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**UNITED STATES SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-K**

 

**ANNUAL REPORT PURSUANT TO SECTION 13 0R 15(d)**

**OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For thefiscal year ended December 31, 2009**

 

**Commissionfile number 0-15010**

 

**MARTENTRANSPORT, LTD.**

(Exact name of registrantas specified in its charter)

 

| **DELAWARE**              | ** ** | **39-1140809**                        |
|---------------------------|------------|---------------------------------------|
| (State of  incorporation) |       | (I.R.S. Employer  Identification no.) |

 

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

 

**Securities registered pursuant toSection 12(b) of the Act:**

 

| **Title of each class:**                    | ** ** | **Name of each exchange on which  registered:** |
|---------------------------------------------|------------|-------------------------------------------------|
| **COMMON  STOCK, PAR VALUE $.01 PER SHARE** | ** ** | **THE  NASDAQ STOCK MARKET LLC**                |
|                                        |       | **(NASDAQ  GLOBAL SELECT MARKET)**              |

 

Securities registeredpursuant to Section 12(g) of the Act: 

**NONE**

 

Indicate by check mark ifthe Registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Securities Act. YES o NO x

 

Indicate by check mark ifthe Registrant is not required to file reports pursuant to Section 13 or15(d) of the Exchange Act. YES oNO x

 

Indicate by check markwhether the Registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the Registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days. YES x NO o

 

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

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of Registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form 10-K.x

 

Indicate by check markwhether the Registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company.  See the definitions of “large acceleratedfiler,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2of the Exchange Act.

 

| Large  accelerated filer o                                               |   | Accelerated  filer x         |
|--------------------------------------------------------------------------|--------|------------------------------|
|                                                                     |   |                         |
| Non-accelerated  filer o

(do not check if  a smaller reporting company) |   | Smaller  reporting company o |

 

Indicate by check markwhether the Registrant is a shell company (as defined in Exchange Act Rule 12b-2).  YES oNO x

 

As of June 30, 2009(the last business day of the Registrant’s most recently completed secondfiscal quarter), the aggregate market value of the Common Stock of theRegistrant (based upon the closing price of the Common Stock at that date asreported by the NASDAQ Global Select Market), excluding outstanding sharesbeneficially owned by directors and executive officers, was $347,733,000.

 

As of March 1, 2010,21,908,387 shares of Common Stock of the Registrant were outstanding.

 

Part III of thisAnnual Report on Form 10-K incorporates by reference information (to theextent specific sections are referred to in this Report) from the Registrant’sProxy Statement for the annual meeting to be held May 4, 2010, or 2010Proxy Statement.

 

 

 

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**TABLEOF CONTENTS**

 
| ** **        | ** **                                                                                                            | **Page** |
|-------------------|-----------------------------------------------------------------------------------------------------------------------|----------|
| **PART I**   |
| ** **        |                                                                                                                  |     |
| ITEM 1.           | *BUSINESS*                                                                                                            | 1        |
| ITEM 1A.          | *RISK FACTORS*                                                                                                        | 7        |
| ITEM 1B.          | *UNRESOLVED STAFF  COMMENTS*                                                                                          | 12       |
| ITEM 2.           | *PROPERTIES*                                                                                                          | 12       |
| ITEM 3.           | *LEGAL  PROCEEDINGS*                                                                                                  | 12       |
| ITEM  4A.         | *EXECUTIVE  OFFICERS OF THE REGISTRANT*                                                                               | 12       |
|              | * *                                                                                                              | * * |
| **PART II**  |
|              | * *                                                                                                              | * * |
| ITEM 5.           | *MARKET FOR  REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES  OF EQUITY SECURITIES* | 14       |
| ITEM 6.           | *SELECTED  FINANCIAL DATA*                                                                                            | 16       |
| ITEM 7.           | *MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS*                         | 17       |
| ITEM 7A.          | *QUANTITATIVE AND  QUALITATIVE DISCLOSURES ABOUT MARKET RISK*                                                         | 32       |
| ITEM 8.           | *FINANCIAL  STATEMENTS AND SUPPLEMENTARY DATA*                                                                        | 33       |
| ITEM 9.           | *CHANGES IN AND  DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE*                               | 54       |
| ITEM 9A.          | *CONTROLS AND  PROCEDURES*                                                                                            | 54       |
| ITEM 9B.          | *OTHER INFORMATION*                                                                                                   | 54       |
|              | * *                                                                                                              |     |
| **PART III** |
|              | * *                                                                                                              |     |
| ITEM  10.         | *DIRECTORS,  EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE*                                                             | 55       |
| ITEM 11.          | *EXECUTIVE  COMPENSATION*                                                                                             | 56       |
| ITEM 12.          | *SECURITY OWNERSHIP  OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS*                     | 56       |
| ITEM 13.          | *CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE*                                          | 56       |
| ITEM 14.          | *PRINCIPAL ACCOUNTANT  FEES AND SERVICES*                                                                             | 56       |
|              | * *                                                                                                              |     |
| **PART IV**  |
|              | * *                                                                                                              |     |
| ITEM  15.         | *EXHIBITS AND  FINANCIAL STATEMENT SCHEDULES*                                                                         | 57       |
|              | * *                                                                                                              |     |
| **OTHER**         |
| ** **        |                                                                                                                  |     |
|              | Signature Page                                                                                                        | 59       |
|              |                                                                                                                  |     |
|              | Exhibit Index                                                                                                    | 61       |

 

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**FORWARD-LOOKING INFORMATION**

** **

*This Annual Report on Form 10-K containscertain forward-looking statements.  Suchstatements are made pursuant to the safe harbor provisions of the PrivateSecurities Litigation Reform Act of 1995. Any statements not of historical fact may be considered forward-lookingstatements.  Written words such as “may,”“expect,” “believe,” “anticipate,” “plan,” “goal,” or “estimate,” or othervariations of these or similar words, identify such statements.  These statements by their nature involvesubstantial risks and uncertainties, and actual results may differ materiallyfrom those expressed in such forward-looking statements.  Important factors known to us that could causesuch material differences are identified in this Annual Report on Form 10-Kunder the heading “Risk Factors” beginning on page *7*. We undertake no obligation to correct or update any forward-lookingstatements, whether as a result of new information, future events, orotherwise.  You are advised, however, toconsult any future disclosures we make on related subjects in future filingswith the Securities and Exchange Commission.*

 

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

 

**PART I**

 

**ITEM1.**                                  *BUSINESS*

** **

**Overview**

** **

We are one of the leading temperature-sensitivetruckload carriers in the United States. We specialize in transporting anddistributing food and other consumer packaged goods that require atemperature-controlled or insulated environment.  In 2009, we generated $505.9 million inoperating revenue, which consists of revenue from both truckload and logisticsoperations. Approximately 86% of our truckload revenue resulted from haulingtemperature-sensitive products and 14% from hauling dry freight.  We operate throughout the United States andin parts of Canada and Mexico, with substantially all of our revenue generatedfrom within the United States. Our primary long-haul traffic lanes are betweenthe Midwest and the West Coast, Southwest, Southeast, and the East Coast, aswell as from California to the Pacific Northwest.  We provide regional truckload carrierservices in the Southeast, West Coast, Midwest and South Central regions.  In 2009, our average length of haul was 761miles.

 

Our growth strategy is to expand our businessinternally by offering shippers a high level of service and significant freightcapacity.  We market primarily to largeshippers that offer consistent volumes of freight in the lanes we prefer andare willing to compensate us for a high level of service.  With our fleet of 2,264 company andindependent contractor tractors, we are able to offer service levels thatinclude up to 99% on-time performance and delivery within the narrow timewindows often required when shipping perishable commodities.

 

We have two reporting segments — Truckload andLogistics.  Financial informationregarding these segments can be found in Footnote 11 to the Notes toConsolidated Financial Statements under Item 8 of this Form 10-K.  The primary source of our operating revenueis truckload revenue, which we generate by transporting long-haul and regionalfreight for our customers and report within our Truckload segment.  Generally, we are paid by the mile for ourservices.  We also derive truckloadrevenue from fuel surcharges, loading and unloading activities, equipmentdetention and other ancillary services. We continue to expand our regional truckload operations, whichrepresented 22% of our tractor fleet as of December 31, 2009.  Our operating revenue also includes revenuereported within our Logistics segment, which consists of revenue from ourinternal brokerage and intermodal operations, both launched in 2005, andthrough our 45% interest in MW Logistics, LLC, or MWL, a third-party providerof logistics services to the transportation industry.  Brokerage services involve arranging foranother company to transport freight for our customers while we retain thebilling, collection and customer management responsibilities.  Intermodal services involve the transport ofour 

 

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trailers on railroadflatcars for a portion of a trip, with the balance of the trip using ourtractors or, to a lesser extent, contracted carriers.

 

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

 

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

 

**Marketing and Operations**

** **

We approach our business as an integrated effort ofmarketing and operations. Our emphasis in marketing is directed to thetemperature-sensitive market, which is generally service-sensitive, as opposedto being solely price competitive. We target large food and consumer packagedgoods companies whose products require temperature-sensitive services and whoship multiple truckloads per week. By emphasizing high-quality service, we seekto become a core carrier for our customers. In 2009, our two largest customerswere General Mills and Kraft.

 

Our marketing efforts are conducted by a staff ofapproximately 132 sales, customer service and support personnel under thesupervision of our senior management team. Marketing personnel travel withintheir regions to solicit new truckload and logistics customers and maintaincontact with existing customers. Customer service managers regularly contactcustomers to solicit additional business on a load-by-load basis.

 

Our operations and sales personnel strive to improveour asset productivity by seeking freight that allows for rapid turnaroundtimes, minimizes non-revenue miles between loads, and carries a favorable ratestructure. Once we have established a customer relationship, customer servicemanagers work closely with our fleet managers to match customer needs with ourcapacity and the location of revenue equipment. Fleet managers use ouroptimization system to assign loads to satisfy customer and operationalrequirements, as well as to meet the routing needs of our drivers. We attemptto route most of our trucks over selected operating lanes, which we believeassists us in meeting customer requirements, balancing traffic, reducingnon-revenue miles, and improving the reliability of delivery schedules.

 

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

 

·                  Satellite-based tracking and messaging that allows usto communicate with our drivers, obtain load position updates, provide ourcustomers with freight visibility, and download engine operating informationsuch as fuel mileage and idling time.

 

·                  Freight optimization software that assists us inselecting loads that match our overall criteria, including profitability,repositioning, identifying capacity for expedited loads, driver availabilityand home time, and other factors.

 

·                  Electronic data interchange and internet communicationwith customers concerning freight tendering, invoices, shipment status, andother information.

 

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

 

·                  Auxiliary power units installed on our company-owned tractors thatallow us to decrease fuel costs associated with idling our tractors.

 

We believe this integrated approach to our marketingand operations, coupled with our use of technology, has allowed us to provideour customers with a high level of service and support our revenue growth in anefficient manner. For example, we had a non-revenue mile percentage of 9.2%during 2009, which points to the efficiency of our operations and we believecompares favorably to other temperature-sensitive and dry van truckingcompanies.

 

**Major Customers**

** **

An important part of our growth strategy is toincrease our business with large customers. Accordingly, a significant amountof our business is concentrated with a relatively small number of customers. In2009, our top 30 customers accounted for approximately 77% of our revenue, andour top ten customers accounted for 54% of our revenue.  Eight of our top ten customers have beensignificant customers of ours for over ten years. We believe we are the largesttemperature-sensitive carrier for eight of our top ten customers.  General Mills accounted for 20% and Kraftaccounted for 12% of our revenue in 2009. We believe our relationships with these key customers are sound, but weare dependent upon them and the loss of some or all of their business couldhave a materially adverse effect on our results.

 

**Drivers and Other Personnel**

** **

We believe that maintaining a safe and productiveprofessional driver group is essential to providing excellent customer serviceand achieving profitability. Approximately 224 of our drivers as of December 31,2009 have driven more than one million miles for us without a preventableaccident, while approximately 73 of our drivers have driven more than twomillion miles and eight have driven more than three million miles for uswithout a preventable accident.

 

We select drivers, including independent contractors,using our specific guidelines for safety records, driving experience, andpersonal evaluations. We maintain stringent screening, training, and testingprocedures for our drivers to reduce the potential for accidents and thecorresponding costs of insurance and claims. We train new drivers at ourWisconsin, California, Georgia, Indiana, Texas and Virginia terminals in allphases of our policies and operations, as well as in safety techniques andfuel-efficient operation of the equipment. All new drivers also must pass DOTrequired tests prior to assignment to a vehicle.

 

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

 

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

 

As of December 31, 2009, we had approximately2,666 employees. This total consists of approximately 2,080 drivers, 217mechanics and maintenance personnel, and 369 support personnel, which includesmanagement and administration. As of that date, we also contracted with 177independent contractors. None of our employees are represented by a collectivebargaining unit. We consider relations with our employees to be good.

 

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**Revenue Equipment**

** **

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

 

As of December 31, 2009, we operated a fleet of2,264 tractors, including 2,087 company-owned tractors and 177 tractorssupplied by independent contractors.  Theaverage age of our company-owned tractor fleet at December 31, 2009 wasapproximately 2.4 years.  In 2009, wereplaced most of our company-owned tractors within approximately four yearsafter purchase.

 

Freightliner and Peterbilt manufacture most of ourcompany-owned tractors. Maintaining a relatively new and standardized fleetallows us to operate most miles while the tractors are under warranty tominimize repair and maintenance costs. It also enhances our ability to attractdrivers, increases fuel economy, and improves customer acceptance by minimizingservice interruptions caused by breakdowns. We adhere to a comprehensivemaintenance program during the life of our equipment. We perform most routineservicing and repairs at our terminal facilities to reduce costly on-roadrepairs and out-of-route trips. We do not have any agreements with tractormanufacturers pursuant to which they agree to repurchase the tractors orguarantee a residual value, and we therefore could incur losses upondisposition if resale values of used tractors decline.

 

We historically have contracted with independentcontractors to provide and operate a portion of our tractor fleet. Independentcontractors own their own tractors and are responsible for all associatedexpenses, including financing costs, fuel, maintenance, insurance, and taxes.We believe that a combined fleet complements our recruiting efforts.  The percentage of our fleet provided byindependent contractors was 7.8%  as of December 31,2009 compared to 7.9% as of December 31, 2008 and 14.0% as of December 31,2007.

 

As of December 31, 2009, we operated a fleet of3,958 trailers. Most of our trailers are equipped with Thermo-Kingrefrigeration units, air ride suspensions, and anti-lock brakes. Most of oursingle van trailers are refrigerated, 53 feet long, and 102 inches wide. Theaverage age of our trailer fleet at December 31, 2009 was approximately3.4 years. In 2009, we replaced most of our company-owned trailers withinapproximately six years after purchase.

 

**Insurance and Claims**

** **

We self-insure for a portion of our claims exposureresulting from workers’ compensation, auto liability, general liability, cargoand property damage claims, as well as employees’ health insurance. We areresponsible for our proportionate share of the legal expenses relating to suchclaims as well. We reserve currently for anticipated losses and expenses. Weperiodically evaluate and adjust our insurance and claims reserves to reflectour experience.  We are responsible forthe first $1.0 million on each auto liability claim and also responsible for upto $1.0 million in the aggregate for 33% of all auto liability claim amounts inexcess of $1.0 million.  We are alsoresponsible for the first $750,000 on each workers’ compensation claim.  We have $8.4 million in standby letters ofcredit to guarantee settlement of claims under agreements with our insurancecarriers and regulatory authorities.  Wemaintain insurance coverage for per-incident and total losses in excess of theamounts for which we self-insure up to specified policy limits with licensedinsurance carriers. Insurance carriers have raised premiums for manybusinesses, including trucking companies. As a result, our insurance and claimsexpense could increase, or we could raise our self-insured retention when ourpolicies are renewed. We believe that our policy of self-insuring up to setlimits, together with our safety and loss prevention programs, are effectivemeans of managing insurance costs.

 

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**Fuel**

 

Our operations are heavily dependent upon the use ofdiesel fuel. The price and availability of diesel fuel can vary and are subjectto political, economic, and market factors that are beyond our control.  Fuel prices fluctuated dramatically andquickly at various times during the last three years and they remain high basedon historical standards.  We activelymanage our fuel costs by purchasing fuel in bulk in Mondovi and at our othermaintenance facilities throughout the country and have volume purchasingarrangements with national fuel centers that allow our drivers to purchase fuelat a discount while in transit.  During2009, over 99% of our fuel purchases were made at these designatedlocations.  To help further reduce fuelconsumption, we installed auxiliary power units in our company-owned tractorsduring 2007 and 2008.  These units reducefuel consumption by providing quiet climate control and electrical power forour drivers without idling the tractor engine.

 

We further manage our exposure to changes in fuelprices through fuel surcharge programs with our customers and other measuresthat we have implemented.  We havehistorically been able to pass through a significant portion of long-termincreases in fuel prices and related taxes to customers in the form of fuelsurcharges.  These fuel surcharges, whichadjust with the cost of fuel, enable us to recover a substantial portion of thehigher cost of fuel as prices increase, except for non-revenue miles,out-of-route miles or fuel used while the tractor is idling. As of December 31,2009, we had no derivative financial instruments to reduce our exposure to fuelprice fluctuations.

 

**Competition**

** **

We operate primarily in the temperature-sensitivesegment of the truckload market.  Thismarket is highly competitive and fragmented. We compete with many othertruckload carriers that provide temperature-sensitive service of varying sizesand, to a lesser extent, with less-than-truckload carriers, railroads, andother transportation companies, many of which have more equipment, a widerrange of services, and greater capital resources than we do or have othercompetitive advantages. In particular, several of the largest truckloadcarriers that offer primarily dry-van service also offer temperature-sensitiveservice, and these carriers could attempt to increase their business in thetemperature-sensitive market.  We alsocompete with other motor carriers for the services of drivers, independentcontractors, and management employees. We believe that the principal competitive factors in our business areservice, freight rates, capacity, and financial stability.  As one of the largest and best-capitalizedcarriers focused on the temperature-sensitive segment, we believe we are wellpositioned to compete in that segment.

 

**Regulation**

** **

The United States Department of Transportation, orDOT, and various state and local agencies exercise broad powers over ourbusiness, generally governing such activities as authorization to engage inmotor carrier operations, safety and insurance requirements.  Our company drivers and independentcontractors also must comply with the safety and fitness regulationspromulgated by the DOT, including those relating to drug and alcohol testingand hours-of-service.  Revised rules thatlimit driver hours-of-service were adopted effective January 2004, andthen modified effective October 2005. In July 2007, a federal appeals court vacated portions of the October 2005Rules; however, interim rules issued in December 2007 retained thevacated portions in effect.  In November 2008,final rules effective January 2009 were issued which left the interimrules unchanged.  In October 2009,the FMCSA settled a lawsuit brought by a coalition of advocacy and laborgroups.  Under the settlement, the FMCSAis obligated to review the current regulations, draft a proposal for WhiteHouse review by July 2010 and issue a new final rule in 2011.

 

We believe that we are well equipped to minimize theeconomic impact of the current hours-of-service rules on ourbusiness.  We have negotiated delay timecharges with the majority of our customers. Prior to the effectiveness of the current rules, we also initiated discussionswith many of our customers regarding steps that they can take to assist us inmanaging our drivers’ non-driving activities, such as loading, unloading, orwaiting, and we plan to continue to actively communicate with our customersregarding these matters in the 

 

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future.  In situations where shippers are unable orunwilling to take these steps, we assess detention and other charges to offsetlosses in productivity resulting from the current hours-of-serviceregulations.  The regulations did nothave a significant impact on our operations or financial results in 2007 through2009.

 

The EPA adopted revised emissions control regulations,which require progressive reductions in exhaust emissions from diesel enginesthrough 2010, for engines manufactured in October 2002, and thereafter.The revised regulations decrease the amount of emissions that can be releasedby tractor engines and affect tractors produced after the effective date of theregulations. Compliance with these regulations has increased the cost of ournew tractors, lowered fuel mileage and increased our operating expenses. Somemanufacturers have significantly increased new equipment prices, in part tomeet more stringent engine design requirements imposed by the EPA. Theseadverse effects combined with the uncertainty as to the reliability of thevehicles equipped with the newly designed diesel engines and the residualvalues that will be realized from the disposition of these vehicles couldincrease our costs or otherwise adversely affect our business or operations.

 

We are also subject to various environmental laws andregulations dealing with the handling of hazardous materials, fuel storagetanks, air emissions from our facilities, engine idling, and discharge andretention of storm water.  Theseregulations did not have a significant impact on our operations or financialresults in 2007 through 2009.

 

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**ITEM 1A.**                         *RISK FACTORS*

** **

The following factors are important and should beconsidered carefully in connection with any evaluation of our business,financial condition, results of operations, prospects, or an investment in ourcommon stock.  The risks anduncertainties described below are those that we currently believe maymaterially affect our company or our financial results.  Additional risks and uncertainties notpresently known to us or that we currently deem immaterial may also impair ourbusiness operations or affect our financial results.

 

*Our business is subject to general economic andbusiness factors that are largely out of our control, any of which could have amaterially adverse effect on our operating results*. Our business is dependent on a number of general economic and businessfactors that may have a materially adverse effect on our results of operations,many of which are beyond our control. These factors include excess capacity in the trucking industry, strikesor other work stoppages, and significant increases or fluctuations in interestrates, fuel taxes, and license and registration fees.  We are affected by recessionary economiccycles and downturns in customers’ business cycles, particularly in marketsegments and industries where we have a significant concentration of customers.Economic conditions may adversely affect our customers and their ability to payfor our services.

 

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

 

*The recent instability of the credit markets andthe resulting effects on the economy could have a material adverse effect onour operating results. *Recently, there has been widespreadconcern over the instability of the credit markets and the current creditmarket effects on the economy. If the economy and credit markets continue toweaken, our business, financial results, and results of operations could bematerially and adversely affected, especially if consumer confidence declinesand domestic spending decreases. Although we think it is unlikely given our current cash position, we mayneed to incur indebtedness, which may include drawing on our Credit Facility,or issue debt securities in the future to fund working capital requirements,make investments, or for general corporate purposes.  Additionally, the stresses in the creditmarket have caused uncertainty in the equity markets, which may result involatility of the market price for our securities.

 

*We operate in a highly competitive and fragmentedindustry, and numerous competitive factors could impair our ability to maintainour current profitability*.  We compete with many othertruckload carriers that provide temperature-sensitive service of varying sizesand, to a lesser extent, with less-than-truckload carriers, railroads and othertransportation companies, many of which have more equipment, a wider range ofservices and greater capital resources than we do or have other competitiveadvantages. In particular, several of the largest truckload carriers that offerprimarily dry-van service also offer temperature-sensitive service, and thesecarriers could attempt to increase their business in the temperature-sensitivemarket. Many of our competitors periodically reduce their freight rates to gainbusiness, especially during times of reduced growth rates in the economy, whichmay limit our ability to maintain or increase freight rates or maintainsignificant growth in our business. In addition, many customers reduce thenumber of carriers they use by selecting so-called “core carriers” as approvedservice providers, or conduct bids from multiple carriers for their shippingneeds, and in some instances we may not be selected as a core carrier or toprovide service under such bids.

 

In addition, the trend toward consolidation in thetrucking industry may create other large carriers with greater financialresources and other competitive advantages relating to their size.  Competition from freight logistics andbrokerage companies may negatively impact our customer relationships andfreight rates.  Furthermore, economies ofscale that may be passed on to smaller carriers by procurement aggregationproviders may improve such carriers’ ability to compete with us.

 

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*We derive a significant portion of our revenue fromour major customers, the loss of one or more of which could have a materiallyadverse effect on our business*.  A significantportion of our revenue is generated from our major customers.  For 2009, our top 30 customers, based onrevenue, accounted for approximately 77% of our revenue; our top ten customersaccounted for approximately 54% of our revenue; our top five customersaccounted for approximately 43% of our revenue; and our top two customersaccounted for approximately 32% of our revenue. Generally, we enter into one-year contracts with our major customers,the majority of which do not contain any firm obligations to ship with us.  We cannot assure you that, upon expiration ofexisting contracts, these customers will continue to use our services or that,if they do, they will continue at the same levels.  Many of our customers periodically solicitbids from multiple carriers for their shipping needs, and this process maydepress freight rates or result in loss of business to our competitors.  Some of our customers also operate their ownprivate trucking fleets, and they may decide to transport more of their ownfreight.  A reduction in or terminationof our services by one or more of our major customers could have a materiallyadverse effect on our business and operating results.

 

*****If the growth in our regionaloperations declines, or if we expand into a market with insufficient economicactivity, our results of operations could be adversely affected.***** We operate regional service centers which are located in a number ofcities within the United States.  Inorder to support future growth, these regional operations require thecommitment of additional capital, revenue equipment and facilities along withqualified management, drivers and other personnel. Should the growth in ourregional operations decline, the results of our operations could be adverselyaffected.  It may become more difficultto identify additional cities that can support service centers, and we mayexpand into cities where there is insufficient economic activity, reducedcapacity for growth or less driver and non-driver personnel to support our operations.  We may encounter operating conditions inthese new markets that materially differ from our current operations andcustomer relationships may be difficult to obtain at appropriate freight rates.  Also, we may not be able to apply ourregional operating strategy successfully in additional cities, and it mighttake longer than expected or require a more substantial financial commitmentthan anticipated to establish our operations in the additional cities.

 

*Increased prices, reduced productivity, andrestricted availability of new revenue equipment could cause our financialcondition, results of operations and cash flows to suffer*. We have experienced higher prices for new tractors over the past fewyears, primarily as a result of higher commodity prices and governmentregulations applicable to newly manufactured tractors and diesel engines.  We expect to continue to pay increased pricesfor revenue equipment for the foreseeable future.  Our business could be harmed if we are unableto continue to obtain an adequate supply of new tractors and trailers or if wehave to pay increased prices for new revenue equipment.

 

The EPA adopted revised emissions control regulations,which require progressive reductions in exhaust emissions from diesel enginesthrough 2010, for engines manufactured in October 2002, and thereafter.The revised regulations decrease the amount of emissions that can be releasedby tractor engines and affect tractors produced after the effective date of theregulations. Compliance with these regulations has increased the cost of ournew tractors, lowered fuel mileage and increased our operating expenses. Somemanufacturers have significantly increased new equipment prices, in part tomeet more stringent engine design requirements imposed by the EPA. Theseadverse effects combined with the uncertainty as to the reliability of thevehicles equipped with the newly designed diesel engines and the residualvalues that will be realized from the disposition of these vehicles couldincrease our costs or otherwise adversely affect our business or operations.

 

*We have significant ongoing capital requirementsthat could harm our financial condition, results of operations and cash flowsif we are unable to generate sufficient cash from our operations*. The truckload industry is capitalintensive, and our policy of operating newer equipment requires us to expendsignificant amounts annually. If we elect to expand our fleet in futureperiods, our capital needs would increase. We expect to pay for projected capitalexpenditures with cash flows from operations and borrowings under our revolvingcredit facility. If we are unable to generate sufficient cash from operationsand obtain financing on favorable terms in the future, we may have to limit ourgrowth, enter into less favorable financing 

 

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arrangements, or operateour revenue equipment for longer periods, any of which could have a materiallyadverse effect on our profitability.

 

*Ongoing insurance and claims expenses couldsignificantly affect our earnings*.  Our futureinsurance and claims expense might exceed historical levels, which could reduceour earnings. We self-insure for a portion of our claims exposure resultingfrom workers’ compensation, auto liability, general liability, cargo andproperty damage claims, as well as employees’ health insurance. We also areresponsible for our legal expenses relating to such claims. We reservecurrently for anticipated losses and expenses. We periodically evaluate andadjust our claims reserves to reflect our experience. However, ultimate resultsmay differ from our estimates, which could result in losses over our reservedamounts.

 

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

 

*Increases in compensation or difficulty inattracting drivers could affect our profitability and ability to grow*. The transportation industry has historically experienced substantialdifficulty in attracting and retaining qualified drivers, including independentcontractors.  With increased competitionfor drivers, we could experience greater difficulty in attracting sufficientnumbers of qualified drivers.  Inaddition, due in part to current economic conditions, including the cost offuel and insurance, the available pool of independent contractor drivers issmaller than it has been historically. Accordingly, we may face difficulty in attracting and retaining driversfor all of our current tractors and for those we may add.  Additionally, we may face difficulty inincreasing the number of our independent contractor drivers. In addition, ourindustry suffers from high turnover rates of drivers. Our turnover raterequires us to recruit a substantial number of drivers. Moreover, our turnoverrate could increase. If we are unable to continue to attract drivers andcontract with independent contractors, we could be required to continueadjusting our driver compensation package beyond the norm or let trucks sitidle.  An increase in our expenses or in thenumber of tractors without drivers could materially and adversely affect ourgrowth and profitability.

 

*Fluctuations in the price or availability of fuelmay increase our cost of operation, which could materially and adversely affectour profitability*.  We require large amounts of diesel fuel tooperate our tractors and to power the temperature-control units on ourtrailers. Fuel is one of our largest operating expenses. Fuel prices tend tofluctuate, and prices and availability of all petroleum products are subject topolitical, economic and market factors that are beyond our control. We dependprimarily on fuel surcharges, auxiliary power units for our tractors, volumepurchasing arrangements with truck stop chains and bulk purchases of fuel atour terminals to control and recover our fuel expenses. There can be noassurance that we will be able to collect fuel surcharges, enter into volumepurchase agreements, or execute successful hedges in the future. Additionally,we may encounter decreases in productivity that may offset or eliminate savingsfrom auxiliary power units, or may incur unexpected maintenance or other costsassociated with such units. The absence of meaningful fuel price protectionthrough these measures, fluctuations in fuel prices, or a shortage of dieselfuel, could materially and adversely affect our results of operations.

 

*Seasonality and the impact of weather can affectour profitability*.  Our tractor productivity generally decreasesduring the winter season because inclement weather impedes operations and someshippers reduce their shipments. At the same time, operating expenses generallyincrease, with harsh weather creating higher accident frequency, increasedclaims and more equipment repairs. We can also suffer short-term impacts fromweather-related events such as hurricanes, blizzards, ice-storms, and floodsthat could harm our results or make our results more volatile.

 

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*We operate in a highly regulated industry andincreased costs of compliance with, or liability for violation of, existing orfuture regulations could have a materially adverse effect on our business*. The DOT and various state and local agencies exercise broad powers overour business, generally governing such activities as authorization to engage inmotor carrier operations, safety and insurance requirements. Our companydrivers and independent contractors also must comply with the safety andfitness regulations promulgated by the DOT, including those relating to drugand alcohol testing and hours-of-service. We also may become subject to new or more restrictive regulationsrelating to fuel emissions, drivers’ hours-of-service, ergonomics, or othermatters affecting safety or operating methods. Other agencies, such as the EPAand the Department of Homeland Security, or DHS, also regulate our equipment,operations, and drivers.  Future laws andregulations may be more stringent and require changes in our operatingpractices, influence the demand for transportation services, or require us toincur significant additional costs. Higher costs incurred by us or by oursuppliers who pass the costs onto us through higher prices could adverselyaffect our results of operations.

 

The DOT, through the Federal Motor Carrier SafetyAdministration, or FMCSA, imposes safety and fitness regulations on us and ourdrivers.  Revised rules that limitdriver hours-of-service were adopted effective January 2004, and thenmodified effective October 2005. In July 2007, a federal appealscourt vacated portions of these rules. Two of the key portions that were vacated include the expansion of thedriving day from 10 hours to 11 hours, and the “34-hour restart,” which allowsdrivers to reset their maximum allowable hours in a week.  The court indicated that, in addition toother reasons, it vacated these two portions of the rules because FMCSAfailed to provide adequate data supporting its decision to increase the drivingday and provide for the 34-hour restart. Following a request by FMCSA for a 12-month extension of the vacatedrules, the court, in an order filed in September 2007, granted a 90-daystay of the mandate and directed that issuance of its ruling be withheld until December 2007,to allow FMCSA time to prepare its response. In December 2007, FMCSA submitted interim final rules, which becameeffective in December 2007.  Theinterim rules retained the 11 hour driving day and the 34-hour restart,but provided greater statistical support and analysis regarding the increaseddriving time and the 34-hour restart. The FMCSA published final rules effective January 2009 in November 2008which left the interim rules unchanged. In October 2009, the FMCSA settled a lawsuit brought by a coalitionof advocacy and labor groups.  Under thesettlement, the FMCSA is obligated to review the current regulations, draft aproposal for White House review by July 2010 and issue a new final rule in2011. As advocacy groups may continue to challenge the final rules, a court’sdecision to strike down the final rules could have varying effects, asreducing driving time to 10 hours daily may reduce productivity in somelanes.  A court’s decision to strike downthe final rules could decrease productivity and cause some loss ofefficiency, as drivers and shippers may need to be retrained, computerprogramming may require modifications, additional drivers may need to beemployed or engaged, additional equipment may need to be acquired, and someshipping lanes may need to be reconfigured. We are also unable to predict the effect of any new rules thatmight be proposed, but any such proposed rules could increase costs in ourindustry or decrease productivity.

 

In the aftermath of the September 11, 2001terrorist attacks, federal, state, and municipal authorities have implementedand continue to implement various security measures, including checkpoints andtravel restrictions on large trucks. As a result, it is possible we may fail tomeet the needs of our customers or may incur increased expenses to do so. Thesesecurity measures could negatively impact our operating results.

 

Some states and municipalities have begun to restrictthe locations and amount of time where diesel-powered tractors, such as ours,may idle, in order to reduce exhaust emissions. The State of California has enacted legislation which requires tractorsweighing more than 10,000 pounds to use alternative sources, such as auxiliarypower units, when powering their cabs at idle for more than five minutes.  The State of California has also enactedlegislation requiring compliance with exhaust emissions standards forrefrigeration units on trailers. Compliance is being phased in by the state, beginning with 2001 andearlier models.  Given our investment inauxiliary power units for our tractors and the average age of our trailerfleet, we do not expect these regulations will have a significant impact on ouroperations or financial results.

 

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From time to time, various federal, state, or localtaxes are increased, including taxes on fuels. We cannot predict whether, or in what form, any such increase applicableto us will be enacted, but such an increase could aversely affect ourprofitability.

 

*Service instability in the railroad industry couldincrease our operating costs and reduce our ability to offer intermodal services,which could adversely affect our revenue, results of operations, and customerrelationships*.  In the future, our dependence on railroadswill increase if we continue to expand our intermodal services. In mostmarkets, rail service is limited to a few railroads or even a single railroad.Any reduction in service by the railroads with which we have, or in the futuremay have, relationships is likely to increase the cost of the rail-basedservices we provide and reduce the reliability, timeliness, and overallattractiveness of our rail-based services. Furthermore, railroads arerelatively free to adjust shipping rates up or down as market conditionspermit. Price increases could result in higher costs to our customers andreduce or eliminate our ability to offer intermodal services. In addition, wecannot assure you that we will be able to negotiate additional contracts withrailroads to expand our capacity, add additional routes, or obtain multipleproviders, which could limit our ability to provide this service.

 

*Our operations are subject to various environmentallaws and regulations, the violation of which could result in substantial finesor penalties*.  We are subject to various environmental lawsand regulations dealing with the handling of hazardous materials, fuel storagetanks, air emissions from our vehicles and facilities, engine idling, anddischarge and retention of storm water. We operate in industrial areas, wheretruck terminals and other industrial activities are located, and where groundwateror other forms of environmental contamination have occurred. Our operationsinvolve the risks of fuel spillage or seepage, environmental damage, andhazardous waste disposal, among others. Although we have instituted programs tomonitor and control environmental risks and promote compliance with applicableenvironmental laws and regulations, if we are involved in a spill or otheraccident involving hazardous substances or if we are found to be in violationof applicable laws or regulations, we could be subject to liabilities,including substantial fines or penalties or civil and criminal liability, anyof which could have a materially adverse effect on our business and operatingresults.

 

*If we are unable to retainour executive officers and key management employees, our business, financialcondition and results of operations could be adversely affected. *We are highly dependent upon the services of ourexecutive officers and key management employees.  Currently, we do not have employmentagreements with these employees and the loss of any of their services couldhave a materially adverse effect on our operations and future profitability. Inaddition, we must continue to develop and retain a core group of managers if weare to realize our goal of expanding our operations and continuing our growth.We cannot assure you that we will be able to do so in the future.

 

*Our management information systems may proveinadequate*.  We depend upon our management informationsystems for many aspects of our business. Some of our key software has been developed internally by ourprogrammers or by adapting purchased software to our needs and this softwaremay not be easily modified or integrated with other software and systems.  Our business will be materially and adverselyaffected if our management information systems are disrupted or if we areunable to improve, upgrade, integrate or expand our systems as we continue toexecute our growth strategy, including our logistics services.

 

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**ITEM 1B.**                         *UNRESOLVED STAFF COMMENTS*

** **

None.

 

**ITEM 2.**                                  *PROPERTIES*

** **

Our executive offices and principal terminal arelocated on approximately seven acres in Mondovi, Wisconsin. This facilityconsists of 39,000 square feet of office space and 21,000 square feet ofequipment repair and maintenance space. We added additional equipment repair and maintenance facilities in 2007and in 2009 in Mondovi, Wisconsin which consist of 15,000 square feet of spacelocated on approximately 11 acres and 50,000 square feet of space located onapproximately three acres, respectively. We operate facilities in or near thefollowing cities at which we perform the following designated operatingactivities:

 
| **Company Locations**  | ** ** | **Owned or  Leased** | ** ** | **Maintenance** | ** ** | **Fueling** | ** ** | **Driver  Recruitment** | ** ** | **Driver  Training** | ** ** | **Dispatch** | ** ** | **Sales** |
|------------------------|------------|----------------------|------------|-----------------|------------|-------------|------------|-------------------------|------------|----------------------|------------|--------------|------------|-----------|
| Mondovi,  Wisconsin    |       | Owned                |       | X               |       | X           |       | X                       |       | X                    |       | X            |       | X         |
| Ontario,  California   |       | Owned                |       | X               |       | X           |       |                    |       | X                    |       |         |       |      |
| Atlanta, Georgia       |       | Owned                |       | X               |       | X           |       |                    |       | X                    |       | X            |       |      |
| Portland, Oregon       |       | Owned                |       | X               |       | X           |       |                    |       |                 |       | X            |       |      |
| Indianapolis,  Indiana |       | Owned                |       | X               |       | X           |       |                    |       | X                    |       | X            |       |      |
| Irving, Texas          |       | Leased               |       | X               |       | X           |       |                    |       | X                    |       | X            |       |      |
| Richmond,  Virginia    |       | Leased               |       |            |       |        |       |                    |       | X                    |       | X            |       |      |
| Laredo, Texas          |       | Leased               |       | X               |       |        |       |                    |       |                 |       | X            |       |      |

 

**ITEM 3.**                                  *LEGAL PROCEEDINGS*

** **

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

 

**ITEM 4A.**                         *EXECUTIVE OFFICERS OF THE REGISTRANT*

** **

Our executive officers, with their ages and theoffices held as of March 1, 2010, are as follows:

 
| **Name**             | ** ** | **Age** | ** ** | **Position**                                                   |
|----------------------|------------|---------|------------|----------------------------------------------------------------|
| Randolph L.  Marten  |       | 57      |       | Chairman of the  Board,

Chief Executive  Officer and Director |
|                 |       |    |       |                                                           |
| Timothy M. Kohl      |       | 62      |       | President                                                      |
|                 |       |    |       |                                                           |
| Robert G. Smith      |       | 66      |       | Chief Operating  Officer                                       |
|                 |       |    |       |                                                           |
| Timothy P. Nash      |       | 58      |       | Executive Vice  President of Sales and Marketing               |
|                 |       |    |       |                                                           |
| James J.  Hinnendael |       | 46      |       | Chief Financial  Officer                                       |
|                 |       |    |       |                                                           |
| John H. Turner       |       | 48      |       | Vice President  of Sales                                       |

 

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**Randolph L. Marten** has been a full-time employee of ourssince 1974.  Mr. Marten has been aDirector since October 1980, our Chairman of the Board since August 1993and our Chief Executive Officer since January 2005.  Mr. Marten also served as our Presidentfrom June 1986 until June 2008, our Chief Operating Officer from June 1986until August 1998 and as a Vice President from October 1980 to June 1986.

 

**Timothy M. Kohl** has been our President since June 2008.  Mr. Kohl joined the company in November 2007,and has over 20 years’ experience in the transportation services industry.  Mr. Kohl served as Knight TransportationInc.’s President from 2004 to 2007 and as its Secretary from 2000 to 2007.  Mr. Kohl served as a director on Knight’sBoard of Directors from 2001 to 2006, and he served as its Chief FinancialOfficer from 2000 to 2004.  Mr. Kohlalso served as Knight’s Vice President of Human Resources from 1996 through1999.  From 1999 through 2000, Mr. Kohlserved as Vice President of Knight’s southeast region.  Prior to his employment with Knight, Mr. Kohlwas employed by Burlington Motor Carriers as Vice President of HumanResources.  Prior to his employment withBurlington Motor Carriers, Mr. Kohl served as Vice President of HumanResources for J.B. Hunt.

 

**Robert G. Smith** has been our Chief Operating Officersince August 1998.  Mr. Smithalso served as our Vice President of Operations from June 1993 until May 1999and as our Director of Operations from September 1989 to June 1993.  Mr. Smith served as director ofoperations for Transport Corporation of America, an irregular-route truckloadcarrier, from 1985 to 1989.

 

**Timothy P. Nash** has been our Executive Vice President ofSales and Marketing since November 2000. Mr. Nash also served as our Vice President of Sales from November 1990to November 2000 and as a Regional Sales Manager from July 1987 to November 1990.  Mr. Nash served as a regional salesmanager for Overland Express, Inc., a long-haul truckload carrier, from1986 to 1987.

 

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

 

**John H. Turner** has been our Vice President of Salessince January 2007 and an executive officer since August 2007.  He also served as our Vice President of Salesfrom October 2000 to February 2005, and as an executive officer from January 2002to February 2005.  Mr. Turneralso served as our Director of Sales from July 1999 to October 2000and in various professional capacities in our sales and marketing area from August 1991to July 1999 and as our Operations Manager-West from October 1990 to August 1991.  Previously, Mr. Turner served as a vicepresident for Naterra Land, Inc., a recreational land developer, from 2005to 2006 and as the western fleet general manager and area sales manager forMunson Transportation, Inc., a long-haul truckload carrier, from 1986 to1990.

 

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**PART II**

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

 

Our common stock is listed on the NASDAQ Global SelectMarket under the symbol “MRTN.”  Thetable below shows the range of high and low bid prices for the quartersindicated on the NASDAQ Global Select Market. Such quotations reflect inter-dealer prices, without retail markups,markdowns or commissions and, therefore, may not necessarily represent actualtransactions.

 
| ** **                            | ** ** | **Common Stock Price** | ** ** |
|---------------------------------------|------------|------------------------|------------|
| ** **                            | ** ** | **High**               | ** ** | **Low** | ** ** |
| **Year ended December 31, 2009**      | ** ** | ** **             | ** ** | ** ** | ** ** |
| Fourth Quarter                        | ** ** | **$**                  | **18.82**  | ** ** | **$** | **16.40** | ** ** |
| Third Quarter                         | ** ** | **21.46**              | ** ** | **16.05** | ** ** |
| Second Quarter                        | ** ** | **22.50**              | ** ** | **17.75** | ** ** |
| First Quarter                         | ** ** | **19.57**              | ** ** | **14.49** | ** ** |
|                                  | ** ** | ** **             | ** ** | ** ** | ** ** |
| **Year ended December 31, 2008** | ** ** | ** **             | ** ** | ** ** | ** ** |
| Fourth Quarter                        |       | $                      | 20.61      |   | $ | 14.98 |   |
| Third Quarter                         |       | 22.59                  |       | 15.00 |   |
| Second Quarter                        |       | 18.32                  |       | 15.00 |   |
| First Quarter                         |       | 17.85                  |       | 11.50 |   |

 

The prices do not include adjustments for retailmark-ups, mark-downs or commissions.  On March 1,2010, we had 221 record stockholders, and approximately 1,387 beneficialstockholders of our common stock.

 

We have not paid a cash dividend on our common stocksince we became publicly traded in September 1986.  Our ability to pay cash dividends iscurrently limited by restrictions contained in our revolving creditfacility.  Our revolving credit facilityprohibits us from paying, in any fiscal year, dividends in excess of 25% of ournet income from the prior fiscal year. Future payments of cash dividends will depend on our financialcondition, results of operations, capital commitments, restrictions underthen-existing agreements, and other factors our Board of Directors deemsrelevant.

 

On December 4, 2007, our Board of Directorsapproved and we announced a share repurchase program to repurchase up to onemillion shares of our common stock either through purchases on the open marketor through private transactions and in accordance with Rule 10b-18 of theExchange Act.  The timing and extent towhich we will repurchase shares depends on market conditions and othercorporate considerations.  The repurchaseprogram does not have an expiration date. In the first quarter of 2008 we repurchased and retired 67,500 shares ofour common stock for $810,000.  We madeno purchases in 2007, in the remainder of 2008 or in 2009.

 

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**Comparative Stock Performance**

 

The graph below comparesthe cumulative total stockholder return on our common stock with the NASDAQMarket index and the SIC code 4213 (trucking, except local) line-of-businessindex for the last five years.  ResearchData Group, Inc. prepared the line-of-business index.  The graph assumes $100 is invested in ourcommon stock, the NASDAQ Stock Market index and the line-of-business index on December 31,2004, with reinvestment of dividends. The comparisons in the graph below are based on historical data and arenot intended to forecast the possible future performance of our common stock.  The information in the graph below shall bedeemed “furnished” and not “filed” for purposes of Section 18 of theExchange Act or otherwise subject to the liabilities of that section.

 

**COMPARISONOF 5 YEAR CUMULATIVE TOTAL RETURN**

Among MartenTransport, Ltd., The NASDAQ Composite Index

and SIC code 4213

 

 

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* $100 invested on 12/31/04 in stock or index,including reinvestment of dividends.

Fiscal year ending December 31.

 

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**ITEM6.**                                  *SELECTED FINANCIAL DATA*

** **

The following selected financial data should be readin conjunction with the consolidated financial statements and notes under Item8 of this Form 10-K.

 
| **(Dollars in thousands, except per share amounts)** | ** ** | **2009**    | ** **  | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|------------------------------------------------------|------------|-------------|-------------|----------|------------|----------|------------|----------|------------|----------|------------|
| **FOR THE YEAR**                                     |       |        |        |     |       |     |       |     |       |     |       |
| Operating revenue                                    | ** ** | **$**       | **505,874** |     | $          | 607,099  |       | $        | 560,017    |     | $          | 518,890 |   | $ | 460,202 |   |
| Operating income                                     | ** ** | **29,359**  |        | 32,705   |       | 27,801   |       | 41,169   |       | 42,867   |       |
| Net income                                           | ** ** | **16,267**  |        | 18,071   |       | 14,968   |       | 24,518   |       | 25,061   |       |
| Operating ratio(1)                                   | ** ** | **94.2**    | **%**       | 94.6     | %          | 95.0     | %          | 92.1     | %          | 90.7     | %          |
|                                                 | ** ** | ** **  |        |     |       |     |       |     |       |     |       |
| **PER-SHARE DATA**                                   | ** ** | ** **  |        |     |       |     |       |     |       |     |       |
| Basic earnings per common share                      | ** ** | **$**       | **0.74**    |     | $          | 0.83     |       | $        | 0.69       |     | $          | 1.13 |   | $ | 1.16 |   |
| Diluted earnings per common share                    | ** ** | **0.74**    |        | 0.82     |       | 0.68     |       | 1.12     |       | 1.14     |       |
| Book value(2)                                        | ** ** | **12.56**   |        | 11.79    |       | 10.92    |       | 10.20    |       | 9.01     |       |
|                                                 | ** ** | ** **  |        |     |       |     |       |     |       |     |       |
| **AT YEAR END**                                      | ** ** | ** **  |        |     |       |     |       |     |       |     |       |
| Total assets                                         | ** ** | **$**       | **414,838** |     | $          | 397,443  |       | $        | 407,390    |     | $          | 410,822 |   | $ | 349,733 |   |
| Long-term debt                                       | ** ** | **1,499**   |        | 2,857    |       | 44,643   |       | 58,659   |       | 48,300   |       |
| Stockholders’ equity(2)                         | ** ** | **274,907** |        | 257,451  |       | 238,213  |       | 221,906  |       | 194,348  |       |

 

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(1)          Represents operating expenses as a percentage ofoperating revenue.

 

(2)          The amounts for 2005 through 2008 were restated toreflect the reclassification of noncontrolling interests to stockholders’equity to be consistent with the current presentation upon adoption of FASB ASC810-10-65-1, *Consolidation,* effective January 1,2009.

 

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

 

*Thefollowing discussion and analysis of our financial condition and results ofoperations should be read together with the selected consolidated financialdata and our consolidated financial statements and the related notes appearingelsewhere in this report. This discussion and analysis contains forward-lookingstatements that involve risks, uncertainties and assumptions. Our actualresults may differ materially from those anticipated in these forward-lookingstatements as a result of many factors, including but not limited to thoseunder the heading “Risk Factors” beginning on page 7.  We do not assume, and specifically disclaim,any obligation to update any forward-looking statement contained in thisreport.*

 

**Overview**

 

The primary source of ouroperating revenue is truckload revenue, which we generate by transportinglong-haul and regional freight for our customers and report within ourTruckload segment.  Generally, we arepaid by the mile for our services.  Wealso derive truckload revenue from fuel surcharges, loading and unloadingactivities, equipment detention and other ancillary services.  The main factors that affect our truckloadrevenue are the rate per mile we receive from our customers, the percentage ofmiles for which we are compensated, the number of miles we generate with ourequipment and changes in fuel prices.  Wemonitor our revenue production primarily through average truckload revenue, netof fuel surcharges, per tractor per week. We also analyze our average truckload revenue, net of fuel surcharges,per total mile, non-revenue miles percentage, the miles per tractor wegenerate, our accessorial revenue and our other sources of operating revenue.

 

Our operating revenue alsoincludes revenue reported within our Logistics segment, which consists ofrevenue from our internal brokerage and intermodal operations, both launched in2005, and through our 45% interest in MWL, a third-party provider of logisticsservices to the transportation industry. Brokerage services involve arranging for another company to transportfreight for our customers while we retain the billing, collection and customermanagement responsibilities.  Intermodalservices involve the transport of our trailers on railroad flatcars for aportion of a trip, with the balance of the trip using our tractors or, to alesser extent, contracted carriers.  Themain factors that affect our logistics revenue are the rate per mile and othercharges we receive from our customers and the rates charged by third-partyproviders.

 

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

 

Our operating revenuedecreased $101.2 million, or 16.7%, in 2009. This decrease was primarily due to fuel surcharge revenue decreasing by$76.9 million, or 58.0%, caused by significantly lower fuel prices in2009.  Our operating revenue, net of fuelsurcharges, decreased $24.3 million, or 5.1%, compared with 2008.  Truckload segment revenue, net of fuelsurcharges, decreased 9.7% primarily due to a decrease in our average truckloadrevenue, net of fuel surcharges, per tractor per week of 9.7% in 2009.  The reduction in revenue per tractor per weekwas primarily caused by a decrease in our average miles per tractor in 2009 dueto the difficult freight environment. The changes in our operating statisticsare consistent with the continued development and growth of our regionaltemperature-controlled operations.  Byfocusing on shorter lengths of haul in certain defined areas, we are addressingcustomer trends toward regional distribution to lower their transportationexpense, furthering our own objectives of reducing fuel consumption per load,and matching some of our drivers’ desires to stay closer to home.  The concentration of a portion of our fleetin these markets is evident in a 10.8% reduction from 2008 in average length ofhaul to 761 miles.  Our average fleetsize was relatively stable in 2009 compared with 2008.  Logistics segment revenue, net of intermodalfuel surcharges, increased 14.4% compared with 2008.  The increase in logistics revenue primarilyresulted from our continued emphasis on expansion of and volume growth in eachof our internal brokerage and intermodal services, partially offset by adecrease in revenue generated by MWL.  Logisticsrevenue represented 21.6% of our operating revenue in 2009 compared to 16.3% in2008 and 12.4% in 2007.

 

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Our profitability on theexpense side is impacted by variable costs of transporting freight for ourcustomers, fixed costs, and expenses containing both fixed and variablecomponents.  The variable costs includefuel expense, driver-related expenses, such as wages, benefits, training, andrecruitment, and independent contractor costs, which are recorded underpurchased transportation.  Expenses thathave both fixed and variable components include maintenance and tire expenseand our total cost of insurance and claims. These expenses generally vary with the miles we travel, but also have acontrollable component based on safety, fleet age, efficiency and otherfactors.  Our main fixed costs relate tothe acquisition and financing of long-term assets, such as revenue equipmentand operating terminals.  We expect ourannual cost of tractor and trailer ownership will increase in future periods asa result of higher prices of new equipment. Although certain factors affecting our expenses are beyond our control,we monitor them closely and attempt to anticipate changes in these factors inmanaging our business.  For example, fuelprices fluctuated dramatically at various times during the last several years,with the D.O.E. national average cost of fuel decreasing to $2.47 per gallon in2009 from $3.80 per gallon in 2008.  Wemanage our exposure to changes in fuel prices primarily through fuel surchargeprograms with our customers, as well as through volume fuel purchasingarrangements with national fuel centers and bulk purchases of fuel at ourterminals.  To help further reduce fuelexpense, we installed auxiliary power units in our tractors to provide climatecontrol and electrical power for our drivers without idling the tractorengine.  For our Logistics segment, ourprofitability on the expense side is impacted by the percentage of logisticsrevenue we pay to providers for the transportation services we arrange.

 

Our operating expenses asa percentage of operating revenue, or “operating ratio,” was 94.2% in 2009compared with 94.6% in 2008.  Ourearnings per diluted share decreased to $0.74 in 2009 from $0.82 in 2008.  The decreased profitability in 2009 wasprimarily due to the decrease in revenue per tractor per week in our Truckloadsegment, partially offset by the improvement in our overall coststructure.  The more broad implementationof our per diem pay structure for our drivers in 2009 positively impacted ouroperating ratio in 2009 compared with 2008.

 

Our business requiressubstantial, ongoing capital investments, particularly for new tractors andtrailers. At December 31, 2009, we had approximately $3.9 million of cashand cash equivalents and marketable securities, net of checks issued in excessof cash balances, $1.5 million of long-term debt, including current maturities,and $274.9 million in stockholders’ equity. In 2009, net cash flows provided by operating activities were primarilyused to purchase new revenue equipment, net of proceeds from dispositions, inthe amount of $72.0 million.  In 2008,cash flows were primarily used to pay down our long-term debt to strengthen ourliquidity.  We estimate that capitalexpenditures, net of proceeds from dispositions, will be approximately $65million in 2010, which we will adjust throughout the year as we size our fleetto existing customer demand.  We believeour sources of liquidity are adequate to meet our current and anticipated needsfor at least the next twelve months.  Basedupon anticipated cash flows, existing cash and cash equivalents balances,current borrowing availability and other sources of financing we expect to beavailable to us, we do not anticipate any significant liquidity constraints inthe foreseeable future.

 

We have been transformingour business strategy toward a more-diversified set of transportation servicesolutions, primarily regional temperature-controlled operations along withintermodal and brokerage services, to align our growth with customertrends.  We believe that we are well-positionedduring this difficult freight environment, as well as within an economicrecovery, with this transformation of our services combined with ourcompetitive position, cost control emphasis, modern fleet and strong balancesheet.

 

This Management’sDiscussion and Analysis of Financial Condition and Results of Operationsincludes discussions of operating, truckload and logistics revenue, net of fuelsurcharges, and net fuel expense (fuel and fuel taxes net of fuel surchargerevenue and surcharges passed through to independent contractors, outsidedrayage carriers and railroads).  Weprovide these additional disclosures because management believes these measuresprovide a more consistent basis for comparing results of operations from periodto period.  These financial measures inthis report have not been determined in accordance with U.S. generally acceptedaccounting principles (GAAP).  Pursuantto Item 10(e) of Regulation S-K, we have included the amounts necessary toreconcile these non-GAAP financial measures to the most directly comparable GAAPfinancial measures, operating revenue and fuel and fuel taxes.

 

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**Share-based Payment Arrangement Compensation**

** **

Total share-based compensation expense recorded in2009 was $586,000 ($353,000 net of income tax benefit), in 2008 was $666,000($432,000 net of income tax benefit) and in 2007 was $460,000 ($321,000 net ofincome tax benefit). All share-based compensation expense is recorded insalaries, wages and benefits expense. Unrecognized compensation expense from unvested service-based stockoption awards was $1.8 million as of December 31, 2009 and is expected tobe recorded over a weighted-average period of 3.5 years.  Unrecognized compensation expense fromunvested performance-based stock option awards was $975,000 as of December 31,2009 and will be recorded in the periods in which the performance condition isprobable of achievement through 2010.

 

**Results of Operations**

** **

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

 
| ** **                                                                  | ** ** | **2009**    | ** **  | **2008** | ** ** | **2007** | ** ** |
|-----------------------------------------------------------------------------|------------|-------------|-------------|----------|------------|----------|------------|
| Truckload Segment:                                                          |       |        |        |     |       |     |       |
| Revenue (in thousands)                                                      | ** ** | **$**       | **396,795** |     | $          | 508,186  |       | $ | 490,540 |   |
| Average truckload revenue, net of fuel surcharges,  per tractor per week(1) | ** ** | **$**       | **2,822**   |     | $          | 3,124    |       | $ | 3,101 |   |
| Average tractors(1)                                                         | ** ** | **2,358**   |        | 2,352    |       | 2,516    |       |
| Average miles per trip                                                      | ** ** | **761**     |        | 853      |       | 911      |       |
| Total miles – company-employed drivers (in  thousands)                 | ** ** | **206,894** |        | 222,043  |       | 228,776  |       |
| Total miles – independent contractors (in thousands)                   | ** ** | **23,415**  |        | 32,081   |       | 46,096   |       |
|                                                                        | ** ** | ** **  |        |     |       |     |       |
| Logistics Segment:                                                          | ** ** | ** **  |        |     |       |     |       |
| Brokerage:                                                                  | ** ** | ** **  |        |     |       |     |       |
| Marten Transport                                                            |       |        |        |     |       |     |       |
| Revenue (in thousands)                                                      | ** ** | **$**       | **35,014**  |     | $          | 24,746   |       | $ | 15,168 |   |
| Loads                                                                       | ** ** | **18,932**  |        | 11,621   |       | 7,802    |       |
| MWL                                                                         |       |        |        |     |       |     |       |
| Revenue (in thousands)                                                      | ** ** | **$**       | **32,160**  |     | $          | 37,569   |       | $ | 33,472 |   |
| Loads                                                                       | ** ** | **17,868**  |        | 18,789   |       | 17,444   |       |
| Intermodal:                                                                 | ** ** | ** **  |        |     |       |     |       |
| Revenue (in thousands)                                                      | ** ** | **$**       | **41,905**  |     | $          | 36,598   |       | $ | 20,837 |   |
| Loads                                                                       | ** ** | **18,090**  |        | 11,513   |       | 6,793    |       |
| Average tractors                                                            | ** ** | **62**      |        | 53       |       | 31       |       |

 

----

(1)          Includes tractors driven by both company-employeddrivers and independent contractors. Independent contractors provided 177, 188 and 339 tractors as of December 31,2009, 2008 and 2007, respectively.

 

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*Comparison of Year Ended December 31,2009 to Year Ended December 31, 2008*

 

The followingtable sets forth for the years indicated our operating revenue, operatingincome and operating ratio by segment, along with the change for eachcomponent:

 
| ** **                                                      | ** ** | ** **  | ** **  | ** ** | ** ** | **Dollar**        | ** ** | **Percentage**    | ** ** |
|-----------------------------------------------------------------|------------|-------------|-------------|------------|------------|-------------------|------------|-------------------|------------|
| ** **                                                      | ** ** | ** **  | ** **  | ** ** | ** ** | **Change**        | ** ** | **Change**        | ** ** |
| **(Dollars in thousands)**                                      | ** ** | **2009**    | ** **  | **2008**   | ** ** | **2009 vs. 2008** | ** ** | **2009 vs. 2008** | ** ** |
| Operating revenue:                                              | ** ** | ** **  |        |       |       |              |       |              |       |
| Truckload revenue, net of fuel surcharge revenue                | ** ** | **$**       | **346,983** |       | $          | 384,264           |       | $                 | (37,281    | ) | (9.7 | )% |
| Truckload fuel surcharge revenue                                | ** ** | **49,812**  |        | 123,922    |       | (74,110           | )          | (59.8             | )          |
| Total Truckload revenue                                         | ** ** | **396,795** |        | 508,186    |       | (111,391          | )          | (21.9             | )          |
|                                                            | ** ** | ** **  |        |       |       |              |       |              |       |
| Logistics revenue, net of intermodal fuel surcharge  revenue(1) | ** ** | **103,166** |        | 90,194     |       | 12,972            |       | 14.4              |       |
| Intermodal fuel surcharge revenue                               | ** ** | **5,913**   |        | 8,719      |       | (2,806            | )          | (32.2             | )          |
| Total Logistics revenue                                         | ** ** | **109,079** |        | 98,913     |       | 10,166            |       | 10.3              |       |
|                                                            | ** ** | ** **  |        |       |       |              |       |              |       |
| Total operating revenue                                         | ** ** | **$**       | **505,874** |       | $          | 607,099           |       | $                 | (101,225   | ) | (16.7 | )% |
|                                                            | ** ** | ** **  |        |       |       |              |       |              |       |
| Operating income:                                               | ** ** | ** **  |        |       |       |              |       |              |       |
| Truckload                                                       | ** ** | **$**       | **22,827**  |       | $          | 26,055            |       | $                 | (3,228     | ) | (12.4 | )% |
| Logistics                                                       | ** ** | **6,532**   |        | 6,650      |       | (118              | )          | (1.8              | )          |
| Total operating income                                          | ** ** | **$**       | **29,359**  |       | $          | 32,705            |       | $                 | (3,346     | ) | (10.2 | )% |
|                                                            | ** ** | ** **  |        |       |       |              |       |              |       |
| Operating ratio(2):                                             | ** ** | ** **  |        |       |       |              |       |              |       |
| Truckload                                                       | ** ** | **94.2**    | **%**       | 94.9       | %          |              |       | (0.7              | )%         |
| Logistics                                                       | ** ** | **94.0**    |        | 93.3       |       |              |       | 0.8               |       |
| Consolidated operating ratio                                    | ** ** | **94.2**    | **%**       | 94.6       | %          |              |       | (0.4              | )%         |

 

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(1)          Logistics revenue is net of $10.2 million and $16.8million of inter-segment revenue in 2009 and 2008, respectively, for loadstransported by our tractors and arranged by MWL that have been eliminated inconsolidation.

 

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

 

Our operating revenue decreased $101.2million, or 16.7%, to $505.9 million in 2009 from $607.1 million in 2008.  This decrease was primarily due to fuelsurcharge revenue decreasing to $55.7 million in 2009 from $132.6 million in 2008,caused by significantly lower fuel prices in 2009.  Our operating revenue, net of fuelsurcharges, decreased $24.3 million, or 5.1%, to $450.1 million in 2009 from$474.5 million in 2008.  The decrease inoperating revenue, net of fuel surcharges, was due to a decrease in truckloadrevenue, net of fuel surcharges, partially offset by growth in logisticsrevenue.

 

Truckload segment revenue decreased $111.4million, or 21.9%, to $396.8 million in 2009 from $508.2 million in 2008.  Truckload segment revenue, net of fuelsurcharges, decreased 9.7% primarily due to a decrease in our average truckloadrevenue, net of fuel surcharges, per tractor per week of 9.7% in 2009.  The reduction in revenue per tractor per weekwas primarily caused by a decrease in our average miles per tractor in 2009 dueto the difficult freight environment.  The changes in our operating statistics are consistent with the continuedgrowth of our regional temperature-controlled operations.  By focusing on shorter lengths of haul incertain defined areas, we are addressing customer trends toward regionaldistribution to lower their transportation expense, furthering our ownobjectives of reducing fuel consumption per load, and matching some of ourdrivers’ desires to stay closer to home.  The concentration of a portion of our fleet inthese markets is evident in a 10.8% reduction from 2008 in average length ofhaul to 761 miles.  Our averagefleet size was 

 

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relatively stable in 2009 compared with 2008.  The decrease in revenue per tractor per week,partially offset by the improvement in our overall cost structure, primarilycaused the decrease in profitability from 2008.

 

Logistics segment revenue increased $10.2million, or 10.3%, to $109.1 million in 2009 from $98.9 million in 2008.  Logistics segment revenue, net of intermodalfuel surcharges, increased 14.4%.  Theincrease in logistics revenue primarily resulted from continued volume growthin each of our internal brokerage and intermodal services, partially offset bya decrease in revenue generated by MWL. Within the difficult freight environment, our operating ratio for theLogistics segment in 2009 increased by 0.8% from 2008.

 

Thefollowing table sets forth for the periods indicated the dollar and percentageincrease or decrease of the items in our consolidated statements of operations,and those items as a percentage of operating revenue:

 
| ** **                                                              | ** ** | **Dollar  Change** | ** ** | **Percentage  Change** | ** ** | **Percentage of  Operating Revenue** | ** ** |
|-------------------------------------------------------------------------|------------|--------------------|------------|------------------------|------------|--------------------------------------|------------|
| **(Dollars in thousands)**                                              | ** ** | **2009 vs. 2008**  | ** ** | **2009 vs. 2008**      | ** ** | **2009**                             | ** ** | **2008** | ** ** |
| Operating revenue                                                       |       | $                  | (101,225   | )                      | (16.7      | )%                                   | 100.0      | % | 100.0 | % |
| Operating expenses (income):                                            |       |               |       |                   |       |                                 |       |   |   |
| Salaries, wages and benefits                                            |       | (13,864            | )          | (9.1                   | )          | 27.4                                 |       | 25.1 |   |
| Purchased transportation                                                |       | (6,598             | )          | (5.8                   | )          | 21.1                                 |       | 18.6 |   |
| Fuel and fuel taxes                                                     |       | (75,994            | )          | (43.2                  | )          | 19.7                                 |       | 29.0 |   |
| Supplies and maintenance                                                |       | (155               | )          | (0.4                   | )          | 7.6                                  |       | 6.3 |   |
| Depreciation                                                            |       | 3,364              |       | 6.8                    |       | 10.5                                 |       | 8.2 |   |
| Operating taxes and licenses                                            |       | (57                | )          | (0.8                   | )          | 1.3                                  |       | 1.1 |   |
| Insurance and claims                                                    |       | (5,513             | )          | (21.7                  | )          | 3.9                                  |       | 4.2 |   |
| Communications and utilities                                            |       | 430                |       | 11.5                   |       | 0.8                                  |       | 0.6 |   |
| Gain on disposition ofrevenue equipment                                 |       | 1,034              |       | 38.8                   |       | (0.3                                 | )          | (0.4 | ) |
| Other                                                                   |       | (526               | )          | (4.6                   | )          | 2.2                                  |       | 1.9 |   |
| Total operating expenses                                                |       | (97,879            | )          | (17.0                  | )          | 94.2                                 |       | 94.6 |   |
| Operating income                                                        |       | (3,346             | )          | (10.2                  | )          | 5.8                                  |       | 5.4 |   |
| Other expenses (income):                                                |       |               |       |                   |       |                                 |       |   |   |
| Interest expense                                                        |       | (973               | )          | (85.2                  | )          | —                               |       | 0.2 |   |
| Interest income                                                         |       | 47                 |       | 25.5                   |       | —                               |       | — |   |
|                                                                    |       | (926               | )          | (96.7                  | )          | —                               |       | 0.2 |   |
| Income before income taxes                                              |       | (2,420             | )          | (7.6                   | )          | 5.8                                  |       | 5.2 |   |
| Less: Income before incometaxes attributable tononcontrolling  interest |       | (536               | )          | (47.9                  | )          | 0.1                                  |       | 0.2 |   |
| Income before income taxesattributable to MartenTransport,  Ltd.        |       | (1,884             | )          | (6.2                   | )          | 5.7                                  |       | 5.0 |   |
| Provision for income taxes                                              |       | (80                | )          | (0.6                   | )          | 2.5                                  |       | 2.1 |   |
| Net income                                                              |       | $                  | (1,804     | )                      | (10.0      | )%                                   | 3.2        | % | 3.0 | % |

 

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Salaries, wages and benefitsconsist of compensation for our employees, including both driver and non-driveremployees, employees’ health insurance, 401(k) plan contributions andother fringe benefits.  These expensesvary depending upon the ratio of company drivers to independent contractors,our efficiency, our experience with employees’ health insurance claims, changesin health care premiums and other factors. The decrease in salaries, wages andbenefits resulted primarily from a 6.8% decrease in the total miles driven bycompany drivers coupled with a more broad implementation of our per diem paystructure for our drivers in 2009, a $3.4 million decrease in our self-insuredmedical claims, which decreased our employees’ health insurance expense, and a$1.6 million decrease in bonus compensation expensed for our non-driveremployees.

 

Purchased transportationconsists of payments to independent contractor providers of revenue equipmentand to carriers for transportation services we arrange in connection withbrokerage and intermodal activities. This category will vary depending upon the ratio of company driversversus independent contractors, the amount of fuel surcharges passed through toindependent contractors and the amount and rates, including fuel surcharges, wepay to third-party railroad and motor carriers. Purchased transportation expense decreased $6.6 million in total, or5.8%, in 2009 from 2008.  Payments tocarriers for transportation services we arranged in our brokerage andintermodal operations increased $6.9 million to $80.7 million in 2009 from$73.8 million in 2008.  The portion ofpurchased transportation expense related to our independent contractors,including fuel surcharges, decreased $13.5 million in 2009, primarily due to adecrease in the amount of fuel surcharges paid to the independent contractorsand a decrease in the number of independent contractor-owned tractors in ourfleet.  We expect that purchasedtransportation expense will increase as we continue to grow our Logisticssegment.

 

Net fuel expense (fuel andfuel taxes net of fuel surcharge revenue and surcharges passed through toindependent contractors, outside drayage carriers and railroads) decreased $9.3million, or 15.2%, to $52.1 million in 2009 from $61.4 million in 2008.  Fuel surcharges passed through to independentcontractors, outside drayage carriers and railroads were $7.9 million in 2009and $18.2 million in 2008.  Over the pastyear, we have worked diligently to control fuel usage and costs by improvingour volume purchasing arrangements and optimizing our drivers’ fuel purchaseswith national fuel centers, focusing on shorter lengths of haul, installing andtightly managing the use of auxiliary power units in our tractors to minimizeengine idling and improving fuel usage in our trailers’ refrigerationunits.  Auxiliary power units, which wehave installed in our company-owned tractors, provide climate control andelectrical power for our drivers without idling the tractor engine.  The decrease in net fuel expense wasprimarily due to a significant decrease in the D.O.E. national average cost offuel to $2.47 per gallon in 2009 from $3.80 per gallon in 2008, a 6.8% decreasein the total miles driven by our company-owned fleet and to the cost controlmeasures stated above.  Net fuel expenserepresented 13.6% of truckload and intermodal revenue, net of fuel surcharges,in 2009, compared with 14.9% in 2008.

 

Depreciation relates toowned tractors, trailers, auxiliary power units, communications units, terminalfacilities and other assets.  Theincrease in depreciation was primarily due to a continued increase in the costof revenue equipment and an increase in the relative percentage ofcompany-owned tractors to independent contractor-owned tractors in 2009.  We expect our annual cost of tractor andtrailer ownership will increase in future periods as a result of higher pricesof new equipment, which will result in greater depreciation over the usefullife.

 

Insurance and claimsconsist of the costs of insurance premiums and the accruals we make for claimswithin our self-insured retention amounts, primarily for personal injury,property damage, physical damage to our equipment, cargo claims and workers’compensation claims.  These expenses willvary primarily based upon the frequency and severity of our accidentexperience, our self-insured retention levels and the market forinsurance.  The $5.5 million decrease ininsurance and claims in 2009 was primarily due to a decrease in the cost ofself-insured auto liability and workers’ compensation accident claims and toreduced physical damage claims related to our tractors and trailers.  We are responsible for the first $1.0 millionon each auto liability claim and also responsible for up to $1.0 million for33% of each auto liability claim amount in excess of $1.0 million.  We are responsible for the first $750,000 oneach workers’ compensation claim.  Oursignificant self-insured retention exposes us to the possibility of significantfluctuations in claims expense between periods 

 

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depending on the frequency, severity and timing of claims and to adversefinancial results if we incur large or numerous losses.

 

Gain on disposition ofrevenue equipment decreased to $1.6 million in 2009 from $2.7 million in 2008as a result of a decrease in the market value for used revenue equipment, whichwas partially offset by an increase in the number of trailers sold.  Future gains or losses on disposition ofrevenue equipment will be impacted by the market for used revenue equipment,which is beyond our control.  We do notexpect our gain on disposition to improve in the near future as we believe thatthere are few buyers with adequate financing in comparison with availableinventory, and the expectation of additional trucking company failures islikely to keep used truck inventories high.

 

As a result of theforegoing factors, our operating expenses as a percentage of operating revenue,or “operating ratio,” was 94.2% in 2009 compared with 94.6% in 2008.  The operating ratio for our Truckload segmentdecreased to 94.2% from 94.9% in 2008 and the operating ratio for our Logisticssegment increased to 94.0% from 93.3% in 2008.** **The more broad implementation ofour per diem pay structure for our drivers in 2009 positively impacted ouroperating ratio in 2009 compared with 2008.

 

Interest expense primarilyconsists of interest on our senior unsecured notes and unsecured committedcredit facility.  The decrease ininterest expense of $973,000, or 85.2%, in 2009 from 2008 was primarily theresult of lower average debt balances outstanding.

 

Our effective income taxrate increased to 43.4% in 2009 from 41.0% in 2008, primarily because of thenondeductible effect of a per diem pay structure for our drivers adopted in thefirst quarter of 2008 which was more broadly implemented during 2009.

 

As a result of the factorsdescribed above, net income decreased to $16.3 million in 2009 from $18.1million in 2008.  Net earnings decreasedto $0.74 per diluted share in 2009 from $0.82 per diluted share in 2008.

 

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*Comparison of Year Ended December 31,2008 to Year Ended December 31, 2007*

 

The followingtable sets forth for the years indicated our operating revenue, operatingincome and operating ratio by segment, along with the change for eachcomponent:

 
| ** **                                                      | ** ** | ** ** | ** ** | ** ** | ** ** | **Dollar**        | ** ** | **Percentage**    | ** ** |
|-----------------------------------------------------------------|------------|------------|------------|------------|------------|-------------------|------------|-------------------|------------|
| ** **                                                      | ** ** | ** ** | ** ** | ** ** | ** ** | **Change**        | ** ** | **Change**        | ** ** |
| **(Dollars in thousands)**                                      | ** ** | **2008**   | ** ** | **2007**   | ** ** | **2008 vs. 2007** | ** ** | **2008 vs. 2007** | ** ** |
| Operating revenue:                                              |       |       |       |       |       |              |       |              |       |
| Truckload revenue, net of fuel surcharge revenue                |       | $          | 384,264    |       | $          | 406,754           |       | $                 | (22,490    | ) | (5.5 | )% |
| Truckload fuel surcharge revenue                                |       | 123,922    |       | 83,786     |       | 40,136            |       | 47.9              |       |
| Total Truckload revenue                                         |       | 508,186    |       | 490,540    |       | 17,646            |       | 3.6               |       |
|                                                            |       |       |       |       |       |              |       |              |       |
| Logistics revenue, net of intermodal fuel surcharge  revenue(1) |       | 90,194     |       | 66,163     |       | 24,031            |       | 36.3              |       |
| Intermodal fuel surcharge revenue                               |       | 8,719      |       | 3,314      |       | 5,405             |       | 163.1             |       |
| Total Logistics revenue                                         |       | 98,913     |       | 69,477     |       | 29,436            |       | 42.4              |       |
|                                                            |       |       |       |       |       |              |       |              |       |
| Total operating revenue                                         |       | $          | 607,099    |       | $          | 560,017           |       | $                 | 47,082     |   | 8.4 | % |
|                                                            |       |       |       |       |       |              |       |              |       |
| Operating income:                                               |       |       |       |       |       |              |       |              |       |
| Truckload                                                       |       | $          | 26,055     |       | $          | 22,689            |       | $                 | 3,366      |   | 14.8 | % |
| Logistics                                                       |       | 6,650      |       | 5,112      |       | 1,538             |       | 30.1              |       |
| Total operating income                                          |       | $          | 32,705     |       | $          | 27,801            |       | $                 | 4,904      |   | 17.6 | % |
|                                                            |       |       |       |       |       |              |       |              |       |
| Operating ratio(2):                                             |       |       |       |       |       |              |       |              |       |
| Truckload                                                       |       | 94.9       | %          | 95.4       | %          |              |       | (0.5              | )%         |
| Logistics                                                       |       | 93.3       |       | 92.6       |       |              |       | 0.8               |       |
| Consolidated operating ratio                                    |       | 94.6       | %          | 95.0       | %          |              |       | (0.4              | )%         |

 

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(1)          Logistics revenue is net of $16.8 million and $17.1million of inter-segment revenue in 2008 and 2007, respectively, for loadstransported by our tractors and arranged by MWL that have been eliminated inconsolidation.

 

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

 

Our operating revenue increased $47.1 million, or8.4%, to $607.1 million in 2008 from $560.0 million in 2007.  Our operating revenue, net of fuelsurcharges, increased $1.5 million, or 0.3%, to $474.5 million in 2008 from$472.9 million in 2007.  The increase inoperating revenue, net of fuel surcharges, was driven by continued volumegrowth in each of our internal brokerage and intermodal services and in thelogistics services provided by MWL, partially offset by a decrease in truckloadrevenue, net of fuel surcharges.  Fuelsurcharges increased $45.5 million, or 52.3%, in 2008 due to the significantincrease in the average cost of fuel from 2007.

 

Truckload segment revenue increased $17.6 million, or3.6%, to $508.2 million in 2008 from $490.5 million in 2007.  Truckload segment revenue, net of fuelsurcharges, decreased 5.5% due to a 6.5% decrease in our weighted average numberof tractors, partially offset by a 0.7% increase in our average truckloadrevenue, net of fuel surcharges, per tractor per week.  The increase in revenue per tractor per weekwas due to an increase in our revenue per total mile, partially offset by adecrease in average miles per tractor. The changes in our operating statistics are consistent with the growthof our regional temperature-controlled operations in 2008.  By focusing on shorter lengths of haul incertain defined areas, we are addressing customer trends toward regionaldistribution to lower their transportation expense, furthering our ownobjectives of reducing fuel consumption per load, and matching some of ourdrivers’ desires to stay closer to home. The 

 

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concentration of aportion of our fleet in these markets is evident in a 6.4% reduction from 2007in average length of haul to 853 miles. In response to a challenging freight environment with industry-widecapacity exceeding freight demand, we decreased our fleet throughout 2007.  As a result, our average fleet size was 164tractors less in 2008 than in 2007.  Theimprovement in tractor productivity and in our overall cost structure resultedin increased profitability from 2007.

 

Logistics segment revenue increased $29.4 million, or42.4%, to $98.9 million in 2008 from $69.5 million in 2007.  Logistics segment revenue, net of intermodalfuel surcharges, increased 36.3%.  Theincrease in logistics revenue primarily resulted from continued volume growthin each of our internal brokerage and intermodal services and in the logisticsservices provided by MWL.  The increasein the operating ratio for our Logistics segment in 2008 was primarily due toan increase as a percentage of logistics revenue of the payments to carriersfor transportation services which we arranged.

 

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

 
| ** **                                                                | ** ** | **Dollar  Change** | ** ** | **Percentage  Change** | ** ** | **Percentage of  Operating Revenue** | ** ** |
|---------------------------------------------------------------------------|------------|--------------------|------------|------------------------|------------|--------------------------------------|------------|
| **(Dollars in thousands)**                                                | ** ** | **2008 vs. 2007**  | ** ** | **2008 vs. 2007**      | ** ** | **2008**                             | ** ** | **2007** | ** ** |
|                                                                      |       |               |       |                   |       |                                 |       |   |   |
| Operating revenue:                                                        |       | $                  | 47,082     |                   | 8.4        | %                                    | 100.0      | % | 100.0 | % |
| Operating expenses (income):                                              |       |               |       |                   |       |                                 |       |   |   |
| Salaries, wages and benefits                                              |       | (1,158             | )          | (0.8                   | )          | 25.1                                 |       | 27.5 |   |
| Purchased transportation                                                  |       | 9,399              |       | 9.1                    |       | 18.6                                 |       | 18.5 |   |
| Fuel and fuel taxes                                                       |       | 26,871             |       | 18.0                   |       | 29.0                                 |       | 26.6 |   |
| Supplies and maintenance                                                  |       | (243               | )          | (0.6                   | )          | 6.3                                  |       | 6.9 |   |
| Depreciation                                                              |       | 2,696              |       | 5.7                    |       | 8.2                                  |       | 8.4 |   |
| Operating taxes and licenses                                              |       | (94                | )          | (1.4                   | )          | 1.1                                  |       | 1.2 |   |
| Insurance and claims                                                      |       | 3,056              |       | 13.7                   |       | 4.2                                  |       | 4.0 |   |
| Communications and utilities                                              |       | (129               | )          | (3.3                   | )          | 0.6                                  |       | 0.7 |   |
| Gain on disposition of revenue equipment                                  |       | 722                |       | 21.3                   |       | (0.4                                 | )          | (0.6 | ) |
| Other                                                                     |       | 1,058              |       | 10.2                   |       | 1.9                                  |       | 1.8 |   |
| Total operating expenses                                                  |       | 42,178             |       | 7.9                    |       | 94.6                                 |       | 95.0 |   |
| Operating income                                                          |       | 4,904              |       | 17.6                   |       | 5.4                                  |       | 5.0 |   |
| Other expenses (income):                                                  |       |               |       |                   |       |                                 |       |   |   |
| Interest expense                                                          |       | (2,681             | )          | (70.1                  | )          | 0.2                                  |       | 0.7 |   |
| Interest income                                                           |       | 509                |       | 73.4                   |       | —                               |       | (0.1 | ) |
|                                                                      |       | (2,172             | )          | (69.4                  | )          | 0.2                                  |       | 0.6 |   |
| Income before income taxes                                                |       | 7,076              |       | 28.7                   |       | 5.2                                  |       | 4.4 |   |
| Less: Income before income taxes attributable to noncontrolling  interest |       | 318                |       | 39.7                   |       | 0.2                                  |       | 0.1 |   |
| Income before income taxes attributable to Marten Transport,  Ltd.        |       | 6,758              |       | 28.3                   |       | 5.0                                  |       | 4.3 |   |
| Provision for income taxes                                                |       | 3,655              |       | 41.1                   |       | 2.1                                  |       | 1.6 |   |
| Net income                                                                |       | $                  | 3,103      |                   | 20.7       | %                                    | 3.0        | % | 2.7 | % |

 

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The decrease in salaries, wages and benefits resultedprimarily from a 2.9% decrease in the total miles driven by company drivers andthe adoption in the first quarter of 2008 of a per diem expense reimbursementprogram for our drivers, which was partially offset by a $2.3 million increasein our self-insured medical claims, which increased our employees’ healthinsurance expense, and a $1.3 million increase in bonus compensation expensedfor our non-driver employees.

 

Purchased transportation expense increased $9.4million in total, or 9.1%, in 2008 from 2007. Payments to carriers for transportation services we arranged in ourbrokerage and intermodal operations increased $21.3 million to $73.8 million in2008 from $52.5 million in 2007, as our Logistics operations significantlyincreased in size and scope.  The portionof purchased transportation expense related to our independent contractors,including fuel surcharges, decreased $11.9 million in 2008, primarily due to adecrease in the number of independent contractor-owned tractors in our fleet.

 

Net fuel expense (fuel and fuel taxes net of fuelsurcharge revenue and surcharges passed through to independent contractors,outside drayage carriers and railroads) decreased $14.6 million, or 19.2%, to$61.4 million in 2008 from $76.1 million in 2007.  Fuel surcharges passed through to independentcontractors, outside drayage carriers and railroads were $18.2 million in 2008and $14.2 million in 2007.  Over the pastyear, we have worked diligently to control fuel costs and usage by improvingour volume purchasing arrangements and optimizing our drivers’ fuel purchaseswith national fuel centers, focusing on shorter lengths of haul, installing andtightly managing the use of auxiliary power units in our tractors to minimizeengine idling and improving fuel usage in our trailers’ refrigerationunits.  The decrease in net fuel expensewas primarily due to a 2.9% decrease in the total miles driven by ourcompany-owned fleet and to the cost control measures stated above, principallythe use of auxiliary power units. Auxiliary power units, which we have installed in our company-owned tractors,provide climate control and electrical power for our drivers without idling thetractor engine.   The impact of decreasedmiles and the cost control measures were partially offset by a significantincrease in the D.O.E. national average cost of fuel during 2008 to $3.80 pergallon from $2.89 per gallon in 2007. Net fuel expense represented 14.9% of truckload and intermodal revenue,net of fuel surcharges, in 2008, compared with 17.9% in 2007.

 

The increase in depreciation was due to our investmentin auxiliary power units since mid-2007 and to an increase in the relativepercentage of company-owned tractors to independent contractor-owned tractorsin 2008.

 

The increase in insurance and claims in 2008 wasprimarily the result of an increase in the cost of self-insured auto liabilityand workers’ compensation accident claims.

 

A decrease in the market value for used revenueequipment, which we believe was driven by capacity reductions in the industry,caused our gain on disposition of revenue equipment to decrease to $2.7 millionin 2008 from $3.4 million in 2007, despite an increase in the number oftractors sold.

 

As a result of the foregoing factors, our operatingexpenses as a percentage of operating revenue, or “operating ratio,” was 94.6%in 2008 compared with 95.0% in 2007.

 

The decrease in interest expense of $2.7 million, or70.1%, in 2008 from 2007 was primarily the result of lower average debtbalances outstanding.

 

Our effective income tax rate increased to 41.0% in2008 from 37.3% in 2007, primarily because of the nondeductible effect of a perdiem pay structure for our drivers adopted in the first quarter of 2008.

 

As a result of the factors described above, net incomeincreased to $18.1 million in 2008 from $15.0 million in 2007. Net earningsincreased to $0.82 per diluted share in 2008 from $0.68 per diluted share in2007.

 

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**Liquidity and Capital Resources**

 

Ourbusiness requires substantial, ongoing capital investments, particularly fornew tractors and trailers. Our primary sources of liquidity are funds providedby operations, our unsecured senior notes and our revolving credit facility. Aportion of our tractor fleet is provided by independent contractors who own andoperate their own equipment. We have no capital expenditure requirementsrelating to those drivers who own their tractors or obtain financing throughthird parties. However, to the extent we purchase tractors and extend financingto the independent contractors through our tractor purchase program, we have anassociated capital expenditure requirement.

 

Thetable below reflects our net cash flows provided by operating activities, netcash flows used for investing activities and net cash flows used for financingactivities for the years indicated.

 
| **(In thousands)**                               | ** ** | **2009**   | ** ** | **2008** | ** ** | **2007** | ** ** |
|--------------------------------------------------|------------|------------|------------|----------|------------|----------|------------|
| Net cash flows provided by  operating activities |       | **$**      | **81,686** |     | $          | 77,044   |       | $ | 62,239 |   |
| Net cash flows used for  investing activities    | ** ** | **77,164** |       | 37,602   |       | 46,826   |       |
| Net cash flows used for  financing activities    | ** ** | **1,507**  |       | 40,665   |       | 14,783   |       |
|                                                  |            |            |            |          |            |          |            |  |  |  |

 

In 2009, net cash flowsprovided by operating activities were primarily used to purchase new revenueequipment, net of proceeds from dispositions, in the amount of $72.0million.  In 2008, cash flows wereprimarily used to pay down $41.8 million of long-term debt to strengthen ourliquidity.  We estimate that capitalexpenditures, net of proceeds from dispositions, will be approximately $65million in 2010, which we will adjust throughout the year as we size our fleetto existing customer demand.  We believeour sources of liquidity are adequate to meet our current and anticipated needsfor at least the next twelve months. Based upon anticipated cash flows, existing cash and cash equivalentsbalances, current borrowing availability and other sources of financing weexpect to be available to us, we do not anticipate any significant liquidityconstraints in the foreseeable future.

 

We have outstanding seniorunsecured notes with an aggregate principal balance of $1.4 million at December 31,2009. These notes, which bear interest at a fixed annual rate of 8.57%, maturein April 2010 with a final principal payment of $1.4 million.  We have not prepaid the remaining principalbalance of these notes due to substantial prepayment penalties.

 

We maintain a creditagreement that provides for a five-year unsecured committed credit facilitymaturing in September 2011 in an aggregate principal amount of up to $50million, which we decreased from $75 million in December 2009.  The aggregate principal amount of the creditfacility may be increased at our option up to a maximum aggregate principalamount of $100 million.  At December 31,2009, the credit facility had an outstanding principal balance of $71,000,outstanding standby letters of credit of $8.4 million and remaining borrowingavailability of $41.5 million.  Thisfacility bears interest at a variable rate based on the London InterbankOffered Rate or the agent bank’s Prime Rate, in each case plus/minus applicablemargins.  The weighted average interestrate for the facility was 0.83% at December 31, 2009.

 

Our credit facilityprohibits us from paying, in any fiscal year, dividends in excess of 25% of ournet income from the prior fiscal year. The debt agreements discussed above alsocontain restrictive covenants which, among other matters, require us tomaintain certain financial ratios, including debt-to-equity, cash flowleverage, interest coverage and fixed charge coverage. We were in compliancewith all of these covenants at December 31, 2009.

 

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InDecember 2007, our Board of Directors approved a share repurchase programto repurchase up to one million shares of our common stock either throughpurchases on the open market or through private transactions.  The timing and extent to which we willrepurchase shares depends on market conditions and other corporateconsiderations.  In the first quarter of2008 we repurchased and retired 67,500 shares of our common stock for$810,000.  We made no purchases in 2007,in the remainder of 2008 or in 2009.  Therepurchase program does not have an expiration date.

 

We had $233,000 in directfinancing receivables from independent contractors under our tractor purchaseprogram as of December 31, 2009, compared with $797,000 in receivables asof December 31, 2008. These receivables, which are collateralized by thefinanced tractors, are used to attract and retain qualified independentcontractors. We deduct payments from the independent contractors’ settlementsweekly and, as a result, have experienced minimal collection issues for thesereceivables.  The decrease in thereceivables balance is related to a program to direct the leases to athird-party leasing vendor beginning in 2007.

 

The following is asummary of our contractual obligations as of December 31, 2009.

 
| ** **                                 | ** ** | **Payments Due by Period** | ** ** |
|--------------------------------------------|------------|----------------------------|------------|
| ** **                                 | ** ** | ** **                 | ** ** | **2011** | ** ** | **2013** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                 | ** ** | ** **                 | ** ** | **And** | ** ** | **And** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **(In thousands)**                         | ** ** | **2010**                   | ** ** | **2012** | ** ** | **2014** | ** ** | **Thereafter** | ** ** | **Total** | ** ** |
| Building construction obligations          |       | $                          | 4,549      |   | $ | — |   | $ | — |   | $ | — |   | $ | 4,549 |   |
| Long-term debt obligations                 |       | 1,428                      |       | 71 |   | — |   | — |   | 1,499 |   |
| Operating lease obligations                |       | 424                        |       | 431 |   | 57 |   | — |   | 912 |   |
| Purchase obligations for revenue equipment |       | 40                         |       | — |   | — |   | — |   | 40 |   |
| Total                                      |       | $                          | 6,441      |   | $ | 502 |   | $ | 57 |   | $ | — |   | $ | 7,000 |   |

 

**Related Parties**

** **

We purchase fuel and obtain tires and related servicesfrom Bauer Built, Inc., or BBI. Jerry M. Bauer, one of our directors, isthe president and a stockholder of BBI. We paid BBI $796,000 in 2009, $1.4 million in 2008 and $1.1 million in2007 for fuel and tire services. In addition, we paid $1.5 million in 2009,$2.3 million in 2008 and $2.4 million in 2007 to tire manufacturers for tiresthat we purchased from the tire manufacturers but were provided by BBI. BBIreceived commissions from the tire manufacturers related to thesepurchases.  Other than any benefitreceived from his ownership interest, Mr. Bauer receives no compensationor other benefits from our business with BBI.

 

We paid Durand Builders Service, Inc. $1.1million in 2009, $564,000 in 2008 and $547,000 in 2007 for various constructionprojects.  Larry B. Hagness, one of ourdirectors, is the president and owner of Durand Builders Service, Inc.  Other than any benefit received from hisownership interest, Mr. Hagness receives no compensation or other benefitsfrom these transactions.

 

In August 2008, we acquired a building adjacentto our headquarters which will be used for maintenance and storage fromRandolph L. Marten, our Chairman of the Board and Chief Executive Officer, in alike-kind exchange for a partially constructed building of equal value owned byMarten Transport.  Each of the buildingswere valued at $291,000 at the time of the exchange.

 

**Off-balance Sheet Arrangements**

** **

Other than standby letters of credit maintained inconnection with our self-insurance programs in the amount of $8.4 million andoperating leases summarized above in our summary of contractual obligations, wedid not have any other material off-balance sheet arrangements at December 31,2009.

 

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****Inflationand Fuel Costs****

 

Most of our operatingexpenses are inflation-sensitive, with inflation generally producing increasedcosts of operations.  During the pastthree years, the most significant effects of inflation have been on revenueequipment prices, accident claims, health insurance and employee compensation.We attempt to limit the effects of inflation through increases in freight ratesand cost control efforts.

 

In addition to inflation,fluctuations in fuel prices can affect our profitability. We requiresubstantial amounts of fuel to operate our tractors and power thetemperature-control units on our trailers. Substantially all of our contractswith customers contain fuel surcharge provisions. Although we historically havebeen able to pass through a significant portion of long-term increases in fuelprices and related taxes to customers in the form of surcharges and higherrates, such increases usually are not fully recovered.  These surcharge provisions are not effectivein mitigating the fuel price increases related to non-revenue miles or fuelused while the tractor is idling.

 

****Seasonality****

 

Our tractor productivitygenerally decreases during the winter season because inclement weather impedesoperations and some shippers reduce their shipments. At the same time,operating expenses generally increase, with harsh weather creating higheraccident frequency, increased claims and more equipment repairs.

 

**Critical Accounting Policies**

 

The preparation offinancial statements in conformity with U.S. generally accepted accountingprinciples requires management to make estimates and assumptions about futureevents, and apply judgments that affect the reported amounts of assets,liabilities, revenue and expenses in our consolidated financial statements andrelated notes.  We base our estimates,assumptions and judgments on historical experience, current trends and otherfactors believed to be relevant at the time our consolidated financialstatements 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 differencescould be material.  We believe that thefollowing critical accounting policies affect our more significant estimates,assumptions and judgments used in the preparation of our consolidated financialstatements.

 

*Revenue Recognition.*We recognizerevenue, including fuel surcharges, at the time shipment of freight is completed.  We account for revenue of our Logisticssegment and revenue on freight transported by independent contractors withinour Truckload segment on a gross basis because we are the primary obligor inthe arrangements, we have the ability to establish prices, we have the risk ofloss in the event of cargo claims and we bear credit risk with customerpayments.  Accordingly, all such revenuebilled to customers is classified as operating revenue and all correspondingpayments to carriers for transportation services we arrange in connection withbrokerage and intermodal activities and to independent contractor providers ofrevenue equipment are classified as purchased transportation expense.

 

*Accounts Receivable. *We are dependent upon alimited number of customers, and, as a result, our trade accounts receivableare highly concentrated. Trade accounts receivable are recorded at the invoiced amounts, net ofan allowance for doubtful accounts.  Ourallowance for doubtful accounts was $245,000 as of December 31, 2009 and$380,000 as of December 31, 2008.  Aconsiderable amount of judgment is required in assessing the realization ofthese receivables including the current creditworthiness of each customer andrelated aging of the past-due balances, including any billing disputes.  In order to assess the collectibility ofthese receivables, we perform ongoing credit evaluations of our customers’financial condition.  Through theseevaluations, we may become aware of a situation where a customer may not beable to meet its financial obligations due to deterioration of its financialviability, credit ratings or bankruptcy. The allowance for doubtful accounts is based on the best informationavailable to us and is reevaluated and adjusted as additional information isreceived.  We evaluate the allowancebased on historical write-off experience, the size of the 

 

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individual customerbalances, past-due amounts and the overall national economy.  We review the adequacy of our allowance fordoubtful accounts monthly.

 

*Property and Equipment.* The transportationindustry requires significant capital investments. Our net property andequipment was $341.5 million as of December 31, 2009 and $314.3 million asof December 31, 2008. Our depreciation expense was $53.1 million for 2009,$49.7 million for 2008 and $47.0 million for 2007.  We compute depreciation of our property andequipment for financial reporting purposes based on the cost of each asset,reduced by its estimated salvage value, using the straight-line method over itsestimated useful life. We determine and periodically evaluate our estimate of theprojected salvage values and useful lives primarily by considering the marketfor used equipment, prior useful lives and changes in technology. We have notchanged our policy regarding salvage values as a percentage of initial cost oruseful lives of tractors and trailers within the last ten years. We believethat our policies and past estimates have been reasonable. Actual results coulddiffer from these estimates. A 5% decrease in estimated salvage values wouldhave decreased our net property and equipment as of December 31, 2009 byapproximately $8.9 million, or 2.6%.

 

In 2009, we replaced mostof our company-owned tractors within approximately four years and our trailerswithin approximately six years after purchase. Our useful lives for depreciating tractors is five years and trailers isseven years, with a 25% salvage value for tractors and a 35% salvage value fortrailers.  These salvage values are basedupon the expected market values of the equipment after five years for tractorsand seven years for trailers. Depreciation expense calculated in this manner approximates thecontinuing declining value of the revenue equipment, and continues at aconsistent straight-line rate for units held beyond the normal replacementcycle.  Calculating tractor depreciationexpense with a five-year useful life and a 25% salvage value results in thesame depreciation rate of 15% of cost per year and the same net book value of40% of cost at the four-year replacement date as using a four-year useful lifeand 40% salvage value.  As a result,there is no difference in recorded depreciation expense on a quarterly orannual basis with our five-year useful life and 25% salvage value compared witha four-year useful life and 40% salvage value. Similarly, calculating trailer depreciation expense with seven-yearuseful life and a 35% salvage value results in the same depreciation rate of9.3% of cost per year and the same net book value of 44.3% of cost at thesix-year replacement date as using a six-year useful life and 44.3% salvagevalue.  As a result, there is nodifference in recorded depreciation expense on a quarterly or annual basis withour seven-year useful life and 35% salvage value compared with a six-yearuseful life and 44.3% salvage value.

 

*Impairment of Assets.* Long-lived assets arereviewed for impairment whenever events or changes in circumstances indicatethat the carrying amount of an asset may not be recoverable. Recoverability ofassets to be held and used is measured by a comparison of the carrying amountof an asset to future net undiscounted cash flows expected to be generated bythe asset. If such assets are considered to be impaired, the impairment to berecognized is measured by the amount by which the carrying amount of the assetsexceeds the fair value of the assets. Assets to be disposed of are reported atthe 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 withvarying risk retention levels. We maintain insurance coverage for per-incidentand total losses in excess of these risk retention levels in amounts weconsider adequate based upon historical experience and our ongoing review.However, we could suffer a series of losses within our self-insured retentionlimits or losses over our policy limits, which could negatively affect ourfinancial condition and operating results. We are responsible for the first$1.0 million on each auto liability claim and also responsible for up to $1.0million for 33% of each auto liability claim amount in excess of $1.0million.  We are responsible for thefirst $750,000 on each workers’ compensation claim.  We have $8.4 million in standby letters ofcredit to guarantee settlement of claims under agreements with our insurancecarriers and regulatory authorities. The insurance and claims accruals in ourconsolidated balance sheets were $19.2 million as of December 31, 2009,and $21.4 million as of December 31, 2008. We reserve currently for theestimated cost of the uninsured portion of pending claims. We periodicallyevaluate and adjust these reserves based on our evaluation of the nature andseverity of outstanding individual claims and our estimate of future claimsdevelopment based on historical claims 

 

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development factors. We believe that our claims development factors havehistorically been reasonable, as indicated by the adequacy of our insurance andclaims accruals compared to settled claims. Actual results could differ fromthese current estimates.  In addition, tothe extent that claims are litigated and not settled, jury awards are difficultto predict.  If our claims settlementexperience worsened causing our historical claims development factors toincrease by 5%, our estimated outstanding loss reserves as of December 31,2009 would have needed to increase by approximately $3.5 million.

 

*Share-based PaymentArrangement Compensation. *We havegranted stock options to certain employees and non-employee directors.  We recognize compensation expense for allshare-based payment arrangements granted after December 31, 2005 net of anestimated forfeiture rate and only record compensation expense for those sharesexpected to vest on a straight-line basis over the requisite service period forservice-based awards (normally the vesting period).  Compensation expense will be recorded forperformance-based awards in the periods in which the performance condition isprobable of achievement.  Determining theappropriate fair value model and calculating the fair value of share-basedpayment arrangements require the input of highly subjective assumptions,including the expected life of the share-based payment arrangements and stockprice volatility.  We use theBlack-Scholes model to value our stock option awards.  We believe that future volatility will notmaterially differ from our historical volatility.  Thus, we use the historical volatility of ourcommon stock over the expected life of the award.  The assumptions used in calculating the fairvalue of share-based payment awards represent our best estimates, but theseestimates involve inherent uncertainties and the application of judgment.  As a result, if factors change and we usedifferent assumptions, share-based compensation expense could be materiallydifferent in the future.  In addition, weare required to estimate the expected forfeiture rate and only recognizeexpense for those shares expected to vest. If the actual forfeiture rate is materially different from the estimate,share-based compensation expense could be significantly different from what hasbeen recorded in the current period.

 

**Recent Accounting Pronouncements**

 

In June 2009, theFinancial Accounting Standards Board issued Statement of Financial AccountingStandards No. 167, “Amendments to FASB Interpretation No. 46(R),”(FASB ASC 810, *Consolidation*).  This statement eliminates Interpretation No. 46(R)’sexceptions to consolidating qualifying special-purpose entities, contains newcriteria for determining the primary beneficiary (the reporting entity thatmust consolidate the variable interest entity), and increases the frequency ofrequired reassessments to determine whether a company is the primarybeneficiary of a variable interest entity. This statement also clarifies, but does not significantly change, thecharacteristics that identify a variable interest entity.  This statement is effective for the firstquarter of 2010.  The adoption of thisstatement is not expected to have a significant impact on our financialcondition, results of operations or cash flows.

 

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**ITEM 7A.               *QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK***

 

We are exposed to a variety of market risks, mostimportantly the effects of the price and availability of diesel fuel.  We require substantial amounts of diesel fuelto operate our tractors and power the temperature-control units on our trailers.  The price and availability of diesel fuel canvary, and are subject to political, economic and market factors that are beyondour control.  Significant increases indiesel fuel costs could materially and adversely affect our results ofoperations and financial condition. Based upon our 2009 fuel consumption, a 5% increase in the average costof diesel fuel would have increased our fuel expense in 2009 by $4.9 million.

 

We have historically been able to pass through asignificant portion of long-term increases in diesel fuel prices and relatedtaxes to customers in the form of fuel surcharges.  Fuel surcharge programs are widely acceptedamong our customers, though they can vary somewhat fromcustomer-to-customer.  These fuelsurcharges, which adjust weekly with the cost of fuel, enable us to recover asubstantial portion of the higher cost of fuel as prices increase.  These fuel surcharge provisions are noteffective in mitigating the fuel price increases related to non-revenue milesor fuel used while the tractor is idling. In addition, we have worked diligently in 2009 to control fuel usage andcosts by improving our volume purchasing arrangements and optimizing ourdrivers’ fuel purchases with national fuel centers, focusing on shorter lengthsof haul, installing and tightly managing the use of auxiliary power units inour tractors to minimize engine idling and improving fuel usage in our trailers’refrigeration units.

 

While we do notcurrently have any outstanding hedging instruments to mitigate this marketrisk, we may enter into derivatives or other financial instruments to hedge aportion of our fuel costs in the future.

 

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**ITEM 8.  *FINANCIAL STATEMENTS ANDSUPPLEMENTARY DATA***

 

**Management’s AnnualReport on Internal Control Over Financial Reporting**

** **

Management is responsiblefor establishing and maintaining an adequate system of internal control overfinancial reporting as defined in Rules 13a-15(f) and 15d-15(f) underthe Securities Exchange Act of 1934, as amended, for Marten Transport, Ltd. andsubsidiaries (the “Company”).  Thissystem is designed to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for externalpurposes in accordance with U.S. generally accepted accounting principles.

 

The Company’s internalcontrol over financial reporting includes those policies and procedures that (i) pertainto the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the Company; (ii) providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the Company arebeing made only in accordance with authorizations of management and directorsof the Company; and (iii) provide reasonable assurance regarding preventionor timely detection of unauthorized acquisition, use, or disposition of theCompany’s assets that could have a material effect on the financial statements.

 

Because of its inherentlimitations, internal control over financial reporting may not prevent ordetect misstatements and even when determined to be effective, can only providereasonable assurance with respect to financial statement preparation andpresentation.  Also, projection of anyevaluation of the effectiveness of internal control over financial reporting tofuture periods is subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree or compliance with thepolicies or procedures may deteriorate.

 

Management, with theparticipation of the Company’s Chairman of the Board and Chief ExecutiveOfficer and Chief Financial Officer, evaluated the effectiveness of the Company’sinternal control over financial reporting as of December 31, 2009.  In making this evaluation, management usedthe criteria set forth by the Committee of Sponsoring Organizations of theTreadway Commission (COSO) in *Internal Control —Integrated Framework*.  Basedon this assessment, management concluded that the Company’s internal controlover financial reporting was effective as of December 31, 2009.  Further, the Company’s independent registeredpublic accounting firm, KPMG LLP, has issued a report on the Company’s internalcontrols over financial reporting on page 34 of this Report.

 

March 15, 2010

 

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**Reportof Independent Registered Public Accounting Firm**

 

To the Board of Directorsand Stockholders of Marten Transport, Ltd.:

 

We have auditedthe accompanying consolidated balance sheets of Marten Transport, Ltd. andsubsidiaries (the Company) as of December 31, 2009 and 2008 and therelated consolidated statements of operations, stockholders’ equity, and cashflows for each of the years in the three-year period ended December 31,2009. In connection with our audits of the consolidated financial statements,we also have audited the financial statement schedule listed in Item15(a)(2).  We also have audited theCompany’s internal control over financial reporting as of December 31,2009 based on criteria established in *InternalControl - Integrated Framework* issued by the Committee of SponsoringOrganizations of the Treadway Commission (COSO). The Company’s management isresponsible for these consolidated financial statements, for maintainingeffective internal control over financial reporting, and for its assessment ofthe effectiveness of internal control over financial reporting, included in theaccompanying Management’s Report on Internal Control Over Financial Reporting.  Our responsibility is to express an opinionon these consolidated financial statements and financial statement schedule andan opinion on the Company’s internal control over financial reporting based onour audits.

 

We conducted ouraudits in accordance with the standards of the Public Company AccountingOversight Board (United States). Those standards require that we plan andperform the audits to obtain reasonable assurance about whether the financialstatements are free of material misstatement and whether effective internalcontrol over financial reporting was maintained in all material respects. Ouraudits of the consolidated financial statements included examining, on a testbasis, evidence supporting the amounts and disclosures in the financialstatements, assessing the accounting principles used and significant estimatesmade by management, and evaluating the overall financial statementpresentation. Our audit of internal control over financial reporting includedobtaining an understanding of internal control over financial reporting,assessing the risk that a material weakness exists, and testing and evaluatingthe design and operating effectiveness of internal control based on theassessed risk. Our audits also included performing such other procedures as weconsidered necessary in the circumstances. We believe that our audits provide areasonable basis for our opinions.

 

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

 

Because of itsinherent limitations, internal control over financial reporting may not preventor detect misstatements. Also, projections of any evaluation of effectivenessto future periods are subject to the risk that controls may become inadequatebecause of changes in conditions or that the degree of compliance with thepolicies or procedures may deteriorate.

 

In our opinion,the consolidated financial statements referred to above present fairly, in allmaterial respects, the financial position of Marten Transport, Ltd. andsubsidiaries as of December 31, 2009 and 2008 and the results of theiroperations and their cash flows for each of the years in the three-year periodended December 31, 2009, in conformity with accounting principlesgenerally accepted in the United States of America.  Also, in our opinion, the accompanyingfinancial statement schedule, when considered in relation to the basicconsolidated financial statements taken as a whole, presents fairly, in allmaterial respects, the information set forth therein. It is also in ouropinion, Marten Transport, Ltd. maintained, in all material respects, effectiveinternal control over financial reporting as of December 31, 2009 based oncriteria established in *Internal Control -Integrated Framework* issued by the Committee of SponsoringOrganizations of the Treadway Commission.

 

As discussed inNotes 1 and 12 to the consolidated financial statements, the Company adoptedFASB Statement of Financial Accounting Standards No. 160, “NoncontrollingInterests in Consolidated Financial Statements — an amendment of ARB 51,” (FASBASC 810-10-65-1, “Consolidation”) in 2009.

 
|   | /s/ KPMG LLP |
|--------|--------------|

 

Minneapolis, Minnesota

March 15, 2010

 

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**MARTEN TRANSPORT, LTD.**

 

**Consolidated Balance Sheets**

 
| ** **                                                                                                                                                                                   | ** ** | **December 31,** | ** **  |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|-------------|
| **(In thousands, except share information)**                                                                                                                                                 | ** ** | **2009**              | ** **  | **2008** | ** ** |
| **ASSETS**                                                                                                                                                                                   |       |                  |        |   |   |
| **Current assets:**                                                                                                                                                                          |       |                  |        |   |   |
| Cash and cash equivalents                                                                                                                                                                    | ** ** | **$**                 | **5,410**   |   | $ | 2,395 |   |
| Marketable securities                                                                                                                                                                        | ** ** | **118**               |        | 2,604 |   |
| Receivables:                                                                                                                                                                                 | ** ** | ** **            |        |   |   |
| Trade, less allowances of $245 and $380,  respectively                                                                                                                                       | ** ** | **45,434**            |        | 50,143 |   |
| Other                                                                                                                                                                                        | ** ** | **4,382**             |        | 7,385 |   |
| Prepaid expenses and other                                                                                                                                                                   | ** ** | **12,328**            |        | 13,705 |   |
| Deferred income taxes                                                                                                                                                                        | ** ** | **5,172**             |        | 6,140 |   |
| Total current assets                                                                                                                                                                         | ** ** | **72,844**            |        | 82,372 |   |
| **Property and equipment:**                                                                                                                                                                  | ** ** | ** **            |        |   |   |
| Revenue equipment                                                                                                                                                                            | ** ** | **455,641**           |        | 423,188 |   |
| Buildings and land                                                                                                                                                                           | ** ** | **18,763**            |        | 14,067 |   |
| Office equipment and other                                                                                                                                                                   | ** ** | **16,723**            |        | 13,917 |   |
| Less accumulated depreciation                                                                                                                                                                | ** ** | **(149,670**          | **)**       | (136,871 | ) |
| Net property and equipment                                                                                                                                                                   | ** ** | **341,457**           |        | 314,301 |   |
| **Other assets**                                                                                                                                                                             | ** ** | **537**               |        | 770 |   |
| ** **                                                                                                                                                                                   | ** ** | **$**                 | **414,838** |   | $ | 397,443 |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                                | ** ** | ** **            |        |   |   |
| **Current liabilities:**                                                                                                                                                                     | ** ** | ** **            |        |   |   |
| Checks issued in excess of cash balances                                                                                                                                                     | ** ** | **$**                 | **1,671**   |   | $ | 1,807 |   |
| Accounts payable                                                                                                                                                                             | ** ** | **16,308**            |        | 15,785 |   |
| Insurance and claims accruals                                                                                                                                                                | ** ** | **19,222**            |        | 21,386 |   |
| Accrued liabilities                                                                                                                                                                          | ** ** | **15,588**            |        | 17,109 |   |
| Current maturities of long-term debt                                                                                                                                                         | ** ** | **1,428**             |        | 1,428 |   |
| Total current liabilities                                                                                                                                                                    | ** ** | **54,217**            |        | 57,515 |   |
| **Long-term debt,** less current maturities                                                                                                                                                  | ** ** | **71**                |        | 1,429 |   |
| **Deferred income taxes**                                                                                                                                                                    | ** ** | **85,643**            |        | 81,048 |   |
| Total liabilities                                                                                                                                                                            | ** ** | **139,931**           |        | 139,992 |   |
| **Commitments and contingencies** (Note 10)                                                                                                                                                  | ** ** | ** **            |        |   |   |
| **Stockholders’ equity:**                                                                                                                                                               | ** ** | ** **            |        |   |   |
| Marten Transport, Ltd. stockholders’ equity:                                                                                                                                            | ** ** | ** **            |        |   |   |
| Preferred stock, $.01 par value per share; 2,000,000  shares authorized; no shares issued and outstanding                                                                                    | ** ** | **—**            |        | — |   |
| Common stock, $.01 par value per share; 48,000,000  shares authorized; 21,885,073 shares at December 31, 2009, and  21,830,071 shares at December 31, 2008, issued and outstanding | ** ** | **219**               |        | 218 |   |
| Additional paid-in capital                                                                                                                                                                   | ** ** | **76,477**            |        | 75,305 |   |
| Retained earnings                                                                                                                                                                            | ** ** | **196,480**           |        | 180,213 |   |
| Total Marten Transport, Ltd. stockholders’ equity                                                                                                                                       | ** ** | **273,176**           |        | 255,736 |   |
| Noncontrolling interest                                                                                                                                                                      | ** ** | **1,731**             |        | 1,715 |   |
| Total stockholders’ equity                                                                                                                                                              | ** ** | **274,907**           |        | 257,451 |   |
|                                                                                                                                                                                         | ** ** | **$**                 | **414,838** |   | $ | 397,443 |   |

 

The accompanying notes are anintegral part of these consolidated financial statements.

 

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**MARTEN TRANSPORT, LTD.**

 

**Consolidated Statementsof Operations**

 
| ** **                                                                | ** ** | **For the years ended December 31,** | ** **  |
|---------------------------------------------------------------------------|------------|-------------------------------------------|-------------|
| **(In thousands, except per share information)**                          | ** ** | **2009**                                  | ** **  | **2008** | ** ** | **2007** | ** ** |
| **Operating revenue**                                                     | ** ** | **$**                                     | **505,874** |   | $ | 607,099 |   | $ | 560,017 |   |
| **Operating expenses (income):**                                          | ** ** | ** **                                |        |   |   |   |   |
| Salaries, wages and benefits                                              | ** ** | **138,752**                               |        | 152,616 |   | 153,774 |   |
| Purchased transportation                                                  | ** ** | **106,577**                               |        | 113,175 |   | 103,776 |   |
| Fuel and fuel taxes                                                       | ** ** | **99,898**                                |        | 175,892 |   | 149,021 |   |
| Supplies and maintenance                                                  | ** ** | **38,223**                                |        | 38,378 |   | 38,621 |   |
| Depreciation                                                              | ** ** | **53,069**                                |        | 49,705 |   | 47,009 |   |
| Operating taxes and licenses                                              | ** ** | **6,672**                                 |        | 6,729 |   | 6,823 |   |
| Insurance and claims                                                      | ** ** | **19,896**                                |        | 25,409 |   | 22,353 |   |
| Communications and utilities                                              | ** ** | **4,170**                                 |        | 3,740 |   | 3,869 |   |
| Gain on disposition of revenue equipment                                  | ** ** | **(1,630**                                | **)**       | (2,664 | ) | (3,386 | ) |
| Other                                                                     | ** ** | **10,888**                                |        | 11,414 |   | 10,356 |   |
|                                                                      | ** ** | **476,515**                               |        | 574,394 |   | 532,216 |   |
| **Operating income**                                                      | ** ** | **29,359**                                |        | 32,705 |   | 27,801 |   |
| **Other expenses (income):**                                              | ** ** | ** **                                |        |   |   |   |   |
| Interest expense                                                          | ** ** | **169**                                   |        | 1,142 |   | 3,823 |   |
| Interest income                                                           | ** ** | **(137**                                  | **)**       | (184 | ) | (693 | ) |
|                                                                      | ** ** | **32**                                    |        | 958 |   | 3,130 |   |
| **Income before income taxes**                                            | ** ** | **29,327**                                |        | 31,747 |   | 24,671 |   |
| Less: Income before income taxes attributable to  noncontrolling interest | ** ** | **584**                                   |        | 1,120 |   | 802 |   |
| **Income before income taxes attributable to  Marten Transport, Ltd.**    | ** ** | **28,743**                                |        | 30,627 |   | 23,869 |   |
| **Provision for income taxes**                                            | ** ** | **12,476**                                |        | 12,556 |   | 8,901 |   |
| **Net income**                                                            | ** ** | **$**                                     | **16,267**  |   | $ | 18,071 |   | $ | 14,968 |   |
| **Basic earnings per common share**                                       | ** ** | **$**                                     | **0.74**    |   | $ | 0.83 |   | $ | 0.69 |   |
| **Diluted earnings per common share**                                     | ** ** | **$**                                     | **0.74**    |   | $ | 0.82 |   | $ | 0.68 |   |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

 

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**MARTEN TRANSPORT, LTD.**

** **

**Consolidated Statements ofStockholders’ Equity**

 
| ** **                                                               | ** ** | **Marten  Transport, Ltd. Stockholders** | ** ** | **Non-**       | ** ** | **Total**            | ** ** |
|--------------------------------------------------------------------------|------------|------------------------------------------|------------|----------------|------------|----------------------|------------|
| ** **                                                               | ** ** | **Common  Stock**                        | ** ** | **Additional** | ** ** | **Retained**         | ** ** | **controlling** | ** ** | **Stockholders’** | ** ** |
| **(In  thousands)**                                                      | ** ** | **Shares**                               | ** ** | **Amount**     | ** ** | **Paid-In  Capital** | ** ** | **Earnings** | ** ** | **Interest** | ** ** | **Equity** | ** ** |
| Balance at December 31, 2006                                        |       | 21,765                                   |       | $              | 218        |                 | $          | 73,601 |   | $ | 147,174 |   | $ | 913 |   | $ | 221,906 |   |
| Net income                                                               |       | —                                   |       | —         |       | —               |       | 14,968 |   | — |   | 14,968 |   |
| Issuance of common stock from share-based payment  arrangement exercises |       | 47                                       |       | —         |       | 303                  |       | — |   | — |   | 303 |   |
| Tax benefits from share-based payment arrangement  exercises             |       | —                                   |       | —         |       | 206                  |       | — |   | — |   | 206 |   |
| Share-based payment arrangement compensation expense                     |       | —                                   |       | —         |       | 460                  |       | — |   | — |   | 460 |   |
| Income before income taxes attributable to  noncontrolling interest      |       | —                                   |       | —         |       | —               |       | — |   | 802 |   | 802 |   |
| Noncontrolling interest distributions                                    |       | —                                   |       | —         |       | —               |       | — |   | (432 | ) | (432 | ) |
| Balance at December 31, 2007                                        |       | 21,812                                   |       | 218            |       | 74,570               |       | 162,142 |   | 1,283 |   | 238,213 |   |
| Net income                                                               |       | —                                   |       | —         |       | —               |       | 18,071 |   | — |   | 18,071 |   |
| Repurchase and retirement of common stock                                |       | (67                                      | )          | —         |       | (810                 | )          | — |   | — |   | (810 | ) |
| Issuance of common stock from share-based payment  arrangement exercises |       | 85                                       |       | —         |       | 356                  |       | — |   | — |   | 356 |   |
| Tax benefits from share-based payment arrangement  exercises             |       | —                                   |       | —         |       | 523                  |       | — |   | — |   | 523 |   |
| Share-based payment arrangement compensation expense                     |       | —                                   |       | —         |       | 666                  |       | — |   | — |   | 666 |   |
| Income before income taxes attributable to  noncontrolling interest      |       | —                                   |       | —         |       | —               |       | — |   | 1,120 |   | 1,120 |   |
| Noncontrolling interest distributions                                    |       | —                                   |       | —         |       | —               |       | — |   | (688 | ) | (688 | ) |
| Balance at December 31, 2008                                        |       | 21,830                                   |       | 218            |       | 75,305               |       | 180,213 |   | 1,715 |   | 257,451 |   |
| Net income                                                               |       | —                                   |       | —         |       | —               |       | 16,267 |   | — |   | 16,267 |   |
| Issuance of common stock from share-based payment  arrangement exercises |       | 55                                       |       | 1              |       | 331                  |       | — |   | — |   | 332 |   |
| Tax benefits from share-based payment arrangement  exercises             |       | —                                   |       | —         |       | 255                  |       | — |   | — |   | 255 |   |
| Share-based payment arrangement compensation expense                     |       | —                                   |       | —         |       | 586                  |       | — |   | — |   | 586 |   |
| Income before income taxes attributable to  noncontrolling interest      |       | —                                   |       | —         |       | —               |       | — |   | 584 |   | 584 |   |
| Noncontrolling interest distributions                                    |       | —                                   |       | —         |       | —               |       | — |   | (568 | ) | (568 | ) |
| Balance at December 31, 2009                                        |       | 21,885                                   |       | $              | 219        |                 | $          | 76,477 |   | $ | 196,480 |   | $ | 1,731 |   | $ | 274,907 |   |

 

The accompanying notes are an integral part of theseconsolidated financial statements.

 

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**MARTEN TRANSPORT, LTD.**

** **

**Consolidated Statements of CashFlows**

 
| ** **                                                                        | ** ** | **For the years ended December 31,** | ** ** |
|-----------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| **(In thousands)**                                                                | ** ** | **2009**                                  | ** ** | **2008** | ** ** | **2007** | ** ** |
| **CASH FLOWS PROVIDED BY  OPERATING ACTIVITIES:**                                 | ** ** | ** **                                |       |   |   |   |   |
| Operations:                                                                       | ** ** | ** **                                |       |   |   |   |   |
| Net income                                                                        | ** ** | **$**                                     | **16,267** |   | $ | 18,071 |   | $ | 14,968 |   |
| Adjustments to reconcile  net income to net cash flows from operating activities: | ** ** | ** **                                |       |   |   |   |   |
| Depreciation                                                                      | ** ** | **53,069**                                |       | 49,705 |   | 47,009 |   |
| Gain on disposition of  revenue equipment                                         | ** ** | **(1,630**                                | **)**      | (2,664 | ) | (3,386 | ) |
| Deferred income taxes                                                             | ** ** | **5,563**                                 |       | 4,842 |   | (1,237 | ) |
| Tax benefits from  share-based payment arrangement exercises                      | ** ** | **255**                                   |       | 523 |   | 206 |   |
| Excess tax benefits from  share-based payment arrangement exercises               | ** ** | **(223**                                  | **)**      | (456 | ) | (166 | ) |
| Share-based payment  arrangement compensation expense                             | ** ** | **586**                                   |       | 666 |   | 460 |   |
| Income before income taxes  attributable to noncontrolling interest               | ** ** | **584**                                   |       | 1,120 |   | 802 |   |
| Changes in other current  operating items:                                        | ** ** | ** **                                |       |   |   |   |   |
| Receivables                                                                       | ** ** | **7,712**                                 |       | 186 |   | (3,251 | ) |
| Prepaid expenses and other                                                        | ** ** | **1,377**                                 |       | 118 |   | 404 |   |
| Accounts payable                                                                  | ** ** | **3,519**                                 |       | (2,066 | ) | 1,999 |   |
| Insurance and claims  accruals                                                    | ** ** | **(2,164**                                | **)**      | 3,955 |   | 1,358 |   |
| Accrued liabilities                                                               | ** ** | **(3,229**                                | **)**      | 3,044 |   | 3,073 |   |
| Net cash provided by  operating activities                                        | ** ** | **81,686**                                |       | 77,044 |   | 62,239 |   |
| **CASH FLOWS USED FOR  INVESTING ACTIVITIES:**                                    | ** ** | ** **                                |       |   |   |   |   |
| Purchases of marketable  securities                                               | ** ** | **(113,170**                              | **)**      | (28,146 | ) | (50 | ) |
| Sales of marketable  securities                                                   | ** ** | **115,656**                               |       | 25,892 |   | — |   |
| Revenue equipment additions                                                       | ** ** | **(104,842**                              | **)**      | (64,509 | ) | (74,732 | ) |
| Proceeds from revenue  equipment dispositions                                     | ** ** | **32,876**                                |       | 31,938 |   | 27,939 |   |
| Buildings and land, office  equipment and other additions                         | ** ** | **(7,948**                                | **)**      | (4,055 | ) | (2,976 | ) |
| Proceeds from buildings and  land, office equipment and other dispositions        | ** ** | **31**                                    |       | — |   | 617 |   |
| Net change in other assets                                                        | ** ** | **233**                                   |       | 1,278 |   | 2,376 |   |
| Net cash used for investing  activities                                           | ** ** | **(77,164**                               | **)**      | (37,602 | ) | (46,826 | ) |
| **CASH FLOWS USED FOR  FINANCING ACTIVITIES:**                                    | ** ** | ** **                                |       |   |   |   |   |
| Borrowings under credit  facility and long-term debt                              | ** ** | **1,115**                                 |       | 154,267 |   | 139,105 |   |
| Repayment of borrowings  under credit facility and long-term debt                 | ** ** | **(2,473**                                | **)**      | (196,053 | ) | (153,121 | ) |
| Issuance of common stock  from share-based payment arrangement exercises          | ** ** | **332**                                   |       | 356 |   | 303 |   |
| Excess tax benefits from  share-based payment arrangement exercises               | ** ** | **223**                                   |       | 456 |   | 166 |   |
| Change in net checks issued  in excess of cash balances                           | ** ** | **(136**                                  | **)**      | 1,807 |   | (804 | ) |
| Noncontrolling interest  distributions                                            | ** ** | **(568**                                  | **)**      | (688 | ) | (432 | ) |
| Repurchase and retirement  of common stock                                        |       | —                                    |       | (810 | ) | — |   |
| Net cash used for financing  activities                                           | ** ** | **(1,507**                                | **)**      | (40,665 | ) | (14,783 | ) |
| **NET CHANGE IN CASH AND  CASH EQUIVALENTS**                                      | ** ** | **3,015**                                 |       | (1,223 | ) | 630 |   |
| **CASH AND CASH  EQUIVALENTS:**                                                   | ** ** | ** **                                |       |   |   |   |   |
| Beginning of year                                                                 | ** ** | **2,395**                                 |       | 3,618 |   | 2,988 |   |
| End of year                                                                       | ** ** | **$**                                     | **5,410**  |   | $ | 2,395 |   | $ | 3,618 |   |
| **SUPPLEMENTAL DISCLOSURE  OF CASH FLOW INFORMATION:**                            | ** ** | ** **                                |       |   |   |   |   |
| Cash paid for:                                                                    | ** ** | ** **                                |       |   |   |   |   |
| Interest                                                                          | ** ** | **$**                                     | **200**    |   | $ | 1,240 |   | $ | 3,966 |   |
| Income taxes                                                                      | ** ** | **$**                                     | **4,905**  |   | $ | 6,368 |   | $ | 6,629 |   |
| Non-cash investing  activities:                                                   | ** ** | ** **                                |       |   |   |   |   |
| Change in revenue equipment  not yet paid for                                     | ** ** | **$**                                     | **(1,288** | **)** | $ | (468 | ) | $ | (10,233 | ) |

 

The accompanying notes are an integral part of theseconsolidated financial statements.

 

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**MARTEN TRANSPORT, LTD.**

** **

**Notes to ConsolidatedFinancial Statements**

** **

**1.  Summaryof Significant Accounting Policies**

 

**Nature of business:** Marten Transport, Ltd. is a long-haul and regional truckload carrierproviding protective service transportation and distribution of time- andtemperature-sensitive materials and general commodities to customers in theUnited States, Canada and Mexico.

 

**Principles of consolidation:**The accompanying consolidated financialstatements include the accounts of Marten Transport, Ltd., its subsidiaries andits 45% owned affiliate, MW Logistics, LLC (“MWL”).  MWL is a third-party provider of logisticsservices to the transportation industry. We have applied the provisions of Financial Accounting Standards BoardAccounting Standards Codification, or FASB ASC, 810, *Consolidation*to our investment in MWL and have determined that Marten is the primarybeneficiary based on MWL’s equity structure. All material intercompany accounts and transactions have been eliminatedin consolidation.  MWL has elected to beclassified as a partnership for federal income tax purposes. Consequently,federal income taxes are not payable by MWL.

 

**Cash and cash equivalents:** Cash in excess of current operating requirements is invested inshort-term, highly liquid investments. We consider all highly liquid investments purchased with original maturitiesof three months or less to be cash equivalents.

 

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

 

**Trade accounts receivable:** Trade accounts receivable are recorded at the invoiced amounts, net ofan allowance for doubtful accounts.  Aconsiderable amount of judgment is required in assessing the realization ofthese receivables including the current creditworthiness of each customer andrelated aging of the past-due balances, including any billing disputes.  In order to assess the collectibility ofthese receivables, we perform ongoing credit evaluations of our customers’financial condition.  Through theseevaluations, we may become aware of a situation where a customer may not beable to meet its financial obligations due to deterioration of its financialviability, credit ratings or bankruptcy. The allowance for doubtful accounts is based on the best informationavailable to us and is reevaluated and adjusted as additional information isreceived.  We evaluate the allowancebased 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 fordoubtful accounts monthly.  Invoicebalances over 30 days after the contractual due date are considered past dueper our policy and are reviewed individually for collectibility.  Initial payments by new customers aremonitored for compliance with contractual terms.  Account balances are charged off against theallowance after all means of collection have been exhausted and the potentialrecovery is considered remote.

 

**Property and equipment:** Additions and improvements to property and equipment are capitalized atcost.  Maintenance and repairexpenditures are charged to operations. Gains and losses on disposals of revenue equipment are included inoperations as they are a normal, recurring component of our operations.

 

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**MARTENTRANSPORT, LTD.**

 

**Notes toConsolidated Financial Statements (Continued)**

 

Depreciation is computed based on the cost of theasset, reduced by its estimated salvage value, using the straight-line methodfor financial reporting purposes.  Webegin depreciating assets in the month that each asset is placed in serviceand, therefore, is ready for its intended use. Accelerated methods are used for income tax reporting purposes.  Following is a summary of estimated usefullives for financial reporting purposes:

 
| ** **                 | ** ** | **Years** | ** ** |
|----------------------------|------------|-----------|------------|
| Revenue equipment:         |       |      |       |
| Tractors                   |       | 5         |       |
| Trailers                   |       | 7         |       |
| Satellite tracking         |       | 7         |       |
| Auxiliary power units      |       | 5         |       |
| Buildings                  |       | 20-40     |       |
| Office equipment and other |       | 3-15      |       |

 

In 2009, we replaced most of our company-ownedtractors within approximately four years and our trailers within approximatelysix years after purchase.  Our usefullives for depreciating tractors is five years and for trailers is seven years,with a 25% salvage value for tractors and a 35% salvage value for trailers.  These salvage values are based upon theexpected market values of the equipment after five years for tractors and sevenyears for trailers.  Depreciation expensecalculated in this manner approximates the continuing declining value of therevenue equipment, and continues at a consistent straight-line rate for unitsheld beyond the normal replacement cycle.

 

Long-lived assets are reviewed for impairment wheneverevents or changes in circumstances indicate that the carrying amount of anasset may not be recoverable. Recoverability of assets to be held and used is measured by a comparisonof the carrying amount of an asset to future net undiscounted cash flowsexpected to be generated by the asset. If such assets are considered to be impaired, the impairment to berecognized is measured by the amount by which the carrying amount of the assetsexceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carryingamount or fair value less the costs to sell.

 

**Net investment in directfinancing leases:**We have direct financing tractor lease receivables from independentcontractors, which expire over the next two years.

 

**Tires in service:** The cost of original equipment andreplacement tires placed in service is capitalized. Amortization is calculatedbased on cost, less estimated salvage value, using the straight-line methodover 24 months. The current portion of capitalized tires in service is includedin prepaid expenses and other in the accompanying consolidated balance sheets.The long-term portion of capitalized tires in service and the estimated salvagevalue are included in revenue equipment in the accompanying consolidatedbalance sheets. The cost of recapping tires is charged to operations.

 

**Income taxes:** Deferred tax assets and liabilities arerecognized for the future tax consequences attributable to differences betweenthe financial statement carrying amounts of existing assets and liabilities andtheir respective tax basis.  Deferred taxassets and liabilities are measured using enacted tax rates expected to applyto taxable income in the years in which those temporary differences areexpected to be recovered or settled. The effect on deferred tax assets andliabilities of a change in tax rates is recognized in income in the period thatincludes the enactment date.  We havereflected the necessary deferred tax assets and liabilities in the accompanyingconsolidated balance sheets.  We believethe future tax deductions will be realized principally through future reversalsof existing taxable temporary differences and future taxable income.

 

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**MARTENTRANSPORT, LTD.**

 

**Notes toConsolidated Financial Statements (Continued)**

 

In the ordinary course of business there is inherentuncertainty in quantifying our income tax positions.  We assess our income tax positions and recordtax benefits for all years subject to examination based upon management’sevaluation of the facts, circumstances, and information available at thereporting dates.  For those tax positionswhere it is more-likely-than-not that a tax benefit will be sustained, we haverecorded the largest amount of tax benefit with a greater than 50% likelihoodof being realized upon ultimate settlement with a taxing authority that hasfull knowledge of all relevant information. For those income tax positions where it is not more-likely-than-not thata tax benefit will be sustained, no tax benefit has been recognized in thefinancial statements.  Potential accruedinterest and penalties related to unrecognized tax benefits are recognized as acomponent of income tax expense.

 

**Insurance and claims:** We self-insure, in part, for losses relating to workers’ compensation,auto liability, general liability, cargo and property damage claims, along withemployees’ health insurance with varying risk retention levels.  We maintain insurance coverage forper-incident and total losses in excess of these risk retention levels inamounts we consider adequate based upon historical experience and our ongoingreview.  We reserve currently for theestimated cost of the uninsured portion of pending claims. These reserves areperiodically evaluated and adjusted based on our evaluation of the nature andseverity of outstanding individual claims and an estimate of future claimsdevelopment based on historical claims development factors.  Under agreements with our insurance carriersand regulatory authorities, we have $8.4 million in standby letters of creditto guarantee settlement of claims.

 

**Revenue recognition:** We record revenue and related expenses on the date shipment of freightis completed.  We earned 20% and 12% ofour revenue in 2009 from two single customers whose trade receivablesrepresented 11% and 16%, respectively, of our trade receivables as of December 31,2009.  We earned 19% and 10% of ourrevenue in 2008 from two single customers whose trade receivables represented16% and 10%, respectively, of our trade receivables as of December 31,2008.  We earned 18% of our revenue in2007 from a single customer.

 

We account for revenue of our Logistics segment andrevenue on freight transported by independent contractors within our Truckloadsegment on a gross basis because we are the primary obligor in the arrangements,we have the ability to establish prices, we have the risk of loss in the eventof cargo claims and we bear credit risk with customer payments.  Accordingly, all such revenue billed tocustomers is classified as operating revenue and all corresponding payments tocarriers for transportation services we arrange in connection with brokerageand intermodal activities and to independent contractor providers of revenueequipment are classified as purchased transportation expense.

 

**Share-based payment arrangementcompensation:**  Under our stock incentive plans, all of ouremployees and any subsidiary employees, as well as all of our non-employeedirectors, consultants, advisors and independent contractors, may be grantedstock-based awards, including incentive and non-statutory stock options andrestricted stock awards.  We account forshare-based payment arrangements in accordance with FASB ASC 718, *Compensation-Stock Compensation*, which requires allshare-based payments to employees and non-employee directors, including grantsof employee stock options, to be recognized in the income statement based ontheir fair values at the date of grant.

 

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

 

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**MARTENTRANSPORT, LTD.**

 

**Notes toConsolidated Financial Statements (Continued)**

 

**Segment reporting:** We report our operating segments in accordance with accounting standardscodified in FASB ASC 280, *Segment Reporting*.  Beginning with fiscal 2007, we have tworeporting segments — Truckload and Logistics. See Note 11 for more information.

 

**Use of estimates:** We must make estimates and assumptions to prepare the consolidatedfinancial statements in conformity with U.S. generally accepted accountingprinciples.  These estimates andassumptions affect the reported amounts of assets and liabilities and thedisclosure of contingent assets and liabilities in the consolidated financial statements.  These estimates are primarily related toinsurance and claims accruals and depreciation. Ultimate results could differ from these estimates.

 

**Recent Accounting Pronouncements: **In June 2009, theFinancial Accounting Standards Board issued Statement of Financial AccountingStandards No. 167, “Amendments to FASB Interpretation No. 46(R),”(FASB ASC 810, *Consolidation*).  This statement eliminates Interpretation No. 46(R)’sexceptions to consolidating qualifying special-purpose entities, contains newcriteria for determining the primary beneficiary (the reporting entity thatmust consolidate the variable interest entity), and increases the frequency ofrequired reassessments to determine whether a company is the primarybeneficiary of a variable interest entity. This statement also clarifies, but does not significantly change, thecharacteristics that identify a variable interest entity.  This statement is effective for the firstquarter of 2010.  The adoption of thisstatement is not expected to have a significant impact on our financialcondition, results of operations or cash flows.

 

**2.  Details of Consolidated Balance SheetAccounts**

 

**Prepaid expenses and other:** As of December 31, prepaid expenses and other consisted of thefollowing:

 
| **(In thousands)**        | ** ** | **2009**  | ** ** | **2008** | ** ** |
|---------------------------|------------|-----------|------------|----------|------------|
| License fees              | ** ** | **$**     | **4,009**  |     | $          | 4,243 |   |
| Tires in service          | ** ** | **2,912** |       | 3,684    |       |
| Parts and tires inventory | ** ** | **2,222** |       | 2,235    |       |
| Insurance premiums        | ** ** | **905**   |       | 1,531    |       |
| Other                     | ** ** | **2,280** |       | 2,012    |       |
|                      | ** ** | **$**     | **12,328** |     | $          | 13,705 |   |

 

**Net investment in directfinancing leases:**  As of December 31, the components of thenet investment in direct financing lease receivables from independentcontractors consisted of the following:

 
| **(In thousands)**                          | ** ** | **2009** | ** ** | **2008** | ** ** |
|---------------------------------------------|------------|----------|------------|----------|------------|
| Total minimum lease payments to be received | ** ** | **$**    | **255**    |     | $          | 912 |   |
| Less: unearned income                       | ** ** | **(22**  | **)**      | (115     | )          |
| Net investment in direct financing leases   | ** ** | **$**    | **233**    |     | $          | 797 |   |

 

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**MARTENTRANSPORT, LTD.**

 

**Notes toConsolidated Financial Statements (Continued)**

 

The current portion of our net investment in directfinancing leases is included in other receivables in the accompanyingconsolidated balance sheets.  Thelong-term portion of our net investment in direct financing leases is includedin other assets in the accompanying consolidated balance sheets.  The interest method is used to amortizeunearned income, which amortizes unearned income to income over the lease termso as to produce a constant periodic rate of return on the net investment ineach lease.  The amortization of unearnedincome is included in interest income in the accompanying consolidatedstatements of operations.

 

As of December 31, 2009, minimum lease paymentsto be received for each of the two succeeding fiscal years are as follows: $225,000in 2010 and $30,000 in 2011.

 

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

 
| **(In thousands)**   | ** ** | **2009**  | ** ** | **2008** | ** ** |
|----------------------|------------|-----------|------------|----------|------------|
| Accrued payables     | ** ** | **$**     | **6,075**  |     | $          | 5,319 |   |
| Vacation             | ** ** | **3,146** |       | 3,416    |       |
| Current income taxes | ** ** | **3,116** |       | 2,535    |       |
| Salaries and wages   | ** ** | **1,795** |       | 4,741    |       |
| Other                | ** ** | **1,456** |       | 1,098    |       |
|                 | ** ** | **$**     | **15,588** |     | $          | 17,109 |   |

 

**3. Long-Term Debt**

 

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

 
| **(In thousands)**                                                                                                                                                                                                                                                                                                                                                  | ** ** | **2009**  | ** ** | **2008** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------|------------|----------|------------|
| Series B Senior Unsecured Notes maturing in  April 2010 with a final principal payment of $1.43 million bearing  interest at 8.57%                                                                                                                                                                                                                        | ** ** | **$**     | **1,428**  |     | $          | 2,857 |   |
| Unsecured committed credit facility in the amount of  $50 million with banks maturing in September 2011 and bearing variable  interest based upon either the London Interbank Offered Rate or the agent  bank’s Prime Rate, in each case plus/minus applicable margins (0.83% weighted  average interest rate for the facility at December 31, 2009) | ** ** | **71**    |       | —   |       |
| Total long-term debt                                                                                                                                                                                                                                                                                                                                                | ** ** | **1,499** |       | 2,857    |       |
| Less current maturities of long-term debt                                                                                                                                                                                                                                                                                                                           | ** ** | **1,428** |       | 1,428    |       |
| Long-term debt, less current maturities                                                                                                                                                                                                                                                                                                                             | ** ** | **$**     | **71**     |     | $          | 1,429 |   |

 

We maintain a credit agreement that provides for afive-year unsecured committed credit facility (“credit facility”) maturing in September 2011in an aggregate principal amount of up to $50 million, which we decreased from$75 million in December 2009.  Theaggregate principal amount of the credit facility may be increased at ouroption up to a maximum aggregate principal amount of $100 million.  At December 31, 2009, the creditfacility had an outstanding principal balance of $71,000, outstanding standbyletters of credit of $8.4 million and remaining borrowing availability of $41.5million.

 

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**MARTENTRANSPORT, LTD.**

 

**Notes toConsolidated Financial Statements (Continued)**

 

Our credit facility prohibits us from paying, in anyfiscal year, dividends in excess of 25% of our net income from the prior fiscalyear.  The debt agreements also containrestrictive covenants which, among other matters, require us to maintaincertain financial ratios, including debt-to-equity, cash flow leverage,interest coverage and fixed charge coverage. We were in compliance with all of these covenants at December 31,2009.

 

Maturities of long-term debt at December 31,2009, are as follows:

 
| **(In thousands)** | ** ** | **Amount** | ** ** |
|--------------------|------------|------------|------------|
| 2010               |       | $          | 1,428      |   |
| 2011               |       | 71         |       |
|               |       | $          | 1,499      |   |

 

**4.  RelatedParty Transactions**

 

The following related party transactions occurredduring the three years ended December 31, 2009;

 

(a)           Wepurchase fuel and obtain tires and related services from a company in which oneof our directors is the president and a principal stockholder.  We paid that company $796,000 in 2009, $1.4million in 2008 and $1.1 million in 2007 for fuel and tire services.  In addition, we paid $1.5 million in 2009,$2.3 million in 2008 and $2.4 million in 2007 to tire manufacturers for tiresthat we purchased from the tire manufacturers but were provided by the samecompany.  The same company receivedcommissions from the tire manufacturers related to these purchases.  We had accounts payable to that company of$24,000 as of December 31, 2009 and $14,000 as of December 31, 2008.

 

(b)           Wepaid $1.1 million in 2009, $564,000 in 2008 and $547,000 in 2007 for variousconstruction projects to a company in which one of our directors is thepresident and owner.  We had no accountspayable to that company as of December 31, 2009 and 2008.

 

(c)           In August 2008,we acquired a building adjacent to our headquarters which will be used formaintenance and storage from our Chairman of the Board and Chief ExecutiveOfficer in a like-kind exchange for a partially constructed building of equalvalue owned by Marten Transport.  Each ofthe buildings were valued at $291,000 at the time of the exchange.

 

**5.  IncomeTaxes**

 

The components of the provision for income taxesconsisted of the following:

 
| **(In thousands)** | ** ** | **2009**   | ** ** | **2008** | ** ** | **2007** | ** ** |
|--------------------|------------|------------|------------|----------|------------|----------|------------|
| Current:           | ** ** | ** ** |       |     |       |     |       |
| Federal            | ** ** | **$**      | **6,084**  |     | $          | 6,497    |       | $ | 8,922 |   |
| State              | ** ** | **829**    |       | 1,217    |       | 1,216    |       |
|               | ** ** | **6,913**  |       | 7,714    |       | 10,138   |       |
|               | ** ** | ** ** |       |     |       |     |       |
| Deferred:          | ** ** | ** ** |       |     |       |     |       |
| Federal            | ** ** | **4,472**  |       | 4,549    |       | (944     | )          |
| State              | ** ** | **1,091**  |       | 293      |       | (293     | )          |
|               | ** ** | **5,563**  |       | 4,842    |       | (1,237   | )          |
| Total provision    | ** ** | **$**      | **12,476** |     | $          | 12,556   |       | $ | 8,901 |   |

 

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**MARTENTRANSPORT, LTD.**

 

**Notes toConsolidated Financial Statements (Continued)**

 

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

 
| ** **                                                                            | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|---------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Statutory federal income tax rate                                                     | ** ** | **35**   | **%**      | 35       | %          | 35       | %          |
| Per diem and other non-deductible expenses                                            | ** ** | **5**    |       | 3        |       | —   |       |
| Increase in taxes arising from state income taxes,  net of federal income tax benefit | ** ** | **4**    |       | 3        |       | 2        |       |
| Other                                                                                 | ** ** | **(1**   | **)**      | —   |       | —   |       |
| Effective tax rate                                                                    | ** ** | **43**   | **%**      | 41       | %          | 37       | %          |

 

Our effective income tax rate increased to 43.4% in2009 from 41.0% in 2008 and from 37.3% in 2007, primarily because of thenondeductible effect of a per diem pay structure for our drivers adopted in thefirst quarter of 2008 which was more broadly implemented during 2009.

 

As of December 31, the net deferred tax liabilityconsisted of the following:

 
| **(In thousands)**               | ** ** | **2009**   | ** ** | **2008** | ** ** |
|----------------------------------|------------|------------|------------|----------|------------|
| Deferred tax assets:             | ** ** | ** ** |       |     |       |
| Reserves and accrued liabilities | ** ** | **$**      | **7,452**  |     | $          | 8,711 |   |
| Other                            | ** ** | **1,168**  |       | 958      |       |
|                             | ** ** | **8,620**  |       | 9,669    |       |
| Deferred tax liabilities:        | ** ** | ** ** |       |     |       |
| Depreciation                     | ** ** | **86,823** |       | 82,022   |       |
| Prepaid expenses                 | ** ** | **2,268**  |       | 2,555    |       |
|                             | ** ** | **89,091** |       | 84,577   |       |
| Net deferred tax liability       | ** ** | **$**      | **80,471** |     | $          | 74,908 |   |

 

We have not provided a valuation allowance against deferredtax assets at December 31, 2009 or 2008. We believe the deferred tax assets will be realized principally throughfuture reversals of existing taxable temporary differences (deferred taxliabilities) and future taxable income.

 

Our reserves for unrecognized tax benefits were$158,000 as of December 31, 2009 and $131,000 as of December 31,2008.  The $27,000 increase in the amountreserved in 2009 relates to current period tax positions.  The amount reserved as of December 31,2008 was added in 2008 and 2007 relating to current period tax positions.  If recognized, $103,000 of the unrecognizedtax benefits as of December 31, 2009 would impact our effective taxrate.  No potential interest or penaltiesrelated to unrecognized tax benefits were recognized in our financialstatements as of December 31, 2009. We do not expect the reserves for unrecognized tax benefits to changesignificantly within the next twelve months.

 

The federal statute of limitations remains open for2006 and forward.  We file tax returns innumerous state jurisdictions with varying statutes of limitations.

 

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**MARTENTRANSPORT, LTD.**

 

**Notes toConsolidated Financial Statements (Continued)**

 

**6.  EarningsPer Common Share**

 

Basic and diluted earnings per common share werecomputed as follows:

 
| **(In thousands, except per share amounts)**                                         | ** ** | **2009**   | ** ** | **2008** | ** ** | **2007** | ** ** |
|--------------------------------------------------------------------------------------|------------|------------|------------|----------|------------|----------|------------|
| Numerator:                                                                           | ** ** | ** ** |       |     |       |     |       |
| Net income                                                                           | ** ** | **$**      | **16,267** |     | $          | 18,071   |       | $ | 14,968 |   |
| Denominator:                                                                         | ** ** | ** ** |       |     |       |     |       |
| Basic earnings per common share - weighted-average  shares                           | ** ** | **21,870** |       | 21,787   |       | 21,795   |       |
| Effect of dilutive stock options                                                     | ** ** | **114**    |       | 144      |       | 166      |       |
| Diluted earnings per common share - weighted-average  shares and assumed conversions | ** ** | **21,984** |       | 21,931   |       | 21,961   |       |
| Basic earnings per common share                                                      | ** ** | **$**      | **0.74**   |     | $          | 0.83     |       | $ | 0.69 |   |
| Diluted earnings per common share                                                    | ** ** | **$**      | **0.74**   |     | $          | 0.82     |       | $ | 0.68 |   |

 

Options totaling 418,100, 310,600 and 190,000 shareswere outstanding but were not included in the calculation of diluted earningsper share for 2009, 2008 and 2007, respectively, primarily because theirexercise prices were greater than the average market price of the common sharesand, therefore, including the options in the denominator would be antidilutive,or decrease the number of weighted-average shares.  Additionally, performance-based option awardstotaling 107,000, 99,500 and 90,000 shares for 2009, 2008 and 2007respectively, were also not included in the calculation of diluted earnings pershare because the performance condition was not considered probable ofachievement.

 

**7.  Share Repurchase Program**

 

In December 2007, our Board of Directors approveda share repurchase program to repurchase up to one million shares of our commonstock either through purchases on the open market or through privatetransactions.  The timing and extent towhich we will repurchase shares depends on market conditions and othercorporate considerations.  In the firstquarter of 2008 we repurchased and retired 67,500 shares of our common stockfor $810,000.  We made no purchases in2007, in the remainder of 2008 or in 2009. The repurchase program does not have an expiration date.

 

**8.  EmployeeBenefits**

 

***StockIncentive Plans***- Under our 2005 Stock Incentive Plan (the “2005 Plan”), all of our employeesand any subsidiary employees, as well as all of our non-employee directors,consultants, advisors and independent contractors, may be granted stock-basedawards, including incentive and non-statutory stock options and restrictedstock awards.  Stock options expirewithin 7 or 10 years after the date of grant and the exercise price must be atleast the fair market value of our common stock on the date of grant.  Stock options issued to non-employeedirectors upon their annual re-election to our Board of Directors are generallyexercisable at the date of grant. Service-based options issued to employees are generally exercisablebeginning one year from the date of grant in cumulative amounts of 20% peryear.  Performance-based options becomeexercisable upon achievement of certain performance criteria established by theCompensation Committee of our Board of Directors.  Options exercised represent newly issuedshares.  The maximum number of shares ofcommon stock available for issuance under the 2005 Plan is 2.85 millionshares.  As of December 31, 2009,there were 547,600 shares reserved for issuance under options outstanding underthe 2005 Plan.  The 2005 Plan replacesour 1995 Stock Incentive Plan (the “1995 Plan”), which expired by its terms in March 2005.

 

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**MARTENTRANSPORT, LTD.**

 

**Notes toConsolidated Financial Statements (Continued)**

 

Under our 1995 Plan, officers, directors and employeeswere granted incentive and non-statutory stock options.  Incentive stock option exercise prices wererequired to be at least the fair market value of our common stock on the dateof grant.  Non-statutory stock optionexercise prices were required to be at least 85% of the fair market value ofour common stock on the date of grant. Stock options expire within 10 years after the date of grant.  Stock options issued to non-employeedirectors upon their annual re-election to our Board of Directors are generallyexercisable at the date of grant. Service-based options issued to employees are generally exercisablebeginning one year from the date of grant in cumulative amounts of 20% peryear.  Options exercised represent newlyissued shares.  As of December 31,2009, there were 217,761 shares reserved for issuance under options outstandingunder the 1995 Plan.  No additionaloptions will be granted under the 1995 Plan.

 

We account for share-based payment arrangements inaccordance with FASB ASC 718, *Compensation-StockCompensation*, which requires all share-based payments to employeesand non-employee directors, including grants of employee stock options, to berecognized in the income statement based on their fair values at the date ofgrant.  We adopted the modifiedprospective transition method, and consequently have not retroactively adjustedresults from prior periods.  Under thistransition method, compensation cost associated with share-based awardsrecognized in 2009, 2008 and 2007 includes: (a) compensation cost for all share-based payments granted priorto, but not yet vested as of December 31, 2005, based on the estimatedgrant-date fair value, and (b) compensation cost for all share-basedpayments granted subsequent to December 31, 2005, based on the estimatedgrant-date fair value.

 

We use the Black-Scholes option pricing model tocalculate the grant-date fair value of option awards.  The fair value of option awards granted wasestimated as of the date of grant using the following weighted averageassumptions:

 
| ** **                                    | ** ** | **2009**   | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|-----------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| Service-based options:                        | ** ** | ** ** | ** ** | ** ** |       |       |       |
| Expected option life in years(1)              | ** ** | **6.1**    |       | 6.2        |       | 7.0        |       |
| Expected stock price volatility percentage(2) | ** ** | **40**     | **%**      | 40         | %          | 36         | %          |
| Risk-free interest rate percentage(3)         | ** ** | **2.5**    | **%**      | 3.3        | %          | 4.6        | %          |
| Expected dividend yield(4)                    | ** ** | **—** |       | —     |       | —     |       |
| Fair value as of the date of grant            | ** ** | **$**      | **7.77**   |       | $          | 7.76       |       | $ | 8.05 |   |
|                                          | ** ** | ** ** |       |       | ** ** | ** ** | ** ** |
| Performance-based options:                    | ** ** | ** ** |       |       | ** ** | ** ** | ** ** |
| Expected option life in years(1)              | ** ** | **6.0**    |       | 6.6        |       | 7.0        |       |
| Expected stock price volatility percentage(2) | ** ** | **41**     | **%**      | 39         | %          | 36         | %          |
| Risk-free interest rate percentage(3)         | ** ** | **2.4**    | **%**      | 3.3        | %          | 4.6        | %          |
| Expected dividend yield(4)                    | ** ** | **—** |       | —     | ** ** | **—** | ** ** |
| Fair value as of the date of grant            | ** ** | **$**      | **8.55**   |       | $          | 7.90       |       | $ | 7.72 |   |

 

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**MARTENTRANSPORT, LTD.**

 

**Notes toConsolidated Financial Statements (Continued)**

 

(1)   Expected option life — We use historical employeeexercise and option expiration data to estimate the expected life assumptionfor the Black-Scholes grant-date valuation. We believe that this historical data is currently the best estimate ofthe expected term of a new option.  Weuse a weighted-average expected life for all awards.

 

(2)   Expected stock price volatility — We use our stock’shistorical volatility for the same period of time as the expected life.  We have no reason to believe that its futurevolatility will differ from the past.

 

(3)   Risk-free interest rate — The rate is based on theU.S. Treasury yield curve in effect at the time of the grant for the sameperiod of time as the expected life.

 

(4)   Expected dividend yield — We have not historicallypaid cash dividends on our common stock.

 

We use the straight-line attribution method torecognize expense for all service-based option awards with graded vesting.  Compensation expense will be recorded forperformance-based option awards in the periods in which the performancecondition is probable of achievement.

 

Service-based option awards become immediatelyexercisable in full in the event of retirement, death or disability and upon achange in control with respect to all options that have been outstanding for atleast six months.  To be eligible forretirement, an employee must reach age 65. Performance-based option awards will remain exercisable to the extentpreviously exercisable for a period of one year after the employee’s employmentis terminated due to retirement, death or disability.  Performance-based option awards becomeimmediately exercisable in full in the event of a change in control withrespect to all options that have been outstanding for at least six months.

 

Compensation costs associated with service-basedoption awards are recognized over the requisite service period, which is theperiod between the grant date and the earlier of the award’s stated vestingterm or the date the employee is eligible for retirement.  We immediately recognize the entire amount ofshare-based compensation cost for employees that are eligible for retirement atthe date of grant.  For awards granted toemployees approaching retirement eligibility, we recognize compensation cost ona straight-line basis over the period from the grant date through theretirement eligibility date.  Share-basedcompensation expense for employees who are not retirement eligible isrecognized on a straight-line basis over the stated vesting period of theaward.

 

The amount of share-based compensation recognizedduring a period is based on the value of the portion of the awards that areultimately expected to vest.  Forfeituresare estimated at the time of grant and revised, if necessary, in subsequentperiods if actual forfeitures differ from those estimates.  The term “forfeitures” is distinct from “cancellations”or “expirations” and represents only the unvested portion of the surrenderedaward.  We currently expect, based on ananalysis of our historical forfeitures and known forfeitures on existingawards, that approximately 1.25% of unvested outstanding options will beforfeited each year.  This analysis willbe re-evaluated quarterly and the forfeiture rate will be adjusted asnecessary.  Ultimately, the actualexpense recognized over the vesting period will only be for those shares thatvest.

 

Total share-based compensation expense recorded in2009 was $586,000 ($353,000 net of income tax benefit, $0.02 of earnings perbasic and diluted share), in 2008 was $666,000 ($432,000 net of income taxbenefit, $0.02 of earnings per basic and diluted share), and in 2007 was$460,000 ($321,000 net of income tax benefit, $0.015 of earnings per basic anddiluted share).  All share-basedcompensation expense was recorded in salaries, wages and benefits expense.

 

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**MARTENTRANSPORT, LTD.**

 

**Notes toConsolidated Financial Statements (Continued)**

 

The benefits of tax deductions in excess of recognizedcompensation costs (excess tax benefits) are recorded as a financing cashinflow rather than a deduction of taxes paid in operating cash flows.  In 2009, 2008 and 2007, there was $223,000,$456,000 and $166,000, respectively, of excess tax benefits recognizedresulting from exercises of options.

 

As of December 31, 2009, there was a total of$1.8 million of unrecognized compensation expense related to unvestedservice-based option awards, which is expected to be recognized over aweighted-average period of 3.5 years, and $975,000 of unrecognized compensationexpense related to unvested performance-based option awards, which will berecorded in the periods in which our achievement of certain operating ratios isprobable through 2010.  As of December 31,2009, the performance condition was not considered probable of achievement.

 

Option activity in 2009 was as follows:

 
| ** **                            | ** ** | ** ** | ** ** | **Weighted**       | ** ** |
|---------------------------------------|------------|------------|------------|--------------------|------------|
| ** **                            | ** ** | ** ** | ** ** | **Average**        | ** ** |
| ** **                            | ** ** | **Shares** | ** ** | **Exercise Price** | ** ** |
| Outstanding at December 31, 2008 |       | 695,363    |       | $                  | 14.67      |   |
| Granted                               |       | 125,000    |       | 18.30              |       |
| Exercised                             |       | (55,002    | )          | 6.04               |       |
| Outstanding at December 31, 2009 |       | 765,361    |       | $                  | 15.89      |   |
| Exercisable at December 31, 2009 |       | 392,281    |       | $                  | 12.58      |   |

 

The fair value of options granted in 2009 was $913,000for service-based options and $64,000 for performance-based options.  The fair value of options granted in 2008 was$1.2 million for service-based options and $170,000 for performance-basedoptions.  The fair value of optionsgranted in 2007 was $338,000 for service-based options and $93,000 forperformance-based options.  The totalintrinsic value of options exercised in 2009, 2008 and 2007 was $719,000, $1.3million and $564,000, respectively. Intrinsic value is the difference between the fair value of the acquiredshares at the date of exercise and the exercise price, multiplied by the numberof options exercised.  Proceeds receivedfrom option exercises in 2009, 2008 and 2007 were $332,000, $356,000 and$303,000, respectively.

 

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**MARTENTRANSPORT, LTD.**

 

**Notes toConsolidated Financial Statements (Continued)**

 

The following table summarizes information concerningoutstanding and exercisable option awards as of December 31, 2009:

 
| ** **                   | ** ** | **Options Outstanding** | ** ** | **Options Exercisable** | ** ** |
|------------------------------|------------|-------------------------|------------|-------------------------|------------|
| **Range of Exercise Prices** | ** ** | **Shares**              | ** ** | **Life(1)**             | ** ** | **Price(2)** | ** ** | **Value(3)** | ** ** | **Shares** | ** ** | **Life(1)** | ** ** | **Price(2)** | ** ** | **Value(3)** | ** ** |
| Service-based options:       |       |                    |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| $3.84 - $5.78                |       | 167,135                 |       | 1.9                     |       | $ | 4.78 |   | $ | 2,201 |   | 167,135 |   | 1.9 |   | $ | 4.78 |   | $ | 2,201 |   |
| $10.76                       |       | 50,626                  |       | 3.8                     |       | 10.76 |   | 364 |   | 50,626 |   | 3.8 |   | 10.76 |   | 364 |   |
| $15.45 - $23.59              |       | 440,600                 |       | 6.4                     |       | 19.36 |   | 122 |   | 174,520 |   | 6.4 |   | 20.57 |   | 35 |   |
|                         |       | 658,361                 |       | 5.0                     |       | $ | 15.00 |   | $ | 2,687 |   | 392,281 |   | 4.1 |   | $ | 12.58 |   | $ | 2,600 |   |
| Performance-based options:   |       |                    |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| $15.45 - $23.59              |       | 107,000                 |       | 6.6                     |       | $ | 21.35 |   | $ | 48 |   | — |   | — |   | $ | — |   | $ | — |   |

 

----

(1)          Represents the weighted-average remainingcontractual life in years.

(2)          Represents the weighted-average exerciseprice.

(3)          Represents the aggregate intrinsic valuebased on our closing stock price on December 31, 2009 for in-the-moneyoptions (in thousands).

 

Nonvested optionawards as of December 31, 2009 and changes during 2009 were as follows:

 
| ** **                          | ** ** | ** ** | ** ** | ** **     | ** ** | **Weighted**    | ** ** |
|-------------------------------------|------------|------------|------------|----------------|------------|-----------------|------------|
| ** **                          | ** ** | ** ** | ** ** | ** **     | ** ** | **Average**     | ** ** |
| ** **                          | ** ** | ** ** | ** ** | **Weighted**   | ** ** | **Remaining**   | ** ** |
| ** **                          | ** ** | ** ** | ** ** | **Average**    | ** ** | **Contractual** | ** ** |
| ** **                          | ** ** | ** ** | ** ** | **Grant Date** | ** ** | **Life**        | ** ** |
| ** **                          | ** ** | **Shares** | ** ** | **Fair Value** | ** ** | **(in Years)**  | ** ** |
| Service-based options:              |       |       |       |           |       |            |       |
| Nonvested at December 31, 2008 |       | 213,800    |       | $              | 8.29       |            | 7.0        |   |
| Granted                             |       | 117,500    |       | 7.77           |       | 6.8             |       |
| Vested                              |       | (65,220    | )          | 8.60           |       | 6.1             |       |
| Nonvested at December 31, 2009 |       | 266,080    |       | $              | 7.98       |            | 6.3        |   |
|                                |       |       |       |           |       |            |       |
| Performance-based options:          |       |       |       |           |       |            |       |
| Nonvested at December 31, 2008 |       | 99,500     |       | $              | 9.16       |            | 7.6        |   |
| Granted                             |       | 7,500      |       | 8.55           |       | 6.4             |       |
| Nonvested at December 31, 2009 |       | 107,000    |       | $              | 9.12       |            | 6.6        |   |

 

The total fair value of options which vested during2009, 2008 and 2007 was $561,000, $629,000 and $419,000, respectively.

 

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**MARTENTRANSPORT, LTD.**

 

**Notes toConsolidated Financial Statements (Continued)**

 

***RetirementSavings Plan***- We sponsor a defined contribution retirement savings plan under Section 401(k) ofthe Internal Revenue Code.  Employees areeligible for the plan after one year of service. Participants are able tocontribute up to the limit set by law, which in 2009 was $16,500 forparticipants less than age 50 and $22,000 for participants age 50 andabove.  We contribute 35% of eachparticipant’s contribution, up to a total of 6% contributed.  Our contribution vests at the rate of 20% peryear for the second through sixth years of service.  In addition, we may make elective contributionsas determined by the board of directors. No elective contributions were made in 2009, 2008 or 2007.  Total expense recorded for the plan was$996,000 in 2009, $1.0 million in 2008 and $1.3 million in 2007.

 

***StockPurchase Plans***- An Employee Stock Purchase Plan and an Independent Contractor Stock PurchasePlan are sponsored to encourage employee and independent contractor ownershipof our common stock. Eligible participants specify the amount of regularpayroll or contract payment deductions and voluntary cash contributions thatare used to purchase shares of our common stock.  The purchases are made at the market price onthe open market.  We pay the broker’scommissions and administrative charges for purchases of common stock under theplans.

 

**9.  Fair Value of Financial Instruments**

 

The carrying amounts of accounts receivable, directfinancing leases receivable and accounts payable approximate fair value becauseof the short maturity of these instruments. The fair value of our total long-term debt is estimated to be $1.5million at December 31, 2009, and $2.9 million at December 31,2008.  The fair value was estimated bydiscounting future cash flows using a current borrowing rate for similarlong-term debt instruments.

 

**10.  Commitments and Contingencies**

 

We are committed to: (a) building constructionexpenditures of $4.5 million in 2010; (b) operating lease obligationexpenditures totaling $912,000 through 2013; and (c) purchase $40,000 ofnew revenue equipment in 2010.

 

We are involved in legal actions that arise in theordinary course of business.  Althoughthe outcomes of any such legal actions cannot be predicted, in the opinion ofmanagement, the resolution of any currently pending or threatened actions willnot have a material adverse effect upon our financial position or results ofoperations.

 

**11. Business Segments**

 

Our presentation includes two reporting segments —Truckload and Logistics.  The primarysource of our operating revenue is truckload revenue, which we generate bytransporting freight for our customers and report within our Truckloadsegment.  Generally, we are paid by themile for our services.  We also derivetruckload revenue from fuel surcharges, loading and unloading activities,equipment detention and other ancillary services.

 

Our operating revenue also includes revenue reportedwithin our Logistics segment, which consists of revenue from our internalbrokerage and intermodal operations, both launched in 2005, and through our 45%interest in MWL, a third-party provider of logistics services to thetransportation industry.  Brokerageservices involve arranging for another company to transport freight for ourcustomers while we retain the billing, collection and customer managementresponsibilities.  Intermodal services involvethe transport of our trailers on railroad flatcars for a portion of a trip,with the balance of the trip using our tractors or, to a lesser extent,contracted carriers.

 

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**MARTENTRANSPORT, LTD.**

 

**Notes toConsolidated Financial Statements (Continued)**

 

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

 
| **(Dollars in thousands)**                                      | ** ** | **2009**    | ** **  | **2008** | ** ** | **2007** | ** ** |
|-----------------------------------------------------------------|------------|-------------|-------------|----------|------------|----------|------------|
| Operating revenue:                                              | ** ** | ** **  |        |     |       |     |       |
| Truckload revenue, net of fuel surcharge revenue                | ** ** | **$**       | **346,983** |     | $          | 384,264  |       | $ | 406,754 |   |
| Truckload fuel surcharge revenue                                | ** ** | **49,812**  |        | 123,922  |       | 83,786   |       |
| Total Truckload revenue                                         | ** ** | **396,795** |        | 508,186  |       | 490,540  |       |
|                                                            | ** ** | ** **  |        |     |       |     |       |
| Logistics revenue, net of intermodal fuel surcharge  revenue(1) | ** ** | **103,166** |        | 90,194   |       | 66,163   |       |
| Intermodal fuel surcharge revenue                               | ** ** | **5,913**   |        | 8,719    |       | 3,314    |       |
| Total Logistics revenue                                         | ** ** | **109,079** |        | 98,913   |       | 69,477   |       |
|                                                            | ** ** | ** **  |        |     |       |     |       |
| Total operating revenue                                         | ** ** | **$**       | **505,874** |     | $          | 607,099  |       | $ | 560,017 |   |
|                                                            | ** ** | ** **  |        |     |       |     |       |
| Operating income:                                               | ** ** | ** **  |        |     |       |     |       |
| Truckload                                                       | ** ** | **$**       | **22,827**  |     | $          | 26,055   |       | $ | 22,689 |   |
| Logistics                                                       | ** ** | **6,532**   |        | 6,650    |       | 5,112    |       |
| Total operating income                                          | ** ** | **$**       | **29,359**  |     | $          | 32,705   |       | $ | 27,801 |   |
|                                                            | ** ** | ** **  |        |     |       |     |       |
| Operating ratio(2)                                              | ** ** | ** **  |        |     |       |     |       |
| Truckload                                                       | ** ** | **94.2**    | **%**       | 94.9     | %          | 95.4     | %          |
| Logistics                                                       | ** ** | **94.0**    | **%**       | 93.3     | %          | 92.6     | %          |
| Consolidated operating ratio                                    | ** ** | **94.2**    | **%**       | 94.6     | %          | 95.0     | %          |

 

----

(1)         Logistics revenue is net of $10.2million, $16.8 million and $17.1 million of inter-segment revenue in 2009, 2008and 2007, respectively, for loads transported by our tractors and arranged byMWL that have been eliminated in consolidation.

 

(2)         Represents operating expenses as apercentage of operating revenue.

 

During 2009, more than 99% of our revenue wasgenerated within the United States.  Weearned 20% and 12% of our revenue in 2009 from two single customers whose tradereceivables represented 11% and 16%, respectively, of our trade receivables asof December 31, 2009.  We earned 19%and 10% of our revenue in 2008 from two single customers whose tradereceivables represented 16% and 10%, respectively, of our trade receivables asof December 31, 2008.  We earned 18%of our revenue in 2007 from a single customer.

 

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**MARTENTRANSPORT, LTD.**

 

**Notes toConsolidated Financial Statements (Continued)**

 

**12.          Reclassifications**

 

We adopted the provisions of FASB ASC 810-10-65-1, *Consolidation,* which were effective January 1, 2009regarding the presentation and disclosure of noncontrolling interests inconsolidated financial statements resulting in the followingreclassifications.  The noncontrollinginterest balance of $1.7 million as of December 31, 2008 in ourconsolidated balance sheets, the income before income taxes attributable tononcontrolling interest balances of $1.1 million for 2008 and $802,000 for 2007in our consolidated statements of operations, and the income before incometaxes attributable to noncontrolling interest balances of $1.1 million for 2008and $802,000 for 2007 and the noncontrolling interest distributions balances of$688,000 for 2008 and $432,000 for 2007 in our consolidated statements ofstockholders’ equity and our consolidated statements of cash flows have beenreclassified to be consistent with the current presentation.

 

The changes in insurance and claims accruals balancesof $4.0 million for 2008 and $1.4 million for 2007 and the changes in accruedliabilities balances of $3.0 million for 2008 and $3.1 million for 2007 in ourconsolidated statements of cash flows have also been reclassified to be consistentwith the current presentation.

 

These reclassifications do not have a material effecton our consolidated financial statements.

 

**13. Evaluation of Subsequent Events**

 

As a result of our evaluation through the issuancedate of this Annual Report on Form 10-K, we have determined that no eventsor transactions have occurred subsequent to December 31, 2009 whichrequire recognition or disclosure in the financial statements.

 

**14. Quarterly Financial Data (Unaudited)**

 

The following is a summary of the quarterly results ofoperations for 2009 and 2008:

 
| **2009 Quarters****(In thousands, except per share amounts)** | ** ** | **First** | ** **  | **Second** | ** ** | **Third**   | ** ** | **Fourth** | ** **  |
|---------------------------------------------------------------|------------|-----------|-------------|------------|------------|-------------|------------|------------|-------------|
| Operating revenue                                             | ** ** | **$**     | **121,955** | ** ** | **$**      | **125,804** | ** ** | **$**      | **129,395** | ** ** | **$** | **128,720** | ** ** |
| Operating income                                              | ** ** | **7,251** | ** **  | **7,503**  | ** ** | **6,536**   | ** ** | **8,069**  | ** **  |
| Net income                                                    | ** ** | **4,053** | ** **  | **4,477**  | ** ** | **3,472**   | ** ** | **4,265**  | ** **  |
| Basic earnings per common share                               | ** ** | **0.19**  | ** **  | **0.20**   | ** ** | **0.16**    | ** ** | **0.19**   | ** **  |
| Diluted earnings per common share                             | ** ** | **0.18**  | ** **  | **0.20**   | ** ** | **0.16**    | ** ** | **0.19**   | ** **  |
|                                                               |            |           |             |            |            |             |            |            |             |  |  |  |  |

 
| **2008 Quarters ****(In thousands, except per share amounts)** | ** ** | **First** | ** ** | **Second** | ** ** | **Third** | ** ** | **Fourth** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|-----------|------------|------------|------------|-----------|------------|------------|------------|
| Operating revenue                                                                                 |       | $         | 143,374    |       | $          | 159,994   |       | $          | 163,377    |   | $ | 140,354 |   |
| Operating income                                                                                  |       | 5,482     |       | 6,428      |       | 10,528    |       | 10,267     |       |
| Net income                                                                                        |       | 2,653     |       | 3,469      |       | 6,127     |       | 5,822      |       |
| Basic earnings per common share                                                                   |       | 0.12      |       | 0.16       |       | 0.28      |       | 0.27       |       |
| Diluted earnings per common share                                                                 |       | 0.12      |       | 0.16       |       | 0.28      |       | 0.27       |       |
|                                                                                                   |            |           |            |            |            |           |            |            |            |  |  |  |  |

 

The diluted earnings per common share for 2009 exceedsthe sum of the diluted earnings per common share for the 2009 quarters and thediluted earnings per common share for the 2008 quarters exceeds the dilutedearnings per common share for 2008 due to differences in rounding.

 

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| **ITEM 9.** | ***CHANGES  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE*** |
|-------------|---------------------------------------------------------------------------------------------|

** **

No reports on Form 8-K have been required to befiled within the twenty-four months prior to December 31, 2009, involvinga change of accountants or disagreements on accounting and financialdisclosure.

 
| **ITEM 9A.** | ***CONTROLS  AND PROCEDURES*** |
|--------------|--------------------------------|

 

As required by Rule 13a-15 under the SecuritiesExchange Act of 1934 (“Exchange Act”), we have carried out an evaluation of theeffectiveness of the design and operation of our disclosure controls andprocedures (as defined in Exchange Act Rule 13a-15(e)) as of the end ofthe period covered by this report.  Thisevaluation was carried out under the supervision and with the participation ofour management, including our Chief Executive Officer and our Chief FinancialOfficer.  Based upon that evaluation, ourChief Executive Officer and our Chief Financial Officer concluded that ourdisclosure controls and procedures were effective as of December 31,2009.  There were no changes in ourinternal control over financial reporting that occurred during the periodcovered by this report that have materially affected, or that are reasonablylikely to materially affect, our internal control over financialreporting.  We intend to periodicallyevaluate our disclosure controls and procedures as required by the Exchange ActRules.

 

We have included Management’s Annual Report onInternal Control Over Financial Reporting in Item 8 above.

 
| **ITEM 9B.** | ***OTHER  INFORMATION*** |
|--------------|--------------------------|

 

None.

 

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**PART III**

** **

**ITEM10.**       *DIRECTORS, EXECUTIVE OFFICERS ANDCORPORATE GOVERNANCE*

** **

A.            Directors of the Registrant.

 

The information in the “Election of Directors—InformationAbout Nominees” and “Election of Directors—Other Information About Nominees”sections of our 2010 Proxy Statement is incorporated in this Report byreference.

 

B.            Executive Officers of the Registrant.

 

Information about our executive officers is includedin this Report under Item 4A, “Executive Officers of the Registrant.”

 

C.            Compliance with Section 16(a) ofthe Exchange Act.

 

The information in the “Section 16(a) BeneficialOwnership Reporting Compliance” section of our 2010 Proxy Statement isincorporated in this Report by reference.

 

D.            Procedure for Director Nominations bySecurity Holders.

 

There have been no material changes to the proceduresby which security holders may recommend nominees to our board of directors.

 

E.            Audit Committee Financial Expert.

 

The information in the “Election of Directors—Board andBoard Committees” section of our 2010 Proxy Statement is incorporated in thisReport by reference.

 

F.             Identification of the Audit Committee.

 

The information in the “Election of Directors—Boardand Board Committees” section of our 2010 Proxy Statement is incorporated inthis Report by reference.

 

G.            Code of Ethics for Senior FinancialManagement.

 

Our Code of Ethics for Senior Financial Managementapplies to all of our executive officers, including our principal executiveofficer, principal financial officer and controller, and meets the requirementsof the Securities and Exchange Commission. We have posted our Code of Ethics for Senior Financial Management on ourwebsite at *www.marten.com*.  We intend to disclose any amendments to andany waivers from a provision of our Code of Ethics for Senior FinancialManagement on our website within five business days following such amendment orwaiver.

 

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** **
| **ITEM 11.** | ***EXECUTIVE  COMPENSATION*** |
|--------------|-------------------------------|

 

The information in the “Election of Directors—DirectorCompensation,” “Compensation and Other Benefits” and “Compensation Discussionand Analysis” sections of our 2010 Proxy Statement is incorporated in thisReport by reference.

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

 

The information in the “Security Ownership of CertainBeneficial Owners and Management” and “Compensation and Other Benefits—EquityCompensation Plan Information” sections of our 2010 Proxy Statement isincorporated in this Report by reference.

 
| **ITEM 13.** | ***CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE*** |
|--------------|----------------------------------------------------------------------------------|

** **

The information in the “Related Party Transactions”and “Election of Directors—Board and Board Committees” sections of our 2010Proxy Statement is incorporated in this Report by reference.

 
| **ITEM 14.** | ***PRINCIPAL  ACCOUNTANT FEES AND SERVICES*** |
|--------------|-----------------------------------------------|

** **

The information in the “Fees of Independent Auditors”section of our 2010 Proxy Statement is incorporated in this Report byreference.

 

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**PART IV**

** **

**ITEM15.**                      *EXHIBITS AND FINANCIAL STATEMENTSCHEDULES*

 
| ** ** | ** ** | ** **                                                                                                                                                                             | **Page** |
|------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|
| **(a)**    | **1.**     | **Financial Statements****(See Part II, Item 8 of  this Report):**                                                                                                                |     |
| ** ** | ** ** |                                                                                                                                                                                   |     |
| ** ** | ** ** | Management’s Annual Report on Internal Control Over Financial  Reporting                                                                                                          | 33       |
| ** ** | ** ** |                                                                                                                                                                                   |     |
| ** ** | ** ** | Report of Independent Registered Public Accounting  Firm                                                                                                                               | 34       |
| ** ** | ** ** |                                                                                                                                                                                   |     |
| ** ** | ** ** | Consolidated Balance Sheets as of December 31,  2009 and 2008                                                                                                                     | 35       |
| ** ** | ** ** |                                                                                                                                                                                   |     |
| ** ** | ** ** | Consolidated Statements of Operations for the years  ended December 31, 2009, 2008 and 2007                                                                                       | 36       |
| ** ** | ** ** |                                                                                                                                                                                   |     |
| ** ** | ** ** | Consolidated Statements of Stockholders’ Equity for  the years ended December 31, 2009, 2008 and 2007                                                                        | 37       |
| ** ** | ** ** |                                                                                                                                                                                   |     |
| ** ** | ** ** | Consolidated Statements of Cash Flows for the years  ended December 31, 2009, 2008 and 2007                                                                                       | 38       |
| ** ** | ** ** |                                                                                                                                                                                   |     |
| ** ** | ** ** | Notes to Consolidated Financial Statements                                                                                                                                             | 39       |
| ** ** | ** ** |                                                                                                                                                                                   |     |
| ** ** | **2.**     | **Financial  Statement Schedules****(Consolidated Financial Statement Schedule Included in Part IV  of this Report):**                                                            |     |
| ** ** | ** ** | ** **                                                                                                                                                                             |     |
| ** ** | ** ** | Schedule  II — Valuation and Qualifying Accounts and Reserves                                                                                                                     | 60       |
| ** ** | ** ** |                                                                                                                                                                                   |     |
| ** ** | ** ** | Schedules not  listed above have been omitted as the required information is inapplicable or  the information is presented in the consolidated financial statements or  related notes. |

 

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| ** ** | **3.**     | **Exhibits****:**                                                                                                                                                                                                                                                                                                                          |                                                                                                 |
|------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                                                                                                                                                                                                                                                                 |                                                                                                 |
| ** ** | ** ** | The exhibits to  this Report are listed in the Exhibit Index on pages 61 through  63.  A copy of any of the exhibits  listed will be sent at a reasonable cost to any shareholder as of March 9,  2010.  Requests should be sent to James  J. Hinnendael, Chief Financial Officer, at our corporate headquarters. |
| ** ** | ** ** |                                                                                                                                                                                                                                                                                                                                       |
| ** ** | ** ** | The following is  a list of each management contract or compensatory plan or arrangement  required to be filed as an exhibit to this Report under Item 15(a)(3):                                                                                                                                                                           |
| ** ** | ** ** |                                                                                                                                                                                                                                                                                                                                       |                                                                                                 |
| ** ** | ** ** | (1)                                                                                                                                                                                                                                                                                                                                        | Marten  Transport, Ltd. 1995 Stock Incentive Plan.                                                   |
| ** ** | ** ** |                                                                                                                                                                                                                                                                                                                                       |                                                                                                 |
| ** ** | ** ** | (2)                                                                                                                                                                                                                                                                                                                                        | Marten Transport,  Ltd. 2005 Stock Incentive Plan.                                                   |
| ** ** | ** ** |                                                                                                                                                                                                                                                                                                                                       |                                                                                                 |
| ** ** | ** ** | (3)                                                                                                                                                                                                                                                                                                                                        | Form of  Non-Statutory Stock Option Agreement for the 2005 Stock Incentive Plan.                |
| ** ** | ** ** |                                                                                                                                                                                                                                                                                                                                       |                                                                                                 |
| ** ** | ** ** | (4)                                                                                                                                                                                                                                                                                                                                        | Named Executive  Officers’ Compensation Summary.                                                |
| ** ** | ** ** |                                                                                                                                                                                                                                                                                                                                       |                                                                                                 |
| ** ** | ** ** | (5)                                                                                                                                                                                                                                                                                                                                        | 2010  Non-employee Director Compensation Summary.                                                    |
| ** ** | ** ** |                                                                                                                                                                                                                                                                                                                                       |                                                                                                 |
| ** ** | ** ** | (6)                                                                                                                                                                                                                                                                                                                                        | Form of  Amended and Restated Change in Control Severance Agreement.                            |
| ** ** | ** ** |                                                                                                                                                                                                                                                                                                                                       |                                                                                                 |
| ** ** | ** ** | (7)                                                                                                                                                                                                                                                                                                                                        | Form of  First Amendment to Amended and Restated Change in Control Severance Agreement          |
| ** ** | ** ** |                                                                                                                                                                                                                                                                                                                                       |                                                                                                 |
| ** ** | ** ** | (8)                                                                                                                                                                                                                                                                                                                                        | Form of  Non-employee Director Non-statutory Stock Option Agreement.                            |
| ** ** | ** ** |                                                                                                                                                                                                                                                                                                                                       |                                                                                                 |
| ** ** | ** ** | (9)                                                                                                                                                                                                                                                                                                                                        | Form of  Performance Based Non-Statutory Stock Option Agreement for 2005 Stock  Incentive Plan. |
| ** ** | ** ** |                                                                                                                                                                                                                                                                                                                                       |                                                                                                 |
| ** ** | ** ** | (10)                                                                                                                                                                                                                                                                                                                                       | 2009 Non-Driver  Employee Bonus Plan.                                                                |
|            |            |                                                                                                                                                                                                                                                                                                                                            |                                                                                                      |  |

 

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**SIGNATURES**

 

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

 
| Dated:  March 15, 2010 | MARTEN  TRANSPORT, LTD. |
|-----------------------------|-------------------------|
|                        |                    |
|                        |                    |
|                        | By                      | /s/ Randolph L.  Marten |
|                        |                    | Randolph L.  Marten |
|                        |                    | Chairman of the  Board and  Chief Executive Officer |

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, this Report has been signed below on March 15, 2010,by the following persons on behalf of the Registrant and in the capacitiesindicated.

 
| **Signature**            | ** ** | **Title**                                       |
|--------------------------|------------|-------------------------------------------------|
|                     |       |                                            |
|                     |       |                                            |
| /s/ Randolph L.  Marten  |       | Chairman of the  Board, Chief Executive Officer |
| Randolph L.  Marten      |       | and Director  (Principal Executive Officer)     |
|                     |       |                                            |
|                     |       |                                            |
| /s/ James J.  Hinnendael |       | Chief Financial  Officer                        |
| James J.  Hinnendael     |       | (Principal  Financial and Accounting Officer)   |
|                     |       |                                            |
|                     |       |                                            |
| /s/ Larry B.  Hagness    |       | Director                                        |
| Larry B. Hagness         |       |                                            |
|                     |       |                                            |
|                     |       |                                            |
| /s/ Thomas J.  Winkel    |       | Director                                        |
| Thomas J. Winkel         |       |                                            |
|                     |       |                                            |
|                     |       |                                            |
| /s/ Jerry M.  Bauer      |       | Director                                        |
| Jerry M. Bauer           |       |                                            |
|                     |       |                                            |
|                     |       |                                            |
| /s/ Robert L.  Demorest  |       | Director                                        |
| Robert L.  Demorest      |       |                                            |
|                     |       |                                            |
|                     |       |                                            |
| /s/ G. Larry  Owens      |       | Director                                        |
| G. Larry Owens           |       |                                            |

 

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**SCHEDULE II**

**MARTEN TRANSPORT, LTD.**

** **

**Valuation and Qualifying Accounts and Reserves**

**(In thousands)**

 
| ** **                        | ** ** | **Balance at**   | ** ** | **Charged to** | ** ** | ** **     | ** ** | ** **      | ** ** |
|-----------------------------------|------------|------------------|------------|----------------|------------|----------------|------------|-----------------|------------|
| ** **                        | ** ** | **Beginning of** | ** ** | **Costs and**  | ** ** | ** **     | ** ** | **Balance at**  | ** ** |
| **Description**                   | ** ** | **Year**         | ** ** | **Expenses**   | ** ** | **Deductions** | ** ** | **End of Year** | ** ** |
| Insurance and claims accruals:    |       |             |       |           |       |           |       |            |       |
| Year ended December 31, 2009 |       | $                | 21,386     |           | $          | 28,695         |       | $               | (30,859    | )(1) | $ | 19,222 |   |
| Year ended December 31, 2008 |       | 17,431           |       | 37,271         |       | (33,316        | )(1)       | 21,386          |       |
| Year ended December 31, 2007 |       | 16,073           |       | 30,865         |       | (29,507        | )(1)       | 17,431          |       |
|                              |       |             |       |           |       |           |       |            |       |
|                              |       |             |       |           |       |           |       |            |       |
| Allowance for doubtful accounts:  |       |             |       |           |       |           |       |            |       |
| Year ended December 31, 2009 |       | 380              |       | 30             |       | (165           | )(3)       | 245             |       |
| Year ended December 31, 2008 |       | 315              |       | 78             |       | (13            | )(3)       | 380             |       |
| Year ended December 31, 2007 |       | 861              |       | (534           | )(2)       | (12            | )(3)       | 315             |       |
|                                   |            |                  |            |                |            |                |            |                 |            |  |  |  |  |

 

----

(1)           Claims payments

(2)           Revision of estimate

(3)           Write-off of baddebts, net of recoveries

 

See report of independent registered public accountingfirm.

 

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**MARTEN TRANSPORT, LTD.**

**EXHIBIT INDEX TO ANNUAL REPORT**

**ON FORM 10-K**

**For the Year Ended December 31, 2009**

 
| **Item No.** | ** ** | **Item**                                                                                                                                     | ** ** | **Filing Method**                                                                                                                                                                  |
|--------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **   | ** ** | ** **                                                                                                                                   | ** ** | ** **                                                                                                                                                                         |
| 3.1          |       | Amended and  Restated Certificate of Incorporation effective August 11, 2003                                                            |       | Incorporated by  reference to Exhibit 4.1 of the Company’s Amendment No. 2 to  Registration Statement on Form S-2 (File No. 33-107367).                   |
|         |       |                                                                                                                                         |       |                                                                                                                                                                               |
| 3.2          |       | Amendment to  Amended and Restated Certificate of Incorporation effective May 25, 2005                                                  |       | Incorporated by  reference to Exhibit 3.3 of the Company’s Quarterly Report on  Form 10-Q for the quarter ended June 30, 2005 (File  No. 0-15010).        |
|         |       |                                                                                                                                         |       |                                                                                                                                                                               |
| 3.3          |       | Bylaws of the  Company, as amended                                                                                                           |       | Incorporated by  reference to Exhibit 3.3 of the Company’s Annual Report on  Form 10-K for the fiscal year ended December 31, 2007 (File  No. 0-15010).   |
|         |       |                                                                                                                                         |       |                                                                                                                                                                               |
| 4.1          |       | Specimen form of  the Company’s Common Stock Certificate                                                                                |       | Incorporated by  reference to Exhibit 4.1 of the Company’s Registration Statement on  Form S-1 (File No. 33-8108).                                             |
|         |       |                                                                                                                                         |       |                                                                                                                                                                               |
| 4.2          |       | Amended and  Restated Certificate of Incorporation effective August 11, 2003                                                            |       | See  Exhibit 3.1 above.                                                                                                                                                       |
|         |       |                                                                                                                                         |       |                                                                                                                                                                               |
| 4.3          |       | Amendment to  Amended and Restated Certificate of Incorporation effective May 25, 2005                                                  |       | See  Exhibit 3.2 above.                                                                                                                                                       |
|         |       |                                                                                                                                         |       |                                                                                                                                                                               |
| 4.4          |       | Bylaws of the  Company                                                                                                                       |       | See  Exhibit 3.3 above.                                                                                                                                                       |
|         |       |                                                                                                                                         |       |                                                                                                                                                                               |
| 10.1         |       | Marten  Transport, Ltd. 1995 Stock Incentive Plan                                                                                            |       | Incorporated by  reference to Exhibit 10.18 of the Company’s Annual Report on  Form 10-K for the year ended December 31, 1994 (File  No. 0-15010).        |
|         |       |                                                                                                                                         |       |                                                                                                                                                                               |
| 10.2         |       | Note Purchase  and Private Shelf Agreement dated October 30, 1998, between the Company  and The Prudential Insurance Company of America |       | Incorporated by  reference to Exhibit 10.12 of the Company’s Quarterly Report on  Form 10-Q for the quarter ended September 30, 1998 (File  No. 0-15010). |
|         |       |                                                                                                                                         |       |                                                                                                                                                                               |
| 10.3         |       | Note Purchase  Agreement, dated April 6, 2000, between the Company and The Prudential  Insurance Company of America                     |       | Incorporated by  reference to Exhibit 10.19 of the Company’s Quarterly Report on  Form 10-Q for the quarter ended March 31, 2000 (File  No. 0-15010).     |
|         |       |                                                                                                                                         |       |                                                                                                                                                                               |
| 10.4         |       | Marten  Transport, Ltd. 2005 Stock Incentive Plan                                                                                            |       | Incorporated by  reference to Exhibit 10.18 of the Company’s Quarterly Report on  Form 10-Q for the quarter ended June 30, 2005 (File  No. 0-15010).      |

 

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| **Item No.** | ** ** | **Item**                                                                                                                                                                                                                            | ** ** | **Filing Method**                                                                                                                                                             |
|--------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         |       |                                                                                                                                                                                                                                |       |                                                                                                                                                                          |
| 10.5         |       | Form of  Non-Statutory Stock Option Agreement for the 2005 Stock Incentive Plan                                                                                                                                                |       | Incorporated by  reference to Exhibit 10.1 of the Company’s Current Report on  Form 8-K filed January 31, 2006.                                           |
|         |       |                                                                                                                                                                                                                                |       |                                                                                                                                                                          |
| 10.6         |       | Form of  Non-employee Director Non-statutory Stock Option Agreement                                                                                                                                                            |       | Incorporated by  reference to Exhibit 10.26 of the Company’s Quarterly Report on  Form 10-Q for the quarter ended June 30, 2006 (File  No. 0-15010). |
|         |       |                                                                                                                                                                                                                                |       |                                                                                                                                                                          |
| 10.7         |       | Credit  Agreement, dated as of August 31, 2006, 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 September 6, 2006.                                          |
|         |       |                                                                                                                                                                                                                                |       |                                                                                                                                                                          |
| 10.8         |       | First Amendment  to Credit Agreement, effective as of January 1, 2007, 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 January 5, 2007.                                            |
|         |       |                                                                                                                                                                                                                                |       |                                                                                                                                                                          |
| 10.9         |       | Form of  Performance Based Non-Statutory Stock Option Agreement for 2005 Stock  Incentive Plan                                                                                                                                 |       | Incorporated by  reference to Exhibit 10.2 of the Company’s Current Report on  Form 8-K filed February 16, 2007.                                          |
|         |       |                                                                                                                                                                                                                                |       |                                                                                                                                                                          |
| 10.10        |       | Form of  Amended and Restated Change in Control Severance Agreement                                                                                                                                                            |       | Incorporated by  reference to Exhibit 10.1 of the Company’s Current Report on  Form 8-K filed August 15, 2007.                                            |
|         |       |                                                                                                                                                                                                                                |       |                                                                                                                                                                          |
| 10.11        |       | Second Amendment  to Credit Agreement, effective as of November 30, 2007, 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 10.14 of the Company’s Annual Report on  Form 10-K for the year ended December 31, 2007 (File  No. 0-15010).   |
|         |       |                                                                                                                                                                                                                                |       |                                                                                                                                                                          |
| 10.12        |       | Named Executive  Officers’ Compensation Summary                                                                                                                                                                                |       | Incorporated by  reference to Exhibit 10.17 of the Company’s Quarterly Report on  Form 10-Q for the quarter ended June 30, 2008 (File  No. 0-15010). |
|         |       |                                                                                                                                                                                                                                |       |                                                                                                                                                                          |
| 10.13        |       | Form of  First Amendment to Amended and Restated Change in Control Severance Agreement                                                                                                                                         |       | Incorporated by  reference to Exhibit 10.18 of the Company’s Annual Report on  Form 10-K for the year ended December 31, 2008 (File  No. 0-15010).   |
|         |       |                                                                                                                                                                                                                                |       |                                                                                                                                                                          |
| 10.14        |       | 2009 Non-Driver  Employee Bonus Plan                                                                                                                                                                                                |       | Incorporated by  reference to Exhibit 10.19 of the Company’s Annual Report on  Form 10-K for the year ended December 31, 2008 (File  No. 0-15010).   |
|         |       |                                                                                                                                                                                                                                |       |                                                                                                                                                                          |
| 10.15        |       | 2010  Non-employee Director Compensation Summary                                                                                                                                                                                    |       | Filed with this  Report.                                                                                                                                                      |

 

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| **Item No.** | ** ** | **Item**                                                                                                                                                                                                                                       | ** ** | **Filing Method**                                                                                                                    |
|--------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------|
|         |       |                                                                                                                                                                                                                                           |       |                                                                                                                                 |
| 10.16        |       | Form of  Indemnification Agreement                                                                                                                                                                                                        |       | Incorporated by  reference to Exhibit 10.1 of the Company’s Current Report on  Form 8-K filed February 22, 2010. |
|         |       |                                                                                                                                                                                                                                           |       |                                                                                                                                 |
| 23.1         |       | Consent of KPMG  LLP                                                                                                                                                                                                                           |       | Filed with this  Report.                                                                                                             |
|         |       |                                                                                                                                                                                                                                           |       |                                                                                                                                 |
| 31.1         |       | Certification  pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002, by Randolph L. Marten,  the Registrant’s Chief Executive Officer (Principal Executive Officer)  |       | Filed with this  Report.                                                                                                             |
|         |       |                                                                                                                                                                                                                                           |       |                                                                                                                                 |
| 31.2         |       | Certification  pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002, by James J. Hinnendael,  the Registrant’s Chief Financial Officer (Principal Financial Officer) |       | Filed with this  Report.                                                                                                             |
|         |       |                                                                                                                                                                                                                                           |       |                                                                                                                                 |
| 32.1         |       | Certification  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                             |       | Filed with this  Report.                                                                                                             |

 

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