What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2022-02-18 compared with 2021-02-23 · 66 added, 67 removed, 172 unchanged (44% of the section changed)

2 unchanged sentences

As noted above in Item 1, “Business — Factors Significant to the Company’s Operations — Self-Insured Claims,” 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.

For commercial trucking claims incurred on or after May 1, 2019 through April 30, 2022, the Initial Excess Policy provides for a limit for a single loss of $5,000,000, with an aggregate limit of $15,000,000 for each policy year, an aggregate limit of $20,000,000 for the thirty-six

For periods prior to May 1, 2019, Landstar retains liability for commercial trucking claims up to $5 million per occurrence and maintains various third party insurance arrangements for liabilities in excess of its $5 million 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 million and $10 million (the “Initial Excess Policy”) with a third party insurance company.

For commercial trucking claims incurred on or after May 1, 2019 through April 30, 2022, the Initial Excess Policy provides for a limit for a single loss of $5 million, with an aggregate limit of $15 million for each policy year, an aggregate limit of $20 million for the thirty-six

month term ended April 30, 2022, and options to increase such aggregate limits for pre-established

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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).

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

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

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.

Landstar retains liability for commercial trucking claims in excess of our coverage limits under these third party insurance arrangements.

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.

In recent years, there has been a significant increase in the occurrence of trials in courts throughout the United States involving catastrophic injury and fatality claims against commercial motor carriers that have resulted in verdicts in excess of $10 million.

Within the transportation logistics industry, these verdicts are often referred to as “Nuclear Verdicts.” The increase in Nuclear Verdicts has had a significant impact on the cost of commercial auto liability claims throughout the United States.

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

With respect to the annual policy year ending April 30, 2021, as compared to the annual policy year ended April 30, 2020, 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 million.

Effective May 1, 2021, with respect to the annual policy year ending

April 30, 2022, as compared to the annual policy year ended April 30, 2021, the Company experienced an increase of approximately $3 million, or 19%, in the premiums charged by third party insurance companies to the Company for excess coverage for commercial trucking liabilities in excess of $10 million.

Moreover, the Company increased 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.

For example, with respect to a hypothetical claim in the amount of $100 million incurred during the annual policy year ending April 30, 2022, the Company would have an aggregate financial exposure of approximately $18 million.

Furthermore, the Company’s third party insurance arrangements provide excess coverage up to an uppermost coverage layer, in excess of which the Company retains additional financial exposure.

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.

If any claim occurrence were to exceed our excess coverage limits under our third party insurance arrangements, such claim could have a material adverse effect on Landstar’s financial condition and results of operations.

Moreover, the occurrence of a Nuclear Verdict, or the settlement of a catastrophic injury and/or fatality claim that could have otherwise resulted in a Nuclear Verdict, could have a material adverse effect on Landstar’s cost of insurance and claims and its results of operations.

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.

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To the extent that the third party insurance companies propose increases to their premiums for coverage of commercial trucking claims, the Company may decide to pay such increased premiums or increase its financial exposure on an aggregate, per occurrence or other basis, including by increasing the amount of its self-insured retention.

In fact, in recent years, three of the largest third party insurers providing excess coverage for commercial trucking claims in the United States announced that in light of increased severity trends related to the increase in losses attributable to unfavorable verdicts, they would no longer provide such coverage.

In fact, in recent years, several of the largest third party insurers providing excess coverage for commercial trucking claims in the United States announced that in light of increased severity trends related to the increase in losses attributable to unfavorable verdicts, they would no longer provide such coverage.

Decisions by these third party insurers to exit this line of business have had a significant negative impact on the availability and pricing of excess coverage for commercial trucking claims in the United States.

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During fiscal year 2021, 593 agents generated revenue for Landstar of at least $1 million each, or in the aggregate approximately 94% of Landstar’s consolidated revenue.

Landstar competes with motor carriers and other third parties for the services of these independent commission sales agents.

Included among these Million Dollar Agents, 115 agents generated at least $10,000,000 of Landstar revenue during the 2021 fiscal year, or in the aggregate approximately 71% of Landstar’s

consolidated revenue.

Of these larger agencies, one such Landstar independent commission sales agency, itself with a very diversified customer base, generated approximately $740,000,000, or 11%, of Landstar’s consolidated revenue and approximately 7% of Landstar’s consolidated variable contribution in fiscal year 2021.

Moreover, a number of these larger agencies, including the largest of Landstar’s independent commission sales agents, maintain business operations in countries outside of North America where the risks of doing business may be different than in the United States or Canada due to geopolitical, legal or other risks associated with doing business in such foreign jurisdictions.

For example, certain Landstar independent agencies maintain business operations in Eastern Europe, including in Ukraine, which could be significantly impacted by the further escalation in tensions and potential for armed conflict.

There can be no assurance regarding the potential disruption and impact adverse geopolitical developments in these foreign jurisdictions could have on the ability of certain large independent commission sales agents to generate and maintain business operations in support of significant amounts of Landstar revenue.

Landstar competes with motor carriers and other third parties for the services of independent commission sales agents.

Landstar has historically experienced very limited agent turnover in the number of its Million Dollar Agents.

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The coronavirus (

) pandemic has had a significant adverse impact on our business.

pandemic has caused and continues to cause significant disruptions in the global economy, which significantly intensified in the United States in late March and continued throughout the remainder of 2020.

) pandemic has had a significant impact on our business.

pandemic has caused and continues to cause significant disruptions in the global economy, which significantly intensified in the United States in late March 2020 and continues into 2022.

The situation with respect to the COVID-19

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Economic disruptions and other effects on the global or domestic economies caused by the COVID-19

pandemic could have a material adverse impact on the demand for our services and our ability to obtain financing on favorable terms or at all.

pandemic could have a material adverse impact on the demand for our services.

In connection with the impact of the COVID-19

pandemic, the Company experienced a significant decline in truckload volumes during the second quarter of 2020 compared to the corresponding period of 2019 followed by a similarly significant yet more gradual sequential increase in demand during the third and fourth quarters of 2020.

This significant, rapid decrease in demand followed by the similarly significant yet more gradual increase was unprecedented in the history of the Company.

This significant, rapid decrease in demand followed by an ultimately more significant yet more gradual increase in demand was unprecedented in the history of the Company.

In particular, the U.S.

economy in 2021 experienced a tremendous overall increase in economic demand coupled with a strong secular shift in demand from services to goods.

The extent to which the COVID-19

pandemic impacts the Company’s results in future quarters will depend on future developments that are highly uncertain and cannot be predicted, including the duration of the pandemic, the actions taken by federal, state and local governments in response to the pandemic, the availability and effectiveness of vaccines for COVID-19

and the length of time necessary for the economy to transition back to more normal operating conditions.

and the length of time necessary for the economy to transition back to more normal operating conditions, which could involve a decrease in overall economic demand as well as a secular shift in demand for goods back to services.

These and other factors could have a material adverse impact on our business, financial position, results of operations and cash flows.

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The Landstar network includes over 1,200 independent agent locations throughout North America where such independent agents provide shipment coordination and dispatch services, freight tracking, trailer management and numerous other operational functions.

Similarly, the Landstar network includes tens of thousands of truck capacity providers who operate throughout North America without any Landstar truck terminals.

Similarly, the Landstar network

includes tens of thousands of truck capacity providers who operate throughout North America without any Landstar truck terminals.

Management believes the decentralized nature of our model should insulate Landstar’s freight operations in an environment where social distancing can disrupt centralized business structures.

1 unchanged sentence

pandemic could have a material adverse effect on our ability to source capacity to service our customers and could have a significant impact on Landstar, including our results of operations, revenue and cash flows.

During 2021, the U.S.

government, the Canadian government and various state, local and provincial governments implemented various masking, testing and vaccination requirements relating to the COVID-19

Many of these requirements have been subject to legal challenges in courts throughout the United States.

Moreover, in January 2022, the U.S.

government implemented a vaccination mandate applicable to inbound non-U.S.

citizens, including commercial truck drivers, seeking to enter the U.S.

via land ports of entry or ferry terminals at the U.S.–Mexico or U.S.–Canada borders requiring such individual to be fully vaccinated for COVID-19

and to provide related proof of vaccination to enter the U.S.

Similarly, in January 2022, the Canadian government implemented a vaccination mandate applicable to all travelers, including U.S.

and Canadian truck drivers, entering Canada from the U.S., requiring vaccination against COVID-19

to enter Canada.

In addition, many companies, including many customers of the Company, have implemented various masking, testing and vaccination requirements relating to the COVID-19

pandemic that apply to commercial drivers seeking access to certain facilities of that customer for the purposes of the pick-up

or delivery of freight.

These legal and customer requirements have the potential to impact the availability of motor carrier capacity and create additional supply chain disruption.

In addition, the COVID-19

pandemic has caused significant disruptions in the Mexican economy.

During the Company’s 2020 fiscal year, the value of the Mexican peso to the U.S.

During the Company’s 2020 and 2021 fiscal years, the value of the Mexican peso to the U.S.

dollar significantly depreciated and may continue to depreciate further.

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Moreover, in connection with the COVID-19

pandemic, the Company has temporarily transitioned the vast majority of its office-based employees to work-at-home

arrangements.

pandemic, the Company has temporarily transitioned the vast majority of its office-based employees to remote work arrangements.

Although the Company has redundant systems for its critical operations, any significant disruption or failure of its technology systems or those of third party data centers on which it relies could significantly disrupt the Company’s operations and impose significant costs on the Company.

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Although we believe that we have robust security procedures and other safeguards in place, as threats continue to evolve, we may be required to expend additional resources to continue to enhance our information security measures and/or to investigate and remediate any security vulnerabilities.

For example, in the first quarter of 2016, we were subject to “spear-phishing” attacks through which third parties were able to obtain personal employee data.

We have undertaken a number of remedial measures in response, including enhancing our security systems and additional training for our employees.

Additional incidents may occur in the future and may have a material adverse effect on our business and operations.

A significant incident, including system failure, security breach, disruption by malware, or other damage, could interrupt or delay our operations, damage our reputation, cause a loss of customers, agents and/or third party capacity providers, expose us to a risk of loss or litigation, and/or cause us to incur significant time and expense to remedy such an event, any of which could have a material adverse impact on our results of operations and financial condition.

Although the Company maintains cybersecurity and business interruption insurance, the Company’s insurance may not be adequate to cover all losses that may be incurred in the event of a significant disruption or failure of its information technology systems.

In addition, cybersecurity and business interruption insurance could in the future become more expensive and difficult to maintain and may not be available on commercially reasonable terms or at all.

Dependence on key vendors.

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Any inability to negotiate satisfactory terms with one of these key vendors or any other significant disruption to or termination of a relationship with one of these key vendors could disrupt the Company’s operations and impose significant costs on the Company.

Catastrophic loss of a Company facility.

The Company faces the risk of a catastrophic loss of the use of all or a portion of its facilities located in Jacksonville, Florida, Laredo, Texas and Rockford, Illinois due to hurricanes, flooding, tornados, other weather conditions, natural disasters, terrorist attacks or otherwise.

The Company’s corporate headquarters and approximately two-thirds

of the Company’s employees are located in its Jacksonville, Florida facility.

In particular, a significant hurricane or similar catastrophic event that impacts the Jacksonville, Florida metropolitan area could significantly disrupt the Company’s operations and impose significant costs on the Company.

Although the Company maintains insurance covering its facilities, including business interruption insurance, the Company’s insurance may not be adequate to cover all losses that may be incurred in the event of a catastrophic loss of one of the Company’s facilities.

In addition, such insurance, including business interruption insurance, could in the future become more expensive and difficult to maintain and may not be available on commercially reasonable terms or at all.

Economic, Competitive and Industry Risks

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The failure of the Company to maintain or enhance its technology ecosystem in response to changing demands from customers, agents, and capacity providers could have a significant adverse impact on Landstar’s ability to compete for customers, agents and capacity providers in the transportation and logistics industry.

Historically, competition has created downward pressure on freight rates.

In addition, many large shippers are using third party logistics providers (“3PLs”) other than the Company to outsource the management and coordination of their transportation needs rather than directly arranging for transportation services with carriers.

In addition, competition in our industry, historically, has created downward pressure on freight rates.

Many large shippers use third party logistics providers (“3PLs”) other than the Company to outsource the management and coordination of their transportation needs rather than directly arrange for transportation services with carriers.

As noted above, there were 12 transportation service providers, including 3PLs, included in the Company’s top 25 customers for the fiscal year ended December 25, 2021.

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There can be no assurance that legislative, judicial, administrative or regulatory (including tax) authorities will not introduce proposals or assert interpretations of existing rules and regulations that would change the employee/independent contractor classification of BCO Independent Contractors or independent commission sales agents doing business with the Company.

On September 18, 2019, California enacted Assembly Bill (AB) 5 into law, codifying the strict “ABC” test for purposes of determining a worker’s status as an independent contractor or employee under

California law.

While new in California, versions of the ABC test have existed in a number of other states over the years and have been challenged in various courts as violating the federal government’s exclusive right to regulate trucking in certain areas of law and interstate commerce.

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Department of Transportation, and by various state agencies.

Several of the Operating Subsidiaries maintain a federal hazardous materials safety permit and, as a result, have an increased risk of compliance review by the FMCSA.

Certain of the Operating Subsidiaries are licensed as Ocean Transportation Intermediaries by the U.S.

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For example, on January 6, 2020, the FMCSA implemented new requirements applicable to drug and alcohol testing by motor carriers.

The new regulation expands motor carrier reporting requirements to include reporting of all operators who test positive and/or refuse to submit to a test as prescribed in the regulation.

The new regulation also expands rules relating to the obligation of motor carriers to conduct queries to check if current or prospective operators are prohibited from operating a commercial motor vehicle due to a positive or unresolved drug or alcohol test.

The new regulation expanded motor carrier reporting requirements to include reporting of all operators who test positive and/or refuse to submit to a test as prescribed in the regulation.

The new regulation also expanded rules relating to the obligation of motor carriers to conduct queries to check if current or prospective operators are prohibited from operating a commercial motor vehicle due to a positive or unresolved drug or alcohol test.

The expanded reporting of positive results, or of an operator’s refusal to meet FMCSA testing requirements, to a centralized clearinghouse prescribed by FMCSA has the potential to remove operators from service that may otherwise have been undetected or unreported.

In addition, in December 2010, the FMCSA introduced the Compliance Safety Accountability (“CSA”) motor carrier oversight program.

The Company believes the intent of this program is to improve regulatory oversight of motor carriers and commercial drivers using a safety measurement system methodology that is fundamentally different from the methodology that the

FMCSA historically relied upon.

Under CSA, the FMCSA monitors seven Behavior Analysis and Safety Improvement Categories, or BASICs, under which a motor carrier may be evaluated against established threshold scores for each such BASIC.

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In 2018, the FMCSA announced significant anticipated changes to CSA that if enacted would be expected to have a material impact on the current program.

No assurances can be given with respect to the changes that may be made to the CSA program, or any replacement or supplemental program, in the future and what impact a new or revised motor carrier oversight program implemented by the FMCSA could have on the Company, its motor carrier operations or the aggregate number of trucks that provide hauling capacity to the Company.

As of the end of 2021, no such changes to CSA have yet been enacted.

No assurances can be given with respect to the changes that may be made to the CSA program, or any replacement or supplemental program, in the future and what impact new or revised motor carrier oversight programs implemented by the FMCSA could have on the Company, its motor carrier operations or the aggregate number of trucks that provide hauling capacity to the Company.

Regulations focused on diesel emissions and other air quality matters.

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The EPA thereafter received express authorization to enforce California’s SIP, including the Truck and Bus Regulation and the Drayage Truck Regulation.

In June 2016, Landstar Ranger, Inc.

received an information request from the EPA to determine the Clean Air Act compliance status of Landstar Ranger, Inc.

with respect to the Truck and Bus Regulation and the Drayage Truck Regulation in the state of California.

Landstar Ranger, Inc.

believes it complied with this information request;

however, the timing and outcome of the review by the EPA and any subsequent action by the EPA, if any, cannot be predicted.

The Company may incur significant legal and other professional fees in connection with the EPA’s review.

If the Company is found to be in noncompliance with CARB regulations, the EPA and CARB may seek to impose significant fines and penalties, or injunctive relief, on the Company.

Further, the Company reorganized its entire fleet of van trailing equipment to maintain CARB-compliant trailer operations.

Moreover, no assurances can be given with respect to the extent BCO Independent Contractors will choose to become CARB-compliant by purchasing a new or used CARB-compliant tractor, replacing the engine in their existing tractor with a CARB-compliant engine or performing an exhaust retrofit of their existing tractor by installing a particulate matter filter.

No assurances can be given with respect to the extent BCO Independent Contractors will choose to become CARB-compliant by purchasing a new or used CARB-compliant tractor, replacing the engine in their existing tractor with a CARB-compliant engine or performing an exhaust retrofit of their existing tractor by installing a particulate matter filter.

Accordingly, many of the Company’s BCO Independent Contractors may choose not to haul loads that would require travel within California, which could affect the ability of the Company to service customer freight needs for freight originating from, delivering to or traveling through California.

Furthermore, increased regulation of tractor or trailing equipment specifications, including emissions created by diesel engines, could create substantial costs for the Company’s third party capacity providers and, in turn, increase the cost of purchased transportation to the Company.

Furthermore, increased regulation of tractor or trailing equipment specifications, including emissions created by diesel engines,

could create substantial costs for the Company’s third party capacity providers and, in turn, increase the cost of purchased transportation to the Company.

An increase in the costs to purchase, lease or maintain tractor or trailing equipment or in purchased transportation cost caused by existing or new regulations without a corresponding increase in price to the customer could adversely affect Landstar, including its results of operations and financial condition.

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From time to time, various legislative proposals are introduced to increase federal, state, or local taxes.

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (the “Tax Reform Act”).

The legislation significantly changed U.S.

tax law by, among other things, lowering corporate income tax rates, implementing a territorial tax system and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries.

With respect to the change in corporate tax rates, 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.

In connection with this reduction in the U.S.

corporate income tax rate, the Company revalued its ending net deferred tax liabilities at December 30, 2017 resulting in a provisional $20,430,000 tax benefit in the Company’s consolidated statement of income for the fiscal year ended December 30, 2017.

The Company cannot predict whether, or in what form, any increase in corporate income tax rates, motor fuel tax rates or other tax rates applicable to the transportation services provided by the Company will be enacted and, if enacted, how such increased tax rates may impact the Company.

As an example, for every 100 basis point increase in the U.S.

corporate income tax rate the Company would recognize a one-time

tax charge of approximately $1,700,000 in connection with revaluing its ending net deferred tax liabilities at December 25, 2021.

With respect to potential increases in fuel and similar taxes, it is unclear whether or not the Company’s Truck Brokerage Carriers would attempt to pass the increase on to the Company or if the Company will be able to reflect this potential increased cost of capacity, if any, in prices to customers.

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In the event that a claim is made against the Company by a third party for the infringement of intellectual property rights, any settlement or adverse judgment against the Company either in the form of increased costs of licensing or a cease and desist order in using the technology could have an adverse effect on the Company’s business and its results of operations.

Unclaimed property

The Company is subject to federal and state laws relating to abandoned and unclaimed property.

States routinely audit the records of companies to assess compliance with such laws.

The Company is currently undergoing a multi-state unclaimed property audit.

The Company is also undergoing a separate unclaimed property audit conducted by the State of Delaware, and in connection with that audit, the Company has entered into a voluntary disclosure agreement with the Delaware Department of Finance.

The timing and outcome of either the multi-state unclaimed property audit or the Delaware audit cannot be predicted.

The Company may incur significant professional fees in connection with these audits.

If the Company is found to be in noncompliance with applicable unclaimed property laws or the manner in which such laws are interpreted or applied, states may determine that they are entitled to the remittance by the Company of significant amounts of unclaimed or abandoned property and further may seek to impose other significant costs on the Company, including penalties and interest.

Unresolved Staff Comments

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 1A. Risk Factors