UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C.  20549





FORM
10-Q


(Mark
One)


[X]
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the quarterly period ended June 30, 2008or[  ]
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the transition period
      from                                       to








Commission
File Number: 0-24946





KNIGHT
TRANSPORTATION, INC.


(Exact
name of registrant as specified in its charter)





Arizona
            86-0649974(State
      or other jurisdiction of
              incorporation
      or organization)
            (I.R.S.
      Employer
              Identification
      No.)5601
      West Buckeye Road
              Phoenix,
      Arizona
              85043
              (Address
      of Principal Executive Offices)
              (Zip
      Code)Registrant's
      telephone number, including area code:
            602-269-2000








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 such filing requirements for
the past 90 days.   x   Yes  
o 
 No





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See definition of "large accelerated filer," "accelerated
filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act (Check
one):





Large
      accelerated filer     x
            Accelerated
      filer     oNon-accelerated
      filer     o
            Smaller
      reporting company     o





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).     o  Yes x
No





The
number of shares outstanding of registrant's Common Stock, par value $0.01 per
share, as of July 31, 2008 was 85,682,117 shares.














KNIGHT TRANSPORTATION, INC.





TABLE
OF CONTENTS











PART
      I – FINANCIAL INFORMATION
            Page
      NumberItem
      1.
            Financial
      StatementsCondensed
      Consolidated Unaudited Balance Sheets as of June 30, 2008 and December 31,
      2007
            1Condensed
      Consolidated Unaudited Statements of Income for the three and six months
      ended June 30, 2008 and 2007
            3Condensed
      Consolidated Unaudited Statements of Cash Flows for the three and six
      months ended June 30, 2008 and 2007
            4Notes
      to Condensed Consolidated Unaudited Financial Statements
            6Item
      2.
            Management's
      Discussion and Analysis of Financial Conditionand
      Results of Operations
            10Item
      3.
            Quantitative
      and Qualitative Disclosures About Market Risk
            18Item
      4.
            Controls
      and Procedures
            18Part
      II – OTHER INFORMATIONItem
      1.
            Legal
      Proceedings
            19Item
      1A.
            Risk
      Factors
            19Item
      2.
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            19Item
      3.
            Defaults
      Upon Senior Securities
            19Item
      4.
            Submission
      of Matters to a Vote of Security Holders
            19Item
      5.
            Other
      Information
            20Item
      6.
            Exhibits
            20Signatures
            
            22








Table
of Contents





PART
I  -  FINANCIAL INFORMATION





Item
1.                                Financial
Statements





KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
              Condensed
      Consolidated Unaudited Balance Sheets
              As
      of June 30, 2008 and December 31, 2007
              (In
      thousands)June
      30,
              2008
            
            
            December
      31,
              2007ASSETSCurrent
      Assets:Cash and cash
      equivalents
            
            $
            24,375
            
            
            $
            23,688Short term
    investment
            
            
            11,702
            
            
            
            7,620Accounts receivable,
      net
            
            
            99,925
            
            
            
            88,535Notes receivable,
    net
            
            
            146
            
            
            
            19Prepaid expenses
            
            
            8,180
            
            
            
            8,776Other current
    assets
            
            
            14,027
            
            
            
            24,994Income tax
    receivable
            
            
            5,917
            
            
            
            3,558Deferred tax
asset
            
            
            11,001
            
            
            
            10,157Total current
    assets
            
            
            175,273
            
            
            
            167,347Property
      and Equipment:Land and
    improvements
            
            
            28,443
            
            
            
            26,878Buildings and
      improvements
            
            
            53,318
            
            
            
            46,685Furniture and
      fixtures
            
            
            7,155
            
            
            
            6,910Shop and service
      equipment
            
            
            4,982
            
            
            
            3,935Revenue equipment
            
            
            531,867
            
            
            
            521,085Leasehold
      improvements
            
            
            1,020
            
            
            
            776626,785
            
            
            
            606,269Less:  Accumulated
      depreciation and amortization
            
            
            (167,782
            )
            
            
            (146,721
            )Property
      and equipment, net
            
            
            459,003
            
            
            
            459,548Notes
      receivable – long-term
            
            
            405
            
            
            
            887Goodwill
            
            
            10,362
            
            
            
            10,372Intangible
      assets, net
            
            
            207
            
            
            
            238Other
      assets & restricted cash
            
            
            4,999
            
            
            
            4,972Total assets
            
            $
            650,249
            
            
            $
            643,364





The
accompanying notes are an integral part of these condensed consolidated
unaudited financial statements.





1
 Table
of Contents











KNIGHT
      TRANSPORTATION, INC. AND SUBSIDIARIES
              Condensed
      Consolidated Unaudited Balance Sheets (continued)
              As
      of June 30, 2008 and December 31, 2007
              (In
      thousands, except par values)June
      30,
              2008
            
            
            December
      31,
              2007LIABILITIES
      AND SHAREHOLDERS' EQUITYCurrent
      Liabilities:Accounts
    payable
            
            $
            9,952
            
            
            $
            17,744Accrued payroll and purchased
      transportation
            
            
            10,425
            
            
            
            7,992Accrued
      liabilities
            
            
            7,726
            
            
            
            8,048Claims accrual – current
      portion
            
            
            16,211
            
            
            
            28,662Total current
      liabilities
            
            
            44,314
            
            
            
            62,446Long-term
      Liabilities:Claims accrual – long-term
      portion
            
            
            13,994
            
            
            
            -Deferred tax
      liabilities
            
            
            101,026
            
            
            
            93,368Total long-term
      liabilities
            
            
            115,020
            
            
            
            93,368Total
    liabilities
            
            
            159,334
            
            
            
            155,814Commitments
      and ContingenciesShareholders'
      Equity:Preferred stock, $0.01 par
      value; 50,000 shares authorized;
              none issued and
      outstanding
            
            
            -
            
            
            
            -Common stock, $0.01 par value;
      300,000 shares authorized;
              85,642 and 86,697 shares issued
      and outstanding at June
              30, 2008 and December 31, 2007,
      respectively
            
            
            856
            
            
            
            867Additional paid-in
      capital
            
            
            105,789
            
            
            
            102,450Retained
    earnings
            
            
            384,270
            
            
            
            384,233Total shareholders'
      equity
            
            
            490,915
            
            
            
            487,550Total liabilities and
      shareholders' equity
            
            $
            650,249
            
            
            $
            643,364





The
accompanying notes are an integral part of these condensed consolidated
unaudited financial statements.







2
 Table
of Contents











KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
              Condensed
      Consolidated Statements of Income (unaudited)
              (In
      thousands, except per share data)Three
      Months Ended
              June
      30,
            
            
            Six
      Months Ended
              June
      30,2008
            
            
            2007
            
            
            2008
            
            
            2007REVENUE:Revenue, before fuel
      surcharge
            
            $
            154,833
            
            
            $
            153,012
            
            
            $
            296,135
            
            
            $
            297,837Fuel surcharge
            
            
            51,274
            
            
            
            27,175
            
            
            
            86,383
            
            
            
            48,883Total revenue
            
            
            206,107
            
            
            
            180,187
            
            
            
            382,518
            
            
            
            346,720OPERATING
      EXPENSES:Salaries, wages and
      benefits
            
            
            53,895
            
            
            
            51,491
            
            
            
            103,906
            
            
            
            100,330Fuel
            
            
            72,730
            
            
            
            46,521
            
            
            
            126,286
            
            
            
            86,155Operations and
      maintenance
            
            
            10,647
            
            
            
            10,060
            
            
            
            19,947
            
            
            
            19,332Insurance and
      claims
            
            
            7,713
            
            
            
            6,121
            
            
            
            14,779
            
            
            
            14,127Operating taxes and
      licenses
            
            
            3,852
            
            
            
            3,717
            
            
            
            7,504
            
            
            
            7,274Communications
            
            
            1,473
            
            
            
            1,152
            
            
            
            2,888
            
            
            
            2,570Depreciation and
      amortization
            
            
            17,118
            
            
            
            16,287
            
            
            
            34,071
            
            
            
            32,218Lease expense – revenue
      equipment
            
            
            36
            
            
            
            106
            
            
            
            90
            
            
            
            212Purchased
      transportation
            
            
            14,570
            
            
            
            13,305
            
            
            
            27,491
            
            
            
            24,038Miscellaneous operating
      expenses
            
            
            3,350
            
            
            
            2,108
            
            
            
            6,107
            
            
            
            3,892Total operating
      expenses
            
            
            185,384
            
            
            
            150,868
            
            
            
            344,069
            
            
            
            290,148Income from
      operations
            
            
            20,723
            
            
            
            29,319
            
            
            
            39,449
            
            
            
            56,572Interest
      income
            
            
            190
            
            
            
            340
            
            
            
            445
            
            
            
            522Other
      income
            
            
            225
            
            
            
            480
            
            
            
            225
            
            
            
            668Income before income
      taxes
            
            
            21,138
            
            
            
            30,139
            
            
            
            40,119
            
            
            
            57,762Income
      taxes
            
            
            8,446
            
            
            
            11,962
            
            
            
            16,010
            
            
            
            22,966Net income
            
            $
            12,692
            
            
            $
            18,177
            
            
            $
            24,109
            
            
            $
            34,796Earnings
      per common share and common shareequivalent:Basic
            
            $
            0.15
            
            
            $
            0.21
            
            
            $
            0.28
            
            
            $
            0.40Diluted
            
            $
            0.15
            
            
            $
            0.21
            
            
            $
            0.28
            
            
            $
            0.40Weighted
      average number of common shares andcommon
      share equivalents outstanding:Basic
            
            
            85,523
            
            
            
            86,299
            
            
            
            85,901
            
            
            
            86,236Diluted
            
            
            86,104
            
            
            
            87,271
            
            
            
            86,427
            
            
            
            87,226








The
accompanying notes are an integral part of these condensed consolidated
unaudited financial statements.








3
 Table
of Contents











KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
              Condensed
      Consolidated Unaudited Statements of Cash Flows
              (In
      thousands)Six
      Months Ended
              June
      30,2008
            
            
            
            
            
            2007Cash
      Flows From Operating Activities:Net
      income
            
            $
            24,109
            
            
            
            
            
            $
            34,796Adjustments
      to reconcile net income to net cash provided by operatingactivities:Depreciation and
      amortization
            
            
            34,071
            
            
            
            
            
            
            32,218Gain on sales of
      equipment
            
            
            (1,145
            )
            
            
            
            
            
            
            (2,715
            )Earn-out on sold
      investment
            
            
            (225
            )
            
            
            
            
            
            
            (188
            )Non-cash compensation expense
      for issuance of stock to certainmembers
      of board of directors
            
            
            135
            
            
            
            
            
            
            
            174Provision for allowance for
      doubtful accounts
            
            
            540
            
            
            
            
            
            
            
            159Excess tax benefits related to
      stock-based compensation
            
            
            (283
            )
            
            
            
            
            
            
            (867
            )Stock option
      expense
            
            
            1,555
            
            
            
            
            
            
            
            1,470Deferred income
      taxes
            
            
            6,814
            
            
            
            
            
            
            
            2,886Changes
      in assets and liabilities:Increase in short-term
      investments
            
            
            (4,082
            )
            
            
            
            
            
            
            -Increase in trade
      receivables
            
            
            (11,948
            )
            
            
            
            
            
            
            (4,349
            )(Increase) decrease in other
      current assets
            
            
            (574
            )
            
            
            
            
            
            
            175Decrease in prepaid
      expenses
            
            
            596
            
            
            
            
            
            
            
            1,180Increase in income tax
      receivable
            
            
            (2,359
            )
            
            
            
            
            
            
            (409
            )Increase in other assets and
      restricted cash
            
            
            (28
            )
            
            
            
            
            
            
            (598
            )Increase (decrease) in accounts
      payable
            
            
            1,917
            
            
            
            
            
            
            
            (2,826
            )Increase (decrease) in accrued
      liabilities, claims accrual and other
            
            
            3,972
            
            
            
            
            
            
            
            (2,425
            )Net cash provided by operating
      activities
            
            
            53,065
            
            
            
            
            
            
            
            58,681Cash
      Flow From Investing Activities:Purchase of property and
      equipment
            
            
            (54,328
            )
            
            
            
            
            
            
            (47,754
            )Proceeds from sales of
      equipment
            
            
            23,811
            
            
            
            
            
            
            
            22,440Decrease in notes
      receivable
            
            
            374
            
            
            
            
            
            
            
            203Acquisition-related contingent
      payment
            
            
            -
            
            
            
            
            
            
            
            (12
            )Proceeds/earn-out from sale of
      investment in Concentrek, Inc.
            
            
            225
            
            
            
            
            
            
            
            188Return of investment in
      Transportation Resource Partners
            
            
            10
            
            
            
            
            
            
            
            216Net cash used in investing
      activities
            
            
            (29,908
            )
            
            
            
            
            
            
            (24,719
            )





The
accompanying notes are an integral part of these condensed consolidated
unaudited financial statements.











4
 Table
of Contents








KNIGHT
      TRANSPORTATION, INC. AND SUBSIDIARIES
              Condensed
      Consolidated Unaudited Statements of Cash Flows (continued)
              (In
      thousands)Six
      Months Ended
              June
      30,2008
            
            
            2007Cash
      Flow From Financing Activities:Dividends paid
            
            
            (6,000
            )
            
            
            (4,314
            )Payments to acquire treasury
      stock
            
            
            (18,084
            )
            
            
            -Excess tax benefits related to
      stock-based compensation
            
            
            283
            
            
            
            867Proceeds from exercise of
      stock options
            
            
            1,331
            
            
            
            1,686Net cash used in financing
      activities
            
            
            (22,470
            )
            
            
            (1,761
            )Net
      increase in cash and cash equivalents
            
            
            687
            
            
            
            32,201Cash
      and cash equivalents, beginning of period
            
            
            23,688
            
            
            
            1,582Cash
      and cash equivalents, end of period
            
            $
            24,375
            
            
            $
            33,783Supplemental
      Disclosures:Non-cash investing and
      financing transactions:Equipment acquired in accounts
      payable
            
            $
            715
            
            
            $
            772FIN 48 adoption tax
      liability
            
            
            -
            
            
            
            394Retirement of treasury
      stock
            
            
            18,084
            
            
            
            -Transfer from property and
      equipment to assets held forsale
            
            
            7,034
            
            
            
            10,339Cash Flow
      Information:Income taxes
    paid
            
            $
            11,225
            
            
            $
            24,309





The
accompanying notes are an integral part of these condensed consolidated
unaudited financial statements.





5
 Table
of Contents





KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES





NOTES
TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS





Note
1.                                Financial
Information





References
in this Report on Form 10-Q to "we," "us," "our," "Knight," or the "Company" or
similar terms refer to Knight Transportation, Inc. and its consolidated
subsidiaries. All material inter-company balances and transactions have been
eliminated in consolidation.





The
accompanying condensed consolidated unaudited financial statements of Knight
Transportation, Inc. and its subsidiaries have been prepared in accordance with
accounting principles generally accepted in the United States of America and
Regulation S-X, instructions to Form 10-Q, and other relevant rules and
regulations of the Securities and Exchange Commission (the "SEC"), as applicable
to the preparation and presentation of interim financial information. Certain
information and footnote disclosures have been omitted or condensed pursuant to
such rules and regulations.  We believe all adjustments (consisting of
normal recurring adjustments) considered necessary for a fair presentation have
been included.  Results of operations in interim periods are not
necessarily indicative of results for a full year.  These condensed
consolidated unaudited financial statements and notes thereto should be read in
conjunction with our consolidated financial statements and notes thereto
included in our Annual Report on Form 10-K for the year ended December 31,
2007.





Note
2.                                Stock-Based
Compensation





At June
30, 2008, we had one stock-based employee compensation plan known as the Knight
Transportation, Inc. 2003 Stock Option Plan, dated June 1, 2003, as amended from
time to time (the "2003 Plan").  Total SFAS 123R compensation cost for
the three months and six months ended June 30, 2008 and 2007, respectively, are
as follows:





Three
      Months Ended
              June
      30,
            
            
            Six
      Months Ended
              June
      30,(in
      thousands)
            
            
            (in
      thousands)2008
            
            
            2007
            
            
            2008
            
            
            2007Gross
      stock compensation expense, net offorfeitures
            
            $
            890
            
            
            $
            819
            
            
            $
            1,555
            
            
            $
            1,470Income
      tax
            
            $
            (356
            )
            
            $
            (326
            )
            
            $
            (621
            )
            
            $
            (585
            )Net
      stock compensation expense after tax
            
            $
            534
            
            
            $
            493
            
            
            $
            934
            
            
            $
            885





We
received approximately $1,023,000 and $1,330,000 in cash from the exercise of
stock options during the three months and six months ended June 30, 2008,
respectively, compared to $1,016,000 and $1,686,000 for the same periods in
2007.





As of
June 30, 2008, there was $20.8 million of unrecognized compensation cost related
to unvested share-based compensation awards granted under the 2003
Plan.  This cost is expected to be recognized over a weighted-average
period of three years, and a total period of seven years.





6
 Table
of Contents





The fair value of each option grant is
estimated on the date of grant using the Black-Scholes option valuation model
that uses the assumptions noted in the following table:





Three
      Months Ended
              June
      30,2008
            
            
            2007Dividend
      yield (1)
            
            
            .90
            %
            
            
            .62
            %Expected
      volatility (2)
            
            
            33.83
            %
            
            
            32.73
            %Risk-free
      interest rate (3)
            
            
            3.43
            %
            
            
            5.05
            %Expected
      terms (4)
            
            6.16
      years
            
            
            7.97
      yearsWeighted
      average fair value of options granted
            
            $
            6.18
            
            
            $
            8.41





(1)
            The
      dividend yield is based on our historical experience and future
      expectation of dividend payouts.  The increase in the dividend
      yield from the 2007 to the 2008 period is due to an increase in dividends
      paid to common stock shareholders.  We increased our quarterly
      cash dividend from $0.03 per share to $0.04 per share in the second
      quarter of 2008.(2)
            We
      analyzed the volatility of our stock using historical data from January 1,
      2003 through the end of the most recent period to estimate the expected
      volatility.(3)
            The
      risk-free interest rate assumption is based on U.S. Treasury securities at
      a constant maturity with a maturity period that most closely resembles the
      expected term of the stock option award.(4)
            The
      expected terms of employee stock options represents the weighted-average
      period the stock options are expected to remain outstanding and has been
      determined based on an analysis of historical exercise behavior from
      January 1, 2003 through the end of the most recent
  period.





A summary
of the award activity under the 2003 Plan as of June 30, 2008, and changes
during the six-month period is presented below:





Option
      Totals
            
            
            Weighted
      Average Exercise
              Price
      Per Share ($)Outstanding
      12/31/2007
            
            
            4,182,780
            
            
            
            14.06Granted
            
            
            1,380,652
            
            
            
            15.62Exercised
            
            
            (155,854
            )
            
            
            8.54Forfeited
            
            
            (160,748
            )
            
            
            15.67Outstanding
      as of 06/30/2008
            
            
            5,246,830
            
            
            
            14.58





Note
3.                                Earnings
Per Share (in thousands, except per share data)





A
reconciliation of the basic and diluted earnings per share computations for the
three and six months ended June 30, 2008 and 2007, respectively, is as
follows:





Three
      Months Ended
              June
      30,
            
            
            Six
      Months Ended
              June
      30,2008
            
            
            2007
            
            
            2008
            
            
            2007Weighted
      average common shares outstanding – basic
            
            
            85,523
            
            
            
            86,299
            
            
            
            85,901
            
            
            
            86,236Effect
      of stock options
            
            
            581
            
            
            
            972
            
            
            
            526
            
            
            
            990Weighted
      average common share and common shareequivalents
      outstanding – diluted
            
            
            86,104
            
            
            
            87,271
            
            
            
            86,427
            
            
            
            87,226Net
      income
            
            $
            12,692
            
            
            $
            18,177
            
            
            $
            24,109
            
            
            $
            34,796Earnings
      per common share and common share equivalentBasic
            
            $
            0.15
            
            
            $
            0.21
            
            
            $
            0.28
            
            
            $
            0.40Diluted
            
            $
            0.15
            
            
            $
            0.21
            
            
            $
            0.28
            
            
            $
            0.40








7
 Table
of Contents





Certain
shares of common stock were excluded from the computation of diluted earnings
per share because the options' exercise prices were greater than the average
market price of the common shares, and therefore, the effect would be
anti-dilutive.  A summary of those options follows:





Three
      Months Ended
              June
      30,
            
            Six
      Months Ended
              June
      30,2008
            
            2007
            
            2008
            
            2007Number
      of anti-dilutive shares
            1,239,435
            
            42,250
            
            1,707,985
            
            42,250





Note
4.                                Segment
Information





We have
determined that we have two operating segments. Our operating segments consist
of (i) our truckload transportation (asset-based) segment and (ii) our brokerage
segment (non-asset-based).  Our asset-based, truckload transportation
segment includes our dry van and temperature controlled operations with service
centers located throughout the United States.  Each of the asset-based
service centers have similar economic characteristics, as they all provide
truckload carrier services of general commodities to a similar class of
customers. As a result, we have determined that it is appropriate to aggregate
these service centers into one reportable operating segment consistent with the
guidance in SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information."  Accordingly, we have not presented separate
financial information for each of these service centers.We have also determined
that our brokerage subsidiary qualifies as an operating segment under SFAS No.
131.  However, because its results of operations are not material to
our consolidated financial statements as a whole, we have not presented separate
financial information for this segment. For the three months ended June 30,
2008, our brokerage segment, including intercompany transactions, accounted for
5.7% of our consolidated revenue, 1.7% of our consolidated net income, and 1.2%
of our consolidated assets. For the six months ended June 30, 2008, our
brokerage segment accounted for 5.6% of our consolidated revenue and 2.7% of our
consolidated net income.





Note
5.                                Commitments and
Contingencies





We are
involved in certain legal proceedings arising in the normal course of
business.  In the opinion of management, our potential exposure under
any currently pending or threatened legal proceedings will not have a material
adverse effect upon our financial position or results of
operations.





Note
6.                                Dividends





On May
27, 2008, we declared a cash dividend of $0.04 per share of our common
stock.  The dividend was payable to shareholders of record on June 6,
2008, and was paid on June 27, 2008.  This is a $0.01 per share
increase from the prior quarter. We currently expect to continue to pay
quarterly cash dividends in the future. Future payment of cash dividends, and
the amount of any such dividends, will depend upon our financial condition,
results of operations, cash requirements, tax treatment, and certain corporate
law requirements, as well as other factors deemed relevant by our Board of
Directors.





Note
7.                                Goodwill
& Intangible Assets





Goodwill
represents the excess of the purchase price of our acquisitions over the fair
value of the assets acquired. The tax benefit from the recognition on the tax
return of the amortization of the excess tax goodwill over book goodwill is
treated as a reduction in the book basis of goodwill.  The changes in
the carrying amount of goodwill and intangible assets for the six months ended
June 30, 2008 follow:








8
 Table
of Contents








Goodwill:
            
            In
      ThousandsBalance
      at December 31, 2007
            
            $
            10,372Amortization
      relating to deferred excess tax goodwill
            
            
            (10
            )Balance
      at June 30, 2008
            
            $
            10,362








Intangible
      Assets:
            
            In
      ThousandsBalance
      at December 31, 2007
            
            $
            238Amortization
            
            
            (31
            )Balance
      at June 30, 2008
            
            $
            207





Intangible
assets are being amortized on a straight-line method over a five year
period.  Annual amortization expense is expected to be $62,000 for
fiscal years 2008 to 2010 and $52,000 for fiscal year 2011.




Note
8.                      Other
Assets
 
 In 2003,
we signed a partnership agreement with Transportation Resource Partners ("TRP"),
who makes privately negotiated equity investments.  Per the original
partnership agreement, we were committed to pledge $5.0 million out of
approximately $260.0 million total. In early 2006, we increased the commitment
amount to $5.5 million.  Our investment in TRP is accounted for using
the cost method.  At June 30, 2008, our ownership interest was
approximately 2.2%, the carrying book balance of our investment was $3.7
million, and our outstanding commitment to TRP was approximately $1.0
million.
 
 Note
9.                      Assets
Held for Sale
 
 Included
in "Other current assets" on the Balance Sheet at June 30, 2008 and December 31,
2007 is $9.7 million and $21.2 million, respectively, of revenue equipment that
will not be utilized in continuing operations and is being held for sale. Assets
held for sale are no longer subject to depreciation, and are recorded at the
lower of depreciated value or fair market value less selling costs. We
periodically review the carrying value of these assets for possible
impairment.  No impairments were recorded in the three months ended
June 30, 2008. We expect to sell these assets and replace them with new assets
within twelve months.
 
 Note
10.                      Income
Taxes
 
 We
adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes
("FIN 48"), effective January 1, 2007. This interpretation was issued to clarify
accounting for income taxes recognized in financial statements by prescribing a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. The cumulative effect, if any, of applying FIN 48 is to be reported
as an adjustment to the opening balance of retained earnings in the year of
adoption. As a result of FIN 48 implementation, we recorded a $394,000 net
decrease in retained earnings on January 1, 2007.  During 2007, we
resolved certain tax positions relating to the 2006 tax year, leaving
unrecognized tax benefits of approximately $195,000 as of June 30, 2008. The
total amount of unrecognized tax benefits that, if recognized, would favorably
affect the effective tax rate in future periods was approximately $126,000 as of
June 30, 2008.
 
 Potential
interest and penalties accrual related to unrecognized tax benefits are
recognized as a component of income tax expense. Interest of $3,891 was accrued
to income tax expense in the quarter ended June 30, 2008. Cumulative interest
and penalties accrued as of June 30, 2008, was $55,000 and $49,000,
respectively.





9
 Table
of Contents








We are
subject to U.S. Federal and state income tax examinations with various statues
of limitations. The 2004 through 2007 tax years generally remain subject to
examination by federal authority, and the 2003 through 2007 tax years generally
remain subject to examination by state tax authorities. We do not believe the
unrecognized tax benefits will change significantly within the next 12
months.





Note
11.                      Company
Share Repurchase Program





On
November 8, 2007, our Board of Directors unanimously authorized the repurchase
of up to 3.0 million shares of the Company's Common Stock.  The
repurchase authorization will remain in effect until the share limit is reached
or the program is terminated.  The repurchase authorization is
intended to afford the Company the flexibility to acquire shares
opportunistically in future periods and does not indicate an intention to
repurchase any particular number of shares within a definite
timeframe.  Any repurchases would be effected based upon share price
and market conditions.





Under our
share repurchase program, repurchased shares are constructively retired and
returned to unissued status. We consider several factors in determining when to
execute the share repurchases, including among other things, our current cash
needs, our capacity for leverage, our cost of borrowings, and the market price
of our common stock.





In the
first quarter of 2008, we purchased 1,218,500 shares of our common stock in the
open market for approximately $18.1 million. The shares acquired have been
retired and are available for future issuance. The purchases were made in
accordance with Security and Exchange Commission Rule 10b-18, which limits the
amount and timing of repurchases. In the second quarter of 2008, we did not
purchase any shares of our common stock. As of June 30, 2008, there were
1,781,500 shares remaining for future purchases under our repurchase
program.





Note12.                      Recent Accounting
Pronouncements





In May
2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles." ("SFAS 162").  SFAS 162 identifies the sources
of accounting principles and the framework for selecting the principles to be
used in the preparation of financial statements of nongovernmental entities that
are presented in conformity with generally accepted accounting principles in the
United States. SFAS 162 is effective 60 days following the SEC's approval of the
Public Company Accounting Oversight Board amendments to AU Section 411, The
Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles. We do not expect the application of SFAS 162 to result in a change
to our current practices.





Item
2.                       Management's
Discussion and Analysis of Financial Condition and Results of
Operations





Cautionary
Note Regarding Forward-Looking Statements





Except
for certain historical information contained herein, this report contains
"forward-looking statements" within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and Section 27A of the
Securities Act of 1933, as amended, that involve risks, assumptions, and
uncertainties that are difficult to predict. All statements, other than
statements of historical fact, are statements that could be deemed
forward-looking statements, including without limitation: any projections of
revenues, earnings, cash flows, capital expenditures, or other financial items;
any statement of plans, strategies, and objectives of management for future
operations; any statements concerning proposed acquisition plans, new services,
or developments; any statements regarding future economic conditions or
performance; and any statements of belief and any statement of assumptions
underlying any of the foregoing.  Words such as "believe," "may,"
"could," "expects," "hopes," "anticipates," and "likely," and variations of
these words, or similar expressions, are intended to identify such
forward-looking statements. Actual events or results could differ materially
from those discussed in forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in the section entitled "Item 1A. Risk
Factors," set forth in our form 10-K for the year ended December 31,
2007.





10
 Table
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All
such forward-looking statements speak only as of the date of this Form
10-Q.  You are cautioned not to place undue reliance on such
forward-looking statements.  The Company expressly disclaims any
obligation or undertaking to release publicly any updates or revisions to any
forward-looking statements contained herein to reflect any change in the
Company's expectations with regard thereto or any change in the events,
conditions, or circumstances on which any such statement is based.





Introduction





Business
Overview





Our
headquarters are located in Phoenix, Arizona. The transportation services we
provide are asset-based dry van truckload and temperature controlled truckload
carrier services, along with non-asset-based brokerage
services.  Through our asset-based and non-asset-based capabilities we
are able to transport, or arrange for the transportation of, general commodities
for customers throughout the United States.  We generally focus our
dry van and temperature controlled operations on regional short-to-medium
lengths of haul.  The results of our brokerage activities were
relatively immaterial for the second quarter of 2008 and therefore a detailed
discussion of the financial results of these operations will not be separately
presented.  As of June 30, 2008, we operated 34 asset-based service
centers (consisting of 29 dry van and five temperature controlled service
centers) and 11 non-asset-based brokerage branches.  The main factors
that affect our results of operation are the number of tractors we operate, our
revenue per tractor (which includes primarily our revenue per total mile and our
number of miles per tractor), and our ability to control our costs.





Operating
and Growth Strategy





Historically,
the primary source of our revenue growth has been our ability to open and
develop new regional service centers and brokerage branches in selected
geographic areas. Our brokerage business enables us to add customers and gain
market share without adding tractor capacity. In the second quarter of 2008, we
opened new asset-based service centers in Syracuse, New York (dry van),
Nashville, Tennessee (dry van) and Dallas, Texas (temperature controlled). As
part of our growth strategy, we also evaluate acquisition opportunities that
meet our financial and operating criteria.





Over the
past few quarters, our growth slowed as a result of economic conditions.
However, in the second quarter of 2008, we experienced a modest improvement in
freight demand and what appears to be a shrinking of available truckload
capacity when compared to recent quarters. Despite recent incremental
improvement in freight demand, our regional dry van and temperature controlled
markets remained highly competitive.  The short-to-medium dry van
market, in particular, experienced increased competition from traditionally
long-haul carriers who sought shorter loads to avoid price competition with
intermodal service.  The temperature controlled market showed
encouraging strength in May and June, and all of our asset-based operations
seemed to shift toward market equilibrium of capacity and demand as the second
quarter unfolded.





We plan
to continue to position ourselves to provide truckload service solutions to our
customers as the freight environment improves.  We believe we are
assembling a powerful and geographically diverse network that can support a
substantial increase in freight volumes and our ability to provide solutions to
our customers.  Based on our growing network, a history of low cost
operation and solid execution, and access to substantial capital resources, we
are very optimistic about our competitive position and our ability to execute
our model based on leading growth and profitability.





11
 Table
of Contents








Revenue
and Expenses





We
primarily generate revenue by transporting freight for our
customers.  Generally, we are paid a predetermined rate per mile or
per load for our services.  We enhance our revenue by charging for
tractor and trailer detention, loading and unloading activities, brokerage
operations, and other specialized services, as well as through the collection of
fuel surcharges to mitigate the impact of increases in the cost of
fuel.  The main factors that affect our revenue are the revenue per
mile we receive from our customers, the percentage of miles for which we are
compensated, and the number of miles we generate with our
equipment.  These factors relate to, among other things, the general
level of economic activity in the United States, inventory levels, specific
customer demand, the level of capacity in the trucking industry, and driver
availability.





The main factors that impact our
profitability in terms of expenses are the variable costs of transporting
freight for our customers. These costs include fuel expense, driver-related
expenses, such as wages, benefits, training and recruitment, and independent
contractor and third party carrier costs, which are recorded on the "Purchased
Transportation" line of our consolidated statements of income. Expenses that
have both fixed and variable components include maintenance and tire expense and
our total cost of insurance and claims. These expenses generally vary with the
miles we travel, but also have a controllable component based on safety, fleet
age, efficiency, and other factors. Our main fixed costs are the acquisition and
financing of long-term assets, such as revenue equipment and service centers and
the compensation of non-driver personnel. Effectively controlling our expenses
and managing our net cost of revenue equipment acquisition and disposition,
including any related gains or losses, are important elements of assuring our
profitability. The primary measure we use to evaluate our profitability is
operating ratio, excluding the impact of fuel surcharge revenue (operating
expenses, net of fuel surcharge, expressed as a percentage of revenue, before
fuel surcharge).





Recent
Results of Operations and Quarter-End Financial Condition





For the
quarter ended June 30, 2008, our results of operations changed as follows versus
the same period in 2007:





o
            Revenue,
      before fuel surcharge, increased 1.2%, to $154.8 million from $153.0
      million;o
            Net
      income decreased to $12.7 million, compared to $18.2 million;
      ando
            Net
      income per diluted share decreased to $0.15, compared to
      $0.21.





Until the
second quarter of 2008, we had experienced declining asset productivity in our
dry van and temperature controlled operations for several consecutive
quarters.  Both miles per tractor and average revenue (excluding fuel
surcharges) per total mile had suffered, reflecting a combination of weak
freight tonnage, a capacity run-up from large tractor orders by many of our
competitors in 2006-2007, and our fleet growth.  In the second quarter
our average revenue per tractor (excluding fuel surcharges) improved 2.5%,
compared to the second quarter of 2007.  Average revenue per total
mile (excluding fuel surcharges) improved approximately 2.7%, aided by higher
freight rates and a 160 basis point improvement in non-paid empty miles
percentage.  Average length of haul decreased slightly by 2.6%,
compared with the second quarter of 2007.  During the second quarter
of 2008, we added 94 tractors to our fleet.  On an average basis,
however, we operated 61 fewer tractors than in the second quarter of
2007.





Our
average revenue per tractor, before fuel surcharge, increased 2.5%, to $39,527
in the second quarter of 2008, compared to $38,547 in the same quarter a year
ago. The increase is primarily due to an improvement in our revenue per total
mile, with miles per tractor being slightly down. Our operating ratio, net of
fuel surcharge (operating expenses, net of fuel surcharge, expressed as a
percentage of revenue,
before fuel surcharge), was 86.6% for the quarter ended June 30, 2008, as
compared to 80.8% for the same period a year ago. More than half of the increase
in our operating costs during the second quarter was attributable to an increase
in net fuel expense and a decrease in gain on sale of equipment.  The
remaining increase related to a variety of other expenses that increased
somewhat in the quarter.  We do not expect that experience to indicate a
trend and feel well-positioned on the cost side going forward, excluding the
impact of any further spikes in the cost of fuel.





12
 Table
of Contents








During
the quarter, average number of tractors operated decreased to 3,733, from 3,794
for the same period a year ago. Tractor count at June 30, 2008 decreased to
3,768, from 3,836 a year ago. For the quarter, we spent $8.9 million in net
capital expenditures.  At June 30, 2008, our balance sheet remained
debt free, our cash and cash equivalents and short term investments totaled
$36.1 million, and our shareholders' equity was $490.9 million.





Results
of Operations





The
following table sets forth the percentage relationships of our expense items to
total revenue, including fuel surcharge (Columns A and C), and revenue, before
fuel surcharge (Columns B and D), for the three-month and six-month periods
ended June 30, 2008 and 2007, respectively.  Fuel expense as a
percentage of revenue, before fuel surcharge, is calculated using fuel expense,
net of fuel surcharge.  Management believes that eliminating the
impact of this sometimes volatile source of revenue affords a more consistent
basis for comparing our results of operations from period to
period.




(A)
                (Fuel
      surcharge
                included
      in revenue)
                Three-Month
                Period
      Ended
                June
      30,
              
              
              (B)
                (Fuel
      surcharge
                excluded
      from
                revenue
      and netted
                to
      fuel expense)
                Three-Month
                Period
      Ended
                June
      30,
              
              
              (C)
                (Fuel
      surcharge
                included
      in revenue)
                Six-Month
                Period
      Ended
                June
      30,
              
              
              (D)
                (Fuel
      surcharge
                excluded
      from
                revenue
      and netted
                to
      fuel expense)
                Six-Month
                Period
      Ended
                June
      30,2008
              
              
              2007
              
              
              2008
              
              
              2007
              
              
              2008
              
              
              2007
              
              
              2008
              
              
              2007Revenue
              
              
              100.0
              %
              
              
              100.0
              %
              
              
              100.0
              %
              
              
              100.0
              %
              
              
              100.0
              %
              
              
              100.0
              %
              
              
              100.0
              %
              
              
              100.0
              %Operating
      expenses: *Salaries,
      wages and benefits
              
              
              26.1
              
              
              
              28.6
              
              
              
              34.7
              
              
              
              33.7
              
              
              
              27.2
              
              
              
              28.9
              
              
              
              35.1
              
              
              
              33.7Fuel
              
              
              35.3
              
              
              
              25.8
              
              
              
              13.9
              
              
              
              12.6
              
              
              
              33.0
              
              
              
              24.8
              
              
              
              13.5
              
              
              
              12.5Operations
      and maintenance
              
              
              5.2
              
              
              
              5.6
              
              
              
              6.9
              
              
              
              6.6
              
              
              
              5.2
              
              
              
              5.6
              
              
              
              6.7
              
              
              
              6.5Insurance
      and claims
              
              
              3.7
              
              
              
              3.4
              
              
              
              5.0
              
              
              
              4.0
              
              
              
              3.9
              
              
              
              4.1
              
              
              
              5.0
              
              
              
              4.7Operating
      taxes and licenses
              
              
              1.9
              
              
              
              2.1
              
              
              
              2.5
              
              
              
              2.4
              
              
              
              2.0
              
              
              
              2.1
              
              
              
              2.5
              
              
              
              2.4Communications
              
              
              0.7
              
              
              
              0.6
              
              
              
              1.0
              
              
              
              0.8
              
              
              
              0.8
              
              
              
              0.7
              
              
              
              1.0
              
              
              
              0.9Depreciation
      andamortization
              
              
              8.3
              
              
              
              9.0
              
              
              
              11.0
              
              
              
              10.6
              
              
              
              8.9
              
              
              
              9.3
              
              
              
              11.5
              
              
              
              10.8Lease
      expense – revenueequipment
              
              
              0.0
              
              
              
              0.1
              
              
              
              0.0
              
              
              
              0.1
              
              
              
              0.0
              
              
              
              0.1
              
              
              
              0.0
              
              
              
              0.1Purchased
      transportation
              
              
              7.1
              
              
              
              7.4
              
              
              
              9.4
              
              
              
              8.7
              
              
              
              7.2
              
              
              
              6.9
              
              
              
              9.3
              
              
              
              8.1Miscellaneous
      operatingexpenses
              
              
              1.6
              
              
              
              1.2
              
              
              
              2.2
              
              
              
              1.3
              
              
              
              1.5
              
              
              
              1.2
              
              
              
              2.1
              
              
              
              1.3Total
      operating expenses
              
              
              89.9
              
              
              
              83.8
              
              
              
              86.6
              
              
              
              80.8
              
              
              
              89.7
              
              
              
              83.7
              
              
              
              86.7
              
              
              
              81.0Income
      from operations
              
              
              10.1
              
              
              
              16.2
              
              
              
              13.4
              
              
              
              19.2
              
              
              
              10.3
              
              
              
              16.3
              
              
              
              13.3
              
              
              
              19.0Net
      interest income
              
              
              0.1
              
              
              
              0.2
              
              
              
              0.1
              
              
              
              0.2
              
              
              
              0.1
              
              
              
              0.2
              
              
              
              0.1
              
              
              
              0.2Other
      income
              
              
              0.1
              
              
              
              0.3
              
              
              
              0.2
              
              
              
              0.3
              
              
              
              0.1
              
              
              
              0.1
              
              
              
              0.1
              
              
              
              0.2Income
      before income taxes
              
              
              10.3
              
              
              
              16.7
              
              
              
              13.7
              
              
              
              19.7
              
              
              
              10.5
              
              
              
              16.6
              
              
              
              13.5
              
              
              
              19.4Income
      taxes
              
              
              4.1
              
              
              
              6.6
              
              
              
              5.5
              
              
              
              7.8
              
              
              
              4.2
              
              
              
              6.6
              
              
              
              5.4
              
              
              
              7.7Net
      income
              
              
              6.2
              %
              
              
              10.1
              %
              
              
              8.2
              %
              
              
              11.9
              %
              
              
              6.3
              %
              
              
              10.0
              %
              
              
              8.1
              %
              
              
              11.7
              %*  
      There
      are minor rounding differences in the table.





13
 Table
of Contents








A
discussion of our results of operations for the six and three months ended June
30, 2008 and June 30, 2007 is set forth below.





Comparison
of Six Months and Three Months Ended June 30, 2008 to Six Months and Three
Months Ended June 30, 2007.





Total
revenue for the six months ended June 30, 2008 increased 10.3% to $382.5 million
from $346.7 million for the same period in 2007. Total revenue included $86.4
million of fuel surcharge revenue in the 2008 period compared to $48.9 million
in the 2007 period.  Total revenue for the quarter ended June 30, 2008
increased 14.4% to $206.1 million, from $180.2 million for the same period in
2007. Total revenue for the quarter included $51.3 million of fuel surcharge
revenue in the 2008 period, compared to $27.2 million in the 2007 period. In
discussing our results of operations, we use revenue, before fuel surcharge, and
fuel expense, net of fuel surcharge, because management believes that
eliminating the impact of this sometimes volatile source of revenue affords a
more consistent basis for comparing our results of operations from period to
period.  We also discuss the changes in our expenses as a percentage
of revenue, before fuel surcharge, rather than absolute dollar
changes.  We do this because we believe the high variable cost nature
of our business makes a comparison of changes in expenses as a percentage of
revenue, before fuel surcharge, more meaningful than absolute dollar
changes.





Revenue,
before fuel surcharge, decreased 0.6% to $296.1 million for the six months ended
June 30, 2008 from $297.8 million for the same period in 2007. Revenue, before
fuel surcharge, increased 1.2% to $154.8 million for the quarter ended June 30,
2008, from $153.0 million for the same period in 2007. Demand for truckload
freight started especially weak at the beginning of the year but strengthened
somewhat as we closed the second quarter. Average revenue per tractor increased
2.5% in the second quarter of 2008, as compared to the same period a year ago.
This increase was driven by an improvement in our revenue per total mile, with
miles per tractor being slightly down. We continued our year over year
improvement of our non-paid empty mile percentage, from 12.8% a year ago to
11.2% for the second quarter of this year.





Salaries,
wages and benefits expense as a percentage of revenue, before fuel surcharge,
increased to 35.1% for the six months ended June 30, 2008, compared to 33.7% for
the same period in 2007. Salaries, wages and benefits expense as a percentage of
revenue, before fuel surcharge, increased to 34.7% for the quarter ended June
30, 2008, from 33.7% for the same period in 2007. The year-to-date increase is
primarily due to a higher percentage of our company fleet being operated by
company drivers, as opposed to independent contractors. At June 30, 2008, 95.2%
of our fleet was operated by company drivers, compared to 93.6% at June 30,
2007. For our employees, we record accruals for workers' compensation benefits
as a component of our claims reserve, and the related expense is reflected in
salaries, wages and benefits in our consolidated statements of
income.





Fuel
expense, net of fuel surcharge, as a percentage of revenue before fuel
surcharge, increased to 13.5% for the six months ended June 30, 2008, from 12.5%
for the same period in 2007. For the quarter ended June 30, 2008, fuel expense,
net of fuel surcharge, as a percentage of revenue before fuel surcharge,
increased to 13.9% from 12.6% for the same period in 2007. This increase is
attributable to record high fuel prices during the second quarter of 2008. The
U.S. Department of Energy national average diesel fuel price for the quarter was
$4.34 per gallon, an increase of $1.58 per gallon as compared to the second
quarter average of 2007.  We intend to continue to focus on being more
fuel efficient through decreasing idle time, improving fuel purchasing, and
controlling out-of-route miles. We maintain a fuel surcharge program to assist
us in recovering a portion of our fuel expense. Fuel surcharge revenue was $86.4
million for the six months ended June 30, 2008, compared to $48.9 million for
the same period in 2007. For the quarter ended June 30, 2008, fuel surcharge
revenue was $51.3 million compared to $27.2 million for the same quarter in
2007.





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Operations
and maintenance expense, as a percentage of revenue, before fuel surcharge,
increased to 6.7% for the six months ended June 30, 2008, compared to 6.5% for
the same period in 2007. For the quarter ended June 30, 2008, operations and
maintenance expense, as a percentage of revenue, before fuel surcharge,
increased to 6.9% compared to 6.6% for the same quarter in 2007.  The
increase is mainly due to an increase in equipment repair costs that is
attributable to the fact that a higher percentage of our fleet was operated by
company drivers, as opposed to independent contractors, during the 2008 period.
Independent contractors pay for the maintenance of their own
vehicles.





Insurance
and claims expense as a percentage of revenue, before fuel surcharge, increased
to 5.0% for the six months ended June 30, 2008, compared to 4.7% for the same
period in 2007. For the quarter ended June 30, 2008, insurance and claims
expense as a percentage of revenue, before fuel surcharge, increased to 5.0%
compared to 4.0% for the same quarter in 2007. The increase is due to higher
claims expense associated with certain claims incurred in the second quarter of
2008.





Operating
taxes and licenses expense as a percentage of revenue, before fuel surcharge,
increased slightly to 2.5% for the six-month and three-month periods ended June
30, 2008, compared to 2.4% for the same periods in 2007.





Communications
expense as a percentage of revenue, before fuel surcharge, increased slightly to
1.0% for the six-month and three-month periods ended June 30, 2008, compared to
0.9% for the six-month period ended June 30, 2007, and 0.8% for the three-month
period ended June 30, 2007.





Depreciation
and amortization expense as a percentage of revenue, before fuel surcharge,
increased to 11.5% for the six-month period ended June 30, 2008, compared to
10.8% for the same period in 2007.  For the quarter ended June 30, 2008,
depreciation and amortization expense as a percentage of revenue, before fuel
surcharge, increased to 11.0% compared to 10.6% for the same quarter in
2007.  The increase is due to a higher percentage of our fleet being
operated by company drivers, as opposed to independent contractors, and a
reduction in our leased revenue equipment in favor of owned revenue
equipment.





Lease
expense for revenue equipment was near zero for the six-month and three-month
periods ended June 30, 2008, compared to 0.1% for the same periods in 2007.
 As of June 30, 2008, we did not have any equipment under operating
leases.





Purchased
transportation represents the amount that independent contractors, as well as
contracted carriers for our brokerage division, are paid to haul freight for us
on a mutually agreed upon per-mile or per-shipment basis. Purchased
transportation expense as a percentage of revenue, before fuel surcharge,
increased to 9.3% for the six months ended June 30, 2008, from 8.1% for the same
period in 2007. For the quarter ended June 30, 2008, purchased transportation
expense as a percentage of revenue, before fuel surcharge, increased to 9.4%
compared to 8.7% for the same quarter in 2007.  The increase in this
category is mainly due to payments to outside carriers for transportation
services arranged by our brokerage division, which has experienced considerable
growth over the last year. Excluding purchased transportation activities from
our brokerage division, this expense as a percentage of revenue, before fuel
surcharge, would have decreased to 2.9% for the quarter ended June 30, 2008,
compared to 4.8% for the same period in 2007. This decrease is attributable to a
change in the ratio of our company fleet to owner operated fleet. As of June 30,
2008, 4.8% of our fleet was comprised of independent contractors, compared to
6.4% a year ago.





Miscellaneous
operating expenses as a percentage of revenue, before fuel surcharge, increased
to 2.1% for the six-month period ended June 30, 2008, compared to 1.3% for the
same period in 2007.  For the quarter ended June 30, 2008, miscellaneous
operating expenses as a percentage of revenue, before fuel surcharge, increased
to 2.2% compared to 1.3% for the same quarter in 2007. Gains from sale of used
equipment are included in miscellaneous operating expenses.  A softening
market for used tractors and trailers
lowered our gains from sale of used equipment by more than 60%, to $470,000 in
the second quarter of 2008, compared to $1.3 million for the same period a year
ago. Excluding gains from sale of used equipment, miscellaneous operating
expenses increased to 2.4 % and 2.5% for the six-month and three-month period
ended June 30, 2008, respectively, compared to 2.2% for both periods in 2007.
The increase is mostly due to a higher bad debt expense associated with
uncollectible receivables.





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As a
result of the above factors, our operating ratio, net of fuel surcharge
(operating expenses, net of fuel surcharge, expressed as a percentage of
revenue, before fuel surcharge), increased to 86.7% for the six months ended
June 30, 2008, from 81.0% for the same period in 2007.  For the quarter
ended June 30, 2007, our operating ratio increased to 86.6% from 80.8% for the
same quarter in 2007.





Net
interest income and other income as a percentage of revenue, before fuel
surcharge, decreased to 0.2% for the six months ended June 30, 2008, from 0.4%
for the same period in 2007. For the quarter ended June 30, 2008, net interest
income and other income as a percentage of revenue, before fuel surcharge,
decreased to 0.3%, from 0.5% for the same period in 2007. Other income in the
current year included an earn-out distribution of $225,000 for the sale of our
investment in Concentrek, which was sold in 2005.  We had no
outstanding debt at June 30, 2008 or 2007.





Income
taxes have been provided for at the statutory federal and state rates, adjusted
for certain permanent differences between financial statement income and income
for tax reporting.  Our effective income tax rates have remained relatively
constant and ranged between 39% to 40% for the 2008 and 2007
periods.





As a
result of the preceding changes, our net income, as a percentage of revenue
before fuel surcharge, decreased to 8.1% for the six months ended June 30, 2008,
compared to 11.7% for the same period in 2007. For the quarter ended June 30,
2008, our net income, as a percentage of revenue before fuel surcharge,
decreased to 8.2% compared to 11.9% for the same period in 2007.





Liquidity
and Capital Resources





The
growth of our business has required, and will continue to require, a significant
investment in new revenue equipment.  Our primary source of liquidity
has been funds provided by operations.





Net cash
provided by operating activities was $53.1 million for the six months ended June
30, 2008, compared to $58.7 million for the same period in 2007. The decrease is
mainly due to lower net income and an increase in trade receivables in the 2008
period compared to the same period of 2007. The trade receivable increase is
mostly due to a recent increase in fuel surcharge billing.





Net cash
used in investing activities was $29.9 million for the six months ended June 30,
2008, compared to $24.7 million for the 2007 period. The increase is mainly due
to an increase in capital expenditures for revenue equipment in the 2008 period.
Capital expenditures for the purchase of revenue equipment, office equipment,
land and leasehold improvements, net of equipment sales, increased $5.2 million,
to $30.5 million for the six months ended June 30, 2008, compared to $25.3
million for the 2007 period. We currently anticipate total capital expenditures,
net of equipment sales, of approximately $75.0 to $85.0 million for the year.
This will be used primarily to acquire new revenue equipment.





Net cash
used in financing activities was approximately $22.5 million for the six months
ended June 30, 2008, compared to $1.8 million for the same period in
2007.  The increase in cash used in financing activities is primarily
due to $18.1 million used to repurchase 1,218,500 shares of our common stock in
the first quarter of 2008. Cash dividends paid in the current year also
increased approximately $1.7 million, due to an increase in dividends paid to
common stock shareholders.  We increased our quarterly cash dividend
from $0.03 per share to $0.04 per share in the second quarter of
2008.





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At June
30, 2008, we did not have any outstanding debt. We currently maintain a line of
credit that permits revolving borrowings and letters of credit totaling $50.0
million. At June 30, 2008, the line of credit consisted solely of issued but
unused letters of credit totaling $36.9 million. These letters of credit are
issued to various regulatory authorities in connection with our self-insurance
programs. We are obligated to comply with certain financial covenants under our
line of credit agreement, and we were in compliance with these covenants at June
30, 2008.





As of
June 30, 2008, we held $36.1 million in cash and cash equivalents and short term
investments. Management believes we will be able to finance our near term needs
for working capital over the next twelve months, as well as acquisitions of
revenue equipment during such period, with cash balances, cash flows from
operations, and borrowings, if any, available under our existing line of credit.
We will continue to have significant capital requirements over the long-term,
which may require us to incur debt or seek additional equity capital. The
availability of additional capital will depend upon prevailing market
conditions, the market price of our common stock, and several other factors over
which we have limited control, as well as our financial condition and results of
operations. Nevertheless, based on our recent operating results, current cash
position, anticipated future cash flows, and sources of financing that we expect
will be available to us, we do not expect that we will experience any
significant liquidity constraints in the foreseeable future.





Off-Balance
Sheet Transactions





Our
liquidity is not materially affected by off-balance sheet
transactions.  Like many other trucking companies, we have
periodically utilized operating leases to finance our revenue equipment
purchases.  As of June 30, 2008, we had zero tractors held under
operating leases, compared to 26 tractors held under operating leases at June
30, 2007.  Vehicles held under operating leases were not carried on
our balance sheet, and lease payments in respect of such vehicles are reflected
in our income statements in the line item "Lease expense – revenue
equipment."





Critical
Accounting Policies and Estimates





The
preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires that management make
a number of assumptions and estimates that affect the reported amounts of
assets, liabilities, revenue, and expenses in our consolidated financial
statements and accompanying notes.  Management bases its estimates on
historical experience and various other assumptions believed to be
reasonable.  Although these estimates are based on management's best
knowledge of current events and actions that may impact us in the future, actual
results may differ from these estimates and assumptions.  Our critical
accounting policies are those that affect, or could affect our financial
statements materially and involve a significant level of judgment by
management.The
accounting policies we deem most critical to us include, revenue recognition,
depreciation, claims accrual, accounting for income taxes and share based
payments. There have been no significant changes to our critical accounting
policies and estimates during the six months ended June 30, 2008, compared to
those disclosed in Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operation," included in our 2007 Annual Report on Form
10-K.





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Item
3.                                Quantitative
and Qualitative Disclosures About Market Risk





We are
exposed to market risk changes in interest rate on debt and from changes in
commodity prices.





Under
Financial Accounting Reporting Release Number 48 and SEC rules and regulations,
we are required to disclose information concerning market risk with respect to
foreign exchange rates, interest rates, and commodity prices. We have elected to
make such disclosures, to the extent applicable, using a sensitivity analysis
approach, based on hypothetical changes in interest rates and commodity
prices.





We
currently do not use derivative financial instruments for risk management
purposes and do not use them for either speculation or trading. Because our
operations are confined almost entirely to the United States, we are not subject
to a material amount of foreign currency risk.





Interest
Rate Risk





We are
subject to interest rate risk to the extent we borrow against our line of credit
or incur debt in the acquisition of revenue equipment. We attempt to manage our
interest rate risk by managing the amount of debt we carry. We did not have any
debt outstanding at June 30, 2008, and therefore had no market risk related to
debt.





Commodity
Price Risk





We also
are subject to commodity price risk with respect to purchases of fuel. The price
and availability of diesel fuel can fluctuate due to market factors that are
beyond our control.  We believe fuel surcharges are effective at
mitigating most, but not all, of the risk of high fuel prices because we do not
recover the full amount of fuel price increases.  As of June 30, 2008,
we did not have any derivative financial instruments to reduce our exposure to
fuel price fluctuations.





Item
4.                                Controls
and Procedures





We have
established disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934, as amended) to ensure
that material information relating to us, including our consolidated
subsidiaries, is made known to the officers who certify our financial reports
and to other members of senior management and the Board of
Directors.  Our management, with the participation of our principal
executive officer and principal financial officer, conducted an evaluation of
the effectiveness of our disclosure controls and procedures.  Based on
this evaluation, as of the end of the period covered by this Quarterly Report on
Form 10-Q, our principal executive officer and principal financial officer have
concluded that our disclosure controls and procedures are effective to ensure
that the information required to be disclosed by us in the reports that we file
or submit under the Exchange Act is (i) recorded, processed, summarized, and
reported within the time periods specified in the SEC rules and forms, and (ii)
accumulated and communicated to management, including our principal executive
officer and principal financial officer, as appropriate, to allow timely
decisions regarding required disclosure.





There was
no change in our internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June
30, 2008, that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.





We have
confidence in our disclosure controls and procedures and internal control over
financial reporting.  Nevertheless, our management, including our
principal executive officer and principal financial officer, does not expect
that our disclosure controls and procedures and internal control over financial
reporting will prevent all errors, misstatements, or fraud.  A control
system, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met.  Further, the design of a
control system must reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to their
costs.  Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all of our control
issues and instances of fraud, if any, have been detected.





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PART
II - OTHER INFORMATION




Item
1.                     Legal
Proceedings
 
 We are a
party to ordinary, routine litigation and administrative proceedings incidental
to our business.  These proceedings primarily involve claims for
personal injury or property damage incurred in the transportation of freight and
for personnel matters.
 
 Item
1A.                  Risk
Factors
 
 While we
attempt to identify, manage, and mitigate risks and uncertainties associated
with our business, some level of risk and uncertainty will always be
present.  Our Annual Report on Form 10-K for the year ended December
31, 2007, in the section entitled "Item 1A.  Risk
Factors," describes some of the risks and uncertainties associated with
our business.  These risks and uncertainties have the potential to
materially affect our business, financial condition, results of operations, cash
flows, projected results, and future prospects.
 
 Item 2.
              Unregistered Sales of Equity Securities and Use of
  Proceeds
 
 On
November 8, 2007, our Board of Directors unanimously authorized the repurchase
of up to 3.0 million shares of our Common Stock.  The repurchase
authorization will remain in effect until the share limit is reached or the
program is terminated.  No shares were repurchased in the second
quarter of 2008. See Note 11 for additional information with respect to our
share repurchase program.
 
 Item
3.                     Defaults
Upon Senior Securities
 
 Not
Applicable
 
 Item
4.                     Submission
of Matters to a Vote of Security Holders


Our
Annual Meeting of Shareholders was held on May 22, 2008. At the Annual Meeting,
the shareholders elected Donald A. Bliss and Richard J. Lehmann to serve as
Class I directors for a term of three years. Kevin P. Knight, Randy Knight,
Michael Garnreiter, Gary J. Knight, G.D. Madden, and Kathryn L. Munro continued
as directors of the Company after the Annual Meeting.





Shareholders
representing 68,180,049 shares, or approximately 80% of the Company's
outstanding Common Stock as of the record date, were present in person or by
proxy at the Annual Meeting. A tabulation of the vote with respect to each
director nominee follows:





Votes
      For
            
            VotesAgainst
      or
              Withheld/AbstentionsDonald
      A. Bliss
            63,164,735
            
            604,893Richard
      J. Lehmann
            63,259,665
            
            509,962








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At the
Annual Meeting, the shareholders also approved the Second Amendment to the
Company's Amended and Restated 2003 Stock Option Plan to increase the number of
shares of Common Stock reserved for the issuance of stock grants, including
stock options, to employees and directors.  A tabulation of the vote
with respect to this proposal follows:





Votes
      For:
            45,015,995Votes
      Against or Withheld:
            9,062,725Abstentions:
            386,537Broker
      Non-Votes:
            9,304,370





At the
Annual Meeting, the shareholders also voted to ratify the appointment of
Deloitte & Touche LLP as the Company's independent registered public
accounting firm. A tabulation of the vote with respect to this proposal
follows:





Votes
      For:
            63,723,812Votes
      Against or Withheld:
            10,021Abstentions:
            35,793








Item
5.                                Other
Information





Not
Applicable





Item
6.                                Exhibits





Exhibits
required by Item 601 of Regulation S-K





Exhibit No.
            
            DescriptionExhibit
      3
            
            Articles
      of Incorporation and Bylaws(3.1)
            Second
      Amended and Restated Articles of Incorporation of the Company.
      (Incorporated by reference to Appendix A to the Company's Definitive Proxy
      Statement on Schedule 14A filed April 20, 2007.)(3.2)
            Sixth
      Amended and Restated Bylaws of the Company. (Incorporated by reference to
      Exhibit 3 to the Company's Report on Form 8-K dated December 18, 2007 and
      filed on December 19, 2007.)Exhibit
      4
            
            Instruments
      defining the rights of security holders, including
    indentures(4.1)
            Articles
      4, 10, and 11 of the Second Amended and Restated Articles of Incorporation
      of the Company.  (Incorporated by reference to Exhibit 3.1 to
      this Report on Form 10-Q.)(4.2)
            Sections
      2 and 5 of the Sixth Amended and Restated Bylaws of the
      Company.  (Incorporated by reference to Exhibit 3.2 to this
      Report on Form 10-Q.)(4.3)
            Knight
      Transportation, Inc. Amended and Restated 2003 Stock Option Plan.
      (Incorporated by reference to the Company's Definitive Proxy Statement on
      Schedule 14A filed December 1, 2005.)Exhibit
      31
            
            Section
      302 Certifications(31.1)*
            Certification
      pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to
      Section 302 of the Sarbanes-Oxley Act of 2002, by Kevin P. Knight, the
      Company's Chief Executive Officer.








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(31.2)*
            Certification
      pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to
      Section 302 of the Sarbanes-Oxley Act of 2002, by David A. Jackson, the
      Company's Chief Financial Officer.Exhibit
      32
            
            Section
      906 Certifications(32.1)*
            Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002, by Kevin P. Knight, the Company's Chief
      Executive Officer.(32.2)*
            Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002, by David A. Jackson, the Company's Chief
      Financial Officer.*Filed
      herewith.







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SIGNATURES








Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.





KNIGHT
      TRANSPORTATION, INC.Date:
      August 11, 2008
            By:
            /s/
      Kevin P. KnightKevin
      P. KnightChief
      Executive Officer, in his capacity as such and
              on
      behalf of the registrantDate:
      August 11, 2008
            By:
            /s/
      David A. JacksonDavid
      A. JacksonChief
      Financial Officer, in his capacity as such and
              on
      behalf of the registrant