FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) SECURITIES EXCHANGE
ACT OF 1934
Commission File No. 0-10894
ARNOLD INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2200465
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
625 South Fifth Avenue, Lebanon, Pennsylvania 17042
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (717) 274-2521
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, 1.00 Par Value
(Title of Class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of March 26, 1999, computed by reference to the
immediately preceding closing sale price of such stock (3/25/99), was
$372,451,890.
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at March 26, 1999
Common Stock 24,830,126
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Annual Report to Stockholders for the year ended
December 31, 1998, and Registrant's definitive proxy statement for the Annual
Meeting of Stockholders to be held on May 5, 1999, are incorporated into
Parts II and III, respectively, as set forth herein.
The total number of pages included in this report, including the cover
page, is 53. The exhibit index is located on sequentially numbered page 21.
<PAGE>
PART I
Item 1. BUSINESS
Arnold Industries, Inc. (hereinafter sometimes referred to as "Arnold
Industries" or the "Company") was incorporated on February 1, 1982, under the
laws of the Commonwealth of Pennsylvania at the direction of the Board of
Directors of New Penn Motor Express, Inc. to become a holding company and to
effect a reorganization pursuant to which, through requisite stockholder
approval, New Penn Motor Express, Inc. became a wholly owned subsidiary of
Arnold Industries as of March 31, 1982. The Company is engaged in the
trucking and warehousing businesses.
The Company's business activities are currently conducted by two (2)
operating subsidiaries and a non-operating, investment management subsidiary.
New Penn Motor Express, Inc. ("New Penn") is a less-than-truckload ("LTL")
transportation company. Arnold Transportation Services, Inc. ("Arnold
Transportation") provides truckload ("TL") service and, under the name Arnold
Logistics, warehousing and warehouse-related trucking service. Maris, Inc.
("Maris") is a non-operating, investment management subsidiary incorporated in
the State of Delaware.
In 1998, New Penn, the Company's LTL carrier, contributed approximately
fifty percent (50%) of the Company's Operating Revenue. The Company's TL
carrier operations contributed approximately forty-three percent (43%), and
Arnold Logistics, its warehousing and related trucking operations, contributed
approximately seven percent (7%).
NEW PENN MOTOR EXPRESS, INC.
New Penn maintains general offices in Lebanon, Pennsylvania, and
transports commodities by motor vehicle on a less-than-truckload basis,
operating primarily in interstate commerce in New England and the Middle
Atlantic states. The southeastern United States, Indiana, Ohio and Quebec and
Ontario, Canada, are serviced through correspondent agreements with certain
<PAGE>
other high-service carriers in each area. Certain areas in Canada, including
Montreal, are now serviced directly by New Penn. Puerto Rico is serviced by
correspondent land service in conjunction with correspondent ocean service.
Commodities transported include paper products, food products, textiles,
building products, metal products, pharmaceuticals, office equipment and
supplies, and wearing apparel.
New Penn operates from twenty-three (23) terminals at which it receives,
consolidates and distributes freight. It utilizes a correspondent's terminal
facility in Puerto Rico.
Rates and Regulations
In common with other interstate motor carriers, New Penn is subject to
limited Federal economic regulation of its operations, including the
territories it serves and the commodities it carries.
The ICC Termination Act of 1995, effective January 1, 1997, abolished
the Interstate Commerce Commission ("ICC") and the traditional economic
regulatory scheme administered by that agency, and replaced it with signifi-
cantly lessened economic regulation administered by the Federal Highway
Administration ("FHWA").
To the extent rates and charges assessed by New Penn for interstate
transportation are published on behalf of New Penn by regional tariff bureaus,
such collectively published rates and charges are exempt from the anti-trust
laws. However, price competition is now widespread, and such bureau-published
rates are of relatively little influence today.
As a result of the changes to the Federal law, neither interstate rates
nor intrastate rates are filed with any regulatory agencies of the Federal
government. Changes in rates and charges may now be effected without
regulatory approval.
The FHWA has jurisdiction over the qualification and the maximum hours
of service of drivers, insurance and the general safety of operations and
motor carrier equipment.
<PAGE>
New Penn's operations are subject to limited regulation by the states
through which it operates.
Certificates
The authorized routes, territories and commodities to be transported for
all property carriers by motor vehicle (except carriers of exempt commodities)
are determined by operating authorities issued, in the case of interstate
operations, by FHWA (formerly by the ICC), and, in the case of intrastate
operations, by regulatory agencies of the individual states. Operating
authorities relating to the operations of New Penn have been issued to it by
the respective regulatory agencies having jurisdiction. Recent legislation
has greatly eased or in many cases eliminated the requirements for obtaining
interstate and intrastate operating authority.
Employees and Employee Relations
New Penn has approximately fourteen hundred and sixty (1,460) full-time
employees (including its officers). Most of the hourly paid employees are
covered by contracts with the International Brotherhood of Teamsters,
Chauffeurs, Warehousemen, and Helpers of America (Teamsters) effective
April 1, 1998, through March 31, 2003.
Most labor contracts in the unionized trucking industry are negotiated
on an industry-wide basis for three to five year periods and contain uniform
wage rates, fringe benefits and other working conditions applicable to all
covered motor carriers, including competitors of New Penn, subject to local
differences established in riders to the national contracts. New Penn
anticipates stable labor relations with its unionized employees during the
next four (4) years.
New Penn employs a sales staff of approximately sixty-five (65) people,
augmented by sales and related efforts of its four (4) regional managers and
twenty-two (22) terminal managers, together with various other marketing and
<PAGE>
sales staff, to solicit new business and to handle service programs with
existing customers.
Competition
The motor carrier industry is highly competitive, particularly as a
result of deregulation of Interstate Commerce Commission operating authori-
ties. New Penn competes primarily with other motor common carriers, motor
contract carriers, private transportation and railroads. A very substantial
number of motor carriers operate within the same areas served by New Penn.
Some of the competing carriers are larger than New Penn in terms of revenues,
tonnage handled and net worth. Furthermore, as a result of deregulation, even
more carriers may begin to operate in interstate and intrastate commerce in
the same geographical territory in which New Penn is currently operating.
New Penn believes the competitive position of a transportation company
depends upon rates as well as consistency and dependability of service. Price
cutting in the trucking industry has become intense. Profitability depends
upon New Penn's ability to maximize utilization of revenue equipment and to
minimize handling costs.
ARNOLD TRANSPORTATION SERVICES, INC.
Arnold Transportation changed its name from Lebarnold, Inc. on May 31,
1997. Arnold Transportation has two primary operating divisions: the TL
carrier division and the warehousing and related trucking division. The
warehousing and related trucking division operates under the trade name of
Arnold Logistics.
Arnold Transportation operates as a "core carrier" within the TL
industry. Many manufacturers in the United States continue to reduce the
number of regional carriers that they utilize and are concentrating their
transportation business in a smaller number of "core carriers." Carriers must
be able to transport goods across inter-regional boundaries if they are to
<PAGE>
compete for the business of these manufacturers. The Company created Arnold
Transportation as a core carrier at the end of 1997 by integrating the
operations of three regional TL carriers previously operated as independent
units. Integration has had the added benefit of reducing duplicative expenses
in the areas of dispatch, record-keeping, administration, etc.
Arnold Transportation's trucking division has 48-state authority to
serve the general public, although its basic business, that of truckload
carriage, is conducted east of the Mississippi and in the southwest. The main
operating location for this division has been relocated from Camp Hill,
Pennsylvania, to Jacksonville, Florida, with other terminals located in
Pennsylvania, North Carolina, Georgia, Texas and Oklahoma. Arnold
Transportation also conducts operations from a customer's location in Ohio,
and a leased facility in New York. Most services are being performed in
company-owned equipment with company drivers, although in 1992 Arnold
Transportation began utilizing owner-operators to complement its fleet.
Arnold Logistics serves the assembly, distribution and warehousing needs
of its customers primarily from sixteen (16) separate warehouse buildings in
six (6) operating locations with a total capacity of approximately 3,100,000
square feet. These facilities are located in Camp Hill, Mountville,
Mechanicsburg, and Lancaster, Pennsylvania, and Fort Worth and Arlington,
Texas. Arnold Logistics also maintains approximately 320,000 square feet of
warehouse in Wilmington, North Carolina, presently leased to a third party.
Arnold Transportation has approximately thirteen hundred eight (1,380)
employees (including its officers).
General
Truckload carriers no longer file tariff rates with the ICC. Arnold
Transportation's trucking operations are, in general, subject to limited
regulation and competitive factors similar to that experienced by New Penn.
Arnold Transportation is not subject to collective bargaining with its
labor force.
<PAGE>
Item 2. PROPERTIES
Headquarters. Arnold Industries and New Penn maintain executive and
general offices at 625 South Fifth Avenue, Lebanon, Pennsylvania 17042.
Arnold Transportation maintains its principal office at 9523 Florida Mining
Boulevard, Jacksonville, Florida 32257. Arnold Transportation operates
regional centers at 4410 Industrial Park Road, Camp Hill, Pennsylvania 17011,
and at 3375 High Prairie Avenue, Grand Prairie, Texas 75050. The companies
own their principal offices and regional centers.
Facilities. New Penn maintains general commodities terminal facilities
in twenty-three (23) cities situated in seven (7) states and Quebec province
of Canada. On December 31, 1998, eighteen (18) of the terminals were owned by
the Company or its subsidiaries and five (5) were leased from unrelated
parties. The terminals owned are located as follows: Southington, CT;
Elkridge, MD; Billerica, MA; South Kearny, NJ; Trenton, NJ; Albany, NY;
Newburgh, NY, Cheektowaga, NY; Maspeth (Long Island), NY; Rochester, NY; Camp
Hill, PA; Lancaster, PA; Cinnaminson, NJ; Neville Island, PA; Reading, PA;
Dunmore, PA; Milton, PA; and Cranston, RI. Leases for terminal facilities in
Springfield, MA; Syracuse, NY; Altoona, PA; Portland, ME; and Stanhope,
Quebec, expire from time to time over the next several years. Management
believes the leases will be renewed or replaced by other leases in the normal
course of business. New Penn also operates through a correspondent located in
Cantano, Puerto Rico.
In the mid-Atlantic region, Arnold Transportation owns and operates
trucking terminals in Camp Hill, Pennsylvania, and Charlotte, North Carolina.
It also leases facilities in Selkirk, New York (near Albany), Dayton, Ohio,
and St. Louis, Missouri, which it will renew or replace in the normal course
of business. In the mid-Atlantic region, Arnold Transportation also owns and,
through Arnold Logistics, operates twelve (12) warehouse buildings in three
(3) locations, Camp Hill, Mechanicsburg, and Lancaster, Pennsylvania, totaling
approximately 2,300,000 square feet. Arnold Transportation also leases
<PAGE>
approximately 300,000 square feet of additional warehouse space for Arnold
Logistics' use in Mountville, Pennsylvania. Management believes that the
lease will be renewed or replaced in the normal course of business. In 1982,
Arnold Transportation acquired, from an unrelated third party, 90 acres near
Wilmington, North Carolina, on which are located approximately 320,000 square
feet of warehouse space. This facility is presently leased to an unrelated
third party and is not operated by Arnold Logistics.
In the southeast, Arnold Transportation maintains five (5) terminals
and/or drop lots to support its operations. These are located in Jacksonville
and Jasper, Florida; Albany, Atlanta and Austelle, Georgia. The terminals in
Jacksonville, Jasper, Albany and Austelle are owned by Arnold Transportation.
The Atlanta facility is leased from an unrelated third party. Management
believes the lease will be renewed or replaced in the normal course of
business.
In the southwest, Arnold Transportation maintains five (5) terminal
and/or drop-off locations in, respectively, Grand Prairie, Houston, Paris and
Waco, Texas, and Muskogee, Oklahoma. Arnold Transportation owns its
facilities in Grand Prairie, Houston and Paris, Texas, and Muskogee, Oklahoma.
The Waco facility is under lease with an unrelated party, which will expire or
be renewed over the next several years. Management believes the lease will be
renewed or replaced in the normal course of business. Arnold Transportation
also owns two warehouses totaling approximately 150,000 square feet in the
Fort Worth, Texas area, which are managed by Arnold Logistics. Additional
warehouse space consisting of 25,000 and 248,000 square feet is under lease in
Fort Worth and Arlington, Texas, respectively, which leases will be renewed or
replaced in the normal course of business.
Item 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the business of the Company, to which the
Company or its subsidiaries are party or to which any of their property is
subject.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
<PAGE>
PART II
Item 5. MARKET INFORMATION
There is incorporated herein by reference the information appearing
under the captions "Quarterly Performance" and "Price Range Common Stock" on
page 18 of the Registrant's Annual Report to Stockholders for the year ended
December 31, 1998. It is anticipated that comparable cash dividends will
continue to be paid in the future.
The number of holders of record of the Company's common stock as of
March 26, 1999, was approximately 1,535. However, the Company believes there
are substantially more beneficial owners of Company stock than reflected by
the number of record holders.
The Registrant's common stock is traded in the over-the-counter market
on the NASDAQ National Market System under the symbol "AIND." Prices shown
are the actual high and low close for the periods given. The closing price of
the Company's common stock on March 25, 1999, was $15.00.
Item 6. SELECTED FINANCIAL DATA
There is incorporated herein by reference the information appearing
under the caption "Eleven-Year Financial Summary" on pages 22 and 23 of the
Registrant's Annual Report to Stockholders for the year ended December 31,
1998.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
There is incorporated herein by reference the information appearing
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations" on pages 19 through 21 of the Registrant's Annual
Report to Stockholders for the year ended December 31, 1998.
<PAGE>
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INHERENT IN DERIVATIVE FINANCIAL INSTRUMENTS
Neither the Company nor any of its subsidiaries, including Maris, Inc.,
own derivative financial instruments. Accordingly, the Company has no
exposure to sudden changes in the financial and commodities markets and the
impact that those changes may have on the value of market risk sensitive
derivative securities. Maris, Inc., however, does own certain market risk
sensitive instruments, including money market funds, time deposits, tax-free
bonds and other like instruments. The Company believes that the risk inherent
in owning these types of investments is no greater than the market risk of
owning any security traded on various exchanges in the United States and
elsewhere.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of Arnold Industries,
Inc. and its subsidiaries, included on pages 9 through 16 of the Registrant's
Annual Report to Stockholders for the year ended December 31, 1998, are
incorporated by reference herein:
Consolidated Balance Sheets - December 31, 1998 and 1997.
Consolidated Statements of Income - Years Ended December 31, 1998, 1997
and 1996.
Consolidated Statements of Stockholders' Equity - Years Ended
December 31, 1998, 1997 and 1996.
Consolidated Statements of Cash Flows - Years Ended December 31, 1998,
1997 and 1996.
Notes to Consolidated Financial Statements.
Also, there is incorporated herein by reference the "Report of Indepen-
dent Accountants" and information appearing under the caption "Quarterly
Performance" on pages 17 and 18, respectively, of the Registrant's Annual
Report to Stockholders for the year ended December 31, 1998.
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There is incorporated herein by reference the information appearing
under the captions "Directors" and "Executive Officers" in the Registrant's
definitive proxy statement for the Annual Meeting of Stockholders on May 5,
1999.
There have been no events under the bankruptcy act, no criminal proceed-
ings and no judgments or injunctions during the past five (5) years which
would be material to an evaluation of any Director or Executive Officer.
Item 11. EXECUTIVE COMPENSATION
There is incorporated herein by reference the information appearing
under the captions "Executive Officers", "Executive Compensation and Other
Benefits", "Performance Graph," "Report on Executive Compensation" and
"Compensation Committee Interlocks and Insider Participation" in the Regis-
trant's definitive proxy statement for the Annual Meeting of Stockholders on
May 5, 1999.
No other remuneration payments are proposed to be made in the future,
directly or indirectly, by or on behalf of Arnold Industries and its subsid-
iaries, pursuant to any plan or arrangement, to any Director or Executive
Officer of the Company except as disclosed above.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There is incorporated herein by reference the information appearing
under the caption "Security Ownership of Directors, Officers and Certain
Beneficial Owners" in the Registrant's definitive proxy statement for the
Annual Meeting of Stockholders on May 5, 1999.
<PAGE>
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is incorporated herein by reference the information appearing
under the caption "Certain Transactions" in the Registrant's definitive proxy
statement for the Annual Meeting of Stockholders on May 5, 1999.
Item 14. YEAR 2000 COMPLIANCE
The Company continues its on-going project to assure Year 2000 ("Y2K")
readiness. Y2K readiness involves assuring that all essential functions of
the Company, including activities that are not directly computer dependant,
will remain operative upon arrival of the Year 2000. Assuring Y2K readiness
involves: (i) assessing which activities are impacted by date-dependent
software programs and chips, (ii) making any necessary corrections and/or
replacements to affected software and chips, and (iii) testing the corrections
and/or replacements to evidence that software and chips recognize the Year
2000 date and function properly. Each of the three phases outlined above must
be successfully completed before a particular system will be deemed Y2K ready.
The Company's project to correct and/or replace internal information
technology ("IT") software is now 100% complete. Internal IT software is
software that the Company produces internally, using its own technicians and
programmers, to perform such carrier and warehousing functions as billing,
accounts receivable aging, payables, payroll, inventory control, dispatch,
etc. The Company's internal IT software operates on an IBM AS 400 mainframe
computer, and all such software, including software servicing the Company's
three principal business units, New Penn Motor Express, Arnold Transportation
Services and Arnold Logistics, has been assessed, corrected and/or replaced
and tested successfully for Y2K compliance.
The cost of the Company's program to correct and/or replace non-
compliant internal IT software was $1,650,000. Those costs have already been
incurred and paid from operating revenues of the Company's three principal
business units. No other projects or capital expenditures were deferred or
<PAGE>
canceled due to the diversion of resources to Y2K compliance. Approximately
70% of the cost of the Company's internal program was incurred for services of
third-party consultants and replacement of software. The remaining 30% of the
cost was incurred for services of employees of the Company or its subsidiaries
who devoted time to assuring Y2K readiness.
The Company continues to monitor and assess the progress of third
parties upon whom the Company relies for externally produced, date-dependant
software, including, but not limited to, non-IT software, communications
software, fueling cards, satellite-based on-board computers, diagnostic
repair programs used at Company repair facilities, microfilm indexing, etc.
Many such externally produced software programs are non-IT systems and impact
the actual carriage of freight or storage of goods by the Company's operating
units. The Company is also monitoring the progress of suppliers of basic
materials such as fuel, parts, tires, etc., as well as that of significant
customers upon whose continued business the Company relies for revenues.
These monitoring efforts have revealed areas of concern with respect to Y2K
readiness of the Company's vendors, suppliers and customers. To the extent
reasonably practicable, the Company is taking steps to assure timely
compliance or the availability of alternate software, services and supplies.
The cost of maintaining and completing the external Y2K project, including
correction and/or replacement costs and testing, is anticipated to be
$150,000. The additional cost will be funded entirely from operating revenues
of the Company.
The Company faces the risk of disruptions to service if significant
vendors, suppliers and/or customers do not become Y2K compliant in a timely
manner. Failure by vendors and suppliers to become compliant would result in
the loss of systems controlling dispatch, billing and payroll, among other
essential functions of the Company. The Company does not believe that these
risks will come to fruition because of the efforts to date to become Y2K
compliant.
<PAGE>
The Company is developing contingency plans to acquire electricity, fuel
and essential parts from other vendors in the event of a Y2K malfunction by a
prime supplier. Plans include purchase and retention of higher levels of
inventory for items such as tires and spare parts. As necessary, electricity
will be available at most Company facilities, at least temporarily, though the
use of generators that the Company routinely maintains for power outages. The
Company has no contingency plans for loss of revenues from shippers who do not
become Y2K compliant.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) (1) The following consolidated financial statements of the registrant
and its subsidiaries, included on pages 9 to 16 in the Registrant's
Annual Report to Stockholders for the year ended December 31, 1998 and
the report of independent accountants on page 17 of such report are
incorporated herein by reference in Item 8:
Financial statements:
Consolidated Balance Sheets - December 31, 1998 and 1997
Consolidated Statements of Income - Years Ended December 31, 1998,
1997 and 1996
Consolidated Statements of Stockholders' Equity - Years Ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows - Years ended December 31,
1998, 1997 and 1996
Notes to Consolidated Financial Statements
Independent Accountants' Report
Selected Quarterly Financial Data - Years Ended December 31, 1998 and
1997:
Quarterly performance data, included on page 18 in the
Registrant's Annual Report to Stockholders for the year ended
December 31, 1998, is incorporated herein by reference.
(2) The following financial statement schedules for the years 1998,
1997 and 1996 are submitted herewith:
Schedule II - Valuation and qualifying accounts
and reserves
Report of Independent Accountants
All other schedules are omitted because they are not required, inappli-
cable or the information is otherwise shown in the financial statements
or notes thereto.
(3) Exhibits included herein:
Exhibit 3 - Articles of Incorporation and Bylaws (Articles of
Incorporation of the Company, as amended, and Bylaws of the
Company (filed as Exhibits 3.1 and 3.2 to Registrant's Form 10-K
for the fiscal year ended December 31, 1989, and incorporated
herein by reference).
Exhibit 13 - 1998 Annual Report to Stockholders
Exhibit 21 - Subsidiaries of the Registrant
Exhibit 23.1 - Consent of PricewaterhouseCoopers LLP
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K have been filed by the Registrant during the last
quarter of the period covered by this report.
<PAGE>
<TABLE>
ARNOLD INDUSTRIES, INC. AND SUBSIDIARIES
Schedule II
Valuation and Qualifying Accounts and Reserves
for the years ended December 31, 1998, 1997 and 1996
<CAPTION>
Additions
Balance at Charged to Charged to
beginning costs and other Balance at
Description of period expenses accounts<FN1> Deductions end of year
<FN2>
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998
Allowance for doubtful accounts $ 1,340,028 $ 536,367 $221,223 $ 913,471 $ 1,184,147
Estimated liability for claims $20,185,754 $13,494,337 - $17,887,178 $15,792,913
Year ended December 31, 1997
Allowance for doubtful accounts $ 1,724,106 $ 821, 238 $194,215 $ 1,399,531 $ 1,340,028
Estimated liability for claims $20,140,931 $14,935,706 - $14,890,883 $20,185,754
Year ended December 31, 1996
Allowance for doubtful accounts $ 1,108,051 $ 1,232,565 $ 94,245 $ 710,755 $ 1,724,106
Estimated liability for claims $15,235,791 $17,666,656 - $12,878,516 $20,140,931
<FN1> Recoveries
<FN2> Accounts deemed to be uncollectible and charged to allowance for
doubtful accounts and payments made for estimated liability for
claims.
</FN>
</TABLE>
<PAGE>
Report of Independent Accountants on
Financial Statement Schedules
To the Board of Directors
of Arnold Industries, Inc.
Our audits of the consolidated financial statements referred to in our report
dated March 5, 1999 appearing on page 17 of the 1998 Annual Report to
Shareholders of Arnold Industries, Inc. (which report and consolidated
financial statements are incorporated by reference in this Annual Report on
Form 10-K) also included an audit of the financial statement schedule listed
in item 14(a)(2) of this Form 10-K. In our opinion, this financial statement
schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
PricewaterhouseCoopers LLP
One South Market Square
Harrisburg, Pennsylvania
March 5, 1999
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on March 31, 1999.
ARNOLD INDUSTRIES, INC.
By /s/ E. H. Arnold
E. H. Arnold, President
By /s/ Ronald E. Walborn
Ronald E. Walborn
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, the
report has been signed by the following persons in their capacities as indicated
below.
Name Date
/s/ E. H. Arnold March 31, 1999
E. H. Arnold
President and Director
/s/ Kenneth F. Leedy March 31, 1999
Kenneth F. Leedy
Executive Vice President and Director
/s/ Ronald E. Walborn March 31, 1999
Ronald E. Walborn
Treasurer and Director
/s/ Heath L. Allen March 31, 1999
Heath L. Allen
Secretary and Director
<PAGE>
INDEX TO EXHIBITS
Sequential
Page No.
Exhibit 13 - 1998 Annual Report to Stockholders 21
Exhibit 21 - Subsidiaries of Registrant 49
Exhibit 23.1 - Consent of PricewaterhouseCoopers LLP 50
Exhibit 27 - Financial Data Schedule 51
(Front Cover)
1998 ANNUAL REPORT
ARNOLD INDUSTRIES, INC.
<PAGE>
(Inside Front Cover)
contents
1 Letter to Shareholders
2 New Penn Motor Express
4 Arnold Transportation Services
6 Arnold Logistics
7 Consolidated Five-Year Summary
8 Financial Statements
9 Consolidated Balance Sheets
10 Consolidated Statements of Income
10 Consolidated Statements of Shareholders' Equity
11 Consolidated Statements of Cash Flows
12 Notes to Consolidated Financial Statements
17 Report of Independent Accountants
18 Quarterly Performance
18 Price Range Common Stock
19 Management's Discussion and Analysis of Financial Condition
and Results of Operations
22 Eleven-Year Financial Summary
24 Board of Directors and Shareholder Information
ARNOLD INDUSTRIES, INC.
Arnold Industries is a transportation and logistics holding
company. Through its operating units, New Penn Motor Express,
Inc., Arnold Transportation Services, Inc., and Arnold Logistics,
the Company provides regional less-than-truckload (LTL),
truckload and value-added warehousing services. 1998 operating
revenues totaled $404 million.
NEW PENN
New Penn provides next-day LTL service in the Northeast region of
the United States. The company is widely regarded as a superior
service provider and one of the most efficiently operated
carriers in the industry.
ARNOLD TRANSPORTATION
SERVICES
Arnold Transportation Services provides irregular route and
dedicated truckload services in the Northeast, Southeast, Midwest
and Southwest regions of the United States.
ARNOLD LOGISTICS
Arnold Logistics is a division of Arnold Transportation Services
and specializes in integrated distribution services, order
fulfillment and contract packaging services. Arnold Logistics has
3.1 million square feet of warehousing space located in
Pennsylvania, North Carolina and Texas.
<TABLE>
financial summary
(dollars in thousands except per share data)
<CAPTION>
1998 1997 Change
<S> <C> <C> <C>
Revenues $403,721 $383,165 5.4%
Net Income $35,116 $32,210 9.0%
Net Income Per Share (Basic) $1.37 $1.23 11.4%
Shareholders' Equity $226,400 $217,253 4.2%
Total Assets $320,111 $317,040 1.0%
Return on Average
Shareholders' Equity 15.8% 15.1% 0.7%
<PAGE>
To Our Shareholders:
We are pleased to report that in 1998 Arnold Industries achieved
record revenues of over $400 million with an increase of 5.4%,
and record basic earnings per share of $1.37, up 11.4% from the
prior year. Our diversification in several segments of the
transportation and logistics market has supported our growth in
earnings these past two years. It was growth of earnings in our
less-than-truckload (LTL) operations that supported the record
performance in 1997 while significant improvement in earnings at
our truckload and logistics operating units fueled the growth in
1998.
New Penn continues to astound industry observers with its ability
to operate very profitably in the competitive Northeast regional
LTL market. Operating margins exceeded 20% again in 1998 in an
industry where single digit margins are the norm. The performance
of New Penn is testimony to the abilities and hard work of
President Ken Leedy, Executive Vice President Steve O'Kane and
the entire team. No other company has demonstrated their level of
skill at identifying and driving costs out of the LTL process.
One of the biggest challenges at New Penn in 1998 was to
outperform their own incredible performance of the prior year
when revenues were up 12% and operating income was up 35%. We are
proud to report New Penn nearly matched 1997's record revenue and
operating income.
We are very pleased to report improved financial results in our
truckload operations at Arnold Transportation Services under the
leadership of Mike Walters. Mike assumed the presidency at Arnold
Transportation Services in July of 1998. He has been pulling the
team together as the executive offices were relocated to
Jacksonville, FL, and he has established a culture of direct and
open communication. Our efforts of the past two years to merge
and turnaround the truckload operations began to pay off in the
second half of the year as operating income was up 238% for 1998.
Arnold Logistics had another good year with operating income up
12%. Doug Enck, Vice President and General Manager is to be
commended for the job his team has done over the past three years
as revenues have grown 59% and income has grown by 67% without a
significant increase in warehouse space being utilized. We have
improved the depth of management and restructured the operations
at Arnold Logistics to position the company for future growth
with the appointments of Larry Pechart as Director, Fulfillment
Operations and Jeff Reuscher as Director, Food Group Operations.
Exciting new developments are underway at Arnold Logistics to
capitalize on current business trends. Arnold Logistics now
provides comprehensive order fulfillment services for companies
that market their products through the Internet and mail-order
catalogs.
During the past 24 months, we have purchased 2 million shares of
Arnold Industries common stock in open-market transactions. We
are currently executing a plan to repurchase an additional
1 million shares as we continue to believe our stock represents
an excellent value.
New Penn will continue to be the foundation that supports the
outstanding earnings of Arnold Industries. However, we anticipate
a substantial portion of our future growth in earnings will come
from the truckload and logistics segments as well as the
potential for growth in the LTL market outside the Northeast. We
anticipate continued double-digit growth in revenues and
improving margins in the truckload segment. With the opening of
the new facilities in Lancaster County, PA, and additional space
in Texas, Arnold Logistics will have added over 800,000 square
feet of warehouse space, an increase of 35%. A five-year
agreement was recently signed that will completely utilize the
new Pennsylvania facilities by mid-year 1999.
We want to take this opportunity not only to thank the thousands
of customers that utilize our services, but also to thank our
dedicated employees and our shareholders for their continued
support. Please visit the Arnold Industries web site at
www.aind.com for access to information about our company. We
assure you that we are looking at new transportation and logistic
opportunities to meet the needs of our customers, to provide
continued employment and to improve the returns for our
shareholders.
/s/ E. H. Arnold
Chairman, President & CEO
March 1, 1999
<PAGE>
NEW PENN
OVERVIEW
New Penn Motor Express is a next-day regional less-than-truckload
(LTL) carrier of general commodities. The Company operates 23
terminal facilities serving the twelve Northeastern states, the
Province of Quebec and the Commonwealth of Puerto Rico. New Penn
also provides service to portions of the Midwest, the Southeast
and Ontario, Canada through partnerships with other high-service
regional carriers.
RECORD SERVICE LEVELS
New Penn achieved new records in two key areas of importance to
customers during 1998. The company delivered over 97% of
shipments on-time as measured against its published service
standards. Making this accomplishment even more noteworthy is the
fact that service standards on several lanes were recently
reduced from two-day to next-day service. In fact, 93% of all
shipments are now delivered next-day.
Another important service attribute is damage-free freight
handling. During 1998, 99.8% of New Penn shipments were delivered
damage-free. The Company achieved a record low cargo claims ratio
of .34% in 1998. This measure indicates that one-third of one
percent of revenues were paid to customers to settle loss and
damage claims. The industry average is four times greater.
During 1998, New Penn was again recognized by customers for
outstanding service in the annual "Quest for Quality" survey
conducted by Logistics Management and Distribution Report
magazine. 1998 marks the fifth consecutive year that New Penn has
received this recognition. The Company also received recognition
from individual customers including the Outstanding LTL Service
award from the Northeast Division of The Home Depot, a leader in
the home improvement retail industry.
A component of the outstanding service provided by New Penn is
the safe operation of our trucks. During 1998 New Penn drivers
were involved in less than one DOT chargeable accident for every
4 million miles driven. New Penn now has 48 drivers who have each
driven more than 1 million accident-free miles.
FINANCIAL RESULTS
New Penn continues to lead the industry in operating profit
margins based on the carrier financial data reported by Transport
Topics in August 1998. It would appear that leadership will
continue as New Penn achieved an operating ratio of 78.8% in
1998. Operating ratio is a common industry measure of
profitability and reflects operating expenses as a percentage of
revenues.
New Penn revenues totaled $202.9 million and operating income
totaled $43.1 million in 1998. New Penn nearly matched the record
levels of the prior year through revenue yield strategies and
tight cost controls. Several factors contributed to the
difficulty of surpassing the outstanding performance of 1997
including a revenue windfall in 1997 resulting from a strike at
UPS and the negative impact early in 1998 of a potential work
stoppage at New Penn while the labor agreement was being
negotiated.
<PAGE>
Although a new five-year agreement was reached six weeks prior to
the deadline eliminating the potential of a work stoppage,
competitors had successfully used the threat of a strike to
secure additional business.
INVESTING FOR THE FUTURE
INFORMATION TECHNOLOGY
New Penn continues to be a leader in the use of information
technology to improve operating efficiency and customer service.
Substantial progress was made in 1998 on the development of New
Penn's on-board computer technology. After more than two years of
leading edge development and testing, an on-board system has been
designed to improve operational efficiencies and customer
service. Customized mobile application software and a mobile data
network are used to interface hand-held computers in each truck
with New Penn's proprietary pick-up and delivery dispatch system.
The system has now been installed in 30% of the tractor fleet and
plans are in place to double the use of on-boards by mid-year
1999. If the rollout continues smoothly, the on-boards may be
installed throughout the New Penn network by the end of 2000.
The Company has made a concerted effort to address the so-called
Year 2000, or Y2K, computer problem. As a result of these
efforts, all internal New Penn systems are Y2K compatible and we
anticipate no problems with internal systems.
SALES SYSTEMS
During 1998 New Penn made a significant commitment to upgrade the
sales force automation system. The laptop computers used by all
sales representatives improve their productivity, professionalism
and effectiveness. New Penn also implemented a new sales force
incentive plan whereby sales people who achieve their objectives
are rewarded with points redeemable for merchandise and travel
awards.
FACILITIES AND EQUIPMENT
The Company continues to reinvest in terminal facilities to
ensure we have the capacity to efficiently grow in the future. A
new facility serving the Philadelphia market will open during the
first quarter of 1999, as will an expanded Boston facility.
Additional terminal capacity is actively being pursued at six
other locations. To maintain one of the most modern fleets in the
industry, the Company also invested in 60 new tractors and 245
new trailers during 1998. The average age of the tractor fleet
used in terminal to terminal operations is only 3.1 years.
PEOPLE
The quality of New Penn's service is based on the quality of the
people providing that service. Each year the company works hard
to hire and retain the best people for available operations,
sales and administrative positions. New Penn's drivers and
dockworkers may be among the best compensated in the industry,
but their expertise, professionalism and tenure, an average of
nearly 10 years, make a significant contribution to the superior
level of service provided by New Penn.
New Penn continues to be positioned as the premier Northeast
regional carrier in terms of both operating efficiency and
service to its customers.
<PAGE>
ARNOLD TRANSPORTATION SERVICES
OVERVIEW
Arnold Transportation Services provides irregular route,
multi-stop and dedicated truckload services in the Northeast,
Southeast, Midwest and Southwest regions of the United States.
The Company is headquartered in Jacksonville, FL and operates 12
facilities. Arnold Transportation Services has a significant
presence in the beverage, consumer products and retail
industries, and was recognized by customers such as Appleton
Paper and The Home Depot for outstanding service during 1998.
The Arnold Transportation Services network provides dependable
regional and interregional truckload service by linking
facilities and drivers with a proprietary dispatch system and
on-board satellite tracking computers. The Company purchased 160
new tractors equipped with sleeper cabs in 1998, and increased
its use of owner-operators. The tractor fleet averages only 3.2
years of age. Over 98% of the linehaul tractor fleet is equipped
with on-board satellite tracking units. The trailer fleet is
predominately 53' high-capacity trailers. The Company purchased
535 new 53' trailers in 1998.
1998 was the first full year of operations for Arnold
Transportation Services since the Company was created through the
merger of three truckload subsidiaries of Arnold Industries.
1998 INITIATIVES
Safety is a high priority at Arnold Transportation Services. The
Company achieved a 10% reduction in the number of chargeable
accidents per million miles driven in 1998. There are now 24
drivers that have driven over one million miles without a
chargeable accident. The Company also experienced a 43% reduction
in lost-time injuries during 1998. Ongoing training initiatives
are being conducted in the areas of driver fatigue, rollover
avoidance and how to deal with "road rage". As a result of these
initiatives, the drivers and fellow motorists are safer.
Driver recruitment and retention continues to be a truckload
industry-wide challenge. Several initiatives resulted in better
recruiting and lower driver turnover during 1998 including
programs to improve driver referrals, driver compensation, the
"driver friendliness" of the equipment, incentives for
supervisors to retain drivers and arrangements for owner-
operators to purchase and finance a truck from Arnold
Transportation Services. The Company successfully recruited an
additional 228 owner-operators in 1998, a 61% increase in the
total number of owner-operators being utilized. Ninety of these
new owner-operators were previously company drivers who purchased
their truck from the Company.
Significant progress was made in 1998 to improve the business
information systems of Arnold Transportation Services.
Integrating and consolidating the information systems of three
smaller firms to effectively manage the financial, service
quality and operational functions of the Company was among the
biggest challenges of the merger. During 1998 the consolidation
of the systems was completed. In addition, the satellite vehicle
tracking and fuel management software was integrated with the
proprietary dispatch system, a vehicle maintenance management
system was implemented as was a human resources and financial
accounting package. In addition, all of these efforts helped to
ensure that systems are Y2K compliant.
IMPROVING FINANCIAL RESULTS
Revenues totaled $171.4 million in 1998, an increase of 12%
compared to the prior year. Operating income increased by 238% to
$7.1 million.
<PAGE>
All of the improvement in earnings occurred during the second
half of 1998. A negative trend in operating margins during 1997
that resulted from efforts to merge the companies continued
during the first half of 1998. Margins declined through the first
two quarters. However, the turnaround began in the second half as
operating profit margins improved during the third and fourth
quarters compared to the prior year.
BENEFITS OF MERGER
While there were additional costs incurred during 1998 as a
result of the merger, such as relocation of staff, the Company
also started to reap benefits in the form of revenue growth and
lower costs.
REVENUE GROWTH
For the past several years, large customers have been reducing
the number of carriers serving their facilities. Arnold
Transportation Services is now one of the 25 largest truckload
carriers in the United States. As a major player in the industry
with regional and interregional coverage, the Company is better
positioned to meet the needs of Fortune 500 customers. This
strategy began to pay dividends during 1998 by achieving growth
with major national accounts. Contributing to the revenue growth
was the expansion of interregional services. The average length
of haul increased by over 13%.
The Company also took a significant step in entering the Midwest
market by opening a new facility in St. Louis, MO. The Midwest
represents a large and virtually untapped market for future
growth.
COST REDUCTION
The merger began to pay dividends during the second half of the
year in terms of cost reduction. Several areas of improvement
included:
* A 6% reduction in non-driver employees as support functions
were consolidated
* A 15% reduction in empty miles
* Improved asset utilization including an 8% increase in the
revenue per tractor and a 6% reduction in the ratio of
trailers to tractors
* Elimination of redundant facilities as one service center
and one maintenance facility were closed during 1998.
STRATEGIES FOR FUTURE GROWTH
Arnold Transportation Services is now positioned to increase
revenues and improve profit margins. The new operations in St.
Louis will permit greater penetration of the Midwest market.
Greater emphasis of inter-regional lanes will continue to improve
revenue and asset utilization. Indications are that the pricing
environment will remain strong.
Strategies to increase the use of owner-operators and to convert
company drivers to owner-operators will continue. This is a
win-win situation for the owner-operator and the Company. This
process makes growth of truckload business less asset intensive
and improves the ratio of variable to fixed costs.
The Company has plans to increase its use of the Internet for
driver recruiting in 1999 through introduction of a new web site.
The Internet will also be used as a source of additional
business.
Continuation of the initiatives outlined above as well as others,
such as strategies to further reduce equipment maintenance costs,
will allow Arnold Transportation Services to enhance its position
as a leader in the truckload industry.
<PAGE>
ARNOLD LOGISTICS
OVERVIEW
Arnold Logistics is a provider of value-added warehousing and
logistic services. The company has over 3.1 million square feet
of warehousing space. Facilities are located in Pennsylvania,
Texas and North Carolina. Services provided include:
FULFILLMENT SERVICES - call center management, credit card
approval, online order entry, invoicing, warehousing, small
package and freight shipping plus customized order and inventory
reports
CONTRACT PACKAGING - custom sortation, automated high-speed
shrink-wrapping and banding, collating, carton assembly, UPC and
date coding
DISTRIBUTION SERVICES - integrated warehousing, shipping and
transportation services, including climate-controlled facilities
Arnold Logistics has developed a unique ability to customize
solutions for efficiently assuming the labor intensive back-
office order processing, packaging and shipping functions of its
clients. Arnold Logistics has developed a culture that supports
long-term customer partnerships in a variety of industries
including food, publications, software and consumer non-durables.
Arnold Logistics has distinguished itself for superior quality.
The Distribution Services operations have achieved an annual
accuracy rate of 99.998%.
RECORD REVENUE AND OPERATING INCOME
Arnold Logistics achieved record revenue in 1998 of $29.4
million, a 12% increase compared to 1997. The growth was
primarily in the areas of order fulfillment and contract
packaging. Operating income rose by 12% to a record $5.5 million.
These results were achieved by focusing on labor-intensive value-
added services.
The major development at Arnold Logistics in 1998 was the
completion of 562,000 square feet of new warehouse space in
Central Pennsylvania. Business development efforts throughout
1998 have ensured that the new warehouse will be completely
utilized by mid-year 1999. The Company continued to expand its
customer base. Contract packaging services were expanded at the
Texas facility during 1998 with nearly 250,000 square feet of
additional warehouse space.
OUTLOOK
A key trend that Arnold Logistics is positioned to address is the
growth of consumer direct retail sales through the Internet and
mail-order catalog companies. General retail sales via the
Internet are projected to grow by 600% in 1999. Order fulfillment
services provided by Arnold Logistics allow Internet and catalog
marketers to completely outsource their order processing,
inventory management and small package shipping. Other trends on
which Arnold Logistics is positioned to capitalize include the
outsourcing of inventory and transportation management functions.
The growth of the warehouse club retail format has propelled the
need for custom packaging. Arnold Logistics' customers benefit by
being able to reduce capital investment in the logistics
function, lower costs, decrease order-cycle times and increase
flexibility to address special projects.
Recent investments made in additional warehouse space and
automated material handling equipment will allow Arnold Logistics
to capitalize on these trends and continue its outstanding record
of growth. We anticipate Arnold Logistics will have a greater
impact on the earnings of the parent company in the years ahead.
<PAGE>
</TABLE>
<TABLE>
Arnold Industries consolidated five-year summary
(dollars in thousands except per share data)
<CAPTION>
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Operating Revenues 403,721 383,165 356,335 330,136 302,390
Net Income 35,116 32,210 25,409 30,501 30,355
Net Income Per
Share 1.37 1.23 .95 1.15 1.14
Operating Revenues by Service
Warehousing/
Logistics 29,445 26,154 22,538 18,545 16,457
Truckload 171,366 153,712 151,926 144,534 126,300
Less-than-Truckload 202,910 203,299 181,871 167,057 159,633
</TABLE>
<PAGE>
financial statements
contents
9 Consolidated Balance Sheets
10 Consolidated Statements of Income
10 Consolidated Statements of
Shareholders' Equity
11 Consolidated Statements of Cash Flows
12 Notes to Consolidated
Financial Statements
17 Report of Independent Accountants
18 Quarterly Performance
18 Price Range Common Stock
19 Management's Discussion and Analysis of Financial Condition
and Results of Operations
22 Eleven-Year Financial Summary
24 Board of Directors and Shareholder Information
Inside Back Cover
Company Executives
<PAGE>
<TABLE>
consolidated balance sheets
as of December 31, 1998 and 1997
(dollars in thousands)
<CAPTION>
ASSETS 1998 1997
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 19,433 $26,505
Marketable securities 4,849 9,786
Accounts receivable:
Trade (less allowance for doubtful accounts
of $1,184 and $1,340) 39,555 40,063
Officers and employees 604 363
Notes receivable, current 874 -
Deferred income taxes 6,263 10,498
Prepaid expenses and supplies 7,458 4,462
Refundable income taxes 707 577
Total current assets 79,743 92,254
Property and equipment, at cost:
Land 17,691 16,970
Buildings 88,206 84,095
Revenue and service equipment 213,524 210,396
Other equipment and fixtures 34,337 31,170
Construction in progress 16,400 3,372
370,158 346,003
Accumulated depreciation 149,459 140,441
Total property and equipment 220,699 205,562
Other assets:
Goodwill, net of accumulated amortization
of $2,592 and $2,401 8,303 8,494
Investments in limited partnerships 9,120 9,616
Notes receivable, long-term 1,091 -
Cash value of life insurance, net 875 804
Other 280 310
Total other assets 19,669 19,224
$320,111 $317,040
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 15,864 $16,280
Accounts payable, trade 10,352 10,155
Estimated liability for claims 5,079 6,453
Salaries and wages 3,387 3,768
Accrued vacation 5,889 5,523
Accrued expenses - other 4,041 4,154
Total current liabilities 44,612 46,333
Other long-term liabilities:
Estimated liability for claims 10,714 13,733
Deferred income taxes 35,307 35,684
Notes payable 1,310 2,383
Other 1,768 1,654
Total other long-term liabilities 49,099 53,454
Commitments and contingencies (Note 10)
Shareholders' equity:
Common stock, par value $1.00; authorized
100,000,000 shares; 29,942,628 issued in
1998 and 1997 29,942 29,942
Paid-in capital 658 483
Retained earnings 232,418 208,617
263,018 239,042
Less treasury stock, at cost - 5,123,476
and 4,020,442 shares in 1998 and 1997,
respectively (36,618) (21,789)
Total shareholders' equity 226,400 217,253
$ 320,111 $317,040
<FN>
The accompanying notes are an integral part of the consolidated
financial statements
</TABLE>
<PAGE>
<TABLE>
consolidated statements of income
for the years ended December 31, 1998, 1997, and 1996
(dollars in thousands, except per share data)
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Operating revenues $403,721 $383,165 $356,335
Operating expenses:
Salaries, wages and related expenses 190,629 187,439 174,666
Supplies and expenses 52,229 59,387 57,552
Operating taxes and licenses 9,793 9,342 9,381
Insurance 9,101 7,471 9,837
Communication and utilities 5,615 5,247 4,680
Purchased transportation 46,406 29,650 28,066
Rental of buildings, revenue
equipment, etc., net 1,145 1,715 1,328
Depreciation and amortization 30,585 29,133 27,756
Miscellaneous 2,021 2,865 2,727
Total operating expenses 347,524 332,249 315,993
Operating income 56,197 50,916 40,342
Other income (expenses) - net, including
interest income of $1,674, $1,605
and $1,090 (355) (27) (890)
Income before income taxes 55,842 50,889 39,452
Income taxes 20,726 18,679 14,043
Net income $ 35,116 $ 32,210 $25,409
Per share amounts
Basic $ 1.37 $ 1.23 $ 0.95
Diluted $ 1.36 $ 1.22 $ 0.94
</TABLE>
<TABLE>
consolidated statements of shareholders' equity
for the years ended December 31, 1998, 1997, and 1996
(dollars in thousands, except per share data)
<CAPTION>
Common Paid-in Retained Treasury
Stock Capital Earnings Stock
<S> <C> <C> <C> <C>
Balance - December 31, 1995 $ 29,942 $ 153 $174,242 $ (8,970)
Net income - - 25,409 -
Distribution of treasury
stock due to exercise
of stock options - 56 - 43
Cash dividends paid
($.44 per share) - - (11,728) -
Balance - December 31, 1996 29,942 209 187,923 (8,927)
Net income - - 32,210 -
Distribution of treasury
stock due to exercise
of stock options - 274 - 203
Purchase of treasury stock - - - (13,065)
Cash dividends paid ($.44
per share - - (11,516) -
Balance - December 31, 1997 29,942 483 208,617 (21,789)
Net income - - 35,116 -
Distribution of treasury
stock due to exercise of
stock options - 175 - 213
Purchase of treasury stock - - - (15,042)
Cash dividends paid
($.44 per share) - - (11,315) -
Balance - December 31, 1998 $ 29,942 $ 658 $232,418 $(36,618)
<FN>
The accompanying notes are an integral part of the consolidated
financial statements
</TABLE>
<PAGE>
<TABLE>
consolidated statements of cash flows
for the years ended December 31, 1998, 1997, and 1996
(dollars in thousands)
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $35,116 $32,210 $25,409
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 31,099 29,636 28,269
Gain on disposal of property and
equipment (2,096) (588) (726)
Equity in earnings of limited
partnerships (33) (33) (5)
Provision for deferred taxes 3,858 1,740 1,860
Net loss on investments 5 24 176
Changes in operating assets and
liabilities:
(Increase) decrease in accounts
receivable 267 (9,777) 695
(Increase) decrease in prepaid
expenses and supplies (2,996) (698) 903
Increase in accounts payable, trade 197 823 2,016
(Increase) decrease in refundable
income taxes (130) (1,034) 1,874
Increase (decrease) in estimated
liability for claims (4,393) 45 4,692
Increase (decrease) in accrued
expenses (128) 2,132 1,709
Other, net 114 122 128
Net cash provided by operating
activities 60,880 54,602 67,000
Cash flows from investing activities:
Proceeds from sale of investment
securities 5,604 19,075 3,103
Purchase of investment securities (672) (6,967) (16,693)
Proceeds from disposition of property
and equipment 8,655 5,649 4,830
Purchase of property and equipment (54,240) (39,760) (31,279)
Capital contributions in limited
partnerships (1,489) (1,587) (1,646)
Distributions from limited partnerships 16 46 22
Increase in cash value of life insurance (71) (274) -
Repayment on loans to employees 185 - -
Other, net 29 (34) 226
Net cash used in investing activities (41,983) (23,852) (41,437)
Cash flows from financing activities:
Proceeds from employee stock options
exercised 388 476 99
Cash dividends paid (11,315) (11,516) (11,728)
Principal payments on long-term debt - 156 -
Purchase of treasury stock (15,042) (13,065) -
Net cash used in financing activities (25,969) (23,949) (11,629)
Increase (decrease) in cash and cash
equivalents (7,072) 6,801 13,934
Cash and cash equivalents at beginning
of year 26,505 19,704 5,770
Cash and cash equivalents at end of year $19,433 $26,505 $19,704
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest $ 1,173 $ 1,373 $ 1,300
Income taxes $17,029 $17,971 $10,388
<FN>
The accompanying notes are an integral part of the consolidated
financial statements
</TABLE>
<PAGE>
notes to consolidated financial statements
(dollars in thousands, except per share data)
1. Summary of Significant Accounting Policies:
Nature of Business:
The Company operates in the motor carrier industry, principally
in the Eastern United States. Revenues are mainly generated from
less-than-truckload hauling, truckload hauling, and warehousing/logistics.
Principles of Consolidation:
The accompanying consolidated financial statements include the
accounts of Arnold Industries, Inc. and all of its subsidiaries.
All material intercompany transactions and balances have been
eliminated.
Segment Information:
In 1998, the Company adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise
and Related Information" (SFAS 131). SFAS 131 supersedes SFAS 14,
"Financial Reporting for Segments of a Business Enterprise,"
replacing the "industry segment" approach with the "management" approach.
The management approach designates the internal organization that is
used by management for making operating decisions and assessing
performance as the source of the Company's reportable segments. SFAS 131
also requires disclosures about products and services, geographic
areas, and major customers. The adoption of SFAS 131 did not affect
results of operations or financial position but did affect the disclosure
of segment information (Note 7).
Revenue Recognition:
In accordance with industry practice, revenues from less-than-
truckload hauling are allocated between reporting periods based
on relative transit time in each reporting period with expenses
recognized as incurred, and revenues from truckload hauling are
recognized when the shipment is completed with expenses
recognized as incurred. Revenues for warehouse/distribution services
are recognized as the related services are rendered and associated costs
incurred.
Cash and Cash Equivalents:
For purposes of the consolidated statements of cash flows, the
Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
Marketable Securities:
At December 31, 1998 and 1997, marketable equity and debt securities
have been categorized as available for sale and as a result are
recorded at fair value. Realized gains and losses on the sale of
securities are recognized using the specific identification method
and are included in other income in the consolidated statements of
income. Quoted market prices are used to determine market value.
Concentrations of Credit Risk:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and cash
equivalents, marketable securities, and trade accounts receivable.
The Company places its cash and cash equivalents with high credit
financial institutions, and limits the amount of credit exposure to
any one financial institution. The Company's marketable securities
consist principally of U.S.
Government securities and municipal bonds. These securities are
subject to minimal risk. Concentrations with respect to trade
receivables are limited due to the large number of customers
comprising the Company's customer base, and their dispersion
across many different industries and geographies.
Property and Equipment:
The Company depreciates the cost, less estimated residual value,
of
revenue equipment and other depreciable assets principally on the
straight-line basis over their estimated useful lives.
The estimated useful lives used in computing depreciation on the
principal classifications of property and equipment are as
follows:
Buildings 15 - 31 years
Revenue equipment 3 - 10 years
Service equipment 3 - 6 years
Other equipment and fixtures 3 - 7 years
When buildings and equipment are retired or otherwise disposed of,
the property and accumulated depreciation accounts are relieved of
the applicable amounts and any resulting profit or loss is reflected
in miscellaneous operating expenses.
In 1998, certain revenue equipment was sold to employees for $2,150
and interest-bearing notes with established repayment terms were
received. This has been treated as a non-cash transaction on the
1998 consolidated statement of cash flows.
Goodwill:
The excess of the cost of investments in subsidiaries over the fair
market value of net assets acquired is shown as goodwill, which is
being amortized on a straight-line basis over a maximum period of 40
years. The Company's policy is to record an impairment loss against
the net unamortized cost in excess of net assets of businesses
acquired in the period when it is determined that the carrying amount
of the asset may not be recoverable. An evaluation is made at each
balance sheet date (quarterly) and it is based on such factors as
the occurrence of a significant event, a significant change in the
environment in which the business operates, or if the expected
future net cash flows (undiscounted and without interest) would
become less than the carrying amount of the asset.
Investments in Limited Partnerships:
The Company's investments in low-income housing limited partnerships
reflect their cash investment plus the present value of required
future contributions net of amortization of any excess of cost over
the estimated residual value.
Use of Estimates:
The preparation of the Company's financial statements in accordance
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
The consolidated financial statements include estimates for claims
outstanding, the future recoverability of deferred tax assets, the
allowance for uncollectible accounts receivable and residual value of
several limited partnerships accounted for on a cost basis. Actual
results could differ from those estimates.
<PAGE>
Income Taxes:
In accordance with Financial Accounting Standards Board Statement
No. 109, "Accounting for Income Taxes" (SFAS 109), deferred income
taxes are accounted for by the liability method, wherein deferred tax
assets or liabilities are calculated on the differences between the
bases of assets and liabilities for financial statement purposes
versus tax purposes (temporary differences) using enacted tax rates in
effect for the year in which the differences are expected to reverse.
Tax expense in the consolidated statements of income is equal to the
sum of taxes currently payable plus an amount necessary to adjust
deferred tax assets and liabilities to an amount equal to period-end
temporary differences at prevailing tax rates.
Treasury Stock:
Treasury stock is carried at cost, determined by the first-in,
first-out method.
Effective December 28, 1998, February 27, 1998 and March 22, 1997, the
Board of Directors authorized management to repurchase up to 1,000,000
shares of common stock through open market purchases. During 1998
and 1997, the Company purchased 1,182,400 and 817,600 shares,
respectively, of its common stock at an aggregate cost of $15,042 and
$13,065, respectively.
Per Share Amounts:
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" (SFAS 128). SFAS 128 establishes standards for computing and
presenting earnings per share and applies to entities with publicly
held common stock or potential common stock. SFAS 128 simplifies the
standards for computing earnings per share previously found in APB
Opinion No. 15, "Earnings Per Share," by replacing the presentation of
primary earnings per share with a presentation of basic earnings per
share. It also requires dual presentation of basic and diluted
earnings per share on the face of the income statement for all
entities with complex capital structures. The basic earnings per share
and diluted earnings per share are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Basic and diluted
earnings per share:
Earnings $ 35,116 $ 32,210 $ 25,409
Basic earnings per
share, number of
shares 25,668,457 26,172,232 26,655,125
Effect of dilutive
securities - stock
options 133,352 334,263 245,618
Diluted earnings per
share, number of
shares 25,801,809 26,506,495 26,900,743
Basic earnings per share $ 1.37 $ 1.23 $ 0.95
Diluted earnings per
share $ 1.36 $ 1.22 $ 0.94
</TABLE>
Stock options to purchase 200,000 shares of common stock at $18.56 per
share were outstanding during all of 1998, but were not included in
the computation of diluted earnings per share because the stock
options' exercise price was greater than the average market price of
the common stock.
Comprehensive Income:
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income" (SFAS 130), which is effective
for fiscal years beginning after December 15, 1997. This statement
establishes standards for the reporting and display of comprehensive
income and its components. Comprehensive income is defined to include
all changes in equity during a period except those resulting from
investments by owners and distributions to owners. The Company has
adopted SFAS 130 and has determined that net income is its only
component of comprehensive income.
Derivative Instruments:
In June 1998, the Financial Accounting Standards Board issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133), which is effective for all fiscal quarters
for all fiscal years beginning after June 15, 1999. This statement
requires that all derivative instruments be recorded on the consolidated
balance sheet at their fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated
as part of a hedge transaction and, if it is, the type of hedge transaction.
It is not anticipated that the adoption of SFAS 133 will have a significant
effect on the Company's results of operations or its financial position.
2. Marketable Securities:
The cost and market value of investment securities at December 31,
1998 and 1997 follows:
<TABLE>
1998 1997
<S> <C> <C> <C> <C>
Market Market
Cost Value Cost Value
U.S. treasury securities $ 102 $ 102 $ 99 $ 99
Municipal bonds 3,730 3,731 8,627 8,627
Equity securities 1,000 1,004 1,000 1,004
Accrued interest receivable 12 12 56 56
Total $4,844 $4,849 $9,782 $9,786
</TABLE>
The net gain (loss) on marketable securities recorded during the years
ended 1998, 1997 and 1996 amounted to $(5), $(24) and $24, respectively.
The contractual maturities of debt securities available for sale at
December 31, 1998 are all due within one year of December 31, 1998.
3. Notes Payable:
The Company has unsecured working capital lines of credit with maximum
borrowings of $31,500 of which $14,790 was outstanding at December 31,
1998 and 1997. Borrowings under these agreements bear interest at
fixed rates quoted by the bank at the time of borrowing. The current
interest rate on the outstanding balance was 5.87%.
In connection with its investments in low income housing limited
partnerships, the Company is required as of December 31, 1998 to make
additional contributions over the next three years as follows: 1999,
$1,209; 2000, $1,189; and 2001, $200. The additional contributions of
$2,598 were discounted to
<PAGE>
$2,384 using the Company's incremental borrowing rate of 6%.
Management anticipates that the cash flow from the tax credits
generated by these investments will approximate the additional
contributions during this period.
4. Stock Option and Stock Purchase Plans:
Stock Option Plan:
The Company has a 1987 and a 1997 stock option plan which
provide for the granting of options to purchase shares of the
Company's stock to certain executives, employees, consultants and
directors. The 1987 stock option plan expired on March 31, 1997 and
was replaced by the 1997 stock option plan effective April 1, 1997.
No new options can be granted under the 1987 stock option plan.
Under the 1997 stock option plan, options to acquire up to 2,000,000
shares of the stock may be granted to executives, employees,
consultants and directors of the Company. Options under both plans
carry various restrictions. Under the plans, certain options granted
to employees will be qualified incentive stock options within the
meaning of Section 422A of the Internal Revenue Code and other options
will be considered nonqualified stock options. Both incentive stock
options and nonqualified stock options may be granted for no less than
market value at the date of grant. Options are exercisable starting
three months from the date of grant and expire no later than ten years
after the date of grant. Also, no employee may participate in the
qualified incentive stock option plans if immediately after the grant
he or she would directly or indirectly own more than 10% of the stock
of the Company.
Transactions and other information relating to the 1987 and 1997 stock
option plans for the three years ended December 31, 1998 are summarized
as follows:
<TABLE>
<CAPTION>
Stock Option Plans
Weighted
Average
Fair Value
of Options
Granted
Price During
Shares Per Share the Year
<S> <C> <C> <C>
Balance, outstanding -
December 31, 1995 1,056,680 $ 4.46 to $15.62
Options granted 38,800 $13.63 $3.81
Options exercised (15,746) $ 4.46 to $ 7.25
Options expired (26,000) $13.63 to $14.75
Balance, outstanding -
December 31, 1996 1,053,734 $ 4.46 to $15.62
Options granted 526,500 $15.00 to $21.75 $5.09
Options exercised (76,268) $ 4.46 to $15.62
Options expired (72,600) $13.63 to $14.75
Balance, outstanding -
December 31, 1997 1,431,366 $ 4.46 to $21.75
Options granted 642,500 $12.19 to $15.25 $3.20
Options exercised (79,366) $ 4.46 to $13.94
Options expired (336,400) $13.63 to $21.75
Balance, outstanding -
December 31, 1998 1,658,100 $ 7.25 to $18.56
Options exercisable -
December 31, 1998 864,300 $ 7.25 to $18.56
</TABLE>
On June 26, 1996, stock options granted in 1994 for $18.25 per share
to $18.50 per share were repriced to $13.63 per share. All other
provisions of the 1994 options granted have remained unchanged.
On October 15, 1998, 2,500 stock options granted in 1998 and 325,500
stock options granted in 1997 for $15.00 per share to $21.75 per share
were cancelled and reissued at $12.19 per share. The reissued stock
options are considered newly granted options under the provisions of
the 1997 stock option plan.
On January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based
Compensation" (SFAS 123). As permitted by SFAS 123, the Company has
chosen to apply APB Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25) and related interpretations in accounting for its
plans. Accordingly, no compensation cost has been recognized for
options granted under the plans. Had compensation costs for the
Company's plans been determined based on the fair value at the grant
dates for awards under the plans consistent with the method of SFAS
123, the impact on the Company's net income and earnings per share
would be as follows:
<TABLE>
<CAPTION>
1998 1997 1996
As Pro As Pro As Pro
Reported Forma Reported Forma Reported Forma
<S> <C> <C> <C> <C> <C> <C>
Net
income $35,116 $34,796 $32,210 $30,917 $25,409 $25,281
Basic
earnings per
share $ 1.37 $ 1.36 $ 1.23 $ 1.18 $ 0.95 $ 0.95
Diluted
earnings per
share $ 1.36 $ 1.35 $ 1.22 $ 1.17 $ 0.94 $ 0.94
</TABLE>
The fair value of each option grant is estimated on the date of the
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1998, 1997 and 1996;
dividend yield of 3.00%; expected volatility of 29.10%, 27.00% and
26.00%, respectively; risk-free interest rate of 4.55%, 6.22% and
6.72%, respectively; and expected life of 6 years.
Stock Purchase Plan:
Effective November 15, 1992 the Company adopted a stock purchase plan
which replaced a similar plan adopted in 1975. The stock purchase
plan is available to all eligible employees. Under the plan, subscriptions
of each subscribing employee are remitted to a custodian for investment
in the common stock of the Company.
Minimum and maximum contributions under the plan are five hundred
twenty dollars and five thousand two hundred dollars for each
employee in any one year. At least monthly the custodian purchases the
stock in the over-the-counter market and the Company allocates all
purchased shares based on average price for all purchases and individual
payroll deduction amounts.
<PAGE>
Under the plan the Company is responsible for all costs of stock
purchases and stock sales within the plan and any administrative
costs related to issuance of stock certificates. Employees are
responsible for the expense of sale or transfer on issued stock
certificates.
5. Income Taxes:
Consolidated income tax expense consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Currently payable:
Federal $13,670 $13,803 $10,334
State 3,198 3,136 1,849
16,868 16,939 12,183
Deferred:
Federal 3,096 1,272 1,517
State 762 468 343
3,858 1,740 1,860
Total income tax expense $20,726 $18,679 $14,043
</TABLE>
The effective income tax rates of 37.1% in 1998, 36.7% in 1997 and
35.6% in 1996 differ from the federal statutory rates for the
following reasons:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Statutory federal income
tax rate 35.0% 35.0% 35.0%
State income taxes, net of
federal income tax benefit 4.6 4.6 3.6
Tax-free investment income
and other (2.5) (2.9) (3.0)
37.1% 36.7% 35.6%
</TABLE>
Deferred tax liabilities (assets) are comprised of the following at
December 31:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Property and equipment,
principally due to differences in
depreciation $35,262 $35,183
Limited partnership investments,
principally due to differences in
tax basis 1,571 1,465
Other 370 329
Gross deferred tax liabilities 37,203 36,977
Estimated liability for claims,
principally due to differences in
timing of recognition of expense (3,719) (7,424)
Vacation liability, principally due to
differences in timing of recognition
of expense (2,092) (1,925)
Allowance for bad debts, principally
due to differences in timing of
recognition of expense (472) (531)
Deferred compensation, principally
due to differences in timing of
recognition of expense (867) (794)
Other (1,009) (1,117)
Gross deferred tax assets (8,159) (11,791)
$29,044 $25,186
</TABLE>
6. Pension and Other Postretirement Benefit
Plans:
The Company participates in several multiemployer pension plans under
various labor contracts, offers a supplemental defined benefit pension
plan for certain key officers and employees, and has a trusteed profit
sharing plan and a 401(k) plan for all employees meeting certain
eligibility tests. The following summarizes the obligations,
assumptions, and activity of the plans as of and for the year ended
December 31:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at
beginning of year $1,654 $1,532
Service cost 57 50
Interest cost 104 102
Amortization of unrecognized
transition asset (6) (6)
Benefits paid (41) (24)
Benefit obligation at end of year $1,768 $1,654
</TABLE>
The supplemental defined benefit pension plan is unfunded. The
Company has recorded a liability for all benefit obligations.
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Discount rate 6.75% 7.00%
Rate of compensation increase 0.00% 0.00%
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Components of net periodic
benefit cost:
Service cost $ 57 $ 50 $ 61
Interest cost 104 102 94
Amortization of unrecognized
net transition asset (6) (6) (6)
Net periodic benefit cost $155 $146 $149
</TABLE>
In addition to the above supplemental defined benefit plan, the
Company has a profit sharing plan, participates in multiemployer
pension plans and began a 401(k) plan in 1997. The Company
contributed $1,443, $1,452, and $1,721 to the profit sharing plan
and $9,841, $9,449, and $7,919 to the multiemployer pension plans
for 1998, 1997, and 1996, respectively, and $568 and $591 to the
401(k) plan for 1998 and 1997, respectively.
7. Segment Information:
In 1998, the Company adopted SFAS 131 and has determined that its
reportable segments are those that are based on the Company's
methodology of internal reporting, which disaggregates its
business by product category. The accounting policies of the segments
are the same as those described in Note 1. The Company evaluates the
performance of its segments and allocates resources to them based on
operating income.
The Company's reportable segments are: less-than-truckload hauling,
truckload hauling, and warehousing/logistics services. The less-than-
truckload hauling segment provides next day service in the Northeast
region of the United States. The truckload hauling segment provides
irregular route and dedicated services throughout the Eastern,
Midwestern and Southwestern
<PAGE>
regions of the United States. The warehousing/logistics services
segment specializes in integrated distribution services, order
fulfillment, and contract packaging services in Pennsylvania and
Texas.
The following tables present information about reported segments
for the years ending December 31:
<TABLE>
<CAPTION>
Ware-
Less-than- housing/ Segment
truckload Truckload Logistics Total
<S> <C> <C> <C> <C>
1998
Operating
revenues $202,910 $171,366 $29,445 $403,721
Operating income $ 43,098 $ 7,113 $ 5,532 $55,743
Total assets $136,983 $157,563 $39,287 $333,833
Depreciation and
amortization $ 9,952 $ 18,435 $ 2,198 $30,585
Purchase of pro-
perty and
equipment $ 14,590 $ 28,295 $11,355 $54,240
1997
Operating
revenues $203,299 $153,712 $26,154 $383,165
Operating income $ 44,213 $ 2,066 $ 4,887 $51,166
Total assets $123,840 $155,886 $29,053 $308,779
Depreciation and
amortization $ 9,450 $ 17,661 $ 2,022 $29,133
Purchase of pro-
perty and
equipment $ 13,111 $ 24,971 $ 1,678 $39,760
1996
Operating
revenues $181,871 $151,926 $22,538 $356,335
Operating income $ 32,656 $ 3,631 $ 3,921 $40,208
Depreciation and
amortization $ 8,724 $ 17,045 $ 1,987 $27,756
Purchase of pro-
perty and
equipment $ 11,324 $ 17,675 $ 2,280 $31,279
</TABLE>
A reconciliation of total segment operating revenue to total
consolidated operating revenue, total segment net income to
consolidated net income, and total segment assets to total
consolidated assets for the years ended December 31, 1998, 1997
and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Total segment operating
revenues $403,721 $383,165 $356,335
Consolidated operating
revenues $403,721 $383,165 $356,335
Total segment operating income $ 55,743 $ 51,166 $ 40,208
Unallocated corporate
operating income (loss) 454 (250) 135
Interest income 1,673 1,605 1,090
Interest expense (1,173) (1,380) (1,289)
Other (855) (252) (692)
Consolidated net
income before taxes $ 55,842 $ 50,889 $ 39,452
Total segment assets $333,833 $308,779
Unallocated corporate assets 11,380 14,765
Elimination of intercompany
balances (25,102) (6,504)
Consolidated assets $320,111 $317,040
</TABLE>
8. Fair Value of Financial Instruments:
Financial instruments include cash and cash equivalents, marketable
securities, investments in limited partnerships and notes payable. At
December 31, 1998 and 1997 the carrying amount of cash equivalents
approximates fair value because of the short-term maturity of those
instruments, and the carrying value of marketable securities is fair
market value. With respect to investments in limited partnerships,
management has determined that the resulting carrying value approximates
estimated fair market value. The fair value of the Company's obligations
for contributions to limited partnerships approximates its carrying value.
The fair market value of the Company's notes payable approximates its
carrying value and was based on the borrowing rates currently
available to the Company for bank loans with similar terms and
maturities.
9. Transactions With Affiliates:
Accounting and legal fees totaling approximately $778, $903 and $746
in 1998, 1997 and 1996, respectively, were paid or accrued to firms in
which certain directors have financial interests.
10. Commitments and Contingencies:
By agreement with its insurance carriers, the Company has assumed
liability through June 30, 1998 in any single occurrence for Workmen's
Compensation and Property Damage up to $1,000 and for Public Liability
up to $1,000 for the first occurrence and up to $500 for each subsequent
occurrence with excess liability assumed by the insurance carriers up
to $50,000. Subsequent to June 30, 1998, the Company's assumed liability
has been reduced to $25 per occurrence, except Workmen's Compensation in
New Jersey which is $250 per occurrence. In conjunction with these
agreements, the Company has issued irrevocable letters of credit to
guarantee future payments of claims to the insurance carriers. At
December 31, 1998 and 1997, the outstanding balance of the letters of
credit was $4,000 and $7,553, respectively, on a total commitment of
$12,000.
Effective February 28, 1999, the Company transferred its accrued
liabilities of $10,975 for claims years ended June 30, 1998, 1997, and
1996 to an outside insurance carrier for approximately $11,000.
<PAGE>
report of independent accountants
To the Board of Directors
Arnold Industries, Inc.
Lebanon, Pennsylvania
In our opinion, the accompanying consolidated balance sheets at
December 31, 1998 and 1997 and the related consolidated statements of
income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1998, present fairly, in all
material respects, the consolidated financial position of Arnold
Industries, Inc. and subsidiaries (the Company) and the consolidated
results of its operations and its cash flows, in conformity with
generally accepted accounting principles. These consolidated financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on the consolidated financial
statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free
of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
consolidated financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
One South Market Square
Harrisburg, Pennsylvania
March 5, 1999
<PAGE>
<TABLE>
quarterly performance
(dollars in thousands, except per share data)
<CAPTION>
Operating Operating Net
Revenues Income Income
<S> <C> <C> <C> <C> <C> <C>
QUARTER 1998 1997 1998 1997 1998 1997
First $ 96,002 $ 90,539 $11,532 $11,548 $ 7,226 $7,321
Second 102,264 97,341 14,155 15,051 8,888 9,510
Third 102,228 99,175 14,945 14,287 9,377 9,048
Fourth 103,227 96,110 15,565 10,030 9,625 6,331
$403,721 $383,165 $56,197 $50,916 $35,116 $32,210
</TABLE>
<TABLE>
<CAPTION>
Net Income Net Income Dividends
Per Share-Basic Per Share-Diluted Per Share
<S> <C> <C> <C> <C> <C> <C>
QUARTER 1998 1997 1998 1997 1998 1997
First $ .28 $ .27 $ .28 $ .27 $ .11 $.11
Second .34 .37 .34 .36 .11 .11
Third .37 .35 .36 .35 .11 .11
Fourth .38 .24 .38 .24 .11 .11
$1.37 $1.23 $1.36 $1.22 $ .44 $.44
</TABLE>
<TABLE>
price range common stock
<CAPTION>
HIGH LOW HIGH LOW
QUARTER 1998 1997
<S> <C> <C> <C> <C>
First 18-1/8 15-1/4 16 13
Second 17-3/4 14-3/8 18-3/8 13-7/8
Third 15-1/2 11-5/8 24-1/2 17
Fourth 16-11/16 12 25-5/8 16-3/4
</TABLE>
<PAGE>
management's discussion and analysis of financial condition and
results of operations
Results of Operations
Arnold Industries' 1998 operating revenues are from two operating
subsidiaries:
New Penn Motor Express, Inc. ("New Penn")
Arnold Transportation Services, Inc. ("ATS")
New Penn is a less-than-truckload (LTL) transportation company. ATS
is a truckload (TL) carrier which provides regional and interregional
transportation services.
In addition to LTL and TL transportation services, Arnold Industries
provides specialty warehousing operations and related transportation
services under the name of "Arnold Logistics," a division of ATS.
Prior to 1998, ATS's truckload operation was operated by three
separate subsidiaries: SilverEagle Transport, Inc., D.W. Freight,
Inc. and Lebarnold, Inc. At the end of 1997, these three companies
were merged into one company. The results of operations are set forth
below for the three separate segments.
<TABLE>
Operating Revenues
(dollars in millions)
<CAPTION>
Total LTL
Amount % Increase Amount % Increase
<S> <C> <C> <C> <C>
1998 $403.7 5 $202.9 -
1997 383.2 8 203.3 12
1996 356.3 8 181.9 9
</TABLE>
<TABLE>
<CAPTION>
Warehousing/
Truckload Related Trucking
Amount % Increase Amount % Increase
<S> <C> <C> <C> <C>
1998 $171.4 12 $29.4 12
1997 153.7 1 26.2 16
1996 151.9 5 22.5 21
</TABLE>
<TABLE>
Operating
Income
<CAPTION>
1998 1997 1996
Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C>
New Penn $43.1 77 $44.2 86 $32.7 81
ATS 7.1 13 2.1 4 3.6 9
Arnold Logistics 5.5 10 4.9 10 3.9 10
TOTAL $55.7 100% $51.2 100% $40.2 100%
</TABLE>
The percentage of revenue for the last three years is set forth
below:
<TABLE>
<CAPTION>
1998 1997 1996
Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C>
New Penn $202.9 50 $203.3 53 $181.9 51
ATS 171.4 43 153.7 40 151.9 43
Arnold Logistics 29.4 7 26.2 7 22.5 6
TOTAL $403.7 100% $383.2 100% $356.3 100%
</TABLE>
The revenue at New Penn was basically flat for the year 1998 compared
to 1997, even though tonnage decreased 3% to 1,050,685 from 1,081,334.
This compares to revenue increases of 12% in 1997 and 9% in 1996. ATS
revenues increased by 12% in 1998, compared to 1% in 1997 and 5% in
1996. ATS revenues increased as additional new business was secured.
The revenue had been affected negatively in 1997 by a number of major
customers who rebid their contracts. Arnold Logistics revenue
increased by 12% for 1998 as a result of additional value added
services being provided to their customers. This compares to revenue
increases of 16% and 21% for 1997 and 1996, respectively.
The following tables set forth the percentage of operating expenses to
operating revenue for New Penn, ATS and Arnold Logistics.
<TABLE>
<CAPTION>
NEW PENN ATS
1998 1997 1996 1998 1997
1996
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Operating Expenses
Salaries, wages and
related expenses 58.2 57.3 60.0 33.3 37.4 36.4
Supplies and expenses 8.7 9.2 10.3 18.9 25.3 24.1
Operating taxes and
licenses 2.8 2.9 3.2 2.0 1.9 1.9
Insurance 1.5 1.5 1.8 3.5 2.7 4.2
Communication and
utilities 1.1 1.1 1.2 1.5 1.4 1.2
Purchased
transportation 1.2 1.1 1.0 25.7 17.9 17.3
Rental of buildings,
revenue equipment,
etc., net (0.4) (0.2) (0.3) 0.3 0.3 0.3
Depreciation and
amortization 4.9 4.7 4.8 10.8 11.5 11.2
(Gain) on sale of
equipment (0.3) (0.1) (0.2) (0.9) (0.1) (0.1)
Miscellaneous 1.1 0.8 0.2 0.7 .4 1.1
Total Operating
Expenses 78.8 78.3 82.0 95.8 98.7 97.6
Operating Income 21.2% 21.7% 18.0% 4.2% 1.3% 2.4%
</TABLE>
<TABLE>
<CAPTION>
ARNOLD LOGISTICS
1998 1997 1996
<S> <C> <C> <C>
Operating Revenues 100.0% 100.0% 100.0%
Operating expenses - salaries,
wages and related expenses 52.3 51.6 45.8
Other operating expenses 17.2 18.0 22.5
Depreciation and amortization 7.5 7.7 8.8
Miscellaneous 4.3 4.0 5.6
Total Operating Expenses 81.3 81.3 82.7
Operating Income 18.7% 18.7% 17.3%
</TABLE>
The operating expenses of New Penn decreased to 78.8% for 1998 and
78.3% for 1997, compared to 82.0% for 1996. Salaries, wages and
related expenses increased to 58.2% for 1998 from 57.3% in 1997. This
compared to a decrease for 1997 to 57.3% from 60.0% in 1996. Supplies
and expenses continue to decrease as a result of a continuous decline
in fuel prices. The fuel surcharge which was implemented in September
1996, was discontinued in March, 1998. Insurance expense was 1.5% for
both 1998 and 1997 compared to 1.8% in 1996. The year 1996 was affected
by the Company's insurance carrier increasing the reserve for
a prior year's loss.
The total operating expenses of ATS decreased to 95.8% for 1998. This
compared to 98.7% and 97.6% for 1997 and 1996, respectively. The
years 1998, 1997 and 1996 were affected negatively by the merger of
the three truckload companies. Beginning in the second half of 1998,
ATS
<PAGE>
began to see a turnaround of their operation with increased revenue,
higher revenue per mile, improved asset utilization and a reduction
in empty miles.
The salaries, wages and related expenses of ATS decreased to 33.3% in
1998 compared to 37.4% in 1997 and 36.4% in 1996. This substantial
decrease was due to the use of a greater number of owner-operators in
1998 compared to the prior two years. Likewise, this use of increased
owner-operators reduced supplies and expenses to 18.9% in 1998
compared to 25.3% for 1997 and 24.1% for 1996. In addition, the
continuous decline in fuel prices also reduced operating supplies and
expenses for 1998. Insurance expense increased in 1998 to 3.5% which
compared to 2.7% for 1997 due to increased claims. This compared to
4.2% for the year 1996. Purchased transportation expense increased to
25.7% for 1998 compared to 17.9% in 1997 and 17.3% in 1996, due to the
substantial number of additional owner-operators.
The Arnold Logistics operating expenses were 81.3% for 1998 compared
to 81.3% and 82.7% for 1997 and 1996, respectively. The salaries,
wages and related expenses were 52.3%, 51.6% and 45.8% for 1998, 1997
and 1996, respectively. The increase in these expenses is primarily
due to the revenue growth in the areas of order fulfillment and
contract packaging which are labor intensive requiring additional
employees.
Arnold Industries' operating income for 1998 increased $5.3 million or
10% over 1997 compared to an increase of $10.6 million, or 26% over
1996. New Penn's operating income decreased $1.1 million compared to
1997, whereas 1997 operating income was up $11.5 million compared to
1996. New Penn signed a five-year contract with the Teamsters' Union
effective April 1, 1998. This contract expires March 31, 2003.
During the negotiations in the first quarter of 1998, a number of
customers diverted a portion of their freight to non-union companies
which had a negative effect on New Penn's revenues for the entire year
1998.
The operating income of ATS for 1998 increased $5.0 million, or 238%
compared to 1997. This compares to a decrease of $1.5 million or 42%
for 1997 compared to 1996.
Arnold Logistics' operating income for 1998 increased by $.6 million,
or 12% compared to 1997. This compares to an increase of $1.0 million
or 26% for 1997 compared to 1996.
Other net non-operating expenses consist primarily of interest income,
other investment income and interest expense. Interest income
increased $.1 million for 1998 over 1997. Interest income increased
$.5 million in 1997 over 1996 due to additional investment securities.
Interest expense for 1998 was $1.2 million compared to $1.4 million
and $1.3 million for 1997 and 1996, respectively. This reduction was
due to lower interest rates in 1998.
The effective income tax rates for 1998, 1997 and 1996 were 37.1%,
36.7% and 35.6%, respectively.
Net income for 1998 increased to $35.1 million compared to $32.2
million for 1997 and $25.4 million for 1996. Basic net income per
share in 1998 was $1.37 compared to $1.23 in 1997 and $.95 in 1996.
Diluted net income per share was $1.36 in 1998 compared to $1.22 in
1997 and $.94 in 1996.
Capital Expenditures
In 1997, the Company authorized the purchase of up to one million
shares of common stock of which the Company purchased 817,600 shares
at a total cost of $13.1 million in 1997. In 1998, the balance of
182,400 shares together with an additional 1,000,000 shares which was
authorized for purchase in 1998, was completed at a total cost of
$15.0 million. The Company authorized on December 28, 1998 the
purchase of an additional one million shares.
The total capital expenditures for real estate and equipment (net of
dispositions) amounted to $45.6 million for 1998, compared to $34.1
million for 1997 and $26.4 million for 1996. The Company is
projecting the purchase of real estate and equipment in 1999 of
approximately $51.0 million.
Liquidity and Capital Resources
Cash, cash equivalents, and marketable securities totaled $24 million
at the end of 1998, compared to $36 million and $42 million at
December 31, 1997 and 1996, respectively. The decrease for 1998 and
1997 was attributable to increased capital expenditures and the
substantial purchase of treasury stock. Working capital amounted to
$35 million, $46 million and $40 million at the end of 1998, 1997 and
1996, respectively. Net cash provided by operating activities was $61
million in 1998, $55 million in 1997 and $67 million in 1996.
The Company's current cash position, together with funds invested in
marketable securities and cash flow generated from future operations,
are expected to be sufficient to finance anticipated capital
expenditures. These funds may be supplemented when necessary or
desirable by short or long-term borrowing.
Inflation
During 1998 and 1997, the Company believes that inflation had a
minimal effect on operating results. However, most of the Company's
expenses are subject to inflation, which would result in increased
costs in the event inflation began to increase.
Seasonality
In the trucking industry, results of operations show a seasonal
pattern because of customers' reduced shipments in the winter months.
In addition, operating expenses are usually higher during the winter
months.
<PAGE>
Current Trends
In September 1998, New Penn announced a general rate increase of
5.4%. However, most customer rates are subject to negotiated
contracts and agreements.
New Penn's revenues were up approximately 2% for the fourth quarter of
1998. However, New Penn's first quarter 1999 revenues are running
slightly behind the revenues of the first quarter of 1998. The
revenues at ATS were up approximately 13% for the fourth quarter of
1998. Because of the termination of a close working relationship of
ATS with Raven Transport Company, Inc., a minority owned brokerage/
carrier based in Jacksonville, the revenues may be affected negatively
in the first and second quarters of 1999.
The truckload company merger of the three divisions at the end of 1997
should continue to have a favorable impact on operations in the year
1999.
Arnold Logistics completed a 562,000 S.F. warehouse in early 1999,
which should be completely full by mid-year 1999. This will increase
substantially the revenue for Arnold Logistics in 1999. Arnold
Logistics is expanding its order fulfillment services to allow
Internet and catalog marketers to completely outsource their order
processing, inventory management and small package shipping.
The three operating companies are continuing to improve efficiencies
through refinement of information technology, which will continue to
reduce operating costs and provide better service to customers.
Management is continuing to evaluate the complete transportation
market, which includes LTL, TL and logistics operations.
Year 2000 Compliance
The Company continues its on-going project to assure Year 2000 ("Y2K")
readiness. Y2K readiness involves assuring that all essential
functions of the Company, including activities that are not directly
computer dependent, remain operative upon arrival of the Year
2000.
The Company's project to correct and/or replace internally produced
information technology ("IT") software is now 100% complete. All of
the Company's major business units, including New Penn Motor Express,
Arnold Transportation Services and Arnold Logistics, have corrected
and successfully tested their IT programs. The cost of the Company's
internal IT project, all of which cost has been incurred and paid for
from operating revenues of the Company, was $1,650,000. No other
projects or capital expenditures were deferred or canceled due to
diversion of resources to Y2K compliance.
The Company also continues to monitor and assess the progress of third
parties upon whom the Company relies for externally produced software,
including non-IT software, communications software, etc., as well as
suppliers of basic materials, such as fuel, parts, tires, etc. In some
cases, the Company is incurring expense to correct and/or replace
software acquired from third parties. The Company monitors the
progress of significant customers upon whose continued business the
Company relies for revenues. These monitoring efforts have revealed
areas of concern with respect to Y2K readiness by the Company's
vendors, suppliers and customers. To the extent reasonably
practicable, the Company is taking steps to assure timely compliance
or the availability of alternative software, services and supplies.
The cost of maintaining and completing the external Y2K project,
including correction and/or replacement costs and testing, is
anticipated to be $150,000. The additional cost will be funded
entirely from operating revenues of the Company.
The Company faces the risk of disruptions to service if significant
vendors, suppliers and/or customers do not become Y2K compliant in a
timely manner. Failure by vendors and suppliers to become compliant
would result in the loss of systems controlling dispatch, billing and
payroll, among other essential functions of the Company. The Company
does not believe that these risks will come to fruition because of the
efforts to date to become Y2K compliant.
The Company is developing contingency plans to acquire electricity,
fuel and essential parts from other sources and vendors in the event
of a Y2K malfunction by a prime supplier. Contingency plans include
advance purchase and retention of higher levels of inventory for such
items as tires and spare parts. As necessary, electricity will be
available at most of the Company's facilities, at least temporarily,
through use of generators that the Company routinely maintains for
power outages. The Company has no contingency plans for loss of
revenue from shippers who do not become Y2K compliant.
<PAGE>
<TABLE>
eleven year summary<FN1>
(dollars in thousands, except per share data)
<CAPTION>
Fiscal Year 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income
Operating revenues 403,721 383,165 356,335 330,136 302,390 272,697 233,620 196,202 188,830 167,589 148,196
Operating expenses
Depreciation and amortization 30,585 29,133 27,756 25,348 21,120 17,811 14,222 11,500 10,527 11,021 9,906
Operating taxes and licenses 9,793 9,342 9,381 9,297 8,924 7,908 6,780 5,887 4,836 4,537 4,147
Other 307,146 293,774 278,856 246,854 222,824 200,106 172,304 142,080 137,027 123,121 109,397
Operating income 56,197 50,916 40,342 48,637 49,522 46,872 40,314 36,735 36,440 28,910 24,746
Non-operating income (expense)
Interest income (expense), net 500 225 (200) (711) 35 355 246 195 (1,123) (1,180) (923)
Other (855) (252) (690) (25) (429) 1,326 (71) 10 (449) 884 4,142
Income before income taxes,
extraordinary loss, and
cumulative effect of change
in accounting principle 55,842 50,889 39,452 47,901 49,128 48,553 40,489 36,940 34,868 28,614 27,965
Income taxes 20,726 18,679 14,043 17,400 18,384 18,651 14,660 13,512 12,452 10,939 10,543
Income before extraordinary loss
and cumulative effect of change
in accounting principle 35,116 32,210 25,409 30,501 30,744 29,902 25,829 23,428 22,416 17,675 17,422
Extraordinary loss, net of
tax benefit<FN5> - - - - 389 - - - - - -
Cumulative effect of change
in accounting for income
taxes <FN6> - - - - - - - - - 1,322 -
Net income 35,116 32,210 25,409 30,501 30,355 29,902 25,829 23,428 22,416 18,997 17,422
Per Share Data<FN2>
Income before extraordinary
loss and cumulative effect of
change in accounting
principle - Basic 1.37 1.23 .95 1.15 1.16 1.13 .97 .88 .84 .67 .67
- Diluted 1.36 1.22 .94 1.13 1.14 1.11 .96 .88 .84 .67 .67
Net income - Basic 1.37 1.23 .95 1.15 1.14 1.13 .97 .88 .84 .71 .67
- Diluted 1.36 1.22 .94 1.13 1.12 1.11 .96 .88 .84 .72 .67
Cash dividends declared .44 .44 .44 .44 .41 .35 .32 .29 .25 .22 .11
Book value 9.12 8.38 7.84 7.33 6.63 5.90 5.12 4.46 3.86 3.31 2.76
Financial Position - Year End
Cash, temporary investments
and marketable securities<FN3> 24,282 36,291 41,621 14,273 41,643 38,285 45,186 57,558 37,184 26,826 25,318
Working capital<FN4> 35,131 45,921 39,909 16,219 24,839 24,093 29,856 55,664 30,877 24,049 23,575
Property and equipment-net 220,699 205,562 199,614 199,822 169,603 144,148 110,674 88,250 91,393 83,540 67,346
Total assets 320,111 317,040 303,112 276,877 260,279 228,361 197,203 170,668 159,973 136,313 116,197
Long-term debt 1,310 2,383 3,874 5,049 - - 476 17,603 19,479 19,749 14,812
Shareholders' equity 226,400 217,253 209,147 195,367 176,458 156,867 136,015 118,502 102,362 87,681 72,589
Other Data
Percentage return on
average stockholders'
equity 15.8 15.1 12.6 16.4 18.2 20.4 20.3 21.2 23.6 23.7 27.2
Net cash provided by
operating activities 60,880 54,602 67,000 55,075 60,524 51,299 34,518 35,898 36,639 29,471 25,195
<FN1> D.W. Freight, Inc. was acquired in April 1992 and is accounted for
under the purchase method - asset acquisitions from H.R. Hill and
T.W. Owens occurred in March 1994 and January 1995, respectively
<FN2> Adjusted to give retroactive effect to the two-for-one stock split
in 1993, the two-for-one stock split in 1991 and the three-for-two
stock split in 1988
<FN3> Excludes restricted cash prior to 1992
<FN4> Certain liabilities with respect to claims were reclassified as
long-term beginning in 1991
<FN5> Write-off of the unamortized balance of intrastate operating rights
<FN6> The Company adopted SFAS No. 96, "Accounting for Income Taxes," in
1989
<PAGE>
board of directors
E. H. Arnold Heath L. Allen, Esq. Arthur L. Peterson
Chairman, President, CEO Secretary and Director Director
and Director Partner - Keefer, Wood, Allen Scott Professor of
& Rahal, LLP Leadership Studies,
Harrisburg, PA Rocky Mountain College,
Billings, MT
Kenneth F. Leedy Ronald E. Walborn, CPA Carlton E. Hughes
Director CFO, Treasurer and Director Director
President - New Penn President - Walborn Shambach Chairman-Stewart-Amos
Motor Express, Inc. Associates Steel, Inc.
Harrisburg, PA Harrisburg, PA
shareholder information
Counsel
Keefer, Wood, Allen & Rahal, LLP
210 Walnut Street
Harrisburg, PA 17101
Auditors
PricewaterhouseCoopers LLP
One South Market Square
Harrisburg, PA 17101
Registrar and Transfer Agent
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016
Stock Listing
Arnold Industries common stock is traded on the NASDAQ National Market
System. The stock symbol is AIND. In newspapers, the stock is listed
as "ArnoldInd", "Arnold Inds" or similar variations. There were 1,535
record-holders of the Company's common stock as of March 1, 1999. The
number of beneficial owners is considerably greater.
Annual Meeting of Shareholders
The Arnold Industries 1999 Annual Meeting of Shareholders will be held
at 10:00 AM, May 5, 1999 at the Lebanon Country Club, 3375 West Oak
Street, Lebanon, Pennsylvania.
Investor Information
Shareholders, securities analysts, portfolio managers, representatives
of financial institutions and individuals seeking financial and
operating information, including copies of Form 10-K, may contact:
Corporate Secretary
Arnold Industries, Inc.
P.O. Box 210
Lebanon, PA 17042
(717) 273-9058
This information is also available on-line through the company's web
site at: www.aind.com
Copies of the Company's Form 10-K will be supplied to shareholders
upon request without charge.
Dividend Reinvestment/Cash Purchase Plan
This plan enables you, as a shareholder, to apply your dividends on
the Company's stock towards the purchase of additional shares of
Arnold Industries, Inc. common stock on an automatic basis. Also, at
your option, you may make quarterly cash payments from $25 to $3,000
to purchase additional stock. The Company pays the brokerage
commissions and administrative fees connected with your participation
in this Plan. Participation in the Plan is entirely voluntary and you
may enroll or withdraw at any time. The Plan is administered by
Registrar and Transfer Company, Arnold Industries' stock transfer
agent. For information call 800-368-5948.
Quarterly Reports
The Company presently sends to its shareholders of record a quarterly
report from its President, Edward H. Arnold, summarizing results of
operations for the most recent quarter. If you are not a shareholder
of record, but instead hold your stock in the name of a broker or
other nominee, you may also receive these quarterly reports by
requesting this report and supplying your mailing address to the
Company. Requests should be mailed to the Company to the attention of
the Corporate Secretary.
The nature of Arnold Industries, Inc. operations subject it to
changing economic, competitive, regulatory and technological
conditions, risks, and uncertainties. In accordance with the "safe
harbor" provisions of the Private Securities Litigation Reform Act of
1995, Arnold Industries provides the following cautionary remarks
regarding important factors which, among others, could cause future
results to differ materially from the forward-looking statements about
our management confidence and strategies for performance; expectations
for new and existing technologies and opportunities; and expectations
for market segment and industry growth.
These factors include, but are not limited to: (1) changes in the
business environment in which Arnold Industries, Inc. operates,
including licensing restrictions, interest rates and capital costs;
(2) changes in governmental laws and regulations, including taxes;
(3) market and competitive changes, including market demand and
acceptance for new services and technologies; and (4) other risk
factors listed from time to time in Arnold Industries, Inc. SEC
reports. Arnold Industries, Inc. does not intend to update this
information and disclaims any legal liability to the contrary.
<PAGE>
(Inside Back Cover)
company executives
ARNOLD INDUSTRIES, INC.
Heath L. Allen, Esq., Secretary
E. H. Arnold, Chairman, President & CEO
Timothy D. Hoffman, VP, Properties
Donald G. Johnson, Senior Vice President
Andrew J. Kerlik, VP, Personnel & Safety
Ronald E. Walborn, CPA, CFO & Treasurer
Cheryl M. Wells, VP, Communications
ARNOLD TRANSPORTATION
SERVICES, INC.
Brian F. Abel, VP, Planning & Customer Service
Kurt E. Antkiewicz, VP, Sales & Marketing
John R. Blessinger, VP, Linehaul Operations
Michael J. Gregerson, VP, Safety/Fleets
Kurt E. Morgan, VP, Terminals
David A. Sempeles, VP, Finance
Michael S. Walters, President and CEO
NEW PENN MOTOR EXPRESS, INC.
Morris C. Galante, VP, Loss Prevention
Steven D. Gast, VP, Corporate Planning
Steven J. Ginter, VP, Marketing
Charles J. Kachel, VP, National Accounts
Michael J. LaPierre, VP, Sales, Northern Division
Kenneth F. Leedy, President
John G. McCloy, VP, Central Division
Thomas P. McDonald, VP, Sales, Central Division
Anthony S. Nicosia, VP, Sales, Eastern Division
Shawn P. Nolan, VP, Western Division
Stephen M. O'Kane, Executive Vice President
Terrence P. Ryan, VP, Sales, Western Division
Frank Santanella, VP, Eastern Division
Daniel W. Schmidt, VP, Labor Relations
Charles A. Zaccaria, VP, Northern Division
ARNOLD LOGISTICS
Douglas B. Enck, Vice President/General Manager
John R. Miller, Director, Marketing
Lawrence W. Pechart, Jr., Director, Fulfillment Operations
Jeffrey J. Reuscher, Director, Food Group Operations
<PAGE>
(Back Cover)
LOGO
Arnold Industries, Inc.
P.O. Box 210
Lebanon, PA 17042
(717) 273-9058
www.aind.com
copyright 1999 Arnold Industries, Inc.
APPENDIX TO ARNOLD INDUSTRIES, INC.
1998 ANNUAL REPORT
DESCRIBING GRAPHIC AND IMAGE MATERIAL
Front cover -
Picture of New Penn tractor and trailer on an interstate
highway.
Picture of Arnold Transportation Services tractor and
trailer on an interstate highway.
Picture of warehouse employees performing fulfillment
duties.
Time lapse photograph of nighttime highway scene.
Inside front cover -
Small time lapse photograph of nighttime highway scene.
Pie graph representing Operating Revenues (in millions) for
Regional LTL ($203); Truckload ($171); Warehousing/Logistics
($30).
Small photograph of Company headquarters building (exterior
view) located in Lebanon, Pennsylvania.
Page 1 - President's Letter to Stockholders includes a picture of
E.H. Arnold, Company President.
Bar graph representing Revenue (in millions) for years
1989 ($168); 1990 ($189); 1991 ($196); 1992 ($234);
1993 ($273); 1994 ($302); 1995 ($330); 1996 ($356);
1997 ($383); and 1998 ($404).
Pages 2 and 3 - Description of New Penn includes the following
material:
New Penn logo;
Bar graph representing the number of full-time New Penn
employees for year 1996 (1,410); 1997 (1,431) and 1998
(1,462);
Bar graph representing the number of tractors and
trucks owned by New Penn in 1996 (660); 1997 (727) and
1998 (728);
Bar graph representing the number of trailers owned by
New Penn in 1996 (1,365); 1997 (1,447) and 1998
(1,469);
Bar graph representing the number of shipments (in
thousands) transported by New Penn in 1996 (1,757);
1997 (1,932) and 1998 (1,920);
Bar graph representing the weight of freight (in
millions of pounds) transported by New Penn in 1996
(2,017); 1997 (2,163) and 1998 (2,101);
Bar graph representing New Penn revenue (in millions)
for years 1994 ($159.6); 1995 ($167.1); 1996 ($181.9);
1997 ($203.3) and 1998 ($202.9);
Bar graph representing New Penn operating income (in
millions) for years 1994 ($32.9); 1995 ($33.6); 1996
($32.7); 1997 ($44.2) and 1998 ($43.1);
Picture of New Penn tractor and trailer at loading dock;
Picture of New Penn driver conferring with a customer in
front of a New Penn tractor in a dock area;
Map of Eastern and Middle United States with portions
of Quebec and Ontario Provinces and Puerto Rico shaded
to indicate New Penn's Northeast regional service,
Interregional service and International service areas;
Pages 4 and 5 - Description of Arnold Transportation Services
includes the following material:
Arnold Transportation Services logo;
Bar graph representing the number of employees of
Arnold Transportation for years 1996 (1,410); 1997
(1,431) and 1998 (1,381);
Bar graph representing the number of owner-operators of
Arnold Transportation for years 1996 (298); 1997 (371)
and 1998 (599);
Bar graph representing the number of tractors owned by
Arnold Transportation in 1996 (1,075); 1997 (1,012) and
1998 (894);
Bar graph representing the number of trailers owned by
Arnold Transportation in 1996 (4,188); 1997 (4,355) and
1998 (4,172);
Bar graph representing revenue of Arnold Transportation
Services (in millions) for years 1994 ($126.3); 1995
($144.5); 1996 ($151.9); 1997 ($153.7) and 1998
($171.4);
Bar graph representing operating income of Arnold
Transportation Services (in millions) for years 1994
($12.9); 1995 ($11.6); 1996 ($3.6); 1997 ($2.1) and
1998 ($7.1);
Picture of Arnold Transportation tractor and trailer on
rural interstate highway;
Panoramic picture of Arnold Transportation tractor and
trailer on interstate highway;
Map of Eastern and Middle United States with various
states shaded to indicate Arnold Transportation's
service areas;
Page 6 - Description of Arnold Logistics includes the following
materials:
Arnold Logistics logo;
Bar graph representing revenue of Arnold Logistics (in
millions) for years 1994 ($16.5); 1995 ($18.5); 1996
($22.5); 1997 ($26.2) and 1998 ($29.4);
Bar graph representing operating income of Arnold
Logistics (in millions) for years 1994 ($3.5); 1995
($3.3); 1996 ($3.9); 1997 ($4.9) and 1998 ($5.5);
Picture of warehouse employees performing fulfillment
duties.
Picture of custom-packaged boxes with bar code
equipment in an employee's hand.
Page 7 - Consolidated Five-Year Statistical Summary: the
information on this page of the Annual Report is presented in
bar-graph format.
Page 8 - Time lapse photograph of nighttime highway scene and
Table of Contents for Financial Statements.
Inside back cover - Time lapse photograph of nighttime highway
scene and listing of Company executives.
Back cover - Logo of Arnold Industries, Inc. and Company address,
telephone number and web site.
</TABLE>
On December 31, 1998, at 11:59 p.m., the Registrant had
three wholly-owned subsidiaries, all of which are included in the
consolidated financial statements, as follows:
Organized Under the
Name Laws of
New Penn Motor Express, Inc. Pennsylvania
Arnold Transportation Services, Inc. Pennsylvania
MARIS, Inc. Delaware
Consent of Independent Accountants
We consent to the incorporation by reference in the Registration Statement
of Arnold Industries, Inc. on Form S-8 (No. 33-41454), the Registration
Statement on Form S-8 (No. 33-61005) and the Registration Statement on
Form S-4 (No. 33-64923) of our reports dated March 5, 1999, on our
audits of the consolidated financial statements and financial statement
schedule of Arnold Industries, Inc. and Subsidiaries as of December 31,
1998 and 1997 and for the years ended December 31, 1998, 1997 and 1996,
which reports are included or incorporated by reference in this Annual
Report on Form 10-K.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN ARNOLD INDUSTRIES, INC.'S FORM 10-K FOR
THE TWELVE MONTHS ENDED DECEMBER 31, 1998, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 19,432,802
<SECURITIES> 4,848,974
<RECEIVABLES> 40,739,084
<ALLOWANCES> 1,184,147
<INVENTORY> 0
<CURRENT-ASSETS> 79,742,788
<PP&E> 370,157,592
<DEPRECIATION> 149,458,462
<TOTAL-ASSETS> 320,110,711
<CURRENT-LIABILITIES> 44,611,953
<BONDS> 0
0
0
<COMMON> 29,942,628
<OTHER-SE> 196,456,884
<TOTAL-LIABILITY-AND-EQUITY> 320,110,711
<SALES> 0
<TOTAL-REVENUES> 403,720,595
<CGS> 0
<TOTAL-COSTS> 347,524,055
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 536,367
<INTEREST-EXPENSE> 1,173,356
<INCOME-PRETAX> 55,841,376
<INCOME-TAX> 20,725,528
<INCOME-CONTINUING> 35,115,848
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<NET-INCOME> 35,115,848
<EPS-PRIMARY> 1.37
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</TABLE>
