-----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, Ps5zgC1OtR3WJ1+Bm4L2VumDCr4NPtHCbcFu0iYWgJJpSm3SCJZqaSGyk5H5I1Zd FIH/B2VGlKs8pqua2HQhNg== 0001047469-98-011145.txt : 19980325 0001047469-98-011145.hdr.sgml : 19980325 ACCESSION NUMBER: 0001047469-98-011145 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980324 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-K SEC ACT: SEC FILE NUMBER: 000-15010 FILM NUMBER: 98571723 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-K 1 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 year ended: Commission file number: DECEMBER 31, 1997 0-15010
------------------------ MARTEN TRANSPORT, LTD. (Exact name of registrant as specified in its charter) DELAWARE 39-1140809 (State of incorporation) (I.R.S. Employer Identification No.)
129 MARTEN STREET MONDOVI, WISCONSIN 54755 (Address of principal executive offices) Registrant's telephone number: (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. / / As of March 20, 1998, 4,477,645 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 closing price of the Common Stock at that date as reported by The Nasdaq Stock Market), excluding outstanding shares beneficially owned by directors and executive officers, was approximately $33,751,568. Part II of this Annual Report on Form 10-K incorporates by reference information (to the extent specific pages are referred to in this Report) from the Registrant's Annual Report to Shareholders for the year ended December 31, 1997 (the "1997 Annual Report"). Part III of this Annual Report on Form 10-K incorporates by reference information (to the extent specific sections are referred to in this Report) from the Registrant's Proxy Statement for the annual meeting to be held May 12, 1998 (the "1998 Proxy Statement"). - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- FORWARD-LOOKING INFORMATION THIS ANNUAL REPORT ON FORM 10-K CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS. ANY STATEMENTS IN THIS ANNUAL REPORT ON FORM 10-K THAT ARE NOT STATEMENTS OF HISTORICAL FACT MAY BE CONSIDERED TO BE FORWARD-LOOKING STATEMENTS. WRITTEN WORDS SUCH AS "MAY," "WILL," "EXPECT," "BELIEVE," "ANTICIPATE," "ESTIMATE" OR "CONTINUE," OR OTHER VARIATIONS OF THESE OR SIMILAR WORDS, IDENTIFY FORWARD-LOOKING STATEMENTS. THESE STATEMENTS BY THEIR NATURE INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES, AND ACTUAL RESULTS MAY DIFFER MATERIALLY, DEPENDING ON A VARIETY OF FACTORS. PART I ITEM 1. BUSINESS (a) GENERAL DEVELOPMENT OF BUSINESS. Marten Transport, Ltd. is a long-haul truckload carrier providing protective service and time- sensitive transportation. "Protective service transportation" means temperature controlled or insulated carriage of temperature-sensitive materials and general commodities. We have operating authority, both contract and common, granted by the Interstate Commerce Commission ("ICC") and are currently regulated by the United States Department of Transportation ("DOT") and the Federal Highway Administration ("FHWA"). As of December 31, 1997, we operated a fleet of 1,317 tractors and 1,835 trailers. All of our trailers are protective service trailers. As of December 31, 1997, 934 tractors and 1,832 trailers in our fleet were company-owned and 383 tractors and 3 trailers were under contract with independent contractors. As of December 31, 1997, we had 1,239 employees, including 951 drivers. Our employees are not represented by a collective bargaining unit. Organized under Wisconsin law in 1970, we are a successor to a sole proprietorship Roger R. Marten founded in 1946. In 1988, we reincorporated under Delaware law. Our executive offices are located at 129 Marten Street, Mondovi, Wisconsin 54755. Our telephone number is (715) 926-4216. (b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS. Since our inception, substantially all of our revenue, operating profits and assets have related primarily to one business segment--long-haul truckload carriage of time-and temperature-sensitive materials and general commodities. (c) NARRATIVE DESCRIPTION OF BUSINESS. We specialize in protective service transportation of foods, chemicals and other products requiring temperature-controlled carriage or insulated carriage. We also provide dry freight carriage. In 1997, we earned approximately 78% of our revenue from hauling protective service products and 22% of our revenue from hauling dry freight. Most of our dry freight loads require the special services we offer or allow us to position our equipment for hauling protective service loads. The specialized transportation services we offer include: - dependable, late-model tractors allowing timely deliveries; - late-model, temperature controlled trailers; - scheduled pickups and deliveries; - assistance in loading and unloading; - availability of extra trailers placed for customers' convenience; - sufficient equipment to respond promptly to customers' varying needs; and - an on-line computer system, which customers use to obtain information on the status of deliveries. MARKETING AND CUSTOMERS Our 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, we also solicit customers whose shipping requirements allow us to balance the number of loads originating and terminating in any given area. Our marketing strategy emphasizes service. A key element of this strategy is our strong commitment to satisfying the individualized requirements of our customers. In addition, we have developed an electronic data interchange ("EDI") system. We use this system to provide customers with current information on the status of shipments in transit. Customers also place orders, and we bill customers, electronically using this system. We also use a satellite tracking system to enhance monitoring of shipment locations. We maintain marketing offices in our Mondovi, Wisconsin headquarters, as well as in other locations throughout the United States. Marketing personnel travel in their regions to solicit new customers and maintain contact with customers. Once we establish a customer relationship, the customer's primary contact is one of our customer service managers. Working from our terminal in Mondovi, the customer service managers regularly contact customers to solicit additional business on a load-by-load basis. Each customer service manager is assigned to particular customers and takes responsibility for monitoring overall transportation, service requirements and shipments for each customer. These efforts to coordinate shipper needs with equipment availability have been instrumental in maintaining an average empty mile rate of 6.6% in 1997. We set our own freight rates instead of using those published by tariff publishing bureaus. This allows us to offer rates that are more responsive to market conditions and the level of service required by a particular customer. We have designed our rate structure to compensate us for the cost of protective service revenue equipment as well as for hauling loads into areas generating empty miles. A single customer, The Pillsbury Company, accounted for approximately 13% of our revenue in 1997, 13% of our revenue in 1996 and 11% of our revenue in 1995. OPERATIONS Our operations are designed to efficiently use our equipment while emphasizing individualized service to customers. Our EDI system provides real-time and on-line shipment tracking information, increases equipment utilization and assists management in long-range planning and trend analysis. 2 We maintain our dispatch operations in our Mondovi, Wisconsin headquarters. We assign customer service managers to particular customers and regions. Customer service managers work closely with our fleet managers, marketing personnel and drivers. Customer service managers also coordinate with our marketing personnel to match customer needs with our capacity and location of revenue equipment. Fleet managers, who are assigned a group of drivers regardless of load destination, dispatch loads. After dispatching a load, a fleet manager takes responsibility for its proper and efficient delivery and tracks the status of that load through daily contact with drivers. During these daily contacts, fleet managers and drivers discuss the driver's location, load temperature and any problems. We constantly update this information, along with information concerning available loads, on our EDI computer system. We use this computer-generated information to meet delivery schedules, respond to customer inquiries and match available equipment with loads. Our primary traffic lanes are between the Midwest and the following regions: West Coast, Pacific Northwest, Southwest, Southeast and East Coast; and from California to the Pacific Northwest. The average length of a trip (one-way) was 1,092 miles during 1997, 1,095 miles during 1996 and 1,145 miles during 1995. Our loads generally move directly from origin to destination, which eliminates the need for freight terminals. We operate maintenance facilities in Mondovi, Wisconsin; Ontario, California; Wilsonville, Oregon; and Jonesboro, Georgia. We have agreements with various fuel distributors. These agreements allow our drivers to purchase fuel at a discount while in transit. We also purchase fuel in bulk in Mondovi and at our maintenance facilities. We have commitments to purchase approximately $800,000 of fuel at a fixed price through mid-1998. DRIVERS As of December 31, 1997, we employed 951 drivers and had contracts with independent contractors for the services of 383 tractors. Independent contractors provide both a tractor and a qualified driver for our use. We recruit drivers from throughout the United States. The ratio of drivers to tractors as of December 31, 1997, was approximately 1 to 1. Our drivers are not represented by a collective bargaining unit. Our turnover of drivers was approximately 73% in 1997. Based on industry surveys, we believe our driver turnover rate is in line with the industry. We select drivers, including independent contractors, using our specific guidelines for safety records, driving experience and personal evaluations. We maintain stringent screening, training and testing procedures for our drivers to reduce the potential for accidents and the corresponding costs of insurance and claims. We train new drivers at our Wisconsin terminal in all phases of our policies and operations, as well as in safety techniques and fuel-efficient operation of the equipment. All new drivers must also pass a road test prior to assignment to a vehicle. We maintain a toll-free number, satellite tracking and a staff of fleet managers to communicate and support drivers while on the road for extended periods. To retain qualified drivers and promote safe operations, we purchase premium quality tractors and equip them with optional comfort and safety features. These features include air ride suspension on the chassis and cab, air conditioning, high-quality interiors, power steering, engine brakes and double sleeper cabs. We pay company-employed drivers a fixed rate per mile. The rate increases based on length of service. Drivers are also eligible for bonuses based upon safe, efficient driving. We believe that our compensation program provides an important incentive to attract and retain qualified drivers. Drivers that have been with us for at least six months are also eligible to purchase shares of our Common Stock under a stock purchase plan we sponsor. We pay the brokerage commissions on purchases and the plan's administrative costs. 3 We pay independent contractors either a fixed rate per mile or a percentage of revenue from loads hauled. Independent contractors pay for their own fuel, insurance, maintenance and repairs. Independent contractors that have been under contract with us for at least six months are also eligible to purchase shares of our Common Stock under a stock purchase plan we sponsor. We pay the brokerage commissions on purchases and the plan's administrative costs. REVENUE EQUIPMENT The trucking industry requires significant capital investment in revenue equipment. We finance a portion of our revenue equipment purchases using long-term debt with significant current maturities, causing a working capital deficit. We have operated effectively with a working capital deficit due to our operating profits, short turnover in accounts receivable and cash management. We purchase tractors and trailers manufactured to our specifications. Freightliner, Kenworth or Peterbilt manufacture our tractors. Most of our tractors are equipped with 370/430 horsepower Detroit Diesel or Cummins engines. These engines enable the equipment to maintain constant speed with optimum fuel economy under conditions often encountered by our equipment, such as mountainous terrain and maximum weight loads. Utility, Great Dane or Wabash manufacture most of our single van trailers. Most of our trailers are equipped with Thermo-King cooling and heating equipment. Our single van refrigerated trailers are either 53 feet long (974 trailers) or 48 feet long (858 trailers). All our trailers are 102 inches wide and have at least 102 inches of inside height. The current cost of a temperature-controlled, protective service trailer is approximately $40,000. We standardize equipment to simplify driver training, control the cost of spare parts inventory, enhance our preventive maintenance program and increase fuel economy. The following table shows the type and age of equipment we own as of December 31, 1997:
Model Year Tractors Single Van Trailers ---------- -------- ------------------- 1998 114 193 1997 230 377 1996 340 472 1995 218 261 1994 31 238 1993 - 246 1992 1 44 1990 - 1 --- --- Total 934 1,832 --- ----- --- -----
We replace our tractors and trailers based on factors such as age, the market for used equipment and improvements in technology and fuel efficiency. We have a comprehensive maintenance program for our company-owned tractors and trailers to minimize equipment downtime and enhance resale or trade-in value. We regularly perform inspections, repairs and maintenance at our facilities in Mondovi, Wisconsin; Ontario, California; Jonesboro, Georgia; and Wilsonville, Oregon, and at independent contract maintenance facilities. EMPLOYEES As of December 31, 1997, we employed 1,239 people. This total consists of 951 drivers, 104 mechanics and maintenance personnel, along with 184 support personnel. Support personnel includes 4 management and administration. Our employees are not represented by a collective bargaining unit. We consider relations with our employees to be good. COMPETITION The trucking industry is highly competitive. Our primary competitors are other protective service truckload carriers and private carriage fleets. For freight not requiring protective service trailers, our competitors also include dry freight truckload carriers and railroads. To compete, we rely primarily on our quality of service and our ability to provide protective service and other specialized services. We have substantially less financial resources, own less equipment and carry less freight than several other truckload carriers offering protective service. REGULATION We are a motor common and contract carrier. The DOT and the FHWA, along with various state agencies, regulate our operations. 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 allowed applicants to obtain ICC operating authority more easily and allowed interstate motor carriers to change their rates without ICC approval. The law also removed many route and commodity restrictions. 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 the DOT's safety requirements governing interstate operations. Matters such as weight and dimensions of equipment are also regulated by federal and state authorities. We also have operating authority between the United States and the Canadian Provinces of Alberta, British Columbia, Manitoba, Ontario, Quebec and Saskatchewan. ITEM 2. PROPERTIES Our executive offices and principal terminal are located on approximately seven acres in Mondovi, Wisconsin. This facility consists of approximately 28,000 square feet of office space and approximately 21,000 square feet of equipment repair and maintenance space. Originally constructed in 1965, these facilities were expanded in 1971, 1980, 1987 and 1993. We maintain a maintenance facility in Ontario, California. We purchased this facility in 1997 for $1.5 million from R & R Properties, a sole-proprietorship owned by Randolph L. Marten. From 1985 through 1997, we leased this facility from R & R Properties. Total rental expense for this lease was $126,000 per year during 1995 through 1997. This facility includes approximately 2,700 square feet of office space, 8,000 square feet of equipment repair and maintenance space and a parking lot of 150,000 square feet. We purchased a maintenance facility in Jonesboro, Georgia in 1993. The building at this facility is 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. 5 We purchased a maintenance facility in Wilsonville, Oregon in 1995. The building at this facility is approximately 20,000 square feet and 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 We periodically are a party to routine litigation incidental to our business. Primarily, this litigation involves claims for personal injury and property damage caused while transporting freight. There are currently no material pending legal, governmental, administrative or other proceedings to which we are a party or of which any of our property is the subject which are unreserved. We self-insure for property damage and cargo claims. We partially self-insure for losses relating to auto liability, general liability, workers' compensation claims and employees' group health benefits. We also maintain an insurance policy that limits annual total losses to $9 million for auto liability, workers' compensation and general liability claims. We believe that our current liability limit is reasonable. However, we could suffer losses over our policy limits. Losses in excess of our policy limits could negatively affect our financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the year ended December 31, 1997. ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT Our executive officers, with their ages and the offices held as of March 1, 1998, are as follows:
Name Age Position ---- --- -------- Randolph L. Marten 45 Chairman of the Board, President, Chief Operating Officer and Director Darrell D. Rubel 52 Executive Vice President, Chief Financial Officer, Treasurer, Assistant Secretary and Director Timothy P. Nash 46 Vice President of Sales Franklin J. Foster 41 Vice President of Finance Robert G. Smith 54 Vice President of Operations
Randolph L. Marten has been a full-time employee since 1974. Mr. Marten has been a Director since October 1980, our President and Chief Operating Officer since June 1986 and our Chairman of the Board since August 1993. Mr. Marten served as a Vice President from October 1980 to June 1986. Darrell D. Rubel has been a Director since February 1983, our Chief Financial Officer since January 1986, our Treasurer since June 1986, our Executive Vice President since May 1993 and our Assistant Secretary since August 1987. Mr. Rubel also served as our Secretary from June 1986 until August 1987 and as a Vice President from January 1986 until May 1993. 6 Timothy P. Nash has been our Vice President of Sales since November 1990 and served as our Regional Sales Manager from July 1987 to November 1990. Mr. Nash served as a regional sales manager for Overland Express, Inc., a long-haul truckload carrier, from August 1986 to July 1987. Franklin J. Foster has been our Vice President of Finance since December 1991 and served as our Director of Finance from January 1991 to December 1991. Mr. Foster served as a vice president in commercial banking for First Bank National Association from October 1985 to January 1991. Robert G. Smith has been our Vice President of Operations since June 1993 and served as our Director of Operations from September 1989 to June 1993. Mr. Smith served as director of operations for Transport Corporation of America, an irregular-route truckload carrier, from January 1985 to September 1989. Our executive officers are elected by the Board of Directors to serve one-year terms. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information in the "Common Stock Data" section of our 1997 Annual Report on page 12 is incorporated in this Report by reference. We had no unregistered sales of equity securities during the fourth quarter of the year ended December 31, 1997. ITEM 6. SELECTED FINANCIAL DATA The financial information in the "Five-Year Financial Summary" section of our 1997 Annual Report on page 2 is incorporated in this Report by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of our 1997 Annual Report on page 3 is incorporated in this Report by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Our Financial Statements and the Report of Independent Public Accountants on pages 4 through 11 of our 1997 Annual Report are incorporated in this Report 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 in the "Election of Directors--Information About Nominees" and "Election of Directors--Other Information About Nominees" sections of our 1998 Proxy Statement is incorporated in this Report by reference. B. EXECUTIVE OFFICERS OF THE REGISTRANT. Information about our executive officers 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 in the "Section 16(a) Beneficial Ownership Reporting Compliance" section of our 1998 Proxy Statement is incorporated in this Report by reference. ITEM 11. EXECUTIVE COMPENSATION The information in the "Election of Directors--Director Compensation" and "Compensation and Other Benefits" sections of our 1998 Proxy Statement is incorporated in this Report by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information in the "Principal Stockholders and Beneficial Ownership of Management" section of our 1998 Proxy Statement is incorporated in this Report by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information in the "Certain Transactions" section of our 1998 Proxy Statement is incorporated in this Report 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 in this Report by reference from the pages noted in our 1997 Annual Report: Report of Independent Public Accountants - page 11 Balance Sheets as of December 31, 1997 and 1996 - page 4 Statements of Operations for the years ended December 31, 1997, 1996 and 1995 - page 5 8 Statements of Changes in Shareholders' Investment for the years ended December 31, 1997, 1996 and 1995 - page 5 Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995 - page 6 Notes to Financial Statements - pages 7 - 10 2. FINANCIAL STATEMENT SCHEDULES: None. 3. EXHIBITS: The exhibits to this Report are listed in the Exhibit Index on pages 11 - 13. A copy of any of the exhibits listed will be sent at a reasonable cost to any shareholder as of March 20, 1998. Requests should be sent to Darrell D. Rubel, Executive Vice President and Chief Financial Officer, at our corporate headquarters. The following is a list of each management contract or compensatory plan or arrangement required to be filed as an exhibit to this Report under 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, with Darrell D. Rubel. (4) Marten Transport, Ltd. 1995 Stock Incentive Plan. (b) REPORTS ON FORM 8-K FILED IN THE FOURTH QUARTER OF 1997: We filed one Form 8-K in the fourth quarter of 1997. The Form 8-K, filed on December 15, 1997, reported the following items: Item 5. Other Events - Three-for-Two Stock Split of Marten Transport, Ltd. Common Stock Item 7. Financial Statements and Exhibits - Press Release dated November 24, 1997. 9 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Marten Transport, Ltd., the Registrant, has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: March 24, 1998 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 24, 1998 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 Officer Randolph L. Marten (Principal Executive Officer) and Director /s/ Darrell D. Rubel Executive Vice President, Chief Financial - ------------------------------ Officer, Treasurer, Assistant Secretary Darrell D. Rubel (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 YEAR ENDED DECEMBER 31, 1997
ITEM NO. ITEM FILING METHOD -------- ---- ------------- 3.1 Certificate of Incorporation of the Company . . . . . . . . . . . . Incorporated by reference to Exhibit 4.1 of 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 of 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 of 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 above. 4.3 Bylaws of the Company . . . . . . . See Exhibit 3.2 above. 9.1 Voting Trust Agreement dated February 14, 1983, as amended . . . Incorporated by reference to Exhibit 9.1 of 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 of 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 of the Company's Annual Report on Form 10-K for the 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 of the Company's Annual Report on Form 10-K for the year ended December 31, 1987 (File No. 0-15010). 11 ITEM NO. ITEM FILING METHOD -------- ---- ------------- 10.3 Stock Restriction Agreement among Roger R. Marten, Randolph L. Marten and Darrell D. Rubel . . . . Incorporated by reference to Exhibit 10.5 of the Company's Registration Statement on Form S-1 (File No. 33-8108). 10.4 Agreement on Credit Terms dated January 5, 1990 between the Company and First Bank National Association . . . . . . . . . . . . Incorporated by reference to Exhibit 10.10 of the Company's Annual Report on Form 10-K for the year ended December 31, 1989 (File No. 0-15010). 10.5 Amendment to Agreement on Credit Terms dated July 31, 1990 between the Company and First Bank National Association . . . . . . . Incorporated by reference to Exhibit 10.10 of the Company's Annual Report on Form 10-K for the year ended December 31, 1990 (File No. 0-15010). 10.6 Security Agreement dated January 12, 1990, as amended, between the Company and First Bank National Association . . . . . . . . . . . . Incorporated by reference to Exhibit 10.15 of the Company's Annual Report on Form 10-K for the year ended December 31, 1992 (File No. 0-15010). 10.7 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 of the Company's Annual Report on Form 10-K for the year ended December 31, 1992 (File No. 0-15010). 10.8 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 of the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993 (File No. 0-15010). 10.9 Employment Agreement dated May 1, 1993 between the Company and Darrell D. Rubel . . . . . . . . . Incorporated by reference to Exhibit 19.1 of the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993 (File No. 0-15010). 12 ITEM NO. ITEM FILING METHOD -------- ---- ------------- 10.10 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 of the Company's Annual Report on Form 10-K for the year ended December 31, 1994 (File No. 0-15010). 10.11 Marten Transport, Ltd. 1995 Stock Incentive Plan . . . . . . . . . . Incorporated by reference to Exhibit 10.18 of the Company's Annual Report on Form 10-K for the year ended December 31, 1994 (File No. 0-15010). 13.1 1997 Annual Report to Shareholders - pages 2 - 13 . . . . . . . . . . Filed with this Report. 23.1 Consent of Arthur Andersen LLP . . Filed with this Report. 27.1 Financial Data Schedule . . . . . Filed with this Report. 27.2 Restated Financial Data Schedule. Filed with this Report.
13 EX-13.1 2 EX-13.1 FIVE-YEAR FINANCIAL SUMMARY
Years ended December 31, (IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS) 1997 1996 1995 1994 1993 ---------------------------------------------------------- FOR THE YEAR Operating revenue. . . . . . . . . . . . . . . . $172,412 $146,151 $137,704 $122,730 $112,180 Operating income . . . . . . . . . . . . . . . . 12,847 6,160 11,378 13,015 11,359 Income before extraordinary item . . . . . . . . 5,307 1,630 5,009 6,375 5,462 Net income . . . . . . . . . . . . . . . . . . . 5,307 1,630 5,009 6,375 6,345(2) PER-SHARE DATA(1) Basic earnings per common share: Income before extraordinary item . . . . . . . $ 1.19 $ .37 $ 1.14 $ 1.34 $ 1.06 Net income . . . . . . . . . . . . . . . . . . 1.19 .37 1.14 1.34 1.23(2) Diluted earnings per common share: Income before extraordinary item . . . . . . . 1.19 .37 1.12 1.33 1.05 Net income . . . . . . . . . . . . . . . . . . 1.19 .37 1.12 1.33 1.22(2) AT YEAR END Total assets . . . . . . . . . . . . . . . . . . $145,266 $138,135 $123,141 $105,648 $ 96,776 Long-term debt, less current maturities. . . . . 30,663 33,505 27,079 24,917 21,117 Shareholders' investment . . . . . . . . . . . . 45,704 40,044 38,242 33,104 34,729
(1) Earnings per common share amounts have been retroactively adjusted to reflect a three-for-two stock split effective for shareholders of record as of December 15, 1997. (2) Includes extraordinary item, proceeds of $883,000 ($.17 per basic and diluted share) from life insurance policy on Roger Marten, founder of Marten Transport. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 3 RESULTS OF OPERATIONS Operating revenue for 1997 increased 18 percent over 1996. This compares with increases of 6 percent in 1996 and 12 percent in 1995. The primary reason for these increases was the transportation of more freight associated with increases in our fleet each of the last three years. Average freight rates and average miles traveled per tractor improved slightly in 1997 due to stronger customer demand. Average freight rates declined in 1996 and increased slightly in 1995. Average miles traveled per tractor decreased slightly in both 1996 and 1995. We have historically charged customers for significant increases in the price of diesel fuel. These fuel surcharges were in place and totaled $1.2 million in 1997 and $1.4 million in 1996. We expect operating revenue in 1998 to exceed 1997 levels given planned revenue equipment additions. Operating expenses represented 92.5 percent of operating revenue in 1997. This compares with 95.8 percent in 1996 and 91.7 percent in 1995. This ratio improved in 1997 due to our growth in revenue per tractor, reflecting more efficient utilization of our revenue equipment. Reduced average miles traveled per tractor was the primary reason for the increase in this ratio in 1996 and 1995. Lower freight rates were also a factor in 1996. Operating expenses increased 14 percent in 1997, 11 percent in 1996 and 15 percent in 1995. Operating expenses in most categories increased during the last three years because we transported additional freight and added to our fleet. We increased the number of independent contractor-owned vehicles in our fleet during the last three years. This increase caused purchased transportation expense to increase to 20.8 percent of revenue in 1997 from 13.7 percent in 1996 and 7.6 percent in 1995. Independent contractors assume responsibility for their own salaries, wages and benefits expense, fuel and fuel tax expense, and supplies and maintenance expense. Therefore, our expenses in these categories have remained relatively stable over the last three years. A significant increase in the price of diesel fuel negatively impacted fuel and fuel tax expense in 1997 and 1996. An increase in our trailer fleet caused an increase in depreciation expense during the last three years. Depreciation expense in 1995 was partially reduced by a $290,000 expense adjustment to change the estimated useful life of satellite tracking equipment. Our insurance and claims expense declined to 2.0 percent of revenue in 1997 from 4.7 percent in 1996 and 4.8 percent in 1995. Our improved management of claims and losses, along with continued emphasis on driver safety and training, has led to improved accident experience over the last three years. Gain on disposition of revenue equipment significantly decreased to $242,000 in 1997 from $2,580,000 in 1996 and $2,927,000 in 1995, due to a decrease in the market value received for used revenue equipment. We anticipate that 1998 operating expenses as a percent of revenue will remain at current levels. Interest expense as a percent of revenue has remained stable over the last three years, representing 2.4 percent of revenue in 1997, 2.4 percent in 1996 and 2.3 percent in 1995. We anticipate interest expense in 1998 as a percent of revenue to remain at 1997 levels as we add long-term debt to pay for revenue equipment purchases. Our effective tax rate was 40 percent for the last three years. We expect the effective tax rate to remain at 40 percent during 1998. We expect inflation to affect most of our operating expenses. The impact of inflation, however, was minimal during the three years ended December 31, 1997. CAPITAL RESOURCES AND LIQUIDITY Our business requires significant capital expenditures to update and expand our fleet with new, more efficient revenue equipment. We also purchased an office and terminal facility in 1997 for $1.5 million from an entity owned by our chairman of the board. This facility was leased from the same entity before it was purchased. We purchased a maintenance facility in Oregon in 1995 for approximately $1.6 million. We paid for these purchases using cash flow from operations and long-term debt collateralized by revenue equipment. We have commitments to purchase approximately $24 million of revenue equipment, net of trade-in allowances, in 1998. We also have commitments to purchase approximately $800,000 of diesel fuel at a fixed price through mid-1998. We expect to pay for these purchases with cash flow from operations and additional long-term debt. Cash generated from operations has historically met our working capital needs despite a working capital deficit. Current maturities of long-term debt associated with revenue equipment purchases have caused our working capital deficit. Our operating profits, short turnover in accounts receivable and cash management practices allow us to effectively operate with a working capital deficit. We have not used short-term borrowings to meet working capital needs, and do not expect to use short-term borrowings in 1998. We believe our liquidity is adequate to meet expected near-term operating requirements. SEASONALITY The trucking industry experiences seasonal fluctuations in revenue and expenses. We experience revenue declines after the winter holiday season because our customers reduce shipments. Operating expenses temporarily increase in the winter due to reduced fuel efficiency and additional maintenance costs. FORWARD-LOOKING INFORMATION This annual report contains certain forward-looking statements. Any statements in this annual report that are not statements of historical fact may be considered to be forward-looking statements. Written words such as "may," "will," "expect," "believe," "anticipate," "estimate" or "continue," or other variations of these or similar words, identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially, depending on a variety of factors. BALANCE SHEETS 4
December 31, (IN THOUSANDS, EXCEPT SHARE INFORMATION) 1997 1996 --------------------- ASSETS Current assets: Cash and cash equivalents. . . . . . . . . . . . . $ 2,052 $ 3,028 Receivables: Trade, less allowances of $650 and $558 . . . . 16,935 14,987 Other . . . . . . . . . . . . . . . . . . . . . 1,937 4,446 Prepaid expenses . . . . . . . . . . . . . . . . . 6,921 6,339 Deferred income taxes. . . . . . . . . . . . . . . 4,170 3,456 --------------------- Total current assets. . . . . . . . . . . . . 32,015 32,256 --------------------- Property and equipment: Revenue equipment. . . . . . . . . . . . . . . . . 143,633 131,248 Building and land. . . . . . . . . . . . . . . . . 6,320 4,955 Office equipment and other . . . . . . . . . . . . 5,098 4,621 Less accumulated depreciation. . . . . . . . . . . (42,375) (34,945) --------------------- Net property and equipment. . . . . . . . . . 112,676 105,879 Other assets . . . . . . . . . . . . . . . . . . . . 575 - --------------------- $145,266 $138,135 --------------------- --------------------- LIABILITIES AND SHAREHOLDERS' INVESTMENT Current liabilities: Accounts payable . . . . . . . . . . . . . . . . . $ 4,472 $ 3,822 Insurance and claims accruals. . . . . . . . . . . 11,638 13,558 Accrued liabilities. . . . . . . . . . . . . . . . 8,573 7,202 Current maturities of long-term debt . . . . . . . 21,628 20,100 --------------------- Total current liabilities . . . . . . . . . . 46,311 44,682 Long-term debt, less current maturities. . . . . . . 30,663 33,505 Deferred income taxes. . . . . . . . . . . . . . . . 22,588 19,904 --------------------- Total liabilities . . . . . . . . . . . . . . 99,562 98,091 --------------------- Commitments (Notes 1, 3 and 10) Shareholders' investment: Common stock, $.01 par value per share, 10,000,000 shares authorized, 4,477,645 and 2,959,616 shares issued and outstanding. . . . . 45 30 Additional paid-in capital . . . . . . . . . . . . 9,934 9,581 Retained earnings. . . . . . . . . . . . . . . . . 35,725 30,433 --------------------- Total shareholders' investment. . . . . . . . 45,704 40,044 --------------------- $145,266 $138,135 --------------------- ---------------------
The accompanying notes are an integral part of these balance sheets. STATEMENTS OF OPERATIONS 5
For the years ended December 31, (IN THOUSANDS, EXCEPT SHARE INFORMATION) 1997 1996 1995 ---------------------------------- Operating revenue. . . . . . . . . . . . . $172,412 $146,151 $137,704 ---------------------------------- Operating expenses: Salaries, wages and benefits . . . . . . 52,917 50,222 50,040 Purchased transportation . . . . . . . . 35,914 20,073 10,402 Fuel and fuel taxes. . . . . . . . . . . 25,642 25,997 24,332 Supplies and maintenance . . . . . . . . 14,359 14,166 14,042 Depreciation . . . . . . . . . . . . . . 17,239 16,015 14,458 Operating taxes and licenses . . . . . . 3,531 3,376 3,192 Insurance and claims . . . . . . . . . . 3,364 6,800 6,550 Communications and utilities . . . . . . 2,152 1,689 1,650 Gain on disposition of revenue equipment. . . . . . . . . . . . . . . (242) (2,580) (2,927) Other. . . . . . . . . . . . . . . . . . 4,689 4,233 4,587 ---------------------------------- 159,565 139,991 126,326 ---------------------------------- Operating income . . . . . . . . . . . . . 12,847 6,160 11,378 ---------------------------------- Other expenses (income): Interest expense . . . . . . . . . . . . 4,205 3,575 3,219 Interest income and other. . . . . . . . (203) (131) (189) ---------------------------------- 4,002 3,444 3,030 ---------------------------------- Income before income taxes . . . . . . . . 8,845 2,716 8,348 Provision for income taxes . . . . . . . . 3,538 1,086 3,339 ---------------------------------- Net income . . . . . . . . . . . . . . . $ 5,307 $ 1,630 $ 5,009 ---------------------------------- ---------------------------------- Basic earnings per common share. . . . . . $ 1.19 $ .37 $ 1.14 ---------------------------------- ---------------------------------- Diluted earnings per common share. . . . . $ 1.19 $ .37 $ 1.12 ---------------------------------- ----------------------------------
The accompanying notes are an integral part of these statements. STATEMENTS OF CHANGES IN SHAREHOLDERS' INVESTMENT
Common Stock Additional Retained (IN THOUSANDS, EXCEPT SHARE INFORMATION) Shares Amount Paid-In Capital Earnings Total ----------------------------------------------------------- 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 Net income . . . . . . . . . . . . . . - - - 5,307 5,307 Issuance of common stock . . . . . . . 25,500 - 353 - 353 Stock split. . . . . . . . . . . . . . 1,492,529 15 - (15) - ----------------------------------------------------------- Balance at December 31, 1997 . . . . . . 4,477,645 $45 $9,934 $35,725 $45,704 ----------------------------------------------------------- -----------------------------------------------------------
The accompanying notes are an integral part of these statements. STATEMENTS OF CASH FLOWS 6
For the years ended December 31, (IN THOUSANDS) 1997 1996 1995 ------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Operations: Net income . . . . . . . . . . . . . . . $ 5,307 $ 1,630 $ 5,009 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation. . . . . . . . . . . . . 17,239 16,015 14,458 Gain on disposition of revenue equipment . . . . . . . . . . . . . (242) (2,580) (2,927) Deferred tax provision. . . . . . . . 1,970 1,739 3,153 Changes in other current operating items: Receivables . . . . . . . . . . . . 561 (1,970) (966) Prepaid expenses. . . . . . . . . . (582) (390) (892) Accounts payable. . . . . . . . . . 650 597 119 Other current liabilities . . . . . (549) 1,554 3,464 ------------------------------------- Net cash provided by operating activities. . . . . . . . . . . 24,354 16,595 21,418 ------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Revenue equipment additions. . . . . . . . (32,598) (42,875) (37,320) Revenue equipment dispositions . . . . . . 10,698 17,706 13,309 Building and land, office equipment and other additions, net . . . . . . . . . . (1,894) (512) (2,448) Net change in other assets . . . . . . . . (575) - - ------------------------------------- Net cash used for investing activities. . . . . . . . . . . (24,369) (25,681) (26,459) ------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock . . . . . . . . . 353 172 129 Long-term borrowings . . . . . . . . . . . 22,469 30,112 22,559 Repayment of long-term borrowings. . . . . (23,783) (21,500) (17,446) ------------------------------------- Net cash provided by (used for) financing activities. . . . . . (961) 8,784 5,242 ------------------------------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. . . . . . . . . . . . . . . (976) (302) 201 CASH AND CASH EQUIVALENTS: Beginning of year. . . . . . . . . . . . . 3,028 3,330 3,129 ------------------------------------- End of year. . . . . . . . . . . . . . . . $ 2,052 $ 3,028 $ 3,330 ------------------------------------- ------------------------------------- CASH PAID (RECEIVED) FOR: Interest . . . . . . . . . . . . . . . . . $ 4,211 $ 3,585 $ 3,144 ------------------------------------- ------------------------------------- Income taxes . . . . . . . . . . . . . . . $ 534 $ (446) $ (135) ------------------------------------- -------------------------------------
The accompanying notes are an integral part of these statements. NOTES TO FINANCIAL STATEMENTS 7 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS: Marten Transport, Ltd. is a long-haul truckload carrier providing protective service transportation of time-and temperature-sensitive materials and general commodities. We earned approximately 13 percent of our revenue from a single customer in 1997, 13 percent in 1996 and 11 percent in 1995. CASH EQUIVALENTS: We invest available funds in short-term cash equivalents. These investments are primarily mutual funds with U.S. government-backed securities having original maturities 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) 1997 1996 ----------------- License fees. . . . . . . . . . . . . . . . $2,150 $1,796 Parts and tires inventory . . . . . . . . . 1,941 1,788 Tires in service. . . . . . . . . . . . . . 1,703 1,809 Insurance . . . . . . . . . . . . . . . . . 236 252 Other . . . . . . . . . . . . . . . . . . . 891 694 ----------------- $6,921 $6,339 ----------------- -----------------
PROPERTY AND EQUIPMENT: Additions and improvements to property and equipment are capitalized at cost. Maintenance and repair expenditures are charged to operations. Gains and losses on disposals of revenue equipment are included in operations. 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. Accelerated methods are used 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 -----
We changed the estimated useful life of satellite tracking equipment as of July 1, 1995. The change decreased depreciation expense by $290,000 and increased net income by $174,000, or $.04 per diluted share, in 1995. TIRES IN SERVICE: The cost of original equipment and replacement tires placed in service is capitalized. Amortization is calculated based on cost, less estimated salvage value, using the straight-line method over 24 months. The current portion of capitalized tires in service is included in prepaid expenses in the balance sheets. The long-term portion of capitalized tires in service and the estimated salvage value are included in revenue equipment in the balance sheets. The cost of recapping tires is charged to operations. INSURANCE AND CLAIMS: We self-insure for property damage and cargo claims. We self-insure, in part, for losses relating to workers' compensation claims, auto liability, general liability and employees' group health benefits. We maintain insurance coverage for per-incident and total losses in amounts we consider adequate based upon ongoing review and historical experience. We reserve currently for anticipated losses. The insurance and claims reserves are continuously evaluated and adjusted to reflect our experience. Under agreements with our insurance carriers and regulatory authorities, we have arranged for approximately $3.4 million in letters of credit to guarantee settlement of claims. REVENUE RECOGNITION: We record revenue and related expenses on the date shipment of freight is completed. USE OF ESTIMATES: We must make estimates and assumptions to prepare the financial statements using generally accepted accounting principles. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities in the financial statements. The reported amounts of revenue and expenses in the financial statements are also affected. These estimates are primarily related to insurance and claims accruals and depreciation. Actual results could differ from these estimates. 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 6.8 percent to 9.1 percent. The debt agreements contain restrictive covenants which, among other matters, require us to maintain certain financial ratios. We satisfied all debt covenants at December 31, 1997. Maturities of long-term debt at December 31, 1997, are as follows:
(IN THOUSANDS) Amount ------- 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . $21,628 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,276 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,639 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,748 ------- $52,291 ------- -------
3. LEASES We lease office equipment and facilities under operating leases with terms ranging from one to three years (see Note 4). Under most of these agreements, we pay maintenance and other expenses for the leased property. NOTES TO FINANCIAL STATEMENTS 8 Minimum future obligations under operating leases in effect at December 31, 1997, are as follows:
(IN THOUSANDS) Amount ------ 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $161 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 ------ $274 ------ ------
Lease-related expenses were as follows:
(IN THOUSANDS) 1997 1996 1995 --------------------- Operating lease rentals . . . . . . . . . . $447 $336 $458 ---------------------
4. RELATED PARTY TRANSACTIONS The following related party transactions occurred during the three years ended December 31, 1997: (a) We purchased an office and terminal facility in 1997 for $1.5 million from an entity owned by our chairman of the board. We leased the facility under a non-cancelable operating lease with the same entity before it was purchased. Total rental expense charged to operations for this lease was $126,000 per year during 1995 through 1997. (b) During 1997, we paid approximately $1.6 million to purchase fuel and tires from a company in which one of our directors, elected in 1997, is the president and a shareholder. (c) During the three years ended December 31, 1997, we have had checking, savings and investment accounts at banks which are controlled by one of our directors and officers. We believe that these transactions with related parties are on reasonable terms which are comparable to terms available from unaffiliated third parties. 5. INCOME TAXES We use the liability method of accounting for income taxes. Deferred taxes are calculated based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities given current tax laws. The components of the provision for income taxes consisted of the following:
(IN THOUSANDS) 1997 1996 1995 ------------------------------- Current: Federal . . . . . . . . . . . . . . $1,271 $(623) $150 State . . . . . . . . . . . . . . . 297 (30) 36 ------------------------------- 1,568 (653) 186 ------------------------------- Deferred: Federal . . . . . . . . . . . . . . 1,739 1,526 2,552 State . . . . . . . . . . . . . . . 231 213 601 ------------------------------- 1,970 1,739 3,153 ------------------------------- Total provision . . . . . . . . . . $3,538 $1,086 $3,339 ------------------------------- -------------------------------
The statutory federal income tax rate is reconciled to the effective income tax rate as follows:
1997 1996 1995 ------------------------ Statutory federal income tax rate . . . . . . . . . . 34% 34% 34% Increase in taxes arising from: State income taxes, net of federal income tax benefit. . . . 6 5 5 Other, net. . . . . . . . . . . . . - 1 1 ------------------------ Effective tax rate . . . . . . . . . . 40% 40% 40% ------------------------ ------------------------
As of December 31, the net deferred tax liability consisted of the following:
(IN THOUSANDS) 1997 1996 ------------------- Deferred tax assets: Reserves and accrued liabilities for financial reporting in excess of tax. . . . . . . . . . . . . . . . . . . $ 5,401 $ 6,111 State income tax deduction for financial reporting in excess of tax. . . . . . . . . . . . . . . . . . . 1,044 965 Alternative minimum tax credit. . . . . . . . 316 223 State net operating loss carryforwards . . . . . . . . . . . . . . . 28 73 ------------------- 6,789 7,372 ------------------- Deferred tax liabilities: Tax depreciation in excess of depreciation for financial reporting. . . . . . . . . . . . . . . . . 23,972 21,166 Items expensed for income tax purposes and capitalized for financial reporting:. . . . . . . . . . Prepaid licenses and use tax . . . . . . 975 831 Prepaid tires . . . . . . . . . . . . . - 1,618 Other . . . . . . . . . . . . . . . . . . . . 260 205 ------------------- 25,207 23,820 ------------------- Net deferred tax liability. . . . . . . . . $18,418 $16,448 ------------------- -------------------
We have state net operating loss carryforwards of approximately $400,000 available as of December 31, 1997, expiring in the years 1999 through 2011. 6. STOCK SPLIT In 1997, our board of directors authorized a three-for-two stock split of our common stock, $.01 par value. Each shareholder of record received an additional one-half share for each share of common stock held as of the close of business on December 15, 1997. The additional shares were distributed on January 5, 1998. NOTES TO FINANCIAL STATEMENTS 9 The stock split was effected in the form of a dividend, using authorized but unissued shares of our common stock. All per share amounts have been retroactively adjusted to reflect the stock split. 7. EARNINGS PER COMMON SHARE Basic and diluted earnings per common share were computed as follows:
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS) 1997 1996 1995 ------------------------- Numerator: Net income. . . . . . . . . . . . . $5,307 $1,630 $5,009 ------------------------- Denominator: Basic earnings per common share - weighted-average shares . . . . . 4,446 4,424 4,405 Effect of dilutive stock options . . . . . . . . . . 22 27 49 ------------------------- Diluted earnings per common share - weighted-average shares and assumed conversions . . . . . 4,468 4,451 4,454 ------------------------- ------------------------- Basic earnings per common share. . . . . . . . . . $ 1.19 $ .37 $ 1.14 ------------------------- ------------------------- Diluted earnings per common share. . . . . . . . . . $ 1.19 $ .37 $ 1.12 ------------------------- -------------------------
The following options were outstanding but were not included in the calculation of diluted earnings per share. The options' exercise prices were greater than the average market price of the common shares. Therefore, including the options in the denominator would be antidilutive, or decrease the number of weighted-average shares.
1997 1996 1995 ----------------------------- Number of option shares. . . . . . . . 315,000 217,500 202,500 Weighted-average exercise price. . . . . . . . . . . $ 13.50 $ 13.57 $ 13.67 -----------------------------
8. EMPLOYEE BENEFITS STOCK INCENTIVE PLANS - Under our Stock Incentive Plan adopted in 1995, officers, directors and employees may be granted incentive and non-statutory stock options. Incentive stock option prices must be at least the fair market value of our common stock on the date of grant. Non-statutory stock option prices must be at least 85 percent of the fair market value of our common stock on the date the option is granted. Stock options expire within 10 years after the date of grant. The plan also allows for stock appreciation rights, restricted stock awards, performance units and stock bonuses, none of which have been awarded as of December 31, 1997. The maximum number of shares of common stock available for issuance under the plan is 750,000 shares. In 1986, we adopted an Incentive Stock Option Plan and a Non-Statutory Stock Option Plan allowing for the grant of options. The option prices must be at least the fair market value of our common stock on the date of grant. In these plans, 375,000 shares of common stock are available for issuance to officers, directors and employees. Options under the Incentive Stock Option Plan expire within 10 years after the date of grant. Options under the Non-Statutory Stock Option Plan expire within 10 years and one month after the date of grant. We account for these plans under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," under which compensation cost is not recorded. If compensation cost had been recorded consistent with Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (Statement No. 123), our net income and earnings per common share would have been the following pro forma amounts:
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS) 1997 1996 1995 -------------------------- Net income: As reported . . . . . . . . . . . . . $5,307 $1,630 $5,009 Pro forma . . . . . . . . . . . . . . 5,130 1,481 4,888 Basic earnings per common share: As reported . . . . . . . . . . . . . 1.19 .37 1.14 Pro forma . . . . . . . . . . . . . . 1.15 .33 1.11 Diluted earnings per common share: As reported . . . . . . . . . . . . . 1.19 .37 1.12 Pro forma . . . . . . . . . . . . . . 1.15 .33 1.10 --------------------------
Because the Statement No. 123 method of accounting has only been applied to options granted in 1995 or after, the pro forma comparison above may not be representative of the impact of compensation cost in future years. As of December 31, stock option activity under our plans was as follows:
1997 1996 1995 ------------------------------------------------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ------------------------------------------------------------- Outstanding, beginning of year. . . . . . . . . . . 270,000 $12.18 297,000 $11.55 134,499 $7.42 Granted. . . . . . . . . . . . . . . . . 112,500 12.63 - - 232,500 13.67 Exercised. . . . . . . . . . . . . . . . (38,250) 5.50 (27,000) 5.23 (17,499) 4.17 Forfeited. . . . . . . . . . . . . . . . - - - - (52,500) 12.81 ------------------------------------------------------------- Outstanding, end of year. . . . . . . . . . . . . . 344,250 13.07 270,000 12.18 297,000 11.55 ------------------------------------------------------------- ------------------------------------------------------------- Exercisable, end of year. . . . . . . . . . . . . . 105,750 13.03 93,999 9.93 66,500 6.01 ------------------------------------------------------------- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 10 The weighted-average fair value as of the date of grant was $5.96 per share for options granted during 1997 and $6.11 per share for options granted during 1995. The fair value was estimated as of the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:
1997 1995 --------------- Expected option life in years . . . . . . . . . 7 7 Risk-free interest rate . . . . . . . . . . . . 6.1% 7.2% Expected stock price volatility . . . . . . . . 31.9% 28.5% Expected dividend payments. . . . . . . . . . . - - ---------------
The following table summarizes information regarding stock options outstanding and exercisable as of December 31, 1997:
Range of Exercise Price --------------------------------- $8.08 to $8.83 $12.33 to $13.67 --------------------------------- Options outstanding: Number of shares. . . . . . . . . . . . 29,250 315,000 Weighted-average remaining contractual life. . . . . . 7.3 years 8.0 years Weighted-average exercise price . . . . $8.45 $13.50 Options exercisable: Number of shares. . . . . . . . . . . . 9,750 96,000 Weighted-average exercise price . . . . $8.83 $13.46 ---------------------------------
RETIREMENT SAVINGS PLAN - We sponsor a defined contribution retirement savings plan under Section 401(k) of the Internal Revenue Code. Employees are eligible for the plan after one year of service. Each participant can contribute up to 15 percent of compensation. We contribute 25 percent of each participant's contribution, up to a total of 4 percent. Our contribution vests at the rate of 20 percent per year for the second through sixth years of service. In addition, we may make elective contributions as determined by the board of directors. Elective contributions were not made in 1997, 1996 or 1995. Total expense recorded for the plan was $183,000 in 1997, $192,000 in 1996 and $182,000 in 1995. STOCK PURCHASE PLANS - An Employee Stock Purchase Plan and an Independent Contractor Stock Purchase Plan are sponsored to encourage employee and independent contractor ownership of our common stock. Eligible participants specify the amount of regular payroll or contract payment deductions and voluntary cash contributions that are used to purchase shares of our common stock. The purchases are made at the market price on the open market. We pay the broker's commissions and administrative charges for purchases of common stock under the plans. 9. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of each class of financial instruments was estimated using the following methods and assumptions: CASH AND CASH EQUIVALENTS: The carrying amount approximated fair value due to the short maturity of these instruments. LONG-TERM DEBT: The fair value of our long-term debt approximated the carrying amount at December 31, 1997, and December 31, 1996. The fair value was estimated using discounted cash flow analysis. Our current borrowing rates for similar long-term debt were used in this analysis. 10. COMMITMENTS We have commitments to purchase approximately $24 million of revenue equipment, net of trade-in allowances, in 1998. We also have committed to purchase approximately $800,000 of diesel fuel at a fixed price through mid-1998. 11. QUARTERLY FINANCIAL DATA (UNAUDITED) The following is a summary of the quarterly results of operations for 1997 and 1996:
1997 QUARTERS (IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS) First Second Third Fourth Total -------------------------------------------- Operating revenue. . . . . . . . . . . . . . . . . . . $38,553 $43,817 $44,676 $45,366 $172,412 Operating income . . . . . . . . . . . . . . . . . . . 1,759 4,118 4,173 2,797 12,847 Net income . . . . . . . . . . . . . . . . . . . . . . 450 1,865 1,924 1,068 5,307 Basic and diluted earnings per common share(1) . . . . .10 .42 .43 .24 1.19 -------------------------------------------- 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 Basic and diluted earnings per common share(1) . . . . .07 .07 .19 .04 .37 --------------------------------------------
(1) Earnings per common share amounts have been retroactively adjusted to reflect a three-for-two stock split effective for shareholders of record as of December 15, 1997. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 11 To Marten Transport, Ltd.: We have audited the accompanying balance sheets of Marten Transport, Ltd. (a Delaware corporation) as of December 31, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Minneapolis, Minnesota January 28, 1998 COMMON STOCK DATA Our quarterly stock prices, as reported by The Nasdaq Stock Market, were as follows:
1997 1996 Quarter High Low High Low ---------------------------------------- First . . . . . . . . $ 9 $ 8 $11-1/3 $10 Second. . . . . . . . 9 8-1/6 12-1/3 10-1/2 Third . . . . . . . . 14-1/6 9-1/3 11-1/2 8-1/3 Fourth. . . . . . . . 17-1/6 12-3/4 9-1/6 7-5/6 ----------------------------------------
The prices have been retroactively adjusted to reflect a three-for-two stock split effective for shareholders of record as of December 15, 1997. The prices do not include adjustments for retail mark-ups, mark-downs or commissions. On December 31, 1997, there were 302 shareholders of record, and 261 beneficial shareholders. We have not paid any cash dividends on our common stock since we became publicly held in September 1986, and do not expect cash dividend payments in the near future. 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, LLP 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 EX-23.1 3 EX-23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our report dated January 28, 1998, 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 24, 1998 EX-27.1 4 EXHIBIT 27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE STATEMENTS OF OPERATIONS AND THE BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 2,052,000 0 18,872,000 650,000 0 32,015,000 155,051,000 42,375,000 145,266,000 46,311,000 30,663,000 0 0 45,000 45,659,000 145,266,000 172,412,000 172,412,000 0 159,565,000 0 0 4,205,000 8,845,000 3,538,000 5,307,000 0 0 0 5,307,000 1.19 1.19 Our board of directors authorized a three-for-two stock split of our common stock, $.01 par value, effective for shareholders of record as of December 15, 1997. Prior financial data schedules have not been restated to reflect the stock split.
EX-27.2 5 EXHIBIT 27.2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE STATEMENTS OF OPERATIONS AND THE BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 3,330,000 0 17,463,000 438,000 0 29,508,000 132,894,000 39,261,000 123,141,000 40,345,000 27,079,000 0 0 29,000 38,213,000 123,141,000 137,704,000 137,704,000 0 126,326,000 0 0 3,219,000 8,348,000 3,339,000 5,009,000 0 0 0 5,009,000 1.71 1.69
-----END PRIVACY-ENHANCED MESSAGE-----