LANDSTAR SYSTEM INC Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

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 25, 2021 and Management's Discussion and Analysis of Financial
Condition and Results of Operations included in the 2021 Annual Report on Form
10-K.

FORWARD-LOOKING STATEMENTS

The following is a "safe harbor" statement under the Private Securities
Litigation Reform Act of 1995. Statements contained in this document that are
not based on historical facts are "forward-looking statements." This
Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this Form 10-Q contain forward-looking
statements, such as statements which relate to Landstar's business objectives,
plans, strategies and expectations. Terms such as "anticipates," "believes,"
"estimates," "intention," "expects," "plans," "predicts," "may," "should,"
"could," "will," the negative thereof and similar expressions are intended to
identify forward-looking statements. Such statements are by nature subject to
uncertainties and risks, including but not limited to: the impact of the Russian
conflict with Ukraine on the operations of certain independent commission sales
agents, including the Company's largest such agent by revenue in the 2021 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; changes in fuel 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 2021 fiscal year, described in Item 1A "Risk Factors",
Landstar's Form 10-Qs for the 2022 first and second quarters, 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"), a Fortune 500 company, is a
worldwide, 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 over 1,200 independent
commission sales agents and over 112,000 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
$6.5 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.

                                       19

————————————————– ——————————

Contents

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. Transportation services offered by the Company
include truckload, less-than-truckload 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, 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 24, 2022, revenue generated by BCO Independent Contractors, Truck
Brokerage Carriers and railroads represented approximately 35%, 53% and 2%,
respectively, of the Company's consolidated revenue. Collectively, revenue
generated by air and ocean cargo carriers represented approximately 8% of the
Company's consolidated revenue in the thirty-nine-week period ended
September 24, 2022.

On May 6, 2020, the Company formed a new subsidiary that was subsequently
renamed Landstar Blue, LLC ("Landstar Blue"). 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. On June 15,
2020, Landstar Blue completed the acquisition of an independent agent of the
Company whose business focused on truckload brokerage services. The results of
operations from Landstar Blue are presented as part of the Company's
transportation logistics segment. Revenue from Landstar Blue represented less
than 1% of the Company's transportation logistics segment revenue in the
thirty-nine-week period ended September 24, 2022.

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 24, 2022.

Changes in Financial Position 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.

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 2021
fiscal year, 593 independent commission sales agents generated $1 million or
more of Landstar revenue and thus qualified as Million Dollar Agents. During the
2021 fiscal year, the average revenue generated by a Million Dollar Agent was
$6,150,000 and revenue generated by Million Dollar Agents in the aggregate
represented 94% of consolidated revenue.

                                       20

————————————————– ——————————

Contents

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

                                                                  Thirty Nine Weeks Ended                         Thirteen Weeks Ended
                                                            September 24,          September 25,          September 24,          September 25,
                                                                2022                   2021                   2022                   2021
Revenue generated through (in thousands):
Truck transportation
Truckload:
Van equipment                                              $     3,022,297        $     2,502,025        $       914,154        $       918,115
Unsided/platform equipment                                       1,336,956              1,112,358                453,924                422,979
Less-than-truckload                                                105,994                 85,551                 35,343                 30,819
Other truck transportation (1)                                     632,001                518,472                195,345                208,817

Total truck transportation                                       5,097,248              4,218,406              1,598,766              1,580,730
Rail intermodal                                                    113,762                120,540                 27,652                 44,472
Ocean and air cargo carriers                                       475,156                191,951                164,252                 84,111
Other (2)                                                           75,629                 61,654                 25,462                 24,986

                                                           $     5,761,795        $     4,592,551        $     1,816,132        $     1,734,299

Revenue on loads hauled via BCO Independent
Contractors included in total truck transportation         $     2,043,772        $     1,899,313        $       627,809        $       690,257

Number of loads:
Truck transportation
Truckload:
Van equipment                                                    1,130,263              1,037,516                366,513                359,263
Unsided/platform equipment                                         420,436                381,594                141,091                133,332
Less-than-truckload                                                142,740                135,038                 45,912                 49,943
Other truck transportation (1)                                     243,341                208,402                 76,594                 81,242

Total truck transportation                                       1,936,780              1,762,550                630,110                623,780
Rail intermodal                                                     31,940                 40,420                  7,720                 13,620
Ocean and air cargo carriers                                        34,410                 29,650                 11,520                 10,190

                                                                 2,003,130              1,832,620                649,350                647,590

Loads transported via BCO independent contractors included in total truck transport

                                      777,250                773,270                249,420                263,120

Revenue per load:
Truck transportation
Truckload:
Van equipment                                              $         2,674        $         2,412        $         2,494        $         2,556
Unsided/platform equipment                                           3,180                  2,915                  3,217                  3,172
Less-than-truckload                                                    743                    634                    770                    617
Other truck transportation (1)                                       2,597                  2,488                  2,550                  2,570
Total truck transportation                                           2,632                  2,393                  2,537                  2,534
Rail intermodal                                                      3,562                  2,982                  3,582                  3,265
Ocean and air cargo carriers                                        13,809                  6,474                 14,258                  8,254

Revenue per load on loads transported via independent contractors BCO

                                                $         2,629  

$2,456 $2,517 $2,623

Turnover by type of capacity (as % of total turnover): Suppliers of truck capacity: BCO Independent Contractors

                                             35 %                   41 %                   35 %                   40 %
Truck Brokerage Carriers                                                53 %                   50 %                   53 %                   51 %
Rail intermodal                                                          2 %                    3 %                    2 %                    3 %
Ocean and air cargo carriers                                             8 %                    4 %                    9 %                    5 %
Other                                                                    1 %                    1 %                    1 %                    1 %


(1) Includes electric motor only, accelerated, rigid trucks, vans and miscellaneous

other trucking revenue generated by transportation logistics

segment. Power only refers to shipments for which the company provides power

unit and an operator but no trailing equipment, which is usually provided

by the sender or the recipient.

(2) Mainly includes income from reinsurance premiums generated by the

    segment and intra-Mexico transportation services revenue generated by
    Landstar Metro.



                                       21

————————————————– ——————————

  Table of Contents

Expenses

Purchased transportation

Another critical element to the Company’s success is its ability to secure capacity, particularly truck capacity, at rates that enable the Company to cost-effectively transport customer freight. The following table summarizes the number of truck capacity providers available on the dates shown:

                                                  September 24,       September 25,
                                                      2022                2021
BCO Independent Contractors                               10,742              10,955
Truck Brokerage Carriers:
Approved and active (1)                                   71,207              58,676
Other approved                                            30,222              24,602

                                                         101,429              83,278

Total available truck capacity providers                 112,171            

94,233

Trucks provided by BCO Independent Contractors            11,644            

11,746

(1) Active refers to truck brokerage carriers that have moved at least one load within the

180 days immediately preceding the end of the fiscal quarter.


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 expenses, net of gains on sales/disposals of assets

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

                                       22

————————————————– ——————————

Contents

Insurance and claims

When it comes to insurance costs and claims, the potential liability associated with accidents in the trucking industry is serious and events are unpredictable.

For periods prior to May 1, 2019, Landstar retains liability for commercial
trucking claims up to $5 million per occurrence and maintains various third
party insurance arrangements for liabilities in excess of its $5 million
self-insured retention. Effective May 1, 2019, the Company entered into a new
three year commercial auto liability insurance arrangement for losses incurred
between $5 million and $10 million (the "Initial Excess Policy") with a third
party insurance company. The Company subsequently extended the 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 Initial Excess Policy provides for a limit for a
single loss of $5 million, with a remaining aggregate limit of $10 million for
the policy period ending April 30, 2023, and an option to increase such
aggregate limit for a pre-established amount of additional premium. If aggregate
losses under the Initial Excess Policy exceed the aggregate limit for the period
ending April 30, 2023, and the Company did not elect to increase such aggregate
limit for a pre-established amount of additional premium, the Company would
retain liability of up to $10 million per occurrence, inclusive of its
$5 million self-insured retention for commercial trucking claims during the
remainder of the policy period ending April 30, 2023.

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. With respect to the annual
policy year ended April 30, 2021, as compared to the annual policy year ended
April 30, 2020, the Company experienced an increase of approximately
$14 million, or over 170%, in the premiums charged by third party insurance
companies to the Company for excess coverage for commercial trucking liabilities
in excess of $10 million. Effective May 1, 2021, with respect to the annual
policy year ending April 30, 2022, as compared to the annual policy year ended
April 30, 2021, the Company experienced an increase of approximately $3 million,
or 19%, in the premiums charged by third party insurance companies to the
Company for excess coverage for commercial trucking liabilities in excess of
$10 million. Effective May 1, 2022, with respect to the annual policy year
ending April 30, 2023, as compared to the annual policy year ended April 30,
2022, the Company experienced an increase of approximately $2.3 million, or 10%,
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 hypothetical claim in the amount of $35 million
incurred during the annual policy year ending April 30, 2023, the Company would
have an aggregate financial exposure of approximately $10 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 $1,000,000 for each general
liability claim, up to $250,000 for each workers' compensation claim and up to
$250,000 for each cargo claim. In addition, under reinsurance arrangements by
Signature of certain risks of the Company's BCO Independent Contractors, the
Company retains liability of up to $500,000, $1,000,000 or $2,000,000 with
respect to certain occupational accident claims and up to $750,000 with respect
to certain workers' compensation claims. The Company's exposure to liability
associated with accidents incurred by Truck Brokerage Carriers, railroads and
air and ocean cargo carriers who transport freight on behalf of the Company is
reduced by various factors including the extent to which such carriers maintain
their own insurance coverage. A material increase in the frequency or severity
of accidents, cargo claims or workers' compensation claims or the material
unfavorable development of existing claims could have a material adverse effect
on Landstar's cost of insurance and claims and its results of operations.

                                       23

————————————————– ——————————

Contents

Selling, general and administrative expenses

During the thirty-nine-week period ended September 24, 2022, employee
compensation and benefits accounted for approximately 68% 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.

Depreciation and amortization

Depreciation and amortization relate primarily to the depreciation of rolling stock and information technology hardware and software.

Revenue costs

The Company incurs costs of revenue related to the transportation of freight
and, to a much lesser extent, 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
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 our 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.

                                       24

————————————————– ——————————

Contents

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

                                            Thirty Nine Weeks Ended                      Thirteen Weeks Ended
                                      September 24,         September 25,         September 24,         September 25,
                                          2022                  2021                  2022                  2021
Revenue                              $     5,761,795       $     4,592,551       $     1,816,132       $     1,734,299
Costs of revenue:
Purchased transportation                   4,512,341             3,583,197             1,416,323             1,356,671
Commissions to agents                        465,759               356,997               154,125               135,295

Variable costs of revenue                  4,978,100             3,940,194             1,570,448             1,491,966
Trailing equipment depreciation               27,760                26,362                 9,397                 8,615
Information technology costs                  13,868                 9,534                 4,829                 3,450
Insurance-related costs (1)                   98,821                78,175                32,380                30,502
Other operating costs                         34,878                27,117                13,356                10,572

Other costs of revenue                       175,327               141,188                59,962                53,139

Total costs of revenue                     5,153,427             4,081,382             1,630,410             1,545,105

Gross profit                         $       608,368       $       511,169       $       185,722       $       189,194

Gross profit margin                             10.6 %                11.1 %                10.2 %                10.9 %
Plus: other costs of revenue                 175,327               141,188                59,962                53,139

Variable contribution                $       783,695       $       652,357       $       245,684       $       242,333

Variable contribution margin                    13.6 %                14.2 %                13.5 %                14.0 %


(1) Insurance-related costs in the above table include (i) other revenue costs

related to the transport of goods which are included as part of

insurance and claims in the consolidated statements of income and

(ii) certain other revenue costs related to reinsurance premiums received

per signature which are included in selling, general and

administration in the company’s consolidated statements of income. Insurance

and claims costs included in other product costs related to the

freight transportation consists mainly of insurance premiums paid for

commercial auto liability, general liability, freight and other lines of

coverage related to the transport of goods and the costs of

claims incurred under these programs and, to a lesser extent, the cost of

claims incurred under the insurance programs offered to BCO Independent

Contractors reinsured by Signature. Other insurance and claims costs

included in cost of sales which is included in selling, general and

administrative items in the company’s consolidated statements of earnings consist of

brokerage commissions and other costs incurred by Signature in connection with

administration of insurance programs offered to independent contractors of BCO

who 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 40% of the Company's consolidated revenue in
the thirty-nine-week period ended September 24, 2022 was generated under
transactions that pay a fixed percentage of revenue to the third party capacity
provider and/or agents while 60% was generated under transactions that pay a
variable percentage of revenue to the third party capacity provider and/or
agents.

Operating profit as a percentage of gross margin and operating profit 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 costs of
revenue, are much less impacted by short-term freight market trends;
(ii) disclosure of this measure allows investors to better

                                       25

————————————————– ——————————

Contents

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 24,            September 25,          September 24,           September 25,
                                       2022                    2021                    2022                   2021
Gross profit                     $        608,368         $       511,169        $        185,722        $       189,194
Operating income                 $        446,749         $       356,928        $        133,498        $       131,412
Operating income as % of
gross profit                                 73.4 %                  69.8 %                  71.9 %                 69.4 %

Variable contribution            $        783,695         $       652,357        $        245,684        $       242,333
Operating income                 $        446,749         $       356,928        $        133,498        $       131,412
Operating income as % of
variable contribution                        57.0 %                  54.7 %                  54.3 %                 54.2 %


The increase in operating income as a percentage of gross profit from the 2021
thirty-nine-week period to the 2022 thirty-nine-week period resulted from
operating income increasing at a more rapid percentage rate than the increase in
gross profit, as the Company was able to scale our fixed cost infrastructure,
primarily certain components of selling, general and administrative costs,
across a larger gross profit base. The increase in operating income as a
percentage of gross profit from the 2021 thirteen-week period to the 2022
thirteen-week period resulted from operating income increasing notwithstanding a
modest decrease in gross profit, as certain components of selling, general and
administrative costs, namely incentive and equity compensation under the
Company's variable compensation programs, decreased approximately $8,500,000
from the 2021 thirteen-week period to the 2022 thirteen-week period.

The increase in operating income as a percentage of variable contribution from
the 2021 thirty-nine-week period to the 2022 thirty-nine-week period resulted
from operating income increasing at a more rapid percentage rate than the
increase in variable contribution, as the Company was able to scale our fixed
cost infrastructure, primarily certain components of selling, general and
administrative costs, as well as certain components of our other costs of
revenue, across a larger variable contribution base. The ten basis point
increase in operating income as a percentage of variable contribution from the
2021 thirteen-week period to the 2022 thirteen-week period resulted from
operating income increasing at a modestly higher percentage rate than the
increase in variable contribution, as the Company was able to scale our fixed
cost infrastructure, primarily certain components of selling, general and
administrative costs across a larger variable contribution base.

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 24, 2022 COMPARED TO THE THIRTY-NINE WEEKS ENDED
SEPTEMBER 25, 2021

Revenue for the 39-week period 2022 is $5,761,795,000an augmentation of
$1,169,244,000or 25%, compared to the thirty-nine week period of 2021. Transportation revenues increased $1,163,398,000, or 26%. The increase in transportation revenues is attributable

                                       26

————————————————– ——————————

Contents

to increased revenue per load of approximately 15% and an increased number of
loads hauled of approximately 9% compared to the 2021 thirty-nine-week period.
Reinsurance premiums were $58,836,000 and $52,990,000 for the 2022 and 2021
thirty-nine-week periods, respectively. The increase in revenue from reinsurance
premiums was primarily attributable to (i) an increase in the aggregate value of
equipment insured by BCO Independent Contractors under a physical damage program
reinsured by Signature; (ii) an increase in the average number of trucks
provided by BCO Independent Contractors and (iii) participation levels among BCO
Independent Contractors in certain occupational accident programs and workers'
compensation programs in the 2022 thirty-nine-week period compared to the 2021
thirty-nine-week period.

Truck transportation revenue generated by BCO Independent Contractors and Truck
Brokerage Carriers (together, the "third party truck capacity providers") for
the 2022 thirty-nine-week period was $5,097,248,000, representing 88% of total
revenue, an increase of $878,842,000, or 21%, compared to the 2021
thirty-nine-week period. Revenue per load on loads hauled by third party truck
capacity providers increased approximately 10% compared to the 2021
thirty-nine-week period, and the number of loads hauled by third party truck
capacity providers increased approximately 10% in the 2022 thirty-nine-week
period compared to the 2021 thirty-nine-week period.

The increase in revenue per load on loads hauled via truck was due to a tight
truck capacity environment experienced during the 2022 thirty-nine-week period,
in particular during the first fiscal quarter of 2022, and the impact of higher
diesel fuel costs on loads hauled via Truck Brokerage Carriers, partially offset
by (i) a decrease in the number of loads hauled via heavy specialized equipment,
which typically have a higher revenue per load, as a percentage of total truck
loads and (ii) a decreased average length of haul during the 2022
thirty-nine-week period. Revenue per load on loads hauled via van equipment
increased 11%, revenue per load on loads hauled via unsided/platform equipment
increased 9%, revenue per load on less-than-truckload loadings increased 17% and
other truck transportation services revenue per load increased 4% as compared to
the 2021 thirty-nine-week period.

The increase in the number of loads transported by truck compared to the thirty-nine week period of 2021 is due to a general increase in demand for the Company’s trucking services. Loads transported via vans increased by 9%, loads transported via unridden/flatbed equipment increased by 10%, loads transported by lesser trucks increased by 6% and loads transported via other trucking services increased 17% over the thirty-nine week 2021 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 $153,195,000 and $74,195,000
in the 2022 and 2021 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 that does not separately identify fuel surcharges
on loads hauled via Truck Brokerage Carriers. Accordingly, the overall impact of
changes in fuel prices on revenue and revenue per load on loads hauled via truck
is likely to be greater than that indicated.

Transportation revenue generated by rail intermodal, air cargo and ocean cargo
carriers (collectively, the "multimode capacity providers") for the 2022
thirty-nine-week period was $588,918,000, or 10% of total revenue, an increase
of $276,427,000, or 88%, compared to the 2021 thirty-nine-week period. Revenue
per load on revenue generated by multimode capacity providers increased
approximately 99% in the 2022 thirty-nine-week period compared to the 2021
thirty-nine-week period, while the number of loads hauled by multimode capacity
providers decreased approximately 5% over the same period. Revenue per load on
loads hauled by multimode capacity providers increased for all modes, primarily
due to continuing U.S. and global economic recoveries coupled with the impact of
global supply chain disruptions which were particularly acute with respect to
international ocean and air freight. Revenue per load on loads hauled via air,
ocean and rail intermodal increased 139%, 93% and 19%, respectively, during the
2022 thirty-nine-week period as compared to the 2021 thirty-nine-week period.
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 21% decrease in rail
loadings and a 19% decrease in air loadings, partially offset by a 34% increase
in ocean loadings. The 21% decrease in rail loadings was broad-based across
several agencies and customers, and the 19% decrease in air loadings was
entirely attributable to decreased loadings at one specific customer. The 34%
increase in ocean loadings was due to a broad-based increase in demand across
many customers for the Company's ocean services.

Purchased transportation was 78.3% and 78.0% of revenue in the 2022 and 2021
thirty-nine-week periods, respectively. The increase in purchased transportation
as a percentage of revenue was primarily due to (i) an increased percentage of
revenue generated by Truck Brokerage Carriers, which typically has a higher rate
of purchased transportation than revenue generated by BCO Independent
Contractors and (ii) an increased percentage of revenue generated by multimode
capacity providers, which typically has a higher rate of purchased
transportation than third party truck capacity providers, partially offset by a
lower rate of purchased transportation on revenue generated by Truck Brokerage
Carriers. Commissions to agents were 8.1% and 7.8% of revenue in the 2022 and
2021 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.

                                       27

————————————————– ——————————

Contents

Investment income was $2,023,000 and $2,138,000 in the thirty-nine week periods 2022 and 2021, respectively. The decrease in investment income is mainly attributable to a lower average investment balance held by the insurance sector during the thirty-nine week period of 2022, partially offset by higher average rates of return on investments in the during the thirty-nine week period 2022.

Other operating costs increased $7,761,000 in the 2022 thirty-nine-week period
compared to the 2021 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 (x) increased labor and parts costs
charged by the Company's network of third party trailer maintenance facilities
as the Company retained older trailing equipment to support current business
levels; and (y) an increased average trailer fleet size during the 2022
thirty-nine-week period and (ii) the impact of the resumption of a large
in-person event for the Company's BCO Independent Contractors.

Insurance and claims increased $21,067,000 in the 2022 thirty-nine-week period
compared to the 2021 thirty-nine-week period. The increase in insurance and
claims expense compared to the prior year was primarily due to increased
severity of current year trucking claims during the 2022 thirty-nine-week
period, the impact of net unfavorable development of prior years' claims in the
2022 thirty-nine-week period and increased insurance premiums, primarily for
commercial auto and excess liability coverage. During the 2022 and 2021
thirty-nine-week periods, insurance and claims costs included $7,505,000 and
$4,522,000 of net unfavorable adjustments to prior years' claims estimates,
respectively.

Selling, general and administrative costs increased $6,479,000 in the 2022
thirty-nine-week period compared to the 2021 thirty-nine-week period. The
increase in selling, general and administrative costs compared to the prior year
was attributable to increased wages, an increased provision for customer bad
debt and the return of the Company's annual agent convention held in April 2022,
partially offset by decreased stock-based compensation expense and a decreased
provision for incentive compensation. Included in selling, general and
administrative costs was stock-based compensation expense of $9,409,000 and
$18,717,000 for the 2022 and 2021 thirty-nine-week periods, respectively, and
incentive compensation expense of $14,185,000 and $21,370,000 for the 2022 and
2021 thirty-nine-week periods, respectively.

Depreciation and amortization expense increased $6,095,000 in the 2022
thirty-nine-week period compared to the 2021 thirty-nine-week period. The
increase in depreciation and amortization expense was primarily due to increased
depreciation on digital technology tools in connection with the deployment of
new and upgraded applications for use by the Company's network of agents,
capacity providers and employees, and to a lesser extent, in connection with
increased trailing equipment depreciation.

Interest and debt expense in the 2022 thirty-nine-week period increased $301,000
compared to the 2021 thirty-nine-week period. The increase in interest and debt
expense was primarily attributable to increased average borrowings on the
Company's revolving credit facility during the 2022 thirty-nine-week period, as
the Company had no borrowings under its revolving credit facility during the
2021 period. The Company had no borrowings under its revolving credit facility
as of the end of the 2022 thirty-nine-week period.

The provisions for income taxes for the 2022 and 2021 thirty-nine-week periods
were based on estimated annual effective income tax rates of 24.5% and 24.4%,
respectively, adjusted for discrete events, such as benefits resulting from
stock-based awards. The estimated annual effective income tax rate was higher
than the statutory federal income tax rate of 21% in both periods primarily
attributable to state taxes and nondeductible executive compensation. The
effective income tax rate for the 2022 thirty-nine-week period was 23.9%, which
was lower than the estimated annual effective income tax rate of 24.5%,
primarily attributable to excess tax benefits realized on stock-based awards.
The effective income tax rate in the 2021 thirty-nine-week period of 24.2% was
lower than the 24.4% estimated annual effective income tax rate, primarily due
to excess tax benefits realized on stock-based awards in the 2021
thirty-nine-week period.

The net income was $337,612,000Where $9.15 per diluted share, over the thirty-nine week period 2022. Net income was $268,209,000Where $7.00 per diluted share, during the thirty-nine week period of 2021.

THIRTEEN WEEKS COMPLETED SEPTEMBER 24, 2022 COMPARED TO THE THIRTEEN WEEKS ENDED
SEPTEMBER 25, 2021

Revenue for the 2022 thirteen-week period was $1,816,132,000, an increase of
$81,833,000, or 5%, compared to the 2021 thirteen-week period. Transportation
revenue increased $80,397,000, or 5%. The increase in transportation revenue was
attributable to increased revenue per load of approximately 4%, while the number
of loads hauled was approximately equal to the 2021 thirteen-week period.
Reinsurance premiums were $19,731,000 and $18,295,000 for the 2022 and 2021
thirteen-week periods, respectively. The increase in revenue from reinsurance
premiums was primarily attributable to (i) an increase in the aggregate value of
equipment insured by BCO

                                       28

————————————————– ——————————

Contents

Independent Contractors under a physical damage program reinsured by Signature;
(ii) an increase in the average number of trucks provided by BCO Independent
Contractors and (iii) participation levels among BCO Independent Contractors in
certain occupational accident programs and workers' compensation programs in the
2022 thirteen-week period compared to the 2021 thirteen-week period.

Truck transportation revenue generated by third party truck capacity providers
for the 2022 thirteen-week period was $1,598,766,000, representing 88% of total
revenue, an increase of $18,036,000, or 1%, compared to the 2021 thirteen-week
period. The number of loads hauled by third party truck capacity providers
increased approximately 1% in the 2022 thirteen-week period compared to the 2021
thirteen-week period, while revenue per load on loads hauled by third party
truck capacity providers was approximately equal to the 2021 thirteen-week
period.

The increase in the number of loads hauled via truck compared to the 2021
thirteen-week period was due to (i) a broad-based increase in demand for the
Company's truck transportation services provided via unsided/platform equipment
and (ii) a modest increase in demand for the Company's truck transportation
services provided via van equipment, partially offset by reduced demand for
substitute line-haul and power-only services from certain parcel and
less-than-truckload carriers. Loads hauled via unsided/platform equipment
increased 6% and loads hauled via van equipment increased 2%, while
less-than-truckload loadings decreased 8% and other truck transportation
services load count decreased 6% as compared to the 2021 thirteen-week period.
The number of loads hauled via truck increased 5% in July, was relatively flat
in August and then declined 1% in September, as compared to the corresponding
periods in 2021.

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 $58,658,000 and $28,621,000 in
the 2022 and 2021 thirteen-week periods, respectively.

Transportation revenue generated by multimode capacity providers for the 2022
thirteen-week period was $191,904,000, or 11% of total revenue, an increase of
$63,321,000, or 49%, compared to the 2021 thirteen-week period. Revenue per load
on revenue generated by multimode capacity providers increased approximately 85%
in the 2022 thirteen-week period compared to the 2021 thirteen-week period,
while the number of loads hauled by multimode capacity providers decreased
approximately 19% over the same period. Revenue per load on loads hauled by
multimode capacity providers increased for all modes, primarily due to the
continuing U.S. and global economic recoveries coupled with the impact of global
supply chain disruptions which were particularly acute with respect to
international ocean and air freight. Revenue per load on loads hauled via air,
ocean and rail intermodal increased 127%, 63% and 10%, respectively, during the
2022 thirteen-week period as compared to the 2021 thirteen-week period. The
decrease in the number of loads hauled by multimode capacity providers was due
to a 43% decrease in rail loadings, partially offset by an 18% increase in ocean
loadings. Air loadings during the 2022 thirteen-week period were approximately
equal to the 2021 thirteen-week period. The 43% decrease in rail loadings was
broad-based across several agencies and customers. The 18% increase in ocean
loadings was due to a broad-based increase in demand across many customers for
the Company's ocean services.

Purchased transportation was 78.0% and 78.2% of revenue in the 2022 and 2021
thirteen-week periods, respectively. The decrease in purchased transportation as
a percentage of revenue was primarily due to a lower rate of purchased
transportation on revenue generated by Truck Brokerage Carriers, partially
offset by (i) an increased percentage of revenue generated by Truck Brokerage
Carriers, which typically has a higher rate of purchased transportation than
revenue generated by BCO Independent Contractors; and (ii) an increased
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 8.5% and 7.8% of revenue in the 2022 and
2021 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 $716,000 and $706,000 during the thirteen-week periods 2022 and 2021, respectively.

Other operating costs increased $2,784,000 in the 2022 thirteen-week period
compared to the 2021 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 (x) increased labor and parts costs as the
Company retained older equipment to support current business levels, and (y) an
increased average trailer fleet size during the 2022 thirteen-week period,
(ii) the impact of the resumption of a large in-person event for the Company's
BCO Independent Contractors and (iii) decreased gains on the sale of operating
property.

Insurance and claims increased $1,876,000 in the 2022 thirteen-week period
compared to the 2021 thirteen-week period. The increase in insurance and claims
expense compared to the prior year was primarily due to increased severity of
current year trucking claims during the 2022 thirteen-week period as well as
increased premiums for commercial auto and excess liability coverage, partially
offset by decreased net unfavorable development of prior years' claims during
the 2022 thirteen-week period. During the 2022 and 2021 thirteen-week periods,
insurance and claims costs included $2,124,000 and $3,542,000 of net unfavorable
adjustments to prior years' claims estimates, respectively.

                                       29

————————————————– ——————————

Contents

Selling, general and administrative costs decreased $5,679,000 in the 2022
thirteen-week period compared to the 2021 thirteen-week period. The decrease in
selling, general and administrative costs compared to the prior year was
attributable to a decreased provision for incentive compensation, decreased
stock-based compensation expense and decreased employee benefit costs, partially
offset by increased wages. Included in selling, general and administrative costs
was incentive compensation expense of $4,462,000 and $8,755,000 for the 2022 and
2021 thirteen-week periods, respectively, and stock-based compensation expense
of $3,599,000 and $7,824,000 for the 2022 and 2021 thirteen-week periods,
respectively.

Depreciation and amortization expense increased $2,294,000 in the 2022
thirteen-week period compared to the 2021 thirteen-week period. The increase in
depreciation and amortization expense was primarily due to increased
depreciation on digital technology tools in connection with the deployment of
new and upgraded applications for use by the Company's network of agents,
capacity providers and employees, and to a lesser extent, in connection with
increased trailing equipment depreciation.

Interest and debt expense in the thirteen-week period of 2022 increased $82,000
compared to the thirteen-week period of 2021.

The provisions for income taxes for the 2022 and 2021 thirteen-week periods were
based on estimated annual effective income tax rates of 24.5% and 24.4%,
respectively, adjusted for discrete events, such as benefits resulting from
stock-based awards. The estimated annual effective income tax rate was higher
than the statutory federal income tax rate of 21% in both periods primarily
attributable to state taxes and nondeductible executive compensation. The
effective income tax rate for the 2022 thirteen-week period was 24.3%, which was
lower than the estimated annual effective income tax rate of 24.5%, primarily
attributable to higher than anticipated state income tax refunds and excess tax
benefits realized on stock-based awards. The effective income tax rate in the
2021 thirteen-week period of 24.4% was consistent with the estimated annual
effective income tax rate of 24.4%.

The net income was $100,218,000Where $2.76 per diluted share, over the thirteen-week period 2022. Net income was $98,675,000Where $2.58 per diluted share, over the thirteen-week period 2021.

CAPITAL AND LIQUIDITY RESOURCES

Working capital and the ratio of current assets to current liabilities were
$543,330,000 and 1.6 to 1, respectively, at September 24, 2022, compared with
$512,917,000 and 1.5 to 1, respectively, at December 25, 2021. 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 $436,381,000 in the 2022
thirty-nine-week period compared with $216,990,000 in the 2021 thirty-nine-week
period. The increase in cash flow provided by operating activities was primarily
attributable to favorable working capital impacts in connection with the timing
of collections of receivables and payment of certain payables and increased net
income.

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 during fiscal year 2021 and included in current liabilities in the
consolidated balance sheet at December 25, 2021. The Company declared and paid
$0.67 per share, or $25,693,000 in the aggregate, in cash dividends during the
thirty-nine-week period ended September 25, 2021 and, during such period, also
paid $76,770,000 of dividends payable which were declared during fiscal year
2020 and included in current liabilities in the consolidated balance sheet at
December 26, 2020. 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. During the thirty-nine-week period ended September 25, 2021, the
Company purchased 317,046 shares of its common stock at a total cost of
$50,230,000. As of September 24, 2022, the Company may purchase in the aggregate
up to 1,099,174 shares of its common stock under its authorized stock purchase
program. Long-term debt, including current maturities, was $109,470,000 at
September 24, 2022, $2,334,000 lower than at December 25, 2021.

Shareholders' equity was $873,173,000, or 89% of total capitalization (defined
as long-term debt including current maturities plus equity), at September 24,
2022, compared to $862,010,000, or 89% of total capitalization, at December 25,
2021. The increase in shareholders' equity was primarily the result of net
income, partially offset by purchases of shares of the Company's common stock,
dividends declared by the Company in the 2022 thirty-nine-week period and taxes
paid in lieu of shares issued related to stock-based compensation plans.

On August 18, 2020, Landstar entered into an amended and restated credit agreement with a syndicate of banks and JPMorgan Chase Bank, North America., as Administrative Agent (the “First Amended and Restated Credit Agreement”). As previously reported in a filed Form 8-K

                                       30

————————————————– ——————————

Contents

with the SEC on July 8, 2022, Landstar entered into a 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 "Second Amended and
Restated Credit Agreement") that superseded and replaced the First Amended and
Restated Credit Agreement. The Second Amended and Restated 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 Second Amended and Restated 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 Second
Amended and Restated Credit Agreement, which superseded and replaced the First
Amended and Restated Credit Agreement, is referred to herein as the "Credit
Agreement." As of September 24, 2022, there were no borrowings outstanding under
the revolving credit facility of the Credit Agreement.

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.

At September 24, 2022, the Company had no borrowings outstanding and $33,493,000
of letters of credit outstanding under the Credit Agreement. At September 24,
2022, there was $266,507,000 available for future borrowings under the Credit
Agreement. In addition, the Company has $76,567,000 in letters of credit
outstanding as collateral for insurance claims that are secured by investments
totaling $85,074,000 at September 24, 2022. Investments, all of which are
carried at fair value, include primarily investment-grade bonds and asset-backed
securities having maturities of up to five years. Fair value of investments is
based primarily on quoted market prices. See "Notes to Consolidated Financial
Statements" included herein for further discussion on measurement of fair value
of investments.

Historically, the Company has generated sufficient operating cash flow to meet
its debt service requirements, fund continued growth, both organic and through
acquisitions, complete or execute share purchases of its common stock under
authorized share purchase programs, pay dividends and meet working capital
needs. As an asset-light provider of integrated transportation management
solutions, the Company's annual capital requirements for operating property are
generally for trailing equipment and information technology hardware and
software. In addition, a significant portion of the trailing equipment used by
the Company is provided by third party capacity providers, thereby reducing the
Company's capital requirements. During the 2022 thirty-nine-week period, the
Company purchased $21,096,000 of operating property and acquired $26,741,000 of
trailing equipment by entering into finance leases. Landstar anticipates
acquiring either by purchase or lease financing during the remainder of fiscal
year 2022 approximately $17,000,000 in operating property, consisting primarily
of new trailing equipment to replace older trailing equipment and information
technology equipment.

On April 1, 2022, Landstar Investment Holdco, LLC, a newly formed Delaware LLC
and wholly owned subsidiary of Landstar System Holdings, Inc., purchased Class A
units of Cavnue, LLC for approximately $4,999,000 in cash consideration. Cavnue,
LLC is a privately held company focused on combining technology and road
infrastructure to unlock the full potential of connected and autonomous
vehicles.

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

LEGAL AFFAIRS

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.

                                       31

————————————————– ——————————

Contents

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Landstar provides for the estimated costs of self-insured claims primarily on an
actuarial basis. The amount recorded for the estimated liability for claims
incurred is based upon the facts and circumstances known on the applicable
balance sheet date. The ultimate resolution of these claims may be for an amount
greater or less than the amount estimated by management. The Company continually
revises its existing claim estimates as new or revised information becomes
available on the status of each claim. Historically, the Company has experienced
both favorable and unfavorable development of prior years' claims estimates.
During the 2022 and 2021 thirty-nine-week periods, insurance and claims costs
included $7,505,000 and $4,522,000 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 24, 2022.

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

© Edgar Online, source Previews

About Joel Simmons

Check Also

Matterport: Still too early to hunt (NASDAQ:MTTR)

courtneyk/E+ via Getty Images Matterport (NASDAQ: MTTR) has a bright future in spatial data reshaping …