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. Significant intercompany accounts have been eliminated in consolidation. Certain prior year
amounts have been reclassified for consistency with current year presentation.
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.
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 incurred
on or after May 1, 2016 through April 30, 2017, the Company retains liability up to an additional $700,000 in the aggregate on any claims exceeding its $5,000,000 per occurrence self-insured retention. 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.
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 approximate fair value as the assets and liabilities are short term in nature. Short and long-term
37
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 31, 2016, December 26, 2015 and December 27, 2014 (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 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended December 27, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
$
|
3,773
|
|
|
$
|
2,893
|
|
|
$
|
(2,328
|
)
|
|
$
|
4,338
|
|
Other receivables
|
|
|
4,994
|
|
|
|
2,414
|
|
|
|
(2,305
|
)
|
|
|
5,103
|
|
Other
non-current
receivables
|
|
|
222
|
|
|
|
8
|
|
|
|
|
|
|
|
230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,989
|
|
|
$
|
5,315
|
|
|
$
|
(4,633
|
)
|
|
$
|
9,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 one reporting unit within the transportation logistics segment that reports goodwill. The Company reviews its goodwill balance annually for impairment as a single reporting unit, unless circumstances dictate more frequent assessments,
and in accordance with Accounting Standards Update (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 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 2016, the Company performed the qualitative assessment of goodwill and determined it was more likely than
not that the fair value of its reporting unit 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
38
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. During fiscal year 2016, the Company
retrospectively adopted Accounting Standards Update
2015-17
Balance Sheet Classification of Deferred Taxes
(ASU
2015-17),
which requires an
entity to present deferred tax assets and deferred tax liabilities as noncurrent in a classified balance sheet. Deferred tax assets in the prior period presented have been reclassified to conform to the current year presentation. See Note 4, Income
Taxes, for further information.
Share-Based Payments
The Companys share-based payment arrangements include restricted stock units (RSU), stock options and
non-vested
restricted stock. 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 value of each share of
non-vested
restricted stock is based on the fair value of such share on the date of grant and compensation
costs for
non-vested
restricted stock are recognized on a straight-line basis over the requisite service period for the award.
Earnings Per Share
Earnings per common share are based on the weighted average number of shares outstanding, including outstanding
non-vested
restricted stock. Diluted earnings per share are based on the weighted average number of common shares 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 to the average number of common shares and common share equivalents outstanding used to calculate diluted earnings per share (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Average number of common shares outstanding
|
|
|
42,112
|
|
|
|
43,664
|
|
|
|
44,956
|
|
Incremental shares from assumed exercises of stock options
|
|
|
124
|
|
|
|
149
|
|
|
|
213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of common shares and common share equivalents outstanding
|
|
|
42,236
|
|
|
|
43,813
|
|
|
|
45,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended December 31, 2016, December 26, 2015 and
December 27, 2014, no options outstanding to purchase shares of Common Stock were antidilutive. Outstanding RSUs were excluded from the calculation of diluted earnings per share for all periods because the performance metric requirements or
market condition for vesting had not been satisfied.
Foreign Currency Translation
Assets and liabilities of the Companys Canadian operation 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.
39
(2) Other Comprehensive Income
The following table presents the components of and changes in accumulated other comprehensive income, net of related income
taxes, as of and for the fiscal years ended December 31, 2016, December 26, 2015 and December 27, 2014 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
Holding Gains
(Losses)
on
Available-for-Sale
Securities
|
|
|
Foreign Currency
Translation
|
|
|
Total
|
|
Balance as of December 28, 2013
|
|
$
|
244
|
|
|
$
|
(256
|
)
|
|
$
|
(12
|
)
|
Other comprehensive loss
|
|
|
(139
|
)
|
|
|
(1,034
|
)
|
|
|
(1,173
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 31, 2016, December 26, 2015 and December 27, 2014.
(3) Investments
Investments include primarily investment-grade corporate bonds 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 shareholders 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 $109,000 and $145,000 at December 31, 2016 and December 26, 2015, respectively.
The amortized cost and fair values of
available-for-sale
investments are as follows at December 31, 2016 and December 26, 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 26, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market investments
|
|
$
|
7,594
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7,594
|
|
Asset-backed securities
|
|
|
4,523
|
|
|
|
1
|
|
|
|
58
|
|
|
|
4,466
|
|
Corporate bonds and direct obligations of government agencies
|
|
|
76,839
|
|
|
|
190
|
|
|
|
270
|
|
|
|
76,759
|
|
U.S. Treasury obligations
|
|
|
19,273
|
|
|
|
5
|
|
|
|
13
|
|
|
|
19,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
108,229
|
|
|
$
|
196
|
|
|
$
|
341
|
|
|
$
|
108,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
For those
available-for-sale
investments with unrealized losses at December 31, 2016 and December 26, 2015, 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 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 26, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities
|
|
$
|
4,422
|
|
|
$
|
58
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,422
|
|
|
$
|
58
|
|
Corporate bonds and direct obligations of government agencies
|
|
|
39,276
|
|
|
|
217
|
|
|
|
562
|
|
|
|
53
|
|
|
|
39,838
|
|
|
|
270
|
|
U.S. Treasury obligations
|
|
|
15,093
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
15,093
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
58,791
|
|
|
$
|
288
|
|
|
$
|
562
|
|
|
$
|
53
|
|
|
$
|
59,353
|
|
|
$
|
341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 31, 2016.
Short-term investments include $66,560,000 in current maturities of investments held by the Companys insurance segment
at December 31, 2016. The
non-current
portion of the bond portfolio of $42,859,000 is included in other assets. The short-term investments, together with $1,340,000 of
non-current
investments, provide collateral for the $61,110,000 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.
(4) Income Taxes
The
provisions for income taxes consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
68,548
|
|
|
$
|
74,289
|
|
|
$
|
68,722
|
|
State
|
|
|
6,668
|
|
|
|
9,550
|
|
|
|
7,031
|
|
Canadian
|
|
|
563
|
|
|
|
437
|
|
|
|
1,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
$
|
75,779
|
|
|
$
|
84,276
|
|
|
$
|
76,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
6,104
|
|
|
$
|
6,524
|
|
|
$
|
5,234
|
|
State
|
|
|
224
|
|
|
|
268
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
$
|
6,328
|
|
|
$
|
6,792
|
|
|
$
|
5,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
82,107
|
|
|
$
|
91,068
|
|
|
$
|
82,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
During fiscal year 2016, the Company adopted Accounting Standards Update
2015-17
Balance Sheet Classification of Deferred Taxes (ASU
2015-17),
which requires an entity to present deferred tax assets and deferred tax liabilities
as noncurrent in a classified balance sheet. The Company reclassified $6,552,000 of current deferred tax assets to noncurrent to conform to the current year presentation and this amount is now included in deferred income taxes and other noncurrent
liabilities in the December 26, 2015 consolidated balance sheet.
Temporary differences and carryforwards which gave
rise to deferred tax assets and liabilities consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Dec. 31, 2016
|
|
|
Dec. 26, 2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Receivable valuations
|
|
$
|
4,518
|
|
|
$
|
3,832
|
|
Share-based payments
|
|
|
1,185
|
|
|
|
2,894
|
|
Self-insured claims
|
|
|
6,270
|
|
|
|
4,132
|
|
Other
|
|
|
4,336
|
|
|
|
3,836
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
$
|
16,309
|
|
|
$
|
14,694
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Operating property
|
|
$
|
59,720
|
|
|
$
|
52,547
|
|
Goodwill
|
|
|
5,883
|
|
|
|
5,877
|
|
Other
|
|
|
2,851
|
|
|
|
2,087
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
$
|
68,454
|
|
|
$
|
60,511
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
52,145
|
|
|
$
|
45,817
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Income taxes at federal income tax rate
|
|
$
|
76,810
|
|
|
$
|
83,565
|
|
|
$
|
77,418
|
|
State income taxes, net of federal income tax benefit
|
|
|
4,505
|
|
|
|
7,201
|
|
|
|
4,532
|
|
Meals and entertainment exclusion
|
|
|
958
|
|
|
|
946
|
|
|
|
777
|
|
Share-based payments
|
|
|
(239
|
)
|
|
|
(61
|
)
|
|
|
(239
|
)
|
Other, net
|
|
|
73
|
|
|
|
(583
|
)
|
|
|
(102
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
82,107
|
|
|
$
|
91,068
|
|
|
$
|
82,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
2012 and prior years. The Companys wholly owned Canadian subsidiary, Landstar Canada, Inc., is subject to Canadian income and other taxes.
As of December 31, 2016 and December 26, 2015, the Company had $1,829,000 and $1,899,000, 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 31, 2016 and December 26, 2015 there was $547,000 and $727,000, 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 2017.
42
The following table summarizes the rollforward of the total amounts of gross
unrecognized tax benefits for fiscal years 2016 and 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years
|
|
|
|
2016
|
|
|
2015
|
|
Gross unrecognized tax benefits beginning of the year
|
|
$
|
2,704
|
|
|
$
|
2,620
|
|
Gross increases related to current year tax positions
|
|
|
428
|
|
|
|
482
|
|
Gross increases related to prior year tax positions
|
|
|
596
|
|
|
|
340
|
|
Gross decreases related to prior year tax positions
|
|
|
(399
|
)
|
|
|
(195
|
)
|
Settlements
|
|
|
(133
|
)
|
|
|
|
|
Lapse of statute of limitations
|
|
|
(561
|
)
|
|
|
(543
|
)
|
|
|
|
|
|
|
|
|
|
Gross unrecognized tax benefits end of the year
|
|
$
|
2,635
|
|
|
$
|
2,704
|
|
|
|
|
|
|
|
|
|
|
Landstar paid income taxes of $69,067,000 in fiscal year 2016, $74,619,000 in fiscal year 2015
and $98,506,000 in fiscal year 2014.
(5) Operating Property
Operating property is summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Dec. 31, 2016
|
|
|
Dec. 26, 2015
|
|
Land
|
|
$
|
15,259
|
|
|
$
|
9,148
|
|
Buildings and improvements
|
|
|
56,413
|
|
|
|
39,532
|
|
Trailing equipment
|
|
|
342,813
|
|
|
|
311,449
|
|
Other equipment
|
|
|
48,732
|
|
|
|
48,389
|
|
|
|
|
|
|
|
|
|
|
Total operating property, gross
|
|
|
463,217
|
|
|
|
408,518
|
|
Less accumulated depreciation and amortization
|
|
|
190,374
|
|
|
|
182,591
|
|
|
|
|
|
|
|
|
|
|
Total operating property, net
|
|
$
|
272,843
|
|
|
$
|
225,927
|
|
|
|
|
|
|
|
|
|
|
Included above is $249,717,000 in fiscal year 2016 and $222,428,000 in fiscal year 2015 of
operating property under capital leases, $183,763,000 and $164,501,000, respectively, net of accumulated depreciation and amortization. Landstar acquired operating property by entering into capital leases in the amount of $61,504,000 in fiscal year
2016, $49,491,000 in fiscal year 2015 and $47,232,000 in fiscal year 2014.
(6) Retirement Plan
Landstar sponsors an Internal Revenue Code section 401(k) defined contribution plan for the benefit of 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 $2,074,000 in fiscal year 2016, $1,901,000 in fiscal year 2015 and $1,718,000 in fiscal year 2014.
(7) Debt
Other than the
capital lease obligations as presented on the consolidated balance sheets, the Company had no outstanding debt as of December 31, 2016 and December 26, 2015.
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 two of the Companys subsidiaries guarantee the obligations under the Credit Agreement. Any future amounts that may become outstanding under the Credit
Agreement are payable on June 2, 2021, the maturity date of the Credit Agreement.
43
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 31, 2016 and December 26, 2015, 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 $3,794,000 in fiscal year 2016, $3,012,000 in fiscal year 2015 and
$3,229,000 in fiscal year 2014.
(8) Leases
The future minimum lease payments under all noncancelable leases at December 31, 2016, principally for trailing equipment,
are shown in the following table (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Capital
Leases
|
|
|
Operating
Leases
|
|
2017
|
|
$
|
47,860
|
|
|
$
|
634
|
|
2018
|
|
|
37,654
|
|
|
|
424
|
|
2019
|
|
|
29,431
|
|
|
|
123
|
|
2020
|
|
|
22,054
|
|
|
|
53
|
|
2021
|
|
|
7,572
|
|
|
|
53
|
|
Thereafter
|
|
|
|
|
|
|
264
|
|
|
|
|
|
|
|
|
|
|
Total future minimum lease payments
|
|
|
144,571
|
|
|
$
|
1,551
|
|
|
|
|
|
|
|
|
|
|
Less amount representing interest (2.0% to 3.1%)
|
|
|
6,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of minimum lease payments
|
|
$
|
138,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total rent expense/income, net of sublease income, was $1,641,000 income in fiscal year 2016,
$318,000 expense in fiscal year 2015 and $587,000 income in fiscal year 2014.
(9) Share-Based Payment Arrangements
As of December 31, 2016, 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
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Total cost of the Plans during the period
|
|
$
|
2,747
|
|
|
$
|
6,925
|
|
|
$
|
6,797
|
|
Amount of related income tax benefit recognized during the period
|
|
|
(1,238
|
)
|
|
|
(2,432
|
)
|
|
|
(3,171
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cost of the Plans during the period
|
|
$
|
1,509
|
|
|
$
|
4,493
|
|
|
$
|
3,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
Included in income tax benefits recognized in the fiscal years ended
December 31, 2016 and December 26, 2015 were income tax benefits of $451,000 and $383,000, respectively, recognized on disqualifying dispositions of the Companys Common Stock by employees who obtained shares of Common Stock through
exercises of incentive stock options.
As of December 31, 2016, there were 86,572 shares of the Companys Common
Stock reserved for issuance under the 2013 DSCP and 5,000,732 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 under the Plans:
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Weighted Average
Grant Date
|
|
|
|
RSUs
|
|
|
Fair Value
|
|
Outstanding at December 28, 2013
|
|
|
308,007
|
|
|
$
|
49.63
|
|
Granted
|
|
|
146,000
|
|
|
$
|
53.11
|
|
Vested
|
|
|
(24,641
|
)
|
|
$
|
51.47
|
|
Forfeited
|
|
|
(3,736
|
)
|
|
$
|
49.53
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
During fiscal years 2014, 2015 and 2016, 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 vest over a 5 year period from the date of grant based on growth in operating income and
diluted earnings per share as compared to a base year, being the year immediately preceding the year of grant. RSUs with a performance condition granted on January 29, 2016 may vest on January 31 of 2019, 2020 and 2021 based on growth in
operating income and diluted earnings per share from continuing operations as compared to the results from the 2015 fiscal year. At the time of grant, the target number of common shares available for issuance under the 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 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
45
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 $849,000,
$4,943,000 and $4,443,000 of share-based compensation expense related to RSU awards in fiscal years 2016, 2015 and 2014, respectively. As of December 31, 2016, there was a maximum of $27 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 $27 million of total unrecognized compensation cost is $2.4 million of unrecognized compensation cost
related to 54,102 unvested units granted in 2012, which forfeited during the first fiscal quarter of 2017. 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
Options granted 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 with the
following weighted average assumptions for the grant made in fiscal year 2014:
|
|
|
Expected volatility
|
|
26.0%
|
Expected dividend yield
|
|
0.43%
|
Risk-free interest rate
|
|
1.50%
|
Expected lives (in years)
|
|
4.0
|
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. The weighted average grant date fair value of stock options granted during fiscal year 2014 was
$12.70 per share.
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 28, 2013
|
|
|
1,454,816
|
|
|
$
|
44.55
|
|
|
|
693,516
|
|
|
$
|
42.29
|
|
Granted
|
|
|
1,000
|
|
|
$
|
58.06
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(615,077
|
)
|
|
$
|
41.27
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(66,900
|
)
|
|
$
|
47.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
The following tables summarize stock options outstanding and exercisable at
December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
48,719
|
|
|
2.6
|
|
$
|
36.96
|
|
$40.01 - $45.00
|
|
|
95,888
|
|
|
3.5
|
|
$
|
41.76
|
|
$45.01 - $58.06
|
|
|
227,954
|
|
|
5.3
|
|
$
|
53.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
372,561
|
|
|
4.5
|
|
$
|
48.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
48,719
|
|
|
2.6
|
|
$
|
36.96
|
|
$40.01 - $45.00
|
|
|
95,888
|
|
|
3.5
|
|
$
|
41.76
|
|
$45.01 - $56.40
|
|
|
137,854
|
|
|
5.1
|
|
$
|
52.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
282,461
|
|
|
4.1
|
|
$
|
46.39
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2016, the total intrinsic value of options outstanding was $13,809,000.
At December 31, 2016, the total intrinsic value of options outstanding and exercisable was $10,991,000. The total intrinsic value of stock options exercised during fiscal years 2016, 2015 and 2014 was $7,427,000, $2,954,000 and $14,573,000,
respectively.
As of December 31, 2016, there was $365,000 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 2017.
Non-vested
Restricted Stock
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).
The
following table summarizes information regarding the Companys outstanding
non-vested
restricted stock under the Plans:
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted Average
Grant Date
Fair Value
|
|
Outstanding at December 28, 2013
|
|
|
38,193
|
|
|
$
|
46.75
|
|
Granted
|
|
|
7,124
|
|
|
$
|
63.17
|
|
Vested
|
|
|
(19,196
|
)
|
|
$
|
41.85
|
|
Forfeited
|
|
|
(2,768
|
)
|
|
$
|
54.20
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
The fair value of each share of
non-vested
restricted
stock issued under the Plans is 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 or 100% on the first, third or fifth anniversary of the date of the grant. The shares of restricted stock remain subject to forfeiture unless the grantee remains continuously employed with the Company or a subsidiary thereof
through the applicable vesting date.
As of December 31, 2016, there was $953,000 of total unrecognized compensation
cost related to
non-vested
shares of restricted stock granted under the Plans. The unrecognized compensation cost related to these
non-vested
shares of restricted stock
is expected to be recognized over a weighted average period of 1.6 years.
47
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 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 years 2016, 2015 and 2014, 7,762, 1,197 and 7,124 restricted shares, respectively, were granted
to Eligible Directors. Restricted shares granted in 2016 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 2016, 2015 and 2014, $591,000, $419,000 and $331,000, respectively, of compensation cost was recorded for the grant of these restricted shares.
(10) 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. As of December 31, 2016, the Company has authorization to purchase 1,036,125 shares of its Common Stock under this program. No specific
expiration date has been assigned to the May 19, 2015 authorization. During fiscal year 2016, Landstar purchased a total of 773,281 shares of its Common Stock at a total cost of $50,516,000 pursuant to its previously announced stock purchase
program.
The Company has 2,000,000 shares of preferred stock authorized and unissued.
(11) Commitments and Contingencies
At December 31, 2016, in addition to the $61,110,000 letters of credit secured by investments, Landstar had $35,599,000 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.
(12) 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 $3.2 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, project cargo and customs brokerage. Examples of the industries serviced by the transportation logistics segment include automotive
48
products, building products, metals, chemicals, foodstuffs, heavy machinery, retail, electronics, ammunition and explosives 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.
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 2016, 2015 and 2014. 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 31, 2016, December 26, 2015 and December 27, 2014 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation
|
|
|
|
|
|
|
|
|
|
Logistics
|
|
|
Insurance
|
|
|
Total
|
|
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
|
|
|
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
External revenue
|
|
$
|
3,145,413
|
|
|
$
|
39,377
|
|
|
$
|
3,184,790
|
|
Internal revenue
|
|
|
|
|
|
|
28,164
|
|
|
|
28,164
|
|
Investment income
|
|
|
|
|
|
|
1,381
|
|
|
|
1,381
|
|
Interest and debt expense
|
|
|
3,177
|
|
|
|
|
|
|
|
3,177
|
|
Depreciation and amortization
|
|
|
27,575
|
|
|
|
|
|
|
|
27,575
|
|
Operating income
|
|
|
193,914
|
|
|
|
30,458
|
|
|
|
224,372
|
|
Expenditures on long-lived assets
|
|
|
10,539
|
|
|
|
|
|
|
|
10,539
|
|
Goodwill
|
|
|
31,134
|
|
|
|
|
|
|
|
31,134
|
|
Capital lease additions
|
|
|
47,232
|
|
|
|
|
|
|
|
47,232
|
|
Total assets
|
|
|
911,193
|
|
|
|
126,423
|
|
|
|
1,037,616
|
|
49
(13) 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 and earnings per share amounts in the consolidated statements of income for the fiscal years ended December 31, 2016, December 26, 2015 and
December 27, 2014 (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
|
December 31,
2016
|
|
|
December 26,
2015
|
|
|
December 27,
2014
|
|
Operating income
|
|
$
|
1,079
|
|
|
$
|
4,852
|
|
|
$
|
6,664
|
|
Net income
|
|
|
667
|
|
|
|
2,999
|
|
|
|
4,118
|
|
|
|
|
|
Earnings per share
|
|
$
|
0.02
|
|
|
$
|
0.07
|
|
|
$
|
0.09
|
|
Diluted earnings per share
|
|
$
|
0.02
|
|
|
$
|
0.07
|
|
|
$
|
0.09
|
|
(14) 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. In adopting ASU
2014-09,
companies may use either a full retrospective or a modified retrospective approach. On July 9, 2015, the FASB approved deferring the effective date by one year to December 15, 2017 for annual
reporting periods beginning after that date. The FASB also approved permitting early adoption of the standard, but not before the original effective date of December 15, 2016. ASU
2014-09
is not expected
to have a material impact on the Companys financial statements.
In November 2015, the FASB issued ASU
2015-17
Balance Sheet Classification of Deferred Taxes
. The Company adopted this guidance during the first fiscal quarter of 2016 and applied it retrospectively. Deferred tax assets in the prior period
presented have been reclassified to conform to the current year presentation. See Note 4, Income Taxes, for further information.
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. Although it is difficult to predict the impact as it is dependent on the timing and intrinsic value of future share-based compensation award vesting
and exercises, ASU
2016-09
is not expected to have a material impact on the Companys financial statements.
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.
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