RESULTS OF OPERATIONS

The following table illustrates our gross profit margins by services and products:

             For the years ended December 31,   2008      2007      2006
             Transportation                      17.0 %    18.4 %    17.8 %
             Sourcing                             8.0       7.7       7.9
             Information Services               100.0     100.0     100.0

             Total                               16.0 %    17.0 %    16.5 %

The following table summarizes our gross profits by service line:

For the years ended December 31

(Dollars in thousands)               2008          2007       Change        2006       Change
Gross profits:
Transportation
Truck                             $ 1,030,070   $   949,277      8.5 %   $   822,954     15.3 %
Intermodal                             43,618        38,670     12.8          36,176      6.9
Ocean                                  62,094        43,530     42.6          37,150     17.2
Air                                    35,390        31,315     13.0          21,533     45.4
Miscellaneous                          41,407        35,240     17.5          28,152     25.2

Total Transportation                1,212,579     1,098,032     10.4         945,965     16.1

Sourcing                              111,634       100,220     11.4          94,229      6.4
Information Services                   50,750        45,526     11.5          42,350      7.5

Total                             $ 1,374,963   $ 1,243,778     10.5 %   $ 1,082,544     14.9 %

The following table represents certain statements of operations data, shown as percentages of our gross profits:

    For the years ended December 31,                      2008      2007      2006
    Gross profits                                         100.0 %   100.0 %   100.0 %
    Selling, general, and administrative expenses:
    Personnel expenses                                     43.8      45.7      47.7
    Other selling, general, and administrative expenses    14.6      13.4      13.7

    Total selling, general, and administrative expenses    58.4      59.1      61.4

    Income from operations                                 41.6      40.9      38.6

    Investment and other income                             0.5       1.2       1.1
    Income before provision for income taxes               42.1      42.1      39.7

    Provision for income taxes                             16.0      16.0      15.0

    Net income                                             26.1 %    26.1 %    24.7 %

OVERVIEW

Our company. We are a global provider of multimodal transportation services and logistics solutions, operating through a network of branch offices in North America, Europe, Asia, South America, and the Middle East. We are a non-asset based transportation provider, meaning we do not own the transportation equipment that is used to transport our customers' freight. We work with approximately 50,000 transportation companies worldwide, and through those relationships we select and hire the appropriate transportation providers to meet our customers' needs. As an integral part of our transportation services, we provide a wide range of value added logistics services, such as supply chain analysis, freight consolidation, core carrier program management, and information reporting.

In addition to multimodal transportation services, we have two other logistics business lines: fresh produce sourcing and fee-based information services. Our Sourcing business is the buying, selling, and marketing of fresh produce. We purchase fresh produce through our network of produce suppliers and sell it to retail grocers and restaurant chains, produce wholesalers, foodservice and distributors. In the majority of cases, we also arrange the transportation of the produce we sell through our relationships with specialized transportation companies. Our Information Services business is our subsidiary, T-Chek Systems, Inc., which provides a variety of management and information services to motor carrier companies and to fuel distributors. Those services include funds transfer, driver payroll services, fuel management services, permit procurement, and fuel and use tax reporting.

Our business model. We are a service company. We act principally to add value and expertise in the procurement and execution of transportation and logistics, including sourcing of produce products for our customers. Our gross revenues represent the total dollar value of services and goods we sell to our customers. Our gross profits are our gross revenues less the direct costs of transportation, products, and handling, including motor carrier, rail, ocean, air, and other costs, and the purchase price of the products we source. Our gross profits are the primary indicator of our ability to source, add value, and sell services and products that are provided by third parties, and we consider them to be our primary performance measurement. Accordingly, the discussion of our results of operations below focuses on the changes in our gross profits.

We keep our business model as variable as possible to allow us to be flexible and adapt to changing economic and industry conditions. We buy most of our transportation capacity and produce on a spot-market basis. We also keep our personnel and other operating expenses as variable as possible. Compensation, our largest operating expense, is performance-oriented and, for most employees in the branch network, based on the profitability of their individual branch office.

In addition, we do not have pre-committed targets for headcount growth. Our personnel decisions are decentralized. Our branch managers determine the appropriate number of employees for their offices, within productivity guidelines, based on their branch's volume of business. This helps keep our personnel expense as variable as possible with the business.

Our branch network. Our branch network is a major competitive advantage. Building local customer and carrier relationships has been an important part of our success, and our worldwide network of offices supports our core strategy of serving customers locally, nationally, and globally. Our branch offices help us penetrate local markets, provide face-to-face service when needed, and recruit contract carriers. Our branch network also gives us knowledge of local market conditions, which is important in the transportation industry because it is so dynamic and market-driven.

Our branches work together to complete transactions and collectively meet the needs of our customers. Approximately 35 percent of our truckload shipments are shared transactions between branches. For many of our significant customer relationships, we coordinate our efforts in one branch and rely on multiple branch locations to deliver specific geographic or modal needs. In addition, our methodology of providing services is very similar across all branches. Our North American branches have a common technology platform that they use to match customer needs with supplier capabilities, to collaborate with other branch locations, and to utilize centralized support resources to complete all facets of the transaction.

During 2008, we increased the size of our branch network by 10 branches, to 228. We opened eight new branches and added two branches through acquisition. We are planning limited branch openings during 2009. Because we usually open new offices with only two or three employees, we do not expect them to make a material contribution to our financial results in the first few years of their operation.

Our people. Because we are a service company, our continued success is dependent on our ability to continue to hire and retain talented, productive people. Our headcount grew by 629 employees during 2008, including 117 employees added by acquisition. Branch employees act as a team in their sales efforts, customer service, and operations. A significant portion of our branch employees' compensation is performance-oriented, based on individual performance and the profitability of their branch. We believe this makes our sales employees more service-oriented, focused, and creative. In 2003, we implemented a restricted stock program to better align our key employees with the interests of our shareholders, and to motivate and retain them for the long term. These restricted stock awards vest over a five-year period based on the performance of the company, and have been awarded annually since 2003.

Our customers. In 2008, we worked with approximately 32,000 customers, up from approximately 29,000 in 2007. We work with a wide variety of companies, ranging in size from Fortune 100 companies to small family businesses, in many different industries. Our customer base is very diverse. Our top 100 customers represented approximately 30 percent of our total gross profits, and our largest customer was approximately three percent of our total gross profits.

Our carriers. Our carrier base includes motor carriers, railroads (primarily intermodal service providers), air freight, and ocean carriers. In 2008, we increased our carrier base to approximately 50,000, up from approximately 48,000 in 2007. While our volume with many of these new providers may still be small, we believe the growth in our contract carrier network shows that we are well positioned to continue to meet our customers' needs. Motor carriers that had fewer than 100 tractors transported approximately 75 percent of our truckload shipments in 2008. In our truckload business, no single carrier represents more than one percent of our carrier capacity.

Our goals. Since we became a publicly-traded company in 1997, our long-term compounded annual growth target has been 15 percent for gross profits, income from operations, and earnings per share. This goal was based on an analysis of our performance in the previous twenty years, during which our compounded annual growth rate was 15 percent. Although there have been periods where we have not achieved these goals, since 1997 we have exceeded this compounded growth goal in all three categories.

Our expectation is that over time, we will continue to achieve our long-term target of 15 percent growth, but that we will have periods in which we exceed that goal and periods in which we fall short. We expect to reach our long-term growth primarily through internal growth but acquisitions that fit our growth criteria and culture may also augment our growth.

In 2008, our gross profits grew 10.5 percent to $1.4 billion. Our income from operations increased 12.1 percent to $571.6 million and our diluted earnings per share increased 11.8 percent to $2.08. Due to overall economic conditions and the rapid decline in North American truckload volumes, which are the largest source of our gross profits, we did not achieve our long-term growth goal of 15 percent in 2008. Truckload volumes in the marketplace and in our business slowed as the year progressed, and on a per business day basis our North American truckload gross profits declined in December. The environment remains unpredictable. Based on published industry freight indexes and reductions in overall economic activity and manufacturing production, 2009 may be very challenging for growth and it is more likely that we will not achieve our long-term growth goals.

2008 COMPARED TO 2007

Revenues. Gross revenues for 2008 were $8.58 billion, an increase of 17.3 percent over $7.32 billion in 2007. Gross profits in 2008 were $1.37 billion, an increase of 10.5 percent over $1.24 billion in 2007. This was the result of an increase in our Transportation gross profits of 10.4 percent to $1.21 billion, an increase in our Sourcing gross profits of 11.4 percent to $111.6 million, and an increase in our Information Services gross profits of 11.5 percent to $50.8 million.

During 2008, our gross profit margin, or gross profits as a percentage of gross revenues, decreased to 16.0 percent from 17.0 percent in 2007. Transportation gross profit margin decreased to 17.0 percent in 2008 from 18.4 percent in 2007, primarily due to the increased cost of fuel and its impact on our truckload business. While our different pricing arrangements with customers and carriers make it very difficult to measure the precise impact, we believe that fuel costs essentially act as a pass-through to our business. Therefore, in times of higher fuel prices, our gross profit margin percentage declines. Sourcing gross profit margin increased to 8.0 percent in 2008 from 7.7 percent in 2007. Information Services is a fee-based business which generates 100 percent gross profit margin.

Transportation gross profits increased 10.4 percent to $1.21 billion in 2008 from $1.10 billion in 2007. Transportation revenues are generated through several transportation services, including truck, intermodal, ocean, air, and miscellaneous services.

Truck gross profits, which consists of truckload and less-than-truckload (LTL), increased 8.5 percent to $1.03 billion in 2008. Truckload volumes increased approximately seven percent in 2008, but deteriorated as the year progressed. Truckload gross profit margins decreased in 2008 due to the higher cost of fuel for most of 2008 compared to 2007. Including fuel, our truckload rates increased approximately nine percent; excluding estimated impacts of fuel, underlying linehaul rates increased approximately one percent. Our LTL volumes increased approximately 19 percent in 2008. LTL gross profit margins for 2008 were consistent with 2007. Despite weakening demand for trucking services in the marketplace, we were able to capture additional market share and grow our volumes with existing customers and gain new customers.

Intermodal gross profits increased 12.8 percent to $43.6 million from $38.7 million in 2007, due to an increase in volumes offset partially by a decrease in our gross profit margins. Cross-selling with existing customers and new customer growth drove our volume growth.

Our ocean transportation gross profits increased 42.6 percent to $62.1 million in 2008. Our growth was driven by an increase in volumes and an increase in our gross profit margins. Our previously disclosed acquisition of Transera on August 1, 2008, contributed approximately 15.3 percent to the overall increase. Our volumes grew due to adding new customers and growth with existing customers. Gross profit margins expanded due to more widely available capacity in the marketplace.

Our air transportation gross profits increased 13.0 percent to $35.4 million in 2008. The increase was driven by significant volume increases partially offset by a decline in our gross profit margins. Our acquisition of Transera contributed approximately five percent to the overall increase.

Miscellaneous transportation gross profits consist primarily of customs brokerage fees and transportation management fees. The increase of 17.5 percent to $41.4 million in 2008 was driven primarily by increases in transportation management business.

Sourcing gross profits increased 11.4 percent to $111.6 million in 2008. Our Sourcing business is the buying and selling of fresh fruits and vegetables. For several years, we have actively sought to expand our Sourcing customer base, focusing on large retailers, restaurant chains, and foodservice providers. As a result, we continue to see the long-term trend of growth in our integrated relationships and value-added products and an expansion of our services, which have resulted in increased volumes and gross profit margins in 2008.

Information Services is comprised entirely of revenue generated by our subsidiary, T-Chek Systems. For 2008, Information Systems gross profits growth of 11.5 percent to $50.8 million was driven primarily by volume growth in local fleet card services, some of our carrier compliance services, cash advance services, maintenance fees, and merchant services. Higher fuel prices contributed to some of our growth because with certain merchants our fee is based on a percentage of the sale amount. Volumes in our over-the-road fuel card declined slightly due to the reduction in freight demand in marketplace, resulting in a smaller number of transactions.

Selling, general, and administrative expenses. Personnel expenses increased 6.0 percent to $601.8 million in 2008, and decreased as a percentage of gross profits to 43.8 percent in 2008 from 45.7 percent in 2007. Personnel expenses account for nearly 75 percent of our total selling, general, and administrative expenses. The increase is largely due to growth in our headcount, which increased by over 600 people, or 8.6 percent in 2008. Expenses related to our restricted stock program and various other incentive plans are variable, based on growth in our earnings. Our slower earnings growth in 2008 compared to 2007 resulted in a decrease in expense related to some of these incentive plans. This contributed to our personnel expenses growing slower than our gross profits.

Other selling, general, and administrative expenses for 2008 were $201.6 million, an increase of 21.3 percent from $166.1 million in 2007. The increase in our selling, general, and administrative expenses was driven by several expense categories, including provision for doubtful accounts, occupancy, and claims. As a percentage of gross profits, other selling, general, and administrative expenses increased to 14.6 percent in 2008 compared to 13.4 percent in 2007.

Our total provision for doubtful accounts was $14.3 million for the year compared to $6.7 million in 2007. Due to economic conditions, we had a higher level of customer-specific payment issues and bankruptcies than we typically experience. It is very difficult for us to predict whether other accounts will have issues in the future but believe our reserve for doubtful accounts is appropriate.

Our occupancy expense increased faster than our gross profits primarily due to primarily to an increase in office space. Occupancy expense is driven primarily by contractual lease agreements of our branch locations, which are fixed in the short-term and therefore difficult to reduce as our gross profit growth slows.

Income from operations. Income from operations increased 12.1 percent to $571.6 million for 2008. This increase was primarily driven by the growth in our gross profits. Income from operations as a percentage of gross profits was 41.6 percent and 40.9 percent for 2008 and 2007.

Investment and other income. Investment and other income decreased 50.8 percent to $6.8 million in 2008. Our investment yield declined significantly from 2007 to 2008 due to changes in the short term high-quality interest rate market. During 2008, nearly all of our investments were in money market funds that generally have a lower yield. During 2007, we were invested in auction rate securities and variable rate demand notes which had a higher investment yield.

Provision for income taxes. Our effective income tax rate was 37.9 percent for 2008 and 38.1 percent for 2007. The effective income tax rate for both periods is greater than the statutory federal income tax rate primarily due to state income taxes, net of federal benefit.

Net income. Net income increased 10.8 percent to $359.2 million for 2008. Basic net income per share increased 11.6 percent to $2.12. Diluted income per share increased 11.8 percent to $2.08 for 2008.

2007 COMPARED TO 2006

Revenues. Gross revenues for 2007 were $7.32 billion, an increase of 11.6 percent over $6.56 billion in 2006. Gross profits in 2007 were $1.24 billion, an increase of 14.9 percent over $1.08 billion in 2006. This was the result of an increase in our Transportation gross profits of 16.1 percent to $1.10 billion, an increase in our Sourcing gross profits of 6.4 percent to $100.2 million, and an increase in our Information Services gross profits of 7.5 percent to $45.5 million.

During 2007, our gross profit margin, or gross profits as a percentage of gross revenues, increased to 17.0 percent from 16.5 percent in 2006. Transportation gross profit margin increased to 18.4 percent in 2007 from 17.8 percent in 2006. Sourcing gross profit margin decreased to 7.7 percent in 2007 from 7.9 percent in 2006. Information Services is a fee-based business which generates 100 percent gross profit margin.

Transportation gross profits increased 16.1 percent to $1.10 billion in 2007 from $946.0 million in 2006. Transportation revenues are generated through several transportation services, including truck, intermodal, ocean, air, and miscellaneous services.

Truck gross profits, including LTL, increased 15.3 percent to $949.3 million in 2007. This increase was generated by volume growth of over ten percent and increased gross profit margins, partially offset by a rate decline of approximately two percent. This rate decline excludes the impact of higher fuel prices. Despite weakening demand for trucking services in the marketplace, we were able to capture additional market share and grow our volumes with existing customers and gain new customers. Our margins expanded due to more widely available capacity in the marketplace compared to 2006.

Intermodal gross profits increased 6.9 percent to $38.7 million from $36.2 million in 2006, due to an increase in volumes. Our volume growth was driven by cross-selling with existing customers and new customer growth.

Our ocean transportation gross profits increased 17.2 percent to $43.5 million in 2007. Our growth was driven by an increase in volumes and an increase in our gross profit margins. Our volumes grew due to adding new customers and growth with existing customers. Gross profit margins expanded due to more widely available capacity in the marketplace.

Our air transportation gross profits increased 45.4 percent to $31.3 million in 2007. The increase was driven by significant volume increases partially offset by a decline in our gross profit margins, due to changes in our geographic and cargo consolidation mix. Our air gross profits also included approximately $2.1 million of domestic air gross profits from our previously-disclosed acquisition of LXSI Services, Inc. on July 13, 2007.

Miscellaneous transportation gross profits consist primarily of customs brokerage fees and transportation management fees. The increase of 25.2 percent to $35.2 million in 2007 was driven by increases in transportation management business.

Sourcing gross profits increased 6.4 percent to $100.2 million in 2007, driven by growth in our volumes, partially offset by a decrease in our Sourcing gross profit margins. Our Sourcing business is the buying and selling of fresh fruits and vegetables. For several years, we have actively sought to expand our Sourcing customer base, focusing on large retailers, restaurant chains, and foodservice providers. As a result, we continue to see the long-term trend of increases in volume and gross profits in our integrated relationships with these customers, offset by a decline in our business with produce wholesale customers. Our gross profit margin declined in 2007 primarily because of higher prices for certain commodities, related to weather and higher labor and fuel costs.

Information Services is comprised entirely of revenue generated by our subsidiary, T-Chek Systems. For 2007, Information Systems gross profits growth of 7.5 percent to $45.5 million was driven primarily by volume growth in our core fuel card and cash advance services. In addition, our gross profit per transaction was up slightly due to the price of fuel. With certain merchants our fee is based on a percentage of the sale amount. Approximately 30 percent of the growth was related to other services, such as fleet card and carrier compliance services.

Selling, general, and administrative expenses. Many of our selling, general, and administrative expenses are variable in relation to gross profits. However, we did gain leverage in certain expenses.

Personnel expenses increased by 10.1 percent to $568.0 million in 2007, and decreased as a percentage of gross profits to 45.7 percent in 2007 from 47.7 percent in 2006. Personnel expenses account for nearly 80 percent of our total selling, general, and administrative expenses. Expenses related to our restricted stock program and various other incentive plans are variable, based on growth in our earnings. Our slower earnings growth in 2007 compared to 2006 resulted in a decrease in expense related to some of these incentive plans. This contributed to our personnel expenses growing slower than our gross profits.

We focus on keeping personnel expenses as variable as possible while looking for opportunities to be more efficient. Gross profits per employee increased 3.1 percent in 2007 over 2006. This increase was driven primarily by increased productivity and our slower headcount growth, relative to our gross profit growth.

Other selling, general, and administrative expenses for 2007 were $166.1 million, an increase of 11.7 percent from $148.8 million in 2006. As a percentage of gross profits, other selling, general, and administrative expenses decreased to 13.4 percent in 2007 compared to 13.7 percent in 2006. We strive to keep our expenses as variable as possible. With our revenue growth in 2007, we did gain leverage in our other selling, general, and administrative expenses.

Income from operations. Income from operations increased 22.0 percent to $509.7 million for 2007. This increase was primarily driven by the growth in our gross profits. Income from operations as a percentage of gross profits was 40.9 percent and 38.6 percent for 2007 and 2006.

Investment and other income. Investment and other income increased 16.8 percent to $13.8 million in 2007. Our portfolio yield increased slightly in 2007 from 2006.

Provision for income taxes. Our effective income tax rate was 38.1 percent for 2007 and 37.9 percent for 2006. The effective income tax rate for both periods is greater than the statutory federal income tax rate primarily due to state income taxes, net of federal benefit.

Net income. Net income increased 21.5 percent to $324.3 million for 2007. Basic net income per share increased 21.8 percent to $1.90. Diluted income per share increased 21.6 percent to $1.86 for 2007.

LIQUIDITY AND CAPITAL RESOURCES

We have historically generated substantial cash from operations, which has enabled us to fund our growth while paying cash dividends and repurchasing stock. Cash and cash equivalents totaled $494.7 million and $338.9 million as of December 31, 2008 and 2007. Available-for-sale securities, consisting primarily of highly liquid investments, totaled $2.6 million and $115.8 million as of December 31, 2008 and 2007. Working capital at December 31, 2008 and 2007 was $650.2 million and $631.5 million.

Our first priority for our cash is growing the business, as we require some working capital and a relatively small amount of capital expenditures to grow. We are continually looking for acquisitions to redeploy our cash, but those acquisitions must fit our culture and enhance our growth opportunities.

If our cash balance continues to increase and there are no significant attractive acquisition opportunities, we expect to return more of the cash to our shareholders through future dividends and share repurchases.

Cash from operating activities. We generated $447.6 million, $308.4 million, and $343.4 million of cash flow from operations in 2008, 2007, and 2006. During 2008, our cash flow from operations increased 45.1 percent compared to a 10.8 percent increase in net income. The primary factor that caused this increase in . . .