What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2021-02-23 compared with 2020-02-21 · 150 added, 150 removed, 276 unchanged (52% of the section changed)

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Such statements are by nature subject to uncertainties and risks, including but not limited to:

the impact of the coronavirus (COVID-19)

an increase in the frequency or severity of accidents or other claims;

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and its subsidiary, Landstar System Holdings, Inc.

(together, referred to herein as “Landstar” or the “Company”), is a worldwide asset-light provider of integrated transportation management solutions.

The Company offers services to

its customers across multiple transportation modes, with the ability to arrange for individual shipments of freight to enterprise-wide solutions to manage all of a customer’s transportation needs.

(collectively referred to herein with their subsidiaries and other affiliated companies as “Landstar” or the “Company”), is a worldwide asset-light provider of integrated transportation management solutions.

The Company offers services to its customers across multiple transportation modes, with the ability to arrange for individual shipments of freight to comprehensive third party logistics solutions to meet all of a customer’s transportation needs.

Landstar provides services principally throughout the United States and to a lesser extent in Canada and Mexico, and between the United States and Canada, Mexico and other countries around the world.

The Company’s services emphasize safety, information coordination and customer service and are delivered through a network of over 1,200 independent commission sales agents and approximately 66,000 third party capacity providers, primarily truck capacity providers, linked together by a series of mobile and digital applications which are provided and coordinated by the Company.

The Company’s services emphasize safety, information coordination and customer service and are delivered through a network of over 1,100 independent commission sales agents and approximately 79,000 third party capacity providers, primarily truck capacity providers, linked together by a series of digital technologies which are provided and coordinated by the Company.

The nature of the Company’s business is such that a significant portion of its operating costs varies directly with revenue.

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contractual arrangements (the “Truck Brokerage Carriers”), air cargo carriers, ocean cargo carriers and railroads.

Through this network of agents and capacity providers linked together by Landstar’s information technology systems, Landstar operates an integrated transportation management solutions business primarily throughout North America with revenue of $4.1 billion during the most recently completed fiscal year.

Through this network of agents and capacity providers linked together by Landstar’s series of digital technologies, Landstar operates an integrated transportation management solutions business primarily throughout North America with revenue of $4.1 billion during the most recently completed fiscal year.

The Company reports the results of two operating segments:

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The transportation logistics segment provides a wide range of integrated transportation management solutions.

Transportation services offered by the Company include truckload and less-than-truckload transportation, rail intermodal, air cargo, ocean cargo, expedited ground and air delivery of time-critical freight, heavy-haul/specialized, U.S.-Canada and U.S.-Mexico cross-border, intra-Mexico, intra-Canada, project cargo and customs brokerage.

Examples of the industries serviced by the transportation logistics segment include automotive parts and assemblies, building products, metals, chemicals, foodstuffs, heavy machinery, retail, electronics and military equipment.

Transportation services are provided by Landstar’s “Operating Subsidiaries”:

Landstar Ranger, Inc., Landstar Inway, Inc., Landstar Ligon, Inc., Landstar Gemini, Inc., Landstar Transportation Logistics, Inc., Landstar Global Logistics, Inc., Landstar Express America, Inc., Landstar Canada, Inc., and as further described below, Landstar Metro, Landstar Servicios and Landstar Blue.

Transportation services offered by the Company include truckload and less-than-truckload transportation, rail intermodal, air cargo, ocean cargo, expedited

ground and air delivery of time-critical freight, heavy-haul/specialized, U.S.-Canada and U.S.-Mexico cross-border, intra-Mexico, intra-Canada, project cargo and customs brokerage.

Examples of the industries serviced by the transportation logistics segment include automotive parts and assemblies, consumer durables, building products, metals, chemicals, foodstuffs, heavy machinery, retail, electronics and military equipment.

In addition, the transportation logistics segment provides transportation services to other transportation companies, including third party logistics and less-than-truckload service providers.

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Revenue from Landstar Metro represented less than 1% of the Company’s transportation logistics segment revenue during fiscal year 2020.

The insurance segment is comprised of Signature Insurance Company, a wholly owned offshore insurance subsidiary (“Signature”), and Risk Management Claim Services, Inc.

On May 6, 2020, the Company formed a new subsidiary that was subsequently renamed Landstar Blue, LLC (“Landstar Blue”).

Landstar Blue arranges truckload brokerage services while helping the Company to develop and test digital technologies and processes for the benefit of all Landstar independent commission sales agents.

On June 15, 2020, Landstar Blue completed the acquisition of an independent agent of the Company whose business focused on truckload brokerage services.

The results of operations from Landstar Blue are presented as part of the Company’s transportations logistics segment.

Revenue from Landstar Blue represented less than 1% of the Company’s transportation logistics segment revenue during fiscal year 2020.

The insurance segment is comprised of Signature Insurance Company (“Signature”), a wholly owned offshore insurance subsidiary, and Risk Management Claim Services, Inc.

The insurance segment provides risk and claims management services to certain of Landstar’s Operating Subsidiaries.

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Management’s emphasis with respect to revenue growth is on revenue generated by independent commission sales agents who on an annual basis generate $1 million or more of Landstar revenue.

Management believes future revenue growth is primarily dependent on its ability to increase both the revenue generated by Million Dollar Agents and the number of Million Dollar Agents through a combination of recruiting new agents, increasing the revenue opportunities generated by existing independent commission sales agents and providing its independent commission sales agents with technology-based tools they may use to grow revenue and increase efficiencies at their businesses.

Management believes future revenue growth is primarily dependent on its ability to increase both the revenue generated by Million Dollar Agents and the number of Million Dollar Agents through a combination of recruiting new agents, increasing the revenue opportunities generated by existing independent commission sales agents and providing its independent commission sales agents with digital technologies they may use to grow revenue and increase efficiencies at their businesses.

The following table shows the number of Million Dollar Agents, the average revenue generated by these agents and the percent of consolidated revenue generated by these agents during the past three fiscal years:

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The change in the number of Million Dollar Agents on a year-over-year basis may also be affected by agents that remain with the Company yet experienced lower year-over-year revenue that resulted in such agent moving below the Million Dollar Agent category.

In general, the number of agents in the million dollar category who terminate in a given year has been less than 3% of the total number of Million Dollar Agents.

Revenue from accounts formerly handled by terminated Million Dollar Agents is often retained by the Company as the customer may choose to transfer its account to an existing Landstar agent.

Historically, the Company has experienced very few terminations of its Million Dollar Agents, whether such terminations are initiated by the agent or the Company.

Annual terminations of Million Dollar Agents have typically been less than 3% of the total number of Million Dollar Agents.

In fiscal year 2020, the change in the number of Million Dollar Agents was entirely attributable to agents generating under $5 million of Landstar revenue per year, as the Company experienced no change in fiscal year 2020 compared to fiscal year 2019 in the number of independent sales agents generating $5 million or more of Landstar revenue.

During fiscal year 2020, the COVID-19

pandemic impacted the number of agents generating under $5 million of Landstar revenue both with respect to existing agents, some of whom had difficulty operating their small businesses during the pandemic due to personal issues, staffing issues and/or customer issues, and with respect to the Company’s ability to recruit new independent sales agents to the Landstar network, given the uncertain operating environment and challenges we experienced in building personal relationships with prospective agent candidates during the pandemic.

Management monitors business activity by tracking the number of loads (volume) and revenue per load by mode of transportation.

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Purchased transportation is the largest component of costs and expenses and, on a consolidated basis, increases or decreases as a percentage of consolidated revenue in proportion to changes in the percentage of consolidated revenue generated through BCO Independent Contractors and other third party capacity providers and external revenue from the insurance segment, consisting of reinsurance premiums.

Purchased transportation as a percent of revenue also increases or decreases in relation to the availability of truck brokerage capacity and with changes in the price of fuel on revenue generated by Truck Brokerage Carriers.

The Company passes 100% of fuel surcharges billed to customers for freight hauled by BCO Independent Contractors to its BCO Independent Contractors.

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Under certain contracts with independent commission sales agents, the Company retains a fixed percentage of revenue and the agent retains the amount remaining less the cost of purchased transportation (the “retention contracts”).

Gross profit margin on revenue generated by railroads, air cargo

carriers, ocean cargo carriers and Truck Brokerage Carriers, other than those under retention contracts, is variable in nature as the Company’s contracts with independent commission sales agents provide commissions to agents at a contractually agreed upon percentage of net revenue for these types of loads.

Gross profit margin on revenue generated from shipments hauled

by railroads, air cargo carriers, ocean cargo carriers and Truck Brokerage Carriers, other than those under retention contracts, is variable in nature as the Company’s contracts with independent commission sales agents provide commissions to agents at a contractually agreed upon percentage of net revenue for these types of shipments.

Approximately 50% of the Company’s consolidated revenue in fiscal year 2020 was generated under contracts that have a fixed gross profit margin while 50% was under contracts that have a variable gross profit margin.

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With respect to insurance and claims cost, potential liability associated with accidents in the trucking industry is severe and occurrences are unpredictable.

For periods prior to May 1, 2019, Landstar retains liability for commercial trucking claims up to $5,000,000 per occurrence and maintains various third party insurance arrangements for liabilities in excess of its $5,000,000 self-insured retention.

Effective May 1, 2019, the Company entered into a new three year commercial auto liability insurance arrangement for losses incurred between $5,000,000 and $10,000,000 (the “Initial Excess Policy”) with a third party insurance company.

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amounts of additional premium.

In the event paid aggregate losses under the Initial Excess Policy during any policy year (May 1 to April 30) exceed $10,000,000, the Company would retain liability of up to $10,000,000 per occurrence, inclusive of its $5,000,000 self-insured retention, for the remainder of such policy year.

Moreover, in the event paid aggregate losses under the Initial Excess Policy during the three year period ending April 30, 2022 exceed a pre-determined

threshold amount, the Company would be required to pay additional premium up to a maximum amount of $3,500,000.

As previously disclosed, BCO Independent Contractors with a subsidiary of the Company have been involved in two tragic accidents during the policy year ending April 30, 2020, the first of which occurred in the 2019 third quarter and the second of which occurred in the 2020 first quarter.

With respect to the second accident, the Company is still in the process of obtaining all the facts concerning this incident and, as such, it is too soon to estimate the Company’s ultimate financial exposure.

The Company’s pre-tax

loss exposure at the time of the second accident included its $5,000,000 self-insured retention and up to $3,500,000 in additional premium relating to aggregate losses above its self-insured retention during the policy year ending April 30, 2020.

If, as a result of these or additional accidents, aggregate losses under the Initial Excess Policy during the policy year ending April 30, 2020 exceed $10,000,000, Landstar would retain liability of up to $10,000,000 per occurrence, inclusive of its self-insured retention for commercial trucking claims during the remainder of such policy year.

The Company continues to maintain third party insurance arrangements providing excess coverage on a per occurrence basis for commercial trucking liabilities in excess of $10,000,000.

The Company also retains liability of up to $1,000,000 for each general liability claim, up to $250,000 for each workers’ compensation claim and up to $250,000 for each cargo claim.

If aggregate losses under the Initial Excess Policy exceed either the annual aggregate limit or the aggregate limit for the three year period ending April 30, 2022, and the Company did not elect to increase such aggregate limits for a pre-established

amount of additional premium, Landstar would retain liability of up to $10,000,000 per occurrence, inclusive of its $5,000,000 self-insured retention for commercial trucking claims during the remainder of the applicable policy year(s).

Moreover, as a result of the Company’s aggregate loss experience since it entered into the Initial Excess Policy, the Initial Excess Policy required the Company to pay additional premium up to a pre-established

maximum amount of $3,500,000, which was provided for in insurance and claims costs for the Company’s 2020 fiscal first quarter.

The Company also maintains third party insurance arrangements providing excess coverage for commercial trucking liabilities in excess of $10,000,000.

These third party arrangements provide coverage on a per occurrence or aggregated basis.

Due to the increasing cost of commercial auto liability claims throughout the United States in recent years, the availability of such excess coverage has significantly decreased and the pricing associated with such excess coverage, to the extent available, has significantly increased.

Effective May 1, 2020 with respect to the annual policy year ending April 30, 2021, the Company experienced an increase of approximately $14 million, or over 170%, in the premiums charged by third party insurance companies to the Company for excess coverage for commercial trucking liabilities in excess of $10,000,000.

No assurances can be given that the availability of excess coverage for commercial trucking claims will not continue to deteriorate, that the pricing associated with such excess coverage, to the extent available, will not continue to increase, nor that insurance coverage from third party insurers for excess coverage of commercial trucking claims will even be available on commercially reasonable terms at certain levels.

Further, the Company retains liability of up to $1,000,000 for each general liability claim, up to $250,000 for each workers’ compensation claim and up to $250,000 for each cargo claim.

In addition, under reinsurance arrangements by 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.

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A material increase in the frequency or severity of accidents, cargo claims or workers’ compensation claims or the material unfavorable development of existing claims could have a material adverse effect on Landstar’s cost of insurance and claims and its results of operations.

During the 2019 fiscal year, employee compensation and benefits accounted for approximately sixty-five percent of the Company’s selling, general and administrative costs.

During the 2020 fiscal year, employee compensation and benefits accounted for approximately sixty-six

percent of the Company’s selling, general and administrative costs.

Depreciation and amortization primarily relate to depreciation of trailing equipment and information technology hardware and software.

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Depreciation and amortization

Impairment of intangible and other assets

Commission program termination costs

Total costs and expenses

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Fiscal Year Ended December 26, 2020 Compared to Fiscal Year Ended December 28, 2019

Revenue for fiscal year 2020 was $4,132,981,000, an increase of $48,404,000, or 1%, compared to fiscal year 2019.

Transportation revenue increased $48,183,000, or 1%.

The increase in transportation revenue was attributable to an increased revenue per load of approximately 3%, partially offset by a decreased number of loads hauled of approximately 2% in fiscal year 2020 compared to fiscal year 2019.

Reinsurance premiums were $56,462,000 and $56,241,000 for fiscal years 2020 and 2019, respectively.

Truck transportation revenue generated by BCO Independent Contractors and Truck Brokerage Carriers (together, the “third party truck capacity providers”) for fiscal year 2020 was $3,815,781,000, representing 92% of total revenue, an increase of $50,452,000, or 1%, compared to fiscal year 2019.

Revenue per load on loads hauled by third party truck capacity providers increased approximately 3% in fiscal year 2020 compared to fiscal year 2019, while the number of loads hauled by third party truck capacity providers decreased approximately 2% in fiscal year 2020 compared to fiscal year 2019.

The increase in revenue per load on loads hauled via truck was entirely due to a comparatively tighter market for van truckload capacity during the second half of 2020.

The decrease in the number of loads hauled via truck compared to fiscal year 2019 was due to the unfavorable impact of the COVID-19

pandemic on demand for the Company’s truck transportation services at the onset of the pandemic and the relative softness in the U.S.

manufacturing sector in the 2020 period compared to the 2019 period, mostly offset by consumer driven demand for van services that began mid-summer

The increasingly tight market for van truckload capacity during the 2020 second half was attributable to strong demand for e-commerce,

foodstuffs, building products and other consumer durables.

During the 2020 fiscal year compared to the 2019 fiscal year, revenue per load on loads hauled via van equipment increased 8%, reflecting increased consumer demand, while revenue per load on loads hauled via unsided/platform equipment decreased 2%, reflecting softness in the U.S.

manufacturing sector.

Also adversely impacting revenue per load on loads hauled via unsided/platform equipment was a decrease in revenue per load on heavy specialized loadings of 10% in the 2020 fiscal year compared to the 2019 fiscal year.

Additionally, revenue per load on less-than-truckload loadings decreased 5% from fiscal year 2019 to fiscal year 2020.

During fiscal year 2020 as compared to fiscal year 2019, loads hauled via van equipment decreased 1% and loads hauled via unsided/platform equipment decreased 5%, for similar reasons as described above with respect to the overall decrease in the number of loads hauled via truck in fiscal year 2020 compared to fiscal year 2019.

Less-than-truckload volumes increased 5% in fiscal year 2020 compared to fiscal year 2019.

Fuel surcharges billed to customers on revenue generated by BCO Independent Contractors are excluded from revenue.

Fuel surcharges on Truck Brokerage Carrier revenue identified separately in billings to customers and included as a component of Truck Brokerage Carrier revenue were $60,118,000 and $79,486,000 in fiscal years 2020 and 2019, respectively.

It should be noted that billings to many customers of the Company’s truck brokerage services include a single all-in

rate that does not separately identify fuel surcharges on loads hauled via Truck Brokerage Carriers.

Accordingly, the overall impact of changes in fuel prices on revenue and revenue per load on loads hauled via truck is likely to be greater than that indicated.

Transportation revenue generated by rail intermodal, air cargo and ocean cargo carriers (collectively, the “multimode capacity providers”) for fiscal year 2020 was $246,493,000, or 6% of total revenue, an increase of $6,703,000, or 3%, compared to fiscal year 2019.

Revenue per load on revenue generated by multimode capacity providers increased approximately 2% in the 2020 fiscal year compared to the 2019 fiscal year, and the number of loads hauled by multimode capacity providers increased approximately 1% over the same period.

The increase in revenue per load of 2% on loads hauled by multimode capacity providers was primarily attributable to increased revenue per load on ocean shipments.

Revenue per load on revenue generated by multimode capacity providers is influenced by many factors, including revenue mix among the various modes of transportation used, length of haul, complexity of freight, density of freight lanes, fuel costs and availability of capacity.

The increase in the number of loads hauled by multimode capacity providers was primarily due to a 14% increase in air loadings, primarily attributable to increased loadings at two specific agencies.

Purchased transportation was 77.3% and 76.6% of revenue in fiscal years 2020 and 2019, respectively.

The increase in purchased transportation as a percentage of revenue was primarily due to an increased rate of purchased transportation paid on Truck Brokerage Carrier revenue and COVID-19

pandemic relief incentive payments made to BCO Independent Contractors.

Under the pandemic relief program, for each load delivered by a BCO Independent Contractor with a confirmed delivery date from April 1, 2020 through May 30, 2020, the Company paid each of the BCO Independent Contractor who hauled the load and the independent commission sales agent who dispatched the load an extra $50.

Commissions to agents were 8.2% and 8.4% of revenue in fiscal years 2020 and 2019, respectively.

Commissions to agents on Truck Brokerage Carrier revenue were lower as compared to the 2019 fiscal year due to the impact of a decreased net revenue margin on revenue generated by Truck Brokerage Carriers, whereas commissions to agents on BCO Independent Contractor revenue were higher during the 2020 fiscal year due to the impact of COVID-19

pandemic relief incentive payments.

The Company paid a total of $12,593,000 in COVID-19

pandemic relief incentive payments to BCO Independent Contractors and independent commission sales agents in April and May 2020.

Investment income was $3,399,000 and $5,041,000 in fiscal years 2020 and 2019, respectively.

The decrease in investment income was primarily attributable to lower average rates of return on investments during fiscal year 2020, partially offset by a slightly higher average investment balance held by the insurance segment during fiscal year 2020.

Other operating costs decreased $6,811,000 in fiscal year 2020 compared to fiscal year 2019 and represented 5.1% of gross profit in fiscal year 2020 compared to 6.1% in fiscal year 2019.

The decrease in other operating costs compared to the prior year was primarily due to a decreased provision for contractor bad debt, the impact of the cancellation of an event for the Company’s BCO Independent Contractors due to the COVID-19

pandemic, increased gains on the sales of used trailing equipment, decreased trailer rental costs and decreased BCO recruiting and on-boarding

costs due to the impact of the COVID-19

The decrease in other operating costs as a percentage of gross profit was caused by the decrease in other operating costs, partially offset by the effect of decreased gross profit.

Insurance and claims increased $7,454,000 in fiscal year 2020 compared to fiscal year 2019 and represented 14.6% of gross profit in fiscal year 2020 compared to 13.1% in fiscal year 2019.

The increase in insurance and claims expense compared to the prior year was primarily due to a $5,000,000 charge for the Company’s self-insured retention with respect to a tragic vehicular accident involving a fatality, a $3,500,000 charge relating to additional premium the Company paid under the Initial Excess Policy in connection with certain aggregated losses, increased insurance premiums incurred for commercial trucking liability coverage following the Company’s May 1, 2020 insurance renewal and increased severity of current year claims, partially offset by decreased net unfavorable development of prior years’ claims in the 2020 period.

During fiscal years 2020 and 2019, insurance and claims costs included $9,196,000 and $16,679,000 of net unfavorable adjustments to prior years’ claims estimates, respectively.

The increase in insurance and claims as a percentage of gross profit was caused by the increase in insurance and claims costs and the effect of decreased gross profit.

Selling, general and administrative costs increased $8,680,000 in fiscal year 2020 compared to fiscal year 2019 and represented 28.0% of gross profit in fiscal year 2020 compared to 25.9% of gross profit in fiscal year 2019.

The increase in selling, general and administrative costs compared to prior year was attributable to an increased provision for incentive compensation, increased information technology costs and an increased provision for customer bad debt, partially offset by decreased travel and entertainment costs related to the impact of the COVID-19

pandemic and decreased agent convention costs.

Included in selling, general and administrative costs was incentive compensation expense of $7,841,000 and $1,517,000 for the 2020 and 2019 fiscal years, respectively.

The increase in selling, general and administrative costs as a percentage of gross profit was due to the increase in selling, general and administrative costs and the effect of decreased gross profit.

Depreciation and amortization increased $1,387,000 in fiscal year 2020 compared to fiscal year 2019 and represented 7.7% of gross profit in fiscal year 2020 compared to 7.2% of gross profit in fiscal year 2019.

The increase in depreciation and amortization expenses was primarily due to increased depreciation on information technology assets, partially offset by a decrease in trailing equipment depreciation.

The increase in depreciation and amortization as a percentage of gross profit was due to increased depreciation and the effect of decreased gross profit.

During the 2020 second fiscal quarter, the Company recorded a non-cash

impairment charge of $2,582,000, representing 0.4% of gross profit, in respect of certain assets, primarily customer contract and related customer relationship intangible assets, acquired on September 20, 2017, along with substantially all of the other assets of the asset-light transportation logistics business of Fletes Avella, S.A.

(“Fletes Avella”).

As previously disclosed in Item 1A.

Risk Factors in the Company’s Quarterly Report on Form 10-Q

for the 2020 first quarter, negative macroeconomic trends in Mexico caused significant disruptions in the Mexican economy.

Accordingly, management performed impairment tests of the carrying values of certain assets that primarily relate to intra-Mexico business acquired as a part of the Fletes Avella acquisition.

The impairment tests resulted in an impairment charge of $2,582,000, as the negative macroeconomic trends in Mexico resulted in updated financial projections relating to these intangible assets to be substantially below those originally anticipated at the acquisition date.

There was no corresponding goodwill impairment charge recorded as the fair value of the Company’s Mexico and cross-border reporting unit continues to significantly exceed its carrying value as of December 26, 2020.

During the 2020 fourth fiscal quarter, the Company recorded commission program termination costs of $15,494,000, representing 2.6% of gross profit, related to buyouts of certain incentive commission arrangements with several of its independent sales agents due to the Company’s discontinuation of a truck owner-operator recruitment and retention program formerly involving those agents.

Interest and debt expense in fiscal year 2020 increased $812,000 compared to fiscal year 2019.

The increase in interest and debt expense was primarily attributable to decreased interest income earned on cash balances held by the transportation logistics segment.

The provisions for income taxes for both the 2020 and 2019 fiscal years were based on estimated annual effective income tax rates of 24.2%, adjusted for discrete events, such as benefits resulting from stock-based awards.

The actual effective income tax rate for fiscal year 2020 was 22.8%, which was higher than the statutory federal income tax rate of 21%, primarily attributable to state taxes

and the meals and entertainment exclusion, partially offset by excess tax benefits realized on stock-based awards, the favorable resolution of certain tax matters during the 2020 fiscal year and state tax refunds.

The actual effective income tax rate for fiscal year 2019 was 23.0%, which was higher than the statutory federal income tax rate of 21% primarily attributable to state taxes and the meals and entertainment exclusion, partially offset by excess tax benefits realized on stock-based awards.

The effective income tax rate in the 2020 fiscal year of 22.8% was lower than the 24.2% estimated annual effective income tax rate primarily due to excess tax benefits recognized on stock-based compensation arrangements, the favorable resolution of certain tax matters during the 2020 fiscal year and state tax refunds in the 2020 fiscal year.

The effective income tax rate in the 2019 fiscal year of 23.0% was lower than the 24.2% estimated effective income tax rate primarily due to excess tax benefits recognized on stock-based compensation arrangements in the 2019 fiscal year.

Net income was $192,106,000, or $4.98 per common share ($4.98 per diluted share), in fiscal year 2020.

Net income attributable to the Company was $227,720,000, or $5.72 per common share ($5.72 per diluted share), in fiscal year 2019.

Net income during fiscal year 2020 was unfavorably impacted by $15,494,000, or $0.31 per common share ($0.31 per diluted share) related to a one-time

cost to buyout certain incentive commission arrangements with several agents, $12,593,000, or $0.25 per common share ($0.25 per diluted share) related to the impact of the COVID-19

pandemic relief incentive payments and $2,582,000, or $0.05 per common share ($0.05 per diluted share) of non-cash

impairment charges related to certain assets, primarily customer contract and related customer relationship intangible assets of the Company’s Mexico subsidiaries.

Fiscal Year Ended December 28, 2019 Compared to Fiscal Year Ended December 29, 2018

Revenue for fiscal year 2019 was $4,084,577,000, a decrease of $530,567,000, or 11%, compared to fiscal year 2018.

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The increase in revenue from reinsurance premiums was primarily attributable to the increase in the average number of trucks provided by BCO Independent Contractors and an increase in the aggregate value of equipment insured by BCO Independent Contractors under a physical damage program reinsured by Signature in the 2019 fiscal year compared to the 2018 fiscal year.

Truck transportation revenue generated by BCO Independent Contractors and Truck Brokerage Carriers (together, the “third party truck capacity providers”) for fiscal year 2019 was $3,765,329,000, representing 92% of total revenue, a decrease of $515,083,000, or 12%, compared to fiscal year 2018.

Truck transportation revenue generated by third party truck capacity providers for fiscal year 2019 was $3,765,329,000, representing 92% of total revenue, a decrease of $515,083,000, or 12%, compared to fiscal year 2018.

Revenue per load on loads hauled by third party truck capacity providers decreased approximately 10% in fiscal year 2019 compared to fiscal year 2018, and the number of loads hauled by third party truck capacity providers decreased approximately 3% in fiscal year 2019 compared to fiscal year 2018.

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Accordingly, the overall impact of changes in fuel prices on revenue and revenue per load on loads hauled via truck is likely to be greater than that indicated.

Transportation revenue generated by rail intermodal, air cargo and ocean cargo carriers (collectively, the “multimode capacity providers”) for fiscal year 2019 was $239,790,000, or 6% of total revenue, a decrease of $23,763,000, or 9%, compared to fiscal year 2018.

Transportation revenue generated by multimode capacity providers for fiscal year 2019 was $239,790,000, or 6% of total revenue, a decrease of $23,763,000, or 9%, compared to fiscal year 2018.

The number of loads hauled by multimode capacity providers decreased approximately 5% in the 2019 fiscal year compared to the 2018 fiscal year, and revenue per load on revenue generated by multimode capacity providers decreased approximately 4% over the same period.

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Purchased transportation was 76.6% and 77.4% of revenue in fiscal years 2019 and 2018, respectively.

The decrease in purchased transportation as a percentage of revenue was primarily due to a decreased rate of purchased transportation paid on Truck Brokerage Carrier revenue and an increased percentage of revenue contributed by BCO Independent Contractors, which typically has a lower rate of purchased transportation than revenue generated by Truck Brokerage Carriers.

Commissions to agents were 8.4% and 8.2% of revenue in fiscal years 2019 and 2018, respectively.

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The decrease in selling, general and administrative costs compared to prior fiscal year was attributable to a decreased provision for incentive compensation and decreased stock-based compensation expense, partially offset by increased wages.

Included in selling, general and administrative costs was

incentive compensation expense of $1,517,000 and $19,210,000 for the 2019 and 2018 fiscal years, respectively, and stock-based compensation expense of $4,236,000 and $18,256,000 for the 2019 and 2018 fiscal years, respectively.

Included in selling, general and administrative costs was incentive compensation expense of $1,517,000 and $19,210,000 for the 2019 and 2018 fiscal years, respectively, and stock-based compensation expense of $4,236,000 and $18,256,000 for the 2019 and 2018 fiscal years, respectively.

The decrease in selling, general and administrative costs as a percentage of gross profit was due to the decrease in selling, general and administrative costs, partially offset by the effect of decreased gross profit.

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Net income attributable to the Company was $255,281,000, or $6.19 per common share ($6.18 per diluted share), in fiscal year 2018.

Fiscal Year Ended December 29, 2018 Compared to Fiscal Year Ended December 30, 2017

Revenue for fiscal year 2018 was $4,615,144,000, an increase of $968,780,000, or 27%, compared to fiscal year 2017.

Transportation revenue increased $963,414,000, or 27%.

The increase in transportation revenue was attributable to an increased number of loads hauled of approximately 9% and increased revenue per load of approximately 16% in fiscal year 2018 compared to fiscal year 2017.

Reinsurance premiums were $52,348,000 and $46,982,000 for fiscal years 2018 and 2017, respectively.

The increase in revenue from reinsurance premiums was primarily attributable to the increase in the average number of trucks provided by BCO Independent Contractors in the 2018 fiscal year compared to the 2017 fiscal year.

Truck transportation revenue generated by third party truck capacity providers for fiscal year 2018 was $4,280,412,000, representing 93% of total revenue, an increase of $892,879,000, or 26%, compared to fiscal year 2017.

The number of loads hauled by third party truck capacity providers increased approximately 8% in fiscal year 2018 compared to fiscal year 2017, and revenue per load on loads hauled by third party truck capacity providers increased approximately 17% in fiscal year 2018 compared to fiscal year 2017.

The increase in the number of loads hauled via truck compared to fiscal year 2017 was due to a broad-based increase in demand across many customers and industries for Landstar’s various truck service offerings.

The increase in revenue per load on loads hauled via truck was due to a tighter freight environment experienced during the 2018 fiscal year, which resulted in less readily available truck capacity as compared to the 2017 fiscal year, and the impact of higher diesel fuel costs on loads hauled via Truck Brokerage Carriers.

Revenue per load on loads hauled via van equipment increased 18%, revenue per load on loads hauled via unsided/platform equipment increased 15% and revenue per load on less-than-truckload loadings increased 5% as compared to the 2017 fiscal year.

Fuel surcharges billed to customers on revenue generated by BCO Independent Contractors are excluded from revenue.

Fuel surcharges on Truck Brokerage Carrier revenue identified separately in billings to customers and included as a component of Truck Brokerage Carrier revenue were $101,346,000 and $70,304,000 in fiscal years 2018 and 2017, respectively.

It should be noted that

billings to many customers of the Company’s truck brokerage services include a single all-in

rate that does not separately identify fuel surcharges on loads hauled via Truck Brokerage Carriers.

Accordingly, the overall impact of changes in fuel prices on revenue and revenue per load on loads hauled via truck is likely to be greater than that indicated.

Transportation revenue generated by multimode capacity providers for fiscal year 2018 was $263,553,000, or 6% of total revenue, an increase of $56,239,000, or 27%, compared to fiscal year 2017.

The number of loads hauled by multimode capacity providers increased approximately 16% in the 2018 fiscal year compared to the 2017 fiscal year, and revenue per load on revenue generated by multimode capacity providers increased approximately 9% over the same period.

The increase in the number of loads hauled by multimode capacity providers was primarily due to an 18% increase in rail intermodal loads and a 23% increase in ocean loads.

The increase in both rail intermodal and ocean loads was broad-based across many customers.

The increase in revenue per load of 9% on loads hauled by multimode capacity providers was primarily attributable to increased revenue per load on rail intermodal loads;

however, revenue per load on loads hauled by multimode capacity providers increased for all modes.

Also, revenue per load on revenue generated by multimode capacity providers is influenced by many factors, including revenue mix among the various modes of transportation used, length of haul, complexity of freight, density of freight lanes, fuel costs and availability of capacity.

Purchased transportation was 77.4% and 76.9% of revenue in fiscal years 2018 and 2017, respectively.

The increase in purchased transportation as a percentage of revenue was primarily due to a decrease in the percentage of revenue contributed by BCO Independent Contractors, which typically has a lower rate of purchased transportation than revenue generated by Truck Brokerage Carriers.

Commissions to agents were 8.2% of revenue in both fiscal years 2018 and 2017.

Investment income was $3,816,000 and $2,498,000 in fiscal years 2018 and 2017, respectively.

The increase in investment income was primarily due to higher average rates of return on investments during fiscal year 2018.

Other operating costs increased $3,116,000 in fiscal year 2018 compared to fiscal year 2017 and represented 4.8% of gross profit in fiscal year 2018 compared to 5.3% in fiscal year 2017.

The increase in other operating costs compared to the prior fiscal year was primarily due to increased trailing equipment maintenance costs due to an increased number of Company-owned trailers in response to increased customer demand for the Company’s drop and hook services.

The decrease in other operating costs as a percentage of gross profit was caused by the effect of increased gross profit, partially offset by the increase in other operating costs.

Insurance and claims increased $13,132,000 in fiscal year 2018 compared to fiscal year 2017 and represented 11.3% of gross profit in fiscal year 2018 compared to 11.5% in fiscal year 2017.

The increase in insurance and claims expense compared to prior fiscal year was primarily due to increased net unfavorable development of prior years’ claims and increased severity of current year claims in fiscal year 2018.

Net unfavorable development of prior years’ claims was $13,960,000 and $4,144,000 in fiscal years 2018 and 2017, respectively.

The decrease in insurance and claims as a percentage of gross profit was caused by the effect of increased gross profit, partially offset by the increase in insurance and claims costs.

Selling, general and administrative costs increased $17,629,000 in fiscal year 2018 compared to fiscal year 2017 and represented 28.2% of gross profit in fiscal year 2018 compared to 31.4% of gross profit in fiscal year 2017.

The increase in selling, general and administrative costs compared to prior fiscal year was attributable to increased stock-based compensation expense and increased wages and employee benefits.

Included in selling, general and administrative costs is stock-based compensation expense of $18,256,000 and $7,721,000 for the 2018 and 2017 fiscal years, respectively, and incentive compensation expense of $19,210,000 and $20,538,000 for the 2018 and 2017 fiscal years, respectively.

The decrease in selling, general and administrative costs as a percentage of gross profit was due primarily to the effect of increased gross profit, partially offset by the increase in selling, general and administrative costs.

Depreciation and amortization increased $3,010,000 in fiscal year 2018 compared to fiscal year 2017 and represented 6.5% of gross profit in fiscal year 2018 compared to 7.5% of gross profit in fiscal year 2017.

The increase in depreciation and amortization expenses was due to an increased number of Company-owned trailers in response to increased customer demand for the Company’s drop and hook services and increased depreciation on information technology assets placed in service during the second half of fiscal year 2017.

The decrease in depreciation and amortization as a percentage of gross profit was primarily due to the effect of increased gross profit, partially offset by the increased depreciation costs.

Interest and debt expense in fiscal year 2018 increased $188,000 compared to fiscal year 2017.

The increase in interest and debt expense was entirely attributable to decreased interest income earned on cash balances held by the transportation logistics segment.

The Tax Reform Act permanently reduced the U.S.

corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018.

The Company’s estimated annual effective income tax rate reflects a provision for both federal income taxes and state and local income taxes.

The provisions for income taxes for the 2018 and 2017 fiscal years were based on estimated annual effective income tax rates of 24.5% and 37.8%, respectively, adjusted for discrete events, such as benefits resulting from stock-based awards.

The actual effective income tax rate for fiscal year 2018 was 22.3%, which was higher than the statutory federal income tax rate of 21% primarily attributable to state taxes, the Tax Reform Act’s elimination of the performance-based compensation exception under Section 162(m) and the meals and entertainment exclusion.

The effective income tax rate in the 2018 fiscal year of 22.3% was lower than the 24.5% estimated annual effective income tax rate primarily due to excess tax benefits recognized on stock-based compensation arrangements in the 2018 fiscal year, favorable adjustments recognized during the 2018 fiscal year relating to federal domestic production activities deductions and research and development credits and the favorable resolution of certain tax matters during the 2018 fiscal year.

The actual effective income tax rate for fiscal year 2017 was 26.5%, which was lower than the statutory federal income tax rate of 35% and the estimated annual effective income tax rate of 37.8% primarily as a result of (i) the enactment of the Tax Reform Act during fiscal year 2017, which resulted in one-time

tax benefits of approximately $19,500,000 related to the Company’s reasonable estimate of the change in future tax rates on net deferred tax liabilities, (ii) federal domestic production activities deductions and research and development credits, (iii) excess tax benefits recognized on stock-based compensation arrangements resulting from the Company’s adoption of Accounting Standards Update 2016-09

(“ASU 2016-09”)

during fiscal year 2017 and (iv) disqualifying dispositions of the Company’s common stock by employees who obtained the stock through exercises of incentive stock options in the 2017 period, partially offset by (v) the effect of state taxes and (vi) the meals and entertainment exclusion.

The net loss attributable to noncontrolling interest of $68,000 and $92,000 in the 2018 and 2017 fiscal years, respectively, represents the former noncontrolling investors’ share of the net loss incurred by Landstar Metro and Landstar Servicios.

Net income attributable to the Company was $255,281,000, or $6.19 per common share ($6.18 per diluted share), in fiscal year 2018.

Net income attributable to the Company was $177,088,000, or $4.22 per common share ($4.21 per diluted share), in fiscal year 2017.

Net income attributable to the Company was favorably impacted by the enactment of the Tax Reform Act by approximately $43,675,000, or $1.06 per common share ($1.06 per diluted share), in fiscal year 2018, as a result of the permanent reduction of the U.S.

corporate income tax rate from a maximum of 35% to a flat 21%.

Net income attributable to the Company was favorably impacted by approximately $19,500,000, or $0.46 per common share ($0.46 per diluted share), in fiscal year 2017, related to the Company’s reasonable estimate of the change in future tax rates on net deferred tax liabilities.

Capital Resources and Liquidity

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Cash provided by operating activities was $210,717,000, $307,840,000, and $297,901,000 in fiscal years 2020, 2019 and 2018, respectively.

The decrease in cash flow provided by operating activities for fiscal year 2020 was primarily attributable to the increase in trade and other accounts receivable as of the end of the 2020 fiscal year as compared to as of the end of the 2019 fiscal year driven by the significant growth in revenue during the fourth fiscal quarter of 2020.

The increase in cash flow provided by operating activities for fiscal year 2019 was primarily attributable to the timing of collections of trade receivables.

The increase in cash flow provided by operating activities for fiscal year 2018 compared to fiscal year 2017 was primarily attributable to increased net income and the timing of collections of trade receivables.

The Company declared and paid $0.70 per share, or $27,891,000 in the aggregate, in cash dividends during fiscal year 2019.

The Company declared and paid $0.79 per share, or $30,557,000 in the aggregate, in cash dividends during fiscal year 2020 and, during such period, also paid $78,947,000 of dividends payable which were declared during fiscal year 2019 and included in current liabilities in the consolidated balance sheet at December 28, 2019.

In addition, on December 8, 2020, the Company announced that its Board of Directors declared a special cash dividend of $2.00 per share, or $76,770,000 in the aggregate, payable on January 22, 2021 to stockholders of record of its Common Stock as of January 8, 2021.

Dividends payable of $76,770,000 related to this special dividend were included in current liabilities in the consolidated balance sheet at December 26, 2020.

The Company declared and paid $0.63 per share, or $25,933,000 in the aggregate, in cash dividends during fiscal year 2018 and, during such period, also paid $62,985,000 of dividends payable which were declared during fiscal year 2017 and included in current liabilities in the consolidated balance sheet at December 30, 2017.

The Company declared and paid $0.70 per share, or $27,891,000 in the aggregate, in cash dividends during fiscal year 2019.

Since paying its first cash dividend in August 2005, the Company has paid approximately $319,000,000 in cash dividends in the aggregate to its stockholders.

Since paying its first cash dividend in August 2005, the Company has paid approximately $506,000,000 in cash dividends in the aggregate to its stockholders, inclusive of the $2.00 per share special dividend paid on January 22, 2021.

During fiscal year 2020, the Company purchased 1,178,970 shares of its Common Stock at a total cost of $115,962,000.

During fiscal year 2019, the Company purchased 849,068 shares of its Common Stock at a total cost of $88,578,000.

During fiscal year 2017, the Company did not purchase any shares of its Common Stock.

During fiscal year 2018, the Company purchased 2,000,000 shares of its Common Stock at a total cost of $208,087,000.

The Company has used cash provided by operating activities to fund the purchases.

Since January 1997, the Company has purchased approximately $1,791,000,000 of its Common Stock under programs authorized by the Board of Directors of the Company in open market and private block transactions.

As of December 28, 2019, the

Company may purchase in the aggregate up to 3,000,000 shares of its Common Stock under its authorized stock purchase programs.

As of December 26, 2020, the Company may purchase in the aggregate up to 1,821,030 shares of its Common Stock under its authorized stock purchase programs.

Long-term debt, including current maturities, was $100,774,000 at December 26, 2020, compared to $112,844,000 at December 28, 2019 and $128,425,000 at December 29, 2018.

Equity was $691,835,000, or 87% of total capitalization (defined as long-term debt including current maturities plus equity), at December 26, 2020, compared to $721,469,000, or 86% of total capitalization, at December 28, 2019 and $689,133,000, or 84% of total capitalization, at December 29, 2018.

The increase in equity in fiscal year 2019 was primarily the result of net income, partially offset by purchases of shares of the Company’s Common Stock and dividends declared by the Company in fiscal year 2019.

The decrease in equity in fiscal year 2020 was primarily the result of purchases of shares of the Company’s Common Stock and dividends declared by the Company in fiscal year 2020, partially offset by net income.

On June 2, 2016, Landstar entered into a credit agreement with a syndicate of banks and JPMorgan Chase Bank, N.A., as administrative agent (the “Credit Agreement”).

The Credit Agreement, which matures on June 2, 2021, provides $250,000,000 of borrowing capacity in the form of a revolving credit facility, $50,000,000 of which may be utilized in the form of letter of credit guarantees.

The Credit Agreement includes an “accordion” feature providing for a possible increase up to an aggregate borrowing amount of $400,000,000.

The Company’s prior credit agreement was terminated on June 2, 2016.

On August 18, 2020, Landstar entered into an amended and restated credit agreement with a syndicate of banks and JPMorgan Chase Bank, N.A., as administrative agent (the “Credit Agreement”).

The Credit Agreement, which matures on August 18, 2023, provides $250,000,000 of borrowing capacity in the form of a revolving credit facility, $35,000,000 of which may be utilized in the form of letters of credit.

The Credit Agreement includes an “accordion” feature providing for a possible increase up to an aggregate borrowing capacity of $400,000,000.

The Credit Agreement contains a number of covenants that limit, among other things, the incurrence of additional indebtedness.

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The Credit Agreement provides for a restriction on cash dividends and other distributions to stockholders on the Company’s capital stock to the extent there is a default under the Credit Agreement.

In addition, the Credit Agreement under certain circumstances limits the amount of such cash dividends and other distributions to stockholders to the extent that, after giving effect to any payment made to effect such cash dividend or other distribution, the Leverage Ratio would exceed 2.5 to 1 on a pro forma basis as of the end of the Company’s most recently completed fiscal quarter.

The Credit Agreement provides for an event of default in the event that, among other things, a person or group acquires 35% or more of the outstanding capital stock of the Company or obtains power to elect a majority of the Company’s directors or directors cease to consist of a majority of Continuing Directors, as defined in the Credit Agreement.

dividend or other distribution, the Leverage Ratio would exceed 2.5 to 1 on a pro forma basis as of the end of the Company’s most recently completed fiscal quarter.

The Credit Agreement provides for an event of default in the event that, among other things, a person or group acquires 35% or more of the outstanding capital stock of the Company or obtains power to elect a majority of the Company’s directors or the directors cease to consist of a majority of Continuing Directors, as defined in the Credit Agreement.

None of these covenants are presently considered by management to be materially restrictive to the Company’s operations, capital resources or liquidity.

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At December 26, 2020, there was $216,382,000 available for future borrowings under the Credit Agreement.

In addition, the Company has $61,503,000 in letters of credit outstanding as collateral for insurance claims that are secured by investments and cash equivalents totaling $68,322,000 at December 28, 2019.

In addition, the Company has $64,934,000 in letters of credit outstanding as collateral for insurance claims that are secured by investments totaling $72,149,000 at December 26, 2020.

Investments, all of which are carried at fair value, include primarily investment-grade bonds and U.S.

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During fiscal years 2020, 2019 and 2018, the Company also purchased $30,626,000, $19,416,000 and $9,747,000, respectively, of operating property.

Landstar anticipates acquiring either by purchase or lease financing approximately $54,000,000 in operating property in fiscal year 2020, consisting primarily of new trailing equipment to replace older trailing equipment and information technology equipment.

Included in the $9,747,000 of purchases of operating property during the 2018 fiscal year was $2,162,000 related to the completion of its Laredo, Texas facility for which the Company accrued a corresponding liability in accounts payable as of December 30, 2017.

Included in the $15,586,000 of purchases of operating property during fiscal year 2017 was $4,255,000 related to the Laredo facility for which the Company accrued a corresponding liability in accounts payable as of December 31, 2016.

Landstar also acquired an additional $1,119,000 of operating property in fiscal year 2017 relating to the completion of the Laredo facility for which the Company accrued a corresponding liability in accounts payable as of December 30, 2017.

On September 20, 2017, the Company completed the Mexican Asset Acquisition, as described in “Notes to Consolidated Financial Statements.” Cash consideration paid in fiscal year 2017 for the acquisition was approximately $8,460,000.

In connection with the Mexican Asset Acquisition, the Company assumed approximately $2,200,000 in liabilities consisting of additional contingent purchase price and associated indirect taxes, none of which remained outstanding at December 29, 2018.

As it relates to the non-controlling

interests of Landstar Metro and Landstar Servicios, on August 10, 2018, Landstar acquired approximately 9% of each of Landstar Metro and Landstar Servicios from the minority equityholders in connection with the settlement of certain penalties relating to post-closing operating commitments of Fletes Avella to Landstar Metro.

In connection with the settlement of several matters relating to the wind-down of the commercial relationship between Fletes Avella, its owners and Landstar Metro, on January 29, 2019, Landstar acquired all of the remaining equity interests in Landstar Metro and Landstar Servicios held by their former minority equityholders.

Accordingly, as of such date, Landstar Metro and Landstar Servicios each became wholly owned subsidiaries of the Company.

During fiscal year 2020, Landstar acquired $500,000 of operating property for which the Company accrued a corresponding liability in accounts payable as of December 26, 2020.

Landstar anticipates acquiring either by purchase or lease financing approximately $77,000,000 in new trailing equipment primarily to replace older trailing equipment in fiscal 2021.

Landstar anticipates spending approximately $23,000,000 on information technology hardware and software in fiscal 2021, $16,000,000 of which relates to either building or buying software applications that enhance or add to the Company’s technology ecosystem.

As previously disclosed in the Company’s 2019 Annual Report on Form 10-K,

on January 29, 2019, Landstar acquired all of the remaining equity interests in Landstar Metro and Landstar Servicios held by their former minority equityholders.

As of such date, Landstar Metro and Landstar Servicios each became wholly owned subsidiaries of the Company.

Cash consideration paid in the 2019 fiscal year to purchase these remaining equity interests was $600,000.

Further, on June 15, 2020, Landstar Blue completed the acquisition of an independent agent of the Company.

Cash consideration paid for the acquisition was approximately $2,766,000.

Management believes that cash flow from operations combined with the Company’s borrowing capacity under the Credit Agreement will be adequate to meet Landstar’s debt service requirements, fund continued growth, both internal and through acquisitions, pay dividends, complete the authorized share purchase programs and meet working capital needs.

Contractual Obligations and Commitments

At December 28, 2019, the Company’s material obligations and commitments to make future payments under contracts, such as debt and lease agreements, were as follows (in thousands):

Contractual Obligation

Finance lease obligations

Operating lease obligations

Purchase obligations

Finance lease obligations above include $6,483,000 of imputed interest.

Purchase obligations at December 28, 2019 are primarily commitments for information technology hardware and software.

At December 28, 2019, the Company has gross unrecognized tax benefits of $3,014,000.

This amount is excluded from the table above as the Company cannot reasonably estimate the period of cash settlement with the respective taxing authorities.

At December 28, 2019, the Company has insurance claims liabilities of $78,107,000.

This amount is excluded from the table above as the Company cannot reasonably estimate the period of cash settlement on these liabilities.

The short-term portion of the insurance claims liability is reported on the consolidated balance sheets primarily on an actuarially determined basis.

Sheet Arrangements

As of December 28, 2019, the Company had no off-balance

sheet arrangements that have or are reasonably likely to have a current or future material effect on the Company’s financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.

Legal Matters

On January 25, 2019, a purported class action was filed in the Superior Court of the State of California for the County of San Bernardino against Landstar System, Inc.

and Landstar Ranger, Inc.

(together, the “Defendants”).

The complaint purports to bring this action on behalf of Hany Tanious, as an individual, and “all owner operators who performed work for the Defendants, and who were classified as independent contractors, during the four years preceding the filing of this action through the present.” The complaint asserts claims based on the alleged misclassification of Mr.

Tanious as an independent contractor and alleges violations under California law relating to overtime, minimum wage, meal and rest breaks, failure to reimburse certain expenses, wage statements, waiting time and unfair competition.

Tanious was a truck owner-operator and formerly an independent contractor who was a party to an independent contractor operating agreement with Landstar Ranger, Inc.

On June 11, 2019, the Defendants filed a Notice of Removal that resulted in the removal of the case from state court to federal court, where it was assigned to Judge Dale S.

Fischer of the United State District Court for the Central District of California.

On August 22, 2019, the Court issued an order, among other things, striking all class allegations from the complaint and stating that this matter would proceed as an individual action.

Due to a number of factors including the preliminary status of this matter, the Company does not believe it is in a position to conclude whether or not there is a reasonable possibility of an adverse outcome in this case or what damages, if any, the plaintiff would be awarded should he prevail on all or any part of his claims.

However, the Company believes it has meritorious defenses and it intends to assert these defenses vigorously.

Legal Proceedings

The Company is involved in certain claims and pending litigation arising from the normal conduct of business.

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Historically, the Company has experienced both favorable and unfavorable development of prior years’ claims estimates.

During fiscal years 2019, 2018 and 2017, insurance and claims costs included $16,679,000, $13,960,000 and $4,144,000 of net unfavorable adjustments to prior years’ claims estimates, respectively.

The unfavorable development of prior years’ claims in the 2019 fiscal year related to a number of specific claims and actuarially determined adjustments to prior year commercial trucking loss estimates.

The unfavorable development of prior years’ claims in the 2018 fiscal year primarily related to five claims.

The unfavorable development of prior years’ claims in the 2017 fiscal year primarily related to five other claims.

During fiscal

years 2020, 2019 and 2018, insurance and claims costs included $9,196,000, $16,679,000 and $13,960,000 of net unfavorable adjustments to prior years’ claims estimates, respectively.

The unfavorable development of prior years’ claims in the 2020 and 2019 fiscal years was attributable in each year to several specific claims as well as to actuarially determined adjustments to prior year commercial trucking loss estimates.

It is reasonably likely that the ultimate outcome of settling all outstanding claims will be more or less than the estimated claims liability at December 26, 2020.

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However, management believes that the ultimate resolution of these items, given a range of reasonably likely outcomes, will not significantly affect the long-term financial condition of Landstar or its ability to fund its continuing operations.

Effects of Inflation

Management does not believe inflation has had a material impact on the results of operations or financial condition of Landstar in the past five years.

However, inflation in excess of historical trends might have an adverse effect on the Company’s results of operations in the future.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis