SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
Form 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter ended June 30, 2000
Commission File Number 0-15010
MARTEN TRANSPORT, LTD.
(Exact name of registrant as specified in its charter)
| Delaware (State of incorporation) | 39-1140809 (I.R.S. Employer Identification No.) |
129 Marten Street, Mondovi, Wisconsin 54755
(Address of principal executive offices)
715-926-4216
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /x/ No / /
The number of shares outstanding of the registrant's Common Stock, par value $.01 per share, was 4,180,145 as of August 8, 2000.
MARTEN TRANSPORT, LTD.
CONDENSED BALANCE SHEETS
(In thousands, except share information)
| | June 30, 2000 | December 31, 1999 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| | (Unaudited) | | |||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Receivables | $ | 25,716 | $ | 27,673 | |||||||
| Prepaid expenses and other | 6,302 | 7,471 | |||||||||
| Deferred income taxes | 4,177 | 4,166 | |||||||||
| Total current assets | 36,195 | 39,310 | |||||||||
| Property and equipment: | |||||||||||
| Revenue equipment, buildings and land, office equipment, and other | 220,696 | 193,031 | |||||||||
| Accumulated depreciation | (53,586 | ) | (47,311 | ) | |||||||
| Net property and equipment | 167,110 | 145,720 | |||||||||
| Other assets | 1,548 | 889 | |||||||||
| TOTAL ASSETS | $ | 204,853 | $ | 185,919 | |||||||
| LIABILITIES AND SHAREHOLDERS' INVESTMENT | | ||||||||||
| Current liabilities: | |||||||||||
| Accounts payable and accrued liabilities | $ | 13,524 | $ | 14,475 | |||||||
| Insurance and claims accruals | 11,191 | 12,680 | |||||||||
| Current maturities of long-term debt | 3,567 | 5,659 | |||||||||
| Total current liabilities | 28,282 | 32,814 | |||||||||
| Long-term debt, less current maturities | 82,121 | 63,599 | |||||||||
| Deferred income taxes | 32,439 | 29,901 | |||||||||
| Total liabilities | 142,842 | 126,314 | |||||||||
| Shareholders' investment: | |||||||||||
| Common stock, $.01 par value per share, 10,000,000 shares authorized, 4,180,145 and 4,300,145 shares issued and outstanding | 42 | 43 | |||||||||
| Additional paid-in capital | 9,934 | 9,934 | |||||||||
| Retained earnings | 52,035 | 49,628 | |||||||||
| Total shareholders' investment | 62,011 | 59,605 | |||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT | $ | 204,853 | $ | 185,919 | |||||||
The accompanying notes are an integral part of these balance sheets.
1
MARTEN TRANSPORT, LTD.
CONDENSED STATEMENTS OF INCOME
(In thousands, except share information)
(Unaudited)
| | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2000 | 1999 | 2000 | 1999 | |||||||||||
| OPERATING REVENUE | $ | 64,811 | $ | 54,558 | $ | 125,104 | $ | 103,289 | |||||||
| OPERATING EXPENSES: | |||||||||||||||
| Salaries, wages and benefits | 18,459 | 16,085 | 35,645 | 30,937 | |||||||||||
| Purchased transportation | 15,489 | 14,457 | 30,925 | 26,906 | |||||||||||
| Fuel and fuel taxes | 9,939 | 6,540 | 18,714 | 12,238 | |||||||||||
| Supplies and maintenance | 4,687 | 4,171 | 9,024 | 8,118 | |||||||||||
| Depreciation | 6,039 | 5,055 | 12,104 | 9,963 | |||||||||||
| Operating taxes and licenses | 1,182 | 1,072 | 2,345 | 2,006 | |||||||||||
| Insurance and claims | 1,333 | 1,137 | 2,565 | 2,251 | |||||||||||
| Communications and utilities | 757 | 663 | 1,497 | 1,321 | |||||||||||
| Gain on disposition of revenue equipment | (234 | ) | (449 | ) | (273 | ) | (910 | ) | |||||||
| Other | 1,730 | 1,331 | 3,301 | 2,762 | |||||||||||
| Total operating expenses | 59,381 | 50,062 | 115,847 | 95,592 | |||||||||||
| OPERATING INCOME | 5,430 | 4,496 | 9,257 | 7,697 | |||||||||||
| OTHER EXPENSES (INCOME): | | | | | | | | | | | | | | ||
| Interest expense | 1,531 | 947 | 2,808 | 1,874 | |||||||||||
| Interest income and other | (85 | ) | (54 | ) | (154 | ) | (111 | ) | |||||||
| INCOME BEFORE INCOME TAXES | 3,984 | 3,603 | 6,603 | 5,934 | |||||||||||
| PROVISION FOR INCOME TAXES | | | 1,514 | | | 1,405 | | | 2,509 | | | 2,314 | | ||
| NET INCOME | $ | 2,470 | $ | 2,198 | $ | 4,094 | $ | 3,620 | |||||||
| BASIC AND DILUTED EARNINGS PER COMMON SHARE | $ | 0.58 | $ | 0.49 | $ | 0.96 | $ | 0.81 | |||||||
The accompanying notes are an integral part of these statements.
2
MARTEN TRANSPORT, LTD.
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| | Six Months Ended June 30, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2000 | 1999 | |||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
| Operations: | |||||||||||
| Net income | $ | 4,094 | $ | 3,620 | |||||||
| Adjustments to reconcile net income to net cash flows from operating activities: | |||||||||||
| Depreciation | 12,104 | 9,963 | |||||||||
| Gain on disposition of revenue equipment | (273 | ) | (910 | ) | |||||||
| Deferred tax provision | 2,527 | 1,415 | |||||||||
| Changes in other current operating items | 686 | 1,425 | |||||||||
| Net cash provided by operating activities | 19,138 | 15,513 | |||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
| Property additions: | |||||||||||
| Revenue equipment, net | (31,520 | ) | (15,511 | ) | |||||||
| Buildings and land, office equipment, and other additions, net | (1,701 | ) | (573 | ) | |||||||
| Net change in other assets | (659 | ) | 108 | ||||||||
| Net cash used for investing activities | (33,880 | ) | (15,976 | ) | |||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
| Long-term borrowings | 63,650 | 39,900 | |||||||||
| Repayment of long-term borrowings | (47,220 | ) | (37,503 | ) | |||||||
| Common stock repurchased | (1,688 | ) | (2,130 | ) | |||||||
| Net cash provided by financing activities | 14,742 | 267 | |||||||||
| DECREASE IN CASH AND CASH EQUIVALENTS | — | (196 | ) | ||||||||
| CASH AND CASH EQUIVALENTS: | |||||||||||
| Beginning of period | — | 1,116 | |||||||||
| End of period | $ | — | $ | 920 | |||||||
| CASH PAID FOR: | |||||||||||
| Interest | $ | 2,394 | $ | 1,898 | |||||||
| Income taxes | $ | 362 | $ | 9 | |||||||
The accompanying notes are an integral part of these statements.
3
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(1) Financial Statements
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial statements, and therefore do not include all information and disclosures required by generally accepted accounting principles for complete financial statements. In the opinion of management, such statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary to fairly present our financial condition, results of operations and cash flows for the interim periods presented. The results of operations for any interim period do not necessarily indicate the results for the full year. The unaudited interim financial statements should be read with reference to the financial statements and notes to financial statements in our 1999 Annual Report on Form 10-K.
(2) Earnings Per Common Share
Basic and diluted earnings per common share were computed as follows:
| | Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2000 | 1999 | 2000 | 1999 | ||||||||||
| | (In thousands, except per-share amounts) | |||||||||||||
| Numerator: | ||||||||||||||
| Net income | $ | 2,470 | $ | 2,198 | $ | 4,094 | $ | 3,620 | ||||||
| Denominator: | ||||||||||||||
| Basic earnings per common share—weighted-average shares | 4,226 | 4,476 | 4,250 | 4,477 | ||||||||||
| Effect of dilutive stock options | 22 | 13 | 19 | 14 | ||||||||||
| Diluted earnings per common share—weighted-average shares and assumed conversions | 4,248 | 4,489 | 4,269 | 4,491 | ||||||||||
| Basic and diluted earnings per common share | $ | 0.58 | $ | 0.49 | $ | 0.96 | $ | 0.81 | ||||||
The following options were outstanding but were not included in the calculation of diluted earnings per share because their exercise prices were greater than the average market price of the common shares and, therefore, including the options in the denominator would be antidilutive, or decrease the number of weighted-average shares.
| | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2000 | 1999 | 2000 | 1999 | |||||||||
| Number of option shares | 78,750 | 348,750 | 78,750 | 348,750 | |||||||||
| Weighted-average exercise price | $ | 15.06 | $ | 13.65 | $ | 15.06 | $ | 13.65 | |||||
(3) Long-Term Debt
In January and May 2000, we entered into amendments to our unsecured committed credit facility. These amendments added an additional bank and increased our total facility with our current banks from $40 million to $60 million. In April 2000, we entered into an agreement with an insurance company for an additional $10 million in senior unsecured notes which bear fixed interest at 8.57 percent and mature in April 2010.
4
(4) Common Stock Repurchase
In November 1999, our Board of Directors approved the repurchase of up to 300,000 shares of our common stock in the open market. Under this program, we repurchased 60,000 shares of our common stock in February 2000, for $14.125 per share, and 60,000 shares in June 2000, for $14.00 per share. The 120,000 shares have been retired, reducing shareholders' investment by $1,687,500.
(5) Accounting for Derivative Instruments and Hedging Activities
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (Statement No. 133) was issued in June 1998 and will be effective in our first quarter of 2001. Statement No. 133 requires companies to record the fair value of derivatives as either assets or liabilities on the balance sheet. The accounting for gains or losses from changes in the fair value of derivatives depends on the intended use of the derivatives and whether the criteria for hedge accounting have been satisfied. We have entered into commodity swap agreements to partially hedge our exposure to diesel fuel price fluctuations. Statement No. 133 is expected to have minimal impact on our results of operations and financial position because we did not hold significant derivative instruments as of June 30, 2000.
5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Results of Operations
Operating revenue for the second quarter of 2000 increased 18.8 percent over the second quarter of 1999. Operating revenue increased 21.1 percent for the first six months of 2000 over the same period last year. The increases in operating revenue, net of fuel surcharges and rebates, were 14.1 percent for the second quarter of 2000 and 16.2 percent for the six months ended June 30, 2000. These increases were primarily the result of transporting additional freight associated with an increase in our fleet. Average freight rates increased in 2000, but were partially offset by a slight decrease in equipment utilization. Our customer contracts provide for fuel surcharges and rebates based upon significant fluctuations in the price of diesel fuel. Diesel fuel prices were significantly higher in the first six months of 2000 than in the same period of 1999. As a result, fuel surcharges increased operating revenue for the first six months of 2000 by $4.4 million, while fuel rebates reduced operating revenue for the same period of 1999 by $503,000. We expect operating revenue for the remainder of 2000 to exceed 1999 levels given continued customer demand and planned revenue equipment additions.
Operating expenses for the second quarter of 2000 were 91.6 percent of operating revenue, compared with 91.8 percent for the second quarter of 1999. This ratio for the first six months of 2000 was 92.6 percent, compared with 92.5 percent for the same period of 1999. Most expense categories increased in 2000 due to the transportation of additional freight and additions to our fleet. Purchased transportation expense increased in 2000 due to an increase in the number of independent contractor-owned vehicles in our fleet. Independent contractors are responsible for their own salaries, wages and benefits expense, fuel and fuel taxes expense, and supplies and maintenance expense. As a result, our expenses in these categories are reduced relative to revenue. Fuel and fuel tax expense increased due to significantly higher diesel fuel prices in the first six months of 2000 compared with the same period of 1999. Insurance and claims expense in 2000 was consistent with 1999 levels due to our continued emphasis on driver safety, training and claims management. Our gain on disposition of revenue equipment significantly decreased in the six months ended June 30, 2000, due to decreases in the number of planned revenue equipment trades and in the market value received for used revenue equipment. We expect operating expenses as a percentage of revenue to remain at current levels for the remainder of 2000.
Interest expense for the first six months of 2000 significantly increased over the same period of 1999. An increase in our average long-term debt, incurred to finance our planned revenue equipment additions, was the primary cause of this increase. Higher interest rates also contributed to this increase. We expect interest expense to remain at current levels for the remainder of 2000.
Our effective income tax rate was 38 percent for the six months ended June 30, 2000, compared with 39 percent for the prior year. We expect our effective income tax rate to remain at 38 percent for the remainder of 2000.
In 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," as discussed in Note 5 to the financial statements. This statement, effective in our first quarter of 2001, is expected to have minimal impact on our results of operations and financial position because we did not hold significant derivative instruments as of June 30, 2000.
Capital Resources and Liquidity
Our operating activities in the first six months of 2000 provided net cash of $19,138,000. We invested net cash of $33,880,000 in revenue equipment additions and other capital expenditures, while financing activities provided $14,742,000 during this period. We have continued to update and expand our fleet in 2000 and 1999 by investing in new, more efficient revenue equipment. We repurchased
6
60,000 shares of our common stock during each of the first and second quarters of 2000. The 120,000 shares have been retired, reducing shareholders' investment by $1,687,500. We also sold our maintenance facility in Georgia and purchased a new maintenance facility, which is also in Georgia, during the first quarter of 2000 for a net cash payment of approximately $900,000. Cash flows from operations and proceeds from long-term debt were used to fund these expenditures.
Our cash management practice minimizes both cash and debt balances by utilizing our unsecured committed credit facility. We entered into amendments to this facility in January and May 2000. These amendments added an additional bank and increased our total facility with our current banks from $40 million to $60 million. In April 2000, we also entered into an agreement with an insurance company for an additional $10 million in senior unsecured notes. We have historically met our working capital requirements by effectively utilizing our operating profits, short turnover in accounts receivable and cash management practices. We have not used and do not anticipate using short-term borrowings to satisfy working capital needs. We believe our liquidity is adequate to meet expected near-term operating requirements.
Forward-Looking Information
This Quarterly Report on Form 10-Q contains certain forward-looking statements. Any statements not of historical fact may be considered forward-looking statements. Written words such as "may," "expect," "believe," "anticipate" or "estimate," or other variations of these or similar words, identify such statements. These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially, depending on a variety of factors, such as the industry driver shortage, the market for revenue equipment, fuel prices and general weather and economic conditions.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
7
There are currently no material pending legal, governmental, administrative or other proceedings to which we are a party or of which any of our property is the subject which are unreserved.
ITEM 2. Changes in Securities and Use of Proceeds.
None
ITEM 3. Defaults Upon Senior Securities.
None
ITEM 4. Submission of Matters to a Vote of Security Holders.
Our annual meeting of stockholders was held on May 9, 2000. The following items were voted upon at the annual meeting:
(a) Six incumbent directors were elected to serve one-year terms expiring at the annual meeting of stockholders to be held in 2001. The following summarizes the votes cast for, votes cast against, and broker non-votes for each nominee:
| Nominee | Votes For | Votes Against | Broker Non-Votes | |||
|---|---|---|---|---|---|---|
| Randolph L. Marten | 3,825,461 | 1,012 | -0- | |||
| Darrell D. Rubel | 3,825,536 | 937 | -0- | |||
| Larry B. Hagness | 3,825,536 | 937 | -0- | |||
| Thomas J. Winkel | 3,825,536 | 937 | -0- | |||
| Jerry M. Bauer | 3,825,536 | 937 | -0- | |||
| Christine K. Marten | 3,825,261 | 1,212 | -0- |
(b) The stockholders also approved the appointment of Arthur Andersen LLP as our independent auditors for the year ending December 31, 2000, by a vote of 3,825,637 shares in favor, 216 shares opposed, and 620 shares abstaining.
None
ITEM 6. Exhibits and Reports on Form 8-K.
| Item No. | Item | Method of Filing | ||
|---|---|---|---|---|
| 10.20 | Fourth Amendment to Credit Agreement, dated May 31, 2000, between the Company, U.S. Bank National Association and The Northern Trust Company | Filed with this report electronically. | ||
| 27.1 | | Financial Data Schedule | | Filed with this report electronically. |
8
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| MARTEN TRANSPORT, LTD. (Registrant) | |||
| Dated: August 10, 2000 | | By: | /s/ DARRELL D. RUBEL Darrell D. Rubel Executive Vice President and Treasurer (Chief Financial Officer) |
9
MARTEN TRANSPORT, LTD.
EXHIBIT INDEX TO QUARTERLY REPORT
ON FORM 10-Q
For the Quarter Ended June 30, 2000
| Item No. | Item | Method of Filing | ||
|---|---|---|---|---|
| 10.20 | Fourth Amendment to Credit Agreement, dated May 31, 2000, between the Company, U.S. Bank National Association and The Northern Trust Company | Filed with this report electronically. | ||
| 27.1 | | Financial Data Schedule | | Filed with this report electronically. |
