We revised our Management Incentive Plan in January of 2002.  The amendments included changes in vesting provisions and changes in the process of granting options to certain employees.

We closed on an offering of approximately 5.9 million shares of common stock in late May and June of 2002.  We issued and sold approximately 2.8 million shares and 3.1 million shares were sold by a shareholder.  The selling price of the stock was $26 per share before underwriters’ discounts and other expenses.

4.                                      Earnings Per Share

We compute basic earnings per share by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding for the reporting period.  Diluted earnings per share reflects the potential dilution that could occur if holders of options or other contracts to issue common stock options exercised or converted their holdings into common stock.  Outstanding stock options represent the only dilutive effects on weighted average shares.  The chart below presents a reconciliation between basic and diluted weighted average shares outstanding and the related earnings per share.  All amounts in the chart, except per share amounts, are expressed in thousands.

We had some options to purchase shares of common stock which were outstanding during the periods shown, but were excluded from the computation of diluted earnings per share because the option price was greater than the average market price of the common shares.  A summary of those options follows:

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5.                                      Comprehensive Income

Comprehensive income consists of net earnings and foreign currency translation adjustments.  During the three and sixnine months ended JuneSeptember 30, 2002 and 2001, comprehensive income was equal to:  (in thousands):

6.                                      Income Taxes

The effective income tax rates for the three and sixnine months ended JuneSeptember 30, 2002 and 2001, were based on estimated annual combined effective rates of 25.0% and 15.0%, respectively.

In 1999, we entered into a series of transactions effecting a sale and leaseback of a portion of our Intermodalintermodal container and chassis fleet for a selling price of approximately $175 million.  These transactions used a structure that the Internal Revenue Service (IRS) has recently indicated it intends to examine.  We have voluntarily disclosed these transactions to the IRS.IRS and in October of 2002, the IRS began their examination of the specific facts of these transactions.  If the IRS challenges our transactions, we intend to vigorously defend them.  However, if the IRS successfully challenges these transactions, and is successful in disallowingdisallows some or all of the tax benefits that we realized, these actions could have a material adverse effect on our financial condition and operating results.

7.                                      Business Segments

We operated three distinct business segments during the sixnine months ended JuneSeptember 30, 2002.  These segments included:  Truck (JBT), Intermodal (JBI) and Dedicated Contract Services (DCS).  The operation of each of these businesses is described in footnote (10) of our annual report (Form 10-K) for the year ended December 31, 2001.  A summary of certain segment information is presented below (in millions):

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8.                                      Reclassifications

We have reclassified certain amounts from our 2001 financial statements so they will be consistent with the way we have classified amounts in 2002.

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INDEPENDENT ACCOUNTANTS’ REVIEW REPORT

The Board of Directors

J.B. Hunt Transport Services, Inc.:

We have reviewed the accompanying condensed consolidated balance sheet of J.B. Hunt Transport Services, Inc. and subsidiaries as of JuneSeptember 30, 2002, and the related condensed consolidated statements of earnings for the three and sixnine month periods ended JuneSeptember 30, 2002 and 2001, and the condensed consolidated statements of cash flows for the sixnine month periods ended JuneSeptember 30, 2002 and 2001.  These condensed consolidated financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants.  A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters.  It is substantially less in scope than an audit in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole.  Accordingly, we do not express such an opinion.

Based  on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of J.B. Hunt Transport Services, Inc. and subsidiaries as of December 31, 2001, and the related consolidated statements of earnings, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated February 1, 2002, we expressed an unqualified opinion on those consolidated financial statements.  In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2001, is fairly presented, in all material respects, in relation to the consolidated balance sheet from which it has been derived.  Our report dated February 1, 2002, contains an explanatory paragraph that refers to a restatement of retained earnings to reflect an increase in insurance claims payable.

Tulsa, Oklahoma

JulyOctober 15, 2002

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ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

You should refer to the attached interim condensed consolidated financial statements and related notes and also to our annual report (Form 10-K) for the year ended December 31, 2001 as you read the following discussion.  We may make statements in this report and in documents we incorporate by reference that reflect our current expectation regarding future results of operations, performance and achievements.  These “forward-looking” statements are based on our belief or interpretation of information currently available.  You should realize there are many risks and uncertainties that could cause actual results to differ materially from those described.  Some of the factors and events that are not within our control and could have a significant impact on future operating results are general economic conditions, cost and availability of diesel fuel, adverse weather conditions, competitive rate fluctuations, availability of drivers, and audits or tax assessments of various federal, state or local taxing authorities, including the Internal Revenue Service.  Current and future changes in fuel prices could result in significant fluctuations of quarterly earnings.  Our future financial and operating results may fluctuate as a result of these and other risk factors as described from time to time in our filings with the Securities and Exchange Commission.

General

We are one of the largest full-load transportation companies in North America.  We operate three distinct, but complementary, business segments and provide a wide range of general and specifically tailored freight and logistics services to our customers.  We generate revenues primarily from the actual movement of freight from shippers to consignees and from serving as a logistics provider by offering or arranging for others to provide the transportation service.  We account for our business on a calendar year basis with our full year ending on December 31 and our quarterly reporting periods ending on March 31, June 30 and September 30.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Certain amounts included in or affecting our financial statements and related disclosures must be estimated, requiring certain assumptions with respect to values or conditions that cannot be known with certainty at the time the financial statements are prepared.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect:

•                  the amounts reported for assets and liabilities;

•                  the disclosure of contingent assets and liabilities at the date of the financial statements; and

•                  the amounts reported for revenues and expenses during the reporting period.

Therefore, the reported amounts of assets and liabilities, revenues and expenses and associated disclosures with respect to contingent assets and obligations are necessarily affected by these estimates.  We evaluate these estimates on an ongoing basis, utilizing historical experience, consultation with experts and other methods considered reasonable in the particular circumstances.  Nevertheless, actual results may differ significantly from estimates.  Any effects on business, financial position or results of operations resulting from revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known.

In preparing financial statements and related disclosures, we also must use estimates in determining the economic useful lives of assets, provisions for uncollectible accounts receivable, exposures under self-insurance plans and various other recorded or disclosed amounts.  However, we believe that certain accounting policies are of more significance in the financial statement preparation process than others and are discussed below.  To the extent that actual outcomes differ from our estimates, or additional facts and circumstances cause us to revise estimates, earnings will be affected.

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Workers’ Compensation and Accident Costs

We purchase insurance coverage for a portion of expenses related to employee injuries (workers’ compensation), vehicular collisions and accidents and cargo claims.  Most insurance arrangements include a level of self insurance (deductible) coverage applicable to each claim, but provide an umbrella policy to limit our exposure to catastrophic claim costs that are completely insured.  The amounts of self insurance change from time to time based on certain measurement dates and policy expiration dates.  Our current insurance coverage specifies that the first $5,000 of any claim is self insured and the self insured limit on certain claims is $1.5 million, which is prefunded with our insurance carrier.  We are substantially self insured for loss of and damage to our owned and leased revenue equipment.  Our safety and claims personnel work directly with representatives from the insurance companies to continually update the estimated ultimate cost of each claim.  At JuneSeptember 30, 2002, we had approximately $18$7 million of estimated net claims payable.  In addition, we are required to pay certain advanced deposits and monthly premiums.  At JuneSeptember 30, 2002, we had a prepaid insurance asset of approximately $20$18 million.

Revenue Equipment

We operate a significant number of tractors, trailers and containers in connection with our business.  This equipment may be purchased or acquired under capital or operating leases.  In addition, we may rent revenue equipment from third parties and various railroads under short-term rental arrangements.  Revenue equipment which is purchased is depreciated on the straight-line method over the estimated useful life down to an estimated salvage or trade-in value.  Equipment acquired under capital leases is initially recorded at the net present value of the minimum lease payments and amortized on the straight-line method over the lease term or the estimated useful life, which ever is shorter.

We have an arrangement with our primary tractor supplier for fixed residual or trade-in values for certain new equipment acquired since 1999.  We have utilized these values in accounting for purchased and leased tractors.  If the supplier is unable to perform under the terms of such agreements, it could have a material negative impact on our financial results.

Revenue Recognition

We recognize revenue based on the relative transit time of the freight transported.  Accordingly, a portion of the total revenue which will be billed to our customer once a load is delivered is recognized in each reporting period based on the percentage of the freight pickup and delivery service that has been completed at the end of the reporting period.

SEGMENTS

We operated three segments during the sixnine months ended JuneSeptember 30, 2002.  These segments included:  Truck (JBT), Intermodal (JBI) and Dedicated Contract Services (DCS).  The operation of each of these businesses is described in footnote (10) of our annual report (Form 10-K) for the year ended December 31, 2001.

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RESULTS OF OPERATIONS

Comparison of SecondThird Quarter 2002 to SecondThird Quarter 2001

Summary of Operating Segments Results

For The Three Months Ended JuneSeptember 30

(dollars in millions)

Overview

Our total consolidated operating revenue for the secondthird quarter of 2002 was $557$583 million, up 7%an increase of approximately 8% over the $521$537 million in the secondthird quarter of 2001.  Compared to the previous year, the current quarter’sFuel surcharge revenue was reduced by a $9.2 million decrease inhas an impact on this comparison.  The amount of fuel surcharge revenue due to lower fuel prices.billed in the current quarter was $5.3 million less than the amount billed in the third quarter of 2001.  Excluding this reduction in fuel surcharges, total operating revenue during the current quarter increased 9%.10% over the comparable period of 2001.

JBT segment revenue totaled $212$215 million for the secondthird quarter of 2002, essentially equal toan increase of 2% over the second$210 million in the third quarter of 2001.  If the amount of fuel surcharge revenue was excluded from both the 2002 and 2001 periods, segment revenue would have increased approximately 3%4% in 2002.  This 3%4% increase in revenue was primarily a result of an approximate 4%5% increase in revenue per loaded mile, exclusive of fuel surcharges, offset by a decline in miles per tractor and a small decline in the size of the tractor fleet.  The average number of total tractors operated in the JBT fleet declined 216 (4%) during the third quarter of 2002, compared with the third quarter of 2001.  However, this net decrease included a net increase of 320 independent contractors offset by a decrease of 536 company tractors.  Part of the decline in miles per tractor was due to the reduction of empty miles to 9% in the current quarter from 12% in the comparable period of 2001.  The increase in revenue per loaded mile, excluding fuel surcharges, and the decrease in empty miles helped contribute to the significant improvement in earnings of the JBT segment.  Operating income for the secondthird quarter of 2002 was $10.9$10.1 million, compared with $2.9$4.8 million in 2001.  The operating ratio of the JBT segment was 94.8%95.3% in 2002 and 98.6%97.7% in 2001.  The higher revenue per mile and lower empty miles were a result of our yield management initiatives launched in late 2001.  A decline in driver pay as a cost per mile in 2002 also enhanced operating income.

JBI segment revenue increased 10%7%, to $198$207 million during the secondthird quarter of 2002, compared with $180$194 in 2001.  If the amount of fuel surcharge revenue was excluded from both the 2002 and 2001 periods, the increase in JBI revenue would have been 12%8%.  The increase in revenue was primarily due to an approximate 7% increase in load volume and a nearly 2% increase in revenue per load including fuel surcharge.  The higher revenue per load was a result of changes in freight mix which generated a longer

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average length of haul, andpartly offset by a 0.5% increasedecrease in revenue per loaded mile, excluding fuel surcharges.  Operating income of the JBI segment was $11.3$13.2 million in the secondthird quarter of 2002, compared with $10.1$11.4 million in 2001.  The operating ratio of the JBI segment was 94.3%93.6% in 2002 and 94.4%94.1% in 2001.  In addition to higher revenue per load, operating income was enhanced by lower dray cost per load.

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DCS segment revenue rose 12%19%, to $151$164 million in 2002, from $135$138 million in 2001.  If fuel surcharge revenue was excluded from both of the 2002 and 2001 periods, the increase in DCS revenue would have been 14%20%.  This increase in DCS segment revenue was driven by an approximate 6%9% increase in the average size of the tractor fleet and a 7%9% increase in net revenue per tractor, excluding fuel surcharge.  Primarily a result of new project start-ups, idle tractors declined from 22870 at March 31,June 30, 2002 to 70essentially zero at JuneSeptember 30, 2002.  Operating income rose to $6.7$4.1 million in the secondthird quarter of 2002 from $4.9$1.7 million in 2001.  The operating ratio of the DCS segment was 95.5%97.5% in 2002 and 96.3%98.8% in 2001.  The improvement in 2002 operating income was primarily due to better utilization of tractors in service and efforts to reduce costs, including driver wages.

The following table sets forth items in our Condensed Consolidated Statements of Earnings as a percentage of operating revenues and the percentage increase or decrease of those items as compared with the prior period.