<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended June 30, 1998
Commission File Number 0-15010
MARTEN TRANSPORT, LTD.
(Exact name of registrant as specified in its charter)
Delaware 39-1140809
-------- ----------
(State of incorporation) (I.R.S. Employer
Identification No.)
129 Marten Street, Mondovi, Wisconsin 54755
-------------------------------------------
(Address of principal executive offices)
715-926-4216
------------
(Registrant's telephone number)
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
--- ---
The number of shares outstanding of the registrant's Common Stock, par value
$.01 per share, was 4,477,645 as of August 12, 1998.
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements.
MARTEN TRANSPORT, LTD.
CONDENSED BALANCE SHEETS
(In thousands, except share information)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . $ 2,728 $ 2,052
Receivables . . . . . . . . . . . . . . . 19,636 18,872
Prepaid expenses. . . . . . . . . . . . . 5,942 6,921
Deferred income taxes . . . . . . . . . . 4,463 4,170
--------- ---------
Total current assets. . . . . . . . . 32,769 32,015
--------- ---------
Property and equipment:
Revenue equipment, building and land,
office equipment, and other . . . . . . 163,818 155,051
Accumulated depreciation . . . . . . . . (44,439) (42,375)
-------- --------
Net property and equipment. . . . . . 119,379 112,676
Other assets . . . . . . . . . . . . . . . . 581 575
-------- --------
TOTAL ASSETS. . . . . . . . . . $152,729 $145,266
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities:
Accounts payable and accrued liabilities. $ 11,430 $ 13,045
Insurance and claims accruals . . . . . . 11,569 11,638
Current maturities of long-term debt. . . 23,376 21,628
--------- ---------
Total current liabilities . . . . . . 46,375 46,311
Long-term debt, less current maturities . . 33,497 30,663
Deferred income taxes. . . . . . . . . . . . 23,706 22,588
-------- ---------
Total liabilities . . . . . . . . . . 103,578 99,562
-------- ---------
Shareholders' investment:
Common stock, $.01 par value per
share, 10,000,000 shares authorized,
4,477,645 shares issued
and outstanding . . . . . . . . . . . . 45 45
Additional paid-in capital. . . . . . . . 9,934 9,934
Retained earnings . . . . . . . . . . . . 39,172 35,725
-------- ---------
Total shareholders' investment. . . . 49,151 45,704
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' INVESTMENT. . . . $152,729 $145,266
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE>
MARTEN TRANSPORT, LTD.
CONDENSED STATEMENTS OF INCOME
(In thousands, except share information)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATING REVENUE. . . . . . . . . . . . $49,269 $43,817 $94,487 $82,370
------- ------- ------- -------
OPERATING EXPENSES:
Salaries, wages and benefits . . . . . 14,861 12,743 28,960 25,208
Purchased transportation . . . . . . . 11,889 9,165 22,548 16,019
Fuel and fuel taxes. . . . . . . . . . 5,828 6,362 11,544 12,834
Supplies and maintenance . . . . . . . 4,105 3,828 7,577 7,088
Depreciation . . . . . . . . . . . . . 4,686 4,278 9,195 8,480
Operating taxes and licenses . . . . . 958 854 1,856 1,657
Insurance and claims . . . . . . . . . 822 867 1,820 1,967
Communications and utilities . . . . . 599 521 1,183 1,042
Gain on disposition of revenue
equipment. . . . . . . . . . . . . . (174) (46) (327) (109)
Other. . . . . . . . . . . . . . . . . 1,252 1,127 2,494 2,307
------- ------- ------- -------
Total operating expenses . . . . 44,826 39,699 86,850 76,493
------- ------- ------- -------
OPERATING INCOME . . . . . . . . . . . . 4,443 4,118 7,637 5,877
OTHER EXPENSES (INCOME):
Interest expense . . . . . . . . . . . 1,012 1,051 1,994 2,079
Interest income and other. . . . . . . (48) (41) (103) (61)
------- ------ ------ -------
INCOME BEFORE INCOME TAXES . . . . . . . 3,479 3,108 5,746 3,859
PROVISION FOR INCOME TAXES . . . . . . . 1,392 1,243 2,299 1,544
------- ------- ------- -------
NET INCOME . . . . . . . . . . . . . . . $ 2,087 $ 1,865 $ 3,447 $ 2,315
------- ------- ------- -------
------- ------- ------- -------
BASIC EARNINGS PER COMMON SHARE. . . . . $ 0.47 $ 0.42 $ 0.77 $ 0.52
------- ------- ------- -------
------- ------- ------- -------
DILUTED EARNINGS PER COMMON SHARE. . . . $ 0.46 $ 0.42 $ 0.76 $ 0.52
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
MARTEN TRANSPORT, LTD.
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Operations:
Net income . . . . . . . . . . . . . . . $ 3,447 $ 2,315
Adjustments to reconcile net
income to net cash flows
from operating activities:
Depreciation . . . . . . . . . . . 9,195 8,480
Gain on disposition of revenue
equipment . . . . . . . . . . . . (327) (109)
Deferred tax provision. . . . . . . 825 1,245
Changes in other current
operating items . . . . . . . . . (1,469) (2,678)
-------- --------
Net cash provided by
operating activities. . . . . 11,671 9,253
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions:
Revenue equipment, net . . . . . . . . . (15,285) (11,780)
Building and land, office equipment,
and other additions, net . . . . . . . (286) (195)
Net change in other assets . . . . . . . . (6) (633)
-------- --------
Net cash used for investing
activities. . . . . . . . . . (15,577) (12,608)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings . . . . . . . . . . . 17,372 15,736
Repayment of long-term borrowings. . . . . (12,790) (11,952)
-------- --------
Net cash provided by
financing activities. . . . . 4,582 3,784
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS . . . 676 429
CASH AND CASH EQUIVALENTS:
Beginning of period. . . . . . . . . . . . 2,052 3,028
-------- --------
End of period. . . . . . . . . . . . . . . $ 2,728 $ 3,457
-------- --------
-------- --------
CASH PAID FOR:
Interest . . . . . . . . . . . . . . . . . $ 1,978 $ 2,085
-------- --------
-------- --------
Income taxes . . . . . . . . . . . . . . . $ 1,344 $ 4
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(1) Financial Statements
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
statements, and therefore do not include all information and disclosures
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, such statements reflect all
adjustments (consisting of normal recurring adjustments) considered necessary to
fairly present our financial condition, results of operations and cash flows
for the interim periods presented. The results of operations for any interim
period do not necessarily indicate the results for the full year. The unaudited
interim financial statements should be read with reference to the financial
statements and notes to financial statements in our 1997 Annual Report on Form
10-K.
(2) Earnings Per Common Share
Basic and diluted earnings per common share were computed as follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
(In thousands, except per-share amounts) 1998 1997(a) 1998 1997(a)
---- ------- ---- -------
<S> <C> <C> <C> <C>
Numerator:
Net income . . . . . . . . . . . . . . . . . . . . $2,087 $1,865 $3,447 $2,315
------ ------ ------ ------
Denominator:
Basic earnings per common share -
weighted-average shares . . . . . . . . . . . 4,478 4,439 4,478 4,440
Effect of dilutive stock options . . . . . . . . . 89 15 64 14
------ ------ ------ ------
Diluted earnings per common share -
weighted-average shares and
assumed conversions . . . . . . . . . . . . . 4,567 4,454 4,542 4,454
------ ------ ------ ------
------ ------ ------ ------
Basic earnings per common share . . . . . . . . . . . . $ 0.47 $ 0.42 $ 0.77 $ 0.52
------ ------ ------ ------
------ ------ ------ ------
Diluted earnings per common share . . . . . . . . . . . $ 0.46 $ 0.42 $ 0.76 $ 0.52
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
The following options were outstanding, but were not included in the calculation
of diluted earnings per share because their exercise prices were greater than
the average market price of the common shares and, therefore, including the
options in the denominator would be antidilutive, or decrease the number of
weighted-average shares.
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1998 1997(a) 1998 1997(a)
---- ------- ---- --------
<S> <C> <C> <C> <C>
Number of option shares . . . . . . . . . . . . . . . . - 240,000 - 240,000
Weighted-average exercise price . . . . . . . . . . . . - $ 13.13 - $ 13.13
---- ------- ---- -------
---- ------- ---- -------
</TABLE>
(a) 1997 information has been retroactively adjusted to reflect a three-
for-two stock split effective for shareholders of record as of
December 15, 1997.
<PAGE>
(3) Accounting for Derivative Instruments and Hedging Activities
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (Statement No. 133) was issued in June 1998,
and is effective in our first quarter of 2000. Statement No. 133 requires
companies to record the fair value of derivatives as either assets or
liabilities on the balance sheet. The accounting for gains or losses from
changes in the fair value of derivatives depends on the intended use of the
derivatives and whether the criteria for hedge accounting have been satisfied.
Statement No. 133 is expected to have minimal impact on Marten's results of
operations and financial position because we do not have significant derivative
instruments as of June 30, 1998.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS
Operating revenue for the second quarter of 1998 increased 12.4 percent over the
same period of 1997. Operating revenue increased 14.7 percent for the first six
months of 1998 over the same period last year. These increases are the result
of transporting additional freight associated with a larger fleet, improved
equipment utilization, and stronger customer demand. Average freight rates also
increased in 1998. We have historically charged customers for significant
increases in the price of diesel fuel. These surcharges were insignificant in
1998 and totaled $963,000 for the first six months of 1997. We expect operating
revenue for the remainder of 1998 to exceed 1997 levels due to planned additions
to our fleet.
Operating expenses for the second quarter of 1998 were 91.0 percent of operating
revenue, versus 90.6 percent for the second quarter of 1997. This ratio for the
six months ended June 30, 1998, was 91.9 percent, versus 92.9 percent for the
same period of 1997. Operating expenses in most categories increased in 1998
because we transported additional freight and added to our fleet. We continued
to increase the number of independent contractor-owned vehicles in 1998,
resulting in the significant increase in purchased transportation expense.
Marten's use of vehicles owned by independent contractors reduced the following
expenses relative to revenue since the independent contractors assume these
expenses: salaries, wages and benefits expense, fuel and fuel taxes expense,
and supplies and maintenance expense. Fuel and fuel tax expense also decreased
as a result of a significant decrease in the price of diesel fuel during the
first six months of 1998. Insurance and claims expense in 1998 decreased due to
improved accident experience. We expect operating expenses as a percent of
revenue to remain at current levels for the remainder of 1998.
Interest expense for the three-month and six-month periods ended June 30, 1998,
decreased from the same periods of 1997. A decrease in our average long-term
debt from 1997 to 1998 caused this improvement. We expect interest expense as a
percent of revenue to remain at current levels.
Marten recorded net income of $2,087,000, or 46 cents per diluted share, for the
second quarter of 1998. This compares with net income for the 1997 second
quarter of $1,865,000, or 42 cents per diluted share. Net income for the six
months ended June 30, 1998, was $3,447,000, or 76 cents per diluted share,
compared with net income of $2,315,000, or 52 cents per diluted share for the
same period of 1997. Earnings per share for 1997 have been retroactively
adjusted to reflect a three-for-two stock split effective for shareholders of
record as of December 15, 1997. The improvement in net income resulted from
growth of revenue, improved equipment utilization, and continued expense
control.
In 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as discussed in
Note 3 to the financial statements. This statement, effective in our first
quarter of 2000, is expected to have minimal impact on our results of operations
and financial position because we do not have significant derivative instruments
as of June 30, 1998.
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY
Net cash flows from our operations provided $11,671,000 during the first six
months of 1998. Investments in property and equipment used net cash of
$15,577,000, while financing activities provided $4,582,000 during this period.
We continued to invest in new, more efficient revenue equipment in 1998 and
1997. Marten has committed to purchase approximately $8 million of new revenue
equipment, net of trade-in allowances, through the end of 1998. These purchases
historically have been, and are expected to be, made using cash flow from
operations and long-term debt collateralized by the new equipment. We also have
commitments to purchase approximately $1,600,000 of diesel fuel from selected
fuel stops at fixed prices through mid-1999. We expect to use cash flow from
operations to pay for these purchases.
Cash generated from operations historically has met our working capital
requirements despite a working capital deficit. The working capital deficit is
caused 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 allow us to effectively meet our working capital
needs. We have not used short-term borrowings to meet working capital needs,
and do not expect short-term borrowings through the end of 1998. We believe our
liquidity is adequate to meet expected near-term operating requirements.
YEAR 2000
Compliance with year 2000 is a concern of substantially all companies since many
computer programs require updating or replacing to avoid system failures. We do
not expect significant operating issues relating to year 2000 based on an
evaluation of our internally-programmed and purchased computer systems.
Remaining expenses for system changes are expected to be immaterial to our
financial condition, results of operations and cash flows. Year 2000 issues
affecting the parties with which we transact business may impact Marten.
FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q contains certain forward-looking statements.
Any statements in this 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.
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 subject, and which are unreserved.
ITEM 2. Changes in Securities and Use of Proceeds.
None
ITEM 3. Defaults Upon Senior Securities.
None
ITEM 4. Submission of Matters to a Vote of Security Holders.
Our annual meeting of stockholders was held on May 12, 1998. The
following items were voted upon at the annual meeting:
(a) Five incumbent directors were elected to serve one-year terms
expiring at the annual meeting of stockholders to be held in 1999.
No votes were cast against any nominee. The following summarizes
the votes cast for, votes withheld, and broker non-votes for each
nominee:
<TABLE>
<CAPTION>
Broker
Nominee Votes For Votes Withheld Non-Votes
------- --------- -------------- ---------
<S> <C> <C> <C>
Randolph L. Marten 1,721,081 -0- -0-
Darrell D. Rubel 1,721,081 -0- -0-
Larry B. Hagness 1,721,081 -0- -0-
Thomas J. Winkel 1,721,081 -0- -0-
Jerry M. Bauer 1,720,931 150 -0-
</TABLE>
(b) The stockholders also approved the appointment of Arthur
Andersen LLP as our independent auditors for the year ending
December 31, 1998, by a vote of 1,715,121 shares in favor, 3,001
shares opposed, and 2,959 shares abstaining.
ITEM 5. Other Information.
In the second quarter of 1998, the Board of Directors of the
Company discovered that in 1997 and early 1998, Randolph L. Marten,
the Chairman of the Board, President and Chief Operating Officer of
the Company, was involved in various transactions in connection with
the sale of used revenue equipment of the Company primarily to
independent contractors in which he received commissions aggregating
approximately $216,000. These transactions and related commissions
were not authorized or approved by the Board of Directors and,
accordingly, the Board has required Mr. Marten to pay over to the
Company, and Mr. Marten has paid over, the full amount of such
commissions. The Board of Directors has also put in place various
accounting and operational controls to insure that such unauthorized
transactions do not take place in the future.
As of the date of the 1998 Stockholders' Meeting, Rule 14a-4(c)
under the Securities and Exchange Act of 1934 provided that a proxy
could grant discretionary authority to vote on matters at an annual
stockholders' meeting if (i) the person or persons soliciting the
proxy did not know that such matters were to be presented at the
annual stockholders' meeting at least a reasonable time before the
solicitation and (ii) a specific statement to that effect is made in
the proxy statement or form of proxy. In a recent release by the
Securities and Exchange Commission, Rule 14a-4(c) was revised to
remove the ambiguity of a "reasonable time" and establish a
bright-line test for when proxies could grant discretionary
authority to vote on matters not submitted to the company in
compliance with Rule 14a-8.
As revised, Rule 14a-4(c) provided that a proxy can grant
discretionary authority to vote on matters at an annual
stockholders' meeting if (i) the company has not received notice of
the matters at least 45 days before the date on which the company
first mailed its proxy materials for the prior year's annual
stockholders' meeting and (ii) a specific statement that the
company has not received such notice is included in the proxy
statement or form of proxy. As a result of the revisions, the
Company hereby gives notice to all stockholders that the deadline
for submitting non-Rule 14a-8 stockholder proposals for the
Company's 1999 Annual Stockholders' Meeting is February 16, 1999.
Any stockholder proposals submitted after February 16, 1999, will
be considered untimely for purposes of Rules 14a-4 and 14a-5(e).
ITEM 6. Exhibits and Reports on Form 8-K.
a) Exhibit 27.1 Financial Data Schedule.
b) No reports on Form 8-K have been filed during the quarter
ended June 30, 1998.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
MARTEN TRANSPORT, LTD.
(Registrant)
Dated: August 14, 1998 By: /S/ DARRELL D. RUBEL
----------------------------------
Darrell D. Rubel
Executive Vice President and Treasurer
(Chief Financial Officer)
<PAGE>
MARTEN TRANSPORT, LTD.
EXHIBIT INDEX TO QUARTERLY REPORT
ON FORM 10-Q
For the Quarter Ended June 30, 1998
<TABLE>
<CAPTION>
ITEM NO. ITEM METHOD OF FILING
<S> <C> <C>
27.1 Financial Data
Schedule . . . . . .Filed with this report electronically.
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED STATEMENTS OF INCOME AND THE CONDENSED BALANCE SHEETS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,728,000
<SECURITIES> 0
<RECEIVABLES> 19,636,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 32,769,000
<PP&E> 163,818,000
<DEPRECIATION> 44,439,000
<TOTAL-ASSETS> 152,729,000
<CURRENT-LIABILITIES> 46,375,000
<BONDS> 33,497,000
0
0
<COMMON> 45,000
<OTHER-SE> 49,106,000
<TOTAL-LIABILITY-AND-EQUITY> 152,729,000
<SALES> 94,487,000
<TOTAL-REVENUES> 94,487,000
<CGS> 0
<TOTAL-COSTS> 86,850,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,994,000
<INCOME-PRETAX> 5,746,000
<INCOME-TAX> 2,299,000
<INCOME-CONTINUING> 3,447,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,447,000
<EPS-PRIMARY> 0.77<F1>
<EPS-DILUTED> 0.76<F1>
<FN>
<F1>OUR BOARD OF DIRECTORS AUTHORIZED A THREE-FOR-TWO STOCK SPLIT OF OUR COMMMON
STOCK, $.01 PAR VALUE, EFFECTIVE FOR SHAREHOLDERS OF RECORD AS OF DECEMBER 15,
1997. THE FINANCIAL DATA SCHEDULE FOR THE SIX MONTH PERIOD ENDED JUNE 30,
1997, HAS NOT BEEN RESTATED TO REFLECT THE STOCK SPLIT.
</FN>
</TABLE>
