UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934

For the Quarter ended September 30, 2007

Commission File Number 0-15010

MARTEN TRANSPORT, LTD.

(Exact name of registrant as specified in its charter)

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

129 Marten Street, Mondovi, Wisconsin 54755
(Address of principal executive offices)

715-926-4216
(Registrant’s telephone number)

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

Yes x No o

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

Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b-2).

Yes o No x

The number of shares outstanding of the Registrant’s Common Stock, par value $.01 per share, was 21,811,837 as of November 6, 2007.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

MARTEN TRANSPORT, LTD.

CONSOLIDATED CONDENSED BALANCE SHEETS

(Unaudited)

	September 30,			December 31,
(In thousands, except share information)	2007			2006

ASSETS
Current assets:
Cash	$	3,690		$	2,988
Marketable securities	300			300
Receivables:
Trade, net	59,967			48,005
Other	5,663			6,458
Prepaid expenses and other	11,468			14,227
Deferred income taxes	5,492			4,532

Total current assets	86,580			76,510

Property and equipment:
Revenue equipment, buildings and land, office equipment and other	452,106			428,729
Accumulated depreciation	(118,886		)	(98,841		)

Net property and equipment	333,220			329,888

Other assets	2,672			4,424

TOTAL ASSETS	$	422,472		$	410,822

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Checks issued in excess of cash balances	$	544		$	804
Accounts payable and accrued liabilities	36,752			37,545
Insurance and claims accruals	17,061			16,073
Current maturities of long-term debt	5,000			5,000

Total current liabilities	59,357			59,422

Long-term debt, less current maturities	51,986			53,659
Deferred income taxes	75,945			75,835

Total liabilities	187,288			188,916

Minority interest	1,301			913

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; 21,811,837 shares at September 30, 2007, and 21,764,773 shares at December 31, 2006, issued and outstanding	218			218
Additional paid-in capital	74,488			73,601
Retained earnings	159,177			147,174

Total stockholders’ equity	233,883			220,993

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	422,472		$	410,822

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

MARTEN TRANSPORT, LTD.

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months						Nine Months
	Ended September 30,						Ended September 30,
(In thousands, except per share information)	2007			2006			2007			2006

OPERATING REVENUE	$	144,969		$	135,812		$	415,206		$	387,229

OPERATING EXPENSES (INCOME):
Salaries, wages and benefits	38,808			36,216			115,786			106,455
Purchased transportation	27,891			22,051			74,390			62,931
Fuel and fuel taxes	39,586			37,744			109,524			102,678
Supplies and maintenance	10,448			8,386			28,364			24,392
Depreciation	11,867			11,257			35,317			32,823
Operating taxes and licenses	1,736			1,884			5,161			5,535
Insurance and claims	5,946			4,630			16,792			14,602
Communications and utilities	938			962			2,848			2,700
Gain on disposition of revenue equipment	(435		)	(1,983		)	(2,883		)	(5,723		)
Other	2,488			2,952			7,780			8,322

Total operating expenses	139,273			124,099			393,079			354,715

OPERATING INCOME	5,696			11,713			22,127			32,514

OTHER EXPENSES (INCOME):
Interest expense	943			928			3,064			2,683
Interest income and other	(186		)	(260		)	(531		)	(861		)
Minority interest	301			261			530			611
	1,058			929			3,063			2,433

INCOME BEFORE INCOME TAXES	4,638			10,784			19,064			30,081

PROVISION FOR INCOME TAXES	1,573			4,048			7,061			10,752

NET INCOME	$	3,065		$	6,736		$	12,003		$	19,329

BASIC EARNINGS PER COMMON SHARE	$	0.14		$	0.31		$	0.55		$	0.89

DILUTED EARNINGS PER COMMON SHARE	$	0.14		$	0.31		$	0.55		$	0.88

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

MARTEN TRANSPORT, LTD.

CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

								Total
				Additional				Stock-
	Common Stock			Paid-In		Retained		holders’
(In thousands)	Shares	Amount		Capital		Earnings		Equity

Balance at December 31, 2005	21,573	$	216	$	71,045	$	122,656	$	193,917
Net income	—	—		—		19,329		19,329
Issuance of common stock from share-based payment arrangement exercises	184	2		759		—		761
Tax benefits from share-based payment arrangement exercises	—	—		1,265		—		1,265
Share-based payment arrangement compensation expense	—	—		354		—		354
Balance at September 30, 2006	21,757	218		73,423		141,985		215,626
Net income	—	—		—		5,189		5,189
Issuance of common stock from share-based payment arrangement exercises	8	—		52		—		52
Tax benefits from share-based payment arrangement exercises	—	—		33		—		33
Share-based payment arrangement compensation expense	—	—		93		—		93
Balance at December 31, 2006	21,765	218		73,601		147,174		220,993
Net income	—	—		—		12,003		12,003
Issuance of common stock from share-based payment arrangement exercises	47	—		303		—		303
Tax benefits from share-based payment arrangement exercises	—	—		205		—		205
Share-based payment arrangement compensation expense	—	—		379		—		379
Balance at September 30, 2007	21,812	$	218	$	74,488	$	159,177	$	233,883

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

MARTEN TRANSPORT, LTD.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months
	Ended September 30,
(In thousands)	2007			2006
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Operations:
Net income	$	12,003		$	19,329
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation	35,317			32,823
Gain on disposition of revenue equipment	(2,883		)	(5,723		)
Deferred tax provision	(850		)	7,298
Tax benefits from share-based payment arrangement exercises	205			1,265
Excess tax benefits from share-based payment arrangement exercises	(166		)	(1,131		)
Share-based payment arrangement compensation expense	379			354
Minority interest in undistributed earnings of affiliate	388			473
Changes in other current operating items	8			(9,871		)
Net cash provided by operating activities	44,401			44,817

CASH FLOWS USED FOR INVESTING ACTIVITIES:
Revenue equipment additions	(62,718		)	(85,654		)
Proceeds from revenue equipment dispositions	20,282			29,556
Buildings and land, office equipment and other additions	(2,160		)	(962		)
Proceeds from buildings and land, office equipment and other dispositions	609			—
Net change in other assets	1,752			1,693
Purchases of marketable securities	—			(1,803		)
Sales of marketable securities	—			1,690
Net cash used for investing activities	(42,235		)	(55,480		)

CASH FLOWS (USED FOR) PROVIDED BY FINANCING ACTIVITIES:
Borrowings under credit facility and long-term debt	102,491			97,198
Repayment of borrowings under credit facility and long-term debt	(104,164		)	(85,716		)
Issuance of common stock from share-based payment arrangement exercises	303			761
Excess tax benefits from share-based payment arrangement exercises	166			1,131
Change in checks issued in excess of cash balances	(260		)	(1,180		)
Net cash (used for) provided by financing activities	(1,464		)	12,194

NET CHANGE IN CASH	702			1,531

CASH:
Beginning of period	2,988			1,080

End of period	$	3,690		$	2,611

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest	$	3,097		$	2,738
Income taxes	$	5,688		$	995
Non-cash investing activities:
Change in revenue equipment not yet paid for	$	(8,221	)	$	—

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

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2007

(Unaudited)

(1) Basis of Presentation

The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial statements, and therefore do not include all information and disclosures required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, such statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary to fairly present our consolidated financial condition, results of operations and cash flows for the interim periods presented. The results of operations for any interim period do not necessarily indicate the results for the full year. The unaudited interim consolidated financial statements should be read with reference to the consolidated financial statements and notes to consolidated financial statements in our 2006 Annual Report on Form 10-K.

The accompanying unaudited consolidated condensed financial statements include the accounts of Marten Transport, Ltd. and its 45% owned affiliate, MW Logistics, LLC (MWL). MWL is a third-party provider of logistics services to the transportation industry. We have applied the provisions of FASB Interpretation No. 46, “Consolidation of Variable Interest Entities,” as revised, to our investment in MWL. All material intercompany accounts and transactions have been eliminated in consolidation.

We adopted the provisions of Financial Accounting Standards Board, or FASB, Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (FIN 48), on January 1, 2007. The implementation of FIN 48 did not have a significant impact on our results of operations or financial position. Our reserves for uncertain tax positions were $18,000 as of September 30, 2007.

(2) Accounting for Share-based Payment Arrangement Compensation

We account for share-based payment arrangements in accordance with Statement of Financial Accounting Standards No. 123R, “Share-Based Payment” as interpreted by SEC Staff Accounting Bulletin No. 107. During the three-month and nine-month periods ended September 30, 2007, there was no significant activity with our share-based payment arrangements. Total share-based compensation expense recorded in the three-month and nine-month periods ended September 30, 2007 was $97,000 ($68,000 net of income tax benefit) and $379,000 ($264,000 net of income tax benefit), respectively. Total share-based compensation expense recorded in the three-month and nine-month periods ended September 30, 2006 was $94,000 ($68,000 net of income tax benefit) and $355,000 ($251,000 net of income tax benefit), respectively. See Note 9 to our consolidated financial statements in our 2006 Annual Report on Form 10-K for a detailed description of stock-based awards under our 2005 Stock Incentive Plan and 1995 Stock Incentive Plan.

(3) Earnings Per Common Share

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

	Three Months				Nine Months
	Ended September 30,				Ended September 30,
(In thousands, except per share amounts)	2007		2006		2007		2006
Numerator:
Net income	$	3,065	$	6,736	$	12,003	$	19,329
Denominator:
Basic earnings per common share - weighted-average shares	21,812		21,756		21,789		21,726
Effect of dilutive stock options	156		190		174		229
Diluted earnings per common share - weighted-average shares and assumed conversions	21,968		21,946		21,963		21,955
Basic earnings per common share	$	0.14	$	0.31	$	0.55	$	0.89
Diluted earnings per common share	$	0.14	$	0.31	$	0.55	$	0.88

Options totaling 280,000 and 226,000 shares were outstanding but were not included in the calculation of diluted earnings per share for the three-month and nine-month periods ended September 30, 2007 and September 30, 2006, respectively, because their exercise prices were greater than the average market price of the common shares and, therefore, including the options in the denominator would be antidilutive, or decrease the number of weighted-average shares. The 280,000 and 226,000 shares above include 90,000 and 78,000 shares, respectively, of performance-based option awards for which the performance condition was not considered probable of achievement.

(4) Income Taxes

Our effective income tax rate decreased to 33.9% for the three months ended September 30, 2007 from 37.5% for the three months ended September 30, 2006, primarily because we decreased our deferred income tax liability by $205,000, or 4.4% of income before income taxes in 2007. This decrease was primarily due to state income tax law changes and a change in income apportionment for several states which produced a lower effective state income tax rate, net of federal impact.

(5) Business Segments

Beginning with fiscal 2007, our presentation includes two reportable segments — Truckload and Logistics. Information for prior periods has been shown in the same two segments for comparison purposes. The primary source of our operating revenue is truckload revenue, which we generate by transporting freight for our customers and report within our Truckload segment. Generally, we are paid by the mile for our services. We also derive truckload revenue from fuel surcharges, loading and unloading activities, equipment detention and other ancillary services.

Our operating revenue also includes revenue reported within our Logistics segment, which consists of revenue from our internal brokerage and intermodal operations initiated in 2005, and from revenue associated with our 45% interest in MWL, a third-party provider of logistics services to the transportation industry. Brokerage services involve arranging for another company to transport freight for our customers while we retain the billing, collection and customer management responsibilities. Intermodal services involve the movement of our trailers on railroad flatcars for a portion of each load, with the balance of each load transported by our tractors or, to a lesser extent, by contracted carriers.

The following table sets forth for the periods indicated our operating revenue, operating income and operating ratio by segment. The table below presents truckload and logistics revenue, net of fuel surcharges. We provide this additional disclosure because management believes removing fuel surcharge revenue provides a more consistent basis for comparing results of operations from period to period. This financial measure in the table below has not been determined in accordance with U.S. generally accepted accounting principles (GAAP). Pursuant to Item 10(e) of Regulation S-K, we have included a reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure, operating revenue. We evaluate the performance of our business segments based on operating income and operating ratio. We do not prepare separate balance sheets by segment and, as a result, assets are not separately identifiable by segment.

	Three Months						Nine Months
	Ended September 30,						Ended September 30,
(Dollars in thousands)	2007			2006			2007			2006
Operating revenue:
Truckload revenue, net of fuel surcharge revenue	$	103,831		$	101,940		$	308,462		$	300,836
Truckload fuel surcharge revenue	21,666			21,847			58,893			58,055
Total Truckload revenue	125,497			123,787			367,355			358,891

Logistics revenue, net of intermodal fuel surcharge revenue(1)	18,580			11,334			45,680			26,936
Intermodal fuel surcharge revenue	892			691			2,171			1,402
Total Logistics revenue	19,472			12,025			47,851			28,338

Total operating revenue	$	144,969		$	135,812		$	415,206		$	387,229

Operating income:
Truckload	$	4,108		$	10,493		$	18,520		$	29,836
Logistics	1,588			1,220			3,607			2,678
Total operating income	$	5,696		$	11,713		$	22,127		$	32,514

Operating ratio(2):
Truckload	96.7		%	91.5		%	95.0		%	91.7		%
Logistics	91.8			89.9			92.5			90.5
Consolidated operating ratio	96.1		%	91.4		%	94.7		%	91.6		%

(1) Logistics revenue is net of $5.0 million and $12.0 million of inter-segment revenue in the three-month and nine-month periods ended September 30, 2007, respectively, for loads transported by our tractors and arranged by MWL that have been eliminated in consolidation. Inter-segment revenue was $4.9 million and $13.0 million for the three-month and nine-month periods ended September 30, 2006.

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

(6) Reclassifications

The tax benefits from share-based payment arrangement exercises in our 2006 consolidated condensed statement of cash flows have been reclassified to be consistent with the 2007 presentation. This reclassification does not have a material effect on our consolidated condensed financial statements and has no effect on our cash flows provided by operating or financing activities.

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

The following discussion and analysis of our financial condition and results of operations should be read together with the selected consolidated financial data and our consolidated condensed financial statements and the related notes appearing elsewhere in this report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those included in our Form 10-K, Part 1, Item 1A for the year ended December 31, 2006, as supplemented by Item 1A to Part II of this report. We do not assume, and specifically disclaim, any obligation to update any forward-looking statement contained in this report.

Overview

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

In the first nine months of 2007, we increased our operating revenue by $28.0 million, or 7.2%. Our operating revenue, net of fuel surcharges, increased $26.4 million, or 8.0%, compared with the first nine months of 2006. Our average truckload revenue, net of fuel surcharges, per tractor per week increased 0.2%, due to a 0.4% increase in average truckload revenue, net of fuel surcharges, per total mile partially offset by a 0.2% decrease in average miles per tractor. We were able to increase our truckload revenue by increasing the size of our fleet and our business with existing and new customers. The slight improvement in tractor productivity was more than offset by an increase in our overall cost structure, which resulted in decreased profitability from the first nine months of 2006. Due to a challenging freight environment, we were not able to increase freight rates to cover higher costs. Our logistics revenue, which represented 11.5% of our operating revenue in the first nine months of 2007, increased $19.5 million, or 68.9%, compared with the first nine months of 2006 primarily due to continued volume growth in each of our internal brokerage and intermodal services and in the logistics services provided by MWL.

Our profitability on the expense side is impacted by variable costs of transporting freight for our customers, fixed costs and expenses containing both fixed and variable components. The variable costs include fuel expense, driver-related expenses, such as wages, benefits, training, and recruitment, and independent contractor costs, which are recorded under purchased transportation. Expenses that have both fixed and variable components include maintenance and tire expense and our total cost of insurance and claims. These expenses generally vary with the miles we travel, but also have a controllable component based on safety, fleet age, efficiency and other factors. Our main fixed costs relate to the acquisition and financing of long-term assets, such as revenue equipment and operating terminals. Although certain factors affecting our expenses are beyond our control, we monitor them closely and attempt to anticipate changes in these factors in managing our business. For example, fuel prices have fluctuated dramatically and quickly at various times during the last several years. We manage our exposure to changes in fuel prices primarily through fuel surcharge programs with our customers, as well as volume fuel purchasing arrangements with national fuel centers and bulk purchases of fuel at our terminals. In order to control increases in insurance premiums, we have increased our self-insured retention levels periodically during the last several years. We are responsible for the first $1.0 million on each auto liability claim and up to $1.0 million in the aggregate for all auto liability claims between $1.0 million and $2.0 million. We are also responsible for the first $750,000 on each workers’ compensation claim.

Our operating expenses as a percentage of operating revenue, or “operating ratio,” was 94.7% in the first nine months of 2007 compared with 91.6% in the first nine months of 2006. Our earnings per diluted share decreased to $0.55 in the first nine months of 2007 from $0.88 in the first nine months of 2006.

Our business requires substantial, ongoing capital investments, particularly for new tractors and trailers. At September 30, 2007, we had approximately $57.0 million of long-term debt, including current maturities, and $233.9 million in stockholders’ equity. In the first nine months of 2007, we added approximately $34.2 million of new revenue equipment, net of proceeds from dispositions, and recognized a gain of $2.9 million on the disposition of used equipment. We also decreased our accounts payable and accrued liabilities relating to revenue equipment by $8.2 million during the first nine months of 2007. These capital expenditures were primarily funded with cash flows from operations and borrowings under our revolving credit facility. We estimate that capital expenditures, net of proceeds from dispositions, will be approximately $5 million for the remainder of 2007, primarily for new revenue equipment. Based on our current operating performance, the market for used tractors, our liquidity and our expectations concerning tractors manufactured in 2007, we decided to accelerate our tractor fleet replacement during the last two years to allow us greater flexibility in our decisions to purchase tractors manufactured in 2007 now that the current round of diesel emissions reduction directives of the EPA has gone into effect. This acceleration of our tractor fleet replacement has not impacted the useful lives of our tractors or caused impairment to the carrying amount reflected in our consolidated balance sheet.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes discussions of truckload and logistics revenue, net of fuel surcharges. We provide this additional disclosure because management believes removing fuel surcharge revenue provides a more consistent basis for comparing results of operations from period to period. This financial measure in this quarterly report has not been determined in accordance with U.S. generally accepted accounting principles (GAAP). Pursuant to Item 10(e) of Regulation S-K, we have included a reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure, operating revenue.

Results of Operations

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2007		2006		2007		2006

Truckload Segment:
Average truckload revenue, net of fuel surcharges, per total mile	$	1.482	$	1.492	$	1.477	$	1.471
Average miles per tractor(1)	27,874		27,468		81,956		82,099
Average truckload revenue, net of fuel surcharges, per tractor per week(1)	$	3,142	$	3,118	$	3,103	$	3,096
Average tractors (1)	2,514		2,488		2,549		2,491
Total miles – company-employed drivers (in thousands)	58,188		56,303		173,717		165,763
Total miles – independent contractors (in thousands)	11,891		12,029		35,188		38,771

Logistics Segment:
Brokerage:
Revenue (in thousands)	$	13,887	$	7,988	$	33,312	$	19,682
Loads	7,253		4,461		17,658		11,586
Intermodal:
Revenue (in thousands)	$	5,585	$	4,037	$	14,539	$	8,656
Loads	1,848		1,253		4,762		2,784
Average tractors	34		23		28		18

(1) Includes tractors driven by both company-employed drivers and independent contractors. Independent contractors provided 358 and 366 tractors as of September 30, 2007, and 2006, respectively.

Comparison of Three Months Ended September 30, 2007 to Three Months Ended September 30, 2006

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

							Dollar			Percentage
							Change			Change
	Three Months						Three Months			Three Months
	Ended						Ended			Ended
	September 30,						September 30,			September 30,
(Dollars in thousands)	2007			2006			2007 vs. 2006			2007 vs. 2006
Operating revenue:
Truckload revenue, net of fuel surcharge revenue	$	103,831		$	101,940		$	1,891		1.9	%
Truckload fuel surcharge revenue	21,666			21,847			(181		)	(0.8	)
Total Truckload revenue	125,497			123,787			1,710			1.4

Logistics revenue, net of intermodal fuel surcharge revenue(1)	18,580			11,334			7,246			63.9
Intermodal fuel surcharge revenue	892			691			201			29.1
Total Logistics revenue	19,472			12,025			7,447			61.9

Total operating revenue	$	144,969		$	135,812		$	9,157		6.7	%

Operating income:
Truckload	$	4,108		$	10,493		$	(6,385	)	(60.9	)%
Logistics	1,588			1,220			368			30.2
Total operating income	$	5,696		$	11,713		$	(6,017	)	(51.4	)%

Operating ratio(2):
Truckload	96.7		%	91.5		%				(5.7	)%
Logistics	91.8			89.9						(2.1	)
Consolidated operating ratio	96.1		%	91.4		%				(5.1	)%

(1) Logistics revenue is net of $5.0 million and $4.9 million of inter-segment revenue in the 2007 and 2006 periods, respectively, for loads transported by our tractors and arranged by MWL that have been eliminated in consolidation.

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

Our operating revenue increased $9.2 million, or 6.7%, to $145.0 million in the 2007 period from $135.8 million in the 2006 period. Our operating revenue, net of fuel surcharges, increased $9.1 million, or 8.1%, to $122.4 million in the 2007 period from $113.3 million in the 2006 period.

Truckload segment revenue increased $1.7 million, or 1.4%, to $125.5 million in the 2007 period from $123.8 million in the 2006 period. Truckload segment revenue, net of fuel surcharges, increased 1.9%. We were able to increase our truckload revenue by increasing the size of our fleet and our business with existing and new customers, despite a decrease in average revenue per total mile within a more challenging freight environment during the 2007 period. Our average truckload revenue, net of fuel surcharges, per tractor per week increased 0.8% in the 2007 period from the 2006 period, due to a 1.5% increase in average miles per tractor partially offset by a 0.7% decrease in average truckload revenue, net of fuel surcharges, per total mile. Our weighted average number of tractors increased 1.0% in the 2007 period from the 2006 period. The slight improvement in tractor productivity was more than offset by an increase in our overall cost structure, which resulted in decreased profitability from the 2006 period. Due to a challenging freight environment, we were not able to increase freight rates to cover higher costs.

Logistics segment revenue increased $7.4 million, or 61.9%, to $19.5 million in the 2007 period from $12.0 million in the 2006 period. Logistics segment revenue, net of intermodal fuel surcharges, increased 63.9%. The increase in logistics revenue primarily resulted from continued volume growth in each of our internal brokerage and intermodal services and in the logistics services provided by MWL. The increase in the operating ratio for our Logistics segment in the 2007 period was primarily due to an increase as a percentage of logistics revenue of the payments to carriers for transportation services which we arranged.

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

	Dollar			Percentage		Percentage of
	Change			Change		Operating Revenue
	Three Months			Three Months		Three Months
	Ended			Ended		Ended
	September 30,			September 30,		September 30,
(Dollars in thousands)	2007 vs. 2006			2007 vs. 2006		2007		2006

Operating revenue	$	9,157		6.7	%	100.0	%	100.0	%
Operating expenses (income):
Salaries, wages and benefits	2,592			7.2		26.8		26.7
Purchased transportation	5,840			26.5		19.2		16.2
Fuel and fuel taxes	1,842			4.9		27.3		27.8
Supplies and maintenance	2,062			24.6		7.2		6.2
Depreciation	610			5.4		8.2		8.3
Operating taxes and licenses	(148		)	(7.9	)	1.2		1.4
Insurance and claims	1,316			28.4		4.1		3.4
Communications and utilities	(24		)	(2.5	)	0.6		0.7
Gain on disposition of revenue equipment	1,548			78.1		(0.3	)	(1.5	)
Other	(464		)	(15.7	)	1.7		2.2
Total operating expenses	15,174			12.2		96.1		91.4
Operating income	(6,017		)	(51.4	)	3.9		8.6
Other expenses (income):
Interest expense	15			1.6		0.7		0.7
Interest income and other	74			28.5		(0.1	)	(0.2	)
Minority interest	40			15.3		0.2		0.2
	129			13.9		0.7		0.7
Income before income taxes	(6,146		)	(57.0	)	3.2		7.9
Provision for income taxes	(2,475		)	(61.1	)	1.1		3.0
Net income	$	(3,671	)	(54.5	)%	2.1	%	5.0	%

Salaries, wages and benefits consist of compensation for our employees, including both driver and non-driver employees, employees’ health insurance, 401(k) plan contributions and other fringe benefits. These expenses vary depending upon the ratio of company drivers to independent contractors, our efficiency, our experience with employees’ health insurance claims, changes in health care premiums and other factors. The increase in salaries, wages and benefits resulted primarily from a 3.3% increase in the miles driven by company drivers. Additionally, higher self-insured medical claims increased our employees’ health insurance expense by $510,000 in the 2007 period.

Purchased transportation consists of payments to independent contractor providers of revenue equipment and to carriers for transportation services we arrange in connection with brokerage and intermodal activities. This category will vary depending upon the ratio of company drivers versus independent contractors, the amount of fuel surcharges passed through to independent contractors and the amount and rates we pay to third-party railroad and motor carriers. Purchased transportation expense increased $5.8 million in total, or 26.5%, in the 2007 period from the 2006 period. Payments to carriers for transportation services we arranged in our

brokerage and intermodal operations increased $6.2 million to $14.7 million in the 2007 period from $8.6 million in the 2006 period, as our Logistics operations significantly increased in size compared with the 2006 period. The portion of purchased transportation expense related to our independent contractors, including fuel surcharges, decreased $323,000 in the 2007 period, primarily due to a decrease in the number of independent contractor-owned tractors in our fleet.

Fuel and fuel taxes, which we refer to as fuel expense, net of fuel surcharge revenue, increased $1.8 million, or 12.0%, to $17.0 million in the 2007 period from $15.2 million in the 2006 period. The increase was primarily due to a 3.3% increase in miles driven by our company-owned fleet and an increase in the average cost of fuel during the 2007 period to $2.83 per gallon from $2.79 per gallon in the 2006 period. We have fuel surcharge provisions in substantially all of our transportation contracts and attempt to recover a portion of increasing fuel prices through fuel surcharges and higher rates. We have also installed auxiliary power units in a number of our tractors, which we expect will decrease our fuel expense as drivers begin to use auxiliary power units, rather than idling tractor engines, for heat, air conditioning and electrical power.

Supplies and maintenance consist of repairs, maintenance, tires, parts, oil and engine fluids, along with load-specific expenses including loading/unloading, tolls, pallets and trailer hostling. The increase in supplies and maintenance in the 2007 period primarily resulted from our larger fleet, the higher percentage of company-owned tractors in our fleet, for which we bear all maintenance expenses, and an increase in the average age of our tractor and trailer fleets. Our maintenance practices were consistent with the 2006 period.

Depreciation relates to owned tractors, trailers, communications units, terminal facilities and other assets. Gains or losses on dispositions of revenue equipment are set forth in a separate line item, rather than included in this category. The increase in depreciation was due to an increase in revenue equipment and in the relative percentage of company-owned tractors to independent contractor-owned tractors in the 2007 period. We expect our annual cost of tractor and trailer ownership will increase in future periods as a result of higher prices of new equipment, which is expected to result in greater depreciation over the useful life.

Insurance and claims consist of the costs of insurance premiums and the accruals we make for claims within our self-insured retention amounts, primarily for personal injury, property damage, physical damage to our equipment, cargo claims and workers’ compensation claims. These expenses will vary primarily based upon the frequency and severity of our accident experience, our self-insured retention levels and the market for insurance. The increase in insurance and claims in the 2007 period was primarily the result of an increase in physical damage claims with respect to our tractors and trailers. We are responsible for the first $1.0 million on each auto liability claim and up to $1.0 million in the aggregate for all auto liability claims between $1.0 million and $2.0 million. We are also responsible for the first $750,000 on each workers’ compensation claim. Our significant self-insured retention and our risk on the first $1.0 million of auto liability claims in the $1.0 million to $2.0 million corridor expose us to the possibility of significant fluctuations in claims expense between periods depending on the frequency, severity and timing of claims and to adverse financial results if we incur large or numerous losses. In the event of an uninsured claim above our insurance coverage, or an increase in the frequency or severity of claims within our self-insured retention, our financial condition and results of operations could be materially and adversely affected.

A decrease in the planned number of revenue equipment dispositions and a decrease in the market value for used revenue equipment caused our gain on disposition of revenue equipment to decrease to $435,000 in the 2007 period from $2.0 million in the 2006 period. Future gains or losses on disposition of revenue equipment will be impacted by the market for used revenue equipment, which is beyond our control. We expect that our gain on disposition of revenue equipment will remain below the 2006 level for the remainder of the year.

As a result of the foregoing factors, our operating expenses as a percentage of operating revenue, or “operating ratio,” was 96.1% in the 2007 period compared with 91.4% in the 2006 period.

Our effective income tax rate decreased to 33.9% in the 2007 period from 37.5% in the 2006 period, primarily because we decreased our deferred income tax liability in the 2007 period by 4.4% of income before income taxes. This decrease was primarily due to state income tax law changes and a change in income apportionment for several states which produced a lower effective state income tax rate, net of federal impact.

As a result of the factors described above, net income decreased to $3.1 million in the 2007 period from $6.7 million in the 2006 period. Net earnings per share decreased to $0.14 per diluted share in the 2007 period from $0.31 per diluted share in the 2006 period.

Comparison of Nine Months Ended September 30, 2007 to Nine Months Ended September 30, 2006

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

							Dollar			Percentage
							Change			Change
	Nine Months						Nine Months			Nine Months
	Ended						Ended			Ended
	September 30,						September 30,			September 30,
(Dollars in thousands)	2007			2006			2007 vs. 2006			2007 vs. 2006
Operating revenue:
Truckload revenue, net of fuel surcharge revenue	$	308,462		$	300,836		$	7,626		2.5	%
Truckload fuel surcharge revenue	58,893			58,055			838			1.4
Total Truckload revenue	367,355			358,891			8,464			2.4

Logistics revenue, net of intermodal fuel surcharge revenue(1)	45,680			26,936			18,744			69.6
Intermodal fuel surcharge revenue	2,171			1,402			769			54.9
Total Logistics revenue	47,851			28,338			19,513			68.9

Total operating revenue	$	415,206		$	387,229		$	27,977		7.2	%

Operating income:
Truckload	$	18,520		$	29,836		$	(11,316	)	(37.9	)%
Logistics	3,607			2,678			929			34.7
Total operating income	$	22,127		$	32,514		$	(10,387	)	(31.9	)%

Operating ratio(2):
Truckload	95.0		%	91.7		%				(3.6	)%
Logistics	92.5			90.5						(2.2	)
Consolidated operating ratio	94.7		%	91.6		%				(3.4	)%

(1) Logistics revenue is net of $12.0 million and $13.0 million of inter-segment revenue in the 2007 and 2006 periods, respectively, for loads transported by our tractors and arranged by MWL that have been eliminated in consolidation.

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

Our operating revenue increased $28.0 million, or 7.2%, to $415.2 million in the 2007 period from $387.2 million in the 2006 period. Our operating revenue, net of fuel surcharges, increased $26.4 million, or 8.0%, to $354.1 million in the 2007 period from $327.8 million in the 2006 period.

Truckload segment revenue increased $8.5 million, or 2.4%, to $367.4 million in the 2007 period from $358.9 million in the 2006 period. Truckload segment revenue, net of fuel surcharges, also increased 2.5%. We were able to increase our truckload revenue by increasing the size of our fleet and our business with existing and new customers. Our average truckload revenue, net of fuel surcharges, per tractor per week increased 0.2% in the 2007 period from the 2006 period, due to a 0.4% increase in average truckload revenue, net of fuel surcharges, per total mile partially offset by a 0.2% decrease in average miles per tractor. Our weighted average number of tractors increased 2.3% in the 2007 period from the 2006 period. The slight improvement in tractor productivity was more than offset by an increase in our overall cost structure, which resulted in decreased profitability from the 2006 period. Due to a challenging freight environment, we were not able to increase freight rates to cover higher costs.

Logistics segment revenue increased $19.5 million, or 68.9%, to $47.9 million in the 2007 period from $28.3 million in the 2006 period. Logistics segment revenue, net of intermodal fuel surcharges, increased 69.6%. The increase in logistics revenue primarily resulted from continued volume growth in each of our internal brokerage and intermodal services and in the logistics services provided by MWL. The increase in the operating ratio for our Logistics segment in the 2007 period was primarily due to an increase as a percentage of logistics revenue of the payments to carriers for transportation services which we arranged.

	Dollar			Percentage		Percentage of
	Change			Change		Operating Revenue
	Nine Months			Nine Months		Nine Months
	Ended			Ended		Ended
	September 30,			September 30,		September 30,
(Dollars in thousands)	2007 vs. 2006			2007 vs. 2006		2007		2006

Operating revenue	$	27,977		7.2	%	100.0	%	100.0	%
Operating expenses (income):
Salaries, wages and benefits	9,331			8.8		27.9		27.5
Purchased transportation	11,459			18.2		17.9		16.3
Fuel and fuel taxes	6,846			6.7		26.4		26.5
Supplies and maintenance	3,972			16.3		6.8		6.3
Depreciation	2,494			7.6		8.5		8.5
Operating taxes and licenses	(374		)	(6.8	)	1.2		1.4
Insurance and claims	2,190			15.0		4.0		3.8
Communications and utilities	148			5.5		0.7		0.7
Gain on disposition of revenue equipment	2,840			49.6		(0.7	)	(1.5	)
Other	(542		)	(6.5	)	1.9		2.1
Total operating expenses	38,364			10.8		94.7		91.6
Operating income	(10,387		)	(31.9	)	5.3		8.4
Other expenses (income):
Interest expense	381			14.2		0.7		0.7
Interest income and other	330			38.3		(0.1	)	(0.2	)
Minority interest	(81		)	(13.3	)	0.1		0.2
	630			25.9		0.7		0.6
Income before income taxes	(11,017		)	(36.6	)	4.6		7.8
Provision for income taxes	(3,691		)	(34.3	)	1.7		2.8
Net income	$	(7,326	)	(37.9	)%	2.9	%	5.0	%

The increase in salaries, wages and benefits resulted primarily from a 4.8% increase in the miles driven by company drivers. Additionally, higher self-insured medical claims increased our employees’ health insurance expense by $1.7 million in the 2007 period.

Purchased transportation expense increased $11.5 million in total, or 18.2%, in the 2007 period from the 2006 period. Payments to carriers for transportation services we arranged in our brokerage and intermodal operations increased $15.9 million to $35.9 million in the 2007 period from $20.1 million in the 2006 period, as our Logistics operations significantly increased in size compared with the 2006 period. The portion of purchased transportation expense related to our independent contractors, including fuel surcharges, decreased $4.4 million, or 10.3%, in the 2007 period, primarily due to a decrease in the number of independent contractor-owned tractors in our fleet.

Fuel and fuel taxes, which we refer to as fuel expense, net of fuel surcharge revenue, increased $5.2 million, or 12.1%, to $48.5 million in the 2007 period from $43.2 million in the 2006 period. The increase was primarily due to a 4.8% increase in miles driven by our company-owned fleet and lower fuel economy associated with inclement weather in the first quarter of 2007. Our fuel prices, which remain high based on historical standards, were an average of $2.66 per gallon in the 2007 period compared with an average of $2.65 per gallon in the 2006 period.

The increase in supplies and maintenance in the 2007 period primarily resulted from our larger fleet, the higher percentage of company-owned tractors in our fleet, for which we bear all maintenance expenses and an increase in the average age of our tractor fleet. Our maintenance practices were consistent with the 2006 period.

The increase in depreciation was due to an increase in revenue equipment and in the relative percentage of company-owned tractors to independent contractor-owned tractors in the 2007 period.

The increase in insurance and claims in the 2007 period was primarily the result of an increase in physical damage claims with respect to our tractors and trailers.

As a result of the foregoing factors, our operating expenses as a percentage of operating revenue, or “operating ratio,” was 94.7% in the 2007 period compared with 91.6% in the 2006 period.

Our effective income tax rate increased to 37.0% in the 2007 period from 35.7% in the 2006 period, primarily because we decreased our deferred income tax liability in the 2006 period by 2.9% of income before income taxes. This decrease was primarily due to a change in income apportionment for several states which produced a lower effective state income tax rate, net of federal impact.

As a result of the factors described above, net income decreased to $12.0 million in the 2007 period from $19.3 million in the 2006 period. Net earnings per share decreased to $0.55 per diluted share in the 2007 period from $0.88 per diluted share in the 2006 period.

Liquidity and Capital Resources

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

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

	Nine Months
	Ended September 30,
(In thousands)	2007			2006

Net cash flows provided by operating activities	$	44,401		$	44,817
Net cash flows (used for) investing activities	(42,235		)	(55,480		)
Net cash flows (used for) provided by financing activities	(1,464		)	12,194
Long-term debt, including current maturities, at September 30	56,986			59,782

In the first nine months of 2007, we added approximately $34.2 million of new revenue equipment, net of proceeds from dispositions, and also recognized a gain of $2.9 million on the disposition of used equipment. We also decreased our accounts payable and accrued liabilities relating to revenue equipment by $8.2 million during the first nine months of 2007. Based on our current operating performance, the market for used tractors, our liquidity and our expectations concerning tractors manufactured in 2007, we decided to accelerate our tractor fleet replacement during the last two years to allow us greater flexibility in our decisions to purchase tractors manufactured in 2007, to add capacity to meet demand, and to add tractors to our company fleet as more of our drivers become company drivers rather than independent contractors. This acceleration of our tractor fleet replacement has not impacted the useful lives of our tractors or caused impairment to the carrying amount reflected in our consolidated balance sheet. These capital expenditures were primarily funded with cash flows from operations and borrowings under our revolving credit facility. The outstanding principal balance of our credit facility increased as a result of the accelerated fleet replacement. We believe our sources of liquidity are adequate to meet our current and anticipated needs for at least the next twelve months. Based upon anticipated cash flows, current borrowing availability and sources of financing we expect to be available to us, we do not anticipate any significant liquidity constraints in the foreseeable future. We estimate that capital expenditures, net of proceeds from dispositions, will be approximately $5 million for the remainder of 2007, primarily for new revenue equipment.

We have outstanding Series A Senior Unsecured Notes with an aggregate principal balance of $7.1 million at September 30, 2007. These notes mature in October 2008, require annual principal payments of $3.57 million and bear interest at a fixed annual rate of 6.78%. We also have outstanding Series B Senior Unsecured Notes with an aggregate principal balance of $4.3 million at September 30, 2007. These notes mature in April 2010, require annual principal payments of $1.43 million and bear interest at a fixed annual rate of 8.57%.

We maintain a credit agreement that provides for a five-year unsecured committed credit facility maturing in September 2011 in an aggregate principal amount of up to $75 million. The aggregate principal amount of the credit facility may be increased at our option up to a maximum aggregate principal amount of $100 million. At September 30, 2007, the credit facility had an outstanding principal balance of $45.6 million, outstanding standby letters of credit of $5.2 million and remaining borrowing availability of $24.2 million. This facility bears interest at a variable rate based on the London Interbank Offered Rate or the agent bank’s Prime Rate, in each case plus/minus applicable margins. The weighted average interest rate for the credit facility was 6.14% per annum at September 30, 2007.

Our credit facility prohibits us from paying, in any fiscal year, dividends in excess of 25% of our net income from the prior fiscal year. The debt agreements discussed above also contain restrictive covenants which, among other matters, require us to maintain certain financial ratios, including debt-to-equity, cash flow leverage, interest coverage and fixed charge coverage. We were in compliance with all of these covenants at September 30, 2007.

We had $3.9 million in direct financing receivables from independent contractors under our tractor purchase program as of September 30, 2007, compared with $6.1 million in receivables as of December 31, 2006. These receivables, which are collateralized by the financed tractors, are used to attract and retain qualified independent contractors. We deduct payments from the independent contractors’ settlements weekly and, as a result, have experienced minimal collection issues for these receivables.

The following is a summary of our contractual obligations as of September 30, 2007.

Payments Due by Period

Remainder

2008

2010

and