mrtn20180630

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.

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes ☐ No ☒

The number of shares outstanding of the Registrant’s Common Stock, par value $.01 per share, was 54,659,074 as of July 31, 2018.

	June 30,			December 31,
(In thousands, except share information)	2018			2017
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	22,003		$	15,791
Receivables:
Trade, net		85,549			74,886
Other		7,190			6,131
Prepaid expenses and other		19,876			19,810
Total current assets		134,618			116,618

Property and equipment:
Revenue equipment, buildings and land, office equipment and other		805,723			783,648
Accumulated depreciation		(218,071	)		(211,728	)
Net property and equipment		587,652			571,920
Other assets		2,169			1,865
Total assets	$	724,439		$	690,403

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	45,782		$	38,100
Insurance and claims accruals		25,574			26,177
Total current liabilities		71,356			64,277
Deferred income taxes		103,841			100,626
Total liabilities		175,197			164,903

Stockholders’ equity:
Preferred stock, $.01 par value per share; 2,000,000 shares authorized; no shares issued and outstanding		-			-
Common stock, $.01 par value per share; 192,000,000 shares authorized; 54,659,074 shares at June 30, 2018, and 54,533,455 shares at December 31, 2017, issued and outstanding		547			545
Additional paid-in capital		78,366			76,413
Retained earnings		470,329			448,542
Total stockholders’ equity		549,242			525,500
Total liabilities and stockholders’ equity	$	724,439		$	690,403

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

	Three Months						Six Months
	Ended June 30,						Ended June 30,
(In thousands, except per share information)	2018			2017			2018			2017

Operating revenue	$	197,024		$	171,511		$	383,984		$	344,670

Operating expenses (income):
Salaries, wages and benefits		63,250			56,715			122,072			113,115
Purchased transportation		35,048			27,516			70,074			56,878
Fuel and fuel taxes		31,742			25,007			60,786			50,963
Supplies and maintenance		10,251			10,541			20,687			21,531
Depreciation		22,193			21,306			44,008			42,689
Operating taxes and licenses		2,364			2,252			4,651			4,499
Insurance and claims		8,941			8,848			19,231			17,762
Communications and utilities		1,647			1,487			3,330			3,068
Gain on disposition of revenue equipment		(2,160	)		(1,871	)		(3,371	)		(2,974	)
Other		5,525			4,141			10,699			7,632

Total operating expenses		178,801			155,942			352,167			315,163

Operating income		18,223			15,569			31,817			29,507

Other		(138	)		125			(327	)		266

Income before income taxes		18,361			15,444			32,144			29,241

Income taxes expense		4,659			6,303			8,111			11,886

Net income	$	13,702		$	9,141		$	24,033		$	17,355

Basic earnings per common share	$	0.25		$	0.17		$	0.44		$	0.32

Diluted earnings per common share	$	0.25		$	0.17		$	0.44		$	0.32

Dividends declared per common share	$	0.025		$	0.015		$	0.05		$	0.03

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

	Common Stock				Additional Paid-In			Retained			Total Stock- holders’
(In thousands)	Shares		Amount		Capital			Earnings			Equity

Balance at December 31, 2016		54,392	$	544	$	74,175		$	362,619		$	437,338
Net income		-		-		-			17,355			17,355
Issuance of common stock from share-based payment arrangement exercises and vesting of performance unit awards		122		1		882			-			883
Employee taxes paid in exchange for shares withheld		-		-		(47	)		-			(47	)
Share-based payment arrangement compensation expense		-		-		730			-			730
Dividends on common stock		-		-		-			(1,635	)		(1,635	)
Balance at June 30, 2017		54,514		545		75,740			378,339			454,624
Net income		-		-		-			72,929			72,929
Issuance of common stock from share-based payment arrangement exercises and vesting of performance unit awards		19		-		207			-			207
Share-based payment arrangement compensation expense		-		-		520			-			520
Dividends on common stock		-		-		-			(2,726	)		(2,726	)
Cash in lieu of fractional shares from stock split		-		-		(54	)		-			(54	)
Balance at December 31, 2017		54,533		545		76,413			448,542			525,500
Adoption of accounting standard (Note 2)		-		-		-			485			485
Net income		-		-		-			24,033			24,033
Issuance of common stock from share-based payment arrangement exercises and vesting of performance unit awards		126		2		847			-			849
Employee taxes paid in exchange for shares withheld		-		-		(104	)		-			(104	)
Share-based payment arrangement compensation expense		-		-		1,210			-			1,210
Dividends on common stock		-		-		-			(2,731	)		(2,731	)
Balance at June 30, 2018		54,659	$	547	$	78,366		$	470,329		$	549,242

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

	Six Months
	Ended June 30,
(In thousands)	2018			2017
Cash flows provided by operating activities:
Operations:
Net income	$	24,033		$	17,355
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		44,008			42,689
Gain on disposition of revenue equipment		(3,371	)		(2,974	)
Deferred income taxes		3,215			192
Share-based payment arrangement compensation expense		1,210			730
Distribution from affiliate		45			400
Equity in (earnings) loss from affiliate		(331	)		264
Adoption of accounting standard (Note 2)		485			-
Changes in other current operating items:
Receivables		(8,854	)		3,191
Prepaid expenses and other		(66	)		1,672
Accounts payable and accrued liabilities		7,604			(670	)
Insurance and claims accruals		(603	)		2,371
Net cash provided by operating activities		67,375			65,220

Cash flows used for investing activities:
Revenue equipment additions		(85,325	)		(76,210	)
Proceeds from revenue equipment dispositions		31,954			31,304
Buildings and land, office equipment and other additions		(5,788	)		(2,034	)
Other		(18	)		(25	)
Net cash used for investing activities		(59,177	)		(46,965	)

Cash flows used for financing activities:
Borrowings under credit facility and long-term debt		-			30,816
Repayment of borrowings under credit facility and long-term debt		-			(38,702	)
Dividends on common stock		(2,731	)		(1,635	)
Issuance of common stock from share-based payment arrangement exercises		849			883
Employee taxes paid in exchange for shares withheld		(104	)		(47	)
Net cash used for financing activities		(1,986	)		(8,685	)

Net change in cash and cash equivalents		6,212			9,570

Cash and cash equivalents:
Beginning of period		15,791			488
End of period	$	22,003		$	10,058

Supplemental non-cash disclosure:
Change in property and equipment not yet paid	$	(2,790	)	$	3,156

Supplemental disclosure of cash flow information:
Cash paid for:
Income taxes	$	848		$	7,892
Interest	$	20		$	29

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

(2) Adoption of New Accounting Standard

We account for our revenue in accordance with Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, 606, Revenue from Contracts with Customers, which we adopted on January 1, 2018 using the modified retrospective method. We recognized the cumulative effect of initially applying the new revenue standard as an increase of $485,000 to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. We expect the impact of the adoption of the new revenue standard to be immaterial to our net income and financial position on an ongoing basis.

The new revenue standard requires us to recognize revenue and related expenses within each of our four reporting segments over time, compared with our former policy in which we recorded revenue and related expenses on the date shipment of freight was completed.

The cumulative effect of the changes made to our consolidated condensed balance sheet on January 1, 2018 for the adoption of the new revenue standard was as follows:

(In thousands)	Balance at December 31, 2017		Adjustments Due to ASC 606			Balance at January 1, 2018
Assets:
Prepaid expenses and other	$	19,810	$	2,445	(a)	$	22,255
Liabilities:
Accounts payable and accrued liabilities		38,100		1,960			40,060
Stockholders’ equity:
Retained earnings		448,542		485			449,027

(a)

Contract assets balance at January 1, 2018.

The impact of the adoption of the new revenue standard on our consolidated condensed statement of operations and balance sheet was as follows:

	Three Months Ended June 30, 2018
(In thousands)	Prior to Adoption of ASC 606		Adjustments Due to ASC 606			As Reported

Operating revenue	$	197,113	$	(89	)	$	197,024
Operating expenses:
Salaries, wages and benefits		63,262		(12	)		63,250
Purchased transportation		35,106		(58	)		35,048
Fuel and fuel taxes		31,740		2			31,742
Supplies and maintenance		10,300		(49	)		10,251
Income taxes expense		4,652		7			4,659
Net income		13,681		21			13,702

	Six Months Ended June 30, 2018
(In thousands)	Prior to Adoption of ASC 606		Adjustments Due to ASC 606			As Reported

Operating revenue	$	384,168	$	(184	)	$	383,984
Operating expenses:
Salaries, wages and benefits		122,020		52			122,072
Purchased transportation		69,929		145			70,074
Fuel and fuel taxes		60,783		3			60,786
Supplies and maintenance		20,711		(24	)		20,687
Income taxes expense		8,211		(100	)		8,111
Net income		24,293		(260	)		24,033

	Balance at June 30, 2018
(In thousands)	Prior to Adoption of ASC 606		Adjustments Due to ASC 606			As Reported
Assets:
Prepaid expenses and other	$	17,615	$	2,261	(a)	$	19,876
Liabilities:
Accounts payable and accrued liabilities		43,746		2,036			45,782
Stockholders’ equity:
Retained earnings		470,104		225			470,329

(a)

Contract assets balance at June 30, 2018.

(3) Revenue and Business Segments

We account for our revenue in accordance with ASC 606, Revenue from Contracts with Customers, which we adopted on January 1, 2018 using the modified retrospective method. We combine our five current operating segments into four reporting segments (Truckload, Dedicated, Intermodal and Brokerage) for financial reporting purposes. These four reporting segments are also the appropriate categories for the disaggregation of our revenue under ASC 606.

The primary source of our operating revenue is provided by our Truckload segment through a combination of regional short-haul and medium-to-long-haul full-load transportation services. We transport food and other consumer packaged goods that require a temperature-controlled or insulated environment, along with dry freight, across the United States and into and out of Mexico and Canada.

Our Dedicated segment provides customized transportation solutions tailored to meet individual customers’ requirements, utilizing temperature-controlled trailers, dry vans and other specialized equipment within the United States. Our agreements with customers range from three to five years and are subject to annual rate reviews.

Generally, we are paid by the mile for our Truckload and Dedicated services. We also derive Truckload and Dedicated revenue from fuel surcharges, loading and unloading activities, equipment detention and other ancillary services. The main factors that affect our Truckload and Dedicated revenue are the rate per mile we receive from our customers, the percentage of miles for which we are compensated, the number of miles we generate with our equipment and changes in fuel prices. We monitor our revenue production primarily through average Truckload and Dedicated revenue, net of fuel surcharges, per tractor per week. We also analyze our average Truckload and Dedicated revenue, net of fuel surcharges, per total mile, non-revenue miles percentage, the miles per tractor we generate, our fuel surcharge revenue, our accessorial revenue and our other sources of operating revenue.

Our Intermodal segment transports our customers’ freight within the United States utilizing our temperature-controlled trailers on railroad flatcars for portions of trips, with the balance of the trips using our tractors or, to a lesser extent, contracted carriers. The main factors that affect our Intermodal revenue are the rate per mile and other charges we receive from our customers.

Our Brokerage segment develops contractual relationships with and arranges for third-party carriers to transport freight for our customers in temperature-controlled trailers and dry vans within the United States and into and out of Mexico through Marten Transport Logistics, LLC, which was established in 2007 and operates pursuant to brokerage authority granted by the United States Department of Transportation, or DOT. We retain the billing, collection and customer management responsibilities. The main factors that affect our Brokerage revenue are the rate per mile and other charges that we receive from our customers.

Our customer agreements are typically for one-year terms except for our Dedicated agreements which range from three to five years with annual rate reviews. Under ASC 606, the contract date for each individual load within each of our four reporting segments is generally the date that each load is tendered to and accepted by us. For each load transported within each of our four reporting segments, the entire amount of revenue to be recognized is a single performance obligation and our agreements with our customers detail the per-mile charges for line haul and fuel surcharges, along with the rates for loading and unloading, stop offs and drops, equipment detention and other ancillary services, which is the transaction price. There are no discounts that would be a material right or consideration payable to a customer. We are required to recognize revenue and related expenses over time, from load pickup to delivery, for each load within each of our four reporting segments. We base our calculation of the amount of revenue to record in each period for individual loads picking up in one period and delivering in the following period using the number of hours estimated to be incurred within each period applied to each estimated transaction price. Contract assets for this estimated revenue are classified within prepaid expenses and other within our consolidated condensed balance sheet as of June 30, 2018. We had no impairment losses on contract assets in the six months ended June 30, 2018. We bill our customers for loads after delivery is complete with standard payment terms of 30 days.

We account for revenue of our Intermodal and Brokerage segments and revenue on freight transported by independent contractors within our Truckload and Dedicated segments on a gross basis because we are the principal service provider controlling the promised service before it is transferred to each customer. We are primarily responsible for fulfilling the promise to provide each specified service to each customer. We bear the primary risk of loss in the event of cargo claims by our customers. We also have complete control and discretion in establishing the price for each specified service. Accordingly, all such revenue billed to customers is classified as operating revenue and all corresponding payments to carriers for transportation services we arrange in connection with brokerage and intermodal activities and to independent contractor providers of revenue equipment are classified as purchased transportation expense within our consolidated condensed statements of operations.

The following table sets forth for the periods indicated our operating revenue and operating income by segment. We do not prepare separate balance sheets by segment and, as a result, assets are not separately identifiable by segment.

	Three Months				Six Months
	Ended June 30,				Ended June 30,
(In thousands)	2018		2017		2018		2017
Operating revenue:
Truckload revenue, net of fuel surcharge revenue	$	80,525	$	84,480	$	160,741	$	169,291
Truckload fuel surcharge revenue		13,879		10,434		26,680		21,281
Total Truckload revenue		94,404		94,914		187,421		190,572

Dedicated revenue, net of fuel surcharge revenue		47,232		38,601		89,596		75,500
Dedicated fuel surcharge revenue		9,739		2,901		16,208		6,279
Total Dedicated revenue		56,971		41,502		105,804		81,779

Intermodal revenue, net of fuel surcharge revenue		21,291		16,877		42,099		33,688
Intermodal fuel surcharge revenue		4,179		2,238		8,023		4,613
Total Intermodal revenue		25,470		19,115		50,122		38,301

Brokerage revenue		20,179		15,980		40,637		34,018
Total operating revenue	$	197,024	$	171,511	$	383,984	$	344,670

Operating income:
Truckload	$	8,689	$	7,511	$	15,504	$	13,485
Dedicated		5,584		5,074		8,072		9,561
Intermodal		2,512		2,040		5,490		4,189
Brokerage		1,438		944		2,751		2,272
Total operating income	$	18,223	$	15,569	$	31,817	$	29,507

Truckload segment depreciation expense was $13.1 million and $14.4 million, Dedicated segment depreciation expense was $7.4 million and $5.4 million, Intermodal segment depreciation expense was $1.4 million and $1.1 million, and Brokerage segment depreciation expense was $300,000 and $344,000, in the three-month periods ended June 30, 2018 and 2017, respectively.

Truckload segment depreciation expense was $26.6 million and $29.0 million, Dedicated segment depreciation expense was $14.1 million and $10.8 million, Intermodal segment depreciation expense was $2.7 million and $2.2 million, and Brokerage segment depreciation expense was $623,000 and $678,000 in the six-month periods ended June 30, 2018 and 2017, respectively.

(4) Earnings per Common Share

Basic and diluted earnings per common share were computed as follows:

	Three Months				Six Months
	Ended June 30,				Ended June 30,
(In thousands, except per share amounts)	2018		2017		2018		2017
Numerator:
Net income	$	13,702	$	9,141	$	24,033	$	17,355
Denominator:
Basic earnings per common share - weighted-average shares		54,613		54,493		54,592		54,459
Effect of dilutive stock options		513		309		523		313
Diluted earnings per common share - weighted-average shares and assumed conversions		55,126		54,802		55,115		54,772

Basic earnings per common share	$	0.25	$	0.17	$	0.44	$	0.32
Diluted earnings per common share	$	0.25	$	0.17	$	0.44	$	0.32

Options totaling 17,000 equivalent shares for each of the three-month and six-month periods ended June 30, 2018, and 373,667 and 380,000 equivalent shares for the three-month and six-month periods ended June 30, 2017, respectively, were outstanding but were not included in the calculation of diluted earnings per share because including the options in the denominator would be antidilutive, or decrease the number of weighted-average shares, due to their exercise prices exceeding the average market price of the common shares, or because inclusion of average unrecognized compensation expense in the calculation would cause the options to be antidilutive.

Unvested performance unit awards totaling 109,255 equivalent shares for each of the three-month and six-month periods ended June 30, 2018, and 132,305 equivalent shares for each of the three-month and six-month periods ended June 30, 2017, were considered outstanding but were not included in the calculation of diluted earnings per share because inclusion of average unrecognized compensation expense in the calculation would cause the performance units to be antidilutive.

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

The following discussion and analysis of our financial condition and results of operations should be read together with the selected consolidated financial data and our consolidated condensed financial statements and the related notes appearing elsewhere in this report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those included in our Form 10-K, Part 1, Item 1A for the year ended December 31, 2017. We do not assume, and specifically disclaim, any obligation to update any forward-looking statement contained in this report.

Our Brokerage segment develops contractual relationships with and arranges for third-party carriers to transport freight for our customers in temperature-controlled trailers and dry vans within the United States and into and out of Mexico through Marten Transport Logistics, LLC, which was established in 2007 and operates pursuant to brokerage authority granted by the DOT. We retain the billing, collection and customer management responsibilities. The main factors that affect our Brokerage revenue are the rate per mile and other charges that we receive from our customers.

In addition to the factors discussed above, our operating revenue is also affected by, among other things, the United States economy, inventory levels, the level of truck and rail capacity in the transportation market, a contracting driver market, severe weather conditions and specific customer demand.

Our operating revenue increased $39.3 million, or 11.4%, from the first six months of 2017 to the first six months of 2018. Our operating revenue, net of fuel surcharges, increased $20.6 million, or 6.6%, compared with the first six months of 2017. Truckload segment revenue, net of fuel surcharges, decreased 5.1% from the first six months of 2017, primarily due to a reduction in our average number of tractors, partially offset by an increase in our average revenue per tractor. Dedicated segment revenue, net of fuel surcharges, increased 18.7% from the first six months of 2017, primarily due to fleet growth driven by an increase in the number of Dedicated contracts we have with our customers. Intermodal segment revenue, net of fuel surcharges, increased 25.0% due to increased volume and Brokerage segment revenue increased 19.5% due to increased revenue per load in the first six months of 2018. Fuel surcharge revenue increased to $50.9 million in the first six months of 2018 from $32.2 million in the first six months of 2017 primarily due to a shift of a portion of line haul revenue to fuel surcharge revenue which began in the first quarter of 2018 as a result of a change in our agreements with a number of customers. The change reduced our revenue excluding fuel surcharges by $5.4 million in the first six months of 2018 and increased our fuel surcharge revenue by the same amount. Higher fuel prices also increased our fuel surcharge revenue.

Our profitability is impacted by the variable costs of transporting freight for our customers, fixed costs, and expenses containing both fixed and variable components. The variable costs include fuel expense, driver-related expenses, such as wages, benefits, training, and recruitment, and independent contractor costs, which are recorded under purchased transportation. Expenses that have both fixed and variable components include maintenance and tire expense and our cost of insurance and claims. These expenses generally vary with the miles we travel, but also have a controllable component based on safety, fleet age, efficiency and other factors. Our main fixed costs relate to the acquisition and subsequent depreciation of long-term assets, such as revenue equipment and operating terminals. We expect our annual cost of tractor and trailer ownership will increase in future periods as a result of higher prices of new equipment, along with any increases in fleet size. Although certain factors affecting our expenses are beyond our control, we monitor them closely and attempt to anticipate changes in these factors in managing our business. For example, fuel prices have significantly fluctuated over the past several years. We manage our exposure to changes in fuel prices primarily through fuel surcharge programs with our customers, as well as through volume fuel purchasing arrangements with national fuel centers and bulk purchases of fuel at our terminals. To help further reduce fuel expense, we have installed and tightly manage the use of auxiliary power units in our tractors to provide climate control and electrical power for our drivers without idling the tractor engine, and also have improved the fuel usage in the temperature-control units on our trailers. For our Intermodal and Brokerage segments, our profitability is impacted by the percentage of revenue which is payable to the providers of the transportation services we arrange. This expense is included within purchased transportation in our consolidated condensed statements of operations.

Our operating expenses as a percentage of operating revenue, or “operating ratio,” was 91.7% in the first six months of 2018 and 91.4% in the first six months of 2017. Operating expenses as a percentage of operating revenue, with both amounts net of fuel surcharges, was 90.4% in the first six months of 2018 and 90.6% in the first six months of 2017. Our net income increased 38.5% to $24.0 million, or $0.44 per diluted share, in the first six months of 2018 from $17.4 million, or $0.32 per diluted share, in the first six months of 2017.

Our business requires substantial, ongoing capital investments, particularly for new tractors and trailers. At June 30, 2018, we had $22.0 million of cash and cash equivalents, $549.2 million in stockholders’ equity and no long-term debt outstanding. In the first six months of 2018, net cash flows provided by operating activities of $67.4 million were primarily used to purchase new revenue equipment, net of proceeds from dispositions, in the amount of $53.4 million, to acquire and upgrade regional operating facilities in the amount of $5.0 million, and to pay cash dividends of $2.7 million, resulting in a $6.2 million increase in cash and cash equivalents. We estimate that capital expenditures, net of proceeds from dispositions, will be approximately $65 million for the remainder 2018. We believe our sources of liquidity are adequate to meet our current and anticipated needs for at least the next twelve months. Based upon anticipated cash flows, existing cash and cash equivalents balances, current borrowing availability and other sources of financing we expect to be available to us, we do not anticipate any significant liquidity constraints in the foreseeable future.

Our business strategy encompasses a multifaceted set of transportation service solutions, primarily regional Truckload temperature-controlled operations along with Dedicated, Intermodal and Brokerage services, with a diverse customer base that gains value from and expands each of these operating segments. We believe that we are well-positioned regardless of the economic environment with the services we provide combined with our competitive position, cost control emphasis, modern fleet and strong balance sheet.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes discussions of operating revenue, net of fuel surcharge revenue; Truckload, Dedicated and Intermodal revenue, net of fuel surcharge revenue; operating expenses as a percentage of operating revenue, each net of fuel surcharge revenue; and net fuel expense (fuel and fuel taxes net of fuel surcharge revenue and surcharges passed through to independent contractors, outside drayage carriers and railroads). We provide these additional disclosures because management believes these measures provide a more consistent basis for comparing results of operations from period to period. These financial measures in this report have not been determined in accordance with U.S. generally accepted accounting principles (GAAP). Pursuant to Item 10(e) of Regulation S-K, we have included the amounts necessary to reconcile these non-GAAP financial measures to the most directly comparable GAAP financial measures of operating revenue, operating expenses divided by operating revenue, and fuel and fuel taxes.

On July 7, 2017, we effected a five-for-three stock split of our common stock, $.01 par value, in the form of a 66 ⅔% stock dividend. Our consolidated condensed financial statements, related notes, and other financial data contained in this report have been adjusted to give retroactive effect to the stock split for all periods presented.

The following table sets forth for the periods indicated certain operating statistics regarding our revenue and operations:

Comparison of Three Months Ended June 30, 2018 to Three Months Ended June 30, 2017

The following table sets forth for the periods indicated our operating revenue, operating income and operating ratio by segment, along with the change for each component:

Our operating revenue increased $25.5 million, or 14.9%, to $197.0 million in the 2018 period from $171.5 million in the 2017 period. Our operating revenue, net of fuel surcharges, increased $13.3 million, or 8.5%, to $169.2 million in the 2018 period from $155.9 million in the 2017 period. This increase was due to an $8.6 million increase in Dedicated revenue, net of fuel surcharges, a $4.4 million increase in Intermodal revenue, net of fuel surcharges, and a $4.2 million increase in Brokerage revenue, partially offset by a $4.0 million decrease in Truckload revenue, net of fuel surcharges. Fuel surcharge revenue increased to $27.8 million in the 2018 period from $15.6 million in the 2017 period primarily due to a shift of a portion of line haul revenue to fuel surcharge revenue which began in the first quarter of 2018 as a result of a change in our agreements with a number of customers. The change reduced our revenue excluding fuel surcharges by $3.8 million in the 2018 period and increased our fuel surcharge revenue by the same amount. Higher fuel prices also increased our fuel surcharge revenue.

Truckload segment revenue decreased $510,000, or 0.5%, to $94.4 million in the 2018 period from $94.9 million in the 2017 period. Truckload segment revenue, net of fuel surcharges, decreased $4.0 million, or 4.7%, to $80.5 million in the 2018 period from $84.5 million in the 2017 period, primarily due to a reduction in our average number of tractors, partially offset by an increase in our average revenue per tractor. The shift from line haul revenue to fuel surcharge revenue as a result of a change in our agreements with a number of customers decreased our Truckload revenue excluding fuel surcharges by $895,000, or $43 per tractor per week, in the 2018 period, and increased our fuel surcharge revenue by the same amount. The improvement in the operating ratio in the 2018 period was primarily due to the increase in our average revenue per tractor driven by increased rates with our customers.

Dedicated segment revenue increased $15.5 million, or 37.3%, to $57.0 million in the 2018 period from $41.5 million in the 2017 period. Dedicated segment revenue, net of fuel surcharges, increased 22.4% primarily due to fleet growth driven by an increase in the number of Dedicated contracts we have with our customers. The shift from line haul revenue to fuel surcharge revenue as a result of a change in our agreements with a number of customers decreased our Dedicated revenue excluding fuel surcharges by $2.9 million, or $200 per tractor per week, in the 2018 period, and increased our fuel surcharge revenue by the same amount. The increase in the operating ratio for our Dedicated segment was primarily due to an increase in bonus compensation expense for our non-driver employees along with increased driver recruitment costs.

Intermodal segment revenue increased $6.4 million, or 33.2%, to $25.5 million in the 2018 period from $19.1 million in the 2017 period. Intermodal segment revenue, net of fuel surcharges, increased 26.2% from the 2017 period due to an increase in volume. The operating ratio in the 2018 period increased from the 2017 period primarily due to an increase in the amounts payable to railroads as a percentage of our revenue, partially offset by increased rates with our customers.

Brokerage segment revenue increased $4.2 million, or 26.3%, to $20.2 million in the 2018 period from $16.0 million in the 2017 period due to an increase in volume and rates with our customers. The improvement in the operating ratio in the 2018 period was primarily due to the increased rates with our customers along with multiple cost control measures.

The following table sets forth for the periods indicated the dollar and percentage increase or decrease of the items in our unaudited consolidated condensed statements of operations, and those items as a percentage of operating revenue:

Salaries, wages and benefits consist of compensation for our employees, including both driver and non-driver employees, employees’ health insurance, 401(k) plan contributions and other fringe benefits. These expenses vary depending upon the size of our Truckload, Dedicated and Intermodal tractor fleets, the ratio of company drivers to independent contractors, our efficiency, our experience with employees’ health insurance claims, changes in health care premiums and other factors. Salaries, wages and benefits expense increased $6.5 million, or 11.5%, in the 2018 period from the 2017 period. The increase in salaries, wages and benefits from the 2017 period resulted primarily from an increase in company driver compensation expense of $2.7 million, an increase in bonus compensation expense for our non-driver employees of $1.5 million, and an increase in employees’ health insurance expense of $738,000 due to an increase in our self-insured medical claims.

Purchased transportation consists of amounts payable to railroads and carriers for transportation services we arrange in connection with Brokerage and Intermodal operations and to independent contractor providers of revenue equipment. This category will vary depending upon the amount and rates, including fuel surcharges, we pay to third-party railroad and motor carriers, the ratio of company drivers versus independent contractors and the amount of fuel surcharges passed through to independent contractors. Purchased transportation expense increased $7.5 million in total, or 27.4%, in the 2018 period from the 2017 period. Amounts payable to carriers for transportation services we arranged in our Brokerage segment increased $3.4 million to $16.8 million in the 2018 period from $13.4 million in the 2017 period, primarily due to an increase in brokerage revenue. Amounts payable to railroads and drayage carriers for transportation services within our Intermodal segment increased $4.3 million to $16.4 million in the 2018 period from $12.1 million in the 2017 period. This increase was primarily due to increased intermodal revenue. The portion of purchased transportation expense related to our independent contractors within our Truckload and Dedicated segments, including fuel surcharges, decreased $225,000 in the 2018 period. We expect that purchased transportation expense will increase as we grow our Intermodal and Brokerage segments.

Fuel and fuel taxes increased by $6.7 million, or 26.9%, in the 2018 period from the 2017 period. Net fuel expense (fuel and fuel taxes net of fuel surcharge revenue and surcharges passed through to independent contractors, outside drayage carriers and railroads) decreased $4.0 million, or 34.8%, to $7.4 million in the 2018 period from $11.3 million in the 2017 period. Fuel surcharges passed through to independent contractors, outside drayage carriers and railroads increased to $3.5 million from $1.9 million in the 2017 period. Despite an increase in the United States Department of Energy, or DOE, national average cost of fuel to $3.19 per gallon from $2.55 per gallon in the 2017 period, net fuel expense decreased to 5.0% of Truckload, Dedicated and Intermodal segment revenue, net of fuel surcharges, from 8.1% in the 2017 period. The net fuel expense to revenue improved primarily due to a $3.8 million shift during the 2018 period of a portion of line haul revenue to fuel surcharge revenue as a result of a change in our agreements with a number of customers. Increases in our miles per gallon and in our revenue rate per mile in the 2018 period further improved this ratio. We have worked diligently to control fuel usage and costs by improving our volume purchasing arrangements and optimizing our drivers’ fuel purchases with national fuel centers, focusing on shorter lengths of haul, installing and tightly managing the use of auxiliary power units in our tractors to minimize engine idling and improving fuel usage in the temperature-control units on our trailers. Auxiliary power units, which we have installed in our company-owned tractors, provide climate control and electrical power for our drivers without idling the tractor engine.

Supplies and maintenance consist of repairs, maintenance, tires, parts, oil and engine fluids, along with load-specific expenses including loading/unloading, tolls, pallets and trailer hostling. Our supplies and maintenance expense decreased $290,000, or 2.8%, from the 2017 period primarily due to a decrease in our loading/unloading expense.

Depreciation relates to owned tractors, trailers, auxiliary power units, communication units, terminal facilities and other assets. The increase in depreciation was primarily due to a continued increase in the cost of revenue equipment. We expect our annual cost of tractor and trailer ownership will increase in future periods as a result of higher prices of new equipment, which will result in greater depreciation over the useful life.

Gain on disposition of revenue equipment was $2.2 million in the 2018 period and $1.9 million in the 2017 period. Future gains or losses on dispositions of revenue equipment will be impacted by the market for used revenue equipment, which is beyond our control.

As a result of the foregoing factors, our operating expenses as a percentage of operating revenue, or “operating ratio,” was 90.8% in the 2018 period and 90.9% in the 2017 period. The operating ratio for our Truckload segment was 90.8% in the 2018 period and 92.1% in the 2017 period, for our Dedicated segment was 90.2% in the 2018 period and 87.8% in the 2017 period, for our Intermodal segment was 90.1% in the 2018 period and 89.3% in the 2017 period, and for our Brokerage segment was 92.9% in the 2018 period and 94.1% in the 2017 period. Operating expenses as a percentage of operating revenue, with both amounts net of fuel surcharges, was 89.2% in the 2018 period and 90.0% in the 2017 period.

The increase in our non-operating income was primarily due to improved operating results in the 2018 period by MW Logistics, LLC, or MWL, a 45% owned affiliate.

Our effective income tax rate decreased to 25.4% in the 2018 period from 40.8% in the 2017 period primarily due to the reduction of our federal income tax rate under the Tax Cuts and Jobs Act of 2017.

As a result of the factors described above, net income increased 49.9% to $13.7 million, or $0.25 per diluted share, in the 2018 period from $9.1 million, or $0.17 per diluted share, in the 2017 period.

Comparison of Six Months Ended June 30, 2018 to Six Months Ended June 30, 2017

The following table sets forth for the periods indicated our operating revenue, operating income and operating ratio by segment, along with the change for each component:

Our operating revenue increased $39.3 million, or 11.4%, to $384.0 million in the 2018 period from $344.7 million in the 2017 period. Our operating revenue, net of fuel surcharges, increased $20.6 million, or 6.6%, to $333.1 million in the 2018 period from $312.5 million in the 2017 period. This increase was due to a $14.1 million increase in Dedicated revenue, net of fuel surcharges, an $8.4 million increase in Intermodal revenue, net of fuel surcharges, and a $6.6 million increase in Brokerage revenue, partially offset by an $8.6 million decrease in Truckload revenue, net of fuel surcharges. Fuel surcharge revenue increased to $50.9 million in the 2018 period from $32.2 million in the 2017 period primarily due to a shift of a portion of line haul revenue to fuel surcharge revenue which began in the first quarter of 2018 as a result of a change in our agreements with a number of customers. The change reduced our revenue excluding fuel surcharges by $5.4 million in the 2018 period and increased our fuel surcharge revenue by the same amount. Higher fuel prices also increased our fuel surcharge revenue.

Truckload segment revenue decreased $3.2 million, or 1.7%, to $187.4 million in the 2018 period from $190.6 million in the 2017 period. Truckload segment revenue, net of fuel surcharges, decreased $8.6 million, or 5.1%, to $160.7 million in the 2018 period from $169.3 million in the 2017 period, primarily due to a reduction in our average number of tractors, partially offset by an increase in our average revenue per tractor. The shift from line haul revenue to fuel surcharge revenue as a result of a change in our agreements with a number of customers decreased our Truckload revenue excluding fuel surcharges by $1.2 million, or $28 per tractor per week, in the 2018 period, and increased our fuel surcharge revenue by the same amount. The improvement in the operating ratio in the 2018 period was primarily due to the increase in our average revenue per tractor driven by increased rates with our customers.

Dedicated segment revenue increased $24.0 million, or 29.4%, to $105.8 million in the 2018 period from $81.8 million in the 2017 period. Dedicated segment revenue, net of fuel surcharges, increased 18.7% primarily due to fleet growth driven by an increase in the number of Dedicated contracts we have with our customers. The shift from line haul revenue to fuel surcharge revenue as a result of a change in our agreements with a number of customers decreased our Dedicated revenue excluding fuel surcharges by $4.3 million, or $155 per tractor per week, in the 2018 period, and increased our fuel surcharge revenue by the same amount. The increase in the operating ratio for our Dedicated segment was primarily due to startup costs associated with new business that began in the 2018 period, an increase in insurance and claims expense, and an increase in bonus compensation expense for our non-driver employees.

Intermodal segment revenue increased $11.8 million, or 30.9%, to $50.1 million in the 2018 period from $38.3 million in the 2017 period. Intermodal segment revenue, net of fuel surcharges, increased 25.0% from the 2017 period due to an increase in volume. The operating ratio in the 2018 period was consistent with the 2017 period.

Brokerage segment revenue increased $6.6 million, or 19.5%, to $40.6 million in the 2018 period from $34.0 million in the 2017 period due to an increase in revenue per load. The operating ratio in the 2018 period was consistent with the 2017 period.

Salaries, wages and benefits expense increased $9.0 million, or 7.9%, in the 2018 period from the 2017 period. The increase in salaries, wages and benefits from the 2017 period resulted primarily from an increase in company driver compensation expense of $4.0 million, an increase in employee’s health insurance expense of $1.6 million due to an increase in our self-insured medical claims, and an increase in bonus compensation expense for our non-driver employees of $1.5 million.

Purchased transportation expense increased $13.2 million in total, or 23.2%, in the 2018 period from the 2017 period. Amounts payable to carriers for transportation services we arranged in our Brokerage segment increased $5.5 million to $34.1 million in the 2018 period from $28.5 million in the 2017 period, primarily due to an increase in brokerage revenue. Amounts payable to railroads and drayage carriers for transportation services within our Intermodal segment increased $8.1 million to $32.3 million in the 2018 period from $24.2 million in the 2017 period. This increase was primarily due to increased intermodal revenue. The portion of purchased transportation expense related to our independent contractors within our Truckload and Dedicated segments, including fuel surcharges, decreased $400,000 in the 2018 period. We expect that purchased transportation expense will increase as we grow our Intermodal and Brokerage segments.

Fuel and fuel taxes increased by $9.8 million, or 19.3%, in the 2018 period from the 2017 period. Net fuel expense (fuel and fuel taxes net of fuel surcharge revenue and surcharges passed through to independent contractors, outside drayage carriers and railroads) decreased $6.0 million, or 26.5%, to $16.7 million in the 2018 period from $22.6 million in the 2017 period. Fuel surcharges passed through to independent contractors, outside drayage carriers and railroads increased to $6.8 million from $3.9 million in the 2017 period. Despite an increase in the DOE national average cost of fuel to $3.10 per gallon from $2.56 per gallon in the 2017 period, net fuel expense decreased to 5.7% of Truckload, Dedicated and Intermodal segment revenue, net of fuel surcharges, from 8.1% in the 2017 period. The net fuel expense to revenue improved primarily due to a $5.4 million shift during the 2018 period of a portion of line haul revenue to fuel surcharge revenue as a result of a change in our agreements with a number of customers. Increases in our miles per gallon and in our revenue rate per mile in the 2018 period further improved this ratio. We have worked diligently to control fuel usage and costs by improving our volume purchasing arrangements and optimizing our drivers’ fuel purchases with national fuel centers, focusing on shorter lengths of haul, installing and tightly managing the use of auxiliary power units in our tractors to minimize engine idling and improving fuel usage in the temperature-control units on our trailers. Auxiliary power units, which we have installed in our company-owned tractors, provide climate control and electrical power for our drivers without idling the tractor engine.

Our supplies and maintenance expense decreased $844,000, or 3.9%, from the 2017 period primarily due to a decrease in our loading/unloading expense.

The increase in depreciation was primarily due to a continued increase in the cost of revenue equipment.

Insurance and claims consist of the costs of insurance premiums and accruals we make for claims within our self-insured retention amounts, primarily for personal injury, property damage, physical damage to our equipment, cargo claims and workers’ compensation claims. These expenses will vary primarily based upon the frequency and severity of our accident experience, our self-insured retention levels and the market for insurance. The $1.5 million increase in insurance and claims in the 2018 period was primarily due to an increase in the cost of physical damage claims related to our tractors and trailers. Our significant self-insured retention exposes us to the possibility of significant fluctuations in claims expense between periods which could materially impact our financial results depending on the frequency, severity and timing of claims.

Gain on disposition of revenue equipment was $3.4 million in the 2018 period and $3.0 million in the 2017 period.

The $3.1 million increase in other operating expenses in the 2018 period was due in part to proceeds received in the 2017 period from the settlement of a lawsuit, net of 2017 period legal expenses, of $1.0 million, and increased costs associated with recruiting and retaining drivers.

As a result of the foregoing factors, our operating expenses as a percentage of operating revenue, or “operating ratio,” was 91.7% in the 2018 period and 91.4% in the 2017 period. The operating ratio for our Truckload segment was 91.7% in the 2018 period and 92.9% in the 2017 period, for our Dedicated segment was 92.4% in the 2018 period and 88.3% in the 2017 period, for our Intermodal segment was 89.0% in the 2018 period and 89.1% in the 2017 period, and for our Brokerage segment was 93.2% in the 2018 period and 93.3% in the 2017 period. Operating expenses as a percentage of operating revenue, with both amounts net of fuel surcharges, was 90.4% in the 2018 period and 90.6% in the 2017 period.

The increase in our non-operating income was primarily due to improved operating results in the 2018 period by MW Logistics, LLC, or MWL, a 45% owned affiliate.

Our effective income tax rate decreased to 25.2% in the 2018 period from 40.6% in the 2017 period primarily due to the reduction of our federal income tax rate under the Tax Cuts and Jobs Act of 2017.

As a result of the factors described above, net income increased 38.5% to $24.0 million, or $0.44 per diluted share, in the 2018 period from $17.4 million, or $0.32 per diluted share, in the 2017 period.

Our business requires substantial, ongoing capital investments, particularly for new tractors and trailers. Our primary sources of liquidity are funds provided by operations and our revolving credit facility. A portion of our tractor fleet is provided by independent contractors who own and operate their own equipment. We have no capital expenditure requirements relating to those drivers who own their tractors or obtain financing through third parties.

The table below reflects our net cash flows provided by operating activities and our net cash flows used for investing and financing activities for the periods indicated.

In December 2007, our Board of Directors approved and we announced a share repurchase program to repurchase up to one million shares of our common stock either through purchases on the open market or through private transactions and in accordance with Rule 10b-18 of the Exchange Act. In November 2015, our Board of Directors approved and we announced an increase in the share repurchase program, providing for the repurchase of up to $40 million, or approximately two million shares, of our common stock, which was increased by our Board of Directors to 3.3 million shares on August 15, 2017 to reflect the five-for-three stock split effected in the form of a stock dividend on July 7, 2017. The timing and extent to which we repurchase shares depends on market conditions and other corporate considerations. The repurchase program does not have an expiration date.

We did not repurchase any shares in 2017 or in the first six months of 2018. As of June 30, 2018 future repurchases of up to $16.3 million, or 1.0 million shares, were available in the share repurchase program.

In the first six months of 2018, net cash flows provided by operating activities of $67.4 million were primarily used to purchase new revenue equipment, net of proceeds from dispositions, in the amount of $53.4 million, to acquire and upgrade regional operating facilities in the amount of $5.0 million, and to pay cash dividends of $2.7 million, resulting in a $6.2 million increase in cash and cash equivalents. In the first six months of 2017, net cash flows provided by operating activities of $65.2 million were primarily used to purchase new revenue equipment, net of proceeds from dispositions, in the amount of $44.9 million, to increase cash and cash equivalents by $9.6 million, to repay, net of borrowings, $7.9 million of long-term debt, to pay cash dividends of $1.6 million, and to partially construct regional operating facilities in the amount of $1.4 million. Beginning in the first quarter of 2018, our net cash flows are increased by the new tax laws established by the Tax Cuts and Jobs Act of 2017, which reduced the federal corporate statutory income tax rate and established bonus depreciation that allows for full expensing of qualified assets, partially offset by the repeal of like-kind exchanges.

We estimate that capital expenditures, net of proceeds from dispositions, will be approximately $65 million for the remainder of 2018. A quarterly cash dividend of $0.025 per share of common stock was declared in each of the first two quarters of 2018 and totaled $2.7 million. A quarterly cash dividend of $0.015 per share of common stock was declared in each of the first two quarters of 2017 and totaled $1.6 million. We currently expect to continue to pay quarterly cash dividends in the future. The payment of cash dividends in the future, and the amount of any such dividends, will depend upon our financial condition, results of operations, cash requirements, and certain corporate law requirements, as well as other factors deemed relevant by our Board of Directors. We believe our sources of liquidity are adequate to meet our current and anticipated needs for at least the next twelve months. Based upon anticipated cash flows, existing cash and cash equivalents balances, current borrowing availability and other sources of financing we expect to be available to us, we do not anticipate any significant liquidity constraints in the foreseeable future.

We maintain a credit agreement that provides for an unsecured committed credit facility up to an aggregate principal amount of $40.0 million which matures in December 2019. At June 30, 2018, there was no outstanding principal balance on the facility. As of that date, we had outstanding standby letters of credit to guarantee settlement of self-insurance claims of $14.6 million and remaining borrowing availability of $25.4 million. This facility bears interest at a variable rate based on the London Interbank Offered Rate or the lender’s Prime Rate, in each case plus/minus applicable margins.

Our credit facility prohibits us from paying, in any fiscal year, stock redemptions and dividends in excess of 25% of our net income from the prior fiscal year. This facility also contains restrictive covenants which, among other matters, require us to maintain compliance with cash flow leverage and fixed charge coverage ratios. We were in compliance with all covenants at June 30, 2018 and December 31, 2017.

Due to uncertainty with respect to the timing of future cash flows, the obligation under our nonqualified deferred compensation plan at June 30, 2018 of 175,828 shares of Company common stock with a value of $4.1 million has been excluded from the above table.

Other than standby letters of credit maintained in connection with our self-insurance programs in the amount of $14.6 million along with purchase obligations and operating leases summarized above in our summary of contractual obligations, we did not have any other material off-balance sheet arrangements at June 30, 2018.

Most of our operating expenses are inflation-sensitive, with inflation generally producing increased costs of operations. During the last two years, the most significant effects of inflation have been on revenue equipment prices, accident claims, health insurance and employee compensation. We attempt to limit the effects of inflation through increases in freight rates and cost control efforts.

In addition to inflation, fluctuations in fuel prices can affect our profitability. We require substantial amounts of fuel to operate our tractors and power the temperature-control units on our trailers. Substantially all of our contracts with customers contain fuel surcharge provisions. Although we historically have been able to pass through a significant portion of long-term increases in fuel prices and related taxes to customers in the form of fuel surcharges and higher rates, such increases usually are not fully recovered. These fuel surcharge provisions are not effective in mitigating the fuel price increases related to non-revenue miles or fuel used while the tractor is idling.

Our tractor productivity generally decreases during the winter season because inclement weather impedes operations and some shippers reduce their shipments. At the same time, operating expenses generally increase, with harsh weather creating higher accident frequency, increased claims, lower fuel efficiency and more equipment repairs.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenue and expenses in our consolidated condensed financial statements and related notes. We base our estimates, assumptions and judgments on historical experience, current trends and other factors believed to be relevant at the time our consolidated condensed financial statements are prepared. However, because future events and their effects cannot be determined with certainty, actual results could differ from our estimates and assumptions, and such differences could be material. We believe that the following critical accounting policies affect our more significant estimates, assumptions and judgments used in the preparation of our consolidated condensed financial statements.

Revenue Recognition. We account for our revenue in accordance with ASC 606, Revenue from Contracts with Customers, which we adopted on January 1, 2018 using the modified retrospective method. The new revenue standard requires us to recognize revenue and related expenses within each of our four reporting segments over time, compared with our former policy in which we recorded revenue and related expenses on the date shipment of freight was completed.

Accounts Receivable. We are dependent upon a limited number of customers, and, as a result, our trade accounts receivable are highly concentrated. Trade accounts receivable are recorded at the invoiced amounts, net of an allowance for doubtful accounts. Our allowance for doubtful accounts was $325,000 as of June 30, 2018 and $300,000 as of December 31, 2017. A considerable amount of judgment is required in assessing the realization of these receivables including the current creditworthiness of each customer and related aging of the past-due balances, including any billing disputes. In order to assess the collectibility of these receivables, we perform ongoing credit evaluations of our customers’ financial condition. Through these evaluations, we may become aware of a situation where a customer may not be able to meet its financial obligations due to deterioration of its financial viability, credit ratings or bankruptcy. The allowance for doubtful accounts is based on the best information available to us and is reevaluated and adjusted as additional information is received. We evaluate the allowance based on historical write-off experience, the size of the individual customer balances, past-due amounts and the overall national economy. We review the adequacy of our allowance for doubtful accounts monthly.

Property and Equipment. The transportation industry requires significant capital investments. Our net property and equipment was $587.7 million as of June 30, 2018 and $571.9 million as of December 31, 2017. Our depreciation expense was $44.0 million for the first six months of 2018 and $42.7 million for the first six months of 2017. We compute depreciation of our property and equipment for financial reporting purposes based on the cost of each asset, reduced by its estimated salvage value, using the straight-line method over its estimated useful life. We determine and periodically evaluate our estimate of the projected salvage values and useful lives primarily by considering the market for used equipment, prior useful lives and changes in technology. We have not changed our policy regarding salvage values as a percentage of initial cost or useful lives of tractors and trailers within the last ten years. We believe that our policies and past estimates have been reasonable. Actual results could differ from these estimates. A 5% decrease in estimated salvage values would have decreased our net property and equipment as of June 30, 2018 by approximately $10.8 million, or 1.8%.

Impairment of Assets. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less the costs to sell.

Insurance and Claims. We self-insure, in part, for losses relating to workers’ compensation, auto liability, general liability, cargo and property damage claims, along with employees’ health insurance with varying risk retention levels. We maintain insurance coverage for per-incident and total losses in excess of these risk retention levels in amounts we consider adequate based upon historical experience and our ongoing review. However, we could suffer a series of losses within our self-insured retention limits or losses over our policy limits, which could negatively affect our financial condition and operating results. We are responsible for the first $1.0 million on each auto liability claim and for the first $750,000 on each workers’ compensation claim. We have $14.6 million in standby letters of credit to guarantee settlement of claims under agreements with our insurance carriers and regulatory authorities. The insurance and claims accruals in our consolidated condensed balance sheets were $25.6 million as of June 30, 2018 and $26.2 million as of December 31, 2017. We reserve currently for the estimated cost of the uninsured portion of pending claims. We periodically evaluate and adjust these reserves based on our evaluation of the nature and severity of outstanding individual claims and our estimate of future claims development based on historical development. Actual results could differ from these current estimates. In addition, to the extent that claims are litigated and not settled, jury awards are difficult to predict.

Share-based Payment Arrangement Compensation. We have granted stock options to certain employees and non-employee directors. We recognize compensation expense for all stock options net of an estimated forfeiture rate and only record compensation expense for those shares expected to vest on a straight-line basis over the requisite service period (normally the vesting period). Determining the appropriate fair value model and calculating the fair value of stock options require the input of highly subjective assumptions, including the expected life of the stock options and stock price volatility. We use the Black-Scholes model to value our stock option awards. We believe that future volatility will not materially differ from our historical volatility. Thus, we use the historical volatility of our common stock over the expected life of the award. The assumptions used in calculating the fair value of stock options represent our best estimates, but these estimates involve inherent uncertainties and the application of judgment. As a result, if factors change and we use different assumptions, stock option compensation expense could be materially different in the future.

We have also granted performance unit awards to certain employees which are subject to vesting requirements over a five-year period, primarily based on our earnings growth. The fair value of each performance unit is based on the closing market price on the date of grant. We recognize compensation expense for these awards based on the estimated number of units probable of achieving the performance and service vesting requirements of the awards, net of an estimated forfeiture rate.

See Note 16 of “Notes to Consolidated Condensed Financial Statements” for a full description of recent accounting pronouncements and the respective dates of adoption and effect on our results of operations and financial position.

We are exposed to a variety of market risks, most importantly the effects of the price and availability of diesel fuel. We require substantial amounts of diesel fuel to operate our tractors and power the temperature-control units on our trailers. The price and availability of diesel fuel can vary, and are subject to political, economic and market factors that are beyond our control. Significant increases in diesel fuel costs could materially and adversely affect our results of operations and financial condition. Based upon our fuel consumption in the first six months of 2018, a 5% increase in the average cost of diesel fuel would have increased our fuel expense by $3.0 million.

We have historically been able to pass through a significant portion of long-term increases in diesel fuel prices and related taxes to customers in the form of fuel surcharges. Fuel surcharge programs are widely accepted among our customers, though they can vary somewhat from customer-to-customer. These fuel surcharges, which adjust weekly with the cost of fuel, enable us to recover a substantial portion of the higher cost of fuel as prices increase. These fuel surcharge provisions are not effective in mitigating the fuel price increases related to non-revenue miles or fuel used while the tractor is idling. In addition, we have worked diligently to control fuel usage and costs by improving our volume purchasing arrangements and optimizing our drivers’ fuel purchases with national fuel centers, focusing on shorter lengths of haul, installing and tightly managing the use of auxiliary power units in our tractors to minimize engine idling and improving fuel usage in our trailers’ refrigeration units.

While we do not currently have any outstanding hedging instruments to mitigate this market risk, we may enter into derivatives or other financial instruments to hedge a portion of our fuel costs in the future.

As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the “Exchange Act”), we have carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this report. This evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and our Executive Vice President and Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and our Executive Vice President and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2018. There were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting. We intend to periodically evaluate our disclosure controls and procedures as required by the Exchange Act Rules.

Changes in Internal Control Over Financial Reporting. Beginning January 1, 2018, we implemented ASC 606, Revenue from Contracts with Customers. Although the new revenue standard is expected to have an immaterial impact on our ongoing net income, we did implement changes to our processes related to revenue recognition and the control activities within them. These included the development of new policies based on the five-step model provided in the new revenue standard, new training, ongoing contract review requirements, additional estimates of revenue and related expenses for loads in progress at period-ends, and gathering of information provided in disclosures.

We do not believe there are any material changes from the risk factors previously disclosed in Item 1A to Part 1 of our Form 10-K for the year ended December 31, 2017.

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

Delaware		39-1140809
(State of incorporation)		(I.R.S. employer identification no.)

Large accelerated filer ☐	Accelerated filer ☒
Smaller reporting company ☐	Non-accelerated filer ☐ (Do not check if a smaller reporting company)
Emerging growth company ☐

	Three Months				Six Months
	Ended June 30,				Ended June 30,
	2018		2017		2018		2017
Truckload Segment:
Revenue (in thousands)	$	94,404	$	94,914	$	187,421	$	190,572
Average revenue, net of fuel surcharges, per tractor per week⁽¹⁾	$	3,795	$	3,467	$	3,736	$	3,441
Average tractors⁽¹⁾		1,632		1,875		1,664		1,903
Average miles per trip		568		589		585		602
Total miles (in thousands)		39,502		45,736		80,084		91,796

Dedicated Segment:
Revenue (in thousands)	$	56,971	$	41,502	$	105,804	$	81,779
Average revenue, net of fuel surcharges, per tractor per week⁽¹⁾	$	3,282	$	3,488	$	3,275	$	3,475
Average tractors⁽¹⁾		1,107		851		1,058		840
Average miles per trip		300		292		299		296
Total miles (in thousands)		23,747		19,357		44,882		37,936

Intermodal Segment:
Revenue (in thousands)	$	25,470	$	19,115	$	50,122	$	38,301
Loads		10,622		9,793		21,359		19,377
Average tractors		91		81		86		79

Brokerage Segment:
Revenue (in thousands)	$	20,179	$	15,980	$	40,637	$	34,018
Loads		12,120		11,578		24,009		24,932

	Payments Due by Period
(In thousands)	Remainder of 2018		2019 And 2020		2021 And 2022		Thereafter		Total
Purchase obligations for revenue equipment	$	55,572	$	—	$	—	$	—	$	55,572
Operating lease obligations		163		403		5		—		571
Total	$	55,735	$	403	$	5	$	—	$	56,143

Item No.	Item	Method of Filing
3.5	Third Amendment to Amended and Restated Certificate of Incorporation effective May 18, 2018	Filed with this Report.

4.6	Third Amendment to Amended and Restated Certificate of Incorporation effective May 18, 2018	See Exhibit 3.5 above.

10.21	Named Executive Officer Compensation	Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed May 11, 2018.

10.23	2018 Non-Employee Director Compensation Summary	Incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed May 11, 2018.

31.1	Certification pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by Randolph L. Marten, the Registrant’s Chief Executive Officer (Principal Executive Officer)	Filed with this Report.

31.2	Certification pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by James J. Hinnendael, the Registrant’s Executive Vice President and Chief Financial Officer (Principal Financial Officer)	Filed with this Report.

32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed with this Report.

101	The following financial information from Marten Transport, Ltd.’s Quarterly Report on Form 10-Q for the period ended June 30, 2018, filed with the SEC on August 9, 2018, formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Condensed Balance Sheets as of June 30, 2018 and December 31, 2017, (ii) Consolidated Condensed Statements of Operations for the three and six-month periods ended June 30, 2018 and June 30, 2017, (iii) Consolidated Condensed Statements of Stockholders’ Equity for the six-month periods ended June 30, 2018, December 31, 2017, and June 30, 2017, (iv) Consolidated Condensed Statements of Cash Flows for the six-month periods ended June 30, 2018 and June 30, 2017, and (v) Notes to Consolidated Condensed Financial Statements.	Filed with this Report.

							Dollar			Percentage
							Change			Change
	Three Months Ended						Three Months Ended			Three Months Ended
	June 30,						June 30,			June 30,
(Dollars in thousands)	2018			2017			2018 vs. 2017			2018 vs. 2017
Operating revenue:
Truckload revenue, net of fuel surcharge revenue	$	80,525		$	84,480		$	(3,955	)		(4.7	)%
Truckload fuel surcharge revenue		13,879			10,434			3,445			33.0
Total Truckload revenue		94,404			94,914			(510	)		(0.5	)

Dedicated revenue, net of fuel surcharge revenue		47,232			38,601			8,631			22.4
Dedicated fuel surcharge revenue		9,739			2,901			6,838			235.7
Total Dedicated revenue		56,971			41,502			15,469			37.3

Intermodal revenue, net of fuel surcharge revenue		21,291			16,877			4,414			26.2
Intermodal fuel surcharge revenue		4,179			2,238			1,941			86.7
Total Intermodal revenue		25,470			19,115			6,355			33.2

Brokerage revenue		20,179			15,980			4,199			26.3

Total operating revenue	$	197,024		$	171,511		$	25,513			14.9	%

Operating income:
Truckload	$	8,689		$	7,511		$	1,178			15.7	%
Dedicated		5,584			5,074			510			10.1
Intermodal		2,512			2,040			472			23.1
Brokerage		1,438			944			494			52.3
Total operating income	$	18,223		$	15,569		$	2,654			17.0	%

Operating ratio⁽¹⁾:
Truckload		90.8	%		92.1	%
Dedicated		90.2			87.8
Intermodal		90.1			89.3
Brokerage		92.9			94.1
Consolidated operating ratio		90.8	%		90.9	%

	Dollar Change			Percentage Change			Percentage of Operating Revenue
	Three Months Ended June 30,			Three Months Ended June 30,			Three Months Ended June 30,
(Dollars in thousands)	2018 vs. 2017			2018 vs. 2017			2018			2017

Operating revenue	$	25,513			14.9	%		100.0	%		100.0	%
Operating expenses (income):
Salaries, wages and benefits		6,535			11.5			32.1			33.1
Purchased transportation		7,532			27.4			17.8			16.0
Fuel and fuel taxes		6,735			26.9			16.1			14.6
Supplies and maintenance		(290	)		(2.8	)		5.2			6.1
Depreciation		887			4.2			11.3			12.4
Operating taxes and licenses		112			5.0			1.2			1.3
Insurance and claims		93			1.1			4.5			5.2
Communications and utilities		160			10.8			0.8			0.9
Gain on disposition of revenue equipment		(289	)		(15.4	)		(1.1	)		(1.1	)
Other		1,384			33.4			2.8			2.4
Total operating expenses		22,859			14.7			90.8			90.9
Operating income		2,654			17.0			9.2			9.1
Other		(263	)		(210.4	)		(0.1	)		0.1
Income before income taxes		2,917			18.9			9.3			9.0
Income taxes expense		(1,644	)		(26.1	)		2.4			3.7
Net income	$	4,561			49.9	%		7.0	%		5.3	%

	Six Months Ended June 30,
(In thousands)	2018			2017
Net cash flows provided by operating activities	$	67,375		$	65,220
Net cash flows used for investing activities		(59,177	)		(46,965	)
Net cash flows used for financing activities		(1,986	)		(8,685	)

	MARTEN TRANSPORT, LTD.


Dated: August 9, 2018	By:	/s/ Randolph L. Marten
		Randolph L. Marten
		Chief Executive Officer
		(Principal Executive Officer)


Dated: August 9, 2018	By:	/s/ James J. Hinnendael
		James J. Hinnendael
		Executive Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)