0001437749-18-019470.txt : 20181105 0001437749-18-019470.hdr.sgml : 20181105 20181105083604 ACCESSION NUMBER: 0001437749-18-019470 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 56 CONFORMED PERIOD OF REPORT: 20180930 FILED AS OF DATE: 20181105 DATE AS OF CHANGE: 20181105 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MARTEN TRANSPORT LTD CENTRAL INDEX KEY: 0000799167 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 391140809 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15010 FILM NUMBER: 181158833 BUSINESS ADDRESS: STREET 1: 129 MARTEN ST CITY: MONDOVI STATE: WI ZIP: 54755 BUSINESS PHONE: 7159264216 MAIL ADDRESS: STREET 1: 3400 PLAZA VII STREET 2: 45 SOUTH SEVENTH ST CITY: MINNEAPOLIS STATE: MN ZIP: 55402 10-Q 1 mrtn20180930_10q.htm FORM 10-Q mrtn20180930_10q.htm
 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

Form 10-Q

 

Quarterly Report Under Section 13 or 15(d)

of the Securities Exchange Act of 1934

 

For the Quarter ended September 30, 2018

 

Commission File Number 0-15010

 

 

MARTEN TRANSPORT, LTD.

(Exact name of registrant as specified in its charter)

 

 

Delaware

  

39-1140809

(State of incorporation)

  

(I.R.S. employer identification no.)

 

 

129 Marten Street, Mondovi, Wisconsin 54755

(Address of principal executive offices)

 

715-926-4216

(Registrant’s telephone number)

 

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

Yes ☒   No ☐

 

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes ☒   No ☐

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐   Accelerated filer ☒
Smaller reporting company ☐ Non-accelerated filer ☐
Emerging growth company ☐  

 

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

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

 

The number of shares outstanding of the Registrant’s Common Stock, par value $.01 per share, was 54,462,924 as of October 26, 2018.

  

 

 

 

 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

MARTEN TRANSPORT, LTD.

CONSOLIDATED CONDENSED BALANCE SHEETS

 

 

   

September 30,

   

December 31,

 

(In thousands, except share information)

 

2018

   

2017

 
   

(Unaudited)

         

ASSETS

               

Current assets:

               

Cash and cash equivalents

  $ 35,739     $ 15,791  

Receivables:

               

Trade, net

    84,055       74,886  

Other

    6,993       6,131  

Prepaid expenses and other

    18,816       19,810  

Total current assets

    145,603       116,618  
                 

Property and equipment:

               

Revenue equipment, buildings and land, office equipment and other

    820,523       783,648  

Accumulated depreciation

    (223,087

)

    (211,728

)

Net property and equipment

    597,436       571,920  

Other assets

    2,281       1,865  

Total assets

  $ 745,320     $ 690,403  
                 

LIABILITIES AND STOCKHOLDERS’ EQUITY

               

Current liabilities:

               

Accounts payable and accrued liabilities

  $ 48,259     $ 38,100  

Insurance and claims accruals

    25,295       26,177  

Total current liabilities

    73,554       64,277  

Deferred income taxes

    107,696       100,626  

Total liabilities

    181,250       164,903  
                 

Stockholders’ equity:

               

Preferred stock, $.01 par value per share; 2,000,000 shares authorized; no shares issued and outstanding

    -       -  

Common stock, $.01 par value per share; 192,000,000 shares authorized; 54,662,924 shares at September 30, 2018, and 54,533,455 shares at December 31, 2017, issued and outstanding

    547       545  

Additional paid-in capital

    79,304       76,413  

Retained earnings

    484,219       448,542  

Total stockholders’ equity

    564,070       525,500  

Total liabilities and stockholders’ equity

  $ 745,320     $ 690,403  

 

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

 

1

 

 

 

MARTEN TRANSPORT, LTD.

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

  

   

Three Months

   

Nine Months

 
   

Ended September 30,

   

Ended September 30,

 

(In thousands, except per share information)

 

2018

   

2017

   

2018

   

2017

 
                                 

Operating revenue

  $ 199,649     $ 170,679     $ 583,633     $ 515,349  
                                 

Operating expenses (income):

                               

Salaries, wages and benefits

    64,051       53,594       186,123       166,709  

Purchased transportation

    35,867       28,668       105,941       85,546  

Fuel and fuel taxes

    31,658       26,143       92,444       77,106  

Supplies and maintenance

    10,574       10,381       31,261       31,912  

Depreciation

    22,272       21,186       66,280       63,875  

Operating taxes and licenses

    2,404       2,314       7,055       6,813  

Insurance and claims

    8,567       11,336       27,798       29,098  

Communications and utilities

    1,663       1,463       4,993       4,531  

Gain on disposition of revenue equipment

    (1,835

)

    (1,908

)

    (5,206

)

    (4,882

)

Other

    5,435       4,480       16,134       12,112  
                                 

Total operating expenses

    180,656       157,657       532,823       472,820  
                                 

Operating income

    18,993       13,022       50,810       42,529  
                                 

Other

    (120

)

    14       (447

)

    280  
                                 

Income before income taxes

    19,113       13,008       51,257       42,249  
                                 

Income taxes expense

    3,856       5,153       11,967       17,039  
                                 

Net income

  $ 15,257     $ 7,855     $ 39,290     $ 25,210  
                                 

Basic earnings per common share

  $ 0.28     $ 0.14     $ 0.72     $ 0.46  
                                 

Diluted earnings per common share

  $ 0.28     $ 0.14     $ 0.71     $ 0.46  
                                 

Dividends declared per common share

  $ 0.025     $ 0.025     $ 0.075     $ 0.055  

 

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

 

2

 

 

 

MARTEN TRANSPORT, LTD.

CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

 (Unaudited)

 

   

Common Stock

   

Additional

Paid-In

   

Retained

   

Total

Stock-

holders’

 

(In thousands)

 

Shares

   

Amount

   

Capital

   

Earnings

   

Equity

 
                                         

Balance at December 31, 2016

    54,392     $ 544     $ 74,175     $ 362,619     $ 437,338  

Net income

    -       -       -       25,210       25,210  

Issuance of common stock from share-based payment arrangement exercises and vesting of performance unit awards

    130       1       961       -       962  

Employee taxes paid in exchange for shares withheld

    -       -       (47

)

    -       (47

)

Share-based payment arrangement compensation expense

    -       -       916       -       916  

Dividends on common stock

    -       -       -       (2,999

)

    (2,999

)

Cash in lieu of fractional shares from stock split

    -       -       (54

)

    -       (54

)

Balance at September 30, 2017

    54,522       545       75,951       384,830       461,326  

Net income

    -       -       -       65,074       65,074  

Issuance of common stock from share-based payment arrangement exercises and vesting of performance unit awards

    11       -       128       -       128  

Share-based payment arrangement compensation expense

    -       -       334       -       334  

Dividends on common stock

    -       -       -       (1,362

)

    (1,362

)

Balance at December 31, 2017

    54,533       545       76,413       448,542       525,500  

Adoption of accounting standard (Note 2)

    -       -       -       485       485  

Net income

    -       -       -       39,290       39,290  

Issuance of common stock from share-based payment arrangement exercises and vesting of performance unit awards

    130       2       893       -       895  

Employee taxes paid in exchange for shares withheld

    -       -       (104

)

    -       (104

)

Share-based payment arrangement compensation expense

    -       -       2,102       -       2,102  

Dividends on common stock

    -       -       -       (4,098

)

    (4,098

)

Balance at September 30, 2018

    54,663     $ 547     $ 79,304     $ 484,219     $ 564,070  

 

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

 

3

 

 

 

MARTEN TRANSPORT, LTD.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   

Nine Months

 
   

Ended September 30,

 

(In thousands)

 

2018

   

2017

 

Cash flows provided by operating activities:

               

Operations:

               

Net income

  $ 39,290     $ 25,210  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Depreciation

    66,280       63,875  

Gain on disposition of revenue equipment

    (5,206

)

    (4,882

)

Deferred income taxes

    7,070       1,992  

Share-based payment arrangement compensation expense

    2,102       916  

Distribution from affiliate

    45       400  

Equity in (earnings) loss from affiliate

    (433

)

    271  

Adoption of accounting standard (Note 2)

    485       -  

Changes in other current operating items:

               

Receivables

    (8,103

)

    (3,065

)

Prepaid expenses and other

    994       3,044  

Accounts payable and accrued liabilities

    10,455       1,192  

Insurance and claims accruals

    (882

)

    5,757  

Net cash provided by operating activities

    112,097       94,710  
                 

Cash flows used for investing activities:

               

Revenue equipment additions

    (130,856

)

    (135,010

)

Proceeds from revenue equipment dispositions

    48,440       53,586  

Buildings and land, office equipment and other additions

    (6,398

)

    (2,557

)

Other

    (28

)

    (34

)

Net cash used for investing activities

    (88,842

)

    (84,015

)

                 

Cash flows used for financing activities:

               

Borrowings under credit facility and long-term debt

    -       30,816  

Repayment of borrowings under credit facility and long-term debt

    -       (38,702

)

Dividends on common stock

    (4,098

)

    (2,999

)

Issuance of common stock from share-based payment arrangement exercises

    895       962  

Employee taxes paid in exchange for shares withheld

    (104

)

    (47

)

Cash in lieu of fractional shares from stock split

    -       (54

)

Net cash used for financing activities

    (3,307

)

    (10,024

)

                 

Net change in cash and cash equivalents

    19,948       671  
                 

Cash and cash equivalents:

               

Beginning of period

    15,791       488  

End of period

  $ 35,739     $ 1,159  
                 

Supplemental non-cash disclosure:

               

Change in property and equipment not yet paid

  $ (2,224

)

  $ (3,244

)

                 

Supplemental disclosure of cash flow information:

               

Cash paid for:

               

Income taxes

  $ 2,805     $ 11,031  

Interest

  $ 36     $ 41  

 

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

  

4

 

 

MARTEN TRANSPORT, LTD.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2018

(Unaudited)

 

 

(1) Consolidated Condensed Financial Statements

 

The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial statements, and therefore do not include all information and disclosures required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, such statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary to fairly present our consolidated financial condition, results of operations and cash flows for the interim periods presented. The results of operations for any interim period do not necessarily indicate the results for the full year. The unaudited interim consolidated condensed financial statements should be read with reference to the consolidated financial statements and notes to consolidated financial statements in our 2017 Annual Report on Form 10-K.

 

 

(2) Adoption of New Accounting Standard

 

We account for our revenue in accordance with Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, 606, Revenue from Contracts with Customers, which we adopted on January 1, 2018 using the modified retrospective method. We recognized the cumulative effect of initially applying the new revenue standard as an increase of $485,000 to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. We expect the impact of the adoption of the new revenue standard to be immaterial to our net income and financial position on an ongoing basis.

 

The new revenue standard requires us to recognize revenue and related expenses within each of our four reporting segments over time, compared with our former policy in which we recorded revenue and related expenses on the date shipment of freight was completed.

 

The cumulative effect of the changes made to our consolidated condensed balance sheet on January 1, 2018 for the adoption of the new revenue standard was as follows:

 

 

 

(In thousands)

 

 

Balance at

December 31, 2017

   

Adjustments

Due to

ASC 606

   

 

Balance at

January 1, 2018

 

Assets:

                       

Prepaid expenses and other

  $ 19,810     $ 2,445  (a)   $ 22,255  

Liabilities:

                       

Accounts payable and accrued liabilities

    38,100       1,960       40,060  

Stockholders’ equity:

                       

Retained earnings

    448,542       485       449,027  

 

 

(a)

Contract assets balance at January 1, 2018.

 

5

 

 

The impact of the adoption of the new revenue standard on our consolidated condensed statement of operations and balance sheet was as follows:

 

   

Three Months Ended September 30, 2018

 

 

 

(In thousands)

 

Prior to

Adoption of

ASC 606

   

Adjustments

Due to

ASC 606

   

 

 

As Reported

 
                         

Operating revenue

  $ 199,100     $ 549     $ 199,649  

Operating expenses:

                       

Salaries, wages and benefits

    63,935       116       64,051  

Purchased transportation

    35,568       299       35,867  

Fuel and fuel taxes

    31,627       31       31,658  

Supplies and maintenance

    10,551       23       10,574  

Income taxes expense

    3,835       21       3,856  

Net income

    15,198       59       15,257  

 

 

   

Nine Months Ended September 30, 2018

 

 

 

(In thousands)

 

Prior to

Adoption of

ASC 606

   

Adjustments

Due to

ASC 606

   

 

 

As Reported

 
                         

Operating revenue

  $ 583,268     $ 365     $ 583,633  

Operating expenses:

                       

Salaries, wages and benefits

    185,955       168       186,123  

Purchased transportation

    105,497       444       105,941  

Fuel and fuel taxes

    92,410       34       92,444  

Supplies and maintenance

    31,262       (1

)

    31,261  

Income taxes expense

    12,046       (79

)

    11,967  

Net income

    39,491       (201

)

    39,290  

 

 

   

Balance at September 30, 2018

 

 

 

(In thousands)

 

Prior to

Adoption of

ASC 606

   

Adjustments

Due to

ASC 606

   

 

 

As Reported

 

Assets:

                       

Prepaid expenses and other

  $ 16,006     $ 2,810  (a)   $ 18,816  

Liabilities:

                       

Accounts payable and accrued liabilities

    45,733       2,526       48,259  

Stockholders’ equity:

                       

Retained earnings

    483,935       284       484,219  

 

 

(a)

Contract assets balance at September 30, 2018.

 

 

(3) Revenue and Business Segments

 

We account for our revenue in accordance with ASC 606, Revenue from Contracts with Customers, which we adopted on January 1, 2018 using the modified retrospective method. We combine our five current operating segments into four reporting segments (Truckload, Dedicated, Intermodal and Brokerage) for financial reporting purposes. These four reporting segments are also the appropriate categories for the disaggregation of our revenue under ASC 606.

 

The primary source of our operating revenue is provided by our Truckload segment through a combination of regional short-haul and medium-to-long-haul full-load transportation services. We transport food and other consumer packaged goods that require a temperature-controlled or insulated environment, along with dry freight, across the United States and into and out of Mexico and Canada.

 

6

 

 

Our Dedicated segment provides customized transportation solutions tailored to meet individual customers’ requirements, utilizing temperature-controlled trailers, dry vans and other specialized equipment within the United States. Our agreements with customers range from three to five years and are subject to annual rate reviews.

 

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

 

Our Intermodal segment transports our customers’ freight within the United States utilizing our temperature-controlled trailers on railroad flatcars for portions of trips, with the balance of the trips using our tractors or, to a lesser extent, contracted carriers. The main factors that affect our Intermodal revenue are the rate per mile and other charges we receive from our customers.

 

Our Brokerage segment develops contractual relationships with and arranges for third-party carriers to transport freight for our customers in temperature-controlled trailers and dry vans within the United States and into and out of Mexico through Marten Transport Logistics, LLC, which was established in 2007 and operates pursuant to brokerage authority granted by the United States Department of Transportation, or DOT. We retain the billing, collection and customer management responsibilities. The main factors that affect our Brokerage revenue are the rate per mile and other charges that we receive from our customers.

 

Our customer agreements are typically for one-year terms except for our Dedicated agreements which range from three to five years with annual rate reviews. Under ASC 606, the contract date for each individual load within each of our four reporting segments is generally the date that each load is tendered to and accepted by us. For each load transported within each of our four reporting segments, the entire amount of revenue to be recognized is a single performance obligation and our agreements with our customers detail the per-mile charges for line haul and fuel surcharges, along with the rates for loading and unloading, stop offs and drops, equipment detention and other ancillary services, which is the transaction price. There are no discounts that would be a material right or consideration payable to a customer. We are required to recognize revenue and related expenses over time, from load pickup to delivery, for each load within each of our four reporting segments. We base our calculation of the amount of revenue to record in each period for individual loads picking up in one period and delivering in the following period using the number of hours estimated to be incurred within each period applied to each estimated transaction price. Contract assets for this estimated revenue are classified within prepaid expenses and other within our consolidated condensed balance sheet as of September 30, 2018. We had no impairment losses on contract assets in the nine months ended September 30, 2018. We bill our customers for loads after delivery is complete with standard payment terms of 30 days.

 

We account for revenue of our Intermodal and Brokerage segments and revenue on freight transported by independent contractors within our Truckload and Dedicated segments on a gross basis because we are the principal service provider controlling the promised service before it is transferred to each customer. We are primarily responsible for fulfilling the promise to provide each specified service to each customer. We bear the primary risk of loss in the event of cargo claims by our customers. We also have complete control and discretion in establishing the price for each specified service. Accordingly, all such revenue billed to customers is classified as operating revenue and all corresponding payments to carriers for transportation services we arrange in connection with brokerage and intermodal activities and to independent contractor providers of revenue equipment are classified as purchased transportation expense within our consolidated condensed statements of operations.

 

7

 

 

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

  

   

Three Months

   

Nine Months

 
   

Ended September 30,

   

Ended September 30,

 

(In thousands)

 

2018

   

2017

   

2018

   

2017

 

Operating revenue:

                               

Truckload revenue, net of fuel surcharge revenue

  $ 80,563     $ 81,836     $ 241,304     $ 251,127  

Truckload fuel surcharge revenue

    13,357       10,172       40,037       31,453  

Total Truckload revenue

    93,920       92,008       281,341       282,580  
                                 

Dedicated revenue, net of fuel surcharge revenue

    48,500       39,154       138,096       114,654  

Dedicated fuel surcharge revenue

    10,291       2,995       26,499       9,274  

Total Dedicated revenue

    58,791       42,149       164,595       123,928  
                                 

Intermodal revenue, net of fuel surcharge revenue

    21,735       17,423       63,834       51,111  

Intermodal fuel surcharge revenue

    4,204       2,472       12,227       7,085  

Total Intermodal revenue

    25,939       19,895       76,061       58,196  
                                 

Brokerage revenue

    20,999       16,627       61,636       50,645  

Total operating revenue

  $ 199,649     $ 170,679     $ 583,633     $ 515,349  
                                 

Operating income:

                               

Truckload

  $ 10,026     $ 5,764     $ 25,530     $ 19,249  

Dedicated

    5,249       4,514       13,321       14,075  

Intermodals

    2,507       1,588       7,997       5,777  

Brokerage

    1,211       1,156       3,962       3,428  

Total operating income

  $ 18,993     $ 13,022     $ 50,810     $ 42,529  

 

Truckload segment depreciation expense was $12.8 million and $14.1 million, Dedicated segment depreciation expense was $7.8 million and $5.6 million, Intermodal segment depreciation expense was $1.4 million and $1.2 million, and Brokerage segment depreciation expense was $337,000 and $328,000 in the three-month periods ended September 30, 2018 and 2017, respectively.

 

Truckload segment depreciation expense was $39.4 million and $43.1 million, Dedicated segment depreciation expense was $21.9 million and $16.4 million, Intermodal segment depreciation expense was $4.1 million and $3.4 million, and Brokerage segment depreciation expense was $960,000 and $1.0 million in the nine-month periods ended September 30, 2018 and 2017, respectively.

 

 

(4) Earnings per Common Share

 

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

 

   

Three Months

   

Nine Months

 
   

Ended September 30,

   

Ended September 30,

 

(In thousands, except per share amounts)

 

2018

   

2017

   

2018

   

2017

 

Numerator:

                               

Net income

  $ 15,257     $ 7,855     $ 39,290     $ 25,210  

Denominator:

                               

Basic earnings per common share - weighted-average shares

    54,661       54,517       54,615       54,479  

Effect of dilutive stock options

    533       373       536       324  

Diluted earnings per common share - weighted-average shares and assumed conversions

    55,194       54,890       55,151       54,803  
                                 

Basic earnings per common share

  $ 0.28     $ 0.14     $ 0.72     $ 0.46  

Diluted earnings per common share

  $ 0.28     $ 0.14     $ 0.71     $ 0.46  

 

8

 

 

Options totaling 119,500 equivalent shares for each of the three-month and nine-month periods ended September 30, 2018, and 142,502 and 419,170 equivalent shares for the three-month and nine-month periods ended September 30, 2017, respectively, were outstanding but were not included in the calculation of diluted earnings per share because including the options in the denominator would be antidilutive, or decrease the number of weighted-average shares, due to their exercise prices exceeding the average market price of the common shares, or because inclusion of average unrecognized compensation expense in the calculation would cause the options to be antidilutive.

 

Unvested performance unit awards totaling 22,646 and 74,987 equivalent shares for the three-month and nine-month periods ended September 30, 2018, respectively, and 118,650 equivalent shares for each of the three-month and nine-month periods ended September 30, 2017, were considered outstanding but were not included in the calculation of diluted earnings per share because inclusion of average unrecognized compensation expense in the calculation would cause the performance units to be antidilutive.

 

 

(5) Stock Split

 

On July 7, 2017, we effected a five-for-three stock split of our common stock, $.01 par value, in the form of a 66 ⅔% stock dividend. Our consolidated condensed 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.

 

 

(6) Third Amendment to Amended and Restated Certificate of Incorporation

 

In May 2018, our stockholders approved our Third Amendment to Amended and Restated Certificate of Incorporation increasing the authorized number of shares of common stock, $.01 par value, from 96 million shares to 192 million shares.

 

 

(7) Long-Term Debt

 

In August 2018, we entered into an amendment to our unsecured committed credit facility which reduces the aggregate principal amount of the facility from $40.0 million to $30.0 million and extends the term of the facility to August 2023. At September 30, 2018, there was no outstanding principal balance on the facility. As of that date, we had outstanding standby letters of credit to guarantee settlement of self-insurance claims of $14.6 million and remaining borrowing availability of $15.4 million. At December 31, 2017, there was also no outstanding principal balance on the facility. As of that date, we had outstanding standby letters of credit of $12.9 million on the facility. This facility bears interest at a variable rate based on the London Interbank Offered Rate or the lender’s Prime Rate, in each case plus/minus applicable margins. The interest rate for the facility that would apply to outstanding principal balances was 3.0% at September 30, 2018.

 

Our credit facility prohibits us from paying, in any fiscal year, stock redemptions and dividends in excess of 25% of our net income from the prior fiscal year. This facility also contains restrictive covenants which, among other matters, require us to maintain compliance with cash flow leverage and fixed charge coverage ratios. We were in compliance with all covenants at September 30, 2018 and December 31, 2017.

 

 

(8) Related Party Transactions

 

We purchase fuel and tires and obtain related services from Bauer Built, Inc., or BBI. Jerry M. Bauer, one of our directors, is the chairman of the board, chief executive officer and the principal stockholder of BBI. We paid BBI $233,000 in the first nine months of 2018 and $246,000 in the first nine months of 2017 for fuel, tires and related services. In addition, we paid $2.0 million in the first nine months of 2018 and $1.9 million in the first nine months of 2017 to tire manufacturers for tires that were provided by BBI. BBI received commissions from the tire manufacturers related to these purchases.

 

We provide transportation services to MW Logistics, LLC (MWL) as described in Note 12.

 

9

 

 

 

(9) Share Repurchase Program

 

In December 2007, our Board of Directors approved and we announced a share repurchase program to repurchase up to one million shares of our common stock either through purchases on the open market or through private transactions and in accordance with Rule 10b-18 of the Exchange Act. In November 2015, our Board of Directors approved and we announced an increase in the share repurchase program, providing for the repurchase of up to $40 million, or approximately two million shares, of our common stock, which was increased by our Board of Directors to 3.3 million shares in August 2017 to reflect the five-for-three stock split effected in the form of a stock dividend on July 7, 2017. The timing and extent to which we repurchase shares depends on market conditions and other corporate considerations. The repurchase program does not have an expiration date.

 

We did not repurchase any shares in 2017 or in the first nine months of 2018. As of September 30, 2018, future repurchases of up to $16.3 million, or 1.0 million shares, were available in the share repurchase program.

 

 

(10) Dividends

 

In 2010, we announced that our Board of Directors approved a regular cash dividend program to our stockholders, subject to approval each quarter. A quarterly cash dividend of $0.025 per share of common stock was declared in each of the first three quarters of 2018 and totaled $4.1 million. A quarterly cash dividend of $0.015 per share of common stock was declared in each of the first two quarters of 2017 along with a dividend of $0.025 per share in the third quarter of 2017, which totaled $3.0 million.

 

 

(11) Accounting for Share-based Payment Arrangement Compensation

 

We account for share-based payment arrangements in accordance with FASB ASC 718, Compensation – Stock Compensation. During the first nine months of 2018, there were no significant changes to the structure of our stock-based award plans. Pre-tax compensation expense related to stock options and performance unit awards recorded in the first nine months of 2018 and 2017 was $2.1 million and $916,000, respectively.

  

 

(12) Equity Investment

 

We own a 45% equity interest in MWL, a third-party provider of logistics services to the transportation industry. A non-related party owns the other 55% equity interest in MWL. We account for our ownership interest in MWL under the equity method of accounting. We received $4.6 million and $810,000 of our revenue for loads transported by our tractors and arranged by MWL in the first nine months of 2018 and 2017, respectively. As of September 30, 2018, we also had a trade receivable in the amount of $846,000 from MWL and an accrued liability of $2.1 million to MWL for the excess of payments by MWL’s customers into our lockbox account over the amounts drawn on the account by MWL.

 

 

(13) Fair Value of Financial Instruments

 

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

 

 

(14) Commitments and Contingencies

 

We are committed to purchase $28.5 million of new revenue equipment through the remainder of 2018. Operating lease obligations through 2021 total $490,000.

 

We self-insure, in part, for losses relating to workers’ compensation, auto liability, general liability, cargo and property damage claims, along with employees’ health insurance with varying risk retention levels. We maintain insurance coverage for per-incident and total losses in excess of these risk retention levels in amounts we consider adequate based upon historical experience and our ongoing review, and reserve currently for the estimated cost of the uninsured portion of pending claims.

 

We are also involved in other legal actions that arise in the ordinary course of business. In the opinion of management, based upon present knowledge of the facts, it is remote that the ultimate outcome of any such legal actions will have a material adverse effect upon our long-term financial position or results of operations.

  

10

 

 

 

(15) Use of Estimates

 

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

 

 

(16) Recent Accounting Pronouncements

 

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, “Leases” which requires organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The new guidance also requires additional disclosures related to leasing transactions. The standard is effective for the first quarter of 2019. We have substantially completed our evaluation of the quantitative impact of the adoption of this standard and do not expect the standard to have a significant impact on our consolidated condensed balance sheets, statements of operations or statements of cash flows. We are still evaluating the additional required disclosures.

 

11

 

 

 

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

 

              The following discussion and analysis of our financial condition and results of operations should be read together with the selected consolidated financial data and our consolidated condensed financial statements and the related notes appearing elsewhere in this report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those included in our Form 10-K, Part 1, Item 1A for the year ended December 31, 2017. We do not assume, and specifically disclaim, any obligation to update any forward-looking statement contained in this report.

 

Overview

 

The primary source of our operating revenue is provided by our Truckload segment through a combination of regional short-haul and medium-to-long-haul full-load transportation services. We transport food and other consumer packaged goods that require a temperature-controlled or insulated environment, along with dry freight, across the United States and into and out of Mexico and Canada.

 

Our Dedicated segment provides customized transportation solutions tailored to meet individual customers’ requirements, utilizing temperature-controlled trailers, dry vans and other specialized equipment within the United States. Our agreements with customers range from three to five years and are subject to annual rate reviews.

 

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

 

Our Intermodal segment transports our customers’ freight within the United States utilizing our temperature-controlled trailers on railroad flatcars for portions of trips, with the balance of the trips using our tractors or, to a lesser extent, contracted carriers. The main factors that affect our Intermodal revenue are the rate per mile and other charges we receive from our customers.

 

Our Brokerage segment develops contractual relationships with and arranges for third-party carriers to transport freight for our customers in temperature-controlled trailers and dry vans within the United States and into and out of Mexico through Marten Transport Logistics, LLC, which was established in 2007 and operates pursuant to brokerage authority granted by the DOT. We retain the billing, collection and customer management responsibilities. The main factors that affect our Brokerage revenue are the rate per mile and other charges that we receive from our customers.

 

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

 

Our operating revenue increased $68.3 million, or 13.3%, from the first nine months of 2017 to the first nine months of 2018. Our operating revenue, net of fuel surcharges, increased $37.3 million, or 8.0%, compared with the first nine months of 2017. Truckload segment revenue, net of fuel surcharges, decreased 3.9% from the first nine months of 2017, primarily due to a reduction in our average number of tractors, partially offset by an increase in our average revenue per tractor. Dedicated segment revenue, net of fuel surcharges, increased 20.4% from the first nine months of 2017, primarily due to fleet growth driven by an increase in the number of Dedicated contracts we have with our customers. Intermodal segment revenue, net of fuel surcharges, increased 24.9% due to increases in revenue per load and in volume. Brokerage segment revenue increased 21.7% due to increased revenue per load in the first nine months of 2018. Fuel surcharge revenue increased to $78.8 million in the first nine months of 2018 from $47.8 million in the first nine months of 2017 primarily due to higher fuel prices and a shift of a portion of line haul revenue to fuel surcharge revenue which began in the first quarter of 2018 as a result of changes in a number of customer agreements. The change reduced our revenue excluding fuel surcharges by $9.3 million in the first nine months of 2018 and increased our fuel surcharge revenue by the same amount.

 

12

 

 

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

 

Our operating income improved 19.5% to $50.8 million in the first nine months of 2018 from $42.5 million in the first nine months of 2017. Our operating expenses as a percentage of operating revenue, or “operating ratio,” improved to 91.3% in the first nine months of 2018 from 91.7% in the first nine months of 2017. Operating expenses as a percentage of operating revenue, with both amounts net of fuel surcharges, improved to 89.9% in the first nine months of 2018 from 90.9% in the first nine months of 2017. Our net income increased 55.9% to $39.3 million, or $0.71 per diluted share, in the first nine months of 2018 from $25.2 million, or $0.46 per diluted share, in the first nine months of 2017.

 

Our business requires substantial, ongoing capital investments, particularly for new tractors and trailers. At September 30, 2018, we had $35.7 million of cash and cash equivalents, $564.1 million in stockholders’ equity and no long-term debt outstanding. In the first nine months of 2018, net cash flows provided by operating activities of $112.1 million were primarily used to purchase new revenue equipment, net of proceeds from dispositions, in the amount of $82.4 million, to acquire and upgrade regional operating facilities in the amount of $5.4 million, and to pay cash dividends of $4.1 million, resulting in a $19.9 million increase in cash and cash equivalents. We estimate that capital expenditures, net of proceeds from dispositions, will be approximately $27 million for the remainder of 2018. We believe our sources of liquidity are adequate to meet our current and anticipated needs for at least the next twelve months. Based upon anticipated cash flows, existing cash and cash equivalents balances, current borrowing availability and other sources of financing we expect to be available to us, we do not anticipate any significant liquidity constraints in the foreseeable future.

 

Our business strategy encompasses a multifaceted set of transportation service solutions, primarily regional Truckload temperature-controlled operations along with Dedicated, Intermodal and Brokerage services, with a diverse customer base that gains value from and expands each of these operating segments. We believe that we are well-positioned regardless of the economic environment with the services we provide combined with our competitive position, cost control emphasis, modern fleet and strong balance sheet.

 

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

 

Stock Split

 

On July 7, 2017, we effected a five-for-three stock split of our common stock, $.01 par value, in the form of a 66 ⅔% stock dividend. Our consolidated condensed 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.

 

13

 

 

Results of Operations

 

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

 

   

Three Months

   

Nine Months

 
   

Ended September 30,

   

Ended September 30,

 
   

2018

   

2017

   

2018

   

2017

 

Truckload Segment:

                               

Revenue (in thousands)

  $ 93,920     $ 92,008     $ 281,341     $ 282,580  

Average revenue, net of fuel surcharges, per tractor per week(1)

  $ 3,925     $ 3,484     $ 3,797     $ 3,455  

Average tractors(1)

    1,561       1,787       1,629       1,863  

Average miles per trip

    564       592       578       598  

Total miles (in thousands)

    37,259       43,340       117,343       135,136  
                                 

Dedicated Segment:

                               

Revenue (in thousands)

  $ 58,791     $ 42,149     $ 164,595     $ 123,928  

Average revenue, net of fuel surcharges, per tractor per week(1)

  $ 3,287     $ 3,441     $ 3,279     $ 3,463  

Average tractors(1)

    1,123       866       1,080       849  

Average miles per trip

    317       299       305       297  

Total miles (in thousands)

    24,362       19,705       69,244       57,641  
                                 

Intermodal Segment:

                               

Revenue (in thousands)

  $ 25,939     $ 19,895     $ 76,061     $ 58,196  

Loads

    10,573       10,265       31,932       29,642  

Average tractors

    89       78       87       79  
                                 

Brokerage Segment:

                               

Revenue (in thousands)

  $ 20,999     $ 16,627     $ 61,636     $ 50,645  

Loads

    12,781       11,672       36,790       36,604  

 

(1)

Includes tractors driven by both company-employed drivers and independent contractors. Independent contractors provided 50 and 63 tractors as of September 30, 2018 and 2017, respectively.

 

14

 

 

Comparison of Three Months Ended September 30, 2018 to Three Months Ended September 30, 2017

 

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

 

                   

Dollar

   

Percentage

 
                   

Change

   

Change

 
   

Three Months

Ended

   

Three Months

Ended

   

Three Months

Ended

 
   

September 30,

   

September 30,

   

September 30,

 

(Dollars in thousands)

 

2018

   

2017

   

2018 vs. 2017

   

2018 vs. 2017

 

Operating revenue:

                               

Truckload revenue, net of fuel surcharge revenue

  $ 80,563     $ 81,836     $ (1,273

)

    (1.6

)%

Truckload fuel surcharge revenue

    13,357       10,172       3,185       31.3  

Total Truckload revenue

    93,920       92,008       1,912       2.1  
                                 

Dedicated revenue, net of fuel surcharge revenue

    48,500       39,154       9,346       23.9  

Dedicated fuel surcharge revenue

    10,291       2,995       7,296       243.6  

Total Dedicated revenue

    58,791       42,149       16,642       39.5  
                                 

Intermodal revenue, net of fuel surcharge revenue

    21,735       17,423       4,312       24.7  

Intermodal fuel surcharge revenue

    4,204       2,472       1,732       70.1  

Total Intermodal revenue

    25,939       19,895       6,044       30.4  
                                 

Brokerage revenue

    20,999       16,627       4,372       26.3  
                                 

Total operating revenue

  $ 199,649     $ 170,679     $ 28,970       17.0

%

                                 

Operating income:

                               

Truckload

  $ 10,026     $ 5,764     $ 4,262       73.9

%

Dedicated

    5,249       4,514       735       16.3  

Intermodal

    2,507       1,588       919       57.9  

Brokerage

    1,211       1,156       55       4.8  

Total operating income

  $ 18,993     $ 13,022     $ 5,971       45.9

%

                                 

Operating ratio(1):

                               

Truckload

    89.3

%

    93.7

%

               

Dedicated

    91.1       89.3                  

Intermodal

    90.3       92.0                  

Brokerage

    94.2       93.0                  

Consolidated operating ratio

    90.5

%

    92.4

%

               

 

(1)

Represents operating expenses as a percentage of operating revenue.

 

Our operating revenue increased $29.0 million, or 17.0%, to $199.6 million in the 2018 period from $170.7 million in the 2017 period. Our operating revenue, net of fuel surcharges, increased $16.8 million, or 10.8%, to $171.8 million in the 2018 period from $155.0 million in the 2017 period. This increase was due to a $9.3 million increase in Dedicated revenue, net of fuel surcharges, a $4.3 million increase in Intermodal revenue, net of fuel surcharges, and a $4.4 million increase in Brokerage revenue, partially offset by a $1.3 million decrease in Truckload revenue, net of fuel surcharges. Fuel surcharge revenue increased to $27.9 million in the 2018 period from $15.6 million in the 2017 period primarily due to higher fuel prices and a shift of a portion of line haul revenue to fuel surcharge revenue which began in the first quarter of 2018 as a result of changes in a number of customer agreements. The change reduced our revenue excluding fuel surcharges by $3.8 million in the 2018 period and increased our fuel surcharge revenue by the same amount.

 

15

 

 

Truckload segment revenue increased $1.9 million, or 2.1%, to $93.9 million in the 2018 period from $92.0 million in the 2017 period. Truckload segment revenue, net of fuel surcharges, decreased $1.3 million, or 1.6%, to $80.6 million in the 2018 period from $81.8 million in the 2017 period, primarily due to a reduction in our average number of tractors, partially offset by an increase in our average revenue per tractor. The shift from line haul revenue to fuel surcharge revenue as a result of changes in a number of customer agreements decreased our Truckload revenue excluding fuel surcharges by $884,000, or $43 per tractor per week, in the 2018 period, and increased our fuel surcharge revenue by the same amount. The improvement in the operating ratio in the 2018 period was primarily due to the increase in our average revenue per tractor driven by increased rates with our customers.

 

Dedicated segment revenue increased $16.6 million, or 39.5%, to $58.8 million in the 2018 period from $42.1 million in the 2017 period. Dedicated segment revenue, net of fuel surcharges, increased 23.9% primarily due to fleet growth driven by an increase in the number of Dedicated contracts we have with our customers. The shift from line haul revenue to fuel surcharge revenue as a result of changes in a number of customer agreements decreased our Dedicated revenue excluding fuel surcharges by $2.9 million, or $200 per tractor per week, in the 2018 period, and increased our fuel surcharge revenue by the same amount. The increase in the operating ratio for our Dedicated segment was primarily due to an increase in driver wages, an increase in bonus compensation expense for our non-driver employees and increased depreciation expense.

 

Intermodal segment revenue increased $6.0 million, or 30.4%, to $25.9 million in the 2018 period from $19.9 million in the 2017 period. Intermodal segment revenue, net of fuel surcharges, increased 24.7% from the 2017 period due to an increase in revenue per load. The improvement in the operating ratio in the 2018 period was primarily due to a decrease in the amounts payable to railroads as a percentage of our revenue and increased rates with our customers.

 

Brokerage segment revenue increased $4.4 million, or 26.3%, to $21.0 million in the 2018 period from $16.6 million in the 2017 period due to an increase in volume and rates with our customers. The increase in the operating ratio in the 2018 period was primarily due to an increase in the amounts payable to carriers for transportation services which we arranged as a percentage of our Brokerage revenue.

 

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

 

   

Dollar

Change

   

Percentage

Change

   

Percentage of

Operating Revenue

 
   

Three Months

Ended

September 30,

   

Three Months

Ended

September 30,

   

Three Months

Ended

September 30,

 

(Dollars in thousands)

 

2018 vs. 2017

   

2018 vs. 2017

   

2018

   

2017

 
                                 

Operating revenue

  $ 28,970       17.0

%

    100.0

%

    100.0

%

Operating expenses (income):

                               

Salaries, wages and benefits

    10,457       19.5       32.1       31.4  

Purchased transportation

    7,199       25.1       18.0       16.8  

Fuel and fuel taxes

    5,515       21.1       15.9       15.3  

Supplies and maintenance

    193       1.9       5.3       6.1  

Depreciation

    1,086       5.1       11.2       12.4  

Operating taxes and licenses

    90       3.9       1.2       1.4  

Insurance and claims

    (2,769

)

    (24.4

)

    4.3       6.6  

Communications and utilities

    200       13.7       0.8       0.9  

Gain on disposition of revenue equipment

    73       3.8       (0.9

)

    (1.1

)

Other

    955       21.3       2.7       2.6  

Total operating expenses

    22,999       14.6       90.5       92.4  

Operating income

    5,971       45.9       9.5       7.6  

Other

    (134

)

    (957.1

)

    (0.1

)

    -  

Income before income taxes

    6,105       46.9       9.6       7.6  

Income taxes expense

    (1,297

)

    (25.2

)

    1.9       3.0  

Net income

  $ 7,402       94.2

%

    7.6

%

    4.6

%

   

16

 

 

Salaries, wages and benefits consist of compensation for our employees, including both driver and non-driver employees, employees’ health insurance, 401(k) plan contributions and other fringe benefits. These expenses vary depending upon the size of our Truckload, Dedicated and Intermodal tractor fleets, the ratio of company drivers to independent contractors, our efficiency, our experience with employees’ health insurance claims, changes in health care premiums and other factors. Salaries, wages and benefits expense increased $10.5 million, or 19.5%, in the 2018 period from the 2017 period. The increase in salaries, wages and benefits from the 2017 period resulted primarily from an increase in company driver compensation expense of $4.0 million, an increase in bonus compensation expense for our non-driver employees of $3.1 million, and an increase in employees’ health insurance expense of $1.4 million due to an increase in our self-insured medical claims.

 

Purchased transportation consists of amounts payable to railroads and carriers for transportation services we arrange in connection with Brokerage and Intermodal operations and to independent contractor providers of revenue equipment. This category will vary depending upon the amount and rates, including fuel surcharges, we pay to third-party railroad and motor carriers, the ratio of company drivers versus independent contractors and the amount of fuel surcharges passed through to independent contractors. Purchased transportation expense increased $7.2 million in total, or 25.1%, in the 2018 period from the 2017 period. Amounts payable to carriers for transportation services we arranged in our Brokerage segment increased $3.8 million to $17.7 million in the 2018 period from $13.8 million in the 2017 period, primarily due to an increase in brokerage revenue. Amounts payable to railroads and drayage carriers for transportation services within our Intermodal segment increased $3.6 million to $16.4 million in the 2018 period from $12.8 million in the 2017 period. This increase was due to increased intermodal revenue along with increased rates with the railroads, including increased fuel surcharges due to higher fuel prices. The portion of purchased transportation expense related to our independent contractors within our Truckload and Dedicated segments, including fuel surcharges, decreased $228,000 in the 2018 period. We expect that purchased transportation expense will increase as we grow our Intermodal and Brokerage segments.

 

Fuel and fuel taxes increased by $5.5 million, or 21.1%, in the 2018 period from the 2017 period. Net fuel expense (fuel and fuel taxes net of fuel surcharge revenue and surcharges passed through to independent contractors, outside drayage carriers and railroads) decreased $5.2 million, or 41.4%, to $7.3 million in the 2018 period from $12.5 million in the 2017 period. Fuel surcharges passed through to independent contractors, outside drayage carriers and railroads increased to $3.5 million from $2.0 million in the 2017 period. Despite an increase in the United States Department of Energy, or DOE, national average cost of fuel to $3.24 per gallon from $2.62 per gallon in the 2017 period, net fuel expense decreased to 4.9% of Truckload, Dedicated and Intermodal segment revenue, net of fuel surcharges, from 9.1% in the 2017 period. The net fuel expense to revenue improved primarily due to a $3.8 million shift during the 2018 period of a portion of line haul revenue to fuel surcharge revenue as a result of changes in a number of customer agreements. Increases in our miles per gallon and in our revenue rate per mile in the 2018 period further improved this ratio. We have worked diligently to control fuel usage and costs by improving our volume purchasing arrangements and optimizing our drivers’ fuel purchases with national fuel centers, focusing on shorter lengths of haul, installing and tightly managing the use of auxiliary power units in our tractors to minimize engine idling and improving fuel usage in the temperature-control units on our trailers. Auxiliary power units, which we have installed in our company-owned tractors, provide climate control and electrical power for our drivers without idling the tractor engine.

 

Depreciation relates to owned tractors, trailers, auxiliary power units, communication units, terminal facilities and other assets. The increase in depreciation was primarily due to a continued increase in the cost of revenue equipment. We expect our annual cost of tractor and trailer ownership will increase in future periods as a result of higher prices of new equipment, which will result in greater depreciation over the useful life.

 

Insurance and claims consist of the costs of insurance premiums and accruals we make for claims within our self-insured retention amounts, primarily for personal injury, property damage, physical damage to our equipment, cargo claims and workers’ compensation claims. These expenses will vary primarily based upon the frequency and severity of our accident experience, our self-insured retention levels and the market for insurance. The $2.8 million decrease in insurance and claims in the 2018 period was primarily due to decreases in self-insured auto liability claims and in the cost of physical damage claims related to our tractors and trailers. Our significant self-insured retention exposes us to the possibility of significant fluctuations in claims expense between periods which could materially impact our financial results depending on the frequency, severity and timing of claims.

 

The $955,000 increase in other operating expenses in the 2018 period was primarily due to increased costs associated with recruiting and retaining drivers. 

 

17

 

 

As a result of the foregoing factors, our operating income improved 45.9% to $19.0 million in the 2018 period from $13.0 million in the 2017 period. Our operating expenses as a percentage of operating revenue, or “operating ratio,” improved to 90.5% in the 2018 period from 92.4% in the 2017 period. The operating ratio for our Truckload segment was 89.3% in the 2018 period and 93.7% in the 2017 period, for our Dedicated segment was 91.1% in the 2018 period and 89.3% in the 2017 period, for our Intermodal segment was 90.3% in the 2018 period and 92.0% in the 2017 period, and for our Brokerage segment was 94.2% in the 2018 period and 93.0% in the 2017 period. Operating expenses as a percentage of operating revenue, with both amounts net of fuel surcharges, improved to 88.9% in the 2018 period from 91.6% in the 2017 period.

 

Our effective income tax rate decreased to 20.2% in the 2018 period from 39.6% in the 2017 period primarily due to the reduction of our federal income tax rate under the Tax Cuts and Jobs Act of 2017. The 2018 period also included an income tax benefit of $630,000 resulting from certain discrete tax benefits included in our tax filings in the period which were not previously recognized. This estimated benefit is net of a reserve which is based on our evaluation of the current facts, circumstances and information available.

 

As a result of the factors described above, net income increased 94.2% to $15.3 million, or $0.28 per diluted share, in the 2018 period from $7.9 million, or $0.14 per diluted share, in the 2017 period.  

 

18

 

 

Comparison of Nine Months Ended September 30, 2018 to Nine Months Ended September 30, 2017

 

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

 

                   

Dollar

   

Percentage

 
                   

Change

   

Change

 
   

Nine Months

Ended

   

Nine Months

Ended

   

Nine Months

Ended

 
   

September 30,

   

September 30,

   

September 30,

 

(Dollars in thousands)

 

2018

   

2017

   

2018 vs. 2017

   

2018 vs. 2017

 

Operating revenue:

                               

Truckload revenue, net of fuel surcharge revenue

  $ 241,304     $ 251,127     $ (9,823

)

    (3.9

)%

Truckload fuel surcharge revenue

    40,037       31,453       8,584       27.3  

Total Truckload revenue

    281,341       282,580       (1,239

)

    (0.4

)

                                 

Dedicated revenue, net of fuel surcharge revenue

    138,096       114,654       23,442       20.4  

Dedicated fuel surcharge revenue

    26,499       9,274       17,225       185.7  

Total Dedicated revenue

    164,595       123,928       40,667       32.8  
                                 

Intermodal revenue, net of fuel surcharge revenue

    63,834       51,111       12,723       24.9  

Intermodal fuel surcharge revenue

    12,227       7,085       5,142       72.6  

Total Intermodal revenue

    76,061       58,196       17,865       30.7  
                                 

Brokerage revenue

    61,636       50,645       10,991       21.7  
                                 

Total operating revenue

  $ 583,633     $ 515,349     $ 68,284       13.3

%

                                 

Operating income:

                               

Truckload

  $ 25,530     $ 19,249     $ 6,281       32.6

%

Dedicated

    13,321       14,075       (754

)

    (5.4

)

Intermodal

    7,997       5,777       2,220       38.4  

Brokerage

    3,962       3,428       534       15.6  

Total operating income

  $ 50,810     $ 42,529     $ 8,281       19.5

%

                                 

Operating ratio(1):

                               

Truckload

    90.9

%

    93.2

%

               

Dedicated

    91.9       88.6                  

Intermodal

    89.5       90.1                  

Brokerage

    93.6       93.2                  

Consolidated operating ratio

    91.3

%

    91.7

%

               

 

(1)

Represents operating expenses as a percentage of operating revenue.

 

Our operating revenue increased $68.3 million, or 13.3%, to $583.6 million in the 2018 period from $515.3 million in the 2017 period. Our operating revenue, net of fuel surcharges, increased $37.3 million, or 8.0%, to $504.9 million in the 2018 period from $467.5 million in the 2017 period. This increase was due to a $23.4 million increase in Dedicated revenue, net of fuel surcharges, a $12.7 million increase in Intermodal revenue, net of fuel surcharges, and an $11.0 million increase in Brokerage revenue, partially offset by a $9.8 million decrease in Truckload revenue, net of fuel surcharges. Fuel surcharge revenue increased to $78.8 million in the 2018 period from $47.8 million in the 2017 period primarily due to higher fuel prices and a shift of a portion of line haul revenue to fuel surcharge revenue which began in the first quarter of 2018 as a result of changes in a number of customer agreements. The change reduced our revenue excluding fuel surcharges by $9.3 million in the 2018 period and increased our fuel surcharge revenue by the same amount.

 

19

 

 

Truckload segment revenue decreased $1.2 million, or 0.4%, to $281.3 million in the 2018 period from $282.6 million in the 2017 period. Truckload segment revenue, net of fuel surcharges, decreased $9.8 million, or 3.9%, to $241.3 million in the 2018 period from $251.1 million in the 2017 period, primarily due to a reduction in our average number of tractors, partially offset by an increase in our average revenue per tractor. The shift from line haul revenue to fuel surcharge revenue as a result of changes in a number of customer agreements decreased our Truckload revenue excluding fuel surcharges by $2.1 million, or $33 per tractor per week, in the 2018 period, and increased our fuel surcharge revenue by the same amount. The improvement in the operating ratio in the 2018 period was primarily due to the increase in our average revenue per tractor driven by increased rates with our customers.

 

Dedicated segment revenue increased $40.7 million, or 32.8%, to $164.6 million in the 2018 period from $123.9 million in the 2017 period. Dedicated segment revenue, net of fuel surcharges, increased 20.4% primarily due to fleet growth driven by an increase in the number of Dedicated contracts we have with our customers. The shift from line haul revenue to fuel surcharge revenue as a result of changes in a number of customer agreements decreased our Dedicated revenue excluding fuel surcharges by $7.2 million, or $171 per tractor per week, in the 2018 period, and increased our fuel surcharge revenue by the same amount. The increase in the operating ratio for our Dedicated segment was primarily due to an increase in driver wages, an increase in bonus compensation expense for our non-driver employees and increased depreciation expense.

 

Intermodal segment revenue increased $17.9 million, or 30.7%, to $76.1 million in the 2018 period from $58.2 million in the 2017 period. Intermodal segment revenue, net of fuel surcharges, increased 24.9% from the 2017 period due to increases in revenue per load and in volume. The improvement in the operating ratio in the 2018 period was reflective of the increased rates with customers as well.

 

Brokerage segment revenue increased $11.0 million, or 21.7%, to $61.6 million in the 2018 period from $50.6 million in the 2017 period due to an increase in revenue per load. The increase in the operating ratio in the 2018 period was primarily due to an increase in the amounts payable to carriers for transportation services which we arranged as a percentage of our Brokerage revenue.

 

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

 

   

Dollar

Change

   

Percentage

Change

   

Percentage of

Operating Revenue

 
   

Nine Months

Ended

September 30,

   

Nine Months

Ended

September 30,

   

Nine Months

Ended

September 30,

 

(Dollars in thousands)

 

2018 vs. 2017

   

2018 vs. 2017

   

2018

   

2017

 
                                 

Operating revenue

  $ 68,284       13.3

%

    100.0

%

    100.0

%

Operating expenses (income):

                               

Salaries, wages and benefits

    19,414       11.6       31.9       32.3  

Purchased transportation

    20,395       23.8       18.2       16.6  

Fuel and fuel taxes

    15,338       19.9       15.8       15.0  

Supplies and maintenance

    (651

)

    (2.0

)

    5.4       6.2  

Depreciation

    2,405       3.8       11.4       12.4  

Operating taxes and licenses

    242       3.6       1.2       1.3  

Insurance and claims

    (1,300

)

    (4.5

)

    4.8       5.6  

Communications and utilities

    462       10.2       0.9       0.9  

Gain on disposition of revenue equipment

    (324

)

    (6.6

)

    (0.9

)

    (0.9

)

Other

    4,022       33.2       2.8       2.4  

Total operating expenses

    60,003       12.7       91.3       91.7  

Operating income

    8,281       19.5       8.7       8.3  

Other

    (727

)

    (259.6

)

    (0.1

)

    0.1  

Income before income taxes

    9,008       21.3       8.8       8.2  

Income taxes expense

    (5,072

)

    (29.8

)

    2.1       3.3  

Net income

  $ 14,080       55.9

%

    6.7

%

    4.9

%

   

20

 

 

Salaries, wages and benefits expense increased $19.4 million, or 11.6%, in the 2018 period from the 2017 period. The increase in salaries, wages and benefits from the 2017 period resulted primarily from an increase in company driver compensation expense of $8.0 million, an increase in bonus compensation expense for our non-driver employees of $4.5 million, and an increase in employee’s health insurance expense of $3.0 million due to an increase in our self-insured medical claims.

 

Purchased transportation expense increased $20.4 million in total, or 23.8%, in the 2018 period from the 2017 period. Amounts payable to carriers for transportation services we arranged in our Brokerage segment increased $9.4 million to $51.7 million in the 2018 period from $42.4 million in the 2017 period, primarily due to an increase in brokerage revenue. Amounts payable to railroads and drayage carriers for transportation services within our Intermodal segment increased $11.7 million to $48.7 million in the 2018 period from $37.0 million in the 2017 period. This increase was due to increased intermodal revenue along with increased rates with the railroads, including increased fuel surcharges due to higher fuel prices. The portion of purchased transportation expense related to our independent contractors within our Truckload and Dedicated segments, including fuel surcharges, decreased $628,000 in the 2018 period. We expect that purchased transportation expense will increase as we grow our Intermodal and Brokerage segments.

 

Fuel and fuel taxes increased by $15.3 million, or 19.9%, in the 2018 period from the 2017 period. Net fuel expense (fuel and fuel taxes net of fuel surcharge revenue and surcharges passed through to independent contractors, outside drayage carriers and railroads) decreased $11.2 million, or 31.8%, to $24.0 million in the 2018 period from $35.2 million in the 2017 period. Fuel surcharges passed through to independent contractors, outside drayage carriers and railroads increased to $10.3 million from $5.9 million in the 2017 period. Despite an increase in the DOE national average cost of fuel to $3.15 per gallon from $2.58 per gallon in the 2017 period, net fuel expense decreased to 5.4% of Truckload, Dedicated and Intermodal segment revenue, net of fuel surcharges, from 8.4% in the 2017 period. The net fuel expense to revenue improved primarily due to a $9.3 million shift during the 2018 period of a portion of line haul revenue to fuel surcharge revenue as a result of changes in a number of customer agreements. Increases in our miles per gallon and in our revenue rate per mile in the 2018 period further improved this ratio. We have worked diligently to control fuel usage and costs by improving our volume purchasing arrangements and optimizing our drivers’ fuel purchases with national fuel centers, focusing on shorter lengths of haul, installing and tightly managing the use of auxiliary power units in our tractors to minimize engine idling and improving fuel usage in the temperature-control units on our trailers. Auxiliary power units, which we have installed in our company-owned tractors, provide climate control and electrical power for our drivers without idling the tractor engine.

 

Supplies and maintenance consist of repairs, maintenance, tires, parts, oil and engine fluids, along with load-specific expenses including loading/unloading, tolls, pallets and trailer hostling. Our supplies and maintenance expense decreased $651,000, or 2.0%, from the 2017 period primarily due to a decrease in our loading/unloading expense.

 

The increase in depreciation was primarily due to a continued increase in the cost of revenue equipment.

 

The $1.3 million decrease in insurance and claims in the 2018 period was primarily due to a decrease in self-insured auto liability claims, partially offset by an increase in the cost of physical damage claims related to our tractors and trailers.

 

The $4.0 million increase in other operating expenses in the 2018 period was due in part to proceeds received in the 2017 period from the settlement of a lawsuit, net of 2017 period legal expenses, of $1.0 million, and increased costs associated with recruiting and retaining drivers.

 

As a result of the foregoing factors, our operating income improved 19.5% to $50.8 million in the 2018 period from $42.5 million in the 2017 period. Our operating expenses as a percentage of operating revenue, or “operating ratio,” improved to 91.3% in the 2018 period from 91.7% in the 2017 period. The operating ratio for our Truckload segment was 90.9% in the 2018 period and 93.2% in the 2017 period, for our Dedicated segment was 91.9% in the 2018 period and 88.6% in the 2017 period, for our Intermodal segment was 89.5% in the 2018 period and 90.1% in the 2017 period, and for our Brokerage segment was 93.6% in the 2018 period and 93.2% in the 2017 period. Operating expenses as a percentage of operating revenue, with both amounts net of fuel surcharges, improved to 89.9% in the 2018 period from 90.9% in the 2017 period.

 

The increase in our non-operating income was primarily due to improved operating results in the 2018 period by MW Logistics, LLC, or MWL, a 45% owned affiliate.

 

Our effective income tax rate decreased to 23.3% in the 2018 period from 40.3% in the 2017 period primarily due to the reduction of our federal income tax rate under the Tax Cuts and Jobs Act of 2017.

 

21

 

 

As a result of the factors described above, net income increased 55.9% to $39.3 million, or $0.71 per diluted share, in the 2018 period from $25.2 million, or $0.46 per diluted share, in the 2017 period.  

 

Liquidity and Capital Resources 

 

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

 

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

 

   

Nine Months

Ended September 30,

 

(In thousands)

 

2018

   

2017

 

Net cash flows provided by operating activities

  $ 112,097     $ 94,710  

Net cash flows used for investing activities

    (88,842

)

    (84,015

)

Net cash flows used for financing activities

    (3,307

)

    (10,024

)

 

In December 2007, our Board of Directors approved and we announced a share repurchase program to repurchase up to one million shares of our common stock either through purchases on the open market or through private transactions and in accordance with Rule 10b-18 of the Exchange Act. In November 2015, our Board of Directors approved and we announced an increase in the share repurchase program, providing for the repurchase of up to $40 million, or approximately two million shares, of our common stock, which was increased by our Board of Directors to 3.3 million shares in August 2017 to reflect the five-for-three stock split effected in the form of a stock dividend on July 7, 2017. The timing and extent to which we repurchase shares depends on market conditions and other corporate considerations. The repurchase program does not have an expiration date.

 

We did not repurchase any shares in 2017 or in the first nine months of 2018. As of September 30, 2018, future repurchases of up to $16.3 million, or 1.0 million shares, were available in the share repurchase program.

 

In the first nine months of 2018, net cash flows provided by operating activities of $112.1 million were primarily used to purchase new revenue equipment, net of proceeds from dispositions, in the amount of $82.4 million, to acquire and upgrade regional operating facilities in the amount of $5.4 million, and to pay cash dividends of $4.1 million, resulting in a $19.9 million increase in cash and cash equivalents. In the first nine months of 2017, net cash flows provided by operating activities of $94.7 million were primarily used to purchase new revenue equipment, net of proceeds from dispositions, in the amount of $81.4 million, to repay, net of borrowings, $7.9 million of long-term debt, to pay cash dividends of $3.0 million, and to partially construct regional operating facilities in the amount of $1.6 million. Beginning in the first quarter of 2018, our net cash flows are increased by the new tax laws established by the Tax Cuts and Jobs Act of 2017, which reduced the federal corporate statutory income tax rate and established bonus depreciation that allows for full expensing of qualified assets, partially offset by the repeal of like-kind exchanges.

 

We estimate that capital expenditures, net of proceeds from dispositions, will be approximately $27 million for the remainder of 2018. A quarterly cash dividend of $0.025 per share of common stock was declared in each of the first three quarters of 2018 and totaled $4.1 million. A quarterly cash dividend of $0.015 per share of common stock was declared in each of the first two quarters of 2017 along with a dividend of $0.025 per share in the third quarter of 2017, which totaled $3.0 million. We currently expect to continue to pay quarterly cash dividends in the future. The payment of cash dividends in the future, and the amount of any such dividends, will depend upon our financial condition, results of operations, cash requirements, and certain corporate law requirements, as well as other factors deemed relevant by our Board of Directors. We believe our sources of liquidity are adequate to meet our current and anticipated needs for at least the next twelve months. Based upon anticipated cash flows, existing cash and cash equivalents balances, current borrowing availability and other sources of financing we expect to be available to us, we do not anticipate any significant liquidity constraints in the foreseeable future.

 

In August 2018, we entered into an amendment to our unsecured committed credit facility which reduces the aggregate principal amount of the facility from $40.0 million to $30.0 million and extends the term of the facility to August 2023. At September 30, 2018, there was no outstanding principal balance on the facility. As of that date, we had outstanding standby letters of credit to guarantee settlement of self-insurance claims of $14.6 million and remaining borrowing availability of $15.4 million. This facility bears interest at a variable rate based on the London Interbank Offered Rate or the lender’s Prime Rate, in each case plus/minus applicable margins.

 

22

 

 

Our credit facility prohibits us from paying, in any fiscal year, stock redemptions and dividends in excess of 25% of our net income from the prior fiscal year. This facility also contains restrictive covenants which, among other matters, require us to maintain compliance with cash flow leverage and fixed charge coverage ratios. We were in compliance with all covenants at September 30, 2018 and December 31, 2017.

 

The following is a summary of our contractual obligations as of September 30, 2018.

 

   

Payments Due by Period

 

(In thousands)

 

Remainder

of 2018

   

2019

And

2020

   

2021

And

2022

   

Thereafter

   

Total

 

Purchase obligations for revenue equipment

  $ 28,497     $     $     $     $ 28,497  

Operating lease obligations

    82       403       5             490  

Total

  $ 28,579     $ 403     $ 5     $     $ 28,987  

 

Due to uncertainty with respect to the timing of future cash flows, the obligation under our nonqualified deferred compensation plan at September 30, 2018 of 176,037 shares of Company common stock with a value of $3.7 million has been excluded from the above table.

 

Off-balance Sheet Arrangements

 

Other than standby letters of credit maintained in connection with our self-insurance programs in the amount of $14.6 million along with purchase obligations and operating leases summarized above in our summary of contractual obligations, we did not have any other material off-balance sheet arrangements at September 30, 2018.

 

Inflation and Fuel Costs

 

Most of our operating expenses are inflation-sensitive, with inflation generally producing increased costs of operations. During the last two years, the most significant effects of inflation have been on revenue equipment prices, accident claims, health insurance and employee compensation. We attempt to limit the effects of inflation through increases in freight rates and cost control efforts.

 

In addition to inflation, fluctuations in fuel prices can affect our profitability. We require substantial amounts of fuel to operate our tractors and power the temperature-control units on our trailers. Substantially all of our contracts with customers contain fuel surcharge provisions. Although we historically have been able to pass through a significant portion of long-term increases in fuel prices and related taxes to customers in the form of fuel surcharges and higher rates, such increases usually are not fully recovered. These fuel surcharge provisions are not effective in mitigating the fuel price increases related to non-revenue miles or fuel used while the tractor is idling.

 

Seasonality

 

Our tractor productivity generally decreases during the winter season because inclement weather impedes operations and some shippers reduce their shipments. At the same time, operating expenses generally increase, with harsh weather creating higher accident frequency, increased claims, lower fuel efficiency and more equipment repairs.

 

Critical Accounting Policies

 

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

 

23

 

 

Revenue Recognition. We account for our revenue in accordance with ASC 606, Revenue from Contracts with Customers, which we adopted on January 1, 2018 using the modified retrospective method. The new revenue standard requires us to recognize revenue and related expenses within each of our four reporting segments over time, compared with our former policy in which we recorded revenue and related expenses on the date shipment of freight was completed.

 

We account for revenue of our Intermodal and Brokerage segments and revenue on freight transported by independent contractors within our Truckload and Dedicated segments on a gross basis because we are the principal service provider controlling the promised service before it is transferred to each customer. We are primarily responsible for fulfilling the promise to provide each specified service to each customer. We bear the primary risk of loss in the event of cargo claims by our customers. We also have complete control and discretion in establishing the price for each specified service. Accordingly, all such revenue billed to customers is classified as operating revenue and all corresponding payments to carriers for transportation services we arrange in connection with brokerage and intermodal activities and to independent contractor providers of revenue equipment are classified as purchased transportation expense within our consolidated condensed statements of operations.

 

Accounts Receivable. We are dependent upon a limited number of customers, and, as a result, our trade accounts receivable are highly concentrated. Trade accounts receivable are recorded at the invoiced amounts, net of an allowance for doubtful accounts. Our allowance for doubtful accounts was $325,000 as of September 30, 2018 and $300,000 as of December 31, 2017. A considerable amount of judgment is required in assessing the realization of these receivables including the current creditworthiness of each customer and related aging of the past-due balances, including any billing disputes. In order to assess the collectibility of these receivables, we perform ongoing credit evaluations of our customers’ financial condition. Through these evaluations, we may become aware of a situation where a customer may not be able to meet its financial obligations due to deterioration of its financial viability, credit ratings or bankruptcy. The allowance for doubtful accounts is based on the best information available to us and is reevaluated and adjusted as additional information is received. We evaluate the allowance based on historical write-off experience, the size of the individual customer balances, past-due amounts and the overall national economy. We review the adequacy of our allowance for doubtful accounts monthly.

 

Property and Equipment. The transportation industry requires significant capital investments. Our net property and equipment was $597.4 million as of September 30, 2018 and $571.9 million as of December 31, 2017. Our depreciation expense was $66.3 million for the first nine months of 2018 and $63.9 million for the first nine months of 2017. 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 September 30, 2018 by approximately $11.5 million, or 1.9%.

 

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

 

Insurance and Claims. We self-insure, in part, for losses relating to workers’ compensation, auto liability, general liability, cargo and property damage claims, along with employees’ health insurance with varying risk retention levels. We maintain insurance coverage for per-incident and total losses in excess of these risk retention levels in amounts we consider adequate based upon historical experience and our ongoing review. However, we could suffer a series of losses within our self-insured retention limits or losses over our policy limits, which could negatively affect our financial condition and operating results. We are responsible for the first $1.0 million on each auto liability claim and for the first $750,000 on each workers’ compensation claim. We have $14.6 million in standby letters of credit to guarantee settlement of claims under agreements with our insurance carriers and regulatory authorities. The insurance and claims accruals in our consolidated condensed balance sheets were $25.3 million as of September 30, 2018 and $26.2 million as of December 31, 2017. We reserve currently for the estimated cost of the uninsured portion of pending claims. We periodically evaluate and adjust these reserves based on our evaluation of the nature and severity of outstanding individual claims and our estimate of future claims development based on historical development. Actual results could differ from these current estimates. In addition, to the extent that claims are litigated and not settled, jury awards are difficult to predict.

 

24

 

 

Share-based Payment Arrangement Compensation. We have granted stock options to certain employees and non-employee directors. We recognize compensation expense for all stock options net of an estimated forfeiture rate and only record compensation expense for those shares expected to vest on a straight-line basis over the requisite service period (normally the vesting period). Determining the appropriate fair value model and calculating the fair value of stock options require the input of highly subjective assumptions, including the expected life of the stock options and stock price volatility. We use the Black-Scholes model to value our stock option awards. We believe that future volatility will not materially differ from our historical volatility. Thus, we use the historical volatility of our common stock over the expected life of the award. The assumptions used in calculating the fair value of stock options represent our best estimates, but these estimates involve inherent uncertainties and the application of judgment. As a result, if factors change and we use different assumptions, stock option compensation expense could be materially different in the future.

 

We have also granted performance unit awards to certain employees which are subject to vesting requirements over a five-year period, primarily based on our earnings growth. The fair value of each performance unit is based on the closing market price on the date of grant. We recognize compensation expense for these awards based on the estimated number of units probable of achieving the performance and service vesting requirements of the awards, net of an estimated forfeiture rate.

 

Recent Accounting Pronouncements

 

See Note 16 of “Notes to Consolidated Condensed Financial Statements” for a full description of recent accounting pronouncements and the respective dates of adoption and effect on our results of operations and financial position.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk. 

 

We are exposed to a variety of market risks, most importantly the effects of the price and availability of diesel fuel. We require substantial amounts of diesel fuel to operate our tractors and power the temperature-control units on our trailers. The price and availability of diesel fuel can vary, and are subject to political, economic and market factors that are beyond our control. Significant increases in diesel fuel costs could materially and adversely affect our results of operations and financial condition. Based upon our fuel consumption in the first nine months of 2018, a 5% increase in the average cost of diesel fuel would have increased our fuel expense by $4.5 million.

 

We have historically been able to pass through a significant portion of long-term increases in diesel fuel prices and related taxes to customers in the form of fuel surcharges. Fuel surcharge programs are widely accepted among our customers, though they can vary somewhat from customer-to-customer. These fuel surcharges, which adjust weekly with the cost of fuel, enable us to recover a substantial portion of the higher cost of fuel as prices increase. These fuel surcharge provisions are not effective in mitigating the fuel price increases related to non-revenue miles or fuel used while the tractor is idling. In addition, we have worked diligently to control fuel usage and costs by improving our volume purchasing arrangements and optimizing our drivers’ fuel purchases with national fuel centers, focusing on shorter lengths of haul, installing and tightly managing the use of auxiliary power units in our tractors to minimize engine idling and improving fuel usage in our trailers’ refrigeration units.

 

While we do not currently have any outstanding hedging instruments to mitigate this market risk, we may enter into derivatives or other financial instruments to hedge a portion of our fuel costs in the future.

 

Item 4. Controls and Procedures.

 

As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the “Exchange Act”), we have carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this report. This evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and our Executive Vice President and Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and our Executive Vice President and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2018. There were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting. We intend to periodically evaluate our disclosure controls and procedures as required by the Exchange Act Rules.

 

25

 

 

Changes in Internal Control Over Financial Reporting. Beginning January 1, 2018, we implemented ASC 606, Revenue from Contracts with Customers. Although the new revenue standard is expected to have an immaterial impact on our ongoing net income, we did implement changes to our processes related to revenue recognition and the control activities within them. These included the development of new policies based on the five-step model provided in the new revenue standard, new training, ongoing contract review requirements, additional estimates of revenue and related expenses for loads in progress at period-ends, and gathering of information provided in disclosures.

 

PART II. OTHER INFORMATION

 

Item 1A.        Risk Factors.

 

We do not believe there are any material changes from the risk factors previously disclosed in Item 1A to Part 1 of our Form 10-K for the year ended December 31, 2017.

 

Item 6.           Exhibits.

 

Item No.

Item

  

Method of Filing

10.24

Eighth Amendment to Credit Agreement, dated as of August 24, 2018, by and among Marten Transport, Ltd., as borrower, the banks party thereto as lenders, and U.S. Bank National Association, as agent for the lenders

 

Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed August 28, 2018.

       

31.1

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

  

Filed with this Report.

 

 

 

 

31.2

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

  

Filed with this Report.

 

 

 

 

32.1

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

  

Filed with this Report.

 

 

 

 

101

The following financial information from Marten Transport, Ltd.’s Quarterly Report on Form 10-Q for the period ended September 30, 2018, filed with the SEC on November 5, 2018, formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Condensed Balance Sheets as of September 30, 2018 and December 31, 2017, (ii) Consolidated Condensed Statements of Operations for the three- and nine-month periods ended September 30, 2018 and September 30, 2017, (iii) Consolidated Condensed Statements of Stockholders’ Equity for the nine-month periods ended September 30, 2018 and September 30, 2017, and for the three-month period ended December 31, 2017, (iv)  Consolidated Condensed Statements of Cash Flows for the nine-month periods ended September 30, 2018 and September 30, 2017, and (v) Notes to Consolidated Condensed Financial Statements.

  

Filed with this Report.

 

26

 

 

SIGNATURES

 

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

 

  

MARTEN TRANSPORT, LTD.

  

  

  

  

  

  

Dated: November 5, 2018

By:

/s/ Randolph L. Marten

  

  

Randolph L. Marten

  

  

Chief Executive Officer

  

  

(Principal Executive Officer)

  

  

  

  

  

  

Dated: November 5, 2018

By:

/s/ James J. Hinnendael

  

  

James J. Hinnendael

  

  

Executive Vice President and Chief Financial Officer

  

  

(Principal Financial and Accounting Officer)

 

27

EX-31.1 2 ex_126588.htm EXHIBIT 31.1 ex_126588.htm

 Exhibit 31.1

CERTIFICATION

 

I, Randolph L. Marten, certify that:

 

 

1.

I have reviewed this quarterly report on Form 10-Q of Marten Transport, Ltd.;

 

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

 

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

 

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date:      November 5, 2018  
 

/s/ Randolph L. Marten               

Randolph L. Marten

Chief Executive Officer

(Principal Executive Officer)

 

 

EX-31.2 3 ex_126589.htm EXHIBIT 31.2 ex_126589.htm

Exhibit 31.2

CERTIFICATION

 

I, James J. Hinnendael, certify that:

 

 

1.

I have reviewed this quarterly report on Form 10-Q of Marten Transport, Ltd.;

 

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

 

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

 

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date:      November 5, 2018  
 

/s/ James J. Hinnendael               

James J. Hinnendael

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

 

 

 

EX-32.1 4 ex_126590.htm EXHIBIT 32.1 ex_126590.htm

Exhibit 32.1

 

CERTIFICATION PURSUANT TO

18 U.S.C. §1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

 

In connection with the Quarterly Report of Marten Transport, Ltd. (the “Company”) on Form 10-Q for the period ended September 30, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best knowledge of the undersigned:

 

(1)     The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2)     The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

Date: November 5, 2018

/s/ Randolph L. Marten

  

Randolph L. Marten

  

Chief Executive Officer

  

  

  

/s/ James J. Hinnendael

  

James J. Hinnendael

  

Executive Vice President and Chief Financial Officer

 

 

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font-size: 10pt;"> <div style=" font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-top: 0pt; margin-bottom: 0pt;">Assets:</div> </td> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> <td style="text-align: left; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> <td style="text-align: left; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> <td style="text-align: left; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(255, 255, 255);"> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;"> <div style=" font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-top: 0pt; margin-bottom: 0pt; margin-left: 18pt;">Prepaid expenses and other</div> </td> <td style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> <td style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">$</td> <td style="width: 14%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; 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font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> <td style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;">$</td> <td style="width: 14%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">22,255</div></td> <td style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;" nowrap="nowrap">&nbsp;</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204, 238, 255);"> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;"> <div style=" font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-top: 0pt; margin-bottom: 0pt;">Liabilities:</div> </td> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> <td style="text-align: left; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> <td style="text-align: left; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> <td style="text-align: left; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(255, 255, 255);"> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;"> <div style=" font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-top: 0pt; margin-bottom: 0pt; margin-left: 18pt;">Accounts payable and accrued liabilities</div> </td> <td style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> <td style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> <td style="width: 14%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">38,100</div></td> <td style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;" nowrap="nowrap">&nbsp;</td> <td style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> <td style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> <td style="width: 14%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">1,960</div></td> <td style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;" nowrap="nowrap"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">&nbsp;</div></td> <td style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> <td style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> <td style="width: 14%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">40,060</div></td> <td style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;" nowrap="nowrap">&nbsp;</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(204, 238, 255);"> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;"> <div style=" font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-top: 0pt; margin-bottom: 0pt;">Stockholders&#x2019; equity:</div> </td> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> <td style="text-align: left; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> <td style="text-align: left; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> <td style="text-align: left; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> </tr> <tr style="vertical-align: bottom; background-color: rgb(255, 255, 255);"> <td style="font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;"> <div style=" font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-top: 0pt; margin-bottom: 0pt; margin-left: 18pt;">Retained earnings</div> </td> <td style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> <td style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> <td style="width: 14%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">448,542</div></td> <td style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;" nowrap="nowrap">&nbsp;</td> <td style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> <td style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> <td style="width: 14%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">485</div></td> <td style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;" nowrap="nowrap"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">&nbsp;</div></td> <td style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> <td style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt;">&nbsp;</td> <td style="width: 14%; text-align: right; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">449,027</div></td> <td style="width: 1%; font-family: &quot;Times New Roman&quot;, Times, serif; font-size: 10pt; margin-left: 0pt;" nowrap="nowrap">&nbsp;</td> </tr> </table></div> P3Y P5Y P1Y <div style="display: inline; font-family: times new roman; font-size: 10pt"><div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:justify;">(<div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">10</div>) Dividends</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:justify;">&nbsp;</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:justify;text-indent:36pt;">In <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">2010,</div> we announced that our Board of Directors approved a regular cash dividend program to our stockholders, subject to approval each quarter. A quarterly cash dividend of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$0.025</div> per share of common stock was declared in each of the <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">first</div> <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">three</div> quarters of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">2018</div> and totaled <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$4.1</div> million. A quarterly cash dividend of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"><div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$0.015</div></div> per share of common stock was declared in each of the <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">first</div> <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">two</div> quarters of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">2017</div> along with a dividend of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$0.025</div> per share in the <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">third</div> quarter of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">2017,</div> which totaled <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$3.0</div> million.</div></div> 0.55 -2224000 -3244000 0.25 54000 35568000 299000 35867000 105497000 444000 105941000 28668000 85546000 <div style="display: inline; font-family: times new roman; font-size: 10pt"><div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:justify;">(<div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">16</div>) Recent Accounting Pronouncements</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:justify;">&nbsp;</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:justify;text-indent:36pt;">In <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> February 2016, </div>the FASB issued Accounting Standards Update <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">No.</div> <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">2016</div>-<div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">02,</div> &#x201c;Leases&#x201d; which requires organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The new guidance also requires additional disclosures related to leasing transactions. The standard is effective for the <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">first</div> quarter of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">2019.</div> We have substantially completed our evaluation of the quantitative impact of the adoption of this standard and do <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">not</div> expect the standard to have a significant impact on our consolidated condensed balance sheets, statements of operations or statements of cash flows. We are still evaluating the additional required disclosures.</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin-bottom:0pt;margin-left:0pt;margin-right:7.5pt;margin-top:0pt;text-align:justify;"><div style="display: inline; font-weight: bold;"></div></div></div> 0.6667 <div style="display: inline; font-family: times new roman; font-size: 10pt"><div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin-bottom:0pt;margin-left:0pt;margin-right:7.5pt;margin-top:0pt;text-align:left;">(<div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">5</div>) Stock Split</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:justify;">&nbsp;</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:justify;text-indent:36pt;">On <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> July 7, 2017, </div>we effected a <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">five</div>-for-<div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">three</div> stock split of our common stock, <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$.01</div> par value, in the form of a <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">66</div> &#x2154;% stock dividend. Our consolidated condensed 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.</div></div> 38100000 1960000 40060000 45733000 2526000 48259000 84055000 74886000 25295000 26177000 223087000 211728000 79304000 76413000 916000 916000 334000 334000 2102000 2102000 54000 54000 2102000 916000 119500 119500 142502 419170 22646 74987 118650 118650 745320000 690403000 145603000 116618000 <div style="display: inline; font-family: times new roman; font-size: 10pt"><div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:justify;">(<div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">12</div>)&nbsp;Equity Investment</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:justify;">&nbsp;</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:justify;text-indent:36pt;">We own a <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">45%</div> equity interest in MWL, a <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">third</div>-party provider of logistics services to the transportation industry. A non-related party owns the other <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">55%</div> equity interest in MWL. We account for our ownership interest in MWL under the equity method of accounting. We received <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$4.6</div> million and <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$810,000</div> of our revenue for loads transported by our tractors and arranged by MWL in the <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">first</div> <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">nine</div> months of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">2018</div> and <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">2017,</div> respectively. As of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> September 30, 2018, </div>we also had a trade receivable in the amount of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$846,000</div> from MWL and an accrued liability of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$2.1</div> million to MWL for the excess of payments by MWL&#x2019;s customers into our lockbox account over the amounts drawn on the account by MWL.</div></div> 15791000 488000 35739000 1159000 19948000 671000 <div style="display: inline; font-family: times new roman; font-size: 10pt"><div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:justify;">(<div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">14</div>) Commitments and Contingencies</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:justify;">&nbsp;</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:justify;text-indent:36pt;">We are committed to purchase <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$28.5</div> million of new revenue equipment through the remainder of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">2018.</div> Operating lease obligations through <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">2021</div> total <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$490,000.</div></div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:justify;">&nbsp;</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:justify;text-indent:36pt;">We self-insure, in part, for losses relating to workers&#x2019; compensation, auto liability, general liability, cargo and property damage claims, along with employees&#x2019; health insurance with varying risk retention levels. We maintain insurance coverage for per-incident and total losses in excess of these risk retention levels in amounts we consider adequate based upon historical experience and our ongoing review, and reserve currently for the estimated cost of the uninsured portion of pending claims.</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:justify;text-indent:36pt;">&nbsp;</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:justify;text-indent:36pt;">We are also involved in other legal actions that arise in the ordinary course of business. In the opinion of management, based upon present knowledge of the facts, it is remote that the ultimate outcome of any such legal actions will have a material adverse effect upon our long-term financial position or results of operations.</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin-bottom:0pt;margin-left:0pt;margin-right:7.5pt;margin-top:0pt;text-align:left;"></div></div> 0.025 0.025 0.075 0.055 0.025 0.015 0.015 0.025 0.01 0.01 0.01 0.01 192000000 96000000 96000000 192000000 54662924 54533455 54662924 54533455 547000 545000 10551000 23000 10574000 31262000 -1000 31261000 10381000 31912000 485000 485000 485000 <div style="display: inline; font-family: times new roman; font-size: 10pt"><div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:justify;">(<div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">7</div>) Long-Term Debt</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:justify;">&nbsp;</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:justify;text-indent:36pt;">In <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> August 2018, </div>we entered into an amendment to our unsecured committed credit facility which reduces the aggregate principal amount of the facility from <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$40.0</div> million to <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$30.0</div> million and extends the term of the facility to <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> August 2023. </div>At <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> September 30, 2018, </div>there was <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">no</div> outstanding principal balance on the facility. As of that date, we had outstanding standby letters of credit to guarantee settlement of self-insurance claims of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$14.6</div> million and remaining borrowing availability of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$15.4</div> million. At <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> December 31, 2017, </div>there was also <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">no</div> outstanding principal balance on the facility. As of that date, we had outstanding standby letters of credit of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">$12.9</div> million on the facility. This facility bears interest at a variable rate based on the London Interbank Offered Rate or the lender&#x2019;s Prime Rate, in each case plus/minus applicable margins. The interest rate for the facility that would apply to outstanding principal balances was <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">3.0%</div> at <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> September 30, 2018.</div></div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:justify;">&nbsp;</div> <div style=" font-family:'Times New Roman', Times, serif;font-size:10pt;margin:0pt;text-align:justify;text-indent:36pt;">Our credit facility prohibits us from paying, in any fiscal year, stock redemptions and dividends in excess of <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;">25%</div> of our net income from the prior fiscal year. This facility also contains restrictive covenants which, among other matters, require us to maintain compliance with cash flow leverage and fixed charge coverage ratios. We were in compliance with all covenants at <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> September 30, 2018 </div>and <div style="display: inline; font-style: italic; font-weight: inherit; font-style: normal;"> December 31, 2017.</div></div></div> 7070000 1992000 107696000 100626000 66280000 63875000 22272000 21186000 12800000 14100000 7800000 5600000 1400000 1200000 337000 328000 3