<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
<TABLE>
<S> <C>
For the year ended: Commission file number:
DECEMBER 31, 1997 0-15010
</TABLE>
------------------------
MARTEN TRANSPORT, LTD.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 39-1140809
(State of incorporation) (I.R.S. Employer Identification No.)
</TABLE>
129 MARTEN STREET
MONDOVI, WISCONSIN 54755
(Address of principal executive offices)
Registrant's telephone number:
(715) 926-4216
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
As of March 20, 1998, 4,477,645 shares of Common Stock of the Registrant
were deemed outstanding, and the aggregate market value of the Common Stock of
the Registrant (based upon the closing price of the Common Stock at that date as
reported by The Nasdaq Stock Market), excluding outstanding shares beneficially
owned by directors and executive officers, was approximately $33,751,568.
Part II of this Annual Report on Form 10-K incorporates by reference
information (to the extent specific pages are referred to in this Report) from
the Registrant's Annual Report to Shareholders for the year ended December 31,
1997 (the "1997 Annual Report"). Part III of this Annual Report on Form 10-K
incorporates by reference information (to the extent specific sections are
referred to in this Report) from the Registrant's Proxy Statement for the annual
meeting to be held May 12, 1998 (the "1998 Proxy Statement").
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
FORWARD-LOOKING INFORMATION
THIS ANNUAL REPORT ON FORM 10-K CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS. ANY STATEMENTS IN THIS ANNUAL REPORT ON FORM 10-K THAT ARE NOT
STATEMENTS OF HISTORICAL FACT MAY BE CONSIDERED TO BE FORWARD-LOOKING
STATEMENTS. WRITTEN WORDS SUCH AS "MAY," "WILL," "EXPECT," "BELIEVE,"
"ANTICIPATE," "ESTIMATE" OR "CONTINUE," OR OTHER VARIATIONS OF THESE OR SIMILAR
WORDS, IDENTIFY FORWARD-LOOKING STATEMENTS. THESE STATEMENTS BY THEIR NATURE
INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES, AND ACTUAL RESULTS MAY DIFFER
MATERIALLY, DEPENDING ON A VARIETY OF FACTORS.
PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS.
Marten Transport, Ltd. is a long-haul truckload carrier providing
protective service and time- sensitive transportation. "Protective service
transportation" means temperature controlled or insulated carriage of
temperature-sensitive materials and general commodities. We have operating
authority, both contract and common, granted by the Interstate Commerce
Commission ("ICC") and are currently regulated by the United States Department
of Transportation ("DOT") and the Federal Highway Administration ("FHWA").
As of December 31, 1997, we operated a fleet of 1,317 tractors and 1,835
trailers. All of our trailers are protective service trailers. As of December
31, 1997, 934 tractors and 1,832 trailers in our fleet were company-owned and
383 tractors and 3 trailers were under contract with independent contractors.
As of December 31, 1997, we had 1,239 employees, including 951 drivers. Our
employees are not represented by a collective bargaining unit.
Organized under Wisconsin law in 1970, we are a successor to a sole
proprietorship Roger R. Marten founded in 1946. In 1988, we reincorporated
under Delaware law. Our executive offices are located at 129 Marten Street,
Mondovi, Wisconsin 54755. Our telephone number is (715) 926-4216.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
Since our inception, substantially all of our revenue, operating profits
and assets have related primarily to one business segment--long-haul truckload
carriage of time-and temperature-sensitive materials and general commodities.
(c) NARRATIVE DESCRIPTION OF BUSINESS.
We specialize in protective service transportation of foods, chemicals and
other products requiring temperature-controlled carriage or insulated carriage.
We also provide dry freight carriage. In 1997, we earned approximately 78% of
our revenue from hauling protective service products and 22% of our revenue from
hauling dry freight. Most of our dry freight loads require the special services
we offer or allow us to position our equipment for hauling protective service
loads. The specialized transportation services we offer include:
- dependable, late-model tractors allowing timely deliveries;
<PAGE>
- late-model, temperature controlled trailers;
- scheduled pickups and deliveries;
- assistance in loading and unloading;
- availability of extra trailers placed for customers' convenience;
- sufficient equipment to respond promptly to customers' varying needs;
and
- an on-line computer system, which customers use to obtain information
on the status of deliveries.
MARKETING AND CUSTOMERS
Our senior management and marketing personnel seek customers whose
products require protective or other specialized services and who ship multiple
truckloads per week. To minimize empty miles, we also solicit customers whose
shipping requirements allow us to balance the number of loads originating and
terminating in any given area.
Our marketing strategy emphasizes service. A key element of this strategy
is our strong commitment to satisfying the individualized requirements of our
customers. In addition, we have developed an electronic data interchange
("EDI") system. We use this system to provide customers with current
information on the status of shipments in transit. Customers also place orders,
and we bill customers, electronically using this system. We also use a
satellite tracking system to enhance monitoring of shipment locations.
We maintain marketing offices in our Mondovi, Wisconsin headquarters, as
well as in other locations throughout the United States. Marketing personnel
travel in their regions to solicit new customers and maintain contact with
customers. Once we establish a customer relationship, the customer's primary
contact is one of our customer service managers. Working from our terminal in
Mondovi, the customer service managers regularly contact customers to solicit
additional business on a load-by-load basis. Each customer service manager is
assigned to particular customers and takes responsibility for monitoring overall
transportation, service requirements and shipments for each customer. These
efforts to coordinate shipper needs with equipment availability have been
instrumental in maintaining an average empty mile rate of 6.6% in 1997.
We set our own freight rates instead of using those published by tariff
publishing bureaus. This allows us to offer rates that are more responsive to
market conditions and the level of service required by a particular customer.
We have designed our rate structure to compensate us for the cost of protective
service revenue equipment as well as for hauling loads into areas generating
empty miles.
A single customer, The Pillsbury Company, accounted for approximately 13%
of our revenue in 1997, 13% of our revenue in 1996 and 11% of our revenue in
1995.
OPERATIONS
Our operations are designed to efficiently use our equipment while
emphasizing individualized service to customers. Our EDI system provides
real-time and on-line shipment tracking information, increases equipment
utilization and assists management in long-range planning and trend analysis.
2
<PAGE>
We maintain our dispatch operations in our Mondovi, Wisconsin
headquarters. We assign customer service managers to particular customers and
regions. Customer service managers work closely with our fleet managers,
marketing personnel and drivers. Customer service managers also coordinate with
our marketing personnel to match customer needs with our capacity and location
of revenue equipment. Fleet managers, who are assigned a group of drivers
regardless of load destination, dispatch loads. After dispatching a load, a
fleet manager takes responsibility for its proper and efficient delivery and
tracks the status of that load through daily contact with drivers. During
these daily contacts, fleet managers and drivers discuss the driver's location,
load temperature and any problems. We constantly update this information, along
with information concerning available loads, on our EDI computer system. We use
this computer-generated information to meet delivery schedules, respond to
customer inquiries and match available equipment with loads.
Our primary traffic lanes are between the Midwest and the following
regions: West Coast, Pacific Northwest, Southwest, Southeast and East Coast; and
from California to the Pacific Northwest. The average length of a trip
(one-way) was 1,092 miles during 1997, 1,095 miles during 1996 and 1,145 miles
during 1995. Our loads generally move directly from origin to destination,
which eliminates the need for freight terminals. We operate maintenance
facilities in Mondovi, Wisconsin; Ontario, California; Wilsonville, Oregon; and
Jonesboro, Georgia.
We have agreements with various fuel distributors. These agreements allow
our drivers to purchase fuel at a discount while in transit. We also purchase
fuel in bulk in Mondovi and at our maintenance facilities. We have commitments
to purchase approximately $800,000 of fuel at a fixed price through mid-1998.
DRIVERS
As of December 31, 1997, we employed 951 drivers and had contracts with
independent contractors for the services of 383 tractors. Independent
contractors provide both a tractor and a qualified driver for our use. We
recruit drivers from throughout the United States. The ratio of drivers to
tractors as of December 31, 1997, was approximately 1 to 1. Our drivers are not
represented by a collective bargaining unit. Our turnover of drivers was
approximately 73% in 1997. Based on industry surveys, we believe our driver
turnover rate is in line with the industry.
We select drivers, including independent contractors, using our specific
guidelines for safety records, driving experience and personal evaluations. We
maintain stringent screening, training and testing procedures for our drivers to
reduce the potential for accidents and the corresponding costs of insurance and
claims. We train new drivers at our Wisconsin terminal in all phases of our
policies and operations, as well as in safety techniques and fuel-efficient
operation of the equipment. All new drivers must also pass a road test prior to
assignment to a vehicle. We maintain a toll-free number, satellite tracking and
a staff of fleet managers to communicate and support drivers while on the road
for extended periods.
To retain qualified drivers and promote safe operations, we purchase
premium quality tractors and equip them with optional comfort and safety
features. These features include air ride suspension on the chassis and cab,
air conditioning, high-quality interiors, power steering, engine brakes and
double sleeper cabs.
We pay company-employed drivers a fixed rate per mile. The rate increases
based on length of service. Drivers are also eligible for bonuses based upon
safe, efficient driving. We believe that our compensation program provides an
important incentive to attract and retain qualified drivers. Drivers that have
been with us for at least six months are also eligible to purchase shares of our
Common Stock under a stock purchase plan we sponsor. We pay the brokerage
commissions on purchases and the plan's administrative costs.
3
<PAGE>
We pay independent contractors either a fixed rate per mile or a
percentage of revenue from loads hauled. Independent contractors pay for their
own fuel, insurance, maintenance and repairs. Independent contractors that have
been under contract with us for at least six months are also eligible to
purchase shares of our Common Stock under a stock purchase plan we sponsor. We
pay the brokerage commissions on purchases and the plan's administrative costs.
REVENUE EQUIPMENT
The trucking industry requires significant capital investment in revenue
equipment. We finance a portion of our revenue equipment purchases using
long-term debt with significant current maturities, causing a working capital
deficit. We have operated effectively with a working capital deficit due to our
operating profits, short turnover in accounts receivable and cash management.
We purchase tractors and trailers manufactured to our specifications.
Freightliner, Kenworth or Peterbilt manufacture our tractors. Most of our
tractors are equipped with 370/430 horsepower Detroit Diesel or Cummins engines.
These engines enable the equipment to maintain constant speed with optimum fuel
economy under conditions often encountered by our equipment, such as mountainous
terrain and maximum weight loads. Utility, Great Dane or Wabash manufacture
most of our single van trailers. Most of our trailers are equipped with
Thermo-King cooling and heating equipment. Our single van refrigerated trailers
are either 53 feet long (974 trailers) or 48 feet long (858 trailers). All our
trailers are 102 inches wide and have at least 102 inches of inside height. The
current cost of a temperature-controlled, protective service trailer is
approximately $40,000. We standardize equipment to simplify driver training,
control the cost of spare parts inventory, enhance our preventive maintenance
program and increase fuel economy.
The following table shows the type and age of equipment we own as of
December 31, 1997:
<TABLE>
<CAPTION>
Model Year Tractors Single Van Trailers
---------- -------- -------------------
<S> <C> <C>
1998 114 193
1997 230 377
1996 340 472
1995 218 261
1994 31 238
1993 - 246
1992 1 44
1990 - 1
--- ---
Total 934 1,832
--- -----
--- -----
</TABLE>
We replace our tractors and trailers based on factors such as age, the
market for used equipment and improvements in technology and fuel efficiency.
We have a comprehensive maintenance program for our company-owned tractors and
trailers to minimize equipment downtime and enhance resale or trade-in value.
We regularly perform inspections, repairs and maintenance at our facilities in
Mondovi, Wisconsin; Ontario, California; Jonesboro, Georgia; and Wilsonville,
Oregon, and at independent contract maintenance facilities.
EMPLOYEES
As of December 31, 1997, we employed 1,239 people. This total consists of
951 drivers, 104 mechanics and maintenance personnel, along with 184 support
personnel. Support personnel includes
4
<PAGE>
management and administration. Our employees are not represented by a
collective bargaining unit. We consider relations with our employees to be
good.
COMPETITION
The trucking industry is highly competitive. Our primary competitors are
other protective service truckload carriers and private carriage fleets. For
freight not requiring protective service trailers, our competitors also include
dry freight truckload carriers and railroads. To compete, we rely primarily on
our quality of service and our ability to provide protective service and other
specialized services. We have substantially less financial resources, own less
equipment and carry less freight than several other truckload carriers offering
protective service.
REGULATION
We are a motor common and contract carrier. The DOT and the FHWA, along
with various state agencies, regulate our operations. These regulatory
authorities have broad powers, generally governing activities such as authority
to engage in motor carrier operations, rates and charges, and certain mergers,
consolidations and acquisitions. The Motor Carrier Act of 1980 (the "MCA")
substantially increased competition among motor carriers and limited the level
of regulation in the industry. The MCA allowed applicants to obtain ICC
operating authority more easily and allowed interstate motor carriers to change
their rates without ICC approval. The law also removed many route and commodity
restrictions. The Trucking Industry Regulatory Reform Act of 1994 (the "TIRRA")
has further increased industry competition and limited industry regulation. The
TIRRA repealed tariff filing for individually determined rates, simplified the
granting of ICC operating authority, and pre-empted price, route and service
regulation by the states. Effective January 1, 1996, the ICC Termination Act of
1995 abolished the ICC and transferred its regulatory authority to the DOT and
the FHWA.
Motor carrier operations are subject to the DOT's safety requirements
governing interstate operations. Matters such as weight and dimensions of
equipment are also regulated by federal and state authorities.
We also have operating authority between the United States and the
Canadian Provinces of Alberta, British Columbia, Manitoba, Ontario, Quebec and
Saskatchewan.
ITEM 2. PROPERTIES
Our executive offices and principal terminal are located on approximately
seven acres in Mondovi, Wisconsin. This facility consists of approximately
28,000 square feet of office space and approximately 21,000 square feet of
equipment repair and maintenance space. Originally constructed in 1965, these
facilities were expanded in 1971, 1980, 1987 and 1993.
We maintain a maintenance facility in Ontario, California. We purchased
this facility in 1997 for $1.5 million from R & R Properties, a
sole-proprietorship owned by Randolph L. Marten. From 1985 through 1997, we
leased this facility from R & R Properties. Total rental expense for this lease
was $126,000 per year during 1995 through 1997. This facility includes
approximately 2,700 square feet of office space, 8,000 square feet of equipment
repair and maintenance space and a parking lot of 150,000 square feet.
We purchased a maintenance facility in Jonesboro, Georgia in 1993. The
building at this facility is approximately 12,500 square feet and consists of
office space and a two and one-half bay service and repair space. This facility
also has parking for up to forty tractors and trailers.
5
<PAGE>
We purchased a maintenance facility in Wilsonville, Oregon in 1995. The
building at this facility is approximately 20,000 square feet and consists of
office space and an eight-bay service and repair space. This facility also has
an eight-acre paved and fenced yard area.
ITEM 3. LEGAL PROCEEDINGS
We periodically are a party to routine litigation incidental to our
business. Primarily, this litigation involves claims for personal injury and
property damage caused while transporting freight. There are currently no
material pending legal, governmental, administrative or other proceedings to
which we are a party or of which any of our property is the subject which are
unreserved.
We self-insure for property damage and cargo claims. We partially
self-insure for losses relating to auto liability, general liability, workers'
compensation claims and employees' group health benefits. We also maintain an
insurance policy that limits annual total losses to $9 million for auto
liability, workers' compensation and general liability claims. We believe that
our current liability limit is reasonable. However, we could suffer losses over
our policy limits. Losses in excess of our policy limits could negatively
affect our financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the year ended December 31, 1997.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Our executive officers, with their ages and the offices held as of
March 1, 1998, are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Randolph L. Marten 45 Chairman of the Board, President,
Chief Operating Officer and Director
Darrell D. Rubel 52 Executive Vice President, Chief
Financial Officer, Treasurer,
Assistant Secretary and Director
Timothy P. Nash 46 Vice President of Sales
Franklin J. Foster 41 Vice President of Finance
Robert G. Smith 54 Vice President of Operations
</TABLE>
Randolph L. Marten has been a full-time employee since 1974. Mr. Marten
has been a Director since October 1980, our President and Chief Operating
Officer since June 1986 and our Chairman of the Board since August 1993. Mr.
Marten served as a Vice President from October 1980 to June 1986.
Darrell D. Rubel has been a Director since February 1983, our Chief
Financial Officer since January 1986, our Treasurer since June 1986, our
Executive Vice President since May 1993 and our Assistant Secretary since August
1987. Mr. Rubel also served as our Secretary from June 1986 until August 1987
and as a Vice President from January 1986 until May 1993.
6
<PAGE>
Timothy P. Nash has been our Vice President of Sales since November 1990
and served as our Regional Sales Manager from July 1987 to November 1990. Mr.
Nash served as a regional sales manager for Overland Express, Inc., a
long-haul truckload carrier, from August 1986 to July 1987.
Franklin J. Foster has been our Vice President of Finance since December
1991 and served as our Director of Finance from January 1991 to December 1991.
Mr. Foster served as a vice president in commercial banking for First Bank
National Association from October 1985 to January 1991.
Robert G. Smith has been our Vice President of Operations since June 1993
and served as our Director of Operations from September 1989 to June 1993. Mr.
Smith served as director of operations for Transport Corporation of America, an
irregular-route truckload carrier, from January 1985 to September 1989.
Our executive officers are elected by the Board of Directors to serve
one-year terms.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information in the "Common Stock Data" section of our 1997 Annual
Report on page 12 is incorporated in this Report by reference.
We had no unregistered sales of equity securities during the fourth
quarter of the year ended December 31, 1997.
ITEM 6. SELECTED FINANCIAL DATA
The financial information in the "Five-Year Financial Summary" section of
our 1997 Annual Report on page 2 is incorporated in this Report by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information in the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" section of our 1997 Annual Report on page 3
is incorporated in this Report by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our Financial Statements and the Report of Independent Public Accountants
on pages 4 through 11 of our 1997 Annual Report are incorporated in this Report
by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
7
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
A. DIRECTORS OF THE REGISTRANT.
The information in the "Election of Directors--Information About Nominees"
and "Election of Directors--Other Information About Nominees" sections of our
1998 Proxy Statement is incorporated in this Report by reference.
B. EXECUTIVE OFFICERS OF THE REGISTRANT.
Information about our executive officers is included in this Report under
Item 4A, "Executive Officers of the Registrant."
C. COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The information in the "Section 16(a) Beneficial Ownership Reporting
Compliance" section of our 1998 Proxy Statement is incorporated in this Report
by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information in the "Election of Directors--Director Compensation" and
"Compensation and Other Benefits" sections of our 1998 Proxy Statement is
incorporated in this Report by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information in the "Principal Stockholders and Beneficial Ownership of
Management" section of our 1998 Proxy Statement is incorporated in this Report
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information in the "Certain Transactions" section of our 1998 Proxy
Statement is incorporated in this Report by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS:
The following Financial Statements are incorporated in this
Report by reference from the pages noted in our 1997 Annual
Report:
Report of Independent Public Accountants - page 11
Balance Sheets as of December 31, 1997 and 1996 - page 4
Statements of Operations for the years ended December 31,
1997, 1996 and 1995 - page 5
8
<PAGE>
Statements of Changes in Shareholders' Investment for the
years ended December 31, 1997, 1996 and 1995 - page 5
Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995 - page 6
Notes to Financial Statements - pages 7 - 10
2. FINANCIAL STATEMENT SCHEDULES:
None.
3. EXHIBITS:
The exhibits to this Report are listed in the Exhibit Index on
pages 11 - 13. A copy of any of the exhibits listed will be sent
at a reasonable cost to any shareholder as of March 20, 1998.
Requests should be sent to Darrell D. Rubel, Executive Vice
President and Chief Financial Officer, at our corporate
headquarters.
The following is a list of each management contract or
compensatory plan or arrangement required to be filed as an
exhibit to this Report under Item 14(c):
(1) Marten Transport, Ltd. 1986 Incentive Stock Option
Plan, as amended.
(2) Marten Transport, Ltd. 1986 Non-Statutory Stock Option
Plan, as amended.
(3) Employment Agreement, dated May 1, 1993, with Darrell
D. Rubel.
(4) Marten Transport, Ltd. 1995 Stock Incentive Plan.
(b) REPORTS ON FORM 8-K FILED IN THE FOURTH QUARTER OF 1997:
We filed one Form 8-K in the fourth quarter of 1997. The Form 8-K,
filed on December 15, 1997, reported the following items:
Item 5. Other Events - Three-for-Two Stock Split of Marten
Transport, Ltd. Common Stock
Item 7. Financial Statements and Exhibits - Press Release
dated November 24, 1997.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Marten Transport, Ltd., the Registrant, has duly caused
this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: March 24, 1998 MARTEN TRANSPORT, LTD.
By /s/ Randolph L. Marten
---------------------------------
Randolph L. Marten
Chairman of the Board, President and
Chief Operating Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below on March 24, 1998 by the following persons on
behalf of the Registrant and in the capacities indicated.
Signature Title
--------- -----
/s/ Randolph L. Marten Chairman of the Board, President,
- ------------------------------ Chief Operating Officer
Randolph L. Marten (Principal Executive Officer) and Director
/s/ Darrell D. Rubel Executive Vice President, Chief Financial
- ------------------------------ Officer, Treasurer, Assistant Secretary
Darrell D. Rubel (Principal Financial and Accounting
Officer) and Director
/s/ Larry B. Hagness Director
- ------------------------------
Larry B. Hagness
/s/ Thomas J. Winkel Director
- ------------------------------
Thomas J. Winkel
/s/ Jerry M. Bauer Director
- ------------------------------
Jerry M. Bauer
10
<PAGE>
MARTEN TRANSPORT, LTD.
EXHIBIT INDEX TO ANNUAL REPORT
ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
ITEM NO. ITEM FILING METHOD
-------- ---- -------------
<S> <C> <C>
3.1 Certificate of Incorporation of
the Company . . . . . . . . . . . . Incorporated by reference to
Exhibit 4.1 of the Company's
Registration Statement on Form
S-8 (File No. 33-75648).
3.2 Bylaws of the Company . . . . . . . Incorporated by reference to
Exhibit 4.2 of the Company's
Registration Statement on Form
S-8 (File No. 33-75648).
4.1 Specimen form of the Company's
Common Stock Certificate . . . . . Incorporated by reference to
Exhibit 4.1 of the Company's
Registration Statement on Form
S-1 (File No. 33-8108).
4.2 Certificate of Incorporation of
the Company . . . . . . . . . . . . See Exhibit 3.1 above.
4.3 Bylaws of the Company . . . . . . . See Exhibit 3.2 above.
9.1 Voting Trust Agreement dated
February 14, 1983, as amended . . . Incorporated by reference to
Exhibit 9.1 of the Company's
Registration Statement on Form
S-1 (File No. 33-8108).
9.2 Agreement regarding Voting Trust
Agreement, dated May 4, 1993 . . . Incorporated by reference to
Exhibit 19.2 of the Company's
Quarterly Report on Form 10-Q
for the quarter ended June 30,
1993 (File No. 0-15010).
10.1 Marten Transport, Ltd. 1986
Incentive Stock Option Plan, as
amended . . . . . . . . . . . . . . Incorporated by reference to
Exhibit 10.1 of the Company's
Annual Report on Form 10-K for
the year ended December 31,
1986 (File No. 0-15010).
10.2 Marten Transport, Ltd. 1986 Non-
Statutory Stock Option Plan, as
amended . . . . . . . . . . . . . . Incorporated by reference to
Exhibit 10.2 of the Company's
Annual Report on Form 10-K for
the year ended December 31,
1987 (File No. 0-15010).
11
<PAGE>
<CAPTION>
ITEM NO. ITEM FILING METHOD
-------- ---- -------------
<S> <C> <C>
10.3 Stock Restriction Agreement among
Roger R. Marten, Randolph L.
Marten and Darrell D. Rubel . . . . Incorporated by reference to
Exhibit 10.5 of the Company's
Registration Statement on Form
S-1 (File No. 33-8108).
10.4 Agreement on Credit Terms dated
January 5, 1990 between the
Company and First Bank National
Association . . . . . . . . . . . . Incorporated by reference to
Exhibit 10.10 of the Company's
Annual Report on Form 10-K for
the year ended December 31,
1989 (File No. 0-15010).
10.5 Amendment to Agreement on Credit
Terms dated July 31, 1990 between
the Company and First Bank
National Association . . . . . . . Incorporated by reference to
Exhibit 10.10 of the Company's
Annual Report on Form 10-K for
the year ended December 31,
1990 (File No. 0-15010).
10.6 Security Agreement dated January
12, 1990, as amended, between the
Company and First Bank National
Association . . . . . . . . . . . . Incorporated by reference to
Exhibit 10.15 of the Company's
Annual Report on Form 10-K for
the year ended December 31,
1992 (File No. 0-15010).
10.7 Second Amendment to Agreement on
Credit Terms dated May 31, 1991
between the Company and First Bank
National Association . . . . . . . Incorporated by reference to
Exhibit 10.16 of the Company's
Annual Report on Form 10-K for
the year ended December 31,
1992 (File No. 0-15010).
10.8 Amendment No. 3 to Agreement on
Credit Terms dated May 17, 1993
between the Company and First Bank
National Association . . . . . . . Incorporated by reference to
Exhibit 19.3 of the Company's
Quarterly Report on Form 10-Q
for the quarter ended June 30,
1993 (File No. 0-15010).
10.9 Employment Agreement dated May 1,
1993 between the Company and
Darrell D. Rubel . . . . . . . . . Incorporated by reference to
Exhibit 19.1 of the Company's
Quarterly Report on Form 10-Q
for the quarter ended June 30,
1993 (File No. 0-15010).
12
<PAGE>
<CAPTION>
ITEM NO. ITEM FILING METHOD
-------- ---- -------------
<S> <C> <C>
10.10 Stock Redemption Agreement dated
June 21, 1994 between the Company
and Darrell D. Rubel, as Personal
Representative of the Estate of
Roger R. Marten . . . . . . . . . . Incorporated by reference to
Exhibit 10.16 of the Company's
Annual Report on Form 10-K for
the year ended December 31,
1994 (File No. 0-15010).
10.11 Marten Transport, Ltd. 1995 Stock
Incentive Plan . . . . . . . . . . Incorporated by reference to
Exhibit 10.18 of the Company's
Annual Report on Form 10-K for
the year ended December 31,
1994 (File No. 0-15010).
13.1 1997 Annual Report to Shareholders
- pages 2 - 13 . . . . . . . . . . Filed with this Report.
23.1 Consent of Arthur Andersen LLP . . Filed with this Report.
27.1 Financial Data Schedule . . . . . Filed with this Report.
27.2 Restated Financial Data Schedule. Filed with this Report.
</TABLE>
13
<PAGE>
FIVE-YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
Years ended December 31,
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS) 1997 1996 1995 1994 1993
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR
Operating revenue. . . . . . . . . . . . . . . . $172,412 $146,151 $137,704 $122,730 $112,180
Operating income . . . . . . . . . . . . . . . . 12,847 6,160 11,378 13,015 11,359
Income before extraordinary item . . . . . . . . 5,307 1,630 5,009 6,375 5,462
Net income . . . . . . . . . . . . . . . . . . . 5,307 1,630 5,009 6,375 6,345(2)
PER-SHARE DATA(1)
Basic earnings per common share:
Income before extraordinary item . . . . . . . $ 1.19 $ .37 $ 1.14 $ 1.34 $ 1.06
Net income . . . . . . . . . . . . . . . . . . 1.19 .37 1.14 1.34 1.23(2)
Diluted earnings per common share:
Income before extraordinary item . . . . . . . 1.19 .37 1.12 1.33 1.05
Net income . . . . . . . . . . . . . . . . . . 1.19 .37 1.12 1.33 1.22(2)
AT YEAR END
Total assets . . . . . . . . . . . . . . . . . . $145,266 $138,135 $123,141 $105,648 $ 96,776
Long-term debt, less current maturities. . . . . 30,663 33,505 27,079 24,917 21,117
Shareholders' investment . . . . . . . . . . . . 45,704 40,044 38,242 33,104 34,729
</TABLE>
(1) Earnings per common share amounts have been retroactively adjusted to
reflect a three-for-two stock split effective for shareholders of record as
of December 15, 1997.
(2) Includes extraordinary item, proceeds of $883,000 ($.17 per basic and
diluted share) from life insurance policy on Roger Marten, founder of
Marten Transport.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 3
RESULTS OF OPERATIONS Operating revenue for 1997 increased 18 percent over
1996. This compares with increases of 6 percent in 1996 and 12 percent in
1995. The primary reason for these increases was the transportation of more
freight associated with increases in our fleet each of the last three years.
Average freight rates and average miles traveled per tractor improved
slightly in 1997 due to stronger customer demand. Average freight rates
declined in 1996 and increased slightly in 1995. Average miles traveled per
tractor decreased slightly in both 1996 and 1995. We have historically
charged customers for significant increases in the price of diesel fuel.
These fuel surcharges were in place and totaled $1.2 million in 1997 and $1.4
million in 1996. We expect operating revenue in 1998 to exceed 1997 levels
given planned revenue equipment additions.
Operating expenses represented 92.5 percent of operating revenue in 1997.
This compares with 95.8 percent in 1996 and 91.7 percent in 1995. This ratio
improved in 1997 due to our growth in revenue per tractor, reflecting more
efficient utilization of our revenue equipment. Reduced average miles
traveled per tractor was the primary reason for the increase in this ratio in
1996 and 1995. Lower freight rates were also a factor in 1996. Operating
expenses increased 14 percent in 1997, 11 percent in 1996 and 15 percent in
1995.
Operating expenses in most categories increased during the last three years
because we transported additional freight and added to our fleet. We
increased the number of independent contractor-owned vehicles in our fleet
during the last three years. This increase caused purchased transportation
expense to increase to 20.8 percent of revenue in 1997 from 13.7 percent in
1996 and 7.6 percent in 1995. Independent contractors assume responsibility
for their own salaries, wages and benefits expense, fuel and fuel tax
expense, and supplies and maintenance expense. Therefore, our expenses in
these categories have remained relatively stable over the last three years. A
significant increase in the price of diesel fuel negatively impacted fuel and
fuel tax expense in 1997 and 1996.
An increase in our trailer fleet caused an increase in depreciation expense
during the last three years. Depreciation expense in 1995 was partially
reduced by a $290,000 expense adjustment to change the estimated useful life
of satellite tracking equipment. Our insurance and claims expense declined to
2.0 percent of revenue in 1997 from 4.7 percent in 1996 and 4.8 percent in
1995. Our improved management of claims and losses, along with continued
emphasis on driver safety and training, has led to improved accident
experience over the last three years. Gain on disposition of revenue
equipment significantly decreased to $242,000 in 1997 from $2,580,000 in 1996
and $2,927,000 in 1995, due to a decrease in the market value received for
used revenue equipment. We anticipate that 1998 operating expenses as a
percent of revenue will remain at current levels.
Interest expense as a percent of revenue has remained stable over the last
three years, representing 2.4 percent of revenue in 1997, 2.4 percent in 1996
and 2.3 percent in 1995. We anticipate interest expense in 1998 as a percent
of revenue to remain at 1997 levels as we add long-term debt to pay for
revenue equipment purchases.
Our effective tax rate was 40 percent for the last three years. We expect the
effective tax rate to remain at 40 percent during 1998.
We expect inflation to affect most of our operating expenses. The impact of
inflation, however, was minimal during the three years ended December 31,
1997.
CAPITAL RESOURCES AND LIQUIDITY Our business requires significant capital
expenditures to update and expand our fleet with new, more efficient revenue
equipment. We also purchased an office and terminal facility in 1997 for $1.5
million from an entity owned by our chairman of the board. This facility was
leased from the same entity before it was purchased. We purchased a
maintenance facility in Oregon in 1995 for approximately $1.6 million. We
paid for these purchases using cash flow from operations and long-term debt
collateralized by revenue equipment. We have commitments to purchase
approximately $24 million of revenue equipment, net of trade-in allowances,
in 1998. We also have commitments to purchase approximately $800,000 of
diesel fuel at a fixed price through mid-1998. We expect to pay for these
purchases with cash flow from operations and additional long-term debt.
Cash generated from operations has historically met our working capital needs
despite a working capital deficit. Current maturities of long-term debt
associated with revenue equipment purchases have caused our working capital
deficit. Our operating profits, short turnover in accounts receivable and
cash management practices allow us to effectively operate with a working
capital deficit. We have not used short-term borrowings to meet working
capital needs, and do not expect to use short-term borrowings in 1998. We
believe our liquidity is adequate to meet expected near-term operating
requirements.
SEASONALITY The trucking industry experiences seasonal fluctuations in
revenue and expenses. We experience revenue declines after the winter holiday
season because our customers reduce shipments. Operating expenses temporarily
increase in the winter due to reduced fuel efficiency and additional
maintenance costs.
FORWARD-LOOKING INFORMATION This annual report contains certain
forward-looking statements. Any statements in this annual report that are not
statements of historical fact may be considered to be forward-looking
statements. Written words such as "may," "will," "expect," "believe,"
"anticipate," "estimate" or "continue," or other variations of these or
similar words, identify forward-looking statements. These statements by their
nature involve substantial risks and uncertainties, and actual results may
differ materially, depending on a variety of factors.
<PAGE>
BALANCE SHEETS 4
<TABLE>
<CAPTION>
December 31,
(IN THOUSANDS, EXCEPT SHARE INFORMATION) 1997 1996
---------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . $ 2,052 $ 3,028
Receivables:
Trade, less allowances of $650 and $558 . . . . 16,935 14,987
Other . . . . . . . . . . . . . . . . . . . . . 1,937 4,446
Prepaid expenses . . . . . . . . . . . . . . . . . 6,921 6,339
Deferred income taxes. . . . . . . . . . . . . . . 4,170 3,456
---------------------
Total current assets. . . . . . . . . . . . . 32,015 32,256
---------------------
Property and equipment:
Revenue equipment. . . . . . . . . . . . . . . . . 143,633 131,248
Building and land. . . . . . . . . . . . . . . . . 6,320 4,955
Office equipment and other . . . . . . . . . . . . 5,098 4,621
Less accumulated depreciation. . . . . . . . . . . (42,375) (34,945)
---------------------
Net property and equipment. . . . . . . . . . 112,676 105,879
Other assets . . . . . . . . . . . . . . . . . . . . 575 -
---------------------
$145,266 $138,135
---------------------
---------------------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . $ 4,472 $ 3,822
Insurance and claims accruals. . . . . . . . . . . 11,638 13,558
Accrued liabilities. . . . . . . . . . . . . . . . 8,573 7,202
Current maturities of long-term debt . . . . . . . 21,628 20,100
---------------------
Total current liabilities . . . . . . . . . . 46,311 44,682
Long-term debt, less current maturities. . . . . . . 30,663 33,505
Deferred income taxes. . . . . . . . . . . . . . . . 22,588 19,904
---------------------
Total liabilities . . . . . . . . . . . . . . 99,562 98,091
---------------------
Commitments (Notes 1, 3 and 10)
Shareholders' investment:
Common stock, $.01 par value per share,
10,000,000 shares authorized, 4,477,645 and
2,959,616 shares issued and outstanding. . . . . 45 30
Additional paid-in capital . . . . . . . . . . . . 9,934 9,581
Retained earnings. . . . . . . . . . . . . . . . . 35,725 30,433
---------------------
Total shareholders' investment. . . . . . . . 45,704 40,044
---------------------
$145,266 $138,135
---------------------
---------------------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE>
STATEMENTS OF OPERATIONS 5
<TABLE>
<CAPTION>
For the years ended December 31,
(IN THOUSANDS, EXCEPT SHARE INFORMATION) 1997 1996 1995
----------------------------------
<S> <C> <C> <C>
Operating revenue. . . . . . . . . . . . . $172,412 $146,151 $137,704
----------------------------------
Operating expenses:
Salaries, wages and benefits . . . . . . 52,917 50,222 50,040
Purchased transportation . . . . . . . . 35,914 20,073 10,402
Fuel and fuel taxes. . . . . . . . . . . 25,642 25,997 24,332
Supplies and maintenance . . . . . . . . 14,359 14,166 14,042
Depreciation . . . . . . . . . . . . . . 17,239 16,015 14,458
Operating taxes and licenses . . . . . . 3,531 3,376 3,192
Insurance and claims . . . . . . . . . . 3,364 6,800 6,550
Communications and utilities . . . . . . 2,152 1,689 1,650
Gain on disposition of revenue
equipment. . . . . . . . . . . . . . . (242) (2,580) (2,927)
Other. . . . . . . . . . . . . . . . . . 4,689 4,233 4,587
----------------------------------
159,565 139,991 126,326
----------------------------------
Operating income . . . . . . . . . . . . . 12,847 6,160 11,378
----------------------------------
Other expenses (income):
Interest expense . . . . . . . . . . . . 4,205 3,575 3,219
Interest income and other. . . . . . . . (203) (131) (189)
----------------------------------
4,002 3,444 3,030
----------------------------------
Income before income taxes . . . . . . . . 8,845 2,716 8,348
Provision for income taxes . . . . . . . . 3,538 1,086 3,339
----------------------------------
Net income . . . . . . . . . . . . . . . $ 5,307 $ 1,630 $ 5,009
----------------------------------
----------------------------------
Basic earnings per common share. . . . . . $ 1.19 $ .37 $ 1.14
----------------------------------
----------------------------------
Diluted earnings per common share. . . . . $ 1.19 $ .37 $ 1.12
----------------------------------
----------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
STATEMENTS OF CHANGES IN SHAREHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
Common Stock Additional Retained
(IN THOUSANDS, EXCEPT SHARE INFORMATION) Shares Amount Paid-In Capital Earnings Total
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 . . . . . . 2,929,950 $29 $9,281 $23,794 $33,104
Net income . . . . . . . . . . . . . . - - - 5,009 5,009
Issuance of common stock . . . . . . . 11,666 - 129 - 129
-----------------------------------------------------------
Balance at December 31, 1995 . . . . . . 2,941,616 $29 $9,410 $28,803 $38,242
Net income . . . . . . . . . . . . . . - - - 1,630 1,630
Issuance of common stock . . . . . . . 18,000 1 171 - 172
-----------------------------------------------------------
Balance at December 31, 1996 . . . . . . 2,959,616 $30 $9,581 $30,433 $40,044
Net income . . . . . . . . . . . . . . - - - 5,307 5,307
Issuance of common stock . . . . . . . 25,500 - 353 - 353
Stock split. . . . . . . . . . . . . . 1,492,529 15 - (15) -
-----------------------------------------------------------
Balance at December 31, 1997 . . . . . . 4,477,645 $45 $9,934 $35,725 $45,704
-----------------------------------------------------------
-----------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
STATEMENTS OF CASH FLOWS 6
<TABLE>
<CAPTION>
For the years ended December 31,
(IN THOUSANDS) 1997 1996 1995
-------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Operations:
Net income . . . . . . . . . . . . . . . $ 5,307 $ 1,630 $ 5,009
Adjustments to reconcile net income
to net cash flows from operating
activities:
Depreciation. . . . . . . . . . . . . 17,239 16,015 14,458
Gain on disposition of revenue
equipment . . . . . . . . . . . . . (242) (2,580) (2,927)
Deferred tax provision. . . . . . . . 1,970 1,739 3,153
Changes in other current operating
items:
Receivables . . . . . . . . . . . . 561 (1,970) (966)
Prepaid expenses. . . . . . . . . . (582) (390) (892)
Accounts payable. . . . . . . . . . 650 597 119
Other current liabilities . . . . . (549) 1,554 3,464
-------------------------------------
Net cash provided by operating
activities. . . . . . . . . . . 24,354 16,595 21,418
-------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Revenue equipment additions. . . . . . . . (32,598) (42,875) (37,320)
Revenue equipment dispositions . . . . . . 10,698 17,706 13,309
Building and land, office equipment and
other additions, net . . . . . . . . . . (1,894) (512) (2,448)
Net change in other assets . . . . . . . . (575) - -
-------------------------------------
Net cash used for investing
activities. . . . . . . . . . . (24,369) (25,681) (26,459)
-------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock . . . . . . . . . 353 172 129
Long-term borrowings . . . . . . . . . . . 22,469 30,112 22,559
Repayment of long-term borrowings. . . . . (23,783) (21,500) (17,446)
-------------------------------------
Net cash provided by (used for)
financing activities. . . . . . (961) 8,784 5,242
-------------------------------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS. . . . . . . . . . . . . . . (976) (302) 201
CASH AND CASH EQUIVALENTS:
Beginning of year. . . . . . . . . . . . . 3,028 3,330 3,129
-------------------------------------
End of year. . . . . . . . . . . . . . . . $ 2,052 $ 3,028 $ 3,330
-------------------------------------
-------------------------------------
CASH PAID (RECEIVED) FOR:
Interest . . . . . . . . . . . . . . . . . $ 4,211 $ 3,585 $ 3,144
-------------------------------------
-------------------------------------
Income taxes . . . . . . . . . . . . . . . $ 534 $ (446) $ (135)
-------------------------------------
-------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS 7
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS: Marten Transport, Ltd. is a long-haul truckload carrier
providing protective service transportation of time-and temperature-sensitive
materials and general commodities. We earned approximately 13 percent of our
revenue from a single customer in 1997, 13 percent in 1996 and 11 percent in
1995.
CASH EQUIVALENTS: We invest available funds in short-term cash equivalents.
These investments are primarily mutual funds with U.S. government-backed
securities having original maturities of three months or less. These
investments are stated at cost, which approximates market value.
PREPAID EXPENSES: As of December 31, prepaid expenses consisted of the
following:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996
-----------------
<S> <C> <C>
License fees. . . . . . . . . . . . . . . . $2,150 $1,796
Parts and tires inventory . . . . . . . . . 1,941 1,788
Tires in service. . . . . . . . . . . . . . 1,703 1,809
Insurance . . . . . . . . . . . . . . . . . 236 252
Other . . . . . . . . . . . . . . . . . . . 891 694
-----------------
$6,921 $6,339
-----------------
-----------------
</TABLE>
PROPERTY AND EQUIPMENT: Additions and improvements to property and equipment
are capitalized at cost. Maintenance and repair expenditures are charged to
operations. Gains and losses on disposals of revenue equipment are included
in operations.
Depreciation is computed based on the cost of the asset, reduced by its
estimated salvage value, using the straight-line method for financial
reporting purposes. Accelerated methods are used for income tax reporting
purposes. Following is a summary of estimated useful lives:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Revenue equipment:
Tractors . . . . . . . . . . . . . . . . . . . . . . . 5
Trailers . . . . . . . . . . . . . . . . . . . . . . . 7
Satellite tracking . . . . . . . . . . . . . . . . . . 7
Building. . . . . . . . . . . . . . . . . . . . . . . . . 20
Office equipment and other. . . . . . . . . . . . . . . . 3-15
-----
</TABLE>
We changed the estimated useful life of satellite tracking equipment as of
July 1, 1995. The change decreased depreciation expense by $290,000 and
increased net income by $174,000, or $.04 per diluted share, in 1995.
TIRES IN SERVICE: The cost of original equipment and replacement tires placed
in service is capitalized. Amortization is calculated based on cost, less
estimated salvage value, using the straight-line method over 24 months. The
current portion of capitalized tires in service is included in prepaid
expenses in the balance sheets. The long-term portion of capitalized tires in
service and the estimated salvage value are included in revenue equipment in
the balance sheets. The cost of recapping tires is charged to operations.
INSURANCE AND CLAIMS: We self-insure for property damage and cargo claims. We
self-insure, in part, for losses relating to workers' compensation claims,
auto liability, general liability and employees' group health benefits. We
maintain insurance coverage for per-incident and total losses in amounts we
consider adequate based upon ongoing review and historical experience. We
reserve currently for anticipated losses. The insurance and claims reserves
are continuously evaluated and adjusted to reflect our experience. Under
agreements with our insurance carriers and regulatory authorities, we have
arranged for approximately $3.4 million in letters of credit to guarantee
settlement of claims.
REVENUE RECOGNITION: We record revenue and related expenses on the date
shipment of freight is completed.
USE OF ESTIMATES: We must make estimates and assumptions to prepare the
financial statements using generally accepted accounting principles. These
estimates and assumptions affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities in the
financial statements. The reported amounts of revenue and expenses in the
financial statements are also affected. These estimates are primarily related
to insurance and claims accruals and depreciation. Actual results could
differ from these estimates.
2. LONG-TERM DEBT
Long-term debt consists of notes payable collateralized by specific revenue
equipment. The notes are payable in monthly principal and interest
installments. Interest rates range from 6.8 percent to 9.1 percent.
The debt agreements contain restrictive covenants which, among other matters,
require us to maintain certain financial ratios. We satisfied all debt
covenants at December 31, 1997.
Maturities of long-term debt at December 31, 1997, are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) Amount
-------
<S> <C>
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . $21,628
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,276
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,639
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,748
-------
$52,291
-------
-------
</TABLE>
3. LEASES
We lease office equipment and facilities under operating leases with terms
ranging from one to three years (see Note 4). Under most of these agreements,
we pay maintenance and other expenses for the leased property.
<PAGE>
NOTES TO FINANCIAL STATEMENTS 8
Minimum future obligations under operating leases in effect at December 31,
1997, are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) Amount
------
<S> <C>
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $161
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
------
$274
------
------
</TABLE>
Lease-related expenses were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996 1995
---------------------
<S> <C> <C> <C>
Operating lease rentals . . . . . . . . . . $447 $336 $458
---------------------
</TABLE>
4. RELATED PARTY TRANSACTIONS
The following related party transactions occurred during the three years
ended December 31, 1997:
(a) We purchased an office and terminal facility in 1997 for $1.5 million
from an entity owned by our chairman of the board. We leased the facility
under a non-cancelable operating lease with the same entity before it was
purchased. Total rental expense charged to operations for this lease was
$126,000 per year during 1995 through 1997.
(b) During 1997, we paid approximately $1.6 million to purchase fuel and
tires from a company in which one of our directors, elected in 1997, is the
president and a shareholder.
(c) During the three years ended December 31, 1997, we have had checking,
savings and investment accounts at banks which are controlled by one of our
directors and officers.
We believe that these transactions with related parties are on reasonable
terms which are comparable to terms available from unaffiliated third parties.
5. INCOME TAXES
We use the liability method of accounting for income taxes. Deferred taxes
are calculated based on the estimated future tax effects of differences
between the financial statement and tax bases of assets and liabilities given
current tax laws.
The components of the provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996 1995
-------------------------------
<S> <C> <C> <C>
Current:
Federal . . . . . . . . . . . . . . $1,271 $(623) $150
State . . . . . . . . . . . . . . . 297 (30) 36
-------------------------------
1,568 (653) 186
-------------------------------
Deferred:
Federal . . . . . . . . . . . . . . 1,739 1,526 2,552
State . . . . . . . . . . . . . . . 231 213 601
-------------------------------
1,970 1,739 3,153
-------------------------------
Total provision . . . . . . . . . . $3,538 $1,086 $3,339
-------------------------------
-------------------------------
</TABLE>
The statutory federal income tax rate is reconciled to the effective income tax
rate as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------
<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. . . . 6 5 5
Other, net. . . . . . . . . . . . . - 1 1
------------------------
Effective tax rate . . . . . . . . . . 40% 40% 40%
------------------------
------------------------
</TABLE>
As of December 31, the net deferred tax liability consisted of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996
-------------------
<S> <C> <C>
Deferred tax assets:
Reserves and accrued liabilities
for financial reporting in excess
of tax. . . . . . . . . . . . . . . . . . . $ 5,401 $ 6,111
State income tax deduction for
financial reporting in excess
of tax. . . . . . . . . . . . . . . . . . . 1,044 965
Alternative minimum tax credit. . . . . . . . 316 223
State net operating loss
carryforwards . . . . . . . . . . . . . . . 28 73
-------------------
6,789 7,372
-------------------
Deferred tax liabilities:
Tax depreciation in excess of
depreciation for financial
reporting. . . . . . . . . . . . . . . . . 23,972 21,166
Items expensed for income tax
purposes and capitalized
for financial reporting:. . . . . . . . . .
Prepaid licenses and use tax . . . . . . 975 831
Prepaid tires . . . . . . . . . . . . . - 1,618
Other . . . . . . . . . . . . . . . . . . . . 260 205
-------------------
25,207 23,820
-------------------
Net deferred tax liability. . . . . . . . . $18,418 $16,448
-------------------
-------------------
</TABLE>
We have state net operating loss carryforwards of approximately $400,000
available as of December 31, 1997, expiring in the years 1999 through 2011.
6. STOCK SPLIT
In 1997, our board of directors authorized a three-for-two stock split of our
common stock, $.01 par value. Each shareholder of record received an
additional one-half share for each share of common stock held as of the close
of business on December 15, 1997. The additional shares were distributed on
January 5, 1998.
<PAGE>
NOTES TO FINANCIAL STATEMENTS 9
The stock split was effected in the form of a dividend, using authorized but
unissued shares of our common stock. All per share amounts have been
retroactively adjusted to reflect the stock split.
7. EARNINGS PER COMMON SHARE
Basic and diluted earnings per common share were computed as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS) 1997 1996 1995
-------------------------
<S> <C> <C> <C>
Numerator:
Net income. . . . . . . . . . . . . $5,307 $1,630 $5,009
-------------------------
Denominator:
Basic earnings per
common share -
weighted-average shares . . . . . 4,446 4,424 4,405
Effect of dilutive
stock options . . . . . . . . . . 22 27 49
-------------------------
Diluted earnings per
common share -
weighted-average shares
and assumed conversions . . . . . 4,468 4,451 4,454
-------------------------
-------------------------
Basic earnings
per common share. . . . . . . . . . $ 1.19 $ .37 $ 1.14
-------------------------
-------------------------
Diluted earnings
per common share. . . . . . . . . . $ 1.19 $ .37 $ 1.12
-------------------------
-------------------------
</TABLE>
The following options were outstanding but were not included in the
calculation of diluted earnings per share. The options' exercise prices were
greater than the average market price of the common shares. Therefore,
including the options in the denominator would be antidilutive, or decrease
the number of weighted-average shares.
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------
<S> <C> <C> <C>
Number of option shares. . . . . . . . 315,000 217,500 202,500
Weighted-average
exercise price. . . . . . . . . . . $ 13.50 $ 13.57 $ 13.67
-----------------------------
</TABLE>
8. EMPLOYEE BENEFITS
STOCK INCENTIVE PLANS - Under our Stock Incentive Plan adopted in 1995,
officers, directors and employees may be granted incentive and non-statutory
stock options. Incentive stock option prices must be at least the fair market
value of our common stock on the date of grant. Non-statutory stock option
prices must be at least 85 percent of the fair market value of our common
stock on the date the option is granted. Stock options expire within 10 years
after the date of grant. The plan also allows for stock appreciation rights,
restricted stock awards, performance units and stock bonuses, none of which
have been awarded as of December 31, 1997. The maximum number of shares of
common stock available for issuance under the plan is 750,000 shares.
In 1986, we adopted an Incentive Stock Option Plan and a Non-Statutory Stock
Option Plan allowing for the grant of options. The option prices must be at
least the fair market value of our common stock on the date of grant. In
these plans, 375,000 shares of common stock are available for issuance to
officers, directors and employees. Options under the Incentive Stock Option
Plan expire within 10 years after the date of grant. Options under the
Non-Statutory Stock Option Plan expire within 10 years and one month after
the date of grant.
We account for these plans under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," under which compensation cost is
not recorded. If compensation cost had been recorded consistent with
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (Statement No. 123), our net income and earnings
per common share would have been the following pro forma amounts:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS) 1997 1996 1995
--------------------------
<S> <C> <C> <C>
Net income:
As reported . . . . . . . . . . . . . $5,307 $1,630 $5,009
Pro forma . . . . . . . . . . . . . . 5,130 1,481 4,888
Basic earnings per
common share:
As reported . . . . . . . . . . . . . 1.19 .37 1.14
Pro forma . . . . . . . . . . . . . . 1.15 .33 1.11
Diluted earnings per
common share:
As reported . . . . . . . . . . . . . 1.19 .37 1.12
Pro forma . . . . . . . . . . . . . . 1.15 .33 1.10
--------------------------
</TABLE>
Because the Statement No. 123 method of accounting has only been applied to
options granted in 1995 or after, the pro forma comparison above may not be
representative of the impact of compensation cost in future years.
As of December 31, stock option activity under our plans was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------------------------------------
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. . . . . . . . . . . 270,000 $12.18 297,000 $11.55 134,499 $7.42
Granted. . . . . . . . . . . . . . . . . 112,500 12.63 - - 232,500 13.67
Exercised. . . . . . . . . . . . . . . . (38,250) 5.50 (27,000) 5.23 (17,499) 4.17
Forfeited. . . . . . . . . . . . . . . . - - - - (52,500) 12.81
-------------------------------------------------------------
Outstanding,
end of year. . . . . . . . . . . . . . 344,250 13.07 270,000 12.18 297,000 11.55
-------------------------------------------------------------
-------------------------------------------------------------
Exercisable,
end of year. . . . . . . . . . . . . . 105,750 13.03 93,999 9.93 66,500 6.01
-------------------------------------------------------------
-------------------------------------------------------------
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS 10
The weighted-average fair value as of the date of grant was $5.96 per share for
options granted during 1997 and $6.11 per share for options granted during 1995.
The fair value was estimated as of the date of grant using the Black-Scholes
option pricing model with the following weighted-average assumptions:
<TABLE>
<CAPTION>
1997 1995
---------------
<S> <C> <C>
Expected option life in years . . . . . . . . . 7 7
Risk-free interest rate . . . . . . . . . . . . 6.1% 7.2%
Expected stock price volatility . . . . . . . . 31.9% 28.5%
Expected dividend payments. . . . . . . . . . . - -
---------------
</TABLE>
The following table summarizes information regarding stock options outstanding
and exercisable as of December 31, 1997:
<TABLE>
<CAPTION>
Range of Exercise Price
---------------------------------
$8.08 to $8.83 $12.33 to $13.67
---------------------------------
<S> <C> <C>
Options outstanding:
Number of shares. . . . . . . . . . . . 29,250 315,000
Weighted-average
remaining contractual life. . . . . . 7.3 years 8.0 years
Weighted-average exercise price . . . . $8.45 $13.50
Options exercisable:
Number of shares. . . . . . . . . . . . 9,750 96,000
Weighted-average exercise price . . . . $8.83 $13.46
---------------------------------
</TABLE>
RETIREMENT SAVINGS PLAN - We sponsor a defined contribution retirement savings
plan under Section 401(k) of the Internal Revenue Code. Employees are eligible
for the plan after one year of service. Each participant can contribute up to 15
percent of compensation. We contribute 25 percent of each participant's
contribution, up to a total of 4 percent. Our contribution vests at the rate of
20 percent per year for the second through sixth years of service. In addition,
we may make elective contributions as determined by the board of directors.
Elective contributions were not made in 1997, 1996 or 1995. Total expense
recorded for the plan was $183,000 in 1997, $192,000 in 1996 and $182,000 in
1995.
STOCK PURCHASE PLANS - An Employee Stock Purchase Plan and an Independent
Contractor Stock Purchase Plan are sponsored to encourage employee and
independent contractor ownership of our common stock. Eligible participants
specify the amount of regular payroll or contract payment deductions and
voluntary cash contributions that are used to purchase shares of our common
stock. The purchases are made at the market price on the open market. We pay the
broker's commissions and administrative charges for purchases of common stock
under the plans.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of each class of financial instruments was estimated using the
following methods and assumptions:
CASH AND CASH EQUIVALENTS: The carrying amount approximated fair value due to
the short maturity of these instruments.
LONG-TERM DEBT: The fair value of our long-term debt approximated the carrying
amount at December 31, 1997, and December 31, 1996. The fair value was estimated
using discounted cash flow analysis. Our current borrowing rates for similar
long-term debt were used in this analysis.
10. COMMITMENTS
We have commitments to purchase approximately $24 million of revenue equipment,
net of trade-in allowances, in 1998. We also have committed to purchase
approximately $800,000 of diesel fuel at a fixed price through mid-1998.
11. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the quarterly results of operations for 1997 and
1996:
<TABLE>
<CAPTION>
1997 QUARTERS (IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS) First Second Third Fourth Total
--------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenue. . . . . . . . . . . . . . . . . . . $38,553 $43,817 $44,676 $45,366 $172,412
Operating income . . . . . . . . . . . . . . . . . . . 1,759 4,118 4,173 2,797 12,847
Net income . . . . . . . . . . . . . . . . . . . . . . 450 1,865 1,924 1,068 5,307
Basic and diluted earnings per common share(1) . . . . .10 .42 .43 .24 1.19
--------------------------------------------
<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
Basic and diluted earnings per common share(1) . . . . .07 .07 .19 .04 .37
--------------------------------------------
</TABLE>
(1) Earnings per common share amounts have been retroactively adjusted to
reflect a three-for-two stock split effective for shareholders of
record as of December 15, 1997.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 11
To Marten Transport, Ltd.:
We have audited the accompanying balance sheets of Marten Transport, Ltd. (a
Delaware corporation) as of December 31, 1997 and 1996, and the related
statements of operations, changes in shareholders' investment and cash flows
for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Marten Transport, Ltd. as of
December 31, 1997 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
January 28, 1998
<PAGE>
COMMON STOCK DATA
Our quarterly stock prices, as reported by The Nasdaq Stock Market, were as
follows:
<TABLE>
<CAPTION>
1997 1996
Quarter High Low High Low
----------------------------------------
<S> <C> <C> <C> <C>
First . . . . . . . . $ 9 $ 8 $11-1/3 $10
Second. . . . . . . . 9 8-1/6 12-1/3 10-1/2
Third . . . . . . . . 14-1/6 9-1/3 11-1/2 8-1/3
Fourth. . . . . . . . 17-1/6 12-3/4 9-1/6 7-5/6
----------------------------------------
</TABLE>
The prices have been retroactively adjusted to reflect a three-for-two stock
split effective for shareholders of record as of December 15, 1997. The
prices do not include adjustments for retail mark-ups, mark-downs or
commissions. On December 31, 1997, there were 302 shareholders of record, and
261 beneficial shareholders. We have not paid any cash dividends on our
common stock since we became publicly held in September 1986, and do not
expect cash dividend payments in the near future.
<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, LLP
Minneapolis, Minnesota
LARRY B. HAGNESS
Director
President, Durand Builders Service, Inc.
Durand, Wisconsin
THOMAS J. WINKEL
Director
Management Consultant
Pewaukee, Wisconsin
JERRY M. BAUER
Director
President, Bauer Built, Incorporated
Durand, Wisconsin
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated January 28, 1998, included or incorporated by
reference in this Form 10-K into Marten Transport, Ltd.'s previously filed Form
S-8 dated February 23, 1994.
/s/ ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
March 24, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENTS OF OPERATIONS AND THE BALANCE SHEETS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,052,000
<SECURITIES> 0
<RECEIVABLES> 18,872,000
<ALLOWANCES> 650,000
<INVENTORY> 0
<CURRENT-ASSETS> 32,015,000
<PP&E> 155,051,000
<DEPRECIATION> 42,375,000
<TOTAL-ASSETS> 145,266,000
<CURRENT-LIABILITIES> 46,311,000
<BONDS> 30,663,000
0
0
<COMMON> 45,000
<OTHER-SE> 45,659,000
<TOTAL-LIABILITY-AND-EQUITY> 145,266,000
<SALES> 172,412,000
<TOTAL-REVENUES> 172,412,000
<CGS> 0
<TOTAL-COSTS> 159,565,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,205,000
<INCOME-PRETAX> 8,845,000
<INCOME-TAX> 3,538,000
<INCOME-CONTINUING> 5,307,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,307,000
<EPS-PRIMARY> 1.19<F1>
<EPS-DILUTED> 1.19<F1>
<FN>
<F1> Our board of directors authorized a three-for-two stock split
of our common stock, $.01 par value, effective for shareholders of
record as of December 15, 1997. Prior financial data schedules have
not been restated to reflect the stock split.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENTS OF OPERATIONS AND THE BALANCE SHEETS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,330,000
<SECURITIES> 0
<RECEIVABLES> 17,463,000
<ALLOWANCES> 438,000
<INVENTORY> 0
<CURRENT-ASSETS> 29,508,000
<PP&E> 132,894,000
<DEPRECIATION> 39,261,000
<TOTAL-ASSETS> 123,141,000
<CURRENT-LIABILITIES> 40,345,000
<BONDS> 27,079,000
0
0
<COMMON> 29,000
<OTHER-SE> 38,213,000
<TOTAL-LIABILITY-AND-EQUITY> 123,141,000
<SALES> 137,704,000
<TOTAL-REVENUES> 137,704,000
<CGS> 0
<TOTAL-COSTS> 126,326,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,219,000
<INCOME-PRETAX> 8,348,000
<INCOME-TAX> 3,339,000
<INCOME-CONTINUING> 5,009,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,009,000
<EPS-PRIMARY> 1.71
<EPS-DILUTED> 1.69
</TABLE>
