global trade. A good reputation helps to develop practical working understandings that will assist in meeting security requirements while minimizing potential international trade obstacles. The Company considers its current working relationships with these entities to be satisfactory. However, the airline and ocean steamship line industries have incurred significant losses in recent years as a result of the global economic downturn and many carriers are highly leveraged with debt. This situation has required the Company to be increasingly selective in which carriers to utilize. Further changes in the financial stability, operating capabilities and capacity of asset-based carriers, space allotments available from carriers, governmental regulation or deregulation efforts, "modernization" of the regulations governing customs brokerage, and/or changes in governmental quota restrictions or trade accords could affect the Company's business in unpredictable ways.
Historically, the Company's operating results have been subject to a seasonal trend when measured on a quarterly basis. The first quarter has traditionally been the weakest and the third and fourth quarters have traditionally been the strongest. This pattern is the result of, or is influenced by, numerous factors including weather patterns, national holidays, consumer demand, economic conditions and a myriad of other similar and subtle forces. In addition, this historical quarterly trend has been influenced by the growth and diversification of the Company's international network and service offerings. The Company cannot accurately forecast many of these factors nor can the Company estimate accurately the relative influence of any particular factor and, as a result, there can be no assurance that historical patterns, if any, will continue in future periods.
A significant portion of the Company's revenues are derived from customers in retail industries whose shipping patterns are tied closely to consumer demand, and from customers in industries whose shipping patterns are dependent upon just-in-time production schedules. Therefore, the timing of the Company's revenues are, to a large degree, impacted by factors out of the Company's control, such as a sudden change in consumer demand for retail goods and/or manufacturing production delays. Additionally, many customers ship a significant portion of their goods at or near the end of a quarter, and therefore, the Company may not learn of a shortfall in revenues until late in a quarter. To the extent that a shortfall in revenues or earnings was not expected by securities analysts, any such shortfall from levels predicted by securities analysts could have an immediate and adverse effect on the trading price of the Company's stock.
The Company operates in 63 countries throughout the world in the competitive global logistics industry and Company activities are tied directly to the global economy. From the inception of the Company, management has believed that the elements required for a successful global service organization can only be assured through recruiting, training, and ultimately retaining superior personnel. The Company's greatest challenge is now and always has been perpetuating a consistent global corporate culture which demands:
• Total dedication, first and foremost, to providing superior customer service;

• Aggressive marketing of all of the Company's service offerings;

• Ongoing development of key employees and management personnel via formal and informal means;

• Creation of unlimited advancement opportunities for employees dedicated to hard work, personal growth and continuous improvement;

• Individual commitment to the identification and mentoring of successors for every key position so that when inevitable change is required, a qualified and well-trained internal candidate is ready to step forward; and

• Continuous identification, design and implementation of system solutions, both technological and otherwise, to meet and exceed the needs of our customers while simultaneously delivering tools to make our employees more efficient and more effective.

The Company reinforces these values with a compensation system that rewards employees for profitably managing the things they can control. This compensation system has been in place since the Company became a publicly traded entity. There is no limit to how much a key manager can be compensated for success. The Company believes in a "real world" environment in every operating unit where individuals are not sheltered from the profit implications of their decisions. If these decisions result in operating losses, these losses must be made up from future operating profits, in the aggregate, before any cash incentive compensation can be earned. At the same time, the Company insists on continued focus on such things as accounts receivable collection, cash flow management and credit soundness in an attempt to insulate managers from the sort of catastrophic errors that might end a career.
Any failure to perpetuate this unique culture on a self-sustained basis throughout the Company provides a greater threat to the Company's continued success than any external force, which would be largely beyond our control. Consequently, management spends the majority of its time focused on creating an environment where employees can learn and develop while also improving systems and taking preventative action to reduce exposure to negative events and risks. The Company strongly believes that it is nearly impossible to predict events that, in the aggregate, could have a positive or a negative impact on future operations. As a result our focus is on building and maintaining a global corporate culture of well-trained employees and managers that are prepared to identify and react to subtle changes as they develop and thereby help the Company adapt and thrive as major trends emerge.

Critical Accounting Estimates
Management believes that the nature of the Company's business is such that there are few complex challenges in accounting for operations. While judgments and estimates are a necessary component of any system of accounting, the Company's use of estimates is limited primarily to the following areas:
• accounts receivable valuation;

• accrual of costs related to ancillary services the Company provides;

• accrual of insurance liabilities for the portion of the freight related exposure which the Company has self-insured;

• accrual of various tax liabilities;

• accrual of loss contingencies; and

• calculation of share-based compensation expense.

These estimates, other than the accrual of loss contingencies and calculation of share-based compensation expense, are not highly uncertain and have not historically been subject to significant change. Management believes that the methods utilized in all of these areas are non-aggressive in approach and consistent in application. Management believes that there are limited, if any, alternative accounting principles or methods which could be applied to the Company's transactions. While the use of estimates means that actual future results may be different from those contemplated by the estimates, the Company believes that alternative principles and methods used for making such estimates would not produce materially different results than those reported. The outcomes of government investigations, legal proceedings and claims brought against the Company are subject to significant uncertainty. An estimated loss from a contingency such as a government investigation, legal proceeding or claim is accrued by a charge to income if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. Disclosure of a loss contingency is required if there is at least a reasonable possibility that a significant loss has been incurred. In determining whether a loss should be accrued, management evaluates several factors, including advice from outside legal counsel, in order to estimate the degree of probability of an unfavorable outcome and make a reasonable estimate of the amount of loss or range of reasonably possible loss. Changes in these factors could have a material impact on the Company's results of operations and operating cash flows for any particular quarter or year.
As described in Note 2 in the condensed consolidated financial statements in this quarterly report, the Company accounts for share-based compensation based on an estimate of the fair value of options granted to employees under the Company's stock option and stock purchase rights plans. This expense, as adjusted for expected forfeitures, is recorded on a straight-line basis over the option vesting period.
Determining the appropriate option pricing model to use to estimate stock compensation expense requires judgment. Any option pricing model requires assumptions that are subjective and these assumptions also require judgment. Examples include assumptions about long-term stock price volatility, employee exercise patterns, pre-vesting option forfeitures, post-vesting option terminations, and future interest rates and dividend yields. The Company uses the Black-Scholes model for estimating the fair value of stock options. Management believes that the assumptions used are appropriate based upon the Company's historical and currently expected future experience. Looking to future events, management has been strongly influenced by historical patterns which may not be valid predictors of future developments and any future deviation may be material. The fair value of an option is more significantly impacted by changes in the expected volatility and expected life assumptions. The pre-vesting forfeitures assumption is ultimately adjusted to the actual forfeiture rate. Therefore, changes in the forfeitures assumption would not impact the total amount of expense ultimately recognized over the vesting period. Different forfeitures assumptions would only impact the timing of expense recognition over the vesting period. Estimated forfeitures will be reassessed in subsequent periods and may change based on new facts and circumstances.

Results of Operations
The following table shows the consolidated net revenues (revenues less transportation expenses) attributable to the Company's principal services and the Company's expenses for the three and nine-month periods ended September 30, 2012 and 2011, expressed as percentages of net revenues. Management believes that net revenues are a better measure than total revenues of the relative importance of the Company's principal services since total revenues earned by the Company as a freight consolidator include the carriers' charges to the Company for carrying the shipment whereas revenues earned by the Company in its other capacities include only the commissions and fees actually earned by the Company. The table and the accompanying discussion and analysis should be read in conjunction with the condensed consolidated financial statements and related notes thereto which appear elsewhere in this quarterly report.

                                 Three months ended September 30,                           Nine months ended September 30,
                                  2012                         2011                         2012                          2011
                                           Percent                   Percent                         Percent                    Percent
                                           of net                    of net                          of net                     of net
                           Amount         revenues      Amount      revenues         Amount         revenues       Amount      revenues
                                                                   (Amounts in thousands)
Net Revenues:
Airfreight services  $    150,731             32 %    $ 178,899         36 %    $    462,830            34 %    $  528,767         37 %
Ocean freight and
ocean services            116,732             25        118,272         24           324,665            24         327,890         23
Customs brokerage
and other services        197,675             43        196,675         40           577,865            42         563,665         40
Net revenues              465,138            100        493,846        100         1,365,360           100       1,420,322        100
Overhead Expenses:
Salaries and related
costs                     252,899             54        258,512         52           748,956            55         745,441         52
Other                      67,140             15         71,576         15           213,631            16         211,618         15
Total overhead
expenses                  320,039             69        330,088         67           962,587            71         957,059         67
Operating income          145,099             31        163,758         33           402,773            29         463,263         33
Other income, net           3,881              1         13,401          3            14,228             1          19,564          1
Earnings before
income taxes              148,980             32        177,159         36           417,001            30         482,827         34
Income tax expense         60,253             13         70,283         14           167,531            12         189,724         13
Net earnings               88,727             19        106,876         22           249,470            18         293,103         21
Less net earnings             237              -            272          -               318             -             267          -
attributable to the
noncontrolling
interest
Net earnings
attributable to
shareholders         $     88,490             19 %    $ 106,604         22 %    $    249,152            18 %    $  292,836         21 %

Airfreight services net revenues decreased 16% for the three-month period ended September 30, 2012, as compared with the same period for 2011. The decrease in global airfreight services net revenues was primarily due to a 9% decrease in airfreight tonnage and a 7% decrease in net revenue per kilo. North America, Asia Pacific and Europe airfreight services net revenues decreased 11%, 17% and 22%, respectively, in the third quarter of 2012 as compared with the same period in 2011, while airfreight export tonnage for North America, Asia Pacific and Europe decreased 13%, 7% and 12%, respectively.
Airfreight services net revenues decreased 12% for the nine-month period ended September 30, 2012, as compared with the same period for 2011. The decrease in global airfreight services net revenues was primarily due to a 9% decrease in airfreight tonnage and a 3% decrease in net revenue per kilo. North America, Asia Pacific and Europe airfreight services net revenues decreased 8%, 16% and 16%, respectively, in the nine months ended September 30, 2012 as compared with the same period in 2011, while airfreight export tonnage for North America, Asia Pacific and Europe decreased 14%, 6% and 9%, respectively. The decline in airfreight tonnage for the three and nine months ended September 30, 2012 can be attributed to an overall decrease in the global airfreight market and a lower level of customer specific infrastructure and project related tonnage than experienced during the same period in 2011. Net revenue per kilo was lower in both the three and nine-month periods compared to the same periods in 2011, as carriers reduced overall available capacity to manage market pricing. Absent of any meaningful improvements in the uncertainties related to global economic conditions, the Company expects similar trends to continue in the near term.
Ocean freight and ocean services net revenues are comprised of three basic services: ocean freight consolidation, direct ocean forwarding and order management. The largest component of the Company's ocean freight net revenue is derived from ocean freight consolidation which represented 47% of ocean freight net revenue for both the three and nine-month periods ended September 30, 2012, and 49% and 50% for the same periods ended September 30, 2011, respectively. Ocean freight and ocean services net revenues decreased 1% for the three-month period ended September 30, 2012, as compared with the same period for 2011. Europe ocean freight net revenues increased 2% while North America and Asia Pacific decreased 1% and 3%, respectively, in the third quarter of 2012, as compared with the same period in 2011. Ocean freight consolidation net revenue decreased 6% for the three-month period ended September 30, 2012, as compared with the same period for 2011, due to a 2% decrease in net revenue per container and a 4% decrease in container volume as measured in terms of forty-foot container equivalent units (FEUs).
Ocean freight and ocean services net revenues decreased 1% for the nine-month period ended September 30, 2012, as compared with the same period for 2011. North America ocean freight net revenues increased 1% while Asia Pacific and Europe decreased by 4% and 1%, respectively, in the nine-month period ended September 30, 2012, as compared with the same period in 2011. Ocean freight consolidation net revenue decreased 7% for the nine-month period ended September 30, 2012, as compared with the same period for 2011, due to a 6% decrease in net revenue per container and a 1% decrease in container volume as measured in terms of FEUs. The decreases in net revenues per container were primarily due to the timing of significant increases in buy rates implemented by carriers, requirements to provide notice of these increases to customers and the Company's ability to implement commensurate increases in its sell rates. Carrier reductions in available capacity and its associated impact on pricing also affected this timing. We expect carriers will continue to manage overall available capacity in an attempt to maintain rates and improve their operating results.
Direct ocean freight forwarding net revenues, which are primarily fee-based, increased 8% and 9%, respectively, for the three and nine-month periods ended September 30, 2012, as compared with the same periods in 2011, primarily due to an increase in market share and volume. Order management net revenues decreased 3% for the three month period ended September 30, 2012 as compared with the same periods in 2011 due to lower volumes, which partially offset the net revenue increase in the first six months of 2012.
Customs brokerage and other services net revenues increased 1% and 3%, respectively, for the three and nine-month periods ended September 30, 2012, as compared with the same periods for 2011. Higher volumes in domestic time definite services were partially offset by a decline in customs brokerage activity.
Salaries and related costs for the three-month period ended September 30, 2012, decreased 2% when compared with the same period in 2011, primarily as a result of lower bonuses earned due to lower operating income, partially offset by a 2% increase in the number of employees and higher payroll related taxes and medical costs. Salaries and related costs for the nine-month period ended September 30, 2012, increased slightly as compared with the same period in 2011 as the increase in the number of employees and higher payroll related taxes and medical costs were mostly offset by lower earned bonuses as a result of the decrease in operating income. The effects of including stock-based compensation expense in salaries and related costs are as follows:

                                         Three months ended September 30,           Nine months ended September 30,
                                             2012                 2011                 2012                 2011
Salaries and related costs            $       252,899       $       258,512     $       748,956       $       745,441
As a % of net revenue                            54.4 %                52.3 %              54.9 %                52.5 %
Stock compensation expense            $        11,320       $        12,738     $        32,846       $        33,446
As a % of net revenue                             2.4 %                 2.6 %               2.4 %                 2.4 %

Historically, the relatively consistent relationship between salaries and net revenues is the result of a compensation philosophy that has been maintained since the inception of the Company: offer a modest base salary and the opportunity to share in a fixed and determinable percentage of the operating profit of the business unit controlled by each key employee. Using this compensation model, changes in individual incentive compensation will occur in proportion to changes in Company profits, creating a direct alignment between corporate performance and shareholder interests. However, the results in the nine-month period ended September 30, 2012 were not consistent with this historical relationship primarily due to a decrease in net revenues while the number of employees increased to support customer driven initiatives, enhance information systems and expand certain product capabilities. Bonuses to field and executive management for the nine-month period ended September 30, 2012 were down 9% and 13%, respectively, as compared with the same period for 2011, primarily as a result of a 13% decrease in operating income for the nine-month period. The Company's management incentive compensation programs have always been incentive-based and performance driven and there is no built-in bias that favors or enriches management in a manner inconsistent with overall corporate performance.
Because the Company's management incentive compensation programs are also cumulative, no management bonuses can be paid unless the relevant business unit is, from inception, cumulatively profitable. Any operating losses must have been offset in their entirety by operating profits before management is eligible for a bonus. Since the most significant portion of management compensation comes from the incentive bonus programs, the Company believes that this cumulative feature is a disincentive to excessive risk taking by its managers. Due to the nature of the Company's services, it has a short operating cycle. The outcome of any higher risk transactions, such as overriding established credit limits, would be known in a relatively short time frame. Management believes that when the potential and certain impact on the bonus is fully considered in light of . . .