Landstar System(LSTR) - 2020 Q4 - Annual Report

Part I Business Landstar operates an asset-light model providing integrated transportation logistics solutions across North America through a network of independent agents and third-party capacity providers - Landstar operates an asset-light model, providing integrated transportation solutions through a network of independent commission sales agents and third-party capacity providers[14][15] Revenue Contribution by Service (FY 2020) | Service Type | % of Consolidated Revenue | | :--- | :--- | | Truck Services | 92% | | Rail Intermodal Services | 3% | | Air and Ocean Services | 3% | | Insurance Segment | 1% | Revenue Contribution by Capacity Provider (FY 2020) | Capacity Provider | % of Consolidated Revenue | | :--- | :--- | | BCO Independent Contractors | 45% | | Truck Brokerage Carriers | 47% | | Rail, Air, and Ocean Carriers | 6% | - The company's agent network is a key operational factor, with 508 "Million Dollar Agents" generating 92% of consolidated revenue in fiscal year 2020[28] - As of December 26, 2020, the company employed 1,320 individuals and implemented various measures to address the COVID-19 pandemic, including remote work, safety protocols, and a pandemic relief program for BCOs and agents[63][69] Risk Factors The company faces significant operational, economic, and legal risks, including trucking accidents, reliance on independent contractors, and the impact of the COVID-19 pandemic - Operational risks include high potential liability from trucking accidents, with a self-insured retention of up to $5,000,000 per occurrence and increasing costs for excess insurance coverage[67][70][71] - The business is highly dependent on its network of independent commission sales agents, with 508 "Million Dollar Agents" accounting for 92% of 2020 revenue, and on third-party capacity providers[75][76] - The COVID-19 pandemic has had a significant adverse impact, causing unprecedented fluctuations in truckload volumes and creating uncertainty for future results[77][78] - A significant legal risk involves the reclassification of BCO Independent Contractors and agents as independent contractors, where legislative or regulatory changes could materially affect the operating model[90][92][93] Unresolved Staff Comments The company has no unresolved staff comments from the Securities and Exchange Commission - None[106] Properties The company owns and leases various properties across North America, including its headquarters, which are deemed adequate for current operations - The company's primary owned facilities are located in Jacksonville, FL, Rockford, IL, and Laredo, TX, which are considered adequate for current operations[107] Legal Proceedings Legal proceedings information is cross-referenced to Item 7, Management's Discussion and Analysis - Referenced to Item 7, MD&A[108] Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable[109] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Landstar's common stock trades on NASDAQ, and the company has an active stock repurchase program and equity compensation plans - The company's common stock trades on the NASDAQ under the symbol LSTR[111] - As of December 26, 2020, the company was authorized to repurchase up to 1,821,030 shares of its common stock[113] - The company maintains equity compensation plans for its Board of Directors and employees, with 3,732,872 securities remaining available for future issuance as of December 26, 2020[114] Selected Financial Data This item is not applicable - Not applicable[118] Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes the company's financial condition and operational results for fiscal years 2020, 2019, and 2018, including the impact of market conditions and critical accounting policies Fiscal Year 2020 Compared to Fiscal Year 2019 Fiscal 2020 revenue increased by 1% to $4.13 billion, but net income decreased to $192.1 million due to higher costs and one-time charges Financial Performance Comparison (2020 vs. 2019) | Metric | FY 2020 | FY 2019 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $4,133.0M | $4,084.6M | +$48.4M | +1% | | Gross Profit | $599.4M | $614.9M | -$15.5M | -2.5% | | Operating Income | $253.0M | $298.9M | -$45.9M | -15.4% | | Net Income | $192.1M | $227.7M | -$35.6M | -15.6% | | Diluted EPS | $4.98 | $5.72 | -$0.74 | -12.9% | - The 1% revenue increase was driven by a 3% rise in revenue per load, primarily from a tight van truckload capacity market in the second half of 2020, which offset a 2% decline in total loads hauled[153][155][156] - Profitability was negatively impacted by several factors, including a $15.5 million commission program termination cost, a $2.6 million non-cash asset impairment charge, and $12.6 million in COVID-19 relief payments to BCOs and agents[161][167][168] - Insurance and claims costs increased by $7.5 million, driven by a major accident claim, additional premiums, and increased severity of claims, partially offset by lower unfavorable development of prior years' claims[164] Fiscal Year 2019 Compared to Fiscal Year 2018 Fiscal 2019 revenue decreased by 11% to $4.08 billion, and net income fell to $227.7 million due to a softer freight market and higher claims costs Financial Performance Comparison (2019 vs. 2018) | Metric | FY 2019 | FY 2018 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $4,084.6M | $4,615.1M | -$530.5M | -11% | | Gross Profit | $614.9M | $668.2M | -$53.3M | -8.0% | | Operating Income | $298.9M | $331.7M | -$32.8M | -9.9% | | Net Income | $227.7M | $255.3M | -$27.6M | -10.8% | | Diluted EPS | $5.72 | $6.18 | -$0.46 | -7.4% | - The 11% revenue decline was attributed to a softer freight market, leading to a 9% drop in revenue per load and a 3% decrease in load volume[173][174] - Selling, general and administrative costs decreased by $29.3 million, primarily due to a lower provision for incentive compensation and decreased stock-based compensation expense[181] - Insurance and claims costs increased by $4.6 million due to increased net unfavorable development of prior years' claims and higher severity of current year claims[180] Capital Resources and Liquidity The company maintains strong liquidity with $402 million in working capital and a $250 million credit facility, allocating capital to shareholder returns and operational investments Liquidity and Capitalization Overview | Metric | Dec 26, 2020 | Dec 28, 2019 | | :--- | :--- | :--- | | Working Capital | $402.0M | $445.0M | | Cash from Operations (FY) | $210.7M | $307.8M | | Long-Term Debt | $100.8M | $112.8M | | Total Equity | $691.8M | $721.5M | - In fiscal 2020, the company returned significant capital to shareholders, purchasing 1,178,970 shares for $116.0 million and declaring dividends totaling $109.5 million (including a $2.00 special dividend)[188][189] - The company has a $250 million revolving credit facility maturing in August 2023, with $216.4 million available for future borrowings as of year-end 2020[191][195] - Anticipated capital expenditures for fiscal 2021 include approximately $77 million for new trailing equipment and $23 million for information technology[196] Critical Accounting Policies and Estimates The estimation of self-insured claims is a critical accounting policy, with significant net unfavorable adjustments recorded in recent fiscal years - The estimation of the liability for self-insured claims is a critical accounting estimate, as it is based on actuarial assumptions and subject to change as new information becomes available[200] Net Unfavorable Adjustments to Prior Years' Claims Estimates | Fiscal Year | Amount | | :--- | :--- | | 2020 | $9,196,000 | | 2019 | $16,679,000 | | 2018 | $13,960,000 | Quantitative and Qualitative Disclosures About Market Risk The company's market risk exposures to interest rates and foreign currency are not considered material to its financial condition or operations - The company is exposed to interest rate risk through its variable-rate revolving credit facility, but had no borrowings outstanding during 2020 or 2019[203][205] - The investment portfolio consists of investment-grade bonds and U.S. Treasury obligations with maturities up to five years; a hypothetical 100 basis point change in interest rates would not have a material impact on earnings[206] - Foreign currency translation risk from Canadian and Mexican operations is not considered material, as assets in these subsidiaries represent only about 4% of total consolidated assets[207] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for fiscal years 2020, 2019, and 2018, including balance sheets, income statements, cash flows, and notes Consolidated Financial Statements The audited financial statements show total assets of $1.65 billion and shareholders' equity of $691.8 million as of December 26, 2020, with $4.13 billion in revenue and $192.1 million in net income for FY2020 Consolidated Balance Sheet Data (in thousands) | | Dec 26, 2020 | Dec 28, 2019 | | :--- | :--- | :--- | | Total Current Assets | $1,208,175 | $997,888 | | Total Assets | $1,653,799 | $1,427,711 | | Total Current Liabilities | $806,137 | $552,904 | | Total Liabilities | $961,964 | $706,242 | | Total Shareholders' Equity | $691,835 | $721,469 | Consolidated Income Statement Data (in thousands) | | FY 2020 | FY 2019 | FY 2018 | | :--- | :--- | :--- | :--- | | Revenue | $4,132,981 | $4,084,577 | $4,615,144 | | Operating Income | $252,950 | $298,904 | $331,735 | | Net Income | $192,106 | $227,720 | $255,281 | | Diluted EPS | $4.98 | $5.72 | $6.18 | Consolidated Cash Flow Data (in thousands) | | FY 2020 | FY 2019 | FY 2018 | | :--- | :--- | :--- | :--- | | Net Cash from Operating Activities | $210,717 | $307,840 | $297,901 | | Net Cash from Investing Activities | ($28,419) | ($18,556) | ($8,194) | | Net Cash from Financing Activities | ($252,032) | ($170,565) | ($330,679) | | Cash at End of Period | $249,354 | $319,515 | $199,736 | Notes to Consolidated Financial Statements The notes detail accounting policies and financial statement accounts, including revenue recognition, insurance liabilities, and segment performance, with Transportation Logistics generating most revenue - Revenue from freight transportation is recognized over the transit period of a shipment, using a days-in-transit output method to measure progress[228] - The company retains liability for commercial trucking claims up to $5,000,000 per occurrence and has an excess policy for losses between $5,000,000 and $10,000,000, subject to aggregate limits[231] Segment Data for Fiscal Year 2020 (in thousands) | Segment | External Revenue | Operating Income | Total Assets | | :--- | :--- | :--- | :--- | | Transportation Logistics | $4,076,519 | $221,210 | $1,301,991 | | Insurance | $56,462 | $31,740 | $351,808 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants regarding accounting and financial disclosure - None[326] Controls and Procedures Management and independent auditors concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 26, 2020 - Management concluded that the company's disclosure controls and procedures were effective as of December 26, 2020[327] - Based on an assessment using the COSO framework, management concluded that the company maintained effective internal control over financial reporting as of December 26, 2020[333] - KPMG LLP, the independent auditor, issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 26, 2020[335][338] Other Information The company reports no other information for this item - None[347] Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the definitive Proxy Statement - Information is incorporated by reference from the company's definitive Proxy Statement[349] Executive Compensation Executive and director compensation information is incorporated by reference from the definitive Proxy Statement - Information is incorporated by reference from the company's definitive Proxy Statement[351] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information for beneficial owners and management is incorporated by reference from the definitive Proxy Statement - Information is incorporated by reference from the company's definitive Proxy Statement[353] Certain Relationships and Related Transactions, and Director Independence The company reports no related party transactions, and director independence information is incorporated by reference from the Proxy Statement - Information regarding director independence is incorporated by reference from the company's definitive Proxy Statement[354] Principal Accounting Fees and Services Information on principal accounting fees and services is incorporated by reference from the definitive Proxy Statement - Information is incorporated by reference from the company's definitive Proxy Statement[355] Part IV Exhibits and Financial Statement Schedules This section lists financial statements, schedules, and exhibits filed with the Form 10-K, including corporate documents and certifications - Lists the financial statements and exhibits filed with the annual report[357] - Key exhibits filed include the Amended and Restated Credit Agreement, various equity incentive plans, and CEO/CFO certifications pursuant to the Sarbanes-Oxley Act[358][364]