# LANDSTAR SYSTEM INC (LSTR) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from LANDSTAR SYSTEM INC's 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/853816/000119312524044902/d16653d10k.htm
Accession: 0001193125-24-044902
Filing date: 2024-02-26
Report date: 2023-12-30
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/
Previous year: /company/LSTR/mda/fy2022/ (FY 2022)
Next year: /company/LSTR/mda/fy2024/ (FY 2024)

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 Russian conflict with Ukraine on the operations of certain independent commission sales agents, including the Company’s largest such agent by revenue in the 2023 fiscal year; an increase in the frequency or severity of accidents or other claims; unfavorable development of existing accident claims; dependence on third party insurance companies; dependence on independent commission sales agents; dependence on third party capacity providers; decreased demand for transportation services; U.S. trade relationships; substantial industry competition; disruptions or failures in the Company’s computer systems; cyber and other information security incidents; dependence on key vendors; potential changes in taxes; status of independent contractors; regulatory and legislative changes; regulations focused on diesel emissions and other air quality matters; regulations requiring the purchase and use of zero-emission vehicles; 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 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 1,000 independent commission sales agents and over 85,000 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 $5.3 billion during the most recently completed fiscal year. The Company reports the results of two operating segments: the transportation logistics segment and the insurance segment.

The transportation logistics segment provides a wide range of integrated transportation management solutions. Transportation services are provided by Landstar’s “Operating Subsidiaries”: Landstar Ranger, Inc., Landstar Inway, Inc., Landstar Ligon, Inc., Landstar Gemini, Inc., Landstar Transportation Logistics, Inc., Landstar Global Logistics, Inc., Landstar Express America, Inc., Landstar Canada, Inc., Landstar Metro, S.A.P.I. de C.V., and Landstar Blue, LLC. 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

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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 fiscal year 2023, revenue generated by BCO Independent Contractors, Truck Brokerage Carriers and railroads represented approximately 38%, 53% 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 2023.

The insurance segment is comprised of Signature Insurance Company (“Signature”), a wholly owned offshore insurance subsidiary, and Risk Management Claim Services, Inc. The insurance segment provides risk and claims management services to certain of Landstar’s Operating Subsidiaries. In addition, it reinsures certain risks of the Company’s BCO Independent Contractors and provides certain property and casualty insurance directly to certain of Landstar’s Operating Subsidiaries. Revenue at the insurance segment represents reinsurance premiums from third party insurance companies that provide insurance programs to BCO Independent Contractors where all or a portion of the risk is ultimately borne by Signature. Revenue at the insurance segment represented approximately 1% of the Company’s consolidated revenue for fiscal year 2023.

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

Revenue

While customer demand, which is subject to overall economic conditions, ultimately drives increases or decreases in revenue, the Company primarily relies on its independent commission sales agents to establish customer relationships and generate revenue opportunities. Management’s emphasis with respect to revenue growth is on revenue generated by independent commission sales agents who on an annual basis generate $1 million or more of Landstar revenue. 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"],["","","2023","","","2022","","","2021"],["Number of Million Dollar Agents","","","524","","","","625","","","","593"],["Average revenue generated per Million Dollar Agent","","$","9,645,000","","","$","11,499,000","","","$","10,371,000"],["Percent of consolidated revenue generated by Million Dollar Agents","","","95","%","","","97","%","","","94","%"]]
[[/GREPCENT_TABLE]]

In fiscal year 2023, the change in the number of Million Dollar Agents was attributable to agents who remained with the Company yet experienced lower year-over-year revenue that resulted in such agents moving below the Million Dollar Agent category due to the softer freight demand environment. Included among the Company’s Million Dollar Agents in the 2023 fiscal year, the Company had 87 independent sales agencies that generated at least $10 million in Landstar revenue. In fiscal year 2022, the change in the number of Million Dollar Agents was attributable to new agents and existing agents who were not formerly Million Dollar Agents. Included among the Company’s Million Dollar Agents in the 2022 fiscal year, the Company had 133 independent sales agencies that generated at least $10 million in Landstar revenue.

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

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revenue that resulted in such agent moving below the Million Dollar Agent category. 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. 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.

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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"],["","","2023","","","2022","","","2021"],["Revenue generated through (in thousands):"],["Truck transportation"],["Truckload:"],["Van equipment","","$","2,742,281","","","$","3,892,085","","","$","3,525,830"],["Unsided/platform equipment","","","1,490,393","","","","1,760,357","","","","1,549,037"],["Less-than-truckload","","","117,683","","","","142,438","","","","117,505"],["Other truck transportation (1)","","","479,173","","","","835,959","","","","770,846"],["Total truck transportation","","","4,829,530","","","","6,630,839","","","","5,963,218"],["Rail intermodal","","","98,297","","","","145,017","","","","159,974"],["Ocean and air cargo carriers","","","266,638","","","","558,986","","","","327,160"],["Other (2)","","","108,857","","","","101,720","","","","87,216"],["","","$","5,303,322","","","$","7,436,562","","","$","6,537,568"],["Revenue on loads hauled via BCO Independent Contractors included in total truck transportation","","$","1,998,408","","","$","2,636,036","","","$","2,612,188"],["Number of loads:"],["Truck transportation"],["Truckload:"],["Van equipment","","","1,259,578","","","","1,496,247","","","","1,422,734"],["Unsided/platform equipment","","","504,765","","","","558,530","","","","521,891"],["Less-than-truckload","","","175,650","","","","191,233","","","","183,975"],["Other truck transportation (1)","","","201,407","","","","320,790","","","","300,710"],["Total truck transportation","","","2,141,400","","","","2,566,800","","","","2,429,310"],["Rail intermodal","","","29,620","","","","40,710","","","","52,310"],["Ocean and air cargo carriers","","","32,820","","","","41,850","","","","41,450"],["","","","2,203,840","","","","2,649,360","","","","2,523,070"],["Loads hauled via BCO Independent Contractors included in total truck transportation","","","898,610","","","","1,027,480","","","","1,039,630"],["Revenue per load:"],["Truck transportation"],["Truckload:"],["Van equipment","","$","2,177","","","$","2,601","","","$","2,478"],["Unsided/platform equipment","","","2,953","","","","3,152","","","","2,968"],["Less-than-truckload","","","670","","","","745","","","","639"],["Other truck transportation (1)","","","2,379","","","","2,606","","","","2,563"],["Total truck transportation","","","2,255","","","","2,583","","","","2,455"],["Rail intermodal","","","3,319","","","","3,562","","","","3,058"],["Ocean and air cargo carriers","","","8,124","","","","13,357","","","","7,893"],["Revenue per load on loads hauled via BCO Independent Contractors","","$","2,224","","","$","2,566","","","$","2,513"],["Revenue by capacity type (as a % of total revenue):"],["Truck capacity providers:"],["BCO Independent Contractors","","","38","%","","","35","%","","","40","%"],["Truck Brokerage Carriers","","","53","%","","","54","%","","","51","%"],["Rail intermodal","","","2","%","","","2","%","","","2","%"],["Ocean and air cargo carriers","","","5","%","","","8","%","","","5","%"],["Other","","","2","%","","","1","%","","","1","%"]]
[[/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. 30, 2023","","","Dec. 31, 2022","","","Dec. 25, 2021"],["BCO Independent Contractors","","","9,024","","","","10,393","","","","11,057"],["Truck Brokerage Carriers:"],["Approved and active (1)","","","49,111","","","","66,745","","","","64,476"],["Other approved","","","27,524","","","","30,999","","","","25,870"],["","","","76,635","","","","97,744","","","","90,346"],["Total available truck capacity providers","","","85,659","","","","108,137","","","","101,403"],["Trucks provided by BCO Independent Contractors","","","9,809","","","","11,281","","","","11,864"]]
[[/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 and ocean cargo carriers is based on either a negotiated rate for each load hauled or a contractually agreed-upon fixed rate per load. Purchased transportation paid to air cargo carriers is generally based on a negotiated rate for each load hauled. Purchased transportation as a percentage of revenue for truck brokerage, rail intermodal and ocean cargo services is normally higher than that of BCO Independent Contractor and air cargo services. Purchased transportation is the largest component of costs and expenses and, on a consolidated basis, increases or decreases as a percentage of consolidated revenue in proportion to changes in the percentage of consolidated revenue generated through BCO Independent Contractors and other third party capacity providers and external revenue from the insurance segment, consisting of reinsurance premiums. Purchased transportation as a percent of revenue also increases or decreases in relation to the availability of truck brokerage capacity and with changes in the price of fuel on revenue generated from shipments hauled by Truck Brokerage Carriers. The Company passes 100% of fuel surcharges billed to customers for freight hauled by BCO Independent Contractors to its BCO Independent Contractors. These fuel surcharges are excluded from revenue and the cost of purchased transportation. Purchased transportation costs are recognized over the freight transit period as the performance obligation to the customer is completed.

Commissions to agents

Commissions to agents are based on contractually agreed-upon percentages of (i) revenue, (ii) revenue less the cost of purchased transportation, or (iii) revenue less a contractually agreed upon percentage of revenue retained by Landstar and the cost of purchased transportation (the “retention contracts”). Commissions to agents as a percentage of consolidated revenue vary directly with fluctuations in the percentage of consolidated revenue generated by the various modes of transportation and reinsurance premiums and, in general, vary inversely with changes in the amount of purchased transportation as a percentage of revenue on services provided by Truck Brokerage Carriers, railroads, air cargo carriers and ocean cargo carriers. Commissions to agents are recognized over the freight transit period as the performance obligation to the customer is completed.

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

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

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Insurance and claims

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

Landstar retains liability through a self-insured retention for commercial trucking claims up to $5 million per occurrence. Effective May 1, 2019, the Company entered into a three year commercial auto liability insurance arrangement for losses incurred between $5 million and $10 million (the “2019 Initial Excess Policy”) with a third party insurance company. The Company subsequently extended the 2019 Initial Excess Policy for one additional policy year, from May 1, 2022 through April 30, 2023. For commercial trucking claims incurred on or after May 1, 2022 through April 30, 2023, the extended 2019 Initial Excess Policy provides for a limit for a single loss of $5 million, with an aggregate limit of $10 million for the policy period ended April 30, 2023. Effective May 1, 2023, the Company entered into a new three year commercial auto liability insurance arrangement for losses incurred between $5 million and $10 million (the “2023 Initial Excess Policy”) with a third party insurance company. For commercial trucking claims incurred on or after May 1, 2023 through April 30, 2026, the 2023 Initial Excess Policy provides for an aggregate deductible of $18 million over the thirty-six month term ending April 30, 2026. After payment of the deductible, the 2023 Initial Excess Policy provides for a limit for a single loss of $5 million, with an aggregate limit of $15 million for the thirty-six month term ending April 30, 2026.

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

Moreover, the Company from year to year manages the level of its financial exposure to commercial trucking claims in excess of $10 million, including through the use of additional self-insurance, deductibles, aggregate loss limits, quota shares and other arrangements with third party insurance companies, based on the availability of coverage within certain excess insurance coverage layers and estimated cost differentials between proposed premiums from third party insurance companies and historical and actuarially projected losses experienced by the Company at various levels of excess insurance coverage. For example, with respect to a single hypothetical claim in the amount of $60 million incurred during the annual policy year ending April 30, 2024, the Company would have an aggregate financial exposure of approximately $25 million. Furthermore, the Company’s third party insurance arrangements provide excess coverage up to an uppermost coverage layer, in excess of which the Company retains additional financial exposure. No assurances can be given that the availability of excess coverage for commercial trucking claims will not continue to deteriorate, that the pricing associated with such excess coverage, to the extent available, will not continue to increase, nor that insurance coverage from third party insurers for excess coverage of commercial trucking claims will even be available on commercially reasonable terms at certain levels. Moreover, the occurrence of a Nuclear Verdict, or the settlement of a catastrophic injury and/or fatality claim that could have otherwise resulted in a Nuclear Verdict, could have a material adverse effect on Landstar’s cost of insurance and claims and its results of operations.

Further, the Company retains liability of up to $2,000,000 for each general liability claim, $250,000 for each workers’ compensation claim and $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 2023 fiscal year, employee compensation and benefits accounted for approximately 61% 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, the provision for uncollectible advances and other receivables due from BCO Independent Contractors and independent commission sales agents and BCO Independent Contractor recruiting and qualification costs, as reported in the Company’s Consolidated Statements of Income, (ii) transportation-related insurance premiums paid and claim costs incurred, included as a portion of insurance and claims in the Company’s Consolidated Statements of Income, (iii) costs incurred related to internally developed software including ASC 350-40 amortization, implementation costs, hosting costs and other support costs utilized to support the Company’s independent commission sales agents, third party capacity providers, and customers, included as a portion of depreciation and amortization and of selling, general and administrative in the Company’s Consolidated Statements of Income; and (iv) depreciation on Company-owned trailing equipment, included as a portion of depreciation and amortization in the Company’s Consolidated Statements of Income. Other costs of revenue associated with reinsurance premiums received by Signature are comprised of broker commissions and other fees paid related to the administration of insurance programs to BCO Independent Contractors and are included in selling, general and administrative in the Company’s Consolidated Statements of Income. In addition to costs of revenue, the Company incurs various other costs relating to its business, including most selling, general and administrative costs and portions of costs attributable to insurance and claims and depreciation and amortization. Management continually monitors all components of the costs incurred by the Company and establishes annual cost budgets that, in general, are used to benchmark costs incurred on a monthly basis.

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

The following table sets forth calculations of gross profit, defined as revenue less costs of revenue, and gross profit margin, defined as gross profit divided by revenue, for the periods indicated. The Company refers to revenue less variable costs of revenue as “variable contribution” and variable contribution divided by revenue as “variable contribution margin”. Variable contribution and variable contribution margin are each non-GAAP financial measures. The closest comparable GAAP financial measures to variable contribution and variable contribution margin are, respectively, gross profit and gross profit margin. The Company believes variable contribution and variable contribution margin are useful measures of the variable costs that we incur at a shipment-by-shipment level attributable to our transportation network of third-party capacity providers and independent commission sales agents in order to provide services to our customers. The Company believes variable contribution and variable contribution margin are important performance measurements and management considers variable contribution and variable contribution margin in evaluating the Company’s financial performance and in its decision-making, such as budgeting for infrastructure, trailing equipment and selling, general and administrative costs.

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

[[GREPCENT_TABLE]]
[["","","Fiscal Year"],["","","2023","","","2022","","","2021"],["Revenue","","$","5,303,322","","","$","7,436,562","","","$","6,537,568"],["Costs of revenue:"],["Purchased transportation","","","4,068,262","","","","5,804,017","","","","5,114,667"],["Commissions to agents","","","462,668","","","","614,865","","","","507,209"],["Variable costs of revenue","","","4,530,930","","","","6,418,882","","","","5,621,876"],["Trailing equipment depreciation","","","31,319","","","","36,653","","","","35,204"],["Information technology costs","","","25,486","","","","19,834","","","","13,560"],["Insurance-related costs (1)","","","116,069","","","","127,605","","","","109,387"],["Other operating costs","","","54,191","","","","45,192","","","","36,531"],["Other costs of revenue","","","227,065","","","","229,284","","","","194,682"],["Total costs of revenue","","","4,757,995","","","","6,648,166","","","","5,816,558"],["Gross profit","","$","545,327","","","$","788,396","","","$","721,010"],["Gross profit margin","","","10.3","%","","","10.6","%","","","11.0","%"],["Plus: other costs of revenue","","","227,065","","","","229,284","","","","194,682"],["Variable contribution","","$","772,392","","","$","1,017,680","","","$","915,692"],["Variable contribution margin","","","14.6","%","","","13.7","%","","","14.0","%"]]
[[/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 43% of the Company’s consolidated revenue in fiscal year 2023 was generated under transactions that pay a fixed percentage of revenue to the third party capacity provider and/or agents while 57% was generated under transactions that pay a variable percentage of revenue to the third party capacity provider and/or agents.

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

The following table presents operating income as a percentage of gross profit and operating income as a percentage of variable contribution. The Company’s operating income as a percentage of variable contribution is a non-GAAP financial measure calculated as operating income divided by variable contribution. The Company believes that operating income as a percentage of variable contribution is useful and meaningful to investors for the following principal reasons: (i) the variable costs of revenue for a significant portion of the business are highly influenced by short-term market-based trends in the freight transportation industry, whereas other costs, including other 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]]
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The decrease in operating income as a percentage of gross profit from fiscal year 2022 to fiscal year 2023 resulted from operating income decreasing at a more rapid percentage rate than the decrease in gross profit, primarily due to the impact of the Company’s fixed cost infrastructure, principally certain components of selling, general and administrative costs, in comparison to a smaller gross profit base. The increase in operating income as a percentage of gross profit from fiscal year 2021 to fiscal year 2022 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 variable contribution from fiscal year 2022 to fiscal year 2023 resulted from operating income decreasing at a more rapid percentage rate than the decrease in variable contribution, primarily due to the impact of the Company’s fixed cost infrastructure, principally certain components of selling, general and administrative costs, in comparison to a smaller variable contribution base, partially offset by the impact of decreased incentive and equity compensation costs under the Company’s variable compensation programs. The increase in operating income as a percentage of variable contribution from fiscal year 2021 to fiscal year 2022 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.

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 30, 2023 Compared to Fiscal Year Ended December 31, 2022

Revenue for fiscal year 2023 was $5,303,322,000, a decrease of $2,133,240,000, or 29%, compared to fiscal year 2022. Transportation revenue decreased $2,127,162,000, or 29%. During the Company’s 2023 fiscal year, freight demand was soft throughout the year and culminated with an unusually weak peak season in the 2023 fourth quarter. The decrease in transportation revenue was attributable to a decreased number of loads hauled of approximately 17% and decreased revenue per load of

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approximately 15% compared to fiscal year 2022. Reinsurance premiums were $72,476,000 and $78,554,000 for fiscal years 2023 and 2022, respectively. The decrease in revenue from reinsurance premiums was primarily attributable to a decrease in the average number of trucks provided by BCO Independent Contractors in fiscal year 2023 compared to fiscal year 2022, partially offset by an increase in the aggregate value of equipment insured by BCO Independent Contractors under a physical damage program reinsured by Signature in fiscal year 2023 compared to fiscal year 2022. The Company’s fiscal year ends each year on the last Saturday in December and, as such, the Company’s fiscal year 2023 included fifty-two weeks of operations whereas fiscal year 2022 included fifty-three weeks of operations.

Truck transportation revenue generated by BCO Independent Contractors and Truck Brokerage Carriers (together, the “third party truck capacity providers”) for fiscal year 2023 was $4,829,530,000, representing 91% of total revenue, a decrease of $1,801,309,000, or 27%, compared to fiscal year 2022. The number of loads hauled by third party truck capacity providers decreased approximately 17% in fiscal year 2023 compared to fiscal year 2022, and revenue per load on loads hauled by third party truck capacity providers decreased approximately 13% compared to fiscal year 2022.

The decrease in the number of loads hauled via truck compared to fiscal year 2022 was primarily due to a decrease in demand from the record high levels experienced in fiscal year 2022 for the Company’s van services and power-only services included in other truck transportations services, which tend to be more correlated with U.S. consumer demand. Loads hauled via other truck transportation services decreased 37%, loads hauled via van equipment decreased 16%, loads hauled via unsided/platform equipment decreased 10% and less-than-truckload loadings decreased 8% as compared to fiscal year 2022.

The decrease in revenue per load on loads hauled via truck was primarily due to pricing pressure throughout fiscal year 2023 as industry-wide truck capacity was significantly more readily available as compared to fiscal year 2022, particularly during the 2022 first quarter during which pandemic-related supply chain disruption was at a high point, partially offset by an increased average length of haul during fiscal year 2023. Revenue per load on loads hauled via van equipment decreased 16%, on less-than-truckload loadings decreased 10%, on loads hauled by other truck transportation services decreased 9% and on loads hauled via unsided/platform equipment decreased 6% as compared to fiscal year 2022.

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 $147,691,000 and $211,770,000 in fiscal years 2023 and 2022, respectively. It should be noted that billings to many customers of the Company’s truck brokerage services include a single all-in rate and do not separately identify fuel surcharges on loads hauled via Truck Brokerage Carriers. Accordingly, the overall impact of changes in fuel prices on revenue and revenue per load on loads hauled via truck is likely to be greater than that indicated.

Transportation revenue generated by rail intermodal, air cargo and ocean cargo carriers (collectively, the “multimode capacity providers”) for fiscal year 2023 was $364,935,000, or 7% of total revenue, a decrease of $339,068,000, or 48%, compared to fiscal year 2022. Revenue per load on revenue generated by multimode capacity providers decreased approximately 31% in fiscal year 2023 compared to fiscal year 2022, and the number of loads hauled by multimode capacity providers decreased approximately 24% over the same period. Revenue per load on loads hauled via ocean, air and rail intermodal decreased 40%, 35% and 7%, respectively, during fiscal year 2023 as compared to fiscal year 2022. The decrease in revenue per load on loads hauled by ocean and air cargo carriers was primarily related to the impact of global supply chain disruptions during the 2022 fiscal year, which were particularly acute with respect to international ocean and air freight. Revenue per load on revenue generated by multimode capacity providers is influenced by many factors, including revenue mix among the various modes of transportation used, length of haul, complexity of freight, density of freight lanes, fuel costs and availability of capacity. The decrease in the number of loads hauled by multimode capacity providers was due to a 27% decrease in rail loadings, a 23% decrease in ocean loadings and a 19% decrease in air loadings. The 27% decrease in rail loadings and the 23% decrease in ocean loadings were both broad-based with particularly significant declines at a limited number of specific customers, while the 19% decrease in air loadings was primarily attributable to decreased loadings at one specific customer.

Purchased transportation was 76.7% and 78.0% of revenue in fiscal years 2023 and 2022, respectively. The decrease in purchased transportation as a percentage of revenue was primarily due to (i) a decreased rate of purchased transportation on revenue generated by Truck Brokerage Carriers and (ii) a decreased percentage of revenue generated by multimode capacity providers, which typically has a higher rate of purchased transportation than third party truck capacity providers. Commissions to agents were 8.7% and 8.3% of revenue in fiscal years 2023 and 2022, 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 during fiscal year 2023.

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Investment income was $10,141,000 and $3,162,000 in fiscal years 2023 and 2022, respectively. The increase in investment income was attributable to higher average rates of return on investments and a higher average investment balance held by the insurance segment during fiscal year 2023.

Other operating costs increased $8,999,000 in fiscal year 2023 compared to fiscal year 2022. The increase in other operating costs compared to the prior year was primarily due to (i) increased trailing equipment maintenance costs as a result of the higher average age of the Company-owned trailer fleet and increased labor and parts costs charged by the Company’s network of third party trailer maintenance facilities and (ii) an increased provision for contractor bad debt, partially offset by increased gains on sales of operating property.

Insurance and claims decreased $11,594,000 in fiscal year 2023 compared to fiscal year 2022. The decrease in insurance and claims expense compared to the prior year was primarily due to decreased severity of current year trucking claims during fiscal year 2023, decreased net unfavorable development of prior years’ claims in fiscal year 2023 and a decrease in BCO miles traveled in the 2023 fiscal year, partially offset by increased insurance premiums, primarily for commercial auto and excess liability coverage. During the 2023 and 2022 fiscal years, insurance and claims costs included $6,058,000 and $11,331,000 of net unfavorable adjustments to prior years’ claims estimates, respectively.

Selling, general and administrative costs decreased $9,480,000 in fiscal year 2023 as compared to fiscal year 2022. The decrease in selling, general and administrative costs compared to prior year was primarily attributable to a decreased provision for incentive compensation, decreased stock-based compensation expense and a decreased provision for customer bad debt, partially offset by increased information technology costs and increased wages. Included in selling, general and administrative costs was incentive compensation expense of $591,000 and $16,507,000 for the 2023 and 2022 fiscal years, respectively, and stock-based compensation expense of $4,282,000 and $12,399,000 for the 2023 and 2022 fiscal years, respectively.

Depreciation and amortization increased $700,000 in fiscal year 2023 compared to fiscal year 2022. The increase in depreciation and amortization expense was primarily due to increased depreciation on new and updated digital tools deployed for use by the Company’s network of agents, capacity providers and employees, partially offset by decreased trailing equipment depreciation.

The year-over-prior-year change in interest and debt (income) expense was $7,566,000, with net interest and debt income of $3,946,000 in fiscal year 2023 compared to net interest and debt expense of $3,620,000 in fiscal year 2022. The increase in interest and debt (income) expense was primarily attributable to increased interest income earned on cash balances held by the transportation logistics segment, decreased interest expense related to finance lease obligations and decreased average borrowings on the Company’s revolving credit facility, as the Company had no borrowings during the 2023 fiscal year.

The effective income tax rate was 24.0% for fiscal year 2023 and 24.1% for fiscal year 2022. The effective income tax rates for both fiscal years 2023 and 2022 were higher than the statutory federal income tax rate of 21% primarily attributable to state income taxes and nondeductible executive compensation, partially offset by excess tax benefits realized on stock-based awards.

Net income was $264,394,000, or $7.36 per basic and diluted share, in fiscal year 2023. Net income was $430,914,000, or $11.76 per basic and diluted share, in fiscal year 2022.

Fiscal Year Ended December 31, 2022 Compared to Fiscal Year Ended December 25, 2021

Revenue for fiscal year 2022 was $7,436,562,000, an increase of $898,994,000, or 14%, compared to fiscal year 2021. Transportation revenue increased $892,297,000, or 14%. The increase in transportation revenue was attributable to increased revenue per load of approximately 8% and an increased number of loads hauled of approximately 5% compared to fiscal year 2021. During the Company’s 2022 fiscal year, demand for the Company’s truck transportation services was at all-time high levels during the 2022 first quarter, as supply chains exhibited significant disruption. The macroeconomic environment subsequently began to slow and supply chain congestion began to ease as year-over-year revenue growth decelerated during the 2022 second and third quarters as compared to the 2021 second and third quarters before turning negative in the 2022 fourth quarter as compared to the 2021 fourth quarter. Reinsurance premiums were $78,554,000 and $71,857,000 for fiscal years 2022 and 2021, 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) participation levels among BCO Independent Contractors in certain occupational accident programs and workers’ compensation programs and (iii) an increase in the average number of trucks provided by BCO Independent Contractors in fiscal year 2022 compared to fiscal year 2021. The Company’s fiscal year ends each year on the last Saturday in December and, as such, the Company’s fiscal year 2022 included fifty-three weeks of operations whereas fiscal year 2021 included fifty-two weeks of operations.

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Truck transportation revenue generated by third party truck capacity providers for fiscal year 2022 was $6,630,839,000, representing 89% of total revenue, an increase of $667,621,000, or 11%, compared to fiscal year 2021. The number of loads hauled by third party truck capacity providers increased approximately 6% in fiscal year 2022 compared to fiscal year 2021, and revenue per load on loads hauled by third party truck capacity providers increased approximately 5% compared to fiscal year 2021.

The increase in the number of loads hauled via truck compared to fiscal year 2021 was due to a broad-based increase in demand for the Company’s truck transportation services during fiscal year 2022. Loads hauled via van equipment increased 5%, loads hauled via unsided/platform equipment increased 7%, less-than-truckload loadings increased 4% and loads hauled via other truck transportation services increased 7% as compared to fiscal year 2021. The year-over-year growth in the number of loads hauled via truck peaked in the 2022 first quarter, decelerated throughout the second and third quarters of fiscal year 2022, and turned negative in the 2022 fourth fiscal quarter. The number of loads hauled via truck were 20%, 10% and 1% above the corresponding period of 2021 in the first, second and third fiscal quarters, respectively. The number of loads hauled via truck during the 2022 fourth fiscal quarter was 6% below the 2021 fourth fiscal quarter, despite the extra week of operations in the 2022 fourth fiscal quarter.

The increase in revenue per load on loads hauled via truck was due to a tight truck capacity environment experienced during fiscal year 2022, in particular during the first fiscal quarter of fiscal year 2022, and the impact of higher diesel fuel costs on loads hauled via Truck Brokerage Carriers, partially offset by a decreased average length of haul during fiscal year 2022. As compared to fiscal year 2021, revenue per load on loads hauled via van equipment increased 5%, on loads hauled via unsided/platform equipment increased 6%, on less-than-truckload loadings increased 17% and on loads hauled by other truck transportation services increased 2%. The year-over-year growth in revenue per load on loads hauled via truck decelerated throughout fiscal year 2022, before turning negative in the 2022 fourth fiscal quarter. Revenue per load on loads hauled via truck was 22% and 10% above prior year in the first and second fiscal quarters, respectively; essentially flat in the 2022 third quarter as compared to the 2021 third quarter, and 7% below the prior year in the 2022 fourth fiscal quarter.

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 $211,770,000 and $107,776,000 in fiscal years 2022 and 2021, 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 multimode capacity providers for fiscal year 2022 was $704,003,000, or 9% of total revenue, an increase of $216,869,000, or 45%, compared to fiscal year 2021. Revenue per load on revenue generated by multimode capacity providers increased approximately 64% in fiscal year 2022 compared to fiscal year 2021, while the number of loads hauled by multimode capacity providers decreased approximately 12% over the same period. Revenue per load on loads hauled by multimode capacity providers increased for all modes. Revenue per load on loads hauled via air, ocean and rail intermodal increased 118%, 56% and 16%, respectively, during fiscal year 2022 as compared to fiscal year 2021. The increase in revenue per load on loads hauled via air cargo carriers and ocean cargo carriers, in particular, was primarily related to ongoing disruptions in domestic and global supply chains and strong consumer demand. 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 22% decrease in rail loadings and a 13% decrease in air loadings, partially offset by a 7% increase in ocean loadings. The 22% decrease in rail loadings was broad-based across several agencies and customers, and the 13% decrease in air loadings was entirely attributable to decreased loadings at one specific customer. The 7% 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 fiscal years 2022 and 2021, respectively. The decrease in purchased transportation as a percentage of revenue was primarily due to a decreased 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 8.3% and 7.8% of revenue in fiscal years 2022 and 2021, 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 during fiscal year 2022.

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Investment income was $3,162,000 and $2,857,000 in fiscal years 2022 and 2021, respectively. The increase in investment income was primarily attributable to higher average rates of return on investments during fiscal year 2022, partially offset by a lower average investment balance held by the insurance segment during fiscal year 2022.

Other operating costs increased $8,661,000 in fiscal year 2022 compared to fiscal year 2021. 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; and (y) an increased average trailer fleet size during fiscal year 2022 and (ii) an increased provision for contractor bad debt, partially offset by increased gains on sales of operating property.

Insurance and claims increased $20,372,000 in fiscal year 2022 compared to fiscal year 2021. The increase in insurance and claims expense compared to the prior year was primarily due to increased severity of current year trucking claims during fiscal year 2022, increased insurance premiums, primarily for commercial auto and excess liability coverage, and increased net unfavorable development of prior years’ claims in the 2022 fiscal year. During fiscal years 2022 and 2021, insurance and claims costs included $11,331,000 and $9,708,000 of net unfavorable adjustments to prior years’ claims estimates, respectively.

Selling, general and administrative costs were essentially the same in fiscal year 2022 as compared to fiscal year 2021. In the 2022 fiscal year as compared to the 2021 fiscal year, the Company experienced increased wages, an increased provision for customer bad debt, increased travel and entertainment costs and the return of the Company’s annual agent convention held in April 2022. These increases were 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 $12,399,000 and $27,537,000 for fiscal years 2022 and 2021, respectively, and incentive compensation expense of $16,507,000 and $29,361,000 for fiscal years 2022 and 2021, respectively.

Depreciation and amortization increased $7,844,000 in fiscal year 2022 compared to fiscal year 2021. The increase in depreciation and amortization expense was primarily due to increased depreciation on new and updated digital tools deployed for use by the Company’s network of agents, capacity providers and employees, and to a lesser extent, in connection with increased trailing equipment depreciation.

Interest and debt expense in fiscal year 2022 decreased $356,000 compared to fiscal year 2021. The decrease in interest and debt expense was primarily attributable to increased interest income earned on cash balances held by the transportation logistics segment, partially offset by increased average borrowings on the Company’s revolving credit facility during fiscal year 2022, as the Company had no borrowings under its revolving credit facility during the 2021 period, and increased interest expense related to finance lease obligations. The Company had no borrowings under its revolving credit facility as of the end of fiscal year 2022.

The provisions for income taxes for fiscal years 2022 and 2021 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 actual effective income tax rate for fiscal year 2022 was 24.1%, 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 2021 was 24.0%, higher than the statutory federal income tax rate of 21% primarily due to state taxes and nondeductible executive compensation, partially offset by excess tax benefits realized on stock-based awards. The actual effective income tax rate in fiscal year 2022 of 24.1% was lower than the estimated annual effective income tax rate of 24.5%, primarily due to excess tax benefits recognized on stock-based awards in fiscal year 2022. The actual 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.

Net income was $430,914,000, or $11.76 per basic and diluted share, in fiscal year 2022. Net income was $381,524,000, or $9.98 per basic and diluted share, in fiscal year 2021.

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Capital Resources and Liquidity

Working capital and the ratio of current assets to current liabilities were $677,517,000 and 2.0 to 1, respectively, at December 30, 2023, compared with $561,255,000 and 1.6 to 1, respectively, at December 31, 2022, and $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 $393,648,000, $622,659,000, and $276,740,000 in fiscal years 2023, 2022 and 2021, respectively. The decrease in cash flow provided by operating activities for fiscal year 2023 was primarily attributable to decreased net income and decreased favorable net working capital impacts in connection with the timing of collections of receivables and payment of certain payables as compared to the 2022 fiscal year. The increase in cash flow provided by operating activities for fiscal year 2022 was primarily attributable to favorable net working capital impacts in connection with the timing of collections of receivables and payment of certain payables and increased net income as compared to the 2021 fiscal year.

The Company declared and paid $1.26 per share, or $45,276,000 in the aggregate, in cash dividends during fiscal year 2023, and during such period, also paid $71,854,000 of dividends payable which were declared during fiscal year 2022 and included in current liabilities in the consolidated balance sheet at December 31, 2022. In addition, on December 4, 2023, the Company announced that its Board of Directors declared a special cash dividend of $2.00 per share, or $71,433,000 in the aggregate, payable on January 19, 2024 to stockholders of record of its Common Stock as of January 3, 2024. Dividends payable of $71,433,000 related to this special dividend were included in current liabilities in the consolidated balance sheet at December 30, 2023. The Company declared and paid $1.10 per share, or $40,284,000 in the aggregate, in cash dividends during fiscal year 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 $0.92 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. Since paying its first cash dividend in August 2005, the Company has paid approximately $845,000,000 in cash dividends in the aggregate to its stockholders, inclusive of the $2.00 per share special dividend paid on January 19, 2024.

During fiscal year 2023, the Company purchased 319,332 shares of its Common Stock at a total cost of $54,267,000, including $53,919,000 in cash purchases and accrued excise tax of $348,000 which is included in other current liabilities in the consolidated balance sheet at December 30, 2023. During fiscal year 2022, the Company purchased 1,900,826 shares of its Common Stock at a total cost of $285,983,000. During fiscal year 2021, the Company purchased 733,854 shares of its Common Stock at a total cost of $122,722,000. The Company has used cash provided by operating activities to fund the purchases. Since January 1997, the Company has purchased approximately $2,254,000,000 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 30, 2023, 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 $71,140,000 at December 30, 2023, compared to $103,400,000 at December 31, 2022 and $111,804,000 at December 25, 2021.

Shareholders’ equity was $983,923,000, or 93% of total capitalization (defined as long-term debt including current maturities plus equity), at December 30, 2023, compared to $887,221,000, or 90% of total capitalization at December 31, 2022 and $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 dividends declared by the Company and purchases of shares of the Company’s common stock in fiscal year 2023. The increase in shareholders’ equity in fiscal year 2022 was primarily the result of net income, almost entirely offset by purchases of shares of the Company’s Common Stock and dividends declared by the Company in fiscal year 2022.

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

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

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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 30, 2023, the Company had no borrowings outstanding and $33,492,000 of letters of credit outstanding under the Credit Agreement. At December 30, 2023, there was $266,508,000 available for future borrowings under the Credit Agreement and access to an additional $300,000,000 under the Credit Agreement’s “accordion” feature. In addition, the Company has $77,054,000 in letters of credit outstanding as collateral for insurance claims that are secured by investments totaling $85,616,000 at December 30, 2023. Investments, all of which are carried at fair value, include primarily investment-grade bonds, asset-backed securities and U.S. Treasury obligations having maturities of up to five years. Fair value of investments is based primarily on quoted market prices. See “Notes to Consolidated Financial Statements” included herein for further discussion on measurement of fair value of investments.

Historically, the Company has generated sufficient operating cash flow to meet its debt service requirements, fund continued growth, both organic and through acquisitions, complete or execute share purchases of its Common Stock under authorized share purchase programs, pay dividends and meet working capital needs. As an asset-light provider of integrated transportation management solutions, the Company’s annual capital requirements for operating property are generally for trailing equipment and information technology hardware and software. In addition, a significant portion of the trailing equipment used by the Company is provided by third party capacity providers, thereby reducing the Company’s capital requirements. During fiscal years 2023, 2022 and 2021, the Company acquired $4,093,000, $30,659,000 and $48,674,000, respectively, of trailing equipment by entering into finance leases. During fiscal years 2023, 2022 and 2021, the Company also purchased $25,688,000, $26,005,000 and $23,261,000, respectively, of 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 $66,000,000 in new trailing equipment, primarily to replace older trailing equipment in fiscal year 2024. Landstar anticipates spending approximately $19,000,000 on information technology hardware and software in fiscal year 2024, $16,000,000 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 $9,000,000 on buildings and improvements.

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 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 within its various programs. During fiscal years 2023, 2022 and 2021, insurance and claims costs included $6,058,000, $11,331,000 and $9,708,000 of net unfavorable adjustments to prior years’ claims estimates, respectively. The unfavorable development of prior years’

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claims in the 2023 fiscal year was attributable to several specific claims. The unfavorable development of prior years’ claims in the 2022 fiscal year was attributable to several specific claims. The unfavorable development of prior years’ claims in the 2021 fiscal year was primarily attributable to five claims. 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 30, 2023, primarily due to the inherent difficulty in estimating the severity of commercial trucking claims and the potential judgment or settlement amount that may be incurred in connection with the resolution of such claims.

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.