UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2005

Commission file number 0-15010

MARTEN TRANSPORT, LTD.

(Exact name of registrant as specified in its charter)

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

129 MARTEN STREET
MONDOVI, WISCONSIN	54755	(715) 926-4216
(Address of principal executive offices)	(Zip code)	(Registrant’s telephone number)

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

NONE

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

COMMON STOCK, PAR VALUE $.01 PER SHARE

Indicate by check mark if the Registrant is a well-known seasoned issuer, (as defined in Rule 405 of the Securities Act).
Yes o No ý

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes o No ý

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

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

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer ý Non-accelerated filer o

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

As of June 30, 2005 (the last business day of the Registrant’s most recently completed second fiscal quarter), the aggregate market value of the Common Stock of the Registrant (based upon the closing price of the Common Stock at that date as reported by the Nasdaq National Market), excluding outstanding shares beneficially owned by directors and executive officers, was $209,963,075.

As of March 1, 2006, 21,723,410 shares of Common Stock of the Registrant were outstanding.

Part III of this Annual Report on Form 10-K incorporates by reference information (to the extent specific sections are referred to in this Report) from the Registrant’s Proxy Statement for the annual meeting to be held May 4, 2006, or 2006 Proxy Statement.

FORWARD-LOOKING INFORMATION

This Annual Report on Form 10-K contains certain forward-looking statements. Such statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements not of historical fact may be considered forward-looking statements. Written words such as “may,” “expect,” “believe,” “anticipate,” “plan,” “goal,” or “estimate,” or other variations of these or similar words, identify such statements. These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially from those expressed in such forward-looking statements. Important factors known to us that could cause such material differences are identified in this Annual Report on Form 10-K under the heading “Risk Factors” beginning on page 5. We undertake no obligation to correct or update any forward-looking statements, whether as a result of new information, future events, or otherwise. You are advised, however, to consult any future disclosures we make on related subjects in future filings with the Securities and Exchange Commission.

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

PART I

ITEM 1. BUSINESS

Overview

We are one of the leading temperature-sensitive truckload carriers in the United States. We specialize in transporting food and other consumer packaged goods that require a temperature-controlled or insulated environment. In 2005, we generated $460.2 million in operating revenue. The primary source of our operating revenue is freight revenue, which we generate by transporting freight for our customers. Generally, we are paid by the mile for our services. We also derive freight revenue from loading and unloading activities, equipment detention and other accessorial services. Our operating revenue also includes revenue from fuel surcharges and non-freight revenue, primarily logistics services. Approximately 79% of our freight revenue resulted from hauling temperature-sensitive products and 21% from hauling dry freight. We operate throughout the United States and in parts of Canada, with substantially all of our revenue generated from within the United States. Our primary traffic lanes are between the Midwest and the West Coast, Southwest, Southeast, and the East Coast, as well as from California to the Pacific Northwest. In 2005, our average length of haul was approximately 950 miles.

Our growth strategy is to expand our business internally by offering shippers a high level of service and significant freight capacity. We market primarily to large shippers that offer consistent volumes of freight in the lanes we prefer and are willing to compensate us for a high level of service. With our fleet of 2,618 company and independent contractor tractors, we are able to offer service levels that include up to 99% on-time performance and delivery within the narrow time windows often required when shipping perishable commodities.

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

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

Since our inception, our revenue, operating profits and assets have been related to one business segment—long-haul truckload carriage providing protective service transportation and time-sensitive transportation.

Marketing and Operations

We approach our business as an integrated effort of marketing and operations. Our emphasis in marketing is directed to the temperature-sensitive truckload market, which is generally service-sensitive, as opposed to being solely price competitive. We target large food and consumer packaged goods companies whose products require temperature-sensitive services and who ship multiple truckloads per week. By emphasizing high-quality service, we seek to become a core carrier for our customers. In 2005, our two largest customers were General Mills and Kraft.

Our marketing efforts are conducted by a staff of approximately 85 sales, customer service and support personnel under the supervision of our senior management team. Marketing personnel travel within their regions to solicit new customers and maintain contact with existing customers. Customer service managers regularly contact customers to solicit additional business on a load-by-load basis.

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

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

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

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

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

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

We believe this integrated approach to our marketing and operations, coupled with our use of technology, has allowed us to provide our customers with a high level of service and support our revenue growth in an efficient manner. For example, we had a non-revenue mile percentage of 7.2% during 2005, and a tractor to non-driver employee ratio of 5.7-to-1 as of December 31, 2005. Both of these statistics, which have remained steady over the last several years, point to the efficiency of our operations and we believe compare favorably to other temperature-sensitive and dry van trucking companies.

In addition to our traditional truckload services, we now offer our customers additional transportation options through our logistics operations, which include the third-party brokerage services of MW Logistics, LLC, or MWL, along with brokerage services we initiated in the second quarter of 2005 and intermodal services we initiated in the fourth quarter of 2005.

Major Customers

An important part of our growth strategy is to increase our business with large customers. Accordingly, a significant amount of our business is concentrated with a relatively small number of customers. In 2005, our top 30 customers accounted for approximately 76% of our revenue, and our top ten customers accounted for 51% of our revenue. Each of our top ten customers has been a significant customer of ours for over ten years. We believe we are the largest or second largest temperature-sensitive carrier for seven of our top ten customers. General Mills accounted for 15% of our revenue in 2005. We believe our relationship with this key customer is sound, but we are dependent upon them and the loss of some or all of their business could have a materially adverse effect on our results.

Drivers and Other Personnel

We believe that maintaining a safe and productive professional driver group is essential to providing excellent customer service and achieving profitability. Approximately 213 of our drivers as of December 31, 2005 have driven more than one million miles for us without a preventable accident. Our turnover for all drivers, including company-employed and independent contractor drivers, was 71% for 2005, compared to an industry average that is estimated at 135% by the American Trucking Associations.

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

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

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

As of December 31, 2005, we had approximately 2,440 employees. This total consists of approximately 1,979 drivers, 162 mechanics and maintenance personnel, and 299 support personnel, which includes management and administration. As of that date, we also contracted with 423 independent contractors. None of our employees are represented by a collective bargaining unit. We consider relations with our employees to be good.

Revenue Equipment

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

As of December 31, 2005, we operated a fleet of 2,618 tractors, including 2,195 company-owned tractors and 423 tractors supplied by independent contractors. The average age of our company-owned tractor fleet at December 31, 2005 was approximately 1.2 years. In 2005, we replaced most of our company-owned tractors within 3.5 years after purchase. Based on our current operating performance, the market for used tractors, our liquidity and our expectations concerning tractors manufactured in 2007, we decided to accelerate

our tractor fleet replacement during 2005 and 2006 to allow us greater flexibility in our decisions to purchase tractors in 2007 when the next round of diesel emissions reduction directives of the Environmental Protection Agency, or EPA, go into effect. This will allow us the opportunity to evaluate the new engine technology before adopting it on a larger scale.

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

We historically have contracted with independent contractors to provide and operate a portion of our tractor fleet. Independent contractors own their own tractors and are responsible for all associated expenses, including financing costs, fuel, maintenance, insurance, and taxes. We believe that a combined fleet complements our recruiting efforts and offers greater flexibility in responding to fluctuations in shipper demand. The percentage of our fleet provided by independent contractors was 16% as of December 31, 2005.

As of December 31, 2005, we operated a fleet of 3,438 trailers. Most of our trailers are equipped with Thermo-King refrigeration units, air ride suspensions, and anti-lock brakes. Most of our single van trailers are refrigerated, 53 feet long, and 102 inches wide. The average age of our trailer fleet at December 31, 2005 was approximately 2.9 years. In 2005, we replaced most of our company-owned trailers within seven years after purchase.

Insurance and Claims

We self-insure for a portion of our claims exposure resulting from workers’ compensation, auto liability, general liability, cargo and property damage claims, as well as employees’ health insurance. We are responsible for our proportionate share of the legal expenses relating to such claims as well. We reserve currently for anticipated losses and expenses. We periodically evaluate and adjust our insurance and claims reserves to reflect our experience. We are responsible for the first $1.0 million on each auto liability claim and as of June 1, 2005, we also are responsible for up to $1.0 million in the aggregate for all auto liability claims between $1.0 million and $2.0 million. We are also responsible for the first $750,000 on each workers’ compensation claim. We have $3.6 million in standby letters of credit to guarantee settlement of claims under agreements with our insurance carriers and regulatory authorities. We maintain insurance above the amounts for which we self-insure up to specified policy limits with licensed insurance carriers. Insurance carriers have raised premiums for many businesses, including trucking companies. As a result, our insurance and claims expense could increase, or we could raise our self-insured retention when our policies are renewed. We believe that our policy of self-insuring up to set limits, together with our safety and loss prevention programs, are effective means of managing insurance costs.

Fuel

Our operations are heavily dependent upon the use of diesel fuel. The price and availability of diesel fuel can vary and are subject to political, economic, and market factors that are beyond our control. Fuel prices fluctuated dramatically and quickly at various times during the last three years and they remain high based on historical standards. We actively manage our fuel costs by purchasing fuel in bulk in Mondovi and at our other maintenance facilities throughout the country and have volume purchasing arrangements with national fuel centers that allow our drivers to purchase fuel at a discount while in transit. During 2005, 97% of our fuel purchases were made at these designated locations.

We further manage our exposure to changes in fuel prices through fuel surcharge programs with our customers and other measures that we have implemented. We have historically been able to pass through most long-term increases in fuel prices and related taxes to customers in the form of fuel surcharges. These fuel

surcharges, which adjust with the cost of fuel, enable us to recover a substantial portion of the higher cost of fuel as prices increase, except for non-revenue miles, out-of-route miles or fuel used while the tractor is idling. As of December 31, 2005, we had no derivative financial instruments to reduce our exposure to fuel price fluctuations.

Competition

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

Regulation

The United States Department of Transportation, or DOT, and various state and local agencies exercise broad powers over our business, generally governing such activities as authorization to engage in motor carrier operations, safety and insurance requirements. Our company drivers and independent contractors also must comply with the safety and fitness regulations promulgated by the DOT, including those relating to drug and alcohol testing and hours-of-service. The DOT adopted revised hours-of-service regulations effective in January 2004. In response, we negotiated delay time charges with the majority of our customers. In July 2004, the United States Court of Appeals for the District of Columbia vacated the new hours-of-service regulations in their entirety and remanded the matter to the Federal Motor Carriers Safety Administration, or FMCSA, for reconsideration. In August 2005, in response to the Surface Transportation Extension Act of 2004 (Part V) temporarily extending the hours-of-service regulations, the FMCSA issued a revised set of hours-of-service regulations effective October 1, 2005.

We believe that we are well equipped to minimize the economic impact of the current hours-of-service rules on our business. We have negotiated delay time charges with the majority of our customers. Prior to the effectiveness of the current rules, we also initiated discussions with many of our customers regarding steps that they can take to assist us in managing our drivers’ non-driving activities, such as loading, unloading, or waiting, and we plan to continue to actively communicate with our customers regarding these matters in the future. In situations where shippers are unable or unwilling to take these steps, we assess detention and other charges to offset losses in productivity resulting from the current hours-of-service regulations. The regulations did not have a significant impact on our operations or financial results in 2005.

ITEM 1A. RISK FACTORS

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

Our business is subject to general economic and business factors that are largely out of our control, any of which could have a materially adverse effect on our operating results. Our business is dependent on a number of general economic and business factors that may have a materially adverse effect on our results of operations, many of which are beyond our control. These factors include excess capacity in the trucking industry, strikes or other work stoppages, and significant increases or fluctuations in interest rates, fuel taxes, and license and registration fees. We are affected by recessionary economic cycles and downturns in

customers’ business cycles, particularly in market segments and industries where we have a significant concentration of customers. Economic conditions may adversely affect our customers and their ability to pay for our services.

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

We operate in a highly competitive and fragmented industry, and numerous competitive factors could impair our ability to maintain our current profitability. We compete with many other truckload carriers that provide temperature-sensitive service of varying sizes and, to a lesser extent, with less-than-truckload carriers, railroads and other transportation companies, many of which have more equipment, a wider range of services and greater capital resources than we do or have other competitive advantages. In particular, several of the largest truckload carriers that offer primarily dry-van service also offer temperature-sensitive service, and these carriers could attempt to increase their business in the temperature-sensitive market. Many of our competitors periodically reduce their freight rates to gain business, especially during times of reduced growth rates in the economy, which may limit our ability to maintain or increase freight rates or maintain significant growth in our business. In addition, many customers reduce the number of carriers they use by selecting so-called “core carriers” as approved service providers, or conduct bids from multiple carriers for their shipping needs, and in some instances we may not be selected as a core carrier or to provide service under such bids.

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

We derive a significant portion of our revenue from our major customers, the loss of one or more of which could have a materially adverse effect on our business. A significant portion of our revenue is generated from our major customers. For 2005, our top 30 customers, based on revenue, accounted for approximately 76% of our revenue; our top ten customers accounted for approximately 51% of our revenue; our top five customers accounted for approximately 40% of our revenue; and our top two customers accounted for approximately 24% of our revenue. Generally, we enter into one-year contracts with our major customers, the majority of which do not contain any firm obligations to ship with us. We cannot assure you that, upon expiration of existing contracts, these customers will continue to use our services or that, if they do, they will continue at the same levels. Many of our customers periodically solicit bids from multiple carriers for their shipping needs, and this process may depress freight rates or result in loss of business to our competitors. Some of our customers also operate their own private trucking fleets, and they may decide to transport more of their own freight. A reduction in or termination of our services by one or more of our major customers could have a materially adverse effect on our business and operating results.

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

The EPA adopted revised emissions control regulations, which require progressive reductions in exhaust emissions from diesel engines through 2010, for engines manufactured in October 2002, and thereafter. The revised regulations decrease the amount of emissions that can be released by tractor engines and affect tractors produced after the effective date of the regulations. Compliance with these regulations has increased the cost of our new tractors, lowered fuel mileage and increased our operating expenses. Some

manufacturers have significantly increased new equipment prices, in part to meet new engine design requirements imposed by the EPA, and eliminated or sharply reduced the price of repurchase commitments. These adverse effects combined with the uncertainty as to the reliability of the vehicles equipped with the newly designed diesel engines and the residual values that will be realized from the disposition of these vehicles could increase our costs or otherwise adversely affect our business or operations. The next round of restrictions will take effect in 2007. Compliance with the 2007 EPA standards is expected to result in further declines in fuel economy, and may result in further increases in the cost of new tractors.

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

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

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

Increases in compensation or difficulty in attracting drivers could affect our profitability and ability to grow. In recent years the transportation industry has experienced substantial difficulty in attracting and retaining qualified drivers, including independent contractors, with competition for drivers being increasingly intense. With the increased competition for drivers, we have experienced greater difficulty in attracting sufficient numbers of qualified drivers. In addition, due in part to current economic conditions, including the cost of fuel and insurance, the available pool of independent contractor drivers is smaller than it has been historically. Accordingly, we may face difficulty in attracting and retaining drivers for all of our current tractors and for those we may add. Additionally, we may face difficulty in increasing the number of our independent contractor drivers. In addition, our industry suffers from high turnover rates of drivers. Our turnover rate requires us to recruit a substantial number of drivers. Moreover, our turnover rate could increase. If we are unable to continue to attract drivers and contract with independent contractors, we could be required to continue adjusting our driver compensation package beyond the norm or let trucks sit idle. Effective January 1, 2005, we increased the amount paid to company drivers by 1 cent per mile and increased the incentives paid to independent contractors. We also instituted a second pay increase of 2 cents per mile for company drivers effective April 1, 2005. Our compensation of drivers and independent contractors is subject to market forces, and we may increase their compensation further in future periods. An increase in our expenses or in the number of tractors without drivers could materially and adversely affect our growth and profitability.

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

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

We operate in a highly regulated industry and increased costs of compliance with, or liability for violation of, existing or future regulations could have a materially adverse effect on our business. The DOT and various state and local agencies exercise broad powers over our business, generally governing such activities as authorization to engage in motor carrier operations, safety and insurance requirements. Our company drivers and independent contractors also must comply with the safety and fitness regulations promulgated by the DOT, including those relating to drug and alcohol testing and hours-of-service. The DOT adopted revised hours-of-service regulations effective in January 2004. In response, we negotiated delay time charges with the majority of our customers. In July 2004, the United States Court of Appeals for the District of Columbia vacated the new hours-of-service regulations in their entirety and remanded the matter to the Federal Motor Carriers Safety Administration, or FMCSA, for reconsideration. In August 2005, in response to the Surface Transportation Extension Act of 2004 (Part V) temporarily extending the hours-of-service regulations, the FMCSA issued a revised set of hours-of-service regulations effective October 1, 2005. The regulations did not have a significant impact on our operations or financial results for 2005 or 2004. However, uncompensated shortfalls in our utilization due to compliance with the regulations could adversely impact our profitability.

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

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

and criminal liability, any of which could have a materially adverse effect on our business and operating results.

Our management information systems may prove inadequate. We depend upon our management information systems for many aspects of our business. Some of our key software has been developed internally by our programmers or by adapting purchased software to our needs and this software may not be easily modified or integrated with other software and systems. Our business will be materially and adversely affected if our management information systems are disrupted or if we are unable to improve, upgrade, integrate or expand our systems as we continue to execute our growth strategy, including our new logistics and intermodal services.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Our executive offices and principal terminal are located on approximately seven acres in Mondovi, Wisconsin. This facility consists of 39,000 square feet of office space and 21,000 square feet of equipment repair and maintenance space. In addition to our executive offices and terminal located in Mondovi, Wisconsin, we own and operate facilities in or near the following cities at which we perform the following designated operating activities:

	Fueling and	Driver	Driver
Company Locations	Maintenance	Recruitment	Training	Dispatch	Sales

Mondovi, Wisconsin	X	X	X	X	X
Ontario, California	X
Atlanta, Georgia	X	X	X	X
Portland, Oregon	X	X	X
Indianapolis, Indiana	X	X	X	X	X

ITEM 3. LEGAL PROCEEDINGS

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

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

No matters were submitted to a vote of security holders during the fourth quarter of the year ended December 31, 2005.

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

Our executive officers, with their ages and the offices held as of March 1, 2006, are as follows:

Name	Age	Position

Randolph L. Marten	53	Chairman of the Board, President, Chief Executive Officer and Director

Robert G. Smith	62	Chief Operating Officer

Timothy P. Nash	54	Executive Vice President of Sales and Marketing

James J. Hinnendael	42	Chief Financial Officer

Donald J. Hinson	46	Vice President of Operations

Randolph L. Marten has been a full-time employee of ours since 1974. Mr. Marten has been a Director since October 1980, our President since June 1986, our Chairman of the Board since August 1993 and our Chief Executive Officer since January 2005. Mr. Marten also served as our Chief Operating Officer from June 1986 until August 1998 and as a Vice President from October 1980 to June 1986.

Robert G. Smith has been our Chief Operating Officer since August 1998. Mr. Smith also served as our Vice President of Operations from June 1993 until May 1999 and as our Director of Operations from September 1989 to June 1993. Mr. Smith served as director of operations for Transport Corporation of America, an irregular-route truckload carrier, from January 1985 to September 1989.

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

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

Donald J. Hinson has been our Vice President of Operations since June 1999 and an executive officer since November 2000. Mr. Hinson also served as our Director of Operations from November 1996 to May 1999 and in various professional capacities in our operations area from April 1988 to November 1996. Previously, Mr. Hinson served in various professional capacities in the operations area of Burlington Motor Carriers, Inc., a dry-van truckload carrier, from October 1984 to March 1988.

PART II

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

Our common stock is listed on the Nasdaq National Market under the symbol “MRTN.” The table below shows the range of high and low bid prices on the Nasdaq National Market for the quarters indicated. Such quotations reflect inter-dealer prices, without retail markups, markdowns or commissions and, therefore, may not necessarily represent actual transactions.

	Common Stock Price
	High		Low
Year ended December 31, 2005
Fourth Quarter	$	19.56	$	14.83
Third Quarter	17.15		13.91
Second Quarter	14.51		11.33
First Quarter	16.65		13.24
Year ended December 31, 2004
Fourth Quarter	$	15.89	$	11.05
Third Quarter	13.45		10.99
Second Quarter	13.23		10.93
First Quarter	13.91		10.18

The prices do not include adjustments for retail mark-ups, mark-downs or commissions. On March 1, 2006, we had 265 record stockholders, and approximately 2,337 beneficial stockholders of our common stock. On December 12, 2005, we effected a three-for-two stock split in the form of a 50% stock dividend. The foregoing stock prices have been adjusted to give retroactive effect to the stock split for all periods presented.

We have not paid a cash dividend on our common stock since we became publicly traded in September 1986, and we do not expect to make or declare any cash dividends in the foreseeable future. We currently intend to continue to retain earnings to finance the growth of our business and reduce our indebtedness. Our ability to pay cash dividends is currently limited by restrictions contained in our revolving credit facility. Our revolving credit facility prohibits us from paying, in any fiscal year, dividends in excess of 25% of our net income from the prior fiscal year. Future payments of cash dividends will depend on our financial condition, results of operations, capital commitments, restrictions under then-existing agreements, and other factors our Board of Directors deems relevant.

We had no unregistered sales of equity securities during the fourth quarter of the year ended December 31, 2005.

ITEM 6. SELECTED FINANCIAL DATA

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

(Dollars in thousands, except per share amounts)	2005			2004			2003			2002			2001
FOR THE YEAR
Operating revenue	$	460,202		$	380,048		$	334,667		$	293,096		$	282,764
Operating income	42,867			31,345			20,336			11,861			15,107
Net income	25,061			17,536			11,842			5,973			6,514
Operating ratio	90.7		%	91.8		%	93.9		%	96.0		%	94.7		%

PER-SHARE DATA (1)
Basic earnings per common share	$	1.16		$	0.83		$	0.71		$	0.42		$	0.46
Diluted earnings per common share	1.14			0.81			0.68			0.41			0.46
Book value	8.99			7.82			7.00			5.53			5.10

AT YEAR END
Total assets	$	349,733		$	288,929		$	249,595		$	216,018		$	210,293
Long-term debt	48,300			30,257			27,857			63,629			75,116
Stockholders’ equity	193,917			167,921			144,534			79,220			72,399

(1) Restated to reflect the three-for-two stock splits in the form of 50% stock dividends on December 12, 2005, December 5, 2003 and July 24, 2003.

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

The following discussion and analysis of our financial condition and results of operations should be read together with the selected consolidated financial data and our consolidated financial statements and the related notes appearing elsewhere in this report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those under the heading “Risk Factors.”

Overview

The primary source of our operating revenue is freight revenue, which we generate by transporting freight for our customers. Generally, we are paid by the mile for our services. We also derive freight revenue from loading and unloading activities, equipment detention and other accessorial services. Our operating revenue also includes revenue from fuel surcharges and non-freight revenue, primarily logistics services. The main factors that affect our freight revenue are the rate per mile we receive from our customers, the percentage of miles for which we are compensated and the number of miles we generate with our equipment. These factors relate, among other things, to the United States economy, inventory levels, the level of truck capacity in the temperature-sensitive market and specific customer demand. We monitor our revenue production primarily through revenue per tractor per week. We also analyze our rate per total mile, non-revenue miles percentage, the miles per tractor we generate, our accessorial revenue and our other sources of operating revenue.

In discussing our results of operations, we have included in certain instances a discussion of freight revenue, which excludes fuel surcharge and non-freight revenue. We do this because we believe that eliminating these sources of revenue provides a more consistent basis for comparing our results of operations from period to period.

In 2005, we increased our operating revenue by $80.2 million, or 21.1%, and increased our freight revenue by $40.0 million, or 11.5%, compared with 2004. Our net income increased $7.5 million or 42.9% over 2004. Our operating results for 2005 reflect improved average freight revenue per total mile compared with 2004. The improvement in asset productivity helped us overcome the continuing challenges of a tight driver market and high fuel prices. In 2005, we increased our operating revenue 21.1% and our freight revenue 11.5% compared with 2004. We were able to increase our freight revenue by increasing our freight rates, the size of our fleet, our detention charges and our business with existing and new customers. We increased our average operating revenue per tractor per week 12.1% in 2005. Our average freight revenue per tractor per week increased 3.2%, due to a 7.7% improvement in average freight revenue per total mile, partially offset by a 4.2% decrease in average miles per tractor. Our weighted average number of tractors increased 8.1% in 2005 over 2004.

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 and financing of long-term assets, such as revenue equipment and operating terminals. Although certain factors affecting our expenses are beyond our control, we monitor them closely and attempt to anticipate changes in these factors in managing our business. For example, fuel prices fluctuated dramatically and quickly at various times during the past three years. We manage our exposure to changes in fuel prices primarily through fuel surcharge programs with our customers, as well as volume fuel purchasing arrangements with national fuel centers and bulk purchases of fuel at our terminals. The transportation industry has experienced in the last several years substantial difficulty in attracting and retaining qualified drivers. Effective January 1, 2005, we increased the amount paid to company drivers by 1 cent per mile and increased the incentives paid to independent contractors. We also instituted a second pay increase of 2 cents per mile for company drivers effective April 1, 2005. We continue to offer driver compensation that we believe ranks near the top of the industry. Like other

companies in our industry, our insurance costs have increased dramatically over the last few years. In order to control increases in insurance premiums, we have increased our self-insured retention levels periodically during the last several years. We are responsible for the first $1.0 million on each auto liability claim and as of June 1, 2005, we also are responsible for up to $1.0 million in the aggregate for all auto liability claims between $1.0 million and $2.0 million. We are also responsible for the first $750,000 on each workers’ compensation claim.

By increasing our revenue and controlling our expenses, we improved our operating ratio (operating expenses as a percentage of operating revenue) to 90.7% in 2005 from 91.8% in 2004. We increased our earnings per diluted share to $1.14 in 2005 from $0.81 in 2004.

Our business requires substantial, ongoing capital investments, particularly for new tractors and trailers. At December 31, 2005, we had approximately $48.3 million of long-term debt, including current maturities, and $193.9 million in stockholders’ equity. In 2005, we spent approximately $84.9 million, net of trade-ins, to purchase 932 tractors and 831 trailers. We recognized a gain of $3.9 million on the disposition of used equipment in 2005. We estimate that capital expenditures, net of trade-ins, will be approximately $70 million for 2006, primarily for new revenue equipment. This estimate may be impacted by the timing of tractor and trailer deliveries between 2006 and 2007. We expect to fund these capital expenditures with cash flows from operations and borrowings under our revolving credit facility. Based on our current operating performance, the market for used tractors, our liquidity and our expectations concerning tractors manufactured in 2007, we decided to accelerate our tractor fleet replacement during 2005 and 2006 to allow us greater flexibility in our decisions to purchase tractors in 2007 when the next round of diesel emissions reduction directives of the EPA go into effect. This acceleration of our tractor fleet replacement has not impacted the useful lives of our tractors or caused impairment to the carrying amount reflected in our consolidated balance sheet.

Stock Split

On December 12, 2005, we effected a three-for-two stock split of our common stock, $.01 par value, in the form of a 50% 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.

Results of Operations

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

	2005		2004		2003
Average operating revenue per total mile	$	1.689	$	1.445	$	1.279
Average freight revenue per total mile (1)	$	1.417	$	1.316	$	1.226
Average miles per tractor(2)	111,823		116,668		120,441
Average operating revenue per tractor per week(2)	$	3,622	$	3,232	$	2,955
Average freight revenue per tractor per week(1) (2)	$	3,039	$	2,944	$	2,831
Total miles – company-employed drivers (in thousands)	206,205		185,019		181,254
Total miles – independent contractors (in thousands)	66,293		78,054		80,312

(1) Excludes revenue from fuel surcharges and non-freight revenue.

(2) Includes tractors driven by both company-employed drivers and independent contractors. Independent contractors provided 423, 557 and 585 tractors as of December 31, 2005, 2004, and 2003, respectively.

Comparison of Year Ended December 31, 2005 to Year Ended December 31, 2004

The following table sets forth for the years indicated the components of our operating revenue and the dollar and percentage change for each component:

					Dollar		Percentage
					Change		Change
(Dollars in thousands)	2005		2004		2005 vs. 2004		2005 vs. 2004

Freight revenue	$	386,131	$	346,160	$	39,971	11.5	%
Fuel surcharge revenue	57,127		26,920		30,207		112.2
Non-freight revenue	16,944		6,968		9,976		143.2
Operating revenue	$	460,202	$	380,048	$	80,154	21.1	%

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

	Dollar			Percentage		Percentage of
	Change			Change		Operating Revenue
(Dollars in thousands)	2005 vs. 2004			2005 vs. 2004		2005		2004

Operating revenue	$	80,154		21.1	%	100.0	%	100.0	%
Operating expenses (income):
Salaries, wages and benefits	19,270			18.0		27.5		28.2
Purchased transportation	4,039			5.2		17.8		20.5
Fuel and fuel taxes	36,810			51.9		23.4		18.7
Supplies and maintenance	3,090			12.3		6.1		6.6
Depreciation	5,472			16.7		8.3		8.6
Operating taxes and licenses	748			11.9		1.5		1.7
Insurance and claims	310			1.7		4.1		4.9
Communications and utilities	230			7.3		0.7		0.8
Gain on disposition of revenue equipment	(1,722		)	(77.5	)	(0.9	)	(0.6	)
Other	385			4.3		2.0		2.3
Total operating expenses	68,632			19.7		90.7		91.8
Operating income	11,522			36.8		9.3		8.2
Other expenses (income):
Interest expense	287			13.8		0.5		0.5
Interest income and other	(229		)	(15.3	)	(0.4	)	(0.4	)
Minority interest	690			1,352.9		0.2		—
Income before income taxes	10,774			35.1		9.0		8.1
Provision for income taxes	3,249			24.7		3.6		3.5
Net income	$	7,525		42.9	%	5.4	%	4.6	%

Our operating revenue increased $80.2 million, or 21.1%, to $460.2 million in 2005 from $380.0 million in 2004. Freight revenue increased $40.0 million, or 11.5%, to $386.1 million in 2005 from $346.2 million in 2004. We were able to increase our freight revenue by increasing our freight rates, the size of our fleet, our detention charges and our business with existing and new customers. Our fuel surcharge revenue increased $30.2 million, or 112.2%, to $57.1 million in 2005 from $26.9 million in 2004 primarily due to significantly higher average fuel prices in 2005 more fully discussed below under “fuel and fuel taxes.” The increase in non-freight revenue in 2005 resulted from increased logistics services provided by MWL, as well as the formation by the Company of a logistics division with brokerage services initiated in April 2005 and intermodal services initiated in October 2005. Our average operating revenue per tractor per week increased 12.1% in 2005 from 2004. Our average freight revenue per tractor per week increased 3.2% in 2005 from 2004, due to a 7.7% increase in average freight revenue per total mile partially offset by a 4.2% decrease in average miles per tractor. Our weighted average number of tractors increased 8.1% in 2005 from 2004.

Salaries, wages and benefits consist of compensation for our employees, including both driver and non-driver employees, employees’ health insurance, 401(k) plan contributions and other fringe benefits. These expenses vary depending upon the ratio of company drivers to independent contractors, our efficiency, our experience with employees’ health insurance claims, changes in health care premiums and other factors. The increase in salaries, wages and benefits resulted primarily from an increase in the size of our company-owned fleet and increases in the amount paid to company drivers of 1 cent per mile effective January 1, 2005 and 2 cents per mile effective April 1, 2005. This increase was partially offset by a decrease of $506,000 in compensation expensed for our non-driver employees under our incentive compensation program in 2005, and a decrease of $222,000 in our employees’ health insurance expense due to favorable claims experience which decreased our estimated costs of our self-insured medical claims in 2005.

Purchased transportation consists of payments to independent contractor providers of revenue equipment and to carriers for transportation services arranged by the Company. 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 paid to carriers by the Company. Purchased transportation expense increased $4.0 million, or 5.2%, in 2005 from 2004. This expense, excluding fuel surcharges passed through to independent contractors and carrier payments by the Company, decreased $8.7 million, or 13.1%, in 2005 from 2004. This decrease was primarily due to a decrease in the number of independent contractor-owned tractors in our fleet, partially offset by a 1 cent per mile increase in the amount paid to independent contractors effective April 1, 2004 and an increase in incentives paid to independent contractors effective January 1, 2005. Payments to carriers for transportation services arranged by the Company were $11.9 million in 2005 and $4.1 million in 2004. The amount of fuel surcharges passed through to independent contractors increased $5.0 million in 2005.

Fuel and fuel taxes, which we refer to as fuel expense, net of fuel surcharge revenue of $57.1 million in 2005 and $26.9 million in 2004, increased $6.6 million, or 15.0%, to $50.6 million in 2005 from $44.0 million in 2004. The increase was primarily due to an 11.5% increase in miles, a higher average fuel price net of surcharges and lower fuel efficiencies associated with newer tractors. Our fuel prices, which remain high based on historical standards, significantly increased to an average of $2.29 per gallon in 2005 from an average of $1.71 per gallon in 2004. We have fuel surcharge provisions in substantially all of our transportation contracts and attempt to recover a portion of these increased expenses through fuel surcharges and higher rates. To illustrate, fuel expense net of fuel surcharge revenue, as a percentage of our freight revenue, increased only slightly from 12.7% in 2004 to 13.1% in 2005. We expect our fuel expense to increase in the future because we believe that government mandated emissions standards, which became effective October 1, 2002, have resulted in less fuel-efficient engines, and that more restrictive emissions standards that take effect in 2007 will result in further declines in engine efficiency.

Depreciation relates to owned tractors, trailers, communications units, terminal facilities and other assets. Gains or losses on dispositions of revenue equipment are set forth in a separate line item, rather than included in this category. The increase in depreciation was due to an increase in revenue equipment and in the relative percentage of company-owned tractors to independent contractor-owned tractors in 2005. We expect our annual cost of tractor and trailer ownership will increase in future periods as a result of our accelerated tractor fleet replacement and higher prices of new equipment, which is expected to result in greater depreciation over the useful life.

Insurance and claims consist of the costs of insurance premiums and the accruals we make for claims within our self-insured retention amounts, primarily for personal injury, property damage, physical damage to our equipment, cargo claims and workers’ compensation claims. These expenses will vary primarily based upon the frequency and severity of our accident experience, our self-insured retention levels and the market for insurance. The increase in insurance and claims in 2005 was primarily the result of an increase in the cost of self-insured accident claims. We are responsible for the first $1.0 million on each auto liability claim and as of June 1, 2005, we also are responsible for up to $1.0 million in the aggregate for all auto liability claims between $1.0 million and $2.0 million. We are also responsible for the first $750,000 on each workers’ compensation claim. Our significant self-insured retention and our risk on the first $1.0 million of auto liability claims in the $1.0 million to $2.0 million corridor expose us to the possibility of significant

Comparison of Year Ended December 31, 2004 to Year Ended December 31, 2003

The following table sets forth for the years indicated the components of our operating revenue and the dollar and percentage change for each component:

					Dollar		Percentage
					Change		Change
(Dollars in thousands)	2004		2003		2004 vs. 2003		2004 vs. 2003

Freight revenue	$	346,160	$	320,560	$	25,600	8.0	%
Fuel surcharge revenue	26,920		14,107		12,813		90.8
Non-freight revenue	6,968		—		6,968		N/A
Operating revenue	$	380,048	$	334,667	$	45,381	13.6	%

						Percentage of
	Dollar Change			Percentage Change		Operating Revenue
(Dollars in thousands)	2004 vs. 2003			2004 vs. 2003		2004		2003

Operating revenue	$	45,381		13.6	%	100.0	%	100.0	%
Operating expenses (income):
Salaries, wages and benefits	6,284			6.2		28.2		30.2
Purchased transportation	6,725			9.5		20.5		21.3
Fuel and fuel taxes	14,541			25.8		18.7		16.8
Supplies and maintenance	264			1.1		6.6		7.4
Depreciation	2,711			9.0		8.6		9.0
Operating taxes and licenses	606			10.6		1.7		1.7
Insurance and claims	3,398			22.3		4.9		4.5
Communications and utilities	(158		)	(4.8	)	0.8		1.0
Gain on disposition of revenue equipment	(1,581		)	(247.0	)	(0.6	)	(0.2	)
Other	1,582			21.6		2.3		2.2
Total operating expenses	34,372			10.9		91.8		93.9
Operating income	11,009			54.1		8.2		6.1
Other expenses (income):
Interest expense	(679		)	(24.7	)	0.5		0.8
Interest income and other	24			1.6		(0.4	)	(0.5	)
Minority interest	51			N/A		—		—
Income before income taxes	11,613			60.8		8.1		5.7
Provision for income taxes	5,919			81.6		3.5		2.2
Net income	$	5,694		48.1	%	4.6	%	3.5	%

Our operating revenue increased $45.4 million, or 13.6%, to $380.0 million in 2004 from $334.7 million in 2003. Freight revenue increased $25.6 million, or 8.0%, to $346.2 million in 2004 from $320.6 million in 2003. We were able to increase our freight revenue by increasing our freight rates, our detention charges and our business with existing and new customers. Freight revenue excludes $26.9 million of fuel surcharge revenue in 2004 and $14.1 million in 2003, along with $7.0 million of MWL revenue in 2004. There was no MWL revenue recorded in 2003. Our average operating revenue per tractor per week increased 9.4% in 2004 from 2003. Our average freight revenue per tractor per week increased 4.0% in 2004 from 2003, due to a 7.3% increase in average freight revenue per total mile partially offset by a 3.1% decrease in average miles per tractor. Our weighted average number of tractors increased 3.8% in 2004 from 2003. However, an increase in our number of unseated tractors caused our weighted average number of seated tractors to increase by only 0.4% in 2004 from 2003.

The increase in salaries, wages and benefits resulted primarily from an increase in the size of our company-owned fleet, partially offset by a decrease in our employees’ health insurance expense due to favorable claims experience causing a decrease of $517,000 in the estimated costs of our self-insured medical claims in 2004.

Purchased transportation expense, excluding fuel surcharges passed through to independent contractors and MWL carrier payments, decreased $648,000, or 1.0%, in 2004 from 2003. This decrease was primarily due to a decrease in the number of independent contractor-owned tractors in our fleet, partially offset by a 1 cent per mile increase in the amount paid to independent contractors effective April 1, 2004. Payments to carriers for transportation services arranged by MWL were $4.1 million in 2004. No payments to carriers by MWL were recorded in 2003. The amount of fuel surcharges passed through to independent contractors increased $3.2 million in 2004.

Fuel and fuel taxes, which we refer to as fuel expense, net of fuel surcharge revenue of $26.9 million in 2004 and $14.1 million in 2003, increased $1.7 million, or 4.1%, to $44.0 million in 2004 from $42.3 million in 2003. Our fuel prices, which remain high based on historical standards, significantly increased to an average of $1.71 per gallon in 2004 from an average of $1.40 per gallon in 2003.

The increase in depreciation was due to an increase in revenue equipment and in the relative percentage of company-owned tractors to independent contractor-owned tractors in 2004.

The increase in insurance and claims in 2004 was comprised of a $2.7 million increase in the cost of self-insured accident claims and a $676,000 increase in insurance premiums.

In 2004, increases in the market value for used revenue equipment along with additional planned revenue equipment trades caused our gain on disposition of revenue equipment to increase to $2.2 million from $640,000 in 2003.

Other expense includes professional fees, driver recruiting and retention costs, trailer and drop yard rental and other miscellaneous expenses. The increase in other expense was impacted by an increase of $759,000 in legal fees in 2004 and a reversal in 2003 of a $370,000 accrual for a state sales tax claim which was dismissed in 2003.

As a result of the foregoing factors, we improved our operating expenses as a percentage of operating revenue, or “operating ratio,” to 91.8% in 2004 from 93.9% in 2003. Our operating expenses as a percentage of operating revenue, with both amounts net of fuel surcharge revenue, improved to 91.1% in 2004 from 93.7% in 2003.

The decrease in interest expense was primarily the result of lower average debt balances outstanding in 2004.

Our effective income tax rate was 42.9% in 2004 compared with 38.0% in 2003, because we increased our federal and state deferred income tax liabilities by a total of $1.5 million during the fourth quarter of 2004 as a result of an increase in our statutory federal and state income tax rates based upon projected future taxable income.

As a result of the factors described above, net income increased 48.1%, to $17.5 million in 2004 from $11.8 million in 2003. Net earnings per share increased to $0.81 per diluted share in 2004 from $0.68 per diluted share in 2003, despite a 25.0% increase in weighted average shares outstanding attributable primarily to our public offering of common stock completed during the third quarter of 2003.

Liquidity and Capital Resources

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

The table below reflects our net cash flows provided by operating activities, net cash flows used for investing activities and total long-term debt, including current maturities, for the years indicated.

(In thousands)	2005		2004		2003

Net cash flows provided by operating activities	$	72,472	$	50,890	$	39,551
Net cash flows used for investing activities	88,557		58,829		57,313
Long-term debt, including current maturities, at December 31	48,300		30,257		27,857

In 2005, we spent approximately $84.9 million, net of trade-ins, to purchase 932 tractors and 831 trailers. We also recognized a gain of $3.9 million on the disposition of used equipment in 2005. We estimate that capital expenditures, net of trade-ins, will be approximately $70 million for 2006, primarily for new revenue equipment. This estimate may be impacted by the timing of tractor and trailer deliveries between 2006 and 2007. Based on our current operating performance, the market for used tractors, our liquidity and our expectations concerning tractors manufactured in 2007, we decided to accelerate our tractor fleet replacement during 2005 and 2006 to allow us greater flexibility in our decisions to purchase tractors in 2007, to add capacity to meet growing demand, and to add tractors to our company fleet as more of our drivers become company drivers rather than independent contractors. This acceleration of our tractor fleet replacement has not impacted the useful lives of our tractors or caused impairment to the carrying amount reflected in our consolidated balance sheet. We expect to fund these capital expenditures with cash flows from operations and borrowings under our revolving credit facility. 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, current borrowing availability and sources of financing we expect to be available to us, we do not anticipate any significant liquidity constraints in the foreseeable future.

We have outstanding Series A Senior Unsecured Notes with an aggregate principal balance of $10.7 million at December 31, 2005. These notes mature in October 2008, require annual principal payments of $3.57 million and bear interest at a fixed rate of 6.78%. We also have outstanding Series B Senior Unsecured Notes with an aggregate principal balance of $7.1 million at December 31, 2005. These notes mature in April 2010, require annual principal payments of $1.43 million and bear interest at a fixed rate of 8.57%.

We maintain an unsecured committed credit facility in the amount of $45.0 million, which matures in April 2008. We plan on entering into an amendment to the credit facility which will increase the total facility from $45.0 million to $55.0 million through August 2006, at which time the amount of the credit facility will return to $45.0 million. At December 31, 2005, the credit facility had an outstanding principal balance of $30.4 million, outstanding standby letters of credit of $3.6 million and remaining borrowing availability of $11.0 million. This facility bears interest at a variable rate based on the London Interbank Offered Rate or the bank’s Prime Rate, in each case plus applicable margins. The weighted average interest rate for the credit facility was 6.17% at December 31, 2005.

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

leverage, interest coverage and fixed charge coverage. We were in compliance with all of these covenants at December 31, 2005.

We had $9.1 million in direct financing receivables from independent contractors under our tractor purchase program as of December 31, 2005, compared with $10.3 million in receivables as of December 31, 2004. These receivables, which are collateralized by the tractors financed, are used to attract and retain qualified independent contractors. We deduct payments from the independent contractors’ settlements weekly and, as a result, have experienced minimal collection issues for these receivables.

The following is a summary of our contractual obligations as of December 31, 2005. We have entered into agreements to purchase $23.9 million of revenue equipment in 2006, which is included in the following summary. We also plan to purchase an additional $38.5 million of revenue equipment in 2006 for which we have not entered into binding agreements.

	Payments Due by Period
			2007		2009
			and		and
(In thousands)	2006		2008		2010		Thereafter		Total
Long-term debt obligations	$	5,000	$	40,443	$	2,857	$	—	$	48,300
Purchase obligations for revenue equipment	23,889		—		—		—		23,889
Operating lease obligations	287		384		214		70		955
Total	$	29,176	$	40,827	$	3,071	$	70	$	73,144

Related Parties

MWL, our 45% owned affiliate, is a third-party provider of logistics services to the transportation industry. In 2005, 2004 and 2003, we received $21.1 million, $22.6 million and $13.8 million, respectively, of our revenue from transportation services arranged by MWL. We have applied the provisions of FASB Interpretation No. 46, “Consolidation of Variable Interest Entities,” as revised, to our investment in MWL effective March 31, 2004. As a result, the accounts of MWL are included in our consolidated balance sheets as of December 31, 2005 and December 31, 2004, and in our consolidated statements of operations beginning April 1, 2004. We accounted for our investment in MWL’s operating results using the equity method of accounting prior to April 1, 2004.

We purchase fuel and obtain tires and related services from Bauer Built, Incorporated, or BBI. Jerry M. Bauer, one of our directors, is the president and a stockholder of BBI. We paid BBI $1.2 million in 2005, $924,000 in 2004 and $805,000 in 2003 for fuel and tire services. In addition, we paid $2.0 million in 2005, $1.4 million in 2004 and $2.3 million in 2003 to tire manufacturers for tires that we purchased from the tire manufacturers but were provided by BBI. BBI received commissions from the tire manufacturers related to these purchases. Other than any benefit received from his ownership interest, Mr. Bauer receives no compensation or other benefits from our business with BBI.

During 2005 and 2004, we paid Durand Builders Service, Inc. $142,000 and $493,000, respectively, for various construction projects. Larry B. Hagness, one of our directors, is the president and owner of Durand Builders Service, Inc. Other than any benefit received from his ownership interest, Mr. Hagness receives no compensation or other benefits from these transactions.

Off-Balance Sheet Arrangements

Other than standby letters of credit maintained in connection with our self-insurance programs in the amount of $3.6 million and operating leases summarized above in our summary of contractual obligations, we did not have any other material off-balance sheet arrangements at December 31, 2005.

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 most long-term increases in fuel prices and related taxes to customers in the form of surcharges and higher rates, increases usually are not fully recovered. Fuel prices were high throughout 2003 and 2004 and significantly increased further in 2005, which has increased our cost of operating. The elevated level of fuel prices is expected to continue in 2006.

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 fuel efficiency declining because of engine idling and harsh weather creating higher accident frequency, increased claims and more equipment repairs.

Critical Accounting Policies

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

Revenue Recognition. We recognize revenue, including fuel surcharges, at the time shipment of freight is completed.

Accounts Receivable. We are dependent on 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. 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 quarterly.

Property and Equipment. The transportation industry requires significant capital investments. Our net property and equipment was $269.9 million as of December 31, 2005 and $215.7 million as of December 31, 2004. Our depreciation expense was $38.2 million for 2005, $32.8 million for 2004 and $30.0 million for 2003. 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, 2005 by approximately $5.1 million, or 1.9%.

In 2005, we replaced most of our company-owned tractors within 3.5 years and our trailers within 7 years after purchase. Our useful lives for depreciating tractors is 5 years and trailers is 7 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 5 years for tractors and 7 years for trailers. Depreciation expense calculated in this manner approximates the continuing declining value of the revenue equipment, and, for tractors, continues at a consistent straight-line rate for units held beyond the normal replacement cycle. Calculating tractor depreciation expense with a 5-year useful life and a 25% salvage value results in the same depreciation rate of 15% of cost per year and the same net book value of 47.5% of cost at the 3.5-year replacement date as using a 3.5-year useful life and 47.5% salvage value. As a result, there is no difference in recorded depreciation expense on a quarterly or annual basis with our 5-year useful life and 25% salvage value compared with a 3.5-year useful life and 47.5% salvage value.

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

Insurance and Claims. We self-insure, in part, for losses relating to workers’ compensation, auto liability, general liability, cargo and property damage claims, along with employees’ health insurance with varying risk retention levels. We maintain insurance coverage for per-incident and total losses in excess of these risk retention levels in amounts we consider adequate based upon historical experience and our ongoing review. However, we could suffer a series of losses within our self-insured retention limits or losses over our policy limits, which could negatively affect our financial condition and operating results. We are responsible for the first $1.0 million on each auto liability claim and as of June 1, 2005, we also are responsible for up to $1.0 million in the aggregate for all auto liability claims between $1.0 million and $2.0 million. We are also responsible for the first $750,000 on each workers’ compensation claim. We have $3.6 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 $13.1 million as of December 31, 2005, and $13.7 million as of December 31, 2004. We reserve currently for the estimated cost of the uninsured portion of pending claims. We periodically evaluate and adjust these reserves based on our evaluation of the nature and severity of outstanding individual claims and our estimate of future claims development based on historical claims development factors. We believe that our claims development factors have historically been reasonable, as indicated by the adequacy of our insurance and claims accruals compared to settled claims. Actual results could differ from these current estimates. In addition, to the extent that claims are litigated and not settled, jury awards are difficult to predict. If our claims settlement experience worsened causing our historical claims development factors to increase by 5%, our estimated outstanding loss reserves as of December 31, 2005 would have needed to increase by approximately $2.0 million.

Income Taxes. We account for income taxes in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes.” As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and financial reporting purposes. These temporary differences result in deferred tax assets and liabilities, which are included in our accompanying consolidated balance sheets. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to be recovered or settled. To the extent it is determined that it is not likely that our deferred tax assets will be recovered from

Report of Independent Registered Public Accounting Firm

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

We have audited management’s assessment, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting, that Marten Transport, Ltd. and subsidiary (the “Company”) maintained effective internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). 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. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

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

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

In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Marten Transport, Ltd. and subsidiary as of December 31, 2005 and 2004, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2005, and our report dated February 24, 2006 expressed an unqualified opinion on those consolidated financial statements.

KPMG LLP

Minneapolis, Minnesota

February 24, 2006

MARTEN TRANSPORT, LTD.

Consolidated Balance Sheets

	December 31,
(In thousands, except share information)	2005			2004
ASSETS
Current assets:
Cash	$	1,080		$	855
Marketable securities	494			62
Receivables:
Trade, less allowances of $928 and $909, respectively	47,383			39,090
Other	6,975			8,372
Prepaid expenses and other	13,264			11,869
Deferred income taxes	3,873			5,856
Total current assets	73,069			66,104
Property and equipment:
Revenue equipment	339,606			283,245
Buildings and land	10,877			10,467
Office equipment and other	11,797			9,053
Less accumulated depreciation	(92,342		)	(87,067		)
Net property and equipment	269,938			215,698
Other assets	6,726			7,127
	$	349,733		$	288,929
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Checks issued in excess of cash balances	$	1,446		$	3,704
Accounts payable	7,646			4,579
Insurance and claims accruals	13,126			13,654
Accrued liabilities	18,557			12,292
Current maturities of long-term debt	5,000			5,000
Total current liabilities	45,775			39,229
Long-term debt, less current maturities	43,300			25,257
Deferred income taxes	66,310			56,522
Total liabilities	155,385			121,008
Commitments and contingencies (Note 12)
Minority interest	431			—
Stockholders’ equity:
Preferred stock, $.01 par value per share; 2,000,000 shares authorized; no shares issued and outstanding	—			—
Common stock, $.01 par value per share; 48,000,000 shares authorized; 21,573,220 shares, at December 31, 2005, and 21,460,541 shares, at December 31, 2004, issued and outstanding	216			215
Additional paid-in capital	71,045			70,111
Retained earnings	122,656			97,595
Total stockholders’ equity	193,917			167,921
	$	349,733		$	288,929

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)	2005			2004			2003
Operating revenue	$	460,202		$	380,048		$	334,667
Operating expenses (income):
Salaries, wages and benefits	126,577			107,307			101,023
Purchased transportation	81,897			77,858			71,133
Fuel and fuel taxes	107,722			70,912			56,371
Supplies and maintenance	28,192			25,102			24,838
Depreciation	38,229			32,757			30,046
Operating taxes and licenses	7,051			6,303			5,697
Insurance and claims	18,914			18,604			15,206
Communications and utilities	3,398			3,168			3,326
Gain on disposition of revenue equipment	(3,943		)	(2,221		)	(640		)
Other	9,298			8,913			7,331
	417,335			348,703			314,331
Operating income	42,867			31,345			20,336
Other expenses (income):
Interest expense	2,361			2,074			2,753
Interest income and other	(1,722		)	(1,493		)	(1,517		)
Minority interest	741			51			—
	1,380			632			1,236
Income before income taxes	41,487			30,713			19,100
Provision for income taxes	16,426			13,177			7,258
Net income	$	25,061		$	17,536		$	11,842
Basic earnings per common share	$	1.16		$	0.83		$	0.71
Diluted earnings per common share	$	1.14		$	0.81		$	0.68

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

MARTEN TRANSPORT, LTD.

Consolidated Statements of Stockholders’ Equity

									Total
				Additional					Stock-
	Common Stock			Paid-In		Retained			holders’
(In thousands)	Shares	Amount		Capital		Earnings			Equity
Balance at December 31, 2002	14,316	$	143	$	10,822	$	68,255		$	79,220
Net income	—	—		—		11,842			11,842
Issuance of common stock from offering	6,075	61		52,062		(34		)	52,089
Issuance of common stock from stock option exercises	249	2		1,024		—			1,026
Tax benefit of stock option exercises	—	—		357		—			357
Balance at December 31, 2003	20,640	206		64,265		80,063			144,534
Net income	—	—		—		17,536			17,536
Issuance of common stock from stock option exercises	821	9		3,234		(4		)	3,239
Tax benefit of stock option exercises	—	—		2,612		—			2,612
Balance at December 31, 2004	21,461	215		70,111		97,595			167,921
Net income	—	—		—		25,061			25,061
Issuance of common stock from stock option exercises	112	1		524		—			525
Tax benefit of stock option exercises	—	—		410		—			410
Balance at December 31, 2005	21,573	$	216	$	71,045	$	122,656		$	193,917

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)	2005			2004			2003
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Operations:
Net income	$	25,061		$	17,536		$	11,842
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation	38,229			32,757			30,046
Gain on disposition of revenue equipment	(3,943		)	(2,221		)	(640		)
Deferred tax provision	11,771			6,173			4,224
Tax benefit of stock option exercises	410			2,612			357
Minority interest in undistributed earnings of affiliate	431			—			—
Changes in other current operating items:
Receivables	(6,896		)	(5,543		)	(4,731		)
Prepaid expenses and other	(1,395		)	(1,835		)	(2,202		)
Accounts payable	3,067			896			(1,236		)
Other current liabilities	5,737			515			1,891
Net cash provided by operating activities	72,472			50,890			39,551
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Purchases of marketable securities	(32,527		)	(70,153		)	(81,287		)
Sales of marketable securities	32,095			89,310			62,068
Revenue equipment additions	(117,722		)	(102,989		)	(55,196		)
Proceeds from revenue equipment dispositions	32,846			30,686			16,194
Buildings and land, office equipment and other additions	(3,718		)	(4,188		)	(422		)
Proceeds from buildings and land, office equipment and other dispositions	68			75			28
Net change in other assets	401			(1,570		)	1,302
Net cash used for investing activities	(88,557		)	(58,829		)	(57,313		)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Borrowings under credit facility and long-term debt	130,717			58,400			35,200
Repayment of borrowings under credit facility and long-term debt	(112,674		)	(56,000		)	(70,972		)
Issuance of common stock from offering	—			—			52,089
Issuance of common stock from stock option exercises	525			3,239			1,026
Change in net checks issued in excess of cash balances	(2,258		)	3,155			419
Net cash provided by financing activities	16,310			8,794			17,762
NET CHANGE IN CASH	225			855			—
CASH:
Beginning of year	855			—			—
End of year	$	1,080		$	855		$	—

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest	$	2,347		$	2,131		$	2,937
Income taxes	$	2,966		$	4,613		$	538

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

MARTEN TRANSPORT, LTD.

Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies

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

Principles of consolidation: The accompanying consolidated financial statements include the accounts of Marten Transport, Ltd. and its 45% owned affiliate, MW Logistics, LLC (“MWL”). MWL is a third-party provider of logistics services to the transportation industry. We have applied the provisions of FASB Interpretation No. 46, “Consolidation of Variable Interest Entities,” as revised, to our investment in MWL effective March 31, 2004. As a result, the accounts of MWL are included in our consolidated balance sheets as of December 31, 2005 and December 31, 2004, and in our consolidated statements of operations beginning April 1, 2004. All material intercompany accounts and transactions have been eliminated in consolidation. Prior to April 1, 2004, we accounted for our investment in MWL using the equity method of accounting. We recorded our share of the equity losses of MWL in the amount of $6,000 for the three months ended March 31, 2004 and $63,000 for the year ended December 31, 2003.

Marketable securities: We invest available funds in short-term marketable securities. This investment is in a mutual fund investing primarily in repurchase agreements and other U.S. government-backed securities having original maturities of three months or less, and is stated at market value, which approximates cost.

Trade accounts receivable: Trade accounts receivable are recorded at the invoiced amounts, net of an allowance for doubtful accounts. A considerable amount of judgment is required in assessing the realization of these receivables including the current creditworthiness of each customer and related aging of the past-due balances, including any billing disputes. In order to assess the collectibility of these receivables, we perform ongoing credit evaluations of our customers’ financial condition. Through these evaluations, we may become aware of a situation where a customer may not be able to meet its financial obligations due to deterioration of its financial viability, credit ratings or bankruptcy. The allowance for doubtful accounts is based on the best information available to us and is reevaluated and adjusted as additional information is received. We evaluate the allowance based on historical write-off experience, the size of the individual customer balances, past-due amounts and the overall national economy. We review the adequacy of our allowance for doubtful accounts quarterly. 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. Accelerated methods are used for income tax reporting purposes. Following is a summary of estimated useful lives for financial reporting purposes:

		Years
Revenue equipment:
Tractors		5
Trailers		7
Satellite tracking		7
Buildings		20
Office equipment and other		3-15

We typically replace most of our company-owned tractors within approximately 3.5 years and our trailers within approximately 7 years after purchase. Our useful lives for depreciating tractors is 5 years and for trailers is 7 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 5 years for tractors and 7 years for trailers. Depreciation expense calculated in this manner approximates the continuing declining value of the revenue equipment, and, for tractors, continues at a consistent straight-line rate for units held beyond the normal replacement cycle.

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

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

Tires in service: The cost of original equipment and replacement tires placed in service is capitalized. Amortization is calculated based on cost, less estimated salvage value, using the straight-line method over 24 months. The current portion of capitalized tires in service is included in prepaid expenses and other in the accompanying consolidated balance sheets. The long-term portion of capitalized tires in service and the estimated salvage value are included in revenue equipment in the accompanying consolidated balance sheets. The cost of recapping tires is charged to operations.

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

Insurance and claims: We self-insure, in part, for losses relating to workers’ compensation, auto liability, general liability, cargo and property damage claims, along with employees’ health insurance with varying risk retention levels. We maintain insurance coverage for per-incident and total losses in excess of these risk retention levels in amounts we consider adequate based upon historical experience and our ongoing review. We reserve currently for the estimated cost of the uninsured portion of pending claims. 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 claims development factors. Under agreements with our insurance carriers and regulatory authorities, we have $3.6 million in standby letters of credit to guarantee settlement of claims.

Revenue recognition: We record revenue and related expenses on the date shipment of freight is completed. We earned 15% of our revenue in 2005 from a single customer whose trade receivables represented 9% of our trade receivables as of December 31, 2005. We earned 11%, 11% and 10% of our revenue in 2004 from three single customers whose trade receivables represented 8%, 7% and 10%, respectively, of our trade receivables as of December 31, 2004. We earned 10% of our revenue in 2003 from a single customer.

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

Accounting for stock-based compensation: We have adopted the disclosure provisions of Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.” Statement No. 148 amends the disclosure requirements of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation.” As of December 31, 2005, we have two stock-based employee compensation plans, which are described more fully in Note 10. We account for these plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under these plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if we had applied the fair value recognition provisions of Statement No. 123:

(In thousands, except per share amounts)	2005			2004			2003
Net income, as reported	$	25,061		$	17,536		$	11,842
Deduct: total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects	(108		)	(157		)	(182		)
Pro forma net income	$	24,953		$	17,379		$	11,660

Earnings per common share:
Basic-as reported	$	1.16		$	0.83		$	0.71
Basic-pro forma	$	1.16		$	0.82		$	0.70
Diluted-as reported	$	1.14		$	0.81		$	0.68
Diluted-pro forma	$	1.14		$	0.80		$	0.67

The weighted-average fair value as of the date of grant was $3.49 per share for options granted during 2003. No options were granted in 2005 or 2004. The fair value was estimated as of the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

	2005	2004	2003
Expected option life in years	—	—	6
Risk-free interest rate percentage	—	—	3.3
Expected stock price volatility percentage	—	—	33
Expected dividend payments	—	—	—

Segment reporting: We have adopted the provisions of Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information.” Statement No. 131 establishes accounting standards for segment reporting. We operate in a single segment—long-haul truckload carriage providing protective service transportation of time- and temperature-sensitive materials and general commodities.

Recent accounting pronouncement: In December 2004, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards, or SFAS, No. 123 (revised 2004), “Share-Based Payment.” SFAS No. 123, as revised, requires entities to recognize the grant-date fair value of stock options and other equity-based compensation issued to employees in the income statement. The statement eliminates entities’ ability to account for share-based compensation transactions using the intrinsic value method of accounting in Accounting Principles Board, or APB, Opinion No. 25, “Accounting for Stock Issued to

Employees,” which was permitted under SFAS No. 123, as originally issued. In April 2005, the Securities and Exchange Commission deferred the effective date of SFAS No. 123, as revised, to the beginning of the first annual reporting period beginning after June 15, 2005. Accordingly, we will recognize the grant-date fair value of stock options in our consolidated statements of operations beginning in our first quarter of 2006.

We plan to adopt the provisions of SFAS No. 123, as revised, effective January 1, 2006, as required, using the modified prospective transition method for our existing stock-based compensation plans. Under the modified prospective transition method, the fair value based accounting method will be used for all employee awards granted, modified, or settled after the adoption date. Compensation expense related to the non-vested portion of awards outstanding as of that date will be based on the grant date fair value of those awards as calculated under the original provisions of SFAS No. 123. We estimate that the adoption of SFAS No. 123, as revised, will result in approximately $300,000 to $400,000 of stock-based compensation expense, net of related income tax benefit, in 2006 related to non-vested employee options issued prior to the adoption date and options with service-based vesting issued or expected to be issued in 2006. Additionally, options which vest upon achievement of certain performance criteria from 2006 through 2010 have been and are expected to be issued in 2006. We estimate that these performance-based options will result in approximately $500,000 to $600,000 in total stock-based compensation expense, net of related income tax benefit, which will be recorded in the period(s), if any, in which the performance criteria are achieved.

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

Reclassifications: The cash and checks issued in excess of cash balances in our 2004 consolidated balance sheet and the changes in such balances in our 2004 consolidated statement of cash flows, the minority interest in the earnings of MWL in our 2004 consolidated statement of operations and the purchases and sales of marketable securities, along with buildings and land, office equipment and other property and equipment additions and proceeds from dispositions, in our 2004 and 2003 consolidated statements of cash flows have been reclassified to be consistent with the 2005 presentation. These reclassifications do not have a material effect on our consolidated financial statements.

2. Details of Consolidated Balance Sheet Accounts

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

(In thousands)	2005		2004
License fees	$	4,447	$	4,249
Tires in service	3,981		3,261
Parts and tires inventory	1,946		1,410
Insurance premiums	1,003		1,010
Other	1,887		1,939
	$	13,264	$	11,869

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

(In thousands)	2005			2004
Total minimum lease payments to be received	$	11,633		$	12,972
Less: unearned income	(2,508		)	(2,652		)
Net investment in direct financing leases	$	9,125		$	10,320

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

As of December 31, 2005, minimum lease payments to be received for each of the five succeeding fiscal years are as follows: $3,963,000 in 2006, $3,276,000 in 2007, $2,523,000 in 2008, $1,471,000 in 2009 and $400,000 in 2010.

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

(In thousands)	2005		2004
Accrued payables	$	9,939	$	3,555
Salaries and wages	3,392		3,941
Vacation	3,087		2,727
Current income taxes	921		261
Federal highway use tax	—		570
Other	1,218		1,238
	$	18,557	$	12,292

3. Long-Term Debt

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

(In thousands)	2005		2004
Unsecured committed credit facility in the amount of $45 million with a bank maturing in April 2008 and bearing variable interest based upon either the London Interbank Offered Rate or the bank’s Prime Rate, in each case plus applicable margins (6.17% weighted average interest rate for the facility at December 31, 2005)	$	30,443	$	7,400
Series A Senior Unsecured Notes maturing in October 2008 with annual principal payments of $3.57 million which began in October 2002 and bearing fixed interest at 6.78%	10,714		14,286
Series B Senior Unsecured Notes maturing in April 2010 with annual principal payments of $1.43 million which began in April 2004 and bearing fixed interest at 8.57%	7,143		8,571
Total long-term debt	48,300		30,257
Less current maturities of long-term debt	5,000		5,000
Long-term debt, less current maturities	$	43,300	$	25,257

At December 31, 2005, our unsecured committed credit facility (“credit facility”) had an outstanding principal balance of $30.4 million, outstanding standby letters of credit of $3.6 million, and remaining borrowing availability of $11.0 million.

Our credit facility prohibits us from paying, in any fiscal year, dividends in excess of 25% of our net income from the prior fiscal year. The debt agreements also contain restrictive covenants which, among other matters, require us to maintain certain financial ratios, including debt-to-equity, cash flow leverage, interest coverage and fixed charge coverage. We were in compliance with all of these covenants at December 31, 2005.

Maturities of long-term debt at December 31, 2005, are as follows:

(In thousands)	Amount
2006	$	5,000
2007	5,000
2008	35,443
2009	1,429
2010	1,428
	$	48,300

5. Income Taxes

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

(In thousands)	2005		2004		2003
Current:
Federal	$	4,254	$	5,443	$	2,520
State	401		1,561		514
	4,655		7,004		3,034
Deferred:
Federal	9,413		5,028		3,664
State	2,358		1,145		560
	11,771		6,173		4,224
Total provision	$	16,426	$	13,177	$	7,258

The statutory federal income tax rate is reconciled to the effective income tax rate as follows:

	2005		2004		2003
Statutory federal income tax rate	35	%	35	%	35	%
Increase in taxes arising from: State income taxes, net of federal income tax benefit	4		6		4
Federal deferred income tax rate increase	—		4		—
Benefit of lower tax bracket	—		(1	)	(1	)
Decrease in accrual for tax contingencies	—		(1	)	—
Other, net	1		—		—
Effective tax rate	40	%	43	%	38	%

Our effective income tax rate increased to 42.9% in 2004, because we increased our federal and state deferred income tax liabilities by a total of $1.5 million during the fourth quarter of 2004 as a result of an increase in our statutory federal and state income tax rates based upon projected future taxable income.

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

(In thousands)	2005		2004
Deferred tax assets:
Reserves and accrued liabilities for financial reporting in excess of tax	$	6,150	$	6,173
State income tax deduction for financial reporting in excess of tax	3,565		2,739
Other	111		50
	9,826		8,962
Deferred tax liabilities:
Tax depreciation in excess of depreciation for financial reporting	70,113		59,361
Prepaid licenses and use tax expensed for income tax purposes and capitalized for financial reporting	2,056		—
Capital lease receivables for financial reporting in excess of tax	94		267
	72,263		59,628
Net deferred tax liability	$	62,437	$	50,666

We have not provided a valuation allowance against deferred tax assets at December 31, 2005 or 2004. 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.

6. Earnings Per Common Share

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

(In thousands, except per share amounts)	2005		2004		2003
Numerator:
Net income	$	25,061	$	17,536	$	11,842
Denominator:
Basic earnings per common share - weighted-average shares	21,518		21,088		16,641
Effect of dilutive stock options	444		677		765
Diluted earnings per common share - weighted-average shares and assumed conversions	21,962		21,765		17,406
Basic earnings per common share	$	1.16	$	0.83	$	0.71
Diluted earnings per common share	$	1.14	$	0.81	$	0.68

All outstanding options were included in the calculation of diluted earnings per share for all years presented.

7. Stock Split

8. Amended and Restated Certificate of Incorporation

In August 2003, our stockholders approved an Amended and Restated Certificate of Incorporation that increased the number of authorized shares of capital stock from 10 million shares consisting solely of common stock, $.01 par value, to 25 million shares of capital stock consisting of 23 million shares of common stock, $.01 par value, and 2 million shares of undesignated preferred stock, $.01 par value. In May 2005, our stockholders approved an amendment to our Amended and Restated Certificate of Incorporation increasing the authorized number of shares of common stock, $.01 par value, from 23 million shares to 48 million shares. The Board may fix the rights, preferences, and privileges of the preferred stock, along with the voting powers (full or limited or no voting powers), such preferences and relative participating, optional, or other special rights, and such qualifications, limitations, or restrictions, including dividend rights, conversion rights, redemption privileges, and preferences on liquidation or dissolution of each class or series of preferred stock. The preferred stock could have voting or conversion rights that could adversely affect the voting power or other rights of holders of our common stock. The issuance of preferred stock also could have the effect, under certain circumstances, of delaying, deferring, or preventing a change of control of our company. At December 31, 2005 there were no preferred shares outstanding.

9. Stock Issuance

We issued 6.075 million shares of our common stock in a public offering completed during the third quarter of 2003. The stock issuance resulted in net proceeds to us of approximately $52.1 million, which were recorded as an increase to our stockholders’ equity.

10. Employee Benefits

Stock Incentive Plans - In May 2005, our stockholders approved our 2005 Stock Incentive Plan (the “2005 Plan”). Our Board of Directors adopted the 2005 Plan in March 2005 and approved amendments to the 2005 Plan in April 2005. Under the 2005 Plan, all of our employees and any subsidiary employees, as well as all of our non-employee directors, consultants, advisors and independent contractors, may be granted stock-based awards, including incentive and non-statutory stock options and restricted stock awards, none of which have been awarded as of December 31, 2005. Stock options expire within 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. The maximum number of shares of common stock that will be available for issuance under the 2005 Plan is 2.85 million shares. The 2005 Plan replaces our 1995 Stock Incentive Plan (the “1995 Plan”), which expired by its terms in March 2005.

Under the 1995 Plan, officers, directors and employees were granted incentive and non-statutory stock options. Incentive stock option exercise prices were required to be at least the fair market value of our common stock on the date of grant. Non-statutory stock option exercise prices were required to be at least 85% of the fair market value of our common stock on the date of grant. Stock options expire within 10 years after the date of grant. As of December 31, 2005, there were 607,239 shares reserved for issuance under options outstanding under the 1995 Plan. No additional options will be granted under the 1995 Plan.

As of December 31, stock option activity under our plans was as follows:

	2005				2004				2003
			Weighted				Weighted				Weighted
			Average				Average				Average
			Exercise				Exercise				Exercise
	Shares		Price		Shares		Price		Shares		Price
Outstanding, beginning of year	750,468		$	5.26	1,573,032		$	4.57	1,674,521		$	4.10
Granted	—		—		—		—		151,878		9.11
Exercised	(112,862	)	4.68		(820,877	)	3.95		(248,304	)	4.13
Forfeited	(30,367	)	5.21		(1,687	)	4.37		(5,063	)	4.37
Outstanding, end of year	607,239		5.36		750,468		5.26		1,573,032		4.57
Exercisable, end of year	521,173		4.76		526,031		4.59		1,237,220		4.09

The following table summarizes information regarding stock options outstanding and exercisable as of December 31, 2005:

	Range of Exercise Price
	$3.48 to
	$5.78		$10.76		Total
Options outstanding:
Number of shares	505,987		101,252		607,239
Weighted-average remaining contractual life	4.7 years		7.8 years		5.2 years
Weighted-average exercise price	$	4.28	$	10.76	$	5.36
Options exercisable:
Number of shares	480,673		40,500		521,173
Weighted-average exercise price	$	4.26	$	10.76	$	4.76

Retirement Savings Plan - We sponsor a defined contribution retirement savings plan under Section 401(k) of the Internal Revenue Code. Employees are eligible for the plan after one year of service. Participants are able to contribute up to the limit set by law, which in 2005 was $14,000 for participants less than age 50 and $18,000 for participants age 50 and above. We contribute 25% of each participant’s contribution, up to a total of 6% contributed. Our contribution vests at the rate of 20% per year for the second through sixth years of

service. In addition, we may make elective contributions as determined by the board of directors. Elective contributions were not made in 2005, 2004 or 2003. Total expense recorded for the plan was $702,000 in 2005, $404,000 in 2004 and $343,000 in 2003.

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.

11. Fair Value of Financial Instruments

The carrying amounts of marketable securities, accounts receivable, direct financing leases receivable and accounts payable approximate fair value because of the short maturity of these instruments. The fair value of our total long-term debt is estimated to be $49.0 million at December 31, 2005, and $31.9 million at December 31, 2004. The fair value was estimated using discounted cash flow analysis. Current borrowing rates for similar long-term debt were used in this analysis.

12. Commitments and Contingencies

We are committed to: (a) purchase $23.9 million of new revenue equipment in 2006; and (b) operating lease obligations totaling $955,000 through 2011.

We are involved in legal actions that arise in the ordinary course of business. Although the outcomes of any such legal actions cannot be predicted, in the opinion of management, the resolution of any currently pending or threatened actions will not have a material adverse effect upon our financial position or results of operations.

13. Quarterly Financial Data (Unaudited)

The following is a summary of the quarterly results of operations for 2005 and 2004:

2005 Quarters (In thousands, except per share amounts)

First

Second

Third

Fourth

Total

Operating revenue

102,906

112,800

119,081

125,415

460,202

Operating income

8,276

11,556

11,046

11,989

42,867

Net income

4,815

6,763

6,374

7,109

25,061

Basic earnings per common share

0.22

0.31

0.30

0.33

1.16

Diluted earnings per common share

0.22

0.31

0.29

0.32

1.14

2004 Quarters (In thousands, except per share amounts)	First		Second		Third		Fourth		Total
Operating revenue	$	84,530	$	91,907	$	97,892	$	105,719	$	380,048
Operating income	4,589		7,933		7,907		10,916		31,345
Net income	2,732		4,814		4,784		5,206		17,536
Basic earnings per common share	0.13		0.23		0.23		0.24		0.83
Diluted earnings per common share	0.13		0.22		0.22		0.24		0.81

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)	1.	Financial Statements (See Part II, Item 8 of this Report):		Page

		Management’s Annual Report on Internal Control Over Financial Reporting		26

		Report of Independent Registered Public Accounting Firm		27

		Report of Independent Registered Public Accounting Firm		28

		Consolidated Balance Sheets as of December 31, 2005 and 2004		29

		Consolidated Statements of Operations for the years ended December 31, 2005, 2004 and 2003		30

		Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2005, 2004 and 2003		31

		Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003		32

		Notes to Consolidated Financial Statements		33

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

		Schedule II – Valuation and Qualifying Accounts and Reserves		49

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

	3.	Exhibits:

		The exhibits to this Report are listed in the Exhibit Index on pages 50 through 52. A copy of any of the exhibits listed will be sent at a reasonable cost to any shareholder as of March 13, 2006. Requests should be sent to James J. Hinnendael, Chief Financial Officer, at our corporate headquarters.

		The following is a list of each management contract or compensatory plan or arrangement required to be filed as an exhibit to this Report under Item 14(c):

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

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

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

		(4)	Summary of Named Executive Officers’ Compensation.

		(5)	2006 Non-employee Director Compensation Summary.

SIGNATURES

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

Dated: March 10, 2006	MARTEN TRANSPORT, LTD.


	By	/s/ Randolph L. Marten
		Randolph L. Marten
		Chairman of the Board, President and Chief
		Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below on March 10, 2006, by the following persons on behalf of the Registrant and in the capacities indicated.

Signature		Title

/s/ Randolph L. Marten		Chairman of the Board, President, Chief
Randolph L. Marten		Executive Officer and Director (Principal
		Executive Officer)

/s/ James J. Hinnendael		Chief Financial Officer
James J. Hinnendael		(Principal Financial and Accounting
		Officer)

/s/ Larry B. Hagness		Director
Larry B. Hagness


/s/ Thomas J. Winkel		Director
Thomas J. Winkel


/s/ Jerry M. Bauer		Director
Jerry M. Bauer


/s/ Christine K. Marten		Director
Christine K. Marten

SCHEDULE II

MARTEN TRANSPORT, LTD.

Valuation and Qualifying Accounts and Reserves

(In thousands)

Description	Balance at Beginning of Year		Charged to Costs and Expenses		Deductions			Balance at End of Year

Insurance and claims accruals:
Year ended December 31, 2005	$	13,654	$	23,221	$	(23,749	)(1)	$	13,126
Year ended December 31, 2004	12,052		22,884		(21,282		)(1)	13,654
Year ended December 31, 2003	12,915		20,111		(20,974		)(1)	12,052

Allowance for doubtful accounts:
Year ended December 31, 2005	909		90		(71		)(2)	928
Year ended December 31, 2004	793		120		(4		)(2)	909
Year ended December 31, 2003	892		120		(219		)(2)	793

(1) Claims payments

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

See report of independent registered public accounting firm.

MARTEN TRANSPORT, LTD.

EXHIBIT INDEX TO ANNUAL REPORT

ON FORM 10-K

For the Year Ended December 31, 2005

Item No.	Item	Filing Method

3.1	Amended and Restated Certificate of Incorporation effective August 11, 2003	Incorporated by reference to Exhibit 4.1 of the Company’s Amendment No. 2 to Registration Statement on Form S-2 (File No. 33-107367).

3.2	Amendment to Amended and Restated Certificate of Incorporation effective May 25, 2005	Incorporated by reference to Exhibit 3.3 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 (File No. 0-15010).

3.3	Bylaws of the Company	Incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K, filed on January 25, 2002 (File No. 0-15010).

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

4.2	Amended and Restated Certificate of Incorporation effective August 11, 2003	See Exhibit 3.1 above.

4.3	Amendment to Amended and Restated Certificate of Incorporation effective May 25, 2005	See Exhibit 3.2 above.

4.4	Bylaws of the Company	See Exhibit 3.3 above.

10.1	Marten Transport, Ltd. 1995 Stock Incentive Plan	Incorporated by reference to Exhibit 10.18 of the Company’s Annual Report on Form 10-K for the year ended December 31, 1994 (File No. 0-15010).

10.2	Note Purchase and Private Shelf Agreement dated October 30, 1998, between the Company and The Prudential Insurance Company of America	Incorporated by reference to Exhibit 10.12 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1998 (File No. 0-15010).

10.3	Credit Agreement dated October 30, 1998, between the Company and U.S. Bank National Association	Incorporated by reference to Exhibit 10.13 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1998 (File No. 0-15010).

10.4	Stock Redemption Agreement, dated June 30, 1999, between the Company and Darrell D. Rubel, as Personal Representative of the Estate of Roger R. Marten	Incorporated by reference to Exhibit 10.15 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 (File No. 0-15010).

Item No.	Item	Filing Method

10.5	First Amendment to Credit Agreement, dated January 3, 2000, between the Company, U.S. Bank National Association and The Northern Trust Company	Incorporated by reference to Exhibit 10.16 of the Company’s Annual Report on Form 10-K for the year ended December 31, 1999 (File No. 0-15010).

10.6	Second Amendment to Credit Agreement, dated January 19, 2000, between the Company, U.S. Bank National Association and The Northern Trust Company	Incorporated by reference to Exhibit 10.17 of the Company’s Annual Report on Form 10-K for the year ended December 31, 1999 (File No. 0-15010).

10.7	Third Amendment to Credit Agreement, dated April 5, 2000, between the Company, U.S. Bank National Association and The Northern Trust Company	Incorporated by reference to Exhibit 10.18 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2000 (File No. 0-15010).

10.8	Note Purchase Agreement, dated April 6, 2000, between the Company and The Prudential Insurance Company of America	Incorporated by reference to Exhibit 10.19 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2000 (File No. 0-15010).

10.9	Fourth Amendment to Credit Agreement, dated May 31, 2000, between the Company, U.S. Bank National Association and The Northern Trust Company	Incorporated by reference to Exhibit 10.20 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000 (File No. 0-15010).

10.10	Fifth Amendment to Credit Agreement, dated December 6, 2000, between the Company, U.S. Bank National Association and The Northern Trust Company	Incorporated by reference to Exhibit 10.20 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2000 (File No. 0-15010).

10.11	Sixth Amendment to Credit Agreement, dated January 14, 2002, between the Company, U.S. Bank National Association and The Northern Trust Company	Incorporated by reference to Exhibit 10.16 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2001 (File No. 0-15010).

10.12	Seventh Amendment to Credit Agreement, dated March 29, 2003, between the Company, U.S. Bank National Association and The Northern Trust Company	Incorporated by reference to Exhibit 10.17 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 (File No. 0-15010).

10.13	Eighth Amendment to Credit Agreement, dated June 27, 2003, between the Company, U.S. Bank National Association and The Northern Trust Company	Incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003 (File No. 0-15010).

10.14	Ninth Amendment to Credit Agreement, dated June 21, 2005, between the Company and U.S. Bank National Association	Incorporated by reference to Exhibit 10.19 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 (File No. 0-15010).

Item No.	Item	Filing Method

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

10.16	Form of Non-Statutory Stock Option Agreement for the 2005 Stock Incentive Plan	Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed January 31, 2006.

10.17	Summary of Named Executive Officers’ Compensation	Incorporated by reference to Exhibit 10.20 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 (File No. 0-15010).

10.18	2005 Incentive Compensation Plan Summary	Incorporated by reference to Exhibit 99.1 of the Company’s Current Report on Form 8-K filed February 1, 2005.

10.19	2006 Non-employee Director Compensation Summary	Filed with this Report.

23.1	Consent of KPMG LLP	Filed with this Report.

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

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

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

		Page
PART I

Item 1.	Business	1
Item 1A.	Risk Factors	5
Item 1B.	Unresolved Staff Comments	9
Item 2.	Properties	9
Item 3.	Legal Proceedings	9
Item 4.	Submission Of Matters To A Vote Of Security Holders	9
Item 4A.	Executive Officers Of The Registrant	10

PART II

Item 5.	Market For Registrant’s Common Equity, Related Stockholder Matters And Issuer Purchases Of Equity Securities	11
Item 6.	Selected Financial Data	12
Item 7.	Management’s Discussion And Analysis Of Financial Condition And Results of Operations	13
Item 7A.	Quantitative And Qualitative Disclosures About Market Risk	25
Item 8.	Financial Statements And Supplementary Data	26
Item 9.	Changes In And Disagreements With Accountants On Accounting And Financial Disclosure	44
Item 9A.	Controls And Procedures	44
Item 9B.	Other Information	44

PART III

Item 10.	Directors And Executive Officers Of The Registrant	45
Item 11.	Executive Compensation	46
Item 12.	Security Ownership Of Certain Beneficial Owners And Management And Related Stockholder Matters	46
Item 13.	Certain Relationships And Related Transactions	46
Item 14.	Principal Accountant Fees And Services	46

PART IV

Item 15.	Exhibits And Financial Statement Schedules	47

OTHER

	Signature Page	48

	Exhibit Index	50

ITEM 2. PROPERTIES

ITEM 3. LEGAL PROCEEDINGS

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

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

ITEM 6. SELECTED FINANCIAL DATA

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

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

ITEM 11. EXECUTIVE COMPENSATION

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

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES