# LANDSTAR SYSTEM INC (LSTR) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from LANDSTAR SYSTEM INC's 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/853816/000119312522046673/d238952d10k.htm
Accession: 0001193125-22-046673
Filing date: 2022-02-18
Report date: 2021-12-25
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/LSTR/
All MD&A years: /company/LSTR/mda/
Next year: /company/LSTR/mda/fy2022/ (FY 2022)

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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-K
contain forward-looking statements, such as statements which relate to Landstar’s business objectives, plans, strategies and expectations. Terms such as “anticipates,” “believes,” “estimates,” “intention,” “expects,” “plans,” “predicts,” “may,” “should,” “could,” “will,” the negative thereof and similar expressions are intended to identify forward-looking statements. Such statements are by nature subject to uncertainties and risks, including but not limited to: the impact of the coronavirus
(COVID-19)
pandemic; an increase in the frequency or severity of accidents or other claims; unfavorable development of existing accident claims; dependence on third party insurance companies; dependence on independent commission sales agents; dependence on third party capacity providers; decreased demand for transportation services; U.S. foreign trade relationships; substantial industry competition; disruptions or failures in the Company’s computer systems; cyber and other information security incidents; dependence on key vendors; changes in fuel taxes; status of independent contractors; regulatory and legislative changes; regulations focused on diesel emissions and other air quality matters; intellectual property; and other operational, financial or legal risks or uncertainties detailed in this and Landstar’s other SEC filings from time to time and described in Item 1A in this Form
10-K
under the heading “Risk Factors.” 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 worldwide technology-enabled, asset-light provider of integrated transportation management solutions. The Company offers services to its customers across multiple transportation modes, with the ability to arrange for individual shipments of freight to comprehensive third party logistics solutions to meet all of a customer’s transportation needs. Landstar provides services principally throughout the United States and to a lesser extent in Canada and Mexico, and between the United States and Canada, Mexico and other countries around the world. The Company’s services emphasize safety, information coordination and customer service and are delivered through a network of over 1,200 independent commission sales agents and over 101,000 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.

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., and as further described below, Landstar Metro and Landstar Blue. Transportation services offered by the Company include truckload and 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,

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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 fiscal year 2021, revenue generated by BCO Independent Contractors, Truck Brokerage Carriers and railroads represented approximately 40%, 51% 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 during fiscal year 2021.

During 2017, the Company incorporated Landstar Metro, S.A.P.I. de C.V., a transportation logistics company (“Landstar Metro”), based in Mexico City, Mexico. Landstar Metro provides freight and logistics services within the country of Mexico and in conjunction with Landstar’s U.S./Mexico cross-border services. The results of operations from Landstar Metro are presented as part of the Company’s transportation logistics segment. On September 20, 2017, Landstar Metro acquired substantially all of the assets of the asset-light transportation logistics business of a Mexican transportation logistics company. In connection with the acquisition, individuals affiliated with the seller subscribed for equity interests in Landstar Metro, and as of December 29, 2018, owned in the aggregate approximately 21% of its equity interests. On January 29, 2019, Landstar acquired all of the remaining equity interests in Landstar Metro held by its former minority equityholders. Accordingly, as of such date, Landstar Metro became a wholly owned subsidiary of the Company. Revenue from Landstar Metro represented less than 1% of the Company’s transportation logistics segment revenue during fiscal year 2021.

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 transportations logistics segment. Revenue from Landstar Blue represented less than 1% of the Company’s transportation logistics segment revenue during fiscal year 2021.

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 fiscal year 2021.

Changes in Financial Condition and Results of Operations

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

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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. 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. The following table shows the number of Million Dollar Agents, the average revenue generated by these agents and the percent of consolidated revenue generated by these agents during the past three fiscal years:

[[GREPCENT_TABLE]]
[["","","Fiscal Years"],["","","2021","","","2020","","","2019"],["Number of Million Dollar Agents","","","593","","","","508","","","","555"],["Average revenue generated per Million Dollar Agent","","$","6,150,000","","","$","7,489,000","","","$","6,880,000"],["Percent of consolidated revenue generated by Million Dollar Agents","","","94","%","","","92","%","","","93","%"]]
[[/GREPCENT_TABLE]]

The change in the number of Million Dollar Agents on a year-over-year basis is influenced by many factors and is not solely the result of terminations of contractual relationships between agents and the Company, whether such terminations are initiated by the agent or the Company. Such other factors include consolidations among agencies or transactions in connection with ownership changes often due to retirement planning, estate planning or similar transitional matters. The change in the number of Million Dollar Agents on a year-over-year basis may also be affected by agents that remain with the Company yet experienced lower year-over-year revenue that resulted in such agent moving below the Million Dollar Agent category. Revenue from accounts formerly handled by terminated Million Dollar Agents is often retained by the Company as the customer may choose to transfer its account to an existing Landstar agent.

Historically, the Company has experienced very few terminations of its Million Dollar Agents, whether such terminations are initiated by the agent or the Company. Annual terminations of Million Dollar Agents have typically been less than 3% of the total number of Million Dollar Agents. In fiscal year 2020, the change in the number of Million Dollar Agents was entirely attributable to agents generating under $5 million of Landstar revenue per year, as the Company experienced no change in fiscal year 2020 compared to fiscal year 2019 in the number of independent sales agents generating $5 million or more of Landstar revenue. During fiscal year 2020, the
COVID-19
pandemic impacted the number of agents generating under $5 million of Landstar revenue both with respect to existing agents, some of whom had difficulty operating their small businesses during the pandemic due to personal issues, staffing issues and/or customer issues, and with respect to the Company’s ability to recruit new independent sales agents to the Landstar network, given the uncertain operating environment and challenges we experienced in building personal relationships with prospective agent candidates during the pandemic. In fiscal year 2021, the change in the number of Million Dollar Agents was attributable to growth in existing agents who were former Million Dollar Agents whose businesses were temporarily impacted in fiscal year 2020 by the
COVID-19
pandemic as well as new agents and existing agents who were not formerly Million Dollar Agents. Included among the Company’s Million Dollar Agents in the 2021 fiscal year, the Company had 115 independent sales agencies that generated at least $10 million in Landstar 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 for the past three fiscal years:

[[GREPCENT_TABLE]]
[["","","Fiscal Years"],["","","2021","","","2020","","","2019"],["Revenue generated through (in thousands):"],["Truck transportation"],["Truckload:"],["Van equipment","","$","3,525,830","","","$","2,192,254","","","$","2,095,345"],["Unsided/platform equipment","","","1,549,037","","","","1,119,272","","","","1,254,781"],["Less-than-truckload","","","117,505","","","","97,546","","","","98,324"],["Other truck transportation (1)","","","770,846","","","","406,709","","","","316,879"],["Total truck transportation","","","5,963,218","","","","3,815,781","","","","3,765,329"],["Rail intermodal","","","159,974","","","","114,313","","","","118,305"],["Ocean and air cargo carriers","","","327,160","","","","132,180","","","","121,485"],["Other (2)","","","87,216","","","","70,707","","","","79,458"],["","","$","6,537,568","","","$","4,132,981","","","$","4,084,577"],["Revenue on loads hauled via BCO Independent Contractors included in total truck transportation","","$","2,612,188","","","$","1,866,526","","","$","1,831,752"],["Number of loads:"],["Truck transportation"],["Truckload:"],["Van equipment","","","1,422,734","","","","1,141,261","","","","1,167,414"],["Unsided/platform equipment","","","521,891","","","","458,550","","","","494,565"],["Less-than-truckload","","","183,975","","","","163,024","","","","155,592"],["Other truck transportation (1)","","","300,710","","","","206,305","","","","188,689"],["Total truck transportation","","","2,429,310","","","","1,969,140","","","","2,006,260"],["Rail intermodal","","","52,310","","","","46,280","","","","47,590"],["Ocean and air cargo carriers","","","41,450","","","","31,900","","","","30,110"],["","","","2,523,070","","","","2,047,320","","","","2,083,960"],["Loads hauled via BCO Independent Contractors included in total truck transportation","","","1,039,630","","","","945,210","","","","954,990"],["Revenue per load:"],["Truck transportation"],["Truckload:"],["Van equipment","","$","2,478","","","$","1,921","","","$","1,795"],["Unsided/platform equipment","","","2,968","","","","2,441","","","","2,537"],["Less-than-truckload","","","639","","","","598","","","","632"],["Other truck transportation (1)","","","2,563","","","","1,971","","","","1,679"],["Total truck transportation","","","2,455","","","","1,938","","","","1,877"],["Rail intermodal","","","3,058","","","","2,470","","","","2,486"],["Ocean and air cargo carriers","","","7,893","","","","4,144","","","","4,035"],["Revenue per load on loads hauled via BCO Independent Contractors","","$","2,513","","","$","1,975","","","$","1,918"],["Revenue by capacity type (as a % of total revenue):"],["Truck capacity providers:"],["BCO Independent Contractors","","","40","%","","","45","%","","","45","%"],["Truck Brokerage Carriers","","","51","%","","","47","%","","","47","%"],["Rail intermodal","","","2","%","","","3","%","","","3","%"],["Ocean and air cargo carriers","","","5","%","","","3","%","","","3","%"],["Other","","","1","%","","","2","%","","","2","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(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."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","(2)","Includes primarily reinsurance premium revenue generated by the insurance segment and intra-Mexico transportation services revenue generated by Landstar Metro."]]
[[/GREPCENT_TABLE]]

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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 as of the end of the three most recent fiscal years:

[[GREPCENT_TABLE]]
[["","","Dec. 25, 2021","","","Dec. 26, 2020","","","Dec. 28, 2019"],["BCO Independent Contractors","","","11,057","","","","10,242","","","","9,554"],["Truck Brokerage Carriers:"],["Approved and active (1)","","","64,476","","","","46,053","","","","39,497"],["Other approved","","","25,870","","","","22,972","","","","16,820"],["","","","90,346","","","","69,025","","","","56,317"],["Total available truck capacity providers","","","101,403","","","","79,267","","","","65,871"],["Trucks provided by BCO Independent Contractors","","","11,864","","","","10,991","","","","10,243"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(1)","Active refers to Truck Brokerage Carriers who moved at least one load in the 180 days immediately preceding the fiscal year end."]]
[[/GREPCENT_TABLE]]

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

Commissions to agents

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 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.

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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.

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. For commercial trucking claims incurred on or after May 1, 2019 through April 30, 2022, the Initial Excess Policy provides for a limit for a single loss of $5 million, with an aggregate limit of $15 million for each policy year, an aggregate limit of $20 million for the
thirty-six
month term ended April 30, 2022, and options to increase such aggregate limits for
pre-established
amounts of additional premium. If aggregate losses under the Initial Excess Policy exceed either the annual aggregate limit or the aggregate limit for the three year period ending April 30, 2022, and the Company did not elect to increase such aggregate limits for a
pre-established
amount of additional premium, Landstar 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 applicable policy year(s). Moreover, as a result of the Company’s aggregate loss experience since it entered into the Initial Excess Policy, the Initial Excess Policy required the Company to pay additional premium relating to its existing coverage up to a
pre-established
maximum amount of $3.5 million, which was provided for in insurance and claims costs for the Company’s 2020 fiscal first quarter.

The Company also maintains third party insurance arrangements providing excess coverage for commercial trucking liabilities in excess of $10 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 ending April 30, 2021, as compared to the annual policy year ended April 30, 2020, the Company experienced an increase of approximately $14 million, or over 170%, in the premiums charged by third party insurance companies to the Company for excess coverage for commercial trucking liabilities in excess of $10 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. Moreover, the Company 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 $100 million incurred during the annual policy year ending April 30, 2022, the Company would have an aggregate financial exposure of approximately $18 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.

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Selling, general and administrative

During the 2021 fiscal year, employee compensation and benefits accounted for approximately 75% 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 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 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.

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

[[GREPCENT_TABLE]]
[["","","Fiscal Year"],["","","2021","","","2020","","","2019"],["Revenue","","$","6,537,568","","","$","4,132,981","","","$","4,084,577"],["Costs of revenue:"],["Purchased transportation","","","5,114,667","","","","3,192,850","","","","3,127,474"],["Commissions to agents","","","507,209","","","","340,780","","","","342,226"],["Variable costs of revenue","","","5,621,876","","","","3,533,630","","","","3,469,700"],["Trailing equipment depreciation","","","35,204","","","","34,892","","","","36,934"],["Information technology costs","","","13,560","","","","9,791","","","","5,983"],["Insurance-related costs (1)","","","109,387","","","","90,778","","","","83,172"],["Other operating costs","","","36,531","","","","30,463","","","","37,274"],["Other costs of revenue","","","194,682","","","","165,924","","","","163,363"],["Total costs of revenue","","","5,816,558","","","","3,699,554","","","","3,633,063"],["Gross profit","","$","721,010","","","$","433,427","","","$","451,514"],["Gross profit margin","","","11.0","%","","","10.5","%","","","11.1","%"],["Plus: other costs of revenue","","","194,682","","","","165,924","","","","163,363"],["Variable contribution","","$","915,692","","","$","599,351","","","$","614,877"],["Variable contribution margin","","","14.0","%","","","14.5","%","","","15.1","%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(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\u2019s 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\u2019s 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\u2019s 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."]]
[[/GREPCENT_TABLE]]

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 44% of the Company’s consolidated revenue in fiscal year 2021 was generated under transactions that pay a fixed percentage of revenue to the third party capacity provider and/or agents while 56% 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 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

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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.                        

[[GREPCENT_TABLE]]
[["","","Fiscal Year"],["","","2021","","","2020","","","2019"],["Gross profit","","$","721,010","","","$","433,427","","","$","451,514"],["Operating income","","$","505,668","","","$","252,950","","","$","298,904"],["Operating income as % of gross profit","","","70.1","%","","","58.4","%","","","66.2","%"],["Variable contribution","","$","915,692","","","$","599,351","","","$","614,877"],["Operating income","","$","505,668","","","$","252,950","","","$","298,904"],["Operating income as % of variable contribution","","","55.2","%","","","42.2","%","","","48.6","%"]]
[[/GREPCENT_TABLE]]

The increase in operating income as a percentage of gross profit from fiscal year 2020 to fiscal year 2021 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 decrease in operating income as a percentage of gross profit from fiscal year 2019 to fiscal year 2020 resulted from operating income decreasing at a more rapid percentage rate than the decrease in gross profit, primarily due to the impact of
one-time
costs related to buyouts of certain agent incentive commission arrangements and impairment charges.

The increase in operating income as a percentage of variable contribution from fiscal year 2020 to fiscal year 2021 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 our other costs of revenue, across a larger variable contribution base. The decrease in operating income as a percentage of variable contribution from fiscal year 2019 to fiscal year 2020 resulted from operating income decreasing at a more rapid percentage rate than the decrease in variable contribution, primarily due to the impact of
one-time
costs related to buyouts of certain agent incentive commission arrangements and impairment charges.

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.

Fiscal Year Ended December 25, 2021 Compared to Fiscal Year Ended December 26, 2020

Revenue for fiscal year 2021 was $6,537,568,000, an increase of $2,404,587,000, or 58%, compared to fiscal year 2020. Transportation revenue increased $2,389,192,000, or 59%. The increase in transportation revenue was attributable to increased revenue per load of approximately 29% and an increased number of loads hauled of approximately 23% compared to fiscal year 2020. The significant increase in revenue in 2021 from 2020 was primarily related to two factors: (1) consumer demand for durable goods

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and
e-commerce
drove revenue during the 2021 period to record levels; and (2) ongoing supply chain disruptions in connection with the impact of the
COVID-19
pandemic on the U.S. economy. In particular, the adverse impact of the
COVID-19
pandemic on demand for the Company’s truck transportation services significantly accelerated during the last week of the Company’s 2020 first fiscal quarter. However, following the demand lows experienced by the Company in April and May 2020, demand for the Company’s truck transportation services sequentially increased throughout the remainder of the 2020 fiscal year and significantly accelerated in fiscal year 2021. This significant, rapid decrease in demand early in the pandemic was followed by a substantially longer and greater sequential increase in demand that was unprecedented in the history of the Company. Reinsurance premiums were $71,857,000 and $56,462,000 for fiscal years 2021 and 2020, respectively. The increase in revenue from reinsurance premiums was primarily attributable to increased premiums from a third party insurance company relating to unladen insurance provided to certain BCO Independent Contractors and an increase in the average number of trucks provided by BCO Independent Contractors in fiscal year 2021 compared to fiscal year 2020.

Truck transportation revenue generated by BCO Independent Contractors and Truck Brokerage Carriers (together, the “third party truck capacity providers”) for fiscal year 2021 was $5,963,218,000, representing 91% of total revenue, an increase of $2,147,437,000, or 56%, compared to fiscal year 2020. Revenue per load on loads hauled by third party truck capacity providers increased approximately 27% compared to fiscal year 2020, and the number of loads hauled by third party truck capacity providers increased approximately 23% over the same period.

The increase in revenue per load on loads hauled via truck was primarily due to an extremely tight truck capacity environment experienced during fiscal year 2021. During fiscal year 2021, the demand for truck capacity, particularly with respect to van capacity, increased more rapidly than the supply of available truck capacity in the marketplace as the U.S. economy recovered from the impact of the
COVID-19
pandemic coupled with the impact of domestic supply chain disruptions. Revenue per load on loads hauled via van equipment increased 29%, revenue per load on loads hauled via unsided/platform equipment increased 22%, revenue per load on less-than-truckload loadings increased 7% and revenue per load on loads hauled via other truck transportation increased 30% as compared to fiscal year 2020.

The increase in the number of loads hauled via truck compared to fiscal year 2020 was due to a broad-based increase in demand for the Company’s truck transportation services during fiscal year 2021, particularly those services provided via van equipment and other truck transportation loadings, primarily power-only, compared to fiscal year 2020. Loads hauled via van equipment increased 25%, loads hauled via unsided/platform equipment increased 14%, loads hauled via less-than-truckload increased 13% and loads hauled via other truck transportation increased 46% as compared to fiscal year 2020.

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 $107,776,000 and $60,118,000 in fiscal years 2021 and 2020, 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 fiscal year 2021 was $487,134,000, or 7% of total revenue, an increase of $240,641,000, or 98%, compared to fiscal year 2020. Revenue per load on revenue generated by multimode capacity providers increased approximately 65% in fiscal year 2021 compared to fiscal year 2020, and the number of loads hauled by multimode capacity providers increased approximately 20% over the same period. Revenue per load on loads hauled by multimode capacity providers increased for all modes, primarily due to strong 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 ocean, air and rail intermodal increased 86%, 54% and 24%, respectively, during fiscal year 2021 as compared to fiscal year 2020. Revenue per load on revenue generated by multimode capacity providers is influenced by many factors, including revenue mix among the various modes of transportation used, length of haul, complexity of freight, density of freight lanes, fuel costs and availability of capacity. The increase in the number of loads hauled by multimode capacity providers was due to a broad-based increase in demand across many customers for the Company’s rail, air and ocean service offerings during fiscal year 2021.

Purchased transportation was 78.2% and 77.3% of revenue in fiscal years 2021 and 2020, respectively. The increase in purchased transportation as a percentage of revenue was primarily due to an increased percentage of revenue contributed by Truck Brokerage Carriers, which typically has a higher rate of purchased transportation than revenue generated by BCO Independent Contractors, and an increased rate of purchased transportation on revenue generated by Truck Brokerage Carriers, partially offset by a decreased rate of

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purchased transportation paid on revenue generated by BCO Independent Contractor due to (i) an increased percentage of revenue generated by BCO Independent Contractors who use Landstar-owned trailers and (ii) the impact of
COVID-19
pandemic relief incentive payments in fiscal year 2020. Under that program, for each load delivered by a BCO Independent Contractor with a confirmed delivery date from April 1, 2020 through May 30, 2020, the Company paid each of the BCO Independent Contractor who hauled the load and the independent commission sales agent who dispatched the load an extra $50. Commissions to agents were 7.8% and 8.2% of revenue in fiscal years 2021 and 2020, respectively. The decrease in commissions to agents as a percentage of revenue was primarily attributable to an increased cost of purchased transportation as a percentage of revenue on revenue generated by Truck Brokerage Carriers and a decreased commission rate paid on revenue generated by BCO Independent Contractors due to the elimination as of the end of the 2020 fiscal year of certain incentive commission arrangements formerly paid to agents relating to a discontinued BCO recruitment and retention program and the impact of the
COVID-19
pandemic relief incentive payments to agents included in fiscal year 2020. The Company paid a total of $12,593,000 in
COVID-19
pandemic relief incentive payments during fiscal year 2020.

Investment income was $2,857,000 and $3,399,000 in fiscal years 2021 and 2020, respectively. The decrease in investment income was primarily attributable to lower average rates of return on investments during fiscal year 2021, partially offset by a higher average investment balance held by the insurance segment during fiscal year 2021.

Other operating costs increased $6,068,000 in fiscal year 2021 compared to fiscal year 2020. The increase in other operating costs compared to the prior year was primarily due to increased trailing equipment maintenance costs, increased BCO recruiting and qualification costs, decreased gains on sales of used trailing equipment, the impact of the resumption of an event for the Company’s BCO Independent Contractors that was cancelled in 2020 due to the
COVID-19
pandemic and increased payments of up to $2,000 made to BCO Independent Contractors who tested positive for
COVID-19
and were placed out of service.

Insurance and claims increased $17,690,000 in fiscal year 2021 compared to fiscal year 2020. The increase in insurance and claims expense compared to the prior year was primarily due to an increase in insurance premiums, primarily for commercial trucking liability coverage, in fiscal year 2021, increased severity of current year trucking claims during the 2021 period and an increase in BCO miles traveled in fiscal year 2021, partially offset by a $5,000,000 charge for the Company’s self-insured retention with respect to a tragic vehicular accident involving a fatality during fiscal year 2020 and a $3,500,000 charge relating to additional premium the Company was required to pay under the Initial Excess Policy in connection with certain aggregated losses incurred during fiscal year 2020. During fiscal years 2021 and 2020, insurance and claims costs included $9,708,000 and $9,196,000 of net unfavorable adjustments to prior years’ claims estimates, respectively.

Selling, general and administrative costs increased $53,645,000 in fiscal year 2021 compared to fiscal year 2020. The increase in selling, general and administrative costs compared to prior year was attributable to increased stock-based compensation expense, an increased provision for incentive compensation and increased wages, partially offset by a decreased provision for customer bad debt. Included in selling, general and administrative costs was stock-based compensation expense of $27,537,000 and $4,639,000 for fiscal years 2021 and 2020, respectively, and incentive compensation expense of $29,361,000 and $7,841,000 for fiscal years 2021 and 2020, respectively.

Depreciation and amortization increased $3,754,000 in fiscal year 2021 compared to fiscal year 2020. The increase in depreciation and amortization expenses was primarily due to increased depreciation on information technology assets.

During the 2020 second fiscal quarter, the Company recorded a
non-cash
impairment charge of $2,582,000 in respect of certain assets, primarily customer contract and related customer relationship intangible assets, acquired on September 20, 2017, along with substantially all of the other assets of the asset-light transportation logistics business of Fletes Avella, S.A. de C.V. (“Fletes Avella”). There was no corresponding goodwill impairment charge recorded as the fair value of the Company’s Mexico and cross-border reporting unit continued to significantly exceed its carrying value as of December 26, 2020.

During the 2020 fourth fiscal quarter, the Company recorded commission program termination costs of $15,494,000 related to buyouts of certain incentive commission arrangements with several of its independent sales agents due to the Company’s discontinuation of a truck owner-operator recruitment and retention program formerly involving those agents.

Interest and debt expense in fiscal year 2021 increased $23,000 compared to fiscal year 2020.

The provisions for income taxes for fiscal years 2021 and 2020 were based on estimated annual effective income tax rates of 24.4% and 24.2%, respectively, adjusted for discrete events, such as benefits resulting from stock-based awards. The increase in the

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estimated annual effective income tax rate was primarily attributable to an increased provision for nondeductible executive compensation during the 2021 period. The actual effective income tax rate for fiscal year 2021 was 24.0%, which was higher than the statutory federal income tax rate of 21% primarily attributable to state taxes and nondeductible executive compensation, partially offset by excess tax benefits realized on stock-based awards. The actual effective income tax rate for fiscal year 2020 was 22.8%, which was higher than the statutory federal income tax rate of 21% primarily attributable to state taxes and the meals and entertainment exclusion, partially offset by excess tax benefits realized on stock-based awards, the favorable resolution of certain tax matters during the 2020 fiscal year and state tax refunds. The effective income tax rate in fiscal year 2021 of 24.0% was lower than the 24.4% estimated annual effective income tax rate primarily due to excess tax benefits recognized on stock-based compensation arrangements in fiscal year 2021. The effective income tax rate in fiscal year 2020 of 22.8% was lower than the 24.2% estimated annual effective income tax rate primarily due to excess tax benefits recognized on stock-based compensation arrangements, the favorable resolution of certain tax matters during the 2020 fiscal year and state tax refunds in the 2020 fiscal year.

Net income was $381,524,000, or $9.98 per diluted share, in fiscal year 2021. Net income was $192,106,000, or $4.98 per diluted share, in fiscal year 2020. Net income during fiscal year 2020 was unfavorably impacted by $15,494,000, or $0.31 per diluted share, related to a
one-time
cost to buyout certain incentive commission arrangements with several agents, $12,593,000, or $0.25 per diluted share, related to the impact of the
COVID-19
pandemic relief incentive payments and $2,582,000, or $0.05 per diluted share, of
non-cash
impairment charges related to certain assets, primarily customer contract and related customer relationship intangible assets of the Company’s Mexico subsidiaries.

Fiscal Year Ended December 26, 2020 Compared to Fiscal Year Ended December 28, 2019

Revenue for fiscal year 2020 was $4,132,981,000, an increase of $48,404,000, or 1%, compared to fiscal year 2019. Transportation revenue increased $48,183,000, or 1%. The increase in transportation revenue was attributable to an increased revenue per load of approximately 3%, partially offset by a decreased number of loads hauled of approximately 2% in fiscal year 2020 compared to fiscal year 2019. Reinsurance premiums were $56,462,000 and $56,241,000 for fiscal years 2020 and 2019, respectively.

Truck transportation revenue generated by third party truck capacity providers for fiscal year 2020 was $3,815,781,000, representing 92% of total revenue, an increase of $50,452,000, or 1%, compared to fiscal year 2019. Revenue per load on loads hauled by third party truck capacity providers increased approximately 3% in fiscal year 2020 compared to fiscal year 2019, while the number of loads hauled by third party truck capacity providers decreased approximately 2% in fiscal year 2020 compared to fiscal year 2019.

The increase in revenue per load on loads hauled via truck was entirely due to a comparatively tighter market for van truckload capacity during the second half of 2020. The decrease in the number of loads hauled via truck compared to fiscal year 2019 was due to the unfavorable impact of the
COVID-19
pandemic on demand for the Company’s truck transportation services at the onset of the pandemic and the relative softness in the U.S. manufacturing sector in the 2020 period compared to the 2019 period, mostly offset by consumer driven demand for van services that began
mid-summer
2020. The increasingly tight market for van truckload capacity during the 2020 second half was attributable to strong demand for
e-commerce,
foodstuffs, building products and other consumer durables.

During the 2020 fiscal year compared to the 2019 fiscal year, revenue per load on loads hauled via van equipment increased 7%, reflecting increased consumer demand, while revenue per load on loads hauled via unsided/platform equipment decreased 4%, reflecting softness in the U.S. manufacturing sector. Also adversely impacting revenue per load on loads hauled via unsided/platform equipment was a decrease in revenue per load on heavy specialized loadings of 10% in the 2020 fiscal year compared to the 2019 fiscal year. Additionally, revenue per load on less-than-truckload loadings decreased 5% while revenue per load on loads hauled via other truck transportation increased 17% from fiscal year 2019 to fiscal year 2020.

During fiscal year 2020 as compared to fiscal year 2019, loads hauled via van equipment decreased 2% and loads hauled via unsided/platform equipment decreased 7%, for similar reasons as described above with respect to the overall decrease in the number of loads hauled via truck in fiscal year 2020 compared to fiscal year 2019. Less-than-truckload volumes increased 5% and loads hauled via other truck transportation increased 9% in fiscal year 2020 compared to fiscal year 2019.

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 $60,118,000 and $79,486,000 in fiscal years 2020 and 2019, 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.

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Transportation revenue generated by multimode capacity providers for fiscal year 2020 was $246,493,000, or 6% of total revenue, an increase of $6,703,000, or 3%, compared to fiscal year 2019. Revenue per load on revenue generated by multimode capacity providers increased approximately 2% in the 2020 fiscal year compared to the 2019 fiscal year, and the number of loads hauled by multimode capacity providers increased approximately 1% over the same period. The increase in revenue per load of 2% on loads hauled by multimode capacity providers was primarily attributable to increased revenue per load on ocean shipments. Revenue per load on revenue generated by multimode capacity providers is influenced by many factors, including revenue mix among the various modes of transportation used, length of haul, complexity of freight, density of freight lanes, fuel costs and availability of capacity. The increase in the number of loads hauled by multimode capacity providers was primarily due to a 14% increase in air loadings, primarily attributable to increased loadings at two specific agencies.

Purchased transportation was 77.3% and 76.6% of revenue in fiscal years 2020 and 2019, respectively. The increase in purchased transportation as a percentage of revenue was primarily due to an increased rate of purchased transportation paid on Truck Brokerage Carrier revenue and
COVID-19
pandemic relief incentive payments made to BCO Independent Contractors. Under the pandemic relief program, for each load delivered by a BCO Independent Contractor with a confirmed delivery date from April 1, 2020 through May 30, 2020, the Company paid each of the BCO Independent Contractor who hauled the load and the independent commission sales agent who dispatched the load an extra $50. Commissions to agents were 8.2% and 8.4% of revenue in fiscal years 2020 and 2019, respectively. Commissions to agents on Truck Brokerage Carrier revenue were lower as compared to the 2019 fiscal year due to the impact of a decreased net revenue margin on revenue generated by Truck Brokerage Carriers, whereas commissions to agents on BCO Independent Contractor revenue were higher during the 2020 fiscal year due to the impact of
COVID-19
pandemic relief incentive payments. The Company paid a total of $12,593,000 in
COVID-19
pandemic relief incentive payments to BCO Independent Contractors and independent commission sales agents in April and May 2020.

Investment income was $3,399,000 and $5,041,000 in fiscal years 2020 and 2019, respectively. The decrease in investment income was primarily attributable to lower average rates of return on investments during fiscal year 2020, partially offset by a slightly higher average investment balance held by the insurance segment during fiscal year 2020.

Other operating costs decreased $6,811,000 in fiscal year 2020 compared to fiscal year 2019. The decrease in other operating costs compared to the prior year was primarily due to a decreased provision for contractor bad debt, the impact of the cancellation of an event for the Company’s BCO Independent Contractors due to the
COVID-19
pandemic, increased gains on the sales of used trailing equipment, decreased trailer rental costs and decreased BCO recruiting and
on-boarding
costs due to the impact of the
COVID-19
pandemic.

Insurance and claims increased $7,454,000 in fiscal year 2020 compared to fiscal year 2019. The increase in insurance and claims expense compared to the prior year was primarily due to a $5,000,000 charge for the Company’s self-insured retention with respect to a tragic vehicular accident involving a fatality, a $3,500,000 charge relating to additional premium the Company paid under the Initial Excess Policy in connection with certain aggregated losses, increased insurance premiums incurred for commercial trucking liability coverage following the Company’s May 1, 2020 insurance renewal and increased severity of current year claims, partially offset by decreased net unfavorable development of prior years’ claims in the 2020 period. During fiscal years 2020 and 2019, insurance and claims costs included $9,196,000 and $16,679,000 of net unfavorable adjustments to prior years’ claims estimates, respectively.

Selling, general and administrative costs increased $8,680,000 in fiscal year 2020 compared to fiscal year 2019. The increase in selling, general and administrative costs compared to prior year was attributable to an increased provision for incentive compensation, increased information technology costs and an increased provision for customer bad debt, partially offset by decreased travel and entertainment costs related to the impact of the
COVID-19
pandemic and decreased agent convention costs. Included in selling, general and administrative costs was incentive compensation expense of $7,841,000 and $1,517,000 for the 2020 and 2019 fiscal years, respectively.

Depreciation and amortization increased $1,387,000 in fiscal year 2020 compared to fiscal year 2019. The increase in depreciation and amortization expenses was primarily due to increased depreciation on information technology assets, partially offset by a decrease in trailing equipment depreciation.

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During the 2020 second fiscal quarter, the Company recorded a
non-cash
impairment charge of $2,582,000 in respect of certain assets, primarily customer contract and related customer relationship intangible assets, acquired on September 20, 2017, along with substantially all of the other assets of the asset-light transportation logistics business of Fletes Avella, S.A. de C.V. (“Fletes Avella”). As previously disclosed in Item 1A. Risk Factors in the Company’s Quarterly Report on Form
10-Q
for the 2020 first quarter, negative macroeconomic trends in Mexico caused significant disruptions in the Mexican economy. Accordingly, management performed impairment tests of the carrying values of certain assets that primarily relate to intra-Mexico business acquired as a part of the Fletes Avella acquisition. The impairment tests resulted in an impairment charge of $2,582,000, as the negative macroeconomic trends in Mexico resulted in updated financial projections relating to these intangible assets to be substantially below those originally anticipated at the acquisition date. There was no corresponding goodwill impairment charge recorded as the fair value of the Company’s Mexico and cross-border reporting unit continues to significantly exceed its carrying value as of December 26, 2020.

During the 2020 fourth fiscal quarter, the Company recorded commission program termination costs of $15,494,000 related to buyouts of certain incentive commission arrangements with several of its independent sales agents due to the Company’s discontinuation of a truck owner-operator recruitment and retention program formerly involving those agents.

Interest and debt expense in fiscal year 2020 increased $812,000 compared to fiscal year 2019. The increase in interest and debt expense was primarily attributable to decreased interest income earned on cash balances held by the transportation logistics segment.

The provisions for income taxes for both the 2020 and 2019 fiscal years were based on estimated annual effective income tax rates of 24.2%, adjusted for discrete events, such as benefits resulting from stock-based awards. The actual effective income tax rate for fiscal year 2020 was 22.8%, which was higher than the statutory federal income tax rate of 21%, primarily attributable to state taxes and the meals and entertainment exclusion, partially offset by excess tax benefits realized on stock-based awards, the favorable resolution of certain tax matters during the 2020 fiscal year and state tax refunds. The actual effective income tax rate for fiscal year 2019 was 23.0%, which was higher than the statutory federal income tax rate of 21% primarily attributable to state taxes and the meals and entertainment exclusion, partially offset by excess tax benefits realized on stock-based awards. The effective income tax rate in the 2020 fiscal year of 22.8% was lower than the 24.2% estimated annual effective income tax rate primarily due to excess tax benefits recognized on stock-based compensation arrangements, the favorable resolution of certain tax matters during the 2020 fiscal year and state tax refunds in the 2020 fiscal year. The effective income tax rate in the 2019 fiscal year of 23.0% was lower than the 24.2% estimated effective income tax rate primarily due to excess tax benefits recognized on stock-based compensation arrangements in the 2019 fiscal year.

Net income was $192,106,000, or $4.98 per diluted share, in fiscal year 2020. Net income attributable to the Company was $227,720,000, or $5.72 per diluted share, in fiscal year 2019. Net income during fiscal year 2020 was unfavorably impacted by $15,494,000, $0.31 per diluted share related to a
one-time
cost to buyout certain incentive commission arrangements with several agents, $12,593,000, or $0.25 per diluted share related to the impact of the
COVID-19
pandemic relief incentive payments and $2,582,000, or $0.05 per diluted share of
non-cash
impairment charges related to certain assets, primarily customer contract and related customer relationship intangible assets of the Company’s Mexico subsidiaries.

Capital Resources and Liquidity

Working capital and the ratio of current assets to current liabilities were $512,917,000 and 1.5 to 1, respectively, at December 25, 2021, compared with $402,038,000 and 1.5 to 1, respectively, at December 26, 2020, and $444,984,000 and 1.8 to 1, respectively, at December 28, 2019. Landstar has historically operated with current ratios within the range of 1.5 to 1 to 2.0 to 1. Cash provided by operating activities was $276,740,000, $210,717,000, and $307,840,000 in fiscal years 2021, 2020 and 2019, respectively. The increase in cash flow provided by operating activities for fiscal year 2021 was primarily attributable to increased net income, partially offset by the 58% increase in revenue year-over-year, which increased net receivables, defined as accounts receivable less accounts payable. The decrease in cash flow provided by operating activities for fiscal year 2020 was primarily attributable to the increase in trade and other accounts receivable as of the end of the 2020 fiscal year as compared to as of the end of the 2019 fiscal year driven by the significant growth in revenue during the fourth fiscal quarter of 2020.

The Company declared and paid $0.92 per share, or $35,191,000 in the aggregate, in cash dividends during fiscal year 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. In addition, on December 7, 2021, the Company announced that its Board of Directors declared a special cash dividend of $2.00 per share, or $75,387,000 in the aggregate, payable on January 21, 2022 to stockholders of record of its Common Stock as of January 7, 2022. Dividends payable of $75,387,000 related to this special dividend were included in current liabilities in the consolidated balance sheet at December 25, 2021. The Company declared and paid $0.79 per share, or $30,557,000 in the aggregate, in cash dividends during fiscal year 2020 and, during such period, also paid $78,947,000 of dividends payable which were declared during fiscal year 2019 and included in current liabilities in the consolidated

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balance sheet at December 28, 2019. The Company declared and paid $0.70 per share, or $27,891,000 in the aggregate, in cash dividends during fiscal year 2019. Since paying its first cash dividend in August 2005, the Company has paid approximately $616,000,000 in cash dividends in the aggregate to its stockholders, inclusive of the $2.00 per share special dividend paid on January 21, 2022

During fiscal year 2021, the Company purchased 733,854 shares of its Common Stock at a total cost of $122,722,000. During fiscal year 2020, the Company purchased 1,178,970 shares of its Common Stock at a total cost of $115,962,000. During fiscal year 2019, the Company purchased 849,068 shares of its Common Stock at a total cost of $88,578,000. The Company has used cash provided by operating activities to fund the purchases. Since January 1997, the Company has purchased approximately $1,914,000,000 of its Common Stock under programs authorized by the Board of Directors of the Company in open market and private block transactions. As of December 25, 2021, the Company may purchase in the aggregate up to 3,000,000 shares of its Common Stock under its authorized stock purchase programs. Long-term debt, including current maturities, was $111,804,000 at December 25, 2021, compared to $100,774,000 at December 26, 2020 and $112,844,000 at December 28, 2019.

Shareholders’ equity was $862,010,000, or 89% of total capitalization (defined as long-term debt including current maturities plus equity), at December 25, 2021, compared to $691,835,000, or 87% of total capitalization at December 26, 2020 and $721,469,000, or 86% of total capitalization, at December 28, 2019. The increase in shareholders’ equity was primarily the result of net income, partially offset by purchases of shares of the Company’s Common Stock and dividends declared by the Company in fiscal year 2021. The decrease in equity in fiscal year 2020 was primarily the result of purchases of shares of the Company’s Common Stock and dividends declared by the Company in fiscal year 2020, partially offset by net income.

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

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

At December 25, 2021, the Company had no borrowings outstanding and $33,170,000 of letters of credit outstanding under the Credit Agreement. At December 25, 2021, there was $216,830,000 available for future borrowings under the Credit Agreement. In addition, the Company has $72,267,000 in letters of credit outstanding as collateral for insurance claims that are secured by investments and restricted cash totaling $79,847,000 at December 25, 2021. 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 fiscal years 2021, 2020 and 2019, the Company acquired $48,674,000, $31,633,000 and $29,054,000, respectively, of trailing equipment by entering into finance leases. During fiscal years 2021, 2020 and 2019, the Company also purchased $23,261,000, $30,626,000 and $19,416,000, respectively, of

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operating property. Included in the $23,261,000 of purchases of operating property during the 2021 fiscal year was $500,000 for which the Company accrued a corresponding liability in accounts payable as of December 26, 2020. Landstar anticipates acquiring either by purchase or lease financing approximately $116,000,000 in new trailing equipment primarily to replace older trailing equipment in fiscal year 2022. Landstar anticipates spending approximately $23,000,000 on information technology hardware and software in fiscal year 2022, $17,000,000 of which relates to either building or buying software applications that enhance or add to the Company’s technology ecosystem. In addition, Landstar anticipates spending approximately $16,000,000 on buildings and improvements.

As previously disclosed on January 29, 2019, Landstar acquired all of the remaining equity interests in Landstar Metro held by its former minority equityholders. As of such date, Landstar Metro became a wholly owned subsidiary of the Company. Cash consideration paid in the 2019 fiscal year to purchase these remaining equity interests was $600,000. Further, on June 15, 2020, Landstar Blue completed the acquisition of an independent agent of the Company. Total cash consideration paid for the acquisition was approximately $2,934,000.

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

Legal Proceedings

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 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 fiscal years 2021, 2020 and 2019, insurance and claims costs included $9,708,000, $9,196,000 and $16,679,000 of net unfavorable adjustments to prior years’ claims estimates, respectively. The unfavorable development of prior years’ claims in the 2021 fiscal year was primarily attributable to five claims. The unfavorable development of prior year’s claims in the 2020 and 2019 fiscal years was attributable in each year to several specific claims as well as to actuarially determined adjustments to prior year commercial trucking loss estimates. It is reasonably likely that the ultimate outcome of settling all outstanding claims will be more or less than the estimated claims liability at December 25, 2021.

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