LANDSTAR SYSTEM INC - Quarter Report: 2023 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-Q

(Mark One)

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

For the quarterly period ended

September 30, 2023

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

For the transition period from

Commission File Number:

0-21238

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):



Large accelerated filer	☑	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐

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

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

12b-2

of the Exchange Act). Yes ☐ No

☑

The number of shares of the registrant’s common stock, par value $

0.01

per share, outstanding as of the close of business on October 23, 2023 was 35,946,344

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Index

PART I

– Financial Information


Item 1. Financial Statements (unaudited)

Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022			Page 4

Consolidated Statements of Income for the Thirty-Nine and Thirteen Weeks Ended September 30, 2023 and September 24, 2022			Page 5

Consolidated Statements of Comprehensive Income for the Thirty-Nine and Thirteen Weeks Ended September 30, 2023 and September 24, 2022			Page 6

Consolidated Statements of Cash Flows for the Thirty-Nine Weeks Ended September 30, 2023 and September 24, 2022			Page 7

Consolidated Statements of Changes in Shareholders’ Equity for the Thirty-Nine and Thirteen Weeks Ended September 30, 2023 and September 24, 2022			Page 8

Notes to Consolidated Financial Statements			Page 10

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			Page 17

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

Item 4. Controls and Procedures			Page 31

PART II –

Other Information



Item 1. Legal Proceedings			Page 32

Item 1A. Risk Factors			Page 32

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			Page 34

Item 5. Other Information			Page 34

Item 6. Exhibits			Page 35

Signatures			Page 37
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

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PART I -

FINANCIAL INFORMATION

Item 1. Financial Statements

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

10-01

of Regulation

S-X

and do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. Operating results for the thirty-nine weeks ended September 30, 2023 are not necessarily indicative of the results that may be expected for the entire fiscal year ending December 30, 2023.

These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s 2022 Annual Report on Form

10-K.

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LANDSTAR SYSTEM, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share amounts)

(Unaudited)


	September 30, 2023			December 31, 2022
ASSETS
Current Assets
Cash and cash equivalents	$	439,661		$	339,581
Short-term investments		57,099			53,955
Trade accounts receivable, less allowance of $12,054 and $12,121		810,801			967,793
Other receivables, including advances to independent contractors, less allowance of $14,405 and $10,579		57,063			56,235
Other current assets		30,918			21,826

Total current assets		1,395,542			1,439,390

Operating property, less accumulated depreciation and amortization of $426,984 and $393,274		284,081			314,990
Goodwill		41,934			41,220
Other assets		130,970			136,279

Total assets	$	1,852,527		$	1,931,879

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Cash overdraft	$	48,067		$	92,953
Accounts payable		464,720			527,372
Current maturities of long-term debt		29,210			36,175
Insurance claims		45,518			50,836
Dividends payable		—			71,854
Other current liabilities		82,550			98,945

Total current liabilities		670,065			878,135

Long-term debt, excluding current maturities		46,173			67,225
Insurance claims		56,776			58,268
Deferred income taxes and other noncurrent liabilities		36,359			41,030
Shareholders’ Equity
Common stock, $0.01 par value, authorized 160,000,000 shares, issued 68,497,324 and 68,382,310 shares		685			684
Additional paid-in capital		254,630			258,487
Retained earnings		2,808,919			2,635,960
Cost of 32,550,980 and 32,455,300 shares of common stock in treasury		(2,009,351	)		(1,992,886	)
Accumulated other comprehensive loss		(11,729	)		(15,024	)

Total shareholders’ equity		1,043,154			887,221

Total liabilities and shareholders’ equity	$	1,852,527		$	1,931,879

See accompanying notes to consolidated financial statements.

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LANDSTAR SYSTEM, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share amounts)

(Unaudited)


	Thirty-Nine Weeks Ended					Thirteen Weeks Ended
	September 30, 2023			September 24, 2022		September 30, 2023			September 24, 2022
Revenue	$	4,098,877		$	5,761,795	$	1,289,345		$	1,816,132
Investment income		6,874			2,023		3,022			716
Costs and expenses:
Purchased transportation		3,141,234			4,512,341		986,743			1,416,323
Commissions to agents		363,397			465,759		115,244			154,125
Other operating costs, net of gains on asset sales/dispositions		40,998			34,878		15,158			13,356
Insurance and claims		86,971			96,265		29,540			31,445
Selling, general and administrative		159,071			165,199		50,975			53,519
Depreciation and amortization		44,498			42,627		14,359			14,582

Total costs and expenses		3,836,169			5,317,069		1,212,019			1,683,350

Operating income		269,582			446,749		80,348			133,498
Interest and debt (income) expense		(2,079	)		3,275		(1,046	)		1,047

Income before income taxes		271,661			443,474		81,394			132,451
Income taxes		65,254			105,862		19,741			32,233

Net income	$	206,407		$	337,612		61,653		$	100,218

Basic and diluted earnings per share	$	5.74		$	9.15	$	1.71		$	2.76

Average basic and diluted shares outstanding		35,958,000			36,886,000		35,951,000			36,334,000

Dividends per common share	$	0.93		$	0.80	$	0.33		$	0.30

See accompanying notes to consolidated financial statements.

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LANDSTAR SYSTEM, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands)

(Unaudited)


	Thirty-Nine Weeks Ended					Thirteen Weeks Ended
	September 30, 2023		September 24, 2022			September 30, 2023			September 24, 2022
Net income	$	206,407	$	337,612		$	61,653		$	100,218
Other comprehensive income (loss):
Unrealized holding gains (losses) on available-for-sale investments, net of tax expense (benefit) of $263, ($2,461), $49 and ($436)		958		(8,987	)		176			(1,596	)
Foreign currency translation gains (losses)		2,337		(1,011	)		(1,494	)		(1,484	)

Other comprehensive income (loss)		3,295		(9,998	)		(1,318	)		(3,080	)

Comprehensive income	$	209,702	$	327,614		$	60,335		$	97,138

See accompanying notes to consolidated financial statements.

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LANDSTAR SYSTEM, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)


	Thirty-Nine Weeks Ended
	September 30, 2023			September 24, 2022
OPERATING ACTIVITIES
Net income	$	206,407		$	337,612
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		44,498			42,627
Non-cash interest charges		198			290
Provisions for losses on trade and other accounts receivable		10,509			8,346
Gains on sales/disposals of operating property		(3,846	)		(1,290	)
Deferred income taxes, net		(5,595	)		(2,597	)
Stock-based compensation		4,270			9,409
Changes in operating assets and liabilities:
Decrease in trade and other accounts receivable		145,655			26,170
Increase in other assets		(13,115	)		(17,669	)
(Decrease) increase in accounts payable		(62,652	)		39,924
Decrease in other liabilities		(15,734	)		(23,932	)
(Decrease) increase in insurance claims		(6,810	)		17,491

NET CASH PROVIDED BY OPERATING ACTIVITIES		303,785			436,381

INVESTING ACTIVITIES
Sales and maturities of investments		93,326			27,568
Purchases of investments		(86,115	)		(30,490	)
Purchases of operating property		(15,394	)		(21,096	)
Proceeds from sales of operating property		6,631			2,669
Purchase of non-marketable securities		—			(4,999	)

NET CASH USED BY INVESTING ACTIVITIES		(1,552	)		(26,348	)

FINANCING ACTIVITIES
Decrease in cash overdraft		(44,886	)		(18,792	)
Dividends paid		(105,302	)		(104,893	)
Payment for debt issue costs		—			(1,080	)
Proceeds from exercises of stock options		28			56
Taxes paid in lieu of shares issued related to stock-based compensation plans		(9,186	)		(10,427	)
Purchases of common stock		(15,433	)		(285,983	)
Principal payments on finance lease obligations		(28,017	)		(29,075	)

NET CASH USED BY FINANCING ACTIVITIES		(202,796	)		(450,194	)

Effect of exchange rate changes on cash and cash equivalents		643			(1,614	)

Increase (decrease) in cash, cash equivalents and restricted cash		100,080			(41,775	)
Cash, cash equivalents and restricted cash at beginning of period		339,581			219,571

Cash and cash equivalents at end of period	$	439,661		$	177,796

See accompanying notes to consolidated financial statements.

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LANDSTAR SYSTEM, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

Thirty-Nine and Thirteen Weeks Ended September 30, 2023 and September 24, 2022

(Dollars in thousands)

(Unaudited)


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

Balance December 31, 2022		68,382,310	$	684	$	258,487		$	2,635,960			32,455,300	$	(1,992,886	)	$	(15,024	)	$	887,221
Net income									78,195											78,195
Dividends ($0.30 per share)									(10,806	)										(10,806	)
Purchases of common stock												89,661		(15,433	)					(15,433	)
Issuance of stock related to stock-based compensation plans		101,653		1		(7,201	)					5,891		(1,008	)					(8,208	)
Stock-based compensation						1,852														1,852
Other comprehensive income																	2,831			2,831

Balance April 1, 2023		68,483,963	$	685	$	253,138		$	2,703,349			32,550,852	$	(2,009,327	)	$	(12,193	)	$	935,652

Net income									66,559											66,559
Dividends ($0.30 per share)									(10,780	)										(10,780	)
Issuance of stock related to stock-based compensation plans		13,361				(926	)													(926	)
Stock-based compensation						1,274														1,274
Other comprehensive income																	1,782			1,782

Balance July 1, 2023		68,497,324	$	685	$	253,486		$	2,759,128			32,550,852	$	(2,009,327	)	$	(10,411	)	$	993,561

Net income									61,653											61,653
Dividends ($0.33 per share)									(11,862	)										(11,862	)
Issuance of stock related to stock-based compensation plans												128		(24	)					(24	)
Stock-based compensation						1,144														1,144
Other comprehensive loss																	(1,318	)		(1,318	)

Balance September 30, 2023		68,497,324	$	685	$	254,630		$	2,808,919			32,550,980	$	(2,009,351	)	$	(11,729	)	$	1,043,154

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	Common Stock				Additional Paid-In			Retained			Treasury Stock at Cost					Accumulated Other Comprehensive
	Shares		Amount		Capital			Earnings			Shares		Amount			Loss			Total
Balance December 25, 2021		68,232,975	$	682	$	255,148		$	2,317,184			30,539,235	$	(1,705,601	)	$	(5,403	)	$	862,010
Net income									124,839											124,839
Dividends ($0.25 per share)									(9,324	)										(9,324	)
Purchases of common stock												693,550		(109,332	)					(109,332	)
Issuance of stock related to stock-based compensation plans		137,176		2		(8,913	)					10,033		(1,216	)					(10,127	)
Stock-based compensation						1,995														1,995
Other comprehensive loss																	(3,912	)		(3,912	)

Balance March 26, 2022		68,370,151	$	684	$	248,230		$	2,432,699			31,242,818	$	(1,816,149	)	$	(9,315	)	$	856,149

Net income									112,555											112,555
Dividends ($0.25 per share)									(9,257	)										(9,257	)
Purchases of common stock												703,211		(103,300	)					(103,300	)
Issuance of stock related to stock-based compensation plans		6,783		—		—						587		(86	)					(86	)
Stock-based compensation						3,815														3,815
Other comprehensive loss																	(3,006	)		(3,006	)

Balance June 25, 2022		68,376,934	$	684	$	252,045		$	2,535,997			31,946,616	$	(1,919,535	)	$	(12,321	)	$	856,870

Net income									100,218											100,218
Dividends ($0.30 per share)									(10,925	)										(10,925	)
Purchases of common stock												504,065		(73,351	)					(73,351	)
Issuance of stock related to stock-based compensation plans		3,631		—		(158	)					4,619		—						(158	)
Stock-based compensation						3,599														3,599
Other comprehensive loss																	(3,080	)		(3,080	)

Balance September 24, 2022		68,380,565	$	684	$	255,486		$	2,625,290			32,455,300	$	(1,992,886	)	$	(15,401	)	$	873,173

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

The following table summarizes (i) the percentage of consolidated revenue generated by mode of transportation and (ii) the total amount of truck transportation revenue hauled by BCO Independent Contractors and Truck Brokerage Carriers generated by equipment type during the thirty-nine-week and thirteen-week periods ended September 30, 2023 and September 24, 2022 (dollars in thousands):


	Thirty-Nine Weeks Ended						Thirteen Weeks Ended
Mode	September 30, 2023			September 24, 2022			September 30, 2023			September 24, 2022
Truck – BCO Independent Contractors		38	%		35	%		39	%		35	%
Truck – Truck Brokerage Carriers		54	%		53	%		52	%		53	%
Rail intermodal		2	%		2	%		2	%		2	%
Ocean and air cargo carriers		5	%		8	%		5	%		9	%
Truck Equipment Type
Van equipment	$	2,123,693		$	3,022,297		$	665,569		$	914,154
Unsided/platform equipment	$	1,150,483		$	1,336,956		$	378,147		$	453,924
Less-than-truckload	$	90,770		$	105,994		$	28,097		$	35,343
Other truck transportation (1)	$	379,471		$	632,001		$	101,951		$	195,345

(1)

Includes power-only, expedited, straight truck, cargo van, and miscellaneous other truck transportation revenue generated by the transportation logistics segment. Power-only refers to shipments where the Company furnishes a power unit and an operator but not trailing equipment, which is typically provided by the shipper or consignee.

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(2) Share-based Payment Arrangements

As of September 30, 2023, the Company has an employee equity incentive plan, the 2011 equity incentive plan (the “2011 EIP”). The Company also has a stock compensation plan for members of its Board of Directors, the 2022 Directors Stock Compensation Plan (the “2022 DSCP”), which replaced the Amended and Restated 2013 Directors Stock Compensation Plan (as amended and restated, the “2013 DSCP”). The provisions of the 2022 DSCP are substantially similar to the provisions of the 2013 DSCP. 6,000,000 shares of the Company’s common stock were authorized for issuance under the 2011 EIP and 200,000 shares of the Company’s common stock were authorized for issuance under the 2022 DSCP. The 2011 EIP, 2013 DSCP and 2022 DSCP are each referred to herein as a “Plan,” and, collectively, as the “Plans.” Amounts recognized in the financial statements with respect to these Plans are as follows (in thousands):


	Thirty-Nine Weeks Ended						Thirteen Weeks Ended
	September 30, 2023			September 24, 2022			September 30, 2023			September 24, 2022
Total cost of the Plans during the period	$	4,270		$	9,409		$	1,144		$	3,599
Amount of related income tax benefit recognized during the period		(3,878	)		(5,219	)		(286	)		(949	)

Net cost of the Plans during the period	$	392		$	4,190		$	858		$	2,650

Included in income tax benefits recognized in the thirty-nine-week periods ended September 30, 2023 and September 24, 2022 were excess tax benefits from stock-based awards of $2,830,000 and $2,910,000, respectively.

As of September 30, 2023, there were 187,260 shares of the Company’s common stock reserved for issuance under the 2022 DSCP and 3,014,492 shares of the Company’s common stock reserved for issuance under the 2011 EIP.

Restricted Stock Units

The following table summarizes information regarding the Company’s outstanding restricted stock unit (“RSU”) awards with either a performance condition or a market condition under the Plans:


	Number of RSUs			Weighted Average Grant Date Fair Value
Outstanding at December 31, 2022		151,780		$	115.80
Granted		41,460		$	165.04
Shares earned in excess of target (1)		79,176		$	98.39
Vested shares, including shares earned in excess of target		(137,861	)	$	97.97
Forfeited		(2,011	)	$	142.67

Outstanding at September 30, 2023		132,544		$	138.94

(1)

Represents additional shares earned under the February 1, 2019 and January 31, 2020 RSU awards as fiscal year 2022 financial results exceeded target performance level and under the April 24, 2018 and July 1, 2019 RSU awards as total shareholder return during the applicable performance period exceeded target performance level under each of those awards.

During the thirty-nine-week period ended September 30, 2023, the Company granted RSUs with a performance condition. Outstanding RSUs at both December 31, 2022 and September 30, 2023 include RSUs with a performance condition and RSUs with a market condition, as further described below and in the Company’s 2022 Annual Report on Form

10-K.

RSUs with a performance condition granted on February 3, 2023 may vest on January 31 of 2026, 2027 and 2028 based on growth in operating income and

pre-tax

income per diluted share from continuing operations as compared to the results from the 2022 fiscal year.

The Company recognized approximately $1,503,000 and $7,035,000 of share-based compensation expense related to RSU awards in the thirty-nine-week periods ended September 30, 2023 and September 24, 2022, respectively. As of September 30, 2023, there was a maximum of $29.2 million of total unrecognized compensation cost related to RSU awards granted under the Plans with an expected average remaining life of approximately 3.5 years. With respect to RSU awards with a performance condition, the amount of future compensation expense to be recognized will be determined based on future operating results.

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Non-vested

Restricted Stock and Deferred Stock Units

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

non-vested

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


	Number of Shares and Deferred Stock Units			Weighted Average Grant Date Fair Value
Non-vested at December 31, 2022		47,795		$	138.30
Granted		22,714		$	179.32
Vested		(24,161	)	$	138.35

Non-vested at September 30, 2023		46,348		$	158.38

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, third or fifth anniversary of the date of the grant. For restricted stock awards granted under the 2022 DSCP, 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 September 30, 2023, there was $4,756,000 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 2.0 years.

Stock Options

All 1,900 stock options outstanding and exercisable at December 31, 2022 were exercised at an exercise price of $56.40 as of January 31, 2023, following which the Company had no remaining issued and outstanding vested or unvested stock options.

The total intrinsic value of stock options exercised during the thirty-nine-week periods ended September 30, 2023 and September 24, 2022 was $218,000 and $429,000, respectively.

As of September 30, 2023, there was no unrecognized compensation cost related to

non-vested

stock options granted under the Plans.

(3) Income Taxes

The provisions for income taxes for the 2023 and 2022 thirty-nine-week periods were based on estimated annual effective income tax rates of 24.4% and 24.5%, respectively, adjusted for discrete events, such as benefits resulting from stock-based awards. The effective income tax rate for the 2023 thirty-nine-week period was 24.0%. The effective income tax rate was higher than the statutory federal income tax rate of 21% in the 2023 period primarily attributable to state taxes. The effective income tax rate for the 2022 thirty-nine-week period was 23.9%. The effective income tax rate was higher than the statutory federal income tax rate of 21% in the 2022 period primarily attributable to state taxes.

(4) Earnings Per Share

Basic earnings per common share are based on the weighted average number of common shares

outstanding

, which includes outstanding

non-vested

restricted stock and outstanding Deferred Stock Units. Diluted earnings per share are based on the weighted average number of common shares outstanding plus the incremental shares that would have been outstanding upon the assumed exercise of all dilutive stock options. For each of the thirty-nine-week periods ended September 30, 2023 and September 24, 2022, the weighted-average number of common shares outstanding is the same for purposes of the calculations of both basic and diluted earnings per share, as

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the impact on earnings per share of future compensation expense related to outstanding, unvested time-based awards is greater than the incremental impact of outstanding dilutive stock options in each period, and would therefore have an anti-dilutive effect on earnings per share if included in the calculation of earnings per share. Accordingly, the Company had no reconciling items between the average number of common shares outstanding used to calculate basic earnings per common share and the average number of common shares and common share equivalents outstanding used to calculate diluted earnings per share during the 2023 and 2022 thirty-nine-week and thirteen-week periods.

For each of the thirty-

nine

-week periods ended September

2023

and September

2022

options outstanding

purchase shares of common stock were antidilutive. Outstanding RSUs were excluded from the calculation of diluted earnings per share for all periods because the performance metric requirements or market condition for vesting had not been satisfied.

(5) Additional Cash Flow Information

During the 2023 thirty-nine-week period, Landstar paid income taxes and interest of $68,136,000 and $2,814,000, respectively. During the 2022 thirty-nine-week period, Landstar paid income taxes and interest of $125,690,000 and $3,101,000, respectively. Landstar did not acquire any operating property by entering into finance leases in the 2023 thirty-nine-week period. Landstar acquired operating property by entering into finance leases in the amount of $26,741,000 in the 2022 thirty-nine-week period.

(6) Segment Information

The following table summarizes information about the Company’s reportable business segments as of and for the thirty-nine-week and thirteen-week periods ended September 30, 2023 and September 24, 2022 (in thousands):


	Thirty-Nine Weeks Ended
	September 30, 2023						September 24, 2022
	Transportation Logistics		Insurance		Total		Transportation Logistics		Insurance		Total
External revenue	$	4,043,824	$	55,053	$	4,098,877	$	5,702,959	$	58,836	$	5,761,795
Internal revenue				64,138		64,138				65,753		65,753
Investment income				6,874		6,874				2,023		2,023
Operating income		222,827		46,755		269,582		412,054		34,695		446,749
Expenditures on long-lived assets		15,394				15,394		21,096				21,096
Goodwill		41,934				41,934		41,004				41,004

	Thirteen Weeks Ended
	September 30, 2023						September 24, 2022
	Transportation Logistics		Insurance		Total		Transportation Logistics		Insurance		Total
External revenue	$	1,271,385	$	17,960	$	1,289,345	$	1,796,401	$	19,731	$	1,816,132
Internal revenue				11,960		11,960				12,883		12,883
Investment income				3,022		3,022				716		716
Operating income		63,974		16,374		80,348		120,164		13,334		133,498
Expenditures on long-lived assets		2,763				2,763		13,629				13,629

In the thirty-nine-week periods ended

September

30, 2023 and September 24, 2022, no single customer accounted for more than 10% of the Company’s consolidated revenue.

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(7) Other Comprehensive Income

The following table presents the components of and changes in accumulated other comprehensive (loss) income, net of related income taxes, as of and for the thirty-nine-week period ended September 30, 2023 (in thousands):


	Unrealized Holding (Losses) Gains on Available-for-Sale Securities			Foreign Currency Translation			Total
Balance as of December 31, 2022	$	(8,449	)	$	(6,575	)	$	(15,024	)
Other comprehensive income		958			2,337			3,295

Balance as of September 30, 2023	$	(7,491	)	$	(4,238	)	$	(11,729	)

Amounts reclassified from accumulated other comprehensive income to

investment

income due to the realization of previously unrealized gains and losses in the accompanying consolidated statements of income were not significant for the thirty-nine-week period ended September 30, 2023.

(8) Investments

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

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

non-credit-related

factors are to be included as a component of shareholders’ equity. Investments whose values are based on quoted market prices in active markets are classified within Level 1. Investments that trade in markets that are not considered to be active, but are valued based on quoted market prices, are classified within Level 2. As Level 2 investments include positions that are not traded in active markets, valuations may be adjusted to reflect illiquidity and/or

non-transferability,

which are generally based on available market information. Any transfers between levels are reco

nized as of the beginning of any reporting period. Fair value of the bond portfolio was determined using Level 1 inputs related to U.S. Treasury obligations and money market investments and Level 2 inputs related to investment-grade corporate bonds, asset-backed securities and direct obligations of government agencies. Unrealized losses, net of unrealized gains, on the investments in the bond portfolio were $9,542,000 and $10,763,000 at September 30, 2023 and December 31, 2022, respectively.

The amortized cost and fair values of

available-for-sale

investments are as follows at September 30, 2023 and December 31, 2022 (in thousands):


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
September 30, 2023
Money market investments	$	16,032	$	—	$	—	$	16,032
Asset-backed securities		17,044		—		2,708		14,336
Corporate bonds and direct obligations of
government agencies		119,632		—		6,758		112,874
U.S. Treasury obligations		9,203		—		76		9,127

Total	$	161,911	$	—	$	9,542	$	152,369

December 31, 2022
Money market investments	$	21,910	$	—	$	—	$	21,910
Asset-backed securities		18,905		—		2,889		16,016
Corporate bonds and direct obligations of
government agencies		126,134		1		7,775		118,360
U.S. Treasury obligations		2,344		—		100		2,244

Total	$	169,293	$	1	$	10,764	$	158,530

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For those

available-for-sale

investments with unrealized losses

t September 30, 2023 and December 31, 2022, the following table summarizes the duration of the unrealized loss (in thousands):


	Less than 12 months				12 months or longer				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
September 30, 2023
Asset-backed securities	$	—	$	—	$	14,336	$	2,708	$	14,336	$	2,708
Corporate bonds and direct obligations of government agencies		20,707		507		92,167		6,251		112,874		6,758
U.S. Treasury obligations		6,849		8		2,278		68		9,127		76

Total	$	27,556	$	515	$	108,781	$	9,027	$	136,337	$	9,542

December 31, 2022
Asset-backed securities	$	—	$	—	$	16,016	$	2,889	$	16,016	$	2,889
Corporate bonds and direct obligations of government agencies		54,031		1,516		62,390		6,259		116,421		7,775
U.S. Treasury obligations		2,244		100		—		—		2,244		100

Total	$	56,275	$	1,616	$	78,406	$	9,148	$	134,681	$	10,764

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

(9) Leases

Landstar’s noncancelable leases are primarily comprised of finance leases for the acquisition of new trailing equipment. Each finance lease for the acquisition of trailing equipment is a five year lease with a $1 purchase option for the applicable equipment at lease expiration. Substantially all of Landstar’s operating lease

right-of-use

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

build-out

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

“month-to-month”

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

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, the Company applies a portfolio approach for determining the incremental borrowing rate.

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The components of lease cost for finance leases and operating leases for the thirty

nine weeks ended September 30, 2023 were (in thousands):


Finance leases:
Amortization of right-of-use assets	$	15,634
Interest on lease liability		2,060

Total finance lease cost		17,694
Operating leases:
Lease cost		2,640
Variable lease cost		—
Sublease income		(3,963	)

Total net operating lease income		(1,323	)

Total net lease cost	$	16,371

A summary of the lease classification on our consolidated balance sheet as of September 30, 2023 is as follows (in thousands):

Assets:




Operating lease right-of-use assets	Other assets	$	1,801
Finance lease assets	Operating property, less accumulated depreciation and amortization		112,558

Total lease assets		$	114,359

Liabilities:

The following table reconciles the undiscounted cash flows for the finance and operating leases to the finance and operating lease liabilities recorded on the balance sheet at September 30, 2023 (in thousands):


	Finance Leases		Operating Leases

2023 Remainder	$	8,736	$	226
2024		28,843		821
2025		22,658		508
2026		14,530		190
2027		4,115		169
Thereafter		—		49

Total future minimum lease payments		78,882		1,963
Less amount representing interest (1.6% to 6.0%)		3,499		162

Present value of minimum lease payments	$	75,383	$	1,801


Current maturities of long-term debt		29,210
Long-term debt, excluding current maturities		46,173
Other current liabilities				844
Deferred income taxes and other noncurrent liabilities				957

The weighted average remaining lease term and the weighted average discount rate for finance and operating leases as of September 30, 2023 were:


	Finance Leases			Operating Leases
Weighted average remaining lease term (years)		2.9			2.9
Weighted average discount rate		3.0	%		6.0	%

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(10) Debt

Other than the finance lease obligations as presented on the consolidated balance sheets, the Company had no outstanding debt as of September 30, 2023 and December 31, 2022.

On July 1, 2022, Landstar entered into a second amended and restated credit agreement with a bank syndicate led by JPMorgan Chase Bank, N.A., as administrative agent (the “Credit Agreement”). The Credit Agreement, which matures July 1, 2027, provides for borrowing capacity in the form of a revolving credit facility of $300,000,000, $45,000,000 of which may be utilized in the form of letters of credit. The Credit Agreement also includes an “accordion” feature providing for a possible increase of up to an aggregate amount of borrowing capacity of $600,000,000. As of September 30, 2023, the Company had no borrowings outstanding under the Credit Agreement.

The revolving credit loans under the Credit Agreement, at the option of Landstar, bear interest at (i) a forward-looking term rate based on the secured overnight financing rate plus 0.10% and an applicable margin ranging from 1.25% to 2.00%, or (ii) an alternate base rate plus an applicable margin ranging from 0.25% to 1.00%, in each case with the applicable margin determined based upon the Company’s Leverage Ratio, as defined in the Credit Agreement, at the end of the most recent applicable fiscal quarter for which financial statements have been delivered. The revolving credit facility bears a commitment fee, payable quarterly in arrears, of 0.20% to 0.30%, based on the Company’s Leverage Ratio at the end of the most recent applicable fiscal quarter for which financial statements have been delivered.

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

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

(11) Commitments and Contingencies

Short-term investments include $57,099,000 in current maturities of investments held by the Company’s insurance segment at September 30, 2023. The

non-current

portion of the bond portfolio of $95,270,000 is included in other assets. The short-term investments, together with $28,516,000 of

non-current

investments, provide collateral for the $77,054,000 of letters of credit issued to guarantee payment of insurance claims. As of September 30, 2023, Landstar also had $33,492,000 of additional letters of credit outstanding under the Company’s Credit Agreement.

respect

to the resolution of all such claims and pending litigation and that the ultimate outcome, after provisions therefor, will not have a material adverse effect on the financial condition of the Company, but could have a material effect on the results of operations in a given quarter or year.

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

Operations

The following discussion should be read in conjunction with the interim consolidated financial statements and notes thereto included herein, and with the Company’s audited financial statements and notes thereto for the fiscal year ended December 31, 2022 and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the 2022 Annual Report on Form

10-

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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 Russian conflict with Ukraine on the operations of certain independent commission sales agents, including the Company’s largest such agent by revenue in the 2022 fiscal year; the impact of the coronavirus

(COVID-19)

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

10-K

for the 2022 fiscal year, described in Item 1A “Risk Factors”, in Landstar’s Form

10-Q

for the quarterly period ended April 1, 2023, described in Part II, Item 1A “Risk Factors”, and 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. (collectively referred to herein with their subsidiaries and other affiliated companies as “Landstar” or the “Company”), is a technology-enabled, asset-light provider of integrated transportation management solutions delivering safe, specialized transportation services to a broad range of customers utilizing a network of agents, third party capacity providers and employees. The Company offers services to its customers across multiple transportation modes, with the ability to arrange for individual shipments of freight to comprehensive third party logistics solutions to meet all of a customer’s transportation needs. Landstar provides services principally throughout the United States and to a lesser extent in Canada and Mexico, and between the United States and Canada, Mexico and other countries around the world. The Company’s services emphasize safety, information coordination and customer service and are delivered through a network of approximately 1,100 independent commission sales agents and over 89,000 third party capacity providers, primarily truck capacity providers, linked together by a series of digital technologies which are provided and coordinated by the Company. The nature of the Company’s business is such that a significant portion of its operating costs varies directly with revenue.

Landstar markets its integrated transportation management solutions primarily through independent commission sales agents and exclusively utilizes third party capacity providers to transport customers’ freight. Landstar’s independent commission sales agents enter into contractual arrangements with the Company and are responsible for locating freight, making that freight available to Landstar’s capacity providers and coordinating the transportation of the freight with customers and capacity providers. The Company’s third party capacity providers consist of independent contractors who provide truck capacity to the Company under exclusive lease arrangements (the “BCO 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 ecosystem of digital technologies, Landstar operates an integrated transportation management solutions business primarily throughout North America with revenue of $7.4 billion during the most recently completed fiscal year. The Company reports the results of two operating segments: the transportation logistics segment and the insurance segment.

The transportation logistics segment provides a wide range of integrated transportation management solutions. Transportation services are provided by Landstar’s “Operating Subsidiaries”: Landstar Ranger, Inc., Landstar Inway, Inc., Landstar Ligon, Inc., Landstar Gemini, Inc., Landstar Transportation Logistics, Inc., Landstar Global Logistics, Inc., Landstar Express America, Inc., Landstar Canada, Inc., Landstar Metro, S.A.P.I. de C.V., and as further described below, Landstar Blue, LLC (“Landstar Blue”). Transportation services offered by the Company include truckload, less-than-truckload transportation and other truck transportation, rail intermodal, air cargo, ocean cargo, expedited ground and air delivery of time-critical freight, heavy-haul/specialized, U.S.-Canada and U.S.-Mexico cross-border, intra-Mexico, intra-Canada, project cargo and customs brokerage. Examples of the industries serviced by the transportation logistics segment include automotive parts and assemblies, consumer durables, building products, metals, chemicals, foodstuffs, heavy machinery, retail,

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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. The independent commission sales agents market services provided by the transportation logistics segment. Billings for freight transportation services are typically charged to customers on a per shipment basis for the physical transportation of freight and are referred to as transportation revenue. During the thirty-nine-week period ended September 30, 2023, revenue generated by BCO Independent Contractors, Truck Brokerage Carriers and railroads represented approximately 38%, 54% and 2%, respectively, of the Company’s consolidated revenue. Collectively, revenue generated by air and ocean cargo carriers represented approximately 5% of the Company’s consolidated revenue in the thirty-nine-week period ended September 30, 2023.

Landstar Blue arranges truckload brokerage services with a focus on the contract services market. Landstar Blue also helps 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 transportation logistics segment. Revenue from Landstar Blue represented approximately 1% of the Company’s transportation logistics segment revenue in the thirty-nine-week period ended September 30, 2023.

The insurance segment is comprised of Signature Insurance Company (“Signature”), a wholly owned offshore insurance subsidiary, 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% of the Company’s consolidated revenue for the thirty-nine-week period ended September 30, 2023.

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 deliver freight safely and efficiently utilizing third party capacity providers. Management believes the most significant factors to the Company’s success include increasing revenue, sourcing capacity, empowering its network through technology-based tools and controlling costs, including insurance and claims.

Revenue

While customer demand, which is subject to overall economic conditions, ultimately drives increases or decreases in revenue, the Company primarily relies on its independent commission sales agents to establish customer relationships and generate revenue opportunities. Management’s emphasis with respect to revenue growth is on revenue generated by independent commission sales agents who on an annual basis generate $1 million or more of Landstar revenue (“Million Dollar Agents”). Management believes future revenue growth is primarily dependent on its ability to increase both the revenue generated by Million Dollar Agents and the number of Million Dollar Agents through a combination of recruiting new agents, increasing the revenue opportunities generated by existing independent commission sales agents and providing its independent commission sales agents with digital technologies they may use to grow revenue and increase efficiencies at their businesses. During the 2022 fiscal year, 625 independent commission sales agents generated $1 million or more of Landstar revenue and thus qualified as Million Dollar Agents. During the 2022 fiscal year, the average revenue generated by a Million Dollar Agent was $11,499,000 and revenue generated by Million Dollar Agents in the aggregate represented 97% of consolidated revenue.

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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:


	Thirty-Nine Weeks Ended						Thirteen Weeks Ended
	September 30,			September 24,			September 30,			September 24,
	2023			2022			2023			2022
Revenue generated through (in thousands):
Truck transportation
Truckload:
Van equipment	$	2,123,693		$	3,022,297		$	665,569		$	914,154
Unsided/platform equipment		1,150,483			1,336,956			378,147			453,924
Less-than-truckload		90,770			105,994			28,097			35,343
Other truck transportation (1)		379,471			632,001			101,951			195,345

Total truck transportation		3,744,417			5,097,248			1,173,764			1,598,766
Rail intermodal		73,953			113,762			23,064			27,652
Ocean and air cargo carriers		202,358			475,156			65,824			164,252
Other (2)		78,149			75,629			26,693			25,462

	$	4,098,877		$	5,761,795		$	1,289,345		$	1,816,132

Revenue on loads hauled via BCO Independent Contractors included in total truck transportation	$	1,543,634		$	2,043,772		$	508,753		$	627,809
Number of loads:
Truck transportation
Truckload:
Van equipment		966,867			1,130,263			311,831			366,513
Unsided/platform equipment		389,471			420,436			126,286			141,091
Less-than-truckload		134,580			142,740			41,514			45,912
Other truck transportation (1)		157,112			243,341			46,739			76,594

Total truck transportation		1,648,030			1,936,780			526,370			630,110
Rail intermodal		22,150			31,940			6,760			7,720
Ocean and air cargo carriers		25,380			34,410			8,630			11,520

		1,695,560			2,003,130			541,760			649,350

Loads hauled via BCO Independent Contractors included in total truck transportation		689,260			777,250			225,350			249,420
Revenue per load:
Truck transportation
Truckload:
Van equipment	$	2,196		$	2,674		$	2,134		$	2,494
Unsided/platform equipment		2,954			3,180			2,994			3,217
Less-than-truckload		674			743			677			770
Other truck transportation (1)		2,415			2,597			2,181			2,550
Total truck transportation		2,272			2,632			2,230			2,537
Rail intermodal		3,339			3,562			3,412			3,582
Ocean and air cargo carriers		7,973			13,809			7,627			14,258
Revenue per load on loads hauled via BCO Independent Contractors	$	2,240		$	2,629		$	2,258		$	2,517
Revenue by capacity type (as a % of total revenue):
Truck capacity providers:
BCO Independent Contractors		38	%		35	%		39	%		35	%
Truck Brokerage Carriers		54	%		53	%		52	%		53	%
Rail intermodal		2	%		2	%		2	%		2	%
Ocean and air cargo carriers		5	%		8	%		5	%		9	%
Other		2	%		1	%		2	%		1	%

(1)

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

Expenses

Purchased transportation

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


	September 30, 2023		September 24, 2022
BCO Independent Contractors		9,455		10,742
Truck Brokerage Carriers:
Approved and active (1)		51,717		71,207
Other approved		27,925		30,222

		79,642		101,429

Total available truck capacity providers		89,097		112,171

Trucks provided by BCO Independent Contractors		10,253		11,644

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

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 and ocean cargo carriers 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. 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

Commissions to agents are based on contractually agreed-upon percentages of (i) revenue, (ii) revenue less the cost of purchased transportation, or (iii) revenue less a contractually agreed upon percentage of revenue retained by Landstar and the cost of purchased transportation (the “retention contracts”). Commissions to agents as a percentage of consolidated revenue vary directly with fluctuations in the percentage of consolidated revenue generated by the various modes of transportation and reinsurance premiums and, in general, vary inversely with changes in the amount of purchased transportation as a percentage of 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.

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

Maintenance costs for Company-provided trailing equipment, the provision for uncollectible advances and other receivables due from BCO Independent Contractors and independent commission sales agents 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 and gains/losses, if any, on sales of Company-owned trailing equipment.

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Insurance and claims

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

Landstar retains liability through a self-insured retention for commercial trucking claims up to $5 million per occurrence. Effective May 1, 2019, the Company entered into a three year commercial auto liability insurance arrangement for losses incurred between $5 million and $10 million (the “2019 Initial Excess Policy”) with a third party insurance company. The Company subsequently extended the 2019 Initial Excess Policy for one additional policy year, from May 1, 2022 through April 30, 2023. For commercial trucking claims incurred on or after May 1, 2022 through April 30, 2023, the extended 2019 Initial Excess Policy provides for a limit for a single loss of $5 million, with an aggregate limit of $10 million for the policy period ended April 30, 2023. Effective May 1, 2023, the Company entered into a new three year commercial auto liability insurance arrangement for losses incurred between $5 million and $10 million (the “2023 Initial Excess Policy”) with a third party insurance company. For commercial trucking claims incurred on or after May 1, 2023 through April 30, 2026, the 2023 Initial Excess Policy provides for an aggregate deductible of $18 million over the

thirty-six

month term ending April 30, 2026. After payment of the deductible, the 2023 Initial Excess Policy provides for a limit for a single loss of $5 million, with an aggregate limit of $15 million for the

thirty-six

month term ending April 30, 2026.

The Company also maintains third party insurance arrangements providing excess coverage for commercial trucking liabilities in excess of $10 million. These third party arrangements provide coverage on a per occurrence or aggregated basis. In recent years, there has been a significant increase in the occurrence of trials in courts throughout the United States involving catastrophic injury and fatality claims against commercial motor carriers that have resulted in verdicts in excess of $10 million. Within the transportation logistics industry, these verdicts are often referred to as “Nuclear Verdicts.” The increase in Nuclear Verdicts has had a significant impact on the cost of commercial auto liability claims throughout the United States. Due to the increasing cost of commercial auto liability claims, the availability of excess coverage has significantly decreased, and the pricing associated with such excess coverage, to the extent available, has significantly increased. Since the annual policy year ended April 30, 2020, as compared to the annual policy year ending April 30, 2024, the Company experienced an increase of approximately $21 million, or over 380%, in the premiums charged by third party insurance companies to the Company for excess coverage for commercial trucking liabilities in excess of $10 million.

Moreover, in recent years the Company has increased the level of its financial exposure to commercial trucking claims in excess of $10 million, including through the use of additional self-insurance, deductibles, aggregate loss limits, quota shares and other arrangements with third party insurance companies, based on the availability of coverage within certain excess insurance coverage layers and estimated cost differentials between proposed premiums from third party insurance companies and historical and actuarially projected losses experienced by the Company at various levels of excess insurance coverage. For example, with respect to a single hypothetical claim in the amount of $60 million incurred during the annual policy year ending April 30, 2024, the Company would have an aggregate financial exposure of approximately $25 million. Furthermore, the Company’s third party insurance arrangements provide excess coverage up to an uppermost coverage layer, in excess of which the Company retains additional financial exposure. 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. Moreover, the occurrence of a Nuclear Verdict, or the settlement of a catastrophic injury and/or fatality claim that could have otherwise resulted in a Nuclear Verdict, could have a material adverse effect on Landstar’s cost of insurance and claims and its results of operations.

Further, the Company retains liability of up to $2,000,000 for each general liability claim, $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.

Selling, general and administrative

During the thirty-nine-week period ended September 30, 2023, employee compensation and benefits accounted for approximately 60% of the Company’s selling, general and administrative costs. Employee compensation and benefits include wages and employee benefit costs as well as incentive compensation and stock-based compensation expense. Incentive compensation and stock-based compensation expense is highly variable in nature in comparison to wages and employee benefit costs.

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Depreciation and amortization

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

Costs of revenue

The Company incurs costs of revenue related to the transportation of freight and, to a much lesser extent, to reinsurance premiums received by Signature. Costs of revenue include variable costs of revenue and other costs of revenue. Variable costs of revenue include purchased transportation and commissions to agents, as these costs are entirely variable on a

shipment-by-shipment

basis. Other costs of revenue include fixed costs of revenue and semi-variable costs of revenue, where such costs may vary over time based on certain economic factors or operational metrics such as the number of Company-controlled trailers, the number of BCO Independent Contractors, the frequency and severity of insurance claims, the number of miles traveled by BCO Independent Contractors, or the number and/or scale of information technology projects in process or

in-service

to support revenue generating activities, rather than on a

shipment-by-shipment

basis. Other costs of revenue associated with the transportation of freight include: (i) other operating costs, primarily consisting of trailer maintenance, the provision for uncollectible advances and other receivables due from BCO Independent Contractors and independent commission sales agents and BCO Independent Contractor recruiting and qualification costs, as reported in the Company’s Consolidated Statements of Income, (ii) transportation-related insurance premiums paid and claim costs incurred, included as a portion of insurance and claims in the Company’s Consolidated Statements of Income, (iii) costs incurred related to internally developed software including ASC

350-40

amortization, implementation costs, hosting costs and other support costs utilized to support the Company’s independent commission sales agents, third party capacity providers, and customers, included as a portion of depreciation and amortization and of selling, general and administrative in the Company’s Consolidated Statements of Income; and (iv) depreciation on Company-owned trailing equipment, included as a portion of depreciation and amortization in the Company’s Consolidated Statements of Income. Other costs of revenue associated with reinsurance premiums received by Signature are comprised of broker commissions and other fees paid related to the administration of insurance programs to BCO Independent Contractors and are included in selling, general and administrative in the Company’s Consolidated Statements of Income. In addition to costs of revenue, the Company incurs various other costs relating to its business, including most selling, general and administrative costs and portions of costs attributable to insurance and claims and depreciation and amortization. Management continually monitors all components of the costs incurred by the Company and establishes annual cost budgets that, in general, are used to benchmark costs incurred on a monthly basis.

Gross Profit, Variable Contribution, Gross Profit Margin and Variable Contribution Margin

The following table sets forth calculations of gross profit, defined as revenue less costs of revenue, and gross profit margin, defined as gross profit divided by revenue, for the periods indicated. The Company refers to revenue less variable costs of revenue as “variable contribution” and variable contribution divided by revenue as “variable contribution margin”. Variable contribution and variable contribution margin are each

non-GAAP

financial measures. The closest comparable GAAP financial measures to variable contribution and variable contribution margin are, respectively, gross profit and gross profit margin. The Company believes variable contribution and variable contribution margin are useful measures of the variable costs that we incur at a

shipment-by-shipment

level attributable to our transportation network of third-party capacity providers and independent commission sales agents in order to provide services to our customers. The Company believes variable contribution and variable contribution margin are important performance measurements and management considers variable contribution and variable contribution margin in evaluating the Company’s financial performance and in its decision-making, such as budgeting for infrastructure, trailing equipment and selling, general and administrative costs.

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The reconciliations of gross profit to variable contribution and gross profit margin to variable contribution margin are each presented below:


	Thirty-Nine Weeks Ended						Thirteen Weeks Ended
	September 30,			September 24,			September 30,			September 24,
	2023			2022			2023			2022
Revenue	$	4,098,877		$	5,761,795		$	1,289,345		$	1,816,132
Costs of revenue:
Purchased transportation		3,141,234			4,512,341			986,743			1,416,323
Commissions to agents		363,397			465,759			115,244			154,125

Variable costs of revenue		3,504,631			4,978,100			1,101,987			1,570,448
Trailing equipment depreciation		24,240			27,760			7,721			9,397
Information technology costs		19,791			13,868			6,298			4,829
Insurance-related costs (1)		88,484			98,821			30,102			32,380
Other operating costs		40,998			34,878			15,158			13,356

Other costs of revenue		173,513			175,327			59,279			59,962

Total costs of revenue		3,678,144			5,153,427			1,161,266			1,630,410

Gross profit	$	420,733		$	608,368		$	128,079		$	185,722

Gross profit margin		10.3	%		10.6	%		9.9	%		10.2	%
Plus: other costs of revenue		173,513			175,327			59,279			59,962

Variable contribution	$	594,246		$	783,695		$	187,358		$	245,684

Variable contribution margin		14.5	%		13.6	%		14.5	%		13.5	%

(1)

Insurance-related costs in the table above include (i) other costs of revenue related to the transportation of freight that are included as a portion of insurance and claims in the Company’s Consolidated Statements of Income and (ii) certain other costs of revenue related to reinsurance premiums received by Signature that are included as a portion of selling, general and administrative in the Company’s Consolidated Statements of Income. Insurance and claims costs included in other costs of revenue relating to the transportation of freight primarily consist of insurance premiums paid for commercial auto liability, general liability, cargo and other lines of coverage related to the transportation of freight and the related cost of claims incurred under those programs, and, to a lesser extent, the cost of claims incurred under insurance programs available to BCO Independent Contractors that are reinsured by Signature. Other insurance and claims costs included in costs of revenue that are included in selling, general and administrative in the Company’s Consolidated Statements of Income consist of brokerage commissions and other fees incurred by Signature relating to the administration of insurance programs available to BCO Independent Contractors that are reinsured by Signature.

In general, variable contribution margin on revenue generated by BCO Independent Contractors represents a fixed percentage 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, variable contribution margin may be either a fixed or variable percentage, depending on the contract with each individual independent commission sales agent. Variable contribution margin on revenue generated from shipments hauled by railroads, air cargo carriers, ocean cargo carriers and Truck Brokerage Carriers, other than those under retention contracts, is variable in nature, as the Company’s contracts with independent commission sales agents provide commissions to agents at a contractually agreed upon percentage of the amount represented by revenue less purchased transportation for these types of shipments. Approximately 43% of the Company’s consolidated revenue in the thirty-nine-week period ended September 30, 2023 was generated under transactions that pay a fixed percentage of revenue to the third party capacity provider and/or agents while 57% was generated under transactions that pay a variable percentage of revenue to the third party capacity provider and/or agents.

Operating income as a percentage of gross profit and operating income as a percentage of variable contribution

The following table presents operating income as a percentage of gross profit and operating income as a percentage of variable contribution. The Company’s operating income as a percentage of variable contribution is a

non-GAAP

financial measure calculated as operating income divided by variable contribution. The Company believes that operating income as a percentage of variable contribution is useful and meaningful to investors for the following principal reasons: (i) the variable costs of revenue for a significant portion of the business are highly influenced by short-term market-based trends in the freight transportation industry, whereas other costs, including other

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costs of revenue, are much less impacted by short-term freight market trends; (ii) disclosure of this measure allows investors to better understand the underlying trends in the Company’s results of operations; (iii) this measure is meaningful to investors’ evaluations of the Company’s management of costs attributable to operations other than the purely variable costs associated with purchased transportation and commissions to agents that the Company incurs to provide services to our customers; and (iv) management considers this financial information in its decision-making, such as budgeting for infrastructure, trailing equipment and selling, general and administrative costs.


	Thirty-Nine Weeks Ended						Thirteen Weeks Ended
	September 30,			September 24,			September 30,			September 24,
	2023			2022			2023			2022
Gross profit	$	420,733		$	608,368		$	128,079		$	185,722
Operating income	$	269,582		$	446,749		$	80,348		$	133,498
Operating income as % of gross profit		64.1	%		73.4	%		62.7	%		71.9	%
Variable contribution	$	594,246		$	783,695		$	187,358		$	245,684
Operating income	$	269,582		$	446,749		$	80,348		$	133,498
Operating income as % of variable contribution		45.4	%		57.0	%		42.9	%		54.3	%

The decrease in operating income as a percentage of gross profit from both the 2022 thirty-nine-week period to the 2023 thirty-nine-week period and from the 2022 thirteen-week period to the 2023 thirteen-week period primarily resulted from the effect of decreased gross profit on the Company’s fixed cost infrastructure, primarily certain components of selling, general and administrative costs.

The decrease in operating income as a percentage of variable contribution from both the 2022 thirty-nine-week period to the 2023 thirty-nine-week period and from the 2022 thirteen-week period to the 2023 thirteen-week period primarily resulted from the effect of decreased variable contribution on the Company’s fixed cost infrastructure, primarily certain components of selling, general and administrative costs, partially offset by the impact of decreased incentive and equity compensation costs under the Company’s variable compensation programs and decreased insurance and claims costs.

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

THIRTY-NINE WEEKS ENDED SEPTEMBER 30, 2023 COMPARED TO THIRTY-NINE WEEKS ENDED SEPTEMBER 24, 2022

Revenue for the 2023 thirty-nine-week period was $4,098,877,000, a decrease of $1,662,918,000, or 29%, compared to the 2022 thirty-nine-week period. Transportation revenue decreased $1,659,135,000, or 29%. The decrease in transportation revenue was attributable to decreased revenue per load of approximately 16% and a decreased number of loads hauled of approximately 15% compared to the 2022 thirty-nine-week period. Reinsurance premiums were $55,053,000 and $58,836,000 for the 2023 and 2022 thirty-nine-week periods, respectively. The decrease in revenue from reinsurance premiums was primarily attributable to a decrease in the average number of trucks provided by BCO Independent Contractors in the 2023 thirty-nine-week period compared to the 2022 thirty-nine-week period, partially offset by an increase in the aggregate value of equipment insured by BCO Independent Contractors under a physical damage program reinsured by Signature in the 2023 thirty-nine-week period compared to the 2022 thirty-nine-week period.

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Truck transportation revenue generated by BCO Independent Contractors and Truck Brokerage Carriers (together, the “third party truck capacity providers”) for the 2023 thirty-nine-week period was $3,744,417,000, representing 91% of total revenue, a decrease of $1,352,831,000, or 27%, compared to the 2022 thirty-nine-week period. The number of loads hauled by third party truck capacity providers decreased approximately 15% compared to the 2022 thirty-nine-week period, and revenue per load on loads hauled by third party truck capacity providers decreased approximately 14% in the 2023 thirty-nine-week period compared to the 2022 thirty-nine-week period.

The decrease in the number of loads hauled via truck compared to the 2022 thirty-nine-week period was primarily due to a decrease in demand from the record high levels experienced in the 2022 thirty-nine-week period for the Company’s van services and power-only services included in other truck transportation services, which tend to be more correlated with U.S. consumer demand. Loads hauled via other truck transportation services decreased 35%, loads hauled via van equipment decreased 14%, loads hauled via unsided/platform equipment decreased 7% and less-than-truckload loadings decreased 6% as compared to the 2022 thirty-nine-week period.

The decrease in revenue per load on loads hauled via truck was primarily due to pricing pressure throughout the 2023 thirty-nine-week period as industry-wide truck capacity was significantly more readily available as compared to the 2022 thirty-nine-week period, particularly during the 2022 first quarter during which pandemic-related supply chain disruption was at a high point. Revenue per load on loads hauled via van equipment decreased 18%, on less-than-truckload loadings decreased 9%, on loads hauled via unsided/platform equipment decreased 7% and on loads hauled by other truck transportation services decreased 7% as compared to the 2022 thirty-nine-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 $112,879,000 and $153,195,000 in the 2023 and 2022 thirty-nine-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 and do 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 2023 thirty-nine-week period was $276,311,000, or 7% of total revenue, a decrease of $312,607,000, or 53%, compared to the 2022 thirty-nine-week period. Revenue per load on revenue generated by multimode capacity providers decreased approximately 35% in the 2023 thirty-nine-week period compared to the 2022 thirty-nine-week period, and the number of loads hauled by multimode capacity providers decreased approximately 28% over the same period. Revenue per load on loads hauled via ocean, air and rail intermodal decreased 45%, 23% and 6%, respectively, during the 2023 thirty-nine-week period as compared to the 2022 thirty-nine-week period. The decrease in revenue per load on loads hauled by ocean cargo carriers was primarily related to the impact of global supply chain disruptions during the 2022 thirty-nine-week period, which were particularly acute with respect to international ocean freight. Revenue per load on revenue generated by multimode capacity providers is influenced by many factors, including revenue mix among the various modes of transportation used, length of haul, complexity of freight, density of freight lanes, fuel costs and availability of capacity. The decrease in the number of loads hauled by multimode capacity providers was due to a 31% decrease in rail loadings, a 30% decrease in ocean loadings and a 15% decrease in air loadings. The 31% decrease in rail loadings and the 30% decrease in ocean loadings were both broad-based across several customers, while the 15% decrease in air loadings was primarily attributable to decreased loadings at one specific customer.

Purchased transportation was 76.6% and 78.3% of revenue in the 2023 and 2022 thirty-nine-week periods, respectively. The decrease in purchased transportation as a percentage of revenue was primarily due to (i) a decreased rate of purchased transportation on revenue generated by Truck Brokerage Carriers and (ii) a decreased percentage of revenue generated by multimode capacity providers, which typically has a higher rate of purchased transportation than third party truck capacity providers. Commissions to agents were 8.9% and 8.1% of revenue in the 2023 and 2022 thirty-nine-week periods, respectively. The increase in commissions to agents as a percentage of revenue was primarily attributable to a decreased cost of purchased transportation as a percentage of revenue on revenue generated by Truck Brokerage Carriers.

Investment income was $6,874,000 and $2,023,000 in the 2023 and 2022 thirty-nine-week periods, respectively. The increase in investment income was attributable to higher average rates of return on investments and a higher average investment balance held by the insurance segment during the 2023 thirty-nine-week period.

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Other operating costs increased $6,120,000 in the 2023 thirty-nine-week period compared to the 2022 thirty-nine-week period. The increase in other operating costs compared to the prior year was primarily due to (i) increased trailing equipment maintenance costs as a result of the higher average age of the Company-owned trailer fleet and increased labor and parts costs charged by the Company’s network of third party trailer maintenance facilities and (ii) an increased provision for contractor bad debt, partially offset by increased gains on sales of operating property.

Insurance and claims decreased $9,294,000 in the 2023 thirty-nine-week period compared to the 2022 thirty-nine-week period. The decrease in insurance and claims expense compared to the prior year was primarily due to decreased severity of current year trucking claims during the 2023 thirty-nine-week period, decreased net unfavorable development of prior years’ claims in the 2023 thirty-nine-week period and a decrease in BCO miles traveled in the 2023 thirty-nine-week period, partially offset by increased insurance premiums, primarily for commercial auto and excess liability coverage. During the 2023 and 2022 thirty-nine-week periods, insurance and claims costs included $5,154,000 and $7,505,000 of net unfavorable adjustments to prior years’ claims estimates, respectively.

Selling, general and administrative costs decreased $6,128,000 in the 2023 thirty-nine-week period compared to the 2022 thirty-nine-week period. The decrease in selling, general and administrative costs compared to prior year was primarily attributable to a decreased provision for incentive compensation, decreased stock-based compensation expense and a decreased provision for customer bad debt, partially offset by increased information technology costs and increased wages. Included in selling, general and administrative costs was incentive compensation expense of $483,000 and $14,185,000 for the 2023 and 2022 thirty-nine-week periods, respectively, and stock-based compensation expense of $4,270,000 and $9,409,000 for the 2023 and 2022 thirty-nine-week periods, respectively.

Depreciation and amortization increased $1,871,000 in the 2023 thirty-nine-week period compared to the 2022 thirty-nine-week period. The increase in depreciation and amortization expense was primarily due to increased depreciation on new and updated digital tools deployed for use by the Company’s network of agents, capacity providers and employees, partially offset by decreased trailing equipment depreciation.

The year-over-prior-year change in interest and debt (income) expense was $5,354,000, with net interest income of $2,079,000 in the 2023 thirty-nine-week period compared to net interest and debt expense of $3,275,000 in the 2022 thirty-nine-week period. The increase in interest and debt (income) expense was primarily attributable to increased interest income earned on cash balances held by the transportation logistics segment and decreased average borrowings on the Company’s revolving credit facility, as the Company had no borrowings during the 2023 period.

Net income was $206,407,000, or $5.74 per basic and diluted share, in the 2023 thirty-nine-week period. Net income was $337,612,000, or $9.15 per basic and diluted share, in the 2022 thirty-nine-week period.

THIRTEEN WEEKS ENDED SEPTEMBER 30, 2023 COMPARED TO THIRTEEN WEEKS ENDED SEPTEMBER 24, 2022

Revenue for the 2023 thirteen-week period was $1,289,345,000, a decrease of $526,787,000, or 29%, compared to the 2022 thirteen-week period. Transportation revenue decreased $525,016,000, or 29%. The decrease in transportation revenue was attributable to a decreased number of loads hauled of approximately 17% and decreased revenue per load of approximately 15% compared to the 2022 thirteen-week period. Reinsurance premiums were $17,960,000 and $19,731,000 for the 2023 and 2022 thirteen-week periods, respectively. The decrease in revenue from reinsurance premiums was primarily attributable to a decrease in the average number of trucks provided by BCO Independent Contractors in the 2023 thirteen-week period compared to the 2022 thirteen-week period, partially offset by an increase in the aggregate value of equipment insured by BCO Independent Contractors under a physical damage program reinsured by Signature in the 2023 thirteen-week period compared to the 2022 thirteen-week period.

Truck transportation revenue generated by third party truck capacity providers for the 2023 thirteen-week period was $1,173,764,000, representing 91% of total revenue, a decrease of $425,002,000, or 27%, compared to the 2022 thirteen-week period. The number of loads hauled by third party truck capacity providers decreased approximately 16% compared to the 2022 thirteen-week period, and revenue per load on loads hauled by third party truck capacity providers decreased approximately 12% in the 2023 thirteen-week period compared to the 2022 thirteen-week period.

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The decrease in the number of loads hauled via truck compared to the 2022 thirteen-week period was primarily due to a decrease in demand from the 2022 thirteen-week period for the Company’s van services and power-only services included in other truck transportation services, which tend to be more correlated with U.S. consumer demand. Loads hauled via other truck transportation services decreased 39%, loads hauled via van equipment decreased 15%, loads hauled via unsided/platform equipment decreased 10% and less-than-truckload loadings decreased 10% as compared to the 2022 thirteen-week period.

The decrease in revenue per load on loads hauled via truck was primarily due to pricing pressure throughout the 2023 thirteen-week period as industry-wide truck capacity was significantly more readily available as compared to the 2022 thirteen-week period, partially offset by an increased average length of haul during the 2023 thirteen-week period. Revenue per load on loads hauled by other truck transportation services decreased 14%, on loads hauled via van equipment decreased 14%, on less-than-truckload loadings decreased 12% and on loads hauled via unsided/platform equipment decreased 7% as compared to the 2022 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 $33,584,000 and $58,658,000 in the 2023 and 2022 thirteen-week periods, respectively.

Transportation revenue generated by multimode capacity providers for the 2023 thirteen-week period was $88,888,000, or 7% of total revenue, a decrease of $103,016,000, or 54%, compared to the 2022 thirteen-week period. Revenue per load on revenue generated by multimode capacity providers decreased approximately 42% in the 2023 thirteen-week period compared to the 2022 thirteen-week period, and the number of loads hauled by multimode capacity providers decreased approximately 20% over the same period. Revenue per load on loads hauled via ocean, air and rail intermodal decreased 49%, 29% and 5%, respectively, during the 2023 thirteen-week period as compared to the 2022 thirteen-week period. The decrease in revenue per load on loads hauled by ocean and air cargo carriers was primarily related to the impact of global supply chain disruptions during the 2022 thirteen-week period, which were particularly acute with respect to international ocean and air freight. The decrease in the number of loads hauled by multimode capacity providers was due to a 27% decrease in ocean loadings, a 20% decrease in air loadings and a 12% decrease in rail intermodal loadings. The 27% decrease in ocean loadings was due to a broad-based decrease in demand across many customers for the Company’s ocean services, the 20% decrease in air loadings was primarily attributable to decreased loadings at one specific customer and the 12% decrease in rail loadings was broad-based across several customers.

Purchased transportation was 76.5% and 78.0% of revenue in the 2023 and 2022 thirteen-week periods, respectively. The decrease in purchased transportation as a percentage of revenue was primarily due to (i) a decreased percentage of revenue generated by Truck Brokerage Carriers and multimode capacity providers, which typically have a higher rate of purchased transportation than that of BCO Independent Contractors, and (ii) a decreased rate of purchased transportation on revenue generated by Truck Brokerage Carriers. Commissions to agents were 8.9% and 8.5% of revenue in the 2023 and 2022 thirteen-week periods, respectively. The increase in commissions to agents as a percentage of revenue was primarily attributable to a decreased cost of purchased transportation as a percentage of revenue on revenue generated by Truck Brokerage Carriers.

Investment income was $3,022,000 and $716,000 in the 2023 and 2022 thirteen-week periods, respectively. The increase in investment income was primarily attributable to higher average rates of return on investments and a higher average investment balance held by the insurance segment during the 2023 thirteen-week period.

Other operating costs increased $1,802,000 in the 2023 thirteen-week period compared to the 2022 thirteen-week period. The increase in other operating costs compared to the prior year was primarily due to (i) increased trailing equipment maintenance costs as a result of the higher average age of the Company-owned trailer fleet and increased labor and parts costs charged by the Company’s network of third party trailer maintenance facilities and (ii) an increased provision for contractor bad debt, partially offset by increased gains on sales of operating property.

Insurance and claims decreased $1,905,000 in the 2023 thirteen-week period compared to the 2022 thirteen-week period. The decrease in insurance and claims expense compared to the prior year was primarily due to decreased severity of current year trucking claims during the 2023 thirteen-week period and a decrease in BCO miles traveled in the 2023 thirteen-week period, partially offset by increased severity of current year cargo claims.

Selling, general and administrative costs decreased $2,544,000 in the 2023 thirteen-week period compared to the 2022 thirteen-week period. The decrease in selling, general and administrative costs compared to prior year was primarily attributable to a decreased provision for incentive compensation and decreased stock-based compensation expense, partially offset by increased information technology costs and increased employee benefit costs. Included in selling, general and administrative costs for the 2023 thirteen-week period was incentive compensation expense of $160,000 and $4,462,000 for the 2023 and 2022 thirteen-week periods, respectively. Stock-based compensation expense of $1,144,000 and $3,599,000 was included in selling, general and administrative costs for the 2023 and 2022 thirteen-week periods, respectively.

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Depreciation and amortization decreased $223,000 in the 2023 thirteen-week period compared to the 2022 thirteen-week period. The decrease in depreciation and amortization expense was primarily due to decreased trailing equipment depreciation, partially offset by increased depreciation on new and updated digital tools deployed for use by the Company’s network of agents, capacity providers and employees.

The quarter-over-prior-year-quarter change in interest and debt (income) expense was $2,093,000, with net interest income of $1,046,000 in the 2023 thirteen-week period compared to net interest and debt expense of $1,047,000 in the 2022 thirteen-week period. The increase in interest and debt (income) expense was primarily attributable to increased interest income earned on cash balances held by the transportation logistics segment and decreased interest expense related to finance lease obligations.

The provisions for income taxes for the 2023 and 2022 thirteen-week periods were based on estimated annual effective income tax rates of 24.4% and 24.5%, respectively, adjusted for discrete events, such as benefits resulting from stock-based awards. The effective income tax rate for the 2023 thirteen-week period was 24.3%. The effective income tax rate was higher than the statutory federal income tax rate of 21% in the 2023 period primarily attributable to state taxes. The effective income tax rate for the 2022 thirteen-week period was 24.3%. The effective income tax rate was higher than the statutory federal income tax rate of 21% in the 2022 period primarily attributable to state taxes.

Net income was $61,653,000, or $1.71 per basic and diluted share, in the 2023 thirteen-week period. Net income was $100,218,000, or $2.76 per basic and diluted share, in the 2022 thirteen-week period.

CAPITAL RESOURCES AND LIQUIDITY

Working capital and the ratio of current assets to current liabilities were $725,477,000 and 2.1 to 1, respectively, at September 30, 2023, compared with $561,255,000 and 1.6 to 1, respectively, at December 31, 2022. 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 $303,785,000 in the 2023 thirty-nine-week period compared with $436,381,000 in the 2022 thirty-nine-week period. The decrease in cash flow provided by operating activities was primarily attributable to decreased net income, partially offset by favorable working capital impacts in connection with the decreased net receivables, defined as accounts receivable less accounts payable.

The Company declared and paid $0.93 per share, or $33,448,000 in the aggregate, in cash dividends during the thirty-nine-week period ended September 30, 2023 and, during such period, also paid $71,854,000 of dividends payable which were declared in December 2022 and included in current liabilities in the consolidated balance sheet at December 31, 2022. The Company declared and paid $0.80 per share, or $29,506,000 in the aggregate, in cash dividends during the thirty-nine-week period ended September 24, 2022 and, during such period, also paid $75,387,000 of dividends payable which were declared in December 2021 and included in current liabilities in the consolidated balance sheet at December 25, 2021. During the thirty-nine-week period ended September 30, 2023, the Company purchased 89,661 shares of its common stock at a total cost of $15,433,000. During the thirty-nine-week period ended September 24, 2022, the Company purchased 1,900,826 shares of its common stock at a total cost of $285,983,000. As of September 30, 2023, the Company may purchase in the aggregate up to 2,910,339 shares of its common stock under its authorized stock purchase programs. Long-term debt, including current maturities, was $75,383,000 at September 30, 2023, $28,017,000 lower than at December 31, 2022.

Shareholders’ equity was $1,043,154,000, or 93% of total capitalization (defined as long-term debt including current maturities plus equity), at September 30, 2023, compared to $887,221,000, or 90% of total capitalization, at December 31, 2022. The increase in shareholders’ equity was primarily the result of net income, partially offset by dividends declared by the Company and purchases of shares of the Company’s common stock in the 2023 thirty-nine-week period.

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At September 30, 2023, the Company had no borrowings outstanding and $33,492,000 of letters of credit outstanding under the Credit Agreement. At September 30, 2023, there was $266,508,000 available for future borrowings under the Credit Agreement and access to an additional $300,000,000 under the Credit Agreement’s “accordion” feature. In addition, the Company has $77,054,000 in letters of credit outstanding as collateral for insurance claims that are secured by investments totaling $85,615,000 at September 30, 2023. Investments, all of which are carried at fair value, include primarily investment-grade bonds, asset-backed securities 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 available to the Company is provided by third party capacity providers, thereby reducing the Company’s capital requirements. During the 2023 thirty-nine-week period, the Company purchased $15,394,000 of operating property. Landstar anticipates acquiring either by purchase or lease financing during the remainder of fiscal year 2023 approximately $18,000,000 in operating property, consisting primarily of new trailing equipment to replace older trailing equipment and information technology equipment.

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

LEGAL MATTERS

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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 within its various programs. During the 2023 and 2022 thirty-nine-week periods, insurance and claims costs included $5,154,000 and $7,505,000 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 September 30, 2023, primarily due to the inherent difficulty in estimating the severity of commercial trucking claims and the potential judgment or settlement amount that may be incurred in connection with the resolution of such claims.

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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.

SEASONALITY

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

COVID-19

global pandemic and related supply chain issues significantly disrupted these typical seasonal patterns. In particular, the Company’s 2022 fiscal year results did not reflect normal seasonal patterns. Moreover, the thirty-nine week period ended September 30, 2023 also did not reflect normal seasonal patterns. No assurances can be given regarding the extent to which or when trends common to the trucking industry and Landstar’s operations, in particular, will return to more typical,

pre-pandemic,

seasonal patterns.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

On July 1, 2022, Landstar entered into the Second Amended and Restated Credit Agreement (the “Credit Agreement”) with a bank syndicate led by JPMorgan Chase Bank, N.A., as administrative agent. The Credit Agreement, which matures July 1, 2027, provides for borrowing capacity in the form of a revolving credit facility of $300,000,000, $45,000,000 of which may be utilized in the form of letters of credit. The Credit Agreement also includes an “accordion” feature providing for a possible increase of up to an aggregate amount of borrowing capacity of $600,000,000.

The revolving credit loans under the Credit Agreement as of September 30, 2023, at the option of Landstar, bear interest at (i) a forward-looking term rate based on the secured overnight financing rate plus 0.10% and an applicable margin ranging from 1.25% to 2.00%, or (ii) an alternate base rate plus an applicable margin ranging from 0.25% to 1.00%, in each case with the applicable margin determined based upon the Company’s Leverage Ratio, as defined in the Credit Agreement, at the end of the most recent applicable fiscal quarter for which financial statements have been delivered. The revolving credit facility bears a commitment fee, payable in arrears, of 0.20% to 0.30%, based on the Company’s Leverage Ratio at the end of the most recent applicable fiscal quarter for which financial statements have been delivered. During the entire third quarter of 2023 and as of September 30, 2023 and December 31, 2022, 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 asset-backed securities having maturities of up to five years. Assuming that the long-term portion of investments remains at $95,270,000, the balance at September 30, 2023, 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 asset-backed securities. Accordingly, any future interest rate risk on these short-term investments would not be material to the Company’s operating results.

Assets and liabilities of the Company’s Canadian and Mexican operations are translated from their functional currency to U.S. dollars using exchange rates in effect at the balance sheet date and revenue and expense accounts are translated at average monthly exchange rates during the period. Adjustments resulting from the translation process are included in accumulated other comprehensive income. Transactional gains and losses arising from receivable and payable balances, including intercompany balances, in the normal course of business that are denominated in a currency other than the functional currency of the operation are recorded in the statements of income when they occur. The assets held at the Company’s Canadian and Mexican subsidiaries at September 30, 2023 were collectively, as translated to U.S. dollars, less than 3% of total consolidated assets. Accordingly, translation gains or losses of approximately 30% related to the Canadian and Mexican operations would not be material.

Item 4. Controls and Procedures

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

10-Q,

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

13a-15(e)

promulgated under the Securities Exchange Act of 1934, as amended). Based on that evaluation, the CEO and CFO concluded that the Company’s disclosure

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controls and procedures were effective as of September 30, 2023 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 changes in the Company’s internal control over financial reporting during the third quarter of 2023, which were identified in connection with management’s evaluation required by paragraph (d) of Rules

13a-15

and

15d-15

under the Securities Exchange Act of 1934, as amended, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

See Part I, Item 2, “

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Legal Matters

”

Item 1A. Risk Factors

For a discussion identifying risk factors and other important factors that could cause actual results to differ materially from those anticipated, see the discussions under Part I, Item 1A, “Risk Factors” in the Company’s Annual Report on Form

10-K

for the fiscal year ended December 31, 2022, under Part II, Item 1A, “Risk Factors” in the Company’s Quarterly Report on Form

10-Q

for the quarterly period ended April 1, 2023, 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.

Except as set forth under Part II, Item 1A, “Risk Factors” in the Company’s Quarterly Report on Form

10-Q

for the quarterly period ended April 1, 2023, and 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 31, 2022 as filed with the SEC.

Regulations requiring the purchase and use of

zero-emission

vehicles (

“

ZEVs

”

Currently, the long-haul trucking industry in North America is diesel fuel-based, and long-haul trucking operations powered by electricity, natural gas, or hydrogen-based powertrains rather than diesel are not commercially feasible at scale in North America. Significant challenges remain with respect to the economic feasibility of these trucks and further development of this technology is necessary considering power, torque, range, efficiency and other performance requirements of long-haul trucking operations. Moreover, the extensive nationwide charging/fueling infrastructure and maintenance network that would be necessary to support such operations does not exist. Nevertheless, federal, state and local governmental agencies may engage in efforts to support legislation and regulations mandating the transition of diesel fuel-based commercial motor vehicles, such as Class 8 tractors operated by the Company’s BCO Independent Contractors and Truck Brokerage Carriers, to ZEVs. For example, the California Air Resources Board (“CARB”) has adopted two new regulations, the Advanced Clean Trucks (“ACT”) regulation and the Advanced Clean Fleets (“ACF”) regulation, that would mandate the transition of commercial trucking operations in California to ZEVs over time.

CARB’s ACT regulation, as enacted, is intended to accelerate a large-scale transition of

medium-and

heavy-duty ZEVs. The regulation includes a manufacturer sales requirement and a reporting requirement that applies to large employers including retailers, manufacturers, brokers and others, as well as fleet owners with 50 or more trucks operating in California. The following states have also adopted the ACT regulation: Colorado, Massachusetts, New Jersey, New York, Oregon, Vermont and Washington.

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CARB’s ACF regulation is intended to work in conjunction with the ACT regulation to require the deployment of medium- and heavy-duty ZEVs in California. Components of the ACF regulation, as adopted by CARB, include the following:

•

Manufacturer sales mandate. Manufacturers would be required to sell only

zero-emission

medium- and heavy-duty vehicles in California starting in 2036.

•

Drayage fleets. Beginning January 1, 2024, trucks would be required to be registered in the CARB Online System to conduct drayage activities in California. Any truck that is to conduct drayage activities in California and is added to the California fleet on or after January 1, 2024, will be required to be a ZEV.

•

High priority fleets. High priority fleets (defined by the regulation to include an entity that owns, operates or directs vehicles in California and has $50 million or more in total gross revenue or a fleet that owns, operates, or directs 50 or more vehicles in its California fleet) would be required to either (i) purchase only ZEVs beginning 2024 and, starting January 1, 2025, remove internal combustion engine vehicles at the end of their minimum useful life as specified in the regulation or (ii) use the ZEV Milestones Option to

phase-in

ZEVs into their fleets to meet ZEV targets as a percentage of their total California fleet according to the following schedule:

Table A: ZEV Fleet Milestones by Milestone Group and Year


Percentage of vehicles that must be ZEVs	10%		25%		50%		75%		100%
Milestone Group 1: Box trucks, vans, buses with two axles, yard tractors, light -duty package delivery vehicles		2025		2028		2031		2033		2035 and beyond
Milestone Group 2: Work trucks, day cab tractors, buses with three axles		2027		2030		2033		2036		2039 and beyond
Milestone Group 3: Sleeper cab tractors and specialty vehicles		2030		2033		2036		2039		2042 and beyond

On October 16, 2023, the California Trucking Association (the “CTA”) filed a lawsuit in the Eastern District of California challenging the ACF regulation as, among several alternative theories, preempted by federal law under the Federal Clean Air Act and the Federal Aviation Administration Authorization Act of 1994. The CTA seeks declaratory relief that the ACF regulation is invalid and unenforceable as well as preliminary and permanent injunctive relief barring the implementation and enforcement of the ACF regulation. No assurances can be provided regarding the CTA’s litigation challenging the ACF regulation, including the timing of any proceedings relating to the litigation.

To the extent that the ACF regulation becomes effective, no assurances can be given with respect to the extent BCO Independent Contractors will choose to become CARB-compliant by purchasing a ZEV. Accordingly, many of the Company’s BCO Independent Contractors may not be permitted to haul loads that would require travel within California, which could negatively affect the ability of the Company to service customer freight needs for freight originating from, delivering to or traveling through California. Furthermore, mandates requiring the transition to ZEVs would create substantial costs for the Company’s third party capacity providers and, in turn, increase the cost of purchased transportation to the Company. An increase in the costs to purchase, lease or maintain tractor equipment or in purchased transportation cost caused by existing or new regulations without a corresponding increase in price to the customer could adversely affect Landstar, including its results of operations and financial condition.

Moreover, irrespective of the enactment of these regulations, no assurances can be provided that the technology advancements that will need to occur to make ZEVs commercially viable for long-haul trucking or the extensive nationwide charging/fueling infrastructure and maintenance network that would be necessary to support such operations will develop in the time frame that would be necessary to enable efforts to comply with legislative or regulatory mandates requiring the transition of diesel fuel-based vehicles to ZEVs. It is not expected that long-haul trucking operations powered by electricity, natural gas, or hydrogen-based powertrains rather than diesel will become commercially viable at scale throughout North America in the next five years. However, as various technology alternatives continue to

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develop and mature and investment in infrastructure continues, local or regional service in certain geographic areas utilizing Class 8 tractors powered by electricity, natural gas, or hydrogen-based powertrains may become commercially viable in such time frame. Landstar intends to continue to actively monitor developments in the trucking industry related to the design, manufacture, operation, and support of heavy-duty trucks powered by electricity, natural gas, or hydrogen-based powertrains in order to consider the implementation of initiatives involving those technologies, as those technologies and the related infrastructure needed to support them may mature in the future. An increase in costs to implement these initiatives without a corresponding increase in price to the customer could adversely affect Landstar, including its results of operations and financial condition.

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

Purchases of Equity Securities by the Company

The Company did not purchase any shares of its common stock during the period from July 2, 2023 to September 30, 2023, the Company’s third fiscal quarter.

On December 7, 2021, the Landstar System, Inc. Board of Directors authorized the Company to purchase up to 1,912,824 shares of the Company’s common stock from time to time in the open market and in privately negotiated transactions. On December 6, 2022, the Landstar System, Inc. Board of Directors authorized the Company to purchase up to 1,900,826 additional shares of the Company’s common stock from time to time in the open market and in privately negotiated transactions. As of September 30, 2023, the Company had authorization to purchase in the aggregate up to 2,910,339 shares of its common stock under these programs. No specific expiration date has been assigned to the December 7, 2021 or December 6, 2022 authorizations.

Dividends

Landstar entered into the Second Amended and Restated Credit Agreement, dated July 1, 2022, with a bank syndicate led by 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

(a)

Second Amended and Restated Bylaws

On November 2, 2023, the Board of Directors (the “Board”) of Landstar System. Inc. adopted the Second Amended and Restated Bylaws of Landstar System, Inc. (as amended and restated, the “Bylaws”), effective on such date. The changes to the Bylaws include the following:

•

Article I, Section

1.04

(Meetings of Stockholders – Notice of Meetings; Waiver of Notice). Revised to reflect (1) amended Section 222(a) of the General Corporation Law of the State of Delaware (the “DGCL”), which sets out requirements for the content of the notice of a stockholder meeting and (2) amended Section 213(a), which clarifies the date of determination of stockholders of record for an adjourned stockholder meeting.

•

Article I, Section

1.09

(Meetings of Stockholders – Adjournment). Revised to reflect amended Section 222(c) of the DGCL, which clarifies the circumstances under which a meeting of stockholders may be adjourned and the circumstances under which an adjourned meeting can be reconvened without requiring a new notice of meeting.

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•

Article I, Section

1.12

(Meetings of Stockholders – Stockholder Meetings – Nominations and Other Proposals). Updated to (1) clarify the time periods during which a stockholder may make additional or substitute nominations or proposals, (2) establish the number of persons a stockholder may nominate for election to the Board, (3) address compliance by stockholders with Rule

14a-19

promulgated under the Securities Exchange Act of 1934, commonly referred to as the “universal proxy rule”, (4) expand the scope of disclosures required by a stockholder seeking to nominate persons to be elected to the Board or submit proposals regarding other business at a meeting of stockholders to include information regarding the stockholder, the beneficial owner, if any, on whose behalf the nomination or proposal is made, or any of their respective affiliates or associates, and any others acting in concert with any of the foregoing, and any director nominee, as applicable, (5) require proposed director nominees to complete and submit a questionnaire requested by the Company, (6) enhance and clarify the procedural mechanics in connection with stockholder nominations and proposals and (7) reflect that any stockholder not acting on behalf of the Board by soliciting proxies from other stockholders must use a proxy card color other than white, which is reserved for the exclusive use by the Board.

In addition, certain

non-substantive

language and conforming changes, other technical edits and updates consistent with the DGCL were made to the Bylaws. The foregoing summary of the changes effectuated by the amendment and restatement of the Bylaws does not purport to be complete and is qualified in its entirety by reference to the full text of the Bylaws, a copy of which is included as Exhibit 3.1 hereto and incorporated herein by reference.

Amended 2011 Equity Incentive Plan

On November 2, 2023, the Compensation Committee of the Board of Landstar System, Inc. approved an amendment to the Landstar System, Inc. 2011 Equity Incentive Plan (the “Amended 2011 EIP”) in connection with the Company’s adoption of a new Clawback Policy (as defined in the Amended 2011 EIP). The foregoing summary of the Amended 2011 EIP does not purport to be complete and is qualified in its entirety by reference to the full text of the Amended 2011 EIP, a copy of which is included as Exhibit 10.1 hereto and incorporated herein by reference.

(c) During the thirteen-week period ended September 30, 2023, none of our directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Landstar’s securities that was intended to satisfy the affirmative defense conditions of Rule

10b5-1(c)

or any

“non-Rule

10b5-1

trading arrangement.”

Item 6. Exhibits

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

10-Q.

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EXHIBIT INDEX

Registrant’s Commission File No.:

0-21238


Exhibit No.		Description

(3)

3.1 *		The Company’s Second Amended and Restated Bylaws, as adopted as of November 2, 2023.

(10)

10.1 *		Landstar System, Inc. 2011 Equity Incentive Plan, as amended through November 2, 2023.

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

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

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

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

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

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

101.INS*		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*		Inline XBRL Taxonomy Extension Schema Document

101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document

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

+	Management contract or compensatory plan or arrangement

*	Filed herewith

**	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: November 3, 2023						/s/ James B. Gattoni
						James B. Gattoni
						President and Chief Executive Officer

Date: November 3, 2023						/s/ James P. Todd
						James P. Todd
						Vice President, Chief Financial Officer and Assistant Secretary