LANDSTAR SYSTEM, INC.

(Exact name of registrant as specified in its charter)


Delaware		06-1313069
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

13410 Sutton Park Drive South,

Jacksonville, Florida

(Address of principal executive offices)

32224

(Zip Code)

(904)

398-9400

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	LSTR	NASDAQ

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

Yes

☒

☑ No

☐

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

S-T

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

Yes

☒

☑ No

☐

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

non-accelerated

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

12b-2

of the Exchange Act. (Check one):

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

☐

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

12b-2

of the Exchange Act).

Yes

☐

No ☒☑

The number of shares of the registrant’s common stock, par value $0.01 per share, outstanding as of the close of business on ~~April~~July 20, 2020 was ~~38,370,508.~~38,379,459.

Table of Contents

Index


PART I – Financial Information

~~PART I– Financial Information~~

Item 1. Financial Statements (unaudited)			~~Page 3~~


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

Consolidated Statements of Income for the Twenty Six and Thirteen Weeks Ended ~~March 28,~~June 27, 2020 and ~~March 30,~~June 29, 2019			Page 5

Consolidated Statements of Comprehensive Income for the Twenty Six and Thirteen Weeks Ended ~~March 28,~~June 27, 2020 and ~~March 30,~~June 29, 2019			Page 6

Consolidated Statements of Cash Flows for the ~~Thirteen~~Twenty Six Weeks Ended ~~March 28,~~June 27, 2020 and ~~March 30,~~June 29, 2019			Page 7

Consolidated Statements of Changes in Equity for the Twenty Six and Thirteen Weeks Ended ~~March 28,~~June 27, 2020 and ~~March 30,~~June 29, 2019			Page 8

Notes to Consolidated Financial Statements			Page 910

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			Page 1718

Item 3. Quantitative and Qualitative Disclosures About Market Risk			Page 2731

Item 4. Controls and Procedures			Page 2832

PART II – Other Information

~~PART II~~ ~~– Other Information~~

Item 1. Legal Proceedings			Page 2832

Item 1A. Risk Factors			Page 2833

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			Page 3135

Item 6. Exhibits			Page 35

Signatures			Page 37

EX – 31.1 Section 302 CEO Certification
~~Item 6.~~ ~~Exhibits~~			~~Page 31~~
EX – 31.2 Section 302 CFO Certification
~~Signatures~~			~~Page 33~~
~~EX – 31.1 Section 302 CEO Certification~~
~~EX – 31.2 Section 302 CFO Certification~~
EX – 32.1 Section 906 CEO Certification

EX – 32.2 Section 906 CFO Certification

Table of Contents

PART I

- FINANCIAL INFORMATION

Item 1. Financial Statements

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

10-01

of Regulation

S-X

and do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. Operating results for the ~~thirteen~~twenty six weeks ended ~~March 28,~~June 27, 2020 are not necessarily indicative of the results that may be expected for the entire fiscal year ending December 26, 2020.

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

10-K.

Table of Contents

LANDSTAR SYSTEM, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share amounts)

(Unaudited)

March 28,
2020

December 28,
2019

ASSETS

Current Assets

Cash and cash equivalents
$
177,224
$
319,515

Short-term investments

33,627

32,901

Trade accounts receivable, less allowance of $8,536 and $7,284

562,528

588,549

Other receivables, including advances to independent contractors, less allowance of $8,847 and $7,667

35,153

35,553

Other current assets

7,624

21,370

Total current assets

816,156

997,888

Operating property, less accumulated depreciation and amortization of $286,593 and $280,849

276,663

285,855

Goodwill

37,182

38,508

Other assets

106,432

105,460

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

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current Liabilities

Cash overdraft
$
36,002
$
53,878

Accounts payable

272,175

271,996

Current maturities of long-term debt

39,944

42,632

Insurance claims

50,773

44,532

Dividends payable

—

78,947

Contractor escrow

24,517

24,902

Other current liabilities

41,420

36,017

Total current liabilities

464,831

552,904

Long-term debt, excluding current maturities

61,977

70,212

Insurance claims

33,456

33,575

Deferred income taxes and other noncurrent liabilities

49,074

49,551

Shareholders’ Equity

Common stock, $0.01 par value, authorized 160,000,000 shares, issued 68,167,482 and 68,083,419 shares

682

681

Additional
paid-in
capital

224,973

226,123

Retained earnings

1,995,018

1,962,161

Cost of 29,796,974 and 28,609,926 shares of common stock in treasury

(1,581,885
)
(1,465,284
)
Accumulated other comprehensive loss

(11,693
)
(2,212
)

Total shareholders’ equity

627,095

721,469

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


	June 27, 2020			December 28, 2019

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

Total current assets		840,352			997,888

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

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


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

Total current liabilities		473,460			552,904

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

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

Total shareholders’ equity		649,121			721,469

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

See accompanying notes to consolidated financial statements.

Table of Contents

LANDSTAR SYSTEM, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share amounts)

(Unaudited)

Thirteen Weeks Ended

March 28,
2020

March 30,
2019

Revenue
$
927,566
$
1,033,000

Investment income

1,167

1,138

Costs and expenses:

Purchased transportation

709,257

791,755

Commissions to agents

75,376

85,671

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

8,306

8,239

Insurance and claims

24,957

14,993

Selling, general and administrative

45,327

41,268

Depreciation and amortization

11,505

11,316

Total costs and expenses

874,728

953,242

Operating income

54,005

80,896

Interest and debt expense

952

805

Income before income taxes

53,053

80,091

Income taxes

12,158

16,791

Net income

40,895

63,300

Less: Net loss attributable to noncontrolling interest

—

(17
)

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

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

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

Average number of shares outstanding:

Earnings per common share

39,254,000

40,161,000

Diluted earnings per share

39,254,000

40,166,000

Dividends per common share
$
0.185
$
0.165


	Twenty Six Weeks Ended					Thirteen Weeks Ended
	June 27, 2020		June 29, 2019			June 27, 2020		June 29, 2019
Revenue	$	1,751,080	$	2,078,040		$	823,514	$	1,045,040
Investment income		2,002		2,421			835		1,283
Costs and expenses:
Purchased transportation		1,344,390		1,591,126			635,133		799,371
Commissions to agents		150,642		173,294			75,266		87,623
Other operating costs, net of gains on asset sales/dispositions		15,674		18,100			7,368		9,861
Insurance and claims		44,708		31,279			19,751		16,286
Selling, general and administrative		85,928		82,565			40,601		41,297
Depreciation and amortization		22,972		22,350			11,467		11,034
Impairment of intangible and other assets		2,582		—			2,582		—

Total costs and expenses		1,666,896		1,918,714			792,168		965,472

Operating income		86,186		161,747			32,181		80,851
Interest and debt expense		1,928		1,514			976		709

Income before income taxes		84,258		160,233			31,205		80,142
Income taxes		19,109		35,833			6,951		19,042

Net income		65,149		124,400			24,254		61,100
Less: Net loss attributable to noncontrolling interest		—		(17	)		—		—

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

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

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


Average number of shares outstanding:
Earnings per common share		38,816,000		40,053,000			38,379,000		39,945,000

Diluted earnings per share		38,816,000		40,053,000			38,379,000		39,945,000

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

See accompanying notes to consolidated financial statements.

Table of Contents

LANDSTAR SYSTEM, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands)

(Unaudited)

Thirteen Weeks Ended

March 28,
2020

March 30,
2019

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

Other comprehensive (loss) income:

Unrealized holding (losses) gains on
available-for-sale
investments, net of tax (benefit) expense of $(432), and $272

(1,579
)
995

Foreign currency translation (losses) gains

(7,902
)
554

Other comprehensive (loss) income

(9,481
)
1,549

Comprehensive income attributable to Landstar System, Inc. and subsidiary
$
31,414
$
64,866


	Twenty Six Weeks Ended					Thirteen Weeks Ended
	June 27, 2020			June 29, 2019		June 27, 2020		June 29, 2019
Net income attributable to Landstar System, Inc. and subsidiary	$	65,149		$	124,417	$	24,254	$	61,100
Other comprehensive (loss) income:
Unrealized holding gains on available-for-sale investments, net of
tax expense of $338, $494, $770 and $222		1,237			1,805		2,816		810
Foreign currency translation (losses) gains		(6,170	)		1,125		1,732		571

Other comprehensive (loss) income		(4,933	)		2,930		4,548		1,381

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

See accompanying notes to consolidated financial statements.

Table of Contents

LANDSTAR SYSTEM, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

Thirteen Weeks Ended

March 28,
2020

March 30,
2019

OPERATING ACTIVITIES

Net income
$
40,895
$
63,300

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

Depreciation and amortization of operating property and intangible assets

11,505

11,316

Non-cash
interest charges

63

63

Provisions for losses on trade and other accounts receivable

4,122

2,150

Gains on sales/disposals of operating property

(858
)
(876
)
Deferred income taxes, net

797

2,079

Stock-based compensation

631

1,938

Changes in operating assets and liabilities:

Decrease in trade and other accounts receivable

21,369

84,505

Decrease in other assets

9,987

2,229

Increase (decrease) in accounts payable

179

(40,953
)
Increase (decrease) in other liabilities

4,404

(3,776
)
Increase (decrease) in insurance claims

6,122

(559
)

NET CASH PROVIDED BY OPERATING ACTIVITIES

99,216

121,416

INVESTING ACTIVITIES

Net changes in other short-term investments

131

—

Sales and maturities of investments

7,963

25,739

Purchases of investments

(8,830
)
(26,707
)
Purchases of operating property

(5,799
)
(4,576
)
Proceeds from sales of operating property

2,081

2,130

NET CASH USED BY INVESTING ACTIVITIES

(4,454
)
(3,414
)

FINANCING ACTIVITIES

Decrease in cash overdraft

(17,876
)
(13,820
)
Dividends paid

(86,283
)
(6,629
)
Proceeds from exercises of stock options

575

319

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

(2,994
)
(7,923
)
Purchases of common stock

(115,962
)
(12,977
)
Principal payments on finance lease obligations

(10,923
)
(11,995
)
Purchase of noncontrolling interest

—

(600
)

NET CASH USED BY FINANCING ACTIVITIES

(233,463
)
(53,625
)

Effect of exchange rate changes on cash and cash equivalents

(3,590
)
512

(Decrease) increase in cash and cash equivalents

(142,291
)
64,889

Cash and cash equivalents at beginning of period

319,515

199,736

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


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

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

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

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

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

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

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

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

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

See accompanying notes to consolidated financial statements.

Table of Contents

LANDSTAR SYSTEM, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Twenty Six and Thirteen Weeks Ended ~~March 28,~~June 27, 2020 and ~~March 30,~~June 29, 2019

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

(Unaudited)

Common Stock

Additional
Paid-In

Retained

Treasury Stock at Cost

Accumulated
Other
Comprehensive

Shares

Amount

Capital

Earnings

Shares

Amount

Loss

Total

Balance December 28, 2019

68,083,419
$
681
$
226,123
$
1,962,161

28,609,926
$
(1,465,284
) $
(2,212
) $
721,469

Adoption of accounting standard (Note 1
1
)

(702
)
(702
)
Net income

40,895

40,895

Dividends ($0.185 per share)

(7,336
)
(7,336
)
Purchases of common stock

1,178,970

(115,962
)
(115,962
)
Issuance of stock related to stock-based compensation plans

84,063

1

(1,781
)
8,078

(639
)
(2,419
)
Stock-based compensation

631

631

Other comprehensive loss

(9,481
)
(9,481
)

Balance March 28, 2020

68,167,482
$
  682
$
  224,973
$
  1,995,018

29,796,974
$
(1,581,885
) $
(11,693
) $
627,095


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

Balance December 28, 2019		68,083,419	$	681	$	226,123		$	1,962,161			28,609,926	$	(1,465,284	)	$	(2,212	)	$	721,469

Adoption of accounting standard (Note 1 4 )									(702	)										(702	)

Net income									40,895											40,895

Dividends ($0.185 per share)									(7,336	)										(7,336	)

Purchases of common stock												1,178,970		(115,962	)					(115,962	)

Issuance of stock related to stock-based compensation plans		84,063		1		(1,781	)					8,078		(639	)					(2,419	)

Stock-based compensation						631														631

Other comprehensive loss																	(9,481	)		(9,481	)


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


Net income									24,254											24,254

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

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

Stock-based compensation						570														570

Other comprehensive income																	4,548			4,548


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

Landstar System, Inc. and Subsidiary Shareholders

Common Stock

Additional
Paid-In

Retained

Treasury Stock at Cost

Accumulated
Other
Comprehensive

Non-controlling

Shares

Amount

Capital

Earnings

Shares

Amount

(Loss) Income

Interests

Total

Balance December 29,
2018

67,870,962
$
  679
$
  226,852
$
  1,841,279

27,755,001
$
(1,376,111
) $
(5,875
) $
2,309
$
  689,133

Net income (loss)

63,317

(17
)
63,300

Dividends ($0.165 per
share)

(6,629
)
(6,629
)
Purchases of common
stock

124,481

(12,977
)
(12,977
)
Purchase of
noncontrolling
interests

1,842

(2,442
)
(600
)
Issuance of stock related
to stock-based
compensation plans

176,079

1

(7,081
)
5,199

(524
)
(7,604
)
Stock-based
compensation

1,938

1,938

Other comprehensive
income

1,549

150

1,699

Balance March 30, 2019

68,047,041
$
680
$
223,551
$
1,897,967

27,884,681
$
(1,389,612
) $
(4,326
) $
—
$
728,260

Table of Contents


	Landstar System, Inc. and Subsidiary Shareholders
	Common Stock				Additional Paid-In Capital			Retained Earnings			Treasury Stock at Cost					Accumulated Other Comprehensive (Loss) Income			Non-controlling Interests
	Shares		Amount		Additional Paid-In Capital			Retained Earnings			Shares		Amount			Accumulated Other Comprehensive (Loss) Income			Non-controlling Interests			Total

Balance December 29, 2018		67,870,962	$	679	$	226,852		$	1,841,279			27,755,001	$	(1,376,111	)	$	(5,875	)	$	2,309		$	689,133

Net income (loss)									63,317											(17	)		63,300

Dividends ($0.165 per share)									(6,629	)													(6,629	)

Purchases of common stock												124,481		(12,977	)								(12,977	)

Purchase of noncontrolling interests						1,842														(2,442	)		(600	)

Issuance of stock related to stock-based compensation plans		176,079		1		(7,081	)					5,199		(524	)								(7,604	)

Stock-based compensation						1,938																	1,938

Other comprehensive income																	1,549			150			1,699


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


Net income									61,100														61,100

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

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

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

Stock-based compensation						1,430																	1,430

Other comprehensive income																	1,381						1,381


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

See accompanying notes to consolidated financial statements.

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LANDSTAR SYSTEM, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The consolidated financial statements include the accounts of Landstar System, Inc. and its

subsidiary

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

(1)	Significant Accounting Policies

Revenue from Contracts with Customers – Disaggregation of Revenue

During the ~~thirteen~~twenty six weeks ended ~~March 28,~~June 27, 2020, revenue generated by BCO Independent Contractors, Truck Brokerage Carriers and railroads represented approximately 46%, 46% and 3% respectively, of the Company’s consolidated revenue. Collectively, revenue generated by air and ocean cargo carriers represented approximately 3% of the Company’s consolidated revenue in the

twenty-six-week

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

twenty-six-week

period ended June 27, 2020 was $1,028,334,000 hauled via van equipment, $533,716,000 hauled via unsided/platform equipment and $45,859,000 of less-than-truckload. During the twenty six weeks ended June 29, 2019, revenue generated by BCO Independent Contractors, Truck Brokerage Carriers and railroads represented approximately 44%, 48% and 3%, respectively, of the Company’s consolidated revenue. Collectively, revenue generated by air and ocean cargo carriers represented approximately 3% of the Company’s consolidated revenue in the

twenty-six-week

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

twenty-six-week

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

During the thirteen weeks ended June 27, 2020, revenue generated by BCO Independent Contractors, Truck Brokerage Carriers and railroads represented approximately 46%, 46% and 3% respectively, of the Company’s consolidated revenue. Collectively, revenue generated by air and ocean cargo carriers represented approximately 4% of the Company’s consolidated revenue in the thirteen-week period ended ~~March 28,~~June 27, 2020. Included in truck transportation revenue generated by BCO Independent Contractors and Truck Brokerage Carriers during the thirteen-week period ended ~~March 28,~~June 27, 2020 was ~~$545,307,000~~$483,027,000 hauled via van equipment, ~~$286,328,000~~$247,388,000 hauled via unsided/platform equipment and ~~$22,941,000~~$22,918,000 of less-than-truckload. During the thirteen weeks ended ~~March 30,~~June 29, 2019, revenue generated by BCO Independent Contractors, Truck Brokerage Carriers and railroads represented approximately ~~43%~~45%, ~~49%~~47% and 3%, respectively, of the Company’s consolidated revenue. Collectively, revenue generated by air and ocean cargo carriers represented approximately 3% of the Company’s consolidated revenue in the thirteen-week period ended ~~March 30,~~June 29, 2019. Included in truck transportation revenue generated by BCO Independent Contractors and Truck Brokerage Carriers during the thirteen-week period ended ~~March 30,~~June 29, 2019 was ~~$619,014,000~~$605,365,000 hauled via van equipment, ~~$310,721,000~~$338,107,000 hauled via unsided/platform equipment and ~~$23,376,000~~$24,732,000 of less-than-truckload.

(2)	Acquired Business

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

2,701

000

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

2,807,000

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

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

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(3)	Share-based Payment Arrangements

As of ~~March 28,~~June 27, 2020, the Company had 2 employee equity incentive plans, the 2002 employee stock option and stock incentive plan (the “ESOSIP”) and the 2011 equity incentive plan (the “2011 EIP”). No further grants can be made under the ESOSIP. The Company also has a stock compensation plan for members of its Board of Directors, the Amended and Restated 2013 Directors Stock Compensation Plan (as amended and restated as of May 17, 2016, the “2013 DSCP”). 6,000,000 shares of the Company’s common stock were authorized for issuance under the 2011 EIP and 115,000 shares of the Company’s common stock were authorized for issuance under the 2013 DSCP. The ESOSIP, 2011 EIP and 2013 DSCP are each referred to herein as a “Plan,” and, collectively, as the “Plans.” Amounts recognized in the financial statements with respect to these Plans are as follows (in thousands):


	Thirteen Weeks Ended						Twenty Six Weeks Ended						Thirteen Weeks Ended
	March 28, 2020			March 30, 2019			June 27, 2020			June 29, 2019			June 27, 2020			June 29, 2019
Total cost of the Plans during the period	$	631		$	1,938		$	1,201		$	3,368		$	570		$	1,430
Amount of related income tax benefit recognized during the period		(873	)		(3,062	)		(1,135	)		(3,734	)		(262	)		(672	)

Net cost of the Plans during the period	$	(242	)	$	(1,124	)	$	66		$	(366	)	$	308		$	758

Included in income tax benefits recognized in the ~~thirteen-week~~

twenty-six-week

periods ended ~~March 28,~~June 27, 2020 and ~~March 30,~~June 29, 2019 were excess tax benefits from stock-based awards of ~~$706,000~~$829,000 and ~~$2,571,000,~~$2,871,000, respectively. Also included in income tax benefits recognized in the thirteen-week periods ended March 28, 2020 and March 30, 2019 were income tax benefits of $12,000 and $16,000, respectively, recognized on disqualifying dispositions of the Company’s common stock by employees who obtained shares of common stock through exercises of incentive stock options.

~~Table of Contents~~

As of ~~March 28,~~June 27, 2020, there were ~~66,454~~60,586 shares of the Company’s common stock reserved for issuance under the 2013 DSCP and ~~3,692,315~~3,683,524 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 28, 2019		198,875		$	84.37		198,875		$	84.37
Granted		59,230		$	102.70		59,478		$	102.66
Shares earned in excess of target (1)		11,648		$	77.00		11,648		$	77.00
Vested shares, including shares earned in excess of target		(70,247	)	$	77.00		(76,290	)	$	73.44
Forfeited		(10,237	)	$	100.55		(10,987	)	$	100.55

Outstanding at March 28, 2020		189,269		$	91.51
Outstanding at June 27, 2020							182,724		$	93.44

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

During the ~~thirteen-week~~

twenty-six-week

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

10-K.

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

January

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

pre-tax

income per

diluted

share from continuing operations attributable to Landstar System, Inc. and subsidiary as compared to the results from the 2019 fiscal year.

The Company recognized approximately ($~~136,000)~~308,000) and ~~$1,307,000~~$2,062,000 of share-based compensation (benefit)/expense related to RSU awards in the ~~thirteen-week~~

twenty-six-week

periods ended ~~March 28,~~June 27, 2020 and ~~March 30,~~June 29, 2019, respectively. As of ~~March 28,~~June 27, 2020, there was a maximum of ~~$35.2~~$35.3 million of total unrecognized compensation cost related to RSU awards granted under the Plans with an expected average remaining life of approximately ~~3.6~~3.3 years. With respect to RSU awards with a performance condition, the amount of future compensation expense to be recognized will be determined based on future operating results.

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Stock Options

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

Number of
Options

Weighted Average
Exercise Price

per
Share

Weighted Average
Remaining
Contractual
Term (years)

Aggregate Intrinsic
Value (000s)

Options outstanding at December 28, 2019

44,467
$
51.24

Exercised

(15,767
) $
47.50

Options outstanding at March 28, 2020

28,700
$
53.29

2.3
$
1,128

Options exercisable at March 28, 2020

28,700
$
53.29

2.3
$
1,128


	Number of Options			Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value (000s)
Options outstanding at December 28, 2019		44,467		$	51.24
Exercised		(16,517	)	$	47.70

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

The total intrinsic value of stock options exercised during the ~~thirteen-week~~

twenty-six-week

periods ended ~~March 28,~~June 27, 2020 and ~~March 30,~~June 29, 2019 was ~~$1,023,000~~$1,071,000 and ~~$944,000,~~$1,269,000, respectively.

As of ~~March 28,~~June 27, 2020, there was no unrecognized compensation cost related to stock options granted under the Plans.

~~Table of Contents~~

Non-vested

Restricted Stock and Deferred Stock Units

The following table summarizes information regarding the Company’s outstanding shares of

non-vested

restricted stock and Deferred Stock Units (defined below) under the Plans:

Number of Shares
and Deferred Stock
Units

Weighted Average
Grant Date
Fair Value

Non-vested
at December 28, 2019

64,808
$
98.24

Granted

20,736
$
111.73

Vested

(19,878
) $
97.95

Forfeited

(2,351
) $
106.34

Non-vested
at March 28, 2020

63,315
$
102.45


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

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

The fair value of each share of

non-vested

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

non-vested

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

As of ~~March 28,~~June 27, 2020, there was ~~$5,174,000~~$4,841,000 of total unrecognized compensation cost related to

non-vested

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

non-vested

shares of restricted stock and Deferred Stock Units is expected to be recognized over a weighted average period of ~~2.4~~2.1 years.

~~(3)~~(4)

Income Taxes

The provisions for income taxes for the 2020 and 2019 ~~thirteen-week~~

twenty-six-week

periods were each based on an estimated annual effective income tax rate of 24.2%, adjusted for discrete events, such as benefits resulting from stock-based awards. The effective income tax rate for the 2020 ~~thirteen-week~~

twenty-six-week

period was ~~22.9%~~22.7%, which was higher than the statutory federal income tax rate of 21% primarily

attributable to state taxes and the meals and entertainment exclusion, partially offset by state tax refunds and excess tax benefits realized on stock

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based awards. The effective income tax rate for the 2019

twenty-six-week

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

on stock

based ~~awards. The effective income tax rate for the 2019 thirteen-week period was 21.0%, which approximated the statutory federal income tax rate of 21%~~awards

. The provision for income taxes for the 2019 ~~thirteen-week~~

twenty-six-week

period was favorably impacted by ~~$2,571,000~~$2,871,000 of excess tax benefits from stock-based ~~awards, which essentially offset the impact of state taxes and the meals and entertainment exclusion.~~awards.

~~(4)~~(5)

Earnings Per Share

Earnings per common share attributable to Landstar System, Inc. and subsidiary are based on the weighted average number of shares outstanding, including outstanding

non-vested

restricted stock and outstanding Deferred Stock Units. Diluted earnings per share attributable to Landstar System, Inc. and subsidiary are based on the weighted average number of common shares and Deferred Stock Units outstanding plus the incremental shares that would have been outstanding upon the assumed exercise of all dilutive stock options. During the 2020 and 2019 twenty-six-week and thirteen-week periods

the future compensation cost attributable to

shares of

non-vested restricted stock

11exceeded

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

~~Table of Contents~~

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

Thirteen Weeks Ended

March 28,
2020

March 30,
2019

Average number of common shares outstanding

39,254

40,161

Incremental shares from assumed exercises of stock options

—

5

Average number of common shares and common share equivalents outstanding

39,254

40,166

For each of the ~~thirteen-week~~

twenty-six-week

periods ended ~~March 28,~~June 27, 2020 and ~~March 30,~~June 29, 2019, 0 options outstanding to purchase shares of common stock were antidilutive. Outstanding RSUs were excluded from the calculation of diluted earnings per share attributable to Landstar System, Inc. and subsidiary for all periods because the performance metric requirements or market condition for vesting had not been satisfied.

~~(5)~~

(6)

Additional Cash Flow Information

During the 2020 ~~thirteen-week~~

twenty-six-week

period, Landstar paid income taxes and interest of ~~$7,000~~$16,198,000 and ~~$1,079,000,~~$2,057,000, respectively. During the 2019 ~~thirteen-week~~

twenty-six-week

period, Landstar ~~received~~paid income ~~tax refunds, net of income tax payments, of $3,624,000~~taxes and ~~paid~~ interest of ~~$1,198,000.~~$39,180,000 and $2,286,000, respectively. Landstar acquired operating property by entering into finance leases in the amount of $7,485,000 in the 2020

twenty-six-week

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

twenty-six-week

periods. In addition, during the 2020 ~~or 2019 thirteen-week periods.~~

twenty-six-week

period, Landstar acquired

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

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

~~(6)~~

(7)

Segment Information

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

twenty-six-week

and thirteen week periods ended ~~March 28,~~June 27, 2020 and ~~March 30,~~June 29, 2019 (in thousands):


	Thirteen Weeks Ended													Twenty Six Weeks Ended
	March 28, 2020							March 30, 2019						June 27, 2020						June 29, 2019
	Transportation Logistics		Insurance			Total		Transportation Logistics		Insurance		Total		Transportation Logistics		Insurance		Total		Transportation Logistics		Insurance		Total
External revenue	$	913,884	$	13,682		$	927,566	$	1,018,961	$	14,039	$	1,033,000	$	1,723,682	$	27,398	$	1,751,080	$	2,049,777	$	28,263	$	2,078,040
Internal revenue				9,079			9,079				9,614		9,614				35,834		35,834				27,367		27,367
Investment income				1,167			1,167				1,138		1,138				2,002		2,002				2,421		2,421
Operating income		55,044		(1,039	)		54,005		67,583		13,313		80,896		76,518		9,668		86,186		135,919		25,828		161,747
Expenditures on long-lived assets		5,799					5,799		4,576				4,576		17,676				17,676		9,224				9,224
Goodwill		37,182					37,182		38,343				38,343		40,071				40,071		38,407				38,407

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

In the ~~thirteen-week~~

twenty-six-week

periods ended ~~March 28,~~June 27, 2020 and ~~March 30,~~June 29, 2019, 0 single customer accounted for more than 10% of the Company’s consolidated revenue.

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~~(7)~~(8)

Other Comprehensive Income

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

twenty-six-week

period ended ~~March 28,~~June 27, 2020 (in thousands):

Unrealized
Holding Gains
(Losses) on
Available-for-Sale

Securities

Foreign
Currency
Translation

Total

Balance as of December 28, 2019
$
1,120
$
(3,332
) $
(2,212
)
Other comprehensive loss

(1,579
)
(7,902
)
(9,481
)

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


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

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

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 ~~thirteen-week~~

twenty-six-week

period ended ~~March 28,~~June 27, 2020.

~~(8)~~

(9)

Investments

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

available-for-sale

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

available-for-sale

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

Investments whose values

are based on quoted market prices in active markets are classified within Level 1. Investments that trade in markets that are not considered to be active, but are valued based on quoted market prices, are classified within Level 2. As Level 2 investments include positions that are not traded in active markets, valuations may be adjusted to reflect illiquidity and/or

non-transferability,

which are generally based on available market information. Any transfers between levels are recognized as of the beginning of any reporting period. Fair value of the bond portfolio was determined using Level 1 inputs related to U.S. Treasury obligations and money market investments and Level 2 inputs related to investment-grade corporate bonds, asset-backed securities and direct obligations of government agencies. Unrealized ~~losses, net of unrealized gains, on the investments in the bond portfolio were $584,000 at March 28, 2020, while unrealized~~ gains, net of unrealized losses, on the investments in the bond portfolio were $3,002,000 and $1,427,000 at June 27, 2020 and December 28, 2019, respectively.

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The amortized cost and fair values of

available-for-sale

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

Gross

Gross

Amortized
Cost

Unrealized
Gains

Unrealized
Losses

Fair

Value

March 28, 2020

Money market investments
$
15,815
$
—
$
—
$
15,815

Asset-backed securities

571

—

48

523

Corporate bonds and direct obligations of government agencies

98,287

1,038

1,710

97,615

U.S. Treasury obligations

2,336

136

—

2,472

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


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

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

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

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

~~Table of Contents~~

December 28, 2019

Money market investments
$
15,691
$
—
$
—
$
15,691

Asset-backed securities

572

—

1

571

Corporate bonds and direct obligations of government agencies

97,583

1,465

44

99,004

U.S. Treasury obligations

2,335

12

5

2,342

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

For those

available-for-sale

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

Less than 12 months

12 months or longer

Total

Fair
Value

Unrealized
Loss

Fair
Value

Unrealized
Loss

Fair
Value

Unrealized
Loss

March 28, 2020

Asset-backed securities
$
523
$
48
$
—
$
—
$
523
$
48

Corporate bonds and direct obligations of
government agencies

49,348

1,710

—

—

49,348

1,710

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

December 28, 2019

Asset-backed securities
$
571
$
1
$
—
$
—
$
571
$
1

Corporate bonds and direct obligations of
government agencies

8,728

41

4,260

3

12,988

44

U.S. Treasury obligations

1,226

5

—

—

1,226

5

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


	Less than 12 months				12 months or longer				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
June 27, 2020
Asset-backed securities	$	485	$	84	$	—	$	—	$	485	$	84
Corporate bonds and direct obligations of government agencies		4,937		316		—		—		4,937		316

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

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

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

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

~~(“COVID-19”)~~

~~worldwide pandemic.~~ The Company expects to recover, through collection of all of the contractual cash flows of each security, the amortized cost basis of these securities as it does not intend to sell, and does not anticipate being required to sell, these securities before recovery of the cost basis. For these reasons, no losses have been recognized in the Company’s consolidated statements of income.

~~(9)~~

(10) Leases

Landstar’s noncancelable leases are primarily comprised of finance leases for the acquisition of new trailing equipment. Each finance lease for the acquisition of trailing equipment is a five year lease with a $1 purchase

option for the applicable equipment at lease expiration. Substantially all of Landstar’s operating lease

right-of-use

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

build-out

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

~~“month-to-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.

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

right-of-use

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

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

~~Table of Contents~~

The components of lease cost for finance leases and operating leases for the ~~thirteen~~twenty six weeks ended ~~March 28,~~June 27, 2020 were (in thousands):

Finance leases:

Amortization of
right-of-use
assets
$
6,151

Interest on lease liability

889

Total finance lease cost

7,040

Operating leases:

Lease cost

837

Variable lease cost

—

Sublease income

(1,229
)

Total operating lease (income)/cost

(392
)

Total lease cost
$
6,648


Finance leases:
Amortization of right-of-use assets	$	12,372
Interest on lease liability		1,689

Total finance lease cost		14,061
Operating leases:
Lease cost		1,518
Variable lease cost		—
Sublease income		(2,413	)

Total operating lease (income)/cost		(895	)

Total lease cost	$	13,166

A summary of the lease classification on our consolidated balance sheet as of ~~March 28,~~June 27, 2020 is as follows (in thousands):

Assets:

Operating lease
right-of-use
assets

Other assets
$
2,554

Finance lease assets

Operating property, less accumulated depreciation and amortization

150,273

Total lease assets
$
152,827

Liabilities:

Assets:

Liabilities:

The following table reconciles the undiscounted cash flows for the finance and operating leases to the finance and operating lease liabilities recorded on the balance sheet at ~~March 28,~~June 27, 2020 (in thousands):

Finance
Leases

Operating
Leases

2020 Remainder
$
33,862
$
517

2021

31,278

637

2022

22,123

639

2023

15,100

510

2024

5,156

433

Thereafter

—

54

Total future minimum lease payments

107,519

2,790

Less amount representing interest (2.1% to 4.4%)

5,598

236

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

Current maturities of long-term debt

39,944

Long-term debt, excluding current maturities

61,977

Other current liabilities

657

Deferred income taxes and other noncurrent liabilities

1,897


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

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

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


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

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The weighted average remaining lease term and the weighted average discount rate for finance and operating leases as of ~~March 28,~~June 27, 2020 were:

Finance Leases

Operating Leases

Weighted average remaining lease term (years)

3.2

4.4

Weighted average discount rate

3.2
%
4.0
%


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

(11)	Commitments and Contingencies

~~Table of Contents~~

~~(10) Commitments and Contingencies~~

Short-term investments include ~~$33,627,000~~$36,274,000 in current maturities of investments held by the Company’s insurance segment at ~~March 28,~~June 27, 2020. The

non-current

portion of the bond portfolio of ~~$82,798,000~~$84,394,000 is included in other assets. The short-term investments, together with ~~$34,710,000~~$32,063,000 of

non-current

investments, provide collateral for the $61,503,000 of letters of credit issued to guarantee payment of insurance claims. As of ~~March 28,~~June 27, 2020, Landstar also had ~~$34,368,000~~$34,156,000 of additional letters of credit outstanding under the Company’s Credit Agreement.

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

sua sponte

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

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

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

~~(11) Recent Accounting Pronouncements~~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.

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

twenty-six-week

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


	Twenty Six Weeks Ended				Thirteen Weeks Ended
	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Operating income	$	5,039	$	2,900	$	2,816	$	1,493
Net income attributable to Landstar System, Inc. and subsidiary	$	3,820	$	2,198	$	2,135	$	1,131
Earnings per share attributable to Landstar System, Inc. and subsidiary	$	0.10	$	0.05	$	0.06	$	0.03
Diluted earnings per share attributable to Landstar System, Inc. and subsidiary	$	0.10	$	0.05	$	0.06	$	0.03

(13)	Impairment of Intangible and Other Assets

During the 2020 second fiscal quarter, the Company recorded a

non-cash

impairment charge of $2,582

,000

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

10-Q

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

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

2,582,000

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

d at the acquisition date. There was no corresponding goodwill impairment charge recorded as the fair value of the Company’s Mexico and cross-border reporting unit continues to significantly exceed its carrying value as of June 27, 2020.

)

Recent Accounting Pronouncements

Adoption of New Accounting Standards

In June 2016, the FASB issued Accounting Standards Update

2016-13–

Financial Instruments –

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

(“ASU

2016-13”),

which requires measurement and recognition of expected versus incurred credit losses for financial assets held. The Company adopted ASU

2016-13

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

~~(12) Subsequent Events~~

~~COVID-19~~

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

~~COVID-19~~

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

~~COVID-19~~

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

~~In connection with the impact of the~~

~~COVID-19~~

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

~~COVID-19~~

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

~~COVID-19~~

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

~~COVID-19~~

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

~~stay-at-home~~

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

In an effort to support BCO Independent Contractors and independent commission sales agents in the Landstar network, the Company announced that for each load delivered by a BCO Independent Contractor with a confirmed delivery date from April 1, 2020 through April 30, 2020, the Company will pay an extra $50 to both the BCO hauling the load and the Landstar agent dispatching the load. The Company subsequently announced the extension of this program through May 15, 2020. The Company estimates that Landstar BCOs will deliver between 60,000 and 70,000 loads in April 2020 and 30,000 to 35,000 from May 1, 2020 through May 15, 2020. In addition, if a Landstar BCO tests positive for

~~COVID-19~~

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

~~Moreover, the~~

~~COVID-19~~

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

~~COVID-19~~

~~Table of Contents~~

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

~~COVID-19~~

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

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

The following discussion should be read in conjunction with the interim consolidated financial statements and notes thereto included herein, and with the Company’s audited financial statements and notes thereto for the fiscal year ended December 28, 2019 and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the 2019 Annual Report on Form

10-K.

FORWARD-LOOKING STATEMENTS

The following is a “safe harbor” statement under the Private Securities Litigation Reform Act of 1995. Statements contained in this document that are not based on historical facts are “forward-looking statements.” This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections of this Form

10-Q

contain forward-looking statements, such as statements which relate to Landstar’s business objectives, plans, strategies and expectations. Terms such as “anticipates,” “believes,” “estimates,” “intention,” “expects,” “plans,” “predicts,” “may,” “should,” “could,” “will,” the negative thereof and similar expressions are intended to identify forward-looking statements. Such statements are by nature subject to uncertainties and risks, including but not limited to: the impact of the coronavirus

(COVID-19)

pandemic; an increase in the frequency or severity of accidents or other claims; unfavorable

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development of existing accident claims; dependence on third party insurance companies; dependence on independent commission sales agents; dependence on third party capacity providers; decreased demand for transportation services; U.S. foreign trade relationships; substantial industry competition; disruptions or failures in the Company’s computer systems; cyber and other information security incidents; dependence on key vendors; changes in fuel taxes; status of independent contractors; regulatory and legislative changes; regulations focused on diesel emissions and other air quality matters; catastrophic loss of a Company facility; intellectual property; unclaimed property; and other operational, financial or legal risks or uncertainties detailed in Landstar’s Form

10-K

for the 2019 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~~comprehensive third party logistics solutions to ~~manage~~meet all of a customer’s transportation needs. Landstar provides services principally throughout the United States and to a lesser extent in Canada and Mexico, and between the United States and Canada, Mexico and other countries around the world. The Company’s services emphasize safety, information coordination and customer service and are delivered through a network of over 1,200 independent commission sales agents and approximately ~~65,000~~64,000 third party capacity providers, primarily truck capacity providers, linked together by a series of ~~mobile and~~ digital ~~applications~~technologies which are provided and coordinated by the Company. The nature of the Company’s business is such that a significant portion of its operating costs varies directly with revenue.

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

non-exclusive

contractual arrangements (the “Truck Brokerage Carriers”), air cargo carriers, ocean cargo carriers and railroads. Through this network of agents and capacity providers linked together by Landstar’s ~~information technology systems,~~series of digital technologies, Landstar operates an integrated transportation management solutions business primarily throughout North America with revenue of $4.1 billion during the most recently completed fiscal year. The Company reports the results of two operating segments: the transportation logistics segment and the insurance segment.

~~Table of Contents~~

The transportation logistics segment provides a wide range of integrated transportation management solutions. Transportation services offered by the Company include truckload and less-than-truckload transportation, rail intermodal, air cargo, ocean cargo, expedited ground and air delivery of time-critical freight, heavy-haul/specialized, U.S.-Canada and U.S.-Mexico cross-border, intra-Mexico, intra-Canada, project cargo and customs brokerage. Examples of the industries serviced by the transportation logistics segment include automotive parts and assemblies, building products, metals, chemicals, foodstuffs, heavy machinery, retail, electronics and military equipment. In addition, the transportation logistics segment provides transportation services to other transportation companies, including third party logistics and less-than-truckload service providers. Each of the 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 ~~thirteen~~twenty six weeks ended ~~March 28,~~June 27, 2020, revenue generated by BCO Independent Contractors, Truck Brokerage Carriers and railroads represented approximately 46%, 46% and 3%, respectively, of the Company’s consolidated revenue. Collectively, revenue generated by air and ocean cargo carriers represented approximately 3% of the Company’s consolidated revenue in the ~~thirteen-week~~

twenty-six-week

period ended ~~March 28,~~June 27, 2020.

Landstar Metro, S.A.P.I. de C.V. (“Landstar Metro”) provides freight and logistics services within the country of Mexico and in conjunction with Landstar’s U.S./Mexico cross-border services. Landstar Metro Servicios S.A.P.I. de C.V. (“Landstar Servicios”) provides various administrative, financial, operational, safety and compliance services to Landstar Metro. The results of operations from Landstar Metro and Landstar Servicios are presented as part of the Company’s transportation logistics segment. On January 29, 2019, Landstar acquired all of the remaining equity interests in Landstar Metro and Landstar Servicios held by their former minority equityholders. Accordingly, as of such date, Landstar Metro and Landstar Servicios each became wholly owned subsidiaries of the Company. Revenue from Landstar Metro represented less than 1% of the Company’s transportation logistics segment revenue in the ~~thirteen-week~~

twenty-six-week

period ended ~~March 28,~~June 27, 2020.

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

twenty-six-week

period ended June 27, 2020.

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

twenty-six-week

period ended ~~March 28,~~June 27, 2020.

~~Recent Developments~~

~~COVID-19~~

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

~~COVID-19~~

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

~~COVID-19~~

~~In connection with the impact of the~~

~~COVID-19~~

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

~~COVID-19~~

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

~~COVID-19~~

~~stay-at-home~~

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

~~Table of Contents~~

~~COVID-19~~

~~Moreover, the~~

~~COVID-19~~

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

~~COVID-19~~

Changes in Financial Condition and Results of Operations

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

While customer demand, which is subject to overall economic conditions, ultimately drives increases or decreases in revenue, the Company primarily relies on its independent commission sales agents to establish customer relationships and generate revenue opportunities. Management’s emphasis with respect to revenue growth is on revenue generated by independent commission sales agents who on an annual basis generate $1 million or more of Landstar revenue (“Million Dollar Agents”). Management believes future revenue growth is primarily dependent on its ability to increase both the revenue generated by Million Dollar Agents and the number of Million Dollar Agents through a combination of recruiting new agents, increasing the revenue opportunities generated by existing independent commission sales agents and providing its independent commission sales agents with ~~technology-based tools~~digital technologies they may use to grow revenue and increase efficiencies at their businesses. During the 2019 fiscal year, 555 independent commission sales agents generated $1 million or more of Landstar revenue and thus qualified as Million Dollar Agents. During the 2019 fiscal year, the average revenue generated by a Million Dollar Agent was $6,880,000 and revenue generated by Million Dollar Agents in the aggregate represented 93% of consolidated revenue.

1920

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

Thirteen Weeks Ended

March 28,

March 30,

2020

2019

Revenue generated through (in thousands):

Truck transportation

Truckload:

Van equipment
$
545,307
$
619,014

Unsided/platform equipment

286,328

310,721

Less-than-truckload

22,941

23,376

Total truck transportation

854,576

953,111

Rail intermodal

28,129

30,015

Ocean and air cargo carriers

26,587

30,669

Other (1)

18,274

19,205

$
927,566
$
1,033,000

Revenue on loads hauled via BCO Independent Contractors included in total truck transportation
$
431,279
$
449,308

Number of loads:

Truck transportation

Truckload:

Van equipment

315,345
��
341,821

Unsided/platform equipment

120,589

125,170

Less-than-truckload

38,356

35,309

Total truck transportation

474,290

502,300

Rail intermodal

11,540

12,460

Ocean and air cargo carriers

7,070

7,510

492,900

522,270

Loads hauled via BCO Independent Contractors included in total truck transportation

233,400

234,850

Revenue per load:

Truck transportation

Truckload:

Van equipment
$
1,729
$
1,811

Unsided/platform equipment

2,374

2,482

Less-than-truckload

598

662

Total truck transportation

1,802

1,897

Rail intermodal

2,438

2,409

Ocean and air cargo carriers

3,761

4,084

Revenue per load on loads hauled via BCO Independent Contractors
$
1,848
$
1,913

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

Truck capacity providers:

BCO Independent Contractors

46
%
43
%
Truck Brokerage Carriers

46
%
49
%
Rail intermodal

3
%
3
%
Ocean and air cargo carriers

3
%
3
%
Other

2
%
2
%


	Twenty Six Weeks Ended						Thirteen Weeks Ended
	June 27, 2020			June 29, 2019			June 27, 2020				June 29, 2019
Revenue generated through (in thousands):
Truck transportation
Truckload:
Van equipment	$	1,028,334		$	1,224,379		$	483,027			$	605,365
Unsided/platform equipment		533,716			648,828			247,388				338,107
Less-than-truckload		45,859			48,108			22,918				24,732

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

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


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

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

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

		945,660			1,061,060			452,760				538,790


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

Revenue per load:
Truck transportation
Truckload:
Van equipment	$	1,712		$	1,782		$	1,694			$	1,754
Unsided/platform equipment		2,309			2,487			2,238				2,491
Less-than-truckload		587			645			577				630
Total truck transportation		1,767			1,879			1,730				1,862
Rail intermodal		2,386			2,453			2,326				2,502
Ocean and air cargo carriers		3,967			3,977			4,166				3,866

Revenue per load on loads hauled via BCO Independent Contractors	$	1,825		$	1,910		$	1,799			$	1,908

Revenue by capacity type (as a % of total revenue):
Truck capacity providers:										��
BCO Independent Contractors		46	%		44	%		46	%			45	%
Truck Brokerage Carriers		46	%		48	%		46	%			47	%
Rail intermodal		3	%		3	%		3	%			3	%
Ocean and air cargo carriers		3	%		3	%		4	%			3	%
Other		2	%		2	%		2	%			2	%

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

2021

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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:

March 28, 2020

March 30, 2019

BCO Independent Contractors

9,444

9,911

Truck Brokerage Carriers:

Approved and active
(1)

38,879

40,404

Other approved

16,657

18,659

55,536

59,063

Total available truck capacity providers

64,980

68,974

Trucks provided by BCO Independent Contractors

10,112

10,637


	June 27, 2020		June 29, 2019
BCO Independent Contractors		9,632		9,879
Truck Brokerage Carriers:
Approved and active (1)		37,600		40,097
Other approved		16,365		17,790

	53,965		57,887

Total available truck capacity providers		63,597		67,766


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

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

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

Purchased transportation represents the amount a BCO Independent Contractor or other third party capacity provider is paid to haul freight. The amount of purchased transportation paid to a BCO Independent Contractor is primarily based on a contractually agreed-upon percentage of revenue generated by loads hauled by the BCO Independent Contractor. Purchased transportation paid to a Truck Brokerage Carrier is based on either a negotiated rate for each load hauled or, to a lesser extent, a contractually agreed-upon fixed rate per load. Purchased transportation paid to railroads is based on either a negotiated rate for each load hauled or a contractually agreed-upon fixed rate per load. Purchased transportation paid to air cargo carriers is generally based on a negotiated rate for each load hauled and purchased transportation paid to ocean cargo carriers is generally based on a contractually agreed-upon fixed rate per load. Purchased transportation as a percentage of revenue for truck brokerage, rail intermodal and ocean cargo services is normally higher than that of BCO Independent Contractor and air cargo services. Purchased transportation is the largest component of costs and expenses and, on a consolidated basis, increases or decreases as a percentage of consolidated revenue in proportion to changes in the percentage of consolidated revenue generated through BCO Independent Contractors and other third party capacity providers and external revenue from the insurance segment, consisting of reinsurance premiums. Purchased transportation as a percent of revenue also increases or decreases in relation to the availability of truck brokerage capacity and with changes in the price of fuel on revenue generated from shipments hauled by Truck Brokerage Carriers. The Company passes 100% of fuel surcharges billed to customers for freight hauled by BCO Independent Contractors to its BCO Independent Contractors. These fuel surcharges are excluded from revenue and the cost of purchased transportation. Purchased transportation costs are recognized over the freight transit period as the performance obligation to the customer is completed.

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

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

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

2122

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Company’s contracts with independent commission sales agents provide commissions to agents at a contractually agreed upon percentage of net revenue for these types of ~~loads.~~shipments. Approximately 52% of the Company’s consolidated revenue in the ~~thirteen-week~~

twenty-six-week

period ended ~~March 28,~~June 27, 2020 was generated under contracts that have a fixed gross profit margin while 48% was under contracts that have a variable gross profit margin.

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

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

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

thirty-six

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

pre-established

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

pre-determined

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

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

thirty-six

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

pre-established

amount of additional premium, Landstar would retain liability of up to $10,000,000 per occurrence, inclusive of its $5,000,000 self-insured retention for commercial trucking claims during the remainder of the applicable policy year(s). In addition, as a result of the Company’s aggregate loss experience since it entered into the Initial Excess Policy, it believes it is probable it will be required to pay additional premium under the Initial Excess Policy, which amount of additional premium was ~~included~~provided for in insurance and claims costs for the Company’s 2020 fiscal first quarter.

The Company ~~continues to maintain~~also maintains third party insurance arrangements providing excess coverage ~~on a per occurrence basis~~ for commercial trucking liabilities in excess of $10,000,000. These third party arrangements provide coverage on a per occurrence or aggregated basis. Due to the increasing cost of commercial auto liability claims throughout the United States in recent years, the availability of such excess coverage has significantly decreased and the pricing associated with such excess coverage, to the extent available, has significantly increased. Effective May 1, 2020 with respect to the annual policy year ending April 30, 2021, the Company experienced an increase of approximately $14 million, or over 170%, in the premiums charged by third party insurance companies to the Company for excess coverage for commercial trucking liabilities in excess of $10,000,000. No assurances can be given that the availability of excess coverage for commercial trucking claims will not continue to deteriorate, that the pricing associated with such excess coverage, to the extent available, will not continue to increase, nor that insurance coverage from third party insurers for excess coverage of commercial trucking claims will even be available on commercially reasonable terms at certain levels.

~~The~~Further, the Company ~~also~~ retains liability of up to $1,000,000 for each general liability claim, up to $250,000 for each workers’ compensation claim and up to $250,000 for each cargo claim. In addition, under reinsurance arrangements by Signature of certain risks of the Company’s BCO Independent Contractors, the Company retains liability of up to $500,000, $1,000,000 or $2,000,000 with respect to certain occupational accident claims and up to $750,000 with respect to certain workers’ compensation claims. The Company’s exposure to liability associated with accidents incurred by Truck Brokerage Carriers, railroads and air and ocean cargo carriers who transport freight

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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 ~~thirteen-week~~

twenty-six-week

period ended ~~March 28,~~June 27, 2020, employee compensation and benefits accounted for approximately ~~sixty-three~~sixty-four percent of the Company’s selling, general and administrative costs.

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

~~Table of Contents~~

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

Thirteen Weeks Ended

March 28,
2020

March 30,
2019

Revenue

100.0
%
100.0
%
Purchased transportation

76.5

76.6

Commissions to agents

8.1

8.3

Gross profit margin

15.4
%
15.1
%

Gross profit

100.0
%
100.0
%
Investment income

0.8

0.7

Indirect costs and expenses:

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

5.8

5.3

Insurance and claims

17.5

9.6

Selling, general and administrative

31.7

26.5

Depreciation and amortization

8.0

7.3

Total costs and expenses

63.0

48.7

Operating margin

37.8
%
52.0
%


	Twenty Six Weeks Ended						Thirteen Weeks Ended
	June 27, 2020			June 29, 2019			June 27, 2020			June 29, 2019
Revenue		100.0	%		100.0	%		100.0	%		100.0	%
Purchased transportation		76.8			76.6			77.1			76.5
Commissions to agents		8.6			8.3			9.1			8.4

Gross profit margin		14.6	%		15.1	%		13.7	%		15.1	%

Gross profit		100.0	%		100.0	%		100.0	%		100.0	%
Investment income		0.8			0.8			0.7			0.8
Indirect costs and expenses:
Other operating costs, net of gains on asset sales/dispositions		6.1			5.8			6.6			6.2
Insurance and claims		17.5			10.0			17.5			10.3
Selling, general and administrative		33.6			26.3			35.9			26.1
Depreciation and amortization		9.0			7.1			10.1			7.0
Impairment of intangible and other assets		1.0			—			2.3			—

Total costs and expenses		67.1			49.2			72.3			49.7

Operating margin		33.7	%		51.6	%		28.4	%		51.2	%

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

non-asset

or asset-light companies in the transportation and logistics services industry who report “net revenue” 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 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

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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.

~~THIRTEEN~~TWENTY SIX WEEKS ENDED ~~MARCH 28,~~JUNE 27, 2020 COMPARED TO ~~THIRTEEN~~TWENTY SIX WEEKS ENDED ~~MARCH 30,~~JUNE 29, 2019

Revenue for the 2020 ~~thirteen-week~~

twenty-six-week

period was ~~$927,566,000,~~$1,751,080,000, a decrease of ~~$105,434,000,~~$326,960,000, or ~~10%~~16%, compared to the 2019 ~~thirteen-week~~

twenty-six-week

period. Transportation revenue decreased ~~$105,077,000,~~$326,095,000, or ~~10%~~16%. The decrease in transportation revenue was attributable to ~~decreased revenue per load of approximately 5% and~~ a decreased number of loads hauled of approximately 11% and decreased revenue per load of approximately 6% compared to the 2019

twenty-six-week

~~Table of Contents~~

~~thirteen-week~~ period. Reinsurance premiums were ~~$13,682,000~~$27,398,000 and ~~$14,039,000~~$28,263,000 for the 2020 and 2019 ~~thirteen-week~~

twenty-six-week

periods, respectively. The decrease in revenue from reinsurance premiums was primarily attributable to the decrease in the average number of trucks provided by BCO Independent Contractors in the 2020 ~~thirteen-week~~

twenty-six-week

period compared to the 2019 ~~thirteen-week~~

twenty-six-week

period.

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

twenty-six-week

period was ~~$854,576,000,~~$1,607,909,000, representing 92% of total revenue, a decrease of ~~$98,535,000,~~$313,406,000, or ~~10%~~16%, compared to the 2019 ~~thirteen-week~~

twenty-six-week

period. The number of loads hauled by third party truck capacity providers decreased approximately 6%11% in the 2020 ~~thirteen-week~~

twenty-six-week

period compared to the 2019 ~~thirteen-week~~

twenty-six-week

period, and revenue per load on loads hauled by third party truck capacity providers decreased approximately 5%6% compared to the 2019 ~~thirteen-week~~

twenty-six-week

period. The decrease in the number of loads hauled via truck compared to the 2019 ~~thirteen-week~~

twenty-six-week

period was due to relative softness in in the U.S. manufacturing sector in the 2020 period compared to the 2019 period and the unfavorable impact of the

COVID-19

pandemic, ~~experienced~~which began during the last week of the ~~2020~~Company’s first fiscal quarter and persisted throughout the second fiscal quarter. Loads hauled via van equipment decreased 8%13% and loads hauled via unsided/platform equipment decreased 4%11%, while less-than-truckload volumes increased 9%5% as compared to the 2019 ~~thirteen-week~~

twenty-six-week

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

twenty-six-week

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

twenty-six-week

period. Revenue per load on loads hauled via van equipment decreased 5%4%, revenue per load on loads hauled via unsided/platform equipment decreased 4%7% and revenue per load on less-than-truckload loadings decreased ~~10%~~9% as compared to the 2019 ~~thirteen-week~~

twenty-six-week

period. Fuel surcharges billed to customers on revenue generated by BCO Independent Contractors are excluded from revenue. Fuel surcharges on Truck Brokerage Carrier revenue identified separately in billings to customers and included as a component of Truck Brokerage Carrier revenue were ~~$17,196,000~~$29,302,000 and ~~$20,987,000~~$41,321,000 in the 2020 and 2019 ~~thirteen-week~~

twenty-six-week

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

all-in

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

Transportation revenue generated by rail intermodal, air cargo and ocean cargo carriers (collectively, the “multimode capacity providers”) for the 2020 ~~thirteen-week~~

twenty-six-week

period was ~~$54,716,000,~~$108,565,000, or 6% of total revenue, a decrease of ~~$5,968,000,~~$8,913,000, or ~~10%~~8%, compared to the 2019 ~~thirteen-week~~

twenty-six-week

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

twenty-six-week

period compared to the 2019 ~~thirteen-week~~

twenty-six-week

period, and revenue per load on revenue generated by multimode capacity providers decreased approximately 3%1% over the same period. The decrease in the number of loads hauled by multimode capacity providers was primarily due to a 7%10% decrease in rail intermodal loadings, mostly attributable to decreased loadings at two specific customers, and a ~~13%~~7% decrease in ocean loadings, primarily due to decreased shipments originating in China for export to the United States. The decrease in revenue per load of 3%1% on loads hauled by multimode capacity providers was ~~primarily~~entirely attributable to decreased revenue per load on ~~air cargo~~rail intermodal shipments. Also, revenue per load on revenue generated by multimode capacity providers is influenced by many factors, including revenue mix among the various modes of transportation used, length of haul, complexity of freight, density of freight lanes, fuel costs and availability of capacity.

Purchased transportation was ~~76.5%~~76.8% and 76.6% of revenue in the 2020 and 2019 ~~thirteen-week~~

twenty-six-week

periods, respectively. The ~~decrease~~increase in purchased transportation as a percentage of revenue was primarily due to an increased ~~percentage of revenue contributed by BCO Independent Contractors, which typically has a lower~~ rate of purchased transportation ~~than~~paid on BCO Independent Contractor revenue ~~generated~~due to the impact of

COVID-19

pandemic relief incentive payments. Under that program, for each load delivered by ~~Truck Brokerage Carriers.~~a BCO Independent Contractor with a confirmed delivery date from April 1, 2020 through May 30, 2020, the Company paid each of the BCO Independent Contractor who hauled the load and the independent commission sales agent who dispatched the load an extra $50. Commissions to agents were ~~8.1%~~8.6% and 8.3% of revenue in the 2020 and 2019 ~~thirteen-week~~

twenty-six-week

periods, respectively. The ~~decrease~~increase in commissions to agents as a percentage of revenue was primarily attributable to the impact of

COVID-19

pandemic relief incentive payments to agents. The Company paid a ~~decreased net revenue margin on revenue generated by Truck Brokerage Carriers.~~total of $12,593,000 in

COVID-19

pandemic relief incentive payments during the 2020

twenty-six

week period.

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Investment income was ~~$1,167,000~~$2,002,000 and ~~$1,138,000~~$2,421,000 in the 2020 and 2019 ~~thirteen-week~~

twenty-six-week

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

twenty-six-week period,

partially offset by a higher average investment balance held by the insurance segment in the 2020

twenty-six

week period.

Other operating costs ~~increased $67,000~~decreased $2,426,000 in the 2020 ~~thirteen-week~~

twenty-six-week

period compared to the 2019 ~~thirteen-week~~

twenty-six-week

period and represented ~~5.8%~~6.1% of gross profit in the 2020 period compared to ~~5.3%~~5.8% of gross profit in the 2019 period. The ~~increase~~decrease in other operating costs compared to the prior year was primarily due to andecreased BCO Independent Contractor recruiting costs, increased ~~provision for contractor bad debt and increased~~gains on the sales of used trailing equipment ~~maintenance costs, partially offset by~~and decreased trailer rental expense. The increase in other operating costs as a percentage of gross profit was caused by the effect of decreased gross ~~profit.~~profit, partially offset by the decrease in other operating costs.

Insurance and claims increased ~~$9,964,000~~$13,429,000 in the 2020 ~~thirteen-week~~

twenty-six-week

period compared to the 2019 ~~thirteen-week~~

twenty-six-week

period and represented 17.5% of gross profit in the 2020 period compared to ~~9.6%~~10.0% of gross profit in the 2019 period. The increase in insurance and claims expense compared to the prior year was primarily due to a $5,000,000 charge for the Company’s self-insured retention with respect to a tragic vehicular accident involving a fatality, a $3,500,000 charge relating to anticipated additional premium the Company expects to

~~Table of Contents~~

pay under its existing multi-year insurance arrangements in connection with certain aggregated losses, increased insurance premiums incurred in May and ~~to a lesser extent,~~June for commercial trucking liability coverage following the Company’s May 1, 2020 insurance renewal, increased net unfavorable development of prior years’ ~~claims.~~claims and increased severity of current year claims in the 2020 period. During the 2020 and 2019 ~~thirteen-week~~

twenty-six-week

periods, insurance and claims costs included ~~$2,223,000~~$5,039,000 and ~~$1,407,000~~$2,900,000 of net unfavorable adjustments to prior years’ claims estimates, respectively. The increase in insurance and claims as a percent of gross profit was caused by the increase in insurance and claims costs and the effect of decreased gross profit.

Selling, general and administrative costs increased ~~$4,059,000~~$3,363,000 in the 2020 ~~thirteen-week~~

twenty-six-week

period compared to the 2019 ~~thirteen-week~~

twenty-six-week

period and represented ~~31.7%~~33.6% of gross profit in the 2020 period compared to ~~26.5%~~26.3% of gross profit in the 2019 period. The increase in selling, general and administrative costs compared to prior year was attributable to an increased provision for customer bad debt, an increased provision for incentive compensation and increased ~~wages and employee benefit~~information technology costs, partially offset by decreased stock-based compensation ~~expense. Included in selling, general~~expense, decreased agent convention costs and ~~administrative~~decreased travel and entertainment costs ~~in the 2020 thirteen-week period is approximately $757,000~~ related to the ~~cancellation due to the COVID-19 pandemic~~impact of the ~~Company’s annual agent convention previously planned to occur in the Company’s 2020 second quarter.~~

COVID-19

pandemic. Included in selling, general and administrative costs was incentive compensation expense of ~~$2,031,000~~$4,057,000 and ~~$1,038,000~~$1,911,000 for the 2020 and 2019

twenty-six-week

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

twenty-six-week

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

Depreciation and amortization increased $622,000 in the 2020

twenty-six-week

period compared to the 2019

twenty-six-week

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

During the 2020 second fiscal quarter, the Company recorded a

non-cash

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

10-Q

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

Interest and debt expense in the 2020

twenty-six-week

period increased $414,000 compared to the 2019

twenty-six-week

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

The provisions for income taxes for the 2020 and 2019

twenty-six-week

periods were each based on an estimated annual effective income tax rate of 24.2%, adjusted for discrete events, such as benefits resulting from stock-based awards. The effective income tax rate

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for the 2020

twenty-six-week

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

twenty-six-week

period of 22.7% was lower than the 24.2% estimated annual effective income tax rate primarily due to excess tax benefits recognized on stock-based compensation arrangements in the 2020

twenty-six-week

period. The effective income tax rate in the 2019

twenty-six-week

period of 22.4% was lower than the 24.2% estimated annual effective income tax rate primarily due to excess tax benefits recognized on stock-based compensation arrangements in the 2019

twenty-six-week

period.

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

twenty-six-week

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

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

twenty-six-week

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

twenty-six-week

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

twenty-six-week

period, related to the impact of the

COVID-19

pandemic relief incentive payments.

THIRTEEN WEEKS ENDED JUNE 27, 2020 COMPARED TO THIRTEEN WEEKS ENDED JUNE 29, 2019

Revenue for the 2020 thirteen-week period was $823,514,000, a decrease of $221,526,000, or 21%, compared to the 2019 thirteen-week period. Transportation revenue decreased $221,018,000, or 21%. The decrease in transportation revenue was attributable to a decreased number of loads hauled of approximately 16% and decreased revenue per load of approximately 6% compared to the 2019 thirteen-week period. Reinsurance premiums were $13,716,000 and $14,224,000 for the 2020 and 2019 thirteen-week periods, respectively. The decrease in revenue from reinsurance premiums was primarily attributable to the decrease in the average number of trucks provided by BCO Independent Contractors in the 2020 thirteen-week period compared to the 2019 thirteen-week period.

Truck transportation revenue generated by third party truck capacity providers for the 2020 thirteen-week period was $753,333,000, representing 91% of total revenue, a decrease of $214,871,000, or 22%, compared to the 2019 thirteen-week period. The number of loads hauled by third party truck capacity providers decreased approximately 16% in the 2020 thirteen-week period compared to the 2019 thirteen-week period, and revenue per load on loads hauled by third party truck capacity providers decreased approximately 7% compared to the 2019 thirteen-week period. The decrease in the number of loads hauled via truck compared to the 2019 thirteen-week period was due to the unfavorable impact of the

COVID-19

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

COVID-19.

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

, 21

and 9

for April, May and June, respectively. Loads hauled via van equipment decreased 17% and loads hauled via unsided/platform equipment decreased 19%, while less-than-truckload volumes increased 1% as compared to the 2019 thirteen-week period. The decrease in revenue per load on loads hauled via truck was primarily due to a softer freight demand environment experienced during the 2020 thirteen-week period, which resulted in more readily available truck capacity as compared to the 2019 thirteen-week period. Revenue per load on loads hauled via van equipment decreased 3%, revenue per load on loads hauled via unsided/platform equipment decreased 10% and revenue per load on less-than-truckload loadings decreased 8% as compared to the 2019 thirteen-week period. Fuel surcharges billed to customers on revenue generated by BCO Independent Contractors are excluded from revenue. Fuel surcharges on Truck Brokerage Carrier revenue identified separately in billings to customers and included as a component of Truck Brokerage Carrier revenue were $12,106,000 and $20,334,000 in the 2020 and 2019 thirteen-week periods, respectively.

Transportation revenue generated by multimode capacity providers for the 2020 thirteen-week period was $53,849,000, or 7% of total revenue, a decrease of $2,945,000, or 5%, compared to the 2019 thirteen-week period. The number of loads hauled by multimode capacity providers decreased approximately 7% in the 2020 thirteen-week period compared to the 2019 thirteen-week period, while revenue per load on revenue generated by multimode capacity providers increased approximately 2% over the same period. The decrease in the number of loads hauled by multimode capacity providers was primarily due to a 13% decrease in rail intermodal loadings, mostly attributable to decreased loadings at three specific customers. The increase in revenue per load of 2% on loads hauled by multimode capacity providers was primarily attributable to increased revenue per load on air cargo shipments and an increase in ocean loads as a percentage of loads hauled by multimode capacity providers, as ocean loads typically generate a higher revenue per load compared to loads hauled by rail or air cargo carriers. Also, revenue 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.

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Purchased transportation was 77.1% and 76.5% of revenue in the 2020 and 2019 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 on BCO Independent Contractor revenue due to the impact of

COVID-19

pandemic relief incentive payments. Under that program, for each load delivered by a BCO Independent Contractor with a confirmed delivery date from April 1, 2020 through May 30, 2020, the Company paid each of the BCO Independent Contractor who hauled the load and the independent commission sales agent who dispatched the load an extra $50. Commissions to agents were 9.1% and 8.4% of revenue in the 2020 and 2019 thirteen-week periods, respectively. The increase in commissions to agents as a percentage of revenue was primarily attributable to the impact of

COVID-19

pandemic relief incentive payments to agents. The Company paid a total of $12,593,000 in

COVID-19

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

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

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

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

Selling, general and administrative costs decreased $696,000 in the 2020 thirteen-week period compared to the 2019 thirteen-week period and represented 35.9% of gross profit in the 2020 period compared to 26.1% of gross profit in the 2019 period. The decrease in selling, general and administrative costs compared to prior year was attributable to decreased agent convention costs and decreased travel and entertainment costs related to the impact of the

COVID-19

pandemic and decreased stock-based compensation expense, partially offset by an increased provision for incentive compensation, an increased provision for customer bad debt, and increased information technology costs. Included in selling, general and administrative costs was incentive compensation expense of $2,026,000 and $873,000 for the 2020 and 2019 thirteen-week periods, respectively, and stock-based compensation expense of ~~$631,000~~$570,000 and ~~$1,938,000~~$1,430,000 for the 2020 and 2019 thirteen-week periods, respectively. The increase in selling, general and administrative costs as a percent of gross profit was due to the ~~increase~~effect of decreased gross profit, partially offset by the decrease in selling, general and administrative ~~costs and the effect of decreased gross profit.~~

costs.

Depreciation and amortization increased ~~$189,000~~$433,000 in the 2020 thirteen-week period compared to the 2019 thirteen-week period and represented ~~8.0%~~10.1% of gross profit in the 2020 period compared to ~~7.3%~~7.0% of gross profit in the 2019 period. The increase in depreciation and amortization expenses was primarily due to increased depreciation on information technology assets, partially offset by a decrease in trailing equipment depreciation. The increase in depreciation and amortization as a percentage of gross profit was due to the effect of decreased gross profit and increased depreciation.

During the 2020 second fiscal quarter, the Company recorded a

non-cash

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

10-Q

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

Interest and debt expense in the 2020 thirteen-week period increased ~~$147,000~~$267,000 compared to the 2019 thirteen-week period. The increase in interest and debt expense was primarily attributable to decreased interest income earned on cash balances held by the transportation logistics segment.

The provisions for income taxes for the 2020 and 2019 thirteen-week periods were each based on an estimated annual effective income tax rate of 24.2%, adjusted for discrete events, such as benefits resulting from stock-based awards. The effective income tax rate for the 2020 thirteen-week period was ~~22.9%~~22.3%, which was higher than the statutory federal income tax rate of 21% primarily attributable to state taxes and the meals and entertainment exclusion, partially offset by state tax refunds received during the 2020 thirteen-week period and excess tax benefits realized on stock

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

based awards. ~~The effective income tax rate for the 2019 thirteen-week period was 21.0%, which approximated the statutory federal income tax rate.~~ The effective income tax rate in the 2020 thirteen-week period of ~~22.9%~~22.3% was lower than the 24.2% estimated annual effective income tax rate primarily due to the impact of the state tax refund and excess tax benefits recognized on stock-based compensation arrangements in the 2020 thirteen-week period. The effective income tax rate in the 2019 thirteen-week period of ~~21.0%~~23.8% was lower than the 24.2% estimated annual effective income tax rate primarily due to excess tax benefits recognized on stock-based compensation arrangements in the 2019 thirteen-week ~~period, which essentially offset the impact of state taxes and the meals and entertainment exclusion.~~

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

Net income was ~~$40,895,000,~~$24,254,000, or ~~$1.04~~$0.63 per common share ($~~1.04~~0.63 per diluted share), in the 2020 thirteen-week period. Net income attributable to the Company was ~~$63,317,000,~~$61,100,000 or ~~$1.58~~$1.53 per common share ($~~1.58~~1.53 per diluted share), in the 2019 thirteen-week period. Net income was unfavorably impacted by approximately $12,593,000,

$0.25 per common share ($0.25 per diluted share), during the 2020 thirteen-week period, related to the impact of the COVID-19 pandemic relief

incentive

payments.

CAPITAL RESOURCES AND LIQUIDITY

Working capital and the ratio of current assets to current liabilities were ~~$351,325,000~~$366,892,000 and 1.8 to 1, respectively, at ~~March 28,~~June 27, 2020, compared with $444,984,000 and 1.8 to 1, respectively, at December 28, 2019. Landstar has historically operated with current ratios within the range of 1.5 to 1 to 2.0 to 1. Cash provided by operating activities was ~~$99,216,000~~$198,385,000 in the 2020 ~~thirteen-week~~

twenty-six-week

period compared with ~~$121,416,000~~$184,076,000 in the 2019 ~~thirteen-week~~

twenty-six-week

period. The ~~decrease~~increase in cash flow provided by operating activities was primarily attributable to ~~the~~favorable working capital adjustments including timing of collections of ~~trade~~ receivables and payments of accounts payable, partially offset by decreased net income.

The Company declared and paid ~~$0.185~~$0.37 per share, or ~~$7,336,000~~$14,435,000 in the aggregate, in cash dividends during the ~~thirteen-week~~

twenty-six-week

period ended ~~March 28,~~June 27, 2020 and, during such period, also paid $78,947,000 of dividends payable which were declared during fiscal year 2019 and included in current liabilities in the consolidated balance sheet at December 28, 2019. The Company declared and paid ~~$0.165~~$0.33 per share, or ~~$6,629,000~~$13,257,000 in the aggregate, in cash dividends during the ~~thirteen-week~~

twenty-six-week

period ended ~~March 30,~~June 29, 2019. During the ~~thirteen-week~~

twenty-six-week

~~Table of Contents~~

period ended ~~March 28,~~June 27, 2020, the Company purchased 1,178,970 shares of its common stock at a total cost of $115,962,000. During the ~~thirteen-week~~

twenty-six-week

period ended ~~March 30,~~June 29, 2019, the Company purchased ~~124,481~~674,410 shares of its common stock at a total cost of ~~$12,977,000.~~$69,729,000. As of ~~March 28,~~June 27, 2020, the Company may purchase in the aggregate up to 1,821,030 shares of its common stock under its authorized stock purchase program. Long-term debt, including current maturities, was ~~$101,921,000~~$98,371,000 at ~~March 28,~~June 27, 2020, ~~$10,923,000~~$14,473,000 lower than at December 28, 2019.

Shareholders’ equity was ~~$627,095,000,~~$649,121,000, or ~~86%~~87% of total capitalization (defined as long-term debt including current maturities plus equity), at ~~March 28,~~June 27, 2020, compared to $721,469,000, or 86% of total capitalization, at December 28, 2019. The decrease in equity was primarily the result of purchases of shares of the Company’s common stock and dividends declared by the Company in the 2020 ~~thirteen-week~~

twenty-six-week

period, partially offset by net income.

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

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

At ~~March 28,~~June 27, 2020, the Company had no borrowings outstanding and ~~$34,368,000~~$34,156,000 of letters of credit outstanding under the Credit Agreement. At ~~March 28,~~June 27, 2020, there was ~~$215,632,000~~$215,844,000 available for future borrowings under the Credit Agreement. In addition, the Company has $61,503,000 in letters of credit outstanding as collateral for insurance claims that are secured by investments totaling $68,337,000 at ~~March 28,~~June 27, 2020. Investments, all of which are carried at fair value, include primarily investment-grade bonds and U.S. Treasury obligations having maturities of up to five years. Fair value of investments is based primarily on quoted market prices. See “Notes to Consolidated Financial Statements” included herein for further discussion on measurement of fair value of investments.

Historically, the Company has generated sufficient operating cash flow to meet its debt service requirements, fund continued growth, both organic and through acquisitions, complete or execute share purchases of its common stock under authorized share purchase programs, pay dividends and meet working capital needs. As an asset-light provider of integrated transportation management solutions, the Company’s annual capital requirements for operating property are generally for trailing equipment and information technology hardware and software. In addition, a significant portion of the trailing equipment used by the Company is provided by third party capacity providers, thereby reducing the Company’s capital requirements. During the 2020 ~~thirteen-week~~

twenty-six-week

period, the Company purchased ~~$5,799,000~~$17,676,000 of operating property. In addition, during the 2020

twenty-six

week period Landstar acquired $1,440,000 of operating property for which the Company accrued a corresponding liability in accounts payable as of June 27, 2020. In addition, on June 15, 2020, Landstar Blue completed the acquisition of an independent agent of the Company. Cash consideration paid for the acquisition was approximately $2,701,000. Landstar anticipates acquiring either by purchase or lease financing during the remainder of fiscal year 2020 approximately ~~$48,000,000~~$51,000,000 in operating property, consisting primarily of new trailing equipment to replace older trailing equipment and information technology equipment.

~~Regarding the recent swift and significant decrease in the Company’s revenue beginning in late March caused by the COVID-19 pandemic, management continues to believe~~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~~programs and meet working capital needs.

LEGAL MATTERS

On January 25, 2019, a purported class action was filed in the Superior Court of the State of California for the County of San Bernardino against Landstar System, Inc. and Landstar Ranger, Inc. (together, the “Defendants”). The ~~Company remains committed~~complaint purported to ~~returning cash to stockholders over time, primarily through share repurchases,~~bring this action on behalf of Hany Tanious, as ~~demonstrated~~an individual, and “all owner operators who performed work for the Defendants, and who were classified as independent contractors, during the ~~thirteen-week period ended March 28, 2020; however,~~four years preceding the ~~Company intends~~filing of this action through the present.” The complaint asserted claims based on the alleged misclassification of Mr. Tanious as an independent contractor and alleged violations under California law relating to ~~be prudent~~overtime, minimum wage, meal and rest breaks, failure to reimburse certain expenses, wage statements, waiting time and unfair competition. Mr. Tanious was a truck owner-operator and formerly an independent contractor who was a party to an independent contractor operating agreement with Landstar Ranger, Inc. On June 11, 2019, the Defendants filed a Notice of Removal that resulted in ~~its current approach to share repurchases as~~ the ~~depth and duration~~removal of the ~~COVID-19 pandemic crisis become clearer.~~case from state court to federal court, where it was assigned to Judge Dale S. Fischer of the United State District Court for the Central District of California. On August 22, 2019, the Court issued an order, among other things, striking all class allegations from the complaint and stating that this matter would proceed as an individual action. On June 15, 2020, the Court issued an order granting the Defendants’ motion to transfer venue to the United States District Court for the Middle District of Florida, where the matter was assigned to Judge Marcia Morales Howard. On June 24, 2020, the Court,

sua sponte

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

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~~LEGAL MATTERS~~

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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 2020 and 2019 ~~thirteen-week~~

twenty-six-week

periods, insurance and claims costs included ~~$2,223,000~~$5,039,000 and ~~$1,407,000~~$2,900,000 of net unfavorable adjustments to prior years’ claims estimates, respectively. It is reasonably likely that the ultimate outcome of settling all outstanding claims will be more or less than the estimated claims liability at ~~March 28,~~June 27, 2020.

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

EFFECTS OF INFLATION

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

SEASONALITY

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to changes in interest rates as a result of its financing activities, primarily its borrowings on its revolving credit facility, 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 ~~March 28,~~June 27, 2020 and during the entire 2020 ~~first~~second quarter, the Company had no borrowings outstanding under the Credit Agreement.

Long-term investments, all of which are

available-for-sale

and are carried at fair value, include primarily investment-grade bonds and U.S. Treasury obligations having maturities of up to five years. Assuming that the long-term portion of investments remains at ~~$82,798,000,~~$84,394,000, the balance at ~~March 28,~~June 27, 2020, a hypothetical increase or decrease in interest rates of 100 basis points would not have a material impact on future earnings on an annualized basis. Short-term investments consist of short-term investment-grade instruments and the current maturities of investment-grade corporate bonds and U.S. Treasury obligations. Accordingly, any future interest rate risk on these short-term investments would not be material to the Company’s operating results.

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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 ~~March 28,~~June 27, 2020 were collectively, as translated to U.S. dollars, ~~less than 4%~~approximately 3% of total consolidated assets. Accordingly, translation gains or losses of ~~10%~~25% or less related to the Canadian and Mexican operations would not be material.

Item 4. Controls and Procedures

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

10-Q,

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

13a-15(e)

promulgated under the Securities Exchange Act of 1934, as amended). Based on that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of ~~March 28,~~June 27, 2020 to provide reasonable assurance that information required to be disclosed by the Company in reports that it filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

There were no significant changes in the Company’s internal control over financial reporting during the Company’s fiscal quarter ended ~~March 28,~~June 27, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

sua sponte

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

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Item 1A. Risk Factors

Except as set forth below, there have been no material changes to the Risk Factors described in Part I “Item 1A. Risk Factors” in the Company’s Annual Report on Form

10-K

for the fiscal year ended December 28, 2019 as filed with the SEC.

The coronavirus

(“COVID-19”)

pandemic has had a significant adverse impact on our business.

COVID-19

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

COVID-19

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

COVID-19

pandemic has caused significant disruptions in the global economy, which significantly intensified in the United States in late March and ~~early April 2020,~~continued into the summer months.

The situation with respect to the COVID-19 pandemic continues to evolve rapidly and ~~has fueled concerns that it will lead to a~~its effects, both short and long-term, remain unknown. Economic disruptions and other effects on the global ~~recession. These conditions are expected to continue and worsen in~~or domestic economies caused by the ~~near term. This~~ COVID-19 pandemic

could have a material adverse impact on the demand for our services and our ability to obtain financing on favorable terms or at all. ~~The situation continues to evolve rapidly and its effects, both short and long-term, remain unknown.~~

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In connection with the impact of the

COVID-19

pandemic, the Company experienced a significant decline in truckload volumes during ~~the last week of~~ its fiscal quarter ended ~~March 28,~~June 27, 2020. The ~~Company believes~~number of loads hauled via truck was below the prior year comparable period by 21

~~COVID-19~~

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

, 21

~~COVID-19~~

and 9

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

COVID-19

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

~~stay-at-home~~

~~orders and taking other measures~~ that will be needed to help the economy transition back to more normal operating conditions. These and other factors could have a material adverse impact on our business, financial position, results of operations and cash flows.

~~COVID-19~~

Moreover, the

COVID-19

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

COVID-19

In addition, the

COVID-19

pandemic ~~along with other factors such as issues in the international oil and gas sector have~~has caused significant disruptions in the Mexican economy. ~~These conditions also are expected to continue and worsen in~~During the ~~near term. During~~first half of the Company’s 2020 fiscal ~~first quarter,~~year, the value of the Mexican peso to the U.S. dollar significantly depreciated and may continue to depreciate further. No assurances can be given regarding the potential impact of the

COVID-19

pandemic and other factors on the Mexican economy and the value of the Mexican peso relative to the U.S. dollar and could have a significant adverse impact on the financial condition and results of operations of our Mexican subsidiaries as well as the value of the tangible and intangible assets associated with their operations. Moreover, we annually perform impairment tests of the carrying values of our goodwill, other indefinite-lived intangible assets and other long-lived assets. We may also perform an evaluation whenever events may indicate an impairment has occurred. In assessing whether an impairment has occurred, we consider whether the performance of our reporting units may be below projections, negative macroeconomic trends or negative industry and company-specific trends. If we conclude that the carrying values of assets associated with our Mexican operations exceed their fair value, we may be required to record an impairment.

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

The Company’s information technology systems used in connection with its operations are located in Jacksonville, Florida and to a lesser extent in Rockford, Illinois. In addition, the Company utilizes several third party data centers throughout the U.S. Landstar relies, in the regular course of its business, on the proper operation of its information technology systems to link its extensive network of customers, employees, agents and third party capacity providers, including its BCO Independent Contractors. Moreover, in connection with the

~~COVID-19~~

~~pandemic, the Company has temporarily transitioned the vast majority of its office-based employees to~~

~~work-at-home~~

~~Table of Contents~~

Company’s possession remain confidential, as it often includes confidential, proprietary and/or competitively sensitive information regarding our customers, employees, agents and third party capacity providers, key financial and operational results and statistics, and our strategic plans, including technology innovations, developments and enhancements. Cyber incidents that impact the security, availability, reliability, speed, accuracy or other proper functioning of these systems and data, including outages, computer viruses,

~~break-ins~~

and similar disruptions, could have a significant impact on our operations. Accordingly, information security and the continued development and enhancement of the controls and processes designed to protect our systems, computers, software, data and networks from attack, damage or unauthorized access remain a priority for us. Although we believe that we have robust security procedures and other safeguards in place, as threats continue to evolve, we may be required to expend additional resources to continue to enhance our information security measures and/or to investigate and remediate any security vulnerabilities. For example, in the first quarter of 2016, we were subject to “spear-phishing” attacks through which third parties were able to obtain personal employee data. We have undertaken a number of remedial measures in response, including enhancing our security systems and additional training for our employees. Additional incidents may occur in the future and may have a material adverse effect on our business and operations. A significant incident, including system failure, security breach, disruption by malware, or other damage, could interrupt or delay our operations, damage our reputation, cause a loss of customers, agents and/or third party capacity providers, expose us to a risk of loss or litigation, and/or cause us to incur significant time and expense to remedy such an event, any of which could have a material adverse impact on our results of operations and financial condition.subsidiaries.

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

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

thirty-six

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

pre-established

pre-determined

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

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

thirty-six

pre-established

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

The Company ~~continues to maintain~~also maintains third party insurance arrangements providing excess coverage ~~on a per occurrence basis~~ for commercial trucking liabilities in excess of $10,000,000. These third party arrangements provide coverage on a per occurrence or aggregated basis. Due to the increasing cost of commercial auto liability claims throughout the United States in recent years, the availability of such excess coverage has significantly worsened and the pricing associated with such excess coverage, to the extent available, has significantly increased. Effective May 1, 2020 with respect to the annual policy year ending April 30, 2021, the Company experienced an increase of approximately $14 million, or over 170%, in the premiums charged by third party insurance companies to the Company for excess coverage for commercial trucking liabilities in excess of $10,000,000. No assurances can be given that the availability of excess coverage for commercial trucking claims will not continue to deteriorate, that the pricing associated with such excess coverage, to the extent available, will not continue to increase, nor that insurance coverage from third party insurers for excess coverage of commercial trucking claims will even be available on commercially reasonable terms at certain levels.

~~The~~Further, the Company also retains liability of up to $1,000,000 for each general liability claim, up to $250,000 for each workers’ compensation claim and up to $250,000 for each cargo claim. In addition, under reinsurance arrangements by Signature of certain risks of the Company’s BCO Independent Contractors, the Company retains liability of up to $500,000, $1,000,000 or $2,000,000 with respect to certain occupational accident claims and up to $750,000 with respect to certain workers’ compensation claims. The Company’s exposure to liability associated with accidents incurred by Truck Brokerage Carriers, railroads and air and ocean cargo carriers who transport freight on behalf of the Company is reduced by various factors including the extent to which such carriers maintain their own insurance coverage. A material increase in the frequency or severity of accidents, cargo claims or workers’ compensation claims or the material unfavorable development of existing claims could have a material adverse effect on Landstar’s cost of insurance and claims and its results of operations. For a discussion identifying additional risk factors and other important factors that could cause actual results to differ materially from those anticipated, see the discussions under Part I, Item 1A, “Risk Factors” in the Company’s Annual Report on Form

10-K

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

10-Q.

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

COVID-19

pandemic, the Company has temporarily transitioned the vast majority of its office-based employees to

work-at-home

arrangements. Although the Company has redundant systems for its critical operations, any significant disruption or failure of its technology systems or those of third party data centers on which it relies could significantly disrupt the Company’s operations and impose significant costs on the Company. Moreover, it is critical that the data processed by or stored in the Company’s information technology systems or otherwise in the Company’s possession remain confidential, as it often includes confidential, proprietary and/or competitively sensitive information regarding our customers, employees, agents and third party capacity providers, key financial and operational results and statistics, and our strategic plans, including technology innovations, developments and enhancements. Cyber incidents that impact the security, availability, reliability, speed, accuracy or other proper functioning of these systems and data, including outages, computer viruses,

break-ins

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have undertaken a number of remedial measures in response, including enhancing our security systems and additional training for our employees. Additional incidents may occur in the future and may have a material adverse effect on our business and operations. A significant incident, including system failure, security breach, disruption by malware, or other damage, could interrupt or delay our operations, damage our reputation, cause a loss of customers, agents and/or third party capacity providers, expose us to a risk of loss or litigation, and/or cause us to incur significant time and expense to remedy such an event, any of which could have a material adverse impact on our results of operations and financial condition.

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

Purchases of Equity Securities by the Company

The ~~following table provides information regarding the Company’s~~Company did not purchase any shares of its common stock during the period from ~~December~~March 29, ~~2019~~2020 to ~~March 28,~~June 27, 2020, the Company’s ~~first~~second fiscal ~~quarter:~~quarter.

Fiscal Period

Total Number of
Shares Purchased

Average Price
Paid Per Share

Total Number of Shares
Purchased as Part of
Publicly Announced
Programs

Maximum Number of
Shares That May Yet
Be Purchased Under
the Programs

December 28, 2019

3,000,000

December 29, 2019 – January 25, 2020

—
$
—

—

3,000,000

January 26, 2020 – February 22, 2020

27,206

109.39

27,206

2,972,794

February 23, 2020 – March 28, 2020

1,151,764

98.10

1,151,764

1,821,030

Total

1,178,970
$
98.36

1,178,970

On December 9, 2019, the Landstar System, Inc. Board of Directors authorized the Company to purchase up to 1,849,068 shares of the Company’s common stock from time to time in the open market and in privately negotiated transactions. As of ~~March 28,~~June 27, 2020, the Company had authorization to purchase in the aggregate up to 1,821,030 shares of its common stock under this program. No specific expiration date has been assigned to the December 9, 2019 authorization.

Dividends

On June 2, 2016, 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 Form

10-Q.

3135

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EXHIBIT INDEX

Registrant’s Commission File No.:

0-21238


Exhibit No.			Description

(10)		Material Contracts.

10.1+		Landstar System, Inc. 2011 Equity Incentive Plan, as amended through March 12, 2020 (Incorporated by reference to Appendix A to the Registrant’s Definitive Proxy Statement filed on April 6, 2020 (Commission File No. 0-21238))

(31)			Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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

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

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

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

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

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

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

101.CAL*
	101.CAL*			Inline XBRL Taxonomy Extension Calculation Linkbase Document

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

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

101.PRE*
	101.PRE*			Inline XBRL Taxonomy Extension Presentation Linkbase Document

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

+	Management contract or compensatory plan or arrangement

*	Filed herewith

**	Furnished herewith

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SIGNATURES

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


	LANDSTAR SYSTEM, INC.

Date: July 31, 2020	~~LANDSTAR SYSTEM, INC.~~

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

Date: July 31, 2020	~~Chief Executive Officer~~

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


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

Total current assets		816,156			997,888

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

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

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

Total current liabilities		464,831			552,904

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

Total shareholders’ equity		627,095			721,469

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


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

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

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


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

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


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

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


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

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

Total operating lease (income)/cost		(392	)

Total lease cost	$	6,648


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


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

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

	$	927,566		$	1,033,000

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

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

		492,900			522,270

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


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

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

Large accelerated filer

Accelerated filer

Non-accelerated
filer

Smaller reporting company

Emerging growth company