(Mark One)

Commission file number 0-11757J.B. HUNT TRANSPORT SERVICES, INC.

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 the filing requirements for the past 90 days.

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

The number of shares of the registrant’s $.01 par value common stock outstanding on September 30, 2003March 31, 2004 was 80,029,990.

Shares outstanding on September 30, 2003, reflect a two for one stock split which was paid on August 29, 2003.80,240,129.

J.B. HUNT TRANSPORT SERVICES, INC.

Form 10-Q

For The Quarter Ended September 30, 2003March 31, 2004

Table of Contents

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J.B. HUNT TRANSPORT SERVICES, INC.

Condensed Consolidated Statements of Earnings

(in thousands, except per share data)

(unaudited)

See accompanying notes to condensed consolidated financial statements.

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J.B. HUNT TRANSPORT SERVICES, INC.

Condensed Consolidated Balance Sheets

(in thousands)

See accompanying notes to condensed consolidated financial statements.

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J.B. Hunt Transport Services, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

See accompanying notes to condensed consolidated financial statements.

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J.B. HUNT TRANSPORT SERVICES, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.                                      Basis of Presentation

Our condensed consolidated financial statements included in this Form 10-Q have been prepared without audit (except that the balance sheet information as of December 31, 20022003 has been derived from consolidated financial statements which were audited) in accordance with the rules and regulations of the Securities and Exchange Commission.  Although certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United Sates of America have been condensed or omitted, we believe that the disclosures are adequate to make the information presented not misleading.  You should read the accompanying condensed consolidated financial statements in conjunction with the audited financial statements and notes thereto included in our annual report on Form 10-K for the year ended December 31, 2002.2003.

We believe that all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of the interim periods presented have been made.  The results of operations for the interim periods presented in this report are not necessarily indicative of the results to be expected for the full calendar year ending December 31, 2003.2004.

2.                                      Stock-based Compensation

We have adopted the intrinsic value based method of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees and related interpretations in accounting for compensation costs for our stock option plans.  Accordingly, compensation expense is recognized on the date of grant only if the current market price of the underlying common stock at date of grant exceeds the exercise price.

Had we determined compensation cost based on the fair value at the grant date for our stock options under Statement of Financial Accounting Standard No. 123, Accounting for Stock-based Compensation (SFAS No. 123), our net earnings would have been reduced to the pro forma amounts indicated below.  All amounts in the chart, except per share amounts, are in thousands.

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Pro forma net earnings reflects only options granted since December 31, 1995.  Therefore, the full impact of calculating compensation costs for stock options under SFAS No. 123 is not reflected in the pro forma net earnings amounts presented above because compensation cost is reflected over the options’ vesting periods of 5 to 10 years and compensation cost for options granted prior to January 1, 1996 is not considered.

3.                                      Recently Issued Accounting Standards

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 143, Accounting for Asset Retirement Obligations (SFAS No. 143).  SFAS No. 143 required us to record the fair value of an asset retirement obligation as a liability in the period in which we incur a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development and/or normal use of the assets.  We adopted SFAS No. 143 effective January 1, 2003.  The adoption of SFAS No. 143 did not have a material effect on our financial statements.

In JanuaryDecember 2003, the FASB issued FASB Interpretation No. 46,46R, Consolidation of Variable Interest Entities an interpretation of ARB No. 51.  This Interpretation (FIN 46R), which addresses the consolidation by business enterprises of variable interest entities as defined in the Interpretation.  The Interpretation applies immediatelyentities.  FIN 46R is applicable to variable interests in variable interest entities created after January 31, 2003, and to variable interests inor potential variable interest entities obtainedcommonly referred to as special purpose entities by the end of the first reporting period ending after January 31,December 15, 2003. On October 9, 2003, the FASB staff issued FASB Staff Position (FSP) Financial Interpretation No. 46-6, which deferred the effective date for applying the provisions untilFIN 46R had no impact on our consolidated financial statements at March 31, 2004.  The adoption of Interpretation No. 46 is not expected to have a material effect on our financial statements.

4.                                      Long-Term Debt

Long-term debt consists of (in thousands):

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5.                                      Capital Stock

We have a stock option plan (Management Incentive Plan) that provides for the awarding of our common stock and stock options to key employees.  A summary of the restricted and non-statutory options to purchase our common stock follows:

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We announced on July 17, 2003April 22, 2004 that our Board of Directors had declaredre-initiated a two for one stock splitquarterly cash dividend of $.03 per common share payable on our common stock, which was payable August 29, 2003,May 20, 2004, to stockholders of record as of May 6, 2004.  We had not paid a dividend since February 2000.  The re-initiation of a quarterly dividend was based on July 31, 2003.  All common stock related amounts in this Form 10-Q have been adjusted to reflect this stock split.our lower debt levels and improved net earnings.

6.                                      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:

7.                                      Comprehensive Income

Comprehensive income consists of net earnings and foreign currency translation adjustments.  During

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the three and nine months ended September 30,March 31, 2004 and 2003, and 2002, comprehensive income was equal to:  (in thousands):to net earnings.

8.                                      Income Taxes

The effective income tax rates for the three month periods ended March 31, 2004 and nine months ended September 30, 2003, were 40.5% and 2002, were 38.5% and 25.0%38.0%, respectively.  The increase in the 20032004 effective income tax ratesrate was partly a result of the new accountable expense reimbursement plan (driver per diem plan).  This new plan, which was implemented in February of 2003, benefits most of our eligible drivers and reduces certain costs which are classified in the salary, wages and employee benefits expense category.  The lower benefit costs of the driver per diem plan are partly offset by higher effective income tax rates.  The increase in the 2004 effective income tax rate was also due to the suspension, during the fourth quarter of 2003, of recording

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certain non-cash tax benefits associated with the sale and leaseback transactions as discussed below.

In 1999, we entered into a series of transactions effecting a sale and leaseback of a portion of our Intermodal container and chassis fleet for a selling price of approximately $175 million.  These transactions used a structure thatThis transaction was examined by the Internal Revenue Service (IRS) has indicated it intends to examine.IRS in an audit of our 1998 and 1999 income tax returns.  We have voluntarily disclosedreceived an IRS Notice of Proposed Assessment, which disallows the tax benefits associated with these transactions, toand as a result, we have filed an appeal in the matter.  We have not yet been contacted by the IRS andAppeals Division to schedule a hearing to resolve this issue.  If a resolution of the matter cannot be reached in October of 2002,the appeals process, the IRS began their examinationwill forward a 90-day letter, also known as a Notice of Deficiency.  A resolution of the specific facts of these transactions.  As of September 30, 2003, no adverse findings have been asserted bydispute could occur at any point in the IRS.administrative process or could extend through a trial and court appeals.  If the IRS challenges our transactions, we intend to vigorously defend them.  As of September 30, 2003,are unsuccessful in defending this transaction, we had recognized approximately $31 million of income tax benefits from these transactions.  The annual tax benefits recognized from these transactions can be computed from the table contained in Footnote (4), Income Taxes, of our Form 10-K for the years 2002could owe additional taxes and 2001, and by summing the amounts labeled as “sale/leaseback benefit” for the years 1999 through 2002.  As of September 30, 2003, weinterest.  We estimate our maximum potentialearnings exposure to be approximately $36.5$32 million, includingwhich represents the tax benefits realized through December 31, 2002, plus estimated accrued interest in the eventthough March 31, 2004.  This exposure would result if the IRS successfully challenges allsucceeded in disallowing 100% of the tax benefits realized to date.from this transaction.

9.                                      Business Segments

We operated three distinct business segments during the ninethree months ended September 30, 2003March 31, 2004 and 2002.2003.  These segments included:  Truck (JBT), Intermodal (JBI) and Dedicated Contract Services (DCS).  The operation of each of these businesses is described in footnote (10)(11) of our annual report (Form 10-K) for the year ended December 31, 2002.2003.  A summary of certain segment information is presented below (in millions):

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10.          Reclassifications

We have reclassified certain amounts from our 2002 financial statements so they will be consistent with the way we have classified amounts in 2003.

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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 September 30, 2003,March 31, 2004, and the related condensed consolidated statements of earnings for the three and nine monththree-month periods ended September 30,March 31, 2004 and 2003, and 2002, and the condensed consolidated statements of cash flows for the nine monththree-month periods ended September 30, 2003March 31, 2004 and 2002.2003.  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, 2002,2003, 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 January 30, 2003,2004, 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, 2002,2003, is fairly presented,stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

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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, 20022003 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 are “forward-looking” statements as defined in the Private Securities Litigation Reform Act of 1995, and 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.  You should also refer to Item 7 of our annual report (Form 10-K) for the year ended December 31, 2002,2003, for additional information on risk factors and other events that are not within our control.  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 our financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect:

•impact the amounts reported for assetsin our consolidated financial statements 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.

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

In preparingWe consider our critical accounting policies and estimates to be those that require us to make more significant judgments and estimates when we prepare our financial statements and related disclosures, we also must use estimates in determininginclude 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 certainfollowing:

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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.

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 insuranceself-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 self-insurance

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change from time to time based on certain measurement dates and policy expiration dates.  Our current insurance coverage specifies that theDuring 2003, we were self-insured limit on the majorityfor a portion of our claims isexposure resulting from cargo loss, personal injury, property damage, workers’ compensation and health claims for amounts up to the first $1.5 million which is prefunded withof each claim.  In January 2004, we changed our insurance carrier.  level of self-insurance to $2 million for auto accidents and $1 million for workers’ compensation.

Our claims accrual policy for all self-insuranceself-insured claims is to recognize a liability at the expense whentime of the event occursincident based on our analysis of the nature and severity of the costsclaims, analyses provided by third-party claims administrators, as well as legal, economic and regulatory factors.  Our safety and claims personnel work directly with representatives from the insurance companies to continually update the estimated cost of such events are probableeach claim.  The ultimate cost of a claim develops over time as additional information regarding the nature, timing and reasonably estimable.  We apply loss development factorsextent of damages claimed becomes available.  Accordingly, we use an actuarial method to our accident and workers’ compensation claims history, as a partdevelop current claim information to derive an estimate of our ultimate claim liability.  This process involves the use of recordingloss-development factors based on our historical claims experience.  In doing so, the expense of losses which are Incurred But Not Reported (IBNR).recorded ultimate liability considers future claims growth and provides an allowance for incurred-but-not-reported claims.  We do not discount our estimated losses.  We are also 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 September 30, 2003,March 31, 2004, we had approximately $28$9 million of estimated net claims payable.  In addition, we are required to pay certain advanced deposits and monthly premiums.  At September 30, 2003,March 31, 2004, we had a prepaid insurance asset of approximately $17 million.$42 million, which represented pre-funded claims and premiums.

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.lease agreements.  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, whichever is shorter.

We have an arrangementagreement with our primary tractor supplier for fixedguaranteed residual or trade-in values for certain new equipment acquired since 1999.  During the fourth quarter of 2003, we reviewed the useful lives and salvage values of our tractor fleet.  We have utilized thesethe guaranteed trade-in values as well as other operational information, such as anticipated annual miles, in accounting for purchased and leased tractors.  If theour tractor supplier iswas unable to perform under the terms of such agreements,our agreement for guaranteed trade-in values, it could have a materialmaterially 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 ourthe 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.

SEGMENTSSegments

We operated three segments during the nine months ended September 30, 2003first quarter of 2004 and 2002.  These segments included:  Truck (JBT), Intermodal (JBI) and Dedicated Contract Services (DCS).2003.  The operation of each of these businesses is described in footnote (10)(11) of our annual report (Form 10-K) for the year ended December 31, 2002.2003.

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RESULTS OF OPERATIONS

Comparison of Third Quarter 2003 to Third Quarter 2002

Summary of Operating Segments Results

For The Three Months Ended September 30March 31

(dollars in millions)

Overview

Our total consolidated operating revenue for the thirdfirst quarter of 20032004 was $622$618 million, an increase of approximately 7%8% over the $583$571 million in the thirdfirst quarter of 2002.2003.  Fuel surcharge revenue has andoes not have a significant impact on this comparison.  The amount of fuel surcharge revenue billed in the current quarter was $8.6 million more thanapproximately equal to the amount billed in the thirdfirst quarter of 2002.  Excluding fuel surcharges, total operating revenue during the current quarter increased 5% over the comparable period of 2002.2003.

JBT segment revenue totaled $214$210 million for the thirdfirst quarter of 2003, essentially equal to2004, an increase of 6% over the $215$199 million in the thirdfirst quarter of 2002.2003.  If the amount of fuel surcharge revenue was excluded from both the 20032004 and 20022003 periods, segment revenue would have decreased approximately 2% in 2003.increased 4%.  This 2% decline4% increase in revenue was primarily a result of an approximate 5%6% increase in revenue per loaded mile, exclusive of fuel surcharges, partly offset by a 1%3% decrease in the size of the tractor fleet and 5% lower miles per tractor.  The average number of total tractors operatedfleet.  Segment load count increased 2% in the JBT fleet declined by 24 during the third quarter of 2003, compared with the third quarter of 2002.  The percentage of empty miles increased to 10.2% in 2003, from 9.0% in 2002, although some of our customers paid us2004, which also helped account for running certain empty miles at their request.revenue growth.  The increase in revenue per loaded mile, excluding fuel surcharges, significantly contributed to the improvement in operating income of the JBT segment.  The higher revenue per mile was primarily a result of our yield management initiatives launched in late 2001.activities.  In addition, we implemented an accountable expense reimbursement plan (driver per diem plan)significantly lower accident, workers’ compensation and bad debt costs in February of 2003.  This new plan benefits most of our eligible drivers and also favorably impacted our net earnings during2004 contributed to the third quarter of 2003.improvement in segment operating income.  JBT operating income for the thirdfirst quarter of 20032004 was $17.9$14.7 million, compared with $10.1$1.3 million in 2002.2003.  The operating ratio of the JBT segment was 91.6%93.0% in 20032004 and 95.3%99.3% in 2002.2003.

JBI segment revenue increased 16%13%, to $241$242 million during the thirdfirst quarter of 2003,2004, compared with $207$214 million in 2002.2003.  If the amount of fuel surcharge revenue was excluded from both the 20032004 and 20022003 periods, the increase in JBI revenue would still have been 15%13%.  The increase in revenue was primarily due to an approximate 13% increase in load volume and a 2% increase in revenue per load.  The highervolume.  Operating revenue per load resulted from changes in freight mix which generated longer average length2004 increased about 1.5% over the comparable period of haul and an approximate 0.6% increase in revenue per loaded mile, excluding fuel surcharges.2003.  Operating income of the JBI segment was $25.1rose to $29.1 million in the thirdfirst quarter of 2003,2004, compared with $13.2$18.9 million in 2002.2003.  The operating ratio of the JBI segment was 89.6%88.0% in 20032004 and 93.6%91.2% in 2002.2003.  In addition to higher revenue per load, 2003volumes, 2004 operating income was enhanced by lower maintenance costs and improved utilization of revenue equipment.

DCS segment revenue rose 4%grew 5%, to $170 million in 2003,2004, from $164$162 million in 2002.2003.  If fuel surcharge

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revenue was excluded from both of the 20032004 and 20022003 periods, the increase in DCS revenue would still have been 2%5%.  This increase in DCS segment revenue was driven by an 8%7% increase in net revenue per tractor, excluding fuel surcharge, partly offset by a 6%3% decrease in the average size of the tractor fleet.  Operating income of our DCS segment climbed to $14.6$14.3 million in 2003,2004, from $4.1$3.7 million in 2002.2003.  The DCS operating ratio was 91.4%91.6% in 20032004 and 97.5%97.7% in 2002.2003.  Improvements in operating income were driven by

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better tractor utilization, improved productivity and pricing, expense controlsreduced accident and workers’ compensation expenses and lower start-up costs associated with new business.

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.