UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR0R 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended December 31, 2007

2010

Commission file number 0-15010

MARTEN TRANSPORT, LTD.

(Exact name of registrant as specified in its charter)


DELAWARE

39-1140809
(State of incorporation)

39-1140809

(I.R.S. employer identificationEmployer Identification no.)

129 MARTEN STREET

MONDOVI, WISCONSIN

54755(715) 926-4216
(Address of principal executive offices)

54755

(Zip code)

Code)

(715) 926-4216

(Registrant’s telephone number)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class:class

:

Name of each exchange on which registered:registered

:

COMMON STOCK, PAR VALUE $.01 PER SHARE

THE NASDAQ STOCK MARKET LLC

(NASDAQ GLOBAL SELECT MARKET)

Securities registered pursuant to Section 12(g) of the Act:

NONE


Securities registered pursuant to Section 12(g) of the Act:
NONE

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  
Yes  YES £ NO oS   No  x

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.  Yes  YES £ NO oS   No  x

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 S NO £
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 ¨x   No ¨o


Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  Sx

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  Sx Non-accelerated filer (do not check if a smaller reporting company) £o Smaller reporting company £o

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

As of June 30, 20072010 (the last business day of the Registrant’s most recently completed second fiscal quarter), the aggregate market value of the Common Stock of the Registrant (based upon the closing price of the Common Stock at that date as reported by the NASDAQ Global Select Market), excluding outstanding shares beneficially owned by directors and executive officers, was $275,906,000.

$348,723,000.

As of February 29, 2008, 21,816,719March 1, 2011, 21,950,252 shares of Common Stock of the Registrant were outstanding.

Part III of this Annual Report on Form 10-K incorporates by reference information (to the extent specific sections are referred to in this Report) from the Registrant’s Proxy Statement for the annual meeting to be held May 6, 2008,3, 2011, or 20082011 Proxy Statement.


TABLE OF CONTENTS
Page
PART I
ITEM 1.BUSINESS1
ITEM 1A.RISK FACTORS7
ITEM 1B.UNRESOLVED STAFF COMMENTS12
ITEM 2.PROPERTIES12
ITEM 3.LEGAL PROCEEDINGS12
ITEM 4A.EXECUTIVE OFFICERS OF THE REGISTRANT12
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDERMATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
14
ITEM 6.SELECTED FINANCIAL DATA16
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
17
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK32
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA33
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
56
ITEM 9A.CONTROLS AND PROCEDURES56
ITEM 9B.OTHER INFORMATION56
PART III
ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE57
ITEM 11.EXECUTIVE COMPENSATION58
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
58
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
 58
ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES58
PART IV
ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES59
OTHER
Signature Page61
Exhibit Index63


FORWARD-LOOKING INFORMATION

This Annual Report on Form 10-K contains certain forward-looking statements.  Such statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Any statements not of historical fact may be considered forward-looking statements.  Written words such as “may,” “expect,” “believe,” “anticipate,” “plan,” “goal,” 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 from those expressed in such forward-looking statements.  Important factors known to us that could cause such material differences are identified in this Annual Report on Form 10-K under the heading “Risk Factors” beginning on page 6.7.  We undertake no obligation to correct or update any forward-looking statements, whether as a result of new information, future events, or otherwise.  You are advised, however, to consult any future disclosures we make on related subjects in future filings with the Securities and Exchange Commission.

References in this Annual Report to “we,” “us,” “our,” or the “Company” or similar terms refer to Marten Transport, Ltd. and its consolidated subsidiaries unless the context otherwise requires.

PART I

ITEM 1.  BUSINESS

ITEM 1.BUSINESS
Overview

We are one of the leading temperature-sensitive truckload carriers in the United States. We specialize in transporting and distributing food and other consumer packaged goods that require a temperature-controlled or insulated environment.  In 2007,2010, we generated $560.0$516.9 million in operating revenue, which consists of revenue from both truckload and logistics operations. Approximately 80%83% of our truckload revenue resulted from hauling temperature-sensitive products and 20%17% from hauling dry freight.  We operate throughout the United States and in parts of Canada and Mexico, with substantially all of our revenue generated from within the United States. Our primary long-haul traffic lanes are between the Midwest and the West Coast, Southwest, Southeast, and the East Coast, as well as from California to the Pacific Northwest.  We provide regional truckload carrier services in the Southeast, West Coast, Midwest, South Central and Northeast regions.  In 2007,2010, our average length of haul was 911655 miles.

Our growth strategy is to expand our business internally by offering shippers a high level of service and significant freight capacity.  We market primarily to large shippers that offer consistent volumes of freight in the lanes we prefer and are willing to compensate us for a high level of service.  With our fleet of 2,4162,146 company and independent contractor tractors, we are able to offer service levels that include up to 99% on-time performance and delivery within the narrow time windows often required when shipping perishable commodities.

We have two reportablereporting segments —– Truckload and Logistics.  Financial information regarding these segments can be found in Footnote 13 to the Notes to Consolidated Financial Statements under Item 8 of this Form 10-K.  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.  We continue to expand our regional truckload operations, which represented 52% of our tractor fleet as of December 31, 2010.  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 MW Logistics, LLC, or 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.

1
Organized under Wisconsin law in 1970, we are a successor to a sole proprietorship Roger R. Marten founded in 1946.  In 1988, we reincorporated under Delaware law.  Our executive offices are located at 129 Marten Street, Mondovi, Wisconsin 54755.  Our telephone number is (715) 926-4216.


We maintain a website at www.marten.com.www.marten.com.  We are not including the information contained on our website as a part of, nor incorporating it by reference into, this Annual Report on Form 10-K.  We post on our website, free of charge, documents that we file with or furnish to the Securities and Exchange Commission, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and proxy statements, as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the Securities and Exchange Commission.  We also provide a link on our website to Forms 3, 4 and 5 that our officers, directors and 10% stockholders file with the Securities and Exchange Commission pursuant to Section 16(a) of the Securities Exchange Act of 1934.

Marketing and Operations

We approach our business as an integrated effort of marketing and operations. Our emphasis in marketing is directed to the temperature-sensitive truckload market, which is generally service-sensitive, as opposed to being solely price competitive. We target large food and consumer packaged goods companies whose products require temperature-sensitive services and who ship multiple truckloads per week. By emphasizing high-quality service, we seek to become a core carrier for our customers. In 2007,2010, our two largest customers were General Mills and Kraft.

Our marketing efforts are conducted by a staff of approximately 95135 sales, customer service and support personnel under the supervision of our senior management team. Marketing personnel travel within their regions to solicit new truckload and logistics customers and maintain contact with existing customers. Customer service managers regularly contact customers to solicit additional business on a load-by-load basis.

Our operations and sales personnel strive to improve our asset productivity by seeking freight that allows for rapid turnaround times, minimizes non-revenue miles between loads, and carries a favorable rate structure. Once we have established a customer relationship, customer service managers work closely with our fleet managers to match customer needs with our capacity and the location of revenue equipment. Fleet managers use our optimization system to assign loads to satisfy customer and operational requirements, as well as to meet the routing needs of our drivers while satisfying customer and operational requirements.drivers. We attempt to route most of our trucks over selected operating lanes, which we believe assists us in meeting customer requirements, balancing traffic, reducing non-revenue miles, and improving the reliability of delivery schedules.

We employ technology in our operations when we believe that it will allow us to operate more efficiently and the investment is cost-justified. Examples of the technologies we employ include:

·Satellite-based tracking and messaging that allows us to communicate with our drivers, obtain load position updates, provide our customers with freight visibility, and download engine operating information such as fuel mileage and idling time.

·Freight optimization software that assists us in selecting loads that match our overall criteria, including profitability, repositioning, identifying capacity for expedited loads, driver availability and home time, and other factors.

·Electronic data interchange and internet communication with customers concerning freight tendering, invoices, shipment status, and other information.

·Fuel-routing software that optimizes the fuel stops for each trip to take advantage of volume discounts available in our fuel network.

·Auxiliary power units installed on approximately 60% of our company-owned tractors as of December 31, 2007 that allow us to decrease fuel costs associated with idling our tractors.

·Terrestrial- and satellite-based tracking and messaging that allows us to communicate with our drivers, obtain load position updates, provide our customers with freight visibility, and download operating information such as fuel mileage and idling time for the tractor engines and temperature setting and run time for the temperature-control units on our trailers.
·Freight optimization software that assists us in selecting loads that match our overall criteria, including profitability, repositioning, identifying capacity for expedited loads, driver availability and home time, and other factors.
·Electronic data interchange and internet communication with customers concerning freight tendering, invoices, shipment status, and other information.
2
·Electronic onboard recorders in our tractors to monitor drivers’ hours of service.
·Auxiliary power units installed on our company-owned tractors that allow us to decrease fuel costs associated with idling our tractors.
·Fuel-routing software that optimizes the fuel stops for each trip to take advantage of volume discounts available in our fuel network.
We believe this integrated approach to our marketing and operations, coupled with our use of technology, has allowed us to provide our customers with a high level of service and support our revenue

2


growth in an efficient manner. For example, we had a non-revenue mile percentage of 7.6%9.6% during 2007, and a tractor to non-driver employee ratio of 5.2-to-1 as of December 31, 2007. Both of these statistics,2010, which have remained relatively steady over the last several years, pointpoints to the efficiency of our operations and we believe comparecompares favorably to other temperature-sensitive and dry van trucking companies.

Major Customers

An important part of our growth strategy is to increase our business with large customers. Accordingly, a significant amount of our business is concentrated with a relatively small number of customers. In 2007,2010, our top 30 customers accounted for approximately 75%78% of our revenue, and our top ten customers accounted for 53%52% of our revenue.  EachNine of our top ten customers hashave been a significant customercustomers of ours for over ten years. We believe we are the largest or second largest temperature-sensitive carrier for eightsix of our top ten customers.  General Mills accounted for 18% and Kraft accounted for 10% of our revenue in 2007.2010.  We believe our relationshiprelationships with thisthese key customer iscustomers are sound, but we are dependent upon them and the loss of some or all of their business could have a materially adverse effect on our results.

Drivers and Other Personnel

We believe that maintaining a safe and productive professional driver group is essential to providing excellent customer service and achieving profitability. Approximately 246175 of our drivers as of December 31, 20072010 have driven more than one million miles for us without a preventable accident, while approximately 6051 of our drivers have driven more than two million miles and eight have driven more than three million miles for us without a preventable accident.  Our turnover for all drivers, including company-employed and independent contractor drivers, was 83% for 2007, compared with industry averages reported by the American Trucking Associations of approximately 120% for 2006 and approximately 127% on an annualized basis for the first three months of 2007.

We select drivers, including independent contractors, using our specific guidelines for safety records, including drivers’ Compliance, Safety, Accountability, or CSA, scores, driving experience, and personal evaluations. We maintain stringent screening, training, and testing procedures for our drivers to reduce the potential for accidents and the corresponding costs of insurance and claims. We train new drivers at a number of our Wisconsin, California, Georgia, Oregon and Indiana terminals in all phases of our policies and operations, as well as in safety techniques and fuel-efficient operation of the equipment. All new drivers also must pass DOT required tests prior to assignment to a vehicle.

We primarily pay company-employed drivers a fixed rate per mile. The rate increases based on length of service. Drivers also are eligible for bonuses based upon safe, efficient driving. We pay independent contractors on a fixed rate per mile. Independent contractors pay for their own fuel, insurance, maintenance, and repairs.

Competition in the trucking industry for qualified drivers is intense.normally intense and is expected to increase as a result of recent regulatory changes mandated by CSA. Our operations have been impacted, and from time-to-time we have experienced under-utilization and increased expense, as a result of thea shortage of qualified drivers. We place a high priority on the recruitment and retention of an adequate supply of qualified drivers.

As of December 31, 2007,2010, we had approximately 2,6222,678 employees. This total consists of approximately 2,1582,083 drivers, 159224 mechanics and maintenance personnel, and 305371 support personnel, which includes management and administration. As of that date, we also contracted with 33986 independent contractors. None of our employees are represented by a collective bargaining unit. We consider relations with our employees to be good.

3
Revenue Equipment

Our revenue equipment programs are an important part of our overall goal of profitable growth. We evaluate our equipment decisions based on factors such as initial cost, useful life, warranty terms, expected maintenance costs, fuel economy, driver comfort, customer needs, manufacturer support, and resale value. We generally operate newer, well-maintained equipment with uniform specifications to minimize our spare parts inventory, streamline our maintenance program, and simplify driver training.

3


As of December 31, 2007,2010, we operated a fleet of 2,4162,146 tractors, including 2,0772,060 company-owned tractors and 33986 tractors supplied by independent contractors.  The average age of our company-owned tractor fleet at December 31, 20072010 was approximately 2.02.5 years.  In 2007,2010, we replaced most of our company-owned tractors within approximately 3.54.5 years after purchase. Based on our current operating performance, the market for used tractors, our liquidity

Peterbilt and our expectations concerning tractors manufactured in 2007, we decided to accelerate our tractor fleet replacement during the last two years to allow us greater flexibility in our decisions to purchase tractors manufactured in 2007 now that the current round of diesel emissions reduction directives of the Environmental Protection Agency, or EPA, has gone into effect.  This will allow us the opportunity to evaluate the new engine technology before adopting it on a larger scale.

Freightliner and Peterbilt manufacture most of our company-owned tractors. Maintaining a relatively new and standardized fleet allows us to operate most miles while the tractors are under warranty to minimize repair and maintenance costs. It also enhances our ability to attract drivers, increases fuel economy, and improves customer acceptance by minimizing service interruptions caused by breakdowns. We adhere to a comprehensive maintenance program during the life of our equipment. We perform most routine servicing and repairs at our terminal facilities to reduce costly on-road repairs and out-of-route trips. We do not have any agreements with tractor manufacturers pursuant to which they agree to repurchase the tractors or guarantee a residual value, and we therefore could incur losses upon disposition if resale values of used tractors decline.

The EPA adopted revised emissions control regulations, which required progressive reductions in exhaust emissions from diesel engines through 2010, for engines manufactured in October 2002, and thereafter.  The revised regulations decrease the amount of emissions that can be released by tractor engines and affect tractors produced after the effective date of the regulations. The last of three stepped reductions in exhaust emissions was effective for engines manufactured in January 2010, and thereafter.  All tractor engines in our fleet as of December 31, 2010 were manufactured prior to January 2010 and, therefore, were not required to meet the revised design requirements.  Compliance with these regulations has increased the cost of our new tractors, lowered fuel mileage and increased our operating expenses. Some manufacturers have significantly increased new equipment prices, in part to meet more stringent engine design requirements imposed by the EPA. These adverse effects combined with the uncertainty as to the reliability of the vehicles equipped with the newly designed diesel engines and the residual values that will be realized from the disposition of these vehicles could increase our costs or otherwise adversely affect our business or operations.
We historically have contracted with independent contractors to provide and operate a portion of our tractor fleet. Independent contractors own their own tractors and are responsible for all associated expenses, including financing costs, fuel, maintenance, insurance, and taxes. We believe that a combined fleet complements our recruiting efforts and offers greater flexibility in responding to fluctuations in shipper demand. The percentage of our fleet provided by independent contractors was 14%4.0% as of December 31, 2007.

2010 compared to 7.8% as of December 31, 2009 and 7.9% as of December 31, 2008.

As of December 31, 2007,2010, we operated a fleet of 3,9893,928 trailers. Most of our trailers are equipped with Thermo-King refrigeration units, air ride suspensions, and anti-lock brakes. Most of our single van trailers are refrigerated, 53 feet long and 102 inches wide. The average age of our trailer fleet at December 31, 20072010 was approximately 2.72.8 years. In 2007,2010, we replaced most of our company-owned trailers within approximately sevensix years after purchase.

4

Insurance and Claims

We self-insure for a portion of our claims exposure resulting from workers’ compensation, auto liability, general liability, cargo and property damage claims, as well as employees’ health insurance. We are responsible for our proportionate share of the legal expenses relating to such claims as well. We reserve currently for anticipated losses and expenses. We periodically evaluate and adjust our insurance and claims reserves to reflect our experience.  We are responsible for the first $1.0 million on each auto liability claim and also are responsible for up to $1.0 million in the aggregate for all33% of each auto liability claims betweenclaim amount in excess of $1.0 million and $2.0 million.  We are also responsible for the first $750,000 on each workers’ compensation claim.  We have $5.2$8.3 million in standby letters of credit to guarantee settlement of claims under agreements with our insurance carriers and regulatory authorities.  We maintain insurance abovecoverage for per-incident and total losses in excess of the amounts for which we self-insure up to specified policy limits with licensed insurance carriers. Insurance carriers have raised premiums for many businesses, including trucking companies. As a result, our insurance and claims expense could increase, or we could raise our self-insured retention when our policies are renewed. We believe that our policy of self-insuring up to set limits, together with our safety and loss prevention programs, are effective means of managing insurance costs.

Fuel

Our operations are heavily dependent upon the use of diesel fuel. The price and availability of diesel fuel can vary and are subject to political, economic, and market factors that are beyond our control.  Fuel prices fluctuated dramatically and quickly at various times during the last three years and they remain high based on historical standards.  We actively manage our fuel costs by purchasing fuel in bulk in Mondovi and at a number of our other maintenance facilities throughout the country and have volume purchasing arrangements with

4


national fuel centers that allow our drivers to purchase fuel at a discount while in transit.  During 2007,2010, over 99% of our fuel purchases were made at these designated locations.  To help further reduce fuel consumption, we began installinghave equipped our company-owned tractors with auxiliary power units in our tractors duringsince 2007.  These units providereduce fuel consumption by providing quiet climate control and electrical power for our drivers without idling the tractor engine.  We expect thesehave also invested in satellite tracking equipment for our temperature-control units to reduce idlingon our trailers that has improved fuel consumption by approximately 80%, generating annual net savingsusage through management of several thousand dollars per tractor.  We had installed these units in approximately 60%required temperature settings and run time of our company-owned fleet as of December 31, 2007.

the units.

We further manage our exposure to changes in fuel prices through fuel surcharge programs with our customers and other measures that we have implemented.  We have historically been able to pass through mosta significant portion of long-term increases in fuel prices and related taxes to customers in the form of fuel surcharges.  These fuel surcharges, which adjust with the cost of fuel, enable us to recover a substantial portion of the higher cost of fuel as prices increase, except for non-revenue miles, out-of-route miles or fuel used while the tractor is idling. As of December 31, 2007,2010, we had no derivative financial instruments to reduce our exposure to fuel price fluctuations.

Competition

We operate primarily in the temperature-sensitive segment of the truckload market.  This market is highly competitive and fragmented. We compete with many other truckload carriers that provide temperature-sensitive service of varying sizes and, to a lesser extent, with less-than-truckload carriers, railroads, and other transportation companies, many of which have more equipment, a wider range of services, and greater capital resources than we do or have other competitive advantages. In particular, several of the largest truckload carriers that offer primarily dry-van service also offer temperature-sensitive service, and these carriers could attempt to increase their business in the temperature-sensitive market.  We also compete with other motor carriers for the services of drivers, independent contractors, and management employees.  We believe that the principal competitive factors in our business are service, freight rates, capacity, and financial stability.  As one of the largest and best-capitalized carriers focused on the temperature-sensitive segment, we believe we are well positioned to compete in that segment.

5

Regulation

The United States Department of Transportation, or DOT, and various state and local agencies exercise broad powers over our business, generally governing such activities as authorization to engage in motor carrier operations, safety and insurance requirements.  Our company drivers and independent contractors also must comply with the safety and fitness regulations promulgated by the DOT, including those relating to drug and alcohol testing and hours-of-service.  New rules
The DOT, through the Federal Motor Carrier Safety Administration, or FMCSA, imposes safety and fitness regulations on us and our drivers.  In December 2010, the FMCSA introduced a new system, Compliance, Safety, Accountability, or CSA, to measure and evaluate the on-road safety performance of commercial carriers and individual drivers.  CSA’s Motor Carrier Safety Measurement System replaces the former SafeStat system and attempts to use more roadside data to identify behaviors that limit driverpredict safety issues, be more proactive with intervention and maximize compliance monitoring resources.  The implementation of CSA could remove a significant number of drivers from the industry as carriers will be less willing to hire and retain drivers with marginal ratings, which will increase competition for qualified drivers.
In December 2010, the FMCSA issued a regulatory proposal that would revise hours-of-service were adopted effective January 4, 2004,requirements for drivers, which designate the length of time that drivers are allowed to drive and then modified effective October 1, 2005.work.  The rules effective October 1, 2005 did not substantially changeproposal retains the existing rules but createdcurrent “34-hour restart” provision allowing drivers to restart the clock on their weekly 60 hours per seven-day period or 70 hours per eight-day period by taking at least 34 consecutive hours off-duty.  However, the restart period would be required to include two consecutive off-duty periods from midnight to 6:00 a.m.  Additionally, the proposal would require drivers to complete all on-duty work within a moderate14-hour window, including at least a one hour break.  The proposal leaves open for comment whether drivers’ daily driving time should remain at 11 hours or be reduced to 10 hours, with 10 hours the preference of the FMCSA.  A final rule is expected by July 2011.  Should the proposed changes be finalized, including a reduction in the daily driving time, tractor productivity would decrease and a loss of efficiency could be caused as drivers and shippers may need to be retrained, computer programming may require modifications and some shipping lanes may need to be reconfigured.
In January 2011, the FMCSA issued a regulatory proposal that would require commercial carriers to track compliance with hours-of-service regulations using electronic onboard recorders, which our tractor fleet is substantially equipped with as of December 31, 2010.
The EPA adopted revised emissions control regulations, which required progressive reductions in exhaust emissions from diesel engines through 2010, for engines manufactured in October 2002, and thereafter.  The revised regulations decrease the amount of time available to drivers in longer lengths of haul, which reduced equipment productivity in those lanes.  On July 24, 2007, a federal appeals court vacated portionsemissions that can be released by tractor engines and affect tractors produced after the effective date of the October 2005 Rules; however, interim rules issuedregulations. The last of three stepped reductions in exhaust emissions was effective for engines manufactured in January 2010, and thereafter.  All tractor engines in our fleet as of December 2007 that retain31, 2010 were manufactured prior to January 2010 and, therefore, were not required to meet the vacated portions are currentlyrevised design requirements. Compliance with these regulations has increased the cost of our new tractors, lowered fuel mileage and increased our operating expenses. Some manufacturers have significantly increased new equipment prices, in effect.

We believe that we are well equippedpart to minimizemeet more stringent engine design requirements imposed by the economic impactEPA. These adverse effects combined with the uncertainty as to the reliability of the current hours-of-service rules on our business.  We have negotiated delay time chargesvehicles equipped with the majority of our customers.  Prior tonewly designed diesel engines and the effectiveness of the current rules, we also initiated discussions with many of our customers regarding stepsresidual values that they can take to assist us in managing our drivers’ non-driving activities, such as loading, unloading, or waiting, and we plan to continue to actively communicate with our customers regarding these matters in the future.  In situations where shippers are unable or unwilling to take these steps, we assess detention and other charges to offset losses in productivity resultingwill be realized from the current hours-of-service regulations.  The regulations did not have a significant impact ondisposition of these vehicles could increase our operationscosts or financial results in 2005 through 2007.

otherwise adversely affect our business or operations.

We are also subject to various environmental laws and regulations dealing with the handling of hazardous materials, fuel storage tanks, air emissions from our vehicles and facilities, engine idling, and discharge and retention of storm water.  These regulations did not have a significant impact on our operations or financial results in 20052008 through 2007.

5

2010.
6


ITEM 1A.RISK FACTORS

ITEM 1A.RISK FACTORS
The following factors are important and should be considered carefully in connection with any evaluation of our business, financial condition, results of operations, prospects, or an investment in our common stock.  The risks and uncertainties described below are those that we currently believe may materially affect our company or our financial results.  Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations or affect our financial results.

Our business is subject to general economic and business factors that are largely out of our control, any of which could have a materially adverse effect on our operating results. results.  Our business is dependent on a number of general economic and business factors that may have a materially adverse effect on our results of operations, many of which are beyond our control.  These factors include excess capacity in the trucking industry, strikes or other work stoppages, and significant increases or fluctuations in interest rates, fuel taxes, and license and registration fees.  We are affected by recessionary economic cycles and downturns in customers’ business cycles, particularly in market segments and industries where we have a significant concentration of customers. Economic conditions may adversely affect our customers and their ability to pay for our services.

It is not possible to predict the effects of actual or threatened armed conflicts or terrorist attacks, efforts to combat terrorism, military action against any foreign state, heightened security requirements, or other related events and the subsequent effects on the economy or on consumer confidence in the United States, or the impact, if any, on our future results of operations.

Instability of the credit markets and the resulting effects on the economy could have a material adverse effect on our operating results. If the credit markets and the economy weaken, our business, financial results, and results of operations could be materially and adversely affected, especially if consumer confidence declines and domestic spending decreases.  We may need to incur additional indebtedness, which may include drawing on our Credit Facility, or issue debt securities in the future to fund working capital requirements, make investments, or for general corporate purposes.  Additionally, stresses in the credit market causes uncertainty in the equity markets, which may result in volatility of the market price for our securities.
We operate in a highly competitive and fragmented industry, and numerous competitive factors could impair our ability to maintain our current profitability.  profitability.  We compete with many other truckload carriers that provide temperature-sensitive service of varying sizes and, to a lesser extent, with less-than-truckload carriers, railroads and other transportation companies, many of which have more equipment, a wider range of services and greater capital resources than we do or have other competitive advantages. In particular, several of the largest truckload carriers that offer primarily dry-van service also offer temperature-sensitive service, and these carriers could attempt to increase their business in the temperature-sensitive market. Many of our competitors periodically reduce their freight rates to gain business, especially during times of reduced growth rates in the economy, which may limit our ability to maintain or increase freight rates or maintain significant growth in our business. In addition, many customers reduce the number of carriers they use by selecting so-called “core carriers” as approved service providers, or conduct bids from multiple carriers for their shipping needs, and in some instances we may not be selected as a core carrier or to provide service under such bids.

In addition, the trend toward consolidation in the trucking industry may create other large carriers with greater financial resources and other competitive advantages relating to their size.  Competition from freight logistics and brokerage companies may negatively impact our customer relationships and freight rates.  Furthermore, economies of scale that may be passed on to smaller carriers by procurement aggregation providers may improve such carriers’ ability to compete with us.

7

We derive a significant portion of our revenue from our major customers, the loss of one or more of which could have a materially adverse effect on our business.  business.  A significant portion of our revenue is generated from our major customers.  For 2007,2010, our top 30 customers, based on revenue, accounted for approximately 75%78% of our revenue; our top ten customers accounted for approximately 53%52% of our revenue; our top five customers accounted for approximately 41% of our revenue; and our top two customers accounted for approximately 28% of our revenue.  Generally, we enter into one-year contracts with our major customers, the majority of which do not contain any firm obligations to ship with us.  We cannot assure you that, upon expiration of existing contracts, these customers will continue to use our services or that, if they do, they will continue at the same levels.  Many of our customers periodically solicit bids from multiple carriers for their shipping needs, and this process may depress freight rates or result in loss of business to our competitors.  Some of our customers also operate their own private trucking fleets, and they may decide to transport more of their own freight.  A reduction in or termination of our services by one or more of our major customers could have a materially adverse effect on our business and operating results.

6

If the growth in our regional operations declines, or if we expand into a market with insufficient economic activity, our results of operations could be adversely affected.  We operate regional service centers which are located in a number of cities within the United States.  In order to support future growth, these regional operations require the commitment of additional capital, revenue equipment and facilities along with qualified management, drivers and other personnel. Should the growth in our regional operations decline, the results of our operations could be adversely affected.  It may become more difficult to identify additional cities that can support service centers, and we may expand into cities where there is insufficient economic activity, reduced capacity for growth or less driver and non-driver personnel to support our operations.  We may encounter operating conditions in these new markets that materially differ from our current operations and customer relationships may be difficult to obtain at appropriate freight rates.  Also, we may not be able to apply our regional operating strategy successfully in additional cities, and it might take longer than expected or require a more substantial financial commitment than anticipated to establish our operations in the additional cities.

Increased prices, reduced productivity, and restricted availability of new revenue equipment could cause our financial condition, results of operations and cash flows to suffer.  suffer.  We have experienced higher prices for new tractors over the past few years, primarily as a result of higher commodity prices better pricing power among equipment manufacturers, and government regulations applicable to newly manufactured tractors and diesel engines.  We expect to continue to pay increased prices for revenue equipment and incur additional expenses and related financing costs for the foreseeable future.  Our business could be harmed if we are unable to continue to obtain an adequate supply of new tractors and trailers or if we have to pay increased prices for new revenue equipment.

The EPA adopted revised emissions control regulations, which requirerequired progressive reductions in exhaust emissions from diesel engines through 2010, for engines manufactured in October 2002, and thereafter. The revised regulations decrease the amount of emissions that can be released by tractor engines and affect tractors produced after the effective date of the regulations. The last of three stepped reductions in exhaust emissions was effective for engines manufactured in January 2010, and thereafter.  All tractor engines in our fleet as of December 31, 2010 were manufactured prior to January 2010 and, therefore, were not required to meet the revised design requirements. Compliance with these regulations has increased the cost of our new tractors, lowered fuel mileage and increased our operating expenses. Some manufacturers have significantly increased new equipment prices, in part to meet newmore stringent engine design requirements imposed by the EPA, and eliminated or sharply reduced the price of repurchase commitments.EPA. These adverse effects combined with the uncertainty as to the reliability of the vehicles equipped with the newly designed diesel engines and the residual values that will be realized from the disposition of these vehicles could increase our costs or otherwise adversely affect our business or operations. The current round of restrictions took effect in 2007.  Compliance with the 2007 EPA standards is expected to result in further declines in fuel economy, and may result in further increases in the cost of new tractors.

We have significant ongoing capital requirements that could harm our financial condition, results of operations and cash flows if we are unable to generate sufficient cash from our operations. operations. The truckload industry is capital intensive, and our policy of operating newer equipment requires us to expend significant amounts annually. If we elect to expand our fleet in future periods, our capital needs would increase. We expect to pay for projected capital expenditures with cash flows from operations and borrowings under our revolving credit facility. If we are unable to generate sufficient cash from operations and obtain financing on favorable terms in the future, we may have to limit our growth, enter into less favorable financing arrangements, or operate our revenue equipment for longer periods, any of which could have a materially adverse effect on our profitability.

8
Ongoing insurance and claims expenses could significantly affect our earnings.  earnings.  Our future insurance and claims expense might exceed historical levels, which could reduce our earnings. We self-insure for a portion of our claims exposure resulting from workers’ compensation, auto liability, general liability, cargo and property damage claims, as well as employees’ health insurance. We also are responsible for our legal expenses relating to such claims. We reserve currently for anticipated losses and expenses. We periodically evaluate and adjust our claims reserves to reflect our experience. However, ultimate results may differ from our estimates, which could result in losses over our reserved amounts.

We maintain insurance above the amounts for which we self-insure with licensed insurance carriers. Although we believe the aggregate insurance limits should be sufficient to cover reasonably expected claims, it is possible that one or more claims could exceed our aggregate coverage limits. Insurance carriers have raised premiums for many businesses, including trucking companies. As a result, our insurance and claims expense could increase, or we could raise our self-insured retention when our policies are renewed. If these expenses increase, or if we experience a claim in excess of our coverage limits, or we experience a claim for which coverage is not provided, results of our operations and financial condition could be materially and adversely affected.

We operate in a highly regulated industry and increased costs of compliance with, or liability for violation of, existing or future regulations could have a materially adverse effect on our business.  The DOT and various state and local agencies exercise broad powers over our business, generally governing such activities as authorization to engage in motor carrier operations, safety and insurance requirements. Our company drivers and independent contractors also must comply with the safety and fitness regulations promulgated by the DOT, including those relating to drug and alcohol testing and hours-of-service.  We also may become subject to new or more restrictive regulations relating to fuel emissions, ergonomics, or other matters affecting safety or operating methods. Other agencies, such as the EPA and the Department of Homeland Security, or DHS, also regulate our equipment, operations, and drivers.  Future laws and regulations may be more stringent and require changes in our operating practices, influence the demand for transportation services, or require us to incur significant additional costs. Higher costs incurred by us or by our suppliers who pass the costs onto us through higher prices could adversely affect our results of operations.
The DOT, through the Federal Motor Carrier Safety Administration, or FMCSA, imposes safety and fitness regulations on us and our drivers.  In December 2010, the FMCSA introduced a new system, Compliance, Safety, Accountability, or CSA, to measure and evaluate the on-road safety performance of commercial carriers and individual drivers.  CSA’s Motor Carrier Safety Measurement System replaces the former SafeStat system and attempts to use more roadside data to identify behaviors that predict safety issues, be more proactive with intervention and maximize compliance monitoring resources.  The implementation of CSA could remove a significant number of drivers from the industry as carriers will be less willing to hire and retain drivers with marginal ratings, which will increase competition for qualified drivers.
In December 2010, the FMCSA issued a regulatory proposal that would revise hours-of-service requirements for drivers, which designate the length of time that drivers are allowed to drive and work.  The proposal retains the current “34-hour restart” provision allowing drivers to restart the clock on their weekly 60 hours per seven-day period or 70 hours per eight-day period by taking at least 34 consecutive hours off-duty.  However, the restart period would be required to include two consecutive off-duty periods from midnight to 6:00 a.m.  Additionally, the proposal would require drivers to complete all on-duty work within a 14-hour window, including at least a one hour break.  The proposal leaves open for comment whether drivers’ daily driving time should remain at 11 hours or be reduced to 10 hours, with 10 hours the preference of the FMCSA.  A final rule is expected by July 2011.  Should the proposed changes be finalized, including a reduction in the daily driving time, tractor productivity would decrease and a loss of efficiency could be caused as drivers and shippers may need to be retrained, computer programming may require modifications and some shipping lanes may need to be reconfigured.
9
In January 2011, the FMCSA issued a regulatory proposal that would require commercial carriers to track compliance with hours-of-service regulations using electronic onboard recorders, which our tractor fleet is substantially equipped with as of December 31, 2010.
Some states and municipalities have begun to restrict the locations and amount of time where diesel-powered tractors, such as ours, may idle, in order to reduce exhaust emissions.  The State of California has enacted legislation which requires tractors weighing more than 10,000 pounds to use alternative sources, such as auxiliary power units, when powering their cabs at idle for more than five minutes.  The State of California has also enacted legislation requiring compliance with exhaust emissions standards for refrigeration units on trailers.  Compliance is being phased in by the state, which began with 2001 and earlier models.  Given our investment in auxiliary power units for our tractors and the average age of our trailer fleet, we do not expect these regulations will have a significant impact on our operations or financial results.
From time to time, various federal, state, or local taxes are increased, including taxes on fuels.  We cannot predict whether, or in what form, any such increase applicable to us will be enacted, but such an increase could adversely affect our profitability.
Increases in compensation or difficulty in attracting drivers could affect our profitability and ability to grow.  growIn recent years the.  The transportation industry has historically experienced substantial difficulty in attracting and retaining qualified drivers, including independent contractors, with competition for drivers being increasingly intense.contractors.  With the increased competition for drivers, including the impact that recent regulatory changes mandated by CSA may have on the number of drivers in the transportation industry, we have experiencedcould experience greater difficulty in attracting sufficient numbers of qualified drivers.  In addition, due in part to current economic conditions, including the cost of fuel and insurance, the available pool of independent contractor drivers is smaller than it has been historically.  Accordingly, we may face difficulty in attracting and retaining drivers for all of our current

7


tractors and for those we may add.  Additionally, we may face difficulty in increasing the number of our independent contractor drivers. In addition, our industry suffers from high turnover rates of drivers. Our turnover rate requires us to recruit a substantial number of drivers. Moreover, our turnover rate could increase. If we are unable to continue to attract drivers and contract with independent contractors, we could be required to continue adjusting our driver compensation package beyond the norm or let trucks sit idle.  An increase in our expenses or in the number of tractors without drivers could materially and adversely affect our growth and profitability.

Fluctuations in the price or availability of fuel may increase our cost of operation, which could materially and adversely affect our profitability.  profitability.  We require large amounts of diesel fuel to operate our tractors and to power the temperature-control units on our trailers. Fuel is one of our largest operating expenses. Fuel prices tend to fluctuate, and prices and availability of all petroleum products are subject to political, economic and market factors that are beyond our control. We depend primarily on fuel surcharges, auxiliary power units for our tractors, satellite tracking equipment for the temperature-control units on our trailers, volume purchasing arrangements with truck stop chains and bulk purchases of fuel at our terminals to control and recover our fuel expenses. There can be no assurance that we will be able to collect fuel surcharges, enter into volume purchase agreements, or execute successful hedges in the future. Additionally, we may encounter decreases in productivity that may offset or eliminate savings from auxiliary power units or satellite tracking equipment, or may incur unexpected maintenance or other costs associated with such units. The absence of meaningful fuel price protection through these measures, fluctuations in fuel prices, or a shortage of diesel fuel, could materially and adversely affect our results of operations.

10

Seasonality and the impact of weather can affect our profitability.  profitability.  Our tractor productivity generally decreases during the winter season because inclement weather impedes operations and some shippers reduce their shipments. At the same time, operating expenses generally increase, with fuel efficiency declining because of engine idling and harsh weather creating higher accident frequency, increased claims and more equipment repairs. We can also suffer short-term impacts from weather-related events such as hurricanes, blizzards, ice-storms, and floods that could harm our results or make our results more volatile.

                We operate in a highly regulated industry and increased costs of compliance with, or liability for violation of, existing or future regulations could have a materially adverse effect on our business.  The DOT and various state and local agencies exercise broad powers over our business, generally governing such activities as authorization to engage in motor carrier operations, safety and insurance requirements. Our company drivers and independent contractors also must comply with the safety and fitness regulations promulgated by the DOT, including those relating to drug and alcohol testing and hours-of-service.  We also may become subject to new or more restrictive regulations relating to fuel emissions, drivers’ hours-of-service, ergonomics, or other matters affecting safety or operating methods. Other agencies, such as the EPA and the Department of Homeland Security, or DHS, also regulate our equipment, operations, and drivers.  Future laws and regulations may be more stringent and require changes in our operating practices, influence the demand for transportation services, or require us to incur significant additional costs. Higher costs incurred by us or by our suppliers who pass the costs onto us through higher prices could adversely affect our results of operations.

                The DOT, through the Federal Motor Carrier Safety Administration, or FMCSA, imposes safety and fitness regulations on us and our drivers.  New rules that limit driver hours-of-service were adopted effective January 4, 2004, and then modified effective October 1, 2005 (the “2005 Rules”).  On July 24, 2007, a federal appeals court vacated portions of the 2005 Rules.  Two of the key portions that were vacated include the expansion of the driving day from 10 hours to 11 hours, and the “34-hour restart,” which allows drivers to reset their maximum allowable hours in a week.  The court indicated that, in addition to other reasons, it vacated these two portions of the 2005 Rules because FMCSA failed to provide adequate data supporting its decision to increase the driving day and provide for the 34-hour restart.  Following a request by FMCSA for a 12-month extension of the vacated rules, the court, in an order filed on September 28, 2007, granted a 90-day stay of the mandate and directed that issuance of its ruling be withheld until December 27, 2007, to allow FMCSA time to prepare its response.  On December 17, 2007, FMCSA submitted an interim final rule, which became effective December 27, 2007 (the “Interim Rule”).  The Interim Rule retains the 11 hour driving day and the 34-hour restart, but provides greater statistical support and analysis regarding the increased driving time and the 34-hour restart.  On January 23, 2008, a federal court denied an advocacy group’s request that it prevent FMCSA from implementing the Interim Rule.  Accordingly, the Interim Rule remains in effect;

8


though, challenges to the Interim Rule are still possible.  FMCSA received comments on the Interim Rule through February 15, 2008 and expects to publish a final rule later in 2008.  As advocacy groups may continue to challenge the Interim Rule, a court’s decision to strike down the Interim Rule could have varying effects, as reducing driving time to 10 hours daily may reduce productivity in some lanes.  A court’s decision to strike down the Interim Rule could decrease productivity and cause some loss of efficiency, as drivers and shippers may need to be retrained, computer programming may require modifications, additional drivers may need to be employed or engaged, additional equipment may need to be acquired, and some shipping lanes may need to be reconfigured.  We are also unable to predict the effect of any new rules that might be proposed, but any such proposed rules could increase costs in our industry or decrease productivity.

                In the aftermath of the September 11, 2001 terrorist attacks, federal, state, and municipal authorities have implemented and continue to implement various security measures, including checkpoints and travel restrictions on large trucks. As a result, it is possible we may fail to meet the needs of our customers or may incur increased expenses to do so. These security measures could negatively impact our operating results.

                Some states and municipalities have begun to restrict the locations and amount of time where diesel-powered tractors, such as ours, may idle, in order to reduce exhaust emissions.  The State of California has recently enacted legislation which requires tractors weighing more than 10,000 pounds to use alternative sources, such as auxiliary power units, when powering their cabs at idle for more than five minutes.  The State of California has also enacted legislation requiring compliance with exhaust emissions standards for refrigeration units on trailers.  Compliance is being phased in by the state, beginning with 2001 and earlier models.  Given our investment in auxiliary power units for our tractors and the average age of our trailer fleet, we do not expect these regulations will have a significant impact on our operations or financial results.

                From time to time, various federal, state, or local taxes are increased, including taxes on fuels.  We cannot predict whether, or in what form, any such increase applicable to us will be enacted, but such an increase could aversely affect our profitability.

Service instability in the railroad industry could increase our operating costs and reduce our ability to offer intermodal services, which could adversely affect our revenue, results of operations, and customer relationships.  relationships.  In the future, our dependence on railroads will increase if we continue to expand our intermodal services. In most markets, rail service is limited to a few railroads or even a single railroad. Any reduction in service by the railroads with which we have, or in the future may have, relationships is likely to increase the cost of the rail-based services we provide and reduce the reliability, timeliness, and overall attractiveness of our rail-based services. Furthermore, railroads are relatively free to adjust shipping rates up or down as market conditions permit. Price increases could result in higher costs to our customers and reduce or eliminate our ability to offer intermodal services. In addition, we cannot assure you that we will be able to negotiate additional contracts with railroads to expand our capacity, add additional routes, or obtain multiple providers, which could limit our ability to provide this service.

Our operations are subject to various environmental laws and regulations, the violation of which could result in substantial fines or penalties.  penalties.  We are subject to various environmental laws and regulations dealing with the handling of hazardous materials, fuel storage tanks, air emissions from our vehicles and facilities, engine idling, and discharge and retention of storm water. We operate in industrial areas, where truck terminals and other industrial activities are located, and where groundwater or other forms of environmental contamination have occurred. Our operations involve the risks of fuel spillage or seepage, environmental damage, and hazardous waste disposal, among others. Although we have instituted programs to monitor and control environmental risks and promote compliance with applicable environmental laws and regulations, if we are involved in a spill or other accident involving hazardous substances or if we are found to be in violation of applicable laws or regulations, we could be subject to liabilities, including substantial fines or penalties or civil and criminal liability, any of which could have a materially adverse effect on our business and operating results.

If we are unable to retain our executive officers and key management employees, our business, financial condition and results of operations could be adversely affected.  We are highly dependent upon the services of our executive officers and key management employees.  Currently, we do not have employment agreements with these employees and the loss of any of their services could have a materially adverse effect on our operations and future profitability. In addition, we must continue to develop and retain a core group of managers if we are to realize our goal of expanding our operations and continuing our growth. We cannot assure you that we will be able to do so in the future.
Our management information systems may prove inadequate.  inadequate.  We depend upon our management information systems for many aspects of our business.  Some of our key software has been developed internally by our programmers or by adapting purchased software to our needs and this software may not be

9


easily modified or integrated with other software and systems.  Our business will be materially and adversely affected if our management information systems are disrupted or if we are unable to improve, upgrade, integrate or expand our systems as we continue to execute our growth strategy, including our logistics services.

ITEM 1B.UNRESOLVED STAFF COMMENTS

11
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.

ITEM 2.PROPERTIES

ITEM 2.PROPERTIES
Our executive offices and principal terminal are located on approximately seven acres in Mondovi, Wisconsin. This facility consists of 39,000 square feet of office space and 21,000 square feet of equipment repair and maintenance space.  We added an additional facilityequipment repair and maintenance facilities in 2007 and in 2009 in Mondovi, Wisconsin which consistsconsist of 15,000 square feet of equipment repair and maintenance space located on approximately 11 acres.  In addition to our executive officesacres and terminal50,000 square feet of space located in Mondovi, Wisconsin, we own andon approximately three acres, respectively. We operate facilities in or near the following cities at which we perform the following designated operating activities:

Company Locations

Owned or
Leased

Fueling and

Maintenance

Fueling

Driver

Recruitment

Driver
Training

Driver

Dispatch

Sales

Company Locations

Mondovi, Wisconsin

Owned

Maintenance

X

X

Recruitment

X

X

Training

X

Dispatch

Sales

X

Ontario, California

Owned

X

X

X

X

Mondovi, Wisconsin

Atlanta, Georgia

Owned

X

X

X

X

X

X

X

Ontario, California

Portland, Oregon

Owned

X

X

X

X

Atlanta, Georgia

Indianapolis, Indiana

Owned

X

X

X

X

X

Portland, Oregon

Irving, Texas

Leased

X

X

X

X

X

Indianapolis, Indiana

Lakeland, Florida

Leased

X

X

X

X
Phoenix, Arizona

X

Leased

X

X		XXX
Memphis, TennesseeLeasedXXXXX
Richmond, VirginiaLeasedXX
Laredo, TexasLeasedXX

ITEM 3.LEGAL PROCEEDINGS

ITEM 3.
LEGAL PROCEEDINGS
We are involved in litigation incidental to our operations. These lawsuits primarily involve claims for workers’ compensation, personal injury, or property damage incurred in the transportation of freight.

ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth quarter of the year ended December 31, 2007.

ITEM 4A.EXECUTIVE OFFICERS OF THE REGISTRANT

ITEM 4A.
EXECUTIVE OFFICERS OF THE REGISTRANT
Our executive officers, with their ages and the offices held as of February 29, 2008,March 1, 2011, are as follows:

Name

Age

Age

Position

Randolph L. Marten

58

55

Chairman of the Board, President,
Chief Executive Officer and Director

Timothy M. Kohl

63President
Robert G. Smith

67

64

Chief Operating Officer

Timothy P. Nash

59

56

Executive Vice President of Sales and Marketing

James J. Hinnendael

47

44

Chief Financial Officer

John H. Turner

49

46

Vice President of Sales


12
Randolph L. Marten has been a full-time employee of ours since 1974.  Mr. Marten has been a Director since October 1980, our President since June 1986, our Chairman of the Board since August 1993 and

10


our Chief Executive Officer since January 2005.  Mr. Marten also served as our President from June 1986 until June 2008, our Chief Operating Officer from June 1986 until August 1998 and as a Vice President from October 1980 to June 1986.

Timothy M. Kohl has been our President since June 2008.  Mr. Kohl joined the company in November 2007, and has over 20 years’ experience in the transportation services industry.  Mr. Kohl served as Knight Transportation Inc.’s President from 2004 to 2007 and as its Secretary from 2000 to 2007.  Mr. Kohl served as a director on Knight’s Board of Directors from 2001 to 2006, and he served as its Chief Financial Officer from 2000 to 2004.  Mr. Kohl also served as Knight’s Vice President of Human Resources from 1996 through 1999.  From 1999 through 2000, Mr. Kohl served as Vice President of Knight’s southeast region.  Prior to his employment with Knight, Mr. Kohl was employed by Burlington Motor Carriers as Vice President of Human Resources.  Prior to his employment with Burlington Motor Carriers, Mr. Kohl served as Vice President of Human Resources for J.B. Hunt.
Robert G. Smith has been our Chief Operating Officer since August 1998.  Mr. Smith also served as our Vice President of Operations from June 1993 until May 1999 and as our Director of Operations from September 1989 to June 1993.  Mr. Smith served as director of operations for Transport Corporation of America, an irregular-route truckload carrier, from 1985 to 1989.

Timothy P. Nash has been our Executive Vice President of Sales and Marketing since November 2000.  Mr. Nash also served as our Vice President of Sales from November 1990 to November 2000 and as oura Regional Sales Manager from July 1987 to November 1990.  Mr. Nash served as a regional sales manager for Overland Express, Inc., a long-haul truckload carrier, from 1986 to 1987.

James J. Hinnendael has been our Chief Financial Officer since January 2006 and served as our Controller from January 1992 to December 2005.  Mr. Hinnendael served in various professional capacities with Ernst & Young LLP, a public accounting firm, from 1987 to December 1991.  Mr. Hinnendael is a certified public accountant.

John H. Turnerhas been our Vice President of Sales since January 2007 and an executive officer since August 2007.  He also served as our Vice President of Sales from October 2000 to February 2005, and as an executive officer from January 2002 to February 2005.  Mr. Turner also served as our Director of Sales from July 1999 to October 2000 and in various professional capacities in our sales and marketing area from August 1991 to July 1999 and as our Operations Manager-West from October 1990 to August 1991.  Previously, Mr. Turner served as a vice president for Naterra Land, Inc., a recreational land developer, from 2005 to 2006 and as the western fleet general manager and area sales manager for Munson Transportation, Inc., a long-haul truckload carrier, from 1986 to 1990.

11

13

PART II

ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is listed on the NASDAQ Global Select Market under the symbol “MRTN.”  The table below shows the range of high and low bid prices for the quarters indicated on the NASDAQ Global Select Market beginning July 1, 2006, and on the NASDAQ National Market prior to such date.Market.  Such quotations reflect inter-dealer prices, without retail markups, markdowns or commissions and, therefore, may not necessarily represent actual transactions.

 

 

Common Stock Price

 

 

 

High

 

Low

 

Year ended December 31, 2007

 

 

 

 

 

Fourth Quarter

 

$

16.60

 

$

10.60

 

Third Quarter

 

18.46

 

13.54

 

Second Quarter

 

19.80

 

15.70

 

First Quarter

 

19.28

 

14.30

 

Year ended December 31, 2006

 

 

 

 

 

Fourth Quarter

 

$

19.78

 

$

15.92

 

Third Quarter

 

23.48

 

14.51

 

Second Quarter

 

24.45

 

18.00

 

First Quarter

 

24.71

 

17.67

 

  Common Stock Price 
Year ended December 31, 2010 High  Low 
Fourth Quarter
 $24.36  $20.08 
Third Quarter
  24.25   17.00 
Second Quarter
  23.54   18.75 
First Quarter
  20.52   16.66 
         
Year ended December 31, 2009        
Fourth Quarter
 $18.82  $16.40 
Third Quarter
  21.46   16.05 
Second Quarter
  22.50   17.75 
First Quarter
  19.57   14.49 

The prices do not include adjustments for retail mark-ups, mark-downs or commissions.  On February 29, 2008,March 1, 2011, we had 244202 record stockholders, and approximately 1,1721,198 beneficial stockholders of our common stock.

We have not paid

In August 2010, we announced a regular cash dividend onprogram to our stockholders, subject to approval each quarter.  The first two quarterly cash dividends of $0.02 per share of common stock since we became publicly tradedwere paid in September 1986, and we do notDecember 2010.  We currently expect to make or declare anycontinue to pay quarterly cash dividends in the foreseeable future.  We currently intend to continue to retain earnings to financeThe payment of cash dividends in the growthfuture, and the amount of any such dividends, will depend upon our businessfinancial condition, results of operations, cash requirements, and reducecertain corporate law requirements, as well as other factors deemed relevant by our indebtedness.Board of Directors.  Our ability to pay cash dividends is currently limited by restrictions contained in our revolving credit facility.  Our revolving credit facility prohibits us from paying, in any fiscal year, dividends in excess of 25% of our net income from the prior fiscal year.  Future payments of cash dividends will depend on our financial condition, results of operations, capital commitments, restrictions under then-existing agreements, and other factors
On December 4, 2007, our Board of Directors deems relevant.

We had no unregistered salesapproved and we announced a share repurchase program to repurchase up to one million shares of equity securities duringour common stock either through purchases on the fourthopen market or through private transactions and in accordance with Rule 10b-18 of the Exchange Act.  The timing and extent to which we will repurchase shares depends on market conditions and other corporate considerations.  The repurchase program does not have an expiration date.  In the first quarter of 2008 we repurchased and retired 67,500 shares of our common stock for $810,000.  We made no purchases in 2010, 2009, or in the year ended December 31, 2007.

12

remainder of 2008.
14

Comparative Stock Performance

The graph below compares the cumulative total stockholder return on our common stock with the NASDAQ Market index and the SIC code 4213 (trucking, except local) line-of-business index for the last five years.  Hemscott,Research Data Group, Inc. prepared the line-of-business index.  The graph assumes $100 is invested in our common stock, the NASDAQ Stock Market index and the line-of-business index on January 1, 2003,December 31, 2005, with reinvestment of dividends.  The comparisons in the graph below are based on historical data and are not intended to forecast the possible future performance of our common stock.  The information in the graph below shall be deemed “furnished” and not “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section.

13

15

ITEM 6.SELECTED FINANCIAL DATA

ITEM 6.SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with the consolidated financial statements and notes under Item 8 of this Form 10-K.

(Dollars in thousands, except per share amounts)

 

2007

 

2006

 

2005

 

2004

 

2003

 

FOR THE YEAR

 

 

 

 

 

 

 

 

 

 

 

Operating revenue

 

$

560,017

 

$

518,890

 

$

460,202

 

$

380,048

 

$

334,667

 

Operating income

 

27,801

 

41,169

 

42,867

 

31,345

 

20,336

 

Net income

 

14,968

 

24,518

 

25,061

 

17,536

 

11,842

 

Operating ratio

 

95.0

%

92.1

%

90.7

%

91.8

%

93.9

%

 

 

 

 

 

 

 

 

 

 

 

 

PER-SHARE DATA

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share

 

$

0.69

 

$

1.13

 

$

1.16

 

$

0.83

 

$

0.71

 

Diluted earnings per common share

 

0.68

 

1.12

 

1.14

 

0.81

 

0.68

 

Book value

 

10.86

 

10.15

 

8.99

 

7.82

 

7.00

 

 

 

 

 

 

 

 

 

 

 

 

 

AT YEAR END

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

407,390

 

$

410,822

 

$

349,733

 

$

288,929

 

$

249,595

 

Long-term debt

 

44,643

 

58,659

 

48,300

 

30,257

 

27,857

 

Stockholders’ equity

 

236,930

 

220,993

 

193,917

 

167,921

 

144,534

 

14

(Dollars in thousands, except per share amounts)
 2010  2009  2008  2007  2006 
FOR THE YEAR               
Operating revenue $516,920  $505,874  $607,099  $560,017  $518,890 
Operating income  35,289   29,359   32,705   27,801   41,169 
Net income  19,742   16,267   18,071   14,968   24,518 
Operating ratio(1)
  93.2%  94.2%  94.6%  95.0%  92.1%
                     
PER-SHARE DATA                    
Basic earnings per common share $0.90  $0.74  $0.83  $0.69  $1.13 
Diluted earnings per common share  0.90   0.74   0.82   0.68   1.12 
Dividends paid per common share  0.04   —   —   —   — 
Book value  13.48   12.56   11.79   10.92   10.20 
                     
AT YEAR END                    
Total assets $460,308  $414,838  $397,443  $407,390  $410,822 
Long-term debt  19,346   1,499   2,857   44,643   58,659 
Stockholders’ equity  295,904   274,907   257,451   238,213   221,906 

(1)Represents operating expenses as a percentage of operating revenue.
16

ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7.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 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 under the heading “Risk Factors” beginning on page 6.7.  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, and the number of miles we generate with our equipment.  These factors relate, among other things, to the United States economy, inventory levels, the level of truck capacityequipment and changes in the temperature-sensitive market and specific customer demand.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 andcustomers.
In addition to the rates chargedfactors discussed above, our operating revenue is also affected by, third-party providers.  These factors relate, among other things, to the United States economy, inventory levels, the level of truck and rail capacity in the transportation market and specific customer demand.  The Logistics segment was identified as a new reportable segment for our first quarter of 2007 since our logistics operations have become a more significant part of our business.

                In 2007, we increased our

Our operating revenue by $41.1increased $11.0 million, or 7.9%.2.2%, in 2010.  This increase was primarily due to fuel surcharge revenue increasing by $20.2 million, or 36.2%, caused by significantly higher fuel prices in 2010.  Our operating revenue, net of fuel surcharges, increased $31.3decreased $9.1 million, or 7.1%2.0%, compared with 2006.  Our2009.  Truckload segment revenue, net of fuel surcharges, decreased 6.1% primarily due to a decrease in our average fleet size of 253 tractors, or 10.7%, partially offset by an increase in our average truckload revenue, net of fuel surcharges, per tractor per week of 5.2% in 2010.  The changes in our operating statistics are primarily the result of the continued growth of our regional temperature-controlled operations, which we have increased 0.6%, due to 51.8% of our truckload fleet as of December 31, 2010 from 25.9% as of December 31, 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 0.4% increaseportion of our fleet in these markets is evident in a 13.9% reduction from 2009 in average miles per tractor and a 0.2% increase in average truckloadlength of haul to 655 miles.  Logistics segment revenue, net of intermodal fuel surcharges, per total mile.  We were able to increase our truckload revenue by increasing the size of our fleet and our businessincreased 11.7% compared with existing and new customers.2009.  The slight improvement in tractor productivity was more than offset by an increase in our overall cost structure, whichlogistics revenue primarily resulted in decreased profitability from 2006.  Due to a challenging freight environment, we were not able to increase freight rates to cover higher costs.  The 7.1% increase in our operating revenue, net of fuel surcharges, was primarily driven by continued volume growth in each of our internal brokerage and intermodal services, and in the logistics services provided by MWL.  Logistics revenue which represented 12.4%24.0% of our operating revenue in 2007, increased $28.2 million, or 68.5%,2010 compared with 2006.

to 21.6% in 2009 and 16.3% in 2008.

17
Our profitability on the expense side is impacted by variable costs of transporting freight for our customers, fixed costs, and expenses containing both fixed and variable components.  The variable costs include fuel expense, driver-related expenses, such as wages, benefits, training, and recruitment, and independent contractor costs, which are recorded under purchased transportation.  Expenses that have both fixed and variable components include maintenance and tire expense and our total cost of insurance and claims.  These expenses generally vary with the miles we travel, but also have a controllable component based

15


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 and quickly at various times during the last several years.years, with the United States Department of Energy, or DOE, national average cost of fuel increasing to $2.99 per gallon in 2010 from $2.47 per gallon in 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 began installinginstalled auxiliary power units in our tractors in 2007 to provide climate control and electrical power for our drivers without idling the tractor engine.  In order to control increases in insurance premiums, we have increased our self-insured retention levels periodically during the last several years.  We are responsible for the first $1.0 million on each auto liability claim and up to $1.0 million in the aggregate for all auto liability claims between $1.0 million and $2.0 million.  We are also responsible for the first $750,000 on each workers’ compensation claim.  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,” improved to 93.2% in 2010 from 94.2% in 2009.  Operating expenses as a percentage of operating revenue, with both amounts net of fuel surcharge revenue, improved to 92.0% for 2010 from 93.5% for 2009.  Our net income increased to $19.7 million in 2010 from $16.3 million in 2009.  The increased profitability in 2010 was 95.0%primarily due to the improvement in 2007 compared with 92.1%our overall cost structure and the increase in 2006.  Our earningsrevenue per diluted share decreased to $0.68tractor per week in 2007 from $1.12 in 2006.

our Truckload segment.

Our business requires substantial, ongoing capital investments, particularly for new tractors and trailers. At December 31, 2007,2010, we had approximately $44.6$4.4 million of cash and cash equivalents and marketable securities, net of checks issued in excess of cash balances, $19.3 million of long-term debt, including current maturities, and $236.9$295.9 million in stockholders’ equity.  In 2007, we added approximately $36.6 million of2010, 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 $69.3 million and recognized a gainto partially construct two regional operating facilities in the amount of $3.4 million on the disposition of used equipment.  We also decreased our accounts payable and accrued liabilities relating to revenue equipment by $10.2 million in 2007.  These capital expenditures were primarily funded with cash flows from operations and borrowings under our revolving credit facility.$9.6 million.  We estimate that capital expenditures, net of proceeds from dispositions, will be approximately $12$50 million in 2008, which would be significantly below2011.  We paid our first two quarterly cash dividends of $0.02 per share of common stock in the levelthird and fourth quarters of net capital expenditures during2010 totaling $877,000.  We believe our sources of liquidity are adequate to meet our current and anticipated needs for at least the last several years due to nearly 325 tractors paid-for but not placed in service asnext twelve months.  Based upon anticipated cash flows, existing cash and cash equivalents balances, current borrowing availability and other sources of December 31, 2007.  Assuming net capital expenditures in that amount and operating margins similar to the margins in 2007,financing we expect to generate cash flowsbe available to retireus, we do not anticipate any significant liquidity constraints in the foreseeable future.
We have been transforming our business strategy toward a substantial amountmore-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 debt in 2008 or provide flexibility for other purposes.  Based onservices combined with our current operating performance, the market for used tractors, our liquiditycompetitive position, cost control emphasis, modern fleet and our expectations concerning tractors manufactured in 2007, we decided to accelerate our tractor fleet replacement during 2005 and 2006 to allow us greater flexibility in our decisions to purchase tractors manufactured in 2007 now that the current round of diesel emissions reduction directives of the EPA has gone into effect.  This acceleration of our tractor fleet replacement has not impacted the useful lives of our tractors or caused impairment to the carrying amount reflected in our consolidatedstrong 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 surcharges.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 thisthese additional disclosuredisclosures because management believes removing fuel surcharge revenue providesthese measures provide a more consistent basis for comparing results of operations from period to period.  ThisThese financial measuremeasures in this report hashave 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 a reconciliation of thisthe amounts necessary to reconcile these non-GAAP financial measuremeasures to the most directly comparable GAAP financial measure,measures, operating revenue.

revenue, operating expenses divided by operating revenue, and fuel and fuel taxes.

18
Share-based Payment Arrangement Compensation

                Effective January 1, 2006, we adopted the fair value recognition provisions

Total share-based compensation expense recorded in 2010 was $1.3 million ($776,000 net of Statementincome tax benefit), in 2009 was $586,000 ($353,000 net of Financial Accounting Standards No. 123R, “Share-Based Payment” (“SFAS 123R”) using the modified prospective transition method,income tax benefit) and therefore have not restated prior periods’ results.in 2008 was $666,000 ($432,000 net of income tax benefit).  All share-based compensation expense is recorded in salaries, wages and benefits expense.  Total share-based compensation expense recorded in 2007 was $460,000 ($321,000 net of income tax benefit) and in 2006 was $447,000 ($318,000 net of income tax benefit), which entirely represents additional share-based compensation expense recorded as a result of adopting SFAS 123R.  No share-based compensation expense was recorded in 2005, however such expense would have been $177,000 ($108,000 net of income tax benefit) had we recognized share-based expense in net income under Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation.”  Unrecognized compensation expense from unvested service-based stock option awards

16


was $1.0$1.9 million as of December 31, 20072010 and is expected to be recorded over a weighted-average period of 3.03.3 years.  Unrecognized compensation expense from unvested performance-based stock optionperformance unit awards was $741,000$875,000 as of December 31, 20072010 and will be recorded inbased on the periods in which the performance condition isestimated number of units probable of achievementachieving the vesting requirements of the awards through 2010.

2014.

Results of Operations

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

 

 

2007

 

2006

 

2005

 

 

 

 

 

 

 

 

 

Truckload Segment:

 

 

 

 

 

 

 

Average truckload revenue, net of fuel surcharges, per total mile

 

$

1.480

 

$

1.477

 

$

1.417

 

Average miles per tractor(1)

 

109,269

 

108,781

 

111,823

 

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

 

$

3,101

 

$

3,081

 

$

3,039

 

Average tractors(1)

 

2,516

 

2,504

 

2,437

 

Total miles — company-employed drivers (in thousands)

 

228,776

 

222,579

 

206,205

 

Total miles — independent contractors (in thousands)

 

46,096

 

49,810

 

66,293

 

 

 

 

 

 

 

 

 

Logistics Segment:

 

 

 

 

 

 

 

Brokerage:

 

 

 

 

 

 

 

Revenue (in thousands)

 

$

48,640

 

$

28,636

 

$

16,540

 

Loads

 

25,246

 

16,083

 

9,081

 

Intermodal:

 

 

 

 

 

 

 

Revenue (in thousands)

 

$

20,837

 

$

12,604

 

$

404

 

Loads

 

6,793

 

4,073

 

143

 

Average tractors

 

31

 

19

 

1

 

  2010  2009  2008 
Truckload Segment:         
Total Truckload revenue (in thousands)
 $392,764  $396,795  $508,186 
Average truckload revenue, net of fuel surcharges, per tractor per week(1)
  2,968   2,822   3,124 
Average tractors(1)
  2,105   2,358   2,352 
Average miles per trip
  655   761   853 
Total miles – company-employed drivers (in thousands)
  193,342   206,894   222,043 
Total miles – independent contractors (in thousands)
  13,776   23,415   32,081 
             
Logistics Segment:            
Total Logistics revenue (in thousands) $124,156  $109,079  $98,913 
Brokerage:            
       Marten Transport            
            Revenue (in thousands) $41,219  $35,014  $24,746 
            Loads  21,896   18,932   11,621 
       MWL            
            Revenue (in thousands) $35,247  $32,160  $37,569 
            Loads  18,704   17,868   18,789 
Intermodal:
            
Revenue (in thousands)
 $47,690  $41,905  $36,598 
Loads
  20,150   18,090   11,513 
Average tractors
  67   62   53 

(1)

Includes tractors driven by both company-employed drivers and independent contractors.  Independent contractors provided 339, 36586, 177 and 423188 tractors as of December 31, 2007, 20062010, 2009 and 2005,2008, respectively.

17

19


Comparison of Year Ended December 31, 20072010 to Year Ended December 31, 2006

2009

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

 

 

 

 

 

 

Dollar

 

Percentage

 

 

 

 

 

 

 

Change

 

Change

 

(Dollars in thousands)

 

2007

 

2006

 

2007 vs. 2006

 

2007 vs. 2006

 

Operating revenue:

 

 

 

 

 

 

 

 

 

Truckload revenue, net of fuel surcharge revenue

 

$

406,754

 

$

402,327

 

$

4,427

 

1.1

%

Truckload fuel surcharge revenue

 

83,786

 

75,323

 

8,463

 

11.2

 

Total Truckload revenue

 

490,540

 

477,650

 

12,890

 

2.7

 

 

 

 

 

 

 

 

 

 

 

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

 

66,163

 

39,298

 

26,865

 

68.4

 

Intermodal fuel surcharge revenue

 

3,314

 

1,942

 

1,372

 

70.6

 

Total Logistics revenue

 

69,477

 

41,240

 

28,237

 

68.5

 

 

 

 

 

 

 

 

 

 

 

Total operating revenue

 

$

560,017

 

$

518,890

 

$

41,127

 

7.9

%

 

 

 

 

 

 

 

 

 

 

Operating income:

 

 

 

 

 

 

 

 

 

Truckload

 

$

22,689

 

$

37,500

 

$

(14,811

)

(39.5

)%

Logistics

 

5,112

 

3,669

 

1,443

 

39.3

 

Total operating income

 

$

27,801

 

$

41,169

 

$

(13,368

)

(32.5

)%

 

 

 

 

 

 

 

 

 

 

Operating ratio(2):

 

 

 

 

 

 

 

 

 

Truckload

 

95.4

%

92.1

%

 

 

(3.6

)%

Logistics

 

92.6

 

91.1

 

 

 

(1.6

)

Consolidated operating ratio

 

95.0

%

92.1

%

 

 

(3.1

)%

(1)Logistics revenue is net of $17.1 million and $16.5 million of inter-segment revenue in 2007 and 2006, respectively, for loads transported by our tractors and arranged by MWL that have been eliminated in consolidation.

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

        Dollar  Percentage 
        Change  Change 
(Dollars in thousands) 2010  2009  2010 vs. 2009  2010 vs. 2009 
Operating revenue:            
Truckload revenue, net of fuel surcharge revenue
 $325,791  $346,983  $(21,192)  (6.1)%
Truckload fuel surcharge revenue  66,973   49,812   17,161   34.5 
Total Truckload revenue
  392,764   396,795   (4,031)  (1.0)
                 
Logistics revenue, net of intermodal fuel surcharge revenue(1)
  115,223   103,166   12,057   11.7 
Intermodal fuel surcharge revenue  8,933   5,913   3,020   51.1 
Total Logistics revenue
  124,156   109,079   15,077   13.8 
                 
Total operating revenue
 $516,920  $505,874  $11,046   2.2%
                 
Operating income:                
Truckload $28,680  $22,827  $5,853   25.6%
Logistics  6,609   6,532   77   1.2 
Total operating income
 $35,289  $29,359  $5,930   20.2%
                 
Operating ratio(2):
                
Truckload  92.7%  94.2%      (1.6)%
Logistics  94.7   94.0       0.7 
Consolidated operating ratio
  93.2%  94.2%      (1.1)%

(1)Logistics revenue is net of $9.1 million and $10.2 million of inter-segment revenue in 2010 and 2009, 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 $41.1$11.0 million, or 7.9%2.2%, to $560.0$516.9 million in 20072010 from $518.9$505.9 million in 2006.2009.  Our operating revenue, net of fuel surcharges, increased $31.3decreased $9.1 million, or 7.1%2.0%, to $472.9$441.0 million in 20072010 from $441.6$450.1 million in 2006.

2009.  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.  Fuel surcharge revenue increased to $75.9 million in 2010 from $55.7 million in 2009, caused by significantly higher fuel prices in 2010.


Truckload segment revenue increased $12.9decreased $4.0 million, or 2.7%1.0%, to $490.5$392.8 million in 20072010 from $477.7$396.8 million in 2006.2009.  Truckload segment revenue, net of fuel surcharges, increased 1.1%.  We were abledecreased 6.1% primarily due to increasea decrease in our truckload revenue by increasing theaverage fleet size of 253 tractors, or 10.7%, partially offset by an increase in our fleet and our business with existing and new customers.  Our average truckload revenue, net of fuel surcharges, per tractor per week of 5.2% in 2010 from 2009.  The changes in our operating statistics are primarily the result of the continued growth of our regional temperature-controlled operations, which we have increased 0.6%to 51.8% of our truckload fleet as of December 31, 2010 from 25.9% as of December 31, 2009.  By focusing on shorter lengths of haul in 2007certain 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 13.9% reduction from 2006, due to a 0.4% increase2009 in average miles per tractor and a 0.2% increase in average truckload revenue, netlength of fuel surcharges, per total mile.  Our weighted average number of tractors increased 0.5% in 2007 from 2006.haul to 655 miles.  The slight improvement in tractor productivity was more than offset by an increase in our overall cost structure which resultedand the increase in decreasedrevenue per tractor per week primarily caused the increase in profitability from 2006.  Due to a challenging freight environment, we were not able to increase freight rates to cover higher costs.  We expect industry-wide capacity to exceed demand at least into the second quarter of 2008.  Based on that outlook, our goal is to continue to maintain our rate structure by focusing on profitable freight and strong service performance, while aggressively controlling our costs.

2009.


20
Logistics segment revenue increased $28.2$15.1 million, or 68.5%13.8%, to $69.5$124.2 million in 20072010 from $41.2$109.1 million in 2006.2009.  Logistics segment revenue, net of intermodal fuel surcharges, increased 68.4%11.7%.  The increase

18


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 Logisticslogistics segment in 20072010 was primarily due to an increase as a percentage of logistics revenue ofin the payments to carriers for transportation services which we arranged.

arranged as a percentage of our brokerage revenue due to carrier constraints.


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

 

 

Dollar

 

Percentage

 

Percentage of

 

 

 

Change

 

Change

 

Operating Revenue

 

(Dollars in thousands)

 

2007 vs. 2006

 

2007 vs. 2006

 

2007

 

2006

 

Operating revenue

 

$

41,127

 

7.9

%

100.0

%

100.0

%

Operating expenses (income):

 

 

 

 

 

 

 

 

 

Salaries, wages and benefits

 

9,401

 

6.5

 

27.5

 

27.8

 

Purchased transportation

 

19,367

 

22.9

 

18.5

 

16.3

 

Fuel and fuel taxes

 

13,942

 

10.3

 

26.6

 

26.0

 

Supplies and maintenance

 

5,466

 

16.5

 

6.9

 

6.4

 

Depreciation

 

2,649

 

6.0

 

8.4

 

8.5

 

Operating taxes and licenses

 

(691

)

(9.2

)

1.2

 

1.4

 

Insurance and claims

 

1,170

 

5.5

 

4.0

 

4.1

 

Communications and utilities

 

234

 

6.4

 

0.7

 

0.7

 

Gain on disposition of revenue equipment

 

3,604

 

51.6

 

(0.6

)

(1.3

)

Other

 

(647

)

(5.9

)

1.8

 

2.1

 

Total operating expenses

 

54,495

 

11.4

 

95.0

 

92.1

 

Operating income

 

(13,368

)

(32.5

)

5.0

 

7.9

 

Other expenses (income):

 

 

 

 

 

 

 

 

 

Interest expense

 

259

 

7.3

 

0.7

 

0.7

 

Interest income and other

 

413

 

37.3

 

(0.1

)

(0.2

)

Minority interest

 

34

 

4.4

 

0.1

 

0.1

 

 

 

706

 

21.9

 

0.7

 

0.6

 

Income before income taxes

 

(14,074

)

(37.1

)

4.3

 

7.3

 

Provision for income taxes

 

(4,524

)

(33.7

)

1.6

 

2.6

 

Net income

 

$

(9,550

)

(39.0

)%

2.7

%

4.7

%

  
Dollar
Change
  
Percentage
Change
  
Percentage of
Operating Revenue
 
(Dollars in thousands)
 2010 vs. 2009  2010 vs. 2009  2010  2009 
             
Operating revenue $11,046   2.2%  100.0%  100.0%
Operating expenses (income):                
Salaries, wages and benefits  (7,233)  (5.2)  25.4   27.4 
Purchased transportation  3,831   3.6   21.4   21.1 
Fuel and fuel taxes  15,029   15.0   22.2   19.7 
Supplies and maintenance  (3,005)  (7.9)  6.8   7.6 
Depreciation  (1,153)  (2.2)  10.0   10.5 
Operating taxes and licenses  (450)  (6.7)  1.2   1.3 
Insurance and claims  (3,323)  (16.7)  3.2   3.9 
Communications and utilities  (206)  (4.9)  0.8   0.8 
Gain on disposition of revenue equipment
  520   31.9   (0.2)  (0.3)
Other  1,106   10.2   2.3   2.2 
Total operating expenses  5,116   1.1   93.2   94.2 
Operating income  5,930   20.2   6.8   5.8 
Net interest expense (income)  (58)  (181.3)  -   - 
Income before income taxes  5,988   20.4   6.8   5.8 
Less:  Income before income taxes attributable
to noncontrolling interest
  47   8.0   0.1   0.1 
Income before income taxes attributable to
Marten Transport, Ltd.
  5,941   20.7   6.7   5.7 
Provision for income taxes  2,466   19.8   2.9   2.5 
Net income $3,475   21.4%  3.8%  3.2%

21
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 increasedecrease in salaries, wages and benefits resulted primarily from a 2.8% increase6.6% decrease in the total miles driven by company drivers.  Additionally, higher self-insured medical claims increaseddrivers coupled with a broader implementation of our employees’ health insurance expense by $1.8 million in 2007.

per diem pay structure for our drivers from  2009 to 2010.

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 $19.4$3.8 million in total, or 22.9%3.6%, in 20072010 from 2006.2009.  Payments to carriers for transportation services we arranged in our brokerage and intermodal operations increased $22.8$12.7 million to $52.5$93.5 million in 20072010 from $29.7$80.7 million in 2006, as our Logistics operations significantly increased in size and scope compared with 2006.2009.  The portion of purchased transportation expense related to our independent contractors, including fuel surcharges, decreased $3.5$8.9 million in 2007,2010, primarily due to a decrease in the number of independent contractor-owned tractors in our fleet.  We expect that purchased transportation expense will continue to increase as we continue to grow our Logistics segment.

19


                FuelNet fuel expense (fuel and fuel taxes which we refer to as fuel expense, net of fuel surcharge revenue increased $4.1and surcharges passed through to independent contractors, outside drayage carriers and railroads) decreased $4.2 million, or 7.1%8.0%, to $61.9$47.9 million in 20072010 from $57.8$52.1 million in 2006. The increase was primarily due2009.  Fuel surcharges passed through to a 2.8% increaseindependent contractors, outside drayage carriers and railroads were $8.9 million in miles driven2010 and $7.9 million in 2009.  We have worked diligently to control fuel usage and costs by improving our company-owned fleetvolume purchasing arrangements and an increase inoptimizing our drivers’ fuel purchases with national fuel centers, focusing on shorter lengths of haul, installing and tightly managing the average cost of fuel during 2007 to $2.78 per gallon from $2.60 per gallon in 2006.  These increases were partially offset by reduced idling fuel consumption resulting from the installationuse of auxiliary power units forin our tractors thatto minimize engine idling and improving fuel usage in the temperature-control units on our trailers.  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.  Auxiliary power units were installedThe decrease in approximately 60% ofnet fuel expense was primarily due to a 6.6% decrease in the total miles driven by our company-owned tractors as of December 31, 2007.  We have fuel surcharge provisions in substantially all of our transportation contractsfleet and attempt to recoverthe cost control measures stated above, which were partially offset by a portion of increasing fuel prices through fuel surcharges and higher rates.  We expect our fuel expense tosignificant increase in the future because we believe that government-mandated emissions standards that took effectDOE national average cost of fuel to $2.99 per gallon in 2007 will result2010 from $2.47 per gallon in further declines2009.  Net fuel expense represented 13.1% of truckload and intermodal revenue, net of fuel surcharges, in engine efficiency.

2010, compared with 13.6% in 2009.

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 increasedecrease in supplies and maintenance in 20072010 primarily resulted from the higher percentage of company-owned tractorsa decrease in outside vendor maintenance on our fleet, forrevenue equipment which we bear all maintenance expenses, an increase inwere able to achieve by increasing the sizecapacity of our trailer fleet associated with growth of our intermodal operations and an increase in the average age of our tractor and trailer fleets.regional maintenance facilities.  Our maintenance practices in 2007 were consistent with 2006.

                Depreciation relates to owned tractors, trailers, communications units, terminal facilities and other assets. Gains or losses on dispositions of revenue equipment are set forth in a separate line item, rather than included in this category. The increase in depreciation was due to an increase in revenue equipment and in the relative percentage of company-owned tractors to independent contractor-owned tractors in 2007.  We expect our annual cost of tractor and trailer ownership will increase in future periods as a result of higher prices of new equipment, which is expected to result in greater depreciation over the useful life.

2009.

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 increase$3.3 million decrease in insurance and claims in 20072010 was primarily due to a decrease in the resultcost of an increase in physical damage claims with respect to our tractors and trailers.  We are responsible for the first $1.0 million on eachself-insured auto liability claim and up to $1.0 million in the aggregate for all auto liability claims between $1.0 million and $2.0 million.  We are also responsible for the first $750,000 on each workers’ compensation claim.accident claims. Our significant self-insured retention and our risk on the first $1.0 million of auto liability claims in the $1.0 million to $2.0 million corridor exposeexposes 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.  In the event of an uninsured claim above our insurance coverage, or an increase in the frequency or severity of claims within our self-insured retention, our financial condition and results of operations could be materially and adversely affected.

                A decrease in the planned number

22
Gain on disposition of revenue equipment dispositions anddecreased to $1.1 million in 2010 from $1.6 million in 2009 as a result of a decrease in the market value for used revenue equipment, caused our gain on dispositionwhich was partially offset by an increase in the number of revenue equipment to decrease to $3.4 million in 2007 from $7.0 million in 2006.trailers sold.  Future gains or losses on disposition of 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.

As a result of the foregoing factors, our operating expenses as a percentage of operating revenue, or “operating ratio,” was 95.0%improved to 93.2% in 2007 compared2010 from 94.2% in 2009.  The operating ratio for our Truckload segment improved to 92.7% from 94.2% in 2009 and the operating ratio for our Logistics segment increased to 94.7% from 94.0% in 2009.  Operating expenses as a percentage of operating revenue, with 92.1% in 2006.

both amounts net of fuel surcharge revenue, improved to 92.0% for 2010 from 93.5% for 2009.

Our effective income tax rate increased to 37.3%was 43.1% in 2007 from 35.4%2010 and 43.4% in 2006, primarily because we decreased our deferred income tax liability in 2006 by 3.3% of income before income taxes.  This decrease was primarily due to a change in income apportionment for several states, which produced a lower effective state income tax rate, net of federal impact.

20

2009.

As a result of the factors described above, net income decreasedincreased to $15.0$19.7 million in 20072010 from $24.5$16.3 million in 2006.2009.  Net earnings per share decreasedincreased to $0.68$0.90 per diluted share in 20072010 from $1.12$0.74 per diluted share in 2006.

2009.

23

Comparison of Year Ended December 31, 20062009 to Year Ended December 31, 2005

2008

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

 

 

 

 

 

 

Dollar

 

Percentage

 

 

 

 

 

 

 

Change

 

Change

 

(Dollars in thousands)

 

2006

 

2005

 

2006 vs. 2005

 

2006 vs. 2005

 

Operating revenue:

 

 

 

 

 

 

 

 

 

Truckload revenue, net of fuel surcharge revenue

 

$

402,327

 

$

386,131

 

$

16,196

 

4.2

%

Truckload fuel surcharge revenue

 

75,323

 

57,127

 

18,196

 

31.9

 

Total Truckload revenue

 

477,650

 

443,258

 

34,392

 

7.8

 

 

 

 

 

 

 

 

 

 

 

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

 

39,298

 

16,873

 

22,425

 

132.9

 

Intermodal fuel surcharge revenue

 

1,942

 

71

 

1,871

 

2,635.2

 

Total Logistics revenue

 

41,240

 

16,944

 

24,296

 

143.4

 

 

 

 

 

 

 

 

 

 

 

Total operating revenue

 

$

518,890

 

$

460,202

 

$

58,688

 

12.8

%

 

 

 

 

 

 

 

 

 

 

Operating income:

 

 

 

 

 

 

 

 

 

Truckload

 

$

37,500

 

$

41,277

 

$

(3,777

)

(9.2

)%

Logistics

 

3,669

 

1,590

 

2,079

 

130.8

 

Total operating income

 

$

41,169

 

$

42,867

 

$

(1,698

)

(4.0

)%

 

 

 

 

 

 

 

 

 

 

Operating ratio(2):

 

 

 

 

 

 

 

 

 

Truckload

 

92.1

%

90.7

%

 

 

(1.5

)%

Logistics

 

91.1

 

90.6

 

 

 

(0.6

)

Consolidated operating ratio

 

92.1

%

90.7

%

 

 

(1.5

)%

(1) Logistics revenue is net of $16.5 million and $21.3 million of inter-segment revenue in 2006 and 2005, respectively, for loads transported by our tractors and arranged by MWL that have been eliminated in consolidation.

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

        Dollar  Percentage 
        Change  Change 
(Dollars in thousands) 2009  2008  2009 vs. 2008  2009 vs. 2008 
Operating revenue:            
             
Truckload revenue, net of fuel surcharge revenue
 $346,983  $384,264  $(37,281)  (9.7)%
Truckload fuel surcharge revenue  49,812   123,922   (74,110)  (59.8)
Total Truckload revenue
  396,795   508,186   (111,391)  (21.9)
                 
Logistics revenue, net of intermodal fuel surcharge revenue(1)
  103,166   90,194   12,972   14.4 
Intermodal fuel surcharge revenue  5,913   8,719   (2,806)  (32.2)
Total Logistics revenue
  109,079   98,913   10,166   10.3 
                 
Total operating revenue
 $505,874  $607,099  $(101,225)  (16.7)%
                 
Operating income:                
Truckload $22,827  $26,055  $(3,228)  (12.4)%
Logistics  6,532   6,650   (118)  (1.8)
Total operating income
 $29,359  $32,705  $(3,346)  (10.2)%
                 
Operating ratio(2):
                
Truckload  94.2%  94.9%      (0.7)%
Logistics  94.0   93.3       0.8 
Consolidated operating ratio
  94.2%  94.6%      (0.4)%

(1)Logistics revenue is net of $10.2 million and $16.8 million of inter-segment revenue in 2009 and 2008, 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 $58.7decreased $101.2 million, or 12.8%16.7%, to $518.9$505.9 million in 20062009 from $460.2$607.1 million in 2005.2008.  This decrease was primarily due to fuel surcharge revenue decreasing to $55.7 million in 2009 from $132.6 million in 2008, caused by significantly lower fuel prices in 2009.  Our operating revenue, net of fuel surcharges, increased $38.6decreased $24.3 million, or 9.6%5.1%, to $441.6$450.1 million in 20062009 from $403.0$474.5 million in 2005.

2008.  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 increased $34.4decreased $111.4 million, or 7.8%21.9%, to $477.7$396.8 million in 20062009 from $443.3$508.2 million in 2005.2008.  Truckload segment revenue, net of fuel surcharges, increased 4.2%.  We were abledecreased 9.7% primarily due to increasea decrease in our truckload revenue by increasing our freight rates, the size of our fleet and our business with existing and new customers.  This increase was partially offset by the impact of lower equipment utilization.  Our average truckload revenue, net of fuel surcharges, per tractor per week increased 1.4%of 9.7% in 2006 from 2005,2009.  The reduction in revenue per tractor per week was primarily caused by a decrease in our average miles per tractor in 2009 due to the difficult freight environment.  The changes in our operating statistics are consistent with the continued growth of our regional temperature-controlled operations.  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 4.2% increaseportion of our fleet in these markets is evident in a 10.8% reduction from 2008 in average truckloadlength of haul to 761 miles.  Our average fleet size was relatively stable in 2009 compared with 2008.  The decrease in revenue net of fuel surcharges, per total miletractor per week, partially offset by a 2.7% decrease in average miles per tractor.  Our weighted average number of tractors increased 2.7% in 2006 from 2005.  Thethe improvement in tractor productivity was more than offset by an increase in our overall cost structure, which resultedprimarily caused the decrease in decreased profitability from 2005.  Our ability to recruit and retain a sufficient number of qualified drivers limited our fleet growth in 2006.

21

2008.
24

Logistics segment revenue increased $24.3$10.2 million, or 143.4%10.3%, to $41.2$109.1 million in 20062009 from $16.9$98.9 million in 2005.2008.  Logistics segment revenue, net of intermodal fuel surcharges, increased 132.9%14.4%.  The increase in logistics revenue primarily resulted from continued volume growth in each of our internal brokerage and intermodal services, andpartially offset by a decrease in the logistics services providedrevenue generated by MWL.  The increase inWithin the difficult freight environment, our operating ratio for ourthe Logistics segment in 2006 was primarily due to an increase as a percentage of logistics revenue of the payments to carriers for transportation services which we arranged.

2009 increased by 0.8% from 2008.

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

 

 

Dollar

 

Percentage

 

Percentage of

 

 

 

Change

 

Change

 

Operating Revenue

 

(Dollars in thousands)

 

2006 vs. 2005

 

2006 vs. 2005

 

2006

 

2005

 

Operating revenue

 

$

58,688

 

12.8

%

100.0

%

100.0

%

Operating expenses (income):

 

 

 

 

 

 

 

 

 

Salaries, wages and benefits

 

17,796

 

14.1

 

27.8

 

27.5

 

Purchased transportation

 

2,512

 

3.1

 

16.3

 

17.8

 

Fuel and fuel taxes

 

27,357

 

25.4

 

26.0

 

23.4

 

Supplies and maintenance

 

4,963

 

17.6

 

6.4

 

6.1

 

Depreciation

 

6,131

 

16.0

 

8.5

 

8.3

 

Operating taxes and licenses

 

463

 

6.6

 

1.4

 

1.5

 

Insurance and claims

 

2,269

 

12.0

 

4.1

 

4.1

 

Communications and utilities

 

237

 

7.0

 

0.7

 

0.7

 

Gain on disposition of revenue equipment

 

(3,047

)

(77.3

)

(1.3

)

(0.9

)

Other

 

1,705

 

18.3

 

2.1

 

2.0

 

Total operating expenses

 

60,386

 

14.5

 

92.1

 

90.7

 

Operating income

 

(1,698

)

(4.0

)

7.9

 

9.3

 

Other expenses (income):

 

 

 

 

 

 

 

 

 

Interest expense

 

1,203

 

51.0

 

0.7

 

0.5

 

Interest income and other

 

616

 

35.8

 

(0.2

)

(0.4

)

Minority interest

 

27

 

3.6

 

0.1

 

0.2

 

 

 

1,846

 

133.8

 

0.6

 

0.3

 

Income before income taxes

 

(3,544

)

(8.5

)

7.3

 

9.0

 

Provision for income taxes

 

(3,001

)

(18.3

)

2.6

 

3.6

 

Net income

 

$

(543

)

(2.2

)%

4.7

%

5.4

%

  
Dollar
Change
  
Percentage
Change
  
Percentage of
Operating Revenue
 
(Dollars in thousands) 2009 vs. 2008  2009 vs. 2008  2009  2008 
             
Operating revenue $(101,225)  (16.7)%  100.0%  100.0%
Operating expenses (income):                
Salaries, wages and benefits  (13,864)  (9.1)  27.4   25.1 
Purchased transportation  (6,598)  (5.8)  21.1   18.6 
Fuel and fuel taxes  (75,994)  (43.2)  19.7   29.0 
Supplies and maintenance  (155)  (0.4)  7.6   6.3 
Depreciation  3,364   6.8   10.5   8.2 
Operating taxes and licenses  (57)  (0.8)  1.3   1.1 
Insurance and claims  (5,513)  (21.7)  3.9   4.2 
Communications and utilities  430   11.5   0.8   0.6 
Gain on disposition of revenue equipment  1,034   38.8   (0.3)  (0.4)
Other  (526)  (4.6)  2.2   1.9 
Total operating expenses  (97,879)  (17.0)  94.2   94.6 
Operating income  (3,346)  (10.2)  5.8   5.4 
Net interest expense (income)  (926)  (96.7)  -   0.2 
Income before income taxes  (2,420)  (7.6)  5.8   5.2 
Less:  Income before income taxes attributable
to noncontrolling interest
  (536)  (47.9)  0.1   0.2 
Income before income taxes attributable to
Marten Transport, Ltd.
  (1,884)  (6.2)  5.7   5.0 
Provision for income taxes  (80)  (0.6)  2.5   2.1 
Net income $(1,804)  (10.0)%  3.2%  3.0%
The increasedecrease in salaries, wages and benefits resulted primarily from an increasea 6.8% decrease in the size of our company-owned fleet and thetotal miles driven by company drivers alongcoupled with an increasea more broad implementation of our per diem pay structure for our drivers in the amount paid to company drivers of 2 cents per mile effective April 1, 2005.    Additionally, higher2009, a $3.4 million decrease in our self-insured medical claims, increasedwhich decreased our employees’ health insurance expense, by $1.9and a $1.6 million decrease in 2006.  These increases were partially offset by a decrease of $960,000 inbonus compensation expensed for our non-driver employees under our incentive compensation program from 2005.

employees.

Purchased transportation expense increased $2.5decreased $6.6 million in total, or 3.1%5.8%, in 20062009 from 2005.2008.  Payments to carriers for transportation services we arranged in our brokerage and intermodal operations increased $6.9 million to $80.7 million in 2009 from $73.8 million in 2008. The portion of purchased transportation expense related to our independent contractors, including fuel surcharges, decreased $15.3$13.5 million or 21.8%, in 2006,2009, primarily due to a decrease in the amount of fuel surcharges paid to the independent contractors and a decrease in the number of independent contractor-owned tractors in our fleet.  Payments to carriers for transportation services we arranged in our brokerage and intermodal operations increased $17.8 million to $29.7 million in 2006 from $11.9 million in 2005, as our Logistics operations significantly increased in size compared with 2005.

                Fuel

25
Net fuel expense (fuel and fuel taxes which we refer to as fuel expense, net of fuel surcharge revenue increased $7.3and surcharges passed through to independent contractors, outside drayage carriers and railroads) decreased $9.3 million, or 14.4%15.2%, to $57.8$52.1 million in 20062009 from $50.5$61.4 million in 2005.2008.  Fuel surcharges passed through to independent contractors, outside drayage carriers and railroads were $7.9 million in 2009 and $18.2 million in 2008.  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 the temperature-control units on our trailers.  The increasedecrease in net fuel expense was primarily due to a 7.9% increasesignificant decrease in the DOE national average cost of fuel to $2.47 per gallon in 2009 from $3.80 per gallon in 2008, a 6.8% decrease in the total miles driven by our company-owned fleet a higher averageand to the cost control measures stated above.  Net fuel priceexpense represented 13.6% of truckload and intermodal revenue, net of fuel surcharges, and

22


lower fuel efficiencies associatedin 2009, compared with newer tractors.  Our fuel prices, which remain high based on historical standards, significantly increased14.9% in 2008.

Depreciation relates to an average of $2.60 per gallon in 2006 from an average of $2.29 per gallon in 2005.

                The increase in suppliesowned tractors, trailers, auxiliary power units, communications units, terminal facilities and maintenance in 2006 primarily resulted from our larger fleet and the higher percentage of company-owned tractors in our fleet, for which we bear all maintenance expenses.  Our maintenance practices were consistent with 2005.

other assets.  The increase in depreciation was primarily due to ana continued increase in the cost of revenue equipment and an increase in the relative percentage of company-owned tractors to independent contractor-owned tractors in 2006.

2009.  We expect our annual cost of tractor and trailer ownership will increase in future periods as a result of higher prices of new equipment, which will result in greater depreciation over the useful life.

The increase$5.5 million decrease in insurance and claims in 20062009 was comprised ofprimarily due to a $3.0 million increasedecrease in the cost of our self-insured auto liability and workers’ compensation accident claims partially offset byand to reduced physical damage claims related to our tractors and trailers.
Gain on disposition of revenue equipment decreased to $1.6 million in 2009 from $2.7 million in 2008 as a $735,000result of a decrease in insurance premiums.

                In 2006, increases in the market value for used revenue equipment, along with additional planned revenue equipment dispositions caused our gain on dispositionwhich was partially offset by an increase in the number of revenue equipment to increase to $7.0 million from $3.9 million in 2005.

trailers sold.

As a result of the foregoing factors, our operating expenses as a percentage of operating revenue, or “operating ratio,”ratio”, was 92.1%94.2% in 20062009 compared with 90.7%94.6% in 2005.

2008.  The increaseoperating ratio for our Truckload segment decreased to 94.2% from 94.9% in 2008 and the operating ratio for our Logistics segment increased to 94.0% from 93.3% in 2008.  The more broad implementation of our per diem pay structure for our drivers in 2009 positively impacted our operating ratio in 2009 compared with 2008.

The decrease in net interest expense of $926,000, or 96.7%, in 2009 from 2008 was primarily the result of higherlower average debt balances outstanding in 2006.

outstanding.

Our effective income tax rate decreasedincreased to 35.4%43.4% in 2006 compared with 39.6%2009 from 41.0% in 20052008, primarily because we decreasedof the nondeductible effect of a per diem pay structure for our deferred income tax liability by 3.3%drivers adopted in the first quarter of income before income taxes.  Our effective income tax rate in 2006 included a revision to our previously recorded deferred income tax liability of 2.8% of income before income taxes, primarily due to a change in income apportionment for several states,2008 which produced a lower effective state income tax rate, net of federal impact.

was more broadly implemented during 2009.

As a result of the factors described above, net income decreased to $24.5$16.3 million in 20062009 from $25.1$18.1 million in 2005.2008.  Net earnings per share decreased to $1.12$0.74 per diluted share in 20062009 from $1.14$0.82 per diluted share in 2005.

2008.

26

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 our unsecured senior notes 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. However, to the extent we purchase tractors and extend financing to the independent contractors through our tractor purchase program, we have an associated capital expenditure requirement.

                In December 2007, our Board of Directors approved a share repurchase program to repurchase up to one million shares of our common stock.  This program is intended to be implemented through purchases made in either the open market or through private transactions.  The timing and extent to which we will repurchase shares depends on market conditions and other corporate considerations.  We made no purchases in 2007.  Through March 14, 2008, we repurchased 67,500 shares of our common stock for $810,000.  The repurchase program does not have an expiration date.

23



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) provided by financing activities and total long-term debt, including current maturities, for the years indicated.

(In thousands)

 

2007

 

2006

 

2005

 

 

 

 

 

 

 

 

 

Net cash flows provided by operating activities

 

$

61,807

 

$

77,070

 

$

72,472

 

Net cash flows (used for) investing activities

 

(46,826

)

(86,848

)

(88,557

)

Net cash flows (used for) provided by financing activities

 

(14,351

)

11,686

 

16,310

 

Long-term debt, including current maturities, at December 31

 

44,643

 

58,659

 

48,300

 

(In thousands) 2010  2009  2008 
          
Net cash flows provided by operating activities
 $64,522  $81,686  $77,044 
Net cash flows (used for) investing activities
  (81,181)  (77,164)  (37,602)
Net cash flows provided by (used for) financing activities
  16,555   (1,507)  (40,665)
In 2007, we added approximately $36.6 million of2010, 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 $69.3 million and also recognized a gainto partially construct two regional operating facilities in the amount of $3.4 million on the disposition$9.6 million.  We estimate that capital expenditures, net of used equipment.  We also decreased our accounts payable and accrued liabilities relating to revenue equipment by $10.2proceeds from dispositions, will be approximately $50 million in 2007.  Based on2011. We paid our current operating performance,first two quarterly cash dividends of $0.02 per share of common stock in the market for used tractors,third and fourth quarters of 2010 totaling $877,000.  We currently expect to continue to pay quarterly cash dividends in the future.  The payment of cash dividends in the future, and the amount of any such dividends, will depend upon our liquidityfinancial condition, results of operations, cash requirements, and certain corporate law requirements, as well as other factors deemed relevant by our expectations concerning tractors manufactured in 2007, we decided to accelerate our tractor fleet replacement during 2005 and 2006 to allow us greater flexibility in our decisions to purchase tractors manufactured in 2007, to add capacity to meet demand, and to add tractors to our company fleet as moreBoard of our drivers become company drivers rather than independent contractors. This acceleration of our tractor fleet replacement has not impacted the useful lives of our tractors or caused impairment to the carrying amount reflected in our consolidated balance sheet.  These capital expenditures were primarily funded with cash flows from operations and borrowings under our revolving credit facility.  The outstanding principal balance of our credit facility increased as a result of the accelerated fleet replacement.Directors.  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 estimate that capital expenditures, net of proceeds from dispositions, will be approximately $12 million in 2008, which would be significantly below the level of capital expenditures during the last several years due to nearly 325 tractors paid-for but not placed in service as of December 31, 2007.  Assuming net capital expenditures in that amount and operating margins similar to the margins in 2007, we expect to generate cash flows to retire a substantial amount of our debt in 2008 or provide flexibility for other purposes.

                We have outstanding Series A Senior Unsecured Notes with an aggregate principal balance of $3.6 million at December 31, 2007. These notes mature in October 2008, require annual principal payments of $3.57 million and bear interest at a fixed annual rate of 6.78%. We also have outstanding Series B Senior Unsecured Notes with an aggregate principal balance of $4.3 million at December 31, 2007. These notes mature in April 2010, require annual principal payments of $1.43 million and bear interest at a fixed annual rate of 8.57%.

We maintain a credit agreement that provides for a five-year unsecured committed credit facility maturing in September 2011 in an aggregate principal amount of up to $75$50 million.  The aggregate principal amount of the credit facility may be increased at our option, subject to completion of signed amendments with participating banks, up to a maximum aggregate principal amount of $100 million.  At December 31, 2007,2010, the credit facility had an outstanding principal balance of $36.8$19.3 million, outstanding standby letters of credit of $5.2$8.3 million and remaining borrowing availability of $33.0$22.4 million.  The $19.3 million increase in the outstanding principal balance of the credit facility from December 31, 2009 primarily resulted from the excess of capital expenditures, net of proceeds from dispositions, over the amount of net cash flows provided by operating activities.  This facility bears interest at a variable rate based on the London Interbank Offered Rate or the agent bank’s Prime Rate, in each case plus/minus applicable margins.  The weighted average interest rate for the facility was 0.86% at December 31, 2010.  The $19.3 million outstanding principal balance on the credit facility was 5.82% per annum atclassified as a current liability in our consolidated balance sheet as of December 31, 2007.

2010 because the maturity date of the facility is within the next twelve months.  Prior to the maturity of our current credit agreement, we plan on entering into an agreement with a bank, subject to agreement by such bank, for a credit agreement that also provides for an unsecured committed credit facility.

Our credit facility prohibits us from paying, in any fiscal year, dividends in excess of 25% of our net income from the prior fiscal year. The debt agreements discussed aboveThis facility also containcontains restrictive covenants which, among other matters, require us to maintain compliance with certain financial ratios, including debt-to-equity, cash flow

24


leverage interest coverage and fixed charge coverage.coverage ratios. We were in compliance with all of these covenants at December 31, 2007.

2010.

27
In December 2007, our Board of Directors approved a share repurchase program to repurchase up to one million shares of our common stock either through purchases on the open market or through private transactions.  The timing and extent to which we will repurchase shares depends on market conditions and other corporate considerations.  In the first quarter of 2008 we repurchased and retired 67,500 shares of our common stock for $810,000.  We had $3.0 millionmade no purchases in direct financing receivables from independent contractors under our tractor purchase program as of December 31, 2007, compared with $6.1 million in receivables as of December 31, 2006. These receivables, which are collateralized by the financed tractors, are used to attract and retain qualified independent contractors. We deduct payments from the independent contractors’ settlements weekly and, as a result, have experienced minimal collection issues for these receivables.  The decrease2010, 2009, or in the receivables balance is related to a newremainder of 2008.  The repurchase program to direct the leases to a third-party leasing vendor in 2007.

does not have an expiration date.

The following is a summary of our contractual obligations as of December 31, 2007.

 

 

Payments Due by Period

 

 

 

 

 

2009

 

 

 

 

 

 

 

 

 

 

 

and

 

 

 

 

 

 

 

(In thousands)

 

2008

 

2010

 

2011

 

Thereafter

 

Total

 

Long-term debt obligations

 

$

5,000

 

$

2,857

 

$

36,786

 

$

—

 

$

44,643

 

Purchase obligations for revenue equipment

 

1,949

 

—

 

—

 

—

 

1,949

 

Operating lease obligations

 

230

 

286

 

71

 

—

 

587

 

Total

 

$

7,179

 

$

3,143

 

$

36,857

 

$

—

 

$

47,179

 

2010.

  Payments Due by Period 
     2012  2014       
     And  And       
(In thousands) 2011  2013  2015  Thereafter  Total 
Long-term debt obligations    $19,346  $—  $—  $—  $19,346 
Purchase obligations for revenue equipment  9,381   —   —   —   9,381 
Building construction obligations
  2,856   —   —   —   2,856 
Operating lease obligations  627   459   3   —   1,089 
   Total $32,210  $459  $3  $—  $32,672 

Related Parties

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 $1.1$815,000 in 2010, $796,000 in 2009 and $1.4 million in 2007, $1.3 million in 2006 and $1.2 million in 20052008 for fuel and tire services. In addition, we paid $2.4$1.7 million in 2007, $2.42010, $1.5 million in 20062009 and $2.0$2.3 million in 20052008 to tire manufacturers for tires that we purchased from the tire manufacturers whichbut were provided by BBI. BBI received commissions from the tire manufacturers related to these purchases.  Other than any benefit received from his ownership interest, Mr. Bauer receives no compensation or other benefits from our business with BBI.

We paid Durand Builders Service, Inc. $547,000$262,000 in 20072010, $1.1 million in 2009 and $142,000$564,000 in 2005, respectively,2008 for various construction projects.  Larry B. Hagness, one of our directors, is the president and owner of Durand Builders Service, Inc.  Other than any benefit received from his ownership interest, Mr. Hagness receives no compensation or other benefits from these transactions.

In August 2008, we acquired a building adjacent to our headquarters which will be used for maintenance and storage from Randolph L. Marten, our Chairman of the Board and Chief Executive Officer, in a like-kind exchange for a partially constructed building of equal value owned by Marten Transport.  Each of the buildings were valued at $291,000 at the time of the exchange.
We believe that the transactions with related parties noted above are on reasonable terms which, based upon market rates, are comparable to terms available from unaffiliated third parties.
Off-balance Sheet Arrangements

Other than standby letters of credit maintained in connection with our self-insurance programs in the amount of $5.2$8.3 million and operating leases summarized above in our summary of contractual obligations, we did not have any other material off-balance sheet arrangements at December 31, 2007.

2010.

28

Inflation and Fuel Costs

Most of our operating expenses are inflation-sensitive, with inflation generally producing increased costs of operations.  During the past three years, the most significant effects of inflation have been on revenue equipment prices, accident claims, health insurance and employee compensation. We attempt to limit the effects of inflation through increases in freight rates and cost control efforts.

In addition to inflation, fluctuations in fuel prices can affect our profitability. We require substantial amounts of fuel to operate our tractors and power the temperature-control units on our trailers. Substantially all of our contracts with customers contain fuel surcharge provisions. Although we historically have been able to pass through mosta significant portion of long-term increases in fuel prices and related taxes to customers in the form of surcharges and higher rates, such increases usually are not fully recovered.  Fuel prices were high throughoutThese surcharge provisions are not effective in mitigating the past three years, which has increased our cost of operating.

25

fuel price increases related to non-revenue miles or fuel used while the tractor is idling.
Seasonality

Seasonality

Our tractor productivity generally decreases during the winter season because inclement weather impedes operations and some shippers reduce their shipments. At the same time, operating expenses generally increase, with harsh weather creating higher accident frequency, increased claims and more equipment repairs.

Critical Accounting Policies


The preparation of financial statements in conformity with accounting principlesU.S. generally accepted in the United States of Americaaccounting principles requires management to make estimates and assumptions about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenue and expenses in our consolidated financial statements and related notes.  We base our estimates, assumptions and judgments on historical experience, current trends and other factors believed to be relevant at the time our consolidated financial statements are prepared.  However, because future events and their effects cannot be determined with certainty, actual results could differ from our estimates and assumptions, and such differences could be material.  We believe that the following critical accounting policies affect our more significant estimates, assumptions and judgments used in the preparation of our consolidated financial statements.

Revenue Recognition. We recognize revenue, including fuel surcharges, at the time shipment of freight is completed.  We account for revenue of our Logistics segment and revenue on freight transported by independent contractors within our Truckload segment on a gross basis because we are the primary obligor in the arrangements, we have the ability to establish prices, we have the risk of loss in the event of cargo claims and we bear credit risk with customer payments.  Accordingly, all such revenue billed to customers is classified as operating revenue and all corresponding payments to carriers for transportation services we arrange in connection with brokerage and intermodal activities and to independent contractor providers of revenue equipment are classified as purchased transportation expense.

Accounts Receivable.  We are dependent onupon a limited number of customers, and, as a result, our trade accounts receivable are highly concentrated. Trade accounts receivable are recorded at the invoiced amounts, net of an allowance for doubtful accounts.  Our allowance for doubtful accounts was $170,000 as of December 31, 2010 and $245,000 as of December 31, 2009.  A considerable amount of judgment is required in assessing the realization of these receivables including the current creditworthiness of each customer and related aging of the past-due balances, including any billing disputes.  In order to assess the collectibility of these receivables, we perform ongoing credit evaluations of our customers’ financial condition.  Through these evaluations, we may become aware of a situation where a customer may not be able to meet its financial obligations due to deterioration of its financial viability, credit ratings or bankruptcy.  The allowance for doubtful accounts is based on the best information available to us and is reevaluated and adjusted as additional information is received.  We evaluate the allowance based on historical write-off experience, the size of the individual customer balances, past-due amounts and the overall national economy.  We review the adequacy of our allowance for doubtful accounts monthly.

29
Property and Equipment.  The transportation industry requires significant capital investments. Our net property and equipment was $325.2$372.1 million as of December 31, 20072010 and $329.9$341.5 million as of December 31, 2006.2009. Our depreciation expense was $47.0$51.9 million for 2007, $44.4in 2010, $53.1 million for 2006in 2009 and $38.2$49.7 million for 2005.in 2008.  We compute depreciation of our property and equipment for financial reporting purposes based on the cost of each asset, reduced by its estimated salvage value, using the straight-line method over its estimated useful life. We determine and periodically evaluate our estimate of the projected salvage values and useful lives primarily by considering the market for used equipment, prior useful lives and changes in technology. We have not changed our policy regarding salvage values as a percentage of initial cost or useful lives of tractors and trailers within the last ten years. We believe that our policies and past estimates have been reasonable. Actual results could differ from these estimates. A 5% decrease in estimated salvage values would have decreased our net property and equipment as of December 31, 20072010 by approximately $7.2$8.1 million, or 2.2%.

In 2007,2010, we replaced most of our company-owned tractors within approximately 3.54.5 years and our trailers within approximately sevensix years after purchase.  Our useful lives for depreciating tractors is five years and trailers is seven years, with a 25% salvage value for tractors and a 35% salvage value for trailers.  These salvage values are based upon the expected market values of the equipment after five years for tractors and seven years for trailers.  Depreciation expense calculated in this manner approximates the continuing declining value of the revenue equipment, and for tractors, continues at a consistent straight-line rate for units held beyond the normal replacement cycle.  Calculating tractor depreciation expense with a five-year useful life and a 25% salvage value results in the same depreciation rate of 15% of cost per year and the same net book value of 47.5%32.5% of cost at the 3.5-year4.5-year replacement date as using a 3.5-year4.5-year useful life and 47.5%32.5% salvage value.  As a

26


result, there is no difference in recorded depreciation expense on a quarterly or annual basis with our five-year useful life and 25% salvage value compared with a 3.5-year4.5-year useful life and 47.5%32.5% salvage value.

  Similarly, calculating trailer depreciation expense with a seven-year useful life and a 35% salvage value results in the same depreciation rate of 9.3% of cost per year and the same net book value of 44.3% of cost at the six-year replacement date as using a six-year useful life and 44.3% salvage value.  As a result, there is no difference in recorded depreciation expense on a quarterly or annual basis with our seven-year useful life and 35% salvage value compared with a six-year useful life and 44.3% salvage value.

Impairment of Assets. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less the costs to sell.

              Insurance and Claims. We self-insure, in part, for losses relating to workers’ compensation, auto liability, general liability, cargo and property damage claims, along with employees’ health insurance with varying risk retention levels. We maintain insurance coverage for per-incident and total losses in excess of these risk retention levels in amounts we consider adequate based upon historical experience and our ongoing review. However, we could suffer a series of losses within our self-insured retention limits or losses over our policy limits, which could negatively affect our financial condition and operating results.  We are responsible for the first $1.0 million on each auto liability claim and up to $1.0 million in the aggregate for all auto liability claims between $1.0 million and $2.0 million.  We are also responsible for the first $750,000 on each workers’ compensation claim.  We have $5.2$8.3 million in standby letters of credit to guarantee settlement of claims under agreements with our insurance carriers and regulatory authorities. The insurance and claims accruals in our consolidated balance sheets were $17.4$17.7 million as of December 31, 2007,2010, and $16.1$19.2 million as of December 31, 2006.2009. We reserve currently for the estimated cost of the uninsured portion of pending claims. We periodically evaluate and adjust these reserves based on our evaluation of the nature and severity of outstanding individual claims and our estimate of future claims development based on historical claims development factors. We believe that our claims development factors have historically been reasonable, as indicated by the adequacy of our insurance and claims accruals compared to settled claims. Actual results could differ from these current estimates.  In addition, to the extent that claims are litigated and not settled, jury awards are difficult to predict.  If our claims settlement experience worsened causing our historical claims development factors to increase by 5%, our estimated outstanding loss reserves as of December 31, 20072010 would have needed to increase by approximately $2.6$3.7 million.

30
Share-based Payment Arrangement Compensation.  We have granted stock options to certain employees and non-employee directors.  We recognize compensation expense for all share-based payment arrangementsstock options granted after December 31, 2005 and prior to but not yet vested as of December 31, 2005, in accordance with Statement of Financial Accounting Standards No. 123R, “Share-Based Payment” (SFAS 123R).  Under the fair value recognition provisions of SFAS 123R, we record share-based compensation expense net of an estimated forfeiture rate and only record compensation expense for those shares expected to vest on a straight-line basis over the requisite service period for service-based awards (normally the vesting period).  Compensation expense will be recorded for performance-based awards in the periods in which the performance condition is probable of achievement.  Determining the appropriate fair value model and calculating the fair value of share-based payment arrangementsstock options require the input of highly subjective assumptions, including the expected life of the share-based payment arrangementsstock options and stock price volatility.  We use the Black-Scholes model to value our stock option awards.  We believe that future volatility will not materially differ from our historical volatility.  Thus, we use the historical volatility of our common stock over the expected life of the award.  The assumptions used in calculating the fair value of share-based payment awardsstock options represent our best estimates, but these estimates involve inherent uncertainties and the application of judgment.  As a result, if factors change and we use different assumptions, share-basedstock option compensation expense could be materially different in the future.
In addition,August 2010, we are requiredalso granted performance unit awards to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest.  If the actual forfeiture rate is materially different from the estimate, share-based compensation expense could be significantly different from what has been recorded in the current period.

                Income Taxes.  We account for income taxes in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” and FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109.”  As part of the process of

27


preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate.  This process involves estimating our current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and financial reporting purposes.  These temporary differences result in deferred tax assets and liabilities,certain employees which are included in our accompanying consolidated balance sheets.  Deferred tax assets and liabilities are measured using enacted tax rates expectedsubject to apply to taxable income in the years in which the temporary differences are expected to be recovered or settled.  To the extent it is determined that it is not likely that our deferred tax assets will be recovered from future taxable income,vesting requirements over a valuation allowance must be established for the amount of the deferred tax assets determined not to be realizable.  A valuation allowance for deferred tax assets has not been deemed necessary due to our profitable operations.  However, if the facts or our financial results were to change, thereby impacting the likelihood of realizing the deferred tax assets, judgment would have to be applied to determine the amount of any valuation allowance required in any given period.

Recent Accounting Pronouncements

                In September 2006, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements,” (SFAS 157).  SFAS 157 provides enhanced guidance for using fair value to measure assets and liabilities.  The statement provides a common definition of fair value and establishes a framework to make the measurement of fair value in generally accepted accounting principles more consistent and comparable.  SFAS 157 also requires expanded disclosures to provide information about the extent to which fair value is used to measure assets and liabilities, the methods and assumptions used to measure fair value, and the effect of fair value measures on earnings.  SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007.  However, SFAS 157 as it relates to fair value measurement requirements for non-financial assets and liabilities that are not remeasured at fair value on a recurring basis is effective for fiscal years beginning after November 15, 2008.  The adoption of SFAS 157 is not expected to have a significant impactfive-year period, primarily based on our financial condition, results of operations or cash flows.

                In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115” (SFAS 159).  SFAS 159 expands the use of fair value accounting but does not affect existing standards that require assets or liabilities to be carried at fair value.  Under SFAS 159, a company may elect to use fair value to measure accounts and loans receivable, available-for-sale and held-to-maturity securities, equity method investments, accounts payable, guarantees and issued debt.  Other eligible items include firm commitments for financial instruments that otherwise would not be recognized at inception and non-cash warranty obligations where a warrantor is permitted to pay a third party to provide the warranty goods or services.  If the use of fair value is elected, any upfront costs and fees related to the item must be recognized in earnings and cannot be deferred, e.g., debt issue costs.growth.  The fair value electionof each performance unit is irrevocable and generally made on an instrument-by-instrument basis, even if a company has similar instruments that it elects not to measure based on fair value.  At the adoptionclosing market price on the date unrealized gains and lossesof grant.  We recognize compensation expense for these awards based on existing items for which fair value has been elected are reported as a cumulative adjustment to beginning retained earnings.  Subsequent to the adoptionestimated number of SFAS 159, changes in fair value are recognized in earnings.  SFAS 159 is effective asunits probable of achieving the vesting requirements of the beginningawards, net of an entity’s first fiscal year that begins after November 15, 2007.  The adoption of SFAS 159 is not expected to have a significant impact on our financial condition, results of operations or cash flows.

                In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51” (SFAS 160).  SFAS 160 requires that accounting and reporting for minority interests will be recharacterized as noncontrolling interests and classified as a component of equity.  SFAS 160 also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners.  SFAS 160 applies to all entities that prepare consolidated financial statements, except not-for-profit organizations, but will affect only those entities that have an outstanding noncontrolling interest in one or more subsidiaries or that deconsolidate a subsidiary.  This statement is effective as of the beginning of an entity’s first fiscal year that begins after December 15, 2008.  We continue to evaluate the impact of this new pronouncement, but currently believe the only impact of

28

estimated forfeiture rate.
31

adopting SFAS 160 would be to reclassify $1.3 million in minority interest to a separate component of stockholders’ equity.

                In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), “Business Combinations” (SFAS 141R), which replaces FASB Statement No. 141.  SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non-controlling interest in the acquiree and the goodwill acquired.  The statement also establishes disclosure requirements that will enable users to evaluate the nature and financial effects of the business combination.  SFAS 141R is effective as of the beginning of an entity’s first fiscal year that begins after December 15, 2008.  The adoption of SFAS 141R could have a significant impact on our financial condition, results of operations and cash flows if we should enter into a business combination after that date.

29


ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to a variety of market risks, most importantly the effects of the price and availability of diesel fuel and changes in interest rates.

Commodity Price Risk

Our operations are heavily dependent upon the use

We require substantial amounts of diesel fuel.fuel to operate our tractors and power the temperature-control units on our trailers.  The price and availability of diesel fuel can vary, and are subject to political, economic and market factors that are beyond our control.  Significant increases in diesel fuel costs could materially and adversely affect our results of operations and financial condition.  Historically, weBased upon our fuel consumption in 2010, a 5% increase in the average cost of diesel fuel would have increased our fuel expense by $5.6 million.
We have historically been able to recoverpass through a significant portion of long-term increases in diesel fuel price increases fromprices and related taxes to customers in the form of fuel surcharges.

We presently use fuel surcharges to address the risk of high fuel prices.  Fuel surcharge programs are widely accepted among our customers, though they can vary somewhat from customer-to-customer.  We believeThese fuel surcharges, which adjust weekly with the cost of fuel, enable us to recover a substantial portion of the higher cost of fuel as prices increase.  These fuel surcharge provisions are not effective atin mitigating the riskfuel price increases related to non-revenue miles or fuel used while the tractor is idling.  In addition, 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 highhaul, installing and tightly managing the use of auxiliary power units in our tractors to minimize engine idling and improving fuel prices, althoughusage in the temperature-control units on our trailers.

While we do not recovercurrently have any outstanding hedging instruments to mitigate this market risk, we may enter into derivatives or other financial instruments to hedge a portion of our fuel costs in the full amount of fuel price increases.

Interest Rate Risk

future.

Our market risk is also affected by changes in interest rates.  We have historically maintainedmaintain a combination of fixed rate and variable rate obligations to manage our interest rate exposure. Fixed rate obligations expose us to the risk that interest rates might fall. Variable rate obligations expose us to the risk that interest rates might rise.

Our fixed rate obligations consist of amounts outstanding under our unsecured senior notes. The $3.6 million outstanding at December 31, 2007, under our Series A Senior Notes,revolving credit facility which bears interest at a fixed annual rate of 6.78%. The $4.3 million outstanding at December 31, 2007, under our Series B Senior Notes, bears interest at a fixed annual rate of 8.57%. Based on such outstanding amounts, a one percentage point decline in market interest rates would have the effect of increasing the premium we pay over market interest rates by approximately $79,000 annually.

Our variable rate obligations consist of borrowings under our revolving credit facility. Our revolving credit facility carries a variable interest rate based on the London Interbank Offered Rate or the agent bank’s Prime Rate, in each case plus/minus applicable margins.  The weighted average interest rate for the facility was 5.82% per annum0.86% at December 31, 2007.2010.  As of December 31, 2007,2010, we had borrowed $36.8$19.3 million under the credit facility.  Based on such outstanding amount, a one percentage point increase in market interest rates would cost us $368,000$193,000 in additional gross interest cost on an annual basis.

30

32

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Management’s Annual Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining an adequate system of internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended, for Marten Transport, Ltd. and subsidiarysubsidiaries (the “Company”).  This system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements and even when determined to be effective, can only provide reasonable assurance with respect to financial statement preparation and presentation.  Also, projection of any evaluation of the effectiveness of internal control over financial reporting to future periods is subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate.

Management, with the participation of the Company’s Chairman of the Board President,and Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s internal control over financial reporting as of December 31, 2007.2010.  In making this evaluation, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control —– Integrated Framework.Framework.  Based on this assessment, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2007.2010.  Further, the Company’s independent registered public accounting firm, KPMG LLP, has issued a report on the Company’s internal controls over financial reporting on page 3234 of this Report.

March 14, 2008

31

15, 2011
33

Report ofIndependent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Marten Transport, Ltd.:

We have audited the accompanying consolidated balance sheets of Marten Transport, Ltd.’s and subsidiaries (the Company) as of December 31, 2010 and 2009 and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2010. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule listed in Item 15(a)(2).  We also have audited the Company’s internal control over financial reporting as of December 31, 2007,2010 based on the criteria established in Internal Control—Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting.  Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule and an opinion on the Company’s internal control over financial reporting based on our audit.audits.

We conducted our auditaudits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our auditaudits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit providesaudits provide a reasonable basis for our opinion.

opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Marten Transport, Ltd. and subsidiary as of December 31, 2007 and 2006, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2007, and our report dated March 14, 2008 expressed an unqualified opinion on those consolidated financial statements.

/s/ KPMG LLP

Minneapolis, Minnesota

March 14, 2008

32


Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Marten Transport, Ltd.:

We have audited the accompanying consolidated balance sheets of Marten Transport, Ltd. and subsidiary (the “Company”) as of December 31, 2007 and 2006, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2007.  In connection with our audits of the consolidated financial statements, we have also audited the financial statement schedule for each of the years in the three-year period ended December 31, 2007, listed in Item 15(a)(2) of this Form 10-K.  These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Marten Transport, Ltd. and subsidiarysubsidiaries as of December 31, 20072010 and 2006,2009 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2007,2010, in conformity with U.S.accounting principles generally accepted accounting principles.in the United States of America.  Also, in our opinion, the relatedaccompanying financial statement schedule, referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We It is also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),our opinion, Marten Transport, Ltd.’s maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007,2010 based on criteria established in Internal Control— - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 14, 2008 expressedCommission.

As discussed in Note 1 to the consolidated financial statements, the Company adopted FASB Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an unqualified opinion on the effectivenessamendment of the Company’s internal control over financial reporting.

/s/ KPMG LLP

ARB 51,” (FASB ASC 810-10-65-1, “Consolidation”) in 2009.

KPMG LLP
Minneapolis, Minnesota

March 14, 2008

33

15, 2011
34

MARTEN TRANSPORT, LTD.

Consolidated Balance Sheets

 

 

December 31,

 

(In thousands, except share information)

 

2007

 

2006

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash

 

$

3,618

 

$

2,988

 

Marketable securities

 

350

 

300

 

Receivables:

 

 

 

 

 

Trade, less allowances of $315 and $861, respectively

 

51,539

 

48,005

 

Other

 

6,175

 

6,458

 

Prepaid expenses and other

 

13,823

 

14,227

 

Deferred income taxes

 

4,653

 

4,532

 

Total current assets

 

80,158

 

76,510

 

Property and equipment:

 

 

 

 

 

Revenue equipment

 

423,261

 

406,449

 

Buildings and land

 

12,099

 

10,945

 

Office equipment and other

 

12,070

 

11,335

 

Less accumulated depreciation

 

(122,246

)

(98,841

)

Net property and equipment

 

325,184

 

329,888

 

Other assets

 

2,048

 

4,424

 

 

 

$

407,390

 

$

410,822

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Checks issued in excess of cash balances

 

$

—

 

$

804

 

Accounts payable

 

14,653

 

12,690

 

Insurance and claims accruals

 

17,431

 

16,073

 

Accrued liabilities

 

17,731

 

24,855

 

Current maturities of long-term debt

 

5,000

 

5,000

 

Total current liabilities

 

54,815

 

59,422

 

Long-term debt, less current maturities

 

39,643

 

53,659

 

Deferred income taxes

 

74,719

 

75,835

 

Total liabilities

 

169,177

 

188,916

 

Commitments and contingencies (Note 11)

 

 

 

 

 

Minority interest

 

1,283

 

913

 

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; 21,811,837 shares at December 31, 2007, and 21,764,773 shares at December 31, 2006, issued and outstanding

 

218

 

218

 

Additional paid-in capital

 

74,570

 

73,601

 

Retained earnings

 

162,142

 

147,174

 

Total stockholders’ equity

 

236,930

 

220,993

 

 

 

$

407,390

 

$

410,822

 

  December 31, 
(In thousands, except share information) 2010  2009 
ASSETS      
Current assets:      
Cash and cash equivalents
 $5,306  $5,410 
Marketable securities
  138   118 
Receivables:
        
Trade, less allowances of $170 and $245, respectively
  51,094   45,434 
Other
  12,968   4,382 
Prepaid expenses and other
  13,406   12,328 
Deferred income taxes
  4,794   5,172 
Total current assets
  87,706   72,844 
Property and equipment:        
Revenue equipment
  469,437   455,641 
Buildings and land
  25,678   18,763 
Office equipment and other
  20,507   16,723 
Less accumulated depreciation
  (143,563)  (149,670)
Net property and equipment
  372,059   341,457 
Other assets  543   537 
  $460,308  $414,838 
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Current liabilities:        
Checks issued in excess of cash balances
 $1,066  $1,671 
Accounts payable
  17,800   16,308 
Insurance and claims accruals
  17,653   19,222 
Accrued liabilities
  12,724   15,588 
Current maturities of long-term debt
  19,346   1,428 
Total current liabilities
  68,589   54,217 
Long-term debt, less current maturities
  —   71 
Deferred income taxes  95,815   85,643 
Total liabilities
  164,404   139,931 
Commitments and contingencies (Note 12)
        
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; 21,950,252 shares at December 31, 2010,
        
    and 21,885,073 shares at December 31, 2009, issued
        
    and outstanding
  220   219 
       Additional paid-in capital
  78,428   76,477 
       Retained earnings
  215,345   196,480 
                  Total Marten Transport, Ltd. stockholders’ equity  293,993   273,176 
   Noncontrolling interest  1,911   1,731 
       Total stockholders’ equity
  295,904   274,907 
  $460,308  $414,838 

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

34

35

MARTEN TRANSPORT, LTD.

Consolidated Statements of Operations

 

 

For the years ended December 31,

 

(In thousands, except per share information)

 

2007

 

2006

 

2005

 

Operating revenue

 

$

560,017

 

$

518,890

 

$

460,202

 

Operating expenses (income):

 

 

 

 

 

 

 

Salaries, wages and benefits

 

153,774

 

144,373

 

126,577

 

Purchased transportation

 

103,776

 

84,409

 

81,897

 

Fuel and fuel taxes

 

149,021

 

135,079

 

107,722

 

Supplies and maintenance

 

38,621

 

33,155

 

28,192

 

Depreciation

 

47,009

 

44,360

 

38,229

 

Operating taxes and licenses

 

6,823

 

7,514

 

7,051

 

Insurance and claims

 

22,353

 

21,183

 

18,914

 

Communications and utilities

 

3,869

 

3,635

 

3,398

 

Gain on disposition of revenue equipment

 

(3,386

)

(6,990

)

(3,943

)

Other

 

10,356

 

11,003

 

9,298

 

 

 

532,216

 

477,721

 

417,335

 

Operating income

 

27,801

 

41,169

 

42,867

 

Other expenses (income):

 

 

 

 

 

 

 

Interest expense

 

3,823

 

3,564

 

2,361

 

Interest income and other

 

(693

)

(1,106

)

(1,722

)

Minority interest

 

802

 

768

 

741

 

 

 

3,932

 

3,226

 

1,380

 

Income before income taxes

 

23,869

 

37,943

 

41,487

 

Provision for income taxes

 

8,901

 

13,425

 

16,426

 

Net income

 

$

14,968

 

$

24,518

 

$

25,061

 

Basic earnings per common share

 

$

0.69

 

$

1.13

 

$

1.16

 

Diluted earnings per common share

 

$

0.68

 

$

1.12

 

$

1.14

 

  For the years ended December 31, 
(In thousands, except per share information)
 2010  2009  2008 
Operating revenue $516,920  $505,874  $607,099 
Operating expenses (income):            
Salaries, wages and benefits
  131,519   138,752   152,616 
Purchased transportation
  110,408   106,577   113,175 
Fuel and fuel taxes
  114,927   99,898   175,892 
Supplies and maintenance
  35,218   38,223   38,378 
Depreciation
  51,916   53,069   49,705 
Operating taxes and licenses
  6,222   6,672   6,729 
Insurance and claims
  16,573   19,896   25,409 
Communications and utilities
  3,964   4,170   3,740 
Gain on disposition of revenue equipment
  (1,110)  (1,630)  (2,664)
Other
  11,994   10,888   11,414 
   481,631   476,515   574,394 
Operating income  35,289   29,359   32,705 
Net interest expense (income)  (26)  32   958 
Income before income taxes  35,315   29,327   31,747 
    Less:  Income before income taxes attributable            
        to noncontrolling interest  631   584   1,120 
Income before income taxes            
    attributable to Marten Transport, Ltd.  34,684   28,743   30,627 
Provision for income taxes  14,942   12,476   12,556 
Net income
 $19,742  $16,267  $18,071 
Basic earnings per common share $0.90  $0.74  $0.83 
Diluted earnings per common share $0.90  $0.74  $0.82 
Dividends paid per common share $0.04  $—  $— 
The accompanying notes are an integral part of these consolidated financial statements.

35


36

MARTEN TRANSPORT, LTD.

Consolidated Statements of Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

Additional

 

 

 

Stock-

 

 

 

Common Stock

 

Paid-In

 

Retained

 

holders’

 

(In thousands)

 

Shares

 

Amount

 

Capital

 

Earnings

 

Equity

 

Balance at December 31, 2004

 

21,461

 

$

215

 

$

70,111

 

$

97,595

 

$

167,921

 

Net income

 

—

 

—

 

—

 

25,061

 

25,061

 

Issuance of common stock from share-based payment arrangement exercises

 

112

 

1

 

524

 

—

 

525

 

Tax benefits from share-based payment arrangement exercises

 

—

 

—

 

410

 

—

 

410

 

Balance at December 31, 2005

 

21,573

 

216

 

71,045

 

122,656

 

193,917

 

Net income

 

—

 

—

 

—

 

24,518

 

24,518

 

Issuance of common stock from share-based payment arrangement exercises

 

192

 

2

 

811

 

—

 

813

 

Tax benefits from share-based payment arrangement exercises

 

—

 

—

 

1,298

 

—

 

1,298

 

Share-based payment arrangement compensation expense

 

—

 

—

 

447

 

—

 

447

 

Balance at December 31, 2006

 

21,765

 

218

 

73,601

 

147,174

 

220,993

 

Net income

 

—

 

—

 

—

 

14,968

 

14,968

 

Issuance of common stock from share-based payment arrangement exercises

 

47

 

—

 

303

 

—

 

303

 

Tax benefits from share-based payment arrangement exercises

 

—

 

—

 

206

 

—

 

206

 

Share-based payment arrangement compensation expense

 

—

 

—

 

460

 

—

 

460

 

Balance at December 31, 2007

 

21,812

 

$

218

 

$

74,570

 

$

162,142

 

$

236,930

 

  Marten Transport, Ltd. Stockholders       
  Common Stock  Additional  Retained  
Non-
controlling
  Total Stockholders’ 
(In thousands) Shares  Amount  Paid-In Capital  Earnings  Interest  Equity 
Balance at December 31, 2007  21,812  $218  $74,570  $162,142  $1,283  $238,213 
Net income  —   —   —   18,071   —   18,071 
Repurchase and retirement of common stock  (67)  —   (810)  —   —   (810)
Issuance of common stock from share-based payment arrangement exercises    85     —     356     —     —     356 
Tax benefits from share-based payment arrangement exercises  —   —   523   —   —   523 
Share-based payment arrangement compensation expense  —   —   666   —   —   666 
Income before income taxes attributable to noncontrolling interest
  —   —   —   —   1,120   1,120 
Noncontrolling interest distributions  —   —   —   —   (688)  (688)
Balance at December 31, 2008  21,830   218   75,305   180,213   1,715   257,451 
Net income  —   —   —   16,267   —   16,267 
Issuance of common stock from share-based payment arrangement exercises    55     1     331     —     —     332 
Tax benefits from share-based payment arrangement exercises  —   —   255   —   —   255 
Share-based payment arrangement compensation expense  —   —   586   —   —   586 
Income before income taxes attributable to noncontrolling  interest
  —   —   —   —   584   584 
Noncontrolling interest distributions  —   —   —   —   (568)  (568)
Balance at December 31, 2009  21,885   219   76,477   196,480   1,731   274,907 
Net income  —   —   —   19,742   —   19,742 
Issuance of common stock from share-based payment arrangement exercises  65   1   302   —   —   303 
Tax benefits from share-based payment arrangement exercises  —   —   385   —   —   385 
Share-based payment arrangement compensation expense  —   —   1,264   —   —   1,264 
Dividends on common stock  —   —   —   (877)  —   (877)
Income before income taxes attributable to noncontrolling interest
  —   —   —   —   631   631 
Noncontrolling interest distributions  —   —   —   —   (451)  (451)
Balance at December 31, 2010  21,950  $220  $78,428  $215,345  $1,911  $295,904 
The accompanying notes are an integral part of these consolidated financial statements.

36

37

MARTEN TRANSPORT, LTD.

Consolidated Statements of Cash Flows

 

 

For the years ended December 31,

 

(In thousands)

 

2007

 

2006

 

2005

 

CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Operations:

 

 

 

 

 

 

 

Net income

 

$

14,968

 

$

24,518

 

$

25,061

 

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

 

 

 

 

 

 

 

Depreciation

 

47,009

 

44,360

 

38,229

 

Gain on disposition of revenue equipment

 

(3,386

)

(6,990

)

(3,943

)

Deferred income taxes

 

(1,237

)

8,866

 

11,771

 

Tax benefits from share-based payment arrangement exercises

 

206

 

1,298

 

410

 

Excess tax benefits from share-based payment arrangement exercises

 

(166

)

(1,156

)

—

 

Share-based payment arrangement compensation expense

 

460

 

447

 

—

 

Minority interest in undistributed earnings of affiliate

 

370

 

482

 

431

 

Changes in other current operating items:

 

 

 

 

 

 

 

Receivables

 

(3,251

)

(105

)

(6,896

)

Prepaid expenses and other

 

404

 

(963

)

(1,395

)

Accounts payable

 

1,999

 

5,008

 

3,067

 

Other current liabilities

 

4,431

 

1,305

 

5,737

 

Net cash provided by operating activities

 

61,807

 

77,070

 

72,472

 

CASH FLOWS USED FOR INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Revenue equipment additions

 

(74,732

)

(125,388

)

(117,722

)

Proceeds from revenue equipment dispositions

 

27,939

 

37,301

 

32,846

 

Buildings and land, office equipment and other additions

 

(2,976

)

(1,257

)

(3,718

)

Proceeds from buildings and land, office equipment and other dispositions

 

617

 

—

 

68

 

Net change in other assets

 

2,376

 

2,302

 

401

 

Purchases of marketable securities

 

(50

)

(3,635

)

(32,527

)

Sales of marketable securities

 

—

 

3,829

 

32,095

 

Net cash used for investing activities

 

(46,826

)

(86,848

)

(88,557

)

CASH FLOWS (USED FOR) PROVIDED BY FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Borrowings under credit facility and long-term debt

 

139,105

 

131,023

 

130,717

 

Repayment of borrowings under credit facility and long-term debt

 

(153,121

)

(120,664

)

(112,674

)

Issuance of common stock from share-based payment arrangement exercises

 

303

 

813

 

525

 

Excess tax benefits from share-based payment arrangement exercises

 

166

 

1,156

 

—

 

Change in net checks issued in excess of cash balances

 

(804

)

(642

)

(2,258

)

Net cash (used for) provided by financing activities

 

(14,351

)

11,686

 

16,310

 

NET CHANGE IN CASH

 

630

 

1,908

 

225

 

CASH:

 

 

 

 

 

 

 

Beginning of year

 

2,988

 

1,080

 

855

 

End of year

 

$

3,618

 

$

2,988

 

$

1,080

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

 

Interest

 

$

3,966

 

$

3,620

 

$

2,347

 

Income taxes

 

$

6,629

 

$

2,336

 

$

2,966

 

Non-cash investing activities:

 

 

 

 

 

 

 

Change in revenue equipment not yet paid for

 

$

(10,233

)

$

7,976

 

$

—

 

  For the years ended December 31, 
(In thousands) 2010  2009  2008 
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:         
Operations:         
Net income $19,742  $16,267  $18,071 
Adjustments to reconcile net income to net cash flows from operating activities:
            
Depreciation  51,916   53,069   49,705 
Gain on disposition of revenue equipment  (1,110)  (1,630)  (2,664)
Deferred income taxes  10,550   5,563   4,842 
Tax benefits from share-based payment arrangement exercises  385   255   523 
Excess tax benefits from share-based            
payment arrangement exercises  (338)  (223)  (456)
Share-based payment arrangement compensation expense  1,264   586   666 
Income before income taxes attributable to noncontrolling interest  631   584   1,120 
Changes in other current operating items:            
Receivables  (14,246)  7,712   186 
Prepaid expenses and other  (1,078)  1,377   118 
Accounts payable  348   3,519   (2,066)
Insurance and claims accruals  (1,569)  (2,164)  3,955 
Accrued liabilities  (1,973)  (3,229)  3,044 
Net cash provided by operating activities  64,522   81,686   77,044 
CASH FLOWS USED FOR INVESTING ACTIVITIES:            
Revenue equipment additions  (109,345)  (104,842)  (64,509)
Proceeds from revenue equipment dispositions  40,062   32,876   31,938 
Buildings and land, office equipment and other additions  (11,959)  (7,948)  (4,055)
Proceeds from buildings and land, office equipment            
and other dispositions  87   31   — 
Purchases of marketable securities  (20)  (113,170)  (28,146)
Sales of marketable securities  —   115,656   25,892 
Net change in other assets  (6)  233   1,278 
Net cash used for investing activities  (81,181)  (77,164)  (37,602)
CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES:            
Borrowings under credit facility and long-term debt  160,395   1,115   154,267 
Repayment of borrowings under credit facility and long-term debt  (142,548)  (2,473)  (196,053)
Dividends on common stock  (877)  —   — 
Issuance of common stock from share-based payment            
arrangement exercises  303   332   356 
Excess tax benefits from share-based            
payment arrangement exercises  338   223   456 
Change in net checks issued in excess of cash balances  (605)  (136)  1,807 
Noncontrolling interest distributions  (451)  (568)  (688)
Repurchase and retirement of common stock  —   —   (810)
Net cash provided by (used for) financing activities  16,555   (1,507)  (40,665)
NET CHANGE IN CASH AND CASH EQUIVALENTS  (104)  3,015   (1,223)
CASH AND CASH EQUIVALENTS:            
Beginning of year  5,410   2,395   3,618 
End of year $5,306  $5,410  $2,395 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:            
Cash paid for:            
Interest $225  $200  $1,240 
Income taxes $13,789  $4,905  $6,368 
Non-cash investing activities:            
Change in property and equipment not yet paid for $253  $(1,288) $(468)
The accompanying notes are an integral part of these consolidated financial statements.

37

38


MARTEN TRANSPORT, LTD.

Notes to Consolidated Financial Statements

1.  Summary of Significant Accounting Policies

Nature of business:  Marten Transport, Ltd. is a long-haul and regional truckload carrier providing protective service transportation and distribution of time- and temperature-sensitive materials and general commodities to customers in the United States, Canada and Canada.Mexico.

Principles of consolidation: The accompanying consolidated 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 Interpretation No. 46, “Consolidation of Variable Interest Entities,” as revised,ASC, 810, Consolidation to our investment in MWL.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.  As of December 31, 2010, MWL’s total assets and total liabilities, net of intercompany accounts and transactions, were $6.4 million and $3.9 million, respectively.  MWL has elected to be classified as a partnership for federal income tax purposes. Consequently, federal income taxes are not payable by MWL.

Cash and cash equivalents:  Cash in excess of current operating requirements is invested in short-term, highly liquid investments.  We consider all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.  Accounts at banks with an aggregate excess of the amount of checks issued over cash balances are included in current liabilities in the accompanying consolidated balance sheets, with changes in such accounts included as a financing activity in the accompanying consolidated statements of cash flows.
Marketable securities: We invest available funds in short-term marketable securities.  This investment is in a mutual fund investing primarily in repurchase agreements and other U.S. government-backed securities having original maturities of three months or less, and is stated at market value, which approximates cost.

Trade accounts receivable:  Trade accounts receivable are recorded at the invoiced amounts, net of an allowance for doubtful accounts.  A considerable amount of judgment is required in assessing the realization of these receivables including the current creditworthiness of each customer and related aging of the past-due balances, including any billing disputes.  In order to assess the collectibility of these receivables, we perform ongoing credit evaluations of our customers’ financial condition.  Through these evaluations, we may become aware of a situation where a customer may not be able to meet its financial obligations due to deterioration of its financial viability, credit ratings or bankruptcy.  The allowance for doubtful accounts is based on the best information available to us and is reevaluated and adjusted as additional information is received.  We evaluate the allowance based on historical write-off experience, the size of the individual customer balances, past-due amounts and the overall national economy.  We review the adequacy of our allowance for doubtful accounts monthly.  Invoice balances over 30 days after the contractual due date are considered past due per our policy and are reviewed individually for collectibility.  Initial payments by new customers are monitored for compliance with contractual terms.  Account balances are charged off against the allowance after all means of collection have been exhausted and the potential recovery is considered remote.

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 as they are a normal, recurring component of our operations.

39

MARTEN TRANSPORT, LTD.
Notes to Consolidated Financial Statements (Continued)
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.  We begin depreciating assets in the month that each asset is placed in service and, therefore, is ready for its intended use.  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 

Tractors

Trailers

5

7 

Trailers

Service and other equipment

7

3-15 

Satellite tracking

Buildings and improvements

7

Auxiliary power units

5

Buildings

20

Office equipment and other

3-15

20-40 


In 2007,2010, we replaced most of our company-owned tractors within approximately 3.54.5 years and our trailers within approximately sevensix years after purchase.  Our useful lives for depreciating tractors is five years

38


MARTEN TRANSPORT, LTD.

Notes to Consolidated Financial Statements (Continued)

and for trailers is seven years, with a 25% salvage value for tractors and a 35% salvage value for trailers.  These salvage values are based upon the expected market values of the equipment after five years for tractors and seven years for trailers.  Depreciation expense calculated in this manner approximates the continuing declining value of the revenue equipment, and for tractors, continues at a consistent straight-line rate for units held beyond the normal replacement cycle.

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net undiscounted cash flows expected to be generated by the asset.  If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceedexceeds the fair value of the assets.  Assets to be disposed of are reported at the lower of the carrying amount or fair value less the costs to sell.

Net investment in direct financing leases:  We have direct financing tractor lease receivables from independent contractors, which expire over the next four years.

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 consolidated balance sheets. The long-term portion of capitalized tires in service and the estimated salvage value are included in revenue equipment in the accompanying consolidated balance sheets. The cost of recapping tires is charged to operations.

Income taxes:Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.  We have reflected the necessary deferred tax assets and liabilities in the accompanying consolidated balance sheets.  We believe the future tax deductions will be realized principally through future reversals of existing taxable temporary differences and future taxable income.

We adopted the provisions of

40

MARTEN TRANSPORT, LTD.
Notes to Consolidated Financial Accounting Standards Board, or FASB, Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” (FIN 48), on January 1, 2007.  The implementation of FIN 48 did not have a significant impact on our results of operations or financial position.  See Note 5 for additional discussion.

Statements (Continued)

In the ordinary course of business there is inherent uncertainty in quantifying our income tax positions.  We assess our income tax positions and record tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances, and information available at the reporting dates.  For those tax positions where it is more-likely-than-not that a tax benefit will be sustained, we have recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information.  For those income tax positions where it is not more-likely-than-not that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements.  Potential accrued interest and penalties related to unrecognized tax benefits are recognized as a component of income tax expense.

Insurance and claims:  We self-insure, in part, for losses relating to workers’ compensation, auto liability, general liability, cargo, and property damage claims, along with employees’ health insurance with varying risk retention levels.  We maintain insurance coverage for per-incident and total losses in excess of these risk retention levels in amounts we consider adequate based upon historical experience and our ongoing review.  We reserve currently for the estimated cost of the uninsured portion of pending claims.claims, including legal costs. These reserves

39


MARTEN TRANSPORT, LTD.

Notes to Consolidated Financial Statements (Continued)

are periodically evaluated and adjusted based on our evaluation of the nature and severity of outstanding individual claims and an estimate of future claims development based on historical claims development factors.  Under agreements with our insurance carriers and regulatory authorities, we have $5.2$8.3 million in standby letters of credit to guarantee settlement of claims.

Revenue recognition:We record revenue and related expenses on the date shipment of freight is completed.  We earned 18% and 10% of our revenue in 20072010 from atwo single customercustomers whose trade receivables represented 11% and 12%, respectively, of our trade receivables as of December 31, 2007.2010. We earned 17%20% and 12% of our revenue in 20062009 from atwo single customercustomers whose trade receivables represented 11% and 16%, respectively, of our trade receivables as of December 31, 2006.2009.  We earned 15%19% and 10% of our revenue in 20052008 from two single customers.
We account for revenue of our Logistics segment and revenue on freight transported by independent contractors within our Truckload segment on a single customer.

gross basis because we are the primary obligor in the arrangements, we have the ability to establish prices, we have the risk of loss in the event of cargo claims and we bear credit risk with customer payments.  Accordingly, all such revenue billed to customers is classified as operating revenue and all corresponding payments to carriers for transportation services we arrange in connection with brokerage and intermodal activities and to independent contractor providers of revenue equipment are classified as purchased transportation expense.

Share-based payment arrangement compensation:  Under our stock incentive plans, all of our employees and any subsidiary employees, as well as all of our non-employee directors, consultants, advisors and independent contractors, may be granted stock-based awards, including incentive and non-statutory stock options and restricted stockperformance unit awards.  Effective January 1, 2006, we began recording compensation expense associated withWe account for share-based payment arrangements in accordance with Statement of Financial Accounting Standards No. 123R, “Share-Based Payment” (“SFAS 123R”) as interpreted by SEC Staff Accounting Bulletin No. 107.  SFAS 123RFASB ASC 718, Compensation-Stock Compensation, which requires all share-based payments to employees and non-employee directors, including grants of employee stock options and performance unit awards, to be recognized in the income statement based on their fair values at the date of grant.  Historically, we accounted for share-based compensation under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations.  See Note 9 for additional discussion.

Earnings per common share:  Basic earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding during the year.  Diluted earnings per common share is computed by dividing net income by the sum of the weighted average number of common shares outstanding plus all additional common shares that would have been outstanding if potentially dilutive common shares related to stock options and other dilutive securitiesperformance unit awards had been issued using the treasury stock method.

41
MARTEN TRANSPORT, LTD.
Notes to Consolidated Financial Statements (Continued)
Segment reporting:  We report our operating segments in accordance with accounting standards codified in FASB ASC 280, Segment Reporting.  We have adopted the provisions of Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprisesix operating segments that have been aggregated into two reporting segments (Truckload and Related Information.”  Statement No. 131 establishes accounting standardsLogistics) for segment reporting.  Beginning with fiscal 2007, we have two reportable segments — Truckload and Logistics.financial reporting purposes.  See Note 1213 for more information.

Use of estimates:  We must make estimates and assumptions to prepare the consolidated financial statements in conformity with accounting principlesU.S. generally accepted in the United States of America.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 financial statements.  These estimates are primarily related to insurance and claims accruals and depreciation.  Ultimate results could differ from these estimates.

40


MARTEN TRANSPORT, LTD.

Notes to Consolidated Financial Statements (Continued)

2.  Details of Consolidated Balance Sheet Accounts

Prepaid expenses and other:  As of December 31, prepaid expenses and other consisted of the following:

(In thousands)

 

2007

 

2006

 

License fees

 

$

4,416

 

$

4,530

 

Tires in service

 

3,606

 

4,545

 

Parts and tires inventory

 

2,189

 

2,113

 

Insurance premiums

 

1,349

 

1,037

 

Other

 

2,263

 

2,002

 

 

 

$

13,823

 

$

14,227

 

(In thousands) 2010  2009 
License fees $3,894  $4,009 
Tires in service  3,049   2,912 
Parts and tires inventory  2,826   2,222 
Insurance premiums  992   905 
Other  2,645   2,280 
  $13,406  $12,328 

Net investment in direct financing leases:  As of December 31, the components of the net investment in direct financing lease receivables from independent contractors consisted of the following:

(In thousands)

 

2007

 

2006

 

Total minimum lease payments to be received

 

$

3,567

 

$

7,649

 

Less: unearned income

 

(562

)

(1,511

)

Net investment in direct financing leases

 

$

3,005

 

$

6,138

 

The current portion of our net investment in direct financing leases is included in other receivables in the accompanying consolidated balance sheets.  The long-term portion of our net investment in direct financing leases is included in other assets in the accompanying consolidated balance sheets.  The interest method is used to amortize unearned income, which amortizes unearned income to income over the lease term so as to produce a constant periodic rate of return on the net investment in each lease.  The amortization of unearned income is included in interest income and other in the accompanying consolidated statements of operations.

As of December 31, 2007, minimum lease payments to be received for each of the four succeeding fiscal years are as follows: $1,773,000 in 2008, $1,245,000 in 2009, $522,000 in 2010 and $27,000 in 2011.

Accrued liabilities:As of December 31, accrued liabilities consisted of the following:

(In thousands)

 

2007

 

2006

 

Accrued payables

 

$

9,152

 

$

17,323

 

Vacation

 

3,456

 

3,548

 

Current income taxes

 

2,921

 

861

 

Salaries and wages

 

1,529

 

2,016

 

Other

 

673

 

1,107

 

 

 

$

17,731

 

$

24,855

 

41

(In thousands) 2010  2009 
Accrued expenses $6,024  $6,075 
Vacation  3,110   3,146 
Salaries and wages  1,820   1,795 
Current income taxes  519   3,116 
Other  1,251   1,456 
  $12,724  $15,588 

42

MARTEN TRANSPORT, LTD.

Notes to Consolidated Financial Statements (Continued)


3.  Long-Term Debt

As of December 31, long-term debt consisted of the following:

(In thousands)

 

2007

 

2006

 

Unsecured committed credit facility in the amount of $75 million with banks maturing in September 2011 and bearing variable interest based upon either the London Interbank Offered Rate or the agent bank’s Prime Rate, in each case plus/minus applicable margins (5.82% weighted average interest rate for the facility at December 31, 2007)

 

$

36,786

 

$

45,802

 

Series B Senior Unsecured Notes maturing in April 2010 with annual principal payments of $1.43 million bearing interest at 8.57%

 

4,286

 

5,714

 

Series A Senior Unsecured Notes maturing in October 2008 with annual principal payments of $3.57 million bearing interest at 6.78%

 

3,571

 

7,143

 

Total long-term debt

 

44,643

 

58,659

 

Less current maturities of long-term debt

 

5,000

 

5,000

 

Long-term debt, less current maturities

 

$

39,643

 

$

53,659

 

(In thousands) 2010  2009 
Unsecured committed credit facility in the      
amount of $50 million with banks maturing in
      
September 2011 $19,346  $71 
Secured B Senior Unsecured Notes which        
matured in April 2010 and which bore
        
interest at 8.57%
  -   1,428 
Total long-term debt  19,346   1,499 
Less current maturities of long-term debt  19,346   1,428 
Long-term debt, less current maturities $-  $71 

We maintain a credit agreement that provides for a five-year unsecured committed credit facility (“credit facility”) maturing in September 2011 in an aggregate principal amount of up to $75$50 million.  The aggregate principal amount of the credit facility may be increased at our option, subject to completion of signed amendments with participating banks, up to a maximum aggregate principal amount of $100 million.  At December 31, 2007,2010, the credit facility had an outstanding principal balance of $36.8$19.3 million, outstanding standby letters of credit of $5.2$8.3 million and remaining borrowing availability of $33.0$22.4 million.

  This facility bears interest at a variable rate based on the London Interbank Offered Rate or the agent bank’s Prime Rate, in each case plus/minus applicable margins.  The weighted average interest rate for the facility was 0.86% at December 31, 2010.  The $19.3 million outstanding principal balance on the credit facility was classified as a current liability in our consolidated balance sheet as of December 31, 2010 because the maturity date of the facility is within the next twelve months.

Our credit facility prohibits us from paying, in any fiscal year, dividends in excess of 25% of our net income from the prior fiscal year.  The debt agreements also contain restrictive covenants which, among other matters, require us to maintain certain financial ratios, including debt-to-equity, cash flow leverage, interest coverage and fixed charge coverage.  We were in compliance with all of these covenants at December 31, 2007.

Maturities of long-term debt at December 31, 2007, are as follows:

(In thousands)

 

Amount

 

2008

 

$

5,000

 

2009

 

1,429

 

2010

 

1,428

 

2011

 

36,786

 

 

 

$

44,643

 

42

2010.
43

MARTEN TRANSPORT, LTD.

Notes to Consolidated Financial Statements (Continued)

4.  Related Party Transactions

The following related party transactions occurred during the three years ended December 31, 2007:

2010;

(a)           We purchase fuel and obtain tires and related services from a company in which one of our directors is the president and a principal stockholder.  We paid that company $1.1$815,000 in 2010, $796,000 in 2009 and $1.4 million in 2007, $1.3 million in 2006 and $1.2 million in 20052008 for fuel and tire services.  In addition, we paid $2.4$1.7 million in 2007, $2.42010, $1.5 million in 20062009 and $2.0$2.3 million in 20052008 to tire manufacturers for tires that we purchased from the tire manufacturers but were provided by the same company.  The same company received commissions from the tire manufacturers related to these purchases.  We had accounts payable to that company of $25,000$44,000 as of December 31, 20072010 and $78,000$24,000 as of December 31, 2006.

2009.

(b)           We paid $547,000$262,000 in 20072010, $1.1 million in 2009 and $142,000$564,000 in 20052008 for various construction projects to a company in which one of our directors is the president and owner.  We had no accounts payable to that company of $56,000 as of December 31, 2010, and no payables to that company as of December 31, 20072009.
(c)           In August 2008, we acquired a building adjacent to our headquarters which will be used for maintenance and 2006.

storage from our Chairman of the Board and Chief Executive Officer in a like-kind exchange for a partially constructed building of equal value owned by Marten Transport.  Each of the buildings were valued at $291,000 at the time of the exchange.

5.  Income Taxes

The components of the provision for income taxes consisted of the following:

(In thousands)

 

2007

 

2006

 

2005

 

Current:

 

 

 

 

 

 

 

Federal

 

$

8,922

 

$

4,159

 

$

4,254

 

State

 

1,216

 

400

 

401

 

 

 

10,138

 

4,559

 

4,655

 

Deferred:

 

 

 

 

 

 

 

Federal

 

(944

)

9,088

 

9,413

 

State

 

(293

)

(222

)

2,358

 

 

 

(1,237

)

8,866

 

11,771

 

Total provision

 

$

8,901

 

$

13,425

 

$

16,426

 

(In thousands) 2010  2009  2008 
Current:         
Federal
 $2,747  $6,084  $6,497 
State
  1,645   829   1,217 
   4,392   6,913   7,714 
             
Deferred:            
Federal
  10,761   4,472   4,549 
State
  (211)  1,091   293 
   10,550   5,563   4,842 
Total provision
 $14,942  $12,476  $12,556 
44

MARTEN TRANSPORT, LTD.
Notes to Consolidated Financial Statements (Continued)
The statutory federal income tax rate is reconciled to the effective income tax rate as follows:

 

 

2007

 

2006

 

2005

 

Statutory federal income tax rate

 

35

%

35

%

35

%

Increase in taxes arising from state income taxes, net of federal income tax benefit

 

2

 

—

 

4

 

Other, net

 

—

 

—

 

1

 

Effective tax rate

 

37

%

35

%

40

%

  2010  2009  2008 
Statutory federal income tax rate
  35%  35%  35%
Per diem and other non-deductible expenses  6   5   3 
Increase in taxes arising from state income taxes, net of federal income tax benefit
  3   4   3 
Other  (1)  (1)  — 
Effective tax rate  43%  43%  41%

Our effective income tax rate decreasedwas 43.1% in 2010, 43.4% in 2009 and 41.0% in 2008.  The increase in the effective rate from 2008 to 35.4% in 2006, primarily because we decreased our deferred income tax liability by $1.3 million, or 3.3% of income before income taxes.  Our effective income tax rate in 2006 included a revision to our previously recorded deferred income tax liability of 2.8% of income before income taxes,2009 was primarily due to the nondeductible effect of a changeper diem pay structure for our drivers adopted in income apportionment for several states,the first quarter of 2008 which produced a lower effective state income tax rate, net of federal impact.

43

was more broadly implemented during 2009.

MARTEN TRANSPORT, LTD.

Notes to Consolidated Financial Statements (Continued)

As of December 31, the net deferred tax liability consisted of the following:

(In thousands)

 

2007

 

2006

 

Deferred tax assets:

 

 

 

 

 

Reserves and accrued liabilities

 

$

7,131

 

$

7,025

 

Other

 

679

 

451

 

 

 

7,810

 

7,476

 

Deferred tax liabilities:

 

 

 

 

 

Depreciation

 

75,408

 

76,302

 

Prepaid expenses

 

2,468

 

2,477

 

 

 

77,876

 

78,779

 

Net deferred tax liability

 

$

70,066

 

$

71,303

 

(In thousands) 2010  2009 
Deferred tax assets:      
Reserves and accrued liabilities
 $7,097  $7,452 
Other
  1,684   1,168 
   8,781   8,620 
Deferred tax liabilities:        
Depreciation
  97,510   86,823 
Prepaid expenses
  2,292   2,268 
   99,802   89,091 
Net deferred tax liability
 $91,021  $80,471 

We have not provided a valuation allowance against deferred tax assets at December 31, 20072010 or 2006.2009.  We believe the deferred tax assets will be realized principally through future reversals of existing taxable temporary differences (deferred tax liabilities) and future taxable income.

As disclosed in Note 1, we adopted the provisions of FIN 48 as of January 1, 2007. 

Our reserves for unrecognized tax benefits were $69,000$215,000 as of December 31, 20072010 and $54,000$158,000 as of December 31, 2006.2009.  The $57,000 increase in the amount reserved in 2010 relates to current period tax positions.  The amount reserved as of December 31, 2006 was settled and paid in 2007.  The amount reserved as of December 31, 20072009 was added in 2007 forthrough 2009 relating to current period tax positions related to 2007.positions.  If recognized, $45,000$140,000 of the unrecognized tax benefits as of December 31, 20072010 would impact our effective tax rate.  No potential interest or penalties related to unrecognized tax benefits were recognized in our financial statements as of December 31, 2007.2010.  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 20042007 and forward.  We file tax returns in numerous state jurisdictions with varying statutes of limitations.

45

MARTEN TRANSPORT, LTD.
Notes to Consolidated Financial Statements (Continued)
6.  Earnings Per Common Share

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

(In thousands, except per share amounts)

 

2007

 

2006

 

2005

 

Numerator:

 

 

 

 

 

 

 

Net income

 

$

14,968

 

$

24,518

 

$

25,061

 

Denominator:

 

 

 

 

 

 

 

Basic earnings per common share - weighted-average shares

 

21,795

 

21,735

 

21,518

 

Effect of dilutive stock options

 

166

 

220

 

444

 

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

 

21,961

 

21,955

 

21,962

 

Basic earnings per common share

 

$

0.69

 

$

1.13

 

$

1.16

 

Diluted earnings per common share

 

$

0.68

 

$

1.12

 

$

1.14

 

(In thousands, except per share amounts) 2010  2009  2008 
Numerator:         
Net income $19,742  $16,267  $18,071 
Denominator:            
Basic earnings per common share - weighted-average shares
  21,927   21,870   21,787 
Effect of dilutive stock options  104   114   144 
Diluted earnings per common share - weighted-average shares and assumed conversions
  22,031   21,984   21,931 
Basic earnings per common share $0.90  $0.74  $0.83 
Diluted earnings per common share $0.90  $0.74  $0.82 

Options totaling 280,000351,000, 418,100, and 226,000310,600 shares were outstanding but were not included in the calculation of diluted earnings per share for 20072010, 2009 and 2006,2008, respectively, because their exercise prices were greater than the average market price of the common shares and, therefore, including the options in the denominator would be antidilutive, or decrease the number of weighted-average shares.  All outstanding optionsshares, due to their exercise prices exceeding the average market price of the common shares or due to inclusion of average unrecognized compensation expense in the calculation. Performance-based option awards totaling 107,000, 107,000 and 99,500 shares for 2010, 2009 and 2008, respectively, were also not included in the calculation of diluted earnings per share for 2005.  The 280,000 and 226,000 shares above include 90,000 and 78,000 shares, respectively, of performance-based option awards for whichbecause the performance condition was not met.
Unvested performance unit awards (see Note 9) totaling 29,164 shares for 2010 were considered probableoutstanding but were not included in the calculation of achievement.

44


MARTEN TRANSPORT, LTD.

Notesdiluted earnings per share because inclusion of average unrecognized compensation expense in the calculation would cause the performance units to Consolidated Financial Statements (Continued)be antidilutive.

7.  Dividends
In August 2010, we announced that our Board of Directors approved a regular cash dividend program to our stockholders, subject to approval each quarter.  The first two quarterly cash dividends of $0.02 per share of common stock were paid in September and December 2010.

7.

8.  Share Repurchase Program

In December 2007, our Board of Directors approved a share repurchase program to repurchase up to one million shares of our common stock.  This program is intended to be implementedstock either through purchases made in eitheron the open market or through private transactions.  The timing and extent to which we will repurchase shares depends on market conditions and other corporate considerations.  We made no purchases in 2007.  Through March 14,In the first quarter of 2008 we repurchased and retired 67,500 shares of our common stock for $810,000.  We made no purchases in 2010, 2009, or in the remainder of 2008.  The repurchase program does not have an expiration date.

8.  Amended and Restated Certificate of Incorporation

In May 2005, our stockholders approved an amendment

46

MARTEN TRANSPORT, LTD.
Notes to our Amended and Restated Certificate of Incorporation increasing the authorized number of shares of common stock, $.01 par value, from 23 million shares to 48 million shares.

Consolidated Financial Statements (Continued)

9.  Employee Benefits

Stock Incentive Plans - Under our 2005 Stock Incentive Plan (the “2005 Plan”), all of our employees and any subsidiary employees, as well as all of our non-employee directors, consultants, advisors and independent contractors, may be granted stock-based awards, including incentive and non-statutory stock options and restricted stockperformance unit awards.  Stock options expire within 7 or 10 years after the date of grant and the exercise price must be at least the fair market value of our common stock on the date of grant.  Stock options issued to non-employee directors upon their annual re-election to our Board of Directors are generally exercisable at the date of grant.  Service-basedStock options issued to employees are generally exercisable beginning one year from the date of grant in cumulative amounts of 20% per year. Performance-based options become exercisable upon achievement of certainPerformance unit awards are subject to vesting requirements over a five-year period, primarily based on our earnings growth.  Options exercised and performance criteria established by the Compensation Committee of our Board of Directors.  Options exercisedunit award shares issued represent newly issued shares.  The maximum number of shares of common stock available for issuance under the 2005 Plan is 2.85 million shares.  As of December 31, 2007,2010, there were 258,400535,600 shares reserved for issuance under options outstanding and 63,400 shares reserved for issuance under outstanding performance unit awards under the 2005 Plan.  The 2005 Plan replaces our 1995 Stock Incentive Plan (the “1995 Plan”), which expired by its terms in March 2005.

Under our 1995 Plan, officers, directors and employees were granted incentive and non-statutory stock options.  Incentive stock option exercise prices were required to be at least the fair market value of our common stock on the date of grant.  Non-statutory stock option exercise prices were required to be at least 85% of the fair market value of our common stock on the date of grant.  Stock options expire within 10 years after the date of grant.  Stock options issued to non-employee directors upon their annual re-election to our Board of Directors are generally exercisable at the date of grant.  Service-basedStock options issued to employees are generally exercisable beginning one year from the date of grant in cumulative amounts of 20% per year.  Options exercised represent newly issued shares.  As of December 31, 2007,2010, there were 358,497153,582 shares reserved for issuance under options outstanding under the 1995 Plan.  No additional options will be granted under the 1995 Plan.

Effective January 1, 2006, we began recording compensation expense associated with

We account for share-based payment arrangements in accordance with Statement of Financial Accounting Standards No. 123R, “Share-Based Payment” (“SFAS 123R”) as interpreted by SEC Staff Accounting Bulletin No. 107.  SFAS 123R supersedes Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”)FASB ASC 718, Compensation-Stock Compensation, and amends Statement of Financial Accounting Standards No. 95, “Statement of Cash Flows.”  Generally, the approach in SFAS 123R is similar to the approach described in Statement of Financial Accounting Standards No. 123, “Accounting For Stock-Based Compensation” (“SFAS 123”).  However, SFAS 123Rwhich requires all share-based payments to employees and non-employee directors, including grants of employee stock options and performance unit awards, to be recognized in the income statement based on their fair values at the date of grant.

45

47


MARTEN TRANSPORT, LTD.

Notes to Consolidated Financial Statements (Continued)

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

We adopted the modified prospective transition method provided for under SFAS 123R, and consequently have not retroactively adjusted results from prior periods.  Under this transition method, compensation cost associated with share-based awards recognized in 2007 and 2006 includes:  (a) compensation cost for all share-based payments granted prior to, but not yet vested as of December 31, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123, and (b) compensation cost for all share-based payments granted subsequent to December 31, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R.

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

 

 

2007

 

2006

 

Service-based options:

 

 

 

 

 

Expected option life in years (1)

 

7

 

7

 

Expected stock price volatility percentage (2)

 

36

%

29

%

Risk-free interest rate percentage (3)

 

4.6

%

4.6

%

Expected dividend yield (4)

 

—

 

—

 

Fair value as of the date of grant

 

$

8.05

 

$

9.55

 

 

 

 

 

 

 

Performance-based options:

 

 

 

 

 

Expected option life in years (1)

 

7

 

7

 

Expected stock price volatility percentage (2)

 

36

%

29

%

Risk-free interest rate percentage (3)

 

4.6

%

4.6

%

Expected dividend yield (4)

 

—

 

—

 

Fair value as of the date of grant

 

$

7.72

 

$

9.83

 

  2010  2009  2008 
Service-based options:         
Expected option life in years(1)
  6.1   6.1   6.2 
Expected stock price volatility percentage(2)
  39%  40%  40%
Risk-free interest rate percentage(3)
  2.7%  2.5%  3.3%
Expected dividend yield(4)
  0.05% 
—­
   — 
Fair value as of the date of grant
 $9.31  $7.77  $7.76 
             
Performance-based options:            
Expected option life in years(1)
  —   6.0   6.6 
Expected stock price volatility percentage(2)
  —   41%  39%
Risk-free interest rate percentage(3)
  —   2.4%  3.3%
Expected dividend yield(4)
  —   —   — 
Fair value as of the date of grant
  —  $8.55  $7.90 

(1)Expected option life – We use historical employee exercise and option expiration data to estimate the expected life assumption for the Black-Scholes grant-date valuation.  We believe that this historical data is currently the best estimate of the expected term of a new option.  We use a weighted-average expected life for all awards.
(2)Expected stock price volatility – We use our stock’s historical volatility for the same period of time as the expected life.  We have no reason to believe that its future volatility will differ from the past.
(3)Risk-free interest rate – The rate is based on the U.S. Treasury yield curve in effect at the time of the grant for the same period of time as the expected life.
(4)Expected dividend yield – The calculation is based on the total expected annual dividend payout divided by the average stock price.

48

There were no options granted in 2005.

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

46


MARTEN TRANSPORT, LTD.

Notes to Consolidated Financial Statements (Continued)

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

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

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

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

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

SFAS 123R requires compensation

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

All performance-based options outstanding, which totaled 107,000 shares, expired effective December 31, 2010.  The exercisability of the options was based upon our achievement of certain operating ratios for a period of fiscal years ending with 2010.  These criteria were not met, and accordingly, no compensation expense was recorded relating to these option awards.
In August 2010, we granted 63,400 performance unit awards under our 2005 Stock Incentive Plan to certain employees.  This was our first grant of such awards.  As of December 31, 2010 and each December 31st thereafter through December 31, 2014, each award will vest and become the right to receive a number of shares of common stock equal to a total vesting percentage multiplied by the number of units subject to such award.  The total vesting percentage for each of the five years is equal to the sum of a performance vesting percentage, which is the percentage increase, if any, in our diluted net income per share for the year being measured over the prior year, and a service vesting percentage of five percentage points.  The goal of the awards is to incentivize the certain employees to increase our earnings an average of fifteen percent per year over five years, which, when combined with the five percent per year service-based component, would result in full vesting over five years.  The performance vesting percentage could be achieved earlier than in five years if annual earnings growth exceeds the average of fifteen percent, or not fully achieved if the annual earnings growth averages less than fifteen percent over the five-year period.  All payments will be made in shares of our common stock.  One half of the vested performance units will be paid to the employees immediately upon vesting, with the other half being credited to the employees’ accounts within the Marten Transport, Ltd. Deferred Compensation Plan, which restricts the sale of vested shares to the later of each employee’s termination of employment or attainment of age 62.
The fair value of each performance unit is based on the closing market price on the date of grant.  We recognize compensation expense for these awards based on the estimated number of units probable of achieving the vesting requirements of the awards, net of an estimated forfeiture rate.
The amount of share-based compensation recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest.  SFAS 123R requires forfeitures to beForfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.  The term “forfeitures” is distinct from “cancellations” or “expirations” and represents only the unvested portion of the surrendered award.  We currently expect, based on an analysis of our historical forfeitures and known forfeitures on existing awards, that approximately 1.25% of unvested outstanding optionsawards will be forfeited each year.  This analysis will be re-evaluated quarterly and the forfeiture rate will be adjusted as necessary.  Ultimately, the actual expense recognized over the vesting period will only be for those shares that vest.

49
MARTEN TRANSPORT, LTD.
Notes to Consolidated Financial Statements (Continued)
Total share-based compensation expense recorded in 20072010 was $460,000$1.3 million ($321,000776,000 net of income tax benefit, $0.015$0.035 of earnings per basic and diluted share) and, in 20062009 was $447,000$586,000 ($318,000353,000 net of income tax benefit, $0.015$0.02 of earnings per basic share and $0.014diluted share), and in 2008 was $666,000 ($432,000 net of income tax benefit, $0.02 of earnings per basic and diluted share), respectively..  All share-based compensation expense was recorded in salaries, wages and benefits expense.

Prior to the adoption of SFAS 123R,

The benefits of tax deductions in excess of recognized compensation costs (excess tax benefits) were reportedare recorded as operating cash flows.  SFAS 123R requires that they be recorded as

47


MARTEN TRANSPORT, LTD.

Notes to Consolidated Financial Statements (Continued)

a financing cash inflow rather than a deduction of taxes paid in operating cash flows.  In 20072010, 2009 and 2006,2008, there was $166,000$338,000, $223,000 and $1.2 million,$456,000, respectively, of excess tax benefits recognized resulting from exercises of options granted prior to December 31, 2005.

The following table details the effect on net income and earnings per share had share-based compensation expense been recorded in 2005 based on the fair-value method under SFAS 123.  The reported and pro forma net income and earnings per share in 2007 and 2006 are the same since share-based compensation expense was calculated under the provisions of SFAS 123R.

 

 

2005

 

Net income as reported

 

$

25,061

 

Deduct: Total share-based compensation expense determined under fair value based method for all awards, net of related tax effects

 

(108

)

Pro forma net income

 

$

24,953

 

Basic income per share:

 

 

 

As reported

 

$

1.16

 

Pro forma

 

$

1.16

 

Diluted income per share:

 

 

 

As reported

 

$

1.14

 

Pro forma

 

$

1.14

 

options.

As of December 31, 2007,2010, there was a total of $1.0$1.9 million of unrecognized compensation expense related to unvested service-based option awards, which is expected to be recognized over a weighted-average period of 3.03.3 years, and $741,000$875,000 of unrecognized compensation expense related to unvested performance-based optionperformance unit awards, which will be recorded inbased on the periods in which our achievementestimated number of certain operating ratios is probable through 2010.  As of December 31, 2007, the performance condition was not consideredunits probable of achievement.

achieving the vesting requirements of the awards through 2014.

Option activity in 20072010 was as follows:

 

 

 

 

Weighted

 

 

 

 

 

Average

 

 

 

Shares

 

Exercise Price

 

Outstanding at December 31, 2006

 

641,686

 

$

11.98

 

Granted

 

54,000

 

17.15

 

Exercised

 

(47,064

)

6.44

 

Forfeited

 

(31,725

)

19.50

 

Outstanding at December 31, 2007

 

616,897

 

$

12.46

 

Exercisable at December 31, 2007

 

390,911

 

$

7.46

 

     Weighted 
     Average 
  Shares  Exercise Price 
Outstanding at December 31, 2009  765,361  $15.89 
Granted  99,000   22.11 
Exercised  (65,179)  4.65 
Expired  (107,000)  21.35 
Forfeited  (3,000)  17.83 
Outstanding at December 31, 2010  689,182  $16.99 
Exercisable at December 31, 2010  412,722  $15.30 

The fair value of options granted in 20072010 was $338,000$922,000 for service-based options.  The fair value of options granted in 2009 was $913,000 for service-based options and $93,000$64,000 for performance-based options.  The fair value of options granted in 20062008 was $1.4$1.2 million for service-based options and $767,000$170,000 for performance-based options.  There were no options granted in 2005.  The total intrinsic value of options exercised in 2007, 20062010, 2009 and 20052008 was $564,000, $3.4$1.0 million, $719,000 and $1.0$1.3 million, respectively.  Intrinsic value is the difference between the fair value of the acquired shares at the date of exercise and the exercise price, multiplied by the number of options exercised.  Proceeds received from option exercises in 2007, 20062010, 2009 and 20052008 were $303,000, $813,000$332,000 and $525,000,$356,000, respectively.

48

50

MARTEN TRANSPORT, LTD.

Notes to Consolidated Financial Statements (Continued)

The following table summarizes information concerning outstanding and exercisable option awards as of December 31, 2007:

 

 

Options Outstanding

 

Options Exercisable

 

Range of Exercise Prices

 

Shares

 

Life(1)

 

Price(2)

 

Value(3)

 

Shares

 

Life(1)

 

Price(2)

 

Value(3)

 

Service-based options:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$3.84 - $5.78

 

291,058

 

2.8

 

$

4.49

 

$

2,753

 

291,058

 

2.8

 

$

4.49

 

$

2,753

 

$10.76

 

67,439

 

5.8

 

10.76

 

215

 

52,253

 

5.8

 

10.76

 

167

 

$16.56 - $23.59

 

180,400

 

8.5

 

21.62

 

—

 

47,600

 

8.5

 

22.01

 

—

 

 

 

538,897

 

5.1

 

$

11.00

 

$

2,968

 

390,911

 

3.9

 

$

7.46

 

$

2,920

 

Performance-based options:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$16.56 - $23.59

 

78,000

 

8.4

 

$

22.51

 

$

—

 

—

 

—

 

$

—

 

$

—

 

2010:

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

(2)Represents the weighted-average exercise price.

(3)Represents the aggregate intrinsic value based on our closing stock price on December 31, 2007 for in-the-money options (in thousands).

  Options Outstanding Options Exercisable 
Range of Exercise Prices Shares 
Life(1)
 
Price(2)
 
Value(3)
 Shares 
Life(1)
 
Price(2)
 
Value(3)
 
Service-based options:                 
$4.14 - $5.78 102,956 1.5 $4.99 $1,687 102,956 1.5 $4.99 $1,687 
$10.76 50,626 2.8  10.76  538 50,626 2.8  10.76  538 
$15.45 - $23.59 535,600 5.6  19.88  988 259,140 5.5  20.28  401 
  689,182 4.8 $16.99 $3,213 412,722 4.2 $15.30 $2,626 

(1)Represents the weighted-average remaining contractual life in years.
(2)Represents the weighted-average exercise price.
(3)Represents the aggregate intrinsic value based on our closing stock price on December 31, 2010 for in-the-money options (in thousands).
Nonvested option awards as of December 31, 20072010 and changes during 20072010 were as follows:

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

Average

 

 

 

 

 

Weighted

 

Remaining

 

 

 

 

 

Average

 

Contractual

 

 

 

 

 

Grant Date

 

Life

 

 

 

Shares

 

Fair Value

 

(in Years)

 

Service-based options:

 

 

 

 

 

 

 

Nonvested at December 31, 2006

 

183,563

 

$

8.12

 

8.5

 

Granted

 

42,000

 

8.05

 

9.5

 

Vested

 

(57,852

)

7.24

 

7.8

 

Forfeited

 

(19,725

)

6.92

 

7.0

 

Nonvested at December 31, 2007

 

147,986

 

$

8.61

 

8.2

 

 

 

 

 

 

 

 

 

Performance-based options:

 

 

 

 

 

 

 

Nonvested at December 31, 2006

 

78,000

 

$

9.83

 

9.2

 

Granted

 

12,000

 

7.72

 

9.7

 

Vested

 

—

 

—

 

—

 

Forfeited

 

(12,000

)

9.83

 

8.2

 

Nonvested at December 31, 2007

 

78,000

 

$

9.51

 

8.4

 

        Weighted 
        Average 
     Weighted  Remaining 
     Average  Contractual 
     Grant Date  Life 
  Shares  Fair Value  (in Years) 
Service-based options:         
Nonvested at December 31, 2009  266,080  $7.98   6.3 
Granted  99,000   9.31   6.8 
Vested  (85,620)  8.51   5.9 
Forfeited  (3,000)  7.54   5.9 
Nonvested at December 31, 2010
  276,460  $8.30   5.7 
             
Performance-based options:            
Nonvested at December 31, 2009  107,000  $9.12   6.6 
Expired  (107,000)  9.12   — 
Nonvested at December 31, 2010  —  $—   — 

The total fair value of options which vested during 2007, 20062010, 2009 and 20052008 was $419,000, $227,000$729,000, $561,000 and $254,000,$629,000, respectively.

51

MARTEN TRANSPORT, LTD.
Notes to Consolidated Financial Statements (Continued)
The following table summarizes our nonvested performance unit award activity in 2010:
     Weighted Average 
     Grant Date 
  Shares  Fair Value 
Nonvested at December 31, 2009  -  $- 
Granted  63,400   20.73 
Vested  (16,484) (1)  20.73 
Nonvested at December 31, 2010  46,916  $20.73 
(1)This number of performance unit award shares vested based on our financial performance in 2010 and will be distributed or credited to the Marten Transport, Ltd. Deferred Compensation Plan in March 2011.  The fair value of unit award shares that vested in 2010 was $342,000.
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. Participants are able to contribute up to the limit set by law, which in 20072010 was $15,500$16,500 for participants less than age 50 and $20,500$22,000 for participants age 50 and above.  We contribute 35% of each participant’s contribution, up to a total of 6% contributed.  Our contribution vests at the rate of 20% per year for the second through sixth years of service.  In addition, we may make elective contributions as determined by the boardBoard of directors.  Elective

49


MARTEN TRANSPORT, LTD.

Notes to Consolidated Financial Statements (Continued)

Directors.  No elective contributions were not made in 2007, 20062010, 2009 or 2005.2008.  Total expense recorded for the plan was $1.3$633,000 in 2010, $996,000 in 2009 and $1.0 million in 2007, $1.1 million in 2006 and $702,000 in 2005.

2008.

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.

52
MARTEN TRANSPORT, LTD.
Notes to Consolidated Financial Statements (Continued)
10.  Deferred Compensation Plan
10.In August 2010, our Board of Directors approved and adopted the Marten Transport, Ltd. Deferred Compensation Plan.  The deferred compensation plan is an unfunded, nonqualified deferred compensation plan designed to allow board elected officers and other select members of our management designated by our Compensation Committee to save for retirement on a tax-deferred basis.
Under the terms of the plan, each participant is eligible to defer portions of their base pay, annual bonus, or receipt of common stock otherwise payable under a vested performance unit award.  Each participant can elect a fixed distribution date for the participant’s deferral account other than certain required performance unit award deferrals credited to the discretionary account, which will be distributed after the later of the date of the participant’s termination of employment of the date the participant attains age 62.  Upon termination of a participant’s employment with the company, the plan requires a lump-sum distribution of the deferral account, excluding the required performance unit award deferrals, unless the participant had elected an installment distribution.  Upon a participant’s death, the plan provides that a participant’s distributions accelerate and will be paid in a lump sum to the participant’s beneficiary.  We may terminate the plan and accelerate distributions to participants, but only to the extent and at the times permitted under the Internal Revenue Code.  We may terminate the plan and accelerate distributions upon a change in control, which is not a payment event under the plan.  In conjunction with the approval of the plan, our Board of Directors also adopted an amendment to the Marten Transport, Ltd. 2005 Stock Incentive Plan to allow for deferral of receipt of income from a performance unit award under the plan.  As of December 31, 2010, there were no participant account balances within the plan.
11.  Fair Value of Financial Instruments

The carrying amounts of marketable securities, accounts receivable, direct financing leases receivable and accounts payable approximate fair value because of the short maturity of these instruments.  The faircarrying value of our total long-term debt is estimated to be $45.0 million at December 31, 2007, and $59.0 million at December 31, 2006.  Theapproximates fair value was estimated using discounted cash flow analysis.  Current borrowing rates for similar long-term debt were used in this analysis.

11.as the credit facility bears interest based upon a variable interest rate.

12.  Commitments and Contingencies

We are committed to: (a) purchase $1.9$9.4 million of new revenue equipment in 2008;2011; (b) building construction expenditures of $2.9 million in 2011; and (b)(c) operating lease obligationsobligation expenditures totaling $587,000$1.1 million through 2011.

2014.

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 long-term financial position or results of operations.

12.operations, but could be material to the results of any individual period.

13.  Business Segments

Beginning with fiscal 2007, our presentation includes

We have six operating segments that have been aggregated into two reportablereporting segments — Truckload(Truckload and Logistics.  InformationLogistics) for prior periods has been shown in the same two segments for comparisonfinancial reporting purposes.  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.

53
MARTEN TRANSPORT, LTD.
Notes to Consolidated Financial Statements (Continued)
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.

50


MARTEN TRANSPORT, LTD.

Notes to Consolidated Financial Statements (Continued)

The following table sets forth for the years indicated our operating revenue and operating income and operating ratio by segment.  The table below presents truckload and logistics revenue, net of fuel surcharges.  We provide this additional disclosure because management believes removing fuel surcharge revenue provides a more consistent basis for comparing results of operations from period to period.  This financial measure in the table below has 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 a reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure, operating revenue.  We evaluate the performance of our business segments based on operating income and operating ratio.  We do not prepare separate balance sheets by segment and, as a result, assets are not separately identifiable by segment.

(Dollars in thousands)

 

2007

 

2006

 

2005

 

Operating revenue:

 

 

 

 

 

 

 

Truckload revenue, net of fuel surcharge revenue

 

$

406,754

 

$

402,327

 

$

386,131

 

Truckload fuel surcharge revenue

 

83,786

 

75,323

 

57,127

 

Total Truckload revenue

 

490,540

 

477,650

 

443,258

 

 

 

 

 

 

 

 

 

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

 

66,163

 

39,298

 

16,873

 

Intermodal fuel surcharge revenue

 

3,314

 

1,942

 

71

 

Total Logistics revenue

 

69,477

 

41,240

 

16,944

 

 

 

 

 

 

 

 

 

Total operating revenue

 

$

560,017

 

$

518,890

 

$

460,202

 

 

 

 

 

 

 

 

 

Operating income:

 

 

 

 

 

 

 

Truckload

 

$

22,689

 

$

37,500

 

$

41,277

 

Logistics

 

5,112

 

3,669

 

1,590

 

Total operating income

 

$

27,801

 

$

41,169

 

$

42,867

 

 

 

 

 

 

 

 

 

Operating ratio(2)

 

 

 

 

 

 

 

Truckload

 

95.4

%

92.1

%

90.7

%

Logistics

 

92.6

%

91.1

%

90.6

%

Consolidated operating ratio

 

95.0

%

92.1

%

90.7

%

(1)Logistics revenue is net of $17.1 million, $16.5 million and $21.3 million of inter-segment revenue in 2007, 2006 and 2005, respectively, for loads transported by our tractors and arranged by MWL that have been eliminated in consolidation.

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

Substantially all

(Dollars in thousands)
 2010  2009  2008 
Operating revenue:         
Truckload revenue, net of fuel surcharge revenue $325,791  $346,983  $384,264 
Truckload fuel surcharge revenue  66,973   49,812   123,922 
Total Truckload revenue  392,764   396,795   508,186 
             
Logistics revenue, net of intermodal fuel surcharge revenue(1)
  115,223   103,166   90,194 
Intermodal fuel surcharge revenue  8,933   5,913   8,719 
Total Logistics revenue  124,156   109,079   98,913 
             
Total operating revenue $516,920  $505,874  $607,099 
             
Operating income:            
Truckload $28,680  $22,827  $26,055 
Logistics  6,609   6,532   6,650 
Total operating income $35,289  $29,359  $32,705 
(1)Logistics revenue is net of $9.1 million, $10.2 million and $16.8 million of inter-segment revenue in 2010, 2009 and 2008, respectively, for loads transported by our tractors and arranged by MWL that have been eliminated in consolidation.
During 2010, more than 99% of our revenue iswas generated within the United States.  We earned 18% and 10% of our revenue in 20072010 from atwo single customercustomers whose trade receivables represented 11% and 12%, respectively, of our trade receivables as of December 31, 2007.2010.  We earned 17%20% and 12% of our revenue in 20062009 from atwo single customercustomers whose trade receivables represented 11% and 16%, respectively, of our trade receivables as of December 31, 2006.2009.  We earned 15%19% and 10% of our revenue in 20052008 from atwo single customer.

51

customers.
54

MARTEN TRANSPORT, LTD.

Notes to Consolidated Financial Statements (Continued)
14.  Reclassifications
The net interest expense balances of $32,000 for 2009 and $958,000 for 2008 in our consolidated statements of operations have been reclassified to be consistent with the current presentation.  This reclassification does not have a material effect on our consolidated financial statements.

13.

15.  Quarterly Financial Data (Unaudited)

The following is a summary of the quarterly results of operations for 20072010 and 2006:

2007 Quarters (In thousands, except per share amounts)

 

First

 

Second

 

Third

 

Fourth

 

Operating revenue

 

$

131,416

 

$

138,821

 

$

144,969

 

$

144,811

 

Operating income

 

8,390

 

8,041

 

5,696

 

5,674

 

Net income

 

4,594

 

4,344

 

3,065

 

2,965

 

Basic earnings per common share

 

0.21

 

0.20

 

0.14

 

0.14

 

Diluted earnings per common share

 

0.21

 

0.20

 

0.14

 

0.14

 

 

 

 

 

 

 

 

 

 

 

2006 Quarters (In thousands, except per share amounts)

 

First

 

Second

 

Third

 

Fourth

 

Operating revenue

 

$

119,555

 

$

131,862

 

$

135,812

 

$

131,661

 

Operating income

 

8,989

 

11,812

 

11,713

 

8,655

 

Net income

 

5,053

 

7,540

 

6,736

 

5,189

 

Basic earnings per common share

 

0.23

 

0.35

 

0.31

 

0.24

 

Diluted earnings per common share

 

0.23

 

0.34

 

0.31

 

0.24

 

The diluted earnings per common share for the 2007 quarters exceeds the diluted earnings per common share for the year due to differences in rounding.

52

2009:
2010 Quarters (In thousands, except per share amounts)
 First  Second  Third  Fourth 
Operating revenue $125,812  $125,862  $128,674  $136,572 
Operating income  7,034   9,193   9,986   9,076 
Net income  3,892   5,158   5,482   5,210 
Basic earnings per common share  0.18   0.24   0.25   0.24 
Diluted earnings per common share  0.18   0.23   0.25   0.24 
                 
2009 Quarters (In thousands, except per share amounts)
 First  Second  Third  Fourth 
Operating revenue $121,955  $125,804  $129,395  $128,720 
Operating income  7,251   7,503   6,536   8,069 
Net income  4,053   4,477   3,472   4,265 
Basic earnings per common share  0.19   0.20   0.16   0.19 
Diluted earnings per common share  0.18   0.20   0.16   0.19 

55

ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
No reports on Form 8-K have been required to be filed within the twenty-four months prior to December 31, 2007,2010, involving a change of accountants or disagreements on accounting and financial disclosure.

ITEM 9A.CONTROLS AND PROCEDURES

ITEM 9A.CONTROLS AND PROCEDURES
As required by Rule 13a-15 under the Securities Exchange Act of 1934 (“Exchange Act”), we have carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this report.  This evaluation was carried out under the supervision and with the participation of our management, including our President and Chief Executive Officer and our Chief Financial Officer.  Based upon that evaluation, our President and Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2007.2010.  There were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.  We intend to periodically evaluate our disclosure controls and procedures as required by the Exchange Act Rules.

We have included Management’s Annual Report on Internal Control Over Financial Reporting in Item 8 above.

ITEM 9B.OTHER INFORMATION

ITEM 9B.OTHER INFORMATION
None.

53

56


PART III

ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

A.    Directors of the Registrant.

ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
A.Directors of the Registrant.
The information in the “Election of Directors--Information About Nominees” and “Election of Directors--Other Information About Nominees” sections of our 2011 Proxy Statement is incorporated in this Report by reference.
B.Executive Officers of the Registrant.
Information about our executive officers is included in this Report under Item 4A, “Executive Officers of the Registrant.”
C.Compliance with Section 16(a) of the Exchange Act.
The information in the “Section 16(a) Beneficial Ownership Reporting Compliance” section of our 2011 Proxy Statement is incorporated in this Report by reference.
D.Procedure for Director Nominations by Security Holders.
There have been no material changes to the procedures by which security holders may recommend nominees to our board of directors.
E.Audit Committee Financial Expert.
The information in the “Election of Directors—Board and Board Committees” section of our 2011 Proxy Statement is incorporated in this Report by reference.
F.Identification of the Audit Committee.
The information in the “Election of Directors—Board and Board Committees” section of our 2011 Proxy Statement is incorporated in this Report by reference.
G.
Code of Ethics for Senior Financial Management.
Our Code of Ethics for Senior Financial Management applies to all of our executive officers, including our principal executive officer, principal financial officer and controller, and meets the requirements of the Securities and Exchange Commission.  We have posted our Code of Ethics for Senior Financial Management on our website at www.marten.com.  We intend to disclose any amendments to and any waivers from a provision of our Code of Ethics for Senior Financial Management on our website within five business days following such amendment or waiver.
57

ITEM 11.EXECUTIVE COMPENSATION
The information in the “Election of Directors—Information About Nominees”Directors--Director Compensation,” “Compensation and “Election of Directors—Other Information About Nominees”Benefits” and “Compensation Discussion and Analysis” sections of our 20082011 Proxy Statement is incorporated in this Report by reference.

B.    Executive Officers of the Registrant.

Information about our executive officers is included in this Report under Item 4A, “Executive Officers of the Registrant.”

C.    Compliance with Section 16(a) of the Exchange Act.

The information in the “Section 16(a) Beneficial Ownership Reporting Compliance” section of our 2008 Proxy Statement is incorporated in this Report by reference.

D.    Procedure for Director Nominations by Security Holders.

        There have been no material changes to the procedures by which security holders may recommend nominees to our board of directors.

E.     Audit Committee Financial Expert.

The information in the “Election of Directors—Board and Board Committees” section of our 2008 Proxy Statement is incorporated in this Report by reference.

F.     Identification of the Audit Committee.

The information in the “Election of Directors—Board and Board Committees” section of our 2008 Proxy Statement is incorporated in this Report by reference.

G.    Code of Ethics for Senior Financial Management.

Our Code of Ethics for Senior Financial Management applies to all of our executive officers, including our principal executive officer, principal financial officer and controller, and meets the requirements of the Securities and Exchange Commission.  We have posted our Code of Ethics for Senior Financial Management on our website at www.marten.com.  We intend to disclose any amendments to and any waivers from a provision of our Code of Ethics for Senior Financial Management on our website within five business days following such amendment or waiver.

54

ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

ITEM 11.EXECUTIVE COMPENSATION

The information in the “Election of Directors—Director Compensation” and “Compensation and Other Benefits” sections of our 2008 Proxy Statement is incorporated in this Report by reference.

ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information in the “Security Ownership of Certain Beneficial Owners and Management” and “Compensation and Other Benefits—EquityBenefits--Equity Compensation Plan Information” sections of our 20082011 Proxy Statement is incorporated in this Report by reference.

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information in the “Related Party Transactions” and “Election of Directors—BoardDirectors--Board and Board Committees” sections of our 20082011 Proxy Statement is incorporated in this Report by reference.

ITEM 14.       PRINCIPAL ACCOUNTANT FEES AND SERVICES

ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information in the “Fees of Independent Auditors” section of our 20082011 Proxy Statement is incorporated in this Report by reference.

58

PART IV

ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)

ITEM 15.

1.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)

1.

Financial Statements (See Part II, Item 8 of this Report):

Page

Management’s Annual Report on Internal Control Over Financial Reporting

31

Financial Reporting

33

Report of Independent Registered Public Accounting Firm

32

34

Report of Independent Registered Public Accounting Firm

33

Consolidated Balance Sheets as of December 31, 20072010 and 2006

2009

34

35

Consolidated Statements of Operations for the years ended

December 31, 2007, 20062010, 2009 and 2005

2008

35

36

Consolidated Statements of Stockholders’ Equity

for the years ended December 31, 2007, 20062010, 2009 and 2005

2008

36

37

Consolidated Statements of Cash Flows for the years ended

December 31, 2007, 20062010, 2009 and 2005

2008

37

38

Notes to Consolidated Financial Statements

38

39

2.

Financial Statement Schedules (Consolidated Financial Statement Schedule Included in Part IV of this Report):

Schedule II —– Valuation and Qualifying Accounts and Reserves

58

62

Schedules not listed above have been omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes.

55


59

3.

Exhibits:

Exhibits:

The exhibits to this Report are listed in the Exhibit Index on pages 5963 through 61.65.  A copy of any of the exhibits listed will be sent at a reasonable cost to any shareholder as of March 11, 2008.8, 2011.  Requests should be sent to James J. Hinnendael, Chief Financial Officer, at our corporate headquarters.

The following is a list of each management contract or compensatory plan or arrangement required to be filed as an exhibit to this Report under Item15(a)Item 15(a)(3):

(1)

(1)          Marten Transport, Ltd. 1995 Stock Incentive Plan.

(2)

(2)          Marten Transport, Ltd. 2005 Stock Incentive Plan.

(3)

(3)          Amendment to the Marten Transport, Ltd. 2005 Stock Incentive Plan.

(4)Form of Non-Statutory Stock Option Agreement for the 2005 Stock Incentive Plan.

(5)

(4)          Named Executive Officers’ Compensation Summary.

Officer Compensation.

(6)

(5)          20082011 Non-employee Director Compensation Summary.

(7)

(6)          Non-Driver Employee Performance Incentive Bonus Plan.

Form of Amended and Restated Change in Control Severance Agreement.

(8)

(7)          Form of First Amendment to Amended and Restated Change in Control Severance Agreement.

(9)Form of Non-employee Director Non-statutory Stock Option Agreement.

(10)

(8)          Form of Performance Based Non-Statutory Stock Option Agreement for 2005 Stock Incentive Plan.

(11)

(9)          Amended and Restated 2006 Executive Officer Incentive2009 Non-Driver Employee Bonus Plan.

(12)

(10)        Form of Amended and Restated Change in Control SeveranceIndemnification Agreement.

(13)Marten Transport, Ltd. Deferred Compensation Plan.
(14)Form of Performance Unit Award Agreement.

56


60

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Marten Transport, Ltd., the Registrant, has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated:  March 14, 2008

15, 2011

MARTEN TRANSPORT, LTD.

By

By:/s/ Randolph L. Marten

Randolph L. Marten

Chairman of the Board President and
Chief

Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below on March 14, 2008,15, 2011, by the following persons on behalf of the Registrant and in the capacities indicated.

Signature

Title

/s/ Randolph L. Marten

Chairman of the Board, President, Chief

Executive Officer

Randolph L. Marten

Executive Officer and Director (Principal Executive Officer)

/s/ James J. Hinnendael

Chief Financial Officer

James J. Hinnendael

(Principal Financial and Accounting Officer)

/s/ Larry B. Hagness

Director

Larry B. Hagness

/s/ Thomas J. Winkel

Director

Thomas J. Winkel

/s/ Jerry M. Bauer

Director

Jerry M. Bauer

/s/ Christine K. Marten

Director

Christine K. Marten

/s/ Robert L. Demorest

Director

Robert L. Demorest

/s/ G. Larry Owens

Director

G. Larry Owens

57


61

SCHEDULE II

MARTEN TRANSPORT, LTD.

Valuation and Qualifying Accounts and Reserves

(In thousands)

Description

 

Balance at
Beginning of Year

 

Charged to Costs
and Expenses

 


Deductions

 


Balance at
End of Year

 

 

 

 

 

 

 

 

 

 

 

Insurance and claims accruals:

 

 

 

 

 

 

 

 

 

Year ended December 31, 2007

 

$

16,073

 

$

30,865

 

$

(29,507

)(1)

$

17,431

 

Year ended December 31, 2006

 

13,126

 

28,338

 

(25,391

)(1)

16,073

 

Year ended December 31, 2005

 

13,654

 

23,221

 

(23,749

)(1)

13,126

 

 

 

 

 

 

 

 

 

 

 

Allowance for doubtful accounts:

 

 

 

 

 

 

 

 

 

Year ended December 31, 2007

 

861

 

(534

)(2)

(12

)(3)

315

 

Year ended December 31, 2006

 

928

 

—

 

(67

)(3)

861

 

Year ended December 31, 2005

 

909

 

90

 

(71

)(3)

928

 

  Balance at  Charged to       
  Beginning of  Costs and     Balance at 
Description Year  Expenses  Deductions  End of Year 
Insurance and claims accruals:            
Year ended December 31, 2010
 $19,222  $24,892  $(26,461)(1) $17,653 
Year ended December 31, 2009
  21,386   28,695   (30,859)(1)  19,222 
Year ended December 31, 2008
  17,431   37,271   (33,316)(1)  21,386 
                 
                 
Allowance for doubtful accounts:                
Year ended December 31, 2010
  245   (21)  (54)(2)  170 
Year ended December 31, 2009
  380   30   (165)(2)  245 
Year ended December 31, 2008
  315   78   (13)(2)  380 

(1)           Claims payments

(2)  Revision of estimate

(3)           Write-off of bad debts, net of recoveries


See report of independent registered public accounting firm.

58

62

MARTEN TRANSPORT, LTD.

EXHIBIT INDEX TO ANNUAL REPORT

ON FORM 10-K

For the Year Ended December 31, 2007

2010

Item No.

Item

Item

Filing Method

3.1

3.1Amended and Restated Certificate of Incorporation effective August 11, 2003

Incorporated by reference to Exhibit 4.1 of the Company’s Amendment No. 2 to Registration Statement on Form S-2 (File No. 33-107367).

3.2

Amendment to Amended and Restated Certificate of Incorporation effective May 25, 2005

Incorporated by reference to Exhibit 3.3 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 (File No. 0-15010).

3.3

Bylaws of the Company, as amended

Filed with this Report.

Incorporated by reference to Exhibit 3.3 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007 (File No. 0-15010).

4.1

Specimen form of the Company’s Common Stock Certificate

Incorporated by reference to Exhibit 4.1 of the Company’s Registration Statement on Form S-1 (File No. 33-8108).

4.2

Amended and Restated Certificate of Incorporation effective August 11, 2003

See Exhibit 3.1 above.

4.3

Amendment to Amended and Restated Certificate of Incorporation effective May 25, 2005

See Exhibit 3.2 above.

4.4

Bylaws of the Company

See Exhibit 3.3 above.

10.1

Marten Transport, Ltd. 1995 Stock Incentive Plan

Incorporated by reference to Exhibit 10.18 of the Company’s Annual Report on Form 10-K for the year ended December 31, 1994 (File No. 0-15010).

10.2

Note Purchase and Private Shelf Agreement dated October 30, 1998, between the Company and The Prudential Insurance Company of America

Incorporated by reference to Exhibit 10.12 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1998 (File No. 0-15010).

10.3

Note Purchase Agreement, dated April 6, 2000, between the Company and The Prudential Insurance Company of America

Incorporated by reference to Exhibit 10.19 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2000 (File No. 0-15010).

10.4

Marten Transport, Ltd. 2005 Stock Incentive Plan

Incorporated by reference to Exhibit 10.18 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 (File No. 0-15010).

63
Item No.

Item
Filing Method

10.5

Form of Non-Statutory Stock Option Agreement for the 2005 Stock Incentive Plan

Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed January 31, 2006.

59


10.6

Non-Driver Employee Performance Incentive Bonus Plan

Incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed April 4, 2006.

10.7

10.6

Form of Non-employee Director Non-statutory Stock Option Agreement

Incorporated by reference to Exhibit 10.26 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 (File No. 0-15010).

10.8

10.7

Credit Agreement, dated as of August 31, 2006, by and among Marten Transport, Ltd., as borrower, the banks party thereto as lenders, and U.S. Bank National Association, as agent for the lenders

Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed September 6, 2006.

10.9

10.8

First Amendment to Credit Agreement, effective as of January 1, 2007, by and among Marten Transport, Ltd., as borrower, the banks party thereto as lenders, and U.S. Bank National Association, as agent for the lenders

Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed January 5, 2007.

10.10

10.9

Form of Performance Based Non-Statutory Stock Option Agreement for 2005 Stock Incentive Plan

Incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed February 16, 2007.

10.11

10.10

Amended and Restated 2006 Executive Officer Incentive Bonus Plan

Incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed February 16, 2007.

10.12

Named Executive Officers’ Compensation Summary

Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed May 7, 2007.

10.13

Form of Amended and Restated Change in Control Severance Agreement

Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed August 15, 2007.

10.14

10.11

Second Amendment to Credit Agreement, effective as of November 30, 2007, by and among Marten Transport, Ltd., as borrower, the banks party thereto as lenders, and U.S. Bank National Association, as agent for the lenders

Incorporated by reference to Exhibit 10.14 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 (File No. 0-15010).

10.12Form of First Amendment to Amended and Restated Change in Control Severance AgreementIncorporated by reference to Exhibit 10.18 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 0-15010).
10.132009 Non-Driver Employee Bonus PlanIncorporated by reference to Exhibit 10.19 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 0-15010).
10.14Form of Indemnification AgreementIncorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed February 22, 2010.
64
Item No.
Item
Filing Method
10.15Named Executive Officer CompensationIncorporated by reference to Exhibit 10.12 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010 (File No. 0-15010).
10.16Amendment to the Marten Transport, Ltd. 2005 Stock Incentive PlanIncorporated by reference to Exhibit 10.17 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2010 (File No. 0-15010).
10.17Marten Transport, Ltd. Deferred Compensation PlanIncorporated by reference to Exhibit 10.18 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2010 (File No. 0-15010).
10.18Form of Performance Unit Award AgreementIncorporated by reference to Exhibit 10.19 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2010 (File No. 0-15010).
10.192011 Non-employee Director Compensation SummaryFiled with this Report.

10.15

23.1

Consent of KPMG LLP

Separation Agreement and Release, dated December 28, 2007 between the Company and Donald J. Hinson

Filed with this Report.

10.16

31.1

2008 Non-employee Director Compensation Summary

Filed with this Report.

23.1

Consent of KPMG LLP

Filed with this Report.

60


31.1

Certification pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by Randolph L. Marten, the Registrant’s President and Chief Executive Officer (Principal Executive Officer)

Filed with this Report.

31.2

Certification pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by James J. Hinnendael, the Registrant’s Chief Financial Officer (Principal Financial Officer)

Filed with this Report.

32.1

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Filed with this Report.

61

65