You should read the following discussion of our financial condition and results of operations in conjunction with our condensed consolidated financial statements and related notes.
Forward-looking Information
Our quarterly report on Form 10-Q, including this discussion and analysis of our financial condition and results of operations and our disclosures about market risk, contains certain "forward-looking statements." These statements represent our expectations, beliefs, intentions, or strategies concerning future events that, by their nature, involve risks and uncertainties. Forward looking statements include, among others, statements about our future performance, the continuation of historical trends, the sufficiency of our sources of capital for future needs, the effects of acquisitions or dispositions, the expected impact of recently issued accounting pronouncements, and the outcome or effects of litigation. Risks that could cause actual results to differ materially from our current expectations include changes in economic conditions; changes in market demand and pressures on the pricing for our services; competition and growth rates within the third party logistics industry; freight levels and availability of truck capacity or alternative means of transporting freight; changes in relationships with existing contracted truck, rail, ocean, and air carriers; changes in our customer base due to possible consolidation among our customers; our ability to integrate the operations of acquired companies with our historic operations successfully; risks associated with litigation, including contingent auto liability and insurance coverage; risks associated with operations outside of the U.S.; risks associated with the potential impacts of changes in government regulations; risks associated with the produce industry, including food safety and contamination issues; increases in fuel prices or fuel shortages; the impact of war on the economy; and other risks and uncertainties detailed in our Annual and Quarterly Reports. Therefore, actual results may differ materially from our expectations based on these and other risks and uncertainties, including those described in Item 1A. Risk Factors of our Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2011, filed on February 29, 2012.
Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update such statement to reflect events or circumstances arising after such date. Overview
Our company. We are a global provider of transportation services and logistics solutions, operating through a network of branch offices in North America, Europe, Asia, South America, and Australia. As a third party logistics provider, we cultivate contractual relationships with a wide variety of transportation companies, and utilize those relationships to efficiently and cost effectively transport our customers' freight. We have contractual relationships with approximately 53,000 transportation companies, including motor carriers, railroads (primarily intermodal service providers), air freight and ocean carriers. Depending on the needs of our customer and their supply chain requirements, we select and hire the appropriate transportation for each shipment. Our model enables us to be flexible, provide solutions that optimize service for our customers, and minimize our asset utilization risk. In addition to transportation services, we also offer fresh produce sourcing. Our Sourcing business is the buying, selling, and marketing of fresh produce. We supply fresh produce through our network of third party produce growers and suppliers. Our customers include grocery retailers and restaurants, produce wholesalers, and foodservice providers. In many cases, we also arrange the logistics and transportation of the products we sell and provide related supply chain services such as replenishment, category management, and merchandising. Historically, we also have provided fee-based payment services primarily through our subsidiary, T-Chek Systems, Inc., ("T-Chek"). T-Chek has provided a variety of payment management and business intelligence services primarily to motor carrier companies and to fuel distributors. Those services include funds transfer, fuel purchasing, and online expense management. For most of these services, T-Chek charges a fee per transaction. On October 16, 2012, we sold substantially all of the assets and transferred certain liabilities of T-Chek to Electronic Funds Source, LLC ("EFS"). See footnote 7 to the condensed consolidated financial statements for a discussion of the sale of the T-Chek business and the classification of the T-Chek assets as held for sale in the financial statements. We expect to continue to generate Payment Services revenues from the cash advance option we offer our contracted carriers at a rate of approximately $3 million per quarter.

Our business model. We are primarily a service company. We add value and expertise in the procurement and execution of transportation and logistics, including sourcing of produce products for our customers. Our total revenues represent the total dollar value of services and goods we sell to our customers. Our net revenues are our total revenues less purchased transportation and related services, including contracted motor carrier, rail, ocean, air, and other costs, and the purchase price and services related to the products we source. Our net revenues 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 net revenues.

We keep our business model as variable as possible to allow us to be flexible and adapt to changing economic and industry conditions. We sell transportation services and produce to our customers with varied pricing arrangements. Some prices are committed to for a period of time, subject to certain terms and conditions, and some prices are set on a spot market basis. We buy most of our truckload capacity and produce on a spot market basis. Because of this our net revenue per transaction tends to increase in times when there is excess supply and decrease in times when demand is strong relative to supply. We also keep our personnel and other operating expenses as variable as possible. Compensation 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. 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 competitive advantage. Building local customer and contract 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 market-driven and very dynamic.
Our branches work together to complete transactions and collectively meet the needs of our customers. For large multi-location customers, we often coordinate our efforts in one branch and rely on multiple branch locations to deliver specific geographic or modal needs. As an example, approximately 40 percent of our truckload shipments are shared transactions between branches. Our methodology of providing services is very similar across all branches. The majority of our global network operates on a common technology platform that is used 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.
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, and to properly align our headcount and personnel expense with our business. Our headcount as of September 30, 2012 increased 5.5 percent compared to our headcount as of December 31, 2011. 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 and focused on driving growth and maximizing office productivity. In 2003, we implemented a restricted equity 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 equity awards vest over a period of up to five years based on the company's earnings growth, and have been awarded annually since 2003.
Our customers. In 2011, we worked with more than 37,000 active customers. 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 and unconcentrated. Our top 100 customers represented approximately 34 percent of our total revenues and approximately 30 percent of our net revenues. Our largest customer was 3.6 percent of our total revenues and 2.3 percent of our total net revenues.
Our contracted carriers. Our contracted carrier base includes motor carriers, railroads (primarily intermodal service providers), air freight, and ocean carriers. In 2011, our carrier base was approximately 53,000. Motor carriers that had fewer than 100 tractors transported approximately 82 percent of our truckload shipments in 2011. In our Transportation business, no single carrier represents more than approximately two percent of our contracted 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 net revenues, income from operations, and earnings per share. 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 compounded annual 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.

Results of Operations
The following table summarizes our total revenues by service line (in
thousands):

                            Three Months Ended                       Nine Months Ended
                               September 30,                           September 30,
                                                    %                                       %
                       2012           2011       change        2012           2011       change
Transportation     $ 2,445,883    $ 2,280,208      7.3 %   $ 7,099,485    $ 6,540,266      8.6 %
Sourcing               418,377        399,220      4.8       1,240,704      1,182,784      4.9
Payment Services        16,149         15,500      4.2          48,048         45,012      6.7
Total              $ 2,880,409    $ 2,694,928      6.9 %   $ 8,388,237    $ 7,768,062      8.0 %

The following table illustrates our net revenue margins, or net revenues as a percentage of total revenues, by service line:

                     Three Months Ended        Nine Months Ended
                        September 30,            September 30,
                      2012         2011         2012        2011
Transportation        15.6 %        16.4 %      15.8 %      16.6 %
Sourcing               8.1           8.3         8.5         8.5
Payment Services     100.0         100.0       100.0       100.0
Total                 15.0 %        15.7 %      15.2 %      15.9 %

The following table summarizes our net revenues by service line (in thousands):

                                     Three Months Ended                           Nine Months Ended
                                        September 30,                               September 30,
                              2012          2011        % change         2012            2011         % change
Transportation:
Truck                      $ 327,960     $ 321,366          2.1  %   $   956,007     $   930,168          2.8  %
Intermodal                    10,074        10,538         -4.4           29,804          31,000         -3.9
Ocean                         18,498        17,881          3.5           51,217          49,851          2.7
Air                            9,046         9,940         -9.0           28,496          30,560         -6.8
Other Logistics Services      17,196        14,752         16.6           53,472          43,665         22.5
Total Transportation         382,774       374,477          2.2        1,118,996       1,085,244          3.1
Sourcing                      33,747        33,089          2.0          105,895         101,017          4.8
Payment Services              16,149        15,500          4.2           48,048          45,012          6.7
Total                      $ 432,670     $ 423,066          2.3  %   $ 1,272,939     $ 1,231,273          3.4  %

The following table represents certain statement of operations data, shown as percentages of our net revenues:

                                            Three Months Ended           Nine Months Ended
                                               September 30,               September 30,
                                            2012           2011         2012           2011
Net revenues                                100.0 %        100.0 %      100.0 %        100.0 %
Operating expenses:
Personnel expenses                           41.5           42.1         42.4           43.2
Other selling, general, and
administrative expenses                      15.3           14.4         15.0           14.5
Total operating expenses                     56.7           56.5         57.4           57.7
Income from operations                       43.3           43.5         42.6           42.3
Investment and other income                   0.0            0.0          0.1            0.0
Income before provision for income
taxes                                        43.3           43.5         42.6           42.3
Provision for income taxes                   16.4           16.5         16.1           16.2
Net income                                   26.9 %         27.0 %       26.5 %         26.2 %

Three Months Ended September 30, 2012 Compared to Three Months Ended September 30, 2011
Total revenues and direct costs. Our consolidated total revenues increased 6.9 percent in the third quarter of 2012 compared to the third quarter of 2011. Total Transportation revenues increased 7.3 percent to $2.4 billion in the third quarter of 2012 from $2.3 billion in the third quarter of 2011. This increase was driven by higher volumes in most of our transportation services. Total purchased transportation and related services increased 8.3 percent in the third quarter of 2012 to $2.1 billion from $1.9 billion in the third quarter of 2011. This increase was due to higher volumes and higher transportation costs in most of our transportation services. Our Sourcing revenue increased 4.8 percent to $418.4 million in the third quarter of 2012 compared to $399.2 million in the third quarter of 2011. This increase was driven by higher volumes. Purchased products sourced for resale increased 5.1 percent in the third quarter of 2012 to $384.6 million from $366.1 million in the third quarter of 2011. Our Payment Services revenue increased 4.2 percent to $16.1 million in the third quarter of 2012 from $15.5 million in the third quarter of 2011. The increase was driven primarily by an increase in transactions. As previously disclosed, we completed the sale of substantially all of the operations of our subsidiary, T-Chek, on October 16, 2012.
Net revenues. Total Transportation net revenues increased 2.2 percent to $382.8 million in the third quarter of 2012 from $374.5 million in the third quarter of 2011. Our Transportation net revenue margin declined to 15.6 percent in 2012 from 16.4 percent in 2011. This was largely driven by higher transportation costs. In our largest transportation service, truckload transportation, our different pricing arrangements with customers and contracted carriers make it very difficult to measure the precise impact of changes in fuel prices; however, we believe that fuel costs essentially act as a pass-through to our truckload business. In the third quarter of 2012, our average fuel surcharge was unchanged from the third quarter of 2011 and we believe had no impact on our net revenue margin.
Truck net revenues, which consist of truckload and less-than-truckload ("LTL") services, comprised approximately 76 percent of our total net revenues in the third quarter of 2012. Our truck net revenues increased 2.1 percent to $328.0 million in the third quarter of 2012 from $321.4 million in the third quarter of 2011. Our truckload volumes increased approximately eight percent. Truckload net revenue margin declined in the third quarter of 2012. On average, our truckload rate per mile to our customers was unchanged in the third quarter of 2012 compared to the third quarter of 2011. Our truckload transportation costs increased approximately one percent. Our LTL net revenues increased approximately 11 percent. The increase was driven by an increase in total shipments of approximately 17 percent, partially offset by decreased net revenue margin.
Our intermodal net revenues decreased 4.4 percent in the third quarter of 2012. This was due to decreased net revenue margin, offset partially by volume growth. Our net revenue margin decline was due to a change in our mix of customers and increased cost of capacity.
Our ocean transportation net revenues increased 3.5 percent in the third quarter of 2012, due to increased pricing, partially offset by volume declines. Our air transportation net revenues decreased 9.0 percent in the third quarter of 2012 due to pricing declines, partially offset by volume increases. Other logistics services net revenues consist primarily of transportation management services, customs, warehousing, and small parcel. The increase of 16.6 percent in the third quarter of 2012 was driven primarily by transaction increases in transportation management services and customs net revenues.

Sourcing net revenues increased 2.0 percent in the third quarter of 2012. This was due partially to the acquisition of Timco Worldwide ("Timco"), acquired on September 26, 2011, which we estimate contributed approximately four percent to the growth in Sourcing net revenues in the third quarter of 2012. Our net revenue margin decreased to 8.1 percent in 2012 from 8.3 percent in 2011. Our Payment Services net revenues increased 4.2 percent in the third quarter of 2012 to $16.1 million. The increase was driven primarily by an increase in transactions.
Operating expenses. For the third quarter, operating expenses increased 2.6 percent to $245.4 million in 2012 from $239.1 million in 2011. This was due to an increase of 0.7 percent in personnel expenses and an increase of 8.3 percent in other selling, general, and administrative expenses. As a percentage of net revenues, operating expenses increased to 56.7 percent in the third quarter of 2012 from 56.5 percent in the third quarter of 2011.

Our personnel expenses are driven by headcount and earnings growth. For the third quarter, personnel expenses increased to $179.3 million in 2012 from $178.1 million in 2011. Our personnel expenses as a percentage of net revenue decreased in the third quarter of 2012 to 41.5 percent compared to 42.1 percent in the third quarter of 2011. Our personnel expense increase was driven by an increase in our average headcount of approximately nine percent, partially offset by declines in various incentive plans that are designed to keep expenses variable based on growth in earnings.
For the third quarter of 2012, other selling, general, and administrative expenses increased to $66.1 million from $61.0 million in the third quarter of 2011. Other operating expense growth was driven by an increase in the provision for doubtful accounts, accounting and legal due diligence costs related to acquisitions and dispositions, and travel expenses, partially offset by a decrease in claims.
Income from operations. Income from operations increased 1.8 percent to $187.3 million for the third quarter of 2012. Income from operations as a percentage of net revenues was 43.3 percent for the third quarter of 2012 compared to 43.5 percent for the third quarter of 2011.
Investment and other income. Investment and other income increased 52.0 percent to $0.1 million for the third quarter of 2012.
Provision for income taxes. Our effective income tax rate was 37.9 percent for each of the third quarters of 2012 and 2011. 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 1.7 percent to $116.3 million for the third quarter of 2012. Basic and diluted net income per share were $0.72 and $0.70 for the third quarter of 2012 and 2011.
Nine Months Ended September 30, 2012 Compared to Nine Months Ended September 30, 2011
Total revenues and direct costs. Our consolidated total revenues increased 8.0 percent for the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011. Total Transportation revenues increased 8.6 percent to $7.1 billion in first nine months of 2012 from $6.5 billion in the first nine months of 2011. This increase was driven by higher volumes in all of our transportation services. Total purchased transportation services increased 9.6 percent in the nine months ended September 30, 2012 to $6.0 billion from $5.5 billion in the nine months ended September 30, 2011. These increases were driven by volume increases in all of our transportation modes, higher transportation rates, and higher fuel prices. Our Sourcing revenue increased 4.9 percent to $1.24 billion in the nine months ended September 30, 2012 from $1.18 billion in the nine months ended September 30, 2011. Purchased products sourced for resale increased 4.9 percent in the nine months ended September 30, 2012 to $1.13 billion from $1.08 billion in the nine months ended September 30, 2011. This increase is primarily due to volume growth. Our Payment Services revenue increased 6.7 percent to $48.0 million in the nine months ended September 30, 2012 from $45.0 million in the nine months ended September 30, 2011. The increase was driven by transaction growth.
Net revenues. Total Transportation net revenues increased 3.1 percent to $1.12 billion in the nine months ended September 30, 2012 from $1.09 billion in the nine months ended September 30, 2011. Our Transportation net revenue margin decreased to 15.8 percent in 2012 from 16.6 percent in 2011 driven by higher transportation costs and higher fuel costs, partially offset by increased average transportation pricing.
Our truck net revenues, which consist of truckload and LTL services, comprised approximately 75 percent of our total net revenues in the nine months ended September 30, 2012. Our truck net revenues increased 2.8 percent to $956.0 million in the nine months ended September 30, 2012 from $930.2 million in the nine months ended September 30, 2011. Our truckload volumes increased approximately nine percent. Our truckload average rate per mile to our customers increased approximately two percent. Excluding the estimated impacts of the change in fuel, on average, our truckload rate per mile to our customers increased approximately one percent in the nine months ended September 30, 2012. Our truckload net revenue margin decreased due to increased truckload transportation costs. Excluding the estimated impacts of fuel, our cost of truckload capacity increased approximately two percent as carriers increased their rates.
During the nine months ended September 30, 2012, our LTL net revenues increased approximately 12 percent. The increase was driven by an increase in total shipments of approximately 16 percent, partially offset by a decline in our net revenue margin. Our LTL net revenue margin decreased during the nine months ended September 30, 2012 compared with the same period of 2011 due to increased transportation costs.

Our intermodal net revenue decrease of 3.9 percent to $29.8 million in the nine months ended September 30, 2012 was driven largely by cost increases. Net revenue margin decreased in the nine months ended September 30, 2012. This decline was due to a change in our mix of customers and increased cost of capacity.
Our ocean transportation net revenue increased 2.7 percent to $51.2 million in the nine months ended September 30, 2012 driven by increased volumes and net revenue margin. Net revenue margin increased in the nine months ended September 30, 2012 due to lower cost of transportation.
Our air transportation net revenue decrease of 6.8 percent to $28.5 million in the nine months ended September 30, 2012 was driven by decreased pricing, partially offset by increased volume. Net revenue margin increased in the nine months ended September 30, 2012 due to pricing declines.
Other logistics services net revenues consist primarily of transportation management services, customs, warehousing, and small parcel. The increase of 22.5 percent in the nine months ended September 30, 2012, was driven primarily by transaction increases in transportation management services and customs net revenues.
For the nine months ended September 30, 2012, Sourcing net revenue increased 4.8 percent to $105.9 million in 2012 from $101.0 million in 2011. This was primarily due to the acquisition of Timco, which we estimate contributed approximately five percent to the growth in Sourcing net revenues in the nine months ended September 30, 2012 compared to 2011.
Our Payment Services net revenue increased 6.7 percent in the nine months ended September 30, 2012 to $48.0 million. The increase was driven by an increase in transactions.
Operating expenses. For the first nine months of 2012, operating expenses increased 2.9 percent to $731.2 million from $710.5 million in 2011. This was due to an increase of 1.5 percent in personnel expenses and an increase of 7.3 percent in other selling, general, and administrative expenses. As a percentage of net revenues, operating expenses decreased to 57.4 percent in the nine months ended September 30, 2012 from 57.7 percent in the nine months ended September 30, 2011.
Our personnel expenses as a percentage of net revenue decreased in the nine months ended September 30, 2012 to 42.4 percent compared to 43.2 percent in the nine months ended September 30, 2011. This decrease was primarily the result of . . .