Marten Transport, Ltd., with headquarters in Mondovi, Wisconsin, strives to be the premium supplier of time- and temperature-sensitive transportation services to customers in the United States and Canada. 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, 2000, we employed 1,827 people, including drivers, office personnel and mechanics.
Our mission is to provide:
| | Years ended December 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands, except per-share amounts) | ||||||||||
| 2000 | 1999 | 1998 | ||||||||
| FOR THE YEAR | ||||||||||
| Operating revenue | $ | 260,797 | $ | 219,200 | $ | 193,648 | ||||
| Operating income | 18,691 | 17,686 | 16,345 | |||||||
| Net income | 7,928 | 8,457 | 7,574 | |||||||
| Operating ratio | 92.8 | % | 91.9 | % | 91.6 | % | ||||
PER-SHARE DATA | ||||||||||
| Basic earnings per common share | $ | 1.88 | $ | 1.93 | $ | 1.69 | ||||
| Diluted earnings per common share | 1.88 | 1.92 | 1.67 | |||||||
| Book value | 15.75 | 13.86 | 11.90 | |||||||
AT YEAR END | ||||||||||
| Total assets | $ | 212,073 | $ | 185,919 | $ | 156,709 | ||||
| Long-term debt, less current maturities | 88,216 | 63,599 | 47,232 | |||||||
| Shareholders' investment | 65,845 | 59,605 | 53,278 | |||||||
| | Years ended December 31, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In thousands, except per-share amounts) | |||||||||||||||
| 2000 | 1999 | 1998 | 1997 | 1996 | |||||||||||
| FOR THE YEAR | |||||||||||||||
| Operating revenue | $ | 260,797 | $ | 219,200 | $ | 193,648 | $ | 172,412 | $ | 146,151 | |||||
| Operating income | 18,691 | 17,686 | 16,345 | 12,847 | 6,160 | ||||||||||
| Net income | 7,928 | 8,457 | 7,574 | 5,307 | 1,630 | ||||||||||
| PER-SHARE DATA(1) | |||||||||||||||
| Basic earnings per common share | $ | 1.88 | $ | 1.93 | $ | 1.69 | $ | 1.19 | $ | .37 | |||||
| Diluted earnings per common share | 1.88 | 1.92 | 1.67 | 1.19 | .37 | ||||||||||
| AT YEAR END | |||||||||||||||
| Total assets | $ | 212,073 | $ | 185,919 | $ | 156,709 | $ | 145,266 | $ | 138,135 | |||||
| Long-term debt, less current maturities | 88,216 | 63,599 | 47,232 | 30,663 | 33,505 | ||||||||||
| Shareholders' investment | 65,845 | 59,605 | 53,278 | 45,704 | 40,044 | ||||||||||
To Our Stockholders and Employees
One of the strengths of Marten Transport is, we believe, the ability to produce favorable results in an unfavorable operating environment. Fiscal 2000 gave us the chance to prove it. It was a year of stiff challenges for the trucking industry—rising fuel prices, rising insurance costs and intensifying competition for qualified drivers, to name a few. The people of Marten Transport responded by out-managing, out-recruiting, out-driving and generally out-working our competition across the protective service transportation market. Result: another year of solid growth and substantial progress in positioning our business for a successful future.
Revenue increased 19 percent to $260.8 million in 2000 from $219.2 million in 1999—our fourth consecutive double-digit percentage increase in annual revenue. Our 2000 revenue growth reflected another healthy increase in the amount of freight transported by Marten during the year. Operating income increased to $18.7 million from $17.7 million in 1999. Our operating ratio, which compares operating costs to revenue, increased to 92.8 percent from 91.9 percent in 1999, reflecting the continued rise in diesel fuel prices during 2000—a rise that we were able to partially offset through fuel surcharges, our fuel hedging program and a focus on equipment productivity and operating efficiencies.
Net income for 2000 was $7.9 million, or $1.88 per diluted share, our second best performance, trailing only the record $8.5 million, or $1.92 per diluted share, achieved in 1999.
We use multiple performance measures to monitor our performance and are generally pleased with the numbers achieved in 2000. While weekly revenue per tractor was down slightly for the year, our revenue per total mile and revenue per loaded mile were each up approximately 2 cents per mile.
Marten Transport continued to grow with its customers in 2000, delivering on a growth strategy based on providing a level of service that makes us an integral part of each customer's logistic chain. The success of this approach made it possible for us to earn rate increases in a very difficult, highly competitive marketplace.
Our list of large and thriving blue-chip customers is one of our major strategic strengths; our revenue is growing because our customers are growing—not only in terms of the freight they are shipping, but also in terms of their need for proven dependability. The rising expectations of shippers work to the advantage of Marten Transport because we have the tradition, infrastructure and technology to meet or exceed those expectations. We have backed our reputation for premier service with ongoing investment in state-of-the-art technologies and continuous modernization of our fleet. In 2000, we invested $45.9 million in our business, primarily in revenue equipment. At year end, we had 1,844 tractors in service, up from 1,633 at the end of 1999. The number of trailers in service increased to 2,648 from 2,305.
One of the fastest-growing areas of our business in 2000 was our dedicated operations—a way of capitalizing on the expanding demand for outsourced transportation services by creating new fleets or converting or supplementing existing private fleets. Our dedicated operations provide customers with drivers, tractors, trailers and management services for their exclusive use.
Meeting Challenges with Strength
Finding enough qualified drivers continued to be a dominating, industry-wide challenge in 2000, intensified in recent months by the dwindling availability of independent contractors. We were very aggressive in our recruiting—and our screening—as we worked to maintain the elite driving team needed to ensure the high level of safety and service that we demand of ourselves. We also provide ongoing training programs and utilize new systems and technology to enhance driver productivity and working conditions. Our total of Marten-employed drivers and independent contractors increased by 282 during the year.
Another important competitive advantage in today's challenging marketplace can be found in our balance sheet. Marten Transport had $212.1 million in total assets at year end. Unlike a number of our competitors, we had ample access to capital in 2000. Our financial strength and stability makes us a more attractive option for many shippers. Add to this our track record for growth, our reputation for service and safety, our customer base of blue-chip companies, our emphasis on technology and premium equipment, and—most important—the exceptional group of people who are Marten, and you have the strategic strengths that we expect to carry us to consistent profitable growth over the long term.
We again acknowledge with gratitude the continuing loyalty and support of our employees, our stockholders and our customers as we begin our fifty-fifth year in business and our fifteenth year as a publicly held company. The challenges of 2000 have not gone away, but we believe we are better equipped to handle both challenges and opportunities than we have been at any time in our past. Among our priorities for 2001 are maintaining profitability, reducing debt and using our competitive advantages to win new business while we grow with our existing customers. We are optimistic about our ability to translate our growing strategic strengths into financial performance that parallels our superior performance on the highways across the nation.
Sincerely,
/s/ RANDOLPH L. MARTEN
Randolph L. Marten
President and Chairman of the Board
March 20, 2001
Management's Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations Operating revenue for 2000 increased 19 percent over 1999, compared with increases of 13 percent in 1999 and 12 percent in 1998. The increase in 2000 was primarily the result of transporting additional freight associated with increases in our fleet and fuel surcharges to our customers associated with significant increases in the price of diesel fuel. Increases in 1999 and 1998 were primarily the result of transporting additional freight associated with increases in our fleet. Our contracts with customers provide for fuel surcharges and rebates based upon significant fluctuations in the price of diesel fuel. Diesel fuel prices were significantly higher in 2000, causing operating revenue to increase due to fuel surcharges of $11.6 million in 2000. Diesel fuel prices also fluctuated in 1999 and 1998 causing fuel surcharges of $352,000 in 1999 and fuel rebates of $496,000 in 1998. Average freight rates increased over the last three years due to stronger customer demand. Equipment utilization, measured by average miles traveled per tractor, declined in 2000 and 1999, and increased slightly in 1998. We expect operating revenue in 2001 to exceed 2000 levels due to continued customer demand and planned additions to our fleet.
Operating expenses in 2000 were 92.8 percent of operating revenue, compared with 91.9 percent in 1999 and 91.6 percent in 1998. Revenue generated per tractor in 2000 declined slightly from 1999. This decline in revenue per tractor, combined with increased operating expenses, primarily fuel expense, caused the operating ratio to increase in 2000. Revenue generated per tractor increased in 1999 and 1998, causing the operating ratio to remain relatively flat in 1999 and improve in 1998.
The transportation of additional freight and expansion of our fleet, in addition to the items discussed below, caused most expense categories to increase during the last three years. Purchased transportation expense decreased to 23.4 percent of revenue in 2000, compared with 26.3 percent in 1999 and 24.2 percent in 1998. Independent contractors were more difficult to recruit and retain in 2000. As a result, independent contractor-owned vehicles in 2000 represented 29 percent of our total fleet, compared with 34 percent in 1999 and 31 percent in 1998. Independent contractors are responsible for their own salaries, wages and benefits expense, fuel and fuel tax expense, and supplies and maintenance expense. Our expenses in these categories have been reduced relative to revenue. The price of diesel fuel significantly increased during 2000 and 1999, negatively impacting fuel and fuel tax expense in those two years. The price of diesel fuel significantly declined in 1998, causing a reduction in fuel and fuel tax expense. Our gain on disposition of revenue equipment decreased in 2000 due to a planned reduction in the number of revenue equipment trades and a decline in the market value received for used revenue equipment. Increases in the market value received for used revenue equipment, along with additional planned revenue equipment trades in 1999 and 1998, caused our gain on disposition of revenue equipment to increase in those two years. We anticipate our 2001 operating expenses as a percent of revenue will remain at current levels.
Interest expense in 2000 increased to 2.4 percent of revenue from 1.8 percent in 1999 and 2.0 percent in 1998. The primary reason for this increase was an increase in our average long-term debt outstanding, which was required to finance our planned revenue equipment additions. Higher interest rates also contributed to this increase. The improvement in 1999 reflects the lower interest rates associated with our senior unsecured notes and our unsecured committed credit facility entered into during our fourth quarter of 1998. We anticipate interest expense in 2001 as a percent of revenue will remain at 2000 levels.
Our effective tax rate was 38 percent in 2000, 39 percent in 1999 and 40 percent in 1998. We anticipate our effective income tax rate will remain at 38 percent in 2001.
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, 2000.
Capital Resources and Liquidity Net cash provided by our operating activities in 2000 was $26,963,000. Our business requires significant capital expenditures to maintain and update our fleet with new, more efficient tractors and trailers. We invested $45,918,000 in property and equipment and other assets and repurchased 120,000 shares of our common stock during 2000, which required net cash
from financing activities of $18,955,000. The repurchased shares have been retired, reducing shareholders' investment by $1,687,500. We sold our maintenance facility in Georgia and purchased a new maintenance facility, which is also in Georgia, during 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 current cash management practice minimizes both cash and debt balances by utilizing our unsecured committed credit facility. We entered into amendments to this facility during 2000 which added an additional bank, increased our total facility with our current banks from $40 million to $60 million and extended the maturity of this facility to January 2004. We also entered into an agreement in 2000 with an insurance company for an additional $10 million in senior unsecured notes. The increase in our receivables balance at December 31, 2000, was primarily due to an increase in revenue during the fourth quarter of 2000. Our operating profits, short turnover in accounts receivable and cash management practices allow us to effectively meet our working capital requirements. We have not used and do not expect to use short-term borrowings to satisfy working capital needs. We believe our liquidity is adequate to meet expected near-term operating requirements.
Accounting for Derivative Instruments and Hedging Activities In 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." Statement No. 133, as amended, establishes accounting and reporting standards requiring that each derivative instrument be recorded in the balance sheet as either an asset or liability measured at fair value. Changes in the derivative instrument's fair value must be recognized currently in earnings unless specific hedge accounting criteria are met. For hedges which meet the criteria, the derivative instrument's gains and losses, to the extent effective, may be recognized in accumulated other comprehensive income rather than current earnings.
We adopted Statement No. 133 on January 1, 2001, and plan to apply Statement No. 133 to only those derivative instruments that were issued, acquired or modified after December 31, 1998.
We have entered into commodity swap agreements to partially hedge our exposure to diesel fuel price fluctuations. These agreements meet the specific hedge accounting criteria. A derivative liability of approximately $275,000 would have been recognized in the balance sheet, with an offsetting expense recognized in accumulated other comprehensive income to the extent effective, for our swap agreements held as of December 31, 2000.
Seasonality Historically, the trucking industry has experienced seasonal fluctuations in revenue and expenses. We normally experience revenue declines after the winter holiday season as customers reduce shipments. Operating expenses temporarily increase in the winter due to reduced fuel efficiency and additional maintenance costs.
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.
| | December 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (In thousands, except share information) | 2000 | 1999 | ||||||||
| ASSETS | ||||||||||
| Current assets: | ||||||||||
| Receivables: | ||||||||||
| Trade, less allowances of $837 and $855 | $ | 27,608 | $ | 22,984 | ||||||
| Other | 5,879 | 4,689 | ||||||||
| Prepaid expenses and other | 8,195 | 7,471 | ||||||||
| Deferred income taxes | 2,276 | 4,166 | ||||||||
| Total current assets | 43,958 | 39,310 | ||||||||
| Property and equipment: | ||||||||||
| Revenue equipment | 213,399 | 180,395 | ||||||||
| Buildings and land | 7,966 | 6,440 | ||||||||
| Office equipment and other | 6,957 | 6,196 | ||||||||
| Less accumulated depreciation | (61,937 | ) | (47,311 | ) | ||||||
| Net property and equipment | 166,385 | 145,720 | ||||||||
| Other assets | 1,730 | 889 | ||||||||
| $ | 212,073 | $ | 185,919 | |||||||
| LIABILITIES AND SHAREHOLDERS' INVESTMENT | ||||||||||
| Current liabilities: | ||||||||||
| Accounts payable | $ | 5,530 | $ | 6,316 | ||||||
| Insurance and claims accruals | 8,819 | 12,680 | ||||||||
| Accrued liabilities | 7,960 | 8,159 | ||||||||
| Current maturities of long-term debt | 1,685 | 5,659 | ||||||||
| Total current liabilities | 23,994 | 32,814 | ||||||||
| Long-term debt, less current maturities | 88,216 | 63,599 | ||||||||
| Deferred income taxes | 34,018 | 29,901 | ||||||||
| Total liabilities | 146,228 | 126,314 | ||||||||
| Commitments and contingencies (Notes 1 and 7) | ||||||||||
| 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 | 55,869 | 49,628 | ||||||||
| Total shareholders' investment | 65,845 | 59,605 | ||||||||
| $ | 212,073 | $ | 185,919 | |||||||
The accompanying notes are an integral part of these balance sheets.
| | For the years ended December 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (In thousands, except share information) | 2000 | 1999 | 1998 | ||||||||
| Operating revenue | $ | 260,797 | $ | 219,200 | $ | 193,648 | |||||
| Operating expenses: | |||||||||||
| Salaries, wages and benefits | 75,076 | 64,123 | 58,798 | ||||||||
| Purchased transportation | 61,096 | 57,637 | 46,833 | ||||||||
| Fuel and fuel taxes | 41,880 | 26,962 | 23,328 | ||||||||
| Supplies and maintenance | 18,849 | 16,808 | 15,633 | ||||||||
| Depreciation | 25,154 | 20,622 | 18,724 | ||||||||
| Operating taxes and licenses | 4,953 | 4,467 | 3,809 | ||||||||
| Insurance and claims | 5,883 | 4,630 | 3,681 | ||||||||
| Communications and utilities | 2,938 | 2,667 | 2,524 | ||||||||
| Gain on disposition of revenue equipment | (742 | ) | (2,067 | ) | (935 | ) | |||||
| Other | 7,019 | 5,665 | 4,908 | ||||||||
| 242,106 | 201,514 | 177,303 | |||||||||
| Operating income | 18,691 | 17,686 | 16,345 | ||||||||
| Other expenses (income): | |||||||||||
| Interest expense | 6,242 | 4,042 | 3,964 | ||||||||
| Interest income and other | (338 | ) | (220 | ) | (243 | ) | |||||
| 5,904 | 3,822 | 3,721 | |||||||||
| Income before income taxes | 12,787 | 13,864 | 12,624 | ||||||||
| Provision for income taxes | 4,859 | 5,407 | 5,050 | ||||||||
| Net income | $ | 7,928 | $ | 8,457 | $ | 7,574 | |||||
| Basic earnings per common share | $ | 1.88 | $ | 1.93 | $ | 1.69 | |||||
| Diluted earnings per common share | $ | 1.88 | $ | 1.92 | $ | 1.67 | |||||
The accompanying notes are an integral part of these statements.
Statements of Changes in Shareholders' Investment
| | Common Stock | | | | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In thousands, except share information) | Additional Paid-In Capital | Retained Earnings | | |||||||||||||
| Shares | Amount | Total | ||||||||||||||
| 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 | |||||||
| Net income | — | — | — | 8,457 | 8,457 | |||||||||||
| Repurchase of common stock | (177,500 | ) | (2 | ) | — | (2,128 | ) | (2,130 | ) | |||||||
| Balance at December 31, 1999 | 4,300,145 | $ | 43 | $ | 9,934 | $ | 49,628 | $ | 59,605 | |||||||
| Net income | — | — | — | 7,928 | 7,928 | |||||||||||
| Repurchase of common stock | (120,000 | ) | (1 | ) | — | (1,687 | ) | (1,688 | ) | |||||||
| Balance at December 31, 2000 | 4,180,145 | $ | 42 | $ | 9,934 | $ | 55,869 | $ | 65,845 | |||||||
The accompanying notes are an integral part of these statements.
| | For the years ended December 31, | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In thousands) | 2000 | 1999 | 1998 | |||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||
| Operations: | ||||||||||||||
| Net income | $ | 7,928 | $ | 8,457 | $ | 7,574 | ||||||||
| Adjustments to reconcile net income to net cash flows from operating activities: | ||||||||||||||
| Depreciation | 25,154 | 20,622 | 18,724 | |||||||||||
| Gain on disposition of revenue equipment | (742 | ) | (2,067 | ) | (935 | ) | ||||||||
| Deferred tax provision | 6,007 | 4,006 | 3,311 | |||||||||||
| Changes in other current operating items: | ||||||||||||||
| Receivables | (5,814 | ) | (7,919 | ) | (882 | ) | ||||||||
| Prepaid expenses and other | (724 | ) | 379 | (929 | ) | |||||||||
| Accounts payable | (786 | ) | 2,629 | (785 | ) | |||||||||
| Other current liabilities | (4,060 | ) | 2,220 | (1,592 | ) | |||||||||
| Net cash provided by operating activities | 26,963 | 28,327 | 24,486 | |||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||
| Revenue equipment additions | (53,875 | ) | (63,226 | ) | (43,172 | ) | ||||||||
| Revenue equipment dispositions | 11,168 | 23,827 | 14,932 | |||||||||||
| Buildings and land, office equipment and other additions, net | (2,370 | ) | (1,119 | ) | (630 | ) | ||||||||
| Net change in other assets | (841 | ) | 78 | (392 | ) | |||||||||
| Net cash used for investing activities | (45,918 | ) | (40,440 | ) | (29,262 | ) | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||
| Long-term borrowings | 107,350 | 87,366 | 63,540 | |||||||||||
| Repayment of long-term borrowings | (86,707 | ) | (74,239 | ) | (59,700 | ) | ||||||||
| Common stock repurchased | (1,688 | ) | (2,130 | ) | — | |||||||||
| Net cash provided by financing activities | 18,955 | 10,997 | 3,840 | |||||||||||
| DECREASE IN CASH AND CASH EQUIVALENTS | — | (1,116 | ) | (936 | ) | |||||||||
| CASH AND CASH EQUIVALENTS: | ||||||||||||||
| Beginning of year | — | 1,116 | 2,052 | |||||||||||
| End of year | $ | — | $ | — | $ | 1,116 | ||||||||
| CASH PAID FOR: | ||||||||||||||
| Interest | $ | 5,557 | $ | 4,008 | $ | 3,675 | ||||||||
| Income taxes | $ | 776 | $ | 854 | $ | 2,171 | ||||||||
The accompanying notes are an integral part of these statements.
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 to customers in the United States and Canada.
Prepaid expenses and other: As of December 31, prepaid expenses and other consisted of the following:
| (In thousands) | 2000 | 1999 | ||||
|---|---|---|---|---|---|---|
| License fees | $ | 3,495 | $ | 2,933 | ||
| Tires in service | 2,147 | 1,941 | ||||
| Parts and tires inventory | 1,196 | 1,142 | ||||
| Other | 1,357 | 1,455 | ||||
| $ | 8,195 | $ | 7,471 | |||
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 for financial reporting purposes:
| | Years | ||
|---|---|---|---|
| Revenue equipment: | |||
| Tractors | 5 | ||
| Trailers | 7 | ||
| Satellite tracking | 7 | ||
| Buildings | 20 | ||
| Office equipment and other | 3-15 | ||
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 and other in the accompanying balance sheets. The long-term portion of capitalized tires in service and the estimated salvage value are included in revenue equipment in the accompanying 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 in total 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.
We are involved in legal actions that arise in the ordinary course of business. Although the outcomes of any such legal actions cannot be predicted, in the opinion of management, the resolution of any currently pending or threatened actions will not have a material adverse effect upon our financial position or results of operations.
Revenue recognition: We record revenue and related expenses on the date shipment of freight is completed. We earned approximately 15 percent and 11 percent of our revenue from two single customers in 2000, 15 percent and 12 percent from two single customers in 1999 and 11 percent from a single customer in 1998.
Segment reporting: Substantially all of our revenue, operating profits and assets relate primarily to one business segment—long-haul truckload carriage providing protective service transportation of time- and temperature-sensitive materials and general commodities.
Accounting for derivative instruments and hedging activities: In 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." Statement No. 133, as amended, establishes accounting and reporting standards requiring that each derivative instrument be recorded in the balance sheet as either an asset or liability measured at fair value. Changes in the derivative instrument's fair value must be recognized currently in earnings unless specific hedge accounting criteria are met. For hedges which meet the criteria, the derivative instrument's gains and losses, to the extent effective, may be recognized in accumulated other comprehensive income rather than current earnings.
We adopted Statement No. 133 on January 1, 2001, and plan to apply Statement No. 133 to only those derivative instruments that were issued, acquired or modified after December 31, 1998.
We have entered into commodity swap agreements to partially hedge our exposure to diesel fuel price fluctuations. These agreements meet the specific hedge accounting criteria. A derivative liability of approximately $275,000 would have been recognized in the balance sheet, with an offsetting expense recognized in accumulated other comprehensive income to the extent effective, for our swap agreements held as of December 31, 2000.
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. These estimates are primarily related to insurance and claims accruals and depreciation. Ultimate results could differ from these estimates.
As of December 31, long-term debt consisted of the following:
| (In thousands) | 2000 | 1999 | ||||
|---|---|---|---|---|---|---|
| Unsecured committed credit facility in the amount of $60 million with banks maturing in January 2004 and bearing variable interest based upon either the London Interbank Offered Rate plus applicable margins or the banks' Reference Rate (7.8% weighted average rate at December 31, 2000) | $ | 53,216 | $ | 36,916 | ||
Series A Senior Unsecured Notes maturing in October 2008 with annual principal payments of $3,571,429 beginning in 2002 and bearing fixed interest at 6.78% | 25,000 | 25,000 | ||||
Series B Senior Unsecured Notes maturing in April 2010 with annual principal payments of $1,428,571 beginning in 2004 and bearing fixed interest at 8.57% | 10,000 | — | ||||
Notes payable to banks collateralized by specific revenue equipment maturing through December 2001 (7.8% weighted average interest rate at December 31, 2000) | 1,685 | 7,342 | ||||
Total long-term debt | 89,901 | 69,258 | ||||
Less current maturities of long-term debt | 1,685 | 5,659 | ||||
Long-term debt, less current maturities | $ | 88,216 | $ | 63,599 | ||
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, 2000.
Maturities of long-term debt at December 31, 2000, are as follows:
| (In thousands) | Amount | ||
|---|---|---|---|
| 2001 | $ | 1,685 | |
| 2002 | 3,571 | ||
| 2003 | 3,571 | ||
| 2004 | 58,216 | ||
| 2005 | 5,000 | ||
| Thereafter | 17,858 | ||
| $ | 89,901 | ||
The following related party transactions occurred during the three years ended December 31, 2000:
(a) We paid approximately $2.2 million in 2000, $1.6 million in 1999 and $1.5 million in 1998 to purchase fuel and tires from a company in which one of our directors is the president and a stockholder.
(b) We repurchased 177,500 shares of our common stock from the estate of our former chairman and chief executive officer, Roger R. Marten, in June 1999 for $12 per share. The shares have been retired, reducing shareholders' investment by $2,130,000.
(c) We previously had checking, savings and investment accounts at banks controlled by one of our directors and officers. We closed all of our accounts at these banks in 1999.
We believe that these transactions with related parties are on reasonable terms which are comparable to terms available from unaffiliated third parties.
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 (benefit) for income taxes consisted of the following:
| (In thousands) | 2000 | 1999 | 1998 | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Current: | ||||||||||
| Federal | $ | (999 | ) | $ | 1,173 | $ | 1,480 | |||
| State | (149 | ) | 228 | 259 | ||||||
| (1,148 | ) | 1,401 | 1,739 | |||||||
| Deferred: | ||||||||||
| Federal | 5,020 | 3,317 | 2,963 | |||||||
| State | 987 | 689 | 348 | |||||||
| 6,007 | 4,006 | 3,311 | ||||||||
| Total provision | $ | 4,859 | $ | 5,407 | $ | 5,050 | ||||
The statutory federal income tax rate is reconciled to the effective income tax rate as follows:
| | 2000 | 1999 | 1998 | |||||
|---|---|---|---|---|---|---|---|---|
| Statutory federal income tax rate | 34 | % | 34 | % | 34 | % | ||
| Increase in taxes arising from: | ||||||||
| State income taxes, net of federal income tax benefit | 4 | 4 | 4 | |||||
| Other, net | — | 1 | 2 | |||||
| Effective tax rate | 38 | % | 39 | % | 40 | % | ||
As of December 31, the net deferred tax liability consisted of the following:
| (In thousands) | 2000 | 1999 | |||||
|---|---|---|---|---|---|---|---|
| Deferred tax assets: | |||||||
| Reserves and accrued liabilities for financial reporting in excess of tax | $ | 4,530 | $ | 6,059 | |||
| Alternative minimum tax credit | 1,941 | 701 | |||||
| State income tax deduction for financial reporting in excess of tax | 1,732 | 1,397 | |||||
| Net operating loss carryforwards | 811 | — | |||||
| 9,014 | 8,157 | ||||||
| Deferred tax liabilities: | |||||||
| Tax depreciation in excess of depreciation for financial reporting | 38,629 | 31,989 | |||||
| Prepaid licenses and use tax expensed for income tax purposes and capitalized for financial reporting | 1,537 | 1,287 | |||||
| Other | 590 | 616 | |||||
| 40,756 | 33,892 | ||||||
| Net deferred tax liability | $ | 31,742 | $ | 25,735 | |||
As of December 31, 2000, we have federal net operating loss carryforwards of approximately $1.8 million, expiring in 2020, state net operating loss carryforwards of approximately $3.4 million, expiring in the years 2005 through 2020, and alternative minimum tax credits of approximately $1.9 million, which carry forward indefinitely.
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 per share. The 120,000 shares have been retired, reducing shareholders' investment by $1,687,500.
We repurchased 177,500 shares of our common stock from the estate of our former chairman and chief executive officer, Roger R. Marten, in June 1999 for $12 per share. The shares have been retired, reducing shareholders' investment by $2,130,000.
Basic and diluted earnings per common share were computed as follows:
| (In thousands, except per-share amounts) | 2000 | 1999 | 1998 | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Numerator: | ||||||||||
| Net income | $ | 7,928 | $ | 8,457 | $ | 7,574 | ||||
| Denominator: | ||||||||||
| Basic earnings per common share—weighted-average shares | 4,215 | 4,388 | 4,478 | |||||||
| Effect of dilutive stock options | 13 | 10 | 46 | |||||||
| Diluted earnings per common share—weighted-average shares and assumed conversions | 4,228 | 4,398 | 4,524 | |||||||
| Basic earnings per common share | $ | 1.88 | $ | 1.93 | $ | 1.69 | ||||
| Diluted earnings per common share | $ | 1.88 | $ | 1.92 | $ | 1.67 | ||||
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.
| | 2000 | 1999 | 1998 | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Number of option shares | 321,250 | 356,250 | 11,250 | ||||||
| Weighted-average exercise price | $ | 13.73 | $ | 13.64 | $ | 17.25 | |||
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, 2000. 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. As of December 31, 2000, there were 29,250 shares reserved for issuance under the 1986 plans. No additional options will be granted under the 1986 plans.
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:
| (In thousands, except per-share amounts) | 2000 | 1999 | 1998 | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Net income: | ||||||||||
| As reported | $ | 7,928 | $ | 8,457 | $ | 7,574 | ||||
| Pro forma | 7,687 | 8,132 | 7,272 | |||||||
| Basic earnings per common share: | ||||||||||
| As reported | 1.88 | 1.93 | 1.69 | |||||||
| Pro forma | 1.82 | 1.85 | 1.62 | |||||||
| Diluted earnings per common share: | ||||||||||
| As reported | 1.88 | 1.92 | 1.67 | |||||||
| Pro forma | 1.82 | 1.85 | 1.62 | |||||||
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:
| | 2000 | 1999 | 1998 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Shares | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price | |||||||||
| Outstanding, beginning of year | 400,500 | $ | 13.21 | 378,000 | $ | 13.22 | 344,250 | $ | 13.07 | ||||||
| Granted | 105,000 | 13.48 | 22,500 | 13.04 | 33,750 | 14.78 | |||||||||
| Forfeited | (20,000 | ) | 13.69 | — | — | — | — | ||||||||
| Outstanding, end of year | 485,500 | 13.25 | 400,500 | 13.21 | 378,000 | 13.22 | |||||||||
| Exercisable, end of year | 353,500 | 13.26 | 274,500 | 13.20 | 186,500 | 13.22 | |||||||||
The weighted-average fair value as of the date of grant was $6.49 per share for options granted during 2000, $6.08 per share for options granted during 1999 and $7.05 per share for options granted during 1998. The fair value was estimated as of the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:
| | 2000 | 1999 | 1998 | ||||
|---|---|---|---|---|---|---|---|
| Expected option life in years | 7 | 7 | 7 | ||||
| Risk-free interest rate | 6.2 | % | 5.2 | % | 5.3 | % | |
| Expected stock price volatility | 33.0 | % | 34.0 | % | 35.0 | % | |
| Expected dividend payments | — | — | — | ||||
The following table summarizes information regarding stock options outstanding and exercisable as of December 31, 2000:
| | Range of Exercise Price | ||||||
|---|---|---|---|---|---|---|---|
| | $8.08 to $8.83 | $11.75 to $14.88 | $17.25 | ||||
| Options outstanding: | |||||||
| Number of shares | 29,250 | 445,000 | 11,250 | ||||
| Weighted-average remaining contractual life | 4.3 years | 6.2 years | 7.4 years | ||||
| Weighted-average exercise price | $8.45 | $13.47 | $17.25 | ||||
| Options exercisable: | |||||||
| Number of shares | 29,250 | 313,000 | 11,250 | ||||
| Weighted-average exercise price | $8.45 | $13.56 | $17.25 | ||||
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 2000, 1999 or 1998. Total expense recorded for the plan was $210,000 in 2000, $213,000 in 1999 and $197,000 in 1998.
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.
8. Fair Value of Financial Instruments
The carrying amounts of accounts receivable and accounts payable approximate fair value because of the short maturity of these instruments. The fair value of our long-term debt is estimated to be $88,585,000 at December 31, 2000, and $67,822,000 at December 31, 1999. The fair value was estimated using discounted cash flow analysis. Current borrowing rates for similar long-term debt were used in this analysis.
9. Quarterly Financial Data (Unaudited)
The following is a summary of the quarterly results of operations for 2000 and 1999:
| 2000 Quarters (In thousands, except per-share amounts) | First | Second | Third | Fourth | Total | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Operating revenue | $ | 60,293 | $ | 64,811 | $ | 65,267 | $ | 70,426 | $ | 260,797 | |||||
| Operating income | 3,827 | 5,430 | 4,299 | 5,135 | 18,691 | ||||||||||
| Net income | 1,624 | 2,470 | 1,706 | 2,128 | 7,928 | ||||||||||
| Basic and diluted earnings per common share | .38 | .58 | .41 | .51 | 1.88 | ||||||||||
| 1999 Quarters (In thousands, except per-share amounts) | First | Second | Third | Fourth | Total | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Operating revenue | $ | 48,731 | $ | 54,558 | $ | 55,873 | $ | 60,038 | $ | 219,200 | |||||
| Operating income | 3,201 | 4,496 | 4,236 | 5,753 | 17,686 | ||||||||||
| Net income | 1,422 | 2,198 | 2,001 | 2,836 | 8,457 | ||||||||||
| Basic earnings per common share | .32 | .49 | .47 | .66 | 1.93 | ||||||||||
| Diluted earnings per common share | .32 | .49 | .46 | .66 | 1.92 | ||||||||||
The basic and diluted earnings per common share for the 1999 quarters exceed the per-share amounts for the year due to changes in the weighted average number of shares outstanding during the year.
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, 2000 and 1999, 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, 2000. 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 auditing standards generally accepted in the United States. 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, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States.
Arthur Andersen LLP
Minneapolis, Minnesota
January 19, 2001
Our quarterly stock prices, as reported by The Nasdaq Stock Market, were as follows:
| | 2000 | 1999 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Quarter | High | Low | High | Low | |||||||||
| First | $ | 15 | $ | 12 | 1/2 | $ | 14 | 5/8 | $ | 12 | |||
| Second | 14 | 15/16 | 12 | 1/2 | 13 | 3/4 | 9 | 1/2 | |||||
| Third | 14 | 5/8 | 12 | 1/2 | 12 | 15/16 | 11 | 1/8 | |||||
| Fourth | 13 | 1/4 | 11 | 12 | 15/16 | 9 | 1/2 | ||||||
The prices do not include adjustments for retail mark-ups, mark-downs or commissions. On December 31, 2000, there were 269 stockholders of record, and an additional 250 beneficial stockholders. 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.
Corporate Information
Corporate Headquarters
129 Marten Street
Mondovi, Wisconsin 54755
Telephone: (715) 926-4216
Fax: (715) 926-4530
www.marten.com
Stockholder Information
A copy of our 2000 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
Stockholders, employees and friends may attend our annual meeting on Tuesday, May 8, 2001, at 4:00 p.m. at the Ramada Conference Center, 1202 West Clairemont Avenue, Eau Claire, Wisconsin.
Stock Listing
Nasdaq Stock Market symbol: MRTN
Legal Counsel
Oppenheimer Wolff & Donnelly LLP
45 South Seventh Street
Suite 3300
Minneapolis, Minnesota 55402
Independent Public Accountants
Arthur Andersen LLP
45 South Seventh Street
Minneapolis, Minnesota 55402
Transfer Agent and Registrar
Mellon Investor Services LLC
P. O. Box 3315
South Hackensack, New Jersey 07606
Telephone: (888) 213-0965
TDD: (800) 231-5469
www.mellon-investor.com
Direct communications about stock certificates or a change of address to Mellon Investor Services.
Public/Financial Relations Counsel
BlueFire Partners
150 South Fifth Street
Suite 1300
Minneapolis, Minnesota 55402
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
Timothy P. Nash
Executive Vice President of Sales and Marketing
Franklin J. Foster
Vice President of Finance
Susan M. Baier
Vice President of Information Systems
Donald J. Hinson
Vice President of Operations
Thomas A. Letscher
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
