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MRTN > SEC Filings for MRTN > Form 10-Q on 9-Nov-2012All Recent SEC Filings

Show all filings for MARTEN TRANSPORT LTD

Form 10-Q for MARTEN TRANSPORT LTD


9-Nov-2012

Quarterly Report


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

The following discussion and analysis of our financial condition and results of operations should be read together with the selected consolidated financial data and our consolidated condensed financial statements and the related notes appearing elsewhere in this report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those included in our Form 10-K, Part 1, Item 1A for the year ended December 31, 2011. We do not assume, and specifically disclaim, any obligation to update any forward-looking statement contained in this report.

Overview

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

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

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

Our operating revenue increased $26.7 million, or 6.0%, in the first nine months of 2012. Our operating revenue, net of fuel surcharges, increased $21.3 million, or 5.9%, compared with the first nine months of 2011. Truckload segment revenue, net of fuel surcharges, increased 6.3% primarily due to an increase in our average truckload revenue, net of fuel surcharges, per tractor per week of 5.7%. Fuel surcharge revenue increased by $5.4 million, or 6.4%, which was primarily caused by higher fuel prices in the first nine months of 2012. The changes in our operating statistics are primarily the result of the continued growth of our regional temperature-controlled operations, which we have increased to 72.2% of our truckload fleet as of September 30, 2012 from 64.8% as of September 30, 2011. By focusing on shorter lengths of haul in certain defined areas, we are addressing customer trends toward regional distribution to lower their transportation expense, furthering our own objectives of reducing fuel consumption per load, and matching some of our drivers' desires to stay closer to home. Logistics segment revenue, net of intermodal fuel surcharges, increased 4.8% compared with the first nine months of 2011. The increase in logistics revenue primarily resulted from volume growth in each of our internal brokerage and intermodal services. Logistics revenue represented 24.2% of our operating revenue in the first nine months of 2012 compared to 24.5% in the first nine months of 2011.

Our profitability on the expense side is impacted by variable costs of transporting freight for our customers, fixed costs, and expenses containing both fixed and variable components. The variable costs include fuel expense, driver-related expenses, such as wages, benefits, training, and recruitment, and independent contractor costs, which are recorded under purchased transportation. Expenses that have both fixed and variable components include maintenance and tire expense and our total cost of insurance and claims. These expenses generally vary with the miles we travel, but also have a controllable component based on safety, fleet age, efficiency and other factors. Our main fixed costs relate to the acquisition of long-term assets, such as revenue equipment and operating terminals. We expect our annual cost of tractor and trailer ownership will increase in future periods as a result of higher prices of new equipment. Although certain factors affecting our expenses are beyond our control, we monitor them closely and attempt to anticipate changes in these factors in managing our business. For example, fuel prices have fluctuated dramatically over the past several years. We manage our exposure to changes in fuel prices primarily through fuel surcharge programs with our customers, as well as through volume fuel purchasing arrangements with national fuel centers and bulk purchases of fuel at our terminals. To help further reduce fuel expense, we installed auxiliary power units in our tractors to provide climate control and electrical power for our drivers without idling the tractor engine. For our Logistics segment, our profitability on the expense side is impacted by the percentage of logistics revenue we pay to providers for the transportation services we arrange.


Our operating expenses as a percentage of operating revenue, or "operating ratio," improved to 93.1% in the first nine months of 2012 from 93.2% in the first nine months of 2011. Operating expenses as a percentage of operating revenue, with both amounts net of fuel surcharge revenue, improved to 91.5% for the first nine months of 2012 from 91.7% for the first nine months of 2011. Our net income increased to $19.5 million in the first nine months of 2012 from $16.6 million in the first nine months of 2011.

Our business requires substantial, ongoing capital investments, particularly for new tractors and trailers. At September 30, 2012, we had approximately $5.1 million of cash and cash equivalents, $340.6 million in stockholders' equity and no long-term debt outstanding. In the first nine months of 2012, net cash flows provided by operating activities of $62.8 million and cash and cash equivalents of $15.7 million were primarily used to purchase new revenue equipment, net of proceeds from dispositions, in the amount of $66.4 million and to partially construct and acquire regional operating facilities in the amount of $10.3 million. We estimate that capital expenditures, net of proceeds from dispositions, will be approximately $7 million for the remainder of 2012. We paid quarterly cash dividends of $0.02, $0.025 and $0.025 per share of common stock in March, May and September 2012, respectively, totaling $1.5 million. We believe our sources of liquidity are adequate to meet our current and anticipated needs for at least the next twelve months. Based upon anticipated cash flows, existing cash and cash equivalents balances, current borrowing availability and other sources of financing we expect to be available to us, we do not anticipate any significant liquidity constraints in the foreseeable future.

We have been transforming our business strategy to a multifaceted set of transportation service solutions, primarily regional temperature-controlled operations along with intermodal and brokerage services, while developing a diverse customer base that gains value from and expands each of these operating units. We believe that we are well-positioned regardless of the economic environment with this transformation of our services combined with our competitive position, cost control emphasis, modern fleet and strong balance sheet.

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


Results of Operations

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

                                               Three Months                   Nine Months
                                           Ended September 30,            Ended September 30,
                                           2012            2011           2012            2011

Truckload Segment:
Total Truckload revenue (in
thousands)                              $   122,869     $  116,852     $   357,589     $  336,076
Average truckload revenue, net of
fuel surcharges, per tractor per
week(1)                                 $     3,398     $    3,168     $     3,322     $    3,143
Average tractors (1)                          2,171          2,210           2,155          2,151
Average miles per trip                          630            617             624            629
Total miles - company-employed
drivers (in thousands)                       54,903         51,433         159,700        150,083
Total miles - independent contractors
(in thousands)                                1,067          1,513           3,686          5,588

Logistics Segment:
Total Logistics revenue (in
thousands):                             $    40,737     $   39,496     $   114,455     $  109,263
Brokerage:
Marten Transport
Revenue (in thousands)                  $    13,076     $   12,116     $    39,740     $   35,795
Loads                                         8,172          6,336          24,130         18,485
MWL
Revenue (in thousands)                  $     7,576     $    9,215     $    23,906     $   25,454
Loads                                         4,260          4,672          12,479         13,179
Intermodal:
Revenue (in thousands)                  $    20,085     $   18,165     $    50,809     $   48,014
Loads                                         7,642          6,508          19,527         18,064
Average tractors                                 68             80              59             74

(1) Includes tractors driven by both company-employed drivers and independent contractors. Independent contractors provided 43 and 52 tractors as of September 30, 2012 and 2011, respectively.


Comparison of Three Months Ended September 30, 2012 to Three Months Ended
September 30, 2011

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

                                                                           Dollar             Percentage
                                                                           Change               Change
                                                                        Three Months         Three Months
                                               Three Months                 Ended                Ended
                                                  Ended                 September 30,        September 30,
                                              September 30,               2012 vs.             2012 vs.
(Dollars in thousands)                     2012            2011             2011                 2011
Operating revenue:
Truckload revenue, net of fuel
surcharge revenue                       $   96,938      $   92,003     $         4,935                  5.4 %
Truckload fuel surcharge revenue            25,931          24,849               1,082                  4.4
Total Truckload revenue                    122,869         116,852               6,017                  5.1

Logistics revenue, net of intermodal
fuel surcharge revenue(1)                   36,408          35,500                 908                  2.6
Intermodal fuel surcharge revenue            4,329           3,996                 333                  8.3
Total Logistics revenue                     40,737          39,496               1,241                  3.1

Total operating revenue                 $  163,606      $  156,348     $         7,258                  4.6 %

Operating income:
Truckload                               $    7,938      $    9,174     $        (1,236 )              (13.5 )%
Logistics                                    1,902           1,937                 (35 )               (1.8 )
Total operating income                  $    9,840      $   11,111     $        (1,271 )              (11.4 )%

Operating ratio(2):
Truckload                                     93.5 %          92.1 %                                    1.5 %
Logistics                                     95.3            95.1                                      0.2
Consolidated operating ratio                  94.0 %          92.9 %                                    1.2 %

(1) Logistics revenue is net of $2.3 million of inter-segment revenue in each of the 2012 and 2011 periods, for loads transported by our tractors and arranged by MWL that have been eliminated in consolidation.

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

Truckload segment depreciation expense was $14.3 million and $14.0 million, and Logistics segment depreciation expense was $1.2 million and $778,000, in the 2012 and 2011 periods, respectively.

Our operating revenue increased $7.3 million, or 4.6%, to $163.6 million in the 2012 period from $156.3 million in the 2011 period. Our operating revenue, net of fuel surcharges, increased $5.8 million, or 4.6%, to $133.3 million in the 2012 period from $127.5 million in the 2011 period. The increase in operating revenue, net of fuel surcharges, was due to an increase in truckload revenue, net of fuel surcharges, along with growth in logistics revenue. Fuel surcharge revenue increased to $30.3 million in the 2012 period from $28.8 million in the 2011 period.


Truckload segment revenue increased $6.0 million, or 5.1%, to $122.9 million in the 2012 period from $116.9 million in the 2011 period. Truckload segment revenue, net of fuel surcharges, increased 5.4% primarily due to an increase in our average truckload revenue, net of fuel surcharges, per tractor per week of 7.3%. The changes in our operating statistics are primarily the result of the continued growth of our regional temperature-controlled operations, which we have increased to 72.2% of our truckload fleet as of September 30, 2012 from 64.8% as of September 30, 2011. By focusing on shorter lengths of haul in certain defined areas, we are addressing customer trends toward regional distribution to lower their transportation expense, furthering our own objectives of reducing fuel consumption per load, and matching some of our drivers' desires to stay closer to home. The decrease in profitability from the 2011 period was primarily caused by increased costs in driver wages and net fuel expense, which were partially offset by the improvement in revenue per tractor per week.

Logistics segment revenue increased $1.2 million, or 3.1%, to $40.7 million in the 2012 period from $39.5 million in the 2011 period. Logistics segment revenue, net of intermodal fuel surcharges, increased 2.6%. The increase in logistics revenue resulted from continued volume growth in each of our internal brokerage and intermodal services. The operating ratio for our Logistics segment in the 2012 period was consistent with the 2011 period.

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

                                            Dollar            Percentage              Percentage of
                                            Change              Change              Operating Revenue
                                         Three Months        Three Months
                                             Ended               Ended                 Three Months
                                         September 30,       September 30,                Ended
                                           2012 vs.            2012 vs.               September 30,
(Dollars in thousands)                       2011                2011              2012            2011

Operating revenue                       $         7,258                 4.6 %         100.0 %        100.0 %
Operating expenses (income):
Salaries, wages and benefits                      4,577                12.1            25.9           24.2
Purchased transportation                          1,074                 3.4            19.8           20.1
Fuel and fuel taxes                               2,430                 6.0            26.3           26.0
Supplies and maintenance                           (449 )              (4.1 )           6.5            7.1
Depreciation                                        779                 5.3             9.5            9.4
Operating taxes and licenses                         50                 3.0             1.0            1.1
Insurance and claims                                192                 4.2             2.9            3.0
Communications and utilities                         97                 8.3             0.8            0.7
Gain on disposition of revenue
equipment                                          (265 )             (24.4 )          (0.8 )         (0.7 )
Other                                                44                 1.3             2.1            2.2
Total operating expenses                          8,529                 5.9            94.0           92.9
Operating income                                 (1,271 )             (11.4 )           6.0            7.1
Net interest income                                  12                66.7               -              -
Income before income taxes                       (1,283 )             (11.5 )           6.0            7.1
Less: Income before income taxes
attributable to noncontrolling
interest                                           (257 )             (80.8 )             -            0.2
Income before income taxes
attributable to Marten Transport,
Ltd.                                             (1,026 )              (9.5 )           6.0            6.9
Provision for income taxes                       (1,211 )             (27.0 )           2.0            2.9
Net income                              $           185                 2.9 %           4.0 %          4.1 %


Salaries, wages and benefits consist of compensation for our employees, including both driver and non-driver employees, employees' health insurance, 401(k) plan contributions and other fringe benefits. These expenses vary depending upon the ratio of company drivers to independent contractors, our efficiency, our experience with employees' health insurance claims, changes in health care premiums and other factors. The increase in salaries, wages and benefits resulted primarily from a 6.7% increase in the total miles driven by company drivers, an additional $319,000 of detention pay due to a change in our policy to compensate company drivers when they are detained at pick up or delivery and additional amounts paid to company drivers due to changes in our policies for safety and productivity bonuses and holiday pay. Additionally, employees' health insurance expense increased by $874,000 due to an increase in our self-insured medical claims.

Purchased transportation consists of payments to independent contractor providers of revenue equipment and to carriers for transportation services we arrange in connection with brokerage and intermodal activities. This category will vary depending upon the ratio of company drivers versus independent contractors, the amount of fuel surcharges passed through to independent contractors and the amount and rates, including fuel surcharges, we pay to third-party railroad and motor carriers. Purchased transportation expense increased $1.1 million in total, or 3.4%, in the 2012 period from the 2011 period. Payments to carriers for transportation services we arranged in our brokerage and intermodal operations increased $1.7 million to $30.9 million in the 2012 period from $29.2 million in the 2011 period. The portion of purchased transportation expense related to our independent contractors, including fuel surcharges, decreased $645,000 in the 2012 period, primarily due to a decrease in the number of independent contractor-owned tractors in our fleet. We expect that purchased transportation expense will increase as we continue to grow our Logistics segment.

Fuel and fuel taxes increased by $2.4 million in the 2012 period from the 2011 period. Net fuel expense (fuel and fuel taxes net of fuel surcharge revenue and surcharges passed through to independent contractors, outside drayage carriers and railroads) increased $1.3 million, or 8.8%, to $16.5 million in the 2012 period from $15.2 million in the 2011 period. Fuel surcharges passed through to independent contractors, outside drayage carriers and railroads were $3.7 million in the 2012 period and $3.4 million in the 2011 period. We have worked diligently to control fuel usage and costs by improving our volume purchasing arrangements and optimizing our drivers' fuel purchases with national fuel centers, focusing on shorter lengths of haul, installing and tightly managing the use of auxiliary power units in our tractors to minimize engine idling and improving fuel usage in the temperature-control units on our trailers. Auxiliary power units, which we have installed in our company-owned tractors, provide climate control and electrical power for our drivers without idling the tractor engine. The increase in net fuel expense was primarily due to an increase in the DOE national average cost of fuel to $3.92 per gallon in the 2012 period from $3.87 per gallon in the 2011 period, with the cost of fuel significantly rising throughout the 2012 period which negatively impacted our recovery of fuel expense through our contracts with customers, extreme heat in the 2012 period which increased fuel consumption, especially in the temperature-control units on our trailers, and an increase in total miles driven. The cost control measures stated above helped to offset these factors. Net fuel expense represented 14.7% of truckload and intermodal revenue, net of fuel surcharges, in the 2012 period, compared with 14.3% in the 2011 period.

Supplies and maintenance consist of repairs, maintenance, tires, parts, oil, and engine fluids, along with load-specific expenses including loading/unloading, tolls, pallets and trailer hostling. Our supplies and maintenance expense decreased $449,000, or 4.1%, from the 2011 period while our average fleet size decreased 1.8%. We experienced higher tire and toll costs in the 2012 period; however, these increased costs were more than offset by lower repair costs at both internal and external facilities.

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 and an increase in the relative percentage of company-owned tractors to independent contractor-owned tractors in the 2012 period. We expect our annual cost of tractor and trailer ownership will increase in future periods as a result of higher prices of new equipment, which will result in greater depreciation over the useful life.

Gain on disposition of revenue equipment increased to $1.3 million in the 2012 period from $1.1 million in the 2011 period primarily due to an increase in the market value for used revenue equipment. Future gains or losses on disposition of revenue equipment will be impacted by the market for used revenue equipment, which is beyond our control.

As a result of the foregoing factors, our operating expenses as a percentage of operating revenue, or "operating ratio," increased to 94.0% in the 2012 period from 92.9% in the 2011 period. The operating ratio for our Truckload segment was 93.5% and 92.1% in the 2012 and 2011 periods, respectively. The operating ratio for our Logistics segment was 95.3% and 95.1% in the 2012 and 2011 periods, respectively. Operating expenses as a percentage of operating revenue, with both amounts net of fuel surcharge revenue, increased to 92.6% for the 2012 period from 91.3% for the 2011 period.


Our effective income tax rate decreased to 33.4% for the 2012 period from 41.4% for the 2011 period, primarily due to a decrease to our deferred income tax liability as a result of a change in income apportionment for several states.

As a result of the factors described above, net income increased to $6.5 million in the 2012 period from $6.3 million in the 2011 period. Net earnings per diluted share were $0.29 in each of the 2012 and 2011 periods.

Comparison of Nine Months Ended September 30, 2012 to Nine Months Ended
September 30, 2011

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

                                                                           Dollar            Percentage
                                                                           Change              Change
                                                                         Nine Months         Nine Months
                                               Nine Months                  Ended               Ended
                                                  Ended                 September 30,       September 30,
                                              September 30,               2012 vs.            2012 vs.
(Dollars in thousands)                     2012            2011             2011                2011
Operating revenue:
Truckload revenue, net of fuel
surcharge revenue                       $  280,284      $  263,613     $        16,671                 6.3 %
Truckload fuel surcharge revenue            77,305          72,463               4,842                 6.7
Total Truckload revenue                    357,589         336,076              21,513                 6.4

Logistics revenue, net of intermodal
fuel surcharge revenue(1)                  102,889          98,221               4,668                 4.8
. . .
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