Leases

9 Months Ended

Sep. 25, 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 thirty nine weeks ended September 25, 2021 were (in thousands):

Finance leases:
Amortization of right-of-use assets	$	15,967
Interest on lease liability		2,023
Total finance lease cost		17,990
Operating leases:
Lease cost		2,623
Variable lease cost		—
Sublease income		(3,720	)
Total net operating lease income		(1,097	)
Total net lease cost	$	16,893

A summary of the lease classification on our consolidated balance sheet as of September 25, 2021 is as follows (in thousands):

Assets:

Operating lease right-of-use assets	Other assets	$	2,198
Finance lease assets	Operating property, less accumulated depreciation and amortization		129,242
Total lease assets		$	131,440

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 September 25, 2021 (in thousands):

	Finance Leases		Operating Leases
2021 Remainder	$	11,454	$	192
2022		33,585		714
2023		26,573		634
2024		16,665		535
2025		10,418		284
Thereafter		2,916		—
Total future minimum lease payments		101,611		2,359
Less amount representing interest (1.6% to 4.4%)		4,270		161
Present value of minimum lease payments	$	97,341	$	2,198
Current maturities of long-term debt		34,617
Long-term debt, excluding current maturities		62,724
Other current liabilities				713
Deferred income taxes and other noncurrent liabilities				1,485

The weighted average remaining lease term and the weighted average discount rate for finance and operating leases as of September 25, 2021 were:

	Finance Leases			Operating Leases
Weighted average remaining lease term (years)		3.5			3.5
Weighted average discount rate		2.7	%		4.0	%