UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM10-Q

 

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended SeptemberMarch 30, 20172019

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                    

Commission File Number:     0-21238

 

 

 

LOGOLOGO

LANDSTAR SYSTEM, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware 06-1313069

(State or other jurisdiction

(I.R.S. Employer
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 StockLSTRNASDAQ

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:

Yes        No   ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files):

Yes        No     ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or 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 Rule12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

   Accelerated filer

Non-accelerated filer   ☐

  ☐  (Do not check if a smaller reporting company) Smaller reporting company
   Emerging growth company

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).

Yes   ☐     No    

The number of shares of the registrant’s common stock, par value $0.01 per share, outstanding as of the close of business on October 23, 2017April 22, 2019 was 41,965,797.40,162,360.

 

 

 


Index

 

PART I – Financial Information

Item 1.Financial Statements (unaudited)

  

Consolidated Balance Sheets as of SeptemberMarch 30, 20172019 and December  31, 201629, 2018

   Page 4 

Consolidated Statements of Income for the Thirty Nine and Thirteen Weeks Ended SeptemberMarch  30, 20172019 and September 24, 2016March 31, 2018

   Page 5 

Consolidated Statements of Comprehensive Income for the Thirty Nine and Thirteen Weeks Ended SeptemberMarch 30, 20172019 and September 24, 2016March 31, 2018

   Page 6 

Consolidated Statements of Cash Flows for the Thirty NineThirteen Weeks Ended SeptemberMarch 30, 20172019 and September 24, 2016March 31, 2018

   Page 7 

Consolidated StatementStatements of Changes in Equity for the Thirty NineThirteen Weeks Ended SeptemberMarch 30, 20172019 and March 31, 2018

   Page 8 

Notes to Consolidated Financial Statements

   Page 9 

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

   Page 16 

Item 3.Quantitative and Qualitative Disclosures About Market Risk

   Page 2826 

Item 4.Controls and Procedures

   Page 2826 

PART II –Other Information

Item 1. Legal Proceedings

   Page 2927 

Item 1A. Risk Factors

   Page 2927 

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

   Page 2927 

Item 6. Exhibits

   Page 3028 

Signatures

   Page 3230 

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

  

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 equity for the periods presented. They have been prepared in accordance with Rule10-01 of RegulationS-X and do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. Operating results for the thirty-ninethirteen weeks ended SeptemberMarch 30, 20172019 are not necessarily indicative of the results that may be expected for the entire fiscal year ending December 30, 2017.28, 2019.

These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s 20162018 Annual Report on Form10-K.

LANDSTAR SYSTEM, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share amounts)

(Unaudited)

 

  September 30,
2017
 December 31,
2016
   March 30,
2019
 December 29,
2018
 
ASSETS         

Current Assets

      

Cash and cash equivalents

  $249,741  $178,897   $264,625  $199,736 

Short-term investments

   45,687  66,560    39,958  40,058 

Trade accounts receivable, less allowance of $6,163 and $5,161

   546,826  463,102 

Other receivables, including advances to independent contractors, less allowance of $6,306 and $5,523

   18,704  18,567 

Trade accounts receivable, less allowance of $7,144 and $6,413

   601,128  691,604 

Other receivables, including advances to independent contractors, less allowance of $6,907 and $6,216

   27,565  23,744 

Other current assets

   16,925  10,281    10,919  16,287 
  

 

  

 

   

 

  

 

 

Total current assets

   877,883  737,407    944,195  971,429 
  

 

  

 

   

 

  

 

 

Operating property, less accumulated depreciation and amortization of $210,018 and $190,374

   261,465  272,843 

Operating property, less accumulated depreciation and amortization of $256,707 and $250,153

   276,193  284,032 

Goodwill

   39,914  31,134    38,343  38,232 

Other assets

   84,077  55,207    92,208  86,871 
  

 

  

 

   

 

  

 

 

Total assets

  $1,263,339  $1,096,591   $1,350,939  $1,380,564 
  

 

  

 

   

 

  

 

 
LIABILITIES AND EQUITY         

Current Liabilities

      

Cash overdraft

  $33,853  $36,251   $41,519  $55,339 

Accounts payable

   269,389  219,409    273,181  314,134 

Current maturities of long-term debt

   40,610  45,047    41,184  43,561 

Insurance claims

   34,211  26,121    40,270  40,176 

Accrued compensation

   9,647  29,489 

Contractor escrow

   25,383  25,202 

Other current liabilities

   68,854  53,483    42,060  27,917 
  

 

  

 

   

 

  

 

 

Total current liabilities

   446,917  380,311    473,244  535,818 
  

 

  

 

   

 

  

 

 

Long-term debt, excluding current maturities

   76,792  93,257    75,246  84,864 

Insurance claims

   32,804  26,883    29,776  30,429 

Deferred income taxes and other noncurrent liabilities

   52,853  53,583    44,413  40,320 

Equity

      

Landstar System, Inc. and subsidiary shareholders’ equity

   

Common stock, $0.01 par value, authorized 160,000,000 shares, issued 67,715,290 and 67,585,675 shares

   677  676 

Landstar System, Inc. and subsidiary shareholders’ equity Common stock, $0.01 par value, authorized 160,000,000 shares, issued 68,047,041 and 67,870,962 shares

   680  679 

Additional paid-in capital

   205,396  199,414    223,551  226,852 

Retained earnings

   1,613,590  1,512,993    1,897,967  1,841,279 

Cost of 25,749,493 and 25,747,541 shares of common stock in treasury

   (1,167,600 (1,167,437

Cost of 27,884,681 and 27,755,001 shares of common stock in treasury

   (1,389,612 (1,376,111

Accumulated other comprehensive loss

   (1,708 (3,089   (4,326 (5,875
  

 

  

 

   

 

  

 

 

Total Landstar System, Inc. and subsidiary shareholders’ equity

   650,355  542,557    728,260  686,824 

Noncontrolling interest

   3,618   —      —    2,309 
  

 

  

 

   

 

  

 

 

Total equity

   653,973  542,557    728,260  689,133 
  

 

  

 

   

 

  

 

 

Total liabilities and equity

  $1,263,339  $1,096,591   $1,350,939  $1,380,564 
  

 

  

 

   

 

  

 

 

See accompanying notes to consolidated financial statements.

LANDSTAR SYSTEM, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share amounts)

(Unaudited)

 

  Thirty Nine Weeks Ended   Thirteen Weeks Ended   Thirteen Weeks Ended 
  September 30,
2017
 September 24,
2016
   September 30,
2017
 September 24,
2016
   March 30,
2019
 March 31,
2018
 

Revenue

  $2,594,772  $2,274,805   $943,430  $787,938   $1,033,000  $1,047,926 

Investment income

   1,733  1,100    711  357    1,138  861 

Costs and expenses:

         

Purchased transportation

   1,989,938  1,730,745    726,827  601,002    791,755  810,297 

Commissions to agents

   210,678  189,075    76,598  65,144    85,671  82,125 

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

   22,497  21,484    8,097  7,492    8,239  7,604 

Insurance and claims

   46,333  42,795    17,927  12,488    14,993  17,360 

Selling, general and administrative

   123,179  106,211    43,995  34,692    41,268  45,251 

Depreciation and amortization

   29,961  26,109    10,130  9,016    11,316  10,997 
  

 

  

 

   

 

  

 

   

 

  

 

 

Total costs and expenses

   2,422,586  2,116,419    883,574  729,834    953,242  973,634 
  

 

  

 

   

 

  

 

   

 

  

 

 

Operating income

   173,919  159,486    60,567  58,461    80,896  75,153 

Interest and debt expense

   2,559  2,725    657  948    805  800 
  

 

  

 

   

 

  

 

   

 

  

 

 

Income before income taxes

   171,360  156,761    59,910  57,513    80,091  74,353 

Income taxes

   59,047  58,985    17,490  21,235    16,791  16,880 
  

 

  

 

   

 

  

 

   

 

  

 

 

Net income

   112,313  97,776    42,420  36,278    63,300  57,473 

Less: Net loss attributable to noncontrolling interest

   (23  —      (23  —      (17 (44
  

 

  

 

   

 

  

 

   

 

  

 

 

Net income attributable to Landstar System, Inc. and subsidiary

  $112,336  $97,776   $42,443  $36,278   $63,317  $57,517 
  

 

  

 

   

 

  

 

   

 

  

 

 

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

  $2.68  $2.32   $1.01  $0.86   $1.58  $1.37 
  

 

  

 

   

 

  

 

   

 

  

 

 

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

  $2.67  $2.31   $1.01  $0.86   $1.58  $1.37 
  

 

  

 

   

 

  

 

   

 

  

 

 

Average number of shares outstanding:

         

Earnings per common share

   41,924,000  42,223,000    41,957,000  42,039,000    40,161,000  42,038,000 
  

 

  

 

   

 

  

 

   

 

  

 

 

Diluted earnings per share

   42,013,000  42,341,000    42,028,000  42,170,000    40,166,000  42,098,000 
  

 

  

 

   

 

  

 

   

 

  

 

 

Dividends per common share

  $0.28  $0.25   $0.10  $0.09   $0.165  $0.150 
  

 

  

 

   

 

  

 

   

 

  

 

 

See accompanying notes to consolidated financial statements.

LANDSTAR SYSTEM, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands)

(Unaudited)

 

  Thirty Nine Weeks Ended   Thirteen Weeks Ended   Thirteen Weeks Ended 
  September 30,
2017
   September 24,
2016
   September 30,
2017
   September 24,
2016
   March 30,
2019
   March 31,
2018
 

Net income attributable to Landstar System, Inc. and subsidiary

  $112,336   $97,776   $42,443   $36,278   $63,317   $57,517 

Other comprehensive income:

        

Unrealized holding gains (losses) on available-for-sale investments, net of tax expense (benefit) of $136, $198, $47 and ($19)

   251    363    86    (34

Foreign currency translation gains (losses)

   1,130    656    545    (181

Other comprehensive income (loss):

    

Unrealized holding gains (losses) onavailable-for-sale investments, net of tax expense (benefit) of $272 and $(191)

   995    (730

Foreign currency translation gains

   554    341 
  

 

   

 

   

 

   

 

   

 

   

 

 

Other comprehensive income (loss)

   1,381    1,019    631    (215   1,549    (389
  

 

   

 

   

 

   

 

   

 

   

 

 

Comprehensive income attributable to Landstar System, Inc. and subsidiary

  $113,717   $98,795   $43,074   $36,063   $    64,866   $    57,128 
  

 

   

 

   

 

   

 

   

 

   

 

 

See accompanying notes to consolidated financial statements.

LANDSTAR SYSTEM, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

 

  Thirty Nine Weeks Ended   Thirteen Weeks Ended 
  September 30,
2017
 September 24,
2016
   March 30,
2019
 March 31,
2018
 

OPERATING ACTIVITIES

      

Net income

  $112,313  $97,776   $63,300  $57,473 

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

      

Depreciation and amortization of operating property and intangible assets

   29,961  26,109    11,316  10,997 

Non-cash interest charges

   189  175    63  63 

Provisions for losses on trade and other accounts receivable

   5,643  4,076    2,150  2,735 

Gains on sales/disposals of operating property

   (900 (3,221   (876 (852

Deferred income taxes, net

   (708 8,925    2,079  (757

Stock-based compensation

   3,660  2,718    1,938  3,710 

Changes in operating assets and liabilities:

      

(Increase) decrease in trade and other accounts receivable

   (89,504 50,957 

(Increase) decrease in other assets

   (8,671 3,820 

Increase (decrease) in accounts payable

   53,290  (25,074

Increase (decrease) in other liabilities

   12,980  (5,436

Increase in insurance claims

   14,011  10,472 

Decrease in trade and other accounts receivable

   84,505  2,901 

Decrease in other assets

   2,229  4,311 

Decrease in accounts payable

   (40,953 (9,127

Decrease in other liabilities

   (3,776 (191

(Decrease) increase in insurance claims

   (559 739 
  

 

  

 

   

 

  

 

 

NET CASH PROVIDED BY OPERATING ACTIVITIES

   132,264  171,297    121,416  72,002 
  

 

  

 

   

 

  

 

 

INVESTING ACTIVITIES

      

Sales and maturities of investments

   42,917  30,580    25,739  12,698 

Purchases of investments

   (44,423 (31,938   (26,707 (13,399

Purchases of operating property

   (8,800 (17,833   (4,576 (3,814

Proceeds from sales of operating property

   3,594  8,622    2,130  2,285 

Consideration paid for acquisitions

   (8,199  —   
  

 

  

 

   

 

  

 

 

NET CASH USED BY INVESTING ACTIVITIES

   (14,911 (10,569   (3,414 (2,230
  

 

  

 

   

 

  

 

 

FINANCING ACTIVITIES

      

Decrease in cash overdraft

   (2,398 (7,884   (13,820 (5,922

Dividends paid

   (11,739 (10,572   (6,629 (69,293

Payment for debt issue costs

   —    (1,048

Proceeds from exercises of stock options

   2,531  1,440    319  979 

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

   (371 (1,715   (7,923 (2,704

Excess tax benefits from stock-based awards

   —    343 

Purchases of common stock

   —    (50,516   (12,977 (1,508

Principal payments on capital lease obligations

   (35,662 (35,147

Principal payments on finance lease obligations

   (11,995 (11,832

Purchase of noncontrolling interest

   (600   

Payment of contingent consideration

   —    (985
  

 

  

 

   

 

  

 

 

NET CASH USED BY FINANCING ACTIVITIES

   (47,639 (105,099   (53,625 (91,265
  

 

  

 

   

 

  

 

 

Effect of exchange rate changes on cash and cash equivalents

   1,130  656    512  (318
  

 

  

 

   

 

  

 

 

Increase in cash and cash equivalents

   70,844  56,285 

Increase (decrease) in cash and cash equivalents

   64,889  (21,811

Cash and cash equivalents at beginning of period

   178,897  114,520    199,736  242,416 
  

 

  

 

   

 

  

 

 

Cash and cash equivalents at end of period

  $249,741  $170,805   $264,625  $220,605 
  

 

  

 

   

 

  

 

 

See accompanying notes to consolidated financial statements.

LANDSTAR SYSTEM, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTSTATEMENTS OF CHANGES IN EQUITY

Thirty NineThirteen Weeks Ended SeptemberMarch 30, 20172019 and March 31, 2018

(Dollars in thousands)

(Unaudited)

 

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

Non-

controlling

    Common Stock Additional
Paid-In
 Retained Treasury Stock at Cost Accumulated
Other
Comprehensive
 

Non-

controlling

   
  Shares   Amount   Capital   Earnings Shares   Amount (Loss) Income Interests Total  Shares Amount Capital Earnings Shares Amount (Loss) Income Interests Total 

Balance December 31, 2016

   67,585,675   $676   $199,414   $1,512,993  25,747,541   $(1,167,437 $(3,089  —    $542,557 

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)

         112,336      (23 112,313     63,317     (17 63,300 

Dividends ($0.28 per share)

         (11,739      (11,739

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

   129,615    1    2,322    1,952    (163   2,160  176,079  1  (7,081  5,199  (524   (7,604

Stock-based compensation

       3,660         3,660    1,938       1,938 

Other comprehensive income

            1,381   1,381        1,549  150  1,699 

Acquired business and noncontrolling interests

             3,641  3,641 
  

 

   

 

   

 

   

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Balance September 30, 2017

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

Balance March 30, 2019

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

 

   

 

   

 

   

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

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

Non-

controlling

    
  Shares  Amount  Capital  Earnings  Shares  Amount  Loss  Interests  Total 

Balance December 30, 2017

  67,740,380  $677  $209,599  $1,611,158   25,749,493  $(1,167,600 $(3,162 $3,205  $653,877 

Adoption of accounting standards

     773       773 

Net income (loss)

     57,517      (44  57,473 

Dividends ($0.15 per share)

     (6,308      (6,308

Purchases of common stock

      14,354   (1,508    (1,508

Issuance of stock related to stock-based compensation plans

  95,784   1   (1,376   4,822   (350    (1,725

Stock-based compensation

    3,710        3,710 

Other comprehensive (loss) income

        (389  377   (12
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance March 31, 2018

  67,836,164  $678  $211,933  $1,663,140   25,768,669  $(1,169,458 $(3,551 $3,538  $706,280 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

See accompanying notes to consolidated financial statements.

LANDSTAR SYSTEM, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The consolidated financial statements include the accounts of Landstar System, Inc. and its subsidiary, Landstar System Holdings, Inc., and reflect all adjustments (all of a normal, recurring nature) which are, in the opinion of management, necessary for a fair statement of the results for the periods presented. The preparation of the consolidated financial statements requires the use of management’s estimates. Actual results could differ from those estimates. Landstar System, Inc. and its subsidiary are herein referred to as “Landstar” or the “Company.” Significant intercompany accounts have been eliminated in consolidation.

Landstar owns, through various subsidiaries, a controlling interest in Landstar Metro, S.A.P.I. de C.V., a transportation logistics company (“Landstar Metro”), and Landstar Metro Servicios S.A.P.I. de C.V., a services company (“Landstar Servicios”), each based in Mexico City, Mexico. Given Landstar’s controlling interest in each(1) Significant Accounting Policies

Revenue from Contracts with Customers – Disaggregation of Landstar Metro and Landstar Servicios, the accounts of Landstar Metro and Landstar Servicios have been consolidated herein and a noncontrolling interest has been recorded for the noncontrolling investors’ interests in the net assets and operations of Landstar Metro and Landstar Servicios.

(1) Acquired Business and Noncontrolling InterestsRevenue

During 2017, the Company incorporated each of Landstar Metrothirteen weeks ended March 30, 2019, revenue generated by BCO Independent Contractors, Truck Brokerage Carriers and Landstar Servicios. On September 20, 2017, Landstar Metro acquired substantially all of the assets of the asset-light transportation logistics business of Fletes Avella, S.A. de C.V.railroads represented approximately 43%, a Mexican transportation logistics company. Cash consideration paid in the quarter for the acquisition was approximately $8,199,000. In addition, the Company assumed approximately $2,200,000 in liabilities consisting of additional contingent purchase price49% and associated indirect taxes. In connection with the acquisition, individuals affiliated with the seller subscribed in the aggregate for a 30% equity interest in each of Landstar Metro and Landstar Servicios. The asset acquisition by Landstar Metro was accounted for as a business combination in accordance with Accounting Standards Codification 805,Business Combinations (“ASC 805”). The resulting goodwill arising from the acquisition was approximately $8,800,000. With respect to this goodwill, 70% is expected to be deductible by the Company for U.S. income tax purposes, and following the purchase of the noncontrolling interests by the Company, up to 100% of this goodwill would be expected to be deductible by the Company. Pro forma financial information for prior periods is not presented as the Company does not believe the acquisition to be material to our consolidated results. The results of operations from Landstar Metro and Landstar Servicios are presented as part3%, respectively, of the Company’s transportations logistics segment. It is not anticipated that Landstar Metroconsolidated revenue. Collectively, revenue generated by air and Landstar Servicios will have a material effect on the revenue and earningsocean cargo carriers represented approximately 3% of the Company forCompany’s consolidated revenue in the remainderthirteen-week period ended March 30, 2019. Included in truck transportation revenue generated by BCO Independent Contractors and Truck Brokerage Carriers during the thirteen-week period ended March 30, 2019 was $619,014,000 hauled via van equipment, $310,721,000 hauled via unsided/platform equipment and $23,376,000 of fiscal year 2017.less-than-truckload. During the thirty-nine-weekthirteen weeks ended March 31, 2018, revenue generated by BCO Independent Contractors, Truck Brokerage Carriers and railroads represented approximately 45%, 48% and 3%, respectively, of the Company’s consolidated revenue. Collectively, revenue generated by air and ocean cargo carriers represented approximately 2% of the Company’s consolidated revenue in the thirteen-week period ended September 30, 2017, the Company incurred approximately $1,000,000, or $0.01 per common share ($0.01 per diluted share),March 31, 2018. Included inone-time costs related to the completion of the acquisition truck transportation revenue generated by BCO Independent Contractors and subscription of thenon-controlling interests.

As it relates to the noncontrolling interests of Landstar Metro and Landstar Servicios, the Company has the option to purchase, and the minority equityholders have the option to sell,Truck Brokerage Carriers during the thirteen-week period commencing on the third anniversaryended March 31, 2018 was $656,135,000 hauled via van equipment, $299,369,000 hauled via unsided/platform equipment and $23,584,000 of September 20, 2017, the closing date of the subscription by the minority equityholders (the “Closing Date”), and at any time after the fourth anniversary of the Closing Date, at fair value all but not less than all of the noncontrolling interests in Landstar Metro and Landstar Servicios. The noncontrolling interests are also subject to customary restrictions on transfer, including a right of first refusal in favor of the Company.less-than-truckload.

(2) Share-based Payment Arrangements

As of SeptemberMarch 30, 2017,2019, the Company had two employee equity incentive plans, the 2002 employee stock option and stock incentive plan (the “ESOSIP”) and the 2011 equity incentive plan (the “2011 EIP”). No further grants can be made under the ESOSIP. The Company also has a stock compensation plan for members of its Board of Directors, the Amended and Restated 2013 Directors Stock Compensation Plan (as amended and restated as of May 17, 2016, the “2013 DSCP”). 6,000,000 shares of the Company’s common stock were authorized for issuance under the 2011 EIP and 115,000 shares of the Company’s common stock were authorized for issuance under the 2013 DSCP. The ESOSIP, 2011 EIP and 2013 DSCP are each referred to herein as a “Plan,” and, collectively, as the “Plans.” Amounts recognized in the financial statements with respect to these Plans are as follows (in thousands):

  Thirty Nine Weeks Ended   

Thirteen Weeks Ended

   Thirteen Weeks Ended 
  September 30,
2017
   September 24,
2016
   September 30,
2017
   September 24,
2016
   March 30,
2019
   March 31,
2018
 

Total cost of the Plans during the period

  $3,660   $2,718   $1,423   $652   $1,938   $3,710 

Amount of related income tax benefit
recognized during the period

   (2,492   (1,128   (678   (292   (3,062   (2,251
  

 

   

 

   

 

   

 

   

 

   

 

 

Net cost of the Plans during the period

  $1,168   $1,590   $745   $360   $(1,124  $1,459 
  

 

   

 

   

 

   

 

   

 

   

 

 

Included in income tax benefits recognized in the thirty-nine-weekthirteen-week periods ended SeptemberMarch 30, 20172019 and September 24, 2016March 31, 2018 were excess tax benefits from stock-based awards of $2,571,000 and $1,298,000, respectively. Also included in income tax benefits recognized in the thirteen-week periods ended March 30, 2019 and March 31, 2018 were income tax benefits of $310,000$16,000 and $261,000,$50,000, respectively, recognized on disqualifying dispositions of the Company’s common stock by employees who obtained shares of common stock through exercises of incentive stock options. Also included in income tax benefits recognized in the thirty-nine-week period ended September 30, 2017 were excess tax benefits from stock-based awards of $868,000, as required by the Company’s adoption of Accounting Standards Update2016-09 during the first fiscal quarter of 2017. See Note 11, Recent Accounting Pronouncements, for further information.

As of SeptemberMarch 30, 2017,2019, there were 78,68272,742 shares of the Company’s common stock reserved for issuance under the 2013 DSCP and 4,725,2004,015,762 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
   Number of
RSUs
   Weighted Average
Grant Date
Fair Value
 

Outstanding at December 31, 2016

   378,238   $50.46 

Outstanding at December 29, 2018

   292,345   $66.31 

Granted

   67,769   $76.85    57,548   $95.71 

Shares earned in excess of target(1)

   67,729   $55.94 

Vested shares, including shares earned in excess of target

   (216,652  $54.29 

Forfeited

   (58,779  $46.00    (3,410  $79.99 
  

 

     

 

   

Outstanding at September 30, 2017

   387,228   $55.75 

Outstanding at March 30, 2019

   197,560   $84.26 
  

 

     

 

   

(1)

Represents shares earned in excess of target under the January 27, 2015 and January 29, 2016 RSU awards as actual results exceeded the target under both awards as a result of fiscal year 2018 results.

During the thirty-nine-weekthirteen-week period ended SeptemberMarch 30, 2017,2019, the Company granted RSUs with a performance condition. RSUs with a performance condition granted on February 2, 20171, 2019 may vest on January 31 of 2020, 20212022, 2023 and 20222024 based on growth in operating income and diluted earningspre-tax income per share from continuing operations attributable to Landstar System, Inc. and subsidiary as compared to the results from the 20162018 fiscal year. Outstanding RSUs at both December 31, 201629, 2018 and SeptemberMarch 30, 20172019 include RSUs with a performance condition and RSUs with a market condition, as further described in the Company’s 20162018 Annual Report on Form10-K.

The Company recognized approximately $2,254,000$1,307,000 and $1,322,000$3,153,000 of share-based compensation expense related to RSU awards in the thirty-nine-weekthirteen-week periods ended SeptemberMarch 30, 20172019 and September 24, 2016,March 31, 2018, respectively. As of SeptemberMarch 30, 2017,2019, there was a maximum of $32.1$27.5 million of total unrecognized compensation cost related to RSU awards granted under the Plans with an expected average remaining life of approximately 2.83.8 years. With respect to RSU awards with a performance condition, the amount of future compensation expense to be recognized will be determined based on future operating results.

Stock Options

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

 

   Number of
Options
  Weighted Average
Exercise Price per
Share
   Weighted Average
Remaining
Contractual
Term (years)
   Aggregate
Intrinsic
Value
(000s)
 

Options outstanding at December 31, 2016

   372,561  $48.24     

Exercised

   (134,461 $46.38     

Forfeited

   (1,200 $55.67     
  

 

 

      

Options outstanding at September 30, 2017

   236,900  $49.25    4.0   $11,940 
  

 

 

      

Options exercisable at September 30, 2017

   217,000  $48.59    3.9   $11,081 
  

 

 

      
   Number of
Options
   Weighted Average
Exercise Price per
Share
   Weighted Average
Remaining
Contractual

Term (years)
   Aggregate Intrinsic
Value (000s)
 

Options outstanding at December 29, 2018

   89,114   $50.44     

Exercised

   (16,400  $49.34     
  

 

 

       

Options outstanding at March 30, 2019

   72,714   $50.68    2.9   $4,269 
  

 

 

       

Options exercisable at March 30, 2019

   72,714   $50.68    2.9   $4,269 
  

 

 

       

The total intrinsic value of stock options exercised during the thirty-nine-weekthirteen-week periods ended SeptemberMarch 30, 20172019 and September 24, 2016March 31, 2018 was $5,303,000$944,000 and $1,938,000,$2,463,000, respectively.

As of SeptemberMarch 30, 2017,2019, there was $91,000 of totalno unrecognized compensation cost related tonon-vested stock options granted under the Plans. The unrecognized compensation cost related to thesenon-vested options is expected to be recognized during 2017.

Non-vested Restricted Stock and Deferred Stock Units

The following table summarizes information regarding the Company’s outstanding shares ofnon-vested restricted stock and Deferred Stock Units (defined below) under the Plans:

 

  Number of Shares
and Deferred
Stock Units
   Weighted Average
Grant Date
Fair Value
   Number of Shares
and Deferred Stock
Units
 Weighted Average
Grant Date
Fair Value
 

Non-vested at December 31, 2016

   28,409   $58.91 

Non-vested at December 29, 2018

   55,987  $93.66 

Granted

   42,123   $84.26    21,050  $102.83 

Vested

   (16,227  $61.50    (13,772 $85.40 
  

 

     

 

  

Non-vested at September 30, 2017

   54,305   $77.80 

Non-vested at March 30, 2019

   63,265  $98.51 
  

 

     

 

  

The fair value of each share ofnon-vested restricted stock issued and Deferred Stock Unit granted under the Plans areis based on the fair value of a share of the Company’s common stock on the date of grant. Shares ofnon-vested restricted stock are generally subject to vesting in three equal annual installments either on the first, second and third anniversary of the date of the grant or the third, fourth and fifth anniversary of the date of the grant, or 100% on the first anniversary of the date of the grant. For restricted stock awards granted under the 2013 DSCP plan, each recipient may elect to defer receipt of shares and instead receive restricted stock units (“Deferred Stock Units”), which represent contingent rights to receive shares of the Company’s common stock on the date of recipient separation from service from the Board of Directors, or, if earlier, upon a change in control event of the Company. Deferred Stock Units become vested 100% on the first anniversary of the date of the grant. Deferred Stock Units do not represent actual ownership in shares of the Company’s common stock and the recipient will not have voting rights or other incidents of ownership until the shares are issued. However, Deferred Stock Units do contain the right to receive dividend equivalent payments prior to settlement into shares.

As of SeptemberMarch 30, 2017,2019, there was $3,353,000$4,718,000 of total unrecognized compensation cost related tonon-vested shares of restricted stock and Deferred Stock Units granted under the Plans. The unrecognized compensation cost related to thesenon-vested shares of restricted stock and Deferred Stock Units is expected to be recognized over a weighted average period of 3.02.5 years.

(3) Income Taxes

The provisions for income taxes for both the 20172019 and 2016 thirty-nine-week2018 thirteen-week periods were based on estimated annual effective income tax rates of 37.8%24.2% and 38.1%24.5%, respectively, adjusted for discrete events, such as benefits resulting from disqualifying dispositions of the Company’s common stock by employees who obtained the stock through exercises of incentive stock options. The effective income tax rates for the 2017 and 2016 thirty-nine-week periods were 34.5% and 37.6%, respectively.stock-based awards. The effective income tax rate for the 2017 thirty-nine week2019 thirteen-week period was lower than21.0%, which approximated the statutory federal income tax rate primarily as a result of federal domestic production activities deductions and research and development credits recognized as discrete items duringrate. The provision for income taxes for the 2019 thirteen-week period ended September 30, 2017, partiallywas favorably impacted by $2,571,000 of excess tax benefits from stock-based awards, which essentially offset by the effectimpact of state taxes and the meals and entertainment exclusion. The effective income tax rate for the 2016 thirty-nine-week2018 thirteen-week period was 22.7%, which was higher than the statutory federal income tax rate of 21% primarily as a result ofattributable to state taxes, the elimination of the performance-based compensation exception under Section 162(m) by the Tax Cuts and Jobs Act (the “Tax Reform Act”) and the meals and entertainment exclusion.

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

(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 outstandingnon-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.

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

   Thirty Nine Weeks Ended   Thirteen Weeks Ended 
   September 30,
2017
   September 24,
2016
   September 30,
2017
   September 24,
2016
 

Average number of common shares outstanding

   41,924    42,223    41,957    42,039 

Incremental shares from assumed exercises of stock options

   89    118    71    131 
  

 

 

   

 

 

   

 

 

   

 

 

 

Average number of common shares and common share equivalents outstanding

   42,013    42,341    42,028    42,170 
  

 

 

   

 

 

   

 

 

   

 

 

 
   Thirteen Weeks Ended 
   March 30,
2019
   March 31,
2018
 

Average number of common shares outstanding

   40,161    42,038 

Incremental shares from assumed exercises of stock options

   5    60 
  

 

 

   

 

 

 

Average number of common shares and common share equivalents outstanding

   40,166    42,098 
  

 

 

   

 

 

 

For each of the thirty-nine-weekthirteen-week periods ended SeptemberMarch 30, 20172019 and September 24, 2016,March 31, 2018, no options outstanding to purchase shares of common stock were antidilutive. Outstanding RSUs were excluded from the calculation of diluted earnings per share attributable to Landstar System, Inc. and subsidiary for all periods because the performance metric requirements or market condition for vesting had not been satisfied.

(5) Additional Cash Flow Information

During the 2017 thirty-nine-week2019 thirteen-week period, Landstar received income tax refunds, net of income tax payments, of $3,624,000 and paid interest of $1,198,000. During the 2018 thirteen-week period, Landstar paid income taxes and interest of $65,688,000$464,000 and $2,981,000, respectively. During the 2016 thirty-nine-week period, Landstar paid income taxes and interest of $48,615,000 and $2,730,000,$976,000, respectively. Landstar acquireddid not acquire any operating property by entering into capitalfinance leases in either the amounts of $14,760,000 and $46,456,000 in the 2017 and 2016 thirty-nine-week periods, respectively. In addition, during the 2017 thirty-nine-week period Landstar acquired $945,000 of operating property for which the Company accrued a corresponding liability in accounts payable as of September 30, 2017 related to the completion of a new freight staging and transload facility in Laredo, TX. The Company had unpaid capital expenditure purchases included in accounts payable of $1,988,000 and $5,298,000 at September 30, 2017 and December 31, 2016, respectively.2019 or 2018 thirteen-week periods. Capital expenditure purchasesexpenditures are recorded as cash outflows from investing activities in the consolidated statement of cash flows in the period in which they are paid.

(6) Segment Information

The following table summarizes information about the Company’s reportable business segments as of and for the thirty-nine-week and thirteen-week periods ended SeptemberMarch 30, 20172019 and September 24, 2016March 31, 2018 (in thousands):

 

   Thirty Nine Weeks Ended 
   September 30, 2017   September 24, 2016 
   Transportation
Logistics
   Insurance   Total   Transportation
Logistics
   Insurance   Total 

External revenue

  $2,559,847   $34,925   $2,594,772   $2,240,169   $34,636   $2,274,805 

Internal revenue

     29,773    29,773      28,890    28,890 

Investment income

     1,733    1,733      1,100    1,100 

Operating income

   148,693    25,226    173,919    133,342    26,144    159,486 

Expenditures on long-lived assets

   8,800      8,800    17,833      17,833 

Goodwill

   39,914      39,914    31,134      31,134 

  Thirteen Weeks Ended   Thirteen Weeks Ended 
  September 30, 2017   September 24, 2016   March 30, 2019   March 31, 2018 
  Transportation
Logistics
   Insurance   Total   Transportation
Logistics
   Insurance   Total   Transportation
Logistics
   Insurance   Total   Transportation
Logistics
   Insurance   Total 

External revenue

  $931,692   $11,738   $943,430   $776,397   $11,541   $787,938   $1,018,961   $14,039   $1,033,000   $1,035,640   $12,286   $1,047,926 

Internal revenue

     7,335    7,335      7,229    7,229      9,614    9,614      7,498    7,498 

Investment income

     711    711      357    357      1,138    1,138      861    861 

Operating income

   54,181    6,386    60,567    47,541    10,920    58,461    67,583    13,313    80,896    67,300    7,853    75,153 

Expenditures on long-lived assets

   2,172      2,172    8,878      8,878    4,576      4,576    3,814      3,814 

Goodwill

   38,343      38,343    39,363      39,363 

In the thirty-nine and thirteen-week periods ended SeptemberMarch 30, 20172019 and September 24, 2016,March 31, 2018, no single customer accounted for more than 10% of the Company’s consolidated revenue.

(7) Other Comprehensive Income

The following table presents the components of and changes in accumulated other comprehensive income attributable to Landstar System, Inc. and subsidiary, net of related income taxes, as of and for the thirty-nine-weekthirteen-week period ended SeptemberMarch 30, 20172019 (in thousands):

 

   Unrealized
Holding (Losses)
Gains on
Available-for-Sale
Securities
   Foreign Currency
Translation
   Total 

Balance as of December 31, 2016

  $(71  $(3,018  $(3,089

Other comprehensive income

   251    1,130    1,381 
  

 

 

   

 

 

   

 

 

 

Balance as of September 30, 2017

  $180   $(1,888  $(1,708
  

 

 

   

 

 

   

 

 

 
   Unrealized
Holding (Losses)
Gains on
Available-for-Sale
Securities
  Foreign Currency
Translation
  Total 

Balance as of December 29, 2018

  $(930 $(4,945 $(5,875

Other comprehensive income

   995   554   1,549 
  

 

 

  

 

 

  

 

 

 

Balance as of March 30, 2019

  $65  $(4,391 $(4,326
  

 

 

  

 

 

  

 

 

 

Amounts reclassified from accumulated other comprehensive income to investment income due to the realization of previously unrealized gains and losses in the accompanying consolidated statements of income were not significant for the thirty-nine-weekthirteen-week period ended SeptemberMarch 30, 2017.2019.

(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 asavailable-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 onavailable-for-sale investments to determine whether such losses are other-than-temporary. Unrealized losses, representing the excess of the purchase price of an investment over its fair value as of the end of a period, considered to be other-than-temporary, are to be included as a charge in the statement of income, while unrealized losses considered to be temporary are to be included as a component of equity. Investments whose values are based on quoted market prices

in active markets are classified within Level 1. Investments that trade in markets that are not considered to be active, but are valued based on quoted market prices, are classified within Level 2. As Level 2 investments include positions that are not traded in active markets, valuations may be adjusted to reflect illiquidity and/ornon-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 $278,000$83,000 at SeptemberMarch 30, 2017,2019, while unrealized losses, net of unrealized gains, on the investments in the bond portfolio were $109,000$1,184,000 at December 31, 2016,29, 2018, respectively.

The amortized cost and fair values ofavailable-for-sale investments are as follows at SeptemberMarch 30, 20172019 and December 31, 201629, 2018 (in thousands):

 

  Amortized
Cost
   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
   Fair Value       Gross   Gross     

September 30, 2017

        
Amortized
Cost
   Unrealized
Gains
   Unrealized
Losses
   Fair
Value
 
        

Money market investments

  $16,823   $—     $—     $16,823   $12,719   $—     $—     $12,719 

Asset-backed securities

   3,497    2    5    3,494    518    —      2    516 

Corporate bonds and direct obligations of government agencies

   84,885    373    91    85,167    100,994    428    343    101,079 

U.S. Treasury obligations

   5,496    —      1    5,495 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total

  $110,701   $375   $97   $110,979   $114,231   $428   $345   $114,314 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

December 31, 2016

        

December 29, 2018

        

Money market investments

  $12,395   $—     $—     $12,395   $11,714   $—     $—     $11,714 

Asset-backed securities

   4,027    3    19    4,011    624    —      4    620 

Corporate bonds and direct obligations of government agencies

   70,069    150    239    69,980    101,021    33    1,213    99,841 

U.S. Treasury obligations

   23,037    2    6    23,033 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total

  $109,528   $155   $264   $109,419   $113,359   $33   $1,217   $112,175 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

For thoseavailable-for-sale investments with unrealized losses at SeptemberMarch 30, 20172019 and December 31, 2016,29, 2018, the following table summarizes the duration of the unrealized loss (in thousands):

 

  Less than 12 months   12 months or longer   Total   Less than 12 months   12 months or longer   Total 
  Fair
Value
   Unrealized
Loss
   Fair
Value
   Unrealized
Loss
   Fair
Value
   Unrealized
Loss
   Fair
Value
   Unrealized
Loss
   Fair
Value
   Unrealized
Loss
   Fair
Value
   Unrealized
Loss
 

September 30, 2017

            

March 30, 2019

            

Asset-backed securities

  $—     $—     $2,311   $5   $2,311   $5   $—     $—     $516   $2   $516   $2 

Corporate bonds and direct obligations of government agencies

   15,429    21    13,215    70    28,644    91    13,900    31    48,181    312    62,081    343 

U.S. Treasury obligations

   5,495    1    —      —      5,495    1 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total

  $20,924   $22   $15,526   $75   $36,450   $97   $13,900   $31   $48,697   $314   $62,597   $345 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

December 31, 2016

            

December 29, 2018

            

Asset-backed securities

  $1,363   $6   $2,314   $13   $3,677   $19   $—     $—     $620   $4   $620   $4 

Corporate bonds and direct obligations of government agencies

   28,809    195    1,367    44    30,176    239    45,960    354    42,803    859    88,763    1,213 

U.S. Treasury obligations

   12,734    6    —      —      12,734    6 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total

  $42,906   $207   $3,681   $57   $46,587   $264   $45,960   $354   $43,423   $863   $89,383   $1,217 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

The Company expects to recover 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, the Company does not consider the unrealized losses on these securities to be other-than-temporary at SeptemberMarch 30, 2017.2019.

(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 leaseright-of-use assets and operating lease liabilities represent leases for orientation centers for BCO Independent Contractors and office space used to conduct Landstar’s business. These leases do not have significant rent escalation holidays, concessions, leasehold improvement incentives or otherbuild-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” 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.

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 theright-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 thirteen weeks ended March 30, 2019 were (in thousands):

Finance leases:

  

Amortization ofright-of-use assets

  $6,624 

Interest on lease liability

   1,018 
  

 

 

 

Total finance lease cost

   7,642 

Operating leases:

  

Lease cost

   1,064 

Variable lease cost

   —   

Sublease income

   (1,325
  

 

 

 

Total operating lease (income)/cost

   (261
  

 

 

 

Total lease cost

  $7,381 
  

 

 

 

A summary of the lease classification on our consolidated balance sheet as of March 30, 2019 is as follows (in thousands):

Assets:

    

Operating lease right-of-use  assets

  Other assets  $589 

Finance lease assets

  Operating property, less accumulated depreciation and amortization   166,833 
    

 

 

 

Total lease assets

    $167,422 
    

 

 

 

The following table reconciles the undiscounted cash flows for the finance and operating leases at March 30, 2019 to the finance and operating lease liabilities recorded on the balance sheet (in thousands):

   Finance
Leases
   Operating
Leases
 

2019 Remainder

  $34,217   $215 

2020

   39,481    137 

2021

   25,066    119 

2022

   15,902    118 

2023

   8,875    41 

Thereafter

   —      —   
  

 

 

   

 

 

 

Total future minimum lease payments

   123,541   $630 
  

 

 

   

 

 

 

Less amount representing interest (2.1% to 4.4%)

   7,111    41 
  

 

 

   

 

 

 

Present value of minimum lease payments

  $116,430   $589 
  

 

 

   

 

 

 

Current maturities of long-term debt

   41,184   

Long-term debt, excluding current maturities

   75,246   

Other current liabilities

     248 

Deferred income taxes and other noncurrent liabilities

     341 

The weighted average remaining lease term and the weighted average discount rate for finance and operating leases as of March 30, 2019 were:

   Finance Leases  Operating Leases 

Weighted average remaining lease term (years)

   3.3   3.3 

Weighted average discount rate

   3.2  4.0

(10) Commitments and Contingencies

Short-term investments include $45,687,000$39,958,000 in current maturities of investments held by the Company’s insurance segment at SeptemberMarch 30, 2017.2019. Thenon-current portion of the bond portfolio of $65,292,000$74,356,000 is included in other assets. The short-term investments, together with $20,979,000$29,314,000 ofnon-current investments, provide collateral for the $59,999,000$62,345,000 of letters of credit issued to guarantee payment of insurance claims. As of SeptemberMarch 30, 2017,2019, Landstar also had $33,127,000$34,369,000 of additional letters of credit outstanding under the Company’s Credit Agreement.

During 2017,Reference is made to the Company incorporated eachdescriptions of Landstar Metro and Landstar Servicios. On September 20, 2017, Landstar Metro acquired substantially all of the assets of the asset-light transportation logistics business of Fletes Avella, S.A. de C.V., a Mexican transportation logistics company. In connection with the acquisition, individuals affiliated with the seller subscribedcertain pending legal proceedings in the aggregateCompany’s Annual Report on Form10-K for a 30% equity interest in each of Landstar Metro and Landstar Servicios. As it relatesthe fiscal year ended December 29, 2018. There have been no material developments with respect to the noncontrolling interests of Landstar Metro and Landstar Servicios, the Company has the option to purchase, and the minority equityholders have the option to sell,any such pending legal proceedings during the thirteen-week period commencing on the third anniversary of September 20, 2017, the closing date of the subscription by the minority equityholders (the “Closing Date”), and at any time after the fourth anniversary of the Closing Date, at fair value all but not less than all of the noncontrolling interests in Landstar Metro and Landstar Servicios. The noncontrolling interests are also subject to customary restrictions on transfer, including a right of first refusal in favor of the Company.ended March 30, 2019.

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

(10)(11) 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.

The following table summarizes the effect of the increase (decrease) in the cost of insurance claims resulting from unfavorable (favorable) development of prior year self-insured claims estimates on operating income, net income attributable to Landstar System, Inc. and subsidiary and earnings per share attributable to Landstar System, Inc. and subsidiary amountsset forth in the consolidated statements of income for the thirty-nine-week and thirteen-week periods ended SeptemberMarch 30, 20172019 and September 24, 2016March 31, 2018 (in thousands, except per share amounts):

 

   Thirty Nine Weeks Ended   Thirteen Weeks Ended 
   September 30,
2017
   September 24,
2016
   September 30,
2017
   September 24,
2016
 

Operating income

  $1,327   $698   $1,124   $(2,118

Net income attributable to Landstar System, Inc. and subsidiary

   825    431    699    (1,309

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

  $0.02   $0.01   $0.02   $(0.03

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

  $0.02   $0.01   $0.02   $(0.03

   Thirteen Weeks Ended 
   March 30,
2019
   March 31,
2018
 

Operating income

  $1,407   $2,558 

Net income attributable to Landstar System, Inc. and subsidiary

   1,067    1,931 

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

  $0.03   $0.05 

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

  $0.03   $0.05 

(11)(12) Recent Accounting Pronouncements

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

In February 2016, the FASB issued Accounting Standards Update2016-02Leases (“ASU2016-02”), amended by ASU2018-11,Leases (Topic 842):Targeted Improvements. ASU2016-02 requires a company to recognize aright-of-use asset and lease liability for the obligation to make lease payments measured at the present value of the lease payments for all leases with terms greater than twelve months. Companies are required to useThe ASU requires adoption using a modified retrospective transition approach with either (1) periods prior to recognize leases at the beginningadoption date being recast or (2) a cumulative-effect adjustment recognized to the opening balance of retained earnings on the earliest period presented.adoption date with prior periods not recast. The Company adopted this standard on December 30, 2018 using the cumulative-effect adjustment approach. No cumulative-effect adjustment was recognized as the amount was not material. The Company recognized $589,000 inright-of-use assets and corresponding lease obligations upon adoption of ASU2016-02. See Note 9 for additional information regarding the impact of adopting ASU2016-02 is effective for annual reporting periods beginning after December 15, 2018, and interim periods therein, and early adoption is permitted. ASU2016-02 is not expected to have a material impact on the Company’sLandstar’s consolidated financial statements.

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

In June 2016, the FASB issued Accounting Standards Update2016-13–Financial Instruments –Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU2016-13”), which requires measurement and recognition of expected versus incurred credit losses for financial assets held. ASU2016-13 is effective for annual periods beginning after December 15, 2019, and interim periods therein. The Company is currently evaluating the impact of ASU2016-13 on its financial statements.

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

The following discussion should be read in conjunction with the interim consolidated financial statements and notes thereto included herein, and with the Company’s audited financial statements and notes thereto for the fiscal year ended December 31, 201629, 2018 and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the 20162018 Annual Report on Form10-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 Form10-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: an increase in the frequency or severity of accidents or other claims; unfavorable development of existing accident claims; dependence on third party insurance companies; dependence on independent commission sales agents; dependence on third party capacity providers;

decreased demand for transportation services; U.S. foreign trade relationships; substantial industry competition; disruptions or failures in the Company’s computer systems; cyber and other information security incidents; dependence on key vendors; changes in fuel taxes; status of independent contractors; regulatory and legislative changes; regulations focused on diesel emissions and other air quality matters; catastrophic loss of a Company facility; intellectual property; unclaimed property; acquired businesses; and other operational, financial or legal risks or uncertainties detailed in Landstar’s Form10-K for the 20162018 fiscal year,

described in Item 1A “Risk Factors”, in this report or in Landstar’s other Securities and Exchange Commission filings from time to time. These risks and uncertainties could cause actual results or events to differ materially from historical results or those anticipated. Investors should not place undue reliance on such forward-looking statements and the Company undertakes no obligation to publicly update or revise any forward-looking statements.

Introduction

Landstar System, Inc. and its subsidiary, Landstar System Holdings, Inc. (together, referred to herein as “Landstar” or the “Company”), is a worldwide asset-light provider of integrated transportation management solutions. The Company offers services to its customers across multiple transportation modes, with the ability to arrange for individual shipments of freight to enterprise-wide solutions to manage all of a customer’s transportation needs. Landstar provides services principally throughout the United States and to a lesser extent in Canada and Mexico, and between the United States and Canada, Mexico and other countries around the world. The Company’s services emphasize safety, information coordination and customer service and are delivered through a network of over 1,200 independent commission sales agents and 68,000 third party capacity providers, primarily truck capacity providers, linked together by a series of technological applications which are provided and coordinated by the Company. The nature of the Company’s business is such that a significant portion of its operating costs varies directly with revenue.

Landstar markets its integrated transportation management solutions primarily through independent commission sales agents and exclusively utilizes third party capacity providers to transport customers’ freight. Landstar’s independent commission sales agents enter into contractual arrangements with the Company and are responsible for locating freight, making that freight available to Landstar’s capacity providers and coordinating the transportation of the freight with customers and capacity providers. The Company’s third party capacity providers consist of independent contractors who provide truck capacity to the Company under exclusive lease arrangements (the “BCO Independent Contractors”), unrelated trucking companies who provide truck capacity to the Company undernon-exclusive contractual arrangements (the “Truck Brokerage Carriers”), air cargo carriers, ocean cargo carriers and railroads. Through this network of agents and capacity providers linked together by Landstar’s information technology systems, Landstar operates an integrated transportation management solutions business primarily throughout North America with revenue of $3.2$4.6 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 offered by the Company include truckload and less-than-truckload transportation, rail intermodal, air cargo, ocean cargo, expedited ground and air delivery of time-critical freight, heavy-haul/specialized, U.S.-Canada and U.S.-Mexico cross-border, intra-Mexico, intra-Canada, project cargo and customs brokerage. Examples of the industries serviced by the transportation logistics segment include automotive products, building products, metals, chemicals, foodstuffs, heavy machinery, retail, electronics ammunition and explosives and military equipment. In addition, the transportation logistics segment provides transportation services to other transportation companies, including third party logistics and less-than-truckload service providers. Each of the independent commission sales agents has the opportunity to market all of the services provided by the transportation logistics segment. Billings for freight transportation services are typically charged to customers on a per shipment basis for the physical transportation of freight and are referred to as transportation revenue. During the thirty-ninethirteen weeks ended SeptemberMarch 30, 2017,2019, revenue generated by BCO Independent Contractors, Truck Brokerage Carriers and railroads represented approximately 47%43%, 47%49% and 3%, respectively, of the Company’s consolidated revenue. Collectively, revenue generated by air and ocean cargo carriers represented approximately 3% of the Company’s consolidated revenue in the thirty-nine-weekthirteen-week period ended SeptemberMarch 30, 2017.2019.

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

The insurance segment is comprised of Signature Insurance Company, a wholly owned offshore insurance subsidiary (“Signature”), and Risk Management Claim Services, Inc. ThisThe insurance segment provides risk and claims management services to certain of Landstar’s operating subsidiaries. In addition, it reinsures certain risks of the Company’s BCO Independent Contractors and provides certain property and casualty insurance directly to certain of Landstar’s operating subsidiaries. Revenue at the insurance segment represents reinsurance premiums from third party insurance companies that provide insurance programs to BCO Independent Contractors where all or a portion of the risk is ultimately borne by Signature. Revenue at the insurance segment represented approximately 1% of the Company’s consolidated revenue for the thirty-nine-weekthirteen-week period ended SeptemberMarch 30, 2017.2019.

Changes in Financial Condition and Results of Operations

Management believes the Company’s success principally depends on its ability to generate freight revenue through its network of independent commission sales agents and to safely and efficiently deliver that freight utilizing third party capacity providers. Management believes the most significant factors to the Company’s success include increasing revenue, sourcing capacity and controlling costs, including insurance and claims.

While customer demand, which is subject to overall economic conditions, ultimately drives increases or decreases in revenue, the Company primarily relies on its independent commission sales agents to establish customer relationships and generate revenue opportunities. Management’s emphasis with respect to revenue growth is on revenue generated by independent commission sales agents who on an annual basis generate $1 million or more of Landstar revenue (“Million Dollar Agents”). Management believes future revenue growth is primarily dependent on its ability to increase both the revenue generated by Million Dollar Agents and the number of Million Dollar Agents through a combination of recruiting new agents, and increasing the revenue opportunities generated by existing independent commission sales agents.agents and providing its independent commission sales agents with technology-based tools they may use to grow revenue and increase efficiencies at their businesses. During the 20162018 fiscal year, 502608 independent commission sales agents generated $1 million or more of Landstar revenue and thus qualified as Million Dollar Agents. During the 20162018 fiscal year, the average revenue generated by a Million Dollar Agent was $5,831,000$7,150,000 and revenue generated by Million Dollar Agents in the aggregate represented 92%94% of consolidated revenue.

Management monitors business activity by tracking the number of loads (volume) and revenue per load by mode of transportation. Revenue per load can be influenced by many factors other than a change in price. Those factors include the average length of haul, freight type, special handling and equipment requirements, fuel costs and delivery time requirements. For shipments involving two or more modes of transportation, revenue is generally classified by the mode of transportation having the highest cost for the load. The following table summarizes this information by trailer type for truck transportation and by mode for all others:

 

   Thirty Nine Weeks Ended   Thirteen Weeks Ended 
   September 30,
2017
   September 24,
2016
   September 30,
2017
   September 24,
2016
 

Revenue generated through (in thousands):

        

Truck transportation

        

Truckload:

        

Van equipment

  $1,529,402   $1,351,980   $550,484   $465,785 

Unsided/platform equipment

   825,194    700,369    304,536    248,939 

Less-than-truckload

   65,397    54,066    22,598    18,139 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total truck transportation

   2,419,993    2,106,415    877,618    732,863 

Rail intermodal

   68,570    76,987    24,213    24,650 

Ocean and air cargo carriers

   70,708    56,500    29,523    18,790 

Other (1)

   35,501    34,903    12,076    11,635 
  

 

 

   

 

 

   

 

 

   

 

 

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

 

 

   

 

 

   

 

 

   

 

 

 

Revenue on loads hauled via BCO Independent Contractors included in total truck transportation

  $1,211,564   $1,086,848   $435,479   $379,196 

Number of loads:

        

Truck transportation

        

Truckload:

        

Van equipment

   942,894    847,208    329,329    291,089 

Unsided/platform equipment

   362,936    331,226    126,509    112,192 

Less-than-truckload

   98,740    84,316    34,232    28,589 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total truck transportation

   1,404,570    1,262,750    490,070    431,870 

Rail intermodal

   32,040    36,120    11,080    11,940 

Ocean and air cargo carriers

   18,150    14,910    6,210    5,130 
  

 

 

   

 

 

   

 

 

   

 

 

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

 

 

   

 

 

   

 

 

   

 

 

 

Loads hauled via BCO Independent Contractors included in total truck transportation

   686,830    630,880    232,970    216,220 

Revenue per load:

        

Truck transportation

        

Truckload:

        

Van equipment

  $1,622   $1,596   $1,672   $1,600 

Unsided/platform equipment

   2,274    2,114    2,407    2,219 

Less-than-truckload

   662    641    660    634 

Total truck transportation

   1,723    1,668    1,791    1,697 

Rail intermodal

   2,140    2,131    2,185    2,064 

Ocean and air cargo carriers

   3,896    3,789    4,754    3,663 

Revenue per load on loads hauled via BCO Independent Contractors

  $1,764   $1,723   $1,869   $1,754 

  Thirteen Weeks Ended 
  March 30, March 31, 
  2019 2018 

Revenue generated through (in thousands):

   

Truck transportation

   

Truckload:

   

Van equipment

  $619,014  $656,135 

Unsided/platform equipment

   310,721  299,369 

Less-than-truckload

   23,376  23,584 
  

 

  

 

 

Total truck transportation

   953,111  979,088 

Rail intermodal

   30,015  29,292 

Ocean and air cargo carriers

   30,669  23,477 

Other (1)

   19,205  16,069 
  

 

  

 

 
  $1,033,000  $1,047,926 
  

 

  

 

 

Revenue on loads hauled via BCO Independent Contractors included in total truck transportation

  $449,308  $471,150 

Number of loads:

   

Truck transportation

   

Truckload:

   

Van equipment

   341,821  336,919 

Unsided/platform equipment

   125,170  119,791 

Less-than-truckload

   35,309  33,420 
  

 

  

 

 

Total truck transportation

   502,300  490,130 

Rail intermodal

   12,460  13,280 

Ocean and air cargo carriers

   7,510  6,330 
  

 

  

 

 
   522,270  509,740 
  

 

  

 

 

Loads hauled via BCO Independent Contractors included in total truck transportation

   234,850  233,180 

Revenue per load:

   

Truck transportation

   

Truckload:

   

Van equipment

  $1,811  $1,947 

Unsided/platform equipment

   2,482  2,499 

Less-than-truckload

   662  706 

Total truck transportation

   1,897  1,998 

Rail intermodal

   2,409  2,206 

Ocean and air cargo carriers

   4,084  3,709 

Revenue per load on loads hauled via BCO Independent Contractors

  $1,913  $2,021 

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

        

Truck capacity providers:

        

BCO Independent Contractors

   47 48 46 48   43 45

Truck Brokerage Carriers

   47 45 47 45   49 48

Rail intermodal

   3 3 3 3   3 3

Ocean and air cargo carriers

   3 2 3 2   3 2

Other

   1 2 1 1   2 2

 

(1)

Includes primarily reinsurance premium revenue generated by the insurance segment.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:

 

  September 30,
2017
   September 24,
2016
   March 30, 2019   March 31, 2018 

BCO Independent Contractors

   8,939    8,889    9,911    9,243 

Truck Brokerage Carriers:

        

Approved and active(1)

   32,925    30,860    40,404    34,659 

Other approved

   15,138    15,691    18,659    15,687 
  

 

   

 

   

 

   

 

 
   48,063    46,551    59,063    50,346 
  

 

   

 

   

 

   

 

 

Total available truck capacity providers

   57,002    55,440    68,974    59,589 
  

 

   

 

   

 

   

 

 

Trucks provided by BCO Independent Contractors

   9,548    9,510    10,637    9,868 

 

(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 contractually agreed-upon fixed rates. Purchased transportation as a percentage of revenue for truck brokerage, rail intermodal and ocean cargo services is normally higher than that of BCO Independent Contractor and air cargo services. Purchased transportation is the largest component of costs and expenses and, on a consolidated basis, increases or decreases as a percentage of consolidated revenue in proportion to changes in the percentage of consolidated revenue generated through BCO Independent Contractors and other third party capacity providers and external revenue from the insurance segment, consisting of reinsurance premiums. Purchased transportation as a percent

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

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

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

In general, gross profit margin on revenue generated by BCO Independent Contractors represents a fixed percentage of revenue due to the nature of the contracts that pay a fixed percentage of revenue to both the BCO Independent Contractors and independent commission sales agents. For revenue generated by Truck Brokerage Carriers, gross profit margin is either fixed or variable as a percent of revenue, depending on the contract with each individual independent commission sales agent. Under certain contracts with independent commission sales agents, the Company retains a fixed percentage of revenue and the agent retains the amount remaining less the cost of purchased transportation (the “retention contracts”). Gross profit margin on revenue generated by railroads, air cargo carriers, ocean cargo carriers and Truck Brokerage Carriers, other than those under retention contracts, is variable in nature as the Company’s contracts with independent commission sales agents provide commissions to agents at a contractually agreed upon percentage of net revenue for these typetypes of loads. Approximately 54%50% of the Company’s consolidated revenue in the thirty-nine-weekthirteen-week period ended SeptemberMarch 30, 20172019 was generated under contracts that have a fixed gross profit margin while 46%50% was under contracts that have a variable gross profit margin.

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

With respect to insurance and claims cost, potential liability associated with accidents in the trucking industry is severe and occurrences are unpredictable. For commercial trucking claims, Landstar retains liability up to $5,000,000 per occurrence. In addition, for commercial trucking claims exceeding its $5,000,000 per occurrence self-insured retention, the Company retains liability up to an additional $700,000 in the aggregate on any claims incurred on or after May 1, 2016 through April 30, 2017, and up to an additional $500,000 in the aggregate on any claims incurred on or after May 1, 2017 through April 30, 2018.2018 and up to an additional $350,000 in the aggregate on any claims incurred on or after May 1, 2018 through April 30, 2019. The Company also retains liability of up to $1,000,000 for each general liability claim, up to $250,000 for each workers’ compensation claim and up to $250,000 for each cargo claim. In addition, under reinsurance arrangements by Signature of certain risks of the Company’s BCO Independent Contractors, the Company retains liability of up to $500,000, $1,000,000 or $2,000,000 with respect to certain occupational accident claims and up to $750,000 with respect to certain workers’ compensation claims. The Company’s exposure to liability associated with accidents incurred by Truck Brokerage Carriers, railroads and air and ocean cargo carriers who transport freight on behalf of the Company is reduced by various factors including the extent to which such carriers maintain their own insurance coverage. A material increase in the frequency or severity of accidents, cargo claims or workers’ compensation claims or the material unfavorable development of existing claims could have a material adverse effect on Landstar’s cost of insurance and claims and its results of operations.

During the thirty-nine-weekthirteen-week period ended SeptemberMarch 30, 2017,2019, employee compensation and benefits accounted for approximately seventysixty-seven 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:

 

  Thirty Nine Weeks Ended Thirteen Weeks Ended   Thirteen Weeks Ended 
  September 30,
2017
 September 24,
2016
 September 30,
2017
 September 24,
2016
   March 30,
2019
 March 31,
2018
 

Revenue

   100.0 100.0 100.0 100.0   100.0 100.0

Purchased transportation

   76.7  76.1  77.0  76.3    76.6  77.3 

Commissions to agents

   8.1  8.3  8.1  8.3    8.3  7.8 
  

 

  

 

  

 

  

 

   

 

  

 

 

Gross profit margin

   15.2 15.6 14.8 15.5   15.1 14.8
  

 

  

 

  

 

  

 

 
  

 

  

 

 

Gross profit

   100.0 100.0 100.0 100.0   100.0 100.0

Investment income

   0.4  0.3  0.5  0.3    0.7  0.6 

Indirect costs and expenses:

        

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

   5.7  6.1  5.8  6.2    5.3  4.9 

Insurance and claims

   11.8  12.1  12.8  10.3    9.6  11.2 

Selling, general and administrative

   31.3  29.9  31.4  28.5    26.5  29.1 

Depreciation and amortization

   7.6  7.4  7.2  7.4    7.3  7.1 
  

 

  

 

  

 

  

 

   

 

  

 

 

Total costs and expenses

   56.3  55.4  57.2  52.3    48.7  52.2 
  

 

  

 

  

 

  

 

   

 

  

 

 

Operating margin

   44.1 44.9 43.3 48.0   52.0 48.3
  

 

  

 

  

 

  

 

   

 

  

 

 

Management believes that a discussion of indirect costs as a percentage of gross profit is useful and meaningful to potential investors for the following principal reasons: (1) disclosure of these relative measures (i.e., each indirect operating cost line item as a percentage of gross profit) allows investors to better understand the underlying trends in the Company’s results of operations; (2) due to the generally fixed nature of these indirect costs (other than insurance and claims costs), these relative measures are meaningful to investors’ evaluations of the Company’s management of its indirect costs attributable to operations; (3) management considers this financial information in its decision-making, such as budgeting for infrastructure, trailing equipment and selling, general and administrative costs; and (4) this information facilitates comparisons by investors of the Company’s results to the results of othernon-asset or asset-light companies in the transportation and logistics services industry who report “net revenue” in Management Discussion and Analysis, which represents revenue less the cost of purchased transportation. The difference between the Company’s use of the term “gross profit” and use of the term “net revenue” by other companies in the transportation and logistics services industry is due to the direct cost of commissions to agents under the Landstar business model, whereas other companies in this industry generally have no commissions to agents.

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

THIRTY NINETHIRTEEN WEEKS ENDED SEPTEMBERMARCH 30, 20172019 COMPARED TO THIRTY NINETHIRTEEN WEEKS ENDED SEPTEMBER 24, 2016MARCH 31, 2018

Revenue for the 2017 thirty-nine-week2019 thirteen-week period was $2,594,772,000, an increase$1,033,000,000, a decrease of $319,967,000,$14,926,000, or 14%1%, compared to the 2016 thirty-nine-week2018 thirteen-week period. Transportation revenue increased $319,678,000,decreased $16,679,000, or 14%2%. The increasedecrease in transportation revenue was attributable to decreased revenue per load of approximately 4%, partially offset by an increased number of loads hauled of approximately 11% and increased revenue per load of approximately 3%2%. Reinsurance premiums were $34,925,000$14,039,000 and $34,636,000$12,286,000 for the 20172019 and 2016 thirty-nine-week2018 thirteen-week periods, respectively. The increase in revenue from reinsurance premiums was primarily attributable to the increase in the average number of trucks provided by BCO Independent Contractors in the 2019 thirteen-week period compared to the 2018 thirteen-week period.

Truck transportation revenue generated by BCO Independent Contractors and Truck Brokerage Carriers (together, the “third party truck capacity providers”) for the 2017 thirty-nine-week2019 thirteen-week period was $2,419,993,000,$953,111,000, representing 93%92% of total revenue, an increasea decrease of $313,578,000,$25,977,000, or 15%3%, compared to the 2016 thirty-nine-week2018 thirteen-week period. TheRevenue per load on loads hauled by third party truck capacity providers decreased approximately 5% in the 2019 thirteen-week period compared to the 2018 thirteen-week period, while the number of loads hauled by third party truck capacity providers increased approximately 11% in the 2017 thirty-nine-week period2% compared to the 2016 thirty-nine-week2018 thirteen-week period. The decrease in revenue per load on loads hauled via truck was primarily due to a softer freight environment experienced during the 2019 thirteen-week period, which resulted in more readily available truck capacity as compared to the 2018 thirteen-week period. Revenue per load on loads hauled via van equipment decreased 7%, revenue per load on loads hauled via unsided/platform equipment decreased 1% and revenue per load increased approximately 3%on less-than-truckload loadings decreased 6% as compared to the 2016 thirty-nine-week2018 thirteen-week period. The increase in the number of loads hauled via truck compared to the 2016 thirty-nine-week2018 thirteen-week period was due to a broad-basedan increase in demand across many customersfor the Company’s unsided/platform services and industriesslightly higher demand for Landstar’s various truck service offerings.truckload services provided via van equipment. The increase in revenue per load on loads hauled via trucknumber of 3% was primarily due to an 8% increase in revenue per load on loads hauled via unsided/platform and van equipment inclusive of a 10% increase in heavy/specialized revenue per load,increased 4% and 1% during the impact of higher diesel fuel costs on loads hauled via Truck Brokerage Carriers.2019 thirteen-week period, respectively, as compared to the 2018 thirteen-week period. Fuel surcharges billed to customers on revenue generated by BCO Independent Contractors are excluded from revenue. Fuel surcharges on Truck Brokerage Carrier revenue identified separately in billings to customers and included as a component of Truck Brokerage Carrier revenue were $46,479,000$20,987,000 and $37,723,000$22,245,000 in the 20172019 and 2016 thirty-nine-week2018 thirteen-week periods, respectively. It should be noted that billings to many customers of the Company’s truck brokerage services requireinclude a singleall-in rate that does not separately identify fuel surcharges.surcharges on loads hauled via Truck Brokerage Carriers. Accordingly, the overall impact of changes in fuel prices on revenue and revenue per load on loads hauled via truck is likely to be greater than that indicated.

Transportation revenue generated by rail intermodal, air cargo and ocean cargo carriers (collectively, the “multimode capacity providers”) for the 2017 thirty-nine-week2019 thirteen-week period was $139,278,000,$60,684,000, or 5%6% of total revenue, an increase of $5,791,000,$7,915,000, or 4%15%, compared to the 2016 thirty-nine-week2018 thirteen-week period. Revenue per load on revenue generated by multimode capacity providers increased approximately 6%13% in the 2017 thirty-nine-week2019 thirteen-week period compared to the 2016 thirty-nine-week2018 thirteen-week period, whileand the number of loads hauled by multimode capacity

providers decreasedincreased approximately 2% over the same period. The increase in revenue per load of 6%13% on loads hauled by multimode capacity providers was primarily driven by an increase inattributable to increased revenue per load generatedon ocean loads. The increase in the number of loads hauled by multimode capacity providers was primarily due to a 34% increase in air cargo carriers, entirelyloadings, primarily attributable to the impact ofincreased air loadings provided in support of disaster relief efforts during the 2017 thirty-nine-week period.for one specific customer. Also, revenue per load on revenue generated by multimode capacity providers is influenced by many factors, including revenue mix among the various modes of transportation used, length of haul, complexity of freight, density of freight lanes, fuel costs and availability of capacity. The decrease in loads hauled by multimode capacity providers was due to an 11% decrease in rail intermodal loads, entirely attributable to decreased loadings at two specific agencies, partially offset by a 22% increase in loads hauled by air and ocean cargo carriers. The 22% increase in loads hauled by air and ocean cargo carriers was broad-based across many customers.

Purchased transportation was 76.7%76.6% and 76.1%77.3% of revenue in the 20172019 and 2016 thirty-nine-week2018 thirteen-week periods, respectively. The increasedecrease in purchased transportation as a percentage of revenue was primarily due to an increaseda decreased rate of purchased transportation paid toon Truck Brokerage Carriers andCarrier revenue, partially offset by a decrease in the percentage of revenue contributed by BCO Independent Contractors, which typically has a lower rate of purchased transportation than revenue generated by Truck Brokerage Carriers. Commissions to agents were 8.1%8.3% and 8.3%7.8% of revenue in the 20172019 and 2016 thirty-nine-week2018 thirteen-week periods, respectively. The decreaseincrease in commissions to agents as a percentage of revenue was primarily attributable to a decreasedan increased net revenue margin on revenue generated by Truck Brokerage Carriers.

Investment income was $1,733,000$1,138,000 and $1,100,000$861,000 in the 20172019 and 2016 thirty-nine-week2018 thirteen-week periods, respectively. The increase in investment income was primarily dueattributable to higher average rates of return on investments during the 2017 period and a higher average investment balance held by the insurance segment in the 20172019 thirteen-week period.

Other operating costs increased $1,013,000$635,000 in the 2017 thirty-nine-week2019 thirteen-week period compared to the 2016 thirty-nine-week2018 thirteen-week period and represented 5.7%5.3% of gross profit in the 20172019 period compared to 6.1%4.9% of gross profit in the 20162018 period. The increase in other operating costs compared to the prior year was primarily due to decreased gains on sales of usedincreased trailing equipment andmaintenance costs as a result of an increased number of Company-owned trailers, partially offset by a decreased provision for contractor bad debt, partially offset by decreased trailing equipment maintenance costs due to a lower average age of the Company-owned trailer fleet.debt. The decreaseincrease in other operating costs as a percentage of gross profit was caused by the effect of increased gross profit, partially offset by the increase in other operating costs.

Insurance and claims increased $3,538,000decreased $2,367,000 in the 2017 thirty-nine-week2019 thirteen-week period compared to the 2016 thirty-nine-week2018 thirteen-week period and represented 11.8%9.6% of gross profit in the 20172019 period compared to 12.1%11.2% of gross profit in the 20162018 period. The increasedecrease in insurance and claims expense compared to prior year was primarily due to increaseddecreased net unfavorable development of prior years’ claims and decreased severity of current year claims in the 2017 period, increased net2019 period. Net unfavorable development of prior years’ claims was $1,407,000 and $2,558,000 in the 2017 period2019 and increased insurance premiums on the Company’s commercial trucking liability coverage. Unfavorable development of prior years’ claims was $1,327,000 and $698,000 in the 2017 and 2016 thirty-nine-week2018 thirteen-week periods, respectively. The decrease in insurance and claims as a percent of gross profit was caused by the effect of increased gross profit, partially offset by the increasedecrease in insurance and claims costs.

Selling, general and administrative costs increased $16,968,000decreased $3,983,000 in the 2017 thirty-nine-week2019 thirteen-week period compared to the 2016 thirty-nine-week2018 thirteen-week period and represented 31.3%26.5% of gross profit in the 20172019 period compared to 29.9%29.1% of gross profit in the 20162018 period. The increasedecrease in selling, general and administrative costs compared to prior year was attributable to a $13,634,000decreased provision for incentive compensation and decreased stock-based compensation expense, partially offset by increased wages and an increased provision for customer bad debt. Included in selling, general and administrative costs is incentive compensation expense of $1,038,000 and $4,131,000 for the 2017 thirty-nine-week period compared to an $875,000 provision in2019 and 2018 thirteen-week periods, respectively, and stock-based compensation expense of $1,938,000 and $3,710,000 for the 2016 thirty-nine-week period2019 and increased wages.2018 thirteen-week periods, respectively. The increasedecrease in selling, general and administrative costs as a percent of gross profit was due primarily to the increasedecrease in selling, general and administrative costs, partially offset by the effect of increased gross profit.costs.

Depreciation and amortization increased $3,852,000$319,000 in the 2017 thirty-nine-week2019 thirteen-week period compared to the 2016 thirty-nine-week2018 thirteen-week period and represented 7.6%7.3% of gross profit in the 20172019 period compared to 7.4%7.1% of gross profit in the 20162018 period. The increase in depreciation and amortization expenses was primarily due to an increased number of owned trailers in response to increased customer demand for the Company’s drop and hook services and a lower average age of the trailer fleet during the 2017 thirty-nine-week period as compared to the 2016 thirty-nine-week period.Company-owned trailers. The increase in depreciation and amortization as a percentage of gross profit was primarily due to the increased depreciation costs, partially offset by the effect of increased gross profit.costs.

Interest and debt expense in the 2017 thirty-nine-week2019 thirteen-week period decreased $166,000increased $5,000 compared to the 2016 thirty-nine-week2018 thirteen-week period.

The provisions for income taxes for the 20172019 and 2016 thirty-nine-week2018 thirteen-week periods were based on estimated annual effective income tax rates of 37.8%24.2% and 38.1%24.5%, respectively, adjusted for discrete events, such as benefits resulting from disqualifying dispositions of the Company’s common stock by employees who obtained the stock through exercises of incentive stock options. The effective income tax rates for the 2017 and 2016 thirty-nine-week periods were 34.5% and 37.6%, respectively.stock-based awards. The effective income tax rate for the 2017 thirty-nine week2019 thirteen-week period was lower21.0%, which approximated the statutory federal income tax rate. The effective income tax rate for the 2018 thirteen-week period was 22.7%, which was higher than the 35% statutory federal income tax rate of 21% primarily as a result of federal domestic production activities deductions and research and development credits recognized as discrete items during the thirteen-week period ended September 30, 2017, partially offset by the effect ofattributable to state taxes, the Tax Reform Act’s elimination of the performance-based compensation exception under Section 162(m) and the meals and entertainment exclusion. The effective income tax rate forin the 2016 thirty-nine-week2019 thirteen-week period of 21.0% was higherlower than the statutory federal24.2% estimated annual effective income tax rate primarily as a resultdue to excess tax benefits recognized on stock-based compensation arrangements in the 2019 thirteen-week period, which essentially offset the impact of state taxes and the meals and entertainment exclusion. The effective income tax rate in the 2017 thirty-nine-week2018 thirteen-week period of 34.5%22.7% was lesslower than the 37.8% estimated annual effective income tax rate primarily as a result of federal domestic production activities deductions and research and development credits recognized during 2017 of approximately $5,200,000, excess tax benefits recognized on stock-based compensation arrangements resulting from the Company’s adoption of ASU2016-09 during 2017 and disqualifying dispositions of the Company’s common stock by employees who obtained the stock through the exercises of incentive stock options in the 2017 period. The effective income tax rate in the 2016 thirty-nine-week period of 37.6% was less than the 38.1%24.5% estimated annual effective income tax rate primarily due to certain federal incomeexcess tax credits realizedbenefits recognized on stock-based compensation arrangements in the 2016 period and disqualifying dispositions of the Company’s common stock by employees who obtained the stock through exercises of incentive stock options in the 20162018 thirteen-week period.

The net loss attributable to noncontrolling interest of $23,000$17,000 and $44,000 in the 2017 thirty-nine-week period2019 and 2018 thirteen-week periods, respectively, represents the former noncontrolling investors’ 30% share of the net loss incurred by Landstar Metro and Landstar Servicios.

Net income attributable to the Company was $112,336,000,$63,317,000, or $2.68$1.58 per common share ($2.671.58 per diluted share), in the 2017 thirty-nine-week period. Net income attributable to the Company was $97,776,000, or $2.32 per common share ($2.31 per diluted share), in the 2016 thirty-nine-week period.

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

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

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

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

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

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

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

Other operating costs increased $605,000 in the 2017 thirteen-week period compared to the 2016 thirteen-week period and represented 5.8% of gross profit in the 2017 period compared to 6.2% of gross profit in the 2016 period. The increase in other operating costs compared to the prior year was primarily due to decreased gains on sales of used trailing equipment, partially offset by decreased trailing equipment maintenance costs. The decrease in other operating costs as a percentage of gross profit was caused by the effect of increased gross profit, partially offset by the increase in other operating costs.

Insurance and claims increased $5,439,000 in the 2017 thirteen-week period compared to the 2016 thirteen-week period and represented 12.8% of gross profit in the 2017 period compared to 10.3% of gross profit in the 2016 period. The increase in insurance and claims expense compared to prior year was due to increased net unfavorable development of prior years’ claims in the 2017 period and increased severity of current year claims, in particular, related to a single severe accident in the 2017 period. Unfavorable development of prior years’ claims was $1,124,000 in the 2017 thirteen-week period whereas favorable development of prior year’s claims was $2,118,000 in the 2016 thirteen-week period. The increase in insurance and claims as a percent of gross profit was caused by the increase in insurance and claims costs, partially offset by the effect of increased gross profit.

Selling, general and administrative costs increased $9,303,000 in the 2017 thirteen-week period compared to the 2016 thirteen-week period and represented 31.4% of gross profit in the 2017 period compared to 28.5% of gross profit in the 2016 period. The increase in selling, general and administrative costs compared to prior year was primarily attributable to a $6,848,000 provision for incentive compensation in the 2017 thirteen-week period compared to a $427,000 provision in the 2016 thirteen-week period as the Company is significantly exceeding earnings targets during the 2017 period, an increased provision for customer bad debt, increased stock-based compensation expense and increased wages. The increase in selling, general and administrative costs as a percent of gross profit was due primarily to the increase in selling, general and administrative costs, partially offset by the effect of increased gross profit.

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

Interest and debt expense in the 2017 thirteen-week period decreased $291,000 compared to the 2016 thirteen-week period. The decrease in interest and debt expense was primarily attributable to increased interest income earned on deposits held at the transportation logistics segment.

The provisions for income taxes for the 2017 and 2016 thirteen-week periods were based on estimated annual effective income tax rates of 37.8% and 38.1%, respectively, adjusted for discrete events, such as benefits resulting from disqualifying dispositions of the Company’s common stock by employees who obtained the stock through exercises of incentive stock options. The effective income tax rates for the 2017 and 2016 thirteen-week periods were 29.2% and 36.9%, respectively. The effective income tax rate for the 2017 thirteen-week period was lower than the statutory federal income tax rate primarily as a result of federal domestic production activities deductions and research and development credits recognized as discrete items during the thirteen-week period ended September 30, 2017, partially offset by the effect of state taxes and the meals and entertainment exclusion. The effective income tax rate for the 2016 thirteen-week period was higher than the 35% statutory federal income tax rate primarily as a result of state taxes and the meals and entertainment exclusion. The effective income tax rate in the 2017 thirteen-week period of 29.2% was less than the 37.8% estimated annual effective income tax rate primarily as a result of federal domestic production activities deductions and research and development credits recognized as discrete items during the thirteen-week period ended September 30, 2017, excess tax benefits recognized on stock-based compensation arrangements resulting from the Company’s adoption of ASU2016-09 during 2017 and disqualifying dispositions of the Company’s common stock by employees who obtained the stock through the exercises of incentive stock options in the 2017 period. The effective income tax rate in the 2016 thirteen-week period of 36.9% was less than the 38.1% estimated annual effective income tax rate primarily due to certain federal income tax credits realized in the 2016 period and disqualifying dispositions of the Company’s common stock by employees who obtained the stock through exercises of incentive stock options in the 2016 period.

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

Net income attributable to the Company was $42,443,000, or $1.01 per common share ($1.01 per diluted share), in the 20172019 thirteen-week period. Net income attributable to the Company was $36,278,000,$57,517,000, or $0.86$1.37 per common share ($0.861.37 per diluted share), in the 20162018 thirteen-week period.

CAPITAL RESOURCES AND LIQUIDITY

Working capital and the ratio of current assets to current liabilities were $430,966,000$470,951,000 and 2.0 to 1, respectively, at SeptemberMarch 30, 2017,2019, compared with $357,096,000$435,611,000 and 1.91.8 to 1, respectively, at December 31, 2016.29, 2018. Landstar has historically operated with current ratios within the range of 1.5 to 1 to 2.0 to 1. Cash provided by operating activities was $132,264,000$121,416,000 in the 2017 thirty-nine-week2019 thirteen-week period compared with $171,297,000$72,002,000 in the 2016 thirty-nine-week2018 thirteen-week period. The decreaseincrease in cash flow provided by operating activities was primarily attributable to the timing of collections of trade receivables.

The Company declared and paid $0.28$0.165 per share, or $11,739,000$6,629,000 in the aggregate, in cash dividends during the thirty-nine-weekthirteen-week period ended SeptemberMarch 30, 2017.2019. The Company declared and paid $0.25$0.15 per share, or $10,572,000$6,308,000 in the aggregate, in cash dividends during the thirty-nine-weekthirteen-week period ended September 24, 2016.March 31, 2018 and, during such period, also paid $62,985,000 of dividends payable which were declared during fiscal year 2017 and included in current liabilities in the consolidated balance sheet at December 30, 2017. During the thirty-nine-weekthirteen-week period ended SeptemberMarch 30, 2017,2019, the Company did not purchase anypurchased 124,481 shares of its common stock.stock at a total cost of $12,977,000. During the thirteen-week period ended March 31, 2018, the Company purchased 14,354 shares of its common stock at a total cost of $1,508,000. As of SeptemberMarch 30, 2017,2019, the Company may purchase in the aggregate up to 1,036,1251,875,519 shares of its common stock under its authorized stock purchase program.programs. Long-term debt, including current maturities, was $117,402,000$116,430,000 at SeptemberMarch 30, 2017, $20,902,0002019, $11,995,000 lower than at December 31, 2016.29, 2018.

Equity was $653,973,000,$728,260,000, or 85%86% of total capitalization (defined as long-term debt including current maturities plus equity), at SeptemberMarch 30, 2017,2019, compared to $542,557,000,$689,133,000, or 80%84% of total capitalization, at December 31, 2016.29, 2018. The increase in equity was primarily a result of net income, partially offset by purchases of shares of the Company’s common stock and dividends declared by the Company in the 2017 thirty-nine-week2019 thirteen-week period.

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

The Credit Agreement contains a number of covenants that limit, among other things, the incurrence of additional indebtedness. The Company is required to, among other things, maintain a minimum Fixed Charge Coverage Ratio, as defined in the Credit Agreement, and maintain a Leverage Ratio, as defined in the Credit Agreement, below a specified maximum. The Credit Agreement provides for a restriction on cash dividends and other distributions to stockholders on the Company’s capital stock to the extent there is a default under the Credit Agreement. In addition, the Credit Agreement under certain circumstances limits the amount of such cash dividends and other distributions to stockholders to the extent that, after giving effect to any payment made to effect such cash dividend or other distribution, the Leverage Ratio would exceed 2.5 to 1 on a pro forma basis as of the end of the Company’s most recently completed fiscal quarter. The Credit Agreement provides for an event of default in the event that, among other things, a person or group acquires 35% or more of the outstanding capital stock of the Company or obtains power to elect a majority of the Company’s directors or the directors cease to consist of a majority of Continuing Directors, as defined in the Credit Agreement. None of these covenants are presently considered by management to be materially restrictive to the Company’s operations, capital resources or liquidity. The Company is currently in compliance with all of the debt covenants under the Credit Agreement.

At SeptemberMarch 30, 2017,2019, the Company had no borrowings outstanding and $33,127,000$34,369,000 of letters of credit outstanding under the Credit Agreement. At SeptemberMarch 30, 2017,2019, there was $216,873,000$215,631,000 available for future borrowings under the Credit Agreement. In addition, the Company has $59,999,000$62,345,000 in letters of credit outstanding as collateral for insurance claims that are secured by investments totaling $66,666,000$69,272,000 at SeptemberMarch 30, 2017.2019. Investments, all of which are carried at fair value, include primarily investment-grade bonds and U.S. Treasury obligations having maturities of up to five years. Fair value of investments is based primarily on quoted market prices. See Notes“Notes to Consolidated Financial StatementsStatements” included herein for further discussion on measurement of fair value of investments.

Historically, the Company has generated sufficient operating cash flow to meet its debt service requirements, fund continued growth, both organic and through acquisitions, complete or execute share purchases of its common stock under authorized share purchase programs, pay dividends and meet working capital needs. As an asset-light provider of integrated transportation management solutions, the Company’s annual capital requirements for operating property are generally for trailing equipment and information technology hardware and software. In addition, a significant portion of the trailing equipment used by the Company is provided by third party capacity providers, thereby reducing the Company’s capital requirements. During the 2017 thirty-nine-week2019 thirteen-week period, the Company purchased $8,800,000$4,576,000 of operating property. Included in the $8,800,000 of purchases of operating property during the 2017 thirty-nine-week period is $4,255,000 related to a freight staging and transload facility in Laredo, Texas for which the Company accrued a corresponding liability in accounts payable as of December 31, 2016. Landstar also acquired $945,000 of operating property relating to the completion of the Laredo property for which the Company accrued a corresponding liability in accounts payable as of September 30, 2017. Landstar anticipates acquiring either by purchase or lease financing during the remainder of fiscal year 20172019 approximately $36,000,000$66,000,000 in operating property, consisting primarily of new trailing equipment to replace older trailing equipment and information technology equipment.

On September 20, 2017 the Company completed theJanuary 29, 2019, Landstar Metro acquisition, as described in footnote 1 to our unaudited consolidated financial statements. Cash consideration paid in the quarter for the acquisition was approximately $8,199,000. In addition, the Company assumed approximately $2,200,000 in liabilities consisting of additional contingent purchase price and associated indirect taxes.

As it relates to thenon-controlling interests of Landstar Metro and Landstar Servicios, the Company has the option to purchase, and the minority equityholders have the option to sell, during the period commencing on the third anniversary of September 20, 2017, the closing date of the subscription by the minority equityholders (the “Closing Date”), and at any time after the fourth anniversary of the Closing Date, at fair value all but not less thanacquired all of the noncontrollingremaining equity interests in Landstar Metro and Landstar Servicios. The noncontrolling interests are also subject to customary restrictions on transfer, including a rightServicios then held by the minority equityholders. Accordingly, as of first refusal in favorsuch date, Landstar Metro and Landstar Servicios each became wholly owned subsidiaries of the Company. Cash consideration paid in the 2019 first quarter to purchase these remaining equity interests was $600,000.

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 program and meet working capital needs.

LEGAL MATTERS

Reference is made to the descriptions of certain pending legal proceedings in the Company’s Annual Report on Form10-K for the fiscal year ended December 29, 2018. There have been no material developments with respect to any such pending legal proceedings during the thirteen-week period ended March 30, 2019.

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.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

Landstar provides for the estimated costs of self-insured claims primarily on an actuarial basis. The amount recorded for the estimated liability for claims incurred is based upon the facts and circumstances known on the applicable balance sheet date. The ultimate resolution of these claims may be for an amount greater or less than the amount estimated by management. The Company continually revises its existing claim estimates as new or revised information becomes available on the status of each claim. Historically, the Company has experienced both favorable and unfavorable development of prior years’ claims estimates. During the 20172019 and 2016 thirty-nine-week2018 thirteen-week periods, insurance and claims costs included $1,327,000$1,407,000 and $698,000$2,558,000 of net unfavorable adjustments to prior years’ claims estimates, respectively. It is reasonably likely that the ultimate outcome of settling all outstanding claims will be more or less than the estimated claims reserve at SeptemberMarch 30, 2017.

The Company utilizes certain income tax planning strategies to reduce its overall cost of income taxes. If the Company were to be subject to an audit, it is possible that certain strategies might be disallowed resulting in an increased liability for income taxes. Certain of these tax planning strategies result in a level of uncertainty as to whether the related tax positions taken by the Company would result in a recognizable benefit. The Company has provided for its estimated exposure attributable to such tax positions due to the corresponding level of uncertainty with respect to the amount of income tax benefit that may ultimately be realized. Management believes that the provision for liabilities resulting from the uncertainty in certain income tax positions is appropriate. To date, the Company has not experienced an examination by governmental revenue authorities that would lead management to believe that the Company’s past provisions for exposures related to the uncertainty of such income tax positions are not appropriate.2019.

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

EFFECTS OF INFLATION

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

SEASONALITY

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

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

Depending upon the specific type of borrowing, borrowings under the Credit Agreement bear interest based on either (a) the prime rate, (b) the Federal Reserve Bank of New York rate plus 0.5% or (c) the London Interbank Offered Rate, plus 1.25%. As of SeptemberMarch 30, 20172019 and during the entire 2017 third2019 first quarter, the Company had no borrowings outstanding under the Credit Agreement.

Long-term investments, all of which areavailable-for-sale and are carried at fair value, include primarily investment-grade bonds and U.S. Treasury obligations having maturities of up to five years. Assuming that the long-term portion of investments remains at $65,292,000,$74,356,000, the balance at SeptemberMarch 30, 2017,2019, 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.bonds. 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 SeptemberMarch 30, 20172019 were, as translated to U.S. dollars, approximately 3%4% of total consolidated assets. Accordingly, any translation gain or loss 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 Form10-Q, an evaluation was carried out, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule13a-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 SeptemberMarch 30, 20172019 to provide reasonable assurance that information required to be disclosed by the Company in reports that it filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

There were no significant changes in the Company’s internal control over financial reporting during the Company’s fiscal quarter ended SeptemberMarch 30, 20172019 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

Reference is made to the descriptions of certain pending legal proceedings in the Company’s Annual Report on Form10-K for the fiscal year ended December 29, 2018. There have been no material developments with respect to any such pending legal proceedings during the thirteen-week period ended March 30, 2019.

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.

Item 1A. Risk Factors

Acquired business and noncontrolling interests.During 2017, Landstar Metro, a recently formed subsidiary of the Company, acquired substantially all of the assets of the asset-light transportation logistics business of a Mexican transportation logistics company. In connection with the acquisition, individuals affiliated with the seller subscribed in the aggregate for a 30% equity interest in each of Landstar Metro and its sister company, Landstar Servicios. As it relates to the noncontrolling interests of Landstar Metro and Landstar Servicios, the Company has the option to purchase, and the minority equityholders have the option to sell, during the period commencing on the third anniversary of September 20, 2017, the closing date of the subscription by the minority equityholders (the “Closing Date”), and at any time after the fourth anniversary of the Closing Date, at fair value all but not less than all of the noncontrolling interests in Landstar Metro and Landstar Servicios. No assurances can be provided regarding the exercise of the option to purchase by the Company or the option to sell by the minority equityholders, or the amount that may be required to be paid to purchase the minority interests should either option be exercised.

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 Form10-K for the fiscal year ended December 31, 201629, 2018 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 Form10-Q.

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

Purchases of Equity Securities by the Company

The Company did notfollowing table provides information regarding the Company’s purchase any shares of its common stock during the period from July 2, 2017December 30, 2018 to SeptemberMarch 30, 2017,2019, the Company’s thirdfirst 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
 

December 29, 2018

     1,000,000 

December 30, 2018 – January 26, 2019

  —    $—     —     2,000,000 

January 27, 2019 – February 23, 2019

  100,000   104.09   100,000   1,900,000 

February 24, 2019 – March 30, 2019

  24,481   104.91   24,481   1,875,519 
 

 

 

  

 

 

  

 

 

  

Total

  124,481  $104.25   124,481  
 

 

 

  

 

 

  

 

 

  

On May 19, 2015,December 11, 2017, the Landstar System, Inc. Board of Directors authorized the Company to increase the number ofpurchase up to 1,963,875 shares of the Company’s common stock that the Company is authorized to purchase from time to time in the open market and in privately negotiated transactions under a previously announcedtransactions. On January 23, 2019, the Landstar System, Inc. Board of Directors authorized the Company to purchase programup to 3,000,000 shares.1,000,000 additional shares of the Company’s Common Stock from time to time in the open market and in privately negotiated transactions. As of SeptemberMarch 30, 2017,2019, the Company hashad authorization to purchase 1,036,125in the aggregate up to 1,875,519 shares of its common stock under this program.these programs. No specific expiration date has been assigned to either the May 19, 2015 authorization.December 11, 2017 or January 23, 2019 authorizations.

Dividends

During the thirty-nine-week period ended September 30, 2017, Landstar paid dividends as follows:

Dividend Amount

per Share

Declaration

Date

Record

Date

Payment

Date

$0.09

January 30, 2017February 20, 2017March 17, 2017

$0.09

April 25, 2017May 11, 2017June 2, 2017

$0.10

July 25, 2017August 14, 2017September 1, 2017

On June 2, 2016, Landstar entered into a credit agreement with a syndicate of banks and JPMorgan Chase Bank, N.A., as administrative agent (the “Credit Agreement”). The Credit Agreement 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 Form10-Q.

EXHIBIT INDEX

Registrant’s Commission File No.:0-21238

 

Exhibit No.

  

Description

(31)  Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.1*  Chief Executive Officer certification, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*  Chief Financial Officer certification, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(32)  Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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**  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*  XBRL Instance Document
101.SCH*  XBRL Schema Document
101.CAL*  XBRL Calculation Linkbase Document
101.DEF*  XBRL Definition Linkbase Document
101.LAB*  XBRL Labels Linkbase Document
101.PRE*  XBRL Presentation Linkbase Document

*

*

Filed herewith

**

Furnished herewith

** Furnished herewith

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: NovemberMay 3, 20172019   

/s/ James B. Gattoni

   James B. Gattoni
   

President and

Chief Executive Officer

  Chief Executive Officer
Date: NovemberMay 3, 20172019   

/s/ L. Kevin Stout

   L. Kevin Stout
   

Vice President and Chief

Financial Officer

 

3230