NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Significant Accounting Policies
Consolidation
The
consolidated financial statements include the accounts of Landstar System, Inc. and its subsidiary, Landstar System Holdings, Inc. (LSHI). Landstar System, Inc. and its subsidiary are herein referred to as Landstar or the
Company. Landstar owns, through various subsidiaries, a controlling interest in Landstar Metro, S.A.P.I. de C.V., a transportation logistics company (Landstar Metro), and Landstar Metro Servicios S.A.P.I. de C.V., a services
company (Landstar Servicios), each based in Mexico City, Mexico. Given Landstars controlling interest in each of Landstar Metro and Landstar Servicios, the accounts of Landstar Metro and Landstar Servicios have been consolidated
herein and a noncontrolling interest has been recorded for the noncontrolling investors interests in the net assets and operations of Landstar Metro and Landstar Servicios. Significant intercompany accounts have been eliminated in
consolidation.
Estimates
The preparation of the consolidated financial statements requires the use of managements estimates. Actual results could differ from
those estimates.
Fiscal Year
Landstars fiscal year is the 52 or 53 week period ending the last Saturday in December.
Revenue Recognition
When providing the physical transportation of freight, the Company is the primary obligor with respect to freight delivery and assumes the
related credit risk. Accordingly, transportation revenue billed to customers for the physical transportation of freight and the related direct freight expenses are recognized on a gross basis upon completion of freight delivery. The Company plans to
adopt Accounting Standards Update (ASU)
2014-09
effective as of January 1, 2018, as further described in footnote 15. The Company anticipates that the adoption of this standard will change the
timing of revenue recognition for most of its transportation business from at delivery to over the transit period as the performance obligation is completed. The Company does not expect this change to have a material impact on its results of
operations, financial position or cash flows once implemented. Reinsurance premiums of the insurance segment are recognized over the period earned, which is usually on a monthly basis. Fuel surcharges billed to customers for freight hauled by
independent contractors who provide truck capacity to the Company under exclusive lease arrangements (the BCO Independent Contractors) are excluded from revenue and paid in entirety to the BCO Independent Contractors.
Insurance Claim Costs
Landstar provides, primarily on an actuarially determined basis, for the estimated costs of cargo, property, casualty, general liability and
workers compensation claims both reported and for claims incurred but not reported. For commercial trucking claims, Landstar retains liability up to $5,000,000 per occurrence. In addition, for commercial trucking claims exceeding its
$5,000,000 per occurrence self-insured retention, the Company retains an additional $700,000 in the aggregate on any claims incurred on or after May 1, 2016 through April 30, 2017, and up to an additional $500,000 in the aggregate on any claims
incurred on or after May 1, 2017 through April 30, 2018. 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.
Tires
Tires purchased as part of trailing equipment are capitalized as part of the cost of the equipment. Replacement tires are charged to expense
when placed in service.
38
Cash and Cash Equivalents
Included in cash and cash equivalents are all investments, except those provided for collateral, with an original maturity of 3 months or less.
Financial Instruments
The Companys financial instruments include cash equivalents, short and long-term investments, trade and other accounts receivable,
accounts payable, other accrued liabilities, current and
non-current
insurance claims and long-term debt plus current maturities (Debt). The carrying value of cash equivalents, trade and other
accounts receivable, accounts payable, current insurance claims and other accrued liabilities approximates fair value as the assets and liabilities are short term in nature. Short and long-term investments are carried at fair value as further
described in the Investments footnote below. The carrying value of
non-current
insurance claims approximates fair value as the Company generally has the ability to, but is not required to, settle
claims in a short term. The Companys Debt includes borrowings under the Companys revolving credit facility, to the extent there are any, plus borrowings relating to capital lease obligations used to finance trailing equipment. The
interest rates on borrowings under the revolving credit facility are typically tied to short-term LIBOR rates that adjust monthly and, as such, carrying value approximates fair value. Interest rates on borrowings under capital leases approximate the
interest rates that would currently be available to the Company under similar terms and, as such, carrying value approximates fair value.
Trade and Other Receivables
The allowance for doubtful accounts for both trade and other receivables represents managements estimate of the amount of outstanding
receivables that will not be collected. Estimates are used to determine the allowance for doubtful accounts for both trade and other receivables and are generally based on specific identification, historical collection results, current economic
trends and changes in payment trends. Following is a summary of the activity in the allowance for doubtful accounts for fiscal years ending December 30, 2017, December 31, 2016 and December 26, 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
Beginning of
Period
|
|
|
Charged to
Costs and
Expenses
|
|
|
Write-offs,
Net of
Recoveries
|
|
|
Balance at
End of
Period
|
|
For the Fiscal Year Ended December 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
$
|
5,161
|
|
|
$
|
3,982
|
|
|
$
|
(3,012
|
)
|
|
$
|
6,131
|
|
Other receivables
|
|
|
6,549
|
|
|
|
3,450
|
|
|
|
(3,047
|
)
|
|
|
6,952
|
|
Other
non-current
receivables
|
|
|
244
|
|
|
|
7
|
|
|
|
|
|
|
|
251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,954
|
|
|
$
|
7,439
|
|
|
$
|
(6,059
|
)
|
|
$
|
13,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
$
|
4,327
|
|
|
$
|
2,772
|
|
|
$
|
(1,938
|
)
|
|
$
|
5,161
|
|
Other receivables
|
|
|
5,555
|
|
|
|
2,963
|
|
|
|
(1,969
|
)
|
|
|
6,549
|
|
Other
non-current
receivables
|
|
|
238
|
|
|
|
|
|
|
|
6
|
|
|
|
244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,120
|
|
|
$
|
5,735
|
|
|
$
|
(3,901
|
)
|
|
$
|
11,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended December 26, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
$
|
4,338
|
|
|
$
|
3,985
|
|
|
$
|
(3,996
|
)
|
|
$
|
4,327
|
|
Other receivables
|
|
|
5,103
|
|
|
|
1,897
|
|
|
|
(1,445
|
)
|
|
|
5,555
|
|
Other
non-current
receivables
|
|
|
230
|
|
|
|
8
|
|
|
|
|
|
|
|
238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,671
|
|
|
$
|
5,890
|
|
|
$
|
(5,441
|
)
|
|
$
|
10,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Property
Operating property is recorded at cost. Depreciation is provided on a straight-line basis over the estimated useful lives of the related
assets. Buildings and improvements are being depreciated over 30 years. Trailing equipment is being depreciated over 7 to 10 years. Information technology hardware and software included in other equipment is generally being depreciated over 3 to 7
years.
Goodwill
Goodwill represents the excess of the purchase price paid over the fair value of the net assets of acquired businesses. The Company has two
reporting units within the transportation logistics segment that report goodwill. The Company reviews its goodwill balance annually for impairment for each reporting unit, unless circumstances dictate more frequent assessments, and in accordance
with ASU
2011-08,
Testing Goodwill for Impairment
. ASU
2011-08
permits an initial assessment, commonly referred to as step zero, of qualitative
factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount
39
and also provides a basis for determining whether it is necessary to perform the
two-step
goodwill impairment test required by ASC Topic 350. In the fourth
quarter of 2017, the Company performed the qualitative assessment of goodwill and determined it was more likely than not that the fair value of each of its reporting units would be greater than its carrying amount. Therefore, the Company determined
it was not necessary to perform the
two-step
goodwill impairment test. Furthermore, there has been no historical impairment of the Companys goodwill.
Income Taxes
Income tax expense is equal to the current years liability for income taxes and a provision for deferred income taxes. Deferred tax
assets and liabilities are recorded for the future tax effects attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using the enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. On December 22, 2017, the President of the United States
signed into law the Tax Cuts and Jobs Act (the Tax Reform Act). Further information on the tax impacts of the Tax Reform Act is included in Note 5 of the Companys consolidated financial statements.
Share-Based Payments
The Companys share-based payment arrangements include restricted stock units (RSU), stock options,
non-vested
restricted stock and Deferred Stock Units. The fair value of an RSU with a performance condition is determined based on the market value of the Companys Common Stock on the date of grant, discounted
for lack of marketability for a minimum post-vesting holding requirement. With respect to RSU awards with a performance condition, the Company reports compensation expense over the life of the award based on an estimated number of units that will
vest over the life of the award, multiplied by the fair value of an RSU. The fair value of an RSU with a market condition is determined at the time of grant based on the expected achievement of the market condition at the end of each vesting
period. With respect to RSU awards with a market condition, the Company recognizes compensation expense ratably over the requisite service period under an award based on the fair market value of the award at the time of grant, regardless of whether
the market condition is satisfied. Previously recognized compensation cost would be reversed, however, if the employee terminated employment prior to completing such requisite service period. The Company estimates the fair value of stock option
awards on the date of grant using the Black-Scholes pricing model and recognizes compensation cost for stock option awards expected to vest on a straight-line basis over the requisite service period for the entire award. Forfeitures are estimated at
grant date based on historical experience and anticipated employee turnover. The fair values of each share of
non-vested
restricted stock issued and Deferred Stock Unit granted are based on the fair value of a
share of the Companys common stock on the date of grant and compensation costs for
non-vested
restricted stock and Deferred Stock Units are recognized on a straight-line basis over the requisite service
period for the award.
Earnings Per Share
Earnings per common share attributable to Landstar System, Inc. and subsidiary are based on the weighted average number of shares outstanding,
including outstanding
non-vested
restricted stock and outstanding Deferred Stock Units. Diluted earnings per share attributable to Landstar System, Inc. and subsidiary are based on the weighted average number
of common shares and Deferred Stock Units outstanding plus the incremental shares that would have been outstanding upon the assumed exercise of all dilutive stock options.
The following table provides a reconciliation of the average number of common shares outstanding used to calculate earnings per common share
attributable to Landstar System, Inc. and subsidiary to the average number of common shares and common share equivalents outstanding used to calculate diluted earnings per share attributable to Landstar System, Inc. and subsidiary (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Average number of common shares outstanding
|
|
|
41,938
|
|
|
|
42,112
|
|
|
|
43,664
|
|
Incremental shares from assumed exercises of stock options
|
|
|
86
|
|
|
|
124
|
|
|
|
149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of common shares and common share equivalents outstanding
|
|
|
42,024
|
|
|
|
42,236
|
|
|
|
43,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended December 30, 2017, December 31, 2016 and December 26, 2015, no
options outstanding to purchase shares of Common Stock were antidilutive. Outstanding RSUs were excluded from the calculation of diluted earnings per share attributable to Landstar System, Inc. and subsidiary for all periods because the performance
metric requirements or market condition for vesting had not been satisfied.
40
Dividends Payable
On December 11, 2017, the Company announced that its Board of Directors declared a special cash dividend of $1.50 per share payable on
January 26, 2018, to stockholders of record of its Common Stock as of January 12, 2018. Dividends payable of $62,985,000 related to this special dividend were included in current liabilities in the consolidated balance sheet at
December 30, 2017.
Foreign Currency Translation
Assets and liabilities of the Companys Canadian and Mexican operations are translated from their functional currency to U.S. dollars
using exchange rates in effect at the balance sheet date and revenue and expense accounts are translated at average monthly exchange rates during the period. Adjustments resulting from the translation process are included in accumulated other
comprehensive income. Transactional gains and losses arising from receivable and payable balances, including intercompany balances, in the normal course of business that are denominated in a currency other than the functional currency of the
operation are recorded in the statements of income when they occur.
(2) Acquired Business and Noncontrolling Interests
During 2017, the Company incorporated each of Landstar Metro and Landstar Servicios. On September 20, 2017, Landstar Metro acquired
substantially all of the assets of the asset-light transportation logistics business of Fletes Avella, S.A. de C.V., a Mexican transportation logistics company. Cash consideration paid in fiscal year 2017 for the acquisition was approximately
$8,460,000. In addition, at December 30, 2017, there was approximately $1,900,000 in liabilities outstanding consisting of additional contingent purchase price and associated indirect taxes. In connection with the acquisition, individuals
affiliated with the seller subscribed in the aggregate for a 30% equity interest in each of Landstar Metro and Landstar Servicios. The asset acquisition by Landstar Metro was accounted for as a business combination in accordance with Accounting
Standards Codification 805,
Business Combinations
(ASC 805). The resulting goodwill arising from the acquisition was approximately $8,800,000. With respect to this goodwill, 70% is expected to be deductible by the Company for U.S.
income tax purposes, and following the purchase of the noncontrolling interests by the Company, up to 100% of this goodwill would be expected to be deductible by the Company. Pro forma financial information for prior periods is not presented as the
Company does not believe the acquisition to be material to our consolidated results. The results of operations from Landstar Metro and Landstar Servicios are presented as part of the Companys transportations logistics segment. During the
fiscal year ended December 30, 2017, the Company incurred approximately $1,000,000, or $0.01 per common share ($0.01 per diluted share), in
one-time
costs related to the completion of the acquisition and
subscription of the
non-controlling
interests.
As it relates to the noncontrolling interests of
Landstar Metro and Landstar Servicios, the Company has the option to purchase, and the minority equityholders have the option to sell, during the period commencing on the third anniversary of September 20, 2017, the closing date of the
subscription by the minority equityholders (the Closing Date), and at any time after the fourth anniversary of the Closing Date, at fair value all but not less than all of the noncontrolling interests in Landstar Metro and Landstar
Servicios. The noncontrolling interests are also subject to customary restrictions on transfer, including a right of first refusal in favor of the Company.
(3) Other Comprehensive Income
The
following table presents the components of and changes in accumulated other comprehensive income attributable to Landstar System, Inc. and subsidiary, net of related income taxes, as of and for the fiscal years ended December 30, 2017,
December 31, 2016 and December 26, 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
Holding Gains
(Losses)
on
Available-for-Sale
Securities
|
|
|
Foreign Currency
Translation
|
|
|
Total
|
|
Balance as of December 27, 2014
|
|
$
|
105
|
|
|
$
|
(1,290
|
)
|
|
$
|
(1,185
|
)
|
Other comprehensive loss
|
|
|
(199
|
)
|
|
|
(2,104
|
)
|
|
|
(2,303
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 26, 2015
|
|
|
(94
|
)
|
|
|
(3,394
|
)
|
|
|
(3,488
|
)
|
Other comprehensive income
|
|
|
23
|
|
|
|
376
|
|
|
|
399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2016
|
|
|
(71
|
)
|
|
|
(3,018
|
)
|
|
|
(3,089
|
)
|
Other comprehensive loss
|
|
|
(73
|
)
|
|
|
|
|
|
|
(73
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 30, 2017
|
|
$
|
(144
|
)
|
|
$
|
(3,018
|
)
|
|
$
|
(3,162
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
Amounts reclassified from accumulated other comprehensive income to investment income due to the
realization of previously unrealized gains and losses in the accompanying consolidated statements of income were not significant for the fiscal years ended December 30, 2017, December 31, 2016 and December 26, 2015.
(4) Investments
Investments include
primarily investment-grade corporate bonds, money market investments and U.S. Treasury obligations having maturities of up to five years (the bond portfolio). Investments in the bond portfolio are reported as
available-for-sale
and are carried at fair value. Investments maturing less than one year from the balance sheet date are included in short-term investments and investments
maturing more than one year from the balance sheet date are included in other assets in the consolidated balance sheets. Management performs an analysis of the nature of the unrealized losses on
available-for-sale
investments to determine whether such losses are other-than-temporary. Unrealized losses, representing the excess of the purchase price of an investment over its fair value as of the end of
a period, considered to be other-than-temporary, are to be included as a charge in the statement of income, while unrealized losses considered to be temporary are to be included as a component of equity. Investments whose values are based on quoted
market prices in active markets are classified within Level 1. Investments that trade in markets that are not considered to be active, but are valued based on quoted market prices, are classified within Level 2. As Level 2 investments
include positions that are not traded in active markets, valuations may be adjusted to reflect illiquidity and/or
non-transferability,
which are generally based on available market information. Any transfers
between levels are recognized as of the beginning of any reporting period. Fair value of the bond portfolio was determined using Level 1 inputs related to U.S. Treasury obligations and money market investments and Level 2 inputs related to
investment-grade corporate bonds, asset-backed securities and direct obligations of government agencies. Unrealized losses, net of unrealized gains, on the investments in the bond portfolio were $223,000 and $109,000 at December 30, 2017 and
December 31, 2016, respectively.
The amortized cost and fair values of
available-for-sale
investments are as follows at December 30, 2017 and December 31, 2016 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
December 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market investments
|
|
$
|
27,895
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
27,895
|
|
Asset-backed securities
|
|
|
2,805
|
|
|
|
|
|
|
|
5
|
|
|
|
2,800
|
|
Corporate bonds and direct obligations of government agencies
|
|
|
80,442
|
|
|
|
117
|
|
|
|
335
|
|
|
|
80,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
111,142
|
|
|
$
|
117
|
|
|
$
|
340
|
|
|
$
|
110,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market investments
|
|
$
|
12,395
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
12,395
|
|
Asset-backed securities
|
|
|
4,027
|
|
|
|
3
|
|
|
|
19
|
|
|
|
4,011
|
|
Corporate bonds and direct obligations of government agencies
|
|
|
70,069
|
|
|
|
150
|
|
|
|
239
|
|
|
|
69,980
|
|
U.S. Treasury obligations
|
|
|
23,037
|
|
|
|
2
|
|
|
|
6
|
|
|
|
23,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
109,528
|
|
|
$
|
155
|
|
|
$
|
264
|
|
|
$
|
109,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
For those
available-for-sale
investments with unrealized losses at December 30, 2017 and December 31, 2016, the following table summarizes the duration of the unrealized
loss (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
|
12 months or longer
|
|
|
Total
|
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
|
Fair
Value
|
|
|
Unrealized
Loss
|
|
December 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities
|
|
$
|
1,864
|
|
|
$
|
4
|
|
|
$
|
632
|
|
|
$
|
1
|
|
|
$
|
2,496
|
|
|
$
|
5
|
|
Corporate bonds and direct obligations of government agencies
|
|
|
41,322
|
|
|
|
220
|
|
|
|
14,016
|
|
|
|
115
|
|
|
|
55,338
|
|
|
|
335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
43,186
|
|
|
$
|
224
|
|
|
$
|
14,648
|
|
|
$
|
116
|
|
|
$
|
57,834
|
|
|
$
|
340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities
|
|
$
|
1,363
|
|
|
$
|
6
|
|
|
$
|
2,314
|
|
|
$
|
13
|
|
|
$
|
3,677
|
|
|
$
|
19
|
|
Corporate bonds and direct obligations of government agencies
|
|
|
28,809
|
|
|
|
195
|
|
|
|
1,367
|
|
|
|
44
|
|
|
|
30,176
|
|
|
|
239
|
|
U.S. Treasury obligations
|
|
|
12,734
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
12,734
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
42,906
|
|
|
$
|
207
|
|
|
$
|
3,681
|
|
|
$
|
57
|
|
|
$
|
46,587
|
|
|
$
|
264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company believes that unrealized losses on investments were primarily caused by rising interest rates
rather than changes in credit quality. The Company expects to recover the amortized cost basis of these securities as it does not intend to sell, and does not anticipate being required to sell, these securities before recovery of the cost basis. For
these reasons, the Company does not consider the unrealized losses on these securities to be other-than-temporary at December 30, 2017.
Short-term investments include $48,928,000 in current maturities of investments held by the Companys insurance segment at
December 30, 2017. The
non-current
portion of the bond portfolio of $61,991,000 is included in other assets. The short-term investments, together with $17,112,000 of
non-current
investments, provide collateral for the $59,436,000 of letters of credit issued to guarantee payment of insurance claims.
Investment income represents the earnings on the insurance segments assets. Investment income earned from the assets of the insurance
segment are included as a component of operating income as the investment of these assets is critical to providing collateral, liquidity and earnings with respect to the operation of the Companys insurance programs.
(5) Income Taxes
The provisions for
income taxes consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
72,025
|
|
|
$
|
68,548
|
|
|
$
|
74,289
|
|
State
|
|
|
8,312
|
|
|
|
6,668
|
|
|
|
9,550
|
|
Foreign
|
|
|
500
|
|
|
|
563
|
|
|
|
437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
$
|
80,837
|
|
|
$
|
75,779
|
|
|
$
|
84,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(17,110
|
)
|
|
$
|
6,104
|
|
|
$
|
6,524
|
|
State
|
|
|
79
|
|
|
|
224
|
|
|
|
268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
$
|
(17,031
|
)
|
|
$
|
6,328
|
|
|
$
|
6,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
63,806
|
|
|
$
|
82,107
|
|
|
$
|
91,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On December 22, 2017, the President of the United States signed into law 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,
43
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 Companys consolidated statement of income for the year ended December 30, 2017. With respect to the repatriation tax on deemed repatriated earnings of foreign subsidiaries, the Tax Reform Act provided for a
one-time
deemed mandatory repatriation of post-1986 undistributed foreign subsidiary earnings and profits (E&P) through the year ended December 31, 2017. The Company had an estimated $17,981,000
of undistributed foreign E&P at the Companys Canadian subsidiary, Landstar Canada, Inc. subject to the deemed mandatory repatriation and, accordingly, recognized a provisional $900,000 of income tax expense in the Companys
consolidated statement of income for the year ended December 30, 2017. After the utilization of existing tax credits, the Company expects to pay U.S. federal cash taxes of approximately $500,000 on the deemed mandatory repatriation, payable
over eight years.
On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118) to address
the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax
Reform Act. The Company has recognized the provisional tax impacts related to deemed repatriated earnings and the revaluation of deferred tax assets and liabilities and included these amounts in its consolidated financial statements for the year
ended December 30, 2017. The ultimate impact may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory
guidance that may be issued, and actions the Company may take as a result of the Tax Reform Act. The accounting is expected to be complete when the 2017 U.S. corporate income tax return is filed in 2018.
Also during fiscal year 2017, the Company adopted ASU
2016-09,
as further described in footnote 15. As
required by ASU
2016-09,
the Company recognized $1,299,000 of excess tax benefits on stock-based awards in its provision for income taxes in the 2017 fiscal year.
Temporary differences and carryforwards which gave rise to deferred tax assets and liabilities consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Dec. 30, 2017
|
|
|
Dec. 31, 2016
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Receivable valuations
|
|
$
|
3,244
|
|
|
$
|
4,518
|
|
Share-based payments
|
|
|
2,182
|
|
|
|
1,185
|
|
Self-insured claims
|
|
|
4,688
|
|
|
|
6,270
|
|
Other
|
|
|
3,666
|
|
|
|
4,336
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
$
|
13,780
|
|
|
$
|
16,309
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Operating property
|
|
$
|
43,105
|
|
|
$
|
59,720
|
|
Goodwill
|
|
|
3,773
|
|
|
|
5,883
|
|
Other
|
|
|
2,016
|
|
|
|
2,851
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
$
|
48,894
|
|
|
$
|
68,454
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
35,114
|
|
|
$
|
52,145
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the differences between income taxes calculated at the federal income tax rate
of 35% on income before income taxes and the provisions for income taxes (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Income taxes at federal income tax rate
|
|
$
|
84,281
|
|
|
$
|
76,810
|
|
|
$
|
83,565
|
|
State income taxes, net of federal income tax benefit
|
|
|
5,417
|
|
|
|
4,505
|
|
|
|
7,201
|
|
Meals and entertainment exclusion
|
|
|
1,021
|
|
|
|
958
|
|
|
|
946
|
|
Share-based payments
|
|
|
(1,549
|
)
|
|
|
(239
|
)
|
|
|
(61
|
)
|
Section 199 deductions and R&D credits
|
|
|
(5,546
|
)
|
|
|
(250
|
)
|
|
|
|
|
Tax Reform Act
|
|
|
(19,530
|
)
|
|
|
|
|
|
|
|
|
Other, net
|
|
|
(288
|
)
|
|
|
323
|
|
|
|
(583
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
63,806
|
|
|
$
|
82,107
|
|
|
$
|
91,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company files a consolidated U.S. federal income tax return. The Company or its subsidiaries file
state tax returns in the majority of the U.S. state tax jurisdictions. With few exceptions, the Company and its subsidiaries are no longer subject to U.S. federal or state income tax examinations by tax authorities for 2013 and prior
years. The Companys wholly owned Canadian subsidiary, Landstar Canada, Inc., is subject to Canadian income and other taxes. The Companys wholly owned Mexican subsidiary, Landstar Holdings, S. de R.L.C.V. and 70% owned subsidiaries,
Landstar Metro, S.A.P.I. de C.V. and Landstar Metro Servicios S.A.P.I. de C.V. are subject to Mexican and U.S. income and other taxes.
44
As of December 30, 2017 and December 31, 2016, the Company had $3,670,000 and
$1,829,000, respectively, of net unrecognized tax benefits representing the provision for the uncertainty of certain tax positions plus a component of interest and penalties. Estimated interest and penalties on the provision for the uncertainty of
certain tax positions is included in income tax expense. At December 30, 2017 and December 31, 2016 there was $627,000 and $547,000, respectively, accrued for estimated interest and penalties related to the uncertainty of certain tax
positions. The Company does not currently anticipate any significant increase or decrease to the unrecognized tax benefit during fiscal year 2018.
The following table summarizes the rollforward of the total amounts of gross unrecognized tax benefits for fiscal years 2017 and 2016 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years
|
|
|
|
2017
|
|
|
2016
|
|
Gross unrecognized tax benefits beginning of the year
|
|
$
|
2,635
|
|
|
$
|
2,704
|
|
Gross increases related to current year tax positions
|
|
|
645
|
|
|
|
428
|
|
Gross increases related to prior year tax positions
|
|
|
2,189
|
|
|
|
596
|
|
Gross decreases related to prior year tax positions
|
|
|
(75
|
)
|
|
|
(399
|
)
|
Settlements
|
|
|
(100
|
)
|
|
|
(133
|
)
|
Lapse of statute of limitations
|
|
|
(482
|
)
|
|
|
(561
|
)
|
|
|
|
|
|
|
|
|
|
Gross unrecognized tax benefits end of the year
|
|
$
|
4,812
|
|
|
$
|
2,635
|
|
|
|
|
|
|
|
|
|
|
Landstar paid income taxes of $86,607,000 in fiscal year 2017, $69,067,000 in fiscal year 2016 and $74,619,000
in fiscal year 2015.
(6) Operating Property
Operating property is summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Dec. 30, 2017
|
|
|
Dec. 31, 2016
|
|
Land
|
|
$
|
15,259
|
|
|
$
|
15,259
|
|
Buildings and improvements
|
|
|
57,758
|
|
|
|
56,413
|
|
Trailing equipment
|
|
|
363,377
|
|
|
|
342,813
|
|
Other equipment
|
|
|
58,317
|
|
|
|
48,732
|
|
|
|
|
|
|
|
|
|
|
Total operating property, gross
|
|
|
494,711
|
|
|
|
463,217
|
|
Less accumulated depreciation and amortization
|
|
|
218,700
|
|
|
|
190,374
|
|
|
|
|
|
|
|
|
|
|
Total operating property, net
|
|
$
|
276,011
|
|
|
$
|
272,843
|
|
|
|
|
|
|
|
|
|
|
Included above is $239,438,000 in fiscal year 2017 and $249,717,000 in fiscal year 2016 of operating property
under capital leases, $171,658,000 and $183,763,000, respectively, net of accumulated depreciation and amortization. Landstar acquired operating property by entering into capital leases in the amount of $33,560,000 in fiscal year 2017, $61,504,000
in fiscal year 2016 and $49,491,000 in fiscal year 2015.
(7) Retirement Plan
Landstar sponsors an Internal Revenue Code section 401(k) defined contribution plan for the benefit of U.S. domiciled full-time employees who
have completed one year of service. Eligible employees make voluntary contributions up to 75% of their base salary, subject to certain limitations. Landstar contributes an amount equal to 100% of the first 3% and 50% of the next 2% of such
contributions, subject to certain limitations.
The expense for the Company-sponsored defined contribution plan included in selling,
general and administrative expense was $2,056,000 in fiscal year 2017, $2,074,000 in fiscal year 2016 and $1,901,000 in fiscal year 2015.
(8) Debt
Other than the capital lease obligations as presented on the consolidated balance sheets, the Company had no outstanding debt as of
December 30, 2017 and December 31, 2016.
45
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 Companys prior credit
agreement was terminated on June 2, 2016. Borrowings under the Credit Agreement are unsecured, however, all but four of the Companys U.S. subsidiaries guarantee the obligations under the Credit Agreement along with Signature Insurance
Company. On February 2, 2018, Landstar entered into an amendment to the Credit Agreement whereby Landstar Canada Holdings, Inc., the U.S. parent of Landstar Canada, and Landstar MH I, LL, the U.S. parent of Landstar Holdings, S. de R.L.C.V.,
Landstar Metro and Landstar Servicios, in lieu of providing a guarantee of the obligations under the Credit Agreement, granted to the administrative agent, for the benefit of the bank syndicate, a first-priority, perfected pledge and security
interest in 65% of each series of its outstanding voting capital stock and 100% of each series of its outstanding
non-voting
capital stock. Any future amounts that may become outstanding under the Credit
Agreement are payable on June 2, 2021, the maturity date of the Credit Agreement.
Depending upon the specific type of borrowing,
borrowings under the Credit Agreement bear interest based on either (a) the prime rate, (b) the Federal Reserve Bank of New York rate plus 0.5% or (c) the London Interbank Offered Rate, plus 1.25%. The unused portion of the revolving
credit facility under the Credit Agreement carries a commitment fee determined based on the level of the Leverage Ratio. The commitment fee for the unused portion of the revolving credit facility under the Credit Agreement ranges from .15% to .25%,
based on achieving certain levels of the Leverage Ratio. As of December 30, 2017 and December 31, 2016, the Company had no borrowings outstanding under the Credit Agreement.
The Credit Agreement contains a number of covenants that limit, among other things, the incurrence of additional indebtedness. The Company is
required to, among other things, maintain a minimum Fixed Charge Coverage Ratio, as defined in the Credit Agreement, and maintain a Leverage Ratio, as defined in the Credit Agreement, below a specified maximum. The Credit Agreement provides for a
restriction on cash dividends and other distributions to stockholders on the Companys 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 Companys 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 Companys 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 Companys operations, capital resources or liquidity. The Company is currently in compliance with all of the debt covenants under the Credit Agreement.
The interest rates on borrowings under the revolving credit facility are typically tied to short-term LIBOR rates that adjust monthly and, as
such, carrying value approximates fair value. Interest rates on borrowings under capital leases approximate the interest rates that would currently be available to the Company under similar terms and, as such, carrying value approximates fair value.
Landstar paid interest of $3,891,000 in fiscal year 2017, $3,794,000 in fiscal year 2016 and $3,012,000 in fiscal year 2015.
(9) Leases
The future minimum lease
payments under all noncancelable leases at December 30, 2017, principally for trailing equipment, are shown in the following table (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Capital
Leases
|
|
|
Operating
Leases
|
|
2018
|
|
$
|
44,810
|
|
|
$
|
302
|
|
2019
|
|
|
36,632
|
|
|
|
180
|
|
2020
|
|
|
29,261
|
|
|
|
5
|
|
2021
|
|
|
14,799
|
|
|
|
|
|
2022
|
|
|
5,588
|
|
|
|
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total future minimum lease payments
|
|
|
131,090
|
|
|
$
|
487
|
|
|
|
|
|
|
|
|
|
|
Less amount representing interest (2.0% to 3.5%)
|
|
|
5,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of minimum lease payments
|
|
$
|
125,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
Total rent expense/income, net of sublease income, was $1,419,000 income in fiscal year 2017,
$1,641,000 income in fiscal year 2016 and $318,000 expense in fiscal year 2015.
(10) Share-Based Payment Arrangements
As of December 30, 2017, the Company had two employee equity incentive plans, the 2002 employee stock option and stock incentive plan (the
ESOSIP) and the 2011 equity incentive plan (the 2011 EIP). No further grants can be made under the ESOSIP. The Company also has a stock compensation plan for members of its Board of Directors, the Amended and Restated 2013
Directors Stock Compensation Plan (as amended and restated as of May 17, 2016, the 2013 DSCP). 6,000,000 shares of the Companys Common Stock were authorized for issuance under the 2011 EIP and 115,000 shares of the
Companys Common Stock were authorized for issuance under the 2013 DSCP. The ESOSIP, 2011 EIP and 2013 DSCP are each referred to herein as a Plan, and, collectively, as the Plans. Amounts recognized in the financial
statements with respect to these Plans are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Total cost of the Plans during the period
|
|
$
|
7,721
|
|
|
$
|
2,747
|
|
|
$
|
6,925
|
|
Amount of related income tax benefit recognized during the period
|
|
|
(3,285
|
)
|
|
|
(1,238
|
)
|
|
|
(2,432
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cost of the Plans during the period
|
|
$
|
4,436
|
|
|
$
|
1,509
|
|
|
$
|
4,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in income tax benefits recognized in the fiscal years ended December 30, 2017 and
December 31, 2016 were income tax benefits of $339,000 and $451,000, respectively, recognized on disqualifying dispositions of the Companys Common Stock by employees who obtained shares of Common Stock through exercises of incentive stock
options. Also included in income tax benefits recognized in the fiscal year ended December 30, 2017 were excess tax benefits from stock-based awards of $1,299,000, as required by the Companys adoption of Accounting Standards Update
2016-09
during the first fiscal quarter of 2017. See Note 15, Recent Accounting Pronouncements, for further information.
As of December 30, 2017, there were 78,682 shares of the Companys Common Stock reserved for issuance under the 2013 DSCP and
4,678,411 shares of the Companys Common Stock reserved for issuance in the aggregate under the ESOSIP and 2011 EIP.
Restricted Stock Units
The following table summarizes information regarding the Companys outstanding restricted stock unit (RSU) awards
with either a performance condition or a market condition under the Plans:
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Weighted Average
Grant Date
|
|
|
|
RSUs
|
|
|
Fair Value
|
|
Outstanding at December 27, 2014
|
|
|
425,630
|
|
|
$
|
50.72
|
|
Granted
|
|
|
111,922
|
|
|
$
|
53.30
|
|
Vested
|
|
|
(91,382
|
)
|
|
$
|
51.98
|
|
Forfeited
|
|
|
(2,013
|
)
|
|
$
|
52.81
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 26, 2015
|
|
|
444,157
|
|
|
$
|
51.10
|
|
Granted
|
|
|
79,948
|
|
|
$
|
51.58
|
|
Vested
|
|
|
(81,344
|
)
|
|
$
|
53.08
|
|
Forfeited
|
|
|
(64,523
|
)
|
|
$
|
52.99
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
378,238
|
|
|
$
|
50.46
|
|
Granted
|
|
|
67,913
|
|
|
$
|
76.81
|
|
Forfeited
|
|
|
(58,779
|
)
|
|
$
|
46.00
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 30, 2017
|
|
|
387,372
|
|
|
$
|
55.75
|
|
|
|
|
|
|
|
|
|
|
During fiscal years 2015, 2016 and 2017 the Company granted RSUs with a performance condition. During fiscal
year 2015, the Company also issued RSUs with a market condition, as further described below.
RSUs with a performance condition granted on
February 2, 2017 may vest on January 31 of 2020, 2021 and 2022. RSUs with a performance condition granted on January 29, 2016 may vest on January 31 of 2019, 2020 and 2021. RSUs with a performance condition granted on
January 27, 2015 may vest on January 31 of 2018, 2019 and 2020. RSUs with a performance condition vest based on growth in operating income and diluted earnings per share from continuing operations attributable to Landstar System Inc.
47
and subsidiary as compared to a base year, being the year immediately preceding the year of grant. At the time of grant, the target number of common shares available for issuance under the
February 2, 2017, January 29, 2016 and January 27, 2015 grants equals 100% of the number of RSUs granted, and the maximum number of common shares available for issuance under the February 2, 2017, January 29, 2016 and
January 27, 2015 grants equals 200% of the number of RSUs granted. In the event actual results exceed the target, the number of shares that will be granted will exceed the number of RSUs granted. The maximum number of common shares available
for issuance under grants made prior to 2015 equals 100% of the number of RSUs granted. The fair value of an RSU with a performance condition was determined based on the market value of the Companys Common Stock on the date of grant,
discounted for lack of marketability for a minimum post-vesting holding requirement. The discount rate due to lack of marketability used for RSU award grants with a performance condition for all periods was 7%. With respect to RSU awards with a
performance condition, the Company reports compensation expense over the life of the award based on an estimated number of units that will vest over the life of the award, multiplied by the fair value of an RSU.
On May 1, 2015, the Company granted 20,000 RSUs that vest based on a market condition. These RSUs may vest on April 30 of 2019, 2020
and 2021 based on the Companys total shareholder return (TSR) compound annual growth rate over the vesting periods, adjusted to reflect dividends (if any) paid during such periods and capital adjustments as may be necessary. The
target number of common shares available for issuance under the May 1, 2015 grant equals 100% of the number of RSUs granted, and the maximum number of common shares available for issuance under the May 1, 2015 grant equals 150% of the
number of RSUs granted. In the event actual results exceed the target TSR compound annual growth rate, the number of shares that will be granted will exceed the number of RSUs granted. The fair value of this RSU award was determined at the time of
grant based on the expected achievement of the market condition at the end of each vesting period. With respect to these RSU awards with a market condition, compensation expense is recognized ratably over the requisite service period under an award
based on the fair market value of the award at the time of grant, regardless of whether the market condition is satisfied. Previously recognized compensation cost would be reversed, however, if the employee terminated employment prior to completing
such requisite service period.
The Company recognized approximately $5,849,000, $849,000 and $4,943,000 of share-based compensation
expense related to RSU awards in fiscal years 2017, 2016 and 2015, respectively. As of December 30, 2017, there was a maximum of $28.4 million of total unrecognized compensation cost related to RSU awards granted under the Plans with
an expected average remaining life of approximately 2.6 years. Included in the $28.4 million of total unrecognized compensation cost is $3.4 million of unrecognized compensation cost related to 68,592 unvested units granted in 2013, which
forfeited during the first fiscal quarter of 2018.With respect to RSU awards with a performance condition, the amount of future compensation expense to be recognized will be determined based on future operating results.
Stock Options
The Company did not grant
any stock options during its 2015, 2016 or 2017 fiscal years. Options outstanding under the Plans generally become exercisable in either five equal annual installments commencing on the first anniversary of the date of grant or 100% on the fifth
anniversary from the date of grant, subject to acceleration in certain circumstances. All options granted under the Plans expire on the tenth anniversary of the date of grant. Under the Plans, the exercise price of each option equals the fair market
value of the Companys Common Stock on the date of grant.
The fair value of each option grant on its grant date was calculated using
the Black-Scholes option pricing model. The Company utilizes historical data, including exercise patterns and employee departure behavior, in estimating the term that options will be outstanding. Expected volatility was based on historical
volatility and other factors, such as expected changes in volatility arising from planned changes to the Companys business, if any. The risk-free interest rate was based on the yield of zero coupon U.S. Treasury bonds for terms that
approximated the terms of the options granted.
48
The following table summarizes information regarding the Companys outstanding stock options
under the Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
Number of
Options
|
|
|
Weighted Average
Exercise Price
per Share
|
|
|
Number of
Options
|
|
|
Weighted Average
Exercise Price
per Share
|
|
Options at December 27, 2014
|
|
|
773,839
|
|
|
$
|
46.92
|
|
|
|
379,389
|
|
|
$
|
44.61
|
|
Exercised
|
|
|
(133,518
|
)
|
|
$
|
45.25
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(3,100
|
)
|
|
$
|
52.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options at December 26, 2015
|
|
|
637,221
|
|
|
$
|
47.24
|
|
|
|
415,121
|
|
|
$
|
45.12
|
|
Exercised
|
|
|
(257,460
|
)
|
|
$
|
45.63
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(7,200
|
)
|
|
$
|
53.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options at December 31, 2016
|
|
|
372,561
|
|
|
$
|
48.24
|
|
|
|
282,461
|
|
|
$
|
46.39
|
|
Exercised
|
|
|
(180,321
|
)
|
|
$
|
47.01
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(3,200
|
)
|
|
$
|
52.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options at December 30, 2017
|
|
|
189,040
|
|
|
$
|
49.34
|
|
|
|
169,240
|
|
|
$
|
48.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables summarize stock options outstanding and exercisable at December 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Range of Exercise Prices Per Share
|
|
Number
Outstanding
|
|
|
Weighted Average
Remaining Contractual
Term (years)
|
|
|
Weighted Average
Exercise Price
per Share
|
|
$35.64 - $40.00
|
|
|
15,400
|
|
|
|
1.6
|
|
|
$
|
36.46
|
|
$40.01 - $45.00
|
|
|
49,250
|
|
|
|
3.1
|
|
|
$
|
41.76
|
|
$45.01 - $58.06
|
|
|
124,390
|
|
|
|
4.5
|
|
|
$
|
53.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
189,040
|
|
|
|
3.9
|
|
|
$
|
49.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Exercisable
|
|
Range of Exercise Prices Per Share
|
|
Number
Exercisable
|
|
|
Weighted Average
Remaining Contractual
Term (years)
|
|
|
Weighted Average
Exercise Price
per Share
|
|
$35.64 - $40.00
|
|
|
15,400
|
|
|
|
1.6
|
|
|
$
|
36.46
|
|
$40.01 - $45.00
|
|
|
49,250
|
|
|
|
3.1
|
|
|
$
|
41.76
|
|
$45.01 - $56.40
|
|
|
104,590
|
|
|
|
4.4
|
|
|
$
|
53.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
169,240
|
|
|
|
3.8
|
|
|
$
|
48.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 30, 2017, the total intrinsic value of options outstanding was $10,352,000. At
December 30, 2017, the total intrinsic value of options outstanding and exercisable was $9,410,000. The total intrinsic value of stock options exercised during fiscal years 2017, 2016 and 2015 was $7,599,000, $7,427,000 and $2,954,000,
respectively.
As of December 30, 2017, there was $29,000 of total unrecognized compensation cost related to
non-vested
stock options granted under the Plans. The unrecognized compensation cost related to these
non-vested
options is expected to be recognized during 2018.
Non-vested
Restricted Stock and Deferred Stock Units
The 2011 EIP provides the Compensation Committee of the Board of Directors with the authority to issue shares of Common Stock of the Company,
subject to certain vesting and other restrictions on transfer (restricted stock).
49
The following table summarizes information regarding the Companys outstanding shares of
non-vested
restricted stock and Deferred Stock Units (defined below) under the Plans:
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares and Deferred
Stock Units
|
|
|
Weighted Average
Grant Date Fair
Value
|
|
Outstanding at December 27, 2014
|
|
|
23,353
|
|
|
$
|
54.90
|
|
Granted
|
|
|
1,197
|
|
|
$
|
62.46
|
|
Vested
|
|
|
(6,490
|
)
|
|
$
|
57.79
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 26, 2015
|
|
|
18,060
|
|
|
$
|
54.36
|
|
Granted
|
|
|
26,033
|
|
|
$
|
58.53
|
|
Vested
|
|
|
(15,684
|
)
|
|
$
|
53.03
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
28,409
|
|
|
$
|
58.91
|
|
Granted
|
|
|
42,573
|
|
|
$
|
84.47
|
|
Vested
|
|
|
(16,227
|
)
|
|
$
|
61.50
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 30, 2017
|
|
|
54,755
|
|
|
$
|
78.02
|
|
|
|
|
|
|
|
|
|
|
The fair value of each share of
non-vested
restricted stock issued and
Deferred Stock Unit granted under the Plans are based on the fair value of a share of the Companys Common Stock on the date of grant. Shares of
non-vested
restricted stock are generally subject to
vesting in three equal annual installments either on the first, second and third anniversary of the date of grant or the third, fourth and fifth anniversary of the date of the grant, or 100% on the first anniversary of the date of the grant. For
restricted stock awards granted under the 2013 DSCP plan, each recipient may elect to defer receipt of shares and instead receive restricted stock units (Deferred Stock Units), which represent contingent rights to receive shares of the
Companys Common Stock on the date of recipient separation from service from the Board of Directors, or, if earlier, upon a change in control event of the Company. Deferred Stock Units become vested 100% on the first anniversary of the date of
the grant. Deferred Stock Units do not represent actual ownership in shares of the Companys Common Stock and the recipient will not have voting rights or other incidents of ownership until the shares are issued. However, Deferred Stock Units
do contain the right to receive dividend equivalent payments prior to settlement into shares.
As of December 30, 2017, there was
$2,967,000 of total unrecognized compensation cost related to
non-vested
shares of restricted stock and Deferred Stock Units granted under the Plans. The unrecognized compensation cost related to these
non-vested
shares of restricted stock and Deferred Stock Units is expected to be recognized over a weighted average period of 2.9 years.
Directors Stock Compensation Plan
Commencing as of the 2016 annual meeting of the stockholders of the Company (an Annual Meeting), Directors of the Company who are
not employees of the Company (each an Eligible Director) are entitled under the 2013 DSCP to receive a grant of such number of restricted shares of the Companys Common Stock or Deferred Stock Units equal to the quotient of $110,000
divided by the fair market value of a share of Common Stock on the date immediately following the date of each Annual Meeting. With respect to the 2016 Annual Meeting only, each Eligible Director who was designated as a Class III director
instead received a number of shares equal to the quotient of $35,000 divided by the fair market value of a share of Common Stock. Prior to the 2016 Annual Meeting, upon election or
re-election
to the Board of
Directors for a three year term, Eligible Directors received a grant of such number of restricted shares of the Companys Common Stock equal to the quotient of $225,000 divided by the fair market value of a share of Common Stock on the date
immediately following the date of such Eligible Directors
re-election
or election to the Board. In fiscal year 2017, 6,575 restricted shares and 1,315 Deferred Stock Units were granted to Eligible
Directors. In fiscal years 2016 and 2015, 7,762 restricted shares and 1,197 restricted shares, respectively, were granted to Eligible Directors. Restricted shares and Deferred Stock Units granted in 2016 and 2017 vest on the date of the next Annual
Meeting. Restricted shares granted prior to 2016 generally vest in three equal annual installments on the first three annual anniversary dates of the date of grant. During fiscal years 2017, 2016 and 2015, $651,000, $591,000 and $419,000,
respectively, of compensation cost was recorded for the grant of these restricted shares and Deferred Stock Units.
(11) Equity
On May 19, 2015, the Landstar System, Inc. Board of Directors authorized the Company to increase the number of shares of the
Companys Common Stock that the Company is authorized to purchase from time to time in the open market and in privately negotiated transactions under a previously announced purchase program to 3,000,000 shares. On December 11, 2017, the
Landstar System, Inc. Board of Directors authorized the Company to purchase up to 1,963,875 shares of the Companys Common Stock from
50
time to time in the open market and in privately negotiated transactions. As of December 30, 2017, the Company has authorization to purchase 3,000,000 shares of its Common Stock in the
aggregate under these programs. No specific expiration date has been assigned to either the May 19, 2015 or December 11, 2017 authorizations. During fiscal year 2017, Landstar did not purchase any shares of its Common Stock.
The Company has 2,000,000 shares of preferred stock authorized and unissued.
(12) Commitments and Contingencies
During 2017, the Company incorporated each of Landstar Metro and Landstar Servicios. On September 20, 2017, Landstar Metro acquired
substantially all of the assets of the asset-light transportation logistics business of Fletes Avella, S.A. de C.V., a Mexican transportation logistics company. In connection with the acquisition, individuals affiliated with the seller subscribed in
the aggregate for a 30% equity interest in each of Landstar Metro and Landstar Servicios. As it relates to the noncontrolling interests of Landstar Metro and Landstar Servicios, the Company has the option to purchase, and the minority equityholders
have the option to sell, during the period commencing on the third anniversary of September 20, 2017, the closing date of the subscription by the minority equityholders (the Closing Date), and at any time after the fourth
anniversary of the Closing Date, at fair value all but not less than all of the noncontrolling interests in Landstar Metro and Landstar Servicios. The noncontrolling interests are also subject to customary restrictions on transfer, including a right
of first refusal in favor of the Company.
At December 30, 2017, in addition to the $59,436,000 letters of credit secured by
investments, Landstar had $33,124,000 of letters of credit outstanding under the Credit Agreement.
The Company is involved in certain
claims and pending litigation arising from the normal conduct of business. Many of these claims are covered in whole or in part by insurance. Based on knowledge of the facts and, in certain cases, opinions of outside counsel, management believes
that adequate provisions have been made for probable losses with respect to the resolution of all such claims and pending litigation and that the ultimate outcome, after provisions therefor, will not have a material adverse effect on the financial
condition of the Company, but could have a material effect on the results of operations in a given quarter or year.
(13) Segment Information
Landstar markets its integrated transportation management solutions primarily through independent commission sales agents and exclusively
utilizes third party capacity providers to transport customers freight. Landstars independent commission sales agents enter into contractual arrangements with the Company and are responsible for locating freight, making that freight
available to Landstars capacity providers and coordinating the transportation of the freight with customers and capacity providers. The Companys third party capacity providers consist of independent contractors who provide truck capacity
to the Company under exclusive lease arrangements (the BCO Independent Contractors), unrelated trucking companies who provide truck capacity to the Company under
non-exclusive
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 Landstars information technology systems, Landstar
operates an integrated transportation management solutions business primarily throughout North America with revenue of $3.6 billion during the most recently completed fiscal year. The Company reports the results of two operating segments: the
transportation logistics segment and the insurance segment.
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, project cargo and customs brokerage. Examples of the industries serviced by the transportation logistics segment include automotive products, 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. Each of the independent commission sales agents has the opportunity to market all of the services provided by the transportation logistics segment. Billings for freight transportation services are typically
charged to customers on a per shipment basis for the physical transportation of freight.
During 2017, the Company incorporated Landstar
Metro, S.A.P.I. de C.V., a transportation logistics company (Landstar Metro), and Landstar Metro Servicios S.A.P.I. de C.V., a services company (Landstar Servicios), each based in Mexico City, Mexico. On September 20,
2017, Landstar Metro acquired substantially all of the assets of the asset-light transportation logistics business of a Mexican transportation logistics company. In connection with the acquisition, individuals affiliated with the seller subscribed
in the
51
aggregate for a 30% equity interest in each of Landstar Metro and Landstar Servicios. Landstar Metro provides freight and logistics services within the country of Mexico and in conjunction
with Landstars U.S./Mexico cross-border services. Landstar Servicios provides various administrative, financial, operational, safety and compliance services to Landstar Metro. The results of operations from Landstar Metro and Landstar
Servicios are presented as part of the Companys transportation logistics segment.
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 Landstars operating
subsidiaries. In addition, it reinsures certain risks of the Companys BCO Independent Contractors and provides certain property and casualty insurance directly to certain of Landstars operating subsidiaries. Revenue at the insurance
segment represents reinsurance premiums from third party insurance companies that provide insurance programs to BCO Independent Contractors where all or a portion of the risk is ultimately borne by Signature. Internal revenue for premiums billed by
the insurance segment to the transportation logistics segment is calculated each fiscal period based primarily on an actuarial calculation of historical loss experience and is believed to approximate the cost that would have been incurred by the
transportation logistics segment had similar insurance been obtained from an unrelated third party.
The accounting policies of the
segments are the same as those described in the summary of significant accounting policies. The Company evaluates a segments performance based on operating income.
No single customer accounted for more than 10% of the Companys consolidated revenue in fiscal years 2017, 2016 and 2015. Substantially
all of the Companys revenue is generated in North America, primarily through customers located in the United States.
The following
tables summarize information about the Companys reportable business segments as of and for the fiscal years ending December 30, 2017, December 31, 2016 and December 26, 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation
|
|
|
|
|
|
|
|
|
|
Logistics
|
|
|
Insurance
|
|
|
Total
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
External revenue
|
|
$
|
3,599,382
|
|
|
$
|
46,982
|
|
|
$
|
3,646,364
|
|
Internal revenue
|
|
|
|
|
|
|
37,110
|
|
|
|
37,110
|
|
Investment income
|
|
|
|
|
|
|
2,498
|
|
|
|
2,498
|
|
Interest and debt expense
|
|
|
3,166
|
|
|
|
|
|
|
|
3,166
|
|
Depreciation and amortization
|
|
|
40,560
|
|
|
|
|
|
|
|
40,560
|
|
Operating income
|
|
|
209,615
|
|
|
|
34,353
|
|
|
|
243,968
|
|
Expenditures on long-lived assets
|
|
|
15,586
|
|
|
|
|
|
|
|
15,586
|
|
Goodwill
|
|
|
39,065
|
|
|
|
|
|
|
|
39,065
|
|
Capital lease additions
|
|
|
33,560
|
|
|
|
|
|
|
|
33,560
|
|
Total assets
|
|
|
1,132,766
|
|
|
|
219,694
|
|
|
|
1,352,460
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
External revenue
|
|
$
|
3,121,210
|
|
|
$
|
46,424
|
|
|
$
|
3,167,634
|
|
Internal revenue
|
|
|
|
|
|
|
36,118
|
|
|
|
36,118
|
|
Investment income
|
|
|
|
|
|
|
1,502
|
|
|
|
1,502
|
|
Interest and debt expense
|
|
|
3,794
|
|
|
|
|
|
|
|
3,794
|
|
Depreciation and amortization
|
|
|
35,796
|
|
|
|
|
|
|
|
35,796
|
|
Operating income
|
|
|
187,813
|
|
|
|
35,438
|
|
|
|
223,251
|
|
Expenditures on long-lived assets
|
|
|
22,645
|
|
|
|
|
|
|
|
22,645
|
|
Goodwill
|
|
|
31,134
|
|
|
|
|
|
|
|
31,134
|
|
Capital lease additions
|
|
|
61,504
|
|
|
|
|
|
|
|
61,504
|
|
Total assets
|
|
|
913,667
|
|
|
|
182,924
|
|
|
|
1,096,591
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
External revenue
|
|
$
|
3,276,677
|
|
|
$
|
44,414
|
|
|
$
|
3,321,091
|
|
Internal revenue
|
|
|
|
|
|
|
31,342
|
|
|
|
31,342
|
|
Investment income
|
|
|
|
|
|
|
1,396
|
|
|
|
1,396
|
|
Interest and debt expense
|
|
|
2,949
|
|
|
|
|
|
|
|
2,949
|
|
Depreciation and amortization
|
|
|
29,102
|
|
|
|
|
|
|
|
29,102
|
|
Operating income
|
|
|
207,883
|
|
|
|
33,823
|
|
|
|
241,706
|
|
Expenditures on long-lived assets
|
|
|
4,804
|
|
|
|
|
|
|
|
4,804
|
|
Goodwill
|
|
|
31,134
|
|
|
|
|
|
|
|
31,134
|
|
Capital lease additions
|
|
|
49,491
|
|
|
|
|
|
|
|
49,491
|
|
Total assets
|
|
|
842,550
|
|
|
|
148,968
|
|
|
|
991,518
|
|
52
(14) Change in Accounting Estimate for Self-Insured Claims
Landstar provides for the estimated costs of self-insured claims primarily on an actuarial basis. The amount recorded for the estimated
liability for claims incurred is based upon the facts and circumstances known on the applicable balance sheet date. The ultimate resolution of these claims may be for an amount greater or less than the amount estimated by management. The Company
continually revises its existing claim estimates as new or revised information becomes available on the status of each claim. Historically, the Company has experienced both favorable and unfavorable development of prior years claims estimates.
The following table summarizes the effect of the increase in the cost of insurance claims resulting from unfavorable development of prior
year self-insured claims estimates on operating income, net income attributable to Landstar System, Inc. and subsidiary and earnings per share attributable to Landstar System, Inc. and subsidiary in the consolidated statements of income for the
fiscal years ended December 30, 2017, December 31, 2016 and December 26, 2015 (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
|
December 30,
2017
|
|
|
December 31,
2016
|
|
|
December 26,
2015
|
|
Operating income
|
|
$
|
4,144
|
|
|
$
|
1,079
|
|
|
$
|
4,852
|
|
Net income attributable to Landstar System, Inc. and subsidiary
|
|
|
2,578
|
|
|
|
667
|
|
|
|
2,999
|
|
Earnings per share attributable to Landstar System, Inc. and subsidiary
|
|
$
|
0.06
|
|
|
$
|
0.02
|
|
|
$
|
0.07
|
|
Diluted earnings per share attributable to Landstar System, Inc. and subsidiary
|
|
$
|
0.06
|
|
|
$
|
0.02
|
|
|
$
|
0.07
|
|
(15) Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update
2014-09
Revenue from Contracts with Customers
(ASU
2014-09).
ASU
2014-09
is a comprehensive revenue
recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. The standard requires more
detailed disclosures to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. ASU
2014-09
became
effective for the Company as of January 1, 2018 and permits either a full retrospective or a modified retrospective transition approach. The Company adopted this new standard effective as of January 1, 2018 under the modified retrospective
transition method with a cumulative adjustment to retained earnings instead of retrospectively adjusting prior periods. The adoption of this standard will change the timing of revenue recognition for most of its transportation business from at
delivery to over the transit period as the performance obligation is completed. Due to the Companys average length of haul for truckload movements and direct costs of revenue, purchased transportation and commissions to agents, the Company
does not expect this change to have a material impact on its results of operations, financial position or cash flows once implemented.
In
February 2016, the FASB issued Accounting Standards Update
2016-02
Leases
(ASU
2016-02).
ASU
2016-02
requires a company to recognize a
right-of-use
asset and lease liability for the obligation to make lease payments measured at the present value of the lease payments
for all leases with terms greater than twelve months. Companies are required to use a modified retrospective transition approach to recognize leases at the beginning of the earliest period presented. ASU
2016-02
is effective for annual reporting periods beginning after December 15, 2018, and interim periods therein, and early adoption is permitted. ASU
2016-02
is
not expected to have a material impact on the Companys financial statements.
In March 2016, the FASB issued Accounting Standards
Update
2016-09
Compensation Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
(ASU
2016-09),
which
is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU
2016-09
is effective for annual periods beginning after December 15, 2016, and interim periods therein. As such, the Company adopted ASU
2016-09
during the first quarter
of 2017 with an effective date of January 1, 2017. As a result of the adoption, the Company recognized excess tax benefits in the consolidated statement of income of $1,299,000 for fiscal year 2017. Prior period amounts have not been
reclassified.
53
In June 2016, the FASB issued Accounting Standards Update
2016-13
Financial Instruments
Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
(ASU
2016-13),
which requires measurement and recognition of expected versus incurred credit losses for financial assets held. ASU
2016-13
is effective for annual periods beginning after December 15, 2019, and interim
periods therein. The Company is currently evaluating the impact of ASU
2016-13
on its financial statements.