Leases

12 Months Ended

Dec. 31, 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 as of December 31, 2022 were (in thousands):

Finance leases:
Amortization of right-of-use assets	$	22,071
Interest on lease liability		2,908
Total finance lease cost		24,979
Operating leases:
Lease cost		3,495
Variable lease cost		—
Sublease income		(5,616	)
Total net operating lease income		(2,121	)
Total net lease cost	$	22,858

Total net operating lease income, net of rent expense under operating leases, was $1,632,000 and $1,620,000 in fiscal years 2021 and 2020, respectively.

A summary of the lease classification on the Company’s consolidated balance sheet as of December 31, 2022 is as follows (in thousands):

Assets:

Operating lease right-of-use assets	Other assets	$	2,044
Finance lease assets	Operating property, less accumulated depreciation and amortization		137,087
Total lease assets		$	139,131

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 December 31, 2022 (in thousands):

	Finance Leases		Operating Leases
2023	$	39,032	$	801
2024		29,795		680
2025		23,126		419
2026		15,807		127
2027		4,312		127
Thereafter		—		49
Total future minimum lease payments		112,072		2,203
Less amount representing interest (1.6% to 5.6%)		8,672		159
Present value of minimum lease payments	$	103,400	$	2,044

Current maturities of long-term debt	36,175
Long-term debt, excluding current maturities	67,225
Other current liabilities		782
Deferred income taxes and other noncurrent liabilities		1,262

The weighted average remaining lease term and the weighted average discount rate for finance and operating leases as of December 31, 2022 were:

	Finance Leases			Operating Leases
Weighted average remaining lease term (years)		3.5			3.3
Weighted average discount rate		3.0	%		4.5	%