| Significant Accounting Policies |
(1) Significant Accounting Policies The consolidated financial statements include the accounts of Landstar System, Inc. and its subsidiary, Landstar System Holdings, Inc. (“LSHI”). Landstar System, Inc. and its subsidiary are herein referred to as “Landstar” or the “Company.” Significant intercompany accounts have been eliminated in consolidation. The preparation of the consolidated financial statements requires the use of management’s estimates. Actual results could differ from those estimates. Landstar’s fiscal year is the 52 or 53 week period ending the last Saturday in December. The nature of the Company’s freight transportation services and its performance obligations to customers, regardless of the mode of transportation used to perform such services, relate to the safe and on-time pick-up and delivery of a customer’s freight on a basis. Landstar customers are typically invoiced on a basis at a pre-defined rate, payable thirty to sixty (30-60) days after the customer’s receipt of such invoice. Payment terms to customers do not contain a significant financing component and the amount owed by the customer does not contain variable terms, embedded or otherwise. We have determined that revenue recognition over the freight transit period provides a faithful depiction of the transfer of services to the customer as our obligation for which we are primarily responsible for fulfilling is performed over the transit period. Accordingly, transportation revenue billed to a customer for the physical transportation of freight and related direct freight expenses are recognized on a gross basis over the freight transit period as the performance obligation to the customer is satisfied. The Company determines the transit period for a given shipment based upon the pick-up date and the delivery date, which may be estimated if delivery has not occurred as of the reporting date. Determining the transit period and how much of it has been completed as of a given reporting date may therefore require management to make judgments that affect the timing of revenue recognized. With respect to shipments with a pick-up date in one reporting period and a delivery date in another, the Company recognizes such transportation revenue based on relative transit time in each reporting period. A days in transit output method is used to measure the progress of the performance of the Company’s freight transportation services as of the reporting date and a portion of the total revenue that will be billed to the customer once a load is delivered is recognized in each reporting period based on the percentage of total transit time that has been completed at the end of the applicable reporting period. Reinsurance premiums of the insurance segment are recognized over the period earned, which is usually on a monthly basis. Fuel surcharges billed to customers for freight hauled by independent contractors who provide truck capacity to the Company under exclusive lease arrangements (the “BCO Independent Contractors”) are excluded from revenue and paid in entirety to the BCO Independent Contractors. 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 fiscal years ended December 28, 2024, December 30, 2023 and December 31, 2022 (dollars in thousands):
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Truck – BCO Independent Contractors |
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38 |
% |
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38 |
% |
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35 |
% |
Truck – Truck Brokerage Carriers |
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52 |
% |
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53 |
% |
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54 |
% |
| |
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2 |
% |
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2 |
% |
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2 |
% |
Ocean and air cargo carriers |
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6 |
% |
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5 |
% |
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8 |
% |
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$ |
2,447,810 |
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$ |
2,742,281 |
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$ |
3,892,085 |
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Unsided/platform equipment |
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$ |
1,455,663 |
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$ |
1,490,393 |
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$ |
1,760,357 |
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$ |
99,828 |
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$ |
117,683 |
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$ |
142,438 |
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Other truck transportation (1) |
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$ |
343,253 |
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$ |
479,173 |
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$ |
835,959 |
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| (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. | Landstar provides, primarily on an actuarially determined basis, for the estimated costs of cargo, property, casualty, general liability and workers’ compensation claims both reported and for claims incurred but not reported. Landstar retains liability through a self-insured retention for commercial trucking claims up to $5 million per occurrence. Effective May 1, 2023, the Company entered into a three year commercial auto liability insurance arrangement for losses incurred between $5 million and $10 million (the “2023 Initial Excess Policy”) with a third party insurance company. For commercial trucking claims incurred on or after May 1, 2023 through April 30, 2026, the 2023 Initial Excess Policy provides for an aggregate deductible of $18 million over the term ending April 30, 2026. After payment of the deductible, the 2023 Initial Excess Policy provides for a limit for a single loss of $5 million, with an aggregate limit of $15 million for the term ending April 30, 2026. The Company also maintains third party insurance arrangements providing excess coverage for commercial trucking liabilities in excess of $10 million. These third party arrangements provide coverage on a per occurrence or aggregated basis. The Company from year to year manages the level of its financial exposure to commercial trucking claims in excess of $10 million, including through the use of additional self-insurance, deductibles, aggregate loss limits, quota shares and other arrangements with third party insurance companies, based on the availability of coverage within certain excess insurance coverage layers and estimated cost differentials between proposed premiums from third party insurance companies and historical and actuarially projected losses experienced by the Company at various levels of excess insurance coverage. Further, the Company retains liability of up to $2,000,000 for each general liability claim, $250,000 for each workers’ compensation claim and $250,000 for each cargo claim. In addition, under reinsurance arrangements by Signature Insurance Company (“Signature”) of certain risks of the Company’s BCO Independent Contractors, the Company retains liability of up to $500,000, $1,000,000 or $2,000,000 with respect to certain occupational accident claims and up to $750,000 with respect to certain workers’ compensation claims. Tires purchased as part of trailing equipment are capitalized as part of the cost of the equipment. Replacement tires are charged to expense when placed in service. Cash, Cash Equivalents and Restricted Cash Included in cash and cash equivalents are all investments, except those provided for collateral, with an original maturity of 3 months or less. At December 28, 2024, December 30, 2023 and December 31, 2022, the Company had no restricted cash held by the Company’s insurance segment. At December 25, 2021, the Company had $4,049,000 of restricted cash held by the Company’s insurance segment included in the short-term investments balance of $35,778,000, providing collateral, along with certain other investments, for the letters of credit issued to guarantee payment of insurance claims. The Company’s financial instruments include cash equivalents, short and long-term investments, trade and other accounts receivable, accounts payable, other accrued liabilities, and long-term debt plus current maturities (“Debt”). The carrying value of cash equivalents, trade and other accounts receivable, accounts payable, current insurance claims and other accrued liabilities approximates fair value as the assets and liabilities are short term in nature. Short and long-term investments are carried at fair value as further described in Note 3 in the Company’s consolidated financial statements. The Company’s Debt includes borrowings under the Company’s revolving credit facility, to the extent there are any, plus borrowings relating to finance lease obligations used to finance trailing equipment. The interest rates on borrowings under the revolving credit facility are typically tied to short-term interest rates that adjust monthly and, as such, carrying value approximates fair value. Interest rates on borrowings under finance leases approximate the interest rates that would currently be available to the Company under similar terms and, as such, carrying value approximates fair value. Trade and Other Receivables The allowance for doubtful accounts for both trade and other receivables represents management’s estimate of the amount of outstanding receivables that will not be collected. Estimates are used to determine the allowance for doubtful accounts for both trade and other receivables and are generally based on specific identification, historical collection results, current economic trends and changes in payment trends. Following is a summary of the activity in the allowance for doubtful accounts for fiscal years ending December 28, 2024, December 30, 2023 and December 31, 2022 (in thousands):
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For the Fiscal Year Ended December 28, 2024 |
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$ |
11,738 |
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$ |
6,449 |
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$ |
(5,283 |
) |
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$ |
12,904 |
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15,376 |
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11,811 |
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(7,911 |
) |
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19,276 |
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Other non-current receivables |
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206 |
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6 |
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(4 |
) |
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208 |
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$ |
27,320 |
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$ |
18,266 |
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$ |
(13,198 |
) |
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$ |
32,388 |
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For the Fiscal Year Ended December 30, 2023 |
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$ |
12,121 |
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$ |
5,704 |
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$ |
(6,087 |
) |
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$ |
11,738 |
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11,745 |
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8,325 |
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(4,694 |
) |
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15,376 |
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Other non-current receivables |
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203 |
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3 |
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— |
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206 |
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$ |
24,069 |
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$ |
14,032 |
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$ |
(10,781 |
) |
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$ |
27,320 |
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For the Fiscal Year Ended December 31, 2022 |
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$ |
7,074 |
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$ |
7,354 |
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$ |
(2,307 |
) |
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$ |
12,121 |
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9,511 |
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4,863 |
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(2,629 |
) |
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11,745 |
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Other non-current receivables |
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200 |
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3 |
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— |
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203 |
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$ |
16,785 |
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$ |
12,220 |
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$ |
(4,936 |
) |
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$ |
24,069 |
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| Other Receivables and Other Assets The Company provides financing to certain independent commission sales agents. Generally, these notes receivable include personal guarantees, may be collateralized by the assets and equity of the borrower and are due in periodic installments, including principal and interest payments, for terms of one to seven years. Notes receivable are recorded at amortized cost, net of the allowance for doubtful accounts. At December 28, 2024 and December 30, 2023, the Company had $26,606,000 and $5,079,000, respectively, of gross notes receivable from independent commission sales agents. The current portion is included within other receivables and the long-term portion is included in other assets in the consolidated balance sheets. Operating property is recorded at cost. Depreciation is provided on a straight-line basis over the estimated useful lives of the related assets. Buildings and improvements are being depreciated over 30 years. Trailing equipment is being depreciated over 7 to 10 years. Information technology hardware and software is generally being depreciated over 3 to 7 years. Goodwill represents the excess of the purchase price paid over the fair value of the net assets of acquired businesses. The Company has two reporting units within the transportation logistics segment that report goodwill. The Company reviews its goodwill balance annually for impairment for each reporting unit, unless circumstances dictate more frequent assessments, and in accordance with ASU 2011-08, Testing Goodwill for Impairment . ASU 2011-08 permits an initial assessment, commonly referred to as “step zero”, of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount and also provides a basis for determining whether it is necessary to perform the quantitative analysis required by ASC Topic 350. In the fourth fiscal quarter of 2024, the Company performed the qualitative assessment of goodwill and determined it was more likely than not that the fair value of each of its reporting units would be greater than its carrying amount. Therefore, the Company determined it was not necessary to perform the quantitative goodwill impairment test. Furthermore, there has been no historical impairment of the Company’s goodwill. Income tax expense is equal to the current year’s liability for income taxes and a provision for deferred income taxes. Deferred tax assets and liabilities are recorded for the future tax effects attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company’s share-based payment arrangements include restricted stock units (“RSU”), non-vested restricted stock, Deferred Stock Units and stock options. The fair value of an RSU with a performance condition is determined based on the market value of the Company’s Common Stock on the date of grant, discounted for lack of marketability for a minimum post-vesting holding requirement. With respect to RSU awards with a performance condition, the Company reports compensation expense ratably over the life of the award based on an estimated number of units that will vest over the life of the award, multiplied by the fair value of an RSU. The fair value of an RSU with a market condition is determined at the time of grant based on the expected achievement of the market condition at the end of each vesting period. With respect to RSU awards with a market condition, the Company recognizes compensation expense ratably over the requisite service period under an award based on the fair market value of the award at the time of grant, regardless of whether the market condition is satisfied. Previously recognized compensation cost would be reversed, however, if the employee terminated employment prior to completing such requisite service period. The Company estimates the fair value of stock option awards on the date of grant using the Black-Scholes pricing model and recognizes compensation cost for stock option awards expected to vest on a straight-line basis over the requisite service period for the entire award. Forfeitures are estimated at grant date based on historical experience and anticipated employee turnover. The fair values of each share of non-vested restricted stock issued and Deferred Stock Unit granted are based on the fair value of a share of the Company’s Common Stock on the date of grant and compensation costs for non-vested restricted stock and Deferred Stock Units are recognized on a straight-line basis over the requisite service period for the award. Basic earnings per common share are based on the weighted average number of common shares outstanding, which includes outstanding non-vested restricted stock and outstanding Deferred Stock Units. Diluted earnings per share are based on the weighted average number of common shares outstanding plus the incremental shares that would have been outstanding upon the assumed exercise of all dilutive stock options. During the fiscal years ended December 28, 2024, December 30, 2023 and December 31, 2022, the weighted-average number of common shares outstanding is the same for purposes of the calculations of both basic and diluted earnings per share. During and as of the fiscal year ended December 28, 2024, there were no outstanding stock options issued by the Company. During the fiscal years ended December 30, 2023 and December 31, 2022, the impact on earnings per share of future compensation expense related to outstanding, unvested time-based awards was greater than the incremental impact of outstanding dilutive stock options, and would therefore have an anti-dilutive effect on earnings per share if included in the calculation of earnings per share. Accordingly, the Company had no reconciling items between the average number of common shares outstanding used to calculate basic earnings per common share and the average number of common shares and common share equivalents outstanding used to calculate diluted earnings per share during the fiscal years ended December 28, 2024, December 30, 2023 and December 31, 2022. For the fiscal years ended December 30, 2023 and December 31, 2022, 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. On December 9, 2024, the Company announced that its Board of Directors declared a special cash dividend of $2.00 per share payable on January 21, 2025 to stockholders of record of its Common Stock as of January 7, 2025. Dividends payable of $70,632,000 related to this special dividend were included in current liabilities in the consolidated balance sheet at December 28, 2024. On December 4, 2023, the Company announced that its Board of Directors declared a special cash dividend of $2.00 per share payable on January 19, 2024 to stockholders of record of its Common Stock as of January 3, 2024. Dividends payable of $71,433,000 related to this special dividend were included in current liabilities in the consolidated balance sheet at December 30, 2023. Foreign Currency Translation Assets and liabilities of the Company’s Canadian and Mexican operations are translated from their functional currency to U.S. dollars using exchange rates in effect at the balance sheet date and revenue and expense accounts are translated at average monthly exchange rates during the period. Adjustments resulting from the translation process are included in accumulated other comprehensive income. Transactional gains and losses arising from receivable and payable balances, including intercompany balances, in the normal course of business that are denominated in a currency other than the functional currency of the operation are recorded in the statements of income when they occur. |
