Leases

3 Months Ended

Mar. 27, 2021

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 facilities maintained in support of the Company’s network of BCO Independent Contractors and office space used to conduct Landstar’s business. These leases do not have significant rent escalation holidays, concessions, leasehold improvement incentives or other build-out clauses. Further, the leases do not contain contingent rent provisions. Landstar also 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 27, 2021 were (in thousands):

Finance leases:
Amortization of right-of-use assets	$	5,478
Interest on lease liability		727
Total finance lease cost		6,205
Operating leases:
Lease cost		846
Variable lease cost		—
Sublease income		(1,190	)
Total net operating lease income		(344	)
Total net lease cost	$	5,861

A summary of the lease classification on our consolidated balance sheet as of March 27, 2021 is as follows (in thousands):

Assets:

Operating lease right-of-use assets	Other assets	$	2,440
Finance lease assets	Operating property, less accumulated depreciation and amortization		131,470
Total lease assets		$	133,910

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 27, 2021 (in thousands):

	Finance Leases		Operating Leases
2021 Remainder	$	27,426	$	564
2022		28,753		686
2023		21,742		600
2024		11,827		516
2025		5,580		275
Thereafter		—		—
Total future minimum lease payments		95,328		2,641
Less amount representing interest (1.9% to 4.4%)		4,332		201
Present value of minimum lease payments	$	90,996	$	2,440
Current maturities of long-term debt		32,800
Long-term debt, excluding current maturities		58,196
Other current liabilities				728
Deferred income taxes and other noncurrent liabilities				1,712

The weighted average remaining lease term and the weighted average discount rate for finance and operating leases as of March 27, 2021 were:

	Finance Leases			Operating Leases
Weighted average remaining lease term (years)		3.3			3.9
Weighted average discount rate		3.0	%		4.0	%