-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RuDRAvwmzDdcEXQkMzT/uXefuaGNe9joWU8oFBafGG1tr9vezQ/iUaphfq6laDTO DcW6Jo/uis3wWOugNHeWWw== 0000912057-97-011138.txt : 19970401 0000912057-97-011138.hdr.sgml : 19970401 ACCESSION NUMBER: 0000912057-97-011138 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MARTEN TRANSPORT LTD CENTRAL INDEX KEY: 0000799167 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 391140809 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-15010 FILM NUMBER: 97569077 BUSINESS ADDRESS: STREET 1: 129 MARTEN ST CITY: MONDOVI STATE: WI ZIP: 54755 BUSINESS PHONE: 7159264216 MAIL ADDRESS: STREET 1: 3400 PLAZA VII STREET 2: 45 SOUTH SEVENTH ST CITY: MINNEAPOLIS STATE: MN ZIP: 55402 10-K405 1 10-K405 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: Commission file number: DECEMBER 31, 1996 0-15010 ____________________ MARTEN TRANSPORT, LTD. (Exact name of registrant as specified in its charter) DELAWARE 39-1140809 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 129 MARTEN STREET 54755 MONDOVI, WISCONSIN (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (715) 926-4216 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR VALUE $.01 PER SHARE ____________________ 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. YES /X/ NO / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ As of March 21, 1997, 2,959,616 shares of Common Stock of the Registrant were deemed outstanding, and the aggregate market value of the Common Stock of the Registrant (based upon the average of the closing bid and asked prices of the Common Stock at that date as reported by the Nasdaq National Market), excluding outstanding shares beneficially owned by directors and executive officers, was approximately $14,504,592. Part II of this Annual Report on Form 10-K incorporates by reference information (to the extent specific pages are referred to herein) from the Registrant's Annual Report to Shareholders for the year ended December 31, 1996 (the "1996 Annual Report"). Part III of this Annual Report on Form 10-K incorporates by reference information (to the extent specific sections are referred to herein) from the Registrant's Proxy Statement for its annual meeting to be held May 13, 1997 (the "1997 Proxy Statement"). PART I ITEM 1. BUSINESS (A) GENERAL DEVELOPMENT OF BUSINESS. Marten Transport, Ltd. ("the Company") is a long-haul truckload carrier providing protective service transportation, which is temperature controlled or insulated carriage of temperature sensitive materials and general commodities and carriage of time sensitive freight, pursuant to operating authority, both contract and common, granted by the Interstate Commerce Commission ("ICC") and currently regulated by the United States Department of Transportation ("DOT") and the Federal Highway Administration ("FHWA"). As of December 31, 1996, the Company operated a fleet consisting of 1,174 tractors and 1,589 trailers (all of which are protective service trailers). Of the total fleet, 929 tractors and 1,586 trailers were Company-owned and 245 tractors and 3 trailers were under contract with independent contractors who also provide the services of a driver satisfactory to the Company. As of December 31, 1996, the Company had 1,261 employees, including 989 drivers, none of whom is represented by a collective bargaining unit. The Company was organized under Wisconsin law in 1970 as a successor to a sole proprietorship operated by Roger R. Marten since 1946. In 1988, the Company reincorporated under Delaware law. The Company's executive offices are located at 129 Marten Street, Mondovi, Wisconsin 54755, and its telephone number is (715) 926-4216. (B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS. Since its inception, the Company's revenue, operating profits and assets have been attributable primarily to one business segment--long-haul truckload carriage of temperature and time sensitive materials and general commodities. (C) NARRATIVE DESCRIPTION OF BUSINESS. The Company specializes in protective service transportation of foods, chemicals and other products that require temperature controlled or insulated carriage. The Company also provides carriage of dry freight for customers requiring the special services the Company offers. In 1996, the Company derived approximately 75% of its revenue from hauling products requiring protective service and 25% of its revenue from hauling dry freight. Most of the Company's dry freight loads require special services the Company offers or permit the Company to position its equipment for hauling protective service loads. The specialized transportation services offered by the Company include: / / dependable, late model tractors which allow timely deliveries / / late model temperature controlled trailers / / scheduled pickups and deliveries / / assistance in loading and unloading / / the availability of extra trailers that can be placed for the convenience of customers / / sufficient equipment to respond promptly to customers' varying requirements / / an on-line computer system which allows customers to obtain information regarding the status of deliveries MARKETING AND CUSTOMERS Senior management and marketing personnel seek customers whose products require protective or other specialized services and who ship multiple truckloads per week. To minimize empty miles, the Company places special emphasis on soliciting customers whose shipping requirements allow the Company to balance the number of load originations and terminations in any given area. A key element of the Company's emphasis on service is its strong commitment to accommodating the individualized requirements of its customers. The Company has developed an electronic data interchange ("EDI") system, through which the Company can provide its customers with current information regarding the location and status of shipments in transit. This system also allows customers to place orders, and the Company to bill customers, electronically. The Company also utilizes a satellite tracking system that enhances monitoring of truck and shipment locations. The Company maintains marketing offices in its Wisconsin headquarters, as well as other selected locations throughout the United States. Marketing personnel travel in their assigned regions to solicit new customers and maintain contact with existing customers. Once a customer relationship is established, the primary Company contact is one of the Company's customer service managers. Working from the Company's terminal in Mondovi, Wisconsin, the customer service managers regularly contact existing customers to solicit additional business on a load-by-load basis, particularly when equipment will be available nearby following a completed haul. Each customer service manager is assigned to particular customers and is responsible for monitoring overall transportation and service requirements as well as freight movements for each assigned customer. These efforts to coordinate shipper needs with equipment availability have been instrumental in maintaining an average empty mile factor of 6.9% in 1996. The Company sets its own freight rates instead of using those published by tariff publishing bureaus, which allows the Company to offer rates that are more responsive to market conditions and the level of service required by a particular customer. The Company's rate structure is designed to compensate the Company for the cost of protective service revenue equipment as well as hauling loads into areas that generate empty miles. The Company derived approximately 13% of its revenue in 1996 and 11% of its revenue in 1995 from a single customer, The Pillsbury Company. The Company derived approximately 12% of its revenue in 1994 from the Phillip Morris group of companies, which included 11 different accounts in 1994. OPERATIONS The Company's operations are designed for efficient use of equipment while maintaining the emphasis placed on providing individualized service to customers. The Company's computer system provides real-time, on-line information to track shipments and increase equipment utilization as well as to assist management in long-range planning and trend analysis. The Company maintains its dispatch operations in its Mondovi, Wisconsin, headquarters. Customer service managers are assigned to particular customers and regions and work closely with the Company's fleet managers, marketing personnel and drivers. Loads are assigned to drivers by load planners. Loads are then dispatched by fleet managers who are assigned a group of drivers regardless of load destination. Once a load has been dispatched, a fleet manager is responsible for its proper and efficient delivery and tracks the status and location of that load through daily contact with drivers. Customer service managers coordinate with the Company's marketing personnel to match customer needs with Company capacity and location of 2 revenue equipment. Each driver is monitored daily on his/her location, load temperature and any problems by the appropriate fleet manager. This information, along with information concerning available loads, is constantly updated on the Company's computer system. Computer-generated information is used to meet delivery schedules, respond to customer inquiries and match available equipment with loads. The Company's primary traffic lanes are between the Midwest and the West Coast, Pacific Northwest, Southwest, Southeast, East Coast and from California to the Pacific Northwest. The average length of a trip (one-way) was 1,095 miles during 1996, 1,145 miles during 1995 and 1,132 miles during 1994. The Company's loads generally move from origin directly to destination, thus eliminating any need for freight terminals. The Company operates maintenance facilities in Mondovi, Wisconsin; Ontario, California; Wilsonville, Oregon; and Jonesboro, Georgia. The Company has agreements with various fuel distributors which enable drivers to purchase fuel at a discount while in transit. The Company also purchases fuel in bulk in Mondovi and at its maintenance facilities. DRIVERS As of December 31, 1996, the Company employed 989 drivers and had contracts with independent contractors for the services of 245 tractors that provide both a tractor and a qualified driver for the Company's use. The Company recruits drivers from throughout the United States. The ratio of drivers to tractors as of December 31, 1996, was 1 to 1. None of the Company's drivers is represented by a collective bargaining unit. The Company's turnover of drivers was approximately 70% in 1996, which the Company believes is in line with turnover rates in the industry, based on industry surveys. Drivers, including independent contractors, are selected in accordance with specific Company guidelines relating to safety records, driving experience and personal evaluations. A new driver is trained in all phases of Company policies and operations as well as safety techniques and fuel-efficient operation of the equipment. All new drivers must also pass a road test prior to assignment to a vehicle. The Company maintains a toll-free number, satellite tracking and a staff of fleet managers to provide timely communication and support for drivers while on the road for extended periods. To retain qualified drivers and promote safe operations, the Company purchases premium quality tractors and equips them with optional comfort and safety features, including air ride suspension, air conditioning, high-quality interiors, power steering, engine brakes and double sleeper cabs. The Company maintains stringent screening, training and testing procedures for its drivers to reduce the potential for accidents and the corresponding cost of insurance and claims. Company-employed drivers receive a fixed rate per mile which is increased based on the driver's length of service. Drivers are also eligible for bonuses based upon safe, efficient driving. The Company believes that its compensation program provides an important incentive to attract and retain qualified drivers. Drivers that have been with the Company for at least six months are also eligible to purchase shares of Company Common Stock pursuant to a stock purchase plan sponsored by the Company, which provides that the Company will pay the brokerage commissions on purchases and the costs of administering the plan. The Company compensates independent contractors on the basis of a fixed rate per mile or a percentage of revenue from loads hauled. Independent contractors pay their own fuel, insurance, maintenance and repairs and other expenses. Independent contractors that have been under contract with the Company for at least six months are also eligible to purchase shares of Company Common Stock pursuant to a stock purchase plan sponsored by the Company, which provides that the Company will pay the brokerage commissions on purchases and the costs of administering the plan. 3 REVENUE EQUIPMENT The trucking industry requires significant capital investment in revenue equipment. The Company has elected to finance its revenue equipment purchases using long-term debt with significant current maturities, causing a working capital deficit. The Company has operated effectively with a working capital deficit due to a combination of operating profits, short turnover in accounts receivable and cash management. The Company's policy is to purchase tractors and trailers manufactured to Company specifications. The Company's tractors are manufactured by Freightliner, Kenworth or Peterbilt. Most of the Company's tractors are equipped with 370/430 horsepower Detroit Diesel or Cummins engines, which are designed to enable the equipment to maintain constant speed with optimum fuel economy under conditions often encountered by the Company's equipment, such as mountainous terrain and maximum weight loads. Most of the Company's single van trailers are manufactured by Utility, Great Dane or Wabash and are equipped with Thermo-King cooling and heating equipment. The current cost of a temperature-controlled, protective service trailer is approximately $40,000. Standardization of equipment enables the Company to simplify driver training, control the cost of spare parts inventory, enhance its preventive maintenance program and increase fuel economy. The following table shows the type and age of equipment owned by the Company as of December 31, 1996:
Model year Tractors Single van trailers 1997 124 180 1996 342 496 1995 256 262 1994 157 240 1993 49 277 1992 1 109 1991 --- 14 1990 --- 6 1989 --- 2 ----- ----- Total 929 1,586 ----- -----
The single van refrigerated trailers are 48 feet long (977 trailers) or 53 feet long (609 trailers) by 102 inches wide with a minimum of 102 inches of inside height. The Company's policy is to replace its tractors and trailers based on factors such as age, the market for used equipment and improvements in technology and fuel efficiency. In 1997, the Company plans to purchase 157 tractors (for which 121 tractors will be traded) and 300 trailers (for which 107 trailers will be traded). The Company has a comprehensive maintenance program for its Company-owned tractors and trailers to minimize equipment downtime and enhance resale value. Inspections, repairs and maintenance are performed regularly at the Company's facilities in Mondovi, Wisconsin; Ontario, California; Jonesboro, Georgia; and Wilsonville, Oregon, and at independent contract maintenance facilities in the Company's service territory. The Company's tractors and trailers are washed regularly to enhance appearance and prolong equipment life. 4 EMPLOYEES As of December 31, 1996, the Company employed 1,261 people, of whom 989 were drivers, 109 were mechanics and maintenance personnel and 163 were support personnel, including management and administration. None of the Company's employees is represented by a collective bargaining unit, and the Company considers relations with its employees to be good. COMPETITION The trucking industry is highly competitive. The Company competes primarily with other protective service truckload carriers and with private carriage fleets. For freight that does not require protective service trailers, the Company also competes with dry freight truckload carriers and to a lesser extent with railroads. The Company competes primarily on the basis of its quality of service and its ability to provide protective service and other specialized services. Several other truckload carriers offering protective service have substantially greater financial resources than the Company, own more equipment and carry a larger volume of freight than the Company. REGULATION The Company is a motor common and contract carrier regulated by the DOT and the FHWA along with various state agencies. These regulatory authorities have broad powers, generally governing activities such as authority to engage in motor carrier operations, rates and charges, and certain mergers, consolidations and acquisitions. The Motor Carrier Act of 1980 (the "MCA") substantially increased competition among motor carriers and limited the level of regulation in the industry. The MCA enabled applicants to obtain ICC operating authority more easily and allowed interstate motor carriers such as the Company to change their rates without ICC approval. The law also allowed for the removal of many route and commodity restrictions on the transportation of freight. The Trucking Industry Regulatory Reform Act of 1994 (the "TIRRA") has further increased industry competition and limited industry regulation. The TIRRA repealed tariff filing for individually determined rates; simplified the granting of ICC operating authority; and pre-empted price, route and service regulation by the states. Effective January 1, 1996, the ICC Termination Act of 1995 abolished the ICC and transferred its regulatory authority to the DOT and the FHWA. Motor carrier operations are subject to safety requirements prescribed by the DOT governing interstate operations. Such matters as weight and dimensions of equipment are also subject to federal and state regulations. The Company also has operating authority in the Canadian Provinces of Alberta, British Columbia, Manitoba, Ontario, Quebec and Saskatchewan. ITEM 2. PROPERTIES The Company's executive offices and principal terminal are located on approximately seven acres in Mondovi, Wisconsin, and currently consists of approximately 28,000 square feet of office space and approximately 21,000 square feet of equipment repair and maintenance space. It was originally constructed in 1965 and was expanded in 1971, 1980, 1987 and 1993. The Company also maintains a maintenance facility in Ontario, California. This facility is currently leased from R & R Properties, a sole-proprietorship owned by Randolph L. Marten, for a period of 5 years terminating December 31, 1999. The current lease provides for rent of $126,000 per year from 1995 through 1999. This rent is based on the debt service of R & R Properties to finance this facility. The Company is required to bear the cost of insurance, maintenance and repairs, taxes, special assessments and utilities. In 5 1993, the Company remodeled this facility. This facility includes approximately 2,700 square feet of office space and 8,000 square feet of equipment repair and maintenance space. The parking lot measures 150,000 square feet. The Company purchased a maintenance facility in Jonesboro, Georgia in 1993. The building at this facility measures approximately 12,500 square feet and consists of office space and a two and one-half bay service and repair space. This facility also has parking for up to forty tractors and trailers. The Company purchased a maintenance facility in Wilsonville, Oregon in 1995. The building at this facility, which is approximately 20,000 square feet, consists of office space and an eight-bay service and repair space. This facility also has an eight acre paved and fenced yard area. ITEM 3. LEGAL PROCEEDINGS The Company is a party to routine litigation incidental to its business, primarily involving claims for personal injury and property damage incurred in the transport of freight. The Company self-insures for property damage and cargo claims. The Company partially self-insures for losses related to automobile liability, general liability, workers' compensation claims and employees' group health benefits. The Company also maintains an insurance policy that limits annual aggregate Company losses to $9 million for automobile liability, workers' compensation and general liability claims. The Company believes that its current liability limit is reasonable under the circumstances. It is possible, however, that the Company could incur liability in excess of its policy limits, in which case its financial condition could be adversely affected. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this Report. ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT The Company's executive officers and their ages along with the offices held as of March 1, 1997, are as follows:
Name Age Position ---- --- --------- Randolph L. Marten 44 Chairman of the Board, President, Chief Operating Officer and Director Darrell D. Rubel 51 Executive Vice President, Chief Financial Officer, Treasurer, Assistant Secretary and Director Timothy P. Nash 45 Vice President of Sales Franklin J. Foster 40 Vice President of Finance Robert G. Smith 53 Vice President of Operations
Randolph L. Marten has been a full time employee of the Company since 1974. Mr. Marten has been a Director of the Company since October 1980, its President and Chief Operating Officer since June 1986 and its Chairman of the Board since August 1993. Mr. Marten was Vice President of the Company from October 1980 to June 1986. 6 Darrell D. Rubel has been a Director of the Company since February 1983, its Chief Financial Officer since January 1986, its Treasurer since June 1986 and its Executive Vice President since May 1993. Mr. Rubel was also Secretary of the Company from June 1986 until August 1987 and Vice President from January 1986 until May 1993, and has been Assistant Secretary since August 1987. Timothy P. Nash has been Vice President of Sales since November 1990 and was Regional Sales Manager from July 1987 to November 1990. Mr. Nash was a regional sales manager for Overland Express, Inc., a long-haul truckload carrier, from August 1986 to July 1987. Franklin J. Foster has been Vice President of Finance since December 1991 and was Director of Finance from January 1991 to December 1991. Mr. Foster was a vice president in commercial banking for First Bank National Association from October 1985 to January 1991. Robert G. Smith has been Vice President of Operations since June 1993 and was Director of Operations from September 1989 to June 1993. Mr. Smith was director of operations for Transport Corporation of America, an irregular-route truckload carrier, from January 1985 to September 1989. Executive officers of the Company are elected by the Board of Directors for one-year terms, commencing with their election at the first meeting of the Board of Directors immediately following the annual meeting of shareholders and continuing until the next such meeting of the Board of Directors. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information under the caption "Common Stock Data" on page 20 of the Company's 1996 Annual Report is incorporated herein by reference. The Company did not have any unregistered sales of equity securities during the fourth quarter of the fiscal year ended December 31, 1996. ITEM 6. SELECTED FINANCIAL DATA The financial information under the caption "Five-Year Financial Summary" on page 10 of the Company's 1996 Annual Report is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 11 of the Company's 1996 Annual Report is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's Financial Statements and the report of its independent public accountants on pages 12 through 19 of the Company's 1996 Annual Report are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 7 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT A. DIRECTORS OF THE REGISTRANT. The information under the captions "Election of Directors--Information About Nominees" and "Election of Directors--Other Information About Nominees" in the Company's 1997 Proxy Statement is incorporated herein by reference. B. EXECUTIVE OFFICERS OF THE REGISTRANT. Information concerning Executive Officers of the Company is included in this Report under Item 4A, "Executive Officers of the Registrant." C. COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT. The information contained under the caption "Section 16 Compliance" in the Company's 1997 Proxy Statement is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information under the captions "Election of Directors--Director Compensation" and "Compensation and Other Benefits" in the Company's 1997 Proxy Statement is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information under the caption "Principal Stockholders and Beneficial Ownership of Management" in the Company's 1997 Proxy Statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information under the caption "Certain Transactions" in the Company's 1997 Proxy Statement is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (A) 1. FINANCIAL STATEMENTS: The following Financial Statements are incorporated herein by reference from the pages indicated in the Company's 1996 Annual Report: Report of Independent Public Accountants - page 19 Balance Sheets as of December 31, 1996 and 1995 - page 12 Statements of Operations for the years ended December 31, 1996, 1995 and 1994 - page 13 8 Statements of Changes in Shareholders' Investment for the years ended December 31, 1996, 1995 and 1994 - page 13 Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 -page 14 Notes to Financial Statements - page 15 - 19 2. FINANCIAL STATEMENT SCHEDULES: None. 3. EXHIBITS: The exhibits to this Report are listed in the Exhibit Index on pages 11 -13 of this Annual Report on Form 10-K. A copy of any of the exhibits listed or referred to above will be furnished at a reasonable cost to any person who was a shareholder of the Company as of March 26, 1997, upon receipt from any such person of a written request for any such exhibit. Such request should be sent to Darrell D. Rubel, Executive Vice President and Chief Financial Officer, Marten Transport, Ltd., 129 Marten Street, Mondovi, Wisconsin 54755. The following is a list of each management contract or compensatory plan or arrangement required to be filed as an Exhibit to this Annual Report on Form 10-K pursuant to Item 14(c): (1) Marten Transport, Ltd. 1986 Incentive Stock Option Plan, as amended. (2) Marten Transport, Ltd. 1986 Non-Statutory Stock Option Plan, as amended. (3) Employment Agreement, dated May 1, 1993, between the Company and Darrell D. Rubel. (4) Marten Transport, Ltd. 1995 Stock Incentive Plan. (B) Reports on Form 8-K: None during the fourth quarter of the fiscal year ended December 31, 1996. 9 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Dated: March 31, 1997 MARTEN TRANSPORT, LTD. By /s/ Randolph L. Marten -------------------------------- Randolph L. Marten Chairman of the Board, President and Chief Operating Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below on March 31, 1997 by the following persons on behalf of the Registrant and in the capacities indicated. Signature Title /s/ Randolph L. Marten Chairman of the Board, - ---------------------------------- President, Chief Operating Randolph L. Marten Officer (Principal Executive Officer) and Director /s/ Darrell D. Rubel Executive Vice President, Chief - ---------------------------------- Financial Officer, Treasurer, Darrell D. Rubel Assistant Secretary (Principal Financial and Accounting Officer) and Director /s/ Larry B. Hagness - ---------------------------------- Director Larry B. Hagness /s/ Thomas J. Winkel - ---------------------------------- Director Thomas J. Winkel /s/ Jerry M. Bauer - ---------------------------------- Director Jerry M. Bauer 10 MARTEN TRANSPORT, LTD. EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
ITEM NO. ITEM METHOD OF FILING 3.1 Certificate of Incorporation of the Company . . . . . . Incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-8 (File No. 33-75648). 3.2 Bylaws of the Company . . . . . . . . . . . . . . . . . Incorporated by reference to Exhibit 4.2 to the Company's Registration Statement on Form S-8 (File No. 33-75648). 4.1 Specimen form of the Company's Common Stock Certificate . . . . . . . . . . . . . . . Incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-1 (File No. 33-8108). 4.2 Certificate of Incorporation of the Company . . . . . . See Exhibit 3.1 4.3 Bylaws of the Company . . . . . . . . . . . . . . . . . See Exhibit 3.2 9.1 Voting Trust Agreement dated February 14, 1983, as amended . . . . . . . . . . . . . . . . . . . Incorporated by reference to Exhibit 9.1 to the Company's Registration Statement on Form S-1 (File No. 33-8108). 9.2 Agreement regarding Voting Trust Agreement, dated May 4, 1993 . . . . . . . . . . . . . Incorporated by reference to Exhibit 19.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993 (File No. 0-15010). 10.1 Marten Transport, Ltd. 1986 Incentive Stock Option Plan, as amended . . . . . . . . . . . . . Incorporated by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1986 (File No. 0-15010). 10.2 Marten Transport, Ltd. 1986 Non-Statutory Stock Option Plan, as amended . . . . . . . . . . . . . Incorporated by reference to Exhibit 10.2 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1987 (File No. 0-15010). 11 10.3 Real Estate Lease dated November 29, 1994 between the Company, as Lessee, and R & R Properties and Randolph L. Marten, as Lessor . . . Incorporated by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 (File No. 0-15010). 10.4 Stock Restriction Agreement among Roger R. Marten, Randolph L. Marten and Darrell D. Rubel . . . . . . . . . . . . . . . . . . Incorporated by reference to Exhibit 10.5 to the Company's Registration Statement on Form S-1 (File No. 33-8108). 10.5 Agreement on Credit Terms dated as of January 5, 1990 between the Company and First Bank National Association . . . . . . . . . . Incorporated by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989 (File No. 0-15010). 10.6 Amendment to Agreement on Credit Terms dated as of July 31, 1990 between the Company and First Bank National Association . . . . . . Incorporated by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990 (File No. 0-15010). 10.7 Lease Agreement and Supplement No. 1 to Lease Agreement dated April 1, 1990 between the Company and Barclays Leasing, Inc. . . . . . Incorporated by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990 (File No. 0-15010). 10.8 Lease Agreement dated September 12, 1990 between the Company and Truck Country of WI, Inc. . . . Incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1991 (File No. 0-15010). 10.9 Security Agreement dated January 12, 1990, as amended, between the Company and First Bank National Association . . . . . . . . . . Incorporated by reference to Exhibit 10.15 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992 (File No. 0-15010). 12 10.10 Second Amendment to Agreement on Credit Terms dated May 31, 1991 between the Company and First Bank National Association. . . . . . . . . . . . . . . Incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992 (File No. 0-15010). 10.11 Amendment No. 3 to Agreement on Credit Terms dated May 17, 1993 between the Company and First Bank National Association . . . . . . . . . . . . Incorporated by reference to Exhibit 19.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993 (File No. 0-15010). 10.12 Employment Agreement dated May 1, 1993 between the Company and Darrell D. Rubel. . . . . . Incorporated by reference to Exhibit 19.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993 (File No. 0-15010) 10.13 Stock Redemption Agreement dated June 21, 1994 between the Company and Darrell D. Rubel, as Personal Representative of the Estate of Roger R. Marten . . . . Incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 (File No. 0-15010). 10.14 Marten Transport, Ltd. 1995 Stock Incentive Plan . . . . Incorporated by reference to Exhibit 10.18 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 (File No. 0-15010). 13.1 1996 Annual Report to Shareholders-pages 10-21. . . . . Filed herewith. 23.1 Consent of Arthur Andersen LLP. . . . . . . . . . . . . Filed herewith. 27.1 Financial Data Schedule . . . . . . . . . . . . . . . . Filed herewith.
13 EX-13.1 2 EXHIBIT 13.1 FIVE-YEAR FINANCIAL SUMMARY
Years ended December 31, (IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS) 1996 1995 1994 1993 1992 ----------------------------------------------------------------- FOR THE YEAR Operating revenue . . . . . . . . . . . . . . . . $ 146,151 $ 137,704 $ 122,730 $ 112,180 $ 98,194 Operating income. . . . . . . . . . . . . . . . . 6,160 11,378 13,015 11,359 7,678 Income before extraordinary item. . . . . . . . . 1,630 5,009 6,375 5,462 3,434 Net income. . . . . . . . . . . . . . . . . . . . 1,630 5,009 6,375 6,345(1) 3,434 PER-SHARE DATA Income before extraordinary item. . . . . . . . . $ .55 $ 1.69 $ 2.00 $ 1.58 $ 1.00 Net income. . . . . . . . . . . . . . . . . . . . .55 1.69 2.00 1.84(1) 1.00 AT YEAR END Total assets. . . . . . . . . . . . . . . . . . . $ 138,135 $ 123,141 $ 105,648 $ 96,776 $ 81,434 Long-term obligations . . . . . . . . . . . . . . 33,505 27,079 24,917 21,117 20,523 Shareholders' investment. . . . . . . . . . . . . 40,044 38,242 33,104 34,729 28,384
(1) Includes extraordinary item, proceeds of $883,000 ($.26 per share) from life insurance policy on Roger Marten, founder of Marten Transport. 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations. Operating revenue for the year ended December 31, 1996, increased 6 percent over 1995, compared with increases of 12 percent in 1995 and 9 percent in 1994. These increases were the result of transporting additional freight associated with additions to the company's fleet each of the last three years. Operating revenue in 1996 was adversely impacted by lower average freight rates and reduced equipment utilization, which the company attributes to increased competition in the protective service sector. Freight rates increased slightly in 1995 and 1994, while equipment utilization, measured by miles per tractor, declined in 1995 and 1994. Additionally, fuel surcharges were in effect during most of 1996, partially offsetting an increase in the cost of diesel fuel. Fuel surcharges, which totaled $1.4 million in 1996, were not in place during 1995 or 1994. Management expects operating revenue in 1997 to exceed 1996 levels due to planned additions to the company's fleet. Operating expenses for 1996 represented 95.8 percent of operating revenue, compared with 91.7 percent in 1995 and 89.4 percent in 1994. Reduced equipment utilization was the primary reason for the increase in this ratio during the last three years, while lower freight rates were a factor during 1996. Operating expenses increased 11 percent in 1996, 15 percent in 1995 and 9 percent in 1994. Most expense categories increased during the three years ended December 31, 1996, due to the transportation of additional freight and expansion of Marten's fleet. Purchased transportation expense also increased during this three-year period due to a higher number of independent contractor-owned vehicles. Independent contractors assume responsibility for their own salaries, wages and benefits expense, as well as their own fuel and fuel tax expense. Accordingly, the company's expenses in these categories were reduced relative to revenue. The average price of diesel fuel increased significantly during 1996, as compared with relatively stable prices in the previous two years. Insurance and claims expense as a percentage of revenue declined slightly during the last three years, representing 4.7 percent of revenue in 1996, 4.8 percent in 1995 and 5.0 percent in 1994. These decreases were the result of favorable accident experience combined with adequate loss reserves. Depreciation expense has increased in the last three years due to additions to the company's fleet. Depreciation expense in 1995 was partially offset by a $290,000 expense reduction resulting from a change in the estimated useful life of the company's satellite tracking equipment. In 1994, Marten changed the estimated salvage value of other revenue equipment in response to a change in the market value realized for used equipment and the resulting gains on the disposition of revenue equipment. This adjustment decreased 1994 depreciation expense by $554,000. Management anticipates that 1997 operating expenses as a percentage of revenue will remain at or below current levels. Interest expense as a percentage of revenue increased to 2.5 percent of revenue in 1996, compared with 2.3 percent in 1995 and 2.1 percent in 1994. These increases were the result of additional long-term debt associated with new equipment purchases. Additionally, the company incurred long-term debt to repurchase 500,000 shares of its common stock in 1994. Interest expense in 1997 is expected to remain at current levels. The company's effective tax rate was 40 percent for the last three years. Management expects that the effective tax rate will remain at 40 percent during 1997. Inflation can be expected to affect most of the company's operating expenses. The impact of inflation, however, was minimal during the three years ended December 31, 1996. Capital Resources and Liquidity. Marten continued to replace and expand its fleet with new, more efficient revenue equipment during the last three years. In addition, the company purchased a maintenance facility in Oregon for approximately $1.6 million in 1995. In 1994, the company repurchased 500,000 shares of its common stock for $8 million. These expenditures were funded using cash flow from operations and long-term debt collateralized by the company's revenue equipment. Long-term debt at December 31, 1996, increased $8.6 million from December 31, 1995, compared with an increase of $5.1 million in 1995. Marten has committed to purchase an additional $19 million of new revenue equipment, net of trade-in allowances, in 1997. Management expects to fund these acquisitions with additional long-term debt and cash flow from operations. The company's working capital deficit at December 31, 1996, increased to $12.4 million, compared with $10.8 million at December 31, 1995. This increase was due primarily to additional insurance and claims reserves, as well as an increase in long-term debt causing current maturities to increase. The company has historically operated with a working capital deficit caused primarily by current maturities of long-term debt associated with revenue equipment purchases. Marten's operating profits, short turnover in accounts receivable and cash management practices have adequately funded working capital needs. Short-term borrowings have not been and are not expected to be used to meet working capital requirements. Management believes the company's liquidity is adequate to meet expected near-term operating requirements. Seasonality. Historically, the trucking industry has experienced seasonal fluctuations in revenue and expenses. Marten experiences revenue declines after the winter holiday season as customers reduce shipments. Operating expenses temporarily increase in the winter due to reduced fuel efficiency and additional maintenance costs. MARTEN TRANSPORT 1996 ANNUAL REPORT 11 BALANCE SHEETS
December 31, (IN THOUSANDS, EXCEPT SHARE INFORMATION) 1996 1995 --------------------------- ASSETS Current assets: Cash and cash equivalents (Notes 1 and 7)...................... $ 3,028 $ 3,330 Receivables: Trade, less allowances of $558 and $438...................... 14,987 13,718 Other........................................................ 4,446 3,745 Prepaid expenses (Note 1)....................................... 6,339 5,949 Deferred income taxes (Note 5).................................. 3,456 2,766 -------------------------- Total current assets...................................... 32,256 29,508 -------------------------- PROPERTY AND EQUIPMENT (Notes 1, 2, 3 and 4): Revenue equipment............................................... 131,248 123,722 Building and land............................................... 4,955 4,934 Office equipment and other...................................... 4,621 4,238 Less accumulated depreciation and amortization.................. (34,945) (39,261) -------------------------- Net property and equipment............................... 105,879 93,633 -------------------------- $ 138,135 $123,141 -------------------------- -------------------------- LIABILITIES AND SHAREHOLDERS' INVESTMENT Current liabilities: Accounts payable................................................ $ 3,822 $ 3,225 Insurance and claims accruals (Note 1).......................... 13,558 11,794 Accrued liabilities............................................. 7,202 7,412 Current maturities of long-term debt (Notes 2 and 7)............ 20,100 17,914 -------------------------- Total current liabilities................................. 44,682 40,345 LONG-TERM DEBT, less current maturities (Notes 2 and 7)........... 33,505 27,079 DEFERRED INCOME TAXES (Note 5).................................... 19,904 17,475 -------------------------- Total liabilities........................................ 98,091 84,899 -------------------------- COMMITMENTS (Notes 1, 3 and 9) SHAREHOLDERS' INVESTMENT (Notes 1, 4 and 6): Common stock, $.01 par value per share, 10,000,000 shares authorized, 2,959,616 and 2,941,616 shares issued and outstanding........................................ 30 29 Additional paid-in capital...................................... 9,581 9,410 Retained earnings............................................... 30,433 28,803 -------------------------- Total shareholders' investment........................... 40,044 38,242 -------------------------- $ 138,135 $ 123,141 -------------------------- --------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE BALANCE SHEETS. 12 STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------- (IN THOUSANDS, EXCEPT SHARE INFORMATION) 1996 1995 1994 ---------------------------------- OPERATING REVENUE............................................................ $ 146,151 $ 137,704 $ 122,730 ---------------------------------- OPERATING EXPENSES: Salaries, wages and benefits............................................... 50,222 50,040 44,900 Purchased transportation................................................... 20,073 10,402 5,431 Fuel and fuel taxes........................................................ 25,997 24,332 22,462 Supplies and maintenance................................................... 14,166 14,042 11,826 Depreciation and amortization.............................................. 16,015 14,458 12,660 Operating taxes and licenses............................................... 3,376 3,192 2,781 Insurance and claims....................................................... 6,800 6,550 6,081 Communications and utilities............................................... 1,689 1,650 1,550 Gain on disposition of revenue equipment................................... (2,580) (2,927) (2,220) Other...................................................................... 4,233 4,587 4,244 ---------------------------------- 139,991 126,326 109,715 ---------------------------------- OPERATING INCOME............................................................. 6,160 11,378 13,015 ---------------------------------- OTHER EXPENSES (INCOME): Interest expense........................................................... 3,575 3,219 2,516 Interest income and other.................................................. (131) (189) (126) ---------------------------------- 3,444 3,030 2,390 ---------------------------------- INCOME BEFORE INCOME TAXES................................................... 2,716 8,348 10,625 PROVISION FOR INCOME TAXES (Note 5).......................................... 1,086 3,339 4,250 ---------------------------------- NET INCOME................................................................. $ 1,630 $ 5,009 $ 6,375 ---------------------------------- ---------------------------------- NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE............................ $ .55 $ 1.69 $ 2.00 ---------------------------------- ----------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS. STATEMENTS OF CHANGES IN SHAREHOLDERS' INVESTMENT
ADDITIONAL COMMON STOCK PAID-IN RETAINED (IN THOUSANDS, EXCEPT SHARE INFORMATION) SHARES AMOUNT CAPITAL EARNINGS TOTAL ------------------------------------------------------------ Balance at December 31, 1993......................... 3,429,950 $ 34 $ 10,865 $ 23,830 $ 34,729 Net income......................................... -- -- -- 6,375 6,375 Repurchase of common stock (Note 4)................ (500,000) (5) (1,584) (6,411) (8,000) ------------------------------------------------------------ Balance at December 31, 1994......................... 2,929,950 $ 29 $ 9,281 $ 23,794 $ 33,104 Net income......................................... -- -- -- 5,009 5,009 Issuance of common stock........................... 11,666 -- 129 -- 129 ------------------------------------------------------------ Balance at December 31, 1995......................... 2,941,616 $ 29 $ 9,410 $ 28,803 $ 38,242 Net income......................................... -- -- -- 1,630 1,630 Issuance of common stock........................... 18,000 1 171 -- 172 ------------------------------------------------------------ Balance at December 31, 1996......................... 2,959,616 $ 30 $ 9,581 $ 30,433 $ 40,044 ------------------------------------------------------------ ------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS. MARTEN TRANSPORT 1996 ANNUAL REPORT 13 STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, (IN THOUSANDS) 1996 1995 1994 -------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Operations: Net income...................................................................... $ 1,630 $ 5,009 $ 6,375 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization................................................. 16,015 14,458 12,660 Gain on disposition of revenue equipment...................................... (2,580) (2,927) (2,220) Deferred tax provision........................................................ 1,739 3,153 3,325 Changes in other current operating items: Receivables................................................................. (1,970) (966) (1,284) Prepaid expenses............................................................ (390) (892) (306) Accounts payable............................................................ 597 119 480 Other current liabilities................................................... 1,554 3,464 2,732 -------------------------------- Net cash provided by operating activities................................. 16,595 21,418 21,762 -------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Revenue equipment additions....................................................... (42,875) (37,320) (27,168) Revenue equipment dispositions.................................................... 17,706 13,309 8,435 Building and land, office equipment and other additions, net...................... (512) (2,448) (849) -------------------------------- Net cash used for investing activities.................................... (25,681) (26,459) (19,582) -------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock.......................................................... 172 129 -- Common stock repurchased.......................................................... -- -- (8,000) Long-term borrowings.............................................................. 30,112 22,559 21,139 Repayment of long-term borrowings................................................. (21,500) (17,446) (17,529) -------------------------------- Net cash provided by (used for) financing activities...................... 8,784 5,242 (4,390) -------------------------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................................. (302) 201 (2,210) CASH AND CASH EQUIVALENTS: Beginning of year................................................................. 3,330 3,129 5,339 -------------------------------- End of year....................................................................... $ 3,028 $ 3,330 $ 3,129 -------------------------------- CASH PAID (RECEIVED) FOR: Interest.......................................................................... $ 3,585 $ 3,144 $ 2,552 -------------------------------- -------------------------------- Income taxes...................................................................... $ (446) $ (135) $ 820 -------------------------------- --------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS. 14 NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS: Marten Transport, Ltd. (the company) is a long-haul truckload carrier providing protective service transportation of time- and temperature-sensitive materials and general commodities pursuant to operating authority, both contract and common, granted by the Interstate Commerce Commission (ICC). Effective January 1, 1996, the ICC was abolished and its regulatory authority was transferred to the United States Department of Transportation and the Federal Highway Administration. The company derived approximately 13 percent of its revenue from a single customer in 1996, 11 percent in 1995 and 12 percent in 1994. CASH EQUIVALENTS: The company invests available funds in short-term cash equivalents, principally mutual funds containing U.S. government-backed securities which have an original maturity of three months or less. These investments are stated at cost, which approximates market value. PREPAID EXPENSES: As of December 31, prepaid expenses consisted of the following: (IN THOUSANDS) 1996 1995 ----------------------- Tires in service............. $ 1,809 $ 1,708 License fees................. 1,796 1,912 Parts and tires inventory.... 1,788 1,457 Insurance.................... 252 232 Other........................ 694 640 --------------------- $ 6,339 $ 5,949 --------------------- --------------------- PROPERTY AND EQUIPMENT: Additions and improvements to property and equipment are capitalized at cost, while maintenance and repair expenditures are charged to operations as incurred. Gains and losses on revenue equipment dispositions are included in operations. A facility is leased from an entity owned by the company's chairman of the board (see Notes 3 and 4). Depreciation is computed based on the cost of the asset, reduced by its estimated salvage value, using the straight-line method for financial reporting purposes and accelerated methods for income tax reporting purposes. Following is a summary of estimated useful lives: Years Revenue equipment: ----- Tractors................................ 5 Trailers................................ 7 Satellite tracking...................... 7 Building..................................... 20 Office equipment and other................... 3-15 ---- The company changed the estimated useful life of satellite tracking equipment as of July 1, 1995. The change resulted in a decrease in depreciation expense of $290,000 and an increase in net income of $174,000, or $.06 per share, in 1995. The company changed the estimated salvage value of certain revenue equipment effective January 1, 1994, to reflect a change in the market value realized for used equipment. The change resulted in a decrease in depreciation expense of $554,000 and an increase in net income of $333,000, or $.10 per share, in 1994. TIRES IN SERVICE: The cost of original equipment and replacement tires placed in service is capitalized. Amortization is computed based on cost, less estimated salvage value, using the straight-line method over a period of 24 months. The current portion of tires in service is included in prepaid expenses in the accompanying balance sheets. The cost of tires amortized beyond one year, along with the estimated salvage value of tires in service, are included in revenue equipment in the accompanying balance sheets. The cost of recapping tires is charged to expense as incurred. INSURANCE AND CLAIMS: The company self-insures for property damage and cargo and self-insures, in part, for losses related to workers' compensation claims, auto liability, general liability and employees' group health benefits. Insurance coverage is maintained for per-incident and cumulative liability losses in amounts the company considers sufficient based upon ongoing review and historical experience. The company provides currently for estimated self-insured and partially self-insured losses. Under arrangements with its insurance carriers and regulatory authorities, the company has arranged for approximately $4.9 million in letters of credit to guarantee settlement of claims. REVENUE RECOGNITION: The company recognizes revenue and related expenses on the date shipment of freight is completed. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE: Earnings per share have been computed based on the weighted average number of shares outstanding during each period as adjusted for the effect of the issuance of stock options to certain employees and directors. Weighted average common and common equivalent shares outstanding were 2,964,685 in 1996, 2,964,947 in 1995 and 3,192,140 in 1994. USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. These estimates are primarily related to insurance and claims accruals and depreciation. Actual results could differ from those estimates. MARTEN TRANSPORT 1996 ANNUAL REPORT 15 2. LONG-TERM DEBT Long-term debt consists of notes payable collateralized by specific revenue equipment. The notes are payable in monthly principal and interest installments. Interest rates range from 6 percent to 9.1 percent. The debt agreements contain various restrictive covenants which, among other matters, require the company to maintain certain financial ratios. The company was in compliance with all debt covenants at December 31, 1996. Maturities of long-term debt at December 31, 1996, are as follows: (IN THOUSANDS) Amount ------ 1997................... $20,100 1998................... 17,326 1999................... 11,716 2000................... 4,463 ------- $53,605 ------- ------- 3. LEASES The company acquired certain revenue equipment in 1990 under the terms of capital leases which were included within long-term debt and capital leases. Payments made under these leases amounted to $1,382,000 in 1994. The payments made in 1994 satisfied remaining capital lease obligations. The company leases facilities and office equipment under operating leases with terms ranging from one to five years (see Note 4). Under most of these arrangements, the company pays maintenance and other expenses related to the leased property. Minimum future obligations under operating leases in effect at December 31, 1996, are as follows: (IN THOUSANDS) Amount ------ 1997.................. $ 256 1998.................. 221 1999.................. 141 ----- $ 618 ----- ----- Lease-related expenses were as follows: (IN THOUSANDS) 1996 1995 1994 -------------------------- Operating lease rentals.......... $ 336 $ 458 $ 436 Capital lease amortization....... - - 81 Capital lease interest expense... - - 20 -------------------------- 4. RELATED PARTY TRANSACTIONS During the three years ended December 31, 1996, the company engaged in the following related party transactions: (a) The company repurchased 500,000 shares of its common stock from the estate of its former chairman and chief executive officer, Roger R. Marten, in 1994 for $16 per share. (b) The company leases an office and terminal facility under a non-cancelable operating lease with an entity owned by its chairman of the board and previously with a partnership in which its current and former chairmen of the board were partners. Total rental expense charged to operations relating to this lease was $126,000 during 1996, $126,000 during 1995 and $175,000 during 1994. Future minimum rental payments under the lease are $126,000 per year from 1997 through 1999. (c) During the three years ended December 31, 1996, the company has maintained checking, savings and investment accounts at banks controlled by its former chairman of the board and a shareholder/officer of the company. 5. INCOME TAXES The company utilizes the liability method of accounting for income taxes whereby deferred taxes are determined based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities given the provisions of enacted tax laws. The components of the provision for income taxes consisted of the following: (IN THOUSANDS) 1996 1995 1994 --------------------------- Current: Federal............... $ (623) $ 150 $ 765 State................. (30) 36 160 --------------------------- (653) 186 925 --------------------------- Deferred: Federal............... 1,526 2,552 2,708 State................. 213 601 617 --------------------------- 1,739 3,153 3,325 --------------------------- Total provision....... $1,086 $3,339 $4,250 --------------------------- --------------------------- The statutory federal income tax rate is reconciled to the effective income tax rate as follows:
1996 1995 1994 ---- ---- ---- Statutory federal income tax rate........................... 34% 34% 34% Increase in taxes arising from: State income taxes, net of federal income tax benefit....... 5 5 4 Permanent differences....................................... -- -- 2 Other, net.................................................. 1 1 -- --------------------- Effective tax rate.......................................... 40% 40% 40% --------------------- ---------------------
16 As of December 31, the net deferred tax liability consisted of the following:
(IN THOUSANDS) 1996 1995 ---------------------- Deferred tax assets: Reserves and accrued liabilities for financial reporting in excess of tax.............................. $ 6,111 $ 5,404 State income tax deduction for financial reporting in excess of tax........................................ 965 879 Alternative minimum tax credit........................... 223 41 State net operating loss carryforwards................... 73 -- --------- --------- 7,372 6,324 --------- --------- Deferred tax liabilities: Tax depreciation in excess of depreciation for financial reporting............................................... 21,166 18,354 Prepaid tires, licenses and use tax expensed for income tax purposes and capitalized for financial reporting.... 2,449 2,505 Other..................................................... 205 174 --------- --------- 23,820 21,033 --------- --------- Net deferred tax liability........................... $ 16,448 $ 14,709 --------- --------- --------- ---------
The company has available state net operating loss carryforwards of approximately $1 million as of December 31, 1996, expiring in the years 1999 through 2011. 6. SHAREHOLDERS' INVESTMENT Under the company's Stock Incentive Plan adopted in 1995, officers, directors and key employees may be granted incentive stock options at prices not less than the fair market value on the date of grant and non-statutory stock options at prices not less than 85 percent of the fair market value on the date the option is granted. Incentive stock options expire within 10 years after the date of grant. The Stock Incentive Plan also provides for the issuance of stock appreciation rights, restricted stock awards, performance units and stock bonuses, none of which have been awarded as of December 31, 1996. The maximum number of shares of common stock available for issuance under the Stock Incentive Plan is 500,000 shares. The company adopted in 1986 an Incentive Stock Option Plan and a Non-Statutory Stock Option Plan providing for the grant of options to purchase, at prices not less than the fair market value on the date of grant, up to an aggregate of 250,000 shares of common stock to officers, directors and key employees. Options under the Incentive Stock Option Plan expire within 10 years after the date of grant while options under the Non-Statutory Stock Option Plan expire within 10 years and one month after the date of grant. The company accounts for these plans under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," under which no compensation cost has been recognized. Had compensation cost for these plans been determined consistent with Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (Statement No. 123), the company's net income and earnings per share would have been reduced to the following pro forma amounts:
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS) 1996 1995 -------------------- Net income: As reported................................. $ 1,630 $ 5,009 Pro forma................................... 1,481 4,888 Net income per share: As reported................................. .55 1.69 Pro forma................................... .50 1.65
Because the Statement No. 123 method of accounting has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. As of December 31, stock option activity under the company's plans discussed earlier was as follows:
1996 1995 1994 -------------------------------------------------------------------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE -------------------------------------------------------------------------------- Outstanding, beginning of year........................ 198,000 $17.32 89,666 $11.13 67,666 $ 8.30 Granted....................... -- -- 155,000 20.50 25,000 17.90 Exercised..................... (18,000) 7.85 (11,666) 6.25 (3,000) 3.75 Forfeited..................... -- -- (35,000) 19.21 -- -- ------------------------------------------------------------------------------- Outstanding, end of year...... 180,000 18.27 198,000 17.32 89,666 11.13 ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- Exercisable, end of year...... 62,666 14.90 44,333 9.02 43,666 7.78 ------------------------------------------------------------------------------- -------------------------------------------------------------------------------
The weighted-average fair value of options granted during 1995 was $9.17 per share. The fair value was estimated as of the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: risk-free interest rate of 7.22 percent; expected option life of seven years; expected stock price volatility of 28.5 percent; and no expected dividend payments. The following table summarizes information regarding stock options outstanding and exercisable at December 31, 1996:
Range of Exercise Price --------------------------------------------- $6.75 to $7.00 $13.25 $18.50 to $20.50 Options outstanding: Number of shares..................... 20,000 15,000 145,000 Weighted-average remaining contractual life.................... 4.8 years 6.4 years 8.1 years Weighted-average exercise price...... $6.88 $13.25 $20.36 Options exercisable: Number of shares..................... 20,000 9,000 33,666 Weighted-average exercise price...... $6.88 $13.25 $20.10 ----------------------------------------------
MARTEN TRANSPORT 1996 ANNUAL REPORT 17 An Employee Stock Purchase Plan and an Independent Contractor Stock Purchase Plan (the Purchase Plans) were adopted in 1995 as a means to encourage employee and independent contractor ownership of company common stock. Eligible participants designate the amount of regular payroll or contract payment deductions and voluntary cash contributions that are used to purchase shares of the company's common stock at the market price on the open market. The broker's commissions and administrative charges related to purchases of common stock under the Purchase Plans are paid by the company. The company repurchased 500,000 shares of its common stock on June 21, 1994, for $16 per share (see Note 4). The shares have been retired, reducing shareholders' investment by $8 million. The company repurchased, at fair market value, 3,000 shares of stock issued in 1994 upon exercise of the options noted above. 7. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments: CASH AND CASH EQUIVALENTS: The carrying amount approximates fair value due to the short maturity of these instruments. LONG-TERM DEBT: The fair value of the company's long-term debt is estimated to be $53,234,000 at December 31, 1996, and $45,266,000 at December 31, 1995, using discounted cash flow analysis, based on the company's current incremental borrowing rates for similar arrangements. 8. RETIREMENT SAVINGS PLAN The company sponsors a defined contribution retirement savings plan, in accordance with Section 401(k) of the Internal Revenue Code, covering all employees who meet a minimum service requirement. Each participant can make contributions of up to 15 percent of compensation. The company's contribution of 25 percent of each participant's contribution to the plan for up to 4 percent of compensation vests at the rate of 20 percent per year from the second through sixth years of service. In addition, the company may make elective contributions which are determined by resolution of the board of directors. No elective contributions were made in 1996, 1995 or 1994. Total expense recorded in connection with the plan was $192,000 in 1996, $182,000 in 1995 and $167,000 in 1994. 9. COMMITMENTS The company has commitments to purchase approximately $19 million of additional revenue equipment, net of trade-in allowances, in 1997. 18 10. QUARTERLY FINANCIAL DATA (UNAUDITED) The following is a summary of the quarterly results of operations for 1996 and 1995:
1996 QUARTERS (IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS) FIRST SECOND THIRD FOURTH TOTAL -------------------------------------------------------------- Operating revenue............. $ 34,609 $ 35,979 $ 37,593 $ 37,970 $ 146,151 Operating income.............. 1,322 1,362 2,309 1,167 6,160 Net income.................... 301 312 858 159 1,630 Net income per share.......... .10 .11 .29 .05 .55 -------------------------------------------------------------- 1995 Quarters (IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS) First Second Third Fourth Total -------------------------------------------------------------- Operating revenue............. $ 31,961 $ 34,827 $ 35,889 $ 35,027 $ 137,704 Operating income.............. 3,310 2,683 3,023 2,362 11,378 Net income.................... 1,531 1,198 1,339 941 5,009 Net income per share.......... .52 .40 .45 .32 1.69 --------------------------------------------------------------
The company changed the estimated useful life of satellite tracking equipment as of July 1, 1995 (see Note 1). The change resulted in a decrease in depreciation expense of $144,000 and an increase in net income of $86,000, or $.03 per share, for the third quarter of 1995. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Marten Transport, Ltd.: We have audited the accompanying balance sheets of Marten Transport, Ltd. (a Delaware corporation) as of December 31, 1996 and 1995, and the related statements of operations, changes in shareholders' investment and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Marten Transport, Ltd. as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Minneapolis, Minnesota January 23, 1997 MARTEN TRANSPORT 1996 ANNUAL REPORT 19 COMMON STOCK DATA The company's quarterly stock prices, as reported by the Nasdaq National Market, were as follows: 1996 1995 Quarter HIGH LOW High Low ------------------------------------------------ First.................. $ 17 $ 15 $ 20 1/2 $ 18 1/2 Second................. 18 1/2 15 3/4 21 19 1/2 Third.................. 17 1/4 12 1/2 20 16 15/16 Fourth................. 13 3/4 11 3/4 17 1/2 15 The foregoing prices do not include adjustments for retail mark-ups, mark-downs or commissions. On December 31, 1996, there were 310 shareholders of record, as well as approximately 240 beneficial shareholders. The company has not paid any cash dividends on its common stock since it became publicly held in September 1986, and management does not anticipate cash dividend payments in the foreseeable future. 20 EXECUTIVE OFFICERS AND DIRECTORS RANDOLPH L. MARTEN Chairman of the Board, President, Chief Operating Officer and Director DARRELL D. RUBEL Executive Vice President, Chief Financial Officer, Treasurer, Assistant Secretary and Director TIMOTHY P. NASH Vice President of Sales FRANKLIN J. FOSTER Vice President of Finance ROBERT G. SMITH Vice President of Operations MARK A. KIMBALL Secretary Partner, Oppenheimer Wolff & Donnelly, Minneapolis, Minnesota LARRY B. HAGNESS Director President, Durand Builders Service, Inc., Durand, Wisconsin THOMAS J. WINKEL Director Management Consultant, Pewaukee, Wisconsin JERRY M. BAUER Director President, Bauer Built, Incorporated, Durand, Wisconsin THIS DOCUMENT IS RECYCLABLE. DESIGN: EATON & ASSOCIATES 129 Marten Street Mondovi, Wisconsin 54755 Telephone: (715) 926-4216 Fax: (715) 926-4530 www.marten.com EX-23.1 3 EXHIBIT 23.1 CONSENT OF IND. PUBLIC ACCT. CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our report dated January 23, 1997 included or incorporated by reference in this Form 10-K into Marten Transport, Ltd.'s previously filed Form S-8 dated February 23, 1994. /s/ ARTHUR ANDERSEN LLP Minneapolis, Minnesota March 28, 1997 EX-27.1 4 EXHIBIT 27.1 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE STATEMENTS OF OPERTIONS AND THE BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 3,028,000 0 19,433,000 558,000 0 32,256,000 140,824,000 34,945,000 138,135,000 44,682,000 33,505,000 0 0 30,000 40,014,000 138,135,000 146,151,000 146,151,000 0 139,991,000 0 0 3,575,000 2,716,000 1,086,000 1,630,000 0 0 0 1,630,000 0.55 0.55
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