UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

 

Form 10-Q

 

Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934

 

For the Quarter ended September 30, 2002

 

Commission File Number 0-15010

 

 

MARTEN TRANSPORT, LTD.
(Exact name of registrant as specified in its charter)

 

 

 

129 Marten Street, Mondovi, Wisconsin 54755

(Address of principal executive offices)

 

715-926-4216

(Registrant’s telephone number)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ý    No o

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes o    No ý

 

The number of shares outstanding of the registrant’s Common Stock, par value $.01 per share, was 4,241,995 as of November 11, 2002.

 

1

 

PART I:  FINANCIAL INFORMATION

 

Item 1.  Financial Statements.

 

MARTEN TRANSPORT, LTD.

CONDENSED BALANCE SHEETS

(In thousands, except share and per share information)

 

 

		September 30,			December 31,
		2002			2001
		(Unaudited)
ASSETS
Current assets:
Cash		$	589		$	1,990
Receivables, net		37,815			31,772
Prepaid expenses and other		6,411			7,488
Deferred income taxes		4,710			3,297
Total current assets		49,525			44,547
Property and equipment:
Revenue equipment, buildings and land, office equipment, and other		246,123			239,036
Accumulated depreciation		(90,322		)	(77,301		)
Net property and equipment		155,801			161,735
Other assets		6,586			4,011
TOTAL ASSETS		$	211,912		$	210,293
LIABILITIES AND SHAREHOLDERS’ INVESTMENT
Current liabilities:
Accounts payable and accrued liabilities		$	18,218		$	14,607
Insurance and claims accruals		11,476			8,984
Current maturities of long-term debt		3,571			3,571
Total current liabilities		33,265			27,162
Long-term debt, less current maturities		55,129			71,545
Deferred income taxes		44,886			39,187
Total liabilities		133,280			137,894
Shareholders’ investment:
Common stock, $.01 par value per share, 10,000,000 shares authorized, 4,241,395 and 4,202,395 shares issued and outstanding		42			42
Additional paid-in capital		10,813			10,228
Retained earnings		67,777			62,383
Accumulated other comprehensive loss		—			(254		)
Total shareholders’ investment		78,632			72,399
TOTAL LIABILITIES AND SHAREHOLDERS’ INVESTMENT		$	211,912		$	210,293

 

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

 

 

2

 

MARTEN TRANSPORT, LTD.

CONDENSED STATEMENTS OF INCOME

 (In thousands, except per share information)

(Unaudited)

 

		Three Months						Nine Months
		Ended September 30,						Ended September 30,
		2002			2001			2002			2001
OPERATING REVENUE		$	74,736		$	70,757		$	216,765		$	212,377
OPERATING EXPENSES (INCOME):
Salaries, wages and benefits		22,192			21,533			66,862			64,063
Purchased transportation		17,815			15,346			50,063			46,599
Fuel and fuel taxes		11,202			11,616			31,039			35,066
Supplies and maintenance		5,538			5,559			16,046			16,629
Depreciation		6,988			6,806			20,646			20,094
Operating taxes and licenses		1,264			1,323			3,680			3,753
Insurance and claims		3,796			2,632			10,583			6,948
Communications and utilities		758			810			2,220			2,363
Gain on disposition of revenue equipment		(40		)	(429		)	(113		)	(771		)
Other		1,743			1,888			5,254			5,526
Total operating expenses		71,256			67,084			206,280			200,270
OPERATING INCOME		3,480			3,673			10,485			12,107
OTHER EXPENSES (INCOME):
Interest expense		819			1,182			2,659			4,056
Interest income		(346		)	(126		)	(874		)	(323		)
INCOME BEFORE INCOME TAXES		3,007			2,617			8,700			8,374
PROVISION FOR INCOME TAXES		1,143			995			3,306			3,182
NET INCOME		$	1,864		$	1,622		$	5,394		$	5,192
BASIC EARNINGS PER COMMON SHARE		$	0.44		$	0.39		$	1.27		$	1.24
DILUTED EARNINGS PER COMMON SHARE		$	0.43		$	0.38		$	1.24		$	1.23

 

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

 

 

3

 

MARTEN TRANSPORT, LTD.

CONDENSED STATEMENTS OF SHAREHOLDERS’ INVESTMENT

AND COMPREHENSIVE INCOME

(In thousands, except share information)

(Unaudited)

 

 

														Accumulated
														Other			Total
		Common Stock						Additional Paid-In			Retained			Compre-hensive			Share-holders’			Compre-hensive
		Shares			Amount			Capital			Earnings			Loss			Investment			Income
Balance at December 31, 2000		4,180,145			$	42		$	9,934		$	55,869		$	—		$	65,845
Net income		—			—			—			5,192			—			5,192			$	5,192
Issuance of common stock		2,300			—			33			—			—			33
Transition adjustment related to change in accounting for derivative instruments and hedging activities, net of tax		—			—			—			—			(173		)	(173		)	(173		)
Unrealized loss on qualifying cash flow hedges, net of tax		—			—			—			—			(1		)	(1		)	(1		)
Comprehensive income																				5,018
Balance at September 30, 2001		4,182,445			42			9,967			61,061			(174		)	70,896
Net income		—			—			—			1,322			—			1,322			1,322
Issuance of common stock		19,950			—			261			—			—			261
Unrealized loss on qualifying cash flow hedges, net of tax		—			—			—			—			(80		)	(80		)	(80		)
Comprehensive income																				1,242
Balance at December 31, 2001		4,202,395			42			10,228			62,383			(254		)	72,399
Net income		—			—			—			5,394			—			5,394			5,394
Issuance of common stock		39,000			—			585			—			—			585
Unrealized gain on qualifying cash flow hedges, net of tax		—			—			—			—			254			254			254
Comprehensive income																				$	5,648
Balance at September 30, 2002		4,241,395			$	42		$	10,813		$	67,777		$	—		$	78,632

 

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

 

 

4

 

MARTEN TRANSPORT, LTD.

CONDENSED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

		Nine Months
		Ended September 30,
		2002				2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Operations:
Net income		$	5,394			$	5,192
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation		20,646				20,094
Gain on disposition of revenue equipment		(113			)	(771		)
Deferred tax provision		4,286				3,446
Changes in other current operating items		1,391				2,958
Net cash provided by operating activities		31,604				30,919
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions:
Revenue equipment, net		(14,402			)	(14,753		)
Buildings and land, office equipment, and other additions, net		(197			)	(268		)
Net change in other assets		(2,575			)	(1,146		)
Net cash used for investing activities		(17,174			)	(16,167		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings		41,700				47,100
Repayment of long-term borrowings		(58,116			)	(63,083		)
Issuance of common stock		585				33
Change in net checks issued in excess of cash balances		—				1,198
Net cash used for  financing activities		(15,831			)	(14,752		)
NET CHANGE IN CASH		(1,401			)	—
CASH:
Beginning of period		1,990				—
End of period		$	589			$	—
CASH PAID (RECEIVED) FOR:
Interest		$	2,784			$	4,407
Income taxes		$		(481	)	$	(129	)

 

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

 

 

5

 

 

NOTES TO CONDENSED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2002

(Unaudited)

 

 

 

(1)   Financial Statements

 

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial statements, and therefore do not include all information and disclosures required by accounting principles generally accepted in the United States for complete financial statements.  In the opinion of management, such statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary to fairly present our financial condition, results of operations and cash flows for the interim periods presented.  The results of operations for any interim period do not necessarily indicate the results for the full year.  The unaudited interim financial statements should be read with reference to the financial statements and notes to financial statements in our 2001 Annual Report on Form 10-K.

 

(2)   Earnings Per Common Share

 

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

 

		Three Months						Nine Months
		Ended September 30,						Ended September 30,
		2002			2001			2002			2001
		(In thousands, except per share amounts)
Numerator:
Net income		$	1,864		$	1,622		$	5,394		$	5,192
Denominator:
Basic earnings per common share - weighted-average shares		4,240			4,182			4,233			4,181
Effect of dilutive stock options		140			89			119			44
Diluted earnings per common share - weighted-average shares and assumed conversions		4,380			4,271			4,352			4,225
Basic earnings per common share		$	0.44		$	0.39		$	1.27		$	1.24
Diluted earnings per common share		$	0.43		$	0.38		$	1.24		$	1.23

 

 

The following options were outstanding but were not included in the calculation of diluted earnings per share because their exercise prices were greater than the average market price of the common shares and, therefore, including the options in the denominator would be antidilutive, or decrease the number of weighted-average shares.

 

		Three Months						Nine Months
		Ended September 30,						Ended September 30,
		2002			2001			2002			2001
Number of option shares		—			14,100			7,500			66,800
Weighted-average exercise price		$	—		$	17.49		$	18.45		$	15.25

 

 

6

 

 

 (3)  Accounting for Derivative Instruments and Hedging Activities

 

Previously, we utilized commodity swap agreements to partially hedge our exposure to diesel fuel price fluctuations, but all such agreements have expired by September 30, 2002.  These agreements met the specific hedge accounting criteria and therefore constituted cash flow hedges.  The effective portion of the cumulative gain or loss on these derivative instruments has been reported as a component of accumulated other comprehensive loss and was recognized into current earnings in the same period or periods during which the hedged transactions affected current earnings.  No ineffectiveness was recognized in current earnings during the first nine months of 2002 or the year 2001.

 

We adopted Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities,” on January 1, 2001.  The effect of our adoption of Statement No. 133 was to record a liability of $279,000 for the fair value of hedged contracts with a corresponding pretax accumulated other comprehensive loss of $279,000 ($173,000 net of income tax benefit).  The accumulated other comprehensive loss was attributable to losses on effective cash flow hedges.  During the first nine months of 2001, accumulated other comprehensive loss increased by $2,000 ($1,000 net of income tax benefit) to reflect an unrealized loss and decrease in remaining notional amount on our commodity swap agreements from January 1, 2001 to September 30, 2001.  During the first nine months of 2002, accumulated other comprehensive loss was reversed by $410,000 ($254,000 net of income taxes) to reflect an unrealized gain and decrease in remaining notional amount on our commodity swap agreements from January 1, 2002 to September 30, 2002.

 

As of September 30, 2002, the fair value of our commodity swap agreements was zero given the expiration of all such agreements.  The fair value of commodity swap agreements was based upon the difference between the contractual strike prices and the market-based futures prices as of the valuation date applied to the remaining notional amount.

 

(4) Reclassifications

 

Certain amounts in the 2001 financial statements have been reclassified to be consistent with the 2002 presentation.  These reclassifications do not have a material effect on the financial statements.

 

 

7

 

 

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

 

Results of Operations

 

Operating revenue increased 5.6 percent to $74.7 million for the third quarter of 2002 from $70.8 million for the third quarter of 2001.  Operating revenue increased 2.1 percent to $216.8 million for the nine months ended September 30, 2002 from $212.4 million for the same period of 2001.  Our contracts with customers provide for fuel surcharges based upon defined fluctuations in the price of diesel fuel.  The increases in operating revenue, net of fuel surcharges to our customers, were 7.1 percent for the third quarter of 2002 and 5.0 percent for the first nine months of 2002.  Diesel fuel prices were significantly lower in the first nine months of 2002 than in the same period of 2001.  As a result, fuel surcharges increased operating revenue for the first nine months of 2002 by $2.9 million, compared with an increase of $8.7 million for the corresponding period of 2001.  Total miles traveled increased 6.2 percent and 4.6 percent over the comparable three-month and nine-month periods of 2001.  The increases in revenue and miles were primarily the result of transporting additional freight associated with increased business from existing and new customers and our larger fleet.  Average freight rates increased 0.9 percent and 0.3 percent over the corresponding three-month and nine-month periods of 2001.  Equipment utilization, measured by average miles traveled per tractor, decreased 0.3 percent and 0.5 percent compared with the same three-month and nine-month periods of last year.  We anticipate our operating revenue, net of fuel surcharges, for the remainder of 2002 will exceed 2001 levels primarily due to planned fleet additions and continued freight demand.

 

Operating expenses for the third quarter of 2002 were 95.3 percent of operating revenue, compared with 94.8 percent for the same period of 2001.  This ratio for the first nine months of 2002 was 95.2 percent, versus 94.3 percent for the same period of 2001.  Revenue generated per tractor increased 0.6 percent but decreased 0.1 percent compared with the same three-month and nine-month periods of last year.  These slight changes, combined with increased operating expenses, particularly our insurance and claims expense discussed in more detail below, caused the operating ratio to increase in the three-month and nine-month periods ended September 30, 2002.

 

The transportation of additional freight and growth in our fleet, in addition to the items discussed below, have increased most expense categories in 2002.  Our employees’ health insurance expense, which is included within salaries, wages and benefits expense, increased $861,000, or 22.4 percent, for the first nine months of 2002 compared with the same period of 2001.  This increase was due to an increase in the premium on our excess health insurance coverage and in the estimated cost of our self-insured medical claims.  The average number of independent contractor-owned vehicles increased from 2001 to 2002, which caused purchased transportation expense, net of fuel surcharges paid to independent contractors, to increase 17.5 percent for the third quarter of 2002 and 10.6 percent for the nine months ended September 30, 2002.  A significant decrease in the price of diesel fuel from 2001 to 2002 caused fuel surcharges paid to independent contractors to decrease by $1.2 million for the first nine months of 2002.  Independent contractors are responsible for their own salaries, wages and benefits expense, fuel and fuel taxes expense, and supplies and maintenance expense.  As a result, our use of independent contractors generally reduces our expense in these categories.  Fuel and fuel taxes expense decreased 3.6 percent for the third quarter of 2002 and 11.5 percent for the first nine months of 2002 due primarily to a decrease in the price of diesel fuel from 2001 to 2002.  Insurance and claims expense as a percentage of revenue increased from 3.7 percent to 5.1 percent for the third quarter of 2002 and from 3.3 percent to 4.9 percent for the nine months ended September 30, 2002.  These increases were caused by significantly higher insurance premiums and an increase in the cost of accident and cargo claims.  We plan to continue our emphasis on driver safety, training and claims management.  A decline in the market value received for used revenue equipment caused our gain on disposition of revenue equipment to decrease in 2002.  We expect our operating expenses as a percentage of revenue to remain at current levels for the remainder of 2002.

 

 

8

 

 

Interest expense as a percentage of revenue decreased from 1.7 percent to 1.1 percent for the third quarter of 2002 and from 1.9 percent to 1.2 percent for the first nine months of 2002.  Lower interest rates along with a significant reduction in our average long-term debt outstanding caused the decrease in interest expense from 2001 to 2002.  Our long-term debt at September 30, 2002, which is used to finance our revenue equipment purchases, was $16.4 million lower than at December 31, 2001.  We anticipate interest expense will remain at current levels.  Interest income increased in 2002 due to an increase in the number of tractors leased to independent contractors.  We expect interest income to remain at current levels or increase slightly for the remainder of 2002.

 

Our effective income tax rate was 38 percent for the first nine months of 2002 and the prior year.  We expect our effective income tax rate to remain at approximately 38 percent for the remainder of 2002.

 

Inflation affects most of our operating expenses.  The impact of inflation, however, was minimal during the first nine months of 2002 and 2001.

 

Capital Resources and Liquidity

 

Our operating activities for the first nine months of 2002 provided net cash of $31.6 million, compared with net cash provided of $30.9 million in the same period of 2001.  The nature of our business requires us to continually update and expand our fleet with new, more efficient revenue equipment.  Investments in property and equipment and other assets used net cash of $17.2 million and $16.2 million for the first nine months of 2002 and 2001.  Net cash of $15.8 million and $14.8 million for the first nine months of 2002 and 2001 was used for financing activities, primarily the net reduction of long-term borrowings, partially offset in 2001 by changes in net checks issued in excess of cash balances, and by payments for additional shares of common stock issued through stock option exercises in 2002 and 2001.  Any future decrease in customer demand could reduce our cash flows from operations and cause an increase in our long-term debt.

 

Our cash management practices utilize our unsecured committed credit facility to minimize both cash and debt balances.  We maintain an unsecured committed credit facility in the amount of $60.0 million with two banks.  This facility matures in January 2004 and bears interest at a variable rate based upon either the London Interbank Offered Rate plus applicable margins or the banks’ Prime Rate (weighted average rate for the facility was 3.0 percent at September 30, 2002).  We have outstanding Series A Senior Unsecured Notes in the aggregate principal amount of $25.0 million.   These notes mature in October 2008, require annual principal payments of $3.57 million beginning in October 2002 and bear interest at a fixed rate of 6.78 percent.  We also have outstanding Series B Senior Unsecured Notes in the aggregate principal amount of $10.0 million.  These notes mature in April 2010, require annual principal payments of $1.43 million beginning in 2004 and bear interest at a fixed rate of 8.57 percent.  Our long-term debt as of September 30, 2002 was $58.7 million, with $3.57 million maturing in October 2002.  An additional $33.1 million of financing was available to us as of September 30, 2002 under our unsecured committed credit facility.

 

The debt agreements discussed above contain restrictive covenants which, among other matters, require us to maintain certain financial ratios, including debt-to-equity, minimum tangible net worth, cash flow leverage and interest coverage ratios.  We were in compliance with all such debt covenants at September 30, 2002.

 

We do not have any off-balance sheet financing arrangements.

 

We have historically met our working capital requirements by effectively utilizing our operating profits, maintaining short turnover in accounts receivable and adhering to prudent cash management practices.  We have not used and do not anticipate using short-term borrowings to meet working capital needs.  We believe our liquidity will adequately meet expected near-term operating requirements.

 

 

9

 

 

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.  We maintain insurance coverage for per-incident and total losses in amounts we consider adequate based upon historical experience and our ongoing review.  However, we could suffer losses over our policy limits, which could negatively affect our financial condition.  We have $3.2 million in letters of credit to guarantee settlement of claims under agreements with our insurance carriers and regulatory authorities.  We reserve currently for anticipated losses.  The insurance and claims accruals in our balance sheets, which were $11.5 million as of September 30, 2002 and $9.0 million as of December 31, 2001, are computed by applying a combination of our internal and industry historical loss development factors to our identified losses.  We periodically evaluate and adjust our insurance and claims accruals for changes in identified losses and in historical loss development factors.  We believe that these loss development factors have historically been reasonable, as indicated by the adequacy of our insurance and claims accruals compared to settled claims.  Ultimate results could differ from these current estimates.

 

Depreciation of Property and Equipment

 

The transportation industry requires significant capital investments in revenue equipment.  Our net property and equipment was $155.8 million as of September 30, 2002 and $161.7 million as of December 31, 2001.  Our depreciation expense was $20.6 million for the first nine months of 2002 and $20.1 million for the same period of 2001.  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 believe that our past estimates have been reasonable, as evidenced by our gains on disposition of revenue equipment.  Ultimate results could differ from these current estimates.

 

Derivative Instruments and Hedging Activities

 

Our operations are dependent upon the use of diesel fuel, and significant increases in diesel fuel costs could materially and adversely affect our results of operations and financial condition.  Prices and availability of all petroleum products are subject to political, economic and market factors that are beyond our control.  Previously, we utilized commodity swap agreements to partially hedge our exposure to diesel fuel price fluctuations, but all such agreements have expired by September 30, 2002.  These agreements met the specific hedge accounting criteria and therefore constituted cash flow hedges.  The effective portion of the cumulative gain or loss on these derivative instruments has been reported as a component of accumulated other comprehensive loss and was recognized into current earnings in the same period or periods during which the hedged transactions affected current earnings.  No ineffectiveness was recognized in current earnings during the first nine months of 2002 or the year 2001.

 

We adopted Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities,” on January 1, 2001.  The effect of our adoption of Statement No. 133 was to record a liability of $279,000 for the fair value of hedged contracts with a corresponding pretax accumulated other comprehensive loss of $279,000 ($173,000 net of income tax benefit).  The accumulated other comprehensive loss was attributable to losses on effective cash flow hedges.  During the first nine months of 2001, accumulated other comprehensive loss increased by $2,000 ($1,000 net of income tax benefit) to reflect an unrealized loss and decrease in remaining notional amount on our commodity swap agreements from January 1, 2001 to September 30, 2001.  During the first nine months of 2002, accumulated other comprehensive loss was reversed by $410,000 ($254,000 net of income taxes) to reflect an unrealized gain and decrease in remaining notional amount on our commodity swap agreements from January 1, 2002 to September 30, 2002.

 

 

10

 

 

As of September 30, 2002, the fair value of our commodity swap agreements was zero given the expiration of all such agreements.  The fair value of commodity swap agreements was based upon the difference between the contractual strike prices and the market-based futures prices as of the valuation date applied to the remaining notional amount.

 

 

Related Party Transactions

 

The following related party transactions occurred during the first nine months of 2002 and 2001:

 

        (a) We paid $1.5 million in the first nine months of 2002 and $1.2 million in the corresponding period of 2001 to purchase fuel and tires from a company in which one of our directors is the president and a principal stockholder.

 

        (b) We earned $3.8 million of our revenue in the first nine months of 2002 through transportation services arranged by MW Logistics, LLC (MWL), a provider of logistics services to the transportation industry.  We also have a trade receivable of $1.1 million as of September 30, 2002 from MWL.  We acquired a 45 percent equity interest in MWL through an investment of $500,000 in November 2001.  We have a commitment subject to restrictive covenants through March 2003 to provide revolving loans to MWL in the amount of $1.25 million.  The balance of our revolving loan receivable from MWL was $245,000 as of September 30, 2002.

 

We believe that these transactions with related parties are on reasonable terms which, based upon market rates, are comparable to terms available from unaffiliated third parties.

 

Forward-Looking Information

 

This Quarterly Report on Form 10-Q 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” or “estimate,” or other variations of these or similar words, identify such statements.  These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially, depending on a variety of factors, such as the industry driver shortage, the market for revenue equipment, inclement weather, availability and price of fuel, expense volatility, insurance cost increases, competitor pricing, general business conditions of customers and general and regional economic conditions.  Forward-looking statements in this Quarterly Report include, but are not limited to, the following:  the statement regarding our expected operating revenue appearing in the first paragraph under “Results of Operations” the statement regarding our expected operating expenses appearing in the third paragraph under “Results of Operations” the statements regarding our  expected interest expense and interest income appearing in the fourth paragraph under “Results of Operations” the statement regarding our anticipated effective income tax rate appearing in the fifth paragraph under “Results of Operations” and the statement regarding our liquidity appearing in the last paragraph under “Capital Resources and Liquidity.”

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

 

Commodity Price Risk

 

As noted above, our operations are dependent upon the use of diesel fuel, significant increases in diesel fuel costs could materially and adversely affect our results of operations and financial condition, and prices and availability of all petroleum products are subject to political, economic and market factors that are beyond our control.  Fuel and fuel taxes expense represented 14.3 percent of our total operating revenue during the first nine months of 2002.  We have been able to recover a portion of diesel fuel price

 

 

11

 

 

increases from customers in the form of fuel surcharges.  The price and availability of diesel fuel, as well as the extent to which fuel surcharges can be collected to offset such increases, can vary.

 

Also as noted above, we previously utilized commodity swap agreements to partially hedge our exposure to diesel fuel price fluctuations, but all such agreements have expired by September 30, 2002.  Effective January 1, 2001, we began recognizing the fair market value of commodity swap agreements.  The swap agreements were marked to market each quarter.  During the first nine months of 2002, accumulated other comprehensive loss was reversed by $410,000 ($254,000 net of income taxes) to reflect an unrealized gain and decrease in remaining notional amount on our commodity swap agreements from January 1, 2002 to September 30, 2002.

 

 

Interest Rate Risk

 

Our credit facility carries interest rate risk.  Amounts borrowed under this agreement are subject to interest charges at a rate equal to either the London Interbank Offered Rate plus applicable margins, or the bank’s Prime Rate.  Should the lenders’ Prime Rate change, or should there be changes to the London Interbank Offered Rate, our interest expense will increase or decrease accordingly.  As of September 30, 2002, we had borrowed $23.7 million subject to interest rate risk.  On this amount, each 100 basis point increase in the interest rate would cost us $237,000 in additional gross interest cost on an annual basis.

 

Item 4.  Controls and Procedures.

 

Within the 90-day period prior to the filing date of this report, we performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Exchange Act Rules 13a-14(c) and 15d-14(c).  We performed this evaluation under the supervision of, and with participation from, our President and our Executive Vice President, Chief Financial Officer and Treasurer.  Based upon that evaluation, we, as well as our President and our Executive Vice President, Chief Financial Officer and Treasurer, concluded that, as of the evaluation date, our disclosure controls and procedures were effective.  There have been no significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to the date we carried out this evaluation, and therefore we believe that our disclosure controls and procedures remain effective.  We intend to periodically evaluate our disclosure controls and procedures as required by the Exchange Act Rules.

 

 

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PART II.  OTHER INFORMATION

 

 

ITEM 1.  Legal Proceedings.

 

We periodically are a party to litigation incidental to our business.  Historically, this litigation primarily has involved claims for personal injury and property damage caused while transporting freight.  There are currently no material unreserved pending legal, governmental, administrative or other proceedings to which we are a party or of which any of our property is the subject.

 

ITEM 2.  Changes in Securities and Use of Proceeds.

 

None

 

ITEM 3.  Defaults Upon Senior Securities.

 

None

 

ITEM 4.  Submission of Matters to a Vote of Security Holders.

 

None

 

ITEM 5.  Other Information.

 

None

 

ITEM 6.  Exhibits and Reports on Form 8-K.

 

 

 

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SIGNATURE

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

			MARTEN TRANSPORT, LTD.
			(Registrant)
Dated:  November 13, 2002			By:		/s/ Darrell D. Rubel
					Darrell D. Rubel
					Executive Vice President and Treasurer
					(Chief Financial Officer)

 

 

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CERTIFICATION PURSUANT TO SECTION 302(a) OF THE

SARBANES-OXLEY ACT OF 2002

 

I, Randolph L. Marten, certify that:

 

1.		I have reviewed this quarterly report on Form 10-Q of Marten Transport, Ltd;
2.		Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.		Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.		The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
		a)		Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
		b)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
		c)		Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5.		The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
		a)	All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
		b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6.		The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

Date: November 13, 2002	/s/ Randolph L. Marten
	Randolph L. Marten
	President

 

 

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CERTIFICATION PURSUANT TO SECTION 302(a) OF THE

SARBANES-OXLEY ACT OF 2002

 

I, Darrell D. Rubel, certify that:

 

1.		I have reviewed this quarterly report on Form 10-Q of Marten Transport, Ltd;
2.		Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.		Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.		The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
		a)		Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
		b)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
		c)		Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5.		The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
		a)		All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
		b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6.		The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

 

 

Date:  November 13, 2002		/s/ Darrell D. Rubel
		Darrell D. Rubel
		Executive Vice President and Treasurer
		(Chief Financial Officer)

 

 

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