MARTEN TRANSPORT LTD - Quarter Report: 2011 June (Form 10-Q)

marten_10q-063011.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

Quarterly Report Under Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the Quarter ended June 30, 2011

Commission File Number 0-15010

MARTEN TRANSPORT, LTD.

(Exact name of registrant as specified in its charter)

Delaware		39-1140809
(State of incorporation)		(I.R.S. employer identification no.)

129 Marten Street, Mondovi, Wisconsin 54755

(Address of principal executive offices)

715-926-4216

(Registrant’s telephone number)

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

Yes x No ¨

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 ¨

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 ¨ Accelerated filer x Smaller reporting company ¨ Non-accelerated filer ¨ (Do not check if a smaller reporting company)

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

The number of shares outstanding of the Registrant’s Common Stock, par value $.01 per share, was 21,984,597 as of August 3, 2011.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

MARTEN TRANSPORT, LTD.

CONSOLIDATED CONDENSED BALANCE SHEETS

(Unaudited)

	June 30,			December 31,
(In thousands, except share information)	2011			2010

ASSETS
Current assets:
Cash and cash equivalents	$	15,003		$	5,306
Marketable securities		-			138
Receivables:
Trade, net		64,548			51,094
Other		4,842			12,968
Prepaid expenses and other		12,743			13,406
Deferred income taxes		4,352			4,794
Total current assets		101,488			87,706
Property and equipment:
Revenue equipment, buildings and land, office equipment and other		509,867			515,622
Accumulated depreciation		(150,664	)		(143,563	)
Net property and equipment		359,203			372,059
Other assets		561			543
TOTAL ASSETS	$	461,252		$	460,308

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Checks issued in excess of cash balances	$	-		$	1,066
Accounts payable and accrued liabilities		36,737			30,524
Insurance and claims accruals		15,136			17,653
Current maturities of long-term debt		-			19,346
Total current liabilities		51,873			68,589
Deferred income taxes		102,647			95,815
Total liabilities		154,520			164,404


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; 21,984,597 shares at June 30, 2011, and 21,950,252 shares at December 31, 2010, issued and outstanding		220			220
Additional paid-in capital		79,324			78,428
Retained earnings		224,756			215,345
Total Marten Transport, Ltd. stockholders’ equity		304,300			293,993
Noncontrolling interest		2,432			1,911
Total stockholders’ equity		306,732			295,904
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	461,252		$	460,308

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

MARTEN TRANSPORT, LTD.

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
(In thousands, except per share information)	2011			2010			2011			2010

OPERATING REVENUE	$	151,135		$	125,862		$	288,991		$	251,674

OPERATING EXPENSES (INCOME):
Salaries, wages and benefits		36,413			31,984			70,512			64,386
Purchased transportation		29,991			26,346			58,008			54,105
Fuel and fuel taxes		39,915			28,167			75,255			55,760
Supplies and maintenance		9,774			8,597			19,436			17,607
Depreciation		14,084			12,612			27,600			25,649
Operating taxes and licenses		1,516			1,574			2,933			3,079
Insurance and claims		4,412			3,984			8,713			7,836
Communications and utilities		1,106			1,054			2,228			1,867
Gain on disposition of revenue equipment		(967	)		(429	)		(1,735	)		(628	)
Other		3,532			2,780			7,073			5,786

Total operating expenses		139,776			116,669			270,023			235,447


OPERATING INCOME		11,359			9,193			18,968			16,227

NET INTEREST (INCOME) EXPENSE		(7	)		26			12			(80	)

INCOME BEFORE INCOME TAXES		11,366			9,167			18,956			16,307
Less: Income before income taxes attributable to noncontrolling interest		253			1			390			57

INCOME BEFORE INCOME TAXES ATTRIBUTABLE TO MARTEN TRANSPORT, LTD.		11,113			9,166			18,566			16,250

PROVISION FOR INCOME TAXES		4,919			4,008			8,277			7,200

NET INCOME	$	6,194		$	5,158		$	10,289		$	9,050

BASIC EARNINGS PER COMMON SHARE	$	0.28		$	0.24		$	0.47		$	0.41

DILUTED EARNINGS PER COMMON SHARE	$	0.28		$	0.23		$	0.47		$	0.41

DIVIDENDS PAID PER COMMON SHARE	$	0.02		$	-		$	0.04		$	-

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

MARTEN TRANSPORT, LTD.

CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

	Marten Transport, Ltd. Stockholders
	Common Stock				Additional Paid-In		Retained			Non- controlling			Total Stock- holders’
(In thousands)	Shares		Amount		Capital		Earnings			Interest			Equity

Balance at December 31, 2009		21,885	$	219	$	76,477	$	196,480		$	1,731		$	274,907
Net income		-		-		-		9,050			-			9,050
Issuance of common stock from share-based payment arrangement exercises		49		-		234		-			-			234
Tax benefits from share-based payment arrangement exercises		-		-		273		-			-			273
Share-based payment arrangement compensation expense		-		-		460		-			-			460
Income before income taxes attributable to noncontrolling interest		-		-		-		-			57			57
Noncontrolling interest distributions and other, net		-		-		-		-			159			159
Balance at June 30, 2010		21,934		219		77,444		205,530			1,947			285,140
Net income		-		-		-		10,692			-			10,692
Issuance of common stock from share-based payment arrangement exercises		16		1		68		-			-			69
Tax benefits from share-based payment arrangement exercises		-		-		112		-			-			112
Share-based payment arrangement compensation expense		-		-		804		-			-			804
Dividends on common stock		-		-		-		(877	)		-			(877	)
Income before income taxes attributable to noncontrolling interest		-		-		-		-			574			574
Noncontrolling interest distributions		-		-		-		-			(610	)		(610	)
Balance at December 31, 2010		21,950		220		78,428		215,345			1,911			295,904
Net income		-		-		-		10,289			-			10,289
Issuance of common stock from share-based payment arrangement exercises		27		-		137		-			-			137
Issuance of common stock from vesting of performance unit awards		8		-		-		-			-			-
Tax benefits from share-based payment arrangement exercises		-		-		164		-			-			164
Share-based payment arrangement compensation expense		-		-		595		-			-			595
Dividends on common stock		-		-		-		(878	)		-			(878	)
Income before income taxes attributable to noncontrolling interest		-		-		-		-			390			390
Noncontrolling interest distributions and other, net		-		-		-		-			131			131
Balance at June 30, 2011		21,985	$	220	$	79,324	$	224,756		$	2,432		$	306,732

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

MARTEN TRANSPORT, LTD.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended June 30,
(In thousands)	2011			2010
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Operations:
Net income	$	10,289		$	9,050
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation		27,600			25,649
Gain on disposition of revenue equipment		(1,735	)		(628	)
Deferred income taxes		7,274			(1,691	)
Tax benefits from share-based payment arrangement exercises		164			273
Excess tax benefits from share-based payment arrangement exercises		(142	)		(235	)
Share-based payment arrangement compensation expense		595			460
Income before income taxes attributable to noncontrolling interest		390			57
Changes in other current operating items:
Receivables		(5,328	)		(9,529	)
Prepaid expenses and other		663			1,450
Accounts payable and accrued liabilities		5,203			115
Insurance and claims accruals		(2,517	)		(1,003	)
Net cash provided by operating activities		42,456			23,968
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Revenue equipment additions		(23,143	)		(55,470	)
Proceeds from revenue equipment dispositions		16,967			24,052
Buildings and land, office equipment and other additions		(5,896	)		(6,146	)
Proceeds from buildings and land, office equipment and other dispositions		73			86
Other		120			(9	)
Net cash used for investing activities		(11,879	)		(37,487	)
CASH FLOWS (USED FOR) PROVIDED BY FINANCING ACTIVITIES:
Borrowings under credit facility and long-term debt		35,382			69,650
Repayment of borrowings under credit facility and long-term debt		(54,728	)		(57,628	)
Dividends on common stock		(878	)		-
Issuance of common stock from share-based payment arrangement exercises		137			234
Excess tax benefits from share-based payment arrangement exercises		142			235
Change in net checks issued in excess of cash balances		(1,066	)		(978	)
Noncontrolling interest distributions and other, net		131			159
Net cash (used for) provided by financing activities		(20,880	)		11,672
NET CHANGE IN CASH AND CASH EQUIVALENTS		9,697			(1,847	)
CASH AND CASH EQUIVALENTS:
Beginning of period		5,306			5,410
End of period	$	15,003		$	3,563
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid (received) for:
Interest	$	32		$	115
Income taxes	$	(7,894	)	$	9,736
Non-cash investing activities:
Change in property and equipment not yet paid for	$	1,010		$	4,055

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

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2011

(Unaudited)

(1) Basis of Presentation

The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial statements, and therefore do not include all information and disclosures required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, such statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary to fairly present our consolidated financial condition, results of operations and cash flows for the interim periods presented. The results of operations for any interim period do not necessarily indicate the results for the full year. The unaudited interim consolidated financial statements should be read with reference to the consolidated financial statements and notes to consolidated financial statements in our 2010 Annual Report on Form 10-K.

The accompanying unaudited consolidated condensed financial statements include the accounts of Marten Transport, Ltd., its subsidiaries and its 45% owned affiliate, MW Logistics, LLC (MWL). MWL is a third-party provider of logistics services to the transportation industry. We have applied the provisions of Financial Accounting Standards Board Accounting Standards Codification, or FASB ASC, 810, Consolidation to our investment in MWL and have determined that Marten is the primary beneficiary based on MWL’s equity structure. All material intercompany accounts and transactions have been eliminated in consolidation. As of June 30, 2011, MWL’s total assets and total liabilities, net of intercompany accounts and transactions, were $5.5 million and $3.5 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.

(2) Earnings Per Common Share

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

	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands, except per share amounts)	2011		2010		2011		2010
Numerator:
Net income	$	6,194	$	5,158	$	10,289	$	9,050
Denominator:
Basic earnings per common share-weighted-average shares		21,984		21,929		21,974		21,913
Effect of dilutive stock options		101		104		104		99
Diluted earnings per common share-weighted-average shares and assumed conversions		22,085		22,033		22,078		22,012

Basic earnings per common share	$	0.28	$	0.24	$	0.47	$	0.41
Diluted earnings per common share	$	0.28	$	0.23	$	0.47	$	0.41

Options totaling 373,000 shares for each of the three-month and six-month periods ended June 30, 2011, and 334,000 and 350,500 shares for the three-month and six-month periods ended June 30, 2010, respectively, were outstanding but were not included in the calculation of diluted earnings per share because including the options in the denominator would be antidilutive, or decrease the number of weighted-average shares, 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 shares for the 2010 period were also not included in the calculation of diluted earnings per share because the performance condition was not met. All performance-based options outstanding expired effective December 31, 2010.

Unvested performance unit awards totaling 21,600 shares for each of the three-month and six-month periods ended June 30, 2011 were considered outstanding but were not included in the calculation of diluted earnings per share because inclusion of average unrecognized compensation expense in the calculation would cause the performance units to be antidilutive.

(3) Long-Term Debt

In May 2011, we entered into an amendment to our unsecured committed credit facility which extends the maturity date of loans made under the facility until May 2016. The aggregate principal amount of the credit facility of $50 million may be increased at our option, subject to completion of signed amendments with the lender, up to a maximum aggregate principal amount of $75 million. At June 30, 2011, there was no outstanding principal balance on the credit facility. As of that date, we had outstanding standby letters of credit of $9.6 million and remaining borrowing availability of $40.4 million. This facility bears interest at a variable rate based on the London Interbank Offered Rate or the lender’s Prime Rate, in each case plus/minus applicable margins.

(4) Related Party Transactions

We purchase fuel and obtain tires and related services from Bauer Built, Inc., or BBI. Jerry M. Bauer, one of our directors, is the president and a stockholder of BBI. We paid BBI $717,000 in the first six months of 2011 and $312,000 in the first six months of 2010 for fuel and tire services. In addition, we paid $767,000 in the first six months of 2011 and $952,000 in the first six months of 2010 to tire manufacturers for tires that we purchased from the tire manufacturers but were provided by BBI. BBI received commissions from the tire manufacturers related to these purchases.

(5) Income Taxes

Our effective income tax rate was 44.6% for the first six months of 2011 and 44.3% for the first six months of 2010.

The federal statute of limitations remains open for 2007 and forward. We file tax returns in numerous state jurisdictions with varying statutes of limitations.

(6) 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. Quarterly cash dividends of $0.02 per share of common stock were paid in March and May 2011.

(7) Accounting for Share-based Payment Arrangement Compensation

We account for share-based payment arrangements in accordance with FASB ASC 718, Compensation – Stock Compensation. During the first six months of 2011, there were no significant changes to the structure of our stock-based award plans. Pre-tax compensation expense related to stock options and performance unit awards recorded in the first six months of 2011 and 2010 was $595,000 and $460,000, respectively. See Note 9 to our consolidated financial statements in our 2010 Annual Report on Form 10-K for a detailed description of stock-based awards under our 2005 Stock Incentive Plan and 1995 Stock Incentive Plan.

(8) Fair Value of Financial Instruments

The carrying amounts of accounts receivable and accounts payable approximate fair value because of the short maturity of these instruments.

(9) Commitments and Contingencies

We are committed to: (a) purchase $3.7 million of new revenue equipment through 2011; (b) building construction expenditures of $73,000 through 2011; and (c) operating lease obligation expenditures totaling $736,000 through 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, but could be material to the results of any individual period.

(10) Business Segments

We have six operating segments that have been aggregated into two reporting segments (Truckload and Logistics) for financial 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.

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

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

	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	2011		2010		2011		2010
Operating revenue:
Truckload revenue, net of fuel surcharge revenue	$	89,637	$	80,566	$	171,610	$	161,486
Truckload fuel surcharge revenue		25,526		16,825		47,614		32,131
Total Truckload revenue		115,163		97,391		219,224		193,617

Logistics revenue, net of intermodal fuel surcharge revenue(1)		32,203		26,337		62,721		53,907
Intermodal fuel surcharge revenue		3,769		2,134		7,046		4,150
Total Logistics revenue		35,972		28,471		69,767		58,057

Total operating revenue	$	151,135	$	125,862	$	288,991	$	251,674

Operating income:
Truckload	$	9,602	$	8,208	$	14,923	$	13,433
Logistics		1,757		985		4,045		2,794
Total operating income	$	11,359	$	9,193	$	18,968	$	16,227

(1) Logistics revenue is net of $2.1 million and $4.4 million of inter-segment revenue in the three-month and six-month periods ended June 30, 2011, respectively, for loads transported by our tractors and arranged by MWL that have been eliminated in consolidation. Inter-segment revenue was $1.9 million and $4.1 million for the three-month and six-month periods ended June 30, 2010.

(11) Use of Estimates

We must make estimates and assumptions to prepare the consolidated condensed financial statements in conformity with U.S. generally accepted accounting principles. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities in the consolidated condensed financial statements. These estimates are primarily related to insurance and claims accruals and depreciation. Ultimate results could differ from these estimates.

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

The following discussion and analysis of our financial condition and results of operations should be read together with the selected consolidated financial data and our consolidated condensed financial statements and the related notes appearing elsewhere in this report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those included in our Form 10-K, Part 1, Item 1A for the year ended December 31, 2010. We do not assume, and specifically disclaim, any obligation to update any forward-looking statement contained in this report.

Overview

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

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

Our operating revenue increased $37.3 million, or 14.8%, in the first six months of 2011. This increase was primarily due to fuel surcharge revenue increasing by $18.4 million, or 50.7%, caused by significantly higher fuel prices in the first six months of 2011. Our operating revenue, net of fuel surcharges, increased $18.9 million, or 8.8%, compared with the first six months of 2010. Truckload segment revenue, net of fuel surcharges, increased 6.3% primarily due to an increase in our average truckload revenue, net of fuel surcharges, per tractor per week of 8.2%, partially offset by a decrease in our average fleet size of 39 tractors, or 1.8%, in the first six months of 2011. The changes in our operating statistics are primarily the result of the continued growth of our regional temperature-controlled operations, which we have increased to 60.7% of our truckload fleet as of June 30, 2011 from 40.4% as of June 30, 2010. By focusing on shorter lengths of haul in certain defined areas, we are addressing customer trends toward regional distribution to lower their transportation expense, furthering our own objectives of reducing fuel consumption per load, and matching some of our drivers’ desires to stay closer to home. The concentration of a portion of our fleet in these markets is evident in a 5.5% reduction from the first six months of 2010 in average length of haul to 636 miles. Logistics segment revenue, net of intermodal fuel surcharges, increased 16.4% compared with the first six months of 2010. The increase in logistics revenue primarily resulted from volume growth in each of our internal brokerage and intermodal services. Logistics revenue represented 24.1% of our operating revenue in the first six months of 2011 compared to 23.1% in the first six months of 2010.

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 on safety, fleet age, efficiency and other factors. Our main fixed costs relate to the acquisition 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 have fluctuated dramatically over the past several years, with the United States Department of Energy, or DOE, national average cost of fuel increasing to $3.79 per gallon in the first six months of 2011 from $2.94 per gallon in the first six months of 2010. We manage our exposure to changes in fuel prices primarily through fuel surcharge programs with our customers, as well as through volume fuel purchasing arrangements with national fuel centers and bulk purchases of fuel at our terminals. To help further reduce fuel expense, we installed auxiliary power units in our tractors to provide climate control and electrical power for our drivers without idling the tractor engine. For our Logistics segment, our profitability on the expense side is impacted by the percentage of logistics revenue we pay to providers for the transportation services we arrange.

Our operating expenses as a percentage of operating revenue, or “operating ratio,” was 93.4% in the first six months of 2011 and 93.6% in the first six months of 2010. Operating expenses as a percentage of operating revenue, with both amounts net of fuel surcharge revenue, improved to 91.9% for the first six months of 2011 from 92.5% for the first six months of 2010. Our net income increased to $10.3 million in the first six months of 2011 from $9.1 million in the first six months of 2010. The increased profitability in 2011 was primarily due to the increase in revenue per tractor per week in our Truckload segment, along with an increase in our Logistics segment operating income.

Our business requires substantial, ongoing capital investments, particularly for new tractors and trailers. At June 30, 2011, we had approximately $15.0 million of cash and cash equivalents and $306.7 million in stockholders’ equity. As of that date, we had no long-term debt outstanding. In the first six months of 2011, net cash flows provided by operating activities were primarily used to repay $19.3 million of long-term debt, to purchase new revenue equipment, net of proceeds from dispositions, in the amount of $6.2 million, to partially construct two regional operating facilities in the amount of $3.6 million, and to increase cash and cash equivalents by $9.7 million. We estimate that capital expenditures, net of proceeds from dispositions, will be approximately $30 million for the remainder of 2011. We paid quarterly cash dividends of $0.02 per share of common stock in each of the first and second quarters of 2011 totaling $878,000. We believe our sources of liquidity are adequate to meet our current and anticipated needs for at least the next twelve months. Based upon anticipated cash flows, existing cash and cash equivalents balances, current borrowing availability and other sources of financing we expect to be available to us, we do not anticipate any significant liquidity constraints in the foreseeable future.

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

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

Results of Operations

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010

Truckload Segment:
Total Truckload revenue (in thousands)	$	115,163	$	97,391	$	219,224	$	193,617
Average truckload revenue, net of fuel surcharges, per tractor per week(1)	$	3,198	$	2,971	$	3,129	$	2,891
Average tractors (1)		2,156		2,086		2,121		2,160
Average miles per trip		635		657		636		673
Total miles – company-employed drivers (in thousands)		49,979		47,763		98,650		96,707
Total miles – independent contractors (in thousands)		1,944		3,847		4,075		8,347

Logistics Segment:
Total Logistics revenue (in thousands):	$	35,972	$	28,471	$	69,767	$	58,057
Brokerage:
Marten Transport
Revenue (in thousands)	$	11,834	$	9,271	$	23,679	$	19,664
Loads		5,988		5,193		12,149		10,795
MWL
Revenue (in thousands)	$	8,472	$	7,968	$	16,239	$	16,136
Loads		4,673		4,690		8,507		8,969
Intermodal:
Revenue (in thousands)	$	15,666	$	11,232	$	29,849	$	22,257
Loads		5,927		4,746		11,556		9,423
Average tractors		73		65		71		63

(1)	Includes tractors driven by both company-employed drivers and independent contractors. Independent contractors provided 71 and 117 tractors as of June 30, 2011 and 2010, respectively.

Comparison of Three Months Ended June 30, 2011 to Three Months Ended June 30, 2010

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

	Three Months Ended June 30,						Dollar Change Three Months Ended June 30,		Percentage Change Three Months Ended June 30,
(Dollars in thousands)	2011			2010			2011 vs. 2010		2011 vs. 2010
Operating revenue:
Truckload revenue, net of fuel surcharge revenue	$	89,637		$	80,566		$	9,071		11.3	%
Truckload fuel surcharge revenue		25,526			16,825			8,701		51.7
Total Truckload revenue		115,163			97,391			17,772		18.2

Logistics revenue, net of intermodal fuel surcharge revenue(1)		32,203			26,337			5,866		22.3
Intermodal fuel surcharge revenue		3,769			2,134			1,635		76.6
Total Logistics revenue		35,972			28,471			7,501		26.3

Total operating revenue	$	151,135		$	125,862		$	25,273		20.1	%

Operating income:
Truckload	$	9,602		$	8,208		$	1,394		17.0	%
Logistics		1,757			985			772		78.4
Total operating income	$	11,359		$	9,193		$	2,166		23.6	%

Operating ratio(2):
Truckload		91.7	%		91.6	%				0.1	%
Logistics		95.1			96.5					(1.5	)
Consolidated operating ratio		92.5	%		92.7	%				(0.2	)%

(1) Logistics revenue is net of $2.1 million and $1.9 million of inter-segment revenue in the 2011 and 2010 periods, respectively, for loads transported by our tractors and arranged by MWL that have been eliminated in consolidation.

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

Our operating revenue increased $25.3 million, or 20.1%, to $151.1 million in the 2011 period from $125.9 million in the 2010 period. Our operating revenue, net of fuel surcharges, increased $14.9 million, or 14.0%, to $121.8 million in the 2011 period from $106.9 million in the 2010 period. The increase in operating revenue, net of fuel surcharges, was due to increased revenue in both the truckload and logistics segments. Fuel surcharge revenue increased to $29.3 million in the 2011 period from $19.0 million in the 2010 period, caused by significantly higher fuel prices in 2011.

Truckload segment revenue increased $17.8 million, or 18.2%, to $115.2 million in the 2011 period from $97.4 million in the 2010 period. Truckload segment revenue, net of fuel surcharges, increased 11.3% primarily due to an increase in our average truckload revenue, net of fuel surcharges, per tractor per week of 7.6%, along with an increase in our average fleet size of 70 tractors, or 3.4%, in the 2011 period. The changes in our operating statistics are primarily the result of the continued growth of our regional temperature-controlled operations, which we have increased to 60.7% of our truckload fleet as of June 30, 2011 from 40.4% as of June 30, 2010. By focusing on shorter lengths of haul in certain defined areas, we are addressing customer trends toward regional distribution to lower their transportation expense, furthering our own objectives of reducing fuel consumption per load, and matching some of our drivers’ desires to stay closer to home. The concentration of a portion of our fleet in these markets is evident in a 3.3% reduction from the 2010 period in average length of haul to 635 miles.

Logistics segment revenue increased $7.5 million, or 26.3%, to $36.0 million in the 2011 period from $28.5 million in the 2010 period. Logistics segment revenue, net of intermodal fuel surcharges, increased 22.3%. The increase in logistics revenue primarily resulted from continued volume growth in each of our internal brokerage and intermodal services. The improvement in the operating ratio for our Logistics segment in the 2011 period was primarily due to increased profitability of MWL.

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

	Dollar Change			Percentage Change			Percentage of Operating Revenue
	Three Months Ended June 30,			Three Months Ended June 30,			Three Months Ended June 30,
(Dollars in thousands)	2011 vs. 2010			2011 vs. 2010			2011			2010

Operating revenue	$	25,273			20.1	%		100.0	%		100.0	%
Operating expenses (income):
Salaries, wages and benefits		4,429			13.8			24.1			25.4
Purchased transportation		3,645			13.8			19.8			20.9
Fuel and fuel taxes		11,748			41.7			26.4			22.4
Supplies and maintenance		1,177			13.7			6.5			6.8
Depreciation		1,472			11.7			9.3			10.0
Operating taxes and licenses		(58	)		(3.7	)		1.0			1.3
Insurance and claims		428			10.7			2.9			3.2
Communications and utilities		52			4.9			0.7			0.8
Gain on disposition of revenue equipment		(538	)		(125.4	)		(0.6	)		(0.3	)
Other		752			27.1			2.3			2.2
Total operating expenses		23,107			19.8			92.5			92.7
Operating income		2,166			23.6			7.5			7.3
Net interest expense (income)		(33	)		(126.9	)		-			-
Income before income taxes		2,199			24.0			7.5			7.3
Less: Income before income taxes attributable to noncontrolling interest		252			25,200.0			0.2			-
Income before income taxes attributable to Marten Transport, Ltd.		1,947			21.2			7.4			7.3
Provision for income taxes		911			22.7			3.3			3.2
Net income	$	1,036			20.1	%	4.1		%		4.1	%

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 increase in salaries, wages and benefits resulted primarily from an increase in the amount paid to company drivers as a result of a pay increase effective April 1, 2011, along with an additional $459,000 of layover pay due to a change in our policy to compensate company drivers without an assigned load for a specified period of time. Additionally, bonus compensation expensed for our non-driver employees increased by $731,000 and our employees’ health insurance expense increased by $512,000 due to an increase in our self-insured medical claims.

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 $3.6 million in total, or 13.8%, in the 2011 period from the 2010 period. Payments to carriers for transportation services we arranged in our brokerage and intermodal operations increased $5.6 million to $27.2 million in the 2011 period from $21.6 million in the 2010 period. The portion of purchased transportation expense related to our independent contractors, including fuel surcharges, decreased $2.0 million in the 2011 period, primarily due to a decrease in the number of independent contractor-owned tractors in our fleet. We expect that purchased transportation expense will increase as we grow our Logistics segment.

Fuel and fuel taxes increased by $11.7 million in the 2011 period from the 2010 period. Net fuel expense (fuel and fuel taxes net of fuel surcharge revenue and surcharges passed through to independent contractors, outside drayage carriers and railroads) increased $2.6 million, or 22.2%, to $14.1 million in the 2011 period from $11.5 million in the 2010 period. Fuel surcharges passed through to independent contractors, outside drayage carriers and railroads were $3.5 million in the 2011 period and $2.3 million in the 2010 period. We have worked diligently to control fuel usage and costs by improving our volume purchasing arrangements and optimizing our drivers’ fuel purchases with national fuel centers, focusing on shorter lengths of haul, installing and tightly managing the use of auxiliary power units in our tractors to minimize engine idling and improving fuel usage in 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. The increase in net fuel expense was primarily due to a significant increase in the DOE national average cost of fuel to $3.98 per gallon in the 2011 period from $3.03 per gallon in the 2010 period. The cost control measures stated above helped to offset the higher price of fuel. Net fuel expense represented 13.9% of truckload and intermodal revenue, net of fuel surcharges, in the 2011 period, compared with 12.9% in the 2010 period.

Supplies and maintenance consist of repairs, maintenance, tires, parts, oil, and engine fluids, along with load-specific expenses including loading/unloading, tolls, pallets and trailer hostling. The increase in supplies and maintenance in the 2011 period primarily resulted from increased maintenance performed on our revenue equipment as a result of company policy changes. In addition, we have experienced higher tire prices in the 2011 period.

Depreciation relates to owned tractors, trailers, auxiliary power units, communications units, terminal facilities and other assets. The increase in depreciation was primarily due to a 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 the 2011 period. 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.

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 $428,000 increase in insurance and claims in the 2011 period was primarily due to an increase in the cost of physical damage claims related to our tractors and trailers. Our significant self-insured retention exposes us to the possibility of significant fluctuations in claims expense between periods depending on the frequency, severity and timing of claims and to adverse financial results if we incur large or numerous losses.

Gain on disposition of revenue equipment increased to $967,000 in the 2011 period from $429,000 in the 2010 period as a result of an increase in the market value for used revenue equipment, despite a decrease in the number of tractors and 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.

As a result of the foregoing factors, our operating expenses as a percentage of operating revenue, or “operating ratio,” was 92.5% in the 2011 period compared with 92.7% in the 2010 period. The operating ratio for our Truckload segment was 91.7% and 91.6% in the 2011 and 2010 periods, respectively. The operating ratio for our Logistics segment improved to 95.1% from 96.5% in the 2010 period. Operating expenses as a percentage of operating revenue, with both amounts net of fuel surcharge revenue, improved to 90.7% for the 2011 period from 91.4% for the 2010 period.

Our effective income tax rate was 44.3% for the 2011 period and 43.7% for the 2010 period.

As a result of the factors described above, net income increased to $6.2 million in the 2011 period from $5.2 million in the 2010 period. Net earnings increased to $0.28 per diluted share in the 2011 period from $0.23 per diluted share in the 2010 period.

Comparison of Six Months Ended June 30, 2011 to Six Months Ended June 30, 2010

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

							Dollar		Percentage
							Change		Change
	Six Months						Six Months		Six Months
	Ended						Ended		Ended
	June 30,						June 30,		June 30,
(Dollars in thousands)	2011			2010			2011 vs. 2010		2011 vs. 2010
Operating revenue:
Truckload revenue, net of fuel surcharge revenue	$	171,610		$	161,486		$	10,124		6.3	%
Truckload fuel surcharge revenue		47,614			32,131			15,483		48.2
Total Truckload revenue		219,224			193,617			25,607		13.2

Logistics revenue, net of intermodal fuel surcharge revenue(1)		62,721			53,907			8,814		16.4
Intermodal fuel surcharge revenue		7,046			4,150			2,896		69.8
Total Logistics revenue		69,767			58,057			11,710		20.2

Total operating revenue	$	288,991		$	251,674		$	37,317		14.8	%

Operating income:
Truckload	$	14,923		$	13,433		$	1,490		11.1	%
Logistics		4,045			2,794			1,251		44.8
Total operating income	$	18,968		$	16,227		$	2,741		16.9	%

Operating ratio(2):
Truckload		93.2	%		93.1	%				0.1	%
Logistics		94.2			95.2					(1.1	)
Consolidated operating ratio		93.4	%		93.6	%				(0.2	)%

(1) Logistics revenue is net of $4.4 million and $4.1 million of inter-segment revenue in the 2011 and 2010 periods, respectively, for loads transported by our tractors and arranged by MWL that have been eliminated in consolidation.

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

Our operating revenue increased $37.3 million, or 14.8%, to $289.0 million in the 2011 period from $251.7 million in the 2010 period. This increase was primarily due to fuel surcharge revenue increasing to $54.7 million in the 2011 period from $36.3 million in the 2010 period, caused by significantly higher fuel prices. Our operating revenue, net of fuel surcharges, increased $18.9 million, or 8.8%, to $234.3 million in the 2011 period from $215.4 million in the 2010 period. The increase in operating revenue, net of fuel surcharges, was due to an increase in truckload revenue, net of fuel surcharges, along with growth in logistics revenue.

Truckload segment revenue increased $25.6 million, or 13.2%, to $219.2 million in the 2011 period from $193.6 million in the 2010 period. Truckload segment revenue, net of fuel surcharges, increased 6.3% primarily due to an increase in our average truckload revenue, net of fuel surcharges, per tractor per week of 8.2%, partially offset by a decrease in our average fleet size of 39 tractors, or 1.8% in the 2011 period from the 2010 period. The changes in our operating statistics are consistent with the continued growth of our regional temperature-controlled operations, which we have increased to 60.7% of our truckload fleet as of June 30, 2011 from 40.4% as of June 30, 2010. By focusing on shorter lengths of haul in certain defined areas, we are addressing customer trends toward regional distribution to lower their transportation expense, furthering our own objectives of reducing fuel consumption per load, and matching some of our drivers’ desires to stay closer to home. The concentration of a portion of our fleet in these markets is evident in a 5.5% reduction from the 2010 period in average length of haul to 636 miles.

Logistics segment revenue increased $11.7 million, or 20.2%, to $69.8 million in the 2011 period from $58.1 million in the 2010 period. Logistics segment revenue, net of intermodal fuel surcharges, increased 16.4%. The increase in logistics revenue primarily resulted from continued volume growth in each of our internal brokerage and intermodal services. The improvement in the operating ratio for our Logistics segment in the 2011 period was primarily due to increased profitability of MWL.

	Dollar			Percentage			Percentage of
	Change			Change			Operating Revenue
	Six Months			Six Months			Six Months
	Ended			Ended			Ended
	June 30,			June 30,			June 30,
(Dollars in thousands)	2011 vs. 2010			2011 vs. 2010			2011			2010

Operating revenue	$	37,317			14.8	%		100.0	%		100.0	%
Operating expenses (income):
Salaries, wages and benefits		6,126			9.5			24.4			25.6
Purchased transportation		3,903			7.2			20.1			21.5
Fuel and fuel taxes		19,495			35.0			26.0			22.2
Supplies and maintenance		1,829			10.4			6.7			7.0
Depreciation		1,951			7.6			9.6			10.2
Operating taxes and licenses		(146	)		(4.7	)		1.0			1.2
Insurance and claims		877			11.2			3.0			3.1
Communications and utilities		361			19.3			0.8			0.7
Gain on disposition of revenue equipment		(1,107	)		(176.3	)		(0.6	)		(0.2	)
Other		1,287			22.2			2.4			2.3
Total operating expenses		34,576			14.7			93.4			93.6
Operating income		2,741			16.9			6.6			6.4
Net interest expense (income)		92			115.0			-			-
Income before income taxes		2,649			16.2			6.6			6.5
Less: Income before income taxes attributable to noncontrolling interest		333			584.2			0.1			-
Income before income taxes attributable to Marten Transport, Ltd.		2,316			14.3			6.4			6.5
Provision for income taxes		1,077			15.0			2.9			2.9
Net income	$	1,239			13.7	%		3.6	%		3.6	%

The increase in salaries, wages and benefits resulted primarily from an increase in the amount paid to company drivers as a result of a pay increase effective April 1, 2011, along with an additional $765,000 of layover pay due to a change in our policy to compensate company drivers without an assigned load for a specified period of time. Additionally, bonus compensation expensed for our non-driver employees increased by $934,000 and our employees’ health insurance expense increased by $1.1 million due to an increase in our self-insured medical claims.

Purchased transportation expense increased $3.9 million in total, or 7.2%, in the 2011 period from the 2010 period. Payments to carriers for transportation services we arranged in our brokerage and intermodal operations increased $8.5 million to $52.4 million in the 2011 period from $43.9 million in the 2010 period. The portion of purchased transportation expense related to our independent contractors, including fuel surcharges, decreased $4.6 million in the 2011 period, primarily due to a decrease in the number of independent contractor-owned tractors in our fleet.

Fuel and fuel taxes increased by $19.5 million in the 2011 period. Net fuel expense (fuel and fuel taxes net of fuel surcharge revenue and surcharges passed through to independent contractors, outside drayage carriers and railroads) increased $2.7 million, or 11.4%, to $26.8 million in the 2011 period from $24.1 million in the 2010 period. Fuel surcharges passed through to independent contractors, outside drayage carriers and railroads were $6.2 million in the 2011 period and $4.6 million in the 2010 period. We have worked diligently to control fuel usage and costs by improving our volume purchasing arrangements and optimizing our drivers’ fuel purchases with national fuel centers, focusing on shorter lengths of haul, installing and tightly managing the use of auxiliary power units in our tractors to minimize engine idling and improving fuel usage in 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. The increase in net fuel expense was primarily due to a significant increase in the DOE national average cost of fuel to $3.79 per gallon in the 2011 period from $2.94 per gallon in the 2010 period. The cost control measures stated above helped to offset the higher price of fuel. Net fuel expense represented 13.8% of truckload and intermodal revenue, net of fuel surcharges, in the 2011 period, compared with 13.4% in the 2010 period.

The increase in supplies and maintenance in the 2011 period primarily resulted from increased maintenance performed on our revenue equipment as a result of company policy changes. In addition, we have experienced higher tire prices in the 2011 period.

The $877,000 increase in insurance and claims in the 2011 period was primarily due to an increase in the cost of physical damage claims related to our tractors and trailers.

Gain on disposition of revenue equipment increased to $1.7 million in the 2011 period from $628,000 in the 2010 period as a result of an increase in the market value for used revenue equipment, despite a decrease in the number of tractors and trailers sold.

As a result of the foregoing factors, our operating expenses as a percentage of operating revenue, or “operating ratio,” was 93.4% in the 2011 period compared with 93.6% in the 2010 period. The operating ratio for our Truckload segment was 93.2% in the 2011 period compared with 93.1% in the 2010 period. The operating ratio for our Logistics segment improved to 94.2% from 95.2% in the 2010 period. Operating expenses as a percentage of operating revenue, with both amounts net of fuel surcharge revenue, improved to 91.9% for the 2011 period from 92.5% for the 2010 period.

Our effective income tax rate was 44.6% in the 2011 period and 44.3% in the 2010 period.

As a result of the factors described above, net income increased to $10.3 million in the 2011 period from $9.1 million in the 2010 period. Net earnings increased to $0.47 per diluted share in the 2011 period from $0.41 per diluted share in the 2010 period.

Liquidity and Capital Resources

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

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

	Six Months Ended June 30,
(In thousands)	2011			2010
Net cash flows provided by operating activities	$	42,456		$	23,968
Net cash flows (used for) investing activities		(11,879	)		(37,487	)
Net cash flows provided by (used for) financing activities		(20,880	)		11,672

In the first six months of 2011, net cash flows provided by operating activities were primarily used to repay $19.3 million of long-term debt, to purchase new revenue equipment, net of proceeds from dispositions, in the amount of $6.2 million, to partially construct two regional operating facilities in the amount of $3.6 million, and to increase cash and cash equivalents by $9.7 million. We estimate that capital expenditures, net of proceeds from dispositions, will be approximately $30 million for the remainder of 2011. We paid quarterly cash dividends of $0.02 per share of common stock in each of the first and second quarters of 2011 totaling $878,000. 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 financial condition, results of operations, cash requirements, and certain corporate law requirements, as well as other factors deemed relevant by our Board of 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.

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. This facility also contains restrictive covenants which, among other matters, require us to maintain compliance with certain cash flow leverage and fixed charge coverage ratios. We were in compliance with all of these covenants at June 30, 2011.

The following is a summary of our contractual obligations as of June 30, 2011.

	Payments Due by Period
	Remainder		2012		2014
	of		And		And
(In thousands)	2011		2013		2015		Thereafter		Total
Purchase obligations for revenue equipment	$	3,660	$	-	$	-	$	-	$	3,660
Building construction obligations		73		-		-		-		73
Operating lease obligations		274		459		3		-		736
Total	$	4,007	$	459	$	3	$	-	$	4,469

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 $717,000 in the first six months of 2011and $312,000 in the first six months of 2010 for fuel and tire services. In addition, we paid $767,000 in the first six months of 2011 and $952,000 in the first six months of 2010 to tire manufacturers for tires that we purchased from the tire manufacturers but were provided by BBI. BBI received commissions from the tire manufacturers related to these purchases. 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. $506,000 in the first six months of 2011 and $832,000 in the first six months of 2010 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.

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 $9.6 million and operating leases summarized above in our summary of contractual obligations, we did not have any other material off-balance sheet arrangements at June 30, 2011.

Inflation and Fuel Costs

Most of our operating expenses are inflation-sensitive, with inflation generally producing increased costs of operations. During the last two 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 a 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. These surcharge provisions are not effective in mitigating the fuel price increases related to non-revenue miles or fuel used while the tractor is idling.

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 U.S. generally accepted accounting 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 condensed 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 condensed 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 condensed 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 upon 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 $270,000 as of June 30, 2011 and $170,000 as of December 31, 2010. 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.

Property and Equipment. The transportation industry requires significant capital investments. Our net property and equipment was $359.2 million as of June 30, 2011 and $372.1 million as of December 31, 2010. Our depreciation expense was $27.6 million for the first six months of 2011 and $25.6 million for the first six months of 2010. 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 June 30, 2011 by approximately $10.1 million, or 2.8%.

In the first six months of 2011, we replaced most of our company-owned tractors within approximately 4.5 years and our trailers within approximately 5.5 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 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 32.5% of cost at the 4.5-year replacement date as using a 4.5-year useful life and 32.5% salvage value. As a 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 4.5-year useful life and 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 48.9% of cost at the 5.5-year replacement date as using a 5.5-year useful life and 48.9% 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 5.5-year useful life and 48.9% 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. Prior to June 1, 2011, we were responsible for the first $1.0 million and also responsible for up to $1.0 million for 33% of each auto liability claim amount in excess of $1.0 million. We are also responsible for the first $750,000 on each workers’ compensation claim. We have $9.6 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 condensed balance sheets were $15.1 million as of June 30, 2011, and $17.7 million as of December 31, 2010. 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 June 30, 2011 would have needed to increase by approximately $3.6 million.

Share-based Payment Arrangement Compensation. We have granted stock options to certain employees and non-employee directors. We recognize compensation expense for all stock options 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 (normally the vesting period). Determining the appropriate fair value model and calculating the fair value of stock options require the input of highly subjective assumptions, including the expected life of the stock 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 stock 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, stock option compensation expense could be materially different in the future.

We have also granted performance unit awards to certain employees which are subject to vesting requirements over a five-year period, primarily based on our earnings growth. 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.

Item 3. 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. We require substantial amounts of diesel 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. Based upon our fuel consumption in the first six months of 2011, a 5% increase in the average cost of diesel fuel would have increased our fuel expense by $3.7 million.

We have historically been able to pass through a significant portion of long-term increases in diesel fuel prices and related taxes to customers in the form of fuel surcharges. Fuel surcharge programs are widely accepted among our customers, though they can vary somewhat from customer-to-customer. These 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 in mitigating the fuel 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 haul, installing and tightly managing the use of auxiliary power units in our tractors to minimize engine idling and improving fuel usage in our trailers’ refrigeration units.

While we do not currently 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 future.

Item 4. Controls and Procedures.

As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the “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 Chief Executive Officer and our Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2011. 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.

PART II. OTHER INFORMATION

Item 1A. Risk Factors.

We do not believe there are any material changes from the risk factors previously disclosed in Item 1A to Part 1 of our Form 10-K for the year ended December 31, 2010.

Item 6. Exhibits.

Item No.	Item	Method of Filing
10.15	Named Executive Officer Compensation	Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed May 5, 2011.
10.22	Third Amendment to Credit Agreement, dated as of May 27, 2011, 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 May 31, 2011.
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 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.
101	The following financial information from Marten Transport, Ltd.’s Quarterly Report on Form 10-Q for the period ended June 30, 2011, filed with the SEC on August 9, 2011, formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Condensed Balance Sheets as of June 30, 2011 and December 31, 2010, (ii) Consolidated Condensed Statements of Operations for the three and six-month periods ended June 30, 2011 and June 30, 2010, (iii) Consolidated Condensed Statements of Stockholders’ Equity for the six-month periods ended June 30, 2011, December 31, 2010, and June 30, 2010, (iv) Consolidated Condensed Statements of Cash Flows for the six-month periods ended June 30, 2011, and June 30, 2010, and (v) Notes to Consolidated Condensed Financial Statements, tagged as blocks of text.**	Filed with this Report.

** Pursuant to Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, and shall not be deemed part of a registration statement, prospectus or other document filed under Sections 11 or 12 of the Securities Act of 1933, as amended, or otherwise subject to the liability of those sections, except as shall be expressly set forth by specific reference in such filings.

SIGNATURES

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.


Dated: August 9, 2011	By:	/s/ Randolph L. Marten
		Randolph L. Marten
		Chief Executive Officer
		(Principal Executive Officer)


Dated: August 9, 2011	By:	/s/ James J. Hinnendael
		James J. Hinnendael
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

EXHIBIT INDEX TO FORM 10-Q

For the Quarter Ended June 30, 2011

Item No.	Item	Method of Filing
10.15	Named Executive Officer Compensation	Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed May 5, 2011.
10.22	Third Amendment to Credit Agreement, dated as of May 27, 2011, 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 May 31, 2011.
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 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.
101	The following financial information from Marten Transport, Ltd.’s Quarterly Report on Form 10-Q for the period ended June 30, 2011, filed with the SEC on August 9, 2011, formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Condensed Balance Sheets as of June 30, 2011 and December 31, 2010, (ii) Consolidated Condensed Statements of Operations for the three and six-month periods ended June 30, 2011 and June 30, 2010, (iii) Consolidated Condensed Statements of Stockholders’ Equity for the six-month periods ended June 30, 2011, December 31, 2010, and June 30, 2010, (iv) Consolidated Condensed Statements of Cash Flows for the six-month periods ended June 30, 2011, and June 30, 2010, and (v) Notes to Consolidated Condensed Financial Statements, tagged as blocks of text.**	Filed with this Report.