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Significant Accounting Policies | 12 Months Ended
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Dec. 28, 2019
Significant Accounting Policies | (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. Estimates The preparation of the consolidated financial statements requires the use of management’s estimates. Actual results could differ from those estimates. Fiscal Year Landstar’s fiscal year is the 52 or 53 week period ending the last Saturday in December. Revenue Recognition The nature of the Company’s freight transportation services and its performance obligations to customers, regardless of the mode of transportation used to perform such services, relate to the safe and on-time pick-up and delivery of a customer’s freight on a shipment-by-shipment basis. Landstar customers are typically invoiced on a shipment-by-shipment basis at a pre-defined rate, payable thirty to sixty (30-60) days after the customer’s receipt of such invoice. Payment terms to customers do not contain a significant financing component and the amount owed by the customer does not contain variable terms, embedded or otherwise. We have determined that revenue recognition over the freight transit period provides a faithful depiction of the transfer of services to the customer as our obligation for which we are primarily responsible for fulfilling is performed over the transit period. Accordingly, transportation revenue billed to a customer for the physical transportation of freight and related direct freight expenses are recognized on a gross basis over the freight transit period as the performance obligation to the customer is satisfied. The Company determines the transit period for a given shipment based upon the pick-up date and the delivery date, which may be estimated if delivery has not occurred as of the reporting date. Determining the transit period and how much of it has been completed as of a given reporting date may therefore require management to make judgments that affect the timing of revenue recognized. With respect to shipments with a pick-up date in one reporting period and a delivery date in another, the Company recognizes such transportation revenue based on relative transit time in each reporting period. A days in transit output method is used to measure the progress of the performance of the Company’s freight transportation services as of the reporting date and a portion of the total revenue that will be billed to the customer once a load is delivered is recognized in each reporting period based on the percentage of total transit time that has been completed at the end of the applicable reporting period. 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. Adoption of Topic 606, “Revenue from Contracts with Customers” The Company adopted Accounting Standards Update 2014-09 – Revenue from Contracts with Customers (“ASU 2014-09”) on December 31, 2017 under the modified retrospective transition method resulting in a $773,000 cumulative adjustment to retained earnings. Our reported results for 2019 and 2018 are presented under Topic 606, while our prior periods were not adjusted and are reported under Topic 605 “Revenue Recognition.” Revenue from Contracts with Customers - Disaggregation of Revenue During the fiscal year ended December 28, 2019, revenue generated by BCO Independent Contractors, Truck Brokerage Carriers and railroads represented approximately 45%, 47% and 3% respectively, of the Company’s consolidated revenue. Collectively, revenue generated by air and ocean cargo carriers represented approximately 3% of the Company’s consolidated revenue in the fiscal year ended December 28, 2019. Included in truck transportation revenue generated by BCO Independent Contractors and Truck Brokerage Carriers during the fiscal year ended December 28, 2019 was $2,371,188,000 hauled via van equipment, $1,295,817,000 hauled via unsided/platform equipment and $98,324,000 of less-than-truckload. During the fiscal year ended December 29, 2018, revenue generated by BCO Independent Contractors, Truck Brokerage Carriers and railroads represented approximately 43%, 49% and 3%, respectively, of the Company’s consolidated revenue. Collectively, revenue generated by air and ocean cargo carriers represented approximately 3% of the Company’s consolidated revenue in the fiscal year ended December 29, 2018. Included in truck transportation revenue generated by BCO Independent Contractors and Truck Brokerage Carriers during the fiscal year ended December 29, 2018 was $2,791,494,000 hauled via van equipment, $1,386,387,000 hauled via unsided/platform equipment and $102,531,000 of less-than-truckload. During the fiscal year ended December 30, 2017, revenue generated by BCO Independent Contractors, Truck Brokerage Carriers and railroads represented approximately 45%, 48% and 3%, respectively, of the Company’s consolidated revenue. Collectively, revenue generated by air and ocean cargo carriers represented approximately 3% of the Company’s consolidated revenue in the fiscal year ended December 30, 2017. Included in truck transportation revenue generated by BCO Independent Contractors and Truck Brokerage Carriers during the fiscal year ended December 30, 2017 was $2,163,832,000 hauled via van equipment, $1,134,660,000 hauled via unsided/platform equipment and $89,041,000 of less-than-truckload. 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 periods prior to May 1, 2019, Landstar retains liability for commercial trucking claims up to $5,000,000 per occurrence and maintains various third party insurance arrangements for liabilities in excess of its $5,000,000 self-insured retention. Effective May 1, 2019, the Company entered into a new three year commercial auto liability insurance arrangement for losses incurred between $5,000,000 and $10,000,000 (the “Initial Excess Policy”) with a third party insurance company. For commercial trucking claims incurred on or after May 1, 2019 through April 30, 2022, the Initial Excess Policy provides for a limit for a single loss of $5,000,000, with an aggregate limit of $10,000,000 for each policy year, an aggregate limit of $15,000,000 for the thirty-six month term ended April 30, 2022, and options to increase such aggregate limits for pre-established amounts of additional premium. In the event paid aggregate losses under the Initial Excess Policy during any policy year (May 1 to April 30) exceed $10,000,000, the Company would retain liability of up to $10,000,000 per occurrence, inclusive of its $5,000,000 self-insured retention, for the remainder of such policy year. Moreover, in the event paid aggregate losses under the Initial Excess Policy during the three year period ending April 30, 2022 exceed a pre-determined threshold amount, the Company would be required to pay additional premium up to a maximum amount of $3,500,000. As previously disclosed, BCO Independent Contractors with a subsidiary of the Company have been involved in two tragic accidents during the policy year ending April 30, 2020, the first of which occurred in the 2019 third quarter and the second of which occurred in the 2020 first quarter. With respect to the second accident, the Company is still in the process of obtaining all the facts concerning this incident and, as such, it is too soon to estimate the Company’s ultimate financial exposure. The Company’s pre-tax loss exposure at the time of the second accident included its $5,000,000 self-insured retention and up to $3,500,000 in additional premium relating to aggregate losses above its self-insured retention during the policy year ending April 30, 2020. If, as a result of these or additional accidents, aggregate losses under the Initial Excess Policy during the policy year ending April 30, 2020 exceed $10,000,000, Landstar would retain liability of up to $10,000,000 per occurrence, inclusive of its self-insured retention for commercial trucking claims during the remainder of such policy year. The Company continues to maintain third party insurance arrangements providing excess coverage on a per occurrence basis for commercial trucking liabilities in excess of $ 10,000,000 . 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. In addition, under reinsurance arrangements by Signature of certain risks of the Company’s BCO Independent Contractors, the Company retains liability of up to $500,000, $1,000,000 or $2,000,000 with respect to certain occupational accident claims and up to $750,000 with respect to certain workers’ compensation claims. 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 Company’s financial instruments include cash equivalents, short and long-term investments, trade and other accounts receivable, accounts payable, other accrued liabilities, 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 Note 4 in the Company’s consolidated financial statements. The Company’s Debt includes borrowings under the Company’s revolving credit facility, to the extent there are any, plus borrowings relating to finance 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 finance 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 management’s 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 28, 2019, December 29, 2018 and December 30, 2017 (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 28, 2019 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Trade receivables |  | $ | 6,413 |  |  | $ | 4,309 |  |  | $ | (3,438 | ) |  | $ | 7,284 |
Other receivables |  |  | 7,211 |  |  |  | 5,518 |  |  |  | (3,923 | ) |  |  | 8,806 |
Other non-current receivables |  |  | 256 |  |  |  | 4 |  |  |  | — |  |  |  | 260 |
|  | $ | 13,880 |  |  | $ | 9,831 |  |  | $ | (7,361 | ) |  | $ | 16,350 |
For the Fiscal Year Ended December 29, 2018 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Trade receivables |  | $ | 6,131 |  |  | $ | 3,886 |  |  | $ | (3,604 | ) |  | $ | 6,413 |
Other receivables |  |  | 6,952 |  |  |  | 3,520 |  |  |  | (3,261 | ) |  |  | 7,211 |
Other non-current receivables |  |  | 251 |  |  |  | 9 |  |  |  | (4 | ) |  |  | 256 |
|  | $ | 13,334 |  |  | $ | 7,415 |  |  | $ | (6,869 | ) |  | $ | 13,880 |
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 |
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 and also provides a basis for determining whether it is necessary to perform the quantitative analysis required by ASC Topic 350. In the fourth fiscal quarter of 2019, 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 quantitative goodwill impairment test. Furthermore, there has been no historical impairment of the Company’s goodwill. Income Taxes Income tax expense is equal to the current year’s 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 Company’s consolidated financial statements. Share-Based Payments The Company’s 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 Company’s 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 ratably 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 Company’s 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 |
|  | 2019 |  |  | 2018 |  |  | 2017 |
Average number of common shares outstanding |  |  | 39,786 |  |  |  | 41,273 |  |  |  | 41,938 |
Incremental shares from assumed exercises of stock options |  |  | — |  |  |  | 37 |  |  |  | 86 |
Average number of common shares and common share equivalents outstanding |  |  | 39,786 |  |  |  | 41,310 |  |  |  | 42,024 |
For the fiscal years ended December 28, 2019, December 29, 2018 and December 30, 2017, 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. Dividends Payable On December 10, 2019, the Company announced that its Board of Directors declared a special cash dividend of $2.00 per share payable on January 24, 2020, to stockholders of record of its Common Stock as of January 10, 2020. Dividends payable of $78,947,000 related to this special dividend were included in current liabilities in the consolidated balance sheet at December 28, 2019. Foreign Currency Translation Assets and liabilities of the Company’s 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.

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- Definition The entire disclosure for all significant accounting policies of the reporting entity. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 + Details
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