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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Commission File Number: 0-21238

N/A

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes þ         No o

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    þ

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).    Yes þ         No o

     The aggregate market value of the voting stock held by non-affiliates of the registrant was $972,224,214 (based on the $32.045 per share closing price on June 27, 2003, the last business day of the Company’s second fiscal quarter, as reported by NASDAQ National Market System). In making this calculation, the registrant has assumed, without admitting for any purpose, that all directors and executive officers of the registrant, and no other person, are affiliates.

     The number of shares of the registrant’s common stock, par value $.01 per share (the “Common Stock”), outstanding as of the close of business on March 1, 2004 was 29,683,174.

DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the following document are incorporated by reference in this Form 10-K as indicated herein:

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LANDSTAR SYSTEM, INC.

2003 ANNUAL REPORT ON FORM 10-K

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PART I

General

      Landstar System, Inc. was incorporated in January 1991 under the laws of the State of Delaware and acquired all of the capital stock of its predecessor, Landstar System Holdings, Inc. (“LSHI”) on March 28, 1991. LSHI owns directly or indirectly all of the common stock of Landstar Ranger, Inc. (“Landstar Ranger”), Landstar Inway, Inc. (“Landstar Inway”), Landstar Ligon, Inc. (“Landstar Ligon”), Landstar Gemini, Inc. (“Landstar Gemini”), Landstar Carrier Services, Inc. (“Landstar Carrier Services”), Landstar Logistics, Inc. (“Landstar Logistics”), Landstar Express America, Inc. (“Landstar Express America”), Landstar Contractor Financing, Inc. (“LCFI”), Risk Management Claim Services, Inc. (“RMCS”) and Signature Insurance Company (“Signature”). Landstar Ranger, Landstar Inway, Landstar Ligon, Landstar Gemini, Landstar Carrier Services, Landstar Logistics and Landstar Express America are collectively herein referred to as Landstar’s “Operating Subsidiaries.” Landstar System, Inc., LSHI, LCFI, RMCS, Signature and the Operating Subsidiaries are collectively referred to herein as “Landstar” or the “Company,” unless the context otherwise requires. The Company’s principal executive offices are located at 13410 Sutton Park Drive South, Jacksonville, Florida 32224 and its telephone number is (904) 398-9400. The Company makes available free of charge through its website its annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission. The Company’s website is www.landstar.com.

Historical Background

      In March 1991, Landstar acquired LSHI in a buy-out organized by Kelso & Company, Inc. (“Kelso”). Investors in the acquisition included Kelso Investment Associates IV L.P. (“KIA IV”), an affiliate of Kelso, ABS MB Limited Partnership, an affiliate of DB Alex. Brown LLC (formerly known as Alex. Brown & Sons Incorporated), and certain management employees of Landstar and its subsidiaries. In March 1993, Landstar completed a recapitalization which consisted of three principal components: (i) an initial public offering of Common Stock, (ii) the retirement of all its outstanding 14% Senior Subordinated Notes, and (iii) the refinancing of the Company’s then existing senior debt facility with a senior bank credit agreement. In October 1993, the Company completed a secondary public offering. Immediately subsequent to the offering, KIA IV no longer owned any shares of Landstar Common Stock, and affiliates of DB Alex. Brown LLC retained approximately 1% of the Common Stock outstanding.

      On July 17, 2002, the Company declared a two-for-one stock split effected in the form of a 100% stock dividend distributed on August 12, 2002 to stockholders of record on August 2, 2002.

      On October 15, 2003, the Company declared a two-for-one stock split effected in the form of a 100% stock dividend distributed on November 13, 2003 to stockholders of record on November 3, 2003.

Description of Business

      Landstar is a non-asset based transportation services company, providing transportation capacity and related transportation services to shippers throughout the United States and, to a lesser extent, in Canada and between the United States, Canada and Mexico. These business services emphasize safety, information coordination and customer service and are delivered through a network of independent commission sales agents and third party capacity providers linked together by a series of technological applications which are provided and coordinated by the Company. The independent commission sales agents typically enter into non-exclusive contractual arrangements with Landstar and are responsible for locating freight, making that freight available to Landstar’s capacity providers and coordinating the transportation of the freight with customers and capacity providers. The third party capacity providers consist of independent contractors who provide truck capacity to the Company under exclusive lease arrangements (the “Independent Contractors”), unrelated trucking companies, air cargo carriers and

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      Landstar provides transportation services to a variety of industries, including iron and steel, automotive products, paper, lumber and building products, aluminum, chemicals, foodstuffs, heavy machinery, retail, ammunition and explosives, and military hardware. Landstar’s transportation services include a full array of truckload transportation utilizing a wide range of specialized equipment including dry vans of various sizes, flatbeds (including drop decks and light specialty trailers), temperature-controlled vans and containers and dedicated contract and logistics solutions, including freight optimization and less than truckload freight consolidations. Landstar also provides truck brokerage and expedited land and air delivery of time-critical freight.

      The Company has three reportable business segments. These are the carrier, multimodal and insurance segments. The financial information relating to the Company’s reportable business segments as of and for the fiscal years ending 2003, 2002 and 2001 is included in Footnote 12 of Item 8, “Financial Statements and Supplementary Data” of this Form 10-K.

      The carrier segment consists of Landstar Ranger, Landstar Inway, Landstar Ligon, Landstar Gemini and Landstar Carrier Services. The carrier segment provides truckload transportation for a wide range of general commodities primarily over irregular routes utilizing a fleet of dry and specialty vans and unsided trailers, including flatbed, drop deck and specialty. It also provides short-to-long haul movement of containers by truck, dedicated power-only truck capacity and truck brokerage. The carrier segment markets its services primarily through independent commission sales agents and utilizes tractors provided by Independent Contractors and other third party truck capacity providers (truck brokerage carriers).

      The nature of the carrier segment business is such that a significant portion of its operating costs varies directly with revenue. At December 27, 2003, the carrier segment operated a fleet of 8,202 tractors, provided by 7,267 Independent Contractors, and 14,260 trailers. Approximately 5,249 of the trailers available to the carrier segment are provided by Independent Contractors, 4,126 are leased by the Company at rental rates that vary with the revenue generated by the trailer, 3,774 are owned by the Company, 849 are under a long-term rental arrangement at a fixed rate, and 262 are rented on a short-term basis from trailer rental companies. In addition, the Company has over 15,000 qualified other third party truck capacity providers who provide additional tractor and trailer capacity. Over 9,000 of these qualified other third party truck capacity providers have moved at least one load of freight for the Company during the 180 day period immediately preceding December 27, 2003. The use of Independent Contractors and other third party capacity providers enables the carrier segment to utilize a large fleet of revenue equipment while minimizing capital investment and fixed costs, thereby enhancing return on investment. Independent Contractors who provide a tractor receive a percentage of the revenue generated for the freight hauled and a larger percentage of such revenue for providing both a tractor and a trailer. Other third party truck capacity providers are paid a negotiated rate for each load they haul. The carrier segment’s network of approximately 850 independent commission sales agents provide over 950 sales locations.

      The multimodal segment is comprised of Landstar Logistics and Landstar Express America. Transportation services provided by the multimodal segment include the arrangement of intermodal moves, contract logistics, truck brokerage and emergency and expedited ground and air freight. The multimodal segment markets its services through independent commission sales agents and utilizes capacity provided by Independent Contractors, other third party truck capacity providers, railroads and air cargo carriers. Multimodal independent commission sales agents generally receive a percentage of the gross profit from each load they generate. Independent Contractors who provide truck capacity to the multimodal segment are compensated based on a percentage of the revenue generated by the haul depending on the type and timing of the shipment. Other third party truck capacity providers, railroads and air cargo carriers are paid a negotiated rate for each load they haul, which in certain instances is based upon an annual contractual amount.

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      The nature of the multimodal segment business is such that a significant portion of its operating costs also varies directly with revenue. At December 27, 2003, the multimodal segment operated a fleet of 371 trucks, provided by approximately 317 Independent Contractors. Multimodal segment Independent Contractors primarily provide cargo vans and straight trucks that are utilized for emergency and expedited freight services. The multimodal segment’s network of approximately 100 independent commission sales agents provide over 100 sales locations. Approximately 35% of the multimodal segment’s revenue is contributed by one independent commission sales agent who derives the majority of his revenue from 3 customers.

      The insurance segment is comprised of Signature, a wholly-owned offshore insurance subsidiary, and RMCS. The insurance segment provides risk and claims management services to Landstar’s Operating Subsidiaries. In addition, it reinsures certain property, casualty and occupational accident risks of certain Independent Contractors who have contracted to haul freight for Landstar and provides certain property and casualty insurance directly to Landstar’s Operating Subsidiaries.

      Landstar’s business strategy is to be a non-asset based provider of transportation capacity offering high quality, specialized transportation services to service sensitive customers. Landstar focuses on providing transportation services which emphasize customer service and information coordination among its independent commission sales agents, customers and capacity providers. Landstar intends to continue developing appropriate systems and technologies that offer integrated transportation solutions to meet the total transportation needs of its customers.

      Management believes that the Company’s overall size, geographic coverage, equipment and service capability offer the Company significant competitive marketing and operating advantages. These advantages allow the Company to meet the needs of even the largest shippers and thereby qualify it as a “core carrier.” Increasingly, the larger shippers are substantially reducing the number of authorized carriers in favor of a small number of core carriers whose size and diverse service capabilities enable these core carriers to satisfy most of the shippers’ transportation needs. Examples of national account customers include the U.S. Department of Defense and many of the companies included in the Fortune 500.

Factors Significant to the Company’s Operations

      Management believes the following factors are particularly significant to the Company’s operations:

     Agent Network

Management believes the Company has more independent commission sales agents than any other domestic truckload carrier. Landstar’s network of over 900 independent commission sales agent locations provides the Company with regular contact with its customers at the local level and the capability to be highly responsive to shippers’ changing needs. The agent network also enables Landstar to be responsive both in providing specialized equipment to both large and small shippers and in providing capacity on short notice from the Company’s large fleet. Through its agent network, the Company believes it offers smaller shippers a level of service comparable to that typically enjoyed only by larger customers. Examples of services that Landstar is able to make available through the agent network to smaller shippers include the ability to provide transportation services on short notice (often within hours from notification to time of pick-up), multiple pick-up and delivery points, electronic data interchange capability and access to specialized equipment. In addition, a number of the Company’s agents specialize in certain types of freight and transportation services (such as oversized or heavy loads). The typical Landstar agent maintains a relationship with a number of shippers and services these shippers by providing a base of operations for the Company’s Independent Contractors and other third party capacity providers. Independent commission sales agents in the carrier segment receive a commission generally between 5% and 8% of the revenue they generate if the load is hauled by an Independent Contractor and a contractually agreed upon percent of the revenue or the gross profit, defined as revenue less the cost of purchased transportation, from each load they generate if hauled by a third party trucking company. In certain cases, the carrier segment

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	independent commission sales agents are paid volume-based incentives. Multimodal independent commission sales agents are typically paid a contractually agreed-upon percentage of the gross profit from each load they generate.
	It is important to note that although the primary point of contact between Landstar and its shippers is through independent sales agents, each Operating Subsidiary contracts directly with the customers and assumes the credit risk and liability for freight losses or damages.
	The carrier segment’s independent commission sales agents use the Company’s Landstar Electronic Administrative Dispatch System (LEADS) software program which enables its independent commission sales agents to enter available freight, dispatch capacity and process most administrative procedures and then communicate that information to Landstar and its capacity providers via the internet. The multimodal segment’s independent commission sales agents use other Landstar proprietary software to process customer shipments and communicate the necessary information to third party capacity providers and Landstar. The Company’s web-based available freight and truck information system provides a listing of available trucks to the Company’s independent commission sales agents.
	The Operating Subsidiaries emphasize programs to support the agents’ operations and to establish pricing parameters. The carrier segment and multimodal segment hold regular regional agent meetings for their independent commission sales agents and Landstar holds an annual company-wide agent convention.
	During 2003, 396 agents generated revenue for Landstar of at least $1 million each, or approximately $1.4 billion of Landstar’s total revenue, and one agent generated approximately $120,000,000 of Landstar’s total revenue.
	Although the Company typically enters into non-exclusive contractual relationships with its independent commission sales agents, management believes that the majority of the agents who generate revenue of $1 million or more have chosen to represent Landstar exclusively. Historically, Landstar has experienced very limited agent turnover among its larger-volume agents.

     Capacity

	The Company relies exclusively on independent third parties for its hauling capacity. These third party capacity providers consist of Independent Contractors, unrelated trucking companies, air cargo carriers and railroads. Landstar’s use of capacity provided by its Independent Contractors and other third party capacity providers allows it to maintain a lower level of capital investment, resulting in lower fixed costs. Historically, with the exception of air revenue, the margin generated from freight hauled by Independent Contractors has been greater than from freight hauled by other third party capacity providers.
	Independent Contractors. Management believes the Company has the largest fleet of truckload Independent Contractors in the United States. This provides marketing, operating, safety, recruiting, retention and financial advantages to the Company. The Company’s Independent Contractors are compensated based on a fixed percentage of the revenue generated from the freight they haul. This percentage generally ranges from 60% to 70% where the Independent Contractor provides only a tractor and from 75% to 79% where the Independent Contractor provides both a tractor and a trailer. The Independent Contractor must pay substantially all of the expenses of operating his/her equipment, including driver wages and benefits, fuel, physical damage insurance, maintenance, highway use taxes and debt service.
	The Company maintains an internet site through which Independent Contractors can view a complete listing of all the Company’s available freight, allowing them to consider rate, size, origin and destination when planning trips.

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	The Landstar Contractors’ Advantage Purchasing Program leverages Landstar’s purchasing power to provide discounts to eligible Independent Contractors when they purchase equipment, fuel, tires and other items. In addition, LCFI provides a source of funds at competitive interest rates to the Independent Contractors to purchase trailing equipment and mobile communication equipment.
	Trucks provided to the Company by the Independent Contractors were 8,573 at December 27, 2003 compared to 8,402 at December 28, 2002. The number of trucks provided by Independent Contractors fluctuates daily as a result of truck recruiting and truck terminations. Trucks recruited were lower in 2003 than in 2002, however, lower truck terminations in 2003 resulted in a net gain of 171 trucks. Landstar’s truck turnover ratio was approximately 45% in 2003 compared to 56% in 2002. More than half of this turnover was attributable to Independent Contractors who had been Independent Contractors with the Company for less than one year. Management believes that factors that have historically favorably impacted turnover include the Company’s extensive agent network, the Company’s programs to reduce the operating costs of its Independent Contractors and Landstar’s reputation for quality, service and reliability. Management believes that a reduction in the amount of available freight may cause an increase in truck turnover.
	Other Third Party Truck Capacity. The Company maintains a database of over 15,000 qualified other third party truck capacity providers who provide additional truck hauling capacity to the Company. Other third party truck capacity providers are paid a negotiated rate for each load they haul. The Company recruits, qualifies, establishes contracts with, tracks safety ratings and service records of and generally maintains the relationships with these third party trucking companies. In addition to augmenting the Company’s capability during periods of extraordinary demand and traffic lane imbalance, the use of third party carriers enables the Company to pursue different types and quality of freight such as temperature-controlled, short-haul traffic and, in certain instances, lower priced freight that would generally not be handled by the Company’s Independent Contractors.
	Third Party Rail and Air Capacity. The Company maintains contractual relationships with various railroads and air cargo capacity providers. These relationships allow the Company to pursue the freight best serviced by these forms of transportation capacity. Railroads and air cargo carriers are paid a fixed amount per load.

     Diversity of Services Offered

	The Company offers its customers a wide range of transportation services through the Operating Subsidiaries, including a fleet of diverse trailing equipment and extensive geographic coverage. Examples of the specialized services offered include a large fleet of flatbed trailers, multi-axle trailers capable of hauling extremely heavy or oversized loads, drivers certified to handle ammunition and explosives shipments for the U.S. Department of Defense, emergency and expedited surface and air cargo services and intermodal capability with railroads and, to a lesser extent, steamship lines.
	The following table illustrates the diversity of the trailing equipment available to the Company as of December 27, 2003:

     Technology

	Management believes leadership in the development and application of technology is an ongoing part of providing high quality service at competitive prices. Landstar manages its technology programs centrally through its information services department.

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	The Company’s information technology systems used in connection with its operations are located in Jacksonville, Florida and, to a lesser extent, in Rockford, Illinois. Landstar relies in the regular course of its business on the proper operation of its information technology systems.

     Corporate Services.

	Management believes that significant advantages result from the collective expertise and corporate services afforded by Landstar’s corporate management. The primary services provided are:

     Competition.

	Landstar competes primarily in the transportation services industry. The transportation services industry is extremely competitive and fragmented. Landstar competes primarily with truckload carriers, intermodal transportation service providers, railroads, less-than-truckload carriers, third party broker carriers and other non-asset based transportation service providers.
	Management believes that competition for the freight transported by the Company is based primarily on service and efficiency and, to a lesser degree, on freight rates alone. Management believes that Landstar’s overall size and availability of a wide range of equipment, together with its geographically-dispersed local independent agent network, present the Company with significant competitive advantages over many transportation service providers.

     Insurance and Claims.

Potential liability associated with accidents in the trucking industry is severe and occurrences are unpredictable. For commercial trucking claims incurred after June 18, 2003, Landstar retains liability up to $10,000,000 per occurrence. For commercial trucking claims incurred from May 1, 2001 through June 18, 2003, Landstar retains liability up to $5,000,000 per occurrence. For commercial trucking claims incurred prior to May 1, 2001, Landstar retains liability up to $1,000,000 per occurrence. The Company also retains liability for each general liability claim up to $1,000,000 and an additional $5,000,000 in excess of the first $5,000,000 effective June 18, 2003, $250,000 for each workers’ compensation claim and $250,000 for each cargo claim. The Company’s exposure to liability associated with accidents incurred by other third party capacity providers who haul freight on behalf of the Company is reduced by various factors including the extent to which they maintain their own insurance coverage. A material increase in the frequency or severity of accidents, cargo or workers’ compensation claims or the unfavorable development of existing claims could be expected to materially adversely affect Landstar’s results of operations.

     Dependence on Third Party Insurance Companies.

The Company is dependent on a limited number of third party insurance carriers to provide insurance coverage in excess of its self-insured retentions. Historically, the Company has relied on various third party insurance carriers to provide insurance coverage for commercial trucking claims in excess of specific per occurrence limits. Over the past two years, the premiums proposed by the insurance carriers providing coverage increased dramatically. In an attempt to manage the cost of these increasing premiums required by the third party insurance carriers, the Company has increased the level of its exposure to commercial trucking claims over the past three years from $1,000,000 per occurrence to $10,000,000 per occurrence. To the extent that the third party insurance carriers

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	continue to increase their proposed premiums for coverage of commercial trucking claims, the Company may increase its exposure on a per occurrence basis in the near future. However, to the extent the third party insurance carriers reduce their premiums proposed for coverage of commercial trucking claims, the Company may reduce its exposure on a per occurrence basis.

     Regulation.

	Each of the Operating Subsidiaries is a motor carrier which is regulated by the Federal Motor Carrier Safety Administration (FMCSA) and by various state agencies. The FMCSA has broad powers, generally governing activities such as the regulation of, to a limited degree, motor carrier operations, practices, periodic financial reporting and insurance. Subject to federal and state regulatory authorities or regulation, the Company may transport most types of freight to and from any point in the United States over any route selected by the Company.
	The trucking industry is subject to possible regulatory and legislative changes (such as increasingly stringent environmental and/or safety/security regulations or limits on vehicle weight and size) that may affect the economics of the industry by requiring changes in operating practices or by changing the demand for common or contract carrier services or the cost of providing truckload services.
	Interstate motor carrier operations are subject to safety requirements prescribed by the FMCSA. Each of the Company’s drivers are required to have a commercial driver’s license and is subject to mandatory drug and alcohol testing. The FMCSA’s commercial driver’s license and drug and alcohol testing requirements have not adversely affected the availability of qualified drivers to the Company.
	Effective January 4, 2004, the FMCSA has revised its regulations modifying its “hours of service rules.” The new regulations primarily change the amount of time a truck driver may drive and/or work during a 24-hour period. These new regulations also change the amount of time a truck driver is required to rest.

     Seasonality.

	Landstar’s operations are subject to seasonal trends common to the trucking industry. Results of operations for the quarter ending in March are typically lower than the quarters ending in June, September and December.

     Employees.

	As of December 27, 2003, the Company and its subsidiaries employed 1,230 individuals. Approximately 36 Landstar Ranger drivers (out of a Company total of 8,573) are members of the International Brotherhood of Teamsters. The Company considers relations with its employees to be good.

Item 2.     Properties

      The Company owns or leases various properties in the U.S. for the Company’s operations and administrative staff that support its independent commission sales agents, Independent Contractors and other third party capacity providers. The carrier segment’s primary facilities are located in Jacksonville, Florida and Rockford, Illinois. The multimodal segment’s primary facility is located in Jacksonville, Florida. In addition, the Company’s corporate headquarters are located in Jacksonville, Florida. The Rockford, Illinois facility is owned by the Company and all other primary facilities are leased.

      Management believes that Landstar’s owned and leased properties are adequate for its current needs and that leased properties can be retained or replaced at an acceptable cost.

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Item 3.     Legal Proceedings

      On November 1, 2002, the Owner Operator Independent Drivers Association, Inc. (“OOIDA”) and six individual Independent Contractors filed a putative class action suit in the Federal District Court in Jacksonville, Florida, against the Company. The suit alleges that certain aspects of the Company’s motor carrier leases with owner operators violate the federal leasing regulations. OOIDA seeks injunctive relief, an unspecified amount of damages and attorney’s fees. On December 16, 2002, the Company filed a Motion to Dismiss and, with respect to all of the leases that contain arbitration clauses, a Motion to Stay and Compel Arbitration. On September 30, 2003, the Federal District Court issued an Order denying the Company’s Motion to Stay and Compel Arbitration. The Company initially appealed this decision but, due to recent relevant legal developments, has filed a motion seeking to dismiss the appeal. Assuming the motion to dismiss the appeal is granted, the case will proceed in the Federal District Court rather than in arbitration. At the request of the Company, the district court has granted a stay with respect to all proceedings in its court related to the claims of all Plaintiffs except one plaintiff (whose claims were not subject to the arbitration motion because his lease lacked an arbitration clause) pending disposition of the appeal. The Federal District Court has yet to issue a ruling on Landstar’s Motion to Dismiss or on the issue of class certification. Due to a number of factors, including the lack of specificity in the plaintiff’s complaint, the early stage of this litigation and the lack of litigated final judgments in a number of similar pending cases or otherwise applicable precedent, Landstar does not believe it is in a position to conclude whether or not there is a reasonable possibility of an adverse outcome in this case, or what damages, if any, the plaintiffs would be awarded should they prevail on all or any part of their claims. However, Landstar believes it has meritorious defenses to this litigation and intends to continue defending it vigorously. Landstar also believes that it treats its Independent Contractors fairly and in a manner which reflects the important role they play in the Company’s operations.

      The Company is involved in certain other claims and pending litigation arising from the normal conduct of business. 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 other claims and pending litigation and that the ultimate outcome, after provisions thereof, 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.

Item 4.     Submission of Matters to a Vote of Security Holders

      No matters were submitted to a vote of security holders during the fourth quarter of fiscal year 2003.

PART II

      The Common Stock of the Company is quoted through the National Association of Securities Dealers, Inc. National Market System (the “NASDAQ National Market System”) under the symbol “LSTR.” The following table sets forth the high and low reported sale prices for the Common Stock as quoted through the NASDAQ National Market System for the periods indicated. All historical share-related financial information presented herein has been restated to reflect two two-for-one stock splits each effected in the form of a 100% stock dividend, the first being distributed on August 12, 2002 to

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      The reported last sale price per share of the Common Stock as quoted through the NASDAQ National Market System on March 1, 2004 was $35.91 per share. As of such date, Landstar had 29,683,174 shares of Common Stock outstanding. As of March 1, 2004, the Company had 74 stockholders of record of its Common Stock. However, the Company estimates that it has a significantly greater number of stockholders because a substantial number of the Company’s shares are held by brokers or dealers for their customers in street name.

      The Company has not paid any cash dividends on the Common Stock within the past three years and does not intend to pay dividends on the Common Stock for the foreseeable future. The declaration and payment of any future dividends will be determined by the Company’s Board of Directors based on Landstar’s results of operations, financial condition, cash requirements, certain corporate law requirements and other factors deemed relevant by the Board of Directors.

      On May 15, 2003, the Company announced that it had been authorized by its Board of Directors to purchase up to 1,000,000 shares of its common stock from time to time in the open market and in privately-negotiated transactions. On December 4, 2003, the Company announced that it had been authorized by its Board of Directors to purchase up to an additional 1,000,000 shares of its common stock from time to time in the open market and in privately-negotiated transactions.

      At December 27, 2003, the Company had 1,380,140 shares of common stock remaining to be purchased under the authorized programs.

      The Company did not purchase any shares of its common stock during the period from September 27, 2003, the end of the Company’s third fiscal quarter, to December 27, 2003, the end of the Company’s fourth fiscal quarter.

      The Company maintains three stock option plans and one stock compensation plan. The following table presents information related to securities authorized for issuance under these plans at December 27, 2003:

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LANDSTAR SYSTEM, INC. AND SUBSIDIARY

SELECTED CONSOLIDATED FINANCIAL DATA

(1)	All earnings per share amounts have been restated to give retroactive effect to a two-for-one stock split effected in the form of a 100% stock dividend declared October 15, 2003 and a two-for-one stock split effected in the form of a 100% stock dividend declared July 17, 2002.

Introduction

      Landstar System, Inc. and its subsidiary, Landstar System Holdings, Inc. (“Landstar” or the “Company”), provide transportation services to a variety of market niches throughout the United States and to a lesser extent in Canada and between the United States and Canada and Mexico through its operating subsidiaries. Landstar’s business strategy is to be a non-asset based provider of transportation capacity delivering safe, specialized transportation services to a broad range of customers throughout North America utilizing a network of independent commission sales agents and third party capacity providers. Landstar focuses on providing transportation services which emphasize customer service and information

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      The carrier segment consists of Landstar Ranger, Inc., Landstar Inway, Inc., Landstar Ligon, Inc., Landstar Gemini, Inc. and Landstar Carrier Services, Inc. The carrier segment primarily provides truckload transportation for a wide range of general commodities over irregular routes with its fleet of dry and specialty vans and unsided trailers, including flatbed, drop deck and specialty. It also provides short-to-long haul movement of containers by truck, dedicated power-only truck capacity and truck brokerage. The carrier segment markets its services primarily through independent commission sales agents and utilizes independent contractors who provide truck capacity to the Company under exclusive lease arrangements (the “Independent Contractors”) and other third party truck capacity providers (truck brokerage carriers).

      The multimodal segment is comprised of Landstar Logistics, Inc. and Landstar Express America, Inc. Transportation services provided by the multimodal segment include the arrangement of intermodal moves, contract logistics, truck brokerage and emergency and expedited ground and air freight. The multimodal segment markets its services primarily through independent commission sales agents and utilizes capacity provided by Independent Contractors and other third party capacity providers, including truck brokerage carriers, railroads and air cargo carriers.

      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 Landstar’s operating subsidiaries. In addition, it reinsures certain property, casualty and occupational accident risks of certain Independent Contractors who have contracted to haul freight for Landstar and provides certain property and casualty insurance directly to Landstar’s operating subsidiaries.

      During the fiscal year ended December 27, 2003, the carrier segment contributed 77% of Landstar’s consolidated revenue, the multimodal segment contributed 21% of Landstar’s consolidated revenue and the insurance segment contributed 2% of Landstar’s consolidated revenue.

Changes in Financial Condition and Results of Operations

      The Company’s success depends on its ability to generate freight through its network of independent commission sales agents and to efficiently deliver that freight utilizing third party capacity providers. Management believes the most significant factors to the Company’s success include increasing revenue, sourcing capacity and controlling costs.

      While customer demand, which is subject to overall economic conditions, ultimately drives increases or decreases in revenue, the Company primarily relies on its independent commission sales agents to establish customer relationships and generate revenue opportunities. Management’s primary focus with respect to revenue growth is on revenue generated by independent commission sales agents who on an annual basis generate $1 million or more of Landstar revenue (“Million Dollar Agents”). Management believes future revenue growth is primarily dependent on its ability to increase both the revenue generated by Million Dollar Agents and the number of Million Dollar Agents through a combination of recruiting new agents and increasing the revenue opportunities generated by existing independent commission sales agents. The following table shows the number of Million Dollar Agents, the average revenue generated by

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      Management monitors business activity by tracking the number of loads (volume) and revenue per load generated by the carrier and multimodal segments. In addition, management tracks revenue per revenue mile, average length of haul and total revenue miles at the carrier segment. Revenue per revenue mile and revenue per load (collectively, price) as well as the number of loads, can be influenced by many factors which do not necessarily indicate a change in price or volume. Those factors include the average length of haul, freight type, special handling and equipment requirements and delivery time requirements. The following table summarizes this data by reportable segment for the past three fiscal years:

      Also critical to the Company’s success is its ability to secure capacity, particularly truck capacity, at rates that allow the Company to profitably transport customers’ freight. The following table summarizes available truck capacity as of the end of the three most recent fiscal years:

(1)	Active refers to other third party truck capacity providers who moved at least one load in the 180 days immediately preceding the fiscal year end.

      Historically, the Company’s carrier segment has primarily relied on capacity provided by Independent Contractors. Pursuant to a plan to augment its available capacity and increase its revenue, the Company has been increasing the carrier segment’s use of capacity provided by other third party truck capacity

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      The Company incurs costs that are directly related to the transportation of freight that include purchased transportation and commissions to agents. The Company incurs indirect costs associated with the transportation of freight that include other operating costs and insurance and claims. In addition, the Company incurs selling, general and administrative costs essential to administering the business operations. Management continually monitors all components of the costs incurred by the Company and establishes annual cost budgets which, in general, are used to benchmark costs incurred on a monthly basis.

      Purchased transportation represents the amount an Independent Contractor or other third party capacity provider is paid to haul freight. The amount of purchased transportation paid to an Independent Contractor is primarily based on a contractually agreed-upon percentage of revenue generated by the haul. Purchased transportation for the brokerage services operations of the carrier and multimodal segments is based on a negotiated rate for each load hauled. Purchased transportation for the intermodal services operations and the air freight operations of the multimodal segment is based on a contractually agreed-upon fixed rate. Purchased transportation as a percentage of revenue for brokerage services and rail intermodal operations is normally higher than that of Landstar’s other transportation operations. Purchased transportation is the largest component of costs and expenses and, on a consolidated basis, increases or decreases in proportion to the revenue generated through Independent Contractors, other third party capacity providers and revenue from the insurance segment.

      Commissions to agents are primarily based on contractually agreed-upon percentages of revenue at the carrier segment and of gross profit, defined as revenue less the cost of purchased transportation, at the multimodal segment. Commissions to agents as a percentage of consolidated revenue will vary directly with fluctuations in the percentage of consolidated revenue generated by the carrier segment, the multimodal segment and the insurance segment and with changes in gross profit at the multimodal segment.

      Trailing equipment rent, maintenance costs for trailing equipment, Independent Contractor recruiting costs and bad debts from Independent Contractors and independent commission sales agents are the largest components of other operating costs.

      Potential liability associated with accidents in the trucking industry is severe and occurrences are unpredictable. For commercial trucking claims incurred after June 18, 2003, Landstar retains liability up to $10,000,000 per occurrence. For commercial trucking claims incurred from May 1, 2001 through June 18, 2003, Landstar retains liability up to $5,000,000 per occurrence. For commercial trucking claims incurred prior to May 1, 2001, Landstar retains liability up to $1,000,000 per occurrence. The Company also retains liability for each general liability claim up to $1,000,000 and an additional $5,000,000 in excess of the first $5,000,000 effective June 18, 2003, $250,000 for each workers’ compensation claim and $250,000 for each cargo claim. The Company’s exposure to liability associated with accidents incurred by other third party capacity providers who haul freight on behalf of the Company is reduced by various factors including the extent to which they maintain their own insurance coverage. While the increase in the Company’s retention for commercial trucking claims to $10,000,000 per occurrence has enabled the Company to manage the cost of its insurance premiums, it also increases the Company’s risk of liability with respect to individual accidents which, as noted above, can be severe.

      Employee compensation and benefits account for over half of the Company’s selling, general and administrative expense. Other significant components of selling, general and administrative expense are communications costs and rent expense.

      Depreciation and amortization primarily relate to depreciation of trailing equipment and management information services equipment.

      All historical share-related financial information presented herein has been restated to reflect a two-for-one stock split effected in the form of a 100% stock dividend distributed on November 13, 2003 to

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      The following table sets forth the percentage relationships of expense items to revenue for the periods indicated:

      Revenue for the fiscal year 2003 was $1,596,571,000, an increase of $90,016,000, or 6.0%, compared to revenue for the 2002 fiscal year. Revenue increased $48,908,000, $40,525,000 and $583,000 at the carrier, multimodal and insurance segments, respectively. With respect to the carrier segment, revenue per load increased approximately 4% while the number of loads delivered in 2003 remained consistent with the number of loads delivered in 2002. The average length of haul per load at the carrier segment increased approximately 1% and revenue per revenue mile increased approximately 3%. At the multimodal segment, the number of loads delivered in 2003 decreased approximately 2% compared to 2002, however average revenue per load increased approximately 16%. The increase in average revenue per load was primarily attributable to an increase in the average size of air expedited shipments, increased rates charged for expedited shipments and an increased length of haul.

      Investment income at the insurance segment was $1,220,000 and $1,950,000 for fiscal year 2003 and 2002, respectively. The decrease in investment income was primarily due to a reduced rate of return, attributable to a general decline in interest rates, on investments held by the insurance segment.

      Purchased transportation was 74.2% of revenue in 2003 compared with 74.1% in 2002. The increase in purchased transportation as a percentage of revenue was primarily attributable to increased brokerage revenue at the carrier segment, increased brokerage and rail intermodal revenue at the multimodal segment and increased rates charged by truck brokerage carriers, partially offset by an increased use of Company provided trailing equipment versus trailing equipment provided by Independent Contractors. Commissions to agents were 7.9% of revenue in 2003 and 2002. An increase in commissions to agents as a percentage of revenue resulting from increased brokerage revenue at the carrier segment was offset by lower commissions as a percentage of revenue at the multimodal segment primarily due to reduced gross profit. Other operating costs were 2.4% of revenue in 2003 and 2.3% of revenue in 2002, as increased trailer maintenance costs were partially offset by reductions in Independent Contractor recruiting,

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      Interest and debt expense was 0.2% of revenue in 2003 and 0.3% of revenue in 2002. This decrease was primarily attributable to lower interest rates and reduced average borrowings on the Company’s senior credit facility.

      The provisions for income taxes for the 2003 and 2002 fiscal years were based on effective income tax rates of approximately 38%, which is higher than the statutory federal income tax rate primarily as a result of state income taxes and the meals and entertainment exclusion. At December 27, 2003, the valuation allowance of $461,000 was attributable to deferred state income tax benefits, which primarily represented state operating loss carryforwards at one subsidiary. The valuation allowance and goodwill will be reduced by $433,000 when realization of deferred state income tax benefits becomes likely. The Company believes that deferred income tax benefits, net of the valuation allowance, are more likely than not to be realized because of the Company’s ability to generate future taxable earnings.

      Net income was $50,700,000, or $1.65 per common share ($1.59 per diluted share), in 2003 compared with $49,221,000, or $1.52 per common share ($1.47 per diluted share), in 2002. After deducting related income tax benefits of $1,500,000, the cost of the Gulf Bridge RoRo, Inc. litigation reduced net income by $2,650,000, or $0.09 per common share ($0.08 per diluted share), in 2003. Excluding the costs of the Gulf Bridge RoRo, Inc. litigation, net income would have been $53,350,000, or $1.74 per common share ($1.67 per diluted share), in 2003.

      Revenue for the fiscal year 2002 was $1,506,555,000, an increase of $113,784,000, or 8.2%, compared to revenue for the 2001 fiscal year. Revenue increased $79,995,000, $29,867,000 and $3,922,000 at the carrier, multimodal and insurance segments, respectively. At the carrier segment, revenue per load increased approximately 5% while the number of loads delivered increased approximately 2% compared to 2001. The average length of haul per load at the carrier segment increased approximately 8% and revenue per revenue mile decreased approximately 3%. At the multimodal segment, the number of loads delivered increased approximately 8% and revenue per load increased approximately 3%. Revenue at the insurance segment increased primarily due to an increase in the level of reinsurance underwritten for unladen truckers liability for certain of the Company’s Independent Contractors from $25,000 per occurrence to $1,000,000 per occurrence effective January 1, 2002.

      Investment income at the insurance segment was $1,950,000 and $3,567,000 for fiscal year 2002 and 2001, respectively. The decrease in investment income was primarily due to a reduced rate of return, attributable to a general decline in interest rates, on investments held by the insurance segment.

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      Purchased transportation was 74.1% of revenue in 2002 compared with 74.0% in 2001. The increase in purchased transportation as a percentage of revenue was primarily attributable to increased brokerage revenue at the carrier segment and increased rail intermodal revenue at the multimodal segment. Commissions to agents were 7.9% of revenue in both 2002 and 2001, as increased agent commissions at the multimodal segment were offset by reduced agent commissions on brokerage revenue at the carrier segment and the effect of increased premium revenue at the insurance segment. Other operating costs were 2.3% of revenue in both 2002 and 2001, as increased trailer maintenance costs were offset by reductions in Independent Contractor recruiting, qualification and incentive costs and reduced net costs of plates and permits. Insurance and claims were 2.8% of revenue in 2002 compared with 2.4% in 2001. The increase in insurance and claims as a percentage of revenue was primarily due to increased commercial trucking claims in the $4 million excess of $1 million layer and increased unladen truckers liability claims due to an increase in the level of risk assumed by Signature under the Company’s unladen truckers liability program effective January 1, 2002. These increases were partially offset by a reduction in insurance claims resulting from increased revenue hauled by other third party capacity providers. Selling, general and administrative costs were 6.7% of revenue in 2002 and 7.2% in 2001. The decrease in selling, general and administrative costs as a percentage of revenue was primarily due to decreased wages, travel and entertainment expenses and communication costs, as a result of certain cost reduction initiatives, and a decreased provision for customer bad debt, attributable to an improving economic environment, partially offset by an increased provision for bonuses under the Company’s incentive compensation plans, increased costs for the Company’s employee benefit programs and increased legal fees. Depreciation and amortization was 0.7% of revenue in 2002 and 1.0% of revenue in 2001. The decrease in depreciation and amortization as a percentage of revenue was primarily due to the January 1, 2002 implementation of Statement of Financial Accounting Standards (“SFAS”) No. 142, which eliminated the amortization of goodwill, and reduced depreciation expense for company-owned trailing equipment and information technology assets.

      Interest and debt expense was 0.3% of revenue in 2002 and 0.5% of revenue in 2001. This decrease was primarily attributable to lower interest rates, reduced average borrowings on the Company’s senior credit facility and decreased average capital lease obligations for trailing equipment.

      The provisions for income taxes for the 2002 and 2001 fiscal years were based on effective income tax rates of 38.0% and 38.5%, respectively, which are higher than the statutory federal income tax rate primarily as a result of state income taxes and the meals and entertainment exclusion in both years and amortization of certain goodwill in 2001. The decrease in the effective income tax rate was primarily attributable to the elimination of goodwill amortization in 2002. Net income was $49,221,000, or $1.52 per common share ($1.47 per diluted share), in 2002 compared with $42,794,000, or $1.28 per common share ($1.25 per diluted share), in 2001.

      In this annual report on Form 10-K, Landstar provided the following non-GAAP financial measures: (1) selling, general and administrative costs, excluding the costs to defend and settle one lawsuit, as a percentage of revenue, (2) earnings per common share before costs to defend and settle one lawsuit, (3) earnings per diluted share before costs to defend and settle one lawsuit and (4) net income excluding costs relating to the defense and settlement of this lawsuit. The non-GAAP financial information should be considered in addition to, and not as a substitute for, the corresponding GAAP financial information also presented in this Form 10-K.

      Management believes that it is appropriate to present this non-GAAP financial information for the following reasons: (1) the circumstances relating to this lawsuit are unusual and unique and thus are not likely to recur as a part of Landstar’s normal operations, (2) disclosure of the impact of these costs on earnings per common share, earnings per diluted share, selling, general and administrative costs and net income will allow investors to better understand the underlying trends in Landstar’s financial condition and results of operations, (3) this information will facilitate comparisons by investors of Landstar’s results as

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Capital Resources and Liquidity

      Shareholders’ equity was $142,515,000, or 61% of total capitalization (defined as total debt plus equity), at December 27, 2003, compared with $149,093,000, or 66% of total capitalization, at December 28, 2002. The decrease in shareholders’ equity was a result of the purchase of 1,255,051 shares (not adjusted for the two-for-one stock split effected in the form of a 100% stock dividend declared October 15, 2003) of the Company’s common stock at a total cost of $73,844,000, partially offset by current year net income, repayment of notes receivable arising from exercises of stock options and exercises of stock options. As of December 27, 2003, the Company may purchase an additional 1,380,140 shares of its common stock under its authorized stock purchase program. Long-term debt including current maturities was $91,456,000 at December 27, 2003, $14,096,000 more than at December 28, 2002. Working capital and the ratio of current assets to current liabilities were $147,515,000 and 1.85 to 1, respectively, at December 27, 2003, compared with $120,630,000 and 1.78 to 1, respectively, at December 28, 2002. Landstar has historically operated with current ratios within the range of 1.5 to 1 to 2.0 to 1. Cash provided by operating activities was $53,396,000 in 2003 compared with $84,313,000 in 2002. The decrease in cash provided by operating activities was primarily due to an increase in trade receivables as a result of increased revenue during the last month of the year.

      On December 20, 2001, Landstar renegotiated its existing credit agreement with a syndicate of banks and JPMorgan Chase Bank, as administrative agent (the “Third Amended and Restated Credit Agreement”). The Third Amended and Restated Credit Agreement provides $175,000,000 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.

      At December 27, 2003, the Company had $70,000,000 in borrowings outstanding and $9,580,000 of letters of credit outstanding on its Third Amended and Restated Credit Agreement. At December 27, 2003, there was $95,420,000 available for future borrowings under the Company’s Third Amended and Restated Credit Agreement. In addition, the Company has $37,330,000 in letters of credit outstanding, as collateral for insurance claims, that are secured by investments and cash equivalents totaling $38,438,000.

      Borrowings under the Third Amended and Restated Credit Agreement bear interest at rates equal to, at the option of Landstar, either (i) the greatest of (a) the prime rate as publicly announced from time to time by JPMorgan Chase Bank, (b) the three month CD rate adjusted for statutory reserves and FDIC assessment costs plus 1% and (c) the federal funds effective rate plus  1/2%, or, (ii) the rate at the time offered to JPMorgan Chase Bank in the Eurodollar market for amounts and periods comparable to the relevant loan plus a margin that is determined based on the level of the Company’s Leverage Ratio, as defined in the Third Amended and Restated Credit Agreement. The margin is subject to an increase of .125% if the aggregate amount outstanding under the Third Amended and Restated Credit Agreement exceeds 50% of the total borrowing capacity. As of December 27, 2003, the margin was equal to 87.5/100 of 1%.

      The unused portion of the Third Amended and Restated Credit Agreement carries a commitment fee determined based on the level of the Leverage Ratio, as therein defined. As of December 27, 2003, the commitment fee for the unused portion of the Third Amended and Restated Credit Agreement was 0.250%. At December 27, 2003, the weighted average interest rate on borrowings outstanding under the Third Amended and Restated Credit Agreement was 2.02%.

      The Third Amended and Restated Credit Agreement contains a number of covenants that limit, among other things, the incurrence of additional indebtedness, the incurrence of operating or capital lease obligations and the purchase of operating property. The Third Amended and Restated Credit Agreement also requires Landstar to meet certain financial tests. Landstar is required to, among other things, maintain minimum levels of Net Worth, as defined in the Third Amended and Restated Credit Agreement, and Interest and Fixed Charge Coverages, as therein defined. Under the most restrictive covenant, Interest

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      The Third Amended and Restated Credit Agreement provides for an event of default related to a person or group acquiring 25% or more of the outstanding capital stock of the Company or obtaining the power to elect a majority of the Company’s directors.

      Borrowings under the Third Amended and Restated Credit Agreement are unsecured. However, Landstar System, Inc. and all but one of Landstar System Holdings, Inc.’s (“LSHI”) subsidiaries guarantee LSHI’s obligations under the Third Amended and Restated Credit Agreement.

      The Company’s Third Amended and Restated Credit Agreement expires on January 5, 2005. The Company expects to obtain financing to renew or replace the Third Amended and Restated Credit Agreement with a similar agreement during the summer of 2004 with interest rates and fees in line with the market rates and fees available at the time of the refinancing.

      Historically, the Company has generated sufficient operating cash flow to meet its debt service requirements, fund continued growth, both internal and through acquisitions and to meet working capital needs. As a non-asset based provider of transportation capacity, the Company’s annual capital requirements for operating property are generally for trailers and management information services equipment. In addition, a significant portion of the trailing equipment used by the Company is provided by third party capacity providers and through leases at rental rates that vary with the revenue generated through the use of the leased equipment, thereby reducing the Company’s capital requirements. During 2003, the Company purchased $5,557,000 of operating property and acquired $16,200,000 of trailing equipment by entering into a five year operating lease with a fixed monthly payment. Landstar anticipates acquiring between $28,000,000 and $32,000,000 of operating property during fiscal year 2004 either by purchase or by lease financing. Prior to 2003, the Company historically funded its acquisition of Company-provided fixed-cost trailing equipment using capital leases. During 2003, the Company acquired van trailing equipment under a long-term operating lease at a fixed monthly rental price per trailer. It is expected that capital leases will fund any significant trailer purchases of owned equipment made during 2004. The Company does not anticipate any other significant capital requirements in the near future.

      Since 1997, the Company has purchased $288,147,000 of its common stock under programs authorized by the Board of Directors of the Company in open market and private block transactions. The Company has used cash provided by operating activities and borrowings on the Company’s revolving credit facilities to fund the purchases.

      At December 27, 2003, the Company’s obligations and commitments to make future payments under contracts, such as debt and lease agreements, were as follows (in thousands):

      Capital lease obligations above include $1,441,000 of imputed interest. Operating leases primarily include $20,826,000 related to the Company’s main office facility located in Jacksonville, Florida and $11,486,000 related to a long-term operating lease for trailing equipment. The Company has a commitment to enter into additional operating leases for trailing equipment during the first half of the 2004 year with aggregate future rental payments estimated to be $2,000,000 annually over the next five years.

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      As of December 27, 2003, the Company had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on the Company’s financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.

      On November 1, 2002, the Owner Operator Independent Drivers Association, Inc. (“OOIDA”) and six individual Independent Contractors filed a putative class action suit in the Federal District Court in Jacksonville, Florida, against the Company. The suit alleges that certain aspects of the Company’s motor carrier leases with owner operators violate the federal leasing regulations. OOIDA seeks injunctive relief, an unspecified amount of damages and attorney’s fees. On December 16, 2002, the Company filed a Motion to Dismiss and, with respect to all of the leases that contain arbitration clauses, a Motion to Stay and Compel Arbitration. On September 30, 2003, the Federal District Court issued an Order denying the Company’s Motion to Stay and Compel Arbitration. The Company initially appealed this decision but, due to recent relevant legal developments, has filed a motion seeking to dismiss the appeal. Assuming the motion to dismiss the appeal is granted, the case will proceed in the Federal District Court rather than in arbitration. At the request of the Company, the district court has granted a stay with respect to all proceedings in its court related to the claims of all Plaintiffs except one plaintiff (whose claims were not subject to the arbitration motion because his lease lacked an arbitration clause) pending disposition of the appeal. The Federal District Court has yet to issue a ruling on Landstar’s Motion to Dismiss or on the issue of class certification. Due to a number of factors, including the lack of specificity in the plaintiff’s complaint, the early stage of this litigation and the lack of litigated final judgments in a number of similar pending cases or otherwise applicable precedent, Landstar does not believe it is in a position to conclude whether or not there is a reasonable possibility of an adverse outcome in this case, or what damages, if any, the plaintiffs would be awarded should they prevail on all or any part of their claims. However, Landstar believes it has meritorious defenses to this litigation and intends to continue defending it vigorously. Landstar also believes that it treats its Independent Contractors fairly and in a manner which reflects the important role they play in the Company’s operations.

      The Company is involved in certain other claims and pending litigation arising from the normal conduct of business. 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 other claims and pending litigation and that the ultimate outcome, after provisions thereof, 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.

Critical Accounting Policies and Estimates

      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. During fiscal years 2002 and 2001, the Company experienced abnormally high levels of bad debt expense. Management believes this resulted from the difficult economic environment experienced by the Company’s customers and Independent Contractors. Historically, management’s estimates for uncollectible receivables have been materially correct. Although management believes the amount of the allowance for both trade and other receivables at December 27, 2003 is appropriate, a prolonged period of low or no economic growth may adversely affect the collection of these receivables. Conversely, a more robust economic environment may result in the realization of some portion of the estimated uncollectible receivables.

      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 balance sheet date. The ultimate resolution of these claims may be for an amount greater or less than the amount estimated by management. Historically, the Company has experienced both favorable

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      The Company utilizes certain income tax planning strategies to reduce its overall cost of income taxes. Upon audit, it is possible that certain strategies might be disallowed resulting in an increased liability for income taxes. The Company has provided for its estimated exposure attributable to income tax planning strategies. Management believes that the provision for liabilities resulting from the implementation of income tax planning strategies is appropriate. To date, the Company has not experienced an examination by governmental revenue authorities that would lead management to believe that the Company’s past provisions for exposures related to income tax planning strategies are not appropriate.

      Significant variances from management’s estimates for the amount of uncollectible receivables, the ultimate resolution of claims or the provision for liabilities for income tax planning strategies can be expected to positively or negatively affect Landstar’s earnings in a given quarter or year. However, management believes that the ultimate resolution of these items, given a range of reasonably likely outcomes, will not significantly affect the long-term financial condition of Landstar or its ability to fund its continuing operations.

Effects of Inflation

      Management does not believe inflation has had a material impact on the results of operations or financial condition of Landstar in the past five years. However, inflation higher than that experienced in the past five years might have an adverse effect on the Company’s results of operations.

Seasonality

      Landstar’s operations are subject to seasonal trends common to the trucking industry. Results of operations for the quarter ending in March are typically lower than the quarters ending June, September and December.

Subsequent Event

      On December 28, 2003, a truck operated by an Independent Contractor was involved in a serious accident resulting in fatalities. Management is still in the process of obtaining the facts concerning this incident and evaluating the potential financial cost of this claim to the Company. While management’s evaluation is preliminary, and investigation continues, it is possible that the ultimate resolution of this claim could result in a charge ranging anywhere from $5,000,000 up to an amount equal to the Company’s $10,000,000 self insured retention amount. A $10,000,000 pre tax charge would reduce earnings for the fiscal quarter ended March 27, 2004 and full year 2004 by approximately $.20 per diluted share.

Forward-Looking Statements

      The following is a “safe harbor” statement under the Private Securities Litigation Reform Act of 1995. Statements contained in this document that are not based on historical facts are “forward-looking statements.” This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections of this Form 10-K statement contain forward-looking statements, such as statements which relate to Landstar’s business objectives, plans, strategies and expectations. Terms such as “anticipates,” “believes,” “estimates,” “plans,” “predicts,” “may,” “should,” “could,” “will,” the negative thereof and similar expressions are intended to identify forward-looking statements. Such statements are by nature subject to uncertainties and risks, including but not limited to: an increase in the frequency or severity of accidents or workers’ compensation claims; unfavorable development of existing accident claims;

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Factors That May Affect Future Results and/or Forward-Looking Statements

      Increased severity or frequency of accidents and other claims. As noted above in Item 1, “Business — Factors Significant to the Company’s Operations — Insurance and Claims,” potential liability associated with accidents in the trucking industry is severe and occurrences are unpredictable. Landstar retains liability for each individual commercial trucking claim up to $10,000,000 per occurrence. The Company also retains liability up to $1,000,000, and an additional $5,000,000 in excess of the first $5,000,000, for each general liability claim, $250,000 for each workers compensation claim, and $250,000 for each cargo claim. A material increase in the frequency or severity of accidents, cargo or workers’ compensation claims or the unfavorable development of existing claims could have a material adverse effect on Landstar, including its results of operations and financial condition.

      Dependence on third party insurance companies. The Company is dependent on a limited number of third party insurance companies to provide insurance coverage in excess of its self-insured retention amounts. Historically, the Company has relied on various third party insurance companies to provide insurance coverage for commercial trucking claims in excess of specific per occurrence limits. Over the past two years, the premiums proposed by the third party insurance companies coverage for commercial trucking liability insurance above the Company’s self-insured retention amounts have increased dramatically. In an attempt to control the increasing premiums required by the third party insurance companies, the Company has increased its exposure on commercial trucking claims over the past three years from $1,000,000 per occurrence to $10,000,000 per occurrence. While the increase in the Company’s retention for commercial trucking claims to $10,000,000 per occurrence has enabled the Company to manage the cost of its insurance premiums, it also increases the Company’s risk of liability with respect to individual accidents which can be severe. To the extent the third party insurance companies continue to increase proposed premiums for coverage of commercial trucking liability claims, the Company may further increase its exposure on a per occurrence basis in the near future. However, to the extent the third party insurance carriers reduce their premiums proposed for commercial trucking claim coverage, the Company may reduce its exposure on a per occurrence basis.

      Dependence on independent commission sales agents. As noted above in Item 1, “Business — Factors Significant to the Company’s Operations — Agent Network,” the Company markets its services primarily through independent commission sales agents, and currently has a network of over 900 such agents. During 2003, 396 agents generated revenue for Landstar of at least $1 million each, or approximately 89% of Landstar’s consolidated revenue and one agent generated approximately $120,000,000 of Landstar’s total revenue. Although the Company competes with motor carriers and other third parties for the services of these independent commission sales agents, Landstar has historically experienced very limited agent turnover among its larger-volume agents. However, Landstar’s contracts with its agents are typically terminable upon 10 to 30 days notice by either party and do not restrict the ability of a former agent to compete with Landstar following any such termination. The loss of some of the Company’s key agents or a significant decrease in volume generated by Landstar’s larger agents could have a material adverse effect on Landstar, including its results of operations and revenue.

      Dependence on third party capacity providers. As noted above in Item 1, “Business — Factors Significant to the Company’s Operations — Capacity,” Landstar does not own trucks or other transportation equipment (other than trailing equipment) and relies on third party capacity providers, including Independent Contractors, unrelated trucking companies, railroads and air cargo carriers to

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      Change in capacity mix. Historically, the Company’s carrier segment has primarily relied on capacity provided by Independent Contractors. Pursuant to a plan to augment its available capacity and increase its revenue, the Company has been increasing the carrier segment’s use of capacity provided by other third party truck capacity providers. Freight hauled by Independent Contractors represented 69.3%, 72.6% and 74.6% of Landstar’s consolidated revenue in 2003, 2002 and 2001, respectively. Historically, with the exception of air revenue, the net margin (defined as revenue less the cost of purchased transportation and agent commissions) generated from freight hauled by Independent Contractors has been greater than freight hauled by other third party capacity providers. An increase in the amount of revenue generated through other third party capacity providers without an increase in total revenue and/or a corresponding reduction in other costs, including other operating, insurance and claims, selling, general and administrative and depreciation and amortization could have a negative effect on the Company’s operating margin (defined as operating income divided by revenue).

      Decreased demand for transportation services. The transportation industry historically has experienced cyclical financial results as a result of slowdowns in economic activity, the business cycles of customers, price increases by capacity providers, interest rate fluctuations, and other economic factors beyond Landstar’s control. Certain of the Company’s third party capacity providers can be expected to charge higher prices to cover increased operating expenses, and the Company’s operating income may decline if it is unable to pass through to its customers the full amount of such higher transportation costs. If a slowdown in economic activity or a downturn in the Company’s customers’ business cycles causes a reduction in the volume of freight shipped by those customers, the Company’s operating results could be materially adversely affected.

      Substantial industry competition. As noted above in Item 1, “Business — Factors Significant to the Company’s Operations — Competition,” Landstar competes primarily in the transportation services industry. The transportation services industry is extremely competitive and fragmented. Landstar competes primarily with truckload carriers, intermodal transportation service providers, railroads, less-than-truckload carriers, third party broker carriers and other non-asset based transportation service providers. Management believes that competition for the freight transported by the Company is based primarily on service and efficiency and, to a lesser degree, on freight rates alone. Historically, competition has created downward pressure on freight rates. A decrease in freight rates could have a material adverse effect on Landstar, including its revenue and operating income.

      Dependence on key personnel. The Company is dependent on the services of its executive officers. Although the Company believes it has an experienced and highly qualified management group, the loss of the services of the Company’s executive officers could have a material adverse effect on the Company.

      Disruptions or failures in the Company’s computer systems. As noted above in Item 1, “Business — Factors Significant to the Company’s Operations — Technology,” the Company’s information technology systems used in connection with its operations are located in Jacksonville, Florida and to a lesser extent in Rockford, Illinois. Landstar relies in the regular course of its business on the proper operation of its information technology systems to link its extensive network of customers, agents and third party capacity providers, including its Independent Contractors. Any significant disruption or failure of its technology systems could significantly disrupt the Company’s operations and impose significant costs on the Company.

      Potential changes in fuel taxes. From time to time, various legislative proposals are introduced to increase federal, state, or local taxes, including taxes on motor fuels. The Company cannot predict whether, or in what form, any increase in such taxes applicable to the transportation services provided by the Company will be enacted and, if enacted, whether or not the Company’s Independent Contractors and other third party truck capacity providers would attempt to pass the increase onto the Company or if the Company will be able to reflect this potential increased cost of capacity, if any, in prices to customers.

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      Status of independent contractors. From time to time, various legislative or regulatory proposals are introduced at the federal or state levels to change the status of independent contractors’ classification to employees for either employment tax purposes (withholding, social security, medicare and unemployment taxes) or other benefits available to employees. Currently, most individuals are classified as employees or independent contractors for employment tax purposes based on 20 “common-law” factors rather than any definition found in the Internal Revenue Code or Internal Revenue Service regulations. In addition, under Section 530 of the Revenue Act of 1978, taxpayers that meet certain criteria may treat an individual as an independent contractor for employment tax purposes if they have been audited without being told to treat similarly situated workers as employees, if they have received a ruling from the Internal Revenue Service or a court decision affirming their treatment, or if they are following a long-standing recognized practice.

      The Company classifies all of its Independent Contractors and independent commission sales agents as independent contractors for all purposes, including employment tax and employee benefit purposes. Although management is unaware of any proposals currently pending that would change the employee/independent contractor classification of Independent Contractors currently doing business with the Company, the costs associated with potential changes, if any, in the employee/independent contractor classification could have a material adverse effect on Landstar, including its results of operations and financial condition if Landstar were unable to reflect them in its fee arrangements with the Independent Contractors and agents or in the prices charged to its customers.

      Regulatory and Legislative Changes. As noted above in Item 1, “Business — Factors Significant to the Company’s Operations — Regulation,” each of the Operating Subsidiaries is a motor carrier which is regulated by the Federal Motor Carrier Safety Administration (FMCSA) and by various state agencies. The trucking industry is subject to possible regulatory and legislative changes (such as increasingly stringent environmental and/or safety/security regulations or limits on vehicle weight and size) that may affect the economics of the industry by requiring changes in operating practices or by changing the demand for common or contract carrier services or the cost of providing truckload services. Any such regulatory or legislative changes could have a material adverse effect on Landstar, including its results of operations and financial condition.

      Effective January 4, 2004, the FMCSA has revised its regulations modifying its “hours of service rules.” The new regulations primarily change the amount of time a truck driver may drive and/or work during a 24-hour period. These new regulations also change the amount of time a truck driver is required to rest. Management has implemented programs to inform the Company’s Independent Contractors and customers of the new hours of service regulations. Management does not believe compliance with these regulations will have a material effect on the Company’s results of operations.

      The Company is exposed to changes in interest rates as a result of its financial activities, primarily its borrowings on the revolving credit facility, and investing activities with respect to investments held by the insurance segment.

      The Company has a credit agreement with a syndicate of banks and JPMorgan Chase Bank, as the administrative agent, (the “Third Amended and Restated Credit Agreement”) that provides $175,000,000 of borrowing capacity. Borrowings under the Third Amended and Restated Credit Agreement bear interest at rates equal to, at the option of Landstar, either (i) the greatest of (a) the prime rate as publicly announced from time to time by JPMorgan Chase Bank, (b) the three month CD rate adjusted for statutory reserves and FDIC assessment costs plus 1% and (c) the federal funds effective rate plus  1/2%, or, (ii) the rate at the time offered to JPMorgan Chase Bank in the Eurodollar market for amounts and

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      The Third Amended and Restated Credit Agreement expires on January 5, 2005. The amount outstanding on the Third Amended and Restated Credit Agreement is payable upon the expiration of the Third Amended and Restated Credit Agreement.

      The Company’s obligations under the Third Amended and Restated Credit Agreement are guaranteed by all but one of LSHI’s subsidiaries.

      Long-term investments consist of investment grade bonds having maturities of up to five years. Assuming that the long-term portion of investments in bonds remains at $7,830,000, the balance at December 27, 2003, a hypothetical increase or decrease in interest rates of 100 basis points would not have a material impact on future earnings on an annualized basis. Short-term investments consist of short-term investment grade instruments and the current maturities of investment grade bonds. Accordingly, there is no material future interest rate risk associated with these short-term investments.

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Item 8.     Financial Statements and Supplementary Data

LANDSTAR SYSTEM, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

See accompanying notes to consolidated financial statements.

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LANDSTAR SYSTEM, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(1)	All earnings per share amounts and average number of shares outstanding have been restated to give retroactive effect to a two-for-one stock split effected in the form of a 100% stock dividend declared October 15, 2003 and a two-for-one stock split effected in the form of a 100% stock dividend declared on July 17, 2002.

See accompanying notes to consolidated financial statements.

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LANDSTAR SYSTEM, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS