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.
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
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
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.
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.
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.
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
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>
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
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
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