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Note 14 - Employee Benefits
12 Months Ended
Dec. 31, 2018
Notes to Financial Statements  
Compensation and Employee Benefit Plans [Text Block]
1
4
. Employee Benefits
 
Equity Incentive Plans
- In
May 2015,
our stockholders approved our
2015
Equity Incentive Plan (the
“2015
Plan”). Our Board of Directors adopted the
2015
Plan in
March 2015.
Under our
2015
Plan, all of our employees and any subsidiary employees, as well as all of our non-employee directors,
may
be granted stock-based awards, including non-statutory stock options, performance unit awards and shares of common stock, of which
998,022
shares have been awarded as of
December 31, 2018.
Stock options expire within
7
or
10
years after the date of grant and the exercise price must be at least the fair market value of our common stock on the date of grant. Stock options issued to employees are generally exercisable beginning
one
year from the date of grant in cumulative amounts of
20%
per year. Performance unit awards are subject to vesting requirements over a
five
-year period, primarily based on our earnings growth. Options exercised and performance unit award shares issued represent newly issued shares. The maximum number of shares of common stock available for issuance under the
2015
Plan is
1,333,333
shares. As of
December 31, 2018,
there were
568,873
shares reserved for issuance under options outstanding and
349,814
shares reserved for issuance under outstanding performance unit awards under the
2015
Plan. The
2015
Plan replaces our
2005
Stock Incentive Plan (the
“2005
Plan”), which expired by its terms in
May 2015.
 
Under the
2005
Plan, officers, directors and employees were granted non-statutory stock options and performance unit awards with similar terms to the options and awards under the
2015
Plan. As of
December 31, 2018,
there were
370,320
shares reserved for issuance under options outstanding, which will continue according to their terms. As of the same date, there were
no
shares reserved for issuance under outstanding performance unit awards under the
2005
Plan.
No
additional awards will be granted under the
2005
Plan.
 
 
We use the Black-Scholes option pricing model to calculate the grant-date fair value of option awards. The fair value of service-based option awards granted was estimated as of the date of grant using the following weighted average assumptions:
 
   
201
8
   
2017
   
2016
 
                         
Expected option life in years
(1)
 
 
6.0
     
6.0
     
6.0
 
Expected stock price volatility percentage
(2)
 
 
26
%
   
25
%
   
25
%
Risk-free interest rate percentage
(3)
 
 
2.8
%
   
2.0
%
   
1.4
%
Expected dividend yield
(4)
 
 
0.48
%
   
0.59
%
   
0.50
%
Fair value as of the date of grant
 
$
6.19
    $
4.34
    $
3.17
 
 
(
1
)
Expected option life – We use historical employee exercise and option expiration data to estimate the expected life assumption for the Black-Scholes grant-date valuation. We believe that this historical data is currently the best estimate of the expected term of a new option. We use a weighted-average expected life for all awards.
 
(
2
)
Expected stock price volatility – We use our stock’s historical volatility for the same period of time as the expected life. We have
no
reason to believe that its future volatility will differ from the past.
 
(
3
)
Risk-free interest rate – The rate is based on the U.S. Treasury yield curve in effect at the time of the grant for the same period of time as the expected life.
 
(
4
)
Expected dividend yield – The calculation is based on the total expected annual dividend payout divided by the average stock price.
 
Compensation costs associated with service-based option awards with graded vesting are recognized, net of an estimated forfeiture rate, on a straight-line basis over the requisite service period, which is the period between the grant date and the award’s stated vesting term. Service-based option awards become immediately exercisable in full in the event of death or disability and upon a change in control with respect to all options that have been outstanding for at least
six
months.
 
In
May 2012,
we granted
98,750
performance unit awards under our
2005
Stock Incentive Plan to certain employees. This was our
third
grant of such awards. As of
December 31, 2012
and each
December 31
st
thereafter through
December 31, 2016,
each award vested and became the right to receive a number of shares of common stock equal to a total vesting percentage multiplied by the number of units subject to such award. The total vesting percentage for each of the
five
years was equal to the sum of a performance vesting percentage, which was the percentage increase, if any, in our diluted net income per share for the year being measured over the prior year, and a service vesting percentage of
five
percentage points. All payments were made in shares of our common stock. One half of the vested performance units were paid to the employees immediately upon vesting, with the other half being credited to the employees’ accounts within the Marten Transport, Ltd. Deferred Compensation Plan, which restricts the sale of vested shares to the later of each employee’s termination of employment or attainment of age
62.
   
In
May 2013,
we granted
104,250
performance unit awards with similar terms to the awards previously granted, and which vested from
December 31, 2013
through
2017.
 
In
May 2014,
we granted
60,668
performance unit awards with similar terms to the awards previously granted, and also granted
18,337
performance unit awards with similar terms to such awards, except that all vested performance units will be paid to the employees immediately upon vesting. All awards granted in
2014
vested from
December 31, 2014
through
2018.
 
In
May 2015,
we granted
58,335
performance unit awards under our
2015
Equity Incentive Plan with similar terms to the awards previously granted, and also granted
32,500
performance unit awards with similar terms to such awards, except that all vested performance units will be paid to the employees immediately upon vesting. All awards granted in
2015
vest from
December 31, 2015
through
2019.
 
In
May 2016,
we granted
57,669
performance unit awards under our
2015
Equity Incentive Plan with similar terms to the awards previously granted, except that the calculation of vesting shares is based on our increase in net income instead of our increase in diluted net income per share. As permitted in the performance unit award agreements granted in
2011
through
2015,
the calculation of the performance vesting component beginning with the year
2015
was adjusted to be based on the increase in net income. We also granted
21,671
performance unit awards in
May 2016
and
1,667
awards in
August 2016
with similar terms to such awards, except that all vested performance units will be paid to the employees immediately upon vesting. All awards granted in
2016
vest from
December 31, 2016
through
2020.
 
In
May 2017,
we granted
109,169
performance unit awards under our
2015
Equity Incentive Plan with similar terms to the awards granted in
2016,
except that the service-based component was increased from
five
percent to
ten
percent per year. The Compensation Committee adjusted the equity vesting formula to better align it with our long-range growth plan. We also granted
43,342
performance unit awards in
May 2017
and
2,000
awards in
August 2017
with similar terms to such awards, except that all vested performance units will be paid to the employees immediately upon vesting. All awards granted in
2017
vest from
December 31, 2017
through
2021.
 
In
May 2018,
we granted
45,700
performance unit awards under our
2015
Equity Incentive Plan with similar terms to the awards granted in
2017.
We also granted
28,000
performance unit awards in
May 2018
and
2,000
awards in
August 2018
with similar terms to such awards, except that all vested performance units will be paid to the employees immediately upon vesting. These awards granted in
2018
vest from
December 31, 2018
through
2022.
We also granted
2,000
performance unit awards in
December 2018
with similar terms to the awards granted in
August 2018,
except that the awards vest from
December 31, 2019
through
2023.
 
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 vesting requirements of the awards, net of an estimated forfeiture rate.
 
The amount of share-based compensation recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. We currently expect, based on an analysis of our historical forfeitures and known forfeitures on existing awards, that approximately
1.25%
of unvested outstanding awards will be forfeited each year. This analysis will be re-evaluated quarterly and the forfeiture rate will be adjusted as necessary. Ultimately, the actual expense recognized over the vesting period will only be for those shares that vest.
 
Total share-based compensation expense recorded in
2018
was
$3.3
million (
$2.6
million net of income tax benefit,
$0.05
earnings per basic and diluted share), in
2017
was
$1.3
million (
$738,000
net of income tax benefit,
$0.01
of earnings per basic and diluted share), and in
2016
was
$883,000
(
$547,000
net of income tax benefit,
$0.01
of earnings per basic and diluted share). All share-based compensation expense was recorded in salaries, wages and benefits expense.
 
As of
December 31, 2018,
there was a total of
$1.6
million of unrecognized compensation expense related to unvested service-based option awards, which is expected to be recognized over a weighted-average period of
3.2
years, and
$2.4
million of unrecognized compensation expense related to unvested performance unit awards, which will be recorded based on the estimated number of units probable of achieving the vesting requirements of the awards through
2022.
 
Effective
January 1, 2017,
we adopted the provisions of FASB ASU
No.
2016
-
09,
“Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting” which simplifies several aspects of the accounting for share-based payment transactions. The adoption of this standard resulted in decreases to our provision for income taxes in
2018
of
$319,000
and in
2017
of
$176,000,
as the actual increase in our stock price exceeded the grant-date fair value of the period’s exercised options and vested performance unit awards. Excess tax benefits were recognized in additional paid-in capital through
2016.
 
Option activity in
2018
was as follows:
 
   
Shares
   
Weighted
Average
Exercise Price
 
Outstanding at December 31, 2017
   
918,583
    $
12.02
 
Granted
   
154,500
     
21.26
 
Exercised
   
(105,588
)
   
8.91
 
Forfeited
   
(28,302
)
   
15.66
 
Outstanding at December 31, 2018
   
939,193
    $
13.78
 
Exercisable at December 31, 2018
   
545,713
    $
11.49
 
 
The
939,193
options outstanding as of
December 31, 2018
have a weighted average remaining contractual life of
3.8
years and an aggregate intrinsic value based on our closing stock price on
December 31, 2018
for in-the-money options of
$3.0
million. The
545,713
options exercisable as of the same date have a weighted average remaining contractual life of
2.7
years and an aggregate intrinsic value similarly calculated of
$2.6
million.
 
The fair value of options granted in
2018,
2017
and
2016
was
$957,000,
$592,000
and
$227,000,
respectively, for service-based options. The total intrinsic value of options exercised in
2018,
2017
and
2016
was
$1.5
million,
$830,000
and
$1.9
million, respectively. Intrinsic value is the difference between the fair value of the acquired shares at the date of exercise and the exercise price, multiplied by the number of options exercised. Proceeds received from option exercises in
2018,
2017
and
2016
were
$938,000,
$1.1
million and
$4.4
million, respectively.
 
Nonvested service-based option awards as of
December 31, 2018
and changes during
2018
were as follows:
 
   
Shares
   
Weighted
Average
Grant Date
Fair Value
   
Weighted
Average
Remaining
Contractual
Life
(in Years)
 
Nonvested at December 31, 2017
   
413,228
    $
3.79
     
5.1
 
Granted
   
154,500
     
6.19
     
6.7
 
Vested
   
(146,546
)
   
3.73
     
3.4
 
Forfeited
   
(27,702
)
   
4.26
     
5.1
 
Nonvested at December 31, 2018
   
393,480
    $
4.72
     
5.2
 
 
The total fair value of options which vested during
2018,
2017
and
2016
was
$547,000,
$515,000
and
$534,000,
respectively.
 
The following table summarizes our nonvested performance unit award activity in
2018:
 
   
Shares
   
Weighted Average
Grant Date
Fair Value
 
Nonvested at December 31, 2017
   
322,662
 
 
$
13.32
 
Granted
   
77,700
 
 
 
20.31
 
Vested
   
(182,481
)
(1)
 
14.55
 
Forfeited
   
(31,973
)
 
 
13.81
 
Nonvested at December 31, 2018
   
185,909
 
 
$
14.89
 
 
(
1
)
This number of performance unit award shares vested based on our financial performance in
2018
and was distributed or credited to the Marten Transport, Ltd. Deferred Compensation Plan in
February 2019.
As permitted in the performance unit award agreements granted in
2014
and
2015,
the Compensation Committee of our Board of Directors adjusted the calculation of the performance vesting component for
2018
to be based on our increase in net income instead of our increase in diluted net income per share. Additionally, the
$56.5
million deferred income taxes benefit in
2017
related to the federal Tax Cuts and Jobs Act of
2017
was excluded from the calculation of the increase in net income from
2017
to
2018.
The calculation of the increase in net income also included an adjustment of
2017
net income to reflect a federal income tax rate of
21%
instead of
35%,
to be consistent with the federal rate in
2018.
 The fair value of unit award shares that vested in
2018
was
$2.7
million.
 
 
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
three
months of service. Participants are able to contribute up to the limit set by law, which in
2018
was
$18,500
for participants less than age
50
and
$24,500
for participants age
50
and above. We contribute
35%
of each participant’s contribution, up to a total of
6%
contributed. Our contribution vests at the rate of
20%
per year for the
first
through
fifth
years of service. In addition, we
may
make elective contributions as determined by the Board of Directors.
No
elective contributions were made in
2018,
2017
or
2016.
Total expense recorded for the plan was
$2.3
million in
2018
and
$2.1
million in each of
2017
and
2016.
 
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.