<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: Commission file number:
DECEMBER 31, 1996 0-15010
____________________
MARTEN TRANSPORT, LTD.
(Exact name of registrant as specified in its charter)
DELAWARE 39-1140809
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
129 MARTEN STREET 54755
MONDOVI, WISCONSIN (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (715) 926-4216
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE
____________________
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES /X/ NO / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. /X/
As of March 21, 1997, 2,959,616 shares of Common Stock of the Registrant
were deemed outstanding, and the aggregate market value of the Common Stock
of the Registrant (based upon the average of the closing bid and asked prices
of the Common Stock at that date as reported by the Nasdaq National Market),
excluding outstanding shares beneficially owned by directors and executive
officers, was approximately $14,504,592.
Part II of this Annual Report on Form 10-K incorporates by reference
information (to the extent specific pages are referred to herein) from the
Registrant's Annual Report to Shareholders for the year ended December 31,
1996 (the "1996 Annual Report"). Part III of this Annual Report on Form 10-K
incorporates by reference information (to the extent specific sections are
referred to herein) from the Registrant's Proxy Statement for its annual
meeting to be held May 13, 1997 (the "1997 Proxy Statement").
<PAGE>
PART I
ITEM 1. BUSINESS
(A) GENERAL DEVELOPMENT OF BUSINESS.
Marten Transport, Ltd. ("the Company") is a long-haul truckload
carrier providing protective service transportation, which is temperature
controlled or insulated carriage of temperature sensitive materials and
general commodities and carriage of time sensitive freight, pursuant to
operating authority, both contract and common, granted by the Interstate
Commerce Commission ("ICC") and currently regulated by the United States
Department of Transportation ("DOT") and the Federal Highway Administration
("FHWA").
As of December 31, 1996, the Company operated a fleet consisting of
1,174 tractors and 1,589 trailers (all of which are protective service
trailers). Of the total fleet, 929 tractors and 1,586 trailers were
Company-owned and 245 tractors and 3 trailers were under contract with
independent contractors who also provide the services of a driver
satisfactory to the Company. As of December 31, 1996, the Company had 1,261
employees, including 989 drivers, none of whom is represented by a collective
bargaining unit.
The Company was organized under Wisconsin law in 1970 as a successor
to a sole proprietorship operated by Roger R. Marten since 1946. In 1988,
the Company reincorporated under Delaware law. The Company's executive
offices are located at 129 Marten Street, Mondovi, Wisconsin 54755, and its
telephone number is (715) 926-4216.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
Since its inception, the Company's revenue, operating profits and
assets have been attributable primarily to one business segment--long-haul
truckload carriage of temperature and time sensitive materials and general
commodities.
(C) NARRATIVE DESCRIPTION OF BUSINESS.
The Company specializes in protective service transportation of foods,
chemicals and other products that require temperature controlled or insulated
carriage. The Company also provides carriage of dry freight for customers
requiring the special services the Company offers. In 1996, the Company
derived approximately 75% of its revenue from hauling products requiring
protective service and 25% of its revenue from hauling dry freight. Most of
the Company's dry freight loads require special services the Company offers
or permit the Company to position its equipment for hauling protective
service loads. The specialized transportation services offered by the
Company include:
/ / dependable, late model tractors which allow timely deliveries
/ / late model temperature controlled trailers
/ / scheduled pickups and deliveries
/ / assistance in loading and unloading
/ / the availability of extra trailers that can be placed for the
convenience of customers
<PAGE>
/ / sufficient equipment to respond promptly to customers' varying
requirements
/ / an on-line computer system which allows customers to obtain
information regarding the status of deliveries
MARKETING AND CUSTOMERS
Senior management and marketing personnel seek customers whose
products require protective or other specialized services and who ship
multiple truckloads per week. To minimize empty miles, the Company places
special emphasis on soliciting customers whose shipping requirements allow
the Company to balance the number of load originations and terminations in
any given area.
A key element of the Company's emphasis on service is its strong
commitment to accommodating the individualized requirements of its customers.
The Company has developed an electronic data interchange ("EDI") system,
through which the Company can provide its customers with current information
regarding the location and status of shipments in transit. This system also
allows customers to place orders, and the Company to bill customers,
electronically. The Company also utilizes a satellite tracking system that
enhances monitoring of truck and shipment locations.
The Company maintains marketing offices in its Wisconsin
headquarters, as well as other selected locations throughout the United
States. Marketing personnel travel in their assigned regions to solicit new
customers and maintain contact with existing customers. Once a customer
relationship is established, the primary Company contact is one of the
Company's customer service managers. Working from the Company's terminal in
Mondovi, Wisconsin, the customer service managers regularly contact existing
customers to solicit additional business on a load-by-load basis,
particularly when equipment will be available nearby following a completed
haul. Each customer service manager is assigned to particular customers and
is responsible for monitoring overall transportation and service requirements
as well as freight movements for each assigned customer. These efforts to
coordinate shipper needs with equipment availability have been instrumental
in maintaining an average empty mile factor of 6.9% in 1996.
The Company sets its own freight rates instead of using those
published by tariff publishing bureaus, which allows the Company to offer
rates that are more responsive to market conditions and the level of service
required by a particular customer. The Company's rate structure is designed
to compensate the Company for the cost of protective service revenue
equipment as well as hauling loads into areas that generate empty miles.
The Company derived approximately 13% of its revenue in 1996 and 11%
of its revenue in 1995 from a single customer, The Pillsbury Company. The
Company derived approximately 12% of its revenue in 1994 from the Phillip
Morris group of companies, which included 11 different accounts in 1994.
OPERATIONS
The Company's operations are designed for efficient use of equipment
while maintaining the emphasis placed on providing individualized service to
customers. The Company's computer system provides real-time, on-line
information to track shipments and increase equipment utilization as well as
to assist management in long-range planning and trend analysis.
The Company maintains its dispatch operations in its Mondovi,
Wisconsin, headquarters. Customer service managers are assigned to
particular customers and regions and work closely with the Company's fleet
managers, marketing personnel and drivers. Loads are assigned to drivers by
load planners. Loads are then dispatched by fleet managers who are assigned
a group of drivers regardless of load destination. Once a load has been
dispatched, a fleet manager is responsible for its proper and efficient
delivery and tracks the status and location of that load through daily
contact with drivers. Customer service managers coordinate with the
Company's marketing personnel to match customer needs with Company capacity
and location of
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revenue equipment. Each driver is monitored daily on his/her location, load
temperature and any problems by the appropriate fleet manager. This
information, along with information concerning available loads, is constantly
updated on the Company's computer system. Computer-generated information is
used to meet delivery schedules, respond to customer inquiries and match
available equipment with loads.
The Company's primary traffic lanes are between the Midwest and the
West Coast, Pacific Northwest, Southwest, Southeast, East Coast and from
California to the Pacific Northwest. The average length of a trip (one-way)
was 1,095 miles during 1996, 1,145 miles during 1995 and 1,132 miles during
1994. The Company's loads generally move from origin directly to
destination, thus eliminating any need for freight terminals. The Company
operates maintenance facilities in Mondovi, Wisconsin; Ontario, California;
Wilsonville, Oregon; and Jonesboro, Georgia.
The Company has agreements with various fuel distributors which
enable drivers to purchase fuel at a discount while in transit. The Company
also purchases fuel in bulk in Mondovi and at its maintenance facilities.
DRIVERS
As of December 31, 1996, the Company employed 989 drivers and had
contracts with independent contractors for the services of 245 tractors that
provide both a tractor and a qualified driver for the Company's use. The
Company recruits drivers from throughout the United States. The ratio of
drivers to tractors as of December 31, 1996, was 1 to 1. None of the
Company's drivers is represented by a collective bargaining unit. The
Company's turnover of drivers was approximately 70% in 1996, which the
Company believes is in line with turnover rates in the industry, based on
industry surveys.
Drivers, including independent contractors, are selected in
accordance with specific Company guidelines relating to safety records,
driving experience and personal evaluations. A new driver is trained in all
phases of Company policies and operations as well as safety techniques and
fuel-efficient operation of the equipment. All new drivers must also pass a
road test prior to assignment to a vehicle. The Company maintains a
toll-free number, satellite tracking and a staff of fleet managers to provide
timely communication and support for drivers while on the road for extended
periods.
To retain qualified drivers and promote safe operations, the Company
purchases premium quality tractors and equips them with optional comfort and
safety features, including air ride suspension, air conditioning,
high-quality interiors, power steering, engine brakes and double sleeper
cabs. The Company maintains stringent screening, training and testing
procedures for its drivers to reduce the potential for accidents and the
corresponding cost of insurance and claims.
Company-employed drivers receive a fixed rate per mile which is
increased based on the driver's length of service. Drivers are also eligible
for bonuses based upon safe, efficient driving. The Company believes that
its compensation program provides an important incentive to attract and
retain qualified drivers. Drivers that have been with the Company for at
least six months are also eligible to purchase shares of Company Common Stock
pursuant to a stock purchase plan sponsored by the Company, which provides
that the Company will pay the brokerage commissions on purchases and the
costs of administering the plan.
The Company compensates independent contractors on the basis of a
fixed rate per mile or a percentage of revenue from loads hauled.
Independent contractors pay their own fuel, insurance, maintenance and
repairs and other expenses. Independent contractors that have been under
contract with the Company for at least six months are also eligible to
purchase shares of Company Common Stock pursuant to a stock purchase plan
sponsored by the Company, which provides that the Company will pay the
brokerage commissions on purchases and the costs of administering the plan.
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REVENUE EQUIPMENT
The trucking industry requires significant capital investment in
revenue equipment. The Company has elected to finance its revenue equipment
purchases using long-term debt with significant current maturities, causing a
working capital deficit. The Company has operated effectively with a working
capital deficit due to a combination of operating profits, short turnover in
accounts receivable and cash management.
The Company's policy is to purchase tractors and trailers
manufactured to Company specifications. The Company's tractors are
manufactured by Freightliner, Kenworth or Peterbilt. Most of the Company's
tractors are equipped with 370/430 horsepower Detroit Diesel or Cummins
engines, which are designed to enable the equipment to maintain constant
speed with optimum fuel economy under conditions often encountered by the
Company's equipment, such as mountainous terrain and maximum weight loads.
Most of the Company's single van trailers are manufactured by Utility, Great
Dane or Wabash and are equipped with Thermo-King cooling and heating
equipment. The current cost of a temperature-controlled, protective service
trailer is approximately $40,000. Standardization of equipment enables the
Company to simplify driver training, control the cost of spare parts
inventory, enhance its preventive maintenance program and increase fuel
economy.
The following table shows the type and age of equipment owned by the
Company as of December 31, 1996:
<TABLE>
<CAPTION>
Model year Tractors Single van trailers
<S> <C> <C>
1997 124 180
1996 342 496
1995 256 262
1994 157 240
1993 49 277
1992 1 109
1991 --- 14
1990 --- 6
1989 --- 2
----- -----
Total 929 1,586
----- -----
</TABLE>
The single van refrigerated trailers are 48 feet long (977 trailers)
or 53 feet long (609 trailers) by 102 inches wide with a minimum of 102
inches of inside height.
The Company's policy is to replace its tractors and trailers based on
factors such as age, the market for used equipment and improvements in
technology and fuel efficiency. In 1997, the Company plans to purchase 157
tractors (for which 121 tractors will be traded) and 300 trailers (for which
107 trailers will be traded).
The Company has a comprehensive maintenance program for its
Company-owned tractors and trailers to minimize equipment downtime and
enhance resale value. Inspections, repairs and maintenance are performed
regularly at the Company's facilities in Mondovi, Wisconsin; Ontario,
California; Jonesboro, Georgia; and Wilsonville, Oregon, and at independent
contract maintenance facilities in the Company's service territory. The
Company's tractors and trailers are washed regularly to enhance appearance
and prolong equipment life.
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EMPLOYEES
As of December 31, 1996, the Company employed 1,261 people, of whom
989 were drivers, 109 were mechanics and maintenance personnel and 163 were
support personnel, including management and administration. None of the
Company's employees is represented by a collective bargaining unit, and the
Company considers relations with its employees to be good.
COMPETITION
The trucking industry is highly competitive. The Company competes
primarily with other protective service truckload carriers and with private
carriage fleets. For freight that does not require protective service
trailers, the Company also competes with dry freight truckload carriers and
to a lesser extent with railroads. The Company competes primarily on the
basis of its quality of service and its ability to provide protective service
and other specialized services. Several other truckload carriers offering
protective service have substantially greater financial resources than the
Company, own more equipment and carry a larger volume of freight than the
Company.
REGULATION
The Company is a motor common and contract carrier regulated by the
DOT and the FHWA along with various state agencies. These regulatory
authorities have broad powers, generally governing activities such as
authority to engage in motor carrier operations, rates and charges, and
certain mergers, consolidations and acquisitions. The Motor Carrier Act of
1980 (the "MCA") substantially increased competition among motor carriers and
limited the level of regulation in the industry. The MCA enabled applicants
to obtain ICC operating authority more easily and allowed interstate motor
carriers such as the Company to change their rates without ICC approval. The
law also allowed for the removal of many route and commodity restrictions on
the transportation of freight. The Trucking Industry Regulatory Reform Act
of 1994 (the "TIRRA") has further increased industry competition and limited
industry regulation. The TIRRA repealed tariff filing for individually
determined rates; simplified the granting of ICC operating authority; and
pre-empted price, route and service regulation by the states. Effective
January 1, 1996, the ICC Termination Act of 1995 abolished the ICC and
transferred its regulatory authority to the DOT and the FHWA.
Motor carrier operations are subject to safety requirements
prescribed by the DOT governing interstate operations. Such matters as
weight and dimensions of equipment are also subject to federal and state
regulations.
The Company also has operating authority in the Canadian Provinces of
Alberta, British Columbia, Manitoba, Ontario, Quebec and Saskatchewan.
ITEM 2. PROPERTIES
The Company's executive offices and principal terminal are located on
approximately seven acres in Mondovi, Wisconsin, and currently consists of
approximately 28,000 square feet of office space and approximately 21,000
square feet of equipment repair and maintenance space. It was originally
constructed in 1965 and was expanded in 1971, 1980, 1987 and 1993.
The Company also maintains a maintenance facility in Ontario,
California. This facility is currently leased from R & R Properties, a
sole-proprietorship owned by Randolph L. Marten, for a period of 5 years
terminating December 31, 1999. The current lease provides for rent of
$126,000 per year from 1995 through 1999. This rent is based on the debt
service of R & R Properties to finance this facility. The Company is required
to bear the cost of insurance, maintenance and repairs, taxes, special
assessments and utilities. In
5
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1993, the Company remodeled this facility. This facility includes
approximately 2,700 square feet of office space and 8,000 square feet of
equipment repair and maintenance space. The parking lot measures 150,000
square feet.
The Company purchased a maintenance facility in Jonesboro, Georgia in
1993. The building at this facility measures approximately 12,500 square feet
and consists of office space and a two and one-half bay service and repair
space. This facility also has parking for up to forty tractors and trailers.
The Company purchased a maintenance facility in Wilsonville, Oregon
in 1995. The building at this facility, which is approximately 20,000 square
feet, consists of office space and an eight-bay service and repair space.
This facility also has an eight acre paved and fenced yard area.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to routine litigation incidental to its
business, primarily involving claims for personal injury and property damage
incurred in the transport of freight. The Company self-insures for property
damage and cargo claims. The Company partially self-insures for losses
related to automobile liability, general liability, workers' compensation
claims and employees' group health benefits. The Company also maintains an
insurance policy that limits annual aggregate Company losses to $9 million
for automobile liability, workers' compensation and general liability claims.
The Company believes that its current liability limit is reasonable under
the circumstances. It is possible, however, that the Company could incur
liability in excess of its policy limits, in which case its financial
condition could be adversely affected.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this Report.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's executive officers and their ages along with the
offices held as of March 1, 1997, are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- ---------
<S> <C> <C>
Randolph L. Marten 44 Chairman of the Board, President,
Chief Operating Officer and Director
Darrell D. Rubel 51 Executive Vice President, Chief Financial
Officer, Treasurer, Assistant Secretary and
Director
Timothy P. Nash 45 Vice President of Sales
Franklin J. Foster 40 Vice President of Finance
Robert G. Smith 53 Vice President of Operations
</TABLE>
Randolph L. Marten has been a full time employee of the Company since
1974. Mr. Marten has been a Director of the Company since October 1980, its
President and Chief Operating Officer since June 1986 and its Chairman of the
Board since August 1993. Mr. Marten was Vice President of the Company from
October 1980 to June 1986.
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Darrell D. Rubel has been a Director of the Company since February
1983, its Chief Financial Officer since January 1986, its Treasurer since
June 1986 and its Executive Vice President since May 1993. Mr. Rubel was
also Secretary of the Company from June 1986 until August 1987 and Vice
President from January 1986 until May 1993, and has been Assistant Secretary
since August 1987.
Timothy P. Nash has been Vice President of Sales since November 1990
and was Regional Sales Manager from July 1987 to November 1990. Mr. Nash was
a regional sales manager for Overland Express, Inc., a long-haul truckload
carrier, from August 1986 to July 1987.
Franklin J. Foster has been Vice President of Finance since December
1991 and was Director of Finance from January 1991 to December 1991. Mr.
Foster was a vice president in commercial banking for First Bank National
Association from October 1985 to January 1991.
Robert G. Smith has been Vice President of Operations since June 1993
and was Director of Operations from September 1989 to June 1993. Mr. Smith
was director of operations for Transport Corporation of America, an
irregular-route truckload carrier, from January 1985 to September 1989.
Executive officers of the Company are elected by the Board of
Directors for one-year terms, commencing with their election at the first
meeting of the Board of Directors immediately following the annual meeting of
shareholders and continuing until the next such meeting of the Board of
Directors.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information under the caption "Common Stock Data" on page 20
of the Company's 1996 Annual Report is incorporated herein by reference.
The Company did not have any unregistered sales of equity securities
during the fourth quarter of the fiscal year ended December 31, 1996.
ITEM 6. SELECTED FINANCIAL DATA
The financial information under the caption "Five-Year Financial
Summary" on page 10 of the Company's 1996 Annual Report is incorporated
herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on page 11 of the
Company's 1996 Annual Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Financial Statements and the report of its independent
public accountants on pages 12 through 19 of the Company's 1996 Annual Report
are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
A. DIRECTORS OF THE REGISTRANT.
The information under the captions "Election of
Directors--Information About Nominees" and "Election of Directors--Other
Information About Nominees" in the Company's 1997 Proxy Statement is
incorporated herein by reference.
B. EXECUTIVE OFFICERS OF THE REGISTRANT.
Information concerning Executive Officers of the Company is included
in this Report under Item 4A, "Executive Officers of the Registrant."
C. COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The information contained under the caption "Section 16 Compliance"
in the Company's 1997 Proxy Statement is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information under the captions "Election of Directors--Director
Compensation" and "Compensation and Other Benefits" in the Company's 1997
Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the caption "Principal Stockholders and
Beneficial Ownership of Management" in the Company's 1997 Proxy Statement is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the caption "Certain Transactions" in the
Company's 1997 Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) 1. FINANCIAL STATEMENTS:
The following Financial Statements are incorporated herein
by reference from the pages indicated in the Company's 1996
Annual Report:
Report of Independent Public Accountants - page 19
Balance Sheets as of December 31, 1996 and 1995 - page 12
Statements of Operations for the years ended December 31,
1996, 1995 and 1994 - page 13
8
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Statements of Changes in Shareholders' Investment for the
years ended December 31, 1996, 1995 and 1994 - page 13
Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994 -page 14
Notes to Financial Statements - page 15 - 19
2. FINANCIAL STATEMENT SCHEDULES:
None.
3. EXHIBITS:
The exhibits to this Report are listed in the Exhibit Index
on pages 11 -13 of this Annual Report on Form 10-K. A copy of
any of the exhibits listed or referred to above will be
furnished at a reasonable cost to any person who was a
shareholder of the Company as of March 26, 1997, upon receipt
from any such person of a written request for any such
exhibit. Such request should be sent to Darrell D. Rubel,
Executive Vice President and Chief Financial Officer, Marten
Transport, Ltd., 129 Marten Street, Mondovi, Wisconsin 54755.
The following is a list of each management contract or
compensatory plan or arrangement required to be filed as an
Exhibit to this Annual Report on Form 10-K pursuant to Item
14(c):
(1) Marten Transport, Ltd. 1986 Incentive Stock Option
Plan, as amended.
(2) Marten Transport, Ltd. 1986 Non-Statutory Stock Option
Plan, as amended.
(3) Employment Agreement, dated May 1, 1993, between
the Company and Darrell D. Rubel.
(4) Marten Transport, Ltd. 1995 Stock Incentive Plan.
(B) Reports on Form 8-K: None during the fourth quarter of the fiscal
year ended December 31, 1996.
9
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: March 31, 1997 MARTEN TRANSPORT, LTD.
By /s/ Randolph L. Marten
--------------------------------
Randolph L. Marten
Chairman of the Board,
President and Chief
Operating Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below on March 31, 1997 by the following persons
on behalf of the Registrant and in the capacities indicated.
Signature Title
/s/ Randolph L. Marten Chairman of the Board,
- ---------------------------------- President, Chief Operating
Randolph L. Marten Officer (Principal Executive
Officer) and Director
/s/ Darrell D. Rubel Executive Vice President, Chief
- ---------------------------------- Financial Officer, Treasurer,
Darrell D. Rubel Assistant Secretary (Principal
Financial and Accounting Officer)
and Director
/s/ Larry B. Hagness
- ---------------------------------- Director
Larry B. Hagness
/s/ Thomas J. Winkel
- ---------------------------------- Director
Thomas J. Winkel
/s/ Jerry M. Bauer
- ---------------------------------- Director
Jerry M. Bauer
10
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MARTEN TRANSPORT, LTD.
EXHIBIT INDEX TO ANNUAL REPORT
ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
ITEM NO. ITEM METHOD OF FILING
<S> <C> <C>
3.1 Certificate of Incorporation of the Company . . . . . . Incorporated by reference to Exhibit 4.1
to the Company's Registration Statement
on Form S-8 (File No. 33-75648).
3.2 Bylaws of the Company . . . . . . . . . . . . . . . . . Incorporated by reference to Exhibit 4.2
to the Company's Registration Statement
on Form S-8 (File No. 33-75648).
4.1 Specimen form of the Company's
Common Stock Certificate . . . . . . . . . . . . . . . Incorporated by reference to Exhibit 4.1
to the Company's Registration Statement
on Form S-1 (File No. 33-8108).
4.2 Certificate of Incorporation of the Company . . . . . . See Exhibit 3.1
4.3 Bylaws of the Company . . . . . . . . . . . . . . . . . See Exhibit 3.2
9.1 Voting Trust Agreement dated February 14,
1983, as amended . . . . . . . . . . . . . . . . . . . Incorporated by reference to Exhibit 9.1
to the Company's Registration Statement
on Form S-1 (File No. 33-8108).
9.2 Agreement regarding Voting Trust
Agreement, dated May 4, 1993 . . . . . . . . . . . . . Incorporated by reference to Exhibit 19.2
to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1993 (File No. 0-15010).
10.1 Marten Transport, Ltd. 1986 Incentive
Stock Option Plan, as amended . . . . . . . . . . . . . Incorporated by reference to Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1986 (File No. 0-15010).
10.2 Marten Transport, Ltd. 1986 Non-Statutory
Stock Option Plan, as amended . . . . . . . . . . . . . Incorporated by reference to Exhibit 10.2 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1987 (File No. 0-15010).
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<S> <C> <C>
10.3 Real Estate Lease dated November 29, 1994
between the Company, as Lessee, and
R & R Properties and Randolph L. Marten, as Lessor . . . Incorporated by reference to Exhibit 10.3 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 (File No. 0-15010).
10.4 Stock Restriction Agreement among
Roger R. Marten, Randolph L. Marten
and Darrell D. Rubel . . . . . . . . . . . . . . . . . . Incorporated by reference to Exhibit 10.5 to the Company's
Registration Statement on Form S-1 (File No. 33-8108).
10.5 Agreement on Credit Terms dated as
of January 5, 1990 between the Company
and First Bank National Association . . . . . . . . . . Incorporated by reference to Exhibit 10.10 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1989 (File No. 0-15010).
10.6 Amendment to Agreement on Credit Terms
dated as of July 31, 1990 between the
Company and First Bank National Association . . . . . . Incorporated by reference to Exhibit 10.10 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1990 (File No. 0-15010).
10.7 Lease Agreement and Supplement No. 1
to Lease Agreement dated April 1, 1990
between the Company and Barclays Leasing, Inc. . . . . . Incorporated by reference to Exhibit 10.12 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1990 (File No. 0-15010).
10.8 Lease Agreement dated September 12, 1990
between the Company and Truck Country of WI, Inc. . . . Incorporated by reference to Exhibit 10.13 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1991 (File No. 0-15010).
10.9 Security Agreement dated January 12,
1990, as amended, between the Company
and First Bank National Association . . . . . . . . . . Incorporated by reference to Exhibit 10.15 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1992 (File No. 0-15010).
12
<PAGE>
<S> <C> <C>
10.10 Second Amendment to Agreement on
Credit Terms dated May 31, 1991
between the Company and First
Bank National Association. . . . . . . . . . . . . . . Incorporated by reference to Exhibit 10.16 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1992 (File No. 0-15010).
10.11 Amendment No. 3 to Agreement on Credit Terms
dated May 17, 1993 between the Company and
First Bank National Association . . . . . . . . . . . . Incorporated by reference to Exhibit 19.3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1993
(File No. 0-15010).
10.12 Employment Agreement dated May 1,
1993 between the Company and Darrell D. Rubel. . . . . . Incorporated by reference to Exhibit 19.1 to the
Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993 (File No. 0-15010)
10.13 Stock Redemption Agreement dated
June 21, 1994 between the Company
and Darrell D. Rubel, as Personal
Representative of the Estate of Roger R. Marten . . . . Incorporated by reference to Exhibit 10.16 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 (File No. 0-15010).
10.14 Marten Transport, Ltd. 1995 Stock Incentive Plan . . . . Incorporated by reference to Exhibit 10.18 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 (File No. 0-15010).
13.1 1996 Annual Report to Shareholders-pages 10-21. . . . . Filed herewith.
23.1 Consent of Arthur Andersen LLP. . . . . . . . . . . . . Filed herewith.
27.1 Financial Data Schedule . . . . . . . . . . . . . . . . Filed herewith.
</TABLE>
13
<PAGE>
FIVE-YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
Years ended December 31,
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS) 1996 1995 1994 1993 1992
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR
Operating revenue . . . . . . . . . . . . . . . . $ 146,151 $ 137,704 $ 122,730 $ 112,180 $ 98,194
Operating income. . . . . . . . . . . . . . . . . 6,160 11,378 13,015 11,359 7,678
Income before extraordinary item. . . . . . . . . 1,630 5,009 6,375 5,462 3,434
Net income. . . . . . . . . . . . . . . . . . . . 1,630 5,009 6,375 6,345(1) 3,434
PER-SHARE DATA
Income before extraordinary item. . . . . . . . . $ .55 $ 1.69 $ 2.00 $ 1.58 $ 1.00
Net income. . . . . . . . . . . . . . . . . . . . .55 1.69 2.00 1.84(1) 1.00
AT YEAR END
Total assets. . . . . . . . . . . . . . . . . . . $ 138,135 $ 123,141 $ 105,648 $ 96,776 $ 81,434
Long-term obligations . . . . . . . . . . . . . . 33,505 27,079 24,917 21,117 20,523
Shareholders' investment. . . . . . . . . . . . . 40,044 38,242 33,104 34,729 28,384
</TABLE>
(1) Includes extraordinary item, proceeds of $883,000 ($.26 per share) from
life insurance policy on Roger Marten, founder of Marten Transport.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations. Operating revenue for the year ended December 31,
1996, increased 6 percent over 1995, compared with increases of 12 percent in
1995 and 9 percent in 1994. These increases were the result of transporting
additional freight associated with additions to the company's fleet each of
the last three years. Operating revenue in 1996 was adversely impacted by
lower average freight rates and reduced equipment utilization, which the
company attributes to increased competition in the protective service sector.
Freight rates increased slightly in 1995 and 1994, while equipment
utilization, measured by miles per tractor, declined in 1995 and 1994.
Additionally, fuel surcharges were in effect during most of 1996, partially
offsetting an increase in the cost of diesel fuel. Fuel surcharges, which
totaled $1.4 million in 1996, were not in place during 1995 or 1994.
Management expects operating revenue in 1997 to exceed 1996 levels due to
planned additions to the company's fleet.
Operating expenses for 1996 represented 95.8 percent of operating
revenue, compared with 91.7 percent in 1995 and 89.4 percent in 1994. Reduced
equipment utilization was the primary reason for the increase in this ratio
during the last three years, while lower freight rates were a factor during
1996. Operating expenses increased 11 percent in 1996, 15 percent in 1995 and
9 percent in 1994.
Most expense categories increased during the three years ended December 31,
1996, due to the transportation of additional freight and expansion of
Marten's fleet. Purchased transportation expense also increased during this
three-year period due to a higher number of independent contractor-owned
vehicles. Independent contractors assume responsibility for their own
salaries, wages and benefits expense, as well as their own fuel and fuel tax
expense. Accordingly, the company's expenses in these categories were reduced
relative to revenue. The average price of diesel fuel increased significantly
during 1996, as compared with relatively stable prices in the previous two
years. Insurance and claims expense as a percentage of revenue declined
slightly during the last three years, representing 4.7 percent of revenue in
1996, 4.8 percent in 1995 and 5.0 percent in 1994. These decreases were the
result of favorable accident experience combined with adequate loss reserves.
Depreciation expense has increased in the last three years due to additions
to the company's fleet. Depreciation expense in 1995 was partially offset by
a $290,000 expense reduction resulting from a change in the estimated useful
life of the company's satellite tracking equipment. In 1994, Marten changed
the estimated salvage value of other revenue equipment in response to a
change in the market value realized for used equipment and the resulting
gains on the disposition of revenue equipment. This adjustment decreased 1994
depreciation expense by $554,000. Management anticipates that 1997 operating
expenses as a percentage of revenue will remain at or below current levels.
Interest expense as a percentage of revenue increased to 2.5 percent of
revenue in 1996, compared with 2.3 percent in 1995 and 2.1 percent in 1994.
These increases were the result of additional long-term debt associated with
new equipment purchases. Additionally, the company incurred long-term debt to
repurchase 500,000 shares of its common stock in 1994. Interest expense in
1997 is expected to remain at current levels.
The company's effective tax rate was 40 percent for the last three years.
Management expects that the effective tax rate will remain at 40 percent
during 1997.
Inflation can be expected to affect most of the company's operating
expenses. The impact of inflation, however, was minimal during the three
years ended December 31, 1996.
Capital Resources and Liquidity. Marten continued to replace and expand its
fleet with new, more efficient revenue equipment during the last three years.
In addition, the company purchased a maintenance facility in Oregon for
approximately $1.6 million in 1995. In 1994, the company repurchased 500,000
shares of its common stock for $8 million. These expenditures were funded
using cash flow from operations and long-term debt collateralized by the
company's revenue equipment. Long-term debt at December 31, 1996, increased
$8.6 million from December 31, 1995, compared with an increase of $5.1
million in 1995. Marten has committed to purchase an additional $19 million
of new revenue equipment, net of trade-in allowances, in 1997. Management
expects to fund these acquisitions with additional long-term debt and cash
flow from operations.
The company's working capital deficit at December 31, 1996, increased to
$12.4 million, compared with $10.8 million at December 31, 1995. This
increase was due primarily to additional insurance and claims reserves, as
well as an increase in long-term debt causing current maturities to increase.
The company has historically operated with a working capital deficit caused
primarily by current maturities of long-term debt associated with revenue
equipment purchases. Marten's operating profits, short turnover in accounts
receivable and cash management practices have adequately funded working
capital needs. Short-term borrowings have not been and are not expected to be
used to meet working capital requirements. Management believes the company's
liquidity is adequate to meet expected near-term operating requirements.
Seasonality. Historically, the trucking industry has experienced seasonal
fluctuations in revenue and expenses. Marten experiences revenue declines
after the winter holiday season as customers reduce shipments. Operating
expenses temporarily increase in the winter due to reduced fuel efficiency
and additional maintenance costs.
MARTEN TRANSPORT 1996 ANNUAL REPORT 11
<PAGE>
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
(IN THOUSANDS, EXCEPT SHARE INFORMATION) 1996 1995
---------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Notes 1 and 7)...................... $ 3,028 $ 3,330
Receivables:
Trade, less allowances of $558 and $438...................... 14,987 13,718
Other........................................................ 4,446 3,745
Prepaid expenses (Note 1)....................................... 6,339 5,949
Deferred income taxes (Note 5).................................. 3,456 2,766
--------------------------
Total current assets...................................... 32,256 29,508
--------------------------
PROPERTY AND EQUIPMENT (Notes 1, 2, 3 and 4):
Revenue equipment............................................... 131,248 123,722
Building and land............................................... 4,955 4,934
Office equipment and other...................................... 4,621 4,238
Less accumulated depreciation and amortization.................. (34,945) (39,261)
--------------------------
Net property and equipment............................... 105,879 93,633
--------------------------
$ 138,135 $123,141
--------------------------
--------------------------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities:
Accounts payable................................................ $ 3,822 $ 3,225
Insurance and claims accruals (Note 1).......................... 13,558 11,794
Accrued liabilities............................................. 7,202 7,412
Current maturities of long-term debt (Notes 2 and 7)............ 20,100 17,914
--------------------------
Total current liabilities................................. 44,682 40,345
LONG-TERM DEBT, less current maturities (Notes 2 and 7)........... 33,505 27,079
DEFERRED INCOME TAXES (Note 5).................................... 19,904 17,475
--------------------------
Total liabilities........................................ 98,091 84,899
--------------------------
COMMITMENTS (Notes 1, 3 and 9)
SHAREHOLDERS' INVESTMENT (Notes 1, 4 and 6):
Common stock, $.01 par value per share, 10,000,000
shares authorized, 2,959,616 and 2,941,616 shares
issued and outstanding........................................ 30 29
Additional paid-in capital...................................... 9,581 9,410
Retained earnings............................................... 30,433 28,803
--------------------------
Total shareholders' investment........................... 40,044 38,242
--------------------------
$ 138,135 $ 123,141
--------------------------
--------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE BALANCE SHEETS.
12
<PAGE>
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
(IN THOUSANDS, EXCEPT SHARE INFORMATION) 1996 1995 1994
----------------------------------
<S> <C> <C> <C>
OPERATING REVENUE............................................................ $ 146,151 $ 137,704 $ 122,730
----------------------------------
OPERATING EXPENSES:
Salaries, wages and benefits............................................... 50,222 50,040 44,900
Purchased transportation................................................... 20,073 10,402 5,431
Fuel and fuel taxes........................................................ 25,997 24,332 22,462
Supplies and maintenance................................................... 14,166 14,042 11,826
Depreciation and amortization.............................................. 16,015 14,458 12,660
Operating taxes and licenses............................................... 3,376 3,192 2,781
Insurance and claims....................................................... 6,800 6,550 6,081
Communications and utilities............................................... 1,689 1,650 1,550
Gain on disposition of revenue equipment................................... (2,580) (2,927) (2,220)
Other...................................................................... 4,233 4,587 4,244
----------------------------------
139,991 126,326 109,715
----------------------------------
OPERATING INCOME............................................................. 6,160 11,378 13,015
----------------------------------
OTHER EXPENSES (INCOME):
Interest expense........................................................... 3,575 3,219 2,516
Interest income and other.................................................. (131) (189) (126)
----------------------------------
3,444 3,030 2,390
----------------------------------
INCOME BEFORE INCOME TAXES................................................... 2,716 8,348 10,625
PROVISION FOR INCOME TAXES (Note 5).......................................... 1,086 3,339 4,250
----------------------------------
NET INCOME................................................................. $ 1,630 $ 5,009 $ 6,375
----------------------------------
----------------------------------
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE............................ $ .55 $ 1.69 $ 2.00
----------------------------------
----------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
STATEMENTS OF CHANGES IN SHAREHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN RETAINED
(IN THOUSANDS, EXCEPT SHARE INFORMATION) SHARES AMOUNT CAPITAL EARNINGS TOTAL
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993......................... 3,429,950 $ 34 $ 10,865 $ 23,830 $ 34,729
Net income......................................... -- -- -- 6,375 6,375
Repurchase of common stock (Note 4)................ (500,000) (5) (1,584) (6,411) (8,000)
------------------------------------------------------------
Balance at December 31, 1994......................... 2,929,950 $ 29 $ 9,281 $ 23,794 $ 33,104
Net income......................................... -- -- -- 5,009 5,009
Issuance of common stock........................... 11,666 -- 129 -- 129
------------------------------------------------------------
Balance at December 31, 1995......................... 2,941,616 $ 29 $ 9,410 $ 28,803 $ 38,242
Net income......................................... -- -- -- 1,630 1,630
Issuance of common stock........................... 18,000 1 171 -- 172
------------------------------------------------------------
Balance at December 31, 1996......................... 2,959,616 $ 30 $ 9,581 $ 30,433 $ 40,044
------------------------------------------------------------
------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
MARTEN TRANSPORT 1996 ANNUAL REPORT 13
<PAGE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS) 1996 1995 1994
--------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Operations:
Net income...................................................................... $ 1,630 $ 5,009 $ 6,375
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization................................................. 16,015 14,458 12,660
Gain on disposition of revenue equipment...................................... (2,580) (2,927) (2,220)
Deferred tax provision........................................................ 1,739 3,153 3,325
Changes in other current operating items:
Receivables................................................................. (1,970) (966) (1,284)
Prepaid expenses............................................................ (390) (892) (306)
Accounts payable............................................................ 597 119 480
Other current liabilities................................................... 1,554 3,464 2,732
--------------------------------
Net cash provided by operating activities................................. 16,595 21,418 21,762
--------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Revenue equipment additions....................................................... (42,875) (37,320) (27,168)
Revenue equipment dispositions.................................................... 17,706 13,309 8,435
Building and land, office equipment and other additions, net...................... (512) (2,448) (849)
--------------------------------
Net cash used for investing activities.................................... (25,681) (26,459) (19,582)
--------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock.......................................................... 172 129 --
Common stock repurchased.......................................................... -- -- (8,000)
Long-term borrowings.............................................................. 30,112 22,559 21,139
Repayment of long-term borrowings................................................. (21,500) (17,446) (17,529)
--------------------------------
Net cash provided by (used for) financing activities...................... 8,784 5,242 (4,390)
--------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................................. (302) 201 (2,210)
CASH AND CASH EQUIVALENTS:
Beginning of year................................................................. 3,330 3,129 5,339
--------------------------------
End of year....................................................................... $ 3,028 $ 3,330 $ 3,129
--------------------------------
CASH PAID (RECEIVED) FOR:
Interest.......................................................................... $ 3,585 $ 3,144 $ 2,552
--------------------------------
--------------------------------
Income taxes...................................................................... $ (446) $ (135) $ 820
--------------------------------
--------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS: Marten Transport, Ltd. (the company) is a long-haul
truckload carrier providing protective service transportation of time- and
temperature-sensitive materials and general commodities pursuant to operating
authority, both contract and common, granted by the Interstate Commerce
Commission (ICC). Effective January 1, 1996, the ICC was abolished and its
regulatory authority was transferred to the United States Department of
Transportation and the Federal Highway Administration. The company derived
approximately 13 percent of its revenue from a single customer in 1996, 11
percent in 1995 and 12 percent in 1994.
CASH EQUIVALENTS: The company invests available funds in short-term cash
equivalents, principally mutual funds containing U.S. government-backed
securities which have an original maturity of three months or less. These
investments are stated at cost, which approximates market value.
PREPAID EXPENSES: As of December 31, prepaid expenses consisted of the
following:
(IN THOUSANDS) 1996 1995
-----------------------
Tires in service............. $ 1,809 $ 1,708
License fees................. 1,796 1,912
Parts and tires inventory.... 1,788 1,457
Insurance.................... 252 232
Other........................ 694 640
---------------------
$ 6,339 $ 5,949
---------------------
---------------------
PROPERTY AND EQUIPMENT: Additions and improvements to property and equipment
are capitalized at cost, while maintenance and repair expenditures are
charged to operations as incurred. Gains and losses on revenue equipment
dispositions are included in operations. A facility is leased from an entity
owned by the company's chairman of the board (see Notes 3 and 4).
Depreciation is computed based on the cost of the asset, reduced by its
estimated salvage value, using the straight-line method for financial reporting
purposes and accelerated methods for income tax reporting purposes. Following is
a summary of estimated useful lives:
Years
Revenue equipment: -----
Tractors................................ 5
Trailers................................ 7
Satellite tracking...................... 7
Building..................................... 20
Office equipment and other................... 3-15
----
The company changed the estimated useful life of satellite tracking equipment
as of July 1, 1995. The change resulted in a decrease in depreciation expense
of $290,000 and an increase in net income of $174,000, or $.06 per share, in
1995. The company changed the estimated salvage value of certain revenue
equipment effective January 1, 1994, to reflect a change in the market value
realized for used equipment. The change resulted in a decrease in
depreciation expense of $554,000 and an increase in net income of $333,000,
or $.10 per share, in 1994.
TIRES IN SERVICE: The cost of original equipment and replacement tires placed
in service is capitalized. Amortization is computed based on cost, less
estimated salvage value, using the straight-line method over a period of 24
months. The current portion of tires in service is included in prepaid
expenses in the accompanying balance sheets. The cost of tires amortized
beyond one year, along with the estimated salvage value of tires in service,
are included in revenue equipment in the accompanying balance sheets. The
cost of recapping tires is charged to expense as incurred.
INSURANCE AND CLAIMS: The company self-insures for property damage and cargo
and self-insures, in part, for losses related to workers' compensation
claims, auto liability, general liability and employees' group health
benefits. Insurance coverage is maintained for per-incident and cumulative
liability losses in amounts the company considers sufficient based upon
ongoing review and historical experience. The company provides currently for
estimated self-insured and partially self-insured losses. Under arrangements
with its insurance carriers and regulatory authorities, the company has
arranged for approximately $4.9 million in letters of credit to guarantee
settlement of claims.
REVENUE RECOGNITION: The company recognizes revenue and related expenses on the
date shipment of freight is completed.
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE: Earnings per share have been
computed based on the weighted average number of shares outstanding during each
period as adjusted for the effect of the issuance of stock options to certain
employees and directors. Weighted average common and common equivalent shares
outstanding were 2,964,685 in 1996, 2,964,947 in 1995 and 3,192,140 in 1994.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. These estimates are primarily related to insurance and claims accruals
and depreciation. Actual results could differ from those estimates.
MARTEN TRANSPORT 1996 ANNUAL REPORT 15
<PAGE>
2. LONG-TERM DEBT
Long-term debt consists of notes payable collateralized by specific revenue
equipment. The notes are payable in monthly principal and interest installments.
Interest rates range from 6 percent to 9.1 percent.
The debt agreements contain various restrictive covenants which, among other
matters, require the company to maintain certain financial ratios. The company
was in compliance with all debt covenants at December 31, 1996.
Maturities of long-term debt at December 31, 1996, are as follows:
(IN THOUSANDS) Amount
------
1997................... $20,100
1998................... 17,326
1999................... 11,716
2000................... 4,463
-------
$53,605
-------
-------
3. LEASES
The company acquired certain revenue equipment in 1990 under the terms of
capital leases which were included within long-term debt and capital leases.
Payments made under these leases amounted to $1,382,000 in 1994. The payments
made in 1994 satisfied remaining capital lease obligations.
The company leases facilities and office equipment under operating leases with
terms ranging from one to five years (see Note 4). Under most of these
arrangements, the company pays maintenance and other expenses related to the
leased property.
Minimum future obligations under operating leases in effect at December 31,
1996, are as follows:
(IN THOUSANDS) Amount
------
1997.................. $ 256
1998.................. 221
1999.................. 141
-----
$ 618
-----
-----
Lease-related expenses were as follows:
(IN THOUSANDS) 1996 1995 1994
--------------------------
Operating lease rentals.......... $ 336 $ 458 $ 436
Capital lease amortization....... - - 81
Capital lease interest expense... - - 20
--------------------------
4. RELATED PARTY TRANSACTIONS
During the three years ended December 31, 1996, the company engaged in the
following related party transactions:
(a) The company repurchased 500,000 shares of its common stock from the
estate of its former chairman and chief executive officer, Roger R. Marten,
in 1994 for $16 per share.
(b) The company leases an office and terminal facility under a non-cancelable
operating lease with an entity owned by its chairman of the board and
previously with a partnership in which its current and former chairmen of the
board were partners. Total rental expense charged to operations relating to
this lease was $126,000 during 1996, $126,000 during 1995 and $175,000 during
1994. Future minimum rental payments under the lease are $126,000 per year
from 1997 through 1999.
(c) During the three years ended December 31, 1996, the company has maintained
checking, savings and investment accounts at banks controlled by its former
chairman of the board and a shareholder/officer of the company.
5. INCOME TAXES
The company utilizes the liability method of accounting for income taxes whereby
deferred taxes are determined based on the estimated future tax effects of
differences between the financial statement and tax bases of assets and
liabilities given the provisions of enacted tax laws.
The components of the provision for income taxes consisted of the following:
(IN THOUSANDS) 1996 1995 1994
---------------------------
Current:
Federal............... $ (623) $ 150 $ 765
State................. (30) 36 160
---------------------------
(653) 186 925
---------------------------
Deferred:
Federal............... 1,526 2,552 2,708
State................. 213 601 617
---------------------------
1,739 3,153 3,325
---------------------------
Total provision....... $1,086 $3,339 $4,250
---------------------------
---------------------------
The statutory federal income tax rate is reconciled to the effective income
tax rate as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate........................... 34% 34% 34%
Increase in taxes arising from:
State income taxes, net of federal income tax benefit....... 5 5 4
Permanent differences....................................... -- -- 2
Other, net.................................................. 1 1 --
---------------------
Effective tax rate.......................................... 40% 40% 40%
---------------------
---------------------
</TABLE>
16
<PAGE>
As of December 31, the net deferred tax liability consisted of the
following:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1996 1995
----------------------
<S> <C> <C>
Deferred tax assets:
Reserves and accrued liabilities for financial
reporting in excess of tax.............................. $ 6,111 $ 5,404
State income tax deduction for financial reporting
in excess of tax........................................ 965 879
Alternative minimum tax credit........................... 223 41
State net operating loss carryforwards................... 73 --
--------- ---------
7,372 6,324
--------- ---------
Deferred tax liabilities:
Tax depreciation in excess of depreciation for financial
reporting............................................... 21,166 18,354
Prepaid tires, licenses and use tax expensed for income
tax purposes and capitalized for financial reporting.... 2,449 2,505
Other..................................................... 205 174
--------- ---------
23,820 21,033
--------- ---------
Net deferred tax liability........................... $ 16,448 $ 14,709
--------- ---------
--------- ---------
</TABLE>
The company has available state net operating loss carryforwards of
approximately $1 million as of December 31, 1996, expiring in the years 1999
through 2011.
6. SHAREHOLDERS' INVESTMENT
Under the company's Stock Incentive Plan adopted in 1995, officers, directors
and key employees may be granted incentive stock options at prices not less than
the fair market value on the date of grant and non-statutory stock options at
prices not less than 85 percent of the fair market value on the date the option
is granted. Incentive stock options expire within 10 years after the date of
grant. The Stock Incentive Plan also provides for the issuance of stock
appreciation rights, restricted stock awards, performance units and stock
bonuses, none of which have been awarded as of December 31, 1996. The maximum
number of shares of common stock available for issuance under the Stock
Incentive Plan is 500,000 shares.
The company adopted in 1986 an Incentive Stock Option Plan and a Non-Statutory
Stock Option Plan providing for the grant of options to purchase, at prices not
less than the fair market value on the date of grant, up to an
aggregate of 250,000 shares of common stock to officers, directors and key
employees. Options under the Incentive Stock Option Plan expire within 10 years
after the date of grant while options under the Non-Statutory Stock Option Plan
expire within 10 years and one month after the date of grant.
The company accounts for these plans under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," under which no
compensation cost has been recognized. Had compensation cost for these plans
been determined consistent with Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (Statement No. 123), the
company's net income and earnings per share would have been reduced to the
following pro forma amounts:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS) 1996 1995
--------------------
<S> <C> <C>
Net income:
As reported................................. $ 1,630 $ 5,009
Pro forma................................... 1,481 4,888
Net income per share:
As reported................................. .55 1.69
Pro forma................................... .50 1.65
</TABLE>
Because the Statement No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
As of December 31, stock option activity under the company's plans discussed
earlier was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of
year........................ 198,000 $17.32 89,666 $11.13 67,666 $ 8.30
Granted....................... -- -- 155,000 20.50 25,000 17.90
Exercised..................... (18,000) 7.85 (11,666) 6.25 (3,000) 3.75
Forfeited..................... -- -- (35,000) 19.21 -- --
-------------------------------------------------------------------------------
Outstanding, end of year...... 180,000 18.27 198,000 17.32 89,666 11.13
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Exercisable, end of year...... 62,666 14.90 44,333 9.02 43,666 7.78
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</TABLE>
The weighted-average fair value of options granted during 1995 was $9.17 per
share. The fair value was estimated as of the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions: risk-free interest rate of 7.22 percent; expected option life of
seven years; expected stock price volatility of 28.5 percent; and no expected
dividend payments.
The following table summarizes information regarding stock options outstanding
and exercisable at December 31, 1996:
<TABLE>
<CAPTION>
Range of Exercise Price
---------------------------------------------
$6.75 to $7.00 $13.25 $18.50 to $20.50
<S> <C> <C> <C>
Options outstanding:
Number of shares..................... 20,000 15,000 145,000
Weighted-average remaining
contractual life.................... 4.8 years 6.4 years 8.1 years
Weighted-average exercise price...... $6.88 $13.25 $20.36
Options exercisable:
Number of shares..................... 20,000 9,000 33,666
Weighted-average exercise price...... $6.88 $13.25 $20.10
----------------------------------------------
</TABLE>
MARTEN TRANSPORT 1996 ANNUAL REPORT 17
<PAGE>
An Employee Stock Purchase Plan and an Independent Contractor Stock Purchase
Plan (the Purchase Plans) were adopted in 1995 as a means to encourage
employee and independent contractor ownership of company common stock.
Eligible participants designate the amount of regular payroll or contract
payment deductions and voluntary cash contributions that are used to purchase
shares of the company's common stock at the market price on the open market.
The broker's commissions and administrative charges related to purchases of
common stock under the Purchase Plans are paid by the company.
The company repurchased 500,000 shares of its common stock on June 21, 1994,
for $16 per share (see Note 4). The shares have been retired, reducing
shareholders' investment by $8 million. The company repurchased, at fair
market value, 3,000 shares of stock issued in 1994 upon exercise of the
options noted above.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
CASH AND CASH EQUIVALENTS: The carrying amount approximates fair value due
to the short maturity of these instruments.
LONG-TERM DEBT: The fair value of the company's long-term debt is estimated
to be $53,234,000 at December 31, 1996, and $45,266,000 at December 31, 1995,
using discounted cash flow analysis, based on the company's current
incremental borrowing rates for similar arrangements.
8. RETIREMENT SAVINGS PLAN
The company sponsors a defined contribution retirement savings plan, in
accordance with Section 401(k) of the Internal Revenue Code, covering all
employees who meet a minimum service requirement. Each participant can make
contributions of up to 15 percent of compensation. The company's contribution
of 25 percent of each participant's contribution to the plan for up to 4
percent of compensation vests at the rate of 20 percent per year from the
second through sixth years of service. In addition, the company may make
elective contributions which are determined by resolution of the board of
directors. No elective contributions were made in 1996, 1995 or 1994. Total
expense recorded in connection with the plan was $192,000 in 1996, $182,000
in 1995 and $167,000 in 1994.
9. COMMITMENTS
The company has commitments to purchase approximately $19 million of
additional revenue equipment, net of trade-in allowances, in 1997.
18
<PAGE>
10. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the quarterly results of operations for 1996 and
1995:
<TABLE>
<CAPTION>
1996 QUARTERS (IN THOUSANDS,
EXCEPT PER-SHARE AMOUNTS) FIRST SECOND THIRD FOURTH TOTAL
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenue............. $ 34,609 $ 35,979 $ 37,593 $ 37,970 $ 146,151
Operating income.............. 1,322 1,362 2,309 1,167 6,160
Net income.................... 301 312 858 159 1,630
Net income per share.......... .10 .11 .29 .05 .55
--------------------------------------------------------------
<CAPTION>
1995 Quarters (IN THOUSANDS,
EXCEPT PER-SHARE AMOUNTS) First Second Third Fourth Total
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenue............. $ 31,961 $ 34,827 $ 35,889 $ 35,027 $ 137,704
Operating income.............. 3,310 2,683 3,023 2,362 11,378
Net income.................... 1,531 1,198 1,339 941 5,009
Net income per share.......... .52 .40 .45 .32 1.69
--------------------------------------------------------------
</TABLE>
The company changed the estimated useful life of satellite tracking equipment
as of July 1, 1995 (see Note 1). The change resulted in a decrease in
depreciation expense of $144,000 and an increase in net income of $86,000, or
$.03 per share, for the third quarter of 1995.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Marten Transport, Ltd.:
We have audited the accompanying balance sheets of Marten Transport, Ltd. (a
Delaware corporation) as of December 31, 1996 and 1995, and the related
statements of operations, changes in shareholders' investment and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Marten Transport, Ltd. as of
December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
January 23, 1997
MARTEN TRANSPORT 1996 ANNUAL REPORT 19
<PAGE>
COMMON STOCK DATA
The company's quarterly stock prices, as reported by the Nasdaq National Market,
were as follows:
1996 1995
Quarter HIGH LOW High Low
------------------------------------------------
First.................. $ 17 $ 15 $ 20 1/2 $ 18 1/2
Second................. 18 1/2 15 3/4 21 19 1/2
Third.................. 17 1/4 12 1/2 20 16 15/16
Fourth................. 13 3/4 11 3/4 17 1/2 15
The foregoing prices do not include adjustments for retail mark-ups,
mark-downs or commissions. On December 31, 1996, there were 310 shareholders
of record, as well as approximately 240 beneficial shareholders. The company
has not paid any cash dividends on its common stock since it became publicly
held in September 1986, and management does not anticipate cash dividend
payments in the foreseeable future.
20
<PAGE>
EXECUTIVE OFFICERS AND DIRECTORS
RANDOLPH L. MARTEN
Chairman of the Board, President, Chief Operating Officer and Director
DARRELL D. RUBEL
Executive Vice President, Chief Financial Officer, Treasurer, Assistant
Secretary and Director
TIMOTHY P. NASH
Vice President of Sales
FRANKLIN J. FOSTER
Vice President of Finance
ROBERT G. SMITH
Vice President of Operations
MARK A. KIMBALL
Secretary
Partner, Oppenheimer Wolff & Donnelly,
Minneapolis, Minnesota
LARRY B. HAGNESS
Director
President, Durand Builders Service, Inc.,
Durand, Wisconsin
THOMAS J. WINKEL
Director
Management Consultant,
Pewaukee, Wisconsin
JERRY M. BAUER
Director
President, Bauer Built, Incorporated,
Durand, Wisconsin
THIS DOCUMENT IS RECYCLABLE.
DESIGN: EATON & ASSOCIATES
<PAGE>
129 Marten Street
Mondovi, Wisconsin 54755
Telephone: (715) 926-4216
Fax: (715) 926-4530
www.marten.com
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated January 23, 1997 included or incorporated by
reference in this Form 10-K into Marten Transport, Ltd.'s previously filed Form
S-8 dated February 23, 1994.
/s/ ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
March 28, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENTS OF OPERTIONS AND THE BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,028,000
<SECURITIES> 0
<RECEIVABLES> 19,433,000
<ALLOWANCES> 558,000
<INVENTORY> 0
<CURRENT-ASSETS> 32,256,000
<PP&E> 140,824,000
<DEPRECIATION> 34,945,000
<TOTAL-ASSETS> 138,135,000
<CURRENT-LIABILITIES> 44,682,000
<BONDS> 33,505,000
0
0
<COMMON> 30,000
<OTHER-SE> 40,014,000
<TOTAL-LIABILITY-AND-EQUITY> 138,135,000
<SALES> 146,151,000
<TOTAL-REVENUES> 146,151,000
<CGS> 0
<TOTAL-COSTS> 139,991,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,575,000
<INCOME-PRETAX> 2,716,000
<INCOME-TAX> 1,086,000
<INCOME-CONTINUING> 1,630,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,630,000
<EPS-PRIMARY> 0.55
<EPS-DILUTED> 0.55
</TABLE>
