FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 2000.
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) 273-9058
(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: 24,587,226 shares outstanding
(which excludes 5,355,402 treasury shares) as of August 11, 2000.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets - June 30, 2000 and
(Unaudited) December 31, 1999
Condensed Consolidated Statements of - June 30, 2000
Income (Three and Six Month and 1999
Periods - Unaudited)
Condensed Consolidated Statements of - June 30, 2000
Cash Flows (Six Month and 1999
Periods - Unaudited)
Notes to Condensed Consolidated Financial Statements
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<TABLE>
<CAPTION>
ARNOLD INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
2000 1999
<S> <C> <C>
ASSETS
Current Assets
Cash and Cash Equivalents 37,875,189 16,231,274
Marketable Securities 2,105,552 2,104,634
Accounts Receivable, Net 51,958,897 49,811,512
Notes Receivable, Current 1,357,600 1,357,565
Deferred Income Taxes 4,985,987 4,258,455
Prepaid Expenses and Supplies 5,248,594 7,463,640
Total Current Assets 103,531,819 81,227,080
Property and Equipment, at Cost 402,690,122 401,801,207
Less: Accumulated Depreciation 164,255,707 157,027,805
Total Property and Equipment 238,434,415 244,773,402
Other Assets
Goodwill, Net 7,875,027 8,017,724
Investments in Limited Partnerships 8,332,179 8,594,525
Notes Receivable, Long-term 1,380,698 1,754,510
Other 1,291,591 1,375,752
Total Other Assets 18,879,495 19,742,511
TOTAL ASSETS 360,845,729 345,742,993
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes Payable 23,800,577 24,829,682
Accounts Payable 10,759,735 10,789,594
Income Taxes 1,444,958 1,297,162
Estimated Liability for Claims 6,296,866 4,302,316
Accrued Expenses - Other 15,723,562 13,906,538
Total Current Liabilities 58,025,698 55,125,292
Long-term Liabilities
Estimated Liability for Claims 1,459,000 2,646,000
Deferred Income Taxes 38,046,805 37,710,984
Notes Payable - 191,557
Other 1,917,172 1,887,522
Total Long-term Liabilities 41,422,977 42,436,063
Stockholders' Equity
Common Stock 29,942,628 29,942,628
Paid-In Capital 1,682,050 1,584,422
Retained Earnings 270,612,948 256,160,707
Treasury Stock, at Cost (40,840,572) (39,506,119)
Total Stockholders' Equity 261,397,054 248,181,638
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY 360,845,729 345,742,993
THE ACCOMPANYING NOTES, HERE AND FOLLOWING, ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
ARNOLD INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Six Months Ended Three Months Ended
June 30, June 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Operating Revenues 232,172,606 205,498,683 117,340,214 105,193,036
Operating Expenses 199,906,621 177,855,193 99,593,745 90,649,205
Operating Income 32,265,985 27,643,490 17,746,469 14,543,831
Interest Expense (892,364) (665,546) (442,356) (416,139)
Other Income 349,909 286,375 252,400 180,561
Income Before
Income Taxes 31,723,530 27,264,319 17,556,513 14,308,253
Income Taxes 11,851,861 10,060,482 6,663,301 5,297,316
Net Income 19,871,669 17,203,837 10,893,212 9,010,937
Net Income
per Common Share:
Basic 0.81 0.69 0.45 0.36
Diluted 0.81 0.69 0.45 0.36
Average Common
Shares Outstanding
Basic 24,610,330 24,846,392 24,581,626 24,859,653
Effect of dilutive
securities -
Stock options 74,442 266,211 52,420 282,720
Diluted 24,684,772 25,112,603 24,634,046 25,142,373
Dividends per
Common Share 0.22 0.22 0.11 0.11
THE ACCOMPANYING NOTES, HERE AND FOLLOWING, ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARNOLD INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
2000 1999
<S> <C> <C>
Operating Activities
Net Income 19,871,669 17,203,837
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and Amortization 16,993,191 15,909,672
Provision for Deferred Taxes (391,711) 2,767,557
Other (828,705) (711,717)
Changes in Operating Assets & Liabilities:
(Increase) in Accounts Receivable (2,147,385) (3,065,745)
Decrease in Prepaid Expenses
and Supplies 2,215,046 2,497,884
Increase (Decrease) in Accounts Payable (29,859) 2,457,063
Increase (Decrease) in Estimated
Liability for Claims 807,550 (9,861,324)
Increase in Other Accrued Expenses 1,964,820 5,680,521
Other 29,650 47,300
Net Cash Provided By
Operating Activities 38,484,266 32,925,048
Investing Activities
Proceeds from Sale of Investment Securities 4,555 726,036
Purchase of Investment Securities (5,473) (523,286)
Proceeds from Disposition of
Property and Equipment 4,185,448 5,427,340
Purchase of Property and Equipment (13,613,100) (32,534,984)
Capital Contributions to
Limited Partnerships (1,153,833) (1,141,407)
Other 465,137 740,271
Net Cash Used In Investing Activities (10,117,266) (27,306,030)
Financing Activities
Cash Dividends Paid (5,419,431) (5,466,514)
Purchase of Treasury Stock (1,391,250) (314,550)
Proceeds from Employee Stock
Options Exercised 154,425 942,766
Proceeds from Short-term Debt - 5,000,000
Other (66,829) -
Net Cash Provided by
(Used In) Financing Activities (6,723,085) 161,702
Increase in Cash and Cash Equivalents 21,643,915 5,780,720
Cash and Cash Equivalents - Beginning of Year 16,231,274 19,432,802
Cash and Cash Equivalents - End of Period 37,875,189 25,213,522
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest 892,364 665,907
Income Taxes 12,125,625 4,570,519
THE ACCOMPANYING NOTES, HERE AND FOLLOWING, ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
ARNOLD INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note I: 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 and any intervening reports.
The results of operations for the three and six-month periods ending
June 30, 2000, and June 30, 1999, 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.
Consolidated Operating Revenues for the second quarter of 2000 were
$117,340,214, an increase of $12,147,178 or 12% from Operating Revenues for
1999's second quarter. For the same period, Operating Expenses increased
$8,944,540 or 10%; Income Before Income Taxes increased $3,248,260, an
increase of 23%; and Net Income increased $1,882,275 or 21%. Earnings Per
Share-Basic increased from $.36 to $.45, or a 25% increase, for the
respective quarters.
Consolidated Operating Revenues for the six months ended June 30,
2000, were $232,172,606, an increase of $26,673,923 or 13% over the comparable
period in 1999. For the same period, Operating Expenses increased $22,051,428,
or 12%; Income Before Taxes increased $4,459,211, an increase of 16%; and Net
Income increased $2,667,832 or 16%. Earnings Per Share-Basic increased from
$.69 to $.81, a net increase of 17%, for the respective six-month periods.
Set forth below is a schedule of the Unaudited Operating Revenues,
Expenses and Operating Income of the LTL, TL and Fulfillment/Logistics
segments:
<TABLE>
<CAPTION>
(Dollars in Thousands)
Second Quarter Ended June 30,
2000 1999
Amount % Amount %
<S> <C> <C> <C> <C>
LESS-THAN-TRUCKLOAD
Operating Revenues 60,601 100.0 53,137 100.0
Operating Expenses 47,345 78.1 41,936 78.9
Operating Income 13,256 21.9 11,201 21.1
TRUCKLOAD
Operating Revenues 45,675 100.0 43,189 100.0
Operating Expenses 42,726 93.5 41,520 96.1
Operating Income 2,949 6.5 1,669 3.9
FULFILLMENT/LOGISTICS
Operating Revenues 11,064 100.0 8,867 100.0
Operating Expenses 9,502 85.9 7,190 81.1
Operating Income 1,562 14.1 1,677 18.9
Unallocated corporate
operating income (loss) (21) (3)
Consolidated operating
income 17,746 14,544
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
(Dollars in Thousands)
Six-Month Period Ended June 30,
2000 1999
Amount % Amount %
<S> <C> <C> <C> <C>
LESS-THAN-TRUCKLOAD
Operating Revenues 118,145 100.0 102,721 100.0
Operating Expenses 93,070 78.8 80,822 78.7
Operating Income 25,075 21.2 21,899 21.3
TRUCKLOAD
Operating Revenues 91,073 100.0 85,950 100.0
Operating Expenses 87,314 95.9 83,002 96.6
Operating Income 3,759 4.1 2,948 3.4
FULFILLMENT/LOGISTICS
Operating Revenues 22,955 100.0 16,828 100.0
Operating Expenses 19,499 84.9 13,751 81.7
Operating Income 3,456 15.1 3,077 18.3
Unallocated corporate
operating income (loss) (24) (281)
Consolidated operating
income 32,266 27,643
</TABLE>
New Penn Motor Express, Inc. ("New Penn"), the Company's
less-than-truckload carrier, increased revenues by 14% over the revenues
generated during the second quarter of 1999. Operating Income increased 18%
over the comparable period of 1999, as the operating ratio improved from 78.9
to 78.1.
Growth at New Penn is related to several factors, including a service
improvement initiative begun one year ago to deliver shipments by noon,
improved information services through the web site, the reduction in industry
capacity that occurred in the third quarter of 1999 and an expanding economy.
Delivering shipments earlier in the day is preferred by customers, as they are
able to utilize the product the same day it is received. This before noon
capability has made New Penn's services preferable to services of competitors
delivering later in the day, and has resulted in an increase of New Penn's
market share. As more competitors add morning delivery to their service
offerings, the shift in market share is likely to diminish.
Because customers are now requiring higher levels of information, the New
Penn web site provides real-time shipment tracking information and fast access
to other information, including proof of delivery and bill of lading
documents, shipment report summaries and rate quotes. Such information makes
New Penn preferable to competitors that cannot provide the same level of
information services, and again has resulted in improved
<PAGE>
market share. New Penn continued the rollout of on-board computers in the
quarter, and 85% of the fleet is so equipped. On-boards are one example of
information technology that helps maximize efficiencies by improving operations
planning and productivity.
Revenue comparisons at New Penn were also positively impacted, as they
had been in the previous three quarters, by additional revenues secured after
a competitor, Preston Trucking, discontinued operations in July 1999. The
demise of Preston has now had a positive impact on four consecutive quarters
and will not positively impact comparisons in future quarters. Expansion by
competitors into the New Penn territory did not have a material impact on New
Penn revenues during the second quarter, but is expected to have some impact
in future quarters.
A relatively stable pricing environment and the use of advanced
information technology to maximize efficiencies contributed to the improvement
in operating margins at New Penn. Price increases have been successfully
implemented, with less discounting than in the past. Less-than-truckload
carriers, including New Penn, were also successful in implementing fuel
surcharges to help offset the increase in fuel costs experienced in the second
quarter.
New Penn continued efforts to add capacity at several locations.
Construction is underway at the Buffalo and Reading facilities. Expansion of
facilities in Syracuse, NY, Albany, NY, Kearny, NJ, and Trenton, NJ (South
Brunswick) is at various stages of land acquisition and construction
planning. During 2000, New Penn anticipates expenditures of $10.1 million for
new real estate and improvements to existing properties. An additional $10.4
million will be invested in new rolling stock and computer equipment.
Arnold Transportation Services, Inc. ("ATS"), the Company's truckload
carrier, experienced revenue growth of 6% and operating income increased 77%
during the second quarter of 2000 over the second quarter of 1999. Revenue
growth was hindered by the continuing shortage of qualified drivers. However,
new business acquisition and price increases on existing business did support
an increase in revenue.
ATS significantly improved operating margins despite rising fuel costs,
primarily due to a strategic shift in the freight mix. Adjustments in the mix
of regional, interregional and dedicated services contributed to improved
revenue yield. ATS re-deployed assets to increase revenues in more profitable
regional markets while reducing the amount of less profitable interregional
freight. ATS anticipates expenditures of $3.5 million this year for new
equipment and real estate improvements. Sales of real estate were recorded
during the second quarter, and contributed approximately $300,000 to ATS's
operating income.
<PAGE>
Additional sales of excess real estate are projected for the balance of
the year.
Arnold Logistics ("ARLO"), a division of ATS which conducts a fulfillment
and logistics business, experienced a 25% increase in revenues during the
second quarter of 2000 over the second quarter of 1999 while operating income
declined 7%.
Arnold Logistics continues to balance expansion in e-commerce
fulfillment, distribution and contract packaging services to support revenue
growth. Revenue increased primarily due to the opening of the facility in
Lancaster, PA, during the third and fourth quarters of 1999. The rate of
growth declined as compared to the prior quarter, as the growth projected by
several key customers failed to materialize. The fact that revenue growth did
not meet projections had a negative impact on margins. The company had
prepared to meet the higher demand projected by customers. Although cost
controls were maintained throughout the quarter, investments had been made in
people, equipment and facilities to support higher business levels and future
growth in subsequent quarters. Arnold Logistics' capital expenditures will
approximate $3.0 million for new equipment and real estate improvements in
2000.
The Company's working capital at the end of the second quarter of 2000
was $45,506,121, which is an increase of $10,825,012 or 31% from the end of
the first quarter of 2000. For the first six months of 2000, working capital
increased by a total of $19,404,333, or 74%, from working capital at the end
of 1999.
The Company's investment in Property and Equipment (Less Accumulated
Depreciation) as of the end of the second quarter of 2000 stood at
$238,434,415. This figure represents a decrease from March 31, 2000, of
$3,176,162, reflecting depreciation in the capital assets of the Company.
Funding for the Company's ongoing capital expansion program is being
accomplished through the use of cash generated from current operating and
investment activities.
Year 2000 Compliance
As previously reported, the Company's program to correct and/or replace
internally produced software was fully completed prior to December 31, 1999.
The cost of the Company's internal program, all of which has been incurred and
paid, was $1,675,000. During the second quarter of 2000, the Company
continued to monitor and assess the status of third parties upon whom the
Company relies for externally produced software, including communications
software, as well as suppliers of basic materials, such as fuel, parts, tires,
etc. The Company also monitored the
<PAGE>
status of significant customers upon whose continued business the Company relies
for revenues. During 1998 and 1999, the Company incurred expense of $125,000
to correct and/or replace software acquired from third parties. The Company had
no significant Y2K problems with its vendors, suppliers or customers, and does
not anticipate significant problems in the future. No further Y2K reports will
be provided unless an unforeseen development should occur.
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 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 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 (4) other
risk factors specifically identified from time to time in Company releases and
disclosure documents, including SEC reports and the annual proxy solicitation
and report to stockholders. The Company will update forward-looking
statements as required by law.
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.
<PAGE>
Item 4. Matters Brought to a Vote of Shareholders.
At the Annual Meeting, held May 3, 2000, stockholders re-elected E. H.
Arnold, Ronald E. Walborn and Arthur L. Peterson to serve as members of the
Board of Directors, each for a two-year term.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 27 - Financial Data Schedule
(b) NONE
<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: August 14, 2000 By /s/ Heath L. Allen
Heath L. Allen, Secretary
Date: August 14, 2000 By /s/ Ronald E. Walborn
Ronald E. Walborn, Treasurer
