FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1999.
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
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
(Address of principal executive offices)
17042
(Zip Code)
(717) 274-2521
(Registrant's telephone number, including area code)
No Change
(Former name, former address and former fiscal year,
if changed since last report)
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
Common Stock, par value $1.00 per share: 24,863,726 shares
outstanding (excluding treasury shares) as of May 10, 1998.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets - March 31, 1999
(Unaudited) and
December 31, 1998
Condensed Consolidated Statements of
Income (Three Month
Period - Unaudited) - March 31, 1999 and 1998
Condensed Consolidated Statements of
Cash Flows (Three Month
Period - Unaudited) - March 31, 1999 and 1998
Notes to Condensed Consolidated Financial Statements
<PAGE>
ARNOLD INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
1999 1998
ASSETS
Current Assets
Cash and Cash Equivalents 19,872,045 19,432,802
Marketable Securities 4,749,766 4,848,974
Accounts Receivable, Net 40,754,145 40,159,047
Notes Receivable, Current 875,000 873,709
Deferred Income Taxes 2,320,299 6,262,784
Prepaid Expenses and Supplies 6,370,225 7,458,315
Refundable Income Taxes 794,237 707,157
Total Current Assets 75,735,717 79,742,788
Property and Equipment, at Cost 377,488,715 370,157,592
Less: Accumulated Depreciation 152,345,119 149,458,462
Total Property and Equipment 225,143,596 220,699,130
Other Assets
Goodwill, Net 8,231,769 8,303,117
Investments in Limited Partnerships 8,980,196 9,119,574
Notes Receivable, Long-term 1,470,266 1,090,734
Other 1,188,439 1,155,368
Total Other Assets 19,870,670 19,668,793
TOTAL ASSETS 320,749,983 320,110,711
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes Payable 20,908,251 15,863,399
Accounts Payable 10,615,096 10,352,289
Income Taxes -0- -0-
Estimated Liability for Claims 1,372,946 5,078,913
Accrued Expenses - Other 15,449,500 13,317,352
Total Current Liabilities 48,345,793 44,611,953
Long-term Liabilities
Estimated Liability for Claims 3,381,000 10,714,000
Deferred Income Taxes 35,098,229 35,307,204
Notes Payable 89,726 1,309,929
Other 1,795,513 1,768,113
Total Long-term Liabilities 40,364,468 49,099,246
Stockholders' Equity
Common Stock 29,942,628 29,942,628
Paid-In Capital 1,055,955 658,065
Retained Earnings 237,878,781 232,417,298
Treasury Stock, at Cost (36,837,642) (36,618,479)
Total Stockholders' Equity 232,039,722 226,399,512
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY 320,749,983 320,110,711
THE ACCOMPANYING NOTES, HERE AND FOLLOWING, ARE AN INTEGRAL PART OF
THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
ARNOLD INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
1999 1998
Operating Revenues 100,305,647 96,001,963
Operating Expenses 87,205,988 84,469,936
Operating Income 13,099,659 11,532,027
Interest Expense (249,407) (283,539)
Other Income 105,814 113,296
Income Before Income Taxes 12,956,066 11,361,784
Income Taxes 4,763,166 4,135,387
Net Income 8,192,900 7,226,397
Net Income per Common Share:
Basic 0.33 0.28
Diluted 0.33 0.28
Average Common Shares Outstanding
Basic 24,832,982 25,957,797
Effect of Dilutive Securities-Stock Options 249,704 224,217
Diluted 25,082,686 26,182,014
Dividends per Common Share 0.11 0.11
THE ACCOMPANYING NOTES, HERE AND FOLLOWING, ARE AN INTEGRAL PART OF
THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
ARNOLD INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
1999 1998
Operating Activities
Net Income 8,192,900 7,226,397
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and Amortization 8,205,714 7,677,922
Provision for Deferred Taxes 3,733,510 368,513
Other (197,553) (191,138)
Changes in Operating Assets & Liabilities:
(Increase) in Accounts Receivable (595,098) (4,208,348)
(Increase) Decrease in Prepaid
Expenses and Supplies 1,088,090 (1,472,132)
Increase (Decrease) in Accounts Payable 262,807 (878,288)
(Decrease) in Estimated Liability
for Claims (11,038,967) (1,118,348)
Increase in Other Accrued Expenses 2,045,068 5,044,223
Other 27,400 37,600
Net Cash Provided by
Operating Activities 11,723,871 12,486,401
Investing Activities
Proceeds from Sale of Investment Securities 112,368 2,064,472
Purchase of Investment Securities (13,974) (507,941)
Proceeds from Disposition of
Property and Equipment 2,063,840 1,205,192
Purchase of Property and Equipment (14,912,254) (8,059,157)
Capital Contributions to
Limited Partnerships (1,175,351) (1,526,520)
Other 193,433 (23,496)
Net Cash Used In Investing Activities (13,731,938) (6,847,450)
Financing Activities
Cash Dividends Paid (2,731,416) (2,859,203)
Purchase of Treasury Stock (314,550) 0
Proceeds from Short-term Debt 5,000,000 0
Other 493,276 328,738
Net Cash Provided by
(Used In) Financing Activities 2,447,310 (2,530,465)
Increase in Cash and Cash Equivalents 439,243 3,108,486
Cash and Cash Equivalents - Beginning of Year 19,432,802 26,504,782
Cash and Cash Equivalents - End of Period 19,872,045 29,613,268
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest 249,047 283,538
Income Taxes 1,121,293 766,856
THE ACCOMPANYING NOTES, HERE AND FOLLOWING, ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
ARNOLD INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1: Basis of Presentation
The financial information included herein is unaudited;
however, such information reflects all adjustments (consisting
solely of normal adjustments) which are, in the opinion of
management, necessary for a fair statement of results for the
interim period. This financial information should be read in
conjunction with the Financial Statements and Notes thereto
included in the Company's latest annual report on Form 10-K.
The results of operations for the three-month period ending
March 31, 1999 and 1998 are not necessarily indicative of the
results to be expected for the full year.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Operating Revenues for the first quarter of 1999 were
$100,305,647, an increase of $4,303,684 or 4% over Operating
Revenues for 1998's first quarter. For the same periods, Oper-
ating Expenses increased $2,736,052 or 3%; Income before
Income Taxes increased $1,594,282, an increase of 14%, and Net
Income increased $966,503, or 13% to $8,192,900. Earnings Per
Share increased to $.33 for the first quarter of 1999 from $.28
for the first quarter of 1998, an 18% increase.
The Company's revenue figures for the first quarter of 1999
as compared to the first quarter of 1998 are higher due primarily
to increased business volume at Arnold Transportation Services,
Inc. ("Arnold Transportation"), which experienced a 6.7% increase
in revenue, and Arnold Logistics, which experienced a 19.6%
increase in revenue. Revenue figures for New Penn Motor Express,
Inc. ("New Penn") were relatively stable, increasing by approxi-
mately one-half of one percent.
Set forth below is a schedule of the Unaudited Operating
Revenues, Expenses and Operating Income of the LTL, TL and
Warehousing/Logistics companies:
(Dollars in Thousands)
First Quarter Ended March 31,
1999 1998
Amount % Amount %
LESS-THAN-TRUCKLOAD
Operating Revenues 49,584 100.0 49,263 100.0
Operating Expenses 38,886 78.4 39,399 80.0
Operating Income 10,698 21.6 9,864 20.0
TRUCKLOAD
Operating Revenues 42,760 100.0 40,082 100.0
Operating Expenses 41,481 97.0 39,657 98.9
Operating Income 1,279 3.0 425 1.1
WAREHOUSING/LOGISTICS
Operating Revenues 7,962 100.0 6,657 100.0
Operating Expenses 6,561 82.4 5,576 83.8
Operating Income 1,401 17.6 1,081 16.2
Unallocated corporate
operating income (loss) (278) 162
Consolidated operating
income 13,100 11,532
<PAGE>
The Company's working capital at the end of the first
quarter of 1999 was $27,389,924, which is a decrease of
$7,740,911 or 22% from the end of the 1998 fiscal year. The
principal factors contributing to the decrease in working capital
were use of funds for purchase of new equipment, construction of
new facilities and payment of approximately $11,000,000 to an
outside insurance carrier for the carrier's assumption of
liability for certain accrued self-insured claims that arose
during 12-month periods ending June 30, 1998, 1997 and 1996.
Accrued short and long-term contingent liabilities of approxi-
mately $3,667,000 and $7,333,000, respectively, that previously
appeared on the Company's financial statements were in effect
liquidated and paid by this transfer.
The Company's investment in Property and Equipment (Less
Accumulated Depreciation) as of the end of the first quarter of
1999 stood at $225,143,496. This figure represents an increase
from December 31, 1998, of $4,444,466. Funding for the Company's
ongoing capital expansion program is being accomplished through
the use of cash generated from current operating and investment
activities, supplemented when necessary by short or long-term
financing.
Results for the first quarter of 1999 were positively
impacted by factors that included mild winter weather in the
northeastern United States and a robust national economy. In
1999, the winter weather in New England and the Middle Atlantic
states was remarkably mild. New Penn was able to improve its
operating ratio over the prior year's first quarter, to wit:
78.4 for the first quarter of 1999 versus 80.0 for the first
quarter of 1998. During 1999, New Penn anticipates acquiring
$9.8 million of new equipment and expending $8.3 million for
new real estate and improvements to existing properties. Termi-
nal expansion is continuing in Rochester, Albany, Syracuse and
Buffalo, New York, and in Billerica, Massachusetts.
Arnold Transportation has completed the process of combining
the truckload divisions into a core carrier. The truckload
operations are improving in efficiency and marketing as a result
of the combined operations. During 1999, Arnold Transportation's
capital expenditures will approximate $28.2 million for new
equipment and $1.6 million for real estate.
Arnold Logistics enjoyed an excellent first quarter of 1999.
Two new warehouse buildings in Lancaster, Pennsylvania, contain-
ing 560,000 square feet of warehousing space, were completed and
are due to be fully occupied by the beginning of the third
quarter of 1999. The division has also reached agreement to
provide eCommerce fulfillment and customer service for a leading
catalog retailer. During 1999, Arnold Logistics' capital ex-
penditures will approximate $3.0 million for new equipment and
$1.2 million for real estate.
<PAGE>
Company management remains focused on improving operating
efficiencies while at the same time seeking growth opportunities
by, among other things, offering expanded trucking and ware-
housing related services to meet the needs of existing and
prospective customers. Management will continue to seek oppor-
tunities for profitable expansion of the Company.
Y2K Readiness Program
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. 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 Trans-
portation 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 $1,675,000. 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 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 in performing carrier
and warehousing services. The Company purchases various exter-
nally produced, date-dependant software, including, but not
limited to, 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 also monitors the prog-
ress of suppliers of basic materials such as fuel, parts, tires,
etc., as well as that of significant customers upon whose contin-
ued business the Company relies for revenues. These monitoring
<PAGE>
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 $125,000.
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 control-
ling 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 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,
through 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.
Cautionary Remarks as to Forward-Looking Statements:
The nature of the Company's 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, the Company cautions that there are important
factors which, among others, could cause future results to differ
materially from the forward-looking statements about our manage-
ment 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 the Company operates, including licensing restrictions,
interest rates and capital costs; (2) changes in governmental law
and regulations, including taxes; (3) market and competitive
changes, including market demand and acceptance for new services
and technologies; and (5) other risk factors specifically identi-
fied from time to time in Company releases and disclosure docu-
ments, including SEC reports and the annual proxy solicitation
and report to stockholders. The Company will update forward-
looking statements as required by law, such as the obligation to
<PAGE>
provide quarterly up-dates as to progress toward Year 2000
readiness.
Item 3. Quantitative and Qualitative Disclosures About
Market Risk.
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 4. Matters Brought to a Vote of Shareholders.
At the Annual Meeting, held May 5, 1999, stockholders
re-elected Kenneth F. Leedy, Heath L. Allen, and Carlton E.
Hughes to serve as members of the Board of Directors, each for
a two-year term, and approved a restatement and amendment of the
Company's Bylaws. The Company also announced that the Board of
Directors declared the regular quarterly dividend of eleven cents
per share, payable June 3, 1999, to stockholders of record on
May 20, 1999.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) NONE APPLICABLE
<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.
ARNOLD INDUSTRIES, INC.
(Registrant)
Date: May 14, 1999 By /s/ Heath L. Allen
Heath L. Allen, Secretary
Date: May 14, 1999 By /s/ Ronald E. Walborn
Ronald E. Walborn, Treasurer
<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-Q FOR
THE THREE MONTHS ENDED MARCH 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 19,872,045
<SECURITIES> 4,749,766
<RECEIVABLES> 41,990,773
<ALLOWANCES> 1,665,100
<INVENTORY> 0
<CURRENT-ASSETS> 75,735,717
<PP&E> 377,488,715
<DEPRECIATION> 152,345,119
<TOTAL-ASSETS> 320,749,983
<CURRENT-LIABILITIES> 48,345,793
<BONDS> 0
0
0
<COMMON> 29,942,628
<OTHER-SE> 202,097,094
<TOTAL-LIABILITY-AND-EQUITY> 320,749,983
<SALES> 0
<TOTAL-REVENUES> 100,305,647
<CGS> 0
<TOTAL-COSTS> 87,205,988
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 289,500
<INTEREST-EXPENSE> 249,407
<INCOME-PRETAX> 12,956,066
<INCOME-TAX> 4,763,166
<INCOME-CONTINUING> 8,192,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,192,899
<EPS-PRIMARY> .33
<EPS-DILUTED> .33
</TABLE>
