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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

(Mark One)

[  X  ]                     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended                     September 27, 2003

OR

[      ]                     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      _________________ to _____________________

Commission File Number:                           0-21238

LANDSTAR SYSTEM, INC.

(Exact name of registrant as specified in its charter)

                                        Delaware                                                                     06-1313069

                        (State or other jurisdiction                                                      (I.R.S. Employer

                     of incorporation or organization)                                              Identification No.)

13410 Sutton Park Drive South, Jacksonville, Florida

(Address of principal executive offices)

32224

(Zip Code)

(904) 398-9400

(Registrant's telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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  (  X  )

No  (    )

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes  (  X  )

No  (    )

The number of shares of the registrant's Common Stock, par value $0.01 per share, outstanding as of the close of business on October 24, 2003 was 14,913,833, not adjusted for the two-for-one stock split announced October 16, 2003.

PART I

FINANCIAL INFORMATION

Index

Item 1

Item 2

Item 3

Item 4

Item 1.  Financial Statements

The interim consolidated financial statements contained herein reflect all adjustments (all of a normal, recurring nature) which, in the opinion of management, are necessary for a fair statement of the financial condition, results of operations, cash flows and changes in shareholders' equity for the periods presented. They have been prepared in accordance with Rule 10-01 of Regulation S-X and do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. Operating results for the thirty nine weeks ended September 27, 2003 are not necessarily indicative of the results that may be expected for the entire fiscal year ending December 27, 2003.

These interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's 2002 Annual Report on Form 10-K.

LANDSTAR SYSTEM, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share amounts)

(Unaudited)

LANDSTAR SYSTEM, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share amounts)

(Unaudited)

LANDSTAR SYSTEM, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

LANDSTAR SYSTEM, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

Thirty Nine Weeks Ended September 27, 2003

(Dollars in thousands)

(Unaudited)

LANDSTAR SYSTEM, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The consolidated financial statements include the accounts of Landstar System, Inc. and its subsidiary, Landstar System Holdings, Inc., and reflect all adjustments (all of a normal, recurring nature) which are, in the opinion of management, necessary for a fair statement of the results for the periods presented. The preparation of the consolidated financial statements requires the use of management's estimates.  Actual results could differ from those estimates. Landstar System, Inc. and its subsidiary are herein referred to as "Landstar" or the “Company.”

(1)               Stock Split

On October 16, 2003, Landstar announced that its Board of Directors had declared a two-for-one stock-split of its common stock to be effected in the form of a 100% stock dividend. Stockholders of record on November 3, 2003 will receive one additional share of common stock for each share held. The additional shares will be distributed on or about November 13, 2003.  Unless otherwise indicated, all share and per share amounts have been restated to give retroactive effect to this stock-split.

(2)               Litigation Settlement Agreement

On September 20, 2001, a suit was filed entitled Gulf Bridge RoRo, Inc. v. Landstar System, Inc., Landstar Logistics, Inc. and Ford Motor Co., Inc. in Federal District Court in Mobile, Alabama. The complaint alleged breach of contract, fraud and tortious interference with contractual business relationships against Landstar System, Inc. and Landstar Logistics, Inc. arising out of a contract between Landstar Logistics, Inc. and the plaintiff involving a trans-Gulf of Mexico roll-on/roll-off shipping venture developed by the plaintiff.  The suit made claim for $25,000,000 for damages for breach of contract and $50,000,000 punitive and other damages related to the fraud and tortious interference claims. Landstar System, Inc. and all of its subsidiaries (“Landstar”) deny all claims made by the plaintiff.  In order to avoid the cost of protracted litigation, on September 9, 2003 Landstar entered into a comprehensive settlement agreement with the plaintiffs and the Company’s insurance carrier with respect to all claims asserted with this lawsuit. The total cost incurred, net of insurance recoveries, by Landstar to defend and settle this suit during the 2003 thirty-nine week period was approximately $4,150,000, approximately $3,180,000 of which was incurred in the thirteen-week period ended September 27, 2003. The settlement component, net of insurance recoveries, was $2,700,000. Net of related income tax benefits these costs reduced Landstar’s net income for the thirty-nine and thirteen-week periods ended September 27, 2003 by approximately $2,650,000, or $.09 per common share ($.08 per diluted share) and $2,030,000, or $.07 per common share ($.06 per diluted share), respectively.

(3)               Income Taxes

The provisions for income taxes for the 2003 and 2002 thirty-nine-week and thirteen-week periods were based on estimated full year combined effective income tax rates of approximately 38.0%, which are higher than the statutory federal income tax rate primarily as a result of state income taxes and the meals and entertainment exclusion.

(4)               Earnings Per Share

Earnings per common share amounts are based on the weighted average number of common shares outstanding and diluted earnings per share amounts are based on the weighted average number of common shares outstanding plus the incremental shares that would have been outstanding upon the assumed exercise of all dilutive stock options.

The following table provides a reconciliation of the number of average common shares outstanding used to calculate earnings per share to the number of common shares and common share equivalents outstanding used in calculating diluted earnings per share (in thousands):

For the thirty-nine-week period ended September 27, 2003, there were 2,000 options outstanding to purchase shares of common stock excluded from the calculation of diluted earnings per share because they were antidilutive. No such antidilutive options were outstanding for the thirteen-week period ended September 27, 2003. For both the thirty-nine and thirteen-week periods ended September 28, 2002, there were 36,000 options outstanding to purchase shares of common stock excluded from the calculation of diluted earnings per share because they were antidilutive. All earnings per share amounts have been restated to give retroactive effect to the two-for-one stock split declared October 15, 2003.

(5)               Cash and Cash Equivalents

Included in cash and cash equivalents are all investments, except those provided for collateral, with an original maturity of 3 months or less.  There are $24,822,000 and $55,672,000 of cash equivalents reported in cash and cash equivalents at September 27, 2003 and December 28, 2002, respectively.

(6)               Investments

Included in short-term investments at September 27, 2003 are $27,327,000 of Signature Insurance Company’s cash equivalents.  These cash equivalents combined with $11,115,000 of Signature’s other investments, $9,303,000 of which are included in other assets, provided collateral for $37,330,000 of letters of credit issued to guarantee payment of insurance claims.  Investment income represents the earnings on the insurance segment’s assets.

(7)               Additional Cash Flow Information

During the 2003 period, Landstar paid income taxes and interest of $15,288,000 and $2,593,000, respectively. During the 2002 period, Landstar paid income taxes and interest of $16,638,000 and $3,303,000, respectively, and acquired operating property by entering into capital leases in the amount of $2,668,000.

 (8)               Segment Information

The following tables summarize information about Landstar’s reportable business segments as of and for the thirty nine and thirteen weeks ended September 27, 2003 and September 28, 2002 (in thousands):