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Significant Accounting Policies | 12 Months Ended
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Dec. 31, 2022
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. Revenue from Contracts with Customers – Disaggregation of Revenue The following table summarizes (i) the percentage of consolidated revenue generated by mode of transportation and (ii) the total amount of truck transportation revenue hauled by BCO Independent Contractors and Truck Brokerage Carriers generated by equipment type during the fiscal years ended December 31, 2022, December 25, 2021 and December 26, 2020 (dollars in thousands):
|  | Fiscal Years Ended |
Mode |  | December 31, 2022 |  |  | December 25, 2021 |  |  | December 26, 2020 |
Truck – BCO Independent Contractors |  |  | 35 | % |  |  | 40 | % |  |  | 45 | %
Truck – Truck Brokerage Carriers |  |  | 54 | % |  |  | 51 | % |  |  | 47 | %
Rail intermodal |  |  | 2 | % |  |  | 2 | % |  |  | 3 | %
Ocean and air cargo carriers |  |  | 8 | % |  |  | 5 | % |  |  | 3 | %
Truck Equipment Type |  |  |  |  |  |  |  |  |  |  |  |
Van equipment |  | $ | 3,892,085 |  |  | $ | 3,525,830 |  |  | $ | 2,192,254 |
Unsided/platform equipment |  | $ | 1,760,357 |  |  | $ | 1,549,037 |  |  | $ | 1,119,272 |
Less-than-truckload |  | $ | 142,438 |  |  | $ | 117,505 |  |  | $ | 97,546 |
Other truck transportation (1) |  | $ | 835,959 |  |  | $ | 770,846 |  |  | $ | 406,709 |
(1) | Includes power-only, expedited, straight truck, cargo van, and miscellaneous other truck transportation revenue generated by the transportation logistics segment. Power-only refers to shipments where the Company furnishes a power unit and an operator but not trailing equipment, which is typically provided by the shipper or consignee.
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 million per occurrence and maintains various third party insurance arrangements for liabilities in excess of its $5 million 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 million and $10 million (the “Initial Excess Policy”) with a third party insurance company. The Company subsequently extended the Initial Excess Policy for one additional policy year, from May 1, 2022 through April 30, 2023. For commercial trucking claims incurred on or after May 1, 2022 through April 30, 2023, the extended Initial Excess Policy provides for a limit for a single loss of $5 million, with a remaining aggregate limit of $10 million for the policy period ending April 30, 2023, and an option to increase such aggregate limit for a pre-established amount of additional premium. If aggregate losses under the Initial Excess Policy exceed the aggregate limit for the period ending April 30, 2023, and the Company did not elect to increase such aggregate limit for a pre-established amount of additional premium, the Company would retain liability of up to $10 million per occurrence, inclusive of its $5 million self-insured retention for commercial trucking claims during the remainder of the policy period ending April 30, 2023. The Company also maintains third party insurance arrangements providing excess coverage for commercial trucking liabilities in excess of $10 million. These third party arrangements provide coverage on a per occurrence or aggregated basis. In recent years, the Company has increased the level of its financial exposure to commercial trucking claims in excess of $10 million, including through the use of additional self-insurance, deductibles, aggregate loss limits, quota shares and other arrangements with third party insurance companies, based on the availability of coverage within certain excess insurance coverage layers and estimated cost differentials between proposed premiums from third party insurance companies and historical and actuarially projected losses experienced by the Company at various levels of excess insurance coverage. Further, the Company 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, Cash Equivalents and Restricted Cash Included in cash and cash equivalents are all investments, except those provided for collateral, with an original maturity of 3 months or less. At December 25, 2021, the Company had $4,049,000 of restricted cash held by the Company’s insurance segment included in the short-term investments balance of $35,778,000, providing collateral, along with certain other investments, for the letters of credit issued to guarantee payment of insurance claims. 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 interest 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 31, 2022, December 25, 2021 and December 26, 2020 (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, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Trade receivables |  | $ | 7,074 |  |  | $ | 7,354 |  |  | $ | (2,307 | ) |  | $ | 12,121 |
Other receivables |  |  | 9,511 |  |  |  | 4,863 |  |  |  | (2,629 | ) |  |  | 11,745 |
Other non-current receivables |  |  | 200 |  |  |  | 3 |  |  |  | — |  |  |  | 203 |
|  | $ | 16,785 |  |  | $ | 12,220 |  |  | $ | (4,936 | ) |  | $ | 24,069 |
For the Fiscal Year Ended December 25, 2021 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Trade receivables |  | $ | 8,670 |  |  | $ | 1,735 |  |  | $ | (3,331 | ) |  | $ | 7,074 |
Other receivables |  |  | 8,399 |  |  |  | 4,050 |  |  |  | (2,938 | ) |  |  | 9,511 |
Other non-current receivables |  |  | 264 |  |  |  | (63 | ) |  |  | (1 | ) |  |  | 200 |
|  | $ | 17,333 |  |  | $ | 5,722 |  |  | $ | (6,270 | ) |  | $ | 16,785 |
For the Fiscal Year Ended December 26, 2020 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Trade receivables |  | $ | 7,284 |  |  | $ | 6,121 |  |  | $ | (4,735 | ) |  | $ | 8,670 |
Other receivables |  |  | 8,806 |  |  |  | 3,291 |  |  |  | (3,698 | ) |  |  | 8,399 |
Other non-current receivables |  |  | 260 |  |  |  | 3 |  |  |  | 1 |  |  |  | 264 |
|  | $ | 16,350 |  |  | $ | 9,415 |  |  | $ | (8,432 | ) |  | $ | 17,333 |
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 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 2022, 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. Share-Based Payments The Company’s share-based payment arrangements include restricted stock units (“RSU”), non-vested restricted stock, Deferred Stock Units and stock options. 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 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 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. During the fiscal years ended December 31, 2022, December 25, 2021 and December 26, 2020, in reference to the determination of diluted earnings per share, the future compensation cost attributable to outstanding shares of non-vested restricted stock exceeded the impact of incremental shares that would have been outstanding upon the assumed exercise of all dilutive stock options. For the fiscal years ended December 31, 2022, December 25, 2021 and December 26, 2020, 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. Dividends Payable On December 6, 2022, the Company announced that its Board of Directors declared a special cash dividend of $2.00 per share payable on January 20, 2023 to stockholders of record of its Common Stock as of January 6, 2023. Dividends payable of $71,854,000 related to this special dividend were included in current liabilities in the consolidated balance sheet at December 31, 2022. On December 7, 2021, the Company announced that its Board of Directors declared a special cash dividend of $2.00 per share payable on January 21, 2022, to stockholders of record of its Common Stock as of January 7, 2022. Dividends payable of $75,387,000 related to this special dividend were included in current liabilities in the consolidated balance sheet at December 25, 2021. 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://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section 50 -Paragraph 1 -URI https://asc.fasb.org/extlink&oid=126899994&loc=d3e18726-107790 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI https://asc.fasb.org/topic&trid=2122369 + Details
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