What changed in this filing

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Item 1A. Risk Factors

2023-02-24 compared with 2022-02-18 · 47 added, 88 removed, 150 unchanged (47% of the section changed)

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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

amounts of additional premium.

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 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 subsequently extended the Initial Excess Policy for one additional policy year, from May 1, 2022 through April 30, 2023.

For commercial trucking claims incurred on or after May 1, 2022 through April 30, 2023, the extended Initial Excess Policy provides for a limit for a single loss of $5 million, with a remaining aggregate limit of $10 million for the policy period ending April 30, 2023, and an option to increase such aggregate limit for a pre-established amount of additional premium.

If aggregate losses under the Initial Excess Policy exceed the aggregate limit for the period ending April 30, 2023, and the Company did not elect to increase such aggregate limit for a pre-established amount of additional premium, the Company 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 policy period ending April 30, 2023.

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

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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.

Over the most recent three-year period, with respect to the annual policy year ending April 30, 2023, as compared to the annual policy year ended April 30, 2020, the Company experienced an increase of approximately $20 million, or over 360%, 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, in recent years the Company has 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 $35 million incurred during the annual policy year ending April 30, 2023, the Company would have an aggregate financial exposure of approximately $10 million.

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During fiscal year 2022, 625 agents generated revenue for Landstar of at least $1 million each, or in the aggregate approximately 97% of Landstar’s consolidated revenue.

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.

Included among these Million Dollar Agents, 133 agents generated at least $10,000,000 of Landstar revenue during the 2022 fiscal year, or in the aggregate approximately 74% 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 $866,000,000, or 12%, of Landstar’s consolidated revenue and approximately 7% of Landstar’s consolidated variable contribution in fiscal year 2022.

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.

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

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 administrative operations in support of significant amounts of Landstar revenue.

As disclosed in a Current Report on Form 8-K filed by the Company on February 28, 2022, the largest Landstar independent commission sales agency by revenue referenced above, while based in the United States, has significant administrative operations located in eastern Ukraine.

The administrative operations of this agency were significantly disrupted during the onset of the Russian invasion of Ukraine.

The Company also has another of its largest independent commission sales agencies, as measured by revenue, that is based in the United States but conducts a portion of its administrative operations in western Ukraine.

Russian efforts to destroy infrastructure throughout Ukraine

has impacted the availability of electricity and other basic utilities at various times throughout the country.

The priority for Landstar and both of these agencies is the safety and well-being of these agencies’ Ukrainian workforces and their families.

No assurances can be provided regarding the conflict between Russia and Ukraine and the extent of potential future operational disruption the conflict may have on either of these Landstar agencies and the related impact of these disruptions on the Company.

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

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There can be no assurances, however, that Landstar will continue to experience very limited turnover of its Million Dollar Agents in the future.

provisions limiting the ability of a former agent to compete with Landstar for a specified period of time post-termination, and other restrictive covenants.

Landstar’s contracts with its agents, including its Million Dollar Agents, are typically terminable without cause upon 10 to 30 days’ notice by either party and generally contain significant but not unqualified restrictive covenants limiting the ability of a former agent to compete with Landstar for a specified period of time post-termination, and other restrictive covenants.

The loss of some of the Company’s Million Dollar Agents and/or a significant decrease in revenue generated by Million Dollar Agents could have a material adverse effect on Landstar, including its results of operations and revenue.

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The Company competes with motor carriers and other third parties for the services of BCO Independent Contractors and other third party capacity providers.

The market for qualified truck owner-operators and other third party truck capacity providers is very competitive among motor carriers and no assurances can be given that the Company will be able to maintain or expand the number of BCO Independent Contractors or other third party truck capacity providers.

Additionally, the Company’s third party capacity providers other than BCO Independent Contractors can be expected, under certain circumstances, to charge higher prices to cover increased operating expenses, such as any increases in the cost of fuel, and the Company’s operating income may decline without a corresponding increase in price to the customer.

The market for qualified truck owner-operators and other third party truck capacity providers is very competitive among motor carriers, third party logistics companies and others and no assurances can be given that the Company will be able to maintain or expand the number of BCO Independent Contractors or other third party truck capacity providers.

Additionally, the Company’s third party capacity providers other than BCO Independent Contractors can be expected, under certain circumstances, to charge higher prices to cover increased operating expenses, such as any increases in the cost of fuel, labor, equipment or insurance, and the Company’s operating income may decline without a corresponding increase in price to the customer.

A significant decrease in available capacity provided by either the Company’s BCO Independent Contractors or other third party capacity providers, or increased rates charged by other third party capacity providers that cannot be passed through to customers, could have a material adverse effect on Landstar, including its results of operations and revenue.

The coronavirus (

) 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

pandemic continues to evolve and its effects, both short and long-term, remain unknown.

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.

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, followed by a year of unprecedented strength in demand for the Company’s services in 2021.

The coronavirus ( “ COVID-19 ” ) pandemic may have a significant impact on our business.

The COVID-19 pandemic caused and may continue to cause significant disruptions in the global economy.

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.

In addition, although there has been an easing of governmental restrictions relating to COVID-19 in certain jurisdictions, restrictions could be reinstated in the future to manage a resurgence or new outbreak of COVID-19, including in connection with new variants or mutations of COVID-19.

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, followed by two years of unprecedented strength in demand for the Company’s services in 2021 and 2022.

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, which could involve a decrease in overall economic demand as well as a secular shift in demand for goods back to services.

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 domestic as well as foreign governments in response to the pandemic, the availability and effectiveness of vaccines for COVID-19 and the length of time necessary for the global 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.

Moreover, the COVID-19

virus continues to spread in areas where we provide services.

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.

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.

A significant disruption to our independent agent network and/or a significant decrease in available truck capacity providers due to illness or government restrictions related to the COVID-19

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 and 2021 fiscal years, the value of the Mexican peso to the U.S.

dollar significantly depreciated and may continue to depreciate further.

No assurances can be given regarding the potential impact of the COVID-19

pandemic and other factors on the Mexican economy and the value of the Mexican peso relative to the U.S.

dollar and could have a significant adverse impact on the financial condition and results of operations of our Mexican subsidiaries.

Disruptions or failures in the Company’s computer systems;

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Landstar relies, in the regular course of its business, on the proper operation of its information technology systems to link its extensive network of customers, employees, agents and third party capacity providers, including its BCO Independent Contractors.

Moreover, in connection with the COVID-19

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.

Moreover, a significant portion of the Company’s employees work remotely or on a hybrid basis.

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.

Moreover, it is critical that the data processed by or stored in the Company’s information technology systems or otherwise in the Company’s possession remain confidential, as it often includes confidential, proprietary and/or competitively sensitive information regarding our customers, employees, agents and third party capacity providers, key financial and operational results and statistics, and our strategic plans, including technology innovations, developments and enhancements.

Cyber incidents that impact the security, availability, reliability, speed, accuracy or other proper functioning of these systems and data, including outages, computer viruses, break-ins

and similar disruptions, could have a significant impact on our operations.

Cyber incidents that impact the security, availability, reliability, speed, accuracy or other proper functioning of these systems and data, including outages, computer viruses, break-ins and similar disruptions, could have a significant impact on our operations.

Accordingly, information security and the continued development and enhancement of the controls and processes designed to protect our systems, computers, software, data and networks from attack, damage or unauthorized access remain a priority for us.

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Dependence on key vendors.

As described above under “ Dependence on third party insurance companies

and “ Disruptions or failures in the Company’s computer systems;

cyber and other information security incidents,

” the Company is dependent on certain vendors, including third party insurance companies, third party data center providers, third party information technology application providers and third party payment disbursement providers.

As described above under “ Dependence on third party insurance companies ” and “ Disruptions or failures in the Company’s computer systems;

cyber and other information security incidents, ” the Company is dependent on certain vendors, including third party insurance companies, third party data center providers, third party information technology application providers and third party payment disbursement providers.

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.

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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.

Many large shippers use 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 14 transportation service providers, including 3PLs, included in the Company’s top 25 customers for the fiscal year ended December 31, 2022.

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Department of Labor, the National Labor Relations Board, state unemployment agencies, state departments of labor, state taxing authorities, the Equal Employment Opportunity Commission, state discrimination or disability benefit administrators and state workers compensation boards, among others.

For federal tax purposes, most individuals are classified as employees or independent contractors based on a multi-factor “common-law”

analysis rather than any definition found in the Internal Revenue Code or Internal Revenue Service regulations.

For federal tax purposes, most individuals are classified as employees or independent contractors based on a multi-factor “common-law” analysis rather than any definition found in the Internal Revenue Code or Internal Revenue Service regulations.

In addition, under Section 530 of the Revenue Act of 1978, a taxpayer that meets certain criteria may treat an individual as an independent contractor for employment tax purposes if the taxpayer has been audited without being told to treat similarly situated workers as employees, if the taxpayer has received a ruling from the Internal Revenue Service or a court decision affirming the taxpayer’s treatment of the individual as an independent contractor, or if the taxpayer is following a long-standing recognized practice.

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

Federal Maritime Commission as non-vessel-operating

common carriers and/or as ocean freight forwarders.

Federal Maritime Commission as non-vessel-operating common carriers and/or as ocean freight forwarders.

The Company’s air transportation activities in the United States are subject to regulation by the U.S.

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For example, under the federal Clean Air Act, the U.S.

Environmental Protection Agency (“EPA”) is responsible for prescribing national ambient air quality standards (“NAAQS”) for certain air pollutants, and each state is responsible for implementing those standards within its borders.

Environmental Protection Agency (“EPA”) is responsible for prescribing national ambient air quality standards (“NAAQS”) for certain air pollutants, and each state is

responsible for implementing those standards within its borders.

Specifically, each state must adopt, and submit for the EPA’s approval, a state implementation plan (“SIP”) that provides for the implementation, maintenance, and enforcement of the NAAQS.

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that operate in California.

Moreover, these emission standards are scheduled to become increasingly stringent such that by January 1, 2023, nearly all diesel-fueled trucks with gross vehicle weight ratings in excess of 14,000 lbs.

that operate in California will be required to have a 2010 or newer model year engine.

Heavy-Duty Diesel-Fueled Vehicles” (commonly referred to as the “Truck and Bus Regulation”) and “Regulation to Reduce Emissions of Diesel Particulate Matter, Oxides of Nitrogen and Other Criteria Pollutants from In-Use

Heavy-Duty Diesel-Fueled Drayage Trucks” (commonly referred to as the “Drayage Truck Regulation”).

Moreover, these emission standards have become increasingly stringent over time.

As of January 1, 2023, nearly all diesel-fueled trucks with gross vehicle weight ratings in excess of 14,000 lbs.

that operate in California are required to have a 2010 or newer model year engine.

In 2012, the EPA formally approved certain CARB regulations as part of California’s SIP, including CARB’s “Regulation to Reduce Emissions of Diesel Particulate Matter, Oxides of Nitrogen and Other Criteria Pollutants from In-Use Heavy-Duty Diesel-Fueled Vehicles” (commonly referred to as the “Truck and Bus Regulation”) and “Regulation to Reduce Emissions of Diesel Particulate Matter, Oxides of Nitrogen and Other Criteria Pollutants from In-Use Heavy-Duty Diesel-Fueled Drayage Trucks” (commonly referred to as the “Drayage Truck Regulation”).

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

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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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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.

corporate income tax rate the Company would recognize a one-time tax charge of approximately $1,400,000 in connection with revaluing its ending net deferred tax liabilities at December 31, 2022.

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.

Any such increase in fuel taxes, without a corresponding increase in price to the customer, could have a material adverse effect on Landstar, including its results of operations and financial condition.

Moreover, competition from other transportation service companies including those that provide non-trucking

modes of transportation would likely increase if state or federal taxes on fuel were to increase without a corresponding increase in taxes imposed upon other modes of transportation.

Moreover, competition from other transportation service companies including those that provide non-trucking modes of transportation would likely increase if state or federal taxes on fuel were to increase without a corresponding increase in taxes imposed upon other modes of transportation.

On August 16, 2022, the Inflation Reduction Act was signed into law by President Biden.

The Inflation Reduction Act establishes a one percent excise tax on stock repurchases made by publicly traded U.S.

corporations.

This provision is effective for tax years beginning after December 31, 2022.

The excise tax could have an adverse effect on the Company’s cash flows.

Intellectual property.

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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