ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
The following discussion and analysis of our financial condition and results of operations should be read together with the selected consolidated financial data and our consolidated financial statements and the related notes appe
aring elsewhere in this report.
This discussion and analysis contains forward-looking statements that involve risks,
uncertainties and assumptions.
Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those under the heading “Risk Factors” beginning on page
6
. We do not assume, and specifically disclaim, any obligation to update any forward-looking statement contained in this report.
Overview
We have strategically transitioned from a long-haul carrier to a multifaceted business offering a network of truck-based transportation capabilities across our five distinct business platforms – Truckload, Dedicated, Intermodal, Brokerage and MRTN de Mexico.
The primary source of our operating revenue is provided by our Truckload segment through a combination of regional short-haul and medium-to-long-haul full-load transportation services. We transport food and other consumer packaged goods that require a temperature-controlled or insulated environment, along with dry freight, across the United States and into and out of Mexico and Canada.
Our Dedicated segment provides customized transportation solutions tailored to meet individual customers’ requirements, utilizing temperature-controlled trailers, dry vans and other specialized equipment within the United States. Our agreements with customers range from three to five years and are subject to annual rate reviews.
Generally, we are paid by the mile for our Truckload and Dedicated services. We also derive Truckload and Dedicated revenue from fuel surcharges, loading and unloading activities, equipment detention and other accessorial services. The main factors that affect our Truckload and Dedicated 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 and Dedicated revenue, net of fuel surcharges, per tractor per week. We also analyze our average Truckload and Dedicated revenue, net of fuel surcharges, per total mile, non-revenue miles percentage, the miles per tractor we generate, our fuel surcharge revenue, our accessorial revenue and our other sources of operating revenue.
Our Intermodal segment transports our customers’ freight within the United States utilizing our temperature-controlled trailers on railroad flatcars for portions of trips, with the balance of the trips using our tractors or, to a lesser extent, contracted carriers. The main factors that affect our Intermodal revenue are the rate per mile and other charges we receive from our customers.
Our Brokerage segment develops contractual relationships with and arranges for third-party carriers to transport freight for our customers in temperature-controlled trailers and dry vans within the United States and into and out of Mexico through Marten Transport Logistics, LLC, which was established in 2007 and operates pursuant to brokerage authority granted by the DOT. We retain the billing, collection and customer management responsibilities. The main factors that affect our Brokerage revenue are the rate per mile and other charges that we receive from our customers.
Operating results of our MRTN de Mexico business which offers our customers door-to-door service between the United States and Mexico with our Mexican partner carriers is reported within our Truckload and Brokerage segments.
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, a contracting driver market, severe weather conditions and specific customer demand.
Our operating revenue increased $89.5 million, or 12.8%, from 2017 to 2018. Our operating revenue, net of fuel surcharges, increased $50.4 million, or 8.0%, compared with 2017. Truckload segment revenue, net of fuel surcharges, decreased 4.2% from 2017, primarily due to a reduction in our average number of tractors, partially offset by an increase in our average revenue per tractor. Dedicated segment revenue, net of fuel surcharges, increased 21.8% from 2017, primarily due to fleet growth driven by an increase in the number of Dedicated contracts we have with our customers. Intermodal segment revenue, net of fuel surcharges, increased 21.8% due to increases in revenue per load and in volume. Brokerage segment revenue increased 22.7% also due to increases in revenue per load and in volume in 2018. Fuel surcharge revenue increased to $106.2 million in 2018 from $67.1 million in 2017 primarily due to higher fuel prices and a shift of a portion of line haul revenue to fuel surcharge revenue which began in the first quarter of 2018 as a result of changes in a number of customer agreements. The change reduced our revenue excluding fuel surcharges by $12.9 million in 2018 and increased our fuel surcharge revenue by the same amount.
Our profitability is impacted by the 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 cost of insurance and claims. These expenses generally vary with the miles we travel, but also have a controllable component based on safety, fleet age, efficiency and other factors. Our main fixed costs relate to the acquisition and subsequent depreciation 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, along with any increases in fleet size. 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 significantly fluctuated over the past several years. 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 have installed and tightly manage the use of auxiliary power units in our tractors to provide climate control and electrical power for our drivers without idling the tractor engine, and also have improved the fuel usage in the temperature-control units on our trailers. For our Intermodal and Brokerage segments, our profitability is impacted by the percentage of revenue which is payable to the providers of the transportation services we arrange. This expense is included within purchased transportation in our consolidated statements of operations.
Our operating income improved 23.7% to $70.3 million in 2018 from $56.9 million in 2017. Our operating expenses as a percentage of operating revenue, or “operating ratio,” improved to 91.1% in 2018 from 91.9% in 2017. Operating expenses as a percentage of operating revenue, with both amounts net of fuel surcharges, improved to 89.7% in 2018 from 91.0% in the 2017. Our net income was $55.0 million, or $1.00 per diluted share, in 2018 and $90.3 million, or $1.65 per diluted share, in 2017. Earnings in 2017 include a deferred income taxes benefit of $56.5 million recorded to recognize the impact on our federal net deferred tax liability of the reduction of the federal corporate statutory income tax rate from 35% to 21% related to the Tax Cuts and Jobs Act of 2017. Excluding the deferred income taxes benefit, 2018 net income improved 62.7% from 2017 earnings of $33.8 million, or $0.62 per diluted share.
Our business requires substantial, ongoing capital investments, particularly for new tractors and trailers. At December 31, 2018, we had $56.8 million of cash and cash equivalents, $576.0 million in stockholders’ equity and no long-term debt outstanding. In 2018, net cash flows provided by operating activities of $150.6 million were primarily used to purchase new revenue equipment, net of proceeds from dispositions, in the amount of $93.9 million, to acquire and upgrade regional operating facilities in the amount of $5.9 million, to pay cash dividends of $5.5 million, and to repurchase and retire 200,000 shares of our common stock for $3.8 million, resulting in a $41.0 million increase in cash and cash equivalents. We estimate that capital expenditures, net of proceeds from dispositions, will be approximately $125 million in 2019. 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.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes discussions of net income and diluted earnings per share, net of a deferred income taxes benefit; operating revenue, net of fuel surcharge revenue; Truckload, Dedicated and Intermodal revenue, net of fuel surcharge revenue; 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 of net income, diluted earnings per share, operating revenue, operating expenses divided by operating revenue, and fuel and fuel taxes.
Stock Split
On July 7, 2017, we effected a five-for-three stock split of our common stock, $.01 par value, in the form of a 66 ⅔% stock dividend. Our consolidated financial statements, related notes, and other financial data contained in this report have been adjusted to give retroactive effect to the stock split for all periods presented.
Adoption of New
Revenue
R
ecognition
Accounting Standard
We account for our revenue in accordance with Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC 606,
Revenue from Contracts with Customers
, which we adopted on January 1, 2018 using the modified retrospective method. Prior years have not been restated and continue to be reported under the accounting standards in effect for those periods. The new revenue standard requires us to recognize revenue and related expenses within each of our four reporting segments over time, compared with our former policy in which we recorded revenue and related expenses on the date shipment of freight was completed.
Results of Operations
The following table sets forth for the years indicated certain operating statistics regarding our revenue and operations:
|
|
201
8
|
|
|
2017
|
|
|
2016
|
|
Truckload Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (in thousands)
|
|
$
|
375,340
|
|
|
$
|
380,210
|
|
|
$
|
375,851
|
|
Average revenue, net of fuel surcharges, per tractor per week
(1)
|
|
$
|
3,833
|
|
|
$
|
3,514
|
|
|
$
|
3,427
|
|
Average tractors
(1)
|
|
|
1,613
|
|
|
|
1,837
|
|
|
|
1,898
|
|
Average miles per trip
|
|
|
573
|
|
|
|
599
|
|
|
|
623
|
|
Total miles (in thousands)
|
|
|
153,514
|
|
|
|
178,760
|
|
|
|
184,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dedicated Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (in thousands)
|
|
$
|
223,852
|
|
|
$
|
166,881
|
|
|
$
|
157,370
|
|
Average revenue, net of fuel surcharges, per tractor per week
(1)
|
|
$
|
3,300
|
|
|
$
|
3,481
|
|
|
$
|
3,432
|
|
Average tractors
(1)
|
|
|
1,088
|
|
|
|
847
|
|
|
|
819
|
|
Average miles per trip
|
|
|
309
|
|
|
|
297
|
|
|
|
301
|
|
Total miles (in thousands)
|
|
|
93,269
|
|
|
|
77,102
|
|
|
|
75,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intermodal Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (in thousands)
|
|
$
|
102,025
|
|
|
$
|
80,621
|
|
|
$
|
71,490
|
|
Loads
|
|
|
42,425
|
|
|
|
40,196
|
|
|
|
35,947
|
|
Average tractors
|
|
|
88
|
|
|
|
79
|
|
|
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokerage Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (in thousands)
|
|
$
|
86,377
|
|
|
$
|
70,408
|
|
|
$
|
66,433
|
|
Loads
|
|
|
51,104
|
|
|
|
48,271
|
|
|
|
49,721
|
|
(1)
|
Includes tractors driven by both company-employed drivers and independent contractors. Independent contractors provided 46, 60 and 68 tractors as of December 31, 2018, 2017 and 2016, respectively.
|
Comparison of Year Ended December 31, 201
8
to Year Ended December 31, 201
7
The following table sets forth for the years indicated our operating revenue, operating income and operating ratio by segment, along with the change for each component:
|
|
|
|
|
|
|
|
|
|
Dollar
Change
|
|
|
Percentage
Change
|
|
(Dollars in thousands)
|
|
201
8
|
|
|
2017
|
|
|
2018 vs.
2017
|
|
|
2018 vs.
2017
|
|
Operating revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Truckload revenue, net of fuel surcharge revenue
|
|
$
|
322,324
|
|
|
$
|
336,596
|
|
|
$
|
(14,272
|
)
|
|
|
(4.2
|
)%
|
Truckload fuel surcharge revenue
|
|
|
53,016
|
|
|
|
43,614
|
|
|
|
9,402
|
|
|
|
21.6
|
|
Total Truckload revenue
|
|
|
375,340
|
|
|
|
380,210
|
|
|
|
(4,870
|
)
|
|
|
(1.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dedicated revenue, net of fuel surcharge revenue
|
|
|
187,137
|
|
|
|
153,691
|
|
|
|
33,446
|
|
|
|
21.8
|
|
Dedicated fuel surcharge revenue
|
|
|
36,715
|
|
|
|
13,190
|
|
|
|
23,525
|
|
|
|
178.4
|
|
Total Dedicated revenue
|
|
|
223,852
|
|
|
|
166,881
|
|
|
|
56,971
|
|
|
|
34.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intermodal revenue, net of fuel surcharge revenue
|
|
|
85,572
|
|
|
|
70,282
|
|
|
|
15,290
|
|
|
|
21.8
|
|
Intermodal fuel surcharge revenue
|
|
|
16,453
|
|
|
|
10,339
|
|
|
|
6,114
|
|
|
|
59.1
|
|
Total Intermodal revenue
|
|
|
102,025
|
|
|
|
80,621
|
|
|
|
21,404
|
|
|
|
26.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokerage revenue
|
|
|
86,377
|
|
|
|
70,408
|
|
|
|
15,969
|
|
|
|
22.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenue
|
|
$
|
787,594
|
|
|
$
|
698,120
|
|
|
$
|
89,474
|
|
|
|
12.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Truckload
|
|
$
|
35,067
|
|
|
$
|
26,326
|
|
|
$
|
8,741
|
|
|
|
33.2
|
%
|
Dedicated
|
|
|
18,589
|
|
|
|
17,074
|
|
|
|
1,515
|
|
|
|
8.9
|
|
Intermodal
|
|
|
11,150
|
|
|
|
8,303
|
|
|
|
2,847
|
|
|
|
34.3
|
|
Brokerage
|
|
|
5,542
|
|
|
|
5,159
|
|
|
|
383
|
|
|
|
7.4
|
|
Total operating income
|
|
$
|
70,348
|
|
|
$
|
56,862
|
|
|
$
|
13,486
|
|
|
|
23.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating ratio
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Truckload
|
|
|
90.7
|
%
|
|
|
93.1
|
%
|
|
|
|
|
|
|
|
|
Dedicated
|
|
|
91.7
|
|
|
|
89.8
|
|
|
|
|
|
|
|
|
|
Intermodal
|
|
|
89.1
|
|
|
|
89.7
|
|
|
|
|
|
|
|
|
|
Brokerage
|
|
|
93.6
|
|
|
|
92.7
|
|
|
|
|
|
|
|
|
|
Consolidated operating ratio
|
|
|
91.1
|
%
|
|
|
91.9
|
%
|
|
|
|
|
|
|
|
|
(1)
|
Represents operating expenses as a percentage of operating revenue.
|
Our operating revenue increased $89.5 million, or 12.8%, to $787.6 million in 2018 from $698.1 million in 2017. Our operating revenue, net of fuel surcharges, increased $50.4 million, or 8.0%, to $681.4 million in 2018 from $631.0 million in 2017. This increase was due to a $33.4 million increase in Dedicated revenue, net of fuel surcharges, a $16.0 million increase in Brokerage revenue, and a $15.3 million increase in Intermodal revenue, net of fuel surcharges, partially offset by a $14.3 million decrease in Truckload revenue, net of fuel surcharges. Fuel surcharge revenue increased to $106.2 million in 2018 from $67.1 million in 2017 primarily due to higher fuel prices and a shift of a portion of line haul revenue to fuel surcharge revenue which began in the first quarter of 2018 as a result of changes in a number of customer agreements. The change reduced our revenue excluding fuel surcharges by $12.9 million in 2018 and increased our fuel surcharge revenue by the same amount.
Truckload segment revenue decreased $4.9 million, or 1.3%, to $375.3 million in 2018 from $380.2 million in 2017. Truckload segment revenue, net of fuel surcharges, decreased $14.3 million, or 4.2%, to $322.3 million in 2018 from $336.6 million in 2017, primarily due to a reduction in our average number of tractors, partially offset by an increase in our average revenue per tractor. The shift from line haul revenue to fuel surcharge revenue as a result of changes in a number of customer agreements decreased our Truckload revenue excluding fuel surcharges by $2.8 million, or $32 per tractor per week, in 2018, and increased our fuel surcharge revenue by the same amount. The improvement in the operating ratio in 2018 was primarily due to the increase in our average revenue per tractor driven by increased rates with our customers.
Dedicated segment revenue increased $57.0 million, or 34.1%, to $223.9 million in 2018 from $166.9 million in 2017. Dedicated segment revenue, net of fuel surcharges, increased 21.8% primarily due to fleet growth driven by an increase in the number of Dedicated contracts we have with our customers. The shift from line haul revenue to fuel surcharge revenue as a result of changes in a number of customer agreements decreased our Dedicated revenue excluding fuel surcharges by $10.1 million, or $179 per tractor per week, in 2018, and increased our fuel surcharge revenue by the same amount. The increase in the operating ratio for our Dedicated segment was primarily due to an increase in driver wages, an increase in bonus compensation expense for our non-driver employees and increased depreciation expense.
Intermodal segment revenue increased $21.4 million, or 26.5%, to $102.0 million in 2018 from $80.6 million in 2017. Intermodal segment revenue, net of fuel surcharges, increased 21.8% from 2017 due to increases in revenue per load and in volume. The improvement in the operating ratio in 2018 was primarily due to a decrease in the amounts payable to railroads as a percentage of our revenue and increased rates with our customers.
Brokerage segment revenue increased $16.0 million, or 22.7%, to $86.4 million in 2018 from $70.4 million in 2017 due to an increase in volume and rates with our customers. The increase in the operating ratio in 2018 was primarily due to an increase in the amounts payable to carriers for transportation services which we arranged as a percentage of our Brokerage revenue.
The following table sets forth for the years indicated the dollar and percentage increase or decrease of the items in our consolidated statements of operations, and those items as a percentage of operating revenue:
|
|
Dollar
Change
|
|
|
Percentage
Change
|
|
|
Percentage of
Operating Revenue
|
|
(Dollars in thousands)
|
|
2018 vs.
2017
|
|
|
2018 vs.
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue
|
|
$
|
89,474
|
|
|
|
12.8
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Operating expenses (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits
|
|
|
25,956
|
|
|
|
11.5
|
|
|
|
32.0
|
|
|
|
32.4
|
|
Purchased transportation
|
|
|
26,262
|
|
|
|
22.2
|
|
|
|
18.4
|
|
|
|
17.0
|
|
Fuel and fuel taxes
|
|
|
16,243
|
|
|
|
15.4
|
|
|
|
15.4
|
|
|
|
15.1
|
|
Supplies and maintenance
|
|
|
(760
|
)
|
|
|
(1.8
|
)
|
|
|
5.2
|
|
|
|
6.0
|
|
Depreciation
|
|
|
3,465
|
|
|
|
4.1
|
|
|
|
11.2
|
|
|
|
12.2
|
|
Operating taxes and licenses
|
|
|
480
|
|
|
|
5.3
|
|
|
|
1.2
|
|
|
|
1.3
|
|
Insurance and claims
|
|
|
72
|
|
|
|
0.2
|
|
|
|
4.9
|
|
|
|
5.5
|
|
Communications and utilities
|
|
|
587
|
|
|
|
9.7
|
|
|
|
0.8
|
|
|
|
0.9
|
|
Gain on disposition of revenue equipment
|
|
|
(1,745
|
)
|
|
|
(31.7
|
)
|
|
|
(0.9
|
)
|
|
|
(0.8
|
)
|
Other
|
|
|
5,428
|
|
|
|
32.8
|
|
|
|
2.8
|
|
|
|
2.4
|
|
Total operating expenses
|
|
|
75,988
|
|
|
|
11.8
|
|
|
|
91.1
|
|
|
|
91.9
|
|
Operating income
|
|
|
13,486
|
|
|
|
23.7
|
|
|
|
8.9
|
|
|
|
8.1
|
|
Other
|
|
|
(1,070
|
)
|
|
|
(275.1
|
)
|
|
|
(0.1
|
)
|
|
|
0.1
|
|
Income before income taxes
|
|
|
14,556
|
|
|
|
25.8
|
|
|
|
9.0
|
|
|
|
8.1
|
|
Income taxes expense (benefit)
|
|
|
49,813
|
|
|
|
(147.3
|
)
|
|
|
2.0
|
|
|
|
(4.8
|
)
|
Net income
|
|
$
|
(35,257
|
)
|
|
|
(39.1
|
)%
|
|
|
7.0
|
%
|
|
|
12.9
|
%
|
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 size of our Truckload, Dedicated and Intermodal tractor fleets, 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. Salaries, wages and benefits expense increased $26.0 million, or 11.5%, in 2018 from 2017. The increase in salaries, wages and benefits from 2017 resulted primarily from an increase in company driver compensation expense of $11.1 million, an increase in bonus compensation expense for our non-driver employees of $5.4 million, and an increase in employees’ health insurance expense of $3.3 million due to an increase in our self-insured medical claims.
Purchased transportation consists of amounts payable to railroads and carriers for transportation services we arrange in connection with Brokerage and Intermodal operations and to independent contractor providers of revenue equipment. This category will vary depending upon the amount and rates, including fuel surcharges, we pay to third-party railroad and motor carriers, the ratio of company drivers versus independent contractors and the amount of fuel surcharges passed through to independent contractors. Purchased transportation expense increased $26.3 million in total, or 22.2%, in 2018 from 2017. Amounts payable to carriers for transportation services we arranged in our Brokerage segment increased $13.7 million to $72.3 million in 2018 from $58.6 million in 2017, primarily due to an increase in brokerage revenue. Amounts payable to railroads and drayage carriers for transportation services within our Intermodal segment increased $13.6 million to $65.0 million in 2018 from $51.5 million in 2017. This increase was due to increased intermodal revenue along with increased fuel surcharges to the railroads due to higher fuel prices. The portion of purchased transportation expense related to our independent contractors within our Truckload and Dedicated segments, including fuel surcharges, decreased $1.1 million in 2018. We expect that purchased transportation expense will increase as we grow our Intermodal and Brokerage segments.
Fuel and fuel taxes increased by $16.2 million, or 15.4%, in 2018 from 2017. Net fuel expense (fuel and fuel taxes net of fuel surcharge revenue and surcharges passed through to independent contractors, outside drayage carriers and railroads) decreased $17.4 million, or 37.2%, to $29.4 million in 2018 from $46.8 million in 2017. Fuel surcharges passed through to independent contractors, outside drayage carriers and railroads increased to $14.0 million from $8.6 million in 2017. Despite an increase in the United States Department of Energy, or DOE, national average cost of fuel to $3.18 per gallon from $2.65 per gallon in 2017, net fuel expense decreased to 4.9% of Truckload, Dedicated and Intermodal segment revenue, net of fuel surcharges, from 8.4% in 2017. The net fuel expense to revenue improved primarily due to a $12.9 million shift during 2018 of a portion of line haul revenue to fuel surcharge revenue as a result of changes in a number of customer agreements. Increases in our miles per gallon and in our revenue rate per mile in 2018 further improved this ratio. 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.
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. Our supplies and maintenance expense decreased $760,000, or 1.8%, from 2017 primarily due to a decrease in our loading/unloading expense.
Depreciation relates to owned tractors, trailers, auxiliary power units, communication units, terminal facilities and other assets. The increase in depreciation was primarily due to a continued increase in the cost of revenue equipment. 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.
Gain on disposition of revenue equipment increased to $7.2 million in 2018 from $5.5 million in 2017 primarily due to an increase in the number of trailers sold, along with an increase in our average gain for each tractor and trailer sold. Future gains or losses on dispositions of revenue equipment will be impacted by the market for used revenue equipment, which is beyond our control.
The $5.4 million increase in other operating expenses in 2018 was due in part to proceeds received in 2017 from the settlement of a lawsuit, net of 2017 legal expenses, of $1.0 million, and increased costs associated with recruiting and retaining drivers.
As a result of the foregoing factors, our operating income improved 23.7% to $70.3 million in 2018 from $56.9 million in 2017. Our operating expenses as a percentage of operating revenue, or “operating ratio,” improved to 91.1% in 2018 from 91.9% in 2017. The operating ratio for our Truckload segment was 90.7% in 2018 and 93.1% in 2017, for our Dedicated segment was 91.7% in 2018 and 89.8% in 2017, for our Intermodal segment was 89.1% in 2018 and 89.7% in 2017, and for our Brokerage segment was 93.6% in 2018 and 92.7% in 2017. Operating expenses as a percentage of operating revenue, with both amounts net of fuel surcharges, improved to 89.7% in 2018 from 91.0% in 2017.
The increase in our non-operating income was primarily due to improved operating results in 2018 by MW Logistics, LLC, or MWL, a 45% owned affiliate.
Our effective income tax rate increased to 22.5% in 2018 from (59.9%) in 2017. We recorded a $56.5 million deferred income taxes benefit in 2017 to recognize the impact on our federal net deferred tax liability of the reduction of the federal corporate statutory income tax rate from 35% to 21% related to the Tax Cuts and Jobs Act of 2017, which was enacted prior to December 31, 2017. Excluding that benefit, our effective tax rate was 40.1% in 2017, which exceeds our effective tax rate in 2018 primarily due to the reduction of the federal corporate tax rate in 2018 under the Tax Cuts and Jobs Act of 2017. The Tax Cuts and Jobs Act of 2017 makes broad and complex changes to the U.S. tax code including, but not limited to, reducing the federal corporate income tax rate as noted above and allowing bonus depreciation with full expensing of qualified property placed in service after September 27, 2017.
As a result of the factors described above, net income was $55.0 million, or $1.00 per diluted share, in 2018 and $90.3 million, or $1.65 per diluted share, in 2017. Excluding the $56.5 million deferred income taxes benefit recorded in 2017, net income in 2018 improved 62.7% from 2017 earnings of $33.8 million, or $0.62 per diluted share.
Comparison of Year Ended December 31, 2017 to Year Ended December 31, 2016
The following table sets forth for the years indicated our operating revenue, operating income and operating ratio by segment, along with the change for each component:
|
|
|
|
|
|
|
|
|
|
Dollar
Change
|
|
|
Percentage
Change
|
|
(Dollars in thousands)
|
|
2017
|
|
|
2016
|
|
|
2017 vs.
2016
|
|
|
2017 vs.
2016
|
|
Operating revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Truckload revenue, net of fuel surcharge revenue
|
|
$
|
336,596
|
|
|
$
|
339,967
|
|
|
$
|
(3,371
|
)
|
|
|
(1.0
|
)%
|
Truckload fuel surcharge revenue
|
|
|
43,614
|
|
|
|
35,884
|
|
|
|
7,730
|
|
|
|
21.5
|
|
Total Truckload revenue
|
|
|
380,210
|
|
|
|
375,851
|
|
|
|
4,359
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dedicated revenue, net of fuel surcharge revenue
|
|
|
153,691
|
|
|
|
147,007
|
|
|
|
6,684
|
|
|
|
4.5
|
|
Dedicated fuel surcharge revenue
|
|
|
13,190
|
|
|
|
10,363
|
|
|
|
2,827
|
|
|
|
27.3
|
|
Total Dedicated revenue
|
|
|
166,881
|
|
|
|
157,370
|
|
|
|
9,511
|
|
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intermodal revenue, net of fuel surcharge revenue
|
|
|
70,282
|
|
|
|
64,508
|
|
|
|
5,774
|
|
|
|
9.0
|
|
Intermodal fuel surcharge revenue
|
|
|
10,339
|
|
|
|
6,982
|
|
|
|
3,357
|
|
|
|
48.1
|
|
Total Intermodal revenue
|
|
|
80,621
|
|
|
|
71,490
|
|
|
|
9,131
|
|
|
|
12.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokerage revenue
|
|
|
70,408
|
|
|
|
66,433
|
|
|
|
3,975
|
|
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenue
|
|
$
|
698,120
|
|
|
$
|
671,144
|
|
|
$
|
26,976
|
|
|
|
4.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Truckload
|
|
$
|
26,326
|
|
|
$
|
27,438
|
|
|
$
|
(1,112
|
)
|
|
|
(4.1
|
)%
|
Dedicated
|
|
|
17,074
|
|
|
|
19,550
|
|
|
|
(2,476
|
)
|
|
|
(12.7
|
)
|
Intermodal
|
|
|
8,303
|
|
|
|
7,131
|
|
|
|
1,172
|
|
|
|
16.4
|
|
Brokerage
|
|
|
5,159
|
|
|
|
4,184
|
|
|
|
975
|
|
|
|
23.3
|
|
Total operating income
|
|
$
|
56,862
|
|
|
$
|
58,303
|
|
|
$
|
(1,441
|
)
|
|
|
(2.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating ratio
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Truckload
|
|
|
93.1
|
%
|
|
|
92.7
|
%
|
|
|
|
|
|
|
|
|
Dedicated
|
|
|
89.8
|
|
|
|
87.6
|
|
|
|
|
|
|
|
|
|
Intermodal
|
|
|
89.7
|
|
|
|
90.0
|
|
|
|
|
|
|
|
|
|
Brokerage
|
|
|
92.7
|
|
|
|
93.7
|
|
|
|
|
|
|
|
|
|
Consolidated operating ratio
|
|
|
91.9
|
%
|
|
|
91.3
|
%
|
|
|
|
|
|
|
|
|
(1)
|
Represents operating expenses as a percentage of operating revenue.
|
Our operating revenue increased $27.0 million, or 4.0%, to $698.1 million in 2017 from $671.1 million in 2016. Our operating revenue, net of fuel surcharges, increased $13.1 million, or 2.1%, to $631.0 million in 2017 from $617.9 million in 2016. This increase was due to a $6.7 million increase in Dedicated revenue, net of fuel surcharges, a $5.8 million increase in Intermodal revenue, net of fuel surcharges, and a $4.0 million increase in Brokerage revenue, partially offset by a $3.4 million decrease in Truckload revenue, net of fuel surcharges. Fuel surcharge revenue increased to $67.1 million in 2017 from $53.2 million in 2016 due to higher fuel prices.
Truckload segment revenue increased $4.4 million, or 1.2%, to $380.2 million in 2017 from $375.9 million in 2016. Truckload segment revenue, net of fuel surcharges, decreased $3.4 million, or 1.0%, to $336.6 million in 2017 from $340.0 million in 2016, primarily due to a reduction in our average number of tractors, partially offset by an increase in our average revenue per tractor. The increase in the operating ratio in 2017 was primarily due to an increase in insurance and claims expense, partially offset by the increase in our average revenue per tractor.
Dedicated segment revenue increased $9.5 million, or 6.0%, to $166.9 million in 2017 from $157.4 million in 2016. Dedicated segment revenue, net of fuel surcharges, increased 4.5% primarily due to fleet growth and an increase in our average revenue per tractor. The increase in the operating ratio for our Dedicated segment was primarily due to an increase in insurance and claims expense, partially offset by the increase in our average revenue per tractor.
Intermodal segment revenue increased $9.1 million, or 12.8%, to $80.6 million in 2017 from $71.5 million in 2016. Intermodal segment revenue, net of fuel surcharges, increased 9.0% from 2016 due to an increase in volume. The operating ratio in 2017 improved slightly from 2016.
Brokerage segment revenue increased $4.0 million, or 6.0%, to $70.4 million in 2017 from $66.4 million in 2016 due to an increase in revenue per load. The improvement in the operating ratio in 2017 was achieved primarily through multiple cost control measures.
The following table sets forth for the years indicated the dollar and percentage increase or decrease of the items in our consolidated statements of operations, and those items as a percentage of operating revenue:
|
|
Dollar
Change
|
|
|
Percentage
Change
|
|
|
Percentage of
Operating Revenue
|
|
(Dollars in thousands)
|
|
2017 vs.
2016
|
|
|
2017 vs.
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue
|
|
$
|
26,976
|
|
|
|
4.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Operating expenses (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits
|
|
|
1,264
|
|
|
|
0.6
|
|
|
|
32.4
|
|
|
|
33.5
|
|
Purchased transportation
|
|
|
7,630
|
|
|
|
6.9
|
|
|
|
17.0
|
|
|
|
16.5
|
|
Fuel and fuel taxes
|
|
|
11,315
|
|
|
|
12.0
|
|
|
|
15.1
|
|
|
|
14.0
|
|
Supplies and maintenance
|
|
|
(2,299
|
)
|
|
|
(5.2
|
)
|
|
|
6.0
|
|
|
|
6.5
|
|
Depreciation
|
|
|
2,675
|
|
|
|
3.2
|
|
|
|
12.2
|
|
|
|
12.3
|
|
Operating taxes and licenses
|
|
|
(106
|
)
|
|
|
(1.2
|
)
|
|
|
1.3
|
|
|
|
1.4
|
|
Insurance and claims
|
|
|
6,362
|
|
|
|
19.7
|
|
|
|
5.5
|
|
|
|
4.8
|
|
Communications and utilities
|
|
|
(240
|
)
|
|
|
(3.8
|
)
|
|
|
0.9
|
|
|
|
0.9
|
|
Gain on disposition of revenue equipment
|
|
|
5,003
|
|
|
|
47.6
|
|
|
|
(0.8
|
)
|
|
|
(1.6
|
)
|
Other
|
|
|
(3,187
|
)
|
|
|
(16.1
|
)
|
|
|
2.4
|
|
|
|
2.9
|
|
Total operating expenses
|
|
|
28,417
|
|
|
|
4.6
|
|
|
|
91.9
|
|
|
|
91.3
|
|
Operating income
|
|
|
(1,441
|
)
|
|
|
(2.5
|
)
|
|
|
8.1
|
|
|
|
8.7
|
|
Other
|
|
|
(848
|
)
|
|
|
(68.6
|
)
|
|
|
0.1
|
|
|
|
0.2
|
|
Income before income taxes
|
|
|
(593
|
)
|
|
|
(1.0
|
)
|
|
|
8.1
|
|
|
|
8.5
|
|
Income taxes (benefit) expense
|
|
|
(57,413
|
)
|
|
|
(243.3
|
)
|
|
|
(4.8
|
)
|
|
|
3.5
|
|
Net income
|
|
$
|
56,820
|
|
|
|
169.8
|
%
|
|
|
12.9
|
%
|
|
|
5.0
|
%
|
Salaries, wages and benefits expense increased $1.3 million, or 0.6%, in 2017 from 2016. The increase in salaries, wages and benefits from 2016 resulted primarily from an increase in non-driver bonus compensation expense of $2.3 million, partially offset by multiple other items.
Purchased transportation expense increased $7.6 million in total, or 6.9%, in 2017 from 2016. Amounts payable to carriers for transportation services we arranged in our Brokerage segment increased $3.2 million to $58.6 million in 2017 from $55.4 million in 2016, primarily due to an increase in brokerage revenue. Amounts payable to railroads and drayage carriers for transportation services within our Intermodal segment increased $5.6 million to $51.5 million in 2017 from $45.9 million in 2016. This increase was primarily due to increased intermodal revenue. The portion of purchased transportation expense related to our independent contractors within our Truckload and Dedicated segments, including fuel surcharges, decreased $1.2 million in 2017.
Fuel and fuel taxes increased by $11.3 million, or 12.0%, in 2017 from 2016. Net fuel expense (fuel and fuel taxes net of fuel surcharge revenue and surcharges passed through to independent contractors, outside drayage carriers and railroads) decreased $213,000, or 0.5%, to $46.8 million in 2017 from $47.0 million in 2016. Fuel surcharges passed through to independent contractors, outside drayage carriers and railroads increased to $8.6 million from $6.2 million in 2016. Despite an increase in the DOE national average cost of fuel to $2.65 per gallon from $2.30 per gallon in 2016, net fuel expense decreased to 8.4% of Truckload, Dedicated and Intermodal segment revenue, net of fuel surcharges, from 8.5% in 2016. The net fuel expense to revenue improved in 2017 primarily due to increases in our miles per gallon and in our revenue rate per mile. 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.
Our supplies and maintenance expense decreased $2.3 million, or 5.2%, from 2016 primarily due to decreased repair costs at external facilities and a reduction in parts costs.
The increase in depreciation was primarily due to a continued increase in the cost of revenue equipment.
Insurance and claims consist of the costs of insurance premiums and 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 $6.4 million increase in insurance and claims in 2017 was primarily due to increases in the cost of physical damage claims related to our tractors and trailers, in self-insured workers’ compensation claims, and in auto liability insurance premiums. Our significant self-insured retention exposes us to the possibility of significant fluctuations in claims expense between periods which could materially impact our financial results depending on the frequency, severity and timing of claims.
Gain on disposition of revenue equipment decreased to $5.5 million in 2017 from $10.5 million in 2016 primarily due to a decrease in the average gain for tractors and trailers within a soft equipment market.
The $3.2 million decrease in other operating expenses in 2017 was primarily due to proceeds received from the settlement of a lawsuit, net of current period legal expenses, of $1.0 million, along with multiple cost control measures.
As a result of the foregoing factors, our operating income decreased to $56.9 million in 2017 from $58.3 million in 2016. Our operating expenses as a percentage of operating revenue, or “operating ratio,” was 91.9% in 2017 and 91.3% in 2016. The operating ratio for our Truckload segment was 93.1% in 2017 and 92.7% in 2016, for our Dedicated segment was 89.8% in 2017 and 87.6% in 2016, for our Intermodal segment was 89.7% in 2017 and 90.0% in 2016, and for our Brokerage segment was 92.7% in 2017 and 93.7% in 2016. Operating expenses as a percentage of operating revenue, with both amounts net of fuel surcharges, was 91.0% in 2017 and 90.6% in 2016.
The decrease in our non-operating expense was primarily due to improved operating results in 2017 by MWL, a 45% owned affiliate.
Our effective income tax rate decreased to (59.9%) in 2017 from 41.4% in 2016. We recorded a $56.5 million deferred income taxes benefit in 2017 to recognize the impact on our federal net deferred tax liability of the reduction of the federal corporate statutory income tax rate from 35% to 21% related to the Tax Cuts and Jobs Act of 2017. Excluding that benefit, the effective tax rate was 40.1% in 2017. The decrease to 40.1% was due in part to certain federal employment tax credits realized as a discrete item and an excess tax benefit of $176,000 which was recorded as a decrease to the provision for income taxes in 2017 with the adoption of the provisions of FASB Accounting Standards Update, or ASU, No. 2016-09, “Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting” in 2017.
As a result of the factors described above, net income increased to $90.3 million, or $1.65 per diluted share, in 2017 from $33.5 million, or $0.61 per diluted share, in 2016. Excluding the deferred income taxes benefit, 2017 net income improved 1.1% to $33.8 million, or $0.62 per diluted share, from 2016.
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 used for financing activities for the years indicated.
(In thousands)
|
|
201
8
|
|
|
2017
|
|
|
2016
|
|
Net cash flows provided by operating activities
|
|
$
|
150,623
|
|
|
$
|
121,879
|
|
|
$
|
133,801
|
|
Net cash flows used for investing activities
|
|
|
(101,270
|
)
|
|
|
(95,318
|
)
|
|
|
(97,290
|
)
|
Net cash flows used for financing activities
|
|
|
(8,381
|
)
|
|
|
(11,258
|
)
|
|
|
(36,457
|
)
|
In 2007, our Board of Directors approved and we announced a share repurchase program to repurchase up to one million shares of our common stock either through purchases on the open market or through private transactions and in accordance with Rule 10b-18 of the Exchange Act. In 2015, our Board of Directors approved and we announced an increase in the share repurchase program, providing for the repurchase of up to $40 million, or approximately two million shares, of our common stock, which was increased by our Board of Directors to 3.3 million shares in August 2017 to reflect the five-for-three stock split effected in the form of a stock dividend on July 7, 2017. The timing and extent to which we repurchase shares depends on market conditions and other corporate considerations. The repurchase program does not have an expiration date.
We repurchased and retired 200,000 shares of common stock for $3.8 million in the fourth quarter of 2018. We did not repurchase any shares in 2017. We repurchased and retired 759,302 shares of our common stock for $7.5 million in the first quarter of 2016. As of December 31, 2018, future repurchases of up to $12.6 million, or 806,000 shares, were available in the share repurchase program.
In 2018, net cash flows provided by operating activities of $150.6 million were primarily used to purchase new revenue equipment, net of proceeds from dispositions, in the amount of $93.9 million, to acquire and upgrade regional operating facilities in the amount of $5.9 million, to pay cash dividends of $5.5 million, and to repurchase and retire 200,000 shares of our common stock for $3.8 million, resulting in a $41.0 million increase in cash and cash equivalents. In 2017, net cash flows provided by operating activities of $121.9 million were primarily used to purchase new revenue equipment, net of proceeds from dispositions, in the amount of $87.6 million, to repay, net of borrowings, $7.9 million of long-term debt, to partially construct regional operating facilities in the amount of $5.8 million, and to pay cash dividends of $4.4 million, resulting in a $15.3 million increase in cash and cash equivalents. In 2016, net cash flows provided by operating activities of $133.8 million were primarily used to purchase new revenue equipment, net of proceeds from dispositions, in the amount of $89.9 million, to partially construct regional operating facilities in the amount of $5.1 million, to repay, net of borrowings, $30.0 million of long-term debt, to repurchase and retire 759,302 shares of our common stock for $7.5 million, and to pay cash dividends of $3.3 million. Beginning in 2018, our net cash flows are increased by the new tax laws established by the Tax Cuts and Jobs Act of 2017, which reduced the federal corporate statutory income tax rate and established bonus depreciation that allows for full expensing of qualified assets.
We estimate that capital expenditures, net of proceeds from dispositions, will be approximately $125 million in 2019. Quarterly cash dividends of $0.025 per share of common stock were declared in each quarter of 2018 and totaled $5.5 million. Quarterly cash dividends of $0.015 per share of common stock were declared in each of the first two quarters of 2017 along with dividends of $0.025 per share in each of 2017’s last two quarters, which totaled $4.4 million. Quarterly cash dividends of $0.015 per share of common stock were declared in each quarter of 2016 and totaled $3.3 million. 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.
In August 2018, we entered into an amendment to our unsecured committed credit facility which reduces the aggregate principal amount of the facility from $40.0 million to $30.0 million and extends the term of the facility to August 2023. At December 31, 2018, there was no outstanding principal balance on the facility. As of that date, we had outstanding standby letters of credit to guarantee settlement of self-insurance claims of $14.6 million and remaining borrowing availability of $15.4 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.
Our credit facility prohibits us from paying, in any fiscal year, stock redemptions and dividends in excess of 25% of our net income from the prior fiscal year. A waiver of the 25% limitation for 2016 was obtained from the lender. This facility also contains restrictive covenants which, among other matters, require us to maintain compliance with cash flow leverage and fixed charge coverage ratios. We were in compliance with all covenants at December 31, 2018 and 2017.
The following is a summary of our contractual obligations as of December 31, 2018.
|
|
Payments Due by Period
|
|
(In thousands)
|
|
2019
|
|
|
2020
And
2021
|
|
|
2022
And
2023
|
|
|
Thereafter
|
|
|
Total
|
|
Purchase obligations for revenue equipment
|
|
$
|
91,099
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
91,099
|
|
Operating lease obligations
|
|
|
318
|
|
|
|
314
|
|
|
|
40
|
|
|
|
—
|
|
|
|
672
|
|
Total
|
|
$
|
91,417
|
|
|
$
|
314
|
|
|
$
|
40
|
|
|
$
|
—
|
|
|
$
|
91,771
|
|
Due to uncertainty with respect to the timing of future cash flows, the obligation under our nonqualified deferred compensation plan at December 31, 2018 of 241,348 shares of Company common stock with a value of $3.9 million has been excluded from the above table.
Off-balance Sheet Arrangements
Other than standby letters of credit maintained in connection with our self-insurance programs in the amount of $14.6 million along with purchase obligations and operating leases summarized above in our summary of contractual obligations, we did not have any other material off-balance sheet arrangements at December 31, 2018.
Inflation and Fuel Costs
Most of our operating expenses are inflation-sensitive, with inflation generally producing increased costs of operations. During the past three years, the most significant effects of inflation have been on revenue equipment prices, accident claims, health insurance and employee compensation. We attempt to limit the effects of inflation through increases in freight rates and cost control efforts.
In addition to inflation, fluctuations in fuel prices can affect our profitability. We require substantial amounts of fuel to operate our tractors and power the temperature-control units on our trailers. Substantially all of our contracts with customers contain fuel surcharge provisions. Although we historically have been able to pass through a significant portion of long-term increases in fuel prices and related taxes to customers in the form of fuel surcharges and higher rates, such increases usually are not fully recovered. 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.
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, lower fuel efficiency 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 financial statements and related notes. We base our estimates, assumptions and judgments on historical experience, current trends and other factors believed to be relevant at the time our consolidated financial statements are prepared. However, because future events and their effects cannot be determined with certainty, actual results could differ from our estimates and assumptions, and such differences could be material. We believe that the following critical accounting policies affect our more significant estimates, assumptions and judgments used in the preparation of our consolidated financial statements.
Revenue Recognition.
We account for our revenue in accordance with FASB ASC 606,
Revenue from Contracts with Customers
, which we adopted on January 1, 2018 using the modified retrospective method. The new revenue standard requires us to recognize revenue and related expenses within each of our four reporting segments over time, compared with our former policy in which we recorded revenue and related expenses on the date shipment of freight was completed.
We account for revenue of our Intermodal and Brokerage segments and revenue on freight transported by independent contractors within our Truckload and Dedicated segments on a gross basis because we are the principal service provider controlling the promised service before it is transferred to each customer. We are primarily responsible for fulfilling the promise to provide each specified service to each customer. We bear the primary risk of loss in the event of cargo claims by our customers. We also have complete control and discretion in establishing the price for each specified service. 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 within our consolidated statements of operations.
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 $348,000 as of December 31, 2018 and $300,000 as of December 31, 2017. 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 $588.2 million as of December 31, 2018 and $571.9 million as of December 31, 2017. Our depreciation expense was $88.6 million in 2018, $85.1 million in 2017 and $82.4 million in 2016. We compute depreciation of our property and equipment for financial reporting purposes based on the cost of each asset, reduced by its estimated salvage value, using the straight-line method over its estimated useful life. We determine and periodically evaluate our estimate of the projected salvage values and useful lives primarily by considering the market for used equipment, prior useful lives and changes in technology. We have not changed our policy regarding salvage values as a percentage of initial cost or useful lives of tractors and trailers within the last ten years. We believe that our policies and past estimates have been reasonable. Actual results could differ from these estimates. A 5% decrease in estimated salvage values would have decreased our net property and equipment as of December 31, 2018 by approximately $11.9 million, or 2.0%.
Impairment of Assets.
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less the costs to sell.
Insurance and Claims.
We self-insure, in part, for losses relating to workers’ compensation, auto liability, general liability, cargo and property damage claims, along with employees’ health insurance with varying risk retention levels. We maintain insurance coverage for per-incident and total losses in excess of these risk retention levels in amounts we consider adequate based upon historical experience and our ongoing review. However, we could suffer a series of losses within our self-insured retention limits or losses over our policy limits, which could negatively affect our financial condition and operating results. We are responsible for the first $1.0 million on each auto liability claim and for the first $750,000 on each workers’ compensation claim. We have $14.6 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 balance sheets were $28.1 million as of December 31, 2018 and $26.2 million as of December 31, 2017. 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 development. 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.
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 performance and service vesting requirements of the awards, net of an estimated forfeiture rate.
Recent Accounting Pronouncements
See Note 1 of “Notes to Consolidated Financial Statements” for a full description of recent accounting pronouncements and the respective dates of adoption and effect on our results of operations and financial position.
ITEM 8.
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining an adequate system of internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended, for Marten Transport, Ltd. and subsidiaries (the “Company”). This system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements and even when determined to be effective, can only provide reasonable assurance with respect to financial statement preparation and presentation. Also, projection of any evaluation of the effectiveness of internal control over financial reporting to future periods is subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate.
Management, with the participation of the Company’s Chairman of the Board and Chief Executive Officer and Executive Vice President and Chief Financial Officer, evaluated the effectiveness of the Company’s internal control over financial reporting as of December 31, 2018. In making this evaluation, management used the criteria established in the 2013
Internal Control – Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2018. Further, the Company’s independent registered public accounting firm, Grant Thornton LLP, has issued a report on the Company’s internal controls over financial reporting on page 31 of this Report.
March 1, 2019
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Marten Transport, Ltd.
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of Marten Transport, Ltd. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2018, based on criteria established in the 2013
Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in the 2013
Internal Control—Integrated Framework
issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2018, and our report dated March 1, 2019 expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ GRANT THORNTON LLP
Minneapolis, Minnesota
March 1, 2019
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Marten Transport, Ltd.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Marten Transport, Ltd. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2018 and 2017, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2018, and the related notes and financial statement schedule (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in the 2013
Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 1, 2019 expressed an unqualified opinion.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2014.
Minneapolis, Minnesota
March 1, 2019
MARTEN TRANSPORT, LTD.
Consolidated Balance Sheets
|
|
December 31,
|
|
(In thousands, except share information)
|
|
2018
|
|
|
2017
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
56,763
|
|
|
$
|
15,791
|
|
Receivables:
|
|
|
|
|
|
|
|
|
Trade, less allowances of $348 and $300, respectively
|
|
|
83,033
|
|
|
|
74,886
|
|
Other
|
|
|
3,808
|
|
|
|
6,131
|
|
Prepaid expenses and other
|
|
|
19,924
|
|
|
|
19,810
|
|
Total current assets
|
|
|
163,528
|
|
|
|
116,618
|
|
Property and equipment:
|
|
|
|
|
|
|
|
|
Revenue equipment
|
|
|
679,667
|
|
|
|
652,974
|
|
Buildings and land
|
|
|
85,578
|
|
|
|
79,881
|
|
Office equipment and other
|
|
|
51,185
|
|
|
|
50,793
|
|
Less accumulated depreciation
|
|
|
(228,200
|
)
|
|
|
(211,728
|
)
|
Net property and equipment
|
|
|
588,230
|
|
|
|
571,920
|
|
Other assets
|
|
|
2,146
|
|
|
|
1,865
|
|
|
|
$
|
753,904
|
|
|
$
|
690,403
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
15,704
|
|
|
$
|
16,478
|
|
Insurance and claims accruals
|
|
|
28,103
|
|
|
|
26,177
|
|
Accrued liabilities
|
|
|
28,166
|
|
|
|
21,622
|
|
Total current liabilities
|
|
|
71,973
|
|
|
|
64,277
|
|
Deferred income taxes
|
|
|
105,977
|
|
|
|
100,626
|
|
Total liabilities
|
|
|
177,950
|
|
|
|
164,903
|
|
Commitments and contingencies
(
Note
18
)
|
|
|
|
|
|
|
|
|
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; 192,000,000 shares authorized; 54,466,691 shares at December 31, 2018, and 54,533,455 shares at December 31, 2017, issued and outstanding
|
|
|
545
|
|
|
|
545
|
|
Additional paid-in capital
|
|
|
76,814
|
|
|
|
76,413
|
|
Retained earnings
|
|
|
498,595
|
|
|
|
448,542
|
|
Total stockholders’ equity
|
|
|
575,954
|
|
|
|
525,500
|
|
|
|
$
|
753,904
|
|
|
$
|
690,403
|
|
The accompanying notes are an integral part of these consolidated financial statements.
MARTEN TRANSPORT, LTD.
Consolidated Statements of Operations
|
|
For the years ended December 31,
|
|
(
In thousands, except per share information)
|
|
201
8
|
|
|
2017
|
|
|
2016
|
|
Operating revenue
|
|
$
|
787,594
|
|
|
$
|
698,120
|
|
|
$
|
671,144
|
|
Operating expenses (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits
|
|
|
252,047
|
|
|
|
226,091
|
|
|
|
224,827
|
|
Purchased transportation
|
|
|
144,611
|
|
|
|
118,349
|
|
|
|
110,719
|
|
Fuel and fuel taxes
|
|
|
121,633
|
|
|
|
105,390
|
|
|
|
94,075
|
|
Supplies and maintenance
|
|
|
40,853
|
|
|
|
41,613
|
|
|
|
43,912
|
|
Depreciation
|
|
|
88,585
|
|
|
|
85,120
|
|
|
|
82,445
|
|
Operating taxes and licenses
|
|
|
9,473
|
|
|
|
8,993
|
|
|
|
9,099
|
|
Insurance and claims
|
|
|
38,657
|
|
|
|
38,585
|
|
|
|
32,223
|
|
Communications and utilities
|
|
|
6,634
|
|
|
|
6,047
|
|
|
|
6,287
|
|
Gain on disposition of revenue equipment
|
|
|
(7,244
|
)
|
|
|
(5,499
|
)
|
|
|
(10,502
|
)
|
Other
|
|
|
21,997
|
|
|
|
16,569
|
|
|
|
19,756
|
|
|
|
|
717,246
|
|
|
|
641,258
|
|
|
|
612,841
|
|
Operating income
|
|
|
70,348
|
|
|
|
56,862
|
|
|
|
58,303
|
|
Other
|
|
|
(681
|
)
|
|
|
389
|
|
|
|
1,237
|
|
Income before income taxes
|
|
|
71,029
|
|
|
|
56,473
|
|
|
|
57,066
|
|
Income taxes
expense
(benefit)
|
|
|
16,002
|
|
|
|
(33,811
|
)
|
|
|
23,602
|
|
Net income
|
|
$
|
55,027
|
|
|
$
|
90,284
|
|
|
$
|
33,464
|
|
Basic earnings per common share
|
|
$
|
1.01
|
|
|
$
|
1.66
|
|
|
$
|
0.62
|
|
Diluted earnings per common share
|
|
$
|
1.00
|
|
|
$
|
1.65
|
|
|
$
|
0.61
|
|
Dividends declared per common share
|
|
$
|
0.10
|
|
|
$
|
0.08
|
|
|
$
|
0.06
|
|
The accompanying notes are an integral part of these consolidated financial statements.
MARTEN TRANSPORT, LTD.
Consolidated Statements of Stockholders’ Equity
|
|
Common Stock
|
|
|
Additional
|
|
|
Retained
|
|
|
Total
Stockholders’
|
|
(In thousands)
|
|
Shares
|
|
|
Amount
|
|
|
Paid-In Capital
|
|
|
Earnings
|
|
|
Equity
|
|
Balance at December 31, 2015
|
|
|
54,600
|
|
|
$
|
546
|
|
|
$
|
76,468
|
|
|
$
|
332,407
|
|
|
$
|
409,421
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
33,464
|
|
|
|
33,464
|
|
Repurchase and retirement of common stock
|
|
|
(759
|
)
|
|
|
(8
|
)
|
|
|
(7,508
|
)
|
|
|
3
|
|
|
|
(7,513
|
)
|
Issuance of common stock from share-based payment arrangement exercises and vesting of performance unit awards
|
|
|
551
|
|
|
|
6
|
|
|
|
4,413
|
|
|
|
(3
|
)
|
|
|
4,416
|
|
Tax benefits from share-based payment arrangement exercises
|
|
|
—
|
|
|
|
—
|
|
|
|
46
|
|
|
|
—
|
|
|
|
46
|
|
Employee taxes paid in exchange for shares withheld
|
|
|
—
|
|
|
|
—
|
|
|
|
(127
|
)
|
|
|
—
|
|
|
|
(127
|
)
|
Share-based payment arrangement compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
883
|
|
|
|
—
|
|
|
|
883
|
|
Dividends on common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,252
|
)
|
|
|
(3,252
|
)
|
Balance at December 31, 2016
|
|
|
54,392
|
|
|
|
544
|
|
|
|
74,175
|
|
|
|
362,619
|
|
|
|
437,338
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
90,284
|
|
|
|
90,284
|
|
Issuance of common stock from share-based payment arrangement exercises and vesting of performance unit awards
|
|
|
141
|
|
|
|
1
|
|
|
|
1,089
|
|
|
|
—
|
|
|
|
1,090
|
|
Employee taxes paid in exchange for shares withheld
|
|
|
—
|
|
|
|
—
|
|
|
|
(47
|
)
|
|
|
—
|
|
|
|
(47
|
)
|
Share-based payment arrangement compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
1,250
|
|
|
|
—
|
|
|
|
1,250
|
|
Dividends on common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,361
|
)
|
|
|
(4,361
|
)
|
Cash in lieu of fractional shares from stock split
|
|
|
—
|
|
|
|
—
|
|
|
|
(54
|
)
|
|
|
—
|
|
|
|
(54
|
)
|
Balance at December 31, 2017
|
|
|
54,533
|
|
|
|
545
|
|
|
|
76,413
|
|
|
|
448,542
|
|
|
|
525,500
|
|
Adoption of accounting standard (Note 2)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
485
|
|
|
|
485
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
55,027
|
|
|
|
55,027
|
|
Repurchase and retirement of common stock
|
|
|
(200
|
)
|
|
|
(2
|
)
|
|
|
(3,754
|
)
|
|
|
—
|
|
|
|
(3,756
|
)
|
Issuance of common stock from share-based payment arrangement exercises and vesting of performance unit awards
|
|
|
134
|
|
|
|
2
|
|
|
|
936
|
|
|
|
—
|
|
|
|
938
|
|
Employee taxes paid in exchange for shares withheld
|
|
|
—
|
|
|
|
—
|
|
|
|
(104
|
)
|
|
|
—
|
|
|
|
(104
|
)
|
Share-based payment arrangement compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
3,323
|
|
|
|
—
|
|
|
|
3,323
|
|
Dividends on common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,459
|
)
|
|
|
(5,459
|
)
|
Balance at December 31, 2018
|
|
|
54,467
|
|
|
$
|
545
|
|
|
$
|
76,814
|
|
|
$
|
498,595
|
|
|
$
|
575,954
|
|
The accompanying notes are an integral part of these consolidated financial statements.
MARTEN TRANSPORT, LTD.
Consolidated Statements of Cash Flows
|
|
For the years ended December 31,
|
|
(In thousands)
|
|
201
8
|
|
|
2017
|
|
|
2016
|
|
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
55,027
|
|
|
$
|
90,284
|
|
|
$
|
33,464
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
88,585
|
|
|
|
85,120
|
|
|
|
82,445
|
|
Gain on disposition of revenue equipment
|
|
|
(7,244
|
)
|
|
|
(5,499
|
)
|
|
|
(10,502
|
)
|
Deferred income taxes
|
|
|
5,351
|
|
|
|
(47,228
|
)
|
|
|
13,490
|
|
Share-based payment arrangement compensation expense
|
|
|
3,323
|
|
|
|
1,250
|
|
|
|
883
|
|
Distribution from affiliate
|
|
|
227
|
|
|
|
400
|
|
|
|
-
|
|
Equity in (earnings) loss from affiliate
|
|
|
(493
|
)
|
|
|
271
|
|
|
|
1,018
|
|
Adoption of accounting standard (Note 2)
|
|
|
485
|
|
|
|
-
|
|
|
|
-
|
|
Tax benefits from share-based payment arrangement exercises
|
|
|
-
|
|
|
|
-
|
|
|
|
46
|
|
Changes in other current operating items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(8,131
|
)
|
|
|
(5,974
|
)
|
|
|
8,518
|
|
Prepaid expenses and other
|
|
|
(114
|
)
|
|
|
(503
|
)
|
|
|
(1,173
|
)
|
Accounts payable
|
|
|
1,800
|
|
|
|
11
|
|
|
|
594
|
|
Insurance and claims accruals
|
|
|
1,926
|
|
|
|
6,737
|
|
|
|
3,205
|
|
Accrued liabilities
|
|
|
9,881
|
|
|
|
(2,990
|
)
|
|
|
1,813
|
|
Net cash provided by operating activities
|
|
|
150,623
|
|
|
|
121,879
|
|
|
|
133,801
|
|
CASH FLOWS USED FOR INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue equipment additions
|
|
|
(161,160
|
)
|
|
|
(148,856
|
)
|
|
|
(154,984
|
)
|
Proceeds from revenue equipment dispositions
|
|
|
67,262
|
|
|
|
61,227
|
|
|
|
65,082
|
|
Buildings and land, office equipment and other additions
|
|
|
(7,362
|
)
|
|
|
(7,693
|
)
|
|
|
(7,369
|
)
|
Proceeds from buildings and land, office equipment and other dispositions
|
|
|
5
|
|
|
|
47
|
|
|
|
23
|
|
Other
|
|
|
(15
|
)
|
|
|
(43
|
)
|
|
|
(42
|
)
|
Net cash used for investing activities
|
|
|
(101,270
|
)
|
|
|
(95,318
|
)
|
|
|
(97,290
|
)
|
CASH FLOWS USED FOR FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under credit facility and long-term debt
|
|
|
-
|
|
|
|
40,831
|
|
|
|
179,687
|
|
Repayment of borrowings under credit facility and long-term debt
|
|
|
-
|
|
|
|
(48,717
|
)
|
|
|
(209,668
|
)
|
Dividends on common stock
|
|
|
(5,459
|
)
|
|
|
(4,361
|
)
|
|
|
(3,252
|
)
|
Repurchase and retirement of common stock
|
|
|
(3,756
|
)
|
|
|
-
|
|
|
|
(7,513
|
)
|
Issuance of common stock from share-based payment arrangement exercises
|
|
|
938
|
|
|
|
1,090
|
|
|
|
4,416
|
|
Employee taxes paid in exchange for shares withheld
|
|
|
(104
|
)
|
|
|
(47
|
)
|
|
|
(127
|
)
|
Cash in lieu of fractional shares from stock split
|
|
|
-
|
|
|
|
(54
|
)
|
|
|
-
|
|
Net cash used for financing activities
|
|
|
(8,381
|
)
|
|
|
(11,258
|
)
|
|
|
(36,457
|
)
|
NET CHANGE IN CASH AND CASH EQUIVALENTS
|
|
|
40,972
|
|
|
|
15,303
|
|
|
|
54
|
|
CASH AND CASH EQUIVALENTS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
15,791
|
|
|
|
488
|
|
|
|
434
|
|
End of year
|
|
$
|
56,763
|
|
|
$
|
15,791
|
|
|
$
|
488
|
|
SUPPLEMENTAL NON-CASH DISCLOSURE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in property and equipment not yet paid
|
|
$
|
(3,604
|
)
|
|
$
|
(1,559
|
)
|
|
$
|
4,511
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
9,526
|
|
|
$
|
14,355
|
|
|
$
|
31
|
|
Interest
|
|
$
|
50
|
|
|
$
|
151
|
|
|
$
|
214
|
|
The accompanying notes are an integral part of these consolidated financial statements.
MARTEN TRANSPORT, LTD.
Notes to Consolidated Financial Statements
December 31, 201
8
, 201
7
and 201
6
1.
Summary of Significant Accounting Policies
Nature of business:
Marten Transport, Ltd. is a multifaceted business offering a network of truck-based transportation capabilities across our
five
distinct business platforms – Truckload, Dedicated, Intermodal, Brokerage and MRTN de Mexico. We are
one
of the leading temperature-sensitive truckload carriers in the United States, specializing in transporting and distributing food and other consumer packaged goods that require a temperature-controlled or insulated environment. Our dry freight services are expanding, with
1,600
dry vans operating as of
December 31, 2018.
We operate throughout the United States and into and out of Mexico and Canada.
Principles of consolidation:
The accompanying consolidated financial statements include Marten Transport, Ltd. and its subsidiaries. All intercompany accounts and transactions are eliminated upon consolidation.
Cash and cash equivalents:
Cash in excess of current operating requirements is invested in short-term, highly liquid investments. We consider all highly liquid investments purchased with original maturities of
three
months or less to be cash equivalents. We maintain our cash and cash equivalents in bank accounts which, at times,
may
exceed federally insured limits. We have
not
experienced any losses in such accounts.
Trade accounts receivable:
Trade accounts receivable are recorded at the invoiced amounts, net of an allowance for doubtful accounts. A considerable amount of judgment is required in assessing the realization of these receivables including the current creditworthiness of each customer and related aging of the past-due balances, including any billing disputes. In order to assess the collectibility of these receivables, we perform ongoing credit evaluations of our customers’ financial condition. Through these evaluations, we
may
become aware of a situation where a customer
may
not
be able to meet its financial obligations due to deterioration of its financial viability, credit ratings or bankruptcy. The allowance for doubtful accounts is based on the best information available to us and is reevaluated and adjusted as additional information is received. We evaluate the allowance based on historical write-off experience, the size of the individual customer balances, past-due amounts and the overall national economy. We review the adequacy of our allowance for doubtful accounts monthly. Invoice balances over
30
days after the contractual due date are considered past due per our policy and are reviewed individually for collectibility. Initial payments by new customers are monitored for compliance with contractual terms. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential recovery is considered remote.
Property and equipment:
Additions and improvements to property and equipment are capitalized at cost. Maintenance and repair expenditures are charged to operations. Gains and losses on disposals of revenue equipment are included in operations as they are a normal, recurring component of our operations.
Depreciation is computed based on the cost of the asset, reduced by its estimated salvage value, using the straight-line method for financial reporting purposes. We begin depreciating assets in the month that each asset is placed in service and, therefore, is ready for its intended use, and depreciate each asset until it is taken out of service and available for sale. Accelerated methods are used for income tax reporting purposes. Following is a summary of estimated useful lives for financial reporting purposes:
|
|
Years
|
|
Tractors
|
|
|
5
|
|
|
Trailers
|
|
|
7
|
|
|
Service and other equipment
|
|
3
|
-
|
15
|
|
Buildings and improvements
|
|
20
|
-
|
40
|
|
In
2018,
we replaced our company-owned tractors within an average of
3.7
years and our trailers within an average of
5.5
years after purchase. Our useful lives for depreciating tractors is
five
years and for trailers is
seven
years, with a
25%
salvage value for tractors and a
35%
salvage value for trailers. These salvage values are based upon the expected market values of the equipment after
five
years for tractors and
seven
years for trailers. Depreciation expense calculated in this manner approximates the continuing declining value of the revenue equipment, and continues at a consistent straight-line rate for units held beyond the normal replacement cycle.
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset
may
not
be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets 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.
Tires in service:
The cost of original equipment and replacement tires placed in service is capitalized. Amortization is calculated based on cost, less estimated salvage value, using the straight-line method over
24
months. Tire amortization, which is included within supplies and maintenance in our consolidated statements of operations, was
$7.0
million in
2018,
$7.1
million in
2017
and
$6.9
million in
2016.
The current portion of capitalized tires in service is included in prepaid expenses and other in the accompanying consolidated balance sheets. The long-term portion of capitalized tires in service and the estimated salvage value are included in revenue equipment in the accompanying consolidated balance sheets. The cost of recapping tires is charged to operations as incurred.
Income taxes:
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. We have reflected the necessary deferred tax assets and liabilities in the accompanying consolidated balance sheets. We believe the future tax deductions will be realized principally through future reversals of existing taxable temporary differences and future taxable income.
In the ordinary course of business there is inherent uncertainty in quantifying our income tax positions. We assess our income tax positions and record tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances, and information available at the reporting dates. For those tax positions where it is more-likely-than-
not
that a tax benefit will be sustained, we have recorded the largest amount of tax benefit with a greater than
50%
likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is
not
more-likely-than-
not
that a tax benefit will be sustained,
no
tax benefit has been recognized in the financial statements. Potential accrued interest and penalties related to unrecognized tax benefits are recognized as a component of income tax expense.
Insurance and claims:
We self-insure, in part, for losses relating to workers’ compensation, auto liability, general liability, cargo, and property damage claims, along with employees’ health insurance with varying risk retention levels. We are responsible for the
first
$1.0
million on each auto liability claim. We are also responsible for the
first
$750,000
on each workers’ compensation claim. We maintain insurance coverage for per-incident and total losses in excess of these risk retention levels in amounts we consider adequate based upon historical experience and our ongoing review. We reserve currently for the estimated cost of the uninsured portion of pending claims, including legal costs. These reserves are periodically evaluated and adjusted based on our evaluation of the nature and severity of outstanding individual claims and an estimate of future claims development based on historical development. Under agreements with our insurance carriers and regulatory authorities, we have
$14.6
million in standby letters of credit to guarantee settlement of claims.
Revenue recognition:
We account for our revenue in accordance with Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC
606,
Revenue from Contracts with Customers
, which we adopted on
January 1, 2018
using the modified retrospective method. The new revenue standard requires us to recognize revenue and related expenses within each of our
four
reporting segments over time, compared with our former policy in which we recorded revenue and related expenses on the date shipment of freight was completed.
We account for revenue of our Intermodal and Brokerage segments and revenue on freight transported by independent contractors within our Truckload and Dedicated segments on a gross basis because we are the principal service provider controlling the promised service before it is transferred to each customer. We are primarily responsible for fulfilling the promise to provide each specified service to each customer. We bear the primary risk of loss in the event of cargo claims by our customers. We also have complete control and discretion in establishing the price for each specified service. 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 within our consolidated statements of operations. See Note
3
for more information.
Our largest customer, Walmart, accounted for
15%
of our revenue in
2018
and
12%
of our trade receivables as of
December 31, 2018,
19%
of our revenue in
2017
and
15%
of our trade receivables as of
December 31, 2017
and
17%
of our revenue in
2016.
Our
second
largest customer, The Coca-Cola Company, accounted for
13%
of our revenue in
2018
and
7%
of our trade receivables as of
December 31, 2018.
During each of
2018,
2017
and
2016,
approximately
99%
of our revenue was generated within the United States.
Share-based payment arrangement compensation:
Under our stock incentive plans, all of our employees and any subsidiary employees, as well as all of our non-employee directors,
may
be granted stock-based awards, including incentive and non-statutory stock options and performance unit awards. We account for share-based payment arrangements in accordance with FASB ASC
718,
Compensation-Stock Compensation
, which requires all share-based payments to employees and non-employee directors, including grants of employee stock options and performance unit awards, to be recognized in the income statement based on their fair values at the date of grant.
Earnings per common share:
Basic earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding during the year. Diluted earnings per common share is computed by dividing net income by the sum of the weighted average number of common shares outstanding plus all additional common shares that would have been outstanding if potentially dilutive common shares related to stock options and performance unit awards had been issued using the treasury stock method.
Segment reporting:
We report our operating segments in accordance with accounting standards codified in FASB ASC
280,
Segment Reporting
. We have
five
current operating segments that are aggregated into
four
reporting segments (Truckload, Dedicated, Intermodal and Brokerage) for financial reporting purposes. See Note
3
for more information.
Use of estimates:
We must make estimates and assumptions to prepare the consolidated 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 financial statements and the reported amount of revenue and expenses during the reporting period. These estimates are primarily related to insurance and claims accruals and depreciation. Ultimate results could differ from these estimates.
Recent accounting pronouncements:
In
February 2016,
the FASB issued Accounting Standards Update, or ASU,
No.
2016
-
02,
“Leases” which requires organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The new guidance also requires additional disclosures related to leasing transactions. The standard is effective for the
first
quarter of
2019.
We will adopt the standard effective
January 1, 2019
under the modified retrospective approach by recognizing the cumulative effect of initially applying the standard as an increase of
$1.0
million to each of our assets and liabilities in our consolidated balance sheets. We expect the impact of the adoption of the standard to be immaterial to our consolidated balance sheets, statements of operations and statements of cash flows on an ongoing basis. We will include the additional required disclosures beginning with our Form
10
-Q for the
first
quarter of
2019.
2.
Adoption of New Accounting Standard
We account for our revenue in accordance with FASB ASC
606,
Revenue from Contracts with Customers
, which we adopted on
January 1, 2018
using the modified retrospective method. We recognized the cumulative effect of initially applying the new revenue standard as an increase of
$485,000
to the opening balance of retained earnings. The comparative information has
not
been restated and continues to be reported under the accounting standards in effect for those periods. The impact of the adoption of the new revenue standard will be immaterial to our net income and financial position on an ongoing basis.
The new revenue standard requires us to recognize revenue and related expenses within each of our
four
reporting segments over time, compared with our former policy in which we recorded revenue and related expenses on the date shipment of freight was completed.
The cumulative effect of the changes made to our consolidated balance sheet on
January 1, 2018
for the adoption of the new revenue standard was as follows:
(In thousands)
|
|
Balance at
December 31, 2017
|
|
|
Adjustments
due to
ASC 606
|
|
|
Balance at
January 1, 2018
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other
|
|
$
|
19,810
|
|
|
$
|
2,445
|
(a)
|
|
$
|
22,255
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
38,100
|
|
|
|
1,960
|
|
|
|
40,060
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings
|
|
|
448,542
|
|
|
|
485
|
|
|
|
449,027
|
|
|
(a)
|
Contract assets balance at
January 1, 2018.
|
The impact of the adoption of the new revenue standard on our consolidated statement of operations and balance sheet was as follows:
|
|
Year Ended December 31, 2018
|
|
(In thousands)
|
|
Prior to
Adoption of
ASC 606
|
|
|
Adjustments
due to
ASC 606
|
|
|
As Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue
|
|
$
|
788,216
|
|
|
$
|
(622
|
)
|
|
$
|
787,594
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits
|
|
|
252,327
|
|
|
|
(280
|
)
|
|
|
252,047
|
|
Purchased transportation
|
|
|
144,573
|
|
|
|
38
|
|
|
|
144,611
|
|
Fuel and fuel taxes
|
|
|
121,666
|
|
|
|
(33
|
)
|
|
|
121,633
|
|
Supplies and maintenance
|
|
|
40,832
|
|
|
|
21
|
|
|
|
40,853
|
|
Income taxes expense
|
|
|
16,121
|
|
|
|
(119
|
)
|
|
|
16,002
|
|
Net income
|
|
|
55,276
|
|
|
|
(249
|
)
|
|
|
55,027
|
|
|
|
Balance at December 31, 2018
|
|
(In thousands)
|
|
Prior to
Adoption of
ASC 606
|
|
|
Adjustments
due to
ASC 606
|
|
|
As Reported
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other
|
|
$
|
18,101
|
|
|
$
|
1,823
|
(a)
|
|
$
|
19,924
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
42,283
|
|
|
|
1,587
|
|
|
|
43,870
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings
|
|
|
498,359
|
|
|
|
236
|
|
|
|
498,595
|
|
|
(a)
|
Contract assets balance at
December 31, 2018.
|
3.
Revenue and Business Segments
We account for our revenue in accordance with FASB ASC
606,
Revenue from Contracts with Customers
, which we adopted on
January 1, 2018
using the modified retrospective method. We combine our
five
current operating segments into
four
reporting segments (Truckload, Dedicated, Intermodal and Brokerage) for financial reporting purposes. These
four
reporting segments are also the appropriate categories for the disaggregation of our revenue under FASB ASC
606.
We have strategically transitioned from a long-haul carrier to a multifaceted business offering a network of truck-based transportation capabilities across our
five
distinct business platforms – Truckload, Dedicated, Intermodal, Brokerage and MRTN de Mexico.
The primary source of our operating revenue is provided by our Truckload segment through a combination of regional short-haul and medium-to-long-haul full-load transportation services. We transport food and other consumer packaged goods that require a temperature-controlled or insulated environment, along with dry freight, across the United States and into and out of Mexico and Canada.
Our Dedicated segment provides customized transportation solutions tailored to meet individual customers’ requirements, utilizing temperature-controlled trailers, dry vans and other specialized equipment within the United States. Our agreements with customers range from
three
to
five
years and are subject to annual rate reviews.
Generally, we are paid by the mile for our Truckload and Dedicated services. We also derive Truckload and Dedicated revenue from fuel surcharges, loading and unloading activities, equipment detention and other accessorial services. The main factors that affect our Truckload and Dedicated 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 and Dedicated revenue, net of fuel surcharges, per tractor per week. We also analyze our average Truckload and Dedicated revenue, net of fuel surcharges, per total mile, non-revenue miles percentage, the miles per tractor we generate, our fuel surcharge revenue, our accessorial revenue and our other sources of operating revenue.
Our Intermodal segment transports our customers’ freight within the United States utilizing our temperature-controlled trailers on railroad flatcars for portions of trips, with the balance of the trips using our tractors or, to a lesser extent, contracted carriers. The main factors that affect our Intermodal revenue are the rate per mile and other charges we receive from our customers.
Our Brokerage segment develops contractual relationships with and arranges for
third
-party carriers to transport freight for our customers in temperature-controlled trailers and dry vans within the United States and into and out of Mexico through Marten Transport Logistics, LLC, which was established in
2007
and operates pursuant to brokerage authority granted by the United States Department of Transportation, or DOT. We retain the billing, collection and customer management responsibilities. The main factors that affect our Brokerage revenue are the rate per mile and other charges that we receive from our customers.
Operating results of our MRTN de Mexico business which offers our customers door-to-door service between the United States and Mexico with our Mexican partner carriers is reported within our Truckload and Brokerage segments.
Our customer agreements are typically for
one
-year terms except for our Dedicated agreements which range from
three
to
five
years with annual rate reviews. Under FASB ASC
606,
the contract date for each individual load within each of our
four
reporting segments is generally the date that each load is tendered to and accepted by us. For each load transported within each of our
four
reporting segments, the entire amount of revenue to be recognized is a single performance obligation and our agreements with our customers detail the per-mile charges for line haul and fuel surcharges, along with the rates for loading and unloading, stop offs and drops, equipment detention and other accessorial services, which is the transaction price. There are
no
discounts that would be a material right or consideration payable to a customer. We are required to recognize revenue and related expenses over time, from load pickup to delivery, for each load within each of our
four
reporting segments. We base our calculation of the amount of revenue to record in each period for individual loads picking up in
one
period and delivering in the following period using the number of hours estimated to be incurred within each period applied to each estimated transaction price. Contract assets for this estimated revenue are classified within prepaid expenses and other within our consolidated balance sheet as of
December 31, 2018.
We had
no
impairment losses on contract assets in
2018.
We bill our customers for loads after delivery is complete with standard payment terms of
30
days.
We account for revenue of our Intermodal and Brokerage segments and revenue on freight transported by independent contractors within our Truckload and Dedicated segments on a gross basis, as discussed in our revenue policy note.
The following table sets forth for the years 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.
(Dollars in thousands)
|
|
201
8
|
|
|
2017
|
|
|
2016
|
|
Operating revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Truckload revenue, net of fuel surcharge revenue
|
|
$
|
322,324
|
|
|
$
|
336,596
|
|
|
$
|
339,967
|
|
Truckload fuel surcharge revenue
|
|
|
53,016
|
|
|
|
43,614
|
|
|
|
35,884
|
|
Total Truckload revenue
|
|
|
375,340
|
|
|
|
380,210
|
|
|
|
375,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dedicated revenue, net of fuel surcharge revenue
|
|
|
187,137
|
|
|
|
153,691
|
|
|
|
147,007
|
|
Dedicated fuel surcharge revenue
|
|
|
36,715
|
|
|
|
13,190
|
|
|
|
10,363
|
|
Total Dedicated revenue
|
|
|
223,852
|
|
|
|
166,881
|
|
|
|
157,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intermodal revenue, net of fuel surcharge revenue
|
|
|
85,572
|
|
|
|
70,282
|
|
|
|
64,508
|
|
Intermodal fuel surcharge revenue
|
|
|
16,453
|
|
|
|
10,339
|
|
|
|
6,982
|
|
Total Intermodal revenue
|
|
|
102,025
|
|
|
|
80,621
|
|
|
|
71,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokerage revenue
|
|
|
86,377
|
|
|
|
70,408
|
|
|
|
66,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenue
|
|
$
|
787,594
|
|
|
$
|
698,120
|
|
|
$
|
671,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Truckload
|
|
$
|
35,067
|
|
|
$
|
26,326
|
|
|
$
|
27,438
|
|
Dedicated
|
|
|
18,589
|
|
|
|
17,074
|
|
|
|
19,550
|
|
Intermodal
|
|
|
11,150
|
|
|
|
8,303
|
|
|
|
7,131
|
|
Brokerage
|
|
|
5,542
|
|
|
|
5,159
|
|
|
|
4,184
|
|
Total operating income
|
|
$
|
70,348
|
|
|
$
|
56,862
|
|
|
$
|
58,303
|
|
Truckload segment depreciation expense was
$52.2
million,
$57.2
million and
$56.2
million, Dedicated segment depreciation expense was
$29.6
million,
$22.0
million and
$20.6
million, Intermodal segment depreciation expense was
$5.5
million,
$4.6
million and
$3.9
million, and Brokerage segment depreciation expense was
$1.3
million,
$1.3
million and
$1.7
million, in
2018,
2017
and
2016,
respectively.
4
.
Details of Consolidated Balance Sheet Accounts
Prepaid expenses and other:
As of
December 31,
prepaid expenses and other consisted of the following:
(In thousands)
|
|
201
8
|
|
|
2017
|
|
Tires in service
|
|
$
|
5,011
|
|
|
$
|
4,787
|
|
License fees
|
|
|
4,760
|
|
|
|
4,858
|
|
Parts and tires inventory
|
|
|
3,528
|
|
|
|
4,322
|
|
Insurance premiums
|
|
|
1,831
|
|
|
|
3,057
|
|
Contract assets
|
|
|
1,823
|
|
|
|
—
|
|
Other
|
|
|
2,971
|
|
|
|
2,786
|
|
|
|
$
|
19,924
|
|
|
$
|
19,810
|
|
Accrued liabilities:
As of
December 31,
accrued liabilities consisted of the following:
(In thousands)
|
|
201
8
|
|
|
2017
|
|
Salaries and wages
|
|
$
|
9,744
|
|
|
$
|
4,171
|
|
Accrued expenses
|
|
|
7,091
|
|
|
|
8,212
|
|
Vacation
|
|
|
5,895
|
|
|
|
5,621
|
|
Accrued liability to MWL
|
|
|
1,222
|
|
|
|
1,765
|
|
Other
|
|
|
4,214
|
|
|
|
1,853
|
|
|
|
$
|
28,166
|
|
|
$
|
21,622
|
|
5
. Long-Term Debt
In
August 2018,
we entered into an amendment to our unsecured committed credit facility which reduces the aggregate principal amount of the facility from
$40.0
million to
$30.0
million and extends the term of the facility to
August 2023.
At
December 31, 2018,
there was
no
outstanding principal balance on the facility. As of that date, we had outstanding standby letters of credit to guarantee settlement of self-insurance claims of
$14.6
million and remaining borrowing availability of
$15.4
million. At
December 31, 2017,
there was also
no
outstanding principal balance on the facility. As of that date, we had outstanding standby letters of credit of
$12.9
million on the facility. 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. The interest rate for the facility that would apply to outstanding principal balances was
3.2%
at
December 31, 2018.
Our credit facility prohibits us from paying, in any fiscal year, stock redemptions and dividends in excess of
25%
of our net income from the prior fiscal year. A waiver of the
25%
limitation for
2016
was obtained from the lender. This facility also contains restrictive covenants which, among other matters, require us to maintain compliance with cash flow leverage and fixed charge coverage ratios. We were in compliance with all covenants at
December 31, 2018
and
2017.
6
. Related Party Transactions
The following related party transactions occurred during the
three
years ended
December 31, 2018;
(a) We purchase fuel and tires and obtain related services from a company in which
one
of our directors is the chairman of the board, chief executive officer and the principal stockholder. We paid that company
$341,000
in
2018,
$328,000
in
2017
and
$361,000
in
2016
for fuel, tires and related services. In addition, we paid
$2.5
million in both
2018
and
2017
and
$2.0
million in
2016
to tire manufacturers for tires that were provided by the same company. The same company received commissions from the tire manufacturers related to these purchases. We did
not
have any payables to that company as of
December 31, 2018
or
2017.
(b) We provide transportation services to MWL as described in Note
13.
7
. Income Taxes
We recorded a
$56.5
million deferred income taxes benefit in
2017
to recognize the impact on our federal net deferred tax liability of the reduction of the federal corporate statutory income tax rate from
35%
to
21%
related to the Tax Cuts and Jobs Act of
2017,
which was enacted prior to
December 31, 2017.
Excluding that benefit, the
2017
federal deferred provision was
$8.0
million and the effective tax rate was
40.1%.
The Tax Cuts and Jobs Act of
2017
makes broad and complex changes to the U.S. tax code including, but
not
limited to, reducing the federal corporate income tax rate as noted above beginning on
January 1, 2018
and allowing bonus depreciation with full expensing of qualified property placed in service after
September 27, 2017.
The components of the income taxes expense (benefit) consisted of the following:
(In thousands)
|
|
201
8
|
|
|
2017
|
|
|
2016
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
7,575
|
|
|
$
|
12,427
|
|
|
$
|
8,987
|
|
State
|
|
|
3,076
|
|
|
|
990
|
|
|
|
1,125
|
|
Total current
|
|
|
10,651
|
|
|
|
13,417
|
|
|
|
10,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
5,815
|
|
|
|
(48,424
|
)
|
|
|
12,427
|
|
State
|
|
|
(464
|
)
|
|
|
1,196
|
|
|
|
1,063
|
|
Total deferred
|
|
|
5,351
|
|
|
|
(47,228
|
)
|
|
|
13,490
|
|
Total expense (benefit)
|
|
$
|
16,002
|
|
|
$
|
(33,811
|
)
|
|
$
|
23,602
|
|
The federal statutory income tax rate is reconciled to the effective income tax rate as follows:
|
|
201
8
|
|
|
2017
|
|
|
2016
|
|
Federal statutory income tax rate
|
|
|
21
|
%
|
|
|
35
|
%
|
|
|
35
|
%
|
Per diem and other non-deductible expenses
|
|
|
2
|
|
|
|
4
|
|
|
|
4
|
|
Increase in taxes arising from state income taxes, net of federal income tax benefit
|
|
|
3
|
|
|
|
3
|
|
|
|
2
|
|
Federal tax credits
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
—
|
|
Decrease in federal deferred taxes due to decrease in statutory rate
|
|
|
—
|
|
|
|
(100
|
)
|
|
|
—
|
|
Other, net
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
—
|
|
Effective tax rate
|
|
|
23
|
%
|
|
|
(60
|
)%
|
|
|
41
|
%
|
As of
December 31,
the net deferred tax liability consisted of the following:
(In thousands)
|
|
201
8
|
|
|
2017
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Reserves and accrued liabilities
|
|
$
|
7,986
|
|
|
$
|
7,277
|
|
Other
|
|
|
2,313
|
|
|
|
1,965
|
|
|
|
|
10,299
|
|
|
|
9,242
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
113,773
|
|
|
|
107,453
|
|
Prepaid expenses
|
|
|
2,503
|
|
|
|
2,415
|
|
|
|
|
116,276
|
|
|
|
109,868
|
|
Net deferred tax liability
|
|
$
|
105,977
|
|
|
$
|
100,626
|
|
We have
not
provided a valuation allowance against deferred tax assets at
December 31, 2018
or
2017.
We believe the deferred tax assets will be realized principally through future reversals of existing taxable temporary differences (deferred tax liabilities) and future taxable income.
Our reserves for unrecognized tax benefits were
$1.9
million as of
December 31, 2018
and
$407,000
as of
December 31, 2017.
The
$1.5
million increase in the amount reserved in
2018
relates to current period tax positions and an amendment to prior periods’ open returns for a current position less the removal of the reserve relating to
2013
tax positions, as that period has now closed. The amount reserved as of
December
31,
2017
was added in
2013
through
2017
relating to current period tax positions. If recognized,
$1.8
million of the unrecognized tax benefits as of
December 31, 2018
would favorably impact our effective tax rate. Potential interest and penalties related to unrecognized tax benefits of
$12,000
and
$11,000
were recognized in our financial statements as of
December
31,
2018
and
2017,
respectively. We do
not
expect the reserves for unrecognized tax benefits to change significantly within the next
twelve
months. The federal statute of limitations remains open for
2015
and forward. We file tax returns in numerous state jurisdictions with varying statutes of limitations.
8
. Earnings per Common Share
Basic and diluted earnings per common share were computed as follows:
(In thousands, except per share amounts)
|
|
201
8
|
|
|
2017
|
|
|
2016
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
55,027
|
|
|
$
|
90,284
|
|
|
$
|
33,464
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share - weighted-average shares
|
|
|
54,590
|
|
|
|
54,492
|
|
|
|
54,177
|
|
Effect of dilutive stock options
|
|
|
559
|
|
|
|
358
|
|
|
|
284
|
|
Diluted earnings per common share - weighted-average shares and assumed conversions
|
|
|
55,149
|
|
|
|
54,850
|
|
|
|
54,461
|
|
Basic earnings per common share
|
|
$
|
1.01
|
|
|
$
|
1.66
|
|
|
$
|
0.62
|
|
Diluted earnings per common share
|
|
$
|
1.00
|
|
|
$
|
1.65
|
|
|
$
|
0.61
|
|
Options totaling
153,500,
145,169
and
564,833
equivalent shares were outstanding but were
not
included in the calculation of diluted earnings per share for
2018,
2017
and
2016,
respectively, 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 because inclusion of average unrecognized compensation expense in the calculation would cause the options to be antidilutive.
Unvested performance unit awards (see Note
14
) totaling
1,638,
124,046
and
64,162
equivalent shares for
2018,
2017
and
2016,
respectively, 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.
9
. Stock Split
On
July 7, 2017,
we effected a
five
-for-
three
stock split of our common stock,
$.01
par value, in the form of a
66
⅔% stock dividend. Our consolidated financial statements, related notes, and other financial data contained in this report have been adjusted to give retroactive effect to the stock split for all periods presented.
10
. Share Repurchase Program
In
2007,
our Board of Directors approved and we announced a share repurchase program to repurchase up to
one million
shares of our common stock either through purchases on the open market or through private transactions and in accordance with Rule
10b
-
18
of the Exchange Act. In
2015,
our Board of Directors approved and we announced an increase in the share repurchase program, providing for the repurchase of up to
$40
million, or approximately
two million
shares, of our common stock, which was increased by our Board of Directors to
3.3
million shares in
August 2017
to reflect the
five
-for-
three
stock split effected in the form of a stock dividend on
July 7, 2017.
The timing and extent to which we repurchase shares depends on market conditions and other corporate considerations. The repurchase program does
not
have an expiration date.
We repurchased and retired
200,000
shares of our common stock for
$3.8
million in the
fourth
quarter of
2018.
We did
not
repurchase any shares in
2017.
We repurchased and retired
759,302
shares of our common stock for
$7.5
million in the
first
quarter of
2016.
As of
December 31, 2018,
future repurchases of up to
$12.6
million, or
806,000
shares, were available in the share repurchase program.
11
. Dividends
In
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
$0.025
per share of common stock were declared in each quarter of
2018
and totaled
$5.5
million. Quarterly cash dividends of
$0.015
per share of common stock were declared in each of the
first
two
quarters of
2017
along with dividends of
$0.025
per share in each of
2017’s
last
two
quarters, which totaled
$4.4
million. Quarterly cash dividends of
$0.015
per share of common stock were declared in each quarter of
2016
and totaled
$3.3
million.
1
2
.
Third
Amendment to Amended and Restated Certificate of Incorporation
In
May 2018,
our stockholders approved our Third Amendment to Amended and Restated Certificate of Incorporation increasing the authorized number of shares of common stock,
$.01
par value, from
96
million shares to
192
million shares.
1
3
. Equity Investment
We own a
45%
equity interest in MWL, a
third
-party provider of logistics services to the transportation industry. A non-related party owns the other
55%
equity interest in MWL. We account for our ownership interest in MWL under the equity method of accounting. We received
$5.5
million,
$2.2
million and
$1.2
million of our revenue for loads transported by our tractors and arranged by MWL in
2018,
2017
and
2016,
respectively. As of
December 31, 2018,
we also had a trade receivable in the amount of
$630,000
from MWL and an accrued liability of
$1.2
million to MWL for the excess of payments by MWL’s customers into our lockbox account over the amounts drawn on the account by MWL.
1
4
. Employee Benefits
Equity Incentive Plans
- In
May 2015,
our stockholders approved our
2015
Equity Incentive Plan (the
“2015
Plan”). Our Board of Directors adopted the
2015
Plan in
March 2015.
Under our
2015
Plan, all of our employees and any subsidiary employees, as well as all of our non-employee directors,
may
be granted stock-based awards, including non-statutory stock options, performance unit awards and shares of common stock, of which
998,022
shares have been awarded as of
December 31, 2018.
Stock options expire within
7
or
10
years after the date of grant and the exercise price must be at least the fair market value of our common stock on the date of grant. Stock options issued to employees are generally exercisable beginning
one
year from the date of grant in cumulative amounts of
20%
per year. Performance unit awards are subject to vesting requirements over a
five
-year period, primarily based on our earnings growth. Options exercised and performance unit award shares issued represent newly issued shares. The maximum number of shares of common stock available for issuance under the
2015
Plan is
1,333,333
shares. As of
December 31, 2018,
there were
568,873
shares reserved for issuance under options outstanding and
349,814
shares reserved for issuance under outstanding performance unit awards under the
2015
Plan. The
2015
Plan replaces our
2005
Stock Incentive Plan (the
“2005
Plan”), which expired by its terms in
May 2015.
Under the
2005
Plan, officers, directors and employees were granted non-statutory stock options and performance unit awards with similar terms to the options and awards under the
2015
Plan. As of
December 31, 2018,
there were
370,320
shares reserved for issuance under options outstanding, which will continue according to their terms. As of the same date, there were
no
shares reserved for issuance under outstanding performance unit awards under the
2005
Plan.
No
additional awards will be granted under the
2005
Plan.
We use the Black-Scholes option pricing model to calculate the grant-date fair value of option awards. The fair value of service-based option awards granted was estimated as of the date of grant using the following weighted average assumptions:
|
|
201
8
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected option life in years
(1)
|
|
|
6.0
|
|
|
|
6.0
|
|
|
|
6.0
|
|
Expected stock price volatility percentage
(2)
|
|
|
26
|
%
|
|
|
25
|
%
|
|
|
25
|
%
|
Risk-free interest rate percentage
(3)
|
|
|
2.8
|
%
|
|
|
2.0
|
%
|
|
|
1.4
|
%
|
Expected dividend yield
(4)
|
|
|
0.48
|
%
|
|
|
0.59
|
%
|
|
|
0.50
|
%
|
Fair value as of the date of grant
|
|
$
|
6.19
|
|
|
$
|
4.34
|
|
|
$
|
3.17
|
|
(
1
)
|
Expected option life – We use historical employee exercise and option expiration data to estimate the expected life assumption for the Black-Scholes grant-date valuation. We believe that this historical data is currently the best estimate of the expected term of a new option. We use a weighted-average expected life for all awards.
|
(
2
)
|
Expected stock price volatility – We use our stock’s historical volatility for the same period of time as the expected life. We have
no
reason to believe that its future volatility will differ from the past.
|
(
3
)
|
Risk-free interest rate – The rate is based on the U.S. Treasury yield curve in effect at the time of the grant for the same period of time as the expected life.
|
(
4
)
|
Expected dividend yield – The calculation is based on the total expected annual dividend payout divided by the average stock price.
|
Compensation costs associated with service-based option awards with graded vesting are recognized, net of an estimated forfeiture rate, on a straight-line basis over the requisite service period, which is the period between the grant date and the award’s stated vesting term. Service-based option awards become immediately exercisable in full in the event of death or disability and upon a change in control with respect to all options that have been outstanding for at least
six
months.
In
May 2012,
we granted
98,750
performance unit awards under our
2005
Stock Incentive Plan to certain employees. This was our
third
grant of such awards. As of
December 31, 2012
and each
December 31
st
thereafter through
December 31, 2016,
each award vested and became the right to receive a number of shares of common stock equal to a total vesting percentage multiplied by the number of units subject to such award. The total vesting percentage for each of the
five
years was equal to the sum of a performance vesting percentage, which was the percentage increase, if any, in our diluted net income per share for the year being measured over the prior year, and a service vesting percentage of
five
percentage points. All payments were made in shares of our common stock. One half of the vested performance units were paid to the employees immediately upon vesting, with the other half being credited to the employees’ accounts within the Marten Transport, Ltd. Deferred Compensation Plan, which restricts the sale of vested shares to the later of each employee’s termination of employment or attainment of age
62.
In
May 2013,
we granted
104,250
performance unit awards with similar terms to the awards previously granted, and which vested from
December 31, 2013
through
2017.
In
May 2014,
we granted
60,668
performance unit awards with similar terms to the awards previously granted, and also granted
18,337
performance unit awards with similar terms to such awards, except that all vested performance units will be paid to the employees immediately upon vesting. All awards granted in
2014
vested from
December 31, 2014
through
2018.
In
May 2015,
we granted
58,335
performance unit awards under our
2015
Equity Incentive Plan with similar terms to the awards previously granted, and also granted
32,500
performance unit awards with similar terms to such awards, except that all vested performance units will be paid to the employees immediately upon vesting. All awards granted in
2015
vest from
December 31, 2015
through
2019.
In
May 2016,
we granted
57,669
performance unit awards under our
2015
Equity Incentive Plan with similar terms to the awards previously granted, except that the calculation of vesting shares is based on our increase in net income instead of our increase in diluted net income per share. As permitted in the performance unit award agreements granted in
2011
through
2015,
the calculation of the performance vesting component beginning with the year
2015
was adjusted to be based on the increase in net income. We also granted
21,671
performance unit awards in
May 2016
and
1,667
awards in
August 2016
with similar terms to such awards, except that all vested performance units will be paid to the employees immediately upon vesting. All awards granted in
2016
vest from
December 31, 2016
through
2020.
In
May 2017,
we granted
109,169
performance unit awards under our
2015
Equity Incentive Plan with similar terms to the awards granted in
2016,
except that the service-based component was increased from
five
percent to
ten
percent per year. The Compensation Committee adjusted the equity vesting formula to better align it with our long-range growth plan. We also granted
43,342
performance unit awards in
May 2017
and
2,000
awards in
August 2017
with similar terms to such awards, except that all vested performance units will be paid to the employees immediately upon vesting. All awards granted in
2017
vest from
December 31, 2017
through
2021.
In
May 2018,
we granted
45,700
performance unit awards under our
2015
Equity Incentive Plan with similar terms to the awards granted in
2017.
We also granted
28,000
performance unit awards in
May 2018
and
2,000
awards in
August 2018
with similar terms to such awards, except that all vested performance units will be paid to the employees immediately upon vesting. These awards granted in
2018
vest from
December 31, 2018
through
2022.
We also granted
2,000
performance unit awards in
December 2018
with similar terms to the awards granted in
August 2018,
except that the awards vest from
December 31, 2019
through
2023.
The fair value of each performance unit is based on the closing market price on the date of grant. We recognize compensation expense for these awards based on the estimated number of units probable of achieving the vesting requirements of the awards, net of an estimated forfeiture rate.
The amount of share-based compensation recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. We currently expect, based on an analysis of our historical forfeitures and known forfeitures on existing awards, that approximately
1.25%
of unvested outstanding awards will be forfeited each year. This analysis will be re-evaluated quarterly and the forfeiture rate will be adjusted as necessary. Ultimately, the actual expense recognized over the vesting period will only be for those shares that vest.
Total share-based compensation expense recorded in
2018
was
$3.3
million (
$2.6
million net of income tax benefit,
$0.05
earnings per basic and diluted share), in
2017
was
$1.3
million (
$738,000
net of income tax benefit,
$0.01
of earnings per basic and diluted share), and in
2016
was
$883,000
(
$547,000
net of income tax benefit,
$0.01
of earnings per basic and diluted share). All share-based compensation expense was recorded in salaries, wages and benefits expense.
As of
December 31, 2018,
there was a total of
$1.6
million of unrecognized compensation expense related to unvested service-based option awards, which is expected to be recognized over a weighted-average period of
3.2
years, and
$2.4
million of unrecognized compensation expense related to unvested performance unit awards, which will be recorded based on the estimated number of units probable of achieving the vesting requirements of the awards through
2022.
Effective
January 1, 2017,
we adopted the provisions of FASB ASU
No.
2016
-
09,
“Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting” which simplifies several aspects of the accounting for share-based payment transactions. The adoption of this standard resulted in decreases to our provision for income taxes in
2018
of
$319,000
and in
2017
of
$176,000,
as the actual increase in our stock price exceeded the grant-date fair value of the period’s exercised options and vested performance unit awards. Excess tax benefits were recognized in additional paid-in capital through
2016.
Option activity in
2018
was as follows:
|
|
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
Outstanding at December 31, 2017
|
|
|
918,583
|
|
|
$
|
12.02
|
|
Granted
|
|
|
154,500
|
|
|
|
21.26
|
|
Exercised
|
|
|
(105,588
|
)
|
|
|
8.91
|
|
Forfeited
|
|
|
(28,302
|
)
|
|
|
15.66
|
|
Outstanding at December 31, 2018
|
|
|
939,193
|
|
|
$
|
13.78
|
|
Exercisable at December 31, 2018
|
|
|
545,713
|
|
|
$
|
11.49
|
|
The
939,193
options outstanding as of
December 31, 2018
have a weighted average remaining contractual life of
3.8
years and an aggregate intrinsic value based on our closing stock price on
December 31, 2018
for in-the-money options of
$3.0
million. The
545,713
options exercisable as of the same date have a weighted average remaining contractual life of
2.7
years and an aggregate intrinsic value similarly calculated of
$2.6
million.
The fair value of options granted in
2018,
2017
and
2016
was
$957,000,
$592,000
and
$227,000,
respectively, for service-based options. The total intrinsic value of options exercised in
2018,
2017
and
2016
was
$1.5
million,
$830,000
and
$1.9
million, respectively. Intrinsic value is the difference between the fair value of the acquired shares at the date of exercise and the exercise price, multiplied by the number of options exercised. Proceeds received from option exercises in
2018,
2017
and
2016
were
$938,000,
$1.1
million and
$4.4
million, respectively.
Nonvested service-based option awards as of
December 31, 2018
and changes during
2018
were as follows:
|
|
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
Weighted
Average
Remaining
Contractual
Life
(in Years)
|
|
Nonvested at December 31, 2017
|
|
|
413,228
|
|
|
$
|
3.79
|
|
|
|
5.1
|
|
Granted
|
|
|
154,500
|
|
|
|
6.19
|
|
|
|
6.7
|
|
Vested
|
|
|
(146,546
|
)
|
|
|
3.73
|
|
|
|
3.4
|
|
Forfeited
|
|
|
(27,702
|
)
|
|
|
4.26
|
|
|
|
5.1
|
|
Nonvested at December 31, 2018
|
|
|
393,480
|
|
|
$
|
4.72
|
|
|
|
5.2
|
|
The total fair value of options which vested during
2018,
2017
and
2016
was
$547,000,
$515,000
and
$534,000,
respectively.
The following table summarizes our nonvested performance unit award activity in
2018:
|
|
Shares
|
|
|
Weighted Average
Grant Date
Fair Value
|
|
Nonvested at December 31, 2017
|
|
|
322,662
|
|
|
$
|
13.32
|
|
Granted
|
|
|
77,700
|
|
|
|
20.31
|
|
Vested
|
|
|
(182,481
|
)
|
(1)
|
|
14.55
|
|
Forfeited
|
|
|
(31,973
|
)
|
|
|
13.81
|
|
Nonvested at December 31, 2018
|
|
|
185,909
|
|
|
$
|
14.89
|
|
(
1
)
|
This number of performance unit award shares vested based on our financial performance in
2018
and was distributed or credited to the Marten Transport, Ltd. Deferred Compensation Plan in
February 2019.
As permitted in the performance unit award agreements granted in
2014
and
2015,
the Compensation Committee of our Board of Directors adjusted the calculation of the performance vesting component for
2018
to be based on our increase in net income instead of our increase in diluted net income per share. Additionally, the
$56.5
million deferred income taxes benefit in
2017
related to the federal Tax Cuts and Jobs Act of
2017
was excluded from the calculation of the increase in net income from
2017
to
2018.
The calculation of the increase in net income also included an adjustment of
2017
net income to reflect a federal income tax rate of
21%
instead of
35%,
to be consistent with the federal rate in
2018.
The fair value of unit award shares that vested in
2018
was
$2.7
million.
|
Retirement Savings Plan
- We sponsor a defined contribution retirement savings plan under Section
401
(k) of the Internal Revenue Code. Employees are eligible for the plan after
three
months of service. Participants are able to contribute up to the limit set by law, which in
2018
was
$18,500
for participants less than age
50
and
$24,500
for participants age
50
and above. We contribute
35%
of each participant’s contribution, up to a total of
6%
contributed. Our contribution vests at the rate of
20%
per year for the
first
through
fifth
years of service. In addition, we
may
make elective contributions as determined by the Board of Directors.
No
elective contributions were made in
2018,
2017
or
2016.
Total expense recorded for the plan was
$2.3
million in
2018
and
$2.1
million in each of
2017
and
2016.
Stock Purchase Plans
- An Employee Stock Purchase Plan and an Independent Contractor Stock Purchase Plan are sponsored to encourage employee and independent contractor ownership of our common stock. Eligible participants specify the amount of regular payroll or contract payment deductions and voluntary cash contributions that are used to purchase shares of our common stock. The purchases are made at the market price on the open market. We pay the broker’s commissions and administrative charges for purchases of common stock under the plans.
1
5
. Excess Tax Benefit Reclassification
Effective
January 1, 2017,
we adopted the provisions of FASB ASU
No.
2016
-
09,
“Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting” which simplifies several aspects of the accounting for share-based payment transactions. This standard changed the classification of excess tax benefits in the statements of cash flows. We retrospectively reclassified
$235,000
of excess tax benefits for
2016
from financing to operating activities within our
2018
and
2017
consolidated statements of cash flows.
1
6
. Deferred Compensation Plan
In
August 2010,
our Board of Directors approved and adopted the Marten Transport, Ltd. Deferred Compensation Plan. The deferred compensation plan is an unfunded, nonqualified deferred compensation plan designed to allow board elected officers and other select members of our management designated by our Compensation Committee to save for retirement on a tax-deferred basis.
Under the terms of the plan, each participant is eligible to defer portions of their base pay, annual bonus, or receipt of common stock otherwise payable under a vested performance unit award. Each participant can elect a fixed distribution date for the participant’s deferral account other than certain required performance unit award deferrals credited to the discretionary account, which will be distributed after the later of the date of the participant’s termination of employment or the date the participant attains age
62.
Upon termination of a participant’s employment with the company, the plan requires a lump-sum distribution of the deferral account, excluding the required performance unit award deferrals, unless the participant had elected an installment distribution. Upon a participant’s death, the plan provides that a participant’s distributions accelerate and will be paid in a lump sum to the participant’s beneficiary. We
may
terminate the plan and accelerate distributions to participants, but only to the extent and at the times permitted under the Internal Revenue Code. We
may
terminate the plan and accelerate distributions upon a change in control, which is
not
a payment event under the plan. In conjunction with the approval of the plan, our Board of Directors also adopted an amendment to the Marten Transport, Ltd.
2005
Stock Incentive Plan to allow for deferral of receipt of income from a performance unit award under the plan. Such deferral is also provided for within the Marten Transport, Ltd.
2015
Equity Incentive Plan. As of
December 31, 2018,
241,348
shares of Company common stock with a value of
$3.9
million were credited to account balances within the plan. These shares were required performance unit award deferrals of vested awards, and dividends earned on such shares.
1
7
. Fair Value of Financial Instruments
The carrying amounts of cash equivalents, accounts receivable and accounts payable approximate fair value because of the short maturity of these instruments.
1
8
. Commitments and Contingencies
We are committed to purchase
$91.1
million of new revenue equipment in
2019.
Operating lease obligation expenditures total
$672,000
through
2022.
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, and reserve currently for the estimated cost of the uninsured portion of pending claims.
We are also involved in other legal actions that arise in the ordinary course of business. In the opinion of management, based upon present knowledge of the facts, it is remote that the ultimate outcome of any such legal actions will have a material adverse effect upon our long-term financial position or results of operations.
1
9
. Quarterly Financial Data (Unaudited)
The following is a summary of the quarterly results of operations for
2018
and
2017:
201
8
Quarters
(
In thousands, except per share amounts)
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
Operating revenue
|
|
$
|
186,960
|
|
|
$
|
197,024
|
|
|
$
|
199,649
|
|
|
$
|
203,961
|
|
Operating income
|
|
|
13,594
|
|
|
|
18,223
|
|
|
|
18,993
|
|
|
|
19,538
|
|
Net income
|
|
|
10,331
|
|
|
|
13,702
|
|
|
|
15,257
|
|
|
|
15,737
|
|
Basic earnings per common share
|
|
|
0.19
|
|
|
|
0.25
|
|
|
|
0.28
|
|
|
|
0.29
|
|
Diluted earnings per common share
|
|
|
0.19
|
|
|
|
0.25
|
|
|
|
0.28
|
|
|
|
0.29
|
|
201
7
Quarters
(In thousands, except per share amounts)
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
Operating revenue
|
|
$
|
173,159
|
|
|
$
|
171,511
|
|
|
$
|
170,679
|
|
|
$
|
182,771
|
|
Operating income
|
|
|
13,938
|
|
|
|
15,569
|
|
|
|
13,022
|
|
|
|
14,333
|
|
Net income
|
|
|
8,214
|
|
|
|
9,141
|
|
|
|
7,855
|
|
|
|
65,074
|
|
Net income – excluding deferred income taxes benefit
(1)
|
|
|
8,214
|
|
|
|
9,141
|
|
|
|
7,855
|
|
|
|
8,609
|
|
Basic earnings per common share
|
|
|
0.15
|
|
|
|
0.17
|
|
|
|
0.14
|
|
|
|
1.19
|
|
Basic earnings per common share – excluding deferred income taxes benefit
(1)
|
|
|
0.15
|
|
|
|
0.17
|
|
|
|
0.14
|
|
|
|
0.16
|
|
Diluted earnings per common share
|
|
|
0.15
|
|
|
|
0.17
|
|
|
|
0.14
|
|
|
|
1.18
|
|
Diluted earnings per common share – excluding deferred income taxes benefit
(1)
|
|
|
0.15
|
|
|
|
0.17
|
|
|
|
0.14
|
|
|
|
0.16
|
|
(
1
)
|
The amounts are presented for comparative purposes excluding the
$56.5
million deferred income taxes benefit recorded to recognize the impact on our federal net deferred tax liability of the reduction of the federal corporate statutory income tax rate from
35%
to
21%
related to the Tax Cuts and Jobs Act of
2017.
|
The sum of the diluted earnings per common share for the
2018
quarters exceeds the amount for the year, and the sum of the basic and diluted earnings per common share for the
2017
quarters is less than the amounts for the year due to differences in rounding.