Leases

3 Months Ended

Mar. 28, 2020

Leases

(9) Leases

Landstar’s noncancelable leases are primarily comprised of finance leases for the acquisition of new trailing equipment. Each finance lease for the acquisition of trailing equipment is a five year lease with a $1 purchase option for the applicable equipment at lease expiration. Substantially all of Landstar’s operating lease right-of-use assets and operating lease liabilities represent leases for orientation centers for BCO Independent Contractors and office space used to conduct Landstar’s business. These leases do not have significant rent escalation holidays, concessions, leasehold improvement incentives or other build-out clauses. Further, the leases do not contain contingent rent provisions. Landstar also leases certain trailing equipment to supplement the Company-owned trailer fleet under “month-to-month” lease terms, which are not required to be recorded on the balance sheet due to the less than twelve month lease term exemption. Sublease income is primarily comprised of weekly trailing equipment rentals to our BCO Independent Contractors.

Most of Landstar’s operating leases include one or more options to renew. The exercise of lease renewal options is typically at Landstar’s sole discretion, and, as such, the majority of renewals to extend the lease terms are not included in the right-of-use assets and lease liabilities as they are not reasonably certain of exercise. Landstar regularly evaluates the renewal options, and when they are reasonably certain of exercise, Landstar includes the renewal period in the lease term.

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

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

Finance leases:
Amortization of right-of-use assets	$	6,151
Interest on lease liability		889
Total finance lease cost		7,040
Operating leases:
Lease cost		837
Variable lease cost		—
Sublease income		(1,229	)
Total operating lease (income)/cost		(392	)
Total lease cost	$	6,648

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

Assets:
Operating lease right-of-use assets	Other assets	$	2,554
Finance lease assets	Operating property, less accumulated depreciation and amortization		150,273
Total lease assets		$	152,827
Liabilities:

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

	Finance Leases		Operating Leases
2020 Remainder	$	33,862	$	517
2021		31,278		637
2022		22,123		639
2023		15,100		510
2024		5,156		433
Thereafter		—		54
Total future minimum lease payments		107,519		2,790
Less amount representing interest (2.1% to 4.4%)		5,598		236
Present value of minimum lease payments	$	101,921	$	2,554
Current maturities of long-term debt		39,944
Long-term debt, excluding current maturities		61,977
Other current liabilities				657
Deferred income taxes and other noncurrent liabilities				1,897

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

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