UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

June

~~27, 2020~~ 26, 2021

☐	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

☒ No ☐

~~Yes ☑ No ☐~~

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation

S-T

(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files)

Yes

☒ No ☐

~~Yes ☑ No ☐~~

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

non-accelerated

filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule

12b-2

of the Exchange Act. (Check one):


Large accelerated filer	☑ ☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company
~~Non-accelerated~~ ~~filer~~	☐	~~Smaller reporting company~~	☐

		~~Emerging growth company~~	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule

12b-2

of the Exchange Act).

Yes ☐ No ☑

☒

The number of shares of the registrant’s common stock, par value $0.01 per share, outstanding as of the close of business on July ~~20, 2020~~19, 2021 was ~~38,379,459.~~38,275,799.

Table of Contents

Index


PART I – Financial Information

Item 1. Financial Statements (unaudited)

Consolidated Balance Sheets as of June ~~27, 2020~~26, 2021 and December ~~28, 2019~~26, 2020		Page 4

Consolidated Statements of Income for the Twenty Six and Thirteen Weeks Ended June ~~27, 2020~~26, 2021 and June ~~29, 2019~~27, 2020		Page 5

Consolidated Statements of Comprehensive Income for the Twenty Six and Thirteen Weeks Ended June ~~27, 2020~~26, 2021 and June ~~29, 2019~~27, 2020		Page 6

Consolidated Statements of Cash Flows for the Twenty Six Weeks Ended June ~~27, 2020~~26, 2021 and June ~~29, 2019~~27, 2020		Page 7

Consolidated Statements of Changes in Shareholders’ Equity for the Twenty Six and Thirteen Weeks Ended June ~~27, 2020~~26, 2021 and June ~~29, 2019~~27, 2020	Page 8

Notes to Consolidated Financial Statements	Page 8	10

~~Notes to Consolidated Financial Statements~~		~~Page 10~~

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		Page 18

Item 3. Quantitative and Qualitative Disclosures About Market Risk		Page 31	30

Item 4. Controls and Procedures		Page 32	30

PART II – Other Information
Item 1. Legal Proceedings	Page 31

Item 1. ~~Legal Proceedings~~1A. Risk Factors		Page 32	31

~~Item 1A.~~ ~~Risk Factors~~		~~Page 33~~

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		Page 35	32

Item 6. Exhibits		Page 35	32

Signatures		Page 37	34

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

Table of Contents

PART I -

FINANCIAL INFORMATION

Item 1. Financial Statements

The interim consolidated financial statements contained herein reflect all adjustments (all of a normal, recurring nature) which, in the opinion of management, are necessary for a fair statement of the financial condition, results of operations, cash flows and changes in shareholders’ equity for the periods presented. They have been prepared in accordance with Rule

10-01

of Regulation

S-X

and do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. Operating results for the twenty six weeks ended June ~~27, 2020~~26, 2021 are not necessarily indicative of the results that may be expected for the entire fiscal year ending December ~~26, 2020.~~25, 2021.

These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s ~~2019~~2020 Annual Report on Form

10-K.

Table of Contents

LANDSTAR SYSTEM, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share amounts)

(Unaudited)

June 27,

2020

December 28,

2019

ASSETS

Current Assets

Cash and cash equivalents
$
245,471
$
319,515

Short-term investments

36,274

32,901

Trade accounts receivable, less allowance of $8,580 and $7,284

489,182

588,549

Other receivables, including advances to independent contractors, less allowance of $9,241 and $7,667

27,861

35,553

Other current assets

41,564

21,370

Total current assets

840,352

997,888

Operating property, less accumulated depreciation and amortization of $288,055 and $280,849

284,794

285,855

Goodwill

40,071

38,508

Other assets

106,893

105,460

Total assets
$
1,272,110
$
1,427,711

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current Liabilities

Cash overdraft
$
35,534
$
53,878

Accounts payable

273,324

271,996

Current maturities of long-term debt

38,219

42,632

Insurance claims

53,764

44,532

Dividends payable

—

78,947

Contractor escrow

25,774

24,902

Other current liabilities

46,845

36,017

Total current liabilities

473,460

552,904

Long-term debt, excluding current maturities

60,152

70,212

Insurance claims

34,762

33,575

Deferred income taxes and other noncurrent liabilities

54,615

49,551

Shareholders’ Equity

Common stock, $0.01 par value, authorized 160,000,000 shares, issued 68,176,787 and 68,083,419 shares

682

681

Additional
paid-in
capital

225,332

226,123

Retained earnings

2,012,173

1,962,161

Cost of 29,797,328 and 28,609,926 shares of common stock in treasury

(1,581,921
)
(1,465,284
)
Accumulated other comprehensive loss

(7,145
)
(2,212
)

Total shareholders’ equity

649,121

721,469

Total liabilities and shareholders’ equity
$
1,272,110
$
1,427,711


	June 26, 2021			December 26, 2020
ASSETS
Current Assets
Cash and cash equivalents	$	186,404		$	249,354
Short-term investments		52,560			41,375
Trade accounts receivable, less allowance of $6,199 and $8,670		902,950			764,169
Other receivables, including advances to independent contractors, less allowance of $6,843 and $7,239		49,819			134,757
Other current assets		41,533			18,520

Total current assets		1,233,266			1,208,175

Operating property, less accumulated depreciation and amortization of $321,181 and $299,407		281,016			296,996
Goodwill		40,973			40,949
Other assets		147,958			107,679

Total assets	$	1,703,213		$	1,653,799

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Cash overdraft	$	70,554		$	74,748
Accounts payable		481,711			380,505
Current maturities of long-term debt		30,450			35,415
Insurance claims		41,854			149,774
Dividends payable		—			76,770
Other current liabilities		95,646			88,925

Total current liabilities		720,215			806,137

Long-term debt, excluding current maturities		51,181			65,359
Insurance claims		43,053			38,867
Deferred income taxes and other noncurrent liabilities		58,591			51,601
Shareholders’ Equity
Common stock, $0.01 par value, authorized 160,000,000 shares, issued 68,229,880 and 68,183,702 shares		682			682
Additional paid-in capital		238,422			228,875
Retained earnings		2,199,637			2,046,238
Cost of 29,954,081 and 29,797,639 shares of common stock in treasury		(1,606,716	)		(1,581,961	)
Accumulated other comprehensive loss		(1,852	)		(1,999	)

Total shareholders’ equity		830,173			691,835

Total liabilities and shareholders’ equity	$	1,703,213		$	1,653,799

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)

Twenty Six Weeks Ended

Thirteen Weeks Ended

June 27,
2020

June 29,
2019

June 27,
2020

June 29,
2019

Revenue
$
1,751,080
$
2,078,040
$
823,514
$
1,045,040

Investment income

2,002

2,421

835

1,283

Costs and expenses:

Purchased transportation

1,344,390

1,591,126

635,133

799,371

Commissions to agents

150,642

173,294

75,266

87,623

Other operating costs, net of gains on asset sales/dispositions

15,674

18,100

7,368

9,861

Insurance and claims

44,708

31,279

19,751

16,286

Selling, general and administrative

85,928

82,565

40,601

41,297

Depreciation and amortization

22,972

22,350

11,467

11,034

Impairment of intangible and other assets

2,582

—

2,582

—

Total costs and expenses

1,666,896

1,918,714

792,168

965,472

Operating income

86,186

161,747

32,181

80,851

Interest and debt expense

1,928

1,514

976

709

Income before income taxes

84,258

160,233

31,205

80,142

Income taxes

19,109

35,833

6,951

19,042

Net income

65,149

124,400

24,254

61,100

Less: Net loss attributable to noncontrolling interest

—

(17
)
—

—

Net income attributable to Landstar System, Inc. and subsidiary
$
65,149
$
124,417
$
24,254
$
61,100

Earnings per common share attributable to Landstar System, Inc. and subsidiary
$
1.68
$
3.11
$
0.63
$
1.53

Diluted earnings per share attributable to Landstar System, Inc. and subsidiary
$
1.68
$
3.11
$
0.63
$
1.53

Average number of shares outstanding:

Earnings per common share

38,816,000

40,053,000

38,379,000

39,945,000

Diluted earnings per share

38,816,000

40,053,000

38,379,000

39,945,000

Dividends per common share
$
0.370
$
0.330
$
0.185
$
0.165


	Twenty Six Weeks Ended				Thirteen Weeks Ended
	June 26, 2021		June 27, 2020		June 26, 2021		June 27, 2020
Revenue	$	2,858,252	$	1,751,080	$	1,570,718	$	823,514
Investment income		1,432		2,002		748		835
Costs and expenses:
Purchased transportation		2,226,526		1,344,390		1,228,241		635,133
Commissions to agents		221,702		150,642		121,693		75,266
Other operating costs, net of gains on asset sales/dispositions		16,545		15,674		8,903		7,368
Insurance and claims		45,629		44,708		24,124		19,751
Selling, general and administrative		99,522		85,928		54,114		40,601
Depreciation and amortization		24,244		22,972		12,143		11,467
Impairment of intangible and other assets		0		2,582		0		2,582

Total costs and expenses		2,634,168		1,666,896		1,449,218		792,168

Operating income		225,516		86,186		122,248		32,181
Interest and debt expense		2,009		1,928		967		976

Income before income taxes		223,507		84,258		121,281		31,205
Income taxes		53,973		19,109		28,987		6,951

Net income	$	169,534	$	65,149	$	92,294	$	24,254

Diluted earnings per share	$	4.41	$	1.68	$	2.40	$	0.63

Average diluted shares outstanding		38,403,000		38,816,000		38,402,000		38,379,000

Dividends per common share	$	0.420	$	0.370	$	0.210	$	0.185

See accompanying notes to consolidated financial statements.

Table of Contents

LANDSTAR SYSTEM, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands)

(Unaudited)

Twenty Six Weeks Ended

Thirteen Weeks Ended


June 27,

2020

June 29,

2019

June 27,

2020

June 29,

2019

Net income attributable to Landstar System, Inc. and subsidiary
$
65,149
$
124,417
$
24,254
$
61,100

Other comprehensive (loss) income:

Unrealized holding gains on
available-for-sale
investments, net of

tax expense of $338, $494, $770 and $222

1,237

1,805

2,816

810

Foreign currency translation (losses) gains

(6,170
)
1,125

1,732

571

Other comprehensive (loss) income

(4,933
)
2,930

4,548

1,381

Comprehensive income attributable to Landstar System, Inc. and subsidiary
$
60,216
$
127,347
$
28,802
$
62,481


	Twenty Six Weeks Ended						Thirteen Weeks Ended
	June 26, 2021			June 27, 2020			June 26, 2021			June 27, 2020
Net income	$	169,534		$	65,149		$	92,294		$	24,254
Other comprehensive income (loss):
Unrealized holding (losses) gains on available-for-sale investments, net of tax (benefit) expense of ($243), $338, ($96) and $770		(883	)		1,237			(349	)		2,816
Foreign currency translation gains (losses)		1,030			(6,170	)		1,450			1,732

Other comprehensive income (loss)		147			(4,933	)		1,101			4,548

Comprehensive income	$	169,681		$	60,216		$	93,395		$	28,802

See accompanying notes to consolidated financial statements.

Table of Contents

LANDSTAR SYSTEM, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

Twenty Six Weeks Ended


June 27,

2020

June 29,

2019

OPERATING ACTIVITIES

Net income
$
65,149
$
124,400

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization of operating property and intangible assets

22,972

22,350

Non-cash
interest charges

126

126

Provisions for losses on trade and other accounts receivable

6,528

4,194

Gains on sales/disposals of operating property

(1,812
)
(1,219
)
Impairment of intangible and other assets

2,582

—

Deferred income taxes, net

6,228

5,060

Stock-based compensation

1,201

3,368

Changes in operating assets and liabilities:

Decrease in trade and other accounts receivable

99,601

89,820

Increase in other assets

(24,809
)
(22,808
)
Decrease in accounts payable

(31
)
(28,565
)
Increase (decrease) in other liabilities

10,231

(14,315
)
Increase in insurance claims

10,419

1,665

NET CASH PROVIDED BY OPERATING ACTIVITIES

198,385

184,076

INVESTING ACTIVITIES

Net changes in other short-term investments

131

—

Sales and maturities of investments

14,897

41,345

Purchases of investments

(16,382
)
(42,812
)
Purchases of operating property

(17,676
)
(9,224
)
Proceeds from sales of operating property

4,465

3,219

Consideration paid for acquisition

(2,701
)
—

NET CASH USED BY INVESTING ACTIVITIES

(17,266
)
(7,472
)

FINANCING ACTIVITIES

Decrease in cash overdraft

(18,344
)
(11,719
)
Dividends paid

(93,382
)
(13,257
)
Proceeds from exercises of stock options

614

343

Taxes paid in lieu of shares issued related to stock-based compensation plans

(3,280
)
(8,438
)
Purchases of common stock

(115,962
)
(69,729
)
Principal payments on finance lease obligations

(21,958
)
(23,658
)
Purchase of noncontrolling interest

—

(600
)

NET CASH USED BY FINANCING ACTIVITIES

(252,312
)
(127,058
)

Effect of exchange rate changes on cash and cash equivalents

(2,851
)
930

(Decrease) increase in cash and cash equivalents

(74,044
)
50,476

Cash and cash equivalents at beginning of period

319,515

199,736

Cash and cash equivalents at end of period
$
245,471
$
250,212


	Twenty Six Weeks Ended
	June 26, 2021			June 27, 2020
OPERATING ACTIVITIES
Net income	$	169,534		$	65,149
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of operating property and intangible assets		24,244			22,972
Non-cash interest charges		224			126
Provisions for losses on trade and other accounts receivable		1,393			6,528
Gains on sales/disposals of operating property		(766	)		(1,812	)
Impairment of intangible and other assets		0			2,582
Deferred income taxes, net		6,240			6,228
Stock-based compensation		10,893			1,201
Changes in operating assets and liabilities:
(Increase) decrease in trade and other accounts receivable		(55,236	)		99,601
Increase in other assets		(24,704	)		(24,809	)
Increase (decrease) in accounts payable		101,206			(31	)
Increase in other liabilities		7,882			10,231
(Decrease) increase in insurance claims		(103,734	)		10,419

NET CASH PROVIDED BY OPERATING ACTIVITIES		137,176			198,385

INVESTING ACTIVITIES
Net changes in other short-term investments		0			131
Sales and maturities of investments		17,242			14,897
Purchases of investments		(68,366	)		(16,382	)
Purchases of operating property		(9,000	)		(17,676	)
Proceeds from sales of operating property		1,438			4,465
Consideration paid for acquisition		0			(2,701	)

NET CASH USED BY INVESTING ACTIVITIES		(58,686	)		(17,266	)

FINANCING ACTIVITIES
Decrease in cash overdraft		(4,194	)		(18,344	)
Dividends paid		(92,905	)		(93,382	)
Proceeds from exercises of stock options		77			614
Taxes paid in lieu of shares issued related to stock-based compensation plans		(2,341	)		(3,280	)
Purchases of common stock		(23,837	)		(115,962	)
Principal payments on finance lease obligations		(19,143	)		(21,958	)
Payment of deferred consideration		(168	)		0

NET CASH USED BY FINANCING ACTIVITIES		(142,511	)		(252,312	)

Effect of exchange rate changes on cash and cash equivalents		1,071			(2,851	)

Decrease in cash and cash equivalents		(62,950	)		(74,044	)
Cash and cash equivalents at beginning of period		249,354			319,515

Cash and cash equivalents at end of period	$	186,404		$	245,471

See accompanying notes to consolidated financial statements.

Table of Contents

LANDSTAR SYSTEM, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

Twenty Six and Thirteen Weeks Ended June ~~27, 2020~~26, 2021 and June ~~29, 2019~~27, 2020

(Dollars in thousands)

(Unaudited)

~~(In thousands, except share and per share amounts)~~

~~(Unaudited)~~


	Common Stock				Additional Paid-In Capital			Retained Earnings			Treasury Stock at Cost					Accumulated Other Comprehensive (Loss) Income
	Shares		Amount		Additional Paid-In Capital			Retained Earnings			Shares		Amount			Accumulated Other Comprehensive (Loss) Income			Total
Balance December 26, 2020		68,183,702	$	682	$	228,875		$	2,046,238			29,797,639	$	(1,581,961	)	$	(1,999	)	$	691,835
Net income									77,240											77,240
Dividends ($0.21 per share)									(8,067	)										(8,067	)
Issuance of stock related to stock- b ased compensation plans		28,594		—		(307	)					6,087		(857	)					(1,164	)
Stock-based compensation						4,029														4,029
Other comprehensive loss																	(954	)		(954	)

Balance March 27, 2021		68,212,296	$	682	$	232,597		$	2,115,411			29,803,726	$	(1,582,818	)	$	(2,953	)	$	762,919

Net income									92,294											92,294
Dividends ($0.21 per share)									(8,068	)										(8,068	)
Purchases of common stock												150,000		(23,837	)					(23,837	)
Issuance of stock related to stock-based compensation plans		17,584		—		(1,039	)					355		(61	)					(1,100	)
Stock-based compensation						6,864														6,864
Other comprehensive income																	1,101			1,101

Balance June 26, 2021		68,229,880	$	682	$	238,422		$	2,199,637			29,954,081	$	(1,606,716	)	$	(1,852	)	$	830,173

Common Stock

Additional
Paid-In

Retained

Treasury Stock at Cost

Accumulated
Other
Comprehensive




Shares

Amount

Capital

Earnings

Shares

Amount

(Loss) Income


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
4
)

(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











Net income

24,254

24,254

Dividends ($0.185
per share)

(7,099
)

(7,099
)
Issuance of stock related to
stock-based
compensation plans

9,305

—

(211
)
354

(36
)

(247
)
Stock-based compensation

570

570

Other comprehensive income

4,548

4,548











Balance June 27, 2020

68,176,787
$
682
$
225,332
$
2,012,173

29,797,328
$
(1,581,921
) $
(7,145
)

$
649,121

Table of Contents


	Landstar System, Inc. and Subsidiary Shareholders																												Common Stock							Additional Paid-In Capital				Retained Earnings				Treasury Stock at Cost								Accumulated Other Comprehensive (Loss) Income
	Common Stock				Additional Paid-In Capital			Retained Earnings			Treasury Stock at Cost						Accumulated Other Comprehensive (Loss) Income				Non-controlling Interests								Shares			Amount				Additional Paid-In Capital				Retained Earnings			Shares				Amount					Accumulated Other Comprehensive (Loss) Income			Total
Balance December 28, 2019													68,083,419			$	Accumulated Other Comprehensive (Loss) Income				Non-controlling Interests				681			$	226,123		$	1,962,161					28,609,926			$	(1,465,284	)		$	(2,212	)		$	721,469
Adoption of accounting standard																																									(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	)
	Shares		Amount		Additional Paid-In Capital			Retained Earnings				Additional Paid-In Capital			Retained Earnings			Shares				Amount				Accumulated Other Comprehensive (Loss) Income				Non-controlling Interests			Total
Balance March 28, 2020												Additional Paid-In Capital			Retained Earnings					68,167,482			$	682		Accumulated Other Comprehensive (Loss) Income				Non-controlling Interests					$	224,973			$	1,995,018				29,796,974			$	(1,581,885	)		$	(11,693	)		$	627,095

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	)

Net income																																									24,254																24,254
Dividends ($0.185 per share)																																									(7,099	)															(7,099	)
Issuance of stock related to stock- based compensation plans																														9,305			0	��			(211	)							354				(36	)							(247	)
Stock-based compensation						1,938																				1,938											570																				570

Other comprehensive income																		1,549				150				1,699																											4,548				4,548

Balance June 27, 2020																														68,176,787		$	682			$	225,332			$	2,012,173				29,797,328			$	(1,581,921	)		$	(7,145	)		$	649,121

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


Net income									61,100																	61,100

Dividends ($0.165 per share)									(6,628	)																(6,628	)

Purchases of common stock												549,929			(56,752	)										(56,752	)

Issuance of stock related to stock-based compensation plans		17,836		1		(431	)					572			(61	)										(491	)

Stock-based compensation						1,430																				1,430

Other comprehensive income																		1,381								1,381


Balance June 29, 2019		68,064,877	$	681	$	224,550		$	1,952,439			28,435,182		$	(1,446,425	)	$	(2,945	)		$	—			$	728,300

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.

(1)	Significant Accounting Policies

Revenue from Contracts with Customers – Disaggregation of Revenue

~~During~~The following table summarizes (i) the ~~twenty six weeks ended June 27, 2020,~~percentage of consolidated revenue generated by ~~BCO Independent Contractors, Truck Brokerage Carriers~~mode of transportation and ~~railroads represented approximately 46%, 46% and 3% respectively,~~(ii) the total amount 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~~

~~twenty-six-week~~

~~period ended June 27, 2020. Included in~~ truck transportation revenue ~~generated~~hauled by BCO Independent Contractors and Truck Brokerage Carriers generated by equipment type during the

twenty-six-week

~~period~~

and thirteen-week periods ended June 26, 2021 and June 27, 2020 was $1,028,334,000 hauled via van equipment, $533,716,000 hauled via unsided/platform equipment and $45,859,000 of less-than-truckload. During the twenty six weeks ended June 29, 2019, revenue generated by BCO Independent Contractors, Truck Brokerage Carriers and railroads represented approximately 44%, 48% 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(dollars in ~~the~~

~~twenty-six-week~~

~~period ended June 29, 2019. Included in truck transportation revenue generated by BCO Independent Contractors and Truck Brokerage Carriers during the~~

~~twenty-six-week~~

~~period ended June 29, 2019 was $1,224,379,000 hauled via van equipment, $648,828,000 hauled via unsided/platform equipment and $48,108,000 of less-than-truckload.~~

During the thirteen weeks ended June 27, 2020, revenue generated by BCO Independent Contractors, Truck Brokerage Carriers and railroads represented approximately 46%, 46% and 3% respectively, of the Company’s consolidated revenue. Collectively, revenue generated by air and ocean cargo carriers represented approximately 4% of the Company’s consolidated revenue in the thirteen-week period ended June 27, 2020. Included in truck transportation revenue generated by BCO Independent Contractors and Truck Brokerage Carriers during the thirteen-week period ended June 27, 2020 was $483,027,000 hauled via van equipment, $247,388,000 hauled via unsided/platform equipment and $22,918,000 of less-than-truckload. During the thirteen weeks ended June 29, 2019, revenue generated by BCO Independent Contractors, Truck Brokerage Carriers and railroads represented approximately 45%, 47% 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 June 29, 2019. Included in truck transportation revenue generated by BCO Independent Contractors and Truck Brokerage Carriers during the thirteen-week period ended June 29, 2019 was $605,365,000 hauled via van equipment, $338,107,000 hauled via unsided/platform equipment and $24,732,000 of less-than-truckload.

~~(2)~~

~~Acquired Business~~

On May 6, 2020, Landstar System Holdings, Inc. formed a new subsidiary that was subsequently renamed Landstar Blue, LLC (“Landstar Blue”). Landstar Blue arranges truckload brokerage services while helping the Company to develop and test digital technologies and processes for the benefit of all Landstar independent commission sales agents. On June 15, 2020, Landstar Blue completed the acquisition of an independent agent of the Company whose business focused on truckload brokerage services. Cash consideration paid for the acquisition was approximately

~~2,701~~

~~000~~

~~In addition, the Company assumed approximately $200,000 in liabilities consisting of additional contingent purchase price. The resulting goodwill arising from the acquisition was approximately~~

~~2,807,000~~

~~With respect to this goodwill, 100% is expected to be deductible by the Company for U.S. income tax purposes. Pro fo~~

ma financial information for prior periods is not presented as the Company does not believe the acquisition to be material to the Company’s consolidated results. The results of operations for Landstar Blue are presented as part of the Company’s transportations logistics segment. Transaction costs for the acquisition were insignificant.

thousands):

~~Table of Contents~~


	Twenty Six Weeks Ended						Thirteen Weeks Ended
Mode	June 26, 2021			June 27, 2020			June 26, 2021			June 27, 2020
Truck – BCO Independent Contractors		42	%		46	%		41	%		46	%
Truck – Truck Brokerage Carriers		50	%		46	%		51	%		46	%
Rail intermodal		3	%		3	%		3	%		3	%
Ocean and air cargo carriers		4	%		3	%		4	%		4	%
Truck Equipment Type
Van equipment	$	1,798,061		$	1,028,334		$	970,874		$	483,027
Unsided/platform equipment	$	784,883		$	533,716		$	444,251		$	247,388
Less-than-truckload	$	54,732		$	45,859		$	29,062		$	22,918

~~(3)~~

(2)

Share-based Payment Arrangements

As of June ~~27, 2020,~~26, 2021, the Company ~~had 2~~has an 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):

Twenty Six Weeks Ended

Thirteen Weeks Ended

June 27,
2020

June 29,
2019

June 27,
2020

June 29,
2019

Total cost of the Plans during the period $
1,201
$
3,368
$
570
$
1,430

Amount of related income tax benefit recognized during the period

(1,135
)

(3,734
)

(262
)

(672
)

Net cost of the Plans during the period
$
66
$
(366
) $
308
$
758


	Twenty Six Weeks Ended						Thirteen Weeks Ended
	June 26, 2021			June 27, 2020			June 26, 2021			June 27, 2020
Total cost of the Plans during the period	$	10,893		$	1,201		$	6,864		$	570
Amount of related income tax benefit recognized during the period		(3,717	)		(1,135	)		(2,376	)		(262	)

Net cost of the Plans during the period	$	7,176		$	66		$	4,488		$	308

Included in income tax benefits recognized in the

twenty-six-week

periods ended June ~~27, 2020~~26, 2021 and June ~~29, 2019~~27, 2020 were excess tax benefits from stock-based awards of $1,038,000 and $829,000, ~~and $2,871,000,~~ respectively.

Table of Contents

As of June ~~27, 2020,~~26, 2021, there were ~~60,586~~56,782 shares of the Company’s common stock reserved for issuance under the 2013 DSCP and ~~3,683,524~~3,499,568 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 28, 2019

198,875
$
84.37

Granted

59,478
$
102.66

Shares earned in excess of target
(1)

11,648
$
77.00

Vested shares, including shares earned in excess of target

(76,290
) $
73.44

Forfeited

(10,987
) $
100.55

Outstanding at June 27, 2020

182,724
$
93.44


	Number of			Weighted Average Grant Date
	RSUs			Fair Value
Outstanding at December 26, 2020		183,213		$	93.44
Granted		45,864		$	128.93
Shares earned in excess of target (1)		7,132		$	31.97
Vested shares		(24,600	)	$	59.85

Outstanding at June 26, 2021		211,609		$	102.97

(1)	Represents shares earned in excess of target under the ~~February 2, 2017~~May 1, 2015 RSU ~~awards~~award as ~~actual results~~total shareholder return exceeded the target under the ~~awards as a result of fiscal year 2019 results.~~ award.

During the

twenty-six-week

period ended June ~~27, 2020,~~26, 2021, the Company granted RSUs with a performance condition. Outstanding RSUs at both December ~~28, 2019~~26, 2020 and June ~~27, 2020~~26, 2021 include RSUs with a performance condition and RSUs with a market condition, as further described below and in the Company’s ~~2019~~2020 Annual Report on Form

10-K.

RSUs with a performance condition granted on January ~~31, 2020~~29, 2021 may vest on

January

31 of ~~2023,~~ 2024, 2025 and ~~2025~~2026 based on growth in operating income and

pre-tax

income per diluted share from continuing operations ~~attributable to Landstar System, Inc. and subsidiary~~ as compared to the results from the ~~2019~~2020 fiscal ~~year.~~year, adjusted to reflect the add back of

non-cash

impairment charges recorded in the Company’s 2020 fiscal year related to certain assets, primarily customer contract and related customer relationship intangible assets, held by the Company’s Mexican subsidiaries.

The Company recognized approximately $9,249,000 and ($308,000) ~~and $2,062,000~~ of share-based compensation expense/(benefit)~~/expense~~ related to RSU awards in the

twenty-six-week

periods ended June ~~27, 2020~~26, 2021 and June ~~29, 2019,~~27, 2020, respectively. As of June ~~27, 2020,~~26, 2021, there was a maximum of ~~$35.3~~$33.8 million of total unrecognized compensation cost related to RSU awards granted under the Plans with an expected average remaining life of approximately 3.3 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.

~~Table of Contents~~

~~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 28, 2019

44,467
$
51.24

Exercised

(16,517
) $
47.70

Options outstanding at June 27, 2020

27,950
$
53.33

2.1
$
1,514

Options exercisable at June 27, 2020

27,950
$
53.33

2.1
$
1,514

~~The total intrinsic value of stock options exercised during the~~

~~twenty-six-week~~

~~periods ended June 27, 2020 and June 29, 2019 was $1,071,000 and $1,269,000, respectively.~~

~~As of June 27, 2020, there was no unrecognized compensation cost related to stock options granted under the Plans.~~

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~~

(defined below) under the Plans:

Number of Shares
and Deferred Stock
Units

Weighted Average
Grant Date
Fair Value

Non-vested
at December 28, 2019

64,808
$
98.24

Granted

26,604
$
111.88

Vested

(27,619
) $
98.91

Forfeited

(2,351
) $
106.34

Non-vested
at June 27, 2020

61,442
$
103.54


	Number of Shares and Deferred Stock Units			Weighted Average Grant Date Fair Value
Non-vested at December 26, 2020		60,440		$	103.65
Granted		26,351		$	150.20
Vested		(29,055	)	$	104.35

Non-vested at June 26, 2021		57,736		$	124.55

The fair value of each share of

non-vested

restricted stock issued and Deferred Stock Unit granted under the Plans is based on the fair value of a share of the Company’s common stock on the date of grant. Shares of

non-vested

restricted stock are generally subject to vesting in three equal annual installments either on the first, second and third anniversary of the date of the grant or the third, fourth and fifth anniversary of the date of the grant, or 100% on the first or fifth anniversary of the date of the grant. For restricted stock awards granted under the 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 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.

Table of Contents

As of June ~~27, 2020,~~26, 2021, there was ~~$4,841,000~~

5,626,000

of total unrecognized compensation cost related to

non-vested

shares of restricted stock and Deferred Stock Units granted under the Plans. The unrecognized compensation cost related to these

non-vested

shares of restricted stock and Deferred Stock Units is expected to be recognized over a weighted average period of ~~2.1~~

2.2

years.

Stock Options

The following table summarizes information regarding the Company’s outstanding stock options under the Plans:


	Number of Options			Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value (000s)
Options outstanding at December 26, 2020		17,650		$	54.16
Exercised		(5,280	)	$	51.83

Options outstanding at June 26, 2021		12,370		$	55.15		1.3	$	1,304

Options exercisable at June 26, 2021		12,370		$	55.15		1.3	$	1,304

The total intrinsic value of stock options exercised during the

twenty-six-week

periods ended June 26, 2021 and June 27, 2020 was $

521,000

and $

1,071,000

, respectively.

As of June 26, 2021, there was no unrecognized compensation cost related to stock options granted under the Plans.

~~(4)~~

(3)

Income Taxes

The provisions for income taxes for the ~~2020~~2021 and ~~2019~~2020

twenty-six-week

periods were ~~each~~ based on an estimated annual effective income tax ~~rate~~rates of 24.4% and 24.2%, respectively, adjusted for discrete events, such as benefits resulting from stock-based awards. The increase in the estimated annual effective income tax rate was primarily attributable to increased anticipated nondeductible executive compensation during the 2021 period. The effective income tax rate for the ~~2020~~2021

twenty-six-week

period was ~~22.7%~~24.1%, which was higher than the statutory federal income tax rate of 21% primarily

attributable to state taxes and ~~the meals and entertainment exclusion,~~

nondeductible

executive compensation, partially offset by ~~state tax refunds and~~ excess tax benefits realized on ~~stock~~

~~Table of Contents~~

~~based~~stock-based awards. The effective income tax rate for the ~~2019~~2020

twenty-six-week

period was ~~22.4%~~22.7%, which was higher than the statutory federal income tax rate of 21% primarily attributable to state taxes and the meals and entertainment exclusion, partially offset by state tax refunds and excess tax benefits realized

on ~~stock~~

~~based awards~~

~~. The provision for income taxes for the 2019~~

~~twenty-six-week~~

~~period was favorably impacted by $2,871,000 of excess tax benefits from~~ stock-based awards.

~~(5)~~

(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. During the ~~2020~~2021 and ~~2019~~ 2020

twenty-six-week

and thirteen-week periods,

in reference to the determination of diluted earnings per share, the future compensation cost attributable to

outstanding shares of

non-vested

~~non-vested~~ restricted stock

exceeded

the impact of incremental shares that would have been outstanding upon the assumed exercise of all dilutive stock options.

For each of the

twenty-six-week

periods ended June ~~27, 2020~~26, 2021 and June ~~29, 2019,~~27, 2020, 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.

~~(6)~~

(5)

Additional Cash Flow Information

During the 2021

twenty-six-week

period, Landstar paid income taxes and interest of $51,679,000 and $1,883,000, respectively. During the 2020

twenty-six-week

period, Landstar paid income taxes and interest of $16,198,000 and $2,057,000, respectively. ~~During~~Landstar did 0t acquire any operating property by entering into finance leases in the ~~2019~~2021

twenty-six-week

~~period, Landstar paid income taxes and interest of $39,180,000 and $2,286,000, respectively.~~

period. Landstar acquired operating property by entering into finance leases in the amount of $7,485,000 in the 2020

~~twenty-six-week~~

~~period. Landstar did 0t acquire any operating property by entering into finance leases in the 2019~~

twenty-six-week

~~periods. In addition, during the 2020~~

period.

~~twenty-six-week~~

~~period, Landstar acquired~~

~~1,440,000 of operating property for which the Comp~~

ny accrued a corresponding liability in accounts payable as of June 27, 2020. Capital expenditures are recorded as cash outflows from investing activities in the consolidated statement of cash flows in the period in which they are paid.

~~(7)~~

(6)

Segment Information

The following table summarizes information about the Company’s reportable business segments as of and for the

twenty-six-week

and ~~thirteen week~~thirteen-week periods ended June 26, 2021 and June 27, 2020 ~~and June 29, 2019~~ (in thousands):

Twenty Six Weeks Ended

June 27, 2020

June 29, 2019

Transportation
Logistics

Insurance

Total

Transportation
Logistics

Insurance

Total

External revenue
$
1,723,682
$
27,398
$

1,751,080
$
2,049,777
$
28,263
$

2,078,040

Internal revenue

35,834

35,834

27,367

27,367

Investment income

2,002

2,002

2,421

2,421

Operating income

76,518

9,668

86,186

135,919

25,828

161,747

Expenditures on long-lived assets

17,676

17,676

9,224

9,224

Goodwill

40,071

40,071

38,407

38,407

Thirteen Weeks Ended

June 27, 2020

June 29, 2019

Transportation
Logistics

Insurance

Total

Transportation
Logistics

Insurance

Total

External revenue
$
809,798
$
13,716
$
823,514
$
1,030,816
$
14,224
$
1,045,040

Internal revenue

26,755

26,755

17,753

17,753

Investment income

835

835

1,283

1,283

Operating income

21,474

10,707

32,181

68,336

12,515

80,851

Expenditures on long-lived assets

11,877

11,877

4,648

4,648


	Twenty Six Weeks Ended
	June 26, 2021						June 27, 2020
	Transportation Logistics		Insurance		Total		Transportation Logistics		Insurance		Total
External revenue	$	2,823,557	$	34,695	$	2,858,252	$	1,723,682	$	27,398	$	1,751,080
Internal revenue				43,495		43,495				35,834		35,834
Investment income				1,432		1,432				2,002		2,002
Operating income		199,960		25,556		225,516		76,518		9,668		86,186
Expenditures on long-lived assets		9,000				9,000		17,676				17,676
Goodwill		40,973				40,973		40,071				40,071


	Thirteen Weeks Ended
	June 26, 2021						June 27, 2020
	Transportation Logistics		Insurance		Total		Transportation Logistics		Insurance		Total
External revenue	$	1,553,058	$	17,660	$	1,570,718	$	809,798	$	13,716	$	823,514
Internal revenue				33,961		33,961				26,755		26,755
Investment income				748		748				835		835
Operating income		110,228		12,020		122,248		21,474		10,707		32,181
Expenditures on long-lived assets		4,924				4,924		11,877				11,877

In the

twenty-six-week

periods ended June ~~27, 2020~~26, 2021 and June ~~29, 2019,~~27, 2020, 0 single customer accounted for more than 10% of the Company’s consolidated revenue.

~~Table of Contents~~

~~(8)~~

(7)

Other Comprehensive Income

The following table presents the components of and changes in accumulated other comprehensive income (loss), net of related income taxes, as of and for the

twenty-six-week

period ended June ~~27, 2020~~26, 2021 (in thousands):

Unrealized
Holding Gains on
Available-for-Sale

Securities

Foreign

Currency
Translation

Total

Balance as of December 28, 2019
$
1,120
$
(3,332
) $

(2,212
)
Other comprehensive gain (loss)

1,237

(6,170
)
(4,933
)

Balance as of June 27, 2020
$
2,357
$
(9,502
) $
(7,145
)


	Unrealized Holding Gains (Losses) on Available-for-Sale Securities			Foreign Currency Translation			Total
Balance as of December 26, 2020	$	2,808		$	(4,807	)	$	(1,999	)
Other comprehensive (loss) gain		(883	)		1,030			147

Balance as of June 26, 2021	$	1,925		$	(3,777	)	$	(1,852	)

Amounts reclassified from accumulated other comprehensive income to investment income due to the realization of previously unrealized gains and losses in the accompanying consolidated statements of income were not significant for the

twenty-six-week

period ended June ~~27, 2020.~~26, 2021.

~~(9)~~

(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 an allowance for credit loss is necessary. Unrealized losses, representing the excess of the purchase price of an investment over its fair value as of the end of a period, considered to be a result of credit-related factors, are to be included as a charge in the statement of income, while unrealized losses considered to be a result of noncredit-related factors are to be included as a component of shareholders’ equity. Investments whose values

are based on quoted market prices in active markets are classified within Level 1. Investments that trade in markets that are not considered

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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 gains, net of unrealized losses, on the investments in the bond portfolio were ~~$3,002,000 and $1,427,000~~

$2,452,000 at June ~~27,~~26, 2021 and $3,578,000

at December 26, 2020, ~~and December 28, 2019,~~ respectively.

~~Table of Contents~~

The amortized cost and fair values of

available-for-sale

investments are as follows at June ~~27, 2020~~26, 2021 and December ~~28, 2019~~26, 2020 (in thousands):

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

June 27, 2020

Money market investments
$
14,038
$
—
$
—
$
14,038

Asset-backed securities

569

—

84

485

Corporate bonds and direct obligations of
government agencies

100,722

3,261

316

103,667

U.S. Treasury obligations

2,337

141

—

2,478

Total
$

117,666
$
3,402
$
400
$
120,668

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 obligation
s

2,335

12

5

2,342

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

117,608


			Gross		Gross
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
June 26, 2021
Money market investments	$	24,649	$	—	$	—	$	24,649
Asset-backed securities		564		—		—		564
Corporate bonds and direct obligations of government agencies		142,542		2,602		238		144,906
U.S. Treasury obligations		2,340		88		—		2,428

Total	$	170,095	$	2,690	$	238	$	172,547

December 26, 2020
Money market investments	$	17,867	$	—	$	—	$	17,867
Asset-backed securities		567		—		26		541
Corporate bonds and direct obligations of government agencies		98,241		3,551		72		101,720
U.S. Treasury obligations		2,338		125		—		2,463

Total	$	119,013	$	3,676	$	98	$	122,591

For those

available-for-sale

investments with unrealized losses at June ~~27, 2020~~26, 2021 and December ~~28, 2019,~~26, 2020, the following table summarizes the duration of the unrealized loss (in thousands):

Less than 12 months

12 months or longer

Total

Fair
Value

Unrealized
Loss

Fair
Value

Unrealized
Loss

Fair
Value

Unrealized
Loss

June 27, 2020

Asset-backed securities
$
485
$
84
$
—
$
—
$
485
$
84

Corporate bonds and direct obligations of
government agencies

4,937

316

—

—

4,937

316

Total
$
5,422
$
400
$
—
$
—
$
5,422
$
400

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 obligation
s

1,226

5

—

—

1,226

5

Total
$

10,525
$
47
$

4,260
$
3
$

14,785
$
50


	Less than 12 months				12 months or longer				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
June 26, 2021
Corporate bonds and direct obligations of government agencies	$	52,720	$	238	$	—	$	—	$	52,720	$	238
December 26, 2020
Asset-backed securities	$	541	$	26	$	—	$	—	$	541	$	26
Corporate bonds and direct obligations of government agencies		2,681		72		—		—		2,681		72

Total	$	3,222	$	98	$	—	$	—	$	3,222	$	98

The Company believes unrealized losses on investments were primarily caused by rising interest rates rather than changes in credit quality. The Company expects to recover, through collection of all of the contractual cash flows of each security, the amortized cost basis of these securities as it does not intend to sell, and does not anticipate being required to sell, these securities before recovery of the cost basis. For these reasons, no losses have been recognized in the Company’s consolidated statements of income.

~~(10) Leases~~

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(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~~facilities maintained in support of the Company’s network of BCO Independent Contractors and office space used to conduct Landstar’s business. These leases do not have significant rent escalation holidays, concessions, leasehold improvement incentives or other

build-out

clauses. Further, the leases do not contain contingent rent provisions. Landstar also leases certain trailing equipment to supplement the Company-owned trailer fleet under ~~“month-~~

~~to-month”~~

“month-to-month”

lease terms, which are not required to be recorded on the balance sheet due to the less than twelve month lease term exemption. Sublease income is primarily comprised of weekly trailing equipment rentals to our BCO Independent Contractors.

~~Table of Contents~~

Most of Landstar’s operating leases include one or more options to renew. The exercise of lease renewal options is typically at Landstar’s sole discretion, and, as such, the majority of renewals to extend the lease terms are not included in the

right-of-use

assets and lease liabilities as they are not reasonably certain of exercise. Landstar regularly evaluates the renewal options, and when they are reasonably certain of exercise, Landstar includes the renewal period in the lease term.

As most of Landstar’s operating leases do not provide an implicit rate, Landstar utilized its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments. Landstar has a centrally managed treasury function; therefore, based on the applicable lease terms and the current economic environment, we apply a portfolio approach for determining the incremental borrowing rate.

The components of lease cost for finance leases and operating leases for the twenty six weeks ended June ~~27, 2020~~26, 2021 were (in thousands):

~~Finance leases:~~


Finance leases:
Amortization of right-of-use assets	$	10,714
Interest on lease liability		1,379

Total finance lease cost		12,093
Operating leases:
Lease cost		1,740
Variable lease cost		—
Sublease income		(2,476	)

Total net operating lease income		(736	)

Total net lease cost	$	11,357

~~Amortization of~~

~~right-of-use~~

~~assets~~

~~12,372~~

~~Interest on lease liability~~

~~1,689~~

~~Total finance lease cost~~

~~14,061~~

~~Operating leases:~~

~~Lease cost~~

~~1,518~~

~~Variable lease cost~~

—

~~Sublease income~~

~~(2,413~~

)

~~Total operating lease (income)/cost~~

~~(895~~

)

~~Total lease cost~~

~~13,166~~

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A summary of the lease classification on our consolidated balance sheet as of June ~~27, 2020~~26, 2021 is as follows (in thousands):

~~Assets:~~

Operating lease
right-of-use
assets

Other assets
$
2,462

Finance lease asset
s

Operating property, less accumulated depreciation and amortization

151,518

Total lease assets
$
153,980

~~Liabilities:~~


Assets:
Operating lease right-of-use assets	Other assets	$	2,332
Finance lease assets	Operating property, less accumulated depreciation and amortization		123,613

Total lease assets		$	125,945

Liabilities:

The following table reconciles the undiscounted cash flows for the finance and operating leases to the finance and operating lease liabilities recorded on the balance sheet at June ~~27, 2020~~26, 2021 (in thousands):

Finance
Leases

Operating
Leases

2020 Remainder
$
22,849
$
340

2021

32,858

643

2022

23,709

645

2023

16,686

515

2024

6,742

448

Thereafter

793

92

Total future minimum lease payments

103,637

2,683

Less amount representing interest (2.1% to 4.4%)

5,266

221

Present value of minimum lease payments
$
98,371
$
2,462

Current maturities of long-term debt

38,219

Long-term debt, excluding current maturities

60,152

Other current liabilitie
s

648

Deferred income taxes and other noncurrent liabilities

1,814

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	Finance Leases		Operating Leases
2021 Remainder	$	17,399	$	384
2022		28,746		702
2023		21,735		615
2024		11,827		529
2025		5,580		284
Thereafter		—		—

Total future minimum lease payments		85,287		2,514
Less amount representing interest (1.9% to 4.4%)		3,656		182

Present value of minimum lease payments	$	81,631	$	2,332


Current maturities of long-term debt	30,450
Long-term debt, excluding current maturities	51,181
Other current liabilities		724
Deferred income taxes and other noncurrent liabilities		1,608

The weighted average remaining lease term and the weighted average discount rate for finance and operating leases as of June ~~27, 2020~~26, 2021 were:


	Finance Leases			Operating Leases			Finance Leases			Operating Leases
Weighted average remaining lease term (years)		3.2			4.3			3.1			3.7
Weighted average discount rate		3.2	%		4.0	%		3.0	%		4.0	%

(10)

Debt

Other than the finance lease obligations as presented on the consolidated balance sheets, the Company had 0 outstanding debt as of June 26, 2021 and December 26, 2020.

On August 18, 2020, Landstar entered into an amended and restated credit agreement with a syndicate of banks and JPMorgan Chase Bank, N.A., as administrative agent (the “Credit Agreement”). The Credit Agreement, which matures on August 18, 2023, provides $250,000,000 of borrowing capacity in the form of a revolving credit facility, $35,000,000 of which may be utilized in the form of letters of credit. The Credit Agreement includes an “accordion” feature providing for a possible increase up to an aggregate borrowing capacity of $400,000,000.

The revolving credit loans under the Credit Agreement, at the option of Landstar, bear interest at (i) the Eurocurrency rate plus an applicable margin ranging from 1.25% to 2.00%, or (ii) an alternate base rate plus an applicable margin ranging from 0.25% to 1.00%, in each case with the applicable margin determined based upon the Company’s Leverage Ratio, as defined in the Credit Agreement, at the end of the most recent applicable fiscal quarter for which financial statements have been delivered. The revolving credit facility bears a commitment fee, payable quarterly in arrears, of 0.25% to 0.35%, based on the Company’s Leverage Ratio at the end of the most recent applicable fiscal quarter for which financial statements have been delivered. As of June 26, 2021 and December 26, 2020, the Company had 0 borrowings outstanding under the Credit Agreement.

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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.

The interest rates on borrowings under the revolving credit facility are typically tied to short-term interest rates that adjust monthly and, as such, carrying value approximates fair value. Interest rates on borrowings under finance leases approximate the interest rates that would currently be available to the Company under similar terms and, as such, carrying value approximates fair value.

(11)	Commitments and Contingencies

Short-term investments include ~~$36,274,000~~$52,560,000 in current maturities of investments held by the Company’s insurance segment at June ~~27, 2020.~~26, 2021. The

non-current

portion of the bond portfolio of ~~$84,394,000~~$119,987,000 is included in other assets. The short-term investments, together with ~~$32,063,000~~$20,144,000 of

non-current

investments, provide collateral for the ~~$61,503,000~~$65,434,000 of letters of credit issued to guarantee payment of insurance claims. As of June ~~27, 2020,~~26, 2021, Landstar also had ~~$34,156,000~~$33,579,000 of additional letters of credit outstanding under the Company’s Credit Agreement.

On January 25, 2019, a purported class action was filed in the Superior Court of the State of California for the County of San Bernardino against Landstar System, Inc. and Landstar Ranger, Inc. (together, the “Defendants”). The complaint purported to bring this action on behalf of Hany Tanious, as an individual, and “all owner operators who performed work for the Defendants, and who were classified as independent contractors, during the four years preceding the filing of this action through the present.” The complaint asserted claims based on the alleged misclassification of Mr. Tanious as an independent contractor and alleged violations under California law relating to overtime, minimum wage, meal and rest breaks, failure to reimburse certain expenses, wage statements, waiting time and unfair competition. Mr. Tanious was a truck owner-operator and formerly an independent contractor who was a party to an independent contractor operating agreement with Landstar Ranger, Inc. On June 11, 2019, the Defendants filed a Notice of Removal that resulted in the removal of the case from state court to federal court, where it was assigned to Judge Dale S. Fischer of the United State District Court for the Central District of California. On August 22, 2019, the Court issued an order, among other things, striking all class allegations from the complaint and stating that this matter would proceed as an individual action. On June 15, 2020, the Court issued an order granting the Defendants’ motion to transfer venue to the United States District Court for the Middle District of Florida, where the matter was assigned to Judge Marcia Morales Howard. On June 24, 2020, the Court,

~~sua sponte~~

, issued an order striking the first amended complaint that was deemed by the Court to have been filed by the plaintiff on March 23, 2020. On July 6, 2020, the plaintiff filed a voluntary dismissal without prejudice of all remaining claims relating to this action. On July 15, 2020, the Court issued an order granting the voluntary dismissal of this action in full.

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

(12)	Change in Accounting Estimate for Self-Insured Claims

Landstar provides for the estimated costs of self-insured claims primarily on an actuarial basis. The amount recorded for the estimated liability for claims incurred is based upon the facts and circumstances known on the applicable balance sheet date. The ultimate resolution of these claims may be for an amount greater or less than the amount estimated by management. The Company continually revises its existing claim estimates as new or revised information becomes available on the status of each claim. Historically, the Company has experienced both favorable and unfavorable development of prior years’ claims estimates.

~~Table of Contents~~

The following table summarizes the adverse effect of the increase in the cost of insurance claims resulting from unfavorable development of prior year self-insured claims estimates on operating income, net income ~~attributable to Landstar System, Inc. and subsidiary~~ and earnings per share ~~attributable to Landstar System, Inc. and subsidiary~~ set forth in the consolidated statements of income for the

twenty-six-week

and thirteen-week periods ended June ~~27, 2020~~26, 2021 and June ~~29, 2019~~27, 2020 (in thousands, except per share amounts):

Twenty Six Weeks Ended


Thirteen Weeks Ended


June 27,

2020


June 29,

2019


June 27,

2020


June 29,

2019

Operating income

$
5,039


$
2,900


$
2,816


$
1,493

Net income attributable to Landstar System, Inc. and subsidiary

$
3,820


$
2,198


$
2,135


$
1,131

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

$
0.10


$
0.05


$
0.06


$
0.03

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

$
0.10


$
0.05


$
0.06


$
0.03


	Twenty Six Weeks Ended				Thirteen Weeks Ended
	June 26, 2021		June 27, 2020		June 26, 2021		June 27, 2020
Operating income	$	980	$	5,039	$	1,272	$	2,816
Net income	$	741	$	3,820	$	962	$	2,135
Diluted earnings per share	$	0.02	$	0.10	$	0.03	$	0.06

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(13)	Impairment of Intangible and Other Assets

During the 2020 second fiscal quarter, the Company recorded a

non-cash

impairment charge of ~~$2,582~~

~~,000~~

$2,582,000 in respect of certain assets, primarily customer contract and related customer relationship intangible assets, acquired on September 20, 2017, along with substantially all of the other assets of the asset-light transportation logistics business of Fletes Avella, S.A. de C.V. (“Fletes Avella”).

As previously disclosed in Item 1A. Risk Factors in the Company’s Form

10-Q

for the 2020 first quarter, negative macroeconomic trends in Mexico during the first half of 2020, including issues in the international oil and gas sector, ~~have~~ caused significant disruptions in the M

~~xican~~Mexican economy. Accordingly, management performed impairment tests of the carrying values of certain assets that primarily ~~relate~~related to intra-Mexico business acquired as a part of the Fletes Avella acquisition. The impairment tests resulted in an impairment charge

of $2,582,000,

~~2,582,000~~

, as the negative macroeconomic trends in Mexico ~~have~~ caused ~~current~~ financial projections as of the end of the 2020 second quarter relating to these intangible assets to be substantially below those originally ~~anticipat~~

danticipated at the acquisition date. There was no

corresponding goodwill impairment charge recorded as the fair value of the Company’s Mexico and cross-border reporting unit significantly exceeded its carrying value as of June 27, 2020. The fair value of the Company’s Mexico and cross-border reporting unit continues to significantly exceed its carrying value as of June ~~27, 2020.~~26, 2021.

)

~~Recent Accounting Pronouncements~~

~~Adoption of New Accounting Standards~~

~~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. The Company adopted ASU~~

~~2016-13~~

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

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 ~~28, 2019~~26, 2020 and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the ~~2019~~2020 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

~~Table of Contents~~

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; and other operational, financial or legal risks or uncertainties detailed in Landstar’s Form

10-K

for the ~~2019~~2020 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,~~(collectively referred to herein with their subsidiaries and other affiliated companies as “Landstar” or the “Company”), is a worldwide technology enabled 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 comprehensive third party logistics solutions to meet all of a customer’s transportation needs. Landstar provides services principally throughout the United States and to a lesser extent in Canada and Mexico, and between the United States and Canada, Mexico and other countries around the world. The Company’s services emphasize safety, information coordination and customer service and are delivered through a network of over 1,200 independent commission sales agents and approximately ~~64,000~~89,000 third party capacity providers, primarily truck capacity providers, linked together by a series of digital technologies which are provided and coordinated by the Company. The nature of the Company’s business is such that a significant portion of its operating costs varies directly with revenue.

Landstar markets its integrated transportation management solutions primarily through independent commission sales agents and exclusively utilizes third party capacity providers to transport customers’ freight. Landstar’s independent commission sales agents enter into contractual arrangements with the Company and are responsible for locating freight, making that freight available to Landstar’s capacity providers and coordinating the transportation of the freight with customers and capacity providers. The Company’s third party capacity providers consist of independent contractors who provide truck capacity to the Company under exclusive lease arrangements (the ~~“BCO~~

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“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 ~~series~~ecosystem of digital technologies, Landstar operates an integrated transportation management solutions business primarily throughout North America with revenue of $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.

The transportation logistics segment provides a wide range of integrated transportation management solutions. Transportation services are provided by Landstar’s “Operating Subsidiaries”: Landstar Ranger, Inc., Landstar Inway, Inc., Landstar Ligon, Inc., Landstar Gemini, Inc., Landstar Transportation Logistics, Inc., Landstar Global Logistics, Inc., Landstar Express America, Inc., Landstar Canada, Inc., Landstar Metro, S.A.P.I. de C.V., Landstar Servicios, S.A.P.I. de C.V., and as further described below, Landstar Blue. Transportation services offered by the Company include truckload and less-than-truckload transportation, rail intermodal, air cargo, ocean cargo, expedited ground and air delivery of time-critical freight, heavy-haul/specialized, U.S.-Canada and U.S.-Mexico cross-border, intra-Mexico, intra-Canada, project cargo and customs brokerage. Examples of the industries serviced by the transportation logistics segment include automotive parts and assemblies, consumer durables, building products, metals, chemicals, foodstuffs, heavy machinery, retail, electronics and military equipment. In addition, the transportation logistics segment provides transportation services to other transportation companies, including third party logistics and less-than-truckload service providers. ~~Each of the~~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 twenty six weeks ended June ~~27, 2020,~~26, 2021, revenue generated by BCO Independent Contractors, Truck Brokerage Carriers and railroads represented approximately ~~46%~~42%, ~~46%~~50% and 3%, respectively, of the Company’s consolidated revenue. Collectively, revenue generated by air and ocean cargo carriers represented approximately 3%4% of the Company’s consolidated revenue in the

twenty-six-week

period ended June ~~27, 2020.~~

Landstar Metro, S.A.P.I. de C.V. (“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. On January 29, 2019, Landstar acquired all of the remaining equity interests in Landstar Metro and Landstar Servicios held by their former minority equityholders. Accordingly, as of 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

~~twenty-six-week~~26, 2021.

~~period ended June 27, 2020.~~

~~Table of Contents~~

On May 6, 2020, ~~Landstar System Holdings, Inc.~~the Company formed a new subsidiary that was subsequently renamed Landstar Blue, LLC (“Landstar Blue”). Landstar Blue arranges truckload brokerage services while helping the Company to develop and test digital technologies and processes for the benefit of all Landstar independent commission sales agents. On June 15, 2020, Landstar Blue completed the acquisition of an independent agent of the Company whose business focused on truckload brokerage services. The results of operations from Landstar Blue are presented as part of the Company’s ~~transportations~~transportation logistics segment. ~~The Company expects that Landstar Blue will not have a material effect on its revenues and earnings for the remainder of fiscal year 2020.~~ Revenue from Landstar Blue represented less than 1% of the Company’s transportation logistics segment revenue in the

twenty-six-week

period ended June ~~27, 2020.~~26, 2021.

The insurance segment is comprised of Signature Insurance Company (“Signature”), a wholly owned offshore insurance subsidiary, ~~(“Signature”),~~ and Risk Management Claim Services, Inc. The insurance segment provides risk and claims management services to certain of Landstar’s operating subsidiaries. In addition, it reinsures certain risks of the Company’s BCO Independent Contractors and provides certain property and casualty insurance directly to certain of Landstar’s operating subsidiaries. Revenue at the insurance segment represents reinsurance premiums from third party insurance companies that provide insurance programs to BCO Independent Contractors where all or a portion of the risk is ultimately borne by Signature. Revenue at the insurance segment represented approximately 2%1% of the Company’s consolidated revenue for the

twenty-six-week

period ended June ~~27, 2020.~~26, 2021.

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 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, increasing the revenue opportunities generated by existing independent commission sales agents and providing its independent commission sales agents with digital technologies they may use to grow revenue and increase efficiencies at their businesses. During the ~~2019~~2020 fiscal year, ~~555~~508 independent commission sales agents generated $1 million or more of Landstar revenue and thus qualified as Million Dollar Agents. During the ~~2019~~2020 fiscal year, the average revenue generated by a Million Dollar Agent was ~~$6,880,000~~$7,489,000 and revenue generated by Million Dollar Agents in the aggregate represented ~~93%~~92% 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:

Twenty Six Weeks Ended

Thirteen Weeks Ended


June 27,

2020

June 29,

2019

June 27,
2020

June 29,

2019

Revenue generated through (in thousands):

Truck transportation

Truckload:

Van equipment
   $ 1,028,334 $ 1,224,379 $ 483,027 $ 605,365
Unsided/platform equipment
   533,716 648,828 247,388 338,107
Less-than-truckload
   45,859 48,108 22,918 24,732


Total truck transportation
   1,607,909 1,921,315 753,333 968,204
Rail intermodal
   51,315 58,585 23,186 28,570
Ocean and air cargo carriers
   57,250 58,893 30,663 28,224
Other (1)
   34,606 39,247 16,332 20,042



$ 1,751,080

$ 2,078,040

$ 823,514

$ 1,045,040



Revenue on loads hauled via BCO Independent Contractors included in total truck transportation
   $ 809,779 $ 923,928 $ 378,500 $ 474,620
Number of loads:

Truck transportation

Truckload:

Van equipment
   600,519 686,901 285,174 345,080
Unsided/platform equipment
   231,122 260,920 110,533 135,750
Less-than-truckload
   78,079 74,549 39,723 39,240


Total truck transportation
   909,720 1,022,370 435,430 520,070
Rail intermodal
   21,510 23,880 9,970 11,420
Ocean and air cargo carriers
   14,430 14,810 7,360 7,300




945,660

1,061,060

452,760

538,790



Loads hauled via BCO Independent Contractors included in total truck transportation
   443,830 483,660 210,430 248,810
Revenue per load:

Truck transportation

Truckload:

Van equipment
   $ 1,712 $ 1,782 $ 1,694 $ 1,754
Unsided/platform equipment
   2,309 2,487 2,238 2,491
Less-than-truckload
   587 645 577 630
Total truck transportation
   1,767 1,879 1,730 1,862
Rail intermodal
   2,386 2,453 2,326 2,502
Ocean and air cargo carriers
   3,967 3,977 4,166 3,866
Revenue per load on loads hauled via BCO Independent Contractors
   $ 1,825 $ 1,910 $ 1,799 $ 1,908
Revenue by capacity type (as a % of total revenue):

Truck capacity providers:
   ��
BCO Independent Contractors
   46 % 44 % 46 % 45 %
Truck Brokerage Carriers
   46 % 48 % 46 % 47 %
Rail intermodal
   3 % 3 % 3 % 3 %
Ocean and air cargo carriers
   3 % 3 % 4 % 3 %
Other
   2 % 2 % 2 % 2 %


	Twenty Six Weeks Ended						Thirteen Weeks Ended
	June 26, 2021			June 27, 2020			June 26, 2021			June 27, 2020
Revenue generated through (in thousands):
Truck transportation
Truckload:
Van equipment	$	1,798,061		$	1,028,334		$	970,874		$	483,027
Unsided/platform equipment		784,883			533,716			444,251			247,388
Less-than-truckload		54,732			45,859			29,062			22,918

Total truck transportation		2,637,676			1,607,909			1,444,187			753,333
Rail intermodal		76,068			51,315			44,360			23,186
Ocean and air cargo carriers		107,840			57,250			60,240			30,663
Other (1)		36,668			34,606			21,931			16,332

	$	2,858,252		$	1,751,080		$	1,570,718		$	823,514

Revenue on loads hauled via BCO Independent Contractors included in total truck transportation	$	1,209,056		$	809,779		$	648,942		$	378,500
Number of loads:
Truck transportation
Truckload:
Van equipment		777,921			600,519			409,048			285,174
Unsided/platform equipment		275,754			231,122			149,489			110,533
Less-than-truckload		85,095			78,079			44,403			39,723

Total truck transportation		1,138,770			909,720			602,940			435,430
Rail intermodal		26,800			21,510			15,100			9,970
Ocean and air cargo carriers		19,460			14,430			10,230			7,360

		1,185,030			945,660			628,270			452,760

Loads hauled via BCO Independent Contractors included in total truck transportation		510,150			443,830			264,200			210,430
Revenue per load:
Truck transportation
Truckload:
Van equipment	$	2,311		$	1,712		$	2,373		$	1,694
Unsided/platform equipment		2,846			2,309			2,972			2,238
Less-than-truckload		643			587			655			577
Total truck transportation		2,316			1,767			2,395			1,730
Rail intermodal		2,838			2,386			2,938			2,326
Ocean and air cargo carriers		5,542			3,967			5,889			4,166
Revenue per load on loads hauled via BCO Independent Contractors	$	2,370		$	1,825		$	2,456		$	1,799
Revenue by capacity type (as a % of total revenue):
Truck capacity providers:
BCO Independent Contractors		42	%		46	%		41	%		46	%
Truck Brokerage Carriers		50	%		46	%		51	%		46	%
Rail intermodal		3	%		3	%		3	%		3	%
Ocean and air cargo carriers		4	%		3	%		4	%		4	%
Other		1	%		2	%		1	%		2	%

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

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:

June 27, 2020

June 29, 2019

BCO Independent Contractors
   9,632    9,879
Truck Brokerage Carriers:

Approved and active
(1)
   37,600    40,097
Other approved
   16,365    17,790





53,965

57,887





Total available truck capacity providers
   63,597    67,766




Trucks provided by BCO Independent Contractors
   10,299    10,587


	June 26, 2021		June 27, 2020
BCO Independent Contractors		10,778		9,632
Truck Brokerage Carriers:
Approved and active (1)		53,891		37,600
Other approved		24,098		16,365

		77,989		53,965

Total available truck capacity providers		88,767		63,597

Trucks provided by BCO Independent Contractors		11,557		10,299

(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 ~~rate~~rates 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 from shipments hauled 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 over the freight 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 over the freight 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 from shipments hauled 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 independent commission sales agents provide commissions to agents at a contractually agreed upon percentage of net revenue for these types of shipments. Approximately ~~52%~~47% of the Company’s consolidated revenue in the

twenty-six-week

period ended June ~~27, 2020~~26, 2021 was generated under contracts that have a fixed gross profit margin while ~~48%~~53% 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.

Effective May 1, 2019, the Company entered into a 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~~provides for a limit for a single loss of $5,000,000, with an aggregate limit of ~~$10,000,000~~$15,000,000 for each policy year, an aggregate limit of ~~$15,000,000~~$20,000,000 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 were 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~~did not elect 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 $5,000,000 self-insured retention for commercial trucking claims during the remainder of the applicable policy year(s). ~~In addition,~~Moreover, 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~~the Initial Excess Policy required the Company to pay additional premium ~~under the Initial Excess Policy, which~~relating to its existing coverage up to a

pre-established

maximum amount of ~~additional premium~~$3,500,000, which was provided for in insurance and claims costs for the Company’s 2020 fiscal first quarter.

The Company also maintains third party insurance arrangements providing excess coverage for commercial trucking liabilities in excess of $10,000,000. These third party arrangements provide coverage on a per occurrence or aggregated basis. Due to the increasing cost of commercial auto liability claims throughout the United States in recent years, the availability of such excess coverage has significantly decreased and the pricing associated with such excess coverage, to the extent available, has significantly increased. Effective May 1, ~~2020~~2021, with respect to the annual policy year ending April 30, ~~2021,~~2022, the Company experienced an increase of approximately ~~$14~~$3 million, or ~~over 170%~~19%, in the premiums charged by third party insurance companies to the Company for excess coverage for commercial trucking liabilities in excess of $10,000,000. Moreover, the Company increased the level of its financial exposure to commercial trucking claims in excess of $10,000,000, including through the use of additional self-insurance, deductibles, aggregate loss limits, quota shares and other arrangements with third party insurance companies, based on the availability of coverage within certain excess insurance coverage layers and estimated cost differentials between proposed premiums from third party insurance companies and historical and actuarially projected losses experienced by the Company at various levels of excess insurance coverage. No assurances can be given that the availability of excess coverage for commercial trucking claims will not continue to deteriorate, that the pricing associated with such excess coverage, to the extent available, will not continue to increase, nor that insurance coverage from third party insurers for excess coverage of commercial trucking claims will even be available on commercially reasonable terms at certain levels.

Further, the Company 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

twenty-six-week

period ended June ~~27, 2020,~~26, 2021, employee compensation and benefits accounted for approximately ~~sixty-four~~seventy-four 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.

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:

Twenty Six Weeks Ended

Thirteen Weeks Ended


June 27,

2020

June 29,

2019

June 27,

2020

June 29,

2019

Revenue
   100.0 % 100.0 % 100.0 % 100.0 %
Purchased transportation
   76.8 76.6 77.1 76.5
Commissions to agents
   8.6 8.3 9.1 8.4


Gross profit margin
   14.6 % 15.1 % 13.7 % 15.1 %


Gross profit
   100.0 % 100.0 % 100.0 % 100.0 %
Investment income
   0.8 0.8 0.7 0.8
Indirect costs and expenses:

Other operating costs, net of gains on asset sales/dispositions
   6.1 5.8 6.6 6.2
Insurance and claims
   17.5 10.0 17.5 10.3
Selling, general and administrative
   33.6 26.3 35.9 26.1
Depreciation and amortization
   9.0 7.1 10.1 7.0
Impairment of intangible and other assets
   1.0 — 2.3 —


Total costs and expenses
   67.1 49.2 72.3 49.7


Operating margin
   33.7 % 51.6 % 28.4 % 51.2 %


	Twenty Six Weeks Ended						Thirteen Weeks Ended
	June 26, 2021			June 27, 2020			June 26, 2021			June 27, 2020
Revenue		100.0	%		100.0	%		100.0	%		100.0	%
Purchased transportation		77.9			76.8			78.2			77.1
Commissions to agents		7.8			8.6			7.7			9.1

Gross profit margin		14.3	%		14.6	%		14.1	%		13.7	%

Gross profit		100.0	%		100.0	%		100.0	%		100.0	%
Investment income		0.3			0.8			0.3			0.7
Indirect costs and expenses:
Other operating costs, net of gains on asset sales/dispositions		4.0			6.1			4.0			6.6
Insurance and claims		11.1			17.5			10.9			17.5
Selling, general and administrative		24.3			33.6			24.5			35.9
Depreciation and amortization		5.9			9.0			5.5			10.1
Impairment of intangible and other assets		—			1.0			—			2.3

Total costs and expenses		45.3			67.1			45.0			72.3

Operating margin		55.0	%		33.7	%		55.4	%		28.4	%

Management believes that a discussion of indirect costs as a percentage of gross profit is useful and meaningful to 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” or “adjusted gross profit” in ~~Management~~Management’s 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 the use of the term “net revenue” or “adjusted gross profit” 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 an annual 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.

TWENTY SIX WEEKS ENDED JUNE ~~27, 2020~~26, 2021 COMPARED TO TWENTY SIX WEEKS ENDED JUNE ~~29, 2019~~27, 2020

Revenue for the ~~2020~~2021

twenty-six-week

period was ~~$1,751,080,000, a decrease~~$2,858,252,000, an increase of ~~$326,960,000,~~$1,107,172,000, or ~~16%~~63%, compared to the ~~2019~~2020

twenty-six-week

period. Transportation revenue ~~decreased $326,095,000,~~increased $1,099,875,000, or ~~16%~~64%. The ~~decrease~~increase in transportation revenue was attributable to ~~a decreased~~increased revenue per load of approximately 31% and an increased number of loads hauled of approximately ~~11% and decreased revenue per load of approximately 6%~~25% compared to the ~~2019~~2020

twenty-six-week

period. The significant increase in revenue in the 2021 first half from the 2020 first half was primarily related to two

factors: (1) consumer demand for durable goods, building products and

e-commerce

drove revenue during the 2021 period to record levels; and (2) transportation revenue from the 2020 period was significantly adversely impacted by the effect of the

COVID-19

pandemic on the U.S. and global economies. In particular, the impact of the

COVID-19

twenty-six-week

period. Reinsurance premiums were ~~$27,398,000~~$34,695,000 and ~~$28,263,000~~$27,398,000 for the ~~2020~~2021 and ~~2019~~2020

twenty-six-week

periods, respectively. The ~~decrease~~increase in revenue from reinsurance premiums was primarily attributable to ~~the decrease~~increased premiums from a third party insurance company relating to unladen insurance provided to certain BCO Independent Contractors and an increase in the average number of trucks provided by BCO Independent Contractors in the ~~2020~~2021

twenty-six-week

period compared to the ~~2019~~2020

twenty-six-week

period.

Truck transportation revenue generated by BCO Independent Contractors and Truck Brokerage Carriers (together, the “third party truck capacity providers”) for the ~~2020~~2021

twenty-six-week

period was ~~$1,607,909,000,~~$2,637,676,000, representing 92% of total revenue, ~~a decrease~~an increase of ~~$313,406,000,~~$1,029,767,000, or ~~16%~~64%, compared to the ~~2019~~2020

twenty-six-week

period. Revenue per load on loads hauled by third party truck capacity providers increased approximately 31% compared to the 2020

twenty-six-week

period. The increase in revenue per load on loads hauled via truck was primarily due to an extremely tight truck capacity environment experienced during the 2021

twenty-six-week

period. During the 2021

twenty-six-week

period, the demand for truck capacity, particularly with respect to van capacity, increased more rapidly than the supply of available truck capacity in the marketplace as the U.S. economy recovered from the impact of the

COVID-19

pandemic. Revenue per load on loads hauled via van equipment increased 35%, revenue per load on loads hauled via unsided/platform equipment increased 23% and revenue per load on less-than-truckload loadings increased 10% as compared to the 2020

twenty-six-week

period. The number of loads hauled by third party truck capacity providers ~~decreased~~increased approximately ~~11%~~25% in the ~~2020~~2021

twenty-six-week

period compared to the ~~2019~~

~~twenty-six-week~~

~~period, and revenue per load on loads hauled by third party truck capacity providers decreased approximately 6% compared to the 2019~~2020

twenty-six-week

period. The ~~decrease~~increase in the number of loads hauled via truck compared to the ~~2019~~2020

twenty-six-week

period was due to ~~relative softness~~a broad-based increase in demand for the ~~U.S. manufacturing sector in~~Company’s truck transportation services during the 2021 period, particularly those services provided via van equipment, compared to the 2020 period, ~~compared to the 2019 period and the unfavorable impact of~~which was adversely impacted by the

COVID-19

~~pandemic, which began during the last week of the Company’s first fiscal quarter and persisted throughout the second fiscal quarter.~~pandemic. Loads hauled via van equipment ~~decreased 13% and~~increased 30%, loads hauled via unsided/platform equipment ~~decreased 11%, while~~increased 19% and less-than-truckload volumes increased ~~5% as compared to the 2019~~

~~twenty-six-week~~

~~period. The decrease in revenue per load on loads hauled via truck was primarily due to a softer freight demand environment experienced during the 2020~~

~~twenty-six-week~~

~~period, which resulted in more readily available truck capacity as compared to the 2019~~

~~twenty-six-week~~

period. Revenue per load on loads hauled via van equipment decreased 4%, revenue per load on loads hauled via unsided/platform equipment decreased 7% and revenue per load on less-than-truckload loadings decreased 9% as compared to the ~~2019~~2020

twenty-six-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 ~~$29,302,000~~$45,574,000 and ~~$41,321,000~~$29,302,000 in the ~~2020~~2021 and ~~2019~~2020

twenty-six-week

periods, respectively. ~~It should be noted that billings to many customers of the Company’s truck brokerage services include a single~~

~~all-in~~

rate that does not separately identify fuel 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 ~~2020~~2021

twenty-six-week

period was ~~$108,565,000,~~$183,908,000, or 6% of total revenue, ~~a decrease~~an increase of ~~$8,913,000,~~$75,343,000, or 8%69%, compared to the ~~2019~~2020

twenty-six-week

period. ~~The number of loads hauled by multimode capacity providers decreased approximately 7% in the 2020~~

~~twenty-six-week~~

~~period compared to the 2019~~

~~twenty-six-week~~

~~period, and revenue~~Revenue per load on revenue generated by multimode capacity providers ~~decreased~~increased approximately ~~1% over~~32% in the ~~same period. The decrease in~~2021

twenty-six-week

period compared to the 2020

twenty-six-week

period, and the number of loads hauled by multimode capacity providers was primarily due to a 10% decrease in rail intermodal loadings, mostly attributable to decreased loadings at two specific customers, and a 7% decrease in ocean loadings, primarily due to decreased shipments originating in China for export toincreased approximately 29% over the ~~United States. The decrease in revenue~~same period. Revenue per load ~~of 1%~~ on loads hauled by multimode capacity providers ~~was entirely attributable~~increased for all modes, primarily due to ~~decreased revenue per load on rail intermodal shipments. Also, revenue~~strong U.S. and global economic recoveries coupled with the impact of global supply chain disruptions. 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 increase in the number of loads hauled by multimode capacity providers was due to a broad-based increase in demand across many customers for the Company’s rail, air and ocean service offerings during the 2021 period as well as the adverse impact of the

COVID-19

pandemic on multimode loadings during the 2020 period, which began during the last week of the Company’s 2020 first fiscal quarter and persisted throughout the entirety of the 2020 second fiscal quarter.

Purchased transportation was ~~76.8%~~77.9% and ~~76.6%~~76.8% of revenue in the ~~2020~~2021 and ~~2019~~2020

twenty-six-week

periods, respectively. The increase in purchased transportation as a percentage of revenue was primarily due to an increased rate of purchased transportation on revenue generated by Truck Brokerage Carriers and an increased percentage of revenue contributed by Truck Brokerage Carriers, which typically has a higher rate of purchased transportation than revenue generated by BCO Independent Contractors, partially offset by a decreased rate of purchased transportation paid on revenue generated by BCO Independent Contractor revenue due to the impact of

COVID-19

pandemic relief incentive ~~payments.~~payments in the 2020

twenty-six-week

period. Under that program, for each load delivered by a BCO Independent Contractor with a confirmed delivery date from April 1, 2020 through May 30, 2020, the Company paid each of the BCO Independent Contractor who hauled the load and the independent commission sales agent who dispatched the load an extra $50. Commissions to agents were ~~8.6%~~7.8% and ~~8.3%~~8.6% of revenue in the ~~2020~~2021 and ~~2019~~2020

twenty-six-week

periods, respectively. The ~~increase~~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 and a decreased commission rate paid on revenue generated by BCO Independent Contractors due to the impact of the

COVID-19

pandemic relief incentive payments to ~~agents.~~agents included in the 2020 period and the elimination as of the end of the 2020 fiscal year of certain incentive commission arrangements formerly paid to agents relating to a discontinued BCO recruitment and retention program. The Company paid a total of $12,593,000 in

COVID-19

pandemic relief incentive payments during the 2020

~~twenty-six~~twenty-six-week

~~week~~ period.

2524

Investment income was ~~$2,002,000~~$1,432,000 and ~~$2,421,000~~$2,002,000 in the ~~2020~~2021 and ~~2019~~2020

twenty-six-week

periods, respectively. The decrease in investment income was primarily attributable to lower average rates of return on investments in the ~~2020~~2021

twenty-six-week ~~period,~~

period, partially offset by a higher average investment balance held by the insurance segment in the ~~2020~~2021

~~twenty-six~~

twenty-six-week

~~week~~

period.

Other operating costs ~~decreased $2,426,000~~increased $871,000 in the ~~2020~~2021

twenty-six-week

period compared to the ~~2019~~2020

twenty-six-week

period and represented 4.0% of gross profit in the 2021 period compared to 6.1% of gross profit in the 2020 ~~period compared to 5.8% of gross profit in the 2019~~ period. The ~~decrease~~increase in other operating costs compared to the prior year was primarily due to decreased ~~BCO Independent Contractor recruiting costs, increased~~ gains on ~~the~~ sales of used trailing equipment and increased trailing equipment maintenance costs, partially offset by a decreased ~~trailer rental expense.~~provision for contractor bad debt. The ~~increase~~decrease in other operating costs as a percentage of gross profit was caused by the effect of ~~decreased~~increased gross profit, partially offset by the ~~decrease~~increase in other operating costs.

Insurance and claims increased ~~$13,429,000~~$921,000 in the ~~2020~~2021

twenty-six-week

period compared to the ~~2019~~2020

twenty-six-week

period and represented 11.1% of gross profit in the 2021 period compared to 17.5% of gross profit in the 2020 ~~period compared to 10.0% of gross profit in the 2019~~ period. The increase in insurance and claims expense compared to the prior year was primarily due to an increase in insurance premiums, primarily for commercial trucking liability coverage, in the 2021

twenty-six-week

period, partially offset by a $5,000,000 charge for the Company’s self-insured retention with respect to a tragic vehicular accident involving a fatality during the 2020 period, a $3,500,000 charge relating to ~~anticipated~~ additional premium the Company ~~expects~~was required to pay under its existing multi-year insurance arrangements in connection with certain aggregated losses ~~increased insurance premiums~~ incurred ~~in May and June for commercial trucking liability coverage following~~during the ~~Company’s May 1,~~ 2020 ~~insurance renewal, increased~~period, as well as the impact of decreased net unfavorable development of prior years’ claims ~~and increased severity of current year claims~~ in the ~~2020~~ 2021

twenty-six-week

period. During the ~~2020~~2021 and ~~2019~~2020

twenty-six-week

periods, insurance and claims costs included ~~$5,039,000~~$980,000 and ~~$2,900,000~~$5,039,000 of net unfavorable adjustments to prior years’ claims estimates, respectively. The ~~increase~~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 and the effect of decreased gross profit.~~costs.

Selling, general and administrative costs increased ~~$3,363,000~~$13,594,000 in the ~~2020~~2021

twenty-six-week

period compared to the ~~2019~~2020

twenty-six-week

period and represented 24.3% of gross profit in the 2021 period compared to 33.6% of gross profit in the 2020 ~~period compared to 26.3% of gross profit in the 2019~~ period. The increase in selling, general and administrative costs compared to prior year was attributable to an increased ~~provision for customer bad debt,~~stock-based compensation expense and an increased provision for incentive compensation, ~~and increased information technology costs,~~ partially offset by a decreased ~~stock-based compensation expense, decreased agent convention costs and decreased travel and entertainment costs related to the impact of the~~

~~COVID-19~~

~~pandemic.~~provision for customer bad debt. Included in selling, general and administrative costs was incentive compensation expense of ~~$4,057,000~~$12,615,000 and ~~$1,911,000~~$4,057,000 for the ~~2020~~2021 and ~~2019~~2020

twenty-six-week

periods, respectively, and stock-based compensation expense of ~~$1,201,000~~$10,893,000 and ~~$3,368,000~~$1,201,000 for the ~~2020~~2021 and ~~2019~~2020

twenty-six-week

periods, respectively. The ~~increase~~decrease in selling, general and administrative costs as a percent of gross profit was due to the effect of ~~decreased~~increased gross profit, ~~and~~partially offset by the increase in selling, general and administrative costs.

Depreciation and amortization increased ~~$622,000~~$1,272,000 in the ~~2020~~2021

twenty-six-week

period compared to the ~~2019~~2020

twenty-six-week

period and represented 5.9% of gross profit in the 2021 period compared to 9.0% of gross profit in the 2020 ~~period compared to 7.1% of gross profit in the 2019~~ period. The increase in depreciation and amortization expenses was primarily due to increased depreciation on information technology ~~assets, partially offset by a~~assets. The decrease ~~in trailing equipment depreciation. The increase~~ in depreciation and amortization as a percentage of gross profit was due to the effect of ~~decreased~~increased gross profit, partially offset by the increase in depreciation and ~~increased depreciation.~~amortization.

During the 2020 second fiscal quarter, the Company recorded a

non-cash

impairment charge of $2,582,000 in respect of certain assets, primarily customer contract and related customer relationship intangible assets, acquired on September 20, 2017, along with substantially all of the other assets of the asset-light transportation logistics business of Fletes Avella, S.A. de C.V. (“Fletes Avella”). ~~As previously disclosed in Item 1A. Risk Factors in the Company’s Form~~

~~10-Q~~

for the 2020 first quarter, negative macroeconomic trends in Mexico, including issues in the international oil and gas sector, have caused significant disruptions in the Mexican economy. Accordingly, management performed impairment tests of the carrying values of certain assets that primarily relate to intra-Mexico business acquired as a part of the Fletes Avella acquisition. The impairment tests resulted in an impairment charge of $2,582,000, as the negative macroeconomic trends in Mexico have caused current financial projections relating to these intangible assets to be substantially below those originally anticipated at the acquisition date. There was no corresponding goodwill impairment charge recorded as the fair value of the Company’s Mexico and cross-border reporting unit continues to significantly exceed its carrying value as of June 27, 2020.

Interest and debt expense in the ~~2020~~2021

twenty-six-week

period increased ~~$414,000~~$81,000 compared to the ~~2019~~2020

twenty-six-week

period. ~~The increase in interest and debt expense was primarily attributable to decreased interest income earned on cash balances held by the transportation logistics segment.~~

The provisions for income taxes for the ~~2020~~2021 and ~~2019~~2020

twenty-six-week

was primarily attributable to an increased provision for nondeductible executive compensation during the 2021 period. The effective income tax rate for the 2021

twenty-six-week

21% primarily attributable to state taxes and nondeductible executive compensation, partially offset by excess tax benefits realized on stock-based awards. The effective income tax rate for the 2020

twenty-six-week

period was 22.7%, which was higher than the statutory federal income tax rate of 21% primarily attributable to state taxes and the meals and entertainment exclusion, partially offset by excess tax benefits realized on stock-based awards. The effective income tax rate ~~for~~in the ~~2019~~

2021

twenty-six-week

period of 24.1% was ~~22.4%, which was higher~~lower than the ~~statutory federal~~24.4% estimated annual effective income tax rate ~~of 21%~~ primarily ~~attributable~~due to ~~state taxes and the meals and entertainment exclusion, partially offset by~~ excess tax benefits ~~realized~~recognized on stock-based ~~awards.~~compensation arrangements in the 2021

twenty-six-week

period. The effective income tax rate in the 2020

twenty-six-week

period of 22.7% 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

twenty-six-week

period. ~~The effective~~

Table of Contents

Net income ~~tax rate~~was $169,534,000, or $4.41 per diluted share, in the ~~2019~~

~~twenty-six-week~~

~~period of 22.4% 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~~2021

twenty-six-week

period.

~~The net loss attributable to noncontrolling interest of $17,000 in the 2019~~

~~twenty-six-week~~

~~period represents the former noncontrolling investors’ share of the net loss incurred by Landstar Metro and Landstar Servicios.~~

Net income was $65,149,000, or $1.68 per ~~common~~diluted share, ~~($1.68 per diluted share),~~ in the 2020

~~twenty-six-week~~

~~period. Net income attributable to the Company was $124,417,000, or $3.11 per common share ($3.11 per diluted share), in the 2019~~

twenty-six-week

period. Net income was unfavorably impacted by approximately $12,593,000, or $0.24 per ~~common~~diluted share, ~~($0.24 per diluted share),~~ during the 2020

twenty-six-week

period, related to the impact of the

COVID-19

pandemic relief incentive payments.

THIRTEEN WEEKS ENDED JUNE ~~27, 2020~~26, 2021 COMPARED TO THIRTEEN WEEKS ENDED JUNE ~~29, 2019~~27, 2020

Revenue for the ~~2020~~2021 thirteen-week period was ~~$823,514,000, a decrease~~$1,570,718,000, an increase of ~~$221,526,000,~~$747,204,000, or ~~21%~~91%, compared to the ~~2019~~2020 thirteen-week period. Transportation revenue ~~decreased $221,018,000,~~increased $743,260,000, or ~~21%~~92%. The ~~decrease~~increase in transportation revenue was attributable to ~~a decreased~~an increased number of loads hauled of approximately ~~16%~~39% and ~~decreased~~increased revenue per load of approximately 6%38% compared to the ~~2019~~2020 thirteen-week period. The increase in revenue in the 2021 period from the 2020 period was primarily related to two factors: (1) consumer demand for durable goods, building products and

e-commerce

drove revenue in the 2021 period to record levels; and (2) transportation revenue from the 2020 period was significantly adversely impacted by the effect of the

COVID-19

pandemic on the U.S. and global economies. In particular, the impact of the

COVID-19

pandemic on demand for the Company’s truck transportation services significantly accelerated during the last week of the Company’s 2020 first fiscal quarter and led to demand lows experienced by the Company in April and May 2020. In June 2020, demand for the Company’s truck transportation services sequentially increased from May 2020, but remained at significantly depressed levels. Reinsurance premiums were ~~$13,716,000~~$17,660,000 and ~~$14,224,000~~$13,716,000 for the ~~2020~~2021 and ~~2019~~2020 thirteen-week periods, respectively. The ~~decrease~~increase in revenue from reinsurance premiums was primarily attributable to ~~the decrease~~increased premiums from a third party insurance company relating to unladen insurance provided to certain BCO Independent Contractors and an increase in the average number of trucks provided by BCO Independent Contractors in the ~~2020~~2021 thirteen-week period compared to the ~~2019~~2020 thirteen-week period.

Truck transportation revenue generated by third party truck capacity providers for the 2021 thirteen-week period was $1,444,187,000, representing 92% of total revenue, an increase of $690,854,000, or 92%, compared to the 2020 thirteen-week period. Both truck loads and revenue per load on loads hauled via truck increased approximately 38% in the 2021 thirteen-week period compared to the 2020 thirteen-week period. The increase in the number of loads hauled via truck compared to the 2020 thirteen-week period was ~~$753,333,000, representing 91%~~due to a broad-based increase in demand for the Company’s truck transportation services during the 2021 period as well as the unfavorable impact of ~~total revenue, a decrease of $214,871,000, or 22%, compared to~~the

COVID-19

pandemic on the ~~2019 thirteen-week~~2020 period. The number of loads hauled ~~by third party~~via truck ~~capacity providers decreased approximately 16%~~increased 44% in April, 45% in May and 30% in June, respectively, as compared to the corresponding periods in 2020. Loads hauled via van equipment increased 43%, loads hauled via unsided/platform equipment increased 35% and less-than-truckload volumes increased 12% as compared to the 2020 thirteen-week ~~period compared to the 2019 thirteen-week period, and~~period. The increase in revenue per load on loads hauled by third party truck capacity providers ~~decreased approximately 7% compared to the 2019 thirteen-week period. The decrease in the number of loads hauled via truck compared to the 2019 thirteen-week period~~primarily was due to an extremely tight truck capacity environment experienced during the ~~unfavorable~~2021 period. During the 2021 thirteen-week period, the demand for truck capacity, particularly with respect to van capacity, increased more rapidly than the supply of available truck capacity in the marketplace as the U.S. economy recovered from the impact of the

COVID-19

~~pandemic experienced during the 2020 thirteen-week period as the result of actions taken by governmental authorities and businesses to reduce the further spread of~~

~~COVID-19.~~

~~The number of loads hauled via truck was below the prior year comparable period by 21~~

~~, 21~~

~~and 9~~

for April, May and June, respectively. Loads hauled via van equipment decreased 17% and loads hauled via unsided/platform equipment decreased 19%, while less-than-truckload volumes increased 1% as compared to the 2019 thirteen-week period. The decrease in revenue per load on loads hauled via truck was primarily due to 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.pandemic. Revenue per load on loads hauled via van equipment ~~decreased 3%~~increased 40%, revenue per load on loads hauled via unsided/platform equipment ~~decreased 10%~~increased 33% and revenue per load on less-than-truckload loadings ~~decreased 8%~~increased 13% as compared to the ~~2019~~2020 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 ~~$12,106,000~~$26,340,000 and ~~$20,334,000~~$12,106,000 in the ~~2020~~2021 and ~~2019~~2020 thirteen-week periods, respectively.

Transportation revenue generated by multimode capacity providers for the ~~2020~~2021 thirteen-week period was ~~$53,849,000,~~$104,600,000, or 7% of total revenue, ~~a decrease~~an increase of ~~$2,945,000,~~$50,751,000, or 5%94%, compared to the ~~2019~~2020 thirteen-week period. The number of loads hauled by multimode capacity providers ~~decreased~~increased approximately 7%46% in the ~~2020~~2021 thirteen-week period compared to the ~~2019~~2020 thirteen-week period, ~~while~~and revenue per load on revenue generated by multimode capacity providers increased approximately 2%33% over the same period. The ~~decrease~~increase in the number of loads hauled by multimode capacity providers was ~~primarily~~ due to a ~~13% decrease in rail intermodal loadings, mostly attributable to decreased loadings at three specific customers. The~~broad-based increase in ~~revenue~~demand across many customers for the Company’s rail, air and ocean service offerings as well as the unfavorable impact of the

COVID-19

pandemic had on multimode volumes during the 2020 second fiscal quarter. Revenue per load ~~of 2%~~ on loads hauled by multimode capacity providers ~~was~~increased for all modes, primarily ~~attributable~~due to ~~increased revenue per load on air cargo shipments~~strong U.S. and ~~an increase in ocean loads as a percentage~~global economic recoveries coupled with the impact of ~~loads hauled by multimode capacity providers, as ocean loads typically generate a higher revenue per load compared to loads hauled by rail or air cargo carriers. Also, revenue~~supply chain disruptions. 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.

2726

Purchased transportation was ~~77.1%~~78.2% and ~~76.5%~~77.1% of revenue in the ~~2020~~2021 and ~~2019~~2020 thirteen-week periods, respectively. The increase in purchased transportation as a percentage of revenue was primarily due to an increased rate of purchased transportation on revenue generated by Truck Brokerage Carriers and an increased percentage of revenue contributed by Truck Brokerage Carriers, which typically has a higher rate of purchased transportation than revenue generated by BCO Independent Contractors, partially offset by a decrease in purchased transportation paid on BCO Independent Contractor revenue due to the impact of

COVID-19

pandemic relief incentive ~~payments.~~payments in the 2020 thirteen-week period. Under that program, for each load delivered by a BCO Independent Contractor with a confirmed delivery date from April 1, 2020 through May 30, 2020, the Company paid each of the BCO Independent Contractor who hauled the load and the independent commission sales agent who dispatched the load an extra $50. Commissions to agents were ~~9.1%~~7.7% and ~~8.4%~~9.1% of revenue in the ~~2020~~2021 and ~~2019~~2020 thirteen-week periods, respectively. The ~~increase~~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 and a decreased commission rate paid on revenue generated by BCO Independent Contractors due to the impact of

COVID-19

pandemic relief incentive payments to ~~agents.~~agents during the 2020 period and the elimination as of the end of the 2020 fiscal year of certain incentive commission arrangements formerly paid to agents relating to a discontinued BCO recruitment and retention program. The Company paid a total of $12,593,000 in

COVID-19

pandemic relief incentive payments during the 2020 thirteen-week period.

Investment income was ~~$835,000~~$748,000 and ~~$1,283,000~~$835,000 in the ~~2020~~2021 and ~~2019~~2020 thirteen-week periods, respectively. The decrease in investment income was primarily attributable to lower average rates of return on investments in the ~~2020~~2021 thirteen-week period, ~~and~~partially offset by a ~~lower~~higher average investment balance held by the insurance segment in the ~~2020~~2021 thirteen-week period.

Other operating costs ~~decreased $2,493,000~~increased $1,535,000 in the ~~2020~~2021 thirteen-week period compared to the ~~2019~~2020 thirteen-week period and represented 4.0% of gross profit in the 2021 period compared to 6.6% of gross profit in the 2020 ~~period compared to 6.2% of gross profit in the 2019~~ period. The ~~decrease~~increase in other operating costs compared to the prior year was primarily due to ~~a decreased provision for contractor bad debt, decreased BCO Independent Contractor recruiting~~increased trailing equipment maintenance costs, increased BCO recruiting and qualification costs and decreased gains on ~~the~~ sales of used trailing ~~equipment and decreased trailer rental expense.~~equipment. The ~~increase~~decrease in other operating costs as a percentage of gross profit was caused by the effect of ~~decreased~~increased gross profit, partially offset by the ~~decrease~~increase in other operating costs.

Insurance and claims increased ~~$3,465,000~~$4,373,000 in the ~~2020~~2021 thirteen-week period compared to the ~~2019~~2020 thirteen-week period and represented 10.9% of gross profit in the 2021 period compared to 17.5% of gross profit in the 2020 ~~period compared to 10.3% of gross profit in the 2019~~ period. The increase in insurance and claims expense compared to the prior year was primarily due to increased severity of current year claims in the 2021 period, an increase in BCO miles traveled in the 2021 period, as well as an increase in insurance premiums, primarily for commercial trucking liability coverage, partially offset by decreased net unfavorable development of prior years’ claims ~~increased insurance premiums incurred in May and June for commercial trucking liability coverage following the Company’s May 1, 2020 insurance renewal and increased severity of current year claims~~ in the ~~2020 period, partially offset by reduced frequency of claims in the 2020~~2021 thirteen-week period. During the ~~2020~~2021 and ~~2019~~2020 thirteen-week periods, insurance and claims costs included ~~$2,816,000~~$1,272,000 and ~~$1,493,000~~$2,816,000 of net unfavorable adjustments to prior years’ claims estimates, respectively. The ~~increase~~decrease in insurance and claims as a percent of gross profit was caused by the effect of ~~decreased~~increased gross profit, ~~and~~partially offset by the increase in insurance and claims costs.

Selling, general and administrative costs ~~decreased $696,000~~increased $13,513,000 in the ~~2020~~2021 thirteen-week period compared to the ~~2019~~2020 thirteen-week period and represented 24.5% of gross profit in the 2021 period compared to 35.9% of gross profit in the 2020 ~~period compared to 26.1% of gross profit in the 2019~~ period. The ~~decrease~~increase in selling, general and administrative costs compared to prior year was attributable to ~~decreased agent convention costs~~an increased provision for incentive compensation and ~~decreased travel and entertainment costs related to the impact of the~~

~~COVID-19~~

~~pandemic and decreased~~increased stock-based compensation expense, partially offset by ~~an increased provision for incentive compensation, an increased~~a decreased provision for customer bad ~~debt, and increased information technology costs.~~debt. Included in selling, general and administrative costs was incentive compensation expense of ~~$2,026,000~~$8,326,000 and ~~$873,000~~$2,026,000 for the ~~2020~~2021 and ~~2019~~2020 thirteen-week periods, respectively, and stock-based compensation expense of ~~$570,000~~$6,864,000 and ~~$1,430,000~~$570,000 for the ~~2020~~2021 and ~~2019~~2020 thirteen-week periods, respectively. The ~~increase~~decrease in selling, general and administrative costs as a percent of gross profit was due to the effect of ~~decreased~~increased gross profit, partially offset by the ~~decrease~~increase in selling, general and administrative costs.

Depreciation and amortization increased ~~$433,000~~$676,000 in the ~~2020~~2021 thirteen-week period compared to the ~~2019~~2020 thirteen-week period and represented 5.5% of gross profit in the 2021 period compared to 10.1% of gross profit in the 2020 ~~period compared to 7.0% of gross profit in the 2019~~ period. The increase in depreciation and amortization expenses was primarily due to increased depreciation on information technology ~~assets, partially offset by a~~assets. The decrease ~~in trailing equipment depreciation. The increase~~ in depreciation and amortization as a percentage of gross profit was due to the effect of ~~decreased~~increased gross profit, partially offset by the increase in depreciation and ~~increased depreciation.~~amortization.

During the 2020 second fiscal quarter, the Company recorded a

non-cash

impairment charge of $2,582,000 in respect of certain assets, primarily customer contract and related customer relationship intangible assets, acquired on September 20, 2017, along with substantially all of the other assets of the asset-light transportation logistics business of Fletes Avella. ~~As previously disclosed in Item 1A. Risk Factors~~

Interest and debt expense in the ~~Company’s Form~~2021 thirteen-week period decreased $9,000 compared to the 2020 thirteen-week period.

~~10-Q~~

The provisions for income taxes for the 2021 and 2020 ~~first quarter, negative macroeconomic trends in Mexico, including issues~~thirteen-week periods were based on estimated annual effective income tax rates of 24.4% and 24.2%, respectively, adjusted for discrete events, such as benefits resulting from stock-based awards. The increase in the ~~international oil and gas sector, have caused significant disruptions in~~estimated annual effective income tax rate was primarily attributable to an increased provision for nondeductible executive compensation during the ~~Mexican economy. Accordingly, management performed impairment tests of~~2021 period. The effective income tax rate for the ~~carrying values of certain assets that primarily relate to intra-Mexico business acquired as a part of the Fletes Avella acquisition. The~~2021 thirteen-week period was 23.9%, which was higher than

2827

~~impairment tests resulted in an impairment charge of $2,582,000, as~~ the negative macroeconomic trends in Mexico have caused current financial projections relating to these intangible assets to be substantially below those originally anticipated at the acquisition date. There was no corresponding goodwill impairment charge recorded as the fair value of the Company’s Mexico and cross-border reporting unit continues to significantly exceed its carrying value as of June 27, 2020.

Interest and debt expense in the 2020 thirteen-week period increased $267,000 compared to the 2019 thirteen-week period. The increase in interest and debt expense was primarily attributable to decreased interest income earned on cash balances held by the transportation logistics segment.

~~The provisions for income taxes for the 2020 and 2019 thirteen-week periods were each based on an estimated annual effective~~statutory federal income tax rate of ~~24.2%, adjusted for discrete events, such as~~21% primarily attributable to state taxes and nondeductible executive compensation, partially offset by excess tax benefits ~~resulting from~~realized on stock-based awards. The effective income tax rate for the 2020 thirteen-week period was 22.3%, which was higher than the statutory federal income tax rate of 21% primarily attributable to state taxes and the meals and entertainment exclusion, partially offset by state tax refunds received during the 2020 thirteen-week period and excess tax benefits realized on ~~stock~~

~~based~~stock-based awards. The effective income tax rate ~~for~~in the ~~2019~~2021 thirteen-week period of 23.9% was ~~23.8%, which was higher~~lower than the ~~statutory federal~~24.4% estimated annual effective income tax rate ~~of 21%~~ primarily ~~attributable~~due to ~~state taxes and the meals and entertainment exclusion, partially offset by~~ excess tax benefits ~~realized~~recognized on ~~stock~~

~~based awards.~~stock-based compensation arrangements in the 2021 thirteen-week period. The effective income tax rate in the 2020 thirteen-week period of 22.3% was lower than the 24.2% estimated annual effective income tax rate primarily due to the impact of the state tax refund and excess tax benefits recognized on stock-based compensation arrangements in the 2020 thirteen-week period. ~~The effective~~

Net income ~~tax rate~~was $92,294,000, or $2.40 per diluted share, in the ~~2019~~2021 thirteen-week ~~period of 23.8% 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.

Net income was $24,254,000, or $0.63 per ~~common~~diluted share, ~~($0.63 per diluted share),~~ in the 2020 thirteen-week period. Net income ~~attributable to~~during the ~~Company was $61,100,000 or $1.53 per common share ($1.53 per diluted share), in the 2019~~2020 thirteen-week ~~period. Net income~~period was unfavorably impacted by approximately $12,593,000,

~~$0.25 per common share ($0.25~~ $0.25 per diluted ~~share), during the 2020 thirteen-week period,~~share, related to the impact of the

COVID-19

pandemic relief

incentive

payments.

CAPITAL RESOURCES AND LIQUIDITY

Working capital and the ratio of current assets to current liabilities were ~~$366,892,000~~$513,051,000 and ~~1.8~~1.7 to 1, respectively, at June ~~27, 2020,~~26, 2021, compared with ~~$444,984,000~~$402,038,000 and ~~1.8~~1.5 to 1, respectively, at December ~~28, 2019.~~26, 2020. 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 $137,176,000 in the 2021

twenty-six-week

period compared with $198,385,000 in the 2020

twenty-six-week

~~period compared with $184,076,000 in the 2019~~

~~twenty-six-week~~

period. The ~~increase~~decrease in cash flow provided by operating activities was primarily attributable to ~~favorable working capital adjustments including timing~~the 63% increase in revenue year-over-year, which increased net receivables, defined as accounts receivable less accounts payable.

The Company declared and paid $0.42 per share, or $16,135,000 in the aggregate, in cash dividends during the

twenty-six-week

period ended June 26, 2021 and, during such period, also paid $76,770,000 of ~~collections of receivables~~dividends payable which were declared during fiscal year 2020 and ~~payments of accounts payable, partially offset by decreased net income.~~

included in current liabilities in the consolidated balance sheet at December 26, 2020. The Company declared and paid $0.37 per share, or $14,435,000 in the aggregate, in cash dividends during the

twenty-six-week

period ended June 27, 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 $0.33 per share, or $13,257,000 in the aggregate, in cash dividends during~~During the

twenty-six-week

period ended June ~~29, 2019.~~26, 2021, the Company purchased 150,000 shares of its common stock at a total cost of $23,837,000. During the

twenty-six-week

period ended June 27, 2020, the Company purchased 1,178,970 shares of its common stock at a total cost of $115,962,000. ~~During the~~

~~twenty-six-week~~

~~period ended June 29, 2019, the Company purchased 674,410 shares of its common stock at a total cost of $69,729,000.~~ As of June ~~27, 2020,~~26, 2021, the Company may purchase in the aggregate up to ~~1,821,030~~1,671,030 shares of its common stock under its authorized stock purchase program. Long-term debt, including current maturities, was ~~$98,371,000~~$81,631,000 at June ~~27, 2020, $14,473,000~~26, 2021, $19,143,000 lower than at December ~~28, 2019.~~26, 2020.

Shareholders’ equity was ~~$649,121,000,~~$830,173,000, or ~~87%~~91% of total capitalization (defined as long-term debt including current maturities plus equity), at June ~~27, 2020,~~26, 2021, compared to ~~$721,469,000,~~$691,835,000, or ~~86%~~87% of total capitalization, at December ~~28, 2019.~~26, 2020. The ~~decrease~~increase in shareholders’ equity was primarily the result of net income, partially offset by purchases of shares of the Company’s common stock and dividends declared by the Company in the ~~2020~~2021

twenty-six-week

~~period, partially offset by net income.~~period.

On ~~June 2, 2016,~~August 18, 2020, Landstar entered into aan amended and restated 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,~~August 18, 2023, provides $250,000,000 of borrowing capacity in the form of a revolving credit facility, ~~$50,000,000~~$35,000,000 of which may be utilized in the form of ~~letter~~letters of ~~credit guarantees.~~credit. The Credit Agreement includes an “accordion” feature providing for a possible increase up to an aggregate borrowing ~~amount~~capacity of $400,000,000. ~~The Company’s prior credit agreement was terminated on June 2, 2016.~~

At June ~~27, 2020,~~26, 2021, the Company had no borrowings outstanding and ~~$34,156,000~~$33,579,000 of letters of credit outstanding under the Credit Agreement. At June ~~27, 2020,~~26, 2021, there was ~~$215,844,000~~$216,421,000 available for future borrowings under the Credit Agreement. In addition, the Company has ~~$61,503,000~~$65,434,000 in letters of credit outstanding as collateral for insurance claims that are secured by investments totaling ~~$68,337,000~~$72,704,000 at June ~~27, 2020.~~26, 2021. 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 to Consolidated Financial 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 ~~2020~~2021

twenty-six-week

period, the Company purchased ~~$17,676,000~~$9,000,000 of operating property. ~~In addition, during the 2020~~

~~twenty-six~~

week period Landstar acquired $1,440,000 of operating property for which the Company accrued a corresponding liability in accounts payable as of June 27, 2020. In addition, on June 15, 2020, Landstar Blue completed the acquisition of an independent agent of the Company. Cash consideration paid for the acquisition was approximately $2,701,000. Landstar anticipates acquiring either by purchase or lease financing during the remainder of fiscal year ~~2020~~2021 approximately ~~$51,000,000~~$102,000,000 in operating property, consisting primarily of new trailing equipment to replace older trailing equipment and information technology equipment.

Management believes 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 ~~programs~~program and meet working capital needs.

LEGAL MATTERS

~~sua sponte~~

, issued an order striking the first amended complaint that was deemed by the Court to have been filed by the plaintiff on March 23, 2020. On July 6, 2020, the plaintiff filed a voluntary dismissal without prejudice of all remaining claims relating to this action. On July 15, the Court issued an order granting the voluntary dismissal of this action in full.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

twenty-six-week

periods, insurance and claims costs included ~~$5,039,000~~$980,000 and ~~$2,900,000~~$5,039,000 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 liability at June ~~27, 2020.~~26, 2021.

Significant variances from management’s estimates for the ultimate resolution of self-insured claims could 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. 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, if any, and investing activities with respect to investments held by the insurance segment.

~~Depending upon the specific type of borrowing, borrowings~~The revolving credit loans under the Credit Agreement, at the option of Landstar, bear interest at (i) the Eurocurrency rate plus an applicable margin ranging from 1.25% to 2.00%, or (ii) an alternate base rate plus an applicable margin ranging from 0.25% to 1.00%, in each case with the applicable margin determined based upon the Company’s Leverage Ratio, as defined in the Credit Agreement, at the end of the most recent applicable fiscal quarter for which financial statements have been delivered. The revolving credit facility bears a commitment fee, payable in arrears, of 0.25% to 0.35%, based on ~~either (a)~~ the ~~prime rate, (b)~~Company’s Leverage Ratio at the ~~Federal Reserve Bank~~end of ~~New York rate plus 0.5% or (c)~~ the ~~London Interbank Offered Rate, plus 1.25%.~~most recent applicable fiscal quarter for which financial statements have been delivered. As of June ~~27, 2020~~26, 2021 and during the entire ~~2020~~2021 second 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 ~~$84,394,000,~~$119,987,000, the balance at June ~~27, 2020,~~26, 2021, 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.

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 June ~~27, 2020~~26, 2021 were collectively, as translated to U.S. dollars, approximately 3%2% of total consolidated assets. Accordingly, translation gains or losses of ~~25%~~50% 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 the 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 June ~~27, 2020~~26, 2021 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~~second quarter ~~ended June 27, 2020~~of 2021, which were identified in connection with management’s evaluation required by paragraph (d) of Rules

13a-15

and

15d-15

under the Securities Exchange Act of 1934, as amended, 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

~~On January 25, 2019, a purported class action was filed in the Superior Court~~See Part I, Item 2, “

Management’s Discussion and Analysis of ~~the State~~Financial Condition and Results of California for the County of San Bernardino against Landstar System, Inc. and Landstar Ranger, Inc. (together, the “Defendants”). The complaint purported to bring this action on behalf of Hany Tanious, as an individual, and “all owner operators who performed work for the Defendants, and who were classified as independent contractors, during the four years preceding the filing of this action through the present.” The complaint asserted claims based on the alleged misclassification of Mr. Tanious as an independent contractor and alleged violations under California law relating to overtime, minimum wage, meal and rest breaks, failure to reimburse certain expenses, wage statements, waiting time and unfair competition. Mr. Tanious was a truck owner-operator and formerly an independent contractor who was a party to an independent contractor operating agreement with Landstar Ranger, Inc. On June 11, 2019, the Defendants filed a Notice of Removal that resulted in the removal of the case from state court to federal court, where it was assigned to Judge Dale S. Fischer of the United State District Court for the Central District of California. On August 22, 2019, the Court issued an order, among other things, striking all class allegations from the complaint and stating that this matter would proceed as an individual action. On June 15, 2020, the Court issued an order granting the Defendants’ motion to transfer venue to the United States District Court for the Middle District of Florida, where the matter was assigned to Judge Marcia Morales Howard. On June 24, 2020, the Court,

~~sua sponte~~Operations — Legal Matters

, issued an order striking the first amended complaint that was deemed by the Court to have been filed by the plaintiff on March 23, 2020. On July 6, 2020, the plaintiff filed a voluntary dismissal without prejudice of all remaining claims relating to this action. On July 15, 2020 the Court issued an order granting the voluntary dismissal of this action in full.”

~~Table of Contents~~

Item 1A. Risk Factors

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~~26, 2020 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 continued into the summer months.~~

The situation with respect to the COVID-19 pandemic continues to evolve rapidly and its effects, both short and long-term, remain unknown. Economic disruptions and other effects on the global or domestic economies caused by the COVID-19 pandemic

~~could have a material adverse impact on the demand for our services and our ability to obtain financing on favorable terms or at all.~~

~~In connection with the impact of the~~

~~COVID-19~~

pandemic, the Company experienced a significant decline in truckload volumes during its fiscal quarter ended June 27, 2020. The number of loads hauled via truck was below the prior year comparable period by 21

~~, 21~~

~~and 9~~

~~for April, May and June, respectively. The extent to which the~~

~~COVID-19~~

pandemic impacts the Company’s results 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 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.

~~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 has caused significant disruptions in the Mexican economy. During the first half of the Company’s 2020 fiscal year, 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.

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 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 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~~provides for a limit for a single loss of $5,000,000, with an aggregate limit of ~~$10,000,000~~$15,000,000 for each policy year, an aggregate limit of ~~$15,000,000~~$20,000,000 for the

thirty-six

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

pre-established

~~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.~~

~~Table of Contents~~

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~~

pre-established

amount of additional premium, Landstar would retain liability of up to $10,000,000 per occurrence, inclusive of its $5,000,000 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 provided for and included in insurance and claims costs for the Company’s 2020 fiscal first quarter.

Effective May 1, ~~2020~~2021, with respect to the annual policy year ending April 30, 2022, as compared to the annual policy year ended April 30, 2021, the Company experienced an increase of approximately $3 million, or 19%, in the premiums charged by third party insurance companies to the Company for excess coverage for commercial trucking liabilities in excess of $10,000,000. With respect to the annual policy year ending April 30, 2021, as compared to the annual policy year ended April 30, 2020, the Company experienced an increase of approximately $14 million, or over 170%, in the premiums charged by third party insurance companies to the Company for excess coverage for commercial trucking liabilities in excess of $10,000,000. ~~No assurances can be given that~~Moreover, the Company has increased the level of its financial exposure to commercial trucking claims in excess of $10,000,000 through the use of additional self-insurance, deductibles, aggregate loss limits, quota shares and other arrangements with third party insurance companies, based on the availability of coverage within certain excess insurance coverage layers and estimated cost differentials between proposed premiums from third party insurance companies and historical and actuarially projected losses experienced by the Company at various levels of excess insurance coverage. The availability of excess coverage for commercial trucking claims ~~will not~~could continue to deteriorate, ~~that~~ the pricing associated with such excess coverage, to the extent available, ~~will not~~could continue to increase, ~~nor that~~and insurance coverage from third party insurers for excess coverage of commercial trucking claims ~~will even~~may not be available on commercially reasonable terms at certain levels. If any claim occurrence were to exceed our excess coverage limits under our third party insurance arrangements, such claim could have a material adverse effect on Landstar’s financial condition and results of operations.

Further, 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. 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 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.~~

~~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

3431

Table of Contents

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 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.

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

Purchases of Equity Securities by the Company

The ~~Company did not~~following table provides information regarding the Company’s purchase ~~any shares~~ of its common stock during the period from March ~~29, 2020~~28, 2021 to June ~~27, 2020,~~26, 2021, the Company’s second fiscal ~~quarter.~~quarter:


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
March 27, 2021								1,821,030
March 28, 2021 – April 24, 2021		—	$	—		—		1,821,030
April 25, 2021 – May 22, 2021		—		—		—		1,821,030
May 23, 2021 – June 26, 2021		150,000		158.91		150,000		1,671,030

Total		150,000	$	158.91		150,000

On December 9, 2019, the Landstar System, Inc. Board of Directors authorized the Company to purchase up to 1,849,068 shares of the Company’s common stock from time to time in the open market and in privately negotiated transactions. As of June ~~27, 2020,~~26, 2021, the Company had authorization to purchase in the aggregate up to ~~1,821,030~~1,671,030 shares of its common stock under this program. No specific expiration date has been assigned to the December 9, 2019 authorization.

Dividends

On ~~June 2, 2016,~~August 18, 2020, Landstar entered into aan amended and restated credit agreement with a syndicate of banks and JPMorgan Chase Bank, N.A., as administrative agent (the “Credit Agreement”). The Credit Agreement provides for a restriction on cash dividends and other distributions to stockholders on the Company’s capital stock in the event 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, as defined in the Credit Agreement, would exceed 2.5 to 1 on a pro forma basis as of the end of the Company’s most recently completed fiscal quarter.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

The exhibits listed on the Exhibit Index are furnished as part of this quarterly report on Form

10-Q.

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Table of Contents

EXHIBIT INDEX

Registrant’s Commission File No.:

0-21238


Exhibit No.		Description

(10)		~~Material Contracts.~~

10.1+*		Letter agreement, dated May 20, 2021, between Landstar System, Inc. ~~2011 Equity Incentive Plan, as amended through March 12, 2020 (Incorporated by reference to Appendix A to the Registrant’s Definitive Proxy Statement filed on April 6, 2020 (Commission File~~ ~~No. 0-21238))~~and Fred L. Pensotti

(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*		Inline XBRL Instance ~~Document -~~ 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*		Inline XBRL Taxonomy Extension Schema Document

101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document

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)

+ management contract or compensatory plan or arrangement

* Filed herewith

+	~~Management contract or compensatory plan or arrangement~~

*	~~Filed herewith~~

**	** Furnished herewith

3633

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		LANDSTAR SYSTEM, INC.

Date: July ~~31, 2020~~30, 2021		/s/ James B. Gattoni
		James B. Gattoni
		President and Chief Executive Officer
	~~Chief Executive Officer~~

Date: July ~~31, 2020~~30, 2021		/s/ Federico L. ~~Kevin Stout~~Pensotti
		Federico L. ~~Kevin Stout~~Pensotti
		Vice President and Chief
		Financial Officer

3734


	June 27, 2020			December 28, 2019

ASSETS
Current Assets
Cash and cash equivalents	$	245,471		$	319,515
Short-term investments		36,274			32,901
Trade accounts receivable, less allowance of $8,580 and $7,284		489,182			588,549
Other receivables, including advances to independent contractors, less allowance of $9,241 and $7,667		27,861			35,553
Other current assets		41,564			21,370

Total current assets		840,352			997,888

Operating property, less accumulated depreciation and amortization of $288,055 and $280,849		284,794			285,855
Goodwill		40,071			38,508
Other assets		106,893			105,460

Total assets	$	1,272,110		$	1,427,711


LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Cash overdraft	$	35,534		$	53,878
Accounts payable		273,324			271,996
Current maturities of long-term debt		38,219			42,632
Insurance claims		53,764			44,532
Dividends payable		—			78,947
Contractor escrow		25,774			24,902
Other current liabilities		46,845			36,017

Total current liabilities		473,460			552,904

Long-term debt, excluding current maturities		60,152			70,212
Insurance claims		34,762			33,575
Deferred income taxes and other noncurrent liabilities		54,615			49,551

Shareholders’ Equity
Common stock, $0.01 par value, authorized 160,000,000 shares, issued 68,176,787 and 68,083,419 shares		682			681
Additional paid-in capital		225,332			226,123
Retained earnings		2,012,173			1,962,161
Cost of 29,797,328 and 28,609,926 shares of common stock in treasury		(1,581,921	)		(1,465,284	)
Accumulated other comprehensive loss		(7,145	)		(2,212	)

Total shareholders’ equity		649,121			721,469

Total liabilities and shareholders’ equity	$	1,272,110		$	1,427,711


	Twenty Six Weeks Ended
	June 27, 2020			June 29, 2019
OPERATING ACTIVITIES
Net income	$	65,149		$	124,400
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of operating property and intangible assets		22,972			22,350
Non-cash interest charges		126			126
Provisions for losses on trade and other accounts receivable		6,528			4,194
Gains on sales/disposals of operating property		(1,812	)		(1,219	)
Impairment of intangible and other assets		2,582			—
Deferred income taxes, net		6,228			5,060
Stock-based compensation		1,201			3,368
Changes in operating assets and liabilities:
Decrease in trade and other accounts receivable		99,601			89,820
Increase in other assets		(24,809	)		(22,808	)
Decrease in accounts payable		(31	)		(28,565	)
Increase (decrease) in other liabilities		10,231			(14,315	)
Increase in insurance claims		10,419			1,665

NET CASH PROVIDED BY OPERATING ACTIVITIES		198,385			184,076

INVESTING ACTIVITIES
Net changes in other short-term investments		131			—
Sales and maturities of investments		14,897			41,345
Purchases of investments		(16,382	)		(42,812	)
Purchases of operating property		(17,676	)		(9,224	)
Proceeds from sales of operating property		4,465			3,219
Consideration paid for acquisition		(2,701	)		—

NET CASH USED BY INVESTING ACTIVITIES		(17,266	)		(7,472	)

FINANCING ACTIVITIES
Decrease in cash overdraft		(18,344	)		(11,719	)
Dividends paid		(93,382	)		(13,257	)
Proceeds from exercises of stock options		614			343
Taxes paid in lieu of shares issued related to stock-based compensation plans		(3,280	)		(8,438	)
Purchases of common stock		(115,962	)		(69,729	)
Principal payments on finance lease obligations		(21,958	)		(23,658	)
Purchase of noncontrolling interest		—			(600	)

NET CASH USED BY FINANCING ACTIVITIES		(252,312	)		(127,058	)

Effect of exchange rate changes on cash and cash equivalents		(2,851	)		930

(Decrease) increase in cash and cash equivalents		(74,044	)		50,476
Cash and cash equivalents at beginning of period		319,515			199,736

Cash and cash equivalents at end of period	$	245,471		$	250,212


	Common Stock				Additional Paid-In			Retained			Treasury Stock at Cost					Accumulated Other Comprehensive
	Shares		Amount		Capital			Earnings			Shares		Amount			(Loss) Income			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 4 )									(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


Net income									24,254											24,254

Dividends ($0.185 per share)									(7,099	)										(7,099	)

Issuance of stock related to stock-based compensation plans		9,305		—		(211	)					354		(36	)					(247	)

Stock-based compensation						570														570

Other comprehensive income																	4,548			4,548


Balance June 27, 2020		68,176,787	$	682	$	225,332		$	2,012,173			29,797,328	$	(1,581,921	)	$	(7,145	)	$	649,121


	Number of RSUs			Weighted Average Grant Date Fair Value
Outstanding at December 28, 2019		198,875		$	84.37
Granted		59,478		$	102.66
Shares earned in excess of target (1)		11,648		$	77.00
Vested shares, including shares earned in excess of target		(76,290	)	$	73.44
Forfeited		(10,987	)	$	100.55

Outstanding at June 27, 2020		182,724		$	93.44


	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		(16,517	)	$	47.70

Options outstanding at June 27, 2020		27,950		$	53.33		2.1	$	1,514
Options exercisable at June 27, 2020		27,950		$	53.33		2.1	$	1,514


	Number of Shares and Deferred Stock Units			Weighted Average Grant Date Fair Value
Non-vested at December 28, 2019		64,808		$	98.24
Granted		26,604		$	111.88
Vested		(27,619	)	$	98.91
Forfeited		(2,351	)	$	106.34

Non-vested at June 27, 2020		61,442		$	103.54


	Twenty Six Weeks Ended
	June 27, 2020						June 29, 2019
	Transportation Logistics		Insurance		Total		Transportation Logistics		Insurance		Total
External revenue	$	1,723,682	$	27,398	$	1,751,080	$	2,049,777	$	28,263	$	2,078,040
Internal revenue				35,834		35,834				27,367		27,367
Investment income				2,002		2,002				2,421		2,421
Operating income		76,518		9,668		86,186		135,919		25,828		161,747
Expenditures on long-lived assets		17,676				17,676		9,224				9,224
Goodwill		40,071				40,071		38,407				38,407

	Thirteen Weeks Ended
	June 27, 2020						June 29, 2019
	Transportation Logistics		Insurance		Total		Transportation Logistics		Insurance		Total
External revenue	$	809,798	$	13,716	$	823,514	$	1,030,816	$	14,224	$	1,045,040
Internal revenue				26,755		26,755				17,753		17,753
Investment income				835		835				1,283		1,283
Operating income		21,474		10,707		32,181		68,336		12,515		80,851
Expenditures on long-lived assets		11,877				11,877		4,648				4,648


	Unrealized Holding Gains on Available-for-Sale Securities		Foreign Currency Translation			Total
Balance as of December 28, 2019	$	1,120	$	(3,332	)	$	(2,212	)
Other comprehensive gain (loss)		1,237		(6,170	)		(4,933	)

Balance as of June 27, 2020	$	2,357	$	(9,502	)	$	(7,145	)


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
June 27, 2020
Money market investments	$	14,038	$	—	$	—	$	14,038
Asset-backed securities		569		—		84		485
Corporate bonds and direct obligations of
government agencies		100,722		3,261		316		103,667
U.S. Treasury obligations		2,337		141		—		2,478

Total	$	117,666	$	3,402	$	400	$	120,668

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 obligation s		2,335		12		5		2,342

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


	Finance Leases		Operating Leases
2020 Remainder	$	22,849	$	340
2021		32,858		643
2022		23,709		645
2023		16,686		515
2024		6,742		448
Thereafter		793		92

Total future minimum lease payments		103,637		2,683
Less amount representing interest (2.1% to 4.4%)		5,266		221

Present value of minimum lease payments	$	98,371	$	2,462


Current maturities of long-term debt		38,219
Long-term debt, excluding current maturities		60,152
Other current liabilitie s				648
Deferred income taxes and other noncurrent liabilities				1,814

Operating lease
right-of-use
assets

Other assets

Finance lease asset
s

Operating property, less accumulated depreciation and amortization

Total lease assets