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EX-32.1 - EX-32.1 - MARTEN TRANSPORT LTDa10-12643_1ex32d1.htm
EX-31.2 - EX-31.2 - MARTEN TRANSPORT LTDa10-12643_1ex31d2.htm
EX-31.1 - EX-31.1 - MARTEN TRANSPORT LTDa10-12643_1ex31d1.htm

 

 

UNITED STATES

 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, 2010

 

Commission File Number 0-15010

 

MARTEN TRANSPORT, LTD.

(Exact name of registrant as specified in its charter)

 

Delaware

 

39-1140809

(State of incorporation)

 

(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 o

 

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes ¨ No o

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. 

 

Large accelerated filer o

 

Accelerated filer x

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b-2).  Yes o  No x

 

The number of shares outstanding of the Registrant’s Common Stock, par value $.01 per share, was 21,934,232 as of August 4, 2010.

 

 

 



 

PART I.  FINANCIAL INFORMATION

 

Item 1.  Financial Statements.

 

MARTEN TRANSPORT, LTD.

CONSOLIDATED CONDENSED BALANCE SHEETS

(Unaudited)

 

 

 

June 30,

 

December 31,

 

(In thousands, except share information)

 

2010

 

2009

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

3,563

 

$

5,410

 

Marketable securities

 

138

 

118

 

Receivables:

 

 

 

 

 

Trade, net

 

49,644

 

45,434

 

Other

 

9,701

 

4,382

 

Prepaid expenses and other

 

10,878

 

12,328

 

Deferred income taxes

 

5,361

 

5,172

 

Total current assets

 

79,285

 

72,844

 

Property and equipment:

 

 

 

 

 

Revenue equipment, buildings and land, office equipment and other

 

494,412

 

491,127

 

Accumulated depreciation

 

(136,443

)

(149,670

)

Net property and equipment

 

357,969

 

341,457

 

Other assets

 

526

 

537

 

TOTAL ASSETS

 

$

437,780

 

$

414,838

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Checks issued in excess of cash balances

 

$

693

 

$

1,671

 

Accounts payable and accrued liabilities

 

36,066

 

31,896

 

Insurance and claims accruals

 

18,219

 

19,222

 

Current maturities of long-term debt

 

 

1,428

 

Total current liabilities

 

54,978

 

54,217

 

Long-term debt, less current maturities

 

13,521

 

71

 

Deferred income taxes

 

84,141

 

85,643

 

Total liabilities

 

152,640

 

139,931

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Marten Transport, Ltd. stockholders’ equity:

 

 

 

 

 

Preferred stock, $.01 par value per share; 2,000,000 shares authorized; no shares issued and outstanding

 

 

 

Common stock, $.01 par value per share; 48,000,000 shares authorized; 21,934,232 shares at June 30, 2010, and 21,885,073 shares at December 31, 2009, issued and outstanding

 

219

 

219

 

Additional paid-in capital

 

77,444

 

76,477

 

Retained earnings

 

205,530

 

196,480

 

Total Marten Transport, Ltd. stockholders’ equity

 

283,193

 

273,176

 

Noncontrolling interest

 

1,947

 

1,731

 

Total stockholders’ equity

 

285,140

 

274,907

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

437,780

 

$

414,838

 

 

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

 

1



 

MARTEN TRANSPORT, LTD.

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

Three Months

 

Six Months

 

 

 

Ended June 30,

 

Ended June 30,

 

(In thousands, except per share information)

 

2010

 

2009

 

2010

 

2009

 

 

 

 

 

 

 

 

 

 

 

OPERATING REVENUE

 

$

125,862

 

$

125,804

 

$

251,674

 

$

247,759

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES (INCOME):

 

 

 

 

 

 

 

 

 

Salaries, wages and benefits

 

31,984

 

35,759

 

64,386

 

71,861

 

Purchased transportation

 

26,346

 

25,933

 

54,105

 

48,685

 

Fuel and fuel taxes

 

28,167

 

24,272

 

55,760

 

46,138

 

Supplies and maintenance

 

8,597

 

9,558

 

17,607

 

19,376

 

Depreciation

 

12,612

 

13,386

 

25,649

 

26,819

 

Operating taxes and licenses

 

1,574

 

1,702

 

3,079

 

3,378

 

Insurance and claims

 

3,984

 

4,678

 

7,836

 

10,199

 

Communications and utilities

 

1,054

 

1,002

 

1,867

 

2,067

 

Gain on disposition of revenue equipment

 

(429

)

(528

)

(628

)

(999

)

Other

 

2,780

 

2,539

 

5,786

 

5,481

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

116,669

 

118,301

 

235,447

 

233,005

 

 

 

 

 

 

 

 

 

 

 

OPERATING INCOME

 

9,193

 

7,503

 

16,227

 

14,754

 

 

 

 

 

 

 

 

 

 

 

NET INTEREST EXPENSE (INCOME)

 

26

 

4

 

(80

)

35

 

 

 

 

 

 

 

 

 

 

 

INCOME BEFORE INCOME TAXES

 

9,167

 

7,499

 

16,307

 

14,719

 

Less: Income before income taxes attributable to noncontrolling interest

 

1

 

145

 

57

 

261

 

 

 

 

 

 

 

 

 

 

 

INCOME BEFORE INCOME TAXES ATTRIBUTABLE TO MARTEN TRANSPORT, LTD.

 

9,166

 

7,354

 

16,250

 

14,458

 

 

 

 

 

 

 

 

 

 

 

PROVISION FOR INCOME TAXES

 

4,008

 

2,877

 

7,200

 

5,928

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

$

5,158

 

$

4,477

 

$

9,050

 

$

8,530

 

 

 

 

 

 

 

 

 

 

 

BASIC EARNINGS PER COMMON SHARE

 

$

0.24

 

$

0.20

 

$

0.41

 

$

0.39

 

 

 

 

 

 

 

 

 

 

 

DILUTED EARNINGS PER COMMON SHARE

 

$

0.23

 

$

0.20

 

$

0.41

 

$

0.39

 

 

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

 

2



 

MARTEN TRANSPORT, LTD.

CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS EQUITY

(Unaudited)

 

 

 

Marten Transport, Ltd. Stockholders

 

 

 

Total

 

 

 

 

 

 

 

Additional

 

 

 

Non-

 

Stock-

 

 

 

Common Stock

 

Paid-In

 

Retained

 

controlling

 

holders’

 

(In thousands)

 

Shares

 

Amount

 

Capital

 

Earnings

 

Interest

 

Equity

 

Balance at December 31, 2008

 

21,830

 

$

218

 

$

75,305

 

$

180,213

 

$

1,715

 

$

257,451

 

Net income

 

 

 

 

8,530

 

 

8,530

 

Issuance of common stock from share-based payment arrangement exercises

 

55

 

1

 

331

 

 

 

332

 

Tax benefits from share-based payment arrangement exercises

 

 

 

254

 

 

 

254

 

Share-based payment arrangement compensation expense

 

 

 

346

 

 

 

346

 

Income before income taxes attributable to noncontrolling interest

 

 

 

 

 

261

 

261

 

Noncontrolling interest distributions

 

 

 

 

 

(84

)

(84

)

Balance at June 30, 2009

 

21,885

 

219

 

76,236

 

188,743

 

1,892

 

267,090

 

Net income

 

 

 

 

7,737

 

 

7,737

 

Tax benefits from share-based payment arrangement exercises

 

 

 

1

 

 

 

1

 

Share-based payment arrangement compensation expense

 

 

 

240

 

 

 

240

 

Income before income taxes attributable to noncontrolling interest

 

 

 

 

 

323

 

323

 

Noncontrolling interest distributions

 

 

 

 

 

(484

)

(484

)

Balance at December 31, 2009

 

21,885

 

219

 

76,477

 

196,480

 

1,731

 

274,907

 

Net income

 

 

 

 

9,050

 

 

9,050

 

Issuance of common stock from share-based payment arrangement exercises

 

49

 

 

234

 

 

 

234

 

Tax benefits from share-based payment arrangement exercises

 

 

 

273

 

 

 

273

 

Share-based payment arrangement compensation expense

 

 

 

460

 

 

 

460

 

Income before income taxes attributable to noncontrolling interest

 

 

 

 

 

57

 

57

 

Noncontrolling interest distributions and other, net

 

 

 

 

 

159

 

159

 

Balance at June 30, 2010

 

21,934

 

$

219

 

$

77,444

 

$

205,530

 

$

1,947

 

$

285,140

 

 

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

 

3



 

MARTEN TRANSPORT, LTD.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Six Months

 

 

 

Ended June 30,

 

(In thousands)

 

2010

 

2009

 

CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:

 

 

 

 

 

Operations:

 

 

 

 

 

Net income

 

$

9,050

 

$

8,530

 

Adjustments to reconcile net income to net cash flows from operating activities:

 

 

 

 

 

Depreciation

 

25,649

 

26,819

 

Gain on disposition of revenue equipment

 

(628

)

(999

)

Deferred income taxes

 

(1,691

)

3,779

 

Tax benefits from share-based payment arrangement exercises

 

273

 

254

 

Excess tax benefits from share-based payment arrangement exercises

 

(235

)

(222

)

Share-based payment arrangement compensation expense

 

460

 

346

 

Income before income taxes attributable to noncontrolling interest

 

57

 

261

 

Changes in other current operating items:

 

 

 

 

 

Receivables

 

(9,529

)

855

 

Prepaid expenses and other

 

1,450

 

2,457

 

Accounts payable and accrued liabilities

 

115

 

(123

)

Insurance and claims accruals

 

(1,003

)

655

 

Net cash provided by operating activities

 

23,968

 

42,612

 

 

 

 

 

 

 

CASH FLOWS USED FOR INVESTING ACTIVITIES:

 

 

 

 

 

Revenue equipment additions

 

(55,470

)

(38,659

)

Proceeds from revenue equipment dispositions

 

24,052

 

12,829

 

Buildings and land, office equipment and other additions

 

(6,146

)

(3,681

)

Proceeds from buildings and land, office equipment and other dispositions

 

86

 

143

 

Net change in other assets

 

11

 

175

 

Purchases of marketable securities

 

(20

)

(70,012

)

Sales of marketable securities

 

 

63,906

 

Net cash used for investing activities

 

(37,487

)

(35,299

)

 

 

 

 

 

 

CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES:

 

 

 

 

 

Borrowings under credit facility and long-term debt

 

69,650

 

 

Repayment of borrowings under credit facility and long-term debt

 

(57,628

)

(1,429

)

Issuance of common stock from share-based payment arrangement exercises

 

234

 

332

 

Excess tax benefits from share-based payment arrangement exercises

 

235

 

222

 

Change in net checks issued in excess of cash balances

 

(978

)

(765

)

Noncontrolling interest distributions and other, net

 

159

 

(84

)

Net cash provided by (used for) financing activities

 

11,672

 

(1,724

)

 

 

 

 

 

 

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

(1,847

)

5,589

 

CASH AND CASH EQUIVALENTS:

 

 

 

 

 

Beginning of period

 

5,410

 

2,395

 

End of period

 

$

3,563

 

$

7,984

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

 

 

 

Cash paid for:

 

 

 

 

 

Interest

 

$

115

 

$

129

 

Income taxes

 

$

9,736

 

$

3,619

 

Non-cash investing activities:

 

 

 

 

 

Change in revenue equipment not yet paid for

 

$

4,055

 

$

(178

)

 

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

 

4


 

 


 

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2010

(Unaudited)

 

(1)   Basis of Presentation

 

The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial statements, and therefore do not include all information and disclosures required by U.S. 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 consolidated financial condition, results of operations and cash flows for the interim periods presented. The results of operations for any interim period do not necessarily indicate the results for the full year. The unaudited interim consolidated financial statements should be read with reference to the consolidated financial statements and notes to consolidated financial statements in our 2009 Annual Report on Form 10-K.

 

The accompanying unaudited consolidated condensed financial statements include the accounts of Marten Transport, Ltd., its subsidiaries and its 45% owned affiliate, MW Logistics, LLC (MWL).  MWL is a third-party provider of logistics services to the transportation industry.  We have applied the provisions of Financial Accounting Standards Board Accounting Standards Codification, or FASB ASC, 810, Consolidation to our investment in MWL and have determined that Marten is the primary beneficiary based on MWL’s equity structure.  All material intercompany accounts and transactions have been eliminated in consolidation.  MWL has elected to be classified as a partnership for federal income tax purposes.  Consequently, federal income taxes are not payable by MWL.

 

(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)

 

2010

 

2009

 

2010

 

2009

 

Numerator:

 

 

 

 

 

 

 

 

 

Net income

 

$

5,158

 

$

4,477

 

$

9,050

 

$

8,530

 

Denominator:

 

 

 

 

 

 

 

 

 

Basic earnings per common share - weighted-average shares

 

21,929

 

21,871

 

21,913

 

21,855

 

Effect of dilutive stock options

 

104

 

122

 

99

 

123

 

Diluted earnings per common share - weighted-average shares and assumed conversions

 

22,033

 

21,993

 

22,012

 

21,978

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share

 

$

0.24

 

$

0.20

 

$

0.41

 

$

0.39

 

Diluted earnings per common share

 

$

0.23

 

$

0.20

 

$

0.41

 

$

0.39

 

 

5



 

Options totaling 334,000 and 350,500 shares for the three-month and six-month periods ended June 30, 2010, respectively, and 278,600 and 308,100 shares for the three-month and six-month periods ended June 30, 2009, respectively, were outstanding but were not included in the calculation of diluted earnings per share, primarily 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.  Additionally, performance-based option awards totaling 107,000 shares for each of the 2010 and 2009 periods were also not included in the calculation of diluted earnings per share because the performance condition was not considered probable of achievement.

 

(3)   Related Party Transactions

 

We purchase fuel and obtain tires and related services from Bauer Built, Inc., or BBI. Jerry M. Bauer, one of our directors, is the president and a stockholder of BBI.  We paid BBI $312,000 in the first six months of 2010 and $382,000 in the first six months of 2009 for fuel and tire services. In addition, we paid $952,000 in the first six months of 2010 and $703,000 in the first six months of 2009 to tire manufacturers for tires that we purchased from the tire manufacturers but were provided by BBI. BBI received commissions from the tire manufacturers related to these purchases.

 

We paid Durand Builders Service, Inc. $832,000 in the first six months of 2009 for various construction projects.  Larry B. Hagness, one of our directors, is the president and owner of Durand Builders Service, Inc.

 

(4)   Income Taxes

 

Our effective income tax rate increased to 44.3% for the first six months of 2010 from 41.0% for the first six months of 2009, primarily because of the nondeductible effect of a per diem pay structure for our drivers which was more broadly implemented in the third quarter of 2009 and further increased in the first quarter of 2010.

 

Our reserves for unrecognized tax benefits were $180,000 as of June 30, 2010 and $158,000 as of December 31, 2009.  The $22,000 increase in the amount reserved in the first six months of 2010 relates to current period tax positions.  The amount reserved as of December 31, 2009 was added in 2007 through 2009 relating to current period tax positions.  If recognized, $117,000 of the unrecognized tax benefits as of June 30, 2010 would impact our effective tax rate.  No potential interest or penalties related to unrecognized tax benefits were recognized in our financial statements as of June 30, 2010.  We do not expect the reserves for unrecognized tax benefits to change significantly within the next twelve months.

 

The federal statute of limitations remains open for 2006 and forward.  We file tax returns in numerous state jurisdictions with varying statutes of limitations.

 

(5)   Accounting for Share-based Payment Arrangement Compensation

 

We account for share-based payment arrangements in accordance with FASB ASC 718, Compensation — Stock Compensation.  During the six months ended June 30, 2010, there were no significant changes to the structure of our share-based payment arrangements.  Total pre-tax share-based compensation expense recorded in the first six months of 2010 was $460,000 and in the first six months of 2009 was $346,000.  See Note 8 to our consolidated financial statements in our 2009 Annual Report on Form 10-K for a detailed description of stock-based awards under our 2005 Stock Incentive Plan and 1995 Stock Incentive Plan.

 

(6)   Fair Value of Financial Instruments

 

The carrying amounts of accounts receivable, direct financing leases receivable and accounts payable approximate fair value because of the short maturity of these instruments.  The carrying value of our long-term debt approximates fair value as the credit facility bears interest based upon a variable interest rate.

 

6



 

(7)   Commitments and Contingencies

 

We are committed to: (a) purchase $26.0 million of new revenue equipment through 2011; (b) building construction expenditures of $1.2 million in 2010; and (c) operating lease obligation expenditures totaling $680,000 through 2013.

 

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.

 

(8)   Business Segments

 

Our presentation includes two reporting segments — Truckload and Logistics.  The primary source of our operating revenue is truckload revenue, which we generate by transporting freight for our customers and report within our Truckload segment.  Generally, we are paid by the mile for our services.  We also derive truckload revenue from fuel surcharges, loading and unloading activities, equipment detention and other ancillary services.

 

Our operating revenue also includes revenue reported within our Logistics segment, which consists of revenue from our internal brokerage and intermodal operations, both launched in 2005, and through our 45% interest in MWL, a third-party provider of logistics services to the transportation industry.  Brokerage services involve arranging for another company to transport freight for our customers while we retain the billing, collection and customer management responsibilities.  Intermodal services involve the transport of our trailers on railroad flatcars for a portion of a trip, with the balance of the trip using our tractors or, to a lesser extent, contracted carriers.

 

The following table sets forth for the periods indicated our operating revenue, operating income and operating ratio by segment.  We do not prepare separate balance sheets by segment and, as a result, assets are not separately identifiable by segment.

 

 

 

Three Months

 

Six Months

 

 

 

Ended June 30,

 

Ended June 30,

 

(Dollars in thousands)

 

2010

 

2009

 

2010

 

2009

 

Operating revenue:

 

 

 

 

 

 

 

 

 

Truckload revenue, net of fuel surcharge revenue

 

$

80,566

 

$

87,969

 

$

161,486

 

$

176,504

 

Truckload fuel surcharge revenue

 

16,825

 

11,286

 

32,131

 

21,123

 

Total Truckload revenue

 

97,391

 

99,255

 

193,617

 

197,627

 

 

 

 

 

 

 

 

 

 

 

Logistics revenue, net of intermodal fuel surcharge revenue(1)

 

26,337

 

25,225

 

53,907

 

47,875

 

Intermodal fuel surcharge revenue

 

2,134

 

1,324

 

4,150

 

2,257

 

Total Logistics revenue

 

28,471

 

26,549

 

58,057

 

50,132

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total operating revenue

 

$

125,862

 

$

125,804

 

$

251,674

 

$

247,759

 

 

 

 

 

 

 

 

 

 

 

Operating income:

 

 

 

 

 

 

 

 

 

Truckload

 

$

8,208

 

$

5,697

 

$

13,433

 

$

11,530

 

Logistics

 

985

 

1,806

 

2,794

 

3,224

 

Total operating income

 

$

9,193

 

$

7,503

 

$

16,227

 

$

14,754

 

 

 

 

 

 

 

 

 

 

 

Operating ratio(2):

 

 

 

 

 

 

 

 

 

Truckload

 

91.6

%

94.3

%

93.1

%

94.2

%

Logistics

 

96.5

 

93.2

 

95.2

 

93.6

 

Consolidated operating ratio

 

92.7

%

94.0

%

93.6

%

94.0

%

 

7



 


(1)          Logistics revenue is net of $1.9 million and $4.1 million of inter-segment revenue in the three-month and six-month periods ended June 30, 2010, respectively, for loads transported by our tractors and arranged by MWL that have been eliminated in consolidation.  Inter-segment revenue was $2.5 million and $5.8 million for the three-month and six-month periods ended June 30, 2009.

 

(2)          Represents operating expenses as a percentage of operating revenue.

 

(9)   Use of Estimates

 

We must make estimates and assumptions to prepare the consolidated condensed financial statements in conformity with U.S. 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 consolidated condensed financial statements.  These estimates are primarily related to insurance and claims accruals and depreciation.  Ultimate results could differ from these estimates.

 

(10) Reclassifications

 

The noncontrolling interest distributions and other, net balance of $84,000 for the first six months of 2009 in our consolidated condensed statements of cash flows and the net interest expense balance of $35,000 for the first six months of 2009 in our consolidated condensed statements of operations have been reclassified to be consistent with the current presentation.  These reclassifications do not have a material effect on our consolidated condensed financial statements.

 

8



 

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

 

The following discussion and analysis of our financial condition and results of operations should be read together with the selected consolidated financial data and our consolidated condensed financial statements and the related notes appearing elsewhere in this report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those included in our Form 10-K, Part 1, Item 1A for the year ended December 31, 2009.  We do not assume, and specifically disclaim, any obligation to update any forward-looking statement contained in this report.

 

Overview

 

The primary source of our operating revenue is truckload revenue, which we generate by transporting long-haul and regional freight for our customers and report within our Truckload segment.  Generally, we are paid by the mile for our services.  We also derive truckload revenue from fuel surcharges, loading and unloading activities, equipment detention and other ancillary services.  The main factors that affect our truckload revenue are the rate per mile we receive from our customers, the percentage of miles for which we are compensated, the number of miles we generate with our equipment and changes in fuel prices.  We monitor our revenue production primarily through average truckload revenue, net of fuel surcharges, per tractor per week.  We also analyze our average truckload revenue, net of fuel surcharges, per total mile, non-revenue miles percentage, the miles per tractor we generate, our accessorial revenue and our other sources of operating revenue.

 

Our operating revenue also includes revenue reported within our Logistics segment, which consists of revenue from our internal brokerage and intermodal operations, both launched in 2005, and through our 45% interest in MWL, a third-party provider of logistics services to the transportation industry.  Brokerage services involve arranging for another company to transport freight for our customers while we retain the billing, collection and customer management responsibilities.  Intermodal services involve the transport of our trailers on railroad flatcars for a portion of a trip, with the balance of the trip using our tractors or, to a lesser extent, contracted carriers.  The main factors that affect our logistics revenue are the rate per mile and other charges we receive from our customers.

 

In addition to the factors discussed above, our operating revenue is also affected by, among other things, the United States economy, inventory levels, the level of truck and rail capacity in the transportation market and specific customer demand.

 

Our operating revenue increased $3.9 million, or 1.6%, in the first six months of 2010.  This increase was primarily due to fuel surcharge revenue increasing by $12.9 million, or 55.2%, caused by significantly higher fuel prices in the first six months of 2010.  Our operating revenue, net of fuel surcharges, decreased $9.0 million, or 4.0%, compared with the first six months of 2009.  Truckload segment revenue, net of fuel surcharges, decreased 8.5% primarily due to a decrease in our average fleet size of 225 tractors, or 9.4%, partially offset by an increase in our average truckload revenue, net of fuel surcharges, per tractor per week of 1.0% in the first six months of 2010.  The changes in our operating statistics are consistent with the continued development and growth of our regional temperature-controlled operations, which we have increased to 40.4% of our truckload fleet as of June 30, 2010 from 20.4% as of June 30, 2009.  By focusing on shorter lengths of haul in certain defined areas, we are addressing customer trends toward regional distribution to lower their transportation expense, furthering our own objectives of reducing fuel consumption per load, and matching some of our drivers’ desires to stay closer to home.  The concentration of a portion of our fleet in these markets is evident in a 16.9% reduction from the first six months of 2009 in average length of haul to 673 miles.  Logistics segment revenue, net of intermodal fuel surcharges, increased 12.6% compared with the first six months of 2009.  The increase in logistics revenue primarily resulted from continued volume growth in each of our internal brokerage and intermodal services and in the logistics services provided by MWL.  Logistics revenue represented 23.1% of our operating revenue in the first six months of 2010 compared to 20.2% in the first six months of 2009.

 

Our profitability on the expense side is impacted by variable costs of transporting freight for our customers, fixed costs, and expenses containing both fixed and variable components.  The variable costs include fuel expense, driver-related expenses, such as wages, benefits, training, and recruitment, and independent contractor costs, which are recorded under purchased transportation.  Expenses that have both fixed and variable components include maintenance

 

9



 

and tire expense and our total cost of insurance and claims.  These expenses generally vary with the miles we travel, but also have a controllable component based on safety, fleet age, efficiency and other factors.  Our main fixed costs relate to the acquisition and financing of long-term assets, such as revenue equipment and operating terminals.  We expect our annual cost of tractor and trailer ownership will increase in future periods as a result of higher prices of new equipment.  Although certain factors affecting our expenses are beyond our control, we monitor them closely and attempt to anticipate changes in these factors in managing our business.  For example, fuel prices fluctuated dramatically at various times during the last several years, with the D.O.E. national average cost of fuel increasing to $2.94 per gallon in the first six months of 2010 from $2.26 per gallon in the first six months of 2009.  We manage our exposure to changes in fuel prices primarily through fuel surcharge programs with our customers, as well as through volume fuel purchasing arrangements with national fuel centers and bulk purchases of fuel at our terminals.  To help further reduce fuel expense, we installed auxiliary power units in our tractors to provide climate control and electrical power for our drivers without idling the tractor engine.  For our Logistics segment, our profitability on the expense side is impacted by the percentage of logistics revenue we pay to providers for the transportation services we arrange.

 

Our operating expenses as a percentage of operating revenue, or “operating ratio,” was 93.6% in the first six months of 2010 compared with 94.0% in the first six months of 2009.  Operating expenses as a percentage of operating revenue, with both amounts net of fuel surcharge revenue, improved to 92.5% for the 2010 six-month period from 93.4% for the 2009 six-month period.  Our net income increased to $9.1 million in the first six months of 2010 from $8.5 million in the first six months of 2009.  The increased profitability in 2010 was primarily due to the improvement in our overall cost structure and the increase in revenue per tractor per week in our Truckload segment.

 

Our business requires substantial, ongoing capital investments, particularly for new tractors and trailers. At June 30, 2010, we had approximately $3.0 million of cash and cash equivalents and marketable securities, net of checks issued in excess of cash balances, $13.5 million of long-term debt, including current maturities, and $285.1 million in stockholders’ equity.  In the first six months of 2010, net cash flows provided by operating and financing activities were primarily used to purchase new revenue equipment, net of proceeds from dispositions, in the amount of $31.4 million.  We estimate that capital expenditures, net of proceeds from dispositions, will be approximately $40 million for the remainder of 2010, which we will adjust throughout the year as we size our fleet to existing customer demand.  We believe our sources of liquidity are adequate to meet our current and anticipated needs for at least the next twelve months.  Based upon anticipated cash flows, existing cash and cash equivalents balances, current borrowing availability and other sources of financing we expect to be available to us, we do not anticipate any significant liquidity constraints in the foreseeable future.

 

We have been transforming our business strategy toward a more-diversified set of transportation service solutions, primarily regional temperature-controlled operations along with intermodal and brokerage services, to align our growth with customer trends.  We believe that we are well-positioned regardless of the economic environment with this transformation of our services combined with our competitive position, cost control emphasis, modern fleet and strong balance sheet.

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes discussions of operating, truckload and logistics revenue, and operating expenses as a percentage of operating revenue, each net of fuel surcharge revenue, and net fuel expense (fuel and fuel taxes net of fuel surcharge revenue and surcharges passed through to independent contractors, outside drayage carriers and railroads).  We provide these additional disclosures because management believes these measures provide a more consistent basis for comparing results of operations from period to period.  These financial measures in this report have not been determined in accordance with U.S. generally accepted accounting principles (GAAP).  Pursuant to Item 10(e) of Regulation S-K, we have included the amounts necessary to reconcile these non-GAAP financial measures to the most directly comparable GAAP financial measures, operating revenue, operating expenses divided by operating revenue, and fuel and fuel taxes.

 

10



 

Results of Operations

 

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

 

 

 

Three Months
Ended June 30,

 

Six Months
Ended June 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

 

 

 

 

 

 

 

 

 

 

Truckload Segment:

 

 

 

 

 

 

 

 

 

Total Truckload revenue (in thousands)

 

$

97,391

 

$

99,255

 

$

193,617

 

$

197,627

 

Average truckload revenue, net of fuel surcharges, per tractor per week(1)

 

$

2,971

 

$

2,838

 

$

2,891

 

$

2,863

 

Average tractors (1)

 

2,086

 

2,384

 

2,160

 

2,385

 

Average miles per trip

 

657

 

796

 

673

 

810

 

Total miles — company-employed drivers (in thousands)

 

47,763

 

52,557

 

96,707

 

104,669

 

Total miles — independent contractors (in thousands)

 

3,847

 

6,045

 

8,347

 

11,988

 

 

 

 

 

 

 

 

 

 

 

Logistics Segment:

 

 

 

 

 

 

 

 

 

Total Logistics revenue (in thousands):

 

$

28,471

 

$

26,549

 

$

58,057

 

$

50,132

 

Brokerage:

 

 

 

 

 

 

 

 

 

Marten Transport

 

 

 

 

 

 

 

 

 

Revenue (in thousands)

 

$

9,271

 

$

8,072

 

$

19,664

 

$

15,321

 

Loads

 

5,193

 

4,298

 

10,795

 

8,152

 

MWL

 

 

 

 

 

 

 

 

 

Revenue (in thousands)

 

$

7,968

 

$

7,787

 

$

16,136

 

$

14,992

 

Loads

 

4,690

 

5,067

 

8,969

 

8,819

 

Intermodal:

 

 

 

 

 

 

 

 

 

Revenue (in thousands)

 

$

11,232

 

$

10,690

 

$

22,257

 

$

19,819

 

Loads

 

4,746

 

4,656

 

9,423

 

8,309

 

Average tractors

 

65

 

64

 

63

 

59

 

 


(1)

 

Includes tractors driven by both company-employed drivers and independent contractors. Independent contractors provided 117 and 221 tractors as of June 30, 2010 and 2009, respectively.

 

11



 

Comparison of Three Months Ended June 30, 2010 to Three Months Ended June 30, 2009

 

The following table sets forth for the periods indicated our operating revenue, operating income and operating ratio by segment, along with the change for each component:

 

 

 

 

 

 

 

Dollar

 

Percentage

 

 

 

 

 

 

 

Change

 

Change

 

 

 

Three Months

 

Three Months

 

Three Months

 

 

 

Ended

 

Ended

 

Ended

 

 

 

June 30,

 

June 30,

 

June 30,

 

(Dollars in thousands)

 

2010

 

2009

 

2010 vs. 2009

 

2010 vs. 2009

 

Operating revenue:

 

 

 

 

 

 

 

 

 

Truckload revenue, net of fuel surcharge revenue

 

$

80,566

 

$

87,969

 

$

(7,403

)

(8.4

)%

Truckload fuel surcharge revenue

 

16,825

 

11,286

 

5,539

 

49.1

 

Total Truckload revenue

 

97,391

 

99,255

 

(1,864

)

(1.9

)

 

 

 

 

 

 

 

 

 

 

Logistics revenue, net of intermodal fuel surcharge revenue(1)

 

26,337

 

25,225

 

1,112

 

4.4

 

Intermodal fuel surcharge revenue

 

2,134

 

1,324

 

810

 

61.2

 

Total Logistics revenue

 

28,471

 

26,549

 

1,922

 

7.2

 

 

 

 

 

 

 

 

 

 

 

Total operating revenue

 

$

125,862

 

$

125,804

 

$

58

 

%

 

 

 

 

 

 

 

 

 

 

Operating income:

 

 

 

 

 

 

 

 

 

Truckload

 

$

8,208

 

$

5,697

 

$

2,511

 

44.1

%

Logistics

 

985

 

1,806

 

(821

)

(45.5

)

Total operating income

 

$

9,193

 

$

7,503

 

$

1,690

 

22.5

%

 

 

 

 

 

 

 

 

 

 

Operating ratio(2):

 

 

 

 

 

 

 

 

 

Truckload

 

91.6

%

94.3

%

 

 

(2.9

)%

Logistics

 

96.5

 

93.2

 

 

 

3.5

 

Consolidated operating ratio

 

92.7

%

94.0

%

 

 

(1.4

)%

 


(1)          Logistics revenue is net of $1.9 million and $2.5 million of inter-segment revenue in the 2010 and 2009 periods, respectively, for loads transported by our tractors and arranged by MWL that have been eliminated in consolidation.

 

(2)          Represents operating expenses as a percentage of operating revenue.

 

Our operating revenue increased $58,000 to $125.9 million in the 2010 period from $125.8 million in the 2009 period.  This increase was primarily due to fuel surcharge revenue increasing to $19.0 million in the 2010 period from $12.6 million in the 2009 period, caused by significantly higher fuel prices in the 2010 period.  Our operating revenue, net of fuel surcharges, decreased $6.3 million, or 5.6%, to $106.9 million in the 2010 period from $113.2 million in the 2009 period.  The decrease in operating revenue, net of fuel surcharges, was due to a decrease in truckload revenue, net of fuel surcharges, partially offset by growth in logistics revenue.

 

Truckload segment revenue decreased $1.9 million, or 1.9%, to $97.4 million in the 2010 period from $99.3 million in the 2009 period.  Truckload segment revenue, net of fuel surcharges, decreased 8.4% primarily due to a decrease in our average fleet size of 298 tractors, or 12.5%, partially offset by an increase in our average truckload revenue, net of fuel surcharges, per tractor per week of 4.7% in the 2010 period from the 2009 period.  The changes in our operating statistics are consistent with the continued growth of our regional temperature-controlled operations, which we have increased to 40.4% of our truckload fleet as of June 30, 2010 from 20.4% as of June 30, 2009.  By focusing on shorter lengths of haul in certain defined areas, we are addressing customer trends toward regional distribution to lower their transportation expense, furthering our

 

12



 

own objectives of reducing fuel consumption per load, and matching some of our drivers’ desires to stay closer to home.  The concentration of a portion of our fleet in these markets is evident in a 17.5% reduction from the 2009 period in average length of haul to 657 miles.  The improvement in our overall cost structure and the increase in revenue per tractor per week primarily caused the increase in profitability from the 2009 period.

 

Logistics segment revenue increased $1.9 million, or 7.2%, to $28.5 million in the 2010 period from $26.5 million in the 2009 period.  Logistics segment revenue, net of intermodal fuel surcharges, increased 4.4%.  The increase in logistics revenue primarily resulted from continued volume growth in each of our internal brokerage and intermodal services and in the logistics servicers provided by MWL.  The increase in the operating ratio for our Logistics segment in the 2010 period was primarily due to an increase as a percentage of logistics revenue in the payments made to carriers for our brokerage services due to overall carrier constraint.

 

The following table sets forth for the periods indicated the dollar and percentage increase or decrease of the items in our unaudited consolidated condensed statements of operations, and those items as a percentage of operating revenue:

 

 

 

Dollar

 

Percentage

 

Percentage of

 

 

 

Change

 

Change

 

Operating Revenue

 

 

 

Three Months

 

Three Months

 

Three Months

 

 

 

Ended

 

Ended

 

Ended

 

 

 

June 30,

 

June 30,

 

June 30,

 

(Dollars in thousands)

 

2010 vs. 2009

 

2010 vs. 2009

 

2010

 

2009

 

 

 

 

 

 

 

 

 

 

 

Operating revenue

 

$

58

 

%

100.0

%

100.0

%

Operating expenses (income):

 

 

 

 

 

 

 

 

 

Salaries, wages and benefits

 

(3,775

)

(10.6

)

25.4

 

28.4

 

Purchased transportation

 

413

 

1.6

 

20.9

 

20.6

 

Fuel and fuel taxes

 

3,895

 

16.0

 

22.4

 

19.3

 

Supplies and maintenance

 

(961

)

(10.1

)

6.8

 

7.6

 

Depreciation

 

(774

)

(5.8

)

10.0

 

10.6

 

Operating taxes and licenses

 

(128

)

(7.5

)

1.3

 

1.4

 

Insurance and claims

 

(694

)

(14.8

)

3.2

 

3.7

 

Communications and utilities

 

52

 

5.2

 

0.8

 

0.8

 

Gain on disposition of revenue equipment

 

99

 

18.8

 

(0.3

)

(0.4

)

Other

 

241

 

9.5

 

2.2

 

2.0

 

Total operating expenses

 

(1,632

)

(1.4

)

92.7

 

94.0

 

Operating income

 

1,690

 

22.5

 

7.3

 

6.0

 

Net interest expense (income)

 

22

 

550.0

 

 

 

Income before income taxes

 

1,668

 

22.2

 

7.3

 

6.0

 

Less: Income before income taxes attributable to noncontrolling interest

 

(144

)

(99.3

)

 

0.1

 

Income before income taxes attributable to Marten Transport, Ltd.

 

1,812

 

24.6

 

7.3

 

5.8

 

Provision for income taxes

 

1,131

 

39.3

 

3.2

 

2.3

 

Net income

 

$

681

 

15.2

%

4.1

%

3.6

%

 

13



 

Salaries, wages and benefits consist of compensation for our employees, including both driver and non-driver employees, employees’ health insurance, 401(k) plan contributions and other fringe benefits.  These expenses vary depending upon the ratio of company drivers to independent contractors, our efficiency, our experience with employees’ health insurance claims, changes in health care premiums and other factors. The decrease in salaries, wages and benefits resulted primarily from a 9.1% decrease in the total miles driven by company drivers coupled with a broader implementation of our per diem pay structure for our drivers in the third quarter of 2009 and the first quarter of 2010, along with a $484,000 decrease in our self-insured medical claims, which decreased our employees’ health insurance expense.

 

Purchased transportation consists of payments to independent contractor providers of revenue equipment and to carriers for transportation services we arrange in connection with brokerage and intermodal activities.  This category will vary depending upon the ratio of company drivers versus independent contractors, the amount of fuel surcharges passed through to independent contractors and the amount and rates, including fuel surcharges, we pay to third-party railroad and motor carriers.  Purchased transportation expense increased $413,000 in total, or 1.6%, in the 2010 period from the 2009 period.  Payments to carriers for transportation services we arranged in our brokerage and intermodal operations increased $2.2 million to $21.6 million in the 2010 period from $19.4 million in the 2009 period.  The portion of purchased transportation expense related to our independent contractors, including fuel surcharges, decreased $1.8 million in the 2010 period, primarily due to a decrease in the number of independent contractor-owned tractors in our fleet.  We expect that purchased transportation expense will increase as we continue to grow our Logistics segment.

 

Net fuel expense (fuel and fuel taxes net of fuel surcharge revenue and surcharges passed through to independent contractors, outside drayage carriers and railroads) decreased $1.9 million, or 14.1%, to $11.5 million in the 2010 period from $13.4 million in the 2009 period.  Fuel surcharges passed through to independent contractors, outside drayage carriers and railroads were $2.3 million in the 2010 period and $1.8 million in the 2009 period.  We have worked diligently to control fuel usage and costs by improving our volume purchasing arrangements and optimizing our drivers’ fuel purchases with national fuel centers, focusing on shorter lengths of haul, installing and tightly managing the use of auxiliary power units in our tractors to minimize engine idling and improving fuel usage in our trailers’ refrigeration units.  Auxiliary power units, which we have installed in our company-owned tractors, provide climate control and electrical power for our drivers without idling the tractor engine.  The decrease in net fuel expense was primarily due to a 9.1% decrease in the total miles driven by our company-owned fleet and to the cost control measures stated above, which were partially offset by a significant increase in the D.O.E. national average cost of fuel to $3.03 per gallon in the 2010 period from $2.34 per gallon in the 2009 period.  Net fuel expense represented 12.9% of truckload and intermodal revenue, net of fuel surcharges, in the 2010 period, compared with 13.8% in the 2009 period.

 

Supplies and maintenance consist of repairs, maintenance, tires, parts, oil and engine fluids, along with load-specific expenses including loading/unloading, tolls, pallets and trailer hostling.  The decrease in supplies and maintenance in the 2010 period primarily resulted from a decrease in outside vendor maintenance on our revenue equipment which we were able to achieve by increasing the capacity of our regional maintenance facilities.  Our maintenance practices were consistent with the 2009 period.

 

Insurance and claims consist of the costs of insurance premiums and the accruals we make for claims within our self-insured retention amounts, primarily for personal injury, property damage, physical damage to our equipment, cargo claims and workers’ compensation claims.  These expenses will vary primarily based upon the frequency and severity of our accident experience, our self-insured retention levels and the market for insurance.  The $694,000 decrease in insurance and claims in the 2010 period was primarily due to a decrease in the cost of self-insured auto liability and workers’ compensation accident claims.  Our significant self-insured retention exposes us to the possibility of significant fluctuations in claims expense between periods depending on the frequency, severity and timing of claims and to adverse financial results if we incur large or numerous losses.

 

Gain on disposition of revenue equipment decreased to $429,000 in the 2010 period from $528,000 in the 2009 period as a result of a decrease in the market value for used revenue equipment, which was partially offset by an increase in the number of tractors and trailers sold.  Future gains or losses on disposition of

 

14



 

revenue equipment will be impacted by the market for used revenue equipment, which is beyond our control.  We do not expect our gain on disposition to improve in the near future as we believe that there are few buyers with adequate financing in comparison with available inventory, and the expectation of additional trucking company failures is likely to keep used truck inventories high.

 

As a result of the foregoing factors, our operating expenses as a percentage of operating revenue, or “operating ratio,” was 92.7% in the 2010 period compared with 94.0% in the 2009 period.  The operating ratio for our Truckload segment improved to 91.6% from 94.3% in the 2009 period and the operating ratio for our Logistics segment increased to 96.5% from 93.2% in the 2009 period.  Operating expenses as a percentage of operating revenue, with both amounts net of fuel surcharge revenue, improved to 91.4% for the 2010 period from 93.4% for the 2009 period.

 

Our effective income tax rate increased to 43.7% in the 2010 period from 39.1% in the 2009 period, primarily because of the nondeductible effect of a per diem pay structure for our drivers which was more broadly implemented in the third quarter of 2009 and further increased in the first quarter of 2010.

 

As a result of the factors described above, net income increased to $5.2 million in the 2010 period from $4.5 million in the 2009 period.  Net earnings increased to $0.23 per diluted share in the 2010 period from $0.20 per diluted share in the 2009 period.

 

15


 


 

Comparison of Six Months Ended June 30, 2010 to Six Months Ended June 30, 2009

 

The following table sets forth for the periods indicated our operating revenue, operating income and operating ratio by segment, along with the change for each component:

 

 

 

 

 

 

 

Dollar

 

Percentage

 

 

 

 

 

 

 

 

Change

 

Change

 

 

 

 

Six Months

 

Six Months

 

Six Months

 

 

 

 

 

Ended

 

Ended

 

Ended

 

 

 

June 30,

 

June 30,

 

June 30,

 

 

(Dollars in thousands)

 

2010

 

2009

 

2010 vs. 2009

 

2010 vs. 2009

 

 

Operating revenue:

 

 

 

 

 

 

 

 

 

 

Truckload revenue, net of fuel surcharge revenue

 

$

161,486

 

$

176,504

 

$

(15,018

)

(8.5

)%

 

Truckload fuel surcharge revenue

 

32,131

 

21,123

 

11,008

 

52.1

 

 

Total Truckload revenue

 

193,617

 

197,627

 

(4,010

)

(2.0

)

 

 

 

 

 

 

 

 

 

 

 

 

Logistics revenue, net of intermodal fuel surcharge revenue(1)

 

53,907

 

47,875

 

6,032

 

12.6

 

 

Intermodal fuel surcharge revenue

 

4,150

 

2,257

 

1,893

 

83.9

 

 

Total Logistics revenue

 

58,057

 

50,132

 

7,925

 

15.8

 

 

 

 

 

 

 

 

 

 

 

 

 

Total operating revenue

 

$

251,674

 

$

247,759

 

$

3,915

 

1.6

%

 

 

 

 

 

 

 

 

 

 

 

 

Operating income:

 

 

 

 

 

 

 

 

 

 

Truckload

 

$

13,433

 

$

11,530

 

$

1,903

 

16.5

%

 

Logistics

 

2,794

 

3,224

 

(430

)

(13.3

)

 

Total operating income

 

$

16,227

 

$

14,754

 

$

1,473

 

10.0

%

 

 

 

 

 

 

 

 

 

 

 

 

Operating ratio(2):

 

 

 

 

 

 

 

 

 

 

Truckload

 

93.1

%

94.2

%

 

 

(1.2

)%

 

Logistics

 

95.2

 

93.6

 

 

 

1.7

 

 

Consolidated operating ratio

 

93.6

%

94.0

%

 

 

(0.4

)%

 

 


(1)          Logistics revenue is net of $4.1 million and $5.8 million of inter-segment revenue in the 2010 and 2009 periods, respectively, for loads transported by our tractors and arranged by MWL that have been eliminated in consolidation.

 

(2)          Represents operating expenses as a percentage of operating revenue.

 

Our operating revenue increased $3.9 million, or 1.6%, to $251.7 million in the 2010 period from $247.8 million in the 2009 period.  This increase was primarily due to fuel surcharge revenue increasing to $36.3 million in the 2010 period from $23.4 million in the 2009 period, caused by significantly higher fuel prices in the 2010 period.  Our operating revenue, net of fuel surcharges, decreased $9.0 million, or 4.0%, to $215.4 million in the 2010 period from $224.4 million in the 2009 period.  The decrease in operating revenue, net of fuel surcharges, was due to a decrease in truckload revenue, net of fuel surcharges, partially offset by growth in logistics revenue.

 

Truckload segment revenue decreased $4.0 million, or 2.0%, to $193.6 million in the 2010 period from $197.6 million in the 2009 period.  Truckload segment revenue, net of fuel surcharges, decreased 8.5% primarily due to a decrease in our average fleet size of 225 tractors, or 9.4%, partially offset by an increase in our average truckload revenue, net of fuel surcharges, per tractor per week of 1.0% in the 2010 period from the 2009 period.  The changes in our operating statistics are consistent with the continued growth of our regional temperature-controlled operations, which we have increased to 40.4% of our truckload fleet as of June 30, 2010 from 20.4% as of June 30, 2009.  By focusing on shorter lengths of haul in certain defined areas, we are addressing customer trends toward regional distribution to lower their transportation expense, furthering our

 

16



 

own objectives of reducing fuel consumption per load, and matching some of our drivers’ desires to stay closer to home.  The concentration of a portion of our fleet in these markets is evident in a 16.9% reduction from the 2009 period in average length of haul to 673 miles.  The improvement in our overall cost structure and the increase in revenue per tractor per week primarily caused the increase in profitability from the 2009 period.

 

Logistics segment revenue increased $7.9 million, or 15.8%, to $58.1 million in the 2010 period from $50.1 million in the 2009 period.  Logistics segment revenue, net of intermodal fuel surcharges, increased 12.6%.  The increase in logistics revenue primarily resulted from continued volume growth in each of our internal brokerage and intermodal services and in the logistics services provided by MWL.  The increase in the operating ratio for our Logistics segment in the 2010 period was primarily due to an increase as a percentage of logistics revenue in the payments made to carriers for our brokerage services due to overall carrier constraint.

 

The following table sets forth for the periods indicated the dollar and percentage increase or decrease of the items in our unaudited consolidated condensed statements of operations, and those items as a percentage of operating revenue:

 

 

 

Dollar

 

Percentage

 

Percentage of

 

 

 

Change

 

Change

 

Operating Revenue

 

 

 

Six Months

 

Six Months

 

Six Months

 

 

 

Ended

 

Ended

 

Ended

 

 

 

June 30,

 

June 30,

 

June 30,

 

(Dollars in thousands)

 

2010 vs. 2009

 

2010 vs. 2009

 

2010

 

2009

 

 

 

 

 

 

 

 

 

 

 

 

Operating revenue

 

$

3,915

 

1.6

%

100.0

%

100.0

%

Operating expenses (income):

 

 

 

 

 

 

 

 

 

Salaries, wages and benefits

 

(7,475

)

(10.4

)

25.6

 

29.0

 

Purchased transportation

 

5,420

 

11.1

 

21.5

 

19.7

 

Fuel and fuel taxes

 

9,622

 

20.9

 

22.2

 

18.6

 

Supplies and maintenance

 

(1,769

)

(9.1

)

7.0

 

7.8

 

Depreciation

 

(1,170

)

(4.4

)

10.2

 

10.8

 

Operating taxes and licenses

 

(299

)

(8.9

)

1.2

 

1.4

 

Insurance and claims

 

(2,363

)

(23.2

)

3.1

 

4.1

 

Communications and utilities

 

(200

)

(9.7

)

0.7

 

0.8

 

Gain on disposition of revenue equipment

 

371

 

37.1

 

(0.2

)

(0.4

)

Other

 

305

 

5.6

 

2.3

 

2.2

 

Total operating expenses

 

2,442

 

1.0

 

93.6

 

94.0

 

Operating income

 

1,473

 

10.0

 

6.4

 

6.0

 

Net interest expense (income)

 

(115

)

(328.6

)

 

 

Income before income taxes

 

1,588

 

10.8

 

6.5

 

5.9

 

Less: Income before income taxes attributable to noncontrolling interest

 

(204

)

(78.2

)

 

0.1

 

Income before income taxes attributable to Marten Transport, Ltd.

 

1,792

 

12.4

 

6.5

 

5.8

 

Provision for income taxes

 

1,272

 

21.5

 

2.9

 

2.4

 

Net income

 

$

520

 

6.1

%

3.6

%

3.4

%

 

17



 

The decrease in salaries, wages and benefits resulted primarily from a 7.6% decrease in the total miles driven by company drivers coupled with a broader implementation of our per diem pay structure for our drivers in the third quarter of 2009 and the first quarter of 2010, along with a $394,000 decrease in bonus compensation expensed for our non-driver employees and a $355,000 decrease in our self-insured medical claims, which decreased our employees’ health insurance expense.

 

Purchased transportation expense increased $5.4 million in total, or 11.1%, in the 2010 period from the 2009 period.  Payments to carriers for transportation services we arranged in our brokerage and intermodal operations increased $7.7 million to $43.9 million in the 2010 period from $36.3 million in the 2009 period.  The portion of purchased transportation expense related to our independent contractors, including fuel surcharges, decreased $2.2 million in the 2010 period, primarily due to a decrease in the number of independent contractor-owned tractors in our fleet.

 

Net fuel expense (fuel and fuel taxes net of fuel surcharge revenue and surcharges passed through to independent contractors, outside drayage carriers and railroads) decreased $1.9 million, or 7.4%, to $24.1 million in the 2010 period from $26.0 million in the 2009 period.  Fuel surcharges passed through to independent contractors, outside drayage carriers and railroads were $4.6 million in the 2010 period and $3.2 million in the 2009 period.  We have worked diligently to control fuel usage and costs by improving our volume purchasing arrangements and optimizing our drivers’ fuel purchases with national fuel centers, focusing on shorter lengths of haul, installing and tightly managing the use of auxiliary power units in our tractors to minimize engine idling and improving fuel usage in our trailers’ refrigeration units.  Auxiliary power units, which we have installed in our company-owned tractors, provide climate control and electrical power for our drivers without idling the tractor engine.  The decrease in net fuel expense was primarily due to a 7.6% decrease in the total miles driven by our company-owned fleet and to the cost control measures stated above, which were partially offset by a significant increase in the D.O.E. national average cost of fuel to $2.94 per gallon in the 2010 period from $2.26 per gallon in the 2009 period.  Net fuel expense represented 13.4% of truckload and intermodal revenue, net of fuel surcharges, in each of the 2010 and 2009 periods.

 

The decrease in supplies and maintenance in the 2010 period primarily resulted from a decrease in outside vendor maintenance on our revenue equipment which we were able to achieve by increasing the capacity of our regional maintenance facilities.

 

The $2.4 million decrease in insurance and claims in the 2010 period was primarily due to a decrease in the cost of self-insured auto liability and workers’ compensation accident claims.

 

Gain on disposition of revenue equipment decreased to $628,000 in the 2010 period from $1.0 million in the 2009 period as a result of a decrease in the market value for used revenue equipment, which was partially offset by an increase in the number of tractors and trailers sold.

 

As a result of the foregoing factors, our operating expenses as a percentage of operating revenue, or “operating ratio,” was 93.6% in the 2010 period compared with 94.0% in the 2009 period.  The operating ratio for our Truckload segment improved to 93.1% from 94.2% in the 2009 period and the operating ratio for our Logistics segment increased to 95.2% from 93.6% in the 2009 period.  Operating expenses as a percentage of operating revenue, with both amounts net of fuel surcharge revenue, improved to 92.5% for the 2010 period from 93.4% for the 2009 period.

 

Our effective income tax rate increased to 44.3% in the 2010 period from 41.0% in the 2009 period, primarily because of the nondeductible effect of a per diem pay structure for our drivers which was more broadly implemented in the third quarter of 2009 and further increased in the first quarter of 2010.

 

As a result of the factors described above, net income increased to $9.1 million in the 2010 period from $8.5 million in the 2009 period.  Net earnings increased to $0.41 per diluted share in the 2010 period from $0.39 per diluted share in the 2009 period.

 

18



 

Liquidity and Capital Resources

 

Our business requires substantial, ongoing capital investments, particularly for new tractors and trailers. Our primary sources of liquidity are funds provided by operations and our revolving credit facility. A portion of our tractor fleet is provided by independent contractors who own and operate their own equipment. We have no capital expenditure requirements relating to those drivers who own their tractors or obtain financing through third parties.

 

The table below reflects our net cash flows provided by operating activities, net cash flows used for investing activities and net cash flows provided by (used for) financing activities for the periods indicated.