<PAGE>
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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, 1998 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 22, 1999, 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 $25,131,550.
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,
1998 (the "1998 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 11, 1999 (the "1999 Proxy Statement").
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<PAGE>
FORWARD-LOOKING INFORMATION
THIS ANNUAL REPORT ON FORM 10-K 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.
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, 1998, we operated a fleet of 1,460 tractors and 2,097
trailers. Most of our trailers are protective service trailers. As of December
31, 1998, 994 tractors and 2,094 trailers in our fleet were company-owned and
466 tractors and 3 trailers were under contract with independent contractors.
As of December 31, 1998, we had 1,337 employees, including 1,026 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 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 1998, we earned approximately 79% of
our revenue from hauling protective service products and 21% 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;
- late-model, temperature controlled trailers;
- scheduled pickups and deliveries;
<PAGE>
- 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 1998.
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 11%
of our revenue in 1998, 13% of our revenue in 1997 and 13% of our revenue in
1996.
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.
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
2
<PAGE>
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 the East Coast;
and from California to the Pacific Northwest and the Midwest. The average
length of a trip (one-way) was 1,081 miles during 1998, 1,092 miles during 1997
and 1,095 miles during 1996. 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.
DRIVERS
As of December 31, 1998, we employed 1,026 drivers and had contracts with
independent contractors for the services of 466 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, 1998, was approximately 1 to 1. Our drivers are not
represented by a collective bargaining unit. Our turnover of drivers was
approximately 62% in 1998. 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 DOT required tests
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.
We pay independent contractors a fixed rate per mile. 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. We purchase tractors and trailers
3
<PAGE>
manufactured to our specifications. Freightliner or Peterbilt manufacture most
of our tractors. Most of our tractors are equipped with 435/500 or 370/435
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
(1,605 trailers) or 48 feet long (489 trailers). All of our trailers are 102
inches wide and have at least 106 inches of inside height. 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, 1998:
<TABLE>
<CAPTION>
Model Year Tractors Single Van Trailers
---------- -------- -------------------
<S> <C> <C>
1999 144 232
1998 189 593
1997 230 376
1996 319 471
1995 110 236
1994 1 155
1993 - 30
1992 1 -
1990 - 1
--- -----
Total 994 2,094
--- -----
--- -----
</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, 1998, we employed 1,337 people. This total consists of
1,026 drivers, 116 mechanics and maintenance personnel, along with 195 support
personnel. Support personnel includes 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
4
<PAGE>
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 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.
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 partially self-insure for losses relating to workers' compensation,
auto liability, general liability and cargo claims, along with employees' group
health benefits. We self-insure for property damage claims. We also maintain
an insurance policy that limits annual total losses to $7.5 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.
5
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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, 1998.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Our executive officers, with their ages and the offices held as of
March 1, 1999, are as follows:
Name Age Position
---- --- ---------
Randolph L. Marten 46 Chairman of the Board, President
and Director
Darrell D. Rubel 53 Executive Vice President, Chief
Financial Officer, Treasurer,
Assistant Secretary and Director
Robert G. Smith 55 Chief Operating Officer and Vice
President of Operations
Timothy P. Nash 47 Vice President of Sales
Franklin J. Foster 42 Vice President of Finance
Randolph L. Marten has been a full-time employee since 1974. Mr. Marten
has been a Director since October 1980, our President since June 1986 and our
Chairman of the Board since August 1993. Mr. Marten also served as our Chief
Operating Officer from June 1986 until August 1998 and 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.
Robert G. Smith has been our Chief Operating Officer since August 1998 and
our Vice President of Operations since June 1993. Mr. Smith also 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.
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.
Our executive officers are elected by the Board of Directors to serve
one-year terms.
6
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information in the "Common Stock Data" section of our 1998 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, 1998.
ITEM 6. SELECTED FINANCIAL DATA
The financial information in the "Five-Year Financial Summary" section
of our 1998 Annual Report on the inside front cover thereof 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 1998 Annual Report
on pages 2 through 4 is incorporated in this Report by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our credit facility described in Note 2 to the financial statements as
well as in the Management's Discussion and Analysis carries interest rate risk.
Amounts borrowed under this agreement are subject to interest charges at a rate
equal to either the London Interbank Offered Rate plus applicable margins, or
the bank's Reference Rate. The Reference Rate is generally the prime rate.
Should the lender's Reference Rate change, our interest expense will increase or
decrease accordingly. As of December 31, 1998, we had borrowed approximately
$4.8 million subject to interest rate risk. On this amount, a 1% increase in
the interest rate would cost us $48,000 in additional gross interest cost on an
annual basis.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our Financial Statements and the Report of Independent Public
Accountants on pages 5 through 12 of our 1998 Annual Report are incorporated in
this Report by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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 1999 Proxy Statement is incorporated in this Report by reference.
7
<PAGE>
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 1999 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 1999 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 1999 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 1999
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 1998 Annual
Report:
Report of Independent Public Accountants - page 12
Balance Sheets as of December 31, 1998 and 1997 - page 5
Statements of Operations for the years ended
December 31, 1998, 1997 and 1996 - page 6
Statements of Changes in Shareholders' Investment for
the years ended December 31, 1998, 1997 and 1996 - page 6
Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996 - page 7
Notes to Financial Statements - pages 8 through 12
2. FINANCIAL STATEMENT SCHEDULES:
None.
8
<PAGE>
3. EXHIBITS:
The exhibits to this Report are listed in the Exhibit Index
on pages 11 through 13. A copy of any of the exhibits
listed will be sent at a reasonable cost to any shareholder
as of March 22, 1999. 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.
(5) Amendment to Employment Agreement, dated January
27, 1999, with Darrell D. Rubel
(b) REPORTS ON FORM 8-K FILED IN THE FOURTH QUARTER OF 1998:
None.
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 26, 1999 MARTEN TRANSPORT, LTD.
By /s/ Randolph L. Marten
-----------------------------------
Randolph L. Marten
Chairman of the Board and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below on March 26, 1999 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
- --------------------------- (Principal Executive Officer) and Director
Randolph L. Marten
/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
/s/ Christine K. Marten Director
- ---------------------------
Christine K. Marten
10
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MARTEN TRANSPORT, LTD.
EXHIBIT INDEX TO ANNUAL REPORT
ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1998
<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).
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).
</TABLE>
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<TABLE>
<CAPTION>
ITEM NO. ITEM FILING METHOD
-------- ---- --------------
<S> <C> <C>
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).
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).
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
ITEM NO. ITEM FILING METHOD
-------- ---- --------------
<S> <C> <C>
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).
10.12 Note Purchase and Private Shelf Agreement
dated October 30, 1998, between the Company
and The Prudential Insurance Company of
America. . . . . . . . . . . . . . . . . . . . . Incorporated by reference to
Exhibit 10.12 of the Company's
Quarterly Report on Form 10-Q for
the quarter ended September 30,
1998 (File No. 0-15010).
10.13 Credit Agreement dated October 30, 1998,
between the Company and U.S. Bank National
Association. . . . . . . . . . . . . . . . . . . Incorporated by reference to
Exhibit 10.13 of the Company's
Quarterly Report on Form 10-Q for
the quarter ended September 30,
1998 (File No. 0-15010).
10.14 Amendment to Employment Agreement, dated
January 27, 1999, between the Company and
Darrell D. Rubel . . . . . . . . . . . . . . . . Filed with this Report.
13.1 1998 Annual Report to Shareholders . . . . . . . Filed with this Report.
23.1 Consent of Arthur Andersen LLP . . . . . . . . . Filed with this Report.
27.1 Financial Data Schedule. . . . . . . . . . . . . Filed with this Report.
</TABLE>
13
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
This Agreement is made between MARTEN TRANSPORT, LTD. ("Employer"), and
DARRELL D. RUBEL ("Employee"), to amend that certain Employment Agreement
between the Employee and the Employer dated May 1, 1993, as set forth herein.
1. In recognition of the services and benefits provided in the past by
Employee for the Employer, and in addition to all other income, benefits
and bonuses, the Employer agrees to pay to the Employee an additional
amount of One Thousand and no/100 Dollars ($1,000.00) per month for the
period of 60 months.
2. This amount shall be due and payable to Employee, or Employee's estate or
beneficiaries and heirs, for the period commencing on January 1, 1998, and
on the first day of each month thereafter with the last payment due on
December 1, 2002. The obligation to make this payment shall not be
affected by the subsequent employment status, resignation, disability or
death of Employee, or the termination of the Employment Agreement, as
amended.
3. This Agreement shall be binding on both parties and their respective heirs,
personal representatives, successors and assigns.
Dated this 27th day of January, 1999.
MARTEN TRANSPORT, LTD. DARRELL D. RUBEL
EMPLOYER EMPLOYEE
By: /s/ Thomas J. Winkel By: /s/ Darrell D. Rubel
--------------------------------- ---------------------------------
Chairman, Compensation Committee
<PAGE>
WHO WE ARE
Marten Transport, Ltd., with headquarters in Mondovi, Wisconsin, strives to
be the premium supplier of time- and temperature-sensitive transportation
services to customers nationwide. We serve customers with more demanding
delivery deadlines, as well as those who ship products requiring modern
temperature-controlled trailers to protect goods.
Founded in 1946, we have been a public company since 1986. Our common stock
trades on The Nasdaq Stock Market under the symbol MRTN. At December 31,
1998, we employed 1,337 people, including drivers, office personnel and
mechanics.
Our mission is to provide:
- - customers with transportation services that exceed expectations;
- - employees, at all levels, with satisfying and financially rewarding work,
and with continued opportunities for professional development;
- - shareholders with a superior return on their investments; and
- - society with a cleaner, safer environment.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Years ended December 31,
(DOLLARS IN THOUSANDS,
EXCEPT PER-SHARE AMOUNTS) 1998 1997 1996
-----------------------------------
<S> <C> <C> <C>
FOR THE YEAR
Operating revenue ......... $ 193,648 $172,412 $ 146,151
Operating income .......... 16,345 12,847 6,160
Net income ................ 7,574 5,307 1,630
Operating ratio ........... 91.6% 92.5% 95.8%
PER-SHARE DATA(1)
Basic earnings
per common share ....... $ 1.69 $ 1.19 $ .37
Diluted earnings
per common share ....... 1.67 1.19 .37
Book value ................ 11.90 10.21 9.02
AT YEAR END
Total assets .............. $ 156,709 $145,266 $ 138,135
Long-term debt, less
current maturities ..... 47,232 30,663 33,505
Shareholders' investment .. 53,278 45,704 40,044
</TABLE>
(1) Earnings per common share and book value amounts for 1997 and 1996 have
been retroactively adjusted to reflect a three-for-two stock split
effective for shareholders of record as of December 15, 1997.
FIVE-YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
Years ended December 31,
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS) 1998 1997 1996 1995 1994
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR
Operating revenue .......................... $ 193,648 $ 172,412 $ 146,151 $ 137,704 $ 122,730
Operating income ........................... 16,345 12,847 6,160 11,378 13,015
Net income ................................. 7,574 5,307 1,630 5,009 6,375
PER-SHARE DATA(1)
Basic earnings per common share ............ $ 1.69 $ 1.19 $ .37 $ 1.14 $ 1.34
Diluted earnings per common share .......... 1.67 1.19 .37 1.12 1.33
AT YEAR END
Total assets ............................... $ 156,709 $ 145,266 $ 138,135 $ 123,141 $ 105,648
Long-term debt, less current maturities .... 47,232 30,663 33,505 27,079 24,917
Shareholders' investment ................... 53,278 45,704 40,044 38,242 33,104
</TABLE>
(1) Earnings per common share amounts for 1997 and prior years have been
retroactively adjusted to reflect a three-for-two stock split effective for
shareholders of record as of December 15, 1997.
<PAGE>
TO OUR SHAREHOLDERS AND EMPLOYEES 1
Our annual report is a welcome opportunity to communicate to shareholders,
customers, prospects and employees the aspects of our business that make us
successful, as well as to highlight our financial results. Our success,
coupled with the discipline we use to manage our company, helps build
Marten's reputation as a financially solid, respected transportation company.
The partnerships we form with drivers and independent contractors, non-driver
employees, customers and suppliers are extremely important. This year, we'll
describe how these individual partnerships contribute to Marten's continued
growth and profitability.
1998 FINANCIAL HIGHLIGHTS
For the fiscal year ended December 31, 1998, we posted record revenue of
$193.6 million, up 12 percent from $172.4 million in 1997. Net income for
1998 increased 43 percent to $7.6 million, or $1.67 per diluted share, from
$5.3 million, or $1.19 per diluted share, in 1997.
Operating income for 1998 was $16.3 million, compared with $12.8 million in
1997. Marten's operating ratio, which compares operating costs to revenue,
decreased to 91.6 percent in 1998 from 92.5 percent the year earlier.
Revenue gains stem from several factors. First, we increase the potential for
higher revenue by enlarging our fleet. We went from 1,317 tractors and 1,835
trailers at December 31, 1997, to 1,460 and 2,097, respectively, at December
31, 1998. Second, we significantly expanded our dedicated service business,
which I'll address later in this letter. Third, we increased our revenue from
our top 10 customers by 9 percent in 1998. This reflects the solid
relationships we maintain with our top customers.
A RELATIONSHIP BUSINESS
Operating a successful transportation business requires close partnerships
with people inside and outside the organization. We recognize the need to
build, maintain and manage partnerships, and we've designed programs and
systems with our business partners to strengthen our service and financial
performance. Key examples follow.
DRIVERS/INDEPENDENT CONTRACTORS: The industry-wide driver shortage continues
to affect our business. To help manage our driver turnover, we provide
referral bonuses to drivers who bring us qualified new recruits. We paid more
than $140,000 in referral bonuses in 1998 -- an important investment in our
future. Likewise, sharpening our focus on dedicated service programs also
reduces driver turnover. Some employees like driving in dedicated lanes,
which offers more predictable scheduling.
Independent contractors, who represent 31 percent of our total driver
network, are extremely important to Marten. The Contractor Services Program
launched in mid-1998 helps independent contractors (including former
Marten-employed drivers) build their own businesses. The program includes
accounting firm referrals, equipment advice, sources for insurance and other
essential start-up elements. We've signed up 30 independent contractors for
this program so far.
NON-DRIVER EMPLOYEES: Partnerships with non-driver employees at all four
Marten locations -- from mechanics to fleet managers, sales and office
personnel -- also are critical. Overall, we benefit from a very stable
workforce. Two areas worth special note are Marten's empowering of terminal
managers, who now have more control of day-to-day operations within their
regions, and the introduction of a popular scholarship program for children
of Marten employees.
In the area of terminal operations, we moved some of our daily operations
management to regional staff. For example, instead of overseeing driver
recruiting from our Mondovi headquarters, we solicit driver candidates from
all four regional facilities. We've also asked regional managers to supervise
many of the loading/unloading programs in their areas and maintain direct
contact with many nearby customers, which helps improve service.
In 1998, we invested $10,000 in a new scholarship program for college-bound
children of Marten employees. Last year, we received 17 applications and
awarded scholarships to eight students. We expect an even larger number of
applications this year.
CUSTOMERS: Many aspects of our business contribute to mutually beneficial
customer relationships. Superior service and state-of-the-art equipment, for
example, provide the capacity our customers require. We spend considerable
time building an understanding of each other's needs. When customers
understand the cost elements associated with running a transportation
business,
<PAGE>
TO OUR SHAREHOLDERS AND EMPLOYEES 2
and we understand the implications of meeting customer requests, we form
long-term, "win/win" partnerships. If we maintain open-ended communication,
we can improve equipment utilization, reduce costs and increase margins.
We win business because we're responsive. We keep relationships because we
have the equipment and flexibility to meet the individualized needs of every
customer -- and because our people deliver the service level expected. We are
known in the industry as a premier carrier for customers who require time-
and temperature-sensitive service.
SUPPLIERS: We contract with equipment suppliers who provide the best tractors
and trailers in the industry. The same is true of companies that supply
technology resources to manage our business and vendors who help add speed to
our system.
Many of our customers have very tight delivery windows and travel deadlines.
Our information systems personnel work with our network, hardware and
software vendors to design and maintain systems to our specifications. This
allows us to successfully communicate with customers, drivers and Marten
operations personnel.
We're in great shape to surpass $200 million in revenue in 1999, thanks in
large part to the partnerships highlighted here. Our balance sheet is strong
and our expense control disciplines continue to drive profitability. We have
invested time and resources in response to the "Year 2000 problem" and don't
anticipate that the costs to address this issue will have a material effect
on our financial or service performance going forward. (See Management's
Discussion and Analysis for details.)
I'd like to thank all who contribute to our continued success. Thanks
especially to Robert Smith, promoted to chief operating officer last August,
for his dedication to Marten and our business associates.
Sincerely,
/s/ Randolph L. Marten
Randolph L. Marten
[PHOTO] President and Chairman of the Board
March 22, 1999
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS Operating revenue for the year ended December 31, 1998,
increased 12 percent over 1997, compared with increases of 18 percent in 1997
and 6 percent in 1996. These increases were the result of transporting
additional freight associated with increases to our fleet each of the last
three years. Average freight rates and equipment utilization, measured by
average miles traveled per tractor, increased in 1998 and 1997 due to
stronger customer demand, as compared to 1996. Average freight rates and
utilization declined in 1996. Our contracts with customers require fuel
surcharges and rebates based on significant fluctuations in the price of
diesel fuel. Operating revenue in 1998 was reduced by fuel rebates of $496,000
due to a decrease in the price of diesel fuel. Operating revenue was increased
by fuel surcharges of $1.2 million in 1997 and $1.4 million in 1996 due to an
increase in the price of diesel fuel. We expect operating revenue in 1999 to
exceed 1998 levels due primarily to planned revenue equipment additions.
Operating expenses in 1998 represented 91.6 percent of operating revenue,
compared with 92.5 percent in 1997 and 95.8 percent in 1996. This ratio
improved in 1998 and 1997 due primarily to an increase in the revenue generated
per tractor, reflecting more efficient utilization of our equipment. This ratio
was not as favorable in 1996 due to reduced equipment utilization and lower
freight rates. The aggregate amount of operating expenses increased 11 percent
in 1998, 14 percent in 1997 and 11 percent in 1996.
The transportation of additional freight and expansion of our fleet caused
most expense categories to increase during the last three years. Purchased
transportation expense increased to 24.2 percent of revenue in 1998, compared
with 20.8 percent in 1997 and 13.7 percent in 1996. These increases reflect
planned growth in the number of independent contractor-owned vehicles.
Independent contractors assume responsibility for their own
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 3
salaries, wages and benefits expense, fuel and fuel tax expense, and supplies
and maintenance expense. As a result, our expenses in these categories have
been reduced relative to revenue during the last three years. A significant
decrease in the price of diesel fuel caused an additional reduction in fuel
and fuel tax expense in 1998. 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 depreciation expense to increase during
the last three years. Our insurance and claims expense continued to be
positively impacted by our strong focus on driver safety and training, which
has led to improved accident experience over the last three years. Insurance
and claims expense represented 1.9 percent of revenue in 1998, compared with
2.0 percent in 1997 and 4.7 percent in 1996. Our gain on disposition of
revenue equipment has fluctuated over the last three years due to changes in
the market value received for used revenue equipment. We anticipate our 1999
operating expenses as a percent of revenue will remain at current levels.
Interest expense as a percent of revenue declined in 1998 to 2.0 percent of
revenue, compared with 2.4 percent in both 1997 and 1996. This improvement
was primarily caused by a decrease in our average long-term debt during 1998.
We anticipate interest expense in 1999 as a percent of revenue will remain at
1998 levels.
Our effective tax rate was 40 percent for the last three years. We expect the
effective tax rate to be 40 percent or less in 1999.
In 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as discussed
in Note 1 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 December 31, 1998.
Inflation can be expected to affect most of our operating expenses. The
impact of inflation, however, was minimal during the three years ended
December 31, 1998.
CAPITAL RESOURCES AND LIQUIDITY Net cash provided by our operating activities
in 1998 was $24,486,000. Our business requires significant capital
expenditures to update and expand our fleet with new, more efficient tractors
and trailers. We invested $29,262,000 in property and equipment and other
assets in 1998, requiring net cash from financing activities of $3,840,000.
We are committed to purchase approximately $26 million of new revenue
equipment, net of trade-in allowances, in the first half of 1999. We have
paid, and expect to pay, for these purchases using cash flows from operations
and proceeds from long-term debt.
In 1998, we issued $25 million in Series A Senior Unsecured Notes and
obtained a $40 million unsecured committed credit facility. The Senior Notes
bear fixed interest at 6.78 percent and mature in 2008. The credit facility
matures in 2001 and bears variable interest based upon, at our option, either
the London Interbank Offered Rate plus applicable margins, or the bank's
Reference Rate. The proceeds of these fundings were used to retire a
substantial portion of existing long-term debt, causing current maturities of
long-term debt to decrease. This reduction in current maturities resulted in
a positive working capital position. Cash flows from operating activities
have historically met our working capital needs despite a working capital
deficit. The working capital deficit in prior years was caused by current
maturities of long-term debt associated with additions to our fleet. Our
operating profits, short turnover in accounts receivable and cash management
practices allow us to effectively meet our working capital requirements.
Short-term borrowings have not been and are not expected to be used to meet
working capital needs. We believe our liquidity will adequately satisfy
expected near-term operating requirements.
SEASONALITY The trucking industry experiences seasonal fluctuations in
revenue and expenses. Our operations are consistent with this pattern. 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 cost.
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. Significant attention is being focused
as the Year 2000 approaches on updating or replacing such software and
hardware in order to avoid system failures, miscalculations or business
interruptions that might otherwise result. Marten is 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.
Marten has reviewed its internal information systems and believes 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 Marten 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 Marten will be able to
effectively address Year 2000 issues in a cost-efficient manner and without
interruption to our business,
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 4
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.
Marten's 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, Marten also utilizes 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 in 1999.
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 Marten, (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 during 1999 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 $25,000. 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 Marten 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
Marten 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 Marten if one or more of the core
parties with whom we do business suffers a significant Year 2000 problem.
FORWARD-LOOKING INFORMATION This annual report 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.
<PAGE>
BALANCE SHEETS 5
<TABLE>
<CAPTION>
December 31,
(IN THOUSANDS, EXCEPT SHARE INFORMATION) 1998 1997
---------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................... $ 1,116 $ 2,052
Receivables:
Trade, less allowances of $751 and $650 .................. 17,129 16,935
Other .................................................... 2,625 1,937
Prepaid expenses and other .................................. 7,850 6,921
Deferred income taxes ....................................... 3,265 4,170
---------------------------
Total current assets .................................. 31,985 32,015
---------------------------
PROPERTY AND EQUIPMENT:
Revenue equipment ........................................... 160,600 143,633
Buildings and land .......................................... 6,320 6,320
Office equipment and other .................................. 5,351 5,098
Less accumulated depreciation ............................... (48,514) (42,375)
---------------------------
Net property and equipment ............................ 123,757 112,676
OTHER ASSETS ..................................................... 967 575
---------------------------
$ 156,709 $ 145,266
---------------------------
---------------------------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable ............................................ $ 3,687 $ 4,472
Insurance and claims accruals ............................... 10,529 11,638
Accrued liabilities ......................................... 8,090 8,573
Current maturities of long-term debt ........................ 8,899 21,628
---------------------------
Total current liabilities ............................. 31,205 46,311
LONG-TERM DEBT, less current maturities .......................... 47,232 30,663
DEFERRED INCOME TAXES ............................................ 24,994 22,588
---------------------------
Total liabilities ..................................... 103,431 99,562
---------------------------
COMMITMENTS (Notes 1, 3 and 10)
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 ........................................... 43,299 35,725
---------------------------
Total shareholders' investment ........................ 53,278 45,704
---------------------------
$ 156,709 $ 145,266
---------------------------
---------------------------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE>
STATEMENTS OF OPERATIONS 6
<TABLE>
<CAPTION>
For the years ended December 31,
(IN THOUSANDS, EXCEPT SHARE INFORMATION) 1998 1997 1996
---------------------------------------------
<S> <C> <C> <C>
OPERATING REVENUE ................................................. $ 193,648 $ 172,412 $ 146,151
---------------------------------------------
OPERATING EXPENSES:
Salaries, wages and benefits ................................... 58,798 52,917 50,222
Purchased transportation ....................................... 46,833 35,914 20,073
Fuel and fuel taxes ............................................ 23,328 25,642 25,997
Supplies and maintenance ....................................... 15,633 14,359 14,166
Depreciation ................................................... 18,724 17,239 16,015
Operating taxes and licenses ................................... 3,809 3,531 3,376
Insurance and claims ........................................... 3,681 3,364 6,800
Communications and utilities ................................... 2,524 2,152 1,689
Gain on disposition of revenue equipment ....................... (935) (242) (2,580)
Other .......................................................... 4,908 4,689 4,233
---------------------------------------------
177,303 159,565 139,991
---------------------------------------------
OPERATING INCOME .................................................. 16,345 12,847 6,160
---------------------------------------------
OTHER EXPENSES (INCOME):
Interest expense ............................................... 3,964 4,205 3,575
Interest income and other ...................................... (243) (203) (131)
---------------------------------------------
3,721 4,002 3,444
---------------------------------------------
INCOME BEFORE INCOME TAXES ........................................ 12,624 8,845 2,716
PROVISION FOR INCOME TAXES ........................................ 5,050 3,538 1,086
---------------------------------------------
NET INCOME ..................................................... $ 7,574 $ 5,307 $ 1,630
---------------------------------------------
---------------------------------------------
BASIC EARNINGS PER COMMON SHARE ................................... $ 1.69 $ 1.19 $ .37
---------------------------------------------
---------------------------------------------
DILUTED EARNINGS PER COMMON SHARE ................................. $ 1.67 $ 1.19 $ .37
---------------------------------------------
---------------------------------------------
</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, 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
Net income .................. - - - 7,574 7,574
------------------------------------------------------------------------------
Balance at December 31, 1998 ... 4,477,645 $ 45 $ 9,934 $ 43,299 $ 53,278
------------------------------------------------------------------------------
------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
STATEMENTS OF CASH FLOWS 7
<TABLE>
<CAPTION>
For the years ended December 31,
(IN THOUSANDS) 1998 1997 1996
------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Operations:
Net income .................................................... $ 7,574 $ 5,307 $ 1,630
Adjustments to reconcile net income
to net cash flows from operating activities:
Depreciation ............................................... 18,724 17,239 16,015
Gain on disposition of revenue equipment ................... (935) (242) (2,580)
Deferred tax provision ..................................... 3,311 1,970 1,739
Changes in other current operating items:
Receivables ............................................. (882) 561 (1,970)
Prepaid expenses ........................................ (929) (582) (390)
Accounts payable ........................................ (785) 650 597
Other current liabilities ............................... (1,592) (549) 1,554
------------------------------------------
Net cash provided by operating activities ............ 24,486 24,354 16,595
------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Revenue equipment additions ........................................ (43,172) (32,598) (42,875)
Revenue equipment dispositions ..................................... 14,932 10,698 17,706
Buildings and land, office equipment and other additions, net ...... (630) (1,894) (512)
Net change in other assets ......................................... (392) (575) -
------------------------------------------
Net cash used for investing activities ............... (29,262) (24,369) (25,681)
------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings ............................................... 63,540 22,469 30,112
Repayment of long-term borrowings .................................. (59,700) (23,783) (21,500)
Issuance of common stock ........................................... - 353 172
------------------------------------------
Net cash provided by (used for) financing
activities ......................................... 3,840 (961) 8,784
------------------------------------------
DECREASE IN CASH AND CASH EQUIVALENTS .............................. (936) (976) (302)
CASH AND CASH EQUIVALENTS:
Beginning of year .................................................. 2,052 3,028 3,330
------------------------------------------
End of year ........................................................ $ 1,116 $ 2,052 $ 3,028
------------------------------------------
------------------------------------------
CASH PAID (RECEIVED) FOR:
Interest ........................................................... $ 3,675 $ 4,211 $ 3,585
------------------------------------------
------------------------------------------
Income taxes ....................................................... $ 2,171 $ 534 $ (446)
------------------------------------------
------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS 8
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 11 percent of our revenue from a single customer in 1998, 13
percent in 1997 and 13 percent in 1996.
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 AND OTHER: As of December 31, prepaid expenses and other
consisted of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997
-----------------
<S> <C> <C>
License fees ......................... $ 2,829 $2,150
Tires in service ..................... 1,941 1,703
Parts and tires inventory ............ 1,697 1,941
Insurance ............................ 407 236
Other ................................ 976 891
-----------------
$ 7,850 $6,921
-----------------
-----------------
</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
Buildings ............................................ 20
Office equipment and other ........................... 3-15
-----
</TABLE>
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, in part, for losses relating to
workers' compensation, auto liability, general liability and cargo claims,
along with employees' group health benefits. We self-insure for property
damage claims. 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 $2.2 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.
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. We have entered into commodity swap agreements to partially hedge
Marten's exposure to diesel fuel price fluctuations. Statement No. 133 is
expected to have minimal impact on Marten's results of operations and
financial position because we did not hold significant derivative instruments
as of December 31, 1998.
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.
<PAGE>
NOTES TO FINANCIAL STATEMENTS 9
2. LONG-TERM DEBT
As of December 31, long-term debt consisted of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997
----------------------
<S> <C> <C>
Series A Senior Unsecured Notes
maturing in October 2008 and
bearing fixed interest at 6.78% .......... $25,000 $ -
Unsecured committed credit facility
with a bank maturing in October 2001 and
bearing variable interest based upon
either the London Interbank Offered
Rate plus applicable margins or the
bank's Reference Rate (6.5% weighted
average rate at December 31, 1998) ....... 14,800 -
Notes payable to banks collateralized
by specific revenue equipment
maturing through December 2001
(7.8% weighted average interest rate
at December 31, 1998) .................... 16,331 52,291
----------------------
Total long-term debt ....................... 56,131 52,291
Less current maturities of long-term debt .. 8,899 21,628
----------------------
Long-term debt, less current maturities .... $47,232 $30,663
----------------------
----------------------
</TABLE>
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, 1998.
Maturities of long-term debt at December 31, 1998, are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) Amount
--------
<S> <C>
1999 ........................................ $ 8,899
2000 ........................................ 5,695
2001 ........................................ 16,537
2002 ........................................ 3,571
2003 ........................................ 3,571
Thereafter .................................. 17,858
--------
$ 56,131
--------
--------
</TABLE>
3. LEASES
We lease office equipment and facilities under operating leases with terms
ranging from one to five years. Under most of these agreements, we pay
maintenance and other expenses for the leased property.
Minimum future obligations under operating leases in effect at December 31,
1998, are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) Amount
-------
<S> <C>
1999 ........................................ $ 183
2000 ........................................ 136
2001 ........................................ 96
2002 ........................................ 17
2003 ........................................ 5
-------
$ 437
-------
-------
</TABLE>
Lease-related expenses were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997 1996
---------------------------------
<S> <C> <C> <C>
Operating lease rentals ...... $ 331 $ 447 $ 336
---------------------------------
</TABLE>
4. RELATED PARTY TRANSACTIONS
The following related party transactions occurred during the three years
ended December 31, 1998:
(a) We paid approximately $1.5 million in 1998 and $1.6 million in 1997 to
purchase fuel and tires from a company in which one of our directors, elected
in 1997, is the president and a shareholder.
(b) 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 1997 and 1996.
(c) During the three years ended December 31, 1998, 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) 1998 1997 1996
--------------------------------
<S> <C> <C> <C>
Current:
Federal .............. $ 1,480 $ 1,271 $ (623)
State ................ 259 297 (30)
--------------------------------
1,739 1,568 (653)
--------------------------------
Deferred:
Federal .............. 2,963 1,739 1,526
State ................ 348 231 213
--------------------------------
3,311 1,970 1,739
--------------------------------
Total provision ...... $ 5,050 $ 3,538 $ 1,086
--------------------------------
--------------------------------
</TABLE>
The statutory federal income tax rate is reconciled to the effective income
tax rate as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-----------------------------
<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 .... 4 6 5
Other, net ...................... 2 - 1
-----------------------------
Effective tax rate ................ 40% 40% 40%
-----------------------------
-----------------------------
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS 10
As of December 31, the net deferred tax liability consisted of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997
----------------------
<S> <C> <C>
Deferred tax assets:
Reserves and accrued liabilities for
financial reporting in excess of tax ... $ 5,081 $ 5,401
State income tax deduction for
financial reporting in excess of tax ... 1,162 1,044
Alternative minimum tax credit ........... 322 316
State net operating loss carryforwards ... - 28
----------------------
6,565 6,789
----------------------
Deferred tax liabilities:
Tax depreciation in excess of
depreciation for financial reporting ... 26,470 23,972
Prepaid licenses and use tax expensed for
income tax purposes and capitalized
for financial reporting ................ 1,239 975
Other .................................... 585 260
----------------------
28,294 25,207
----------------------
Net deferred tax liability ............. $21,729 $18,418
----------------------
----------------------
</TABLE>
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. The stock split was effected in the form of a dividend,
using authorized but unissued shares of our common stock. All per share
amounts for 1997 and prior years 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) 1998 1997 1996
----------------------------------
<S> <C> <C> <C>
Numerator:
Net income ................... $7,574 $5,307 $1,630
----------------------------------
Denominator:
Basic earnings per
common share -
weighted-average shares .... 4,478 4,446 4,424
Effect of dilutive
stock options .............. 46 22 27
----------------------------------
Diluted earnings per
common share -
weighted-average shares
and assumed conversions .... 4,524 4,468 4,451
----------------------------------
----------------------------------
Basic earnings
per common share ............. $ 1.69 $ 1.19 $ .37
----------------------------------
----------------------------------
Diluted earnings
per common share ............. $ 1.67 $ 1.19 $ .37
----------------------------------
----------------------------------
</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>
1998 1997 1996
------------------------------
<S> <C> <C> <C>
Number of option shares ..... 11,250 315,000 217,500
Weighted-average
exercise price ............ $17.25 $13.50 $13.57
------------------------------
</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, 1998. 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) 1998 1997 1996
-------------------------------
<S> <C> <C> <C>
Net income:
As reported ......................... $7,574 $ 5,307 $1,630
Pro forma ........................... 7,272 5,130 1,481
Basic earnings
per common share:
As reported ......................... 1.69 1.19 .37
Pro forma ........................... 1.62 1.15 .33
Diluted earnings
per common share:
As reported ......................... 1.67 1.19 .37
Pro forma ........................... 1.62 1.15 .33
-------------------------------
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS 11
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>
1998 1997 1996
-------------------------------------------------------------------------
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 ...... 344,250 $13.07 270,000 $12.18 297,000 $11.55
Granted ................. 33,750 14.78 112,500 12.63 - -
Exercised ............... - - (38,250) 5.50 (27,000) 5.23
-------------------------------------------------------------------------
Outstanding,
end of year ............ 378,000 13.22 344,250 13.07 270,000 12.18
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Exercisable,
end of year ............ 186,500 13.22 105,750 13.03 93,999 9.93
-------------------------------------------------------------------------
-------------------------------------------------------------------------
</TABLE>
The weighted-average fair value as of the date of grant was $7.05 per share
for options granted during 1998 and $5.96 per share for options granted
during 1997. 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>
1998 1997
-------------------
<S> <C> <C>
Expected option life in years .......... 7 7
Risk-free interest rate ................ 5.3% 6.1%
Expected stock price volatility ........ 35.0% 31.9%
Expected dividend payments ............. - -
-------------------
</TABLE>
The following table summarizes information regarding stock options
outstanding and exercisable as of December 31, 1998:
<TABLE>
<CAPTION>
Range of Exercise Price
-------------------------------
$8.08 to $12.33 to
$8.83 $14.00 $17.25
-------------------------------
<S> <C> <C> <C>
Options outstanding:
Number of shares ............... 29,250 337,500 11,250
Weighted-average
remaining contractual life ... 6.3 years 7.1 years 9.4 years
Weighted-average
exercise price ............... $8.45 $13.50 $17.25
Options exercisable:
Number of shares ............... 19,250 156,000 11,250
Weighted-average
exercise price ............... $8.64 $13.50 $17.25
-------------------------------
</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 contributed. 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
1998, 1997 or 1996. Total expense recorded for the plan was $197,000 in 1998,
$183,000 in 1997 and $192,000 in 1996.
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, 1998, and December 31, 1997. 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 $26 million of new revenue
equipment, net of trade-in allowances, in the first half of 1999.
<PAGE>
NOTES TO FINANCIAL STATEMENTS 12
11. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the quarterly results of operations for 1998
and 1997:
<TABLE>
<CAPTION>
1998 QUARTERS (IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS) FIRST SECOND THIRD FOURTH TOTAL
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenue ...................................... $ 45,218 $ 49,269 $ 50,126 $ 49,035 $193,648
Operating income ....................................... 3,194 4,443 5,113 3,595 16,345
Net income ............................................. 1,360 2,087 2,501 1,626 7,574
Basic earnings per common share ........................ .30 .47 .56 .36 1.69
Diluted earnings per common share ...................... .30 .46 .55 .36 1.67
----------------------------------------------------------
<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
----------------------------------------------------------
</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.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Marten Transport, Ltd.:
We have audited the accompanying balance sheets of Marten Transport, Ltd. (a
Delaware corporation) as of December 31, 1998 and 1997, 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, 1998. 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, 1998 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
January 22, 1999
COMMON STOCK DATA
Our quarterly stock prices, as reported by The Nasdaq Stock Market, were as
follows:
<TABLE>
<CAPTION>
1998 1997
Quarter HIGH LOW High Low
----------------------------------------------
<S> <C> <C> <C> <C>
First ........ $ 19 1/4 $ 12 1/2 $ 9 $ 8
Second ....... 18 7/8 16 9 8 1/6
Third ........ 18 5/8 12 7/16 14 1/6 9 1/3
Fourth ....... 15 1/4 12 3/8 17 1/6 12 3/4
----------------------------------------------
</TABLE>
The 1997 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, 1998, there were 288 shareholders of record, and
292 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>
CORPORATE INFORMATION
CORPORATE HEADQUARTERS
129 Marten Street
Mondovi, Wisconsin 54755
Telephone: (715) 926-4216
Fax: (715) 926-4530
www.marten.com
SHAREHOLDER INFORMATION
A copy of our 1998 Annual Report on Form 10-K as filed with the Securities
and Exchange Commission is available by writing to Darrell D. Rubel,
executive vice president and chief financial officer, at our corporate
headquarters.
ANNUAL MEETING
Shareholders, employees and friends may attend our annual meeting on Tuesday,
May 11, 1999, at 4:00 p.m. at the Roger Marten Community Center, 120 S.
Franklin Street, Mondovi, Wisconsin.
STOCK LISTING
Nasdaq Stock Market symbol: MRTN
LEGAL COUNSEL
Oppenheimer Wolff & Donnelly, LLP
45 South Seventh Street
Suite 3400
Minneapolis, Minnesota 55402
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
45 South Seventh Street
Minneapolis, Minnesota 55402
TRANSFER AGENT AND REGISTRAR
ChaseMellon
Shareholder Services, L.L.C.
Overpeck Centre
85 Challenger Road
Ridgefield Park, New Jersey 07660
Telephone: (800) 288-9541
TDD: (800) 231-5469
www.chasemellon.com
Direct communications about stock certificates or a change of address to
ChaseMellon Shareholder Services.
PUBLIC/FINANCIAL RELATIONS COUNSEL
Padilla Speer Beardsley Inc.
224 Franklin Avenue West
Minneapolis, Minnesota 55404
EXECUTIVE OFFICERS AND DIRECTORS
RANDOLPH L. MARTEN
Chairman of the Board,
President and Director
DARRELL D. RUBEL
Executive Vice President, Chief Financial Officer,
Treasurer, Assistant Secretary and Director
ROBERT G. SMITH
Chief Operating Officer
and Vice President of Operations
TIMOTHY P. NASH
Vice President of Sales
FRANKLIN J. FOSTER
Vice President of Finance
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
CHRISTINE K. MARTEN
Director
Flight Attendant, Northwest Airlines
Mondovi, Wisconsin
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated January 22, 1999, 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 10, 1999
<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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,116,000
<SECURITIES> 0
<RECEIVABLES> 19,754,000
<ALLOWANCES> 751,000
<INVENTORY> 0
<CURRENT-ASSETS> 31,985,000
<PP&E> 172,271,000
<DEPRECIATION> 48,514,000
<TOTAL-ASSETS> 156,709,000
<CURRENT-LIABILITIES> 31,205,000
<BONDS> 47,232,000
0
0
<COMMON> 45,000
<OTHER-SE> 53,233,000
<TOTAL-LIABILITY-AND-EQUITY> 156,709,000
<SALES> 193,648,000
<TOTAL-REVENUES> 193,648,000
<CGS> 0
<TOTAL-COSTS> 177,303,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,964,000
<INCOME-PRETAX> 12,624,000
<INCOME-TAX> 5,050,000
<INCOME-CONTINUING> 7,574,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,574,000
<EPS-PRIMARY> 1.69<F1>
<EPS-DILUTED> 1.67<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. The financial data schedule for the year ended December 31, 1996, has
not been restated to reflect the stock split.
</FN>
</TABLE>
