Leases

6 Months Ended

Jun. 25, 2022

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 rents 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 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, the Company applies a portfolio approach for determining the incremental borrowing rate.

The components of lease cost for finance leases and operating leases for the twenty six weeks ended June 25, 2022 were (in thousands):

Finance leases:
Amortization of right-of-use assets	$	10,792
Interest on lease liability		1,351
Total finance lease cost		12,143
Operating leases:
Lease cost		1,757
Variable lease cost		—
Sublease income		(2,524	)
Total net operating lease income		(767	)
Total net lease cost	$	11,376

A summary of the lease classification on our consolidated balance sheet as of June 25, 2022 is as follows (in thousands):

Assets:

Operating lease right-of-use assets	Other assets	$	1,743
Finance lease assets	Operating property, less accumulated depreciation and amortization		148,084
Total lease assets		$	149,827

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 June 25, 2022 (in thousands):

	Finance Leases		Operating Leases
2022 Remainder	$	20,806	$	388
2023		35,904		639
2024		26,048		535
2025		19,838		284
2026		11,698		—
Thereafter		1,884		—
Total future minimum lease payments		116,178		1,846
Less amount representing interest (1.6% to 4.6%)		5,352		103
Present value of minimum lease payments	$	110,826	$	1,743
Current maturities of long-term debt		36,827
Long-term debt, excluding current maturities		73,999
Other current liabilities				712
Deferred income taxes and other noncurrent liabilities				1,031

The weighted average remaining lease term and the weighted average discount rate for finance and operating leases as of June 25, 2022 were:

	Finance Leases			Operating Leases
Weighted average remaining lease term (years)		3.6			2.8
Weighted average discount rate		2.8	%		4.0	%