<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 March 31, 1999
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 May 6, 1999.
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements.
MARTEN TRANSPORT, LTD.
CONDENSED BALANCE SHEETS
(In thousands, except share information)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . $ 623 $ 1,116
Receivables . . . . . . . . . . . . . . . 22,974 19,754
Prepaid expenses and other . . . . . . . . 6,748 7,850
Deferred income taxes . . . . . . . . . . 3,769 3,265
--------- ---------
Total current assets . . . . . . . 34,114 31,985
--------- ---------
Property and equipment:
Revenue equipment, buildings and land,
office equipment, and other . . . . . . 172,385 172,271
Accumulated depreciation . . . . . . . . . (47,017) (48,514)
--------- ---------
Net property and equipment . . . . 125,368 123,757
Other assets . . . . . . . . . . . . . . . . . . 958 967
--------- ---------
TOTAL ASSETS . . . . . . . . . $ 160,440 $ 156,709
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities:
Accounts payable and accrued liabilities . $ 14,105 $ 11,777
Insurance and claims accruals . . . . . . 11,011 10,529
Current maturities of long-term debt . . . 7,929 8,899
--------- ---------
Total current liabilities . . . . 33,045 31,205
Long-term debt, less current maturities. . . . . 46,572 47,232
Deferred income taxes. . . . . . . . . . . . . . 26,123 24,994
--------- ---------
Total liabilities . . . . . . . . 105,740 103,431
--------- ---------
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 . . . . . . . . . . . . 44,721 43,299
--------- ---------
Total shareholders' investment . . 54,700 53,278
--------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' INVESTMENT . . . $ 160,440 $ 156,709
--------- ---------
--------- ---------
</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
ENDED MARCH 31,
1999 1998
-------- --------
<S> <C> <C>
OPERATING REVENUE . . . . . . . . . . . . . $ 48,731 $ 45,218
-------- --------
OPERATING EXPENSES:
Salaries, wages and benefits . . . . . . 14,852 14,099
Purchased transportation . . . . . . . . 12,449 10,659
Fuel and fuel taxes . . . . . . . . . . 5,698 5,716
Supplies and maintenance . . . . . . . . 3,947 3,472
Depreciation . . . . . . . . . . . . . . 4,908 4,509
Operating taxes and licenses . . . . . . 934 898
Insurance and claims . . . . . . . . . . 1,114 998
Communications and utilities . . . . . . 658 584
Gain on disposition of revenue
equipment . . . . . . . . . . . . . . (461) (153)
Other . . . . . . . . . . . . . . . . . 1,431 1,242
-------- --------
Total operating expenses . . 45,530 42,024
-------- --------
OPERATING INCOME . . . . . . . . . . . . . 3,201 3,194
OTHER EXPENSES (INCOME):
Interest expense . . . . . . . . . . . . 927 982
Interest income and other . . . . . . . (57) (55)
-------- --------
INCOME BEFORE INCOME TAXES . . . . . . . . 2,331 2,267
PROVISION FOR INCOME TAXES . . . . . . . . 909 907
-------- --------
NET INCOME . . . . . . . . . . . . . . . . $ 1,422 $ 1,360
-------- --------
-------- --------
BASIC AND DILUTED EARNINGS
PER COMMON SHARE . . . . . . . . . . . . $ 0.32 $ 0.30
-------- --------
-------- --------
</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>
THREE MONTHS
ENDED MARCH 31,
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Operations:
Net income . . . . . . . . . . . . . . . . . . $ 1,422 $ 1,360
Adjustments to reconcile net
income to net cash flows
from operating activities:
Depreciation . . . . . . . . . . . . . . . 4,908 4,509
Gain on disposition of revenue
equipment . . . . . . . . . . . . . . . . (461) (153)
Deferred tax provision . . . . . . . . . . 625 119
Changes in other current
operating items . . . . . . . . . . . . . 692 1,970
-------- --------
Net cash provided by
operating activities . . . . . . . . 7,186 7,805
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions:
Revenue equipment, net . . . . . . . . . . . . . (5,876) (8,999)
Buildings and land, office equipment,
and other additions, net . . . . . . . . . . . (182) (133)
Net change in other assets . . . . . . . . . . . . 9 31
-------- --------
Net cash used for investing
activities . . . . . . . . . . . . . (6,049) (9,101)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings . . . . . . . . . . . . . . . 15,900 8,577
Repayment of long-term borrowings . . . . . . . . (17,530) (6,568)
-------- --------
Net cash provided by
(used for) financing
activities . . . . . . . . . . . . . (1,630) 2,009
-------- --------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS . . . . . . . . . . . . . . . . . (493) 713
CASH AND CASH EQUIVALENTS:
Beginning of period . . . . . . . . . . . . . . . 1,116 2,052
-------- --------
End of period . . . . . . . . . . . . . . . . . . $ 623 $ 2,765
-------- --------
-------- --------
CASH PAID FOR:
Interest . . . . . . . . . . . . . . . . . . . . . $ 938 $ 961
-------- --------
-------- --------
Income taxes . . . . . . . . . . . . . . . . . . . $ 344 $ 169
-------- --------
-------- --------
</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 1998 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
ENDED MARCH 31,
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS) 1999 1998
---- ----
<S> <C> <C>
Numerator:
Net income . . . . . . . . . . . . . . . . $1,422 $1,360
------ ------
Denominator:
Basic earnings per common share -
weighted-average shares . . . . . . . . 4,478 4,478
Effect of dilutive stock options . . . . . 19 45
------ ------
Diluted earnings per common share -
weighted-average shares and
assumed conversions . . . . . . . . . . 4,497 4,523
------ ------
------ ------
Basic and diluted earnings per common share . $ 0.32 $ 0.30
------ ------
------ ------
</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
ENDED MARCH 31,
1999 1998
---- ----
<S> <C> <C>
Number of option shares . . . . . . . . . . . 18,750 --
Weighted-average exercise price . . . . . . . $15.95 --
------ ---
</TABLE>
<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 will be 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.
We have entered into commodity swap agreements to partially hedge our exposure
to diesel fuel price fluctuations. Statement No. 133 is expected to have minimal
impact on our results of operations and financial position because we did not
hold significant derivative instruments as of March 31, 1999.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS
Operating revenue for the first quarter of 1999 increased 7.8 percent over the
first quarter of 1998. This increase was primarily the result of transporting
additional freight associated with moderate additions to our fleet. Average
freight rates increased slightly in 1999, which were offset by a slight decrease
in equipment utilization. Our contracts with customers require fuel rebates and
surcharges based on significant fluctuations in the price of diesel fuel.
Operating revenue for the first quarter of 1999 was reduced by fuel rebates of
$376,000 due to a decrease in the price of diesel fuel. Fuel rebates and
surcharges for the first quarter of 1998 were insignificant. We expect operating
revenue for the remainder of 1999 to exceed 1998 levels due to planned additions
to our fleet.
Operating expenses for the first quarter of 1999 were 93.4 percent of operating
revenue, compared with 92.9 percent for the same period in 1998. Most expense
categories increased in 1999 due to the transportation of additional freight and
expansion of our fleet. Purchased transportation expense increased significantly
due to a planned increase in the number of independent contractor-owned vehicles
in our fleet. Our use of independent contractor-owned vehicles reduces the
following expenses relative to revenue: salaries, wages and benefits expense,
fuel and fuel taxes expense, and supplies and maintenance expense. The
independent contractors assume these expenses. Fuel and fuel tax expense also
decreased due to lower diesel fuel prices in the first quarter of 1999 compared
with the same period in 1998. Insurance and claims expense for the first quarter
of 1999 was consistent with the same period in 1998, reflecting our continued
emphasis on driver safety and training. Our gain on disposition of revenue
equipment for the first three months of 1999 increased from the same period of
the prior year due to an increase in the market value received for used revenue
equipment along with additional planned revenue equipment trades. We expect
operating expenses as a percent of revenue to remain at current levels for the
remainder of 1999.
Interest expense represented 1.9 percent of operating revenue for the first
quarter of 1999, compared with 2.2 percent for the same period of 1998. This
improvement reflects the lower interest rates associated with the Series A
Senior Unsecured Notes and the unsecured committed credit facility we entered
into during our fourth quarter of 1998. We expect interest expense as a percent
of revenue to remain at current levels.
Our effective income tax rate was 39 percent for the first quarter of 1999,
compared with 40 percent for the prior year. We expect the effective income tax
rate to remain at 39 percent for the remainder of 1999.
In 1998, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards 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 did not have
significant derivative instruments as of March 31, 1999.
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY
Net cash provided by our operating activities during the first three months of
1999 was $7,186,000. Net cash of $6,049,000 was used to invest in property and
equipment and other assets, while financing activities used $1,630,000 during
this period. We continued to update and expand our fleet with new, more
efficient revenue equipment in 1999 and 1998. We are committed to purchase
approximately $20 million of new revenue equipment, net of trade-in allowances,
in 1999. These purchases have been, and are expected to be, made using cash
flows from operations and proceeds from long-term debt.
Our operating profits, short turnover in accounts receivable and cash management
practices allow us to effectively meet our working capital needs. We have not
used, and do not expect to use, short-term borrowings to meet working capital
requirements. We believe our liquidity is adequate to meet expected near-term
operating needs.
IMPACT OF YEAR 2000
Computer programs have historically been written to abbreviate dates by using
two digits instead of four digits to identify a particular year. The so-called
"Year 2000 problem" is the inability of computer software or hardware to
recognize or properly process dates ending in "00" and dates after the Year
2000. As the Year 2000 approaches, significant attention is being focused on
updating or replacing such software and hardware in order to avoid system
failures, miscalculations or business interruptions that might otherwise result.
We are taking the steps we believe are necessary to insure that this potential
problem does not adversely affect our operating results in the future. We are
continuing our as-yet incomplete assessment of the impact of the Year 2000
problem.
We have reviewed our internal information systems and believe that the costs and
efforts to address the Year 2000 problem will not be material to our business,
financial condition or results of operations, and may be resolved through
replacements and upgrades to our software or hardware. The Year 2000 problem
may, however, adversely impact us by affecting the business and operations of
parties with which we transact business, although we are unable to precisely
determine the likelihood or potential impact of any such event. There can be no
assurance that we will be able to effectively address Year 2000 issues in a
cost-efficient manner and without interruption to our business, or that Year
2000 problems encountered by our suppliers, customers or other parties will not
have a material impact on our business, financial condition and results of
operations.
Our state of readiness for the Year 2000, our estimated costs associated with
Year 2000 issues, the risks we face associated with Year 2000 issues and our
Year 2000 contingency plans are summarized below.
STATE OF READINESS.
Internally, we have implemented a three-phase process to assess Year 2000
compliance of our systems and remediate any material non-compliance. The phases
are (1) to identify and test our material computer software and hardware in
order to determine whether they are Year 2000 compliant; (2) to correct or
replace those software or hardware systems in which we determine there is a
material problem with Year 2000 compliance; and (3) to internally test the
corrected or upgraded systems in order to determine whether they are Year 2000
compliant. We have completed all three phases with respect to most of our
material internally written and purchased information technology (IT) systems
and non-IT systems and believe the systems are Year 2000 compliant. However, we
also utilize a sales and marketing system, an insurance claims management system
and a maintenance tracking system, all of which are in the second phase. We
expect these three systems will be through phase three and achieve Year 2000
compliance during our third quarter of 1999.
<PAGE>
Externally, we have implemented a three-phase process to assess Year 2000
compliance of the systems of our vendors and third-party servicers, and
remediate any material non-compliance. The phases are (1) to identify the
vendors and other third parties with whom we transact business and determine
whether they are significant to our business ("core" parties); (2) to contact
the vendors and other third parties with whom we do business by, among other
methods, sending them letters and questionnaires designed to solicit information
relating to the Year 2000 problem; and (3) to evaluate the responses received
from the vendors and other third parties. The questionnaire we are using asks
vendors and other third parties such questions as (i) whether they have a
documented Year 2000 compliance plan, (ii) whether they are aware of any Year
2000 readiness issues that could affect us, (iii) whether, if such an issue
exists, they have plans in place to ensure compliance, (iv) what their target
date is for Year 2000 compliance and (v) whether they have any contingency
plans. We have substantially completed all three phases with respect to our
vendors and third-party service providers. We plan to follow up with our core
vendors and third parties with whom we do business to update our information
regarding the Year 2000 problem.
COSTS ASSOCIATED WITH YEAR 2000 ISSUES.
We estimate that the future costs associated with implementing all phases of our
Year 2000 assessment and resolving any Year 2000 problems will be between
$100,000 and $200,000. This estimated range includes expenditures for both
repairs and upgrades. We believe that these costs, assuming this estimate is
accurate, would not have a material effect on our business, financial condition
and results of operations. We estimate our costs to date associated with Year
2000 issues to be less than $50,000. We anticipate that cash flow from
operations will be used to pay the costs to address Year 2000 issues. All Year
2000 costs are expensed as incurred.
RISKS ASSOCIATED WITH YEAR 2000 ISSUES.
We are unaware of any material risk to us associated with Year 2000 issues at
the present time. We believe that the reasonably likely worst case Year 2000
scenario is a decrease in the efficiency with which we procure and deliver
loads, and a decrease in the efficiency with which we receive payment for
services rendered. A decrease in efficiency, however, would not necessarily
result in a decrease in business. We expect that load procurement, load delivery
and billing all could be achieved through alternative methods within a
relatively short period of time. Any disruption, however, could result in some
lost revenue.
We face the additional risk of experiencing an increase in claims and litigation
relating to the Year 2000 problem because, among other reasons, there is no
uniform definition of Year 2000 "compliance" and because all vendor and
third-party situations cannot be anticipated, particularly those involving
third-party products. Such claims, if successful, could have a material adverse
effect on future results. Moreover, the costs of defending us against such
claims, even if ultimately resolved in our favor, could have a material adverse
effect on future results.
CONTINGENCY PLANS.
We have completed a specific contingency plan for the Year 2000 problem. This
contingency plan identifies alternate vendors and service providers to decrease
the impact on us if one or more of the core parties with whom we do business
suffers a significant Year 2000 problem.
<PAGE>
FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q contains certain forward-looking statements.
Any statements not of historical fact may be considered forward-looking
statements. Written words such as "may," "expect," "believe," "anticipate" or
"estimate," or other variations of these or similar words, identify such
statements. These statements by their nature involve substantial risks and
uncertainties, and actual results may differ materially, depending on a variety
of factors, such as the industry driver shortage, the market for revenue
equipment, fuel prices and general weather and economic conditions.
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 the subject 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.
None
ITEM 5. Other Information.
None
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 March 31, 1999.
<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, thereunto duly authorized.
MARTEN TRANSPORT, LTD.
(Registrant)
Dated: May 10, 1999 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 March 31, 1999
Item No. Item Method of Filing
27.1 Financial Data
Schedule . . . . . . . . . . Filed with this report
electronically.
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 623,000
<SECURITIES> 0
<RECEIVABLES> 22,974,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 34,114,000
<PP&E> 172,385,000
<DEPRECIATION> 47,017,000
<TOTAL-ASSETS> 160,440,000
<CURRENT-LIABILITIES> 33,045,000
<BONDS> 46,572,000
0
0
<COMMON> 45,000
<OTHER-SE> 54,655,000
<TOTAL-LIABILITY-AND-EQUITY> 160,440,000
<SALES> 48,731,000
<TOTAL-REVENUES> 48,731,000
<CGS> 0
<TOTAL-COSTS> 45,530,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 927,000
<INCOME-PRETAX> 2,331,000
<INCOME-TAX> 909,000
<INCOME-CONTINUING> 1,422,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,422,000
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.32
</TABLE>
