at ~~September 30, 2017,~~March 28, 2020, compared with ~~$357,096,000~~$444,984,000 and ~~1.9~~1.8 to 1, respectively, at December ~~31, 2016.~~28, 2019. Landstar has historically operated with current ratios within the range of 1.5 to 1 to 2.0 to 1. Cash provided by operating activities was ~~$132,264,000~~$99,216,000 in the ~~2017 thirty-nine-week~~2020 thirteen-week period compared with ~~$171,297,000~~$121,416,000 in the ~~2016 thirty-nine-week~~2019 thirteen-week period. The decrease in cash flow provided by operating activities was primarily attributable to the timing of collections of trade ~~receivables.~~

receivables and decreased net income.

The Company declared and paid ~~$0.28~~$0.185 per share, or ~~$11,739,000~~$7,336,000 in the aggregate, in cash dividends during the ~~thirty-nine-week~~thirteen-week period ended ~~September 30, 2017.~~March 28, 2020 and, during such period, also paid $78,947,000 of dividends payable which were declared during fiscal year 2019 and included in current liabilities in the consolidated balance sheet at December 28, 2019. The Company declared and paid ~~$0.25~~$0.165 per share, or ~~$10,572,000~~$6,629,000 in the aggregate, in cash dividends during the ~~thirty-nine-week~~thirteen-week period ended ~~September 24, 2016.~~March 30, 2019. During the ~~thirty-nine-week~~ thirteen-week

Table of Contents

period ended ~~September 30, 2017,~~March 28, 2020, the Company ~~did not purchase any~~purchased 1,178,970 shares of its common ~~stock.~~stock at a total cost of $115,962,000. During the thirteen-week period ended March 30, 2019, the Company purchased 124,481 shares of its common stock at a total cost of $12,977,000. As of ~~September 30, 2017,~~March 28, 2020, the Company may purchase in the aggregate up to ~~1,036,125~~1,821,030 shares of its common stock under its authorized stock purchase program. Long-term debt, including current maturities, was ~~$117,402,000~~$101,921,000 at ~~September 30, 2017, $20,902,000~~March 28, 2020, $10,923,000 lower than at December ~~31, 2016.~~

~~Equity~~28, 2019.

Shareholders’ equity was ~~$653,973,000,~~$627,095,000, or ~~85%~~86% of total capitalization (defined as long-term debt including current maturities plus equity), at ~~September 30, 2017,~~March 28, 2020, compared to ~~$542,557,000,~~$721,469,000, or ~~80%~~86% of total capitalization, at December ~~31, 2016.~~28, 2019. The ~~increase~~decrease in equity was primarily athe result of ~~net income, partially offset by~~purchases of shares of the Company’s common stock and dividends declared by the Company in the ~~2017 thirty-nine-week period.~~

2020 thirteen-week period, partially offset by net income.

On June 2, 2016, Landstar entered into a credit agreement with a syndicate of banks and JPMorgan Chase Bank, N.A., as administrative agent (the “Credit Agreement”). The Credit Agreement, which matures on June 2, 2021, provides $250,000,000 of borrowing capacity in the form of a revolving credit facility, $50,000,000 of which may be utilized in the form of letter of credit guarantees. The Credit Agreement includes an “accordion” feature providing for a possible increase up to an aggregate borrowing amount of $400,000,000. The Company’s prior credit agreement was terminated on June 2, 2016.

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 defined 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.

At ~~September 30, 2017,~~March 28, 2020, the Company had no borrowings outstanding and ~~$33,127,000~~$34,368,000 of letters of credit outstanding under the Credit Agreement. At ~~September 30, 2017,~~March 28, 2020, there was ~~$216,873,000~~$215,632,000 available for future borrowings under the Credit Agreement. In addition, the Company has ~~$59,999,000~~$61,503,000 in letters of credit outstanding as collateral for insurance claims that are secured by investments totaling ~~$66,666,000~~$68,337,000 at ~~September 30, 2017.~~March 28, 2020. Investments, all of which are carried at fair value, include primarily investment-grade bonds and U.S. Treasury obligations having maturities of up to five years. Fair value of investments is based primarily on quoted market prices. See ~~Notes~~“Notes to Consolidated Financial ~~Statements~~Statements” included herein for further discussion on measurement of fair value of investments.

Historically, the Company has generated sufficient operating cash flow to meet its debt service requirements, fund continued growth, both organic and through acquisitions, complete or execute share purchases of its common stock under authorized share purchase programs, pay dividends and meet working capital needs. As an asset-light provider of integrated transportation management solutions, the Company’s annual capital requirements for operating property are generally for trailing equipment and information technology hardware and software. In addition, a significant portion of the trailing equipment used by the Company is provided by third party capacity providers, thereby reducing the Company’s capital requirements. During the ~~2017 thirty-nine-week~~2020 thirteen-week period, the Company purchased ~~$8,800,000~~$5,799,000 of operating property. Included in the $8,800,000 of purchases of operating property during the 2017 thirty-nine-week period is $4,255,000 related to a freight staging and transload facility in Laredo, Texas for which the Company accrued a corresponding liability in accounts payable as of December 31, 2016. Landstar also acquired $945,000 of operating property relating to the completion of the Laredo property for which the Company accrued a corresponding liability in accounts payable as of September 30, 2017. Landstar anticipates acquiring either by purchase or lease financing during the remainder of fiscal year ~~2017~~2020 approximately ~~$36,000,000~~$48,000,000 in operating property, consisting primarily of new trailing equipment to replace older trailing equipment and information technology equipment. ~~On September 20, 2017~~

Regarding the ~~Company completed the Landstar Metro acquisition, as described in footnote 1 to our unaudited consolidated financial statements. Cash consideration paid~~recent swift and significant decrease in the ~~quarter for the acquisition was approximately $8,199,000. In addition, the Company assumed approximately $2,200,000~~Company’s revenue beginning in ~~liabilities consisting of additional contingent purchase price and associated indirect taxes.~~

~~As it relates to thenon-controlling~~ interests of Landstar Metro and Landstar Servicios, the Company has the option to purchase, and the minority equityholders have the option to sell, during the period commencing on the third anniversary of September 20, 2017, the closing date of the subscriptionlate March caused by the minority equityholders (the “Closing Date”), and at any time after the fourth anniversary of the Closing Date, at fair value all but not less than all of the noncontrolling interests in Landstar Metro and Landstar Servicios. The noncontrolling interests are also subjectCOVID-19 pandemic, management continues to ~~customary restrictions on transfer, including a right of first refusal in favor of the Company.~~

~~Management believes~~believe that cash flow from operations combined with the Company’s borrowing capacity under the Credit Agreement will be adequate to meet Landstar’s debt service requirements, fund continued growth, both internal and through acquisitions, pay dividends, complete the authorized share purchase program and meet working capital needs.

The Company remains committed to returning cash to stockholders over time, primarily through share repurchases, as demonstrated during the thirteen-week period ended March 28, 2020; however, the Company intends to be prudent in its current approach to share repurchases as the depth and duration of the COVID-19 pandemic crisis become clearer.

Table of Contents

LEGAL MATTERS

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The allowance for doubtful accounts for both trade and other receivables represents management’s estimate of the amount of outstanding receivables that will not be collected. Historically, management’s estimates for uncollectible receivables have been materially correct. Although management believes the amount of the allowance for both trade and other receivables at September 30, 2017 is appropriate, a prolonged period of low or no economic growth may adversely affect the collection of these receivables. In addition, liquidity concerns and/or unanticipated bankruptcy proceedings at any of the Company’s larger customers in which the Company is carrying a significant receivable could result in an increase in the provision for uncollectible receivables and have a significant impact on the Company’s results of operations in a given quarter or year. However, it is not expected that an uncollectible accounts receivable resulting from an individual customer would have a significant impact on the Company’s financial condition. Conversely, a more robust economic environment or the recovery of a previously provided for uncollectible receivable from an individual customer may result in the realization of some portion of the estimated uncollectible receivables.

Landstar provides for the estimated costs of self-insured claims primarily on an actuarial basis. The amount recorded for the estimated liability for claims incurred is based upon the facts and circumstances known on the applicable balance sheet date. The ultimate resolution of these claims may be for an amount greater or less than the amount estimated by management. The Company continually revises its existing claim estimates as new or revised information becomes available on the status of each claim. Historically, the Company has experienced both favorable and unfavorable development of prior years’ claims estimates. During the ~~2017~~2020 and ~~2016 thirty-nine-week~~2019 thirteen-week periods, insurance and claims costs included ~~$1,327,000~~$2,223,000 and ~~$698,000~~$1,407,000 of net unfavorable adjustments to prior years’ claims estimates, respectively. It is reasonably likely that the ultimate outcome of settling all outstanding claims will be more or less than the estimated claims ~~reserve~~liability at ~~September 30, 2017.~~

The Company utilizes certain income tax planning strategies to reduce its overall cost of income taxes. If the Company were to be subject to an audit, it is possible that certain strategies might be disallowed resulting in an increased liability for income taxes. Certain of these tax planning strategies result in a level of uncertainty as to whether the related tax positions taken by the Company would result in a recognizable benefit. The Company has provided for its estimated exposure attributable to such tax positions due to the corresponding level of uncertainty with respect to the amount of income tax benefit that may ultimately be realized. Management believes that the provision for liabilities resulting from the uncertainty in certain income tax positions is appropriate. To date, the Company has not experienced an examination by governmental revenue authorities that would lead management to believe that the Company’s past provisions for exposures related to the uncertainty of such income tax positions are not appropriate.

March 28, 2020.

Significant variances from management’s estimates for the ~~amount of uncollectible receivables, the~~ ultimate resolution of self-insured claims ~~and the provision for uncertainty in income tax positions~~ could ~~each~~ be expected to positively or negatively affect Landstar’s earnings in a given quarter or year. However, management believes that the ultimate resolution of these items, given a range of reasonably likely outcomes, will not significantly affect the long-term financial condition of Landstar or its ability to fund its continuing operations.

EFFECTS OF INFLATION

Management does not believe inflation has had a material impact on the results of operations or financial condition of Landstar in the past five years. However, inflation in excess of historic trends might have an adverse effect on the Company’s results of operations in the future.

SEASONALITY

Landstar’s operations are subject to seasonal trends common to the trucking industry. ~~Results of operations~~Truckload shipments for the quarter ending in March are typically lower than for the quarters ending June, September and December.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to changes in interest rates as a result of its financing activities, primarily its borrowings on its revolving credit facility, and investing activities with respect to investments held by the insurance segment.

Depending upon the specific type of borrowing, borrowings under the Credit Agreement bear interest based on either (a) the prime rate, (b) the Federal Reserve Bank of New York rate plus 0.5% or (c) the London Interbank Offered Rate, plus 1.25%. As of ~~September 30, 2017~~March 28, 2020 and during the entire ~~2017 third~~2020 first quarter, the Company had no borrowings outstanding under the Credit Agreement.

Long-term investments, all of which are

available-for-sale

and are carried at fair value, include primarily investment-grade bonds and U.S. Treasury obligations having maturities of up to five years. Assuming that the long-term portion of investments remains at ~~$65,292,000,~~$82,798,000, the balance at ~~September 30, 2017,~~March 28, 2020, a hypothetical increase or decrease in interest rates of 100 basis points would not have a material impact on future earnings on an annualized basis. Short-term investments consist of short-term investment-grade instruments and the current maturities of investment-grade corporate bonds and U.S. Treasury obligations. Accordingly, any future interest rate risk on these short-term investments would not be material to the Company’s operating results.

Table of Contents

Assets and liabilities of the Company’s Canadian and Mexican operations are translated from their functional currency to U.S. dollars using exchange rates in effect at the balance sheet date and revenue and expense accounts are translated at average monthly exchange rates during the period. Adjustments resulting from the translation process are included in accumulated other comprehensive income. Transactional gains and losses arising from receivable and payable balances, including intercompany balances, in the normal course of business that are denominated in a currency other than the functional currency of the operation are recorded in the statements of income when they occur. The assets held at the Company’s Canadian and Mexican subsidiaries at ~~September 30, 2017~~March 28, 2020 were collectively, as translated to U.S. dollars, ~~approximately 3%~~less than 4% of total consolidated assets. Accordingly, ~~any~~ translation ~~gain~~gains or ~~loss~~losses of 10% or less related to the Canadian and Mexican operations would not be material.

Item 4. Controls and Procedures

As of the end of the period covered by this quarterly report on Form

10-Q,

an evaluation was carried out, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule

13a-15(e)

promulgated under the Securities Exchange Act of 1934, as amended). Based on that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of ~~September 30, 2017~~March 28, 2020 to provide reasonable assurance that information required to be disclosed by the Company in reports that it filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

There were no significant changes in the Company’s internal control over financial reporting during the Company’s fiscal quarter ended ~~September 30, 2017~~March 28, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

In designing and evaluating disclosure controls and procedures, Company management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitation in any control system, no evaluation or implementation of a control system can provide complete assurance that all control issues and all possible instances of fraud have been or will be detected.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

Item 1A. Risk Factors

~~Acquired~~

Except as set forth below, there have been no material changes to the Risk Factors described in Part I “Item 1A. Risk Factors” in the Company’s Annual Report on Form
10-K
for the fiscal year ended December 28, 2019 as filed with the SEC.

The coronavirus (“COVID-19”) pandemic has had a significant adverse impact on our business.

COVID-19

was first identified in Wuhan, China in December 2019. The
COVID-19
outbreak was subsequently declared a pandemic by the World Health Organization on March 11, 2020. The
COVID-19
pandemic has caused significant disruptions in the global economy, which significantly intensified in the United States in late March and early April 2020, and has fueled concerns that it will lead to a global recession. These conditions are expected to continue and worsen in the near term. This could have a material adverse impact on the demand for our services and our ability to obtain financing on favorable terms or at all. The situation continues to evolve rapidly and its effects, both short and long-term, remain unknown.

In connection with the impact of the
COVID-19
pandemic, the Company experienced a significant decline in truckload volumes during the last week of its fiscal quarter ended March 28, 2020. The Company believes the
COVID-19
pandemic is likely to have a significant adverse impact on truckload volumes in its 2020 second fiscal quarter. Although it does not appear the impact of the
COVID-19
pandemic had a significant impact on truckload pricing in the 2020 first quarter, no assurance can be given regarding the potential impact of the pandemic on truckload pricing in future periods, including the 2020 second quarter. The extent to which the
COVID-19
pandemic impacts the Company’s results in the 2020 second quarter as well as in future quarters will depend on future developments that are highly uncertain and cannot be predicted, including the duration of the pandemic, new information that may emerge concerning the severity of the pandemic, the actions taken to contain its impact and the role of federal, state and local governments in lifting
stay-at-home
orders and taking other measures that will be needed to help the economy transition back to more normal operating conditions. These and other factors could have a material adverse impact on our business, financial position, results of operations and cash flows.

In an effort to support BCO Independent Contractors and independent commission sales agents in the Landstar network, the Company announced that for each load delivered by a BCO Independent Contractor with a confirmed delivery date from April 1, 2020 through April 30, 2020, the Company will pay an extra $50 to both the BCO hauling the load and the Landstar agent dispatching the load. The Company subsequently announced the extension of this program through May 15, 2020. The Company estimates that Landstar BCOs will deliver between 60,000 and 70,000 loads in April 2020 and 30,000 to 35,000 from May 1, 2020 through May 15, 2020. In addition, if a Landstar BCO tests positive for
COVID-19
or is placed under a mandatory quarantine by a public health authority, the Company will provide up to $2,000 to the affected BCO. Further, in the event that current market conditions persist, it is possible that Landstar will provide additional financial support to its independent agents and/or BCO Independent Contractors during the 2020 second quarter as part of the Company’s pandemic relief efforts. These pandemic relief efforts will have an impact on the Company’s financial results for the 2020 second quarter.

Moreover, the
COVID-19
virus continues to spread in areas where we provide services. The Landstar network includes over 1,200 independent agent locations throughout North America where such independent agents provide shipment coordination and dispatch services, freight tracking, trailer management and numerous other operational functions. Similarly, the Landstar network includes tens of thousands of truck capacity providers who operate throughout North America without any Landstar truck terminals. Management believes the decentralized nature of our model should insulate Landstar’s freight operations in an environment where social distancing can disrupt centralized business structures. A significant impact to our independent agent network and/or a significant decrease in available truck capacity providers due to illness or government restrictions related to the
COVID-19
pandemic could have a material adverse effect on our ability to source capacity to service our customers and could have a significant impact on Landstar, including our results of operations, revenue and cash flows.

In addition, the
COVID-19
pandemic along with other factors such as issues in the international oil and gas sector have caused significant disruptions in the Mexican economy. These conditions also are expected to continue and worsen in the near term. During the Company’s 2020 fiscal first quarter, the value of the Mexican peso to the U.S. dollar significantly depreciated and may continue to depreciate further. No assurances can be given regarding the potential impact of the
COVID-19
pandemic and other factors on the Mexican economy and the value of the Mexican peso relative to the U.S. dollar and could have a significant adverse impact on the financial condition and results of operations of our Mexican subsidiaries as well as the value of the tangible and intangible assets associated with their operations. Moreover, we annually perform impairment tests of the carrying values of our goodwill, other indefinite-lived intangible assets and other long-lived assets. We may also perform an evaluation whenever events may indicate an impairment has occurred. In assessing whether an impairment has occurred, we consider whether the performance of our reporting units may be below projections, negative macroeconomic trends or negative industry and company-specific trends. If we conclude that the carrying values of assets associated with our Mexican operations exceed their fair value, we may be required to record an impairment.

Disruptions or failures in the Company’s computer systems; cyber and other information security incidents.

The Company’s information technology systems used in connection with its operations are located in Jacksonville, Florida and to a lesser extent in Rockford, Illinois. In addition, the Company utilizes several third party data centers throughout the U.S. Landstar relies, in the regular course of its business, on the proper operation of its information technology systems to link its extensive network of customers, employees, agents and third party capacity providers, including its BCO Independent Contractors. Moreover, in connection with the
COVID-19
pandemic, the Company has temporarily transitioned the vast majority of its office-based employees to
work-at-home
arrangements. Although the Company has redundant systems for its critical operations, any significant disruption or failure of its technology systems or those of third party data centers on which it relies could significantly disrupt the Company’s operations and impose significant costs on the Company. Moreover, it is critical that the data processed by or stored in the Company’s information technology systems or otherwise in the

Company’s possession remain confidential, as it often includes confidential, proprietary and/or competitively sensitive information regarding our customers, employees, agents and third party capacity providers, key financial and operational results and statistics, and our strategic plans, including technology innovations, developments and enhancements. Cyber incidents that impact the security, availability, reliability, speed, accuracy or other proper functioning of these systems and data, including outages, computer viruses,
break-ins
and similar disruptions, could have a significant impact on our operations. Accordingly, information security and the continued development and enhancement of the controls and processes designed to protect our systems, computers, software, data and networks from attack, damage or unauthorized access remain a priority for us. Although we believe that we have robust security procedures and other safeguards in place, as threats continue to evolve, we may be required to expend additional resources to continue to enhance our information security measures and/or to investigate and remediate any security vulnerabilities. For example, in the first quarter of 2016, we were subject to “spear-phishing” attacks through which third parties were able to obtain personal employee data. We have undertaken a number of remedial measures in response, including enhancing our security systems and additional training for our employees. Additional incidents may occur in the future and may have a material adverse effect on our business and ~~noncontrolling interests.During 2017,~~operations. A significant incident, including system failure, security breach, disruption by malware, or other damage, could interrupt or delay our operations, damage our reputation, cause a loss of customers, agents and/or third party capacity providers, expose us to a risk of loss or litigation, and/or cause us to incur significant time and expense to remedy such an event, any of which could have a material adverse impact on our results of operations and financial condition.

Increased severity or frequency of accidents and other claims or a material unfavorable development of existing claims.

For periods prior to May 1, 2019, Landstar ~~Metro,~~retains liability for commercial trucking claims up to $5,000,000 per occurrence and maintains various third party insurance arrangements for liabilities in excess of its $5,000,000 self-insured retention. Effective May 1, 2019, the Company entered into a ~~recently formed~~new three year commercial auto liability insurance arrangement for losses incurred between $5,000,000 and $10,000,000 (the “Initial Excess Policy”) with a third party insurance company. For commercial trucking claims incurred on or after May 1, 2019 through April 30, 2022, the Initial Excess Policy initially provided for a limit for a single loss of $5,000,000, with an aggregate limit of $10,000,000 for each policy year, an aggregate limit of $15,000,000 for the

thirty-six

month term ended April 30, 2022, and options to increase such aggregate limits for

pre-established

amounts of additional premium. In the event paid aggregate losses under the Initial Excess Policy during any policy year (May 1 to April 30) exceeded $10,000,000, the Company would retain liability of up to $10,000,000 per occurrence, inclusive of its $5,000,000 self-insured retention, for the remainder of such policy year. Moreover, in the event paid aggregate losses under the Initial Excess Policy during the three year period ending April 30, 2022 exceeded a

pre-determined

threshold amount, the Initial Excess Policy would require the Company to pay additional premium up to a maximum amount of $3,500,000.

As previously disclosed, BCO Independent Contractors with a subsidiary of the Company ~~acquired substantially all~~have been involved in two tragic accidents during the policy year ending April 30, 2020, the first of ~~the assets of the asset-light transportation logistics business of a Mexican transportation logistics company. In connection with the acquisition, individuals affiliated with the seller subscribed~~which occurred in the ~~aggregate for a 30% equity interest~~2019 third quarter and the second of which occurred in ~~each of Landstar Metro and its sister company, Landstar Servicios. As it relates to~~ the ~~noncontrolling interests of Landstar Metro and Landstar Servicios,~~2020 first quarter. Following these two tragic accidents, the Company ~~has~~exercised its option under the Initial Excess Policy to increase its aggregate limits to $15,000,000 for each policy year and $20,000,000 for the

thirty-six

pre-established

amount of additional premium, Landstar would retain liability of up to ~~sell,~~$10,000,000 per occurrence, inclusive of its self-insured retention for commercial trucking claims during the ~~period commencing on the third anniversary of September 20, 2017, the closing date~~remainder of the ~~subscription by the minority equityholders (the “Closing Date”), and at any time after the fourth anniversary~~applicable policy year(s). In addition, as a result of the ~~Closing Date, at fair value all but not less than all of~~Company’s aggregate loss experience since it entered into the noncontrolling interests in Landstar Metro and Landstar Servicios. No assurances can be provided regarding the exercise of the option to purchase by the Company or the option to sell by the minority equityholders, or the amount that mayInitial Excess Policy, it believes it is probable it will be required to ~~be paid~~pay additional premium under the Initial Excess Policy, which amount of additional premium was included in insurance and claims costs for the Company’s 2020 fiscal first quarter. The Company continues to ~~purchase~~maintain third party insurance arrangements providing excess coverage on a per occurrence basis for commercial trucking liabilities in excess of $10,000,000.

Company’s BCO Independent Contractors, the Company retains liability of up to $500,000, $1,000,000 or $2,000,000 with respect to certain occupational accident claims and up to $750,000 with respect to certain workers’ compensation claims. The Company’s exposure to liability associated with accidents incurred by Truck Brokerage Carriers, railroads and air and ocean cargo carriers who transport freight on behalf of the Company is reduced by various factors including the extent to which such carriers maintain their own insurance coverage. A material increase in the frequency or severity of accidents, cargo claims or workers’ compensation claims or the material unfavorable development of existing claims could have a material adverse effect on Landstar’s cost of insurance and claims and its results of operations. For a discussion identifying additional risk factors and other important factors that could cause actual results to differ materially from those anticipated, see the discussions under Part I, Item 1A, “Risk Factors” in the Company’s Annual Report on Form

10-K

for the fiscal year ended December ~~31, 2016~~28, 2019 and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Notes to Consolidated Financial Statements” in this Quarterly Report on Form

10-Q.


PART I– Financial Information

Item 1.Financial Statements (unaudited)			Page 3

Consolidated Balance Sheets as of ~~September 30, 2017~~March 28, 2020 and December ~~31, 2016~~28, 2019			Page 4

Consolidated Statements of Income for the ~~Thirty Nine and~~ Thirteen Weeks Ended ~~September~~March 28, 2020 and March 30, ~~2017 and September 24, 2016~~2019			Page 5

Consolidated Statements of Comprehensive Income for the ~~Thirty Nine and~~ Thirteen Weeks Ended ~~September~~March 28, 2020 and March 30, ~~2017 and September 24, 2016~~2019			Page 6

Consolidated Statements of Cash Flows for the ~~Thirty Nine~~Thirteen Weeks Ended ~~September~~March 28, 2020 and March 30, ~~2017 and September 24, 2016~~2019			Page 7

Consolidated ~~Statement~~Statements of Changes in Equity for the ~~Thirty Nine~~Thirteen Weeks Ended ~~September~~March 28, 2020 and March 30, ~~2017~~2019			Page 8

Notes to Consolidated Financial Statements			Page 9

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations			Page 1617

Item 3.Quantitative and Qualitative Disclosures About Market Risk			Page 2827

~~Item 4.~~~~Controls and Procedures~~			~~Page 28~~

~~PART II –~~~~Other Information~~

Item 1. ~~Legal Proceedings~~4. Controls and Procedures			Page 2928

~~Item 1A.~~ ~~Risk Factors~~			~~Page 29~~
PART II – Other Information

Item 1. Legal Proceedings			Page 28

Item 1A. Risk Factors			Page 28

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			Page 2931

~~Item 6.~~ ~~Exhibits~~			~~Page 30~~

~~Signatures~~Item 6. Exhibits			Page 3231

Signatures			Page 33
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


Finance leases:
Amortization of right-of-use assets	$	6,151
Interest on lease liability		889

Total finance lease cost		7,040
Operating leases:
Lease cost		837
Variable lease cost		—
Sublease income		(1,229	)

Total operating lease (income)/cost		(392	)

Total lease cost	$	6,648


Assets:
Operating lease right-of-use assets	Other assets	$	2,554
Finance lease assets	Operating property, less accumulated depreciation and amortization		150,273

Total lease assets		$	152,827

Liabilities:


Fiscal Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs		Maximum Number of Shares That May Yet Be Purchased Under the Programs
December 28, 2019								3,000,000
December 29, 2019 – January 25, 2020		—	$	—		—		3,000,000
January 26, 2020 – February 22, 2020		27,206		109.39		27,206		2,972,794
February 23, 2020 – March 28, 2020		1,151,764		98.10		1,151,764		1,821,030

Total		1,178,970	$	98.36		1,178,970


~~Dividend Amount~~ ~~per Share~~	~~Declaration~~ ~~Date~~	~~Record~~ ~~Date~~	~~Payment~~ ~~Date~~
~~$0.09~~	~~January 30, 2017~~	~~February 20, 2017~~	~~March 17, 2017~~
~~$0.09~~	~~April 25, 2017~~	~~May 11, 2017~~	~~June 2, 2017~~
~~$0.10~~	~~July 25, 2017~~	~~August 14, 2017~~	~~September 1, 2017~~


	September 30, 2017			December 31, 2016
ASSETS
Current Assets
Cash and cash equivalents	$	249,741		$	178,897
Short-term investments		45,687			66,560
Trade accounts receivable, less allowance of $6,163 and $5,161		546,826			463,102
Other receivables, including advances to independent contractors, less allowance of $6,306 and $5,523		18,704			18,567
Other current assets		16,925			10,281

Total current assets		877,883			737,407

Operating property, less accumulated depreciation and amortization of $210,018 and $190,374		261,465			272,843
Goodwill		39,914			31,134
Other assets		84,077			55,207

Total assets	$	1,263,339		$	1,096,591

LIABILITIES AND EQUITY
Current Liabilities
Cash overdraft	$	33,853		$	36,251
Accounts payable		269,389			219,409
Current maturities of long-term debt		40,610			45,047
Insurance claims		34,211			26,121
Other current liabilities		68,854			53,483

Total current liabilities		446,917			380,311

Long-term debt, excluding current maturities		76,792			93,257
Insurance claims		32,804			26,883
Deferred income taxes and other noncurrent liabilities		52,853			53,583
Equity
Landstar System, Inc. and subsidiary shareholders’ equity
Common stock, $0.01 par value, authorized 160,000,000 shares, issued 67,715,290 and 67,585,675 shares		677			676
Additional paid-in capital		205,396			199,414
Retained earnings		1,613,590			1,512,993
Cost of 25,749,493 and 25,747,541 shares of common stock in treasury		(1,167,600	)		(1,167,437	)
Accumulated other comprehensive loss		(1,708	)		(3,089	)

Total Landstar System, Inc. and subsidiary shareholders’ equity		650,355			542,557
Noncontrolling interest		3,618			—

Total equity		653,973			542,557

Total liabilities and equity	$	1,263,339		$	1,096,591


	Thirty Nine Weeks Ended					Thirteen Weeks Ended
	September 30, 2017			September 24, 2016		September 30, 2017			September 24, 2016
Revenue	$	2,594,772		$	2,274,805	$	943,430		$	787,938
Investment income		1,733			1,100		711			357
Costs and expenses:
Purchased transportation		1,989,938			1,730,745		726,827			601,002
Commissions to agents		210,678			189,075		76,598			65,144
Other operating costs, net of gains on asset sales/dispositions		22,497			21,484		8,097			7,492
Insurance and claims		46,333			42,795		17,927			12,488
Selling, general and administrative		123,179			106,211		43,995			34,692
Depreciation and amortization		29,961			26,109		10,130			9,016

Total costs and expenses		2,422,586			2,116,419		883,574			729,834

Operating income		173,919			159,486		60,567			58,461
Interest and debt expense		2,559			2,725		657			948

Income before income taxes		171,360			156,761		59,910			57,513
Income taxes		59,047			58,985		17,490			21,235

Net income		112,313			97,776		42,420			36,278
Less: Net loss attributable to noncontrolling interest		(23	)		—		(23	)		—

Net income attributable to Landstar System, Inc. and subsidiary	$	112,336		$	97,776	$	42,443		$	36,278

Earnings per common share attributable to Landstar System, Inc. and subsidiary	$	2.68		$	2.32	$	1.01		$	0.86

Diluted earnings per share attributable to Landstar System, Inc. and subsidiary	$	2.67		$	2.31	$	1.01		$	0.86

Average number of shares outstanding:
Earnings per common share		41,924,000			42,223,000		41,957,000			42,039,000

Diluted earnings per share		42,013,000			42,341,000		42,028,000			42,170,000

Dividends per common share	$	0.28		$	0.25	$	0.10		$	0.09


	Number of RSUs			Weighted Average Grant Date Fair Value
Outstanding at December 31, 2016		378,238		$	50.46
Granted		67,769		$	76.85
Forfeited		(58,779	)	$	46.00

Outstanding at September 30, 2017		387,228		$	55.75


	Number of Options			Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value (000s)
Options outstanding at December 31, 2016		372,561		$	48.24
Exercised		(134,461	)	$	46.38
Forfeited		(1,200	)	$	55.67

Options outstanding at September 30, 2017		236,900		$	49.25		4.0	$	11,940

Options exercisable at September 30, 2017		217,000		$	48.59		3.9	$	11,081


	Number of Shares and Deferred Stock Units			Weighted Average Grant Date Fair Value
Non-vested at December 31, 2016		28,409		$	58.91
Granted		42,123		$	84.26
Vested		(16,227	)	$	61.50

Non-vested at September 30, 2017		54,305		$	77.80


	Thirty Nine Weeks Ended
	September 30, 2017						September 24, 2016
	Transportation Logistics		Insurance		Total		Transportation Logistics		Insurance		Total
External revenue	$	2,559,847	$	34,925	$	2,594,772	$	2,240,169	$	34,636	$	2,274,805
Internal revenue				29,773		29,773				28,890		28,890
Investment income				1,733		1,733				1,100		1,100
Operating income		148,693		25,226		173,919		133,342		26,144		159,486
Expenditures on long-lived assets		8,800				8,800		17,833				17,833
Goodwill		39,914				39,914		31,134				31,134


	Unrealized Holding (Losses) Gains on Available-for-Sale Securities			Foreign Currency Translation			Total
Balance as of December 31, 2016	$	(71	)	$	(3,018	)	$	(3,089	)
Other comprehensive income		251			1,130			1,381

Balance as of September 30, 2017	$	180		$	(1,888	)	$	(1,708	)


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
September 30, 2017
Money market investments	$	16,823	$	—	$	—	$	16,823
Asset-backed securities		3,497		2		5		3,494
Corporate bonds and direct obligations of government agencies		84,885		373		91		85,167
U.S. Treasury obligations		5,496		—		1		5,495

Total	$	110,701	$	375	$	97	$	110,979


December 31, 2016
Money market investments	$	12,395	$	—	$	—	$	12,395
Asset-backed securities		4,027		3		19		4,011
Corporate bonds and direct obligations of government agencies		70,069		150		239		69,980
U.S. Treasury obligations		23,037		2		6		23,033

Total	$	109,528	$	155	$	264	$	109,419


	Thirty Nine Weeks Ended				Thirteen Weeks Ended
	September 30, 2017		September 24, 2016		September 30, 2017		September 24, 2016
Revenue generated through (in thousands):
Truck transportation
Truckload:
Van equipment	$	1,529,402	$	1,351,980	$	550,484	$	465,785
Unsided/platform equipment		825,194		700,369		304,536		248,939
Less-than-truckload		65,397		54,066		22,598		18,139

Total truck transportation		2,419,993		2,106,415		877,618		732,863
Rail intermodal		68,570		76,987		24,213		24,650
Ocean and air cargo carriers		70,708		56,500		29,523		18,790
Other (1)		35,501		34,903		12,076		11,635

	$	2,594,772	$	2,274,805	$	943,430	$	787,938

Revenue on loads hauled via BCO Independent Contractors included in total truck transportation	$	1,211,564	$	1,086,848	$	435,479	$	379,196

Number of loads:
Truck transportation
Truckload:
Van equipment		942,894		847,208		329,329		291,089
Unsided/platform equipment		362,936		331,226		126,509		112,192
Less-than-truckload		98,740		84,316		34,232		28,589

Total truck transportation		1,404,570		1,262,750		490,070		431,870
Rail intermodal		32,040		36,120		11,080		11,940
Ocean and air cargo carriers		18,150		14,910		6,210		5,130

		1,454,760		1,313,780		507,360		448,940


Loads hauled via BCO Independent Contractors included in total truck transportation		686,830		630,880		232,970		216,220

Revenue per load:
Truck transportation
Truckload:
Van equipment	$	1,622	$	1,596	$	1,672	$	1,600
Unsided/platform equipment		2,274		2,114		2,407		2,219
Less-than-truckload		662		641		660		634
Total truck transportation		1,723		1,668		1,791		1,697
Rail intermodal		2,140		2,131		2,185		2,064
Ocean and air cargo carriers		3,896		3,789		4,754		3,663
Revenue per load on loads hauled via BCO Independent Contractors	$	1,764	$	1,723	$	1,869	$	1,754


~~Exhibit No.~~		~~Description~~
Exhibit No.			Description
~~(31)~~
	(31)		Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.1*
	31.1*		Chief Executive Officer certification, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*
	31.2*		Chief Financial Officer certification, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

~~(32)~~
	(32)		Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.1**
	32.1**		Chief Executive Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2**
	32.2**		Chief Financial Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*
	101.INS*		Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH*		~~XBRL Schema Document~~

101.CAL*
	101.SCH*		Inline XBRL Taxonomy Extension Schema Document

	101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*
	101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*		~~XBRL Labels Linkbase Document~~

101.PRE*
	101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document

	101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document

	104*		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


		LANDSTAR SYSTEM, INC.
	~~LANDSTAR SYSTEM, INC.~~

Date: ~~November 3, 2017~~May 1, 2020					/s/ James B. Gattoni
					James B. Gattoni
					President and ~~Chief Executive Officer~~


				Chief Executive Officer

Date: ~~November 3, 2017~~May 1, 2020			/s/ L. Kevin Stout
					L. Kevin Stout
		Vice President and Chief
		~~Vice President and Chief~~ Financial Officer