PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements.

MARTEN TRANSPORT, LTD.

CONSOLIDATED CONDENSED BALANCE SHEETS

(Unaudited)

The accompanying notes are an integral part of these consolidated condensed financial statements.

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MARTEN TRANSPORT, LTD.

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

The accompanying notes are an integral part of these consolidated condensed financial statements.

MARTEN TRANSPORT, LTD.

CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

The accompanying notes are an integral part of these consolidated condensed financial statements.

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MARTEN TRANSPORT, LTD.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

The accompanying notes are an integral part of these consolidated condensed financial statements.

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 20052006

(Unaudited)

(1)   Basis of Presentation

The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements, and therefore do not include all information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, such statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary to fairly present our consolidated financial condition, results of operations and cash flows for the interim periods presented. The results of operations for any interim period do not necessarily indicate the results for the full year. The unaudited interim consolidated financial statements should be read with reference to the financial statements and notes to financial statements in our 20042005 Annual Report on Form 10-K.

The accompanying unaudited consolidated condensed balance sheet as of June 30, 2005 and consolidated condensedfinancial statements of operations for the three and six months ended June 30, 2005 include the accounts of Marten Transport, Ltd. and its 45% owned affiliate, MW Logistics, LLC (“MWL”).  MWL is a third-party provider of logistics services to the transportation industry.  We have applied the provisions of FASB Interpretation No. 46, “Consolidation of Variable Interest Entities,” as revised, to our investment in MWL effective March 31, 2004.  As a result, the accounts of MWL are included in our unaudited consolidated condensed balance sheet as of June 30, 2005, and in our consolidated condensed statement of operations beginning April 1, 2004. All material intercompany accounts and transactions have been eliminated in consolidation. Prior to April 1, 2004, we accounted for our investment in MWL using the equity method of accounting. We recorded our share of the equity loss of MWL in the amount of $6,000 for the three months ended March 31, 2004.

(2)  Accounting for Stock-BasedShare-based Payment Arrangement Compensation

We have adopted the disclosure provisions of Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure.”  Statement No. 148 amends the disclosure requirements of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation.”  As of June 30, 2005, we have two stock-based employee compensation plans. We account for these plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under these plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if we had applied the fair value recognition provisions of Statement No. 123:

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(3) Earnings Per Common Share

Basic and diluted earnings per common share were computed as follows:

All outstanding options were included in the calculation of diluted earnings per share for all periods presented.

(4) Long-Term Debt

In June 2005, we entered into an amendment to our unsecured committed credit facility. This amendment reduced the number of banks subject to the agreement to one, adjusted our financial covenants and extended the maturity of the facility from April 2006 to April 2008.

(5) Amendment to Amended and Restated Certificate of Incorporation

In May 2005, our stockholders approved an amendment to our Amended and Restated Certificate of Incorporation increasing the authorized number of shares of common stock from 23,000,000 shares to 48,000,000 shares.

(6) 2005 Stock Incentive Plan

In May 2005, our stockholders approvedUnder our 2005 Stock Incentive Plan (the “2005 Plan”). Our Board of Directors adopted the 2005 Plan in March 2005 and approved amendments to the 2005 Plan in April 2005. Under the 2005 Plan,, all of our employees and any subsidiary employees, as well as all of our non-employee directors, consultants, advisors and independent contractors, may be granted stock-based awards, including incentive and non-statutory stock options and restricted stock awards, noneawards.  Stock options expire within 10 years after the date of which have been awarded asgrant and the exercise price must be at least the fair market value of June 30, 2005.our common stock on the date of grant.  Stock options issued to non-employee directors upon their annual re-election to our Board of Directors are generally exercisable at the date of grant.  Service-based options issued to employees are generally exercisable beginning one year from the date of grant in cumulative amounts of 20% per year.  Performance-based options become exercisable upon achievement of certain performance criteria established by the Compensation Committee of our Board of Directors.  Options exercised represent newly issued shares.  The maximum number of shares of common stock that will be available for issuance under the 2005 Plan is approximately 1.92.85 million shares.  As of June 30, 2006, there were 226,000 shares reserved for issuance under options outstanding under the 2005 Plan.  The 2005 Plan replaces our 1995 Stock Incentive Plan (the “1995 Plan”), which terminatedexpired by its terms in March 2005. Any awards

Under our 1995 Plan, officers, directors and employees were granted incentive and non-statutory stock options.  Incentive stock option exercise prices were required to be at least the fair market value of our common stock on the date of grant.  Non-statutory stock option exercise prices were required to be at least 85% of the fair market value of our common stock on the date of grant.  Stock options expire within 10 years after the date of grant.  Stock options issued to non-employee directors upon their annual re-election to our Board of Directors are generally exercisable at the date of grant.  Service-based options issued to employees are generally exercisable beginning one year from the date of grant in cumulative amounts of 20% per year.  Options exercised represent newly issued shares.  As of June 30, 2006, there were 424,936 shares reserved for issuance under options outstanding under the 1995 PlanPlan.  No additional options will be granted under the 1995 Plan.

Effective January 1, 2006, we began recording compensation expense associated with share-based payment arrangements in accordance with Statement of Financial Accounting Standards No. 123R, “Share-Based Payment” (“SFAS 123R”) as interpreted by SEC Staff Accounting Bulletin No. 107.  SFAS 123R supersedes Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), and amends Statement of Financial Accounting Standards No. 95, “Statement of Cash Flows.”  Generally, the approach in SFAS 123R is similar to the approach described in Statement of Financial Accounting Standards No. 123, “Accounting For Stock-Based Compensation” (“SFAS 123”).  However, SFAS 123R requires all

share-based payments to employees and non-employee directors, including grants of employee stock options, to be recognized in the income statement based on their fair values at the date of grant.

Historically, we accounted for share-based compensation under the recognition and measurement principles of APB 25 and related interpretations.  No compensation expense related to stock option plans was reflected in our net income as all options had an exercise price equal to the market value of the underlying common stock on the date of grant.  SFAS 123 established accounting and disclosure requirements using a fair-value-based method of accounting for share-based employee compensation plans.  As permitted by SFAS 123, we elected to continue to apply the intrinsic-value-based method of APB 25, described above, and adopted only the disclosure requirements of SFAS 123, as amended by Statement of Financial Accounting Standards No. 148, “Accounting For Stock-Based Compensation — Transition and Disclosure.”

We adopted the modified prospective transition method provided for under SFAS 123R, and consequently have not retroactively adjusted results from prior periods.  Under this transition method, compensation cost associated with share-based awards recognized in the first six months of 2006 includes:  (a) compensation cost for all share-based payments granted prior to, but not yet vested as of December 31, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123, and (b) compensation cost for all share-based payments granted subsequent to December 31, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R.

We use the Black-Scholes option pricing model to calculate the grant-date fair value of option awards.  The fair value of option awards granted was estimated as of the date of grant using the following weighted average assumptions:

There were no performance-based options granted in the three months ended June 30, 2006 and no options granted in 2005.

(1)             Expected option life — We use historical employee exercise and option expiration data to estimate the expected life assumption for the Black-Scholes grant-date valuation.  We believe that remain outstandingthis historical data is currently the best estimate of the expected term of a new option.  We use a weighted-average expected life for all awards.

(2)             Expected stock price volatility — We use our stock’s historical volatility for the same period of time as the expected life.  We have no reason to believe that its future volatility will continue accordingdiffer from the past.

(3)             Risk-free interest rate — The rate is based on the U.S. Treasury yield curve in effect at the time of the grant for the same period of time as the expected life.

(4)             Expected dividend yield — We have not historically paid cash dividends on our common stock, and we do not expect to their terms.declare any cash dividends in the foreseeable future.

We use the straight-line attribution method to recognize expense for all service-based option awards with graded vesting.  Compensation expense will be recorded for performance-based option awards in the periods in which the performance condition is probable of achievement.

Service-based option awards become immediately exercisable in full in the event of retirement, death or disability and upon a change in control with respect to all options that have been outstanding for at least six months.  To be eligible for retirement, an employee must reach age 65.  Performance-based option awards will remain exercisable to the extent previously exercisable for a period of one year after the employee’s employment is terminated due to retirement, death or disability.  Performance-based option awards become immediately exercisable in full in the event of a change in control with respect to all options that have been outstanding for at least six months.

SFAS 123R requires compensation costs associated with service-based option awards to be recognized over the requisite service period, which is the period between the grant date and the earlier of the award’s stated vesting term or the date the employee is eligible for retirement.  We immediately recognize the entire amount of share-based compensation cost for employees that are eligible for retirement at the date of grant.  For awards granted to employees approaching retirement eligibility, we recognize compensation cost on a straight-line basis over the period from the grant date through the retirement eligibility date.  Share-based compensation expense for employees who are not retirement eligible is recognized on a straight-line basis over the statutory vesting period of the award.

The amount of share-based compensation recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest.  SFAS 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.  The term “forfeitures” is distinct from “cancellations” or “expirations” and represents only the unvested portion of the surrendered award.  We currently expect, based on an analysis of our historical forfeitures and known forfeitures on existing awards, that approximately 1.25% of unvested outstanding options will be forfeited each year.  This analysis will be re-evaluated quarterly and the forfeiture rate will be adjusted as necessary.  Ultimately, the actual expense recognized over the vesting period will only be for those shares that vest.

Total share-based compensation expense recorded in the three-month and six-month periods ended June 30, 2006 was $199,000 ($134,000 net of income tax benefit and $0.006 of earnings per basic and diluted share) and $261,000 ($183,000 net of income tax benefit and $0.008 of earnings per basic and diluted share), respectively.  All share-based compensation expense was recorded in salaries, wages and benefits expense.

Prior to the adoption of SFAS 123R, benefits of tax deductions in excess of recognized compensation costs (excess tax benefits) were reported as operating cash flows.  SFAS 123R requires that they be recorded as a financing cash inflow rather than a deduction of taxes paid in operating cash flows.  For the three-month and six-month periods ended June 30, 2006, there was $168,000 and $1.2 million, respectively, of excess tax benefits recognized resulting from exercises of options granted prior to December 31, 2005.

The following table details the effect on net income and earnings per share had share-based compensation expense been recorded for the three-month and six-month periods ended June 30, 2005 based on the fair-value method under SFAS 123.  The reported and pro forma net income and earnings per share for the three-month and six-month periods ended June 30, 2006 are the same since share-based compensation expense was calculated under the provisions of SFAS 123R.

As of June 30, 2006, there was a total of $1.4 million of unrecognized compensation expense related to unvested service-based option awards, which is expected to be recognized over a weighted-average period of 3.5 years, and $767,000 of unrecognized compensation expense related to unvested performance-based option awards, which will be recorded in the periods in which the performance condition is probable of achievement through 2010.

Option activity for the six months ended June 30, 2006 was as follows:

The fair value of service-based options granted in the three months ended June 30, 2006 was $101,000. The fair value of options granted in the six months ended June 30, 2006 was $1.4 million for service-based options and $767,000 for performance-based options.  There were no performance-based options granted in the three months ended June 30, 2006 and no options granted in 2005.  The total intrinsic value of options exercised in the three-month and six-month periods ended June 30, 2006 was $419,000 and $3.3 million, respectively.  The total intrinsic value of options exercised in the three-month and six-month periods ended June 30, 2005 was $402,000 and $498,000, respectively.  Intrinsic value is the difference between the fair value of the acquired shares at the date of exercise and the exercise price, multiplied by the number of options exercised.  Proceeds received from option exercises in the three-month and six-month periods ended June 30, 2006 were $90,000 and $753,000, respectively.

The following table summarizes information concerning outstanding and exercisable option awards as of June 30, 2006:

(1)             Represents the weighted-average remaining contractual life in years.

(2)             Represents the weighted-average exercise price.

(3)             Represents the aggregate intrinsic value based on our closing stock price on June 30, 2006 for in-the-money options (in thousands).

Nonvested option awards as of June 30, 2006 and changes during the six months ended June 30, 2006 were as
follows:

The total fair value of options which vested during the three-month and six-month periods ended June 30, 2006 was $112,000 and $121,000, respectively.  The total fair value of options which vested during the three-month and six-month periods ended June 30, 2005 was $23,000 and $99,000, respectively.

(3)   Earnings Per Common Share

Basic and diluted earnings per common share were computed as follows:

Options totaling 226,000 shares were outstanding but were not included in the calculation of diluted earnings per share for the three-month and six-month periods ended June 30, 2006 because their exercise prices were greater than the average market price of the common shares and, therefore, including the options in the denominator would be antidilutive, or decrease the number of weighted-average shares.  All outstanding options were included in the calculation of diluted earnings per share for the three-month and six-month periods ended June 30, 2005.

(4) Long-Term Debt

In March 2006, we entered into an amendment to our unsecured committed credit facility which increased the total facility from $45.0 million to $55.0 million through August 2006, at which time the amount of the credit facility will return to $45.0 million.  The term of our credit facility is currently through April 2008.

(5) Income Taxes

Our effective income tax rate was 34.7% for the six months ended June 30, 2006 compared with 39.6% for the six months ended June 30, 2005, because we decreased our deferred income tax liability by $875,000 in 2006.  This decrease was primarily due to a change in our income apportionment for several states, which produced a lower expected effective state income tax rate, net of federal impact.

(6) Stock Split

On December 12, 2005, we effected a three-for-two stock split of our common stock, $.01 par value, in the form of a 50% stock dividend.  Our consolidated condensed financial statements, related notes, and other financial data contained in this report have been adjusted to give retroactive effect to the stock split for all periods presented.

(7) Reclassifications

The changes in the cash and checks issued in excess of cash balances in our 2005 consolidated condensed statement of cash flows, the minority interest in the earnings of MWL in our 2005 consolidated condensed statement of operations and statement of cash flows, the purchases and sales of marketable securities, revenue equipment additions and proceeds from dispositions, and the tax benefit of stock option exercises in our 2005 consolidated condensed statement of cash flows have been reclassified to be consistent with the 2006 presentation.  These reclassifications do not have a material effect on our consolidated financial statements.

(8) Recent Accounting PronouncementsPronouncement

In December 2004,July 2006, the Financial Accounting Standards Board, or FASB, issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109.”  The Interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.”  The Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of Financial Accounting Standards,a tax position taken or SFAS, No. 123 (revised 2004), “Share-Based Payment.”  SFAS No. 123, as revised, requires entitiesexpected to recognize the grant-date fair value of stock optionsbe taken in a tax return.  The Interpretation also provides guidance on derecognition, classification, interest and other equity-based compensation issued to employees in the income statement. The statement eliminates entities’ ability to account for share-based compensation transactions using the intrinsic value method ofpenalties, accounting in Accounting Principles Board, or APB, Opinion No. 25, “Accountinginterim periods, disclosure, and transition.  The Interpretation is effective for Stock Issued to Employees,” which was permitted under SFAS No. 123, as originally issued. In April 2005, the Securities and Exchange Commission deferred the

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effective date of SFAS No. 123, as revised, to thefiscal years beginning after December 15, 2006.  The adoption of the first annual reporting period beginning after June 15, 2005. Accordingly, we will recognize the grant-date fair value of stock options in our consolidated statements of operations beginning in our first quarter of 2006. The average annual stock-based employee compensation expense, net of related tax effects, for 2002 through 2004 was $185,000. Therefore, the adoption of this pronouncementInterpretation is not expected to have a significant impact on our results of operations or financial position. However, the ultimate amount of increased compensation expense will be dependent upon whether we adopt SFAS No. 123, as revised, using the modified prospective or retrospective method, the number of option shares granted during the year, their timing and vesting period, and the method used to calculate the fair value of the awards, among other factors.

In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets: an Amendment of APB Opinion No. 29.”  The amendments made by SFAS No. 153 are based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The amendments also eliminate the narrow exception for nonmonetary exchanges of similar productive assets and replace it with a broader exception for exchanges of nonmonetary assets that do not have commercial substance. SFAS No. 153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of this pronouncement is not expected to have a significant impact on our results of operations or financial position.11

In March 2005, the FASB issued Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations.”  The Interpretation clarifies that the term “conditional asset retirement obligations” as used in SFAS No. 143, “Accounting for Asset Retirement Obligations,” refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. The Interpretation states that conditional obligations meet the definition of an asset retirement obligation in SFAS No. 143 and therefore should be recognized if their fair value can be reasonably estimated. Interpretation No. 47 is effective no later than the end of fiscal years ending after December 15, 2005. The adoption of Interpretation No. 47 is not expected to have a significant impact on our results of operations or financial position.

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Item 2.Management’s Discussion and Analysis of Financial Condition and
Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read together with the selected consolidated financial data and our consolidated condensed financial statements and the related notes appearing elsewhere in this report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those included in our Form 10-K, Part 1, Item 1A for the year ended December 31, 2005.  We do not assume, and specifically disclaim, any obligation to update any forward-looking statement contained in this report.

Overview

The primary source of our operating revenue is freight revenue, which we generate by transporting freight for our customers.  Generally, we are paid by the mile for our services.  We also derive freight revenue from loading and unloading activities, equipment detention and other accessorial services. Our operating revenue also includes revenue from fuel surcharges and non-freight revenue, services, primarily brokerage revenue.logistics services.  The main factors that affect our freight revenue are the rate per mile we receive from our customers, the percentage of miles for which we are compensated and the number of miles we generate with our equipment. These factors relate, among other things, to the United States economy, inventory levels, the level of truck capacity in the temperature-sensitive market and specific customer demand. We monitor our revenue production primarily through revenue per tractor per week. We also analyze our rate per total mile, non-revenue miles percentage, the miles per tractor we generate, our accessorial revenue and our other sources of operating revenue.

In discussing our results of operations, we have included in certain instances a discussion of freight revenue, which excludes fuel surcharge and non-freight revenue.  We do this because we believe that eliminating these sources of revenue provides a more consistent basis for comparing our results of operations from period to period.

In the first six months of 2006, we increased our operating revenue by $35.7 million, or 16.6%, and increased our freight revenue by $12.5 million, or 6.7%, compared with the first six months of 2005.  Our operating results for the first six months of 20052006 reflect improved average freight revenue per total mile compared with the first six months of 2004.2005.  The improvement in asset productivity helped us overcomemitigate the continuing challenges of a tight driver market, which limited our fleet growth, and high fuel prices. In the first six months of 2005, we increased our operating revenue 22.3% and our freight revenue 13.1% compared with the first six months of 2004.  We were able to increase our freight revenue by increasing our freight rates, the size of our fleet our detention charges and our business with existing and new customers.  We increased our average operating revenue per tractor per week 12.4%12.1% in the first six months of 2005.2006.  Our average freight revenue per tractor per week increased 4.1%2.6%, due to a 7.7%6.6% improvement in average freight revenue per total mile, partially offset by a 3.4%3.7% decrease in average miles per tractor.  Our weighted average number of tractors increased 8.7%4.0% in the first six months of 20052006 over the first six months of 2004.

2005.

Our profitability on the expense side is impacted by variable costs of transporting freight for our customers, fixed costs and expenses containing both fixed and variable components.  The variable costs include fuel expense, driver-related expenses, such as wages, benefits, training, and recruitment, and independent contractor costs, which are recorded under purchased transportation.  Expenses that have both fixed and variable components include maintenance and tire expense and our total cost of insurance and claims.  These expenses generally vary with the miles we travel, but also have a controllable component based on safety, fleet age, efficiency and other factors.  Our main fixed costs relate to the acquisition and financing of long-term assets, such as revenue equipment and operating terminals.  Although certain factors affecting our expenses are beyond our control, we monitor them closely and attempt to anticipate changes in these factors in managing our business.  For example, fuel prices fluctuated dramatically and quickly at various times during 20042005 and the first six months of 2005.2006. We manage our exposure to changes in fuel prices primarily through fuel surcharge programs with our customers, as well as volume fuel purchasing arrangements with national fuel centers and bulk purchases of fuel at our terminals.  The transportation industry is currently experiencinghas experienced in the last several years substantial difficulty in attracting and retaining qualified drivers. Effective January 1,drivers, and competition for drivers has intensified recently.  In 2005, we increased the amount paid toinstituted two separate pay increases for our company drivers by 1 cent per mile and increased

the incentives paid to independent contractors. We also instituted a second pay increase of 2 cents per mile for company drivers effective April 1, 2005.  We continue to offer driver compensation that we believe ranks near the top of the industry. Like other companies in our industry, our insurance costs have increased dramatically over the last few years.  In order to control increases in insurance premiums, we have increased our self-insured retention levels periodically during the last several years.  We are responsible for the first $1.0 million on each auto liability claim and beginning June 1, 2005, we also are responsible for up to $1.0 million in the aggregate for all auto liability claims between $1.0 million and $2.0 million.  We are also responsible for the first $750,000 on each workers’ compensation claim.

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Additionally, we operate in a highly competitive and regulated industry that is currently responding to significant regulatory changes regarding drivers’ hours-of-service. The United States Department of Transportation, or DOT, adopted revised hours-of-service regulations effective in January 2004. In response, we negotiated delay time charges with the majority of our customers. In July 2004, the United States Court of Appeals for the District of Columbia vacated the new hours-of-service regulations in their entirety and remanded the matter to the Federal Motor Carriers Safety Administration, or FMCSA, for reconsideration. In October 2004, the Surface Transportation Extension Act of 2004 (Part V) extended the current hours-of-service regulations until the earlier of the FMCSA developing a revised set of regulations or September 30, 2005. The regulations did not have a significant impact on our operations or financial results for 2004 or the first six months of 2005.

By increasing our revenue and controlling our expenses, we improved ourOur operating ratio (operating expenses as a percentage of operating revenue) to 91.0%revenue, or “operating ratio,” was 91.7% in the first six months of 2005 from 92.9%2006 compared with 90.8% in the first six months of 2004. We2005.  Our net income increased our$1.0 million, or 8.8%, over the first six months of 2005.  Our earnings per diluted share increased to $0.79$0.57 in the first six months of 20052006 from $0.52$0.53 in the first six months of 2004.

2005.  Net income and our earnings per diluted share for the first six months of 2006 included an income tax benefit of approximately $875,000, or 4 cents per diluted share, due to a decrease to our deferred income tax liability.  The decrease was primarily due to a change in our income apportionment for several states.

Our business requires substantial, ongoing capital investments, particularly for new tractors and trailers. At June 30, 2005,2006, we had approximately $34.7$56.1 million of long-term debt, including current maturities, and $180.0$208.8 million in stockholders’ equity.  In the first six months of 2005,2006, we spent approximately $24.1$38.0 million, net of trade-ins,proceeds from dispositions, to purchase 302 tractorsnew revenue equipment and 436 trailers. We also recognized a gain of $2.1$3.7 million on the disposition of used equipment in the first six months of 2005.equipment.  We estimate that capital expenditures, net of trade-ins,proceeds from dispositions, will be approximately $57$32 million for the remainder of 2005,2006, primarily for new revenue equipment.  Based on our current operating performance,This estimate may be impacted by the market for used trucks, our liquiditytiming of tractor and our expectations concerning tractors manufactured in 2007, we have decided to accelerate our tractor fleet replacement during 2005trailer deliveries between 2006 and 2006 to allow flexibility with purchasing tractors in 2007 when the next round of diesel emissions reduction directives of the Environmental Protection Agency, or EPA, go into effect.2007.  We expect to fund these capital expenditures with cash flows from operations and borrowings under our $45 million revolving credit facility.  Based on our current operating performance, the market for used tractors, our liquidity and our expectations concerning tractors manufactured in 2007, we decided to accelerate our tractor fleet replacement during 2005 and 2006 to allow us greater flexibility in our decisions to purchase tractors in 2007 when the next round of diesel emissions reduction directives of the EPA go into effect.  This acceleration of our tractor fleet replacement has not impacted the useful lives of our tractors or caused impairment to the carrying amount reflected in our consolidated balance sheet.

Share-based Payment Arrangement Compensation

9Effective January 1, 2006, we adopted the fair value recognition provisions of Statement of Financial Accounting Standards No. 123R, “Share-Based Payment” (“SFAS 123R”) using the modified prospective transition method, and therefore have not restated prior periods’ results.  All share-based compensation expense is recorded in salaries, wages and benefits expense.  Total share-based compensation expense recorded in the three-month and six-month periods ended June 30, 2006 was $199,000 ($134,000 net of income tax benefit) and $261,000 ($183,000 net of income tax benefit), respectively, which entirely represents additional share-based compensation expense recorded as a result of adopting SFAS 123R.  No share-based compensation expense was recorded in the three-month and six-month periods ended June 30, 2005, however such expense would have been $9,000 ($5,000 net of income tax benefit) and $64,000 ($39,000 net of income tax benefit), respectively, had we recognized share-based expense in net income under Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation.”  Unrecognized compensation expense from unvested service-based stock option awards was $1.4 million as of June 30, 2006 and is expected to be recorded over a weighted-average period of 3.5 years.  Unrecognized compensation expense from unvested performance-based stock option awards was $767,000 as of June 30, 2006 and will be recorded in the periods in which the performance condition is probable of achievement through 2010.

Stock Split

On December 12, 2005, we effected a three-for-two stock split of our common stock, $.01 par value, in the form of a 50% stock dividend.  Our consolidated condensed financial statements, related notes, and other financial data contained in this report have been adjusted to give retroactive effect to the stock split for all periods presented.

Results of Operations

The following table sets forth for the periods indicated certain operating statistics regarding our revenue and operations:

(1)             Excludes revenue from fuel surcharges and non-freight revenue.

(2)             Includes tractors driven by both company-employed drivers and independent contractors. Independent contractors provided 388 and 535 tractors as of June 30, 2006, and 2005, respectively.

Note — The above operating statistics exclude tractors and miles associated with non-freight revenue.

Comparison of Three Months Ended June 30, 20052006 to Three Months Ended June 30, 20042005

The following table sets forth for the periods indicated the components of our operating revenue and the dollar and percentage change for each component: