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, 1999
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 24, 2000, computed by reference to the immediately
preceding closing sale price of such stock (3/23/00), was $285,761,402.
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 24, 2000
Common Stock 24,581,626
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Annual Report to Stockholders for the year ended
December 31, 1999, and Registrant's definitive proxy statement for the Annual
Meeting of Stockholders to be held on May 3, 2000, 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 52. 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 trucking
and warehousing businesses.
The Company's business activities are currently conducted by three (3)
operating units (involving two (2) subsidiary corporations) 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. The third operating unit conducts business under the name
Arnold Logistics and provides warehousing, logistics and e-commerce fulfillment
services. Arnold Logistics is a division of Arnold Transporation. Maris,
Inc. ("Maris") is a non-operating, investment management subsidiary
incorporated in the State of Delaware.
In 1999, 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-one percent (41%). Arnold
Logistics contributed approximately nine percent (9%) with its warehousing,
logistics and e-commerce fulfillment operations.
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
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 significantly
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.
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 fifty (1,450) 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 three (3) 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-three (23) terminal managers, together with various other marketing and
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
authorities. 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 units: (i) the TL
carrier division, and (ii) the warehousing, logistics and e-commerce
fulfillment division. The warehousing and related logistics division operates
under the tradename Arnold Logistics.
Arnold Transportation operates as a "core carrier" within the TL
industry. Major manufacturers in the United States have reduced 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 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 is located in Jacksonville, Florida, with other
terminals located in Pennsylvania, 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 Transportation has approximately thirteen hundred eighty (1,380)
employees (including its officers).
ARNOLD LOGISTICS
Arnold Logistics serves the warehousing, logistics and e-commerce
fulfillment 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 Logistics has approximately seven hundred seventy (770) full-time
employees.
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.
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 eight (8) states and Quebec province
of Canada. On December 31, 1999, 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 a
trucking terminal in Camp Hill, Pennsylvania. The terminal formerly operated
in Charlotte, North Carolina, was closed on February 25, 2000, and is under
contract for sale. The company 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 eleven (11)
warehouse buildings in three (3) locations, Camp Hill, Mechanicsburg, and
Lancaster, Pennsylvania, totaling approximately 2,200,000 square feet. Arnold
Transportation also leases approximately 410,000 square feet of additional
warehouse space for Arnold Logistics' use in Mountville, Pennsylvania, and
115,000 square feet of warehouse space for Arnold Logistics' use in
Mechanicsburg, 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 300,000 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 125,000
square feet in the Fort Worth, Texas area, which are managed by Arnold
Logistics. Additional warehouse space consisting of 241,000 square feet is
under lease in Arlington, Texas, which lease 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, 1999. 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
24, 2000, was approximately 1,435. 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 23, 2000, was $11.625.
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,
1999.
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, 1999.
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, 1999, are
incorporated by reference herein:
Consolidated Balance Sheets - December 31, 1999 and 1998.
Consolidated Statements of Income - Years Ended December 31,
1999, 1998 and 1997.
Consolidated Statements of Stockholders' Equity - Years
Ended December 31, 1999, 1998 and 1997.
Consolidated Statements of Cash Flows - Years Ended
December 31, 1999, 1998 and 1997.
Notes to Consolidated Financial Statements.
Also, there is incorporated herein by reference the "Report of
Independent 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, 1999.
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 3,
2000.
There have been no events under the bankruptcy act, no criminal
proceedings 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
Registrant's definitive proxy statement for the Annual Meeting of Stockholders
on May 3, 2000.
No other remuneration payments are proposed to be made in the future,
directly or indirectly, by or on behalf of Arnold Industries and its
subsidiaries, pursuant to any plan or arrangement, to any Director or
Executive Officer of the Company except as disclosed above.
<PAGE>
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 3, 2000.
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 3, 2000.
<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, 1999 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, 1999 and 1998
Consolidated Statements of Income - Years Ended December 31, 1999,
1998 and 1997
Consolidated Statements of Stockholders' Equity - Years Ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows - Years Ended December 31,
1999, 1998 and 1997
Notes to Consolidated Financial Statements
Independent Accountants' Report
Selected Quarterly Financial Data - Years Ended December 31, 1999 and
1998:
Quarterly performance data, included on page 18 in the Registrant's Annual
Report to Stockholders for the year ended December 31, 1999, is incorporated
herein by reference.
(2) The following financial statement schedules for the years 1999, 1998 and
1997 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, inapplicable 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 - 1999 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>
<CAPTION>
ARNOLD INDUSTRIES, INC. AND SUBSIDIARIES
Schedule II
Valuation and Qualifying Accounts and Reserves
for the years ended December 31, 1999, 1998, and 1997
Additions
Balance at Charged to Charged to
beginning costs and other Balance at
expenses accounts<FN1> Deductions<FN2> end of year
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999
Allowance for doubtful accounts $ 1,184,147 $ 454,747 $330,685 $ 498,626 $ 1,470,953
Estimated liability for claims $15,792,913 $15,004,450 - $23,849,047 $ 6,948,316
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
<FN>
<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 3, 2000 appearing on page 17 of the 1999 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.
/s/
PricewaterhouseCoopers LLP
One South Market Square
Harrisburg, Pennsylvania
March 3, 2000
<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 30, 2000.
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 30, 2000
E. H. Arnold
President and Director
/s/ Ronald E. Walborn March 30, 2000
Ronald E. Walborn
CFO, Treasurer and Director
/s/ Heath L. Allen March 30, 2000
Heath L. Allen
Secretary and Director
<PAGE>
INDEX TO EXHIBITS
Sequential
Page No.
Exhibit 13 - 1999 Annual Report to Stockholders 22
Exhibit 21 - Subsidiaries of Registrant 50
Exhibit 23.1 - Consent of PricewaterhouseCoopers LLP 51
Exhibit 27 - Financial Data Schedule 52
(Front Cover)
1999 Annual Report
Arnold Industries, Inc.
Company logo
<PAGE>
(Inside Front Cover)
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, fulfillment and logistic
services. 1999 operating revenues totaled $428 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.
1999 operating revenues totaled $215.6 million.
ARNOLD LOGISTICS
Arnold Logistics specializes in order fulfillment and logistic services.
Arnold Logistics has 3.4 million square feet of warehousing space
located in Pennsylvania, North Carolina and Texas. 1999 operating revenues
totaled $37.0 million.
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. 1999 operating revenues totaled $175.6 million.
FINANCIAL SUMMARY
(dollars in thousands except per share data)
1999 1998 Change
Revenues $428,231 $403,721 6.1%
Net Income $34,654 $35,116 -1.3%
Net Income Per Share (Basic) $1.40 $1.37 2.2%
Shareholders' Equity $248,182 $226,400 9.6%
Total Assets $345,743 $320,111 8.0%
Return on Average
Shareholders' Equity 14.6% 15.8% -1.2%
CONTENTS
1 Letter to Shareholders
2 New Penn Motor Express
4 Arnold Logistics
6 Arnold Transportation Services
8 Consolidated Five-Year
Statistical Summary
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
<PAGE>
To Our Shareholders:
Arnold Industries achieved record revenues of $428 million in 1999, an
increase of 6%. Basic earnings per share rose to a record $1.40,
an increase of $.03 compared to 1998. During the past three years, we have
purchased over 2 million shares of Arnold Industries stock in open-market
transactions as part of our share repurchase program.
Although we strongly believe our stock represents an excellent value, your
Board shares the sentiments of many stockholders that it has been
disappointing, if not frustrating, to have the trucking sector, and Arnold
Industries in particular, miss the recent bull market. The shares of
companies like Arnold Industries (dividend-paying, profitable, stable
companies, commonly called "value stocks") have largely been overlooked in
recent years while high revenue growth technology companies have been the
darlings of Wall Street. At the same time, we also recognize that the modest
growth in earnings at Arnold Industries in recent years is reflected in the
current share price. However, as noted below and elsewhere in this report,
there were many positive developments at each of our companies in 1999 that
position the company for improved earnings in the future.
New Penn continued its record of stellar performance with revenues and
operating income increasing 6% and 4%, respectively. The operating ratio was
an outstanding 79.2. New Penn had a strong finish. Fourth quarter revenues
grew 13% as the company was able to capitalize on the demise of a competitor
without sacrificing margins. The outstanding operations team at New Penn
continues to produce a very high quality product while maintaining
efficiencies that position the company among the low-cost producers of
regional LTL transportation. Equally important is New Penn's success in
raising the standard of LTL service in the Northeast. Improvements that
combine even faster service with information technology and the Internet
position the company for continued success.
Arnold Transportation Services successfully addressed several challenges
during the year. The company bounced back from a potentially significant
change in a key source of revenue to end the year with modest growth. The
company increased recruiting efforts to deal with the shortage of drivers.
Rising fuel costs dealt a blow to margins, which remain unsatisfactory.
Unfortunately, rising fuel costs are expected to be a very significant issue
through the first quarter of 2000. Margin improvement and a commitment to
secure dedicated operations are the highest priorities at Arnold
Transportation.
Exciting developments at Arnold Logistics resulted in a 26% increase in
revenues. The growth was primarily in the areas of order fulfillment, reverse
logistics and distribution services. Arnold Logistics is becoming a leader in
e-commerce fulfillment and reverse logistic services. Start-up costs associated
with the growth and e-commerce service developments resulted in flat earnings
for the year. We plan to more than double the revenues at Arnold Logistics in
the next two years. Fully integrated fulfillment services that meet the needs
of e-commerce clients are an important source of future revenues. We are
aggressively pursuing acquisitions in new geographic markets. The future
growth curve we have planned for Arnold Logistics is expected to support a
larger contribution to earnings in the years ahead.
As always, we appreciate the continued support of our shareholders, the
business of our loyal customers and the dedicated efforts of the thousands of
employees at each of our operating units. The new century presents us with
opportunity as well as substantial challenge. Our industry is no longer just
trucking, it is part of the revolution in logistics. We are continuously
refining our service offerings to meet the ever-changing needs of our
customers through the unique and combined expertise of our three divisions.
Sincerely,
/s/ E. H. Arnold
E. H. Arnold
Chairman, President and CEO
March 1, 2000
<PAGE>
NEW PENN MOTOR EXPRESS
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 United States, the Province of Quebec and the
Commonwealth of Puerto Rico. New Penn also provides service to portions of
the Midwest, the Southeastern United States and Ontario, Canada through
partnerships with other high-service regional carriers.
Industry Leading Financials
In 1999, New Penn achieved record revenues of $215.6 million, an increase of
6%, and record operating income of $44.8 million, an increase of 4%.
Operating revenues grew stronger throughout the year, and New Penn finished
the year with an excellent fourth quarter when revenues increased 13% and
operating income increased 5%. For the year 1999, New Penn should once again
lead the industry in operating profit margins through an outstanding operating
ratio of 79.2.
Service Improvements
New Penn has long had a reputation of superior service and a culture of
continuous improvement. 1999 was no exception as the company received several
awards for service quality including being named "LTL Core Carrier of the
Year" by The Home Depot. Several new records for service excellence were
established including on-time service and cargo claims. During the year,
99.82% of shipments were delivered claim-free and the claims ratio was reduced
to .3% indicating only three tenths of 1% of revenues were paid back to
shippers to settle cargo claims.
In response to customers' ever-increasing need for faster transit times, New
Penn improved the service standards in several traffic lanes from second-day
to next-day. These improvements brought the overall performance to 95% of
shipments being delivered next-day. At the same time, the company recognized
that customers also prefer to receive shipments as early in the day as
possible. With that in mind, the company undertook a company-wide service
improvement project. The results have been impressive with the company now
delivering nearly 70% of shipments before noon.
Integrated Information Technology
On-board Computers
New Penn is a leader in the use of information technology to maximize
operational efficiencies. The major initiative during 1999 was the continued
implementation of on-board computers. On-boards are now installed in 75% of
New Penn's tractor fleet.
<PAGE>
By year-end 2000, this technology will be utilized in all but two facilities
where rural and mountainous conditions make the application impractical at
this time. What makes New Penn's on-board computer implementation unique is
its integration with the computerized pickup and delivery dispatch system that
is already in use throughout the New Penn network. On-boards provide improved
communication between the driver and dispatcher.
Internet Applications
In 1999, the company made significant progress in its use of the Internet for
customer applications by integrating its advanced internal information systems
with the World Wide Web to give customers greater visibility of their
shipments. By linking the web site to the dispatch system and on-board
computers, customers get up-to-the-minute delivery status information on their
shipments without calling the company. Through a secure area of the web
site, customers can also create reports of their shipping activity, review
freight charges and request shipping documents.
During the first quarter of 2000 several enhancements to the site were
introduced including customer specific rate quotes and pickup entry. The
pickup entry feature permits customers to enter a request for pickup directly
into the dispatch system eliminating the need for an employee to take the call
and enter the information. The web site address is www.newpenn.com.
Safety, Facilities and Equipment
During 1999, 17 additional drivers surpassed one million miles without a DOT
chargeable accident. Further, three employees achieved two million
accident-free miles. The company is extremely proud of the safety
accomplishments of its employees. A total of 57 drivers now have driven over
1 million accident-free miles.
New Penn continues to use its financial stability to invest for the future.
Newly renovated facilities in the Philadelphia and Boston areas were opened in
1999 to expand capacity and improve efficiency. Six other facilities are at
various stages of land acquisition, construction or renovation. The company
also invested in 95 new tractors and 58 new trailers in 1999 to ensure a
modern, reliable, cost-effective fleet.
The investments made in service improvements, technology, facilities and
equipment in 1999 ensure the company is well-positioned to efficiently meet
customer needs in the future.
<PAGE>
ARNOLD LOGISTICS
Overview
Arnold logistics is a provider of fulfillment and logistic services. With
nearly 800 dedicated employees, over 3.4 million sq. ft. of warehousing space
and a full range of services, Arnold Logistics is well-positioned to meet the
dynamic logistics challenges facing customers today. Facilities are located
in Pennsylvania, Texas and North Carolina. Arnold Logistics provides
award-winning service and was recently recognized by the Quaker Oats Company
and by the Coors Brewing Company for outstanding distribution services in
1999. Services provided include:
Fulfillment - e-commerce and catalog order management, invoicing,
warehousing, small parcel shipping, order and inventory reporting. Arnold
Logistics provides unique fulfillment services for the e-commerce customer
such as same day shipping, peak order volume management and even gift
wrapping. An important component of comprehensive fulfillment service is Call
Center Management which includes Internet order administration, catalog order
management, customer service, credit card processing, integrated managed chat,
reporting and email.
Contract Packaging - custom sortation, automated high-speed shrink-wrapping
and banding, collating, carton assembly, UPC and date coding.
Distribution - integrated warehousing, shipping and transportation services,
including climate controlled facilities and insulated trailers.
Reverse Logistics - comprehensive returns processing from receiving to
warehousing and reshipping plus sorting, inspection and refurbishment.
Financials
Arnold Logistics posted record revenues of $37.0 million in 1999, an increase
of 26%. The growth was primarily in the areas of order fulfillment, reverse
logistics and distribution services at the new facilities in Lancaster, PA.
Operating income was unchanged at $5.5 million reflecting significant start-up
costs associated with the new e-commerce and fulfillment services. Fourth
quarter operating income increased 3% compared to the prior year.
Investing in the Future
The strategy at Arnold Logistics is to utilize the extensive experience gained
during the past 24 years in the traditional services of distribution,
warehousing and contract packaging as a stable platform from which to grow in
the new e-commerce and reverse logistics markets. Growth in all service areas
reduces risk and
<PAGE>
improves the company's flexibility to customize solutions to the needs of each
customer. Unlike many other e-commerce fulfillment companies, Arnold
Logistics provided to its clients high levels of service throughout the
peak-volume fourth quarter holiday shipping period. Arnold Logistics
maintained its commitment to premium e-commerce fulfillment services. Such
premium service is at the heart of the Arnold Logistics strategy to support
dynamic e-commerce growth in the future. Premium service is also the
company's greatest sales tool. Two large fulfillment projects became
operational in the second half of 1999. To support future growth, investments
will continue to be made in information technology, facilities and people.
Information Technology
Recent investments in information technology include automated product sorting
equipment for accuracy and speed in order fulfillment. Call center
management and service systems were enhanced including expansion of
Internet access and managed Internet chat with reporting and Internet email
capabilities. Systems that forward computer reports through the Internet
improve customer communications and reduce operating costs. Development of a
new modular order management and warehouse management system has begun that
will allow future applications to be implemented seamlessly. This system is
being designed to increase flexibility and system capabilities while
minimizing the cost and time required to implement new system features. The
computerized answering system is being enhanced to ensure uninterrupted
service 24 hours per day, seven days per week.
Facilities
During 1999, Arnold logistics began operation of a 562,000 sq. ft.
company-owned warehouse in Lancaster, PA. The company invested over $2
million in equipment for the Lancaster facility including a highly automated
sorter using barcode scanning to process orders. The company also increased
its leased space in Central Pennsylvania by 100,000 sq. ft. and added a
240,000 sq. ft. facility in Dallas, TX in 1999.
People
Project management staff is now being dedicated to assist clients in managing
projects through the start-up phase and expanding their existing operations
with Arnold Logistics. Resources have been doubled in the past year to aid in
the support and development of information systems. Executive staff has been
enhanced to provide the management structure needed. Arnold Logistics has
been a leader in hiring and training people who reflect the diversity of
today's workplace including refugees from Bosnia and Viet Nam.
<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 eleven service centers. Arnold Transportation
Services has a significant presence in the beverage, consumer products and
retail industries.
Financial Results
Arnold Transportation Services achieved record revenues of $175.6 million in
1999, a 2% increase from the previous year. Operating income for the year was
$5.9 million, a decrease of 18%, however, in the fourth quarter operating
income increased 6%. Diesel fuel costs, a key cost component, rose throughout
the year and had a negative impact on operating income.
Market Developments
Arnold Transportation made a significant move away from reliance on
third-party brokerage agreements as a source of revenue in 1999. Although
this had a negative impact on revenue growth in 1999, long-term, this change
positions the company to better control future revenue streams. Direct
contact with key national account customers resulted in partnership
opportunities, improved account penetration and significant growth at those
accounts in 1999. New contracts for dedicated service secured in 1999 will
also be a source of future revenue growth.
Several national account customers recognized Arnold Transportation for
outstanding customer service and on-time delivery including Appleton Paper and
Best Buy. Special recognition was given to the company and several customer
service representatives as The Home Depot named the company "Truckload Carrier
of the Year" at the Import Distribution Center in Savannah, Ga.
An area of strategic focus for Arnold Transportation in 1999 was development
of the Midwest region. Revenues on business to and from the region grew by
over 50%. This growth helped the company reduce its empty miles as a
percentage of all miles. The overall revenue per tractor also improved.
While the company continues to grow in the interregional markets, the average
length of haul in 1999 was 356 miles reflecting the regional roots of the
company.
Driver Recruitment
The shortage and turnover rate of truck drivers continued to be an issue
throughout the industry and at Arnold Transportation in 1999. The company
made progress recruiting drivers in St. Louis to support the
<PAGE>
Midwest market expansion. In June, the company introduced "Super Driver", an
audio cassette series to help keep drivers informed of company developments in
an interesting and entertaining fashion. The company also began utilizing the
World Wide Web as a tool for driver recruitment. Arnold Transportation is
relying more heavily on owner-operators as their numbers increased by 17% in
1999. Part of the growth in owner-operators came from a special program
whereby 59 company drivers purchased and financed tractors through the
company.
Safety, Facilities and Equipment
Another industry-wide issue on which Arnold Transportation is making progress
is safety. The company decreased the frequency of preventable accidents by
13% and reduced the rate of lost-time injuries by 15%.
The company continued to review its network of terminal and maintenance
facilities following the merger of the three former truckload subsidiaries.
The Greensboro, NC terminal was closed in June. In Charlotte, the maintenance
facility was closed and the terminal is scheduled to close in March 2000.
The company reduced the average age of the tractor fleet to 2.1 years. This
represents a reduction of over one third in the past year. The benefits are
in higher service reliability, lower maintenance costs and in driver
recruiting as new units are equipped with the latest in "driver-friendly"
features. Over 330 new tractors were purchased in 1999. With this major
update of the fleet, a significant reduction in capital expenditures is
expected in 2000. The trailer fleet was expanded 5% in 1999 to provide modern
53' trailers for customers. Nearly 85% of the fleet is now comprised of 53'
and 57' high cube trailers. The company increased its use of satellite
tracking units by 33% in 1999 and now all linehaul tractors are equipped with
the technology. Maintenance costs per mile were reduced by 8% compared to the
prior year.
Information Technology Systems
New operations management systems were designed and implemented to monitor
out-of-route mileage, fuel economy and tractor utilization. New Internet
applications were developed for load tendering with key customers and
development of the Arnold Transportation web site
(www.arnoldtransportation.com). Market development efforts were supported
through the implementation of a software package for customer relationship
management to be used by the sales force and customer service representatives.
Improved marketing reports to manage key accounts were also implemented.
Progress was made on many fronts in 1999 to support improved growth of
revenues and earnings at Arnold Transportation.
<PAGE>
<TABLE>
<CAPTION>
ARNOLD INDUSTRIES CONSOLIDATED FIVE-YEAR SUMMARY
(dollars in thousands except per share data)
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Operating Revenues 428,231 403,721 383,165 356,335 330,136
Net Income 34,654 35,116 32,210 25,409 30,501
Net Income Per
Share 1.40 1.37 1.23 .95 1.15
Operating Revenues by Service
Less-than-Truckload 215,609 202,910 203,299 181,871 167,057
Truckload 175,599 171,366 153,712 151,926 144,534
Fulfillment
& Logistics 37,023 29,445 26,154 22,538 18,545
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
as of December 31, 1999 and 1998 (dollars in thousands)
ASSETS 1999 1998
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 16,231 $19,433
Marketable securities 2,105 4,849
Accounts receivable:
Trade (less allowance for doubtful
accounts of $1,471 and $1,184) 49,607 39,555
Officers and employees 204 604
Notes receivable, current 1,358 874
Deferred income taxes 4,258 6,263
Prepaid expenses and supplies 7,464 7,458
Refundable income taxes - 707
Total current assets 81,227 79,743
Property and equipment, at cost:
Land 20,443 17,691
Buildings 108,465 88,206
Revenue and service equipment 224,500 213,524
Other equipment and fixtures 45,287 34,337
Construction in progress 3,106 16,400
401,801 370,158
Accumulated depreciation 157,028 149,459
Total property and equipment 244,773 220,699
Other assets:
Goodwill, net of accumulated
amortization of $2,876 and $2,592 8,018 8,303
Investments in limited partnerships 8,595 9,120
Notes receivable, long-term 1,755 1,091
Cash value of life insurance, net 928 875
Other 447 280
Total other assets 19,743 19,669
$345,743 $320,111
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 24,830 $ 15,864
Accounts payable, trade 10,789 10,352
Estimated liability for claims 4,302 5,079
Salaries and wages 3,809 3,387
Accrued vacation 6,039 5,889
Accrued expenses - other 4,059 4,041
Income taxes payable 1,297 -
Total current liabilities 55,125 44,612
Other long-term liabilities:
Estimated liability for claims 2,646 10,714
Deferred income taxes 37,710 35,307
Notes payable 192 1,310
Other 1,888 1,768
Total other long-term liabilities 42,436 49,099
Commitments and contingencies (Note 11)
Shareholders' equity:
Common stock, par value $1.00;
authorized 100,000,000 shares;
29,942,628 issued in 1999 and 1998 29,942 29,942
Paid-in capital 1,585 658
Retained earnings 256,161 232,418
287,688 263,018
Less treasury stock, at cost -
5,277,302 and 5,123,476 shares in
1999 and 1998, respectively (39,506) (36,618)
Total shareholders' equity 248,182 226,400
$345,743 $320,111
<FN>The accompanying notes are an integral part of the
consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
for the years ended December 31, 1999, 1998 and 1997
(dollars in thousands, except per share data)
1999 1998 1997
<S> <C> <C> <C>
Operating revenues $428,231 $403,721 $383,165
Operating expenses:
Salaries, wages and
related expenses 198,079 190,629 187,439
Supplies and expenses 53,428 52,229 59,387
Operating taxes and licenses 10,683 9,793 9,342
Insurance 11,328 9,101 7,471
Communication and utilities 6,263 5,615 5,247
Purchased transportation 57,856 46,406 29,650
Rental of buildings, revenue
equipment, etc., net 2,032 1,145 1,715
Depreciation and amortization 31,892 30,585 29,133
Miscellaneous 827 2,021 2,865
Total operating expenses 372,388 347,524 332,249
Operating income 55,843 56,197 50,916
Other expense - net, including
interest income of $1,250,
$1,674 and $1,605 (1,000) (355) (27)
Income before income taxes 54,843 55,842 50,889
Income taxes 20,189 20,726 18,679
Net income $ 34,654 $ 35,116 $ 32,210
Per share amounts
Basic $ 1.40 $ 1.37 $ 1.23
Diluted $ 1.39 $ 1.36 $ 1.22
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
for the years ended December 31, 1999, 1998 and 1997
(dollars in thousands, except per share data)
Common Paid-in Retained Treasury
Stock Capital Earnings Stock
<S> <C> <C> <C> <C>
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)
Net income - - 34,654 -
Distribution of treasury
stock due to exercise of
stock options - 927 - 292
Purchase of treasury stock - - - (3,180)
Cash dividends paid
($.44 per share) - - (10,911) -
Balance - December 31, 1999 $ 29,942 $ 1,585 $256,161 $(39,506)
<FN> The accompanying notes are an integral part of the
consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1999, 1998 and 1997
(dollars in thousands)
1999 1998 1997
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 34,654 $ 35,116 $ 32,210
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 32,406 31,099 29,636
Gain on disposal of property
and equipment (1,723) (2,096) (588)
Equity in earnings of limited
partnerships (7) (33) (33)
Provision for deferred taxes 4,408 3,858 1,740
Net loss on investments 1 5 24
Changes in operating assets and
liabilities:
(Increase) decrease in accounts
receivable (9,652) 267 (9,777)
(Increase) in prepaid expenses
and supplies (6) (2,996) (698)
Increase in accounts payable, trade 437 197 823
Increase (decrease) in income taxes
payable/refundable 2,004 (130) (1,034)
(Decrease) increase in estimated
liability for claims (8,845) (4,393) 45
Increase (decrease) in accrued
expenses 590 (128) 2,132
Other, net 120 114 122
Net cash provided by
operating activities 54,387 60,880 54,602
Cash flows from investing activities:
Proceeds from sale of investment
securities 4,376 5,604 19,075
Purchase of investment securities (1,633) (672) (6,967)
Proceeds from disposition of property
and equipment 12,148 8,655 5,649
Purchase of property and equipment (68,412) (54,240) (39,760)
Capital contributions in limited
partnerships (1,073) (1,489) (1,587)
Distributions from limited
partnerships 18 16 46
Increase in cash value of life
insurance (53) (71) (274)
Repayment on loans to employees 1,158 185 -
Other, net (167) 29 (34)
Net cash used in investing
activities (53,638) (41,983) (23,852)
Cash flows from financing activities:
Proceeds from employee stock options
exercised 1,219 388 476
Cash dividends paid (10,911) (11,315) (11,516)
Proceeds from short-term debt 8,934 - -
Principal payments on short-term debt (13) - 156
Purchase of treasury stock (3,180) (15,042) (13,065)
Net cash used in financing
activities (3,951) (25,969) (23,949)
(Decrease) increase in cash
and cash equivalents (3,202) (7,072) 6,801
Cash and cash equivalents at beginning
of year 19,433 26,505 19,704
Cash and cash equivalents at end
of year $ 16,231 $ 19,433 $ 26,505
Supplemental disclosures of cash
flow information:
Cash paid during the year for:
Interest $ 1,315 $ 1,173 $ 1,373
Income taxes $ 14,162 $ 17,029 $ 17,971
<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 warehouse/ logistics services.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Arnold Industries, Inc. and all of its wholly-owned subsidiaries. All
material intercompany transactions and balances have been eliminated.
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, 1999 and 1998, 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,
municipal bonds, and equity securities. 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 1999 and 1998, certain revenue equipment was sold to employees for $2,164
and $2,150 in interest bearing notes with established repayment terms. Land
was also sold in 1999 in return for a $142 mortgage loan. These have been
treated as a non-cash transactions on the 1999 and 1998 consolidated
statements 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. At the end of each
quarter, management assesses whether there have been any significant events or
significant changes in the environment in which the business operates that
would indicate 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. 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.
On March 22, 1997, the Board of Directors authorized management to repurchase
up to 1,000,000 shares of common stock through open market purchases. The
Board of Directors subsequently increased the authorization by 1,000,000
shares on
<PAGE>
February 27, 1998 and December 28, 1998, respectively. During 1999 and 1998,
the Company purchased 263,300 and 1,182,400 shares, respectively, of its
common stock at an aggregate cost of $3,180 and $15,042, respectively.
Options for Common Stock
The Company uses the intrinsic value based method to account for options
granted for the purchase of common stock. No compensation expense is
recognized on the grant date since, at that date, the option price equals the
market price of the underlying common stock. The Company discloses the
pro-forma effect of accounting for stock options under the fair value method.
Earnings Per Share
Basic earnings per share is calculated using the average shares of common
stock outstanding while diluted earnings per share reflects the potential
dilution that could occur if stock options were exercised. The following is a
reconciliation of the average shares of common stock used to compute basic
earnings per share to the shares used to compute diluted earnings per share as
shown on the consolidated statements of income:
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Net Income $ 34,654 $ 35,116 $ 32,210
Basic weighted average
shares outstanding 24,801,592 25,668,457 26,172,232
Dilutive effect of stock
options 200,694 133,352 334,263
Diluted weighted
average shares
outstanding 25,002,286 25,801,809 26,506,495
Basic earnings per
share $1.40 $1.37 $1.23
Diluted earnings per
share $1.39 $1.36 $1.22
</TABLE>
During 1999 and 1998, stock options to purchase 175,000 and 200,000 shares of
common stock at $18.56 per share were outstanding, 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
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 determined that net income is its only component of
comprehensive income.
New Accounting Standards Not Yet Adopted
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (SFAS 133),
with an amended effective date for fiscal years beginning after June 15,
2000. SFAS 133 requires that an entity recognize all derivative instruments
as either assets or liabilities on its 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
material effect on the financial position or results of operations of the
Company.
2. Marketable Securities
The cost and market value of investment securities at December 31, 1999 and
1998 follows:
<TABLE>
<CAPTION>
1999 1998
Market Market
Cost Value Cost Value
<S> <C> <C> <C> <C>
U.S. treasury securities $ 103 $ 103 $ 102 $ 102
Municipal bonds 1,000 1,000 3,730 3,731
Equity securities 1,000 1,000 1,000 1,004
Accrued interest receivable 2 2 12 12
Total $ 2,105 $ 2,105 $ 4,844 $ 4,849
</TABLE>
The net gain (loss) on marketable securities recorded during the years ended
1999, 1998 and 1997 amounted to $(1), $(5) and $(24), respectively.
The debt securities available for sale at December 31, 1999 all mature within
one year of the balance sheet date.
3. Notes Payable
The Company has unsecured working capital lines of credit with maximum
borrowings of $65,000 for 1999 and $31,500 for 1998 of which $23,711 and
$14,790 was outstanding at December 31, 1999 and 1998, respectively.
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 6.60%.
In connection with its investments in low income housing limited partnerships,
the Company is required as of December 31, 1999 to make additional
contributions over the next two years as follows: 2000, $1,189; and 2001,
$200. The additional contributions of $1,389 were discounted to $1,311 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. Leases
During 1999, the Company leased certain property under noncancelable operating
leases. Rental expense under such operating leases was $2,629 in 1999.
Future minimum lease payments under operating leases with noncancelable terms
are:
2000 $ 988
2001 $ 988
2002 $ 1,011
2003 $ 1,068
2004 $ 1,073
After 2004 $ 4,897
5. Stock Option and Stock Purchase Plans
Stock Option Plan
The Company has a 1987 and 1997 stock option plan which provides for the
granting of options to purchase shares of the Company's stock to certain
executives, employees, consultants,
<PAGE>
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
Company 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 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 three
months from the date of grant if the employee is age 55 or older; otherwise
they are exercisable five years from the date of grant. The options expire
no later than ten years after the date of grant. Also, no employee may
participate in the 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, 1999 are summarized below:
<TABLE>
<CAPTION>
Stock Option Plans
Weighted
Average
Fair Value
Weighted of Options
Average Granted
Exercise During
Shares Price the Year
<S> <C> <C> <C>
Balance, outstanding -
December 31, 1996 1,053,734 $ 11.84
Options granted 526,500 $ 18.41 $5.09
Options exercised (76,268) $ 6.24
Options expired (72,600) $ 14.19
Balance, outstanding -
December 31, 1997 1,431,366 $ 14.43
Options granted 642,500 $ 12.21 $3.20
Options exercised (79,366 $ 4.89
Options expired (336,400) $ 18.20
Balance, outstanding -
December 31, 1998 1,658,100 $ 13.27
Options granted 310,950 $ 11.19 $3.67
Options exercised (109,472) $ 11.13
Options expired (63,078) $ 15.19
Balance, outstanding -
December 31, 1999 1,796,500 $ 12.97
Options exercisable -
December 31, 1999 1,006,821 $ 13.79
</TABLE>
The following table summarizes information concerning outstanding and
exercisable options at December 31, 1999.
<TABLE>
<CAPTION>
Options Options
Outstanding Exercisable
Weighted Weighted
Average Average
Number Exercise Number Exercise
Outstanding Price Exercisable Price
<S> <C> <C> <C> <C>
$7.25 82,300 $ 7.25 82,300 $ 7.25
$11.19-$14.75 1,539,200 $12.64 749,521 $13.39
$18.56 175,000 $18.56 175,000 $18.56
1,796,500 1,006,821
</TABLE>
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 canceled
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.
The Company's net income and earnings per share would have been reduced to the
pro forma amounts indicated below if compensation cost for the Company's stock
option plan had been determined based on the fair value at the grant date for
awards in accordance with the provisions of SFAS No. 123.
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
As Pro As Pro As Pro
Reported Forma Reported Forma Reported Forma
<S> <C> <C> <C> <C> <C> <C>
Net
income $34,654 $34,130 $35,116 $34,796 $32,210 $30,917
Basic
earnings
per
share $ 1.40 $ 1.38 $ 1.37 $ 1.36 $ 1.23 $ 1.18
Diluted
earnings
per
share $ 1.39 $ 1.37 $ 1.35 $ 1.35 $ 1.22 $ 1.17
</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 1999, 1998, and 1997; dividend
yield of 3.00%; expected volatility of 34.3%, 29.10% and 27.00%, respectively;
risk-free interest rate of 6.23%, 4.55% and 6.22%, respectively; and expected
life of 6 years.
Stock Purchase Plan
The Company maintains a stock purchase plan which 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.
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.
<PAGE>
6. Income Taxes
Consolidated income tax expense consists of the following:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Currently payable:
Federal $12,860 $13,670 $13,803
State 2,921 3,198 3,136
15,781 16,868 16,939
Deferred:
Federal 3,707 3,096 1,272
State 701 762 468
4,408 3,858 1,740
Total income tax expense $20,189 $20,726 $18,679
</TABLE>
The effective income tax rates of 36.8% in 1999, 37.1% in 1998 and 36.7% in
1997 differ from the federal statutory rates for the following reasons:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Statutory federal income
tax rate 35.0% 35.0% 35.0%
State income taxes, net of
federal income tax benefit 4.3 4.6 4.6
Tax-free investment income
and other (2.5) (2.5) (2.9)
36.8% 37.1% 36.7%
</TABLE>
Deferred tax liabilities (assets) are comprised of the following at
December 31:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Property and equipment, principally
due to differences in depreciation $37,830 $35,262
Limited partnership investments,
principally due to differences
in tax basis 1,672 1,571
Other 704 370
Gross deferred tax liabilities 40,206 37,203
Estimated liability for claims, prin-
cipally due to differences in
timing of recognition of expense (1,555) (3,719)
Vacation liability, principally due to
differences in timing of recognition
of expense (2,145) (2,092)
Allowance for bad debts, principally
due to differences in timing of
recognition of expense (587) (472)
Deferred compensation, principally
due to differences in timing of
recognition of expense (762) (867)
Other (1,705) (1,009)
Gross deferred tax assets (6,754) (8,159)
$33,452 $29,044
</TABLE>
7. Pension and Other Postretirement Benefit
Plans
The Company offers a supplemental defined benefit pension plan for certain key
officers and employees. The following summarizes the obligations,
assumptions, and activity of the defined benefit pension plan as of and for
the years ended December 31:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year $1,768 $1,654
Service cost 62 57
Interest cost 111 104
Amortization of unrecognized
transition asset (6) (6)
Benefits paid (47) (41)
Benefit obligation at end of year $1,888 $1,768
</TABLE>
The supplemental defined benefit pension plan is unfunded. The Company has
recorded a liability for all benefit obligations.
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Discount rate 6.50% 6.75%
Rate of compensation increase 0.00% 0.00%
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Components of net periodic
benefit cost
Service cost $ 62 $ 57 $ 50
Interest cost $111 $104 $102
Amortization of unrecognized
net transition asset $ (6) $ (6) $ (6)
Net periodic benefit cost $167 $155 $146
</TABLE>
In addition to the above defined benefit plan, the Company also has a trusteed
profit sharing plan, a 401(k) plan for employees meeting certain eligibility
requirements and participates in several multi-employer pension plans. The
Company contributed $1,569, $1,443 and $1,452 to the profit sharing plan,
$329, $568 and $591 to the 401(k) plan and $10,781, $9,841 and $9,449 to the
multi-employer pension plans for 1999, 1998, and 1997, respectively.
8. Segment Information
The Company reports information about its operating segments according to the
"management approach." The management approach is based on the way management
organizes the segments within the enterprise for making operating decisions
and assessing performance. The Company's reportable segments are identified
based on differences in products and services.
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 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 measurement basis of segment profit or loss is operating income. No
single customer represented 10% or more of the Company's sales during 1999,
1998, and 1997.
The following tables present information about reported segments for the years
ending December 31:
<PAGE>
<TABLE>
<CAPTION>
Ware-
Less-than- housing/ Segment
truckload Truckload Logistics Total
<S> <C> <C> <C> <C>
1999
Operating
revenues $215,609 $175,599 $ 37,023 $428,231
Operating income $ 44,775 $ 5,851 $ 5,460 $ 56,086
Total assets $161,511 $159,005 $ 50,541 $371,057
Depreciation and
amortization $ 10,969 $ 17,822 $ 2,678 $ 31,469
Purchase of
property and
equipment $ 14,327 $ 37,712 $ 15,869 $ 67,908
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
Property 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
property and
equipment $ 13,111 $ 24,971 $ 1,678 $ 39,760
</TABLE>
A reconciliation of total segment operating revenues to total consolidated
operating revenues, total segment operating income to consolidated net income
before taxes for the years ended December 31, 1999, 1998 and 1997 and total
segment assets to total consolidated assets for the years ended December 31,
1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Total segment operating
revenues $428,231 $403,721 $383,165
Consolidated operating
revenues $428,231 $403,721 $383,165
Total segment operating
income $ 56,086 $ 55,743 $ 51,166
Unallocated corporate
operating income (loss) (242) 454 (250)
Interest income 1,250 1,673 1,605
Interest expense (1,353) (1,173) (1,380)
Other (898) (855) (252)
Consolidated net income
before taxes $ 54,843 $ 55,842 $ 50,889
Total segment assets $371,057 $333,833 $308,779
Unallocated corporate assets 7,206 11,380 14,765
Elimination of intercompany
balances (32,520) (25,102) (6,504)
Consolidated assets $345,743 $320,111 $317,040
</TABLE>
9. Fair Value of Financial Instruments
Financial instruments include cash and cash equivalents, marketable
securities, investments in limited partnerships and notes payable. At
December 31, 1999 and 1998, 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.
10. Transactions With Affiliates
Accounting and legal fees totaling approximately $877, $778 and $903 in 1999,
1998 and 1997, respectively, were paid or accrued to firms in which certain
directors have financial interests.
11. Commitments and Contingencies
By agreement with its insurance carriers, the Company assumed liability for
worker's compensation, property damage and public liability claims for claim
years ending after June 30, 1998 up to $25 per occurrence, except for worker's
compensation in New Jersey for the claim year ending June 30, 1999 which was
$250 per occurrence. The liability for claim years ending June 30, 1998,
1997, and 1996 was sold to an outside insurance carrier for approximately
$11,000. The Company's liability for claim years ending June 30, 1995 and
prior is up to $1,000 for the first occurrence and up to $500 for each
subsequent occurrence. The excess liability is assumed by the insurance
carriers up to $50,000. 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, 1999 and 1998, the outstanding
balance of the letters of credit was $4,000.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Arnold Industries, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, shareholders' equity and cash flows,
present fairly, in all material respects, the financial position of Arnold
Industries, Inc. and its subsidiaries (the Company) at December 31, 1999 and
1998 and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the 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.
PRICEWATERHOUSECOOPERS LLP
/s/
One South Market Square
Harrisburg, Pennsylvania
March 3, 2000
<PAGE>
<TABLE>
<CAPTION>
QUARTERLY PERFORMANCE
(dollars in thousands, except per share data)
Operating Operating Net
Revenues Income Income
QUARTER 1999 1998 1999 1998 1999 1998
<S> <C> <C> <C> <C> <C> <C>
First $100,306 $ 96,002 $13,099 $11,532 $ 8,193 $7,226
Second 105,193 102,264 14,544 14,155 9,011 8,888
Third 109,776 102,228 12,067 14,945 7,621 9,377
Fourth 112,956 103,227 16,133 15,565 9,829 9,625
$428,231 $403,721 $55,843 $56,197 $34,654 $35,116
</TABLE>
<TABLE>
<CAPTION>
Net Income Net Income Dividends
Per Share-Basic Per Share-Diluted Per Share
QUARTER 1999 1998 1999 1998 1999 1998
<S> <C> <C> <C> <C> <C> <C>
First $ .33 $ .28 $ .33 $ .28 $ .11 $ .11
Second .36 .34 .36 .34 .11 .11
Third .31 .37 .30 .36 .11 .11
Fourth .40 .38 .40 .38 .11 .11
$1.40 $1.37 $1.39 $1.36 $ .44 $ .44
</TABLE>
<TABLE>
<CAPTION>
PRICE RANGE COMMON STOCK
HIGH LOW HIGH LOW
QUARTER 1999 1998
<S> <C> <C> <C> <C>
First 16 3/4 13 18 1/8 15 1/4
Second 16 15/16 13 3/4 17 3/4 14 3/8
Third 16 7/16 12 3/8 15 1/2 11 5/8
Fourth 14 27/64 8 16 11/16 12
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Arnold Industries' 1999 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
fulfillment and logistic 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 1998, these three companies were merged into one company.
The results of operations are set forth below for the three separate segments.
<TABLE>
<CAPTION>
Operating Revenues
(dollars in millions) Total LTL
Amount % Increase Amount % Increase
<S> <C> <C> <C> <C>
1999 428.2 6 215.6 6
1998 403.7 5 202.9 -
1997 383.2 8 203.3 12
</TABLE>
<TABLE>
<CAPTION>
Fulfillment/
Truckload Logistics
Amount % Increase Amount % Increase
<S> <C> <C> <C> <C>
1999 175.6 2 37.0 26
1998 171.4 12 29.4 12
1997 153.7 1 26.2 16
</TABLE>
<TABLE>
<CAPTION>
Operating
Income 1999 1998 1997
Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C>
New Penn 44.8 80 43.1 77 44.2 86
ATS 5.9 10 7.1 13 2.1 4
Arnold Logistics 5.5 10 5.5 10 4.9 10
Unallocated Income
(Loss) (.4) - .5 - (.3) -
TOTAL 55.8 100% 56.2 100% 50.9 100%
</TABLE>
The percentage of revenue for the last three years is set forth below:
<TABLE>
<CAPTION>
1999 1998 1997
Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C>
New Penn $215.6 50 $202.9 50 $203.3 53
ATS 175.6 41 171.4 43 153.7 40
Arnold Logistics 37.0 9 29.4 7 26.2 7
TOTAL 428.2 100% $403.7 100% $383.2 100%
</TABLE>
The revenue at New Penn increased 6% for the year 1999 compared to 1998.
Tonnage increased 2% for 1999 to 1,075,455 compared to 1,050,685 for 1998 and
1,081,334 for 1997. This compares to flat revenues for the year 1998 compared
to 1997 and an increase of 12% for 1997. ATS revenues increased by 2% in 1999
compared to revenue increases of 12% in 1998 and 1% in 1997. In August 1999,
New Penn instituted a fuel surcharge to offset rising fuel costs.
The Arnold Logistics' revenue increased by 26% for 1999 as a result of
completion of a new 562,000 square foot warehouse which began operations in
the middle of the year 1999. This compares to revenue increases of 12% and 16%
for 1998 and 1997, 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
1999 1998 1997 1999 1998 1997
<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 expense 58.6 58.2 57.3 31.1 33.3 37.4
Supplies and
expenses 8.6 8.7 9.2 16.0 18.9 25.3
Operating taxes and
licenses 2.8 2.8 2.9 2.2 2.0 1.9
Insurance 1.8 1.5 1.5 4.1 3.5 2.7
Communication and
utilities 1.0 1.1 1.1 1.6 1.5 1.4
Purchased
transportation 1.2 1.2 1.1 31.5 25.7 17.9
Rental of buildings,
revenue equipment,
etc., net (0.2) (0.4) (0.2) 0.3 0.3 0.3
Depreciation and
amortization 5.2 4.9 4.7 10.2 10.8 11.5
(Gain) on sale of
equipment (0.2) (0.3) (0.1) (0.7) (0.9) (0.1)
Miscellaneous 0.4 1.1 0.8 0.4 0.7 .4
Total Operating
Expenses 79.2 78.8 78.3 96.7 95.8 98.7
Operating Income 20.8% 21.2% 21.7% 3.3% 4.2% 1.3%
</TABLE>
<TABLE>
<CAPTION>
ARNOLD LOGISTICS
1999 1998 1997
<S> <C> <C> <C>
Operating Revenues 100.0% 100.0% 100.0%
Operating Expenses -
Salaries, wages and related
expenses 54.6 52.3 51.6
Other operating expenses 21.3 17.2 18.0
Depreciation and amortization 7.4 7.5 7.7
Miscellaneous 1.9 4.3 4.0
Total Operating Expenses 85.2 81.3 81.3
Operating Income 14.8% 18.7% 18.7%
</TABLE>
The operating expenses of New Penn increased to 79.2% for 1999 and 78.8% for
1998, compared to 78.3% for 1997. Salaries, wages and related expenses
increased to 58.6% for 1999 from 58.2% in 1998. This compared to an increase
for 1998 to 58.2% from 57.3% in 1997. Supplies and expenses continue to
decrease despite increases in fuel costs as a result of continuous increases
in operating efficiencies. Insurance expense increased to 1.8% for 1999
compared to 1.5% for both 1998 and 1997. Miscellaneous expenses decreased to
.4% compared to 1.1% and .8% for 1998 and 1997, respectively. Miscellaneous
expenses were higher in 1998 because of the costs incurred in completing the
Company's program to correct and/or replace software for Year 2000 compliance.
<PAGE>
The total operating expenses of ATS increased to 96.7% for 1999. This
compared to 95.8% and 98.7% for 1998 and 1997, respectively. The years 1998
and 1997 were affected negatively by the merger of the three truckload
companies. Beginning in the second half of 1998, ATS began to see a
turnaround of their operation with increased revenue, higher revenue per mile,
improved asset utilization and a reduction in empty miles. However, this
trend did not continue throughout the year 1999 as substantially higher fuel
prices began to negatively impact the operating results.
The salaries, wages and related expenses of ATS decreased to 31.1% in 1999
compared to 33.3% in 1998 and 37.4% in 1997. Likewise, the use of increased
owner-operators reduced supplies and expenses to 16.0% in 1999 compared to
18.9% for 1998 and 25.3% for 1997. Insurance expense increased in 1999 to
4.1% which compared to 3.5% for 1998, due to increased claims. This compared
to 2.7% for the year 1997. Purchased transportation expense increased to
31.5% for 1999 compared to 25.7% in 1998 and 17.9% in 1997, due to the
substantial number of additional owner-operators.
The Arnold Logistics operating expenses were 85.2% for 1999 compared to 81.3%
for both 1998 and 1997. The salaries, wages and related expenses were 54.6%,
52.3% and 51.6% for 1999, 1998 and 1997, 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 1999 decreased $.4 million or .6% from
1998 compared to an increase of $5.3 million, or 10% over 1997. New Penn's
operating income increased $1.7 million compared to 1998, whereas 1998
operating income decreased $1.1 million compared to 1997. 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. In July of 1999, a major competitor of New Penn went out of
business which had a positive effect on New Penn's revenues for the balance of
the year.
The operating income of ATS for 1999 decreased $1.3 million, or 18% compared
to 1998. This compares to an increase of $5.0 million, or 244% for 1998
compared to 1997. Changes in the relationship with a key agent had a
significant impact on revenue and the mix of business. Poor equipment
utilization in linehaul operations and the continuing shortage of qualified
drivers also had a negative impact on operating income.
Arnold Logistics' operating income for 1999 was basically flat compared to
1998. This compared to an increase of $.6 million or 13% for 1998 compared to
1997. Startup costs associated with new e-commerce and fulfillment services
negatively impacted operating income at Arnold Logistics in 1999.
Other net non-operating expenses consist primarily of interest income, other
investment income and interest expense. Interest income decreased $.4 million
for 1999 over 1998 primarily due to a reduction in investment securities.
Interest income for 1998 increased $.1 million over 1997 due to additional
investment securities. Interest expense for 1999 was $1.4 million compared to
$1.2 million and $1.4 million for 1998 and 1997, respectively. This increase
in 1999 was due to an increase in short-term borrowings.
The effective income tax rates for 1999, 1998 and 1997 were 36.8%, 37.1% and
36.7%, respectively.
Net income for 1999 decreased to $34.7 million compared to $35.1 million for
1998 and $32.2 million for 1997. Basic net income per share in 1999 was $1.40
compared to $1.37 in 1998 and $1.23 in 1997. Diluted net income per share was
$1.39 in 1999 compared to $1.36 in 1998 and $1.22 in 1997.
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. On December 28, 1998, the Company
authorized the purchase of an additional one million shares. In 1999, the
Company acquired 263,300 shares at a total cost of $3.2 million.
The total capital expenditures for real estate and equipment (net of
dispositions) amounted to $56.3 million for 1999, compared to $45.6 million
for 1998 and $34.1 million for 1997. The Company is projecting the purchase
of real estate and equipment in 2000 of approximately $40 million.
Liquidity and Capital Resources
Cash, cash equivalents, and marketable securities totaled $18 million at the
end of 1999, compared to $24 million and $36 million at December 31, 1998 and
1997, respectively. The decrease for 1999 and 1998 was mainly attributable to
increased capital expenditures. Working capital amounted to $26 million, $35
million and $46 million at the end of 1999, 1998 and 1997, respectively. Net
cash provided by operating activities was $54 million in 1999, $61 million in
1998 and $55 million in 1997.
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 1999 and 1998, 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.
<PAGE>
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.
Current Trends
In September 1999, 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 13% for the fourth quarter of 1999.
This trend continues into the year 2000 as New Penn's revenues are ahead of
the year 1999's first quarter. The revenues at ATS for the fourth quarter of
1999 were slightly ahead of the fourth quarter of 1998. However, the revenues
for the beginning of the year 2000 are basically flat.
Arnold Logistics completed a 562,000 S.F. warehouse in mid-1999, which was
occupied by a major customer during the latter part of the year. This
substantially increased the revenue for Arnold Logistics in 1999, and will
favorably impact the revenues for the year 2000. 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 in order to increase profitable
growth in the future.
Year 2000 Compliance
The Company's program to correct and/or replace internally produced software
is 100% complete. All of the Company's major business units, including New
Penn Motor Express, Arnold Transportation Services and Arnold Logistics,
completed their internal programs 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.
The Company continues 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 has incurred expense of $125,000 to
correct and/or replace software acquired from third parties. The Company also
monitors the status of significant customers upon whose continued business the
Company relies for revenues. These monitoring efforts had revealed certain
areas of concern with respect to Y2K compliance by the Company's vendors,
suppliers and customers. However, to date, the Company has had no significant
problems with its vendors, suppliers or customers.
<PAGE>
<TABLE>
<CAPTION>
eleven year summary<FN1>
(dollars in thousands, except per share data)
Fiscal Year 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income
Operating revenues 428,231 403,721 383,165 356,335 330,136 302,390 272,697 233,620 196,202 188,830 167,589
Operating expenses
Depreciation and amortization 31,892 30,585 29,133 27,756 25,348 21,120 17,811 14,222 11,500 10,527 11,021
Operating taxes and licenses 10,683 9,793 9,342 9,381 9,297 8,924 7,908 6,780 5,887 4,836 4,537
Other 329,813 307,146 293,774 278,856 246,854 222,824 200,106 172,304 142,080 137,027 123,121
Operating income 55,843 56,197 50,916 40,342 48,637 49,522 46,872 40,314 36,735 36,440 28,910
Non-operating income (expense)
Interest income (expense), net (103) 500 225 (200) (711) 35 355 246 195 (1,123) (1,180)
Other (897) (855) (252) (690) (25) (429) 1,326 (71) 10 (449) 884
Income before income taxes,
extraordinary loss, and
cumulative effect of change
in accounting principle 54,843 55,842 50,889 39,452 47,901 49,128 48,553 40,489 36,940 34,868 28,614
Income taxes 20,189 20,726 18,679 14,043 17,400 18,384 18,651 14,660 13,512 12,452 10,939
Income before extraordinary loss
and cumulative effect of change
in accounting principle 34,654 35,116 32,210 25,409 30,501 30,744 29,902 25,829 23,428 22,416 17,675
Extraordinary loss, net of
tax benefit<FN5> - - - - - 389 - - - - -
Cumulative effect of change
in accounting for income
taxes<FN6> - - - - - - - - - - 1,322
Net income 34,654 35,116 32,210 25,409 30,501 30,355 29,902 25,829 23,428 22,416 18,997
Per Share Data<FN2>
Income before extraordinary
loss and cumulative effect of
change in accounting
principle - Basic 1.40 1.37 1.23 .95 1.15 1.16 1.13 .97 .88 .84 .67
- Diluted 1.39 1.36 1.22 .94 1.13 1.14 1.11 .96 .88 .84 .67
Net income - Basic 1.40 1.37 1.23 .95 1.15 1.14 1.13 .97 .88 .84 .71
- Diluted 1.39 1.36 1.22 .94 1.13 1.12 1.11 .96 .88 .84 .72
Cash dividends declared .44 .44 .44 .44 .44 .41 .35 .32 .29 .25 .22
Book value 10.07 9.12 8.38 7.84 7.33 6.63 5.90 5.12 4.46 3.86 3.31
Financial Position - Year End
Cash, temporary investments
and marketable securities<FN3> 18,336 24,282 36,291 41,621 14,273 41,643 38,285 45,186 57,558 37,184 26,826
Working capital<FN4> 26,102 35,131 45,921 39,909 16,219 24,839 24,093 29,856 55,664 30,877 24,049
Property and equipment-net 244,743 220,699 205,562 199,614 199,822 169,603 144,148 110,674 88,250 91,393 83,540
Total assets 345,743 320,111 317,040 303,112 276,877 260,279 228,361 197,203 170,668 159,973 136,313
Long-term debt 192 1,310 2,383 3,874 5,049 - - 476 17,603 19,479 19,749
Shareholders' equity 248,182 226,400 217,253 209,147 195,367 176,458 156,867 136,015 118,502 102,362 87,681
Other Data
Percentage return on
average stockholders'
equity 14.6 15.8 15.1 12.6 16.4 18.2 20.4 20.3 21.2 23.6 23.7
Net cash provided by
operating activities 54,387 60,880 54,602 67,000 55,075 60,524 51,299 34,518 35,898 36,639 29,471
<FN>
<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 and the two-for-one stock split in 1991
<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
</FN>
</TABLE>
<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 John B. Warden III
Director CFO,Treasurer and Director Director
President and CEO - President - Walborn Shambach President - Warden
New Penn Motor Express, Associates Asphalt Company
Inc. Harrisburg, PA Harrisburg, PA
SHAREHOLDER INFORMATION
Counsel
Keefer, Wood, Allen and 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 1,442 record-holders of the
Company's common stock as of February 29, 2000. The number of beneficial
owners is considerably greater.
Annual Meeting of Shareholders
The Arnold Industries 2000 Annual Meeting of Shareholders will be held at
10:00 a.m., May 3, 2000 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 online 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
NEW PENN MOTOR EXPRESS, INC.
James E. Devlin, VP, Sales
Morris C. Galante, VP, Loss Prevention
Steven D. Gast, VP, Corporate Planning
Steven J. Ginter, VP, Marketing
Michael J. LaPierre, VP, Sales, Northern Division
Kenneth F. Leedy, President and CEO
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 and COO
Frank Santanella, VP, Eastern Division
Daniel W. Schmidt, VP, Labor Relations
Charles A. Zaccaria, VP, Northern Division
ARNOLD LOGISTICS
Robert J. Buffington, Director, Transportation
Edmund J. Dudginski, Director, Packaging Operations
Thomas P. Ebur, Director, Warehousing Operations
Douglas B. Enck, President
Donald L. Sunderland, Jr., VP, Operations
ARNOLD TRANSPORTATION SERVICES, INC.
Kurt E. Antkiewicz, VP, Sales & Marketing
David T. Ashley, VP, Pricing Services
John R. Blessinger, VP, Linehaul Operations
Robert L. Brekke, VP, Sales, Eastern Division
Michael J. Gregerson, VP, Safety/Fleets
Robert M. Klein, VP, Sales, Western Division
Kurt E. Morgan, VP, Terminals
David A. Sempeles, VP, Finance
Michael S. Walters, President and CEO
<PAGE>
(Back Cover)
Company Logo
Arnold Industries, Inc.
P.O. Box 210
Lebanon, PA 17042
(717) 273-9058
www.aind.com
copyright 2000 Arnold Industries, Inc.
<PAGE>
APPENDIX TO ARNOLD INDUSTRIES, INC.
1999 ANNUAL REPORT
DESCRIBING GRAPHIC AND IMAGE MATERIAL
Front cover -
Picture of New Penn tractor and trailer on interstate
highway.
Picture of Arnold Transportation Services tractor and
trailer on highway.
Picture of warehouse employees standing in front of loaded
skids.
Company logo
Inside front cover -
Line graph representing Operating Revenues (in millions) for
1990 ($189); 1991 ($196); 1992 ($234); 1993 ($273); 1994
($302); 1995 ($330); 1996 ($356); 1997 ($383); 1998 ($404);
and 1999 ($428).
Page 1 - President's Letter to Stockholders includes a picture of
E.H. Arnold, Company President, standing near e-commerce
sortation system.
Pages 2 and 3 - Description of New Penn includes the following
material:
Picture of New Penn tractor and trailer on highway.
Picture of New Penn driver using his on-board computer with
the caption, "On-board computers improve efficiency and
customer service."
Picture of person facing computer monitor with the caption,
"An interactive web site provides customers instant access
to shipment information."
Picture of dispatcher using key pad and computer monitor
with the caption, "The pickup and delivery dispatch process
is 100% automated."
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.
Line graph representing the number of tractors and
trucks owned by New Penn in 1997 (727); 1998 (728) and
1999 (795).
Line graph representing the number of trailers owned by New
Penn in 1997 (1,447); 1998 (1,469) and 1999 (1,525).
Line graph representing the number of shipments (in
thousands) transported by New Penn in 1997 (1,932); 1998
(1,920) and 1999 (2,015).
Line graph representing the weight of freight (in millions
of pounds) transported by New Penn in 1997 (2,163); 1998
(2,101) and 1999 (2,151).
Line graph representing New Penn revenue (dollars in
millions) for years 1995 ($167.1); 1996 ($181.9);
1997 ($203.3); 1998 ($202.9) and 1999 ($215.6).
Line graph representing New Penn operating income (dollars
in millions) for years 1995 ($33.6); 1996 ($32.7); 1997
($44.2) 1998 ($43.1) and 1999 ($44.8).
New Penn logo.
Pages 4 and 5 - Description of Arnold Logistics includes the
following materials:
Picture of warehouse employees manning e-commerce sortation
system.
Picture of computer terminals with the caption, "A state-
of-the-art call center supports e-commerce fulfillment
operations."
Picture of warehouse employees holding customer products
with the caption, "Returns processing is a growing business
segment."
Line graph representing Arnold Logistics employees for 1997
(433); 1998 (536) and 1999 (767).
Line graph representing warehouse space of Arnold Logistics
(in millions of square feet) for 1997 (2.5); 1998 (2.5) and
1999 (3.4).
Line graph representing revenue of Arnold Logistics (dollars
in millions) for years 1995 ($18.5); 1996 ($22.5); 1997
($26.2); 1998 ($29.4) and 1999 ($37.0).
Line graph representing operating income of Arnold Logistics
(dollars in millions) for years 1995 ($3.3); 1996 ($3.9);
1997 ($4.9); 1998 ($5.5) and 1999 ($5.5).
Arnold Logistics logo.
Pages 6 and 7 - Description of Arnold Transportation Services
includes the following material:
Picture of Arnold Transportation tractor and trailer on
a suspension bridge.
Picture of Arnold Transportation tractor and trailer on an
interstate highway interchange with the caption, "All
linehaul tractors are equipped with satellite tracking
devices."
Picture of two Arnold Transportation tractors and trailers
on an interstate highway with the caption, "The average age
of the tractor fleet is 2.1 years."
Map of Eastern and Middle United States with dots to
indicate Arnold Transportation's facility locations.
Line graph representing the number of owner-operators of
Arnold Transportation for years 1997 (371); 1998 (599) and
1999 (703).
Line graph representing the number of tractors owned by
Arnold Transportation in 1997 (1,012); 1998 (894) and
1999 (874).
Line graph representing the number of trailers owned by
Arnold Transportation in 1997 (4,355); 1998 (4,172) and 1999
(4,381).
Line graph representing revenue of Arnold Transportation
Services (dollars in millions) for years 1995 ($144.5);
1996 ($151.9); 1997 ($153.7); 1998 ($171.4) and 1999
($175.6).
Line graph representing operating income of Arnold
Transportation Services (dollars in millions) for years
1995 ($11.6); 1996 ($3.6); 1997 ($2.1); 1998 ($7.1) and
1999 ($5.9).
Arnold Transportation Services logo.
Page 8 - Consolidated Five-Year Statistical Summary: the
information on this page of the Annual Report is presented in
line-graph format, which is fully set forth above in table
format.
Back cover - Logo of Arnold Industries, Inc. and Company address,
telephone number and web site.
Subsidiaries of the Registrant
On December 31, 1999, 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 hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-41454), and the Registration Statement on
Form S-8 (No. 33-61005) of Arnold Industries, Inc. of our report dated
March 3, 2000 relating to the consolidated financial statements, which
appears in the Annual Report to Shareholders, which is incorporated in this
Annual Report on Form 10-K. We also consent to the incorporation by
reference of our report dated March 3, 2000 relating to the financial
statement schedule, which appears in this Form 10-K.
/s/
PricewaterhouseCoopers LLP
One South Market Square
Harrisburg, Pennsylvania
March 30, 2000
<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, 1999, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 16,231,274
<SECURITIES> 2,104,634
<RECEIVABLES> 51,078,651
<ALLOWANCES> 1,470,953
<INVENTORY> 0
<CURRENT-ASSETS> 81,227,080
<PP&E> 401,801,207
<DEPRECIATION> 157,027,805
<TOTAL-ASSETS> 345,742,993
<CURRENT-LIABILITIES> 55,125,292
<BONDS> 0
0
0
<COMMON> 29,942,628
<OTHER-SE> 218,239,010
<TOTAL-LIABILITY-AND-EQUITY> 345,742,993
<SALES> 0
<TOTAL-REVENUES> 428,231,234
<CGS> 0
<TOTAL-COSTS> 372,387,017
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 454,747
<INTEREST-EXPENSE> 1,352,834
<INCOME-PRETAX> 54,843,868
<INCOME-TAX> 20,189,493
<INCOME-CONTINUING> 34,654,375
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,654,375
<EPS-BASIC> 1.40
<EPS-DILUTED> 1.39
</TABLE>
