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Item 1A. Risk Factors

2025-05-13 compared with 2024-10-30 · 87 added, 3 removed, 0 unchanged (100% of the section changed)

For a discussion identifying risk factors and other important factors that could cause actual results to differ materially from those anticipated, see the discussions under Part I, Item 1A, “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2023, and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Notes to Consolidated Financial Statements” in this Quarterly Report on Form 10-Q.

There have been no material changes to the Risk Factors described in Part I “Item 1A.

Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2023 as filed with the SEC.

for the fiscal year ended December 28, 2024, and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Notes to Consolidated Financial Statements” in this Quarterly Report on Form 10-Q.

Except as set forth below, there have been no material changes to the Risk Factors described in Part I “Item 1A.

Risk Factors” in the Company’s Annual Report on Form 10-K

for the fiscal year ended December 28, 2024 as filed with the SEC.

Increased severity or frequency of accidents and other claims or a material unfavorable development of existing claims

As noted in Part I, Item 1, “Business — Factors Significant to the Company’s Operations — Self-Insured Claims” in the Company’s Annual Report on Form 10-K

for the fiscal year ended December 28, 2024, potential liability associated with accidents in the trucking industry is severe and occurrences are unpredictable.

Landstar retains liability through a self-insured retention for commercial trucking claims up to $5 million per occurrence.

The Company also maintains third party insurance arrangements providing coverage for commercial trucking liabilities in excess of $5 million.

Historically, these third party insurance arrangements were based on policy year periods beginning on May 1 and ending on a subsequent April 30.

Beginning with the policy year period commencing May 1, 2025, the Company and its third party insurance providers adjusted the applicable policy year period, beginning in 2026, to commence on June 1 and end on a subsequent May 31.

All applicable third party insurance arrangements with a policy period ending April 30, 2026, have been amended to provide for a policy period ending May 31, 2026, as reflected below.

Effective May 1, 2023, the Company entered into a three year commercial auto liability insurance arrangement for losses incurred between $5 million and $10 million (the “2023 Initial Excess Policy”) with a third party insurance company.

For commercial trucking claims incurred on or after May 1, 2023 through May 31, 2026, the 2023 Initial Excess Policy provides for an aggregate deductible of $18 million over the thirty-seven month term ending May 31, 2026.

After payment of the deductible, the 2023 Initial Excess Policy provides for a limit for a single loss of $5 million, with an aggregate limit of $15 million for the thirty-seven month term ending May 31, 2026.

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

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

Over the past decade, there has been a significant increase in the prevalence 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.

Since the annual policy year ended April 30, 2020, as compared to the annual policy year ending May 31, 2026, the Company experienced an increase of approximately $22 million, or approximately 400%, 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 from year to year manages the level of its financial exposure to commercial trucking claims in excess of $10 million, including through the use of additional self-insurance, deductibles, aggregate loss limits, quota shares and other structured 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 single hypothetical claim in the amount of $65 million incurred during the annual policy year ending May 31, 2026, the Company would have an aggregate financial exposure of approximately $36 million.

Within the Company’s third party insurance arrangements providing excess coverage for commercial trucking liabilities, structured arrangements with third party reinsurers within a specific loss layer may include provisions that require additional payments of premium in the event of unfavorable loss experience or a refund of premium in the event of favorable loss experience.

With respect to one such three year commercial auto liability reinsurance arrangement relating to certain excess claims incurred between May 1, 2020 through April 30, 2023, it is anticipated that during the 2025 second fiscal quarter, the Company will receive a $12,000,000 cash payment from a third party reinsurance provider in the form of a “no claims bonus” due to favorable loss experience with respect to claims incurred during the policy period.

The Company intends to record the receipt of this payment as a deferred gain on the balance sheet until such time as all underlying claims with exposure under the applicable excess layer insurance arrangement are resolved.

No assurances can be provided, however, regarding the resolution of any remaining underlying claims with exposure under the applicable excess layer insurance arrangement and whether the Company will ultimately be in a position to recognize all or any portion of the $12,000,000 “no claims bonus” as a gain.

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.

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.

As noted in Part I, Item A, “Risk Factors — Legal, Tax, Regulatory and Compliance Risks — Regulatory and legislative changes” in the Company’s Annual Report on Form 10-K

for the fiscal year ended December 28, 2024, several of the Operating Subsidiaries maintain a federal hazardous materials safety permit in connection with the Company’s transportation of hazardous substances.

In the event the Company is involved in a spill or other accident involving hazardous substances, there are releases of hazardous substances while being

transported by the Company, or Landstar is found to be in violation of or fail to comply with applicable environmental laws or regulations in connection with the transportation of hazardous materials, the Company could be subject to clean-up

costs and liabilities, including substantial fines or penalties or civil and criminal liability, any of which could have a material adverse effect on the Company’s business and results of operations.

The Company retains liability of up to $2,000,000 for each general liability claim, $250,000 for each workers’ compensation claim and $250,000 for each cargo claim.

In addition, under reinsurance arrangements by Signature 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.

The Company’s exposure to liability associated with accidents incurred by Truck Brokerage Carriers, railroads and air and ocean cargo carriers who transport freight on behalf of the Company is reduced by various legal defenses and other factors including the extent to which such carriers maintain their own insurance coverage.

In recent years, the amount and sophistication of fraud and cargo theft throughout the freight transportation and logistics supply chain has significantly increased.

In particular, “strategic” cargo theft refers to instances when bad actors incorporate deceptive tactics to commit cargo theft.

Such tactics may involve the use of fraud to deceive shippers, brokers, and/or carriers using a combination of methods including identity theft and impersonation, fictitious track-and-trace

information, fictitious proof of delivery information and fraudulent carrier schemes.

The Company has experienced, and may continue to experience, increases in the amount of cargo theft, including strategic cargo theft, resulting in increased exposure to liability from cargo claims.

The Company has also experienced, and may continue to experience, incidences of other types of supply chain fraud, for example the fraud referenced in Note 14 in the “Notes to Consolidated Financial Statements” in this Quarterly Report on Form 10-Q.

A material increase in the frequency or severity of accidents, cargo claims, including further increases in the amount of cargo theft, incidences of supply chain fraud, workers’ compensation claims, claims in connection with the transportation of hazardous materials, or the material unfavorable development of existing claims could have a material adverse effect on Landstar’s business, cost of insurance and claims and its results of operations.

Decreased demand for transportation services;

trade relationships and tariffs.

The transportation industry historically has experienced cyclical financial results as a result of slowdowns in economic activity, the business cycles of customers, and other economic factors beyond Landstar’s control.

If a slowdown in economic activity or a downturn in the Company’s customers’ business cycles causes a reduction in the volume of freight shipped by those customers, the Company’s operating results could be materially adversely affected.

Moreover, Landstar hauls a significant number of shipments that have either been imported into the United States or are destined for export from the United States.

There is significant uncertainty in the marketplace as to the potential actions of the U.S.

government with respect to international trade policy and the impact of tariffs, particularly with respect to trade between the United States and, respectively, Mexico, Canada and China.

Changes in U.S.

trade policy and the impact of tariffs may significantly adversely impact our customers, our industry, and our business.

government has made significant changes in U.S.

trade policy, including the imposition on April 2, 2025, of a baseline tariff of 10% on product imports from almost all countries and individualized higher tariffs on certain other countries.

The announcement of the tariffs has been followed by announcements of limited exceptions and temporary pauses.

Certain foreign governments either have taken or are threatening to take retaliatory actions in response.

These changes in U.S.

trade policy and tariffs have caused uncertainty and volatility in financial markets.

Tariffs or other trade restrictions may lead to continuing uncertainty and volatility in U.S.

and global financial and economic conditions, declining consumer confidence, inflation or an economic slowdown.

These tariffs or other trade restrictions, including corresponding actions taken by other countries in response to U.S.

governmental actions or continuing uncertainty around the timing, scope, level, magnitude, duration and product range of tariffs, could have an adverse economic impact in the markets in which the Company operates, could cause reduced demand for the Company’s services and a reduction in the volume of shipments transported by the Company’s network, and could have a material adverse effect on Landstar’s results of operations.

Acquisitions and Investments.

The Company periodically considers acquisitions and equity investments that it believes are strategically important based on the potential that any such acquisition or investment candidates would further strengthen the Company’s strategic goals and service offerings.

The Company makes no assurance that it will be able to successfully achieve its strategic goals as it relates to any such acquisition or investment.

For example, during 2017, the Company established Landstar Metro, S.A.P.I.

(“Landstar Metro”), which acquired substantially all of the assets of the asset-light transportation logistics business of Fletes Avella, S.A.

Landstar Metro provides freight and logistics services within Mexico and in conjunction with Landstar’s U.S./Mexico cross-border services.

The Company’s initial investment in Landstar Metro was approximately $8.5 million.

The carrying value of the Company’s investment in Landstar Metro, as of March 29, 2025, was approximately $24 million, reflecting additional investment and the results of operations of Landstar Metro since inception, less a non-cash impairment charge recorded during the Company’s 2020 second fiscal quarter.

Landstar Metro is subject to certain risks arising from doing business in Mexico, including:

changes in Mexico’s economic strength;

changes in trade agreements, US-Mexico trade relations, or the imposition of tariffs on imports from Mexico and related retaliatory tariffs that may be imposed by the Mexican government;

disruptions related to port of entry restrictions;

difficulties in enforcing contractual obligations;

foreign currency fluctuations;

theft or vandalism of equipment;

and social, political, and economic instability.

The Company may be unable to generate sufficient revenue or earnings from Landstar Metro and this business may otherwise fail to meet Landstar’s strategic or operational expectations.

As such, the Company’s acquisition and investment in Landstar Metro could have a material adverse impact on our results of operations in a specific quarterly or annual period in the form of a non-cash impairment charge for all or a portion of Landstar’s investment.

In addition, as previously disclosed, on April 1, 2022, the Company acquired a minority equity investment in Cavnue, LLC (“Cavnue”), a privately held company focused on combining technology and road infrastructure to unlock the full potential of connected and autonomous vehicles.

The Company’s investment of $4,999,000 in Cavnue represents the carrying value as of March 29, 2025.

The value of this investment may be adversely affected if Cavnue is unable to timely meet its performance objectives or continue to raise capital, if Cavnue completes a subsequent funding round at lower valuation, if Cavnue is sold at a valuation that does not return all or a portion of our investment, if Cavnue’s business is ultimately not commercially viable or Cavnue otherwise is unable to provide the Company with an adequate return of capital.

As such, a decrease in the value of the Company’s investment in Cavnue could have a significant adverse impact on Landstar’s results of operations in a specific quarterly period in the form of a non-cash impairment charge for all or a portion of Landstar’s investment.

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-Q

Item 1A. Risk Factors