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, 1999
Commission File Number 0-15010
MARTEN TRANSPORT, LTD.
(Exact name of registrant as specified in its charter)
Delaware 39-1140809
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(State of incorporation) (I.R.S. Employer
Identification No.)
129 Marten Street, Mondovi, Wisconsin 54755
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(Address of principal executive offices)
715-926-4216
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(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 4,300,145 as of August 10, 1999.
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements.
MARTEN TRANSPORT, LTD.
CONDENSED BALANCE SHEETS
(In thousands, except share information)
June 30, December 31,
1999 1998
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(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents...................................... $ 920 $ 1,116
Receivables.................................................... 26,643 19,754
Prepaid expenses and other..................................... 5,884 7,850
Deferred income taxes.......................................... 4,240 3,265
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Total current assets.................................. 37,687 31,985
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Property and equipment:
Revenue equipment, buildings and land,
office equipment, and other............................... 178,180 172,271
Accumulated depreciation....................................... (47,392) (48,514)
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Net property and equipment............................ 130,788 123,757
Other assets....................................................... 859 967
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TOTAL ASSETS...................................... $ 169,334 $ 156,709
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LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities:
Accounts payable and accrued liabilities....................... $ 17,087 $ 11,777
Insurance and claims accruals.................................. 11,567 10,529
Current maturities of long-term debt........................... 7,312 8,899
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Total current liabilities............................. 35,966 31,205
Long-term debt, less current maturities............................ 51,216 47,232
Deferred income taxes.............................................. 27,384 24,994
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Total liabilities..................................... 114,566 103,431
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Shareholders' investment:
Common stock, $.01 par value per share,
10,000,000 shares authorized, 4,300,145
and 4,477,645 shares issued and
outstanding............................................... 43 45
Additional paid-in capital..................................... 9,934 9,934
Retained earnings.............................................. 44,791 43,299
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Total shareholders' investment........................ 54,768 53,278
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TOTAL LIABILITIES AND
SHAREHOLDERS' INVESTMENT.......................... $ 169,334 $ 156,709
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The accompanying notes are an integral part of these balance sheets.
MARTEN TRANSPORT, LTD.
CONDENSED STATEMENTS OF INCOME
(In thousands, except share information)
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
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OPERATING REVENUE ........................ $ 54,558 $ 49,269 $ 103,289 $ 94,487
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OPERATING EXPENSES:
Salaries, wages and benefits ........ 16,085 14,861 30,937 28,960
Purchased transportation ............ 14,457 11,889 26,906 22,548
Fuel and fuel taxes ................. 6,540 5,828 12,238 11,544
Supplies and maintenance ............ 4,171 4,105 8,118 7,577
Depreciation ........................ 5,055 4,686 9,963 9,195
Operating taxes and licenses ........ 1,072 958 2,006 1,856
Insurance and claims ................ 1,137 822 2,251 1,820
Communications and utilities ........ 663 599 1,321 1,183
Gain on disposition of revenue
equipment ....................... (449) (174) (910) (327)
Other ............................... 1,331 1,252 2,762 2,494
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Total operating expenses 50,062 44,826 95,592 86,850
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OPERATING INCOME ......................... 4,496 4,443 7,697 7,637
OTHER EXPENSES(INCOME):
Interest expense .................... 947 1,012 1,874 1,994
Interest income and other ........... (54) (48) (111) (103)
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INCOME BEFORE INCOME TAXES ............... 3,603 3,479 5,934 5,746
PROVISION FOR INCOME TAXES ............... 1,405 1,392 2,314 2,299
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NET INCOME ............................... $ 2,198 $ 2,087 $ 3,620 $ 3,447
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--------- --------- --------- ---------
BASIC EARNINGS PER COMMON SHARE .......... $ 0.49 $ 0.47 $ 0.81 $ 0.77
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--------- --------- --------- ---------
DILUTED EARNINGS PER COMMON SHARE ........ $ 0.49 $ 0.46 $ 0.81 $ 0.76
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The accompanying notes are an integral part of these statements.
MARTEN TRANSPORT, LTD.
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months
Ended June 30,
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Operations:
Net income .................................. $ 3,620 $ 3,447
Adjustments to reconcile net
income to net cash flows
from operating activities:
Depreciation ....................... 9,963 9,195
Gain on disposition of revenue
equipment ...................... (910) (327)
Deferred tax provision ............. 1,415 825
Changes in other current
operating items ................ 1,425 (1,469)
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Net cash provided by
operating activities.... 15,513 11,671
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CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions:
Revenue equipment, net ...................... (15,511) (15,285)
Buildings and land, office equipment,
and other additions, net ............... (573) (286)
Net change in other assets ...................... 108 (6)
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Net cash used for investing
activities ............. (15,976) (15,577)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings ............................ 39,900 17,372
Repayment of long-term borrowings ............... (37,503) (12,790)
Common stock repurchased ........................ (2,130) --
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Net cash provided by
financing activities ... 267 4,582
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INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ................................ (196) 676
CASH AND CASH EQUIVALENTS:
Beginning of period ............................. 1,116 2,052
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End of period ................................... $ 920 $ 2,728
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CASH PAID FOR:
Interest ........................................ $ 1,898 $ 1,978
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Income taxes .................................... $ 9 $ 1,344
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The accompanying notes are an integral part of these statements.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1) Financial Statements
The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial statements, and therefore do not include all information and
disclosures required by generally accepted accounting principles for complete
financial statements. In the opinion of management, such statements reflect
all adjustments (consisting of normal recurring adjustments) considered
necessary to fairly present our financial condition, results of operations
and cash flows for the interim periods presented. The results of operations
for any interim period do not necessarily indicate the results for the full
year. The unaudited interim financial statements should be read with
reference to the financial statements and notes to financial statements in
our 1998 Annual Report on Form 10-K.
(2) Earnings Per Common Share
Basic and diluted earnings per common share were computed as follows:
Three Months Six Months
Ended June 30, Ended June 30,
(In thousands, except per-share amounts) 1999 1998 1999 1998
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Numerator:
Net income ......................................... $ 2,198 $ 2,087 $ 3,620 $ 3,447
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Denominator:
Basic earnings per common share -
weighted-average shares............................ 4,476 4,478 4,477 4,478
Effect of dilutive stock options....................... 13 89 14 64
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Diluted earnings per common share -
weighted-average shares and
assumed conversions................................ 4,489 4,567 4,491 4,542
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Basic earnings per common share............................. $ 0.49 $ 0.47 $ 0.81 $ 0.77
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Diluted earnings per common share........................... $ 0.49 $ 0.46 $ 0.81 $ 0.76
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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 Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
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Number of option shares..................................... 348,750 - 348,750 -
Weighted-average exercise price............................. $ 13.65 - $ 13.65 -
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(3) Common Stock Repurchase
Marten repurchased 177,500 shares of its common stock from the estate of its
former chairman and chief executive officer, Roger R. Marten, on June 30,
1999, for $12 per share. The shares have been retired, reducing shareholders'
investment by $2,130,000.
(4) 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, 1999.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS
Operating revenue for the second quarter of 1999 increased 10.7 percent over
the same period of 1998. Operating revenue for the first six months of 1999
increased 9.3 percent over the same period last year. These increases were
primarily the result of transporting additional freight associated with an
increase in our fleet. Average freight rates increased in 1999 due to
stronger customer demand. Our contracts with customers require fuel rebates
and surcharges based on significant fluctuations in the price of diesel fuel.
Operating revenue for the first six months of 1999 was reduced by fuel
rebates of $503,000 caused by a decrease in the price of diesel fuel. Fuel
rebates and surcharges for the first six months of 1998 were minimal. We
expect operating revenue for the remainder of 1999 to exceed 1998 levels
given the planned expansion of our fleet.
Operating expenses for the second quarter of 1999 represented 91.8 percent of
operating revenue, compared with 91.0 percent for the second quarter of 1998.
Operating expenses for the first six months of 1999 were 92.5 percent of
operating revenue, compared with 91.9 percent for the same period of 1998.
The transportation of additional freight and expansion of our fleet caused
most expense categories to increase in 1999. We continued to increase the
number of independent contractor-owned vehicles in our fleet during 1999,
which increased our purchased transportation expense. Independent contractors
are responsible for their own salaries, wages and benefits expense, fuel and
fuel taxes expense, and supplies and maintenance expense. Therefore, our
expenses in these categories are reduced relative to revenue. Fuel and fuel
taxes expense was also impacted by fluctuations in the price of diesel fuel
in 1999. Fuel prices decreased in the first quarter and increased in the
second quarter when compared with the same periods of 1998. Gain on
disposition of revenue equipment increased in 1999 due to an increase in the
market value received for used revenue equipment combined with additional
planned revenue equipment trades. We anticipate our operating expenses as a
percent of revenue will remain at current levels for the remainder of 1999.
Interest expense for the three-month and six-month periods ended June 30,
1999, decreased from the same periods of 1998. This improvement was caused by
the lower interest rates associated with the Series A Senior Unsecured Notes
and the unsecured committed credit facility we entered into during our fourth
quarter of 1998. We anticipate interest expense as a percent of revenue will
remain at current levels.
Marten's effective income tax rate was 39 percent for the three-month and
six-month periods ended June 30, 1999, compared with 40 percent for the same
periods of 1998. We expect the effective income tax rate to remain at 39
percent for the remainder of 1999.
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as discussed in Note 4 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, 1999.
CAPITAL RESOURCES AND LIQUIDITY
Net cash flows from operations provided $15,513,000 during the first six
months of 1999. Investments in property and equipment and other assets used
net cash of $15,976,000, while financing activities provided $267,000 during
this period. We continued to invest in new, more efficient revenue equipment
in 1999 and 1998. Additionally, we repurchased 177,500 shares of our common
stock during the second quarter of 1999 from the estate of our former
chairman and chief executive officer, Roger R. Marten, for $12 per share. We
have retired these shares, reducing shareholders' investment by $2,130,000.
These expenditures were funded using cash flows from operations and proceeds
from long-term debt.
Marten's operating profits, short turnover in accounts receivable and cash
management practices allow us to effectively meet our working capital
requirements. Short-term borrowings have not been and are not expected to be
used to meet working capital needs. We believe our liquidity is adequate to
satisfy expected near-term operating needs.
IMPACT OF YEAR 2000
Computer programs have historically been written to abbreviate dates by using
two digits instead of four digits to identify a particular year. The
so-called "Year 2000 problem" is the inability of computer software or
hardware to recognize or properly process dates ending in "00" and dates
after the Year 2000. As the Year 2000 approaches, significant attention is
being focused on updating or replacing such software and hardware in order to
avoid system failures, miscalculations or business interruptions that might
otherwise result. We are taking the steps we believe are necessary to insure
that this potential problem does not adversely affect our operating results
in the future. We are continuing our as-yet incomplete assessment of the
impact of the Year 2000 problem.
We have reviewed our internal information systems and believe that the costs
and efforts to address the Year 2000 problem will not be material to our
business, financial condition or results of operations, and may be resolved
through replacements and upgrades to our software or hardware. The Year 2000
problem may, however, adversely impact us by affecting the business and
operations of parties with which we transact business, although we are unable
to precisely determine the likelihood or potential impact of any such event.
There can be no assurance that we will be able to effectively address Year
2000 issues in a cost-efficient manner and without interruption to our
business, or that Year 2000 problems encountered by our suppliers, customers
or other parties will not have a material impact on our business, financial
condition and results of operations.
Our state of readiness for the Year 2000, our estimated costs associated with
Year 2000 issues, the risks we face associated with Year 2000 issues and our
Year 2000 contingency plans are summarized below.
STATE OF READINESS.
Internally, we have implemented a three-phase process to assess Year 2000
compliance of our systems and remediate any material non-compliance. The
phases are (1) to identify and test our material computer software and
hardware in order to determine whether they are Year 2000 compliant; (2) to
correct or replace those software or hardware systems in which we determine
there is a material problem with Year 2000 compliance; and (3) to internally
test the corrected or upgraded systems in order to determine whether they are
Year 2000 compliant. We have completed all three phases with respect to
substantially all of our material internally written and purchased
information technology (IT) systems and non-IT systems and believe the
systems are Year 2000 compliant. However, we also utilize a sales and
marketing system and an
insurance claims management system which are in the second phase, along with
a maintenance tracking system which is in the third phase. We expect these
three systems will be through phase three and achieve Year 2000 compliance by
the end of 1999.
Externally, we have implemented a three-phase process to assess Year 2000
compliance of the systems of our vendors and third-party servicers, and
remediate any material non-compliance. The phases are (1) to identify the
vendors and other third parties with whom we transact business and determine
whether they are significant to our business ("core" parties); (2) to contact
the vendors and other third parties with whom we do business by, among other
methods, sending them letters and questionnaires designed to solicit
information relating to the Year 2000 problem; and (3) to evaluate the
responses received from the vendors and other third parties. The
questionnaire we are using asks vendors and other third parties such
questions as (i) whether they have a documented Year 2000 compliance plan,
(ii) whether they are aware of any Year 2000 readiness issues that could
affect us, (iii) whether, if such an issue exists, they have plans in place
to ensure compliance, (iv) what their target date is for Year 2000 compliance
and (v) whether they have any contingency plans. We have substantially
completed all three phases with respect to our vendors and third-party
service providers. We plan to follow up with our core vendors and third
parties with whom we do business to update our information regarding the Year
2000 problem.
COSTS ASSOCIATED WITH YEAR 2000 ISSUES.
We estimate that the future costs associated with implementing all phases of
our Year 2000 assessment and resolving any Year 2000 problems will be less
than $50,000. This estimate includes expenditures for both repairs and
upgrades. We believe that these costs, assuming this estimate is accurate,
would not have a material effect on our business, financial condition and
results of operations. We estimate our costs to date associated with Year
2000 issues to be less than $75,000. We anticipate that cash flow from
operations will be used to pay the costs to address Year 2000 issues. All
Year 2000 costs are expensed as incurred.
RISKS ASSOCIATED WITH YEAR 2000 ISSUES.
We are unaware of any material risk to us associated with Year 2000 issues at
the present time. We believe that the reasonably likely worst case Year 2000
scenario is a decrease in the efficiency with which we procure and deliver
loads, and a decrease in the efficiency with which we receive payment for
services rendered. A decrease in efficiency, however, would not necessarily
result in a decrease in business. We expect that load procurement, load
delivery and billing all could be achieved through alternative methods within
a relatively short period of time. Any disruption, however, could result in
some lost revenue.
We face the additional risk of experiencing an increase in claims and
litigation relating to the Year 2000 problem because, among other reasons,
there is no uniform definition of Year 2000 "compliance" and because all
vendor and third-party situations cannot be anticipated, particularly those
involving third-party products. Such claims, if successful, could have a
material adverse effect on future results. Moreover, the costs of defending
us against such claims, even if ultimately resolved in our favor, could have
a material adverse effect on future results.
CONTINGENCY PLANS.
We have completed a specific contingency plan for the Year 2000 problem. This
contingency plan identifies alternate vendors and service providers to
decrease the impact on us if one or more of the core parties with whom we do
business suffers a significant Year 2000 problem.
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.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.
There are currently no material pending legal, governmental,
administrative or other proceedings to which we are a party or of which
any of our property is the subject which are unreserved.
ITEM 2. Changes in Securities and Use of Proceeds.
None
ITEM 3. Defaults Upon Senior Securities.
None
ITEM 4. Submission of Matters to a Vote of Security Holders.
Our annual meeting of stockholders was held on May 11, 1999. 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 2000. The
following summarizes the votes cast for, votes cast against, and broker
non-votes for each nominee:
Broker
Nominee Votes For Votes Against Non-Votes
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Randolph L. Marten 4,000,176 5,200 -0-
Darrell D. Rubel 4,000,176 5,200 -0-
Larry B. Hagness 4,000,176 5,200 -0-
Thomas J. Winkel 4,000,176 5,200 -0-
Jerry M. Bauer 4,000,176 5,200 -0-
Christine K. Marten 3,999,706 5,670 -0-
(b) The stockholders also approved the appointment of Arthur Andersen
LLP as our independent auditors for the year ending December 31, 1999,
by a vote of 4,001,197 shares in favor, 3,725 shares opposed, and 454
shares abstaining.
ITEM 5. Other Information.
None
ITEM 6. Exhibits and Reports on Form 8-K.
a) Exhibits
Item No. Item Method of Filing
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10.15 Stock Redemption Agreement
dated June 30, 1999, between
the Company and Darrell D.
Rubel, as Personal
Representative of the Estate
of Roger R. Marten........... Filed with this report
electronically.
27.1 Financial Data Schedule...... Filed with this report
electronically.
b) No reports on Form 8-K have been filed during the quarter ended
June 30, 1999.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MARTEN TRANSPORT, LTD.
(Registrant)
Dated: August 12, 1999 By: /s/ Darrell D. Rubel
--------------------------------
Darrell D. Rubel
Executive Vice President and Treasurer
(Chief Financial Officer)
MARTEN TRANSPORT, LTD.
EXHIBIT INDEX TO QUARTERLY REPORT
ON FORM 10-Q
For the Quarter Ended June 30, 1999
Item No. Item Method of Filing
10.15 Stock Redemption Agreement
dated June 30, 1999, between
the Company and Darrell D.
Rubel, as Personal
Representative of the
Estate of Roger R. Marten.... Filed with this report
electronically.
27.1 Financial Data
Schedule..................... Filed with this report
electronically.