10-Q

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

March

26, 2022

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

Commission File Number:

0-21238

LANDSTAR SYSTEM, INC.

(Exact name of registrant as specified in its charter)


Delaware		06-1313069
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

13410 Sutton Park Drive South, Jacksonville, Florida

(Address of principal executive offices)

32224

(Zip Code)

(904)

398-9400

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	LSTR	NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation

S-T

(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files): Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule

12b-2

of the Exchange Act. (Check one):

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule

12b-2

of the Exchange Act). Yes ☐ No ☒

The number of shares of the registrant’s common stock, par value $0.01 per share, outstanding as of the close of business on April 18, 2022 was 37,127,333.

Index


PART I – Financial Information

Item 1. Financial Statements (unaudited)

Consolidated Balance Sheets as of March 26, 2022 and December 25, 2021			Page 4

Consolidated Statements of Income for the Thirteen Weeks Ended March 26, 2022 and March 27, 2021			Page 5

Consolidated Statements of Comprehensive Income for the Thirteen Weeks Ended March 26, 2022 and March 27, 2021			Page 6

Consolidated Statements of Cash Flows for the Thirteen Weeks Ended March 26, 2022 and March 27, 2021			Page 7

Consolidated Statements of Changes in Shareholders’ Equity for the Thirteen Weeks Ended March 26, 2022 and March 27, 2021			Page 8

Notes to Consolidated Financial Statements			Page 9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			Page 17

Item 3. Quantitative and Qualitative Disclosures About Market Risk			Page 28

Item 4. Controls and Procedures			Page 29

PART II – Other Information

Item 1. Legal Proceedings			Page 29

Item 1A. Risk Factors			Page 29

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			Page 31

Item 6. Exhibits			Page 32

Signatures			Page 34
EX – 31.1 Section 302 CEO Certification
EX – 31.2 Section 302 CFO Certification
EX – 32.1 Section 906 CEO Certification
EX – 32.2 Section 906 CFO Certification

PART I -

FINANCIAL INFORMATION

Item 1. Financial Statements

The interim consolidated financial statements contained herein reflect all adjustments (all of a normal, recurring nature) which, in the opinion of management, are necessary for a fair statement of the financial condition, results of operations, cash flows and changes in shareholders’ equity for the periods presented. They have been prepared in accordance with Rule

10-01

of Regulation

S-X

and do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. Operating results for the thirteen weeks ended March 26, 2022 are not necessarily indicative of the results that may be expected for the entire fiscal year ending December 31, 2022.

These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s 2021 Annual Report on Form

10-K.

LANDSTAR SYSTEM, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share amounts)

(Unaudited)


	March 26, 2022			December 25, 2021
ASSETS
Current Assets
Cash and cash equivalents	$	146,025		$	215,522
Short-term investments		35,679			35,778
Trade accounts receivable, less allowance of $7,940 and $7,074		1,223,123			1,154,314
Other receivables, including advances to independent contractors, less allowance of $8,838 and $8,125		123,231			101,124
Other current assets		10,441			16,162

Total current assets		1,538,499			1,522,900

Operating property, less accumulated depreciation and amortization of $356,988 and $344,099		307,044			317,386
Goodwill		40,945			40,768
Other assets		159,325			164,411

Total assets	$	2,045,813		$	2,045,465

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Cash overdraft	$	96,215		$	116,478
Accounts payable		626,337			604,130
Current maturities of long-term debt		34,983			36,561
Insurance claims		52,644			46,896
Dividends payable		—			75,387
Accrued income taxes		50,280			18,403
Other current liabilities		89,793			112,128

Total current liabilities		950,252			1,009,983

Long-term debt, excluding current maturities		137,289			75,243
Insurance claims		51,132			49,509
Deferred income taxes and other noncurrent liabilities		50,991			48,720

Shareholders’ Equity
Common stock, $0.01 par value, authorized 160,000,000 shares, issued 68,370,151 and 68,232,975 shares		684			682
Additional paid-in capital		248,230			255,148
Retained earnings		2,432,699			2,317,184
Cost of 31,242,818 and 30,539,235 shares of common stock in treasury		(1,816,149	)		(1,705,601	)
Accumulated other comprehensive loss		(9,315	)		(5,403	)

Total shareholders’ equity		856,149			862,010

Total liabilities and shareholders’ equity	$	2,045,813		$	2,045,465

See accompanying notes to consolidated financial statements.

LANDSTAR SYSTEM, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share amounts)

(Unaudited)


	Thirteen Weeks Ended
	March 26, 2022		March 27, 2021
Revenue	$	1,970,599	$	1,287,534
Investment income		721		684
Costs and expenses:
Purchased transportation		1,550,330		998,285
Commissions to agents		149,778		100,009
Other operating costs, net of gains on asset sales/dispositions		11,141		7,642
Insurance and claims		30,768		21,505
Selling, general and administrative		52,713		45,408
Depreciation and amortization		13,757		12,101

Total costs and expenses		1,808,487		1,184,950

Operating income		162,833		103,268
Interest and debt expense		1,123		1,042

Income before income taxes		161,710		102,226
Income taxes		36,871		24,986

Net income	$	124,839	$	77,240

Diluted earnings per share	$	3.34	$	2.01

Average diluted shares outstanding		37,418,000		38,404,000

Dividends per common share	$	0.25	$	0.21

See accompanying notes to consolidated financial statements.

LANDSTAR SYSTEM, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands)

(Unaudited)


	Thirteen Weeks Ended
	March 26, 2022			March 27, 202 2
Net income	$	124,839		$	77,240
Other comprehensive loss:
Unrealized holding losses on available-for-sale investments, net of tax benefits of $1,421 and $147		(5,187	)		(534	)
Foreign currency translation gains (losses)		1,275			(420	)

Other comprehensive loss		(3,912	)		(954	)

Comprehensive income	$	120,927		$	76,286

See accompanying notes to consolidated financial statements.

LANDSTAR SYSTEM, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)


	Thirteen Weeks Ended
	March 26, 2022			March 27, 2021
OPERATING ACTIVITIES
Net income	$	124,839		$	77,240
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		13,757			12,101
Non-cash interest charges		112			112
Provisions for losses on trade and other accounts receivable		2,626			547
Gains on sales/disposals of operating property		(165	)		(24	)
Deferred income taxes, net		1,324			(1,110	)
Stock-based compensation		1,995			4,029
Changes in operating assets and liabilities:
(Increase) decrease in trade and other accounts receivable		(93,542	)		33,440
Decrease in other assets		2,531			6,175
Increase in accounts payable		22,207			33,935
Increase in other liabilities		11,910			13,008
Increase (decrease) in insurance claims		7,371			(109,562	)

NET CASH PROVIDED BY OPERATING ACTIVITIES		94,965			69,891


INVESTING ACTIVITIES
Sales and maturities of investments		12,420			7,957
Purchases of investments		(13,428	)		(8,716	)
Purchases of operating property		(3,609	)		(4,076	)
Proceeds from sales of operating property		643			500

NET CASH USED BY INVESTING ACTIVITIES		(3,974	)		(4,335	)


FINANCING ACTIVITIES
(Decrease) increase in cash overdraft		(20,263	)		6
Dividends paid		(84,711	)		(84,837	)
Proceeds from exercises of stock options		56			77
Taxes paid in lieu of shares issued related to stock-based compensation plans		(10,183	)		(1,241	)
Borrowings on revolving credit facility		70,000			—
Purchases of common stock		(109,332	)		—
Principal payments on finance lease obligations		(9,532	)		(9,778	)

NET CASH USED BY FINANCING ACTIVITIES		(163,965	)		(95,773	)


Effect of exchange rate changes on cash and cash equivalents		815			252


Decrease in cash, cash equivalents and restricted cash		(72,159	)		(29,965	)
Cash, cash equivalents and restricted cash at beginning of period		219,571			249,354

Cash, cash equivalents and restricted cash at end of period	$	147,412		$	219,389

See accompanying notes to consolidated financial statements.

LANDSTAR SYSTEM, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

Thirteen Weeks Ended March 26, 2022 and March 27, 2021

(Dollars in thousands)

(Unaudited)


	Common Stock				Additional Paid-In Capital			Retained Earnings			Treasury Stock at Cost					Accumulated Other Comprehensive Loss			Total
	Shares		Amount		Additional Paid-In Capital			Retained Earnings			Shares		Amount			Accumulated Other Comprehensive Loss			Total
Balance December 25, 2021		68,232,975	$	682	$	255,148		$	2,317,184			30,539,235	$	(1,705,601	)	$	(5,403	)	$	862,010
Net income									124,839											124,839
Dividends ($0.25 per share)									(9,324	)										(9,324	)
Purchases of common stock												693,550		(109,332	)					(109,332	)
Issuance of stock related to stock-based compensation plans		137,176		2		(8,913	)					10,033		(1,216	)					(10,127	)
Stock-based compensation						1,995														1,995
Other comprehensive loss																	(3,912	)		(3,912	)

Balance March 26, 2022		68,370,151	$	684	$	248,230		$	2,432,699			31,242,818	$	(1,816,149	)	$	(9,315	)	$	856,149


	Common Stock				Additional Paid-In Capital			Retained Earnings			Treasury Stock at Cost					Accumulated Other Comprehensive Loss			Total
	Shares		Amount		Additional Paid-In Capital			Retained Earnings			Shares		Amount			Accumulated Other Comprehensive Loss			Total
Balance December 26, 2020		68,183,702	$	682	$	228,875		$	2,046,238			29,797,639	$	(1,581,961	)	$	(1,999	)	$	691,835
Net income									77,240											77,240
Dividends ($0.21 per share)									(8,067	)										(8,067	)
Issuance of stock related to stock-based compensation plans		28,594		—		(307	)					6,087		(857	)					(1,164	)
Stock-based compensation						4,029														4,029
Other comprehensive loss																	(954	)		(954	)

Balance March 27, 2021		68,212,296	$	682	$	232,597		$	2,115,411			29,803,726	$	(1,582,818	)	$	(2,953	)	$	762,919

See accompanying notes to consolidated financial statements.

LANDSTAR SYSTEM, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The consolidated financial statements include the accounts of Landstar System, Inc. and its subsidiary, Landstar System Holdings, Inc., and reflect all adjustments (all of a normal, recurring nature) which are, in the opinion of management, necessary for a fair statement of the results for the periods presented. The preparation of the consolidated financial statements requires the use of management’s estimates. Actual results could differ from those estimates. Landstar System, Inc. and its subsidiary are herein referred to as “Landstar” or the “Company.” Significant intercompany accounts have been eliminated in consolidation.

(1)	Significant Accounting Policies

Revenue from Contracts with Customers – Disaggregation of Revenue

The following table summarizes (i) the percentage of consolidated revenue generated by mode of transportation and (ii) the total amount of truck transportation revenue hauled by BCO Independent Contractors and Truck Brokerage Carriers generated by equipment type during the thirteen-week periods ended March 26, 2022 and March 27, 2021 (dollars in thousands):


	Thirteen Weeks Ended
Mode	March 26, 2022			March 27, 2021
Truck – BCO Independent Contractors		37	%		44	%
Truck – Truck Brokerage Carriers		52	%		49	%
Rail intermodal		2	%		2	%
Ocean and air cargo carriers		8	%		4	%

Truck Equipment Type
Van equipment	$	1,081,206		$	729,402
Unsided/platform equipment	$	408,757		$	297,485
Less-than-truckload	$	33,720		$	25,670
Other truck transportation (1)	$	227,601		$	140,932

(1)

Includes power-only, expedited, straight truck, cargo van, and miscellaneous other truck transportation revenue generated by the transportation logistics segment. Power-only refers to shipments where the Company furnishes a power unit and an operator but not trailing equipment, which is typically provided by the shipper or consignee.

(2)	Share-based Payment Arrangements

As of March 26, 2022, the Company has an employee equity incentive plan, the 2011 equity incentive plan (the “2011 EIP”). The Company also has a stock compensation plan for members of its Board of Directors, the Amended and Restated 2013 Directors Stock Compensation Plan (as amended and restated as of May 17, 2016, the “2013 DSCP”). 6,000,000 shares of the Company’s common stock were authorized for issuance under the 2011 EIP and 115,000 shares of the Company’s common stock were authorized for issuance under the 2013 DSCP. The 2011 EIP and 2013 DSCP are each referred to herein as a “Plan,” and, collectively, as the “Plans.” Amounts recognized in the financial statements with respect to these Plans are as follows (in thousands):


	Thirteen Weeks Ended
	March 26, 2022			March 27, 2021
Total cost of the Plans during the period	$	1,995		$	4,029
Amount of related income tax benefit recognized during the period		(3,360	)		(1,341	)

Net cost of the Plans during the period	$	(1,365	)	$	2,688

Included in income tax benefits recognized in the thirteen-week periods ended March 26, 2022 and March 27, 2021 were excess tax benefits from stock-based awards of $2,869,000 and $343,000, respectively.

As of March 26, 2022, there were 56,502 shares of the Company’s common stock reserved for issuance under the 2013 DSCP and 3,230,826 shares of the Company’s common stock reserved for issuance under the 2011 EIP.

Restricted Stock Units

The following table summarizes information regarding the Company’s outstanding restricted stock unit (“RSU”) awards with either a performance condition or a market condition under the Plans:


	Number of RSUs			Weighted Average Grant Date Fair Value
Outstanding at December 25, 2021		209,399		$	102.90
Granted		49,405		$	139.78
Shares earned in excess of target (1)		91,497		$	92.58
Vested shares, including shares earned in excess of target		(174,366	)	$	96.14
Forfeited		(15,044	)	$	103.31

Outstanding at March 26, 2022		160,891		$	115.64

(1)	Represents additional shares earned under each of the February 2, 2017; February 2, 2018 and February 1, 2019 RSU awards as fiscal year 2021 financial results exceeded target performance level.

During the thirteen-week period ended March 26, 2022, the Company granted RSUs with a performance condition. Outstanding RSUs at both December 25, 2021 and March 26, 2022 include RSUs with a performance condition and RSUs with a market condition, as further described below and in the Company’s 2021 Annual Report on Form

10-K.

RSUs with a performance condition granted on January 28, 2022 may vest on January 31 of 2025, 2026 and 2027 based on growth in operating income and

pre-tax

income per diluted share from continuing operations as compared to the results from the 2021 fiscal year.

The Company recognized approximately $

1,301,000 and $3,223,000 of share-based compensation expense related to RSU awards in the thirteen-week periods ended March 26, 2022 and March 27, 2021, respectively. As of March 26, 2022, there was a maximum of $27.3 million of total unrecognized compensation cost related to RSU awards granted under the Plans with an expected average remaining life of approximately 3.9 years. With respect to RSU awards with a performance condition, the amount of future compensation expense to be recognized will be determined based

on future operating results.

Non-vested

Restricted Stock and Deferred Stock Units

The following table summarizes information regarding the Company’s outstanding shares of

non-vested

restricted stock and Deferred Stock Units (defined below) under the Plans:


	Number of Shares and Deferred Stock Units			Weighted Average Grant Date Fair Value
Non-vested at December 25, 2021		56,436		$	125.16
Granted		17,008		$	152.44
Vested		(21,500	)	$	110.16
Forfeited		(2,302	)	$	108.59

Non-vested at March 26, 2022		49,642		$	141.77

The fair value of each share of

non-vested

restricted stock issued and Deferred Stock Unit granted under the Plans is based on the fair value of a share of the Company’s common stock on the date of grant. Shares of

non-vested

restricted stock are generally subject to vesting in three equal annual installments either on the first, second and third anniversary of the date of the grant or the third, fourth and fifth anniversary of the date of the grant, or 100% on the first or fifth anniversary of the date of the grant. For restricted stock awards granted under the 2013 DSCP plan, each recipient may elect to defer receipt of shares and instead receive restricted stock units (“Deferred Stock Units”), which represent contingent rights to receive shares of the Company’s common stock on the date of recipient separation from service from the Board of Directors, or, if earlier, upon a change in control event of the Company. Deferred Stock Units become vested 100% on the first anniversary of the date of the grant. Deferred Stock Units do not represent actual ownership in shares of the Company’s common stock and the recipient does not have voting rights or other incidents of ownership until the shares are issued. However, Deferred Stock Units do contain the right to receive dividend equivalent payments prior to settlement into shares.

As of March 26, 2022, there was $5,555,000 of total unrecognized compensation cost related to

non-vested

shares of restricted stock and Deferred Stock Units granted under the Plans. The unrecognized compensation cost related to these

non-vested

shares of restricted stock and Deferred Stock Units is expected to be recognized over a weighted average period of 2.4 years.

Stock Options

The following table summarizes information regarding the Company’s outstanding stock options under the Plans:


	Number of Options			Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value (000s)
Options outstanding at December 25, 2021		8,570		$	55.42
Exercised		(3,500	)	$	54.01

Options outstanding at March 26, 2022		5,070		$	56.40		0.8	$	495

Options exercisable at March 26, 2022		5,070		$	56.40		0.8	$	495

The total intrinsic value of stock options exercised during the thirteen-week periods ended March 26, 2022 and March 27, 2021 was $369,000 and $521,000, respectively.

As of March 26, 2022, there was no unrecognized compensation cost related to stock options granted under the Plans.

(3)	Income Taxes

The provisions for income taxes for the 2022 and 2021 thirteen-week periods were based on an estimated annual effective income tax rate of 24.5% and 24.4

%, respectively, adjusted for discrete events, such as benefits resulting from stock-based awards. The estimated annual effective income tax rate was higher than the statutory federal income tax rate

of 21

% in both periods primarily attributable to state taxes and

non-deductible

executive compensation. The effective income tax rate for the 2022 thirteen-week period w

as 22.8

%, which was lower than the estimated annual effective income tax rate of 24.5%, primarily attributable to excess tax benefits realized on stock-based awards. The effective income tax rate for the 2021 thirteen-week period o

f 24.4

% was equal to the estimated annual effective income tax rate during the 2021 period.

(4)	Earnings Per Share

Earnings per common share are based on the weighted average number of shares outstanding, including outstanding

non-vested

restricted stock and outstanding Deferred Stock Units. Diluted earnings per share are based on the weighted average number of common shares and Deferred Stock Units outstanding plus the incremental shares that would have been outstanding upon the assumed exercise of all dilutive stock options. During the 2022 and 2021 thirteen-week periods, in reference to the determination of diluted earnings per share, the future compensation cost attributable to outstanding shares of

non-vested

restricted stock exceeded the impact of incremental shares that would have been outstanding upon the assumed exercise of all dilutive stock options.

For each of the thirteen-week periods ended March 26, 2022 and March 27, 2021, no options outstanding to purchase shares of common stock were antidilutive. Outstanding RSUs were excluded from the calculation of diluted earnings per share for all periods because the performance metric requirements or market condition for vesting had not been satisfied.

(5)	Additional Cash Flow Information

During the 2022 thirteen-week period, Landstar paid income taxes and interest of $2,031,000 and $1,029,000, respectively. During the 2021 thirteen-week period, Landstar paid income taxes and interest of $353,000 and $983,000, respectively. Landstar did not acquire any operating property by entering into finance leases in either the 2022 or 2021 thirteen-week periods.

(6)	Segment Information

The following table summarizes information about the Company’s reportable business segments as of and for the thirteen-week periods ended March 26, 2022 and March 27, 2021 (in thousands):


	Thirteen Weeks Ended
	March 26, 2022						March 27, 2021
	Transportation Logistics		Insurance		Total		Transportation Logistics		Insurance		Total
External revenue	$	1,951,339	$	19,260	$	1,970,599	$	1,270,499	$	17,035	$	1,287,534
Internal revenue				12,884		12,884				9,534		9,534
Investment income				721		721				684		684
Operating income		151,946		10,887		162,833		89,732		13,536		103,268
Expenditures on long-lived assets		3,609				3,609		4,076				4,076
Goodwill		40,945				40,945		40,732				40,732

In the thirteen-week periods ended March 26, 2022 and March 27, 2021, no single customer accounted for more than 10% of the Company’s consolidated revenue.

(7)	Other Comprehensive Income

The following table presents the components of and changes in accumulated other comprehensive income (loss), net of related income taxes, as of and for the thirteen-week period ended March 26, 2022 (in thousands):


	Unrealized Holding Gains (Losses) on Available-for-Sale Securities			Foreign Currency Translation			Total
Balance as of December 25, 2021	$	113		$	(5,516	)	$	(5,403	)
Other comprehensive (loss) income		(5,187	)		1,275			(3,912	)

Balance as of March 26, 2022	$	(5,074	)	$	(4,241	)	$	(9,315	)

Amounts reclassified from accumulated other comprehensive income to investment income due to the realization of previously unrealized gains and losses in the accompanying consolidated statements of income were not significant for the thirteen-week period ended March 26, 2022.

(8)	Investments

Investments include primarily investment-grade corporate bonds and asset-backed securities having maturities of up to five years (the “bond portfolio”) and money market investments. Investments in the bond portfolio are reported as

available-for-sale

and are carried at fair value. Investments maturing less than one year from the balance sheet date are included in short-term investments and investments maturing more than one year from the balance sheet date are included in other assets in the consolidated balance sheets. Management performs an analysis of the nature of the unrealized losses on

available-for-sale

investments to determine whether an allowance for credit loss is necessary. Unrealized losses, representing the excess of the purchase price of an investment over its fair value as of the end of a period, considered to be a result of credit-related factors, are to be included as a charge in the statement of income, while unrealized losses considered to be a result of noncredit-related factors are to be included as a component of shareholders’ equity. Investments whose values are based on quoted market prices in active markets are classified within Level 1. Investments that trade in markets that are not considered to be active, but are valued based on quoted market prices, are classified within Level 2. As Level 2 investments include positions that are not traded in active markets, valuations may be adjusted to reflect illiquidity and/or

non-transferability,

which are generally based on available market information. Any transfers between levels are recognized as of the beginning of any reporting period. Fair value of the bond portfolio was determined using Level 1 inputs related to U.S. Treasury obligations and money market investments and Level 2 inputs related to investment-grade corporate bonds, asset-backed securities and direct obligations of government agencies. Unrealized losses, net of unrealized gains, on the investments in the bond portfolio were $6,464,000 at March 26, 2022, while unrealized gains, net of unrealized losses, on the investments in the bond portfolio were $144,000 at December 25, 2021.

The amortized cost and fair values of

available-for-sale

investments are as follows at March 26, 2022 and December 25, 2021 (in thousands):


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
March 26, 2022
Money market investments	$	14,913	$	—	$	—	$	14,913
Asset-backed securities		21,259		—		1,435		19,824
Corporate bonds and direct obligations of government agencies		133,645		212		5,203		128,654
U.S. Treasury obligations		2,342		—		38		2,304

Total	$	172,159	$	212	$	6,676	$	165,695


December 25, 2021
Money market investments	$	8,750	$	—	$	—	$	8,750
Asset-backed securities		22,441		—		346		22,095
Corporate bonds and direct obligations of government agencies		137,916		1,406		966		138,356
U.S. Treasury obligations		2,342		50		—		2,392

Total	$	171,449	$	1,456	$	1,312	$	171,593

For those

available-for-sale

investments with unrealized losses at March 26, 2022 and December 25, 2021, the following table summarizes the duration of the unrealized loss (in thousands):

Less than 12 months

12 months or longer

Total

SEC Form 10-Q filed by Landstar System Inc.